Unit II

Financial Institutions

Q1) Write a short note on historical perspective.     5

A1) A bank is an institution that accepts and manages deposits from people and provides credit or loans to clients. The term bank comes from the medieval Italian word banca (English bench or table). The term came to be used because early financial transactions took place on tables and benches.

The banking operations we know today began in the Italian city-states of the Middle Ages, but these operations did not emerge out of nowhere. They were the culmination of centuries of development. Italy became the birthplace of banks in the 12th and 13th centuries because it was the center of a global trading network that exposed Italian traders and their lenders to a variety of money management methods. The Italians then used this knowledge to create new and better ways to deal with financial exchanges.

In 1202, Leonardo Fibonacci published a book called Liber Abaci. Today, famous for the Fibonacci sequence, Fibonacci was the son of a customs officer (a person who collects taxes on imported goods), so he had a lifetime of trading and financial experience. In his book, Fibonacci explained how to use mathematical concepts developed in India and the Middle East and apply them to the business of trade and money management. Finance and commerce were nothing new to Europe, but the methods Fibonacci introduced allowed for much more complex financial calculations.

Trade and credit

In the Middle Ages, long-distance trade was dangerous due to the high initial costs and the potential for ventures to fail. Paying for a medieval trade voyage required several steps, including purchasing goods that could be exchanged at the destination, equipping ships and pack animals, and hiring people who actually travelled.

The cost of initiating a trade voyage was considered a worthwhile investment, as the success of a trade voyage can be very profitable. However, the trade took a long time. The delay between funding the voyage and making a profit was considerable (assuming the voyage was successful). It can take months or years to sell a new product and return it to its original location on a single trade voyage.

Credits helped close the gap between voyage payments and profit recovery. Credit is the lending and borrowing of money that is promised to be repaid one day in the future. The idea of ​​lending money to traders in exchange for some of the profits of a venture has existed in many societies. For example, partnerships in which investors fund trader ventures in exchange for a portion of their profits were common in the Abbasid, Song China, and European trading cities.

In any of these settings, the trader may have had to borrow money in advance to finance his voyage. He knew that he could repay his debt if he sold the goods (almost all medieval merchants were men), so he promised to pay the lender a portion of his profits if the trade venture was successful. I got a loan.

The emergence of Italian banks

This practice of lending money to traders in exchange for some of their potential profits was an established practice before the advent of banking in Italy. Lending money and collecting interest (the fee for borrowing money in addition to the amount of the principal loan) was the easiest way to make money from a loan, but due to religious bans, most people do it. Could not be done. The Catholic Church and the Islamic law of Riva regarded interest as a usury. In Judaism, it was forbidden to charge interest to fellow Jews, but it was allowed to charge interest to other Jews. In all these cases, the ban on interest claims was driven by a combination of concerns that the way to make money is ethical, especially since these practices tend to be the most damaging to the poor.

The changes that took place in Italy in the 13th century regarding banking and finance were not the invention of credit. Rather, the new idea was that one could make money by buying and selling financial products (essentially financial contracts) (such as bills of exchange). Profit gained through legitimate transactions or through the natural increase in the value of items has avoided potential usury claims.

The exchange invoice was a written agreement that entitles the invoice owner to receive certain payments from a third party. Exchange invoices can be considered valuable as they promise future payments. Instead of lending money to traders and waiting for them to come back to share their profits, bankers began buying and selling these bills of exchange for their own worth.

For example, suppose an investor lent money to a trader, but needed the money before the trader returned. Investors can write exchange invoices that give the owner the right to give a portion of the investor's interests. Then he could now sell the invoice at a slightly discounted price to make money. The invoice purchaser can recover the shares of the original investor from the trader.

Expansion of banking business

The Medici family in Florence were not the first Italian family to start banking, but they were the most successful. From the late 14th century to the end of the 15th century, the Medici set up bank branches in major cities across Europe. By having branches in different cities, the Medici were able to make money by avoiding usury crimes by taking advantage of exchange rate changes.

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Banknote-respecting banks in many cities have also made it possible to send large sums of money across the continent. Medici banknotes can be redeemed at any branch, allowing people to move money without risking the physical transportation of coins. Not only merchants and merchants, but also kings and popes borrowed from the Medici and other major bankers. This was partly because, for example, no one else could lend the amount needed to fund the war. This has made bankers a very powerful and important player in both politics and economy.

Q2) Write the role and functions of IDBI.     8

A2) Role of IDBI

IDBI's number one position as a pinnacle improvement financial institution is to coordinate the sports of different improvement banks and time period finance establishments within side the country's capital markets.

It presents technical and administrative assist for the advertising, control and enlargement of the industry, thereby appearing promotional and improvement functions.

Direct Assistance: IDBI presents loans and prepayments for commercial issues. This financial institution ensures loans rose via way of means of public marketplace commercial issues from kingdom co-operative banks, potential banks, the Indian Industrial Finance Corporation (IFCI), and different "notified" economic establishments. ..

Indirect assist: Provides refinancing centers to authorities-authorised IFCIs, SFCs and different economic establishments. IDBI subscribes to economic organization shares and bonds, thereby offering supplementary resources.

Coordinate the sports of economic establishments for the promoting and improvement of industry.

