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Under The Guidance of: MR. RAVI ARORA Faculty SGIIT, Hisser
Submitted by: Mohan Prakash Enrollment No. 07061107085 MBA (Finance) Remarks of Evaluator Approved/Disapproved
Session:-2007-09 Specialization – Finance
DIRECTORATE OF DISTANCE EDUCATION GURU JAMBHESHWAR UNIVERSITY OF SCIENCE AND TECHNOLOGY HISAR - 125001
Declaration I Dipika Rani Roll No 0610405 Class MBA Finance 2nd Year (4th semester) “Haryana School of Business” hereby declare that the project entitled “Business Composition of Scheduled Commercial Banks” is my original work and has
[Signature of the Candidate]
Acknowledgement No task is a single man’s effort. Cooperation and coordination of various people at various places go into the successful implementation. It is a great pleasure to have the opportunity to extend my heart–felt thanks to everybody who helped me through the progress of this project. It would be prudent to commence this report with a sincere tribute to all those who played an indispensable role in the accomplishment of this work and obliged whenever and wherever their able guidance was required.
I would like to pay my gratitude to my college mentor Professor M.S.Turan (Professor at H.S.B.) for providing his timely, expert and valuable suggestions as and when required.
Signature of supervisor DIPIKA RANI ROLL NO. – 0610405
Bibliography . Research Objective 3.Introduction Chapter 2. Analysis of Data 5. Problem statement 2. Plan of study 6. Source & nature of Data 4. Limitation of study 7. Conclusion 9.Contents • • • • • • • • • • Title Page Declaration Certificate From Guide Acknowledgement Contents List of tabels List of figures Chapter 1 .Review of literature Chapter 3 1. Utility of Study 8.
The word ‘Banking’ as being defined by Sec. draft. The access to retail funds is on account of the cheque facility that permits an account-holder to transmit funds at will. Banks are institutions that channelise the savings of individuals and entities into investment in productive assets in the economy. trade and services. It is rightly termed as “Science of Money”. Given these. Different methods of assessment of project financing are carried out by Credit Department of a bank.5 (b) of the Banking Regulation Act. Project funding and Credit Risk management depends upon bank’s ability in generating any type of Volume and Mix of loans depending on two factors – bank’s strength and Credit requirement in operational area. 1949. industry. Presently due to competition and meeting the demanding standards of customers has made lending a tough job for bankers. Banks deploy a major portion of fund by way of loan and advances. which are then deployed in financing agriculture. While lending banks also keep into account the wider national objectives of economic and social development.CHAPTER 1 (A) INTRODUCTION TO BANKING (1. Risk managers face a wide range of demands from working with multiple variables to funding technology. This convenience of easy . ensuring optimum return. order or otherwise." Banks are business institutes with the undoubted objective of earning profit. and the fact that the bulk of funds lent belong to depositors. as: 'Banking' means accepting. of deposits of money from the public repayable on demand or otherwise and withdrawal by cheques. for the purpose of lending or investment. The art of managing risk is more challenging then ever now a days. The accumulate the savings in the form of demand and time deposits.1) INTRODUCTION TO BANKS Finance occupies an important place as input in every economic activity. it is necessary that funds be deployed on a sound and realizable basis. Lending Business provides a major part of the total income of the bank. Banks have the advantage of low cost funding as they have access to the retail fund base. The term CREDIT comes from Latin word ‘CREDO’ meaning ‘I TRUST’.
It is believed that the transition from money lending to banking must have occurred even before Manu. who has devoted a section of his work to deposits and advances and laid down rules relating to rates of interest. The others.transmission of funds has led to accumulation of funds at relatively low interest rates across numerous retail accounts thereby providing the bank with enormous resources at low cost of funds. the Bank of Bombay in 1840 and the Bank of Madras in 1843. During the days of the East India Company. In the first half of the 19th century the East India Company established three banks. The Bank of Hindustan is reported to have continued till 1906 while the other two failed in the meantime. These three banks also known as Presidency Banks were independent units and functioned well. the great Hindu Jurist. the Bank of Bengal in 1809. The General Bank of India was the first Joint Stock Bank to be established in the year 1786. which followed. These three banks were amalgamated in . During the Mogul period. the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. it was the turn of the agency houses to carry on the banking business. 1. were the Bank of Hindustan and the Bengal Bank.2 INDIAN BANKING SYSTEM – THE HISTORY Banking in India has its origin as early as the Vedic period.
for meeting the requirements of Indian economy. With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of India. The Reserve Bank of India was constituted in January 1935 and it commenced its business in April 1935. the first among them being the Bank of Bengal. The Deposit Insurance Corporation was established in January 1962 as a wholly owned . the Imperial bank of India commenced its operations after taking over the businesses of all three presidency banks. As these banks do not conduct exchange and remittance between Indian banks and other countries.1920 and a new bank. PRE-INDEPENDENCE PHASE : Although. The World War II period saw the proliferation of banking institutions in country and by 1947 there were 558 commercial banks operating in India of which 99 were scheduled banks and 459 were non-scheduled banks. RBI tightened its control over the Commercial banks due to failure of Pallai Central Bank in August 1960. the ‘Imperial Bank of India’ was established on 27th January 1921. was in operation in ancient India Modern banking has been legacy of the British rule. which received its charter in 1809. 1949. in some form or the other. this situation lead to the entry of Exchange Banks (Foreign banks) towards later half of the nineteenth century. banking in India has evolved through four distinct phases: • Foundation Phase can be considered to cover 1950s and 1960s till the nationalization of banks in 1969. The joint stock banks were followed by three Presidency Banks. The focus during this period was to lay the foundation for a sound banking system in the country. The first comprehensive legislation relating to banking in country came with the adoption of the Banking Companies Act. POST-INDEPENDENCE PHASE: In the five decades since independence. A major development was transformation of Imperial Bank of India into State Bank of India in 1955. The Bank of Bombay and Bank of Madras were established in 1840 and 1843 respectively. money lending and indigenous banking. As a result the phase witnessed the development of necessary legislative framework for facilitating re-organization and consolidation of the banking system. In January 1921. The first Joint Stock bank was established in Calcutta in 1870 by one of the Agency House.
Branch network of the banks was widened at a very fast pace covering the rural and the semi-urban population. credit management. the macro economic crisis faced by the company in 1991 paved the way for extensive financial sector reforms which brought deregulation of interest rates. The banking commission headed by R.3 INDIAN BANKING SYSTEM – THE CURRENT SCENARIO Banking Industry in India has always revolved around the traditional function of deposits and credit. which had no access to banking hitherto. was the nationalization of 14 major banks in July 1969. the regional rural banks came to be established in 1975. Most importantly. The National Bank of Agriculture and Rural Development was established in 1982 to organize the industrial support to agriculture and rural development. According to recommendations of Narasimhan Committee. Expansion Phase had begun in mid 60s but gained momentum after nationalization of banks and continued till 1984. Attention was paid to improving housekeeping. A determined effort was made to make banking facilities available to the masses. Reserve Bank of India introduced the Head Bank Scheme towards end of 1969. Sarauja gave report on structure and functioning of banks in feb. In 1980 six larger private sector banks were nationalized bringing the number of nationalized banks to 20. Consolidation Phase. more competition. technological changes. capital adequacy. 1. The most memorable event relating to banking industry. Measures were also taken to reduce the structural constraints that obstructed the growth of money market. staff productivity and profitability of banks.1972. Their role had been defined as to assist the overall .S. the phase started in 1985 when a series of policy initiatives were taken by RBI which saw market slowdown in the branch expansion. credit flows were guided towards the priority sectors. Due to amalgamation and liquidation in 1967 the members of commercial banks declined to 91 of which 71 were scheduled banks and 20 were non-scheduled banks. an event that was to transform the banking industry beyond recognition. customerservice. Based on the recommendations of the Gadgil Study Group and the Narasimhan Committee. autonomy packages. etc. prudential guidelines on asset classification and income recognition. Reform Phase.• • • subsidiary of RBI. However this weakened the lines of supervision and affected the quality of assets of the banks and pressurized their profitability and brought competitive efficiency of the system at low ebb.
The recent merger of Times Bank with HDFC Bank was an important step in this direction. their operating expenses have been falling as compared to the PSU banks. Banks have started catering to the retail segment to improve their deposit portfolio. the more efficient and pro active players would be able to take a lead. Most of the banks have now been trying to function on the concept of a Universal Bank. This move will enable these banks to raise further capital to adhere to the CAR requirements and will also help in changing their perception in the market vis-à-vis the private sector banks. But with the process of liberalization. In order to have a maximum share in this segment. Most of the banks are also planning to enter the insurance business and are in the process of identifying their strategic partners. The new generation private sector banks have made a strong presence in the most lucrative business areas in the country because of technology upgradation. The market. Apart from the traditional functions of a commercial bank. The rules of the game have been changing with the RBI introducing new norms to make banks more accountable and to adopt the practices followed worldwide. their efficiency ratios (employee’s productivity and profitability ratios) have also improved significantly. Since most of the banks already have an extensive distribution network. phone banking. While. Technology has become an important medium of not only attracting new customers but also in retaining them. The delivery channels have also been shifted from branches to ATMs. The government is planning to bring down its stake in the public sector banks from 51% to 33%. most of the banks have been introducing new products. INDIAN BANKING STRUCTURE . net banking etc.economic growth with majority of share being controlled by the Government of India in most of the banks. most of the new private sector banks have shown interest in inducting a foreign partner in their operations. has now been facing stiff competition not only from foreign players but also from the new generation private sector banks. they are taking steps to build themselves into a one stop financial center wherein all the financial products would be available. the banking industry has also undergone tremendous change in the last 5 years. In recent times. Mergers and Acquisitions have also started playing their role in the banking industry where lots of players are trying to consolidate their position. But with most of the top league players planning to enter this business. this new business should result in substantial revenues. which was largely controlled by the public sector banks.
food procurement programmes. This combined with the labour policies of the public sector where employees ‘ salaries promotions are not linked with their job performance. Some of the priority sector loans were given without adequate safeguards against default. The success of banking sector very much depends on the ownership of banks-whether private or public or mixed-whether the industry is competitive or oligopolistic and the extent of entry restrictions on new banks. in turn. etc. It is estimated that twenty one percent of the loan advanced by the public sector banks are non-performing. while the management has felt no pressure to improve efficiency or banking services. most of the major commercial banks were nationalized in India in 1969. The reserve bank of INDIA also began enforcing uniform interest rates and service charges among nationalized. quality of customer service and work culture in the banks.The structure of the banking industry affects its performance and efficiency which. Of the funds left with banks. . left 25 per cent of bank deposits to meet the financial rates. again at concessional rates. or more equal income distribution. left 25 per cent of bank deposits to meet the financial needs of all the remaining sectors. Another effect of the lack of competition is that most banking operations have not computerized as workers oppose it fearing job losses. Thus the social benefits of priority sector lending have proved to be smaller and cost higher than originally expected. 40 per cent must be lent to priority sectors at concessional rates and further requirements of loan to the exporting industries. This caused a lack of competition among public banks or between the public and private banks. has led to steady decline efficiency. spreads between lending and deposit rates etc. With the nationalization. Concessional priority sector lending imposes a burden on the rest of the economy which must subsidize the cost of such loans and is faced with r3educed credit availability to the more productive investment. which may not receive adequate credit otherwise. employment generation. For the first time. affects the banks’ ability to collect savings and channel them into productive investment. how far it is regulated in terms of interest rates. restriction on entry and expansion of private and foreign banks increased. A significant proportion of loans were shared by those for whom it was never intended. The purpose of priority sector lending was to increase the proportion of credit to those sectors important to the national economy in terms of their contribution to growth.
1999. Important Functions of RBI Monetary Authority: Formulates implements and monitors the monetary policy. While the RBI followed a low interest rate policy until the mid 1970 the interest rates have been fairly since then. Most of these categories attracted nominal annual interest rate of 13%. protect depositors' interest and provide cost-effective banking services to the public. the RBI has usually set interest rate. The Reserve Bank of India is the central bank of our country. Regulator and supervisor of the financial system: • • Prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objective: maintain public confidence in the system. Such a bank does not deal with the general public. Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors. exporters etc. Manager of Foreign Exchange • • Manages the Foreign Exchange Management Act. The Central Bank provides guidance to other banks whenever they face any problem. It acts essentially as Government’s banker. However a large fraction of loans were subsidized including loans for the public sector. maintain deposit accounts of all other banks and advances money to other banks. CENTRAL BANK A bank which is entrusted with the functions of guiding and regulating the banking system of a Country is known as its Central bank. The Central Bank maintains record of Government revenue and expenditure under various heads. when needed. . Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. priority sector. Issuer of currency: • Issues and exchanges or destroys currency and coins not fit for circulation.Since bank nationalization in 1969. It is therefore known as the banker’s bank.
