Professional Documents
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SUBMITTED BY: Dubey Amit Nupur Mayank Kumar Choudhary Divya Agarwal
TABLE OF CONTENTS
1. 2. 3. INTRODUCTION RESEARCH METHODOLOGY LITERATURE REVIEW Introduction to Banking Sector Introduction to SBI 4. REFERENCES
RESEARCH METHODOLOGY
RESEARCH DESIGN:
The methodology for the research study is descriptive and is as follows: Research Approach: Quantitative research Objectives: The main objective of our project is: To study the strength of appeal of selected value added banking services in the Ranchi City To know in which service quality dimension the bank is performing well and in which dimension it needs improvement. To know customers requirements or expectation for service. . Sampling: Following sampling is designed in order to execute the survey. Sample size: 100 SBI customers Universe: SBI Customers all around the world Population: SBI Customers in Ranchi City Sample: based on quota sampling Quotas will be made on the basis of income groups Data Collection Method:
Data Collection Tool 4
Secondary data: Various websites, articles from magazines and news papers, books will be used for collecting secondary data. Primary data: The primary data will be collected by us by designing structured questionnaire with the relevant question to the project study and research. Type of questionnaire: Structured questionnaire.
BENEFICIARIES OF PROJECT:
Beneficiary of this project is to the bank, to improve the customer satisfaction in the dimension in which they are lagging. Key findings and analysis will helpful to them for provide better services to customers. For researchers, to know the competitive advantage of both the banks and their services.
HYPOTHESIS
Various e-banking value added services if provided by SBI to its customers will provide a great appeal to the customer Even if these services are provided at a cost Customers will be ready to go for it
INTRODUCTION
INTRODUCTION
Our research deals with the problem of studying the strength of appeal of selected value added banking services in the Ranchi City. For this purpose we have selected SBI as the bank for which the research will be conducted. We have selected four value added services on which the research will be conducted. Following are the four services: 1. ATM (Automatic Teller Machine) 2. Net Banking 3. Phone Banking 4. Mobile Banking A sample of 100 SBI customers will be selected and be given a questionnaire regarding these four services. The responses of the respondents will be analysed to study the strength of appeal of these four value added banking services.
LITERATURE REVIEW
is proposed to hike the CAR to 12% by 2004 based on the Basle Committee recommendations.
Retail Banking is the new mantra in the banking sector. The home loans alone account for nearly two-third of the total retail portfolio of the bank. According to one estimate, the retail segment is expected to grow at 30-40% in the coming years. Net banking, phone banking, mobile banking, ATMs and bill payments are the new buzz words that banks are using to lure customers. With a view to provide an institutional mechanism for sharing of information on borrowers / potential borrowers by banks and Financial Institutions, the Credit Information Bureau (India) Ltd. (CIBIL) was set up in August 2000. The Bureau provides a framework for collecting, processing and sharing credit information on borrowers of credit institutions. SBI is a promoter of the CIBIL. The RBI is now planning to transfer of its stakes in the SBI, NHB and National bank for Agricultural and Rural Development to the private players. Also, the Government has sought to lower its holding in PSBs to a minimum of 33% of total capital by allowing them to raise capital from the market. Banks are free to acquire shares, convertible debentures of corporate and units of equityoriented mutual funds, subject to a ceiling of 5% of the total outstanding advances (including commercial paper) as on March 31 of the previous year. The finance ministry spelt out structure of the government-sponsored ARC called the Asset Reconstruction Company (India) Limited (ARCIL), this pilot project of the ministry would pave way for smoother functioning of the credit market in the country. The government will hold 49% stake and private players will hold the rest 51%- the majority being held by ICICI Bank (24.5%).
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5.7%, 3.9% and 12.2% respectively in deposits and 8.41%, 3.14% and 12.85% respectively in credit during the year 2000.
CLASSIFICATION OF BANKS:
The Indian banking industry, which is governed by the Banking Regulation Act of India, 1949 can be broadly classified into two major categories, non-scheduled banks and scheduled banks. Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks (the old / new domestic and foreign). These banks have over 67,000 branches spread across the country. The Indian banking industry is a mix of the public sector, private sector and foreign banks. The private sector banks are again spilt into old banks and new banks.
Banks
NABARD NHB
IRBI
EXIM Bank
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SBI Groups
Nationalized Banks
Indian Banks
Foreign Banks
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inflationary pressures from food and commodity prices as well as high and volatile crude oil prices are other risks being faced by the global economy. India continued to be one of the fastest growing economies of the world. During 2007-08, the Indian economy grew at a robust pace for the fifth consecutive year. Real GDP growth, estimated at 8.7% in 2007-08, is in tune with the average annual GDP growth of 8.7% in the five year period 2003-04 to 2007-08. Agriculture and allied activities are estimated to grow by 2.6% in 2007-08, which is in line with the average growth of 2.6% per annum during 2000- 01 to 2007-08. Food grains production touched a record high in FY08, with total food grains production placed at 227.3 million tones, surpassing the target of 221.5 million tones and recording an increase of 4.6% over the previous year. Industrial growth at 8.6% during 2007-08 has moderated somewhat against 10.6% in the previous year. The services sector maintained its double-digit growth at 10.6% during 2007-08, higher than the long term average of 8.9% (2000-01 to 2007-08). Within services, transport and communications and financial services recorded double-digit growth for the last two years and are expected to maintain the growth momentum. Trade and hotels showed higher growth of 12.1% in 2007-08 against 11.8% growth in 2006-07. Another positive feature underpinning growth is the sharp rise in the rate of savings and investment in recent years, which rose to 34.8% and 35.9% respectively in 2006-07. Towards the close of the fiscal year, higher inflation rate was noticed due to rise in global prices of food, metals and crude oil. Inflation based on WPI declined from 6.4% at the beginning of the fiscal year to a low of 3.1% by mid-October 2007, partly reflecting moderation in the prices of some primary food articles and manufactured products.
