Banking Related Contents-currentaffairs-businessnews.com.pdf

8/14/2019 Banking Related Contents-currentaffairs-businessnews.com.pdf

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Banking Related Contents

What is Banking?

Classification of Banking Systems

Central Bank

Commercial Banks

Services Offered by Banks

Depository Institutions

Non-Depository Institutions

Types of Deposit Accounts

Demand Deposit Accounts

Savings Account

Current Account

Money Market Account

Term Deposit Accounts

Wholesale Banking

Fund Based Income Services

Lines of Credit

Term Loans

Syndicated Loans

Revolving Loans

Trade Finance

Factoring

Forfaiting

Leasing

Letter of Credit
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Bank Guarantee

Overdraft

Lockbox Processing

Lock-box service

Credit Appraisal

Five Cs of Credit

7 Cs of Credit Analysis

Types of Repayment Options

Know Your Customer (KYC)

Type of Cards

3 Cs of Internet Banking

Bancassurance

Commercial Paper (CP)

Certificate of Deposit (CD)

Micro Finance

Different Bank Terms

Bank Rate

Repo Rate

Bank Rate vs Repo Rate

Reverse Repo Rate

Cash Reserve Requirement (CRR)

Statutory Liquidity Ratio (SLR)

Banking Risks

Credit Risk

Market Risk
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Operational Risk

Solvency Risk

Compliance/Regulatory Risk

Liquidity Risk

Legal Risk

Reputational Risk

Risk Management

Risk Avoidance Strategy

Risk Mitigation Strategy

Risk Transfer Strategy

Risk Management through Compliance

Basel Norms

Basel I

Basel II

Basel III

Anti-Money Laundering

Know Your Customer

Sarbanes Oxley Act

Investment Banking and its Functions

Investment Banking Units

Investment Banking Trading steps

Non-Performing Assets (NPA)

Problems caused by NPA and how to prevent that

How to Resolve NPA Problem

NPA Indian Perspective
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Money Market

Money Market Instruments and Features

Risks involved in Money Market Instruments

Banking System in India

Co-operative Banks in India

Banking System in USA

Mortgage Banking

Mortgage Loan Process

Different types of Mortgage Products

Mortgage Backed Securities

Asset Backed Securities

Securitization

Risks associated in Mortgage Loans and MBS

Banking Terms/Glossary

Banking Terms A Banking Terms B Banking Terms C

Banking Terms D Banking Terms E Banking Terms F

Banking Terms G Banking Terms H Banking Terms I

Banking Terms J &

K

Banking Terms L Banking Terms M

Banking Terms N Banking Terms O Banking Terms P

Banking Terms Q Banking Terms R Banking Terms S

Banking Terms T Banking Terms U Banking Terms V

Banking Terms W Banking Terms X, Y

& Z
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What is Banking?Posted on May 3, 2012 by admin inBanking.

Banking is defined as the method of accepting deposits in the form of Cash from someentities with surplus money (lenders and depositors) and lending these funds to the needyentities with need of cash or money (borrowers).

Banking is one of the most important services in financial sector which builds the base of acountry. The main functions of banking sector are outlined below

It provides liquidity for economic growth of a country It acts as the main pillar of the whole financial system It offers safety for the depositors who want to deposit their savings in the Bank It offers liquidity for the borrowers both on short and long term basis based on their need If provides credit or loan to dealers, households, small as well as large business houses It helps to manage all the financial transactions between different parties It provides the Government the flexibility to reach to the masses across the country

Efficiency of a bank depends on its ability to satisfy its investors and customers by offeringbetter interest rate and services compared to its peers. Their main source of profit is theinterest spread between the interest earned from lending and expensed from borrowing ofmoney.

Classification of Banking SystemsPosted on May 4, 2012 by admin inBanking.

Banking System has changed significantly in last couple of decades to meet differentrequirements of the customers and different regulatory requirements imposed by theGovernment of different countries. It has been essential to regulate the banking system withdifferent new regulatory reforms in order to reduce risk and make banks non-vulnerable toany financial crisis. Basel norms were implemented to protect the banking system as well asthe consumer base of a country.

Financial crisis in 2008 has shown the requirement of stringent laws to stop banks fromtaking high risks in order to generate high profits. Lots of big banks were declared bankruptduring that time due to their huge exposure in high risky subprime market and Government

had to rush to bail them out to protect common peoples money.

To regulate the banking system, Central banks were formed by the government of differentcountries which overlook the domestic banking system and regulate all the banks.

Based on this the banks can be classified into two main parts. They are

Central Bank Commercial Banks

Central banks mainly take care of the regulation part and act as a bank to the Governmentwhile commercial banks act as bank to the common people and businesses.
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Central BankPosted on May 4, 2012 by admin inBanking.

Central Bank is set up by the Government of each country to regulate the overall bankingsystem and establish the supervisory framework for the banks operating in that country. Italso acts as bank for government and controls the liquidity or money supply in the economy.

The first central bank, the Sveriges Riksbank (Central Bank of Sweden), was established inSweden in 1664 while the second central bank established in 1694 was the Bank of England(BoE).

The main characteristics and functions of a central bank are outlined below

It acts as a bank for government and facilitates the sale and purchase of government bondsbased on the requirement of the government

It controls the overall money supply in the economy by using all the available monetarypolicy tools like SLR, Reserve Requirement, Repo rate etc.

It regulates all the banks operating in a country. Also set the norms and guidelines for theforeign banks operating in a country

It finalizes all the banking related rules, norms and code of conducts etc. and notifies thesame to the banks. It also tracks banking processes for all the banks and takes actions for

any violation.

It does not interact with the common people directly but it always interacts with differentbanks in timely manner. It provides a common trading and transactions window for all the

banks

It devises norms for External borrowing of the domestic companies. It stores the forex reserves and gold for the Government and supports the importers with

the foreign currency during crisis time.

It uses its forex reserves to intervene the fluctuations of currency exchange rates wheneverrequired

Also regulates all the NBFCs (Non-Banking Financial Corporations) and Co-operative bankinginstitutions of a country.

The central bank is often referred to as the Bankers Bank for its functions and characteristicsmentioned above.

Commercial BanksPosted on May 4, 2012 by admin inBanking.

Commercial banks are the banks which provide different banking services to the commonpeople and businesses across the country. They reach to every common people and work as abanker to each individual person and business. Commercials banks are located in differentplaces of a country to reach to the mass and operate under one organization or banking name.