4CLASSIFICATION OF BANKS: 1.the banking and issue departments.1 SCHEDULED COMMERCIAL BANKS Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act.• Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. are mainly attended at headquarters or the central office of the bank located in BOMBAY. 1934. Developmental role • Performs a wide range of promotional functions to support national objectives. These two departments constitute what are known as “local” offices/branches of the bank & are located at sixteen major cities of the country. Internal organization & management of RBI The chairman of the central board of directors of the bank and its chief executive authority is the governor.4. Banker to banks: maintains banking accounts of all scheduled banks. Formulation of policies and rendering of advice to government on economic and financial matters etc. also acts as their banker. The department of non-banking companies located in CALCUTTA. The governor is assisted at present in the performance of his duties by four DEPUTY GOVERNORS and four EXECUTIVE DIRECTORS. the SBI &its subsidiaries. 1. RBI in turn . In place where there is no office of the bank. For a satisfactory performance of the vastly increased volume of work some of the central office department has established regional offices at various centers. it is represented by agents & sub agents. Related Functions • • Banker to the Government: performs merchant banking function for the central and the state governments. He has the powers of general super intendance and direction of the affairs and business of the bank. The EXECUTIVE DIRECTOR comes in between the DEPUTY GOVERNOR and the CHIEF MANAGER The primary functions of the bank are exercised through two separate departments.
In those days. or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act. 1959 (38 of 1959). foreign banks (45). out of which over 1400 were non-scheduled banks. all the banks were joint stock banks and a large number of them were small and weak. At the time of the second world war. a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act. a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act. but does not include a co-operative bank". 1949 . There are more than 300 scheduled banks in India having a total network of 64. The scheduled commercial banks in India comprise of State bank of India and its associates (8). Hence the Government has to step in and the Banking Companies Act. 1970 (5 of 1970). about 1500 joint stock banks were operating in undivided India. 1955 (23 of 1955). private sector banks (32).918 branches. A quiet few of them were managed by bad and dishonest management and naturally there wer6e a number of bank failures. 1934 (2 of 1934). COMMERCIAL BANK: Banks in India were started on the British Pattern in the beginning of the 19th century. nationalized banks (19). 1980 (40 of 1980). or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act.includes only those banks in this schedule which satisfy the criteria laid down in section 42(6)(a) of the act.
co-operative banks and regional rural banks. there were 300 scheduled banks in India having a total network of 64. 1999. 2. In terms of Sec. State bank of India and its associates (8).(which was subsequently renamed as Banking Regulation Act) was enacted which led to gradual elimination of weak banks who were not in a position to fulfill the various requirements of the Act. TYPES OF COMMERCIAL BANKS • • • Public Sector Banks Private Sector Banks Foreign Banks . Non-scheduled banks are those joint stock banks. The scheduled commercial banks in India comprise of. which are not included in the second schedule of the RBI act on account of the failure to comply with the minimum requirements for being scheduled. 3. 1997. 1956 or an institution notified by the Central Government in this behalf or a corporation or a company incorporated by or under any law in force in any place outside India. private sector banks. refinance etc and correspondingly. submission of returns etc. Scheduled banks are those banks which are included in the second schedule of the Reserve Bank Act. It must be a state co-operative bank or a company under companies act. foreign banks.Scheduled Banks and Non-scheduled Banks. It must satisfy RBI that its affairs are not conducted in a manner detrimental to the depositors. there are only 3 non-scheduled commercial banks operating in the country with a total of 9 branches. a new section 45 was inserted in the Banking regulation Act in September. It must have a paid-up capital and reserves of an aggregate value of not less than Rs 5 lakhs. the other nationalised banks (19). 42(6) (a) of the Reserve Bank of India Act. 1934. a bank should fulfill the following conditions: 1. The scheduled banks enjoys certain privileges like approaching RBI for financial assistance. As on 30th June.918 branches among them. Today banks are broadly classified into two . As at the end of 30th June. empowering the Government of India to compulsorily amalgamate weak units with stronger ones on the recommendations of RBI. 1960. In order to strengthen the weak units and revive public confidence in the banking system. they have certain obligations like maintaining certain cash reserves as prescribed the RBI.
1969. Comilla Union Bank Ltd. It was incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced operations as Scheduled Commercial Bank in January 1995 FOREIGN BANKS: Foreign banks have been doing the normal banking business in the country. (1918).Public Sector Banks Among the Public Sector Banks in India. RBI was very slow in granting any further approvals to these banks. Comilla Banking Corporation Ltd. the United Bank of India Ltd. Second the nationalization of 14major commercial banks on July 17. 1969 and last. The Public Sector in India banking emerged to its present position in three stages. followed by the taking over of the 7 state associated banks as its subsidiary banks. Examples of public sector banks are: State Bank of India. First. (1914). (1932). was formed in 1950 with the amalgamation of four banks viz. when the norms were relaxed later on. 1980. Even. Bank of Baroda and Dena Bank. The first private bank in India to be set up in Private Sector Banks in India was IndusInd Bank. Thus 27..These are banks where majority stake is held by the Government of India or Reserve Bank of India. the nationalization of 6 more commercial banks on April 15. United Bank of India is one of the 14 major banks which were nationalized on July 19. banks constitute the Public sector in the Indian commercial Banking. During the period of nationalization. in the Public Sector Banks. etc. Bengal Central Bank Ltd. But most of these banks have concentrated on the metropolitan cities of the country and have been able to do reasonably well. to set up a bank in the private sector banks in India as part of the RBI's liberalization of the Indian Banking Industry. the entry of new foreign banks and expansion by existing foreign banks were prohibited. Private Sector Banks Private banking in India was practiced since the beginning of banking system in India. Its predecessor. These banks . Corporation Bank. (1922) and Hooghly Bank Ltd. It is one of the fastest growing Bank Private Sector Banks in India The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited. the conversion of the exiting imperial Bank of India into the State Bank of India in1955.
or for expansion and modernization. 1. some of the foreign banks in recent times have expressed their plans of acquiring few Indian banks for further expansion. Any co-operative bank as a society is to function under the overall supervision of the Registrar.2 DEVELOPMENT BANK Business often requires medium and long-term capital for purchase of machinery and equipment. 1. Such financial assistance is provided by Development Banks. In the last couple of years. the society must follow the guidelines set and issued by the Reserve Bank of India. In the post liberalization period.4. Most of the developments in the last couple of years have been in favor of the new generation private sector banks that have equipped themselves with latest technology and have also focussed more on fee-based revenues. They also undertake other development measures like subscribing to the shares and debentures issued by companies.4. in case of under subscription of the issue by the public. Industrial Finance Corporation of India (IFCI) and State Financial Corporation (SFC) are examples of development banks of India.have used the latest technology to compensate for the limited number of branches they have. Co-operative Societies of the State. These bank norms are however expected to be eased. Looking at the potential of the Indian markets. A number of new players have entered and the existing players have consolidated their position in the market. The society has to obtain a license from the Reserve Bank of India before starting banking business. This has intensified the competition in the banking sector and has made most of the old players rethink their strategy. for using latest technology.3 CO-OPERATIVE BANK People who come together to jointly serve their common interest often form a co-operative society under the Co-operative Societies Act. . The current RBI norm does not allow an Indian Bank to place equity with a foreign bank carrying branch transaction in the country. When a co-operative society engages itself in banking business it is called a Co-operative Bank. some of the foreign banks have entered the retail segment and introduced a number of new products in the market. there has been a sharp increase in the total business done by the foreign banks. As regards banking business.
district level and state level. These banks provide loans to their members (i. These banks are organized at three levels.1. The operations of each society are restricted to a small area so that the members know each other and are able to watch over the activities of all members to prevent frauds. EXIM Bank. They are primary credit societies. etc. central co-operative banks and state co-operative banks. primary credit societies) and function as a link between the primary credit societies and state co-operative banks. The bank grants loans to exporters and importers and also provides information about the international market. the risks involved in it and the competition to be faced. EXIM bank can provide you the required support and assistance.4.4. SIDBI and NABARD are examples of such banks. which cater to the requirements and provide overall support for setting up business in specific areas of activity. village or town level.e.3. Small Industries Development Bank of India (SIDBI): . They engage themselves in some specific area or activity and thus.. It gives guidance about the opportunities for export or import. State Co-operative Banks: These are the apex (highest level) co-operative banks in all the states of the country. Export Import Bank of India (EXIM Bank): If person wants to set up a business for exporting products abroad or importing products from foreign countries for sale in our country.4 SPECIALIZED BANKS There are some banks. They mobilize funds and help in its proper channelisation among various sectors. 1.1 TYPES OF CO –OPERATIVE BANKS There are three types of co-operative banks operating in our country. Central Co-operative Banks: These banks operate at the district level having some of the primary credit societies belonging to the same district as their members. are called specialized banks. Primary Credit Societies: These are formed at the village or town level with borrower and non-borrower members residing in one locality. The money reaches the individual borrowers from the state co-operative banks through the central co-operative banks and the primary credit societies.
If a person is engaged in agriculture or other activities like handloom weaving. loan on easy terms can be available through SIDBI. But these are the plans and no public sector bank seems to be in a position right now to make a serious Foray into internet banking. But on the other hand some new private sector banks are fully computerized and they are launching a gateway to facilitate intra-bank transfer of funds through Internet. to cooperative credit. ICICI Bank Ltd. NABARD can provide credit. The gap regarding the productivity Information technology has made . branch network is on increasing trend. Most public sector banks have hundreds of branches without computers and inter bank connectivity is a distant possibility. Citibank are very active on this front and concentrating on Internet and e-commerce to offer their clientele a whole range of products under one roof. NATURE OF BANKING In India around 73% of the bank branches are located in rural and semi-urban areas. They are bringing banking services to the very door step. In the country as a whole only 10% of the branches of the public sector banks are fully computerized and 22% are partially computerized. each public sector bank will spend about $50 million over the next five years. SBI plans to invest $200 millions on technology over the next two years. etc. Especially HDFC Bank Ltd. small-scale industries. in the field of agriculture. It also finances modernization of smallscale industrial units. fishing. use of new technology and market activities. Some new private sector banks like Bank of Punjab LTD. UTI Ltd are fully computerized and they are providing services like ATMs. According to ways India. especially. Other public sector banks too have started spending on Information Technology. both short-term and long-term. It provides financial assistance. finance and develop small-scale industries. cottage and village industries handicrafts and allied economic activities in rural areas. The aim and focus of SIDBI is to promote. IDBI Ltd. they have started to penetrate in semi-urban and rural sector of India. through regional rural banks. online services and they are not lagging behind in any way.If person wants to establish a small-scale business unit or industry. Recently. Their profits. Their net profits are much more than other rival banks. National Bank for Agricultural and Rural Development (NABARD): It is a central or apex institution for financing agricultural and rural sectors. But some have started moving in this direction. a software company with core strengths in internet banking products.
3.the banking services sector faster. has experienced several problems mainly of the profitability and viability of the Banks. With the introduction of Information Technology. psychology of customers. In spite of positive achievements and meeting various socio-economic goals. The major factors affecting the profitability of Indian Banks include higher SLR and CRR requirements. more efficient and more economical. it is no longer constrained by its global credit policies. customer service was affected badly. the expenditure by banks kept a higher pace of increase particularly administrative costs. 4. political and administrative interference. Similarly. export credit. productivity. the Banking system in India during 1980s. etc. 2. contributed to the lower profitability of public sector Banks BENEFITS OF BANKS Benefits of Banks to Large Corporate 1. branch expansion of public sector banks into Rural and semi-urban areas. These factors contributed for less income realization by Public sector Banks. deterioration in the quality of assets. food credit. The large corporate is able to save on the cash discounts which it offers to the buyers for early realization of the receivables. This clearly indicates the low profitability of Indian Banks. work technology remained stagnant and the transaction cost kept on increasing over the years. NEEDS FOR THE BANKING The fast expansion and spread of the banking sector in India after 1969 have resulted in surfacing of several internal deficiencies in the system. The large corporate is able to offer an attractive financing option to its buyers and thus capture ‘channel loyalty. The Narasimham Committee observed that gross profits before provisions were no more than 1. employment. sick industrial advances.10 per cent of working Funds. etc. Its impact can be seen on the efficiency of banks. banking in India will never be the same again. If the large corporate is an MNC. profitability. The large corporate is able to pursue its aggressive sales plan. priority sector advances. . lack of improvement in operational methods leading to higher transaction costs. Due to these deficiencies. The internet is taking banks in the directions other than loans and deposits.
The large corporate is freed from the administrative hassles of receivables management. FUNCTION OF BANKS PRIMARY FUNCTION • • • • • • • • • • • • Accepting of deposits Fixed or time Deposit Account Current or Demand Deposit Account Saving Deposit Account Home safe Saving Account Recurring Deposit Account Advancing of loans Cash credit Loans and Advances Discounting of the Bill of Exchange Investment in Government Securities Credit Creation SECONDRY FUNCTION • • • • • • • • Agency or Representative Functions Collection and Payment of Various Items Purchase and sale of Securities Trustee and Executor Remitting of Money Purchase and Sale of Foreign Exchange Letter of References Other Agency Functions . 6. 8. 7. The large corporate payable cycle is increased. The large corporate is freed from the cost arising out of the requirement of placing advance with the supplier and can ask for better pricing from the supplier on account of the finance made available through the bank. The large corporate may be able to avail cash discount which is offered by its suppliers.5.