IDBI is a leader, coordinator, and innovator within side the subject of business finance in Japan. Its foremost sports are constrained to financing, improvement, coordination and promoting functions.

Industrial planning, promoting and improvement aimed toward bridging the gaps within side the business shape through devising, making ready and highlighting new projects.

Functions executed through IDBI

1. IDBI's unique hobby within side the improvement of small industries is tested through the status quo of the Small Industry Development Fund (SIDF) in May 1986, the National Stock Fund Scheme (NEFS) in 1988, and the status quo of voluntary executives. It has been. Corporation Cell (VECC) for imparting aid within side the nature of equity to small and small industries engaged in manufacturing, the value does now no longer exceed Rs. 50,000 rupees. This scheme is controlled through IDBI via a nationalized bank.
2. IDBI has additionally added a single-window aid scheme to offer time period mortgage and operating capital aid to new, small and small businesses. According to be had data, IDBI is increasing approximately one-0.33 of its general business aid to the small region only.
3. IDBI's commercial enterprise scope has been elevated to consulting, service provider banking, and settlement sports.

The Bank's Board of Directors is pleased to publish a report on its business and operations for the fiscal year ended March 31, 2019.

India slowed in 2018-19 compared to the previous year due to a slowdown in the agriculture and services sector. While the slowdown in India's economic activity was partly due to domestic factors such as monsoon shortages and in homogeneities, calm consumption and investment demand, global volatility also affected overall growth momentum. Banks play a major role in India's growth story as they continue to be the primary source of debt funding by a large margin compared to any other source. With this in mind, various reform measures have been initiated to strengthen the banking sector, including recapitalization of public sector banks and resolution of stressed assets under bankruptcy and bankruptcy laws. These measures are expected to improve the financial position of banks and subsequently lead to credit offtakes in the economy. While these measures can improve banks' financial position, the overall recovery in banking sector performance will be delayed. It is important to look at your bank's performance in this context.

Q3) Write the history and purpose on ICICI.     5

A3) The creation of India's Industrial Credit Investment Corporation (ICICI) is another milestone in the growth of the Indian capital markets. It was founded in 1955 as a company registered under the Companies Act. ICICI was established to fund small and medium-sized industries in the private sector.

IFCI and SFC were allowed to apply for and underwrite company stock and bonds, but limited to lending activities and avoided underwriting and investing in businesses. As a result, many up-and-coming companies faced ongoing challenges in raising capital markets.

Moreover, they were not in a position to secure the desired amount of loan assistance from financial institutions due to their thin equity base. In order to promote the industrialization of private sector, it was considered necessary to provide a considerable underwriting facility to accelerate the stage of industrialization. ICICI was established to fill these gaps.

Purpose of ICICI

ICICI's main purpose was to meet the industry's needs for permanent and long-term funding in the private sector. In general, the main purposes of Kosha are:

1. Support the creation, growth and modernization of non-public sector enterprises.

2. Encourage and promote the involvement of internal and external sources of funding in such companies.

3. Motivate ownership of industrial investment to promote and support market expansion.

4. Provide equipment funding.

5. Provide funding for rehabilitation of industrial units.

Q4) State the functions and role of ICICI.      8

A4) Functions of ICICI

To achieve the above objectives, we perform the following functions.

1. Fund in the form of long-term or medium-term loans or equity participation.

2. Sponsoring and underwriting of new issuance of shares and other securities,

3. Guarantee loans from other private investment sources.

4. Make the funds available for reinvestment by turning the investment as quickly as possible.

5. Providing project advisory services, that is, providing advice –

For private sector companies in the pre-investment stage on government policies and procedures, feasibility studies and joint venture research

To the central and state governments on specific policy-related issues.

Role of ICICI

Kosha established the Merchant Banking Division in 1973 to selectively advise customers, raise funds in an appropriate manner, and reorganize existing company funds. It also advises clients on merger proposals. We support the submission to financial institutions and banks, and the preparation of proposals for negotiations such as financing and underwriting. This department acts as an administrator of capital issues. Assistance is also provided for completing procedures related to public affairs and for completing legal procedures to raise a loan.

In 1982, ICICI took a new dimension in the merchant banking sector by proposing to provide counselling for industrial investment in India to non-resident Indians and people from India living abroad. This may prove to be not only the cheapest route for technological improvement, but also a source of foreign currency funding from risk capital.

Established a venture capital fund to promote green field companies and invest in risk capital, and cooperated with other financial institutions to establish SHCIL, CRISIL and OTC Exchange of India Ltd. Recently, we have established a mutual fund with our own bank.

Kasha’s vision goes far beyond its immediate function of funding industrial projects. It has investigated all sectors of the economy and has designed new concepts or new means, or even new institutions to meet them, wherever the need is recognized. In this regard, its development activities have covered diverse areas such as technology, financing, project promotion, rural development, human resources development and publishing.

ICICI Brokerage Services Limited was established in March 1995. It is a wholly owned subsidiary of I-SEC. We started securities brokerage activities in 1996. It is registered on the Indian National Stock Exchange and the Mumbai Stock Exchange.

ICICI established ICICI Credit Corporation in 1997 and was subsequently renamed ICICI Personal Financial Services Limited in 1999. We offer a wide range of products and services to retail customers.

