Para Banking by Management Fund A

7/31/2019 Para Banking by Management Fund A

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What is Para Banking?It provides a framework of rules/regulations/instructions to the

Scheduled Commercial Banks for undertaking certain financial

services or para-banking activities as permitted by RBI.

What is Universal Banking?

Universal Banking is a superstore for financial products under one

roof. Corporate can get loans and avail of other handy services, while

can deposit and borrow. It includes not only services related tosavings and loans but also investments.

Relationship between Para-Banking & Universal Banking?

PARA BANKING AND UNIVERSAL BANKING


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PARA BANKING

Most of the rationales for regulating banks fall into broad

categories:

Subsidiary Companies

Equipment leasing, Hire purchase business and Factoring

services

Banks undertaking PD (Primary Dealer) business

Mutual Fund Business

Insurance business Underwriting of Corporate Shares and Debentures & bonds of

Public Sector Undertakings

Safety Net Schemes


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What Is Merchant Banking?A merchant bank deals with the commercial

banking needs of

a) international finance,b) long term company loans, and

c) stock underwriting

Commercial

Banking

Retail Banking Merchant

Banking


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UNDERWRITING OF CORPORATE SHARES

& DEBENTURES

The statutory provision contained in Section 19(2) & (3) of the Banking

Regulation Act, 1949 regarding holding of shares in any company as pledgee /

mortgagee or absolute owner, should be strictly adhered to.

The banks have to ensure that underwriting commitments should comply with

the ceiling prescribed for the banks exposure to the capital markets.

I. Ensure that the portfolio is diversified

II. Sub-underwriting

III. Carefully evaluate the proposals

Banks should not underwrite issue of Commercial Paper by any Company orPrimary Dealers

Banks should not extend Revolving Underwriting Facility to short term Floating

Rate Notes/Bonds or debentures issued by corporate entities.


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UNDERWRITING OF CORPORATE SHARES &

DEBENTURES (CONTINUE)

An annual review covering the underwriting operations taken up during the year,

with company-wise details of such operations, the shares/debentures devolved on

the banks, the loss (or expected) from unloading the devolved shares/debentures

indicating the face-value and market value thereof, the commission earned, etc.may be placed before their Boards of Directors within 2 months of the close of the

fiscal year.

Banks/Merchant banking subsidiaries of banks undertaking underwriting activities

are also required to comply with the guidelines contained in the SEBI(Underwriters) Rules and Regulations, 1993, and those issued from time to time.


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UNDERWRITING OF BONDS OF PUBLIC SECTORUNDERTAKINGS

1. Banks should subject the proposals for underwriting to proper scrutiny having

regard to all the relevant factors and accept such commitments only on well-

reasoned commercial considerations with the approval of the appropriate

authority.

2. The banks should formulate their own internal guidelines as approved by their

Boards of Directors on investments in and underwriting of PSU bonds, including

norms to ensure that excessive investment in any single PSU is avoided.

3. Banks should undertake an annual review of the underwriting operations relatingto bonds of the public sector undertakings, with PSU-wise details of such

operations, bonds devolved on the banks, the loss (or expected loss) from

unloading the devolved bonds indicating the face-value and market value thereof,

the commission earned, etc. and place the same before their Boards of Directors

within two months from the close of the fiscal year.

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GUIDELINES FOR 'SAFETY NET' SCHEMES

Under such schemes, large exposures are assumed by way of

commitments to buy the relative securities from the original investors at

any time during a stipulated period at a price determined at the time of

issue, irrespective of the prevailing market price.

In some cases, such schemes were offered without any request from thecompany whose issues are supported under the schemes.

Apparently, there was no undertaking in such cases from the issuers to

buy the securities. There is also no income commensurate with the risk

of loss built into these schemes, as the investor will take recourse to thefacilities offered under the schemes only when the market value of the

securities falls below the pre-determined price.


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Investment ceiling in financial service companies.

As pledgee or a mortgagee

30 per cent of the paid-up share capital of that company . OR30 per cent of its own paid-up share capital and reserves.

In a subsidiary company, financial institutions, stocks &

other exchanges.10 per cent of the banks paid-up share capital and reserves.20 per cent of the banks paid-up share capital and reserves.

Investments which are classified as 'Held for Trading'category.

Banks participation in the equity subject to RBI

approval.


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Equipment leasing, Hire purchase business and

Factoring services.

a) Factoring

Types of Factoring

Maturity Factoring Maintains sales ledger.

Finance Factoring Advances Funds against produce.

Discount Factoring Advances between 70 to 85%.


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b) Leasing

Finance Leasing :

The leasing company recovers the full cost of the equipment,plus charges, over the period of the lease.

Operating Leasing :

The leasing company will lease the equipment, expecting tosell it secondhand.

c) Hire purchase agreement

After all the payments have been made, the business

customer becomes the owner of the equipment




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Para banking Guidelines for Leasing, HP &

Factoring

a)Forming of subsidiaries.

b)Departmentally in existing organization.

