DRIVE- SPRING 2014
PROGRAM/SEMESTER- MBADS (SEM 3/SEM 5) MBAFLEX/ MBAN2 (SEM 3) PGDBMN (SEM 1)
SUBJECT CODE &NAME-MA0036 FINANCIAL SYSTEM AND COMMERCIAL BANKING
Q1. The Federal Reserve is the central bank of the United States. Its unique structure
includes a federal government agency, the Board of Governors, in Washington, D.C., and
12 regional Reserve Banks. Compare and contrast the organizational structure and the
functions of the Reserve Bank of India and the Federal Reserve of US
(Organizational Structure, Functions) 5, 5
Answer.
Organizational Structure
Reserve Bank of India
The organizational Structure of Reserve bank of India can be studied in three different parts. Firstly, the
central board of directors. It is the main committee of the central bank. The directors here are being
appointed by the government of India for the term of four years. Second is the Local Boards or the
Supportive Bodies. There are 4 local boards from the regional areas of the four metros of the country
namely, new Delhi, Kolkata, Mumbai and Chennai. Third are the Offices and Branches of Reserve Bank
of India. The Federal Reserve Bank of India has four zonal offices.
Federal Reserve of US
The seven members of the Board of Governors are appointed by the President and confirmed by the
Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has
been appointed to complete an unexpired term may be reappointed to a full term. The President
designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for
four-year terms.
Functions
Reserve Bank of India
RBI carries out a variety of developmental and promotional functions attuned to the course of economic
planning in the country. Being the Apex Monetary body, RBI performs multifaceted functions. Key
Responsibility and Key Result areas of RBI are discussed as below:
1. Bank of Issue: The Reserve Bank has a separate Issue Department which is entrusted with the issue
of currency notes.
2. Banker to Government: The second important function of the Reserve Bank of India is to act as
Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State
Governments in India excepting that of Jammu and Kashmir.
3. Bankers' Bank and Lender of the Last Resort: The Reserve Bank of India acts as the bankers'
bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was
required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilities and
2 per cent of its time liabilities in India.
Federal Reserve of US
The primary responsibility of the Board members is the formulation of monetary policy. The seven Board
members constitute a majority of the 12-member Federal Open Market Committee (FOMC), the group
that makes the key decisions affecting the cost and availability of money and credit in the economy.
The Board sets reserve requirements and shares the responsibility with the Reserve Banks for discount
rate policy. These two functions plus open market operations constitute the monetary policy tools of the
Federal Reserve System.
In addition to monetary policy responsibilities, the Federal Reserve Board has regulatory and supervisory
responsibilities over banks that are members of the System, bank holding companies, international
banking facilities in the United States, Edge Act and agreement corporations, foreign activities of member
banks, and the U.S. activities of foreign-owned banks.
Q2. Mention the features and types of financial instruments that are offered by ICICI bank.
(Financial instruments, Features) 5, 5
Answer:
Financial instruments ICICI Bank
Equities and Fixed Income Instruments
ICICI Bank offers a complete range of custodial services and ensures high processing standards, which
are ISO 9001:2000 certified. Services offered are:

Guidance and application for foreign investments with regulators

Application for trading codes to stock exchanges

Strong Straight Through Processing (STP) platform for trade confirmation and settlements; receipt
and delivery of securities in both physical and dematerialised form

Dividend and other corporate benefit tracking and collection

Customised Information system

Web enabled reporting system

Computer controlled storage vaults and premises for safekeeping of the securities

Proxy and Nominee Services (where permitted)
Features of ICICI Bank

Mature STP Platform: We offer a fully developed STP platform for seamless exchange of trading
information from customers and brokers. This facilitates timely settlement of trades and enhances the
efficiency of the settlement process with minimal manual intervention.

Fund settlement and transfer: Integrated fund transfer and settlement system

Online functionalities: Electronic banking and availability of portfolio statements on web. Online
uploading and downloading of reports.

Corporate Benefit Entitlements: Online forthcoming corporate benefits report, entitlement collection
report and follow up for all outstanding benefits.

