EXECUTIVE SUMMARY

Fast global & technological developments have made todays business

environment highly uncertain & even chaotic. Organizations are seeking newer
ways to promote their adaptability to the complexities of the changed scenario so
as to survive & prosper. Globally organizations are striving to realize competitive
success through strategic management of human resources. Thus, people
management has never been more important than it is today. Therefore new themes
have emerged in the process, replacing some of the old ones. The new thinking in
this regard is referred to as Human Resource Management (HRM), which carries a
more proactive & strategic connotation.
The development of employee commitment through employee involvement &
empowerment is one of the key objectives of any HRM discourse. The complex
business objectives in todays business environment are difficult to realize without
developing highly committed & motivated employees who would strive to
contribute to organizational goals. That is why, human resource issues are no more
the preserves of personnel specialists; rather line & general managers are being
increasingly involved in handling key HR issues & in evolving, shaping &
managing human resource strategies & policies. These developments have given a
far greater recognition to the HR function in organizational decision- making
processes.
Human resource is one of the natural resources of any countrys economy. It is the
wealth of the country. In the context of banking, human resource is of greater
importance. The deployment of human resource through proper & efficient
selection, training & development, is called Human Resource Management.

The success of any bank largely depends on efficient human resource management,
apart from operations, marketing & sales, the HR department manages all the
efficient people working in operations & marketing divisions in an organization.
HYPOTHESIS
GROWTH OF BANKING SECTOR DEPENDS ON APPROPRIATE HRM
POLICIES.
To analyze this hypothesis I have included a case study on STATE BANK OF
INDIA in which I have put forth the range of practices executed by the HR
department. I have even interviewed Mr. Rajiv Deka, Branch Manager of SBI &
Ms. Rohini Rai, Branch Manager of HDFC Bank, thereby representing the two
major sectors of BANKS, i.e., PUBLIC SECTOR & PRIVATE SECTOR.

INTRODUCTION
The concept of human resource management is increasingly becoming a most vital
function of a modern manager. Human resource management is the management of
employees knowledge, abilities, talents, aptitudes, creative abilities, etc.
Human resources take active role in the modern economic scenario of any country.
The abundant physical resources alone cannot benefit the growth of the country
without human resource component, which transforms physical resources into
productive resources. In fact, the differences in the level of economic development
of the countries are largely a reflection of the differences in quality of their human
resources. The key element in this proposition is that the values, attitudes, general

orientation and quality of people of a country that determines its economic

development.
People are our most valuable asset is a clich which is no member of any
management team would disagree with.
The concept of HRM assumes immense importance as HRM plays vital role in
meeting the challenging requirements of highly skilled & component human
resources due to globalization.

DEFINITION
Human resource management is planning, organizing, directing & controlling of
the procurement, development, compensation, integration, maintenance &
separation of human resources to the end that individual, organizational and social
objectives are accomplished.

MEANING
Human resources management involves all management decisions & practices that
directly affect or influence people or human resources, who work for the
organization. In recent years, increased attention has been devoted to how
organizations manage human resources. This increased attention comes from the
realization that an organizations employees enable an organization to achieve its
goals, & the management of these human resources is critical to the success of the
organization.
HRM is management function that helps managers to recruit, select, train &
develop members for an organization. Obviously HRM is concerned with the

peoples dimensions in organizations. HRM refers to set of programs, functions &

activities designed & carried out.
Human resource management means employing people, developing their
resources, utilizing, maintaining & compensating their services in consonance with
the job & organizational requirements.

CORE ELEMENTS OF HRM

People: Organizations mean people. It is the people who staff & manage
organizations.

Management: HRM involves application of management functions &

principles for acquisitioning, developing, maintaining & remunerating
employees in organizations.

 Integration & Consistency: Decisions regarding people must be integrated &

consistent.

Influence: Decisions must influence the effectiveness of organization

resulting into betterment of services to customers in the form of high quality
products supplied at reasonable costs.

Applicability: HRM principles are applicable to business as well as nonbusiness organizations too, such as education, health recreation & the like.

SCOPE
From entry to the exit of an employee in the organization;
Scope of HRM can be described based on the following activities of HRM. Based
on these activities we can summarize the scope of HRM into 7 different categories
as mentioned below after the activities. Lets have a look at both of them

HRM Activities: HR Planning

Job Analysis
Job Design
Recruitment & Selection
Orientation & Placement
Training & Development
Performance Appraisals
Job Evaluation
Employee & Executive Remuneration
Motivation
Communication
Welfare
Safety & Health
Industrial Relations

7 Categories of Scope of HRM:

 Introduction to HRM
Employee Hiring
Employee & Executive remuneration
Employee Motivation
Employee Maintenance
Industrial Relations
Prospects of HRM

SCOPE OF HRM

FUNCTIONS OF HUMAN RESOURCE MANAGEMENT

There are 2 broad functions of HRM. They are:
Managerial Functions
Operational Functions
Managerial Functions:
Managerial functions of Personnel management include planning, organizing,
directing, co-ordinating & controlling.

 Planning:
It is the charting out of programmes & changes in advance in the
achievement of organizational goals. Hence, it involves planning of human
resources requirements, recruitment, selection, training etc. It also involves
forecasting of personnel needs, changing values, attitudes & behavior of
their employees & their impact on the organization.

Organizing:
In the words of J. C. Massie, an organization is a structure & process by
which co-operative groups of human beings allocated its tasks among its
members, identifies relationships & integrates its activities towards a
common objective. Given the complex relationships that exist between
specialized departments & the general departments, many top managers seek
the advice of personnel manager. In this manner, the organization establishes
relationships among the employees so that they can together contribute to
the achievement of organizational goals.

Directing:
After planning & organizing comes the execution of plan. The willing &
effective

cooperation

of

employees

towards

the

achievement

of

organizations goals has to be brought about by proper direction. Identifying

& utilizing maximum potentials of people is possible through motivation &
command. Direction, therefore, is an important managerial function in
ensuring optimum employee contribution.

 Co-ordinating:
It is the task of matrixing various employees efforts to ensure successful
goal achievement. The Personnel manager co-ordinates various managers at
different levels as far as the personnel functions are concerned.

Controlling:
After planning, organizing, directing & co-ordinating, the various activities,
the performance is to be verified in order to know, at various points of time,
whether the activities are performed as per plans & directions. It involves
checking, verifying & comparing actual with the plans, identification of
deviations if any & correcting the deviations. Auditing training programmes,
analyzing labour turnover, overseeing morale surveys, conducting exit
interviews are some of the controlling functions of personnel management.

Operative Functions:
The operative functions of HRM relate to employment, development,
compensation & relations. All these are interacted by managerial functions. Also,
they are to be performed in conjunction with management functions.

ORGANISATIONAL DESIGN----JOB DESIGN----JOB ANALYSIS

Employment:
Employment function is securing & employing the people having required
level of human resources essential for achieving the organizational
objectives. It involves job analysis, human resources planning, recruitment,
selection, placement, induction & handling internal mobility.
Job Analysis:
It is the study & collection of data relating to the operations &
responsibilities of a specific job. It includes:
Collection of data & information & facts relating to the various
aspects of jobs including men, machines & materials.
Drawing up of job description, job specification, job requirements
& employee specification with which nature, level & quantum
human resources can be finalized.
Providing the guidelines, plans & the basis for job design & for all
operative functions of HRM.
Human Resource Planning:
This is the process which assures the organization that it will have adequate
number of qualified persons, at requisite times, performing in a way to

satisfy the needs of the organization & also provide satisfaction to the
individual employee, so employed.
The process involves:
Estimating the present & future requirements of human resources
based on objectives & long range plans of the organization.
Calculation of net human resource requirements based on the
present availability of human resources.
Taking suitable steps to identify, mould, change & develop the
strength of existing employees so as to meet the future
requirements.
Preparation of action plans to acquire the balance human resources
from outside the organization & to develop the existing employees.
Recruitment:
It is the process of searching for future employees (requirement) & ensuring
they apply for jobs in the organization.
It involves:
Identification of existing sources of candidates & developing them.
Seeking out & identifying new sources of applicants.
Motivating the right type of candidates to apply for jobs in the
organization.
Ensuring a healthy balance between internal & external sources.

 Selection:
It is the process of ascertaining the qualifications, experience, skill,
knowledge, etc. of an applicant to ascertain his/her suitability for the job
applied.
This includes:
Developing application blanks.
Creating & developing valid & reliable testing techniques.
Formulating interviewing techniques.
Checking of references.
Setting up for medical examination policy & procedure.
Line Managers to be involved in the decision making.
Sending letters of appointment.
Employing the selected candidates, when he reports for duty.
Placement:
It is a process of allotting to the selected candidate the most suitable job, as
per the job requirements & employee specifications.
This function includes:
Counselling the concerned managers regarding the placements.
Overseeing the follow-up studies, employee performance appraisal
to monitor employee adjustment to the job, in the coming days.

 Correcting wrong/misjudged placements, if any.

Induction & Orientation:
These are procedures by which a new employee is rehabilitated in the new
surroundings & introduced to the practices, procedures, policies, people, etc.
of the organization.
It includes:
Familiarizing the employee with company philosophy, objectives,
policies, career planning & development, company product, market
share, history, culture, etc.
Introduce new employee to the peoplehis colleagues, supervisors
& subordinates.
Mould the employees by orientation methods to the new working
conditions.

Human Resource Development:

This process involves improving, moulding, & developing the skills,
knowledge, creativity, attitude, aptitude, values, commitment, etc. based on
the present & future job & company requirements.

Performance Appraisal:

It is the continuous & systematic evaluation of individual employees with

respect to their performance & their potential for future development.
It includes:
Enunciating policies, procedures & techniques.
Assisting functional managers.
Reviewing & summarizing reports.
Evaluating the effectiveness of various programmes.

Training:
It is the process of transmitting the employees the technical & operating
skills & knowledge.
It includes:
Identification of training needs of the individuals & for the
organisation.
Developing appropriate training programmes.
Assissting & advising the management in the conduct oftraining
programmes.
Transmitting requisite job skills & job knowledge to the
employees.
Asses the effectiveness of the training programmes.

 Management Development:
It is the process of designing & conducting appropriate executive
development programmes so as to develop the managerial & human
relations skills of the employees.
It includes:
Identification of the areas in which management development is
needed.
Conducting development programmes.
Motivating executives/managers.
Designing

special

development

programmes/

assessment

procedures for promotions.

Utilising the services of specialistsboth internal & external for
development
programmes.

&/or

Institutional

(external)

development

 Evaluating

the

effectiveness

of

executive

development

programmes.
Career Planning & Development:
It is the planning of ones career & implementation of career palns by means
of education, training, job search & acquiring of work experience.
It includes:
Internal mobilityvertical & horizontal transfers, promotions &
demotion.
Transferprocess of placing employees in the same level jobs
where they can be utilised more effectively as per the needs of the
organisation. This also meansdeveloping transfer policies,
offering assistance & guidance to employees under transfer orders
& evaluating transfer policy periodically.
Promotionit deals with the upward assignment of employees to
occupy higher positions (with better status & pay) in consonance
with resoueces of employees & job requirement. The department
must ensure that:

Equitable, fair & consistent promotions are formulated &

administered.

Managers & employees are given assistance & guidance

on the subject of promotion.

Execution of promotional policies are as per policies &

procedures.

 Demotionis the downward assignment of an employee in an

organisation. The department must ensure that:

Equitable, fair & consistent demotion policies are drawn

up.

Assisting & advising employees regarding demotions.

Ensure fair implementation of demotion policies &

procedures.
Organisational Development:
The planned process drawn up to improve organisational effectiveness
through changes in individual & group behaviour, culture & systems of the
organisationdrawing models from applied behavioural science.
Human Relations:
Administering

various

human

resources

policies

like employment

development & compensation & interactions among the employees on one

hand & employees & the management on the other, create a sense of
working relationships between workers & management & trade unions.
Basically they are all interactions between human beings.
Human relations, is therefore, is an important area in management which
integrates people into worksituations in a way that motivates people to work
together with economic, psychological & social satisfaction thereby
increasingtheir productivity. Hence Human Resources Management
functions will centre around:

 Understanding perception, personality, learning, intra & inter personal

relations, inter & intra group relations.
Motivating all employees.
Promoting employee morale.
Developing communication skills.
Developing leadership skills.
Redressing satisfactorily through a well defined grievance procedure.
Handling disciplinary cases by established disciplinary procedures & in
all fairness.
Providing adequate counselling to solve employees personal, work &
family problems, thereby releasing their stress & strain.

