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Banking Business A QUALITY E-LEARNING PROGRAM BY WWW.LEARNWITHFLIP.COM
The term ‘bank’ is used generically to refer to any financial institution that is licensed to accept deposits that are repayable on demand, and lend money.
Services offered by a bank to a corporate are:
Loans: Banks provide short and long-term funds to businesses.
Cash Deposits: Corporates deposit surplus funds in a bank.
Foreign exchange transactions: Banks act as authorized dealers to facilitate foreign exchange
transactions.
Advisory Services: Banks provide financial advisory services such as valuations, issue management,
mergers & acquisitions, etc. to corporates.
Trade and commerce: Banks play the role of the trusted intermediary between parties involved in trade
and facilitate trade and commerce.
NBFCs
‘NBFC’ stands for ‘Non Banking Financial Company’. An NBFC broadly carries out lending and investment functions.
Only few permitted NBFCs can accept deposits. The three key differences between a bank and NBFC are:
1. An NBFC cannot accept deposits which are repayable on demand. Some can accept fixed-term deposits. 2. Any deposits accepted by NBFCs (these will be of fixed maturity as explained above) are not insured 3. Only banks can participate in the payment system; hence NBFCs cannot issue cheque books to their
customers.
Categories of Banks in India
Scheduled banks: Banks which have deposits > INR 200 crore are ‘Scheduled Banks’.
Non-scheduled banks: Banks which have deposits <= INR 200 crore are ‘Non-scheduled Banks’.
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Reserve requirements are a certain percentage of deposits taken which are to be maintained with the RBI. Reserve
requirements in India are of two types:
1) Cash Reserve Ratio: A certain percentage of all deposits must be placed with the RBI in the form of cash.
CRR defines this percentage.
2) Statutory Liquid Ratio: A certain percentage of all deposits must be used to purchase Government
securities. SLR defines this percentage.
Key Concepts for Banks & NBFCs
1) Net Owned Funds: Essentially NOF is Owners’ Equity – i.e., money belonging to the owners.
Net Owned Funds = Owners‟ Equity – Losses
2) Capital to Risk Weighted Assets Ratio (CRAR): CRAR gives the ratio of owners’ money as a
percentage of risk weighted assets (loans).
3) Ways of charging interest:
a) Flat rate method: Charging interest on constant principal. That is, if a loan of Rs. 1 lakh is given,
interest is always calculated on Rs. 1 lakh, even if Rs. 5000 is repaid each month.
b) Reducing balance rate method: Charging interest on outstanding principal – i.e. any repaid principal
is deducted from the outstanding amount and interest is only charged on unpaid principal.
4) Methods of securing a loan with collateral:
a) Pledge: When a borrower ‘pledges’ an asset and borrows against it, she loses the right to use it. This
means usually that, the asset will lie with the lender.
b) Hypothecation: ‘Hypothecating’ an asset gives the owner the right to use it, and the lender the right to
seize and sell it in case of default.
c) Mortgage: Mortgage is used whenever the asset used as collateral, is immovable property.
d) Lien: A lien means, the claim of the lender on any asset used to secure the loan.
5) NPA and Provisioning: An NPA is a ‘Non Performing Asset’. Lenders must ‘provision’ for NPAs, which
means they must keep aside a certain portion of their income to provide for the losses against these NPAs.
For a bank, a loan becomes an NPA after 90 days overdue; for an NBFC, after 180 days.
6) Priority Sector Lending: For all domestic commercial banks, 40% of their lending must be to the priority sector defined by the RBI. The priority sector includes:
• Agriculture
• Small enterprises
• Self Help Groups
• Micro Credit
• Educational Loans
• Housing Loans
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The primary function of a bank is to collect funds (deposits) at a lower interest rate and lend them out at a higher
interest rate. A bank makes money via ‘Net Interest Income’.
Net Interest Income (NII) = Interest Earned on Loans – Interest Paid on Deposits
However, a sizeable portion of income comes from fee charged on various services such as
Demand drafts
Advisory services to corporate,
Trading income,
Commission via selling other (non-bank) financial products like insurance and mutual funds.
