SGPC’s

GURU NANAK INSTITUTE OF MANAGEMENT STUDIES

Matunga (E), Mumbai – 400 019

A
Final Project Report
On
“Study on Revenue Generation Products of
Banks”
In the partial fulfillment of the Degree of
PGDM (Banking & Financial Services)
By
Ms. Yadav Manisha Virendra
PGDM (Banking & Financial Services)
[Roll No: 57]
Term-VI
Batch: 2018-20
Under the Guidance of
Prof. Hema Deogharkar
(Project Guide)
2019-20

SGPC’s
 GURU NANAK INSTITUTE OF MANAGEMENT STUDIES
Matunga (E), Mumbai – 400 019

CERTIFICATE
This is to certify that Ms. Manisha Yadav a student of Class: PGDM
(Banking & Financial Service) Term: VI bearing Roll No. 57 has
successfully completed the project titled, “Study on Revenue Generation
Products of Banks”, in the partial fulfillment of the Degree of PGDM
(B&FS).

Place: Mumbai

Date:
Name of the Project Guide: Prof. Hema Deogharkar

Signature of the Project Guide:

Signature Institutes Seal:

(Dr. D.Y. Patil)

Director

STUDENT DECLARATION
I hereby declare that the project titled “ Study on Revenue Generation
Products of Banks ” is my own work conducted under the supervision of
Prof. Hema Deogharkar.

I further declare that no part in this project work has been plagiarized
without proper citations and has not formed the basis for the award of any
degree, diploma, associate ship, fellowship previously.

Name of Student: Yadav Manisha Virendra

Signature of the Student:

ACKNOWLEDGEMENT
“It is not possible to prepare a project report without the assistance and
encouragement of other people. This one is certainly no exception.”

On the very outset of this report, I would like to extend my sincere and
heartfelt obligation towards all the personages who have helped me in this
endeavor. Without their active guidance, help, cooperation and
encouragement, I would not have made headway in the project.

I am ineffably indebted to Dr. D.Y. PATIL, Director in G.N.I.M.S.

College, program
coordinator for conscientious guidance and encouragement to accomplish
this assignment.

I am extremely thankful and pay my gratitude to my mentor Ms. Hema

Deogharkar for his valuable guidance and support for the accomplishment
of this project.

I extend my gratitude to G.N.I.M.S. for giving me this opportunity. I also

acknowledge with a deep sense of reverence, my gratitude towards my
parents and member of my family, who has always supported me morally
as well as economically.

At last but not least gratitude goes to my friends who directly or indirectly
helped me to complete this project report. Any omission in this brief
acknowledgement does not mean lack of gratitude.

Thanking You
Yadav Manisha Virendra

Table of Content

Sr No. Topic Page No.

1. Executive Summary

2. Introduction to the Topic

3. Industry Overview

4. Company Overview

5. Project Details

6. Data Analysis & Interpretation

7. Recommendations / Findings

8. Conclusion

9. Bibliography

10. Annexure

11. Project Progress Report

12. Approved Project Synopsis

 CHAPTER 2
INTRODUCTION

1.1 Introduction to Banking System

A bank is defined as a financial institution or a financial intermediary that accepts

deposits from the public and channelizes these deposits into lending activities, either
directly to the people who are in need of funds or through the capital markets1. A bank
connects the customers who have capital deficits to the customers with capital
surpluses. Bank encourages the habit of savings and act as a bridge between the
borrowers and the depositors. Bank is a lawful organisation, which accepts deposits that
can be withdrawn on demand and also assures the safety of the deposits. Banks accept
deposits from the general public as well as from the business community and lend
money to individuals as well as the business houses which are in need of them.

Normally the financial sector impacts the performance of other sectors of the economy.
A repulsive financial system disrupts the economy of the country. Hence an effective
and efficient financial intermediation is needed for effective and productive allocation
of resources for the fruitful growth of all sectors of the economy. Therefore the
economic effectiveness and productivity analysis are positively correlated towards the
performance and efficiency of the financial sector. Financial intermediation through the
institutions is required for the promotion of overall growth of the economy. Due to these
critical conditions of the financial system and the economy, banks are highly regulated
by the respective governments across the world. Several rules and regulations are
formulated for the banks to safeguard the interest of their customers, financial stability
of the country and the progress of the economy.
The banking sector is the heart and soul of any economy. It is the most important
financial pillar of any financial sector that plays a vital role in the economic
development of the country. The progress of the country is integrated with the
development of the banking sector. Banking sector meets the financial requirements of
agricultural sector, industrial sector, trade & business sector, service sector and the
requirements of the general public through the mobilization of deposits from the public.
A sound and stable banking system reflects an effective financial system and which in
turn shows the strength of the economy. Strong banking systems eases the efforts in
collecting the funds from the surplus and disburses them to the productive sectors of
the society and can also meet the obligations of the depositors.

The banking system encourages the savings habit, acts as an intermediary between the
people with surplus funds and the people who need funds for their business activities
in the form of loans and advances, it helps in raising the standard of living of the people,
it facilitates transactions in the form cash, receipts & payments through other financial
instruments, helps in the economic development of the country by disbursing credit to
agriculture & its allied sectors, small scale industries, medium & small scale industries,
self employed2.

1.2 Functions of the Bank

The functions of the commercial banks are classified as Primary functions and
Secondary functions. The primary functions of the commercial bank are Accepting
Deposits and Granting loans and advances.