FUNCTIONS OF HRM ALONG WITH OBJECTIVES

HRM Objectives
Social Objectives
Organisational Objectives

Functional Objectives
Personal Objectives

Supporting HRM Functions

Legal Compliance Benefits
Union Management Relations
Human Resource Planning
Employee Relations
Recruitment & Selection
Training & Development
Performance Appraisals
Placement & Orientation
Employee Assessment
Performance Appraisals
Placement & Orientation
Employee Assessment
Training & Development
Performance Appraisals
Placement & Orientation
Compensation
Employee Assessment

OBJECTIVES
Societal Objectives: to be ethically & socially responsible to the needs &
challenges of the society while minimising the negative impact ofsuch
demands upon the organisation.

Organisational Objectives: To recognise the role of HRM in bringing about

organisational effectiveness. HRM is only means to achieve & assist the
organisation with its primary objectives.

Functional Objectives: To maintain departments contribution & level of

services at a level appropriate to the organisations needs.

Personal Objectives: To assist employees in achieving their personal goals,

at least in so far as these goals enhance the individuals contribution to the
organisation. This is necessary to maintain employee performance &
satisfaction for the purpose of maintaining, retaining & motivating the
employees in the organisation.
Objectives of Personnel Management are determined by organisational objectives
& individual & social goals. The main objectives of Human Resource Management
are drawn from the organisational objectives. The other objectives of HRM are to
take care of the needs, aspirations, dignity of the individual employees & at the
same time keeping in mind the socio-economic problems of the community & the
country.

The objectives of HRM are as follows:

To create & utilise capable & motivated workforce to achieve the basic
organisational goals.
To establish & maintain proper & sound organisational structure & healthy
working relationships among all its employees.
To ensure the integration of individual groups goals with those of the
organisation.
To create facilities for individuals & groups to develop so as to be in tune
with the growth of the organisation.
Proper & optimum utilisation of human resources.
To ensure adequate & equitable wages, incentives & other benefits so that
satisfied individuals & groups are motivated to take on challenges.
To maintain high employee morale.
To continuously upgrade the skills & knowledge of the employees, by
training & development programmes.
To ensure opportunity for participation in management to the extent possible.
To provide acceptable & effective leadership.

HUMAN RESOURCE MANAGEMENT IN BANKS

The classification of the Indian banks into broad groups such as public sector, old
private sector, new private sector, foreign, regional rural banks & cooperatives are
largely on the basis of ownership pattern. It is also well known that the business
mix, delivery channels & IT strategies of these organisations vary substantially.
What is little known but of greater importance is thateach of these banks follow
very distinct HR practices which have contributed, substantially, to the business
processes.
HRM in Cooperative Banks
It is sad that the HR policies of cooperative banks are totally dominated by the
Registrar of Cooperatives. This is, perhaps, one reason why the cooperatives are
unable to improve themselves.
HRM in Regional Rural Banks (RRBs)
As regards RRBs, most of them adopt the HR policies of sponsor banks, which are
not appropriate for their special nature.
HRM in Public Sector Banks

In the recent times, the contours of HR function in public sector banks are slowly
but definitely changing. One could say that these banks are discovering the HR
function & it is hoped that these banks will fast catch up with others. It may be
recalled that, in a controlled environment & to meet with the rapid branch
expansion- since 70s- Public Sector Banks(PSBs) have adopted HRM practices
similar to that of Government departments. Herein HRM did not have a direct role
in business development but was more concerned with centralized recruitment to
staff & providing them across the country.
HRM in Private Banks & Foreign Banks
The HR function as practiced by private & foreign banks is effectively involved in
the identification of specific skills that each job warrants & recruiting suitable staff
by every way possible. In these banks, recruitment is a continuous process with a
strong focus on getting the right person for the right job by offering appropriate
compensation, incentives & designations. There is a great energy spent in keeping
the turnover low & offering appropriate training inputs. Possibly there are as many
pay structures as there are employees. More importantly, HRM has a role in
monitoring & mentoring the employee. There are no routine transfers. Rather
people are recruited in different geographical locations & different levels.
Technology has helped in centralizing the back office & other functions such that
service can be provided from a distance. These institutions adopt a proactive
performance appraisal system but still short of 360 Degree appraisals. Their
training process is concerned with both skill building & motivating. It should,
however be said that the demand for professionals on account of growth of Indian
Business is such that the efforts of HRM have not helped it from completely
staving off staff turnover in the ranks.

HRM in Public Sector Unit Banks (PSU Banks)

In the case4 of PSU Banks the recruitment process is annual & large scale. People
are recruited at the lowest grade & promoted I due course.this makes the career
path of each employee the responsibility of the organisation. This also underlies a
belief that anyone can occupy any desk. In such a system specialisation is the loser.
Recruitment at higher levels is a recent phenomenon & more an exception than
rule. Pay packets are uniform for a grade/level with annual increments & uniform
perquisites. Increments are earned automatically.
Transfers are not driven by business requirements but a matter of routine.
Vacancies get created as & when people move up. It is not uncommon to se new
departments spring up just to allow promotions. In a way such a move is justified
as salary is linked to grades & not performance. The concept of job rotation is
practiced with great conviction. As regard leave it is seen that modern business
organisations, driven by work life balance issues & operational risk ensure that
certain annual leave is mandatory. In the case of PSU Banks, the compulsory
leave system has not yet taken root. In the circumstances an important task at
hand is training the staff member, who, on accont of age profile is not comfortable
working in an IT environment. HRM should also take immediate steps to improve
productivity. There is a simultaneous need to balance the demand of IT savvy
youngsters joining the organisation who ask for high salaries. PSU Banks are not
able to offer market driven salary. Given that banking business & the business of
Government are distinct, there is, in the case of PSU Banks, an urgent need that
salaries are not limited by what is paid in the ministry but unshackled. Till that
happens, HRM should, innovatively tackle the issue.

Responsibilities Of The Human Resource Management Department In

Banks:
Role:
The role of the Human Resource Department is to create the climate & conditions
in which management throughout the Bank will be enabled to optimise the
individual & collective contribution of all employees to the short & long-term
success of the Bank.

Responsibilities:
To be the principal sponsor & guardian of HR policies in the Bank.
To propose & obtain agreement on changes to these policies from time to
time & to ensure that policies which have been agreed are being
implemented throughout the Bank.
To contribute fully to the task of meeting the business challenges whichthe
bank has to face by supporting Branch/Unit Managers in continuously
developingthe potential of employees & in creating conditions in which all
the employees are motivated to meet the objectives of the Bank.
To continuously monitor the Banks strategies to ensure that HR policies are
approriate & that employee numbers & skills are fully supportive of such
strategies.
To deliver a full range of personnel services in support of line management.
These

services

include

manpower

remuneration, training & employee welfare.

planning,

recruitment/transfer,

 To support line management in their day-to-day management of the

workforce by providing advice & consultancy on personnel & performance
management issues.

EMPLOYEE RELATIONS IN BANKS

The banking sector has been characterized by apparently harmonious industrial
relations & has not suffered from the British Diseases of industrial action &
demarcation issues associated with parts of manufacturing industry (e.g. Batstone,
1984). Banks have promoted unitarism (Fox, 1966) encouraging an ethos of
teamwork, shared interest & loyalty, wanting commitment beyond the cash nexus.
While banks are generally seen as having a passive approach to employee
relations, paternalism did underpin the system & particularly important was the
system of internal promotion supported by an unwritten agreement between the
major UK Banks on no poaching. The internal labour market created two

categories of employees: career & non-career which equated to a male/female

divide.
Retail banking is a highly labour intensive industry with labour costs forming 70%
of total operating expenditure & involvement in fund transmissions meant that a
majority of clerical staff have not been used as a means of marketing the banks
products nor directly for increasing business but to process existing accounts. They
have been regarded as an overhead rather than a resource. Until the 1980s,
competition between the Banks has been limited, banks operating as an oligopoly&
Governments concern with maintaining economic stability with limits to lending,
& control over interest rates facilitated this. The oligopoly fed through to the
management of staff as national wage bargaining minimized competition for
labour. However deregulation led to the collapse of the national system & a
questioning of the old employment practices.

CURRENT CHALLENGES FACED BY BANKS IN HRM

Effective work force:
A time-consuming & hectic job is to hunt the right talent. Higher the
professional value of the vacancy, tougher is the search. Identifying the right
stuff followed by negotiation is the element which makes the job tough for
the employer. Banks are keenly interested to fill up two types of breeds of
professionals.
Ones who are outstanding professionals with high job hopping attitude
these are those who come in-work for some tome & then leave for better

prospects. Others are those who are keenly picked-up, trained & are
somehow retained to be developed as future management within the bank.
Management trainees are a growing popular phenomenon where freshly
qualified business graduates are engaged by banks & a certain percentage of
these well equipped professionals stay back within the organization to grow
into the footsteps of senior managers.
Banking jobs being apparently lucrative for many, attract a large number of
candidates against advertised vacancies in media creating a large database
management problem. This has been facilitated by specialized hiring
agencies who may take up the job of hiring in case of large number of
vacancies.
Right People:
The most difficult agenda of HRM across the banking sector is to retain the
right people. Sudden growth of retail banking & other services has put
pressure on HR Managers in banks to engage more professionals within
shorter span of time thereby attracting manpower in other banks on attractive
packages has made the job market very competing.
A bank in a normal course invests time & money to hire & train the
appropriate workforce for its own operations. This readymade force is often
identified & subsequently picked-up on better terms by others.
Compensation:
How much to pay the right employee & how much to the outstanding
performer. Banks have traditionally followed pay scales with predetermined

increments, salary slabs, bonuses & time based fringe benefits like car &
house advance, gratuity, pensions, etc.
The situation is not the same anymore. An increment of Rs.500-800 per
annum is no more a source of attraction for a professional anymore. A basic
pay with traditional formulas of linkage with medical & other facilities has
no soothing today.
A promise of future growth, learning culture & corporate loyalty is out of
dictionary & does not mean anything to this energetic & competent
performer today.
A waiting period of 3-4 years in each cadre haunts the incumbents who
strongly believe in immediate compensation. A freshly hired professional
requires a brand new car or car loan n resuming office quite contrary to his
previous breed of bankers who would wait for the job seniority to qualify for
a car loan.
Job Satisfaction:
Everybody in the bank wants to work in the preferential department,
preferential location, city of his own choice & boss of his liking. An
administrative deviation from any of these results in lowered job
satisfaction.

Although hiring is normally based on regional requirement matching the

area of activity with that of employees nativity yet other elements like
appointment in the department of choice & preference makes the job of HR
manager quite challenging.

What the HR manager cannot afford is the dissatisfied employee who not
only disrupts the smooth working himself, but also spreads the negativity to
others by his de-motivated attitude.
Morale Boosting:
What has long been overlooked is the morale boosting of the employees by
the organizations. Human beings even if satisfied of material wellbeing need
to be appraised & encouraged constantly.
Smart banks have realized this need & have taken steps to keep their work
force motivated through proper encouragement like man of the mouth
awards, repeat get-togethers, conferences, sports events, dinners, company
sponsored travel, reunions, etc. This is the way employees create a feeling of
belongingness.

TRAINING & DEVELOPMENT

Meaning & Definition:
Training:
Organization & individual should develop & progress simultaneously for their
survival & attainment of mutual goals. So every modern management has to
develop the organization through human resource development. Employee training
is the important sub-system of human resource management. Employee training is
a specialized function & is one of the fundamental operative functions for human
resources management.

After an employee is selected, placed & introduced he or she must be provided

with training facilities. Training is the act of increasing the knowledge & skill of an
employee for ding a particular job. Dale S. Beach defines the training as the
organized procedure by which people learn knowledge & skill for a definite
purpose.
The training system in the banking industry has a strong structural base. However,
in the past the training activities have been more ritualistic due to absence of a
strategic link between training & human resources development. Today, it is
important that the training function is made an effective organizational intervention
by establishing a clear policy of training & development within the framework of
total human resource development. The training establishments need to be actively
involved in the total training process starting from the identification of the training
needs, evaluation of training effectiveness & the benefits of training to the endusers viz. the internal & external customers.
The need for training & development is determined by the employees
performance deficiency, computed as follows:
Training & Development Need = Standard Performance Actual
Performance.
We can make a distinction among training, education & development. Training, as
was started earlier, refers to the process of imparting specific skills. Education, on
the other hand, is confined to theoretical learning in the classrooms.
Training & Education Differentiated:

TRAINING

EDUCATION

Application oriented

Theoretical oriented

Job experience

Classroom learning

Specific tasks

General concepts

Narrow perspective

Broad perspective

Development:
Give a man a fish, & you give him meal. Teach man to fish, & you give him a
livelihood.
This ancient Chinese proverb seems to describe the underlying rational of all
raining & development programs. No banking organization can long ignore the
training & development needs of its employees without seriously inhabiting the
performance. Even the most careful selection does not eliminate the needs for
training, since people are not molded to specifications & rarely meet the demands
of their jobs adequately.
This HRM function deals with the overall development of the employees. This
includes their professional & well as their personal development. It is a part of
HRM function to identify opportunities for enhancing the skills of the resources.
Promotion is regarded as one of the ways of recognizing development undertaken
by an employee. Development is also largely dependant on training.

