3) Banking and Financial Services

8/8/2019 3) Banking and Financial Services

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OMTEX CLASSES TYBMS - SEM V - SSMCompiled by Kripa Kalro

1

SECTOR 3: BANKING AND FINANCIAL

SERVICES

CHAPTER CONTENTS:

4 CharacteristicsInnovationsTechnologyUsersSegmentation8 P`sPEST Analysis

Additional matter

INTRODUCTION:The banking sector in India has been widening its scope due to liberalization. Banks

today are not mere suppliers of money. They have become providers of services such as

selling insurance, mutual funds, investment opportunities etc. In the past, the banks did

not find any attraction in the Indian Economy because of low level of economic activitiesand few business prospects. Today we find positive changes in the National Business

Development Policy. The private sector banks failed in serving the society. This resulted

in nationalization of 14 commercial banks in 1969. Nationalization of commercial bankspaved the way for development of Indian Economy and canalized financial resources for

the upliftment of the weaker sections of the society. The involvement of Public Sector

Banks transformed Indian Economy. It was felt the bankers review their services notonly as financial intermediary but also as a pacesetter.

BANKING STRUCTURE IN INDIAIn India banks are classified in various categories according to differ rent criteria.

The following charts indicate the banking structure:

Reserve Bank of India

Commercial BanksCo-operative Banks Development Banks

Nationalized Private Short-term

creditLong-term

credit

Agricultural

Credit

Urban

CreditEXIM Industrial Agricultural


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4 CHARACTERISTICS OF BANKING INDUSTRY

1) Intangibility: A person who is new to a bank and wants to open up an account in thebank cannot feel or taste it and ascertain whether the bank is good or bad before opening

an account. He has to experience it, feel how the service is, how humbly do people or the

staff members behave with him, is his money invested or put in a safe account or not. It isonly then he would come to know about the services. Financial services are generally

intangible but the service providers go to considerable lengths to tangibilise the servicefor customers. Regular bank statements, credit cards, and insurance policy are allexample of the way in which the banking services are presented to the customer. They

can enhance the image of the service and the provider can bestow status or implied

benefits upon the user as with a gold carpet. Physical reminders of the service product,

brand name and value serve to reassure the customer and help the banks positioning.

2) Inconsistency: This refers to variability that a company or an organization may

depend on Inconsistency. For a bank, a new customer may not get the same type of

service as much as a regular customer may get. This may be the case because the staffmembers know the person well as he comes often but they dont know that person who

does not come in again and again. Also another point for inconsistency is that the service

delivery by different people that is service is delivered differently from different types of

people. Like in case of a bank, different staff members would provide different services.

In the bank a person may be busy and may not attend to a customer as may be a person

with the same work may attend to him with great enthusiasm. Example: PUNJAB

NATIONAL BANK that promotes itself as crown of quality for customer who is

the king and is an ISO 9002 certified bank. Thus it has to have consistency and quality

to serve its customers.

3) Inseparability: Inseparability is that characteristics of a service indicating that itcannot be separated from creator-seller of the product. Many services are created,

delivered and consumed simultaneously through interaction between customers andservice producers. This is a source of major limitation for the bank. But technology has in

a big way helped the banks to cope with this problem.

Production of services, when it comes to banks can be performed in the following 3

ways:

(i) Co- production: In this case both the service provider and the customer work togetherto produce services. When a customer wants to withdraw cash from the bankingpremises, then both the customer and the service provider needs to be present.

(ii) Isolated production: It is that part of service that is done outside to an organization.E.g. Tele-Banking.


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(iii) Self Service production: In this case, the customer uses the equipments of theservice providers and self serves it. Eg. ATM.

4) Perishability: Inventory relates to the perishable characteristics of the servicemarketing. If a customer starts his day at eight in the morning and ends it at four, but if

bank is open only from 9:00 a.m. to 1:00 p.m. in the afternoon, then one might not beable to attend it. The demand for banking services also fluctuates by day and hour. The

day before the holiday, weekend, most Mondays and Saturdays, pension and salary days

are heavier than normal banking hours. So service faces a lot of problem from inventoryas it cannot be stored, saved and then used later.

