IDBI BANK

CHAPTER: 1
INTRODUCTION OF BANK

1.1. An overview of Banking Industry:

The Banking Industry is a reliable business that took deposits from investors at a
lower interest rate and loaned it out to borrowers at a higher rate. The Banking
Industry at its core provides access to credit. In the lenders case, this includes access
to their own savings and investments, and interest payments on those amounts. In the
case of borrowers, it includes access to loans for the creditworthy, at a competitive
interest rate.
Banking is generally a highly regulated industry, and government restrictions on
financial activities by banks have varied over time and location. The current set of
global bank capital standards are called Basel II. A bank is a financial intermediary
that accepts deposits and channels those deposits into leng activities, either directly
or through capital markets. A bank connects customers with capital deficits to
customers with capital surpluses
Banks have played an important role in the economic development of many
developed country and also emerging economies such as India. Banks are important
not only from the point of view of economic growth but also financial stability. In
India, banks are important mainly for the following three reasons:

a. They take a leading role in the development of other financial

intermediaries and markets.

b. Due to the absence of well developed equity and bond market, corporate
sector depends heavily on banks to meet its financing needs.

c. In India, banks cater to the need of a vast number of savers from the
household sector, who prefer assured income, liquidity & safety of funds.

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History

Banking in India originated in the last decades of the 18th century. The first
banks were The General Bank of India which started in 1786, and the Bank of
Hindustan, both of which are now defunct. The oldest bank in existence in India is
the State Bank of India, which originated in the Bank of Calcutta in June 1806,
which almost immediately became the Bank of Bengal. This was one of the three
presidency banks, the other two being the Bank of Bombay and the Bank of Madras,
all three of which were established under charters from the British East India
Company. For many years the Presidency banks acted as quasi-central banks, as did
their successors. The three banks merged in 1921 to form the Imperial Bank of India,
which, upon India's independence, became the State Bank of India.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoired'Escompte de Paris opened a branch in Calcutta in 1860, and another in
Bombay in 1862; branches in Madras and Puducherry, then a French colony,
followed. HSBC established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and so became a
banking center.

The first entirely Indian joint stock bank was the Oudh Commercial Bank,
established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National
Bank, established in Lahore in 1895, which has survived to the present and is now
one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian Mutiny,
and the social, industrial and other infrastructure had improved. Indians had
established small banks, most of which served particular ethnic and religious
communities.

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The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks operated
in different segments of the economy. The exchange banks, mostly owned by
Europeans, concentrated on financing foreign trade. Indian joint stock banks were
generally under capitalized and lacked the experience and maturity to compete with
the presidency and exchange banks.

The period between 1906 and 1911, saw the establishment of banks inspired
by the Swadeshi movement. The Swadeshi movement inspired local businessmen
and political figures to found banks of and for the Indian community. A number of
banks established then have survived to the present such as Bank of India,
Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of
India.

The fervour of Swadeshi movement lead to establishing of many private

banks in Dakshina Kannada and Udupi district which were unified earlier and known
by the name South Canara( South Kanara ) district. Four nationalised banks started
in this district and also a leading private sector bank. Hence undivided Dakshina
Kannada district is known as "Cradle of Indian Banking".

Liberalization:

1990s, the then Narsimha Rao government embarked on a policy of liberalization,

licensing a small number of private banks. These came to be known as New
Generation tech-savvy banks,
and included Global Trust Bank (the first of such new generation banks to be set up),
which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as
UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in
the economy of India, revitalized the banking sector in India, which has seen rapid
growth with strong contribution from all the three sectors of banks, namely,
government banks, private banks and foreign banks.

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The next stage for the Indian banking has been set up with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in
banks may be given voting rights which could exceed the present cap of 10%,at
present it has gone up to 74% with some restrictions.

1.2. Banking structure in India:

The Reserve Bank of India (RBI) is the central banking and monetary
authority of India and also act as the regulator and supervisor of commercial banks
in India.

Scheduled Banks in India:

Scheduled banks comprise both the Scheduled Commercial bank and
Scheduled Co-operative banks. Scheduled commercial banks form the bedrock of
the Indian financial system, currently accounting for more then 3/4th of all financial
institution assets. SCB/s branches have increased four-fold since the time of
independence.

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 IDBI BANK

Public Sector Banks:

In India, there are 27 Public Sector banks which includes SBI and its six
associates and 19 nationalized banks and IDBI.
Private Sector Banks:
As on March 2011, there were 7 new privates sector banks and 15 old private sector
banks.
Foreign Banks:
In India, there are 32 foreign banks with 293 branches.
Regional Rural Banks:

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 IDBI BANK

As on 31st March, 2011, the total number of RRB’s stand at 86.

1.3. Present Situation of Banking Industry:

Banking industry is one of the fastest growing industries. In India, it has

increased manifold and this is mainly because of the growing middle class
population whose aspirations and dreams are financed by the banks.
Banking industry is expected to grow in the coming years as the government is
inclined towards its expansion. In the Budget 2010-11, the government has made the
announcement that more licenses will be provided to those industries who wants to
venture into the Banking industry which is a positive indication.

1.4. New Generation Banking:

The Indian Banking Industry saw dramatic changes in the last decade and so
ever since the advent of liberalization and India’s integration with the worked
economy. This economic reforms and the advent of the private players saw
nationalized banks revamp their services and product portfolio to incorporate new,
innovative and customer- centric schemes. The need to become highly customer
focused forced the slow moving public sector banks to adopt a fast track approach.
These customer friendly programs included revamping the product and the services
schemes like credit cards, hassle free housing loan 12
scheme, educational loans and Flexi- deposits. The objective of all these strategies
was very clear to bridge the gap between service and product gap that was inherent
in the banking system.

