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Table of Content
Overview of BFSI Industry 1-8

v Key Players in BFSI Industry
v Organized and Unorganized FI's
v Regulators of BFSI
Evolution of Money and Banking 9-14

v Evolution of Money from Barter System to
Digital Banking
v Functions of Money
v Evolution of Banking
Role of Banks and Bank Products and Services 15-66

v Business of Banking
v Role of Banks
v Bank Products and Services as Financial
Intermediary
v Bank Products and Services as Constituent of
Payment and Settlement System
v Bank Products and Services as Provider of
Other Financial Service
Table of Content
Banking Technology and Trends 67-76

v Role and Benefits of Technology
v New products and services in banking
v Technology and business of banking
Types of Financial Customers 77-84

v Individual & Non Individual Customers
Wealth Management 85-92

v Concept of Wealth Management
v Wealth Creation
Overview of Other Financial Products and 107-142

Services
v Equity
v Mutual Fund
v Fixed Income Securities
v Derivatives
v Commodities
v Real Estate
v Art
v Insurance
Careers in BFSI 143-152
v Scope of Banking
v Scope of Financial Services
v Scope of Insurance
Overview of
BFSI Sector - 1
Gross Domestic Product and BFSI
• The Gross Domestic Product (GDP) determines the economic wellness
of a country.
• GDP is the contribution of all sectors, namely:

ü Agriculture sector
ü Manufacturing sector
ü Service industries
• BFSI industry has contributed to the growth of GDP.
• This industry has helped other industries contribute significantly.
Share of BFSI Industry in the Indian Economy
u The BFSI sector is one of the major contributors to the Indian economy.
u The following figure displays the share of BFSI industry in the Indian
economy.
Diploma in Banking © - INFACT Pro 1

Overview of BFSI Sector - 1
(Continued)
India’s Competitive Advantage Against Other Nations: 2020

u The following figure displays India’s competitive advantage against other
nations.
India is competitive both

in terms of numbers as
well as quality.
Source: World Competitiveness Yearbook 2001; Britannica Yearbook; Literature search: BCG analysis.
u The Indian economy:

v Has been witnessing a phenomenal growth during the last decade.
v Is now the second fastest growing economy in the world, after China.
v The Indian economy is expected to grow at an annual rate of 7.4%
in 2018 and 7.8% in 2019, according to a recently released IMF
Economic Outlook.
v As a whole is expected to see a number of opportunities.
v BFSI being a big component of the economy will also grow significantly.
u Banking sector growth in India has witnessed:
v Expansion in number of branches.
v Growth in deposits.
v Growth in loans.
v Larger population being covered through new initiatives of industry
as well as government.
v More competition.
2 Diploma in Banking © - INFACT Pro

(Continued)
Top Economies of the World: 2020

u The following figure displays the top 10 largest economies by GDP
in terms of PPP, expected by the year 2020.
v Indian economy will become the world's third largest economy by 2020.
v The economy is witnessing a period of high growth.
u Key Performance Indicators

v Why Insurance sector will witness a tremendous growth in India?
v Insurance penetration in India has risen to 3.49%, Economic Survey says.
v The Economic Survey 2018, released on Monday, said insurance
penetration - the ratio of premium underwritten in a given year to the
gross domestic product (GDP) – in India increased to 3.49% in 2016-17
from 2.71% in 2001.
v Foreign Direct Investment in India increased by 855 USD Million
in November of 2018.
v Foreign Direct Investment in India averaged 1328.99 USD Million
from 1995 until 2018, reaching an all time high of 8579 USD Million
in August of 2017 and a record low of -1336 USD Million in November of 2017.

(Continued)
Positive Outlook for the BFSI Sector in India

u High density of population
u Percentage of Indian population covered is low for:
v Banking:
ª India has 1 branch for every 15,000 persons, whereas in
developed countries it is 1:5000.
v Insurance services:
ª Less than 5 percent of Indians are insured.
v Participation in equity markets:
ª Less than 3 percent of Indians participate in equity markets.
u Globally, economic development and growth is accompanied by:
ª Need for more banking.
ª Need for more insurance services.
ª Higher participation in equity markets.
BFSI Sector Outlook

u Why is BFSI a growth sector in India?
ª India’s growth necessarily needs a robust and growing financial system.

ª As a thumb rule, if India grows at say 8 percent, the banking sector
will grow at a healthy rate of 24 percent.
ª Many new players have emerged in the last 20 years in the BFSI sector.
ª More liberalisation leading to more opportunities through expansion
of the financial system.
ª BFSI as one of the most preferred, stable and sought after careers:
ª Public’s trust in banks
ª Strong regulatory mechanism
ª Legacy spread over several decades

(Concluded)
Summary
v In this session, you learnt that:
v BFSI industry contributes to the growth of GDP by helping

other sectors.
v BFSI industry offers huge scope for employment and

career development.
v Many services related to the BFSI industry are outsourced

to India.

Notes
Notes
Overview of
BFSI Sector - 2
Overview of BFSI Industry

u BFSI sector includes:
Financial
Insurance
Banks services Regulators
Companies
companies
Commercial Life Mutual funds
Cooperative General Share brokers
Financial products
distribution
companies
Non-banking
financial
companies
v BFSI is a fast growing sector of the service industry, which is

expected to have a bright future.
v This sector uses various services from the IT or
ITES organisations or BPOs.

(Concluded)
v The following lists display the overview of the BFSI sector in India.
Financial
Banking Insurance
Services
w Public sector w Mutual funds w Life insurance

w Private sector w Distribution agencies w General insurance
(broking)
w Foreign banks w Health insurance
w Cooperative banks w Merchant bankers
w Regional rural banks w Custodians
w Development banks w NBFCs
Banks
v Banks cross sell
v Financial services insurance products.
cross sell banking
products.
v Banks cross sell
financial services
products.
Financial
Insurance
Services
v Insurance companies sell insurance products blended with

mutual fund.
v Financial services companies cross sell insurance products.
Summary
v In this session, you learnt that:
ª BFSI industry comprises the following sectors:
¬ Banking ¬ Financial services ¬ Insurance
v BFSI industry is vital for development of the economy.
Notes
Notes
Evolution of
Money & Banking
Evolution of Money
• Money evolved as a:
v Store of value.
v Medium of payment.
v Common measure of value.
v Means of payment.
v Unit of account.
• Money is best defined by its function as

“anything that is widely used for making payments
and for accounting”.
• The three essential characteristics of money are:

v Durability
v Portability
v Divisibility
• Money:
v Was developed as a means of payment.
v Was used to meet various needs and requirements.
v Was invented to overcome the shortcomings of the barter system.
Diploma in Banking © - Inface Pro 9
Evolution of Money & Banking
(Continued)
v The following figure represents the different stages in

the evolution of money:
Exchange of Metallic Paper Bank Plastic

commodity coins currency money money
What is
barter system?
• Barter system:
v Involved usage of commodities as a medium of exchange.
v Included commodities such as cows, sheep, goats, axes
and dried fishes as medium of exchange.
What are the

problems, which
barter system could
have encountered?
• The various problems associated with

barter system are:
v Storage v Durability
v Transportation v Divisibility
v Safety

(Continued)
• Metallic coins:
v Discovery of precious metals such as gold, silver and copper lead to
these being used as money.
v Metallic money consists of coins made of gold, silver, copper or nickel.
• Paper currency:
v Was introduced as a mode of payment.
v Originated as receipts issued by goldsmiths.
v In the form of receipts was used for payments.
• Difference in the value of receipts started becoming
a problem.
• Intangible money:
v Is the currency or coins deposited in banks.
v Includes different instruments offered by banks such as cheques,
drafts, PO, TC and others.
v Is convenient, safe and easily convertible into cash.
v Is similar to Near Money.
• Plastic money:
v Is exchanged electronically.
v Includes:
v Debit cards.
v Credit cards.
v ATM cards.
v Smart cards.

(Continued)
v Involves use of computer networks, internet and digitally

stored value systems.
What are the

characteristics
of money?
• Characteristics of money are:

v Acceptability
v Stability of value
v Transportability
v Storability
v Divisibility
v Homogeneity
• Evolution of Banking
v Banking:
v Originated even before 2000 BC in Babylonia through
the activities of temples and palaces.
v Started with the safe keeping of valuables against
receipts in temples.
v Egypt, Greece and Italy contributed to the development
of banking.
v Bank of England marked the beginning of central banking.

(Continued)
• Evolution of Banking (Continued)

v Early phase of banking was from 1786 to 1969.
v The General Bank of India was set up in the year 1786.
v Bank of Hindustan and Bengal Bank were among the first few banks.
v Presidency banks by East India Company were:
v Bank of Bengal (1809)
v Bank of Bombay (1840)
v Bank of Madras (1843)
v 1865: Allahabad Bank was established
exclusively by Indians
v 1913 and 1948: Bank failures
v 1935: Reserve Bank of India was established
v 1969: Nationalisation of banks
v 1990: Banking sector reforms
v 1949: Enactment of Banking Regulation Act
v 1955: Nationalisation of State Bank of India (SBI)
v 1959: Nationalisation of SBI subsidiaries
v 1961: Insurance cover extended to deposits
v 1969: Nationalisation of 14 major banks
v 1971: Creation of Credit Guarantee Corporation
v 1975: Creation of Regional Rural Banks
v 1980: Nationalisation of seven banks
v 1990: Banking sector reforms
v 2000: Globalisation
v 2004: IDBI enters Banking Sector
v 2005: Banking Ombudsman formed
v 2007: Introduction of Cheque Truncation System (CTS)

(Concluded)
• Evolution of Banking (Continued)

v 2012: Rupay (Indian Version of Credit / Debit Card)
launched by National Payment Corporation of India
v 2013: Bharathiya Mahila Bank formed
v 2017: SBI joins the league of top 50 banks globally

in terms of assets (after it merges all its Associate Banks and
Bharthiya Mahila Bank with itself) with effect from 1st April
v 2018 - India reaching a significant milestone in Digital Banking.

Value of Card usage at POS touching Rs.1.00 lac crores
u The following figure represents the different phases of banking in India:
u Banking continues to evolve in scope and specialisation.
u The financial health of the Indian banks has improved immensely

over the last decade, primarily due to the efforts of RBI.

