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Table of Contents
S. No. Topic Page Number
App no of pages
( not to be included in report)
1 Corporate Internship Objectives 6
2 Corporate Internship- Abstract 7
3 Internship Organisation’s Profile vis-à-vis its competitors 8-28
4 Industry Analysis
29-46
5 Financial Statement Analysis 47-60
6 Detailed study on the Marketing, Operations and Finance & HR functions
OR
Details of the specific field based project assigned during the internship 61-75
7 Project - Conclusion & Recommendations
76
8 My Take Away – Key Learning’s 77
9 Annexure & References
78
The purpose of Corporate Internship for a minimum time of 8 weeks is to connect theory
and practice, obtain knowledge & awareness of the functioning of various departments of
the corporate and its environment which is utmost necessary for the success of the
budding managers. The basic objectives of the summer internship programme for the
MBA students are:
ABSTRACT
I did my summer internship in ING Vysya bank. It was a business banking department
and it was located in Karol Bagh. On the first day I met the branch manager of the bank
Mr. Uday Choudhary. He assigned me my mentor who was the relationship manager of
the business banking division of ING Vysya Mr. Anshul Dhamija. In the first week he
gave me two files of the company which he himself completed. Reading those files I
learnt how banks give loans, what are the important documents needed to get the sanction
letter. On the second week I was assigned to do cold calling. I was given a data of another
private bank. In my whole internship I made 15 customers who gave me time to meet
them. And out of those 15 I converted 1 myself with the help of my mentor. The client is
Sahib Textiles. They make ladies suits. On a daily routine , my time was divided. From
10 to 1 pm I use to do cold calling. After lunch I used to meet all those people who have
approved and would like to meet me. After meeting them I used to come back to my
office and had to report to my mentor.
The client that I converted was Sahib Textiles. They make ladies suits. They needed a
working capital of 4.25 crore. After checking there balanced sheet, profit and loss
account statement and there last six month bank account. I gave his case to my mentor,
who finally approved his loan. The financials of ING Vysya is in a very healthy stage. All
the ratios are showing vast improvements, be it the capital adequacy ratio, the net profit
margin. All of the financial ratios has done better than the previous years. There total
assets, market cap have also gone up from the previous years.
The key learning that I learnt was the fact that I saw the real corporate world. What is the
pressure that each employee faces each day. I was working in a professional working
environment with professional working people. This was my real learning. Apart from
that I worked on real projects, learned how banks gives business loans to there customers.
I also learnt how to communicate with different types of clients. Working on the real time
project made me learnt how to read a bank statement. This internship also helped me
make new friends like Mr. Uday Choudhary and Mr. Anshul Dhamija, who were my
boss. I would thank them to give me such a immense opportunity to work with them.
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COMPANY PROFILE
? ING Group is a global financial services company of Dutch origin with 150 years
of experience, providing a wide array of Banking, insurance and asset management
services in over 50 countries.
? ING is the number one financial services company in the Benelux home market.
ING services its retail clients in these markets with a wide range of retail-banking,
insurance and asset management.
? In their wholesale banking activities they operate worldwide, but also with a
primary focus on the Benelux countries.
? In the United States, ING is a top-5 provider of retirement services and life
insurance. In Canada, they are the top property and casualty insurer.
? ING Direct is a leading direct bank with over 11 million customers in nine large
countries. In the growth markets of Asia, Central Europe and South America they provide
life insurance.
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? ING distinguishes itself internationally as a provider of ‘employee benefits’, i.e.
arrangements of non-wage benefits, such as pension plans for companies and their
employees
Vysya Bank
Vysya bank came into existence in the year 1930. When the team of visionaries came
together to found a bank that would extend a helping hand to those who weren't
privileged enough to enjoy Banking services. Vysya Bank opened its very first branch
and started its operations from Bangalore city .With a span of time it gained its strong
existence in south India. It’s been a long journey since then and the Bank has grown in
size and stature to encompass every area of present-day banking activity and has carved a
distinct identity of being India's Premier Private Sector Bank. The Bank made rapid
strides to reach the coveted position of being the number one private sector Bank.
? Banking.
? Life insurance.
? Mutual fund.
CORPORATE STATEMENT
ING Vysya Bank will be an entrepreneurial integrated financial services institution where
innovation and transformation are the way of life.
BANK PROFILE
ING Vysya Bank Limited is an entity formed with the coming together of erstwhile,
Vysya bank ltd, a premier Bank in the Indian Private Sector and a global financial
powerhouse, ING of Dutch origin, during Oct 2002.
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The immediate benefit to ING Vysya Bank ltd was the pride of having become a member
of global financial services giant.
? Strong and loyal client base in corporate, trade and retail segment. And more than
three million satisfied customers.
Further, the presence of the group in over 50 countries, employing over 1,20,000 people,
serving over 85 million customers across the globe, only multiplies the credibility, not
only across the country but also across the globe. The pride of this global identity, the
back up of a financial power house and the status of being the first Indian International
Bank, would also greatly enhance productivity, profitability resulting in improved
performance for the Bank to translate into higher returns, to all the stake holders.
? Corporate Banking
? Commercial Banking
? Treasury management
? Retail Banking
? Rural Banking
? Private Banking
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ING Vysya life insurance
? The company offers entire range of life insurance plans to meet all the financial
needs of an individual- protection, saving and investment.
? With 50 branches across the country.
2) Current accounts
3) Saving accounts
4) Term deposits
5) DMAT accounts
CURRENT ACCOUNT
The various sub-products in current account which ING Vysya gives are
SAVING ACCOUNTS
The Savings accounts are primarily meant to inculcate a sense of saving for the future
and take care of individuals day to day banking requirements. These accounts are meant
to help individual customers protect their money. The Savings Accounts also help
individuals to handle their financial transactions through a systematic banking channel.
This increases the safety as customers need not carry physical cash with them. The
various products in saving accounts are
TERM DEPOSITS
• FIXED DEPOSITS: If you believe in the long term investments and wish to earn
long term interest on your deposits, than invest in ING fixed deposits. With ING your
money will not only be secured but will earn a good interest.
• CUMULATIVE DEPOSITS: With ING cumulative deposits you can invest small
amounts of money that ends up large saving on maturity
• TAX ADVANTAGE DEPOSITS: TAD is eligible for tax exemption under
section 80C of the income tax act 1981. The deposit is in the form of fixed deposit or
reinvestment form of 5 year duration. The rate of interest will be according to the 5 year
interest rate which will be declared by RBI from time time.
• AKSHAYA DEPOSITS: your deposit with interest will be reinvested every
quarter to earn a higher yield.
DEMAT ACCOUNT
With practically all trading being conducted electronically, most settlements happen
through Demat (Dematerialisation of securities). The ING Demat Account offers you a
secure and convenient way to keep track of your shares and investments, how much
you've bought and sold over a period of time, without the hassle of handling physical
documents that get mutilated or lost in transit.
2) LOANS
• HOME LOAN
• HOME EQUITY LOAN
• NRI LOAN
• MODEL POLICY
3) NRI SERVICES
4) CARDS
• DEBIT CARDS
• CREDIT CARDS
• REMMITANCE CARD
• REWARD CARD
Small business entrepreneurs often encounter problems regarding finance. ING Vysya
Bank presents a unique banking loan, specially customized for Small & Medium
Business Enterprises.
These loans are available for Small Business Entrepreneurs, Retailers, Shop owners,
Contractors, Commission Agents and Transport Operators as well as practicing
professionals like Doctors, Lawyers, Consultants, Women Entrepreneurs and any others
with a credit requirement ranging from Rs. 5 lakhs upto Rs. 50 lakhs.
2) BUSINESS LOAN –RENT: The Mpower rent allows loans against the security of
your receivables. Individuals, propietry concerns, partership firms, public and private
limited companies, tructs and registered bodies who will meet the eligibility criteria will
be able to secure fast finance .
ING is one of the member lending banks for CGTSI. ING Ltd offers loans of up to Rs 25
lakhs to SSI units under CGTSI at competitive interest rates without any collateral
security and / or third party guarantee. In addition the guarantee fee payable to CGTSI
would be debited to the account.
CGTSI: credit gurantee fund trust for small scale industries.
Eligibility:
The SSI units engaged in activities like manufacturing, processing or SSSBEs, including
Information Technology and / or Software industry are eligible.
WHOLESALE BANKING
Wholesale Banking is a reflection of ING's ability to provide its corporate clients in India
a full range of commercial, transactional and electronic banking products. The bank
offers a wide array of client-focused corporate banking services, including working
capital finance, trade and transactional services, foreign exchange and cash management,
to name a few.
