PROJECT REPORT ON

A STUDY ON EMERGING BANKING TRENDS IN INDIA

Submitted in partial fulfillment of the requirements for the Two Years

Masters of Business Administration

(Affiliated To Dr. A.P.J. Abdul Kalam Technical University Uttar Pradesh, Lucknow )

SESSION: (2021-2022)

Under Supervision of: SUBMITTED BY:

PROF. AMAN GUPTA AMAN GUPTA

RSMT , (VARANASI) MBA 2ND SEMESTER

Roll no-2101080700010

RAJARSHI SCHOOL OF MANAGEMENT AND TECHNOLOGY,

VARANASI
 DECLARATION

I AMAN GUPTA a student of Master of Business Administration (MBA)

Program at Institute of Rajarshi School Of Management And Technology, Varanasi
hereby declare that all the information, facts and figures used in the project entitled
“A STUDY ON EMERGING BANKING TRENDS IN INDIA” prepared by me
under the guidance of Prof. Aman Gupta . I also declare that this project work has
not been submitted at any time to any other University or Institute for the award of
any degree.

----------
PLACE – VARANASI SIGNATURE
DATE- AMAN GUPTA

MBA-2ND SEMESTER
ROLL NO-2101080700010
RAJARSHI SCHOOL OF MANAGEMENT AND TECHNOLOGY

CERTIFICATE

This is to certify that the content of this project entitled “A

STUDY ON EMERGING BANKING TRENDS IN INDIA”
carried out by AMAN GUPTA and submitted to Institute of RAJARSHI
SCHOOL OF MANAGEMENT AND TECHNOLOGY,VARANASI in
partial fulfillment of the requirement MASTER OF BUSINESS
ADMINISTRATION Course under the guidance of Prof. AMAN
GUPTA .

It is further certified that, it is a record of bonafide and original

work done for Academic requirement and not for any other
purpose.

-------------------- --------------------
Prof.AMAN GUPTA MR .P N. SINGH
(MENTOR OF PROJECT) (CO-ORDINATOR)
 ACKNOWLEDGEMENT

It would be my pleasure to express my sincere thanks to my

project report teacher Prof. AMAN GUPTA in providing a
helping hand in this project. His valuable guidance, support and
supervision all through this project titled, “A STUDY ON
EMERGING BANKING TRENDS IN INDIA”.
I would also like to thank my parents and friends who have
helped me with their valuable Suggestions and guidance.

AMAN GUPTA
MBA-2ND SEMESTER
ROLL NO-2101080700010
 CONTENTS

Chapter 1. History of Banking………………………………………………… [01-08]

[1.1] Introduction………………………………………………………..Pg.no.02

[1.2] Early history………………………………………………………..Pg.no.02

[1.3] From World War I to Independence……………………………..Pg.no.04

[1.4] Post-independence…………………………………………………Pg.no.05

[1.5] Nationalization……………………………………………………..Pg.no.06

[1.6] Liberalization………………………………………………………Pg.no.07

Chapter 2. Research Design……………………………………………………... [09-11]

[2.1] Objectives of the study…………………………………………….Pg.no.10

[2.2] Research Methodology…………………………………………….Pg.no.10

[2.3] Scope of the study………………………………………………….Pg.no.10

[2.4] Limitations of the study…………………………………………...Pg.no.11

Chapter 3. Profile of Public and Private sector Bank…………………………. [12-22]

[3.1] History……………………………………………………………...Pg.no.13

[3.4] Services Provided by Bank………………….………..…...………Pg.no.16

Chapter 4. Banking Industry and its transformation in India…………………[24-44]