Generally people think that training & development are one & the same, but there
are many differences between them. They are as follows:

TRAINING
Duration:
Training courses are designed
mostly for short term.
Managerial/Operative Personnel:
Training is normally directed at
operative employees & related to
technical aspects.
Specific/General:
Training is more specific job
related information.
Method:
More emphasis on the on the job
method.
Cost Involved:
Imparting
training
is
less
expensive.
Who Imparts:
Mostly the supervisors impart
training.
Frequency:
Less frequent. Mostly at induction
& at every change in job.
Theoretical/Practical Aspects:
Emphasis is placed on practical or
technical aspects of work.

DEVELOPMENT
It involves a broader long term
education for a long term.
It is directed at managerial
personnel to acquire conceptual &
theoretical knowledge.
It is more general in nature,
especially top management level.
More emphasis on the off the job
method.
Development is more expensive.
It is undertaken by supervisors,
outside experts & self.
More frequent & continuous in
nature.
Emphasis is placed on theoretical
& conceptual aspects.

THE TRAINING PROCESS

Organizational Objectives & Strategies

Evaluation of Results
Implementation of Training Programme
Devising Training Programme
Establishment of Training Goals
Assessment of Training Needs

 VESTIBULE TRAINING
ROLE PLAYING
LECTURE METHOD
CONFERENCE OR DISCUSSION
PROGRAMMED
JOB ROTATION
COACHING
JOB INSRTUCTIONS
COMMITTEE
ON-THE-JOB METHOD
OFF-THE-JOB METHOD

METHODS & TECHNIQUES OF TRAINING

On-the-Job Training Method (OJT):

Majority of industrial training is on the job training type. OJT method is mainly
adopted while orienting new employees, introducing innovations in products and
services and in special skills training. OJT is conducted at the work site and in the
context of the job. Often, it is informal, as when an experienced worker shows a
trainee how to perform the job tasks.
It includes job rotation, job coaching, job instruction or training through step-bystep and committee assignments.
Off-the-Job Training Method:
Under this method of training, trainee is separated from the job situation and his
attention is focused upon learning the material related to his future job
performance. Since the trainee is not distracted by the job requirements, he can
place his entire concentration on learning the job rather than spending his time in
performing it. There is an opportunity for freedom of expression for trainees.

DEVELOPMENT IN BANKS
The banks must emphasis on human resource development as one of the critical
areas of its operations. It should redraw its training & development schedules to

suit the requirements of the current emerging scenario. Requisite training should be
imparted to various branch level functionaries as also administrative staff. Besides
in-house training the reputed external agencies should be utilized for human
resource development with a view to updating their knowledge & to keep them
abreast of the current banking scenario for meeting the challenges ahead. The
concept of segment specialization may be resorted to in respect of the personnel
selected therefore. It is now thought expedient to plan & strengthen the squad of
skilled officers in various segments as IT, marketing management, risk
management, risk based supervisors, law, security, etc.
The lead bank must play an effective role in improving the work environment &
pursuing staff welfare measures in the form of whole range of financial assistance
with reference to various loans of sorts.
Human resource skills are other areas of challenge. Because of modernization &
technological advancement rigorous training & man power planning are required.
In the market scenario characterized by heightened competition, growing customer
needs & technological up gradation, the bank fine tunes its HT policy to meet its
corporate objectives. New training systems have been developed to impart
competencies & a broad range of skills among the employees to deliver faster &
superior service that can delight the customers. The Industrial Relations in the
banks have been harmonious & cordial.

RECRUITMENT
Meaning and definition:

The human resources are the most important assets of an organization. The success
or failure of an organization is largely dependent on the caliber of the people
working therein. Without positive and creative contributions from people,
organizations cannot progress and prosper. In order to achieve the goals or the
activities of an organization, therefore, they need to recruit people with requisite
skills, qualifications and experience. While doing so, they have to keep the present
as well as future requirements of the organization in mind.
Once the required number and kind of human resources are determined, the
management has to find places where the required human resources are/will be
available and also find means of attracting them towards the organization before
selecting suitable candidates for jobs.
Recruitment is defined as, A process to discover the sources of man power to
meet the requirements of the staffing schedule and to employ effective measures
for attracting that man power in adequate numbers to facilitate effective selection
of an efficient work force.
Objectives of recruitment
Some of the objectives of recruitment are:
To attract people with multi-dimensional skills and experiences that suits the
present and future organizational strategies
To induct outsiders with a new perspective to lead the company
To infuse fresh blood at all levels of the organization
To devise methodologies for assessing psychological traits

Factors affecting recruitment:

RECRUITMENT PROCESS
Employee Requisition

Personnel Planning
Job Analysis

To Selection
Screening
Searching Activation Selling Message Media
Recruitment Planning Number Type
Job Vacancies

Strategy Development Where How When

Potential Hirers
Application Pool
Application Population
Evaluation & Control

Process of Recruitment:
Recruitment refers the process of identifying and attracting job seekers so as to
build a pool of qualifies applicants. This process comprises of five interrelated
stages, viz,
Planning
Strategy development
Searching
Evaluation and control

The ideal recruitment process is the one which attracts relatively larger number of
qualified applicants who will survive the screening process and accept positions
with the organization, when offered to approach the ideal people, individuals
responsible for recruitment process must know how many types of employees are
needed, where and how to look for individuals with appropriate qualifications and
interests, what inducements to use for various types of applicants group, how to
distinguish applicants who are unqualified from those who have a reasonable
chance of success, and how to evaluate their work.

SELECTION
Definition
Selection is defined as the process of differentiating applicants in order to identify
and hire those with a greater likelihood of success in a job.
The objective of selection decision is basically picking an applicant from a pool of
applicants who has the appropriate qualifications and competency to do the job.
The selection procedure cannot be effective until and unless Requirements of the job to be filled have been clearly specified.
Employee specifications (physical, mental, social, behavioral etc) have been
clearly specified.
Candidates for screening have been attracted.
Selection process is preferable because:
It is easier for applicant as they can send their applications to a single
centralized department/agency.
It facilitates contacts with applicants because issues pertaining to
employment can be cleared through one central location.

 It

helps

operating

managers

to

concentrate

on

their

operating

responsibilities. This is helpful during peak operating period.

It can provide for better selection because hiring is done by specialist trained
in staffing techniques.
The applicant is better assured of consideration for a greater variety of jobs.
Hiring cost may be cut because duplication of efforts is minimized.

Selection Process:
The selection process consists of the following steps:
Application form: Many companies formulate their own style of
application form depending upon the size and nature of business
carried on, type and level of the job etc. Information is generally
required on the following items in the form: personal background,
educational attainments, work experience references etc.
Written test: Written test is conducted for the qualified candidates
after they are screened on the basis of application form to measure the
candidates ability towards the job, his aptitude reasoning, knowledge
in various disciplines, English language etc.
Preliminary Interview: The next step that tag along the selection
procedure is a preliminary interview wherein the applications are
scrutinized so as to eliminate unqualified applications. Preliminary
Interviews are short. This interview thus provides information about
the candidate related to the job or personal specifications.

 Selection Test: After passing through the interview the next stage that
applicant has to prove himself on are the selection tests. There are
different types of selection tests for different levels of the organization
and that too is further differentiated within different types of
organizations. Some of the most common and well-known tests that
an applicant has to go through are;
Ability test
Aptitude test
Personality tests: Which is common mostly for the higher level
of management are given to measure a prospective employees
motivation to function in a particular working environment.
Internal test: to measure an individuals activity preferences.
Graphology Test: is an art wherein the individuals handwriting
is seen and accordingly his personality traits are derived by the
way he writes.
Polygraph Test: Are designed to ensure accuracy of the
information given in the applications.
Medical Tests: Reveal physical fitness of the candidate.
Drug test: Help to ensure the presence of illegal or
performance-affecting drugs.
References and background checks: Many employer request names,
address, and telephone numbers or references for the purpose of

verifying information and, perhaps, gaining additional background

information on an applicant.
Selection Decision: After collecting data from all the preceding steps,
this is the most crucial step in the entire selection process. The main
difference between the preceding stages and this is that former is used
to short list the number of candidates and later one is to make a final
decision from the pool of individuals who pass the tests, interviews
and reference checks. The view of line manager will be generally
considered in the final selection because it is he/she who is
responsible for the performance of the new employee. The HR
manager plays a crucial role in the final decision.

Physical Examination: After the selection decision and before the job
offer is made, the candidate is required to undergo a physical fitness
test. The result of the medical fitness test is recorded in a statement
and is preserved in the personal records. The main objectives of this
test are as follows:
To detect if the individual carries any infectious diseases.
To determine whether an applicant is physically fit to perform
the work.
It helps to determine if there are any physical capabilities
which differentiate successful and less successful employees.

 Medical check up protects applicants with health defects from

undertaking work that could be detrimental to them or might
otherwise endanger the employers property.
Last, but not the least such examination will protect the
employer from workers compensation claims that are not valid
because the injuries or illness was present when the employee
was hired.
Job offer: The next step is selection process is Job offer for those
applicants who had passed the previous stage. Job offer is made
through a letter of appointment. Such a letter usually contains the date
by which the appointee must report on duty. Appointee must be given
a reasonable time for reporting because it may be quite possible that
the appointee is employed in some other company or must be residing
in some other city and for such other reasons. Company may also
want the appointee to delay in joining the job because the job may
require undergoing some training program.
Decency demands that rejected applicants must be informed about
their non-selection. These applicants data must be used for future
references.
Contract of employment: After the job offer is made and the
candidates accept the offer, certain documents need to be executed by
the employer and the candidate. One such document is Attestation
form. This form contains vital details about the candidate, which are
authenticated and attested by him/her, which could be used for future
reference.

Another document is contract of employment. This document contains

the terms and conditions of employment like designation, perks, term
of job and so on. The information written in the contract may vary
according to the level of the job.
The main drawback of the contract is that it is difficult to enforce
them.
Concluding the selection process: The selection process will not end
with executing the employment contract. The step is reassuring the
candidates who have not been selected. Such candidates must be told
that they were not selected, not because of any serious deficiencies in
their personalities, but because their profiles did not match the
requirements of the organization.
Evaluation of selection process: The broad test if the effectiveness of
the selection process is the quality of the personnel is hired. An
organization must have competent and committed personnel. The
selection process, if properly done, will ensure availability of such
employees. Audit must be conducted by the people who work
independent of the HR department.
New methods of selection:
360 degree selection or participative selection: Normally supervisors
administer the selection test and interview. They judge the fit between the
job and the candidate. But the employee skills, knowledge and performance
affect not only superiors but also subordinates and the employees of the
same level. Hence the organization started involving the subordinates and

the employees of the same level in administrating the employment tests and
interviews. This type of selection program is called 360 degree program.
Employee leasing: The client company leases employees from a third party,
not on temporary basis but on a full time basis and for long help. An
interesting feature is that the client company need not perform personnel
activities such as hiring compensation or record keeping. Employees
working elsewhere are leased. They are not directly employed by the
company where they are working. Employees not recruited by one client are
sent to another.
Selection by invitation: Management observes the performance of the key
executives of competitors. If the performance of the key executives is
excellent or the key executives are the change agents, the management
invites them to join the organization by offering attractive salary and
benefits. Thus, the significant performance of the executives forms basis for
selecting them by invitation.

FUTURE OF HRM
If HRM is not to remain more in the realm of rhetoric with wide disparities
between theory and practice, several things need to take place. First, HRM needs to
be diffused across industries and the economy. For this to occur the following
conditions need to be satisfied:

 HRM should be an essential part of management education and training.

From this, two important consequences are likely to follow. HRM is likely
to be integrated into corporate strategies and line managers functions and
decisions. This would reduce the need for HRM specialists, except at the
policy level where they will have a greater voice. Business strategies are
then likely to be built less around low cost and low wages, but around the
real sources of competitive advantage such as flexibility, quality and
customer service.
Employment policies which support employment security, without which
HRM policies, including training, would have little motivational effect. This
does not mean guaranteed employment, but a policy which treats termination
as a last, rather than a first, resort. Learning from international experiences
and diffusing the information can have a transforming effect, as was the case
when American manufacturing was transformed through in-depth studies of
Japanese manufacturing in the automobile industry.
Substantial investment in people and the willingness of employers to view
the benefits from a long-term perspective - a difficult task in a system which
is driven by short-term investor pressure.

CASE STUDY

STATE BANK OF INDIA

In February 2001, India's largest public sector bank (PSB), the State Bank of India
(SBI) faced severe opposition from its employees over a VOLUNTARY
RETIREMENT SCHEME (VRS). The VRS, which was approved by SBI board

in December 2000, was in response to FEDERATION OF INDIAN

CHAMBERS OF COMMERCE AND INDUSTRY'S (FICCI) report on the
banking industry. The report stated that the Indian banking industry was
overstaffed by 35%. In order to trim the workforce and reduce staff cost, the
Government announced that it would be reducing its manpower.
Following this, the Indian Banks Association (IBA) formulated a VRS package for
the

PSBs,

which

was

approved

by

the

Finance

Ministry.

