Maharshi Arvind Kailash

7/14/2019 Maharshi Arvind Kailash

1/139

[1]

A PROJECT STUDY REPORT

ON

Comparative study of Indian public, private and

international banks

In partial fulfilment for the

Award of degree of Master of Business

Administration

(2011-2012)

Apex Institute of Management and science

Jaipur

Rajasthan Technical University Kota

Submitted To: Submitted By:

Aparna Kalla Vartika Sharma(Faculty) MBA SEM 4


2/139

[2]

Preface

This project report has been prepared as per the requirement of the syllabus

Of MBA course s t ruc tu re under wh ich the s tudents a re the requ i red

To un de r ta ke project. It was a first-hand experience for us as that we were

exposed to the professionalset-up and were facing the market, which was really a

great experience. During project period, I had very touching experiences. When

business is involved,experiences counts a lot, as we know, experience are an

instrument, which leadstowards success.Now I take this opportunity to present the

project report and sincerely hope that itwil l be as much knowledge enhancing to

the readers as it was to use dur ing the fieldwork and the compilation of the report

Someone has rightly said that practical experience is for better and closer to the real

world thanMere theoreticalexposure. The practical experience helps the students view

the real world closely, which in turn widely influences their perceptions and argument

their understanding of the realsituation.Research work constitutes the backbone of

anymanagement education Programme. A management student has to do research

work quite frequently during his entire Span.The research work entitle

Comparative study of Indian public, private and international banksAims to analyse variousservices provided by private sector banks and public

sector banks for this purpose Ahmadabad city have been chosen.


3/139

[3]

Acknowledgement

I express my sincere thanks to my project guide, Ms.KainazPostwala, Dy.

Manager- marketing Department for guiding me right from the inception till the

successful completion of the project. I sincerely acknowledge her for extending

their valuable guidance, support for literature, critical reviews of project and the

report and above all the moral support she had provided to me with all stages of

this project.

I would also like to thank the supporting staff of marketing Department, for their

help and cooperation throughout our project.

I sincerely acknowledge the help and guidance by Senior Management for

extending their timely help and guidance so that I could complete my project on

time.

I pay my gratitude to my narrator Aparnakalla madam for guiding me all

technical aspects for conducting all relevant studies for completion of the

project.

(VartikaSharma)


4/139

[4]

Executive Summary

This study focuses on Indian public, private and international banks the Bank

model.

It attempts to highlight their histories, institutional arrangements, the design of their

saving and loan delivery systems and most importantly their strengths and

weaknesses. Emerging out of this are a set of five general policy recommendations.

In summary these recommendations are:

Institutional arrangements;

driven and underpinned by the achievement of financial sufficiency;

-defined capacitation process.


5/139

[5]

DECLARATION

I hereby declare that the project work entitled

Comparative study of Indian public, private and international banks

submitted to the AMIS Jaipur , is a record of an original work done by me under the

Guidance of

Ms Aparnakalla,

Faculty O f A I MS a nd t h i s p r o j e c t

wo rk i s su bm i t t e d i n t h e p a r t i a l f u l f i l l me n t n t o f t h e requirements for

the award of the degree of Master of Business Administration. The results embodied in

this thesis have not been submitted to any other University or Institute for the award of

any degree or diploma.

(Ms Aparnakalla) (Vartika Sharma)


6/139

[6]

Contents

Chapter TOPIC Page No.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Introduction of global banking industry

Introduction of Indian banking industry

Research Methodology

Data analysis &interpretation

Fact finding

SWOT analysis

Conclusion

Recommendation

Annexure

Bibliography

7-16

16-82

83-85

86-122

123-126

127-132

133

134

135-138

139-140


7/139

[7]

CHAPTER-1

INTRODUCTION OFGLOBAL BANKING INDUSTRY

The world of commercial banking is undergoing a deep transformation as a result of

marketable instruments competing with loans and demand deposits. Because of this

strong competition, commercial banks are struggling to make acceptable margins from

their traditional business entering into investment banking.

Increasing competition has forced banks to search for more income at the expense of

more risk. Banks that lent heavily to Asia in search of better returns than those available

in Western markets are now being blamed for bad credit decisions. The Asian crisis has

renewed interest on credit risk management casting doubts on the effectiveness of

current credit regulations. Technological changes have also heightened competition by

making it easier to imitate bank services. The traditional advantage of physical proximity

to clients given by extended networks of branches has vanished. Banks have to


8/139

[8]

compete with money market mutual funds for deposit business, commercial papers, and

medium-term notes for bank loans.

As margins are squeezed, commercial banks in the United States and Europe have

been forced to cut costs and branches while diversifying into pensions, insurance, asset

management, and investment banking. In the United States, many banks call

themselves financial service companies even in their reported financial statements.

Diversification, however, has not always proved to be an effective strategy, and many

banks have had to revert to a concentrated business. These examples illustrate how

commercial banks are reinventing themselves, not just once but many times. All these

changes are creating an identity crisis for old-fashioned bankers, leading to the key

question, What is a bank today? The question is difficult, but evidence suggests thatthe concept of banking is being modified and the traditional barriers among financial

service Sub industries (retail banking, private banking, investment banking, asset

management, insurance, etc.) are vanishing. Illustrating what an entity does or serves

for often is a useful way to define it. The identity crisis of banksespecially commercial

banksstems from the deep and rapid changes in their traditional body of activities

(particularly retail and corporate banking). On the other hand, investment banking,

private banking, and banc assurance are the most profitable and fastest growing

segments of the financial service industry. As banks undertake new activities, they also

incur new risks. Since boundaries among sub industries are weakening, if not vanishing,

bankslike all other financial service companiesmust redefine themselves in terms of

the products they offer and the customers they serve. The way banks pursue this

redefinition is through a strategic repositioning in the financial service industry. All these

factors represent a new challenge for commercial banks, provided this definition still has

a unique meaning. Increased competition, diversification, new products, and new

geographic markets mean that both the spectrum of risks and the risk profile for banksare dramatically changing.


9/139

[9]

DEFINING A BANK IN 2012

The scenario commercial banks face today differs greatly from that of the past.

Diversification among sub industries is defining an environment where banks compete

with other financial-service companies to provide mutually exclusive products and

services to the same customers. Traditional branch banking is under the threat of new

competitors and technological innovation, leading some analysts to wonder whether

banks are dying. Most likely what is dying is the old-fashioned concept of the bank and

a new scenario is emerging. Banks are changing as economic markets integrate,

providing opportunities for diversification. Only 15 to 20 years ago, most Western banksgenerated 90% of revenue from interest income. Now this percentage has fallen to

60%, sometimes as low as 40%. New sources of income, such as fee-based income

from investment services and derivatives, are becoming increasingly relevant for the

income statements of commercial banks.

During the same period, the pattern of banking activities has changed through

interactions with the developing security markets. The well-known phenomenon of

disintermediation that has taken place in all Western countries since the 1970s has

progressively reduced the monopoly of banks over the collection of savings from

customers. This has created much tougher competition among financial service

companies and has forced banks to find new and diversified sources of income. The

traditional core business of commercial banks has been retail and corporate banking.