It provides the following functions to the customers:

Accepts savings deposits from different customers Provides loans to individuals and businesses
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Enables uniform structure of interest rates through competition and regulated bankingsystem

Facilitates banking in the rural areas by reaching there They offer all the banking related services to the customers

Commercial banks work as a back bone for the economy as they reach to each and everycorner of a country.

Services Offered by BanksPosted on May 4, 2012 by admin inBanking.

The services offered by commercial banks can be broadly classified into 4 parts. They are

Payment Services Financial Intermediary Financial services Ancillary Services

Payment Service: The Payment Service is the backbone of the entire money flow in aneconomy. Previously the payment system was supported by Cheques, Demand drafts etcwhich have now been replaced with direct online money transfer with the evolution oftechnology.

Financial Intermediary: This is one of the oldest functions of the Bank which specifiesaccepting deposits from customers and then lending these funds to borrowers. This is themain core business of the Banking system and will continue as long as the banking systemexists.

Financial Services: Financial services include new services which were launched bydifferent financial institution with time. These services include investment banking, foreignexchange business, line of credit services, wealth management and broking services. Theseservices generate income for the commercial bank in the form of commissions etc. which isalso termed as Non-Fund income for banks.

Ancillary Services:Other services that the Banks offer to the common men along with thenecessary banking services. These ancillary services form a very minuscule of the services

offered by the banks.

Typical ancillary services include safe deposit lockers for gold, cheque pick up facility, doorstep banking etc.

Traditional services offered by different banks

Offering savings deposits Currency exchange transactions Providing business or personal loans Providing car and home loans to retail customers Safe keeping of valuables Supporting government activities with credit by purchasing government bonds
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Offering trust services, other properly and financial management related services for a feeNew services offered by banks

Financial Advisory Services Credit, debit cards and Gift cards Cash management Equipment leasing Venture capital loans and Private Equity funds Insurance services Retirement plans Equity trading and investment services Mutual funds and annuities Investment banking services Wealth management

Banks are nowadays offering different new services to attract more customers and grow theirbusiness. The other services offered by the Banks are increasing very fast and now accountsfor a large portion of their income.

Depository InstitutionsPosted on May 4, 2012 by admin inBanking.

Depository Institutions are those financial institutions which directly accept deposits fromdepositors and lend to the borrowers. These institutions play the most important role in thedevelopment of the financial markets and in channelizing the savings to the borrowers in theeconomy. Depository institutions mainly include:

Commercial Banks Savings and Loan Associations Credit Unions

Commercial Banks: These are the depository institutions which are in the business of takingdeposits from different entities and retail customers and providing loan to different borrowers(persons as well as businesses). They also provide a range of products and services forindividuals as well as businesses to attract more customers. Retail banks are perfect example

for the same.

Savings and Loan Associations: These institutions provide savings account facilities to thecustomers and also provide different lending services like mortgage lending. Many of them

provide a range of services similar to a commercial bank to attract more customers. Housingfinance company is a perfect example of the same.

Credit Unions: These are not-for-profit financial cooperatives that offer personal loans andother consumer banking services mainly to the needy and poor persons. Differentcooperatives and credit unions are established by the Government to provide credit at muchcheaper rate to the farmers.


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Commercial banks, savings and loan associations and credit unions together hold a largeshare of the money stock of a country in the form of various types of deposits. They also lendthese funds directly to individuals and businesses for different purposes and also lend themindirectly through investment in financial instruments.

Non-Depository InstitutionsPosted on May 4, 2012 by admin inBanking.

These institutions perform a variety of functions other than direct banking with thecustomers. All together they support the financial system of a country. The following are thecommon types of non-depository institutions:

Mutual Funds Security Firms Investment banking, Equity Broking Pension Funds Insurance Companies

Mutual Funds: Mutual Funds are the professionally managed funds by fund managementcompanies which collectively invest money taken from many big and small investors in

bonds, shares, money market instruments, commodities etc. to generate higher return fromthe same. It also offers different portfolios with different risk-return objectives based oninvestors choice and helps investors to achieve portfolio diversification without worryingmuch about market index movement.

Security Firms: Investment banking, Equity Broking: These financial institutions help the

investors to perform different capital market and debt related financial transactions. Brokingservices enable trading in equity market and exchange of shares among different entities.Investment banking services help different companies to raise money from the marketthrough IPO, Debt offering etc. and to complete different merger and acquisition relatedtransactions.

Pension Funds:Pension funds mainly handle the pension deposit of all the people living in acountry. They take money from people and invest the money in almost risk free instrumentslike government bonds etc. The main aim is to save their money and provide them interestrate by investing the money in appropriate investment instruments. The rules and guidelinesare very strict for the Pension funds as retirement savings of all the common men are

deposited in the funds.

Insurance Companies:Insurance companies provide the necessary insurance services to thecommon people and different business entities. There are different rules and guidelines forthe Insurance companies which are different from the rules and guidelines being followed bythe Banks. The main aim is to spread risk among large number of people so that potential lossto an insured can be minimized.

Types of Deposit AccountsPosted on May 8, 2012 by admin inBanking.


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Banks take deposits from the customers and this is the major source of its cash or funding. ADeposit account is an account which enables the money to be kept in the bank on behalf ofthe customer or account holder. Every account holder has an account which he uses to storehis money with the bank. Deposit account can be of mainly 2 types are they are

Demand Deposit Accounts Term Deposit Accounts

Click on the account type links to get further description about these accounts.

Demand Deposit AccountsPosted on May 8, 2012 by admin inBanking.

Demand Deposit accounts are whose deposit accounts which enables the account holder towithdraw money anytime based on the demand. As per the definition, demand depositaccounts provide more flexibility to the account holders in terms of withdrawing moneywhenever they want. Different types of deposit accounts are as follows:

Savings Account: This is the most popular demand deposit account which enables theaccount holders to save their surplus money and earn nominal interest rate on the same.

Nowadays lots of extra services are being offered along with a savings account in order toattract more customers.

Negotiable Order of Withdrawal (NOW) Account:This is mainly available in USA whichpays interest, on which Cheques may be written. These accounts are structured to comply

with Regulation Q which prohibits interest payment on checking accounts.

Money Market Account: This is a special type of deposit account which has a relativelyhigh interest rate but requires a higher minimum balance to be kept in the account to earn thathigher interest rate. Failing to keep the higher minimum balance attracts monthly fees fromthe account holders. This is almost same as savings accounts but used to attract customerswith high net worth.

