...The Reserve Bank of India (RBI) is the nation’s central bank fundamental commitment to maintaining the nation’s monetary and financial stability. From ensuring stability of interest and exchange rates to providing liquidity and an adequate supply of currency and credit for the real sector; from ensuring bank penetration and safety of depositors’ funds to promoting and developing financial institutions and markets, and maintaining the stability of the financial system through continued macro-financial surveillance, the Reserve Bank plays a crucial role in the economy. Our decisions touch the RBI at a Glance Managed by Central Board of Directors India’s monetary authority Supervisor of financial system Issuer of currency Manager of foreign exchange reserves Banker and debt manager to government Supervisor of payment system Banker to banks Maintaining financial stability Developmental functions Research, data and knowledge Sharing Central Board of Directors by the Numbers Official Directors 1 Governor 4 Deputy Governors, at a maximum Non-Official Directors 4 directors—nominated by the Central Government to represent each local board 10 directors nominated by the Central Government with expertise in various segments of the economy 1 representative of the Central Government 6 meetings—at a minimum—each year 1 meeting—at a minimum—each quarter Monetary Authority Issuer of Currency Banker and Debt Manager to Government Banker to...
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...non-banking company). QUES 2. NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ? ANS 2. NBFCs are doing functions akin to that of banks, however there are a few differences: (i) a NBFC cannot accept demand deposits; (ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers; and (iii) deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks. QUES-3. Is it necessary that every NBFC should be registered with RBI? ANS 3. In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934. However, to obviate dual regulation, certain category of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking...
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...NOTE ON NON-BANKING FINANCIAL COMPANIES DEFINITION OF NON BANKING FINANCIAL COMPANY Prior to enactment of RBI (Amendment) act, 1997 w.e.f. 9.1.1997 the RBI Act,1934 did not contain a definition for NBFC. Clause (f) of section 45-I inserted by RBI (Amendment) Act 1997, provided the definition of a NBFC. According to this clause: NBFC means- (i) a financial institution which is a company; (ii) a non- banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; (iii) such other non-banking institution or class of such institutions, as the bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify. Financial institution means any non-banking institution which carries on as its business or part of its business any of the following activities, namely: (i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own; (ii) the acquisition of shares, stock, bonds, debentures or securities issued by a govt. or local authority or other marketable securities of like nature; (iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire Purchase Act,1972 (26 of 1972); (iv)...
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...LITERATURE REVIEW In the article “Credit Risk Rating at Large U.S. Banks” authors William F. Treacy and Mark S. Care say that risk ratings are the primary summary indicator of risk for banks’ individual credit exposures. They both shape and reflect the nature of credit decisions that banks make daily. The specifics of internal rating system architecture and operation differ substantially across banks. The number of grades and the risk associated with each grade vary across institutions, as do decisions about who assigns ratings and about the manner in which rating assignments are reviewed. In general, in designing rating systems, bank management must weigh numerous considerations, including cost, efficiency of information gathering, consistency of ratings produced, staff incentives, the nature of the bank’s business, and the uses to be made of internal ratings. RATINGS MIGRATION SYSTEM An Internal Ratings Migration Study by Michel Araten, Michael Jacobs Jr., Peeyush Varshney, and Claude R. Pellegrino-- This article discusses issues in evaluating banks’ internal ratings of borrowers. Ratings migration analysis entails the actuarial estimation of transition probabilities for obligor credit risk ratings, with emphasis on estimation of empirical default probabilities. Measurement of changes in borrower credit quality over time is important as obligor risk ratings are a key component of a bank’s credit capital methodology. These analyses permit banks to more accurately assess...
