Important Topics

Marketing of Banking & Financial

Services
 Monetary Policy tools used by RBI
• Cash Reserve Ratio (CRR): It is the ratio of Deposits which
banks have to keep with RBI. Under CRR a certain percentage of
the total bank deposits has to be kept in the current account with
RBI. Current CRR is 3%
• Statutory Liquidity Ratio (SLR): The ratio between cash in
hand and total assets maintained by the banks. It refers to the
amount that the commercial banks require to maintain in the form
of cash, or gold or govt. approved securities before providing
credit to the customers. Current SLR is 18.50%.

Q. When a bank has to hold a specific amount in their account with

RBI. It is known as……….
(1) SLR (2) CRR (3) Depository (4) None of the above
• Repo rate:  It is the rate at which the RBI lends to banks. The
rate at which banks borrow money from the RBI by selling their
surplus government securities to the central bank (RBI) is
known as “Repo Rate.” Repo rate is short form of Repurchase
Rate. Generally, these loans are for short durations (up to 2
weeks). Current repo rate is 4.40%.
• Reverse repo rate is the rate of interest offered by RBI, when
banks deposit their surplus funds with the RBI for short periods.
When banks have surplus funds but have no lending (or)
investment options, they deposit such funds with RBI. Banks
earn interest on such funds. Current reverse repo is 3.75%.

Q. Repo rate is the rate at which commercial bank borrows money from
RBI by selling……………….
(1) Shares (2) Public deposit (3) Gold (4) Govt. securities.
 Relationship between a banker and customer
• The primary relationship between a banker and customer starts from
the time when customer opens account. The primary relationship
between banker and customer is a contractual relationship.
• Debtor & Creditor: When banker received deposits from the
customer, then the banker becomes debtor and customer becomes
creditor. When Banker gives loan to the customers, then banker
becomes creditor and customer becomes debtor.
• Agent & Principal: Banker is the agent and customer is principal.
Banker does all the work on behalf of customers such as issuing of
draft, clearing of cheque, transferring of fund etc.
• Q. When customer takes credit card from the bank, he becomes…….
• (a) Client (b) Creditor © Debtor (d) Agent
 Major functions of a Bank
• Primary Functions Such as Accepting deposits & Granting
loan & advances.

• Secondary functions such as clearing cheques, fund transfer,

periodic payment etc.

• Utility functions such as issuing of Locker, issuing of draft

etc.
• Banks do not involve in selling of property such as real estate,
or selling of commodities etc.
 Debit card and Credit card
• Debit card, credit card, Forex card, gift card are commonly
known as plastic money.

• Debit card: Debit cards allow bank customers to spend

money by drawing on funds they have deposited at the bank.
Using a debit card is basically the same as writing a cheque.

• Credit card: It is a card issued by a bank, and it enables the

cardholder to borrow funds from the bank. Cardholders agree
to pay the money back, with interest, according to the
institution's terms. Credit card is one of the most popular form
of credit.
 Difference between Bank & NBFC

• Banks can do almost all financial services and products generally

authorized to them. They can accept demand deposits. NBFCs
can’t accept demand deposits.
• Banks are supported by the Payment and Settlement System
(RTGS, NEFT etc.,) But NBFC Can not avail the payment and
settlement system.
• A bank indulges in a number of activities relating to finance with a
range of customers, while an NBFI is, mainly concerned with the
term loan needs of large enterprises.
 Types of Investment Adviser in Financial Industry

• Tied Adviser: The adviser works with one product provider and
only considers products that company offers. Eg: LIC Agent
• Multi-tied Adviser: A multi-tied adviser will be able to offer you
a choice of deals from a limited number of providers. Anyone who
offers a choice will be multi-tied. Eg: Intermediaries (Banks
selling Mutual funds of different tie-up companies)
• Independent Financial Adviser (IFA): An adviser or firm that
provides independent advice is able to consider and recommend
all types of retail investment products from all firms across the
market, and have to give unbiased and unrestricted advice. Eg:
Brokerage firm (Eg: Policy Bazaar )
 Golden Rules for taking a Loan
• Don’t borrow more than you can repay: What percentage you
should never borrow more than of your yearly net income? Your
monthly outgo towards all your loans put together should not be more
than 50% of your monthly income.
• Keep Tenure As Short As Possible: The longer the tenure, the lower is
the EMI, which makes it very tempting to go for a 25-30 year loan.
However, it is best to take a loan for the shortest tenure you can afford.

