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PROJECT REPORT Submitted in partial fulfillment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION IN FINANCE 2011 By name number Under the Supervision of guide




I would like to express my humble gratitude to the Almighty God who has always stood next to me in all my difficult times.

I convey my humble thanks to institute of Distance Education, University of Madras for having admitted me in the course.

I hereby place my sincere and profound gratitude to my research guide guide for his valuable guidance and suggestions.

My thanks go to Mr. xxxxxxxxx, Branch Manager, xxxx for given valid information for this study.

I would also thanks IFMR Library staff for valuable co-operation to refer journals and magazines.

Last but not the least, I would like to thank all my beloved friends who are the motivating force behind me.


S.No 1.1 Introduction Objectives Chapter -1


PAGE NUMBER 2 3 4 6 8 35 52 72 74 76

Research Methodology 1.4 Hypothesis of the Study 2.1 Review of Literature Chapter - II 2.2 Company Profile Chapter- III Analysis 4.1 Findings 4.2 Conclusions Bibliography References

Chapter- IV





Interest Income as % to Total Assets


Table 2- Interest Expenditure as %


Spread as % to Total Assets


Non Interest Expenditure as % to Total Assets


Non Interest Income as % to Total Assets


6 7 8 9 10

Burden as % to Total Assets Operating Profit/Loss as % to Total Assets Net Profit/Loss as % to Total Assets Indicies of Profitability Parameters Over The Period 2004-2008 Profitability Performance Levels of Public Sector Banks (2004-2008)

62 64 66 68 69


The banking system occupies an important place in a nation's economy, The Indian Banking industry has come way from being passive business institution to a highly proactive and dynamic entity Before liberalisation, the Indian banking structure was largely controlled by parameters like branch size and location. On the recommendations of M. Narasimham Committee the reforms in the banking sector were initiated in 1991 and permission to the new private sector banks was given; The new economic policy of liberalisation, privatisation and globalisation has made a significant effect on the working of banks. New private sector banks are targeted to achieve higher levels of productivity and profitability. In this paper the performance appraisal of new private sector banks has been: measured though spread, burden and profitability ratios by considering eight parameters. Indices of profitability parameters have been calculated to know the efficiency of new private sector banks.


It is hereby certified that this project is based on the bonafide work designed and executed by xxxxxxxxxxxxxx in partial fulfillment of the requirement for the award of the degree of Master of Business Administration for the Academic year 2011, in the field of Finance, University of Madras. This project was carried out under my supervision exclusively for the above said purpose.

Date : Supervisor (Signature with Seal)







With the development of information technology, the world has become a global village and it has brought a revolution in the banking industry; Deregulation and liberalisation in the financial sector have stimulated financial innovations. New Private Sector Banks came into existence as the aftermath of the reforms on the recommendations of M Narasimham Committee. The financial sector reforms were initiated to .bring about a paradigm shift in the banking sector. With die introduction of new private sector banks and foreign banks today the Indian banking is operating m increasingly deregulated and market driven, competitive environment;. Alongside introduction of new players and instruments, there has been strengthening of prudential regulation and supervision. With, greatly improved strength and financials, Indian banks are now well placed to capitalize on increasing global opportunities for further growth through diversification. The following figure shows the scheduled banking structure in India. Performance of New Private Sector Banks has been measured through three set of pivotal ratios haying eight parameters in total. Performance indices have been calculated to analyse new private sector banks into excellent good, fair and poor category. The ratios are as under:



The study has been conceived with the following objectives:

To evaluate performance of New Private Sector Banks in India through spread,

burden and profitability ratios.

To analyse the performance of New Private Sector Banks in India through overall

profitability indices.

1.3 RESEARCH METHODOLOGY Period of study The post-reform period of five years ending March 2007 - March 2011 has been taken to analyse the performance of New Private Sector Banks in India. Sample size It is the census study covering all New Private Sector Banks in India during the study period. Data collection The study is primarily based on secondary data. A plethora of data has been collected from the following sources. 1) IBA-Bulletins annual issues and monthly issues 2) Statistical tables relating to banks in India 3) Performance Highlights of New Private Sector Banks Data analysis The following statistical tools have been used for analysing data: l. Mean(X)
2. Standard Deviation ()

= = = =

X/N (X2/N) (/X) x 100 Y=ABt

3. Co-efficient of variation (C.V.) 4. Exponential Growth Rate(E.G.R.)

Where 'Y' is the variable for which compound rate of growth is calculated and t is time. Here A is the Y intercept and B is the slope of the curve. B= 1 +r Where V is the compound growth rate and the growth rate in percentage form shall be equal to: r (%) - (B-l) x 100.

