EXECUTIVE SUMMARY

Understanding a customers needs and meeting them capably, in the long term, is all that stands
between the various service providers.That is where the various services offered by different service
providers compete with each other.
Financial services refer to services provided by the finance industry. The finance industry encompasses
a broad range of organizations that deal with the management of money. Among these organizations are
banks, credit card companies, insurance companies, consumer finance companies, stock brokerages,
investment funds and some government sponsored enterprises.
This proect is a study of how the different service providers try to understand the needs of the
customers ! try to meet them ! how these services smoothen the working of the financial sector.
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SYNOPSIS
INTRODUCTION:
This proect discusses the "#$%A%&$A' ()*+$&)( $% $%,$A". #or this purpose $ have visited
different banks and mutual fund organizations and insurance companies - A.% Ambro, /otak ,
$&$&$ 'ombard,etc0. $ had one to one interaction with different managers , officials and
company personnel and had a good e1perience to know the services provided by them ! also
the way the entire system works in each organisation.
$ have also gone through the prospectus of different schemes of different banks and came to
know the difference in schemes. After comparing the different players $ came to know the
2uality of services offered by banks, mutual fund companies, insurance providers.
The mutual fund companies ! insurance companies are giving a host of schemes which suit the needs of
different people. 3roviding customized services make these services more popular ! result into
a high demand for them. 4e have seen a sudden growth in mutual fund companies because
there are many new companies entering this market and are giving a tough competition to the
old market players by introducing new attractive schemes.
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THE OBJECTIVES OF THE STUDY ARE :
5 To study the different techni2ues used in financial services
5 To study the comparative analysis of services provided by different players in market.
#inancial services refer to services provided by the finance industry. The finance industry encompasses
a broad range of organizations that deal with the management of money. Among these
organizations are banks, credit card companies, insurance companies, consumer finance
companies, stock brokerages, investment funds and some government sponsored enterprises.
The various services provided are .anking services, #oreign e1change services, $nvestment
services, $nsurance, 6utual fund services ! Alternative financial services.
The 3roect will include an in5depth study of the financial services provided in $ndia.
7. 6utual #und $ndustry in $ndia
5 3erformance of 6utual #unds in $ndia
5 8rowth of 6utual #unds in $ndia
9.$nsurance $ndustry in $ndia
: .anking (ervices in $ndia
; 6erchant .anking (ervices
A comparative analysis of the service providers within each industry by comparing the various services
provided ! various schemes offered by each service provider in order to have a competitive
advantage over the other market players.
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INTRODUCTION:
$n last few years, $ndia has emerged as one of the most rapidly growing economies in the world. $ndia
has been categorized with nations like .razil, *ussia and &hina -.*$& %ations0 who are going to be the
prime drivers of world economy in ne1t few decades. (ince the time, $ndia first opened its gates to
foreign investment -#,$ ! #$$0, there has been a complete turnaround. %ow the traditional <indu rate of
growth is a thing of past and clocking =>5?> 8,3 growth rate is the common norm. $ndia along with
other Asian powerhouse &hina makes for the fastest growing nations in the entire world.
)ven if we take the case of ongoing global recession, $ndia has managed to perform far better than other
nations. *ight from banking system to financial regularities, the country has thrived on discipline and
out5performance. The booming $ndian economy resulted in widespread growth and arrival of new
industries. The most sparkling phenomenon is in form of financial market of $ndia.
#inancial services in $ndia have taken a giant leap from the days of standing in banks 2ueue for several
hours for opening a saving account or trying to get some fi1ed deposits -#,0 done. The financial
services have increased manifold and now people have the choice to choose the one that most suitably
fits the bill.
There are several services like broking firms, investment services, financial consulting, evergreen
national banks, numerous private banks, mutual funds, car and home loans, e2uity market and other
banking services. (ervices are many and offered by blue chip names of the industry. 6ost of the
companies in financial segment offer ta1ation services, proect consultancy services and all the services
of wide financial gamut.
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4hether its taking a car loan or booking your favorite house, going for pension plan or getting your
child insured, numerous attractive financial services are available at affordable costs. 3ersonal banking
services have ac2uired an altogether new meaning. %ow customers have multiple choices to choose
from. @ne can find all the financial services on the internet that are ust a call away.
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The financial system of a country has a great impact on the economy with financial services companies
responsible for the robust economic growth. There has to be a direct link between the
regulatory institutions and the intermediary institutions while determining the financial system
of a country.
#inancial services provided by finance companies include insurance, housing financing, mutual funds,
credit reporting, debt collection, stock broking, portfolio management, and investment
advisory.
IST OF TOP !" FINANCIA SERVICES COMPANIES IN INDIA:
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#ind below a comprehensive list of top financial services companies in $ndia.
SBI Ca#i$al Mar%e$s i&i$e':
This happens to be the oldest organizations in the sphere of capital markets in $ndia.
)stablished in 7?=A in the form of an ancillary of (.$, they have ranked second in AsiaBs
3roect Advisory services. The company is a trailblazer in privatization and securitization. The
subsidiaries of (.$ &apital 6arkets are (.$&A3s +entures 'td., (.$&A3 Trustee &o.'td. and
many others.
Ba(a( Ca#i$al i&i$e':
@ne of the maor financial services companies in $ndia, .aa &apital offers best investment
advisory and financial planning services. The services are meted out to the institutional
investors, %*$s, corporate houses, individual investors, high network clients as well.
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DSP Merrill )nc* i&i$e':
A maor player in the e2uity and debt market in $ndia, ,(3 6errill 'ynch offers financial
advises to varied corporations and institutions. 4ith an array of wealth management and
investor services, their services are customized in a manner that they meet every investor
re2uirement.
Birla +l,-al Finance i&i$e':
The subsidiary of Aditya .irla %uvo 'td., this company has operations in the corporate finance
and capital market arena. An alliance with (un 'ife #inancial of &anada, they have given birth
to .irla (un 'ife $nsurance &o 'td., .irla (un 'ife ,istribution &o. and alike.
H,.sin/ Devel,#&en$ Finance C,r#,ra$i,n:
A best financial solution for home loans, %*$ loans, <,#& is the one stop destination for
personal finance. 4ith overseas branches in (ingapore, /uwait, Catar, (audi Arabia and many
others, <,#& has been going great guns every year.
PNB H,.sin/ Finance i&i$e':
This company offers premium solutions for relieving the borrower segment. The <ome 'oan
'ife $nsurance 3lan of this has come in conunction with TATA A$8, with the lowest premium
when compared to the peers.
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ICICI +r,.#:
4ide arena of financial products and services, $&$&$ 8roup has solutions like $nsta.anking,
@nline Trading, $nsta $nsure, $&$&$ .ank imobile etc. 3roviding high class financial services in
all segments of the society, $&$&$ 8roup deals with 6utual #und, 3rivate )2uity, (ecurities,
and 'ife $nsurance etc.
IC Finance i&i$e':
$t is the biggest <ousing #inance &ompany in $ndia, providing finance to individuals for repair
or construction or renovation of any old or new apartment or house.
0 T Finance i&i$e':
)stablished in 7??; by the 'arsen and Turbo group, this has become a significant name in the
financial sector. #unds for automobiles, Agricultural $nstruments, secured loansD they have all
types of loans for a long tenure.
1arv) +r,.#:
4ith 6utual #unds (ervices, ,epository (ervices, ,ebt 6arket (ervices, $nvestment .anking
and many others, /arvy 8roup has spanned across the domestic financial sector as well as
abroad. %ow that we know that there are various financial services provided in $ndia lets take
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an in5depth view of the maor services provided.
MUTUA FUND INDUSTRY IN INDIA E
ORI+IN:
6utual funds go back to the times of the )gyptians and 3hoenicians when they sold shares in caravans
and vessels to spread the risk of these ventures. The foreign and colonial government Trust of
'ondon of 7=A= is considered to be the fore5runner of the modern concept of mutual funds. The
U(A is, however, considered to be the mecca of modern mutual funds. .y the early 5 7?:Fs 2uite a large
number of close 5 ended mutual funds were in operation in the U.(.A. 6uch later in 7?G;, the
committee on finance for the private sector recommended mobilisation of savings of the middle
class
investors through unit trusts. #inally in Huly 7?A;, the concept took root in $ndia when Unit Trust of
$ndia was set up with the twin obective of mobilizing household savings and investing the
funds in the capital market for industrial growth. <ousehold sector accounted for about =F
percent of nations savings and only about one third of such savings was available to the
corporate sector, $t was felt that UT$ could be an effective vehicle for channelizing
progressively larger shares of household savings to productive investments in the corporate
sector. The process of economic liberalization in the eighties
not only brought in dramatic changes in the environment for $ndian industries, &orporate sector and the
capital market but also led to the emergence of demand for newer financial services such as
issue management, corporate counseling, capital restructuring and loan syndication. After two
decades of
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UT$ monopoly, recently some other public sector organisations like '$& -7?=?0, 8$& -7??7 0, (.$
-7?=I0, &an .ank -7?=I0, $ndian .ank -7??F0, .ank of $ndia -7??F0, 3unab %ational .ank
-7??F0 had been permitted to set up mutual funds. 6r. 6.*. 6ayya the then )1ecutive
,irector of .ombay (tock )1change opined that the decade of nineties would belong to mutual
funds because the ordinary investor does not have the time, e1perience and patience to take
independent investment decisions on his own.