1.2.1 Accepting Deposits: Mobilising deposits from the public is the main activity of
the commercial banks. People with surplus income and savings deposit the amounts in
the bank which is considered as the safest financial instrument available in the market.
Interest is paid on these deposits based on the type of the deposit and the tenure of the
deposit. Some of the examples of deposits are Time Deposits, Recurring Deposits,
Fixed Deposits, Current Accounts, Savings Account, and Money Multiplier Account
etc.

Time deposits are the deposits which are having tenure for parking the amount. They
range from 7 Days to 10 years. The interest is paid on a quarterly basis till the closure
of the deposit.

Recurring deposits are those where the accountholders are permitted to save an equal
amount every month. Interest is paid as paid in the case of term deposits or fixed
deposits. The interest is calculated on quarterly basis.

Fixed deposits are deposits where the tenure of the account is fixed. The
accountholders are not permitted to close the deposit before maturity of the deposit.
The main purpose of fixed deposit account is to enable the individuals to earn a higher
rate of interest on their surplus funds. Longer the tenure of the deposit, higher is the rate
of interest. These deposits are also termed as time liability of the banks.

Savings Accounts are the accounts opened by the general public to save money and
earn interest on the deposited amount and also to perform the banking transactions.
These accounts have certain restrictions on the number of transactions performed and
the amounts deposited in the accounts. Interest is paid by banks on the saving bank
accounts as decided by their boards and RBI had deregulated the interest rate regime
and the banks are free to fix the interest to be paid on these accounts with certain
prerequisites mentioned by Reserve Bank of India.

Current Account is also termed as demand deposit account. These are the accounts
which are normally used by the business firms where there is no limit on the number of
transactions and the amounts deposited and withdrawn from the accounts. Interest is
not paid by the bank for these accounts. Cheque book facility is provided to these
accounts and drafts, cheques in their names or endorsed by third parties can be
deposited in these accounts. The satisfactory operations in the account would lead to
attaining overdraft facility for the account with certain conditions.

Money Multiplier Account is the one where the interest earned on the deposits is
reinvested. This type of accounts earn higher rate of interest and the depositor can
withdraw the accumulated amount after the maturity of the deposit. The matured
amount can be withdrawn either in instalments or in a single payment. These are suited
for the retired people.

1.2.2 Providing Loans and Advances

The other important function of the bank is to provide loans and advances to the public,
business firms who are in need of money to meet their day-to-day requirements or to
establish a business firm etc. The banks charge higher rate of interest on these loans
and advances than the interest paid on the deposits collected by the bank. The difference
in these rates of interest is called as the rate spread and this determines the profitability
of the bank. The rate of interest charged varies on the tenure, amount, mode of
repayment and purpose of the loan.

Loan is provided for a certain period of time and these are generally short term in
tenure. These are issued against the security of assets. Loan amount is disbursed in
lumpsum or in instalments to the borrowers. The repayment is also similar that they are
repaid in lump sum or in instalments.

Advances are the credit facility provided by the banks to their customers. These are
usually granted for shorter period of time. These are generally issued to meet the day-
to-day requirements of the business firms. The interest is charged on the utilised amount
rather than on the total sanctioned amount. The interest charged on these vary from
bank to bank3.
Cash Credit is the provision where the borrower is allowed to withdraw amount as per
his requirements. The amount is sanctioned against the security of an asset. The interest
is charged on the utilised amount and the borrower has the flexibility of repaying the
amount as per his availability of funds.

Discounting of Bills is the process where the banks provide short term finance to the
borrower. Here the bank honours the payment before the due date at a certain rate of
discount. Here the customer gets the amount immediately and doesn’t have the need to
wait till the maturity of the bill. The bank has the provision of rediscounting the bill
with the central bank during the need of the funds. The bank has the right to recover the
complete amount from the borrower in case of dishonouring the bill on the due date.

Overdraft is another type of credit facility extended to the borrowers by the bank.
These are granted to the current account holders where the customer is permitted to
withdraw more than the available credit balance in the account. It is a temporary
arrangement between the customer and the bank on security of assets, personal security
or sometimes without any security. Interest is charged on the excess drawn amount and
a useful form of loan for the business firms at their time of requirement.

1.2.3 Secondary Functions

In addition to the primary functions of accepting deposits and disbursing loans, credits
the banks also performing certain other functions termed as secondary functions. Some
of the secondary functions performed by the banks are as follows:

 Provides safe deposit lockers for the safe custody of valuables of the customers
 Foreign exchange deals are performed by the banks on behalf of the customers
 Providing reports on the credit worthiness of their customers
 Providing educational loans to students at a reasonable rate of interest
 They act as an intermediary with respect to the business reputation, financial
standing of the customers.
  Various denomination cheques are issued which can be used on auspicious
occasions
 They act as executors and trustees of the property of the customers
 They issue travellers cheque, letter of credit as per the requirements of the
customer
 On behalf of the customers, the banks buy and sell various securities like shares,
debentures, bonds and other financial instruments
 The banks perform the task of collecting, analysing and providing business
information to their customers
 They help in transferring the amount from one account to another in the form of
cheques, demand drafts and other instruments
 Act as a guarantor on behalf of their customer while procuring the goods,
machinery etc.
 The banks accept domestic bills, foreign bills of exchange to promote the
importing of goods by their customers
 They act as underwriter of the shares and debentures issued by the government
and other organisations. Through this the bank purchases the instruments of the
companies if they are unsold in the capital market

The above are the functions of the bank and they vary from bank to bank depending on
the requirements of their customers.

1.3.1 Significance of Indian Banking System

In India, banks play a crucial role in the socio-economic progress and this is more
evident after independence. The banking sector accounts for more than half of the
financial sector assets. The reforms in the Indian banking sector are implemented in a
phased manner through rapid changes brought about by financial sector reforms.