Forex Remittances: Speedy processing of inbound and outbound remittances and competitive rate for
forex conversion

Customised Reporting - Apart from providing an extensive suite of standard reports, systems are
geared with customised reporting for meeting client requirements as well as equipped to talk to a
variety of customer systems

Dedicated Client Relationship Personnel: Experienced Relationship Managers available for extended
hours

Longer Tenure, attractive interest rates, lower EMIs

Doorstep service at your comfort

Flexible repayment options

Simplified documentation

Wide range of product to choose from

Over 246 Bank Branches pan India for servicing of your loans

Guidance through out the process making home buying hassle free

Insurance options for your home loan at attractive premium

With a network of 2500 branches we are always close to you

Sanction approval without having selected a property
Q3. Discuss the features of the latest monetary policy of RBI.
(Explain the features of the latest monetary policy of RBI) 10
Answer:
Monetary Policy
Monetary policy means using of official instruments under the control of the central bank. Monetary
Policy can be broadly defined as "the deliberate effort by the Central Bank to influence economic activity
by variations in the money supply, in availability of credit or in the interest rates consistent with specific
national objectives. The Reserve Bank adopts expansionary or contractionary methods of investment and
consumption expenditure to regulate the money supply in Indian economy. For this RBI resorts to
quantitative as well as qualitative methods. The central bank exercises its influence on the availability and
cost of credit primarily by affecting the reserves position of commercial banks.
Monetary policy is an arm of economic policy and in that sense; the objectives of monetary policy are no
different from the overall objectives of economic policy.
The broad objectives of monetary policy in India have been

To regulate monetary expansion so as to maintain a reasonable degree of price stability

To ensure adequate expansion in credit to assist economic growth
Monetary Policy statements released by the RBI for the year 2013
RBI announced the following policy measures:

reduced the marginal standing facility (MSF) rate by 25 basis points from 9.0 per cent to 8.75 per
cent with immediate effect;

increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from
7.5 per cent to 7.75 per cent with immediate effect; and the liquidity provided through term repos
of 7-day and 14-day tenor has been increased from 0.25 per cent of net demand and time liabilities
(NDTL) of the banking system to 0.5 per cent with immediate effect.
Assessment
RBI policy decisions are based on a detailed assessment of the global and domestic macroeconomic
situation. The outlook for global growth has improved modestly and the prospect of delay in the taper of
the Federal Reserve’s bond purchases has brought calm to financial markets.
Policy Stance and Rationale
RBI began a calibrated change in the exceptional liquidity measures since September. As steps to contain
the current account deficit started taking effect in an improving external environment and as volatility in
the foreign exchange market ebbed, it became possible for us to unwind the exceptional liquidity
tightening measures. With the reduction of the MSF rate and the increase in the repo rate in this review,
the process of re-aligning the interest rate corridor to normal monetary policy operations is now
complete.
Q4. Describe the internal and external machinery of handling customer complaints.
(Explain the internal and external machinery of handling customer complaints.) 10
Answer:
Internal and external Machinery to handle Customer complaints/grievances
The customer is having full right to register his complaint if he is not satisfied with the services provided
by the bank. He can give his complaint in writing, orally or over telephone. If customer’s complaint is not
resolved within given time or he is not satisfied with the solution provided by the bank, he can approach
Banking Ombudsman with his complaint or other legal avenues available for grievance redressal.

Customer Service Committee of the Board shall formulate a Comprehensive Deposit Policy
incorporating the issues such as the treatment of death of a depositor for operation of his account,
the product approval process, the annual survey of depositor satisfaction and the triennial audit of
such services. The Committee shall examine the quality of customer service being rendered and
also review the functioning of Standing Committee on Customer Service.

The Bank will constitute a Standing Committee on Customer Service chaired by the CMD/ED of
the Bank. Besides, two to three senior executives of the bank, the committee will also have two to
three eminent non-executives drawn from the public as members. The standing Committee on
Customer Service will have the following function :

The committee will evaluate and review comments/feed-back on customer service and
implementation of Code of Bank’s Commitment to Customers as received from BCSBI.

The committee will ensure that all regulatory instructions regarding customer service are being
followed by the bank and will obtain necessary feed back from the Zonal / functional heads.

The committee will also offer their advice to the unresolved complaints/grievances referred to
them by the functional heads.

The committee will submit its report on the performance to the customer service committee of the
board on quarterly basis.