Though SBI promoted the VRS as a Golden Handshake,' its employee unions
perceived it to be a retrenchment scheme. They said that the VRS was completely
unnecessary, and that the real problem, which plagued the bank were NPAs. The
unions argued that the VRS might force the closure of rural branches due to acute
manpower shortage. This was expected to affect SBI's aim to improve economic
conditions by providing necessary financial assistance to rural areas. The union
also alleged that the VRS decision was taken without proper manpower planning.
In February 2001, the SBI issued a directive altering the eligibility criteria for VRS
for the officers by staffing that only those officers who had crossed the age of 55
would be granted VRS.

The Protests
The SBI was shocked to see the unprecedented outcry against the VRS from its
employees. The unions claimed that the move would lead to acute shortage of
manpower in the bank and that the bank's decision was taken in haste with no
proper manpower planning undertaken. They added that the VRS would not be
feasible as there was an acute shortage of officers (estimated at about 10000) in the
rural and semi-urban areas where the branches were not yet computerized.

Moreover, the unions alleged that the management was compelling employees to
opt for the VRS. They said that the threat of bringing down the retirement age from
60 years to 58 years was putting a lot of pressure on senior bank officials to opt for
the scheme.

The Post VRS Days

According to reports, SBI's total staff strength was expected to come down to
around 2,00,000 by March 2001 from the pre-VRS level of 2,33,000 (Refer Table
II). With an average of 5000 employees retiring each year, analysts regarded VRS
as an unwise move. By June 2001, SBI had relieved over 21,000 employees
through the VRS. It was reported that another 8,000 employees were to be relieved
after

they

attained

the

retirement

age

by

the

end

of

2001.

Analysts felt that this would lead to a tremendous increase in the workload on the
existing workforce.
Analysts felt that SBI would have to take serious steps to reorient its HRD policy
to restore employee confidence and retain its talented personnel. SBI had many
strong organizational strengths and an excellent training system, but due to weak
HR policies, it had lost its experts to its competitors.

THE INTERVIEW
I have interviewed Mr. Rajiv Deka, Branch Manager of SBI & Ms. Rohini Rai,
Branch Manager of HDFC Bank, thereby representing the 2 major sectors of
banking, i.e., Public Sector & Private Sector. The theme of the interview was on
how HRM has reacted to the various drivers of modern banking & how to enhance
performance in the fast changing banking sector. The results of the interview threw
up some interesting facets to the HR issues confronting the banks today & how the

HR departments are coping with it. Hereby showing the main highlights of the
interview.
HRM CHALLENGES

When interviewed the two personnel, both of them were of the opinion that the list
of HRM challenges in banks are as shown in the graph.
The biggest HRM challenge is sustaining & increasing the profits of the
bank.
Following that is improvement in the operational effectiveness of the HR
department.
The least priority on the challenge list is given to new distribution channels
& on introducing new products & services.

THE ROLE OF HRM IN BANKS TODAY

When asked about the role of HRM in banking, Mr. Rajiv Deka was of the
opinion that HRM drives business transformation initiatives. It is therefore not
completely incorrect to conclude that HRM participates in the decision &
allocation process after the major issues are decided.
Ms. Rohini Rai however emphasized saying that In the post business decisions,
HRM participation in the business implementation & resource allocation is
solicited. It is necessary that the banks take up human resources accounting &
involve HRM departments fully in the business process changes so that the full
potential of change in business processes may be realized.

Interestingly the response about the changes within the HR Departments with
reference to a change in the business strategy revealed similar dichotomy.

EFFECTIVENESS OF HRD
Posting right person for the right job, retaining talents, planning for the long term
needs of the bank, dovetailing employee preferences in the deployment process, &
capacity to make staff changes that drive business changes are the corner stones of
HR strategy. How effective are the banks in performing these tasks?
The two personnel were of the opinion that:
They are effective when it is a question of ability to post staff with
appropriate skills & capabilities for the job/s.
Also these departments have enough room/flexibility with regard to their
ability to make changes in staffing pattern/position based on changes in
business conditions.
As regards PSU banks, the response to the effectiveness should, be read in
conjunction with the issues on transfer & promotion policy. The posting of
staff with appropriate skills & capabilities could be well suffixed with
subject to availability of suitable skills & talents in the given location.
HRM effectiveness could also be suited with reference to be its role in staffing of
each department/unit. In an effective organization, the department will have a say

in the matter & work hand in glove with the line departments. This seems to be in
vogue in private sector & foreign banks. Invariably, in these organizations, the line
departments & HRD jointly select candidates, while HRD is involved in the head
hunting, finalizing pay & related aspects. In the case of PSBs, in the past the
selection process was through advertisements for a large number of posts.

On selection, the candidates were given an induction training & job-specific

training. Undoubtedly this has been a successful model as it has thrown up a large
number of very efficient leaders in the sector. In the recent years, however, there
are apparent changes in the way the staff are selected in PSBs. There are campus
recruitments & sporadic instances of specialists being inducted at higher levels.
Some of the banks have also started offering market related pay. Yet, as of now, it
appears that in the case of PSBs the line departments have no right in the selection
of candidates. The responses clearly show that there is a need for greater
coordination between the HR & line the participant HR functionaries have
indicated that job rotation is an important aspect of employee development. They
have also indicated that most jobs are becoming specialist in nature. Indeed the
concept of job rotation is contrary to the development of specialist skills.
COPING WITH THE EMPLOYEE TURNOVER
If a bank does not have the staff with the required skills at the required place it
would resort to recruiting. This coupled with
The need for specialization & new skill sets for CBS &
Marketing of bank products bring us to the two issues that have gained
the attention of HR departments in the recent years, namely staff
deployment techniques & managing employee turnover.

Across the banking sector everyone is facing a high level of employee turnover in
the recent years. If till recently it was the BPO sector, which was the biggest
recruiter, it is now the turn of retail business. It is seen that bank employees are
able to take up jobs in these relatively new areas. In the view of this, it is seen that
the turn over level during the current year is higher than the previous years.
It can be said that the current period is the most challenging times for HRD, as
staff-mostly talented & experienced officers-move from public sector to private
sector & within the private sector to the greener pastures. Certain specialist areas
such as treasury management, risk management & customer relationship face acute
shortage of experienced & talented staff. As PSBs cannot offer-barring a fraction
of their business-market related salaries the turn over has been high. Another
reason for loss of staff is the requirement of domain staff in the IT companies.
Transfers have also been cited as one of the reasons for turnover in the public
sector. The available avenues to manage this issue are outsourcing, re-skilling,
hiring temporary staff; reuse of retired staff, etc. it is seen from the news reports
that, in making financial inclusion happen, banks have resorted to the use of the
expertise of retired staff. Some of the retired staff has also come forward to handle
training assignments. The following figure shows the importance of HR in each
strategy adopted by banks in the matter of staff deployment:

Performance Appraisal:
A related issue is the performance appraisal system that currently focused more on
promotions & not on linking performance to deployment of specialization.
Performance appraisal is also more on traits than on any qualitative or quantitative
appraisal of work. In the absence of clearly defined individual & organizational
goals the appraisal has become a routine. Participants indicated the need for a

change & more business oriented appraisal & felt that appraisal systems such as
360 Degree appraisals will be useful in future. The overwhelming feeling is that
PA system should change & react to new needs.
RECRUITMENT IN BANKS
Evidently the banks are waking up to many new issues. One such issue is the
changing recruitment market. What according to the HR executives attracted
candidates to the banks?
What attracts candidates to your banks?
Sr. No.

Particulars

1.

Work & Life Balance

2.

Career Growth Opportunities

3.

Banks Track Record

4.

Compensation Being Better Than Market

5.

Good Company Values

6.

Challenging Work Environment

7.

Positive Corporate Reputation

8.

Others

The personnels felt that the recruitment policies, in future, will be woven around
the above aspects (Table). It is an indication of changing times that the list includes
items such as performance linked incentives, fast track promotion, foreign posting
education, choice of departments, sabbatical & stock option. If turnover is high &

recruitment poses challenges on account of high salary & work life balance
expectations the HR function needs to adopt many different methods to
educate/train the staff.
Employee Development Techniques
It was earlier seen that the major task before the HRD is to instill new skills with
the staff. In this connection it can be pointed out that all the banks own a large
training network. They also have access to other training establishments &
seminars. Banks also send employees to B schools for short duration courses &
MDPs. The major emphasis of banks is to use their training systems &
establishments to the fullest extent. Banks were also keen on encouraging their
staff to take up new courses & correspondence courses. The schemes of
reimbursements of expenses were rather liberal.

As staff turnover & new positions are filled, knowledge management becomes
important. The rules, procedures & customers, data that have been gathered need to
be made available to the new staff such that continuity & service excellence is
maintained. There is a need to curtail expenses in reinventing wheels. The HR
executives felt that the HR department can also function as knowledge
management centre. Banks have already begun knowledge management efforts.
SOURCES OF RECRUITMENT
The various sources of recruitment may be broadly classified into two categories,
i.e., internal & external sources. Some organizations draw their human resources
internally, i.e., from within the organization while others draw externally, i.e., from
outside the organization.
CONSULTANTS

PROMOTION
EXTERNAL
INTERNAL

ADVERTISEMENTS
TRANSFER

Sources of Managerial Recruitment

INSTITUTES
RETIREMENT

RECOMMENDATION
RECALLS

INTERNAL ADS
DEPUTATION

CONCLUSION
The banking sector has grown from a few institutions primarily involved in deposit
acceptance and trade finance into a complex multi player where large number of
commercial banks, financial institutions and specialized banks are operating with
various products and activities. The banking has become a complex activity within
the financial market linked directly and indirectly with an over-all national growth
and its impact as an integral part of regional segment of a global banking
environment.
Thus, event the high automation would require proper man behind the machine to
make things happen. This idea has been realized by top managements in
progressive banks.
Like many other organized sectors, banking requires multi layer manpower for its
various requirements of professionals and support staff. The range may require
reasonably educated security guards on the one end and a highly educated and
trained professional as head of corporate finance at the other.
HRM is of great importance in banks. The training and development of employees
is very much important. Recruitment and selection must also be done very
efficiently. The major challenge for this industry is, attracting the right talent and
retaining them.
To conclude the growth of banking sector in the future depends upon appropriate
HRM policies which will assist the employees in achieving their personal goals
and in turn will enhance the individuals contribution to the organization.
Objectives of the employees should be met if employees are to be maintained,
retained and motivated.

ACKNOWLEGEMENT

I sincerely thank the University for introducing a degree course in B. Com for
Banking & Insurance. This has given us an opportunity to gain knowledge on the
insights of the Banking & Insurance industry. A special thanks to our esteemed
coordinator Prof. A.R.Suri for guiding and motivating me during this project. I
would also like to thank the librarian of Jai Hind College who helped me in finding
out various books on the topics.
This project was highly educational and a great learning experience.

BIBLIOGRAPHY

BOOKS
Human Resource Management and Industrial Relations P. Subba Rao
Human Resource Management K. Ashwathapa
Human Resource Management P. V. Rao
The future of Human Resource Management - K. Ashwathapa
Human Resource and Personnel Management William Wrether

BANKING STRUCTURE

PROJECT REPORT BY
NACHIKET SHILOTRI
T.Y.B.B.I (SEMESTER V)

PROJECT GUIDE
PROF. KRISHNAN SIR

THE DEPARTMENT OF BANKING & INSURANCE

MUMBAI-400020
2014-2015

DECLARATION

I, Nachiket Shilotri studying in T.Y.B.B.I hereby declare that I have

done a project on Banking structure. As required by the university rules, I state
that the work presented in this project is original in nature and to the best my
knowledge.

Place: Mumbai

Nachiket Shilotri

Date:

PREFACE

The project has been prepared not only because it involves marks and is the
requirement of the university but I understand the underlying intention of the board
which definitely imparts priceless knowledge and I believe that practical exposure
is equally important for every student.

I firmly decided to prepare my project on banking structure as I eager to know

the meaning both theoretical as well as practical. I have chosen this topic because

to be honest I love doing projects related to the technology. There is nothing more
that excites me than good execution done through an electronic medium and hence
I choose this topic.

I have put my sincere efforts in the project and hope I have done a decent job to
portray that technology has proven to be a boon to banking

Place: Mumbai

Nachiket Shilotri Date:

ACKNOWLEDGEMENT

The present research work cannot see the light of the day unless it is blessed
by the begin assistance of eminent person. The help and co-ordination that I
have received from various quarters of in bringing this work to completion
makes me feel deeply indebted. This is not a work of individual but a number
of persons who helped me directly or indirectly in this journey. So, I wish to
express great fullness to all those who have helped & assisted me in bringing
the final shape of this report.