According to Banking Company Regulation Act 1949 Sec. 5(i)(b) -"Banking means the
accepting, for the purpose of lending or investment, of deposits of money from public,
repayable on demand or otherwise, and withdrawal by cheque, drafts, order or
otherwise."
The Indian banking system had undergone structural changes due to the changes in the
monetary and external policies of the country over the period of time. Several reforms
were introduced during the years for effective and smooth functioning of the banking
sector.

Banks are the financial institutions which accept deposits from the people and grant
loans to the people for investment.

According to section 5(b) of the Banking Regulation Act, 1949, “banking” means the
accepting, for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawable by cheque, draft, and
order or otherwise. Banking Company means any company which transacts the
business of banking in India. No company can carry on the business of banking in India
unless it uses as part of its name at least one of the words bank, banker or banking.

The banks are classified based upon their functions into various categories. The Indian
banking institutions are divided into the following categories:

1. Central Bank (RBI)

2. Commercial Banks – Public Sector, Private Sector and Foreign Banks
3. Regional Rural Banks
4. Development Banks
5. Co-operative Banks – Primary Credit Societies, Central co-operative, State co-
operative banks
6. Specialised Banks.

Types of Banks

Central Bank Regional Rural Banks Specialised Banks

Commercial Banks Development Banks

Public Sector Banks Co-Operative Banks

 Private Sector Banks Primary Credit Societies

Foreign Banks District Co-operative Central

Banks

State Co-operative Banks

1.4.2 Central Bank: It is the apex bank which guides and regulates the functioning of
the banking sector in the country. It is the banker to the government and other banks.
Reserve Bank of India is the central bank which maintains the records of the
expenditure and revenue records of the government under various heads. It issues the
currency notes, regulates the circulation of the currency notes, decides the interest rates
on bank deposits & loans (now deregulated) and determines the foreign exchange rates.
It advises the government on the issues pertaining to the monetary and credit policies.

1.4.3 Commercial Banks: the banks which perform the basic banking operations are
termed as commercial banks. The operations of the banks are governed by different
regulatory bodies depending upon the status established by an Act of Parliament or
through Banking Companies Act, 1956 after obtaining licence from Reserve Bank of
India. The scheduled commercial banks are those which are listed in schedule II of
Reserve Bank of India Act 1934. They accept deposits from the public and lend money
to those in need of them for productive purposes. The deposits and advances are either
short term, medium term or long term. They disburse credit to farmers, general public,
business houses, entrepreneur etc 4 . The commercial banks are further divided into
Public Sector Banks where the majority of the stake is vested in the hands of the
government. Some of the examples of public sector banks are State Bank of India,
Syndicate Bank, Andhra Bank etc. The other type of commercial banks is Private Sector
Banks where the majority of stake is held by private institutions/players. The private
sector banks are further classified as old private sector banks (for example Karur Vysya
Bank Ltd, The Jammu & Kashmir Bank Ltd etc) and new private sector banks like
ICICI Bank Ltd, HDFC Bank Ltd etc. The third type of commercial banks is the foreign
banks where the banks are registered and its head office located in some other country.
Some of the examples of foreign banks are HSBC Bank, Citibank etc.

1.4.4 Regional Rural Banks: These regional rural banks were formed under the
Regional Rural Banks Act 1976 in those areas where the co-operative system along
with the commercial banks had no presence or negligible presence. The banks are
formed in collaboration with the sponsored bank, which has the second highest
percentage of stake followed by the state and preceded by the central governments.
There are 56 RRBs in the country as of 2016. The banks provide credit to the weaker
sections of the rural areas. The major emphasis is on the farmers, agricultural laborours,
small entrepreneurs etc.

1.4.5 Development Banks: These are the banks which provide financial assistance to
the business firms in the form of medium and long term capital to procure equipment
for expansion and modernisation. They help to acquire latest technology and improve
their productivity. Some of the Development banks are IFCI, SFI etc

1.4.6 Co-operative Banks: These are the co-operative societies which are engaged in
the business activities. They are under the purview of the Registrar of the Co-operative
Societies of the state and the Reserve Bank of India for performing the functions of the
society and also the banking operations. The co-operative banks are further divided into
Primary Credit Society at the village level, Central Co-operative Bank at the district
level and State Co-operative banks at the state level.

The Primary Credit Societies are formed at the village level and the operations are
restricted to a small area where the borrower and the non-borrowers reside at a single
location and are also known to one another. This helps in having close surveillance and
to prevent any fraudulent activities of the members.

Central Co-operative Banks are formed at the district level and the individual Primary
Credit Societies operating in the district are made members of this bank. This is the
intermediary between the primary credit societies and the state co-operative bank. The
Central Co-operative banks act as a banker to the Primary Credit Societies and provide
loans to them as required.

State Co-operative Bank is the apex bank of the co-operative banks in the state. They
mobilise the funds and channelize the funds to the various sectors to improve the
productivity of those sectors. The money is transferred to the public from state co-
operative banks through the central co-operative banks and the primary credit societies.

1.4.7 Specialised Banks: These are the banks which cater to the needs of a specific
sector or activity. They help in commencing the business and other support for the
effective functioning of the firm. Some of the examples of specialised banks are
NABARD, EXIM Bank, SIDBI etc.

Small Industries Development Bank of India was formed with the aim of providing
finance, develop and promote small scale industries. It helps in establishing or for the
upgradation of the small scale industries, improve the market activities and to upgrade
the technological usage.