5. Ratio Analysis: While evaluating the performance of New Private Sector Banks the following

ratios have been taken into account i.e. Spread Ratios, burden Ratios and Profitability Ratios.
6. Trend Analysis: Percentage growth rate over the base year has been calculated to analyse the

trends on year to yeir basis. The percentage growth rate over the base year is given as:

G.R. %

Vc Vb ---------- x 100 Vb

Where: Vc = Value of the given parameter in the current year. Vb = Value of the given parameter in the previous year.
7. Performance Indices: To analyse the performance of ten New Private Sector Banks eight

profitability indices have been calculated and banks wise averaged. Average ratio for concerned bank Index = ---------------------------------------------Average ratio for the aggregate of all New Pvt. Sec. Banks On the basis of above indices, the study seeks to classify the New Private Sector Banks into four levels viz., 'Excellent Performance1 covers banks lying at the top 25% area of the normal distribution where growth index value is greater than ( + 0.6745 (j), 'Good Performance' includes those banks whose growth index score lies between 50% to 75% area of the normal distribution where growth index value is between X to (X + 0.6745c), 'Fair Performance' includes those banks whose growth index score lies between 25% to 50% area of the normal distribution where growth index value is between (X - 0.6745 (T) to X and 'Poor Performance' includes those banks whose growth index score lies at the bottom 25% area of the normal distribution where growth index value lies below (X-0.6745 a).


Keeping in mind the survey of literature and objectives of the study, the following hypothesis emerge. HIThe spread and profitability of New Private Sector Banks have improved during the period of study. H2~Interest Income of New Private Sector Banks is on the incremental trend during the period of study.


2.1 REVIEW OF LITERATURE As Banking System plays a vital role in the economic development of a nation, it has caught the eyes of many researchers, administrators, departments and committees. M. Gupta and S. Goswami (1986) in their study introduced some radical change in measuring profitability of commercial banks. They indicated the major cause tor declining profitability as the enormous increase in establishment costs. Arunava Bhattacharya, C.A.K. Lovell and Pankaj Sahay (1997) in their study revealed the impact of the limited liberalisation initiated before the deregulation of the nineties on the performance of the different categories of banks, using Data Envelopment analysis. Their study covered 70 banks in the period 1986-91. They constructed one grand frontier for the entire period. P. C. Sarker and A. Das (1997) compare performance public, private and foreign banks for the year 1994-95 by using measures of profitability, productivity and financial management. They find PSBs comparing poorly with the other two categories. N.S. Vageesh (2000) highly appreciated the NPSBs which have adopted IT. The NPSBs, with their state-of-the-art technology and grandiose plans are making roads in e-banking. This is resulting in lower transaction costs for these banks. Sultan Singh (2001) made an attempt to assess the impact of the reforms on the operational performance and efficiency of the commercial banks in India. The study revealed that total income, interest earned, other income, spread, total expenses, interest expended, operating expenses and establishment expenses are comparatively more consistent in the post-reform period. TT Ram Mohan and S. C. Ray (2007) in their paper documented and evaluated the performance of the public, private and foreign banks since deregulation in absolute and in relative terms. It was observed that the efficiency of the banking system as a whole measured by declining spreads has improved. Sathya Swaroop Debasish and Bishnupriya Mishra (2008) in their book on "Indian Banking System" analysed the financial performance of nationalized banks and SBI from 1970 to 2000. They used correlation analysis, multiple regression analysis, factor analysis and concentration indices to study the overall profitability along with productivity.

Banks in India Banking dates back to 1786, the first bank established in India, then the nationalisation of banks in 1969 and recently the liberalisation of the same since 1991. In India the banking sector is segregated as public or private sector banks, cooperative banks and regional rural banks. Foreign banks has been given a different head followed by upcoming foreign banks in this section. Banking Services in India Financial and Banking Sector Reforms Bouquet of services are at customers demand in todays banking system. Different types of accounts and loans, facilitating with plastic money and money transfer across the globe. The last decade experienced a complete reform in the financial and banking sector. The capital and financial market, banking & non-banking organisation and financial instruments was redressed towards development. IDBI The Industrial Development Bank of India Limited, now more popularly known as IDBI Bank, was established as a wholly-owned subsidiary of Reserve Bank of India. The foundation of the bank was laid down under an Act of Parliament, in July 1964. The main aim behind the setting up of IDBI was to provide credit and other facilities for the Indian industry, which was still in the initial stages of growth and development. In February 1976, the ownership of IDBI was transferred to Government of India. After the transfer of its ownership, IDBI became the main institution, through which the institutes engaged in financing, promoting and developing industry were to be coordinated. In January 1992, IDBI accessed domestic retail debt market for the first time, with innovative Deep