1949. (sec 6 to 36A) Part 2A: Control over management (sec 36AA to 36AC) . 1949 The banking regulation act was passed and consolidates and amends the law relating to banking companies. It come into effect from 16 March 1949 & applies to the whole of india. The banking regulations act.GENERAL UTILITY SERVICES • • • • • • • • • • Locker Facilities Business Information and Statistics Help in Transportation of Goods Acting as a Referee Issuing letters of credit Acting as underwriters Issuing of travelers cheques and credit cards Issuing of Gift cheques Merchant Banking Services Dealing in Foreign Exchange SOCIAL FUNCTION • • • • • • • Capital Formation Inducement to Innovations Impact on the rate of Interest Role in the Development of Rural sector Helpful in pushing-up the Demand Monetary policy Employment BANKING REGULATION ACT. has been divided into the following five parts: Part 1: Preliminary (sec 1to 5A) Part2: Business of banking co.
The banking public financial institutions & negotiable instrument laws (amended) act 1988 and the banking regulation (amended)act 1994.R.Part 2B: Prohibition of certain activities in relation to banking companies (sec 36AD) Part 2C: Acquisition of the undertakings of banking company in certain cases (sec 36AE to 36AZ) Part 3: Suspension of business & winding up of banking co. (sec 36 Bto45) Part3A: Special provisions for speedy disposal of winding up proceeding (sec45A to 45X) Part3B: Nomination of deposit accounts & ledgers. The following are the Scheduled Banks in India (Public Sector): • • • • • • • • • • • • • • • • • State Bank of India State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore Andhra Bank Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank . was further amended by banking laws (amend) act 1983 (effective from 15-2-1984).A. Part4: Miscellaneous (sec 46 to 55A) Part5: Application of the act to co-operative banks (sec 56 effective from 1st march 1966) The B.
Hongkong and Shanghai Banking Corporation Standard Chartered Bank. The Chase Manhattan Bank Ltd.• • • • • • • • • • Indian Overseas Bank Indian Bank Oriental Bank of Commerce Punjab National Bank Punjab and Sind Bank Syndicate Bank Union Bank of India United Bank of India UCO Bank Vijaya Bank The following are the Scheduled Banks in India (Private Sector): • • • • • • • • • Vysya Bank Ltd Axis Bank Ltd Indusind Bank Ltd ICICI Banking Corporation Bank Ltd Global Trust Bank Ltd HDFC Bank Ltd Centurion Bank Ltd Bank of Punjab Ltd IDBI Bank Ltd The following are the Scheduled Foreign Banks in India: • • • • • • • • • • • • American Express Bank Ltd. ANZ Gridlays Bank Plc. Dresdner Bank AG . Banquc Nationale de Paris Barclays Bank Plc Citi Bank N.G. Bank of America NT & SA Bank of Tokyo Ltd. Deutsche Bank A.C.
This is because further liberalization in the presence of large public sector borrowing requirement and consequently high interest rates cold weaken the financial system as banks non. Federations. legal. 1946 with 22 members. 2007 and has suggested that banks should adopt the new capital adequacy guidelines and parallel run effective April 1. To project good public image of banking through publicity and public relations. However. 7. increase in efficiency. Private Sector banks. housing finance corporations. Foreign banks having offices in India. To organise co-ordination and co-operation on procedural. technical.RBI expects banks to adopt the Standardized Approach for the measurement of Credit Risk and the Basic Indicator Approach for the assessment of Operational Risk. The functioning of IBA 1. The comprehensive restructuring of the public sector banks needs to be completed. etc. To pool together expertise towards common purposes such as reduction in costs. Indian Banks Association (IBA) The Indian Banks Association (IBA) was formed on the 26th September. productivity and improve systems. mutual funds. 5. Urban Co-operative banks. classify and circulate statistical and other information. To collect. To render assistance and to provide common services to members. To encourage sports and cultural activities among bank employees. 4. procedures and banking practices 6. need for financial reforms Financial sector reforms are most essential not only to ensure the efficient allocation of funds available for investment but also to strengthen the implementation of both fiscal and monetary policies and preserve macro economic stability. most of financial reforms proposed in INDIA can only be implemented if fiscal consolidations can be achieved. 3. This means the bank will have . To promote sound and progressive banking principles and practices 2. administrative and professional matters. 2006. Developmental financial institutions. Today IBA has more than 156 members comprising of Public Sector banks.performing assets will increase it is essential to take up the priority financial sector reform. RBI has also specified that the migration to Basel II will be effective March 31. merchant banks.
Inadequate accounting. which open the way for corruption. auditing and disclosure practices in the banking sector weakened the market discipline in INDIA 2. and portfolio decision. namely. nor were Indian firms allowed to tap the international capital for productive investment. Inadequate prudential supervision and regulation of domestic financial institutions and markets. The institutional infrastructure Banking Reforms . Foreigners were not permitted to invest in the Indian share or bond market. It is clear that the phase in which the development of India’s financial sector could benefit from direct government ownership is long over and that in third new phase the government’s most important and challenging role is full filling its overall responsibilities and in strengthening the institutional base of financial market. 3. There are some points which reflect the need of banking sector reforms: 1. On the other hand. thus retarding growth. The policy frame work 2. connected lending and gambling for redemption. At the same time. The financial health 3. unsustainable capital inflows. the pursuit of high return but low probability investment by institution with low or negative net worth. employments and compensation issues. the government’s equity share in these banks needs to be reduced below to fifty percent so as to create incentives for improved bank and management t and profitability. Implicit government guarantees encourage excessive. excessive external borrowing by the government to finance current account deficits and low return public sector investments over the 1980 led to build up of a foreign debt and balance of payment crisis in 1991. banking sector reforms have been concerned with improving the following areas: 1. Thus. Capital markets were under control of the government until 1991.more managerial autonomy over branch networks.
These include the following: 1. provisioning and capital adequacy. The regulated interest rate has been rationalized and simplified. in line with the accepted international standards.e. the banking industry might become a white elephant by the turn of the present century. 2. 4. have been implemented since 1992-93 to ensure safety of the financial system. The nationalized banks have been allowed direct access to capital markets to mobilize funds from the public although they will continue to remain in the control of the Government which will retain 51 percent of the equity. in that trend would continue without any change. such spectacular development was witnessed in the spread of branch network of banks. the Narasimham Committee was set by the Government of India in August 1991 which submitted its report within three months i. 3. Reduction in SLR committee has been. by and large. rather than in the improvement of the services to the customers. Accounting and prudential norms related to income recognition. has undergone a very special transformation in the past three decades. Hence. mobilization of savings and in creating employment opportunities for half a million persons. In order to support the major changes that took place in trade and industrial policies the depositors and the investors. 1969. in November. Frauds. The committee on Financial system well known as the Narsimham Committee. But for twenty years after the nationalization. Reforms of Banking SectoR A number of reform initiatives have been taken to remove or minimize the distortions that affect the efficient and profitable functioning of banks. did acknowledge the spectacular success of the public sector banks since the major banks were nationalized on 19 July. to recommend measures for bringing about necessary reforms in the financial sector. The number of lending rates has been reduced from six to three rates with . the financial institutions and the capital markets.The Indian Financial system comprising the commercial banks. achieved. corruption and misutilization of public money were discovered and as many economists warned. set up in 1991. a thorough review of the financial system was felt necessary. The medium target of 10% in CRR has also been achieved through the committee recommended that it should be reduced by 3 to 5 percent of the total deposits of the banks.
over the short term. the capital charge requirement for operational risk would grow 15-20% annually over the next three years. . two concessional rates and a floor rate for all advances above rupees two lakhs. 8. Movement of interest yield on Government securities towards market related rates has been allowed subject to prudential guidelines. In India. The recovery of debts due to banks and financial institutions act. 180-200 billion over the medium term. The implementation of the new norms under the reform measures will lead to considerable impairment of capital in some of the nationalized banks which have to recapitalize. they would derive benefits from improved operational and credit risk management practices. 11 billion). 6. followed by the new generation private sector banks (Rs. 7. over the long term. Transparent guidelines or norms for entry and exit of private sector banks have been stipulated. which implies that the banks would need to raise Rs.5 billion). A board for financial bank supervision has been established to strengthen the supervisory system of the BBI. commercial banks may need to augment their regulatory capitalization levels in order to comply with Basel II.5. 120 billion to meet the capital charge requirement for operational risk under Basel II. Implementation of Basel II is likely to improve the risk management systems of banks as the banks aim for adequate capitalization to meet the underlying credit risks and strengthen the overall financial system of the country. However. and the old generation private sector bank (Rs. Most of this capital would be required by the public sector banks (Rs. If the asset growth witnessed in the past and the expected growth trends will continue. 1993 was enacted for setting up of dedicated tribunals for expeditious adjudication and recovery of debt. 9. IMPACT ON BANKING SECTOR Indian banks would need additional capital to the extent of Rs. 7. 90 billion).
The period for this purpose is purposively selected because a research work bearing relevance to present study can be expected to justify its findings only when sufficient time has elapsed after the implementation of the reforms. . Barr and Siems (1996) presented new failure-prediction models for detecting a bank’s troubled status up to two years prior to insolvency using publicly available data and a new category of explanatory variable to capture the elusive. recommended for supervisory interventions and introduction of a rating methodology for banks on the lines of CAMEL model with appropriate modification to suit Indian conditions. 2007. System and Controls (i. The Accord stands on three pillars: (a) Risk Management.Capital Adequacy. Assets Quality.e..e. The study observed that the role of banks supervisors . Collazos Paul (1995) analyzed how liquidity shocks would affect the strategies followed by the bankers. The present chapter incorporates review of relevant literature the scholars have produced since 1995. element of institutional success: management quality. The Working Group has recommended six rating factors i. and for Foreign Banks four ratings factors. Compliance. the succeeding review is helpful in crystallising the research objectives of the present study. which views a bank as transforming multiple inputs into multiple outputs. Padmanabhan Working Group (1995).CHAPTER -2 REVIEW OF LITERATURE Basel II accord is already in vogue implementation by March. Peek and Rosengren (1996) established that the derivatives have become an essential instrument for hedging risks. yet moral hazard can lead to their misuse by problem banks. CACS). The supervisory strategy in India at present comprises both off-site surveillance and on-site inspection and control system internal to banks. in particular their probability of exit. (b) Supervisory Function and (c) Discipline. Quality is assessed using data envelopment analysis (DEA). namely. CAMELS. in its Report on On-Site Supervision. yet crucial. He suggested a new channel (different to bank runs) between liquidity risk and banking sector instability. Though in brief.
Currently such action is prompted by bank capital ratios. Kroszner (2001) examined the private interest theory of regulation can for the pattern of bank branching deregulation during the last 30 years. Persons (1999) presented the combined qualitative and quantitative information from financial statements and auditors’ reports with logistic models to differentiate failed from surviving finance companies in Thailand.S. the possible misuse of derivatives by troubled banks should be of concern to regulators. Gilbert. which was estimated to predict bank failures. . and a model estimated to predict downgrades of supervisory ratings Evanoff and Wall (2001) observed that there have been a number of recommendations to increase the role of subordinated debt (SND) in satisfying bank capital requirements as a preferred means to discipline the risk-taking behavior of systemically important banks. This study prioritizes the use of semi parametric and non-parametric methods which allow us to measure the effect of explanatory variables in the process of bank failure together with duration dependence effects. Dabos and Escudero (2000) studied the role played by several financial and economic indicators in determining the process of bank failure in Argentina after the Maxican crisis known as the “tequila effect”. Beneficiaries of branching regulation have supported a coalition favoring geographical restriction despite their costs to consumers. Because a relatively large number of banks active in the derivatives market have low capital ratios and are considered institutions with a significant risk of failure by bank supervisors. Meyer and Vaughan (2000) examined the potential contribution to bank supervision of a model designed to predict which banks will have their supervisory ratings downgraded in future periods.should be to limit the opportunity through more comprehensive data reporting requirements and closer supervisory scrutiny of derivatives activity at problem banks. They compared the ability of two models to predict downgrades of supervisory rating to problem status: the Board staff model. While some of the results also are consistent with the public interest theory. One such proposal recommended using SND yield spreads as the triggers for mandatory supervisory action under prompt corrective action guidelines introduced in U. These models have relatively high predictive ability for failed finance companies and low expected costs of misclassification. banking legislation in the early 1990s.
