JAIIB MODULE-A

OUTLINE OF MODULE-A
Indian Financial System- An Overview
Banking Regulations
Retail Banking, Wholesale & International Banking,
ADR, GDR & Participatory notes
Role of Money Markets, Fixed Income Markets & Forex
Market
Role & functions of Capital Markets, SEBI
Role & functions of Mutual Funds, Insurance
Companies, Bancassurance & IRDA
Factoring, Forfaiting Services & Off Balance sheet items
Risk Management & Basel-I, II, III An Overview
Alliance Mergers consolidation
Credit Information companies, Fair Practices code for
Debt Collection & Banking Codes & Standards Board of
India
Recent Developments in the Indian Financial System

Overview of Indian Financial

System

Structure available to mobilise resources

from various surplus sectors of economy &
allocate them to needy sectors there by
Transforming Savings in to Investments &
Consumptions.
Financial system consists of:
a)Financial Intermediaries
b)Financial Markets
c)Financial Regulators
d)Financial Instruments
e)Payment & Settlement Mechanism
f) Exchange Rate Mechanism

Overview of Indian Financial

System

a) Financial Intermediaries are Commercial

Banks, Mutual Funds, Insurance Cmpanies
etc
b) Financial Markets are Money market &
Capital Market
c) Financial Regulators are RBI, SEBI, IRDA
d) Financial Instruments are CP, CD, TB, REPO
& Reverse REPO
e) Payment & Settlement Mechanism consists
of SLR environment in the country
f) Exchange Rate Mechanism adopted by the
countrys Central Bank. India has adopted
Mixed Peg system.

Financial Intermediaries
Commerc
ial Banks

Public
Secto
r

Financial
Institutio
ns

Privat
e
Sector

Co-op
Banks

Insuranc
e
Compani
es

Foreig
n

Multi State
Co-op Banks

State
Co-op
Banks

District Coop Banks

NBFCs

RRBs

Mutual
Funds

Financial Markets
Money
Market

Debt Market

G-Secs

Central
Govt.Bon
ds

Call/Notic
e

T.Bill
s

Forex Market

Spot

Bonds

State
Govt.
Bonds

Term
Money

FI
Bonds

CD

ICD

Forwar
d

PSU
Bonds

CP

Capital Market

Primar
y

Seconda
ry

Corporate
Securities

REPO

Commerci
al Bill

Financial Regulators

Central
Banking
Authority

Capital
Market
Regulatory

Insurance &
Pension
Regulators

Monetary Control

Equity & Debt market

supervision & control

Regulatory
framework, Rules &
Regulations for
Insurance Business

Supervision over Banks,

NBFCs, PD, FI, Co-op
Banks,
Clearing & settlement
System

Supervision over Stock

exchanges, Brokers,
Equity & Debt raisers,
Investment Bankers,
Merchant Bankers, FII,
Custodians,
Depositories, Mutual
funds, Listed
Companies, Service
providers to capital

Supervision of general &

life insurance
companies.
Regulating pricing,
investments & cost
structure, Insurance
Brokers.
Pension Regulator
(PFRDA)
Framing Rules for

Role & Functions of RBI

Central Bank & Monetary Authority

Sole Note & Currency issuing authority
Banker & Debt Manager to Government
Bankers to Bank
Regulator of the Banking System
Manager of Foreign Exchange & Forex Reserves
Maintaining Financial stability through
Monetary Policy
Regulator & Supervisor of the Payment &
Settlement System
Developmental Role-NABARD, SIDBI, EXIM,
NHB, DICGC

Retail Banking, Wholesale & International Banking, ADR, GDR & PN

Retail banking is the buzz word in banking sector.

Retail Banking is on both the sides of banks balance
sheet.
Retail Banking deals with the individual customers.
It specialises with multiple types of products on liability
as well as asset side products.
On liability side we have core products like CASA and all
varieties of deposit products for individuals and on Asset
side we have mainly Housing loan, Education Loan,
Vehicle loan, Personal loans, small business loans.
It also includes Alternate Channels of deliveries and
money substitutes like credit cards, debit cards.
It also includes cross products like Bancassurance,
Mutual fund Schemes.
It also includes remittance services like NEFT, ECS credit
and debits, Phone Banking, SMS Banking and payment
banks.

