PROJECT REPORT ON KALEIDOSCOPIC VIEW OF BANKING IN INDIA COMPILE BY:BHUMIKA N. PATEL.

40, AMARDHAM ROW HOUSE, TADWADI, RANDER ROAD, SURAT -395009 M. NO.:9978919210

It is a matter of pleasure for me to work on a practical project like Kaleidoscop ic view of Banking in India .This project has added value to my theoretical knowl edge. I would like to admit my sincere thanks to the ICICI BANK for providing me such an opportunity to work in their organization. I would like to thank my pro fessors for providing me their valuable guidance and for taking keen interest in my project. Last but not least I thank such banks like Bank of Baroda, State Ba nk of India, City Bank, Dena Bank, Surat Peoples Co-operative Bank Ltd. These bra nches had co-operated me in my project. They had made this project a great valua ble event for me. BHUMIKA PATEL

NEEDS FOR THE PROJECT Usually all persons want money for personal and commercial purposes. Banks are t he oldest lending institutions in Indian scenario. They are providing all facili ties to all citizens for their own purposes by their terms. To survive in this m odern market every bank implements so many new innovative ideas, strategies, and advanced technologies. For that they give each and every minute detail about their instit ution and projects to Public. They are providing ample facilities to satisfy their customers i.e. Net Banking, Mobile Banking, Door to Door facility, Instant facility, Investment facility, D emat facility, Credit Card facility, Loans and Advances, Account facility etc. A nd such banks get success to create their own image in public and corporate worl d. These banks always accepts innovative notions in Indian banking scenario like Credit Cards, ATM machines, Risk Management etc. So, as a student business econ omics I take keen interest in Indian economy and for that banks are the main sou rce of development. So this must be the first choice for me to select this topic. At this stage ever y person must know about new innovation, technology of procedure new schemes and new ventures.

OBJECTIVES OF THE PROJECT Because of the following reasons, I prefer this project work to get the knowledg e of the banking system. Banking is an essential industry. It is where we often wind up when we are seeki ng a problem in financial crisis and money related query. Banking is one of the most regulated businesses in the world. Banks remain important source for career opportunities for people. It is vital system for developing economy for the nat ion. Banks can play a dynamic role in delivery and purchase of consumer durables .

THE ROLE OF ECONOMISTS IN BANKS The crucial role of bank economists in transforming the banking system in India. Economists have to be more mainstreamed within the operational structure of comme rcial banks. Apart from the traditional functioning of macro-scanning, the inter linkages between treasuries, dealing rooms and trading rooms of banks need to be viewed not only with the day-to-day needs of operational necessity, but also wi th analytical content and policy foresight. Today, operational aspects of the fu nctioning of banks are attracting intensive research by professional economists. In particular, measuring and modeling different kinds of risks faced by banks, the behavior of risk-return relationships associated with different portfolio mi xes and the impact of fluctuations in financial markets on the financial perform ance of banks are areas which lend themselves to analytical and empirical apprai sal by economists and econometricians. They, in turn, are discovering the degree s of freedom and room for analytical maneuver in high frequency information gene rated by the day-to-day functioning of banks. It is vital that we develop an env ironment where these synergies are nurtured so as to serve the longer-term strat egic interests of banks. Even in real time trading and portfolio decisions, the fundamental analysis of economists provides an independent assessment of market behavior, reinforcing technical analysis. A serious limitation of the applicabil ity of standard economic analysis to banking relates to the inadequacies of the data-base. Absence of long time series data storage in the banking industry ofte n poses serious problems to the quest for the formal analytical relationships be tween variables. Even if such data exist, the presence of structural breaks may blur meaningful analysis based on traditional formulation. Economists need to th ink innovatively to overcome this problem. Use of panel regression, non-parametr ic methods and multivariate analyses could go a long way in understanding and va lidating behavioral relationships in banking. Another important challenge for th e economics profession is to develop proper models for measurement of various ri sks in Indian conditions. This is a necessity in view of the move towards risk-b ased supervision. Quantification of operational risks and calibration of Value a t Risk (VaR) models pose major computational challenge to

bankers and policy makers alike, particularly in India. A major difficulty lies in identifying the right statistical model that determines the underlying distri bution suited to the particular category of operational loss, and building the n ecessary database for deriving operationally meaningful conclusions. In my inaug ural address last year, I had also emphasized the need for bank economists to co me out of their narrow specialization and address operational issues relating to banking and finance. In order to make a meaningful contribution to banking, eco nomists must have the experience of working in operational areas of banks. For t his purpose, economists need to soil their hands in dealing rooms, treasuries and investment units, credit authorization and loan recovery, strategic management g roups and management information systems of the banks to understand the ground r ealities. There are also economies to be gained from field-level credit appraisal, asset recovery, debt restructuring, market and consumer behaviors in which bank s are involved. Thus, the profession needs to amalgamate the objectivity and the oretical soundness of economics with the functional dimensions of banking and fi nance. It is this combination of specialist training with operational experience , which is going to make t he economics profession relevant to the changing face of banking in India.

History of Banking in India Banks In India Banking services in India Reserve Bank of India (RBI) General Banking Nat u re o f Ba n ki n g Kinds of Banks R ol e of Ban k s i n a Devel op i n g E co n om y P ri nci p l es of Bank Len d i n g P ol i ci es Bran ch s et up an d s t r u ct u re Or gan i z at i o n an d s t ruct u re of a B an k B r an ch Ex p l ai n b an k organi z at i on s ys t em i n Ind i a R et ai l Bank i n g-Th e New Fl avo r S t rat egi c i s s u es i n Bank i n g S erv i c es Kno wl ed ge M an a ge m ent Tech no l o g y i n B an k i ng R egu l at i on s an d C o m p l i an ce C us t om er C en t ri c Org an i z at i on Et h i cs and C o rpo rat e Gov ern an ce E nt rep ren eu rs hi p Managing In t rod Ban ki n l Bank i c o P erfo rm anc e an d Be nchm ark i n g n t In no v at i o n i n Ban ki ng e n Management of Banking t s New Challenges u ct i o n R ecen t M ac ro econ o m i c Devel o p m ent s a n d t h e g S ys t em P rud en t i al No rm s M arket Di s ci pl i ne Uni v ers a n g Hum an R es o urc e De v el o pm en t i n Bank i n g

HISTORY OF BANKING IN INDIA--------------------------Without a sound and effecti ve banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challe nges posed by the technology and any other external and internal factors. For th e past three decades India s banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confin ed to only metropolitans or cosmopolitans in India. In fact, Indian banking syst em has reached even to the remote corners of the country. This is one of the mai n reasons of India s growth process. The government s regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major pri vate banks of India. Not long ago, an account holder had to wait for hours at th e bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money has become the order of the day. The first bank in India, though c onservative, was established in 1786. From 1786 till today, the journey of India n Banking System can be segregated into three distinct phases. They are as menti oned below: Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks an d up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.

 Phase I The General Bank of India was set up in the year 1786. Next came Bank of Hindust an and Bengal Bank. The East India Company established Bank of Bengal (1809), Ba nk of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Eur opeans shareholders. In 1865 Allahabad Bank was established and first time exclu sively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarter s at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank o f Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and bank s also experienced periodic failures between 1913 and 1948. There were approxima tely 1100 banks, mostly small. To streamline the functioning and activities of c ommercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive p owers for the supervision of banking in India as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath depo sit mobilization was slow. Abreast of it the savings bank facility provided by t he Postal department was comparatively safer. Moreover, funds were largely given to traders. Phase II Government took major steps in this Indian Banking Sector Reform after independe nce. In 1955, it nationalized Imperial Bank of India with extensive banking faci lities on a large scale especially in rural and semi-urban areas. It formed Stat e Bank of India to act as the principal agent of RBI and to handle banking trans actions of the Union and State Governments all over the country. Seven banks for ming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 19 69, major process of nationalization was carried out. It was the effort of the t hen Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in th e country were nationalized.

Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in Indi a under Government ownership. The following are the steps taken by the Governmen t of India to Regulate Banking Institutions in the Country: 1949 : Enactment of Banking Regulation Act. 1955 : Nationalization of State Bank of India. 1959 : Nationalization of SBI subsidiaries. 1961 : Insurance cover ex tended to deposits. 1969 : Nationalization of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of regional rural banks. 1980 : N ationalization of seven banks with deposits over 200 crore. After the nationaliz ation of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. Phase III This phase has introduced many more products and facilities in the banking secto r in its reforms measure. In 1991, under the chairmanship of M Narasimham, a com mittee was set up by his name which worked for the liberalization of banking pra ctices. The country is flooded with foreign banks and their ATM stations. Effort s are being put to give a satisfactory service to customers. Phone banking and n et banking is introduced. The entire system became more convenient and swift. Ti me is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any ext ernal macroeconomics shock as other East Asian Countries suffered. This is all d ue to a flexible exchange rate regime, the foreign reserves are high, the capita l account is not yet fully convertible, and banks and their customers have limit ed foreign exchange exposure.

BANKS IN INDIA------------------------------------------------------------In Ind ia the banks are being segregated in different groups. Each group has their own benefits and limitations in operating in India. Each has their own dedicated tar get market. Few of them only work in rural sector while others in both rural as well as urban. Many even are only catering in cities. Some are of Indian origin and some are foreign players. All these details and many more are discussed over here. The banks and its relation with the customers, their mode of operation, t he names of banks under different groups and other such useful information are t alked about. One more section has been taken note of is the upcoming foreign ban ks in India. The RBI has shown certain interest to involve more of foreign banks than the existing one recently. This step has paved a way for few more foreign banks to start business in India. Major Banks in India ABN-AMRO Bank Abu Dhabi Commercial Bank American Express Bank Andhra Bank Allaha bad Bank Bank of Baroda Bank of India Bank of Maharastra Bank of Punjab Bank of Rajasthan Bank of Ceylon BNP Paribas Bank Canara Bank Catholic Syrian Bank Centr al Bank of India Centurion Bank Indian Overseas Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank JPMorgan Chase Bank Karnataka Bank Karur Vysya Bank Laxmi Vilas Bank Oriental Bank of Com merce Punjab National Bank Punjab & Sind Bank Scotia Bank South Indian Bank Stan dard Chartered Bank State Bank of India (SBI) State Bank of Bikaner & jaipur

 China Trust Commercial bank Citi Bank City Union Bank Corporation Bank Dena Bank Deutsche Bank Development Credit Bank Dhanalakshmi Bank Federal Bank HDFC Bank HSBC ICICI Bank IDBI Bank Indian Bank State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurastra State Bank of Travancore Syndicate Bank Taib Bank UCO Bank Union Bank of India United Bank of India United Bank Of India United Western Bank UTI Bank Vijaya Bank BANKING SERVICES IN INDIA:With years, banks are also adding services to their cu stomers. The Indian banking industry is passing through a phase of customers mar ket. The customers have more choices in choosing their banks. A competition has been established within the banks operating in India. With stiff competition and advancement of technology, the service provided by banks has become more easy a nd convenient. The past days are witness to an hour wait before withdrawing cash from accounts or a cheque from north of the country being cleared in one month in the south. This section of banking deals with the latest discovery in the ban king instruments along with the polished version of their old systems.

RESERVE BANK OF INDIA (RBI) -----------------------------The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 wi th a share capital of Rs. 5 crores on the basis of the recommendations of the Hi lton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. T he Government held shares of nominal value of Rs. 2, 20,000. Reserve Bank of Ind ia was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Govern or and four Deputy Governors, one Government official from the Ministry of Finan ce, ten nominated Directors by the Government to give representation to importan t elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territor ial and economic interests and the interests of co-operative and indigenous bank s. The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank. T he Bank was constituted for the need of following: To regulate the issue of banknotes To maintain reserves with a view to securing monetary stability and To operate the credit and currency system of the country to its advantage. Functions of Reserve Bank of India The Reserve Bank of India Act of 1934 entrust all the important functions of a c entral bank the Reserve Bank of India. Bank of Issue Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right t o issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the

Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Depart ment are kept separate from those of the Banking Department. Originally, the ass ets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not le ss than Rs. 40 crores in value. The remaining three-fifths of the assets might b e held in rupee coins, Government of India rupee securities, eligible bills of e xchange and promissory notes payable in India. Due to the exigencies of the Seco nd World War and the post-was period, these provisions were considerably modifie d. Since 1957, the Reserve Bank of India is required to maintain gold and foreig n exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should b e in gold. The system as it exists today is known as the minimum reserve system. Banker to Government The second important function of the Reserve Bank of India is to act as Governme nt banker, agent and adviser. The Reserve Bank is agent of Central Government an d of all State Governments in India excepting that of Jammu and Kashmir. The Res erve Bank has the obligation to transact Government business, via. to keep the c ash balances as deposits free of interest, to receive and to make payments on be half of the Government and to carry out their exchange remittances and other ban king operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes way s and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on al l monetary and banking matters. 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 main tain with the Reserve Bank a cash balance equivalent to 5% of its demand liabili ties and 2 per cent of its time liabilities in India. By an amendment of 1962, t he 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 ba nks can borrow from the Reserve Bank of India on the basis of eligible securitie s 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. Controller of Credit The Reserve Bank of India is the controller of credit i.e. it has the power to i nfluence the volume of credit created by banks in India. It can do so through ch anging the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank o r the whole banking system not to lend to particular groups or persons on the ba sis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. 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, t he 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 Ba nk before it can open a new branch. Each scheduled bank must send a weekly retur n to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective contr ol of the credit system. The Reserve Bank has also the power to inspect the acco unts of any commercial bank. As supreme banking authority in the country, the Re serve Bank of India, therefore, has the following powers: (a) It holds the cash reserves of all the scheduled banks. (b) It controls the credit operations of ba nks through quantitative and qualitative controls. (c) It controls the banking s ystem through the system of licensing, inspection and calling for information.

(d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. Custodian of Foreign Reserves The Reserve Bank of India has the responsibility to maintain the official rate o f exchange. According to the Reserve Bank of India Act of 1934, the Bank was req uired to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the B ank was able to maintain the exchange rate fixed at lsh.6d. Though there were pe riods of extreme pressure in favor of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the res ponsibility of maintaining fixed exchange rates with all other member countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India s reserve of international currencies . The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the countr y. Supervisory functions In addition to its traditional central banking functions, the Reserve bank has c ertain non-monetary functions of the nature of supervision of banks and promotio n of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulat ion Act, 1949 have given the RBI wide powers of supervision and control over com mercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalga mation, reconstruction, and liquidation. The RBI is authorized to carry out peri odical inspections of the banks and to call for returns and necessary informatio n from them. The nationalization of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realizati on of certain desired social objectives. The supervisory functions of the RBI ha ve helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation. Promotional functions With economic growth assuming a new urgency since Independence, the range of the Reserve Bank s functions has steadily widened. The Bank now performs varietyof

developmental and promotional functions, which, at one time, were regarded as ou tside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and est ablish and promote new specialized financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation o f India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to pro mote saving habit and to mobilize savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank s role in this field has become extremely important. The Ban k has developed the co-operative credit movement to encourage saving, to elimina te moneylenders from the villages and to route its short term credit to agricult ure. The RBI has set up the Agricultural Refinance and Development Corporation t o provide long-term finance to farmers. Classification of RBIs functions The monetary functions also known as the central banking functions of the RBI ar e related to control and regulation of money and credit, i.e., issue of currency , control of bank credit, control of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significan t as they control and regulate the volume of money and credit in the country. Eq ually important, however, are the non-monetary functions of the RBI in the conte xt of India s economic backwardness. The supervisory function of the RBI may be regarded as a non-monetary function (though many consider this a monetary functi on). The promotion of sound banking in India is an important goal of the RBI, th e RBI has been given wide and drastic powers, under the Banking Regulation Act o f 1949 - these powers relate to licensing of banks, branch expansion, liquidity of their assets, management and methods of working, inspection, amalgamation, re construction and liquidation. Under the RBI s supervision and inspection, the wo rking of banks has greatly improved. Commercial banks have developed into financ ially and operationally sound

and viable units. The RBI s powers of supervision have now been extended to nonb anking financial intermediaries. Since independence, particularly after its nati onalization 1949, the RBI has followed the promotional functions vigorously and has been responsible for strong financial support to industrial and agricultural development in the country.