As retail and corporate banking become less and less profitable, banks are diversifying

into new businesses to stop the decline of profits. Investment banking, for example, is

estimated to be worth US$14 million, with an annual growth rate of about 14% up to

2012. Derivative based earnings for larger commercial banks now account for about 15

to 20% of the total earnings. The drawback is that volatility of earnings has dramatically

increased. The management of these new types of risktypically, market risk and credit


10/139

[10]

risk on traded assetsrequires competence and expertise. Hence, the risk profile of

commercial banks is changing as a consequence of diversification. Capital markets are

playing a key role in defining the bank of the twenty-first century, but they are also

making banks riskier. In fact, with a few exceptions, AAA ratings for banks have

disappeared and consequently the importance of market risk management is being

emphasized. Future competition will not be played in the classic retail banking industry

that, at least in continental Europe (but not in the United Kingdom), is only slightly

profitable. Global competition will take place in asset management and investment

banking. Not casually, huge U.S. investment banks are merging among themselves and

with asset management firms. Alliances and takeovers are occurring also on a

transatlantic basis, confirming the global characters of these two sub industries (the

most related to global capital markets).

The following trends are affecting the banking industry and most likely will shape the

competition in the next several years:

The market share for financial services that banks hold is declining, while securities

firms, mutual funds, and finance companies are getting a growing share of available

customers. In the United States, the share of total assets held by banks and other

depository institutions relative to all financial intermediaries fell from 56% in 1982 to

42% in 1991, and this downward tendency is likely to continue. Banks will face growing

competition from financial service companies and nonbank firms.

Disintermediation is making traditional banking less and less necessary, leading to

consolidation. The natural shrinkage of the market share held by commercial banks

started this process in the past decade, but it has dramatically accelerated in the past

few years because of global competition.

To remain competitive, commercial banks will have to exploit new sources of income:

Offering new services (selling mutual funds or insurance policies).Charging customers

with noninterest fees. Offering new services through the phone and the web,


11/139

[11]

Enteringinto joint ventures with independent companies, Entering new geographic

markets yielding higher returns.

Banks will need more expertise to manage new sources of risk. Market risk

management models must become an integral part of a banks risk management culture


12/139

[12]

RETAIL BANKING

The two main forces changing the competitive environment in retail banking are

technological change and aggressive new competitors:

1. Technological change is creating huge problems for traditional banks with extended

and costly branch networks. The major technological issues affecting the retail banking

business are the rise of telephone banking and the impressive diffusion of the Web-

based banking. These innovations make branch networks less important and national

boundaries irrelevant. Computer banking, either through the Internet or proprietary

networks, is gaining a growing and growing importance.

2. New unrelated competitors are entering the retail banking market. In the United

Kingdom, the countrys two biggest retailers, Sainsburys and Tesco, have gone into

partnership with the Bank of Scotland and the Royal Bank of Scotland, respectively.

Sainsburys Bank offers a savings account, two credit cards, and personal loans and

mortgages, with more services to follow. Tesco Personal Finance offers only a savings

account and a credit card, but aims to expand its range. These trends do not indicatethat traditional branch banking is going to die, but that the competitive scenario is

changing. High-street banks have expensive branch networks and relatively out-dated

procedures, with far greater operating costs than their new, more flexible rivals.


13/139

[13]

PRIVATE BANKING

One of the most interesting trends affecting the banking industry is the development of

domestic private banking services. These services, once provided only to aristocrats,

are gaining popularity and seem to be an attractive, fast-growing market. Retail banks

are no longer targeting only the super-rich, who hold a small proportion of the total

wealth, but also people with, relatively speaking, high income. Private banking is

basically an asset management service and represents a natural area for banks in time

of margin squeezing and increased competition. Risks of adverse market movementsare transferred, at least partially, to customers, while banks increase their fee-based

income. Nevertheless, commercial banks must be aware of actual and potential

competitors including traditional private banks, investment banks, converted building

societies, and insurers. Private banking creates opportunities for commercial banks, but

also adds new problems in the following areas:

Bank organization.

Culture needed to manageprivate banking.

Risk management


14/139

[14]

GLOBAL INVESTMENT BANKING

Investment banking is by far the most globalized segment of the financial service

industries. Commercial banks today are starting to offer investment-banking and

merchant banking services to larger corporations, thus entering in direct competition

with prestigious investment houses.

These services include:

Identifying possible merger targets.

Financing acquisitions of other companies.

Dealing in customers securities (i.e., security underwritings).

Providing strategic advice.

Offering hedging services against market risk.

To provide customers with a broader spectrum of services, commercial banks in search

of globalization are boosting takeovers of investment banks. All the major competitors

have developed, or are in the process of developing, facilities in the worlds leading

markets. The aim is to provide multinational corporations with a broad range of financial

service products, including conventional investment banking such as merger and


15/139

[15]

acquisition (M&A) advice, market trading, financial lending and fund management, at

both the institutional and retail levels. Relationship banking is replacing transaction-

based banking: What is important is to increase the loyalty of the client to the bank,

almost irrespectively of the service needed or required.

Diversification is not the whole story. To face the rising costs and squeezing margins

created by competition, investment banks need partners with large amounts of available

capital.

RECENT TRENDS IN THE GLOBAL BANKING INDUSTRY

The global banking industry has been undergoing deep transformation.

The following trends can be outlined:

The technological breakthrough caused by the eruption of e-banking and e-finance.

Worldwide consolidation and consequent restructuring.

Increasing competition in terms of both markets (geographic diversification) and

products.

Contamination among different industries, thanks to a progressive relaxation of

regulations and huge inter-industry acquisitions.

A slowing population growth and increasing average life expectancy and per capita

income. Since Western governments need to cut expenditures for old-age benefits to

keep deficits under control, there will be an increase in the importance of private

pensions, mutual funds, and private banking operations.

The growing importance of a clear strategic intent in the banking industry. Banks,

especially commercial banks, will be obliged to rethink their strategic positioning. While

some banks are opting to offer a vast variety of products/services on a global scale,


16/139

[16]

others are focusing on some specific market segment (retail banking, private banking,

corporate banking) or specific geographic area.

New competitors are entering the financial service business. In the retail banking

industry, large department stores in the United Kingdom have entered the market for

personal and mortgage loans, primarily to retain their customers.

These trends are having and will have a major impact on banks and financial

institutions risk management process. Contamination also means that firms in the

different sub industries will face risks that were once specific to another sub industry.

The relaxation of the Glass-Steagall Act in the United States, and similar processes of

deregulation in many other leading countries, is forcing even commercial banks to

dedicate growing attention to market risk management and liquidity risk management, in

addition to the more traditional credit risk and interest rate risk.

CONTAMINATIONTHE RISE OF GLOBAL PLAYERS

Consolidation is also taking place also on an interindustry basis. By inter industry

consolidation, we mean M&as taking place between firms of different sub industries in

the financial service industry (e.g., insurance companies acquiring commercial banks or

commercial banks acquiring Investment banks). There can be cost-saving potential,

particularly in computer systems. But complexity explodes. Top managers have to

handle a far more complicated business; front-line service staff has to sell a richer mix

of products.

To be a global player, a banking conglomerate must satisfy three characteristics:

1. Size. It must be big enough to play on a global basis.

2. High degree of contamination. It must cover the full spectrum of financial products

and services.