IMPORTANCE OF MUTUA FUND:
(mall investors face a lot of problems in the share market, limited resources, lack of professional advice,
lack of information etc. 6utual funds have come as a much needed help to these investors. $t is
a special type of institutional device or an investment vehicle through which the investors pool
their savings which are to be invested under the guidance of a team of e1perts in wide variety
of portfolios of &orporate securities in such a way, so as to minimise risk, while ensuring
safety and steady return on investment. $t forms an important part of the capital market,
providing the benefits of a diversified portfolio and e1pert fund management to a large number,
particularly small investors. %ow a days, mutual fund is gaining its popularity due to the
following reasons E
l. 4ith the emphasis on increase in domestic savings and improvement in deployment of investment
through markets, the need and scope for mutual fund operation has increased tremendously.
The basic purpose of reforms in the financial sector was to enhance the generation of domestic
resources by reducing the dependence on outside funds. This calls for a market based
institution which can tap the vast potential of domestic savings and chanalise them for
profitable investments. 6utual funds are not only best suited for the purpose but also capable of
meeting this challenge.
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9. An ordinary investor who applies for share in a public issue of any company is not assured of any
firm allotment. .ut mutual funds who subscribe to the capital issue made by companies get
firm allotment of shares. 6utual fund latter sell these shares in the same market and to the
3romoters of the company at a much higher price. <ence, mutual fund creates the investors
confidence.
:. The psyche of the typical $ndian investor has been summed up by 6r. (.A. ,ave, &hairman of UT$,
in three wordsD Jield, 'i2uidity and (ecurity. The mutual funds, being set up in the public
sector, have given the impression of being as safe a conduit for investment as bank deposits.
.esides, the assured returns promised by them have investors had great appeal for the typical
$ndian investor.
;. As mutual funds are managed by professionals, they are considered to have a better knowledge of
market behaviours. .esides, they bring a certain competence to their ob. They also ma1imise
gains by proper selection and timing of investment.
G. Another important thing is that the dividends and capital gains are reinvested automatically in mutual
funds and hence are not fritted away. The automatic reinvestment feature of a mutual fund is a
form of forced saving and can make a big difference in the long run.
A. The mutual fund operation provides a reasonable protection to investors. .esides, presently all
(chemes of mutual funds provide ta1 relief under (ection =F ' of the $ncome Ta1 Act and in
addition, some schemes provide ta1 relief under (ection == of the $ncome Ta1 Act lead to the
growth of importance of mutual fund in the minds of the investors.
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I. As mutual funds creates awareness among urban and rural middle class people about the benefits of
investment in capital market, through profitable and safe avenues, mutual fund could be able to
make up a large amount of the surplus funds available with these people.
=. The mutual fund attracts foreign capital flow in the country and secure profitable investment avenues
abroad for domestic savings through the opening of off shore funds in various foreign
investors.
'astly another notable thing is that mutual funds are controlled and regulated by ( ) . $ and hence are
considered safe. ,ue to all these benefits the importance of mutual fund has been increasing.
SCHEMES OF MUTUA FUND:
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4ithin a short span of four to five years mutual fund operation has become an integral part of the $ndian
financial scene and is poised for rapid growth in the near future. Today, there are eight mutual
funds operating various schemes tailored to meet the diversified needs of savers. UT$ has been
able to register phenomenal growth in the mid eighties. %ow there are 797 mutual fund
schemes are launched in $ndia including UT$s scheme attracting over *s. ;G,FFF &rores from
more than : &rore investors accounts @ut of this closed5end scheme are offered by mutual
fund of $ndia to issue shares for a limited period which are traded like any other security as the
period and target amounts are definite under such security as the period and target amounts are
definite under such schemes. .esides open5end schemes are lunched by mutual fund under
which unlimited shares are issued by investors but these shares are not traded by any stock
e1change. <owever, li2uidity is provided by this scheme to the investors. $n addition to this off
shore mutual funds have been launched by foreign banks, some $ndian banks, like (.$, &anara
.ank etc, and UT$ to facilitate movement of capital from cash5rich countries to potentially high
growth economics. 6utual funds established by leading public sector banks since 7?=I5
(.$6#, &an .ank, $nd .ank, 3%.6# and .@$6#, emerged since 7?=I5(.$6#o, as maor
players by offering bond like products with assurance of higher yields. The latest schemes of
.@$ mutual fund goes to the e1tent of allowing each individual investor to choose the date for
receiving the income. .esides the bank mutual funds have also floated a few open5ended
schemes, pure growth schemes and ta1 saving schemes. The '$&, 8$& mutual funds offer
insurance linked product providing various types of life and general insurance benefits to the
investors. Also the income growth oriented schemes are operated by mutual fund to cater to an
investors needs for regular incomes and hence, it distributes dividend at intervals.
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+RO2TH TREND OF MUTUA FUND:
@pening of the mutual fund industry to the public sector banks and insurance companies, led to the
launching of more and more of new schemes. The mutual fund industry in $ndia has grown fast
in the recent period. The performance is encouraging especially because the emphasis in $ndia
has been on individual investors rather in contrast to advanced countries where mutual funds
depend largely on institutional investors, $n general, it appears that the mutual fund in $ndia
have given a good account of themselves so far. UT$Bs annual sale of units crossed *s.7FFF
crores mark in 7?=A to =I, 9FFF
crores mark in 7?=I5== and reached *s.GGFF crores mark in 7?=? to ?F. ,uring 7??F to ?7 on account
of decline of corporate interest,, sales declined to *s.;7FF crores though individual sales
increased over its preceeding year. '$&6# has concentrated on funds which includes life and
accident cover.
8$&6# provide home insurance policy. The bank sponsored mutual fund floated regular income,
growth and ta1 incentives schemes. Together the eight mutual fund service more than 7G
million investors with UT$ alone holds for 7: million unit holding accounts. 6agnum *egular
$ncome (cheme 7?=I assured a return of 79 percent but gave 9F percent dividend in 7??:, UT$
record 9A percent dividend for 7??9 to ?: under the unit 7?A; scheme. 6agnum Ta1 saving
scheme 7?== to =? did not promise any return but declared 7; percent dividend in 7??: and
recorded a capital appreciation of 7G percent in the first year. )2uity oriented scheme have
earned attractive returns.
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)specially since early 7??7 there has been a steady increase in the number of e2uity oriented growth
funds. 4ith the boom of Hune 7??F and then again 7??7 due to the implementation of new
economic policies towards structure of change the price of securities in stock market
appreciated considerably. The high rate of growth in e2uity price led to a high rate of
appreciation in the net asset value of the e2uity oriented funds for which investors started
changing their preferences from fi1ed income funds to growth oriented or unfi1ed income
funds. That is why more e2uity oriented mutual funds were launched in 7??7. 6aster share
provide a respective dividend of 7= per cent in 7??:, &an share earned a dividend of 7G percent
in 7??:. $n general the Unit Trust of $ndia which manages over 9=,FFF crore under various
schemes has for its service an e1cellent reputation.
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SHORT COMIN+S IN OPERATION OF MUTUA FUND:
The mutual fund has been operating for the last five to si1 years. Thus, it is too early to evaluate its
operations. <owever one should not lose sight to the fact that the formation years of any
institution is very important to evaluate as they could be able to know the good or bad systems
get evolved around this time. #ollowing are some of the shortcomings in operation of mutual
fund.
7. The mutual funds are e1ternally managed. They do not have employees of their own. Also there is no
specific law to supervise the mutual funds in $ndia. There are multiple regulations. 4hile UT$
is governed by its own regulations, the banks are supervised by *eserved .ank of $ndia, the
&entral 8overnment and insurance company mutual regulations funds are regulated by &entral
8overnment
9. At present, the investors in $ndia prefer to invest in mutual fund as a substitute of fi1ed deposits in
.anks, About IG percent of the investors are not willing to invest in mutual funds unless there
was a promise of a minimum return,
:. (ponsorship of mutual funds has a bearing on the integrity and efficiency of fund management which
are key to establishing investorBs confidence. (o far, only public sector sponsorship or
ownership of mutual fund organisations had taken care of this need.
;. Unrestrained fund rising by schemes without ade2uate supply of scrips can create severe imbalance in
the market and e1acerbate the distortions
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G. 6any small companies did very well last year, by schemes without ade2uate imbalance in the market
but mutual funds can not reap their benefits because they are not allowed to invest in smaller
companies. %ot only this, a mutual fund is allowed to hold only a fi1ed ma1imum percentage
of shares in a particular industry.
A. The mutual fund in $ndia are formed as trusts. As there is no distinction made between sponsors,
trustees and fund managers, the trustees play the role of fund managers.
I. The increase in the number of mutual funds and various schemes have increased competition. <ence
it has been remarked by (enior .roker Kmutual funds are too busy trying to race against each
otherL. As a result they lose their stabilising factor in the market.
=. 4hile UT$ publishes details of accounts their investments but mutual funds have not published any
profit and loss Account and balance sheet even after its operation.
?. The mutual fund have eroded the financial clout of institution in the stock market for which cross
transaction between mutual funds and financial institutions are not only allowing speculators to
manipulate price but also providing cash leading to the distortion of balanced growth of market.
7F. As the mutual fund is very poor in standard of efficiency in investors serviceD such as despatch of
certificates, repurchase and attending to in2uiries lead to the detoriation of interest of the
investors towards mutual fund.
77. Transparency is another area in mutual fund which was neglected till recently. $nvestors have right
to know and asset management companies have an obligation to inform where and how his
money has been deployed. .ut investors are deprived of getting the information.