After hovering around 3% during November 2007, inflation began to edge up from early December 2007 to touch 7.4% by 29 March 2008, mainly reflecting hardening in prices of primary articles such as fruits and vegetables, oilseeds, raw cotton and iron ore, as well as fuel and manufactured products such as edible oil/oil cakes and basic metals, partly due to international commodity price pressures. However, fiscal and monetary measures are being taken to contain inflation and maintain high growth.
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Despite Rupee appreciation, exports continued to show a healthy growth, rising by 23% in dollar terms during 2007-08 against 22.6% in the previous year. Overall exports growth was driven by petroleum and crude products, gems and jewellery, iron ore, non-basmati rice, cotton, transport equipment, etc. While Indias exports to USA, its single largest trading partner, showed deceleration, exports to UAE and China remained robust. In the same period, imports increased by 27.0% against 24.5%, mainly due to higher oil imports; non-oil imports were led by capital goods, chemicals and related products, edible oils, gold, silver and pearls, precious and semiprecious stones. Due to higher growth in imports than exports, the trade deficit widened by 35.5% to US$ 80.4 bn during 2007-08 from US$ 59.3 bn in the previous year. The overall stance of RBIs monetary and credit policy during the year was to ensure price stability and financial system stability along with continuation of the growth momentum, emphasis on credit quality and credit delivery including financial inclusion. During 2007-08, the Bank Rate, Repo and Reverse Repo rates were kept unchanged. To manage the liquidity in the economy, RBI raised the Cash Reserve Ratio four times: in April, August and November 2007 from 6% to 7.50%. In line with liquidity tightening, PLRs and deposit rates of major banks were hiked during the year. While lending rates rose to 12.25-12.75% from 12.25- 12.50%, deposit rates (for more than one year maturity) rose to 8.25-9.0% from 7.59.0% in the previous financial year. However, in the month of February 2008, to keep up the growth momentum in the economy, some banks announced cuts in their PLR and interest rate on housing loans below Rs.20 lakh. The tight monetary policy followed by RBI to control inflation and money supply had a Moderating impact on credit growth, which increased by 21.6% in 2007-08 against 28.1% in 2006-07. Deposit growth also moderated to 22.2% in 2007-08 from 23.8% in 2006-07. For the current year, despite slowdown in the major economies of the world, the Indian economy will continue to grow at 8-8.5% driven by investment. Due to a number of fiscal and monetary measures taken by the Government and RBI to put a check on prices, inflation is expected to come down to 5-5.5% by March 2009. Need for a revolutionary approach towards privatization Nationalized banks such as State Bank Of India (SBI), though pygmies in the international
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banking market, are banking behemoths of India. They have branches spread over the entire length and breadth of the country. SBI in particular is all-pervasive enjoying a sprawling network of 9000 branches. Its blue and white shingle is visible to the smallest hamlet. It has assets understood to be worth about Rs2,22,500 crore ($52 billion). SBI has a very conservative approach to accounting particularly when it comes to declaration of its assets. Probably modesty does not permit the bank to exhibit its strengths. In particular, it has real estate properties some of which are heritage sites all over the country. These are estimated to collectively command a value of Rs.30,000 crores. This, it is believed, does not get reflected in its book of accounts. SBI enjoys a monopoly of the government business. The Reserve Bank of India owns about 60% of the banks equity. To its credit, SBI mobilized $4.2 billion through the Resurgent India Bonds (RIB) issue in just 3 months down the post-Pokhran sanction period. This was the difficult time when the international credit rating agencies had downgraded the country. SBI, time and again, does a rescue act in the forex market to contain any volatility of the rupee. SBI was formed under the SBI Act in 1955 with the takeover of Imperial Bank and amalgamation of Bank of Bengal, Bank of Bombay, and Bank of Madras. The government mopped up around 93% of the equity, leaving 7% to private ownership. By this act the equity of RBI cannot be diluted below 55%. SBI enjoys a pool of best managerial talent, assured government business, a countrywide network of branches and strong brand credibility in the Indian market. But, that numero uno position is sliding with the entry of sleeker private and foreign banks into the Indian Banking scene. The bank is continuously restructuring itself and for this, they even hire the services of foreign consultants but the pace has to be hastened. With the government offering an assured business, nationalized banks and State Bank of India in particular should not take a complacent view. They should evolve service-intensive products and make their employees customer-friendly. With competition from private and foreign banks knocking at the door, the banks should realize, size is no more an insurance against the onslaught of competition from sleek private and foreign banks. A revolutionary
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approach to privatize ownership is the need of the hour. Virtual Banking: SBI has yet to computerize its operations and network all its branches. The computers currently available serve only to relieve the burden of the clerical staff of maintaining manual ledgers and not to penetrate into areas of customer service. ATMs, AnytimeAnywhere, round the clock and telephone banking is still a far cry. These computers at the best remain only as desk ornaments. With the New Telecom Policy (NTP) almost in place, telecom sector will soon be revolutionized. E-commerce, telephone banking, consumer banking, Internet banking, insurance et al are waiting just around the corner. At least in major metros, virtual banking will soon take-over from the brick-mortar banks. Privatization and Credit disbursement: Talks about privatization of the banks ownership have been initiated but the SBI act of 1955 does not permit RBIs ownership to be diluted to below 55%. This act is outdated and needs to be re-addressed. However, efforts have been initiated by SBI to privatize its non banking subsidiaries like SBI Caps, SBI Gilts, SBI Funds Management, where SBIs holding is about 85% of the equity. But the pace has to be hastened so that investments thus released can migrate to more important areas like development of new technologies and products in customer service and service intensive areas. Privatization also helps to professionalize the banks day-to-day operation, which will allow the management more freedom in decision making during credit disbursement. To aid privatization and effect a better price realization, the bank is attempting to change over its accounting and reporting procedures to comply with US GAAP norms. This is a prerequisite for trying out the ADR route, as it is known that US market is by far the undisputed biggest market and can offer the best price. At the moment, the SBI stock is undervalued at Rs.240 whereas experts expect Rs.300 would be a more realistic value. Action on this front at blitzkrieg pace is the need of the hour.