Discount Bonds, and registered path-breaking success. The following year, it set up the IDBI Capital Market Services Ltd., as its wholly-owned subsidiary, to offer a broad range of financial services, including Bond Trading, Equity Broking, Client Asset Management and Depository Services. In September 1994, in response to RBI's policy of opening up domestic banking sector to private participation, IDBI set up IDBI Bank Ltd., in association with SIDBI. In July 1995, public issue of the bank was taken out, after which the Government's shareholding came down (though it still retains majority of the shareholding in the bank). In September 2003, IDBI took over Tata Home Finance Ltd, renamed IDBI Home finance Limited, thus diversifying its business domain and entering the arena of retail finance sector. The year 2008 witnessed the merger of IDBI Bank with the Industrial Development Bank of India Ltd. The new entity continued to its development finance role, while providing an array of wholesale and retail banking products (and does so till date). The following year, IDBI Bank acquired United Western Bank (which, at that time, had 230 branches spread over 47 districts, in 9 states). In the financial year of 2011, IDBI Bank had a net income of Rs 9415.9 crores and total assets of Rs 120,601 crores. The Present Today, IDBI Bank is counted amongst the leading public sector banks of India, apart from claiming the distinction of being the 4th largest bank, in overall ratings. It is presently regarded as the tenth largest development bank in the world, mainly in terms of reach. This is because of its wide network of 509 branches, 900 ATMs and 319 centers. Apart from being involved in banking services, IDBI has set up institutions like The National Stock Exchange of India (NSE), The National Securities Depository Services Ltd. (NSDL) and the Stock Holding Corporation of India (SHCIL). RBI is the central bank of the country since 1934. It regulates, controls credit, issue licenses and functions as banker of all banks and the government.

Industrial Development Bank of India (IDBI) is the tenth largest bank in the world in terms of development. Easy Banking Banking Services for NRIs in India With the advancement of technology, banking sector has become more easy, fast, accurate and also time saving. ATMs, Mobile Banking, SMS Banking and Net Banking is only the tip of an ice-berg. This section discusses upon the servicres provided to the NRIs in India through different dedicated account. FAQs makes the section more comprehensive. Indian Banks Association (IBA) Proxy Banking in India The functions of Indian Banks Association (IBA), its organisational structure, the addresses and contact details are discussed in this section. Only 42% of rural households have bank accounts. Proxy Banking, a bank through Kiosk and ATM challenges to penetrate the untouched population in interior India. Fact Files of Banks in India FAQ Know some of the facts which you always wanted to know, like first bank in India, first Indian bank in world, first bank to get ISO certificate and many more. A commercial bank is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings

accounts, and money market accounts and that accepts time deposits.[1] After the Great Depression, the U.S. Congress required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S. law, some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. In some other jurisdictions, the strict separation of investment and commercial banking never applied. Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers. Many banks offer both commercial and retail banking services. Commercial bank is the term used for a normal bank to distinguish it from an investment bank. This is what people normally call a "bank". The term "commercial" was used to distinguish it from an investment bank. Since the two types of banks no longer have to be separate companies, some have used the term "commercial bank" to refer to banks that focus mainly on companies. In some English-speaking countries outside North America, the term "trading bank" was and is used to denote a commercial bank. During the great depression and after the stock market crash of 1929, the U.S. Congress passed the Glass-Steagall Act 1933-35 (Khambata 1996) requiring that commercial banks engage only in banking activities (accepting deposits and making loans, as well as other fee based services), whereas investment banks were limited to capital markets activities. This separation is no longer mandatory. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time (or term) deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds.

Commercial banking can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retail banking). The role of commercial banks Commercial banks engages in the following activities: Processing of payments by way of telegraphic transfer, EFTPOS, internet banking, or other means
Issuing bank drafts and bank cheques Accepting money on term deposit Lending money by overdraft, installment loan, or other means Providing documentary and standby letter of credit, guarantees, performance bonds,

securities underwriting commitments and other forms of off balance sheet exposures
Safekeeping of documents and other items in safe deposit boxes Sale, distribution or brokerage, with or without advice, of insurance, unit trusts and

similar financial products as a financial supermarket

Traditionally, large commercial banks also underwrite bonds, and make markets in

currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities. Commercial banks offer a wide range of corporate financial services that address the specific needs of private enterprise. They provide deposit, loan and trading facilities but will not service investment activities in financial markets. Commercial banks can be described as a type of financial intermediary. In the US, the term is used to refer to any banking organization or division that deals with the deposits and loans of business organizations. The term commercial bank is used to differentiate these banks from investment banks, which are primarily engaged in the financial markets. Commercial banks are also differentiated from retail

