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Project Report On Indian Banking System
Project Report On Indian Banking System
Project Report
ON
SUBMITTED BY
Roshan Ara
0621000460
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EXECUTIVE SUMMARY
Banking in India originated in the first decade of 18 century with The General Bank
of
India coming into existence in1786. This was followed by Bank of Hindustan. Both
these banks are now defunct. The oldest bank in existence in India is the State
Bank of
India being established as "The Bank of Bengal" in Calcutta in June 1806.
The Reserve Bank of India formally took on the responsibility of regulating the
Indian
banking sectorfrom1935. After India's independence 1947, the Reserve Bank was
nationalized and given broader powers.
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The Modern Banking Functions are Fund based and Non-Fund based functions. These
functions of a bank are those in which banks extend various services to their
customers
or add their commitments to certain transactions undertaken by their clients and
charge
their fees/ commissions for the services rendered by them / their commitments added
to
the transactions undertaken by the clients. The activities popularly known as ‘Non-
fund
facilities’ provided by Banks.
Thus, we conclude……………………………
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TABLE OF CONTENTS
1. INTRODUCTION -
• Scope of study 6
• Limitations of study 7
2. INDIAN BANKS –
• Scope of Indian Bank 8
• Banking in India 9
• Definition of Banks 11
• Types of Bank 12
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4. STUDY OF HDFC BANK
5. STUDY OF PNB BANK
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ACKNOWLEDGEMENT
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details of the project at every step. Without their support and able guidance,
it
would have been very difficult to finish this work in the way I have done it.
Lastly I would like to thank all the respondents who offered their opinions and
suggestions through the survey that was conducted by me.
( Ros
han Ara )
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Though the Indian Banking System is very wide and elaborated, still the
project
The study aims at learning the techniques involved to manage the various types
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LIMITATION OF THE STUDY: Every work has its own limitation. Limitations
are extent to which the process should not exceed. Limitations of this project
are:-
1. The project was constrained by time limit of two months.
2. The major limitation of this study shall be data availability as the data is
proprietary and not readily shared for dissemination.
3. Due to the ongoing process of globalization and increasing competition, no
one
model or method will suffice over a long period of time and constant up
gradation
will be required. As such the project can be considered as an overview of the
various banks prevailing in Punjab National Bank and in the Banking Industry.
4. Each bank, in conforming to the RBI guidelines, may develop its own methods
for measuring and managing risk.
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PROBLEMS: -- The corporate sector has stepped up its demand for credit to fund its
expansion plans, there has also been a growth in retail banking. However, even as
the
opportunities increase, there are some issues and challenges that Indian banks will
have
to contend with if they are to emerge successful in the medium to long term.
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RESEARCH METHODOLOGY:-
The first stage included the introduction of Indian Banks and how they work in
India. I
choose five criteria Growth, Credit quality, Strength, Profitability, Efficiency /
Profitability. The next stage involved determining the objectives of the study,
drafting a
questionnaire will be designed keeping in mind the target audience and objectives
of the
study. It will non-disguised in nature and will include a few open-ended questions.
DATA COLLECTIONS
The data from such organization has also been collected.
Primary data
The primary data will be collected through the questionnaire designed. In the
process of
data collection we went to the respective bank to get the questionnaire filled. The
preparation of the project report required me to visit the various other companies
like
Punjab National Bank, ICICI bank , State Bank of India, Central Bank, IDBI bank
etc.
in order to collect data.
Secondary data
The Preparation of the project report also required data from various journals,
newspapers ( like The Economic Times, Times of India etc.) books ( like Working
Capital Management written by Sarbesh Mishra and Financial Service written by M Y
Khan etc.)
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The drastic development taken place during the first 25 years since
independence was Nationalization of many private banks. With this, the central
government became major policy maker for these nationalized banks
With economic liberalization measures many private and foreign banking
companies were allowed to operate in the country. Favorable economic climate and
a variety of other factors such as demand for wide range of financial products
from
various sections of the society led to mutually beneficial growth to the banking
sector and economic growth process. This was coincided by technology
development in the banking operations. Today most of the Indian cities have
networked banking facility as well as Internet banking facility. A customer is
empowered to operate his account from any part of the country. UTI Bank, ICICI,
HDFC Bank and Bank of Punjab are the main winners of the race.
