Index – Management of Banking and Financial Services, 4e

Index

A

anomalous mortgage, 208

anti-money laundering (AML) and combating the financing of terrorism (CFT) measures, 138139

arbiloans, 506

Asset Backed Securitizations (ABS), 290

asset-based lending, 148, 162

for infrastructure, 162

asset class, 303

asset finance companies (AFC), 22

asset finance company (AFC), 623, 625

asset liability management, 625

assignment, 281

automated teller machines (ATM), 614, 717

automatic transfer from savings (ATS) ac-counts, 109

average yield, 172

B

balance sheet of banks, 470

Bancassurance, 654655

bank assets

cash and balances, 7879

fixed assets, 78

investments, 79

loans and advances, 79

residual assets, 80

bank capital regulation, 408, 450

Basel Accords I, II and III, 409

for capital raising, 441

bank credit, 52, 148, 196

asset–based lending, 148

categories of borrowers, 152

common securities for, 217

credit analysis, steps, 152, 179

credit process, 149

fund-based lending, 177

gains from lending, 147

long-term loans, 149

non-fund-based lending, 148

principal representations and warranties, 155

revolving credits, 149

short-term loans, 148149

warning signals and, 229

banker

bankers’ acceptances (BA), 376

bankers’ lien, 205

obligations of a, 566

rights of a, 565

Bank for International Settlements (BIS), 6, 141, 464

bank guarantee, 102, 199, 268

banking. See also bank assets; banking reforms;

