METHODOLOGY

Primary Data Collection: The primary data was collected by making a visit to…  Punjab National Bank, Ulhasnagar Branch  Punjab National Bank, Belapur Branch  Training Institution of PNB, Belapur The views and opinions were collected from various authorities of the above-mentioned banks and branches. The credit for the same goes to:  Mr. P.D.Korde, Branch Manager, PNB, Ulhasnagar Branch  Mrs. Padmini Iyankar, Executive, Training Institute, PNB, Belapur  Mrs. Jyoti, Librarian, Training Institute, PNB, Belapur  Mrs. Hema, Librarian, Training Institute, PNB, Belapur Secondary Data Collection: The secondary data has been collected from the following sources….  Books  Press Releases of Banks  Newspapers  Websites

‘INTRODUCTION TO BUSINESS’: What Is Business?
Any trade, occupation or other commercial activity engaged in or gain, profit for which a corporation can be organized. An organization operated with the objective of making a profit from the sale of goods or services. Business refers to at least three closely related commercial topics. The first is a commercial, professional or industrial organization or enterprise, generally referred to as "a business." The second is commercial, professional, and industrial activity generally, as in "business continues to evolve as markets change." Finally, business can be used to refer to a particular area of economic activity, such as the "record business" or the "computer business" Business Planning Starting and managing a business takes motivation, desire and talent. But to make it a true success, it also takes research and planning. Like a chess game, success in small business starts with decisive and correct opening moves. And, although initial mistakes are not fatal, it takes skill, discipline and hard work to regain the advantage. To increase a chance for success, take the time up front to explore and evaluate your business and personal goals. Then use this information to build a comprehensive and wellthought-out business plan that will help you reach these goals. The process of developing a business plan will help us think through some important issues that we may not have considered yet. The plan will become a valuable tool as we set out to raise money for a business. It should also provide milestones to gauge our success.

Importance Of Business Planning: We have an idea for a business. We know what you want to sell, who we can sell it to, and how much we stand to earn from it. There's just one more thing we need: a business plan. Many people dread the idea of preparing a business plan. They think of them as complicated, unnecessary documents that exist only to make it more difficult for them to get started as an entrepreneur. They are wrong. Business plans are necessary because they help us “see” our business. Instead of just talking in abstract ways about our “customer base” and our “profit potential,” it lets us put those things in writing and in concrete terms. It forces us to think through every aspect of our business in advance so down the road we don't realize we've made a mistake that's cost us our business, our life's savings, and our job.

Besides all of that, they are also important tools for getting other people interested in our business. For one, if we've taken the time to create a business plan, others will realize that we are serious about this endeavor and that it isn't just some pie-in-the-sky dream. A business plan also shows people that we are a professional and that we understand what it takes to start and manage a business. This is all extremely important, particularly if we need any type of outside funding, such as loans or investors. What does business plan covers? So while the bad news may be that we definitely do need a business plan, the good news is that they don't have to be complicated. The truth is that our plan only needs to cover seven main areas and none of these areas are going to require us to write a full-length novel. These five sections are the executive summary, the company overview, the business environment, the company description, and the action plan. All of those sections may sound complex, but most of them won't involve information that we don't already know.

EXECUTIVE SUMMARY Even though this section will technically be first in our business plan, we should actually write it last because, just as its name implies, it summarizes the entire contents of our business plan. Because many readers never bother to get beyond the executive summary, we must make sure that it is comprehensive and well written. If that sounds difficult, it isn't. Just make sure to read through our entire business plan before we start writing the executive summary. Make a list of information that we think is the most important or that would really stand out to a reader, and be sure to include all of it in the summary. Company Overview

This section explains the guiding force behind our business. It gives them a chance to see what we have in mind for the business and how we plan to get there. Generally, the overview does this by providing a mission statement, goals, and objectives for our business. In a nutshell, a mission statement provides the answers to all of these questions in less than 50 words: What am I selling? Who am I selling it to? Why am I selling it? It doesn't need to be just one sentence, but keep it as brief as possible. First time business plan writers often confuse goals and objectives, the other components of the company overview. Remember that goals are things our company wants to achieve while our objectives are how they plan to get there.

Business Environment This section will probably require us to do some outside research because it involves information relating to our industry, our market, and our competition. We need to take an honest look at the field we are preparing to enter and pay close attention to its structure, its trends, and its barriers to new businesses. Become familiar with the major competitors in our industry and decide how we will differentiate our self from them. Also, get to know our potential customers and what makes them tick. The more we know about them, the more likely we will be to turn them into buyers. Company Description At this point in our business plan, we need to go into detail about our business. We can't simply define our company in terms of what we sell, but also in terms of who we serve, what resources we will use, what types of employees we are looking for, what type of distribution method we'll utilize, and more. All of this factors combine to create our company. In addition to this, we should also state our company's UPS (Unique Positioning Statement). This is a one-sentence statement that explains what sets us apart from all of the competitors. Action Plan The last part of our business plan is this section, which outlines the steps we need to take now in order to make our plan work. These should also reflect the goals and objectives that we've outlined in our company overview. Besides these primary pieces of a business plan, we may also need to include a financial section, particularly if we plan on using it to get outside funding for our business. This may take more thought and planning than the other sections because it will require us to make

some assumptions about our business's revenue potential. The most important thing is to base any estimates on realistic expectations, not optimistic dreams. Banking Business The word bank is derived from the Italian banca, which is derived from German language and means bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out of business bank, having its bench physically broken. Money lenders in Northern Italy originally did business in open areas, or big open rooms, with each lender working from his own bench or table. Typically, a bank generates profits from transaction fees on financial services and on the interest it charges for lending. The essential function of a bank is to provide services related to the storing of deposits and the extending of credit. The evolution of banking dates back to the earliest writing, and continues in the present where a bank is a financial institution that provides banking and other financial services. Currently the term bank is generally understood as an institution that holds a banking license. Banking licenses are granted by bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so called non-bank. Banks are a subset of the financial services industry.

“MARKETING MIX”
What Is Marketing? The sum of activities involved in directing the flow of goods and services from producers to consumers. Marketing's principal function is to promote and facilitate exchange. Through marketing, individuals and groups obtain what they need and want by exchanging products and services with other parties. Such a process can occur only when there are at least two parties, each of whom has something to offer. In addition, exchange cannot occur unless the parties are able to communicate about and to deliver what they offer. Marketing is not a coercive process: all parties must be free to accept or reject what others are offering. So defined, marketing is distinguished from other modes of obtaining desired goods, such as through self-production, begging, theft, or force. Marketing is not confined to any particular type of economy, because goods must be exchanged and therefore marketed in all economies and societies except perhaps in the most primitive. Furthermore, marketing is not a function that is limited to profit-oriented business; even such institutions as hospitals, schools, and museums engage in some forms of marketing. Within the broad scope of marketing, merchandising is concerned more specifically with promoting the sale of goods and services to consumers (i.e., retailing) and hence is more characteristic of free-market economies. Based on these criteria, marketing can take a variety of forms: it can be a set of functions, a department within an organization, a managerial process, a managerial philosophy, and a social process.

The evolving discipline of marketing: The marketing discipline had its origins in the early 20th century as an offspring of economics. Economic science had neglected the role of middlemen and the role of functions other than price in the determination of demand levels and characteristics. Early marketing economists examined agricultural and industrial markets and described them in greater detail

than the classical economists. This examination resulted in the development of three approaches to the analysis of marketing activity: the commodity, the institution, and the function. Commodity analysis studies the ways in which a product or product group is brought to market. A commodity analysis of milk, for example, traces the ways in which milk is collected at individual dairy farms, transported to and processed at local dairy cooperatives, and shipped to grocers and supermarkets for consumer purchase. Institutional analysis describes the types of businesses that play a prevalent role in marketing, such as wholesale or retail institutions. For instance, an institutional analysis of clothing wholesalers examines the ongoing concerns that wholesalers face in order to ensure both the correct supply for their customers and the appropriate inventory and shipping capabilities. Finally, a functional analysis examines the general tasks that marketing performs. For example, any marketing effort must ensure that the product is transported from the supplier to the customer. In some industries, a truck, while in others it may be done by mail, facsimile, television signal, or airline may handle this transportation function. All these institutions perform the same function. As the study of marketing became more prevalent throughout the 20th century, large companies—particularly mass consumer manufacturers—began to recognize the importance of market research, better product design, effective distribution, and sustained communication with consumers in the success of their brands. Marketing concepts and techniques later moved into the industrial-goods sector and subsequently into the services sector. It soon became apparent that organizations and individuals market not only goods and services but also ideas (social marketing), places (location marketing), personalities (celebrity marketing), events (event marketing), and even the organizations themselves (public relations).

Role of marketing: As marketing developed, it took a variety of forms. It was noted above that marketing can be viewed as a set of functions in the sense that certain activities are traditionally associated with the exchange process. A common but incorrect view is that selling and advertising are the only marketing activities. Yet, in addition to promotion, marketing includes a much broader set of functions, including product development, packaging, pricing, distribution, and customer service. Many organizations and businesses assign responsibility for these marketing functions to a specific group of individuals within the organization. In this respect, marketing is a unique and separate entity. Those who make up the marketing department may include brand and product managers, marketing researchers, sales representatives, advertising and promotion managers, pricing specialists, and customer service personnel. As a managerial process, marketing is the way in which an organization determines its best opportunities in the marketplace, given its objectives and resources. The marketing process is divided into a strategic and a tactical phase. The strategic phase has three components—segmentation, targeting, and positioning (STP). The organization must distinguish among different groups of customers in the market (segmentation), choose which group(s) it can serve effectively (targeting), and communicate the central benefit it offers to that group (positioning). The marketing process includes designing and implementing various tactics, commonly referred to as the “marketing mix,” or the “4 Ps”: - Product, Price, Place and promotion. Evaluating, controlling, and revising the marketing Process to achieve the organization’s objectives follow the marketing mix The managerial philosophy of marketing puts central emphasis on customer satisfaction as the means for gaining and keeping loyal customers. Marketers urge their organizations to carefully and continually gauge target customers' expectations and to consistently meet or exceed these expectations. In order to accomplish this, everyone in all areas of the organization must focus on understanding and serving customers; it will not succeed if all

marketing occurs only in the marketing department. Marketing, consequently, is far too important to be done solely by the marketing department. It is the process by which a society organizes and distributes its resources to meet the material needs of its citizens. However, marketing activity is more pronounced under conditions of goods surpluses than goods shortages. When goods are in short supply, consumers are usually so desirous of goods that the exchange process does not require significant promotion or facilitation. In contrast, when there are more goods and services than consumers need or want, companies must work harder to convince customers to exchange with them. The marketing process: The marketing process consists of four elements: strategic marketing analysis, marketingmix planning, marketing implementation, and marketing control.

“Strategic marketing analysis” Market segments: The aim of marketing in profit-oriented organizations is to meet needs profitably. Companies must therefore first define which needs—and whose needs—they can satisfy. For example, the personal transportation market consists of people who put different values on an automobile's cost, speed, safety, status, and styling. No single automobile can satisfy all these needs in a superior fashion; compromises have to be made. Furthermore, some individuals may wish to meet their personal transportation needs with something other than an automobile, such as a motorcycle, a bicycle, or a bus or other form of public transportation. Because of such variables, an automobile company must identify the different preference groups, or segments, of customers and decide which group(s) they can target profitably.

Market niches: Segments can be divided into even smaller groups, called sub segments or niches. A niche is defined as a small target group that has special requirements. For example, a bank may specialize in serving the investment needs of not only senior citizens but also senior citizens with high incomes and perhaps even those with particular investment preferences. It is more likely that larger organizations will serve the larger market segments (mass marketing) and ignores niches. As a result, smaller companies typically emerge that are intimately familiar with a particular niche and specialize in serving its needs. Marketing to individuals: A growing number of companies are now trying to serve “segments of one.” They attempt to adapt their offer and communication to each individual customer. This is understandable, for instance, with large industrial companies that have only a few major customers. For example, The Boeing Company (United States) designs its 747 planes differently for each major customer, such as United Airlines, Inc., or American Airlines, Inc. Serving individual customers is increasingly possible with the advent of database marketing, through which individual customer characteristics and purchase histories are retained in company information systems. Even mass marketing companies, particularly large retailers and catalog houses, compile comprehensive data on individual customers and are able to customize their offerings and communications. Positioning: A key step in marketing strategy, known as positioning, involves creating and communicating a message that clearly establishes the company or brand in relation to competitors. Thus, Volvo Aktiebolaget (Sweden) has positioned its automobile as the “safest,” and Daimler-Benz AG (Germany), manufacturer of Mercedes-Benz vehicles, has positioned its car as the best “engineered.” Some products may be positioned as “outstanding” in two or more ways. However, claiming superiority along several dimensions

may hurt company’s credibility because consumers will not believe that any one offering can excel in all dimensions. Furthermore, although the company may communicate a particular position, customers may perceive a different image of the company as a result of their actual experiences with the company's product or through word of mouth. Marketing-mix planning: Having developed a strategy, a company must then decide which tactics will be most effective in achieving strategy goals. Tactical marketing involves creating a marketing mix of four components product, price, and place, promotion—that fulfills the strategy for the targeted set of customer needs. 1. Product: Product development: The first marketing-mix element is the product, which refers to the Offering or group of offerings that will be made available to customers. In the case of a physical product, such as a car, a company will gather information about the features and benefits desired by a target market. Before assembling a product, the marketer's role is to communicate customer desires to the engineers who design the product or service. This is in contrast to past practice, when engineers designed a product based on their own preferences, interests, or expertise and then expected marketers to find as many customers as possible to buy this product. Contemporary thinking calls for products to be designed based on customer input and not solely on engineers' ideas. In traditional economies, the goods produced and consumed often remain the same from one generation to the next—including food, clothing, and housing. As economies develop, the range of products available tends to expand, and the products themselves change. In contemporary industrialized societies, products, like people, go through life cycles: birth, growth, maturity, and decline. This constant replacement of existing products with new or altered products has significant consequences for professional

marketers. The development of new products involves all aspects of a business—production, finance, research and development, and even personnel administration and public relations. Packaging and branding: Packaging and branding are also substantial components in the marketing of a product. Packaging in some instances may be as simple as customers in France carrying long loaves of unwrapped bread or small produce dealers in Italy wrapping vegetables in newspapers or placing them in customers' string bags. In most industrialized countries, however, the packaging of merchandise has become a major part of the selling effort, as marketers now specify exactly the types of packaging that will be most appealing to prospective customers. The importance of packaging in the distribution of the product has increased with the spread of self-service purchases in wholesaling as well as in retailing. Packaging is sometimes designed to facilitate the use of the product, as with aerosol containers for room deodorants. In Europe such condiments as mustard, mayonnaise, and ketchup are often packaged in tubes. Some packages are reusable, making them attractive to customers in poorer countries where metal containers, for instance, are often highly prized. Marketing a service product: The same general marketing approach about the product applies to the development of service offerings as well. For example, a health maintenance organization (HMO) must design a contract for its members that describes which medical procedures will be covered, how much physician choice will be available, how out-of-town medical costs will be handled, and so forth. In creating a successful service mix, the HMO must choose features that are preferred and expected by target customers, or the service will not be valued in the marketplace.

2. Price: The second marketing-mix element is price. Ordinarily companies determine a price by gauging the quality or performance level of the offer and then selecting a price that reflects how the market values its level of quality. However, marketers also are aware that price can send a message to a customer about the product's presumed quality level. A Mercedes-Benz vehicle is generally considered to be a high-quality automobile, and it therefore can command a high price in the marketplace. But, even if the manufacturer could price its cars competitively with economy cars, it might not do so, knowing that the lower price might communicate lower quality. On the other hand, in order to gain market share, some companies have moved to “more for the same” or “the same for less” pricing, which means offering prices that are consistently lower than those of their competitors. This kind of discount pricing has caused firms in such industries as airlines and pharmaceuticals (which used to charge a price premium based on their past brand strength and reputation) to significantly reevaluate their marketing strategies. 3. Place: Place, or where the product is made available, is the third element of the marketing mix and is most commonly referred to as distribution. When a product moves along its path from producer to consumer, it is said to be following a channel of distribution. For example, the channel of distribution for many food products includes food-processing plants, warehouses, wholesalers, and supermarkets. By using this channel, a food manufacturer makes its products easily accessible by ensuring that they are in stores that are frequented by those in the target market. In another example, a mutual funds organization makes its investment products available by enlisting the assistance of brokerage houses and banks, which in turn establish relationships with particular customers. However, each channel participant can handle only a certain number of products: space at supermarkets is limited, and investment brokers can keep abreast of only a limited number of mutual funds. Because of this, some marketers may decide to skip steps in the channel and instead market directly to buyers

through direct mail, telemarketing, door-to-door selling, shopping via television (a growing trend in the late 20th century), or factory outlets. 4. Promotion: Promotion, the fourth marketing-mix element, consists of several methods of communicating with and influencing customers. The major tools are sales force, advertising, sales promotion, and public relations.