INNOVATIONS IN BANKING INDUSTRY ATM machines Tele banking Internet banking Credit cards

Debit cards Mobile banking Smart cards E- cash Auto- swift facility Cross channel banking

TECHNOLOGIES IN BANKING INDUSTRY Database of customers: birthdays, anniversaries, preferences Wi-fi ATM machines Tele banking Internet banking Mobile banking M- Commerce ECS (Electronic Clearing System) RTGS (Real Time Gross Settlement)

USERS OF BANKING INDUSTRY

The users/customers continue a place of outstanding significance. The line of services,the placing and development of services, the offering of services, the pricing strategies or

the interests charged for the services made available and the promotional strategies

depend substantially upon the nature and type of users using the services of anorganization.

Types of Users:General Users: Persons having an account in the bank and using the banking facilities atthe terms and conditions fixed by a bank.


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Industrial Users: The industrialists, entrepreneurs having an account in the bank andusing the credit facilities and other services for the establishment and the expansion oftheir business.

Prospects:It is necessary to clarify the term Prospects! The general industrial prospectsdo not use banking services at present but they have the potential to become a costumer if

induced or motivated in a right fashion.

MARKET SEGMENTATION FOR BANKS

An organization is supposed to enter to the changing needs of customers; it is natural that

all customers have their own likes and dislikes. They have some uniqueness which

throws a big imprint on their lifestyles. This makes the task of understanding a bit

difficult. It has the context that we go through the problem of market segmentation in thebanking service. In the banking services, the banking organizations are supposed to

satisfy different types of customers living in different segments. The segmentation of

market makes the task of bank professionals easier. If the market segmentation is done in

a right fashion, the task of satisfying the customers is simplified considerably. Themodern marketing theories advocate the formulation of marketing policies and strategies

for each segment which an organization plans to solicit.

CRITERIA FOR SEGMENTATIONSegmentation in a right fashion makes the way for profitable marketing. This helps policy

planners in formulating and innovating the policies and at the same time also simplifiesthe task of banking professionals while formulating and innovating the strategic decision.

The following criterion makes the segmentation right.

1. ECONOMIC SYSTEM:An important criterion for market segmentation is the economic system in which we

find agricultural sector, industrial sector, services sector, household sector, and rural

sector requiring the weight age while segmenting.

A). AGRICULTURAL SECTOR: In the agricultural sector, there are four categoriessince the needs of all categories cant be identical.

The mechanization of agriculture, the improved or scientific system of cultivation, the

help of nature , the magnitude of risk, the availability of infrastructural facilities influence

the level of expectations vis--vis the needs and requirements. The banking organizations

are supposed to know and understand the changing requirements of different categoriesof farmers.


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B). INDUSTRIAL SECTOR: The banking organizations are supposed to have an in-depth knowledge of the changing needs and requirements of the industrial sector. The

large sized, small- sized co-operative and tiny industries use the services of the banks.

The expectation of all the categories cant be uniform. The banking organizations are

supposed to have an in-depth knowledge of the changing needs and requirements of theindustrial segment. The emerging tends in competition, the pressure of inflation, the use

of sophisticated technologies, and the business regulations are some of the important

aspects influencing the hierarchy of needs.

Large Sized

Small Sized

Industrial Sector

Co-operative

Tiny

C).SERVICES SECTOR: It is an important sector to the economy where the bankingorganizations get profitable business. The two categories of organizations such as profit-

making and non- profit making are found important in the very context. The bankingorganizations need to identify the changing needs and requirements of the services sector

with the frequent use of IT and with the mounting pressure of inflation and competition,

we find a change in the hierarchy of needs.

2). HOUSEHOLD SEGMENT:This also constitutes an important sector where different income groups have different

needs and requirements. In the below figure we can see the different segments of

household sector.

PROFIT MAKING ORGBANK INSURANCE,

TRANSPORT HOTEL,

TOURISM, PERSONALCARE, CONSULTANCY

ELECTRICITYPERSONAL

MULTIPLESEGMENT

SERVICE

SEGMENT

NOT FOR PROFIT MAKINGEDUCATION, HOSPITAL,

RELIGIOUSPOLITICAL AND SOCIAL

WELFARE.


