BFS Roundup @FLIP Issue 9

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Volume 1, Issue 1

Issue 9 20th April, 2012

Weekly

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RBI cuts rate, signals pause

RBI, in the last three year, decreased the

repo rates for first time in order to boost

economic growth. Market was expecting

rate cut of 25 basis points but RBI surprises

everyone with brave 50 basis points rate

cut. After this, many banks have started

planning to change interest for both lending

& depositing.

FLIP’s View: Finally rate trajectory took

downward turn. Experts see that RBI is

tilting towards growth from its strict anti

inflationary stance. Lowering rates by

banks will surely affect EMI amount

positively and we can see upward revive in

growth and investments.

Rupee slides to 3-month low; RBI

intervention unlikely

The rupee fell below 52 versus the dollar to

a new three-month low. Widening current

account deficit, rising oil prices and lower

growth rates are cited as major reasons

behind this fall. Though situation is

worsening there are no signs of

intervention by RBI

FLIP’s View: Strong demand for US dollar

in global market is making situation worse.

Though near term outlook seems negative

for rupee, it would be interesting to see

whether trend will reverse after RBI cutting

rates and creating scope for growth.

The week that was….

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BFS Roundup @ FLIP

Standard Chartered Bank is the only foreign

company to be listed in India through an IDR.

Kotak Mahindra Bank was established in 1985 as a

non-banking financial company. In February 2003 it

got the license to carry banking operations in India.

Today, it is one of the fastest growing private sector

banks in India. Apart from regular retail banking

products it also offers Investment products like

Mutual Funds, Life Insurance, and other services like

brokerage, investment banking etc. It has 8

international offices as well.

Executive Vice chairman & MD

Mr. Uday Kotak

Business Units Banking, Mutual Funds, Securities, Life Insurance

Employee

Strength 20000+

Key People

Mr. C. Jayram – Executive Director

Mr. Deepak Gupta

Executive Director

Kotak Mahindra Bank goes LIVE on Finacle

10.2 - On 1st March 2012, Kotak Mahindra

Bank successful implemented Finacle 10.2

universal banking solution (developed by

Infosys) across 335 bank branches. The entire

implementation, which replaced the Bank’s

legacy core banking system, was completed in

18 months. Kotak Bank has taken this step with

the objective of becoming future-ready and

driving its ambitious growth plans.

More Details in Page2

Recruiter in the limelight Kotak Mahindra Bank …..

Did you know?

BFS Roundup @ FLIP

www.learnwithflip.com

Term of the Week

CASA

The CASA (current and savings account) ratio is the ratio of deposits in the current and savings

accounts of a bank, to its total deposits. A higher CASA ratio is considered good for a bank as it is

generally a cheaper source of funds.

Current and saving accounts are withdrawable on demand, and hence are also called demand

deposits. It is due to this feature, that they also carry a low rate of interest.

Hence, higher the CASA ratios better the net interest margin, which means better operating efficiency

of the bank. (Net interest margin is difference between total interest income and

expenditure and is shown as a percentage of average earning assets.). E.g.

Case I Case II

Total deposits – INR 1000 Total deposits – INR 1000

From CASA – INR 300 @interest rate 4% From CASA – INR 500 @interest rate 4%

From term deposits – INR 700 @interest rate 9% From term deposits – INR 500 @interest rate 9%

Bank lends same INR 1000 at 10% interest rate Bank lends same INR 1000 at 10% interest rate

CASA ratio = 300/1000 = 30% CASA ratio = 500/1000 = 50%

Banks net earning = 1000*10% - 300*4% -

700*9%

= 100-12- 63 = 25

Banks net earning = 1000*10% - 500*4% -

500*9%

= 100-20- 45 = 35

NIM = 25/1000 = 2.5% NIM = 25/1000 = 3.5%

Above example clearly indicates that higher income from CASA will improve the net interest margin as the cost of this fund is relatively lower.

Example of a bank having a relatively higher CASA ratio in India is HDFC Bank.

Recruiter in the limelight (contd.)…

FLIP’s View

The Bank is one of the fastest growing new generation private sector banks. It is expanding

across geographies as well as business verticals. In the coming years, the Retail Bank and

the securities business should see some fresh and lateral hiring. The bank provides multiple

avenues for lateral and vertical growth.