Banking and Insurance

Course Outline
Careers in Banking
Introduction to Banking Role in an economy,
developments etc.
Study of Bank financials
Asset Liability Management in banks
Risk Management
Treasury Management
Management of NPAs
Regulatory role of RBI and Monetary policy
Consolidation of the Indian Banking structure
Introduction to Insurance types, Role in India
Regulation, reforms, challenges, Fund
management in Insurance
Projects in various Banking related topics

Banking as a Whole

One of the worlds leading

Major provider of financial

services including
corporate finance, cash
management, & credit
Comprises of five national

business segments:
Middle Market Banking,
Mid-Corporate Banking,
Commercial Real Estate,
Asset Based Lending and
Commercial Leasing

investment banks

Commercial
Banking Investment
Bank

Services provided: Advice

on corporate strategy and

structure, raising and
placing capital, making
markets in financial
instruments and offering
sophisticated risk
management services

Treasury and
Retail Clients
Securities
Financial
Services
Services

Includes Auto Finance,

Consumer Banking,
Home Finance,
Insurance and Small
Business Banking
Provides mutual fund,

insurance & home

finance and workplace
banking products to
consumers and small
businesses

Global leader in

Asset
and
Card
wealth
Services
Management

Provides investment & wealth

management services to
institutional investors, high net
worth individuals & retail
customers
Provides personalized advice

and solutions to wealthy

individuals

transaction processing
and information
services to wholesale
clients
Three Businesses:

Institutional Trust
Services, Investor
Services(WSS) and
Treasury Services

Delivers credit card and other

related payment products to

cardholders and merchant
outlets
Aims to be the preferred

payment card in existing

customers wallets and to
increase access to new
customers

Business segmentation

Organisation structure

Most commercial banks have the following structure

Head office
Head office departments
Regional offices
Branches
The Head office departments are
Credit
Central treasury
HRD
Finance
Legal
Risk management
Internal Control and Compliance
Audit
Investment Banking
Merchant banking
Most branches have the following sections
Front office
Deposits
Loans
Clearing
Ancillary Services
Consultancy Services
Trade Finance
Corporate banking
Government Business
MIS

Main functions

Retail banking
Corporate banking
Trade Finance
Correspondent Banking
Treasury
Government business
Rural development Banking
Banking needs of Small scale sector

Entry modes
Public Sector Through bank related
exams IBPS
SBI and RBI conduct their own exams
Entry level Probationary officers
Trained and posted to the various
departments and then make their way up
the organisational ladder
Private sector and Foreign Banks have
their own system of recruitment and they
generally have
Front office Relationship managers one
point contact for the customers
Mid office - IT, Risk management, Audit
Operations jobs- servicing of loans, deposits,
clearing, and other day to day jobs
7

Investment Banking

THE NATURE OF INVESTMENT BANKING

Investment Banks help companies and governments
issue securities, help investors purchase securities,
manage financial assets, trade securities and provide
financial advice
Brief history
Glass-Stegall act 1930
Securities Act and Exchange Act 1933
The "conspiracy arguments" of 1950-51
Elimination of fixed commission structure (1975)

Three major types of firms

national full-line investment banks that service retail and
corporate customers (e.g., Merrill Lynch)
national full-line firms that specialize more in corporate
finance (e.g., Goldman Sachs)
the remainder of the industry and includes four classes
specialized investment bank subsidiaries of commercial
banks
specialized discount brokers
regional securities firms
specialized electronic trading securities firms
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Investment Banking contd.

Securities firms and investment banks engage in as

many as seven key activity areas

Investing
Investment Banking
Market Making
Trading
Cash Management
Mergers and Acquisitions
Other Service Functions

Investing
Involves managing pools of assets such as mutual funds
Compete with commercial banks, life insurance
companies, and pension funds
Manage funds either as agents for other investors or as
principals
Objective is to select asset portfolios to beat some
return-risk performance benchmark such as the S&P 500

Investment Banking contd.

Investment Banking
Refers to activities related to underwriting and
distributing new issues of debt and equity securities
Industry is dominated by a small number of underwriting
firms
Securities underwriting can be undertaken through either
public or private offerings
Private placement - securities issue placed with one of a
few large institutional investors
Public placement - may be underwritten on a best efforts or
firm commitment basis and offered to the public

Market Making
Involves the creation of a secondary market in an asset by a
securities firm or investment bank
Either agency or principal transactions
Agency transactions - two-way transactions on behalf of
customers
Principal transactions - the market maker seeks to profit on
the price movements of securities and takes long or short
inventory positions for its own account

Cash Management
Securities firms and investment banks offer bank
deposit-like cash management accounts (CMAs) to
individual investors
money market mutual fund sold by investment banks
that offer check-writing privileges
10

Investment Banking contd.