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...Rupee: A Testing Time for India Authorities The currency of a country often reflects its economic, political, geopolitical strength of the country. The currency swings often capture the capital movement and investor appetite in a comprehensive way. With dollar remaining as the major foreign currency for foreign trade and foreign reserve, the developing countries have limited options to control their respective currency. This same was experienced by many developing Asian countries in the recent financial rout. Determination of Exchange Rate and its Fluctuations Like other prices, exchange rate also changes with the changes in the state of market. Just as other prices depend on supply and demand, exchange rate also depends on the configuration of forces of supply and demand. However, two important facets have to be noted: (i) Unlike goods and services, foreign exchange has no direct cost of production. It has only opportunity cost (Walras.1874). Import bills have to be paid through export earnings. So cost of production of exportable surpluses may be taken to constitute the direct production cost of exports and indirect cost of imports (Aggarwal, R. (1981)). Opportunity cost is accounted by with drawl of exportable surplus from domestic consumption. Fluctuations are a natural characteristic of foreign exchange rate market, provided that the exchange rate is not an administered price. If exchange rate is an administered price, it is determined administratively by the central...
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...Manual on Financial and Banking Statistics 6. NON-BANKING FINANCIAL COMPANIES The activities of non-banking financial companies (NBFCs) in India have undergone qualitative changes over the years through functional specialisation. The role of NBFCs as effective financial intermediaries has been well recognised as they have inherent ability to take quicker decisions, assume greater risks, and customise their services and charges more according to the needs of the clients. While these features, as compared to the banks, have contributed to the proliferation of NBFCs, their flexible structures allow them to unbundle services provided by banks and market the components on a competitive basis. The distinction between banks and non-banks has been gradually getting blurred since both the segments of the financial system engage themselves in many similar types of activities. At present, NBFCs in India have become prominent in a wide range of activities like hire-purchase finance, equipment lease finance, loans, investments, etc. By employing innovative marketing strategies and devising tailor-made products, NBFCs have also been able to build up a clientele base among the depositors, mop up public savings and command large resources as reflected in the growth of their deposits from public, shareholders, directors and other companies, and borrowings by issue of non-convertible debentures, etc. Consequently, the share of non-bank deposits in household sector savings in financial assets...
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...CREDIT RISK MANAGEMENT Banks are in the business of risk management and, hence, are incentivized to develop sophisticated risk management systems. The basic components of risk management system are identifying the risks the bank is exposed to, assessing their magnitude, monitoring them, controlling/mitigating them using a variety of procedures and setting aside capital for potential losses. RBI prescribed risk management framework in terms of: a) Asset-Liability Management practices. b) Credit Risk Management. c) Operational Risk Management. d) Stress testing by Indian Banks in the perspective of international practices. BANKING RISKS: It can be categorized into: i) Business-related Risks. ii) Capital-related Risks. Business Related Risks: The business related risks to which banks are exposed are associated with their operational activities and market environment. They fall into six categories: namely, a) Credit Risk b) Market Risk c) Country Risk d) Business Environment Risk e) Operational Risk f) Group Risk Note: Market Risk comprising of interest rate risk, foreign exchange risk, equity price risk; commodity price risk and liquidity risk; Credit Risk: Credit risk, a major risk faced by banks, is inherent to any business of lending funds to individuals, corporate, trade, industry, agriculture, transport, or banks/financial institutions. It is defined as the possibility of loses associated with a diminution in the credit...
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...1. Indian currency (INR) has depreciated close to 22% in the last 1 year. In the article we will try to study the concerns of a country facing depreciating currency, the factors that led to this depreciation and the measures government can take to stabilize the situation. Most importantly we will see if global economic uncertainty rides over all the other domestic factors to determine strength of a currency especially in developing economies. Why don’t we need a depreciating INR? The persistent decline in rupee is a cause of concern. Depreciation leads to imports becoming costlier which is a worry for India as it meets most of its oil demand via imports. Apart from oil, prices of other imported commodities like metals, gold etc will also rise pushing overall inflation higher. Even if prices of global oil and commodities decline, the Indian consumers might not benefit as depreciation will negate the impact. The depreciating rupee will add further pressure on the overall domestic inflation and since India is structurally an import intensive country, as reflected in the high and persistent current account deficits month after month, the domestic costs will rise on account of rupee depreciation. Exchange rate risk also drives away foreign investors which in turn depreciates the local currency. Indian Rupee is currently caught in this vicious cycle; it will have to find a stable level to regain investors’ confidence. The depreciating rupee has serious effects on the external debt...
