Book description
Management of Banking and Financial Services focuses on the basic concepts of banking and financial services, and how these concepts are applied in the global banking environment as well as in India. In addition to presenting the big picture of the banking and financial services industry, the book also provides useful tips on the trade-off between risk and return. The book examines all of the key aspects of the banking and financial services industry, highlighting both global and Indian applications; it includes three new chapters to address contemporary issues, and provides revised and updated material in all the other chapters; explains concepts through case studies on organisations such as Barclays Bank, Corporation Bank, South Indian Bank, and the State Bank of India. It also includes pedagogical features such as chapter objectives, chapter-end summaries, chapter-end questions, solved problems, illustrations, additional topics for further research, and boxes that present examples and cases.
Table of contents
- Cover
- Title Page
- Contents
- About the Authors
- Foreword
- Preface to the Second Edition
- Preface
-
01 - Managing Banking and Financial Services—Current Issues and Future Challenges
- SECTION I THE SETTING
- SECTION II THE GLOBAL FINANCIAL SYSTEM—CURRENT ISSUES
- The Causes of the Crisis
- Macro Economic and Financial Stability—Understanding the Linkages
- The Role of ‘Trust’ in Financial Stability
- The Role of Regulation in Ensuring Financial Stability
- The Objectives of Financial Regulation
- Financial Stability—The Overarching Agenda for the Future
- SECTION III THE INDIAN FINANCIAL SYSTEM—AN OVERVIEW
- Financial Stability in India
- SECTION IV THE INDIAN BANKING SYSTEM—AN OVERVIEW
- The Bank Market Structure in India
- Who Owns the Commercial Banks in India?
- Evolution of Indian Banking
- ANNEXURE I: BANKING SECTOR REFORMS
- ANNEXURE II: COMMITTEE ON FINANCIAL SECTOR REFORMS—2009: MAIN PROPOSALS OF THE RAGHURAM RAJAN COMMITTEE
- ANNEXURE III: SELECT MAJOR POLICY AND LEGAL REFORMS SINCE 1991–9221
-
02 - Monetary Policy—Implications for Bank Management
- SECTION I BASIC CONCEPTS
- A Macroeconomic View
- Central Bank Tools to Regulate Money Supply
- The Impact of OMOs on Other Tools of Monetary Policy
- Central Bank Signaling Through the ‘Policy Rate’
- Popularity of the ‘Repo’ Rate as the Policy Rate
- The Monetary Ratios
- Other Factors that Impact Monetary Base and Bank Reserves
- SECTION II APPLICATION OF THE MONETARY POLICY TOOLS IN INDIA
- The Monetary Base in India
- Measuring Money Supply in India
- Operation of Reserve Requirements in India
- Net Demand and Time Liabilities
- Open Market Operations in India
- Repo Market Instruments Outside the LAF
- SECTION III MONETARY POLICY TOOLS IN SELECT COUNTRIES
- The United States of America
- Canada
- The Eurosystem
- Other Developed and Developing Countries
- ANNEXURE I: COMPUTATION OF THE NDTL FOR THE BANKING SYSTEM IN INDIA
-
03 - Banks’ Financial Statements
- SECTION I BASIC CONCEPTS
- Bank Liabilities
- Bank Assets
- Contingent Liabilities
- The Income Statement
- SECTION II FINANCIAL STATEMENTS OF BANKS OPERATING IN INDIA
- Bank Liabilities
- Bank Assets
- Income Statement of Indian Banks
- Other Disclosures to be Made by Banks in India
- SECTION III ANALYZING BANKS’ FINANCIAL STATEMENTS
- ANNEXURE I: CAMELS RATINGS
- ANNEXURE II: KEY PERFORMANCE INDICATORS (KPI)FOR BANKS
- ANNEXURE III: SOME ALTERNATIVE MODELS FOR BANK FINANCIAL STATEMENT ANALYSIS
- ANNEXURE IV: GROWTH OF NON-INTEREST INCOME IN INDIA
- ANNEXURE V: CHANGES IN INTERNATIONAL ACCOUNTING STANDARDS AND CODE OF GOOD PRACTICES ON TRANSPARENCY IN MONETARY AND FINANCIAL POLICIES—THE INTERNATIONAL MONETARY FUND
-
04 - Sources of Bank Funds
- SECTION I BASIC CONCEPTS
- SECTION II BANK LIABILITIES—DEPOSITS
- Protecting the Depositor—Deposit Insurance
- Deposit Insurance in India
- SECTION III PRICING DEPOSIT SERVICES
- The Need to Price with Precision
- Some Commonly Used Approaches to Deposit Pricing
- Marginal Cost of Funds Approach
- New Cost of Funds Analysis
- Deposits and Interest Rate Risk
- SECTION IV BANK LIABILITIES—NON-DEPOSIT SOURCES
- The Funding Gap
- The Indian Scenario
- SECTION V BANK DEPOSITS IN INDIA—SOME IMPORTANT LEGAL ASPECTS
- Banking’ Defined
- Who is a Customer?
