Professional Documents
Culture Documents
knowledge.
Signature of student
KARUNA NAIDU.
1
CERTIFICATE
External Examiner
2
ACKNOWLEDGEMENT
I would like to thank our principal Dr. Kshitij Prabha and Prof.
Nitin Agarwal, our BCBI Coordinator who have given me an
opportunity to conduct this study. I would also like to thank my guide
Prof.Hemal Vora for his valuable guidance and for helping me with
material for the project. I would like to thank our librarian for being
supportive as well.
Last but not the least thanking my parents, colleagues and all
those who have helped me directly or indirectly throughout the
project.
3
TABLE OF CONTENTS
SR.N TOPIC PAGE NO.
O
01 DECLARATION 01
02 CERTIFICATE 02
03 ACKNOWLEDGEMENT 03
04 RESEARCH METHODOLOGY 05
05 INTRODUCTION 06 - 41
07 MARKETING TRENDS 56 - 58
08 OTHER TRENDS 59 - 63
10 CONCLUSION 71 - 72
11 RECOMMENDATION 73
4
Research Methodology
5
CHAPTER 1
INTRODUCTION
1.1 Definition
Bank is defined as a person who carries on the business of banking. Banks also
perform certain activities which are ancillary to this business of accepting
deposits and lending. Since Banking involves dealing directly with money,
governments in most countries regulate this sector rather stringently.
Banking in India was defined under Section 5(A) as "any company which
transacts banking, business" and the purpose of banking business defined under
Section 5(B),"accepting deposits of money from public for the purpose of
lending or investing, repayable on demand through cheque/draft or otherwise".
In the process of doing the above-mentioned primary functions, they are also
permitted to do other types of business referred to as Utility Services for their
customers (Banking Regulation Act, 1949).
6
1.2 History of Banks
Banking in India originated in the last decades of the 18th century. The
first banks were The General Bank of India which started in 1786, and the Bank
of Hindustan, both of which are now defunct. The oldest bank in existence in
India is the State Bank of India, which originated in the Bank of Calcutta in
June 1806, which almost immediately became the Bank of Bengal. This was
one of the three presidency banks, the other two being the Bank of Bombay and
the Bank of Madras, all three of which were established under charters from the
British East India Company. For many years the Presidency banks acted as
quasi-central banks, as did their successors. The three banks merged in 1925 to
form the Imperial Bank of India, which, upon India's independence, became the
State Bank of India.
When the American Civil War stopped the supply of cotton to Lancashire
from the Confederate States, promoters opened banks to finance trading in
Indian cotton. With large exposure to speculative ventures, most of the banks
opened in India during that period failed. The depositors lost money and lost
interest in keeping deposits with banks. Subsequently, banking in India
remained the exclusive domain of Europeans for next several decades until the
beginning of the 20th century.
7
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s.
The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and
another in Bombay in 1862; branches in Madras and Pondicherry, then a French
colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the
most active trading port in India, mainly due to the trade of the British Empire,
and so became a banking center. The Bank of Bengal, which later became the
State Bank of India.
The first entirely Indian joint stock bank was the Oudh Commercial Bank,
established in 1881 in Faizabad. It failed in 1958. The next was the Punjab
National Bank, established in Lahore in 1895, which has survived to the present
and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing
through a relative period of stability. Around five decades had elapsed since the
Indian Mutiny, and the social, industrial and other infrastructure had improved.
Indians had established small banks, most of which served particular ethnic and
religious communities.
The presidency banks dominated banking in India but there were also
some exchange banks and a number of Indian joint stock banks. All these banks
operated in different segments of the economy. The exchange banks, mostly
owned by Europeans, concentrated on financing foreign trade. Indian joint stock
banks were generally undercapitalized and lacked the experience and maturity
to compete with the presidency and exchange banks.
The period between 1906 and 1911, saw the establishment of banks
inspired by the Swadeshi movement. The Swadeshi movement inspired local
businessmen and political figures to found banks of and for the Indian
community. A number of banks established then have survived to the present
such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara
Bank and Central Bank of India.
8
The fervour of Swadeshi movement lead to establishing of many private
banks in Dakshina Kannada and Udupi district which were unified earlier and
known by the name South Canara ( South Kanara ) district. Four nationalised
banks started in this district and also a leading private sector bank. Hence
undivided Dakshina Kannada district is known as "Cradle of Indian Banking".
9
1.3 Pre-Independence
The banks in India were established by the British .The period during the
First World War (1914-1918) through the end of the Second World War (1939-
1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the First World War were
turbulent, and it took its toll with banks simply collapsing despite the Indian
economy gaining indirect boost due to war-related economic activities. At least
94 banks in India failed between 1913 and 1918 as indicated in the following
table:
1916 13 231 4
1917 9 76 25
1918 7 209 1
Sources:http://en.wikipedia.org/wiki/Banking_in_India
10
World War I and its Impact on Banking in India
The World War I years (1913 to 1918) were indeed difficult years for the
world economy. The alarming inflationary situation that had developed as a
result of war financing and concentration on the war led to other problems like
neglect of agriculture. During the war period, a number of banks failed. Some
banks that failed had combined trading functions with banking functions. More
importantly, several of the banks that failed had a low capital base.