NATURE OF BANKING IN INDIA --------------------------A banking company in India has been defined in the banking companies act,1949.as one which transacts the bus iness of banking which means the accepting, for the purpose of lending or invest ment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise. Most of the activities a Bank performs are derived from the above definition. In addition, Banks are allowed to perform certain activities which are ancillary to this business of accepting deposits and lending. A bank s relationship with the public, therefore, revolves around accepting deposits and lending money. Another activity which is assuming increasing importance is transfer of money - both domestic and foreign from one place to another. This activity is generally known as "remittance business" in banking parlance. The so called forex (foreign exchange) business is largely a p art of remittance albeit it involves buying and selling of foreign currencies. FUNCTIONING OF A BANK:Functioning of a Bank is among the more complicated of cor porate operations. Since Banking involves dealing directly with money, governmen ts in most countries regulate this sector rather stringently. In India, the regu lation traditionally has been very strict and in the opinion of certain quarters , responsible for the present condition of banks, where NPAs are of a very high order. The process of financial reforms, which started in 1991, has cleared the cobwebs somewhat but a lot remains to be done. The multiplicity of policy and re gulations that a Bank has to work with makes its operations even more complicate d, sometimes bordering on illogical. This section, which is also intended for ba nking professional, attempts to give an overview of the functions in as simple m anner as possible. Banking Regulation Act of India, 1949 defines Banking as "acc epting, for the purpose of lending or investment of deposits of money from the p ublic, repayable on demand or otherwise and withdraw able by cheques, draft, and order or otherwise."

KINDS OF BANKS--------------------------------------------------------Financial requirements in a modern economy are of a diverse nature, distinctive variety an d large magnitude. Hence, different types of banks have been instituted to cater to the varying needs of the community. Banks in the organized sector may, howev er, be classified in to the following major forms: 1. Commercial banks 2. Co-ope rative banks 3. Specialized banks 4. Central bank -: COMMERCIAL BANKS:Commercial banks are joint stock companies dealing in money and credit. In India, however there is a mixed banking system, prior to July 196 9, all the commercial banks-73 scheduled and 26 non-scheduled banks, except the state bank of India and its subsidiaries-were under the control of private secto r. On July 19, 1969, however, 14mejor commercial banks with deposits of over 50 Corers were nationalized. In April 1980, another six commercial banks of high st anding were taken over by the government. At present, there are 20 nationalized banks plus the state bank of India and its 7 subsidiaries constituting public se ctor banking which controls over 90 per cent of the banking business in the coun try. -:CO-OPERATIVE BANKS:Co-operative banks are a group of financial institutions or ganized under the provisions of the Co-operative societies Act of the states. Th e main objective of co-operative banks is to provide cheap credits to their memb ers. They are based on the principle of self-reliance and mutual co-operation. C o-operative banking system in India has the shape of a pyramid a three tier stru cture, constituted by:

Primary credit societies [APEX] Central co-operative banks [District level] Stat e co-operative banks [Villages, Towns, Cities] -: SPECIALIZED BANKS:There are specialized forms of banks catering to some speci al needs with this unique nature of activities. There are thus, 1. Foreign excha nge banks, 2. Industrial banks, 3. Development banks, 4. Land development banks, 5. Exim bank. -: CENTRAL BANK:A central bank is the apex financial institution in the banking and financial system of a country. It is regarded as the highest monetary author ity in the country. It acts as the leader of the money market. It supervises, co ntrol and regulates the activities of the commercial banks. It is a service orie nted financial institution. Indias central bank is the reserve bank of India esta blished in 1935.a central bank is usually state owned but it may also be a priva te organization. For instance, the reserve bank of India (RBI), was started as a shareholders organization in 1935, however, it was nationalized after independen ce, in 1949.it is free from parliamentary control.

ROLE OF BANKS IN A DEVELOPING ECONOMY----Banks play a very useful and dynamic ro le in the economic life of every modern state. A study of the economic history o f western country shows that without the evolution of commercial banks in the 18 th and 19th centuries, the industrial revolution would not have taken place in E urope. The economic importance of commercial banks to the developing countries m ay be viewed thus: 1. Promoting capital formation 2. Encouraging innovation 3. M onetsation 4. Influence economic activity 5. Facilitator of monetary policy Abov e all view we can see in briefly, which are given below: PROMOTING CAPITAL FORMATION:A developing economy needs a high rate of capital fo rmation to accelerate the tempo of economic development, but the rate of capital formation depends upon the rate of saving. Unfortunately, in underdeveloped cou ntries, saving is very low. Banks afford facilities for saving and, thus encoura ge the habits of thrift and industry in the community. They mobilize the ideal a nd dormant capital of the country and make it available for productive purposes. ENCOURAGING INNOVATION:Innovation is another factor responsible for economic dev elopment. The entrepreneur in innovation is largely dependent on the manner in w hich bank credit is allocated and utilized in the process of economic growth. Ba nk credit enables entrepreneurs to innovate and invest, and thus uplift economic activity and progress. MONETSATION:Banks are the manufactures of money and they allow many to play its role freely in the economy. Banks monetize debts and also assist the backward su bsistence sector of the rural economy by extending their branches in to the rura l areas. They must be replaced by the modern commercial banks branches.

 INFLUENCE ECONOMIC ACTIVITY:Banks are in a position to influence economic activi ty in a country by their influence on the rate interest. They can influence the rate of interest in the money market through its supply of funds. Banks may foll ow a cheap money policy with low interest rates which will tend to stimulate eco nomic activity. FACILITATOR OF MONETARY POLICY:Thus monetary policy of a country should be condu ctive to economic development. But a well-developed banking system is on essenti al pre-condition to the effective implementation of monetary policy. Under-devel oped countries cannot afford to ignore this fact. A fine, an efficient and compr ehensive banking system is a crucial factor of the developmental process. PRINCIPLES OF BANK LENDING POLICIES--------------The main business of banking co mpany is to grant loans and advances to traders as well as commercial and indust rial institutes. The most important use of banks money is lending. Yet, there ar e risks in lending. So the banks follow certain principles to minimize the risk: 1. Safety 2. Liquidity 3. Profitability 4. Purpose of loan 5. Principle of dive rsification of risks SAFETY:Normally the banker uses the money of depositors in granting loans and ad vances. So first of all initially the banker while granting loans should think f irst of the safety of depositors money. The purpose behind the safety is to see t he financial position of the borrower whether he can pay the debt as well as int erest easily.

 LIQUIDITY:It is a legal duty of a banker to pay on demand the total deposited mo ney to the depositor. So the banker has to keep certain percent cash of the tota l deposits on hand. Moreover the bank grants loan. It is also for the addition o f short term or productive capital. Such type of lending is recovered on demand. PROFITABILITY:Commercial banking is profit earning institutes. Nationalized bank s are also not an exception. They should have planning of deposits in a profitab ility way pay more interest to the depositors and more salary to the employees. Moreover the banker can also incur business cost and can give more benefits to c ustomer. PURPOSE OF LOAN:Banks never lend or advance for any type of purpose. The banks g rant loans and advances for the safety of its wealth, and certainty of recovery of loan and the bank lends only for productive purposes. For example, the bank g ives such loan for the requirement for unproductive purposes. PRINCIPLE OF DIVERSIFICATION OF RISKS:While lending loans or advances the banks normally keep such securities and assets as a supports so that lending may be sa fe and secured. Suppose, any particular state is hit by disasters but the bank s hall get benefits from the lending to another states units. Thus, he effect on t he entire business of banking is reduced. There are proverbs that do not keep al l the eggs in one basket. ---a principle of considerations of sound lending is: 1. Safety 2. Liquidity 3. Shift ability 4. Profitability.

BRANCH SETUP AND STRUCTURE----------------------Ever since major commercial bank s were nationalized in two phases in 1969 and 1980, there has been a sea change in their functions, outlook and perception. One of the main objectives of nation alization of banks has been to help achieve balanced, regional, sectoral and sec tional development of the economy by way of making the banks reach out to the sm all man and to the remote areas of the country. RATIONAL OF A BANK STRUCTURE:An organization consists of people who carry out di fferentiated tasks which are coordinated so as to contribute and achieves planne d goals. Organizations are created mainly for producing goods and services to th e society for which they have to incorporate a formal structure. Indian banking is now operating in a more competitive setting with the induction of new banks. Both Indian and foreign, who will be bringing in new work technology and special ist expertise and a variety of new financing instruments. Branch is the primary unit of the banks business, particularly for serving the weaker sections of the s ociety. Branches have to develop close relationship they profess to serve. This leads to opening up or specialized branches, like industrial finance, small scal e industries, and Hi-tech agriculture, overseas and non-resident Indian, accordi ng to market segmentation. This new vision entails a new chain of command, a new technology and specific delegation of authority. This calls for the branch mang er to concentrate on his/her styles, skills and subordinates, goals, to shape th e branch in the competitive environment to become a profit centre and to render better customer service. This implies that the branch manager should have adequa te supporting staff to relieve him from the routine table work to developmental activities. In order to serve the customer it is necessary that one should under stand and accept role and relationship with other so as to make sure that none o f the supporting staff would be deemed to be independent of the branch manger. S o the structure of branch

organization must, from time to time, conform to the demands and peculiarities o f the locality in which the branch is functioning. Before looking in to the bran ch structure of bank, it will be worthwhile examining how a formal organizationa l structure of a bank appears. After nationalization, generally banks have a 4-t ier structure represented as under: HEAD HEAD OFFICE OFFICE ZONAL ZONAL OFFICE O FFICE HEAD HEAD OFFICE OFFICE BRANCH BRANCH OFFICE OFFICE During the mid-80s, banks started diversifying in to various areas like merchant banking, mutual funds, leasing, hire purchase, etc., to improve their profitabi lity and to cater to the needs of the customers. These activities are performed by the banks either by separate departments or as subsidiaries. After liberaliza tion and globalization of the economy, with a view to meeting the customers needs and to avoid delays, a revised organizational structure of banks was convened b y removing one tier. Now banks are going in for a 3-tier structure as under: CEN TRAL CENTRAL OFFICE OFFICE REGIONAL REGIONAL OFFICE OFFICE BRANCH BRANCH OFFICE OFFICE The regional offices are given more powers and jurisdiction so as to enab le them to act quickly.

ORGANISATIONAL STRUCTURE OF A BANK BRANCH -Now let discuss the structure of a br anch. The branch is the focal point of all activities. The structure of the bran ch may be as under: Small/Medium Branch BRANCH MANAGER (B.M.) ACCOUNTANT/ASSISTA NT BRANCH MANAGER (A.B.M.) OFFICER CLERKS SUB-STAFF This is the typical structur e of a branch bank. In very large branches, the structure will undergo slight ch anges as stated below: Very Large Branch BRANCH MANAGER ASST. BRANCH MANAGER (A.B.M.) / ACCOUNTANT MANAGER ADVANCES MANAGER OPERATIONS MANAGER ADMINISTRATION OF OF OF OF OF OF OF OF CL OF CL CL CL CL CL CL CLCL CL SS SS SS CL CL CL CLCL CL CL CL SS SS SS SS SS SS OFF = OFFICER, CL = CLERK, SS = SUB-STAFF

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 employ ees. It indicates the communication flow in the branch with well-defined account ability on the part of the employees roles. TYPES OF BRANCHES:According to locations, there are four types bank branches. The y are rural, semiurban, urban and metropolitan branches. The B.M. has special ro le and functions in managing different types of branches. ORGANIZATION AND STRUCTURE OF COMMERCIAL BANK:Uniitt Bank Un Bank Group Bankiing Group Bank ng Miixed Bankiing M xed Bank ng Branch Bankiing Branch Bank ng Chai in Bankiing Cha n Bank ng Correspondentt Bankiing Corresponden Bank ng BANK ORGANIZATION SYSTEM IN INDIA:The large volume of work passing through the b anking system every day in the form of cash, cheque, and other credit instrument s, together with the complexity of the many services rendered, calls not only fo r a high degree of skill, accuracy and knowledge on the part of the officials, b ut also up-to-date and efficient methods of organization, accountancy and contro l. Shareholders and directors The Branch Manager The Chief Clerk The Remittance or Waste Clerk The junior Clerk General Managers Branch Administration The Secur ity Clerk Head office Administration Foreign Departments The cashier The day-boo k or Control Clerk Rotation of Duties The Ledger-Keeper The Shorthand Typist Modern Banking Methods

RETAIL BANKING-THE NEW FLAVOR---------------------- The Concept of Retail Banking :The retail banking encompasses deposit and assets linked products as well as ot her financial services offered to individual for personal consumption. Generally , the pure retail banking is conceived to be the provision of mass banking produ cts and services to private individuals as opposed to wholesale banking which fo cuses on corporate clients. Over the years, the concept of retail banking has be en expanded to include in many cases the services provided to small and medium s ized businesses. Some banks in Europe even include their private banking busines s i.e. services to high net worth net worth individuals in their retail Banking portfolio. The concept of Retail banking is not new to banks. it is only now tha t it is being viewed as an attractive market segment, which offers opportunities for growth with profits. The diversified portfolio characteristic of retail ban king gives better comfort and spreads the essence of retail banking lies in indi vidual customers. Though the term Retail Banking and retail lending are often us ed synonymously, yet the later is lust one side of Retail Banking. In retail ban king, all the banking needs of individual customers are taken care of in an inte grated manner. Retail Lending Products:Major retail lending products offered by banks are the f ollowing: I. Housing Loans II. Loan for Consumer goods III. Personal Loans for m arriage, honeymoon, medical treatment and holding etc. IV. Education Loans V. Au to Loans VI. Gold Loans VII. Event Loans VIII. Festival Loans IX. Insurance Prod ucts