[4.1] Banking Industry Structure………………………………………Pg.no.24

[4.2] Growth of Banking in India……………………………………….Pg.no.25

[4.3] Competition………………………………………………………...Pg.no.25

[4.4] Public Sector Banks………………………………………………..Pg.no.28

5
 [4.5] Private Sector Banks………………………………………………Pg.no.28

[4.6] Foreign Banks……………………………………………………...Pg.no.28

[4.7] Scheduled commercial banks in India……………………………Pg.no.29

[4.8] Regulations…………………………………………………………Pg.no.32

[4.9] Classification of reforms…………………………………………..Pg.no.36

[4.10] Changes galore……………………………………………….…...Pg.no.38

[4.11} Increase strength…………………………………………………Pg.no.41

[4.12] Acquisition of competitive advantage………………….……….Pg.no.42

Chapter 5. Emerging Trends in banking……………………………………….. [45-62]

[5.1] Trend in Banking Industry………………………………………..Pg.no.46

[5.2] Basel Capital Accord II……………………………………………Pg.no.47

[5.3] Business process re-engineering…………………………………..Pg.no.47

[5.4] E-banking…………………………………………………………..Pg.no.48

[5.5] Insurance Business by Banks……………………………………..Pg.no.53

[5.6] Bancassurance……………………………………………………...Pg.no.54

[5.7] Universal Banking…………………………………………………Pg.no.55

[5.8] Narrow Banking…………………………………………………...Pg.no.55

[5.9] Retail Banking……………………………………………………..Pg.no.56

[5.10] Mobile Banking…………………………………………………...Pg.no.57

[5.11] Cross-selling………………………………………………………Pg.no.58

6
 [5.12] Door step banking………………………………………………...Pg.no.59

[5.13] Merchant Banking & Capital Market………..………………....Pg.no.61

Chapter 6. Current Scenario……………………………………………………. [63-67]

[6.1] Virtual Banking……………………………………………………Pg.no.65

[6.2] Privatization & Credit Disbursement…………………………….Pg.no.65

[6.3] Manpower Retraining & Not Retrenchment…………………….Pg.no.66

[6.4] New products & New technologies………………………………..Pg.no.67

Chapter 7. Conclusions & Suggestions……………………………………... [68-70]

[7.1] Conclusions…………………………………………………...……Pg.no.69

[7.2] Suggestions…………………………………………………..……..Pg.no.69

ANNEXURES:…………………………………………………………………… [71-80]

1. Bibliography………………………………………………………... Pg.no.72
A. Books…………………………………………………………Pg.no.72
B. Articles………………………………………………………..Pg.no.72
C. Reports……………………………………………………….Pg.no.72
D. Website……………………………………………………….Pg.no.72
2. Glossary………………………………………………………………Pg.no.73

7
 EXECUTIVE SUMMARY

In my sense, this report “Emerging Banking Trends” is a construction manual. It

represents the research study and its aims and objectives that integrate the whole
exposure; it also offers blueprints of the objectives of the research study. The objectives
included in this report are as follows:

(a) To know about Banking.

(b) To study Banking Industry in India.
(c) Transformation in Indian Banking.
(d) Study the Emerging Trends in Banking, &
(e) Current scenario.

This work has reached at the destiny, browsing through books, articles and currently
great source of information ‘internet’; and with the help of college and company guides.
Hence, this repot is the collection of brief information regarding banking and emerging
trends in banking.

The growth in the Indian banking Industry has been more qualitative than quantitative
and it is expected to remain same in the coming years. Today, it is known to almost
everybody that the recession period has crawled in and that too in almost every part of the
world. Presently, in India also almost all the sectors such as IT sector, automobile
industry and share market are also not in a very good condition. But, quite interestingly,
the baking sector of India is booming day-by-day and that too even in the period of global
crisis.

The concepts in the report are my own view and ideas, and the brief information on
the study. While browsing or by gulping the report one can get the concepts related to the
study. It gives an idea about, what is banking? Banking industry in India, emerging trends
in banking and current scenario of banking.

8
 HISTORY OF BANKING

"Banks are an almost irresistible

attraction for that element of our society"
[1.1] Introduction to Banking

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 96 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.