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THE BEST MUTUA FUND SERVICE PROVIDERS IN INDIA:
!3 DSPBR T,# !"" E4.i$) Re/
,(3.* Top 7FF )2uity *eg is an open ended large cap e2uity fund bench5marked against .() 7FF
running for I years now. $t has returned a staggering :G> since launch, that is no small feat for a fund
whose net assets have now swelled to *s 9,II:M5 crores. 4ith a low risk taking capacity and a above
average return, this fund should be on the top of your shopping cart in 9F77.
9. DSPBR Balance'
,(3.* .alanced is a hybrid e2uity oriented mutual fund that is bench marked against &*$($'
.alanced. 4ith a track record of 77 years and a below average risk profile, the returns have been above
average N around 7=>. The corpus of around *s I?FM5 crores makes it easy for the fund manager to
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manage the fund. As of writing, the portfolio allocation between e2uity and debt stood at IG> and 9G>
appro1.
53 Fran%lin In'ia Bl.ec*i#
#ranklin $ndia .luechip fund is a veteran of a fund N its running for some 7I years now. .ench marked
against the (ense1, the returns have been high, around 9A.G> since launch. 4ith a low risk profile and a
steep orientation towards large cap stocks, this fund is a great gem to have. $ts long term outlook on
stocks and ability to give returns to investors without taking unnecessary risks makes it a top contender
in your portfolio for 9F77.
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63 Birla S.n i7e Fr,n$line E4.i$)
.ench marked against the .() 9FF this ? year old fund has come in the lime light since 9FFA. .irla (un
'ife #rontline )2uity has an allocation to both large caps and mid caps N in fact, its allocation to mid
caps has risen of late N currently mid caps account for 9F> of the portfolio while the rest is held by large
caps. 4ith a below average risk profile and a great fund manager at the helm of affairs, .irla (un 'ife
#rontline )2uity should feature as a must have open ended diversified e2uity fund in your portfolio for
9F77.
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83 HDFC T,# 9""
This 7; year old fund needs no introduction. Up against .() 9FF, it has delivered 9A> returns since
launch and has always maintained a low risk profile. This should form the core part of your portfolio N
nearly =F> of its holdings are held in large cap and the rest in mid and small caps. A long term track
record and process oriented management makes it one of the best e2uity diversified mutual funds for
every portfolio in 9F77.
A. HDFC Pr.'ence
<,#& 3rudence has been in e1istence since 7??; and with an annual returns of around 99>, it has
e1hibited prudence in delivering returns for investors. $t did falter in 9FFI and 9FF= but has come back
strongly to show it can be relied upon. %early GF> of its portfolio is in large caps while the rest is in
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small and mid caps. As of writing, it has maintained a IG> allocation to e2uity and 9G> in debt. A great
choice in the hybrid category for year 9F77.
I. HDFC Ta: Saver
Another one from the <,#& stable, this )'(( -)2uity 'inked (aving (cheme0 fund has returned a
staggering :G> since its launch 7G years ago. .ench marked against (!3 &%O GFF, it has delivered
high returns with a moderate risk profile. As of writing it has maintained AF> allocation to large cap
stocks and the rest to mid and small cap. %early ?F> of its holding is in e2uity.
=. Canara R,-ec, E4.i$) Ta: Saver
This 7I year old )'(( -)2uity 'inked (avings (cheme0 mutual fund has delivered returns of 7A> year
on year. $ts bench marked against .() 7FF and nearly AF> of its holding is in large cap stocks and the
rest in mid cap and small cap. A small net asset of *s 9:F crores makes it easier for the fund manager to
manage this fund well. 4ith a mantra of long term investment strategy and well diversified portfolio, its
hard to avoid this fund this year.
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?. Canara R,-ec, Inc,&e
'ike (ahara $ncome -%o. 7F down below0, &anara *obeco $ncome is bench marked against &*$($'
&omp .#$ and is ? years old. 6aority of its holdings are in debentures, 8@$ securities and commercial
paper. &ertificate of deposits and treasury bills also feature in the portfolio. The average credit rating of
AAA makes it a safe parking avenue for investors. 4ith a return of =.=> in the debt category, &anara
*obeco $ncome makes for a great asset in your 9F77 portfolio.
7F. Sa*ara Inc,&e
As the name goes, the intent of this open ended fund is to generate regular income through investments
in debt instruments N most of its investments are in certificate of deposits and commercial paper. The
average credit rating of holdings is AAA which makes it a safe mutual fund N hence the risk profile of
the fund is very low. The returns have been above average when compared to the benchmark &*$($'
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&omp .#$. Around for some ? years now, (ahara $ncome is a must have debt oriented mutual fund in
your portfolio in 9F77.
FUTURE OUTOO1 AND SU++ESTION:
As mutual fund has entered into the $ndian &apital market, growing profitable enough to attract
competitors into this cherished territory encouraging competition among all the mutual fund operators,
there is need to take some strategy to bring more confidence among investors for which mutual fund
would be able to proect the image successfully. The followings are some of the suggestions.
As there is no comprehensive law to regulate the mutual fund in $ndia, uniform coordinated
regulations by a single agency would be formed which would provide the shelter to the investors.
(econdly, as the investors are not willing to invest in mutual fund unless a minimum return is
assured, it is very essential to create in the mind of the investors that mutual funds are market
instruments and associated with market risk hence mutual fund could not offer guaranteed
income.
Thirdly, all the mutual funds are operated in the public sector. <ence private sector may be
allowed to float mutual funds, intensifying competition in this industry.
#ourthly, due to operations of many mutual fund, there will be need for appropriate guidelines
for self5regulation in respect of publicityMadvertisement and interscheme transactions within each
mutual fund.
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#ifthly, the growth of mutual fund tends to increase the shareholdings in good companies, give
rise the fear of destabilising among industrial group, hence introduction of voting shares and
lowering the debt5e2uity ratio help to remove these apprehension.
(i1thly, as there is no distinction between trustees, sponsors and fund managers, it is necessary to
regulate frame work for a clear demarcation between the role of constituents, such as shelter,
trustee and fund manager to protect the interest of the small investors.
(eventhly, steps should be taken for funds to make fair and truthful disclosures of information to
the investors, so that subscribers know what risk they are taking by investing in fund.
)ighthly, infrastructure bottlenecks will have to be removed and banking and postal systems will
have to be taken place for growth of mutual funds.
%inthly, mutual funds need to take advantage of modern technology like computer and tele5
communications to render service to the investors.
'astly, mutual funds are made by investors and investors interest ought to be paramount by
setting standard of behaviours and efficiency through selfregularisations and professionalism.
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INSURANCE INDUSTRY IN INDIA:
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$ndias rapid rate of economic growth over the past decade has been one of the more significant
developments in the global economy. This growth has its roots in the introduction of economic
liberalisation in the early 7??Fs, which has allowed $ndia to e1ploit its economic potential and raise the
populations standard of living. $nsurance has a very important role in this process. <ealth insurance and
pension systems are fundamental to protecting individuals against the hazards of life and $ndia, as the
second most populous nation in the world, offers huge potential for that type of cover. #urthermore, fire
and liability insurance are essential for corporations to keep investment risks and infrastructure proects
under control. 3rivate insurance systems complement social security systems and add value by matching
risk with price. Accurate risk pricing is one of the most powerful tools for setting the right incentives for
the allocation of resources, a feature which is key to a fast developing country like $ndia. .y nature of its
business, insurance is closely related to saving and investing.
'ife insurance, funded pension systems and -to a lesser e1tent0 non5life insurance, will accumulate huge
amounts of capital over time which can be invested productively in the economy. $n developed countries
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-re0insurers often own more than 9G> of the capital markets. The mutual dependence of insurance and
capital markets can play a powerful role in channeling funds and investment e1pertise to support the
development of the $ndian economy. $nsurance in $ndia used to be tightly regulated and monopolised by
state5run insurers. #ollowing the move towards economic reform in the early 7??Fs, various plans to
revamp the sector finally resulted in the passage of the $nsurance *egulatory and ,evelopment
Authority -$*,A0 Act of 7???.(ignificantly, the insurance business was opened on two fronts. #irstly,
domestic private5sector companies were permitted to enter both life and non5life insurance business.
(econdly, foreign companies were allowed to participate, albeit with a cap on shareholding at 9A>.
4ith the introduction of the 7??? $*,A Act, the insurance sector oined a set of other economic sectors
on the growth march. ,uring the 9FF: financial year7, life insurance premiums increased by an
estimated 79.:> in real terms to $%* AGF billion -U(, 7; billion0 while non5life insurance premiums
rose 79.9> to $%* 7I= billion -U(, :.= billion0. The strong growth in 9FF: did not come in isolation.
8rowth in insurance premiums has been averaging at 77.:> in real terms over the last decade.
%otwithstanding the rapid growth of the sector over the last decade, insurance in $ndia remains at an
early stage of development. At the end of 9FF:, the $ndian insurance market -in terms of premium
volume0 was the 7?th largest in the world, only slightly bigger than that of ,enmark and comparable to
that of $reland. This was despite $ndia being the second most populous country in the world as well as
the 79th largest economy. Jet, there are strong arguments in favour of sustained rapid insurance
business growth in the coming years, including $ndias robust economic growth prospects and the
nations high savings rates. The dynamic growth of insurance buying is partly affected by the -changing0
income elasticity of insurance demand. $t has been shown that insurance penetration and per capita
income have a strong non5linear relationship.