Skilled personnel & adequate infrastructural facilities.

Risk weight of 100%.

Single Borrower & Group Borrower

15% of capital funds or up to 20% for infrastructure Projects.

Group Borrower- 40% & 50 % respectively


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Balanced portfolio vis--vis aggregate credit - 10 %.

Approval of the Boards to avoid asset liability

mismatch.

Equipment leasing companies & NBFCs.

Income recorded as per AS-19 leases.

Changes in income recognition and provisioning for

loans/advances be implemented.

OTHER REQUIREMENTS


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MUTUAL FUND BUSINESS

Approval

Compliance

Bank-sponsored mutual funds




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TERMS AND CONDITIONS FOR MARKETING

MUTUAL FUND

Banks should only act as an agent of the customers.

Banks should not acquire units of mutual funds from thesecondary market.

Banks cannot buy back units of mutual funds from theircustomers.

Proposal to extend any credit facility to individuals against thesecurity of units of mutual funds.

Banks holding custody of mutual fund units on behalf of their

customers.


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MONEY MARKET MUTUAL FUNDS




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TERMS AND CONDITIONS TO OFFER

CHEQUE WRITING FACILITIES TO INVESTORS

Commercial arrangement

In the nature of a drawing account

Pre-funding of the drawing account


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PARA BANKING:- PRIMARY DEALERSHIP

Meaning

Business Sense




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ELIGIBILITY CRITERIA

Owned Capital of Rs 1000 crores

Minimum CAR of 9 %

Net NPA of less than 3 %


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PRIMARY DEALERS IN INDIA

1. ABN AMRO BANK

2. KOTAK MAHINDRA BANK

3. BANK OF BARODA

4. HDFC BANK LTD

5. HSBC BANK LTD

6. JP MORGAN CHASE BANK

7. CITI BANK LTD

8. CANARA BANK

9. CORPRATION BANK LTD




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PARA BANKING NORMS FOR INSURANCE

(BANCASSURANCE)

Meaning and My Experience

Business Scope

Revenue from Non Core Activity.

Risk Free.

Better Utilization of Infrastructure.

Synergies (Insurance & Banking).


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RBI NORMS FOR INSURANCE

BUSINESS BY BANKS

Joint Venture or Subsidiary

Application Approval

Employee Qualification


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NEWS




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POST-2011, BANK BOOKS TO CARRY REAL

NUMBERS

Bank will have to value assets on current rather

than on historic cost.

Banks will have to adopt the international financialreporting standards (IFRS) by 2011.

State bank of India has already taken the initiative

to shift from the current Indian standard of accountingto IFRS.

S C O O O


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STANCHART TO HIRE 850 PEOPLE FORPRIORITY BANKING

RRBs embrace core banking solutionsIn step with RBI's direction to implement 100% core

banking solutions (CBS) by September 2011, United Bank of

India (UBI)-sponsored regional rural banks in four states have

started working on their IT-systems.

ICICI Bank to focus on home, car loans,

says CEOIDBI Bank-led consortium of lenders, have raised$ 1.1 bn loan for national carrier Air India to

purchase aircraft.
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SUUTI eyes Rs 7K cr from sale of 17% inAxis Bank

The government has made the first move touse the surplus funds of commercial banks to

meet its short-term cash needs

RBI allows cash withdrawal from merchantbanker terminals

IDBI Bank lowers interest rates on deposit,auto loans




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IndusInd Bank raises US$ 100 million through QualifiedInstitutional Placement (QIP)

Housing Development Finance Corp, India's topmortgage lender, said on Tuesday it planned to raise Rs40 billion ($820 million) through two- and three-yearbonds.

Banks want curbs on free ATM use

IDBI Bank revives plan to sell mortgage subsidiary

Indias top 12 banks log 55% jump in Q1 profit: CARE

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SBI launches 'My Home' campaign for home loans

Retired teachers, Traders can make to BanksBusiness Correspondent list.

JPMorgan profits a strong sign for banking sector.

State-rescued Royal Bank of Scotland reported afive-fold jump in bad debts.

Australia and New Zealand Banking Group Ltd.said on Tuesday it had agreed to buy some Asianbusinesses of the Royal Bank of Scotland in a $550million deal.


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BIBLOGRAPHY

PARA BANKING NORMS BY RBI (CIRCULAR)

www.rbi.co.in

www.dfhi.co.in

AXIS BANK ANNUAL REPORT 2008-09

ECONOMIC TIMES

MINT

INDIAINFOLINE NEWSLETTER


www ManagementFunda com
http://www.rbi.co.in/http://www.dfhi.co.in/http://managementfunda.com/http://managementfunda.com/http://managementfunda.com/http://managementfunda.com/http://www.dfhi.co.in/http://www.rbi.co.in/

Documents

Para Banking by Management Fund A