Chart-1-STRUCTURE OF FINANCIAL SYSTEM

1.2 FINANCIAL SYSTEM CONSTITUENT

Financial Institutions are engaged in the business of money or finance. They can be further classified into three categories: Intermediaries Non-Intermediaries Regulatory Agencies

A. Intermediaries
Intermediaries are the financial institutions that accept deposits from the savers and channelize the same as lending/ investment to the users. In other words, financial Intermediaries function as abridge between the savers and the users in any economy. The financial intermediaries by their smooth conduit function make the economy infinitely more efficient in the usage of money.

Examples of financial intermediaries are:

Banks, Investment Companies Non-Banking Finance Companies [NBFCs], Insurance companies,

Mutual funds, Stock Brokerages Credit Card Companies B. Non Intermediaries These are popularly known as Development Banks. These institutions fund the users of money, but, as a matter of policy, do not accept deposits from ordinary savers. They get funds from their owners or members as capital contribution/subscription & not from depositors. Classic examples of such institutions in the international context are Asian Development Bank World Bank International Monetary Fund (IMF). State Financial Corporations (In the Indian context)

C. Regulatory
These are agencies whose sole function is to monitor and regulate the functioning of the intermediaries and non-intermediaries and are referred to as Regulatory Authorities . They are like the traffic cops that lay down the Dos and Donts for the players in the market. To make their regulations enforceable, these agencies are generally armed with punitive powers, which can be exercised in case of non-compliance by any of the players.

1.3 FINANCIAL INSTITUTIONS

Financial institutions have traditionally been the major source of long-term funds for the economy in line with the development objective of the state. A wide variety of financial institutions (FIs) emerged over the years. While most of them extend direct finance, some also extend indirect finance and still some others extend largely refinance. A financial institution acts as an agent that provides financial services for its clients or members. Financial institutions generally fall under financial regulation from a government authority. Common types of financial institutions include banks, building societies, credit unions, stock brokerages, asset management firms, and similar businesses.

1.4 FUNCTION
Financial institutions provide a service as intermediaries of the capital and debt markets. They are responsible for transferring funds from investors to companies, in need of those funds. The presence of financial institutions facilitate the flow of monies through the economy. To do so, savings are pooled to mitigate the risk brought vide funds for loans.

Such is the primary means for depository institutions to develop revenue. Should the yield curve become inverse, firms in this arena will offer additional fee-generating services including securities underwriting, and prime brokerage

1.5 TYPES OF FINNANCIAL INSTITUTIONS

Financial Institutions can be broadly categorised as all India or state level institutions depending on the geographical coverage of their operation. Based on their major activity, allIndia financial institutions (AIFIs) can be classified as (i) term-lending institutions [IFCI Ltd., Industrial Investment Bank of India (IIBI) Ltd., Infrastructure Development Finance Company (IDFC) Ltd., Export-Import Bank of India (EXIM Bank) and Tourism Finance Corporation of India (TFCI) Ltd.] which extend long-term finance to different industrial sectors; (ii) refinance institutions [National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB)] which extend refinance to banking as well as non-banking financial intermediaries for on-lending to agriculture, small scale industries (SSIs) and housing sectors, respectively; and (iii) investment institutions [Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and its erstwhile subsidiaries), which deploy their assets largely in marketable securities. State/regional level institutions are a distinct group and comprise various State Financial Corporations (SFCs), State Industrial and Development Corporations (SIDCs) and North Eastern Development Finance Corporation (NEDFi) Ltd. Some of these FIs have been notified as Public Financial Institutions (PFIs) by the Government of India under Section 4A of the Companies Act, 1956.

1.6 INTRODUCTION OF BANKING SYSTEM 1.6(A). DEFINATION OF A BANK

The term bank is generally understood as an institution that holds a banking license granted by the Bank regulatory authority and is provided rights to conduct the most fundamental banking services. All banks come under the Intermediaries categories functioning as a bridge between the savers and the users. Bank is a commercial institution licensed as a receiver of deposits. It is a financial institution that accepts deposits and channels the money into lending activities. It provides banking services for profit. The essential function of a bank is to provide services related to the storing of deposits and extending of credit. A bank generates profits from transaction fees on financial services and on the interest it charges for lending.