[1.2] Early History

Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India which started in 1786, and the Bank of Hindustan, both
of which are now defunct. The oldest bank in existence in India is the State Bank of
India, which originated in the Bank of Calcutta in June 1806, which almost immediately
became the Bank of Bengal. This was one of the three presidency banks, the other two

9
being the Bank of Bombay and the Bank of Madras, all three of which were established
under charters from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The three banks merged in
1921 to form the Imperial Bank of India, which, upon India's independence, became the
State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in
1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank,
established in 1865 and still functioning today,
is the oldest Joint Stock bank in India. It was
not the first though. That honor belongs to the The Bank of Bengal, which later became
the State Bank of India.
Bank of Upper India, which was established in
1863, and which survived until 1913, when it
failed, with some of its assets and liabilities
being transferred to the Alliance Bank of Simla.

When the American Civil War stopped

the supply of cotton to Lancashire from
the Confederate States, promoters opened banks
to finance trading in Indian cotton. With large
exposure to speculative ventures, most of the
banks opened in India during that period failed. The depositors lost money and lost
interest in keeping deposits with banks. Subsequently, banking in India remained the
exclusive domain of Europeans for next several decades until the beginning of the 20th
century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s.

The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, an d another
in Bombay in 1862; branches in Madras and Pondichery, then a French colony,
followed. HSBC established itself in Bengalin 1869. Calcutta was the most active trading
port in India, mainly due to the trade of the British Empire, and so became a banking
center.

10
 The first entirely Indian joint stock bank was the Oudh Commercial Bank,
established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National
Bank, established in Lahore in 1895, which has survived to the present and is now one of
the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian Mutiny, and
the social, industrial and other infrastructure had improved. Indians had established small
banks, most of which served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks operated in
different segments of the economy. The exchange banks, mostly owned by Europeans,
concentrated on financing foreign trade. Indian joint stock banks were generally under
capitalized and lacked the experience and maturity to compete with the presidency and
exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it
seems we are behind the times. We are like some old fashioned sailing ship, divided by
solid wooden bulkheads into separate and cumbersome compartments."

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

The fervor of Swadeshi movement lead to establishing of many private banks

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

11
[1.3] From World War I to independence

The period during the First World War (1914-1918) through the end of
the Second World War (1939-1945), and two years thereafter until the in dependence of
India were challenging for Indian banking. The years of the First World War were
turbulent, and it took its toll with banks simply collapsing despite the Indian
economy gaining indirect boost due to war-related economic activities. At least 94 banks
in India failed between 1913 and 1918 as indicated in the following table:

Number of banks Authorised capital Paid-up Capital

Years
that failed (Rs. Lakhs) (Rs. Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

12
[1.4] Post-independence

The partition of India in 1947 adversely impacted the economies of Punjab and West
Bengal, paralyzing banking activities for months. India's independence marked the end of
a regime of the Laissez-faire for the Indian banking. The Government of India initiated
measures to play an active role in the economic life of the nation, and the Industrial
Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This
resulted into greater involvement of the state in different segments of the economy
including banking and finance. The major steps to regulate banking included:

 In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of India.
 In 1949, the Banking Regulation Act was enacted which empowered the Reserve
Bank of India (RBI) "to regulate, control, and inspect the banks in India."
 The Banking Regulation Act also provided that no new bank or branch of an existing
bank could be opened without a license from the RBI, and no two banks could have
common directors.

However, despite these provisions, control and regulations, banks in India except
the State Bank of India, continued to be owned and operated by private persons. This
changed with the nationalization of major banks in India on 19 July 1969.

[1.5] Nationalization
By the 1960s, the Indian banking industry had become an important tool to
facilitate the development of the Indian economy. At the same time, it had emerged as a
large employer, and a debate had ensued about the possibility to nationalize the banking
industry. Indira Gandhi, the-then Prime expressed the intention of the GOI in the annual
conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank
Nationalizations." The paper was received with positive enthusiasm. Thereafter, her
move was swift and sudden, and the GOI issued an ordinance and nationalized the 14
largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash
Narayan, a national leader of India, described the step as a "masterstroke of political
sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the

13
Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received
the presidential approval on 9 August 1969, these are those 14 banks.

