Bank Challenges and Opportunities PDF

Opportunities and Challenges Of Indian Banks
SUBMITTED TO:
UNIVERSTITY OF MUMBAI
PROJECT ON:
CHALLENGES AND OPPORTUNITIES OF
INDIAN BANKS
SUBMITTED BY:
CHANDNI PRAVIN BAROT
T.Y.B.Com (Financial Markets)
2014-15
UNDER THE GUIDANCE OF:

Prof. SUCHETA PAWAR
P.T.V.As
M.L.DAHANUKAR COLLEGE OF
COMMERCE
VILE PARLE (EAST), MUMBAI
CERTIFICATE
This is to certify that Miss Chandni Pravin Barot student of

T.Y.B.Com (Financial markets) Semester VI of M.L. Dahanukar
college of commerce has successfully completed the project on
Challenges and Opportunities of Indian Bank under the
guidance of Prof. Sucheta Pawar for the academic year 2014-15.
Course co-ordinator
(Prof. Sucheta Pawar)
Principal
College seal
Project guide
(Prof. Sucheta Pawar)
External examiner
DECLARATION
Chandni Pravin Barot of T.Y.B.Com(Financial markets) hereby

declare that In have successfully completed the project on
Challenges and Opportunities of Indian Bank under the
guidance of Prof. Sucheta Pawar for the academic year 2014-15 as
a part of the degree of Bachelor of Commerce (Financial markets).
The information provided in the project is true and original to the
best of my knowledge.
Signature of student
(Chandni Pravin Barot)
ACKNOWLEDGEMENT
To express my gratitude to all those I am highly grateful to is

difficult because they are so numerous and the depth is so
enormous. Still I take the opportunity to acknowledge the
following as being idealistic channels and fresh dimensions in the
completion of the project.
I take this opportunity to thank the University of Mumbai for
giving me the chance to do this project.
I take this opportunity to thank our Co-ordinator Prof. Mrs.
Sucheta Pawar, for her moral support and guidance.
I would like to express my sincere gratitude towards my project
guide Prof. Sucheta pawar whose constant guidance and care
made the project successful.
I would like to thank my college library staff, for having provided
various reference books, and magazines related to my project.
Lastly, I would like to express my heartfelt gratitude to my family,
especially my mother, peers and seniors whose patience and
guidance made this project possible.
EXECUTIVE SUMMARY
Objective of Study
The objectives to choose this topic for study were:
To understand the working of the Opportunities and Challenges of Indian
Banking sector and its impact on the Indian economy.
To gain in-depth knowledge with regards to the technicalities of the Banking
System.
To evaluate and understand its impact on the economy as well as the impact
of global cues on the global and Indian environment.
Extent of Coverage
The existing banking structure in India, evolved over several decades, is
elaborate and has been serving the credit and banking services needs of the
economy. There are multiple layers in today's banking structure to cater to the
specific and varied requirements of different customers and borrowers. The
banking structure played a major role in the mobilization of savings and
promoting economic development. In the post financial sector reforms (1991)
phase, the performance and strength of the banking structure improved
perceptibly. Financial soundness of the Indian commercial banking system
compares favorably with most of the advanced and emerging countries.
Since 1991, the size of the Indian economy in terms of GDP at market prices
has increased by almost fifteen times, whereas the household financial savings
have expanded by sixteen times and the gross domestic savings by almost
seventeen times during the same period. The economic structure diversified
substantially and the economy has been opening up and getting increasingly
integrated with the global economy. As the real economy is dynamic, it is
imperative that the banking system is flexible and competitive to cope with
multiple objectives and demands made on it by various constituents of the
economy. From the financial inclusion perspective too, there is a pressing
need to extend the reach of financial services to the excluded segments of the
society. Viewed from this perspective, today's banking structure in India has
both the need and scope for further growth in size and strength.
INDEX
Serial No.
Content
Page No.
Introduction
General scenario in India
10
Product Innovations by Indian
20
Banks
4
Challenges of Indian Banks
24
Opportunities of Indian Banks
29
Recent Changes in RBI Policy
31
Non Performing Asset
33
Procedure for NPA
40
Identification and Resolution

in India
9
Conclusion
44
10
Bibliography
45
Introduction
In recent time, we has witnessed that the World Economy is passing through
some intricate circumstances as bankruptcy of banking & financial
institutions, debt crisis in major economies of the world and euro zone crisis.
The scenario has become very uncertain causing recession in major economies
like US and Europe. This poses some serious questions about the survival,
growth and maintaining the sustainable development.
However, amidst all this turmoil Indias Banking Industry has been amongst
the few to maintain resilience. The tempo of development for the Indian
banking industry has been remarkable over the past decade. It is evident from
the higher pace of credit expansion; expanding profitability and productivity
similar to banks in developed markets, lower incidence of non- performing
assets and focus on financial inclusion have contributed to making Indian
banking vibrant and strong. Indian banks have begun to revise their growth
approach and re-evaluate the prospects on hand to keep the economy rolling.
In this project an attempt has been made to review various opportunities and
challenges which are likely to be faced by Indian banking industry.
In the early 1990s the Indian economy, which was hitherto protected, saw the
forces of liberalization, privatization and globalization being unleashed in the
business environment. Earlier, till the nineties, the insulated economy
provided comforts to public sector banks in areas of liquidity management
while in an administered interest regime the discretion of management being
limited, the risk parameters in these spheres were hazy and not quantifiable.
Unfortunately the public sector banks, which had a useful role to play earlier
on, faced deteriorating performance during that period. In fact, the
nationalized sector had outlived its utility. The public sector banks became
burdened with unwelcome legacies; customer service faced casualty; need for
computerization along with networking among the vast branch network was
Urgently felt. At the backdrop of all these, the first Narasimham Committee on
Financial Sector Reforms put forward its recommendations. These
recommendations have given public sector banks a new lease of life.
Contemporary to all these developments, the Indian Banking sector saw the
advent of a new generation of banks the private sector banks. The private
banking in that context was viewed as a brand new approach as these banks
were able to bypass the structural and other shortcomings of the public sector.
A few of the new ones that were promoted by the institutions such as the IDBI
and ICICI did establish themselves (although their size and scale of business
operations varied) and survived the market upheavals of the 1990. Apart from
other factors, the professional approach of some of the new generation private
sector banks helped them stay clear of the pitfalls associated with public sector
banks.
However, in less than a decade after the advent of these new generation banks
and with the initiation of financial sector reforms, commercial banks (even
successful ones) are being forced to change organisationally. These changes
are deemed necessary in the light of the increased competition in the sector
not 105 only among domestic commercial banks and non banking financial
companies but also from the foreign counterparts having operational presence
in India.
Moreover, in view of increased competition, the structure of Indian banking
system is expected to undergo a transformation and the main drivers of which
will be consolidation, convergence, and technology (Kamath, Kohli, Shenoy,
Kumar, Nayak&Kuppuswamy, 2003). The changes in structure would also
have its impact on the banking strategy and the focus of the banks would be to
reduce overcapacity in the Indian banking system through consolidation. Apart
from consolidation in the banking sector, banks are expected to grow out of
their narrow focus on banking services to become financial service providers
offering a variety of services under one-roof. Thus, the one-stop-shop
approach would enable them to provide, besides banking services, a host of
other financial products, both to the retail as well as corporate customers.
GENERAL BANKING SCENARIO IN INDIA

