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Semester-3
Finance
Course
Handouts
IBS Hyderabad
Academic Year (2017 – 2018)
Course Handout
Course Title Banking Management
Semester III
Credits 3
Course Objective:
The purpose of this course is to provide the students an essential exposure to the subject of banking that plays a critical role in the financial system. The course is
designed in such a way as to provide all the required inputs for an understanding of Indian banking system and its management. The Course attempts to throw light on
the topics of contemporary as well as that of scholarly interest.
To provide a managerial perspective by an understanding of the working of the Indian Financial System, the origin and growth of Banking, the importance of
Banker Customer Relationship.
To develop managerial skills by understanding and analyzing as to how the banks mobilize their resources and deploy them for profit maximization.
To develop exploratory skills providing useful insights about the techniques of deposit management, Use of Cheques, The importance of Cash management,
Lending Activities, Financing SMEs and the Significance of Credit Policy.
To inculcate innovation practices by knowing about the innovative approaches in different areas of banking such as Retail Banking, Corporate Banking, Rural
Banking, Microfinance, etc.
To explain how pricing is done for deposit and Loan products
To familiarize with various fee-based Services and Plastic Money.
To create awareness about the importance compliance mechanism and to know how the Banks are monitored by Internal Control Mechanism and governed
by various Acts such as RBI Act, BR Act, and NI Act, etc.
To create an awareness about non-performing assets and importance of recovery management.
To make the students aware about risk management and Basel frame work.
Learning Outcomes:
At the end of the course, the student would enhance his/her knowledge of banking and finance industry and gain the required capabilities for assuming the position
of a bank manager.
Pre-requisites:
Recommended Text Book: Banking Principles and Operations by M.N.Gopinath, Snowwhite Publications Pvt Ltd, Mumbai 4th Edition
Suggested books:
1) Bank Management & Financial Services by Peter S Rose and S C Hudgins
2) Commercial Bank Management by Kanhaiya Singh & Vinay Dutta
Reference materials:
1. Bank Quest Published by The Indian Institute of Banking And Finance
2. The Indian Banker Published by The Indian Banks’ Association
3. Websites of RBI, IBA And IIBF
Managing Deposit products To explain students : At the end of the session the Model Deposit
student would be able to Textbook Ch-4 Products and
Concept of savings: describe Types of Procedures by
Types Deposit Products offered by Current deposits, Savings deposits,
Banks(Demand, Term, recurring, Deposits Indian Banks’
and term deposits. Association
transaction type deposits, Hybrid the various types of
Concept of nomination and its Text book Ch-5, (IBA)
deposits, tailor made deposits), deposit products and
significance in deposits Account
Procedure to open a deposit account, related operational
Concept of deposit insurance. opening
Nomination formalities.
Concept and features of operational
Deposit insurance Deduction of tax on
5 5 instructions by customers to banks
Deduction of tax at source(TDS) interest payment
Deduction of tax at source,
Operational instructions - operations Concept behind renewal, extension,
jointly, severally, letter of mandate, power premature closure of deposits.
of attorney etc. The law and practice in settlement of
Renewal and extension, premature claims of depositors
closure of Deposits, Unclaimed Deposits. Settlement of death
Unclaimed Deposits. claims
Settlement of death claims TDS.