The various offerings by the bank in the wholesale banking services are
The 'C&IB' manages Relationships with large Corporate in both the private and public
sector. However, the primary focus of the group is to market the bank's products and
services to the client base, including Lending Products, Fee Based Products, Treasury
Services, Cross Border Products from ING Group, apart from also cross selling the bank's
retail Products and Services.
The group also crosses sells products of ING Vysya Life Insurance and ING Vysya
Mutual Funds.
"BFIG" works with renewed focus on the financial intermediaries in the country.
BFIG's clientele includes scheduled commercial banks i.e. nationalized, private and
foreign banks, some select large co-operative banks and other financial intermediaries
including mutual funds, insurance companies and housing finance companies.
The group also seeks to build relationship with banks that are not present in the country
but the relationship can be leveraged for trade and guarantee business.
The major areas of thrust for the group are fund mobilization both onshore as well as
offshore, origination of ECB mandates, distribution of debt/loans, cash management
services, capital market services, trade finance related transactions, asset buyouts and sell
downs, distribution of ING products to Indian banks and cross sell of financial market /
asset management / insurance products etc.
4) EMERGING CORPORATES:
The wide range of products comprehensively meets the business requirements with
special focus on Export Credit, regular Working Capital Finance, Term Loans, Non Fund
based limits like Letters of Credits, Guarantees and certain structured finance products.
FINANCIAL MARKET
ING Financial Markets, based out of Mumbai is a leading player in the Indian Financial
Markets providing one of the widest ranges of products for large corporate, small and
medium enterprises as well as individual needs. Supported by state-of-the-art systems and
the capabilities of the ING Group, we offer competitive pricing and efficient execution
across markets and a comprehensive suite of products.
Financial Markets unit is an active market maker on most rupee interest rate and currency
products. Within the bank, we play a key role in the Asset Liability Management and
ALM strategy. To our corporate and institutional clients, we offer a comprehensive range
of products for transactions and risk management needs through the sales desks at
Mumbai, Delhi, Bangalore & Chennai.
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The Financial Markets business is driven by a highly qualified and knowledge driven
team that brings together a deep understanding of local and global markets as well as
complex financial products.
The Trading team is driven by knowledge, focus and discipline and seeks to find value
across various permitted assets and instruments for the bank's proprietary account.
1) TERM LOAN: ING have identified rural banking as products and services. The
term loans are categorized in these segments.
• Poultry
• Dairy
• Wells
• Pump sets
• Tractors
• Plantation crops
• Horticulture crops
• Rural housing
• Rural godowns
• Micro finance institutions
• Swarjogar credit card.
2) SHORT TERM LOAN: short term loan are categorized into following segments
ORGANISATIONAL STRUCTURE
The regional offices are given more powers and jurisdiction so as to enable them
to act quickly.
From the structure we can see how the functional relationship works in a branch. He
structure also explains the reporting authority for each cadre of the employees. It
indicates the communication flow in the branch with well-defined accountability on the
part of the employees’ roles.
FEATURES
ING VYSYA
YES BANK
NO. OF PRODUCTS Two: orange savings account and freedom account Two: savings
account, gold savings account.
Average quarterly account balance Rs.5,000 on orange, and nil for freedom
Rs.10,000 for savings account and Rs.100000 for gold savings account.
Fee for non maintenance of quarterly average balance Rs.600 per quarter Rs.300
for savings account and Rs.600 for gold saving account.
Statement of account Quarterly free, and monthly e-statement free (if asked for).
Quarterly free for both.
ATM usage 4 free for freedom account, unlimited free on cirrus for orange account
holders ;un limited from ING Vysya Unlimited free on all the banks in India.
Regular debit card Free for first year, then Rs.150 there after. Rs.149 for savings
account, free for gold savings account.
Gold debit card Rs.799 Rs.799
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D.D. Rs.50 for amt up to Rs.10,000;Rs.2.50 per 1000 for amt up to 50,000;Rs 2 per
1000 for amt greater than 50,000 Min Rs.50 then Rs.2.5 per 1000 for savings account
and Rs.1.5 per 1000 for gold savings account.
Pay order (P.O.) Same as above. 5 free for savings account and 10 free for
gold savings account, per year
Branch transaction Free for both the account holders 5 transactions for savings
account and 10 transactions for gold savings account are free per year
Personalized cheque books Free Free
Balance enquiry Free Free
FEATURES
ING VYSYA
ICICI BANK
NO. OF PRODUCTS Two: orange savings account and freedom account Three:
category A, B and C.
Average quarterly account balance Rs.5,000 on orange, and nil for freedom
Rs.5000 for A, Rs.2000 for B, and Rs.1000 for C.
Fee for non maintenance of quarterly average balance Rs.600 per quarter Rs.750
per qtr for A & B and Rs.100 per qtr for C.
Statement of account Quarterly free and monthly e-statement free (if asked for). Free
physical statement per qtr otherwise Rs.200 per month for physical form. Free e-
statement per month.
ATM usage 4 free for freedom account, unlimited free on cirrus for orange account
holders ;un limited from ING Vysya Rs.20/month for cash withdrawal & and Rs.60 for
same with non partner banks.
Regular debit card Free for first year then Rs.150 per annum. Rs.99 per annum for
all the products.
D.D. Rs.50 for amt up to Rs.10,000;Rs.2.50 per 1000 for amt up to 50,000;Rs 2 per
1000 for amt greater than 50,000 Rs.2 per thousand rupees or part thereof, subject to
a minimum of Rs.50
Branch transaction Free for both Rs.2.50/
thousand, subject to
min of Rs.30
and max of Rs.10000
Personalized cheque books Free 2 payable at par cheque books of 25 leaves each
free in a quarter, Rs.50/- for additional cheque book of 25 leaves.
Balance enquiry Free Rs.10 with partner banks & Rs.25 with non partner banks.
FEATURES
ING VYSYA
HDFC BANK
NO. OF PRODUCTS Two: orange savings account and freedom account Three
products: regular, savings plus & savings max; each of which are further divided into
option 1 and 2.(I have taken comparative product that is option 1 of regular savings acc.)
Average quarterly account balance Rs.5,000 on orange, and nil for freedom
Rs.5000
Fee for non maintenance of quarterly average balance Rs.600 per quarter Rs.750
per qtr.
Statement of account Quarterly free and monthly e-statement free (if asked for).
Monthly statements to be Collected from branch. Quarterly statements sent by
post
ATM usage 4 free for freedom account, unlimited free on cirrus for orange account
holders ;un limited from ING Vysya First 4 withdrawals free of cost from any cirrus
network ATM
Regular debit card Free for first year then Rs.150 per annum. Rs.100 plus taxes
D.D. Rs.50 for amt up to Rs.10,000;Rs.2.50 per 1000 for amt up to 50,000;Rs 2 per
1000 for amt greater than 50,000 Rs.50 for amt up to 10000, Rs.75 for amt greater
than 10000 and up to up 50000, Rs. 2.50 per 1000 or part thereof (Min Rs.150) for amt
greater than 50000
Pay order (P.O.) Same as above. Same as above.
Branch transaction Free for both Free 3 free in the qtr & Rs. 60 per additional
transaction on non-maintenance of Min balance (cash deposit/withdrawal)
Personalized cheque books Free Free, Rs.5 per leaf on non maintenance of Min
balance
Balance enquiry Free Free
FEATURES
ING VYSYA
HDFC
Number of products Three: general, advantage and orange Four: plus, trade,
premium, and regular
Average quarterly balance Rs.10000 for general CA, Rs.50000 for advantage CA, &
Rs.100000 for orange CA Rs.100000 for plus, Rs.40000 for trade, Rs.25000 for
premium, & Rs.10000 for regular
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Fee for non maintenance of AQB Rs.750 pq for GCA, Rs.1500 pq for ACA, &
Rs.4000 pq for OCA. Rs.6000 for plus, Rs.1200 for trade, Rs.900 for premium and
Rs.750 for regular.
Statement of account Free once in a month (physical or e-mail) Free once in a month
Issue of cheque book Rs.2.5 per cheque leaf for GCA and free for others PAP cheque
books; 300 leaves free pm for plus, 200 leaves free pm for trade, 100 leaves free pm for
premium and Rs.2 per leaf for regular
ATM usage Free usage of ING Vysya, Rs.45 on withdrawal from other banks Free
usage of HDFC bank ATMs.