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...RESEARCH DESIGN OBJECTIVES OF THE STUDY ➢ Understanding credit risk management conceptually. ➢ Studying the various private banks practicing credit risk management. ➢ To make a depth study of the method in which the private banks in India go about credit risk management. ➢ Studying the difference between retail credit risk management and corporate credit risk management practiced by private banks. ➢ Understanding the importance of the credit risk management and how useful it is to the private banks and how it benefits them in various ways. PURPOSE OF THE STUDY The main reason to select “CREDIT RISK MANAGEMENT” as a topic is to understand the importance of the Role played by credit risk management department and/or practices when the bank lends money to its borrowers. In this project, I have tried to understand the difference between corporate credit risk management and retail credit risk management. The analysis and interviews with industry personnel has given me a practical and real life exposure to the banking scenario as far as the credit risk management goes, whereby I could correlate between the theory and their practical application. RESEARCH METHODOLOGY DATA COLLECTION The data collection i.e. the raw material input for the project has been collected keeping in mind the objectives of the project and accordingly relevant...
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...Non Banking Financial Company Systemically important Non Deposit taking Non Banking Financial Company Deposit taking Non Banking Financial Company Non Deposit taking Non Banking Financial Company Non Banking Financial Institutions Non-convertible debentures Net Owned Funds Non-Performing Asset Over-the-counter Public Financial Institution Priority Sector Lending Reserve Bank of India Residuary Non Banking Company Return on Assets Return on Equity Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Scheduled Commercial Bank Securitisation and Reconstruction Companies Securities and Exchange Board of India Statutory Liquidity Ratio Small and Medium Enterprise NBFC-D NBFC-ND NBFI NCD NOF NPA OTC PFI PSL RBI RNBC RoA RoE SARFAESI SCB SC&RC SEBI SLR SME 4 CONTENTS Section Numbers 1 2 3 4 5 6 7 8 9 10 11 12 13 Annex I Annex II Introduction Particulars Page Numbers 6 9 18 23 28 35 45 46 48 52 56 59 65 75 77...
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...an investment portfolio. b) A portfolio of stocks, bonds and other securities. c) A pool of funds used to purchase securities on behalf of investors d) A collective investment vehicle. 2) Which of the following is true? Some close end funds sell at a discount to their NAV, because a) Of high expense ratios b) Investors expect that current NAV cannot be sustained by future potential c) The repurchase price fixed by the fund is lower than the NAV d) Of the inherent risk of closed end funds. 3) If the entry load is 2% and the NAV is Rs. 10, then the investor will have to pay for 1000 units a) Rs. 15000 b) Rs. 8000 c) Rs. 12000 d) Rs. 10200 4) Which of the following Mutual Funds was not set up within the Phase 2:1987-1993? a) Canbank Mutual Fund b) Kothari Pioneer Mutual Fund c) SBI Mutual Fund d) LIC Mutual Fund 5) Which of the following is not a benefit from a Mutual Fund? a) Investor has custody of securities where fund invests. b) Investor is able to diversify risk c) Investor can save costs d) Investor can get professional management to manage his money. 6) Which of the following has the lowest risk? a) Liquid Fund (MMMF) b) Gilt Fund c) Diversified debt fund d) Diversified equity fund 7) The current Mutual Fund Regulations from SEBI was introduced in a) 1992 b) 1994 c) 1996 d) 1998 ...
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...agreed terms, both in terms of time and quantity. 5. Risk does not come alone – the default of one firm may cripple affiliated firms such as suppliers, customers and banks. RISK MANAGEMENT: 1. Risk Management is a planned method of dealing with the potential loss or damage. It is an ongoing process of risk appraisal through various methods and tools. 2. Risk Management involves not only to protect oneself against some risks but also to decide which risks are to be exploited and how to exploit them. 3. Risk Management covers credit decision making, performance assessment, pricing, capital computation, provisioning etc. 4. Risk Management covers the following: a. It assesses what could go wrong b. It determines which risks are important to be dealt with c. It implements strategies to deal with those risks. 5. Risk Management is not – d. A guarantee to avoid all future losses e. Limited to compliance and disclosure requirements f. A method to eliminate all risks g. A substitute for internal controls to detect fraud etc. BASEL ACCORD: 1. In 1988, Basel I accord was introduced with the central focus on credit risk. 2. In 1996, Basel I was modified to include Market Risks. 3. In 2004,...