Credit to GDP ratio. Mor and Sharma (2003) attempted to provide a more comprehensive approach to management of NPAs in banks.Shirai (2001) focused on India’s banking sector which has been attracting and increasing attention since 1991 when a financial reform programme was launched. Second. They observed that investors’ views on the financial condition and prospects of banking organizations can be distilled from stock prices. Investment in Government securities to deposits.oriented. using a sample of some 400 observations. in the profitability. share of business of public sector banks. This paper assessed whether the reform programme has been successful so far in restructuring public sector banks and what elements of the programme have contributed and tackles some fundamental questions. He observed that there are three good lessons to be learned from India’s reforms. strict regulations should be introduced to prevent connected lending. liquidity and competitive functioning of public and private sector banks and finally the psychology of the bankers in respect of their disposition towards credit delivery and credit expansion. . the proportion of various types of advances etc. Batra and Dass (2003) concluded that NPA has affected the profitability. Vensal and Vensel (2003) presented some historical notes on the development of the Estonian banking system and the capital structure of banks.Trehan and Soni (2003) analyzed the operating efficiency and its relationship with profitability. in the public sector banking industry in India. Third. diversification of banks’ business should accompany interest rate liberalization in order to compensate for the expected decline in net interest income and prevent banks from taking excessive risks. It is argued that if the goal is to deal with NPAs (and more generally the health of the financial system) in a definitive manner and root them out. Kantawala (2004) examined the impact of the reforms on Credit Deposit ratio. She examined the difference in various aspects of the working results of the public sector banks and private banks when compared with foreign banks. First. Mastrone and Piper (2003) examined that market forces might be used to influence the direction of bank regulation. Geyer and Steyrer (2003) examined the relation between performance indicators of 20 different banks and transformational/ transactional leadership. Shirai (2002) examined India and China both carried out banking sector reforms in the 1990s. the entry of new banks should be promoted provided that they are sufficiently capitalized and technology. then it is necessary to first deal with the micro level issues at the level of each individual intermediary.
assess the performance of Indian banks on the basis of CAMEL model. Chakrabarti and Chawla (2005) studied the performance and efficiency of commercial banks. Singh and Singh (2006) estimated the impact of the identified variables on the financial margin of the Central Cooperative Banks in Punjab with the help of correlation and multiple stepwise regression approach. coverage and focus as also the tools employed. Ramudu and Rao (2006) established that the profitability of Indian banking sector is inevitable. A comparative analysis of various bank groups with respect to different variables has also identified certain specific problem areas of the respective groups. to know the status . Sharma and Kawadia (2006) examined the relationship between size and efficiency of Cubes. and HDFC. Bodla and Verma (2006) presented that supervisory system in banking sector is a substantial improvement over the earlier system in terms of frequency. Radam and Habibullah (2006) attempted to measure the productivity of the banking industry by employing the nonparametric malmquist index approach. Singh and Kohli (2006) undertook the study with the objectives: benchmark the Indian listed banks for the future. which are the key elements of the efficiency and efficacy of a country’s financial sector. Chatterjee and Sinha (2006) made a comparative assessment of the public ad private sector bank intermediation cost efficiency during the reform period Mansor. Mohan (2005) focused on the efficiency and productivity changes in the Indian Banking. Maji and Dey (2006) presented how strongly the process of globalization and liberalization has influenced the Indian banking sector. Kapil and Kapil (2005) examined the relationship between the CAMEL ratings and the bank stock performance. Kumar and Dennis (2005) examined the importance of a financial system in the development process of an economy. Shajahan (2005) studied 100 account holders of ICICI Bank in Chennai for portraying their varying levels of satisfaction. Banerjee and Duflo (2004) observed that NPAs are indeed a serious problem for banks in India and it is easy to see why a bank might hesitate to lend if the loan has a high risk of going bad. The study attempts to analyze the profitability of the three major banks in India: SBI. Ramshastri and Samuel (2006) analyzed the trends in important banking indicator from 1980 to 2005. give rating to top five and bottom five banks on the basis of their performance. covering both pre and post reforms period. He concludes that there is decline in productivity growth in the banking industry. ICICI.Reddy (2004) examined the competitiveness of Indian commercial banks in the deregulated period from 1996-2002.
and to recommend the areas where learned optimism is found to be weak. Rao (2007) measured the performance of the banks before and after administration of VRS. however. Issued. if any. items which can be combined should be shown under one head for instance ‘Issued and Subscribed Capital’. PROFIT & LOSS ACCOUNT ITEMS: A. the amount of deposit kept with Reserve Bank of India.. should not be extended to the outer column. Hyde (2007) conducted a study with the objectives: to study and compare learned optimism of the employees of nationalized and private banks. Sharma (2007) conducted a study with the objectives: to study the relationship between assets and liabilities of Indian banks in terms of nature and strength. Nationalised Reserves Banks & Capital (Fully Surplus owned By Central Government) Other Banks (Indian) Authorised Capital (…. Authorised.of technological advancement in private sector banks. Subscribed. capital adequacy ownership and bank size on the asset quality for the reforms period. to determine the components of assets explaining variance in liability and vice versa. For this purpose. Sinha (2007) evaluated the impact of factors like banks operating efficiency. Notes – General The changes in the above items. Where necessary. reviews the quantitative framework for operational risk and outlined the key challenges and the varying practices in the development of an operational risk framework. during the year. Janakiraman (2007) examined the capital adequacy guidelines under Basel II Accord. In the case of other Indian banks.. In the case of Banking Companies incorporated outside India. CAMEL analysis has been comprehensively used in following order for all the sample units. Balance Sheet Item Schedule Coverage Capital 1. EPW Research Foundation (2007) focused on the professed diversification taking place in the banking sector. each) Issued Capital (…. Calls-inarrears will be deducted from the called-up capital while the paid-up value of forfeited shares should be added thus arriving at the paid-up capital. 1949 should be shown under the head ‘capital’. BRIEF DESCRIPTION OF BALANCE SHEET.shares of Rs.. the amount. under sub-section 2 of section 11 of the Banking Regulation Act. Bhatt (2007) analyzed the banking industry journey from post independence to date. . It introduces the concept of operational risk. …. to study the impact of ownership over asset liability management in banks.shares Notes and Instructions for compilation The Capital owned by Central Government as on the date of the balance sheet should be shown. Called up capital should be given separately. to measure the growth of private sector banking in India.
Fixed deposits.I.2 of Rs. ….. In case of loss the balance may be shown as a deduction. etc. Credit balances in overdrafts. fresh issue of capital.. Demand Deposits i) from banks ii) from others II.. overdue deposits.Includes all types of banks deposits repayable after a specified term. cumulative and Deposits 3. Reserve created in terms of section 17 or any other section of Banking Regulation Act must be separately disclosed. The expression ‘capital reserves’ shall not include any amount regarded as free for distribution through the profit & loss account. other than those separately classified.shares of Rs. renewals or dimunition in value of assets or retained by V) way of providing for any known liability. Surplus on revaluation or sale of fixed assets should be treated as capital reserves. Includes balance of profit after Balance of Profit appropriations. Includes all types of deposits of the nonbank sector repayable after a specified term.shares of Rs. III) Share Premium on issue of share capital may be shown Premium separately under this head. Includes all demand deposits of the non-bank sectors. matured time deposits and cash certificates. inoperative current accounts. fresh contribution made by the Government. each) Less : Calls unpaid Add : forfeited shares Paid up Capital Banking Companies incorporated outside India I) Statutory Reserves II) Capital Reserves say. Includes all banks deposits repayable on demand. …. capitalisation of reserves. Includes all savings bank deposits (including inoperative savings bank accounts). are to be included under this category. IV) Revenue and The expression ‘Revenue Reserves’ shall mean any other Reserves reserve other than capital reserve. This item will include a) Investment all reserves.. ….. Notes – General i) Movements in various categories of reserves should be shown as indicated in the schedule. cash credit accounts deposits payable at call. each) Subscribed Capital (…. etc. each) Called up Capital (…. may be explained in the notes. A. The expression Fluctuation ‘reserve’ shall not include any amount written off or retained by way of Reserve providing for depreciation. Savings Bank .
c) Deposits under special schemes should be included under term deposits if they are not payable on demand. I.’ India. co-operative banks. Export-Import Bank of India. The total of these two items will agree with the total deposits. i) Deposits of repayment of which is subject to restrictions by its very nature. When such deposits have matured for payment they should be shown under demand deposits d) Deposits from banks will include deposits from the banking system in India. Borrowings outside India Secured borrowings included above Includes borrowings and rediscounts of Indian branches abroad as well as borrowings of foreign branches. agencies (including liability against participation certificates. cash certificates. foreign currency nonresident deposits accounts. etc. security deposits from staff. Deposits. annuity deposits. etc. Notes – General i) The total of I & II will agree with the total borrowings shown in the balance sheet. deposits mobilised under various schemes.Deposits III. Notes – General a) Interest payable on deposits (whether accrued and due and accrued but not due) should not be included but shown under other liabilities. ordinary staff deposits. foreign banks which may or may not have a presence in India. ii) Deposits of b) Matured time deposits and cash certificates. are to be included under this category. 4. National Bank for Agricultural banks and Rural Development and other institutions. etc. B. like margin deposits. Borrowings in Includes borrowings/refinance and rediscount obtained from Reserve Bank India of India. iii) Funds raised by foreign branches by way of Borrowings . ii) Inter-office transactions should not be shown as borrowings. Term Deposits i) from banks ii) from others recurring deposits. should be treated as branches outside demand deposits India. This item will be shown separately: Includes secured borrowings/refinance in India and outside India. also should not be included under branches in deposits but shown under ‘other liabilities. if any) II. Includes borrowings/refinance and rediscount obtained from i) Reserve Bank commercial banks (including co operative banks) of India Includes borrowings/refinance and rediscount from Industrial Development ii) Other Bank of India.
iii) It is proposed to show only pure deposits under the head ‘deposits’ and hence all surplus provisions for bad and doubtful debts contingency funds. currency notes) Includes the balance maintained with the Reserve Bank Cash and balances with the Reserve Bank of . Deferred this head. provisions and funds kept for specific purposes. if in credit. 6 I. Interest provisions Accrued The inter-office adjustments balance. unexpired discount. Other 5 I.certificates of deposits. V.). Only net position of inter. Hence advances will be shown at the gross amount on the asset side. secret reserves. outstanding charges like rent. ii) The interest accruing on all deposits. surplus provisions for depreciation in securities. etc. should be shown under IV. Bills Payable Includes drafts. etc. representing mostly items in transit and unadjusted items. which are not netted off against the relative assets should be brought under the head ‘Others’ (including provisions). depending upon documentation. ‘borrowings’ etc. conveyance. telegraphic transfers. etc. Inter-Office bankers cheques. other miscellaneous items. Cash in hand Includes cash in hand including foreign currency notes (including and also of foreign branches in the case of banks having foreign such branches. should be treated as a liability. whether the payment is due or not. surplus provisions in bad debts provision account.office accounts. notes. as ‘deposits’. etc. iv) Refinance obtained by banks from Reserve Bank of India and various institutions are being brought under the head ‘Borrowings’. margin deposits. and III. Others Includes interest due and payable and interest accrued but not due on deposits and borrowings Includes net provision for income tax and other taxes like interest tax(less advance payment. where the repayment is not free. etc. etc. should also be included under this head. proposed dividend/transfer to Government. Liabilities II. other liabilities which are not disclosed under any of the major heads such as unclaimed dividend. Notes – General i) For arriving at the net balance of inter-office adjustments all connected inter-office accounts should be aggregated and the net balance only will be shown. tax deducted at source. pay slip. bonds. mail transfers payable. certain types of deposits like staff security deposits. should be classified. contingency funds which are not disclosed as reserves but are actually in the nature of reserves. inland as well as Tax foreign should be shown here.
Balances in current accounts and deposit accounts should be shown separately. Investments in debentures and bonds of companies and corporations not included in item (ii) should be included iii) Shares here. if any. II) Outside India usually classified in foreign countries as money at call i) Current accounts ii) Deposit accounts Investments 8 I. Investments in India Includes Central and State Government securities and Government treasury bills. Balances held with foreign branches accounts by other branches of the bank should not be shown under this head but should be included in inter branch accounts. II. Includes all balances with banks in India i) Balances with Reserve (including co-operative banks). if any. which i) Government securities according to the Statutes are treated as approved securities. All foreign Government securities including securities issued by local authorities may be classified under this head. Bonds A company will be considered as an associate company for the purpose of this classification if more than 25% of the share capital of that company is v) Investments in subsidiaries/ Associate held by the bank. The amounts held in ‘current accounts’ and ‘deposit accounts’ should be shown separately. ii) Other approved Investments in shares of companies and corporations not included in item Securities (ii) should be included here. Securities other than Government securities. 7 I) In India of India in Current Account. should be included here. Balances with banks and money at call and short notice Includes balances held with the Reserve Bank of India other than in current accounts. Includes iii) Money at call and short notice with banks deposits and short notice. In Current Account with Reserve Bank of India. Includes residual investments.India II. Investments outside . and other institutions. Includes deposits repayable within Bank of India (other 15 days or less than 15 days’ notice lent in the inter-bank call money than in current market. account) ii) Balances with other banks in India Current Includes balances held by foreign branches and balances held by Indian accounts Deposit branches of the banks outside India. iv) Debentures and Investments in subsidiaries/associate companies should be included here. companies. like gold. All other investments vi) Others outside India may be shown under this head.
according to the statutes. ii) Due from others Fixed 10 I. overdrafts and loans repayable on demand iii) Term loans B. All the remaining advances will be included under this ii) Public sector head ‘Others’ and typically this category will include non-priority advances to the private. . i) Secured by tangible assets In classification under Section ‘A’. will be classified under three heads as indicated and both secured and unsecured advances will be included under these heads. Advances to sectors which for the time being are classified as priority sectors according to the instructions of the iii) Unsecured C. iii) Banks iv) Others II. all outstandings – in India as well as outside – less provisions made. Premises wholly or partly owned by the banking company for the purpose Notes – General i) The gross amount of advances including refinance but excluding provisions made to the satisfaction of auditors should be shown as advances. Advances should be broadly classified into ‘Advances in India’ and ii) Covered by Bank/ ‘Advances outside India’. All advances to the banking sector including co-operative banks will come under the head ‘Banks’. Reserve Bank are to be classified under the head ‘Priority sectors’. joint and co-operative sectors. Advances in India and outside India to the extent they are covered by guarantees of Indian and foreign governments and Indian and foreign banks are to be included. i) Bills purchased and Discounted ii) Cash credits. The item will include advances in India and outside India. Advances in India Advances to Central and State Governments and other Government undertakings including Government companies and corporations which i) Priority sectors are. to be treated as ‘public sector’. Advances outside India i) Due from banks ii) Term loans will be loans not repayable on demand. All advances or part of advances which are secured by tangible assets may be shown here. Advances in India will be further classified on Government Guarantee the sectoral basis as indicated.India i) Government securities (including local authorities) Advances ii) Others 9 A.I. Premises iii) Consortium advances would be shown net of recoveries from other participating banks/ institutions. All advances not classified under (i) and (ii) will be included here.