Issue of international debit card Free for 1st year, Rs.150 there after Free for first
year
Transfer from one account to other (intercity) Free for all Free for all
D.D/P.O. Free as per schedule for GCA, free up to 50 lkhs per month then charges
as per schedule for rest, in case of ACA and for OCA free up to 200 lkhs then charges as
per schedule on the greater amount. Free up to 50 DDs per month. Above 50
transactions, charges @ Rs. 25/- per DD for plus, Free up to 30 DDs per month. Above
30 transactions, charges @ Rs. 25/- per DD for trade; DD Amount Up to Rs. 50,000
charges Rs. 40/- per DD, Above Rs. 50,000 and up to Rs. 100,000- Rs. 25/-, Above Rs.
100,000- Free for premium and DD Amount Up to Rs.50,000 charges Rs.40/- per DD,
Above Rs.50,000 and up to Rs.100,000- Rs.25/-, Above Rs.100,000- Free for regular.
Charges for PAP cheque payments Rs.0.50/1000 with a min of Rs.5 per payment in
case of GCA, free up to cumulative value of 50 lkhs pm then same is followed as in
GCA, for OCA free up to a cumulative value of 200 lkhs pm then same is followed as in
GCA. Free in the manner as stated above.
Balance enquiry
Rs.15 for all Rs.25 for all
FEATURES
ING VYSYA
YES BANK
Number of products Three: general, advantage and orange Four: CA 25, CA 75,
CA 200 and CA 500.
Average quarterly balance Rs.10000 for general CA, Rs.50000 for advantage CA, &
Rs.100000 for orange CA Rs.25000, Rs.75000, Rs.200000 and Rs.500000
respectively for the above products.
Fee for non maintenance of AQB Rs.750 pq for GCA, Rs.1500 pq for ACA, &
Rs.4000 pq for OCA. Rs.1000, Rs.1500, Rs.2000, and Rs.4000 respectively for the
above products
Statement of account Free once in a month(physical or e-mail) Free once in a month.
Issue of cheque book Rs.2.5 per cheque leaf for GCA and free for others Rs.2 per leaf
for CA 25 and unlimited free for the rest.
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ATM usage Free usage of ING Vysya, Rs.45 on withdrawal from other banks
Information not available.
Issue of international debit card Free for 1st year, Rs.150 there after Information
not available.
Transfer from one account to other (intercity) Free for all Rs.25 lakhs per month
subsequent 0.50 per Rs.1000 for CA 25, Rs.50 lakhs per month subsequent 0.50 per
Rs.1000 for CA 75, and unlimited for the rest.
D.D/P.O. Free as per schedule for GCA, free up to 50 lkhs per month then charges
as per schedule for rest, in case of ACA and for OCA free up to 200 lkhs then charges as
per schedule on the greater amount. DD:2 Free Per Month
Min-Rs.100 Max-Rs.5000 for CA 25, 5 Free Per Month
subsequent Rs.1.75 per rs.1000 or part there of Min- Rs.100 Max-Rs.5000 for CA 75, 5
Free Per Month subsequent Rs.1.50 per rs.1000 or part there of
Min- Rs.100 Max-Rs.5000 for CA 200 and free for CA 500.
PO: 2 Free Per Month
Subsequent 0.75 per Rs.1000. Min- Rs.75 Max- Rs.5000 for CA 25, 5 Free Per Month.
Subsequent 0.75 per Rs.1000. Min- Rs.75 Max- Rs.5000 for CA 75 and free for the rest.
Charges for PAP cheque payments Rs.0.50/1000 with a min of Rs.5 per payment in
case of GCA, free up to cumulative value of 50 lkhs pm then same is followed as in
GCA, for OCA free up to a cumulative value of 200 lkhs pm then same is followed as in
GCA. Free unlimited
Balance enquiry
Rs.15 for all Information not available.
STRUCTURE
BANKS IN INDIA:
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In India banks have separated in different groups. Each group has its own benefits and
limitation operating in India. Each has its own dedicated target market. Few of them work
in rural sector while others work in both rural and urban. Many of them are catering in
cities. Some of them are of Indian origin while others are of foreign origin. The banks in
India are
GROWTH TRENDS
The Indian banking market is growing at an astonishing rate, with assets expected to
reach US$1 trillion by 2010. An expanding economy, middle class, and technological
innovations are all contributing to this growth. The country’s middle class accounts for
over 320 million people. In correlation with the growth of the economy, rising income
levels, increased standard of living, and affordability of banking products are promising
factors for continued expansion. The Indian banking Industry is in the middle of an IT
revolution, focusing on the expansion of retail and rural banking. Players are becoming
increasingly customer-centric in their A approach, which has resulted in innovative
methods of offering new banking products and services. Banks are now realizing the
importance of being a big player and are beginning to focus their attention on mergers
and acquisitions to take advantage of economies of scale and/or comply with Basel II
regulation. “Indian banking industry assets are expected to reach US$1 trillion by 2010
and are poised to receive a greater infusion of foreign capital,” says Prathima Rajan,
analyst in Celent's banking group and author of the report. “The banking industry should
focus on having a small number of large players that can compete globally rather than
having a large number of fragmented players."
TECHNOLOGY IN BANKING
In the six decades of independence banking has evolved in four different phases. During
the fourth phase important initiatives were taken with regard to improve the banking
system. The entry of foreign banks resulted in a paradigm shift in the way banking was
done in India. The arrival of foreign banks and private banks with there superior state of
the art technology pushed the Indian banks to adopt latest technology in market, so that
they could retain there customer base.
Information technology has been used under two different avenues in banking. One is
communication and connectivity and other is Business process reengineering.
Information technology enables sophisticated product development, better market
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infrastructure, implementation of reliable techniques for control of risks and help the
financial intermediaries reach geographically distant and different market.
In India banks as well as other financial entities entered the world of information
technology and with Indian financial network(INFINET). INFINET, a wide area satellite
network (WAN) using VSAT(very small aperture technology) was jointly set up by
Reserve Bank of India and Institute for Development and research for banking in1999.
INFINET which was initially comprised only public sector banks was opened for
participation by other categories of members. The information technology act 2000 has
given legal recognition for creation, transmission, and retention of electronic data to be
treated as a valid proof in the court of law
The Reserve Bank of India has assigned priority to the up gradation of technology in the
banks. Substantial progress has been made for developing a modern, efficient, integrated
and secure payment and settlement system for the financial service sectors.
Modernization of clearing and settlement system through MICR based cheque clearing,
popularizing electronic clearing services (ECS) and integration of RBI-EFT scheme with
funds transfer schemes of bank, introduction of centralized fund management system
(CFMS) are significant milestones in this regard.
The coverage of electronic clearing services has been significantly effective to encourage
non paper based fund and develop a centralized facility for effective payment. The
scheme for electronic fund transfer operated by the reserve bank has been augmented and
now it is present in 13 cities. The centralized fund management system (CFMS) which
would enable banks to obtain account wise and centre wise position of their balances has
been implemented in a phased manner from November 2001.
Membership of INFINET has been opened to all the banks in addition to those in the
public sector banks. At the base of all the interbank message transfers using the INFINET
is the structured financial messaging system (SFMS). It would serve as a secure
communication carrier with templates for intra and interbank messages in a strict
message format that will facilitate straight through messaging. All the interbank messages
will be stored and switched to central hub at Hyderabad while the intra bank messages
will stored in the bank gateway. Security standards of SFMS will match the international
standards.
Information technology has immense untapped potential in banking. Strengthening the
information technology in banks could improve the effectiveness of asset liability of
banks. Building up of a related data base would strengthen and enhance the forecasting of
liquidity of banks at the branch level. This could enhance the risk management
capabilities of banks.
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Banks works under various legal frameworks most important of them are, the Banking
regulation act 1949, Basel II norms, RBI act, Negotiable Instruments act.
The banking regulation act was passed as banking companies act and it came into force in
16/3/49. Subsequently it was changed to Banking regulation act on 1/3/66.
BASEL II NORMS
Basel II is the second of the Basel accords which are recommendation on the banking
laws and regulations issued by banking committee on banking supervision. The purpose
of Basel II norms is to create international standards that banking regulators can use when
creating regulations about how much capital does banks needs to put aside to guard
against the types of financial and operational risks banks face. Advocates of Basel II
believe that such an international system can help protect the international financial
system from many types of problem that arise should a bank or a series of banks collapse.
In practice Basel II attempts to accomplish this by setting up rigorous risks and capital
management requirement designed to ensure that the banks hold capital reserves
appropriate to the risks the banks exposes itself to through its investment and lending
practices. Generally speaking this rules says that the greater the risk the bank exposes
itself, the greater the capital bank requires to safeguard its solvency and overall economic
stability.