• Ensure Timely and Regular Repayment: Whether it is a short-term

debt like a credit card bill or a long-term loan for your house,
make sure you don’t miss the payment. Missing an EMI or
delaying a payment are among the key factors that can impact
your credit profile and hinder your chances of taking a loan for
other needs later in life.
 Important Terms

• Assets: Anything that can be converted into money is an assets. Such as

Property, Gold, securities etc.
• Liabilities: Liabilities are obligations; they are amounts owed to creditors for
a past transaction.
• Liquidity: The ability to convert financial resources into usable cash with
ease.
• Channel Conflict: This is where the perception on the part of a channel
member is that its goal attainment is being impeded by another, with stress or
tension.
• Consumer credit: Taking a short-term loan and paying for purchases at a later
date.
• Open-end credit: It is a preapproved loan between a financial institution and
borrower that may be used repeatedly up to a certain limit and can
subsequently be paid back prior to payments coming due.  Eg: Using your Visa
card to pay for food.
• I.P.O (Initial Public Offering): It refers to the process of offering shares of a
private corporation to the public in a new stock issuance.
• Credit limit: A determined set amount of money on a credit
card
• Long term financial instruments: The financial instruments
whose period of maturity more than five years of financial
instruments.
• Financial asset markets : The markets which deal with buying
and selling of bonds, mortgages, notes and stocks are
considered.
• Capital Market: A capital market is a financial market in
which long-term debt or equity-backed securities are bought
and sold. Eg: New York Stock Exchange.
• Money Market: The money market is a component of the
economy which provides short-term funds. The money market
deals in short-term loans, generally for a period of less than or
equal to 365 days.
• Certificate of deposit (CD): It is a time deposit, a financial
product commonly sold by banks. It has a specific, fixed term
(often one, three, or six months, or one to five years) and usually, a
fixed interest rate. The interest rate of certificate of deposits is
quoted using a time span of 360 day a year.  The rates of certificate
of deposits are mostly negotiated between bank and COD buyer.

• Letter of Credit (LOC): A letter issued by a bank to another bank

(especially one in a different country) to serve as a guarantee for
payments made to a specified person under specified conditions.
The international banker's acceptance usually arises from
underlying LOC.