- Who is Eligible to be a Customer?
- General Guidelines for Opening Deposit Accounts
- Termination of Banker–Customer Relationship
- Types of Deposit Accounts
- SECTION VI DESIGN OF DEPOSIT SCHEMES—SOME ILLUSTRATIONS
- Recurring Deposit Scheme (RD)
- Reinvestment Deposit Scheme
- Fixed Deposit Scheme
- Cash Certificates
- ANNEXURE I: SOME IMPORTANT NON-DEPOSIT FUNDING SOURCES FOR BANKS IN INDIA AND THE USA
- ANNEXURE II: SOME IMPORTANT LEGAL PROVISIONS RELEVANT FOR BANKERS
- ANNEXURE III: A SUMMARY OF IMPORTANT LEGAL ASPECTS OF BANK DEPOSITS IN INDIA
- ANNEXURE IV: ANTI-MONEY LAUNDERING AND KNOW YOUR CUSTOMER GUIDELINES—INTERNATIONAL
- Best Practices and Guidelines for Indian Banks
-
05 - Uses of Bank Funds—The Lending Function
- SECTION I BASIC CONCEPTS
- Introduction
- Banks’ Role as Financial Intermediaries
- Gains from Lending
- Who Needs Credit?
- Features of Bank Credit
- Types of Lending
- SECTION II THE CREDIT PROCESS
- Constituents of the Credit Process
- SECTION III FINANCIAL APPRAISAL FOR THE CREDIT DECISION
- Financial Ratio Analysis
- Common Size Ratio Comparisons
- Cash Flow Analysis
- SECTION IV DIFFERENT TYPES OF LOANS AND THEIR FEATURES
- Loans for Working Capital
- Loans for Capital Expenditure and Industrial Credit
- Loan Syndication
- Loans for Agriculture
- Loans for Infrastructure—Project Finance
- Loans to Consumers or Retail Lending
- Non-Fund Based Credit
- SECTION V LOAN PRICING AND CUSTOMER PROFITABILITY ANALYSIS
- Step 1: Arrive at Cost of Funds
- Step 2: Determine Servicing Costs for the Customer
- Step 3: Assess Default Risk and Enforceability of Securities
- Step 4: Fixing the Profit Margin
- Some More Models of Loan Pricing
- ANNEXURE I: RISK CLASSIFICATION CRITERIA AND THE ROLE OF CREDIT RATING
- ANNEXURE II: CREDIT APPRAISAL—SOME COMMONLY USED FINANCIAL RATIOS
- ANNEXURE III: INCOME STATEMENT-BASED CASH FLOW ANALYSIS
-
06 - Banks in India—Credit Delivery and Legal Aspects of Lending
- SECTION I MODES OF CREDIT DELIVERY
- Cash Credit
- Loan System for Delivery of Bank Credit—The Working Capital Demand Loan
- Overdrafts
- Bills Finance
- Pricing of Loans
- SECTION II LEGAL ASPECTS OF LENDING
- What are Unsecured Loans?
- What are Secured Loans?
- What is a ‘Security’?