First of all, I wish to express my deep sense of gratitude to our Supervisor

Prof Mr. Krishnan Sir for his guidance and moral support all along the
period of my study in the institute.

I am deeply indebted to my project guide Prof Mr. Krishnan Sir for his kind
advice, encouragement, support & proper guidance. During the course of
preparation of this project, I got tremendous support in mastering fact &
figures from her. Really she had been a great source of information during the
period of study.

Last but not the least I wish to express my deep sense of gratitude to all those
who were knowingly or unknowingly with me during the project tenure.

Signature of the student

AKHILESH VIJAYAN

Place: Mumbai

Nachiket Shilotri

INTRODUCTION

India has a well developed Banking system. The banking industry originated in India in the 18 th
century and since then it has undergone significant number of changes. The commercial banking
industry in India over the past few decades has been revolutionized by a number of factors such
as independence, nationalization, deregulation, rise of the Internet, etc. The commercial banking
structure in India consists of Scheduled Banks and Unscheduled Banks.
In the past the banks did not find any attraction in the Indian economy because of the low level
of economic activities and little business prospects. Today we find positive changes in the
National business development policy. Earlier, the money lenders had a strong hold over the
rural population which resulted in exploitation of small and marginal savers. The private sector
banks failed in serving the society. This resulted in the nationalization of 14 commercial banks in
1969. Nationalization of commercial banks paved ways for the development of Indian economy
and channelized financial resources for the upliftment of weaker sections of the society. The
passage of financial modernization legislation by Congress in 1999 removed barriers, allowing
banks to expand product offerings, while the potential of the Internet as a sales, marketing and
delivery tool, widened the avenues to sell and deliver these products. The main products of the
commercial banking industry-insurance, securities, mortgages, mutual funds and consumer
credit-have all benefited from these changes. This report will examine the extent to which
increased product sales have influenced overall bank assets and how commercial banks'
increased market share in each of these products areas over the next five years will raise overall
bank income and assets.
Currently, banking industry in India is generally fairly mature in terms of supply, product range
and reach-even though reaches in rural India still remains a challenge for the private sector and
foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to
have clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve Bank of India is an autonomous body, with minimal

pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage
volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in
its services sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong. One may also expect mergers and acquisitions,
takeovers, and asset sales.

REVIEW OF LITERATURE
Indian banking system, over the years has gone through various phases after establishment of
Reserve Bank of India in 1935 during the British rule, to function as Central Bank of the country.
Earlier to creation of RBI, the central bank functions were being looked after by the Imperial
Bank of India. With the 5-year plan having acquired an important place after the independence,
the Govt. felt that the private banks may not extend the kind of cooperation in providing credit
support, the economy may need. In 1954 the All India Rural Credit Survey Committee submitted
its report recommending creation of a strong, integrated, State-sponsored, State-partnered
commercial banking institution with an effective machinery of branches spread all over the
country. The recommendations of this committee led to establishment of first Public Sector Bank
in the name of State Bank of India on July 01, 1955 by acquiring the substantial part of share
capital by RBI, of the then Imperial Bank of India. Similarly during 1956-59 the associate banks
came into the fold of public sector banking.
Another evaluation of the banking in India was undertaken during 1966 as the private banks
were still not extending the required support in the form of credit disbursal, more particularly to
the unorganised sector. Each leading industrial house in the country at that time was closely
associated with the promotion and control of one or more banking companies. The bulk of the
deposits collected, were being deployed in organised sectors of industry and trade, while the
farmers, small entrepreneurs, transporters , professionals and self-employed had to depend on
money lenders who used to exploit them by charging higher interest rates. In February 1966, a
Scheme of Social Control was set-up whose main function was to periodically assess the demand
for bank credit from various sectors of the economy to determine the priorities for grant of loans
and advances so as to ensure optimum and efficient utilisation of resources. The scheme

however, did not provide any remedy. Though a no. of branches were opened in rural area but
the lending activities of the private banks were not oriented towards meeting the credit
requirements of the priority/weaker sectors.

On July 19, 1969, the Govt. promulgated Banking Companies (Acquisition and Transfer of Undertakings)
Ordinance 1969 to acquire 14 bigger commercial bank with paid up capital of Rs.28.50cr, deposits of
Rs.2629cr, loans of Rs.1813cr and with 4134 branches accounting for 80% of advances. Subsequently in
1980, 6 more banks were nationalised which brought 91% of the deposits and 84% of the advances in

Public Sector Banking. During December 1969, RBI introduced the Lead Bank Scheme on the
recommendations of FK Narasimhan Committee. Meanwhile, during 1962 Deposit Insurance
Corporation was established to provide insurance cover to the depositors.
In the post-nationalization period, there was substantial increase in the no. of branches opened in
rural/semi-urban centres bringing down the population per bank branch to 12000 approx. During
1976, RRBs were established. The Service Area Approach was introduced during 1989.While
the 1970s and 1980s saw the high growth rate of branch banking net-work, the consolidation
phase started in late 80s and more particularly during early 90s, with the submission of report by
the Narasimhan Committee on Reforms in Financial Services Sector during 1991.
In these five decades since independence, banking in India has evolved through four distinct
phases:

FOUNDATION PHASE
Foundation phase can be considered to cover 1950s and 1960s till the nationalisation of banks in
1969. The focus during this period was to lay the foundation for a sound banking system in the
country. As a result the phase witnessed the development of necessary legislative framework for
facilitating re-organization and consolidation of the banking system, for meeting the requirement

of Indian economy. A major development was transformation of Imperial Bank of India into
State Bank of India in 1955 and nationalisation of 14 major private banks during 1969.

EXPANSION PHASE
Expansion phase had begun in mid-60s but gained momentum after nationalisation of banks and
continued till 1984. A determined effort was made to make banking facilities available to the
masses. Branch network of the banks was widened at a very fast pace covering the rural and
semi-urban population, which had no access to banking hitherto. Most importantly, credit flows
were guided towards the priority sectors. However this weakened the lines of supervision and
affected the quality of assets of banks and pressurized their profitability and brought competitive
efficiency of the system at low ebb.

CONSOLIDATION PHASE
The phase started in 1985 when a series of policy initiatives were taken by RBI which saw
marked slowdown in the branch expansion. Attention was paid to improving house-keeping,
customer service, credit management, staff productivity and profitability of banks. Measures
were also taken to reduce the structural constraints that obstructed the growth of money market.

REFORMS PHASE
The macro-economic crisis faced by the country in 1991 paved the way for extensive financial
sector reforms which brought deregulation of interest rates, more competition, technological
changes, prudential guidelines on asset classification and income recognition, capital adequacy,
autonomy packages etc.

OBJECTIVES OF THE STUDY

The objectives of project are as follows:

To find out the earlier banking structure that prevailed in India.

To assess the various factors that lead to the change in the Indian banking structure

To assess the impact of all these factors on the banking structure.

To assess the change in the performance and efficiency of the banks in India.

To draw a contrast between the old and the new Indian banking structure.

To determine the various services offered by banks earlier and currently

To determine the future of Indian Banking Markets

To assess the impact of information technology on the banking sector.

To study how new distribution channels such as Internet Banking, ATM facility, Phone
Banking have changed the face of the Banking industry.

To draw conclusions of the impact of the changes in banking sector.

RESEARCH METHODOLOGY

Secondary data is the data which is collected for some other purpose.
The data used for preparing the project report was secondary data. It was collected from various
websites, newspapers and books.

FUNCTIONS OF A BANK
The main functions of commercial banks are accepting deposits from the public and advancing
them loans.
However, besides these functions there are many other functions which these banks perform. All
these functions can be divided under the following heads:
1. Accepting deposits
2. Giving loans
3. Overdraft
4. Discounting of Bills of Exchange
5. Investment of Funds
6. Agency Functions
7. Miscellaneous Functions

1. Accepting Deposits:
The most important function of commercial banks is to accept deposits from the public. Various
sections of society, according to their needs and economic condition, deposit their savings with
the banks.
For example, fixed and low income group people deposit their savings in small amounts from the
points of view of security, income and saving promotion. On the other hand, traders and
businessmen deposit their savings in the banks for the convenience of payment.
Therefore, keeping the needs and interests of various sections of society, banks formulate various
deposit schemes. Generally, their are three types of deposits which are as follows:

Current Deposits:
The depositors of such deposits can withdraw and deposit money whenever they desire. Since
banks have to keep the deposited amount of such accounts in cash always, they carry either no
interest or very low rate of interest. These deposits are called as Demand Deposits because these
can be demanded or withdrawn by the depositors at any time they want.
Such deposit accounts are highly useful for traders and big business firms because they have to
make payments and accept payments many times in a day.

(ii) Fixed Deposits:

These are the deposits which are deposited for a definite period of time. This period is generally
not less than one year and, therefore, these are called as long term deposits. These deposits
cannot be withdrawn before the expiry of the stipulated time and, therefore, these are also called
as time deposits.

These deposits generally carry a higher rate of interest because banks can use these deposits for a
definite time without having the fear of being withdrawn.

(iii) Saving Deposits:

In such deposits, money upto a certain limit can be deposited and withdrawn once or twice in a
week. On such deposits, the rate of interest is very less. As is evident from the name of such
deposits their main objective is to mobilise small savings in the form of deposits. These deposits
are generally done by salaried people and the people who have fixed and less income.

2. Giving Loans:
The second important function of commercial banks is to advance loans to its customers. Banks
charge interest from the borrowers and this is the main source of their income.
Banks advance loans not only on the basis of the deposits of the public rather they also advance
loans on the basis of depositing the money in the accounts of borrowers. In other words, they
create loans out of deposits and deposits out of loans. This is called as credit creation by
commercial banks.
Modern banks give mostly secured loans for productive purposes. In other words, at the time of
advancing loans, they demand proper security or collateral. Generally, the value of security or
collateral is equal to the amount of loan. This is done mainly with a view to recover the loan
money by selling the security in the event of non-refund of the loan.
At limes, banks give loan on the basis of personal security also. Therefore, such loans are called
as unsecured loan. Banks generally give following types of loans and advances:

(i) Cash Credit:

In this type of credit scheme, banks advance loans to its customers on the basis of bonds,
inventories and other approved securities. Under this scheme, banks enter into an agreement with
its customers to which money can be withdrawn many times during a year. Under this set up
banks open accounts of their customers and deposit the loan money. With this type of loan, credit
is created.

(ii) Demand loans:

These are such loans that can be recalled on demand by the banks. The entire loan amount is paid
in lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes
chargeable to interest with immediate effect.

(iii) Short-term loan:

These loans may be given as personal loans, loans to finance working capital or as priority sector
advances. These are made against some security and entire loan amount is transferred to the loan
account of the borrower.

3. Over-Draft:
Banks advance loans to its customers upto a certain amount through over-drafts, if there are no
deposits in the current account. For this banks demand a security from the customers and charge
very high rate of interest.

4. Discounting of Bills of Exchange:

This is the most prevalent and important method of advancing loans to the traders for short-term
purposes. Under this system, banks advance loans to the traders and business firms by
discounting their bills. In this way, businessmen get loans on the basis of their bills of exchange
before the time of their maturity.

5. Investment of Funds:
The banks invest their surplus funds in three types of securitiesGovernment securities, other
approved securities and other securities. Government securities include both, central and state
governments, such as treasury bills, national savings certificate etc.
Other securities include securities of state associated bodies like electricity boards, housing
boards, debentures of Land Development Banks units of UTI, shares of Regional Rural banks
etc.

6. Agency Functions:
Banks function in the form of agents and representatives of their customers. Customers give their
consent for performing such functions. The important functions of these types are as follows:
(i) Banks collect cheques, drafts, bills of exchange and dividends of the shares for their
customers.
(ii) Banks make payment for their clients and at times accept the bills of exchange: of their
customers for which payment is made at the fixed time.
(iii) Banks pay insurance premium of their customers. Besides this, they also deposit loan
instalments, income-tax, interest etc. as per directions.
(iv) Banks purchase and sell securities, shares and debentures on behalf of their customers.
(v) Banks arrange to send money from one place to another for the convenience of their
customers.

7. Miscellaneous Functions:

Besides the functions mentioned above, banks perform many other functions of general utility
which are as follows:
(i) Banks make arrangement of lockers for the safe custody of valuable assets of their customers
such as gold, silver, legal documents etc.
(ii) Banks give reference for their customers.
(iii) Banks collect necessary and useful statistics relating to trade and industry.
(iv) For facilitating foreign trade, banks undertake to sell and purchase foreign exchange.
(v) Banks advise their clients relating to investment decisions as specialist
(vi) Bank does the under-writing of shares and debentures also.
(vii) Banks issue letters of credit.
(viii) During natural calamities, banks are highly useful in mobilizing funds and donations.
(ix) Banks provide loans for consumer durables like Car, Air-conditioner, and Fridge etc.