Trading
Closely related to market-making activities
Six types of trading
Position trading - purchases of large blocks on expectation of
favorable price move
Pure Arbitrage - buying an asset in one market and selling it
immediately in another market at a higher price
Risk Arbitrage - buying securities in anticipation of some
information release
Program Trading - simultaneous buying and selling using a
computer program to initiate such trades
Stock Brokerage - trading of securities on behalf of individuals
Electronic Brokerage - offered by major brokers, direct access via
internet to trading floor

Mergers and Acquisitions

Frequently provide advice on, and assistance in, mergers and
acquisitions
assist in finding merger partners
underwrite any new securities
asses the value of target firms
recommend terms of the merger agreement
assist target firms in preventing a merger

Other Service Functions

Custody and escrow services
Clearance and settlement services
Research and advisory services

11

Investment Banking contd.

Nature of business according to functional activities

Investment bankers as market makers
Objectives
Provide market liquidity
Provide price continuity
Types of market making
Brokered trading
Dealer trading
Market making

Investment bankers as underwriters

Nature of business according to revenue-generating activities
Pure investment banking activities
Public offerings of securities
Financial advisory services

Principal transactions (Fixed Income, Equity, FEX and

Commodities)

Block trading
Program trading
Risk arbitrage
Securitization

Commission and Brokerage

Fixed income
Equities
Derivatives
Merchant banking and money management
12

Investment Banking contd.

PUBLIC OFFERINGS OF SECURITIES (UNDERWRITING)

Contract type (firm commitment / best efforts)
Structure of the Offering (Negotiated / Competitive/ Shelf 415)
Spreads or underwriter discount
Common Stock offerings
IPOs
Seasoned offerings
Private placements of Equity
International/ Global offerings
Debt offerings
Convertible issues
Straight issues
Debt facilities (RUFs and NIFs)
Euro-offerings
Stock price effects and offering dilution
Over-allotment option and stabilization procedures

ADVISORY SERVICES AND OTHER ACTIVITIES

M&A
Securitization
Money management

COMPETITION AND INDUSTRY STRUCTURE

Structure
Competition
Reorganizations
Trends

13

Investment Banking contd.

The Goldman Sachs Equities division assists institutions,

corporations, and governments with their investing and trading
strategies by providing market and trading information,
perspective and guidance.
Institutional clients include portfolio managers, mutual funds,
money management firms, insurance companies, and other
institutions that participate in the equity markets.
Goldman Sachs is recognized as a leader worldwide for their
work, including:
executing block trades of equity securities
facilitating portfolio hedging and restructuring
providing information and guidance on equity markets, individual
companies and industries
acting as advisor and lead manager for corporations going public
or issuing equity in global capital markets and assisting
companies in raising capital in private equity markets
advising governments and government-related entities in major
industrial and emerging-market countries on privatization
programs and other equity markets related initiatives
developing innovative products and strategies that broaden
opportunities for clients
assisting investors in planning and implementing strategies
making markets
developing trading models and algorithms

14

Investment Banking Activities

Examples of investment banking activities
in India
Financial and business restructuring
Company acquisition by a MNC
Lead manage structured credit issues
Power sector privatization
Private sector issue of long term (100 Year)
Bonds
IT industry advisory transactions
Capital market securitization transaction
Initial public offerings
Preferential equity offerings

15

Careers in insurance
Insurance companies will have openings
in the following departments
Investing
Marketing
Distribution
Actuarial
Underwriting

16

Insurance Functions
Insurance companies will have openings
in the following functions
Accounts
Audit and risk management
Actuarial
Administration
Business research and planning
Channel Development
Customer service
Claims
Group sales
HR
IT
Legal and compliance

17

Insurance Functions contd.

Medical
Marketing
Operations
Process Management
Sales Retail/Alternate channel/Direct
Training
Underwriting
Quality

18

Job Description
Actuaries help design plans and evaluates
risks
Underwriters assess proposals and
determine terms and costs of a policy before
deciding whether to insure a customer
Claims staff settle claims
Loss assessors assess loss caused due to
burglaries, fire, car accidents and natural
calamities . They work out the loss covered
by the insurance policy and report the details
and circumstances to the insurer
Insurance agents work on behalf of the
insurance companies. They sell policies,
collect premiums and meet sales target on
commission basis

19

Job description contd.

Insurance brokers are independent
business people or those who work for
brokerage firms to find the best policy for
their client
Risk managers assess the companies
risks advising about insurance and
investment strategies

20

Public sector insurance jobs

Administrative officer and assistant administrative

officer entry level in LIC or GIC
Posted to following departments
Administration
Handle

Policy Making
Policy Claims
Checking policy clauses and details
MIS ie. Filing various returns and statements

Development
Deal with
Marketing and procurement of business
Promoting policies
Getting contracts

Accounts
Manage funds including income and expenses

Development Officers
In charge of a territory for development of policies. They
handle
Recruitment of agents
Train them for procurement and servicing of policies
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Private sector jobs

Sales and distribution
Agents
Advisors
Relationship managers

Channels of distribution
Direct sales reports to branch manager and
responsible for sales targets
Indirect or alternate Comprises of
distributors. Normally not part of branch sales
targets.

Actuarial
Underwriting
Marketing and distribution
Operations
Investments
22

Career path in Private Insurance

Sector

23

Sub sectors in Insurance for

employment opportunities

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