1.4 Post-independence
11
The partition of India in 1947 adversely impacted the economies of Punjab
and West Bengal, paralyzing banking activities for months. India's
independence marked the end of a regime of the Laissez-faire for the Indian
banking. 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 major steps to regulate banking included:
12
Name of the Bank Subsidiary wef
13
1.5 Banking Regulations Act, 1949
The Banking Regulation Act was passed as the Banking Companies Act 1949
and came into force wef 16.3.49. Subsequently it was changed to Banking
Regulations Act 1949 wef 01.03.66. Summary of some important sections is
provided hereunder. .
14
Prohibitions on employments like Chairman, Directors etc (10)
Paid up capital, reserves and rules relating to these (11 & 12)
Banks not to pay any commission, brokerage, discount etc. more than
2.5% of paid up value of one share (13)
Prohibits a banking company from creating a charge upon any unpaid
capital of the company. (14) Section 14(A) prohibits a banking company from
creating a floating charge on the undertaking or any property of the company
without the RBI permission.
Prohibits payment of dividend by any bank until all of its capitalized
expenses have been completely written off (15)
To create reserve fund and 20% of the profits should be transferred to this
fund before any dividend is declared (17 (1))
Cash reserve - Non-scheduled banks to maintain 3% of the demand and
time liabilities by way of cash reserves with itself or by way of balance in a
current account with RBI (18)
Permits banks to form subsidiary company for certain purposes (19)
No banking company shall hold shares in any company, whether as pledge,
mortgagee or absolute owners of any amount exceeding 30% of its own paid up
share capital + reserves or 30% of the paid up share capital of that company
whichever is less. 19(2)
Restrictions on banks to grant loan to person interested in management of
the bank (20)
Power to Reserve Bank to issue directive to banks to determine policy for
advances (21)
Every bank to maintain a percentage of its demand and time liabilities by
way of cash, gold, unencumbered securities 25%-40% as on last Friday of 2nd
preceding fortnight (24).
Return of unclaimed deposits (10 years and above) (26).
Every bank has to publish its balance sheet as on March 31st (29).
Balance sheet is to be got audited from qualified auditors (30 (i)).
15
Publish balance sheet and auditor’s report within 3 months from the end of
period to which they refer. RBI may extend the period by further three month
(31).
Prevents banks from producing any confidential information to any
authority.
RBI authorized to undertake inspection of banks (35).
Amendment carried in the Act during 1983 empowers Central
Government.
16
1.6 The Reserve Bank of India
The Reserve Bank of India (RBI) was established through the Reserve
Bank of India Act, 1934 and it commenced its operations on April 1, 1935. It
was established as a private shareholders' bank, then it was nationalized in
1949, and it became fully owned by the Government of India. It draws its
powers and responsibilities through other legislations also such as the Banking
Regulation Act, 1949. The RBI has over the years been responding to changing
economic circumstances and these organizational developments.
The Reserve Bank of India Act of 1934 entrust all the important functions
of a central bank the Reserve Bank of India.
1. Bank of Issue
The Bank has the sole right to issue bank notes of all denominations. The
Reserve Bank has a separate Issue Department which is entrusted with the issue
of currency notes.
2. Banker to Government
The second important function of the Reserve Bank of India is to act as
Government banker, agent and adviser. The Reserve Bank is agent of Central
Government and of all State Governments in India excepting that of Jammu and
Kashmir. The Reserve Bank has the obligation to transact Government business,
via. To keep the cash balances as deposits free of interest, to receive and to
make payments on behalf of the Government and to carry out their exchange
remittances and other banking operations. The Reserve Bank of India helps the
Government - both the Union and the States to float new loans and to manage
public debt.
17
3. Bankers' Bank and Lender of the Last Resort
The Reserve Bank of India acts as the bankers' bank. According to the
provisions of the Banking Companies Act of 1949, every scheduled bank was
required to maintain with the Reserve Bank a cash balance equivalent to 5% of
its demand liabilities and 2 per cent of its time liabilities in India. By an
amendment of 1962, the distinction between demand and time liabilities was
abolished and banks have been asked to keep cash reserves equal to 3 per cent
of their aggregate deposit liabilities. The minimum cash requirements can be
changed by the Reserve Bank of India.
The scheduled banks can borrow from the Reserve Bank of India on the
basis of eligible securities or get financial accommodation in times of need or
stringency by rediscounting bills of exchange. Since commercial banks can
always expect the Reserve Bank of India to come to their help in times of
banking crisis the Reserve Bank becomes not only the banker's bank but also
the lender of the last resort.
4. Controller of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power to
influence the volume of credit created by banks in India. It can do so through
changing the Bank rate or through open market operations.
The Reserve Bank of India is armed with many more powers to control the
Indian money market. Every bank has to get a license from the Reserve Bank of
India to do banking business within India, the license can be cancelled by the
Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will
have to get the permission of the Reserve Bank before it can open a new branch.