Only exceptional items of expenditure on stationery like bulk purchase of security paper. debentures. For arriving at the net balance of interoffice adjustment accounts. should be shown here. Interest accrued III. every balance sheet after the first balance sheet subsequent to the reduction or III. advance tax paid. clearing items. This will include non-banking assets and items like claims which have not been met. Tax paid in advance/ tax deducted at source. Items. etc. Other assets 11 I. which are pending adjustments. which are in the nature of expenses. Claims against the Liability on partly paid shares. 12 I. under construction Motor vehicles and all other fixed assets other than premises but including furniture and fixtures should be shown under this head. if in debit. want of particulars.office accounts. As banks normally debit the borrowers’ account with interest due IV. debit items representing addition to assets or reduction in liabilities which have not been adjusted for technical reasons. The inter-office adjustments balance. V.Assets of business including residential premises should be shown against II. advances given to staff by a bank as employer and not as a banker. In the case of premises and other fixed assets. Stationery and on the balance sheet date. the previous (including furniture and balance. to the extent that these items are not set off against relative tax provisions should be shown against this item. etc. will be bank not acknowledged included in this head. as these items are for internal use. if in debt. Accrued income other than interest may also be included here. Interest accrued but not due on investments and advances and interest due but not collected on investments will be the main components of this item. usually there may not be any amount of interest stamps due on advances. additions thereto and deductions there from during the year as also the total depreciation written off should be shown. The value should be on a realistic basis and cost escalation should not be taken into account. should be shown under this head. which are shown as quasiasset to be written off over a period of time should be shown here. etc. inland as well as foreign. etc. Only net position of inter. loose leaf or other ledgers. Only such interest as can be realized in the ordinary course should be shown under this head. Contingent . should be provided for and the provision netted against this item so that only realisable value is shown under this head. Inter-office adjustments (net) II. Where sums have fixtures) been written off on reduction of capital or revaluation of assets. for instance. Capital work-inrevaluation should show the revised figures with the date and amount of progress or premises revision made. Other Fixed Assets ‘Premises’. etc. only should be shown representing mostly items in transit and unadjusted items. all connected inter-office accounts should be aggregated and the net balances. Others The amount of tax deducted at source on securities.
Liability on account India may be shown separately. commitments . Guarantee given on behalf of constituents.liabilities as debts. Arrears of cumulative dividends. Liability for partly paid investments. will be included in this head. Not separate schedule is proposed. Acceptances. III. Guarantees given for constituents in India and outside India may be shown separately. This item will include letters of credit and bills accepted by the bank on behalf of its customers. Liability for partly paid investments.12 I. Guarantees given for constituents in India and outside III. B. Profit & Loss Accounts sItem Schedule Coverage Contin. of outstanding forward exchange contracts This item will include letters of credit and bills accepted by the bank on behalf of its customers. Liability on account of outstanding forward exchange contracts IV. Guarantee given on behalf of constituents. endorsements and other obligations VI. endorsements and other Notes and Instructions for compilation Liability on partly paid shares. Other items for which the bank is contingently liable Bills for collection Bills and other items in the course of collection and not adjusted will be shown against this item in the summary version only. commitments under underwriting contracts. IV. Outstanding forward exchange contracts may be included here. are to be included here. liabilities II. b) Outside India V. II. a) In India b) Outside India V. Arrears of cumulative dividends. debentures. Claims against the gent bank not acknowledged as debts. Acceptances. estimated amount of contracts remaining to be executed on a) In India capital account and not provided for etc. etc. Outstanding forward exchange contracts may be included here.
are to be included here. Net profit on sale of Investments = Profit on sale of Investments – Loss on revaluation of investments Net profit on revaluation of investments = Profit on revaluation of investments – Loss Net profit on sale of land. money market placement. building & other assets = profit on sale of land. building & other assets Other Income 14 . if any. Interest /discount on earned advances/bills. Profit & Loss Accounts Item Schedule Coverage Interest 13 I. call loans. overdue interest and also interest subsidy. B. demand loans. and other inter bank funds Includes interest on balances with Reserve Bank and other banks. Net Profit on sale of land. overdrafts. term loans. Interest on balances with Reserve Bank of India the investment portfolio by way of interest and dividend. Includes all income derived from III. Net Profit on sale of Investments III. Exchange & brokerage II. Not separate schedule is proposed. relating to such advances/bills. Others I. Commission. Profit (net of loss) on exchange transactions Includes any other interest/discount income not included in the above heads. building & other assets – Loss on sale of land. export loans. Income on investments purchased and discounted (including those rediscounted). Bills and other items in the course of collection and not adjusted will be shown against this item in the summary version only.obligations VI. Notes and Instructions for compilation Includes interest and discount on all types of loans and advances like cash credit. Net Profit on revaluation of investments IV. estimated amount of contracts remaining to be executed on capital account and not provided for etc. domestic and foreign bills II. Other items for which the bank is contingently liable Bills for collection under underwriting contracts. etc. building & other assets V.
VI. Postage. Advertisement and Publicity V. Repairs and Maintenance . from subsidiaries/ companies and/or joint ventures abroad/in India Interest 15 Expended VII. etc. Telephones. PB Legal and other expenses debited in respect of PB Accounts X. Rent. Auditors’ fees & expenses (including branch auditors) VIII. Depreciation on Banks’ property VI. XI. etc. Taxes & Lighting III. Printing & Stationery IV. Others 16 I. Telegram. Income earned by way of dividends. Payments to and provisions for employees II. Law charges IX. allowances and Expenses VII. Miscellaneous Income I. Interest on deposits II. Interest on RBI/ InterBank borrowings Operating Expenses Provisions & Contingencies Appropriation of Profit III. Directors’ fees.
Transfer to Tax on Dividend VIII. Insurance XIII. Other Expenditure Provisions & Contingencies made for i) Income Tax ii) Other Taxes iii) NPA’s iv) Investments v) Others I. Transfer to Other Reserves VI.XII. Transfer to Statutory Reserves II. Notes on Accounts Item Schedule Coverage Movement of NPA’s Lending to Sensitive Sectors 17 17 I) Gross NPA’s II) Net NPA’s I) Advances to Capital Market Sector II) Advances to Real Estate Sector Notes and Instructions for compilation . Balance carried over to Balance Sheet C. Transfer to Debenture redemption reserves V. Transfer to Proposed Dividend VII. Transfer to Capital Reserves III. Transfer to Investment Fluctuation Reserves IV.
Maturity Profile of Selected items of Liabilities & Assets Loans subjected to Restructuring and Corporate Debt Restructured Capital adequacy Ratios 17 17 III) Advances to Commodity Sector I) Deposits II) Borowings III) Loans & Advances IV) Investments V) Foreign Currency Assets and VI) Foreign Currency Liabilities I) Standard Assets during the year II) Sub Standard Assets during the year III) Doubtful Assets during the year I) Capital Adequacy Ratio II) Capital Adequacy Ratio – Tier I and III) Capital Adequacy Ratio – Tier II I) Return on Assets II) Business (Deposits+ Advances) per employee III) Profit per employee 17 Business Ratios 17 .
Risk is exposure to uncertainty. which method best suits its objective. So. The art of managing risk is more challenging than ever now-a-days. Risk has two components: Uncertainty and Exposure to that uncertainty. but risk that is misplaced. . Risk management oversees and ensures that integrity of process with which risks are taken. To know about the business composition of Schedule Commercial Banks. mismanaged. Risk itself is not bad. Studying Fundamental analysis and its application as a tool for analysis of stocks. In this project I have studied the business composition of Schedule Commercial Banks so through which I acquainted with how much percent of their total earnings is through interest income? How much is from non-interest income Banks have now entered in service sector for diversifying risk &earning more profits. its view and its pocket. Risk Management is continuously evolving mix of science and art. misunderstood or unintended is bad. 3. its business. Credit risk is most simply defined as potential that a borrower or counter party will fail to meet its obligation in accordance to agreed terms. Risk managers face a wide range of demands from working with multiple variables to funding technology.2 RESEARCH OBJECTIVE The objective of the research project is: • • • To gain an insight to the Indian Banking Sector.1 PROBLEM STATEMENT As discussed before Banks carry the business of lending & borrowing. they need to know the way through which they come to know what is their business composition? Apart from this one year data’s do-not tell whole of the trend. Lending and Risk go hand to hand. Each banking institution needs to assess.CHAPTER -3 3.
the secondary data have been obtained from following sources: o o Source from internet. Journals. The proposed study is the exploratory cum descriptive.• • Finding out the counter which is profitable and having maximum return in Banking sector. 4. Research Design The research design is the conceptual structure within which research is conducted. Changing data of banks due to new policy. Collection of Data The present study is based on the secondary data. Internet Fluctuation. . In it we study the various steps that are generally adopted by the research methods or techniques and also the methodology. The data collection for banking will be mainly of secondary. To add the information. measurement and the analysis. The data available for research may be manipulated. To know about the banking industry. It contains the blue print for the collection. 3. 5. It may be understood as the science of study how research is done systematically. Research Methodology Research methology is the way to systematically solve the research problem. magazines and books. The main limitation of the project is Time Constraint as I had only 3 2. Researcher has used the questionnaire method for collecting the data from the employees of the selected banks. Limitations 1. Banking reforms and Banking in India as a Introduction part. month to complete the project.
74 0.12 36.09 199298 11.14 10.82 7.56 3.15 -1.11 26.33 18.44 15.36 10.66 13.56 11.71 21.08 -6.43 OSCB 26.14 39.87 4.44 8.3 9.08 22.09 36.24 14.89 23.76 16.46 13.65 -6.09 36.07 0.38 .54 2.73 0.07 6.31 23.31 23.6 17.48 10.4 14.31 15.96 17. Research process • • • • • • Review of literature.o Published and unpublished research works of the various eminent scholars in the field.61 8.49 12.79 15.21 17.16 19.98 OSCB 22.31 21.19 16.42 9.57 1999-05 9.31 21.52 8.08 10.21 9.13 198591 22.4 9.25 16.25 16.3 -7.98 1.77 13.44 12.64 21.26 9.75 0.11 10.06 20.7 14.02 30.13 11.24 27.54 -0.94 11.08 19922005 12.61 12.56 15.2 8. earlier studies Designing of Research instrument Secondary Data Collection analysis and interpretation of Data Report writing &discussion of major finding with the guide Submission of Report ANALYTICAL TOOLS Table 3.83 11.74 38.41 9.06 Growth Rate of Income and Expenditure of Indian commercial Banks in India 19852005 Interest Earned SBI NB FB AB Interest/discount on advances/bills SBI NB FB AB Income on Investments SBI NB FB OSCB AB Interest on balances with RBI and other inter-bank funds SBI NB FB OSCB AB 15.