ICICI Capital Services Ltd. Becomes installed in 1994 as SCICI Securities Ltd. As an entirely owned subsidiary of SCICI Ltd. Its reason is to offer institutional traders with inventory brokerage services, which includes underwriting, number one marketplace placement and distribution. Since April 1, 1996, it has emerged as an entirely owned subsidiary of ICICI.

ICICI installed ICICI Bank in 1994 to carry out industrial banking functions. The financial institution gives numerous home and worldwide banking services.

Q5) Write a short note on IFCI.       5

A5) Indian Industrial Finance Corporation (IFCI)

Founded in 1948, the Indian Industrial Finance Corporation turned into transformed to a public enterprise on July 1, 1993 and is now called the Indian Industrial Finance Corporation. The primary cause of setting up this improvement financial institution turned into to guide the economic sector. To meet their medium- to long-time period monetary needs.

IDBI, Scheduled Banks, Insurance Sector and Cooperative Banks are a number of IFCI's key stakeholders. IFCI's legal capital is 250 crores, which the crucial authorities can growth as needed.

Functions of IFCI

1. First, IFCI's primary characteristic is to offer medium- to long-time period lending and prepayment for business and production concerns. Before granting a mortgage, examine numerous elements. They have a take observe the significance of enterprise in our country wide economy, the general fee of the project, and in the end the pleasant of the product and the control of the enterprise. If the above elements provide first-rate results, IFCI will provide the mortgage.
2. Industrial Finance Corporation of India also can enrol in company bonds issued with the aid of using those organizations at the market.
3. IFCI additionally gives ensures for loans made with the aid of using such business organizations.
4. When a enterprise troubles stocks or bonds, Indian Industrial Finance Corporation might also additionally pick out to underwrite such securities.
5. We additionally assure deferred fee in case you borrow from a overseas financial institution in a overseas currency.
6. The Merchant Banking & Allied Services Division has a unique division. They cope with troubles including recapitalization, mergers, mergers and mortgage syndications.
7. As a procedure to sell industrialization, Industrial Finance Corporation of India is likewise selling 3 subsidiaries, IFCI Financial Services Ltd, IFCI Insurance Services Ltd and I-Fin. It manages the features and rules of those 3 organizations.

Q6) Explain the functions and problems of State Financial Corporation. 5

A6) The State Finance Corporation (SFC) is an integral part of the country's institutional financial structure. Where the SEC promotes small and medium-sized industries in the state. In addition, SFC helps ensure balanced regional development, higher investment, more job creation and broader ownership of different industries.

SFC – State Finance Corporation

Currently, there are 18 national financial companies in India (17 of which were established under the SFC Act of 1951). Established under the Companies Act of 1949, Tamil Nadu Industrial Investment Corporation Limited also operates as a state-owned financial company.

Organization and management

A 10-member board of directors manages the State Finance Corporation. The state government generally consults with the RBI to appoint a managing director and appoint the names of the other three directors.

All insurers, fixed-term banks, investment trusts, co-operative banks, and other financial institutions elect three directors.

Therefore, state and quasi-government agencies appoint a majority of directors.

Functions of the State Financial Corporation

The various important features of State Finance Corporation are:

(I) SFC provides loans primarily for the acquisition of fixed assets such as land, buildings, plants and machinery.

(Ii) SFC will support financial support for the industrial sector where paid-in capital and reserves do not exceed Rs. 3 rupees (or up to 30 rupees if notified by the central government).

(Iii) SFC will underwrite new shares, shares, corporate bonds, etc. of the industrial unit.

(Iv) SFC permits the repayment of upcoming banks, industrial concerns, and guaranteed loans rose in the capital markets by state co-operative banks within 20 years.

Problems of the National Financial Corporation

There is no independent organization

All SFCs rely on rules and regulations created by the state government.

The problem with the SFC is that all decisions of these agencies depend on the state's political environment.

For this reason, it is not possible to get a loan to the right person at the right time.

Corruption

Like other government agencies in our country, we can also see the evil of corruption in state-owned financial companies.

The purpose of SFC executives, who are saving wealth and money, is to make money in both good and bad ways.

The problem is that these institutions do not have the proper transparency of banks.

Effects of World Bank and WTO policies

About. All SFCs in India are bound by an agreement between the World Bank and the WTO.

For this reason, the decisions of these institutions are influenced by the policies of the World Bank and the WTO.

The World Bank can easily put pressure on him to embrace his policies. It can also have a negative impact on small industries in India.

Q7) What do you mean by insurance? State its principle.   5

A7) An arrangement in which a company or state promises to provide a guarantee of compensation for a particular loss, damage, illness, or death in exchange for a particular premium payment.

• Insurance is a legal agreement between an insurance company (insurance company) and an individual (insured person). In this, the insurer promises to improve the insured's loss in the event of an insured's contingency.

Insurance principles

1. The nature of the contract:

The nature of the contract is the basic principle of insurance contracts. An insurance policy occurs when one party offers or proposes a contract and the other party accepts the proposal. The contract must be simple in order to be a valid contract. The person who signs the contract must enter it with free consent.

2. Maximum integrity principle:

Under this insurance policy, both parties must trust each other. As a client, it is the insured's duty to disclose all facts to the insurer. Fraud and misrepresentation of facts can lead to contract cancellations.