Each scheduled bank must send a weekly return to the Reserve Bank showing,
in detail, its assets and liabilities.
18
As supreme banking authority in the country, the Reserve Bank of India,
therefore, has the following powers:
(c) It controls the banking system through the system of licensing, inspection
and calling for information.
19
1.7 Nationalization of Banks
The second phase of nationalization of Indian banks took place in the year
1980. Seven more banks were nationalized with deposits over 200 crores. Till
this year, approximately 80% of the banking segment in India was under
Government ownership. After the nationalization of banks in India, the
branches of the public sector banks rose to approximately 800% in deposits and
advances took a huge jump by 11,000%.
The need for the nationalization was felt mainly because private commercial
banks were not fulfilling the social and developmental goals of banking which
are so essential for any industrializing country. Despite the enactment of the
Banking Regulation Act in 1949 and the nationalization of the largest bank, the
20
State Bank of India, in 1955, the expansion of commercial banking had largely
excluded rural areas and small-scale borrowers. The stated purpose of bank
nationalization was to ensure that credit allocation occur in accordance with
plan priorities. Currently there are 27 nationalized commercial banks.
Consequences of Nationalization
The quality of credit assets fell because of liberal credit extension
policy.
Political interference has been as additional malady.
Poor appraisal involved during the loan meals conducted for credit
disbursals.
The credit facilities extended to the priority sector at concessional
rates.
The high level of low yielding SLR investments adversely affected
the profitability of the banks.
The rapid branch expansion has been the squeeze on profitability of
banks emanating primarily due to the increase in the fixed costs.
There was downward trend in the quality of services and efficiency
of the banks.
21
List of Nationalized Banks
22
1.8 Liberalization of Banks
The next stage for the Indian banking has been setup 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 49% 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.
23
Rupee is to manage volatility but without any fixed exchange rate-and this has
mostly been true.
With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector-the demand for banking services,
especially retail banking, mortgages and investment services are expected to be
strong. One may also expect M&A’s, takeovers, and asset sales.
24
1.9 Privatization of Banks
25
In order to finance the private industrial and business activity, a network of
development banking and financial institutions has been organized by the
Government which are as follows:
26
1.10 Globalization of Banks
Publicly owned banks handle more than 80% of the banking business in
India and the rest is in the hands of private sector banks. However, banking in
both the government and private sector is being revolutionized by this latest
phenomenon called globalization. Globalization has offered a number of
advantages to the banking sector in India.
In order to fortify the Indian baking sector against the risks involved in
globalization, appropriate regulatory, prudential and supervisory framework
need to be adopted. This will help in strengthening the domestic banking system
in a global-environment.
27
1.11 Banking Sector Reforms 1999-2000
In the five decades since independence, banking in India has evolved
through four distinct phases. During Fourth phase, also called as Reform Phase,
Recommendations of the Narasimham Committee (1991) paved the way for the
reform phase in the banking. Important initiatives with regard to the reform of
the banking system were taken in this phase. Important among these have been
introduction of new accounting and prudential norms relating to income
recognition, provisioning and capital adequacy, deregulation of interest rates &
easing of norms for entry in the field of banking.
Some of the major reform initiatives in the last decade that have changed
the face of the Indian banking and financial sector are:
Interest rate deregulation. Interest rates on deposits and lending have been
deregulated with banks enjoying greater freedom to determine their rates. On
the deposit side, interest rates on all deposits, except savings accounts, have
been de-regulated. Similarly, on the bank lending, rates to be charged by the
banks on most of the credit facilities have been deregulated except a small
component for lending related to certain segments.
28
Government equity in banks has been reduced and strong banks have been
allowed to access the capital market for raising additional capital.
New private sector banks have been set up and foreign banks permitted to
expand their operations in India including through subsidiaries. Banks have also
been allowed to set up Offshore banking Units in Special Economic Zones.
New areas have been opened up for bank financing: insurance, credit
cards, infrastructure financing, leasing, gold banking besides of course
investment banking asset management, factoring, etc.
New instruments have been introduced for greater flexibility and better
risk management: e.g. interest rate swaps, forward rate agreements, cross
currency forward contracts, forward cover to hedge inflows under foreign direct
investment, liquidity adjustment facility for meeting day-to-day liquidity
mismatch.
Several new institutions have been set up including the National Securities
Depositories Ltd., Central Depositories Services Ltd., Clearing Corporation of
India Ltd., Credit Information Bureau India Ltd.
29
Universal banking has been introduced. With banks permitted to diversify
into long-term finance and DFIs into working capital, guidelines have been put
in place for the evolution of universal banks.
RBI guidelines have been issued for putting in place risk management
systems in banks. Risk Management Committees in banks address credit risk,
market risk and operational risk.
The limit for foreign direct investment in private banks has been increased
from 49% to 74% and the 10% cap on voting rights has been removed. In
addition, the limit for foreign institutional investment in private banks is 49%.
Wide ranging reforms have been carried out in the area of capital markets.
Fresh investment in CPs, CDs are allowed only in dematerialized form.