bank’s financial statements; banks liabilities Indian banking system

bailout of banks, 6

banks’ role as financial intermediaries, 146147

defined, 146

globalization and innovations, 574

banking reforms

Basel Accords I, II and III, 409

committee on the financial system (CFS), 28, 31

major policies 1991–92, 2628

Narasimham Committee, 31, 53

Banking Regulation Act, 26, 38, 106, 563564

Banking Regulation (BR) Act, 1949, 85, 563

banking risks, 467468

Banking Stability Map and Indicator (BSI), 97

bank liabilities

balance of profit after appropriations, 64

bills payable, 67, 78

borrowings, 67

capital, 67

capital reserves, 67

contingent liabilities, 67

demand deposits, 78

interest accrued, 78

inter-office adjustments, 78

payment deposits, 108

and provisions, 78

RBI guidelines for capital, 63

savings deposits, 78, 128

share premium, 78

statutory reserves, 78

term deposits, 78

bank rate, 54, 71

in India, 54

bank reserves

calculation of, 49, 67

bank’s financial statements

alternative models for analysis, 96

analysis of, 97

assets, 74

borrowings, 74

contingent liabilities, 61

deposits, 60

fixed assets, 61

income statement, 81

interest expended, 81

investments, 81

liabilities, 80

loans and advances, 81

net worth, 80

operating in India, 81

banks’ investment portfolio in India, 387388

banks liabilities

external, 42

internal, 42

Barclays’ UK retail and business banking, 699

Basel Accords I, II and III, 409

financial crisis and, 59

and liquidity risk management, 194, 511

supervisory review process, 411, 414

Basel Committee on Banking Supervision (BCBS), 92, 307

basket default swap, 271, 361

Bharath Bank, 668669

bills finance, 197198

borrowers, categories of, 216

reclassification of financial statements, 216

Boy Lost in the Back Row (BLITBR), 584585

broad money, 44, 51

C

CAMELS rating system, 89, 91

capital adequacy of banks in India, 89, 273, 312

calculating, 130

capital charge

for credit risk, 438

for market risk, 439

for operational risk, 441

capital funds of banks operating in India, 431

capital requirement

for interest rate (market) risk, 440, 448

for operational risk, 441

caplets, 502

cash certificates, 131132

cash credit system, 196

cash demand forecasting, 672

cash flow CDO, 259, 349

cash management service (CMS), 668

cash reserve ratio (CRR), 18, 68, 71

composition of, 68

maintenance period, 68

penal provisions, 68

central bank’s float, 38

certificates of deposits (CDs), 78

clean bills, 198

collateralized borrowing and lending obligations (CBLO), 55

collateralized debt obligations (CDO), 258, 347348

collateralized debt obligations (CDOs), 347348

commercial paper, 122, 302

Committee on Payment and Settlement Systems (CPSS), 408, 603

committee on the financial system (CFS), 28, 31

banking reforms, 427,451

commodities, 456, 639

Companies Act, 1956, 564

consumer rights and protection applicable, 623, 642

contingent liabilities, 75, 80, 102

convexity, 542, 544

cooperative banking sector, 36

co-operative credit institutions, 2425

Co-operative Societies Act, 213, 571

Corporate Debt Restructuring (CDR), 229, 239

corporate debt restructuring (CDR), 239, 247

case studies, 241

Corporation Bank, 288, 719, 721

Corrective Action Plan (CAP), 235

costs of funds and spread, 200

covered bonds, 256, 261262

credit analysis

cash flow analysis, 158

common size ratio comparisons, 157158

financial ratio analysis, 157

risk classification criteria, 165, 177

risk management system, 165166

steps, 152

credit cards, 43, 162, 580, 610, 613

credit collateral, 304

credit default swap (CDS), 355

credit delivery modes, 195196

credit derivatives, 256, 264

in India, 256

pricing, 199, 310

credit indices, 349

Credit Information Bureau (India) Limited (CIBIL), 228

and loan approval, 228

Credit Information Companies (CIC), 37, 228

Credit Information Companies (Regulation)