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 IDBI BANK

CHAPTER: 2
INDUSTRY STATUS & IDBI BANK’S INTERFACE

2.1 Industry introduction

The Indian Banking industry, which is governed by the Banking Regulation Act of

India, 1949 can be broadly classified into two major categories, non-scheduled banks

and scheduled banks. Scheduled banks comprise commercial banks and the co-

operative banks. In terms of ownership, commercial banks can be further grouped

into nationalized banks, the State Bank of India and its group banks, regional rural

banks and private sector banks (the old/ new domestic and foreign). These banks

have over 67,000 branches spread across the country in every city and villages of all

nook and corners of the land.

The first phase of financial reforms resulted in the nationalization of 14 major banks

in 1969 and resulted in a shift from Class banking to Mass banking. This in turn

resulted in a significant growth in the geographical coverage of banks. Every bank

had to earmark a minimum percentage of their loan portfolio to sectors identified as

“priority sectors”. The manufacturing sector also grew during the 1970s in protected

environs and the banking sector was a critical source. The next wave of reforms saw

the nationalization of 6 more commercial banks in 1980. Since then the number of

scheduled commercial banks increased four-fold and the number of bank branches

increased eight-fold. And that was not the limit of growth.

After the second phase of financial sector reforms and liberalization of the sector in

the early nineties, the Public Sector Banks (PSB) s found it extremely difficult to

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compete with the new private sector banks and the foreign banks. The new private

sector banks first made their appearance after the guidelines permitting them were

issued in January 1993. Eight new private sector banks are presently in operation.

These banks due to their

During the year 2000, the State Bank Of India (SBI) and its 7 associates accounted

for a 25 percent share in deposits and 28.1 percent share in credit. The 20

nationalized banks accounted for 53.2 percent of the deposits and 47.5 percent of

credit during the same period. The share of foreign banks (numbering 42), regional

rural banks and other scheduled commercial banks accounted for 5.7 percent, 3.9

percent and 12.2 percent respectively in deposits and 8.41 percent, 3.14 percent and

12.85 percent respectively in credit during the year 2000.about the detail of the

current scenario we will go through the trends in modern economy of the country.

Current Scenario:

The industry is currently in a transition phase. On the one hand, the PSBs, which are

the mainstay of the Indian Banking system are in the process of shedding their flab

in terms of excessive manpower, excessive non Performing Assets (Npas) and

excessive governmental equity, while on the other hand the private sector banks are

consolidating themselves through mergers and acquisitions.

PSBs, which currently account for more than 78 percent of total banking industry

assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling

revenues from traditional sources, lack of modern technology and a massive

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workforce while the new private sector banks are forging ahead and rewriting the

traditional banking business model by way of their

sheer innovation and service. The PSBs are of course currently working out

challenging strategies even as 20 percent of their massive employee strength has

dwindled in the wake of the successful Voluntary Retirement Schemes (VRS)

schemes.

The private players however cannot match the PSB’s great reach, great size and

access to low cost deposits. Therefore one of the means for them to combat the PSBs

has been through the merger and acquisition (M& A) route. Over the last two years,

the industry has witnessed several such instances. For instance, HDFC Bank’s

merger with Times Bank Icici Bank’s acquisition of ITC Classic, Anagram Finance

and Bank of Madurai. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank

are said to be on the lookout. The UTI bank- Global Trust Bank merger however

opened a pandora’s box and brought about the realization that all was not well in the

functioning of many of the private sector banks.

Private sector Banks have pioneered internet banking, phone banking, anywhere

banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and

combined various other services and integrated them into the mainstream banking

arena, while the PSBs are still grappling with disgruntled employees in the aftermath

of successful VRS schemes. Also, following India’s commitment to the W To

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agreement in respect of the services sector, foreign banks, including both new and

the existing ones, have been permitted to open up to 12 branches a year with effect

from 1998-99 as against the earlier stipulation of 8 branches.

Tasks of government diluting their equity from 51 percent to 33 percent in

November 2000 has also opened up a new opportunity for the takeover of even the

PSBs. The FDI rules being more

rationalized in Q1FY02 may also pave the way for foreign banks taking the M& A

route to acquire willing Indian partners.

Meanwhile the economic and corporate sector slowdown has led to an increasing

number of banks focusing on the retail segment. Many of them are also entering the

new vistas of Insurance. Banks with their phenomenal reach and a regular interface

with the retail investor are the best placed to enter into the insurance sector. Banks in

India have been allowed to provide fee-based insurance services without risk

participation, invest in an insurance company for providing infrastructure and

services support and set up of a separate joint-venture insurance company with risk

participation.

Aggregate Performance of the Banking Industry

Aggregate deposits of scheduled commercial banks increased at a compounded

annual average growth rate (Cagr) of 17.8 percent during 1969-99, while bank credit

expanded at a Cagr of 16.3 percent per annum. Banks’ investments in government

and other approved securities recorded a Cagr of 18.8 percent per annum during the

same period.
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 IDBI BANK

In FY01 the economic slowdown resulted in a Gross Domestic Product (GDP)

growth of only 6.0 percent as against the previous year’s 6.4 percent. The WPI Index

(a measure of inflation) increased by 7.1 percent as against 3.3 percent in FY00.

Similarly, money supply (M3) grew by around 16.2 percent as against 14.6 percent a

year ago.

The growth in aggregate deposits of the scheduled commercial banks at 15.4 percent

in FY01 percent was lower than that of 19.3 percent in the previous year, while the

growth in credit by

SCBs slowed down to 15.6 percent in FY01 against 23 percent a year ago.

The industrial slowdown also affected the earnings of listed banks. The net profits of

20 listed banks dropped by 34.43 percent in the quarter ended March 2001. Net

profits grew by 40.75 percent in the first quarter of 2000-2001, but dropped to 4.56

percent in the fourth quarter of 2000-2001.