Pricing of different types of deposits The students will
Explain pricing of various Material from
Interest rates offered on different types of deposit products “Bank
deposits Calculate Interest rates Management &
paid on different types of Financial
Deposit mix, deposits Services” by
6 6 Pricing of Deposits Importance of CASA deposits, Explain significance of P.S. Rose & S
Deposit mix C Hudgins, Ch-
Calculation of Interest on Deposits (SB, 12
RD, FD)
Bank Guarantee
ICMR CASE
To explain At the end of the session impact of
Core Banking, the student would be able Ch-10 and Technology in
Cash dispensers, ATMs to describe the new Ch-15 of Text Banks- Bank
Home banking (Corporate and technological aspects in book : Service Quest- Oct-Dec-
personal), present day banking in Channels & 2010
Online/Internet banking India and aboard. operations By IIBF
22 Technology in Banking management
23 Electronic Payment systems
ECS(Credit), ECS(Debit), EFT, RTGS,
NEFT,
Cheque truncation,
MICR technology,
Tele banking/Mobile Phone banking,
DSA/DMA
To explain The student will be able to Ch-15 of
Innovations in Banking
Describe innovative Textbook
23 Innovative products and Services products offered by banks (
Product and Service innovation offered by banks deposits and loans basing
Channel innovation New and innovative banking Channels on the needs of the
24 Internal process innovation customers)
CRM,
Payment Innovation Explain innovative banking
Predictive analytics
Analytics channels apart from
Green banking, branch banking
Green banking,
Explain the importance of
CRM in banks
Explain usefulness of
analytics in banking
To explain
Remittance of funds: D.D/MT/PO
Collection of Cheques and Drafts
Clearing House At the end of the session
TextbookCh10 &
the student will be familiar
Safe Deposit lockers and safe Ch-14 of Text
24 with various types of Para
Para Banking Services and custody articles book
25 banking business that aid
Innovations Banc assurance
the income of banks and
Sale of mutual funds
provide a variety of service
IPO/FPO selling platforms
Leasing
Factoring
Venture Capital
Documentation
At the end of the session
Stamping of documents TextbookCh-17
the student will be familiar
Execution of documents (Security)
with the typical aspects of
25 26 Legal aspects of Lending Charge creation(Lien, Assignment,
bank lending that is
Hypothecation, Pledge, Mortgage),
essential to legally protect
Charge registration(ROC)
the interests of banks
Limitation Act
To explain At the end of the session Innovations in
Recovery Management Importance of Loan recovery the student would be to Ch-17 (Risk Recovery
Importance of Recovery Prudential norms of Income recognition describe the importance of Management, Management -
Assets classification ( recovery management in Income - Bank Quest- Oct-
26 Prudential norms of Income recognition Standard, Sub Standard, Doubtful, Loss banks and explain the recognition, Dec-2010
27 Assets classification Assets) and Provisioning, Stress Assets prudential norms Asset
Repayment Culture Classification) RBI document on
Repayment Culture Nursing and Rehabilitation, CDR, SDR, Explain Nursing & prudential norms :
Nursing and Rehabilitation, OTS DRT, Lok Adalats rehabilitation rbi.org.in
Legal measures of Recovery Explain DRT and Lok
Adalat
To Explain At the end of the session
the student would be able TextbookCh-16
Securitization & Asset The Securitization and Reconstruction of to describe securitization, Retail Credit –
27 Financial Assets and Enforcement of Securitization
28 Reconstruction, Bankruptcy Asset Reconstruction, and
Security Interest Act, 2002 (SARFAESI), Enforcement of Security
Act Insolvency, IBBI, Bad bank without the intervention of
the Court
To explain
Salient features of RBI Act & B.R. Act At the end of the session
Regulatory Frame Work Supervision of the Indian banks – the student will describe
Textbook Ch24 :
offsite and onsite various regulations – BR
28 Regulatory
29 CAMELS –vs- Risk based Act and RBI act
RBI Act 1934, Banking supervision Explain Onsite and off-site
Environment-
Regulations Act 1949, Onsite and General
Off-site surveillance
To explain,
Basel framework and
At the end of the session
regulatory Capital Basel (I, II and III) norms and its impact on the student would be
TextbookCh-25
30 Indian banking familiar with the revised
29 Basel I/II/III guidelines Regulatory Capital capital regulations in banks
Managing of bank Capital CAR based on Basel guidelines
CAR
The Ombudsman
At the end of the session
Scheme- 2006
the student will be familiar
Customer Service in banks Goiporia & Damodaran Committee Textbook Ch-22 Damodaran
with the importance of
32 33 recommendations,
customer service in banks
: Customer Committee
Ombudsman scheme Service
and the various norms and
Consumer Forums RBI WEBSITE-
recommendations
https://www.rbi.org.in/
HBS = 7
ICMR= 5
Total Sessions = 33 Total no. of Cases RBI & other documents =11
Evaluation Timeline:
Component Component Expected slot/ Due date Marks declaration by Weightage
Number
Class Participation 1 Session 11 Session 11 10
Class Participation 2 Session 22 Session 22 10
Class Participation 3 Session 33 Session 33 10
Test-1 1 Session 10 Real time 10
Test-2 2 Session 19 Real time 10
Test-3 3 Session 31 Session 32 10
End exam At the end of the semester 40
Total 100
Course Objective:
1.To introduce investment banking their role of investment bankers in the areas of assisting the
individuals, corporations, and governments in raising financial capital by underwriting or acting
as the client's agent in the issuance of securities (or both) and the other ancillary services provided
by them
2. To introduce different methods of firm and equity valuation using 1. Asset-Based Approaches
3. To introduce Blackstone Celanese simulation to the class to apply to practical situation gives on
hand experience on valuation
4 To provide the students with conceptual foundation in the realm of investment banking with in-
depth discussion of regulations
Learning Outcomes:
At the end of the course, the student will be able to:
1. Gain an understanding of the role of investment bankers in financial sector
2. Appreciate the difference between price and value.
3. Students will understand how valuation is to be done and different models of valuation
4. Through simulation technique students will be gain practical exposure to apply valuation
principles.
