Project Report "Banking

System" in India
Introduction of Commercial
Banks
Introduction of commercial Bank
A commercial bank is a type of bank that provides services such
as accepting deposits, making business loans, and offering basic
investment products.
Commercial bank 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 individual members of the public
(retail banking).
In the US the term commercial bank was often used to distinguish
it from an investment bank due to differences in bank regulation.
After the great depression, through the GlassSteagall Act, the
U.S. Congress required that commercial banks only engage in
banking activities, whereas investment banks were limited to
capital markets activities. This separation was mostly repealed in
the 1990s

Functions of Commercial Banks :

1. To change cash for bank deposits and bank deposits for cash.
2. To transfer bank deposits between individuals and or
companies.
3. To exchange deposits for bills of exchange, govt. bonds, the
secured and unsecured promises of trade and industrial
units.
4. To underwrite capital issues. They are also allowed to invest
5% of their incremental deposit liabilities in shares and
debentures in the primary and secondary markets.
5. The lending or advancing of money either upon securities or
without securities.
6. The borrowing, raising or taking of money.
7. The collecting and transmitting of money and securities.

8. The buying and selling of foreign exchange including foreign

bank notes.

The role of commercial banks

Commercial banks engage in the following activities:
processing of payments by way of telegraphic transfer,
EFTPOS, internet banking, or other means
issuing bank drafts and bank cheques
accepting money on term deposit
lending money by overdraft, installment loan, or other
means
providing

documentary

and

standby

letter

of

credit,

guarantees, performance bonds, securities underwriting

commitments

and

other

forms

of

off

balance

sheet

exposures
safekeeping of documents & other items in safe deposit
boxes

 sales, distribution or brokerage, with or without advice, of:

insurance, unit trusts and similar financial products as a
financial supermarket
cash management and treasury
merchant banking and private equity financing
traditionally, large commercial banks also underwrite bonds,
and make markets in currency, interest rates, and creditrelated securities, but today large commercial banks usually
have an investment bank arm that is involved in the
aforementioned activities [clarify].

Types of loans granted by commercial banks

Secured loans
A secured loan is a loan in which the borrower pledges some asset
(e.g. a car or property) as collateral for the loan, which then
becomes a secured debt owed to the creditor who gives the loan.
The debt is thus secured against the collateral in the event that
the borrower defaults, the creditor takes possession of the asset
used as collateral and may sell it to regain some or all of the
amount originally lent to the borrower, for example, foreclosnted
a portion of the bundle of rights to specified property. If the sale of
the collateral does not raise enough money to pay off the debt,
the creditor can often obtain a deficiency judgment against the
borrower for the remaining amount. The opposite of secured

debt/loan is unsecured debt, which is not connected to any

specific piece of property and instead the creditor may only
satisfy the debt against the borrower rather than the borrower's
collateral and the borrower.
A mortgage loan is a very common type of debt instrument, used
to purchase real estate. Under this arrangement, the money is
used to purchase the property. Commercial banks, however, are
given security - a lien on the title to the house - until the
mortgage is paid off in full. If the borrower defaults on the loan,
the bank would have the legal right to repossess the house and
sell it, to recover sums owing to it.
In the past, commercial banks have not been greatly interested in
real estate loans and have placed only a relatively small
percentage of assets in mortgages. As their name implies, such
financial

institutions

secured

their

earning

primarily

from

commercial and consumer loans and left the major task of home
financing to others. However, due to changes in banking laws and
policies, commercial banks are increasingly active in home
financing.
Changes in banking laws now allow commercial banks to make
home mortgage loans on a more liberal basis than ever before. In
acquiring mortgages on real estate, these institutions follow two
main practices. First, some of the banks maintain active and wellorganized departments whose primary function is to compete
actively for real estate loans. In areas lacking specialized real

estate financial institutions, these banks become the source for

residential and farm mortgage loans. Second, the banks acquire
mortgages by simply purchasing them from mortgage bankers or
dealers.
In addition, dealer service companies, which were originally used
to obtain car loans for permanent lenders such as commercial
banks, wanted to broaden their activity beyond their local area. In
recent years, however, such companies have concentrated on
acquiring mobile home loans in volume for both commercial
banks and savings and loan associations. Service companies
obtain these loans from retail dealers, usually on a nonrecourse
basis. Almost all bank/service company agreements contain a
credit insurance policy that protects the lender if the consumer
defaults.