On the Capital Adequacy Ratio (CAR) front while most banks managed to fulfill the

norms, it was a feat achieved with its own share of difficulties. The CAR, which at

present is 9.0 percent, is likely to be hiked to 12.0 percent by the year 2004 based on

the Basle Committee recommendations. Any bank that wishes to grow its assets

needs to also shore up its capital at the same time so that its capital as a percentage

of the risk-weighted assets is maintained at the stipulated rate. While the IPO route

was a much-fancied one in the early ‘90s, the current scenario doesn’t look too

attractive for bank majors.

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Consequently, banks have been forced to explore other avenues to shore up their

capital base. While some are wooing foreign partners to add to the capital others are

employing the M& A route. Many are also going in for right issues at prices

considerably lower than the market prices to woo the investors.

Interest Rate Scene

The two years, post the East Asian crises in 1997-98 saw a climb in the global

interest rates. It was only in the later half of FY01 that the US Fed cut interest rates.

India has however

remained more or less insulated. The past 2 years in our country was characterized

by a mounting intention of the Reserve Bank Of India (RBI) to steadily reduce

interest rates resulting in a narrowing differential between global and domestic rates.

The RBI has been affecting bank rate and CRR cuts at regular intervals to improve

liquidity and reduce rates. The only exception was in July 2000 when the RBI

increased the Cash Reserve Ratio (CRR) to stem the fall in the rupee against the

dollar. The steady fall in the interest rates resulted in squeezed margins for the banks

in general.

Governmental Policy:

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 IDBI BANK

After the first phase and second phase of financial reforms, in the 1980s commercial

banks began to function in a highly regulated environment, with administered

interest rate structure, quantitative restrictions on credit flows, high reserve

requirements and reservation of a significant proportion of lendable resources for the

priority and the government sectors. The restrictive regulatory norms led to the credit

rationing for the private sector and the interest rate controls led to the unproductive

use of credit and low levels of investment and growth. The resultant ‘financial

repression’ led to decline in productivity and efficiency and erosion of profitability

of the banking sector in general.

This was when the need to develop a sound commercial banking system was felt.

This was worked out mainly with the help of the recommendations of the Committee

on the Financial

System (Chairman: Shri M. Narasimham), 1991. The resultant financial sector

reforms called for interest rate flexibility for banks, reduction in reserve

requirements, and a number of structural measures. Interest rates have thus been

steadily deregulated in the past few years with banks being free to fix their Prime

Lending Rates(PLRs) and deposit rates for most banking products. Credit market

reforms included introduction of new instruments of credit, changes in the credit

delivery system and integration of functional roles of diverse players, such as, banks,

financial institutions and non-banking financial companies (Nbfcs). Domestic

Private Sector Banks were allowed to be set up, PSBs were allowed to access the

markets to shore up their Cars.

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Implications of Some Recent Policy Measures:

The allowing of PSBs to shed manpower and dilution of equity are moves that will

lend greater autonomy to the industry. In order to lend more depth to the capital

markets the RBI had in November 2000 also changed the capital market exposure

norms from 5 percent of bank’s incremental deposits of the previous year to 5

percent of the bank’s total domestic credit in the previous year. But this move did not

have the desired effect, as in, while most banks kept away almost completely from

the capital markets, a few private sector banks went overboard and exceeded limits

and indulged in dubious stock market deals. The chances of seeing banks making a

comeback to the stock markets are therefore quite unlikely in the near future.

The move to increase Foreign Direct Investment FDI limits to 49 percent from 20

percent

during the first quarter of this fiscal came as a welcome announcement to foreign

players wanting to get a foot hold in the Indian Markets by investing in willing

Indian partners who are starved of net worth to meet CAR norms. Ceiling for FII

investment in companies was also increased from 24.0 percent to 49.0 percent and

have been included within the ambit of FDI investment.

2.2 IDBI bank: all about

The economic development of any country depends on the extent to which its

financial system efficiently and effectively mobilizes and allocates resources. There

are a number of banks and financial institutions that perform this function; one of

them is the development bank. Development banks are unique financial institutions

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that perform the special task of fostering the development of a nation, generally not

undertaken by other banks.

Development banks are financial agencies that provide medium-and long-term

financial assistance and act as catalytic agents in promoting balanced development of

the country. They are engaged in promotion and development of industry,

agriculture, and other key sectors. They also provide development services that can

aid in the accelerated growth of an economy.

The objectives of development banks are:

To serve as an agent of development in various sectors, viz. industry, agriculture, and

international trade

To accelerate the growth of the economy

To allocate resources to high priority areas

To foster rapid industrialization, particularly in the private sector, so as to provide

employment opportunities as well as higher production

To develop entrepreneurial skills

To promote the development of rural areas

To finance housing, small scale industries, infrastructure, and social utilities.

In addition, they are assigned a special role in:

Planning, promoting, and developing industries to fill the gaps in industrial sector.

Coordinating the working of institutions engaged in financing, promoting or

developing industries, agriculture, or trade, rendering promotional services such as

discovering project ideas, undertaking feasibility studies, and providing technical,

financial, and managerial assistance for the implementation of projects

Industrial development bank of India

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 IDBI BANK

The industrial development bank of India (IDBI) was established in 1964 by

parliament as wholly owned subsidiary of reserve bank of India. In 1976, the bank’s

ownership was transferred to the government of India. It was accorded the status of

principal financial institution for coordinating the working of institutions at national

and state levels engaged in financing, promoting, and developing industries.

IDBI has provided assistance to development related projects and contributed to

building up substantial capacities in all major industries in India. IDBI has directly

or indirectly assisted all companies that are presently reckoned as major corporate in

the country. It has played a dominant role in balanced industrial development.

IDBI set up the small industries development bank of India (SIDBI) as wholly

owned subsidiary to cater to specific the needs of the small-scale sector.

