BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

UNIT I

Overview of Indian banking system

2marks

1.Define banks.
According to the Indian Banking Companies Act , “Banking Company is one which
transacts the business of banking which means the accepting for the purpose of
lending or investment of deposits money from the public repayable on demand or
otherwise and withdrawable by cheque, draft, order or otherwise”.

2.What are commercial banks?

The accepting for the purpose of lending or investment of deposits of money from the
public repayable on demand or otherwise and withdrawable by cheque,draft and
order or otherwise

3.What are the NBFCs?

Non-bank financial companies (NBFCs) are financial institutions that

provide banking services without meeting the legal definition of a bank, i.e. one that
does not hold a banking license. These institutions typically are restricted from taking
deposits from the public depending on the jurisdiction.
4.What are the scheduled banks?

Scheduled Banks in India constitute those banks which have been included in the
Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those
banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of
theAct.
The banks included in this schedule list should fulfill two conditions.
1. The paid capital and collected funds of bank should not be less than Rs. 5 lac.
2.Any activity of the bank will not adversely affect the interests of depositors.

5.Who is banker?

Banker is one who in the ordinary course of his business,honours cheque drawn upon
him by person from and for whom he receives money on current account

6.Who is customer?

Customer is the person who has the habit of resorting to the same place or person to do
a business

7.What is balance sheet?

BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

A bank balance sheet is a record of the assets ,liabilities and networth of a bank at a
given period of time. assets=liabilities.

8.What is Net worth?

Difference between assets &liabilities and what is claimed by or owed to the

owners of the bank

9.What is repo rate& reverse repo rate?

Repo rate is the rate at which banks borrow money from the central banks with out any
sale of securities.

Reverse repo rate

The rate of interest at which the central bank borrows funds from other banks for
the short term durations.

10.Define discounting of bill.

Discounting the bills of exchange means the arrangements of making payments before
maturity of bills of exchange. The payment made by the bank to the holder of bill of
exchange before its maturity is the amount of loan. The discount charged is the earning
of the bank.

11.Write about bills of exchange?

It is an instrument in writing containing an unconditional order, signed by the maker,

directing a certain person to pay a certain sum of money only to, or to the order of, a
certain person or to the bearer of the instrument.

12.What is a negotiable instrument?

It is a written document which creates a rights in the favour of somebody and is freely
transferable by delivery

13.Write about cheque.

A “cheque is a bill of exchange drawn on a specified banker and not expressed to be

payable otherwise than on demand and it includes the electronic image of a
truncated cheque and a cheque in the electronic form.

14.Write a note on promissory note.

A ‘Promissory Note’ is an instrument in writing (not being a bank-note or a currency-

note) containing an unconditional undertaking, signed by the maker, to pay a certain
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

sum of money only to, or to the order of, a certain person, or to the bearer of the
instrument.

15.Overdraft

It is a short-term loan granted by commercial banks to their account holders. Under this
type of loan, the customers are allowed to draw more than what they have in their
current account up to a certain limit. The excess amount overdrawn is called overdraft.

16.Write about cash credit

Cash credit is a very common form of loan granted by commercial banks to

businessmen and industrial units against the security of goods. The loan granted under
this head is credited to current account opened in the name of borrower. The borrower
can withdraw money through cheques according to his requirement. The interest is
charged on the amount actually withdrawn by the borrower.

17. Write a note on lien &set off.

Lien is the right of a creditor to retain the goods &securities owned by his debtors until
the debt is repaid

Set off:

Same name and same right, both the accounts must held in the same name & in the
same capacity. this is to avoid misuse of funds belonging to someone else but standing
in the name of the customer

18.Write about call money.

Call money is short-term finance repayable on demand, with a maturity period of one
to fifteen days, used for inter-bank transactions. The money that is lent for one day in
this market is known as "call money" and, if it exceeds one day, is referred to as "notice
money.

19.What is mean by authorized, subscribed, paid up capital

Authorized capital

It is the total of the share capital which a limited company is allowed to issue. it
presents the upper boundary for the actually issued share capital.

Subscribed capital - it is the portion of the issued capital which has been subscribed
by all the investors including the public.

Paid up share capital-Is the amount of share capital paid by the shareholders. This may
be less than the called up capital as payments may be in installments
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

20. What is a negotiable instrument?

It is a written document which creates a rights in the favor of somebody and is freely
transferable by delivery.