.ased on this relation and other considerations, it can be postulated that by 9F7; the penetration of life
insurance in $ndia will increase to ;.;> and that of non5life insurance to F.?>. $n $ndia, $nsurance is a
29
national matter, in which life and general insurance is yet a booming sector with huge possibilities for
different global companies, as life insurance premiums account to 9.G> and general insurance premiums
account to F.AG> of $ndiaBs 8,3. The $ndian $nsurance sector has gone through several phases and
changes, especially after 7???, when the 8ovt. of $ndia opened up the insurance sector for private
companies to solicit insurance, allowing #,$ up to 9A>. (ince then, the $nsurance sector in $ndia is
considered as a flourishing market amongst global insurance companies. <owever, the largest life
insurance company in $ndia is still owned by the government.
The history of $nsurance in $ndia dates back to 7=7=, when @riental 'ife $nsurance &ompany was
established by )uropeans in /olkata to cater to their re2uirements. %evertheless, there was
discrimination among the life of foreigners and $ndians, as higher premiums were charged from the
latter. $n 7=IF, $ndians took a sigh of relief when .ombay 6utual 'ife Assurance (ociety, the first
$ndian insurance company covered $ndian lives at normal rates. @nset of the 9Fth century brought a
drastic change in the $nsurance sector.
$n 7?79, the 8ovt. of $ndia passed two acts 5 the 'ife $nsurance &ompanies Act, and the 3rovident #und
Act 5 to regulate the insurance business. %ational $nsurance &ompany 'td, founded in 7?FA, is the oldest
30
e1isting insurance company in $ndia. )arlier, the $nsurance sector had only two state insurers 5 'ife
$nsurers i.e. 'ife $nsurance &orporation of $ndia -'$&0, and 8eneral $nsurers i.e. 8eneral $nsurance
&orporation of $ndia -8$&0. $n ,ecember 9FFF, these subsidiaries were de5linked from parent company
and were declared independent insurance companiesE @riental $nsurance &ompany 'imited, %ew $ndia
Assurance &ompany 'imited, %ational $nsurance &ompany 'imited and United $ndia $nsurance
&ompany 'imited.
31
MAJOR INSURANCE COMPANIES IN INDIA :
Bajaj Allianz Life Insurance Company Limited
Birla Sun Life Insurance Co. Ltd
HDFC Standard life Insurance Co. Ltd
ICICI Prudential Life Insurance Co. Ltd.
IN !ysya Life Insurance Company Ltd.
Life Insurance Corporation of India
"a# Ne$ %or& Life Insurance Co. Ltd
"et Life India Insurance Company Ltd.
'ota& "a(indra )ld "utual Life Insurance Limited
SBI Life Insurance Co. Ltd
*ata AI Life Insurance Company Limited
+eliance Life Insurance Company Limited.
A,i,a Life Insurance Co. India P,t. Ltd.
S(riram Life Insurance Co- Ltd.
32
Sa(ara India Life Insurance
B(arti A.A Life Insurance
Future enerali Life Insurance
IDBI Fortis Life Insurance
Canara HSBC )riental Ban& of Commerce Life Insurance
+eli/are Life Insurance
DLF Pramerica Life Insurance
Star 0nion Dai1ic(i Life Insurance
A/riculture Insurance Company of India
Apollo D'! Insurance
C(olamandalam "S eneral Insurance
HDFC 2r/o eneral Insurance Company
ICICI Lom3ard eneral Insurance
IFFC) *o&io eneral Insurance
National Insurance Company Ltd
Ne$ India Assurance
33
)riental Insurance Company
+eliance eneral Insurance
+oyal Sundaram Alliance Insurance
S(riram eneral Insurance Company Limited
*ata AI eneral Insurance
0nited India Insurance
0ni,ersal Sompo eneral Insurance Co. Ltd
34
$n line with e1pectations, life insurance industrys new business volumes in the individual new business
segment remained strong, growing :A> J5o5J and 9:> 65o56, in August 9F7F.
$n the individual new business segment, while '$&, $&$&$, and <,#& improved 4%*3 industry market
share -JT,0 by :.= percentage points, 7.G percentage points, and F.I percentage points, respectively,
.aa Allianz -7.= percentage points0, .irla -7.9G percentage points0, (.$ -7.9A percentage points0 and
*eliance -F.:7 percentage points0 lost significantly. At Gm#J77 end, private insurers market share
stood at PGF>.
<ere is how +arious 'ife $nsurers stack up against each in the $ndustry as a whole. The following ,ata
suggests that '$& of $ndia is still the market leader followed by $&$&$ 3rudential, <,#& (tandard 'ife,
(.$, *eliance, .aa, .irla (un 'ife, 6a1 %ew Jork etc.
35
DIFFERENCE BET2EEN MUTUA FUNDS AND IFE INSURANCE:
#or most people who are new to the world of personal finance, the nuances of the difference between
mutual funds and life insurance policies are confusing. <ere is a 2uick summary of the two products that
can help you to at least get a high level understanding of the difference between the two products.
A mutual fund is a capital market investment product that gives you a return based on the amount of risk
that you are taking. Jour investment is e1posed to the risk of the capital markets, and there are no
guarantees that your invested amount will be totally safe or preserved. As of August 7, 9FF?, investing
in mutual funds does not re2uire you to pay any fees to the fund management company at the time of
investment.
'ife insurance on the other hand is not an investment product, but rather a protection product that will
compensate your family or survivors in case something happens to you. Jou can be assured that the
insurance company is contractually bound to meet its obligation to your beneficiaries in case something
happens to you. To get this protection and security, you pay a premium. 8enerally speaking, basic
protection does not cost that much. (ometimes you might choose a policy where you pay a higher
premium amount in order to get an assured or estimated return on this money at the time the policy
matures, in addition to all the protection benefits associated with the policy.
There are yet other types of life insurance policies, called Unit 'inked 3lans that have a mutual fund like
investment product attached to them. (o along with paying for risk cover against your life, you get an
36
investment product where you can choose the type of fund to invest in. 3lease understand that such type
of hybrids can be recreated by you by simply combining a pure life insurance product along with a
mutual fund. And, you will pay lesser in fees if you do this on your own, because these hybrids have
much higher fees.
.oth mutual funds and insurance products should be seen as long5term in nature, i.e., products that you
will hold for an e1tended period of time rather than get in and out of every other month. They can also
be seen as ways to create a pool of capital or asset for future use.
$n mutual funds you can use your capital to either generate current income, through dividends, or capital
appreciation for use in your later years in life like in retirement. 4ith a simple life insurance policy, you
are not generating any current income, but your family is contractually guaranteed some monetary
compensation in case something happens to you. @r, some types of endowment insurance policies offer
you a minimum amount of capital at the e1piry of the policy, based on the amount of annual premium
that you would have paid during the life of the policy.
$f you are looking to invest and already have ade2uate life insurance coverage, then you are probably
better off investing through mutual funds. Jou can have the fle1ibility of choosing from a variety of
funds and taking risks according to your risk appetite, and retain the ability to changes funds
conveniently. Jou can stop adding to your investment in the fund if you so choose.
<owever, if you donBt have life insurance coverage and are also thinking of getting some capital
appreciation, then a hybrid -life insurance with an investment product attached to it0 or an endowment
37
policy might be suitable for you. /eep in mind that unlike a mutual fund where you can choose to stop
adding additional capital to your portfolio, in life insurance you have lesser fle1ibility and you might be
forced to pay your premium at regular intervals across the duration of the policy. Jou should not buy
insurance and then stop paying the premium as your "sunk cost" -money you have already paid0 might
not be recoverable if the policy were to lapse.
Ultimately, you need to decide what your needs are and whether the product you are looking at meets
your needs or not. *emember, as a simple rule considers mutual funds for investments, and life
insurance to protect your financial dependents in case something were to happen to you.
BAN1IN+ INDUSTRY IN INDIA:
38
*eserve .ank of $ndia
&ommercial .anks &o5operative .anks ,evelopment .anks
%ationalized 3rivate (hort5term
credit
'ong5term
credit
Agricultural
&redit
Urban
&redit
)O$6 $ndustrial Agricultural
OVERVIE2 OF BAN1IN+:
.anking *egulation Act of $ndia, 7?;? defines .anking as Kaccepting, for the purpose of lending or of
investment of deposits of money from the public, repayable on demand or otherwise or withdrawable by
che2ue, draft order or otherwise.L The *eserve .ank of $ndia Act, 7?:; and the .anking *egulation
Act, 7?;?, govern the banking operations in $ndia.
OR+ANI;ATIONA STRUCTURE OF BAN1S IN INDIA:
$n $ndia banks are classified in various categories according to differ rent criteria. The following chart
indicate the banking structureE
BROAD CASSIFICATION OF BAN1S IN INDIA:
!< T*e RBI:
39
The *.$ is the supreme monetary and banking authority in the country and has the responsibility
to control the banking system in the country. $t keeps the reserves of all scheduled banks and
hence is known as the K*eserve .ankL.
