MA0038 – BANKING OPERATIONS

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ASSIGNMENT

 

DRIVE SUMMER 2014
PROGRAM MBADS – (SEM 3/SEM 5) / MBAFLEX / MBAN2 – (SEM 3)
SUBJECT CODE & NAME MA0038-BANKING OPERATIONS
SEMESTER 3
BK ID B1616
CREDITS 4
MARKS 60

 

 

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

 

 

  1. 1 David is a money lender and lends money to the needy. Will David lend money charging market rate of interest or more? Explain the intermediation process of banks.

 

Ans : Differences in lending :

 

David will lend money at more rate of interest. This may be in the form of loans or mortgages. Alternatively, they may lend the money directly via the financial markets, which is known as financial disintermediation.

Along with choosing a loan, you should consider the variety of loan sources as they each offer advantages and disadvantages depending on loan amount, interest rate, down payment amount, and many other factors. Major categories of mortgage lenders include:

 

  1. Commercial Banks:

 

Commercial banks offer attractive loan terms that can be enhanced by your banking relationship with them.

 

 

 

 

  1. 2 Assess the business potential for opening an extension counter of your bank in a medical college. List the possible benefits and infra requirements for the branch.

 

Ans : Possible benefits :

 

Rapid growth and wide popularity of branch banking system in the 20th century are due to various advantages as discussed below.

 

  1. Economies of Large Scale Operations:

 

Under the branch banking system, the bank with a number of branches possesses huge financial resources and enjoys the benefits of large-scale operations,

 

  1. Spreading of Risk:

 

Another advantage of the branch banking system is the lesser risk and greater capacity to meet risks,

 

Since there is geographical spreading and diversification of risks, the possibility of the failure of the of the bank is remote,

 

  1. Economy in Cash Reserves:

 

 

 

 

 

  1. 3 Please refer any commercial bank and write down the interest rates on deposits as quoted by the bank in the notice board. Discuss the basic objectives which the banks pursue while pricing their business loans?

 

Ans : Interest rates :

 

An interest rate is the rate at which interest is paid by a borrower (debtor) for the use of money that they borrow from a lender (creditor). Specifically, the interest rate (I/m) is a percent of principal (P) paid a certain amount of times (m) per period (usually quoted per annum). For example, a small company borrows capital from a bank to buy new assets for its business, and in return the lender receives interest at a predetermined interest rate for deferring the use of funds and instead lending it to the borrower. Interest rates are normally expressed as

 

 

 

 

  1. 4 In every bank, there are many schemes for managing investments made by the clients. The banks provide a wide range of plans and schemes for investment. The banks deposit the money collected through their clients in many government projects apart from lending. Can the banks invest in liquidity plans of mutual funds? Discuss the composition of investments and investment policy guidelines.

 

Ans : Can the banks invest in liquidity plans of mutual funds :

 

No, banks cannot invest in liquidity plans of mutual funds. The Reserve Bank of India, in its annual monetary policy statement on Tuesday, restricted banks’ investment in liquid plans floated by mutual funds at 10% of their net worth, thus curtailing an assured avenue of inflows for the mutual fund industry. Banks’ investment in liquid plans capped at 10% of net worth, thus curtailing an assured avenue of inflows for the mutual fund industry.

 

composition  of investments :

 

 

 

  1. 5 List out the banks that were merged during the financial year 2010-2012. Discuss the factors that affect mergers and acquisitions

 

Ans : List the mergers :

 

1. ICICI Bank Ltd, India’s largest private sector lender, is in the process of acquiring Bank of Rajasthan

Ltd for its 463 branches. ICICI Bank had earlier acquired Bank of Madura Ltd and Sangli Bank Ltd,

again for their branches, and their presence in southern and western India, respectively.

2. Kotak Mahindra Bank has already created a war chest for acquisitions by selling 4.5% stake in the

bank for $296 million to sumitomo mitsui financial group

 

3. ICICI Bank buys Bank of Rajasthan

 

 

 

 

  1. 6 BoI, was the first to cut its minimum rate of lending or the base rate by 0.25 per cent after a finance ministry diktat last week, is targeting to take domestic NIM up to 3.10 per cent for FY14 from previous year’s 3 per cent. Discuss the factors that contribute to NIM.

 

Ans : Explain NIM :

 

Net interest margin (NIM) is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their (interest-earning) assets. It is similar to the gross margin of non-financial companies.

It is usually expressed as a percentage of what the financial institution earns on loans in a time period and other assets minus the interest paid on borrowed funds divided by the average amount of the assets on which it earned income in that time period (the average earning assets).

Net interest margin is similar in concept to net interest spread, but the net interest spread is the nominal average difference between the borrowing and

 

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