IDBI has engineered the development of capital market through helping in setting up

of the securities exchange board of India(SEBI), National stock exchange of India

limited(NSE), credit analysis and research limited(CARE), stock holding corporation

of India limited(SHCIL), investor services of India limited(ISIL), national securities

depository limited(NSDL), and clearing corporation of India limited(CCIL)

In 1992, IDBI accessed the domestic retail debt market for the first time by issuing

innovative bonds known as the deep discount bonds. These new bonds became

highly popular with the Indian investor.

In 1994, IDBI Act was amended to permit public ownership up to 49 per cent. In

July 1995, it raised over Rs 20 billion in its first initial public (IPO) of equity,

thereby reducing the government stake to 72.14 per cent. In June 2000, a part of
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government shareholding was converted to preference capital. This capital was

redeemed in March 2001, which led to a reduction in government stake. The

government stake currently is 51 per cent.

In august 2000, IDBI became the first all India financial institution to obtain ISO

9002: 1994 certification for its treasury operations. It also became the first

organization in the Indian financial sector to obtain ISO 9001:2000 certification for

its forex services.

Milestones

 July 1964: Set up under an Act of Parliament as a wholly-owned subsidiary

of Reserve Bank of India.

 February 1976: Ownership transferred to Government of India. Designated

Principal Financial Institution for co-coordinating the working of institutions

at national and State levels engaged in financing, promoting and developing

industry.

 March 1982: International Finance Division of IDBI transferred to Export-

Import Bank of India, established as a wholly-owned corporation of

Government of India, under an Act of Parliament.

 April 1990: Set up Small Industries Development Bank of India (SIDBI)

under SIDBI Act as a wholly-owned subsidiary to cater to specific needs of

small-scale sector. In terms of an amendment to SIDBI Act in September

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2000, IDBI divested 51% of its shareholding in SIDBI in favour of banks and

other institutions in the first phase. IDBI has subsequently divested 79.13%

of its stake in its erstwhile subsidiary to date.

 January 1992: Accessed domestic retail debt market for the first time with

innovative Deep Discount Bonds; registered path-breaking success.

 December 1993: Set up IDBI Capital Market Services Ltd. as a wholly-

owned subsidiary to offer a broad range of financial services, including Bond

Trading, Equity Broking, Client Asset Management and Depository Services.

IDBI Capital is currently a leading Primary Dealer in the country.

 September 1994: Set up IDBI Bank Ltd. in association with SIDBI as a

private sector commercial bank subsidiary, a sequel to RBI's policy of

opening up domestic banking sector to private participation as part of overall

financial sector reforms.

 October 1994: IDBI Act amended to permit public ownership upto 49%.

 July 1995: Made Initial Public Offer of Equity and raised over Rs.2000 crore,

thereby reducing Government stake to 72.14%.

 March 2000:Entered into a JV agreement with Principal Financial Group,

USA for participation in equity and management of IDBI Investment

Management Company Ltd., erstwhile a 100% subsidiary. IDBI divested its

entire shareholding in its asset management venture in March 2003 as part of

overall corporate strategy.

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 March 2000: Set up IDBI Intech Ltd. as a wholly-owned subsidiary to

undertake IT-related activities.

 June 2000: A part of Government shareholding converted to preference

capital, since redeemed in March 2001; Government stake currently 58.47%.

 August 2000: Became the first All-India Financial Institution to obtain ISO

9002:1994 Certification for its treasury operations. Also became the first

organisation in Indian financial sector to obtain ISO 9001:2000 Certification

for its forex services.

 March 2001: Set up IDBI Trusteeship Services Ltd. to provide technology-

driven information and professional services to subscribers and issuers of

debentures.

 Feburary 2002: Associated with select banks/institutions in setting up Asset

Reconstruction Company (India) Limited (ARCIL), which will be involved

with the

 Strategic management of non-performing and stressed assets of Financial

Institutions and Banks.

 September 2003: IDBI acquired the entire shareholding of Tata Finance

Limited in Tata Home finance Ltd, signaling IDBI's foray into the retail

finance sector. The housing finance subsidiary has since been renamed 'IDBI

Home finance Limited'.

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 December 2003: On December 16, 2003, the Parliament approved The

Industrial Development Bank (Transfer of Undertaking and Repeal Bill)

2002 to repeal IDBI Act 1964. The President's assent for the same was

obtained on December 30, 2003. The Repeal Act is aimed at bringing IDBI

under the Companies Act for investing it with the requisite operational

flexibility to undertake commercial banking business under the Banking

Regulation Act 1949 in addition to the business carried on and transacted by

it under the IDBI Act, 1964.

 July 2004: The Industrial Development Bank (Transfer of Undertaking and

Repeal) Act 2003 came into force from July 2, 2004.

 July 2004: The Boards of IDBI and IDBI Bank Ltd. take in-principle decision

regarding merger of IDBI Bank Ltd. with proposed Industrial Development

Bank of India Ltd. in their respective meetings on July 29, 2004.

 September 2004: The Trust Deed for Stressed Assets Stabilization Fund

(SASF) executed by its Trustees on September 24, 2004 and the first meeting

of the Trustees was held on September 27, 2004.

 September 2004: The new entity "Industrial Development Bank of India" was

incorporated on September 27, 2004 and Certificate of commencement of

business was issued by the Registrar of Companies on September 28, 2004.

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 IDBI BANK

 September 2004:Notification issued by Ministry of Finance specifying SASF

as a financial institution under Section 2(h)(ii) of Recovery of Debts due to

Banks & Financial Institutions Act, 1993.

 September 2004:Notification issued by Ministry of Finance on September 29,

2004 for issue of non-interest bearing GoI IDBI Special Security, 2024,

aggregating Rs.9000 crore, of 20-year tenure.

 September 2004: Notification for appointed day as October 1, 2004, issued

by Ministry of Finance on September 29, 2004.

 September 2004:RBI issues notification for inclusion of Industrial

Development Bank of India Ltd. in Schedule II of RBI Act, 1934 on

September 30, 2004.

