Upload
rahulsogani123
View
33
Download
0
Embed Size (px)
DESCRIPTION
indian privat, personal bank
Citation preview
7/14/2019 Maharshi Arvind Kailash
1/139
[1]
A PROJECT STUDY REPORT
ON
Comparative study of Indian public, private and
international banks
In partial fulfilment for the
Award of degree of Master of Business
Administration
(2011-2012)
Apex Institute of Management and science
Jaipur
Rajasthan Technical University Kota
Submitted To: Submitted By:
Aparna Kalla Vartika Sharma(Faculty) MBA SEM 4
7/14/2019 Maharshi Arvind Kailash
2/139
[2]
Preface
This project report has been prepared as per the requirement of the syllabus
Of MBA course s t ruc tu re under wh ich the s tudents a re the requ i red
To un de r ta ke project. It was a first-hand experience for us as that we were
exposed to the professionalset-up and were facing the market, which was really a
great experience. During project period, I had very touching experiences. When
business is involved,experiences counts a lot, as we know, experience are an
instrument, which leadstowards success.Now I take this opportunity to present the
project report and sincerely hope that itwil l be as much knowledge enhancing to
the readers as it was to use dur ing the fieldwork and the compilation of the report
Someone has rightly said that practical experience is for better and closer to the real
world thanMere theoreticalexposure. The practical experience helps the students view
the real world closely, which in turn widely influences their perceptions and argument
their understanding of the realsituation.Research work constitutes the backbone of
anymanagement education Programme. A management student has to do research
work quite frequently during his entire Span.The research work entitle
Comparative study of Indian public, private and international banksAims to analyse variousservices provided by private sector banks and public
sector banks for this purpose Ahmadabad city have been chosen.
7/14/2019 Maharshi Arvind Kailash
3/139
[3]
Acknowledgement
I express my sincere thanks to my project guide, Ms.KainazPostwala, Dy.
Manager- marketing Department for guiding me right from the inception till the
successful completion of the project. I sincerely acknowledge her for extending
their valuable guidance, support for literature, critical reviews of project and the
report and above all the moral support she had provided to me with all stages of
this project.
I would also like to thank the supporting staff of marketing Department, for their
help and cooperation throughout our project.
I sincerely acknowledge the help and guidance by Senior Management for
extending their timely help and guidance so that I could complete my project on
time.
I pay my gratitude to my narrator Aparnakalla madam for guiding me all
technical aspects for conducting all relevant studies for completion of the
project.
(VartikaSharma)
7/14/2019 Maharshi Arvind Kailash
4/139
[4]
Executive Summary
This study focuses on Indian public, private and international banks the Bank
model.
It attempts to highlight their histories, institutional arrangements, the design of their
saving and loan delivery systems and most importantly their strengths and
weaknesses. Emerging out of this are a set of five general policy recommendations.
In summary these recommendations are:
Institutional arrangements;
driven and underpinned by the achievement of financial sufficiency;
-defined capacitation process.
7/14/2019 Maharshi Arvind Kailash
5/139
[5]
DECLARATION
I hereby declare that the project work entitled
Comparative study of Indian public, private and international banks
submitted to the AMIS Jaipur , is a record of an original work done by me under the
Guidance of
Ms Aparnakalla,
Faculty O f A I MS a nd t h i s p r o j e c t
wo rk i s su bm i t t e d i n t h e p a r t i a l f u l f i l l me n t n t o f t h e requirements for
the award of the degree of Master of Business Administration. The results embodied in
this thesis have not been submitted to any other University or Institute for the award of
any degree or diploma.
(Ms Aparnakalla) (Vartika Sharma)
7/14/2019 Maharshi Arvind Kailash
6/139
[6]
Contents
Chapter TOPIC Page No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Introduction of global banking industry
Introduction of Indian banking industry
Research Methodology
Data analysis &interpretation
Fact finding
SWOT analysis
Conclusion
Recommendation
Annexure
Bibliography
7-16
16-82
83-85
86-122
123-126
127-132
133
134
135-138
139-140
7/14/2019 Maharshi Arvind Kailash
7/139
[7]
CHAPTER-1
INTRODUCTION OFGLOBAL BANKING INDUSTRY
The world of commercial banking is undergoing a deep transformation as a result of
marketable instruments competing with loans and demand deposits. Because of this
strong competition, commercial banks are struggling to make acceptable margins from
their traditional business entering into investment banking.
Increasing competition has forced banks to search for more income at the expense of
more risk. Banks that lent heavily to Asia in search of better returns than those available
in Western markets are now being blamed for bad credit decisions. The Asian crisis has
renewed interest on credit risk management casting doubts on the effectiveness of
current credit regulations. Technological changes have also heightened competition by
making it easier to imitate bank services. The traditional advantage of physical proximity
to clients given by extended networks of branches has vanished. Banks have to
7/14/2019 Maharshi Arvind Kailash
8/139
[8]
compete with money market mutual funds for deposit business, commercial papers, and
medium-term notes for bank loans.
As margins are squeezed, commercial banks in the United States and Europe have
been forced to cut costs and branches while diversifying into pensions, insurance, asset
management, and investment banking. In the United States, many banks call
themselves financial service companies even in their reported financial statements.
Diversification, however, has not always proved to be an effective strategy, and many
banks have had to revert to a concentrated business. These examples illustrate how
commercial banks are reinventing themselves, not just once but many times. All these
changes are creating an identity crisis for old-fashioned bankers, leading to the key
question, What is a bank today? The question is difficult, but evidence suggests thatthe concept of banking is being modified and the traditional barriers among financial
service Sub industries (retail banking, private banking, investment banking, asset
management, insurance, etc.) are vanishing. Illustrating what an entity does or serves
for often is a useful way to define it. The identity crisis of banksespecially commercial
banksstems from the deep and rapid changes in their traditional body of activities
(particularly retail and corporate banking). On the other hand, investment banking,
private banking, and banc assurance are the most profitable and fastest growing
segments of the financial service industry. As banks undertake new activities, they also
incur new risks. Since boundaries among sub industries are weakening, if not vanishing,
bankslike all other financial service companiesmust redefine themselves in terms of
the products they offer and the customers they serve. The way banks pursue this
redefinition is through a strategic repositioning in the financial service industry. All these
factors represent a new challenge for commercial banks, provided this definition still has
a unique meaning. Increased competition, diversification, new products, and new
geographic markets mean that both the spectrum of risks and the risk profile for banksare dramatically changing.
7/14/2019 Maharshi Arvind Kailash
9/139
[9]
DEFINING A BANK IN 2012
The scenario commercial banks face today differs greatly from that of the past.
Diversification among sub industries is defining an environment where banks compete
with other financial-service companies to provide mutually exclusive products and
services to the same customers. Traditional branch banking is under the threat of new
competitors and technological innovation, leading some analysts to wonder whether
banks are dying. Most likely what is dying is the old-fashioned concept of the bank and
a new scenario is emerging. Banks are changing as economic markets integrate,
providing opportunities for diversification. Only 15 to 20 years ago, most Western banksgenerated 90% of revenue from interest income. Now this percentage has fallen to
60%, sometimes as low as 40%. New sources of income, such as fee-based income
from investment services and derivatives, are becoming increasingly relevant for the
income statements of commercial banks.
During the same period, the pattern of banking activities has changed through
interactions with the developing security markets. The well-known phenomenon of
disintermediation that has taken place in all Western countries since the 1970s has
progressively reduced the monopoly of banks over the collection of savings from
customers. This has created much tougher competition among financial service
companies and has forced banks to find new and diversified sources of income. The
traditional core business of commercial banks has been retail and corporate banking.