Unsecured loan
Unsecured loans are monetary loans that are not secured against
the borrower's assets (no collateral is involved). There are small
business unsecured loans such as credit cards and credit lines to
large corporate credit lines. These may be available from financial
institutions under many different guises or marketing packages:
bank overdrafts
corporate bonds
credit card debt

 credit facilities or lines of credit

personal loans
A corporate bond is a bond issued by a corporation. It is a bond
that a corporation issues to raise money in order to expand its
business. The term is usually applied to longer-term debt
instruments, generally with a maturity date falling at least a year
after their issue date. (The term "commercial paper" is sometimes
used for instruments with a shorter maturity.)
Sometimes, the term "corporate bonds" is used to include all
bonds except those issued by governments in their own
currencies. Strictly speaking, however, it applies only to bonds
issued by corporations, not to bonds of local authorities and
supranational organizations.
Corporate bonds are often listed on major exchanges (bonds there
are

called

"listed"

bonds)

and

ECNs

like

Bonds.com

and

MarketAxess and the coupon (or interest payment) is usually

taxable. Sometimes, this coupon can be zero, with a high
redemption value. However, despite being listed on exchanges,
the vast majority of trading volume in corporate bonds in most
developed markets takes place in decentralized, dealer-based,
over-the-counter markets.
Some corporate bonds have an embedded call option that allows
the issuer to redeem the debt before its maturity date. Other

bonds, known as convertible bonds, allow investors to convert the

bond into equity.
Corporate credit spreads may alternatively be earned in exchange
for default risk through the mechanism of credit default swaps,
which give an unfunded synthetic exposure to similar risks on the
same 'Reference Entities'. However, quite volatile credit default
swaps 'basis' make the spreads on credit default swaps and the
credit spreads on corporate bonds be significantly different.
Assets and Liabilities of Commercial Banks in the United
States
Glass-Steagall Act
Mortgage constant

Functions
Commercial banks perform many functions. They satisfy the
financial needs of the sectors such as agriculture, industry, trade,
communication, so they play very significant role in a process of
economic social needs. The functions performed by banks, since
recently, are becoming customer-centred and are widening their
functions. Generally, the functions of commercial banks are
divided into two categories: primary functions and the secondary

functions.

The

following

chart

simplifies

the

functions

of

commercial banks.

Commercial

banks

perform

various

primary

functions, some of them are given below:

Commercial banks accept various types of deposits from
public especially from its clients, including saving account
deposits, recurring account deposits, and fixed deposits.
These deposits are payable after a certain time period
Commercial banks provide loans and advances of various
forms, including an overdraft facility, cash credit, bill
discounting, money at call etc. They also give demand and
demand and term loans to all types of clients against proper
security.
Credit creation is most significant function of commercial
banks. While sanctioning a loan to a customer, they do not
provide cash to the borrower. Instead, they open a deposit
account from which the borrower can withdraw. In other
words, while sanctioning a loan, they automatically create
deposits, known as a credit creation from commercial banks.
Along with primary functions, commercial banks perform several
secondary functions, including many agency functions or general
utility functions. The secondary functions of commercial banks
can be divided into agency functions and utility functions.

The agency functions are the following:

To collect and clear cheque, dividends and interest warrant.
To make payments of rent, insurance premium, etc.
To deal in foreign exchange transactions.
To purchase and sell securities.
To act as trustee, attorney, correspondent and executor.
To accept tax proceeds and tax returns.

The utility functions are the following:

To provide safety locker facility to customers.
To provide money transfer facility.
To issue traveller's cheque.
To act as referees.
To accept various bills for payment: phone bills, gas bills,
water bills, etc.
To provide merchant banking facility.

 To provide various cards: credit cards, debit cards, smart

cards, etc.

Banking scene in India

The banking sector in India is passing through a period of
structural change under the combined impact of financial sector
reforms,

internal competition,

technology,

global

competitive

changes
pressure

in

regulations,

and

fast

new

evolving

strategic objectives of banks and their existing and potential

competitors. Until the last decade, banks were regarded largely as
institutions rather akin to public utilities. The market for banking
services were oligopolies and Centralized while the market place
was regulated and banks were expected to receive assured
spreads over their cost of funds. This phenomenon, which was
caricatured as 3-6-3 banking in the united states, meaning that
banks accepted deposits at 3%, lent at 6%, and went home at 3
p.m. to play golf, was the result of the sheltered markets and
administrated prices for banking products. Existence of entry
barriers for new banks meant that competition was restricted to
existing players, who often operated as a cartel, even in areas
where the freedom to price their products existed.
The market place began to change for banks in India as a result of
reforms of the financial sectors initiated in the current decade. On
account

of

policy

measures

introduce

to

infuse

greater

competitive vitality in the system, the banking has entered in to a

competitive phase. Competition has emerged not only from within

the banking system but also from non-banking institutions.
Lowering of entry barriers, deregulation of interest rates and
growing sophistication of customers have made banking far less
oligopolistic today. Introduction of capital adequacy and other
prudential norms, freedom granted to enter into new turfs and
greater overlap of functions between banks and non-banks have
forced banks to get out of their cozy little world and think of the
future of the banking.