Cost of Funds for a Bank
It is critical for a bank to keep close track of the cost of the money it is borrowing. It has thousands of deposits, each
of different tenors (tenures/maturity) and with different interest rates. It can work out its lending rate, only if it
knows the cost of the money it has borrowed.
Weighted Average Cost of Capital (WACC)
We can find the cost of funds using the concept of Weighted Average Cost of Capital. It can be calculated as shown
below.
Rate Weight Weighted cost
Savings A/cs 3 % 0.45 1.35
Fixed deposits 7% 0.25 1.75
Current A/cs 0% 0.3 0
WACC = 3.1 %
Spread
The difference between the average deposit rate and the average lending rate is called the ‘spread’.
Spread = Average Lending Rate – Average Deposit Rate
In India, banks typically work on spreads of 3-5%. So, if SBI says its spread is 3%, it means that the difference between its average deposit rates and lending rates is 3%. Difference between Spread and NII
NII is the income earned (difference of the actual interest earned and paid) by the bank in absolute terms. Spread is
the difference between the interest rates.
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Banks are structured based on what specific businesses they focus on. For example, if its two-wheeler loans business
is large, it may have a separate business unit (department) just for this product. If not, there maybe a unit catering
jointly to two wheeler loans, loans against securities, etc.
Described below is a generic overview of what a large bank would look like.
Broadly, a bank’s divisions can be categorized for easier understanding, into:
1. Line Functions - Business units which are a key part of banking operations, are called ‘Line Functions’ – and are customer facing or part of the ‘Front Office’. This means they are interacting with the customer. These include the sales functions, the channels and each specific group of offerings like retail banking, corporate banking, etc. as shown.
2. Back Office & Support Functions - The second category also comprises key line functions, but these are
‘back office’ or operations. They support the front office. These include all operations such as account
opening, loan documentation processing; also risk management, payments, new product development and
Asset & Liability Management or ALM.
3. Staff Functions - The third set is the ‘staff’ functions – they are not key banking or line functions, and
would be there in any large organization. These are functions like Human Resources, IT, Legal, Finance &
Control, etc.
Let us know about each section in brief.
Channels: Systems/Infrastructure which enables a customer to access the bank’s services.
Sales & Marketing: Division managing sales of all the products of the bank.
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Retail banking is a division that handles banking requirements of individuals and small businesses. The retail bank
acts as a key channel to collect deposit funds, which are in turn used to generate profits for the bank.
The retail bank broadly offers two categories of products:
Liability (Deposit) Products
Asset (Loan) Products
Liability Products
A deposit is a contract between the bank and the customer. The bank must repay the deposit per the terms of the contract. Hence deposits are liabilities for the bank. Bank deposits are insured. Some deposit accounts pay interest.
In India, RBI mandates four basic types of domestic deposit accounts:
a) Savings Accounts: These accounts are meant for individuals. The key features of a savings account are:
Users Meant only for individuals.
Withdrawal
frequency
There is some restriction on the number of times a customer may withdraw or deposit
funds.
Interest rate
It pays interest. Currently (Oct 2011), RBI has deregulated the savings rate. The
interest is calculated on the daily balance in the account. The interest is credited to the
accounts on a quarterly or longer rests.
b) Current Accounts: The key features of a current account are:
Users
They are held mainly by businesses. Legally speaking, they can also be opened by
individuals, but unless they have a large (say, more than a hundred per month) number
of transactions, they’d be better off with a savings account which pays them interest.
Withdrawal frequency These are accounts primarily meant for transacting, and hence have no restrictions on
the number of transactions.
Interest rate Banks do not pay any interest on current accounts, though RBI allows Urban Co-
operative Banks to pay some interest if they wish.
c) Term/Time/Fixed Deposits: These are deposits with a fixed maturity, hence also called Fixed Deposits
(FDs).The key features of a fixed deposit are:
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Non Banking Finance Companies (NBFCs) are financial institutions that provide services, similar to banks, but they do not hold a banking license. The main difference is that NBFCs cannot accept deposits repayable on demand.
