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Banking Financial Service Management
Banking Financial Service Management
Presented By R.JothiVel MBA,.
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Contents
Application Of Bank Funds
Bank Investment and Function
Bank Lending and Function
Types Of Bank Lending
Company L/O/G/O
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The application of is part of funds statement which shows the various uses of bank funds.
Banks undertake a wide of activities, which play a critical role in the economy of a country.
In addition they provide a smooth functioning payment system that allows financial and real resources to flow relatively freely to their highest return uses.
Banks are important source of funds for small borrowers who often have limited access to other sources of external finance.
Introduction Of Application Of Bank Funds
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Bank Investment
RBI require lenders to maintain a portion of their deposits in liquid asset. These liquid asset can be cash, gold and goverment securities. SLR ratio set by RBI based is monetary police
SLR Investment
Non-SLR Investment
Current SLR Is 22% Decreased from 22.5%
It is the bank Invest in various capital market instrument
such as stock & bonds issued by govrment and public company and mutual fund units
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Function Of Bank Investment There are three main objective of investment like
safety, growth and income. Every investor with specific objectives in mind
and each investment has its own unique set of benefits and risk.
Importance Function Of Investment;
1. Safety
2. Growth
3. Income
4. Other Objectives• Tax Exemption• Liquidity
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Bank Lending
The primary function of a bank receive deposits and loans
The majority of funds are used for lending The Lending accompanied by risk Loans provide specific time period short term
loan but term loan i.e loans for more than a year granted
The borrower may be give entire amount in lump sum or installment
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Loans Granted Against Of securities
Commodities Financial Instrument Real Estate Automobiles Document Of Title
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Profitability
Margin Money
Principles Of Lending
Character Of The Borrower
Liquidity
Security
National Interest
Object Of Loan
Safety Diversification
Principles Of Bank Lending Policy
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Types Of Lending
Fund Based Lending
Non Fund Based Lending
Asset Based Lending
Types Of Lending
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Fund Base Lending
On the basis of fund based lending bank commits the physical outflow of funds.
Fund position of the lending bank get affected.
Types Of Fund Based Lending; Loans Cash Credit Overdraft Purchase of bill of exchange
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Loans• A loan is a kind of advance made with or without
securities.• It is given for a fixed period at an agreed rate of
interest.• Repayment may be installment or at expiry of certain
period.• Loan may be demand loan or a term loan• Demand loan is payable on demand, it is short term
loan to meet the working capital requirement of business.
• Term loan is medium and long term loan.• Medium term loan repayable within 1 to 5 years.• Long term loan repayable after 5 years.
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Cash Credit •It is popular method bank lending in India.•Under the cash credit system a limit called the credit
limit is specified by the bank.•A borrower is entitled to borrow the up to the limit, it is
granted against security of tangible and guarantee.•The borrower can withdraw money any number of time
up to the limit.•Bank charge the interest on the actual amount
withdrawn and period of such amount is withdrawn.•The cash credit facility is granted against the pledge or
hypothecation of stock or marketable instrument ,or personal security.
•Cash credit is most favorable mode of borrowing by commercial and industrial enterprise in India.
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Overdraft
The bank allow the customers to overdraw its current deposit account within a specific limit.
Interest is charged only on the amount of drawn and not on the whole amount sanctioned.
The bank obtain written request from the customer .
He should also settle the terms and condition and rate of interest chargeable.
It is usual to obtain a promissory note from the customer to cover the overdraft.
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Bills Purchase and Discounted
Discounting bills refers to an act of selling of a bill to obtain payment for before its maturity.
The bank provides the customer with facility of purchasing their bills receivables.
The bank permit the customer to discount his bills receivables and have value of the bills credited to his accounts.
The bank charges discounting charges on the face value of the bills
The bill of exchange time may be 3 to 6 months
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Non-Fund Based Lending The lending bank does not commit any physical
outflow of funds The non fund based lending can be made by the banks
in two forms.
Types Bank Guarantees
Letter Of Credit(Domestic& Foreign)
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Bank Guarantees A bank guarantee is a promise from a bank or other
lending institution that if a particular borrower defaults on a loan, the bank will cover the loss. Note that a bank guarantee is not the same as a letter of credit.
How it works/Example: Let's assume Company XYZ is a small, relatively
unknown restaurant company that would like to purchase $3 million of kitchen equipment.
The equipment vendor may require Company XYZ to provide a bank guarantee in order to feel more confident that it will receive payment for the equipment it ships to Company XYZ.
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Con…
To obtain this bank guarantee, Company XYZ requests one from its preferred lender (usually the bank with which it keeps its cash accounts). The lender provides the guarantee in writing, which is then passed on to Company XYZ and its vendor. Company XYZ's lender essentially becomes a co-signer on the purchase contract with the vendor
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Letter Of Credit(Domestic&Foreign) A letter of credit is a written undertaking issued by
the buyer(opener) bank(opening bank) to the seller (beneficiary) to reimburse the cost of goods and services supplied to the buyer against production document stipulated therein within a specific time, at a specific place and up to the specific amount to a specified bank (reimbursing bank) provided the documents submitted are in strict conformity with the term and condition of LC
Buyer , seller and issuing banks are in the same country, such credit are domestic LC
In the foreign LC the buyer will be in one country, the seller will be in another country and the amount will be denominated in a foreign currency, i.e., either in the seller currency or a third country ..currency
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Asset Based Lending
"asset-based lending" and "asset financing" refer to the same thing. Asset-based lending generally refers to a business using its assets as collateral for a loan. If the loan is not repaid and falls into default, the lender may seize and sell the collateral to pay off the loan amount.
Types Project Finance Securitization
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Project Finance
Defined by the International Project Finance Association (IPFA) as the following:
The financing of long-term infrastructure, industrial projects and public services based upon a non-recourse or limited recourse financial structure where project debt and equity used to finance the project are paid back from the cash flow generated by the project.
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Securitization
Securitization means the conversion of existing or future cash in-flows of a person into tradable security Which then may be sold in the market.
The cash in-flow from financial assets such as mortgage loans ,automobiles loans, trade receivables , fare collection become the security against which borrowing raised.
According to Oxford Dictionary, “Securitization means to convert an asset (specifically loan) into marketable securities for the purpose of raising cash or funds”.
Thus the process of securitization involves pooling of asset and selling these to investors through a specialized intermediary created for the purpose. .
Examples Of Securitization Debt,
City Bank carved out car loan portfolios to ICICI Bank
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