CONTENTS
01 Managing Banking and Financial Services—Current Issues and Future Challenges
SECTION II CHANGE IS IN THE AIR….IS THE FINANCIAL SYSTEM BEING REVOLUTIONISED?
Climate change and financial system
SECTION III THE GLOBAL FINANCIAL SYSTEM – AFTER THE FINANCIAL CRISIS
A Rewind to the Financial Crisis of 2007–08
Investment banks, Commercial banks and Universal banks – What is the difference?
Macroeconomic 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 Over-arching Agenda for the Future
SECTION IV THE INDIAN FINANCIAL SYSTEM—AN OVERVIEW
SECTION V THE INDIAN BANKING SYSTEM—AN OVERVIEW
The Financial Institutional Structure in India
Who Owns the Commercial Banks in India?
Indian Banks Operating Overseas
Non Banking Financial Institutions (NBFI)
Non Banking Finance Companies (NBFC)
Housing Finance Companies (HFC)
Co-operative Credit Institutions
The Indian Financial Code (2015)
Annexure I: Banking Sector Reforms
Annexure III: Select Major Policy and Legal Reforms Since 1991–92
02 Monetary Policy—Implications For Bank Management
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
Other Factors that Impact Monetary Base and Bank Reserves
SECTION II APPLICATION OF THE MONETARY POLICY TOOLS IN INDIA
Measuring Money Supply in India
Operation of Reserve Requirements in India
Net Demand and Time Liabilities
Operation of the Bank Rate in India
Open Market Operations in India
Repo Market Instruments Outside the LAF
SECTION III MONETARY POLICY TOOLS IN SELECT COUNTRIES
Other Developed and Developing Countries
Annexure I: Computation of the NDTL for the Banking System in India
Annexure II: An introduction to the money market in India
Annexure III: Case Study: European Central Bank’s decision to bail out Greece
03 Banks’ Financial Statements
SECTION II FINANCIAL STATEMENTS OF BANKS OPERATING IN INDIA
Income Statement of Indian Banks
Other Disclosures to be Made by Banks in India
SECTION III ANALYZING BANKS’ FINANCIAL STATEMENTS
Annexure I: Moving to Wards Risk Based Assessment of Banks
Annexure II: Key Performance Indicators (KPI) for Banks
Annexure III: Some Alternative Models for Bank Financial Statement Analysis
Annexure IV: Case Study: Analysis of Profitability—A Du Pont Analysis of Bank Groups in India
Annexure V: Indian Accounting Standards (IndAS) for Banks and Other Financial Institutions
SECTION II BANK LIABILITIES—DEPOSITS
Protecting the Depositor—Deposit Insurance
SECTION III PRICING DEPOSIT SERVICES
The Need to Price with Precision
Some Commonly Used Approaches to Deposit Pricing
Marginal Cost of Funds Approach
Deposits and Interest Rate Risk
SECTION IV BANK LIABILITIES—NON-DEPOSIT SOURCES
SECTION V BANK DEPOSITS IN INDIA—SOME IMPORTANT LEGAL ASPECTS
Who is Eligible to be a Customer?
General Guidelines for Opening Deposit Accounts
Termination of Banker–Customer Relationship
SECTION VI DESIGN OF DEPOSIT SCHEMES—SOME ILLUSTRATIONS
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
05 Uses of Bank Funds—The Lending Function
Banks’ Role as Financial Intermediaries
Constituents of the Credit Process
SECTION III FINANCIAL APPRAISAL FOR CREDIT DECISIONS
SECTION IV FUND BASED, NON-FUND BASED AND ASSET BASED LENDING—FEATURES AND POPULAR FORMS
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
Annexure II: The Importance and Role of Credit Rating Agencies (CRAS)
Annexure III: Credit Appraisal—Some Commonly Used Financial Ratios
Annexure IV: Income Statement-Based Cash Flow Analysis
Annexure V: Case Study: LIBOR – The Benchmark and the Manipulation
06 Banks in India—Credit Delivery and Legal Aspects of Lending
SECTION I MODES OF CREDIT DELIVERY
Loan System for Delivery of Bank Credit—The Working Capital Demand Loan
SECTION II LEGAL ASPECTS OF LENDING
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
Annexure IV: Case Study — Credit Appraisal
07 Credit Monitoring, Sickness and Rehabilitation
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
SECTION II CREDIT INFORMATION COMPANIES IN INDIA
Other Credit Information Companies in India
Debt Restructuring and rehabilitation of sick firms in India—the Workout function
Criteria for Considering Restructuring