Classification of NBFCs
NBFCs have been classified into three types: 1. Asset Finance Company (AFC): An AFC is an NBFC, whose principal business is the financing of physical assets. This includes financing of automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments and general purpose industrial machines. An AFC may be either 1. Giving loans to businesses for purchasing the physical assets – tractors, machinery etc. 2. Leasing these assets to businesses. Examples of AFCs are Infrastructure Finance Limited, Diganta Finance etc. 2. Investment Company (IC): This is an NBFC whose primary business is purchase and sale of securities (financial instruments, such as stocks and bonds). A mutual fund would come under this category. Examples of an Investment Company (IC) are Motilal Oswal, UTI Mutual Fund etc. 3. Loan Company (LC): Loan Company (LC) means any NBFC whose principal business is that of providing finance, by giving loans or advances. It does not include leasing or hire purchase. Example of a Loan Company (LC) is Tata Capital Limited.
NBFCs can be further classified into those taking deposits or those not taking deposits. Only those NBFCs can take deposits, that a) Hold a valid certificate of registration with authorization to accept public deposits. b) Have minimum stipulated Net Owned Funds (NOF – i.e. owners’ funds) c) Comply with RBI directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the bank.
How do NBFCs Access Funds?
NBFCs cannot access CASA funds, they can only access fixed deposits which are the most expensive among all deposits. Also, not all NBFCs can access deposits – there are regulations governing which can, and which cannot. Their cost of funds, and hence lending rate, is typically higher than a bank’s. People borrow from NBFCs because their lending norms are not as strict as a bank’s. However, their default rates are therefore also generally higher.
NBFC Business Offerings
NBFCs focus primarily on the areas which banks do not service, or service sparingly. Deposits (for some), lending, leasing and hire purchase are key activities. Business offerings of an NBFC are: 1. Deposits: Customers deposit with NBFCs because they pay rates higher than those of banks. They can accept public deposits which are of fixed maturity. The minimum maturity period is 12 months and the maximum 60 months.
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2. Leasing & Hire Purchase: An asset finance company, mainly derives revenues from financing assets such as equipment, vehicles, etc. In a Lease transaction two parties are involved: a) Lessor: The person who pays rent for land or property from a lessor. b) Lessee: The person who rents land or property to a lessee. The ownership of the asset rests with the asset finance company. The AFC earns lease rentals, which comprise finance or hiring charge and recovery of the ‘used up’ value of the leased asset. In hire purchase the ownership of the asset is transferred to the hirer at the end of the HP period. 3. Lending: NBFCs tend to take on higher risk than a bank. They are not constrained by the priority sector lending requirement which banks have.
4. Investment Services: NBFCs offer a wide range of investment services such as:
Merchant Banking and Underwriting - Investment Banking functions where a business that wishes to raise capital is provided various services.
Central Bank of the country: The Settlement Bank - most often, the RBI– ensures that payments get
settled between various banks.
Clearing house: The Clearing house in turn, sends data to the settlement bank.
Service branches: Each bank in turn, will have one service branch which interacts with the clearing house.
Member banks: Exchange of funds between the individuals and businesses takes place via their banks,
who are members of the payment system.
Households/Firms: The largest users of the system – households/individuals and businesses.
Steps in a payment system
There are 2 steps in payment systems:
1. Clearing: It is the process of classifying which bank owes what to whom.
2. Settlement: It involves settling obligations via exchange of funds. Settlement can be of two types. Deferred Net Settlement systems: Refers to settlement between banks by netting off what they owe each other. Since netting can only happen once some transactions have occurred, there is always a lag between clearing and settlement. Hence netsettlement systems are also called Deferred Net Settlement or DNSsystems/methods.