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Manpower Retraining and not Retrenchment: As a hangover of the past socialistic mindset, all the nationalized banks have excess workforce. This is indeed a hot potato for the management of many enterprises and is therefore being handled with kid gloves. In India, it is everyones worry to look at business as a source of employment, while making money is secondary. In this ocean of manpower, every institution does have its share of highly skilled and talented manpower, which contribute to asset building. It is the semi skilled manpower having outdated skills, which form the excess baggage. All banks must invest in re-training the manpower so that they can migrate from the areas that will be vacated by computerization. The level of NonPerforming-Assets (NPAs) is still at very high levels and to start with, some of this excess manpower can cover areas of debt recovery. At the same time, one should also take note of the flight of talent from these nationalized banks to newly set-up private and foreign banks. And, it is these new banks top officials after migrating from the government banks are targeting at the top corporate clients and thus poaching into the corporate business, which has been the mainstay of the nationalized banks. This will soon become a problem of serious proportion unless the banks initiate steps to stem the flow. It is difficult, to exclusively address the problem of excess manpower by schemes such as voluntary retrenchment scheme (VRS) because while attempting to remove dead wood, talent also takes an exit. Many industries have faced this problem. Also it will be over simplicity to state that the salaries should be raised because that will only start a wage war. Instead, the banks should involve the services of international consultants specialized in this field and take a holistic view of the problem. Retraining and Rationalization of manpower commands higher priority over Retrenchment of manpower. New Products and New technologies: Nationalized banks have generally been preoccupied with treasury business. The new product areas that require greater penetration are personal banking, housing finance, consumer durable finance, auto-finance, internet banking, insurance, telephone banking et al. Development of these new areas call for heavy investments and this cash - flow can only generated by privatization. In addition, surplus manpower once retrained can be absorbed in the new ventures.
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All nationalized banks and SBI in particular has the advantage of vast network of branches and can therefore carry the new business to the remotest corner, but to make this presence felt the banks have to move at blitzkrieg pace.
The banking environment has suddenly become quite challenging after the sub prime crisis that surfaced last year and which has resulted in an unprecedented global liquidity crunch. The flattening of the world has dramatically impacted both the dynamics and the pace of global banking business. Mergers, acquisitions, consolidation, expansion, diversification of lines of business, shifting customer orientation and the changing regulatory environment are building up the pressure for banks to explore new possibilities by abandoning the familiar and embracing the unconventional. Competition is compelling banks to be agile and innovate everyday. In this milieu, what really enables banks to build a lasting competitive advantage is the ability to continuously innovate, achieve differentiation and respond quickly to dynamic business challenges. The banking sector has witnessed wide ranging changes under the influence of the financial Sector reforms initiated during 2008. The approach to such reforms in India has been one of gradual and non-disruptive progress through a consultative process. The emphasis has been on deregulation and opening up the banking sector to market forces. The Reserve Bank has been consistently working towards the establishment of an enabling regulatory framework with prompt and effective supervision as well as the development of technological and institutional infrastructure. Persistent efforts have been made towards adoption of international benchmarks as appropriate to Indian conditions. While certain changes in the legal infrastructure are yet to be effected, the developments so far have brought the Indian financial system closer to global standards.
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BANKING ACTIVITIES:
Banks' activities can be divided into retail banking, dealing directly with individuals; business banking, providing services to mid-size business; corporate banking dealing with large business entities; private banking, providing wealth management services to High Net Worth Individuals; and investment banking, relates to helping customers raise funds in the Capital Markets and advising on mergers and acquisitions. Banks are now moving towards Universal Banking, which is a combination of commercial banking, investment banking and various other activities including insurance.
TECHNOLOGICAL DEVELOPMENTS:
Technology has brought about strategic transformation in the working of banks. 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. With stiff competition and advancement of technology, the service provided by banks has become more easy and convenient.
