I know its quite a broad topic . Can anyone explain who does the Banking Industry work in India?
Are there any books which specifically makes an effort to explain the banking business models?
The very basic of banking is known by me.
Bank gives Loan to commoners like me and corporates .
They live off by the interest payment or let’s call them EMIs.
They also lend my money to someone else and expect to make money on my deposits too…
They also earn from Transaction Charges and Minimum Balances - There are tons of edge scenarios from where a bank makes money.
But going beyond there are tons of questions.
- What if my father took a loan @1980 and is still paying the EMI. Does this EMI reflect in Bank’s income today?
Can a bank sell off loans from its balance sheet? When and Why will it do so?
- Are there insurance on these loans as well (CDOs) ? If yes, how does the CDOs work in India? Never heard of them in popular culture.
- What are the correlational factors which impacts bank? For examples RBIs rate cuts are things to watch out for , corporates going bankrupt is another case(like Jetairways, Nirav Modi, etc…etc).
Can anyone help here?
From what I understand - yes it is reflected that he took money and still paying it from 1980. Yes banks usually sell their incomes like your father, but why they need to do it if he pays it and they can lend this money to someone else ? if bank is working I assume.
@rocker, banking is more than an ocean.one cannot learn all in a lifetime. I tried for 33 years, but learnt something out of it. A bank has more than half a dozen bosses, had to adhere to more than a dozen statutory acts, all at the same time. It is a varied combination of many many things and unfathomable. Better leave the whole and try to specifically find what you want.
Your understanding of banking is very correct. You need only the big picture and leave out the details.
Analyse the income of bank into various categories like
- Net interest margin (NIM) - how much spread bank is able to generate
- Growth of loan book - how bank is able to grow its lending. Is it sustainable.
- Check the NPA (non performing asset) rate etc.
- Finally look at growth in economy - meaning GDP growing. If economy does well, a good bank will also do well.
There are lots of bank which does corporate lending, trading in derivatives. For safety of principle, you may want to stick with conservative bank.
If you are punter yourself, no harm in betting on aggressive banks. But at least know that you are betting.