5. Students will understand the regulations of investment banking
Recommended Text Book: Investment Banking: Valuation, Leveraged Buyouts, and Mergers
and Acquisitions, University 2nd Edition by Joshua Pearl, Joshua Rosenbaum, Wiley Publishers
Suggested books:
1. Damodaran on Valuation: Security Analysis for Investment and Corporate Finance by Aswath
Damodaran
2. Investment Banking Explained: An Insider’s Guide to Industry by Michel Fleuiret
3. Investment Banking: An odyssey of high finance by Pratap G Subramanyam
Evaluation scheme:
Course Objective:
The role of private players & government on different facets of capital markets.
Learning Outcomes:
Role & features of instruments, issuers, investors, intermediaries and regulators in the development of capital markets.
Affects of crisis & recessions on capital markets & role of government in times of crisis.
* International Capital
Markets and Sovereign Debt:
Crises Avoidance and
Resolution (9-707-018)
* Origin of global capital markets
Overview of Market *The role of investors, issuers, instruments, and
* IDFC India - Infrastructure
8 Participants and Financial intermediaries in the development of capital markets 1,2,3,4,5,6
Investment Intermediaries (9-
Innovation * Role & Functions of Depository Institutions, Asset
210-050)
Management Firms & Investment Banking Firms
* The Role of Capital Market
Intermediaries in the dot-com
crash of 2000 (9-101-110)
NCP - I
NCP - II
* Lehman Brothers and the
Market for Interest rate * Credit Derivatives & CDO's : Market for Credit Risk securitization of American
1 32
risk transfer vehicles Transfer Vehicles express Charge Card
Receivables (9 – 293- 121)
* PIMCO & West bridge
Articles & White papers
Text Book: Fabozzi, F. J. & Modigliani, F. Capital Markets: Institutions and Instruments. 4th Edition, Prentice Hall India, New Delhi, 2009. (FM)
Evaluation Timelines
Is Managing Partner of a SEBI registered Investment Advisory firm managing long term
equity portfolios for clients.
Has relevant experience of 10 yrs in Indian capital markets.
The ability to demonstrate concepts and ideas using interactive models is an important skill for
finance professionals. In this course, students will develop this skill by building interactive,
foolproof, and well documented models with Microsoft Excel.
Grading
The course grade will be based on six projects:
Project Weight
1. Capital Budgeting 10%
2. Bond Valuation and Interest Rate Sensitivity 15%
3. Optimal Capital Structure 15%
4. Forecasting Financial Statements and Valuation 15%
5. Financial Planning 20%
6. Portfolio Selection 25%
Students will work on the first five projects in teams of two or three. The last project will be
worked on individually. Each project will last about two weeks. At the completion of each
project a team will be picked randomly and asked to make a 15 minute presentation of its model
to the class.
Teams will be changed randomly every project. Anonymous peer evaluation will be conducted
after each project and will be an important factor in determining the course grade.
Prerequisites
Specifically, Instructor will assume that students are familiar with financial theories and concepts
related to the projects.
Instructor will assume that students have intermediate level skills in Microsoft Excel (building
formulas, relative and absolute addresses, basic statistical and mathematical functions, lookup
and if functions, naming ranges, charting). Advanced techniques will be explained in the course.
Materials
There is no required textbook for this course. A list of recommended financial modeling texts
and websites will be provided. For finance knowledge, students consult finance books and web
sites. For Excel, students use video tutorials on YouTube or on my web site.
Catalog Description
Build models for financial statement analysis, valuation, capital budgeting, capital structure,
portfolio selection, interest rate risk, option valuation, and other areas of finance using a
computer tool such as Microsoft Excel.
Synopsis
The ability to demonstrate concepts and ideas using interactive models is an important skill for
finance professionals. Financial models allow finance professionals to gauge the effect of
important decision variables and parameters on the final outcome. Many finance books come
with pre-programmed models which allow students to solve some problems and do what-if
analyses. These models expose students to the power of financial models, but do not teach them
how to build models that will be used by others. Most graduates end up having to learn this skill
on the job through trial-and-error and a lot of hard work. This course is intended to fill that gap.
Financial models can be built using programming language such as C++ or applied software
such as MatLab and Microsoft Excel. In this course, students will build interactive, fool-proof,
well documented models using Microsoft Excel starting with a blank workbook.