As retail and corporate banking become less and less profitable, banks are diversifying
into new businesses to stop the decline of profits. Investment banking, for example, is
estimated to be worth US$14 million, with an annual growth rate of about 14% up to
2012. Derivative based earnings for larger commercial banks now account for about 15
to 20% of the total earnings. The drawback is that volatility of earnings has dramatically
increased. The management of these new types of risktypically, market risk and credit
7/14/2019 Maharshi Arvind Kailash
10/139
[10]
risk on traded assetsrequires competence and expertise. Hence, the risk profile of
commercial banks is changing as a consequence of diversification. Capital markets are
playing a key role in defining the bank of the twenty-first century, but they are also
making banks riskier. In fact, with a few exceptions, AAA ratings for banks have
disappeared and consequently the importance of market risk management is being
emphasized. Future competition will not be played in the classic retail banking industry
that, at least in continental Europe (but not in the United Kingdom), is only slightly
profitable. Global competition will take place in asset management and investment
banking. Not casually, huge U.S. investment banks are merging among themselves and
with asset management firms. Alliances and takeovers are occurring also on a
transatlantic basis, confirming the global characters of these two sub industries (the
most related to global capital markets).
The following trends are affecting the banking industry and most likely will shape the
competition in the next several years:
The market share for financial services that banks hold is declining, while securities
firms, mutual funds, and finance companies are getting a growing share of available
customers. In the United States, the share of total assets held by banks and other
depository institutions relative to all financial intermediaries fell from 56% in 1982 to
42% in 1991, and this downward tendency is likely to continue. Banks will face growing
competition from financial service companies and nonbank firms.
Disintermediation is making traditional banking less and less necessary, leading to
consolidation. The natural shrinkage of the market share held by commercial banks
started this process in the past decade, but it has dramatically accelerated in the past
few years because of global competition.
To remain competitive, commercial banks will have to exploit new sources of income:
Offering new services (selling mutual funds or insurance policies).Charging customers
with noninterest fees. Offering new services through the phone and the web,
7/14/2019 Maharshi Arvind Kailash
11/139
[11]
Enteringinto joint ventures with independent companies, Entering new geographic
markets yielding higher returns.
Banks will need more expertise to manage new sources of risk. Market risk
management models must become an integral part of a banks risk management culture
7/14/2019 Maharshi Arvind Kailash
12/139
[12]
RETAIL BANKING
The two main forces changing the competitive environment in retail banking are
technological change and aggressive new competitors:
1. Technological change is creating huge problems for traditional banks with extended
and costly branch networks. The major technological issues affecting the retail banking
business are the rise of telephone banking and the impressive diffusion of the Web-
based banking. These innovations make branch networks less important and national
boundaries irrelevant. Computer banking, either through the Internet or proprietary
networks, is gaining a growing and growing importance.
2. New unrelated competitors are entering the retail banking market. In the United
Kingdom, the countrys two biggest retailers, Sainsburys and Tesco, have gone into
partnership with the Bank of Scotland and the Royal Bank of Scotland, respectively.
Sainsburys Bank offers a savings account, two credit cards, and personal loans and
mortgages, with more services to follow. Tesco Personal Finance offers only a savings
account and a credit card, but aims to expand its range. These trends do not indicatethat traditional branch banking is going to die, but that the competitive scenario is
changing. High-street banks have expensive branch networks and relatively out-dated
procedures, with far greater operating costs than their new, more flexible rivals.
7/14/2019 Maharshi Arvind Kailash
13/139
[13]
PRIVATE BANKING
One of the most interesting trends affecting the banking industry is the development of
domestic private banking services. These services, once provided only to aristocrats,
are gaining popularity and seem to be an attractive, fast-growing market. Retail banks
are no longer targeting only the super-rich, who hold a small proportion of the total
wealth, but also people with, relatively speaking, high income. Private banking is
basically an asset management service and represents a natural area for banks in time
of margin squeezing and increased competition. Risks of adverse market movementsare transferred, at least partially, to customers, while banks increase their fee-based
income. Nevertheless, commercial banks must be aware of actual and potential
competitors including traditional private banks, investment banks, converted building
societies, and insurers. Private banking creates opportunities for commercial banks, but
also adds new problems in the following areas:
Bank organization.
Culture needed to manageprivate banking.
Risk management
7/14/2019 Maharshi Arvind Kailash
14/139
[14]
GLOBAL INVESTMENT BANKING
Investment banking is by far the most globalized segment of the financial service
industries. Commercial banks today are starting to offer investment-banking and
merchant banking services to larger corporations, thus entering in direct competition
with prestigious investment houses.
These services include:
Identifying possible merger targets.
Financing acquisitions of other companies.
Dealing in customers securities (i.e., security underwritings).
Providing strategic advice.
Offering hedging services against market risk.
To provide customers with a broader spectrum of services, commercial banks in search
of globalization are boosting takeovers of investment banks. All the major competitors
have developed, or are in the process of developing, facilities in the worlds leading
markets. The aim is to provide multinational corporations with a broad range of financial
service products, including conventional investment banking such as merger and
7/14/2019 Maharshi Arvind Kailash
15/139
[15]
acquisition (M&A) advice, market trading, financial lending and fund management, at
both the institutional and retail levels. Relationship banking is replacing transaction-
based banking: What is important is to increase the loyalty of the client to the bank,
almost irrespectively of the service needed or required.
Diversification is not the whole story. To face the rising costs and squeezing margins
created by competition, investment banks need partners with large amounts of available
capital.
RECENT TRENDS IN THE GLOBAL BANKING INDUSTRY
The global banking industry has been undergoing deep transformation.
The following trends can be outlined:
The technological breakthrough caused by the eruption of e-banking and e-finance.
Worldwide consolidation and consequent restructuring.
Increasing competition in terms of both markets (geographic diversification) and
products.
Contamination among different industries, thanks to a progressive relaxation of
regulations and huge inter-industry acquisitions.
A slowing population growth and increasing average life expectancy and per capita
income. Since Western governments need to cut expenditures for old-age benefits to
keep deficits under control, there will be an increase in the importance of private
pensions, mutual funds, and private banking operations.
The growing importance of a clear strategic intent in the banking industry. Banks,
especially commercial banks, will be obliged to rethink their strategic positioning. While
some banks are opting to offer a vast variety of products/services on a global scale,
7/14/2019 Maharshi Arvind Kailash
16/139
[16]
others are focusing on some specific market segment (retail banking, private banking,
corporate banking) or specific geographic area.
New competitors are entering the financial service business. In the retail banking
industry, large department stores in the United Kingdom have entered the market for
personal and mortgage loans, primarily to retain their customers.
These trends are having and will have a major impact on banks and financial
institutions risk management process. Contamination also means that firms in the
different sub industries will face risks that were once specific to another sub industry.
The relaxation of the Glass-Steagall Act in the United States, and similar processes of
deregulation in many other leading countries, is forcing even commercial banks to
dedicate growing attention to market risk management and liquidity risk management, in
addition to the more traditional credit risk and interest rate risk.
CONTAMINATIONTHE RISE OF GLOBAL PLAYERS
Consolidation is also taking place also on an interindustry basis. By inter industry
consolidation, we mean M&as taking place between firms of different sub industries in
the financial service industry (e.g., insurance companies acquiring commercial banks or
commercial banks acquiring Investment banks). There can be cost-saving potential,
particularly in computer systems. But complexity explodes. Top managers have to
handle a far more complicated business; front-line service staff has to sell a richer mix
of products.
To be a global player, a banking conglomerate must satisfy three characteristics:
1. Size. It must be big enough to play on a global basis.
2. High degree of contamination. It must cover the full spectrum of financial products
and services.