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Internet banking (or E-banking) means any user with a personal computer and a browser can get connected to his banks website to perform any of the virtual banking functions. In internet banking system the bank has a centralized database that is web-enabled. All the services that the bank has permitted on the internet are displayed in menu. Any service can be selected and further interaction is dictated by the nature of service. The traditional branch model of bank is now giving place to an alternative delivery channels with ATM network. Once the branch offices of bank are interconnected through terrestrial or satellite links, there would be no physical identity for any branch.
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The Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are:
Information Only System: General purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. Electronic Information Transfer System: The system provides customer- specific information in the form of account balances, transaction details, and statement of accounts. Fully Electronic Transactional System: This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control Automated Teller Machine (ATM): ATM is designed to perform the most important function of bank. It is operated by plastic card with its special features. The plastic
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card is replacing cheque, personal attendance of the customer, banking hours restrictions and paper based verification. Credit Cards/Debit Cards: The Credit Card holder is empowered to spend wherever and whenever he wants with his Credit Card within the limits fixed by his bank. Credit Card is a post paid card. Debit Card, on the other hand, is a prepaid card with some stored value. Smart Card: Banks are adding chips to their current magnetic stripe cards to enhance security and offer new service, called Smart Cards. Smart Cards allow thousands of times of information storable on magnetic stripe cards.
Core Banking Solutions is new jargon frequently used in banking circles. The advancement in technology especially internet and information technology has led to new way of doing business in banking. The technologies have cut down time, working simultaneously on different issues and increased efficiency. The platform where communication technology and information technology are merged to suit core needs of banking is known as Core Banking Solutions. Here computer software is developed to perform core operations of banking like recording of transactions, passbook maintenance, interest calculations on loans and deposits, customer records, balance of payments and withdrawal are done.
Electronic
Clearing Service
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Electronic Clearing Service is another technology enhancement happened in the banking industry. The customer willing to use this facility is required to fill in the mandate form from the corporate/any utility service institution for ECS mode of credit and debit. The customer needs to prepare the payment date and submit it to the sponsor Bank and after that everything happened electronically. So customers can there by make payments as well as receive all incomes electronically.
Mobile banking
Mobile banking (also known as M-Banking, mbanking, SMS Banking etc.) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone.
BASEL II is a new capital adequacy frame work applicable to scheduled commercial banks in India, as mandated by the RBI. The Basel capital accord (BASEL II) guideline promulgated by the BIS to establish Capital adequacy requirements and supervisory standards for banks and structured by three pillars. In a nut-shell, BASEL II
Provide effective assessment method Incorporates Sensitivity to banks. Makes better business standards Reduce losses to the banks
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The BASELII is designed to facilitate a more comprehensive, sophisticated and risk sensitive approach for banks to calculate regulatory capital. The basic objective of BASEL II is to create an international standard
PERFORMANCE
An international bank-rating system where bank supervisory authorities rate institutions according to six factors. The six factors are represented by the acronym "CAMELS." The six factors examined are as follows:
C - Capital adequacy
Reflects the overall financial condition of a bank & also the ability of the management to meet the need for additional capital.
A - Asset quality
To ascertain the component of non performing assets as a percentage of the total asset
M - Management quality
E - Earnings
L - Liquidity
To measure the ability of a bank to meet the demand from demand deposits in a particular year
On the Basis of CAMEL rating Top Ten Banks in Performance During 2008-2009 Public sector Banks Bank of India Corporation Bank Private sector Banks Karur vysya bank Yes bank Foreign Banks Shinhan bank Abu Dhabi commercial bank Union Bank of India Andhra bank City Union Bank Tamil Nadu Mercantile Bank State bank of Patiala South Indian bank Mashreqbank P S C Antwerp Diamond bank N V Bank of Tokyo-Mitsubishi UFJ Bank of Baroda Indian Overseas Bank State Bank of Hyderabad Punjab & Sind Bank Federal Bank Jammu & Kashmir Bank Dhanalakshmi Bank Karnataka Bank Calyon Bank Krung Thai Bank Public Co. State Bank of Mauritius Bank of America National
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Banking Review-2009
NPAs rise for Private Banks, stable for PSBs
Gross NPAs movement of banks in Q1 has shown an interesting trend Gross NPAs of all Private Banks that we have covered have seen a sequential rise However, asset quality of most PSBs remained stable, with flat to lower Gross NPAs
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NIMs of most banks saw a sequential decline Decline was largely due to PLR cuts by banks towards the end of Q4FY08 Most banks have, however, raised their PLRs and deposit rates by 100-150bps in June08 and Q1FY09 NIMs should see a marginal improvement in Q2 on account of PLR hikes However, as deposit re-pricing kicks in with a lag effect, NIMs may again come under pressure.
