FINANCIAL MARKET & BANKING

OPERATIONS
Presented by
Vaishali Kondiba Kamble
STD MBA-1 DIV B
2nd Semester Roll No 27
Academic Year 2019-20

College: - Matoshri College of Management and Research Centre Nashik

University: - Savitribai Phule University, Pune
 Contents
COMPANY
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1 Financial market (Introduction)

2 Relationship Between Lenders & Borrowers

3 Capital Market (Functions & Instruments)

4 Money Market (Functions & Instruments)

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 Financial Market
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Any marketplace where buyers and sellers participate in the

trade of financial securities, commodities, and other fungible
items of value at low transaction costs and at prices that
reflect supply and demand. Securities include stocks and
bonds, and commodities include precious metals or
agricultural goods.

There are both general markets (where many commodities are

traded) and specialized markets (where only one commodity is
traded).

In finance, financial markets facilitate:

 The raising of capital (in the capital markets)
 The transfer of risk (in the derivatives markets)
 Price discovery
 Global transactions with integration of financial markets
 The transfer of liquidity (in the money markets)
 International trade (in the currency markets)

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Securities LOGO

Typically a borrower issues a receipt to the lender promising to pay

back the capital. These receipts are securities which may be freely
bought or sold. In return for lending money to the borrower, the
lender will expect some compensation in the form of interest or
dividends. This return on investment is a necessary part of markets
to ensure that funds are supplied to them.
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Relationship Between Lenders and Borrowers LOGO

Financial Financial
Lenders Borrowers
Intermediary Markets

•Banks •Individuals
•Interbank
•Individual
•Insurance •Stock •Companies
Companies Exchange
•Companies •Central
• Money Market Government
•Pension
Funds •Bond Market •Municipalities
•Mutual •Foreign
•Public
Funds Exchange
Corporations

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Financial Market Chart LOGO

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 Diagram
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FINANCIAL
MARKET

CAPITAL MONEY
MARKET
MARKET

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Capital Market LOGO

 Capital market is a market for financial assets which have a long or

indefinite maturity. Unlike money market instruments the capital market
instruments become mature for the period above one year.

 The capital markets may also be divided into primary markets and
secondary markets. Newly formed (issued) securities are bought or sold
in primary markets, such as during initial public offerings. Secondary
markets allow investors to buy and sell existing securities. The
transactions in primary markets exist between issuers and investors,
while in secondary market transactions exist among investors

 These institutions play the role of lenders in the capital market. Business
units and corporate are the borrowers in the capital market.
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 Instrument of Capital Market
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1 2 3
STOCKS BONDS DEBENTURES
The market in The environment in A certificate issued by
which shares are which the issuance a corporation with
issued and traded and trading of debt the purpose of
either through securities occurs. The creating a debt.
exchanges or over- bond market Debentures are
the-counter markets. primarily includes generally unsecured
Also known as the government-
issued securities and by assets
interest and are
bearing
equity market. corporate debt securities.
securities.

4 5 6
TREASURY FOREIGN FIXED
BILLS EXCHANGE DEPOSITS
A short-term The market in which FDs are the
obligation that is not participants are deposits that are
interest-bearing (it is able repayable on fixed
purchased at a to buy, sell, maturity date
discount); can be exchange and along
traded on a discount speculate on and
withagreed
the principal
interest
basis for 91 days currencies. rate for the period.
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Role Of Capital Market LOGO

1. Mobilization of Savings : Capital market is an important source for

mobilizing idle savings from the economy. It mobilizes funds from people for
further investments in the productive channels of an economy.

2. Capital Formation : Capital market helps in capital formation. Capital

formation is net addition to the existing stock of capital in the economy.

3. Provision of Investment Avenue : Capital market raises resources for

longer periods of time. Thus it provides an investment avenue for people
who wish to invest resources for a long period of time.

4. Speed up Economic Growth and Development : Capital market

enhances production and productivity in the national economy by generation
of employment and development of infrastructure.

5. Service Provision : As an important financial set up capital market

provides various types of services. It includes long term and medium term
loans to industry, underwriting services, consultancy services, export
finance, etc. These services help the manufacturing sector in a large
spectrum.
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Money Market LOGO

 As became a commodity, the money

market became a component of the financial
money
markets for assets involved in short-
borrowing, lending,
term buying and selling with
original maturities of one year or less. Trading in
the money markets is done over the counter, is
wholesale.