X. Loan against Rent receivables XI. Loan against Pension receivables to senior citizens XII. Debit and Credit Cards XIII. Global and International Cards XIV. L oan to Doctors to set up their own Clinics or for purchase of medical equipments XV. Loan for Woman Empowerment for the Setting up of boutiques Setting up of be auty parlours Setting up of creches Setting up of flower shops For making jaipur i quilts etc. Preparation and supply of Food Tiffins XVI. Loan for purchase of acoustic enclosures for Diesel Gen. Sets etc. Retail Banking Products for Depositors:Retail banking products for depositors in various segments of customers like; children, salaried persons. Senior citizens , professionals, technocrats business men, retail traders and farmers etc. includ e: a. b. c. d. e. Flexi deposit Accounts Savings Bank Accounts Recurring Deposit Accounts Short Te rm Deposits Deferred pension Linked Deposit Schemes Today pure deposit type products are giving way to multi-benefit, multi-access g enres of banking products. Most of the innovation is taking place in saving bank accounts to make the meager return of 3.5% p.a. that they earn, more attractive . Most of the banks now offer Sweep in and sweep out account, called 2-in-1 acco unts or value added savings bank accounts. This account is a combination of savi ngs bank and term deposit accounts and offers twin benefit of liquidity of a sav ings bank account and higher interest earning of term deposit accounts. Add-ons and Freebies:-

To make their products and services more service more attractive so as to woo ma ximum number of customers, the banks are vying with each other with whole lot of f rills, goodies, freebies are as under: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Free collection of specified number of outstation instruments Instant credit of outstanding cheques up to Rs.15000/Concession in exchange on demand drafts and p ay-orders and commission on bills of exchange Issuance of free personalized cheq ues books Free issuance of ATM, Debit, Credit and add-on Cards Free investment a dvisory services Grant of redeemable reward points on use of credit cards Free i nternet banking, phone banking and any where banking facilities Issuance of disc ount coupons for purchase of various products like computer accessories, music C Ds, cassettes, books, toys, garments etc.etc. Last but not the least, issuance o f free PVR, Trade Fair tickets etc. etc. Concession in rate of interest on Group advances Exemption in upfront fees These concessions, freebies and add-ons are based on the True Relationship Value of customers and is calculated by the return on various products and services o f the banks availed by them. These concessions and freebies are usually offered for purchase of consumer goods but now they have become an integral part of reta il Banking products and services also. Other Retail Banking Services:Offer of several frills and goodies is not the end of the game. Banks also offer following Retail Banking services free of charges to customers: 1. 2. 3. 4. Payment of utility bills like water, electricity, telephone and mobile phone bil ls Payment of insurance premiums on due dates Payment of monthly/quarterly educa tion fee of children to their respective schools Remittance of funds from one ac count to another

5. 6. 7. Demating of shares, bonds, debentures, and mutual funds Payment of credit card b ills on due dates Last but not the least, the filing of income tax returns and p ayment of income tax Retail Lending at Point of Sale:More and more banks have since entered into tie up arrangement with leading automobile, electronic and consumer goods dealers, b uilders and real estate agents, universities and colleges etc. for promoting and selling their Retail Banking products including housing and educational loans t o customer at the very point of sale. New delivery channels for Retail Banking Products and Services:The advent of new delivery channels viz. ATM, Interest and Telebanking have revolutionalised the retail banking activities. These channels enable Banks to deliver retail Banking products and services in an efficient and cost effective manner. Now-adays the banks are under great pressure to attract new and retain old customers, as margi ns are turning wafer thin. In these circumstances reducing administrative a tran saction cost has become crucial. Banks are making special offerings to customers through these channels. Retail banking has been immensely benefited with the re volution in IT. and communication technology. The automation of the Banking proc esses is facilitating extension of their reach and rationalization of their cost s as well. They are the engine for growth of retail banking business of Banks. T he networking of branches has extended the scope of banking to anywhere and anyt ime 24 * 7 days week banking. It has enabled customer to be the customer of a ba nk rather then the customers of a particular branch only. Customers can transact retail Banking transactions at any of the networked branches without any extra cost. As a matter of fact the Retail Banking per se has taken off because of the advent of multiple banking channels. These channels have enabled banks to go on a massive customer acquisition mode since transaction volumes spread over multi ple channels lessen the load on the brick and mortar bank branches. The impact of Retail Banking:-

The major impact of Retail Banking is that, the customers have become the empero rs the fulcrum of all banking activities, both on the asset side and the liabili ties front. The hitherto sellers market has transformed into buyers market. The customers have multiple of choices before them now for cherry picking products a nd services, which suit their life styles and tastes and financial requirements as well. Banks now go to their customers more often than the customers go to the ir banks. The non-banking finance Companies which have hitherto been thriving on retail business due to high risk and high returns thereon have been dislodged f rom their profit munching citadel. Retail banking is transforming banks in to on e stop financial super markets. The share of retail loans is fast increasing in the loan books of banks. Banks can foster lasting business relationship with cus tomers and retain the existing customers and attract new ones. There is a rise i n their service levels as well. Banks can cut costs and achieve economies of sca le and improve their revenues and profits by robust growth in retail business. R eduction in costs offers a win win situation both for banks and the customers. I t has affected the interface of banking system through different delivery mechan ism. It is not that banks are sharing the same pie of retail business. The pie i tself is growing exponentially; retail banking has fueled a considerable quantum of purchasing power through a slew of retail products. Banks can diversify risk s in their credit portfolio and contain the menace of NPAs. Re-engineering of bu siness with sophisticated technology based products will lead to business creati on, reduction in transaction cost and enhancement in efficiency of operations. Draw-backs of Retail Banking :Despite the numerous advantage of Retail Banking t here are some drew-Backs in this business. These are as under:

a. Management of large number of clients may become a problem if IT systems are not robust. b. Rapid evolution of products can lead to IT complications. c. The cost of main taining large number of small value transactions in branch networks will be relatively high, unless the customers use alternate delivery ch annels like ATMs, internet and phone banking etc. for carrying out banking trans actions. The Future of Retail Banking :Though at present Retail Banking appears to be the best bet for banks to improve their top and bottom line, yet the future of Reta il banking in general, may not be all roses as it appears to be. There are signs of slowdown in customer growth in some countries, which will inevitably have an impact on Retail Banking business growth. Secondly the possibility of deteriora tion in asset quality cannot be ruled out. With the boom in housing loan market, the sign of overheating has also started surfacing with potential problem for b anks that have not exercised sufficient caution. Further the pressure on margins is mounting partly because of fierce competition and partly as a result of fall ing interest rates environment which has diminished to some extent the endowment effect of substantial deposit bases from which most retail banks have been deri ving benefits. But banks, which have built a significant retail banking portfoli o may fare relatively well in the current fiscal. Those banks which have a dynam ic retail strategy and are well diversified in products, services and distributi on channels and have at the same time managed to achieve a good level of cost ef ficiency are the ones that are most likely to succeed in the longer term.

STRATEGIC ISSUES IN BANKING SERVICES---Strategic Planning: is the process of ana lyzing the organizational external and internal environments; developing the app ropriate mission, vision, and overall goals; identifying the general strategies to be pursued; and allocated resources. Mission is an organization s current pur pose or reason for existing. Vision is an organization s fundamental aspirations and purpose that usually appeals to its member s hearts and minds. Goals are wh at an organization is committed to achieving. Strategies are the major courses o f action that an organization takes to achieves goals. Resource Allocation is th e earmarking of money, through budgets, for various purposes. Downsizing Strateg y signals an organization s intent to rely on fewer resourcesprimarily human-to accomplish its goals. Tactical Planning: is the process of making detailed decis ions about what to do, which will do it, and how to do it-with a normal time and horizon of one year or less. The process generally includes: Choosing specific goals and the means of implementing the organization s strategic plan, as, Deciding on courses of action for improving c urrent operations, and Developing budgets for each department, division and proj ect. Strategic issues in banks services are known as or define by these ways, which a re known

 NON-PERFORMING ASSETS OF THE BANKING SECTOR:There was a significant decline in t he non-performing assets (NPAs) of SCBs in 2003-04, despite adoption of 90 day d elinquency norm from March 31, 2004. The Gross NPAs of SCBs declined from 4.0 pe r cent of total assets in 2002-03 to 3.3 percent in 2003-04. The corresponding d ecline in net NPAs was from 1.9 per cent to 1.2 per cent. Both gross NPAs and ne t NPAs declined in absolute terms. While the gross NPAs declined from Rs. 68,717 crore in 2002-03 to Rs. 64,787 crore in 2003-04, net NPAs declined from Rs. 32, 670 crore to Rs. 24,617 crore in the same period. There was also a significant d ecline in the proportion of net NPAs to net advances from 4.4 per cent in 2002-0 3 to 2.9 per cent in 2003-04. The significant decline in the net NPAs by 24.7 pe r cent in 2003-04 as compared to 8.1 per cent in 2002-03 was mainly on account o f higher provisions (up to 40.0 per cent) for NPAs made by SCBs. The decline in NPAs in 2003-04 was witnessed across all bank groups. The decline in net NPAs as a proportion of total assets was quite significant in the case of new private s ector banks, followed by PSBs. The ratio of net NPAs to net advances of SCBs dec lined from 4.4 per cent in 2002-03 to 2.9 per cent in 2003-04. Among the bank gr oups, old private sector banks had the highest ratio of net NPAs to net advances at 3.8 per cent followed by PSBs (3.0 per cent) new private sector banks (2.4 p er cent) and foreign banks (1.5 per cent) An analysis of NPAs by sectors reveals that in 2003-04, advances to non-priority sectors accounted for bulk of the out standing NPAs in the case of PSBs (51.24 per cent of total) and for private sect or banks (75.30 per cent of total). While the share of NPAs in Agriculture secto r and SSIs of PSBs declined in 2003-04, the share of other priority sectors incr eased. The share of loans to other priority sectors in priority sector lending a lso increased. Measures taken to reduce NPAs include re schedulement, restructur ing at the bank level, corporate debt restructuring, and recovery through Lok Ad alats, Civil Courts, and debt recovery tribunals and compromise settlements. The recovery management received a major fillip with the enactment of the Securitiz ation and Reconstruction of Financial Assets and Enforcement of Security Interes t (SARFAESI) Act, 2002 enabling banks to realize their dues without intervention of courts and tribunals. The Supreme Court in its judgment dated April 8, 2004, while upholding the

constitutional validity of the Act, struck down section 17 (2) of the Act as unc onstitutional and contrary to Article 14 of the Constitution of India. The Gover nment amended the relevant provisions of the Act to address the concerns express ed by the Supreme Court regarding a fair deal to borrowers through an ordinance dated November 11, 2004. It is expected that the momentum in the recovery of NPA s will be resumed with the amendments to the Act. The revised guidelines for com promise settlement of chronic NPAs of PSBs were Issued in January 2003 and were extended from time to time till July 31, 2004. The cases filed by SCBs in Lok Ad alats for recovery of NPAs stood at 5.20 lakh involving an amount of Rs. 2,674 c rore (prov.). The recoveries effected in 1.69 lakh cases amounted to Rs.352 cror e (prov.) as on September 30, 2004.The number of cases filed in debt recovery tribunals stood at 64, 941 as on June 30, 2004, involving an amount of Rs. 91,901 crore. Out of these, 29, 525 cases involving an amount of Rs. 27,869 crore have been adjudicated. The amount recovered was to Rs. 8,593 crore. Under the scheme of corporate debt restructuring introduced in 2001, the number of cas es and value of assets restructured stood at 121 and Rs. 69,575 crore, respectiv ely, as on December 31, 2004. Iron and steel, refinery, fertilizers and telecomm unication sectors were the major beneficiaries of the scheme. These sectors acco unted for more than two-third of the values of assets restructured. As credit in formation is crucial for the development of the financial system and for address ing the problems of NPAs, dissemination of credit information on suit-filed defa ulters is being undertaken by the Credit Information Bureau of India Ltd. (CIBIL )

from March 2003. In its annual policy statement for 2004-05, the RBI advised ban ks and financial institutions to review the measures taken for furnishing credit information in respect of all borrowers to CIBIL. In its mid-term review, the R BI again urged the banks to make persistent efforts in obtaining consent from al l the borrowers, in order to establish an efficient credit information system, w hich would help in enhancing the quality of credit decisions, improve the asset quality, and facilitate faster credit delivery. CAPITAL ADEQUACY RATIO:The concept of minimum capital to risk weighted assets ra tio (CRAR) has been developed to ensure that banks can absorb a reasonable level of losses. Application of minimum CRAR protects the interest of depositors and promotes stability and efficiency of the financial system. At the end of March 3 1, 2004, CRAR of PSBs stood at 13.2 per cent, an improvement of 0.6 per centage point from the previous year. There was also an improvement in the CRAR of old p rivate sector banks from 12.8 per cent in 2002-03 to 13.7 per cent in 2003-04. T he CRAR of new private sector banks and foreign banks registered a decline in 20 03-04. For the SCBs as a whole the CRAR improved from 12.7 per cent in 2002-03 t o 12.9 per cent in 2003-04. All the bank groups had CRAR above the minimum 9 per cent stipulated by the RBI. During the current year, there was further improvem ent in the CRAR of SCBs. The ratio in the first half of 2004-05 improved to 13.4 per cent as compared to 12.9 per cent at the end of 2003-04. Among the bank gro ups, a substantial improvement was witnessed in the case of new private sector b anks from 10.2 per cent as at the end of 2003-04 to 13.5 per cent in the first h alf of 2004-05. While PSBs and old private banks maintained the CRAR at almost t he same level as in the previous year, the CRAR of foreign banks declined to 14. 0 per cent in the first half of 2004-05 as compared to 15.0 per cent as at the e nd of 2003-04.

 TOTAL QUALITY MANAGEMENT:While Total Quality Management has proven to be an effe ctive process for improving organizational functioning, its value can only be as sured through a comprehensive and well thought out implementation process. The p urpose of this chapter is to outline key aspects of implementation of large scal e organizational change which may enable a practitioner to more thoughtfully and successfully implement TQM. First, the context will be set. TQM is, in fact, a large scale systems change, and guiding principles and considerations regarding this scale of change will be presented. Without attention to contextual factors, well intended changes may not be adequately designed. As another aspect of cont ext, the expectations and perceptions of employees (workers and managers) will b e assessed, so that the implementation plan can address them. Specifically, sour ces of resistance to change and ways of dealing with them will be discussed. Thi s is important to allow a change agent to anticipate resistances and design for them, so that the process does not bog down or stall. Next, a model of implement ation will be presented, including a discussion of key principles. Visionary lea dership will be offered as an overriding perspective for someone instituting TQM . In recent years the literature on change management and leadership has grown s teadily, and applications based on research findings will be more likely to succ eed. Use of tested principles will also enable the change agent to avoid reinven ting the proverbial wheel. Implementation principles will be followed by a revie w of steps in managing the transition to the new system and ways of helping inst itutionalize the process as part of the organization s culture. This section, to o, will be informed by current writing in transition management and institutiona lization of change. Finally, some miscellaneous do s and dont will be offered. Me mbers of any organization have stories to tell of the introduction of new progra ms, techniques, systems, or even, in current terminology, paradigms. Usually the employee, who can be anywhere from the line worker to the executive level, desc ribes such an incident with a combination of cynicism and disappointment: some m anager went to a conference or in some other way got a "great idea" (or did it b ased on threat or desperation such as an urgent need to cut costs) and came back to work to enthusiastically present it, usually mandating its implementation. T he "program"

probably raised people s expectations that this time things would improve, that management would listen to their ideas. Such a program usually is introduced wit h fanfare, plans are made, and things slowly return to normal. The manager blame s unresponsive employees, line workers blame executives interested only in looki ng good, and all complain about the resistant middle managers. Unfortunately, th e program itself is usually seen as worthless: "we tried team building (or organ ization development or quality circles or what have you) and it didn t work; nei ther will TQM". Planned change processes often work, if conceptualized and imple mented properly; but, unfortunately, every organization is different, and the pr ocesses are often adopted "off the shelf" "the appliance model of organizationa l change : buy a complete program, like a quality circle package, from a deale r, plug it in, and hope that it runs by itself" (Kanter, 1983, 249). Alternative ly, especially in the under funded public and not for profit sectors, partial ap plications are tried, and in spite of management and employee commitment do not bear fruit. This chapter will focus on ways of preventing some of these disappoi ntments. In summary, the purpose here is to review principles of effective plann ed change implementation and suggest specific TQM applications. Several assumpti ons are proposed: 1. TQM is a viable and effective planned change method, when p roperly installed 2. Not all organizations are appropriate or ready for TQM 3. P reconditions (appropriateness, readiness) for successful TQM can sometimes be cr eated 4. Leadership commitment to a large scale, long term, and cultural change is necessary. While problems in adapting TQM in government and social service or ganizations have been identified, TQM can be useful in such organizations if pro perly modified. For survival, banks have to make efforts to improve their qualit y and competitiveness by planning and taking innovative in fall areas: Increase emphasis on customer focused activities Intro a total quality program Dev eloping differential value added services Educating employees through involvemen t programs Increase quality through management and system Increase effectiveness of product development

 Developing product with lower uses costs TQM principles Customer satisfaction Plan-do-check-act (PDCA) cycle Management b y fact -- 5Ws (what, why, who, when, and where) + 1H (how) approach Respect fo r people TQM elements Total employee involvement (TEI) Total waste elimination ( TWE) Total quality control (TQC) TQM focus areas Customer satisfaction Product q uality Plant reliability Waste elimination Benefits achieved through TQM Increas ed focus on the customer Mindset of continuous improvement Better product qual ity Better systems and procedures Better cross-functional teamwork Increased pla nt reliability Waste elimination in offices and factories.