 October 2004: Appointed day - October 01, 2004 - Transfer of undertaking of

IDBI to IDBI Ltd. IDBI Ltd. commences operations as a banking company.

IDBI Act, 1964 stands repealed. January 2005:The Board of Directors of

IDBI Ltd., at its meeting held on January 20, 2005, approved the Scheme of

Amalgamation, envisaging merging of IDBI Bank Ltd. with IDBI Ltd.

Pursuant to the scheme approved by the Boards of both the banks, IDBI Ltd.

will issue 100 equity shares for 142 equity shares held by shareholders in

IDBI Bank Ltd. EGM has been convened on February 23, 2005 for seeking

shareholder approval for the scheme.

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 IDBI BANK

2.3 Industry /bank performance

IDBI Bank Business Chart

IDBI BANK

RETAIL BANKING DEVELOPMENT BANK.

SAVING ACCOUNT CURRENT ACCOUNT INVESTMENT

PERSONAL SAVING CORPORATE SAVING

IDBI Bank Organizational Chart

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 IDBI BANK

Chairman

President

Vice president Vice president Vice president Vice president

Finance H. R. Marketing Operations

Regional Head

Zonal Head

Divisional Sales
Manager

Territory In charge

CHAPTER: 3
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RESEARCH METHODOLOGY

3.1 Objective of the study

Project study which is being conducted by me for the last two month is not only a

formality for the fulfillment of the two year full time Post Graduate Diploma in

Business Management. But being a management student and a good employee I tried

my best to extract best of the information available in the market for the use of

society and people. The objectives have been classified by me in this project form

personal to professional, but here I am not disclosing my personal objective which

has been achieved by me while doing the project. Only professional objectives

which are being covered by me in this project are as following-

- To know about environmental factors affecting IDBI Bank’s performance.

- To analyze the role of advertisement for bank performance.

- To know the perception and conception of customers towards banking

products and specially focused for IDBI Bank’s product.

- To explore the potential areas for the new bank branches which will provide

both price and people to the bank with constant promotion and placing

strategy.

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3.2 Scope of the Study

Each and every project study along with its certain objectives also have scope for

future. And this scope in future gives to new researches a new need to research a new

project with a new scope. Scope of the study not only consist one or two future

business plan but sometime it also gives idea about a new business which becomes

much more profitable for the researches then the older one.

Scope of the study could give the projected scenario for a new successful

strategy with a proper implementation plan. Whatever scope I observed in my

project are not exactly having all the features of the scope which I described above

but also not lacking all the features.

- Research study could give an idea of network expansion for capturing more

market and customer with better services and lower cost, with out

compromising with quality.

- In future customer requirements could be added with the product and

services for getting an edge over competitors.

- Consumer behavior could also be used for the purpose of launching a new

product with extra benefits which are required by customers for their account

(saving or current) and/or for their investments.

- Factors which are responsible for the performance for bank can also be used

for the modification of the strategy and product for being more profitable.

- Factors which I observed while doing project study are following-

Competitors

Customer Behaviour

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Advertisement/promotional activities

Attitude of manpower and

Economic conditions

These all could also be interchanged with each other for each other in banks

strategies for making a final business plan to effect the market with a positive

way without disturbing a lot to market, customers and competitors with

disturbance in market shares.

3.3. Tools and Techniques

As no study could be successfully completed without proper tools and techniques,

same with my project. For the better presentation and right explanation I used tools

of statistics and computer very frequently. And I am very thankful to all those tools

for helping me a lot. Basic tools which I used for project from statistics are-

- Bar Charts

- Pie charts

- Tables

bar charts and pie charts are really useful tools for every research to show the result

in a well clear, ease and simple way. Because I used bar charts and pie charts in

project for showing data in a systematic way, so it need not necessary for any

observer to read all the theoretical detail, simple on seeing the charts any body could

know that what is being said.

Technological Tools

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 IDBI BANK

Ms- Excel

Ms-Access

Ms-Word

Above application software of Microsoft helped me a lot in making project more

interactive and productive.

Microsoft-Excel had a great role in my project, it created for me a situation of “you

sit and get”. I provided it simply all the detail of data and in return it given me all the

relevant information..

Microsoft-Access did the performance of my personal assistant who organizes my all

the details of document without disturbing them even a single time in all the project

duration.

And in last Microsoft-Word did help me for the documentation of the project in a

presentable form.

3.4 Applied Principles and Concepts

While I started to do the project the main thing which was the matter of concern was

that around what principles I have to revolve my project. Because with out having

any hypothesis and objective we can not determine that what output or result we are

expecting form the project.

And second thing is that having only tools and techniques for the purpose of project

is not relevant until unless we have the principals for which we have to use those

tools and techniques.

Mathematical Averages

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 IDBI BANK

Standard Deviation

Correlation

3.5 Sources of Primary and Secondary data

For the purpose of project data is very much required which works as a food for

process which will ultimately give output in the form of information. So before

mentioning the source of data for the project I would like to mention that what type

of data I have collected for the purpose of project and what it is exactly.

1. Primary Data:

Primary data is basically the live data which I collected on field while doing

cold calls with the customers and I shown them list of question for which I had

required their responses. In some cases I got no response form their side and than

on the basis of my previous experiences I filled those fields.

Source: Main source for the primary data for the project was questionnaires

which I got filled by the customers or some times filled myself on the basis of

discussion with the customers.

2. Secondary Data:

Secondary data for the base of the project I collected from intranet of the Bank

and from internet, RBI Bulletin, Journal by ICFAI University.

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 IDBI BANK

3.6 Statistical Analysis

In this segment I will show my findings in the form of graphs and charts. All the data

which I got form the market will not be disclosed over here but extract of that in the

form of information will definitely be here.

