INTRODUCTION TO BANKING

Banking regulation Act, 1949, defines banking as accepting for the purpose

of lending or investment, of deposits of money from the public, repayable

on demands or otherwise and with drawable on demand by cheques, draft

or order otherwise.

Functions of Commercial Banks :

To change cash for bank deposits and bank deposits for cash.

To transfer bank deposits between individuals and or companies.

To exchange deposits for bills of exchange, govt. bonds, the secured and

unsecured promises of trade and industrial units.

To underwrite capital issues. They are also allowed to invest 5% of their

incremental deposit liabilities in shares and debentures in the primary

and secondary markets.

The lending or advancing of money either upon securities or without

securities.

The borrowing, raising or taking of money.

The collecting and transmitting of money and securities.

The buying and selling of foreign exchange including foreign bank notes.

Banking scence in India

The banking sector in India is passing through a period of structural change

under the combined impact of financial sector reforms, internal

competition, changes in regulations, new technology, global competitive

pressure and fast evolving strategic objectives of banks and their existing

and potential competitors. Until the last decade, banks were regarded

largely as institutions rather akin to public utilities. The market for banking

services were oligopolies and Centralized while the market place was

regulated and banks were expected to receive assured spreads over their

cost of funds. This phenomenon, which was caricatured as 3-6-3 banking in

the united states, meaning that banks accepted deposits at 3%, lent at 6%,

and went home at 3 p.m. to play golf, was the result of the sheltered

markets and administrated prices for banking products. Existence of entry

barriers for new banks meant that competition was restricted to existing

players, who often operated as a cartel, even in areas where the freedom to

price their products existed.

The market place began to change for banks in India as a result of reforms of

the financial sectors initiated in the current decade. On account of policy

measures introduce to infuse greater competitive vitality in the system, the

banking has entered in to a competitive phase. Competition has emerged

not only from within the banking system but also from non-banking

institutions. Lowering of entry barriers, deregulation of interest rates and

growing sophistication of customers have made banking far less oligopolistic

today. Introduction of capital adequacy and other prudential norms,

freedom granted to enter into new turf’s and greater overlap of functions

between banks and non-banks have forced banks to get out of their cozy

little world and think of the future of the banking.

Emerging environment in India

                Full convertibility of rupee leading to free mobility of capital, which will

mean virtual collapse of the national borders for trade and capital flows.

                Greater coordination between monetary, fiscal and exchanged rate policies

for achieving the goals of faster and sustainable economic growth, macro-

economic stability and export promotion.

                Close integration of various financial markets such as money market,

capital market and forex market.

                Removal of lowering of existing barriers of competitiveness, which are

present today in the form of quantitative instructions on certain imports

protective custom duties, reservation of certain utilities for the public

sector.

                Growing privatization and commercialization infrastructure sector.

Today, Banks customers are better informed, more sophisticated and discerning.

They also have a wide choice to choose from various banks and non-bank

intermediaries. Their expectations are soaring. This is particularly true for

banks corporate clientele but also applies to customers from personal segment.

This is changing profile of customer’s call for a shift from product-based

approach to customers-based approach. A bank aiming at maximizing customer

value must, of necessity, plan for customized products. A combination of

marketing skills and state-of-the-art technology should enable to bank in

maximizing its profits through customer satisfaction.

 In the next millenium banks will have to be more and more cautions about

customer service, profitability, increased productivity, to keep face with

changing banking scenario. As banks in India prepare themselves for the

millenium these are the shifts in the paradigm they are likely to experience. The

21st century may see the dawn of “DARWINIAN BANKING”. Only the banks

could fulfill the demands of markets and changing items would survive and

prosper. 