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Organised Money Market LOGO

Main components of Organised Money Market:

1. The Call Money: Here, lending and borrowing transactions are
carried out for one day.
2. The Treasury Bill Market: It deals in Treasury Bills of short
term duration: 14 days, 91 days, 182 days and 364 days.
They are issued by Government and largely held by RBI.
3. The Commercial Bill Market: It deals in bills of
exchange. A seller draws a bill of exchange on the buyer to
make payment within a certain period of time.
4. The Certificate of Deposit Market:The main purpose of CD is
to enable the commercial banks to raise funds from the
market. The CDs maturity period ranges from 7 days to 1 year
(in case of FIs minimum 1 year and maximum 3 years). The CDs
are issued at a discount to its face value. The CDs are issued in
denomination of Rs. 1 lakh and thereafter, multiples of Rs. 1
lakh.
5. Money Market Mutual Funds (MMMFs): The MMMFs were
introduced in 1992. The objective of MMMFs is to provide an

additional short term avenue to the individual investors.

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Unorganised Money Market LOGO

Main components of Unorganised Money Market:

1. Indigenous Bankers (IBs): The IBs are individuals or
private firms who receive deposits and give loans and
thereby they operate as banks. Unlike moneylenders who only
lend money, IBs accept deposits as well as lend money.
2. Money Lenders (MLs):They lend money in rural areas as well
as urban areas. They normally charge an invariably high rate of
interest ranging between 15% p.a. to 50% p.a. and even
more.
3. Chit Funds and Nidhis: They collect funds from the members
for the purpose of lending to members (who are in need of
funds) for personal or other purposes.
4. Finance Brokers: They act as middlemen between lenders
and borrowers. They charge commission for their services.
5. Finance Companies: They operate throughout the country.
They borrow or accept deposits and lend them to others. They
provide funds to small traders and others. They operate like
indigenous bankers.

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 Money Market Instruments
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Bill rediscounting Certificates of Deposit

Treasury Bills Instru Commercial Pape

ments

Inter-bank term money Inter-bank participation certific

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Banking Operation
 Introduction of Banking Operation

In another sense, banking operations

involves the practices and procedures that
a bank uses to ensure that customers'
transactions are completed accurately and
appropriately. ... Retail banking provides
services to the general public, including
mortgages, loans, deposits, and checking
accounts.
 Defination on Banking Operations

The legal transactions executed by a bank

in its daily business, such as providing
loans, mortgages and investments,
depending on the focus and size of the
bank.
 Focus Points

Changing Nature of Banking Operations

Importance of CRM in Banks
Products and services offered to customers
Role of technology in Banking operations
Bookkeeping and Maintenance of accounts
Necessity of Asset-liability management
Regulatory framework for Compliance
Changing Nature of Banking Operations

Money economy existed in the ancient vedic times.

Money lending for business purposes is found in the Manu
Smriti.
Vaishyas emerged as a class of indigenous bankers and ‘hundi’
emerged as the earliest form of bill of exchange in India.
Banking operations gradually transcended from individuals to
groups and later on to companies.
History of Banking in India

The Hindustan Bank 1779

The General Bank of India 1786
The Bank of Calcutta 1806
East India Company Established the following three banks known as “Presidency
Banks”.
Bank of Bengal 1809
Bank of Bombay 1840
Bank of Madras 1843
Above three banks are amalgamated in 1920 and a new bank called, the Imperial
bank of India was established on 27th January, 1921.
Imperial Bank of India was taken over by the newly constituted State Bank of
India, which is governed by State Bank of India Act, 1955.
Reserve Bank of India (RBI) which acts as the Central bank was created in 1935,
which is governed by Reserve Bank of India Act, 1934.
Structure of Banking in India

Commercial banks, Regional Rural

Three tier Indian Banking system. Banks and the cooperative and Special
purpose rural banks.

Financial Transactions, Loan

Core banking Operations Origination/Application Processing
and Trade Finance.
Public sector Banks, Private sectors
Classification of banks in the Banking banks, Co-operative sector banks and
System Development banks.
CRM in Banks

Offering the right product to the right customer at the right time
through the right delivery channel is the basic concept of CRM.

Traditionally, banking was “personal” where the customer knew the

bank employee and vice versa.

Newer technologies contribute to lack of personal touch and a

customer can be lured by big financial institutions.
CRM in Banks, Cntd…

To Implement CRM, a bank needs to have an Apex Level Marketing

and Business Intelligence function at the corporate level.

Significant improvement in customer relationship can be achieved

when the technology provides the customer information.

Bank must know the value of the customers, when he/she valued will
reciprocate the relationship with loyalty.
CRM in Banks, Cntd…

Change in the Existing Business Models

Accomplished by

Dividing its customers Categorizing the Bank may also A bank adopt
in various categories customers in decide to follow a “Universal
like Retail, small and segments like niche strategy. Banking”
medium enterprises personal finance,
and corporates. Business finance and
corporate, etc.
CRM in Banks, Cntd….