7/14/2019 Maharshi Arvind Kailash
17/139
[17]
CHAPTER-2
INTRODUCTION OFINDIAN BANKING INDUSTRY
Banks are the most significant players in the Indian financial market. They are the
biggest purveyors of credit, and they also attract most of the savings from the
population. Dominated by public sector, the banking industry has so far acted as an
efficient partner in the growth and the development of the country. Driven by the
socialist ideologies and the welfare state concept, public sector banks have long been
the supporters of agriculture and other priority sectors. They act as crucial channels of
the government in its efforts to ensure equitable economic development.
The Indian banking can be broadly categorized into nationalized (government owned),
private banks and specialized banking institutions. The Reserve Bank of India acts a
centralized body monitoring any discrepancies and shortcoming in the system. Since
the nationalization of banks in 1969, the public sector banks or the nationalized banks
have acquired a place of prominence and has since then seen tremendous progress.
The need to become highly customer focused has forced the slow-moving public sector
banks to adopt a fast track approach. The unleashing of products and services through
the net has galvanized players at all levels of the banking and financial institutions
market grid to look anew at their existing portfolio offering. Conservative banking
practices allowed Indian banks to be insulated partially from the Asian currency crisis.
Indian banks are now quoting al higher valuation when compared to banks in other
Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems
linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative
banks are nimble footed in approach and armed with efficient branch networks focus
primarily on the high revenue niche retail segments.
7/14/2019 Maharshi Arvind Kailash
18/139
[18]
The Indian banking has finally worked up to the competitive dynamics of the new
Indian market and is addressing the relevant issues to take on the multifarious
challenges of globalization. Banks that employ IT solutions are perceived to be
futuristic and proactive players capable of meeting the multifarious requirements of the
large customers base. Private Banks have been fast on the uptake and are reorienting
their strategies using the internet as a medium The Internet has emerged as the new
and challenging frontier of marketing with the conventional physical world tenets being
just as applicable like in any other marketing medium.
The Indian banking has come from a long way from being a sleepy business institution
to a highly proactive and dynamic entity. This transformation has been largely brought
about by the large dose of liberalization and economic reforms that allowed banks toexplore new business opportunities rather than generating revenues from conventional
streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30
banking units contributing to almost 50% of deposits and 60% of advances. Indian
nationalized banks (banks owned by the government) continue to be the major lenders
in the economy due to their sheer size and penetrative networks which assures them
high deposit mobilization. The Indian banking can be broadly categorized into
nationalized, private banks and specialized banking institutions.
The Reserve Bank of India acts as a centralized body monitoring any discrepancies
and shortcoming in the system. It is the foremost monitoring body in the Indian
financial sector. The nationalized banks (i.e. government-owned banks) continue to
dominate the Indian banking arena. Industry estimates indicate that out of 274
commercial banks operating in India, 223 banks are in the public sector and 51 are in
the private sector. The private sector bank grid also includes 24 foreign banks that
have started their operations here.
The liberalize policy of Government of India permitted entry to private sector in the
banking, the industry has witnessed the entry of nine new generation private banks.
The major differentiating parameter that distinguishes these banks from all the other
7/14/2019 Maharshi Arvind Kailash
19/139
[19]
banks in the Indian banking is the level of service that is offered to the customer. Their
focus has always centered around the customer understanding his needs,
preempting him and consequently delighting him with various configurations of benefits
and a wide portfolio of products and services. These banks have generally been
established by promoters of repute or by high value domestic financial institutions.
The popularity of these banks can be gauged by the fact that in a short span of time,
these banks have gained considerable customer confidence and consequently have
shown impressive growth rates. Today, the private banks corner almost four per cent
share of the total share of deposits. Most of the banks in this category are
concentrated in the high-growth urban areas in metros (that account for approximately
70% of the total banking business). With efficiency being the major focus, these bankshave leveraged on their strengths and competencies viz. Management,
Operational efficiency and flexibility, superior product positioning and higher employee
productivity skills.
The private banks with their focused business and service portfolio have a reputation of
being niche players in the industry. A strategy that has allowed these banks to
concentrate on few reliable high net worth companies and individuals rather than caterto the mass market. These well-chalked out integrates strategy plans have allowed
most of these banks to deliver superlative levels of personalized services. With the
Reserve Bank of India allowing these banks to operate 70% of their businesses in
urban areas, this statutory requirement has translated into lower deposit mobilization
costs and higher margins relative to public sector banks.
7/14/2019 Maharshi Arvind Kailash
20/139
[20]
PEST ANALYSIS
POLITICAL/ LEGAL ENVIROMENTEL ANALYSIS
Government and RBI policies affect the banking sector. Sometimes looking into the
political advantage of a particular party, the Government declares some measures to
their benefits like waiver of short-term agricultural loans, to attract the farmers votes. By
doing so the profits of the bank get affected. Various banks in the cooperative sector are
open and run by the politicians. They exploit these banks for their benefits. Sometimes
the government appoints various chairmen of the banks. Various policies are framed by
the RBI looking at the present situation of the country for better control over the banks.
ECONOMICAL ENVIROMENTEL ANALYSIS
Banking is as old as authentic history and the modern commercial banking are
traceable to ancient times. In India, banking has existed in one form or the other from
time to time. The present era in banking may be taken to have commenced with
establishment of bank of Bengal in 1809 under the government charter and with
government participation in share capital. Allahabad bank was started in the year 1865
and Punjab national bank in 1895, and thus, others followed.
Every year RBI declares its 6 monthly policy and accordingly the various measures and
rates are implemented which has an impact on the banking sector. Also the Union
budget affects the banking sector to boost the economy by giving certain concessions
7/14/2019 Maharshi Arvind Kailash
21/139
[21]
or facilities. If in the Budget savings are encouraged, then more deposits will be
attracted towards the banks and in turn they can lend more money to the agricultural
sector and industrial sector, therefore, booming the economy. If the FDI limits are
relaxed, then more FDI are brought in India through banking channels.
SOCIAL ENVIROMENTEL ANALYSIS
Before nationalization of the banks, their control was in the hands of the private parties
and only big business houses and the effluent sections of the society were getting
benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the
social development in the banking sector it was necessary for speedy economic
progress, consistent with social justice, in democratic political system, which is free from
domination of law, and in which opportunities are open to all. Accordingly, keeping in
mind both the national and social objectives, bankers were given direction to help
economically weaker section of the society and also provide need-based finance to all
the sectors of the economy with flexible and liberal attitude. Now the banks provide
various types of loans to farmers, working women, professionals, and traders. They also
provide education loan to the students and housing loans, consumer loans, etc.
Banks having big clients or big companies have to provide services like personalizedbanking to their clients because these customers do not believe in running about and
waiting in queues for getting their work done. The bankers also have to provide these
customers with special provisions and at times with benefits like food and parties. But
the banks do not mind incurring these costs because of the kind of business these
clients bring for the bank.
Banks have changed the culture of human life in India and have made life much easier
for the people.
7/14/2019 Maharshi Arvind Kailash
22/139
[22]
TECHNOLOGICAL ENVIROMENTEL ANALYSIS
Technology plays a very important role in banks internal control mechanisms as well asservices offered by them. It has in fact given new dimensions to the banks as well as
services that they cater to and the banks are enthusiastically adopting new
technological innovations for devising new products and service.
The latest developments in terms of technology in computer and telecommunication
have encouraged the bankers to change the concept of branch banking to anywhere
banking. The use of ATM and Internet banking has allowed anytime, anywhere
banking facilities. Automatic voice recorders now answer simple queries, currency
accounting machines makes the job easier and self-service counters are now
encouraged. Credit card facility has encouraged an era of cashless society. Today
MasterCard and Visa card are the two most popular cards used world over. The banks
have now started issuing smartcards or debit cards to be used for making payments.