30
Impact on performance of banks
There is no doubt that banking sector reforms have increased the profitability,
productivity and efficiency of banks. There has been an improvement in overall
capital adequacy of banks and as on March 31, 2002 92 out of 97 commercial
banks operating in India had capital adequacy above the statutory minimum
level of 9%. Introduction of prudential norms relating to asset classification,
income recognition and the most significant achievement of the financial sector
reforms has been the marked improvement in the financial health of commercial
banks in terms of capital adequacy, profitability and asset quality as also greater
attention to risk management. Further, deregulation has opened up new
opportunities for banks to increase revenues by diversifying into investment
banking, insurance, credit cards, depository services, mortgage financing,
securitization, etc. At the same time, liberalization has brought greater
competition among banks, both domestic and foreign, as well as competition
from mutual funds, NBFCs, post office, etc
31
1.12 Narasimham Committee Report- I
iii. Phasing out of directed credit programmes and redefinition of the priority
sector.
32
viii. Setting up of special tribunals to speed up the process of recovery of
loans.
ix. Setting up of Asset Reconstruction Fund (ARF) to take over from banks a
portion of their bad and doubtful advances at a discount.
xi. Setting up one or more rural banking subsidiaries by public sector banks.
xiv. Liberalizing the policy with regard to allowing foreign banks to open
offices in India.
xviii. Ending duality of control over banking system by Banking division and
RBI.
33
xxii. Obtaining resources from the market on competitive terms by DFIS.
a. The lowering of reserve rates will enable banks to enlarge their credit
portfolio thus improving their profits.
34
1.13 Narasimham Committee- II
Recommendations
1. Three Tier Banking: There should be three types of banks: ( i ) Two or three
large Indian Banks with international character; ( ii ) Eight or Ten large
National Banks to take care of the needs of large/medium corporate sector, and
(iii ) Large or Local Area/ Regional Banks to serve local trade, small industry
and agriculture.
35
3. Narrow Banking: Week banks whose accumulated losses and net NPAs
exceed their capital funds can be rehabilitated by branding them as “Narrow
Banks” (banks which restrict their operation to only certain activities).
36
10. Recruitment Policy: The recruitment procedure and remuneration
policies should be changed to attract specialized officers.
37
deposit and borrow. It includes not only services related to savings and loans
but also investments.
However in practice the term 'universal banking' refers to those banks that offer
a wide range of financial services, beyond the commercial banking functions
like Mutual Funds, Merchant Banking, Factoring, Credit Cards, Retail loans,
Housing Finance, Auto loans, Investment banking, Insurance etc. This is most
common in European countries.
For example, in Germany commercial banks accept time deposits, lend money,
underwrite corporate stocks, and act as investment advisors to large
corporations. In Germany, there has never been any separation between
commercial banks and investment banks, as there is in the United States.
The entry of banks into the realm of financial services was followed very
soon after the introduction of liberalization in the economy. Since the early
1990s structural changes of profound magnitude have been witnessed in global
banking systems. Large scale mergers, amalgamations and acquisitions between
the banks and financial institutions resulted in the growth in size and
competitive strengths of the merged entities. Thus, emerged new financial
conglomerates that could maximize economies of scale and scope by building
the production of financial services organization called Universal Banking.
38
foreign players also resulted in permitting banks to undertake the sale of
insurance products. At present, only an 'arm's length relationship between a
bank and an insurance entity has been allowed by the regulatory authority, i.e.
IRDA (Insurance Regulatory and Development Authority).
The solution of Universal Banking was having many factors to deal with, which
can be further analyzed by the pros and cons.
39
entails less cost in performing all the functions by one entity instead of separate
bodies.
• Resource Utilization. A bank possesses the information on the risk
characteristics of the clients, which can be used to pursue other activities with
the same clients. A data collection about the market trends, risk and returns
associated with portfolios of Mutual Funds, diversifiable and non diversifiable
risk analysis, etc, is useful for other clients and information seekers.
Automatically, a bank will get the benefit of being involved in the researching
• Easy Marketing on the Foundation of a Brand Name. A bank's existing
branches can act as shops of selling for selling financial products like Insurance,
Mutual Funds without spending much efforts on marketing, as the branch will
act here as a parent company or source. In this way, a bank can reach the client
even in the remotest area without having to take resource to an agent.
• One-stop shopping. The idea of 'one-stop shopping' saves a lot of
transaction costs and increases the speed of economic activities. It is beneficial
for the bank as well as its customers.
• Investor Friendly Activities. Another manifestation of Universal Banking
is bank holding stakes in a form: a bank's equity holding in a borrower firm,
acts as a signal for other investor on to the health of the firm since the lending
bank is in a better position to monitor the firm's activities.
• Grey Area of Universal Bank. The path of universal banking for DFIs is
strewn with obstacles. The biggest one is overcoming the differences in
regulatory requirement for a bank and DFI. Unlike banks, DFIs are not required
to keep a portion of their deposits as cash reserves.
• No Expertise in Long term lending. In the case of traditional project
finance, an area where DFIs tread carefully, becoming a bank may not make a
big difference to a DFI. Project finance and Infrastructure finance are generally
40
long- gestation projects and would require DFIs to borrow long- term.