17/139

[17]

CHAPTER-2

INTRODUCTION OFINDIAN BANKING INDUSTRY

Banks are the most significant players in the Indian financial market. They are the

biggest purveyors of credit, and they also attract most of the savings from the

population. Dominated by public sector, the banking industry has so far acted as an

efficient partner in the growth and the development of the country. Driven by the

socialist ideologies and the welfare state concept, public sector banks have long been

the supporters of agriculture and other priority sectors. They act as crucial channels of

the government in its efforts to ensure equitable economic development.

The Indian banking can be broadly categorized into nationalized (government owned),

private banks and specialized banking institutions. The Reserve Bank of India acts a

centralized body monitoring any discrepancies and shortcoming in the system. Since

the nationalization of banks in 1969, the public sector banks or the nationalized banks

have acquired a place of prominence and has since then seen tremendous progress.

The need to become highly customer focused has forced the slow-moving public sector

banks to adopt a fast track approach. The unleashing of products and services through

the net has galvanized players at all levels of the banking and financial institutions

market grid to look anew at their existing portfolio offering. Conservative banking

practices allowed Indian banks to be insulated partially from the Asian currency crisis.

Indian banks are now quoting al higher valuation when compared to banks in other

Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems

linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative

banks are nimble footed in approach and armed with efficient branch networks focus

primarily on the high revenue niche retail segments.


18/139

[18]

The Indian banking has finally worked up to the competitive dynamics of the new

Indian market and is addressing the relevant issues to take on the multifarious

challenges of globalization. Banks that employ IT solutions are perceived to be

futuristic and proactive players capable of meeting the multifarious requirements of the

large customers base. Private Banks have been fast on the uptake and are reorienting

their strategies using the internet as a medium The Internet has emerged as the new

and challenging frontier of marketing with the conventional physical world tenets being

just as applicable like in any other marketing medium.

The Indian banking has come from a long way from being a sleepy business institution

to a highly proactive and dynamic entity. This transformation has been largely brought

about by the large dose of liberalization and economic reforms that allowed banks toexplore new business opportunities rather than generating revenues from conventional

streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30

banking units contributing to almost 50% of deposits and 60% of advances. Indian

nationalized banks (banks owned by the government) continue to be the major lenders

in the economy due to their sheer size and penetrative networks which assures them

high deposit mobilization. The Indian banking can be broadly categorized into

nationalized, private banks and specialized banking institutions.

The Reserve Bank of India acts as a centralized body monitoring any discrepancies

and shortcoming in the system. It is the foremost monitoring body in the Indian

financial sector. The nationalized banks (i.e. government-owned banks) continue to

dominate the Indian banking arena. Industry estimates indicate that out of 274

commercial banks operating in India, 223 banks are in the public sector and 51 are in

the private sector. The private sector bank grid also includes 24 foreign banks that

have started their operations here.

The liberalize policy of Government of India permitted entry to private sector in the

banking, the industry has witnessed the entry of nine new generation private banks.

The major differentiating parameter that distinguishes these banks from all the other


19/139

[19]

banks in the Indian banking is the level of service that is offered to the customer. Their

focus has always centered around the customer understanding his needs,

preempting him and consequently delighting him with various configurations of benefits

and a wide portfolio of products and services. These banks have generally been

established by promoters of repute or by high value domestic financial institutions.

The popularity of these banks can be gauged by the fact that in a short span of time,

these banks have gained considerable customer confidence and consequently have

shown impressive growth rates. Today, the private banks corner almost four per cent

share of the total share of deposits. Most of the banks in this category are

concentrated in the high-growth urban areas in metros (that account for approximately

70% of the total banking business). With efficiency being the major focus, these bankshave leveraged on their strengths and competencies viz. Management,

Operational efficiency and flexibility, superior product positioning and higher employee

productivity skills.

The private banks with their focused business and service portfolio have a reputation of

being niche players in the industry. A strategy that has allowed these banks to

concentrate on few reliable high net worth companies and individuals rather than caterto the mass market. These well-chalked out integrates strategy plans have allowed

most of these banks to deliver superlative levels of personalized services. With the

Reserve Bank of India allowing these banks to operate 70% of their businesses in

urban areas, this statutory requirement has translated into lower deposit mobilization

costs and higher margins relative to public sector banks.


20/139

[20]

PEST ANALYSIS

POLITICAL/ LEGAL ENVIROMENTEL ANALYSIS

Government and RBI policies affect the banking sector. Sometimes looking into the

political advantage of a particular party, the Government declares some measures to

their benefits like waiver of short-term agricultural loans, to attract the farmers votes. By

doing so the profits of the bank get affected. Various banks in the cooperative sector are

open and run by the politicians. They exploit these banks for their benefits. Sometimes

the government appoints various chairmen of the banks. Various policies are framed by

the RBI looking at the present situation of the country for better control over the banks.

ECONOMICAL ENVIROMENTEL ANALYSIS

Banking is as old as authentic history and the modern commercial banking are

traceable to ancient times. In India, banking has existed in one form or the other from

time to time. The present era in banking may be taken to have commenced with

establishment of bank of Bengal in 1809 under the government charter and with

government participation in share capital. Allahabad bank was started in the year 1865

and Punjab national bank in 1895, and thus, others followed.

Every year RBI declares its 6 monthly policy and accordingly the various measures and

rates are implemented which has an impact on the banking sector. Also the Union

budget affects the banking sector to boost the economy by giving certain concessions


21/139

[21]

or facilities. If in the Budget savings are encouraged, then more deposits will be

attracted towards the banks and in turn they can lend more money to the agricultural

sector and industrial sector, therefore, booming the economy. If the FDI limits are

relaxed, then more FDI are brought in India through banking channels.

SOCIAL ENVIROMENTEL ANALYSIS

Before nationalization of the banks, their control was in the hands of the private parties

and only big business houses and the effluent sections of the society were getting

benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the

social development in the banking sector it was necessary for speedy economic

progress, consistent with social justice, in democratic political system, which is free from

domination of law, and in which opportunities are open to all. Accordingly, keeping in

mind both the national and social objectives, bankers were given direction to help

economically weaker section of the society and also provide need-based finance to all

the sectors of the economy with flexible and liberal attitude. Now the banks provide

various types of loans to farmers, working women, professionals, and traders. They also

provide education loan to the students and housing loans, consumer loans, etc.

Banks having big clients or big companies have to provide services like personalizedbanking to their clients because these customers do not believe in running about and

waiting in queues for getting their work done. The bankers also have to provide these

customers with special provisions and at times with benefits like food and parties. But

the banks do not mind incurring these costs because of the kind of business these

clients bring for the bank.

Banks have changed the culture of human life in India and have made life much easier

for the people.


22/139

[22]

TECHNOLOGICAL ENVIROMENTEL ANALYSIS

Technology plays a very important role in banks internal control mechanisms as well asservices offered by them. It has in fact given new dimensions to the banks as well as

services that they cater to and the banks are enthusiastically adopting new

technological innovations for devising new products and service.

The latest developments in terms of technology in computer and telecommunication

have encouraged the bankers to change the concept of branch banking to anywhere

banking. The use of ATM and Internet banking has allowed anytime, anywhere

banking facilities. Automatic voice recorders now answer simple queries, currency

accounting machines makes the job easier and self-service counters are now

encouraged. Credit card facility has encouraged an era of cashless society. Today

MasterCard and Visa card are the two most popular cards used world over. The banks

have now started issuing smartcards or debit cards to be used for making payments.