3. Principle of insured interests:

Under this insurance principle, the insured must be interested in the subject of insurance. Without insurance, the contract will be invalid. If there is no insured interest, the insurer will not issue an insurance policy.

Insured interests must be present at the time of insurance purchase

For example, creditors have insured interests in the lives of debtors. A person is considered to have unlimited interest in the life of his spouse.

4. Principle of compensation:

Compensation means security or compensation for loss or damage. The principle of compensation is an insurance principle that indicates that the insured may not be insured by the insurer for an amount that exceeds the insured's financial loss. In the type of insurance, the insured is the amount of compensation equivalent to the actual loss, not the amount exceeding the loss.

5. Subrogation Principal:

The principle of subrogation allows the insured to claim the amount from a third party responsible for the loss. This allows insurers to pursue legal methods to recover their losses.

For example, if you are injured in a car accident, the insurance company will compensate the loss due to the reckless driving of the third party and appeal to the third party to recover the amount paid as a claim.

6. Double insurance:

Double insurance means insurance of the same subject with two different companies or the same company under two different insurance policies. Insurance is available for compensation contracts such as fire insurance, marine insurance, and property insurance.

7. Proximity Cause Principle:

Proximity cause literally means "closest cause" or "direct cause". This principle applies when the loss is the result of more than one cause. Proximity causes are considered the most dominant and most effective cause of loss. This principle applies when there is a series of causes of damage or loss.

Q8) Write the important purpose of LIC.      8

A8) The important purposes of LIC are:

1. Mobilize people's maximum savings by making the insured's savings more attractive.

2. Expand the scope of life insurance to cover all insured persons under the insurance.

3. Act as a trustee of the insured in personal and collective capacity.

4. Promote all LIC employees and agents in the sense of participation and job satisfaction by performing their duties devotedly to the achievement of LIC's objectives.

5. To ensure the economic use of resources collected from policyholders.

6. To carry out the business with maximum economic efficiency and fully aware that the money belongs to the policyholder.

7. Spread life insurance broadly, especially in rural areas and socially and economically to the lower classes, insure all insured persons in the country and provide adequate financial compensation for death at a reasonable cost. I am aiming for it.

8. Maximize people's savings mobilization by making insurance-linked savings attractive enough.

9. In investing funds, keep in mind the primary obligations to policyholders who trust the funds without losing sight of the interests of the entire community. Funds deployed in the best interests of the entire community, not just investors, taking into account national priorities and attractive return obligations.

10. Do enterprise with most financial performance and with complete recognition that cash belongs to policyholders.

11. Act as a trustee of the insured from an man or woman and collective standpoint.

12. Meet the various lifestyles coverage desires of the network that can stand up in a converting social and financial environment.

13. We will maximize the involvement of all who paintings for the corporation which will sell the pursuits of the insured with the aid of using offering well mannered and green offerings.

14. Promote participation, satisfaction, and task pride amongst all marketers and personnel of the corporation with the aid of using acting their obligations devotedly to the success of the corporation's goals.

Q9) What is insurance? Write its functions.      5

A9) Insurance is a means of protection from financial losses. This is a form of risk management and is primarily used to hedge the risk of accidental or uncertain losses.

The entity that provides insurance is known as an insurance company, insurance company, insurance company, or underwriter. The individual or group that purchases insurance is known as the insured or policyholder. Insurance transactions assume known (relatively small) losses guaranteed in the form of payments to the insurer in exchange for the insurer's promise to indemnify the insured in the event of an insured loss. Includes insured persons. Losses may or may not be monetary, but must be reducible to financial terms and are usually insured by the insured by ownership, ownership, or an existing relationship. Includes those with insurance benefits.

The insured receives a contract called an insurance contract. The contract details the conditions and circumstances under which the insurance company will indemnify the insured. The amount that the insurance company charges the policyholder for the coverage provided in the insurance contract is called the premium. If the insured experiences a loss that may be covered by the insurance policy, the insured will file a claim with the insurance company for processing by the adjuster. Mandatory out-of-pocket costs required by the insurance contract before the insurer pays the claim are called deductible (or out-of-pocket if required by the health insurance contract). Insurance companies can hedge their risks by reinsurance. This allows another insurer to take part in the risk, especially if the primary insurer determines that the risk is too great to bear.

Functions of Life Insurance Corporation of India:

1. In the reinsurance enterprise associated with the lifestyles coverage enterprise, preserve the capital redemption enterprise, pension particular enterprise or reinsurance enterprise.

2. Invest Kosha's finances in a way that Kosha deems suitable and take all measures that can be essential or suitable to defend or recognise the funding. This consists of taking on and dealing with the belongings furnished as collateral for an funding till the suitable possibility arises to cast off them.

3. Acquiring, protecting and casting off belongings for enterprise purposes.

4. If it's miles suitable to accomplish that for the advantage of the general public corporation, switch all or a part of the lifestyles coverage enterprise out of doors India to any other person.

5. Movables or collateral for movables, or in any other case prepayment or lending of money.

6. Borrow or increase finances beneathneath such strategies and such collateral, because the Kosha deems suitable.

7. If the control enterprise is transferred to the Company beneathneath this regulation and the subsidiary of the vested coverage corporation is engaged in different enterprise, it will be engaged in different enterprise with the aid of using itself or via the subsidiary.