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A). HOUSEHOLD SEGMENT: The high income group, middle income group,subsistence level group and marginal income group have different hierarchy of needswhich influence the level of their expectations.

B). GENDER SEGMENT: In the gender segment we find male and female having

different needs and requirements. The banking organizations are supposed to identify thelevel of expectations of both sexes as shown in the below figure.

Gender Segment

Some of the women are housewives and therefore they have different needs and

requirements whereas some of them are working ladies having different needs and

requirements.

C). PROFESSION SEGMENT: In the profession segment, we find different categoriesof professions and therefore we find a change in their needs and requirements. As shown

in the below figure.


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The technocrats, bureaucrats, corporate executives, intellects, white-collar and blue collar

employees have different needs and requirements and therefore the banking organizationsshould know their expectations.

3. INSTITUTIONAL SECTOR

In this sector we find different categories of organizations. Some of the organizations are

known as charitable organizations, some of them are cultural/ social organizations, someof them are industrial and many of them are profit making and many are philanthropic

and many of them are related to trade and commerce. It is natural that the needs and

requirements vis--vis the level of expectations cant be identical in all cases. To satisfy

and to increase the market share it is imperative that the banking organizations arefamiliar with changing needs and requirements. The emerging trends in the social

transformation process determine the hierarchy of needs.

BLUE COLLAR

WHITE -

COLLAR

INTELLECTS

BUREAUCRA

PROFESSION

SEGMENT

PUBLIC/

PRIVATE

CORPORATE

TECHNOCRA


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ISM/ 8 P`s WITH REFERENCE TO BANKING

I. PRODUCTLevels of service

CoreProduct

ExpectedProduct

AugmentedProduct

PotentialProduct

The basic

necessity to use

banking

services inorder to handle

finance more

efficiently

Timely service

Long banking

hours

Low interestrates

Goods waiting

rooms

Extensive ATM

networkPromotional

Discounts

Mobile and

internet

Banking

New Schemestailored for

specific

customers


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Service Flower

II.

PRICE

The price mix in the banking sector is nothing but the interest rates charged by the

different banks. In todays competitive scenario where customer is the king the bankshave to charge them interest at the rate in force on accordance with the RBI directives.

Banks also compete in terms of annual fees for services lie credit cards, DMAT etc.

another important part of the banks pricing policy today is the interest charged on the

Home Loans and Car Loans. With Indias economy progressing there are more and morebuyers seeking these loans but at a very competitive interest rate. While framing a pricing

policy different pricing methods can be used:

Value pricing: This type of pricing is mainly done by banks having unique or differentproducts or schemes. They usually charge a combination of high and low prices depending on

the customer loyalty as well as the products. This type of pricing strategy is usually coupled

with promotion programmes.

Cost plus pricing: In cost plus pricing a detailed analysis of cost structure of various bank

products and services is done.

Going rate pricing: The most pricing technique is going rate pricing. In going rate pricing the

banks bases its price largely depending on the competitors prices. The banks however have to

stay within the RBI directives and compete. The banks may charge higher or lower than their

competitor

Market oriented approach: This indicates what the market can bear or accept as in case of a

corporate client who may not be price sensitive as against an individual client.

Competitive based pricing: In competitive based pricing, the price is decided on the

competitors price.


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III. PLACESome of the important factors affecting the location analysis of a bank are:

The Trade Area: Population Characteristics: Commercial Structure Industrial Structure Banking Structure Proximity of other convenient outlets Real Estate Rates Proximity to public transportation Drawing Time Location of Competition Visibility

IV. PROMOTIONBanking services can be promoted in two ways:

a) Personal promotion: the bank marketers get the best opportunity to tangibilize theproduct through personal selling; persuasion is more effective with direct contact. Ithelps in creating impulse buying. Now a Tele-Sale is also popular.

b) Impersonal promotion: i.e. advertising, publicity and sales promotion measures.Banks use all types of advertisement such as newspapers, radio, television,magazines and hoardings. Also sales promotion devices such as Point of PurchaseMaterial, brochures and advertisement specialist like ball pens, calendars, dairies

etc.