Notes
Notes
Financial
Intermediaries
What is the
need for financial
intermediation?
• Need for Financial Intermediation

u The following figure represents the concept of
financial intermediation and its need:
Financial Intermediation
Liquidise Transfer
surplus money funds Eliminate Boost
in the to those risks economy
system in need

Financial Intermediaries
(Continued)
• Types of Financial Intermediaries

u The following figure represents the various types of
financial intermediaries:
Financial
Intermediaries
Unorganised Organised
sector sector
Money Other Non-banking Banking

lenders institutions institutions institutional
Indigenous Commercial
MFIs NBFCs
bankers banks
Chit Insurance
DFIs Co-op banks
funds companies
Micro Regional
Nidhis All India DFIs
finance rural banks
Self Help
NGOs State level DFIs
Group
Corporates Other DFIs

(Continued)
• Types of Financial Intermediaries (Contd.)
u The following figure represents financial intermediaries in the unorganised sector:
Money
lender
Indigenous Chit
banker Unorganised fund
Sector
Self Help
Nidhis
Groups
u The following figure represents financial intermediaries

in the organised sector:
Commercial banks
Banking Cooperative banks
Regional rural banks
Organised Sector
NBFCs
Non-banking
DFIs
Mutual Funds (MFs)

Insurance (life and non life)
Others
Micro finance
NGOs

(Continued)
Can you name

two institutions
under each classification
in the organised sector?
u The following figure represents various organisations

under different categories of financial intermediaries:
v Public sector (SBI/BOI)

Commercial Banks v Foreign (SCB/CITI)
(Scheduled/others) v Private - New (ICICI/HDFC)
v Private - Old (Dhanlaxmi/LVB)
v Multi-state (Cosmos/Ahmedabad Mercantile)

Cooperative Banks
v State (Bihar State/TNSC)
(Scheduled/others)
v Urban (Abhudaya/Saraswat)
v MFs (ICICI Pru/UTI)

v Insurance (I Pru/Aviva)
Others
v Micro finance (SKS/Bhandan)
v NGOs (Assist - AP/Biswa - Bihar)

(Continued)

u Name two organisations under each of the following categories:
v Public sector bank

v Foreign bank
v Private bank - New
v Private bank - Old
v Multi-state co-operative bank
v State co-operative bank
v Urban co-operative bank
v MFs
v Life insurance
v Micro finance
v NGOs
u Name two organisations under each of the following categories:
Protection
Risk
elimination
Coverage
Savings

(Concluded)

u The following figure represents the role of MF as a
financial intermediary:
Investors
Passed back to Pool their money with
Fund
Returns
Manager
Generates Invest in
Securities
u The following figure represents the role of NBFC as a

financial intermediary:
NBFC Non Banking Finance Company
û
Cannot issue cheques Can provide financial
or demand drafts like
banks
ü intermediation, such
as granting loans for
vehicles, home or
small scale industries
as a non banking
body

Notes
Notes
Deposit Services
• Banks as Financial Intermediaries

u The following figure represents the role of banks:
u The following figure represents the deposit services available for

residents and non residents:
Demand Savings
deposits Current
Term
deposits
Fixed
Term
Cumulative
deposits
Recurring
Deposit Services Demand NRO

(Liability Products) deposits NRE
NRO
Term Term
NRE
deposits deposits
FCNR
RFC and
Other
EEFC
facilities
(RFC - domestic)

Deposit Services
(Continued)
• Deposit Services for Resident Individuals

u Savings bank account:
v Is primarily meant for savings.
v Is repayable on demand.
v Enables account holders to park their temporary surpluses.
v Is eligible for interest, which is:
v Fixed by respective Banks.
v Payable on daily balance.
v Credited to customer’s Account once in 6 months
v Customers are entitled to additional services, such as:
v ATM
v Cheque collection
v Remittance
v Restricts number of withdrawals in a specified period.
v Requires maintaining minimum balance stipulation or
average minimum balance.
v Can be opened in single or joint names.
v Opening is not permissible for trading and business organisations.
u Current account:
v Caters to the business needs of customers.
v Includes unrestricted operations.
v Requires maintaining higher minimum balances.
v Does not earn any rate of interest.
v Opening requires additional documents.

Deposit Services
(Continued)
• Deposit Services for Resident Individuals (Contd.)
What are the

differences between
a savings bank account
and a current account?
u The difference between a savings bank account and a

current account are:
v Savings bank account is for saving purpose whereas
current account is for business purpose.
v Interest is payable on savings bank account while
no interest is payable on current account.
v There are restrictions on the number of transactions
in a savings bank account whereas there is no such
restriction in case of a current account.
v Minimum balance requirement for current account is
higher as compared to savings bank account.
u Fixed deposit account:
v Is opened for a specified period.
v Minimum 7 days
v Maximum 120 months
v For Minors-court directed deposits-maximum is extended
v Permits premature withdrawal but may entail a penalty.
v Interest depends on the period of deposit.
v Interest is calculated and paid on quarterly basis:
v Can be paid monthly at discounted rates
v Can be issued as ordinary fixed deposit or cumulative
fixed deposit
v Interest, in excess of Rs.10000 is subject to TDS.
v Enables availing loans against security.

Deposit Services
(Continued)
• Deposit Services for Resident Individuals (Contd.)
u Recurring deposit:
v Allows saving a fixed amount every month.
v Is for a specified period.
v Interest paid is as applicable to fixed deposits.
v Interest, in excess of Rs.10000 is subject to TDS
v Permits premature withdrawal on penalty.
v Enables availing loan against security.
u Variable Recurring Deposit:

v Monthly savings amount is variable; banks fix minimum
core amount ; variable amount normally multiples of
some fixed amount
v All other features like normal Recurring Deposit
u RFC – Resident Foreign Currency (Domestic account):

v Is for depositing foreign exchange received by residents.
v Can be utilised for making remittances abroad.
v Can be maintained only as a current account.
v Does not have any interest payable.
u EEFC – Exchange Earners Foreign Currency Account:

v Facility is extended to exporters to maintain their
export earnings in foreign currency.
v Can be utilised for making payments abroad.
v Does not have any interest payable.

Deposit Services
(Continued)
• Non-Resident Indian / Persons of Indian Origin
u Non Resident Indians under FEMA :-
v An Indian Citizen who stays abroad for (a) employment/

carrying on business or (b) vacation outside India or (c)
stays abroad under circumstances indicating an intention
for an uncertain duration of stay abroad is a non-resident.
Persons posted in U.N. organizations and officials deputed
abroad by Central/ State Government and Public Sector
Undertakings on temporary assignments are also treated
as non-resident.
v Non-resident foreign citizens of Indian Origin are treated

on par with non-resident Indian citizens.
u Non Resident Indians as per Income Tax Act 1961:
v Residential Status is determined on the basis of physical

presence i.e. the number of days of stay in India in any
year
u PIO means a citizen of any country other than Bangladesh

or Pakistan, if
(a) he at any time held Indian passport; or
(b) he or either of his parents or any of his grandparents

was a citizen of India by virtue of the Constitution of
India or the Citizenship Act, 1955 (57 of 1955); or
(c) the person is a spouse of an Indian citizen or a person

referred to in sub-clause (a) or (b).

Deposit Services
(Continued)
• Deposit Services for Non Resident Indians
u Non resident Indians are permitted to have the following

types of accounts:
v Non Resident Ordinary (NRO) account: Current, savings, fixed

deposit and recurring deposit in rupees
v Non Resident External (NRE) account: Current, savings, fixed
deposit and recurrent deposit in rupees
v Foreign Currency Non-Resident (FCNR) account: Fixed deposit
account in foreign currency
u NRO account:
v Is for the local funds and income of the non residents.
v Is for parking funds from local sources such as rent, interest

or profit from business in India.
v Does not allow repatriation or remittance of balance abroad.
u Only the following remittances can be made from the NRO account:
v Interest earned on deposits with banks and companies
v Interest on bonds
v Interest on loans given to local persons
v Income from business in India
v Dividend and profit from sale of shares, MF or units
v Rental income
v Medical treatment abroad of upto USD 100000 per year
v Proceeds from the sale of property to the extent of funds
brought in from abroad for buying the property
u TDS at 30 percent has to be deducted from the interest paid.

Deposit Services
(Concluded)
• Deposit Services for Non Resident Indians (Contd.)

u NRE account:
v Is opened only by non residents.
v Can be either single or joint accounts.
v Credits have to be from foreign inward remittances.
v Funds can be withdrawn freely for local payments.
v Transfer (from NRE to NRO accounts) is permitted, reverse is not.
v Transfer (from NRE to local accounts of residents) is permitted,
reverse is not allowed.
v Interest is not taxable.
u Transfer between NRE accounts and NRE and FCNR accounts
are permitted.
u Local funds cannot be deposited into the NRE account except
in the following cases:
v Sale proceeds of shares or bonds, which are purchased with funds
from the NRE account
v Sale proceeds of real estate property purchased with funds from
the NRE account
u FCNR account:
v Is fixed deposits of one to five years maintained in foreign currency.
v Deposits can be maintained in
v Permitted currencies
v In City Union Bank, the following 8 currencies are accepted
v AUD,CAD,USD,SGD
v EUR,GBP,JPY
v SEK (Sweden Krona)
v Balances:
v Are freely repatriable.
v Can be credited to the NRE or NRO accounts.
v In the NRO accounts cannot be invested in the FCNR accounts.
v Earns simple interest on deposits of one year.
v No interest if pre-closed before one year

Notes
Notes
Retail Loans
• Characteristics of Retail Credit

u Are small sized loans
u Meet the needs of large number of customers with well diversified
portfolios
u Target customers, who are either individuals or small organisations
u Offer standard products
u Centralize the operations of retail credit
u Allow bankers to make quick credit decisions
u Cover varied risk segments
• Features of Retail Credit

u Type of facilities
u Secured/Unsecured facilities
u Interest
u Tenure
u Loan to Value ratio
u Loan eligibility
u Credit scoring
u Negative/Caution list

Retail Loans
(Continued)
• Types of Facilities
u Loans:
v Are finance facilities of fixed amount
v Are extended to meet the one time requirement of customers
v Are extended for a fixed tenure, to be repaid in instalments
u Overdrafts:
v Allow customers to withdraw more than the credit balance in
their current account
v Enable customers to meet emergency requirements
v It is called running account
v It is operated by cheque book / debit card
Term Loan of of Rs. 1 lac
Date Debit Balance

02.01.16 To loan 1,00,000 1,00,000
31.01.16 To 950
02.02.16 20,000
29.02.16 720
02.03.16 20,000
31.03.16 590 62,260
02.04.16 cash 20,000
30.04.16 390
v No further withdrawals permitted
v Not operated by cheque book