8. To perform different companies that Kosha can with ease perform in reference to its enterprise and that may be calculated immediately or in a roundabout way to make Kosha's enterprise profitable. When

9. Do something that can be incidental or facilitating the right workout of any of the corporation's powers.

Q10) Write the purpose and functions of GIC.     5

A10) Purpose of General Insurance Corporation (GIC) in India:

1. To run a widespread coverage enterprise aside from lifestyles, together with injuries and fires.

2. Now, to guide and obtain the subsidiary to perform the coverage enterprise.

3. Support the implementation of funding techniques of subsidiaries in an green and effective way.

4. Companies that customers count on to apply the brand new era to offer IT answers that clear up enterprise demanding situations inside time and budget.

5. A corporation that takes satisfaction in worker empowerment.

6. A corporation that may design, deploy, and manipulate tasks from enterprise demanding situations to operational manufacturing systems.

7. Working with clients and era partners

Provide a solution.

8. A corporation that makes a speciality of the non-stop improvement of latest answers or new markets, offerings, or product offerings, or the man or woman boom and improvement of personnel and their ideas.

Functions of General Insurance Corporation (GIC) in India:

1. If you suspect its miles desirable, preserve a part of the overall coverage.

2. Assist, guide and recommend acquirers concerning the established order of requirements of behaviour and sound practices within side the widespread coverage enterprise.

3. We offer green offerings to non-lifestyles coverage policyholders.

4. Advise the acquirer on dealing with costs, along with fee of prices and different costs.

5. Advise the obtaining corporation concerning the funding of the fund.

6. Issue a directive to the obtaining corporation in reference to the implementation of the non-lifestyles coverage enterprise.

7. In order to offer offerings greater efficiently, we can display the path the various obtaining businesses and sell competition.

Q11) What are Commercial banks? Write its functions.    5

A11) A commercial bank is a type of financial institution that does everything from depositing and withdrawing money to the general public and providing loans for investment. These banks are commercial institutions and operate solely for commercial purposes.

The two main characteristics of commercial banks are lending and borrowing. Banks receive deposits and give money to various projects to earn interest (profit). The interest rate that a bank provides to depositors is called the borrowing interest rate, and the interest rate that a bank lends money to is called the lending interest rate.

Commercial bank functions:

The functions of commercial banks fall into two major divisions.

(A) Main functions

Accept Deposits: Banks receive deposits in the form of savings, current and fixed deposits. Surplus balances collected from companies and individuals are lent out as a temporary requirement for commercial transactions.

Providing Loans and Prepaid: Another important function of this bank is to provide entrepreneurs and businessmen with loans and prepayments and collect interest. For all banks, it is a major source of profit. In this process, the bank holds a small number of deposits as reserves and provides (lends) the remaining amount to the borrower at banks such as demand loans, overdrafts, cash credits and short-term loans.

Credit Cash: When a customer is offered a credit or loan, no liquid cash is offered. First, a bank account is opened for the customer and then the money is transferred to that account. This process allows banks to make money

(B) Secondary function

Bill of exchange discount: This is a written agreement approving the amount to be paid for goods purchased at a particular point in the future. You can also settle the amount before the estimated time by using the discount method of the commercial bank.

Overdraft Facility: A prepayment given to a customer by overdrawing the overdraft to a certain limit.

Buying and Selling Securities: Banks provide the ability to sell and buy securities.

Locker Equipment: Banks provide locker equipment to their customers to keep valuables and documents safe. The bank charges a minimum annual fee for this service.

Use various means such as promissory notes, checks, and bills of exchange.

Q12) What are commercial banks? Explain its types.    5

A12) A commercial bank is a type of financial institution that does everything from depositing and withdrawing money to the general public and providing loans for investment. These banks are commercial institutions and operate solely for commercial purposes.

The two main characteristics of commercial banks are lending and borrowing. Banks receive deposits and give money to various projects to earn interest (profit). The interest rate that a bank provides to depositors is called the borrowing interest rate, and the interest rate that a bank lends money to is called the lending interest rate.

Types of commercial banks:

There are three different types of commercial banks.

Private Bank –: A type of commercial bank in which an individual or company owns a majority of the equity capital. All private banks are recorded as limited liability companies. Banks such as Housing Development Finance Corporation (HDFC) Bank, India Industrial Credit Investment Corporation (ICICI) Bank, Yes Bank, etc.

Public Banks –: A type of nationalized bank in which the government holds important shares. For example, Bank of Baroda, State Bank of India (SBI), Dena Bank, Corporation Bank, Punjab National Bank.

Foreign Banks –: These banks are established abroad and have branches in other countries. For example, banks such as American Express Bank, Hongkong and Shanghai Banking Corporation (HSBC), Standard & Chartered Bank, and Citibank.

Commercial Bank Example

Here are some examples of commercial banks in India:

1. State Bank of India (SBI)
2. Housing Development Finance Corporation (HDFC) Bank
3. Indian Industrial Credit Investment Corporation (ICICI) Bank
4. Dena Bank

Q13) Write the difference between private and public sector banks.  8

A13) A public sector bank is a financial institution in which the state government holds more than 50% of the shares. Banks usually appear on the stock exchange.

They are the financial backbone of the country and contribute to the financial security of the country.

Despite the slightly higher interest rates, putting money in a fixed account at a government bank will ensure the security of your funds.