Export Import Bank of India provides the necessary support, guidance and assistance
to those who want to be part of the importing and exporting of the goods with other
countries. The bank disburses credit to both the importers and exporters. It provides the
information about the international market, opportunities and risks involved in the
export and import and also of the competition involved in these activities.

National Bank for Agricultural and Rural Development is the bank involved in
financing the rural sectors, agriculture and its allied sectors. The bank provides credit
on both the short term and long term basis to the rural sectors through regional rural
banks. It provides financial assistance to co-operative credit, small scale industries,
cottage industries, fishing, weaving handicrafts and other allied activities in the rural
areas.
 CHAPTER 3

INDUSTRY OVERVIEW

As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently
capitalised and well-regulated. The financial and economic conditions in the country
are far superior to any other country in the world. Credit, market and liquidity risk
studies suggest that Indian banks are generally resilient and have withstood the global
downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking
models like payments and small finance banks. RBI’s new measures may go a long way
in helping the restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with
India’s Immediate Payment Service (IMPS) being the only system at level 5 in the
Faster Payments Innovation Index (FPII).

Market Size

The Indian banking system consists of 18 public sector banks, 22 private sector banks,
46 foreign banks, 53 regional rural banks, 1,542 urban cooperative banks and 94,384
rural cooperative banks as of September 2019. In FY07-18, total lending increased at a
CAGR of 10.94 per cent and total deposits increased at a CAGR of 11.66 per cent.
India’s retail credit market is the fourth largest in the emerging countries. It increased
to US$ 281 billion on December 2017 from US$ 181 billion on December 2014.

Investments/developments
Key investments and developments in India’s banking industry include:

 In October 2019, the Department of Post launched the mobile banking facility
for all post office savings account holders of the CBS (core banking solutions)
post office.
 Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood at Rs 1.06
lakh crore (US$ 15.17 billion
 In October 2019, Government e-Marketplace (GeM) signed a Memorandum of
Understanding (MoU) with Union Bank of India to facilitate a cashless,
paperless and transparent payment system for an array of services.
 Transactions through Unified Payments Interface (UPI) stood at 1.15 billion in
October 2019 worth Rs 1.91 lakh crore (US$ 27.33 billion).
  In August 2019, the government announced the major mergers of public sector
banks which included United Bank of India and Oriental Bank of Commerce to
be merged with Punjab National Bank, Allahabad Bank will be amalgamated
with Indian Bank and Andhra Bank and Corporation Bank will be consolidated
with Union Bank of India.
 The NPAs (Non-Performing Assets) of commercial banks has recorded a
recovery of Rs 400,000 crore (US$ 57.23 billion) in last four years including
record recovery of Rs 156,746 crore (US$ 22.42 billion) in FY19.
 The board of Allahabad bank approved the merger with Indian bank for the
consolidation of 10 state-run banks into the large-scale lenders.
 As of September 2018, the Government of India launched India Post Payments
Bank (IPPB) and has opened branches across 650 districts to achieve the
objective of financial inclusion.
 The total value of mergers and acquisition during 2017 in NBFC diversified
financial services and banking was US$ 2,564 billion, US$ 103 million and US$
79 million respectively @.
 The total equity funding's of microfinance sector grew at the rate of 42 year-on-
year to Rs 14,206 crore (US$ 2.03 billion) in 2018-19.

Government Initiatives

 As per Union Budget 2019-20, the government has proposed fully automated
GST refund module and an electronic invoice system that will eliminate the
need for a separate e-way bill.
 Under the Budget 2019-20, government has proposed Rs 70,000 crore (US$
10.2 billion) to the public sector bank.
 Government has smoothly carried out consolidation, reducing the number of
Public Sector Banks by eight.
 As of September 2018, the Government of India has made the Pradhan Mantri
Jan Dhan Yojana (PMJDY) scheme an open ended scheme and has also added
more incentives.
 The Government of India is planning to inject Rs 42,000 crore (US$ 5.99
billion) in the public sector banks by March 2019 and will infuse the next
tranche of recapitalisation by mid-December 2018.

Achievements

Following are the achievements of the government in the year 2017-18:

 As on March 31, 2019 the number of debit and credit cards issued were 925
million and 47 million, respectively.
 As per RBI, as of October 25, 2019, India recorded foreign exchange reserves
of approximately US$ 442.58 billion.
  India ranks among the top seventh economies with a GDP of US$ 2,73 trillion
in 2018 and economy is forecasted to grow at 7.3 per cent in 2018.
 To improve infrastructure in villages, 204,000 Point of Sale (PoS) terminals
have been sanctioned from the Financial Inclusion Fund by National Bank for
Agriculture & Rural Development (NABARD).
 The number of total bank accounts opened under Pradhan Mantri Jan Dhan
Yojana (PMJDY) reached 333.8 million as on November 28, 2018.

Road Ahead

Enhanced spending on infrastructure, speedy implementation of projects and

continuation of reforms are expected to provide further impetus to growth. All these
factors suggest that India’s banking sector is also poised for robust growth as the rapidly
growing business would turn to banks for their credit needs.

Also, the advancements in technology have brought the mobile and internet banking
services to the fore. The banking sector is laying greater emphasis on providing
improved services to their clients and also upgrading their technology infrastructure, in
order to enhance the customer’s overall experience as well as give banks a competitive
edge.

India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1
trillion by FY2023 driven by the five-fold increase in the digital disbursements.
The Indian banking system consists of 20 public sector banks, 22 private sector banks,
44 foreign banks, 44 regional rural banks, 1,542 urban cooperative banks and 94,384
rural cooperative banks, in addition to cooperative credit institutions. As on March 31,
2019, the total number of ATMs in India increased to 2,21,703 and is further expected
to increase to 407,000 by 2021. As of 2017, 80 per cent of the adult population has bank
accounts. As on March 31, 2019 the number of debit and credit cards issued were 925
million and 47 million, respectively.