9< P.-lic Sec$,r Ban%s:
(tate .ank of $ndia and its Associates -=0
%ationalized .anks -7?0
*egional *ural .anks (ponsored by 3ublic (ector .anks -7?A0

-:0 Priva$e Sec$,r Ban%s:
@ld 8eneration 3rivate .anks -990
#oreign %ew 8eneration 3rivate .anks -=0
.anks in $ndia -;F0
-;0 C,=,#era$ive Sec$,r Ban%s:
(tate &o5operative .anks
&entral &o5operative .anks
3rimary Agricultural &redit (ocieties
'and ,evelopment .anks
40
(tate 'and ,evelopment .anks
-G0 Devel,#&en$ Ban%s:
,evelopment .anks mostly provide long term finance for setting up industries. They also provide
short5term finance -for e1port and import activities0
$ndustrial #inance &o5operation of $ndia -$#&$0
$ndustrial ,evelopment of $ndia -$,.$0
$ndustrial $nvestment .ank of $ndia -$$.$0
(mall $ndustries ,evelopment .ank of $ndia -($,.$0
%ational .ank for Agriculture and *ural ,evelopment -%A.A*,0
)1port5$mport .ank of $ndia
ROE OF BAN1S:
.anks play a positive role in economic development of a country as repositories of
communitys savings and as purveyors of credit. $ndian .anking has aided the economic development
during the last fifty years in an effective way. The banking sector has shown a remarkable
responsiveness to the needs of planned economy. $t has brought about a considerable progress in its
efforts at deposit mobilization and has taken a number of measures in the recent past for accelerating the
rate of growth of deposits. As recourse to this, the commercial banks opened branches in urban, semi5
urban and rural areas and have introduced a number of attractive schemes to foster economic
development.
41
The activities of commercial banking have growth in multi5directional ways as well as multi5
dimensional manner. .anks have been playing a catalytic role in area development, backward area
development, e1tended assistance to rural development all along helping agriculture, industry,
international trade in a significant manner. $n a way, commercial banks have emerged as key financial
agencies for rapid economic development.
.y pooling the savings together, banks can make available funds to specialized institutions which
finance different sectors of the economy, needing capital for various purposes, risks and durations. .y
contributing to government securities, bonds and debentures of term5lending institutions in the fields of
agriculture, industries and now housing, banks are also providing these institutions with an access to the
common pool of savings mobilized by them, to that e1tent relieving them of the responsibility of
directly approaching the saver. This intermediation role of banks is particularly important in the early
stages of economic development and financial specification. A country like $ndia, with different regions
at different stages of development, presents an interesting spectrum of the evolving role of banks, in the
matter of inter5mediation and beyond.
6obilization of resources forms an integral part of the development process in $ndia. $n
this process of mobilization, banks are at a great advantage, chiefly because of their network of branches
in the country. And banks have to place considerable reliance on the mobilization of deposits from the
public to finance development programmes. #urther, deposit mobalization by banks in $ndia ac2uired
greater significance in their new role in economic development.
42
&ommercial banks provide short5term and medium5term financial assistance. The short5term credit
facilities are granted for working capital re2uirements. The medium5term loans are for the ac2uisition of
land, construction of factory premises and purchase of machinery and e2uipment. These loans are
generally granted for periods ranging from five to seven years. They also establish letters of credit on
behalf of their clients favouring suppliers of raw materialsMmachinery -both $ndian and foreign0 which
e1tend the bankers assurance for payment and thus help their delivery. &ertain transaction, particularly
those in contracts of sale of 8overnment ,epartments, may re2uire guarantees being issued in lieu of
security earnest money deposits for release of advance money, supply of raw materials for processing,
full payment of bills on the assurance of the performance etc. &ommercial banks issue such guarantees
also.
43
PROMOTIONA FUNCTIONS:
4ith economic growth assuming a new urgency since $ndependence, the range of the
*eserve .anks functions have steadily widened. The .ank now performs a variety of developmental
and promotional functions, which, at one time, were regarded as outside the normal scope of central
banking. The *eserve .ank was asked to promote banking habit, e1tend banking facilities to rural and
semi5urban areas, and establish and promote new specialized financing agencies. Accordingly, the
*eserve bank has helped in the setting up of the $#&$ and the (#&E it set up the ,eposit $nsurance
&orporation of $ndia in 7?A: and the $ndustrial *econstruction &orporation of $ndia in 7?I9. These
institutions were set up directly or indirectly by the *eserve .ank to promote saving habit and to
mobilize savings, and to provide industrial finance as well as agricultural finance. As far back as 7?:G,
the *.$ set up the Agricultural &redit ,epartment to provide agricultural credit. .ut only since 7?G7 the
.anks role in this field has become e1tremely important. The .ank has developed the co5operative
credit movement to encourage saving, to eliminate money5lenders from the villages and to route its short
term credit to agriculture. The *.$ has set up the Agricultural *efinance and ,evelopment &orporation
to provide long5term finance to farmers.
44
CO=OPERATIVE BAN1S:
The &o5operative bank has a history of almost 7FF years. The &o5operative banks are an
important constituent of the $ndian #inancial (ystem, udging by the role assigned to them, the
e1pectations they are supposed to fulfill, their number, and the number of offices they operate. The co5
operative movement originated in the 4est, but the importance that such banks have assumed in $ndia is
rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even
today, and their business in the urban areas also has increased phenomenally in recent years mainly due
to the sharp increase in the number of co5operative banks.
4hile the co5operative banks in rural areas mainly finance agricultural based activities
including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries
and self5employment driven activities, the co5operative banks in urban areas mainly finance various
categories of people for self5employment, industries, small scale units, home finance, consumer finance,
personal finance, etc. (ome of the co5operative banks are 2uite forward looking and have developed
sufficient core competencies to challenge state and private sector banks.
According to %A#&U. the total deposits ! lendings of &o5operative .anks is much
more than @ld 3rivate (ector .anks ! also the %ew 3rivate (ector .anks. This e1ponential growth of
&o5operative .anks is attributed mainly to their much better local reach, personal interaction with
customers, their ability to catch the nerve of the local clientele. Though registered under the &o5
operative (ocieties Act of the *espective (tates -where formed originally0 the banking related activities
of the co5operative banks are also regulated by the *eserve .ank of $ndia. They are governed by the
.anking *egulations Act 7?;? and .anking 'aws -&o5operative (ocieties0 Act, 7?AG.
45
T*ere are $>, &ain ca$e/,ries ,7 $*e c,=,#era$ive -an%s .
-a0 (hort term lending oriented co5operative .anks N within this category there are three sub categories
of banks viz state co5operative banks, ,istrict co5operative banks and 3rimary Agricultural co5operative
societies.
-b0 'ong term lending oriented co5operative .anks N within the second category there are land
development banks at three levels state level, district level and village level.
FEATURES OF COOPERATIVE BAN1S
&o5operative .anks are organized and managed on the principal of co5operation, self5help, and mutual
help. They function with the rule of Kone member, one voteL. #unction on Kno profit, no lossL basis. &o5
operative banks, as a principle, do not pursue the goal of profit ma1imization. &o5operative bank
performs all the main banking functions of deposit mobilization, supply of credit and provision of
remittance facilities. &o5operative .anks provide limited banking products and are functionally
specialists in agriculture related products. <owever, co5operative banks now provide housing loans also.
U&.s provide working capital loans and term loan as well.
The (tate &o5operative .anks -(&.s0, &entral &o5operative .anks -&&.s0 and Urban &o5operative
.anks -U&.s0 can normally e1tend housing loans upto *s 7 lakh to an individual. The scheduled U&.s,
however, can lend upto *s : lakh for housing purposes.
46
The U&.s can provide advances against shares and debentures also. &o5operative bank do banking
business mainly in the agriculture and rural sector. <owever, U&.s, (&.s, and &&.s operate in semi
urban, urban, and metropolitan areas also.
The urban and non5agricultural business of these banks has grown over the years. The co5
operative banks demonstrate a shift from rural to urban, while the commercial banks, from urban to
rural. &o5operative banks are perhaps the first government sponsored, government5supported, and
government5subsidized financial agency in $ndia. They get financial and other help from the *eserve
.ank of $ndia %A.A*,, central government and state governments. They constitute the Kmost
favouredL banking sector with risk of nationalization. #or commercial banks, the *eserve .ank of $ndia
is lender of last resort, but co5operative banks it is the lender of first resort which provides financial
resources in the form of contribution to the initial capital -through state government0, working capital,
refinance.
&o5operative .anks belong to the money market as well as to the capital market. 3rimary
agricultural credit societies provide short term and medium term loans. 'and ,evelopment .anks
-',.s0 provide long5term loans. (&.s and &&.s also provide both short term and term loans. &o5
operative banks are financial intermediaries only partially. The sources of their funds -resources0 are -a0
central and state government, -b0 the *eserve .ank of $ndia and %A.A*,, -c0 other co5operative
institutions, -d0 ownership funds and, -e0 deposits or debenture issues. $t is interesting to note that intra5
sectoral flows of funds are much greater in co5operative banking than in commercial banking. $nter5bank
deposits, borrowings, and credit from a significant part of assets and liabilities of co5operative banks.
This means that intra5sectoral competition is absent and intra5sectoral integration is high for co5
operative bank.
47
(ome co5operative banks are scheduled banks, while others are non5scheduled banks. #or instance,
(&.s and some U&.s are scheduled banks but other co5operative bank are non5scheduled banks. At
present, 9= (&.s and 77 U&.s with ,emand and Time 'iabilities over *s GF crore each included in the
(econd (chedule of the *eserve .ank of $ndia Act.
&o5operative .anks are subect to &** and li2uidity re2uirements as other scheduled and non5
scheduled banks are. <owever, their re2uirements are less than commercial banks. (ince 7?AA the
lending and deposit rate of commercial banks have been directly regulated by the *eserve .ank of $ndia.
