Banking, financial services and insurance

1. 1

2. 2

3. FEW OF THE GIANTS IN BANKING
 International and Commercial Bank of China
 Assets of this Chinese bank are more than the entire banking
sector of India!
 Assets = 3616 (US$ billion)
 INR= 239789435200000
3

4. 4

5. WHAT IS A DOMAIN?
 Sector of economy for which AUT is being developed.
 Insurance
 Banking
 Life sciences
 Telecommunication
 E-Commerce
 Game Application
 etc.
5

6. ADVANTAGES OF DOMAIN KNOWLEDGE
 Reduces the training time
 Knowledge of functional flow chart (work flow, business process &
rules)
 Good Idea on UI features
 Helps in writing precise and accurate test cases
 Those hoping for the position of ‘Business Analyst’ at the earliest must
need a strong command on domain knowledge
6

7. OBJECTIVE
 Provide an overview of Banking Domain
 Enable Technology people understand Financial Terms
 Explain Operations in specific lines of banking
 Cover Global Banking Practices
 Introduce some of the recent developments in banking
7

8. KEYWORDS
 Concept of money
 Financial Instruments
 Financial Statements
 Introduction to Banking
 Retail Banking
 Consumer Lending
 Cards and Payments
 Commercial and Wholesale Banking
 Investment banking
 Investment Management
 Settlement
 Corporate Services
 Insurance
8

9. MONEY
 Standard unit of Exchange- advancement over barter system
 Currencies-based upon development level of countries
 Exchange Rates- Who decides, Pegged currencies
 Face value of currency
 Standard Value currency
 Interest charged on loan amount- Simple and Compound
 Simple- On Rs.100 by 10 per cent, amount paid every year is Rs. 10
 Compound- On Rs.100 by 10 per cent, amount paid every year varies
9

10. INFLATION
 Rise in cost of goods and services over a period
 Real rate of interest = Nominal rate of Interest-Inflation Rate
 Nominal rate of interest = 10%
 Inflation rate 4%
 Real rate of interest = 6%
 Increase in Prices reduces the value of currency
10

11. COST OF CAPITAL
Land, Labor, CAPITAL, Enterprise(Idea)
 Depends upon- Borrower, type of financing, market timing, collateral,
tenure for debt
 Cost of capital include following
 Interest for debt
 Dividend, expected earning for equity
 WACC- Weighted Average Cost of Capital- If more than one source of
finance is used.
 WACC= Cost of each*Weight
11

12. FINANCIAL INSTRUMENTS
 Capital- Business needs capital for operations, fixed assets.
 Methods by which capital can be raised
 Debt
 Bank Loans
 Bond/Debentures: Fixed, Floating-rating, Corporate, Govt.
 Equity
 Owners equity
 Venture Capital
 IPOs
 Mutual Funds
12

13. …CONTINUED
 Derivatives
 Forwards
 Future
 Options
13

14. DEBT
 Money owed by one entity to other
 Cost is interest
 Debt is considered senior to equity i.e. the interest on debt is paid
before the dividends on stock in case of liquidation of assets
 Examples- Bonds, Loan, Commercial papers
 Investors chose between debt and equity based on their investment
objectives
14

15. BONDS
 An investor loans money to an entity at a specific interest rate.
 Small deposits from multiple people
 Investment ceiling
 Interest is generally paid semiannually
 Factors influencing coupon rate
 Prevailing economic conditions
 Issuers Credit rating (risk)
 In return investor gets the bond/certificate which contains:
 Interest rate (Coupon rate)
 Maturity date (Repayment date)
 Face amount
15

16. …CONTINUED
 Corporate bond
 Secured bonds- backed by specific assets
 Unsecured bonds (Debentures)
 Treasury Securities (Government agencies)
 Treasury bills-Short term
 Treasury bonds-Long term
 Most secure bonds
16

17. EQUITY
 Equity (Stock)- represents ownership interest
 Common Stock
 Voting Rights
 Majority shareholders manage organization
 Popular
 Corporations sells it through IPO
 Can be traded in secondary markets-BSE, NYSE etc.
 Preferred Stock
 No voting rights
 Fixed rate of return
17

18. MUTUAL FUNDS
 Investment companies
 Pool resources from individual investors
 MF companies invest into diverse sector of economy
 Investors are equally responsible for loss or gain
 Dividends earned are distributed according to the investment
Hedge Fund
A group of investors who take financial risks together in order to try
to earn a lot of money
18

19. DERIVATIVES
 It is a contract between two or more parties
 Obligation on buyer and seller
 Forward
 Agreement to buy/sell an asset in future at a specified price
 Ex. MCX
 Future
 Agreement to buy/sell an asset in future at a future price
19

20. FINANCIAL MARKETS
Place where financial instruments are traded
 Primary Financial Markets
 New financial instruments are issued
 Initial Public Offering
 Secondary Financial Markets
 Primary instruments (Shares) are traded
 Investors can monetize their shares
 Ex. BSE, NYSE
20