Current Account: This is a deposit account where there are no restrictions on the number oftimes money can be withdrawn and also the bank does not pay any interest on the balancemaintained in this account. This is also known as transaction account in US as it facilitates

higher number of transactions for the respective account holders.

Savings AccountPosted on May 21, 2012 by admin inBanking.

Savings account is the most popular type of demand deposit used by the customers to keeptheir savings with the banks. Banks pay a nominal interest rate on this account which can beregulated or deregulated by the Central bank. The savings account can be with a chequefacility or without a cheque facility and should have some minimum balance to be maintainedin the account to make it operational.
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Currently ATM, online banking, online fund transfer, bill payment etc. services are providedfree of cost for these accounts to attract more customers.

Current Account

Posted on May 21, 2012 by admin inBanking.

This is almost similar to the savings accounts except that there is no restriction on the numberof withdrawals from this account and also the bank does not pay any interest on the balancemaintained in this account. This account is also knows as transaction account as it facilitatesdifferent types of transactions with much ease.

Other services like ATM, online banking, online fund transfer, bill payment etc. services areprovided free of cost for these accounts to attract more customers.

Money Market AccountPosted on May 21, 2012 by admin inBanking.

A money market account (MMA) is a deposit account offered by a bank and almost similar tosavings account. It has a relatively high rate of interest and typically requires a higherminimum balance to earn interest rate. The banks can also deduct penalties if the accountholder fails to maintain the minimum balance required.

These accounts are mainly offered to high net worth individuals along with other wealthmanagement services.

Term Deposit AccountsPosted on May 8, 2012 by admin inBanking.

Term deposit accounts are the specific deposit accounts for which account holders canwithdraw money only after a specified period of time. These accounts are also known asfixed deposit due to fixed tenure involved in the same and money cannot be withdrawn for afixed period of time before the maturity date under normal circumstances. The interestsearned on these accounts are relatively higher than the normal savings deposit accounts asmoney is blocked with the banks for higher duration. Different types of term deposit accountsare specified below

Fixed Deposits: Fixed deposits enables account holders to save their surplus money for afixed tenure which offers them higher rate of interest. The interest rate and maturity date arefixed earlier and the interest rate is considerably higher than the saving account interest rate.In some countries, fixed deposits are encouraged to increase savings by offering tax benefits

by the Governments.

Certificate of Deposits (CD):Certificate of deposit is a special type of term deposits whichenables the CD bearer to earn interest on the amount specified in the Certificate of Deposit. A

CD has a maturity date, a pre-fixed interest rate and can be of any value which is issued bycommercial bank and insured by the FDIC (Federal Deposit Insurance Corporation) in US.
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Retirement accounts: Retirement account is another type of term deposit accounts offeredby the banks which enables the customers to save money to use them after their retirement. Italso offers tax benefit to encourage people to save for their future. These accounts are mostlyused by the employers to deposit pension money for their employees.

Wholesale BankingPosted on May 8, 2012 by admin inBanking.

Wholesale banking refers to the transactions between banks and large high net worthcustomers like corporates and government to facilitate their financial transactions. This isalso known as Business-to-Business banking because of its application in businesses. Themain services offered as a part of Wholesale banking are

Project/Corporate Finance Real Estate Finance Leasing Bills of Exchange Bank Guarantees Trade Finance Export Finance Forex transactions

It also supports cross border transactions by offering different types of services to the exportand import companies as well as government. The services can also be classified into furtherdivisions based on the fund inflow to the bank. These classifications are

Fund based income Non-Fund based income Fee based income

All the services are explained in subsequent posts.

Fund Based Income ServicesPosted on May 8, 2012 by admin inBanking.

Banks have to generate income from different lending services in order to provide interest tothe depositors and make profit. Banks earn most of their income from interests on differenttypes of lending services which are also referred to as Fund based income services due toinvolvement of funds here.

Banks lend money to the borrowers for short, medium or long term either against somesecurity or without any security and the borrower promised to repay the amount in futurealong with the interest amount measured based on pre-decided interest rate.

The lending to the borrower is also referred to as Loan which is nothing but a contractualagreement between the borrower and the bank which contains all the terms and conditions

like loan amount, tenure, rate of interest, repayment schedule etc.


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The fund based lending can be done through Lines of Credit, Terms loans, Trade Finance,Export Import Finance, Revolving loans, club loans, Leasing etc.

Lines of Credit


Line of credit is a special type of fund based lending services offered to the corporates by thebanks to meet short term business or working capital requirements. First, the bank approve aloan limit for a corporate or company based on its credit rating and business and the company(borrower) can take any number of loans within that limit to meets it short term businessrequirement without applying each time. If the combined loan amount crosses the loan limitset by the bank, then the corporate needs to apply for fresh approval and bank has to completethe full loan approval cycle to approve the same.

The bank charges interest rate on such loans to earn profit for itself. Sometimes a flat fee isused for fixed amount and fixed duration short term credits.

Lines of credit can be secured or unsecured depending on the credit rating of the companyand the loan amount. For secured, companies need to offer collateral security like land, fixedassets, receivables etc. to cover up the borrowing while for unsecured, no collateral securityis offered. If the company fails to repay the loan, bank may take charge of the collaterals andsell them to recover the money.

Advantages

Companies can take multiple number of loans without applying each time

Saves lots of time for the borrower Helps companies to meet urgent working capital requirements Borrower needs to pay interest only on the current outstanding amount taken as loan. Reduces documentation and loan approval process overhead for bank

Companies use this facility to meet their urgent working capital requirement as it allows thecompany to pay interest only on the loan amount taken from the bank. The line of creditamount is renewed after certain duration based on the credit condition of the borrower.

Term LoansPosted on May 10, 2012 by admin inBanking.

Term loans normally refer to the loan provided for financing of long term assets like Home,Car, House repairmen work etc. This does not allow the borrower to re-borrow any amountafter repaying some part or full part of the loan. The term loan is the mostly widely used loan

by the retail customers and banks earn high interest income on the same.

The interest rate can be either fixed or floatingdepending on the loan agreement between thebank and the borrower. For fixed interest rate on term loans, the interest rate is fixed for acertain period of time, after which the interest rate is re-visited. For floating interest rate term

loans, the interest rate is linked to a benchmark interest rate like LIBOR or banks primelending rate (PLR) and is updated based on the bench mark interest rates. Banks update their


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benchmark interest rate PLR, depending on the benchmark interest rates (Repo and ReserveRepo) set by the Central Bank.