- ANNEXURE I: TYPES OF BORROWERS AND MODES OF LENDING
- ANNEXURE II: RECLASSIFICATION OF BORROWERS' FINANCIAL STATEMENTS FOR CREDIT APPRAISAL
- ANNEXURE III: SOME COMMON SECURITIES FOR BANK LOANS
-
07 - Credit Monitoring, Sickness and Rehabilitation
- SECTION I BASIC CONCEPTS
- The Need for Credit Review and Monitoring
- Triggers of Financial Distress
- Financial Distress Models—The Altman's Z Score
- Some Alternate Models Predicting
- Financial Distress
- The Workout Function
- SECTION II BANKS IN INDIA—CREDIT MONITORING AND REHABILITATION PROCESS
- Debt Restructuring and Rehabilitation of Sick Firms in India—Past and Present
- Monitoring by the States—State Level Inter-Institutional Committees
- Debt-Restructuring Mechanism for SMEs
- ANNEXURE I: WARNING SIGNS THAT BANKS SHOULD LOOK OUT FOR—AN ILLUSTRATIVE CHECKLIST
- ANNEXURE II: SMALL/MEDIUM ENTERPRISE AND CORPORATE DEBT RESTRUCTURING IN INDIA
- ANNEXURE III: CASE STUDIES: DEBT RESTRUCTURED UNDER CDR
-
08 - Managing Credit Risk—An Overview
- SECTION I BASIC CONCEPTS
- Expected Versus Unexpected Loss
- Defining Credit Risk
- The Basel Committee's Principles of Credit Risk Management
- Loan Workouts and Going to Court for Recovery
- Credit Risk Models
- SECTION II MEASURING CREDIT RISK—INTRODUCTION TO SOME POPULAR CREDIT RISK MODELS
- A Basic Model
- Modeling Credit Risk
- SECTION III CREDIT RISK TRANSFERS—LOAN SALES AND CREDIT DERIVATIVES
- Credit Derivatives
- Some Basic Credit Derivative Structures
- SECTION IV TREATMENT OF CREDIT RISK IN INDIA—SOME IMPORTANT EXPOSURE NORMS, PRUDENTIAL NORMS FOR ASSET CLASSIFICATION, INCOME RECOGNITION AND PROVISIONING
- Some Important Exposure Norms
- Prudential Norms for Asset Classification, Income Recognition and Provisioning
- Income Recognition
- Asset Classification
- Provisioning Norms
- SECTION V TREATMENT OF CREDIT RISK IN INDIA—SECURITIZATION AND CREDIT DERIVATIVES
- Securitization—The Act
- Securitization—The Indian Experience
- The Securitization Market in India—2008–2009
- Credit Derivatives
- ANNEXURE I: BASEL COMMITTEE—PRINCIPLES FOR THE ASSESSMENT OF BANKS’ MANAGEMENT OF CREDIT RISK
- ANNEXURE II: SALIENT FEATURES OF SECURITIZATION
-
09 - Managing Credit Risk—Advanced Topics
- SECTION I BASIC CONCEPTS
- Estimating PD, EAD and LGD—The Issues
- Why Do We Need Credit Risk Models?
- Credit Risk Models—Best Practice Industry Models
- SECTION II SELECT APPROACHES AND MODELS—THE CREDIT MIGRATION APPROACH
- The Credit Migration Approach (Used by Credit Metrics)
- Calculation of Portfolio Risk
- The Credit Migration Approach (Used by Credit Portfolio View)
- SECTION III SELECT APPROACHES AND MODELS—THE OPTION PRICING APPROACH
- The KMV Model
- SECTION IV SELECT APPROACHES AND MODELS—THE ACTUARIAL APPROACH
- Credit Risk+™ Model
- SECTION V SELECT APPROACHES AND MODELS—THE REDUCED FORM APPROACH
- Kamakura Risk Manager Version 7.0 and Kamakura Public Firm Models Version 4.1
- Which Model is Better—Structured or Reduced-Form?