Real Time Gross Settlement (RTGS) systems: RTGS systems enable settlement of each transaction, at the same time as the payment instruction. These are typically used for large value payments, and are not feasible for small value retail payments. DNS is feasible for large volume, lower value payments and RTGS is great for high value, time critical payments.
Categorization of Payment Methods
Payments can be classified into various categories, depending on how the payment instruction is given by the payer:
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Cheques: A cheque is a payment instrument in a specified format, using which, the payer instructs (or
‘draws on’) his bank to allow a debit from his account.
Demand drafts: Similar to a cheque except that a cheque, is payable finally by the payer (‘drawer’, in cheque terminology) who holds an account with the paying bank, while a draft is payable by the paying bank itself.
Card based payments
Debit cards: Plastic card which one can swipe to give electronic instruction to bank to debit his account
and transfer funds to recipient.
Credit cards: Plastic card which one can swipe to give electronic instruction to bank to transfer funds to recipient but without debiting his account for a specified period.
Electronic payments
Electronic Clearing Service (ECS): The Electronic Clearing Service clears and settles mainly bulk,
repeated electronic payments. In this one time authorization, your account may be debited periodically.
National Electronic Funds Transfer (NEFT): NEFT is useful for one time electronic payments.
Real Time Gross Settlement (RTGS): RTGS is usedif one wants to make a one time transaction involving amount more than INR two lakhs and funds will transfer immediately.
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Risk Management in Banks and NBFCs Risk is the probability of financial loss. It’s not a certainty. This is important, in order to measure and manage risk. Risks can arise both from causes internal to a business (such as employee fraud) or externally from the environment - causes not directly related to operations (e.g. exchange rate risk for IT companies). The key then, is to be aware and take steps to manage risks.
Risk Management Process
Risk management is a three stage process and is shown below: 1. Identify the risk 2. Measure the risk 3. Implement risk management measures
Risk Management in Financial Institutions
Risk Management for financial institutions like banks has large significance, as there are a lot of parties/processes dependent on them. If a bank fails, hundreds of thousands of depositors money is at stake; the entire chunk of payments which is due to be paid to other banks via the deferred net settlement process, is at stake – hence other banks are affected; this bank will have borrowed from other FIs – they in turn will have problems paying back their obligations.
Typical Causes of Financial Crises
The root causes of financial crises have been classified as follows:
Asset (Loan) Quality
Asset-Liability Mismatch: Banks and financial institutions have assets and liabilities of different maturities. This exposes them to Interest Rate Risk and Liquidity Risk.
Fraud: Poor risk management processes have also resulted in frauds in large institutions.
Let’s discuss the risk management process in detail.
Identifying Risk
The first step in the risk management process is to identify the sources of risk.Credit Risk, Market Risk and Operational Risk encompass over 90% of the risk faced by financial institutions today.
Market Risk - Risk of loss due to price movements in any market the institution is trading in, such as
currency, stocks, bonds, commodities etc.
Credit Risk - Risk of loan default
Operational Risk - Risk of incurring losses due to manual errors, fraud or system failure.
Liquidity Risk - Risk of not having liquid funds when needed. Liquidity risk exists typically in emerging
markets.
Let us now map each of these risks more specifically to each division of a bank/financial institution to make it more
relevant.
Current Account and Savings Account (CASA) - Liquidity Risk: The institution should have enough
funds to give loans and repay depositors.
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Loans – Credit Risk: The institution should ensure that loans given are recoverable from the parties and
there are minimum defaults.
Cheque Clearing – Operational Risk: The institution should ensure that the clearing process takes place
smoothly without any manual errors. Else they would be exposed to operational losses.
Letter of Credit – Credit Risk: As the institution is providing a guarantee, they are exposed to default risk,
similar to loans.
Cash Management Service (CMS) – Operational Risk: Here again, as this activity is operation intensive,
the institution is exposed loss due to system failure, manual errors etc.
Trading – Market Risk & Operational Risk: As this involves the front office activity of trading in market
variables such as stocks and bonds and the back office activity.