The term loans can also be divided into 2 parts based on the tenure of the loan. These 2 typesare

Short Term Loan Long Term Loan

Short term loans are provided for shorter time duration to meet the short term liquidityrequirement of the borrower. Also sometimes, borrowers prefer to take short term loans inorder to reduce the total interest payment on the loan. Personal loans, 2 wheeler loans forshorter duration etc. are example of short term loans.

Long term loans are provided for longer duration like 5-20 years to meet the long termrequirement of the borrower like buying a flat, car other fixed assets etc. The repayment

schedule depends on the agreement between the borrower and banks but all the money isrepaid at the end of the tenure. The interest rate can be floating or fixed.

Syndicated LoansPosted on May 10, 2012 by admin inBanking.

As the name refers, Syndicated loan happens when multiple banks form a group tocollectively satisfy a high funding requirement of a borrower. This grouping happens whenthe funding requirement of the borrower is very high and much higher than the credit limit of

a single bank. All the banks lend only the amount to the same borrower they are entitled to.

The main banker of the syndicate manages all the legal terms and credit details and takes helpfrom other member banks to meet the credit requirement. In case of default, banks can takelegal action either independently or jointly.

Syndicated loans mostly happen in corporate sector where multiple banks come under onelead bank to satisfy huge credit requirement of the borrower.

Revolving Loans


A Revolving Credit is firm commitment by the bank to lend up to a certain amount.Revolving credit is similar to the line of credit except for the fact that the duration of the lineof credit is longer ,generally up to five years. The duration of a commitment to lend against arevolving loan is therefore longer than a Line of Credit. This commitment is subject to a loanagreement containing mutually agreeable terms and conditions. Revolving credits are to be

paid in full at maturity, and the revolving credit line can be re-used again for a freshborrowing, if required. A fee generally is charged for a Revolving Credit commitment. Thisis a monthly charge from 0.25% to 0.50% per annum on the average daily-unused portion ofthe committed amount.


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Revolving loans refer to the loans where the borrower can withdraw the money within hiscredit limit, repay some or all part of the outstanding amount and can borrow again over thetenure of the loan. Banks normally charge normal interest rate on the borrowed amount and avery nominal interest rate to the range of 0.5% to 1% (much lower than the interest rate on

borrowed money) on the money unused. The money unused is calculated by subtracting

money withdrawn from total credit limit.

Advantages

Offers high flexibility to the borrowers Lower interest payment and cost savings Can be used to meet short term working capital requirement Usually provided for short term

Business houses, industries, retailers and different companies use this type of loan to meettheir urgent cash requirement without any hassles.

Trade FinancePosted on May 10, 2012 by admin inBanking.

Trade Finance refers to all the lending activities by a bank to facilitate trading between twocountries. This is completely different from personal and corporate banking and havingseparate products to help different import and export entities to continue with their trading.

With globalization, it has become very necessary for banks to spread their business across the

globe and open up branches in different continents. The main purpose is to facilitate differenttrading customers in their inter-country trading activities and earn heavy fees from theservices offered to them.

Services offered by banks in trade finance category

Assisting clients in importing accessories and raw materials from other countries Extending credits against receivables of exporting company Provides loan facilities to customers to import assets from other countries Offers all the forex services to cater their foreign currency requirements Risk management services to mitigate credit risk against the default of the buyer

Other risk management like country risk, currency risk etc. Helps clients to raise loans in foreign currency at attractive interest rates Offer credit protection to the exporting company until the shipment receives to the desired

location

Moreover banks help their clients to reduce cost of funding by availing trade financeactivities at cheaper rate and also by reducing their risk exposure in international trading.

Services offered related to Import

Necessary document preparation and collection Issue Letter of credits Bankers Acceptance facility


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Standby Credits Guarantees for the exporters

Services offered related to Export

Necessary document check and verification Confirm and validate the Letter of credits Handling transferable credits and receivables from importers Extending credit facilities to the overseas buyer Extending credit to overseas financial institutions for the purpose of on lending to their

clients

Providing credit protection to the exporters if the importer fails to pay the exporter.Banks charge high fee for trade finance related services, thats why it has become very

popular for the banks now.

FactoringPosted on May 15, 2012 by admin inBanking.

Factoring is a financial transaction where a company sells its account receivables to a thirdparty or a bank at a discount for some immediate money to finance its urgent cashrequirements. Normally every company has a credit policy which provides the byers somecredit period to pay back all the pending dues; these are called account receivables andtermed as asset for the company.

Account receivables are non-cash assets but it helps the companies to withdraw cash from thebank by selling these account receivables and the withdraw amount can vary between 70 -80% of the total account receivables value.

The main characteristics of factoring are

Usually a third party or a bank buys the account receivables; named as a factor The company sells some of its account receivables at a discount; normally 70-80% of its total

value

Three parties are involved in the transaction Bank or the factor, company that sellsaccount receivables and the debtor

There is some risk associated with the debtors ability to pay the receivables within the timeframe.

Difference with Bank loan

The main differences between bank loan and factoring are

For Factoring, the emphasis is given on the value of account receivables while moreemphasis is given on the credit rating of the company for loans

This is a purchase of financial assets which is different from loan Factoring involves three parties as specified earlier while loan involves two parties

How does Factoring works


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The following diagram shows how Factoring works among the customer, Supplier and theFactor

Factoring Process Flow

1. Supplier makes a credit to their customers.2. Supplier sells its customer a/c to the factor and notifies the customer.3. Factor makes advance payment to the supplier after deducting the margin and discount

charges.

4. Factor maintains customers account and follows up for payment.5. Customer remits the amount due to the factor.6. Factor makes final payment to the supplier i.e. margin amount.

Benefit of Factoring

It manages trade debts of the client by maintaining sales ledger, collecting payment andother administration services. The supplier is saved of the administrative cost of book

keeping, stationery, postage and management time.

It takes care of the risk aspect of the debt from the supplier when the arrangement iswithout recourse to the supplier.

It provides advance to the client before maturity date. This improves the liquidity of thesupplier.

Use of Factoring in India

Development of factoring started in the year 1990, when SBI and some nationalized banks

started factoring subsidiaries. These factors provide pre-payment upto 80% of the invoicevalue and deal only in inland bills. Factoring services are not extended to financial andinvestment companies.

ForfaitingPosted on June 28, 2012 by admin inBanking.