Relief Measures under Restructuring
Valuation of Restructured Advances
Annexure I: Warning Signs that Banks Should Look out for—An Illustrative Checklist
Annexure III: Case Studies: CDR and SDR
08 Managing Credit Risk—An Overview
Expected Versus Unexpected Loss
Loan Workouts and Going to Court for Recovery
SECTION II MEASURING CREDIT RISK— INTRODUCTION TO SOME POPULAR CREDIT RISK MODELS
SECTION III CREDIT RISK TRANSFERS— SECURITIZATION, LOAN SALES, COVERED BONDS AND CREDIT DERIVATIVES
Asset Reconstruction Companies (ARC)
Legislation on covered bonds—select countries
Some Basic Credit Derivative Structures
Large Exposures Framework (LEF)
Prudential Norms for Asset Classification, Income Recognition and Provisioning
SECTION V TREATMENT OF CREDIT RISK IN INDIA—SECURITIZATION AND CREDIT DERIVATIVES
Sale of Assets by Banks not Involving SC/RC
Strengthening the securitization framework in India
Asset Reconstruction companies in India
Securitization—The Indian Experience
India’s Securitization market in 2016
Annexure I: Basel Committee Documents on Credit Risk Management
Annexure II: Salient Features of Securitization
Annexure III: Case Study: Kingfisher Airlines –A High Profile NPA
09 Managing Credit Risk—Advanced Topics
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)
Model Applied to Loan Commitments
The Credit Migration Approach (Used by CreditPortfolioView)
SECTION III SELECT APPROACHES AND MODELS—THE OPTION PRICING APPROACH
Improvements Made to the Basic Structural Model in the Current Version EDF8.0
SECTION IV SELECT APPROACHES AND MODELS—THE ACTUARIAL APPROACH
SECTION V SELECT APPROACHES AND MODELS—THE REDUCED FORM APPROACH
Kamakura Risk Manager Version 8.0 and Kamakura Public Firm Models Version 5.0
A Brief Description of the Approaches Follows
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
SECTION VIII A NOTE ON DATA ANALYTICS AND BUSINESS SIMULATION
Business Simulations: 5 Reasons Why Business Simulations Are Great Learning Tools
Annexure I: Case Study-The Global Credit Crisis—A Brief Chronology of Events in 2007–08
10 Managing Market Risk—Banks’ Investment Portfolio
Risks and Returns of Investment Securities
SECTION II MEASURING MARKET RISK WITH VAR AND EXPECTED SHORTFALL (ES)
SECTION III BANKS’ INVESTMENT PORTFOLIO IN INDIA—VALUATION AND PRUDENTIAL NORMS’
Classification of the Investment Portfolio
Determination of ‘Market Value’ While Marking to Market (HFT and AFS Categories)
Annexure I: Case Study—LTCM Collapse and Link with VaR
11 Capital—Risk, Regulation and Adequacy
To What Should Capital be Linked to Ensure Bank Safety?
The Concept of Economic Capital
The Concept of Regulatory Capital
SECTION II RISK-BASEDCAPITAL STANDARDS—REGULATORY CAPITAL
Demystifying the Basel Accords I, II and III
Basel IV –or is it Basel 3.5? Move to More Regulatory Approaches to Risk Measurement
SECTION III APPLICATION OF CAPITAL ADEQUACY TO BANKS IN INDIA
Capital Components–Banks in India
Capital Funds of Banks Operating in India
Counter Cyclical Capital buffer (CCCB)
Exposure Measure : General Measurement Principles
Calculating Capital Charges and Risk-Weighted Assets
SECTION IV ILLUSTRATIVE PROBLEMS ON CALCULATING CAPITAL ADEQUACY
Steps for Computing Risk-Weighted Assets
Annexure I: Determination of Risk Weighted Assets Under the Basel Norms
Annexure II: The Financial Crisis of 2007—Basel II and the Blame Game
Annexure III: Pillars II and III of Basel III Accord and Their Application to Indian Banks
Annexure IV: Capital Adequacy Ratios of Indian Banks—Some Comparative Charts
12 Managing Interest Rate and Liquidity Risks
SECTION I THE CHANGNG FACE OF BANKING RISKS
SECTION II ASSET LIABILITY MANAGEMENT
SECTION III INTEREST RATE RISK MANAGEMENT
Interest rate risk in the banking book - Basel committee standards - Salient features
Overall structure of the standardised framework
Components of the standardised framework
Calculation of change in Economic Value of Equity (ΔEVE)
Calculation of change in projected Net Interest Income (ΔNII)
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 WITH INTEREST RATE DERIvATNES
Forward Rate Agreements (FRAs)
Derivatives Market Growth—The Issues