Retail Loans
(Continued)
Overdraft – Limit of Rs. 1 lac

Date Debit Balance
02.01.16 50,000 50,000
05.01.16 cheque 20,000
10.01.16 To Elect 4,000
11.01.16 65,000
12.01.16 che 1,00,000
25.01.16 To che 1,01,000
31.01.16 To int 340
01.02.16 casg=h 340
v Further withdrawals permitted
v Operated by cheque book
• Secured/Unsecured Facilities
u Secured loans
v Are also known as asset based lending
v Are always secured by an underlying asset against which
funding is extended
v Creates a charge on:
v Immoveable assets – known as mortgage
v Movable assets – known as hypothecation
v Financial assets, by:
v Marking a lien in fixed deposits and bonds
v Marking a pledge in the DeMat account
v Are of the following types:
v Mortgage finance v Vehicle loans
v Car loans v Two wheeler loans
v Commercial vehicle loans
v Construction and material handling equipment loans
v Professional equipment loans
v Loans against securities
Retail Loans
(Continued)
• Secured/Unsecured Facilities (Contd.)

u Unsecured loans:
v Are also known as non-asset based lending
v Do not have any underlying security
v Are extended purely based on the creditworthiness of the organisation
v Are of the following types:
v Personal loans
v Credit cards
u Personal Guarantees:
v Are required on both secured and unsecured loans
v Improve the recoverability of the loans
v Involve the role of guarantor
v May be waived off if:
v The security is very good
v The borrower is considered creditworthy
• Interest
u Fixed rate of interest:
v Rate is to be fixed at the time of granting the loan
v Interest charged will be uniform throughout the tenure of the loan
v When interest rates are low, borrowers tend to take fixed rate loans
u Floating rate of interest:

v Rate at which interest is charged on a loan varies from time to time
according to movement of the interest rate
v Changes according to change in a particular reference rate or
benchmark rate
• Tenure
u Depends upon the amount of the loan and
the repayment capacity of the borrower
u Depends upon the period over which the asset financed could
depreciate completely, in case of maximum tenures permitted

Retail Loans
(Continued)
• Loan to Value Ratio

u Refers to the maximum percentage of the value of the asset that is
given as a loan
v Loan amount / Value of Assets * 100
u Varies according to the:

v Nature of the asset
v Rate at which the asset is expected to depreciate or reduce in value
• Loan to Value Ratio (Example)

u A home is appraised for a value of Rs. 20,00,000.
u If you have to pay a margin of 10% as down payment you will have to
pay Rs.2,00,000/-
u Home Loan amount will be Rs.18,00,000.
u LTV ratio is calculated by dividing the amount borrowed by the
appraised value of the property, expressed as a percentage.
u So, LTV Ratio is 90%
• Loan Eligibility
u Determines the maximum extent of the loan amount that can be given
to the customer
u Is based on:
v Capacity to repay
v Liquidity to repay
Retail Loans
(Continued)
• Credit Scoring
u Predicts the creditworthiness of applicants for credit
u Consists of statistical techniques to quantify the risk
u Results in minimizing subjectivity in credit buying
u Converts information about prospective clients into a
meaningful and interpretable number
u Has the following advantages:
v Minimises subjectivity in credit buying
v Ranks applications according to the risk to which the bank is exposed
u Allows organisations to specify the desired risk level
u Can be used as a base for portfolio rating
u Continuously tracks to ensure validity
u Reduces the time taken for decision making
u Involves the use of two methods:
v Manual Judgment method
v Statistical Scoring method
• Negative Caution List

u Is a list of customer segments, which have exhibited higher tendency
to default
u Can be classified under the following heads:
v Profile / occupation of the customer
v Location of the customer
v Past repayment history of the customer
v Other lists circulated by the regulatory authorities

Retail Loans
(Continued)
• Account Acquisition:
u It involves
v Lead generation and sourcing
v Collection of documents as specified by the policy
v Verifications conducted
v Customer file prepared along with the credit memorandum
v Credit evaluation and decision
v Completion of pre-disbursement formalities
v Post sanction and disbursement
v Collection of post disbursement documents
u Lead generation and Sourcing:
u Process of identifying customers for selling loan products
u Various means are:
v Tele-calling
v Walk-ins in the bank branches
v Product dealerships
v Marketing campaigns
v Repeat business of existing customers
v Direct sales channels
v Direct sales executives
u Collection of documents as specified by the policy:
v Duly filled and signed application form
v Address proof
v Identity proof
v Photograph
v Income proof
u Verifications conducted:
v Field verifications
v Tele-verifications
v Reference checks
v Document verifications
v Checking against negative lists
Retail Loans
(Continued)
• Account Acquisition: (Contd.)

u Customer file prepared along with the credit memorandum:
v Customer file contains all the necessary information about the
applicants and the transaction
v Customer file is submitted to the credit processing agency for
further processing
u Credit evaluation and decision:

v Is based on information procured from the applicant as well as
the results of the verifications conducted
v Is managed by a specialized credit appraisal team
u Completion of pre-disbursement formalities:

v Sign loan documents
v Submit post dated cheques
v Submit the insurance cover note
v Post sanction and disbursement include:
v Completed legal documents
v Files forwarded to the operations cell by the credit cell along
with a request for disbursement in favour of customer
u Collection of post disbursement documents:

v Bank collects the security papers
v Security papers evidence the rights of the bank on the asset against
which funding is being extended

Retail Loans
(Continued)
• Account Management
u It involves
v Document storage
v Repayment management
v Collections
v Portfolio monitoring
v Customer service
v Account termination
u Document Storage:
v All the files along with documents are sent to central storage for
safe storage after the loan has been disbursed
v Physical files can be extracted as and when required for filing
a legal case
u Repayment Management:
v Bank is required to collect repayment on the loans from the customers
on regular pre defined intervals
v Various modes of repayment management are:
ü PDCs
ü Non PDCs with Security PDCs
ü Standing Instructions/ Auto debit
ü ECS mandate
u Collections:
v Is a crucial activity in the risk management domain, which consists of:
ü Awareness Calling/messages/ E mails
ü Collection Calling/messages/ E mails
ü Demand Notices
ü Field Collection
ü Possession and Disposal of Hypothecated Assets
ü Recovery Through Litigation

Retail Loans
(Concluded)
• Account Management (Contd.)
u Portfolio Monitoring:
v Comprises of periodic review of the portfolio, amendments

to the operating notes based on the review outcome and corrective
actions on the field
u Customer Service:
v All loan related queries of the customer are addressed
v Processes and policies are defined for reducing service level

delinquencies and opportunity loss for the bank
u Account Termination:
v Loan account is terminated once the bank ascertains that no dues

are pending from the customer
v No Objection Certificate (NOC) stating that there are no dues

outstanding is issued to the customer

Notes
Notes
Payment Services –
Payment Products
• Banks as Constituent of the Payment System

u The services offered by banks as a constituent of the payment
system are:
v Payment services
v Collection services
v Forex
Mr. Buyer and Mr. Seller

are doing business. Mr. Buyer
buys goods from Mr. Seller
and pays promptly.
What are the options available
for Mr. Buyer to make the payment?

Payment Services – Payment Products
(Continued)
• Banks as Constituent of the Payment System (Contd.)

u The following images represent some of the payment services
offered by banks:
ABC Bank, Mumbai

ON DEMAND
ABC Bank, Mumbai
ON DEMAND
PAY TO THE ORDER OF

(Continued)

u The following figure represents the various products offered
as a part of the payment service:
Cheque
Multi-city Demand
Cheque Draft (DD)
Electronic
Travel card Payment Funds
Products Transfer
(EFT)
Pay Order
Debit card (PO) or
banker’s
cheque
Credit card
u Identify the features of the following cheque:
Payee
Drawee
MICR No. Drawer
Cheq. No.
(Continued)
u Identify the features of the following Banker’s Cheque (Pay Order):
Drawee Payee
Drawer
u Identify the features of the following Bank Draft
Payee
Drawee Drawer

(Continued)

u Multi-city Cheque
« Multi city cheque is a cheque payable at any of its bank branch. In short,
it is treated as a local cheque, and NOT outstation cheque which use to take
10-15 days to realise. It is payable at any branch of the bank across India.
u Difference Between a Cheque and a Demand Draft

Cheque
Issued by Bank
payment
issued (local payment) (outside payment)
u Difference Between a Pay Order and a Demand Draft
branch of a of a
bank and paid by the same bank and paid by another
branch branch of the same bank
Issuing branch and paying Issuing branch and paying

(Continued)
u The various benefits of EFT (Electronic Funds Transfer) are:

v Banking channel
v Online transfers
v Different destinations
v Centralised system
v Speed
v Instant payment
v Cost effective
v Small amounts
u Difference Between NEFT and RTGS
Minimum Rs. 2 lacs

No
batch wise
is
more
NEFT – National Electronic Fund Transfer

RTGS – Real Time Gross Settlement

(Continued)
What is the difference

between a debit card
and a credit card?
u Debit card:
v Is a substitute for cheques.
v Is a faster mode of transaction.
v Enables instant debit.
v Can be used round the clock.
v Facilitates cash withdrawal from ATM 24/7.
v Facilitates payment for purchases through POS terminals.
v Is secure.
v Does not allow overdrawing.
v Is available freely.
u Credit card:
v The added features in credit card includes:
ü Credit period.
ü Installment facility.
ü Interest charges.
ü Annual fee (for higher class of cards).
ü Credit discipline.

(Concluded)
u Difference Between a Debit Card and a Credit Card
Debit Card
Buy now – Pay now Buy now – Pay later
Need not have
the bank with the bank
No over drawing Over drawing up
u Travel card:
v Is pre paid debit card in a currency of choice.
v Is useful for travel abroad.

v Can be used only upto the value loaded in the card.
v Provides statement of transactions done using the card.
v Helps in keeping track of spending.

Notes
Notes
Collection Services
in Banks
• Banks as Constituent of the Payment System
u The following figure represents the various products offered by
banks as a part of the collection services:
Transfer
Bill collection Local clearing
Collection
Services Cheque
Cash Mgmt
Transaction
Service (CMS)
System
Electronic
Cheque Clearing
collection System (ECS) Dr ECS Cr ECS
Mr. Buyer and Mr. Seller are doing business.

Mr. Buyer buys goods from Mr. Seller and pays.
What are the ways in which Mr. Buyer can
make payment? What are the options available
with Mr. Seller to collect the payment?