Detail:

Size of Data : 250

Area : Mumbai

Type of Data : 1. Primary 2. Secondary

Industry : Banking

Respondent : Customers

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 IDBI BANK

Table1: Correlation between awareness of customers about IDBI bank & their Age

AGE NO. OF RESPONSE

20-25 25
25-30 46
30-35 34
35-40 23
40-45 21
45-50 22
50-60 24
60-ABOVE 55

60
RESPONSES

50
40
30 NO. OF RESPONSE
20
10
0
VE
0

-A 0
5

0
-3

-4

-4

60 -6
-2

-3

-5

BO
20

25

30

35

40

45

50

AGE GROUP

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 IDBI BANK

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 IDBI BANK

TABLE 2: PERCEPTION OF IDBI AS A BANK

TYPE OF BANK RESPONSES

PRIVATE 50
PUBLIC 45
PRIVATE/PUBLIC 100
DON'T KNOW 55

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 IDBI BANK

TABLE 3: RATING OF CUSTOMERS FOR IDBI BANK AS A GOOD BANK

PARAMETER RESPONSES
EFFICIENCY 75%
INTERNET BANKING/ATMs 25%
PRODUCT RANGE 95%
NETWORK 33%
PHONE BANKING 22%

22%
33% EFFICIENCY
75% INTERNET
BANKING/ATMs
PRODUCT RANGE

NETWORK
95% PHONE BANKING
25%

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 IDBI BANK

TABLE 4: MARKET SHARES IN MUMBAI IN COMPARISION TO

COMPETITORS

BANK NAME % OF SHARE

SBI 30%
IDBI 15%
ICICI 25%
PNB 10%
HDFC 5%
HSBC 5%
OTHERS 10%

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 IDBI BANK

TABLE 5: FACTORS RESPONSIBLE FOR PERFORMANCE OF IDBI

BANK IN MUMBAI

PARAMETERS % OF SHARE
PRODUCT 50%
ADVERTISMENT 5%
MANPOWER 25%
NET-BANKING 2%
PHONE BANKING 5%
INVESTMENT SCHEME 10%
NETWORK 3%

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 IDBI BANK

TABLE 6: COMPARATIVE STUDY WITH MAJOR COMPETITORS ON

BASIC PARAMETERS

CANARA
PARAMETERS/BANKS IDBI ICICI SBI PNB HSBC
BANK
PRODUCT 20% 15% 30% 15% 10% 10%
ADVERTISMENT 3% 45% 15% 20% 7% 10%
MANPOWER 10% 50% 2% 3% 25% 10%
NET-BANKING 3% 50% 10% 12% 8% 17%
PHONE BANKING 10% 40% 5% 5% 30% 10%
INVESTMENT SCHEME 5% 25% 50% 10% 5% 5%
NETWORK 2% 40% 40% 5% 3% 10%
CREDIBILITY 20% 10% 40% 20% 5% 5%

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 IDBI BANK

TABLE 7: THE EFFECTIVENESS OF COMMERCIALS OF IDBI BANK

DAYS AFTER THE AD IS

SEEN POSITIVE RESPONSE
0-5 days 100
6-10 days 67
11-15 days 43
more than 15 days 40

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 IDBI BANK

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 IDBI BANK

Findings

1. The credibility of IDBI bank is good in comparison to its competitors as

GOI (Government of India) is a major share holder in the company.

2. IDBI bank has potential a tapped market in Mumbai in region and hence has
opportunities for growth.

3. The product of IDBI bank has good credibility in the region compare to its
competitors.

4. The advertisement of the bank was very effective from the first day of its
airing till the fifth day and there after it starts declining.

5. The initial balance for A/C opening is Rs, 5000/- and that’s why people are
reluctant in opening the same.

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 IDBI BANK

CHAPTER: 4
COMPANY PROFILE

4.1. Brief Introduction of IDBI

Today, Industrial Development Bank of India (IDBI) is one of India’s largest

banks. It has essayed a significant role in the country’s industrial and economic
progress for over 40 years-first as a development financial institution and now as
a full service commercial bank.
Post the 2004 merger of the erstwhile IDBI bank with its parent company
(IDBI ltd), IDBI is now a universal bank. The merger was aimed at
consolidating business across the value chain and reaping the benefits of
economies of scale, thus enabling it to offer an array of customer-friendly
service to its existing and prospective clients.

Today IDBI is the 10th largest bank in India in terms of reach with 1210
ATM’s, 720 branches and 474 centres’.

4.2. IDBI Bank: A journey from Development banking to

Commercial banking:

1st July 1964: IDBI was established by an Act of Parliament, as a wholly

owned subsidiary of Reserve Bank of India, to catalyze the development of a
diversified and efficient structure in the country, in tune with national
priorities.
1976: 100% ownership of IDBI was transferred from RBI to the Govt. of
India(GOI)
1995: Domestic IPO reduced the GOI stake, initially to 72% and post capital
restructuring to 58.1%. The current GOI holding is 53%

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 IDBI BANK

2004: On 1st October, IDBI was converted into a banking company( as

Industrial Development Bank of India ltd) to take the entire gamut of banking
activities while continuing to play its secular DFI role

2005: On 2nd April, IDBI merged its hitherto banking subsidiary (IDBI Bank
ltd.) with itself.

2006: IDBI announced its foray into life insurance business jointly with
Federal Bank and Fortis Insurance International. A memorandum of
Understanding was signed by the three partners on 11th July, 2006 to this
effect followed by a joint venture agreement on November 23, 2006.

2006: IDBI Gilts Ltd was incorporated as a wholly owned subsidiary of the
bank on 13th Dec, 2006 to undertake primary dealership issues.

4.3. Capital Structure:

As on 31st March,2011, the authorized capital was Rs.20101 crores and

reserves and surplus was Rs.9438 crores. Total loan funds stood at Rs.
138202 crores. Total fixed assets including leased assets stood at Rs.2997
crores. Total deposits stood at Rs. 167667 crores. Total assets of Rs. 13903
crores is with RBI in the form of SLR and CRR.