KNOWLEDGE MANAGEMENT------------------------------------According to Peter Druck er and Daniel Bell, the management Gurus knowledge is the only meaningful econom ic resource. Knowledge management can be defined as a systematic and integrative process of coordinating organization-wide activities of acquiring, creating, st oring, sharing, diffusing, developing and deploying knowledge by individual and groups in the pursuit of major organizational goals. It also involves the creati on of an interacting learning environment where organization members transfer an d share what they know; and apply knowledge to solve problems, innovate and crea te new knowledge. Knowledge management is as much about people and culture as it is about technology. Knowledge management thrives only when the human communica tion network operates freely across the shortest path between the knowledge prov iders and knowledge seekers. There must be a culture that promotes and rewards t he pooling together of knowledge resources. Thus organizations must build a cult ure that motivates people to create, share and use knowledge. After the preoccup ation with system and procedures to collect data ad translate it into informatio n, its time for firms to focus on the next plane- knowledge. Knowledge managemen t is not a buzzword. Every knowledge management solution, if currently implement ed, has definite measurable business benefits. Future business success increasin gly depends on the retention and the creative use of the knowledge ideas and exp eriences of an organization and its employees. And in knowledge economy corporat ions need for workers will be more than the workers need for employer. The work will demand more formal education and more cutting edge knowledge accumulation.

INNOVATION IN BANK---------------------------------------------------Innovation drives organizations to grow, prosper and transform in sync with the changes in the environment, both internal and external. Banking is no exception to this. In fact, this sector has witnessed radical transformation of late, based on many i nnovations in products, processes, services, systems, business models, technolog y, governance and regulation. A liberalized and globalize financial infrastructu re has provided an additional impetus to this gigantic effort. The pervasive inf luence of in formation technology has revolutionalized banking. Transaction cost s have crumbled and handling of astronomical number of transactions in no time h as become a reality. Internationally, the number brick and mortar structure has been rapidly yielding ground to click and order electronic banking with a pletho ra of new products. Banking has become boundary less and virtual with a 24 * 7 m odel. Banks who strongly rely on the merits of relationship banking as a time tes ted way of targeting and serving clients, have readily embraced Customer Relatio nship Management (CRM), with sharp focus on customer centricity, facilitated by the availability of superior technology. CRM has, therefore, become the new mant ra in customer service management, which is both relationship based and informat ion intensive. Risk management is no longer a mere regulatory issue.basel-2 has accorded a primacy of place to this fascinating exercise by repositioning it as the core of banking. We now see the evolution of many novel deferral products li ke credit derivatives, especially the Credit Risk Transfer (CRT) mechanism, as a consequence. CRT, characterized by significant product innovation, is a very us eful credit risk management tool that enhances liquidity and market efficiency. Securitization is yet another example in this regard, whose strategic use has be en rapidly rising globally. So is outsourcing. SOME RECENT INNOVATIONS IN INDIAN BANKING:Tandon can, however, usefully cast an eye at one way of shopping without revealing his credit card number. HDFC Banks Ne t Safe card is a one-time use card with a limit thats specified, taken from Tendons credit or debit card. Even if Tandon

fails to utilize the full amount within 24 hours of creating the card, the card simply dies and the unspent amount in the temporary card reverts to his original credit or debit card. Welcome to one of the myriad ways in which bankers have b een trying to innovate. Theyre bringing ATMs, cash and even foreign exchange to t heir customers doorsteps. Indeed, innovation has become the hottest banking game in town. Want to buy a house but dont want to go through the hassles of haggling with brokers and the mounds of paperwork? Not to worry. Your bank will tackle al l this. Its ready to come every step of the way for you to buy a house. Standard Chartered, for instance, has property advisors to guide a customer through the e ntire process of selecting and buying a house. They also lend a hand with the cu mbersome documentation formalities and the registration. Dont fret if youve alread y bought your house or car you can do other things with both. You can leverage y our new house or car these days with banks like ICICI Bank and Stanchart ready t o extend loans against either, till its about five years old. Loans are available to all car owners for almost all brands of cars manufactured in India that are up to five years old. Still, innovation is more evident in retail banking. True, all banks offer pretty much the same suite of asset and liability products. But its the small tweaking here and there that makes all the difference. Take, for e xample, the once staid deposits. Some bank accounts combine a savings deposit ac count with a fixed deposit. A sweep-in account, as it is called, works like this : the account will have a cut-off, say, Rs 25,000; any amount over and above tha t gets automatically transferred to a fixed deposit which will earn the customer a clean 2 per cent more than the returns that a savings account gives. Last mon th, Kotak Mahindra Bank introduced a variant of the sweep-in account. If the bal ance tops Rs 1.5 lakh, the excess runs into Kotaks liquid mutual fund. Even if the money is there only for the weekend, a liquid fund can earn you a clean 4.5 per cent per annum, points out Shashi Arora, vice president, marketing, Kotak Mahind ra Bank. Thats not a small gain considering that your current account does not pa y you any interest. And if, meanwhile, you want to buy a big-ticket home theatre system, the minute you swipe your card the invested sum will return to your acc ount. Theres plenty of innovation on home loans. ABN Amro sent the home mortgage market afire with its 6 per cent home loan offering last year. The product offer s a 6 per cent interest rate for two years after which the interest rate is rese t in tune with the prevailing

market rate. All the other big home loan players slashed their rates after this was announced. Look too at the home saver product and its variants from Citibank , HSBC and Stanchart. The interest rate on the loan is determined by the balance you maintain in the savings account with the bank. The home builder can maintai n a higher balance in his or her savings account and bring down the interest rat e on the home loan. The rate is calculated on a daily basis on the net loan amou nt. Stanchart claims that since the launch of its home saver product in April 20 02, close to 40 per cent of its customers have chosen it. Says Vishu Ramachandra n, regional head, consumer banking, Standard Chartered: We believe that there are several ways to innovate and create value in the process, even in developed pro duct areas. Banks are also attempting to reach out to residents of metropolitan c ities where people are pressed for time (what with long commuting hours, traffic jams and both spouses working), beyond conventional banking hours. ICICI Bank, for example, introduced eight to eight banking hours, seven days of the week, in major cities. Not to be outdone, some of the other private banks have also done this too. HDFC Bank even has a 24-hour branch at Mumbais international airport. Several banks are even bringing ATMs to customer doorsteps. ICICI Bank, State Ba nk of India and Bank of India now have mobile ATMs or vans that go along a parti cular route in a city and are stationed at strategic locations for a few hours e very day. This saves the bank infrastructure costs since it has one mobile ATM i nstead of multiple stationary ones. Thats not all. Even money is delivered to cus tomers at home. Kotak Mahindra Bank, a late entrant into private banking, delive rs cash at the doorstep. A customer can withdraw a minimum of Rs 5,000 and up to a maximum of Rs 2 lakh and get the money at home. And, mind you, Kotak is not a lone. The list of banks offering a similar service includes Citibank, Stanchart, ABN Amro and HDFC Bank. HDFC Bank brings even foreign exchange, whether travell ers cheques or cash, to your doorstep courtesy its tie-up with Travelex India. A ll one has to do is call up the branch or HDFC Banks phone banking number. The ba nks country head, retail, Neeraj Swaroop, believes that continuous innovation wil l always make a difference, with customer needs changing day by day. Innovation w ill never become less important for us, he says.

HDFC Bank has pioneered other innovations. Take point of sale (POS) terminals, a prerequisite in any store or restaurant worth its name in the country. Earlier this year, it tied up with Reliance Infocomm to offer mobile POS terminals. Alth ough this might sound a tad too fancy today, there could soon be a day when you can swipe your card to pay your cabby, the pizza home delivery boy and even for the groceries from the local kirana store. But internet banking and shopping hav e been slow starters, given the low computer penetration in the country but bank s are going all out to get the customer online. Not only is electronic fund tran sfer between banks across cities possible through internet banking today but ban ks also offer other features that benefit the customer. HDFC Bank, for instance, has an option called One View on its internet banking site which provides custome rs a comprehensive view of their investments and fund movements. Customers can l ook at their accounts in six different banks on one screen. These include HDFC B ank accounts and demat accounts, ICICI Bank, Citibank, HSBC and Standard Charter ed Bank accounts, apart from details of Citibank credit card dues and so on. Ban ks are also innovating on the company and treasury operations fronts. In corpora te loans, plain loans are passe. Mumbai inter-bank offered rate (MIBOR)-linked a nd commercial paper-linked interest rates on loans are common. MIBOR is a refere nce rate arrived at every day at 4 pm by Reuters. It is the weighted average rat e of call money business transacted by 22 institutions, including banks, primary dealers and financial institutions. The State Bank of India was the first to us her in MIBOR-linked loans for top companies. Soon enough, other banks followed. ICICI Bank carried out the worlds first ever securitization of a micro finance po rtfolio last year. The bank securitized Rs 4.2 crore for Bharatiya Samruddhi Fin ance Ltd for crop production. Banks, of course, realize that innovation gives th em only a first mover advantage until their rivals catch up. But then, they can console themselves. Isnt imitation the best form of flattery? TECHNOLOGY IN BANKING----------------------------------------

Nobel Laureate Robert Solow had once remarked that computers are seen everywhere excepting in productivity statistics. More recent developments have shown how f ar this state of affairs has changed. Innovation in technology and worldwide rev olution in information and communication technology (ICT) have emerged as dynami c sources of productivity growth. The relationship between IT and banking is fun damentally symbiotic. In the banking sector, IT can reduce costs, increase volum es, and facilitate customized products; similarly, IT requires banking and finan cial services to facilitate its growth. As far as the banking system is concerne d, the payment system is perhaps the most important mechanism through which such interactive dynamics gets manifested. Recognizing the importance of payments an d settlement systems in the economy, we have embarked on technology based soluti ons for the improvement of the payment and settlement system infrastructure, cou pled with the introduction of new payment products such as the computerized sett lement of clearing transactions, use of Magnetic Ink Character Recognition (MICR ) technology for cheque clearing which currently accounts for 65 per cent of the value of cheques processed in the country, the computerization of Government Ac counts and Currency Chest transactions, operationalisation of Delivery versus Payment (DvP) for Government securities tr ansactions. Two-way inter-city cheque collection and imaging have been operationalised at the four metros. The coverage of Electronic Clearing Service (Debit and Credit) has been significantly expanded to encourage non-paper based funds movement and develop the provision of a centralized facility for effecting payments. The scheme for Electronic Funds Transfer operated by the Reserve Bank has been significantly augmented and is now available across thirteen major cit ies. The scheme, which was originally intended for small value transactions, is processing high value (up to Rs.2 crore) from October 1, 2001. The Centralized F unds Management System (CFMS), which would enable banks to obtain consolidated a ccount-wise and centre-wise positions of their balances with all 17 offices of t he Deposits Accounts Departments of the Reserve Bank, has begun to be implemente d in a phased manner from November 2001. A holistic approach has been adopted to wards designing and development of a modern, robust, efficient, secure and integ rated payment and settlement system taking into account certain aspects relating to potential risks, legal framework and the impact on the

operational framework of monetary policy. The approach to the modernization of t he payment and settlement system in India has been three-pronged: (a) consolidat ion, (b) development, and (c) integration. The consolidation of the existing pay ment systems revolves around strengthening Computerized Cheque clearing, expandi ng the reach of Electronic Clearing Services and Electronic Funds Transfer by pr oviding for systems with the latest levels of technology. The critical elements in the developmental strategy are the opening of new clearing houses, interconne ction of clearing houses through the INFINET; optimizing the deployment of resou rces by banks through Real Time Gross Settlement System, Centralized Funds Manag ement System (CFMS); Nego tiated Dealing System (NDS) and the Structured Financi al Messaging Solution (SFMS). While integration of the various payment products with the systems of individual banks is the thrust area, it requires a high degr ee of standardization within a bank and seamless interfaces across banks. The se tting up of the apex-level National Payments Council in May 1999 and the operati onalisation of the INFINET by the Institute for Development and Research in Bank ing Technology (IDRBT), Hyderabad have been some important developments in the d irection of providing a communication network for the exclusive use of banks and financial institutions. Membership in the INFINET has been opened up to all ban ks in addition to those in the public sector. At the base of all inter-bank mess age transfers using the INFINET is the Structured Financial Messaging System (SF MS). It would serve as a secure communication carrier with templates for intraand inter-bank messages in fixed message formats that will facilitate straight th rough processing. All inter-bank transactions would be stored and switched at the central hub at Hyderabad while intrabank messages will be switched and stored b y the bank gateway. Security features of the SFMS would match international stan dards. In order to maximize the benefits of such efforts, banks have to take pro -active measures to: further strengthen their infrastructure in respect of stand ardization, high levels of security and communication and networking; achieve in ter-branch connectivity early; popularize the usage of the scheme of electronic funds transfer (EFT); and