- SECTION VI PRICING CREDIT DERIVATIVES
- Pricing Credit Default Swaps—Understanding the Cash Flows
- Pricing Credit Default Swaps—Grasping the Basics
- Pricing Collateralized Debt Obligations—The Basics
- SECTION VII CREDIT RISK MEASUREMENT AFTER THE FINANCIAL CRISIS
- The Financial Crisis—An Overview and Analysis
- Current Developments and Regulatory Changes
- ANNEXURE I: THE GLOBAL CREDIT CRISIS—A BRIEF CHRONOLOGY OF EVENTS IN 2007–08
-
10 - Uses of Bank Funds—Investments
- SECTION I BASIC CONCEPTS
- The Treasury Functions
- Risks and Returns of Investment Securities
- SECTION II MEASURING MARKET RISK WITH VAR
- Approaches to VaR Computation
- SECTION III BANKS’ INVESTMENT PORTFOLIO IN INDIA—VALUATION AND PRUDENTIAL NORMS'
- Classification of the Investment Portfolio
- Valuation of Investments
- Investment Reserve
- Determination of ‘Market Value’ While Marking to Market (HFT and AFS Categories)
- ‘Non-Performing’ Investments
- Income Recognition
- ANNEXURE I: CASE STUDY—LTCM COLLAPSE AND LINK WITH VAR
- ANNEXURE II: SUMMARY OF REGULATORY RESPONSES TO MARKET RISK MEASUREMENT PRACTICES BY BANKS AFTER THE GLOBAL FINANCIAL CRISIS
-
11 - Capital—Risk, Regulation and Adequacy
- SECTION I BASIC CONCEPTS
- Why Regulate Bank Capital?
- To What Should Capital be Linked to Ensure Bank Safety?
- The Concept of Economic Capital
- The Concept of Regulatory Capital
- SECTION II RISK-BASED CAPITAL STANDARDS—REGULATORY CAPITAL
- Basel Accord I
- Basel Accord II
- Determination of Capital Requirements Under the New Basel Plan
- Capital Requirement for Interest Rate (Market) Risk
- Capital Requirement for Operational Risk
- Constitution of Banks’ Capital Funds
- Calculation of the Capital Ratio
- Stress Testing and Its Applicability to Regulatory Capital
- SECTION III APPLICATION OF CAPITAL ADEQUACY TO BANKS IN INDIA
- Capital Funds of Banks Operating in India
- Tier 1 Capital
- Tier 2 Capital
- Total Capital Funds
- Calculating Capital Charges and Risk-Weighted Assets
- SECTION IV ILLUSTRATIVE PROBLEMS ON CALCULATING CAPITAL ADEQUACY
- Steps for Computing Risk-Weighted Assets
- ANNEXURE I: GUIDELINES FOR OPERATIONAL RISK MANAGEMENT
- ANNEXURE II: THE FINANCIAL CRISIS OF 2007—BASEL II AND THE BLAME GAME
- ANNEXURE III: PILLARS II AND III OF BASEL II ACCORD AND THEIR APPLICATION TO INDIAN BANKS
- ANNEXURE IV: CAPITAL ADEQUACY RATIOS OF INDIAN BANKS—SOME COMPARATIVE TABLES
-
12 - Risk Management in Banks
- SECTION I THE CHANGING FACE OF BANKING RISKS
- SECTION II ASSET LIABILITY MANAGEMENT
- SECTION III INTEREST RATE RISK MANAGEMENT
- Managing Interest Rate Risk
- Measuring Interest Rate Risk
- Managing Interest Rate Risk—A Strategic Approach
- Interest Rate Risk or Model Risk?
- Alternative Methods to Reduce Interest Rate Risk
- SECTION IV MANAGING INTEREST RATE RISK—INTEREST RATE DERIVATIVES
- Swaps
- Interest Rate Futures
- Forward Rate Agreements (FRAs)
- Interest Rate Options
- Interest Rate Guarantees
- Swaptions
- Arbiloans
- Derivatives Market Growth—The Issues
- SECTION V LIQUIDITY RISK MANAGEMENT
- Sources of Liquidity Risk
- How to Measure Liquidity?
