MBFI

Sources of Funds
Liabilities Management

Liabilities of a Commercial Bank

Capital & Reserves
Subordinated Bonds
Bonds Issued
Deposits
Borrowing from other Banks (Inter-Bank)
Borrowing from RBI (Central Bank)
Others (CBLO)

Checking Accounts
Since Checking Accounts are zero cost funds,
can we offer only these accounts?
Our cost of funds would be near zero.
Should we recover the cost of operations of
checking accounts?
How should we use these funds?

lend short term?

Can we lend these long term?

Savings Bank Accounts

Is it a low-cost deposit?
Why are there restrictions on number of withdrawals
?
Can we is place a restriction that withdrawals cannot
be more than 10% of the balance? Will it help?
Should we discourage persons who keep low
balances in their account?
Do we expect large balances in Savings Bank
Accounts?

Dilemma:
Banks can encourage customers who
have large balances to deposit them in
Term-Deposits or invest in higher
yielding schemes such as mutual funds
etc of group companies. But, if this is
done, the banks lose out on low cost
deposits.

Marketing Savings Deposit

Would a savings account which does not
have checking facility but allows a
restricted number of withdrawals be
popular?
What would make it popular?
Will our bank benefit from such an offering
at all as there will be migration from
savings bank account to this savings
account?

Term or Fixed Deposits

Why do we offer this product even though these are
high cost funds?
How to decide how many maturity slabs a bank
should offer?
What rates to offer? What are the factors on which
this depends?
Is the rate higher for longer maturities?
Why do banks allow pre-mature withdrawal? What
are the problems?

Corporate Short Term Deposits

and Certificates of Deposits
When should banks target such deposits?
Corporates generally negotiate for higher
rates of interest? Is this ok?
What are the drawbacks of ST Deposits?
Do CDs have these drawbacks?
Logically, should the rates on CDs be
higher or lower than deposits of same
maturity?

Augmented Deposit Products

RD Recurring Deposit
Re-investment Deposits
Flexi- Deposits
Deposits with built-in Overdraft
Sweep Deposits
Internet, Mobile, App based, Video Chat

Deposit Insurance
Rs 100,000 thousand per person
DICGC (FDIC) Deposit Insurance and
Credit Guarantee Corporation
Why are bank deposits insured?
Should bank deposits be insured?
Moral hazard ?
Should deposit insurance be voluntary?

Liabilities Management
Deposit Mix
Pricing matrix (fixed or floating)
Administration costs
Profitability
Lending rates (predominantly floating)
Bulk deposits
Corporate deposits
Customer relationship pricing

Core Deposits
CASA low cost but volatile
If amount deposited on any day is equal
to or more than the amount withdrawn,
the total CASA will not fall below a certain
level
Large number of accounts

Diversity in types of account holders

Spatial spread or

Core or non-fluctuating portion of the total

deposits

Pricing
Pricing strategy of competitors
Interest elasticity (or responsiveness) of
consumer demand
Past deposit flows for various kinds of
consumer accounts

Marketing Issues
Product differentiation?
Product Life of a banking product is very
short can be copied very easily
Branding bank or individual products?
Advertising Why? What message?
Why has the customer come to your bank?
Why will he continue?
Salary Accounts

Regulations
No incentives, prizes, brokerage etc
No interest on Current A/cs or deposits <7 d
No interest ceiling
Interest on daily balances on Savings Bank
Accounts
Premature repayment of Term Deposits to be
made if customer demands !!
CRR & SLR

Issues in India
Pass Book
Overdraft in Savings Bank Accounts
Charges on NEFT, RTGS etc
Low level of deposit insurance?
Banks do not fail ?

Bulk,Corporate & Govt Deposits

Bulk Deposits interest rates higher
Corporate Deposits
Deposits from Public Bodies
Purchased Deposits are acquired on a
non personal basis from the financial
market at competitive interest rates.
Brokered deposits

Non Deposit Sources of Funds

Bonds

Subordinated Debt

Inter-Bank Borrowings

Call Money Overnight Deposit

What factors decide the rate of interest on IB O/N Deposit?

Is this a good source of funds?

Why are regulators unhappy if this is the chief source of funds for a
bank?

What was S&L crisis in USA?

In India this market is about Rs 15,000 to 20,000 crores (150-200

billion)

Repos and Reverse Repos

Simultaneous sale of an asset (today)
And an agreement (contract)
To repurchase the same asset on a future date
at a price fixed today
Two legs
Sale
Give the asset and receive rupees
Title passes on day one
Re-purchase
Give rupees and receive back the asset
Title restored on the date of maturity
Repo a form of borrowing ?

RBI and the Money Market

RBI intervention and signaling in money market
RBI Reverse Repo Sells GOI bonds and buys back
Implications

RBI Repo

Borrows from the market

Sucks up liquidity
Influences interest rate s- floor

Buys GOI bonds and sells them back

Implications

Lends to banks / PDs

Injects liquidity
Influences interest rates ceiling

RBI

LAF

LAF and OMO

Every working day
Both REPO and Reverse Repo window
Announced interest rates (7.25 & 6.25 %)
Very effective fine tuning of money supply /
liquidity / interest rates

Structural Liquidity Facility (SLF)

Upto 2% of NDTL
@ (3% above LAF) ie 10.25%
Collateral GOI bonds
Collateral counted for SLR compliance

C B L Os of CCIL:
Collateralized Borrowing and Lending
Obligation
Mechanism to borrow and lend funds against
securities
The lenders claim and the borrowers liability
are separated and traded separately
Not only for banks but also for primary
dealers, financial institutions, mutual funds,
non-banking finance companies and
corporates.