8 marks

1. Briefly explain the functions of banks.

2. Explain about the rights and obligations of a banker.
3. Explain the relationship between income statement & balance sheet.
4. Discuss the relationship between banker and customer

15 marks

1. Briefly explain about the evolution of banking sector& banking reforms.

2. Draw the structure of banking system and explain in detail.
3. Explain about RBI act and its provisions.
4. Briefly explain about banking regulation act.
5. Explain the concepts of negotiable instruments and it’s types
6. Elaborate the financial statements& income statements of banks.
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

UNIT II
SOURCES &APPLICATION OF BANK FUNDS

1.What Is Capital Adequacy?

CA framework is that a bank should have sufficient capital to provide a stable

resources to absorb any losses arising from the risk in its business

2.Write a note on application of bank funds.

The application of funds is part of the funds statement which shows the various uses of
the firms working capital or other funds easily converted into cash.

3.What is deposit?

It is a sum of money paid into a bank (or) building society account.

4.What are the types of non-deposit sources

 Call & notice money

 External commercial borrowings(ECB)
 Export refinance

5.What is call & notice money?

Call money is short-term finance repayable on demand, with a maturity period of one
to fifteen days, used for inter-bank transactions. The money that is lent for one day in
this market is known as "call money" and, if it exceeds one day, is referred to as "notice
money.

6.What is ECB?

Commercial loan in the form of bank loan,buyer’s credit,supplier’s credit,fixed rate of

bonds taken from non-resident lenders with a minimum maturity period of 3years.

7.What is mean by cost plus margin pricing?

Banks determine deposit rateCost of offering services plus small profit of margin formula:
operating expenses per unit of deposit service Estimated overhead expenses allocated
to deposit function planned profit from each deposit unit.

8.What is mean by market penetration deposit pricing?

Based on market share (or) Growth of market,the rate is fixed

BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

9.What are the types of lending?

 Fund based lending,

 Non fund based lending,
 Asset based lending.

10.What do you mean by lending?

It is a primary functions of bank and as well as receive the deposits and provide the
loan to their customers

11.What is off balance sheet?

Some assets or debt is not appeared in the balance sheet.items that are considered
off balance sheet are generally ones in which the bank does not have legal claim or
responsibility for
12.What is unsecured loan?
They are the monetary loans that are not secured against the borrowers assets.
13.Write a short note on bankruptcy.

Bankruptcy is a legal status of a person or other entity that cannot repay the debts it
owes to creditors

14.What is project financing?

The raising of funds required to finance an economically separable capital investment

proposal in which the lenders mainly rely on the estimated cashflow from the project to
service their loans.Ex: highways

15.What is credit analysis?

It is the quantitative and qualitative analysis of a bank which help to determine the
banks debt service capacity.

16.What are mean by fund based lending and its types?

Bank commits Physical outflow offunds.

a. Types of FBL:
b. Loans
c. Cash credit
d. Overdraft
e. Purchase of bills of exchange
f.
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

17.What is Overdraft or BOD or bank over draft

An arrangement whereby the bank allows the customers to overdraw from its current
deposit account.Security (assets& personal)&Charging of interest.

18.Meaning -Letter of credit

A binding document that a buyer can request from his bank in order to guarantee that
the payment for goods will be transferred to the seller

19.What is asset based lending.

Which the asset being bought (inventory, land or machine) is used as collateral.

 Quality of the collateral

 Off balance sheet financing

20.What is project financing?

The raising of funds required to finance an economically separable capital investment

proposal in which the lenders mainly rely on the estimated cash flow from the project to
service their loans.Ex: highways

21.What is securitization

It means to covert an asset into marketable securities for the purpose of raising cash or
funds.

22.What are the different types of loans

 Loans for working capital

 Loan for capital expenditure &industrial credit
 Loan for syndication
 Loan for agriculture
 Loans for infrastructure – Profit finance
 Loans for customers(or) retail lending

23.Major components of typical loan policy document.

 Loan objectives
 Volume &mix of loans
 Loan evaluation Procedure
 Credit administration
 Credit files&Lending rates
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

24.What is mean by Credit management

Credit risk management process should cover the entire credit cycle starting from the
organization of the credit in a financial institution to the point the credit is extinguished.

25.What is credit delivery and administration

Credit delivery: it involves the tradeoff between the perceived default risk of the credit
applicant and potential returns from granting requested credit.

Creditadministration (Preparation of loan agreement, Renewal notices are sent

systemmatically&Updation of credit files)

26.Pricing of loans process

Step: 1 Arrive at cost of funds

Step: 2 Determine servicing cost for the customers

Step: 3assess the default risk &enforceability of risks

Step: 4fixing the profit margin

27.What is customer profitability analysis

It is a loan pricing method that takes into account the lender’s entire relationship with
the customer when pricing the loan

28.Types of investment

 SLR investment
 Non SLR investment

29.Write a note on application of bank funds.