Act, 2005, 228

credit intermediation swap, 268

credit linked deposits (CLDs), 270

credit linked notes (CLN), 269, 530

credit monitoring system, 115, 224

credit rating

analytics behind, 184

debt-equity ratio, 246

income statement–based cash flow analysis, 184

in India, 166

leverage ratios, 187, 419

liquidity ratios, 186, 514

operating or activity ratios, 189

profitability ratios, 157, 189

valuation ratios, 191

credit rating agencies, 166167

limitations, 172

multiple rating, 169170

non-credit rating services, 172

rating framework, 170

rating methodology, 170171

rating symbols and their interpretation by investors, 167169

users, 169

credit rating services, 663, 666

credit review process, 2223

credit risk, 186, 194, 254

Basel Committee’s principles for management of, 254, 458

defined, 186

estimating PD, EAD and LGD, 310311

interplay between market and, 351352

measurement after the financial crisis, 352

measuring, 254255

modeling, 255

models, 254255

prudential norms for asset classification, 272

income recognition and provisioning, 272, 296

risk-weighted assets, calculating, 94, 420, 438, 444, 446

transfers, 256257

treatment in India, 272273

credit risk models, 254255, 307, 310, 314

actuarial model, 334

Black–Scholes–Merton framework for determining default probability, 294

Credit Metrics™, 315, 369

Credit Portfolio View (CPV), 322323, 359

Credit Risk+™ Model, 334

expected default frequency (EDF), 326, 329330, 333, 370

Jarrow Chava Model, 339340

Jarrow Merton Hybrid Model, 340

Kamakura Risk Information Services (KRIS), 339

Kamakura’s Public Firm Models, 339

KMV model of determining default probability, 338

Merton model, 361, 329330

Merton Structural Model, 339, 340

Moody’s KMV (MKMV) model, 328, 331

reduced-form models, 338339, 359

structural models, 338, 362

Vasicek–Kealhofer (VK) model, 328

credit risk options, 268

credit spread, 269, 344, 542

credit spread derivatives, 269, 296

CRISIL Ltd, 179

currency ratio, 49

Current Account Savings Account (CASA), 102, 119

customer-centric performance measures, 96

customer profitability analysis, 163, 171

customer relationship management (CRM), 561

bank–customer relationship, 565

blending tradition with technology, 563, 727

customers, category of, 283

image-building exercises, 562

rights of a banker, 565

strategies/steps, 562

D

data analytics, 309, 356

debit cards, 576, 610, 613614, 709

debt-equity ratio, 246

Debtor Creditor Agreement (DCA), 236, 240

debt restructuring and rehabilitation of sick firms, in India, 239

default correlation, 347, 350, 362

defensive open-market operations, 49

deferred purchase consideration (DPC), 304

definitive money, 49, 61, 73

deposit insurance agency (DIA), 112

Deposit Insurance Corporation (DIC) of India, 112, 507, 553, 712

deposits

accounts in select countries, 109

cash certificates, 131, 718

certificates of (CDs), 70, 376

current, 354, 429

demand, 43, 78

fixed deposit scheme, 130

legal provisions, 136

payment, 173

pricing, 169

protecting the depositor, 109

recurring deposit scheme (RD), 129, 724

reinvestment deposit scheme, 129130

risk of rate, 105107

savings, 116, 128

schemes for non–resident Indians (NRIs), 128

term, 79, 127

time, 66, 184

derivative market, issues, 531

direct assignment, 281, 284, 292

discount rate, 45, 58, 355

discount windows, 49, 63

documentary demand bills or documents against payment (D/P), 198

drawee bills, 199

Du Pont analysis of banks, 84, 9798

‘duration’ in the context of bonds, 542

dynamic credit swap, 268

dynamic open-market operation, 49

E

economic capital, concept of, 404, 406

electronic banking (e-banking), 602, 609, 621

security issues in, 616

English mortgage, 208

e-payments and settlement systems, 603604

Equifax Credit Information Services Pvt. Ltd., 228

equitable mortgage, 208

equity multiplier (EM), 94, 369

Excess Interest Spread (EIS), 304

exchange rate, 42, 61, 599

quoting, 589

spot, forward, cash, tom rates, 590-591

exit load, 660

expected losses (EL), 96, 296, 455

Experian Credit Information company of India Pvt. Ltd., 228

Export Credit Guarantee Corporation of India (ECGC), 653654

export credit refinance facility, 55

export credit scheme, 596

Export Import Bank of India (EXIM Bank), 294

exposure at default (EAD), 310, 412

External Commercial Borrowings (ECBs), 124

F

Financial Action Task Force (FATF) on money, 126