BANKING SECTOR IN THE PAST

Banking in India originated in the first decade of 18th century with The General Bank of India
coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are
now defunct. The oldest bank in existence in India is the State Bank of India being established as
"The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like
Credit Lyonnais started their Calcutta operations in the 1850s. The first fully Indian owned bank
was the Allahabad Bank, which was established in 1865.By the 1900s, the market expanded with
the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India,
in 1906, in Mumbai - both of which were founded under private ownership. The Reserve Bank of
India formally took on the responsibility of regulating the Indian banking sector from 1935.
After India's independence in 1947, the Reserve Bank was nationalized and given broader
powers.
At the beginning of the 20th century, Indian economy was passing through a relative period of
stability. Around five decades have elapsed since the India's First war of Independence, and the
social, industrial and other infrastructure have developed. At that time there were very small
banks operated by Indians. The banking in India was controlled and dominated by the presidency
banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank of Madras - which later
on merged to form the Imperial Bank of India, and Imperial Bank of India.

RESERVE BANK OF INDIA

The central bank of the country is the Reserve Bank of India (RBI). It was established in April
1935 under the RBI Act, 1934 with a share capital of Rs. 5 crores on the basis of the
recommendations of the Hilton Young Commission. The share capital was divided into 5,00,000
shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the
beginning. The Government held shares of nominal value of Rs. 2,20,000.
Reserve Bank of India was nationalised in the year 1949. The general superintendence and
direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor
and four Deputy Governors, one Government official from the Ministry of Finance, ten
nominated Directors by the Government to give representation to important elements in the
economic life of the country, and four nominated Directors by the Central Government to
represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New
Delhi. Local Boards consist of five members each Central Government appointed for a term of
four years to represent territorial and economic interests and the interests of co-operative and
indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The RBI Act, 1934
provides the statutory basis of the functioning of the Bank. It is so called as it maintains cash
reserves of all the commercial banks in India with itself. It is also referred to as Central Bank.

Objectives of constituting the Reserve Bank of India:

To regulate the issue of bank notes.

To maintain reserves with a view to securing monetary stability.

To operate the credit and currency system of the country to its advantage.

To act as a regulator and supervisor of the financial system

Management of foreign exchange control

Banker to the Government because it performs merchant banking function for the central
and the state governments; also acts as their banker.

Development of banks.

Supervision and licensing of banks.

Role of the Reserve Bank of India

The Reserve Bank of India performs an important role in monitoring and development of Indian
economy. The same can be demonstrated with the

 Bank of Issue:
The Reserve Bank of India enjoys the monopoly of note issue. The Reserve Bank is
authorized to issue currency notes of Rs. 2, 5, 10, 20, 50, 100, 500 and 1000. The one
rupee note is issued by the Government of India. RBI has the issue department which is
entirely responsible for the issue of coins and notes. The RBI required to follows certain
principles in order to prevent misuse of issuing of notes. Against the issue of notes the
RBI is required to maintain gold and foreign exchange reserve of Rs. 200 Crores, Rs. 115
Crores gold and the remaining Rs. 85 Crores in foreign securities. Monopoly power of
note issue with the Reverse Bank of India has a number of advantages which are as
follows:
(a) Uniformity: As all notes in India are issued by the RBI, there is uniformity in note issue,
widely accepted and the people of the country have full faith in the currency.
(b) Effective Control: The RBI has on effective control on commercial banks that create deposits
in the process of advancing loans to its customers.
(c) Supervision of Control: The RBI maintains a proper supervision and control over the supply
of money in the economy.

Bankers Bank and Lender of the Last Resort:

As the bankers bank, the RBI performs the same functions as performed by commercial
bank for their customers. On behalf of the Government the RBI receives the cheques,

draft and deposit of cash etc. For the payment of salaries and wages it provide cash to the
government. It also buys and sells foreign currencies.
Every scheduled bank, according to the RBI, Act, 1934, was required to maintain with the
Reserve Bank a Cash balance equivalent to 5 percent of its demand liabilities and 2 percent of its
time liabilities in India. The demand and time liabilities was abolished by an amendment of
1962, and now the bank require cash reserves equal to 3 percent of their aggregate deposit
liabilities with the RBI. The RBI at any time can change the minimum cash reserve. As the word
say lender of the last resort it simply means that the RBI provides all financial assistance
whether directly or indirectly to commercial bank at the time of financial crises through loans,
advances and discounting of approved securities.

Fiscal Agent and Advisor to the Government:

On behalf of the Government the RBI issues new loans, receives subscriptions and pays
interest on them and at last repay these loans. As the financial advisor, the RBI advises
the government on all monetary and banking matter like floating of loans, on industrial
and agricultural finance, control of inflation or deflation, budgetary policy, financial
aspects of planning, etc.

Controller of Credit:
RBI is the controller of credit. For the smooth functioning of the economy, the supply of
credit must be regulated and controlled, the RBI can do so through changing, the bank
rate or through open market operations. According to the Banking Regulation act of
1949, the RBI can ask any particulars bank or the whole banking system not to lend to
particular groups of persons or on the basis of certain type of securities.

Custodian of Nations Foreign Exchange Reserve:

The custodian of nations foreign exchange reserve is one of the most important functions
of the RBI. The RBI controls both the receipts and payment of foreign exchange, and in
the regard it tries to maintain stability of the exchange rate. This can be possible only
when it buys or sell foreign currencies in the market.After India became a member of the

international monetary fund, the RBI has the responsibility of maintaining fixed exchange
rates with all other member countries of the IMF.

Clearing house for Transfer and Settlement:

Reserve Bank provides clearing house facilities to the member banks. The customers of
various bank issue cheques drawn on their bank. So the need arises regarding the
settlement claims of the commercial bank on each other. It is very easy to settle claims
between them by making transfer entries in their account because the commercial bank
keeps their cash reserve with the RBI. So it is simple, economical and time saving device
for settling the claims of commercial bank on each other.

Promotional Functions:
With economic growth assuming a new urgency since independence, The Reverse Bank
of India not only performs the traditional function explained in point 1 to 6 above, but it
also performs various development and promotional functions with were considered as
outside the scope of RBI at one time. For developing and promoting a strong banking
system the responsibility is on the hand of RBI, and in this regard it provides cheap and
liberal rediscounting facilities and also gives various types of concessions to commercial
banks from time to time. The Reserve bank has helped in the setting up of the IFCI and
the SFC to provide various funds for the development of agriculture, industry and service
sector of the economy.

Supervisory Functions:

Now the supervision is in the hand of the RBI, to see whether the commercial banks are
performing better or not for the development of the economy. The Banking Regulation
Act 1949, have given wide power to RBI regarding proper control and supervision over
commercial banks regarding licensing and establishment, expansion of branch, liquidity
of their assets, management and method of working of commercial banks.

Commercial Banks in India

Commercial Banks in India are broadly categorized into Scheduled Commercial Banks and
Unscheduled Commercial Banks. The Scheduled Commercial Banks have been listed under the
Second Schedule of the Reserve Bank of India Act, 1934. The selection measure for listing a
bank under the Second Schedule was provided in section 42 (60 of the Reserve Bank of India
Act, 1934.
Commercial bank is the term used for a normal bank to distinguish it from an investment
bank or retail bank. It can also refer to a bank or a division of a bank that mostly deals with

deposits and loans from corporations or large businesses, as opposed to normal individual
members of the public (retail banking).

Activities of Commercial Banks

The modern Commercial Banks in India cater to the financial needs of different sectors. The
main functions of the commercial banks comprise:

transfer of funds

acceptance of deposits

offering those deposits as loans for the establishment of industries purchase of houses,
equipments, capital investment purposes etc.

The banks are allowed to act as trustees. On account of the knowledge of the financial market of
India the financial companies are attracted towards them to act as trustees to take the
responsibility of the security for the financial instrument like a debenture.

The Indian

Government presently hires the commercial banks for various purposes like tax collection and
refunds, payment of pensions etc.

Functions of Commercial Banks

The functions of a commercial banks are divided into two categories:
i) Primary functions, and
ii) Secondary functions including agency functions.

i) Primary functions:

The primary functions of a commercial bank include:

a) Accepting deposits; and
b) Granting loans and advances;

i i ) Secondary function
Be sides the primary functions of a accepting deposits and lending money, banks perform a
number of other function which are called secondary functions. These are as follows

Issuing letter of credit, traveller cheques, circular notes etc.

Undertaking safe custody of valuables, important documents and securities by providing

safe deposit locker.

Providing customers with facilities of foreign exchange.

Transferring money from one place to another; and from one branch to another branch
of the bank.

Standing guarantee on behalf of its customers, for making payments for purchase of
goods, machinery, vehicles etc

Collecting and supplying business information;

Providing reports on the credit worthiness of customers.

List of Commercial Banks in India

SBI & Associates:

State Bank of India

State Bank of Bikaner & Jaipur

State Bank of Hyderabad

State Bank of Indore

State Bank of Mysore

State Bank of Patiala

Public Sector Banks

Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks
which were nationalised on July 19, 1969. Its predecessor, in the Public Sector Banks, the United
Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Comilla
Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd.
(1922) and Hooghly Bank Ltd. (1932).
Oriental Bank of Commerce (OBC), a Government of India Undertaking offers Domestic, NRI
and Commercial banking services. OBC is implementing a GRAMEEN PROJECT in Dehradun
District (UP) and Hanumangarh District (Rajasthan) disbursing small loans. This Public Sector
Bank India has implemented 14 point action plan for strengthening of credit delivery to women
and has designated 5 branches as specialized branches for women entrepreneurs.

The following are the list of some of the Public Sector Banks in India

Andhra Bank

Bank of Baroda

Bank of India

Bank of Maharastra

Canara Bank

Corporation Bank

Dena Bank

Indian Bank

Punjab National Bank

Private sector banks in India

Private banking in India was practiced since the beginning of banking system in India. The first
Private bank in India to be set up in Private Sector Banks in India was Induslnd Bank. It is one of
the fastest growing Private Sector Banks in India. IDBI ranks the tenth largest Development
bank in the world as Private Banks in India and has promoted a world class institutions in India.
The first Private Bank in India to receive an in principle approval from the Reserve Bank of
India was Housing Development Finance Corporation Limited, to set up a bank in the private
sector banks in India as part of the RBI's liberalisation of the Indian Banking Industry. It was
incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and
commenced operations as Scheduled Commercial Bank in January 1995. ING Vysya, yet another
Private Bank of India was incorporated in the year 1930. Bangalore has a pride of place for
having the first branch inception in the year 1934. With successive years of patronage and
constantly setting new standards in banking, ING Vysya Bank has many credits to its account.
List of Private Banks in India

Bank of Punjab

Bank of Rajasthan

Centurion Bank

HDFC Bank

ICICI Bank

Jammu & Kashmir Bank

Karnataka Bank

UTI Bank

HDFC Bank Ltd. : A Leader in Making

HDFC Bank was incorporated in the year of 1994 by Housing Development Finance Corporation
Limited (HDFC), Indias premier housing finance company. It was among the first companies to
receive an in principle approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector. The Bank commenced its operations as a Scheduled Commercial Bank in January
1995 with the help of RBIs liberalization policies.
In a milestone transaction in the Indian banking industry, Times Bank Limited (promoted by
Bennett, Coleman & Co./Times Group) was merged with HDFC Bank Ltd., in 2000. This was
the first merger of two private banks in India. As per the scheme of amalgamation approved by
the shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank
received 1 share of HDFC Bank for every 5.75 shares of Times Bank.
In 2008 HDFC Bank acquired Centurian Bank and its total branches became more than 1,000.
The amalgamated bank emerged with a strong deposit base of around Rs. 1, 22,000 crore and net
advances of around Rs. 89,000 crore. The amalgamation added significant value to HDFC Bank
in terms of increased branch network, geographic reach, and customer base, and a bigger pool of
skilled manpower.

Business Focus
HDFC Bank deals with three key business segments Wholesale Banking Services, Retail
Banking Services and Treasury. It has entered the banking consortia of over 50 corporate for
providing working capital finance, trade services, corporate finance and merchant banking. It is
also providing sophisticated product structures in areas of foreign exchange and derivatives,
money markets and debt trading and equity research.

Wholesale Banking Services

The Banks target markets are large, blue-chip manufacturing companies, small & mid-sized
companies and agro-based businesses. For these customers, the Bank provides a wide range of
commercial and transactional banking services, including working capital finance, trade services,
transactional services, cash management, etc. The bank is also a leading provider of structured
solutions, which combine cash management services with vendor and distributor finance for
facilitating superior supply chain management for its corporate customers. HDFC Bank has
made significant inroads into the banking consortia of a number of leading Indian corporate
including multinationals, companies from the domestic business houses and prime public sector
companies. It is recognized as a leading provider of cash management and transactional banking
solutions to corporate customers, mutual funds, stock exchange members and banks.