The application of funds is part of the funds statement which shows the various uses of
the firms working capital or other funds easily converted into cash.

8 marks

1. Briefly explain the concept of capital adequacy.

2. Explain about the rights and obligations of a banker.
3. List out the major components of a loan policy document.
4. Explain about credit analysis process.
5. Write a note on credit delivery administration
6. Difference between cash credit &overdraft
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

7. Briefly explain customer profitability analysis.

15 marks

1. Briefly explain about deposit& non deposit sources.

2. How to designing a deposit scheme with illustration.
3. Explain about different types of loan and it’s features.
4. Explain about various pricing of loan.
5. Briefly explain about different types of lending in detail.
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

UNIT III

CREDIT MONITORING &RISK MANAGEMENT

1.What is credit monitoring?

The credit monitoring in a bank is to ensure that the funds are utilized for the sanctioned
purpose and at the same time complying with all sanction terms &conditions.

2.List out the needs of credit monitoring.

 Accurate & comprehensive credit reports

 Account details
 Significant events
 An Extra set of Eyes

3.What is Sickness at birth?

The project itself has become infeasible either due to faulty assumptions or a change
in environment

4.Write about Induced sickeness.

caused by the management in competencies (or) willful default.

5.Describe Genuine sickness

Where the circumstance leading to sickness are beyond the borrowers control has
happened inspite of the borrowers sincere effort to avert the situations

6.List out financial distress model.

 Alman’s Z model

 ZETA

 EMS

 GAMBLER model

7. Rehabitalization

Banks to detect the sickness at an early stage and facilitate corrective action for revival
of the firm

8. write a note on Risk

It is a condition where there is a possibilty of an adverse deviation from a desired

outcome that is expected or hoped for it.
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

9. Define risk

possibilities of adverse results flowing from any circumstances.

10 Define risk management

According to Jorion,risk management is the process by which various risk

exposures are identified, measuredand controlled.

11.Write about Interest rate risk(IRR)

It is the exposure of a banks financial condition to adverse movements in interest

rates.

12.What is Liquidity risk

It is a risk that a company or bank may be unable to meet short term financial
demands.this is usually occur due to the inability to convert the securities or assets to
cash with out loss of capital or income in the process.

13.How to calculate NPA?

NPA’s = gross or net NPA’s

Total Advances * 100

Net NPA’s = gross NPAs- Provisions for NPA’s

14.Write a note on forex risk

It is the variability of domestic currency values of assets,liabilities or operating incomes

due to unanticipated changes in exchange rate

15.Write a note on credit risk

Credit risk is risk due to uncertainty in a counterparty (also called an obligators or

credit)ability to meet its obligations .

16.What is credit rating

It is the assessment of a borrowers credit quality.

17.Write about market risk

It is the risk of losses due to movements in financial market variables.these may be

interest rates,foreign exchanges rates, security prices.
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

18.What is operational risk?

It can be summarized as human risk. It is the risk of business operations failing due to
human error.

19.write about solvency risk/capital risk

It is a risk that is bank may become insolvent &fail.it is the potential decreases in the
market value of assets below the market value of liability,indicating economic worth is
zero or less.

20.Write about price risk

A seller who wants to sell it in the future is thus concerned about the potential fall in the
price and a reduction in the realization or profits of the transactions.

21.What is foreign exchange risk?.

it is the exposure of an institution to the potential impact of movements in foreign

exchange rates.

22.List out the types of foreign exchange risk

 translation exposure.
 economic exposure
 transaction exposure.

23.Write about country risk.

A domestic banking institution may transform itself in to an international one when it

starts lending across its borders are invests in instruments in issued by foreign business

24.Describe the termValue at risk (VaR)

 it measure the potential of economic losses

 VaR corresponded to a presently of portfolio P&L
 And can be expressed as potential loss from the current value of the portfolio or
as the loss from the expected value at the horizon.

25.Write about Operational risk

Operational risk can be summarized as human risk; it is the risk of business operations
failing due to human error.
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

8 marks

1.W hy we need credit monitoring?

2.List out &explain about signals of borrowers financial distress.

3.W rite about risk management&explain the various types of risk.

4.Explain about risk measurement process.

5.Briefly explain about the term NPA

16 marks

1.Briefly explain financial distress prediction model.

2.Explain the various steps involved in rehabitalization process.

3. Briefly explain about different types of risks and its mitigation.

4.Explain about ALM& its components

5.Describe the procedure of ALM.

6.Explain the debt restructuring for sick companies.

BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

Unit iv
MERGERS,DIVERSIFICATION AND PERFORMANCE EVALUATION

1.Define merger

It is a voluntary amalgamation of two banks on roughly equal terms into one new legal
entity.

2.Write about diversification.

Spreading a banks assets(loans)over a wider assortment of quality borrowers,to

maintain or improve earning levels while maintaining of same level of exposure

3.What is volatility

Volatility is limited by the fact that not all asset classes or industries or individual
companies move up and down in value at the same time or at the same rate.

4.List out the Benefits of diversification

 Lower cost of capital

 Economic gain

 Increases managerial efficiency

 Increase in market power

 Reduce earnings volatility

5.write a note on Securities market/capital market

 According to khan it is a market for a long term funds.it focus is on financing of

fixed investments in contrast to money market which is the institutional source of
working capital finance.

6.list out the regulators of securities market

 Department of economic affair(DEA)

 Department of company affair(DCA)

 RBI

 SEBI
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

7. Write about Day order

Order to buy or sell at a specific price or better, the order expires at the end of the day
unless executed.

8.What is Good till cancelled (gtc)

This orders are must be confirmed semi annually, the dates on which the confirmation
periods end shall be prescribed by the exchange.

9. Write a note on Not held order

This type of order gives discretion to the floor brokers as to time and price. the floor
broker uses his best judgement concerning the proper time to bid for stock(buy) or offer
stock(sell)during the auction process.

10,Describe the term Participate but do not initiate(PNI)

The customer usually gives this type of order to the broker when she has a large order to
buy or sell.

11.What is Primary market/new issue market

The primary market represents the new issue market where new securities. Both new
companies &existing ones can raise capital on the new issue market.

12.Write a note on Secondary market/ Stock exchange

It is one important constitute of capital market. stock exchange is an organized market

for purchase &sale of industrial &financial security.

13 What do you meant by underwriting?

Underwriting is an agreement entered into before the shares are brought before the
public that in the events of the public not taking up the whole of them the underwriter
will take an allotment of such part of the shares as the public has not applied for .

14. List out the Types of risks under underwriting

 Preferred Risks
 Standard Lives
 Sub-standard Lives
 Declined Lives
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

15.Define mutual fund.

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal.The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities.

16.Draw a diagram on Mutual fund flow chart

Investors

Return Fund

Securities

17.Write about Open&closed ended Schemes

• Open ended Schemes are schemes which offers unit for sale without specifying
any duration for redemption. They sell and repurchase schemes on a continuous basis.

• Closed ended schemes are the schemes in which redemption period is

specified.Once the units are sold by mutual funds, then any transaction takes place in
secondary market only i.e stock exchange.Price is determined by forces of market.

18. What is Money market Funds?

• Money market / liquid funds invest in short-term (maturing within one year)
interest bearing debt instruments. These securities are highly liquid and provide safety of
investment, thus making money market / liquid funds the safest investment option when
compared with other mutual fund types.

19.Write about ISS

• Industry Specific Schemes invest only in the industries specified in the offer
document. The investment of these funds is limited to specific industries like Infotech,
FMCG, Pharmaceuticals etc
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

20.What is sectorial funds?

Sectoral funds are those mutual funds which invest in a particular sector of the market,
e.g. banking, information technology etc.

21.Write a note on insurance.

The undertaking by one person to another person against loss or liability for loss in
respect of a certain risk or peril to which the object of the insurance may be exposed,
or to pay a sum of money or other thing of value upon the happening of a certain
event and includes life insurance”.

29.How to calculate CAR?

tier one capital + tier two capital

CAR=

risk weighted assets

30.Write a note on Stress testing

Marketing value of a portfolio varies due to movement of market parameters such as

interests rates ,market liquidity, inflation , exchange rate , stock prices , etc…….,

31.List out the Techniques of stress testing

 Simple sensitivity test:- short term impact of portfolio value.

 scenario analysis:- Risk factors simultaneously.

 Maximum loss:-identifying the most potentially damaging combination of moves

of market risk factors

32.write a note on bancassurance?

It meaning selling the insurance products through banks.banks and insurance come
up in a partnership wherein the bank sells the tied insurance company’s insurance
products to its clients.

8 marks

1.List out the advantages &disadvantages of M&D

2.Explain the characterstics of insurance business.

3.Difference between life insurance &general insurance

BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

4.Discuss underwriting process

5.List out the types of mutual fund

6.List &explain the various risks associated with insurance business

7.Explain about trading procedure in stock exchange.

16 marks

1.Briefly explain about mergers & diversification into securities market.

2.Explain about underwriting process

3.Discuss about securities market

4.Briefly explain about components of camels rating.