Sales force: Sales representatives are the most expensive means of promotion, because they require income, expenses, and supplementary benefits. Their ability to personalize the promotion process makes salespeople most effective at selling complex goods, big-ticket items, and highly personal goods—for example, those related to religion or insurance. Salespeople are trained to make presentations, answer objections, gain commitments to purchase, and manage account growth. Some companies have successfully reduced their sales-force costs by replacing certain functions (for example, finding new customers) with less expensive methods (such as direct mail and telemarketing). Advertising: Advertising includes all forms of paid, no personal communication and promotion of products, services, or ideas by a specified sponsor. Advertising appears in such media as print (newspapers, magazines, billboards, flyers) or broadcast (radio, television). Advertisements typically consist of a picture, a headline, information about the product, and occasionally a response coupon. Broadcast advertisements consist of an audio or video narrative that can range from short 15-second spots to longer segments known as infomercials, which generally last 30 or 60 minutes.

Sales promotion: While advertising presents a reason to buy a product, sales promotion offers a short-term incentive to purchase. Sales promotions often attract brand switchers (those who are not loyal to a specific brand) who are looking primarily for low price and good value. Thus, especially in markets where brands are highly similar, sales promotions can cause a shortterm increase in sales but little permanent gain in market share. Alternatively, in markets where brands are quite dissimilar, sales promotions can alter market shares more permanently. The use of promotions has risen considerably during the late 20th century. This is due to a number of factors within companies, including an increased sophistication in sales promotion techniques and greater pressure to increase sales. Several market factors also have fostered this increase, including a rise in the number of brands (especially similar ones) and a decrease in the efficiency of traditional advertising due to increasingly fractionated consumer markets. Public relations: Public relations, in contrast to advertising and sales promotion, generally involve less commercialized modes of communication. Its primary purpose is to disseminate information and opinion to groups and individuals who have an actual or potential impact on a company's ability to achieve its objectives. In addition, public relations specialists are responsible for monitoring these individuals and groups and for maintaining good relationships with them. One of their key activities is to work with news and information media to ensure appropriate coverage of the company's activities and products. Public relations specialists create publicity by arranging press conferences, contests, meetings, and other events that will draw attention to a company's products or services. Another public relations responsibility is crisis management—that is, handling situations in which public awareness of a particular issue may dramatically and negatively impact the company's ability to achieve its goals. For example, when it was discovered that a harmful chemical, Source Perrier, might have tainted some bottles of Perrier sparkling water SA's public relations team had to ensure that the general consuming public did not thereafter

automatically associate Perrier with tainted water. Other public relations activities include lobbying, advising management about public issues, and planning community events. Because public relations do not always seek to impact sales or profitability directly, it is sometimes seen, as serving a function that is separate from marketing. However, some companies recognize that public relations can work in conjunction with other marketing activities to facilitate the exchange process directly and indirectly. These organizations have established marketing public relations departments to directly support corporate and product promotion and image management. Philip Kotler Kent A. Grayson Jonathan D. Hibbard. Marketing implementation: Companies have typically hired different agencies to help in the development of advertising, sales promotion, and publicity ideas. However, this often results in a lack of coordination between elements of the promotion mix. When components of the mix are not all in harmony, a confusing message may be sent to consumers. For example, a print advertisement for an automobile may emphasize the car's exclusivity and luxury, while a television advertisement may stress rebates and sales, clashing with this image of exclusivity. Alternatively, by integrating the marketing elements, a company can more efficiently utilize its resources. Instead of individually managing four or five different promotion processes, the company manages only one. In addition, promotion expenditures are likely to be better allocated, because differences among promotion tools become more explicit. This reasoning has led to integrated marketing communications, in which all promotional tools are considered to be part of the same effort, and each tool receives full consideration in terms of its cost and effectiveness.

“CUSTOMER ORIENTATION”

A landmark ". COM" ventures in India between ICICI BANK and SIFY for online distribution of retail banking products and services. In a major development in the Internet world, ICICI Bank, the banking subsidiary of ICICI Ltd. (NYSE: IC and IC.D) and Satyam Infoway Ltd. (NASDAQ: SIFY) announced the setting up of a new ".COM" company for on-line distribution of retail banking products and services on the Internet. This landmark agreement marks the coming together of India's first Internet Banking provider, ICICI Bank, and India's largest private ISP and mega-Portal, Satyam Infoway, to create a unique partnership between a major Bank and a mega-Portal. The marriage between banking and portals is expected to be a win-win potent combination, which is expected to result in improved customer orientation, lower distribution cost, longterm customer relationships with ease of banking wherever and whenever the customer wants it and enhanced profitability. The range of retail banking products to be distributed through the portal would include savings accounts, current accounts, fixed deposits, bill payments and other retail banking products that ICICI Bank may offer through this on-line channel. The surge in demand for e-commerce related services stems from the rapid growth in Internet penetration in the country and a fundamental change in the business paradigm. The two companies would therefore also explore several opportunities to complement each other's strengths to capitalise on the opportunities in e-commerce. This would include providing a platform for trade facilitation and payments over the Internet using innovative banking products of ICICI Bank. SIFY has a buyer to seller ordering/selling website, SeekandSource.com, which is on-line except for the payments that are still physical. ICICI Bank has developed an Internet based 'business to business' payment module for purchasers and sellers to effect payments online. A synergistic offering of these two products would be made so that such customers/users can complete the entire transaction and payments online.

The two companies would expect to co-operate wherever feasible to extend the reach and channels for distribution of financial products from ICICI Bank and Internet products from SIFY. ICICI Bank, as a part of its "Click and Brick" strategic focus would set up ATMs at the Satyam Access Points and Cyber Cafes, thereby increasing its reach across the country. It would also offer Satyam Internet terminals at its branches, enabling visitors to surf the Internet, thereby attracting new customers to its branches. The two companies shall examine further business opportunities, which would effectively synergise the financial services strength of ICICI Bank and its Affiliates and the technological expertise of Satyam Infoway and its Affiliates. ICICI Bank and Satyam Infoway through this partnership will play a strategic role in providing revolutionary ecommerce solutions in India. The memorandum of understanding was signed today between Mr. H.N Sinor, Managing Director & CEO of ICICI Bank and Mr. R. Ramraj, Managing Director of Satyam Info way. ICICI is a diversified financial services company offering a wide range of products and services to corporate and retail customers in India. ICICI Bank, a subsidiary company has been the pioneer of Internet banking in India. ICICI Bank has been gearing itself for the opportunities that would be created from the e-Commerce revolution. Satyam Info way Ltd. is the leading integrated Internet and E-commerce Company operating in India. SatyamOnline, the most comprehensive portal site of Indian origin is one of the key offerings from SIFY in the business to consumer segment. Recently it entered into an agreement to acquire IndiaWorld Communications Private Limited, which would result in the integration of IndiaWorld's popular websites like samachar.com, khel.com and khoj.com with SIFY's portals. The combined portal would be the largest India related Internet portal.

1. Key Business Objectives Organizations are facing tremendous competition word-wide. There is pressure on the organisations to improve their profitability and efficiency for their survival and growth. The customer’s expectations about the product and services are increasing and they do not hesitate to change their brand loyalty or the loyalty towards the organisations with whom they have been dealing for a long time. The deregularisation, liberalization and globalisation process have given freedom to the organisations in terms of selecting and producing the products and services, selecting the market segment and targeting a customer group at the same time they have to meet more rigid and regulatory requirements to satisfy the regulators that the deregulation or liberalization does not work against the interest of the customers and the society. The organisations also have to safeguard their resources to protect the interest of shareholders. The changing environment particularly that of competition, customer expectations and emerging technology have influenced the banks word-wide. Thus, the key business objectives of a bank are to manage increasing competition by improving their product and services, improving efficiency and productivity by restructuring their systems and work procedures and improving employees productivity, ensuring compliance with the regulatory requirements and safeguarding the assets. All these issues can be addressed by implementation of the right type of technology for the right purpose. The technology-based solutions have put the banks in a competitive advantage, improved the efficiency of the operations and provided excellent customer service. The technology has helped the organisations to take strategic decisions based on the on-line data rather than based on the past experience and intuitive decisions. The computer assisted audit techniques have helped the banks to ensure safeguarding of resources and to ensure that the banks are operating efficiently and effectively. The extensive use of technology has also brought down the transaction cost and the rental cost of the premises. Thus, the computerisation of banks

operations had tremendous impact on their future prospects. The central bank of any country though operate in a monopoly situation but has to demonstrate as a role model its efficiency and effectiveness to guide and supervise the whole banking system. 2. Changes in IT Scenario: The banks have undergone changes as far as the implementation of IT is concerned. They have moved from manual systems to batch processing systems, batch processing systems to on-line systems and now striving for real time systems. They have moved from centralized computing to decentralized computing in which each business unit can now take care of its computing requirement. The focus of use of computers has moved from back office to front office where most of the computerized operations are providing customer interface in order to improve customer service. Thus, the computerisation has refocused the predominance of its applications from business orientation to customer orientation. The computer operations which were mainly on stand alone environment about a decade back have taken the advantage of data communication and networking technology to share the data and computer resources and provide anywhere and anytime services. The online systems make the data and information available to the decision maker at the press of a button. The MIS, which was predominantly used for performance reporting, is now being extensively used for decision-making. The IT supported tools like Decision Support Systems (DSS), Expert Systems, Data Warehousing and Data Mining, etc play an important role in designing an Executive Information System (EIS). 3. IT Enablers a. Developments in H/W Technology: During last decade there has been tremendous improvements in hardware technology in terms of storage capacity and processing speed. The processing speed is getting almost doubled every year and there is no constraint in terms of storage space. Today’s microprocessors have more speed, processing power and storage capacity than a five years old mainframe. The networked environment and the client server

architect have provided almost an unlimited processing power to microprocessorbased systems. The only limitation is the availability of bandwidth for wide area networks (WANs). The cost of hardware has drastically come down to make it affordable to organisations and individuals. The spread of Kiosks has facilitated the accessibility of computers and Internet to common people. Invent of smart card technology has come out with many uses in banking and payment systems. The individuals need not carry the cash. The plastic cards with microchip can store the details of transactions and the balance amount to serve as an electronic purse. b. Developments in Software Technology: More than the developments in the hardware technology there have been developments in software technology. Newer and newer software systems are implemented to facilitate the users. The software systems are becoming more and more user friendly and interactive to provide on-line help and validation facilities. The Graphic User Interface (GUI) environment facilitated the users to use the systems by clicking the appropriate icons to perform various common functions without bothering about the syntax of commands. The software packages are now supporting multimedia i.e. text, audio, video and graphics. The software systems have also been developed to support presentations, desktop printing, 3D graphics, animations, etc. Software has also been developed to support any human activities to improve the efficiency, productivity, housekeeping and customer service. Special packages have been developed for facilitation the auditors. The Computer Assisted Audit Tools/ Techniques (CAATs) have made the job of auditors easy and more effective. c. Developments in Communication Technology: The synergy between computer and communication technology has really changed the banking scenario. It has facilitated the banks to reach to the customers without their physical presence. The technologies available for LAN, WAN, Intranet, Internet and Groupware have improved the efficiency of the banks. Banks are able to

provide better and innovative services to customers using these technologies. The satellite based communication systems provide high reliability and scalability. This technology is highly suitable for remote locations. The fibre optic technology has also improved the reliability, quality and speed of communication besides providing considerably higher bandwidth for the data transfer. 4. Issues in Computer Technology The major problem the IT users are facing today relates to fast obsolescence in Hardware Technology. The obsolescence is fast because newer and newer software systems with more capabilities are developed which require higher processing speed and storage. The other concern of the user of the technology particularly of the banks is the data security and the disaster management as the data in the computerised systems represents financial transactions. Inadequately secured systems may lead to frauds and other computer related crimes. To provide uninterrupted services to its customers, the banks are also concerned with the proper maintenance of hardware and software systems. The adequate and trained manpower is generally not available at different business locations. It is also a very strategic issue for a bank whether to develop and maintain the systems in-house or to outsource them. There are always some relative advantages and disadvantages for outsourcing the systems depending upon the circumstances. 5. Issues in Communication Technology: There are varieties of communication media available for networking and data communication. The selection of suitable communication media in terms of its reliability, cost and durability is an important decision. The selection of appropriate topology and the communication protocols are also important considerations for the banks. Another major issue the banks are facing is to ensure network security. The physical security is not considered adequate and effective in a networked environment particularly in a wide area network. There is also shortage of communication infrastructure in developing countries and the infrastructure is costly. There are not many choices as the infrastructure is generally provided by the government agencies and there are always some regulatory hassles. There is

also shortage of bandwidth to support data, voice and image. The reliability of the infrastructure is also one of the major issues when it is required to provide services like banking anytime and anywhere. 6. Impact on Staff: There are number of issues related to the staff while implementing and using IT in banks. These relate to availability of trained personnel to exploit the benefits of technology, continuous up gradation of their skills, retention of trained manpower in the organisation and utilization of staff rendered surplus due to implementation of technology. 7. The Future Trends: Animation software, fusion of computer and communication technology, image processing and video conferencing all will aid and present simulated environment for various business activities including banking. Emergence of electronic commerce, electronic and Internet banking, electronic payment systems and use of e-cash will bring our drastic changes in the banking activities.

“INNOVATION IN BANKING”
Introduction: Innovation derives organization to grow, prosper & transform in sync with the changes in the environment, both internal & external. Banking is no exception to this. In fact, this sector has witnessed radical transformation of late, based on many innovations in products, processes, services, systems, business models, technology, governance & regulation. A liberalized & globalized financial infrastructure has provided had provided an additional impetus to this gigantic effort. The pervasive influence of information technology has revolutionaries banking. Transaction costs have crumbled & handling of astronomical brick & mortar structure has been rapidly yielding ground to click & order electronic banking with a plethora of new products. Banking has become boundary less & virtual with a 24*7 model. Banks who strongly rely on the merits of ‘relationship was banking’ as a time tested way of targeting & servicing clients have readily embraced Customer Relationship Management (CRM), with sharp focus on customer centricity, facilitated by the availability of superior technology. CRM has, therefore, has become a new mantra in service management, which in both relationship based & information intensive. Thanks to the regulatory changes & financial innovation, large banks have now become complex organizations engaged in wide range of activities in the US & some parts of Europe. Banking is now a one-stop provider with a high degree of competition & competence. Banking has become a part of financial services. 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 banking. We now see the evolution of many novel deferral products like credit risk management tool that enhances liquidity & market efficiency. Securitization is yet another example in this regard, whose strategic use has been rapidly rising globally. So is outsourcing.