SECTION V LIQUDITY RISK MANAGEMENT AND BASEL III
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
Basel III—The International Framework for Liquidity Risk Measurements, Standards and Monitoring
SECTION VI APPLICABILITY TO BANKS IN INDIA
Interest Rate Derivatives in India
The Exchange Traded 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 IV: Management of Liquidity Risk in Financial Groups—Key Findings
Annexure VI: Case Study—Northern Rock Liquidity Crisis
13 Banking Functions, Retail Banking and Laws in Everyday Banking
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)
Three Tip Questions for Managers
Blending Tradition with Technology
SECTION IV LAWS IN EVERYDAY BANKING
Key Acts That Govern the Functioning of the Banking Sector
Different Customers—Different Laws
Case Study: Savings Account is Not an Investment Tool
14 Banking System—Services and Innovations
SECTION I COMMERCIAL BANKING SYSTEM AND STRUCTURE
SECTION II CASE STUDIES OF BANKS
SECTION III CASE IN DETAT—HSBC BANK
Standard Privileges for HSBC Card Holders
Case Study: Interest Rates and Prof Bond
15 International Banking—Foreign Exchange and Trade Finance
Direct and Indirect Quotations
Functioning of Foreign Exchange Market
SECTION II INTER-BANK MARKET AND FOREX DEALING
Spot, Forward, Cash, TOM Rates in an Inter-Bank Market
SECTION III TRADE FINANCE —LETTERS OF GREDIT
Financing International Trade Through Letters of Credit
Flowchart Depicting a Typical Import Transaction with Letter of Credit
SECTION IV TRADE FINANCE — FINANCING EXPORTERS
Features of Packing Credit in Local Currency
Features of Pre-Shipment Credit in Foreign Currency (PCFC)
SECTION V FOREIGN CURRENCY LOAN (FCL)
Features of Foreign Currency Loans
16 High-Tech Banking—E-Payment Systems and Electronic Banking
Why Do We Need Technology in Banking?
Benefits of Electronic Banking
The Importance of Payments and Settlement Systems
International Standards and Codes for Payment and Settlement Systems
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 and Debit Cards in India
Other Payment Channels/Products
SECTION V SECURITY ISSUES IN E-BANKING
17 Understanding Financial Services
SECTION I NON-BANKING FINANCIAL COMPANY
SECTION II VENTURE CAPITAL AND PRIVATE EQUITY
Stages in Venture Capital (VC) Investing
Major Parties Involved in Credit Card Transaction
Charges and Profits in Credit Card Transactions
SECTION V IPO (INITIAL PUBLIC OFFERING)
SECTION VIII Alternate investments
SECTION IX CONSUMER RIGHTS AND PROTECTION APPLICABLE TO FINANCIAL SERVICES
Consumer Protection and Regulation in India
Basic Features of Insurance Contracts
SECTION II INDIA'S INSURANCE SECTOR-AN OVERVIEW
Changing Scenario of the Life Insurance Sector
Insurance Regulatory Development Authority (IRDA)
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
The Growth of Insurance Demand
19 Mutual Funds, Securities Trading, Universal Banking and Credit Rating
SECTION II TRADING IN SECURITIES/SHARES
Factors Behind Growth of Online Trading
Diversification—Insurance and Securities
SECTION IV CREDIT RATING SERYICES
Differences of Opinion in the Credit Rating Industry
20 Cash Management and Demand Forecasting in ATMs
SECTION II THE CASE OF BHARATH BANK
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
21 Mergers and Acquisitions in the Banking Sector
SECTION I MERGERS AND ACQUISITIONS
SECTION II CASE OF BANK OF MADURA MERGER WITH ICICI BANK
Swap Ratio and Stock Price Fluctuations
Annexure I: Share Price Volume Data
Annexure II: The Merger of Bank of Tokyo Mitsubishi and UFJ Bank
22 Innovations in Products and Services—Cases of Three Banks
Milestones of the Bank Over the Long Years of Its Services
The New Identity: ING Vysya Bank
Customer Relationship Management
IT Implementation for Quick Customer Response
ING Vysya Bank’s Retail Banking Strategy
CASE STUDY III STATE BANK OF INDIA
Features of the State Bank of India
23 Innovations in Products and Services in Banking—Cases of Public and Private Sector Banks
High-Tech Banking Products and Services
Products and Services for Non-Residents
CASE STUDY II SOUTH INDIAN BANK
Other Service Features Offered by SIB