BANKING IN INDIA
Banking in India originated in the first decade of 18th century with The
General Bank of India coming into existence in 1786. This was followed by Bank
of
Hindustan. Both these banks are now defunct. The oldest bank in existence in
India is
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INTRODUCTION
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payment agent for customers and to borrow and lend money. Banks are important
players of the market and offer services as loans and funds.
Banking was originated in 18th century
First bank were General Bank of India and Bank of Hindustan,
now defunct.
Punjab National Bank and Bank of India was the only private
bank in 1906.
Allahabad bank first fully India owned bank in 1865.
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Types of banking
Commercial bank has two meanings:
○ Commercial bank is the term used for a normal bank to distinguish
it
from an investment bank. (After the great depression, the U.S.
Congress required that banks only engage in banking activities,
whereas investment banks were limited to capital markets
activities.
This separation is no longer mandatory.)
○ Commercial bank can also refer to a bank or a division of a bank
that
mostly deals with deposits and loans from corporations or large
businesses, as opposed to normal individual members of the public
(retail banking). It is the most successful department of
banking.
• Community development bank are regulated banks that provide financial
services and credit to underserved markets or populations.
• Private banks manage the assets of high net worth individuals.
• Offshore banks are banks located in jurisdictions with low taxation and
regulation. Many offshore banks are essentially private banks.
• Savings banks accept savings deposits.
• Postal savings banks are savings banks associated with national postal
systems.
There are some examples of banks in India:-
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➢ Rural bank
• United bank of India, Syndicate bank, National bank for agriculture
and
rural development (NABARD)
➢ Commercial bank
• State Bank, Central Bank, Punjab National Bank, HSBC, ICICI,
HDFC etc.
➢ Retail bank
• BOB, PNB
➢ Universal bank
• Deutsche bank
Banking Services
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Fund based functions of a bank are those in which banks make deployment of their
funds either by granting advances or by making investments for meeting gaps in
funds requirements of their customers/ borrowers. Fund-based functions of a bank
may be classified into two parts:-
Granting of Loans and Advances
Making Investments in shares/ debentures/ bonds.
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I. Cash Credit:- This facility is given by the banker to the customer by way of
a
certain amount of credit facility. Its limit is fixed on the basis of security
of the
company`s current assets.
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goods on credit. Such a bill may either be a clean bill or documentary bill
which is
accompanied by documents of title to goods,viz railway receipts. The bank
purchase bills payable on demand and credit the customer`s account with the
amount of bills less the discount. On maturity of the bills, the bank present
them to
its acceptor for payment. In case the discounted bill is dishonored by the non-
payment, the bank can recovers the full amount from the customer along with the
expense in that connection.
B. Tem Loans:- A bank loan to a company, with a fixed maturity and often featuring
amortization of principal. If this loan is in the form of a line of credit, the
funds are
drawn down shortly after the agreement is signed. Otherwise, the borrower usually
uses
the funds from the loan soon after they become available. Bank term loans are very
a
common kind of lending.
III. Project Finance:- Financing arrangements where the funds are made available
for a
specific purpose (the project), with the loan repayments geared to the project's
cashflow.
Project finance is used in connection with raising large amounts of money for big-
ticket,
energy-related facilities. The term has come to be loosely applied to various forms
of
financing. 'A financing of a particular economic unit in which a lender is
satisfied to
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look initially to the cashflows and earnings of that economic unit as the source of
funds
from which a loan will be repaid and to the assets of the economic unit as
collateral for
the loan.'
IV. Consumer Loans Advance against Shares:-
V. Housing Loans:-
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The borrowers need such facilities not only for purchases of current assets or
financing there of or take benefit of certain services with the help of non-fund
based
facilities. They also need the facilities for acquisition of fixed assets
including their
financing.