85 13.36 49.91 13.76 41.2 27 19.95 8.43 14.77 8.42 11.09 15.34 .05 10.65 21.14 14.09 37.26 26.88 15.26 4.09 24.29 22.36 13.16 20.7 28.19 24.97 12.51 -13.33 16.02 24.05 18.58 11.1 6.14 OSCB 34.08 15.16 12.56 18.17 16.5 13.22 6.52 OSCB 28.88 OSCB 24.7 8.73 -4.63 199298 15.7 17.96 12.79 14.68 16.18 17.7 17.05 -6.08 6.35 14.47 17.99 13.62 10.03 16.35 12.2 38.27 0.42 14.51 21.48 13.71 2.01 21.48 23.08 14.65 6.76 23.93 40.63 36.92 8. exchange and brokerage SBI NB FB AB Total Income SBI NB FB AB Interest Expended SBI NB FB AB Interest on deposits SBI NB FB AB Interest on RBI/inter-bank borrowings SBI NB FB OSCB AB OSCB 28.7 17.13 12.82 18.84 0.88 36.29 22.26 21.99 -0.81 16.04 17.54 13.33 12.39 17.02 22.37 2.16 22.96 17.56 19.42 23.41 12.1 16.03 OSCB 27.38 1.91 10.71 16.06 A Growth Rate of Income and Expenditure of Indian commercial Banks in India 19852005 Operating Expenses SBI NB FB AB Payments to and provisions for employees SBI NB FB 13.05 36.12 7.76 41.11 4.9 28.57 12.Other income SBI NB FB AB 18.08 9.36 15.02 24.18 15.58 -6.5 40.04 13.88 11.91 12.98 15.51 24.08 33.06 18.9 13.52 11.27 11.07 24.2 16.5 19.82 11.78 18.23 15.67 -3.09 24.76 9.12 10.49 31.75 20.44 23.27 14.56 7.34 25.42 15.68 13.58 16.95 14.26 28.95 11.98 28.59 Commission.81 7.36 199205 12.29 17.52 15.38 21.15 12.32 12.03 8.48 13.47 35.86 19.88 33.38 16.91 17.75 28.08 14.28 -11.55 16.89 5.96 23.03 21.77 4.46 Table 3.32 11.62 -11.37 13.63 13.36 26.23 198591 18.9 24.75 30.18 15.93 21.57 OSCB 25.37 10.86 -7.6 1999-05 8.
87 28.38 14.85 16.58 10.99 17.6 3 20.9 7.85 85.47 16.90 89.42 43.42 35.12 77.28 36.36 13.79 21.29 1.54 OSCB 49.61 27.04 87.16 10.81 23.85 90.78 3.47 16.40 88.42 12.4 14.2 33.86 84.72 43.46 18.42 43.14 15.79 14.36 27.99 78.95 14.12 11.7 28.58 16.02 25.28 85.5 34.31 83.56 10.31 92.42 43.74 18.38 83.38 39.5 16.76 25.85 32.20 81.13 12.34 10.14 87.54 32.62 28.07 Ratios of Income and Expenditure of Indian Commercial Banks 1985 1990 1992 1995 1998 2000 2004 2005 1985-05 1985-91 1992-05 1992-98 1999-05 Interest Income SBI NB FB 88.09 37.29 47.86 21.48 119.34 Table 3.2 14.73 28.37 16.06 88.72 43.14 15.55 11.02 93.05 18.51 12.32 23.55 11.5 12.93 21.31 86.44 38.97 13.13 60.06 14.79 21.29 47.63 36.69 86.08 25.74 22.48 12.62 22.95 49.32 9.81 78.86 37.4 4.97 AB Total Expenditure (Including Provisions and contingencies and Profit / Loss) SBI NB FB AB Net Profit( Total Income-Total expenditure) SBI NB FB OSCB 42.16 32 20.69 30.75 42.93 47.33 9.87 28.64 91.42 35.74 12.37 35.83 88.62 10.04 12.72 37.19 16.83 82.03 14.41 14.35 12.93 20.87 11.02 35.68 13.19 33.84 2.26 18.86 OSCB 28.27 49.81 12.07 OSCB 26.04 38.38 38.OSCB 18.98 89.40 .47 9.36 9.76 11.63 85.26 33.92 OSCB 27.29 88.99 79.15 31.59 25.79 23.28 19.56 12.09 70.13 60.97 91.38 79.37 35.12 37.95 7.17 89.34 19.65 21.72 14.19 35.02 12.19 17.05 15.62 80.77 16.01 20 10.81 7.58 12.02 53.36 13.81 AB Provisions and contingencies SBI NB FB OSCB AB Total Expenses (Excluding Provisions and contingencies) SBI NB FB AB Profit / Loss SBI NB FB OSCB 41.05 20.75 77.41 85.43 14.54 15.65 38.32 23.17 24.36 80.15 27.16 69.92 4.19 1.93 82.58 28.72 43.58 12.48 15.23 19.87 20.79 75.18 86.54 32.01 21.91 AB Operating Profit( net profit+ provision) SBI NB FB AB Total Expenditure including Provisions SBI NB FB AB 39.
22 85.88 OSCB 91.28 6.18 1.15 4.42 2.87 6.90 61.01 27.95 25.26 47.02 56.37 15.65 83.16 64.92 70.11 10.43 54.77 90.37 13.89 26.11 1.91 48.99 41.96 12.61 58.38 85.63 60.49 69.70 6.43 5.18 31.88 22.43 26.29 66.78 6.85 34.29 56.44 93.71 39.70 64.80 56.75 11.61 90.64 10.62 20.56 14.19 6.74 58.84 9.42 90.80 39.20 11.34 88.96 51.49 55.96 11.39 44.98 6.96 66.36 55.57 29.19 21.17 17.13 31. Exchange and Brokerage SBI NB FB 91.85 55.19 38.92 6.86 34.23 AB Income on Advances SBI NB FB AB Income on Investments SBI NB FB OSCB AB Non interest Income SBI NB FB AB Commission.05 48.16 22.48 63.90 62.29 37.97 53.03 62.92 30.17 54.65 52.73 10.91 38.77 42.32 44.93 65.76 9.39 9.24 11.26 44.97 2.18 7.10 10.75 47.41 26.35 85.34 26.88 34.06 43.99 33.57 4.12 2.10 6.05 1985 1990 1992 1995 1998 2000 2004 2005 1985-05 1985-91 1992-05 1992-98 1999-05 Interest Expended SBI NB FB AB Interest on Deposits SBI NB FB AB Interest on Borrowings SBI NB FB OSCB AB Operating Expenses SBI NB FB 64.31 61.01 64.42 83.52 68.44 5.05 40.31 35.79 12.73 1.11 13.93 26.05 21.15 9.61 45.82 14.17 43.76 84.69 64.50 6.39 26.85 77.25 59.09 12.62 54.84 51.22 49.80 51.26 38.19 16.78 14.54 59.49 54.71 9.80 61.36 8.63 10.44 0.17 89.21 60.25 22.05 6.77 63.21 7.41 90.78 41.52 27.93 60.20 58.64 5.51 13.82 59.67 34.96 19.66 7.57 8.35 1.54 8.57 53.99 51.83 65.94 5.64 52.94 8.40 49.92 42.81 84.39 63.95 37.69 11.49 86.89 3.14 62.34 41.01 30.51 58.36 11.64 19.27 2.63 55.19 19.24 48.58 OSCB 5.73 22.21 5.24 1.17 35.24 90.04 42.36 85.09 12.95 42.07 17.80 31.61 59.05 12.63 53.68 .75 12.43 16.89 49.60 69.39 36.06 36.04 1.42 12.77 90.61 26.36 3.58 31.58 36.04 8.65 11.08 56.69 13.OSCB 91.44 15.80 2.02 31.28 27.67 36.58 43.77 61.90 87.83 10.38 83.14 62.64 81.89 11.62 18.84 68.58 9.62 45.61 90.69 8.66 6.40 33.10 12.79 2.44 2.25 66.43 8.37 28.30 4.60 11.92 70.93 2.42 42.12 44.32 35.86 22.20 14.61 56.55 31.95 91.74 62.71 33.42 7.08 29.62 16.98 40.66 38.69 64.29 48.50 7.16 6.42 26.09 60.01 20.28 27.14 62.96 66.61 32.27 33.80 18.39 25.76 88.52 90.96 59.21 87.80 36.53 36.14 13.91 61.58 37.87 68.32 57.87 11.63 26.86 31.80 29.88 2.42 55.90 42.71 28.28 39.95 25.04 80.31 9.42 90.72 14.03 5.90 AB 8.59 59.12 41.47 56.34 53.71 38.15 52.62 59.52 9.30 35.91 29.34 37.30 47.87 68.01 2.13 58.83 57.39 33.03 17.30 9.67 21.20 8.31 0.09 15.17 11.38 19.16 53.31 29.34 53.31 92.79 36.21 40.96 23.46 8.91 59.65 25.08 68.12 35.16 6.13 7.53 41.89 3.53 26.74 11.89 86.16 14.93 49.05 16.69 7.81 29.81 2.69 57.28 22.25 26.67 3.96 3.49 2.05 53.52 42.01 8.89 23.72 30.97 6.55 OSCB 61.35 55.60 18.83 82.93 60.99 46.86 12.96 5.95 56.24 78.82 25.54 2.37 12.15 59.03 15.76 21.78 8.16 37.64 9.59 26.58 16.84 39.84 30.80 2.53 29.91 63.62 16.99 48.05 24.50 19.15 22.96 27.00 4.64 91.85 41.52 6.20 6.69 3.63 71.93 27.59 9.80 35.43 87.34 64.14 62.88 50.85 34.54 16.34 14.32 50.22 28.26 10.74 10.38 11.67 3.01 44.14 14.07 41.23 65.50 40.77 11.81 25.18 59.98 48.32 48.23 53.03 OSCB 61.41 42.79 42.77 52.71 59.57 57.65 39.46 51.59 5.95 83.04 38.05 27.64 42.34 3.58 24.24 51.42 66.11 11.90 55.40 48.76 26.67 1.84 68.14 53.35 45.26 OSCB 8.29 5.19 27.65 40.29 10.43 16.63 71.52 68.59 59.13 12.03 63.67 64.49 69.23 11.64 14.97 2.31 13.64 48.61 48.12 2.15 9.44 38.11 86.64 55.07 57.47 34.54 24.22 2.26 1.27 88.19 53.46 38.58 5.
20 29.11 22.83 19.84 8.33 OSCB 27.17 14.36 8.50 19.96 23.35 25.22 15.& Provision SBI NB FB AB Provision & Contingencies SBI NB FB OSCB AB 33.29 18.15 8. The interest received on bank deposits kept with other financial intermediaries is also part of it.82 22.07 19.93 19.05 20.86 16.52 14.11 15.06.08 16.09 18.20 12.75 19. This trend is considered the outcome of competitive environment.52 20.10 20. A bank’s income statement indicates the amount of revenue received and expenses incurred over a specified period.73 14.55 24.10 11.21 18.75 17.48 23.10 16.21 11. how Indian banks are responding to newly deregulated environment.57 10.12 26.05 15. traditional financial intermediation role of banking.84 9. whereby banks make loans that are funded by deposit is showing the declining trend.34 15.11 30.01 18.49 14. Interest Income The principal source of bank revenue is the interest income generated by the bank’s earning assets comprising of loans and investments.66 11.08 22.71 14.48 20.50 7.07 37.53 26.OSCB 29. Table 3.71 12.39 23.11 14.20 24.49 9. the structure and growth of major components of income statements of Indian commercial banks is presented in Table 3.68 10.26 17.28 AB Payments To Empl.90 11.80 33.57 14.27 19.95 27.06A.49 14.99 29.37 25.26 22.13 26.58 25.97 26.99 27.25 12.82 18.04 15.79 18.96 14.27 9.79 26.61 11.59 19.18 5.28 9.28 18.98 7.22 22.17 18.40 20. Table 3.09 23.07A.30 17.05 19.69 27. Usually a close association exists between size of the principal items on banks balance sheet and its income statement.07 and Table 3.20 15.20 Table 3. .90 20.87 20.36 25.08 23. In recent years all over the world and also in India.91 18.31 25. To know.32 11.05 11.42 18. The income statement is also a major source of information of bank’s business orientation as well as the sources of a bank’s earnings and their quantity along with its expenditure.63 21.73 18.81 15.08 7.30 10.15 13.06 18. and discussed as given below. with the liberalisation of financial system.49 25. In India interest income has been a major source of earning for all SCBs.19 9.70 16.08 29.33 10.83 14.68 12.14 12.35 8.77 15.87 23.02 8.52 12. It is also an indication of the performance of the balance sheet of a bank in existing environment.93 14.60 18.66 9.06 30.37 19.81 16.36 20.56 24.40 25.33 20.34 13. Presently banks are entering into non-traditional sources of funding of the resources and diversifying their activities into different areas.39 10.47 21.37 12.04 14.18 19.52 8.46 21.07 A Ratios of Income and Expenditure of Indian Commercial Banks ANALYSIS & INTERPRETATION Income and Expenditure: Structure and Growth of Indian Commercial Banks.59 19.62 10.
