Development banks follow a procedure for evaluating a proposal for a project. The basic objective is to check whether the applicant fulfils various conditions prescribed by the lending institution and the project is viable. The acceptance of a wrong proposal will result in the wastage of scarce resources. These banks adopt the following procedure for lending: 1. Project Appraisal and Eligibility of Applicant Every financial institution serves a particular area of activity or there are certain limits prescribed beyond which they cannot go. Before processing the application, it is important to find out whether the applicant is eligible under the norms of the institution or not. The second aspect which is looked into is to determine whether the enterprise has fulfilled various conditions prescribed by the government. In case some license is required from the government. It should have been taken or an assurance is received from the licensing authority. Continue reading
Bank Management
Debt Recovery Agent
The phrase “Debt Recovery Agent” comprises three terms- Debt, Recovery and Agent. Let us understand the meaning of these terms separately, before we explain the meaning of Debt Recovery Agent. Debt: It refers to a sum of money owed by one person or entity (debtor) to another person or entity (creditor). Thus there are two parties to a debt- debtor who receives money by way of a debt; and creditor who lends money to the debtor. To illustrate, if Ram takes a loan of Rs. 3 lacs from a bank for purchasing a car, Ram becomes the debtor (or borrower), the bank is the creditor (or lender) and the loan of Rs. 3 laces is the debt (principal). Ram would be required to repay the loan in equated monthly installment (EMI),comprising the principal and interest, spread over the repayment period of, say, 3 years ( debt Continue reading
Public Key Infrastructure (PKI)
What is Public Key Infrastructure (PKI)? Public key infrastructure (PKI) systems offer authentication in transactions. PKI is an information technology infrastructure that enables internet users to securely and privately exchange information through the use of a public and a private key pair that is obtained and shared through a trusted authority. The public key infrastructure provides for a digital certificate that can identify an individual or an organization and directory services that can store and, when necessary, revoke the certificates. A certificate is a digital document (i.e. a formatted file) that binds a public key to a person, application, or service. A trusted Certificate Authority (CA) creates the certificate and digitally signs it using the CA’s private key. Because of its role in creating certificates, the CA is the central component of the PKI. Using the CA’s public key, applications verify the issuing CA’s digital signature, and hence, the integrity Continue reading
Liquidity Risk in Banking
Liquidity planning is an important facet of risk management framework in banks. Liquidity is the ability to efficiently accommodate deposit and other liability decreases, as well as, fund loan portfolio growth and the possible funding of off-balance sheet claims. A bank has adequate liquidity when sufficient funds can be raised, either by increasing liabilities or converting assets, promptly and at a reasonable cost. It encompass the potential sale of liquid assets and borrowings from money, capital and Forex markets. Thus, liquidity should be considered as a defense mechanism from losses on fire sale of assets. Liquidity risk in banking is the potential inability of a bank to meet its payment obligations in a timely and cost effective manner. It arises when the bank is unable to generate cash to cope with a decline in deposits/liabilities or increase in assets. The cash flows are placed in different time buckets based on Continue reading
Utilization of Artificial Intelligence (AI) in the Banking
Artificial intelligence (AI) is rapidly transforming the banking industry. Banks are using AI to improve customer service, automate back-office processes, and enhance risk management. AI-powered chatbots and virtual assistants are helping banks provide 24/7 customer service, while AI-powered analytics are enabling banks to analyze vast amounts of data and make better decisions. In this article, we will explore the different ways in which AI is being used in banking and the benefits and challenges associated with its use. AI in Customer Service One of the most visible applications of AI in banking is in customer service. AI-powered chatbots and virtual assistants are becoming increasingly common in the industry. These chatbots and virtual assistants can respond to customer queries, offer personalized recommendations, and help customers with transactions such as account transfers and bill payments. AI-powered chatbots and virtual assistants can provide 24/7 customer service, which is particularly useful for customers who Continue reading
Foreign Exchange Department of Banks
The Foreign Exchange department, which is also being called as the International Banking Division, is one of the important departments of the banks operating in international market. In India also all scheduled commercial banks, both in the nationalized or non-nationalized sectors, do have Foreign Exchange departments, both at their principal offices as well as offices, in metropolitan centers. This department functions independently under the overall change of some senior executive or a senior officer well-versed in foreign exchange operations as well as in the rules and regulations in force from time to time pertaining to foreign exchange transactions advised by various government agencies. The principal function of a Foreign exchange department is to handle foreign inward remittances as well as outward remittances; buying and selling of foreign currencies, handling and forwarding of import and export documents and giving the consultancy services to the exporters and importers. Besides this, the department Continue reading