Factoring essentially involves purchase of inland receivables. In international tradetransactions, forfeiting is much a more common form of financing export-related receivables.
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Forfaiting is purchasing of export bills where payment is expected to be received over alonger period in installments (deferred payment exports). It is done without recourse to theexporter if the bills are accepted by the importers bank also known as Avalling Bank. AnAval is an endorsement on the importers promissory note by the importer bank, guaranteeingthe payment.

How does Forfaiting work?

The below diagram shows the basic function of the Forfaiting Process.

Forfaiting Process Flow

Exporter sells the goods to importer on deferred payment basis. Importer issues series ofpromissory notes undertaking to pay the exporter in installments with interest. Importerapproaches its banker (Avalling bank) (1) for adding the bank guarantee on the promissorynote that that payment will be made on each maturity date. The promissory notes are nowavalised (2).

Avalled notes are sent to the exporter (3). Avalled notes are sold at a discount to a forfeiter,usually exporters bank (4) and exporter obtains finance (5). Forfaiter may hold till maturitydate and obtain payment from the importer/avalling bank, or sell it in the secondary market orsell it, to a group of investors (securitization).

Benefits of Forfaiting

Forfeiter provides 100% finance unlikely to the Factoring process. Risk is covered based on the importers country and the rating of the Avalling bank.

LeasingPosted on May 15, 2012 by admin inBanking.

Leasing is a financial process which enables companies to obtain some fixed asset for somespecific duration on rent without buying the asset completely. A company may need one assetfor short duration like 1-2 years and dont have money to buy the asset for this short duration.In that case, they prefer taking it on lease for 1- years and giving it back after the use of theasset.

The lessee is the receiver of the asset and lessor provides the asset on leasing. The leaseperiod can be of very short duration for operating lease or can be same as the life of the assetfor financial lease. Banks and different financial institutions buy different assets and provide
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them as financial lease to different companies from which they earn the rent and interest overthe entire period of the asset. Financial lease is very popular in Aviation industry whereoperating lease is very popular in manufacturing industry.

Advantages of Leasing

Leasing requires lower funds than purchasing the same asset Leasing is more flexible than buying the asset for short term use Helps for rapid expansion in business without investing much in fixed assets like lands and

buildings.

Financial lease provides tax benefits as lease payments are considered as expensesDisadvantages

Lessee has to bear the maintenance cost of the asset Difficult to terminate a lease contract before the end of the lease period specified in the

initial contract May result in higher rental at the time of renewal of the lease contract and sometimes it

may not be successful.

Letter of CreditPosted on May 15, 2012 by admin inBanking.

Letter of Credit or Documentary Credit is used for Import finance which the importingentities use to reduce risk on their import from unknown exporters of other countries. Incross-country trade, importers pay the money to the exporter only after receiving the goodsand services from other countries. They use letter of credit mechanism for the settlement of

payment between themselves.

A letter of credit is a document which a financial institution or bank issues to the exporter ofthe goods in foreign country which provides the guarantee that the issuer will pay him themoney for goods once the exporter deliver the same to another importer. The issuer of letterof credit takes the payment from the importer and pays to the exporter once the shipment iscompleted.

The steps involved in letter of credit mechanism are

Before the shipment the importer request a bank to take payment obligation on his behalf infavor of an overseas exporter

After checking the credit status of the importer, the issuing bank then prepares a letter ofcredit in favor of the overseas exporter payable at any bank in the exporters home country.

The issuing bank can have its own branch in the exporters country or can have agreement

with some other bank to receive its letter of credit.

The receiving bank takes the letter of credit from the issuing bank and promises to pay theexporter once the shipment is delivered.

If the credit status of the issuing bank is not acceptable to the exporter then he can requestimporter for a letter of credit which should be through a bank in the exporters country. In

that case, the issuing bank requests some other bank in the exporters country to takeundertake the full payment obligation on their behalf for the shipment.


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If a bank from exporters country takes the full obligation of the payment to the exporter, itgives the maximum confidence and assurance to the exporter.

After the shipment, the exporter presents the documents to the confirming bank which thebanks scrutinize further.

If the documents are proper, then the bank makes the payment to the exporter and notifiesthe issuing bank.

Issuing bank checks all the documents and reimburses the confirming bank The issuing bank then sends collection of payment document to the importer or directly

debit the payment from his account

Thus the payment is completely made from the importers to the exporters for cross-bordertraining.

Due to high increase in cross border trading and high fees involved in the letter of creditprocess banks are now trying to provide different letter of credit services to satisfy differentcustomers. Banks are also extending their network to other countries to reduce dependencyon other banks while taking this service.

Types of Letter of Credits

There are various types of letters of credit available depending on contract terms associatedwith the same. These are

Revocable Irrevocable Revolving Confirmed Standby Back-to-back Deferred Payment

Revocable: A revocable Letter of Credit can be cancelled or revoked at any time by theimporter without the consent of the exporter. This option is not used as it possessessignificant risk to the exporter. By default all the Letter of Credits are irrevocable.

Irrevocable: An irrevocable Letter of Credit can be revoked only after the consent of all therelated parties involved in the process. By default, all the letter of credits is irrevocable.

Revolving Credit: Revolving letter of credit is used for repeated import of same type of

goods by the same importer over a period of time. In revolving credit, the amount is re-instated and made available to the exporter on periodic basis to enable him export the samegoods multiple times to the same importer. It is very useful for importers who want to importthe same material from a cross-border exporter at regular intervals for a specified period oftime.

Confirmed: A confirmed letter of Credit contains an additional confirmation from someother bank in addition to the issuing bank. The confirming bank takes on an obligation to payeven if the issuing bank defaults and fails oblige the payment obligation.

Standby Credit: Standby credit is a default instrument which protects the exporter from thedefault of importer or failure of any obligation of the applicant. Here the beneficiary is


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eligible for payment when the applicant fails to perform the obligation specified in the termsand conditions.

Back-to-Back: The original letter of credit is used as security by the exporter to open anothercredit in favor of another exporter of its own group. Here the issuing bank may be different,

but the original letter of credit is used as security for the later one.

Deferred Payment Credits: In this type of letter of credit option, the payment is deferred forfuture until the imported material is used properly by the importer. Here payment is made indifferent installments based on the contracts terms and conditions. Suppose one importer isimporting some equipment to build a nuclear reactor from an overseas supplier. The deferred

payment schedule can be 20% advance payment, 50% after receiving the equipment and rest30% after successful completion of the project.