The retail revolution with accent on retail loans in the form of housing loans & Consumer loans literally dominating the banking globally is yet another example of product & service innovation. Various types of credit & debit cards & indeed e-cash itself, which has the potential to redefine the role of monetary authorities, are some more illustrious examples. Need to Push Full Throttle Ahead: Increasing knowledge among societies is forcing the banks to adopt international best practices to remain in business. Important dimensions of change are market, customers, competition, technology & society. Banks should focus beyond technologies and geographies to accelerate growth. Indian banking sector has adopted many dynamic innovations but still some more are needed like risk management, ecommerce etc. The new game requires new strategies with an accent on innovational transformation. Two roads diverged in a wood, and I Took the one less traveled by, And that has made all the difference. Robert Frost It is Customary to describe the unfolding world as of unprecedented change, of a whirlwind of ideas, of explosive growth of since-based technology. Prospects for continued escalation of change are awesome: the world’s knowledge based now doubles every eight years, but by 2020, the doubling time is estimated to be slashed to 76 days. A strong momentum and apparent inevitability of globalization strongly suggest an accentuation of the pace of development. Such contextual changes recd. An impetus through increasing integration of the productive process, rapid technological advances, splashing of legal & institutional barriers to global trade & a smother flow of global capital. Michale E Porter demonstrated that in an industry, the nature of the competition is embodied in the treat of new extent, the treat of substitute product or services, the bargaining power of suppliers/ buyers and the rivalry among existing competitors. The significance of

introducing a steady stream of innovative products for banks emanates from its potential to salubriously impact all these factors. Management theories & practice are characterized by a bewildering diversity of opinions. But the view, that the challenge to innovate is urgent & continuous, enjoys a fair measure of consensus across the development spectrum. In the present world, where all elements are critically in ferment, launching of innovative products by strong business analytic tools, optimized processes & a modern centralized IT system is central to ensuring short-term survival, achieving long-term prosperity & eventually gaining competitive advantages. An appropriate approach to the growth matrix in an era of change, where the convergence or real & virtual worlds has become a part of our daily lives, requires a clear understanding of micro-economic framework, education & training policies, trade & competition policy & socio-economic milieu. To what extent can difference in innovation explained the observed difference in growth, profitability & financial performance of industries & even firms within the same industry? How has innovation be instrumental in influencing the Indian experience of development of banks? What lesson can be gleaned from the recent Indian experience & that of other countries? What should be the road map for innovation? This article attempts a brief look at some such issues of growing concerns & provides insight into the impact of the driving forces and factors, behind innovation, on Indian with particular reference to banks. Discontinuity – The New Disequilibria: Everything in business is always in flux & flow. Engel’s stressed, “equilibrium is inseparable from motion & all equilibrium is relative & temporary”. The quickening of change (Table 1), however, caused discontinuity & ripples of concern on the boardrooms. But it is necessary to realize, as powerfully argued by Gary Hamel, “We stand on the threshold of a new age – the age of revolution. For the first time in history we can work backward from our imagination rather than forward from out past”. TABLE 1: DIMESIONS

OF CHANGES

Change Markets Local to Global -

Impact on Business
Investments in Identifying & Servicing New markets Listening Consumers. their needs. - Fulfilling Customer’s Requirements. - Squeeze in margins leading to cost cuttings. - Consolidating & Convergence. Knowing &Understanding

Customers

Acceptance to delight

to

Competitio n

- Increased Competition - Shortage to surplus Economy

Technology

Gradual

change

to

-

Innovational Transparency.

quantum Change

Shareholders

Society

Demanding Rights

Governance

Corporate

- Concern for social Obligations.

Historically, Changes in society have always been preceded by the flow of ideas, which provide the cutting Edge of development. In contemplating the challenges, the approaches of those enterprise, which successfully weathered the challenges of this volatile era, shows that

innovation is not only power but also the key to sustained economic success. While the debate over innovation in the world of business has raged for long, innovation has now rapidly emerged as a critical lament of the growth strategy. Despite the multi-layered any multi-dimensional aspect of ubiquitous change, most organization still disconcertingly confine themselves to incremental improvement & innovation without trying to alter the rules of the game, bring about breakthrough innovation. What is prognostically alarming is that most companies in the given industry or market tend to follow the same unwritten rules for conducting business with limited deviations from de facto strategies. This is reflected by the fact that though agglomeration & the location of innovative activities are closely related, important sectoral clusters like textiles (Triupur), diamond-cutting (Surat), hosiery (Ludhiana), call centers (Gurgoan), autocompanies & automobiles (Chennai), with the notable exception of banglore (IT) are largely confined to incremental innovations. Further the blistering pace of change quickly renders existing strategies obsolete necessitating frequent course corrections. An urgent policy appraisal is, therefore, impulses in banks by radical and discontinuous innovative measures for enhanced performance in this turbulent era.

‘The Innovation Imperative – Accelerating Growth beyond Technologies and Geographies:’
Traditionally, innovation has been defined with focus on traditional concepts of industry research & development & the commercialization of new products and/or process technologies. But the definition of innovation as “acceptance of & readiness to change across the organization, dedication to continuous improvement processes, willingness to experiment and explore novel ways, building new relationship & alliance, establishing new approaches to markets, channels, customers, pricing strategies & new & varied approaches to organization, measurement and performance measurement” is generally a acceptable. The history of the growth of financial development, as indeed of all other development, is intertwined with the growth of innovation. Compelling & incontrovertible cross-country evidence prove that successful innovation is crucial to the competitive edge of all businesses. But innovation is particularly important for banking & finance companies. Innovation, which transcends invention, represents the point of convergence of invention & insight. Organizational ethos needs to stress innovation as a key driver of growth that surprises & delights the customer with new, differentiated & relevant benefits. This is not a cliché but defining characteristics of the modern cooperate saga.

“SURVIVAL IS THE MOTHER OF INNIVATION”
“Banks can provide innovation products and services to their corporate and retail customers only when creative people are in place along with latest technology. Such people might provide innovative ideas to customers and banks. By converting there acceptable ideas into reality, banks can get an edge to compete effectively in the global village. Indian banking is also changing its shape rapidly by adopting innovative technology, products and services.” Innovation is the key to success for any activity. Innovation banking is therefore not an exception. Innovation banking is possible only when we have innovative people in banking. Moreover, innovative ideas of such people have to be heard at the right time by the right people. Only then the needed encouragement and support is given to convert such innovative ideas in reality. In the past, a generation gap is considered to be with a span of at least 10 years. Whereas with the improvement in the technology followed by integration of people and places across the world on account of revolutionary changes in information and communication. The entire world has become virtually a small global village. Since all organizations and people use technologies, we find that a new generation of techno savvy people emerging in a very short span of 5 years in every sphere of activity infusing dynamism and creativity leading to several innovations. Globally, usage of technology is very extensive in the financial sector of which banking sector is an integral part. Indian financial sector has made rapid strides in late 1980s and early 1990s picking up momentum with the advent of 21 st century. Liberalization of the Indian economy has provided scope to the banking sector to reorient its focus by shifting from developmental role obligated mostly by socio-political considerations into professional financial agencies keen on preserving their bottom lines. The direction in which the Indian banking is moving presently indicates that the prevailing competition will lead to consolidation and convergence. Small players will either have to forge a merger to become

big players or else they will be either extinguished or swallowed by larger players in the years to come. The pressure will equally be more on the existing large players to retain their lead over others. This emerging scenario warrants innovative approach by banks to keep themselves sailing in the sea of competition. No wonder we find a very interesting trend in the recent past in the Indian banking. The trend is the major shift from routine banking functions to a very aggressive financial marketing organization. We find most of the routines banking jobs are out source, thanks to automation made possible by technology. Direct selling agents are actively engaged by most of the foreign and new generation private sector banks for marketing all the banking products with specified targets. Therefore, the real core people who will be retained by these banks in the long run under there direct pay roles will only be experts at senior levels in marketing, corporate and retail banking specialists along with risk management professionals who will be required in view of the impending implementation of the Basle-II norms which attaches significant to assessment and management of risk factors in banking activity. One can visualize the following scenario in Indian banking in the next five to seven years. State bank of India and there associate banks aiming to come under one umbrella on one side followed by mergers and acquisitions taking place between few strong nationalized banks, foreign banks and new private banks on the other side. This will leave the small players and weak banks to become extinct unless they device quick strategies to become larger and stronger. In this context, innovation plays a very key and crucial role of the survival of the small players and also for the large players to retain their leadership amidst cutthroat competition. Out of the box thinking is required and such thinking needs to be nurtured by the top management. ATMs of the larger banks are either fully out sourced by the individual banks or handed over to an autonomous agency by most of the banks collectively. Small players in ATMs are also trying to be a part of this shared network with regard to clearing operations, Reserve Bank of India has already initiated the required steps to gradually dispense with the physical

presentation of chques and replace the same with electronic clearing in major cities. Similarly the audit and inspection of the computerized branches is now being done in many cases by transfer of data files to the supervisory and inspecting authorities. Qualitative inspection and supervision of the banks by Reserve Bank of India is made possible by the technology, leaving the routine audit work to the concerned internal audit departments of the individual banks. With the automation of the routine work process and rapid technological developments, a host of customer friendly banking products with flexibility are now available to one and all. Few departments of the government (e.g. customs, income tax, central excise, commercial taxes and sales tax) have already initiated the process of EDI (Electronic Data Interface) there by reducing the manual tasks in the preparation of documentation and enhancing the levels of automation. This also facilitates standardization in documentation with uniformity. This will also ensure submission of such standard data in electronic form and scanning the physical documents where required. In the long run, this enables e-commerce to gain momentum. Therefore, banks can also equally look forward to submission of commercial documents by the trade industry through EDI in the near future. Once this is done, the need for the business segment to personally visit the bank branches to submit the documents will be eliminated. When ATMs on one side have reduce the depends of individuals customers on the bank branches to conduct their routine banking operations, the EDI when gains momentum will reduce the dependence of corporate customers on the bank branches in a similar fashion. These developments taking place mainly on account of automation will reduce the differentiation in the service delivery systems, as they are mostly standardized. Therefore, banks have to be innovative to maintain their brand values. Few banks have already started marketing aggressively for retail business loans by tying up with a select-reputed builders and conducting road shows in India and abroad to lure the salaried people and professionals. This role is intermediation of the banker between the builders and salaried people and professionals can be further extended to cover other areas as well. For example banks can connect the manufacturers of goods and services with the ultimate buyers. The process is very simple. Banks are required to have a common agency

with which the entire database of all the banks should be shared. This data should be analyzed and classified into various segments say- according to activity, age, place, income, education, etc., of the organizations and people who constitute this data. When this process is done on all India bases, a wealth of information will be available, which can be used as a marketing tool. Few relaxations in the existing banking laws are required for this purpose. Banks can also play an active intermediary role in connecting the organizations and people at various segments, thereby facilitating the process of movement of goods and services from the manufacturers/producers to the ultimate users (of course through other intermediaries where they are not dispensable). Banks can finance the manufacturers/producers or the ultimate users while tying up them with one another thereby increasing their lending portfolio and in the process ensuring the end use of funds. Collection of data from rural places is one area where banks can boast of possessing rich information, especially the public sector banks that have almost more then one third of the network of branches located at rural areas. Banks can play a dynamic role in the delivery and purchase of consumer durables to the rural sector by using their rural database. Therefore, instead of acting as financing intermediaries to some of the parties in the total chain as at present, banks can bring all the parties in the chain under their ambit. Banks can thus transform themselves into aggressive marketing intermediaries from mere financial intermediaries. This innovative approach can also be used with regard to NPAs where the products manufactured by such sick or lossmaking units are of good quality but the units have become sick due to financial indiscipline or mismanagement or lack of marketing skills. Buyers for such products can be scouted by the banks by using the above mentioned database and in deserving cases buyers can be given bank finance or there own merits to buy the products of sick units. A portion of the funds thus given can be again routed back into the banks for their working capital requirements. Similarly, banks can play an active marketing role in venture capital financing with the above modus operandi, thereby taking part in not only financing the venture capital but also in marketing functions.

Micro finance is yet another area where banks can play an active role .The objective of micro finance is to deliver a wide range of financial services say, deposits, advances, insurance and other related products to people engaged in agriculture, small enterprises and poor people in order to increase their standard of living. Finance is extended to SHGs or NGOs, which is basically institutional/group finance instead of lending to individual beneficiaries unlike in the case of other priority sector/rural lending. Moreover, there are no subsidies or interest concession and the basic concept in micro finance is to give a timely finance to the needy people. Therefore, transaction costs are cheaper and profitability is better under micro finance when compared to the conventional rural lending. In view of these factors in the long run micro finance is likely to replace the conventional and concessional rural lending. Ample scope is available for private and foreign banks to venture into this activity due to the above-mentioned advantages. Similarly, banks in rural sector should actively market products like Kisan Credit Cards, Forward, Futures, and Option markets of commodities. While Kisan Credit Cards serve as an instrument of credit, Forward, Futures and Options markets ensure a fair price to the farmers eliminating uncertainty. However, this require an effective network that is one regulated as well as a matured financial market in rural areas for the growth and development of these products. Rural India and its economy mainly depend upon Monsoons. Famine and Floods both occur at the same time in the different parts of the country causing damage to the crops. Therefore, rural insurance has to be an effective tool in hedging these risk factors. Government, banks and insurance have to together evolve a more proactive and vibrant measures to deal with this issue, both at macro and micro level. There is a vast untapped potential in this area and lot of scope for developing new and innovative insurance linked financial products. Merger of developmental financial institutions like ICICI and IDBI with there commercial banking wings lays emphasis on universal banking offering wide range of financial products under one umbrella. Similarly, SIDBI and NABARD are having a strategic alliance with few commercial banks to expand the reach of their products and services. Banks have come to realize that it is the survival of the fittest in the competitive environment. Therefore, when necessity is the mother of invention, survival is the mother of innovation.

‘INNOVATION IN CUSTOMER SERVICE IN BANKS’
Satisfied customers are the best guarantee for the stability and growth. Customers will be satisfied only when the banks provide the customized and innovative products and services at responsible cost. This article focuses on the kind of services provided by developed countries and level of innovative services provided by Indian banks. Many innovative services are currently available from Indian banks like E-Banking, ATMs, Anywhere Banking etc., but there is a wast6 scope of improvement. Globalization, the buzzword, which engulfed all the nations of the world since the beginning of the last decade of the past millennium, did not leave the banking industry untouched. The opening of the world trade has brought out several changes in the global banking map. The continuing evolution of the banking and financial market has created opportunities both for providers and for users of financial products and this evolution have proven beneficial to the economy. However, innovations in financial products also have given rise to some new challenges for market participants and their supervisors in the areas of corporate governance and compliance. The changes that are taken place in the last decade demonstrate again the technical weakness and weak corporate governance at a few firms can dramatically change the cost of capital and impose additional regulatory burden on even well managed organizations. A conventional bank may treat its customer as coldly as they cash they deposits or borrow. Many banks have conveniently used control and security as reasons for their remarkable slow and impersonal services. In recent, other service industries, not ably fast food an airlines, have proven that customer service can be a swift and enjoyable experience for both the clients and employees without sacrificing control, costs, and profits. Some banks have finally adopted these new services Paradigms, and are now branch marking with non-bank institution to learn about their best practice. The growing concern about the improvement in service quality can be gauged by recent news in the business standard dated June 1, 2005 where it was given that “Banks are putting their best face forward for improving service quality. While some like the Oriental Bank of Commerce have prepared a detailed dress

code of their employees, others have gone a step forward and are recruiting people from the airline and hospitality industries to improve the quality of front line sales staff.” The major brakes in the internal controls of big corporate and institutions such as share market in the past few years. And the role of bankers has led bank regulators to change their view of bankers’ relationships with there corporate clients. Technological innovation has helped in overcoming any such problems. There was a time when we used to hear that duplicate share certificates were flooding the market and large amount of money was being embezzled. Now with demat accounts this risk is taken off. Let’s see the currently booming plastic card market. In India the growth is not that phenomenal but among the emerging economies, India is picking well. Technology is rapidly transforming the banking industry- and expanding its ability to reach the unbanked. Employers in the developed countries are turning increasingly to electronic payroll cards as a cost-effective way to reduce the burden of writing and processing checks. Consumers are using their payroll cards and other versions of prepaid debit card- also know as stored value cards- as a substitute for cash and checking accounts. Monitoring this trend, the American Bankers Association reported last December that in 2003, for the first time, electronic payments surpassed cash and chques as consumers preferred payment method for in store purchases- an “evolution of payment behavior,” the ABA noted, “driven by the increasing popularity of debit cards.” In a country like America, Debit cards accounted for nearly one-third (31%) of in-store purchases in 2003, up from 21% only four years ago. Reliance on credit cards held steady during that time, at about 21%. Cash and checks, which accounted for 57% of in-store purchases in 1999, dropped to about 47% last year. In India, if we see then, people still prefer to pay by cash. The reason behind this mindset is safety for money. Still we are far behind in terms of Internet security and E-money security.