The objectives of bank regulation, and the emphasis, vary between jurisdiction. The
most common objectives are
1. Prudential -- to reduce the level of risk bank creditors are exposed to (i.e. to
Protect depositors)
2. Systemic risk reduction -- to reduce the risk of disruption resulting from
Adverse trading conditions for banks causing multiple or major bank failures
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3. Avoid Misuse of Banks -- to reduce the risk of banks being used for criminal
Purposes, e.g. laundering the proceeds of crime
4. To protect banking confidentiality
5. Credit allocation -- to direct credit to favored sectors
Banking regulations can vary widely across nations and jurisdictions. This section of the
article describes general principles of bank regulation throughout the world.
MINIMUM REQUIREMENT
Requirements are imposed on banks in order to promote the objectives of the Regulator.
The most important minimum requirement in banking regulation is Minimum capital
ratios.
SUPERVISIORY REVIEW
Banks are required to be issued with a bank license by the regulator in order to carry on
business as a bank, and the regulator supervises licensed banks for compliance with the
requirements and responds to breaches of the requirements through obtaining
undertakings, giving directions, imposing penalties or revoking the bank's license.
MARKET DISCIPLINE
The regulator requires banks to publicly disclose financial and other information, and
depositors and other creditors are able to use this information to assess the level of risk
and to make investment decisions. As a result of this, the bank is subject to market
discipline and the regulator can also use market pricing information as an indicator of the
bank's financial health.
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BANKING STANDARDS
Recognizing that it is necessary, in the public interest, to ensure that banks evolve
comprehensive codes and standards for fair treatment of customers of banks It is
necessary to have an independent watch dog to ensure that banks deliver services in
accordance with such codes and standards; It is necessary to ensure that the institutional
mechanism is autonomous, independent and effectively monitors and enforces the
compliance of such Codes and Standards.
In November 2003, RBI constituted the Committee on Procedures and Performance
Audit of Public Services under the Chairmanship of Shri S.S.Tarapore (former Deputy
Governor) to address the issues relating to availability of adequate Banking Services to
common man. The mandate to the Committee included identification of factors that
inhibited the attainment of best customer services and suggesting steps to improve the
quality of banking services to individual customers. The Committee felt that in an effort
to continuously upgrade the package of services that banks offered to their customers
there was a need of benchmarking of such services. After in depth study at the grass root
level the Committee concluded that there was an institutional gap for measuring the
performance of banks against a bench mark reflecting the best practices (Code and
Standards). Therefore, the Committee recommended setting up of the Banking Codes and
Standards Board of India broadly on the lines of Banking Codes and Standards Board
functioning in U.K.
The Banking Codes and Standards Board of India has been registered as a separate
society under the Societies Registration Act, 1860. Therefore, it would function as an
independent and autonomous body. The Banking Codes and Standards Board of India is
not a Department of the RBI. Reserve Bank has agreed to lend it financial support for a
limited period. It is an independent banking industry watch dog to ensure that the
consumer of banking services get what they are promised by the banks.
To ensure that the Board really functions as an autonomous and independent watchdog of
the industry, the Reserve Bank also decided to extend financial support to the Board by
way of meeting its full expenses for the first five years. This was to enable the Board to
reach its economic critical mass that will make it truly independent in its functioning and
take a view on any bank without its existence coming under any threat. On its part, RBI
would derive supervisory comfort in case of banks which are members of the Board. In
substance, the Board has been set up to ensure that common man as a consumer of
financial services from the banking Industry is in a no way at a disadvantageous position
and really gets what it has been promised.
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MARKET ANALYSIS
THE PRODUCT MIX: The banks primarily deal in services and therefore, the
formulation of product mix is required to be in the face of changing business
environmental conditions. The changing psychology, the increasing expectations, the
rising income, the changing lifestyles, the increasing domination of foreign banks and the
changing needs and requirements of customers at large make it essential that they
innovate their service mix and make them of world class. Against this background, we
find it significant that the banking organizations minify, magnify combine and modify
their service mix.
PRODUCT PORTFOLIO: The bank professionals while formulating the product mix
need to assign due weight-age to the product portfolio. By the concept product portfolio,
emphasis is on including the different types of services/ schemes found at the different
stages of the product life cycle. The portfolio denotes a combination or an assortment of
different types of products generating more or less in proportion to their demand. The
quality of product portfolio determines the magnitude of success. It is excellence of bank
professionals that help them in having a sound product portfolio.
We find the composition of a family sound, if members of all the age groups are given
due place. Like this, the composition or blending of a service mix is considered to be
sound, if well established and likely to be profitable schemes are included in the mix.
The bank professionals are supposed to perform the responsibility of composing the
same. An organization with a sound product portfolio gets a conducive environment and
successes in increasing the sensitivity of marketing decisions.
If the banks rely solely on their established services and schemes, the multidimensional
problems would crop up in the long run because when the well established
services/schemes would start saturating or generating losses, the commercial viability of
banks would of course, be questioned. It is in this context, that we find designing of a
sound product portfolio essential to an organisation. We can’t deny that the product
portfolio of the foreign banks is found sound since they keep their eyes moving. The
innovation, diffusion, adoption and elimination processes are taken due care. The public
sector commercial banks need to innovate their service and this makes a strong advocacy
in favour of analyzing the product portfolio.
THE PRICE MIX
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In the formulation of product mix, the pricing decisions occupy a place of outstanding
significance. The pricing decisions or the decisions related to interest and fee or
commission charged by banks are found instrumental in motivating or influencing the
target market. The Reserve Bank of India and the Indian Banking Association are
concerned with the regulations. The rate of interest is regulated by the RBI and other
charges are controlled by the Indian Banking Association. To be more specific in the
Indian setting, we find this component of the marketing mix significant because the
banking organizations are also supposed to sub serve the interests of weaker sections and
the backward regions. The public sector commercial banks in particular are supposed to
play developmental role with societal approach. It is natural that this specific role of the
public sector commercial banks complicates the problem of pricing.
Pricing policy of a bank is considered important for raising the number of customers vis-
à-vis the accretion of deposits. Of course, there are a number of factors to influence the
process but it is also right to mention that the key role in the entire process is played by
the Reserve Bank of India. To be more specific when we find a number of domestic and
foreign banks working in the Indian economy, the Reserve Bank of India bears the
responsibility of making the business environment conductive. The non-banking
organizations and foreign banks have been found attracting customers by offering to them
a number of incentives. The potential customers or investors frame their investment plans
in the face of pricing decisions made by the banking organizations. While formulating the
pricing strategies, the banks have also to take the value satisfaction variable into
consideration. The value and satisfaction can’t be quantified in terms of money since it
differs from person to person, keeping in view the level of satisfaction of a particular
segment, the banks have to frame their pricing strategies. The policy makers are required
to be sure that the services offered by them are providing satisfaction to the customers
concerned. The pricing decisions may be to bit liberal, if the potential customers are
found shifting to the non-banking investments. In this context, it is pertinent that pricing
is used as motivational tool.
The banking organizations are required to frame two-fold strategies. First, the strategy is
concerned with interest and fee charged and second, the strategy is related to the interest
paid. Since both the strategies throw a vice-versa impact, it is pertinent that banks attempt
to establish a correlation between the two. It is essential that both the buyers as well as
the sellers have a feeling of winning as shown in figure.
The RBI has to be more liberal so that the public sector commercial banks make
decisions in the face of changing business conditions. There is no doubt in it that the
commercial banks bear the responsibility of energizing the social marketing, they are also
supposed to bear the social costs. It is also right that the foreign banks have been found
making the business environment more competitive. These emerging trends necessitate a
close look on the pricing problem. The policy makers find it difficult to bring a change
since the regulations of the RBI make things more critical. The expenses are not
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regulated by the RBI and the banking organizations are forced to increase the budgetary
provisions. The sources of revenue are regulated which complicates the task of bank
professionals. This makes it essential that the Reserve Bank of India, the Government of
India and the banking organizations thing over this complicated issue with a new vision.
PROMOTION MIX
In the formulation of marketing mix the bank professionals are also supposed to blend the
promotion mix in which different components of promotion such as advertising,
publicity, sales promotion, word-of-mouth promotion, personal selling and telemarketing
are given due weight age. The different components of promotion help bank
professionals in promotion the banking business.
Advertising: Like other organizations, the banking organizations also us this component
of the promotion mix with the motto of informing, sensing and persuading the customers.