banks that cater to individual clients only. In non English-speaking countries the term commercial bank is used interchangeably with the term trading bank. Commercial banks play a number of roles in the financial stability and cash flow of a countries private sector. They process payments through a variety of means including telegraphic transfer, internet banking and electronic funds transfers. Commercial banks issue bank checks and drafts, as well as accept money on term deposits. Commercial banks also act as moneylenders, by way of installment loans and overdrafts. Loan options include secured loans, unsecured loans, and mortgage loans. A secured loan is one where the borrower provides a certain property or asset as collateral against the loan. The main condition of these loans is that if the loan remains unpaid, the bank has the right to use the property in any way they like to realize the outstanding amount. Unsecured loans have no collateral and therefore command higher interest rates. There are a variety of unsecured loans available today and these include credit cars, credit facilities such as a lines of credit, corporate bonds, and bank overdrafts. Mortgage loans that are provided by commercial banks are similar to secured loans but are used specifically to buy real estate property for commercial purposes. In most of these cases, the banks hold a lien on the title to the particular property purchased with the loan. If the borrower is unable to pay the loan back, the bank leverages this item against the loan to generate funds or recover the principal. Commercial banks provide a number of import financial and trading documents such as letters of credit, performance bonds, standby letters of credit, security underwriting commitments and various other types of balance sheet guarantees. They also take responsibility for safeguarding such documents and other valuables by providing safe deposit boxes. Currency exchange functions and the provision of unit trusts and commercial insurance are typically provided by the relevant departments in larger commercial banks.

Development Banks Industrial development Banks Industrial Development Bank of India (IDBI) is the tength largest bank in the world in terms of development. The National Stock Exchange (NSE), The National Securities Depository Services Ltd. (NSDL), Stock Holding Corporation of India (SHCIL) are some of the institutions which has been built by IDBI. IDBI is a strategic investor in a plethora of institutions which have revolutionized the Indian Financial Markets. IDBI Bank, promoted by IDBI Group started in November 1995 with a branch at Indore with an equity capital base of Rs. 1000 million. Main functions of IDBI IDBI is vested with the responsibility of co-ordinating the working of institutions engaged in financing, promoting and developing industries. It has evolved an appropriate mechanism for this purpose. IDBI also undertakes/supports wide-ranging promotional activities including entrepreneurship development programmes for new entrepreneurs, provision of consultancy services for small and medium enterprises, upgradation of technology and programmes for economic upliftment of the underprivileged. IDBI's role as a catalyst IDBI's role as a catalyst to industrial development encompasses a wide spectrum of activities. IDBI can finance all types of industrial concerns covered under the provisions of the IDBI Act. With over three decades of service to the Indian industry, IDBI has grown substantially in terms of size of operations and portfolio. In fulfilment of its developmental role, the Bank continues to perform a wide range of promotional activities relating to developmental programmes for new entrepreneurs, consultancy services for small and medium enterprises and programmes designed for accredited voluntary

agencies for the economic upliftment of the underprivileged. These include entrepreneurship development, self-employment and wage employment in the industrial sector for the weaker sections of society through voluntary agencies, support to Science and Technology Entrepreneurs' Parks, Energy Conservation, Common Quality Testing Centres for small industries. Technical Consultancy Organisations With a view to making available at a reasonable cost, consultancy and advisory services to entrepreneurs, particularly to new and small entrepreneurs, IDBI, in collaboration with other AllIndia Financial Institutions, has set up a network of Technical Consultancy Organisations (TCOs) covering the entire country. TCOs offer diversified services to small and medium enterprises in the selection, formulation and appraisal of projects, their implementation and review. IDBI is the apex banking institution in the field of long term industrial finance. Set up in 1964 as a wholly owned subsidiary of the Reserve Bank, IDBI was de-linked from the Reserves Bank on 16th February, 1976 when its entire share capital was transferred to the Central Government. Consequently, its role was also enlarged to enable it to function as the principal financial institution for coordinating the functions and activities of all India term lending institutions and to some extent the public sector banks. The assistance provided by IDBI falls in two categories, i.e. (1) direct assistance to large and medium industries, and (2) indirect assistance. Major portion of the direct assistance is provided in the form of Project loans to industries. Besides, IDBI also provides assistance by way of underwriting and direct subscription to the shares/ debentures of industrial undertakings. IDBI also provides soft loans for the modernization of all industries. In 1984, IDBI introduced Equipment Finance Scheme, wherein foreign currency loans are made available to industrial concerns for import of capital goods and equipment not related to any specific project.