27% average growth in total income for the same period.2 Non Interest Income Income earned through sources other than earnings from loans and investments is accounted under non-interest income and usually includes fees earned from providing fiduciary services.interest income accrued from advances and from investment.1% which is more than 10% of the average growth of total income (11. commission. Interest income is further divided into its sources. Recently in bank management. compared to 14. As shown in the Table 3. It is observed that income earned in the form of commission. exchange and .42% in 1985. exchange and brokerage etc.4.Its average share in total income had remained more than 75% for the period 1985-05.52% of the total income in the period 1992-05 in relation to 9. The average share of investment income in total income had increased from 31. However in recent years. The sustainability of this trend is also revealed from the growth of interest income as shown in Table 3. Similarly. It shows that the growth of interest income had decreased significantly during liberalisation period and it had become 13. With liberalisation and softening of interest rates banks are finding it difficult to earn steady income from interest income. it has been showing the sign of decline and share in total income had decreased from 85. This trend was visible for economic liberalisation era (1991-05) where on the average its share became 85. This decline in interest income has become more pronounced in the post-financial liberalisation period with its share reduced to 84. Interest income derived from advances is continuously decreasing in case of India. the non-interest income of all SCBs had increased by 21.06 the noninterest income registered the average growth rate of 18. This trend in growth rate was also reflected in the share of non-interest income which increased to 14. during the post-financial liberalistion period.88% during 1992-05.30%.78% in relation of 90. The trend of non-interest income in case of Indian scheduled banks showed the movement towards diversification of activities. Besides.06.08%). In banking sector interest income generated through investment had recorded for rising trend for the period 1992-05.08% in 1985-91.20% during 1992-98 to 37.43% in 2005 compared to 91. non-interest income is targeted as a key source of future income. major part of investment in government securities by the banks indicates that they are interested in deploying their funds in safe investment rather than advances and loans where more risk is involved.03% during post financial liberalisation period implying the allocation of the assets by all SCBs to marketable financial assets which serve the purpose liquidity and returns both.76% in preliberalisation period 1985-91.61% in 1992-05 compared to 23. 3.24% in the period 1985-91.
It indicates that private banks and foreign banks are more capable in diversification of their funds. Group-wise. Therefore it decreased to 6.49% and 69.3.36% in 1992 to 1.22%. In case of India . In case of post liberalisation period. The private banks in particular are showing relatively higher growth in the non-interest income during post-liberalisation period.4 Operating Expenses Operating expenses comprise wage expenses and non-wage expenses such as rent.64% in the period 1992-98.3 Interest Expenses It forms the largest expense for most of the commercial banks. on an average deposit expenses shrank to 53. Among bank group. foreign banks witnessed the maximum decline in both growth rate and share of interest expenditure followed by other bank groups.48% growth in post-liberalisation period.brokerage that formed major portion of non-interest of banks declined from average share of 8. advertisement. status of interest income and non-interest income showed that private banks and foreign banks are more dependent on non-interest income in comparison to public sector banks.4. This decline in growth rate was also reflected in the share of interest expenditure in relation to total expenditure which reduced to 49. It comprises interest paid on deposits and borrowings and is the aggregation of interest paid on interest bearing liabilities.96% in the preliberalisation period.32% in 2005. All SCBs exhibited maximum increase in interest expenditure in pre-liberalization period with average growth rate of 24.88% during the post-financial liberalisation period. legal charges and expenses related to the running and maintenance of bank’s computer and information technology system etc.12% compared to 68. The interest expenses of all SCBs reported average growth of 15.49% in 1985 and 69.34% of total income during 1985-91 to 7. Similar trend is observed for interest on borrowing for all SCBs and its share decreases from 9.91% in 1992 to 40. This expenditure registered further deceleratation during post financial liberalisation period and reported average growth rate of 6. The fall in the interest expenses across all categories of banks was in tandem with fall in the interest rates across the board and the introduction of floating rate deposits by RBI.80% in 2005.91 in 1985 and 1990 respectively. taxes and lighting. The operating expenses are also called cost of intermediation and it is the major item focused by bank management for cost control. It resulted into fall in share of interest on deposits in total expenditure from 66.42% against the 12.27% during 1985-05. 3.74% in 2005 from 66. 3.
Loan loss includes the impaired value of the loan provision and interest due.12% per annum. and in aggregate the item of provision and contingencies constitute more than 10% of total expenses.91% in post-liberalization period against 20.5 Provision for Loss and Contingencies The major items on provision and contingencies consist of provision for loan losses.37% growth rate during 1985-05 and it reduced and recorded an average growth rate of 13.07A it is clear that all the bank groups and public banks in particular registered sharp increases in provisions and both in percentage term and also as ratio to total expenses. All groups of banks except foreign banks had registered a significant decline in wage bill growth in post liberalization period and in recent years during post financial liberalization period this growth rate is reduced to single digit for all groups of banks except private banks.29% in the pre-liberalization period. As per the guidelines of RBI. presently every commercial bank is required to make provision to compensate the loss due to non-performing assets. In case of Indian banking sector.83% and 16. This reflects that the Indian banks had been able to contain their operating expenses in new economic environment.the operating expenditure of all SCBs had increased with 15. The government of India has undertaken numbers of reform in the banking sector since early 1990 for introducing the efficiency and enhancing the productivity of the banks. . Consequent of decrease in growth of expenditure.3. The major chunk of operating expenses came from wage bills and provisions for employees. major portion of provision are made to compensate the loan losses. respectively.06A and 3.83% during postliberalization period against the average share 30. provision for depreciation in value of investment and provision for taxes. 3. The impaired loans are also termed as non-performing assets. The decrease in the growth was more pronounced during 1999-05. 3.96% and 21.08% in preliberalization period.4 Financial Performance of Scheduled Commercial Banks in India A commercial bank is viewed as efficient when it has been able to meet its objectives in competing environment and offering competing services at relatively lower prices. From Table 3. without exposing it to higher level of risks. the share of operating expenses and wage bills in relation to total expenditure decreased to average share of 25. losses due to change in market value of assets etc. when the growth in operating expenses had reached to an average growth rate of 11.
50% during the period 1985-05. The initial cost arises from mobilising funds and subsequently allocation of these funds in different assets is called intermediate cost.08A and 3.As the present study is focussed on bank’s productivity and efficiency. To identify the benchmark we have considered the period of 1996-05 as representative of Indian banking sector and accordingly we have used the quartile figure of average of financial ratios of sixty-three banks for the period 1996-05 to get the representative benchmark for analysing the performance of commercial banks in India.08B. Besides. the present financial reforms also encourage the banks to reduce their non-interest expenses especially salaries.4. The period of the study is divided into two sub periods for the purpose of analysis. present the results of the aggregate performance of commercial banks along with group performance and the Table 3. the competitiveness environment in banking sector has forced the commercial banks to adopt the cost cutting methods to reduce the operating expenses. 3. Table 3. we have taken the sample of sixtythree schedule commercial banks which remained in existence during the period 1996-05. In competitive environment for greater efficiency in their operation. other employer’s benefits and overhead costs. 3.09 to Table 3.09. The financial performance measures based on ratio analysis require benchmarks to understand the comparative performance of banks. In the post liberalisation period. These banks include all the public sector banks which have been in business in the period 1985-05. In case of India. The result of this . provide the results of financial performance of 63 sampled scheduled commercial banks of India. To examine the performance of banks at individual level. all the SCBs at aggregate level are able to contain the intermediation cost and average intermediate cost in terms of total assets was hovering around 2. the bank management focuses on reducing operating expenses and increasing the productivity of their employees through use of automated equipment and improved employee training.08. we selected only those financial ratios for measure of financial performance of the banks which are related to profitability and efficiency.1 Intermediation Cost The cutting of cost is the immediate strategy the banks adopt in competitive environment for maintaining their profitability levels. It is also known as operating expenses. The sub period 1996-05 include all the sampled sixtythree banks. The sub period 1985-95 includes the public sector banks only and other sector banks are excluded from this period due to non availability of data on the income and expenses statements for the period 1985-91.
One of the factors said to be responsible for this higher figure is expenditure incurred by public banks on expansion of their branches in the remote areas to meet the social objectives. the share of 65% banks was above 2. The high proportion of operating expenses in case of public banks might be also due to spreadness of their branches in remote areas. At individual level (Table-3. 67% public banks had shown the operating expenses in relation to total assets more than 3. However. Thus as a group the private banks and foreign banks were better managed to control their operating expenses. If we leave one to three public banks.measure is also reflected in the form of substantial decline in intermediation cost across all categories of banks. Among bank groups more technology intensive private and foreign banks had exhibited a substantial lower proportion of wage bills during post financial liberalisation period.668% and in the period 1999-05. During 1996-98.668% of total assets for the period 1985-05. This component had showed decline in its share of intermediation cost from average share of 68. fail to reduce its wage bills less than 62. It was noticed highest in the case of nationalised banks and no public banks were able to reduce its share below 37. .02% during 1985-91 to 65.941%. the majority of public sector banks suffered from higher intermediation cost 81% of these banks had reported it more than 2. After nationalisation and before the liberalisation of the Indian economy. This decline was more evident in private banks despite their entry into retail banking and it may be the outcome of their aggressive introduction to information technology and recruiting only trained manpower. this position reversed and the 65% of banks were observed for share less than 2. It may be noted that all the sampled six new private sector banks recorded for share of wages and salaries less than 37. the other inefficiencies also got enveloped in this process. the remaining all public banks including SBI group.09% of operating expenses. The major components of intermediation cost are wages and salaries that constitute more than 60% share in major groups of banking sector.668% of operating expenses. In relation to total assets.527% reflecting the impact of computerisation of their branches along with their concentration in urban areas.09). the wage bills which are the major proportion of intermediation cost showed large divergence among the bank groups.09% during the period 1985-05.527%. If we compare the operating expenses of banks before and after the financial liberalisation the majority of banks of all groups have been able to contain this expenditure. On the other had majority of private banks and of foreign banks had shown their share below 62.20% in the period 1992-05. The public sector banks had been struggling to reduce the wage bills indicating overstaffing had reported its average share of more than 70% of intermediation cost for the period 1992-05.
during this period.699% for the period 1985-91 and in the period of economic liberalisation (1992-05) the percentage of public banks below this ratio reduced to 73. during preliberalisation. The relative position of earning assets of commercial banks during the pre and post liberalisation period indicates that the competitive pressure is forcing the banks to deploy their funds in more earnable assets resulting this ratio to increase from 68. with the decontrolling of interest rate.56%. Among bank groups. During the post financial liberalisation period. This ratio has increased to 86. This ratio shows the further significant improvement for the public sector banks in the period of post financial liberalisation when nineteen banks of this group were bracketed for earning ratio than 80. The foreign banks recorded highest improvement followed by the private banks and public banks.054%. all the public sector banks reported the earning ratio below 79. rather it was the outcome of higher cost of administrative interest rate on .11).97% in 1985 for all commercial banks. the commercial banks has now more options to park their assets. Here it is to be noted that this lower figure was not the result competitive environment. It is also reflected in their earning assets ratio which increased substantially during this period and touched the average ratio of 80.11% against 74. It also shows the capability of the banks to earn.2 Earnable Assets The ratio of earning assets in proportion to total assets indicates the allocation of funds by commercial banks in revenue generating activities. the commercial banks on the average experienced a lower net interest income having meagre figure of 1. This ratio also reflects the allocative efficiency of banks since it derives a wedge between interest paid to the depositors and the interest charged to borrowers on their loans. entry norms and investment avenues. In case of India.28% during 1985-91 to 77. which reflects the improved health of the banks.3 Net Interest Income Net interest income is the one of the most important indicator of efficiency of banks and computed by dividing the excess of interest income over interest expense by total assets. the nationalised banks had reported the maximum improvement in this ratio during the period 1999-05 with average figure of 81.4.In case of other banks. This trend was observed across all the group of banks.34% in 2005 against 68.4. At individual level (Table 3.54% in the period 1992-98. majority of private banks had exhibited higher earning asset ratio in the period of post financial liberalisation period in comparison to foreign banks.3.7%.69% in the period 1992-05. 3.80%.
78% in the period . Across different banking groups. The above difference along with improved earning assets ratio leads to the improvement in the spread of the banks. The falling net interest income in recent years.deposits and accompanied by lower ratio of earning assets. with the deregulation of interest rates and along with other decontrol on banking activities.4 Asset Utilization Another ratio which is used for measuring the performance of bank is the asset utilization. At individual level. the position marginally improved with 11 public banks are observed for more than 3.223% against 31% in the period 1996-98 reflecting the effect of competitiveness on the individual banks performance. most of public sector banks were registered for lowered spread and in post liberalisation period. in the age of softer interest rate.30% on the average for all SCBs against 7. the net interest income has improved on the average and recorded as 2. 67% SCBs have recorded the net interest income ratio less than 3. 3. is the strongest evidence that competition in Indian banking sector has become reality. may be due to their access to funds of lower cost. This effect is more substantial in case of private banks. It is a productivity measure focusing on the firm’s ability to generate revenue compared to the asset base on which revenue can be earned.44 for all SCBs during post liberalisation period against 10. In recent years.1223% net interest margin. the foreign sector banks have recorded the highest net interest margin.64% against 6.81% despite the fall in the cost of funds. assets utilisation ratios have improved significantly after liberalisation and it becomes 10.223%.46% in pre-liberalisation period. The cost of funds moved in opposite direction and reduced marginally to 6. The yield on earning assets registered improvement with ratio of 11. In the post liberalisation period 1992-05. which has to mobilise the funds at higher costs in relation to other banks and all the six sampled new private banks were observed for net interest margin less than 3. This improved spread is the outcome of fall in the cost of funds due to the softer rate of interest and improved earning assets ratio of the banks and relatively higher returns on lended funds which are sticky downwards.87% for all commercial banks. in the sample of 63 banks has shown divergent performance. within this group. In India. during the post financial liberalisation period 1999-05. the competition among banks has hot up and in this process they are forced to cut the lending rates which is also resulted in the fall in interest income and ultimately fall in the net interest margin to 2. in the period falling before 1992. But during the post financial liberalisation period.75 for the above periods.4.