These are also called as electronic purse. Some of the banks have also started home

banking through telecommunication facilities and computer technology by using

terminals installed at customers home and they can make the balance inquiry, get thestatement of accounts, give instructions for fund transfers, etc. Through ECS we can

receive the dividends and interest directly to our account avoiding the delay or chance

of loosing the post.

Today banks are also using SMS and Internet as major tool of promotions and giving

great utility to its customers. For example SMS functions through simple text messages

sent from your mobile. The messages are then recognized by the bank to provide you

with the required information. All these technological changes have forced the bankers

to adopt customer-based approach instead of product-based approach.


23/139

[23]

HISTORY OF BANKING IN INDIA

Without a sound and effective 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 challenges posed by the technology and any other external and

internal factors.

For the 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

confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system

has reached even to the remote corners of the country. This is one of the main reasons

of Indias growth process.

The government's regular policy for Indian bank since 1969 has paid rich dividends with

the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the 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 dials a pizza. Money has become the order of the

day.

From 1786 till today, the journey of Indian Banking System can be segregated into three

distinct phases. They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks

Nationalization of Indian Banks and 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.


24/139

[24]

To make this write-up more explanatory, we 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 Hindustan

and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank 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 European

shareholders.

Exclusively by Indians Punjab National Bank Ltd. was set up in 1894 with headquarters

at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of

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 banks also experienced periodic

failures between 1913 and 1948. There were approximately 1100 banks, mostly small.

To streamline the functioning and activities of commercial 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 powers 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 deposit

mobilisation was slow. Abreast of it thesavings bank facility provided by the Postal

department was comparatively safer. Moreover, funds were largely given to traders.
http://finance.indiamart.com/investment_in_india/banking_in_india.htmlhttp://finance.indiamart.com/investment_in_india/banking_in_india.html


25/139

[25]

PhaseII

Government took major steps in this Indian Banking Sector Reform after independence.

In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large

scale especially in rural and semi-urban areas. It formed State Bank of India to act as

the principal agent of RBI and to handle banking transactions of the Union and State

Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th

July, 1969, major process of nationalisation was carried out. It was the effort of the then

Prime Minister of India, Mrs Indira Gandhi. 14 major commercial banks in the country

were nationalised.

Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980

with seven more banks. This step brought 80% of the banking segment in India under

Government ownership.

The following are the steps taken by the Government of India to Regulate Banking

Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalisation of State Bank of India.

1959: Nationalisation of SBI subsidiaries.

1961: Insurancecover extended to deposits.

1969: Nationalisation of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalisation of seven banks with deposits over 200 crore.


26/139

[26]

After the nationalization 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 institutions.

PhaseIII

This phase has introduced many more products and facilities in the banking sector in its

reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was

set up by his name which worked for the liberation of banking practices.

Efforts are being put to give a satisfactory service to customers. Phone banking and net

banking is introduced. The entire system became more convenient and swift. Time 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 external macroeconomics shock as other East Asian

Countries suffered. This is all due to a flexible exchange rate regime, the foreign

reserves are high, the capital account is not yet fully convertible, and banks and their

customers have limited foreign exchange exposure.


27/139

[27]

NATIONALIZATION OF BANKS IN INDIA

The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then

prime minister. It nationalized 14 banks then. These banks were mostly owned by

businessmen and even managed by them.

Central Bank of India

Bank of Maharashtra

Dena Bank

Punjab National Bank

Syndicate Bank

Canara Bank

Indian Bank

Indian Overseas Bank

Bank of Baroda

Union Bank

Allahabad Bank

United Bank of India

UCOBank

Bank of India

Before the steps of nationalization of Indian banks, only State Bank of India (SBI) was

nationalized. It took place in July 1955 under the SBI Act of 1955. Nationalization of

Seven State Banks of India (formed subsidiary) took place on 19th July, 1960.

The State Bank of India is India's largestcommercial bank and is ranked one of the top

five banks worldwide. It serves 90 million customers through a network of 9,000

branches and it offers -- either directly or through subsidiaries -- a wide range

ofbanking services.

The second phase of nationalisation of Indian banks took place in the year 1980. Seven

more banks were nationalised with deposits over 200 crores. Till this year,

approximately 80% of the banking segments in India were under government

ownership.

After the nationalisation of banks in India, the branches of the public sector banks rose

to approximately 800% in deposits and advances took a huge jump by 11,000%.
http://finance.indiamart.com/investment_in_india/central_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/punjab_national_bank.htmlhttp://finance.indiamart.com/investment_in_india/canara_bank.htmlhttp://finance.indiamart.com/investment_in_india/indian_overseas_bank.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/united_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_india.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_india.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/united_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/nationalisation_banks.htmlhttp://finance.indiamart.com/investment_in_india/indian_overseas_bank.htmlhttp://finance.indiamart.com/investment_in_india/canara_bank.htmlhttp://finance.indiamart.com/investment_in_india/punjab_national_bank.htmlhttp://finance.indiamart.com/investment_in_india/central_bank_india.html


28/139

[28]

BANKING STRUCTURE

The Indian banking industry, which has Reserve Bank of India as its regulatory

authority, is a mix of the public sector, private sector, and foreign banks. The private

sector banks are again split into old banks and new banks.

SCHEDULED BANKS

Scheduled commercial banks are those that come under the purview of the Second

Schedule of Reserve Bank of India (RBI) Act, 1934. The banks that are included under

this schedule are those that satisfy the criteria laid down vide section 42 (60 of the Act).

Some co-operative banks come under the category of scheduled commercial banks

though not all co-operative banks.

PUBLIC SECTOR BANKS

Public sector banks are those in which the Government of India or the RBI is a majority

shareholder. These banks include the State Bank of India (SBI) and its subsidiaries,

other nationalized banks, and Regional Rural Banks (RRBs). Over 70% of the

aggregate branches in India are those of the public sector banks. Some of the leading

banks in this segment include Allahabad Bank, Canara Bank, Bank of Maharashtra,

Central Bank of India, Indian Overseas Bank, State Bank of India, State Bank of Patiala,

State Bank of Bikaner and Jaipur, State Bank of Travancore, Bank of Baroda, Bank ofIndia, Oriental Bank of Commerce, UCO Bank, Union Bank of India, Dena Bank and

Corporation Bank.


29/139

[29]

PRIVATE SECTOR BANKS

Private Banks are essentially comprised of two types: the old and the new. The old

private sector banks comprise those, which were operating before Banking

Nationalization Act was passed in 1969. On account of their small size, and regional

operations, these banks were not nationalized. These banks face intense rivalry from

the new private banks and the foreign banks. The banks that are included in this

segment include: Bank of Madura Ltd. (now a part of ICICI Bank), Bharat Overseas

Bank Ltd., Bank of Rajasthan, Karnataka Bank Ltd., Lord Krishna Bank Ltd., The

Catholic Syrian Bank Ltd., The Dhanalakshmi Bank Ltd., The Federal Bank Ltd., The

Jammu & Kashmir Bank Ltd., The KarurVysya Bank Ltd., The Lakshmi Vilas Bank Ltd.,

The Nedungadi Bank Ltd. and Vysya Bank. The new private sector banks were

established when the Banking Regulation Act was amended in 1993. Financial

institutions promoted several of these banks. After the initial licenses, the RBI has

granted no more licenses. These banks are gearing up to face the foreign banks by

focusing on service and technology. Currently, these banks are on an expansion spree,

spreading into semi-urban areas and satellite towns. The leading banks that are

included in this segment include Bank of Punjab Ltd., Centurion Bank Ltd., Global Trust

Bank Ltd., HDFC Bank Ltd., ICICI Banking Corporation Ltd., IDBI Bank Ltd., IndusInd

Bank Ltd. and UTI Bank Ltd.