Risks associated with Letter of Credit

Due to its cross border transactions and involvement of not well-known parties leads tomultiple risks associated with Letter of Credit process. The main risks are

Fraud risk as the importer can present false documents for shipment and credit as the Banksdepend on only documents to verify the transaction

Government policy and financial sanctions imposed by other countries can make the letterof credit risky for exporters

Non-Delivery or damage of goods due to accidents and hazards The quality of the goods delivered may not inferior to what was promised earlier Unfavorable movement of forex rate can affect the profitability of the exporter Shipment delay can cause significant loss to the importer Risk of defaulting of the issuing bank or the importer Significant legal risks involved due to different legal requirements in different countries

Due to these risks banks charge very high fee to support letter of credit transactions. Alsobanks need to have very good risk management mechanism to mitigate these risks arising outof cross border transactions.

Bank GuaranteePosted on May 16, 2012 by admin inBanking.

Bank guarantee is provided by a bank to a business or an individual which specifies that thebank will pay the pre-specified outstanding amount if the business or individual defaults onthe same. These are mainly used as collateral by businesses or individuals to gain trust andwin different contracts in domestic as well as foreign country.

Sometimes the other party involved in the business and contract asks for bank guarantee tosecure its investment and mitigate default risk. It helps to win contracts in foreign countrieswhere the foreign entity or the main party can only trust a bank guarantee.

Types of Guarantees

Different types of bank guarantees are issued by a bank. The main types are specified below.


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Tender Guarantee: This bank guarantee provides protection against the additional costsinvolved in tender if the winning party fails to take up the contract. This is usually verynominal amount and sufficient enough to fund awarding the same contract to another party orask for new tender.

Performance Guarantee: Here the bank pays the guarantee amount, specified in thecontract, if the contractor fails to satisfy the performance criteria. The beneficiary may usethe amount to improve the performance by awarding a new contract to another vendor. The

performance guarantee amount covers the performance improvement charges which usually10-15% of the total contract amount.

Advance Payment Guarantee: Here the bank provides guarantee to refund the advanceamount that the beneficiary has already paid to the contractor but the contractor failed to takeup the project and defaults on the advance payment refund. This protects the beneficiariesfrom losing the advance amount already paid to the contractor.

Maintenance Guarantee: Here the bank provides the guarantee to ensure propermaintenance after completion of the project. If the contractor fails to provide the necessarymaintenance, the bank pays the maintenance charges to the beneficiary so that he can assignthe maintenance task to some other contractor.

Customs Guarantee: This is used to provide guarantee to the customs department so that thenecessary customs duty can be recovered from the bank if the importer failed to oblige anycustoms duty exemption rule while importing any equipment from overseas.

Banks earn fee either as a percentage of guaranteed amount or some flat amount. This is awidely used whole sale product by the banks and mostly used by businesses, contractors etc.

OverdraftPosted on September 10, 2012 by admin inBanking.

Overdraft is a facility offered to retail clients with credit card features such as billing date,minimum payment, and pay by date, penal interest and late fee for late payment. It is same asa short term loan which should be repaid with the interest. Sometimes, customers have tosubmit collaterals with the banks in order to secure overdraft loans.

Key terms for Overdraft

Interest:The normal interest is applied to the Overdraft accounts as well. It depends on thebank. It varies to each and every bank. The penal interest will applied in case the customerfails to pay the interest on time. The interest can be paid in monthly basis, quarterly, half-yearly, yearly basis.

Sanction Limit: The sanction limit is amount given to the customer as a loan which hecannot exceed. This limit is calculated according to the collateral value submitted by thecustomer to the bank.

Drawing power: The amount which the customer can withdraw from the sanction limit setby the bank.


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Example: Suppose a customer approaches the bank for a loan and lodges his house as thecollateral to obtain the same. Bank determine the sanction limit as 5,00,000 after evaluationthe collateral but the set the drawing power as 90%. He can withdraw only 4,50,000 usingoverdraft facility even though his sanction limit is 5,00,000.

Types of Overdraft

Revolving OD: The money which is given to you by the bank as loan can be utilized anynumber of times.

Example: if your drawing power is USD 100,000, you have withdrawn amount USD 50,000out of it. Now the available balance in your account is USD 50,000. Later you repay yourentire loan of USD 50,000 which now makes the available balance as USD 100,000. You canutilize the full amount USD 100,000.

Non Revolving OD: This is opposite to the revolving OD. Once the money is utilized from

the limit, even though you repay it into the account, you cannot utilize the money again.

Example: if your drawing power is USD 100,000, you have withdrawn amount USD 50,000out of it. Now the available balance in your account is USD 50,000. Later you repay theamount USD 50,000 which now makes the available balance as USD 100,000. But you canutilize only the remaining amount of USD 50,000. You cannot use the money you havedeposited

Temporary overdraft (TOD): A Temporary Overdraft (TOD) is an advance made by thebank to a customer to meet the customers immediate requirements. It is for a short period,generally not backed by a formal sanction. Sometimes, Temporary Overdraft is grantedduring cash withdrawal for esteemed customers when they dont have sufficient balance intheir account. At that time, Temporary Overdraft is granted automatically by the banks up toa certain limit.

Example: While cash withdrawal the customer passes the cheque on 1, 00,000 but there isunavailability of 10,000. At this time either the system will automatically grant 10,000 asTemporary Overdraft to the customer or the bank manager will grant the TemporaryOverdraft.

Collaterals for Overdraft

There are different types of collaterals like houses, machineries, land, vehicle, mutual funds,deposits etc.

Collaterals are the security given to bank by the customer who gets loan or OD The Bank can take different collaterals to cover the advances given to customers The collaterals are taken by way of primary and secondary collateral. Collateral with higher

valuation is termed as Primary collateral.

Once the collaterals are defined as approved collateral, the user can link it either to anindividual account as security.

The single collateral can be linked to any number of account depending on the overallvaluation of the collateral and the loan the customer has taken on his loan account. Theunutilized amount can be used as collateral to take further loans.


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The individual account can be linked to two or more collateral if valuation of one collateral isnot enough to cover the entire loan amount.

Lockbox Processing

Posted on September 10, 2012 by admin inBanking.

Lockbox, in general, is a service offered by banks to the companies where the companyreceives all the payments via mail and directs them to a special post office box. This special

post office box is termed lockbox. The Bank obtains this box from the Postal Servicedepartment. The bank, in turn, picks up the payments and deposits them into the companysaccounts. The company is also notified of the deposit.