It is unlikely that such an institution will default on the customer's finances. If banks experience financial constraints, governments tend to cover them.

Private sector

Banks in this category are dominated by individual shareholders, not the government. These banks have individuals or private institutions and hold more than 50% of the shares.

Some private banks may default on the customer's finances. This mainly happens with fixed deposits. Others may suddenly shut down their entire operation and lose their way with their customers.

In such cases, the customer may lose savings.

These institutions typically employ aggressive customer strategies aimed at ultimate customer satisfaction. They primarily aim to provide quality service in the shortest possible time.

Employees constantly sell high-end products and services to a wider geographic and larger target audience.

The main differences between public and private banks

1. Public sector banks have existed for a long time now. They have a great public image that creates credibility. In return, these institutions receive customer loyalty, which contributes to a broader customer base. Conversely, private banks now exist for a shorter period of time. Therefore, they have a lower customer base.
2. When it comes to interest rate policy, public sector banks are transparent. However, interest rates on customer savings are quite high. For private banks, different operating systems can incur more hidden charges. It explains why most people choose government banks. However, banks in this category usually reduce customer interest in savings.
3. Public sector banks usually have employment security for their employees. When individuals start working for such institutions, they do not have to worry about being dismissed from work due to a particular problem. Private banks usually have a certain performance valuation, which adds to the constant concern about employment security. If individuals do not meet certain performance levels, they can easily be scaled down.
4. Government banks usually take time to implement new technologies that facilitate the work of both employees and customers. However, the private sector is always up to date with the latest technology trends that make it easier to operate. When visiting a public bank, you may have to go through various departments to get the information you need. However, most private banks have all the help they need at one desk. Going forward, you'll be satisfied and save time.

Q14) State the problems of competition.      5

A14) Specific trouble:

1. Most competition aren't gambling to win

These contests provide remarkable rewards as an incentive; however from my revel in I found out that maximum competition do now no longer take part because of their prizes. First, if this remark is true, its miles a form of antithesis towards the cause of the preliminary provision of economic rewards within side the first place. If many competition do now no longer do not forget the prize as an incentive, the fee of the prize can be appreciably decreased due to the fact it's miles associated with the high-satisfactory of the version created for the provider. Please allow me explain.

Some of you analyzing this will have formerly approached the top of statistics technological know-how opposition, at the same time as others can be within side the center of the %. Recall how any of those positions modified the technique to the trouble. From my revel in of competing and seeing others competing, the understanding of being within side the center of the % and missing thoughts for similarly development frequently ignores economic incentives and in maximum cases , It modifications to something just like the following. At least I found out something. Meanwhile, folks that see their call on the pinnacle of the leader board are already considering what to do with their winnings proportion. What occurs as a end result? These humans paintings relentlessly to relax and save you their tough paintings from slipping thru their fingers. This is remarkable. As a end result of economic incentives, we're dozens of smart humans competing tirelessly to give you answers to hard troubles. Proper. But what if there has been a manner to incentivize all participants, loads of statistics scientists, and the usage of the identical quantity of money?

2. Anti-Open Source — everyone spends time fixing the identical (or similar) troubles

For the ones unfamiliar, the usage of an open supply framework makes all of the supply code of a venture to be had to all people who has the capacity to listen in on thoughts or make similarly improvements. It is a decision. In my opinion, the flow to open supply is one in all the most important movements in records in elevated generation development, specifically as it pertains to regions with such plenty of well-that means and malicious use cases. , Enter deep getting to know and synthetic intelligence. The provisions of those contests, including disqualification for sharing code among teams, create an anti-open supply environment. Based at the modern praise shape of conventional statistics technological know-how contests, there may be no incentive for all of us to proportion their thoughts. In truth, it is plenty greater useful to keep accurate thoughts in-residence to save you others from the usage of them due to the fact they may hit you. As a end result of this anti-open supply nature, if there may be a well known trouble to be solved, including pre processing statistics or experimenting to locate the right neural community shape, the easy truth that everybody has to resolve the identical trouble. Based at the facts, endless instances are wasted on themselves. For example, I am currently participating in an Alzheimer's disease research contest with the Stall Catchers Project, whose dataset is a collection of videos of blood flow in the brain. Due to the nature of this dataset, all participants in the contest must write a script that pre processes the video into a frame image and then crops it around the vessel in question. It took about 3 hours to create a function that would allow Numpy slices of video to work properly and universally at every frame of every video.

Data Pre processing Example for the Driven Data Competition — Thanks to Driven Data and the Human Computation Institute for providing the data and permission to use it.

Let's calculate some numbers here. You can see that there are 623 participants in this contest. Let's assume that the observations at n = 1 are close to the mean, due to the lack of details. We all need to pre process the data in the same (or very similar) way, so if we take on this role and share our work with others, we add up to the pre processing that may have been redirected. Spent  1,869 hours in. Class. If so, these hours may have been spent instead building networks, researching illnesses, optimizing networks, and so on. And keep in mind that this was only the first step in the competition.

3. Pay to win

All this is summarized in the simple fact that even the best data scientists in the world cannot optimize their networks in a short enough time for sufficiently complex problems without computing resources such as high-end GPUs and TPUs. In addition, as the computing power increases, the optimization time is reduced somewhat and can be used to further pursue the ideas within it. My claim is that not all of these competitions are determined by access to computing resources. In fact, it is clear to me that knowledge of the problem and an effective approach to solving it are far more important assets than computing resources. I'm just stating the fact that if there are speed barriers that aren't met, you can rule out the possibility of a talented data scientist running out of resources to access a particular prize pool.