Coming across through the performance of Banking Institutions of the west and seeing their performance in the use of innovative methods to make themselves more customer-friendly we would have no doubts about their strong banking mail-order company L.L. Bean, know for its superb order-taking and service delivery systems, as its model for change. A major result of this functional benchmarking was the establishment of a 24-hour customer service center that can not only respond to queries and complaints but also promote and sell the bank’s products and services. The center even allows customers to open a checking account anytime or negotiate an overdraft at 2 am. The ATM was also reconfigured from mere cash dispenser to a versatile and tireless account executive. The machine can even buy and sell mutual funds. Inspired by LL Bean, Banks published a 50-page catalogue to help customers appreciate and select from its more than 160 financial services. Seafirst Bank in Seattle redefined itself from a “retail bank” to a “retailer” and has benchmarked with retailers know for world-class customer service such as fast-food restaurant chains. Insider by these models, one other bank instituted a 5-mintue guarantee that says, “wait any longer than 5 minutes in line and the bank guarantees $5 to your account.” Moreover, if the customer complains of any other inconvenience, he or she gets a $5 “I’m sorry coupon”. Its branch offices have official “greeters” to greet and guide customers to the right tellers or desks, much like the Guest Relation Officers (GRO) or receptionists of 5-star hotels. The greeter mans a kiosk at the entrance of the bank. To reinforce this service philosophy, branch managers are rated not only on sales but on service goals. Achieving or even exceeding sales targets without achieving customer satisfaction goals will not qualify a branch manager to receive the bank’s prestigious “Gold Club” award. Executives from the CEO down are encouraged and expected to visit branches regularly to monitor service and get a first-hand fell of the action. When Seafirst decide to redesign and re-layout its offices to improve services, it acquired the services of an expert from the Godfather’s Pizza chain. One result making the teller counter waist-high. It is now more open and personal than the traditional counter that is intimidating and creates a barrier between the client and the teller.

Back offices of banks are knows for snail-pace bureaucracy that hampers front line operations and ultimate customer service. By applying the concept of “mass production”, streamlining, and standardization of tasks, Citicorp aims to remove this critical bottleneck. The bank also benchmarked with Chrysler in getting its functional departments work effectively as teams. Other banks in the west have, sledded their conversation “finance and control” images, have likewise adopted innovative service strategies and practices. Many Banks have established an information center or “encyclopedia” in the waiting lounge. Here customers can browse through various bits and pieces of important service information like the average time to finish a transaction and the company’s products and services. Information about the busiest day or days in the branch is displayed so that the customers who want to avoid these periods may do so. Phone lines dedicated to customer service have been installed. Many Indian banks have also adopted some of these systems. Any customer can pick up this phone and relay his or her complains, questions, or difficulties. The facility is designed to represent the company’s commitment to services and also serve as the customer’s last resort in case everything else fails. Similarly, modern day banks have established phone centers to accept, process, and resolve customer complaints. They also have a customer feedback program whereby whoever the customer complaints to, say a staff employee or manager, will be responsible for giving the client feedback on the status and progress of his or her complaint. The banks have customer service centers where they have created two customer flows or lines to deliver services more effectively. One was for loans and similar products that require customized and personalized services. The other was for the standard and repetitive service like deposits and withdrawals. By creating two service environments that cater to two different types of needs, service is enhanced and speeded up. Modern day banks have extended the concept of “Mobile Banking.” Some banks in the European and American continents have launched floating branches on boats that provide full branch bank services, to the convenience and delight of customers living in longhouses along the river banks. To further enhance service, banks have also reconfigured their Automated Teller Machines to dispense not only cash, but also commodity prices and

information about its products and services. The Korean Technology Banking Corporation (KTB) is setting up a Technology Financing Information Center to serve the various needs of its clients, most of which are setting up joint-venture overseas. The centers will contain a huge database of information analyzed from various data from internal and external sources. By accessing this database, clients will get information about specific technologies, local information, and other data relevant to the ventures they are setting up. To facilitate processing, development financial institutions like the Industrial Development Bank on India requires borrowers to submit loan application forms in electronic floppy disks. Some banks and financial institutions have done such a remarkable job in improving and reinventing customer service that they themselves have become the benchmarks of other companies outside the banking sector. For instance, American Express, the credit card company, is the recognized benchmark to emulate when it comes to improving a company’s billing process. Amex’s billing is reportedly the fastest and most accurate in the world in any industry. Xerox, the benchmark for many quality practices, used the Amex model in enhancing its billing system. In China, the benchmark for customer service and customer courtesy is surprisingly a bank; The Industrial and Commercial Bank. Hundreds of retail shops and department stores, many of which are known for rude service, visit the bank’s branches to learn a few lessons on satisfying and delighting customers. Before sweeping changes were made, the Industrial and Commercial Bank was also known for bad service and discourteous front line employees who even swore at clients. One radical and highly effective policy it instituted was coming about with a list of words and phrases their employees were forbidden to use when dealing with customers. For instance, the popular expression, “when will you sleep complaining?” was included in the banned list. While other banks may refuse to change or accept soiled or old currency notes, the bank will replace these without question. Even clearinghouses have adopted the new service paradigms to support the banks’ initiatives. For instance, the Singapore clearing House Association has cut the clearing of US $ checks deposited in Singapore from two weeks to 3 days. The new system requires

participating banks to open US dollar accounts with Citibank to service their respective clients. Innovation banking in customer service is indeed a welcome and long-waited development. Our Article focused on the kind of services provided by the banks in the developed countries but this is not to deny the fact that the banking sector in India and other developing countries has also started doing up well in terms of providing innovative and modern day banking facilities along with good customer service. We hope that other left out banks and financial institutions will follow suit soon. Satisfied customers are the best guarantee of stability and growth. As in other service sectors, bank customers deserve the very best. In the past, banks have rarely treated customers as people, preferring to treat them as account numbers, passbooks, and loan applications. Customer service, in contrast to customer processing, is a concept whose time has come for the banking industry worldwide. Therefore, to conclude, the banking sector should start emphasizing on its service part and to implement the concept of CRM in their institutions.

“BANKING SYSTEM IN NEW MILLENIUM:”
INTRODUCTION: Economic growth and development of a country depends on the health of its financial sector that includes banking sector. Banking sector provides a very vital input wiz. Finance to all other commercial and scientific fields thus; it should be always one step ahead of all the other fields. In addition it provides mobiliasation of savings. It also plays an important role in capital formation of the country. The 1991 new economic policy adopted by the government of India is based on the three features LPG VIZ. Liberalization, Privatization, Globalization. It created a huge improvement in the economy of our country. Thanks to our present Prime Minister and the then Finance Minister, Dr. MANMOHAN SINGH who is rightly called as Father of Economic Reforms. Broadly speaking reforms in the financial sector are aimed at making Indian banks conform to the international prudential standards and also making the financial system more competitive. The administrate structure of interest rates has been dismantled, with freedom given to banks to fix the rates of interest on deposits on loans. New private sector banks have been licensed. In the words of Mr. RANGARAJAN, earlier governor of the RBI, the year 1993-94 in a way marks a turning point in the financial history of India, in the banking system. He always gave much more importance to improve the technology. Computerization in many commercial banks is an account of his president efforts, in this direction. Dr.BIMALJALAN, the former governor of the RBI was equally conscious of the need to improve the banking sector financially and immediately. After assuming the office of the governor, of the RBI, he has accorded priority towards the implementation of some important recommendations of the Narasimham Committee Report.

In order to visualize the reforms, it is necessary to trace its development in a historical prospective. Future Of Banking Sector: Public sector banks have enjoyed almost a monopoly situation till the Liberalization wave begin in 1991. Recently, Union Bank of India and Bank of India have amalgamated with each other and the other news is that subsidiaries are merging with SBI to form a single merged bank. This will reduce the administrative expenses. The banks can share the common infrastructure, management etc. it may even happen that one senior manager may look after two or more branches in the city. But in the present intensified process of liberalization and globalization a lot of challenges will have to be meet by the banking sector for its survival and growth wiz. 1. Increase in competition with a growth of private banks the hitherto protected public sector banks will have to shake off their lethargy to survive in the new liberalized banking sector. Private sector banks are in a position to offer better customer service on account of being hi-tech. From a sellers market, we have moved to a buyers market. It is a great challenge to keep meeting the ever-growing requirements of non-aware, enlightened and demanding customers. They have better alternative to meet the demands. 2. Innovative banking process of disinter mediation has begun in the Indian financial sector. The user of finance, the corporate sector especially, is gradually depending less and less on banks and financial institutions. They prefer to mobilize funds directly from the market. This has an adverse effect on the banks income and profitability. Banks now have to constantly lookout for the new ways of earning income

3. Non-performing assets (NPAs) is a one of the serious challenges of banking system is facing. A high level of NPAs adversely affects the profitability of our banks. In future, bank should adopt intensive techniques to reduce the NPAs. 4. Technological changes in a hi-tech IT era customers, expect quick and efficient service. The paper-based payment system is gradually changing into electronic payment system. With the growth of computer network in India, some banks have also introduces Internet Banking, Customers, who are linked to computers, find it very convenient. Opportunities: Let us have a look, at the opportunities that a banking sector has in future.

1. Growing banking business, a steady increase in personal income of people an incoming of MNCs has increases the demand for bank loans to buy consumer durables. Demand for housing loan has also increased. 2. Financial supper market banks have entered the area of financing and other services like depository, underwriting, gilt trading and even brokering. Commercial banks are now operating as a financial supper markets. 3. Insurance business-now insurance sector is open to the private sector as well. It is easer for banks with a wide network to capture the widely speared-out market for insurance business. 4. Cash-less system-growth of credit card business in India is another possibility for commercial banks to exploit. It is possible to increase market share of credit card business on account of the increase in middle and higher middle-class population.

Constraints: The constraints that need to be removed to make our banking sector progressive are: 1. To remove inflexibility like lack of users friendly front and environment for bank officials; 2. Use of a very technical and proprietary back and software, which cannot be customized easily. 3. Users in banks as we know are not IT professionals and though they are trained in various aspects, it really makes impractical for them to covers themselves suddenly to new upcoming systems. Concluding Remarks: We feel that first of all, innovation is required in banks to render better and efficient customer services. Electronic banking enables new products and services to be geared for specific customers. We have variety of customers today and the need of each customer is different and varied. Looking to other economies like France and United States our banking system has also adopted credit cards, debit cards, electronic checks, smart cards, e-cash or cyber cash, automated teller machines, which are being extensively practiced in these countries. Internet banking is in vogue nowadays. It is the one of the latest example of IT in banking sector. We can perform all the banking operations, just on the click of a button by sitting at our homes. Finally, watchword is share information; money and resources (human, physical, and technological) to improve our banking sector, for better tomorrow.

“BANKING SCENE: INDIA”
‘Mid Term Appraisal of the 10th Plan Targets’ The Mid Term Appraisal of The 10th Plan conducted by the National Development Council (NDC) noted that in some areas of the economy is doing well and these gains need to be consolidated, but there are also important weaknesses, which if not corrected could undermine even the performance of the economy and problems of the economy are assumed as follows: GDP growth has averaged 6.5% in the first three years, which is below the 10 th plan target of 8.1%. Positive factor include: A) Improvement in private corporate sector investments, B) Positive international perceptions on India C) Tolerant inflation level D) Comfortable external payment position with substantial inflow from abroad lending to comfortable foreign exchange position. Industrial sector also showed signs of improvement. The ultimate aim should be to consolidate the gains in these developments and to overcome the weaknesses in the economy. Key weaknesses are identified as follows: 1. Aggregate Growth Though the plan fixed a target of 8.1%, it is difficulty to achieve the target and the likely growth rate expected to below 7% during the plan period. An important reason for the lower growth is that investment did not increase in line with available investible resources.

2. Agricultural Growth: Agriculture Growth is very poor over the last two decades. Agriculture Growth has decelerated sharply from 3.2% to 1.9% between 1980-81 and 1995-96. There is a need to revamp the entire strategy ad more action is called for to improve the performance in agriculture sector. 3. Infrastructure Problems: Inadequate infrastructures in both rural and urban areas are a major factor constraining on India’s growth. The quality of infrastructure impacts on our ability to compete globally and also to attract Foreign Direct Investment. 4. International Development: Owing to high oil prices, our import outgo is quite high. Since we have ample foreign exchange reserves at the moment, the impacts of the oil prices are not passed on to the users. But if the oil prices remain high, its impact need to be passed on to the consumer, which will lead to inflation or fiscal deficit in the country. Another cause of concern is that the downturn in the world economy, which will affect our export growth considerably. It s estimated that every 1 percentage point reduction in our export growth rate will reduce the growth rate of GDP by 0.2% points. 5. Social Developments: Our social indicators are not only lower then the levels in East Asian countries, but they are lower even in comparison with the levels achieved by these countries twenty-five years ago. The social indicators are also show wide disparity in the gender gaps, large rural and urban differences and wide variation across states.

6. Employment: This is another area of grave concern. Studies based on data collected from organized and unorganized sectors state that while employment may be increasing in the unorganized sector in response to growth, there is actually a contraction in employment in the organized sector, which is the preferred sector for employment by new entrants to the labour force. 7. Inequality and Poverty: Though the poverty has declined the decline was less then targeted. The moderate improvement in education ad health indicators implies that access to more productive employment remains limited, especially in backward regions and amongst disadvantaged groups. 8. Balance Regional Development: Regional imbalance in the development of different states presents a picture, which requires a focused attention. Some states were able to reap the benefits of the economic reforms, but some others were not able to do so. Even district backwardness in a well performing state also presents a grim picture. 9. Resources in the Public Sector: The availability of resources in the public sector to meet targeted levels of plan expenditure is an area, which deserves attention. Neither the center nor the state have been able to mobelize the resources needed to keep outlays in line with 10th plan projections and this has led to significant under funding in many sectors. The consolidated public debt of the Center and States taken together is about 80% of the GDP, which is among the highest in emerging market economies.

The scope and time for correcting these deficiencies during the 10th plan period is very limited. The Mid Term Appraisal suggests various corrective measures could be considered for formulating the 11th Five Year Plan targets and policies. 10. Declaration of Dividend: The RBI has decided to grant general permission to banks to declare dividends, provided they comply with the following conditions: Eligibility Criteria 1. approval: Only those banks, which comply with the following minimum prudential

requirements, would be eligible to declare dividends without the Reserve Banks prior

a) Capital to risk-weighted assets ratio (CRAR) of at least 9% for preceding two completed years and the accounting year for which it proposes to declare dividends b) Net Non-performing Assets (NPAs) of less then 7%. In case any bank does not meet the above CRAR norm, but is having a CRAR of at least 9% for the accounting year for which it proposes to declare dividend. It would be eligible to declare dividend provided, its net NPA ratio is less then 5%. 2. The bank should comply with the provisions of section 15 and 17 of the

Banking Regulations Act, 1949. 3. The bank should comply with the Reserve Bank’s prevailing

regulations/guidelines, including creating adequate provisions for impairment of assets and staff retirement benefits, transfer of profits to statutory reserves, etc.

4.

The proposed dividend should be payable out of the current year’s profit. 5. The Reserve Bank of India should not have placed any explicit restrictions on

the bank for declaration of dividends. Regarding the quantum of dividend, the RBI made the following stipulations. Banks, which fulfill the eligibility criteria, may declare and pay dividends, provideda) The divined payout ratio does not exceed 40 per cent. (Divined pay out ratio should be calculated as a percentage of “dividend payable in a year” (excluding dividend tax) to “net profit during the year”. b) In case the profit for relevant period includes any extraordinary profits/income, the payout ratio should be computed after excluding such extraordinary items for reckoning compliance with the prudential pay out ratio. c) The financial statements pertaining to the financial year to which the dividend is declared, should be free of any qualification by the statuary auditors, which have an adverse bearing on the profit during that year. In case of any qualification to that effect, the net profit should be suitably adjusted while computing the dividend pay out ratio. The reserve bank will not entertain any application for a higher dividend payout ratio than the one for which the banks qualify. Door-Step Banking: The reserve bank has advised all scheduled commercial banks to formulate a scheme for providing services at the premises of a customer within the framework section 23 of the banking regulation Act, 1949.

According, the banks have to formulate the scheme with the approval of their respective bank boards and send the same for RBI approval. In the instruments, etc., from the premises of central and state governments departments. India’s Trade Deficit: India’s exports recorded an increase of 19.5 percent during the first quarter of the current fiscal. Imports on the other hand recorded a shaper growth of 38 per cent during the same period. As a result, the deficit doubled to $ 11.4 billon in the first quarter of 2005-06 compared to $ 5.9 billion in April June 2004-05.