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...an rupee AN ASSIGNMENT ON FLUCTUATIONS IN INDIAN CURRENCY AND ITS IMPACTS SUBMITTED TO: Professor Harshit Shah SUBMITTED BY: Amber A Maheshwari (NR12070) SUBMITTED ON: 19th September 2013 INTRODUCTION TO EXCHANGE RATE MECHANISM: All economies that interact with international economy can be broadly classified into three categories on the basis of exchange rate policy of the country. 1) FIXED EXCHANGE RATE: These economies peg the value of their currency with some other prominent currency like US dollar. This system is simple and provides stability to the economy (of course, if the economy of the country to whose currency its currency is pegged is stable). This type of exchange rate regime is maintained by generally smaller economies like Nepal and Bhutan (pegged to Indian Rupee) or several African nations. Rational behind such regime is that in case of small economy – if the exchange rate is market determined – the sudden influx or out flux of even relatively small amount of foreign capital will have large impact on exchange rate and cause instability to its economy. Notable exception is China which despite being large economy has its currency pegged to US dollar. 2) FLOATING (OR FREE) EXCHANGE RATE: Bigger and developed economies like US, UK, Japan etc generally let market determine their exchange rate. In such economy exchange rate is determined by demand and supply of the currency. For example consider exchange rate of US dollar versus Japanese Yen...
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...Submitted By : Santhosh Kumar Submitted to : Dr YogeshMaheshwari CCBMDO-09 Financial Management I Assignment I 31 Oct 2012 CORPORATE FINANCING ENVIRONMENT IN INDIA: A CRITICAL REVIEW S No | Topic | Page No | 1. | Executive Summary | 2 | 2. | Financial Instruments | 3 | 3. | Financial Markets | 4 | 4. | Financial Intermediaries | 5 | 5. | The Regulatory Environment | 6 | 6. | The Way Forward | 9 | Executive Summary 1. Corporate finance is used to collectively identify the various financial dealings undertaken by a corporation. Ideally, corporate finance is the division of the company that is mostly concerned with the financial operations of the company. In some businesses, corporate finance primarily focuses on raising money for ventures and projects. For other corporations and investment banks, corporate finance concentrates on analysis of corporate buyouts and other decisions. The core functions of corporate finance are making wise use of the financial resources available to the company. Corporate finance may also take on many different aspects of the overall management of the finances of the company. The functions may also include managing of investments like acquisition and selling stocks, bonds, and other investment ventures pertaining to other companies. It may also involve creating and managing the process for issuing shares of stock or offering corporate bonds to generate resources for expansion projects. 2. The pattern...
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...Banking Awareness Study Material Shared by Rajesh Kumar and Bhavya Vadudevan www.Gr8AmbitionZ.com your A to Z competitive exam guide Page 1 Banking Awareness Study Material - powered by Gr8AmbitionZ.com Indian Banking Structure a) b) c) d) e) Central Bank (RBI) Specialised Banks Commercial Banks Development Banks Co-operative Banks Specialised Banks: NABARD: National Bank for Agriculture and Rural Development. This bank is meant for financing the agriculture as well as rural sector. It actually promotes research in agriculture and rural development. EXIM Bank: Export Import Bank of India. This bank gives loans to exporters and importers and also provides valuable information about the international market. If you want to set up a business for exporting products abroad or importing products from foreign countries for sale in our country, EXIM bank can provide you the required support and assistance. SIDBI: Small Industries Development Bank of India. This bank provides loans to set up the smallscale business unit / industry. SIDBI also finances, promotes and develops small-scale industries whereas IDBI (Industrial Development Bank of India) gives loans to big industries. Gr Commercial Banks: Normal banks are known as commercial banks, their main function is to accept deposits from the customer and on the basis of that they grant loans. (Loans could be short-term, mediumterm and long-term loans.) Commercial banks are further classified into three types...
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