Every country felt the need to accelerate the rate of development in post world war era. Some countries were directly involved in war while many others were indirectly affected by it. There was a need for reconstructing economics at a faster speed. The existing machinery for developmental activities was not sufficient to the requirements of industry. There was a need to set up such institutions which would take up promotional activities besides financing. In this background developmental banks were needed for the following reasons: 1. Lay Foundations for Industrialization A number of countries got independence from colonial rule. Their economies needed to be rehabilitated. Other underdeveloped and developing countries too needed to accelerate the pace of industrialization. To lay a solid foundation for growth, establishment of certain key industries such as cement, engineering, machine making, chemicals, etc. is essential. Private entrepreneurs were not forthcoming to invest in these vital’ areas Continue reading
Bank Management
Bank Risk Exposure Types – On-balance Sheet and Off-Balance Sheet Exposures
Generally, credit risk is related to the traditional bank lending activities, while it also comes from holding bonds and other securities. Basel (1999) reports that for most banks, loans are the largest and most obvious source of credit risk; however, throughout the activities of a bank, which include in the banking book as well as in the trading book, and both on and off the balance sheet, there are also other sources of credit risk. Various financial instruments including acceptances, inter-bank transactions, financial futures, guarantees, etc increase banks’ credit risk. Therefore, it is indispensable to identify all the credit exposures— the possible sources of credit risk for most banks, which can also serve as a starting point for the following parts of this work. 1. On-balance Sheet Exposures Commercial and industrial, real estate, consumer and others are the most common types of loans. Commercial and industrial loans can be made Continue reading
Case Studies on Debt Recovery Management
Case Study 1: HDFC Bank Recovery Mr.Kaushik Agarwal, about 18 months back had purchased 1 Tata Indigo, financed by HDFC bank. His EMI for this month (May’08) was bounced due to some reasons. The recovery person called him on the 22nd May for the payment of the same. He was out of town at that moment so Mr.Kaushik had asked him to send someone to his office on the 24th to collect cash. Now on 24th it slipped out of Kaushik’s mind that he had to pay cash to HDFC Bank and hence he did not withdraw any cash from the bank. As it was a Saturday so when the person came for collection, he requested him to come on Monday, as the bank was already closed for the day. On this the person, who had called Kaushik earlier on the 22nd, called him again and started shouting at him Continue reading
Lead Bank Scheme
A milestone in the history of banking in India is the nationalization of the 14 major commercial banks in 1969. This process was undertaken with the main objective of involving the banking sector in a big way in the nation building and economic development. To help to achieve this commendable objective, two committees were set up viz., National Credit Council Study Group with D.R. Gadgil as the Chairman and the Committee of Bankers under the chairmanship of Nariman. These committees independently went into their terms of reference and recommended an ‘area approach’ for involving the banks in economic development. This paved the way for giving a concrete shape to the Lead Bank Scheme. As nationalization of banks took place to extend and expand the banking services to all the non-banked areas especially the rural areas, Continue reading
Development Banking in India
The foreign rulers in India did not take much interest in the industrial development of the country. They were interested to take raw materials to England and bring back finished goods to India. The government did not show any interest for securing up institutions needed for industrial financing. The recommendation for setting up industrial financing institutions was made in 1931 by Central Banking Enquiry Committee but no concrete steps were taken. In 1949, Reserve Bank had undertaken a detailed study to find out the need for specialized institutions. It was in 1948 that the first development bank i.e. Industrial Finance Corporation of India (IFCI) was established. IFCI was assigned the role of a gap-filler which implied that it was not expected to compete with the existing channels of industrial finance. It was expected to provide medium and long-term credit to industrial concerns only when they could not raise sufficient finances Continue reading
Normal debt recovery procedure followed by banks
Normal debt recovery procedure will generally apply to the debtors who are willing to pay the dues with normal recovery process. Based on the regulatory guidelines of procedure of tribunal on debt recovery, following procedure may be outlined for such recovery. However the recovery agents should follow the bank-specific debt recovery procedure as advised by their principal. Below are given the main rules for making telephone calls and visit to the debtor for recovery of dues: 1) The recovery agent has been authorized by the bank to collect the past due debt from the particular customer. 2) The customer has been notified by the bank of the details of the recovery agent for collection of the past-due debt. 3) Making customer calls: This is the first step in recovery procedure and following rules should be followed generally: Calls are made Continue reading