Institute arrangements for an RTGS environment online with a view to integrating into a secure and consolidated payment system. Information technology has immen se untapped potential in banking. Strengthening of information technology in ban ks could improve the effectiveness of asset-liability management in banks. Build ing up of a related data-base on a real time basis would enhance the forecasting of liquidity greatly even at the branch level. This could contribute to enhanci ng the risk management capabilities of banks. REGULATIONS AND COMPLIANCE---------------------------Progressive strengthening, deepening and refinement of the regulatory and supervisory system for the financ ial sector have been important elements of financial sector reforms. In the long run, it is the supervision and regulation function that is critical in safeguar ding financial stability. There is also some evidence that proactive and effecti ve supervision contributes to the efficiency of financial intermediation. Financ ial sector supervision is expected to become increasingly risk-based and concern ed with validating systems rather than setting them. This will entail procedures for sound internal evaluation of risk for banks. As mentioned earlier, bank man agements will have to develop internal capital assessment processes in accordanc e with their risk profile and control environment. These internal processes woul d then be subjected to review and supervisory intervention if necessary. The emp hasis will be on evaluating the quality of risk management and the adequacy of r isk containment. In such an environment, credibility assigned by markets to risk disclosures will hold only if they are validated by supervisors. Thus effective and appropriate supervision is critical for the effectiveness of capital requir ements and market discipline. In certain areas, as for instance, in the urban co operative banking segment, the regulatory requirements leave considerable scope for regulatory arbitrage and even circumvention. The problem is rendered more co mplex by the existence of regulatory overlap between the Central Government, the State Governments and the Reserve Bank. Regulatory overlap has impeded the spee d of regulatory response to emerging problems. The need for removing multiple re gulatory jurisdictions over the cooperative banking sector has been reiterated o n several occasions. In this regard, the Reserve Bank has

proposed the setting up of an apex supervisory body for urban cooperative banks under the control of a high-level supervisory board consisting of representative s of the Central governments, the State governments, the Reserve Bank and expert s. The apex body is expected to ensure compliance with prudential requirements a nd also supervise on-site inspections and off-site surveillance. Recent developm ents in certain segments of the financial sector have also brought to the fore i ssues relating to corporate governance in banks. As part of on-going reforms, bo ards have been given greater autonomy to prescribe internal control guidelines, risk management and procedures for market discipline and accountability. It is e xtremely important that greater vigilance over adherence to these norms goes han d-in-hand with greater autonomy. Recent evidence of transgression of prudential guidelines by a few banks has raised the issue of the audit and supervisory func tions of boards. As we move towards a more deregulated financial regime, these f unctions have to be transferred from either the Government or the Reserve Bank t o bank boards. This imposes a greater responsibility and accountability on the b ank management. It is in this context that a consultative group of directors of select banks and other experts has been set up to recommend measures to strength en the internal supervisory role of boards. The objective is to obtain a feedbac k on how boards function vis--vis compliance with prudential norms, transparency and disclosure, functioning of the audit committee, etc., and to devise effectiv e mechanisms for ensuring management discipline. Several other initiatives in im proving the supervisory function have been undertaken, including a prudential su pervisory reporting system for financial institutions, improvements in procedure s for financial inspection, sensitizing the general public for better regulation of the activities of NBFCs and enactment of appropriate legislation to protect depositor interests in some States. Major legal reforms have been initiated in a reas such as security laws, the Negotiable Instruments Act, bank frauds and the regulatory framework of banking. The Reserve Bank has also accepted the principl e of transfer of ownership to the Government in respect of some financial instit utions in view of the conflict of interest that may arise in the conduct of its supervisory function. It is expected that these initiatives will pave the way fo r an efficient, and risk-based supervisory environment in India. The largest set of consolidated regulations that mandate integrity of data in India are the IT Act and SEBI s clause 49 for listed companies. These regulations do not

currently enforce the kind of security standards that are common in Europe and t he US. In a global economy, however, no company is an island and India Inc is ad opting US and European compliance procedures and certifications such as Sarbanes Oxley, Safe Harbour, BS, and ISO. Compliance, regulatory or otherwise, does not directly concern the IT department. In manufacturing for instance, compliance c ontrols don t really involve system security, and a large part of the quality co ntrol required by authorities cannot be imposed or enforced using IT. Companies that deal with sensitive information, financial services and BPOs, banks, MNC su bsidiaries or those with plans to expand beyond Indian shores are all affected. These will continue to make strides towards compliance. For the mediumscale segm ent (Rs 100-300 crore turnover), security and audits are not a priority. This se gment is comfortable with public mail servers, and exchanging information over n ot very secure connections. CORPORATE GOVERNANCE - CODE OF CONDUCT--------1. Need and objective of the Code Clause 49 of the Listing agreement entered into with the Stock Exchanges, requir es, as part of Corporate Governance the listed entities to lay down a Code of Co nduct for Directors on the Board of an entity and its Senior Management. The ter m "Senior Management" shall mean personnel of the company who are members of its core management team excluding the Board of Directors. This would also include all members of management, one level below the Executive Directors including all functional heads. 2. Bank s Belief System This Code of Conduct attempts to set forth the guiding principles on which the B ank shall operate and conduct its daily business with its multitudinous stakehol ders, government and regulatory agencies, media and anyone else with whom it is connected. It recognizes that the Bank is a trustee and custodian of public mone y and in order to fulfill fiduciary obligations and responsibilities, it has to maintain and continue to enjoy the trust and confidence of public at large.

The Bank acknowledges the need to uphold the integrity of every transaction it e nters into and believes that honesty and integrity in its internal conduct would be judged by its external behavior. The bank shall be committed in all its acti ons to the interest of the countries in which it operates. The Bank is conscious of the reputation it carries amongst its customers and public at large and shal l endeavor to do all it can to sustain and improve upon the same in its discharg e of obligations. The Bank shall continue to initiate policies, which are custom er centric and which promote financial prudence. 3. Philosophy of the Code The code envisages and expects a. Adherence to the highest standards of honest a nd ethical conduct, including proper and ethical procedures in dealing with actu al or apparent conflicts of interest between personal and professional relations hips. b. Full, fair, accurate, sensible, timely and meaningful disclosures in th e periodic reports required to be filed by the Bank with government and regulato ry agencies. c. Compliance with applicable laws, rules and regulations. d. To ad dress misuse or misapplication of the Bank s assets and resources. e. The highes t level of confidentiality and fair dealing within and outside the Bank. A. Gene ral Standards of conduct The Bank expects all Directors and members of the Core Management to exercise go od judgment, to ensure the interests, safety and welfare of customers, employees and other stakeholders and to maintain a cooperative, efficient, positive, harm onious and productive work environment and business organization. The Directors and members of the Core Management while discharging duties of their office must act honestly and with due diligence. They are expected to act with that amount of utmost care and prudence, which an ordinary person is expected to take in his / her own business. These standards need to be applied while working in the prem ises of the Bank, at offsite locations where business is being conducted whether in India or abroad, at Bank-sponsored business and social events, or at any oth er place where they act as representatives of the Bank.

B. Conflict of Interest A "conflict of interest" occurs when personal interest of any member of the Boar d of Directors and of the Core management interferes or appears to interfere in any way with the interests of the Bank. Every member of the Board of Directors a nd Core Management has a responsibility to the Bank, its stakeholders and to eac h other. Although this duty does not prevent them from engaging in personal tran sactions and investments, it does demand that they avoid situations where a conf lict of interest might occur or appear to occur. They are expected to perform th eir duties in a way that they do not conflict with the Bank s interest such as : Employment /Outside Employment - The members of the Core Management are expecte d to devote their total attention to the business interests of the Bank. They ar e prohibited from engaging in any activity that interferes with their performanc e or responsibilities to the Bank or otherwise is in conflict with or prejudicia l to the Bank. Business Interests - If any member of the Board of Directors and Core Management considers investment in securities issued by the Bank s customer , supplier or competitor, they should ensure that these investments do not compr omise their responsibilities to the Bank. Many factors including the size and na ture of the investment; their ability to influence the Bank s decisions, their a ccess to confidential information of the Bank, or of the other entity, and the n ature of the relationship between the Bank and the customer, supplier or competi tor should be considered in determining whether a conflict exists. Additionally, they should disclose to the Bank any interest that they have which may conflict with the business of the Bank. Related Parties - As a general rule, the Directo rs and members of the Core Management should avoid conducting Bank s business w ith a relative or any other person or any firm, Company, association in which th e relative or other person is associated in any significant role. Relatives shal l include : o Father o Mother (including step mother) o Son s Wife o Daughter (i ncluding step daughter)

o Father s father o Father s mother o Mother s mother o Mother s father o Son s son o Son s son s wife o Son s daughter o Son s daughter s husband o Daughter s husband o Daughter s son o Daughter s son s wife o Daughter s daughter o Daughte r s daughter s husband o Brother (including step brother) o Brother s wife o Sis ter (including step sister) o Sister s husband If such a related party Transacti on is unavoidable, they must fully disclose the nature of the related party tran saction to the appropriate authority. Any dealings with a related party must be conducted in such a way that no preferential treatment is given to that party. I n the case of any other transaction or situation giving rise to conflicts of int erests, the appropriate authority should after due deliberations decide on its i mpact. C. Applicable Laws The Directors of the Bank and Core Management must comply with applicable laws, regulations, rules and regulatory orders. They should report any inadvertent non compliance, if detected subsequently, to the concerned authorities. D. Disclosu re Standards The Bank shall make full, fair, accurate, timely and meaningful disclosures in t he periodic reports required to be filed with Government and Regulatory agencies . The members of Core Management of the bank shall initiate all actions deemed n ecessary for proper dissemination of relevant information to the Board of Direct ors, Auditors

and other Statutory Agencies, as may be required by applicable laws, rules and r egulations. E. Use of Bank s Assets and Resources Each member of the Board of Directors and the Core Management has a duty to the Bank to advance its legitimate interests while dealing with the Bank s assets an d resources. Members of the Board of Directors and Core Management are prohibite d from: Using Corporate property, information or position for personal gain, Sol iciting, demanding, accepting or agreeing to accept anything of value from any p erson while dealing with the Bank s assets and resources, Acting on behalf of th e Bank in any transaction in which they or any of their relative(s) have a signi ficant direct or indirect interest. F. Confidentiality and Fair Dealings (i) Ban k s confidential Information The Bank s confidential information is a valuable a sset. It includes all trade related information, trade secrets, confidential and privileged information, customer information, employee related information, str ategies, administration, research in connection with the Bank and commercial, le gal, scientific, technical data that are either provided to or made available ea ch member of the Board of Directors and the core Management by the Bank either i n paper form or electronic media to facilitate their work or that they are able to know or obtain access by virtue of their position with the Bank. All confiden tial information must be used for Bank s business purposes only. This informatio n includes the safeguarding, securing and proper disposal of confidential inform ation in accordance with the Bank s policy on maintaining and managing records. The obligation extends to confidential of third parties, which the Bank has righ tfully received under non-disclosure agreements. To further the Bank s business, confidential information may have to be disclosed to potential business partner s. Such disclosures should be made after considering its potential benefits and risks. Care should be taken to divulge the most sensitive information, only afte r the said potential business partner has signed a confidentiality agreement wit h the Bank.

Any publication or publicly made statement that might be perceived or construed as attributable to the Bank, made outside the scope of any appropriate authority in the Bank, should include a disclaimer that the publication or statement repr esents the views of the specific author and not the Bank. (ii) Other Confidentia l Information The bank has many kinds of business relationships with many compan ies and individuals. Sometimes, they will volunteer confidential information abo ut their products or business plans to induce the Bank to enter into a business relationship. At other times, the Bank may request that a third party provide co nfidential information to permit the Bank to evaluate a potential business relat ionship with the party. Therefore, special care must be taken by the Board of Di rectors and members of the Core Management to handle the confidential informatio n of others responsibly. Such confidential information should be handled in acco rdance with the agreements with such third parties. The Bank requires that every Director and the member of Core Management, General Managers should be fully co mpliant with the laws, statutes, rules and regulations that have the objective o f preventing unlawful gains of any nature whatsoever. Directors and members of C ore Management shall not accept any offer, payment, promise to pay or authorizat ion to pay any money, gift or anything of value from customers, suppliers, share holders/ stakeholders etc that is perceived as intended, directly or indirectly, to influence any business decision, any act or failure to act, any commission o f fraud or opportunity for the commission of any fraud. 4. Good Corporate Governance Practices Each member of the Board of Directors and Core Management of the Bank should adh ere to the following so as to ensure compliance with good Corporate Governance p ractices. (a) Dos Attend Board meetings regularly and participate in the deliber ations and discussions effectively. Study the Board papers thoroughly and enquir e about follow-up reports on definite time schedule.

Involve actively in the matter of formulation of general policies. Be familiar w ith the broad objectives of the Bank and policies laid down by the Government an d the various laws and legislations. Ensure confidentiality of the Bank s agenda papers, notes and minutes. (b) Don ts Do not interfere in the day to day functi oning of the Bank. Do not reveal any information relating to any constituent of the Bank to anyone. Do not display the logo / distinctive design of the Bank on their personal visiting cards / letter heads. Do not sponsor any proposal relati ng to loans, investments, buildings or sites for Bank s premises, enlistment or empanelment of contractors, architects, auditors, doctors, lawyers and other pro fessionals etc. Do not do anything, which will interfere with and/ or be subvers ive of maintenance of discipline, good conduct and integrity of the staff. 5. Waivers Any waiver of any provision of this Code of Conduct for a member of the Bank s B oard of Directors or a member of the Core Management must be approved in writing by the Board of Directors of the Bank. The matters covered in this Code of Cond uct are of the utmost importance to the bank, its stakeholders and its business partners, and are essential to the Bank s ability to conduct its business in acc ordance with its value system. ENTREPRENEURSHIP------------------------------------------------------Entreprene urship is the practice of starting new organizations, particularly new businesse s generally in response to identified opportunities. Entrepreneurship is often a difficult undertaking, as a majority of new businesses fail. Entrepreneurial ac tivities are substantially different depending on the type of organization that is being started. Entrepreneurship may involve creating many job opportunities.