These are also called as electronic purse. Some of the banks have also started home
banking through telecommunication facilities and computer technology by using
terminals installed at customers home and they can make the balance inquiry, get thestatement of accounts, give instructions for fund transfers, etc. Through ECS we can
receive the dividends and interest directly to our account avoiding the delay or chance
of loosing the post.
Today banks are also using SMS and Internet as major tool of promotions and giving
great utility to its customers. For example SMS functions through simple text messages
sent from your mobile. The messages are then recognized by the bank to provide you
with the required information. All these technological changes have forced the bankers
to adopt customer-based approach instead of product-based approach.
7/14/2019 Maharshi Arvind Kailash
23/139
[23]
HISTORY OF BANKING IN INDIA
Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and
internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer
confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system
has reached even to the remote corners of the country. This is one of the main reasons
of Indias growth process.
The government's regular policy for Indian bank since 1969 has paid rich dividends with
the nationalization of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for getting a
draft or for withdrawing his own money. Today, he has a choice. Gone are days when
the most efficient bank transferred money from one branch to other in two days. Now it
is simple as instant messaging or dials a pizza. Money has become the order of the
day.
From 1786 till today, the journey of Indian Banking System can be segregated into three
distinct phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks
Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
New phase of Indian Banking System with the advent of Indian Financial &
Banking sector reforms after 1991.
7/14/2019 Maharshi Arvind Kailash
24/139
[24]
To make this write-up more explanatory, we prefix the scenario as Phase I, Phase II
and Phase III.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan
and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of
Bombay (1840) and Bank of Madras (1843) as independent units and called it
Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of
India was established which started as private shareholders banks, mostly European
shareholders.
Exclusively by Indians Punjab National Bank Ltd. was set up in 1894 with headquarters
at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of
Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of
India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic
failures between 1913 and 1948. There were approximately 1100 banks, mostly small.
To streamline the functioning and activities of commercial banks, the Government of
India came up with The Banking Companies Act, 1949 which was later changed to
Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965).
Reserve Bank of India was vested with extensive powers for the supervision of banking
in India as the Central Banking Authority.
During those days public has lesser confidence in the banks. As an aftermath deposit
mobilisation was slow. Abreast of it thesavings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.
http://finance.indiamart.com/investment_in_india/banking_in_india.htmlhttp://finance.indiamart.com/investment_in_india/banking_in_india.html7/14/2019 Maharshi Arvind Kailash
25/139
[25]
PhaseII
Government took major steps in this Indian Banking Sector Reform after independence.
In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large
scale especially in rural and semi-urban areas. It formed State Bank of India to act as
the principal agent of RBI and to handle banking transactions of the Union and State
Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th
July, 1969, major process of nationalisation was carried out. It was the effort of the then
Prime Minister of India, Mrs Indira Gandhi. 14 major commercial banks in the country
were nationalised.
Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980
with seven more banks. This step brought 80% of the banking segment in India under
Government ownership.
The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalisation of State Bank of India.
1959: Nationalisation of SBI subsidiaries.
1961: Insurancecover extended to deposits.
1969: Nationalisation of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalisation of seven banks with deposits over 200 crore.
7/14/2019 Maharshi Arvind Kailash
26/139
[26]
After the nationalization of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of institutions.
PhaseIII
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was
set up by his name which worked for the liberation of banking practices.
Efforts are being put to give a satisfactory service to customers. Phone banking and net
banking is introduced. The entire system became more convenient and swift. Time is
given more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered from
any crisis triggered by any external macroeconomics shock as other East Asian
Countries suffered. This is all due to a flexible exchange rate regime, the foreign
reserves are high, the capital account is not yet fully convertible, and banks and their
customers have limited foreign exchange exposure.
7/14/2019 Maharshi Arvind Kailash
27/139
[27]
NATIONALIZATION OF BANKS IN INDIA
The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then
prime minister. It nationalized 14 banks then. These banks were mostly owned by
businessmen and even managed by them.
Central Bank of India
Bank of Maharashtra
Dena Bank
Punjab National Bank
Syndicate Bank
Canara Bank
Indian Bank
Indian Overseas Bank
Bank of Baroda
Union Bank
Allahabad Bank
United Bank of India
UCOBank
Bank of India
Before the steps of nationalization of Indian banks, only State Bank of India (SBI) was
nationalized. It took place in July 1955 under the SBI Act of 1955. Nationalization of
Seven State Banks of India (formed subsidiary) took place on 19th July, 1960.
The State Bank of India is India's largestcommercial bank and is ranked one of the top
five banks worldwide. It serves 90 million customers through a network of 9,000
branches and it offers -- either directly or through subsidiaries -- a wide range
ofbanking services.
The second phase of nationalisation of Indian banks took place in the year 1980. Seven
more banks were nationalised with deposits over 200 crores. Till this year,
approximately 80% of the banking segments in India were under government
ownership.
After the nationalisation of banks in India, the branches of the public sector banks rose
to approximately 800% in deposits and advances took a huge jump by 11,000%.
http://finance.indiamart.com/investment_in_india/central_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/punjab_national_bank.htmlhttp://finance.indiamart.com/investment_in_india/canara_bank.htmlhttp://finance.indiamart.com/investment_in_india/indian_overseas_bank.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/united_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_india.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_india.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/united_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/indian_overseas_bank.htmlhttp://finance.indiamart.com/investment_in_india/canara_bank.htmlhttp://finance.indiamart.com/investment_in_india/punjab_national_bank.htmlhttp://finance.indiamart.com/investment_in_india/central_bank_india.html7/14/2019 Maharshi Arvind Kailash
28/139
[28]
BANKING STRUCTURE
The Indian banking industry, which has Reserve Bank of India as its regulatory
authority, is a mix of the public sector, private sector, and foreign banks. The private
sector banks are again split into old banks and new banks.
SCHEDULED BANKS
Scheduled commercial banks are those that come under the purview of the Second
Schedule of Reserve Bank of India (RBI) Act, 1934. The banks that are included under
this schedule are those that satisfy the criteria laid down vide section 42 (60 of the Act).
Some co-operative banks come under the category of scheduled commercial banks
though not all co-operative banks.
PUBLIC SECTOR BANKS
Public sector banks are those in which the Government of India or the RBI is a majority
shareholder. These banks include the State Bank of India (SBI) and its subsidiaries,
other nationalized banks, and Regional Rural Banks (RRBs). Over 70% of the
aggregate branches in India are those of the public sector banks. Some of the leading
banks in this segment include Allahabad Bank, Canara Bank, Bank of Maharashtra,
Central Bank of India, Indian Overseas Bank, State Bank of India, State Bank of Patiala,
State Bank of Bikaner and Jaipur, State Bank of Travancore, Bank of Baroda, Bank ofIndia, Oriental Bank of Commerce, UCO Bank, Union Bank of India, Dena Bank and
Corporation Bank.
7/14/2019 Maharshi Arvind Kailash
29/139
[29]
PRIVATE SECTOR BANKS
Private Banks are essentially comprised of two types: the old and the new. The old
private sector banks comprise those, which were operating before Banking
Nationalization Act was passed in 1969. On account of their small size, and regional
operations, these banks were not nationalized. These banks face intense rivalry from
the new private banks and the foreign banks. The banks that are included in this
segment include: Bank of Madura Ltd. (now a part of ICICI Bank), Bharat Overseas
Bank Ltd., Bank of Rajasthan, Karnataka Bank Ltd., Lord Krishna Bank Ltd., The
Catholic Syrian Bank Ltd., The Dhanalakshmi Bank Ltd., The Federal Bank Ltd., The
Jammu & Kashmir Bank Ltd., The KarurVysya Bank Ltd., The Lakshmi Vilas Bank Ltd.,
The Nedungadi Bank Ltd. and Vysya Bank. The new private sector banks were
established when the Banking Regulation Act was amended in 1993. Financial
institutions promoted several of these banks. After the initial licenses, the RBI has
granted no more licenses. These banks are gearing up to face the foreign banks by
focusing on service and technology. Currently, these banks are on an expansion spree,
spreading into semi-urban areas and satellite towns. The leading banks that are
included in this segment include Bank of Punjab Ltd., Centurion Bank Ltd., Global Trust
Bank Ltd., HDFC Bank Ltd., ICICI Banking Corporation Ltd., IDBI Bank Ltd., IndusInd
Bank Ltd. and UTI Bank Ltd.