The general banking scenario in India has become very dynamic now-a-days.
Before preliberalization era, the picture of Indian Banking was completely
different as the Government of India initiated measures to play an active role
in the economic life of the nation, and the Industrial Policy Resolution adopted
by the government in 1948 envisaged a mixed economy. This resulted into
greater involvement of the state in different segments of the economy
including banking and finance.
The Reserve Bank of India was nationalized on January 1, 1949 under the
terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.
In 1949, the Banking Regulation Act was enacted which empowered the
Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in
India." The Banking Regulation Act also provided that no new bank or branch
of an existing bank could be opened without a license from the RBI, and no
two banks could have common directors.
By the 1960s, the Indian banking industry had become an important tool to
facilitate the speed of development of the Indian economy. The Government
of India issued an ordinance and nationalized the 14 largest commercial banks
with effect from the midnight of July 19, 1969. A second dose of
nationalization of 6 more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of
credit delivery. With the second dose of nationalization, the Government of
India controlled around 91% of the banking business of India. Later on, in the
year 1993, the government merged New Bank of India with Punjab National
Bank. It was the only merger between nationalized banks and resulted in the
reduction of the number of nationalized banks from 20 to 19. After this, until
the 1990s, the nationalized banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.
In the early 1990s, the then Narasimha Rao government embarked on a policy
of liberalization, licensing a small number of private banks.
10
The next stage for the Indian banking has been set up with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign
Investors in banks may be given voting rights which could exceed the present
cap of 10%, at present it has gone up to 74% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till
this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go
home at 4) of functioning. The new wave ushered in a modern outlook and
tech-savvy methods of working for traditional banks. All this led to the retail
boom in India. People not just demanded more from their banks but also
received more.
The statement in Washington on unveiling major banking reforms that will
entail allowing foreign banks to take over domestic banks has rightly raised
heckles across the country. Bharatiya Janata Party (BJP), the main opposition
party, has come out with a strong statement to say that this goes contrary to the
Centres stand that its policy of nationalization of banks will not be reversed.
Are we importing a financial crisis? The decade-old experience of foreign
banks in India is that they only compete with Indian banks in the creamy
business segment. Their contribution as far as financial inclusion is concerned
is very minimal and below expectations. Even on the concept of new private
banks the issue needs to be debated.
The All-India Bank Employees Association states that they strongly oppose
proposals aimed at take overs as they are against our countrys interest. At
present 80% of the banking sector in India is under the public sector, 15%
under private sector and only 5% are foreign banks. The foreign banks have
never contributed to Indias economic growth and development they are
only interested in profits Some of these have been involved in various
scams in the past and their licences ought to have been cancelled. The
experience of the US and other countries shows that liberalized banking has
led to crises and collapse of banks. In the US alone hundreds of banks have
shut down and the US Government had to bale out the bigger banks.
Over the years, our banking has been robust enough to withstand the Great
Depression, the Far East crisis, the Mexican crisis, and the 2008 sub-prime
meltdown. How much the nationalization of major banks contributed to this is
still a matter of debate, not many are willing to concede that the great state
bailout of the US, British and Irish banks is indeed Backdoor Nationalization,
giving rise to the lesson that governments will not let banks die and tax
payers monies will be used to rescue them from their greed. Comforted by
11
this, banks all over continue to innovate financially the ways to transform
themselves from traditional deposit-taking retail undertaking, solely guided by
their responsibility to their main stakeholders, the depositors and as facilitators
of credit for trade and industry and underprivileged through inclusive growth,
into universal banks.
In the US, Lehman Brothers aggressive loans to sub-prime borrowers became
stressed assets and required a massive bailout by the state. JP Morgan agreed
to pay the UK and US regulators $920m for the $6.2b London Whale trading
fraud. HSBC, Britains biggest bank, was accused by the US Senate for
abetting money laundering by drug cartels and gun runners running into
billions.
In 2012, Barclays was fined for LIBOR manipulation and the Swiss UBS was
hauled up for tax evasion. The big banks in the UK and Switzerland are mired
in major scandals with the US Treasury and regulators imposing massive
penalties running into billions and jail terms for violations for offences as bad
as cross border money laundering. In the latest money laundering sting
operations in India the foreign banks were also caught with their pants down.
A Deutsche Bank staff e-mail in 2007, that is cited in Unitechs court
documents filed in the London court on the first day of appeal hearing where
the Indian property firm Unitech Ltd is seeking invalidation of the interest-rate
swap manipulation of the benchmark interest rates with Deutsche Bank
because of alleged rigging of the LIBOR is quite explosive. A similar case is
being heard between Guardian Care Homes filed against Barclays Plc. Both
Unitech and Guardian state that would not have signed the swap deals with the
banks had they been aware of the LIBOR-related misconduct that became a
scandal when the London-based Barclays was fined by the UK and US
regulators last year. The global probes are on into the banks attempts at
manipulation of the benchmark for profit that resulted into fines and
settlements totalling $2.6bn for Barclays, Royal Bank of Scotland Group Plc.
12
The current Indian scenario

Indians, traditionally have inherited a conservative philosophy that is at odds
with that propounded by global conglomerates fired by the self-serving urge of
super-profits as defining their reasons for existence untouched by the real
economic niceties. Basic regulation is a must to ensure that the system doesnt
collapsethere is fiduciary responsibility.
Increasing the role for the private sector in contemporary

bankingpros and cons
Over the years, Indian banking sector has seen Morarjibhais Social Control to
Indiras two phases of outright nationalization of 14+8 banks, later on
Narashima Raos post-liberalisation partial disinvestment and now the invite
into mainstream banking of private players and NBFCs (non-banking finance
companies), who are the new kids in the bloc.
Our financial mandrins do not seem to be at a loss on in how they really want
to go about major banking sector reforms. At one point in time, P
Chidambaram, the finance minister, was seen to be gaga to strongly campaign
for the merger of , big and small, to make them global competitive because our
biggest banking behemoth SBI still does not stand high in the pecking order of
the worlds TOP 25 commercial banks. Our public sector banks (PSBs), as a
group, continue to enjoy a dominant market share of 72%. The finance
minister backed by the prime minister have suddenly started ardently
espousing with great gusto plans to set up more private banks by business
houses. He has got a very reluctant then RBI Governor to draw up the
Guidelines.
This move has not found favour with 30 member multi-party Parliamentary
Committee on Finance headed by Yashwant Sinha, a former union finance
minister. The panel unanimously adopted the report on September 27, 2013. It
now emerges that Rahul Gandhi and six other Congress MPs (Members of
Parliament) in the committee have also lent their weight to reverse the
13
Government proposal, though in fact they have not appended any note of their
dissent. This happened on a day Rahul Gandhi stunned the government by
condemning
the
Ordinance
to
protect
convicted
lawmakers
from
disqualification by coming out with a strong statement - I tell you my opinion