Therefore, the transformation into a bank may not be of great assistance in
lending long-term.
• NPA Problem Remained Intact. The most serious problem that the DFIs
have had to encounter is bad loans or Non-Performing Assets (NPAs). For the
DFIs and Universal Banking or installation of cutting-edge-technology in
operations are unlikely to improve the situation concerning NPAs.
41
respective roles of banks and financial institutions for greater harmonization of
facilities and obligations. Also report of the Committee on Banking Sector
Reforms or Narasimham Committee (NC) has major bearing on the issues
considered by the Khan Working Group.
The issue of universal banking resurfaced in Year 2000, when ICICI gave a
presentation to RBI to discuss the time frame and possible options for
transforming itself into a universal bank. Reserve Bank of India also spelt out to
Parliamentary Standing Committee on Finance, its proposed policy for universal
banking, including a case-by-case approach towards allowing domestic
financial institutions to become universal banks. Now RBI has asked FIs, which
are interested to convert itself into a universal bank, to submit their plans for
transition to a universal bank for consideration and further discussions. FIs need
to formulate a road map for the transition path and strategy for smooth
conversion into a universal bank over a specified time frame. The plan should
specifically provide for full compliance with prudential norms as applicable to
banks over the proposed period.
CHAPTER 2
42
its benefits, a no. of banks in India in recent years have taken steps to
implement the CBS with a view to build relationship with the customer based
on the information captured and offering to the customer, the customised
financial products according to their need.
For Banks:
1. Internet Banking
The total number of registered users for Internet banking in India is over
two million. But this figure needs to be adjusted for dormant users and multiple
accounts (a user having accounts with more than one bank). India has a little
less than a million active Internet banking users. Thus indicating that, the
concept of Internet banking is surely catching on.
43
India lags behind other countries in Internet banking. In the US, the number of
commercial banks with transactional websites is 1,275 or 12 percent of the total
number of banks. Of these, seven could be called ‘virtual banks.’
From the Asian market experience, it is clear that Internet banking is here to
stay and will be a major channel to acquire and service customers. Markets like
Korea and Singapore have nearly 10 percent of their population banking over
the Internet.
Concept of Internet banking is more like an add-on service which the customers
should gradually adopt. In line with this strategy, initially the Net banking
facility was provided in order to meet the information requirements of the
customers and gradually it ventured into fund transfers and third party transfers.
The introduction of ATM’s has given the customers the facility of round
the clock banking. The ATM’s are used by banks for making the customers
dealing easier. ATM card is a device that allows customer who has an ATM
card to perform routine banking transaction at any time without interacting with
human teller. It provides exchange services. This service helps the customer to
withdraw money even when the banks are closed. This can be done by inserting
the card in the ATM and entering the Personal Identification Number and secret
Password. ATM’s are currently becoming popular in India that enables the
customer to withdraw their money 24 hours a day and 365 days. It provides the
customers with the ability to withdraw or deposit funds, check account
balances, transfer funds and check statement information. The advantages of
ATM’s are many. It increases existing business and generates new business.
It allows the customers:
To transfer money to and from accounts.
To view account information.
To receive cash.
Advantages of ATM’s:
To the Customers
ATM’s provide 24 hrs. 7 days and 365 days a year service.
Service is quick and efficient
Privacy in transaction
Wider flexibility in place and time of withdrawals.
The transaction is completely secure – you need to key in Personal
Identification Number (Unique number for every customer).
To Banks
45
Alternative to extend banking hours.
Crowding at bank counters considerably reduced.
Alternative to new branches and to reduce operating expenses.
Relieves bank employees to focus on more analytical and innovative
work.
Increased market penetration.
3. Mobile Banking
Mobile banking has been at the threshold of a revolution for some time.
While many operators, as well as banks, had introduced mobile banking
applications, it never became popular due to security concerns. The number of
people using mobile banking services has jumped from under 10,000 to 120,000
in two years. While the trend is growing, lack of awareness of services, apart
from perceived security issues are inhibiting faster take-off.
Reserve Bank of India has set-up the Mobile Payments Forum of India
(MPFI), a 'Working Group on Mobile Banking' to examine different aspects of
Mobile Banking (M-banking).
Banks offering mobile access are mostly supporting some or all of the following
services:
Account Information
47
Alerts on account activity or passing of set thresholds
Monitoring of term deposits
Access to loan statements
Access to card statements
Mutual funds / equity statements
Insurance policy management
Pension plan management
Investments
Support
Content Services
4. Telebanking
Telebanking refers to banking on phone services. A customer can access
information about his/her account through a telephone call and by giving the
coded Personal Identification Number (PIN) to the bank. Telebanking is
extensively user friendly and effective in nature.
Telebanking offers the following services to its customers:
To get a particular work done through the bank, the users may leave
his instructions in the form of message with bank.
Facility to stop payment on request. One can easily know about the
cheque status.
Information on the current interest rates.
Information with regard to foreign exchange rates.
Request for a DD or pay order.
Demat Account related services.
And other similar services.
