Programme PGPX Term IV Academic Year 2021-22

Course title Banking and Financial Intermediation Area Finance and Accounting Credits 0.50

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 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 of liquidity. 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, role of covenants in credit risk assessment, and the role of human capital infinancial intermediation. 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.
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 worry students. They are not expected to completely understand these papers on their own. The instructor will explain these papers in class sessions.