Banks also use sponsorships, celebrities for opening a savings week. Publicity is amajor strength as a promotional tool than advertising, as customer tends to believe a news

item rather than an advertisement. Word Of Mouth promotion is yet another importantpromotional tool, as it is a better persuader and convincer than advertising and personalselling, as bank services are narrated by customers themselves. Besides, as Social Welfareand Corporate Social Responsibly are important as a part of banking services.


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V. PEOPLEPeople are the employees that are the service providers. In a banking sector the service

provider plays a very important and determinant role in rendering the customers a

satisfactory and a good service. It is extremely essential that the service providerunderstands what his customers expects from him. In banking sector the customer needs to

be guided in a lot of matters which is possible only with the help of the service provider.

The position in the eyes of the customer will be perceived by appearance, attitude andbehavior of the customer contact employees. Not only the customers contact employee

influence the customers but also the customer base of the organization does so.

VI. PHYSICAL EVIDENCEPhysical evidence is the overall layout of the place. How the entire bank has been

designed. Physical evidence refers to all those factors that helps make the process mucheasier and smoother. Most of the private and foreign banks portray a new welcoming andfriendly look to the customer. Flashy cheque books with the name of the account holderprinted, imaginative design of the bank brochure, statement of accounts with details oftransactions are other tangible aspects.

Logos, symbols, attractive brand namesetc. add to the customers perception of servicequality. There is an urgent need to implement technologies in order to raise productivity as

well as to enable the banking system to cope with the increasing complexities of business.

For example in case of HDFC, ICICI and Citibank portray a new welcoming andfriendly look to the customers rather than drudgery banking counters. The physical

evidence would be the placement of the customer service executives desk, or the locationof the place for depositing Cheques. It is very necessary the place is designed in such a

manner so as to ensure maximum convenience to the customer and cause no confusion to

him.

VII. PROCESSMoments of Truth:

Customer enters branch (Watchman) Security check (Security Man) Inquiry by customer (Banker) Interaction with banker (Banker) Fills form (Banker) Told will receive welcome kit (Banker) Customer leaves (Watchman)


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Blue print of Banking Process

VIII. PRODUCTIVITY AND QUALITYRELIABILITY Transfers, cheque drop box

ASSURANCE Union Bank of India, Good people to bank with

TANGIBLES Gate of bldg, surrounding area, park, car park,Welcome Desk, Cheque books

EMPATHY Loss of cheque/ credit card.

RESPONSIVENESS Turn Around time taken to solve customer queries/complaints

PEST ANALYSIS

1) Political Analysis:

THE INDIAN BANKING INDUSTRY IS GOVERNED BY THE BANKING

REGULATION ACT OF INDIA, 1949.

THE INTEREST RATE SCENE: Following the East Asian crisis in 1997-98, the RBI

has always shown its intention to steadily reduce the interest rate resulting in a narrow

difference between global and domestic rates.


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GOVERNMENT POLICY: In the pre-liberalization era, the banks used to function in a

highly regulated environment with administered interest rates, quantitative restrictions on

credit flows, etc. These restrictive regulatory norms led to credit rationing and

unproductive use of credit and low level of growth. Since 1991, banks have been

following flexible interest rates. Interest rates have been deregulated and banks are free to

fix their prime lending rates.

IMPLICATIONS OF SOME RECENT POLICY MEASURES: The move to

increase the foreign direct investment limits has been perceived as a welcome

announcement to foreign players waiting to get a foothold in the Indian markets. With

the liberalization of the public sector, the public sector banks found it extremely

difficult to compete with the new private sector/foreign banks.

ENVIRONMENTAL REGULATIONS: Banks should start taking cognizance of

Environmental Impact Assessment (EIA) and Environmental Audit (EA) in their

assessment for funding because -

The bank will have to assist the government in putting the India in their league ofthe environmental conscious countries of the globe in a view of their continuing

support to social cause in the past too.

The growth of exports-manufacturing of eco-friendly - finance by bank needed. The success of the local population control equipment industry.

2) Economic Analysis:

The main economic factors that should be monitored with regard to banking sector

are as follows:

Personal & household disposable incomes Employment levels The rate of inflation Income tax level & taxation structures Savings , investment levels and trends Stock market performance Consumer spending and consumer credit

3) Social Environment Analysis:

Many demographic factors have an important bearing on financial services markets.