Many "high-profile" entrepreneurial ventures seek venture capital or angel fundi ng in order to raise capital to build the business. Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government ag encies, business incubators, science parks, and some NGOs. Our understanding of entrepreneurship owes a lot to the work of economist Joseph Schumpeter and the A ustrian School of economics. For Schumpeter (1950), an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful inn ovation. Entrepreneurship forces "creative destruction" across markets and indus tries, simultaneously creating new products and business models and eliminating others. In this way, creative destruction is largely responsible for the dynamis m of industries and long-run economic growth. Despite Schumpeter s early 20th-ce ntury contributions, the traditional microeconomic theory of economics has had l ittle room for entrepreneurs in their theories Characteristics of entrepreneurship:The entrepreneur, who has a vision and the e nthusiasm for this vision, is the driving force of an entrepreneurship The visio n is usually supported by a set of ideas that have not been awared by the majori ty of the market/industry The overall blueprint to realize the vision is clear, however details may be incomplete, flexible, and evolving The entrepreneur promo tes the vision with an influential passion With a persistent and deterministic m indset, the entrepreneur devises a set of entrepreneurial strategies to thrive f or the vision Conclusion:We began by asserting that individual entrepreneurs get too much cred it and blame for the fate of new ventures. We also emphasized that successful en trepreneurs are

those who can develop the right kinds of relationships with others inside and ou tside their firm. Our perspective suggests that, in trying to predict which entr epreneurs will succeed or fail, instead of turning attention to the characterist ics of individual founders and CEOs, researchers and teachers would be wiser to turn attention to the other people the entrepreneur spends time with and how the y respond. Our perspective also implies that the format of the "Entrepreneurs of the Year" competition described at the outset of this chapter ought to be chang ed. Rather than using such events to recognize individual CEOs or founders from successful start-ups, awards could be presented to recognize the intertwined gro up of people who made each start-up a success. PERFORMANCE AND BENCHMARKING-------------------- PERFORMANCE MANAGEMENT:Performan ce management is a systematic approach to improving worker productivity through a year-round, ongoing process of communicating and managing performance expectat ions. With Performance-based Management, performance improvement becomes the joint responsibility of employees and their managers. Ge nerally there are two things which determine how successful a performance apprai sal system is in place in an organization. 1) The contents/design of the perform ance appraisal form and 2) The manner in which Performance Appraisal is conducte d. While organizations lay great emphasis on the contents/design part, spending much of time, money and energy on designing most suitable, objective, comprehens ive formats, it serves no purpose if the appraising process is not conducted pro perly. Performance-based Management measures, evaluates and improves performance on the job. You can expect employee productivity to increase because performanc e assessments and performance feedback will always be job-related, even if the d uties of a particular job expand or change. Furthermore, because this type of pe rformance management focuses on productivity and not personality and since it in volves ongoing, open, two-way communication between manager and employee, it gre atly reduces many of the stereotypes, problems and anxieties associated with tra ditional labor-intensive

annual performance reviews. In other words, the desired outcomes of performance management can happen more easily and quickly. LITTLE BASIC OF BENCHMARK:A benchmark is a point of reference for a measurement. The term presumably originates from the practice of making dimensional height m easurements of an object on a workbench using a graduated scale or similar tool, and using the surface of the workbench as the origin for the measurements. In s urveying, benchmarks are landmarks of reliable, precisely-known altitude, and ar e often man-made objects, such as features of permanent structures that are unli kely to change, or special-purpose "monuments", which are typically small concre te obelisks, approximately 3 feet tall and 1 foot at the base, set permanently i nto the earth. In computing, a benchmark is the result of running a computer pro gram, or a set of programs, in order to assess the relative performance of an ob ject, by running a number of standard tests and trials against it. The term is a lso commonly used for specially-designed benchmarking programs themselves. Bench marking is usually associated with assessing performance characteristics of comp uter hardware, e.g., the floating point operation performance of a CPU, but ther e are circumstances when the technique is also applicable to software. Software benchmarks are, for example, run against compilers or database management system s. Benchmarks provide a method of comparing the performance of various subsystem s across different chip/system architectures. As computer architecture advanced, it became more and more difficult to compare the performance of various compute r systems simply by looking at their specifications. Therefore, tests were devel oped that could be performed on different systems, allowing the results from the se tests to be compared across different architectures. For example, Intel Penti um 4 processors have a higher hertz rating than AMD Athlon XP processors for the same computational speed, in other words a slower AMD processors could be as fast on benchmark tests as a higher hertz rated Intel processors. Benchmarks are designed to mimic a particular type of workload on a component or system. "Synt hetic" benchmarks do this by specially-created programs that impose the workload on the component. "Application" benchmarks, instead, run actual real-world

programs on the system. Whilst application benchmarks usually give a much better measure of real-world performance on a given system, synthetic benchmarks still have their use for testing out individual components, like a hard disk or netwo rking device. Computer manufacturers have a long history of trying to set up the ir systems to give unrealistically high performance on benchmark tests that is n ot replicated in real usage. For instance, during the 1980s some compilers could detect a specific mathematical operation used in a well-known floating-point be nchmark and replace the operation with a mathematically-equivalent operation tha t was much faster. However, such a transformation was rarely useful outside the benchmark. Manufacturers commonly report only those benchmarks (or aspects of be nchmarks) that show their products in the best light. They also have been known to mis-represent the significance of benchmarks, again to show their products in the best possible light. Taken together, these practices are called bench-marke ting. Users are recommended to take benchmarks, particularly those provided by m anufacturers themselves, with ample quantities of salt. If performance is really critical, the only benchmark that matters is the actual workload that the syste m is to be used for. If that is not possible, benchmarks that resemble real work loads as closely as possible should be used, and even then used with skepticism. It is quite possible for system A to outperform system B when running program " furble" on workload X (the workload in the benchmark), and the order to be rever sed with the same program on your own workload. BENCHMARKING:Benchmarking (Comparing) is a selective method of finding out how a nd why some companies can perform tasks much better than other companies. There can be as much as a tenfold difference in the quality, speed and cost-performanc e of an average company versus a world-class company. It involves the following seven steps 1) Determine functions to benchmark. 2) Identify the key performance variables t o measure. 3) Identify the best-in-class companies.

4) Measure performance of best-in-class companies 5) Measures the company s perf ormance. 6) Specify programs and actions to close the gap 7) Implement and monit or results A company can identify "best practices" companies by asking employees , customers, suppliers and distributors what they rate as doing the best. Major Consulting Firms can also be contacted for this purpose. To keep costs under con trol, a company should focus primarily on benchmarking those critical tasks that deeply affect customer satisfaction and Cost Management and where substantially better performance is known to exist. What is benchmarking? What is it valuable? Benchmarking is finding and implementing best practices with a view to improving organizations Competitive position. Benchmarking is valuable as it provides ins ight into superior management practices, sets achievable Standards and targets b efore the work-groups, and instill a spirit of competition. BENCHMARKING :The purpose of benchmarking is to improve the organizations competi tive position and its learning Abilities. This perspective goes well with the un authorized definition. The practice of being humble enough to Admit that someone else is better at somet hing, And wise enough to learn how to match and even surpass... Operationally defined, benchmarking is:Finding and implementing best practices A n ongoing process of measuring and improving companys products, services and prac tices against Those companies that distinguish themselves in that same category of performance.

The first step in creating the recognition that changes and improvements are nee ded. Why is benchmarking valuable? Benchmarking helps in three ways: Providing b reakthrough insights by examining superior management practices. Inspiring peopl e by demonstrating: We cant .... but others are ... Setting objective targets by hi ghlighting the gaps between us and them. Benchmarking as a quality tool is simple to apply and does not require advance and sophisticated techniques. More important ly, this process can provide an external stimulus to encourage a reflective envi ronment of continuous learning. A powerful learning experience such as benchmark ing can be a vehicle for creating sustainable business solutions. This type of l earning parallels Peter Senges description of a learning organization as one that is continually expanding its capacity to create its future. Benchmarking facili tates learning. Benchmarking is a process used in management and particularly st rategic management, in which businesses use industry leaders as a model in devel oping their business practices. This involves determining where you need to impr ove, finding an organization that is exceptional in this area, then studying the company and applying it s best practices in your firm. Benchmarking systematica lly studies the absolute best firms, then uses their best practices as the stand ard of comparison, a standard to meet or even surpass. Benchmarking recognizes t hat no company is exceptional at everything. That is why it is an ongoing proces s involving firms from any industry and any country. It is not a one-shot event. There is no room for complacency. Benchmarking requires that you constantly sea rch for better solutions. The rationale is, If you continuously search for best practices in the best firms around the world, you should become an exceptional c ompany. Every function and task of your business can be benchmarked, from produc tion, to marketing, to purchasing, to information technology management, to cust omer service. Some authors call benchmarking "best practices benchmarking" or "p rocess benchmarking". This is to distinguish it from what they call "competitive benchmarking". Competitive benchmarking is used in competitor analysis. When re searching your direct competitors you also research the best company in the indu stry (even if it serves a

different location or market segment and is therefore not a direct competitor). This benchmark company is then used as a standard of comparison when assessing y our direct competition and yourself. A process similar to benchmarking is also u sed in technical product testing and in land surveying. See the article benchmar k for these applications. PROCEDURE:Identify your problem areas Because benchmarking can be applied to any business process or function, a range of research techniques may be required. T hey include: informal conversations with customers, employees, or suppliers; exp loratory research techniques such as focus groups; or in-depth marketing researc h, quantitative research, surveys, questionnaires, reengineering analysis, proce ss mapping, quality control variance reports, or financial ratio analysis. Ident ify organizations that are leaders in these areas Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, t rade associations, and magazines to determine which companies are worthy of stud y. Study their best practices An initial study can be done at a good university library or online. This will give you an overview; however more detailed informa tion will require an in-person visit. Phone the CEO and ask if a group of your m anagers and employees can visit their operations for an hour. Be forthright as t o the purpose of the visit. Most CEOs will be flattered and agree to the request . Make it clear that any information obtained from the visit will be shared with them. Determine what subject areas will be off-limits. Ask if camera or video r ecorders are acceptable. Prepare two lists well in advance: a list of your objec tives, and a list of questions. Choose 2 to 5 visitors, people that are closest to the issue, that will be responsible for implementing any recommendations, and cover a broad range of functional responsibilities. Occasionally an outside con sultant is included in the visit team so as to provide an alternative perspectiv e. Meet with your employees to explain the purpose of the visit and assign one o r two questions to each employee. Explain what subject areas are off limits. Ask them to think about how the visit could benefit their area, and ask them to dev ice more questions. Stay away from questions that could cause legal problems (eg . price fixing or new product development). Send a

confirmation letter one week before the visit stating the date, time, and locati on of the visit, the number of visitors and their positions, your objectives, an d a list of possible questions. Visits are typically 1 to 3 hours long. When at the site, provide a token gift to show that you appreciate the opportunity, keep focused on your objectives, give praise where it is due, and do not criticize. Look for anything remarkable or unexpected. As soon as you get back to your offi ce (or hotel), have an immediate debriefing. Discuss what you have learnt and ho w you can apply it. Make sure that every visitor has an action plan detailing ho w they will be implementing the new information in their job. Some formal analys is (such as process mapping) of the benchmarked process may be necessary. After several weeks, phone back the CEO to express your appreciation and give concrete examples of how the knowledge gained from the visit will be used in your compan y. Send them a copy of any written reports about the visit before they are distr ibuted. This allows them to correct inaccuracies and modify sensitive or proprie tary information. Implement the best practices Delegate responsibility for actio ns to individuals or cross-functional teams. Set measurable goals that are to be accomplished within a specified time frame. Monitor the results. Get key person nel to give you a brief (one page) summary of how the implementation is proceedi ng. Spread the information through out the entire organization. Repeat Benchmark ing is an ongoing process. Best practices can always be made better. BENCHMARKING THE INDIAN BANKING SYSTEM BY INTERNATIONAL STANDARDS:The impetus gi ven to the strengthening of domestic financial systems and the international fin ancial architecture by the Asian crisis has gathered momentum in recent years. A n important development In this regard has been the move to set up universally a cceptable standards and codes for benchmarking domestic financial systems. Moreo ver, multilateral assessments of country performance are increasingly focusing o n observance of standards. The IMFs Article IV consultations, its Financial Secto r Stability Assessment and the Reports on Observance of Standards and Codes of t he IMF and the World Bank are indicative of the fact that a countrys adherence to benchmark standards and codes is being considered integral to the preservation of international monetary and

financial stability. While the process has begun with the predominant involvemen t of governments and regulators, the search for standards and codes is progressi vely encompassing the private sector with consideration of issues relating to ma rket discipline, corporate governance, insolvency procedures and credit rights. It is important to recognize that new standards and codes are not being regarded as final goals but as instruments or enabling conditions for enhancing efficien cy in financial intermediation while ensuring financial stability. There are thr ee levels at which action is necessary, viz., legal, policy and procedures, and market practices by participants. In several areas, fundamental changes in the l egal and institutional infrastructure are pre-requisites. Since these changes ca n impinge upon the socio-cultural as well as politico-economic ethos, appropriat e adoption and some prioritization in implementation are unavoidable. We have ma de some noteworthy progress in generating a constructive debate on the applicabi lity of international standards and codes to the Indian financial system. Partic ipative consultation has been supported by internal self-assessments as well as external assessment. In several areas, the issues are of a technical nature. Acc ordingly, the Standing Committee on International Standards and Codes, set up in December 1999, constituted ten Advisory Groups comprising eminent experts, gene rally nonofficial, to bring objectivity and experience into studying the applica bility of relevant international codes and standards to each area of competence. The Advisory Groups have submitted their reports. They have set out a roadmap f or implementation of appropriate standard and codes in the light of existing lev els of compliance, the cross-country experience, and the existing legal and inst itutional infrastructure. The Advisory Group on Banking Supervision has assessed the Indian banking system vis--vis the principles of the Basel Committee on Bank ing Supervision. It has found the level of compliance to be generally of a high order. The Advisory Group on Bankruptcy Laws has, inter alias, recommended a com prehensive bankruptcy code incorporating various aspects including cross-border insolvency and the repeal of the Sick Industrial Companies Act. The Advisory Gro up on Corporate Governance has made recommendations relating to rules and respon sibilities of boards and has advised amendments to the Companies Act. The Adviso ry Group on Data Dissemination has found that Indias data dissemination compares favorably with many other countries and has proposed the compilation of forwardlooking indicators. The Advisory Group on Fiscal Transparency is of the view tha t current fiscal practices meet the IMFs Code of

Good Practices on Fiscal Transparency. It has recommended amplifying the scope o f fiscal responsibility legislation in order to include the essential elements o f a budget law. The Advisory Group on Insurance regulation has recommended flexi ble minimum capital requirements depending on the class of business. With regard to actuarial and solvency issues, the Group has found the Indian standards to b e at par with international norms. The Advisory Group on International Accountin g and Auditing Standards has set out an agenda for the future for convergence in auditing and accounting practices. It has recommended a single standard setting authority and the need for convergence of corporate and tax laws. The Advisory Group on Transparency in Monetary and Financial Policies has recommended inflati on as the single mandated objective for the central bank and necessary autonomy to fulfill the mandate. It has also made recommendations on the operating proced ures of monetary policy. The Advisory Group on Payments and Settlement has recom mended legal reforms to empower the Reserve Bank to supervise the payment and se ttlement system, application of the Lamfalussy standards to deferred net settlem ent (DNS) and introduction of Real Time Gross Settlement (RTGS). It has also rec ommended the setting up of the Clearing Corporation and a separate guarantee fun d for foreign exchange clearing. The Advisory Group on Securities Market Regulat ion has compared India against the International Organization of Securities Comm issions (IOSCO) principles and emphasized the need to strengthen inter-regulator cooperation. Thus, in India, we have made considerable progress in the identifi cation of international standards and codes in relevant areas, expert assessment regarding their applicability, including comparator country evaluation and buil ding up possible course of action for the future. The next step is to sensitize all concerned policy makers, regulators and market participants to the issues in volved and to seek the widest possible debate on issues as well as expert assess ments with a view to generating a broad consensus on implementation of a univers ally recognized set of codes and standards. Benchmark PLR Sr.No Banks Public Sector Banks 1 Associate Banks of SBI 2 Private Sector Banks 3 Foreign Banks 4 Co-operative Banks 5 Above all banks prime lending rate benchm ark is as follows:

Benchmark Prime Lending Rates (New): Public Sector Bank Sr.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Name of the Bank All ahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Oversea s Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndica te Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank Industrial Development Bank of India (IDBI) State Bank of India W.E.F. 1/1/2004 2/5/2006 1 /5/2006 1/5/2006 18/11 / 2004 5/5/2006 15/5 / 2006 1/5/2006 1/6/2006 1/6/2006 1/ 5/2006 15/5 / 2006 1/5/2006 1/5/2006 16/5 / 2006 2/5/2006 1/5/2006 1/5/2006 10/5 /2006 22/5 / 2006 1/5/2006 New BPLR 11 11 11 11.25 11.25 11.25 11.5 11.25 11.5 1 1.5 11.5 11.5 11.5 11.25 11.25 11.5 11.25 11.25 11.25 11 10.75 New BPLR 11.25 11 .5 11.5 11 11.5 11 New BPLR Old PLR 11.5 10.5 10.75 10.75 11 10.75 11 11.5 11 11 11 11 0 11 11 11 11 10.75 11 10.5 10.25 Old PLR 10.75 11 11 10.5 11 11.5 Old PL R Difference in Basis Points 50 50 25 50 25 50 50 25 50 50 50 50 0 25 25 50 25 5 0 25 50 50 Difference in Basis Points 50 50 50 50 50 50 Difference in Basis Poin ts Benchmark Prime Lending Rates (New): Associate Bank of SBI Sr.No 1 2 3 4 5 6 Name of the Bank State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Saurashtra St ate Bank of Travancore W.E.F. 8/5/2006 1/5/2006 22/5 / 2006 1/5/2006 8/5/2006 1/ 1/2004 Benchmark Prime Lending Rates (New): Private Banks of India Sr.No Name of the Bank W.E.F.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Bharat Overseas Bank Ltd. Centurion Bank of Punjab Limited City Union Bank Ltd. Development Credit Bank Ltd. ICICI Bank Limited Lord Krishna Bank Ltd. SBI Comme rcial and International Bank Ltd. Tamilnad Mercantile Bank Ltd. The Bank of Raja sthan Limited The Dhanalakshmi Bank Limited. The Federal Bank Ltd. The Ganesh Ba nk of Kurundwad Ltd. The HDFC Bank Ltd. The Jammu & Kashmir Bank Ltd. Karnataka Bank Ltd. The Karur Vysya Bank Ltd. The Lakshmi Vilas Bank Ltd. The Nainital Ban k Ltd. The Sangli Bank Ltd. The South Indian Bank Ltd. The United Western Bank L td. ING Vysya Bank Ltd. UTI Bank Ltd. The Ratnakar Bank Ltd. Kotak Mahindra Bank Limited 1/6/2006 1/3/2004 1/1/2004 15/6 / 2006 1/1/2004 1/4/2006 1/1/2004 1/1/2004 1/5/2 006 1/5/2006 1/5/2006 1/10/2004 14/6 / 2006 1/1/2004 1/1/2004 1/1/2004 1/1/2004 1/4/2006 1/5/2006 1/5/2006 1/5/2006 15/1 / 2004 14/3 / 2006 1/1/2004 1/4/2006 11.75 11.5 12 14.25 10.5 12.5 11.5 12 12.5 13 12 10.5 11.5 11 12 12.5 12.5 11.5 12 13.5 12.5 11.25 13 11.5 14.5 11 75 12.5 14 10.5 12.5 50 25 0 0 12.25 11.75 0 0 0 12 25 75 0 0 0 50 0 12.5 12.5 0 0 0 11.5 11.5 12 0 0 0 0 0 0 100 25 100 13 150

Benchmark Prime Lending Rates (New): Foreign Banks Sr.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Name of the Bank ABN AMRO Bank N.V. Am erican Express Bank Ltd. Arab Bangladesh Bank Limited Bank International Indones ia Bank of America N.A. Bank of Bahrain & Kuwait BSC BNP PARIBAS Citibank N.A. O man International Bank SAOG Societe Generale Standard Chartered Bank The Bank of Nova Scotia The Hong Kong & Shanghai Banking Corporation Ltd. Mizuho Corporate Bank Ltd. Krung Thai Bank Public Company Limited W.E.F. 15/3 / 2004 1/5/2006 15/ 9 / 2003 1/5/2006 1/1/2004 1/1/2004 1/5/2006 1/5/2006 1/8/2003 1/3/2004 1/5/2006 1/2/2004 1/5/2006 1/1/2004 1/5/2006 New BPLR 12.75 12.5 11 11 13.5 12.5 12 12.7 5 11.5 11 12 14 13 11 10 0 0 13.5 12 0 14 0 13.5 0 0 0 200 100 0 0 0 150 0 Old P LR 16 0 12 0 Difference in Basis Points 325 0 100 0 Benchmark Prime Lending Rates (New): Co-operative Banks Sr.No 1 2 3 4 Name of the Bank Bombay Mercantile op. Bank Ltd. CoW.E.F. 1/5/2006 1/6/2006 1/5/2006 1/5/2006 New BPLR 11 12 11 10.5 Old PLR 0 12.75 0 0 Differenc e in Basis Points 0 75 0 0 Rajkot Nagarik Sahakari Bank Ltd. Rupee Co-op. Bank Ltd. The Karad Urban Co-op. Bank Ltd.

5 6 The Shamrao Vithal Coop. Bank Ltd. The Zoroastrian Cooperative Bank Limited 1/5/2006 1/5/2006 11.5 11 0 0 0 0

INTRODUCTION-------------------------------------------------------------In my i naugural address last year, I had indicated a vision for Indian banking in the n ew millennium that of a vibrant, internationally active banking system, drawing upon its innate strengths and comparative advantages to make India a major banki ng centre of the world. I had pointed out then that, while it may take up to 10 or even 15 years to achieve this vision, the time to begin was now. Recent devel opments have only served to bring forward the urgency attached to embarking upon this quest. Even as we do so, it is necessary to recognize that, in view of rec ent global developments and the economic slowdown, the progress towards this goa l would call for even greater effort and determination. In this context, the the me chosen for this years Conference i.e., "Indian Banking: Paradigm Shift" is mos t timely as it provides an opportunity to deliberate on the new challenges ahead , and the action that we must take to manage them. I am happy to be a part of th ese deliberate ions and to deliver the inaugural address to the 23rd Conference of Bank Economists here today. As you are aware, global economic prospects turne d sharply adverse since September 2001 following the terrorist attacks on the US . The possibilities of a recovery in the global economy have become highly uncer tain, belying the initial expectations of a V-shaped recovery as well as the sub sequent hopes of a U-shaped recovery. As of now, the consensus of forecasts sett les around 2.4 per cent for world GDP growth for 2001. World trade volume growth could slow down to around 1.3 per cent and net capital outflows from developing countries may now be larger than anticipated earlier. Although the sharp spurt in international oil prices has abated, their future behavior remains unclear. M acroeconomic weaknesses have also been associated with an erosion of business co nfidence. Insurance, airlines, tourism and hotel industries have been hit hard a nd the exposure of financial institutions to these industries can be a potential source of vulnerability. Despite the relatively inward-looking nature of the In dian economy, it cannot remain insulated from these international developments. The direct effects of these external developments on our banking system are expe cted to be limited. Indirect effects, especially through exports and subdued ind ustrial activity could, however, impact upon

the asset quality of our banking system and other segments of the financial syst em. The need to constantly monitor international developments and take appropria te and often, preemptive action add an entirely new dimension to the progress of our banking system towards its longer-term vision. We have made considerable pr ogress in implementing banking and financial sector reforms. There is also some improvement in the financial performance of the banking system in terms of vario us indicators of operating efficiency. Nevertheless, there are several areas reg arding the efficiency of our banking system rather than its stability that raise concerns, especially during a period of generalized uncertainty. The level of n on-performing assets (NPAs) continues be high by international standards, preemp ting funds for provisioning and eating into the performance and profitability of financial intermediaries. The response to the debt recovery and asset restructu ring initiatives undertaken as part of financial sector reforms has also been sl ow. In the period ahead, our financial system will also have to prepare for a ti ghtening of the prudential norms as the new Basel Accord becomes effective and a fuller response to the current financial environment emerges. Our financial ins titutions continue to be susceptible to financial market turbulence, especially in the equity market. Upgrading technical skills, technology, research and human capital, developing effective frontoffice strategies and fortifying internal rule s of governance and responsibility assumes a renewed priority in the fast changi ng scenario. The face of banking, as we have known it, is also changing rapidly. India is approaching an era of financial conglomorisation and bundling in the pro vision of financial services. Besides infusing heightened competition, there are implications for the regulatory and supervisory regime. Banks and financial ins titutions have to prepare for changes in the regulatory framework towards a more focused, comprehensive and efficient environment that eschews regulatory forbea rance. Legal reforms accordingly will have to ascend the hierarchy of priorities in the reform process. Against this background, in this talk, I propose to focu s on the main challenges facing Indian banking, such as, the role of financial i ntermediation in different phases of the business cycle, the emerging compulsion s of the new prudential norms, and benchmarking the Indian financial system agai nst international standards and best practices. I will also say a few words abou t the changing context of regulation and supervision of the financial system in India, the need for introducing new technology in

the banking and financial system, and the importance of strengthening skills and intellectual capital formation in the banking industry. RECENT MACROECONOMIC DEVELOPMENTS AND THE BANKING SYSTEM---------------------------------------------------------------------------For a greater part of the tw entieth century, the role of the financial system was perceived as mobilizing th e massive resource requirements for growth. Since the 1970s and 1980s, developme nt economics underwent a paradigm shift. The financial system is no longer viewe d as a passive mobiliser of funds. Efficiency in financial intermediation i.e., the ability of financial institutions to intermediate between savers and investo rs, to set economic prices for capital and to allocate resources among competing demands is now emphasized. Developments in endogenous growth theory since the l ate 1980s indicate that efficiency in financial intermediation is a source of te chnical progress to be exploited for generating increasing returns and sustainin g high growth. These changes have provided the rationale for many developing cou ntries to undertake wide-ranging reforms of their financial systems so as to pre pare them for their true resource allocation function. As important financial in termediaries, banks have a special role to play in this new dispensation. The sh arp downturn in global macroeconomic prospects and the continuing sluggishness i n domestic industrial activity have necessitated a revision in the forecast for Indias real GDP growth in 2001-02 from 6.0-6.5 per cent expected at the time of t he April 2001 Monetary and Credit Policy Statement to 5.0-6.0 per cent in the mi d-term review of the policy. The downward revision is primarily predicated on th e outlook for the industrial sector which grew by barely 2.2 per cent in April-O ctober 2001 as against 5.9 per cent in the corresponding period of last year, ma inly on account of the slowdown in manufacturing and mining and quarrying. Capit al goods production declined by as much as 6.6 per cent and several sectors reco rded a slow down in growth rate or an absolute decline. On the other hand, agric ulture sector, supported by reasonable monsoon, recorded a rebound in growth. Th e kharif output is expected to cross a new peak of 105.6 million tonnes and pros pects for the Rabi crop are also good. On the external front, merchandise export s increased marginally by 0.5 per cent in the first eight

months of 2001-02. While oil imports fell by 13.4 per cent, the non-oil imports showed an increase of 8.4 per cent. Despite a moderate widening of the trade def icit, continuing buoyancy in net invisible receipts has kept the current account deficit very low. According to available data, net capital flows are also likel y to be of a higher order than in the preceding year. Foreign exchange reserves rose to US $ 48.0 billion as on December 28, 2001 recording an accretion of the order of the US $ 5.8 billion over the end-March 2001 level. In the context of t he recent deceleration in the economy the intermediation role assumes even great er relevance. Banks and financial institutions should endeavor to play a supply-l eading rather than demand-following role in initiating the upturn by energizing the financial intermediation process. By virtue of a birds eye view of the economy a nd their superior credit assessment of the investment proposals and the efficien cy of capital, banks should endeavor to economies on search costs in identifying a nd nurturing growth impulses in the commodity and service producing sectors of t he economy. In the recent period, monetary policy in India has also moved into a countercyclical stance signaled by cuts in key interest rates and cash reserve requirements. At the same time, market operations have ensured adequate liquidit y to support the revival of aggregate demand with a clear preference for softeni ng of interest rates within the overall institutional constraints on the interes t rate regime. Inflation has been steadily falling and this has had a positive i mpact on inflation expectations, along with the underlying resilience of the mac roeconomic fundamentals of the Indian economy. The 50 basis point reduction in t he Bank Rate and the 200 basis point reduction in the CRR, announced recently, a re expected to significantly enhance the lend able resources of the banking syst em. The current situation of comfortable liquidity provides an opportunity for b anks to transform idle liquidity into investigable resources for growth. The eas y interest rate environment would make it possible for banks to price in projects which would have earlier remained unfunded due to inherently lower returns to ca pital or due to lack of access to prime lending rates. This will, however, requi re reassessment of portfolios and internal liquidity constraints, even adjustmen ts in risk profiles and risk management. The deceleration in the industrial grow th scenario, of course, opens up the moral hazard of adverse selection and the p ossibilities of large-scale contamination of portfolios. In a

situation of generalized slowdown, unviable projects can look potentially bankab le given the scarcity of investment avenues. Nevertheless, the possibilities for financial intermediation in the current situation are too varied and challengin g to ignore. There is no systematic evidence that financial sector reforms by th emselves and without supportive policies in other areas, can contribute to a rev ival of the economy; yet this is a time when the responsibility on the financial system to contribute to the process of economic revival is greater than before. Periods of downturn in economic activity also provide opportunities for banks t o undertake consolidation and strengthening. There is a strong complementarily b etween financial stability and macroeconomic stability. The interests of both ar e served by a stable and resilient financial system. In recent years, various me asures have been taken to improve the functioning of different segments of the f inancial markets and thereby, to improve the operational effectiveness of moneta ry policy. The Liquidity Adjustment Facility (LAF), which was introduced in June 2000, has emerged as an effective and flexible instrument for managing liquidit y on a day-to-day basis. In the second stage of the LAF, which commenced from Ma y 2001, variable rate repo auctions replaced the collateralized lending facility and Level I support to primary dealers. Standing facilities were rationalized a nd a back-stop facility was introduced at variable market-related rates. Concurr ently, LAF operating procedures were recast to improve operational flexibility a nd complementary measures were undertaken to improve the functioning of money an d government securities market segments and to facilitate their orderly integrat ion. In order to enable the call money market to evolve into a pure inter-bank m arket, lending by non-banks was reduced to 85 per cent of their average daily ca ll lending in 2000-01 from May 2001. The minimum maturity for wholesale term dep osits of Rs.15 lakh and above has been reduced to 7 days from the earlier minimu m maturity of 15 days. The maintenance of daily minimum cash reserve requirement s has been lowered to 50 per cent from 65 per cent for the first seven days of t he reporting fortnight. Interest paid on eligible balances under CRR has been ra ised to the level of the Bank Rate from November 3, 2001. The market has respond ed positively with an appreciable rise in turnover and a decline in volatility. Several measures have also been taken to improve the functioning of the governme nt securities market. 14-day and 182-day Treasury Bills were withdrawn and