As of Q3 FY19 (between April–September 2018) total credit extended by commercial

banks surged to Rs 90.81 lakh crore (US$ 1,299.39 billion) and deposits grew to Rs 120
lakh crore (US$ 1,866.22 billion). Assets of public sector banks stood at Rs 108.82
crore (US$ 1,557.04 billion) in FY18. As per Union Budget 2019-2020, Provision
coverage ratio of banks reached highest in 7 years. As per RBI, as of October 25, 2019,
India recorded foreign exchange reserves of approximately US$ 442.58 billion.

Indian banks are increasingly focusing on adopting integrated approach to risk

management. The NPAs (Non-Performing Assets) of commercial banks has recorded a
recovery of Rs 400,000 crore (US$ 57.23 billion) in FY2019, which is highest in last
four years. Banks have already embraced the international banking supervision accord
of Basel II, and majority of the banks already meet capital requirements of Basel III,
which has a deadline of March 31, 2019.As per Union Budget 2019-20, investment-
driven growth requires access to low cost capital which an requires investments of Rs
20 lakh crore (US$ 286.16 billion) every year.
Reserve Bank of India (RBI) has decided to set up Public Credit Registry (PCR) an
extensive database of credit information which is accessible to all stakeholders. The
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 Bill has been passed
and is expected to strengthen the banking sector. In June 2019, RBI sets average base
rate of 9.18 per cent for non-banking financial companies and micro finance institutions
borrowers for quarter beginning of July.

The total equity funding of microfinance sector grew at the rate of 42 year-on-year to
Rs 14,206 crore (US$ 2.03 billion) in 2018-19.
Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) stood at Rs 1.06 lakh crore
(US$ 15.17 billion) with 37.34 crore accounts registered. In May 2018, the Government
of India provided Rs 6 lakh crore (US$ 93.1 billion) loans to 120 million beneficiaries
under Mudra scheme. As of November 2019, the total number of subscribers was 19
million under Atal Pension Yojna.

Rising incomes are expected to enhance the need for banking services in rural areas and
therefore drive the growth of the sector. As of September 2018, Department of Financial
Services (DFS), Ministry of Finance and National Informatics Centre (NIC) launched
Jan Dhan Darshak as a part of financial inclusion initiative. It is a mobile app to help
people locate financial services in India.

The digital payments revolution will trigger massive changes in the way credit is
disbursed in India. Debit cards have radically replaced credit cards as the preferred
payment mode in India, after demonetisation. Transactions through Unified Payments
Interface (UPI) stood at 1.15 billion in October 2019 worth Rs 1.91 lakh crore (US$
27.33 billion).
As per Union Budget 2019-20, the government has proposed fully automated GST
refund module and an electronic invoice system that will eliminate the need for a
separate e-way bill.

CHAPTER IV
COMPANY OVERVIEW

Overview of Consumer Banking

Banks are a prominent and vital part of the financial system in India. They are one of
the biggest contributors to the growth of the economy and development of the country.
Retail banking is one of the most elemental components of the commercial banking
system and is of utmost importance to the general public. It is a rising trend that is
considered to be a marvelous innovation in the banking sector. Emerging economies
like India have benefitted spectacularly due to this emerging trend of retail lending. The
ever-evolving technology is one of the main reasons for the growth of this sector.

Retail Banking?

Retail Banking is also termed as consumer banking. As the name suggests, it is a part
of the commercial banking system associated with the general public and individual
customers. Retail banking systems aim to provide banking services like checking
accounts, opening accounts, savings accounts, loans, debit cards, and more to the
citizens. This system targets members of the general public and their personal needs of
handling money. It excludes companies, businesses, and corporations which may need
more complex banking solutions.

For most of the people, banks are simply a reference to retail banking services like
savings, transactions, mortgages, debit cards, credit cards and more. In India, this may
not be a new phenomenon, but changes in customer demographics and technological
growth have made this an integral part of day-to-day functioning. Retail banking takes
place at local branches of commercial banks. It must be noted that it could simply be a
department of a bank that handles individuals’ general needs of saving and spending
money.

Functions of Retail Banking

While retail banking in different forms has existed for a long time, it is a relatively new
concept. Over the period of time, it has emerged as an important component of
 traditional and modern banking systems and an important market segment. In simple
terms, retail banking takes care of all banking needs of individual customers. There are
three primary functions of consumer banking. Firstly, banks offer to deposit money for
savings accounts, recurring deposit accounts, fixed deposit accounts, and other
financial services to safely secure the capital for the general public. Secondly, it offers
credit in terms of interest earned on saving money and loans and mortgage. Thirdly,
retail banks assist consumers in handling their money and managing their money
through various retail banking solutions and services. These kinds of services help the
customers in their financial matters and daily transactions.

Types of Retail Banks

These banks are often termed as people’s banks as they cater to the needs of the general
public. It is sometimes also referred to as personal banking or mass-market banking.
Commonly, large commercial banks have local branches to meet various objectives of
retail banking. Some common types of retail banks are:

 Commercial Banks: Also known as banks in general. However, this category

excludes investment banks and financial institutions. They help their clients through
various banking services like personal banking, business banking, online banking,
financial services, and lending and borrowing.

 Regional Rural Banks: RRBs are also known Gramin Banks, which have been
established at a regional level in various states of India to cater to low-income groups
or people residing in regional areas. These banks offer regular retail banking services
and also include loans and mortgages.