Although the *eserve .ank of $ndia had power to regulate the rate co5operative bank but this have been
e1ercised only after 7?I? in respect of non5agricultural advances they were free to charge any rates at
their discretion. Although the main aim of the co5operative bank is to provide cheaper credit to their
members and not to ma1imize profits, they may access the money market to improve their income so as
to remain viable.
48
PRODUCTS AND SERVICES OFFERED BY BAN1S:
.road &lassification of 3roducts in a bankE
The different products in a bank can be broadly classified intoE
*etail .anking.
Trade #inance.
Treasury @perations.
*etail .anking and Trade finance operations are conducted at the branch level while the wholesale
banking operations, which cover treasury operations, are at the hand office or a designated branch.
Re$ail Ban%in/:
,eposits
'oans, &ash &redit and @verdraft
%egotiating for 'oans and advances
*emittances
.ook5/eeping -maintaining all accounting records0
*eceiving all kinds of bonds valuable for safe keeping
49
Tra'e Finance:
$ssuing and confirming of letter of credit.
,rawing, accepting, discounting, buying, selling, collecting of bills of e1change, promissory
notes, drafts, bill of lading and other securities.
Treas.r) O#era$i,ns:
.uying and selling of bullion. #oreign e1change
Ac2uiring, holding, underwriting and dealing in shares, debentures, etc.
3urchasing and selling of bonds and securities on behalf of constituents.
The banks can also act as an agent of the 8overnment or local authority. They insure,
guarantee, underwrite, participate in managing and carrying out issue of shares, debentures, etc.
Apart from the above5mentioned functions of the bank, the bank provides a whole lot of
other services like investment counseling for individuals, short5term funds management and portfolio
management for individuals and companies. $t undertakes the inward and outward remittances with
reference to foreign e1change and collection of varied types for the 8overnment.
50
COMMON BAN1IN+ PRODUCTS AVAIABE:
(ome of common available banking products are e1plained belowE
!3 Cre'i$ Car':
&redit &ard is Kpost paidL or Kpay laterL card that draws from a credit line5money made available by
the card issuer -bank0 and gives one a grace period to pay. $f the amount is not paid full by the end of the
period, one is charged interest.
A credit card is nothing but a very small card containing a means of identification, such as a signature
and a small photo. $t authorizes the holder to change goods or services to his account, on which he is
billed. The bank receives the bills from the merchants and pays on behalf of the card holder.
These bills are assembled in the bank and the amount is paid to the bank by the card holder totally or by
installments. The bank charges the customer a small amount for these services. The card holder need not
have to carry moneyMcash with him when he travels or goes for purchasing.
&redit cards have found wide spread acceptance in the metros and big cities. &redit cards are oining
popularity for online payments. The maor players in the &redit &ard market are the foreign banks and
some big public sector banks like (.$ and .ank of .aroda. $ndia at present has about : million credit
cards in circulation.
51
9. De-i$ Car's:
,ebit &ard is a KprepaidL or Kpay nowL card with some stored value. ,ebit &ards 2uickly debit or
subtract money from ones savings account, or if one were taking out cash.
)very time a person uses the card, the merchant who in turn can get the money transferred to his account
from the bank of the buyers, by debiting an e1act amount of purchase from the card. To get a debit card
along with a 3ersonal $dentification %umber -3$%0.
4hen he makes a purchase, he enters this number on the shops 3$% pad. 4hen the card is swiped
through the electronic terminal, it dials the ac2uiring bank system N either 6aster &ard or +isa that
validates the 3$% and finds out from the issuing bank whether to accept or decline the transaction. The
customer never overspread because the amount spent is debited immediately from the customers
account. (o, for the debit card to work, one must already have the money in the account to cover the
transaction. There is no grace period for a debit card purchase. (ome debit cards have monthly or per
transaction fees.
,ebit &ard holder need not carry a bulky checkbook or large sums of cash when heMshe goes at for
shopping. This is a fast and easy way of payment one can get debit card facility as debit cards use ones
own money at the time of sale, so they are often easier than credit cards to obtain.
52
The maor limitation of ,ebit &ard is that currently only some :FFF5;FFF shops country wide accepts
it. Also, a person cant operate it in case the telephone lines are down.
:. A.$,&a$ic Teller Mac*ine:
The introduction of AT6s has given the customers the facility of round the clock banking. The AT6s
are used by banks for making the customers dealing easier. AT6 card is a device that allows customer
who has an AT6 card to perform routine banking transaction at any time without interacting with
human teller. $t provides e1change services. This service helps the customer to withdraw money even
when the banks are closed. This can be done by inserting the card in the AT6 and entering the 3ersonal
$dentification %umber and secret 3assword.
AT6s are currently becoming popular in $ndia that enables the customer to withdraw their money 9;
hours a day and :AG days. $t provides the customers with the ability to withdraw or deposit funds, check
account balances, transfer funds and check statement information. The advantages of AT6s are many.
$t increases e1isting business and generates new business. $t allows the customers.
To transfer money to and from accounts.
To view account information.
To order cash.
To receive cash.
53
A'van$a/es ,7 ATM?s:
To the &ustomersE
AT6s provide 9; hrs., I days and :AG days a year service.
(ervice is 2uick and efficient
3rivacy in transaction
4ider fle1ibility in place and time of withdrawals.
The transaction is completely secure N you need to key in 3ersonal $dentification %umber
-Uni2ue number for every customer0.
To .anksE
Alternative to e1tend banking hours.
&rowding at bank counters considerably reduced.
Alternative to new branches and to reduce operating e1penses.
54
*elieves bank employees to focus an more analytical and innovative work.
$ncreased market penetration.
AT6s can be installed anywhere like Airports, *ailway (tations, 3etrol 3umps, .ig .usiness arcades,
markets, etc. <ence, it gives easy access to the customers, for obtaining cash.
The AT6 services provided first by the foreign banks like &itibank, 8rind lays bank and now by many
private and public sector banks in $ndia like $&$&$ .ank, <,#& .ank, (.$, UT$ .ank etc. The $&$&$
has launched AT6 (ervices to its customers in all the 6etropolitan &ities in $ndia. .y the end of 7??F
$ndian 3rivate .anks and public sector banks have come up with their own AT6 %etwork in the form of
K(4A,<A%L. @ver the past year upto ;; banks in 6umbai, +ashi and Thane, have became a part of
K(4A,<A%L a system of shared payments networks, introduced by the $ndian .ank Association
-$.A0.
55
;. E=C*ea4.es:
The e5che2ues consists five primary facts. They are the consumers, the merchant, consumers bank the
merchants bank and the e5mint and the clearing process. This chea2uring system uses the network
services to issue and process payment that emulates real world cha2uing. The payer issue a digital
chea2ues to the payee ant the entire transactions are done through internet. )lectronic version of
chea2ues are issued, received and processed. A typical electronic che2ue transaction takes place in the
following mannerE
The customer accesses the merchant server and the merchant server presents its goods to the
customer.
The consumer selects the goods and purchases them by sending an e5che2ue to the merchant.
The merchant validates the e5che2ue with its bank for payment authorisation.
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The merchant electronically forwards the e5che2ue to its bank.
The merchants bank forwards the e5che2ue to the clearing house for cashing.
The clearing house ointly works with the consumers bank clears the che2ue and transfers the
money to the merchants banks.
The merchants bank updates the merchants account.
The consumers bank updates the consumers account with the withdrawal information.
The e5che2uing is a great boon to big corporate as well as small retailers. 6ost maor banks accept e5
che2ues. Thus this system offers secure means of collecting payments, transferring value and managing
cash flows.
G.Elec$r,nic F.n's Trans7er @EFT<:
6any modern banks have computerised their che2ue handling process with computer networks and
other electronic e2uipments. These banks are dispensing with the use of paper che2ues. The system
called electronic fund transfer -)#T0 automatically transfers money from one account to another. This
system facilitates speedier transfer of funds electronically from any branch to any other branch. $n this
system the sender and the receiver of funds may be located in different cities and may even bank with
different banks. #unds transfer within the same city is also permitted. The scheme has been in operation
since #ebruary I, 7??A, in $ndia.
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The other important type of facility in the )#T system is automated clearing houses. These are the
computer centers that handle the bills meant for deposits and the bills meant for payment. $n big
companies pay is not disbursed by issued che2ues or issuing cash. The payment office directs the
computer to credit an employees account with the persons pay.
A. Tele-an%in/:
Telebanking refers to banking on phone services.. a customer can access information about hisMher
account through a telephone call and by giving the coded 3ersonal $dentification %umber -3$%0 to the
bank. Telebanking is e1tensively user friendly and effective in nature.
To get a particular work done through the bank, the users may leave his instructions in the form
of message with bank.
#acility to stop payment on re2uest. @ne can easily know about the che2ue status.
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$nformation on the current interest rates.
$nformation with regard to foreign e1change rates.
*e2uest for a ,, or pay order.
,56at Account related services.
And other similar services.
I. M,-ile Ban%in/:
A new revolution in the realm of e5banking is the emergence of mobile banking. @n5line banking is
now moving to the mobile world, giving everybody with a mobile phone access to real5time banking
services, regardless of their location. .ut there is much more to mobile banking from ust on5lie
banking. $t provides a new way to pick up information and interact with the banks to carry out the
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relevant banking business. The potential of mobile banking is limitless and is e1pected to be a big
success. .ooking and paying for travel and even tickets is also e1pected to be a growth area.
According to this system, customer can access account details on mobile using the (hort 6essaging
(ystem -(6(0 technologyA where select data is pushed to the mobile device. The wireless application
protocol -4A30 technology, which will allow user to surf the net on their mobiles to access anything
and everything. This is a very fle1ible way of transacting banking business.
