All India Management Association (AIMA) 2007 M.B.A Marketing Management Central Banking

5. Developing a good deposit pricing methodology has gained even greater importance in the latest years because most of the banks fund their loans from non-core sources. Though the non-core sources have increased the marginal funding costs for banks, they were readily available and not very expensive, especially short-term borrowings. The increase in the marginal funding costs increased the interest rates. This rapid increase in interest rates has increased the cost of incremental funding significantly. As borrowings become an increasingly larger component of a bank's funding base, the cost of funds will become even more closely tied to the market rates.
The most important factors in pricing of deposit products are risk, demand, market share, growth opportunities, size, capital, sales culture, demographics, cannibalization, price elasticity, cost elasticity, capacity, marketing and incentives and profitability. Careful consideration of every of the factors listed above is necessary to develop an optimal pricing strategy. However, the bank may price advances on a differential basis, based on the creditworthiness of members, volume, or other reasonable criteria applied consistently to all members.
The Bank is needed by regulation to price its credit products consistently and without discrimination to all members applying for advances. The Bank is also prohibited from pricing its advances beneath its cost of funds. However, the Bank may price advances on a differential basis, based on the creditworthiness of members, volume, or other reasonable criteria applied consistently to all members. < TOP >

part C: Applied Theory
6. Types of Advances
Loans are generally classified into secured or unsecured loans. Their features are explained below:
Unsecured Advances; When the advance provided by the bank has a personal security of any individual or the borrower with or without a guarantor, it will be classified as an unsecured advance. In the absence of any tangible security, though personal security is provided by an individual by way of an obligation for repayment, the loans are treated as unsecured. However, all those loans that have the guarantee of a bank/government are categorized as "Advances covered by Bank/Government Guarantees" and hence are not reported under unsecured loans category. An unsecured loan is also a loan without any collateral being offered as security. 2 examples of unsecured loans are, a Letter of Credit (LOC) and Signature Loans. If the borrower defaults on an unsecured loan, the creditor has no priority claim against any particular property of the borrower. The creditor can try to find just a money judgment against the borrower. Until a small business has an established credit history, it cannot usually get unsecured loans because of the business's risk.
Secured Advances: Secured advances on the other hand, have impersonal security, i.e., the security has to be a tangible asset against which the loan is to be granted. Primary security is an asset against which the loan is provided and collateral security is a security, which is provided in addition to the existing primary security. These primary and collateral securities can be movable or immovable assets and depending on the identical the charge created on the security may vary. Because the value of pledged collateral is critical to a secured lender, loan conditions and covenants, such as insurance coverage, are always needed of a borrower.
Charge on the movable properties can be created in the subsequent 5 various ways:
Pledge
Hypothecation
Assignment Banker's
Lie Set-off
Banker's Lien < TOP >

7. The main objectives of monetary policy are two-fold: regulate the supply of money and control the cost and availability of credit in the economy. The monetary policy also aims to maintain price stability, full employment and economic growth.
In India, the responsibility for formulating and implementing the monetary policy lies with the Reserve Bank of India. The RBI may adopt different measures to increase or reduce the currency supply, regulate interest rates, carry-out open market operations, control credit and vary the reserve requirements.
Fiscal policy is various from monetary policy. Fiscal policy is a broader tool with the government, as compared to monetary policy, which regulates the economy through modifications in money supply and interest rates. In fact, fiscal policy may be described as a deliberate change in government revenue and expenditure to influence the level of national output and prices. Fiscal policy is mainly used as the tool to overcome recession and control inflation.
During recession, in order to increase demand levels, the government may either increase expenditures or cut taxes or. do both. Similarly, during inflation, the government can decrease the expenditure or raise taxes. Essentially, the fiscal policy aims at bringing about modifications in aggregate demand by making suitable modifications in government spending and taxes.
Fiscal policy focuses on the structural modifications in the economy to be achieved through proper budget planning mechanism. Further, this policy enables the government to aim at the maintenance of economic activity and employment since it takes long-term investment decisions especially with regard to infrastructure.
Monetary policy is also various from fiscal policy by virtue of the methods adopted to bring about modifications in the economy. Monetary policy is brought into effect by changing money supply and interest rates, whereas fiscal policy is a broader tool with the government.
Monetary policy also distinguishes itself from the fiscal policy by concentrating on contemporary problems related to economic development. By relating itself to the short-term economic adjustments, monetary policy has greater flexibility and ability to respond to the conditions that immediately affect the economy. Both the monetary and the fiscal policies play complementary roles. < TOP >

Earning:   Approval pending.