Learning Objectives
By the end of the course, student will learn
1. to break down a financial problem into manageable pieces
2. to build well documented, fool-proof, interactive financial models
3. to perform what-if analysis
4. the subtler aspects of finance
Topics
We will design and implement the following financial models:
D01. Stock Valuation
P01. Capital Budgeting
P02. Bond Valuation and Interest Rate Sensitivity
P03. Optimal Capital Structure
D02. Option Valuation
P04. Forecasting Financial Statements and Valuation
P05. Financial Planning
P06. Portfolio Selection
Students will work on six projects.
Materials
There is no required textbook for this course. The following three books are strongly
recommended.
o Simon Benninga, Financial Modeling, Latest Edition.
o Chandan Sengupta, Financial Modeling Using Excel and VBA, Latest Edition.
o Mary Jackson and Mike Staunton, Advanced Modelling in Finance using Excel and
VBA, Latest Edition.
o Software: We will use Microsoft Excel 2010 for this class. The student will also need
to access data from other sources, primarily Yahoo! Finance
(http://finance.yahoo.com).
o Websites: A list of websites for finance, financial modeling and Excel will be given
to the student.
Course Format
The objective of this course is to give students guidance and experience in designing financial
models intended for use by other finance professionals (\users"). As the model builder, students
have to not only known the theory and subtle details underlying the model but also the ways in
which different users may use it. The model should be correct, fool-proof, well documented, and
aesthetically pleasing. Due to the aesthetic considerations the model design process becomes part
science (or math) and part art, much of which can be learned and developed by practice. This
course provides a forum for this learning and development.
Instructor will use the first week of the semester to demonstrate the model building process for
stock valuation. In the middle of the semester, Instructor will use another week to demonstrate
the option valuation model. In the rest of the classes, student teams will work on their projects. In
every class in which students work on their projects, Instructor will take the first few minutes to
review and explain the project and provide ideas and hints and then walk around assisting
student teams in their projects.
Session Plan
Session No(s) Topics to be covered
1-2 D01 (Demo 1) - Stock Valuation
3-6 P01 (Project 1) - Capital Budgeting
7-11 P02 (Project 2) - Bond Valuation and Interest Rate Sensitivity
12-16 P03 (Project 3) - Optimal Capital Structure
17-18 D02 (Demo 2) - Option Valuation
19-23 P04 (Project 4) - Forecasting Financial Statements and Valuation
24-28 P05 (Project 5) - Financial Planning
29-33 P06 (Project 6) - Portfolio Selection
Evaluation
The evaluation will be based on 6 graded projects and one end semester examination:
Project Weights
P01. Capital Budgeting 10%
P02. Bond Valuation and Interest Rate Sensitivity 10%
P03. Optimal Capital Structure 10%
P04. Forecasting Financial Statements and Valuation 10%
P05. Financial Planning 10%
P06. Portfolio Selection 10%
Project Guidelines
Projects must be submitted before the class start time on the due date at my email
(kwadhwa@ibsindia.og). Late projects will be assessed a 25 point penalty (out of a total
of 100 points).
The project should be submitted in one Excel file named PXX-TeamYY, where XX is the
project number (01, 02, etc.) and YY, is the team number (01, 02, etc.) For example, the
file for Project 3 for team 7 should be named P03-Team07.
Every project file must have a cover sheet showing the team and project numbers, names
of the team members, and some other information.
Project Grades
Each project will be graded out of 100 points. Instructor will grade the projects using the
following four criteria:
Correctness (70 points): To be considered correct, the model's logic should be
implemented correctly and the spreadsheet should work as intended, i.e., should not result
in errors or give wrong answers in response to user interaction. To ensure that your model
is correct, do a lot of testing of the model.
Documentation (10 points): To be considered well documented, there should be a
description of the project for the user which should explain the purpose of the model, the
various aspects of the model, how it works, how to use it, and how to interpret the results.
There should also be documentation of technical aspects of the model so that someone
trying to evaluate the model is able to understand how the model's logic has been
implemented. The documentation can be provided in many different ways, e.g., text in
cells, textboxes, cell comments, or embedded MS Word documents.
Layout (10 points): To be considered well laid out, the spreadsheet should be
aesthetically pleasing, not too busy, and have a logical and easy to follow structure. By
the way, too many colors and fonts is not my idea of a well laid out spreadsheet.
Innovation (10 points): To be considered innovative, the model should use some
extension (conceptual or software related) not presented in the class.