5.Discuss the various measures of ratio analysis

General questions

1.Explain recent trends in M&d?

2.Explain about bancassurance

3.List out recently merging bank of india

Sums

1.Balance sheet(with or without adjustment)

2. Profit&loss account(with or without adjustment)

3. Ratio analysis

4. Capital adequacy ratio with interpretation

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BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

Unit v

HIGH TECH E-BANKING

1.Write about payment system.

According to BIS “A payment system consist of instruments, banking procedures and

typically interbank funds transfer that ensures and facilitate the circulation of money. In
essence, it facilitates corporation, businesses and consumers to transfer funds to one
other”.

2.Write a note on Real Time Gross Settlement(RTGS).

system is a funds transfer mechanism where transfer of money takes place from one
bank to another on a 'real time' and on 'gross' basis. This is the fastest possible money
transfer system through the banking channel.

3.Write about real time.

Settlement in 'real time' means payment transaction is not subjected to any waiting
period. The transactions are settled as soon as they are processed.

4.What is gross settlement?

'Gross settlement' means the transaction is settled on one to one basis without
bunching with any other transaction

5.Describe NEFT

The national electronic fund transfer (NEFT) system is a nation-wide system that
facilitates individuals, firms and corporates to electronically transfer funds from any
bank branch to any individual, firm or corporate having an account with any other
bank branch in the country.

6. Write a note on Indo-Nepal Remittance Facility

Indo-Nepal Remittance Facility is a cross-border remittance scheme to transfer funds

from India to Nepal, enabled under the NEFT Scheme.

7.Describe the term inter mobile payment system.

Inter Mobile Payment system (IMPS) It is a service through which money can be
transferred immediately from one account to the other account, within the same bank
or accounts across other banks.
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

8.Write about Electronic Clearing Service (ECS Credit)

Known as “Credit-push” facility or one-to-many facility this method is used mainly for
large-value or bulk payments where the receiver’s account is credited with the
payment from the institution making the payment.

9. What is Electronic Clearing Services (ECS Debit)

• Known as many-to-one or “debit-pull” facility this method is used mainly for small
value payments from consumers/ individuals to big organizations or companies.

10.What is E-payment ?

E-payment as defined as electronic payment is subset of an E-commerce transaction. It

includes electronic payment for buying/selling or services which are offered on the
internet.

11.List out the various e-payment methods

12.Write about e-cash concept

BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

13.Write a note onElectronic cash.

It is defined as Electronic cash. It is an internet based system generated by a

computer.It allows fund to be transferred items should be purchased by debit/credit
card, cheque or money order.

14,write a note on debit&credit card

A debit card is a plastic card that provides the card holder electronic access to his
bank account to withdraw cash or pay for goods and services.

credit card is a card issued by a financial company giving the holder an option to
borrower funds.

15.Write about micropayment

A micropayment is an E-commerce transaction involving a very small sum of money in

exchange for something made available online. such as application download, a
service web based content etc

16.What is EFT?

Electronic banking, also known as electronic funds transfer (EFT), is simply the use of
electronic means to transfer funds directly from one account to another, rather than by
check or cash.

17.Write about plastic money

Plastic money or ploymer money, made out of plastic, is a new and easier way of
playing for goods and service.

18.What is chargecard&photo card&global card?

A Charge card is mean f obtaining a very short – term (usually around 1 month) loan for
a purchase

PHOTOCARD
If customer photograph is imprinted on a card, then it is knows as photo card.

GLOBALCARD
A Very special GOLD VISA CARD with all its prestige, and additional service
especially designed for people looking for peace of mind in their second home.

19.Write about virus

A computer virus is software that affixes itself to another program like a spreadsheet or
word document
BA7026 BANKING FINANCIAL SERVICES MANAGEMENT

20.What is Trojan?

Unlike viruses, Trojan do no replicate themselves and do not need a host program to
attach to .

21.What is key logger?

If fraudster installs a software called “key logger” on the computer or the device on
which the customer in accessing online banking, the software copies to a file, every
keystock typed on that PC.

8marks

1.Describe Real Time Gross Settlement&National Electronic Fund Transfer(NEFT)

2. Write about Paper based payments

3. List out the Types of E-payment system

4. Write about Electronic Banking

5 .List out the factors affecting utilization of plastic money

6. List out the Different Forms Of Plastic Money

16 marks

1.Explain about payment system in india.

2.Describe the term PLASTIC MONEY
3.How toForecasting of cash demand at ATM
4. Briefly explain about Security threats in e-banking & RBI initiatives regarding threats

General questions

1.How ATM works?

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