1.6(B). BANKING SERVICES

Although the nature of services offered by a bank depends upon the type of the bank and the country, the primary services provided include Taking deposits from the general public and issuing checking and savings Accounts, keeping money safe while also allowing withdrawals when needed Providing loans to individuals, businesses & Corporate Encashing cheques Facilitating money transactions such as wire transfers and cashiers checks (Inter Bank, Intra Bank, Inter/Intra country etc) Issuing credit cards, ATM, and debit cards Storing valuables, particularly in a safe deposit box Facilitation of standing orders and direct debits, so that payments for bills can be made automatically

1.6(C). BANKING SYSTEM IN INDIA

Indian Banking System is fairly complex because of the presence of a variety of banks and a phenomenal number of branches. (Possibly; in terms of sheer branch network, Indian banking system could be reckoned as the largest in the world. Incidentally, SBI is the largest bank in terms of number of branches/ personnel. As for the structure, the Ministry of Finance is the super-regulator with RBI operating under its guidance. RBI is the regulator of the banking system in India. It is responsible for bank licensing, as well as branch licensing, issuing directives and supervising the functioning of banks. It is empowered with punitive powers that can be exercised against errant banks. Besides the RBI, there are agencies such as the Deposit Insurance, Corporation & Guarantee Corporation of India (DICGC) and the Banking Ombudsman that have Jurisdiction over banks in select matters Categories of banks in India include: Public Sector Banks, Private Sector Banks, Foreign Banks, Cooperative Banks, Local Area Banks and Regional Rural Banks. Examples of Public sector banks are SBI & its associates and nationalized banks such as Canara Bank, UCO Bank, Syndicate Bank, etc. Old generation Private sector banks include: Karur Vysya Bank, Federal Bank, Catholic Syrian Bank, etc. & those incorporated after 1992 are branded as New Private Sector Banks. E.g.: HDFC Bank, ICICI Bank and Indusind Bank. Foreign banks are those that are incorporated outside India but carry on their operations in

India under license from the RBI [E.g.: Citibank, Standard Chartered, HSBC Bank, etc. While the above categories of banks are treated as commercial banks, there are also other banks in India such as Cooperative Banks, Local Area Banks and Regional Rural Banks. The regulatory framework could vary in detail from one category of banks to another.

1.6(D). KINDS OF BANKS

Financial requirements in a modern economy are of a diverse nature, distinctive variety and large magnitude. Hence, different types of banks have been instituted to cater to the varying needs of the community. Banks in the organized sector may, however, be classified in to the following major forms: 1. Commercial banks 2. Specialized banks 3. Co-operative banks 4. Central bank -: COMMERCIAL BANKS:Commercial banks are joint stock companies dealing in money and credit. In India, however there is a mixed banking system, prior to July 1969, the entire commercial Banks-73 scheduled and 26 non-scheduled banks, except the state bank of India and its Subsidiaries-were under the control of private sector. On July 19, 1969, however, 14 major commercial banks with deposits of over 50 Croers were nationalized. In April 1980, another six commercial banks of high standing were taken over by the government. At present, there are 20 nationalized banks plus the state bank of India and its 7 subsidiaries constituting public sector banking which controls over 90 per cent of the banking business in the country. -: SPECIALIZED BANKS:There are specialized forms of banks catering to some special needs with this Unique nature of activities. There are thus, 1. Foreign exchange banks, 2. Industrial banks, 3. Development banks, 4. Land development banks, 5. Exim bank.

-:CO-OPERATIVE BANKS:Co-operative banks are a group of financial institutions organized under the provisions of the Co-operative societies Act of the states. The main objective of co-operative banks is to provide cheap credits to their members. They are based on the principle of self-reliance and mutual co-operation. Cooperative banking system in India has the shape of a pyramid a three tier structure, constituted by

Chart-2

-: CENTRAL BANK:A central bank is the apex financial institution in the banking and financial system of a country. It is regarded as the highest monetary authority in the country. It acts as the leader of the money market. It supervises, control and regulates the activities of the commercial banks. It is a service oriented financial institution. Indias central bank is the reserve bank of India established in 1935.a central bank is usually state owned but it may also be a private organization. For instance, the reserve bank of India (RBI), was started as a shareholders organization in 1935, however, it was nationalized after independence, in 1949.it is free from parliamentary.

1.6(E). INDIAN BANKING INDUSTRIES

In India the banks are being segregated in different groups. Each group has their own benefits and limitations in operating in India. Each has their own dedicated target market. Few of them only work in rural sector while others in both rural as well as urban. Many even are only catering in cities. Some are of Indian origin and some are foreign players.