- Modern Approaches to Liquidity Risk Management
- Approach to Managing Liquidity for Long-Term Survival and Growth
- Approach to Managing Liquidity in the Short Term—Some Tools for Risk Measurement
- Liquidity Risk—Stress Testing Process
- Rating the Bank's Liquidity by the Regulator
- SECTION VI APPLICABILITY TO BANKS IN INDIA
- Interest Rate Derivatives in India
- ALM Framework for Indian Banks
- Liquidity Risk Management in Indian Banks
- ANNEXURE I: THEORIES OF INTEREST RATES
- ANNEXURE II: CONCEPT OF DURATION AND CONVEXITY
- ANNEXURE III: FEATURES OF A SOUND LIQUIDITY AND FUNDS MANAGEMENT POLICY AND SYMPTOMS OF POTENTIAL LIQUIDITY RISK
- ANNEXURE IV: MANAGEMENT OF LIQUIDITY RISK IN FINANCIAL GROUPS—KEY FINDINGS
- ANNEXURE V: ALM IN INDIA—CLASSIFICATION OF BANK LIABILITIES AND ASSETS ACCORDING TO RATE SENSITIVITY AND MATURITY PROFILE
-
13 - Banking Functions, Retail Banking and Laws in Everyday Banking
- SECTION I BASIC CONCEPTS
- Negotiable Instruments
- Types of Deposits
- Non-Resident Indian (NRI) Accounts
- Mandates and Power of Attorney
- SECTION II RETAIL BANKING—NATURE AND SCOPE
- Why Banks Focus on Retail Business
- Emerging Issues in Handling Retail Banking
- SWOT Analysis of Retail Banking
- Strategies for Success in Retail Banking
- SECTION III CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
- CRM Strategies/Steps
- Three Tip Questions for Managers
- Image-Building Exercises
- Blending Tradition with Technology
- SECTION IV LAWS IN EVERYDAY BANKING
- Key Acts That Govern the Functioning of the Banking Sector
- Different Customers—Different Laws
- Bank–Customer Relationship
- Rights of a Banker
- Obligations of a Banker
-
14 - Banking System—Services and Innovations
- SECTION I COMMERCIAL BANKING SYSTEM AND STRUCTURE
- Globalization and Innovations
- SECTION II CASE STUDIES OF BANKS
- The ICICI Bank
- HSBC Bank
- The State Bank of India (SBI)
- SECTION III CASE IN DETAIL—HSBC BANK
- Accounts
- Credit Cards
- Standard Privileges for HSBC Card Holders
- Loans
- Wealth Management
- Insurance
- Special Offers
-
15 - International Banking—Foreign Exchange and Trade Finance
- INTRODUCTION
- SECTION I BASIC CONCEPTS
- Exchange Rates
- FOREX Market
- Transfer Systems
- Direct and Indirect Quotations
- Functioning of Foreign Exchange Market
- SECTION II INTER-BANK MARKET AND FOREX DEALING
- Forex Dealing Room Operations
- Spot, Forward, Cash, Tom Rates in an Inter-Bank Market
- Bid and Offer Rates
- Foreign Exchange Market
- SECTION III TRADE FINANCE—LETTERS OF CREDIT
- Financing International Trade Through Letters of Credit
- Flowchart Depicting a Typical Import Transaction with Letter of Credit
- Types of LC
- SECTION IV TRADE FINANCE—FINANCING EXPORTERS
- The Export Credit Scheme
- Features of Packing Credit in Local Currency
- Features of Pre-Shipment Credit in Foreign Currency (PCFC)
- Post-Shipment Finance
- SECTION V FOREIGN CURRENCY LOAN (FCL)
- Features of Foreign Currency Loans
-
16 - High-Tech Banking—E-Payment Systems and Electronic Banking
- SECTION I BASIC CONCEPTS
- Why Do We Need Technology in Banking?