Underwriting – Market Risk: As the institution agrees to buy unsubscribed amount in case of public issues
and issuance of other financial instruments.
Asset Liability Management – Market Risk & Liquidity Risk: Both loans and deposits are subjected to
market risk and liquidity risk.
Measuring Risk
The next stage in risk management process is to measure the risk. We all know that risk can be defined as probability of occurrence and deviation from expectation. There are a number of other risk parameters such as ‘Duration’ – used for bonds, ‘Beta’- used for equities, ‘Factor sensitivity’ - used for currencies etc. Let us discuss briefly about a comprehensive measure of risk called ‘Value at Risk (VaR)’. Value at Risk (VaR)
VaR is an attempt to provide a single number summarizing the total risk in a portfolio of financial assets. It has become widely used by corporate treasurers and fund managers as well as by financial institutions.
Some of the impetus for the use of VaR has also come from the regulators. Regulators now require all banks to calculate VaR. They use VaR in determining the capital a bank is required to keep, to reflect the risks it is bearing. Remember, risk measures are statistical estimates which can never be made with 100% confidence. The full statement of VaR therefore reads as follows “We are X% confident that we will not lose more than V rupees over the next N days.” There are various methodologies for computing VaR. Variance -Covariance Methodology
o J.P Morgan's Risk Metrics o FEDAI methodology for currencies in India
Simulation Methodology o Historical Simulation (using past data) o Monte Carlo (using random sampling)
Basel Norms for Capital Adequacy
The Bank for International Settlements (BIS) is an international organization that fosters international monetary and financial cooperation, and serves as a bank for central banks of various countries. The Basel Committee on Banking Supervision was formed in order to secure standardization across the global banking industry, to limit risks faced by the banking system.
Basel – I Norms
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Basel I norms defined the minimum capital required to be maintained by internationally active banks. This capital
required, was linked directly to the risk faced by them in their operations.
The norms established a standard of risk weights applied to different classes. So, riskier lending (such as
unsecured loans to borrowers of doubtful credit history) attracted higher risk weights, and hence, higher capital
requirements.
The risk weights suggested to banks were as follows: Lending to your own branch – 0% Lending to another bank – 20% Lending to a corporate of certain credibility – 50% Lending to other entities – 100%
Basel – II Framework
The Basel- II Accord later came up with a comprehensive framework covering credit, market and
operational risk as well.
The amount of capital to be maintained would be directly proportional to the risks taken in each
category.
Basel III – The Latest
The financial crisis of 2008 made the Basel committee review and come up with more stringent norms. One of
the main outcomes of Basel III is a significant rise in the banking industry’s capital requirements.
It increased the minimum capital requirement for RWA to 10.5% from 8%.
It also increased the weightage of core capital (Tier I) against RWA.
It introduced measures for better management of liquidity risk within banks.
Banking Laws and Regulatory Compliances:
Banking Laws
Some of the main laws in banking are:
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1. Negotiable Instruments (N.I) Act: The N.I Act covers the rules around transactions of negotiable instruments. Negotiable instruments are payment instruments which are transferrable from one party to another. Example: promissory note, bill of exchange
A Promissory Note is a note written by a borrower, promising to pay back the sum borrowed. Bill of exchange is an instrument used in business transactions. A seller will prepare a bill saying
‘Pay (seller or whoever is to be paid) the payment amount’, and send it to the buyer.
2. UCPDC: It stands for Uniform Customs and Practices for Documentary Credits. A Letter of Credit (LC) is also called a documentary credit. As trade finance is across countries, there have to be uniform practices followed globally. Hence, the International Chamber of Commerce (ICC) has issued this set of regulations governing international trade. It’s commonly called ‘UCP’ and as the current version is called 600, the ‘UCP 600’.