FOREIGN BANKS

The operations of foreign banks, though similar to that of other commercial Indian

banks, are mainly confined to metropolitan areas. Foray of foreign banks depends on

reciprocity, economic and political bilateral relations. An inter-departmental committee

has been set up to endorse applications for entry and expansion. Foreign banks, in the


30/139

[30]

wake of the liberalization era, are looking to expand and diversify. Some of the leading

foreign banks that operate in India are Citibank, Standard Chartered Grindlays Bank,

Hong Kong Shanghai Banking Corporation, Bank of America, Deutsche Bank,

Development Bank of Singapore and Banque National De Paris.

INDIAN BANKS AND THE GLOBAL CHALLENGES

The enhanced role of the banking sector in the Indian economy, the increasing levels of

deregulation along with the increasing levels of competition have facilitated globalisation

of the India banking system and placed numerous demands on banks. Operating in this

demanding environment has exposed banks to various challenges. The last decade has

witnessed major changes in the financial sector - new banks, new financial institutions,

new instruments, new windows, and new opportunities - and, along with all this, new

challenges. While deregulation has opened up new vistas for banks to augment

revenues, it has entailed greater competition and consequently greater risks. Demand

for new products, particularly derivatives, has required banks to diversify their product

mix and also effect rapid changes in their processes and operations in order to remain

competitive in the globalised environment.


31/139

[31]

GLOBALISATIONA CHALLENGE AS WELL AS AN OPPORTUNITY

The benefits of globalisation have been well documented and are being increasinglyrecognised. Globalisation of domestic banks has also been facilitated by tremendous

advancement in information and communications technology. Globalisation has thrown

up lot of opportunities but accompanied by concomitant risks. There is a growing

realisation that the ability of countries to conduct business across national borders and

the ability to cope with the possible downside risks would depend, inter-alia, on the

soundness of the financial system and the strength of the individual participants.

Adoption of appropriate prudential, regulatory, supervisory, and technological

framework on par with international best practices enables strengthening of the

domestic banking system, which would help in fortifying it against the risks that might

arise out of globalisation. In India, strengthening of the banking sector for facing the

pressures that may arise out of globalisation by adopting the banking sector reforms in

a calibrated manner, which followed the twin governing principles of non-disruptive

progress and consultative process.

GLOBAL CHALLENGES IN BANKING

Few broad challenges faced by the Indian banks in the following areas, viz.,

enhancement of customer service; application of technology; implementation of Basel II;

improvement of risk management systems; implementation of new accounting

standards; enhancement of transparency & disclosures; and compliance with KYC

aspects. If we were to identify a few global challenges which banks face today, I am

sure we would cover some common ground. An overview of the global challenges

would include the following: Basel II implementation; enhancing corporate governance;


32/139

[32]

alignment of regulatory and accounting requirements; outsourcing risks; and application

of advanced technology. I propose to cover these aspects now.

BASE II IMPLEMENTATION

Basel II implementation is widely acknowledged as a significant challenge faced by both

banks and the regulators internationally. It is true that Basel II implementation may be

seen as a compliance challenge. While it may be so for some banks, Basel II

implementation has another dimension which offers considerable opportunities to

banks. Highlighting two opportunities that are offered to banks, viz., refinement of risk

management systems; and improvement in capital efficiency.

Comp rehensive r isk management:Under Basel I banks were focused on credit and

market risks. Basel II has brought into focus a larger number of risks requiring banks to

focus on a larger canvas. Besides the increase in the number of risks, banks are now

beginning to focus on their inter-linkages with a view to achieve a more comprehensive

risk management framework. Basel II implementation, therefore, is being increasingly

seen as a medium through which banks constantly endeavour to upgrade the risk

management systems to address the changing environment. Further, in the initial

stages, banks were managing each risk in isolation. It is no longer adequate to manageeach risk independently. Enterprises worldwide are, therefore, now putting in place an

integrated framework for risk management which is proactive, systematic and spans

across the entire organisation. Banks in India are also moving from the individual silo

system to an enterprise wide risk management system. While the first milestone would

be risk integration across the entity, banks are also aware of the desirability of risk

aggregation across the group both in the specific risk areas as also across the risks.

Banks would, therefore, be required to allocate significant resources towards this

endeavour.


33/139

[33]

Capital eff iciency :Basel II prescriptions have ushered in a transition from the traditional

regulatory measure of capital adequacy to an evaluation of whether a bank has found

the most efficient use of its capital to support its business i.e., a transition from capital

adequacy to capital efficiency. In this transition, how effectively capital is used will

determine return on equity and a consequent enhancement of shareholder value. In

effect, banks may adopt a more dynamic approach to use of capital, in which capital will

flow quickly to its most efficient use. This revised efficiency approach is expected to

guide the return-on-equity strategy and influence banks business plans. With the

extension of capital charge for market risks to the AFS portfolio this year and the

coming into force of Basel II norms in March 2007, banks would need to shore up thecapital levels not only for complying with these requirements but also for supporting the

balance sheet growth. With a view to enhancing the options available to banks for

augmenting their capital levels, the Reserve Bank has recently permitted banks to issue

new capital instruments, including perpetual instruments. A notable feature of these

instruments is that these are designed to help banks in not only managing their capital

effectively but also efficiently.


34/139

[34]

ENHANCING CORPORATE GOVERNANCE

The issues related to corporate governance have continued to attract considerable

national and international attention in light of a number of high-profile breakdowns in

corporate governance. This becomes all the more relevant for banks since they not only

accept and deploy large amount of uncollateralized public funds in fiduciary capacity,

but also leverage such funds through credit creation. Banks are also important

participants in the payment and settlement systems. In view of the above, legal

prescriptions for ownership and governance of banks in Banking Regulation Act, 1949

have been supplemented by regulatory prescriptions issued by RBI from time to time.

In view of the importance of the banking system for financial stability, sound corporate

governance is not only relevant at the level of the individual bank, but is also a critical

ingredient at the system level. Effective risk management systems determine the health

of the financial system and its ability to survive economic shocks. To a large extent,

many risk management failures reflect a breakdown in corporate governance which

arise due to poor management of conflicts of interest, inadequate understanding of key

banking risks, and poor Board oversight of the mechanisms for risk management and

internal audit. Corporate governance is, therefore, the foundation for effective risk

managements in banks and thus the foundation for a sound financial system 2.

Therefore, the choices which banks make when they establish their risk management

and corporate governance systems have important ramifications for financial stability.

These systems can affect how the institution functions and how others perceive it in the

marketplace.

A good governance culture is crucial for financial stability but since it is anintangible,

rules may not be able to capture its essence effectively. Therefore, banks may have to

cultivate a good governance culture building in appropriate checks and balances in their

operations. There are four important forms of oversight that should be included in the

organisational structure of any bank in order to ensure appropriate checks and

balances: (1) oversight by the board of directors or supervisory board; (2) oversight by


35/139

[35]

individuals not involved in the day-to-day running of the various business areas; (3)

direct line supervision of different business areas; and (4) independent risk

management, compliance and audit functions. In addition, it is important that key

personnel are fit and proper for their jobs. Although some ownership structures might

have the potential to alter the strategies and objectives of a bank, these banks will also

face many of the same risks associated with weak corporate governance.