 Private Banks: These are usually the banks that operate in urban areas and cater to
moderate to high level income groups.

 Post Offices: In regions where people do not have access to regular banks, the
National Postal System offered basic banking services like account opening, savings,
recurring deposits, and more. For developing countries, this is a convenient and
secure mode of banking in areas where underdeveloped sections of society cannot
reach the bank.


Retail Banking Services Offered by Banks

Different Products and Services Offered by Banks

Broad Classification of Products Offered by Banks

The different products in a bank can be broadly classified into:

 Retail Banking.
 Trade Finance.
 Treasury Operations.

Retail Banking and Trade finance operations are conducted at the branch level while
the wholesale banking operations, which cover treasury operations, are at the head
office or a designated branch.

Retail Banking:

 Deposits
 Loans, Cash Credit and Overdraft
 Negotiating for Loans and advances
 Remittances
 Book-Keeping (maintaining all accounting records)
 Receiving all kinds of bonds valuable for safe keeping

Trade Finance:

 Issuing and confirming of letter of credit.

 Drawing, accepting, discounting, buying, selling, collecting of bills of
exchange, promissory notes, drafts, bill of lading and other securities.

Treasury Operations:

 Buying and selling of bullion, Foreign exchange.

 Acquiring, holding, underwriting and dealing in shares, debentures, etc.
 Purchasing and selling of bonds and securities on behalf of constituents.

The banks can also act as an agent of the Government or local authority. They insure,
guarantee, underwrite, participate in managing and carrying out issue of shares,
debentures, etc.

Apart from the above-mentioned functions of the bank, the bank provides a whole lot
of other services like investment counselling for individuals, short-term funds
management and portfolio management for individuals and companies. It undertakes
the inward and outward remittances with reference to foreign exchange and collection
of varied types for the Government.

Common Banking Products Available

1) Credit Card: Credit Card is “post paid” or “pay later” card that draws from a credit
line-money made available by the card issuer (bank) and gives one a grace period to
pay. If the amount is not paid full by the end of the period, one is charged interest. A
credit card is nothing but a very small card containing a means of identification, such
as a signature and a small photo. It authorizes the holder to change goods or services to
his account, on which he is billed. The bank receives the bills from the merchants and
pays on behalf of the card holder. These bills are assembled in the bank and the amount
is paid to the bank by the card holder totally or by installments. The bank charges the
customer a small amount for these services. The card holder need not have to carry
money/cash with him when he travels or goes for purchasing. Credit cards have found
wide spread acceptance in the ‘metros’ and big cities. Credit cards are joining
popularity for online payments. The major players in the Credit Card market are the
foreign banks and some big public sector banks like SBI and Bank of Baroda. India at
present has about 10 million credit cards in circulation.

2) Debit Cards: Debit Card is a “prepaid” or “pay now” card with some stored value.
Debit Cards quickly debit or subtract money from one’s savings account, or if one were
taking out cash. Every time a person uses the card, the merchant who in turn can get
the money transferred to his account from the bank of the buyers, by debiting an exact
amount of purchase from the card. To get a debit card along with a
Personal Identification Number (PIN). When he makes a purchase, he enters this
number on the shop’s PIN pad. When the card is swiped through the electronic terminal,
it dials the acquiring bank system – either Master Card or Visa that validates the PIN
and finds out from the issuing bank whether to accept or decline the transaction. The
customer never overspread because the amount spent is debited immediately from the
customers account. So, for the debit card to work, one must already have the money in
the account to cover the transaction. There is no grace period for a debit card purchase.
Some debit cards have monthly or per transaction fees. Debit Card holder need not carry
a bulky check book or large sums of cash when he/she goes at for shopping. This is a
fast and easy way of payment one can get debit card facility as debit cards use one’s
own money at the time of sale, so they are often easier than credit cards to obtain. The
major limitation of Debit Card is that currently only some shops in urban areas accepts
it. Also, a person can’t operate it in case the telephone lines are down.

3) Automated Teller Machine: The introduction of ATM’s has given the customers
the facility of round the clock banking. The ATM’s are used by banks for making the
customers dealing easier. ATM card is a device that allows customer who has an ATM
card to perform routine banking transaction at any time without interacting with human
 teller. It provides exchange services. This service helps the customer to withdraw
money even when the banks ate closed. This can be done by inserting the card in the
ATM and entering the Personal Identification Number and secret Password.

ATM’s are currently becoming popular in India that enables the customer to withdraw
their money 24 hours a day and 365 days. It provides the customers with the ability to
withdraw or deposit funds, check account balances, transfer funds and check statement
information. The advantages of ATM’s are many. It increases existing business and
generates new business. It allows the customers.

 To transfer money to and from accounts.

 To view account information.
 To order cash.
 To receive cash.

Advantages of ATM’s:

To the Customers

 ATM’s provide 24 hrs., 7 days and 365 days a year service.

 Service is quick and efficient
 Privacy in transaction
 Wider flexibility in place and time of withdrawals.
 The transaction is completely secure – you need to key in Personal Identification
Number (Unique number for every customer).

To Banks

 Alternative to extend banking hours.

 Crowding at bank counters considerably reduced.
 Alternative to new branches and to reduce operating expenses.
 Relieves bank employees to focus an more analytical and innovative work.
 Increased market penetration.

ATM’s can be installed anywhere like Airports, Railway Stations, Petrol Pumps, Big
Business arcades, markets, etc. Hence, it gives easy access to the customers, for
obtaining cash.