financial crisis, overview and analysis, 5, 352

Basel II Accord and, 411, 460

insurance industry after, 645, 656

financial distress

Altman’s Z-score model, 225226

triggers of, 224-225

workout function, 226-227

financial institutions (FIs), 2, 12, 15, 69, 123

financial receivables, 200

financial regulation

objectives of, 910

role in financial stability, 24

tools of, 10

financial repression, 27

financial stability

future prospects, 254, 326

in India, 810

macroeconomic developments and, 8

role of regulation for, 9, 30

Financial Stability Board (FSB), 5, 11, 39, 141, 300

financing capital, 215

fixed charge, 208209

fixed deposit scheme, 130, 718

floating charge, 208209

floorlets, 502, 504

foreign banks, 19, 34, 58, 98, 100

Foreign Currency Convertible Bonds (FCCBs), 244

foreign currency loan (FC L), 597598

Foreign Currency Non Resident Repatriable (Banks) Scheme (FCNR(B)), 51

foreign exchange market (FOREX), 15, 28, 32, 587588

bid price and offer price, 591

FOREX dealing room of a bank, 587, 590

functioning of, 589

spot, forward, cash, tom rates, 590591

foreign exchange transactions, 49, 63, 251

forward exchange contract, 103

forward rate agreements (FRAs), 439, 494

fund-based lending, 148, 177

for agriculture, 40, 162

for capital expenditure and industrial credit, 159

to consumers or retail lending, 162

loan syndication, 196

for working capital, 183, 192, 196, 213214

funds for banks, 108, 124, 132, 365

funds management policies, 545

funds transfer pricing (FTP), 96

future payouts, 303

G

Global Bank, 667, 670, 672

global credit crisis, 2007–08, 309, 362

global financial crisis, 2 2007–08, 5, 32, 252, 397, 547

causes of, 4

loss of trust and, 5

sovereign debt tensions and, 5

global financial system, 5, 308, 408

guaranteed investment certificates (GICs), Canada, 109

guarantor, 204, 266, 504

H

hedge funds, 363, 624, 640

High Mark Credit Information Services Pvt. Ltd., 228

housing finance, 23, 141, 630631, 642

housing finance companies (HFC), 15, 23, 36, 228, 632

HSBC bank, 573, 576, 582, 584

I

ICICI Bank, 244, 295, 575576, 682683

income statement-based cash flow analysis, 158159

income statement of banks, 85

assets, 78, 409

contingent liabilities, 75, 77, 80

disclosures made by banks, 85

expenses, 81, 84

interest earned, 81

other income, 76, 81, 101

provisions and contingencies, 77, 82

incoterms, 594

Indian banking system, 1516

banker–customer relationship, 126127

termination of, 126

banking, defined, 6, 33

bank market structure, 11, 283, 590

commercial banking system, 573

customer, defined, 655

eligibility of a customer, 636

evolution of, 265

foreign banks, 19, 33

guidelines for opening a deposit account, 126

legal provisions, 136

micro, small and medium enterprises (MSME) sector, 229, 291

NDTL, computation of, 5455, 66

non-banking financial institutions (NBFIs), 11, 20

ODTL, computation of, 66

private sector banks, 17

public financial institutions, 105

public sector banks, 16, 105

regional rural banks, 16, 19

state financial corporations (SFCs), 21, 288

state industrial and development corporations (SIDCs), 21

Indian financial market

characteristics of, 9

financial instruments in, 106, 355

regulatory structure of, 14

Indian financial network (INFINEN), 55, 622

Indian Trusts Act, 1882, 138, 213

infrastructure finance companies (IFC), 22, 625

initial public offering (IPO), 32, 632, 665

insurance

benefits of, 594, 647

contracts, features of, 605

products, 656, 700

sector in Insurance, 658

Insurance Regulatory Development Act (IRDA), 649, 652

Insurance Regulatory Development Authority (IRDA), 652653

Inter Creditor Agreement (ICA), 236

interest rate caps and floors, 504

interest rate ‘collars,’ 504505

interest rate derivatives in India, 494, 533534

ALM framework, 533534

exchange traded, 533

OTC derivative contracts, 529

TR, 531

interest rate futures, 497499

interest rate guarantees (IRGs), 506

interest rate options, 13, 502, 530, 537

interest rate risk management, 471472, 534

with interest rate derivatives, 494495

measuring interest rate risk, 142, 480, 484

interest rates, theories of, 540541

International Accounting Standards Committee (IASC), 508

International Association of Deposit Insurers (IADI), 110

International Association of Insurance Supervisors (IAIS), 126

international financial reporting standards and the international accounting standards, 508