Retail Banking Services

The objective of the Retail Bank is to provide its target market customers a full range of financial
products and banking services, giving the customer a one-stop window for all his/her banking
requirements. The products are backed by world-class services and delivered to customers
through the growing branch network, as well as through alternative delivery channels like
ATMs, Phone Banking, Net Banking and Mobile Banking.
HDFC Bank was the first bank in India to launch an International Debit Card in association with
VISA (VISA Electron) and issues the Master card and Maestro debit card as well. It launched its
credit card business in late 2001. By March 2009, the bank had a total card base (debit and credit
cards) of over 13 million. It is also one of the leading players in the merchant acquiring
business with over 70,000 Point-of-sale (POS) terminals for debit/credit cards acceptance at
merchant establishments. The Bank is well positioned as a leader in various net based B2C
opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill
Payments, etc.

Treasury
Within this business, the bank has three main product areas - Foreign Exchange and Derivatives,
Local Currency Money Market & Debt Securities, and Equities. These services are provided
through the banks Treasury team. To comply with statutory reserve requirements, the bank is
required to hold 25% of its deposits in government securities. The Treasury business is
responsible for managing the returns and market risk on this investment portfolio.

Distribution Network
HDFC Bank is headquartered in Mumbai. The Bank has a network of 1,725 branches spread in
771 cities across India. All branches are linked on an online real-time basis. Customers in over
500 locations are also serviced through Telephone Banking. The Bank has a presence in all
major industrial and commercial centres across the country. Being a clearing/settlement bank to
various leading stock exchanges, the Bank has branches in the centres where the NSE/BSE has a
strong and active member base.
The Bank also has 3,898 networked ATMs across these cities. Moreover, HDFC Banks ATM
network can be accessed by all domestic and international Visa/MasterCard, Visa Electron/
Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

Foreign Banks
Foreign Banks in India always brought an explanation about the prompt services to customers.
After the set up foreign banks in India, the banking sector in India also become competitive and
accretive.
New rules announced by the Reserve Bank of India for the foreign banks in India in this budget
have put up great hopes among foreign banks which allow them to grow unfettered. Now foreign
banks in India are permitted to set up local subsidiaries. The policy conveys that foreign banks in
India may not acquire Indian ones (except for weak banks identified by the RBI, on its terms)
and their Indian subsidiaries will not be able to open branches freely. Please see the list of
foreign banks in India till date.
List of Foreign Banks in India

ABN-AMRO Bank

Abu Dhabi Commercial Bank

Bank of Ceylon

BNP Paribas Bank

Citi Bank

Deutsche Bank

HSBC

JP Morgan Chase Bank

Regional Rural Banks

Rural banking in India started since the establishment of banking sector in India. Rural Banks in
those days mainly focused upon the agro sector. Regional rural banks in India penetrated every
corner of the country and extended a helping hand in the growth process of the country.
There are 197 RRBs in India. SBI has 30 Regional Rural Banks in India known as RRBs. The
rural banks of SBI are spread in 13 states extending from Kashmir to Karnataka and Himachal
Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is 2349
(16%). Till date in rural banking in India, there are 14,475 rural banks in the country of which
2126 (91%) are located in remote rural areas.
Apart from SBI, there are other few banks which functions for the development of the rural areas
in India. Few of them are as follows:

National Bank for Agriculture and Rural Development (NABARD)

United Bank of India

Syndicate Bank

Co-Operative Banks
The Co operative banks in India started functioning almost 100 years ago. The Cooperative bank
is an important constituent of the Indian Financial System, judging by the role assigned to co
operative, the expectations the co operative is supposed to fulfill, their number, and the number
of offices the cooperative bank operate. Though the co operative movement originated in the
West, but the importance of such banks have assumed in India is rarely paralleled anywhere else
in the world. The cooperative banks in India play an important role even today in rural financing.
The businesses of cooperative bank in the urban areas also have increased phenomenally in
recent years due to the sharp increase in the number of primary banks. Co operative Banks in
India are registered under the Co-operative Societies Act. The cooperative bank is also regulated
by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Cooperative Societies) Act, 1965.

Features of Cooperative Banks:

Co-operative Banks are organised and managed on the principal of co-operation, self-help, and
mutual help. They function with the rule of "one member, one vote". Function on "no profit, no
loss" basis. Co- operative banks, as a principle, do not pursue the goal of profit maximisation.
Co-operative bank performs all the main banking functions of deposit mobilisation, supply of
credit and provision of remittance facilities.

Co-operative Banks provide limited banking products and are functionally specialists in
agriculture related products. However, co-operative banks now provide housing loans also.
UCBs provide working capital loans and term loan as well. The State Co-operative Banks
(SCBs), Central Co-operative Banks (CCBs) and Urban Co-operative Banks (UCBs) can
normally extend housing loans up to Rs 1 lakh to an individual. The scheduled UCBs, however,
can lend up to Rs 3 lakh for housing purposes. The UCBs can provide advances against shares
and debentures also. Co-operative bank do banking business mainly in the agriculture and rural
sector. However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan areas
also. The urban and non-agricultural business of these banks has grown over the years. The cooperative banks demonstrate a shift from rural to urban, while the commercial banks, from urban
to rural. Co-operative banks are perhaps the first government sponsored, government-supported,
and India government-subsidised financial agency in India. They get financial and other help
from the Reserve Bank of NABARD, central government and state governments. They
constitute the "most favoured" banking sector with risk of nationalisation. For commercial banks,
the Reserve Bank of India is lender of last resort, but co-operative banks it is the lender of first
resort which provides financial resources in the form of contribution to the initial capital
(through state government), working capital, refinance. Co-operative Banks belong to the money
market as well as to the capital market. Primary agricultural credit societies provide short term
and medium term loans. Land Development Banks (LDBs) provide long-term loans. SCBs and
CCBs also provide both short term and term loans. Co-operative banks are financial
intermediaries only partially. The sources of their funds (resources) are

central and state government,

the Reserve Bank of India and NABARD,

other co-operative institutions,

ownership funds and,

deposits or debenture issues.

It is interesting to note that intra- sectoral flows of funds are much greater in co-operative
banking than in commercial banking. Inter-bank deposits, borrowings, and credit from a
significant part of assets and liabilities of co-operative banks. This means that intra-sectoral
competition is absent and intra-sectoral integration is high for co- operative bank.

Some co-operative bank is scheduled banks, while others are non-scheduled banks. For instance,
SCBs and some UCBs are scheduled banks but other co-operative banks are non-scheduled
banks. At present, 28 SCBs and 11 UCBs with Demand and Time Liabilities over Rs 50 crore
each included in the Second Schedule of the Reserve Bank of India Act. Co-operative Banks are
subject to CRR and liquidity requirements as other scheduled and non-scheduled banks are.
However, their requirements are less than commercial banks.
Since 1966 the lending and deposit rate of commercial banks have been directly regulated by
the Reserve Bank of India. Although the Reserve Bank of India had power to regulate the rate
co-operative bank but this have been exercised only after 1979 in respect of non-agricultural
advances they were free to charge any rates at their discretion. Although the main aim of the cooperative bank is to provide cheaper credit to their members and not to maximize profits, they
may access the money market to improve their income so as to remain viable.

Cooperative banks in India financing rural areas under:

Farming

Cattle

Milk

Hatchery

Personal finance

Cooperative banks in India finance urban areas under:

Self-employment

Industries

Small scale units

Home finance

Consumer finance

State Co-operative Banks:

State Co-operative Banks are the apex of the three-tier

Co-operative structure dispensing mainly short/medium term credit. It is the principal society in
a State which is registered or deemed to be registered under the Government Societies Act, 1912,
or any other law for the time being in force in India relating to co-operative societies and the
primary object of which is the financing of the other societies in the State which are registered or
deemed to be registered. The State Co-operative Banks receive current and fixed deposits from
its constituent banks as well as savings, current and fixed deposits from the general public and
from local boards, other local authorities, etc. Further, they receive loans from the RBI and
NABARD. NABARD is the supervisory authority for State Co-operative Banks. The state
government contributes the certain portion of their working capital. The principal function of

State Co-operative Banks is to assist the Central Co-operative Banks and to balance excesses and
deficiencies in the resources of Central Co-operative Banks. It also acts as the balancing centre
for Central Co-operative Banks in the sense that surplus fund of some of these banks are made
available to other needy banks. It also serves the link between RBI and the Central Co-operative
Banks and Primary Agriculture Credit Societies. But the connection between the State Cooperative Banks and Primary Co-operative Societies is not direct. The Central Co-operative
Banks are acting as intermediaries between the State Co-operative Banks and Primary societies.

Central Co-operative Banks

Central Co-operative Banks form the middle tier of CoOperative credit institutions. These are the independent units in as much as the State Cooperative Banks have control to control or supervise their affairs. They are of two kinds i.e.
pure and mixed. Those banks are the membership of which is confined to co-operative
organizations only are included in pure type, while those banks the membership of which is
open to co-operative organizations as well as to the individuals are included in mixed type. The
pure type of Central Banks can be seen in Kerala, Bombay, Orissa, etc., while the mixed type can
be seen in Andhra Pradesh, Assam, Tamil Nadu, etc. The pure type of banks is based on strict

co-operative principles. However, the mixed type has an advantage over the pure type in so far as
they can draw their funds from the non-agricultural sector too.

The Central Co-operative Banks draw their funds from share capital, deposits,
loans from the State C-operative Banks and where State Banks do not exist from the RBI,
NABARD and commercial banks. NABARD is the supervisory authority for Central Cooperative Banks. Deposits constitute the major component of sources of funds, followed by
borrowings. The main function of Central Co-operative Banks is to finance the primary credit
societies. In addition they carry on Commercial banking activities like acceptance of deposits,
granting of loans and advances on the security of first class guilt-edged securities, fixed deposit
receipts, gold, bullion, goods and documents of title to goods, collection of bills, cheques, etc.,
safe custody of valuables and agency services. They are expected to attract deposits from the
general public. They also act as balancing centres, making available access funds of one
primary to another which is in need of them.
The central co-operative banks are located at the district headquarters or some prominent
town of the district. These banks have a few private individuals also who provide both finance
and management. The central co-operative banks have three sources of funds,

Their own share capital and reserves

Deposits from the public and

Loans from the state co-operative banks

Primary Agriculture Credit Societies:

Primary Agricultural Credit Societies is the foundation

of the co-operative credit system on which the superstructure of the short-term co-operative
credit system rests. It deals directly with individual farmers, provide short and medium term
credit, supply agricultural inputs, distribute consume articles and also arrange for the marketing
of products of its members through a c-operative marketing societies. These societies form the
basic unit of co-operative credit system in India. These voluntary societies based on principle of

one man one vote have posed challenge to exploitative practices of the village moneylenders.
The farmers and other small-time borrowers come in direct contact with these societies. The
success of the co-operative credit movement depends largely on the strength of these village
level societies.

The major objective of Primary agricultural Credit Societies is to serve the need
of weaker sections of these society. For this purpose, the people with limited means, particularly
with schedules castes and scheduled tribes, are encouraged to become members of these
societies. So, they must function effectively as well-managed and multi-purpose institutions
mobilizing the savings of the rural people and providing the package of services including credit,
supply of agricultural inputs and implements, consumer goods, marketing services and technical
guidance with focus on weaker sections. Government has promoted multi-purpose societies in
tribal areas for the benefit of people living there.

INDIAN BANKING SCENARIO 2010

The last decade has seen many positive developments in the Indian banking sector. The policy
makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related
government and financial sector regulatory entities, have made several notable efforts to improve
regulation in the sector. The sector now compares favourably with banking sectors in the region

on metrics like growth, profitability and non-performing assets (NPAs). A few banks have
established an outstanding track record of innovation, growth and value creation. This is
reflected in their market valuation. However, improved regulations, innovation, growth and
value creation in the sector remain limited to a small part of it. The cost of banking
intermediation in India is higher and bank penetration is far lower than in other markets. Indias
banking industry must strengthen itself significantly if it has to support the modern and vibrant
economy which India aspires to be.

Opportunities and Challenges For Players

The bar for what it means to be a successful player in the sector has been raised. Four challenges
must be addressed before success can be achieved.
First, the market is seeing discontinuous growth driven by new products and services that include
opportunities in credit cards, consumer finance and wealth management on the retail side, and in
fee-based income and investment banking on the wholesale banking side. These require new
skills in sales & marketing, credit and operations. Second, banks will no longer enjoy windfall
treasury gains that the decade-long secular decline in interest rates provided. This will expose the
weaker banks. Third, with increased interest in India, competition from foreign banks will only
intensify. Fourth, given the demographic shifts resulting from changes in age profile and
household income, consumers will increasingly demand enhanced institutional capabilities and
service levels from banks.

