Finance Tips

Over the last few years Indian Banking, in its attempt to integrate itself with the global banking has been facing lots of hurdles in its way due to its inherent weaknesses, despite its high sounding claims and lofty achievements. In a developing country like ours, banking is seen as an important instrument of development, while with the strenuous NPAs, banks have become helpless burden on the economy. Looking to the changing scenario at the world level, the problem becomes more ironical because Indian banking, cannot afford to remain unresponsive to the global requirements. The banks are, however, aware of the grim situation and are trying their level best to reduce the NPAs ever since the regulatory authorities i.e., Reserve Bank of India and the Government of India are seriously chasing up the issue. Banks are exposed to credit risk, liquidity risk, interest risk, market risk, operational risk and management/ownership risk. It is the credit risk which stands out as the most dreaded one. Though often associated with lending, credit risk arises whenever a party enters into an obligation to make payment or deliver value to the bank. The nature and extent of credit risk, therefore, depend on the quality of loan assets and soundness of investments. Based on the income, expenditure, net interest income, NPAs and capital adequacy one can comment on the profitability and the long run sustenance of the bank. Further, a comparative study on the performance of various banks can be done using a ratio analysis of these parameters. There are a number of ratios that can be used to comment on the different aspects :

The essential ratios that can be used for assessing the banks’ profitability and sustenance are

Profitability

Intermediation Costs/Total Assets

Assets

Net Interest Income/Total Assets

Other Income/Total Assets Continue reading ‘Performance measurement of Banks -NPA analysis & credentials of Parameters’ »

by: Geoff Ficke

Whether in business, warfare or affairs of the heart knowledge, the more the better, is often the most crucial element in determining event outcomes. The ability to know what the competition for a business deal is strategizing is potentially game changing. A General upon learning details of a rivals battle plan gains immense advantages in plotting counter-strategy. Knowledge is often not quantifiable, but it is invaluable.

One of the most famous and consequential uses of real time knowledge occurred in Europe in 1815. Early in the 19th century information obtainable through communication channels about distant events was painstakingly slow to arrive. Roads were rough, unfinished, really little more than cart paths. There was no wire transmission or speedy organized courier services for delivering messages over vast distances. Word of the outcome of a battle, treaty or an important political affair could takes weeks or months to arrive where the result was most keenly anticipated.

The Battle of Waterloo is possibly the most famous military engagement in history. The battle site, the tiny, remote Belgian village of Waterloo, is synonymous today with one’s “final act”. Waterloo became Napoleon Bonaparte’s denouement. His inglorious defeat by the British forces, commanded by the Duke of Wellington, expedited his exile to the tiny island of Elba and the decline of France as a military power for almost a century.

Prussian, Austrian and Russian armies had allied to fight with the British against Napoleon. All of these great armies, moving across vast swaths of Europe terrain needed extensive provisioning, arming and logistic support to maintain troops as they girded for the great battle. This was an incredibly expensive enterprise. Massive funding was required to support the campaign. Continue reading ‘Carrier Pigeons Helped Create The Worlds Most Famous Banking Fortune’ »

INTERNET BANKING

Internet banking is a Self-service channel through which the customer will be interesting with the branch for Transacting business and seeking information. The channel is an extremely comprehensive product for both retail and corporate customers. It has acquired real-time transaction processing capability and has been supporting the business initiatives of the bank in the area of bill payments, IT application money receipts, railway ticket bookings, credit card payments, insurance premium payments etc.

IMPACT OF E-BANKING ON RURAL ECONOMY

In underdeveloped countries like India, there was a tendency on the part of people to invest their savings in unproductive channels like real estate, gold and silver etc. The socio-economic setup was responsible for this. The reason why people invested in hoarded wealth was that they could be converted into money whenever required. The savings of the land owners or rent earners were directed into unproductive expenditure and conspicuous consumption. This class of people had the power to save but lacked the will to save. The savings of peasants were invested in bullion or in lending money to other peasants. Some of them invested their savings in cattle. But cattle die and become dry. The savings of middleclass people (wage earners and salaried persons) were used for the education of their children, for building residential houses and for meeting unexpected circumstances. The above people were not aware how to utilize their savings for socially useful purposes. To discourage such hoarding and unproductive expenditure, rural branches of banks were opened to mobilize the savings of rural people. First, they were only engaged in their traditional banking of accepting and lending of money. Then only they were diversified their activities into new fields of operations like merchant banking, leasing, housing finance, mutual funds, venture capital etc. They had introduced a number of innovative schemes for mobilizing deposits. In addition to the above, they were providing valuable services to the rural customers by way of collecting cheques, bills, purchasing securities on behalf of customers, issuing drafts, travellers cheques, gift cheques, accepting valuable for safe custody. Now the rural customers are encouraged to move from the current paper based system of notes, cheques, statements and bank-tellers to the complete impersonal electronic banking system. Continue reading ‘IMPACT OF ELECTRONIC BANKING ON RURAL ECONOMY’ »