Table-1

MAJOR BANKS IN INDIA

ABN-AMRO Bank Abu Dhabi Commercial Bank American Express Bank Andhra Bank Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Bank of Punjab Bank of Rajasthan Bank of Ceylon BNP Paribas Bank Canara Bank Catholic Syrian Bank Central Bank of India Centurion Bank China Trust Commercial bank Citi Bank City Union Bank Corporation Bank

Indian Overseas Bank Indusind Bank ING Vysya Bank Jammu & Kashmir Bank JPMorgan Chase Bank Karnataka Bank Karur Vysya Bank Laxmi Vilas Bank Oriental Bank of Commerce Punjab National Bank Punjab & Sind Bank Scotia Bank South Indian Bank Standard Chartered Bank State Bank of India (SBI) State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurastra

 Dena Bank Deutsche Bank Development Credit Bank Dhanalakshmi Bank Federal Bank HDFC Bank HSBC ICICI Bank IDBI Bank Indian Bank State Bank of Travancore Syndicate Bank Taib Bank UCO Bank Union Bank of India United Bank of India United Bank Of India United Western Bank UTI Bank Vijaya Bank

1.6F. UPCOMING FOREIGN BANKS IN INDIA

By 2009 few more names is going to be added in the list of foreign banks in India. This is as an aftermath of the sudden interest shown by by EuroMoney magazine, Switzerland's UBS. The following are the list of foreign banks going to set up business in India: Royal Bank of Scotland Switzerland's UBS US-based GE Capital Credit Suisse Group Industrial and Commercial Bank of China Reserve Bank of India paving roadmap for foreign banks in India greater freedom in India. Among them is the world's best private bank

2.5. RBI GUIDELINES ON CREDIT RATING

Banks should have a comprehensive risk scoring/rating system that serves as a single point indicator of diverse risk factors of counter party and for taking credit decisions in a consistent manner. T o facilitate this, a substantial degree of standardization is required in ratings across borrowers. also present meaningful The risk rating system should be designed to reveal the overall information for review and management of loan portfolio. risk of lending, critical input for setting pricing and non-price terms of loans as This risk rating, in short, should reflect the underlying credit risk of the loan book. The rating exercise should also facilitate the credit granting authorities some comfort in its

knowledge of loan quality at any moment of time. The drawn up in a structured manner,

risk

rating

system should

be

incorporating,

inter alia,

financial analysis,

projections and sensitivity, industrial and management risks. The banks may use any number of financial ratios and operational parameters and collaterals as also qualitative aspects of management and industry characteristics that have bearings on the creditworthiness of borrowers. Banks can also weigh the ratios on the basis of the years to which they represent for giving importance to near term developments. Within the rating framework, banks can also prescribe certain level of standards or critical parameters, beyond which no proposals should be entertained. Banks may also consider separate rating framework for large corporate/small borrowers, traders, etc. that exhibit varying nature and degree of risk. Forex exposures assumed by corporate who have no natural hedges have significantly altered the risk profile of banks. Banks should, therefore, factor The the unhedged market risk exposures of borrowers also in the rating framework. 8, etc. On the basis of credit quality.

overall score for risk is to be placed on a numerical scale ranging between 1-6, 1For each numerical category, a quantitative Further, as a definition of the borrower, the loans underlying quality, and an analytic representation of the underlying financials of the borrower should be presented. prudent risk management policy, each bank should prescribe the minimum rating below

which no exposures would be undertaken. Any flexibility in the minimum standards and conditions for relaxation and authority, therefore, should be clearly articulated in the Loan Policy. The credit risk assessment exercise should be repeated biannually (or even at shorter intervals for low quality customers) and should be delinked invariably from the regular renewal exercise. The updating of the credit ratings should be undertaken normally at quarterly intervals or at least at half-yearly intervals, in order to gauge the quality of the portfolio at periodic intervals. Variations in the ratings of borrowers over time indicate changes in credit quality and expected loan losses from the credit portfolio. Thus, if the rating system is to be meaningful, the credit quality reports should signal changes in expected loan losses. In order to ensure the consistency and accuracy of internal ratings, the responsibility for setting or confirming such ratings should vest with the Loan Review function and examined by an Independent Loan Review Group. The banks should undertake comprehensive study on migration (upward lower to higher and downward higher to lower) of borrowers in the ratings to add accuracy in expected loan loss calculations.