A person who earns a salary of Rs 60,000 per annum is eligible for card. A
reference from a banker and the employers of the applicant is insisted upon.
7. Debit Card
Debit cards will offer direct withdrawal of funds from a customer’s bank account.
The spending limit is determined by the user’s bank depending upon available
balance in the account of the user. It is a special plastic card connected with
electromagnetic identification that one can use to pay for things purchased
directly from its bank account. Under the system, cardholder’s accounts are
immediately debited against purchase or service to the computer network. Hence,
under debit card the card holder must have adequate balance in his account. The
system is intended to replace cheque system of payment. These can be
maintained only for customers maintaining satisfactory accounts and for a
minimum period of 6 months.
8. Demat Account
This account is popular in India. The Securities and Exchange Board of India
(SEBI) mandates a demat account for share trading above 500 shares. As of
April 2006, it became mandatory that any person holding a demat account
should possess a Permanent Account Number (PAN),
50
1. Fill demat request form (DRF) (obtained from a depository participant or DP
3. Submit the DRF & share certificate(s) to DP. DP would forward them to the
issuer / their R&T Agent.
Benefits
51
2.2 Payment and Settlement Systems
As part of its public policy objective of promoting a safe, secure, sound and
efficient payment system, the Reserve Bank has taken several initiatives to
develop and promote electronic payments infrastructure. Towards this end, the
RBI introduced the following:
52
a. Electronic Clearing Service (ECS)
The payment system in the country largely follows the deferred net
settlement regime, under which the net amount is settled between the banks, on
a deferred basis. Such a dispensation entails an element of settlement risk.
Hence, as a step towards risk mitigation in the large value payment systems, the
RTGS was operationalised by the RBI in March 2004, which enables settlement
of transactions in real time, on a gross basis. Almost all the inter-bank
transactions in the country and many time-critical customer transactions are
now settled through this system.
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RTGS is fully secured electronic funds transfer system where banks and
customers can receive payments on real time basis. The outreach of RTGS
transactions has also grown geographically. Out of about 75,000 bank branches
in the country, more than 48,300 bank branches now accept requests for
remittance through RTGS system for customer transactions as well as inter-
bank transactions.
A minimum threshold of rupees one lakh has been prescribed for customer
transactions to ensure that RTGS system is used only for large value
transactions and retail transactions take an alternate channel of electronic funds
transfer. The daily average of transactions is over 34,000 by volume and over
Rs.2 lakh crore by value.
The NEFT was launched by the RBI in November 2005 as a more secure,
nation-wide retail electronic payment system to facilitate funds transfer by the
bank customers, between the networked bank branches in the country. It has,
however, been observed that the public sector banks are not the most active
users of this product and the majority of NEFT outward transactions are
originated by a few new-generation private sector banks and foreign banks.
For instance, in June 2008, while these banks, as a segment, accounted for
a little over 43 per cent each of the aggregate volume of outward and inward
NEFT transactions, the share of public sector banks in total outward NEFT
transactions was rather low at a little over 12 per cent, of which half the volume
was the contribution of the State Bank of India.
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The RBI has been pursuing the matter with the PSBs for increasing their
participation in the NEFT system in terms of the number of NEFT-enabled
branches and the number of NEFT transactions originated by them. I would like
to urge upon the bankers present here to initiate appropriate measures to
stimulate greater usage of this payment medium and thereby, improve their
share in this regard.
In order to popularise the e-payments in the country, the RBI, on its part,
has waived the service charges to be levied on the member banks, till March 31,
2009, in respect of the RTGS and NEFT transactions. The RBI also provides,
free of charge, intra-day liquidity to the banks for the RTGS transactions. The
service charges to be levied by banks from their customers for RTGS & NEFT
have, however, been deregulated and left to discretion of the individual bank.
While some of the banks have rationalized their service charges and a few have
made it even cost-free to the customers, there are also certain banks that have
fixed multiples slabs or unreasonably high service charges, at times linked to
the amount of the transaction, for providing these services to their customers –
even though the RBI provides these services to the banks free of charge.
The latest electronic payment product introduced by the RBI is the Cheque
Truncation System, which was launched, on a pilot basis, in the National
Capital Region of New Delhi on February 1, 2008, with the participation of 10
banks. At present all the banks are participating in the system through 53 direct
member banks.
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house for payment and settlement, inevitably entails consequential
inefficiencies in terms of clearing time and infrastructure required.
Once the CTS become fully operational, the system would be the largest in
the world and would leapfrog the country from the paper-based instruments to a
fully electronic mode of payment and settlement. Necessary amendments have
been made to the Negotiable Instruments Act, 1881, which provides legal
recognition to the electronic image of the truncated cheque. These amendments
provide a legal basis for the cheque truncation system. .
The system which became operational during Feb 2002 facilitates the
submission of bids/applications for auctions/floatation of govt. securities
through pooled terminal facility located at Regional Offices of Public Debt
Offices across the country and through member terminals. The system can be
used for daily Repo and Reverse Repo auctions under Liquidity Adjustment
Facility.