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RBI NORMS:
Example1.
Particulars Rs. Rs.
In
crores
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350
under the same group (50% of net worth of the
bank)
Example1.
Particulars Rs.
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100
Non-Fund Based 100
200
Total 200
@ 50% of limits
50
@ 50% of limits
Total 150
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Total credit limits to the above borrower are Rs.200 crores which are in excess of
the
maximum exposure norm of Rs. 175 crores. but for the purpose of determining
exposure
we have taken non-fund based limits at 50 percent of itsvalue and total exposure is
taken
at 150 crores which is well within the norm.
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service, which depends on the security available and the financial stability of the
customer.
AGENCY FUNCTIONS
• Collecting of B/E, P-notes, cheques & securities
• Selling of products of insurance co./ MF
• Granting & issuing LC, traveler's cheque
• Agent for any govt., local authority, etc
MERCHANT BANKING
• Syndication of loans
• Venture capital finance
• Public issue management
• Corporate counseling
• Mergers & acquisitions
• Portfolio management services
• Investment counseling
E-BANKING
• Electronic payment system
• ATM
• Tele-banking
• Credit card and debit card
• Online banking
MOBILE BANKING
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• Account services
• Credit card services
• DEMAT account
• Loan account services
• Bill services
• Other services
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account of these basic objectives, in a systematic manner and the process will
be
spread over time as appropriate.
(ii) Important Shareholders (i.e., shareholding of 5 per cent and above) are
‘fit and
proper’, as laid down in the guidelines dated February 3, 2004 on
acknowledgement
for allotment and transfer of shares.
(iii) The directors and the CEO who manage the affairs of the bank are ‘fit and
proper’ as indicated in circular dated June 25, 2004 and observe sound corporate
governance principles.
(iv) Private sector banks have minimum capital/net worth for optimal operations
and systemic stability.
(v) The policy and the processes are transparent and fair.
4. Minimum capital
The capital requirement of existing private sector banks should be on par with
the
entry capital requirement for new private sector banks prescribed in RBI
guidelines
of January 3, 2001, which is initially Rs.200 crore, with a commitment to
increase
to Rs.300 crore within three years. In order to meet with this requirement, all
banks
in private sector should have a net worth of Rs.300 crore at all times. The
banks
which are yet to achieve the required level of net worth will have to submit a
time-
bound programme for capital augmentation to RBI. Where the net worth declines to
a level below Rs.300 crore, it should be restored to Rs. 300 crore within a
reasonable time.
5. Shareholding
i. The RBI guidelines on acknowledgement for acquisition or transfer of shares
issued on February 3, 2004 will be applicable for any acquisition of shares of 5
per
cent and above of the paid up capital of the private sector bank.
ii. In the interest of diversified ownership of banks, the objective will be to
ensure
that no single entity or group of related entities has shareholding or control,
directly
or indirectly, in any bank in excess of 10 per cent of the paid up capital of
the
private sector bank. Any higher level of acquisition will be with the prior
approval
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of RBI and in accordance with the guidelines of February 3, 2004 for grant of
acknowledgement for acquisition of shares.
iii. Where ownership is that of a corporate entity, the objective will be to
ensure that
no single individual/entity has ownership and control in excess of 10 per cent
of that
entity. Where the ownership is that of a financial entity the objective will be
to
ensure that it is a well established regulated entity, widely held, publicly
listed and
enjoys good standing in the financial community.
iv, Banks (including foreign banks having branch presence in India)/FIs should
not
acquire any fresh stake in a bank’s equity shares, if by such acquisition, the
investing bank’s/FI’s holding exceeds 5 per cent of the investee bank’s equity
capital as indicated in RBI circular dated July 6, 2004.
v. As per existing policy, large industrial houses will be allowed to acquire,
by way
of strategic investment, shares not exceeding 10 per cent of the paid up capital
of
the bank subject to RBI’s prior approval. Furthermore, such a limitation will
also be
considered if appropriate, in regard to important shareholders with other
commercial affiliations.
vi. In case of restructuring of problem/weak banks or in the interest of
consolidation
in the banking sector, RBI may permit a higher level of shareholding, including
by a
bank.