Credit spreads saw a decline after a long time After a long time, the sector saw a decline in credit spreads (Yield on advances Cost of deposits) Decline in credit spreads was largely due to inability of most banks to raise PLR in Q1 even as interest rates were rising BOB, IOB, Corpbank and BOI saw substantial fall in yields on credit book, resulting in compression of credit spreads Canbank, PNB, Union Bank saw sequential improvement in credit spreads in Q1
CASA saw a mixed trend Among Public Sector Banks (PSBs), SBI, Canara and Union saw marginal improvement in CASA on YoY basis Others like BOB, BOI, OBC saw a decline on YoY basis Among private banks, AXIS bank lost out due to CBOP merger, ICICI Bank saw improvement both on YoY and sequential basis
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Overall credit growth was robust Among PSBs BOI, BOB, SBI and IOB saw above 30% growth. Canbank, Union and PNB were more moderate at 16-20% Among Private banks, except for ICICI, most showed above 40+% growth Even for ICICI, consolidated book (including overseas book) grew 20% YoY Credit growth has been very robust at 26% in Q1 against 24.6% last year Banks which witnessed high credit growth Axis, AXIS Bank and Yes Bank among private BOB, BOI and SBI among PSBs
SBI showed a robust growth across all segments, except for mortgages International credit grew 46% YoY SME credit grew 23% YoY Mid Corporate credit grew 31% YoY Home Loans grew 17% YoY Axis among the private banks and BoI amongst PSBs continues to deliver high NII growth Credit growth of ICICI, Canara, Union, PNB, OBC was lower than the average
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Key Points:
Supply Liquidity is controlled by the Reserve Bank of India (RBI). Demand India is a growing economy and demand for credit is high though it could be cyclical. Barriers to entry Licensing requirement, investment in technology and branch network. Bargaining power of suppliers High during periods of tight liquidity. Trade unions in public sector banks can be anti reforms. Depositors may invest elsewhere if interest rates fall.
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Bargaining power of customers For good creditworthy borrowers bargaining power is high due to the availability of large number of banks Competition - High There are public sector banks, private sector and foreign banks along with non banking finance companies competing in similar business lines.
RECENT TRENDS
I. Universal Banking
Universal banking refers to Financial Institution offering all types of financial services under one roof. Thus, for example, besides borrowing and lending for the long term, the Development Financial Institutions will be able to borrow/lend for the short-term as well. Impact on FDI:
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Two key aspects of the business are affected. The institution can have access to cheap retail deposits and the breadth of its advances increase to include short-term working capital loans to corporates. The Institution has greater operational flexibility. Also they can now effectively compete with the commercial banks.
Indian Scenario: In India the five FDIs that are frontrunners in the race to convert to Universal Bank are: 1. Industrial Credit and Investment Corporation of India (ICICI) 2. Industrial Development Bank of India (IDBI) 3. Export Import Bank (EXIM Bank) 4. Industrial Finance Corporation of India (IFCI) 5. Industrial Investment Bank of India (IIBI) ICICI is already a virtual bank with subsidiaries like ICICI Bank engaged in banking business. Thus with clearing of legal hurdles it just has to work out the modalities to formally call itself a universal bank. Similarly other FDIs are charting out aggressive plans to stay ahead in this race. Also recently Bank of Baroda, a commercial bank has indicated its intention to convert to a Universal Bank.
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II.
RBI Norms:
The norms stipulated by RBI treat FDIs at par with the existing commercial banks. Thus all Universal banks have to maintain the CRR and the SLR requirement on the same lines as the commercial banks. Also they have to fulfill the priority sector lending norms applicable to the commercial banks. These are the major hurdles as perceived by the institutions, as it is very difficult to fulfill such norms without hurting the bottomline
Effect on the Banking Sector: However, with large Term lenders converting into Commercial banks, the existing players in the industry are likely to face stiff competition, lower bottom line ultimately leading to a shakeout in the industry with only the operationally efficient banks will stay into the business, irrespective to the size.
III.
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Most of the institutionally promoted banks have already gobbled smaller banks. ICICI Bank has acquired ITC Classic, Anagram Finance and Bank of Madura within a period of two years. AXIS Bank has merged Times Bank with itself. UTI bank had almost completed its merger with Global Trust Bank before it ran into rough weather. Also Nationalised Banks like Bank of Punjab, Vyasa Bank are wooing IDBI Bank for a merger. Among foreign banks, Standard & Chartered Bank has acquired ANZ Grindlays Banks Asian and Middle East operations The above happenings clearly indicate that the M & A scenario in the Indian banking sector is far from over. Strong banks will continue to takeover weak and inefficient banks to increase their size.
IV.
issued. Also, there are many dormant cardholders who do not use the ATMs and prefer the teller counters. Inspite of these odds, Indian banks are increasing the number of ATMs at a feverish pace. These machines also hold the keys to future operational efficiency.
2. Net Banking: Net banking means carrying out banking transactions via the Internet. Thus the need for a branch is completely eliminated by technology. Also this helps in serving the customer better and tailoring products better suited for the customer A customer can view his account details, transaction history, order drafts, electronically make payments, transfer funds, check his account position and electronically communicate with the bank through the Internet for which he may have wanted to visit the bank branch. Net banking helps a bank spread its reach to the entire world at a fraction of the cost. 3. Phone Banking: This means carrying out of banking transaction through the telephone. A customer can call up the banks helpline or phone banking number to conduct transactions like transfer of funds, making payments, checking of account balance, ordering cheques, etc,. This also eliminates the customer of the need to visit the banks branch. 4. Mobile Banking: Banks can now help a customer conduct certain transactions through the Mobile Phone with the help of technologies like WAP, SMS, etc,. This helps a bank to combine the Internet and
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telephone and leverage it to cut costs and at the same time provide its customer the convenience. Thus it can be seen that tech savvy banks are tapping all the above alternative channels to cut costs improve customer satisfaction.