A potential counter-argument to my claim is that some competition mentions often implemented computing limitations, such as illegal use of TPUs, GPU execution time limits, or other processing speed limits. We may claim that it is actually fair. From an economic point of view, if an organization is "paying" (or rewarding as a prize) to a group of people to find the best solution to a difficult problem, why not pool this group's computing resources? Will it be restricted? Is it already free to use? So these restrictions seem like a beginner to me if the ultimate goal is to reach the best possible solution. What's more, if you choose not to use the speed at hand, you'll lose credibility to engineers who have pushed the boundaries and built amazing technology, the state-of-the-art processor accessible today.

Q15) What are the types of financial institution capital? Give example 5

A15) Types of financial institution capital

Banks want to preserve a sure quantity of liquid belongings in reaction to hazard-weighted belongings.

.. The Basel Accords are banking policies that make sure that banks have enough capital to address their operations and obligations.

There are 3 types:

1 – Tier 1 Capital

It includes the financial institution's center capital (ie shareholders' fairness) and disclosed reserves (retained earnings) minus goodwill.

,If you have. It indicates the economic situation of the financial institution. It includes all of the reserves and finances of the financial institution. It serves because the number one guide in case of loss absorption. It is indexed withinside the financial institution's economic statements.

Under Basel III, Tier 1 capital ought to preserve no less than 7% of hazard-weighted belongings. In addition, banks must additionally keep a further buffer of 2.5% of unstable belongings. Risk-weighted belongings constitute the financial institution's publicity to credit score hazard from loans provided via way of means of the financial institution.

Tier 1 Capital / Risk Weighted Assets = 7% (Minimum Requirements)

Example:

Bank X has a Tier 1 capital of $ one hundred billion. Its hazard-weighted belongings are $ one hundred billion. (Ie) Tier 1 capital ratio

Is 10%, which exceeds the Basel III requirement of 7%.

2 – Tier 2 Capital

Consists of finances now no longer disclosed withinside the economic statements

Of the financial institution. Includes revaluation reserve

, Hybrid fairness products, subordinated bonds, popular reserves, allowance for dubious money owed, and decreased funding in non-disclosure reserves, non-consolidated subsidiaries and different economic institutions.

Tier 2 capital

It is extra capital due to the fact it's far much less dependable than Tier 1 capital. It is tough to degree this capital due to the fact the belongings of this capital aren't clean to liquidate. Banks divide those belongings into higher and decrease tiers primarily based totally at the liquidity of the character belongings.

Under Basel III, they ought to preserve a minimal capital adequacy ratio of 8%.

Example:

Bank X has $ 15 billion in Tier 2 capital. The Tier 2 capital adequacy ratio is 1.5%, which exceeds the necessities of Basel III.

The general capital ratio is 11.5% (that is, Tier 1 + Tier 2 = 10% + 1.5% = 11.5%). Which one exceeds the Basel III requirement of 10.5%? (With extra buffer)

3 – Tier three Capital

Tier three capital is tertiary capital. It is there to guard marketplace hazard, commodity hazard and overseas foreign money hazard. This consists of greater subordinated debt, undisclosed reserves, and allowance for dubious money owed in comparison to Tier 2 capital.

Tier 1 capital ought to be extra than mixed Tier 2 and Tier three capital.

How does a financial institution's capital growth increase  or decrease?

Banks increase finances from a lot of reassets to offer loans to clients who price interest. This is greater than the price the consumer rents. The distinction is profit.

Shareholder Financing – Publicly issued banks increase investment, and the identical is used for banking operations. Shareholder returns are within side the shape of dividends

And the upward push in inventory prices.

Obtaining a mortgage from a economic institution

Government investment banks

Time deposits, financial savings deposits;

Q16) Write a short note on capital market support.    8

A16) First, let's take a look at how banks support the capital markets. If one bank has a comparative advantage in assessing credit quality, granting and renewing bank loans should provide a positive signal to external investors, especially when borrowers do so (Fama). 1985, Diamond 1991). There is no established reputation. James (1987) analyzes the impact of loan announcements on a company's equity returns and compares it to the impact of other financing. He found that bank loan agreements provide investors with positive information about the outlook for borrowers in that they show higher excess returns before and after the event date than alternative lending. Lummer and McConnell (1989) distinguish between the effect of announcing a new bank credit contract and the renewal or cancellation of an existing contract, and the information that banks send to the capital markets is more than the monitoring that takes place in the course of ongoing relationships. I found it to happen. From the borrower screening at the start of the loan.

At a deeper level, Best and Zhang (1993) investigated the information content of bank loan agreements, arguing that bank monitoring and screening is especially valuable when public signals are noisy and corporate outlook deteriorates. I am. They observe that when analysts have a large forecast error in their past corporate earnings, the excess return on the announcement date is important, while when the forecast error is small, the opposite is true. They also say that for companies that have received positive earnings forecast revisions, the excess earnings of the loan announcement is not important, but for companies that have received negative or noisy forecast revisions, the loan announcements are considerable. Observe to generate excess revenue. Slovin et al. (1992) shows that the information value that banks generate through screening and monitoring depends on the size of the company. For larger borrowers with more public information, excess returns on the announcement date will be reduced. Billet etc. (1995) We presume that the announcement of a loan from a quality lender is probably better for better monitoring and is more beneficial to investors than the announcement of a loan from a poorer lender. Finally, Dahiya et al. (2003) shows that the termination of banking by selling loans signals the market with a firm outlook2.