A word about SBI card

SBI Segment :

Small business credit card (SBI credit card)

Preamble :

Small business units, retail traders, artisans, village industries, small-scale

industrial units and tiny units, professionals and self employed persons etc.,

contribute significantly to the growth of our economy. The entrepreneur

himself manages many of the units. Very often, these entrepreneurs

complain of procedural delay in sanctions and renewal of limits. They also

find it difficult to cope with the demands for audited balance sheet and

other statements sought by the bank from time to time for availing credit

facilities. With a view to providing hassle free financial supports to the

above categories of entrepreneurs who have shown commitment to run the

unit successfully and who are dealing with the banks for last two years

satisfactorily, new and friendly credit product namely small business credit

card scheme is designed. Under the scheme, cumbersome procedural

aspects relating to reviews and renewals, submission of balance sheet, stock

statements and other statements are done with credit delivery made simple

and easy.

Purpose :

To meet the credit requirements of small business units, industrial unit,

retail trader, artisan, Small Scale Industry (SSI) and tiny units.

Eligibility :

A. Customers of the following segments with a satisfactory track record

for the last two years enjoying credit facilities.

Small industrial units (SSI and tiny units including artisans)

Small retail traders (Under SBF)

Professional and self employed persons

Small business enterprise

B. Units who do not enjoy credit limit with us/other banks at present

with excellent performance and credential may be considered.

Quantum of loan :

Loan up to Rs. 5 Lakh can be sanctioned to eligible persons.

Assessment :

The small business credit card limit can be fixed as follows :

For small business, retail trader etc. 20% of the annual turnover

declared for tax purpose or last twelve months turnover in the

operative accounts, whichever is higher.

In respect of parties with good track record, where sales tax returns are not available, the credit limits may be decided taking into consideration the actual turnover in the accounts during the last two years.

For professionals and self employed persons, 50% of their gross

annual income as per IT return shall be considered as the limit for

issuing the SBI credit card.

For small scale industrial units, tiny sector units the assessment

norms in vogue as per the Nayak Committee recommendations would

continue.

Validity :

Credit card limit will be valid for a period of three years, subject to

satisfactory conduct of the accounts.

Annual review will be done based on conduct/operations of the A/cs.

A major portion of the sales turnover should have been routed

through the accounts as revealed by the credit summations.

Repayment :

The working capital advance may be continued subject to that review

every year provided the credit summations in the account is not less

than 50% of the projected sales turnover. If the credit summations is

less than 50% of projected sales turnover. The outstanding as on the

due date of review should be made repayable in suitable monthly

installments.

The term loan is repayable in suitable installments with in a maximum

period of five years.

In case of composite loans, only the term loan is repayable in

installments up to a maximum period of five years.

Interest rate :

As per extent instructions issued from time to time relating the market

segment.

Refinance :

No refinance is to be claim from SIDBI

Security :

Primary : Hypothecation of the stock in trade receivables, machinery,

office equipment.

Collateral :

Under SSI-No collateral security as per existing guidelines of RBI.

User SBF :

Up to Rs. 25000/- No collateral security.

Over Rs. 25000/- charge over movable/immovable property or third party

granted.

However, in case of the excellent track record, sanctioning authority may

waive collateral requirement.

Margins :

Up to Rs. 25000/-                                       NIL

Rs. 25001/- to Rs. 5,00,000/- 20%

Documentation :

Documents as per extant instructions.

Methodology :

The credit card is a hassle free convenient banking product aimed at

simplifying the credit delivery mechanism. Cumbersome procedural aspects

relating to reviews and renewals, submission of stock statement, balance

sheet and other statements are done away with. The credit limit will be

worked as detail above.

Small business credit card

Card No.

Name

Account No.

Tel. No.

Limit Rs.

Date of issue

Valid upto

………….. (Branch Code)

Signature of the Brach Manager

 

Card holder’s Photograph with signature

 

The borrower would be issued a photo card indicating sanctioned limit and validity of the limit (sample card)

 

Insurance :

                Fixed assets/stock pledged/hypothecated to the bank be fully insured at

least to the extent of the bank interests.

                Bank may waive insurance of assets for equipment against the fire and

other risk up to Rs.25000/-

Cover under credit guarantee scheme :

All eligible laon accounts sanctioned for small scale industries (other than

services) would qualify for cover under CGTFSI  scheme (presently the scheme

has been introduce in five circles on pilot basis viz. New Delhi, Chandigarh,

Lucknow, Patna & Hydrabad).