36/139

[36]

COMPLIANCE WITH INTERNATIONAL ACCOUNTING STANDARDS

One of the prime international standards considered relevant for ensuring a safe andsound banking system is the Core Principles for Effective Banking Supervision issued

by the Basel Committee on Banking Supervision (BCBS). Accounting standards are

now a part of the set of twelve standards that have been identified by the Financial

Stability Forum as conducive to a robust financial infrastructure. Financial reporting and

prudential supervision have slightly different perspectives. While the former is oriented

towards capturing the historical position, the latter has a forward looking element

particularly with reference to measurement of impairment and capital. An important

challenge, therefore, is to ensure that accounting standards and prudential frameworks

are mutually consistent. While working towards achieving this consistency between the

two sets of standards, it is essential for the regulators to be in a position to address any

implications that the changes in accounting standards may have for the safety and

soundness of banks.

Derivative activity in banks in India has been increasing at a brisk pace. While the risk

management framework for derivative trading, which is a relatively new area for Indianbanks (particularly more in respect of structured products), is an essential pre-requisite,

the absence of clear accounting guidelines in this area is matter of significant concern. It

is widely accepted that as the volume of transactions increases, which is happening in

the Indian banking system, the need to upgrade the accounting framework needs no

emphasis. The World Banks ROSC on Accounting and Auditing in India has

commented on the absence of an accounting standard which deals with recognition,

measurement, presentation and disclosures pertaining to financial instruments. The

Accounting Standards Board of the Institute of Chartered Accountants of India (ICAI) is

considering issue of Accounting Standards on the above aspects pertaining to financial

Instruments. These will be the Indian parallel to International Financial Reporting

Standard 7, International Accounting Standards 32 and 39. The proposed Accounting


37/139

[37]

Standards will be of considerable significance for financial entities and could therefore

have implications for the financial sector. The formal introduction of these Accounting

Standards by the ICAI is likely to take some time in view of the processes involved. In

the meanwhile, the Reserve Bank is considering the need for banks and financial

entities adopting the broad underlying principles of IAS 39. Since this is likely to give

rise to some regulatory / prudential issues all relevant aspects are being

comprehensively examined. The proposals in this regard would, as is normal, be

discussed with the market participants before introduction. Adoption and implementation

of these principles are likely to pose a great challenge to both the banks and the

Reserve Bank.


38/139

[38]

OUTSOURCING RISKS

Banks are increasingly using outsourcing for achieving strategic aims leading to either

rationalisation of operational costs or tapping specialist expertise which is not available

internally. 'Outsourcing' may be defined asa bank's use of a third party, including an

affiliated entity within a corporate group, to perform activities on a continuing basis that

would normally be undertaken by the bank itself.Typically outsourced financial services

include applications processing (loan origination, credit card), document processing,

investment management, marketing and research, supervision of loans,data processing

and back office related activities etc.

Outsourcing might give rise to several risks including, strategic risk, reputation risk,

compliance risk, operational risk, exit strategy risk, counterparty risk, country risk,

access risk, concentration risk and systemic risk. The failure of a service provider to

provide a specified service, ensure security/ confidentiality, and comply with legal and

regulatory requirements can lead to financial losses/ reputational risk for the bank and

could also lead to systemic risks for the entire banking system in a country. It would

therefore be imperative for the bank outsourcing its activitiesto ensure effective

management of these risks.

It is in this background that RBI has issued draft guidelines on outsourcing, which is

intended to provide direction and guidance to banks to effectively manage risks arising

from such outsourcing activities. The underlying principles for any outsourcing

arrangement by a bank are that such arrangements should neither diminishthe

banksability to fulfill its obligations to its customers and the RBI nor impede effective

supervision by RBI. Outsourcing banks, therefore, should take steps to ensure that the

service provider employs the same high standard of care in performing the services as

would be employed by the banks if the activities were conducted within the banks and

not outsourced. Accordingly, banks are not expected to outsource any activity that

would result in their internal control, business conduct, or reputation being compromised

or weakened.


39/139

[39]

APPLICATION OF ADVANCED TECHNOLOGY

Technology is a key driver in the banking industry, which creates new business models

and processes, and also revolutionises distribution channels. Banks which have made

inadequate investment in technology have consequently faced an erosion of their

market shares. The beneficiaries are those banks which have invested in technology.

Adoption of technology also enhances the quality of risk management systems in

banks. Recognising the benefits of modernising their technology infrastructure banks

are taking the right initiatives. While doing so, banks have four options to choose from:

they can build a new system themselves, or buy best of the modules, or buy a

comprehensive solution, or outsource. In this context banks need to clearly define their

core competencies to be sure that they are investing in areas that will distinguish themfrom other market players, and give them a competitive advantage6. A further challenge

which banks face in this regard is to ensure that they derive maximum advantage from

their investments in technology and avoid wasteful expenditure which might arise on

account of uncoordinated and piecemeal adoption of technology; adoption of

inappropriate/ inconsistent technology and adoption of obsolete technology.


40/139

[40]

CAPACITY BUILDING

As dictated by the changing environment, banks need to focus on appropriate capacity

building measures to equip their staff to handle advanced risk management systems

and supervisors also need to equally equip themselves with appropriate skills to have

effective supervision of banks adopting those systems. In the likelihood of a high level of

attrition in the system, banks need to focus on motivating their skilled staff and retaining

them7. Skill requirements would be significantly higher for banks planning to migrate to

the advanced approaches under Basel II. Capacity building gains greater relevance in

these banks, so as to equip themselves to take advantage of the incentives offered

under the advanced approaches.

A relevant point in this regard is that capacity building should be across the institution

and not confined to any particular level or any particular area. The demand for better

skills can be met either from within or from outside. It would perhaps be worthwhile to

first glean through the existing resources to identify misplaced or hidden or forgotten

resources and re-position them to boost the banks efforts to capitalise on available

skills. This does not undermine the benefits that a bank may derive by meeting their

requirements from the market, but is only intended to prioritise the process.


41/139

[41]

CONCLUSION

The global challenges which banks face are not confined only to the global banks.These aspects are also highly relevant for banks which are part of a globalised banking

system. Further, overcoming these challenges by the other banks is expected to not

only stand them in good stead during difficult times but also augurs well for the banking

system to which they belong and will also equip them to launch themselves as a global

bank.


42/139

[42]


43/139

[43]

TRANSFORMATION INITIATIVES NEEDED FOR BANKS

Strategy

Sales & Marketing strategy for both retail & wholesale banking

Expanding geographies

Brand

Understanding the values of the brand

Repositioning the brand to communicate the values


44/139

[44]

Organization restructuring

Re organization of the bank in line with the strategic thrust

Re-engineering of the key business processes

Redesign of Sales processes to increase conversion ratio

Six Sigma process improvements for branch channel, Call Centre& back office

processes

Centralization of branch operations and deferred processes to free up resources

Cost efficiency

Reduction in Total cost of acquisition

Reduction in transaction costs

Reduction in fixed and overheads cost

Right sizing and matching of skills

Manpower modelling for branch & back office at various volume scenarios

Productivity improvement for sales & service functions

Competency Assessments & profiling

Creating a high performing organization

Define new roles & responsibilities, KRA

Assessing competencies of people across levels and match the position with the

skill-set

Designing and implementing a new PMS for restructured organization


45/139

[45]

Change management & creating a new mind set

Developing critical mass of champions and drive Change across the

organisation to move from conventional banking to new age banking.