Evidence also shows that bank lending reduces the cost of information associated with access to the equity and securities markets. Companies with established lending relationships do not experience very serious low prices at the time of publication (James and Weir 1990), and existing lending relationships are reflected in lower issuance yield spreads on bond issuance. Reduce the cost of companies seeking access to capital markets (Datta et al. 1999). Drucker and Puri (2005) provide evidence that simultaneous lending relationships are associated with both lower underwriting fees and discounted yield spreads, especially for non-investment-qualified companies. Yasuda (2005) confirms that banking relationships are of particular value to junk bonds and first-time issuers, and Drucker and Puri (2007) show that commercial bank entry reduces underwriting fees and total spreads in equity offerings. We are reporting an estimate that indicates that.

Finally, the available evidence suggests that allowing banks to hold shares in a company could improve efficiency by expanding banking activity into the capital markets. Li and Masulius (2004) found that by holding shares in the company, underwriters could reduce the low price of an IPO at the time of underwriting. They also show that the total spread of the IPO will decrease in the shareholding of the company's underwriters.

In the 2004 treatise

Lee Jong-Kun and I investigated how capital markets support banks (another link) and predicted and tested strong efficiency effects (Bossone and Lee 2004). The production of banking services has studied production efficiency in banking under the so-called "system-scale economy" hypothesis, which is characterized by increasing returns at the scale of the financial system in which it takes place. As we have found, banks operating on systems with larger (deeper, more efficient) capital markets signal more risk absorption and reputation than banks operating on smaller capital markets. The cost of transmission is relatively low 3. Our evidence is that access to larger capital markets reduces banking costs by providing banks with more efficient means of risk management and reputation signaling, thereby providing the finance that banks need for higher production. Showed that you can save capital. especially:

Larger capital markets help banks improve borrower screening4, monitor investments more efficiently, and show risk attitudes through non- (and perhaps complementary) information on accumulated financial capital. Banks operating on systems with large capital markets have a lower capital-to-asset ratio than banks operating on smaller systems, providing the same reputation signaling effect as comparable protection against financial distress. Achieve.

Larger capital markets allow banks to manage their financial capital with relatively few non-financial resources. Banks may need to mobilize additional (non-financial) resources to manage and protect their financial capital in order to increase production and adjust their financial capital position accordingly.

In large capital markets with higher quality information and greater investor signal extraction capabilities, signals are more efficient and banks need to show a certain level of reputation or risk security. Financial capital can be saved.

Structural and policy implications

The evidence found is consistent with the conclusion that banks and capital markets are interrelated and mutually beneficial. Obviously, the externalities of information that arise from capital markets enhance the competitiveness of only the banks that are best suited to benefit from the efficient use of information, but inevitably for unequipped banks. I will impose a penalty. Similarly, banks investing in more information extraction and risk management capabilities are in high demand for cross-cutting risk sharing services and will expand into growing capital market operations compared to loan and deposit market consolidation. It is possible (Allen and Santomero2001). Dynamically, the development of capital markets will shift banks from activities that could be defeated by competition with non-bank services to activities that leverage complementarily with capital markets (Bossone et).

The presence of strong two-way bank capital market interconnects leads to important policy considerations.

Interconnection enhances the bank's special role as a credit assessor. This role is based on exclusive information that banks extract from borrowers (through lending relationships) in order to maintain the quality of their balance sheets. Therefore, banks should be motivated to strengthen their direct relationship with the borrower and deepen their internal knowledge of the borrower's business. Also, when securitizing a loan, the bank should be required to retain ownership of a significant (uninsured) share of the securitized loan. This forces banks to strengthen their incentives to maximize their information extraction and risk management capabilities and maintain their responsibility for sound credit quality analysis. Allowing the full disposal of a loan in progress weakens the bank's liability, which undermines the bank's signal power and distorts investment decisions.

On their part, investors need to be scrutinized for loans securitized, repackaged and marketed by banks and fully aware of the risks of loan packages. The original "credit message" should not be lost along the market chain. Information about the transparency of loan-structured products and the credit valuation capabilities of banks is critical to investors' ability to read bank signals without distortion. Investors need to perform a thorough credit analysis of structured products and, in some cases, extend it to their original assets to ensure they understand the product structure and its underlying assets. They need to supplement their external credit ratings with their own analysis and have a clear understanding of how rating agencies assign ratings to their products.

Favourable co-evolution of banks and capital markets requires the development of supportive financial infrastructure, including legal, institutional, information, markets, trading rules and technologies. With such developments, investors will have access to a wider range of risk sharing tools, will be attractive and will provide more information on alternative investment options. Reducing information costs and popularizing market valuation services make it easier to finance new companies and ideas. Incentives encourage investors to incorporate a relatively large amount of intangible assets and choose activities that are characterized by higher knowledge strength (Bossone et al. 2003).