3. SARFAESI Act: SARFAESI stands for Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act. This Act covers the rights a lender has over the collateral, when a secured loan defaults. ‘Reconstruction’ of an asset, is banker-speak for reworking the terms of a loan to ensure that the money is repaid. The SARFAESI Act in case of default, covers features such as:
a) Securitization: Issuing securities – financial instruments – against the recovered assets. It can be done only by specific registered entities called an asset reconstruction company or securitization company.
b) Guidelines for Asset Reconstruction: It covers how a defaulting business should be managed or controlled to ensure repayment. Payments can be rescheduled, and secured collateral repossessed.
c) No court intervention needed: One of the main features of this Act is, the lender can take over the collateral without court intervention, which was not possible earlier.
Regulatory Compliance
Regulatory compliance means, ensuring that the bank is functioning within the regulatory requirements laid down by the regulator-the Central Bank. The compliance requirements for a bank are:
1. Reserve Requirements: These requirements define how much of every deposit must be deposited with the RBI. Currently, 4% of every deposit must be deposited with the RBI under the Cash Reserve Ratio (CRR). And 22.5% of every deposit must be invested in defined Government securities, under the Statutory Liquidity Ratio (SLR). NBFCs have only SLR requirements, no CRR. This protects the bank/finance company (FC) against liquidity risk and the customer against default risk.
2. Know Your Customer (KYC) & Anti Money Laundering (AML): These compliance requirements come from the Prevention of Money Laundering Act (PMLA). KYC and AML norms have been implemented the world over post 9/11. KYC procedures enable banks to know/understand their customers and their financial dealings better, which in turn help them manage their risks prudently. Here the entire focus is on gathering sufficient information on a customer’s profile, and monitoring his transactions on an ongoing basis for ‘suspicious’ (unusual) activity.
A bank has hundreds of thousands of customers. The effort involved in actually monitoring every transaction is huge. The steps involved in monitoring transactions are:
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1. Customer Identification Procedure: to gather adequate information about a customer and his/her financial behavior. The key elements are, to collect and verify proof of identity and address (for individuals), categorise the customer into different risk profiles and review risk categorization regularly.
2. Monitoring Of Transactions: To make monitoring of transactions easy the customers are classified into low, medium and high risk customers. Once customers are categorized, their account profiles are developed.
3. Reporting: As per RBI regulations, all cash transactions greater than INR 1 million must be reported via what’s called a Cash Transaction Report (CTR). Further, any suspicious transactions also need to be reported.
Technology in Banking
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Each of the above applications is relevant to the entire bank. Hence it has to be connected with every part of the
bank, i.e. it has to be available to every division.
Modules for Individual Divisions
Now, let us look at the ‘modules’ or applications which automate different divisions or functions.
Sales & Marketing Module:
A sales & marketing application is typically a separate application which integrates into the Core Banking system. It
enables:
Input of external databases (which can be purchased). These are used for sales campaigns via mailers, telecalling etc.
Importing of customer data from the Core Banking application. This is also used for sales campaigns which are more targeted.
Tracking of the results of each sales campaign. Targets and incentives management for sales staff
Channels Modules:
Each channel has its unique work flow, and some standard work flows. Channel specific IT applications will ensure
specific functionality. Let’s see how ATMs are connected and how they function.
1. ATMs – These are connected to each other via a ‘switch‟ or network. That’s the reason why you can
withdraw from an ATM hosted by Axis Bank, even if your account is with HDFC Bank. The Axis Bank ATM and
the HDFC Bank ATM are connected to the same network via a switch and messages can flow from an ATM to
another bank.
2. Branch Banking - A branch banking application will mainly enable teller and customer service functions.
Some of these are:
Account Opening
Regular Account Transactions
Payments/Fund Transfer
Sale or Purchase
Fixed Deposit Transactions
Loan Account Transactions
3. Internet Banking - The internet banking application is separately built, as it needs a lot of specific
functionality. It will need extensive security to ensure that secure customer data is not accessible by
unauthorized people on the net.
Retail Banking Modules:
Following are the modules under retail banking division.
1. The Current Account and Savings Account (CASA) Module - The CASA module, helps in supporting a complete range of savings, current and overdraft accounts (that is loans against the current or savings accounts).