While advertising, it is essential that we know about the key decision making areas so
that its instrumentality helps bank organization both at micro and macro levels.
Finalizing the Budget: This is related to the formulation of a budget for advertisement.
The bank professionals, senior executives and even the police planners are found
involved in the process. The formulation of a sound budget is essential to remove the
financial constraint in the process. The business of a bank determines the scale of
advertisement budget.
Selecting a Suitable vehicle: There are a number of devices to advertise, such as
broadcast media, telecast media and the print media. In the face of budgetary provisions,
we need to select a suitable vehicle. The latest developments in the print technology have
made print media effective. The messages, appeals can be presented in a very effective
way.
Making Possible creativity: The advertising professionals bear the responsibility of
making the appeals, slogans, messages more creative. The banking organizations should
seek the cooperation of leading advertising professionals for that very purpose.
Instrumentality of branch managers: At micro level, a branch manager bears the
responsibility of advertising locally in his / her command area so that the messages,
appeals reach to the target customers of the command area. Of course we find a budget
for advertisement at the apex level but the business of a particular branch is considerably
influenced by the local advertisements. If we talk about the cause-related marketing, it is
the instrumentality of a branch manager that makes possible the identification of local
events, moments and make advertisements condition-oriented.
Public Relations: Almost all the organization need to develop and strengthen the public
relations activities to promote their business. We find this component of the promotion
mix effective even in the banking organizations. We can’t deny that in the banking
services, the effectiveness of public relations is found of high magnitude. It is in this
context that we find a bit difference in the designing of the mix of promoting the banking
services. Of course in the consumer goods manufacturing industries, we find
advertisements occupying a place of outstanding significance but when we talk about the
service generating organizations in general and the banking organizations in particular,
we find public relations and personal selling bearing high degree of importance. It is not
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meant that the banking organizations are not required to advertise but it is meant that the
bank executives unlike the executives of other consumer goods manufacturing
organizations focus on public relations and personal.
Personal Selling: The personal selling is found instrumental in promoting the banking
business. It is just a process of communication in which an individual exercise his/her
personal potentials, tact, skill and ability to influence the impulse buying of the
customers. Since we get in immediate feed back, the personal selling activities energies
the process of communication very effectively.
The personal selling in an art of persuasion. It is a highly distinctive form of promoting
sale. In personal selling, we find inter-personal or two-way communication that makes
the ways for a feed back. There is no doubt in it that the goods or services are found half
sold when the outstanding properties are well told. This are of telling and selling is
known as personal selling in which an individual based on his/her expertise attempts to
transform the prospects into customers.
Sales Promotion: It is natural that like other organisations, the banking organizations also
think in favour of promotional incentives both to the bankers as well as the customers.
The banking organizations make provisions for incentives to the bankers and call this
bakers’ promotion. Like this, the incentives offered to the customers are known as
customers’ promotion. There are a number of tools generally used in the different
categories of organizations in the face of the nature of goods and services sold by them.
The gift, contests, fairs and shows, discount and commission, entertainment and traveling
plans for bankers, additional allowances, low interest financing and retalitary are to
mention a few found instrumental in promoting the banking business.
As and when the banking organizations offer new services and schemes, the tools of sales
promotion are required to be innovated. This is with the motto of stimulating the new and
old customers. An important thing in the very context is the changing needs and
requirements of customers/prospects. The bank professionals bean outstanding task of
studying the competitors’ strategies which would he them in initiating the process of
innovation. Here it is important to mention the promotional incentives to the customers
would focus on decisions related to the selection of a tool. There are a number of
considerations to streamline the process. The bank professionals are supposed to study
the market conditions and make necessary suggestions, specially regarding the incentives.
It is a blending process and bank professional have to be sure the whatever the
provisions, they make are fulfilled on priority basis. More incentives more efficiency or a
vice-versa conditions more efficiency, more-incentives motivate bankers substantially.
THE PEOPLE
Sophisticated technologies, no doubt, inject life and strength to our efficiency but the
instrumentality of sophisticated technologies start turning sour if the human resources are
not managed in a right fashion. Generation of efficiency is substantially influenced by the
quality of human resources. It is against this background that a majority of the
management experts make a strong advocacy in favour of developing quality people and
late, the people management has been include dint he marketing mix of organizations is
general and the service generating organizations in particular.
Not only the public sector commercial banks but almost all the public sector organization
and albeit other government departments, of late, have been facing the problem of quality
people resulting into inefficiency, deceleration in the rate of overall productivity and
profitability or so. The front-line staff are rough and indecent, the branch mangers are
helpless and even the bankers have been found involved in the unfair practices. The
public sector commercial banks need to assign on overriding priority to the development
of quality people majority of the management of the experts have realized the
significance of quality people in the development of an organization and the boardrooms
are also found changing their attitudes. The first task before the banking organizations at
the apex level is to overhaul the recruitment processes. While fixing criteria for selection,
they need to assign due weight age to the ethical values. The education and training
facilities are required to be innovated. The process of identification and inculcation need
to be managed carefully.
The foreign banks and the private sector commercial banks reward for efficiency and at
the same time also demotivate the inefficient bankers. This helps them in improving the
efficiency of even the inefficient people. The development of human resources makes the
ways for the formation of human capital. Incentives, of course, inject efficiency and the
organizations offering more incentives succeed in motivating the people.
o INFLATION
Inflation is posing a serious challenge to the economic growth of India. Since Jan’08
onwards, inflation in the country has surged by 8.2% to hit a 13-year high of ~12%. M3
growth in the economy too continued to remain strong at 20% (in July’08), well above
the RBI’s comfort level of 17%.
The WPI inflation rate flared up during the period driven by significant increase in the
prices of commodities, primary articles and manufactured products, even though very
small part of global crude price increase has been passed on to the Indian consumers.
o GLOBAL RECESSION
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It appears that Europe, Japan and the US are entering into recession. Falling house prices,
crisis in the financial system, and lower confidence could lead to a sharp downturn, with
the worst still to come. Many argue that India’s growth is not so dependent on growth in
the West. However, the Indian stock markets have been hit by the global crisis. India’s
growing service sector and manufacturing sector would be adversely impacted by a
global downturn.
o RISE IN CRUDE PRICES
How global crude prices would behave probably has no easy answers; however we
believe that the current challenging and uncertain macro-economic conditions does not
lead Indian financials into a state of crisis. But continued rise in crude prices and its
resultant impact on inflation, interest rates and government finances has the potential to
do so. Hence, crude price remains the key risk to our positive stance on the Indian
financials.
In the last couple of months oil prices have surged by 45% from US$ 100 to US$ 145
(and now back to US$ 115). India currently imports 70% of its crude requirement,
resulting in pressure on government coffers on back of rising crude prices.
o DEPRICIATING INR
Surge in crude prices has severely impacted current account deficit of the country. This
coupled with the outflow of FII investments has resulted in INR to depreciate sharply
against dollar further fueling inflation.
As most of economists feel that the most horrible problem which India is facing
currently is inflation which has crossed 12%. To come out of these problems RBI and
ministry of finance and other relevant government and regulatory entities are taking
various initiatives which are as follows...
With the introduction of the Five year plans, the need for appropriate adjustment in
monetary and fiscal policies to suit the pace and pattern of planned development became
imperative. The monitory policy since 1952 emphasized the twin aims of the economic
policy of the government:
This policy of RBI since the First plan period was termed broadly as one of controlled
expansion, i.e.; a policy of “adequate financing of economic growth and at the same time
the time ensuring reasonable price stability”. Expansion of currency and credit was
essential to meet the increased demand for investment funds in an economy like India
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which had embarked on rapid economic development. Accordingly, RBI helped the
economy to expand via expansion of money and credit and attempted to check in rise in
prices by the use of selective controls.
? PRICE STABILITY
? MONITORY TARGETTING
? INTEREST RATE POLICY
? RESTRUCTURING OF MONEY MARKET
? REGULATION OF FOREIGN EXCHANGE MARKET
However, there are various limitations on the effective working of the quantitative
measures of credit control adapted by the central banks and, to that extent, monetary
measures to control inflation are weakened. In fact, in controlling inflation moderate
monetary measures, by themselves, are relatively ineffective. On the other hand, drastic
monetary measures are not good for the economic system because they may easily send
the economy into a decline.