Significance of Retail Banking

Contrast of Risk Management theory and
Portfolio Management theory.
Portfolio management theory focuses on
diversification of liability and asset portfolio
and maximum returns with minimum risks.
Retail banking gives reasonable returns in
comparison to other loans.
Default rate and NPA are less in comparison to
other industrial sector loans.
Young population and increasing purchasing
power of middle class is the main contributory
factor of retail banking.
Growth of service sector and software industry
are contributing to the growth of retail banking.
Every coin has two sides.

 Wholesale banking deals with institutional

customers, mostly industrial & business
entities, MNCs & TNCs, LCBs & SMEs.
Mostly commercial banking deals with trade
finance which is fund based and non-fund
based finance.
It includes term loans and working capital
finance.
Term loans are provided for creation of fixed
assets like Land and building, plant and
machinery, furniture and fixtures.
Fund based working capital is provided
through CC, OD & BD
Non-fund based working capital is provided
through LC, BG & co-acceptance.

 Apart from fund based and non-fund based

loans following value added services are
also part of wholesale banking.
a)Cash Management Services
b)Channel financing
c)Vendor financing
d)Loan Syndications
e)Corporate Salary Accounts
f) Forex Desk-Advisory
g)Money Market Desk-Advisory
h)Derivative Desk-Advisory
i) Tax Collection
j) NEFT
k)ECS Credit & Debit

International Banking
International Banking facilitates cross border Trade,
Services, Investments, Lendings & Borrowings.
It provides International trade finance i.e. Finance
for Import & Exports.
It also facilitates cross border remittance of funds.
It is governed by FEMA-1999
Import finance is Non-Fund Based and is provided
by issuing LCs and Guarantees.
Export Finance is always fund based and always
given in two stages:
Preshipment Finance or Packing Credit Limits (PCL)
Post shipment finance or Bill finance which is given
by Purchasing, Discounting and Negotiation of
Export Bills

What is Universal Banking?

Universal Banking is a sort of financial super mall
& provides all types of products like banking,
insurance, mutual funds, capital market related
products like merchant banking, share broking,
investment banking & advisory services.
The Universal Banking in India started in 200 when
GOI amended BRA & permitted commercial banks
to undertake cross business to improve their NonInterest Income.
In cross products there is no capital requirement
and risk element is negligible.
With opening of insurance sector most of the
banks have started their insurance subsidiary in
collaboration with other banks.

ADR & GDR

A Depository Receipt is a non-debt, negotiable financial
instrument which is traded on local stock exchange but
represents shares of foreign listed company.
DR is a physical certificate & allows investor to hold
shares of other countries.
DRs are ADR, GDR, IDR, EDR etc.
They offer global investment opportunities to investors.
A DR is created when a company wishes to list its
already listed shares or bonds on a foreign stock
exchanges.
For listing debt & non-debt securities on foreign stock
exchange certain criteria has to be fulfilled by the
company.
DR may be issued directly through IPO and can be
traded on exchange or on OTC.

ADR & GDR

DR provided instant liquidity to Non-Resident investor.
It increases market capitalisation of the company on
local and foreign stock exchanges.
It provides name & fame to the company.
It facilitates exchange of information, technology,
regulatory procedures & market transparency.
It provides international exposure to the issuing
company and diversification opportunities to the
investor.

What is Participatory Note?

Non-resident investors except NRI & PIO are not
permitted to invest directly to invest in Indian Stock
Exchanges.
They can have access to Indian Markets through FII or
QII registered with SEBI.
PN is a contract note issued by FII/QII to those entities
who want to invest in Indian Market but do not want to
register them with SEBI.
As such details & identity of ultimate investor is not
disclosed to the regulator.
In 2004, On the recommendation of Lahiri committee
SEBI passed a regulation that PN can be issued only to
the registered regulated entities.
FIIs issuing PN are under obligation to exercise due
diligence & KYC to avoid money laundering.

Role of Money Markets, Fixed Income Markets & Forex

Market

Money market is a short term and has three

elements:
Call Money Market which is a overnight
market
Notice Market is a fortnight market
Term Market exceeds 14 days but less than 1
year.
Money market is governed by RBI.
SCBs (excluding RRBs), Co-op banks &
Primary Dealers are participants as a lenders
& borrowers.
SCBs can borrow upto 125% of their capital