Emerging

Environment

of

Banking

in

India
Full convertibility of rupee leading to free mobility of capital,
which will mean virtual collapse of the national borders for trade
and capital flows.
Greater coordination between monetary, fiscal and exchanged
rate policies for achieving the goals of faster and sustainable
economic

growth,

macro-economic

stability

and

export

promotion.
Close integration of various financial markets such as money
market, capital market and forex market.
Removal of lowering of existing barriers of competitiveness, which
are present today in the form of quantitative instructions on

certain imports protective custom duties, reservation of certain

utilities for the public sector.

Growing privatization and

commercialization infrastructure sector.
Today, Banks customers are better informed, more sophisticated
and discerning. They also have a wide choice to choose from
various banks and non-bank intermediaries. Their expectations
are soaring. This is particularly true for banks corporate clientele
but also applies to customers from personal segment.
This is changing profile of customers call for a shift from productbased approach to customers-based approach. A bank aiming at
maximizing

customer

value

must,

of

necessity,

plan

for

customized products. A combination of marketing skills and stateof-the-art technology should enable to bank in maximizing its
profits through customer satisfaction.
In the next millennium banks will have to be more and more
cautions

about

customer

service,

profitability,

increased

productivity, to keep face with changing banking scenario. As

banks in India prepare themselves for the millenium these are the
shifts in the paradigm they are likely to experience. The 21st
century may see the dawn of DARWINIAN BANKING. Only the
banks could fulfill the demands of markets and changing items
would survive and prosper.

A word about SBI card

SBI Segment : Small business credit card (SBI credit card)

Preamble :
Small business units, retail traders, artisans, village industries,
small-scale industrial units and tiny units, professionals and self
employed persons etc., contribute significantly to the growth of
our economy. The entrepreneur himself manages many of the
units. Very often, these entrepreneurs complain of procedural
delay in sanctions and renewal of limits. They also find it difficult
to cope with the demands for audited balance sheet and other
statements sought by the bank from time to time for availing
credit facilities. With a view to providing hassle free financial
supports to the above categories of entrepreneurs who have
shown commitment to run the unit successfully and who are
dealing with the banks for last two years satisfactorily, new and
friendly credit product namely small business credit card scheme
is designed. Under the scheme, cumbersome procedural aspects
relating to reviews and renewals, submission of balance sheet,
stock statements and other statements are done with credit
delivery made simple and easy.

Purpose :

To meet the credit requirements of small business units, industrial

unit, retail trader, artisan, Small Scale Industry (SSI) and tiny
units.

Eligibility :
A. Customers of the following segments with a satisfactory track
record for the last two years enjoying credit facilities.
Small industrial units (SSI and tiny units including artisans)
Small retail traders (Under SBF)
Professional and self employed persons
Small business enterprise
B. Units who do not enjoy credit limit with us/other banks at
present with excellent performance and credential may be
considered.

Quantum of loan :
Loan up to Rs. 5 Lakh can be sanctioned to eligible persons.

Assessment :

The small business credit card limit can be fixed as follows :

For small business, retail trader etc. 20% of the annual
turnover declared for tax purpose or last twelve months
turnover in the operative accounts, whichever is higher.
In respect of parties with good track record, where sales tax
returns are not available, the credit limits may be decided taking
into consideration the actual turnover in the accounts during the
last two years.
For professionals and self employed persons, 50% of their
gross annual income as per IT return shall be considered as
the limit for issuing the SBI credit card.
For small scale industrial units, tiny sector units the
assessment norms in vogue as per the Nayak Committee
recommendations would continue.

Validity :
Credit card limit will be valid for a period of three years,
subject to satisfactory conduct of the accounts.
Annual review will be done based on conduct/operations of
the A/cs. A major portion of the sales turnover should have
been routed through the accounts as revealed by the credit
summations.

Repayment :
The working capital advance may be continued subject to
that review every year provided the credit summations in the
account is not less than 50% of the projected sales turnover.
If the credit summations is less than 50% of projected sales
turnover. The outstanding as on the due date of review
should be made repayable in suitable monthly installments.
The term loan is repayable in suitable installments with in a
maximum period of five years.
In case of composite loans, only the term loan is repayable in
installments up to a maximum period of five years.

Interest rate :
As per extent instructions issued from time to time relating the
market segment.

Refinance :
No refinance is to be claim from SIDBI

Security :
Primary : Hypothecation of the stock in trade receivables,
machinery, office equipment.

Collateral :
Under SSI-No collateral security as per existing guidelines of RBI.

User SBF :
Up to Rs. 25000/- No collateral security.
Over Rs. 25000/- charge over movable/immovable property
or third party granted.
However, in case of the excellent track record, sanctioning
authority may waive collateral requirement.

Margins :
Up to Rs. 25000/- - NIL
Rs. 25001/- to Rs. 5,00,000/-

- 20%

Documentation :
Documents as per extant instructions.

