Professional Documents
Culture Documents
Deposit Scheme COI
Deposit Scheme COI
Deposit Scheme COI
Deposits
Deposit Schemes And
Rules Of Issuance of COIs
Presented By
Amir Rafique
2
Deposits
Significance Of Deposits For Banks
3
Deposit Significance –contd-
The main difference between a bank
and a non banking financial institution
is that Banks are the only financial
institutions which accept deposits and
then lend them out keeping a spread of
interest rates, whereas other financial
institutions may only accept deposits
e.g saving centres or may only lend
funds e.g. leasing companies.
4
Deposits Significance –contd-
As deposits are essential for operations
of a commercial bank and they cannot
function without them therefore
For these reasons; deposits for
commercial banks are regarded as
LIFE BLOOD.
Banks are thus always finding ways of
attracting fresh deposits at low cost.
5
How Deposit Scheme Are
Developed
Following Are Important Points While
Developing A Deposit Scheme
6
Cost of Funds Mechanism
Determination of cost of funds is essential to
ensure profitability and benefit of any
transaction.
Deposits (both local currency and foreign
currency) from individuals, corporations,
organizations generate liquidity resource for
the bank. These comprise either cost bearing
or cost free deposits. Cost bearing deposits
are those on which the bank has to pay profit
at specified rates whereas, cost free deposits
do not have any cost attached.
7
Cost Of Funds Mechanism
–contd-
Cost Bearing Deposits Cost Free Deposits
8
Cost Of Funds Mechanism-contd-
A Hypothetical Example
Yield/Return of Rs.100 Deposit
10
Cost Of Funds Mechanism
–contd-
Constituents of Cost of Deposit/Funds
11
Cost Of Funds Mechanism
–contd-
Cost of Deposits/Funds Calculation factors
Cost of Deposits
Profit Paid/Accrued x 365 x 100
Average Deposit # of Days
Cost of Funds
Profit Paid/Accrued+Admin/Oprt Cost x 365 x 100
Average Deposit Held During Period # of Days
13
Cost Of Funds Mechanism
–contd-
15
Example of Calculation of Cost
of Funds
All Kinds of Deposit Daily Product For One Year = 54,750,000
Profit Paid And Accrued For Same One Year = 10,000
Admin/Operating Cost For Same One Year = 20,000
16
Example of Calculation of
Admin & Operating Cost %
Total Deposits Product (For A Year) = 36,500,000
Total Admin/Operating Expense (For A Year) = 5,000
17
Example of Calculation of
Earning As % of Deposits
Total Deposits Product (For A Year) = 36,500,000
Total Earnings Of A Bank (For A Year) = 25,000
Yield On Deposits =
25,000 x 365 x 100 = 25 %
36,500,000/365 365
18
Example of Calculation of
Spread Of A Bank
Spread =
19
Cost of Deposit and Spread
There are two major factors. First, the bank
must offer a high enough interest rate to
attract and retain deposits. If deposit rates
are too high they squeeze the spread
between the average return on assets and
the average cost of liabilities. Second, to
meet competition, banks not only have to
lower rates charged on loans, but also have
to increase rates on deposits. Undoubtedly
market forces ultimately determine deposit
rates.
20
Deposits Scheme Attracting
Fresh Deposits
PLS- Monthly Income Scheme
Salient Features
Profit will be paid on monthly basis at a rate
21
Deposits Scheme Attracting
Fresh Deposits -contd-
Other Important Rules Governing Monthly Income Scheme
Investment can be made in cash or cheque subject to
realization.
MIS holder would be eligible for sharing Profit/Loss with the
bank at the rate determined by the bank in its sole discretion
and bank’s decision in this behalf will be final and binding on
depositors.
MIS is issued for minimum Rs.10,000 and multiples thereof.
On expiry of deposit period, if not opted for automatic renewal,
the deposit will cease to be eligible for profit and loss at the MIS
rate.
Bank shall be within its rights to invest deposited funds at its
sole discretion.
22
Deposits Scheme Attracting Fresh
Deposits Rules-contd-
In case of premature encashment, profit will be paid at PLS-SB
Rate existing at the time of encashment for the whole period of
retention. Excess profit paid will be deducted from principal.
Profits on MIS shall be determined by Bank at end of half year
along with a provisional rate at which profit will be paid for next
6 months.
The depositor shall be liable to reimburse the Bank with the
amount of claim, if any, in respect of losses incurred on basis of
half yearly closing.
Any Change in Address of depositor would be immediately
communicated to the bank. The post office or other agents of
delivery shall be considered to be agents of depositor and no
responsibility can be accepted by Bank for delay, non delivery.
Holders of MIS Receipt must keep receipts under lock and key.
Any losses must be intimated immediately to issuing branch.
23
Deposits Scheme Attracting Fresh
Deposits Rules-contd-
Bank reserves the right to add or alter any of the rules
governing PLS-MIS scheme and such alteration or addition of
rules shall immediately thereafter be deemed to be binding on
customers.
MIS holders will be eligible for participation of profit and loss on
the condition that the deposit will not be withdrawn earlier than
2 years. In the event any depositor wishes to withdraw the
money earlier than 2 years, he/she will forfeit his/her right to
share profit and be absolved of his/her obligations to share loss
on this deposit for the period deposit remained with bank.
Facility of loan will be available on MIS certificates for 75%
value of Principal and 2% mark up above profit rate.
Deposits remaining unclaimed for 10 years after maturity will be
transferred to SBP as per their policy.
MIS scheme is available subject to acceptance of above rules.
24
Summary
Significance of Deposits for commercial
banks
Issues in Developing of a new deposit
scheme
Cost of funds/deposits calculation
mechanism
A new PLS-MIS scheme
25