• Corporate bond funds: These are debt funds that lend at least

80% of their money to companies with the highest possible credit
rating. It must have features of a source of regular income.
• Property tax:  It is the annual amount paid by a land owner to the
local government or the municipal corporation of his area. Eg: Tax
on something you own such as a home.
• Death Tax: It is also known as estate tax. It is tax levy on estates
whose value exceeds an exclusion limit set by law. It is also is
placed on wills of $2,000,000 and higher.
• Financial literacy: Understanding the rules of credit.
• Disadvantage of credit: Purchases are more expensive, A
temptation to overspend exists, Ties up future income.
• Cross Selling: A sale technique where products from multiple
categories or departments are sold in one transaction. Up-selling
(Selling expensive items to the potential customers) and cross-
selling important because They target your current customer base,
which is less costly than attracting new customers.
• Exclusive Distribution: This is where intermediaries are
given exclusive rights to market the service within a defined
'territory', thus using a very limited number of intermediaries.
• M-Banking: When the banking operations are carried out
through mobile phones.
• People Key Infrastructure: It is the most favored
technology for secure Internet banking service.
• Financial intermediation : The act of financial
intermediation consists of transforming equity shares into debt
instruments such as bonds.
• SWIFT (Society for Worldwide Interbank Financial
Telecommunication) is an International Monetory transfer
code.
• Clearing House: It is the place where bankers meet and settle
their mutual claims and accounts.
• Retail banking: It means bank financing to retail traders.
• Market segmentation: It means distribution of territory.
• Cross cheque: It means a cheque which can be encashed only
through a bank over the counter.
• Dow Jones: It is the Share market index of New York
exchange market.
• Bank rate: The rate at which the Reserve Bank of India gives
credit to commercial banks.
 Important Facts on Banking & Finance
• Chief risks for investors is High risk investment strategy.
• Banks can undertake studies for various products and various
geographical areas to understand the potential available customer.
• When interest rates are rising, a person would be best served by
Long-Term Savings Instruments.
• To avoid high fees for loans, a person should not borrow from a
credit union.
• Renting is more advantageous than buying a home for Lower
Short-Term Living Costs.
• Nationalization of Banks led to Expansion of bank branches in
India. The primary objective of Nationalization of Banks was
Improving credit facilities.
• Larger institutions are less likely to fail, reducing the impact of a
financial crisis.
• Consolidation in the banking sector does lead to monopoly
pricing.
• Long-term relationships with customers and other partners lead to
successes is the mantra of Relationship Marketing era.
• Branding enables a bank to do the market segmentation as each
product from out of a product line can attract a distinct segment
of customers.
• Banks have sponsored development and creation of public
facilities such as sanitation, roads, libraries and community wells
to create brand awareness.
• The sequence of a sales process is Lead generation, call,
presentation & sale.
• Value –added services’ means Better value at a discount.
• If market interest rates are expected to rise, you would expect
stock prices to rise and bond prices to fall.
• Financial risk is most associated with the use of debt financing
by corporations.
• The Debt-Equity ratio of a Company Measure its financial
leverage.
• Investment is the net additions made to the nation’s capital
stocks.
• Financial management is mainly concerned with all aspects of
acquiring and utilizing financial resources for firm’s activities.
• The primary goal of the financial management is to maximize
the wealth of owners.
• Market value of the shares is decided by the investment market.
• Capital budgeting is related to short term assets.
• Working capital management is managing short term assets and
liabilities.
• Money supply factors lead to activity of stock market.
• The company’s average cost of capital is the average cost of short
term funds.
• Present value takes discounting rate.
• Industrial Development Bank of India (IDBI) is the apex
organization of Industrial Finance in India.
• Pay Oder is also known as Bankers cheque.
• If a cheque drawn by him is dishonoured for insufficiency of funds in
his account is an punishable offence. Bouncing of cheques may lead
to 2 years imprisonment.
• To prevent recurrence of scams in Indian Capital Market, the
Government has assigned regulatory powers to SEBI.
• The main difference between shares and debentures is shareholders
receive dividend on shares whereas debenture holders receive interest
on debentures.
• Market segmentation can be resorted to by dividing the target group
as per income levels of customers.
• Regional rural Banks designed to help the targeted groups. It
gives long term loan to farmers.
• Microfinance Institutions have the highest share in the
disbursement of credit to agriculture and allied activities.
• Creditors are the Debenture holders of the company.
• Securities issued by the government are known as gilt-edged
securities.
 Some Important Questions on Banking & Finance
Q. When a trail commission paid?
Ans. When the investment is cashed in.
Q. Where would a consumer go for general financial advice?
Ans. Financial Planner
Q. What is the typical commission rate for a single premium
investment?
Ans. 4% - 6%
Q. What is variable cost of owning a car?
Ans. Car repairs, Oil change, Tyre change etc.
Q. What is the term that is used to describe the declining value of
a new car once you drive it off of the car lot?
Ans. Depreciation
Q. Which governmental entity is in charge of handling and
processing your income taxes?
Ans. Ministry of Finance
Q. What type of income tax system is used in India today?
Ans. Proportional Tax System
Q. What is the name of the tax that you will pay if you win contests
in India?
Q. What percentage should you never borrow more than of your
yearly net income? In other words, what percentage should you
never rise above in order to buy something?
Ans. 50% of your yearly net income