Indirect assistance is provided by the Bank to tiny, small and medium enterprises, through other financial institutions in a number of ways, namely: I. By way of refinance of industrial loans granted by State Financial Corporations, state Industrial Development Corporations (SIDCs), Commercial Banks, Co-operative Banks and Regional Rural Banks. II. III. Re-discounting of bills arising out of sale of indigenous machinery on deferred payment basis, and Seed capital assistance granted to new entrepreneurs generally through SFCs and SIDCs.

IDBI also subscribes to the shares and bonds of SFCs, SIDCs and National Small industries Corporation Ltd. The share capital of IDBI stood at Rs 673 crore as at March 31, 2000. IDBI was wholly owned by the Government of India till 1995-96 when it issued 17.31 lakh shares to the public at a premium of Rs 120 per share. The share of the Government of India in its share capital was thus reduced to 72.14 percent. The rest of the share capital is held by financial institutions, insurance companies, banks, domestic companies and foreign institutional investors. Individuals and others own over 15% of its share capital. The IDBI raises the bulk of its funds from (1) market borrowings by way of bonds, and (2) the borrowings out of National Industrial Credit (Long term Operations) Funds of the Reserve Bank. IDBI also takes short term advances from the Reserve Bank against lodgment of usance bills. During recent years, IDBI has also raised resources in foreign currencies by way of loans and private placement of its bonds in foreign capital markets. Such resources are utilized for financing imports of capital good sand services required by the assisted projects. IDBI has established a number of subsidiaries which include the Small Industries Development Bank of India, IDBI Bank Ltd., IDBI Capital Market Services Ltd. IDBI has co-sponsored a number of financial institutions as well, e.g. National Stock Exchange of India, Over the Counter Exchange of India, Discount and Finance House of India Ltd.

Realising that entrepreneurship development is the key to industrial development, IDBI played a prime role in setting up of the Entrepreneurship Development Institute of India for fostering entrepreneurship in the country. It has also established similar institutes in Bihar, Orissa, Madhya Pradesh and Uttar Pradesh. IDBI also extends financial support to various organisations in conducting studies or surveys of relevance to industrial development. SIDBI The Small Industries Development Bank of India is a state-run bank aimed to aid the growth and development of micro, small and medium scale industries in India. Set up in 1990 through an act of parliament, it was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India. Current shareholding is widely spread among various state owned banks, insurance companies, etc. Beginning as a refinancing agency to banks and state level financing bodies for their credit to small industries, it has diversified in to many activities, including direct credit to the SME through more than 100 branches in all major clusters of SME in India. Besides, it has been playing the development role in several ways such as support to micro-finance institutions for capacity building and onlending. Recently it has opened 7 branches christened as SFMC branches, aimed especially at dispensing loans up to Rs. 5.00 lakh. SIDBI has also floated several other entities for related activities. Credit Guarantee Fund Trust for Micro and Small Enterprises ([1]) provides guarantees to banks for collatoral free loans extended to SME. SIDBI Venture Capital Ltd.([2]) is Venture Capital company focussed at SME. SME Rating Agency of India Ltd. (SMERA - [3]) provides composite ratings to SME. Provision of Charter SIDBI was established on April 2, 1990, under an Act (SIDBI Act, 1989) passed by the Indian Parliament. The Charter establishing it, The Small Industries Development Bank of India Act, 1989 envisaged SIDBI to be "the principal financial institution for the promotion, financing and development of industry in the small scale sector and to co-ordinate the functions of the

institutions engaged in the promotion and financing or developing industry in the small scale sector and for matters connected therewith or incidental thereto. Business Domain The business domain of SIDBI consists of small scale industrial units, that contribute significantly to the national economy in terms of production, employment and exports. Small scale industries are the industrial units in which the investment in plant and machinery does not exceed Rs.10 million . About 3.1 million such units, employing 17.2 million persons account for a share of 36 per cent of India's exports and 40 per cent of industrial manufacture. In addition, SIDBI's assistance flows to the transport, health care and tourism sectors and also to the professional and self-employed persons setting up small-sized professional ventures Achievements SIDBI retained its position in the top 30 Development Banks of the World in the latest ranking of The Banker, London. As per the May 2001 issue of The Banker, London, SIDBI ranked 25th both in terms of Capital and Assets. ICICI Bank ICICI Bank (BSE: ICICI) (formerly Industrial Credit and Investment Corporation of India) is India's largest private sector bank by market capitalization and second largest overall in terms of assets. Bank has total assets of about USD 77 billion (at the end of December 2011). The Bank also has a network of 1,449 branches and about 4,721 ATMs in India and presence in 18 countries, as well as some 24 million customers (at the end of July 2010). ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and specialised subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. (These data are dynamic.) ICICI Bank is also the largest issuer of credit cards in India. [1].