2. The Term Deposits Module - This module helps in handling the full range of retail term deposits, including recurring and sweep-in deposits.
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3. The Standing Instruction Module - This is for automating the periodic processing of customer instructions. Thus, if you instruct your bank to transfer INR 10,000 to another account on the first of each month, the S.I module will send a debit instruction to the GL module.
4. The Signature Verification System - This system is used for image capture and retrieval. So when you open an account, your signature is scanned and stored. This is retrieved whenever necessary. If the debit is successful, a confirmation is sent from the S.I module via email or sms to you. No human intervention whatsoever is needed.
5. The Loans Module - A loans module, offers transaction processing services for all events in the lifecycle of a loan.
A loans system would broadly cover:
a) Loan origination which covers the workflow up to the time the loan is disbursed, and
b) Loan maintenance and administration: statements, payment collection, etc.
Corporate Banking Modules
Typical corporate banking modules are:
1. Cash and Liquidity Management Module – This module enables a bank to offer sophisticated cash and liquidity management services to corporate treasuries for managing their cash positions.
2. Corporate Deposits Module – This module supports all kinds of term deposit products for corporates. It automates processes like interest payment calculations on deposits.
3. The Letters of Credit, Bank Guarantees and Bills Modules – These modules offer comprehensive support
for a bank’s trade financing activities. For example, banks can automatically credit the Cash Credit (CC) account of a customer upon receiving its bills.
Investment Banking Modules:
Typical investment banking modules are:
1. The Loan Syndication Module - Addresses the processing requirements of consortium or group loans.
For example, a lead banker can input the share of each bank in the consortium; track the repayments made by the borrower and how much and when these have been routed to the various banks, how much is outstanding for each bank, fees/income earned etc.
2. The Mergers & Acquisitions Modules - This will enable a bank to use different valuation models for pricing
M&As. This module has inbuilt valuation models which will give the valuations of companies – by varying input
data such as revenues, cash flows, growth rate etc.
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1. The Foreign Exchange & Money Markets Modules - These modules support all currency and money market
transactions. These are supplemented by an integrated dealing room decision support system – which allow a
dealer to analyse the result of various possible scenarios and take trading decisions.
2. The Securities Module - Offers support for handling a bank’s primary and secondary market deals, whether
for itself or on behalf of its customers.
For example, this module takes data from various sources and feeds the user interface with latest market prices
of various securities. This will help the users (traders in the bank) take the trading decisions
Mutual Fund Management Modules:
These are ‘optional’ modules, i.e. useful only if the bank also owns a mutual fund.
1. The Asset Management Module - This module helps a bank to create funds and manage all transaction
processing activities over the life cycle of a fund.
2. The Mutual Fund Investors Services Module - This module is for servicing the investor interface for mutual
funds – that means, an investor can directly place orders or view her account details using this interface.
Domestic and International Payment Modules:
1. The Loan Payments and Collections Module - The ‘local payments and collections module’, for processing all local payments and collections, including ECS (Electronic Clearing Service – i.e., electronic) instructions.
2. The Cross Border Funds Transfer Module - The ‘cross-border funds transfer module’, for processing all types of international inward and outward funds transfers.
3. The Nostro Reconciliation Module - This module is used for automatic reconciliation of balances and transactions in nostro accounts. Nostro accounts, as you know, are foreign currency accounts of a bank, maintained with a correspondent bank.
4. The Electronic Messaging system - This system is for smooth message transfer over SWIFT, with features for supporting ‘straight through processing’. SWIFT is a common messaging format used across the world, and enables the sending and receiving banks to process the message without human intervention, called straight through processing.
Document Management Module
A document management module enables a bank to secure, track and manage information that is generated in the
form of documents. This enables the bank to save a lot of cost, time and of course, gives them peace of mind.
General Administration Modules
The following modules cater to the general administration division of bank:
1. The Expense Processing Module - Enables the automation of all processes relating to vendor payments –
vendor contract details, monitoring of credit limits if any to vendors, contract settlements and making final
payments to vendors.
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