the notified amount of 91-day Treasury Bills has been simultaneously increased. A Negotiated Dealing System (NDS) is being introduced to facilitate electronic b idding and to disseminate information on trades on a real-time basis. For this p urpose, the Reserve Bank has begun the automation of its public debt offices. An important step is the setting up of the Clearing Corporation of India Ltd. (CCI L) to act as counterparty in all trades involving government securities, Treasur y Bills, repos and foreign exchange. The entire system will operate in a network ed environment and Indian Financial Network (INFINET) will provide the backbone for communication. PRUDENTIAL NORMS--------------------------------------------------------A strong and resilient financial system and the orderly evolution of financial markets a re key prerequisites for financial stability and economic progress. In keeping w ith the vision of an internationally competitive and sound banking system, deepe ning and broadening of prudential norms to the best internationally recognized s tandards have been the core of our approach to financial sector reforms. This ha s been supported concurrently by heightened market discipline, pro-active and co mprehensive supervision of the financial system and the orderly development of f inancial market segments. The calibration of the convergence with international standards is conditioned by the specific realities of our situation; however, th e New Capital Accord of the Basel Committee on Banking Supervision which was rel eased in January 2001 adds urgency to the process of convergence. It is against the backdrop of these exigencies that prudential norms are being constantly moni tored and refined. In the recent period, banks are being encouraged to build ris k-weighted components of their subsidiaries into their own balance sheets and to assign additional capital. Risk weights are being constantly refined to take in to recognition additional sources of risk. The concept of past due in the identifi cation of NPAs has been dispensed with. Banks and financial institutions are bei ng urged to prepare to move to the international practice of the 90 day norm in th e classification of assets as non-performing by 2003-04. The new Basel Accord, a s contained in the second Consultative Paper on Capital Adequacy of the Basel Co mmittee on Banking Supervision released in January 2001 is in response to the pe rceived rigidities in the 1988 Accords capital requirements, the scope

for capital arbitrage and the increased sophistication in the measurement and ma nagement of risk. The new Accord rests on three mutually reinforcing pillars i.e ., minimum capital requirements, processes of supervisory review and market disc ipline. Under the first pillar, the current definition of capital and the minimu m requirement of 8 per cent of capital to risk weighted assets is retained. Capi tal requirements would be extended on a consolidated basis to holding companies of banking groups. The primary emphasis of the new Accord is on improving the me asurement of risk. The process of measurement of market risk is maintained. Thre e alternatives for calculating credit risk capital requirements are proposed to be made available to banks, depending on the complexity of their business and th e quality of their risk management operations. The standardized approach which can be employed by less complex banks remains conceptually the same as in the 1988 norms; however, it expands the scale of risk weights and uses external credit ra tings to categories credits. Banks with more advanced risk management capabiliti es can employ an internal ratings based (IRB) approach foundation and advanced varia nts are proposed on a progression scale in which banks may categories exposures into multiple credit ratings of their approved internal rating systems. The inte rnally estimated probability of default, the maturity of exposure and the credit type i.e., corporate or retail, will determine risk weights. There is a new exp licit capital charge proposed on operational risk. The processes of supervisory review contained in the second pillar emphasize the need for banks to develop so und internal procedures to assess the adequacy of capital based on a thorough ev aluation of its risk profile and control environment, and to set commensurate ta rgets for capital. The internal processes would be subject to supervisory evalua tion, review and intervention, when appropriate. The third pillar aims at bolste ring market discipline through enhanced disclosure by banks. Disclosure requirem ents are set out in several areas under the new Accord, including the way in whi ch banks calculate their capital adequacy and their risk assessment methods. The Basel Committee on Banking Supervision has received more than 250 comments on t he January 2001 proposals. The Committee is expected to release a fully specifie d proposal, based on these comments, in early 2002 and to finalize the Accord du ring 2002. An implementation date of 2005 is envisaged. The Reserve Bank forward ed its comments to the Basel committee in May 2001. It has supported flexibility , discretion to national supervisors and a phased approach in implementing the A ccord. The Accord

could initially apply to internationally active banks with over 15 per cent of t heir business in cross-border transactions, as proposed by the Reserve Bank and significant banks whose domestic market share exceeds 1 per cent with a simplifi ed standardized approach to be evolved for other banks. Material limits on cross -holdings of capital and eschewing of direct responsibility on external credit r ating agencies in the assessment of bank assets have also been proposed by the R eserve Bank. It has also expressed its preference for external credit rating age ncies that publicly disclose risk scores, rating processes and methodologies. Th e new accord, when implemented, is likely to have significant implications for t he banking system as a whole. Besides requiring increased capital, it attaches u rgency to the development of efficient and comprehensive internal systems for as sessment and management of risks, setting up and adhering to adequate internal e xposure limits and improving internal control generally. The guidelines for risk management and asset liability management provided by the Reserve Bank serve as a useful foundation for building more sophisticated control systems. The feedba ck received from few banks indicates the need for substantial up gradation of ex isting management information systems, risk management practices and technical s kills. Capital allocation is also expected to be more risk sensitive and, theref ore, banks and financial institutions will have to plan in advance so that there are no disruptions in the capital structure. Further sophistication in risk man agement and control mechanisms will have to evolve as experience with preferenti al risk-weighting and sensitivity to external ratings is accumulated. A key requ irement when the new Accord, after further modification, becomes operational is that of high quality human resources to cope with and adapt to the new environme nt. Enhancing technical skills and abilities to handle new technologies and new risks, exploiting information flows to price them in, and developing foresight i n anticipating changing risk-return relationships will become essential. MARKET DISCIPLINE-----------------------------------------------------Processes of transparency and market disclosure of critical information describing the ris k profile, capital structure and capital adequacy are assuming increasing

importance in the emerging environment. Besides making banks more accountable an d responsive to better-informed investors, these processes enable banks to strik e the right balance between risks and rewards and to improve the access to marke ts. Improvements in market discipline also call for greater coordination between banks and regulators. India has been a participant in the international initiat ives to ensure improved processes of market discipline that are being worked out in several fora, such as, the multilateral organizations, the BIS, the Financia l Stability Forum, and the Core Principles Liaison Group. Concurrent efforts are underway to refine and upgrade financial information monitoring and flow, data dissemination and data warehousing. Banks are currently required to disclose in their balance sheets information on maturity profiles of assets and liabilities, lending to sensitive sectors, movements in NPAs, besides providing information on capital, provisions, shareholdings of the government, value of investments in India and abroad, and other operating and profitability indicators. Financial i nstitutions are also required to meet these disclosure norms. Banks also have to disclose their total investments made in equity shares, units of mutual funds, bonds and debentures, and aggregate advances against shares in their notes to ba lance sheets. From this year onwards, notes to banks balance sheets will disclose the movement of provisions against NPAs as well as those held towards depreciat ion on investments. Guidelines relating to non-SLR investments through the priva te placement route mandate the disclosure of information on issuer composition a nd non-performing investments in a similar manner. Efforts have been made to ide ntify and monitor early warning indicators of financial crises. The overall appr oach is to combine the use of micro-prudential indicators with macro-economic in dicators in order to develop a set of aggregate macro-prudential indicators. Thi s brings about a mix between bottom-up and top-down assessment. As the methodolo gy gets refined and the indicators are stresstested for predictive power, financ ial stability surveillance will be significantly improved. This process will inv olve greater transparency and objectivity in the disclosure practices of banks. Efforts have also been made to set up a Credit Information Bureau to collect and share information on borrowers and improve the credit appraisal of banks and fi nancial institutions within the ambit of the existing legislation. The Bureau ha s been incorporated by the State Bank of India in collaboration with Housing Dev elopment Finance Corporation (HDFC) and foreign technology partners. Collection and sharing of some

items of information have already been initiated. Efforts are also going into th e collection and sharing of information on private placement of debt under the B ureau so that there is greater transparency in such trades. The possibility of c ollecting and disseminating information on suit-filed accounts by the Bureau (in place of the Reserve Bank) is being explored by a Working Group constituted for this purpose with representation from across the financial system. The Group wi ll also examine the prospects of on-line supply of information and the processin g of queries. A draft legislation covering various aspects of information sharin g, including issues relating to rights, responsibilities, and privacy has been p repared, which would considerably strengthen the functioning of the Bureau when it is enacted. UNIVERSAL BANKING---------------------------------------------------Since the ea rly 1990s, banking systems worldwide have been going through a rapid transformat ion. Mergers, amalgamations and acquisitions have been undertaken on a large sca le in order to gain size and to focus more sharply on competitive strengths. Thi s consolidation has produced financial conglomerates that are expected to maximi ze economies of scale and scope by bundling the production of financial services. The general trend has been towards downstream universal banking where banks have undertaken traditionally non-banking activities such as investment banking, ins urance, mortgage financing, securitization, and particularly, insurance. Upstrea m linkages, where non-banks undertake banking business, are also on the increase . The global experience can be segregated into broadly three models. There is th e Swedish or Hong Kong type model in which the banking corporate engages in in-h ouse activities associated with banking. In Germany and the UK, certain types of activities are required to be carried out by separate subsidiaries. In the US t ype model, there is a holding company structure and separately capitalized subsi diaries In India, the first impulses for a more diversified financial intermedia tion were witnessed in the 1980s and 1990s when banks were allowed to undertake leasing, investment banking, mutual funds, factoring, hire-purchase activities t hrough separate subsidiaries. By the mid-1990s, all restrictions on project fina ncing were removed and banks were allowed to undertake several activities in-hou se. In the recent period, the

focus is on Development Financial Institutions (DFIs), which have been allowed t o set up banking subsidiaries and to enter the insurance business along with ban ks. DFIs were also allowed to undertake working capital financing and to raise s hort-term funds within limits. It was the Narasimham Committee II Report (1998) which suggested that the DFIs should convert themselves into banks or non-bank f inancial companies, and this conversion was endorsed by the Khan Working Group ( 1998). The Reserve Banks Discussion Paper (1999) and the feedback thereon indicat ed the desirability of universal banking from the point of view of efficiency of resource use, but it also emphasized the need to take into account factors such as the status of reforms, the state of preparedness of the institutions, and a viable transition path while moving in the desired direction. Accordingly, the m id-term review of monetary and credit policy, October 1999 and the annual policy statements of April 2000 and April 2001 enunciated the broad approach to univer sal banking and the Reserve Banks circular of April 2001 set out the operational and regulatory aspects of conversion of DFIs into universal banks. The need to p roceed with planning and foresight is necessary for several reasons. The move to wards universal banking would not provide a panacea for the endemic weaknesses o f a DFI or its liquidity and solvency problems and/or operational difficulties a rising from undercapitalization, non-performing assets, and asset liability mism atches, etc. The overriding consideration should be the objectives and strategic interests of the financial institution concerned in the context of meeting the varied needs of customers, subject to normal prudential norms applicable to bank s. From the point of view of the regulatory framework, the movement towards univ ersal banking should entrench stability of the financial system, preserve the sa fety of public deposits, improve efficiency in financial intermediation, ensure healthy competition, and impart transparent and equitable regulation. HUMAN RESOURCE DEVELOPMENT IN BANKING-A recurring theme in the annual BECON Conf erence has been the need to focus on developing human resources to cope with the rapidly changing scenario. The core function of HRD in the banking industry is to facilitate performance improvement, measured not only in terms of financial i ndicators of operational efficiency but also in

terms of the quality of financial services provided. Factors such as skills, att itudes and knowledge of personnel play a critical role in determining the compet itiveness of the financial sector. The quality of human resources indicates the ability of banks to deliver value to customers. Capital and technology are repli cable, but not human capital which needs to be viewed as a valuable resource for the achievement of competitive advantage. The primary emphasis needs to be on i ntegrating human resource management (HRM) strategies with the business strategy . HRM strategies include managing change, creating commitment, achieving flexibi lity and improving teamwork. These processes underlie the complementary processe s that represent the overt aspects of HRM, such as recruitment, placement, perfo rmance management, reward management, and employee relations. A forward looking approach would involve moving towards self-assessment of competency and developm ental needs as a part of a continuous learning cycle. The Indian banking industr y has been an important driving force behind the nations economic development. Th e emerging environment poses both opportunities and threats, in particular, to t he public sector banks. How well these are met will mainly depend on the extent to which the banks leverage their primary assets i.e., human resources in the co ntext of the changing economic and business environment. It is obvious that the public sector banks hierarchical structure, which gives preference to seniority o ver performance, is not the best environment for attracting the best talent from among the young in a competitive environment. A radical transformation of the e xisting personnel structure in public sector banks is unlikely to be practical, at least in the foreseeable future. However, certain improvements can be made in the recruitment practices as well as in on-the-job training and redeployment of those who are already employed. There are several institutions in the country w hich cater exclusively to the needs of human resource development in the banking industry. It is worthwhile to consider broad-basing the courses conducted in th ese institutions among other higherlevel educational institutions so that specia lization in the area of banking and financial services becomes an option in high er education curriculums. In the area of information technology, Indian professi onals are world leaders and building synergies between the IT and banking indust ries will sharpen the competitive edge of our banks.

Conclusion How close are we to the vision of a sound and well-functioning bankin g system that I outlined. It is fair to say that despite a turbulent year and ma ny challenges, we have made some progress towards this goal. There has been prog ressive intensification of financial sector reforms, and the financial sector as a whole is more sensitized than before to the need for internal strength and ef fective management as well as to the overall concerns for financial stability. A t the same time, in view of greater disclosure and tougher prudential norms, the weaknesses in our financial system are more apparent than before. There is grea ter awareness now of the need to prepare the banking system for the technical an d capital requirements of the emerging prudential regime and a greater focus on core strengths and niche strategies. We have also made some progress in assessin g our financial system against international best practices and in benchmarking the future directions of progress. Several contemplated changes in the surroundi ng legal and institutional environment have been proposed for legislation.

The NPA levels remain too large by international standards and concerns relating to management and supervision within the ambit of corporate governance are bein g tested during the period of downturn of economic activity. The structure of th e financial system is changing and supervisory and regulatory regimes are experi encing the strains of accommodating these changes. Certain weak links in the dec entralized banking and nonbank financial sectors have also come to notice. In a fundamental sense, regulators and supervisors are under the greatest pressures o f change and bear the larger responsibility for the future. For both the regulat ors and the regulated, eternal vigilance is the price of growth with financial s tability. We should strive to move towards realizing our vision of an efficient and sound banking system of international standards with redoubled vigor. Our gr eatest asset in this endeavor is the fund of technical and scientific human capi tal formation available in the country. The themes which are being covered in th is Conference under structural, operational and governance issues should help in defining the road map for the future. REFERENCE SITE NAME WWW.BANKOFBARODA.COM WWW.ICICIBANK.COM WWW.STATEBANKOFINDIA.COM WWW.BA MBOOWEB.COM/ARTICLES/B/E/BENCHMARKING.HTML WWW.DENABANK.COM WWW.SUCCESSFULMANAGE RS.COM WWW.BIS.ORG/PUBL/BCBS123.PDF WWW.IBA.ORG.IN/PLRMAIN.ASP WWW.RBI.ORG.IN/SC RIPTS/PUBLICATIONS.ASPX WWW.BANKINGINDIAUPDATE.COM WWW.BIMALJALAN.COM/SPEECHE011 .HTML WWW.BIMALJALAN.COM/SPEECHE011.HTML WWW.BANKNETINDIA.COM/BANKING/BOVERVIEW. HTM

 MAGAZINE NAME BANKING ANNUAL-BUSINESS STANDARD IBA-BULLETIN BOBMAITRI THE FINANCIAL EXPRESS BA NKING ANNUAL-BUSINESS STANDARD PROFESSIONAL BANKER-THE ICFAI UNIVERSITY PRESS BOOK NAME BANKING AND PRACTICE-P.N.VARSHNEW BUSINESS MANAGEMENT-CAIIB EXAMINATION MONEY, B ANKING, INTERNATIONAL TRADE AND PUBLIC FINANCE ---D.M.MITHANI