Banking Presentation Samrat

8/8/2019 Banking Presentation Samrat

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BANKING INDUSTRY IN INDIA

Presented by:Samrat Banerjee


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STRUCTURE OF BANKING INDUSTRY ININDIA


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SOME COMMON BANKING TERMS

CASH RESERVE RATIO: The Cash Reserve Ratio (CRR) refers to liquidcash that banks have to maintain with the Reserve Bank of India(RBI) as a certain percentage of their demand and time liabilities.Currently the rate of CRR is 5%STATUTORY LIQUIDITY RATIO: Statutory Liquidity Ratio or SLR refersto the amount that all banks require to maintain in cash or in theform of Gold or approved securities.

This Statutory Liquidity Ratio is determined as percentage of total demand and percentage of time liabilities.

Time Liabilities refer to the liabilities, which the commercialbanks are liable to pay to the customers on there anytimedemand.

The liabilities that the banks are liable to pay within onemonth's time, due to completion of maturity period, are alsoconsidered as time liabilities.

The current rate of SLR is25%


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REPO RATE: When the banks have any shortage of funds theycan borrow it either from Reserve Bank of India |RBI] or fromother banks. The repo rate is the rate at which the banksborrow this excess funds.

The borrowing bank mortgages its government securities

to carry out this loan transaction. A reduction in the reporate will help banks to get money at a cheaper rate. When the repo rate increases borrowing from RBI

becomes more expensive. The word Repo comes from the repurchasing

agreement. Current repo rate is 4.75%


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REVERSE REPO RATE: Reverse Repo rate is the rate at whichReserve Bank of India (RBI) borrows money from banks.

An increase in Reverse repo rate can cause the banks to transfermore funds to RBI due to this attractive interest rates. It cancause the money to be drawn out of the banking system.

The current reverse rate is 3.25%

BANK RATE: Also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advancesthat it extends to commercial banks and other financial

intermediaries.- Changes in the bank rate are often used by central banks to

control the money supply.


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PRIME LENDING RATE: The Prime Interest Rate is the interest ratecharged by banks to their most creditworthy customers (usually themost prominent and stable business customers).

The rate is almost always the same amongst major banks.Adjustments to the prime rate are made by banks at the sametime; although, the prime rate does not adjust on any regularbasis.

Some banks use the name "Reference Rate" or "Base LendingRate" to refer to their Prime Lending Rate.

The current PLR is 11%-12%


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PRIORITY SECTOR LENDING: Some areas or fields in a countrydepending on its economic condition or government interest areprioritized and are called priority sectors i.e industry, agriculture.

these may further be sub divided. Banks are directed by the state bank of the country that loans must be given

on reduced interest rates with discounts to promote these fields. Such lendingis called priority sector lending.


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DEMAND AND TIME LIABILITIES

TIME DEPOSITS- Time Liabilities are those which are payable otherwise thanon demand that include fixed deposits, cash certificates, cumulative andrecurring deposits, time liabilities portion of savings bank deposits, staff security deposits, margin held against letters of credit, if not payable ondemand, deposits held as securities for advances which are not payable on

demand and Gold deposits.

DEMAND DEPOSITS- Demand Liabilities include all liabilities which are payableon demand that include current deposits, demand liabilities portion of savingsbank deposits, margins held against letters of credit/guarantees, balances in

overdue fixed deposits, cash certificates and cumulative/recurring deposits,outstanding Telegraphic Transfers (TTs), Mail Transfer (MTs), Demand Drafts(DDs), unclaimed deposits, credit balances in the Cash Credit account anddeposits held as security for advances which are payable on demand. Moneyat Call and Short Notice from outside the Banking System should be shownagainst liability to others.