International Monetary fund (IMF), 12, 28, 39, 438

International Organization of Securities Commissioners (IOSCO), 126, 140

International Organization of Securities Commissions (IOSCO), 40, 143, 185

investment company (IC), 623, 625

IOSCO(International Organization of Securities Commissions), 40, 143, 167

J

Joint Lenders’ Forum (JLF), 235, 237

K

key performance indicators (KPI) for banks, 9293

efficiency and expense control ratios, 93

liquidity, 9293

profitability, 97, 163

risk, 81

Know Your Customer (KYC) guidelines of the RBI, 138139

L

lending. See bank credit letter of credit (LC), 102, 199, 558, 592

leverage ratios, 99, 178, 187

liability management, 470471

LIBOR (London Inter Bank Offered Rate), 266, 494

Life Insurance Corporation of India (LIC), 649, 653654

Liquidity Adjustment Facility (LAF), 36, 5455

repo market instruments outside, 54

liquidity adjustment facility (LAF), 54

liquidity aggregates, 51, 71

liquidity ratios, 157, 186, 462, 519

liquidity risk

anatomy of, 138, 511

in financial groups, 546

measuring, 479480, 484, 545

Northern Rock liquidity crisis, 552

sources of, 552

liquidity risk management, 511512, 518, 534

approaches, 466478

Basel Accord and, 410, 413, 450

in India banks, 484485

liquidity theory, 541

loan companies (LC), 22

loan company (LC), 623, 625

loan policy document, 150

loan portfolio swap, 315, 358, 516

loan pricing, 163, 171, 220, 310

assessing default risk, 165

base rate calculation, 200, 231, 485

cost benefit loan model, 171

cost of funds, 93, 95, 102, 108

customer profitability analysis, 163, 172

fixed vs floating rates, 170, 494

fixing profit margin, 156

hedging and matched funding, 170

price leadership model, 170

RBI guidelines, 198, 257, 308, 458

service costs for customers, 154

loss given default (LGD), 251, 368, 412

LTCM colapse, case study, 384, 396

M

macroeconomic developments and financial stability, 8

maintenance period, 58, 61

managed CDO, 349

market repo, 55

market risk measurement practices after financial crisis, 397

market segmentation theory, 541

market stabilization scheme (MSS-2004), 55

market value CDO, 96, 121

market value of equity (MVE), 329, 360, 429

mergers and acquisitions, 679680

Bank of Tokyo Mitsubishi–UFJ Bank, 562, 690

MIBOR (Mumbai Interbank Offered Rate), 169, 501

micro, small and medium enterprises (MSME) sector, 21, 229

microfinance, 18, 634

micro finance institutions (MFIs), 17, 22

Mitakshara school of Hindu Law, 564

mobile banking, 563, 614

monetary base

and bank reserves, factors impacting, 49

in India, 39

monetary policies in Canada, 47

Eurosystem, 59

macroeconomic, 8, 34, 183

money supply, tools for regualting, 43, 46

open-market operations (OMOs), role of, 45, 49

Policy rate, 46

in select developed and developing countries, 46, 61

in USA, 8

USA and sub-prime crisis, 48

money market products, 376

money multiplier, 43, 46, 53

money supply, 4344

Monopolies and Restrictive Trade Practices Act (MRTP Act), 679

mortgage, 291, 394

Mortgage Backed Securities (MBS) transactions, 37, 304

mutual funds

advantages of, 659660

types of, 660

Mutual Funds (MFs), 12, 64, 179

N

NABARD, 21, 26, 40, 294

Narasimham Committee, banking reforms, 28, 31, 33, 53, 451

National Bank for Agriculture and Rural Development (NABARD), 21, 40

National Housing Bank (NHB), 38, 263

Negotiable Instrument Act, 1881, 556, 563

negotiable instruments, 136, 198

bill of exchange, 198, 556

cheque, 556

negotiable order of withdrawal (NOW), 109

net asset value, 660

net demand and time liabilities (NDTL), 5354

computation of, 53

Net Interest Margin (NIM), 84, 95

net worth of a bank, 74

Non-Banking Finance Companies (NBFCs), 12

non-banking financial companies (NBFCs), 32, 55

structure based on activity, 22

non-banking financial company (NBFC), 624

classification, 624

functions of, 625

major products offered by, 626

non-banking financial institutions (NBFIs), 11, 20

non-deposit funding sources, 107, 135

call/notice money, 55, 122, 142

funding gap, 121, 214

Indian scenario, 122

share of, 364

in USA, 8

non-fund-based lending, 148, 177

non-operating expenditure, 215

non-performing assets (NPAs), 274, 438

‘non-performing’ investments, 390

Non-Resident Indians (NRIs) accounts, 78, 128

O

open market operations (OMO), 5960

operating or activity ratios, 189

operational risk management, guidelines for, 456, 458

originator, 257, 261

other financial intermediaries (OFI), 11, 40

overdrafts, 197, 210

overdue composition, 303

P

Payment and Settlement Act, 2007, 459, 604605

pension funds, 637638

plastic money, 610, 628

credit cards, 610611

debit cards, 613614

pool cash flows, 303

pool duration, 303