Lockbox are nothing but containers to collect the paper cheques. The collection, conversion,processing and clearing of the cheques to and from financial institutions is known as chequesprocessing. cheques processing and lockbox processing terms can be used interchangbly.

Why Lockbox

Lockbox is an efficient cash management tool which provides cash management services toall the needy corporate customers.

Lockbox is mainly used to enable funds to be readily available and to avoid tight cash flow. Lockbox is mainly used by businesses that receive cheque payments by paper in mail from

consumers or business customers.

Using Lockbox is an efficient way to minimize the fraudulent activities since payments arehandled by the bank.

In short, the bank collects the receivables and deposits them into the operating businessaccounts of its customer companies.

Types of Lockbox

The prime objective to consider lockbox services is to increase the speed and efficiency inprocessing the payments received. Hence different types of lockbox services are introducedto support this objective. They are: Wholesale lockbox and Retail lockbox

Wholesale Lockbox:

oDeals with large value payments

o Used to process small volume of payments.o Used for business payment.o Advantage: More money is available on a daily basis. Hence debt cost can be

reduced.

Retail Lockbox:

o Deals with small value payments and also higher processing volumes than wholesalelockbox.

o Used for making payments to the consumers.o

Advantage: Reduce costs while maintaining accuracy


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Fee Structure

Some banks process the cheques at no cost for their bug customers. But there can be feesfor higher volume of cheques.

Some banks charge some maintenance fee to maintain the lockboxes. Retail accounts processing are always more expensive than wholesale accounts processing.

Lockbox Processing by the Bank

Lockbox is a cash flow technique in which all the payments of a Companys customer aredelivered to a special post office box.

Customers can be situated in any geographical location. Lockboxes will be situated in placesnearest to the customers geographic location.

Now the couriers of the bank, who have a key to the lockbox, remove the entire contentsfrom it and deliver all the payments into the customers bank.

Now the bank processes all such payments received and deposits it directly into thecorresponding bank account.

Lockbox Processing by the Company

Once any cheque or payment is processed in the lockbox department, a notification is sentto the Company intimating the successful processing of the remittance document.

Advantages of Lockboxes

Efficient and faster access to funds and faster return-item processing. Improves cash flow and hence availability of funds for the corporates. No postal delay involved since there is a dedicated box to receive all your customers

payments instead of you receiving it and processing the payments.

Remittance information can be tracked all the time and customers will get updates regularly. Lower floating cost due to faster processing with less effort. It is widely used by corporate customers as their payments and statements are both

processed by various financial institutions using this facility

Disadvantages of Lockboxes

Lockboxes need to be closely monitored to prevent theft or fraudulent activities. The courier persons should be trained efficiently on the banks security and Policies to

ensure full security. It involves tremendous amount of paper movements between a bank provider and their

customers which may lead to human error sometimes.

Lock-box servicePosted on May 16, 2012 by admin inBanking.

Through lock-box services, banks provide payment collection boxes at different locationshelp its client receiving payment from different vendors. The boxes are operated by the banksand banks clear the lock boxes multiple times in a day to collect all the incoming cheques and


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payments on behalf of its clients, mainly companies and businesses. After receiving thecheques, the banks deposit the amount in the respective customers accounts.

Advantages of lock-box services

It helps to simplify payment collection and processing of account receivables on behalf ofdifferent companies.

It reduces overhead work for the company as the company persons do not need to collectthe cheques and deposit the same in the bank.

Only the drop box addresses are provided to the vendors which enable them to send their allcheques to the same address through post.

Company maintains lock boxes in different locations across a country with the help of a bankto facilitate payment receipts from all of its customers and vendors.

As the bank itself receives the cheques it reduces time significantly and makes the paymentcollection process faster.

Credit AppraisalPosted on May 16, 2012 by admin inBanking.

Banks use the credit appraisal services for themselves before providing loan to a borrower.The Credit Appraisal process is based on careful analysis of various facts and data provided

by the borrower to the bank. After the proper credit appraisal process, banks takes a decisionto either fund the project or reject the proposal. This in-depth study is called the pre-sanctioncredit appraisal which helps the approver to sanction the loan to the borrower.

Credit appraisal takes care of

Borrowers ability to complete the project and its intention to re-pay the loan aftercommissioning of the project

All the technical details related to the project like project requirement, end product,maintenance, project specifications, quality etc.

All the financial details related to the project like Cash Inflow, Cash Outflow, NPV, BreakEven period, growth opportunity etc.

Financial appraisal to determine whether the company will be able to repay the loan fromincremental cash flows or not.

Market Appraisal to determine whether the project is viable or not and what are chances ofbeing successful

Advantages

Reduces risk involved in the loans provided for a project Increase confidence among the corporate bankers and improved sales decision Reduces NPA (Non-Performing Assets) and possibility of financial loss Proper assessment is done with different options

Five Cs of Credit



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The 5 Cs of Credit is also known as the 5 Cs of banking. It refers to main 5 points which thebanks use to take approval decision of loans. The main points the banks analyze are

Cash Flow Collateral Capital Character and Conditions

Cash Flowrefers to the cash flow that the business generates or the monthly income for anindividual. The cash flow is checked to determine whether the business or the individual will

be able to repay the loan from the cash flow from business or his monthly income.

For companies, banks use different financial ratios like Debt Service Coverage Ratio andInterest Coverage Ratio to analyze the loan repaying capability of the company. Forindividual, it should be the monthly salary and the credit rating of the company they are

employed in. Banks normally dont provide the loan in case of cash flow uncertainty.

Collateralprovides some security to the banks when they are giving high amount of loans tothe borrowers. Banks use the collateral as the secondary source of repayment of the loan ifthe company or individual fails to repay the loan within the agreed time period.

It provides some comfort to the banks as they will be able to recover either some parts or theentire amount of the loan in future by selling the collateral. Banks accept account receivables,Inventory, Land, Fixed assets, real estates as collaterals while providing loans.

Capital refers to the current capital that the company or the individual is holding. For acompany, it is same as the owners equity in the company and it should be sufficient enoughfor the loan to be approved.

Enough capital will ensure that the company can continue with its business operations even ifit fails to generate positive cash flow for some time. Also high owners capital in thecompany gives more confidence in the bank that the owners have very high interest in thecurrent business and will stick to it during any crisis situation as well. Banks normally checkdebt-equity ratio to analyze the current status of owners capital and debt level in thecompany.

