Bank Management

PGDM
IIMC
2020
Praloy Majumder
1
Session Three

2
Poll 1

3
 Income statement ..…
• Bank’s source of revenue :
– Interest Income ( II)
– Non Interest Income ( OI)
– Securities Gain ( SG)
• Bank’s expenses include :
– Interest Expenses ( IE)
– Non Interest Expenses ( OE)
– Provision for Loan Losses ( PLL)
– Security Losses ( -SG)
– Taxes ( T)

4
 Income statement ..…

• Net Interest Income ( NII) = II-IE

– NII= yiAi- cjLj
• Burden = OE-OI
• Efficiency Ratio = (OE)/[II+OI]
• NI = NII- Burden – PLL+SG-T

5
 Important ratios
• Burden ratio = (Non Interest expenses- Non
interest income)/ATA
• Efficiency Ratio = Non Interest Income/ (
NII+Non Interest Income )
• Credit Deposit Ratio = Loans and Advances /
Total Deposit ;
• CASA % = Current Account and Savings
Account Amount / Total Deposit ;
• Net Interest Margin = Net Interest Income /
ATA
6
 Gross NPA
Particulars Amount
1 Standard Advances
2 Gross NPA
3 Gross Advances ( 1+2)
4 Gross NPA as a % of Gross Advances
5 Deductions
i) Provisions held in NPA account as per Regulatory Norms and above

ii) DICGC/ECGC Claims received but not adjusted

iii) Part payment received but kept in suspense account

iv) Balance in sundries account ( Interest capitalization – restructured account ) in

case of NPA account
v) Floating provisions

vi) Provisions in lieu of diminution in the fair value of restructured accounts

classified as NPA
vii) Provisions in lieu of diminution in the fair value of restructured accounts
classified as Standard asset

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6 Net Advances ( 3-5)
 Gross NPA
Particulars Amount
7 Net NPA ( 2-5)
8 Net NPA % ( 7/6)
Provision coverage Ratio
I Gross NPA + Technical /Prudential Write off
II Sum total
Specific provisions

Provisions in lieu of diminution in the fair value of restructured accounts

classified as NPA
Technical Write Off

Part payment received but kept in suspense account

Floating provisions not used as Tier II

DICGC/ECGC Claims received but not adjusted

Provision Coverage Ratio ( II/ I) *100

8
 Implications
Higher capital Higher capital Lower capital
adequacy ratio adequacy ratio adequacy ratio

Higher NIM Higher NIM Lower NIM

Higher GNPA
Low GNPA and Low GNPA and and Lower
Low NNPA Low NNPA NNPA

Lower PCR Higher PCR Higher PCR

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Spread

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 Cost to income ratio
• BOB: 43.13%
• SBI : 42.57%
• ICICI Bank : 45.79%
• HDFC Bank : 38.52%
• Kotak : 40.10%
• Federal Bank : 33.26%
• Canara Bank : 40.83%
• Union Bank : 46.11%
• Bandhan Bank : 38.99%
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Poll 2

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 Maturity profile of deposits
% of Total deposit
Type of Public Sector Private Sector Foreign Banks All SCB
Banks Banks Banks
Maturity

Up to 1 year 43.6% 42.9% 64.2% 44.4%

More than 1 year 22.4% 26.8% 28.6% 24.0%
to 3 years

More than 3 years 10.7% 9.50% 7.20% 10.2%

to 5 years

More than 5 years 23.3% 20.9% 0.00% 21.5%

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 Maturity profile of advances
% of Total loans and advances
Type of Public Sector Private Sector Foreign Banks All SCB
Banks Banks Banks
Maturity
Up to 1 year 26.0% 31.3% 57.8% 29.2%
More than 1 year 41.2% 34.1% 21.0% 37.9%
to 3 years
More than 3 12.4% 12.9% 7.9% 12.4%
years to 5 years
More than 5 20.3% 19.2% 13.4% 20.4%
years

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Poll 3

15
Fintech and bank
collaboration

16
 Fintech collaboration

Impact areas

Wealth
Payment Lending Insurance
Management

17
Bank Transaction , bank
profitability and fin tech

Increase in income Decrease in Expenses

How fintech can help banks to achieve the above ?

18
Bank’s four new revenue
generating areas

Wealth Management Retail Lending

Digital and
Analytics Capability

Transaction Banking SME Lending

19
 Fintech transition

Pay Tech Credit Tech Wealth Tech Insurance Tech

20
 Pay Tech entities

Bank is the central to financial intermediation process

Mobile phone Digitalisation Mobile Financial Service

Alternate payment ecosystem
21
 Level 1 of pay tech firm
• Improvement in payment process
– Mobile subscribers
– Simple KYC
– Payment transfer
– Digital wallet
– Last level settlement happening through
banks

MFS

22
 Level 2 of pay tech firm
• Improvement in payment process
– Credit card
– Debit card
– Mobile payment system
– Internet payment system
• Companies are working around these
established players

23
 Credit card transaction
EMV

Pay tech
Tokenisation
Tokenisation +
Mobile hardwareProcessor /ISO Merchant
Credit card – customer
Based security

Payment network

Merchants bank
Issuer
Acquirer
 Level 3 of pay tech firm

PSP PSO

Payment gateway

E commerce

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 Payment gateway working
Bank account , credit card , digital wallet

Net
PG1 PG2 Banking
UPI

PSO/PSP

Customer E commerce site 26

 Level 3 of pay tech firm
• Social media to payment process :
– Start with social medium
– Increasing loyalty
– Understanding customer behaviour
– Payment services
• Venmo , What’s app pay
– Targeted for young millennials

27
 Level 3 of pay tech firm

Contactless payment QR Code Iris based payment

Physical transaction with social distancing

28
 Credit tech firm
• Pay tech firms are gathering data of the
customer
• Pay tech firms can get more insight
about customers behaviour
• Pay tech firms can create better credit
underwriting models and then can lend
• Thus the formation of Credit tech firm

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 Credit tech firm
MSME lending

E commerce firm Kirana shop

Pay tech firm

Customer
data
Structured and unstructured data
Customer Financial
AI and ML Data
Based
AA
Retail lending algorithm

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 AA model
RBI SEBI IRDA PFRDA

Banks DP
SB Equities Insurance Pension funds
Payments Securities Policies Portfolio

PC
R AA User

CIB Personal
Robo
Credit Finance
Advisory
Management
IIU

31
 Global evolution

E commerce Pay tech Credit tech

Social media to payment

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 Indian scenario

Pay tech Credit tech , wealth tech ,

E commerce
Insurance tech

Payment bank

33
 Indian scenario

Telecom Physical presence E commerce

Digital wallet Payment bank Kirana linkages

Reliance Account
NBFC Aggregator 34
Lessons from Ant Financials –
suspended IPO

35