CHAPTER 3
MARKETING TRENDS
Initially the public sector banks were dominating the banking scene so they
never felt the need for marketing. However Post liberalization, several new-
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generation private-sector banks changed the face of the industry. Customers no
longer had to stand in long queues or make 10 trips for loans to be sanctioned.
Private-sector banks brought in concepts like customer relations officers,
focused marketing teams and single-window banking. Moreover, with new
technology, private-sector banks like ICICI Bank and HDFC Bank could offer
customer services like ATMs, phone banking, Internet banking, automatic
money transfers and computerised monthly statements.
Indian Bank:
The 96-year-old bank has just turned some executives into marketing
officers at most of its 1,300 branches. To boost its selling efforts it pulled in 265
MBA students to market the bank's products during their summer training. It
has also introduced 24-hour customer care centres in Mumbai, Chennai and
Bangalore.
Under a business process re-engineering plan, the bank will have a more
focused marketing team. SBI has computerised nearly 41 per cent of its
branches and has 1,700 networked ATMs located in 176 centres. By next April,
it plans to computerize all its branches and install 3,100 ATMs.
UBI is gradually changing the look of its big branches and pumping in Rs
25 lakh (Rs 2.5 million) to Rs 30 lakh (Rs 3 million) for each one. Smaller ones
will undergo Rs 10 lakh (Rs 1 million) refurbishments. Already, 800 branches
out of 2,020 have a new look. And, from launching around one product in a year
about six years ago, this year it has launched close to 30 new products. UBI also
plans to increase the number of marketing officers. In 2001, for the first time
117 marketing officers were put in place in key branches.
To give itself a uniform look, in 2001, the bank changed its logo. Today all
the branches sport the same boards. The bank spent close to Rs 11 crore (Rs 110
million) on mass media advertising last year.
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CHAPTER 4
OTHER TRENDS
4.1 Retail Banking
While new generation private sector banks have been able to create a niche
in this regard, the public sector banks have not lagged behind. Leveraging their
vast branch network and outreach, public sector banks have aggressively
forayed to garner a larger slice of the retail pie. By international standards,
however, there is still much scope for retail banking in India.
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4.2 Customer Relationship Management
Offering the right product to the right customer at the right time through
the right delivery channel is basic concept of CRM. Now the banks have
realized that they cannot expect to own their customers. The primary goal is to
uncover cross selling opportunities and provide more customized services to
retain customers. In real terms, CRM can be implemented only if proper
infrastructure is created. The introduction of concepts like customer profiling
and segmentation, target marketing, customer’s life time value analysis,
campaign analysis, etc. become necessary. The bank will be required to collect
continuous feedback and take necessary steps to improve the brand image.
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internet banking, ATM, phone banking, voice response unit, customer care and
other services for the convenience of the customer. Only when customer feels
value will he reciprocate the relationship with loyalty. Banks have now adopted
“Universal Banking” and providing all financial services under one roof.
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4.3 Change of Bank Logos
Logos give a brand its identity. They are a company’s most valuable asset.
It’s no secret that a whole lot of Fortune 500 companies devote millions of
dollars each year to develop their brands and promote their corporate identity.
In fact, logos are what instantly make a brand recognisable. They make a brand
memorable. Logos are strong symbols that have the power to unite, not just
organisations, but people too.
Public sector banks are going in for a change in logo as a means of re-
branding and re positioning their services to the ‘new age customer’ in a new
market scenario. As a part of the strategy to face the changed scenario, one finds
the country's public sector banks, one by one, going in for image overhauls. It
begins with a change in logo –witness the new ‘Rising Baroda Sun’ which the
Bank of Baroda has gone in for, as part of its re-branding. Next in line was
Canara Bank. A couple of months ago, Union Bank of India unveiled its new
logo. Banks don’t want to be perceived as ‘last-generation’s banks’ and a new
logo gives a quick facelift.
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4.4 Recruitments in Public Sector Banks
State Bank of India (SBI) recently advertised for hiring 20,000 clerical
staff across India. Corporation Bank and Bank of Maharashtra have also
advertised for probationary officers, clerks and other officers. Other banks like
Union Bank of India and Bank of Baroda, too, are planning to hire in the range
of 1000 employees, while other banks like Indian Overseas Bank (IOB), Canara
Bank are in the process accessing the staff requirements.
Other public sector banks are also hiring since a huge chunk of employees.
This is because government-owned banks had gone in for massive recruitment
in the early 70s. Senior officials from Bank of India said that they are looking at
hiring 500 people for clerical cadre and another 1,000 as officers in the year
2009. According to experts, the large-scale retirements in PSBs and the change
in the business models of banks with the implementation of core banking
solution (CBS) are driving recruitment.
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CHAPTER 5
Punjab National Bank of India, the first Indian bank started only with Indian
capital, was nationalized in July 1969 and currently the bank has become a
front-line banking institution in India with 4525 Offices including 432
Extension Counters. The corporate office of the bank is at New Delhi. Punjab
National Bank of India has set up representative offices at Almaty
(Kazakhstan), Shanghai (China) and in London and a fully fledged Branch in
Kabul (Afghanistan).