21. BANKING
21

22. BANKING
 Any financial institution licensed to accept deposits and issue
credit through loans
 Functions
 Channelize savings
 Credit facilities to borrower
 Investment avenues o investors
 Facilitate the trade and commerce dealings
 Financial Inclusion
 Minimize cash transactions
 Provide financial services
 Creation of money in the economy
 Restricts expansion of black money
22

23. STRUCTURE OF BANKING SECTOR IN INDIA
23

24. CENTRAL BANK
 Banker’s bank
 Regulator to other banks
 Governments bank
 Provide stable monetary and financial policy
 Decides policy rates-Impacts money in the market
 Protects rights of the consumer by supervising banking institution
 Monitors inflow and outflow of foreign currencies
 Clearing house facility
 Banker of last resort
 Ex. RBI
24

25. HOW DO BANK EARN PROFITS?
 Difference in the rate of interest between depositors and lenders
 Number of products
 Through investment of its resources
 Fee based services
 Net banking
 Mobile banking
 Demand Draft
 Universal Banking
 Commercial as well as investment banking services under one roof
25

26. BASEL FRAMEWORK
 BIS- Bank of International Settlement
 Located in Basel, Switzerland
 Fosters co-operation among central banks and other agencies in
pursuit of monetary and financial stability.
 A forum to promote discussion and policy analysis among central
banks and within the international financial community
 It sets standards for best practices in banking which are ensured by
all banks
26

27. SERVICES OFFERED BY BANK
1. Corporate banking
1. Trade Finance
2. Cash Management
2. Retail Banking
1. Deposits
2. Branch & Electronic Banking
3. Credit card services
4. Retail Lending- Home, Personal, Car
5. Private banking & wealth Management
6. Business banking for SMEs
3. Investment Banking
27

28. RETAIL BANKING
 Serves financial needs of individuals (Consumers) and SMEs
 Large volume low value transactions
 Products and services
 Deposits
 Loans
 Credit cards
 Debit cards
 Investment products
 Local branches, ATMs
 Net Banking
 Mobile Banking
28

29. ASSETS AND LIABILITIES IN BANKING
 Liabilities- Money received by bank from depositors
 Asset- Loans extended by bank
 Revenue- Money that is maid by an organization in year
 Liquidate- To sell a business/property especially to pay off debt
 Asset-Reconstruction-Here, the right or interest of any bank or financial
institution in any financial asset is acquired by the asset re-construction company for
the purpose of realization of dues.
 NPA-Non-Performing Asset (bad loans)
 An asset of a bank (such as a loan given by the bank) turns into NPA when it
ceases to generate regular income such as interest etc for the bank
 Biggest challenge faced by Indian Public sector banks
 Ex. Kingfisher owes 7000 crore to PSBs
29

30. DEPOSIT PRODUCTS
 Demand Deposits
 Deposited and withdrawn on demand
 Saving and Current
 Term Deposit
 Money kept with the bank for a specified period
 Fixed Deposit
 Attractive returns
 Ensure capital availability for banks
 D-MAT Account
 For trading and of shares
 No-Frill Accounts
 Limited services at a low cost
 Zero balance accounts
 Jan-Dhan accounts
30

31. RETAIL CHANNELS
31

32. BRANCH BANKING
 Teller Operations
 Teller- Deals directly with consumers
 Serves as front line in banking
 Relationship Manager
 Banks POC to the customer
 Develops tailored banking solutions for each client
32

33. CORE BANKING/MULTI-BRANCH BANKING
 Network of bank which allows customer of a bank to perform
transaction at any branch of the same bank
 Geographical constraints are removed
 Branch customer becomes bank’s customer
 This is achieved through a set of software called banking applications
 Ex. Finacle(Infosys)
33

34. ATM
 Computerized Telecommunication Device
 Typical ATM Services
 Cash withdrawal – Limit per day restricted by respective bank
guidelines
 Money Transfer between accounts
 Cash/ Check Deposits
 Utility Bill Payments
 Balance enquiry /Account Statements
 Mobile Top Ups
 VISA & Master networks are large global networks that service ATMs.
 Interbank operations are settled in clearing house
34

35. TELEPHONE BANKING
 Transactions over phone
 Automated phone answering systems(IVR/VRU) with keypad response
 Voice recognition capability
 VRU- Voice Response Unit-A Programmed computer responds to caller
 IVR- Interactive Voice Response-Computer phone application which
accepts keypad selection and responds
35

36. ONLINE BANKING
 Financial transactions on a secure website operated by respective bank
 Batch transactions – operations are carried out with least human
intervention
 Bill Pay and Recurring payments
 E-Tax
 Statements : Monthly or quarterly bank statements
 Transaction history
 Fund transfer
 NEFT
 RTGS
 IMPS
 IFSC- Indian Financial System Code
 is an alpha-numeric code that uniquely identifies a bank-branch
participating in the NEFT system.
36