FOREIGN BANKS
The operations of foreign banks, though similar to that of other commercial Indian
banks, are mainly confined to metropolitan areas. Foray of foreign banks depends on
reciprocity, economic and political bilateral relations. An inter-departmental committee
has been set up to endorse applications for entry and expansion. Foreign banks, in the
7/14/2019 Maharshi Arvind Kailash
30/139
[30]
wake of the liberalization era, are looking to expand and diversify. Some of the leading
foreign banks that operate in India are Citibank, Standard Chartered Grindlays Bank,
Hong Kong Shanghai Banking Corporation, Bank of America, Deutsche Bank,
Development Bank of Singapore and Banque National De Paris.
INDIAN BANKS AND THE GLOBAL CHALLENGES
The enhanced role of the banking sector in the Indian economy, the increasing levels of
deregulation along with the increasing levels of competition have facilitated globalisation
of the India banking system and placed numerous demands on banks. Operating in this
demanding environment has exposed banks to various challenges. The last decade has
witnessed major changes in the financial sector - new banks, new financial institutions,
new instruments, new windows, and new opportunities - and, along with all this, new
challenges. While deregulation has opened up new vistas for banks to augment
revenues, it has entailed greater competition and consequently greater risks. Demand
for new products, particularly derivatives, has required banks to diversify their product
mix and also effect rapid changes in their processes and operations in order to remain
competitive in the globalised environment.
7/14/2019 Maharshi Arvind Kailash
31/139
[31]
GLOBALISATIONA CHALLENGE AS WELL AS AN OPPORTUNITY
The benefits of globalisation have been well documented and are being increasinglyrecognised. Globalisation of domestic banks has also been facilitated by tremendous
advancement in information and communications technology. Globalisation has thrown
up lot of opportunities but accompanied by concomitant risks. There is a growing
realisation that the ability of countries to conduct business across national borders and
the ability to cope with the possible downside risks would depend, inter-alia, on the
soundness of the financial system and the strength of the individual participants.
Adoption of appropriate prudential, regulatory, supervisory, and technological
framework on par with international best practices enables strengthening of the
domestic banking system, which would help in fortifying it against the risks that might
arise out of globalisation. In India, strengthening of the banking sector for facing the
pressures that may arise out of globalisation by adopting the banking sector reforms in
a calibrated manner, which followed the twin governing principles of non-disruptive
progress and consultative process.
GLOBAL CHALLENGES IN BANKING
Few broad challenges faced by the Indian banks in the following areas, viz.,
enhancement of customer service; application of technology; implementation of Basel II;
improvement of risk management systems; implementation of new accounting
standards; enhancement of transparency & disclosures; and compliance with KYC
aspects. If we were to identify a few global challenges which banks face today, I am
sure we would cover some common ground. An overview of the global challenges
would include the following: Basel II implementation; enhancing corporate governance;
7/14/2019 Maharshi Arvind Kailash
32/139
[32]
alignment of regulatory and accounting requirements; outsourcing risks; and application
of advanced technology. I propose to cover these aspects now.
BASE II IMPLEMENTATION
Basel II implementation is widely acknowledged as a significant challenge faced by both
banks and the regulators internationally. It is true that Basel II implementation may be
seen as a compliance challenge. While it may be so for some banks, Basel II
implementation has another dimension which offers considerable opportunities to
banks. Highlighting two opportunities that are offered to banks, viz., refinement of risk
management systems; and improvement in capital efficiency.
Comp rehensive r isk management:Under Basel I banks were focused on credit and
market risks. Basel II has brought into focus a larger number of risks requiring banks to
focus on a larger canvas. Besides the increase in the number of risks, banks are now
beginning to focus on their inter-linkages with a view to achieve a more comprehensive
risk management framework. Basel II implementation, therefore, is being increasingly
seen as a medium through which banks constantly endeavour to upgrade the risk
management systems to address the changing environment. Further, in the initial
stages, banks were managing each risk in isolation. It is no longer adequate to manageeach risk independently. Enterprises worldwide are, therefore, now putting in place an
integrated framework for risk management which is proactive, systematic and spans
across the entire organisation. Banks in India are also moving from the individual silo
system to an enterprise wide risk management system. While the first milestone would
be risk integration across the entity, banks are also aware of the desirability of risk
aggregation across the group both in the specific risk areas as also across the risks.
Banks would, therefore, be required to allocate significant resources towards this
endeavour.
7/14/2019 Maharshi Arvind Kailash
33/139
[33]
Capital eff iciency :Basel II prescriptions have ushered in a transition from the traditional
regulatory measure of capital adequacy to an evaluation of whether a bank has found
the most efficient use of its capital to support its business i.e., a transition from capital
adequacy to capital efficiency. In this transition, how effectively capital is used will
determine return on equity and a consequent enhancement of shareholder value. In
effect, banks may adopt a more dynamic approach to use of capital, in which capital will
flow quickly to its most efficient use. This revised efficiency approach is expected to
guide the return-on-equity strategy and influence banks business plans. With the
extension of capital charge for market risks to the AFS portfolio this year and the
coming into force of Basel II norms in March 2007, banks would need to shore up thecapital levels not only for complying with these requirements but also for supporting the
balance sheet growth. With a view to enhancing the options available to banks for
augmenting their capital levels, the Reserve Bank has recently permitted banks to issue
new capital instruments, including perpetual instruments. A notable feature of these
instruments is that these are designed to help banks in not only managing their capital
effectively but also efficiently.
7/14/2019 Maharshi Arvind Kailash
34/139
[34]
ENHANCING CORPORATE GOVERNANCE
The issues related to corporate governance have continued to attract considerable
national and international attention in light of a number of high-profile breakdowns in
corporate governance. This becomes all the more relevant for banks since they not only
accept and deploy large amount of uncollateralized public funds in fiduciary capacity,
but also leverage such funds through credit creation. Banks are also important
participants in the payment and settlement systems. In view of the above, legal
prescriptions for ownership and governance of banks in Banking Regulation Act, 1949
have been supplemented by regulatory prescriptions issued by RBI from time to time.
In view of the importance of the banking system for financial stability, sound corporate
governance is not only relevant at the level of the individual bank, but is also a critical
ingredient at the system level. Effective risk management systems determine the health
of the financial system and its ability to survive economic shocks. To a large extent,
many risk management failures reflect a breakdown in corporate governance which
arise due to poor management of conflicts of interest, inadequate understanding of key
banking risks, and poor Board oversight of the mechanisms for risk management and
internal audit. Corporate governance is, therefore, the foundation for effective risk
managements in banks and thus the foundation for a sound financial system 2.
Therefore, the choices which banks make when they establish their risk management
and corporate governance systems have important ramifications for financial stability.
These systems can affect how the institution functions and how others perceive it in the
marketplace.