Conditions refer to the current business scenarios and the overall credit environment. Banksnormally hesitate to provide loans if the current business situation is not good andprofitability of the companies is not up to the mark. Also if the overall credit environment isbad and NPA (Non-Performing Asset) is already high then banks normally dont provideloans easily.

For companies, banks also analyze the sector they are operating in and the current conditionof the entire sector. Banks check the below details while analyzing the condition of acompany while providing loans.

Companys risk management processes Its historical financial performance and key financial parameters Competition in the industry in which the company operates


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Diversification of the business Supply, patent related disputes and other possible risks Regulatory or legal issues involved if any

After checking all these parameters, banks provide loan to the company only if they find it

suitable based on these conditions.

Character of the company owners or the individualis one of the most important parameter,banks check while providing the loans to companies or individuals. Banks refer to theprevious track records of the borrower and his willingness to repay the loan amount. Banksprovide loans only to the borrowers with sound character whom can also be trusted to honortheir commitment in repaying the loan amount.

These are very important parameters that the banks use to take decision about the approval ofthe loans. The Individuals and companies should also try to improve these parameters beforegoing for any fresh loan application.

7 Cs of Credit AnalysisPosted on May 21, 2012 by admin inBanking.

Lenders or banks use 7 Cs to perform the credit analysis of the borrower of the loan. Themain parameters based on the credit analysis is done are

Collateral Character Conditions Credit Capacity Currency Country

Collateralprovides some security to the banks when they are giving high amount of loans tothe borrowers. Banks use the collateral as the secondary source of repayment of the loan ifthe company fails to repay the loan.

It provides some comfort to the banks as they will be able to recover either some parts or the

entire amount of the loan in future by selling the collateral. Banks accept account receivables,Inventory, Land, Fixed assets, real estates as collaterals while providing loans.

Conditions refer to the current business scenarios and the overall credit environment. Banksnormally hesitate to provide loans if the current business situation is not good and

profitability of the companies is not up to the mark. For companies, banks also analyze thesector they are operating in and the current condition of the entire sector. Banks check the

below details while analyzing the condition of a company while providing loans.

Companys risk management processes Its historical financial performance and key financial parameters Competition in the industry in which the company operates Diversification of the business


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Supply, patent related disputes and other possible risks Regulatory or legal issues involved if any

After checking all these parameters, banks provide the loan to the company only if they fundit suitable based on these conditions.

Character of the company owners or the individualis one of the most important parameter,banks check while providing the loans to companies or individual. Banks refer the previoustrack records of the borrower and his willingness to repay the loan amount. Banks provideloans only to people with sound character whom can also be trusted to honor theircommitment in repaying the loan amount.

These are very important parameters that the banks use to take decision about the approval ofthe loans. The Individuals and companies should also try to improve these parameters beforegoing for any fresh loan application.

Creditrefers to the credit score of the borrower which reflects their ability and willingness torepay the loan. Banks check the credit and repayment history to come up with the creditrating for borrowers which help the banks to take a decision about the loan.

Capacity refers to the money generated by the company or business in order to repay theloan and interest on the same. For companies, banks use different financial ratios like DebtService Coverage Ratio and Interest Coverage Ratio to analyze the loan repayingcapability of the company. Banks normally dont provide the loan when there is someuncertainty in the cash flow.

Currencyparameter is used for cross border lending where the banks analyze the historicaltrend in currency movement while taking decision about a loan. Steep unfavorable movement(domestic currency depreciation) can make a cross border loan very much costlier andincrease the probability for default. Banks need to check this parameter while providing cross

border loan to foreign companies.

Countryis also an important parameter used by the banks in cross border lending. Here thecountrys political system, legal system, laws and regulations are closely verified before

providing loan to companies operating in the country. Political stability and proper legalsystem are very much important parameters to boost the confidence among the cross borderlenders. Banks will not be willing to provide loans to the foreign companies if the

government is politically unstable, legal system is not suitable and the government policiesdo not support industrial growth and foreign investment.

Types of Repayment OptionsPosted on May 21, 2012 by admin inBanking.

After taking the loans, the need to repay the entire loan amount along with the applicableinterest. The repayment arrangement can be agreed between the bank and the borrowerdepending on the need and feasibility of the borrower. There are different types of loanrepayment arrangements are used which are specified below.

Equal Periodic Installments


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Stepped Up Installments Bullet Repayment Deferred Repayment

Equal Periodic Installments: This is the most widely used repayment option used by the

borrowers to repay the loan amount along with interest. In this type of repaymentarrangement, the borrower repays an equal amount at periodic intervals (monthly, quarterlyor annually depending on the agreement) to the bank. This payment from the borrowerincludes the interest for the period and some part of the principal payment. With every

payment the outstanding principal decreases.

Stepped Up Installments: In this type of repayment arrangement; the installments payableon the loan are increased after certain intervals over the entire tenure of the loan. Theinstallments start with a small amount and then start increasing with either constant amountor constant percentage. This type of repayment arrangement is preferred by borrowers whoexpect increase in their income after certain intervals (yearly salary increase for salaried

professionals).

Bullet Repayment: In this type of repayment arrangement, most of the repayment is madeon the maturity of the loan. The interest can be paid during the tenure of the loan or at thetime of maturity.

Deferred Repayment: In this type of repayment arrangement, the repayment starts only aftera given period of time after disbursement. Here the starting date is deferred by the repaymentschedule can follow the equal period installment or the steeped up installment methods. Thisis mostly used for education loans or some project finance where the repayment starts onlyafter completion of the education course or the project.

Know Your Customer (KYC)Posted on May 21, 2012 by admin inBanking.

Know Your Customer (KYC) is set of customer due diligence related activities that the banksor financial institutions must perform to identify their customers and notifying them with allthe relevant important information related to all the banking and financial products.

KYC has been mandated by the respective central banks of all the countries to protect

customers from any kind of fraudulent activities, Identity theft and money launderingactivities.

KYC Control typically includes these below details

Collection and analysis of basic identity information (CIP) Identification and verification of the customers Describe clients source of wealth and request for proper references Determination of customers risk from any kind of fraudulent activities Monitor customers transaction pattern and compare the same with the peer group Monitor account activity to determine those transactions that do not conform with the

normal or expected transactions for that customer Customer Acceptance Policies


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On-going monitoring of account with high risks and proper risk managementKnow Your Customer (KYC) policies are most closely associated with the fight againstmoney laundering and mostly used in Wealth Management deals with large valuetransactions w

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