4.4. Highlights:

As on 31st March, 2016

Business stands at Rs. 3.06 lakh crore.

Deposits at Rs. 1,67,667crore which shows a growth rate of 49 %.

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 IDBI BANK

CASA deposits at 14.59% of the total deposits.

Advances at Rs. 1,38,202crore, showing a growth of 34% over the

previous financial year.

Total business (deposits + advances) grew by 42% to Rs.3,05,869crore.

Branches increased to 720.

ATM’s increased to 1210.

Profit after tax stood at Rs.1031 crore which shows an increase of 20%.

3.

Conclusion: In 2010-11, PAT has increased by 20% while in 2014-

15, it increased by 18%.

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 IDBI BANK

4.5. SWOT of IDBI:

STRENGHTS:

A well diversified customer profile, including blue chip companies,

SME’s, high net worth individual, retail customers, trusts, self help groups,
etc.

A strong capital base with a capital adequacy ratio of 11.31% well above
the regulatory minimum of 9% which ensures that it is well placed for
growth of business.

IDBI has been a robust builder and has helped erect many reputed
institutions like EXIM, SIDBI, NSE, CARE etc.

The value of Nonperforming assets as a percentage of net advances has

decreased rapidly

WEAKNESS:

No doubt the NPA has decreased, but still it is higher if compared to
other banks.

Conclusion:
IDBI NPA stands at 0.92% which is greater then PNB, Axis, HDFC and YES
bank which shows that IDBI still has to put a lot of effort in order to save
itself from the burden of NPA.
OPPORTUNITIES:

Indian economy is the world’s second largest growing economy in the

world and it has created a lot of opportunities for the banking industry.

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 IDBI BANK

IDBI being a public sector bank has excelled in all the spheres. It has
the confidence of individuals to big business house which no other bank has
on its side.

THREATS:

Increased competition from foreign banks, which has already, has made
its presence felt in the financial services segment.

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 IDBI BANK

CHAPTER: 5
BANK DEPOSITS

5.1. Introduction:

One of the important service of the bank is to accept deposits from public for
the purpose of lending. Infact, depositors are the major stakeholders of the banking
system. Since the first episode of bank nationalization in 1969, banks have been at
the core of the financial intermediation process in India. They have mobilized a
sizeable share of savings of household sector, the major surplus sector of economy.
The safety of depository funds, forms a key area of the regulatory framework
for banking. In India, this aspect is taken care of in the Banking Regulation Act,
1949. The RBI is empowered to issue directives/advices on several aspects regarding
the conduct of deposit accounts from time to time. Further, the establishment of the
Deposit Insurance Corporation in 1962 offered protection to bank depositors.

5.2. Types of Deposits Account:

In India, there are several types of deposits account, but then they can be
broadly classified into the following 3 types:

(i). Current Account

(ii). Savings bank Account
(iii). Term deposit account

(i). Current account:

A current account is a form of demand deposit, as the banker is obliged to

repay these liabilities on demand from the customer. Among the three broad
categories of deposits- current account forms the smallest 21

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 IDBI BANK

(ii). Savings Account:

Savings deposits are a form of demand deposits, which is subjected to

restrictions on the number of withdrawals as well as the amounts of withdrawal
during any specific period. It cannot be opened by big trading or business firms.

(iii). Term deposits:

A term deposit is a deposit which received by the bank for a fixed period
after which it can be withdrawn. Term deposits includes deposits such as fixed
deposits/reinvestment deposit/ recurring deposits etc. The term deposits accounts for
the largest share and have remained within the range of 61-67% of total deposits in
the recent years.

5.3. Common guidelines of opening and operating deposit accounts:

To open and operate a banks account, the following guidelines needs to be

followed:

(i). Due Diligence:

A bank before opening any deposit account has to carry out due diligence
under “Know Your Customer” guidelines issued by RBI and or such other norms or
procedures adopted by the bank. The due diligence process involves the bank having
adequate knowledge of the person’s identity, occupation, source of income and
location.

(ii). Minimum balance:

For deposit products like the savings account and current accounts, banks
normally stipulate certain minimum balance to be maintained as part of the terms
and conditions governing operations of such accounts.

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 IDBI BANK

(iii). Transparency:
Failure to maintain minimum balance in the accounts, where applicable will
attract levy of charges as specified by the bank from time to time. Similarly, the bank
will specify charges for issue of cheque books, additional statements of accounts etc.

(iv). Eligibility:
A savings bank account can be opened by only eligible persons and certain
organizations/agencies as per the guidelines set by RBI. But, current accounts can be
opened by individuals, partnership firms, private and public limited companies.

(v). Requirement of PAN:

In addition to the due diligence process, under KYC norms, banks are
required by law to obtain a Permanent Account Number from the prospective
account holder.

(vi). Operation of Joint Account:

Deposits account can be hold by an individual or also by group of individuals
in the form of joint account. Accountholders of a joint account can give mandates on
the operation of the account and the disposal of balances in the event of demise of
one or more of the holders. Banks classify these mandates as ‘Either or Survivor’
and ‘Anyone or Survivor’.

(vii). Power of Attorney:

At the request of the depositor, the bank can register mandate/power of
attorney given by him authorizing another person to operate that account.