A good governance culture is crucial for financial stability but since it is anintangible,
rules may not be able to capture its essence effectively. Therefore, banks may have to
cultivate a good governance culture building in appropriate checks and balances in their
operations. There are four important forms of oversight that should be included in the
organisational structure of any bank in order to ensure appropriate checks and
balances: (1) oversight by the board of directors or supervisory board; (2) oversight by
7/14/2019 Maharshi Arvind Kailash
35/139
[35]
individuals not involved in the day-to-day running of the various business areas; (3)
direct line supervision of different business areas; and (4) independent risk
management, compliance and audit functions. In addition, it is important that key
personnel are fit and proper for their jobs. Although some ownership structures might
have the potential to alter the strategies and objectives of a bank, these banks will also
face many of the same risks associated with weak corporate governance.
7/14/2019 Maharshi Arvind Kailash
36/139
[36]
COMPLIANCE WITH INTERNATIONAL ACCOUNTING STANDARDS
One of the prime international standards considered relevant for ensuring a safe andsound banking system is the Core Principles for Effective Banking Supervision issued
by the Basel Committee on Banking Supervision (BCBS). Accounting standards are
now a part of the set of twelve standards that have been identified by the Financial
Stability Forum as conducive to a robust financial infrastructure. Financial reporting and
prudential supervision have slightly different perspectives. While the former is oriented
towards capturing the historical position, the latter has a forward looking element
particularly with reference to measurement of impairment and capital. An important
challenge, therefore, is to ensure that accounting standards and prudential frameworks
are mutually consistent. While working towards achieving this consistency between the
two sets of standards, it is essential for the regulators to be in a position to address any
implications that the changes in accounting standards may have for the safety and
soundness of banks.
Derivative activity in banks in India has been increasing at a brisk pace. While the risk
management framework for derivative trading, which is a relatively new area for Indianbanks (particularly more in respect of structured products), is an essential pre-requisite,
the absence of clear accounting guidelines in this area is matter of significant concern. It
is widely accepted that as the volume of transactions increases, which is happening in
the Indian banking system, the need to upgrade the accounting framework needs no
emphasis. The World Banks ROSC on Accounting and Auditing in India has
commented on the absence of an accounting standard which deals with recognition,
measurement, presentation and disclosures pertaining to financial instruments. The
Accounting Standards Board of the Institute of Chartered Accountants of India (ICAI) is
considering issue of Accounting Standards on the above aspects pertaining to financial
Instruments. These will be the Indian parallel to International Financial Reporting
Standard 7, International Accounting Standards 32 and 39. The proposed Accounting
7/14/2019 Maharshi Arvind Kailash
37/139
[37]
Standards will be of considerable significance for financial entities and could therefore
have implications for the financial sector. The formal introduction of these Accounting
Standards by the ICAI is likely to take some time in view of the processes involved. In
the meanwhile, the Reserve Bank is considering the need for banks and financial
entities adopting the broad underlying principles of IAS 39. Since this is likely to give
rise to some regulatory / prudential issues all relevant aspects are being
comprehensively examined. The proposals in this regard would, as is normal, be
discussed with the market participants before introduction. Adoption and implementation
of these principles are likely to pose a great challenge to both the banks and the
Reserve Bank.
7/14/2019 Maharshi Arvind Kailash
38/139
[38]
OUTSOURCING RISKS
Banks are increasingly using outsourcing for achieving strategic aims leading to either
rationalisation of operational costs or tapping specialist expertise which is not available
internally. 'Outsourcing' may be defined asa bank's use of a third party, including an
affiliated entity within a corporate group, to perform activities on a continuing basis that
would normally be undertaken by the bank itself.Typically outsourced financial services
include applications processing (loan origination, credit card), document processing,
investment management, marketing and research, supervision of loans,data processing
and back office related activities etc.
Outsourcing might give rise to several risks including, strategic risk, reputation risk,
compliance risk, operational risk, exit strategy risk, counterparty risk, country risk,
access risk, concentration risk and systemic risk. The failure of a service provider to
provide a specified service, ensure security/ confidentiality, and comply with legal and
regulatory requirements can lead to financial losses/ reputational risk for the bank and
could also lead to systemic risks for the entire banking system in a country. It would
therefore be imperative for the bank outsourcing its activitiesto ensure effective
management of these risks.
It is in this background that RBI has issued draft guidelines on outsourcing, which is
intended to provide direction and guidance to banks to effectively manage risks arising
from such outsourcing activities. The underlying principles for any outsourcing
arrangement by a bank are that such arrangements should neither diminishthe
banksability to fulfill its obligations to its customers and the RBI nor impede effective
supervision by RBI. Outsourcing banks, therefore, should take steps to ensure that the
service provider employs the same high standard of care in performing the services as
would be employed by the banks if the activities were conducted within the banks and
not outsourced. Accordingly, banks are not expected to outsource any activity that
would result in their internal control, business conduct, or reputation being compromised
or weakened.
7/14/2019 Maharshi Arvind Kailash
39/139
[39]
APPLICATION OF ADVANCED TECHNOLOGY
Technology is a key driver in the banking industry, which creates new business models
and processes, and also revolutionises distribution channels. Banks which have made
inadequate investment in technology have consequently faced an erosion of their
market shares. The beneficiaries are those banks which have invested in technology.
Adoption of technology also enhances the quality of risk management systems in
banks. Recognising the benefits of modernising their technology infrastructure banks
are taking the right initiatives. While doing so, banks have four options to choose from:
they can build a new system themselves, or buy best of the modules, or buy a
comprehensive solution, or outsource. In this context banks need to clearly define their
core competencies to be sure that they are investing in areas that will distinguish themfrom other market players, and give them a competitive advantage6. A further challenge
which banks face in this regard is to ensure that they derive maximum advantage from
their investments in technology and avoid wasteful expenditure which might arise on
account of uncoordinated and piecemeal adoption of technology; adoption of
inappropriate/ inconsistent technology and adoption of obsolete technology.
7/14/2019 Maharshi Arvind Kailash
40/139
[40]
CAPACITY BUILDING
As dictated by the changing environment, banks need to focus on appropriate capacity
building measures to equip their staff to handle advanced risk management systems
and supervisors also need to equally equip themselves with appropriate skills to have
effective supervision of banks adopting those systems. In the likelihood of a high level of
attrition in the system, banks need to focus on motivating their skilled staff and retaining
them7. Skill requirements would be significantly higher for banks planning to migrate to
the advanced approaches under Basel II. Capacity building gains greater relevance in
these banks, so as to equip themselves to take advantage of the incentives offered
under the advanced approaches.
A relevant point in this regard is that capacity building should be across the institution
and not confined to any particular level or any particular area. The demand for better
skills can be met either from within or from outside. It would perhaps be worthwhile to
first glean through the existing resources to identify misplaced or hidden or forgotten
resources and re-position them to boost the banks efforts to capitalise on available
skills. This does not undermine the benefits that a bank may derive by meeting their
requirements from the market, but is only intended to prioritise the process.
7/14/2019 Maharshi Arvind Kailash
41/139
[41]
CONCLUSION
The global challenges which banks face are not confined only to the global banks.These aspects are also highly relevant for banks which are part of a globalised banking
system. Further, overcoming these challenges by the other banks is expected to not
only stand them in good stead during difficult times but also augurs well for the banking
system to which they belong and will also equip them to launch themselves as a global
bank.