“PERFORMANCE HIGHLIGHTS OF PUBLIC SECTOR BANKS IN 2004-05”
In this note we analyse the performance of public sector banks (except Punjab and sind bank) on important parameters such as total assets, Deposits, Investments, Advance, Nonperforming Assets (Gross and net), Interest Income, other Income, Total Income, Interest Expenditure, Operating Expenditure, Total Expenditure, Operating profit, provisions and Contingencies and Net profit and important ratios like credit-Deposit ratio, InvestmentDeposit Ratio, spared to Total Assets, Operating expenses to Total Expenses, Return on Assets, Capital Adequacy Ratio, NPA ratio and productivity ratios. Significant features of the operations of banks on each of the above-mentioned parameters are given below: Total Assets – As on 31st March 2005, total assets of the public sector banks increased to Rs.17 58,207 crores from Rs. 14,71,428 crores of the previous financial years recording a growth of 19.5% during 2005 as against 14.4% of the previous year. Higher growth in total assets is due largely to inclusion of total assets of IDBI Ltd. In 2005.Excluding IDBI Ltd., the growth in total assets was marginally lower at 14.0 per cent during 2004-05. 10 banks recorded higher growth than the group average. Oriental bank of commerce tops list with a growth of 31.9 per cent, closely followed by the Allahabad bank (30.1per cent) and state bank of Indore (29.5 per cent). Bank of Maharashtra recorded lowest growth in assets with 2.1 per cent during 2004-05. DepositsTotal deposits mobilized by the public sector banks increased from Rs. 12,26,838 crores as on 31st march, 2004 to Rs. 14,21,672 crores as on 31st march, 2005. Deposits showed a subdued growth during 2004-05. Total Deposits recorded a growth of 15.9 per cent during 2004-05,which is higher than 13.7 per cent of the previous year. Excluding IDBI Ltd., the total growth was only 14.6 per cent during 2004-05. 15 banks recorded higher growth than the group average. Oriental bank of commerce recorded the highest growth of 34.1 per cent, closely followed by state bank of indore with 32.5 per cent during 2004-05.SBI and

Associate as a group recorded a growth of 16.8 per cent as compared to nationalized banks group with a growth of 13.5 per cent during 2004-05. Investments – Banks investments showed a lower growth of 8.5 per cent during 2004-05 as against the growth of 14.7 per cent during 2003-04. In absolute terms, the total investments increased from 6,25,678 crores as at march 31st 2004 to Rs. 6,78,637 crores as on 31st march, 2005.Excluding IDBI Ltd., the growth in investment was only 4.5 per cent during 2004-05. Seven banks recorded a higher growth than the group average. Allahabad bank recorded the highest growth in investments with 22.1 per cent, closely followed by Punjab National Bank with 20.3 per cent during 2004-05. Nationalized Banks as a group showed a growth of 4.0 per cent during 2004-05, which is much lower than the previous year’s growth of 17.3 per cent during 2003-04. SBI group as a whole recorded a growth of 5.2 per cent during 200405 as against 10.9 per cent recorded in the previous year. Advances – The years 2004-05 witnessed higher credit off take by the commercial banks. This was reflected in the total disbursement made by the PSBs during 2004-05. Total advances of the banks jumped up from Rs.6, 32,740 crores as on 31st march, 2004 to Rs.8, 48,340 crores as on 31st march 2005 showing an impressive growth of 34.1 per cent as against the previous years growth of 15.2 per cent. Excluding the IDBI Bank Ltd., the growth was 26.9 per cent during 2004-05. Eight bank recorded higher growth than the group average. United Bank of India showed the maximum growth in advances with 43.02 per cent closely followed by State bank of Indore with 41.1 per cent and state bank of Bikaner & Jaipur with 39.7 per cent during 2004-05. Nationalized banks as a group recorded a growth of 25.7 per cent during 2004-05 as against the previous year growth of 14.5 per cent. As for SBI group the growth was 29.1 per cent during 2004-05 as against 16.6 per cent recorded in the previous year.

Non-performing Assets (NPA) – During 2004-05, both gross and net-performing assets showed decline in absolute terms as a percentage of advance Inspite of the reduction in the total provisions towards nonperforming assets as a compared to the previous year. President recovery set up coupled with close monitoring of the assets could be sighted as a reasons for reduction in nonperforming assets. Gross NPA of the public sector banks decreased from Rs.51, 537 crores as on 31st march 2004 to Rs.47, 596 crores as on 31st march, 2005 shoeing a declined growth of (-) 7.6 per cent. Net NPA declined from Rs. 18,860 crores as on 31 st march, 2004 to Rs. 16,983 crores as on 31st march, 2005 recording a declined growth of (-) 10.0 per cent. Six banks namely Bank OF India, Bank of Maharashtra, and Oriental bank of commerce, Vijay a bank, state bank of indore and state bank of patiala recorded higher growth in gross NPA during 2004-05 as compared to previous year. In case of net NPA nine banks are recorded higher growth in net NPA than the previous year. SBI Group recorded higher net NPA than the previous year. Income – Total income of the public sector bank recorded a growth of 3.8 per cent during 2004-05 as compared to 7.2 per cent of previous year. Excluding IDBI Limited. The growth was only 1.4 per cent during 2004-05.Growth in income in PSBs was due largely to higher contribution from interest income than the fee based income. Non-interest income, which was showing a higher growth during a last three years, has recorded a declined growth during 2004-05. This could be due to lower treasury earnings during 2004-05. Interest income of the banks increased from Rs. 1,09,572 crores during 2003-04 to Rs. 1,19,098 crores during 2004-05. Recording a growth of 8.7 per cent as against 2.10 per cent during 2003-04. On the other hand, the other income of the banks recorded a declined growth of (-) 15.5 per cent during 2004-05 as against the previous years growth of 32.3 per cent. Interest, the share of fee income in the total income declined to 16.6 per cent during 2004-05 as against 20.4 per cent of the previous year. Ten banks recorded a higher growth in income then the group average. Allhabad banks tops the list with a growth of 11.9 per cent, closely followed by state bank of Mysore with 11.2 per cent during 2004-05.

Expenditure: Total expenditure of the banks increased from Rs. 98,127 crores during 2003-04 to Rs. 1,04,038 crores during 2004-05 showing a growth of 6.0 per cent as against previous year’s lower growth of (-) 0.6 per cent. Excluding IDBI Ltd., the growth in total expenditure was 3.0 per cent during 2004-05.Intrest expenditure recorded a higher growth of 3.5 per cent during 2004-05 as against the previous years growth of (-) 5.9 per cent. Operating expenditure, on the other hand, recorded a lower growth of 11.1 per cent during 2004-05 as compared to 11.9 per cent during 2003-04. Nationalized banks and SBI Group recorded lower growth in operation expenditure during 2004-05. 14 banks recorded higher growth in total expenditure then the group expenditure in 2004-05. Allahabad bank, Indian bank, State bank of Saurashtra were the only three banks, which recorded a decline in operating expenses then the previous year. Profit- the total operating profit if the PSBs declined from Rs. 39,536 crores during 2003-04 to Rs. 38,799 crores during 2004-05, recording a decline growth of (-) 1.9 per cent during 2004-05 as against 33.1 per cent of the previous year. Though the total provisions made by the banks increased from Rs. 22,928 crores during 2003-04 to Rs.23, 241 crores during 2004-05, the growth was only marginal at 1.4 per cent during 2004-05 as against 31.6 per cent during 2004-05. Majority of the banks have made lower provisions during 2004-05 as compared to previous year. Net profit of the banks also declined from Rs. 16, 546 crores during 2003-04 to Rs. 15,558 crores during 2004-05 recording a declined growth of (-) 6.0 per cent of the previous year. Excluding IDBI Ltd., the decline is even sharper at (-) 7.8 per cent during 2004-05. Ten banks recorded higher growth in net profit than the previous year. Capital Adequacy Ratio – All PSBs had achieved the stipulated CRAR of 9 per cent as on 31 st march, 2005. United bank of India topped the list with a CRAR of 18.2 per cent closely followed by Corporation bank with a CRAR of 16.2 per cent. 10 banks recorded higher CRAR during 2004-05, than the previous year.

Return on Assets – Net profit as a percentage to total assets declined marginally from 1.1 per cent during 200304 to 0.9 per cent during 2004-05. 14 banks have higher ROA than the group average, of which 10 banks have ROA of more than 1 per cent. Andhra bank topped the group with an ROA of 1.59 per cent, followed by oriental bank of commerce with 1.41 per cent. Credit-Deposit Ratio – Credit-Deposit Ratio (C/D) Ratio of public sector banks showed considerable improvement during 2004-05. This is largely due to higher deployment of credit and lower resource mobilization during 2004-05. C/D ratio of the banks improved from 51.6 per cent during 2003-04 to 59.7 per cent during 2004-o5. Excluding IDBI Ltd., the ratio was 57.1 per cent during 2004-05. IDBI Ltd. Tops the list with a C/D ratio of 300.7 per cent followed by bank of India with 71.1 per cent and corporation bank with 68.1 per cent. The lowest ratio of 44.9 per cent was recorded by central bank of India. Investment-Deposit Ratio – As a noted before, the investments of banks were lower during 2004-05 as compared to the previous year. This is reflected in the investment-deposit. (I/D) ratio also during 2004-05. The I/D ratio of the banks declined from 51.0 per cent during 2003-04 to 47.7 per cent during 2004-05. IDBI Ltd. With a ratio of 165.9 per cent tops the grouped followed by UCO bank and united bank of India with 56.8 per cent and Indian bank with 51.5 per cent during 2004-05. Bank of India recorded the lowest ratio with 35.8 per cent during 2004-05. Interest Spread – Interest spread or net interest income as a percentage of total assets declined marginally from 3.0 per cent during 2003-04 to 2.9 per cent during the financial year 2004-05. In the case of nationalized banks, interest spread declined from 3.1 during 2003-04 to 3 per cent during 2004-05. On the other hand, for SBI group, the interest spread ratio moved up from 2.8 per cent during 2003-04 to 3.1 per cent during 2004-05. 16 banks have the interest spread ratio of more than 3 per cent during 2004-05.

Non-Performing Assets – As mentioned before, both the gross and net non-performing assets showed declined in absolute terms ad as percentage of net advance during 2004-05. For majority of the banks, this ratio is less than 3 per cent. Dena bank has the highest ratio with 5.2 per cent during 2004-05. Operating Expenses – Ratio of operating expenses to total expenses increased to 34.6 per cent during 2004-05 from 33.0 per cent of the previous financial year. 4 banks have a ratio of more then 40 per cent during 2004-05. Majority of the banks recorded a higher ratio than the previous year. Business per Employee – Business per employee of most of the banks was higher than that of the previous year. Highest per employee business was recorded by IDBI Ltd. With Rs. 13.5 crores. Lowest business ratio was shown by Central Bank of India with 2.1 crores during 2004-05. Majority of the banks recorded a business ratio of Rs.3.0 crores to Rs. 4.0 crores during 2004-05. Profit per Employee – Majority of the banks recorded a lower profit per employee ratio than the previous year. Highest ratio was recorded by the IDBI Ltd. With Rs. 6.85 lacs during 2004-05. This ratio for majority of the banks ranged from Rs. 1.5 lacs to Rs. 3.0 lacs during 2004-05. Conclusion – Compared to 2003-04, the performance of the Public Sector Banks was not impressive during 2004-05. Resource mobilization and investments were lower during 2004-05 as compared to 2003-04. Disbursement of credit was impressive during this year. Total income and total expenditure of these banks were higher than the financial year 2003-04. Since growth in expenditure were higher than the growth in income, the banks recorded deceleration in operating and net profit during 2004-05. a significant achievement for the

banks was reduction in the gross and net non-performing assets of the bans in absolute term and also as percentage of net advances during 2004-05. Banks were able to maintain spread at the same level as that of the previous year. Slight deceleration in the Capital Adequacy Ratio and Return on Assets were also observed during 2004-05. Productivity ratio showed improvement than the previous year. However, profitability ratio was lower than the previous year.

“ENTRY OF LIC INTO BANKING: A WISE DECISION”

LIC is a long-term player with long-term resources garnered at a low cost. It has chosen Corporation Bank and Oriental Bank of Commerce, for investments in their equity shares. These two public sector banks have the distinction of turning out superlative performance. The business per employee and intermediation costs for these two banks are the lowest in the industry. So are there Non Performing Assets. Corporation bank incidentally, is the only public sector bank, where the recent voluntary retirement schemes has not been implemented, as it does not have any excess staff to be sent out.

In the Mangalore based Corporation bank are perhaps the biggest gambles over undertaken by the two giants. That, despite the state banks status as one of the best-managed bank in the country. Competition is intense in both domence at last count there were 19 public sectors, 34 private sectors, and 45 foreign banks operating in the country, and at the time of going to press, 6 companies have secured license from the IRDA to start operations (four of these already had). The State Bank of India’s decision may have something to do with the state of the banking business. Indian banks have seen there interest speared- the difference between the rate at which they lend money and the rate at which they borrow it squeezed over the last 5 years. From a healthy 4% in 1996, this has come down to around 2.7% now. The Life Insurance Corporations belated attempt to leverage its consideration financial and distribution muscle could have stemmed from a desire to become more ten a insurance company. It is highly likely that the immediate motivation was the entry of aggressive private sector player into its home-turf, insurance. Bajpai believes the Corporation Bank deal is a win-win one. “ The proposed synergy between the two efficient public sector organizations will be mutually rewarding and help LIC in marketing, servicing, and cash flow management.”

Ads Ashwin Parekh, the managing partner at consulting major author Andersen,” The ongoing convergence in (Indian) financial markets will result in the emergence of three or four large universal banks. Both LIC and SBI WANT to be serious contenders for the post”. It is logical for the two companies to want to be universal banks.” The marriage of banking and insurance”, explains Ravi Trivedi, an Executive director with consulting firm PricewaterhouseCoopers,”will provide banks with a source of long-term funds to manage their short-term liabilities.” That both companies are serious about their universal-banking ambitions is evident. Says Bajapai: “We have put in a place a very wide array of products and today we are truly financial supermarket”. Today 65 per cent of SBI’s revenues come from banking, and almost all of LIC’s revenues come form insurance. Both are seeking to reduce this proportion over the next five years. Only, SBI is seeking to become a universal bank through organic means, while LIC has started its campaign with the acquisition of a significant stake in corporation bank.

The Same Ends: The Life Insurance Corporation’s acquisition of a 27 percent stake in corporation bank for rs.470.40 crore does make great business sense: Corporation Bank is among the better banks in the country; and a green-filed banking entity will find it difficult to establish itself in these trying times. Bajpai has already articulated his desire to up LIC’s stake in the banks once the government amends the banking companies Act, allowing private holdings in nationalized banks to exceed 49 per cent. Thanks to the acquisition of this stake, India’s largest insurance company now benefit from Corporation Bank’s expertise in money management. LIC boasts an annual cash flow of around rs.85000 crore. The bank can help it manage this money. Managing a sum of this magnitude will not only enable Corporation Bank earn a large management fee, it will also help it acquire a significant clout in the money market.

By acquiring a 33% stake in corpbank securities, LIC acquires an almost in house fund manager for all the Rs.25, 000 crore it needs to invest in government securities. And by gradually increasing its stake in the profit making Oriental Bank of Commerce (2001 deposits, Rs. 24,680 crore; net profit, Rs.202.8 crore) to 11%, LIC has made its intent clear; to restructure itself into what Bajpa terms “a transnational competitive financial conglomerate of significance to societies”.

Who’s Better? Discounting the overlap that must exist between the two, both companies on their existing customer base to help them make the transformation to universal bank. SBI, for instance, can sell a clutch of offering to its account-holders; LIC, to its policyholders. Then there are operational efficiencies to be gained. Despite SBI’s strong brand, sizeable network, and huge customer base, it does look second best (to LIC) in the first lap of what must certainly be a long-distance race. One reason is its decision to link the fortunes of its insurance subsidiaries, SBI-life, to the ability of its banking-branches to sell insurance policies-the classic BANCASSURANCE model. The decision is a result of its desire to augment its fee-based income through commission from the sale of policies. The strategy has imposed several limitations on SBI. Its progress in the insurance business has been slow simply because the parliament has yet to clear a bill allowing banks to sale insurance. Worse, the bank faces the unsavory prospect of working with not one, but two regulators, RBI and IRDA. It isn’t just externalities that are queering the pitch for SBI, several people are raising questions about whether or not it posses the skill relevant for the insurance business. “LIC can easily leverage the expertise of corporation bank to become a major

banking player. SBI, cant’ do the same thing in insurance” ‘says a mumbai-based investment banker. Bajapai has also been far more vocal and articulate about his Universal Strtegt then Ballabh. SBI’s vagueness about its plans for the insurance segment hasn’t helped its cause, but fact is, the bank had enjoyed some success in its prior diversification.