Formulating Business Model

Two Major aspects a bank has to consider

Business Model needs to be flexible and

adaptable

Should not lose focus of its perceived future

growth
Products and Services offered

Product-needs and product-preferences of customers also undergo

changes.

Business strategies have been shifting from ‘Product based’ to

‘Customer focused’ approach.

Branches are the basic delivery channels of products and services.

Branches are required to focus on sales and services in technology-

enabled transformation.
Role of Technology

Technologies like enterprise level core banking solutions enabling to

run any business strategy.

Networking and internet-based technologies enabled banks to handle

large volumes of businesses, also helped to demolish physical
boundaries for delivering cross border services.

Continuous fall in the prices of hardware and networking will enable

the banks to reduce the cost of transactions and overheads.
Bookkeeping in banks
Principle books of Accounts
Subsidiary Books
Subsidiary Registers
Departmental Journals
General Ledger, Profit and loss Ledger.
Personal Ledger, Bills registers.
Bills for Collection Register, Demand Draft
Register, Share Security Register, Jewellery
Register, Safe Custody Register, Letters of Credit
Register, Safe Deposit Vault Register, Standing
Order Register and Letter of Guarantee Register.
A journal is maintained by each department of
the bank to note the transfer entries passed by it.
Bookkeeping in banks, Cntd…

Cash Department Receiving Cashier’s Cash Book, Paying

Cashier’s Cash Book, Main Cash Book and
Cash Balance Book.
Quick payment In teller system, the teller keeps cash, ledger
system cards and the specimen signature cards for
Memoranda each customer.
Books Outward The onward clearing book is a clearing
Clearing “cheque received” book is for entering
cheques received from customers for clearing.
Inward Clearing Inward clearing relates to the cheques that
come into the bank. Cheques received are
checked against lists.
Bookkeeping in banks, Cntd…

Loans and Registers for shares and other securities,

Overdraft Summary books of securities, Godown registers,
department price register, Overdraft sanction register,
Drawing power book, Delivery order book and
storage books.
Deposits Account opening and closing register, Rate
Memoranda department register for fixed deposits, Due date diary and
Books Specimen signature book.
Establishment Salary and allied registers, Register of Fixed
Department assets, Stationery Register and Old records
register.
General Signature book of bank officer and Private
telegraphic code and cyphers.
Bookkeeping in banks, Cntd…

• Average balances in loans and advances.

• Deposits.
Statistical Books • Number of cheques paid.
• Number of cheques, bills and other items
collected.
Asset-Liability Management (ALM)

Indian Financial Sector reforms in the 1990s brought unprecedented

changes in the banking sector.

Pressures arising on the profitability, liquidity and sustainability of

the bank cannot always be tackled on a firefighting basis.

To take a strategic perspective, banks should first of all understand

the risks that have to be taken in order to gain the rewards that are
set as the target.
Asset-Liability Management (ALM) Cntd…

ALM basically refers to the process by which an institution manages

its balance sheet in order to allow for alternative interest rate and
liquidity scenarios.

ALM models enable institutions to measure and monitor risk, and

provide suitable strategies for their management.

ALM includes not only a formalization of understanding the risks, but

also provides a way to quantify and manage these risks.
Asset-Liability Management (ALM) Cntd….

RBI has developed an ALM framework based on GAP Analysis and is

intended to introduce the banks to the process of ALM.

Process of ALM is multifaceted and will vary from one bank to

another.

Based on the RBI model, banks can segregate their assets and
liabilities into various maturity buckets.
Regulatory Frame work for Compliance

Banks play a key role in the financial system since they are the
major players in mobilizing savings and turning them into
investments.

Banking system can survive and grow only under an authority that
can guide and monitor it; i.e. RBI.

RBI as the banking regulator has to monitor and regulate the risk
taken by banks.
Regulatory Frame work for Compliance, Cntd…

Different departments of the RBI

Department of Banking Operations and Development
Department of Government and Bank Accounts
Department of Banking Supervision
Department of Currency Management
Urban Banks Department
Rural planning and credit Department
Banking in India today

Rapid strides in information technology have, in fact, redefined the

role and structure of banking in India.

Banks are coping up and adapting with time, to become one-stop

financial supermarkets.

Market focus is shifting from mass banking products to class

banking with the introduction of value added as customized
products.

SBI plans to open 100 new branches called Personal Banking

Branches.