7/14/2019 Maharshi Arvind Kailash
42/139
[42]
7/14/2019 Maharshi Arvind Kailash
43/139
[43]
TRANSFORMATION INITIATIVES NEEDED FOR BANKS
Strategy
Sales & Marketing strategy for both retail & wholesale banking
Expanding geographies
Brand
Understanding the values of the brand
Repositioning the brand to communicate the values
7/14/2019 Maharshi Arvind Kailash
44/139
[44]
Organization restructuring
Re organization of the bank in line with the strategic thrust
Re-engineering of the key business processes
Redesign of Sales processes to increase conversion ratio
Six Sigma process improvements for branch channel, Call Centre& back office
processes
Centralization of branch operations and deferred processes to free up resources
Cost efficiency
Reduction in Total cost of acquisition
Reduction in transaction costs
Reduction in fixed and overheads cost
Right sizing and matching of skills
Manpower modelling for branch & back office at various volume scenarios
Productivity improvement for sales & service functions
Competency Assessments & profiling
Creating a high performing organization
Define new roles & responsibilities, KRA
Assessing competencies of people across levels and match the position with the
skill-set
Designing and implementing a new PMS for restructured organization
7/14/2019 Maharshi Arvind Kailash
45/139
[45]
Change management & creating a new mind set
Developing critical mass of champions and drive Change across the
organisation to move from conventional banking to new age banking.
BANKING SERVICES IN INDIA
With years, banks are also adding services to their customers. The Indian banking
industry is passing through a phase of customers market. The customers have more
choices in choosing their banks. A competition has been established within the banks
operating in India.
With stiff competition and advancement of technology, the services provided by banks
have become more easy and convenient. The past days are witness to an hour wait
before withdrawing cash from accounts or a cheque from north of the country being
cleared in one month in the south.
The following are the major services provided by the Banks.
BANK ACCOUNT
Openbank account - the most common and first service of thebanking sector. There
are different types of bank account in Indian banking sector. The bank accounts are as
follows:
Bank Savings Account - Bank Savings Account can be opened for eligible person
/ persons and certain organisations / agencies (as advised by Reserve Bank of
India (RBI) from time to time)
Bank Current Account - Bank Current Account can be opened by individuals /
partnership firms / Private and Public Limited Companies / HUFs / Specified
Associates / Societies / Trusts, etc.
http://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.html7/14/2019 Maharshi Arvind Kailash
46/139
[46]
Bank Term Deposits Account - Bank Term Deposits Account can be opened by
individuals / partnership firms / Private and Public Limited Companies / HUFs/
Specified Associates / Societies / Trusts, etc.
Bank Account Online - With the advancement of technology, the major banks in
the public and private sector has facilitated their customer to open bank account
online. Bank account online is registered through a PC with an internet
connection. The advent in opening an account.
PLASTIC MONEY
Credit card
Credit cards in India are gaining ground. A number of banks in India are encouraging
people to usecredit card.The concept of credit card was used in 1950 with the launch
of charge cards in USA by Diners Club and American Express. Credit card however
became more popular with use of magnetic strip in 1970.
Credit card in India became popular with the introduction of foreignbanks in the
country.
Credit cards are financial instruments, which can be used more than once to borrow
money or buy products and services on credit. Basically banks, retail stores and other
businesses issue these.
Major Banks issuing Credit Card in India
State Bank of India credit card
(SBI credit card)
Bank of Baroda credit card or
Bob credit card
ICICI credit card
HDFC credit card
IDBI credit card
ABN AMRO credit card
Standard Chartered credit card
HSBC credit card
http://finance.indiamart.com/investment_in_india/plastic_money.htmlhttp://finance.indiamart.com/investment_in_india/plastic_money.htmlhttp://finance.indiamart.com/investment_in_india/plastic_money.htmlhttp://finance.indiamart.com/investment_in_india/plastic_money.html7/14/2019 Maharshi Arvind Kailash
47/139
[47]
Global player in credit card market
MasterCard
MasterCard is a product of MasterCard International and along with VISA are distributedby financial institutions around the world. Cardholders borrow money against a line of
credit and pay it back with interest if the balance is carried over from month to month. Its
products are issued by 23,000 financial institutions in 220 countries and territories. In
1998, it had almost 700 million cards in circulation, whose users spent $650 billion in
more than 16.2 million locations.
VISA Card
VISA cards is a product of VISA USA and along with MasterCard is distributed by
financial institutions around the world. A VISA cardholder borrows money against a
credit line and repays the money with interest if the balance is carried over from month
to month in a revolving line of credit. Nearly 600 million cards carry one of the VISA
brands and more than 14 million locations in the world.
American Express
The world's favourite card is American Express Credit Card. More than 57 million cards
are in circulation and growing and it is still growing further. Around US $ 123 billion was
spent last year through American Express Cards and it is poised to be the world's No. 1
card in the near future. In a regressive US economy last year, the total amount spent on
American Express cards rose by 4 percent. American Express cards are very popular in
the U.S., Canada, Europe and Asia and are used widely in the retail and everyday
expenses segment.
7/14/2019 Maharshi Arvind Kailash
48/139
[48]
DinersClubInternational
Diners Club is the world's No. 1 Charge Card. Diners Club cardholders reside all over
the world and the Diners Card is a all-time favourite for corporates. There are more than
8 million Diners Club cardholders. They are affluent and are frequent travellers in
premier businesses and institutions, including Fortune 500 companies and leading
global corporations.
JCBCards
The JCB Card has a merchant network of 10.93 million in approximately 189 countries.
It is supported by over 320 financial institutions worldwide and serves more than 48
million cardholders in eighteen countries worldwide. The JCB philosophy of "identify the
customer's needs and please the customer with Service from the Heart" is paying rich
dividends as their customers spend US$43 billion annually on their JCB cards.
The following are some of the varieties of credit cards in India
ANZ - Gold
ANZ - Silver
Bank Of IndiaIndiacard
Bol - Taj Premium
Bol - Gold
BoB - Exclusive
BoB - Premium
Canara BankCancard
Citibank - Gold
Citibank - Silver
Citibank WWF Card
Citibank Visa Card for Women
Citibank Cry Card
Citibank Silver International
Credit
Citibank Electronic Credit Card
Citibank Times Card
Citibank Citi Diners Club Card
HSBC - Gold
HSBC - Classic
ICICI Sterling Silver Credit Card
ICICI Solid Gold Credit Card
ICICI True Blue Credit Card
SBI Card
Stanchart - Gold
Stanchart - Executive
7/14/2019 Maharshi Arvind Kailash
49/139
[49]
Debit Card
Debit cards, also known as check cards look likecredit cards or ATM cards (automatedteller machine card). It operates like cash or a personal check. Debit cards are different
from credit cards. Credit card is a way to "pay later," whereas debit card is a way to "pay
now." When we use a debit card, our money is quickly deducted from thebank account.
Debit cards are accepted at many locations, including grocery stores, retail stores,
gasoline stations, and restaurants. Itsan alternative to carrying a checkbook or cash.
With debit card, we use our own money and not the issuer's money.
In India almost all thebanks issue debit card to its account holders.
Features of Debit Card
Obtaining a debit card is often easier than obtaining a credit card.
Using a debit card instead of writing checks saves you from showing
identification or giving out personal information at the time of the transaction.
Using a debit card frees you from carrying cash or a checkbook.
Using a debit card means you no longer have tostock up on travellerschecks or
cash when you travel.
Debit cards may be more readily accepted by merchants than checks, especially
in other states or countries wherever your card brand is accepted.
The debit card is a quick, "pay now" product, giving you no grace period.
Using a debit card may mean you have less protection than with a credit card
purchase for items which are never delivered, are defective, or weremisrepresented. But, as with credit cards, you may dispute unauthorized charges
or other mistakes within 60 days. You should contact the card issuer if a problem
cannot be resolved with the merchant.
http://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.html7/14/2019 Maharshi Arvind Kailash
50/139
[50]
LOANS
Banks in India with the way of development have become easy to apply in loan market.
The following loans are given by almost all thebanks in the country:
Personal Loan
Car Loan orAuto Loan
Loan against Shares
Home Loan
Education Loan or Student Loan
In Personal Loan, one can get a sanctioned loan amount between Rs 25,000 to
10,00,000 depending upon the profile of person applying for the loan. SBI, ICICI, HDFC,
HSBC are some of the leading banks which deals in in personal loan.
