Banking for Beginners

As we wrap up 2016, and reflect on issues affecting Indian Banking industry during the year (apart from Demonetization), Profitability of Banks crops up as one of the most outstanding issues. The subject got into focus in the face of write-offs of doubtful or bad loans, requiring a provision to be made out of profits. For the uninitiated it presented a strange scenario whereby Banks continued to register ‘operational profits’, but the bottom line showed ‘net losses’ mainly on account of additional provisioning for doubtful debts. In this context, for a layman, it is relevant to understand nuances in fixation of loan pricing, as provisioning for doubtful debts and its impact on profitability shall continue to shadow Banks in 2017 as well. Let us first understand Bank’s profitability model. Bank’s profits are mainly driven by the difference in interest it earns on loans as against interest it pays out on deposits, with the margin getting squeezed by administrative expenses. Bu...

There has been great curiosity about the Start Up India campaign at various fora - what is it all about, who are eligible, what are the benefits etc etc. For the benefit of all who wish to understand and also take advantage, I have tried to put together various facets of the scheme. The idea of a Startup India   campaign was first mooted by Prime Minister Narendra Modi in his Independence Day address to the Nation from the ramparts of historic Red Fort on 15 th August, 2015. The objective- to promote entrepreneurship which in turn shall lead to job creation , through development of a favorable eco-system with less bureaucratic intervention, ease of doing business , financial incentives and easy availability of bank finance for start-up ventures. The scheme combined with a 19 point action plan was formally launched on 16 th January 2016 by PM Narendra Modi at Vigyan Bhavan, New Delhi in the presence of Government ministers, senior bureaucrats and leading luminaries fr...

In March 2016, a survey was conducted in United States by RBC Wealth Management-U.S. and City National Bank. The poser was that whether financial literacy is an important-enough skill that it should be taught alongside reading, writing and arithmetic ?  It was found that 87 percent of Americans believe that financial literacy should be taught in schools. Of those in favor of incorporating financial literacy into the classroom, 15 percent said instruction should begin as early as elementary. The rest (72 percent) said it should be taught in middle and high school. In the last 3 - 4 years, concerted attempts have been made the world over, to include financial literacy at the High School level. In India, CBSE issued guidelines in October 2015, to all its affiliated schools to expose students to financial literacy and develop their capabilities through a project called School Bank Champs.. The project envisages interaction with bank authorities, exposure to openin...

In this post, we shall discuss difference between knowledge streams of Accounting and Finance . A vast majority of students/ youngsters/ aspirants cannot distinguish between the two or do not appreciate difference between the two streams leading to confusion about skill acquisition and career options. Although both Accounting and Finance deal with administration of business, but their objectives are entirely different. While Accounting has more to do with historical data, its validation and analysis; Finance is the art and science of building up on that historical data to plan and project for future. Simply put, if we see a business Balance sheet, then Accounting ends with signatures on Balance sheet while Finance starts after Balance sheet has been signed. So Accounting deals with past while Finance deals with Future . Accounting is related to creation of financial statements while Finance covers interpretation and analysis of past statements to draw out future strategy. ...

Before we dwell on RBI’s Monetary policy let us understand the difference between Monetary and Fiscal policies. Monetary policy of a country is regulated by its Central Bank, which in our case is Reserve Bank of India (RBI). Function of monetary policy is to regulate money supply in the eco system which helps in controlling inflation and regulation of interest rates. The crux of monetary policy is to balance growth with moderate inflation. Fiscal policy is the aggregate of measures undertaken by a country’s Government for revenue generation  ie taxation and revenue expenditure. This comes as a part of what is known as Union Budget.   Here we shall be discussing various parameters of RBI’s monetary policy, as well as the latest policy measures announced on 5 th April 2016. RBI uses various tools to regulate the economy and achieve goals of its monetary policy. Chief amongst them are Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), Bank rate, Repo rate/ ...