6. Directors and Corporate Governance
i. The recommendations of the Ganguly Committee on corporate governance in
banks have highlighted the role envisaged for the Board of Directors. The Board
of
Directors should ensure that the responsibilities of directors are well defined
and the
banks should arrange need-based training for the directors in this regard. While
the
respective entities should perform the roles envisaged for them, private sector
banks
will be required to ensure that the directors on their Boards representing
specific
sectors as provided under the B.R. Act, are indeed representatives of those
sectors in
a demonstrable fashion, they fulfil the criteria under corporate governance
norms
provided by the Ganguly Committee and they also fulfil the criteria applicable
for
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i. Currently there is a limit of 10 per cent for individual FII investment with
the
aggregate limit for all FIIs restricted to 24 per cent which can be raised to 49
per
cent with the approval of Board/General Body. This dispensation will continue.
ii. The present policy requires RBI’s acknowledgement for acquisition/transfer
of
shares of 5 per cent and more of a private sector bank by FIIs based upon the
policy
guidelines on acknowledgement of acquisition/transfer of shares issued. For this
purpose RBI may seek certification from the concerned FII of all beneficial
interest.
7.3 Non-Resident Indians (NRIs)
Currently there is a limit of 5 per cent for individual NRI portfolio investment
with
the aggregate limit for all NRIs restricted to 10 per cent which can be raised
to 24
per cent with the approval of Board/General Body. Further, the policy guidelines
on
acknowledgement for acquisition/transfer will be applied.
8. Due diligence process
The process of due diligence in all cases of shareholders and directors as
above, will
involve reference to the relevant regulator, revenue authorities, investigation
agencies and independent credit reference agencies as considered appropriate.
9. Transition arrangements
i. The current minimum capital requirements for entry of new banks is Rs.200
crore
to be increased to Rs.300 crore within three years of commencement of business.
A
few private sector banks which have been in existence before these capital
requirements were prescribed have less than Rs.200 crore net worth. In the
interest
of having sufficient minimum size for financial stability, all the existing
private
banks should also be able to fulfil the minimum net worth requirement of Rs.300
crore required for a new entry. Hence any bank with net worth below this level
will
be required to submit a time bound programme for capital augmentation to RBI for
approval.
ii. Where any existing shareholding of any individual entity/group of entities
is 5
per cent and above, due diligence outlined in the guidelines will be undertaken
to
ensure fulfillment of ‘fit and proper’ criteria.
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11. On the basis of such continuous monitoring, RBI will consider appropriate
measures to enforce compliance.
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ORGANIZATION PROFILE
The Housing Development Finance Corporation Limited (HDFC) was amongst the first
to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set
up a
bank in the private sector, as part of the RBI's liberalization of the Indian
Banking
Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC
Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced
operations as a Scheduled Commercial Bank in January 1995.
• PROMOTER
HDFC is India's premier housing finance company and enjoys an impeccable track
record in India as well as in international markets. Since its inception in 1977,
the
Corporation has maintained a consistent and healthy growth in its operations to
remain
the market leader in mortgages. Its outstanding loan portfolio covers well over a
million
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dwelling units. HDFC has developed significant expertise in retail mortgage loans
to
different market segments and also has a large corporate client base for its
housing
related credit facilities. With its experience in the financial markets, a strong
market
reputation, large shareholder base and unique consumer franchise, HDFC was ideally
positioned to promote a bank in the Indian environment.
• BUSINESS FOCUS
• CAPITAL STRUCTURE
The authorized capital of HDFC Bank is Rs550 crore (Rs5.5 billion). The paid-up
capital is Rs424.6 crore (Rs.4.2 billion). The HDFC Group holds 19.4% of the bank's
equity and about 17.6% of the equity is held by the ADS Depository (in respect of
the
bank's American Depository Shares (ADS) Issue). Roughly 28% of the equity is held
by
Foreign Institutional Investors (FIIs) and the bank has about 570,000 shareholders.
