Programme PGP Term V Academic Year 2021-22

Course title Banking and Financial Intermediation Area Finance and Accounting Credits 0.75

Prof. Pranav Singh

Course Description & Objectives
Financial firms account for over a third of the value of stock markets in India. Banking and Financial Intermediation presents a lucrative career option for young MBAs. Besides, business managers who do not work in the financial industry end up being their customers. Sooner or later, they find themselves responsible for dealing with financial intermediaries (FIs) to meet the financial requirements of their companies. Therefore, I believe that a thorough understanding of the theoretical and practical aspects of banking and financial intermediation is important for all business managers.

The objective of the course is to provide the students with a thorough understanding of the theoretical and practical aspects of banking and financial Intermediation. Financial firms are fundamentally different from manufacturing concerns. The business of financial firms revolves around money: unlike manufacturing firms, money comprises both the raw material and the finished product. The capital structure and operational efficiency of financial entities requires an understanding of the business risks specific to their operations. Financial businesses are susceptible to systemic risks and are subject to stringent regulation. Add to that, the increasing acceptance of innovative products like securitization.

Apart from exploring the global experience in banking, the course will include a discussion on the institutional background and banking regulations specific to India. The course will have healthy participation form senior industry professionals to share their learnings and practical nuances.

The pedagogy would include a mix of analysing case studies, discussing academic papers, watching and discussing movie clips, and interacting with eminent professionals from the industry.

The course will start with the basics: an overview of household finance in India and how it relates to financial intermediation. The discussion will progress to the understanding the basic constructs of financial intermediation: mitigation of idiosyncratic risks and the role of demand deposits in creation ofliquidity. We will complete our understanding of the foundations of financial intermediation by visualizing how bank runs are created and the how to pre-empt them and respond to them.

After developing the understanding of basic banking theory, the class would focus on practical aspects of banking. We will discuss regulatory framework, credit risk assessment, and the role of human capital in financial intermediation. This would be followed by practical understanding of treasury operations of a typical bank with the help of an industry professional.

We would proceed to understand financial intermediation activities other than banking before completing the course. We would understand the motives behind securitization, both good like focus on core competence and bad like regulatory arbitrage, and how it led to the Great Financial Crisis of 2007-08. We will discuss the role of shadow banking in India and its role in providing the last mile connectivity and financial inclusion for the poorer sections of the society. We will complete the course a session on Private Equity to understand its nuances and the way forward.

The sessions on bank treasury operations, shadow banking, and private equity have scheduled participation from eminent professionals from the respective areas.

The instructor will use movie clips to explain important financial concepts. The class will watch and discuss multiple clips from The Big Short (2015). Watching the complete movie is recommended for students.

Note: Readings include academic research papers to explain the important concepts in banking and financial intermediation. Unfortunately, there is no easy alternative to understanding these papers if one wants to really understand financial intermediation. But, this should not be a cause of worry for the students. It is expected that they would not completely understand these papers on their own. The instructor will do the handholding while discussing these papers in class sessions.