V.
CHALLENGES:
Liberalization process has increasingly exposed Indian Industry to international competition and banking being a service industry is also not an exception. Banking Sector in India too faces same national and international level. Indian Banks, functionally diverse and geographically widespread, have played a crucial role in the socio-economic progress of the country after independence. However, the growth led to strains in the operational efficiency of banks and the accumulation of non-performing assets (NPAs) in their loan portfolios. challenges at local,
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Banks face increasing pressure to stand out from the crowd. On the Internet, this means offering your target customers an increasingly broader range of services than your competitors and that too in unique way. All this has resulted in a challenge to managers of banks to develop the right mix of acquired and internally grown IT applications which suits customers expectations. Banking sector reforms and liberalisation process raised many challenges before Indian Banks and for sustainable development it has become necessary to face these challenges effectively:
Intense Competition: The RBI and Government of India kept banking industry open for the participants of private sector banks and foreign banks. The foreign banks were also permitted to set up shop on India either as branches or as subsidiaries. Due to this lowered entry barriers many new players have entered the market such as private banks, foreign banks, non-banking finance companies, etc. The foreign banks and new private sector banks have spearheaded the hi-tech revolution. Heavy weight foreign banks with huge base, latest technology innovative and globally tested products are spreading their wings and wooing away customers form other banks. For survival and growth in highly competitive environment banks have to follow the new Guru Mantra of prompt and efficient customer service, which calls for appropriate customer centric policies and customer friendly procedures.
Technological Up gradation: Already electronic transfers, clearings, settlements have reduced translation times. To face competition it is necessary for banks to absorb the technology and upgrade their services.
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However use of High-Tech sophisticated technology leaves the predominantly rural, poor and even illiterate mans in the lurch to which the level of automation and efficiency of services are immaterial. Privacy and Safety: Among the most important aspects, of savings, i.e., safety liquidity and profitability, safety has to be accorded top most priority. The safety aspect assumes more significance in the emerging scenario as the economic loss caused internationally by these types of crimes might risk area and any lacunae is safety would result in erosion of confidence and the same might possibly paralyse the entire network. The areas among other things, which might endanger security in ebanking can be: Changes in input data such as changing the amount in ledges, increasing the limits in accounts or face value of cheaques. Though these trends could be detected consequently, prevention is a major problem with these types of crimes. Use of stolen or falsified cards in ATM machines. Computer forgery could be committed by way of gaining access to other account, deliberate damage through viruses on data stored in computers. In this case, same criminals might gain entry into the computers and cause damage to the system. This apart, another through which security and privacy are maintained. If a hacker has found out the password, he can cause havoc to the entire network. Also, if the password is stolen money could be transferred from one account to another. Software privacy is another area of potential danger faced by the banking industry. In this the entire software could be stolen. If this is done, the hackers could operate a parallel network.
Human Resources Management: In the recent past the human resource Policies in banks were mainly guided by the comcept of permanent employment and its necessary concomitants of creating career paths, terminal benfits, etc. for the
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employees. In todays fast-changing world of employee mobility both horizontally and vertically and value systems, the public sector banks need to hire the right talent at market related compensation and to shed surplus manpower/staff. Thus many banks are going for URS schemes to reduce the burden of excessive staff. Schemes like VRS are going to change the nature of workforce with many senior and experienced persons opting for it. The key elements that shall provide a competitive edge to banking sector will not be physical assets but knowledge assets and information. Therefore, banks must understand how to retain knowledge based employees and prevent them to migrating to some other organisation. Banks must believe in people, customer orientation, and continuous improvement of excellence. Therefore it becomes necessary for banks to encourage all employees to take risks and work towards continuous improvements and breakthroughs. Successful banks overcoming the challenges will be those that harness technology in a customer friendly yet cost effective way. This requires enormous internal and external management and the crux of the solution lies in blending human resources with information technology.