FUTURE OF INDIAN BANKING MARKET

The Indian banking market is growing at an astonishing rate, with assets expected to reach US$1
trillion by 2010. An expanding economy, middle class, and technological innovations are all
contributing to this growth.
A new Client report, Overview of Indian Banking Market, examines the impressive growth of
this industry, largely due to an expanding economy and growing consumer middle class in need

of financial services. India's economy is growing at a rate of 8%, with banking assets increasing
at a CAGR of 24% from 2001 to 2008, from US$374.4 billion in 2003 to US$616.15 billion in
2008. While public sector banks still dominate Indias banking industry, the private sector is
growing, with global players now actively competing with domestic banks.

CHANGES IN BANKING STRUCTURE

The opening up of the Indian banking sector to private players acted as 'the tipping
point' for this transformation. The deregulatory efforts prompted many financial institutions
(like HDFC and ICICI) and non-financial institutions enter the banking arena. With the entry
of private players into retail banking and with multi -nationals focusing on the
individual consumer in a big way, the banking system underwent a phenomenal change. Multichannel banking gained prominence. For the first time consumers got the choice of conducting

transactions either the traditional way (through the bank branch), through ATMs, the telephone
or through the Net. Technology played a key role in providing this multi-service platform. The
entry of private players combined with new RBI guidelines forced nationalized
banks to redefine their core banking strategy. And technology was central to this change.
Today banks have to look much beyond just providing a multi-channel service platform for its
customers. There are other pressing is sues that banks need to address in order to
chalk-out a road map for the future. Here are the top three concerns in the mind of every bank's
CEO.

Customer retention:
Customer retention is one of the main priorities for banks today. With the entry of new
players and multiple channels, customers have become more discerning and less
'loyal' to banks. Given the various options, it is now possible to open a new account
within minutes. Or for that matter shift accounts within a couple of hours. This makes it
imperative that banks provide best levels of service to ensure customer satisfaction.

Cost pressures:
Cost pressures come into play when banks are not able to afford the cost of a certain service or
initiative although they want to or need to have it in place. This is primarily because the cost
structure at the backend is not efficient enough to offer that kind of service to the marketplace.

Increased competition:
The entry of new players into the banking space is leading to increased competition. A recent
example would be of Kotak Mahindra Finance Limited (KMFL) a financial
services company focused on investment consulting, auto finance, insurance, etc
morphing into Kotak Bank. Many other such players are waiting on the sidelines. Technology
makes it easier for any company with the right channel infrastructure and money
reserves to get into banking. This has been one of the major reasons
b e h i n d t h i s k i n d o f competition from players who do not have a banking

background. Kotak Bank overcame the initial costs of setting up its own ATM
network by getting into a sharing agreement with UTI bank. New entrants with strategies
such as these make the banking game tough

IMPACT OF CHANGE IN BANKING STRUCTURE ON ECONOMY

Financial and Banking reforms

The last decade witnessed the maturity of India's financial markets. Since 1991, every
governments India took major steps in reforming the financial sector of the country. The
important achievements the following fields are discussed under separate heads:

Financial Markets
In the last decade, Private Sector Institutions played an important role. They grew
rapidly in commercial banking and asset management business. With the openings in the
insurance sector for these institutions, they started making debt in the market. Competition
among financial intermediaries gradually helped the interest rates to decline.
Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high
price while depositors had incentives to save. It was something between the nominal
rate of interest and the expected rate of inflation.

Regulators
The Finance Ministry continuously formulated major policies in the field of financial sector of
the country. The Government accepted the important role of regulators. The Reserve
Bank of India (RBI) has become more independent. Securities and Exchange Board of India
(SEBI) and the Insurance Regulatory and Development Authority (IRDA) became
important institutions. Opinions are also there that there should be a super -regulator
for the financial services sector instead of multiplicity of regulators.

Development Finance Institutions

Financial institution's access to SLR funds reduced. Now they have to approach the capital
market for debt and equity funds. Convertibility clause no longer obligatory for assistance to
corporate sanctioned by term-lending institutions. Capital adequacy norms extended to financial
institutions.

DFIs such as IDBI and ICICI have entered other segments of financial services such as
commercial banking, asset management and insurance through separate ventures. The move to
universal banking has started.

Non-banking finance companies

In the case of new NBFCs seeking registration with the RBI, the requirement of minimum net
owned funds, has been raised to Rs.2 crores. Until recently, the money market in India
was narrow and circumscribed by tight regulations over interest rates and
participants. The secondary market was underdeveloped and lacked liquidity.
Several measures have been initiated and include new money market instruments,
strengthening of existing instruments and setting up of the Discount and Finance House of India
(DFHI).T h e R B I c o n d u c t s i t s s a l e s o f d a t e d s e c u r i t i e s a n d t r e a s u r y b i l l s
t h r o u g h i t s o p e n m a r k e t operations (OMO) window. Primary dealers bid for these
securities and also trade in them. The DFHI is the principal agency for developing a secondary
market for money market instruments and Government of India treasury bills. The RBI has
introduced a liquidity adjustment facility (LAF) in which liquidity is injected through
reverse repo auctions and liquidity is sucked out through repo auctions. On account of
the substantial issue of government debt, the gilt - edged market occupies an
important position in the financial set- up. The Securities Trading Corporation of India (STCI),
which started operations in June 1994, has a mandate to develop the
s e c o n d a r y m a r k e t i n government securities. Long-term debt market. After bringing
some order to the equity market, the SEBI has now decided to concentrate on the
development of the debt market. Stamp duty is being withdrawn at the time of dematerialization
of debt instruments in order to encourage paperless trading.

The Capital Market

The number of shareholders in India is estimated at 25 million. However, only an estimated two
lakh persons actively trade in stocks. There has been a dramatic improvement in the country's
stock market trading infrastructure during the last few years. Expectations are that India will be

an attractive emerging market with tremendous potential. Unfortunately, during recent times the
stock markets have been constrained by some unsavoury developments, which have led to retail
investors deserting the stock markets.

Mutual Funds
The mutual funds industry is now regulated under the SEBI (Mutual Funds) Regulations,
1996and amendments thereto. With the issuance of SEBI guidelines, the industry had a
framework for the establishment of many more players, both Indian and foreign players. The
Unit Trust of India remains easily the biggest mutual fund controlling a corpus of
nearlyRs.70,000 crores, but its share is going down. The biggest shock to the
mutual fund industry during recent times was the insecurity generated in the minds of
investors regarding the US 64schemes. With the growth in the securities markets and tax
advantages granted for

in

mutual

funds

units,

mutual

funds

s t a r t e d b e c o m i n g p o p u l a r . The foreign owned AMCs are the ones which are

now setting the pace for the industry. They are introducing new products, setting new
standards of customer service, improving disclosure standards and experimenting with
new types of distribution. The insurance industry is the latest to be thrown open to
competition from the private sector i n c l u d i n g

foreign

p l a ye r s .

companies can onl y enter joint ventures with Indian

Foreign

companies, with

participation restricted to 26 per cent of equity. It is too early to conclude w h e t h e r

the erstwhile public sector monopolies will successfully be able to face
u p t o t h e competition posed by the new players, but it can be expected that the customer will
gain from improved service. The new players will need to bring in innovative products as well as
fresh ideas on marketing and distribution, in order to improve the low per capita
insurance coverage. Good regulation will, of course, be essential.

Deregulation of Banking System

Prudential norms were introduced for income recognition, asset classification, provisioning for
delinquent loans and for capital adequacy. In order to reach the stipulated capital
adequacy norms, substantial capital were provided by the Government to PSBs. Government
pre-emption of banks' resources through statutory liquidity ratio (SLR) and cash reserve ratio
(CRR) brought down in steps. Interest rates on the deposits and lending sides
almost

entirely were deregulated.

New

private

sector

banks

allowed

p r o m o t i n g a n d e n c o u r a g i n g c o m p e t i t i o n . P S B s w e r e encouraged to approach the

public for raising resources. Recovery of debts due to banks and the Financial Institutions
Act, 1993 was passed, and special recovery tribunals set up to facilitate quicker
recovery of loan arrears. B a n k l e n d i n g n o r m s l i b e r a l i z e d a n d a l o a n s y s t e m
t o e n s u r e b e t t e r c o n t r o l o v e r c r e d i t introduced. Banks asked to set up
asset liability management (ALM) systems. RBI guidelines issued for risk management
systems in banks encompassing credit, market and operational risks. A credit information bureau
being established to identify bad risks. Derivative products such as forward rate agreements
(FRAs) and interest rate swaps (IRSs) introduced.

Capital Market Developments

The Capital Issues (Control) Act, 1947, repealed, office of the Controller of Capital Issues was
abolished and the initial share pricing were decontrolled. SEBI, the capital market regulator was
established in 1992.
Foreign institutional investors (FIIs) were allowed to invest in Indian capital markets after
registration with the SEBI. Indian companies were permitted to access international capital
markets through euro issues. The National Stock Exchange (NSE), with na tionwide
stock trading and electronic display, clearing and settlement facilities was established.
Several local stock exchanges changed over from floor based trading to screen based trading.

Private Mutual Funds Permitted

The Depositories Act had given a legal framework for the establishment of depositories to record
ownership deals in book entry form. Dematerialization of stocks encouraged paperless trading.
Companies were required to disclose all material facts and specific risk factors associated with
their projects while making public issues.
To reduce the cost of issue, underwriting by the issuer were made optional, subject to
conditions. The practice of making preferential allotment of shares at prices unrelated to the
prevailing market prices stopped and fresh guidelines were issued by SEBI.
SEBI reconstituted governing boards of the stock exchanges, introduced capital adequacy norms
for brokers, and made rules for making client or broker relationship more transparent which
included separation of client and broker accounts.

Buy Back Of Shares Allowed

The SEBI started insisting on greater corporate disclosures. Steps were
taken to improve c o r p o r a t e g o v e r n a n c e b a s e d o n t h e r e p o r t
o f a c o m m i t t e e . SEBI issued detailed employee stock option scheme and employee
stock purchase scheme for listed companies. Standard denomination for equity shares of
Rs. 10 and Rs. 100 were abolished. Companies given the freedom to issue dematerialized
shares in any denomination. Derivatives trading starts with index options and futures. A system
of rolling settlements introduced. SEBI empowered to register and regulate venture capital funds.
The SEBI (Credit Rating Agencies) Regulations, 1999 issued for regulating new
credit rating agencies as well as introducing a code of conduct for all credit rating
agencies operating in India.

CONCLUSIONS AND SUGGESTIONS

The Indian banking can be broadly categorized into nationalized (government owned),
private banks and specialized banking institutions. The Reserve Bank of India is the apex
institution in the Indian banking system & acts a regulator and a centralized body for
monitoring any discrepancies and shortcoming in the system.

Before Nationalisation, banks in the beginning faced severs financial crisis. During and after
World War I, 87 banks were liquidated. Development of banks in India was characterized by
bank failures. After Independence, the Indian banking underwent a thorough and moral
change. The government of India announced Banking Regulations Act in 1949 to
consolidate and regulate the banking growth in India

After Nationalisation, however, growth of banking during the first 3 plan periods resembles
that of capitalist growth. There was need for stimulating the savings and investment to meet
the growing demand for bank credit for economic development. Therefore government
focused on social banking than capitalistic banking. Hence, in February 1961,
announcement of 14 banks was made for the purpose of nationalisation. Since then, the
performance of banking has been remarkable in the many aspects such as branch expansion,
expansion of business, priority sector advances, development and spread of banking.

Currently, banking system has entered into the third phase of development which is
characterized by innovation & diversification in order to meet new challenges. New services
have been started such as merchant banking, investment banking, housing finance,
investment banking, internet banking, telebanking, branch banking, electronic money
transfers, SMS banking, mobile banking, proxy banking, plastic money such as credit cards,
ATM cards, debit cards, smart cards, etc.

Banks have indulged in activities such as service area approach, mutual funds, housing
finance, factoring services, commercial papers, certificate of deposit, stock invest and other
money and capital market instruments.

The unleashing of products and services through the net has galvanized players at all levels
of the banking and financial institutions market grid to look anew at their existing portfolio
offering. Banks have been benefited a lot with the internet and information technology. As a
result banks have become more efficient and cost-effective. Indian nationalized banks
continue to be the major lenders in the economy due to their sheer size and penetrative
networks which assures them high deposit mobilization. However there is a need to create
more awareness regarding social development. There is need for taking decisive actions .

Industry estimates indicate that out of 274 commercial banks operating in India, 223 banks
are in the public sector & 51 are in the private sector. The private sector bank grid also
includes 24 foreign banks.

Indian banking market is growing at an astonishing rate, with assets expected to reach US$1
trillion by 2010. The Indian banking industry is in the middle of an IT revolution, focusing
on the expansion of retail and rural banking. Players are becoming increasingly customercentric in their approach, which has resulted in innovative methods of offering new banking
products & services. Banks are now realizing the importance of being a big player & are
beginning to focus their attention on mergers & acquisitions to take advantage of economies
of scale.

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