Collection Services in Banks
(Continued)

u Transfer:
v Mr. Buyer can issue a cheque to Mr. Seller:
v Mr. Seller deposits the cheque issued by Mr. Buyer into
her account.
v Mr. Buyer and Mr. Seller have accounts in the same bank.
v The bank debits the account of Mr. Buyer and credits
the account of Mr. Seller.
v Alternatively, Mr. Buyer can make an online transfer through
his account to Mr. Seller’s account.
v Makes use of centralised computer system.
v Can take place in the following ways:
v Within branch
v Branch to branch
v Bank to bank (online transfer through RBInet)
u Local clearing:
v Mr. Seller deposits the cheque or DD or PO issued by
v Mr. Buyer into her account.
v Mr. Buyer and Mr. Seller have accounts in different banks.
v Mr. Seller’s bank collects the amount of the cheque or DD or PO
from the bank of Mr. Buyer through local clearing and credits
her account.
v Refers to the collection of cheques drawn on different banks
in the following ways:
v Exchange of cheques takes place at banker’s clearing house.
v RBI and/or SBI and/or commercial banks maintain clearing
house at different locations.
v Day’s inward and outward cheques between banks are
exchanged and transaction amounts are netted.
v Local clearing is a net settlement.
v Cheque Truncation System (CTS) introduced from 2013 for
clearing purpose.
v Under CTS physical movement of cheques eliminated and
electronic image of cheques sent instead.

(Continued)

u Cheque truncation System (CTS):
v Physical cheque will be truncated within the Presenting Bank
v Point of truncation will be decided by each individual member
Bank
ü Originating Branch
ü ATM / Customer Location
ü An identified Branch for a Cluster of Branches
ü Service Bureau
ü Service Branch of Originating Bank
u Infrastructure required at point of Truncation in CTS:

ü PC with printer
ü Scanner
ü Network
ü The configuration of scanner will depend on the volume of
Cheques ( Documents per minute - Approximate capacity -
30 documents per minute (dpm)
u Cheque Truncation System (CTS):

v Image of the payment instrument is captured along with MICR
data simultaneously
v Clearing Process completed based on Electronic data and image
of the Cheques
v Settlement will be generated on the basis of current MICR code
line data
v Images will be preserved for 8 years
v A Centralised agency per clearing location will act as an image
warehouse for the Banks
v Public key infrastructure will be deployed to protect image and
data flow over the Network

(Continued)

u Benefits of CTS – From Bankers' perspective
v Improved handling of post-dated cheques deposited by
the customer, as the images can be scanned and stored and
the system can automatically process the scanned images on
the due date.
v Improved business intelligence systems can be put in place
v Introduction of new payment system products like e-cheques
v Better funds management
v Reduction in Transaction cost
v Better management of space and manpower
v Improved regulatory compliance.
v Improved Management Information Systems which will
facilitate better decision making
u Benefits of CTS – From Customers' perspective

v Faster realization of Funds
v Faster realization of Funds Better funds management
v Funds Can avoid visit to the Branch as more outlets will be
available for depositing cheques for clearing, at convenient
locations
u Common Security Features in CTS Cheques
v Paper:
ü Image friendly – UV Dull i.e. not glow under UV light –
Sensitive to acids, alkalies, solvents
v Watermark:
ü A standard watermark with the words “CTS 2010”
v Void Pantograph (@ print stage)
ü It shows the word VOID on forgeries made using
photocopies and scanned coloured images
v Logo
ü Bank;s logo printed with invisible ink (Ultra violet Ink)
v Field Placements of a cheque:
v Mandating of colours and background
v Printing of account numbers

(Continued)
Common Security Features in CTS Cheques

(Continued)
Common Security Features in CTS Cheques
Ms. Mala has invested in shares of

several joint stock companies.
What is the easiest way for her to
receive dividends from the company?

(Continued)
Ms. Mala can instruct

for direct credit of
dividend to her
bank account.
What is the easiest way

for Ms. Mala to pay
her monthly
telephone bills?
She can instruct

her telephone service
provider to debit her
account for
monthly charges.

(Continued)

u ECS:
v Transmits payment instructions electronically.
v Covers high volume and low value transactions.
v Covers both debit (Debit ECS) and credit (Credit ECS)
transactions.
v The following figure represents Debit ECS and Credit ECS:
Multiple debits and

single credit
Debit ECS
Used for insurance
premiums, loan
repayments and utility
bill payments
ECS
One debit and multiple
credits
Credit ECS
Interest on securities,
dividends and regular
salaries
u The following are the benefits of ECS:

v Speed
v Accuracy
v Secured channel
v No manual interference
v Saves time
v Benefits flow to bank, customer and public user

(Continued)

u Cheque collection:
Mr. Seller and Mr. Buyer have account in different banks and
are in different places.
Mr. Seller can issue a cheque to Mr. Buyer, which she can
deposit in her account.
Mr. Buyer’s bank collects the amount from Mr. Seller’s bank
through its own branch in that center and credits her account.
Mr. Seller has the option of an online transfer through his
account to Ms. Buyer’s account, but he has planned to buy time
so that the cheque takes time to hit his account.
Local cheques are collected in local clearing.
Outstation cheques (upcountry) are collected by sending the
cheques to respective banks’ branches.
Unlike local clearing, cheque collection takes time due to
physical movement of cheques to a different location.
u Bill collection:
Mr. Seller decides to draw a bill of exchange on Mr. Buyer for the
goods sold to him. Drawing means writing a bill of exchange:
Who draws the bill? (Buyer or seller)
Who is the drawer and drawee?
How can Mr. Seller collect payment on a bill of exchange?
What is DP bill and DA bill?
At times, instead of paying through cheques, business
houses draw bills.
A bill can be demand bill or usance bill.
Invoice, bill and document of title to goods (trade
documents) are handed over to the bank by the seller.
Bank sends to buyer’s bank for collecting payment.

(Continued)
u Bill collection (Contd.):

Buyer’s bank hands over all trade documents upon receipt of
payment from buyer on a demand bill or receipt of
acceptance in case of usance bill.
Buyer’s bank remits to seller’s bank and seller gets money
for goods or services sold.
u Cash Management System (CMS):
Other than Mr. Suresh, Ms. Thirisha has several customers:
Mr. Ram, Mr. Naresh, Mr. Kishore and Mr. Utsav, spread all
over India.
She needs funds for operations.
She also has to pay her staff stationed in different locations
on the first day of every month.
She checks her funds position every day and reconciles
payments and receipts.
What are the services that the bank can offer her?
Combination of payment and collection services
Customised to the requirement of the customer
Enables large customers with wide network of operations
Manage liquidity efficiently through speedier collection,
efficient management of payments
Availability of MIS on collections and payments - a major
benefit of CMS
Distributed collection and payment at point of occurrence of
transactions
Enables customers to reconcile their payments and
collections on a daily basis

(Continued)

Transfer, local clearing, ECS,
cheque collection, national clearing,
What are
bill collection and forex are the various
the various products
products offered by banks
offered by banks
under collection services.
under collection
services?
u Forex:
Situation 1:
v Mr. Mahesh from India buys some components from Mr.
Sumit in Germany.
ü How can he make payment to Mr. Sumit?
ü Mr. Sumit cannot accept Indian currency and Mr. Mahesh
does not have Euros to pay.
Situation 2:
v Ms. Mala’s daughter, Kala, is studying in USA and she needs
to send fees in US$ to Kala’s college.
Now comes the role of the Banker to help in the above situations.
ü Need arises when payments are to be made to a
beneficiary in an overseas country in foreign currency.
ü Payments received in foreign currency needs to be
realised in Indian currency.
ü Banks maintain accounts in an overseas country to
facilitate transactions involving foreign currency.
ü Accounts are known as Nostro accounts (imagine a
current account maintained by Indian Bank with Royal
Bank in London).
ü Entails collection of the rupee equivalent from the
customer in India and payment made to foreign recipient
by debit to Nostro account.

Notes
Notes
Other Financial
Services by Banks
What other services

do banks provide?
• Banks as Provider of Other Financial Services

u The following figure represents the other services that the banks provide:
Pay home loan dues on the

Pay your piled up bills
due date
Pay credit card bills Pay utility bills ontime
Pay bills online Get assistance in opening a

DeMAT account

Other Financial Services by Banks
(Continued)
• Banks as Provider of Other Financial Services (Contd.)

u Distribution of third party products
u Collection of taxes and bills
u DeMAT accounts
u Safe keeping
u Advisory services
u Alternate service channels, such as ATM, online banking,
mobile banking, phone banking and virtual account
u Benefits of banks acting as providers of other services:
v Generation of fee income
v Ability to provide single umbrella service
v Ability to create exit barrier
Name some third party

products that banks offer
to their customers.

(Continued)

u The third party products offered by banks within distribution service are:
v Mutual Funds units
v Insurance policies
v Government bonds
v Gold coins
v Mobile phone recharge
v Shares of organisations offering public issues
u Collection facility is offered in case of:
v Taxes
v Utility bills
v Online payments
v Taxes include:
v Income tax
v Service tax
v Excise duty
v Customs duty
u DeMAT account:
v Facilitates holding of shares in dematerialised form (not being
physical).
v Facilitates transmission of securities by DP, eliminating
correspondence with the companies.
v Enables automatic credit into DeMAT account of shares, arising
out of events, such as bonus, split, consolidation or merger.
v Facilitates holding of investments in equity and debt instruments
in a single account.
v Is a safe and convenient way to hold securities.
v Enables immediate transfer of securities.
v Does not levy stamp duty on transfer of securities.
v Eliminates risks associated with bad delivery, fake securities,
delays or thefts.

(Continued)

Safe Deposit Locker Accounts…..1
ü Locker facilities are offered by Banks to customers to keep small

valuable items e.g. gold / diamond ornaments, important papers
like FDRs, title deeds, Will etc.
ü Locker may be taken on rent in single name or joint names.
ü However, only one locker key is handed over to the customer –
whether the locker is in single name or joint names.
ü Besides the highly secured lock provided by the locker

manufacturer, the customer can put one more padlock of his
choice on his locker, if he feels so.
ü Locker rents are collected one year in advance from the
customers.
ü In view of the limited number of lockers available, Banks often
allot lockers to very valuable customers, who maintain sizeable
deposits with the Bank.