In a developing economy there is always an increasing need for credit. Growth requires
credit expansion but to check inflation, there is need to contract credit. In such a
encounter, the best course is to resort to credit control, restricting the flow of credit into
the unproductive, inflation-infected sectors and speculative activities, and diversifying
the flow of credit towards the most desirable needs of productive and growth-inducing
sector. It should be noted that the impression that the rate of spending can be controlled
rigorously by the contraction of credit or money supply is wrong in the context of modern
economic societies. In modern community, tangible, wealth is typically represented by
claims in the form of securities, bonds, etc., or near moneys, as they are called. Such near
moneys are highly liquid assets, and they are very close to being money. They increase
the general liquidity of the economy. In these circumstances, it is not so simple to control
the rate of spending or total outlays merely by controlling the quantity of money. Thus,
there is no immediate and direct relationship between money supply and the price level,
as is normally conceived by the traditional quantity theories. When there is inflation in an
economy, monetary restraints can, in conjunction with other measures, play a useful role
in controlling inflation.
• FISCAL POLICY
Fiscal policy is another type of budgetary policy in relation to taxation, public borrowing,
and public expenditure. To curve the effects of inflation and changes in the total
expenditure, fiscal measures would have to be implemented which involves an increase
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in taxation and decrease in government spending. During inflationary periods the
government is supposed to counteract an increase in private spending. It can be cleared
noted that during a period of full employment inflation, the aggregate demand in relation
to the limited supply of goods and services is reduced to the extent that government
expenditures are shortened.
Along with public expenditure, governments must simultaneously increase taxes that
would effectively reduce private expenditure, in an effect to minimise inflationary
pressures. It is known that when more taxes are imposed, the size of the disposable
income diminishes, also the magnitude of the inflationary gap in regards to the
availability of the supply of goods and services. In some instances, tax policy has been
directed towards restricting demand without restricting level of production. For example,
excise duties or sales tax on various commodities may take away the buying power from
the consumer goods market without discouraging the level of production. However, some
economists point out that this is not a correct way of combating inflation because it may
lead to a regressive status within the economy.
As a result, this may lead to a further rise in prices of goods and services, and inflation
can spread from one sector of the economy to another and from one type of goods and
services to another. Therefore, a reduction in public expenditure, and an increase in taxes
produces a cash surplus in the budget. Keynes, however, suggested a programme of
compulsory savings, such as deferred pay as an anti-inflationary measure. Deferred pay
indicates that the consumer defers a part of his or her wages by buying savings bonds
(which, of course, is a sort of public borrowing), which are redeemable after a particular
period of time, this is sometimes called forced savings. Additionally, private savings have
a strong disinflationary effect on the economy and an increase in these is an important
measure for controlling inflation. Government policy should therefore, include devices
for increasing savings. A strong savings drive reduces the spendable income of the
consumers, without any harmful effects of any kind that are associated with higher
taxation. Furthermore, the effects of a large deficit budget, which is mainly responsible
for inflation, can be partially offset by covering the deficit through public borrowings. It
should be noted that it is only government borrowing from non-bank lenders that has a
disinflationary effect. In addition, public debt may be managed in such a way that the
supply of money in the country may be controlled. The government should avoid paying
back any of its past loans during inflationary periods, in order to prevent an increase in
the circulation of money. Anti-inflationary debt management also includes cancellation
of public debt held by the central bank out of a budgetary surplus.
Fiscal policy by itself may not be very effective in combating inflation; therefore a
combination of fiscal and monetary tools can work together in achieving the desired
outcome.
• DIRECT MEASURES
Direct controls refer to the regulatory measures undertaken to convert an open inflation
into a repressed one. Such regulatory measures involve the use of direct control on prices
and rationing of scarce goods. The function of price control is a fix a legal ceiling,
beyond which prices of particular goods may not increase. When ceiling prices are fixed
and enforced, it means prices are not allowed to rise further and so, inflation is
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suppressed. Under price control, producers cannot raise the price beyond a specified
level, even though there may be a pressure of excessive demand forcing it up.
In times of the severe scarcity of certain goods, particularly, food grains, government
may have to enforce rationing, along with price control. The main function of rationing is
to divert consumption from those commodities whose supply needs to be restricted for
some special reasons; such as, to make the commodity more available to a larger number
of households. Therefore, rationing becomes essential when necessities, such as food
grains, are relatively scarce. Rationing has the effect of limiting the variety of quantity of
goods available for the good cause of price stability and distributive impartiality.
Another control measure that was suggested is the control of wages as it often becomes
necessary in order to stop a wage-price spiral. During galloping inflation, it may be
necessary to apply a wage-profit freeze. Ceilings on wages and profits keep down
disposable income and, therefore the total effective demand for goods and services. On
the other hand, restrictions on imports may also help to increase supplies of essential
commodities and ease the inflationary pressure. However, this is possible only to a
limited extent, depending upon the balance of payments situation. Similarly, exports may
also be reduced in an effort to increase the availability of the domestic supply of essential
commodities so that inflation is eased.
In general, monetary and fiscal controls may be used to repress excess demand but direct
controls can be more useful when they are applied to specific scarcity areas. As a result,
anti-inflationary policies should involve varied programmes and cannot exclusively
depend on a particular type of measure only.
FINANCIAL ANALYSIS
This section will show, how ING Vysya has done financially over the last three
years(2005-2008). We will calculate all the financial ratios including the banking ratios
also, to show how ING Vysya fair up against its competitors. To do that I will be using
the last three years balance sheet, profit and loss account, and cash flow statement of ING
Vysya.
Mar '06
Mar '07
Mar '08
12 mths 12 mths 12 mths
Profit & Loss account of ING Vysya Bank ------------------- in Rs. Cr. -------------------
Mar '06 Mar '07 Mar '08
12 mths 12 mths 12 mths
12 mths
12 mths
12 mths
Net Profit for the Year 9.06 88.91 154.95
Extraordinary Items 0.00 0.00 0.00
Profit brought forward -34.60 1.29 18.44
Total -25.54 90.20 173.39
Preference Dividend 0.00 0.00 0.00
Equity Dividend 0.00 5.91 15.37
Corporate Dividend Tax 0.00 1.00 2.61
RATIO ANALYSIS
LIQUIDITY RATIOS
Liquidity ratios measures the ability of the firm to meet its current obligations
(liabilities). The most common ratios that indicate the extent of liquidity or lack of it are
1) CURRENT RATIOS
2) QUICK RATIOS
3) CASH RATIOS
CURRENT RATIOS
For ING VYSYA the current ratios for last three years are.
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CURRENT RATIOS
1.66
2.02
2.42
NWC ratio
1.03
1.11
1.19
From the table above we can see that the net working capital ratio of the bank has been
increasing, which shows that the bank is much more secured now, as it can pay its current
liabilities.
PROFITABILITY RATIOS
Profitability ratios are used to asses a business ability to generate earnings as compared to
expenses over a period over a time. The various profitability ratios that we will use are
1) Return on net worth
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2) Interest spread
3) Earning per share
4) Net profit margin
Net profit divided by net revenues, often expressed as a percentage. This number is an
indication of how effective a company is at cost control. The higher the net profit margin
is, the more effective the company is at converting revenue into actual profit. The net
profit margin is a good way of comparing companies in the same industry, since such
companies are generally subject to similar business conditions. However, the net profit
margins are also a good way to to compare companies in different industries in order to
gauge which industries are relatively more profitable. The profit margin is mostly used
for internal comparison. It is difficult to accurately compare the net profit ratio for
different entities. Individual businesses' operating and financing arrangements vary so
much that different entities are bound to have different levels of expenditure, so that
comparison of one with another can have little meaning. A low profit margin indicates a
low margin of safety: higher risk that a decline in sales will erase profits and result in a
net loss
As can be seen that from the data, in 2005-06 the bet profit margin of ING Vysya was
just 8.7% but in 2006-07 and 2007-08( 67% and 78%) the NPM has constantly been
increasing. This shows that the bank is converting its revenues into profit. This shows
that the bank is safe and there is lower risk.
Shareholder’s equity
As can be seen from the table the return on net worth or return on equity was very less in
2005-06(1.11%), but after that in the year 2006-07 the bank’s ROE/RONW started
increasing. This means that for each rupee invested by the shareholder’s 9.36% was
returned in the form of earning. In 2007-08 the bank’s RONW increased to 11%.
INTEREST SPREAD
Interest spread is the difference between the average lending rate and the average
borrowing rate for a bank or other financial institution. It is:
interest income ÷interest earning assets) - (interest expense ÷interest bearing liabilities
This is very similar to interest margin. If a bank's lending was exactly equal to its
borrowings (i.e. deposits plus other borrowing) the two numbers would be identical. In
reality, bank also has its shareholder's funds available to lend, but at the same time its
lending is constrained by reserve requirements.