Already $&$&$ and <,#& banks have tied up cellular service provides such as Airtel, @range, (ky &ell,
etc. in ,elhi and 6umbai to offer these mobile banking services to their customers.
=. In$erne$ Ban%in/:
$nternet banking involves use of internet for delivery of banking products and services. 4ith internet
banking is now no longer confirmed to the branches where one has to approach the branch in person, to
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withdraw cash or deposits a che2ue or re2uest a statement of accounts. $n internet banking, any in2uiry
or transaction is processed online without any reference to the branch -anywhere banking0 at any time.
The $nternet .anking now is more of a normal rather than an e1ception due to the fact that it is the
cheapest way of providing banking services. As indicated by 6c/insey Cuarterly research, presently
traditional banking costs the banks, more than a dollar per person, AT6 banking costs 9I cents and
internet banking costs below ; cents appro1imately. $&$&$ bank was the first one to offer $nternet
.anking in $ndia.
Bene7i$s ,7 In$erne$ Ban%in/:
*educe the transaction costs of offering several banking services and diminishes the need for
longer numbers of e1pensive brick and mortar branches and staff.
$ncrease convenience for customers, since they can conduct many banking transaction 9; hours a
day.
$ncrease customer loyalty.
$mprove customer access.
Attract new customers.
)asy online application for all accounts, including personal loans and mortgages
#inancial Transaction on the $nternetE
?.Elec$r,nic Cas*:
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&ompanies are developing electronic replicas of all e1isting payment systemE cash, che2ue, credit cards
and coins.
7F.A.$,&a$ic Pa)&en$s:
Utility companies, loans payments, and other businesses use on automatic payment system with bills
paid through direct withdrawal from a bank account.
77.Direc$ De#,si$s:
)arnings -or 8overnment payments0 automatically deposited into bank accounts, saving time, effort and
money.
79.S$,re' Val.e Car's:
3repaid cards for telephone service, transit fares, highway tolls, laundry service, library fees and school
lunches.
7:.P,in$ ,7 Sale $ransac$i,ns:
Acceptance of AT6M&he2ue at retail stores and restaurants for payment of goods and services. This
system has made functioning of the stock 6arket very smooth and efficient.
7;.C)-er Ban%in/:
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$t refers to banking through online services. .anks with web site K&yberL branches allowed customers
to check balances, pay bills, transfer funds, and apply for loans on the $nternet.
7G.De&a$:
,emat is short for de5materialisation of shares. $n short, ,emat is a process where at the customers
re2uest the physical stock is converted into electronic entries in the depository system.
$n Hanuary 7??= ().$ -(ecurities and )1change .oard of $ndia0 initiated ,)6AT A&&@U%TA%&J
(ystem to regulate and to improve stock investing. As on date, to trade on shares it has become
compulsory to have a share demat account and all trades take place through demat.
<ow to @perate ,)6AT A&&@U%TQ
@ne needs to open a ,emat Account with any of the branches of the bank. After opening an account
with any bank, by filling the demat re2uest form one can handover the securities. The rest will be taken
care by the bank and the customer will receive credit of shares as soon as it is confirmed by the
&ompanyM*egister and Transfer Agent. There is no physical movement of share certification any more.
Any buying or selling of shares is done via electronic transfers.
70 $f the investor wants to sell his shares, he has to place an order with his broker and give a
K,elivery $nstructionL to his ,3 -,epository 3articipant0. The ,3 will debit hi s account with
the number of shares sold by him.
90 $f one wants to buy shares, he has to inform his broker about his ,epository Account %umber so
that the shares bought by him are credited in to his account.
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:0 3ayment for the electronic shares bought or sold is to be made in the same way as in the case of
physical securities.
BAN1IN+ SERVICES
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.anking covers so many services that it is difficult to define it. <owever, these basic services have
always been recognized as the hallmark of the genuine banker. These areR
The receipt of the customers deposits
The collection of his che2ues drawn on other banks
The payment of the customers che2ues drawn on himself
There are other various types of banking services likeE
70 Advances N @verdraft, &ash &redit, etc.
90 ,eposits N (aving Account, &urrent Account, etc.
:0 #inancial (ervices N .ill discounting etc.
;0 #oreign (ervices N 3roviding foreign currency, travelers che2ues, etc.
G0 6oney Transmission N #unds transfer etc.
A0 (avings N #i1ed deposits, etc.
I0 (ervices of place or time N AT6 (ervices.
=0 (tatus N ,ebit &ards, &redit &ards, etc.
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CUSTOMER SERVICES IN COMMERCIA BAN1S:
&ustomer service is the service provided in support of a banks core products. &ustomer
service often includes answering 2uestionsD handling complaints. &ustomer service can occur on site -as
when an onstage employee helps a customer or answers a 2uestion0 or it can occur over the phone or the
$nternet. Cuality customer service is essential to building cordial customer relationship.
.anking being a service industry, a lot depends on efficient and prompt customer service. &ustomer
service is the most important duty of the banking operations. 3rompt and efficient service with smile
will develop good public relations reduce complaints and increase business.
4hy is &ustomer (ervice $mportantQ
&hanging customer e1pectationsE Today the customer is more demanding and more sophisticated
than he or she was thirty years ago.
The increased importance of customer serviceE 4ith changing customer e1pectations,
competitors are seeing customer service as a competitive weapon with which they differentiate
their products and services.
The need for a relationship strategyE To ensure that a customer service strategy that will create a
value preposition for customers should be formulated implemented and controlled. $t is
necessary to give it a central role and not one that is subsumed in the various elements of the
marketing mi1.
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The customer is the kingpin in growth organizations like commercial banks. @nly those institutions
which work according to his dictates will flourish. Cuality, &onsistency and ,urability at low price are
the final e1pectations of a customer. Cuality will have to be unambiguous, of world class 2uality.
Cuality cannot be of minimum acceptable standards. &ustomer responsiveness must be 2uick and also
competent. (peed, performance and cost will be the new values KmantraL for success.
The ten key areas of customers services to be attended timely and regularly areE
i. (ubmission of statement of AM&s to customers
ii. Updating of savings pass books.
iii. Teller system efficiency.
iv. &leanliness and Upkeep of premises.
v. $ntermediate &redit for institution che2uesMland bills.
vi. Advance intimation to customers for rewards of Term ,eposits *eceipts on maturity.
vii. Advance for ,ebitMcredit to accounts.
viii. 3unctuality of staff.
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IST OF TOP !" BAN1S OF INDIA:
73 S$a$e Ban% ,7 In'ia:
(.$ is the oldest bank of $ndia and also $ndias largest commercial bank. This government owned bank
was established in the year 7=FA.$t is also the second largest bank in the globe. The bank provides a
wide array of banking products through their effective network not only on $ndia but also overseas. The
bank has about 7A,FFF branches and is also accountable for one5fifth of the loans of $ndia. $t has about
=GFF AT6s across the nation.
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93 ICICI Ban%:
This is the second largest bank in $ndia with about 7,;7? branches and ;,A;; AT6s spread countrywide.
$t is among the top commercial banks of $ndia providing a wide range of banking services through
varied delivery channels. .esides offering high5end banking facilities like $nternet banking, 3hone
.anking and 6obile .anking, $&$&$ also plays a pivotal role in the domains of investment banking,
venture capital and asset management and life and non5life insurance. $t has its presence in 7= countries
across the world including U/, &anada, *ussia and others.
:. AXIS Ban%:
@ne of the top private banks in $ndia, it was earlier known as the Unit Trust of $ndia -UT$0 since it was
promoted by the same organization. $t was first among the new private banks to have started its
operations in the year 7??;. AO$( has its significant presence in about ;GF? districts of $ndia with a
wide network of over I9? branch offices and )1tension &ounters. 4ith around :7I7 AT6s, the bank
provides round the clock banking convenience. This $ndina bank has amassed a capital of more than *s.
:GF crores and enoys e2ual sway over retail and corporate banking.
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;. HDFC Ban%:
$t is also among the top banks of $ndia offering various banking services for the customers like 3ersonal
.anking, %*$ (ervices, %et .anking, @nline *emittances and others. The year 9FF= has been very
prosperous for <,#& as it won a host of awards for being the best retail bank and also the best among
other $ndian banks to adopt $nformation Technology. 4ith a total income of more than *s. G,;FF crores,
it demands a significant position in $ndian banking industry. The bank has about 7,GFF branches and
9,=?F AT6s in G:F $ndian cities.
G. HSBC:
The first AT6 provider of $ndia, <(.& .ank is one of $ndias top banks with its operational base
e1tending consitently. This commercial bank of $ndia first started to function in 7=G:. $t opens up ample
banking services for the customers apart from cash management, financial planning and business
banking facility. $t has a provision of 7GF5in5branch and off5branch AT6s and phone banking for 9;
hours.
A3 Reserve Ban% ,7 In'ia:
*eferred as the &entral .ank of $ndia, *.$ is a premier bank of $ndia having about 99 regional offices
across the nation and most of the offices are in the capitals of the $ndian states. *.$ is fully owned by
70
8overnment of $ndia and it performs myriad range of services from supervising and regulating financial
system to managing e1change control. )stablished in 7?:G, *.$ remains the most prestigious entity
playing the guardian of all commercial banks of $ndia.