With the evolving global scenario at the background, let us now discuss the challenges and opportunities facing the financial sector around the globe. The present trend towards financial sector liberalization and globalisation, especially with respect to the EMEs has resulted in a overall trend towards conglomeration, internationalisation and dollarisation in the financial systems of many of the countries notably the EMEs. Such trends have important
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implications for financial sector regulation. I would like to highlight the main issues in this respect: It also needs to be recognised that in recent times, there has been growing concern worldwide about the need for preserving financial stability. This is true in the Indian context as well where the erstwhile Government- dominated financial system was, so to speak, imparting stability under rigid regulation, possibly at the cost of efficiency. In this context, the pursuit of financial stability in India, viewed from the standpoint of banking system, has sought all stakeholders. When we talk of the major features of international banking scenario, the following observations come immediately to mind. First, the structure of the industry. In the worlds top 1000 banks, there are many more large and medium-sized domestic banks from the developed countries than from the emerging economies. Illustratively, according to The Banker 2004, out of the to (a) ensure uninterrupted financial transactions and (b) maintain confidence in the financial system amongst
top 1000 banks globally, over 200 are located in USA, just above 100 in Japan, over 80 in Germany, over 40 in Spain and around 40 in the UK. Even China has as many as 16 banks within the top 1000, out of which, as many as 14 are in the top 500. India, on the other hand, had 20 banks within the top 1000 out of which only 6 were within the top 500 banks. This is perhaps reflective of differences in size of economies and of the financial sectors. Second, the share of bank asset in total financial sector assets. In most emerging markets, banking sector assets comprise well over 80 per cent of total financial sector assets, whereas these figures are much lower in developed economies. Thus, Banking Sector reforms are of paramount importance in many emerging markets. Third, industry concentration, measured by the percentage of a countrys banking sector assets controlled by the largest
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market
economies,
the
five
largest
domestic) account for over two-thirds of bank assets. factor is the growing internationalization of
These figures tend to be much lower in developed economies. banking operations. Internationalization, defined as the share of foreignowned banks in total bank assets, is increasing fast in emerging economies from very low levels not too long ago. The phenomenon of internationalisation has primarily been polarized on medium- to high-income countries, likely owing to attractive risk-return investment opportunities for foreign banks in such countries. However, foreign banks are often viewed to be cherry-picking host country corporations, leaving domestic banks with less creditworthy customers, increasing the overall risk of domestic bank portfolios. Additionally, increased competition arising out of foreign bank entry could prompt domestic state-owned banks to venture into high-risk areas in an franchise value. attempt to maintain their
Fifthly, financial sectors across the globe has witnessed increased conglomeration of The major to survive in a milieu of financial liberalization and technological improvements. Globalization of clients financial instruments who, in turn, demand global access to of such conglomeration has raised the possibility of services and a wide product mix has also been a contributory factor. growth vulnerabilities including systemic risk due to contagion and the possibility of opportunities for regulatory and supervisory arbitrage. Further, the growing dollarisation, especially in Latin America and transition economies raises several vulnerabilities in the financial system, salient among them being (a) diminished role of central banks to act as lenders of last resort, (b) possibility of dollar deposits being subject to runs since such deposits are usually close substitutes for deposits
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abroad or dollars cash and (c) limited ability of central banks to raise the interest rate on dollar deposits to act as interest rate defenses against deposit withdrawals. The global banking scenario is going to be influenced by implementation of the Basel II Accord. It seems at this point that Basel II may be beneficial to many of the EMEs including India. While the Pillar I of the New Accord signifies a refinement of existing capital charge by making it more correlated with the credit risk of the banks assets and an extension of the capital charges for risks not considered in the current Accord, such as interest rate risk in the banking book, and operational risk, Pillar II, which focuses on the supervisory review process, aims to ensure that a banks capital position is consistent with its overall risk profile. Finally, Pillar III aims at encouraging banks to disclose information in order to enhance the role of market participants in monitoring banks
The recent survey by the IMF on the implementation of financial sector regulation in 36 Fund member countries3 Sector Assessment Programmes (FSAPs) based on the Financial over the period
completed
2000-03 reveals the following interesting points about the global financial system. On the positive side, there has been relatively high level of implementation with respect to legal foundations , rationalisation of the licensing process and minimum entry standards in most countries. In terms of regulatory weaknesses, recent evidences point out to a number of deficiencies including; (i) The problems associated with regulatory forbearance. (ii) Deficiencies have been observed in the oversight of country risk, issues of connected lending and corporate governance practices.
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(iii) Deficiencies have been observed in respect of the design/implementation of consolidated supervision. (iv) With regard to financial integrity and development of safety net, the observed deficiencies mainly relate to timeliness of disclosure, protection of minority shareholders, accounting and auditing procedures and procedures for orderly winding up of failed insurers and securities firms.
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INTRODUCTION TO SBI
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increased from 68.9% in Q208 to 73.8% this quarter. This was following a robust 37% yoy increase in advances, which exceeded the 28% growth in deposits over the same period. Increase in the NII and NIM: SBIs net interest income (NII) increased by 45% yoy to reach Rs. 54.6 bn. Profitability: The Banks ROE declined from 17.38% for H108 to 14.63% for H109. The return on assets (annualized), however, increased from 0.99% in Q208 to 1.13% in Q209. The State Bank of India, the countrys oldest Bank and a premier in terms of balance sheet size, number of branches, market capitalization and profits is today going through a momentous phase of Change and Transformation the two hundred year old Public sector behemoth is today stirring out of its Public Sector legacy and moving with an agility to give the Private and Foreign Banks a run for their money.
The bank is entering into many new businesses with strategic tie ups Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition, Advisory Services, structured products etc each one of these initiatives having a huge potential for growth.
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The Bank is forging ahead with cutting edge technology and innovative new banking models, to expand its Rural Banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years.
It is also focusing at the top end of the market, on whole sale banking capabilities to provide Indias growing mid / large Corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into structured products and derivative instruments. Today, the Bank is the largest provider of infrastructure debt and the largest arranger of external commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list.
The Bank is changing outdated front and back end processes to modern customer friendly processes to help improve the total customer experience. With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already networked, today it offers the largest banking network to the Indian customer. The Bank is also in the process of providing complete payment solution to its clientele with its over 8500 ATMs, and other electronic channels such as Internet banking, debit cards, mobile banking, etc.
With four national level Apex Training Colleges and 54 learning Centres spread all over the country the Bank is continuously engaged in skill enhancement of its employees. Some of the training programs are attended by bankers from banks in other countries.
The bank is also looking at opportunities to grow in size in India as well as internationally. It presently has 82 foreign offices in 32 countries across the globe. It has also 7 Subsidiaries in India SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards - forming a formidable group in the Indian Banking scenario. It is in the process of raising capital for its growth and also consolidating its various holdings.