Changing attitude towards consumer credit and debt Changing employment patterns Number of working women Degree of acceptability of innovative products Attitudes of local population towards foreign companies and products.


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Current and savings account holders of a bank who hold a certain minimum balance in

the account are issued with an ATM card. The card is a plastic card with a magnetic stripwith the account number of the individual. When the card is inserted into the ATM, the

machine sensing equipment identifies the account holder and asks for his or her

identification PIN number. This number is not even known to the bank staff and is unique

and secret to the individual. The bank generally restricts the maximum amount and thefrequency with which one can withdraw cash. The amount withdrawn is immediately

debited to the concerned account through accounting entries pre- programmed on the

ATM. Similarly cash and cheques can be deposited through the ATM for credit to anaccount.

The advantages of an ATM over personal teller are: ATMs can be accessed round the clock No employee interface is necessary. Cash and cheques can be deposited and statements of accounts requirements, transfer

of funds etc. can be effected.

It offers a cost-effective solution alternative to labour costs. Automatic and instantaneous accounting is possible. It eliminates the need for the customers to travel to the branch where his or her

account is maintained, if ATMs are conveniently located and networked.

3) INTERNET BANKING: One of the channels of service delivery to a bankingcustomer is through the internet. The access to account information and as well astransaction is offered through the world wide network of computers on the internet. Every

bank has a special firewalls and its own security measures to protect the account from

non-authentic use by unauthorized users. Each account holder is provided with a PINnumber similar to that of an ATM PIN. A high level of security may be reached by an

electronic fingerprint. The fingerprint is taken before and after the transaction. Account

querying as well as transaction is possible on the internet banking platform. The

accounting is instantaneous and funds transfer can be affected immediately.

It offers the following advantages: At present, though cash transactions are not possible are not possible the next

phase of evolution internet banking will allow those as well. Complex products

may be offered in an equivalent quality with lower cost to more potential

customers.

There may be contacts from any place on the earth and any time of the day ornight.

4)TELEBANKING: It is a banking service offered by banks to enable customers toaccess their account for information or transaction. Similar to the ATM pin a telephone

pin (T-PIN) is provided to each account holder. The customer can call the exclusive tele-

banking numbers and provide the details to identify himself or herself to the automated

voice. Typically, the bank account number and the T-PIN are asked for. The customer isgiven access to his account or transact on his account when the respective number

matches the computerized system. Though cash withdrawal and deposit are not enabled


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through this service, many banks offer cash delivery or collection service to certain

classes of customers.

5)NON PERFORMING ASSETS (NPA): Non Performing Asset means an asset oraccount of borrower, which has been classified by a bank or financial institution as sub-

standard, doubtful or loss asset, in accordance with the directions or guidelines relating toasset classification issued by RBI.

Non-performing asset (NPA) is a loan or an advance where;

Interest and /or installment of principal remain overdue for a period of more than90 days in respect of a Term Loan,

The account remains 'out of order' for a period of more than 90 days, in respect ofan overdraft/ cash Credit(OD/CC),

The bill remains overdue for a period of more than 90 days in the case of billspurchased and discounted,

Interest and/ or installment of principal remains overdue for two harvest seasonsbut for a period not exceeding two half years in the case of an advance granted foragricultural purpose, and

Any amount to be received remains overdue for a period of more than 90 days inrespect of other accounts.

6) CUSTOMER RELATIONSHIP MANAGEMENT (CRM): It is a term applied toprocesses implemented by a bank to handle their contact with their customers. CRM

software is used to support these processes, storing information on customers andprospective customers. Details on any customer contacts can also be stored in the system.

The rationale behind this approach is to improve services provided directly to customers.IT Places the customer at the heart of the banks processes, activities and culture to

improve his satisfaction of service and, in turn, maximize the profits for the bank.A successful CRM strategy aims at understanding the needs of the customer and

integrating them with the banks strategy, people, and technology and business process.