37. FUND TRANSFER
NEFT RTGS
 National Electronic Fund
Transfer
 No transaction limit
 Not a immediate mode of
transfer during banks working
hours only.
 Real Time Gross Settlement
 There is minimum amount limit
 Immediate mode of transfer
though during working hours of
bank
37

38. IMPS
 Immediate Payment Service
 Instant money transfer through mobile phone or online
 Mobile number of remitter and beneficiary should be linked to their
respective bank accounts
 Best way for transferring remittances
 MMID- Mobile money identifier is generated
 There is a limit on amount of transaction
 SWIFT- Society for Worldwide Interbank Financial
Telecommunications
 SWIFT transports messages between two financial institutions. This
activity involves the secure exchange of proprietary data while ensuring its
confidentiality and integrity
 BIC- Uses Bank Identifier Code
38

39. INTERNATIONAL BANKING
 Facilitate imports and exports of their clients – trade financing
 Arrange for foreign exchange – cross-border transactions and foreign
investments
 Participate in international loan syndicate – lending to MNCs- project
financing and to sovereign governments – economic development
 Trade foreign exchange products for their own account
 Gateway for the transfer of remittances by expatriates
39

40. INVESTMENT BANKING
 Functions
 Private Equity
 Buying/Selling
 Corporate Advisory
 Managing company assets
 Capital Raising
 Underwriter
 Security middlemen
 Long term financing
 Emerging Markets
 Merger & Acquisitions
 Ex. TechMahindra-Satyam, IGate-Patni, Facebook-Whatsapp
40

41. CARDS AND PAYMENTS
 Cards- Fastest growing means of non-cash payments
 Non-cash payment instruments
 Cheque
 Debit card
 Credit card
 C0-Branded cards- like credit cards associated with a particular firm
 Affinity card-Tie-up between a bank and an organization
 Corporate/ Commercial card
 Prepaid card- gift card, mall cards
41

42. EMERGING PAYMENTS
 Internet Currencies/Digital cash/E-wallets
 Preload account with money
 Transfer money or make payments
 No time barrier
 No need to enter card credentials
 Ex. Paytm wallet
 Contactless Payments
 Radio Frequency ID
 Near Field Communication(NFC)
 Eliminate swiping card, signing slip at the POS
 Targeted at eliminating cash transactions at retail counters
42

43. 43

44. 44

45. MORTGAGE
 A customers personal guarantee with the lender
 Commonly used to refer to loan for the purpose of purchasing property.
 Commercial Mortgage
 Commercial building as a collateral
 Loan taken by businesses
 Residential Mortgage
 Residential property as a collateral to secure repayment.
 Loan taken by individual borrowers
45

46. MORTGAGE FLOW
46

47. ROLE OF INFORMATION TECHNOLOGY (IT) IN
THE BANKING
 Competitiveness compel to adapt to latest technologies
 Instrument of cost reduction
 Effective communication with people and institutions associated with
the banking business.
 Better market infrastructure
 helps the financial intermediaries to reach geographically distant and
diversified markets in a cost effective manner
47

48. Insurance
48

49.  Definition: Insurance is defined as the equitable transfer of the risk
of a loss from one entity to another in exchange for payment
 Terminologies:
 Insurer: Insurance company selling the policy
 Insured: Policy holder or the entity availing the policy
 Re-Insurance: Insurance by another insurer of all or a part of a risk
previously assumed by a insurance company
49

50. CONTINUED…
 Premium: An amount charged by insurer in order to cover insured
against a risk
 Factors determining premium amount:
 The Frequency of Claims (how many)
 The Severity (Cost of each Claim)
 Condition of insurer, kind of policy, probability of risk, etc.
 Underwriter: Person who approves the policy and determines the
premium to be charged against a coverage.
 Claim: Request by insured in order to seek policy benefits from insurer
 Adjudicator: One who processes or settles the claims.
50

51. TYPES OF INSURANCE
 Life Insurance (Long Term)
 Non-Life Insurance (Short Term)
 By the Law of Insurance in USA
 Unemployment Insurance
 Social Security
 Worker’s Compensation
51

52. CATEGORY OF INSURANCE
 Dental
 Health
 Life
 Business
 Residential
 Transport/Communication
 Other
52

53. INSURANCE PROCESSES
Branches of Insurance company
1) Policy Administration Systems
2) Claim Management System
3) Investment Management System
4) Third Party Administration Systems
5) Risk Management Solutions
6) Regulatory & Compliance
7) Actuarial System (Valuation & Pricing)
53

54. 54

55. 55

56. 56

57. 57

58. 58

59. 59
Plant trees & save water for the sustainability of earth
AND save baby girl for the sustainability of human
race.