ICICI Bank has got its equity shares listed on the stock exchanges at Kolkata and Vadodara, Mumbai and the National Stock Exchange of India Limited, and its ADRs on the New York Stock Exchange (NYSE). The Bank is expanding in overseas markets and has the largest international balance sheet among Indian banks. ICICI Bank now has wholly-owned subsidiaries, branches and representatives offices in 18 countries, including an offshore unit in Mumbai. This includes wholly owned subsidiaries in Canada, Russia and the UK (the subsidiary through which the HiSAVE savings brand[2] is operated), offshore banking units in Bahrain and Singapore, an advisory branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and representative offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the United Arab Emirates and USA. Overseas, the Bank is targeting the NRI (Non-Resident Indian) population in particular. ICICI reported a 1.15% rise in net profit to Rs. 1,014.21 crore on a 1.29% increase in total income to Rs. 9,712.31 crore in Q2 September 2011 over Q2 September 2010. The bank's current and savings account (CASA) ratio increased to 30% in 2011 from 25% in 2010 Land Development Banks The long term credit needs of the agricultural sector are met by another type of co-operative institutions known as Land Development Banks. The structure of these banks is a two-tier one at the State level there are Central Land Development Banks and at the district or taluka level, there are primary Land Development Banks. In a few States, e.g. Gujarat, Jammu & Kashmir and UP., the structure is unitary i.e. there are Apex Land Development Banks which operate direct through their own branches at the district level. The Land Development Banks meet the requirements of the farmers for developmental purposes viz., provision of equipment like pump-sets, tractors and machinery and land improvement in the form of leveling, bundling, reclamation of land, fencing, sinking of new wells and repairs to old wells, Loans are granted on the security of mortgage of immovable property of the farmers.

The Central Land Development Banks raise their resources by floating debentures in the market. These debentures carry the guarantee of the State Government and are subscribed by the Central and State Governments, Commercial Banks, Life Insurance Corporation and other Land Development Banks as a measure of mutual support. The Land Development Banks have availed of the refinancing facilities provided by the National Bank for Agricultural and Rural Development in respect of the term loans granted by them for the schemes of agricultural development. They also secure short term accommodation from the State Governments, Commercial Banks and the State Co-operative Banks. Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world. Cooperative banking (for the purposes of this article), includes retail banking, as carried out by credit unions, mutual savings and loan associations, building societies and cooperatives, as well as commercial banking services provided by mutual organizations (such as cooperative federations) to cooperative businesses. Definition of a cooperative bank (Source : ICBA, International Cooperative Banks Association)

A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Cooperative banks generally provide their members with a wide range of banking and financial services (loans, deposits, banking accounts). Co-operative banks differ from stockholder banks by their organization, their goals, their values and their governance. In most countries, they are supervised and controlled by banking authorities and have to respect prudential banking regulations, which put them at a level playing field with stockholder banks. Depending on countries, this control and supervision can be implemented directly by state entities or delegated

to a co-operative federation or central body. Even if their organizational rules can vary according to their respective national legislations, co-operative banks share common features: Customer-owned entities : in a co-operative bank, the needs of the customers meet the needs of the owners, as co-operative bank members are both. As a consequence, the first aim of a co-operative bank is not to maximise profit but to provide the best possible products and services to its members. Some co-operative banks only operate with their members but most of them also admit non-member clients to benefit from their banking and financial services. Democratic member control : co-operative banks are owned and controlled by their members, who democratically elect the board of directors. Members usually have equal voting rights, according to the co-operative principle of one person, one vote. Profit allocation : in a co-operative bank, a significant part of the yearly profit, benefits or surplus is usually allocated to constitute reserves. A part of this profit can also be distributed to the co-operative members, with legal or statutory limitations in most cases. Profit is usually allocated to members either through a patronage dividend, which is related to the use of the co-operatives products and services by each member, or through an interest or a dividend, which is related to the number of shares subscribed by each member. Co-operative banks are deeply rooted inside local areas and communities. They are involved in local development and contribute to the sustainable development of their communities, as their members and management board usually belong to the communities in which they exercise their activities. By increasing banking access in areas or markets where other banks are less present SMEs, farmers in rural areas, middle or low income households in urban areas - co-operative banks reduce banking exclusion and foster the economic ability of millions of people. They play an influential role on the economic growth in the countries in which they work in and increase the efficiency of the international financial system. Their specific form of enterprise,

