Bank Management Concepts

Market Risk Management in Indian Banks

Traditionally, credit risk management was the primary challenge for banks. With progressive deregulation, market risk arising adverse changes in market variables, such as interest rate, foreign exchange rate, equity price and commodity price has become relatively more important. Even a small change in market variables causes substantial changes in income and economic value of banks.

Market Risk may be defined as the possibility of loss to a bank caused by the changes in the market variables. It is the risk that the value of on/off-balance sheet positions will be adversely affected by movements in equity and interest rate markets, currency exchange rates and commodity prices.… Read the rest

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Credit Risk Management in Indian Banks

In course of banks lending involves a number of risks. In addition to the risks related to creditworthiness of the counterparty, the banks are also exposed to interest rate, Forex and country risks.

Unlike market risks, where the measurement, monitoring, control etc. are to a great extent centralized. Credit risks management is a decentralized function or activity. This is to say that credit risk taking activity is spread across the length and breadth of the network of branches, as lending is a decentralized function. Proper a sufficient care has to be taken for appropriate management of credit risk.

Credit risk or default risk involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions.… Read the rest

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Innovations in Customer Services in Banking Sector

Satisfied customers are the best guarantee for the stability and growth. Customers will be satisfied only when the banks provide the customized and innovative products and services at responsible cost. This article focuses on the kind of services provided by developed countries and level of innovative services provided by Indian banks. Many innovative services are currently available from Indian banks like E-Banking, ATMs, Anywhere Banking etc., but there is a vast scope of improvement. Globalization, the buzzword, which engulfed all the nations of the world since the beginning of the last decade of the past millennium, did not leave the banking industry untouched.… Read the rest

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Important Functions of Development Banks

Development banks have been started with the motive of increasing the pace of industrialization. The traditional financial institutions could not take up this challenge because of their limitations. In order to help all round industrialization development banks were made multipurpose institutions. Besides financing they were assigned promotional work also. Some important functions of these institutions are discussed as follows:

1. Financial Gap Fillers

Development banks do not provide medium-term and long-term loans only but they help industrial enterprises in many other ways too. These banks subscribe to the bonds and debentures of the companies, underwrite to their shares and debentures and, guarantee the loans raised from foreign and domestic sources.… Read the rest

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Different Products and Services Offered by Banks

Broad Classification of Products Offered by Banks

The different products in a bank can be broadly classified into:

  • Retail Banking.
  • Trade Finance.
  • Treasury Operations.

Retail Banking and Trade finance operations are conducted at the branch level while the wholesale banking operations, which cover treasury operations, are at the head office or a designated branch.

Retail Banking:

  • Deposits
  • Loans, Cash Credit and Overdraft
  • Negotiating for Loans and advances
  • Remittances
  • Book-Keeping (maintaining all accounting records)
  • Receiving all kinds of bonds valuable for safe keeping

Trade Finance:

  • Issuing and confirming of letter of credit.
  • Drawing, accepting, discounting, buying, selling, collecting of bills of exchange, promissory notes, drafts, bill of lading and other securities.
… Read the rest
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Three Pillars of the Basel II Accord

While Basel I framework was confined to the prescription of only minimum capital requirements for banks, the Basel II framework expands this approach not only to capture certain additional risks in the minimum capital ratio but also includes two additional areas, viz. Supervisory Review Process and Market Discipline through increased disclosure requirements for banks.

The main  purpose of Basel II framework  is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face while maintaining sufficient consistency so that this does not become a source of competitive inequality amongst internationally active banks.  … Read the rest

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