(Continued)
ü Banks are not responsible for any loss of contents inside the
bank lockers or for any unforeseen events which is beyond the
control of banks, provided they have done every due diligence
from their side to protect it.
ü In case of a Locker Facility, the bank just gives out the space
they have, on rent and make sure that its safe and secured
professionally.
ü They are supposed to make sure that they have all the safety
and security measures in place, to ensure that the lockers are
safe and secure.
ª Banks provide investment advise to private banking customers,

such as High Net Worth Individuals.
ª Banks provide investment advise to corporates on the following
matters:
« Planning their finances for new projects
« Ways to raise funds for their organisation
« Mergers and acquisitions

(Continued)

Ø Various alternate banking channels include:
ü ATMs
ü POS terminals
ü Internet banking
ü Phone banking
ü Mobile banking
ü Virtual banking
ü Banking at door (Relationship service)
ü Banking on the wheel (Rural areas)
Ø Benefits of migrating from branch banking to other channels:
ü Convenience to customers
ü Cost effective to banks
Ø ATM
ü Onsite ATM ü Offsite ATM
ü Worksite ATM ü Mobile ATM
Ø POS
Phone Banking Mobile Banking
through mobile phone
banking banking
is less

(Continued)

Ø Virtual Banking:
ü ATMs, internet banking, mobile banking are all coming under
this category
ü Now a days, banks are permitting customer to open a virtual
account without cheque book / debit card. That means no cash
transaction is possible.
ü You can transfer money online; you can buy goods & services
online and payment can be made online;
What are the transactions

that can be carried out
using alternate
banking channels?
Ø Transactions carried out through alternate banking channels include:

ü Cash withdrawal
ü Cheque book request
ü Cash withdrawal
ü Request for fixed deposits
ü Request for DD
ü Request for statement of account
ü Transfer of money from one account to another
ü Cash deposit
ü Cheque deposit
ü Payment of credit card bills
ü Payment of taxes
ü Payment of utility bills

Notes
Notes
Globalization and
the Impact of Technology
& Trends in Banking
What are the trends

and challenges
in banking
industry today?
• Trends and Challenges in Banking Today

u Risk management
u Compliance issues
u Reduced dependency on branches
u Threat of competition
u Pace with technological advancement
u Talent identification and retention
u Social compliance

Globalization and the Impact of Technology
& Trends in Banking (Continued)
What is the impact of

globalisation on
Indian economy?
Impact of Globalisation
Indian Economy - Past Indian Economy - Present
Extensive control by state Extensive participation of the

on economic activity private sector
License regime Open competition
Inward-looking Exports as a key factor in

development strategy development strategy
Increasing deployment of
Heavy regulation
new technologies
Minimal use of technology Minimal use of technology

• Impact of Globalisation (Contd.)
Technology
Enlarged Quality and

space efficiency
Impact of
Globalisation
Global Large
competition resources
Human
capital
Ø Integration of domestic and foreign markets

Ø Increased investments and capital flows
Ø Improved technology
Ø Increased competition
Ø Better quality of products
Ø New business opportunities
Ø Opportunities for overseas expansion
• New Mindset required for today’s Bankers
u The new mindset lays emphasis on:
ü Communication skills ü Articulation
ü Technology orientation ü Proactive attitude
ü Response to market ü Customer-centric approach
ü Flexibility ü Agility
ü Innovation ü Problem solving skills

What are the various

benefits of using
technology in banking?
• Role of Technology in Banking

Ø Increased operational efficiency, profitability and productivity
Ø Superior customer service
Ø Multi-channel and real-time processing of transactions
Ø Better cross-selling ability
Ø Improved management and accountability
Ø Efficient NPA and risk management
Ø Minimal transaction costs
Ø Improved financial analyses capabilities

• Role of Technology in Banking (Contd.)
Where all roles can

technology play in
improving banking?
u The following figure represents the corporate network of banking:
Core POS terminals

MIS and intranet and cash
Banking (CBS) dispenser
ATMs, electronic Credit card

Deposits
banking management
Loans
Corporate
Any branch Network Document
banking management
Risk Resource
CRM
management management
Misc. Services

• Role of Technology in Banking (Contd.)
u The following table lists the key characteristics of traditional and

modern banking:
Traditional banking Modern banking
Geographic structure Business-centric

structure and functional
specialisation
Branches are mini banks Branches are service

outlets, alternate service
channels exist
Not centralised Centralisation of

operation
Local banking Universal banking
u Benefits of Leveraging Technology – for customers

v Easier access
v Quicker services
v Safety in terms of virtual money
v Convenience in banking
v Global access
v Round the clock availability
v Cheaper services

u Technology Enabled Products

ü Facilities, such as ATM, debit card, credit card, smart card or
virtual card
ü Internet banking
ü Home service (banking at doorstep)
ü Facility for different classes of people, such as youngsters and
employed
ü Electronic payments of utility bills
ü Website with all information a customer would need
ü Transfer of funds by Real Time Gross Settlement (RTGS) by
leveraging technology
ü Credit Information Bureau (India) Ltd. (CIBIL) and credit report
on defaulters
ü Cheque clearing system using Magnetic Ink Character
Recognition (MICR) technology
ü Core Banking Solution (CBS) paving way for anywhere banking
and single window concept
ü Business Process Re-engineering (BPR) for operational excellence
ü Immediate Payment Service (IMPS)
ü Unified Payment Interface (UPI)
u MICR Technology
v Magnetic Ink Character Recognition (MICR) technology

u Core Banking Solutions - CBS

ü It is like an ERP (Enterprise Resource Planning) for banks
ü All applications (credit, deposit, HR, Forex, etc) are consolidated
here
ü All branches of the bank are connected to a common network
ü The concept of “customer of a branch” is changed into “customer
of a bank”
ü Single window operations
u Banks using Core Banking Solutions (CBS)
BaNCS Finacle
State Bank of India Andhra Bank

Central Bank of India Axis Bank
Bank of Maharastra Bank of Baroda
Indian Bank Bank of India
Dena Bank
Federal Bank
ICICI Bank
IDBI Bank
Indian Overseas Bank
Flexcube IndusInd Bank
ING Vysya Bank
Canara Bank Kotak Mahindra Bank
Syndicate Bank Oriental Bank of Commerce
Yes Bank Punjab National Bank
Karur Vysya UCO Bank
Lakshmi Vilash Bank Union Bank of India
United Bank of India
Vijaya Bank

& Trends in Banking (Concluded)
u Immediate Payment Service (IMPS)

v An instant real-time inter-bank electronic funds transfer
(through mobile, internet, ATM) system of India
v Unlike NEFT / RTGS, it is available 24/7
v It is managed by NPCI (National Payments Corporation of India)
v It is safe & economical
v The participants in the system are:
ü Remitter (Sender)
ü Beneficiary (Receiver)
ü Banks
ü National Financial Switch - NPCI
u Unified Payment Interface (UPI)

v To achieve cashless transactions, NPCI implemented this simple
single interface across all systems
v To transfer money from one bank to another through mobile
v Account No., IFSC code, Credit card details, mobile number need
not be known to the beneficiary
v Only virtual address (like abirami@CUB) need to be given
v How to use it?
ü Download the APP into your mobile
ü Set login
ü Create “Virtual Address”
ü Add your Bank account number
ü Choose your PIN
ü Now you can transfer money

Notes
Notes
Types of
Financial Customers
u Identifying Types of Customers
Executor/
Individual Trusts
Adminstrator
Hindu
Undivided Societies and Partnership
Family Associations
Joint Stock
Proprietorship Clubs Companies
u Individuals:
Individuals

Types of Financial Customers
(Continued)
u Identifying Types of Customers (Contd.)

v Single account:
ü Can be operated by the individual/s
ü Can be operated by some other authorised person
ü Authorisation given by way of:
Ø Mandate
Ø Power of Attorney
Ø Authorisation valid until cancelled
or as long as principal is alive
v Joint account:
ü Mode of operation:
Ø Both Jointly
Ø Jointly or Survivor
Ø Either or Survivor
Ø Anyone or Survivor
Ø Former or Survivor
v Minors:
ü Not completed 18 years of age
ü Represented by Natural Guardian
ü Natural guardians of minors:
Ø Hindus: Father and then mother
Ø Muslims:
ª Father,
ª Executor of father’s will,
ª Father’s father,
ª Executor of father’s fathers will
v Modes of Operation:
ü Modes of opening a Savings bank account for a minor:
ü Minor accounts
ü Sole name of minor
ü Minor by guardian
ü Minor with mother as guardian

(Continued)

v Illiterates, Incapacitated, and Aged Persons:
ü Difficulties likely to be faced
Ø Cannot sign
Ø Consistency may not be there
ü Precautions
Ø Should come in person
ü General methodology for opening and operations
Ø Two witnesses to be obtained
Ø Cheque book not issued to illiterate
ü Photos and identification
v Executor
Ø Person named in the will
Ø Certified copy of will – Probate
Ø Operations as per will
v Administrator
Ø Appointed by court where there is no will
ü What is the difference between an Executor and an Administrator?

(Continued)
v Hindu Undivided Family

Ø Coparceners
Ø Karta –Eldest member
Ø Operation by Karta
Ø JHF letter
Ø Recording of Minor’s details
Ø Savings Account for HUF
v Proprietorship
Ø Similar to individuals
Ø Current Accounts can be opened
Ø Proprietor signs on behalf of firm
v Partnership
Ø Partners for sharing of profit/loss
Ø Maximum partners 20 (10 for banking business)
Ø Partnership deed
Ø Registration not compulsory but preferable
Ø Consequence of unregistered firm
Ø Partnership letter
Ø Powers of partners
Ø Disputes among partners
Ø Dissolution

(Continued)
Jot out the points

you know about
Private Limited and
Public Limited company.

(Continued)
v Joint Stock Companies

Ø Opening of account – Requirement
Ø Memorandum of Association
Ø Articles of Association
Ø Certificate of Incorporation
Ø Certificate of Commencement of Business (for Public ltd co)
Ø Board Resolution
v Official Liquidator
Ø Appointed by the court
Ø Only order cheques to be issued from the account
v Trusts
Ø Private and Public Trusts
Ø Certified copy of the Trust Deed
Ø List of Trustees/Photos/ID proof
Ø Registration certificate
Ø Copy IT returns acknowledged
Ø NOC from IT Dept for opening SB
Ø Resolution to open account
Ø Self declaration for IT exemption status
v Societies and Associations

Ø Registration with Registrar of Coop soc.
Registrar of Assurances
Ø Rules and Bye Laws
Ø Operative powers
Ø Resolution

(Continued)
v Accounts are also opened for:

Ø Clubs
Ø Self Help Groups
Ø Government Departments and Municipal Bodies
The functionaries of the following organizations are called…..
The functionaries of the following organizations are called…..