on the Ordinance is: That is complete nonsense. It needs to be torn out and
thrown away. It is my opinion. Perhaps hell say the same of the finance
ministers move too!
This Parliamentary Report very rightly urges the government to avoid a
recurrence of the pre-nationalization situation of managements of private
banks extending undue favours to their own industry owners Given such a
background, the committee is apprehensive that industrial/business houses
may not be geared to achieve the national objective of financial inclusion and
priority sector lending. It also rightly suggests that industry and banking be
kept at arms lengths because banking is a highly leveraged business involving
public money and public welfare. It also questioned the RBI criteria of sound
credentials and integrity as being highly subjective, ambiguous and openended. The numbers put out by committee are extremely revealing Out of
the 12 new banks set up after the 1993 and 2001 RBI guidelines one with
serious erosion of net worth had to compulsorily merged with a PSB, two with
poor governance amalgamated with other private banks and one started by an
individual has survived, albeit with muted growth. This it ought to raise
eyebrows. It is said that only 2,699 or just 17% of the 15,630 of their branches
are located in rural areas whereas they are competing cheek-by-jowl with each
other in Mumbai, in some cases with more than one branch of the same private
within one kilometre radius.
Union Finance Minister P Chidambaram, speaking at a function at Bengaluru
on 5 October 2013 said, Banks are meant to serve largely the poor and
middle class individuals who need banks more than the corporates...For long
we have harboured the myth that banks are meant to provide money to rich
people and to corporates. Nowhere in the world, other than India, do
corporates come to banks for working capitalEach of the new banks should
14
aim to serve the people differently and not try to become clones of existing
banks. When we are aping all kinds of Western practices the finance minister
should instruct the RBI to instruct banks not to extend working facilities.
Banks cringe on offering higher rate for the hard earned savings of the elders,
disabled, widows and charitable trusts; but in trying to woo rich
and
corporates offer higher rates for what they term as Bulk deposits that now
Rs1+ crore which was Rs15+ lakh earlier. Will the Ministry of Finance insist
that the new banks go by what the finance minister says?
Not to outdone, the RBI has fielded its executive director, B Mahapatra to
argue its stand on allowing private sector operators. He says that the
corporates with NBFCs, insurance companies and mutual funds, are already
competing with the banks both on the assets and liabilities side. He claims that
they have a long history of building and nurturing new businesses in highly
regulated sectors like telcom, power, airports, highways, dams and ports. RBI
feels that it may not lead to undue concentration of control of banking
activities as Indian banking is largely dominated by the PSBs and believes that
financial inclusion being the overall objective of the present bank licensing
policy that business houses with deep pockets can possibly fill in the gap
because financial inclusion is an extremely highly capital and technology
project. RBI further envisages that the new banks will usher newer business
models, products, processes, and technologies, higher levels of productivity,
efficiency and better customer services. It is expected that the existing banks
will re-orient their businesses to withstand competition or risk customers
moving over to the new banks.
Bakhtiar Dadabhoy, in his recently published Barons of Banking (Random
House), traces the history of banking in India to the indigenous bankers who
created in 1860 the practice of hundis that exist even today. Proper banking
began with the Bank of Bombay (1840), Bank of Madras (1843) and Bank of
Calcutta (1860) that were amalgamated to become the Imperial Bank of India
in 1921; post-independence it became the State bank of India (SBI). Though
15
joint stock banks were first permitted in 1860, many of todays big banks
arrived during 1906-13. The present day Canara Bank and Corporation Bank
were incorporated in Mangalore and Udupi respectively, in 1906.
I am indeed privileged to hail from the district of South Kanara, at the
southern most tip of the state of Karnataka, which was once considered the
most banked district in the country, if not all over the world. This district has
been the cradle of four of Indias largest banks in the public
sector viz Corporation Bank, Canara Bank, Vijaya Bank and Syndicate Bank;
besides at one time also of a plethora of twenty two smaller banks that
ultimately merged with their big brothers over a period of time. All told they
made for a high network of brick and mortar branches in every hamlet dotting
the district spreading banking literacy down the line. None of the founding
fathers of these banks were any finance or banking wizardsone was a trader,
another a lawyer and the third a medical doctor, all making for very successful
bankers. Bankers hailing from this district have also made it from the bottom
rising to the very top echelons as chief managing directors (CMDs) of banking
hierarchy both in the public and private sectors and the RBI too, even to this
day. BenegalNarshing Rao was a RBI governor, KishoriUdeshi and Leedhar
were deputy governors. More are CMDs of PSBs today.
Banking then
In the good old days, when times were good, banking then was a cakewalk.
Both the householders and businessmen wanted someone known to them to
take care of their monies and it was a friendly neighbourhood banker who was
considered trustworthy to discharge this sacred duty. The hallmark remained
the inbuilt safety and security on the credibility of the founders.
The banks began with small capital and collected deposits small and large.
Syndicate Bank were pioneers in pygmy deposits collected by highly mobile
deposit collectors roaming from door to door of individuals and cash counters
of Udupi hotels to collect amounts as small as an anna each day. It continues
to date!
The hallmark remained the inbuilt safety and security on the
16
credibility of the founders.

In those days, funds were available very cheap as the depositors were paid
minimal interest at fixed rock bottom rates, because they had nowhere else to
go; there was no competition, besides there were no alternative investment
opportunities and above all it was convenient for the depositor as the staff
attending to them at the branches were invariably friendly neighbourhood
faces.
The bankers have now started to take retail depositors for granted and are cold
shouldering them by preferring to target the big high net worth individuals
the NRIs and businesses for bulk deposits. The recent electronic media string
operations on tape have shown how banks across the both in the public and
private sectors, have thrown caution to the winds in trying to mobilise deposits
including carrying electronic note counters to depositors homes to cart high
denomination currency notes for deposits. The RBI has levied massive
penalties that each bank coughed up without demur!
Now the depositors have woken up to the fact that they are being taken for a
jolly good ride for the perceived safety realizing that deposits dont offer
interest rates that manage to beat inflation. The wise from among the
depositing turned to seek better real rates of return by switching to other
investment destinations in the form of investments in shares, debentures,
bonds, gold, real estate, chit funds and even Ponzi schemes.
Banking today
The banks that initially advanced the monies to individuals at much higher
market rates, initially to trade and business later graduated to lending to
corporates for industrial finance against tangible collaterals. They then moved
into higher interest lendings for housing, automobile, education and personal
loans.
17
While the personal loans are generally small in numbers and values, it is the
larger trade and industrial borrowers who call the shots when they encounter
serious erosion in their debt-servicing capabilities due to down slide in sales,
rising input costs, sluggish profits, delayed recoveries, build up of inventories
and hiccups in delayed project start-upsin trying to cut back on debt end up
in taking on more loans just to keep going and this result in greater borrowings
and interest burdens forcing the lending bankers to jump through the loop just
to recover their advances. It is rightly said that if you borrow a few thousands
from the bank and fail to repay you are in serious trouble, but if you borrow in
crores, the bank comes in trouble, it will then keep chasing you to implore you
to settle by agreeing to reschedule your instalments, by deferring payments,
waive interest and the like, adopting the choice between devil and the deep
sea.
A Business Line 2012-13 analysis of 500 leading corporates with leverage,
reports that their debts increased by 17% when their net worth grew only by
9% with half seeing their leverage worsening with many sporting debt to
Equity ratio of eight as against the accepted/ideal of two. Large borrowers
thrive in borrowing more and more believing they are too big to fail a
la Kingfisher Airlines which has got its debts restructured on its own terms
including forcing the banks to convert its debts into equity at absurd
valuations at high premium even though the company has been in the red from
day one! The promoters go on with their high profile life despite defaulting in
their dues to employees, vendors, suppliers, bankers and tax authorities.
Our banks today are estimated to be sitting on Rs2.50 lakh crore
of restructured loanson top of Rs1,60,000 crore non-performing assets.
Distressed accounts are conservatively put at 10% of their advances portfolio.
With the worsening conditions in the West, like the sub-prime crisis and the
bankruptcy up of big name banks making it difficult to lend to their domestic
borrowers banks there have turned to lending abroad at lower rates. Indians
now find it cheaper to raise funds overseas by way of external commercial
18
borrowings (ECBs). But there is the inherent exchange fluctuation risk

involved.
RBIs new Avatar as the banking regulator

In the good old days the RBI played the role of a sombre silent Big Daddy,
as a supervisor maintaining monetary oversight by acting as Banker to the
Banks. It is rightly now said: If collecting deposits and loaning it to the
credit-worthy has become a tricky endeavour, the RBI as regulator has not
been making bankers lives easier either, it has co-opted the banking system as
its unwilling partner in trying to fix everything that is wrong with the Indian
economy.
The RBI ought not to have permitted the commercial banks to hawk third
party products like marketing insurance and mutual fund products as well as
gold that the banks are simply not sufficiently geared for that and staff are not
qualified to do. RBI by allowing them to move away from their core banking
activity of collecting deposits and making advances has compounded the
issue. This has brought about a serious fall in monitoring of advances leading
to mounting stressed borrowings.
Today, it is noticed that there is a shoddy mix up of RBIs role with that of the
central government in drawing lines as to what is fiscal and what is monetary
and who has to do what! In an attempt, to arrest the depreciation of the rupee,
believing bank money is fuelling currency fluctuations, RBI sought to squeeze
every drop of perceived excess liquidity from the banking system bringing
about a sudden spurt in overnight rates to escalate their costs and aggravate
the bad loans.
19
Product Innovations by Indian Banks