“MAJOR DEVLOPMENTS IN BANKING AND FINANCE DURING JUNE, 2005”
Major Policy Announcements: The government has permitted housing finance companies and non-banking finance companies to assess the foreign debt market through FCCBS and ECBs subject to RBI approval. (ET 4/6) The government raises the external commercial borrowings (ECBs) from $9 billion to $12 billion for 2005-06. However the ceiling on cumulative investments in government securities by Foreign Institutional Investors (FIIs) has been left unchanged at $1.75 billion. (ET 13/6) The cabinet permitted a Compressive Economic Co-operation Agreement (CECA) between India and Singapore. The pact is designed to offer an integrated package governing trade in goods and services, an agreement on investment, mutual recognition agreements in service and co-operation agreements in areas such as Education, E-commerce, The Media and Intellectual Property. (BL 21/6) The special purpose vehicle (SPV) to fund infrastructure projects, to be named as Indian Infrastructure Finance Company (IIFC) as a wholly owned government company under the Company’s Act. It will have an initial capital of Rs. 10 crore. (FE 24/6) Three banks namely Allahabad Bank, UTI Bank and UCO Bank have got RBI permission for opening representative offices in china and are waiting for approval from the monitory authority in china. (BL 24/6)

Major Events: The government plane to borrow less then the estimated in the financial year 2006. The countries fiscal deficit stood at 4.1 percent of gdp, against the governments 4.5 percent. (ET 3/6) The proposal to issue inflation-linked bonds to help investors hedge against the inflation has been cancelled. (ET 10/6) The mid term appraisal of the 10th five year plane show that the performance of the economy was well below the target averaging 6.5 percent in the last three years. (ET 28/6) Banking Developments and Policies: Current account withdrawals of over Rs.25000 will attract banking cash transaction tax will be applicable on withdrawals from current accounts on a single day from schedule banks. (ET 1/6) In the meeting held by the finance minister with the chief executives of PSBs on 3 rd June 2005. The finance minister had ruled out reduction in government equity and public sector bank below 51%. Further, the issue of merger of regional rural banks would be considered by August-end and the process of consolidation among public sector banks will be considered later. Target for agriculture landing was fixed at Rs.1, 41,000 crores. (ET 4/6) Reserve bank has allowed banks to lend money to Indian companies for acquisition of equity in overseas join ventures, wholly owned subsidiaries, or in other overseas companies, as strategic investment. Bank board would have to approve a policy for such lending and incorporation it in their loan policy. (BL 8/6) The center has constituted a seven member expert group to review the functioning of nidhi companies. The review will cover the role of nidhi companies, their regulatory framework and steps to safeguard directors. (BL 8/6)

The RBI has directed banks to simplify the procedure to facilitate speedy and easy settlement of claims following the death of depositors. The RBI has also requested Indian banks associations to formulate a model operational procedure for the settlement of such claims. The RBI notification also said that banks have to settle the claims and release the payments of deceased depositors account (s) within 15 days of receiving the claims and on production of proof of death of depositor and satisfactory identification of the claimant. (BL 10/6) The RBI directed banks to closely track the spends of international debit card (IDC) holders and report to it if the aggregate spend exceed $1,00,000 in calendar year. (BS 15/6) State bank of India has set up new strategic business unit (SBU) for personal banking, small and medium enterprises and agriculture.(FE 18/6) Reserve bank of India allows UCBs even the non-schedule USBs to participate in the repose as long as they have a constituent SGL accounts. (ET 24/6) The RBI panel suggested reforms in the foreign exchange market for liberalizing some capital account transactions like foreign currency derivatives. (ET 25/6) The RBI and the Andhra Pradesh government have signed an MOU to strengthen and work out ways and means to revive the 40 urban co-operative banks (UCBs) in the state. RBI would be assessing the training and computerization needs of urban co-operative banks, upgrade skills of employees and improve operational efficiency through technological upgradation. (ET 28/6)

BANKING DEVELOPMENTS: Bank Functions Outstanding As on 24/6/05 Aggregate Deposits Investment Bank Credit Non-Food Credit Funds to Commercial Sector “Market Development & New Policies:” The Government will allow three largest Singapore based banks free access to the Indian market, with operational freedom at par with other domestic banks. Development Bank of Singapore, United Overseas Banks and OCBC Bank will have far more operational freedom than other big foreign banks operating in the in the country.(ET 17/6) HDFC Bank and ICICI Bank have increased their lending rates by half-a-percentage point in housing loans.(ET 17/6) The board of Centurion bank and BANK OF Punjab are planning to meet on June 29th to discuss the merger between these two banks. Valuation of shares would be done by KPMG& NM Raiji & co (ET 21/6) Federal Bank is planning an equity issue of Rs.300-350 corer September, 0.5(ET 21/6) Lord Krishna bank reported a net loss of Rs.24 corer during the financial year 2005 as against the net profit of Rs 23 corers. (ET 28/6) 17,89,864 7,40,078 11,61,378 11,16,583 11,53,373 Financial Year so far Actual % (Variations) 89,665 5.3 925 0.1 60,958 5.5 57,275 5.4 54,142 4.5

Market developments: BSE Sensex: 6729.90-7193.85 (6.9%) Re/$ : Rs. 43.78-Rs. 43.51 (0.62%) Call Money: 5.70% to 5.90% as on 30/06/05 Government Borrowing Programme: The Central Government has borrowed Rs. 37,000 crore from the market till June 10 this fiscal. (ET 17/6)

“INTERNATIONAL BANKING AND GLOBAL BANKING – THE

INDIAN SCENE” Introductions
Some of the Indian banks have international branches whose number is very less. These branches are normally confined to what is called ‘ethnic banking’ by targeting Indian community residing in the host countries. Their experience in penetrating among the native population of host countries has not met with any significant success yet. Also expansion of overseas branches is not adopted as a strategy, since the existing overseas branches are not able to face competition in adoption of technology or extension of superior customer serves.

Reserve Bank of India (RBI) has recently permitted Indian Banks to invest their FCNR (B) deposits in longer-term fixed income instrument. Also there are some relaxations on borrowing from overseas and investment in overseas markets by banks, resulting in increased borrowing limits. While these measures could perhaps result in accessing globally cheaper funds there may not be any radical changes towards international banking or global banking on the part of Indian braches. Foreign banks functioning in India may not suffer any further in terms of restrictive covenants and lack of branch network following the recent relaxation. Also, the FDI and FFI flows into private banks have now been allowed up to 98%(percent). Perhaps some of the foreign banks, taking advantage of these relaxations may adopt global banking strategy more effectively for their Indian operations. In today’s competitive world of business either in National Market or in International Market, everyone is looking to merge with a higher rated company or institution then itself. So the trend is going very smoothly and proving very effective. Below s the case study regarding a merger between ICICI Bank with TIMES Bank.

What is a Merger? Merger is a combination of two or more companies (in this case we refer to banks) into one company. In India, we call mergers as amalgamations, in legal parlance. The acquiring company, (also referred to as the amalgamated company or the merged company) acquires the assets and liabilities of the target company (or amalgamating company). Typically, shareholders of the amalgamating company get shares of the amalgamated company in exchange for their existing shares in the target company. Merger may involve absorption or consolidation. In absorption, one bank (or financial entity) acquires another bank. For example, we will look at the merger of ICICI Bank and Bank of Madura. After merger, the target bank, Bank of Madura ceases to exist and the acquirer continues to exist. In this case, the acquirer ICICI Bank exists. In consolidation, two or more banks combine to form a new bank. UTI Bank and Global Trust Bank, which were independent entities, will continue to operate as one entity, as UTIGlobal Bank after the merger. In retrospection the Indian Banking industry took all clues from Narasimham committee conclusions and is marching ahead to big banks scenario. The two successful mergers in the recent past raise hopes that the trend would continue, for the survival of the biggest.

Motives Behind the Merger: Growth: One of the fundamental motives that entice mergers is impulsive growth. Organizations that intend to expand need to choose between organic growth or acquisitions driven growth. Since the former is very slow, steady and relatively consumes more time the latter is preferred by firms, which are dynamic and ready to capitalize on opportunities.

Synergy: Synergy is a phenomenon where 2 + 2 => 5; This translates into the ability of a business combination to be more profitable than the sum of the profits of the individual firms that were combined. It may be in the form of revenue enhancement or cost reduction. Managerial efficiency: Some acquisitions are motivated by the belief that the acquirer’s management can better manage the target’s resources. In such cases, the value of the target firm will rise under the management control of the acquirer. Strategic: The strategic reasons could differ on a case-to-case basis and a deal to the other. At times, if the two firms have complimentary business interests, mergers may result in consolidating their position in the market. Market entry: Firms that are cash rich use acquisition as a strategy to enter into new market or new territory on which they can build their platform.

“Merger of HDFC Bank and Times Bank”

Steeped in the socialist legacy, Indian banking produced
Large empires of state owned banks, which brutally Scarified profitability and efficiency at the alter of size. Thus, Indian banking industry was an unlikely candidate For MBA. But the new kids on the block, the new private Sector banks have emerged as a different tribe. Therefore, It is this segment that saw the first ever market-driven Merger. The merger of Times Bank with HDFC Bank has undeniably heralded the era of ‘merging to e-merge’.

In November 1999, when Deepak Parekh and S M Data, Chairman of new private sector
banks shook hands, they created a history of sorts. It is the first ever mega merger of Indian banks. It signaled that Indian banking sector has finally joined the MBA bandwagon. There is no denying the fact that there have been mergers in the Indian banking sector before, but they were essentially attempts by the government to bailout the weak public sector banks that made the stronger partners feeble. Now, the paradigm shifts lies in the fact that while the earlier mergers took place at the behest of the government, the market forces drove the merger of HDFC BANK and Times Bank. Any talk of M&A in the Indian banking sector would have been pointless a few years ago. And any suggestion of merger of banks would be regarded as nothing short of blasphemy. The Indian banking sector is inhabited by twenty odd public sector banks, many of which have become grossly inefficient under thirty years of government patronage. Winds of change appeared with the onsets of financial sector reforms. Entry barriers were introduced in line with the global practices. Interest rates were deregulated giving banks more freedom as well as more competition. The artificial divide between the Development Financial Institutions and Banks has been removed. Technology came in to impact the banks in a big way.

The removal of entry barriers saw the emergence of nine new private sector banks, some of them being the banking arms of the Fl’s themselves. While reforms of interest rates and capital adequacy brought pressure in performance, new entrants brought competitions into the market place. Where there is competition and struggle for us primacy there would be M&A. Public sector banks being entities owned by the governments cannot be participants in the M&A game. Even if they were allowed to merge, mergers among the PSBs inter se would not produce any synergy, for the simple MAP

Reasons that they are all alike. They invariably have presence in the same segment and suffer equally from ills like overstaffing etc. And any attempt to reap the benefits that might arise on account of rationalization of branches and staff could invite trouble from the mighty trade unions that fight tooth and nail. The rest of the pack comprises of old private sector banks and new private sector banks. While old private sector banks have been a shade different though not necessarily better than their public sector counterparts, the new entrants became very aggressive, innovation savvy and competitive. It is, therefore, natural and this segment was the first to see M&A. The new private sector banks emerged on the scene in 1995. Over the years they made considerable efforts to get a foothold in the niche segments of the banking industry. While the PSBs took a Lion’s share, these new entrants carved a niche for themselves in special segments of banking on the strength of technology, innovation and professionalization. As has been the case elsewhere, size matters in the Indian banking, Sanjay Sakhuja, Partner (Corporate Finance) of Arthur Andersen says, “Size does matter. Technology has become a sine qua non in the banking industry. There is no way that individually banks can invest in best technological solutions. That calls for a certain size. The other issue is that of capital adequacy. There are number of banks in India which do not have adequate capital. Bankshae evolved in the past on the strength of regulatory environment. With tighter regulation no more the order of the day making the system more, competitive, consolidation

is inevitable.” It is size that provides the strength to expand and compete for a higher market share. The merger of the HDFC Bank needs to be viewed in the light. The Times of HDFC The merger deal was struck with a stock swap whereby the shareholders of Times Bank will get one share of HDFC Bank for every 5.75 shares held. The Times Bank will merge with HDFC Bank and the emerging entity will continue to function as HDFC Bank. With the RBI giving a green signal, the merger is likely to come into effect by the first quarter in 2000. The Bennett Coleman group, which promoted the Times Bank, will have about 7.5 percent stake in HDFC Bank. The equity capital of HDFC Bank will rise from Rs. 200 crore to Rs. 233 crore. With one stroke the merger helped HDFC Bank become the largest of the private sector banks in the Indian banking industry. The merger will increase the customer base of HDFC Bank by 2,00,000 taking the figure to 6,50,000. It will also provide cross-selling opportunities to the increased customer population. Various products of HDFC Bank as well as the housing finance products to its patent HDFC can be offered to the new customers. Most importantly the branch network would increase from 68 to 107. HDFC Bank’s total deposits would be around Rs. 6,900 crore and the size of the balance sheet would be over Rs.9, 000 crore. Since Times banks has technology in place, HDFC Bank saves on the costs associated with technology up gradation. According to the bank some amount of rationalization of the portfolios of corporate loans may be required. The bank also gains from existing infrastructure. The capital adequacy of HDFC Bank would be 10.3 percent post-merger and would go up to 11.1 percent after the proposed preferential offer to maintain the current level of holdings of different classes of investors. The merger of those two banks has another distinct advantage. The new private sector banks have nurtured employee culture in tune with competitive forces. Thus there is unlikely to be any clash of cultures in the new entity. This is likely to help the integration process. Reportedly the branch network of both the banks do not overlap. Despite the growth of Internet banking, branch network in the brick and mortar form is vital for reaching out to the

customer especially in the Indian context. HDFC Bank’s strategy for setting up of branches has been that of incurring lowest cost with about 6 8 persons per branch who look after both servicing and market functions of the bank. The bank has also prompted the customers to use phone banking in a big way. Since setting up of branches a new is a costlier affair, acquiring a readymade branch network could not have been better. Product complementarily was more pronounced in the case of ATM card networks. HDFC Bank had the Visa network and Times Bank had Master Card network. On account of the merger, it would be part of both the networks. Similarities in business segments and the prospects for synergies appear to be the major inducements for the HDFC-Times merger. The table ‘Convergence Advantage’ shows that there is fair amount of convergence in the rate of business growth (in terms of deposits, advances and income) and diversification in non-interest income. Says Bandi Ram Prasad, Chief Economist, Indian Banks Association; “There is sizeable divergence in efficiency of operations (measured in terms of net profit as percent of working funds and Net NPAs as percent of working funds and Net NPAs as percent of Net Advances. With its record of higher operational efficiency HDFC Bank could contribute value addition to the business growth of the Times Bank. Since both are low on staff costs, better control of costs is also possible. With HDFC having more metro branches (65 percent) and Times Bank more urban branches (43 percent) overlapping of branch network is also not very leading to enlarged potential market. That is enough incentive for consideration of a merger.” Sanjay Sakhuja opines that the merger was an excellent transaction. He explains, “It is an excellent transaction both in terms of the speed with which it was conducted and the way in which it is put through. HDFC Bank gains in terms of size and complementarily of network. From the times point of view too, I think this merger makes sense. The merger made the shareholders of HDFC bank and erstwhile shareholders of Times Bank very happy.”