7) ISLAMIC BANKING: Islamic banking refers to a system of banking or bankingactivity that is consistent with Islamic law (Sharia) principles and guided by Islamic

economics. In particular, Islamic law prohibits usury, the collection and payment of

interest, also commonly called riba in Islamic discourse. In addition, Islamic lawprohibits investing in businesses that are considered unlawful, or haraam (such as

businesses that sell alcohol or pork, or businesses that produce media such as gossip

columns or pornography, which are contrary to Islamic values). In the late 20th century, a

number of Islamic banks were created, to cater to this particular banking market.

8) SWIFT:The Society for Worldwide Interbank Financial Telecommunication(SWIFT) handles the registration of SWIFT codes. Bank Identifier Codes (BICs) areoften called SWIFT addresses or codes. A SWIFT code is a standard format of Bank

Identifier Codes approved by the International Organization for Standardization (ISO). It

is the unique identification code of a particular bank. These codes are used whentransferring money between banks, particularly for international wire transfers, and also
http://en.wikipedia.org/wiki/Shariahttp://en.wikipedia.org/wiki/Islamic_economicshttp://en.wikipedia.org/wiki/Islamic_economicshttp://en.wikipedia.org/wiki/Usuryhttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Ribahttp://en.wikipedia.org/wiki/Haraamhttp://en.wikipedia.org/wiki/Society_for_Worldwide_Interbank_Financial_Telecommunicationhttp://en.wikipedia.org/wiki/International_Organization_for_Standardizationhttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/International_Organization_for_Standardizationhttp://en.wikipedia.org/wiki/Society_for_Worldwide_Interbank_Financial_Telecommunicationhttp://en.wikipedia.org/wiki/Haraamhttp://en.wikipedia.org/wiki/Ribahttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Usuryhttp://en.wikipedia.org/wiki/Islamic_economicshttp://en.wikipedia.org/wiki/Islamic_economicshttp://en.wikipedia.org/wiki/Sharia


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for the exchange of other messages between banks. The codes can sometimes be found

on account statements. The SWIFT code is 8 or 11 characters, made up of:

4 characters - bank code (only letters) 2 characters - ISO 3166-1 alpha-2 country code (only letters)

2 characters - location code (letters and digits) (if the second character is '1', thenit denotes a passive participant in the SWIFT network)

3 characters - branch code, optional ('XXX' for primary office) (letters and digits)Where an 8-digit code is given, it may be assumed that it refers to the primary office

9) MERCHANT BANKING: A merchant banker is a financial intermediary who helpstransfer capital from those who possesses it to those who need it. According to SEBI, a

merchant banker is a person who is engaged in the business of issue management eitherby making arrangement regarding selling, buying or subscribing to securities as manager,

advisor, consultant or rendering corporate advisory service in relation to such issue

management. Merchant banking includes a wide range of activities such as managementof customer securities, portfolio management, project counseling and appraisal,

underwriting of shares and debentures, loan syndication, acting as banker for the refund

orders, handling interests and dividend warrants etc. Thus, a merchant banker renders a

host of services to corporate and thus promotes industrial development in the country.

Services of Merchant Banks:

The services of merchant bankers are described in detail in the following way: Project Counseling: Issue Management: Underwriting of Public Issue: Managers, Consultants or Advisers to the Issue: Portfolio Management: Advisory Service Relating to Mergers and Takeovers: Off Shore Finance: Loan Syndication: Corporate Counseling:

10) FACTORING: Factoring refers to the process of managing the sales ledger of aclient by a financial service company. In other words, it is an arrangement under which a

financial intermediary assumes the credit risk in the collection of book debts for its

clients. The entire responsibility of collecting the book debts passes on to the factor. Afactor provides credit information, collects debts, monitors the sales ledger and provides

finance against debts. Thus he provides a number of services apart from financing.

Functions of a Factor:

Financing facility / Trade debts

Maintenance /administration of sales ledger

Collection facility of accounts receivable
http://en.wikipedia.org/wiki/ISO_3166-1_alpha-2http://en.wikipedia.org/wiki/ISO_3166-1_alpha-2


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Assumption of credit risk / credit control & credit restriction

Provision of advisory services

While factoring is well developed in the western countries, in India there are only two

factors, the SBI Factoring and Commercial Services Ltd. And Canbank Factoring Ltd.,

have been permitted by the RBI to operate in the western region and southern regionrespectively.