Operation :

Small business credit card accounts should be maintained in a separate

ledger.

Cheque book should be issued and marked as small business credit

card account.

Pass book should be issued for mall business credit card holders.

Stock statement waived.

Submission of audited balance sheet waived.

Borrower would be issued a small business credit card with

photograph thereon. Cost of photograph to be borne by banks.

IRAC norms would be applicable.

Brief opinion report should be recorded. Marked inquiries should be

made and recorded in the opinion report and singed by the field

officer/cash officer or officers not below that rank.

Units within a radius of 5 kilometers may be covered intensively for

the issue of credit card. This condition may be waived for such of

those units already in the book of the branch as on 31-2-2002.

Inspections :

Half-yearly inspection/monitoring to ensure the end user funds.

Sanction :

Required loan may be sanctioned with in a week after receipt of detailed

information.

Control return after sanction may be sent to next higher authority for

approval .

Scoring Model :

Loan would be sanctioned up to Rs. 5,00,000/- based on the simplified

scoring model as given in annexure- II. Those who are scoring less than 60%

would not qualify for the loan.

Rationale :

New schemes for hassle free credit facilities to small borrower.

Automatic Teller Machine (ATM)

An ATM (Automatic Teller Machine) card is useful to a card holder as it

helps him to withdraw cash from banks even when they are closed. This

can be done by inserting the card in the ATM installed at various banks

locations.

 

State Bank Cash Plus CARD

 

 

 

 

                Signature Panel.

Magnetic Stripe

Features of State Bank Cash Plus Card

State Bank Cash Plus Card having the 19 digit.

Name of the card holders mention there on it.

In case of State Bank Cash Plus Card, there is no expiry period but for

the old card, the date after which your card needs to be renewed is

the last day of the month indicated on your card.

Signature panel on which you must sign as soon as you’re your card. It

identifies the card as your State Bank Card Plus Card.

The magnetic stripe, which contains encoded information.

ATM card possess pincode which having the 4 digit.

Use of State Bank Cash Plus Card

We uses our State Bank Cash Plus Card for cash withdrawal from

ATMs.

We uses it for making the payments for purchase made at the merchant

establishments.

Significance of the Study

This study entitled “comparative study of various credit schemes of SBI V/s

other banks” will be helpful for bankers to maintain customers service

policy, for customers while deciding their financing needs and also helpful

for other researchers for further research in the future.

SBI card provides customers with an option, in addition to the existing

banking credit facilities available. With an SBI card customers can enjoy

hassle-free credit facilities.

This study would help us to know about the problems that are faced by the

consumers during transactions. It would also reveal the problems that are

being faced by the bank employees while dealing with customers and would

also highlight the future prospect of SBI card.

Review of existing literature

It is very essential to know whether the study has already been conducted

before. If so, how and to what extent ? And because of this scholar has to go

through all the existing literature related to the study. SBI Card is a new

concept introduced in Bhiwani by State Bank of India only a few months

back, very limited studies have been conducted on the subject. Due to the

time restrictions scholar could seek advice from only the limited literature,

which is available with the bank.

As the concept is completely under the control of various banks and RBI. So

the information is directly taken from these sources.

Conceptualization

As the concept includes two terms i.e. cash credit or working capital loans and

terms loans. Therefore both the terms are taken into consideration in the

proposed study. Due to the privatization of banking sector many big private

players entered in this sector giving a tough competition to the existing players.

So, to face this stiff competition all the public sector banks have to review their

functioning. These aspects will be given importance in this study.

The concept of SBI card is quite new to the people of Bhiwani. Question crops in

mind what is a SBI card, What is its shape and size, what is its function. A SBI

card is nothing but a identity card containing card holder’s photographs with

signature, card no. Name, A/c No. limit, validity period, branch code with

signature of Branch Manager.