I. P.n(a- Ban% ,7 In'ia @PNB<:
<as been in operation since 7=?G, 3%. is a trusted name in the banking segment of $ndia. $t is among
the few other public sector banks of $ndia that runs special schemes for senior citizens, army personnel,
students and women. ,espite the recessive tendency in $ndian economy, 3%. has managed to eke out
profit on a sustained manner.
=3 Cen$ral Ban% ,7 In'ia:
This is one of the largest and oldest commercial banks in $ndia. The bank has its office in about 9I states
in $ndia with 9IF e1tension counters and :,7A= branches. #ounded in the year 7?77, this is $ndias first
commercial bank that was completely managed and owned by $ndians. 4ith an average business of
around 9,FFF crore, &entral .ank of $ndia has a significant presence in $ndias financial orbit.
?. Uni,n Ban% ,7 In'ia:
This 3(U unit has convinced the customers that they are 8ood people to bank with. 6ore than GF> of
share capital of Union .ank of $ndia is held by $ndian government. Around 9I,FFF employees work
together to fulfill the banks mission to reduce the gap between e1pectations and deliverables.
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7F.B*ara$ Overseas Ban% $' :
.harat @verseas .ank 'td. -.@.'0 is one of the privileged banks that were allowed by the *eserve
.ank of $ndia to have a branch away from $ndia. $t was the only bank to represent $ndia in Thailand.
.harat @verseas .ank 'td has generated a name for itself, which is K&ustomers .ankL.
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MERCHANT BAN1IN+ SERVICES :
ORI+IN :
$n $ndia, though the e1istence of this branch of financial services can be traced to over three decades,
investment banking was largely confined to merchant banking services.
$n $ndia prior to the enactment on $ndian &ompanies Act, 7?GA, managing agent acted as issue houses
for the securities, evaluated proect reports, planned capital structure and to some e1tent provided
venture capital for new firms. #ew share broking firm also functioned as 6erchant .ankers.
The need for the specialized 6erchant .anking services was felt in $ndia with the rapid growth in the
number and size of the issues made in the primary market. The 6erchant .anking services were started
by foreign banks, namely the %ational 8rindlays .ank in 7?AI with license obtained from *.$ followed
by the &iti .ank in 7?IF.
The .anking commission in its report in 7?I9 recommended the setting up of 6erchant .anking
institutions by commercial banks and #inancial institutions. This marked the beginning of specialized
merchant banking in $ndia.
To begin with, 6erchant .anking services were offered with traditional banking services. $n the mid5
eighties, the .anking *egulations Act was amended permitting commercial banks to offer a wide range
73
of financial services through the subsidiaries rule.
The (tate .ank of $ndia was the first to set up 6erchant .anking ,ivision in 7?I9 and $&$&$ was the
first financial institution to set up its 6erchant .anking ,ivision in 7?I:. This was followed by .ank of
$ndia, &entral .ank of $ndia, .ank of .aroda, (yndicate .ank, 3unab %ational .ank, &anara .ank,etc.
The later entrant were $#&$ and $,.$ with the latter setting up its 6erchant .anking ,ivision in 7??9.
+RO2TH
6erchant .anking in $ndia was given a shot in the arm with the advent of ().$ in 7??9 and subse2uent
introduction of free pricing of primary market e2uity issues in 7??9. <owever, post57??9, the merchant
banking industry was largely driven by issue management activity which fluctuated with the trends in
the primary market.
There have been phases of hectic activity followed by a severe setback in business. ().$ started to
regulate the merchant banking activity in 7??9 and a maority of the merchant bankers who registered
with ().$ were either in issue management or associated activity such as underwriting or advisorship.
().$ has four categories of merchant bankers with varying eligibility criteria based on their networth.
The highest number of merchant bankers with ().$ was seen in the mid5nineties, but the numbers have
reduced since, due to the inactivity in the primary market. The number of registered merchant bankers
with ().$ as at end of 6arch 9FF: was 79;, from a peak of almost a thousand in the nineties and later
on number started reducing.
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The top $nvestment .anks in $ndia offering large number of financial advisory services by tracking the
economic trends, besides providing financial assistance to corporates and retail customers. (ome of
them areE
Aven'.s Ca#i$al
An investment bank providing mergers and ac2uisitions, fi1ed returns, controlled finance, calculated
advisory facilities and 3rivate )2uity (yndication to its customers ranging from investors to corporates.
The bank has a powerful research competence which it utilizes to close business deals in hostile
circumstances. $t presently concentrates on sectors where $ndian firms have strategic e1pansion
advantage namely <ealthcare, 3harmaceuticals, $T (ervices, &onsumer goods, manufacturing, etc.
Ba(a( Ca#i$al
The .aa &apital 8roup is one of the renowned $nvestment consultant and #inancial 3lanning firms in
$ndia. $t is certified under the &ategory $ of 6erchant .ankers by ().$. .aa &apital provides custom5
made #iscal 3lanning facilities and investment consultation to the investors, organizational investors,
corporates, high income patrons and %on5*esident $ndians -%*$s0.
.eing one of the biggest distributors of economic goods, .aa provides an e1tensive range of
investment schemes such as general insurance, life insurance, mutual funds, etc to both public and
private institutions.
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C*,la&an'ala& Inves$&en$ 0 Finance C,&#an)
A combined fiscal service provider of three firms namely &holamandalam ,.( #inance 'imited
-&,#'0, ,.( &holamandalam ,istribution 'imited and ,.( &holamandalam (ecurities 'imited,
&holamandalam ,.( operates in 7A international markets. ,.( provides an e1tensive range of facilities
to small and medium sized enterprise, corporates, customers and comprehensive banking activities
across 6iddle )ast and Asia.
ICICI Sec.ri$ies $'
$ndiaBs biggest e2uity house, $&$&$ (ecurities 'td provide back5to5back banking solutions through its
e1tensive distribution network to cater to the varied needs of its retail and corporate clients. The firm is
listed under the 6onetary Authority of (ingapore -6A(0 and #inancial (ervices Authority, U/ and has
an authoritative place in the core divisions of its functional areas such as consultant services, fiscal good
distribution, )2uity &apital 6arkets Advisory (ervices, etc.
IDFC
$nitiated in 7??I in &hennai, $,#& undertook the responsibility of providing financial support to ::9
proects accruing a profit of upto *s 9, 9F, ;FF million. The sectors under $,#&Bs financial assistance
are infrastructure, agri related business, transportation, healthcare, tourism and others
1,$a% Ma*in'ra Ca#i$al C,&#an)
$nitiator and leader in e2uity capital markets, /otak $nvestment .anking has undertaken the
developmental work of most ground breaking advances in the $ndian capital markets comprising the
launch of book building and Cualified $nstitutional 3lacements -C$3s0 in $ndia. The investment bank has
76
an impressive track record of controlling various sectors and has played a maor role in the governmentBs
milestone disinvestments.
SBI Ca#i$al Mar%e$s
(.$&A3( is $ndiaBs foremost investment bank and proect consultant, aiding local firms in capital
enlistment endeavors for last many years. The firm started it operations in 7?=A and is an entirely owned
subordinate of the (tate .ank of $ndia. Asian ,evelopment .ank -A,.0 possesses 7:.=;> stakes in
e2uity segment of (.$&A3(.
Ta$a Inves$&en$ C,r#,ra$i,n i&i$e' @TIC<
A non5banking financial company -%.#&0, T$&' is listed with the *eserve .ank of $ndia under the
group of B$nvestment &ompanyB. The firmBs commercial activities constitute mainly of endowing in long5
standing investments in e2uity of the firms in various sectors. The chief source of return for the firm
entails income on investment trading and income accrued on dividend.
Yes Ban%
This $nvestment .anking association is engaged in the classification, arrangement and implementation
of deals for their clients in varied sectors and nations. (ome of the archetypal transactions incorporate
divestitures, private e2uity syndication, mergers ! ac2uisitions and $3@ consultation.
UTI Sec.ri$ies $'
)ndorsed as a self5regulating professional body in 7??;, UT$ (ecurities 'td., is one of the renowned
investment bank of $ndia. After the termination of Unit Trust of $ndia -UT$0 Act, the total share fund of
UT$()' is now controlled by superintendent of particular enterprise of UT$. The firm has been offering
all sorts of investment associated activities which incorporates investment banking and corporate
consultation facilities.
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CONCUSION:
8rowth in financial services is being bolstered by the opportunities of demography, emerging markets
and ever more innovative products and services. Jet, organisations also face the challenges of mounting
competition, more comple1 regulation and ever more e1acting customer e1pectations. )ffective growth
strategies are therefore likely to cut across all operating processes and functional boundaries. /ey
priorities include ensuring that the business model takes full account of customers needs, ta1, financial
and regulatory considerations and the organisations capacity to change the way it does business. $n turn,
the obectives and criteria for success need to be clearly measured.
&reating operations that can retain and deliver profits from customers through their lifetime will demand
a significant investment in data gathering and relationship management and may therefore re2uire a shift
in the prevailing cost5income model. This includes a re5think of training, reward and performance
management strategies including a move from volume5based incentives to rewards geared to client
satisfaction and the profitability of the customer over the lifetime of the relationship. (uccess will also
re2uire timely and insightful metrics on customers evolving attitudes and preferences.
78
BIBIIO+RAPHY:
#inancial 6arkets and #inancial (ervice by ,r +asant ,esai
#inancial (ervices by 6 J /han
2EBO+RAPHY:
www.bnrsecurities.com
www.nseindia.com
www.investopedia.com
www.bseindia.com
www.economictimes.com
www.sebi.gov.in
www.moneycontrol.com
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