The term Innovation means to make something new Banks no longer
restricted themselves to traditional banking activities, but explored newer
avenues to increase business and capture new market.
Types of Innovative Banking

1. E-BANKING
Enables people to carry out most of their banking transaction using a safe
website which is operated by their respected bank.
Advantage
Faster & more convenient transaction

No longer required to wait in long queues
Opening of account simple & easy
Apply for bank loan
Cost effective for banker side
Fund transfer become faster & convenient
Stock trading, exchanging bonds & otherinvestment
2. CORE BANKING
Depositing and lending of money

Core banking solution
Knowing customers needs
3.CORPORATE BANKING
Financial services to large corporate & MNCs
Services:
Overdraft facility
Domestic and international payments
Funding
Channel financing
Letters of guarantee
Working capital facility for domestic & international trade
4. INVESTMENT BANKING
Creating funds and wealth of clients

Fund creating in two ways :
Corporate Finance
M & As
20
Professional sales person providing advice on stock trading
5. RURAL BANKING
It provides & regulates credit services for the promotion & development of
rural sector mainly agriculture, SSI, cottage and village industries, handicrafts
and many more.
Examples Of Regional Rural Banks are NABARD, HARYANA
STATE COPERATIVE APEX BANK LIMITED, SYNDICATE
BANK, UNITED BANK OF INDIA
KIOSK BANKING
6. NRI BANKING
This facility is designed for diverse banking requirements of the vast nri
population spread across the globe.
NRE (Non Resident External Account)
NRO (Non Resident Ordinary Account)
FCNR (Foreign Currency Non Resident Account)
7.RETAIL BANKING
It refers to banking in which banks execute transaction directly with

individual , rather than corporate banks.
It is also known as One stop shop.
Services:
Saving and checking accounts

Mortgage
Housing Finance
Auto Finance
Consumer Durable Loans
Personal Loans
Educational Loans
Credit Cards
Types of products and services

1.TOTAL BRANCH AUTOMATION
Speed up bank transactions and less error

More customer friendly and flexible
Towards paperless transactions
21
2. ANY BRANCH BANKING

It is a facility for customers to operate their account from any of the same
banks network branch
Facilities available:
Cash withdrawal & Cash deposits
Account statement
Facility to issue multi- city cheques
Fund transfer
Balance enquiry
Purchase of demand drafts pay order
Repayment of loan account
3. DEMAT SERVICES
It offers secure and convenient way to keep track your securities and
investment over a period of time without the hassle of handling
physical documents
It provide facility of online trading
4. MICROFINANCE
It refers to a movement that envisions a world in which low income

households have permanent access to a range of high quality financial
service to finance their income producing activities, build assets,
stabilize consumption and protect against risks.
5. PLASTIC MONEY
Plastic money are the alternative to the cash or standard money

Convenient to carry
Generic term for all types of bank cards, debit cads, credit cards, smart
cards
6. MOBILE BANKING
The account that can travel with you.

Facility one can bank from anywhere, at any time, & in any condition
or any howFacilities are:
Balance enquiry
Fund transfer
Cheque book request,etc
22
Type of Electronic Systems

1. ATM
It stands for Automatic teller machine

In simple words, it is simple to use self service solution
Value added services like recharge their mobile, pay the utilty bills,
mutual fund transactions, etc
2. RTGS
It stands for Real time gross settlement system

It is a fund transfer mechanism where transfer of money takes place
from one bank to another on a real time and on gross basis.
This is the fastest possible money transfer system through the banking
channel.
It is different from EFT and NEFT
It is primarily for large volume transaction
The time taken for effecting funds transfer from one account to another
is normally 2 hours
3. FINACLE
This system provides the holistic and integrated transformation approach,
complete with solutions and services
Finacle solutions addresses the requirements of retail, corporate and universal
banking worldwide like
Core banking solution
E-banking solution
Mobile banking solution
Wealth management
CRM requirements, etc
23
Challenges of Indian banks

Developing countries like India, still has a huge number of people who do not
have access to banking services due to scattered and fragmented locations. But
if we talk about those people who are availing banking services, their
expectations are raising as the level of services are increasing due to the
emergence of Information Technology and competition. Since, foreign banks
are playing in Indian market, the number of services offered has increased and
banks have laid emphasis on meeting the customer expectations.
Now, the existing situation has created various challenges and opportunity for
Indian Commercial Banks. In order to encounter the general scenario of
banking industry we need to understand the challenges and opportunities lying
with banking industry of India.
Rural Market
Banking in India is generally fairly mature in terms of supply, product range
and reach, even though reach in rural India still remains a challenge for the
private sector and foreign banks. Interms 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.
Consequently, we have seen some examples of inorganic growth strategy
adopted by some nationalized and private sector banks to face upcoming
challenges in banking industry of India.
For example recently, ICICI Bank Ltd. merged the Bank of Rajasthan Ltd. in
order to increase its reach in rural market and market share significantly. State
Bank of India (SBI), the largest public sector bank in India has also adopted
the same strategy to retain its position. It is in the process of acquiring its
associates. Recently, SBI has merged State Bank of Indore in 2010.
Management of Risks
The growing competition increases the competitiveness among banks. But,
existing global banking scenario is seriously posing threats for Indian banking
industry. We have already witnessed the bankruptcy of some foreign banks.
According to Shrieves (1992), there is a positive association between changes
in risk and capital. Research studied the large sample of banks and results
reveal that regulation was partially effective during the period covered.
Moreover, it was concluded that changes in bank capital over the period
studied was risk-based.
Wollaston, (2001) studied the Merger and acquisition activity among financial
firms. The author focused bank supervisors in context with success of
mergers, risk management, financial system stability and market liquidity. The
study concluded that large institutions are able to maintain superior level of
risk management.Al-Tamimi and Al-Mazrooei (2007) examined the risk
management practices and techniques indealing with different types of risk.
24
Moreover, they compared risk management practices between the two sets of
banks. The study found the three most important types of risk i.e. commercial
banks foreign exchange risk, followed by credit risk, and operating risk.
Sensarma and Jayadev (2009) used selected accounting ratios as risk
management variables and attempted to gauge the overall risk management
capability of banks. They used multivariate statistical techniques to summarize
these accounting ratios. Moreover, the paper also analyzed the impact of these
risk management scores on stock returns through regression analysis.
Researchers found that Indian banks' risk management capabilities have been
improving overtime. Returns on the banks' stocks appeared to be sensitive to
risk management capability of banks. The study suggest that banks want to
enhance shareholder wealth will have to focus on successfully managing
various risks.
Growth of Banking
The empirical study indicated that, after an initial adjustment phase, the
Indian banking industry experienced sustained productivity growth, which was
driven mainly by technological progress. Banks' ownership structure does not
seem to matter as much as increased competition in TFP growth. Foreign
banks appear to have acted as technological innovators when competition
increased, which added to the competitive pressure in the banking market.
Finally, our results also indicate an increase in risk-taking behavior, along
with the whole deregulation process
It was found in the study of Goyal and Joshi that small and local banks face
difficulty in bearing the impact of global economy therefore, they need
support and it is one of the reasons for merger. Some private banks used
mergers as a strategic tool for expanding their horizons. There is huge
potential in rural markets of India, which is not yet explored by the major
banks. Therefore ICICI Bank Ltd. has used mergers as their expansion
strategy in rural market. They are successful in making their presence in rural
India. It strengthens their network across geographical boundary, improves
customer base and market share
Market Discipline and Transparency