The Nodal Officer of the rank of General Manager designated by the Bank will monitor
implementation of customer service and complaint handling mechanism for the entire Bank.
Officers handling complaints/grievances at Zonal Offices in respect of branches under their
control will be designated as Customer Relation Officers
Q5. Do you agree that succession planning is an important parameter of corporate
governance? If so, please analyse this argument with respect to Axis bank and ICICI bank.
(Axis bank and, ICICI bank) 5, 5
Answer:
Yes, succession planning is an important parameter of corporate governance. There will be a committee
of the Board of Directors (the "Board") of Liberty Global plc (the "Corporation"), which will be called the
Succession Planning Committee.
The purposes of the Succession Planning Committee are (1) to assist the Board in the performance of its
responsibilities relating to succession planning for the Chief Executive Officer (the "CEO") and (2) to
perform the duties assigned to it in the CEO Absence Event Management Process adopted by the Board,
as the same may be amended from time to time.
Succession Planning Committee will perform the functions and responsibilities enumerated herein as
appropriate and will have all the powers of the Board necessary or desirable to perform such functions
and responsibilities as may be delegated to a committee of the Board under Delaware law. Succession
Planning Committee believes that its policies and procedures should remain flexible, in order to facilitate
its ability to respond to changing circumstances and conditions in fulfilling its responsibilities to the
Corporation and its shareholders.
Succession planning for Axis bank
A person from a different function can bring in diverse perspective, new ideas, lateral thinking and
innovation.
Bringing in a person from diverse backgrounds is a foundational aspect of succession
planning. "There could be five people in a team who are experts in their areas but possibly a leader from a
different background could usher in out-of the-box fresh thinking. However, organisations in
such circumstances should be able to explain the premise to people to manage expectations and avoid
conflict situation in team. "Internal communication is a very important element of succession planning,
as a lot of uncertainty could prop up in the team. Bringing the issue to the table and talking about it
openly is crucial to prevent disharmony within the existing team.
Succession planning for ICICI bank
The ICICI Group has prepared a succession plan for top-level executives of its subsidiaries.
Sources said that this is a contingency plan, in the event of an exit of the present heads of its two
subsidiaries ICICI Prudential and ICICI Ventures. At present, Shikha Sharma is managing director &
chief executive officer (CEO) of ICICI Prudential Life Insurance, while Renuka Ramanathan is managing
director and CEO of ICICI Ventures.
According to sources familiar with the developments, V Vaidyanathan, ICICI Bank Executive Director,
will replace Sharma in case she moves out. Sonjoy Chatterjee, executive director, is the likely candidate to
replace Ramanathan.
Q6. Compare and contrast of any two Bank’s Basel –II disclosures (Tier-I capital, Tier-I
ratio, Total capital, Capital Adequacy Ratio -CAR).
[(Tier-I capital, Tier-I ratio, Total capital, Capital Adequacy, Ratio -CAR) of two banks] 5, 5
Answer:
TABLE: DF-2
Capital Structure: Quantitative Disclosures
(a) Tier-I Capital
(Rs in crores)
85732
Paid-up Share Capital
635
Reserves
84123
Innovative Instruments (only total)
6063
Other Capital Instruments (only total)
0
Amt deducted from Tier-I Cap (if any total):
5089
(b) Total amount of Tier-II Capital (Net of deductions from Tier-II
37587
Capital)
(c) Debt Capital Instruments eligible for inclusion in Upper Tier-II
Capital
Total amount outstanding
24808
Of which raised during Current Year
0
Amount eligible to be reckoned as Capital
24808
(d) Subordinated Debit eligible for inclusion in Lower Tier-II Capital:
Total amount outstanding
12476
Of which raised during Current Year
0
Amount eligible to be reckoned as Capital
11571
(e) Other Deductions from Capital if any
0
(f) Total Eligible Capital
123319
TABLE: DF-3
Capital Adequacy (@ 9% CAR)
Quantitative Disclosures
(a) Capital requirements for credit risk
Portfolios subject to
Rs.73,129 crs
standardized approach
Securitization exposures
Nil
___________
Total
Rs.73,129 crs
(b) Capital requirements for
market risk (* Standardized
duration approach)
Interest Rate Risk
Rs. 2,820 crs
Foreign Exchange Risk
Rs. 112 crs
(including gold)
Equity Risk
Rs.2,064 crs
___________
Total
Rs. 4,996 crs
(c) Capital requirements for
operational risk:
Basic indicator approach
Rs.6,507 crs
(d) Total and Tier I capital ratio:
For the top consolidated group; and
For significant bank subsidiaries (stand alone)
CAPITAL ADEQUACY RATIO AS ON 30.06.2010
Tier I
Total
(%)
(%)
State Bank of India
9.79
13.54
SBI Group
9.15
13.16
State Bank of Bikaner & Jaipur
8.08
12.74
State Bank of Hyderabad
9.05
15.40
State Bank of Indore
8.69
13.59
State Bank of Mysore
7.60
12.16
State Bank of Patiala
8.40
13.47
State Bank of Travancore
9.07
13.21
SBICI Bank Ltd.
24.05
24.68
SBI International (Maritius) Ltd.
11.00
11.46
State Bank of India (Canada)
28.13
29.18
State Bank of India (California)
12.97
14.22
Commercial Bank of India LLC
32.31
32.31
PT Bank Indo Monex, Indonesia
22.54
23.39
Nepal SBI Bank Ltd.
10.70
12.27
Moscow