(Concluded)
Where Registration is to be done for the following?
Proprietorship firm Partnership firm Joint Stock Company
Registrar of Registrar of • Registrar of

Firms Firms Companies
HUF Association / Society Trust
No need for Registrar of Charity

Registration Assurance for Commissioner
Association
Registrar of
Societies for
Society

Notes
Notes
Wealth Creation
& Management
u Concept of Wealth Creation
v Wealth creation is:

Ø The process of increasing the size of the wallet.
Ø The process of multiplying earnings.
Ø Augmenting resources.
v The concepts that help in wealth creation are:

Ø Power of compounding
Ø Time value of money
Ø Beating inflation
Ø Protection

Wealth Creation & Management
(Continued)
u Concept of Wealth Creation (Contd.)
What factors should be

taken into account
for wealth creation?
v The factors that should be taken into account for

wealth creation are:
Ø Quantum of savings
Ø Purpose
Ø Inflationary trend
Ø Time horizon
Ø Multiple products
Ø Risk vs Return
v The following figure displays the six steps towards wealth creation.
Step1 Step2 Step3

Investment and Understanding risk Age profile
spending appetite

(Continued)
v Step 1: Investment and spending:
Ø Spending vs Saving
Ø How much to save?
Ø It is more of a mindset
Ø SAVE AND THEN SPEND,

not SPEND AND THEN SAVE
v Step 2: Understanding risk appetite:
Ø Risk capacity
Ø Risk tolerance
v Step 3: Age profile:
Ø Age of entry
Ø Life stage
Ø Family burden

(Continued)
v Step 4: Assessing financial needs:

Ø Purpose
Ø Need
Ø Varying products
v Step 5: Risk diversification:

Ø All eggs in one basket?
Ø Need versus risk appetite
versus product.
v Step 6: Monitoring investments:

Ø Why?
ü Investments are dynamic in nature.
ü Even rock solid investments tend to wobble.
Ø How?
ü Create portfolio chart.
ü Study the market.
ü Make changes to the portfolio.

(Continued)
What one should do

as a financial services
consumer?
ü The tasks to be performed as a financial services

consumer are:
ü Identify goals and time frame to meet them.
ü Protect family from unexpected developments such as
sudden death.
ü Save and invest regularly.
ü Plan for growth.
ü Diversify investments.
ü Understand the power of compounding.
ü Monitor investments constantly.

(Continued)
u Wealth Management Scenario in India….1
ü Wealth Management is the management of a client's wealth by

a professional trained to get maximum value for the client’s
financial assets.
ü An investment Management discipline, it incorporates various

aggregated financial services such as financial planning,
investment portfolio management, etc.
ü With a GDP growth rate hovering around the 9% mark and a

strong future outlook, India’s growth story is making it an
increasingly attractive market for wealth management firms.
ü This trend is expected to continue, with India estimated to

become the third largest global economy by 2030.
ü India has the key ingredients of a high-growth wealth

management market.
ü An investment Management discipline, it incorporates

various aggregated financial services such as financial
planning, investment portfolio management, etc.
ü We have a very large and young mass affluent segment;
ü An increase in the wealth of global Indians is taking place;
ü Our government’s push to curb illicit leaks and more

tightly regulate markets are other positive factors; and
ü The presence of an increasing share of the organized

market players like - independent wealth advisors and
small brokers/agents who double as financial advisors.

(Continued)
ü India’s wealthy are relatively young compared with their

international counterparts and, hence, take a different
approach to wealth management.
ü The demographic difference presents an opportunity to create

new products to address the needs of a young population and
leverage new technologies, such as social- and mobile-enabling
investing applications as a key differentiator.
ü India’s wealth management services sector is largely

fragmented, which isn’t surprising given the industry is still in
its early days.
ü Most organized players have so far focused mainly on the urban

segment, leaving untapped about one-fifth of India’s high net
worth individuals (HNWI) population.
ü Given the nascent stage of the market and a demographic and

regulatory environment that is significantly different from
elsewhere in the world, wealth managers have to consider the
following to succeed in the Indian market:
ü Build a brand and focus on overcoming the trust barrier.
ü Invest in advisor technology to improve advisor productivity

and retention.
ü Evaluate a partnership-based model, coupled with innovative

use of technology, to increase reach.
ü Focus on transparency and compliance, while targeting

customers with attractive, segment-focused products.

(Concluded)
u Key skills required for a Wealth Manager
1. Confidence and excellent communication skills: A bulk of wealth

management roles is of the relationship management type.
Here, a confident persona and the ability to carry out
meaningful conversations with HNI clients is a top required
skill. The RM must be able to understand client requirements
and also be able to put forth his /her suggestions to the client
effortlessly.
2. Knowledge of investment products: HNI clients have a lot of

money waiting to be invested in a plethora of different
products. It is essential that the RM or product manager is well
versed with different types of products and is able to suggest
these and even generate new ideas.
3. Spotting investment opportunities: Market awareness is highly

essential. A Wealth Manager needs to be on top of what is ‘hot’
in the market and see if it makes sense for the client to
invest/sell. Mistakes made while suggesting appropriate
investments can cost the employee the client, his/her job or
his/her reputation.
4. Proactive nature: Wealth Managers have to be proactive and

assertive. A shy Wealth Manager or one who is simply reactive
earns no respect from the clients.
5. Problem-solving: Clients call up the RM from time to time to

discuss problems/issues. The RM must be a great problem
solver with good turnaround time.
6. High level of integrity: Since Wealth Managers are privy to

details of the assets of their clients; they have to be high on
integrity or risk losing face for themselves and their firm.

Notes
Notes
Equity
u EQUITY
l Business avenues:
v Assume you have Rs. 50000 with which you start your
own business:
Ø What will you call this business venture:
ü Proprietorship
Ø Why would you opt for this venture?
v Assume you have Rs. 50000 and your friend also has Rs. 50000.
Both of you start a new business:
Ø What will you call this business venture:
ü Partnership
Ø Why would you opt for this venture?

Equity
(Continued)
u Equity Capital (Contd.)
ü Assume you have Rs. 50000. You do not want to deposit this
money in the bank or similar avenues.
ü You want to have the benefit of investment of this money in a

business without involving yourself in the business:
Ø How is this possible:
Ø Investing in a company
ü Investment in a business is possible by starting or investing in

one of the following avenues:
ü Proprietary concern
ü Partnership firm
ü Company
v The following figure represents the different types of companies.

Equity
(Continued)
ü The factors differentiating private and public limited company

are:
Ø Number of shareholders
Ø Number of directors
Ø Share transfers
v The following table displays the primary differences between the

private and public limited companies.
Factors Minimum Maximum Minimum Shares

Number of Number of Number of
Types of Members Members Directors
Companies
Private limited 02 50 02 Non
company transferable
Public limited 07 Unlimited 03 Transferable
company
v Some public limited companies are:

Name some
public limited
companies.

Equity
(Continued)
What is a
public sector
company?
v If a cricket batsman is a consistent run-getter, what is he called:

Ø Star batsman
v If a company consistently performs well, what is it called:

Ø Bluechip company
Bluechip Company

Equity
(Continued)
v Bluechip shares are the shares of large and well-established

companies with impressive track record.
v Growth shares are the shares of companies with:

Ø Fairly entrenched position in a growing market.
Ø Higher profitability.
Ø Growing market share than the average.
v Income shares are the shares of companies with:

Ø Fairly stable operations.
Ø Relatively limited growth opportunities.
Ø High dividend payouts.

Equity
(Continued)
v Speculative shares are those shares that tend to fluctuate

widely as there is a lot of speculative trading in them.
v The share capital or stock capital can exist in the following forms:
Ø Ordinary shares or common stock
Ø Preferred shares
Ø Limited Voting Stocks (LVS)
v The various segments of equity market are:

Equity
(Continued)

v Primary market:
ü Public issue – Open to all
ü Rights issue – Allotment to existing shareholders on the basis of
existing holdings
ü Private placement – Securities issued to a select group of
persons not exceeding 49 in number. It can be of two types:
Ø Preferential allotment:
ü Issues in terms of provisions of SEBI guidelines
ü Various provisions of pricing, disclosures in the notice
and lock-in to be followed
Ø Qualified Institutions Placement (QIP):
ü Issue to qualified institutions buyers in terms of
provisions of SEBI guidelines
v Price fixation of Initial Public Offering (IPO):
Ø Fixed price mechanism
Ø Book building process
v Fixed price mechanism:

Ø Price decided by the company.
Ø All investors should apply at the same price.
Ø Disadvantage:
ü What the investor is willing to pay is not known.

Equity
(Concluded)

v Book building process (price discovery method):
ü Floor price is decided and all investors apply for this price.
ü Price band is provided and investors can bid within the price
band.
ü Cut-off amount (allotment amount) is decided based on the bids.
What is a prospectus
and a red herring
statement?
v Players in the equity market:

ü Merchant banker – Intermediary between company and
investor
ü Lead manager – Ensures following of all IPO rules
ü Book running lead manager – Lead manager in the case of book
building
ü Underwriter – Commitment to subscribe

Notes
Notes
Mutual Funds
u Mutual Funds
What is a
mutual fund?
u Introducing Mutual Funds

v Mutual fund is a form of collective investment
that pools the savings from:
Ø A number of investors.
Ø Investors who share a common financial goal and
risk tolerance.

Mutual Funds
(Continued)
u Introducing Mutual Funds (Contd.)
v The following figure represents the working of mutual funds.
Name some
mutual funds
in India
u Names of some Mutual Funds in India

ü Aditya Birla Sun Life AMC Ltd
ü Baroda Asset Management India Ltd
ü BNP Paribas Asset Management India Private Limited
ü Edelweiss Asset Management Limited
ü Essel Finance AMC Limited
ü Franklin Templeton Asset Management (India) Private Limited
ü HDFC Asset Management Company Limited
ü HSBC Asset Management (India) Private Ltd.
ü ICICI Prudential Asset Management Company Limited
ü IDBI Asset Management Ltd.
ü JM Financial Asset Management Limited
ü Kotak Mahindra Asset Management Company Limited (KMAMCL)
ü SBI Funds Management Private Limited

Mutual Funds
(Continued)
u Introducing Mutual Funds (Contd.)
What are
the advantages
of investing in
mutual funds?
v The advantages of investment in mutual funds are:

ü Diversification
ü Professional management
ü Liquidity
ü Flexibility
ü Choice of schemes
ü Transparency
ü Low transaction costs
ü Convenient administration
ü Tax benefits
ü Well regulated
v The disadvantages of investing in mutual funds are:

ü Not structured for individual preferences/requirements
ü Cost of administration
ü NAV known after a time lag

Mutual Funds
(Continued)
u Evolution of Mutual Funds
v History of mutual funds:
ü First phase (1964 – 1987): Growth of Unit Trust of India

ü Second phase (1987 – 1993): Entry of public sector funds
ü Third phase (1993 – 1996): Emergence of private funds
ü Fourth phase (1996 – 1999): Growth and SEBI regulation
ü Fifth phase (1999 – 2004): Emergence of a large and uniform
industry
ü Sixth phase (2004 onwards): Consolidation and growth
ü The industry has lately witnessed a spate of mergers and
acquisitions - Allianz Mutual Fund by Birla Sun Life, PNB
Mutual Fund by Principal, among others.
ü At the same time, more international players continue to enter
India including Fidelity, one of the largest funds in the world.
v The following figure indicates the growth in assets under

management over the years.