The ATM services provided first by the foreign banks like Citibank, Grind lays bank
and now by many private and public sector banks in India like ICICI Bank, HDFC
Bank, SBI, UTI Bank etc. The ICICI has launched ATM Services to its customers in
all the Metropolitan Cities in India. By the end of 1990 Indian Private Banks and public
sector banks have come up with their own ATM Network in the form of “SWADHAN”.
Over the past year upto 44 banks in Mumbai, Vashi and Thane, have became a part of
 “SWADHAN” a system of shared payments networks, introduced by the Indian Bank
Association (IBA).

4) E-Cheques: The e-cheques consists five primary facts. They are the consumers, the
merchant, consumer’s bank the merchant’s bank and the e-mint and the clearing
process. This cheaqing system uses the network services to issue and process payment
that emulates real world chaquing. The payer issue a digital cheaques to the payee ant
the entire transactions are done through internet. Electronic version of cheaques are
issued, received and processed. A typical electronic cheque transaction takes place in
the following manner:

 The customer accesses the merchant server and the merchant server presents its goods
to the customer.
 The consumer selects the goods and purchases them by sending an e-cheque to the
merchant.
 The merchant validates the e-cheque with its bank for payment authorization.
 The merchant electronically forwards the e-cheque to its bank.
 The merchant’s bank forwards the e-cheque to the clearing house for cashing.
 The clearing house jointly works with the consumer’s bank clears the cheque and
transfers the money to the merchant’s banks.
 The merchant’s bank updates the merchant’s account.
 The consumer’s bank updates the consumer’s account with the withdrawal information.

The e-chequing is a great boon to big corporate as well as small retailers. Most major
banks accept e-cheques. Thus this system offers secure means of collecting payments,
transferring value and managing cash flows.

5) Electronic Funds Transfer (EFT): Many modern banks have computerized their
cheque handling process with computer networks and other electronic equipment’s.
These banks are dispensing with the use of paper cheques. The system called electronic
fund transfer (EFT) automatically transfers money from one account to another. This
system facilitates speedier transfer of funds electronically from any branch to any other
branch. In this system the sender and the receiver of funds may be located in different
cities and may even bank with different banks. Funds transfer within the same city is
also permitted. The scheme has been in operation since February 7, 1996, in India. The
other important type of facility in the EFT system is automated clearing houses. These
are the computer centers that handle the bills meant for deposits and the bills meant for
payment. In big companies pay is not disbursed by issued cheques or issuing cash. The
payment office directs the computer to credit an employee’s account with the person’s
pay.

6) Telebanking: Telebanking refers to banking on phone services.. a customer can

access information about his/her account through a telephone call and by giving the
 coded Personal Identification Number (PIN) to the bank. Telebanking is extensively
user friendly and effective in nature.

 To get a particular work done through the bank, the users may leave his instructions in
the form of message with bank.
 Facility to stop payment on request. One can easily know about the cheque status.
 Information on the current interest rates.
 Information with regard to foreign exchange rates.
 Request for a DD or pay order.
 DeMat Account related services.
 And other similar services.

5) Mobile Banking: A new revolution in the realm of e-banking is the emergence of

mobile banking. On-line banking is now moving to the mobile world, giving everybody
with a mobile phone access to real-time banking services, regardless of their location.
But there is much more to mobile banking from just on-lie banking. It provides a new
way to pick up information and interact with the banks to carry out the relevant banking
business. The potential of mobile banking is limitless and is expected to be a big
success. Booking and paying for travel and even tickets is also expected to be a growth
area. According to this system, customer can access account details on mobile using
the Short Messaging System (SMS) technology where select data is pushed to the
mobile device. The wireless application protocol (WAP) technology, which will allow
user to surf the net on their mobiles to access anything and everything. This is a very
flexible way of transacting banking business. Already ICICI and HDFC banks have tied
up cellular service provides such as Airtel, Orange, Sky Cell, etc. in Delhi and Mumbai
to offer these mobile banking services to their customers.

6) Internet Banking: Internet banking involves use of internet for delivery of banking
products and services. With internet banking is now no longer confirmed to the
branches where one has to approach the branch in person, to withdraw cash or deposits
a cheque or request a statement of accounts. In internet banking, any inquiry or
transaction is processed online without any reference to the branch (anywhere banking)
at any time. The Internet Banking now is more of a normal rather than an exception due
to the fact that it is the cheapest way of providing banking services. As indicated by
McKinsey Quarterly research, presently traditional banking costs the banks, more than
a dollar per person, ATM banking costs 27 cents and internet banking costs below 4
cents approximately. ICICI bank was the first one to offer Internet Banking in India.

Benefits of Internet Banking:

 Reduce the transaction costs of offering several banking services and diminishes the
need for longer numbers of expensive brick and mortar branches and staff.
 Increase convenience for customers, since they can conduct many banking transaction
24 hours a day.
 Increase customer loyalty.
 Improve customer access.
 Attract new customers.
 Easy online application for all accounts, including personal loans and mortgages

Financial Transaction on the Internet:

 Electronic Cash: Companies are developing electronic replicas of all existing payment
system: cash, cheque, credit cards and coins.
 Automatic Payments: Utility companies, loans payments, and other businesses use on
automatic payment system with bills paid through direct withdrawal from a bank
account.
 Direct Deposits: Earnings (or Government payments) automatically deposited into
bank accounts, saving time, effort and money.
 Stored Value Cards: Prepaid cards for telephone service, transit fares, highway tolls,
laundry service, library fees and school lunches.
 Point of Sale transactions: Acceptance of ATM/Cheque at retail stores and restaurants
for payment of goods and services. This system has made functioning of the stock
Market very smooth and efficient.
 Cyber Banking: It refers to banking through online services. Banks with web site
“Cyber” branches allowed customers to check balances, pay bills, transfer funds, and
apply for loans on the Internet.