Competition of late had been heating up. Foreign banks have been radically altering their strategies. Some of the public sector banks also began attempting reshaping of their

competitive strategies. New private sector banks also began attempting reshaping of their strategies. New private sector banks have been aggressive in the race to grab the market share, thus for HDFC Bank the timing of merger opportunity could not have been better. In the whole world of banking sector it was HDFC Bank and ICICI Bank, which maintained better valuations while price of rest of the banks in the industry, plummeted in the recent past. E-merging Wave Look at the way the market has cheered at the merger. Empirical research on mergers proved that the shareholders of the acquiring company tend to lose out post-merger, while those of target company gain. But the merger of HDFC-Times begs to be different. Ever since merger announcement, the market caps of both the banks have swelled by about 150%. Market appears to be bullish on bank mergers. Given that the merger of HDFC Bank and Times Bank has been the first of its kind in the Indian banking industry, does the merger signal further consolidation in the banking industry driven by M&A? While there is no gain saying the fact that competitive forces will ensure that the consolidation would follow, there are some bottlenecks to this process. The state ownership of public sector banks is one major hurdle. Since Indian banking industry is still dominated by these banks unless the government loosens its strings any kind of M&A is not possible in the public sector segment. Among those who believe that the merger of Times Bank with HDFC Bank does not necessarily signal a wave of M&A about to take place I the Indian banking sector is VS Srinivasan, Managing Director of Centurion Bank says, “The major reason why there will not be a M&A wave is because a major consolidation has to take place in the public sector on which the government is still not clear in terms of the mechanisms for achieving such a consolidation. Despite the recommendations of the Narshimham Committee, this issue has not been addressed. The potential for M&A amongst old private sector banks does

That as it may, there is reasons to believe that the government would be under pressure to reduce its stake in the public sector banks. For one of the increasing capital adequacy requirements would require bleeding state owned banks to raise equity capital from the market. The government, which is already suffering from the fiscal deficit trouble, is unlikely to dole out heavy capital infusions as generously as it did in the past. Therefore, it is likely that the government stake in these banks would go blow 51%. Moreover fat wage bills are in no position to go in for technological up gradations.

“CHALLENGES THAT INDIAN BANKS FACE”

It is by now well recognized that India is one of the fastest growing economies in the world.
Evidence from across the world suggests that a sound and evolved banking system is required for sustained economic development. India has a better banking system in place vis a vis other developing countries, but there are several issues that need to be ironed out. In this article, we try and look into the challenges that the banking sector in India faces. Interest Rate Risk: Interest rate risk can be defined as exposure of bank's net interest income to adverse movements in interest rates. A bank's balance sheet consists mainly of rupee assets and liabilities. Any movement in domestic interest rate is the main source of interest rate risk. Over the last few years the treasury departments of banks have been responsible for a substantial part of profits made by banks. Between July 1997 and Oct 2003, as interest rates fell, the yield on 10-year government bonds (a barometer for domestic interest rates) fell, from 13 per cent to 4.9 per cent. With yields falling the banks made huge profits on their bond portfolios. Now as yields go up (with the rise in inflation, bond yields go up and bond prices fall as the debt market starts factoring a possible interest rate hike), the banks will have to set aside funds to mark to market their investment. This will make it difficult to show huge profits from treasury operations. This concern becomes much stronger because a substantial percentage of bank deposits remain invested in government bonds. Banking in the recent years had been reduced to a trading operation in government securities. Recent months have shown a rise in the bond yields has led to the profit from treasury operations falling. The latest quarterly reports of banks clearly show several banks

making losses on their treasury operations. If the rise in yields continues the banks might end up posting huge losses on their trading books. Given these facts, banks will have to look at alternative sources of investment. Interest Rates And Non-Performing Assets: The best indicator of the health of the banking industry in a country is its level of NPAs. Given this fact, Indian banks seem to be better placed than they were in the past. A few banks have even managed to reduce their net NPAs to less than one percent (before the merger of Global Trust Bank into Oriental Bank of Commerce, OBC was a zero NPA bank). But as the bond yields start to raise the chances are the net NPAs will also start to go up. This will happen because the banks have been making huge provisions against the money they made on their bond portfolios in a scenario where bond yields were falling. Reduced NPAs generally gives the impression that banks have strengthened their credit appraisal processes over the years. This does not seem to be the case. With increasing bond yields, treasury income will come down and if the banks wish to make large provisions, the money will have to come from their interest income, and this in turn, shall bring down the profitability of banks. Competition In Retail Banking: The entry of new generation private sector banks has changed the entire scenario. Earlier the household savings went into banks and the banks then lent out money to Corporates. Now they need to sell banking. The retail segment, which was earlier ignored, is now the most important of the lot, with the banks jumping over one another to give out loans. The consumer has never been so lucky with so many banks offering so many products to choose from. With supply far exceeding demand it has been a race to the bottom, with the banks undercutting one another. A lot of foreign banks have already burnt their fingers in the retail game and have now decided to get out of a few retail segments completely. The nimble footed new generation private sector banks have taken a lead on this front and the public sector banks are trying to play catch up.

The PSBs have been losing business to the private sector banks in this segment. PSBs need to figure out the means to generate profitable business from this segment in the days to come. The Urge To Merge: In the recent past there has been a lot of talk about Indian Banks lacking in scale and size. The State Bank of India is the only bank from India to make it to the list of Top 100 banks, globally. Most of the PSBs are either looking to pick up a smaller bank or waiting to be picked up by a larger bank. The central government also seems to be game about the issue and is seen to be encouraging PSBs to merge or acquire other banks. So in the zeal to merge with or acquire another bank the PSBs should not let their common sense take a back seat. Before a merger is carried out cultural issues should be looked into. A bank based primarily out of North India might want to acquire a bank based primarily out of South India to increase its geographical presence but their cultures might be very different. So the integration process might become very difficult. Technological compatibility is another issue that needs to be looked into in details before any merger or acquisition is carried out. The banks must not just merge because everybody around them is merging. As Keynes wrote, "Worldly wisdom teaches us that it's better for reputation to fail conventionally than succeed unconventionally". Banks should avoid falling into this trap. Impact Of BASEL-II Norms: Banking is a commodity business. The margins on the products that banks offer to its customers are extremely thin vis a vis other businesses. As a result, for banks to earn an adequate return of equity and compete for capital along with other industries, they need to be highly leveraged. The primary function of the bank's capital is to absorb any losses a bank suffers (which can be written off against bank's capital).

Norms set in the Swiss town of Basel determine the ground rules for the way banks around the world account for loans they give out. The Bank formulated these rules for International Settlements in 1988. Essentially, these rules tell the banks how much capital the banks should have to cover up for the risk those there loans might go bad. The rules set in 1988 led the banks to differentiate among the customers it lent out money to. Different weightage was given to various forms of assets, with zero per cartage weightings being given to cash, deposits with the central bank/govt etc, and 100 per cent weighting to claims on private sector, fixed assets, real estate etc. The summation of these assets gave us the risk-weighted assets. Against these risk weighted assets the banks had to maintain a (Tier I + Tier II) capital of 9 per cent i.e. every Rs100 of risk assets had to be backed by Rs 9 of Tier I + Tier II capital. To put it simply the banks had to maintain a capital adequacy ratio of 9 per cent. The problem with these rules is that they do not distinguish within a category i.e. all lending to private sector is assigned a 100 per cent risk weighting, be it a company with the best credit rating or company which is in the doldrums and has a very low credit rating. This is not an efficient use of capital. The company with the best credit rating is more likely to repay the loan vis a vis the company with a low credit rating. So the bank should be setting aside a far lesser amount of capital against the risk of a company with the best credit rating defaulting vis a vis the company with a low credit rating. With the BASEL-II norms the bank can decide on the amount of capital to set aside depending on the credit rating of the company. Credit risk is not the only type of risk that banks face. These days the operational risks that banks face are huge. The various risks that come under operational risk are competition risk, technology risk, casualty risk, crime risk etc. As per the BASEL-II norms, banks will have to set aside 15 per cent of net income to protect themselves against operational risks. So to be ready for the new BASEL rules the banks will have to set aside more capital because the new rules could lead to capital adequacy ratios of the banks falling. How the banks plan to

go about meeting these requirements is something that remains to be seen. A few banks are planning initial public offerings to have enough capital on their books to meet these new norms. In Closing: Over the last few years, the falling interest rates, gave banks very little incentive to lend to projects, as the return did not compensate them for the risk involved. This led to the banks getting into the retail segment big time. It also led to a lot of banks playing it safe and putting in most of the deposits they collected into government bonds. Now with the bond party over and the bond yield starting to go up, the banks will have to concentrate on their core function of lending. The banking sector in India needs to tackle these challenges successfully to keep growing and strengthen the Indian financial system. Furthermore, the interference of the central government with the functioning of PSBs should stop. A fresh autonomy package for public sector banks is in offing. The package seeks to provide a high degree of freedom to PSBs on operational matters. This seems to be the right way to go for PSBs. The growth of the banking sector will be one of the most important inputs that shall go into making sure that India progresses and becomes a global economic super power. New Account Opening: The foundation of a customer's relationship with a retail banking institution is shaped through the account opening process, as the vast majority of new account openings still take place face-to-face in a branch. From the customer's perspective, critical first impressions of the institution's quality, capabilities and trustworthiness are established. In large part, the institution's brand promise is personified by the skills displayed by the front-line employee. From the institution's perspective, the account-opening event provides the best, and possibly

only, opportunity to comprehend customers' needs and educate them on the appropriate financial solutions. In most cases, the institution's overall objective in the account opening process is to become the consumer's primary bank. And for good reason: Previous national consumer research conducted by BAI reveals that consumers keep an average of 3.4 financial products with the institution they consider to be their primary bank, compared to only 1.8 products with institutions that are considered secondary. The primary bank captures the vast majority of wallet share as well. The same research shows that consumers keep 90% of their total checking account wallet and 80% of their total savings and money market deposit wallet with their primary bank. In addition, the account-opening event represents a prime cross-selling opportunity. Detailed benchmarking of the deposit households of 19 large banks by BAI Research and MarkeTech Systems International in an earlier study reveals that 24% of the total cross-sales that banks obtain from their checking account households actually takes place during the account opening event, and another 4% of total cross-sales take place within the first 30 days following account opening. However, some executives acknowledge that they ultimately need to cope with a deeper issue — front-line employee selection — to improve their organizations' abilities to maximize the new account opening opportunity. Nearly eight out of 10 bankers surveyed responded that their staffs lack the adequate sales skills. Bankers broadly recognize that many of the employees hired for front-line branch positions lack the life experience and soft skills required conducting credible conversations with customers about their financial goals. Banks are fine-tuning their recruitment procedures to attract employees who have natural aptitudes for customer service, consultative selling and multi-tasking. Potential employees with prior retail sales experience are often sought. Relationship Expansion: Expanding client relationships, through efforts to increase balances held with the institution or through the sale of additional products, is a responsibility that front-line staff in branches

and contact centers share with other areas of the bank. Direct mail is a major contributor to cross selling, as are promotions through online channels and the direct-sales efforts of investment, trust or mortgage specialists. However, previous consumer research and benchmarking conducted by BAI reveals that the average deposit household still conducts 17 branch-based service transactions and holds several conversations with a live contact center representative on an annual basis. This volume of front-line customer interaction suggests two key areas of opportunity. The first is service quality, which lays a foundation that will eventually lead to increased share of customer wallet. Second, institutions are certainly missing relationship expansion opportunities if they do not provide the support mechanisms required for front-line staff to recognize opportunities and capitalize on them. The key idea here is to recognize opportunities. Benchmarking of retail deposit households by BAI and MarkeTech reveals that it takes four or more years before banking institutions start to experience meaningful increases in retail deposit and loan cross-sell rates. After the initial account-opening event, relationship expansion opportunities tend to emerge slowly as a large portion of consumers. Consumers are not necessarily motivated by cross-selling offers from their financial institutions. A key to relationship expansion, earlier research suggests, is to provide customers with solid, reliable service quality and to use service transactions, when appropriate, to understand customer needs and educate customers about the options available to them. On an overall basis, banking executives surveyed cross selling as very important, but are generally not satisfied with their results. Relating to oversight and measurement, a principal challenge experienced by banks of all sizes is the ability to measure the effectiveness of these models and ensure that cross-sell leads sent to the front-line are acted upon in a timely fashion, if at all. The research indicates that bankers recognize the importance of these challenges and are taking steps to address them.

Retention Management: Heightened competition for consumers' banking wallets and increased consumer mobility has elevated retention management to a top-of-mind concern for banks of all sizes, as reflected in recent research conducted by BAI. Customer retention is difficult to manage because there are a multitude of drivers that prompt customers to terminate relationships. Often these key drivers are interconnected, meaning that customers decide to defect due to a combination of circumstances that build up over time. The common controllable drivers of customer attrition include service quality problems, dissatisfaction with product pricing and/or minimum balance requirements, unexpected fees, and the attraction of a competitive product offer. No matter their size or technological sophistication, all banks rely significantly on front-line staff to implement retention programs. Bankers in our survey recognize the urgent need to upgrade the skills set and training of their employees — 68% of the surveyed bankers stated that they needed to do a better job of giving front-line employees the tools and training required to identify and react to customers whose accounts are at risk.7. Successful retention intervention requires employees who can quickly pick up on the cues of a potential defection, formulate a response and effectively communicate a proposal to the customer. How quickly? Most executives agree that attrition intervention leads, as generated by centralized modeling units, must be acted upon within 72 hours, or it's generally too late. That's a lot to ask from otherwise occupied branch employees.

An Opportunity for Banks
Execution of relationship strategies is feasible for many institutions, but only if it is aligned with strategy and correctly supported by a variety of critical programs and activities. Our research suggests that vital investments in the three primary domains of relationship management activities — new account openings, relationship expansion and retention

management — should be prioritized to directly support an institution's top strategic growth initiatives. Very few institutions will be able to simultaneously invest in all three domains, so competitive and market realities may dictate that some activities be valued more than others. For example, institutions that are based in mature, slow-growth markets may opt to prioritize relationship expansion among the existing customer base and invest in the related crossselling capabilities. For institutions that operate under different market dynamics, prioritization of new household growth and new account opening competencies may be more appropriate. No matter which strategy or domain is selected, The Factor shows that the vast majority of institutions share a common set of tactical opportunities to improve relationship management. For banks that focus on the new account-opening domain, the key is process improvements, as most institutions tend to be relatively more comfortable with the skill set of their front-line staff. The top performance improvement priorities across banks in this domain are the consistency and systemization of customer profiling, as well as the storage of this information for future relationship management efforts. Establishment of new customer on boarding processes is also important. In the relationship expansion and retention management domains, certain process improvements in the areas of sales performance tracking and the use of cross-sell and attrition models are clearly warranted. However, the research also suggests that banks focus additional attention on the capabilities of front-line employees and supervisors. The need for additional staff training to identity customer retention and cross-sell opportunities is important, as is the need for front-line management to allocate more time to coaching and training. Retail banking is a people-oriented business, and will remain so for some time to come. This point is driven home by the fact that 90% of the banking executives participating in our research state that their institutions are attempting to differentiate themselves via relationship banking or service quality. These value propositions are founded upon the

institution's ability to build trust based on a reliable, service-oriented delivery model that provides front-line staff with the capability of responding to customer needs. While technology and process can facilitate that objective, executing on that vision depends on front-line employees and their immediate managers. Quite simply, those who execute better will win. We believe such achievements will increasingly require senior and mid-level managers to perform the type of assessment prompted by the factor: understand your front-line sales and service strengths and weaknesses and then determine your priorities for allocating management attention and financial resources to improve performance.