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Capital Adequacy Ratio

Capital Adequacy refers to the sufficiency of the cushion of equity and other accounts that function to absorb any shocksthat the bank may experience as a result of losses or

diminution of its assets.Risk Weighted Capital-Shareholder s Equity-Tier 1 CapitalBalance sheet items- Tier 2 Capital (e.g. Loan loss reserves,

minority interests in consolidated subsidiaries, subordinateddebts, hidden reserves)


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C.A.R-continued

CAR= (Tier 1 Capital+ Tier 2 Capital)X100/Risk Weighted Assets.Asset Weightings

Cash, Deposits with Central Government and Central Bank-0%Cash items in the process of collection- 20%Loans Fully secured by mortgages on owner occupied

residential properties- 50%Claims on real estate, private sector lendings-100%Currently Recommended C.A.R in India- 12%


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BASEL IIBasel II is the second of the Basel Accords, which arerecommendations on banking laws and regulations issued bythe Basel Committee on Banking Supervision. The purpose of

Basel II, which was initially published in June 2004, is to createan international standard that banking regulators can use whencreating regulations about how much capital banks need to putaside to guard against the types of financial and operationalrisks banks face.


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BASEL II continued

Ensuring that capital allocation is more risk sensitive;Separating operational risk from credit risk, and quantifying

both;Attempting to align economic and regulatory capital moreclosely to reduce the scope for regulatory arbitrage.


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STATE OF THE INDUSTRY

According to RBI's 'Quarterly Statistics on Deposits and Creditof Scheduled Commercial Banks: March 2009', nationalisedbanks, as a group, accounted for 49 .5 per cent of theaggregate deposits, while State Bank of India and itsAssociates accounted for 24 .1 per cent.

The shares of other scheduled commercial banks, foreignbanks and regional rural banks in aggregate deposits were18.2 per cent, 5.2 per cent and 3.0 per cent, respectively.


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India's foreign exchange reserves were US$ 252.0 billion as atend-March 2009 which increased to US$ 253.0 billion by April10, 2009.

The country's largest bank the State Bank of India's (SBI)branch network, increased by 470 to over 11,900 branches.Based on March-end 2009 figures, SBI's deposits increased byUS$ 6 billion to US$ 152.32 billion and advances by US$ 4.57

billion to US$ 120 billion.


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In its platinum jubilee year, the RBI, the central bank of thecountry, in a notification issued on June 25, 2009, said thatbanks should link more branches to the National Electronic

Clearing Service (NECS) . Ideally, all core-banking-enabledbranches should be part of NECS. NECS was introduced inSeptember 2008 for centralised processing of repetitive andbulk payment instructions. Currently, a little over 26,000branches of 114 banks are enabled to participate in NECS.


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Since mid-September 2008 till date, the Reserve Bank has cut

the repo rate by 400 basis points to 5 per cent and the reverserepo rate by 250 basis points to 3.5 per cent. The CRR wasalso reduced by 400 basis points of NDTL of banks and stoodat 5 per cent.

Apart from the bank rate cuts announced in the stimuluspackages, cash withdrawals from bank did not attract tax fromApril 1, 2009 following abolition of the banking cashtransaction tax (BCTT) in the Union Budget 2008-09. Also,

inter-ATM usage transaction became free of charges effectiveApril 1, 2009.


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Statistics on current scenario

Liquidity is an important aspect for the smooth functioning of anybusiness. One source of ensuring liquidity is through borrowingfrom the banks.For this purpose banks grant credit and hence the rate at which thiscredit disbursal grows is called Credit Growth Rate . One major partof this credit growth rate is the proportion of loan granted forfinancing Working Capital.


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Industry credit and its Growth

During 2005-09, overall industry creditgrew at a CAGR of around 26 per cent,driven by capacity expansion plans,new projects and increasing working

capital requirement of corporate.

Although the global economicslowdown affected the Indianeconomy in the second half of 2008-09.

In 2009-10, with economic activityexpected to revive in the second half with strong growth in investments inkey sectors.


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Working capital loan as a proportion of industry credit and its growth

Working capital credit, which formsaround 45 per cent of the overallindustry credit, rose by an estimated

23-25 per cent in 2008-09.

In 2009-10, we believe that banks willbecome cautious by adopting stricterunderwriting standards and exposurelimits to avoid further increase in

delinquencies , so working capitalloan rate is expected to decrease.


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REASONS FOR RBI DECISIONS

However central bank governor feels capital flows are nowcommensurate with the current account deficit. "We aregetting capital flows when we need and in the amount we

need. Our MSS (market stabilization scheme) issuance arelinked to capital flows.The Reserve Bank of India signalled the withdrawal of theeasy monetary policy stance by raising the Statutory Liquidity

Ratio (SLR) from 24%-25%.


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THANK YOU!!!

Banking Presentation Samrat

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