pool principal, 303304

portfolio risk, calculation of, 269

power of attorney, 557, 570

preferred habitat theory, 541

prepaid payment instruments, 615

pre-shipment credit, 596, 600

pricing of deposits, 113, 132

conditional, 113

cost plus margin approach, 115

explicit costs, 114

implicit costs, 114

marginal cost of funds approach, 117118

market penetration, 115, 649

need for, 223

new cost of funds analysis, 118119

relationship, 116117

upscale target, 116

primary agricultural credit societies (PACS), 24

primary dealer credit facility (PDCF), 368

primary dealers (PDs), 15, 20, 40, 122

private equity, 244, 627, 640

private sector banks, 1718, 105, 169

probability of default (PD), 94, 185, 317, 326

Prof. Bond (short for Bondop), 584585

profitability ratios, 178, 189 Provisioning Coverage Ratio (PCR), 280

public sector banks, 1617, 105, 442

purchasing/discounting bills, 198

RBI guidelines, 458, 600

pure expectations theory, 541

Q

quality spread, 542

R

RAROC/RORAC analysis, 96

RBI Act, 1934, 21, 56, 68

RBI’s ‘Asset Liability Management (ALM), 548

Real Time Gross Settlement System (RTGS), 103

recurring deposit scheme (RD), 129, 724

redemption price, 660

refinancing, 21, 49, 70, 489

export, 596

regional rural banks, 1920, 123, 574

regulatory capital, concept of, 263, 407

reinvestment deposit scheme, 129130

repackaged notes, 270271

repo rate, 46, 54, 61, 63

Reporting Fridays, 57, 68

repurchase agreements (repo), 46, 62, 135

repurchase price, 390, 660

reservable liabilities (RL), 68

Reserve Bank of India Act, 1934, 563

reserve ratio, 18, 71

reserve requirements in India, 67, 176, 433, 622

residential mortgage-backed securities (RMBS), 290

restructuring

criteria for, 210211

defined, 209

RBI guidelines, 229

relief measures under, 230

valuation of restructured advances, 230231

Resurgent India Bonds (RIB), 51

retail banking

emerging issues in handling, 560

nature and scope, 557

need for, 532

strategies for success in, 561, 572

Swot analysis, 91, 83, 560

retail payment systems, 606607

electronic, 554556

paper-based instruments in, 606

return on equity (ROE), 105, 155, 404

right of set off, 193, 205

risk index–based approach, 6997

S

sale price, 391392

sales load, 660

secured loans, 202, 210

securities

bank investments in security, reason for, 337338

risks and returns of, 378

securities market products, 377

securitization, 49, 148, 257, 280, 308

companies in India, 266

features, 109, 158

securitization of assets, 49

security, 182, 203, 260

shadow banking system, 1112

Short-term Cooperative Credit Structure (STCCS), 25

simple mortgage, 207, 211

Small Industries Development Bank of India (SIDBI), 21, 294

Societies Registration Act, 1860, 564, 571

sole proprietor, 565

South Indian Bank (SIB), 723, 726

sovereign and banking stress, 6

sovereign risk, 6, 265

special investment vehicles (SIVs), 11

Special Mention Accounts (SMA), 235

signs for categorising as, 218

special purpose entities (SPEs), 270

spot rate curve, 542

State Bank of India (SBI), 16, 21, 33, 207, 305

state financial corporations (SFCs), 21, 288

state industrial and development corpora-tions (SIDCs), 21

statutory liquidity ratio (SLR), 18, 68, 123

stock market-based performance measures, 96

sub-prime crisis, 48, 71

sub-prime mortgages, 11

supply bills, 198, 210

swaps, 259, 497, 529

swaptions, 506

Systemically Important Financial Institution (SIFI), 419420

T

Taxpayer Relief Act of 1997, 135

term auction facility (TAF), 367

Term Deposit Facility (TDF), 127

term securities lending facility (TSLF), 368

total return swap, 266267

trade finance

export credit scheme, 596

packing credit, 596

post-shipment credit, 597

pre-shipment credit, 596, 600

trading in securities/shares, 660661

Transfer of Property Act, 1882, 137, 204, 207

transfer systems, 588

treasury

functions, 374375

profit, 339

treasury bills (T bills), 62, 70

U

unbiased expectations theory, 541

unexpected losses (UL), 74, 249, 296, 455

universal banking, 7, 561, 659, 661

unsecured exposure, 277

unsecured loans, 149, 202, 216, 582

urban co-operative banks (UCBs), 15, 24, 30, 55

US generally accepted accounting Principles (US GAAP), 82

usufructuary mortgage, 208

V

value at risk (VaR), 312, 380, 397, 399

venture capital market, 626

Vysya Bank (ING Vysya Bank), 685, 705, 707, 709

W

Weighted Average Loan to Value ( WAL), 303

Weighted Average Residual Maturity (WAM), 303

Weighted Average Seasoning (WAS), 303

Weighted Average Yield (WAY), 303

working capital financing, 149, 194, 213

framework for arriving at amount, 214

RBI guidelines, 198, 428

working capital gap (WCG), 159, 214

World Council for Credit Unions (WOCCU), 24