- Benefits of Electronic Banking
- SECTION II E-PAYMENTS
- The Importance of Payments and Settlement Systems
- International Standards and Codes for Payment and Settlement Systems
- Payment and Settlement Systems in India
- SECTION III RETAIL PAYMENT SYSTEMS
- Paper-Based Instruments in Retail Payment Systems—An Overview
- Electronic Retail Payment Systems—An
- Overview
- SECTION IV PLASTIC MONEY AND E-MONEY
- Credit Cards
- Debit Cards
- Credit and Debit Cards in India
- Other Payment Channels/Products
- SECTION V SECURITY ISSUES IN E-BANKING
-
17 - Insurance Services
- SECTION I BASIC CONCEPTS
- Basic Features of Insurance Contracts
- Benefits of Insurance
- Types of Insurance Products
- SECTION II INDIA'S INSURANCE SECTOR—AN OVERVIEW
- The Insurance Sector
- Changing Scenario of the Life Insurance Sector
- Insurance Regulatory Development Authority (IRDA)
- IRDA Regulations
- Life Insurance Corporation of India
- Export Credit Guarantee Corporation of India (ECGC)
- SECTION III BANKS AND INSURANCE SERVICES—BANCASSURANCE IN INDIA
- How Does Bancassurance Help Banks?
- How Does Bancassurance Help Insurance Companies?
- How Does Bancassurance Help Customers?
- SECTION IV GLOBAL INSURANCE INDUSTRY, OPPORTUNITIES AND CHALLENGES
- The Industry After the Financial Crisis
- Challenges
- Opportunities
- Convergence
- The Growth of Insurance Demand
-
18 - Mutual Funds, Securities Trading, Universal Banking and Credit Rating
- SECTION I MUTUAL FUNDS
- Advantages of Mutual Funds
- Types of Mutual Funds
- Important Terms
- SECTION II TRADING IN SECURITIES/SHARES
- Factors Behind Growth of Online Trading
- Impact on Securities Market
- SECTION III UNIVERSAL BANKING
- Size and Market Power
- Diversification: Insurance and Securities
- Core of Universal Banking
- Impartial Investment Advice
- Benefits to Banks
- Benefits to Customers
- Challenges
- SECTION IV CREDIT RATING SERVICES
- Credit Rating—An Overview
- Information to Investors
- Benefits to Issuers
- Benefit to the Regulators
- Differences of Opinion in the Credit Rating Industry
-
19 - Cash Management and Demand Forecasting in ATMs
- SECTION I INTRODUCTION
- SECTION II THE CASE OF BHARATH BANK
- Outsourced Agents for ATMs
- SECTION III THE CASE OF GLOBAL BANK
- Information Flow in the Supply Chain—Role of IT Infrastructure
- SECTION IV CASH DEMAND FORECASTING
- Time Series Analysis of Cash Withdrawals from ATMs
- Sales Trends and Other Factors
- ANNEXURE I: ATM—POST- AND PRE-INSTALLATION ACTIVITIES
- 20 - Mergers and Acquisitions in the Banking Sector
-
21 - Innovations in Products and Services—Cases of Three Banks
- Case Study I Barclays Bank
- Uk Banking
- Barclay Card
- Barclays Capital
- Barclays Global Investors
- Barclays Wealth Management
- Performance and Governance
- Products and Services
- Other Services
- Savings and Investments
- Recent Initiatives
- Barclays Strategy
- Case Study II ING Vysya Bank
- Milestones of the Bank over the Long Years of Its Services
- The Origin of ING Group
- The New Identity: ING Vysya Bank
- Customer Relationship Management
- IT Implementation for Quick Customer Response
- Retail Banking
- ING Vysya Bank's Retail Banking Strategy
- Case Study III State Bank of India
- Features of the State Bank of India
- Primary Activities
- Secondary Activities
- Products and Services
- 22 - Innovations in Products and Services in Banking—Cases of Public and Private Sector Banks
- Appendix: Objective-Type Questions on Commercial Banking
- Notes
- Acknowledgements
- Copyright
Product information
- Title: Management of Banking and Financial Services, 2nd Edition
- Author(s):
- Release date: June 2010
- Publisher(s): Pearson India
- ISBN: 9788131730942
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