“BANKING SCENE: GLOBAL’S”
‘ADB gets tougher on Philippine reforms:’

The Asian Development Bank (ADB) has announced a new three year strategy for the Philippines, under which new lending could range from zero to as much as $1.5 billion depending on the pace of fiscal consolidation and key sector reforms. The ADB expects the Philippines to proceed with measure to boost tax collection and cut the budget deficit. If the fiscal consolidation is weakened, the bank may stop lending to the country. On the other hand, if the government succeeds in improving public finance, the bank will consider to double future lending to $1.5 billions in the next three years. Around 90% of the new loans would be quick disbursing, but they are high-conditionality programmes loans that could help the Philippines cut costly commercial borrowings to refinance maturing debt. International credit rating agencies like Standard and Poor, Fitch and moody’s have cut the outlook for Philippine credit ratings over the future of the existing government. They felt that the existing government would not be in a position to avoid in a budget deficit and avoid an Argentine-style debt default. Against this backdrop, the ADB has stated that the level of financial support for the Philippines for 2005 to 2007 would be contingent on significant front loading of the fiscal consolidation process, backed by an enhanced tax effort to ensure the sustainability of economic reforms. It would also stop the other funds because the counter part funds from the government will not be there once the government falls. As such, the bank intends to disburse $1.5 billion in new structure adjustment loans, which don’t require counterpart funds. But if Philippines improve tax revenues and implemented other policy reforms, then it is a strategic shift in approach and modality. Retail Banking is catching up in Central and Eastern Europe: Retail banking is catching up with corporate business as the main driver of financial activity in the fast-growing economics of central and Eastern Europe. According to a study conducted by the Austrian’s co-operative banks, one of the financial group in the region, the demand for retail banking products has soared on the back of strong economic growth and

rising affluence. While demand for retail banking products has neared west European levels in some central and eastern European countries, massive growth potential remains in less developed or affluent regions. The Penetration of debit or credit cards in Slovenia and Croatia is about 1200 cards for every 1000 inhabitants which is now virtually at Austrian levels. But other parts of Eastern Europe still have huge room for growth. In Romania, one of the least developed banking markets in region, Raiffeisen international is opening between 40,000 and 60,000 new retail accounts a month. But in a relatively developed Hungary, up to 25 percent of people still has no bank account. Demand for consumer credit is so strong in Croatia, Bulgaria and to a lesser extent, Romania that local authorities have taken action to prevent overheating in the market. Their measured have varied from ceiling on lending to forcing banks to increase the level of non-interest bearing minimum reserve they deposit with central banks. Demand for mortgages has soared in these regions. Strong underlying economic growth rates and the potential in retail and corporate banking suggest foreign banks will expand further in the region. Growth in these region is expected to come through takes over of the dwindling number of local banks still available, and consolidation among big foreign banks, which are already present. Vietcom Bank seeks Partner Vietcom’s Bank, one of Vietcom’s four main state-owned commercial banks, wants to sell a strategic stake to a foreign partner as part of its planned privatization. The bank is looking for a partner, who is culturally fit and also help, the bank to change fast and improve the corporate governance structure as well. Vietcom Bank is viewed by the analysts as the best managed of vietcom’s big four state Commercial Banks, which together account for about 70% of total loans. However, they are highly susceptible to political pressure to lend lessmaking state enterprises. Vietcom Bank is stated to be transformed into a public company, with common shares issued and sold and accountability to all its shareholders, rather than political leaders. The analysts also view this as a critical test of the communist government’s ability to undertake tough but essential reforms. Inspite off all the efforts, the government is planning to retain 70% of the equity. According to Banking Industry Sources, Vietcom Bank had approached potential investors, but the institution’s asset quality is a concern and due

diligence is expected to take a longer time. Vietcom bank, on its part had already shifted its lending away from state enterprises, which accounted for just 50% of its total loan portfolio, down from 90% in 2005. Consumer lending and mortgage lending, now about 15% of the loan book, are expected to grow to around 40% by 2012. Reforming OECD The Organization for Economic Co-operation and Development (OECD) is essentially the economic policy research unit of 30 rich nations, establishing guidelines on everything from telecom liberalization and farm subsidies to macro economic policy. A huge diplomatic staff from member countries undertakes the oversight of the OECD. It entails more then 100 formal meetings annually. Though discussions are on to increase the OECD members to include some emerging economies and other European Union Countries, but before that, the organization wants to reform internally. America has proposed that the OECD’s council meet only four times a year, instead of twice a month. It also wants new procedures for setting work priorities, voting rights and budget matters. The challenges of reform and enlargement have to be met with courage and it also calls for certain tough measures in the near future. General Guidelines for Payment System Development Committee on payment and settlement system (CPSS) issued a consultative report on general guidance for payment system Development that aims to give assistance and advice on the planning and implementation of reforms in the payment system as a whole. The report includes 14 guidelines and accompanying explanatory text on payment system development. The CPSS had released these guidelines in May 2005 and sought comments by 30th September 2005. The Guidelines are grouped together to reflect the four key dimension of developing a national payment system. 1) The role of the banking sector. 2) Effective planning and project implementation 3) developing the institutional framework required to sustain payment system reforms and 4) designing a safe and efficient payment infrastructure to meet the particular emerging needs of country’s economy. These guidelines

are developed on the basis of the actual reform experience of the different countries. Since the development of a national payment system is highly country- specific and conditional on a verity of institutional, financial and economic factors, the specific implementation approach for a particular guideline should be considered in the context of each country’s own environment. Therefore, from this angle, these guidelines cannot necessarily be the best “best practice standards” for every country. Guidelines are summarized below: Banking System: 1. Keep the central bank at the center: Due its overall responsibility for a sound currency, the central bank has a central role in the development of the use of money as an effective means of payment. 2. Promote the role of sound banking system: Payment accounts, banks, which compete individually but often need to act cooperatively as a system, mainly provide instruments and services available to end-users. Planning: 3. Recognize Complexity: Planning should based on a comprehensive understanding of all the core elements of the system and the principle factors influcing its development. 4. Focus on Needs: Identify, and be guided by, the payment needs of all users in the system and by the capabilities of economy.

5. Set Clear Priorities: Plan and Priorities payment system development strategically. Top priority should not necessarily be assigned to introduction of highly sophisticated technology. The plan should consider which elements of the existing system could be an avenue for further development. 6. Implementation is Key: To ensure effective implementation of the strategic plan, the success of the payment system reforms depends crucially on the effective implementation of the strategic plan. Institutional Framework: 7. Promote market development: The expansion and strengthening of market arrangements is a key aspect of the evolution of the payment system. 8. Involve relevant stakeholders: Encourage the development of effective consultation among relevant stakeholders in the payment system. The involvement of the relevant stakeholders in information sharing, consultation and collaboration facilities co-ordination between the central bank and other key players on emerging payment system changes and policy initiatives. 9. Co-operate with other authorities: Effective payment system oversight by the central bank requires collaborative arrangements with other authorities. Arrangements between the central bank and other

authorities to exchange views collaborate on relevant issues and, where needed, Coordinate relevant policies can help to ensure a safe and development of the system. 10. Promote Legal Certainness: Develop a transparent, comprehensive and sound legal framework for the system. The legal framework is necessary to provide legal certainty and reduces the risk. Infrastructure: 11. Retail- give more choice to more people: Extend the coverage and choice of non-cash payment instruments- and services available to end-users by expanding and improving infrastructures. 12. Large value – businesses case leads, technology follows: Develop a large value payment system based primarily on the needs of financial markets and the growth and the time – critical inter bank payments. 13. Securities – plan, securities and Payment systems together: Co-ordinate the development of the infrastructures for securities and large value payments. 14. Retail, large value and securities co-ordinate settlement: Co-ordinate settlement for the core system to effectively manage the interrelated liquidity needs and settlement risk among them.

“GLOBALISATION OF INTERNATIONAL BANKING”
Introduction: Over the last several years’ internationally active banks have shifted from international banking to global banking. Some banks, rather than taking deposits in one jurisdiction and lending in other, have pursued the strategy of taking deposits and offering consumer loans, mortgages and corporate loans within a variety of national markets through a local presence. Other banks have pursued a capital market strategy, seeking to fund their portfolios of local securities locally as well. Whether adopting a globe consumer earlobe wholesale model, banks are increasingly looking to serve customers through a local presence funded locally. The ambition to build a ‘global’ (or multinational) bank so defined defers from that to build and international’ bank, define as a bank that takes deposits in one country and makes loans in another. Even after shifting to global banking, Country risk remains same.

Although the most compressive time series evidence for the long term shift in business from cross border to serve local markets happens to cover US in corporate banks, what follows demonstrates that the global strategy is by no means confined to banks based in the united states. Indeed, Canadian, Irish, Spanish, swiz and UK banks are more globalised than US banks. Looking at the data by local banking market, the shift is vary uneven, with European a major exception and Asian markets more globalize then they are generally considered to be.

From International To Global Banking: - 20 Years View: While different banks have shifted from international banking strategy towards global banking strategies at different paces, the overall trend was already evident by at least the mid-1980s. Cross borders business, in a particular lending to developing countries funded

with euro currency deposits, had propelled the expansion of banks foreign assets during the 1960s and 1970s. By contrast, during the 1980s and 1990s, locally funded business tended to expand more rapidly than cross borders positions. Data covering banks incorporated in United States illustrate the growth of foreign banks locally funded business. Whereas US banks cross borders claims increased by 55%(percent) to $548 bn between 1982 and 2001, there local claims rose yearly 400% to $385 bn, reaching a ratio of 0.7.Although it spears that cross borders claim significantly outgrew local claims in 1997,this reflects a series brake that year from the inclusion of derivative position. Since this brake, the ratio has narrowed the more broadly measured local claims have continued to grow faster then the cross border claims.

Globalisation By Nationality Of Banks: The growth of locally funded business has by no means been confined to US banks. Banks incorporated in other countries have expanded their local presence in foreign banking markets as quickly as US banks, if not faster. The expansion of non-US banks is less well documented, however. The newly complied data show that the US banking system has not become extraordinarily global when juxtaposed with its international peers indeed a handful of banking system are more global than that of the united states. The most recent consolidated banking statistics indicate that Canadian banks have a ratio of local claims in local currencies to international claims of 1.2. To a large extent, this reflects the large funding base of there branch and subsidiary operations in the unite states. So it might be said that Canadian banks are as much regionalized as globalize. Spanish banks are also very global, funding much of there foreign claims locally, particularly in Latin America. The UK, Swiz, and Irish banks local claims are nearly equivalent to there international claims. The UK-headquarter banks are well represented in local markets not only in the western hemisphere but also in East Asia.

Global And International Banking By Market: Turning from the banks behind the expansion of locally funded claims to the markets into which they have expanded, the balance between international and global banking varies across different regions. Bank of international settlement (BIS) reporting banks local claims on Latin American countries rose sharply in the late 1990s and are now as large as international claims. In the Asia-Pacific region local claims are quickly approaching the level of international claims, and in North America the gap is not very wide. Local claims are half as large as international claims on countries in Eastern Europe, the Middle East and America, but are rising rapidly. Only reporting banks claims on Western Europe still predominantly take the form of cross border claims. Explaining The Shift: The shift from international from global banking reflect changes both in banks strategies and in the constraints they face. An interesting question is why international banking seem to have yielded so little to global banking in the European market.

Bank Strategies: Over the last generation, many banks altered their business strategies. The new strategies have trended to lead to a balanced increase in local asset and liabilities. While international department major banks spend much on renegotiating the loan made in 1980s’ bankers who have made their name-developing consumer and securities business rose to leadership positions. And emphasis on consumer banking means trying to turn depositor into credit cards users and mortgage customer and vice-versa. This naturally tends to lead to balanced growth of asset and liabilities in foreign market. Similarly, the development of securities business within the country ten to lead a balance of asset and liabilities, for instant government bonds financed with repurchase transaction.

Similarly, banks strategic shift from holding to originating and selling international claims has standard to reduce their cross border footing the renegotiation of the 1980s’ ended up creating new asset class for institution investors.. Originally Brady bonds and than more gernally emerging market bonds issued by government and companies. While international banks as holders as well as underwriter such obligations, the widening of the investors base to includes institutional investor has substituted for cross border banks loans to some extend. Specific lesson drawn from the experiences of the debt cases of the 1980s’ also led banks to favor global over international banking, particular in riskier markets. In the early 1980s’ foreign exchange crises lead governments to impose payment moratoriums on cross border loans locally funded assets, while subject to credit risk at such time, did not involve of foreign exchange drain and so were not necessaries affect by payment moratoriums. Bank have pursued their altered strategies by de novo entry into new market by organic expansion of existing operations and through cross border acquisition. In acquiring banks a cross borders, they have being part of larger wave of cross border mergers and acquisitions. Cross border mergers and acquisition reached a record level of eight percent of world GDP in the let 1990s’. While in the part, have elected to follow their customers explores in order to have a balance sheet of sufficient size to serve their peak needs, bank expansions has also drawn on the same conviction that relatively large global players will dominate each business. Altered Constraints: Circumstances as well as strategies lay behind the shift to global banking. Among the most important factor determining the pace of foreign banks expansion into local financial system is financial sector liberalization. Over the past two decades, many countries have moved from relatively closed and administrated financial system to more open ones. This has typically included the relaxation of restrictions on foreign ownership of local banks. For e.g.: - In Canada restrictions on foreign branch banking on the market share of foreign

subsidiaries effectively led foreign banks to serves customers from outside the country rather then through local affiliates.

Liberalization has at times been precipitated by financial crisis. Bank with global ambitions have found it attractive to buy local banks put up for sale following crisis related nationalizations owing to loan losses. In addition after, the weakness of local banks after a crisis offer competitive opportunities of multinational banks to expand their extent operations. In countries with state dominated financial system, liberalization and the aftermath of crisis were often accompanied by privatization, in which foreign banks could participate.

Another factor working to domesticate foreign banks operation is the decline of unremunerated reserve requirements as a part of monitory control. For.e.g: - A foreign bank landing to a US corporation and funding the loan offshore could previously avoid the federal reserves requirement. In 1990, however the fed lowered this reserve requirement to 0% (zero percent), removing much of the incentive to book loans offshore

“TODAY BEHEMOTHS; TOMORROW UNIVERSAL BANKING”
Introduction: “India’s number one bank SBI (State Bank of India), and number one insurer LIC (Life Insurance Corporation) have both set their eyes on becoming universal banks. Both the ‘behemoths’ are counting on their existing and prospective customer base to transform themselves into universal banks. In this context, LIC has taken 27% stake in the corporation Bank and gradually increasing its stake in the Oriental Bank of Commerce to 11%. With this, LIC can easily leverage the expertise of Corporation Bank in fund management to become a major banking player. On the other hand, SBI and IRDA (having entered insurance business); when the government will amend the Banking Companies Act, SBI expects the stake of LIC to go up. There appears to be enough room in the emerging universal banking domain for both the behemoths. It’s the newest, and quietest rumble in Mamba’s (concert) jungle. In the blue corner, with 9,043 branches, 9 crore account-holders, and Rs.19, 680.3 crore in deposits is India’s largest bank, the State Bank of India (SBI). In the red corner, with around 2 crore policyholders, an annual cash flow of around Rs.85, 000 crore, and 2,084 branches in the country’s largest insurer, the Life Insurance Corporation (LIC).” In the normal course of history, the two companies would have exited happily ever after in the same financial universe, traversing orbits that did not even come close. Blame it on the times then, that the behemoths find themselves, circa 2001, on collision course. And blame it on the radical changes in the financial sector that two dignified old gentleman, LIC’s Ghyanendra Nath Bajpai, 59, and the State Bank of India’s Janaki Ballabh, 58 – both their business cards read chairman and Managing Director – find themselves adversaries. You won’t catch the two CMDs saying this openly, but as a senior LIC executive says, “Our strategy is to challenge the supremacy of the State Bank of India over a period of time”. To savor the irony of that quote readers need only Consider two facts: SBI and LIC were both

created through Acts of Parliament, the first in 1955, the second, a year later; and the Chairman of SBI is the Ex-officer Director on the Board of Directors of LIC. Branching Out: Recent attempts by the two monoliths to branch out into areas that take theme step closer to being justifiably termed universal banks are hardly their first efforts at diversification. SBI already has a presence in the mutual funds, investment banking, credit cards, and home and consumer loans business. LIC, for its part, has presence in the mutual funds and housing finance businesses. Still, SBI’s foray into insurance, through SBI-life, a joint venture with Cardiff SA of France, and LIC’s into banking, through the acquisition of a 27% stake.

“UNIVERSAL BANKING: - A GLOBAL SCENARIO”
In Universal Banking, large banks operate extensive networks of branches, provide many different services, hold several claims on firms (including equity and debt), and participate directly in the corporate governance of firms that rely on banks for funding or as insurance underwriters. The concept has been prevalent in developed countries like France, Germany, US, but it is uncommon in UK. It is yet take care off, officially, in India. Generally speaking, financial costs for the industry could be brought down through Universal Banking.

“CONCLUSION:”

BIBLOGRAPHY
The data, which I have collected from the two sources, are:  THE PRIMARY DATA COLLECTION: Punjab National Bank, Ulhasnagar Branch, Camp no.-2. Punjab National Bank, Training Institute, Belapur.  THE SECONDARY DATA COLLECTION: Books: Banking Strategy- Vol. II By: Indian Banks Association Press releases & journals: IBA Bulletin By Indian Banks Association Newspapers: The Times Of India The Economic Times

Websites: www.business plan by banks.com www.growthink.com www.rbi.com

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