Punjab National Bank with 4497 offices and the largest nationalized bank is
serving its 3.5 crore customers with the following wide variety of banking
services:
Corporate banking
Personal banking
Industrial finance
Agricultural finance
Financing of trade
International banking
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Punjab National Bank has been ranked 38th amongst top 500 companies by The
Economic Times. PNB has earned 9th position among top 50 trusted brands in
India.
Punjab National Bank India maintains relationship with more than 200 leading
international banks worldwide. PNB India has Rupee Drawing Arrangements
with 15 exchange companies in UAE and 1 in Singapore.
Punjab National Bank (PNB) was registered on May 19, 1894 under the
Indian Companies Act with its office in Anarkali Bazaar Lahore. The Bank is
the second largest government-owned commercial bank in India with about
4,500 branches across 764 cities. It serves over 37 million customers. The bank
has been ranked 248th biggest bank in the world by Bankers Almanac, London.
The bank's total assets for financial year 2007 were about US$60 billion. PNB
has a banking subsidiary in the UK, as well as branches in Hong Kong and
Kabul, and representative offices in Almay, Dubai, Oslo, and Shanghai.
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of the merger with PNB, Nedungadi Bank's shares had zero value, with the
result that its shareholders received no payment for their shares.
PNB also opened a representative office in London.
Achievements
In spite of being at the forefront of PLR cuts, the bank posted a healthy
growth in Net Interest Income (NII) of 29% y-o-y.
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Other Income surged 113% y-o-y, driven by strong treasury gains of
Rs355 crore during the quarter in line with industry trends, even as Fee income
was also robust at 45% y-o-y, on the back of strong balance sheet growth.
Gross and Net NPA ratios remained stable sequentially at 1.8% and
0.2%, with the bank not adopting the guidelines of treating floating provisions as
part of tier 2 capital instead of adjusting against NPAs on express permission
from the RBI.
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Vision and Mission
Vision
Mission
70
• Compliance with rules and regulations.
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Ranked as 323rd biggest bank in the world by Bankers Almanac
(January 2006), London.
Earned 9th place among India's Most Trusted top 50 service brands
in Economic Times- A.C Nielson Survey.
Included in the top 1000 banks in the world according to The
Banker, London.
Golden Peacock Award for Excellence in Corporate Governance -
2005 by Institute of Directors.
FICCI's Rural Development Award for Excellence in Rural
Development – 2005
Conclusion
Entry of new banks resulted in a paradigm shift in the ways of banking in India.
The growing competition, growing expectations led to increased awareness
amongst banks on the role and importance of technology in banking. The arrival
of foreign and private banks with their superior state-of-the-art technology-
based services pushed Indian Banks also to follow suit by going in for the latest
technologies so as to meet the threat of competition and retain their customer
base. Deregulation and technological change are the two single biggest changes
in the banking environment.
In India, investments in technologies by financial services organizations are
increasing, and new initiatives emerging, albeit at a basic level. However, in the
long run, it is evident that technology investments in transaction and process
automation will cease to be a differentiator.
Technology has enabled banks to overcome the barriers of time and extending
their services to customers. The new technology channels like ATMs, EFT
(Electronic funds transfer), debit and credit cards mobile banking, telebanking,
etc. are accessible to customers on a 24 x 7 basis.
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With automation, banks can offer single window service, extend business hours
and provide anywhere anytime banking. It gives bank personnel more time to
devote to business planning and development also facilitates each player in
market to have its unique products and services for competitive advantage. New
technology driven channels help the banks to reduce cost as the cost of
transaction in new channel is a fraction of what it was on branch counter.
For e.g.: A counter transaction in typical branch would cost around Rs 50-60,
while it is around only Rs.15 to 20, if done through ATM. The cost will be
further lowered if done through internet. Recently RBI issued a circular stating
that withdrawal from ATM would be free irrespective of the card issuing bank
which will be effect from April 1st, 2009.
1. Access to liquidity.
2. Transformation of assets.
3. Monitoring of risks.
4. Information technology and the communication networking systems have a
crucial bearing on the efficiency of money, capital and foreign exchange
markets.
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Recommendation
The primary reason for slow pace of adoption of the electronic modes of funds
transfer, particularly in the retail segment, is the lack of education – particularly
on the part of the bank staff at the branch level that have interface with the
public.
A survey conducted by one of the Regional Offices of the RBI in the recent past
revealed that in the limited sample covered; there were several bank branches in
the State which were not even aware of the National Electronic Fund Transfer
system. The banks, therefore, need to make concerted efforts to increase the
degree of awareness at the level of the branch staff so that the electronic fund
transfer services percolate down to the level of the public in a significant
manner.
The other side of the coin is the lack of customer education and awareness about
the features and benefits of the EFT, which precludes wider adoption of this
product and leads to carrying on with the traditional modes of payment.
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Bibliography
Webliography
WWW.WIKIPEDIA.COM
WWW.GOOGLE.COM
WWW.BANKSINDIA.COM
WWW.SBI.CO.IN
WWW.IBA.ORG
WWW.RBI.ORG
WWW.PNBINDIA.COM
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