According to Fernando (2011) transparency and disclosure norms as part of
internationally accepted corporate governance practices are assuming greater
importance in the emerging environment. Banks are expected to be more
responsive and accountable to the investors. Banks have to disclose in their
balance sheets a plethora of information on the maturity profiles of assets and
liabilities, lending to sensitive sectors, movements in NPAs, capital,
provisions, shareholdings of the government, value of investment in India and
abroad, operating and profitability indicators, the total investments made in the
equity share, units of mutual funds, bonds, debentures, aggregate advances
against shares and so on.
25
Human Resource Management

Gelade and Ivery (2003) examined relationships between human resource
management (HRM), work climate, and organizational performance in the
branch network of a retail bank. Significant correlations were found between
work climate, human resource practices, and business performance. The
results showed that the correlations between climate and performance cannot
be explained by their common dependence on HRM factors, and that the data
are consistent with a mediation model in which the effects of HRM practices
on business performance are partially
mediated by work climate.
Bartel (2004) studied the relationship between human resource management
and establishment performance of employees on the manufacturing sector.
Using a unique longitudinal dataset collected through site visits to branch
operations of a large bank, the author extends his research to the service
sector. Because branch managers had considerable discretion in managing
their operations and employees, the HRM environment could vary across
branches. Site visits provided specific examples of managerial practices that
affected branch performance. An analysis of responses to the banks employee
attitude survey that controls for unobserved branch and manager
characteristics shows a positive relationship between branch performance and
employees satisfaction with the quality of performance evaluation, feedback,
and recognition at the branchthe incentives dimension of a highperformance work system. In some fixed effects specifications, satisfaction
with the quality of communications at the branch was also important
Global Banking
It is practically and fundamentally impossible for any nation to exclude itself
from world economy. Therefore, for sustainable development, one has to
adopt integration process in the form of liberalization and globalization as
India spread the red carpet for foreign firms in 1991. The impact of
globalization becomes challenges for the domestic enterprises as they are
bound to compete with global players.
If we look at the Indian Banking Industry, then we find that there are 36
foreign banks operating in India, which becomes a major challenge for
Nationalized and private sector banks. These foreign banks are large in size,
technically advanced and having presence in global market, which gives more
and better options and services to Indian traders.
Financial Inclusion
Financial inclusion has become a necessity in todays business environment.
Whatever is produced by business houses, that has to be under the check from
26
Various perspectives like environmental concerns, corporate governance,

social and ethical issues. Apart from it to bridge the gap between rich and
poor, the poor people of the country should be given proper attention to
improve their economic condition.
Dev (2006) stated that financial inclusion is significant from the point of view
of living conditions of poor people, farmers, rural non-farm enterprises and
other vulnerable groups. Financial inclusion, in terms of access to credit from
formal institutions to various social groups. Apart from formal banking
institutions, which should look at inclusion both as a business opportunity and
social responsibility, the author conclude that role of the self-help group
movement and microfinance institutions is important to improve financial
inclusion. The study study suggested that this requires new regulatory
procedures and de-politicization of the financial system .
Employees Retention
The banking industry has transformed rapidly in the last ten years, shifting
from transactional and customer service-oriented to an increasingly aggressive
environment, where competition for revenue is on top priority. Long-time
banking employees are becoming disenchanted with the industry and are often
resistant to perform up to new expectations. The diminishing employee morale
results in decreased revenue. Due to the intrinsically close ties between staff
and clients, losing those employees completely can mean the loss of valuable
customer relationships. The retail banking industry is concerned about
employee retention from all levels: from tellers to executives to customer
service representatives because competition is always moving in to hire them
away.
The competition to retain key employees is intense. Top-level executives and
HR departments spend large amounts of time, effort, and money trying to
figure out how to keep their people from leaving.Sekaran, U. (1989) studied a
sample of 267 bank employees, this study traced the paths to the job
satisfaction of employees at the workplace through the quality of life factors of
job involvement and sense of competence. Results indicated that personal, job,
and organizational climate factors influenced the ego investment or job
involvement of people in their jobs, which in turn influenced the intra-psychic
reward of sense of competence that they experienced, which then directly
influenced employees' job satisfaction. Mitchell, Haltom, Lee and Graske
(2001) asserted in their study that people often leave for reasons unrelated to
their jobs. In many cases, unexpected events or shocks are the cause.
Employees also often stay because of attachments and their sense of fit, both
on the job and in their community.
Saxena and Monika (2010) studied a case of 5 companies out of 1000
organizations and 8752respondents surveyed across 800 cities in India by
Business Today. The survey was on nine basic parameters like career and
personal growth, company prestige, training, financial compensation and
benefits and merit based performance evaluation. It was concluded that
27
The biggest challenge for organizations is that when new employees

appointed, it is difficult to merge them in organizational culture. Each
organization has its
Own unique culture and most often, when brought together, these cultures
clash. When there is no retention, employees point to issues such as identity,
communication problems, human resources problems, ego clashes, and
intergroup conflicts, which all fall under the category of cultural differences.
28
Opportunities of Indian Bank

Customer experience is the key
In many ways, consumer banking is like other types of consumer activity. But
banking customers expect more than an excellent mix of products: they are
looking for superior customer experiences that fulfill basic expectations while
providing added value.
Customer experience is also the most common reason for opening and closing
accounts, more so than fees, rates, locations and convenience.
This idea of trust is what transforms customers from static sources of revenue
into advocates for their banks. In an era where social and digital media enable
consumers to immediately share their experiences, customers who trust their
bank will drive the most referrals and be more willing to consolidate their
banking needs with a single financial services provider. This makes them the
growth engines of any bank.
Creating customized banking

Each of the eight customer segments shares common behaviors and
expectations when it comes to their banking experience. By focusing on the
type of customer rather than the number of customers, banks can build a
reputation for excellent customer service.
Although crafting common strategies can be more efficient, banks that
approach each customer the same way risk offering individual customers the
wrong products, services and advice across less-effective channels. To
optimize investments in customer experience, banks should deploy segmentbased strategies that take advantage of these inherent similarities but also
their differences.
Competition from all sides

The good news is that consumer confidence in the banking industry is on the
rise, with 93% of survey respondents reporting moderate or complete trust in
their banks. Likewise, 77% of customers are satisfied enough with their
banking relationship to recommend their primary provider. The global
economic recovery appears to be taking hold, and banks are among the
beneficiaries.
The challenge, however, is that an increasing number of financial service
providers are competing for the same customers. Emerging technology and the
increasing use of mobile devices for both banking and payments are making it
easier for new entrants to exploit areas of dissatisfaction and underinvestment.
Customers have more options than ever and do not view banks as having
significant advantage over newer types of banks and technology companies
even when it comes to financial advice.
The opportunity cost of falling behind the competition is extreme. More than
half of all customers opened or closed an account in 2013, and 40% plan to do
29
So in 2014. Each of these customers represents a new business opportunity for

a competing bank or financial service provider.
Make banking simple and clear

Consumers are constantly flooded with information and struggle to understand
choices, charges and changes. To make banking easy for customers, banks
should be transparent and concise around fees, rates, services and other
communications.
Customers depend on web, mobile, social media, telephone and in-person
channels, so banks should offer an omni-channel experience that combines
both traditional and digital banking. To stay competitive, financial institutions
need to continue building channel capabilities to provide seamless 24/7, realtime access to banking.
Help customers make the right financial decisions