relying on the above-mentioned principles of organization, has proven successful both in developed and developing countries. Larger institutions are often called cooperative banks. Some of these banks are tightly integrated federations of credit unions, though those member credit unions may not subscribe to all nine of the strict principles of the World Council of Credit Unions (WOCCU). Like credit unions, cooperative banks are owned by their customers and follow the cooperative principle of one person, one vote. Unlike credit unions, however, cooperative banks are often regulated under both banking and cooperative legislation. They provide services such as savings and loans to non-members as well as to members, and some participate in the wholesale markets for bonds, money and even equities.[2] Many cooperative banks are traded on public stock markets, with the result that they are partly owned by non-members. Member control is diluted by these outside stakes, so they may be regarded as semi-cooperative. Cooperative banking systems are also usually more integrated than credit union systems. Local branches of cooperative banks elect their own boards of directors and manage their own operations, but most strategic decisions require approval from a central office. Credit unions usually retain strategic decision-making at a local level, though they share back-office functions, such as access to the global payments system, by federating. Some cooperative banks are criticized for dilution of cooperative principles. Principles 2-4 of the Statement on the Co-operative Identity can be interpreted to require that members must control both the governance systems and capital of their cooperatives. A cooperative bank that raises capital on public stock markets creates a second class of shareholders who compete with the members for control. In some circumstances, the members may lose control. This effectively means that the bank ceases to be a cooperative. Accepting deposits from non-members may also lead to a dilution of member control. The Co operative banks in India started functioning almost 100 years ago. The Cooperative bank is an important constituent of the Indian Financial System judging by the role assigned to co

operative, the expectations the co operative is supposed to fulfil, their number, and the number of offices the cooperative bank operate. Though the co operative movement originated in the West, but the importance of such banks have assumed in India is rarely paralleled anywhere else in the world. The cooperative banks in India plays an important role even today in rural financing. The businessess of cooperative bank in the urban areas also has increased phenomenally in recent years due to the sharp increase in the number of primary co-operative banks. Co operative Banks in India are registered under the Co-operative Societies Act. The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965. Cooperative banks in India finance rural areas under: Farming Cattle Milk Hatchery
Personal finance

Cooperative banks in India finance urban areas under: Self-employment Industries Small scale units
Home finance

Consumer finance Personal finance

Some facts about Cooperative banks in India Some cooperative banks in India are more forward than many of the state and private sector banks. According to NAFCUB the total deposits & lendings of Cooperative Banks in India is much more than Old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Co operative Banks in India is attributed mainly to their much better local reach, personal interaction with customers, their ability to catch the nerve of the local clientele. Regional Rural Bank Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focussed upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI is spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India branches is 2349 (16%). Till date in rural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote rural areas. Apart from SBI, there are other few banks which functions for the development of the rural areas in India. Few of them are as follows. Haryana State Cooperative Apex Bank Limited The Haryana State Cooperative Apex Bank Ltd. commonly called as HARCOBANK plays a vital role in rural banking in the economy of Haryana State and has been providing aids and financing farmers, rural artisans, agricultural labourers, entrepreneurs, etc. in the state and giving service to its depositors.

NABARD National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts. It also finance rural crafts and other allied rural economic activities to promote integrated rural development. It helps in securing rural prosperity and its connected matters. Sindhanur Urban Souharda Co-operative Bank Sindhanur Urban Souharda Co-operative Bank, popularly known as SUCO BANK is the first of its kind in rural banks of India. The impressive story of its inception is interesting and inspiring for all the youth of this country. United Bank of India United Bank of India (UBI) also plays an important role in regional rural banks. It has expanded its branch network in a big way to actively participate in the developmental of the rural and semi-urban areas in conformity with the objectives of nationalisation. Syndicate Bank was firmly rooted in rural India as rural banking and have a clear vision of future India by understanding the grassroot realities. Its progress has been abreast of the phase of progressive banking in India especially in rural banks. The government of India set up Regional Rural Banks (RRBs) on October 2, 1975. The banks provide credit to the weaker sections of the rural areas, particularly the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs.