Mutual Funds
(Concluded)
u Structure of a Mutual Fund
v The following figure represents the structure of a mutual fund.
Trust Deed
Sponsor Trustees
Management agreement
AMC Mutual fund
Scheme one Scheme two Scheme three
v The other constituents of a mutual fund are:

ü Custodian and depositories
ü Bankers
ü Registrar and transfer agents
ü Distributors
ü Brokers

Notes
Notes
Fixed Income
Securities
What are
fixed income
securities?
Securities that provide fixed income

as per the agreed rate are
called fixed income securities.
u Introduction to Fixed Income Securities
v The following figure represents the features of fixed

income securities.

Fixed Income Securities
(Continued)
u Introduction to Fixed Income Securities (Contd.)
Name some
fixed income
securities.
v Some examples of fixed income securities are:

ü Fixed deposits with banks and companies
ü Bonds or debentures with companies or
PSUs or government
ü Post office RD, MIS
ü National savings certificates
ü Senior citizen savings scheme
ü PPF
ü Annuities
v Some important terminologies used by the fixed income industry are:
ü Principal – Amount being invested
ü Coupon – Interest on the security
ü Maturity – The date on which the principal will be returned:
Ø Maturity amount is the amount that will be returned
ü Issuer – Organisation issuing the securities
ü Indenture – Terms and conditions of the contract
ü Current yield – Income (or interest) in percentage for the amount
invested currently
ü Yield to maturity – Internal Rate of Return (IRR) of the bond:
Ø IRR equates present value of cash flows to the initial investment.

(Continued)
u Introduction to Fixed Income Securities (Contd.)
ü Price of the bond – Future cash flows converted into present value by
taking into account the discount factor:
Ø This is the value one should be willing to pay at present.
ü Duration – Weighted average life of the bond
ü Clean price – Price quoted without accrued interest

ü Accrued interest – Interest accrual since last payment of interest
u Tradable Securities
Ø Tradable securities are those securities that can be bought or sold

in the market.
Ø Non tradable securities cannot be traded. Only the original investor

gets back the amount invested from the issuer on maturity.

(Continued)
u Tradable Securities (Contd.)
Name some
tradable fixed
income securities.
Some tradable fixed income securities are:

Ø Government securities
Ø Corporate bonds
Ø RBI relief bonds
v Government securities:
ü Wholesale debt market segment:
Ø Participation by institutional investors
ü Retail debt market segment:
Ø Participation by retail investors

(Continued)
v Some of the features of government securities are:

ü Issued through auction process
ü Face value Rs.100
ü Interest paid semi-annually
ü Accrued interest on 30/360 day count
v Primary dealers:
ü Merchant bankers to Government of India
ü First-tier of the government securities market
ü Some primary dealers include:
Ø ICICI Securities Primary Dealership Limited
Ø SBI DFHI Ltd.
Ø Canara Bank
Ø Bank of Baroda

(Continued)
v The various types of instruments of the government securities

market are:
ü Fixed coupon bond – Unchangeable interest
ü Treasury bills – Short term debt instruments
ü Floating rate bonds – Periodical resetting of interest
ü Zero coupon bonds – Issued at a discount and face value paid on
maturity, no explicit interest
ü Inflation indexed bonds – Adjusted for inflation
u Non Tradable Securities
v Corporate deposits are:
ü Bonds issued by PSUs.

ü Bonds issued by private corporate sector.

(Concluded)
u Non Tradable Securities (Contd.)
v PSU bonds are:
ü Bonds with embedded option:

Ø Callable and puttable bond
ü Bonds with conversion option:
Ø Part or full debt that may be converted into equity

Notes
Notes
Derivatives
What are
derivatives?
u Introduction to Derivatives
ü Assume you pay cash and buy apples.

ü You get the apples and the seller gets cash and the
transaction is complete.
ü Assume, you order for apples, which you will buy after a
month. What is happening today is only a contract and the
sale is not complete.

Derivatives
(Continued)
u Introduction to Derivatives (Contd.)

v Derivatives refer to an agreement or contract that is not based on a
real or true exchange.
v Tangible items, such as money or products are not exchanged.
v Derivatives are the financial instrument whose value is determined

by the price of something else (underlying asset).
v The most common variants of derivatives are:
Forwards
Swaps Futures
Options

Derivatives
(Continued)
Ø Forwards:
v Mr. Somnath fixes marriage of his daughter. He needs 10 bags of rice

after 6 months. He feels that the price of rice may be more after
6 months.
v Mr. Madanlal expects good harvest of paddy from his field after four
months, which he intends to sell. He feels that it is better to sell the rice
at the current rate.
v Both of them to enter into an agreement to buy and sell the commodity
at an agreed rate after some time. This is forward contract.
v Think about an exporter who will receive export proceeds in dollars

after three months. His actual profit may vary if the value of dollar
changes. Hence, he may enter into a forward contract with the banker
to sell the dollars at a future date for an agreed rate.

Derivatives
(Continued)
Ø Features of forwards contract are:

ü Bilateral contract
ü Counterparty risk
ü Customised
ü Details not available to others
ü On the expiration date, delivery must take place
ü Changes should be mutually agreed upon
Ø Futures:
ü Today Reliance industries share is quoted around Rs.1060.
You have an opinion that the price will go up in one month.
ü There is another investor who feels that the price will go down
in one month.
ü Both of you enter into an agreement through a stock exchange

to buy and sell the share at a specified rate.

Derivatives
(Cocluded)
Ø Features of futures contract:

ü Special type of forward contract
ü Standardised product with different prices
ü May be available for different periods
ü Settled through the exchange
ü Counter party risk is taken care by exchange
Ø Some terminologies used in derivatives are:

ü Spot price
ü Futures price
ü Contract cycle
ü Expiry date
ü Contract size
ü Cost of carry
ü Initial margin
ü Marking to market
ü Maintenance margin

Notes
Notes
Commodities
Why should we
invest in
commodities?
u Introduction
Ø The benefits of investing in commodities are:

ü Hedge against inflation:
© Positive correlation to inflation
ü Diversification:
© Negative correlation to other asset classes, such as
stocks and bonds

Commodities
(Continued)
u Introduction (Contd.)
Ø The three commodity exchanges are:

ü Multi Commodity Exchange of India Ltd. (MCX)
ü National Commodity and Derivatives Exchange of India Ltd.
(NCDEX)
ü National Multi-Commodity Exchange of India Ltd. (NMCE)
Ø Over 120 commodities including gold and silver are traded.
What are the ways

in which investment
in commodities
can be done?
v Investment in commodities can be done through the following

mediums:
Ø Physical commodity
Ø Commodity derivatives
Ø Shares of companies
Ø Structured products

Commodities
(Continued)
u Introduction (Contd.)
Ø The different investment levels are:
u Commodity Derivatives
v The three main purposes of investing in commodity derivatives are:

Ø Hedging:
ü When someone hedges, he/she tries to neutralise the risk as
much as possible.
ü It does not necessarily improve the financial outcome, but can
make the outcome more certain.
ü Advantages of hedging:
Ø Stretches the marketing period
Ø Protects inventory values
Ø Permits forward pricing of products
ü Speculation:
Ø Trying to make profit by taking a view on the direction of
the price movement
ü Arbitrage:
Ø Taking advantage of difference in prices of the same
commodity in different markets

Commodities
(Continued)
u Commodity Derivatives (Contd.)
What are the differences

between financial and
commodity derivatives?
v Financial derivatives vs. commodity derivatives:

Ø Physical settlement
Ø Warehousing
Ø Quality

Commodities
(Continued)
u Commodity Market in India
Ø NCDEX system:
ü Commodity exchange:
ª Provides trading facility
ü Clearing house:
ª Collection of margin
ª Settlement of contracts by:
ü Physical delivery
ü Cash settlement
ü Closeout
t NCDEX system consists of the following three components:

v Trading:
ü Fully automated screen based trading
ü Exchange specified trading and delivery unit
ü Active and passive orders
v Clearing:
ü National Securities Clearing Corporation Limited
(NSCCL) undertakes clearing of trades executed on the
NCDEX
ü Matching for deliveries is done based on locations and
then randomly, keeping in view the factors, such as
available capacity of the warehouse and commodities
already deposited
v Settlement:
ü Mark to market settlement
ü Final settlement

Commodities
(Concluded)
u Commodity Market in India (Contd.)
Ø The different types of members are:

ü Trading and clearing members:
ª Members of both exchange and clearing house
ü Professional clearing members:
ª Members of only clearing house
Ø Those having membership only with exchange have to do their
clearing through TCMs.
Ø Forward Markets Commission (FMC):

ü A statutory body set up in 1953 under the Forward Contracts
(Regulation) Act, 1952
ü Headquartered in Mumbai
ü NCDEX is regulated by FMC in respect of futures trading in

commodities. NCDEX is:
ª A professionally managed online multi commodity exchange.
ª Launched to provide a world class commodity exchange

platform for market participants.
Ø Options in Indian commodity market:

ü Not permitted
ü Under consideration by the government

Notes
Notes
Real Estate
What is
real estate?
u Real Estate
Ø Investment in real estate can be done through

investing in:
ü Vacant piece of land.
ü Residential buildings/apartments.
ü Commercial buildings.

Real Estate
(Continued)
u Real Estate (Contd.)
Ø The advantages of investing in real estate are:

ü No depreciation on account of use.
ü Not affected by constant sale.
ü Value keeps appreciating.
ü Demand is always present.
ü Tax benefits can be availed.
ü Huge gains in the long run.
Ø The disadvantages of investing in real estate are:

ü Immobile
ü Not divisible
ü Comparison difficult due to uniqueness
ü Difficulty in valuation
ü Illiquid
ü Lands – No regular income
ü Possibility of acquisition by government

Real Estate
(Continued)
Ø The factors affecting purchase decisions and prices in real

estate are:
ü Economic factors
ü Social factors
ü Political factors
v The considerations for investing in real estate are:

ü Liquidity:
Ø Probability of finding a buyer when required
ü Price:
Ø Getting the desired and appropriate price
ü Depreciation:
Ø If the purpose of investment is value appreciation, it is better
to invest in vacant land to avoid depreciation
ü Infiltration risk:
Ø Possibility of encroachment
ü Value affected due to change in infrastructure/water sources:
Ø Possible changes in the near future
ü Rentals may dip:
Ø Factors affecting rentals
ü Purpose of investment:
Ø Income
Ø Value appreciation
ü Property management:
Ø Availability of resources for management

Real Estate
(Continued)
Ø The following precautions should be taken before buying a

residential plot or a plot of land with a constructed building:
v Approval:
ü Competent authority approval
ü DTCP approval for residential layouts
ü Land usage approval, whether agricultural or residential or
commercial
v Title deed:
ü Genuineness
ü Link/parent documents
v Status of property:
ü Prior charges/encumbrances
ü Legal opinion on clear title
v Ownership of land:
ü Should be cross checked from local residents.
v Stamp duty:
ü Differs from state-to-state.
ü Adds to the cost of property.
v Income tax clearance:

ü Ensure clearance obtained for transactions above threshold
value.
v Construction and sanctioned plan:

ü Ensure there are no deviations.
ü Ensure you get the area you are paying for.