The
shares are listed on the Stock Exchange, Mumbai and the National Stock Exchange.
The
bank's American Depository Shares are listed on the New York Stock Exchange (NYSE)
under the symbol 'HDB'.
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merged with HDFC Bank Ltd., effective February 26, 2000. As per the scheme of
amalgamation approved by the shareholders of both banks and the Reserve Bank of
India, shareholders of Times Bank received 1 share of HDFC Bank for every 5.75
shares
of Times Bank. The acquisition added significant value to HDFC Bank in terms of
increased branch network, expanded geographic reach, enhanced customer base,
skilled
manpower and the opportunity to cross-sell and leverage
alternative delivery channels.
• DISTRIBUTION NETWORK
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network
of over 1229 branches spread over 444 cities across India. All branches are linked
on an
online real-time basis. Customers in over 120 locations are also serviced through
Telephone Banking. The Bank's expansion plans take into account the need to have a
presence in all major industrial and commercial centers where its corporate
customers
are located as well as the need to build a strong retail customer base for both
deposits
and loan products. Being a clearing/settlement bank to various leading stock
exchanges,
the Bank has branches in the centers where the NSE/BSE has a strong and active
member base. The Bank also has a network of about over 2526 networked ATMs across
these cities. Moreover, HDFC Bank's ATM network can be accessed by all domestic and
international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American
Express Credit/Charge cardholders.
• TECHNOLOGY
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• BUSINESS FOCUS
• PRODUCT SCOPE:
HDFC Bank offers a bunch of products and services to meet the every need of the
people. The company cares for both, individuals as well as corporate and small and
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medium enterprises. For individuals, the company has a range accounts, investment,
and
pension scheme, different types of loans and cards that assist the customers. The
customers can choose the suitable one from a range of products which will suit
their life-
stage and needs. For organizations the company has a host of customized solutions
that
range from
Funded services, Non-funded services, Value addition services, Mutual fund etc.
These
affordable plans apart from providing long term value to the employees help in
enhancing
goodwill of the company. The products of the company are categorized into various
sections which are as follows:
· Accounts and deposits.
· Loans.
· Investments and Insurance.
· Forex and payment services.
· Cards.
· Customer center.
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HDFC Bank began its operations in 1995 with a simple mission: to be a "World-class
Indian Bank". They realized that only a single-minded focus on product quality and
service excellence would help us get there. Today, they are proud to say that they
are
well on our way towards that goal.
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MERGER
HDFC Bank and Centurion Bank of Punjab merger at share swap ratio of 1:29.The
Boards of HDFC Bank and Centurion Bank of Punjab met on 25 February, 2008 and
approved, subject to due diligence, the share swap ratio for the proposed merger of
Centurion Bank of Punjab with HDFC Bank. The Scheme of Amalgamation envisages a
share exchange ratio of one share of HDFC Bank for twenty nine shares of Centurion
Bank of Punjab.
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The combined entity would have a nationwide network of 1,148 branches (the largest
amongst private sector Banks) a strong deposit base of around Rs. 1,200 billion and
net
advances of around Rs. 850billion. The balance sheet size of the combined entity
would
be over Rs. 1,500 billion.
Mr. Shailendra Bhandari, Managing Director and CEO, Centurion Bank of Punjab
said, “We are extremely pleased to receive the go ahead from our board to pursue
this
opportunity. A merger between the banks provides significant synergies to the
combined
entity. The proposed merger would further improve the franchise and customer
proposition offered by the individual
banks.”
SUGGESTIONS:
• To make people aware about the benefit of becoming HDFC Bank’s Sales
• The bank should provide life time valid ATM card to all its customers.
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PROFILE
With its presence virtually in all the important centers of the country,
Punjab
National Bank offers a wide variety of banking services which include corporate and
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All the Branches of the Bank have been computerized. The Bank has also launched
aggressively the concept of "Any Time, Any Where Banking" through the introduction
of Centralized Banking Solution (CBS) and over 2409 offices have already been
brought
under its ambit.