Many consumers want help developing their financial plans and goals. The
banks that provide that advice are likely to grow their businesses.
More than 70% of respondents say they would increase business with their
provider if advisory services improved. Banks have the opportunity to create a
mutual exchange of value by personalizing the experience, based on a holistic
perspective of the customers unique situation and needs.
Banks can augment this experience by leveraging both internal and external
resources. This could include a skilled network of financial advisors, data
about what similar customers have spent and personal financial management
tools that help customers save, invest and spend more wisely.
Be proactive in anticipating and solving problems

Effective problem solving is vital to any bank-customer relationship. Problems
are inevitable, but survey data shows that there is astounding upside if
customers are satisfied with their problem resolution versus a downward spiral
in trust and business if dissatisfied.
Of the customers who were very satisfied with how a problem was resolved, a
majority (58%) gave more or all of their business to the institution.
Conversely, 19% of customers dissatisfied with the resolution and 32% of
customers very dissatisfied with the resolution reported closing some or all of
their accounts/services.
Making it easy for customers to raise issues, equipping the front line to handle
certain problems and escalate others, explaining why the issue occurred and
following up to ensure resolution is complete are crucial to successfully
handling problems.
30
Recent Changes in RBI Policy

After having reduced the policy repo rate in January by 25 basis points, the
Reserve Bank of India chose to leave all rates intact in the latest policy meet
held on 3 February. To nudge banks to lend to private business, however, it
has lowered the statutory liquidity ratio by 50 basis points to 21.5 percent.
Lending has ground to a halt with most banks only refinancing existing loans.
With lending rates still high, few new projects have been announced. While
the repo rate was cut marginally in January, few banks have passed on that
benefit to customers by lowering their base rates.
Despite a fall in long-term interest rates, substantial fall, treasury rates, have
come down a significant amount over the last year and a half and corporate
bond rates have also come down substantially, says Rajan. Bank lending rates
have remained more or less flat over this period. At some point, my guess is
transmission has to take place.
Rajan chose to leave interest rates intact also because of an expected
temporary uptick in inflation. The effects of falling international crude oil
prices have stated to spill over with sizable savings to the economy in terms of
cost of oil imports.
Gold imports too have moderated with festival season having passed by. But
retail inflation, measured by year-on-year changes in the consumer price index
(CPI), edged up in vegetable prices typically sets around March.
The reduction in SLR will allow quite a few banks without liquidity worries
can push credit, says Robin Roy, associate director, at consultancy firm Price
WaterhouseCoopers.
The RBI accepts another long list of applications for payments

and small finance banks
If the last round of banking licences is any indication, to be allowed to run
a bank in the country is no easy task. After deliberating over 26 applications,
only two aspirants were allowed licences in the previous round.
On February, when RBI released a new list of applicant of payments and small
finance banks, in the new round the number had swelled to 113.It is likely that
the RBI will be more liberal in this round. The applications will now be
scrutinized by an external committee, whose recommendation will be passed
on to the RBI.
31
Promoters who will be offered small bank licences, will like scheduled
commercial banks, have to dilute their shareholdings over a period of time.
But unlike the previous licences, where the banks will have restricted
offerings.
Both have financial inclusion as an objective. Small finance banks will have to
lend half of all advances to customers with borrowing of less than Rs 25 lakhs,
and meet with priority sector guidelines. Small finance banks will supply
credit to small businesses and small and marginal farmers(they can also apply
at a later stage to become full service banks).
On the other hand, payments banks can do no lending. They will, however,
be able to offer savings accounts and remittance services to migrant labourers
and small businesses in the unorganized sector.
Aspirants are raring to go. Telecom company Vodafone, which has applied
through its India outfit Vodafone m-Pesa, wants to step into villages with
populations of less than 500 (Banks find it unviable to go to villages with less
than 2,000 population).
32
Non-Performing Asset
MEANING OF NPA:
Non Performing Asset means an asset or account of borrower, which has been
classified by a bank or financial institution as sub-standard, doubtful or loss
asset, in accordance with the directions or guidelines relating to asset
classification issued by RBI. An amount due under any credit facility is treated
as "past due" when it has not been paid within 30 days from the due date. Due
to the improvement in the payment and settlement systems, recovery climate,
up gradation of technology in the banking system, etc., it was decided to
dispense with 'past due' concept, with effect from March 31, 2001.
Accordingly, as from that date, a Non performing asset (NPA) shell be an
advance where
i. Interest and /or installment of principal remain overdue for a period of more
than 180 days in respect of a Term Loan,
ii. The account remains 'out of order' for a period of more than 180 days, in
respect of an overdraft/ cash Credit(OD/CC),
iii. The bill remains overdue for a period of more than 180 days in the case of
bills purchased and discounted,
iv. Interest and/ or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half years in the case of an advance
granted for agricultural purpose, and
v. Any amount to be received remains overdue for a period of more than 180
days in respect of other accounts.
With a view to moving towards international best practices and to ensure
greater transparency, it has been decided to adopt the '90 days overdue' norm
for identification of NPAs, from the year ending March 31, 2004.
Accordingly, with effect from March 31, 2004, a non-performing asset (NPA)
shell be a loan or an advance where;
i. Interest and /or installment of principal remain overdue for a period of more
than 90 days in respect of a Term Loan,
ii. The account remains 'out of order' for a period of more than 90 days, in
respect of an overdraft/ cash Credit(OD/CC),
iii. The bill remains overdue for a period of more than 90 days in the case of
bills purchased and discounted,
33
iv. Interest and/ or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half years in the case of an advance
granted for agricultural purpose, and
v. Any amount to be received remains overdue for a period of more than 90
days in respect of other accounts.
ASSET CLASSIFICATION:
Assets are classified into following four categories:
Standard Assets
Sub-standard Assets
Doubtful Assets
Loss Assets
Standard Assets:
Standard assets are the ones in which the bank is receiving interest as well as
the principal amount of the loan regularly from the customer. Here it is also
very important that in this case the arrears of interest and the principal amount
of loan do not exceed 90 days at the end of financial year. If asset fails to be in
category of standard asset that is amount due more than 90 days then it is NPA
and NPAs are further need to classify in sub categories.
Provisioning Norms:
The provisions on standard assets should not be reckoned for arriving at net
NPAs. The provisions towards Standard Assets need not be netted from
gross advances but shown separately as 'Contingent Provisions against
Standard Assets' under 'Other Liabilities and Provisions - Others' in Schedule
5 of the balance sheet. Banks are required to classify non-performing assets
further into the following three categories based on the period for which the
asset has remained non-performing and the reasonability of the dues:
1) Sub-standard Assets
2) Doubtful Assets
3) Loss Assets
Sub-standard Assets:
34
With effect from 31 March 2005, a substandard asset would be one, which
has remained NPA for a period less than or equal to 12 month. The following
features are exhibited by substandard assets: the current net worth of the
borrowers / guarantor or the current market value of the security charged is not
enough to ensure recovery of the dues to the banks in full; and the asset has
well-defined credit weaknesses that jeopardize the liquidation of the debt and
are characterized by the distinct possibility that the banks will sustain some
loss, if deficiencies are not corrected. Provisioning Norms: A general
provision of 10 percent on total outstanding should be made without making
any allowance for DICGC/ECGC guarantee cover and securities available.
Doubtful Assets:
A loan classified as doubtful has all the weaknesses inherent in assets that
were classified as sub-standard, with the added characteristic that the
weaknesses make collection or liquidation in full, on the basis of currently
known facts, conditions and values highly questionable and improbable.
With effect from March 31, 2005, an asset would be classified as doubtful if it
remained in the sub-standard category for 12 months.
Provisioning Norms:
100 percent of the extent to which the advance is not covered by the realisable
value of the security to which the bank has a valid recourse and the
realizable value is estimated on a realistic basis. In regard to the secured
portion, provision may be made on the following basis, at the rates ranging
from 20 percent to 50 percent of the secured portion depending upon the
period for which the asset has remained doubtful.
Loss Assets:
A loss asset is one which considered uncollectible and of such little value that
its continuance as a bankable asset is not warranted- although there may be
some salvage or recovery value. Also, these assets would have been identified
as loss assets by the bank or internal or external auditors or the RBI
inspection but the amount would not have been written-off wholly.
Provisioning Norms:
35
The entire asset should be written off. If the assets are permitted to remain in
the books for any reason, 100 percent of the outstanding should be provided
for.
REASONS FOR AN ACCOUNT BECOMING NPA:

1. Internal factors
2. External factors
Internal factors:
1) Funds borrowed for a particular purpose but not use for the said purpose.
2) Project not completed in time.
3) Poor recovery of receivables.
4) Excess capacities created on non-economic costs.
5) In-ability of the corporate to raise capital through the issue of equity or
other debt instrument from capital markets.
6) Business failures.
7) Diversion of funds for expansion\modernization\setting up new projects\
helping or promoting sister concerns.
8) Willful defaults, siphoning of funds, fraud, disputes, management disputes,
misappropriation etc.
9) Deficiencies on the part of the banks viz. in credit appraisal, monitoring
and follow-ups, delaying settlement of payments\ subsidiaries by government
bodies etc.,
External factors:
1) Sluggish legal system
Long legal tangles
Changes that had taken place in labour laws
Lack of sincere effort.
2) Scarcity of raw material, power and other resources.
36
3) Industrial recession.
4) Shortage of raw material, raw material\input price escalation, power
shortage, industrial recession, excess capacity, natural calamities like floods,
accidents.
5) Failures, nonpayment\ over dues in other countries, recession in other
countries, externalization problems, adverse exchange rates etc.
6) Government policies like excise duty changes, Import duty changes etc.,
The RBI has summarized the finer factors contributing to higher level of
NPAs in the Indian banking sector as:
Diversion of funds, which is for expansion, diversification,

modernization, undertaking new projects and for helping associate
concerns. This is also coupled with recessionary trends and failures to
tap funds in capital and debt markets.
Business failures (such as product, marketing etc.), which are due to
inefficient management system, strained labour relations, inappropriate
technology/ technical problems, product obsolescence etc.
Recession, which is due to input/ power shortage, price variation,
accidents, natural calamities etc. The externalization problems in other
countries also lead to growth of NPAs in Indian banking sector.
Time/ cost overrun during project implementation stage.
Governmental policies such as changes in excise duties, pollution
control orders etc.
Willful defaults, which are because of siphoning-off funds, fraud/
misappropriation, promoters/ directors disputes etc.
Deficiency on the part of banks, viz, delays in release of limits and
payments subsidies by the Government of India.
IMPACT OF NPA:
Profitability:
NPA means booking of money in terms of bad asset, which occurred due to
wrong choice of client. Because of the money getting blocked the prodigality
of bank decreases not only by the amount of NPA but NPA lead to opportunity
cost also as that much of profit invested in some return earning project/asset.
So NPA doesnt affect current profit but also future stream of profit, which
may lead to loss of some long-term beneficial opportunity. Another impact of
reduction in profitability is low ROI (return on investment), which adversely
affect current earning of bank.
37
Liquidity:
Money is getting blocked, decreased profit lead to lack of enough cash at hand
which lead to borrowing money for shortest period of time which lead to
additional cost to the company. Difficulty in operating the functions of bank is
another cause of NPA due to lack of money. Routine payments and dues.
Involvement of management:
Time and efforts of management is another indirect cost which bank has to
bear due to NPA. Time and efforts of management in handling and managing
NPA would have diverted to some fruitful activities, which would have given
good returns. Nowadays banks have special employees to deal and handle
NPAs, which is additional cost to the bank.
Credit loss:
Bank is facing problem of NPA then it adversely affect the value of bank in
terms of market credit. It will lose its goodwill and brand image and credit
which have negative impact to the people who are putting their money in the
banks
EARLY SYMPTOMS:
By which one can recognize a performing asset turning in to non-performing
asset Four categories of early symptoms:-
1) Financial:
Non-payment of the very first installment in case of term loan.

Bouncing of cheque due to insufficient balance in the accounts.
Irregularity in installment.
Irregularity of operations in the accounts.
Unpaid overdue bills.
Declining Current Ratio.
Payment which does not cover the interest and principal amount of that
installment.
While monitoring the accounts it is found that partial amount is diverted to
sister concern or parent company.
2) Operational and Physical:

If information is received that the borrower has either initiated the process of
winding up or are not doing the business.
Overdue receivables.
38
Stock statement not submitted on time.

External non-controllable factor like natural calamities in the city
where borrower conduct his business.
Frequent changes in plan.
Nonpayment of wages.
3) Attitudinal Changes:
Use for personal comfort, stocks and shares by borrower
Avoidance of contact with bank.

Problem between partners.
4) Others:
Changes in Government policies.

Death of borrower.
Competition in the market.
39
PROCEDURES FOR NPA IDENTIFICATION AND

RESOLUTION IN INDIA
1. Internal Checks and Control
Since high level of NPAs dampens the performance of the banks identification
of potential problem accounts and their close monitoring assumes importance.
Though most banks have Early Warning Systems (EWS) for identification of
potential NPAs, the actual processes followed, however, differ from bank to
bank. The EWS enable a bank to identify the borrower accounts which show
signs of credit deterioration and initiate remedial action. Many banks have
evolved and adopted an elaborate EWS, which allows them to identify
potential distress signals and plan their options beforehand, accordingly. The
early warning signals, indicative of potential problems in the accounts, viz.
persistent irregularity in accounts, delays in servicing of interest, frequent
devolvement of L/Cs, units' financial problems, market related problems, etc.
are captured by the system. In addition, some of these banks are reviewing
their exposure to borrower accounts every quarter based on published data
which also serves as an important additional warning system. These early
warning signals used by banks are generally independent of risk rating
systems and asset classification norms prescribed by RBI.
The major components/processes of a EWS followed by banks in India as
brought out by a study conducted by Reserve Bank of India at the instance of
the Board of Financial Supervision are as follows:
Designating Relationship Manager/ Credit Officer for monitoring account/s
Preparation of `know your client' profile
Credit rating system
Identification of watch-list/special mention category accounts
Monitoring of early warning signals
Relationship Manager/Credit Officer :

The Relationship Manager/Credit Officer is an official who is expected to
have complete knowledge of borrower, his business, his future plans, etc. The
Relationship Manager has to keep in constant touch with the borrower and
report all developments impacting the borrowable account. As a part of this
contact he is also expected to conduct scrutiny and activity inspections. In the
credit monitoring process, the responsibility of monitoring a corporate account
is vested with Relationship Manager/Credit Officer.
40
Know your client' profile (KYC):

Most banks in India have a system of preparing `know your client' (KYC)
profile/credit report. As a part of `KYC' system, visits are made on clients and
their places of business/units. The frequency of such visits depends on the
nature and needs of relationship.
Credit Rating System:

The credit rating system is essentially one point indicator of an individual
credit exposure and is used to identify measure and monitor the credit risk of
individual proposal. At the whole bank level, credit rating system enables
tracking the health of banks entire credit portfolio. Most banks in India have
put in place the system of internal credit rating. While most of the banks have
developed their own models, a few banks have adopted credit rating models
designed by rating agencies. Credit rating models take into account various
types of risks viz. financial, industry and management, etc. associated with a
borrowable unit. The exercise is generally done at the time of sanction of new
borrowable account and at the time of review renewal of existing credit
facilities.
Watch-list/Special Mention Category:

The grading of the bank's risk assets is an important internal control tool. It
serves the need of the Management to identify and monitor potential risks of a
loan asset. The purpose of identification of potential NPAs is to ensure that
appropriate preventive / corrective steps could be initiated by the bank to
protect against the loan asset becoming non-performing. Most of the banks
have a system to put certain borrowable accounts under watch list or special
mention category if performing advances operating under adverse business or
economic conditions are exhibiting certain distress signals. These accounts
generally exhibit weaknesses which are correctable but warrant banks' closer
attention. The categorization of such accounts in watch list or special mention
category provides early warning signals enabling Relationship Manager or
Credit Officer to anticipate credit deterioration and take necessary preventive
steps to avoid their slippage into non performing advances. Early Warning
Signals It is important in any early warning system, to be sensitive to signals
of credit deterioration. A host of early warning signals are used by different
banks for identification of potential NPAs. Most banks in India have laid
down a series of operational, financial, transactional indicators that could
serve to identify emerging problems in credit exposures at an early stage.
41
Further, it is revealed that the indicators which may trigger early warning
system depend not only on default in payment of installment and interest but
also other factors such as deterioration in operating and financial performance

of the borrower, weakening industry characteristics, regulatory changes,
general economic conditions, etc. Early warning signals can be classified into
five broad categories viz.
a) Financial
b) Operational
c) Banking
d) Management and
e) External factors
Financial related warning signals generally emanate from the borrowers'

balance sheet, income expenditure statement, statement of cash flows,
statement of receivables etc. Following common warning signals are captured
by some of the banks having relatively developed EWS.
Financial warning signals
Persistent irregularity in the account

Default in repayment obligation
Devolvement of LC/invocation of guarantees
Deterioration in liquidity/working capital position
Substantial increase in long term debts in relation to equity
Declining sales
Operating losses/net losses
Rising sales and falling profits
Disproportionate increase in overheads relative to sales
Rising level of bad debt losses Operational warning signals
Low activity level in plant
Disorderly diversification/frequent changes in plan
Nonpayment of wages/power bills
Loss of critical customer/s
Frequent labor problems
Evidence of aged inventory/large level of inventor
Management related warning signals
Lack of co-operation from key personnel

Change in management, ownership, or key personnel
42
Desire to take undue risks

Family disputes
Poor financial controls
Fudging of financial statements

Diversion of funds
Banking related signals
Declining bank balances/declining operations in the account

Opening of account with other bank
Return of outward bills/dishonored cheques
Sales transactions not routed through the account
Frequent requests for loan
Frequent delays in submitting stock statements, financial data, etc.
Signals relating to external factors
Economic recession
Emergence of new competition
Emergence of new technology
Changes in government / regulatory policies
Natural calamities
43
Conclusion
Thus, banking in the days to come will be a challenging one, which will be
marked by high expectations of customers, who are well informed and possess
the technical knowledge to conduct banking transaction from home or office
or while on move. Although IT plays an important role in banking business,
yet personalized service will continue to have relevance in Indian banking
where a large proportion of the countrys population is still illiterate. To sum
up, it can be said that with increased competition, Indian banks face the
challenge of sustenance and for these they need to develop proactive strategies
with focus on product innovation, off-balance sheet activities to increase their
income from non-core activity, efficiency in service delivery process, effective
risk management etc. and more importantly on customer satisfaction through
tailor-made product packages.
Moreover, competition should not necessarily be viewed with trepidation. In
fact it should be seen by Indian banks as an opportunity to enter global
financial intermediation and provision of financial services (Patel, 1997). As
the economic importance of (financial) services increases in terms of (global)
value added, international banking operations should be viewed as a
(potentially) lucrative profit opportunity by Indian banks.
Among all three sectors, public sector banks have managed to reduce NPAs
over the years. NPA profile in the < 2% category of public sector banks was
reached to 100% in 2008-09 as compared to Private and Foreign sector banks
which was around 80%
This article discusses the various challenges and opportunities like rural
market, transparency, customer expectations, management of risks, and
growth in banking sector, human factor, global banking, environmental
concern, social, ethical issues, and employee and customer retentions. Banks
are striving to combat the competition. The competition from global banks and
technological innovation has compelled the banks to rethink their policies and
strategies.
44
Bibliography
Wikipedia
Business India Magazine
www.scribd.com
45

Bank Challenges and Opportunities PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Bank Challenges and Opportunities PDF

Uploaded by

Copyright:

Available Formats

Opportunities and Challenges Of Indian Banks

UNDER THE GUIDANCE OF:

Opportunities and Challenges Of Indian Banks

This is to certify that Miss Chandni Pravin Barot student of

Opportunities and Challenges Of Indian Banks

Opportunities and Challenges Of Indian Banks

Chandni Pravin Barot of T.Y.B.Com(Financial markets) hereby

Opportunities and Challenges Of Indian Banks

To express my gratitude to all those I am highly grateful to is

Opportunities and Challenges Of Indian Banks

Opportunities and Challenges Of Indian Banks

General scenario in India

Product Innovations by Indian

Challenges of Indian Banks

Opportunities of Indian Banks

Recent Changes in RBI Policy

Non Performing Asset

Procedure for NPA

Identification and Resolution

Opportunities and Challenges Of Indian Banks

Opportunities and Challenges Of Indian Banks

Opportunities and Challenges Of Indian Banks

GENERAL BANKING SCENARIO IN INDIA

Opportunities and Challenges Of Indian Banks

Opportunities and Challenges Of Indian Banks

Opportunities and Challenges Of Indian Banks

The current Indian scenario

Increasing the role for the private sector in contemporary

Opportunities and Challenges Of Indian Banks

disqualification by coming out with a strong statement - I tell you my opinion

Opportunities and Challenges Of Indian Banks

Opportunities and Challenges Of Indian Banks

The hallmark remained the inbuilt safety and security on the

Opportunities and Challenges Of Indian Banks

credibility of the founders.

Opportunities and Challenges Of Indian Banks

Opportunities and Challenges Of Indian Banks

borrowings (ECBs). But there is the inherent exchange fluctuation risk

RBIs new Avatar as the banking regulator

Opportunities and Challenges Of Indian Banks

Product Innovations by Indian Banks

Types of Innovative Banking

Faster & more convenient transaction

Depositing and lending of money

Creating funds and wealth of clients

Opportunities and Challenges Of Indian Banks

Professional sales person providing advice on stock trading

It refers to banking in which banks execute transaction directly with

Saving and checking accounts

Types of products and services

Speed up bank transactions and less error

Opportunities and Challenges Of Indian Banks

2. ANY BRANCH BANKING

It refers to a movement that envisions a world in which low income

Plastic money are the alternative to the cash or standard money

The account that can travel with you.

Opportunities and Challenges Of Indian Banks

Type of Electronic Systems

It stands for Automatic teller machine

It stands for Real time gross settlement system

Opportunities and Challenges Of Indian Banks

Challenges of Indian banks

Opportunities and Challenges Of Indian Banks