5.4. Types of Deposit Accounts in IDBI:

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 IDBI BANK

(a). Savings Account:

IDBI has two types of savings account:

(i). Super Saving Account

(ii). PowerKidz
(i). Super Savings Account:

The super savings account is a complete financial package which provides the
customer to easy access to money and complete banking convenience to. It offers a
whole range of options for optimal management of money. In order to enjoy the
advantage of Super savings account, a minimum balance of Rs. 5000 has to be
maintained in the account or otherwise charges has to be levied. Apart from the
given advantages which are already mentioned, the following services are also
provided under this account scheme:

 Instant banking

 International Debit card

 Family Account

 Quick money transfer

 Easy payments

 Bank on the move

 Value added services

 Travel and gift solutions

(ii). Power Kids:

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 IDBI BANK

With the growing focus on the Kidz segment and its requirement, IDBI bank
realized the importance of introducing a product specially catering to this market. It
is a piggy bank for the kids which will just not keep their money safe, but they will
also earn interest on the same. This will teach them to operate their account from
time to time and will also advise them from time to time about the various
investment options available. 24

49
 IDBI BANK

(b). Current Account:

Current accounts are different from savings account because whereas
deposits in savings account are subjected to interest earnings, current accounts are
not. IDBI provides 5 basic roaming current accounts. One can open a current
account with a minimum balance of Rs.10,000. It should be noted that the customers
are required to maintain an average quarterly balance(AQB) of Rs.10,000 in order to
have an access to the added advantage of current account.
On current account, IDBI bank provides the following added services:
 Multi city and multi branch banking

 Electronic funds transfer

 National clearing

 ATM card

 RTGS facility

The five current accounts provided by the IDBI are as follows:

(i). Basic Current Account:

 Free home branch cash deposit upto Rs.1 lakh per month

 Any branch maximum cash deposit of Rs. 20,000 per day

 Any branch maximum cash withdrawal of Rs. 5 lakh per day for self and
Rs.2 lakh for third party

(ii). Special Current Account:

 Free PAP( payable at par) upto Rs.75 lakh per month

 Free home branch cash deposit of Rs.5 lakh per month

 Free any branch maximum cash deposit of Rs.20,000 per day 25

 Free any branch cash withdrawal of Rs.1 lakh per day

50
 IDBI BANK

(iii). Bronze Current Account:

 Free PAP utilization of uptoRs. 1.50 crores per month

 Free home branch cash deposit of upto Rs.10 lakh per month

 Free any branch maximum cash deposit of Rs.20,000 per day

 Free any bank maximum cash withdrawal of Rs.1 lakh per day

(iv). Silver Current Account:

 Free PAP utilization of upto Rs.3 crore per month.

 Free home branch cash deposit of any branch is Rs.20 lakh per day

 Free any branch cash deposit of Rs. 50,000 per day.

 Free any branch cash withdrawal of Rs.1 lakh per day.

(v). Gold Current Account:

 Free PAP utilization of upto Rs.5 crore per month

 Free home branch cash deposit of Rs. 40 lakh per month

 Free any branch cash deposit of Rs. 50,000 per day

 Free any branch cash withdrawal of Rs. 1 lakh per day

51
 IDBI BANK

CHAPTER: 6
BANK LOAN

52
IDBI BANK

6.1 Basis of bank leading

53
 IDBI BANK

Banks extend credit to different categories of borrowers for a wide variety

54
 IDBI BANK

of purposes. Bank credit is provided to households, retail traders, SMEs,

55
IDBI BANK

Corporate, the Govt. undertaking etc. in the economy

56
 IDBI BANK

When dealing with bank loan it is important to demarcate the difference

57
IDBI BANK

between retail lending and wholesale lending.

58
 IDBI BANK

Retail lending is for financing the purchase of consumer durables, housing

59
 IDBI BANK

or even day-to-day consumption. But on the other hand, wholesale lending

60
 IDBI BANK

meet the need for capital investment, and operations of private corporates

61
IDBI BANK

and the government undertakings.

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IDBI BANK

6.2. Principles of Lending and Loan policy:

63
 IDBI BANK

To lend, bank depends heavily on the deposits from the public. Banks act as

64
 IDBI BANK

the custodian of the deposits. Since depositors require safety and security

65
 IDBI BANK

of their deposits, want to withdraw deposits whenever they need and also

66
 IDBI BANK

expect good returns on their deposits, bank lending must necessarily be

67
 IDBI BANK

based on the principle that reflects the concern of the depositors and these

68
IDBI BANK

principles includes:

69
 IDBI BANK

(a). Safety: Banks need to ensure that the deposits are safe with them.

70
 IDBI BANK

Since the repayment of loans depend on the borrowers capacity to repay,

71
 IDBI BANK

the banker must be satisfied before lending that the person concerned will

72
 IDBI BANK

be in a position to repay the loan within time. In addition to this banker also

73
 IDBI BANK

asks for security and it is important that this security must be adequate,

74
IDBI BANK

readily marketable and without any encumbrances.

75
 IDBI BANK

(b). Liquidity: In order to maintain liquidity, banks must ensure that money

76
 IDBI BANK

lent out by them is not locked up for a long time. Further, more important

77
 IDBI
BANK

is that money should come back as per the repayment schedule.

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 IDBI BANK

(c). Profitability: To remain viable, a bank must earn adequate profit on its

79
 IDBI BANK

investment. This calls for adequate margin between the interest rates and

80
IDBI BANK

the deposits rate

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 IDBI BANK

(d). Risk diversification: To mitigate risk, banks should lend to a diversified

82
 IDBI BANK

customer base. Diversification should be in terms of geographic location,

83
IDBI BANK

nature of business etc.

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IDBI BANK

6.3. Loan Policy:

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 IDBI BANK

Loan policy outlines lending policy and establishes operating procedures in

86
 IDBI BANK

all aspects of credit management. The Credit Policy Committee of individual

87
 IDBI
BANK

banks prepares the basic credit policy of the bank, which has to be

88
IDBI BANK

approved by the Board of Directors of the bank.

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 IDBI BANK

The loan policy typically lays down the lending guidelines in the following

90
IDBI
BAN
K

areas:

91
IDBI BANK

(a). Level of credit-deposit ratio:

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 IDBI BANK

A bank can lend out only a certain portion of its deposits, since some part

93
 IDBI BANK

of the deposits has to be maintained as Cash Reserve Ratio(CRR) deposits,

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 IDBI BANK

and an additional part has to be maintained for investing in securities as

95
IDBI BANK

Statutory Liquidity Ratio.

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 IDBI BANK

97