Almost all the banks have jumped into the market of car loan which is also sometimes
termed as auto loan. It is one of the fast moving financial products of banks. Car loan /
auto loan are sanctioned to the extent of 85% upon the ex-showroom price of the car
with some simple paper works and a small amount of processing fee.
Loan against shares is very easy to get because liquid guarantee is involved in it.
Home loan is the latest craze in the banking sector with the development of the
infrastructure. Now people are moving to township outside the city. More number of
townships are coming up to meet the demand of 'house for all'. The RBI has also
liberalised the interest rates of home loan in order to match the repayment capability of
even middle class people. Almost all banks are dealing in home loan. Again SBI , ICICI ,
HDFC , HSBC are leading.
Theeducational loan,rather to be termed asstudent loan,is a good banking product for
the mass. Students with certain academic brilliance, studying at recognized
colleges/universities in India and abroad are generally given education loan / student
http://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.html7/14/2019 Maharshi Arvind Kailash
51/139
[51]
loan so as to meet the expenses on tuition fee/ maintenance cost/books and other
equipment.
MONEY TRANSFER
Beside lending and depositing money,banks also carry money from one corner of the
globe to another. This act of banks is known as transfer of money. This activity is
termed as remittance business. Banks generally issue Demand Drafts, Banker's
Cheques, Money Orders or other such instruments for transferring the money. This is a
type of Telegraphic Transfer or Tele Cash Orders.
It has been only a couple of years that banks have jumped into the money transfer
businessess in India. The international money transfer market grew 9.3% from 2003 to
2004 i.e. from US$213 bn. to US$233 bn. in 2004. Economists say that the market of
money transfer will further grow at cumulative 10.1% average growth rate through 2008.
With the use of high technology and varieties of product it seems that "Free" money
transfers will become commonplace. We will see more bundling of tailored money
services by banks and non-traditional entrants that will include "free" money transfers.
Many banks will even use money transfer services as loss-leaders in order to generate
account openings and cross-sell opportunities. The price evolution of money transferproducts for banks will be similar to that of consumer bill pay-the product is worth giving
away as an account acquisition tool to win overallmarket share and establish banking
relationships.
ATM money transfer card products have had terrible bank adoption rates since being
introduced in the last three to four years. Remitters who are highly educated and have
been already been exposed to ATM technology in receiving countries tend to have an
interest in this product. Money transfer to India is one of the most important part played
by the banks. This service provide peace of mind to either the NRIs or to the visitors to
India. Many Indian banks have ATM'S (automatic teller machine), enable to draw
foreigncurrency in India.
http://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.html7/14/2019 Maharshi Arvind Kailash
52/139
[52]
By 2007, we will see a good percent of all foreign-born households doing some level
ofonline banking.First-mover banks will start having a window of opportunity to include
online transfer functionality within the next couple of years, which currently frequents
traditional money transmitters such as Western Union. There is a terrific opportunity for
banks and non-banks to offer more robust global inter-institutional funds transfer
services online. More than half of Western Union's customers today are already banked,
and most do not have an alternative product marketed by their bank that is painless,
quick, and cost-effective. That will change as banks offer transfer services through their
online channel.
Visa has recently introduced the 'Visa Money Transfer' option for its savings and current
account holder of any bank with a visa debit card. This facility helps its customer totransfer funds from hisbank account to any visa card, either debit or credit within India.
A Visa Money Transfer is of similar kind, in many respects, to the third-party fund
transfer option given by some banks to its account holders through e-cheque, but this is
restricted to only visa card holders.
How to transfer money?
Log on to your bank account through your respective bank websites.
Fill the beneficiary details like visa card numbers, name, address and then
specify the amount that needs to be transferred. For bank account specify the
visa card number andcredit card number for paying credit card bill.
Click on to VISA Transfer Payments button.
Transfer immediately or on schedule date. Your account will be debited
according to the date mentioned.
http://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/visa_money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/visa_money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/visa_money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/visa_money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.html7/14/2019 Maharshi Arvind Kailash
53/139
[53]
MOBILE BANKING
Mobile Banking is a service that allows customers to do banking transactions on theirmobile phone without making a call, using the SMS facility.
Mobile Banking works on the 'Text Messaging Facility' also called the SMS that is
available on mobile phones. This facility allows sending a short text message from
mobile phone instead of making a phone call.
All that is need to do is, to type out a short text message on mobile phone and send it
out to a specific mobile banking number given by the bank .The response is sent as anSMS message, all in the matter of a few seconds.
The following transactions are currently available across India -
Balance Inquiry of all accounts linked to Customer Identification Number
(maximun up to five accounts)
Following transactions give information on primary account
Checking the last 3 transactions in your primary account for MobileBanking Placing a Stop Payment on a cheque
Requesting a cheque book
Requesting an Account Statement
Cheque Status inquiry
Bill Presentment
Fixed Deposit Inquiry
A Help menu, which gives you the transaction codes for the various transactions IPIN Re-generation request
7/14/2019 Maharshi Arvind Kailash
54/139
[54]
Mobile banking in India is set to explode - approximately 43 million urban Indians used
their mobile phones to access banking services during quarter ending August, 2009, a
reach of 15% among urban Indian mobile phone user.
Most Popular Banking Service on Mobile
Checking account balances is the most popular banking service used by urban Indians
with almost 40 million users followed by checking last three transactions, 28 million and
status of cheques with 21 million users.
Usage Unique Users (In millions)
Used mobile banking 43.70
Checking account balance 39.97
View last three transactions 28.15
Status of cheques 21.06
Payment reminders 20.92
Request a cheque book 19.11
Mobile banking is popular among the Rs.1 to 5 lakhs per year income group with almost
60% of mobile banking users falling in the income bracket, an indicator of adoption of
this service by younger generation.
7/14/2019 Maharshi Arvind Kailash
55/139
[55]
PHONE BANKING
When one dials in to Phone Banking, a voice prompt will guide him through the varioustransactions. He may also talk to a Phone Banker, who will provide him with the
required assistance.
Check your account balance
Enquire on the cheque status
Order a Cheque Book / Account Statement
Stop Payment
Loan Related queries
transfer Funds between accounts
Open a Fixed deposit or Enquire on your Fixed deposits / TDS
Pay bills
Report loss of ATM / Debit Card / ForexPlus Card
Enquire about latest Interest / Exchange rates
Request a Demand Draft / Manager's Cheque
Demat Related Queries
INTERNET BANKING
Internet banking is the technology that allows banking customers to do the things they
would normally do at their bank from the comfort of home with a connection to the
Internet. Anything that would normally be done in the offshore bank account, which is
done on the Internet, is considered Internet banking.
With cybercafs and kiosks springing up in different cities access to the Net is going to
be easy. Internet banking (also referred as e banking) is the latest in this series of
technological wonders in the recent past involving use of Internet for delivery of banking
7/14/2019 Maharshi Arvind Kailash
56/139
[56]
products & services. Even the Morgan Stanley Dean Witter Internet research
emphasised that Web is more important for retail financial services than for many other
industries.
Internet banking is changing the banking industry and is having the major effects on
banking relationships. Banking is now no longer confined to the branches were one has
to approach the branch in person, to withdraw cash or deposit a cheque or request a
statement of accounts. In true Internet banking, any inquiry or transaction is processed
online without any reference to the branch (anywhere banking) at any time. Providing
Internet banking is increasingly becoming a "need to have" than a "nice to have"
service. The net banking, thus, now is more of a norm rather than an exception in many
developed countries due to the fact that it is the cheapest way of providing bankingservices.
Indian banks are going for the retail banking in a big way. However,