1985-05. The total income has two major components interest income and noninterest income. The interest income which includes more than 80% of total income has increased from on the average of 7.13% of total assets in preliberalisation period to 8.82% in post liberalisation period. The major growth in this component of income derived during the period 1992-98 when it touched to 9.41% on the average for all SCBs. The return on advances and investment which are main sources of interest income observed similar the trend. After 1991 the financial reforms led to the diversification of bank’s portfolio and business activities. It is evident from the rising share of non-interest income which has become on the average 1.45% of total assets during 1992-05, against 0.73% in pre-liberalisation period. During the post-financial liberalisation period which is also characterized by softer interest rate regime, the interest income of SCBs declined but the asset utilisation ratio remained stable due to increase to touch the share of other income which increased up to on the average figure of 1.53% of total assets during 1998-05 against 1.37% in 1992-98. At individual level, the public sector banks had shown significant increase in asset utilisation during the post economic liberalisation period and 25.7% banks of public sector banks are observed for more than 11.438% ratio against 7.4% banks of the group in the pre liberlisation period for the same ratio. Majority of private sector banks had emerged as more capable in utilising their resources with the reporting of highest asset utilisation ratio for all the sub period covering 1996-05, whereas the national banks were observed for the opposite side. For interest income ratio and non interest income ratio we found similar behaviour. It is noted that in the recent years the private banks were able to generate more non interest income in relation to other banks so stabilising their total income. 3.4.5 Financial Efficiency Another measure of efficiency is efficiency ratio computed by taking the ratio of non-interest expense to the sum of net interest income and non-interest income. This ratio is considered as the most popular ratio to evaluate a bank’s performance in the past because it reflects both on as well as off the balance sheet operations. Smaller value of efficiency ratio denotes greater efficiency, which is often assumed to be desirable because a given level of services is being provided at lower cost (supply side efficiencies) or because the services are of higher quality and therefore, command a higher price in the market place (demand side efficiencies). Table 3.16 reports the ratios of banking sector for the period 1985-05. During this period, the average efficiency of SCBs was
computed as 69.68% and in the economic liberalisation period, SCBs experienced the improved efficiency level with average 59% against 94.34% in the pre-liberalisation (1985-91). This level is further improved in the era of post-financial liberalisation with the value of 55.10%. Several reasons can be mentioned to explain this trend in efficiency. Firstly Indian commercial banks were able to contain the operating expenses in spite of huge spending on the computerisation in the banking sector. Secondly, due to better product mix in the liberalisation period, as evidenced by the increase in the share of other income.These reasons may be supported by the facts of falling of burden ratio in Indian banking sector. This ratio on the average decreased to 0.83% in the period 1999-05 from 1.35% for 1992-098. Among bank groups, the foreign banks and private banks outperformed other banks on the basis of efficiency criteria. The foreign banks have advantage of access to funds at lower cost along with a significant portion of non-interest income. The private banks are more efficient in cutting their operating expenses and have employed information technology for the purpose. Table 3.16 exhibits the individual performance of banks in the form of efficiency measure. The public banks average efficiency for the periods 198505, 1985-91 remained above 56.50%. In the liberalisation period, 30% public sector banks registered for improved efficiency score and achieved the value less than 56.50%. In case of all the sampled 63 banks, 64% banks have recorded efficiency score of less than 456.50% in post-financial liberalisation period against 53% banks in 1996-98. The efficiency of foreign banks reduced during 1999-05, which may be due to falling net interest income and increase in overhead cost in post-liberalisation period. 3.4.6 Return on Assets Return on assets reflects the efficiency with which banks deploy their assets. It means how bank resources are being used to generate net income. The ROA shows significant improvement in Indian commercial banks and it increased from the level of 0.09% in 1985 to 1.13% and 1.15% in 2004 and 2005 respectively. The shift in ROA is notable during the post-liberalisation period when it increased on the average to 0.47% in the period 1992-05 in comparison to 0.14% in the pre-liberalisation period 1985-91. Thus the financial reforms resulted in the improvement in the ROA. These reforms focused on improving the operational environment of banking sectors. During the period 1992-98, the ROA of SCBs declined significantly in comparison to 1999-05, caused by making provisions for NPA under the guidelines of BASEL Committee Report. Among bank group, the foreign banks outperformed other banks in extracting
returns on their assets reflecting their superior management approach in existing operational environment. With offloading of non-performing assets, public sector banks have registered a significant improvement in ROA. Particularly in case of nationalised banks ROA increased up to 0.84% in the period 1999-05, against -0.38% in 1992-98. The individual performance of banks on the basis of ROA is depicted in Table 3.17 It shows that after liberalisation majority of commercial banks from across the all groups, are moving towards high rate returns as is evident from the results that 61% banks recorded ROA more than 0.844% in 1999-05, against 49% for the same figure in 1996-98. 3.4.7 Equity Base The equity base of the commercial banks is one of the determinants of soundness of bank’s balance sheet. It shows a significant improvement in SCBs over the period, and increased to 6.26% in 2005 from 1.33% in 1985 and 1.68% in 1990, which reflect the risk bearing capacity of the banks. The CRAR of SCBs has shown significant improvement and in recent years all banks on the average has more than 12% of CRAR. The foreign bank has highest capital adequacy ratio with more than 41% CRAR on the average for the period 199805. 3.4.8 Other Performance Measures Another parameter of the soundness of banking institution is the asset quality of assets which is measured by the level of NPA. With offloading of past legacy GNPA of past loans and introduction of better appraisal and screening mechanism of financing the credit, the public sector has recorded significant in NPA ratio and it reduced to 5.51% in 1999-05 in comparison to 8.83% in 199298, and the respective figure for nationalised banks are recorded as 6.33% against 9.81%.Business per employees had shown tremendous increase during the post liberalisation period in all the categories of banks in relation to its performance in pre liberalisation period.
36 10.46 13.83 11.24 198591 22.31 15.31 21.82 NB 14.Interest Earned SBI 19852005 15.49 12.54 2.52 8.31 23.56 .33 FB 18.21 9.12 36.61 199298 11.09 36.77 13.08 19922005 12.09 19922005 8.6 199905 7.41 199905 9.24 27.98 AB 16.3 9.4 14.7 198591 22.16 19.26 9.42 Interest/discount on advances/bills SBI NB 19852005 9.19 OSCB 26.31 21.25 16.14 10.08 199298 9.
4 Interest on SBI balances with RBI NB 19922005 8.66 Income on Investments 19922005 SBI 17.25 10.71 21.87 199298 -7.96 17.13 OSCB 22.48 12.08 .61 FB 12.21 AB 17.75 0.56 15.31 26.07 199905 9.02 OSCB 30.13 36.79 NB 15.65 -6.44 23.11 10.54 -0.74 3.08 11.14 39.94 23.89 38.3 199905 13.FB 14.06 20.44 15.98 1.64 10.2 199298 21.38 AB 11.44 8.11 16.
08 198591 19.81 7.16 NB 12.51 24.1 Commission.07 11.88 OSCB 28.43 Other income 19852005 SBI 18.65 21.48 FB 23.96 199905 6.05 18.16 19922005 11.08 33.88 199298 16.26 21.15 0.74 AB 6.49 31.02 OSCB 34.32 199298 16.05 36.81 199905 17.57 0.76 0.73 OSCB 16.2 27 19922005 15.09 24.and other interbank funds FB 4.12 10.75 NB 20.99 13.36 49.68 13.52 AB 15.71 198591 19.05 .47 FB 17.56 18.08 15.75 30.06 18.96 17.47 35.56 19.52 11.52 15. exchange and brokerage 19852005 SBI 14.09 -1.04 17.88 36.96 23.75 28.59 AB 22.37 10.07 24.38 21.09 15.88 33.56 -6.
42 11.7 28.58 16.76 23.43 199905 6.93 40.65 6.17 16.18 OSCB 28.26 4.36 13.48 13.18 15.79 14.95 14.98 OSCB 27.58 11.76 9.27 198591 23.42 19922005 11.73 -4.22 .56 7.02 24.14 NB 14.63 13.93 21.27 199298 12.48 199298 11.57 AB 15.11 4.03 AB 17.95 199905 10.98 28.76 41.09 37.01 21.5 NB 13.03 FB 16.91 10.63 36.41 12.82 11.08 Interest Expended 19852005 SBI 14.08 198591 22.7 17.Total Income 19852005 SBI 16.97 12.44 19922005 12.86 FB 19.29 22.
86 199298 14.62 AB 14.51 1.5 198591 23.62 10.42 19922005 13.91 199905 6.77 4.36 26.35 OSCB 25.33 199298 -11.58 -6.7 8.84 0.33 NB 12.71 2.76 41.5 40.51 21.27 -0.37 AB 2.05 -6.99 199905 -11.38 0.04 13.7 17.14 Interest on RBI/inter-bank borrowings 19922005 SBI -7.28 -13.2 38.02 24.57 12.36 15.9 OSCB 24.46 .08 9.13 12.29 22.42 FB 14.Interest on deposits 19852005 SBI 14.67 NB -3.03 FB 8.
5. 6. 4. If they start more involved in these services banks will grow more. Banks should spend more on other services to let them grow. As Foreign banks have shown more growth other banks should follow their footprints or take some new steps to improve this.interest income has been increased the banks must enter into other new fields. It should be increased further. A good portion of banks expenses is on interest expense. As the income proportion of interest income has been decreased and the 2. This has been increased. Indian commercial banks were able to contain the operating expenses in spite of huge spending on the computerization in the banking sector. as evidenced by the increase in the share of other income. So banks may follow the same policy regarding it. Banks should provide loan after deeply checking the creditability of person. Due to this banking growth has reached to this point. As the business earning from non interest income is decreasing. So the banks should control these.SUGGESTIONS 1. Earnable asset ratio shows the capability of the banks to earn. That is a good sign. These reasons may be supported by the facts of falling of burden ratio in Indian banking sector. Foreign banks have recorded reduction in wage bills and other operating expenses that has been result in their high growth. 3. Banks must take steps so that NPA’s could be reduced. proportion of non. As the all sectors have increased the provision for loan losses this is a bad outcome. Other banks should also follow their policy. . Due to better product mix in the liberalisation period.
The private sector banks include 24 foreign banks that have started their operations here. The banking sector is the core contributor of any country’s economy. They continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them of high deposits mobilization. the public sector banks have acquired a place of prominence. They have a combined network of 53000 branches &17000 ATMs. And economy depends vastly on various developing industries of the country. Reserve Bank of India is the regulating body for all the banks in India. .2% & 6. Industry estimates indicate that out of 274 commercial banks operating in India. which is growing by leaps and bounds. Banking in India today is doing fairly well in its services. currently in India there are 88 schedule commercial banks out of which government has a stake in 28 public sector banks. rural development. Only the foreign and few private banks haven’t touched rural grounds. quality of work and reach. extensive flow of foreign money and business and liberal policies have improved our economic condition exemplarily. Note that the public sector banks hold over 75% of total assets of the banking industry with the private & foreign banks holdings 18.5% respectively. In terms of quality of assets and capital adequacy. The opening up of our economy. which was once only a sleepy business. The nationalized banks and cooperative are performing an exceptional job in the rural sections. The nationalized banks in their umbrella also include the co-operative banks focusing on the areas of agriculture. 223 banks are in the public sector and 51 are in the private sector. free trade. etc. The banking sector in India is growing at a faster pace to match the growth of the Indian economy. The Indian banking has shown tremendous growth. Indian banks are said to have transparent functioning and brilliant records of the balance sheets relative to other banks in comparable economies in its region. Since the nationalization of Indian banks in Indian banks in 1969. private banks &specialized banking institutions.CONCLUSION Every country’s growth depends on the strength of her economy. The rating agency ICRS Ltd. The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits & 60% of advances. Indian Banking can be categorized into nationalized banks. There are 29 private banks and 31 foreign banks.
5%. the RBI has evolved guidelines for greater financial gain to attain a sustainable growth rate of 10% GDP p. At the start of the 3rd quarter of the financial year. This can also be an opportunity to restructure policies for a new vision based on faster and broader based growth. 96486 crores added to advances against Rs.4%. and investment services are expected to be strong. The Indian economy has recorded a robust growth for the 4th successive year during 2006-07 with the real GDP growth for touching 9. Banks have already goes ahead and reduced the interest rates on home loans and other retail assets. . RBI in its Annual Policy Statement has placed the real GDP growth for 2007-08 at around 8.In the past few years.a. we see a significant change in this direction. 154000 crores a year earlier. the demand for banking services like the retail banking. It is also expected that there will be cut in the deposit rates by 50 to 100 basis points across maturities. bank credit grew only 5% with just Rs. This sharp slow down of credit growth will require banks to cut the deposit costs to sustain profit growth. Since April 2007. mortgage. With the growth in the Indian economy expected to be strong for quite some time – especially in its services sector.
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