PNB also offers Internet Banking services in the country for Corporates as
well as
individuals. Internet Banking services are available through all Branches of the
Bank
networked under CBS. Providing 24 hours, 365 days banking right from the PC of the
user, Internet Banking offers world class banking facilities like anytime, anywhere
access to account, complete details of transactions, and statement of account,
online
information of deposits, loans overdraft account etc. PNB has recently introduced
Online Payment Facility for railway reservation through IRCTC Payment Gateway
Project and Online Utility Bill Payment Services which allows Internet Banking
account
holders to pay their telephone, mobile, electricity, insurance and other bills
anytime from
anywhere from their desktop.
Another step taken by PNB in meeting the changing aspirations of its
clientele is
the launch of its Debit card, which is also an ATM card. It enables the card holder
to buy
goods and services at over 99270 merchant establishments across the country.
Besides,
the card can be used to withdraw cash at more than 25000 ATMs, where the 'Maestro'
logo is displayed, apart from the PNB's over 1094 ATMs and tie up arrangements with
other Banks.
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“To provide excellent professional services and improve its position as a leader in
the
field of financial and related services; build and maintain a team of motivated and
committed workforce with high work ethos; use latest technology aimed at customer
satisfaction and act as an effective catalyst for socio-economic development”
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SWOT ANALYSIS
STRENGTHS:
➢ Strong growth in business
➢ Good branch network
➢ Highest CASA among PSU
➢ Highest NIMs compared to peers
➢ Fine growth in fee income last year
➢ De-risked investment portfolio
➢ Adequate Capital
➢ Proactive on technology front.
WEAKNESS:
➢ Higher Delinquencies
➢ Higher provisions deterring growth in net profits
➢ No development on insurance venture
➢ Slower growth on international front
➢ Slow-down in treasury profits
➢ Its subsidiaries PNB Housing Finance & PNB Gilts are not impressive
OPPORTUNITIES:
➢ Expansion on international front
➢ Ample opportunity to expand business, as the economy is doing well.
➢ Growth in Insurance and Mutual Fund business
THREATS:
➢ Entry of foreign banks
➢ Sharp rise in interest rates can hamper economic growth
➢ Regulatory amendments
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INDIAN INSTITUTE OF MANAGEMENT TECHNOLOGY
INDIAN BANKING SYSTEM 0621000460
SERVICES
➢ Locker facilities
➢ Depository services
➢ Senior citizen scheme
➢ RTGS/NEFT/SFMS:PNB
➢ Merchant banking
➢ Online tax accounting system
➢ Electronic fund transfer
➢ Electronic clearing service
➢ Offshore banking
➢ 12 hours banking
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INDIAN INSTITUTE OF MANAGEMENT TECHNOLOGY
INDIAN BANKING SYSTEM 0621000460
QUESTIONNAIRE
Dear Sir/Madam,
2. Education Qualification
Undergraduate □
Graduate □
Post graduate □
3. Marital Status.
Married □
Single □
No. of Children: __________
4. Occupation.
Business □
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INDIAN INSTITUTE OF MANAGEMENT TECHNOLOGY
INDIAN BANKING SYSTEM 0621000460
Profession □
Service □
(Please mention below the type of business/profession you are in incase of
service please mention your organization name and designation)
<than 2 lack □
Between 2 to 5 lack □
Between 5 to 8 lack □
>than 8 lack □
Yes □
No □
Yes □
No □
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INDIAN INSTITUTE OF MANAGEMENT TECHNOLOGY
INDIAN BANKING SYSTEM 0621000460
Yes □
No □
Private bank □
Nationalise banks □
Private bank □
Nationalise banks □
And why?
Yes □
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INDIAN INSTITUTE OF MANAGEMENT TECHNOLOGY
INDIAN BANKING SYSTEM 0621000460
No □
Yes □
No □
And how it will help you?
Date:
Signature
Place:-
Thank You
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INDIAN INSTITUTE OF MANAGEMENT TECHNOLOGY