BANKING SERVICES IN INDIA

With years, banks are also adding services to their customers. The Indian banking

industry is passing through a phase of customers market. 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 services provided by banks

have become more easy and 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.

The following are the major services provided by the Banks.

BANK ACCOUNT

Openbank account - the most common and first service of thebanking sector. There

are different types of bank account in Indian banking sector. The bank accounts are as

follows:

Bank Savings Account - Bank Savings Account can be opened for eligible person

/ persons and certain organisations / agencies (as advised by Reserve Bank of

India (RBI) from time to time)

Bank Current Account - Bank Current Account can be opened by individuals /

partnership firms / Private and Public Limited Companies / HUFs / Specified

Associates / Societies / Trusts, etc.
http://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.htmlhttp://finance.indiamart.com/investment_in_india/bank_account.html


46/139

[46]

Bank Term Deposits Account - Bank Term Deposits Account can be opened by

individuals / partnership firms / Private and Public Limited Companies / HUFs/

Specified Associates / Societies / Trusts, etc.

Bank Account Online - With the advancement of technology, the major banks in

the public and private sector has facilitated their customer to open bank account

online. Bank account online is registered through a PC with an internet

connection. The advent in opening an account.

PLASTIC MONEY

Credit card

Credit cards in India are gaining ground. A number of banks in India are encouraging

people to usecredit card.The concept of credit card was used in 1950 with the launch

of charge cards in USA by Diners Club and American Express. Credit card however

became more popular with use of magnetic strip in 1970.

Credit card in India became popular with the introduction of foreignbanks in the

country.

Credit cards are financial instruments, which can be used more than once to borrow

money or buy products and services on credit. Basically banks, retail stores and other

businesses issue these.

Major Banks issuing Credit Card in India

State Bank of India credit card

(SBI credit card)

Bank of Baroda credit card or

Bob credit card

ICICI credit card

HDFC credit card

IDBI credit card

ABN AMRO credit card

Standard Chartered credit card

HSBC credit card
http://finance.indiamart.com/investment_in_india/plastic_money.htmlhttp://finance.indiamart.com/investment_in_india/plastic_money.htmlhttp://finance.indiamart.com/investment_in_india/plastic_money.htmlhttp://finance.indiamart.com/investment_in_india/plastic_money.html


47/139

[47]

Global player in credit card market

MasterCard

MasterCard is a product of MasterCard International and along with VISA are distributedby financial institutions around the world. Cardholders borrow money against a line of

credit and pay it back with interest if the balance is carried over from month to month. Its

products are issued by 23,000 financial institutions in 220 countries and territories. In

1998, it had almost 700 million cards in circulation, whose users spent $650 billion in

more than 16.2 million locations.

VISA Card

VISA cards is a product of VISA USA and along with MasterCard is distributed by

financial institutions around the world. A VISA cardholder borrows money against a

credit line and repays the money with interest if the balance is carried over from month

to month in a revolving line of credit. Nearly 600 million cards carry one of the VISA

brands and more than 14 million locations in the world.

American Express

The world's favourite card is American Express Credit Card. More than 57 million cards

are in circulation and growing and it is still growing further. Around US $ 123 billion was

spent last year through American Express Cards and it is poised to be the world's No. 1

card in the near future. In a regressive US economy last year, the total amount spent on

American Express cards rose by 4 percent. American Express cards are very popular in

the U.S., Canada, Europe and Asia and are used widely in the retail and everyday

expenses segment.


48/139

[48]

DinersClubInternational

Diners Club is the world's No. 1 Charge Card. Diners Club cardholders reside all over

the world and the Diners Card is a all-time favourite for corporates. There are more than

8 million Diners Club cardholders. They are affluent and are frequent travellers in

premier businesses and institutions, including Fortune 500 companies and leading

global corporations.

JCBCards

The JCB Card has a merchant network of 10.93 million in approximately 189 countries.

It is supported by over 320 financial institutions worldwide and serves more than 48

million cardholders in eighteen countries worldwide. The JCB philosophy of "identify the

customer's needs and please the customer with Service from the Heart" is paying rich

dividends as their customers spend US$43 billion annually on their JCB cards.

The following are some of the varieties of credit cards in India

ANZ - Gold

ANZ - Silver

Bank Of IndiaIndiacard

Bol - Taj Premium

Bol - Gold

BoB - Exclusive

BoB - Premium

Canara BankCancard

Citibank - Gold

Citibank - Silver

Citibank WWF Card

Citibank Visa Card for Women

Citibank Cry Card

Citibank Silver International

Credit

Citibank Electronic Credit Card

Citibank Times Card

Citibank Citi Diners Club Card

HSBC - Gold

HSBC - Classic

ICICI Sterling Silver Credit Card

ICICI Solid Gold Credit Card

ICICI True Blue Credit Card

SBI Card

Stanchart - Gold

Stanchart - Executive


49/139

[49]

Debit Card

Debit cards, also known as check cards look likecredit cards or ATM cards (automatedteller machine card). It operates like cash or a personal check. Debit cards are different

from credit cards. Credit card is a way to "pay later," whereas debit card is a way to "pay

now." When we use a debit card, our money is quickly deducted from thebank account.

Debit cards are accepted at many locations, including grocery stores, retail stores,

gasoline stations, and restaurants. Itsan alternative to carrying a checkbook or cash.

With debit card, we use our own money and not the issuer's money.

In India almost all thebanks issue debit card to its account holders.

Features of Debit Card

Obtaining a debit card is often easier than obtaining a credit card.

Using a debit card instead of writing checks saves you from showing

identification or giving out personal information at the time of the transaction.

Using a debit card frees you from carrying cash or a checkbook.

Using a debit card means you no longer have tostock up on travellerschecks or

cash when you travel.

Debit cards may be more readily accepted by merchants than checks, especially

in other states or countries wherever your card brand is accepted.

The debit card is a quick, "pay now" product, giving you no grace period.

Using a debit card may mean you have less protection than with a credit card

purchase for items which are never delivered, are defective, or weremisrepresented. But, as with credit cards, you may dispute unauthorized charges

or other mistakes within 60 days. You should contact the card issuer if a problem

cannot be resolved with the merchant.
http://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.htmlhttp://finance.indiamart.com/investment_in_india/debit_card.html


50/139

[50]

LOANS

Banks in India with the way of development have become easy to apply in loan market.

The following loans are given by almost all thebanks in the country:

Personal Loan

Car Loan orAuto Loan

Loan against Shares

Home Loan

Education Loan or Student Loan

In Personal Loan, one can get a sanctioned loan amount between Rs 25,000 to

10,00,000 depending upon the profile of person applying for the loan. SBI, ICICI, HDFC,

HSBC are some of the leading banks which deals in in personal loan.

Almost all the banks have jumped into the market of car loan which is also sometimes

termed as auto loan. It is one of the fast moving financial products of banks. Car loan /

auto loan are sanctioned to the extent of 85% upon the ex-showroom price of the car

with some simple paper works and a small amount of processing fee.