Author: S.Saravanakumar

The Banks in India Face the problems of swelling non-performing assets (NPAs) and the issue is becoming more and more unmanageable. The NPAs have direct impact on banks profitability, liquidity and equity. The NPAs of Indian Banks are relatively huge by international standard. Therefore the biggest ever challenge that the banking industry now faces is management of NPAs. It is true that banks have to restrict their lending operations to secured advances only with adequate collateral securities.

In this connection banks must aware of the problems and recovery legislations of NPAs Non performing assets means an advance where payment of interest or repayment of installments of principal or both remains for a period of more than 180 days.

The magnitude of NPAs have a direct impact on banks profitability as legally they are not allowed to book income on such accounts and at the same time banks are forced to make provision on such assets as per the RBI guidelines. The Indian Banking sector is facing a serious situation in view of the mounting NPAs which are the tune of Rs.56,000 crores in March 2002.NPAs is an important parameter in the analysis of financial performance of banks. The reduction of NPAs is necessary to improve profitability of the banks and comply with capital adequacy norms.

Therefore, to solve the problems of existing NPAs, quality of appraisal supervision and follow up should be improved. The NPAs can be avoided at the initial stage of credit consideration by putting rigorous and appropriate credit appraisal mechanism. This is in order to recover the NPA debt, the judicial systems should revamped and is essential to enforce the SARFAESI Act with more stringent provisions to realize the securities and personal assets of the defaulters.

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Article Source: ArticlesBase.com – PROBLEMS AND RECOVERY OF NPA AT BRANCH BANKS

Money is an intrinsic part of our life. By money we mean any commodity generally accepted in payment for goods, services, & debts. The main use of money is makes the trading process simpler & more efficient, but actually money has various uses in the modern world & various functions, such as:

1. means of payment
2. medium of exchange
3. standart of value
4. unit of account
5. store of value
6. standart of deferred payment

Money, as the medium of exchange, is used in one-half of almost all exchange. Workers exchange labour services for money. Poeple buy & sell goods in exchange for money. We accept money not to consume it directly but bacause it can subsequently be used to buy things we do wish to consume. Money is the medium through which people exchange goods & services. To see that society benefits from a medium of exchange imagine a barter economy.

A barter economy has no medium of exchange. Goods are traded directly or swapped for other goods. In a barter economy, the seller & the buyer each must want something the other has to offer. Each person is simultaneously a seller & a buyer. In order to see a film, you must hand over in exchange a good or service that the cinema manager wants. There has to be a double coincidence of wants. You have to find a cinema where the manager wants what you have to offer in exchange.

Trading is very expensive in a barter economy. People must spend a lot of time & effort finding others with whom they can make mutually satisfactory swaps. Since time & effort are scarce resources, a barter economy is wastful.

Although the crutial feature of money is its acceptance as the means of payment & medium of exchange, other functions are also in great importance. Money can also serve as a standart of value. Society considers it convenient to use a monetary unit to determine relative costs of different goods & services. In this function money appears as the unit of account, is the unit in which prices & quoted & accounts are kept. Continue reading ‘MONEY AND BANKING’ »

Money is one of the man’s greatest inventions, an essential tool of civilization, because every society has a money economy based on coins and paper notes. In primitive society there was a barter system which is the direct exchange of goods and services for goods and services. As the extent of specialization increases, the barter system proves very inefficient. The great disadvantage of barter is the fact that it depends upon a “double coincidence of wants”. It means that the seller and the buyer each must want something the other has to offer. Each person is simultaneously a seller and a buyer. A hunter who wants to exchange his skins for corn must find, not merely a person who wants skins, but someone who wants skin and has surplus of corn for disposal. Trading is very expensive in a barter economy. Time and energy, which could be devoted to production, is spent to laborious system of exchange.

Quite early in his history man discovered a much more convenient arrangement. The use of some commodity as a medium of exchange makes exchange triangular and removes the major difficulty of the barter system. If the commodity is generally acceptable in exchange for goods and services, it is money. A producer now exchanges his goods for money and the money can be exchanged for whatever goods and services he requires.

There are 4 general functions of money:

- Money as a medium of exchange.

- money as a standard of value.

- Money as a store of value.

- Money as a standard of deferred payment. Continue reading ‘Money and Central Banking’ »