Initially, five RRBs were set up on October 2, 1975 which were sponsored by Syndicate Bank, State Bank of India, Punjab National Bank, United Commercial Bank and United Bank of India. The total authorised capital was fixed at Rs. 1 crore which has since been raised to Rs. 5 Crore. There are several concessions enjoyed by the RRBs by Reserve Bank of India such as lower interest rates and refinancing facilities from NABARD like lower cash ratio,lower statutory liquidity ratio, lower rate of interest on loans taken from sponsoring banks, managerial and staff assistance from the sponsoring bank and reimbursement of the expenses on staff training. The RRBs are under the control of NABARD. NABRAD has the responsibility of laying down the policies for the RRBs, to oversee their operations,provide refinance facilities, to mointor their performance and to attend their problems. INDIAN BANKS India has a well developed banking system. Most of the banks in India were founded by Indian entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders, agriculturists and budding Indian industrialists. The origin of banking in India can be traced back to the last decades of the 18th century. The General Bank of India and the Bank of Hindustan, which started in 1786 were the first banks in India. Both the banks are now defunct. The oldest bank in existence in India at the moment is the State Bank of India. The State Bank of India came into existence in 1806. At that time it was known as the Bank of Calcutta. SBI is presently the largest commercial bank in the country. The role of central banking in India is looked by the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India. Reserve Bank was nationalized in 1947 and was given broader powers. In 1969, 14 largest commercial banks were nationalized followed by six next largest in 1980. But with adoption of economic liberalization in 1991, private banking was again allowed. The commercial banking structure in India consists of: Scheduled Commercial Banks and Unscheduled Banks. Scheduled commercial Banks constitute those banks, which have been

included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI includes only those banks in this schedule, which satisfy the criteria laid down vide section 42 (6) (a) of the Act. Indian banks can be broadly classified into public sector banks (those banks in which the Government of India holds a stake), private banks (government doe not have a stake in these banks; they may be publicly listed and traded on stock exchanges) and foreign banks.
Bank Fixed Deposits Current Account Demat Account Recurring Bank Deposits Reserve Bank of India Savings Bank Account Senior Citizen Saving Scheme 2007 Foreign Banks in India Nationalised Banks Private Banks in India

Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions.

After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980.

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reason of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money have become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: Early phase from 1786 to 1969 of Indian Banks Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III. Phase I The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in india as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders. Phase II Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially

in rural and semi-urban areas. It formed State Bank of india to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalised. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: 1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1961 : Insurance cover extended to deposits. 1969 : Nationalisation of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of regional rural banks. 1980 : Nationalisation of seven banks with deposits over 200 crore. After the nationalisation of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. Phase III

This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalisation of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure. Public Sector Banks In India Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks which were nationalised on July 19, 1969. Its predecessor, in the Public Sector Banks, the United Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932). Oriental Bank of Commerce (OBC), a Governmet of India Undertaking offers Domestic, NRI and Commercial banking services. OBC is implementing a GRAMEEN PROJECT in Dehradun District (UP) and Hanumangarh District (Raiasthan) disbursing small loans. This Public Secotor Bank India has implemented 14 point action plan for strengthening of credit delivery to women and has designated 5 branches as specialized branches for women entrepreneurs. Institutional credit support plays a catalytic role in accelerating the pace of economic development of a country. In the context of developing economy of India, bank finance plays a crucial role in pushing the agricultural economy on to the progressive pathway and helping

develop rural India. Indian banking, appreciably, over the years, has emerged from being a purveyor of credit to be an engine of economic development. A historic review of the State Bank of India, a giant among the public sector commercial banks, and the subsequently in n ationalized commercial banks, reveals the emerging promising trends in the deposit mobilization, deployment of credit with developmental dimension added to it, prioritization of sectoral financing and social responsibility assumed by the banks. Along with promising trends in the progressive march of the public sector banks, certain disturbing trends are notice. Hence, the vital importance of making an in-depth study of the changing trends in the Indian public sector commercial banks so that policy sector commercial banks so that policy corrections can be made for enabling them play a more effective developmental role in the context of resurgent national economy of India. The following are the list of Public Sector Banks in India
Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank

UCO Bank Union Bank of India United Bank of India Vijaya Bank

List of State Bank of India and its subsidiary, a Public Sector Banks
State Bank of India State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurastra State Bank of Travancore

Nationalised Banks in India Nationalised banks dominate the banking system in India. The history of nationalised banks in India dates back to mid-20th century, when Imperial Bank of India was nationalised (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955. Then on 19th July 1960, its seven subsidiaries were also nationalised with deposits over 200 crores. These subsidiaries of SBI were State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Indore (SBIR), State Bank of Mysore (SBM), State Bank of Patiala (SBP), State Bank of Saurashtra (SBS), and State Bank of Travancore (SBT). However, the major nationalisation of banks happened in 1969 by the then-Prime Minister Indira Gandhi. The major objective behind nationalisation was to spread banking infrastructure in rural areas and make cheap finance available to Indian farmers. The nationalised 14 major commercial banks were Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce (OBC), Punjab and Sind Bank, Punjab

National Bank (PNB), Syndicate Bank, UCO Bank, Union Bank of India, United Bank of India (UBI), and Vijaya Bank.


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