Factoring offers the following advantages which make it quite attractive:

1. Factoring assures a definite pattern of cash inflows from credit sales2. Continuous factoring may virtually eliminate the need for the credit and collection

department.

As against these advantages, the limitations of factoring re:1. The cost of factoring tends to be higher than other forms of short-term borrowings

2. Factoring is perceived as a sign of financial weakness.

11) LEASING: A lease is an agreement under which a company or a firm acquires aright to make use of a capital asset like machinery, on payment of a prescribed fee called

Rental Charges. The lessee cannot acquire ownership of the asset, but he can use it andhave full control over it. He is expected to pay for all the maintenance charges and

repairing and operating costs.

12) SECURITIZATION: Securitization is a technique whereby a financial companyconverts its liquid, non-negotiable and high value financial assets into securities of small

value which are made tradable and transferable. A financial institution may have a lot of

its assets blocked up in assets like real estate, machinery etc, which are long term innature and which are non-negotiable. In such cases, securitization would help the

financial institution to raise cash against such assets by means of issuing small securities

of small values to the housing finance companies, whose loans are always long term innature and their money is locked up for a considerable long period in real estate.

Securitization is the only answer to convert these ill-liquid assets into liquid assets.

Example of securitization in India: The National Housing Bank (NHB) launched thefirst issue of MBS, based on the assets of HDFC and LIC Housing Finance in August00for Rs 137 crore. NHB had been working for years on its pilot project for creatingliquidity from the huge pool of housing mortgages in the country. Under the scheme,

HDFC got Rs 90 crore of its housing loan bond securitised, while LIC Housing FinanceRs 48 crore, the transaction involved in assignment of retail housing loans from both

housing finance to NHB

13) VENTURE CAPITAL (also known as VC or VENTURE): Is a type of privateequity capital typically provided to immature, high-potential, growth companies in the

interest of generating a return through an eventual realization event such as an IPO ortrade sale of the company. Venture capital investments are generally made as cash in


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No Tailor made Portfolios Managing a portfolio of funds15) BANK MARKETING: It is an approach to marketing service profitability. It helps

to maintain the commercial liability. Today Bank Marketing is a social process, it focuses

on managerial application to marketing services, it is fair way of making profits and

professional tested skill to excel competition.

The causes of Bank Marketing can be seen as:

Rising customer needs and expectations due to improvements in general standardof living.

Entry of foreign and private sector banks in India. Economic liberalization of Indian economy. Phenomenal growth of competition due to economic liberalization. Rise in the Indian middle class with considerable resources. Government intervention in protecting the interests of consumers.

16) AML POLICY: In terms of the Guidelines issued by the Reserve Bank of India onKnow Your Customer (KYC) Standards and Anti Money Laundering (AML) measures,

Banks are required to put in place a comprehensive policy framework covering KYC

Standards and AML Measures. The guidelines issued by the Reserve Bank of India takeinto account the recommendations made by the Financial Action Task Force (FATF) and

inter government agency, on AML Standards and on combating financing terrorism. The

guidelines also incorporate aspects covered in the Basel Committee document on

customer due diligence which is a reflection of the International Financial Communitysresolve to assist law enforcement authorities in combating financial crimes The objective

of KYC guidelines is to prevent banks from being used, intentionally or unintentionally,

by criminal elements for money laundering activities. Section 3 of the Prevention ofMoney Laundering (PML) Act 2002 has defined the Offence of money laundering as:

Whosever directly or indirectly attempts to indulge or knowingly assists or knowingly isparty or is actually involved in any process or activity connected with the proceeds of

crime and projecting it as untainted property shall be guilty of offence of money

laundering. Money launders use the banking system for cleansing dirty moneyobtained from criminal activities with the objective of hiding/disguising its source. The

process of money laundering involves creating a web of financial transactions so as tohide the origin and true nature of these funds. Therefore banks come out with a policy

known as the AML Policy to overcome problems faced due to laundering of funds using

the banking channel.

Documents

3) Banking and Financial Services