Credit Card - A Convenient Banking Product :

The credit card is a hassle free convenient banking product aimed
at simplifying the credit delivery mechanism. Cumbersome
procedural aspects relating to reviews and renewals, submission
of stock statement, balance sheet and other statements are done
away with. The credit limit will be worked as detail above.

Small business credit card

Card No.
Name
Account No.
Tel. No.
Limit Rs.
Date of issue
Valid upto
.. (Branch Code)
Signature

of the

Brach

Photograph with signature

Manager

Card holders

The borrower would be issued a photo card indicating sanctioned

limit and validity of the limit (sample card)

Insurance :
Fixed assets/stock pledged/hypothecated to the bank be fully
insured at least to the extent of the bank interests.
Bank may waive insurance of assets for equipment against
the fire and other risk up to Rs.25000/-

Cover under credit guarantee scheme :

All eligible loan accounts sanctioned for small scale industries
(other than services) would qualify for cover under CGTFSI
scheme (presently the scheme has been introduce in five circles
on pilot basis viz. New Delhi, Chandigarh, Lucknow, Patna &
Hydrabad).

Operation :
Small business credit card accounts should be maintained in
a separate ledger.
Cheque book should be issued and marked as small business
credit card account.

 Pass book should be issued for mall business credit card

holders.
Stock statement waived.
Submission of audited balance sheet waived.
Borrower would be issued a small business credit card with
photograph thereon. Cost of photograph to be borne by
banks.
IRAC norms would be applicable.
Brief opinion report should be recorded. Marked inquiries
should be made and recorded in the opinion report and
singed by the field officer/cash officer or officers not below
that rank.
Units within a radius of 5 kilometers may be covered
intensively for the issue of credit card. This condition may be
waived for such of those units already in the book of the
branch.

Inspections :
Half-yearly inspection/monitoring to ensure the end user
funds.

Sanction :

 Required loan may be sanctioned with in a week after receipt

of detailed information.
Control return after sanction may be sent to next higher
authority for approval .

Scoring Model :
Loan would be sanctioned up to Rs. 5,00,000/- based on the
simplified scoring model as given in annexure- II. Those who
are scoring less than 60% would not qualify for the loan.

Rationale :
New schemes for hassle free credit facilities to small
borrower.

Automatic Teller Machine (ATM)

An ATM (Automatic Teller Machine) card is useful to a card holder
as it helps him to withdraw cash from banks even when they are
closed. This can be done by inserting the card in the ATM installed
at various banks locations.

State Bank Cash Plus CARD

 Signature Panel.
Magnetic Stripe

Features of State Bank Cash Plus Card

State Bank Cash Plus Card having the 19 digit.
Name of the card holders mention there on it.
In case of State Bank Cash Plus Card, there is no expiry
period but for the old card, the date after which your card
needs to be renewed is the last day of the month indicated
on your card.
Signature panel on which you must sign as soon as youre
your card. It identifies the card as your State Bank Card Plus
Card.
The magnetic stripe, which contains encoded information.
ATM card possess pincode which having the 4 digit.

Use of State Bank Cash Plus Card

We uses our State Bank Cash Plus Card for cash withdrawal
from ATMs.
We uses it for making the payments for purchase made at
the merchant establishments.

Significance of the Study

This study entitled comparative study of various credit schemes
of SBI V/s other banks will be helpful for bankers to maintain
customers service policy, for customers while deciding their
financing needs and also helpful for other researchers for further
research in the future.
SBI card provides customers with an option, in addition to the
existing banking credit facilities available. With an SBI card
customers can enjoy hassle-free credit facilities.
This study would help us to know about the problems that are
faced by the consumers during transactions. It would also reveal
the problems that are being faced by the bank employees while
dealing with customers and would also highlight the future
prospect of SBI card.

Review of Existing Literature :

It is very essential to know whether the study has already been
conducted before. If so, how and to what extent ? And because of
this scholar has to go through all the existing literature related to
the study. SBI Card, very limited studies have been conducted on

the subject. Due to the time restrictions scholar could seek advice
from only the limited literature, which is available with the bank.
As the concept is completely under the control of various banks
and RBI. So the information is directly taken from these sources.

Conceptualization
As the concept includes two terms i.e. cash credit or working
capital loans and terms loans. Therefore both the terms are taken
into consideration in the proposed study. Due to the privatization
of banking sector many big private players entered in this sector
giving a tough competition to the existing players. So, to face this
stiff competition all the public sector banks have to review their
functioning. These aspects will be given importance in this project
report.
The concept of SBI card, question crops in mind what is a SBI
card, What is its shape and size, what is its function. A SBI card is
nothing but a identity card containing card holders photographs
with signature, card no. Name, A/c No. limit, validity period,
branch code with signature of Branch Manager.