Real Estate
(Continued)

Ø The additional precautions to be taken in case of investment
in residential flats are:
v Availability of sanctioned plan
v Developer’s track record
v Area:
ü Carpet area
ü Super built area
v Site visit
v Development
v Delivery date
v Fixtures and fittings:
ü Ensure all fixtures and fittings, of proper quality as per
agreement, are provided.
v Transfer of proportionate share of land:
ü Ensure registration.
v Parent documents:
ü Verify and obtain copies.
Ø NRI investments:
v NRIs can buy property in India without RBI's approval.
v Sale proceeds can be repatriated up to the purchase cost.
v Except agricultural property, a Person of Indian Origin (PIO) or
an NRI can buy property in India.

Real Estate
(Concluded)

Ø Taxation:
v Long term capital gain:
ü Sale after three years of purchase
ü No tax if invested in another residential property
v Capital Gain Account Scheme (CGAS):
ü Helps in deferment of tax
ü Withdrawals only for investment in property

Notes
Notes
Investing in Art
u Investing in Art
Ø The advantages of investing in art are:

ü Diversification
ü Aesthetic value
ü Limited risk
ü Price appreciation
Ø The disadvantages of investing in art are:

ü Lack of liquidity
ü Lack of income
ü Regulatory framework
ü Pricing risk
ü Handling costs

Investing in Art
(Continued)
u Investing in Art (Contd.)
Ø Some of the important forms of art are:

ü Abstract art
ü Figurative art
ü Landscape format/painting
ü Sculpture
v Refer to the following samples of abstract art:
v Refer to the following samples of figurative art:

Investing in Art
(Continued)
v Refer to the following samples of landscape

format/painting art:
v Refer to the following samples of sculpture art:

Investing in Art
(Contcluded)

Ø The various methods of investing in art are:
ü Auction
ü Online auctions
ü Art gallery
ü Online portals
ü Art funds
v Taxation of art works:

Ø Short term capital gains:
ü Less than three years - added to total income
Ø Long term capital gains:
ü Three years and above - 20% with
indexation or 10% without
indexation, whichever is less
v Future of Indian art:

Ø Increase in demand for Indian artists
Ø Art recognised as an investment tool
Ø Increased interest from NRIs
Ø Increased interest in young and
upcoming artists

Notes
Notes
Insurance
What are the

important principles
on which insurance
industry works?
u Principles of Insurance
Ø Utmost good faith (uberrimae fidei):

ü Full disclosure of facts should be made.
ü Even in existing policies, changes, which may affect risk should
be informed.
ü Applicable in case of the insured as well as for the insurance
company.

Insurance
(Continued)
u Principles of Insurance (Contd.)
Ø Insurable interest:
ü Ms. George worships Mr. Sachin Tendulkar.
ü She wants to insure Tendulkar for $100 million.
Ø Indemnity:
ü A contractual agreement made between different parties to
compensate for any damages or losses.
Ø Subrogation:
ü Insurer steps into the shoes of the insured.
ü Insurer is entitled to all the rights and claims of the insured.

Insurance
(Continued)
u Principles of Insurance (Contd.)
Ø Contribution:
ü Proportionate payment by all insurers in case of multiple
insurance
ü All insurers contribute towards the loss in proportion to the value
of insurance policy issued by them
v Insurance is a contract between the insurer and the insured.

v The requirements of an insurance contract to make it legally enforceable
are:
ü Offer and acceptance
ü Consideration
ü Competency of parties
ü Legality
ü Absence of fraud
ü Consensus ad idem:
ü Genuine meeting of minds of both parties

Insurance
(Continued)
u History of Indian Insurance Industry
Ø Life insurance in India:

ü 1818 – Oriental Life Insurance company established
ü 1871 – Bombay Mutual Life Assurance Society established
ü 1956 – Life insurance nationalised
Ø General insurance in India:

ü 1688 – Lloyd’s insurance became operational
ü 1850 – Triton Insurance Company Ltd., Calcutta established
ü 1907 – Indian Mercantile Insurance Ltd. established
ü 1919 – New India Assurance Company Ltd. established
ü 1972 – General insurance nationalised

Insurance
(Concluded)
u History of Indian Insurance Industry (Contd.)
Ø Liberalisation of the insurance industry:

ü 1994 – R.N. Malhotra committee report passed:
v Recommended reopening of insurance industry to private
players
ü 1999 – IRDA bill passed:
v Paved way for liberalisation of Indian insurance industry
ü 2001 – Private players allowed entry in the insurance industry
Ø Insurance companies can be broadly classified into the

following two industry segments:
ü Life insurance companies:
v Life insurance
v Annuities and pensions
ü General insurance companies:
v All other types of insurance

Notes
Notes
Careers in
BFSI Industry
u Careers in BFSI
Ø The various reasons for opting for a career in the BFSI sector
are:
Ø Why one must opt for the BFSI sector?

ü Large sector where jobs are in large numbers
ü Respectable and good industry to build a career
ü Faster career growth
ü One can move multiple roles during his/her career
due to vastness of operations of BFSI organisations
ü Attractive salaries, incentives and rewards
ü Entrepreneurial opportunities – one can start a Financial Services
business in due course
ü Global industry where there is constant innovation and hence, new
learning

Careers in BFSI Industry
(Continued)
u Careers in BFSI (Contd.)
v India’s share in the total world m-cap has risen to 2.79%, making it
the ninth largest market cap in the world.
v Nearly, 80% of the Indian population is without life, health and non-
life insurance, making it a potential segment.
v Career opportunities available in the BFSI industry offer various

roles and may require specific skills to be effective in these different
roles.
v The following figure displays the classification of skills required for
the BFSI industry.

(Continued)
u Banking
Ø The following figure displays the various categories of banks.
Ø The following figure displays a typical bank architecture.

(Continued)
u Banking (Contd.)
Ø The following table displays the various functional areas in

banking.
Functional Segments
Specialised areas:
Back office Forex
operations
Branch banking Trade finance
Channel services Corporate
banking Treasury
Rural banking
Phone banking International
banking
v The banking industry has the following roles to offer to a

fresher:
ü Client acquisition or sales:
Ø Retail assets:
© Loan products
Ø Retail liabilities:
© Deposit products
Ø Third party products:
© Insurance sales in a branch
ü Customer service
ü Relationship banking
ü Back office operations
ü Phone banking
ü Documentation processing

(Continued)
u Banking (Contd.)
Ø The banking industry has the following roles to offer to
experienced candidates:
u Financial Services
Ø The following figure displays a typical bank architecture.

(Continued)
u Financial Services (Contd.)
Ø The financial services industry has the following roles to offer to a

fresher:
ü Client acquisition or sale of financial products
ü Client relationship management
ü Financial planning for retail investors
ü Documentation services
ü Placing orders and servicing orders
Ø The financial services industry has the following roles for

ü Retail outlet branch management
ü Equity or commodity or derivative trading
ü Private equity management
ü Research analyst
ü Equity analyst
ü Financial planning for institutional investors
ü Advisory services
ü Audit
ü Custodial services

(Continued)
u Insurance
Ø The following figure displays the various segments of
insurance industry.
Ø The following figure displays the architecture of an

insurance firm.

(Continued)
u Insurance (Contd.)
Ø The insurance industry has the following roles for
freshers:
ü Sales:
v Direct sales (as employee)
v As an agent
v Managing a channel
ü Insurance operations or policy administration
Ø The insurance industry has the following roles for

ü Claim processing
ü Underwriting
ü Actuarial services
u Work Areas in BFSI
v The following figure displays the work areas in BFSI.

(Continued)
u Career Growth in the Banking Sector
u Career Growth in the Financial Services Sector

(Concluded)
u Requisite Competencies for a BFSI Career
Ø The following figure represents the various competencies

required for a successful career in the BFSI industry.

Notes
Notes

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Overview of BFSI Industry 1-8

Evolution of Money and Banking 9-14

Role of Banks and Bank Products and Services 15-66

Banking Technology and Trends 67-76

Types of Financial Customers 77-84

Wealth Management 85-92

Overview of Other Financial Products and 107-142

v Fixed Income Securities

• GDP is the contribution of all sectors, namely:

• This industry has helped other industries contribute significantly.

Share of BFSI Industry in the Indian Economy

Diploma in Banking © - INFACT Pro 1

India’s Competitive Advantage Against Other Nations: 2020

India is competitive both

u The Indian economy:

2 Diploma in Banking © - INFACT Pro

Top Economies of the World: 2020

u Key Performance Indicators

Diploma in Banking © - INFACT Pro 3

Positive Outlook for the BFSI Sector in India

BFSI Sector Outlook

ª India’s growth necessarily needs a robust and growing financial system.

4 Diploma in Banking © - INFACT Pro

v BFSI industry contributes to the growth of GDP by helping

v BFSI industry offers huge scope for employment and

v Many services related to the BFSI industry are outsourced

Diploma in Banking © - INFACT Pro 5

Overview of BFSI Industry

Commercial Life Mutual funds

Cooperative General Share brokers

v BFSI is a fast growing sector of the service industry, which is

Diploma in Banking © - INFACT Pro 7

w Public sector w Mutual funds w Life insurance

w Regional rural banks w Custodians

w Development banks w NBFCs

v Insurance companies sell insurance products blended with

• Money is best defined by its function as

• The three essential characteristics of money are:

v The following figure represents the different stages in

Exchange of Metallic Paper Bank Plastic

What are the

• The various problems associated with

10 Diploma in Banking © - INFACT Pro

Diploma in Banking © - INFACT Pro 11

v Involves use of computer networks, internet and digitally

What are the

• Characteristics of money are:

12 Diploma in Banking © - INFACT Pro

• Evolution of Banking (Continued)

Diploma in Banking © - INFACT Pro 13

• Evolution of Banking (Continued)

v 2013: Bharathiya Mahila Bank formed

v 2017: SBI joins the league of top 50 banks globally

v 2018 - India reaching a significant milestone in Digital Banking.