5.2 FINDINGS

 the market. competitors

It can be distilled from data that syndicate bank has good market share as compared to its competitors considering the amount of resources deployed by them in The credibility of syndicate bank is good in comparison to its as GOI (Government of India) is a major share holder in the company. Syndicate bank will improve loan processing times by turning the

linear process into a virtual process. The flexibility of a virtual process allows employees to work on any part of the loan process at any time, increasing productivity and reducing costs. Loan officer of syndicate Bank consider the current ratio and the debt/equity ratio the most significant in determining whether to grant a loan and the amount to lend. Bank prefer a high current ratio since it reduces their risk The SMEs are not aware of the credit schemes offered by the commercial banks and nodal agencies. banks. The network of syndicate in Hyderabad is lagging behind a little than its competitors like ICICI bank and HDFC bank. The delays in sanctioning of the loan and the neglecting attitude of the bank officials are the main causes behind the bad perception of SMEs towards the

5.3 SUGGESTIONS
Based on the data collected through the questionnaire and interactions with the following recommendations are made for consideration: Before approving the loan concerned officer should check the document and analyze the financial statement properly. Besides opening more branches it should also look for opening some extension counter in rural areas. As Government is the majority share holder in the shares of syndicate bank, which makes this bank more reliable than other private banks, this thing can be used in the favors of syndicate bank by making people aware about this fact and winning their faith. the students

Banks

should

also

provide

consultancy

services

and

professional guidance at the time of setting up for considering the long-term and short-term financial requirements of a small unit for lending purposes. The entrepreneurs are of the opinion that , the funding institutions are taking much time in sanctioning the loan. Hence it is suggested that the funding institutions should take less time in offering credit to the entrepreneurs.

CONCLUSION
The financial services sector and capital markets have a significant influence on how economies develop, principally through their role in allocating financial capital between different economic activities, as well as through their own operations, not only do banks manage their own financial and sustainability performance, they are in a position to influence Socio-economic and environmental performance in client organizations and through their lending strategies. Banks are the oldest lending institutions in Indian scenario. They are providing all facilities to all citizens for their own purposes by their terms. Syndicate Banks play an important role in the industrial economy of India. Bank loans are the primary source of funds for private limited companies. Though lending is the primary activity of the bank, they are very cautious in granting the loans to their clients because their funds are collected from the general public in the form of deposits that can be withdrawn at a short notice at any time. Lending always invokes some amount of risk. The banker should evaluate the borrowers credit history i.e. track records which reveal the morale of lenders. The basis for analysis and decision-making is financial information. Financial information is needed to predict, compare and evaluate the firms earning ability in all respects. The financial information is reported through the financial statement, other accounting reports and ratio analysis. My project speaks about the banking system India, different types banks and its services. Its gives better idea about the major banking sectors and its operations in India. It contains company profile of syndicate bank, its products chart, organizational chart and lending procedure. It also tells about the different types of financial ratio and its uses. This study would help manager to find out the market response of corporate loans and its credit risk before its launch. It helps them to know the different types of

financial ratios and its uses. It provides a feedback to the company about their product. It provides the information about the companys stand in the market. It helps the manager to apply the various activities, which is useful to increase the market share of its product. It helps the manager to know about the preference and choice of the customers so that they can plan out their future analysis and strategies on that basis.

5.6 REFERENCES
Books and magazine Bank Management & Financial Services, Seventh Edition, pp. 521-642, McGraw Hill International Edition. Selvam, M., Vanitha, S., & Babu (2004), A study on financial health of cement industry-Z score analysis, The Management Accountant, July, Vol.39, No.7, pp591-593 Bagechi S K (2004), Accounting Ratios For Risk Evaluation, The Management Accountant, July, Vol.39, No.7, pp571-573 Krishna Chaitanya V (2005), Measuring Financial Distress of IDBI Using Altman Z Score Model, The ICFAI Journal of Bank Management, August, Vol. IV , No.3 , pp7-17 Trend and progress of banking in India. Management Control System The ICFAI journal of bank management. Indian banking system.

The economist magazine. Website Wikipedia.org Iloveindia.com Idbibank.com Scribd.com

SCOPE OF THE STUDY

Lending always invokes some amount of risk. The banker should evaluate the borrowers credit history i.e. track records which reveal the morale of lenders. The basis for analysis and decision-making is financial information. Financial information is needed to predict,

compare and evaluate the firms earning ability in all respects. The financial information is reported through the financial statement, and other accounting reports. It contains a wealth of information that if properly analyzed and interpreted can provide valuable insights of purposes, which range from a simple analysis of short-term liquidity position of the firm to comprehensive assessment of the strengths and weakness of the firm in various areas. In other words, financial statements are mirrors; which reflect the financial position and operating strengths and weaknesses of the concern. These statements are useful to management, bankers and other interested parties. The company should be careful while supplying the information to the stakeholders, especially Bankers. Hence, the present study seeks to make an in-depth analysis of ratio of a company from a bankers perspective