Changes in the spread are an indicator of profitability as the spread is where a bank
makes its money
INTEREST SPREAD
4.51
4.23
5.24
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We can see in the table that the interest margin has been swinging. In 2006-07 the interest
margin came down from the previous year which means the bank didn’t made money as
compared to last year. But in 2007-08 the interest margin went to 5.24. this is an indicator
of profitability and proves that the bank is making money.
In banking the two most important ratios that are looked very closely are
1) Capital adequacy ratio
2) Return on assets
3) Loan/advances funds%
CAR is a ratio of bank’s capital to its risk. National regulators tracks banks CAR to
ensure that it can absorb reasonable amount of loss and are complying with the banking
statutory capital requirements. Capital adequacy ratio is the ratio which determines the
capacity of the bank in terms of meeting the time liabilities and other risk such as credit
risk, operational risk, etc. In the simplest formulation, a bank's capital is the "cushion" for
potential losses, which protect the bank's depositors or other lenders. Banking regulators
in most countries define and monitor CAR to protect depositors, thereby maintaining
confidence in the banking system
The percent threshold (9% in this case, a common requirement for regulators conforming
to the Basel Accords) is set by the national banking regulator. 9% is for the existing
banks.
From the table it can be seen that ING Vysya has always had the minimum requirement
capital adequacy ratio. So in that point it can be concluded that the bank has always been
safe.
RETURN ON ASSETS
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An indicator of how profitable a bank is relative to its total assets. ROA gives an idea as
to how efficient management is at using its assets to generate earnings. Calculated by
dividing a company's annual earnings by its total assets, ROA is displayed as a
percentage. Sometimes this is referred to as "return on investment".
As can be seen from the table that the return on assets has been increasing as the years
have gone by. The ratio is significantly low as compared to other private banks, but it is
catching up on it.
Loans/advances constitute a major chunk of a bank’s assets. These also yield returns by
way of interest income which contributes the largest percentage of bank’s profits.
Lending of funds to traders, business, enterprises constitutes the main business of
banking. Banks are financial intermediaries and lend the funds of depositors who
themselves do not want to lend in the business directly.
It can be seen from the table above that ING Vysya’s loan/ advances funds I % terms
have been increasing. This is a good data. Because the main profit of loans and advances
is to earn profit by way of interest spread. The more the lending percentage will be the
more will be profit;
It is the proportion of loan-assets created by banks from the deposits received. The higher
the ratio, the higher the loan-assets created from deposits. Some experts contend that a
high credit-deposit ratio could lead to a rise in interest rates.
Consider Bank X which has deposits worth Rs. 100 crores and a credit-deposit ratio of 60
per cent. That means Bank X has used deposits worth Rs. 60 crores to create loan-assets.
Only Rs. 40 crores is available for other investments. Now, the Indian government is the
largest borrower in the domestic credit market. The government borrows by issuing
securities (G-secs) through auctions held by the RBI. Banks, thus, lend to the government
by investing in these G-secs. And Bank X has only Rs. 40 crores to invest in G-secs.
If more banks like X have lesser money to invest in G-secs, what will the government
do? After all, it needs to raise money to meet its expenditure. The government has two
options. One, it can raise yields to make investment by banks in G-secs attractive. Or
two, force the RBI to take the securities into its books. Both the options have a tendency
to push up interest rates in the economy. Yields on G-secs serve as a benchmark for
interest rates on other debt instruments. A rise in the former, thus, pushes up interest rates
on the latter. But why should interest rates rise if RBI takes G-secs into its books?
Because, by doing so, the RBI releases fresh money into the system. If the money so
released is large, ``too much money will chase too few goods'' in the economy resulting
in higher inflation levels. This would prompt investors to demand higher returns on debt
instruments. In other words, higher interest rates.
It can be seen from the table that the debt coverage ratio of ING Vysya has been moving
up and down. A high debt coverage ratio means higher interest rate for the bank. So it can
bee see that in 2007-08 the debt coverage ratio has been less than 2006-07, but still it is
on the higher side.
As it can be seen from the data, the cash deposit ratio of ING Vysya has been at
satisfactory level. And it has contantantly been increasing.
Bank Name Last price Market cap Net interest income Net profit Total
assets
ING Vysya 211 2165.11 2239.45 188.8 31858.34
Kotak mahindra 668 23158.70 3065.14 276 28711.78
PROFITABILITY RATIOS
Profitability ratios are used to asses a business ability to generate earnings as compared to
expenses over a period over a time. The various profitability ratios that we will use are
1) Return on net worth
2) Interest spread
3) Net profit margin
As can be seen from the table net profit margin of Kotak Mahindra has been decreasing,
the reason can be that they are not able to convert revenue into net profit. That’s the
reason the net profit is going down and the net profit margin is showing low.
Shareholder’s equity
As can be seen from the table, the return of net worth is going down which suggests that
the net income generated by the bank is very low as compared to the equity invested.
INTEREST SPREAD
INTEREST SPREAD
4.55
5.06
6.3
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This shows that the interest margin of kotak Mahindra is going up for consecutive years.
The reason can be that the bank is earning a good margin in the interest rate. That is the
difference between the average lending rate and the borrowing rate. This also shows that
the bank is making money.
In banking the two most important ratios that are looked very closely are
1) Capital adequacy ratio
2) Return on assets
3) Loan/advances funds%
The capital adequacy ratio of kotak has been constantly increasing. The average CAR
which national banking regulator has set is 8%. This shows that kotak is less risqué.
The advances% has been decreasing for kotak. This means that the company is not able
to earn profit by the way of interest spread.
RETURN ON ASSETS
As can be seen from the table that the return on assets has been increasing as the years
have gone by. The ratio is significantly low as compared to other private banks, but it is
catching up on it.
The credit deposit ratio of kotak mahindra is too much as compared to other banks. A
higher credit deposit means higher interest rate. The average for all banks is around 66%.
PROJECT
5) Sanction letter.
In this very first step, the marketing team of the bank gets the cases on the basis of their
references and the data in their hand .After that the marketing will handle over the case to
the credit department along with the necessary documents for further process of the case.
Once all the login documents are completed the process of checking of do ability
(GO/NO GO) is done.
In this very step the dedupe checkup is to be done. In this dedupe checkup we do a check
out weather there is any overdue or default on the borrower side or not.
Once the dedupe checkup is clear the credit team prepare the finspred (software for
analyzing the financials) for the case with the help of the audited financials .And also
check out the track record in the bank statement of client .We can check the track record
with the help of the following things.
Following are the some of the main parts or ratios on which the bank gives more
emphases while to judge that the case is doable or not.
? LEVERAGE of the company must have the leverage of 6 according to the bank
norms(i.e. TOL/TNW total outstanding liability, tangible net worth)
? CURRENT RATIO of the company
? MPBF (Maximum Permissible Bank Finance)
? DSCR (debt security coverage ratio) in case of term loan
? Profitability ratio (like gross profit margin, EBIDTA rate, PAT margin)
Once the case is to be approved as doable a set query is send to the marketing team for
further movement of case or we can say for the preparation of note
In the note the credit team summarizes up all the details of the borrower.
In this step the risk department scrutinizes the whole proposal and they bring out the
observations, and send a list of query to the credit department.
As and when credit department will get a list of query raised by the risk department they
replies on the same with help of the marketing department start working on them to solve
out the quires along with the help of marketing department.
After solving all the observation the case s uploaded for sanction to the appropriate
authority as per the delegation of power by the bank.
After the uploading of the case, the case is presenting by the credit department along with
marking department to the appropriate author for the sanction of the case. During the
presentation of the case various observation are raised by the appropriate sanction author
and on the basic of discussion, the authority decide to approve / reject or withdrawn for
modification.
If case is withdrawn for modification for the adding of some information or document.
The credit department along with mark modifies the proposal as required by authority
and again uploads the same and discuss with the authority to get it approved or rejected.
Once the case got sanctioned minutes are generated. On the basis of minutes the CAL
(Credit Agreement Letter) are prepared and issued to customer.
METHODOLOGY USED
Application Rejected
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Positive
Check the Banking
Application Rejected
Negative
Application Rejected
Audited Financials Test
Positive
Deviation Check
Application Rejected
Positive
Approval By ZCC
Internal verifications
Application Rejected
Positive
Discussion on terms & conditions on loan to be sanctioned between client& bank
The credit appraisal process at ING Vysya bank is considered very thorough and
conservative the bank undertakes the above steps to complete the credit appraisal process.