Loan against shares is very easy to get because liquid guarantee is involved in it.

Home loan is the latest craze in the banking sector with the development of the

infrastructure. Now people are moving to township outside the city. More number of

townships are coming up to meet the demand of 'house for all'. The RBI has also

liberalised the interest rates of home loan in order to match the repayment capability of

even middle class people. Almost all banks are dealing in home loan. Again SBI , ICICI ,

HDFC , HSBC are leading.

Theeducational loan,rather to be termed asstudent loan,is a good banking product for

the mass. Students with certain academic brilliance, studying at recognized

colleges/universities in India and abroad are generally given education loan / student
http://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.htmlhttp://finance.indiamart.com/investment_in_india/loans.html


51/139

[51]

loan so as to meet the expenses on tuition fee/ maintenance cost/books and other

equipment.

MONEY TRANSFER

Beside lending and depositing money,banks also carry money from one corner of the

globe to another. This act of banks is known as transfer of money. This activity is

termed as remittance business. Banks generally issue Demand Drafts, Banker's

Cheques, Money Orders or other such instruments for transferring the money. This is a

type of Telegraphic Transfer or Tele Cash Orders.

It has been only a couple of years that banks have jumped into the money transfer

businessess in India. The international money transfer market grew 9.3% from 2003 to

2004 i.e. from US$213 bn. to US$233 bn. in 2004. Economists say that the market of

money transfer will further grow at cumulative 10.1% average growth rate through 2008.

With the use of high technology and varieties of product it seems that "Free" money

transfers will become commonplace. We will see more bundling of tailored money

services by banks and non-traditional entrants that will include "free" money transfers.

Many banks will even use money transfer services as loss-leaders in order to generate

account openings and cross-sell opportunities. The price evolution of money transferproducts for banks will be similar to that of consumer bill pay-the product is worth giving

away as an account acquisition tool to win overallmarket share and establish banking

relationships.

ATM money transfer card products have had terrible bank adoption rates since being

introduced in the last three to four years. Remitters who are highly educated and have

been already been exposed to ATM technology in receiving countries tend to have an

interest in this product. Money transfer to India is one of the most important part played

by the banks. This service provide peace of mind to either the NRIs or to the visitors to

India. Many Indian banks have ATM'S (automatic teller machine), enable to draw

foreigncurrency in India.
http://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.html


52/139

[52]

By 2007, we will see a good percent of all foreign-born households doing some level

ofonline banking.First-mover banks will start having a window of opportunity to include

online transfer functionality within the next couple of years, which currently frequents

traditional money transmitters such as Western Union. There is a terrific opportunity for

banks and non-banks to offer more robust global inter-institutional funds transfer

services online. More than half of Western Union's customers today are already banked,

and most do not have an alternative product marketed by their bank that is painless,

quick, and cost-effective. That will change as banks offer transfer services through their

online channel.

Visa has recently introduced the 'Visa Money Transfer' option for its savings and current

account holder of any bank with a visa debit card. This facility helps its customer totransfer funds from hisbank account to any visa card, either debit or credit within India.

A Visa Money Transfer is of similar kind, in many respects, to the third-party fund

transfer option given by some banks to its account holders through e-cheque, but this is

restricted to only visa card holders.

How to transfer money?

Log on to your bank account through your respective bank websites.

Fill the beneficiary details like visa card numbers, name, address and then

specify the amount that needs to be transferred. For bank account specify the

visa card number andcredit card number for paying credit card bill.

Click on to VISA Transfer Payments button.

Transfer immediately or on schedule date. Your account will be debited

according to the date mentioned.
http://finance.indiamart.com/investment_in_india/money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/visa_money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/visa_money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/visa_money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/visa_money_transfer.htmlhttp://finance.indiamart.com/investment_in_india/money_transfer.html


53/139

[53]

MOBILE BANKING

Mobile Banking is a service that allows customers to do banking transactions on theirmobile phone without making a call, using the SMS facility.

Mobile Banking works on the 'Text Messaging Facility' also called the SMS that is

available on mobile phones. This facility allows sending a short text message from

mobile phone instead of making a phone call.

All that is need to do is, to type out a short text message on mobile phone and send it

out to a specific mobile banking number given by the bank .The response is sent as anSMS message, all in the matter of a few seconds.

The following transactions are currently available across India -

Balance Inquiry of all accounts linked to Customer Identification Number

(maximun up to five accounts)

Following transactions give information on primary account

Checking the last 3 transactions in your primary account for MobileBanking Placing a Stop Payment on a cheque

Requesting a cheque book

Requesting an Account Statement

Cheque Status inquiry

Bill Presentment

Fixed Deposit Inquiry

A Help menu, which gives you the transaction codes for the various transactions IPIN Re-generation request


54/139

[54]

Mobile banking in India is set to explode - approximately 43 million urban Indians used

their mobile phones to access banking services during quarter ending August, 2009, a

reach of 15% among urban Indian mobile phone user.

Most Popular Banking Service on Mobile

Checking account balances is the most popular banking service used by urban Indians

with almost 40 million users followed by checking last three transactions, 28 million and

status of cheques with 21 million users.

Usage Unique Users (In millions)

Used mobile banking 43.70

Checking account balance 39.97

View last three transactions 28.15

Status of cheques 21.06

Payment reminders 20.92

Request a cheque book 19.11

Mobile banking is popular among the Rs.1 to 5 lakhs per year income group with almost

60% of mobile banking users falling in the income bracket, an indicator of adoption of

this service by younger generation.


55/139

[55]

PHONE BANKING

When one dials in to Phone Banking, a voice prompt will guide him through the varioustransactions. He may also talk to a Phone Banker, who will provide him with the

required assistance.

Check your account balance

Enquire on the cheque status

Order a Cheque Book / Account Statement

Stop Payment

Loan Related queries

transfer Funds between accounts

Open a Fixed deposit or Enquire on your Fixed deposits / TDS

Pay bills

Report loss of ATM / Debit Card / ForexPlus Card

Enquire about latest Interest / Exchange rates

Request a Demand Draft / Manager's Cheque

Demat Related Queries

INTERNET BANKING

Internet banking is the technology that allows banking customers to do the things they

would normally do at their bank from the comfort of home with a connection to the

Internet. Anything that would normally be done in the offshore bank account, which is

done on the Internet, is considered Internet banking.

With cybercafs and kiosks springing up in different cities access to the Net is going to

be easy. Internet banking (also referred as e banking) is the latest in this series of

technological wonders in the recent past involving use of Internet for delivery of banking


56/139

[56]

products & services. Even the Morgan Stanley Dean Witter Internet research

emphasised that Web is more important for retail financial services than for many other

industries.

Internet banking is changing the banking industry and is having the major effects on

banking relationships. Banking is now no longer confined to the branches were one has

to approach the branch in person, to withdraw cash or deposit a cheque or request a

statement of accounts. In true Internet banking, any inquiry or transaction is processed

online without any reference to the branch (anywhere banking) at any time. Providing

Internet banking is increasingly becoming a "need to have" than a "nice to have"

service. The net banking, thus, now is more of a norm rather than an exception in many

developed countries due to the fact that it is the cheapest way of providing bankingservices.

Indian banks are going for the retail banking in a big way. However,

Documents

Maharshi Arvind Kailash