9) Demat: Demat is short for de-materialisation of shares. In short, Demat is a process

where at the customer’s request the physical stock is converted into electronic entries
in the depository system. In January 1998 SEBI (Securities and Exchange Board of
India) initiated DEMAT ACCOUNT System to regulate and to improve stock
investing. As on date, to trade on shares it has become compulsory to have a share
demat account and all trades take place through demat.

DEMAT ACCOUNT

One needs to open a Demat Account with any of the branches of the bank. After opening
an account with any bank, by filling the demat request form one can handover the
securities. The rest will be taken care by the bank and the customer will receive credit
of shares as soon as it is confirmed by the Company/Register and Transfer Agent. There
is no physical movement of share certification any more. Any buying or selling of
shares is done via electronic transfers.
 If the investor wants to sell his shares, he has to place an order with his broker and give
a “Delivery Instruction” to his DP (Depository Participant). The DP will debit hi s
account with the number of shares sold by him.
 If one wants to buy shares, he has to inform his broker about his Depository Account
Number so that the shares bought by him are credited in to his account.
 Payment for the electronic shares bought or sold is to be made in the same way as in
the case of physical securities.

Retail Banking vs. Corporate Banking: An Overview

Retail banking refers to the division of a bank that deals directly with retail customers.
Also known as consumer banking or personal banking, retail banking is the visible face
of banking to the general public, with bank branches located in abundance in most
major cities.

Banks that focus purely on retail clientele are relatively few, and most retail banking is
conducted by separate divisions of banks, large and small. Customer deposits garnered
by retail banking represent an extremely important source of funding for most banks.

Corporate banking, also known as business banking, refers to the aspect of banking that
deals with corporate customers. The term was originally used in the United States to
distinguish it from investment banking after the Glass-Steagall Act of 1933 separated
the two activities.

While that law was repealed in the 1990s, corporate banking and investment banking
services have been offered for many years under the same umbrella by most banks in
the United States and elsewhere. Corporate banking is a key profit center for most
banks; however, as the biggest originator of customer loans, it is also the source of
regular write-downs for loans that have soured.

KEY TAKEAWAYS

 Retail banking refers to the division of a bank that deals directly with retail
customers. They bring in the customer deposits that largely enable banks to
make loans to their retail and business customers.
 Corporate banking, also known as business banking, refers to the aspect of
banking that deals with corporate customers. They make loans that enable
businesses to grow and hire people, contributing to the expansion of the
economy.
 Both types of banks offer various products and services.
Retail Banking

Retail banking encompasses a wide variety of products and services, including:

 Checking and savings accounts: Customers are generally charged a monthly fee
for checking accounts; savings accounts offer slightly higher interest rates than
checking accounts but generally cannot have checks written on them.
 Certificates of deposit (CDs) and guaranteed investment certificates (in
Canada): These are the most popular investment products with conservative
investors, and an important funding source for banks since the funds in these
products are available to them for defined periods.
 Mortgages on residential and investment properties: Because of their size,
mortgages account for both a substantial part of retail banking profits, as well
as the biggest chunk of a bank’s exposure to its retail client base.
 Automobile financing: Banks offer loans for new and used vehicles, as well as
refinancing for existing car loans.
 Credit cards: The high interest rates charged on most credit cards make this a
lucrative source of interest income and fees for banks.
 Lines of credit and personal credit products: Home equity lines of credit
(HELOC) have diminished significantly in their importance as a profit center
for banks after the U.S. housing collapse and subsequent tightening of mortgage
lending standards.
 Foreign currency and remittance services: The increase in cross-border banking
transactions by retail clients, and the higher spreads on currencies paid by them,
make these services a profitable offering for retail banking.

Retail banking clients may also be offered the following services, generally through
another division or affiliate of the bank:

 Stock brokerage (discount and full-service)

 Insurance
 Wealth management
 Private banking

The level of personalized retail banking services offered to a client depends on his or
her income level and the extent of the individual’s dealings with the bank. While a teller
or customer service representative would generally serve a client of modest means, an
account manager or private banker would handle the banking requirements of a high-
net-worth individual who has an extensive relationship with the bank.

Although brick-and-mortar branches are still necessary to convey the sense of solidity
and stability that is crucial to banking, the reality is that retail banking is perhaps one
area of banking that has been most impacted by technology, thanks to the proliferation
of ATMs and the popularity of online and telephone banking.

Corporate Banking

The corporate banking segment of banks typically serves a diverse clientele, ranging
from small- to mid-sized local businesses with a few million in revenues to large
conglomerates with billions in sales and offices across the country. Commercial
banks offer the following products and services to corporations and other financial
institutions:

 Loans and other credit products: This is typically the biggest area of business
within corporate banking and, as noted earlier, one of the biggest sources of
profit and risk for a bank.
 Treasury and cash management services: Used by companies for managing
their working capital and currency conversion requirements.
 Equipment lending: Commercial banks structure customized loans and leases
for a range of equipment used by companies in diverse sectors such as
manufacturing, transportation, and information technology.
 Commercial real estate: Services offered by banks in this area include real asset
analysis, portfolio evaluation, and debt and equity structuring.
 Trade finance: Involves letters of credit, bill collection, and factoring.
 Employer services: Services such as payroll and group retirement plans are
typically offered by specialized affiliates of a bank.

Through their investment banking arms, commercial banks also offer related services
to their corporate clients, such as asset management and securities underwriters.

CHAPTER 5

PROJECT DETAILS