1. Meet the client: The bank has appointed various Relationship managers( RM) and
executives who find the clients with credit requirements for their business, if the RM are
satisfied with the client and its expectation with the bank the case goes to the regional
office for a complete check and evaluation.
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2. Take KYC Documents& Application form: The RM after the first course of
interaction with the client asks for the various document required to appraise the project.
KYC documents as mentioned in the policy guidelines are Know your customer(KYC)
the customer can be best known with his financials and other vintage proofs mentioned in
the requirement list.
3. Initial Dedupe Check: This is better known as initial de-duplication checks in this
the bank checks the credit reporting of the client whether he holds any over-dues etc. The
bank also checks the client in RBI defaulter list.
4. Check the Banking: The first thing the bank checks is the banking of the existing
limit account if any, the bank tries to check the existing performance of client with the
other banks, and in case more number of inward returns due to in-sufficiency of funds.
Then this is also a deviation and if there is over utilization of the limit on all the days then
this calls for accountability by the client.
5. Audited financial test: The bank under takes a complete check of financials as
mentioned in the requirements, these audited financials are put in finspread software of
the bank and then projections are made on the basis of financials and then various
profitability ratios are analyzed and the financial soundness of the company is analyzed.
The financial viability of the company is checked on various parameter as mentioned.
6. Deviation check: The bank after checking the financial soundness of the company
goes for the verification of the deviation check of policy compliance, if any in case of
major deviations the case is presented in front of the zonal credit committee, their
decision stands the final verdict on the approval f the case.
7. Internal Verification: The bank through its various sources makes a complete
thorough investigation of the handling of business of the clients, this enables the bank to
make sure that the client is not forging with the financials of the company.
8. Approval by ZCC: If the credit limit is below Rs5oo lakhs then the approval is
sought by Zonal head of the business banking and if the amount exceeds the above
stated amount then the case is first discussed by ZCC and is then presented on
ECC(electronic credit committee) depending upon the policy compliance failed by the
client.
10. Discussion between client &Bank on approval: The banks proposes its terms and
conditions to the client and the amount of loan that is approved to the client at what rate
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of interest and what proportion of collateral is kept by the bank, when the client agrees on
all these terms then only the case reaches the sanctioning stage.
PROJECT DETAILS:
BORROWER BACKGROUND
? Sahib Textile Pvt Ltd has been promoted by the Sahib group and was
incorporated in July 1994. Currently the company is engaged in the wholesale trading of
fabrics.
? Earlier the company was engaged in doing embroidery job mainly for its sister
concern M/s SDM Fabrics Pvt. Ltd, which got merged in Sahib Textiles Pvt. Ltd w.e.f
01-04-07. M/s SDM Fabrics was enjoying working capital limits in tune to Rs. 425.0 lacs
from IVBL. Now the same is being extended to M/s Sahib Textiles Pvt. Ltd.
? The company is into wholesale trading of ladies dress material like Georgette,
Crepes, Jacquards, Woven and Embroidered fabrics etc under the registered trademark of
"TACFAB".
? Before merger, Sahib Textile Pvt. Ltd purchases fabrics in SDM Fabrics Pvt. Ltd
from textile mills in Surat, Calcutta and Bombay. The fabric is also purchased through
brokers. Embroidery work was being done on fabrics by Sahib Textile P Ltd. Other jobs
like dyeing or printing on grey fabric are done on job work basis
? After merger the company procure the material from the same suppliers, get it
embroidered and other job works i.e. dying and printing as and if required and sells to
same customers. Only embroidery work to be done on fabrics is done by Sahib Textile P
Ltd. Other jobs like dyeing or printing on grey fabric are done on job work basis.
? The registered office of the company is located at 6/65, WEA Laxmi Palace Hotel
Building, Gurudwara Road, Karol Bagh, 110005 is owned by the company.
? The company gets the embroidery done on fabric. The soft copies of the pattern
are loaded on the machineries and embroidery done on fabric.
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? After embroidery and other job works like dying or printing, fabric dispatched to
company’s 3 packing and selling pints, details for which is given below:
Sanjay Gandhi transport Nagar: This place is used as packing and selling point.
Mumbai: Building 13Ab, gala 11,Samhita Warehousing Complex, Kurla Andheri road,
Mumbai. This place is also being used as BRANCH OFFICE of the company.
Chandni Chowk: 4805-10, Katra Subhash, Chandni Chowk owned by the directors. Same
place is also being used as CORPORATE OFFICE of the company.
? The goods are then packed and sold from all these centres.
? The company is having staff strength of 200 people to handle all the working of
the company.
DIRECTOR BACKGROUND
? Surjit Singh: aged about 63, is the Managing Director of the company. He has
experience of about 40 years in this line of activity. He is a prominent member of the
society and is the chairman of two well-known public schools in Delhi, namely Mata Jai
Kaur Public School, Ashok Vihar and Jaspal Kaur Public School, Shalimar Bagh, New
Delhi. The directors have combined net-worth in excess of Rs. 1000 lakhs. Mr. Surjit
Singh is well supported by his sons, Mr. Harjot Singh and Mr. Satnam Singh who are
also directors in the company. Both have more than 10 years of experience in the
industry.
? Satnam Singh: aged 39, is the director of the company and has experience of 15
years in this line of activity.
? Harjot Singh, aged 37, is also the director of the company. He has been associated
with the family business for the past 12 years.
CREDIT BASE
The company procures material from textile mills based at Surat, Calcutta, Mumbai and
further sells to other retail traders.
RELATIONSHIP/BUSINESS RATIONALE
i. Relationship Experience
The group is banking with us from last 3 years and was also enjoying working capital
facilities from us.
i) The group is banking with us for the last 3 years and the conduct of the accounts
is good
ii) We shall be charging processing fee of Rs. 4.25 lacs from the customer.
iii) We shall be earning a gross interest income of appx Rs. 59.5 lacs from the
customer.
iv) The market for ladies dress material is steadily growing with the demand of more
innovative and unique designs in the market. Even with the ever-changing fashion in this
line of activity and pressure from competitors, the Sahib group has established its name
in the market and is well reputed in this line of business.
The company has already achieved turnover of Rs.4501.77 lacs till Dec 08 and is
expected to achieve turnover of Rs. 5643.0 by FY09.
Financial Comments:
Turnover:
The turnover of the company consists of sale of fabric and is showing increasing trend in
all financial years. It was at Rs. 476.65 lacs in FY06, which increased to Rs. 492.80 lacs
in FY07 showing an increase of 3.4%. In FY08 the company has achieved turnover of Rs.
5374.11 lacs i.e. 990.5%. Further the same has been projected at Rs. 5643.0 lacs in FY09,
out of which the company has already achieved 80% of sales. i.e. Rs. 4501.77 lacs till
Dec.
Profitability:
The EBIDTA Margins of the company was at 19.2 in FY06-07, decreased to 18.9 in
FY07-08 due to increase in COGS and further EBIDTA margins have again decreased to
8.7% due to decrease in Sales and General expenses from 25.6% (FY07-08) to 11.9%
(FY08-09).
The same is expected to be at 8.8% in FY09-10.
The PAT margins of the company are following the same trend.
Leverage:
TOL of the company comprises of sundry creditors, working capital bank finance
Current Ratio:
RISK APPRAISAL
Management Risk
Surjit Singh, the key person behind the success of the group has proven management
capability. He is chairman of two well-known schools in posh North Delhi - namely Mata
Jai Kaur Public School, Ashok Vihar and Jaspal Kaur Public School, Shalimar Bagh,
New Delhi.
Surjit Singh is fully supported by his two sons - Satnam Singh and Harjot Singh, who are
also directors of the company. Management set up of the group is quite strong.
Performance Risk
CONCLUSIONS
• The credit appraisal process carried out at ING is sound and bank has good
parameters to appraise the project.
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• The credit department thoroughly analyses the credit requirement of the company
and the capacity to service the debt.
• The bank has conservative norms to appraise the project the bank at the max.
Allows a 20% hike in projections.
• The credit appraisal passes through various stages and evaluations before it is
appraised.
RECOMMENDATIONS
? I also got familiarized with the credit appraisal process for SMEs.
LINKS
• www.worldbank.org.in
• www.ingvysyabank.com
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• www.rbi.org.in
• www.mospi.nic.in
• www.moneycontrol.com
• www.indiainfoline.com
• www.bankinginfo.com
BOOKS
Financial Management- Theory & Practice by Prasana Chandra, Tata McGRAW HILL.
(7th Edition)