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Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and take all employees together on this exciting road to Transformation. In a recently concluded mass internal communication programme termed Parivartan the Bank rolled out over 3300 two day workshops across the country and covered over 130,000 employees in a period of 100 days using about 400 Trainers, to drive home the message of Change and inclusiveness. The workshops fired the imagination of the employees with some other banks in India as well as other Public Sector Organizations seeking to emulate the programme.
ABOUT SBI:
The State Bank of India, the countrys oldest Bank and a premier in terms of balance sheet size, number of branches, market capitalization and profits is today going through a momentous phase of Change and Transformation the two hundred year old Public sector behemoth is today stirring out of its Public Sector legacy and moving with an agility to give the Private and Foreign Banks a run for their money.
The Bank is forging ahead with cutting edge technology and innovative new banking models, to expand its Rural Banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years.
It is also focusing at the top end of the market, on whole sale banking capabilities to provide Indias growing mid / large Corporate with a complete array of products and services. It is consolidating its global treasury operations and entering into structured
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products and derivative instruments. Today, the Bank is the largest provider of infrastructure debt and the largest arranger of external commercial borrowings in the country. It is the only Indian bank to feature in the Fortune 500 list. The Bank is changing outdated front and back end processes to modern customer friendly processes to help improve the total customer experience. With about 8500 of its own 10000 branches and another 5100 branches of its Associate Banks already networked, today it offers the largest banking network to the Indian customer. The Bank is also in the process of providing complete payment solution to its clientele with its over 8500 ATMs, and other electronic channels such as Internet banking, debit cards, mobile banking, etc.
With four national level Apex Training Colleges and 54 learning Centres spread all over the country the Bank is continuously engaged in skill enhancement of its employees. Some of the training programes are attended by bankers from banks in other countries.
The bank is also looking at opportunities to grow in size in India as well as internationally. It presently has 82 foreign offices in 32 countries across the globe. It has also 7 Subsidiaries in India SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards - forming a formidable group in the Indian Banking scenario. It is in the process of raising capital for its growth and also consolidating its various holdings.
The business operations of SBI can be broadly classified into the key income generating areas such as National Banking, International Banking, Corporate Banking, & Treasury operations. The functioning of some of the key divisions is enumerated below:
a) CORPORATE BANKING
The corporate banking segment of the bank has total business of around Rs1,193bn. SBI has created various Strategic Business Units (SBU) in order to streamline its operations. These SBUs are as follows: Corporate Accounts Leasing Project Finance Mid Corporate Group Stressed Assets Management
b) NATIONAL BANKING
The national banking group has 14 administrative circles encompassing a vast network of 9,177 branches, 4 sub-offices, 12 exchange bureaus, 104 satellite offices and 679 extension counters, to reach out to customers, even in the remotest corners of the country. Out of the total branches, 809 are specialized branches.
This group consists of four business group which are enumerated below:
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Personal Banking SBU Small & Medium Enterprises Agricultural Banking Government Banking
c) INTERNATIONAL BANKING
SBI has a network of 73 overseas offices in 30 countries in all time zones and correspondent relationship with 520 international banks in 123 countries. The bank is keen to implement core banking solution to its international branches also. During FY06, 25 foreign offices were successfully switched over to Finacle software. SBI has installed ATMs at Male, Muscat and Colombo Offices. In recent years, SBI acquired 76% shareholding in Giro Commercial Bank Limited in Kenya and PT Indomonex Bank Ltd. in Indonesia. The bank incorporated a company SBI Botswana Ltd. at Gaborone.
d) TREASURY
The bank manages an integrated treasury covering both domestic and foreign exchange markets. In recent years, the treasury operation of the bank has become more active amidst rising interest rate scenario, robust credit growth and liquidity constraints. The bank diversified its operations more actively into alternative assets classes with a view to diversify the portfolio and build alternative revenue streams in order to offset the losses in fixed income portfolio. Reorganization of the treasury processes at domestic and global levels is also being undertaken to leverage on the operational synergy between business units and network. The reorganization seeks to enhance the efficiencies in use of manpower resources and increase maneuverability of banks operations in the markets both domestic as well as international.
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The State Bank Group with a network of 14,061 branches including 4,755 branches of its seven Associate Banks dominates the banking industry in India. In addition to banking, the Group, through its various subsidiaries, provides a whole range of financial services which includes Life Insurance, Merchant Banking, Mutual Funds, Credit Card, Factoring, Security trading and primary dealership in the Money Market.
1) Associates Banks: SBI has seven associate banks namely State Bank of Indore State Bank of Travancore State Bank of Bikaner and Jaipur State Bank of Mysore State Bank of Patiala State Bank of Hyderabad State Bank of Saurashtra
All associate banks have migrated to Core Banking (CBS) platform. Single window delivery system has been introduced in all associate banks. SBIs seven associate banks are the first amongst the public sector banks in India to get fully networked through CBS, providing anytime-anywhere banking to its customers to facilitate a bouquet of innovative customer offerings.
i) SBI Life:
The Bank has the following Non-Banking Subsidiaries in India : SBI Capital Markets Ltd SBI Funds Management Pvt Ltd SBI Factors & Commercial Services Pvt Ltd
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REFERENCES
WEBSITES:
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