• Central Bank of India • Indian Overseas Bank

• Bank of Maharashtra • Bank of Baroda

• Dena Bank • Union Bank

• Punjab National Bank • Allahabad Bank

• Syndicate Bank • United Bank of India

• Canara Bank • UCO Bank

• Indian Bank • Bank of India

A second dose of nationalization of 6 more commercial banks followed in 1980.

The stated reason for the nationalization was to give the government more control of
credit delivery. With the second dose of nationalization, the GOI controlled around 91%
of the banking business of India. Later on, in the year 1993, the government merged New
Bank of India with Punjab National Bank. It was the only merger between nationalized
banks and resulted in the reduction of the number of nationalized banks from 20 to 19.
After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.

The nationalized banks were credited by some, including Home minister P.

Chidambaram, to have helped the Indian economy withstand the global financial crisis of
2007-2009.

[1.6] Liberalization

In the early 1990s, the then Narsimha Rao government embarked on a policy
of liberalization, licensing a small number of private banks. These came to be known
as New Generation tech-savvy banks, and included Global Trust Bank (the first of such
new generation banks to be set up), which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move,
along with the rapid growth in the economy of India, revitalized the banking sector in

14
India, which has seen rapid growth with strong contribution from all the three sectors of
banks, namely, government banks, private banks and foreign banks.

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

The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%;Go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods of
working for traditional banks. All this led to the retail boom in India. People not just
demanded more from their banks but also received more.

Currently (2007), banking in India is generally fairly mature in terms of supply,

product range and reach-even though reach in rural India still remains a challenge for the
private sector and foreign banks. In terms of quality of assets and capital adequacy,
Indian banks are considered to have clean, strong and transparent balance sheets relative
to other banks in comparable economies in its region. The Reserve Bank of India is an
autonomous body, with minimal pressure from the government. The stated policy of the
Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and
this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may also
expect M&A’s, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its
stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an
investor has been allowed to hold more than 5% in a private sector bank since the RBI
announced norms in 2005 that any stake exceeding 5% in the private sector banks would
need to be vetted by them.

15
 In recent years critics have charged that the non-government owned banks are too
aggressive in their loan recovery efforts in connection with housing, vehicle and personal
loans. There are press reports that the banks' loan recovery efforts have driven defaulting
borrowers to suicide.

16
 RESEARCH DESIGN

“The intensity of your desire governs the

power with which the force is directed”
[2.1] Objectives

Some specific targets and the objectives of this study are listed below:

 To get idea about Banking and its procedure.

 Study Transformation in Indian Banking.
 Know about the Emerging trends in banking.
 Current Scenario.

[2.2] Research Method

The project content i.e. various database and the information that is being depict
in this report is mainly the collection and analysis of the secondary data.
Mostly the data is collected from the internet and books; where as mere data is
also added from the guides allotted to me from college and bank. Not only that, but report
also includes my personal views, ideas and opinion regarding study on the basis of my
own observation and knowledge. The information rather than adding directly in the
project report is undergone through the study and analysis by me and with the permission
from both the internal and external guides.
The report is culmination of my personal study with the help of my guides and
surfing through the internets, books and mere articles. The information in the report is
related only to the banking and the part of my exposure and non other than that.
I personally have visited to the Dena Bank operating at village Khanvel, Silvassa;
UT of Dadra Nagar and Haveli; and accomplished my task and to justify it the certificate
awarded to me and my work by manager of the bank may act the vital role.

17
[2.3] Scope of the study
The major area of this study is to tackle with the practical knowledge of the
banking to get the concepts and relate it to the syllabi being studied and further to study
in the future. The study basically is oriented to meet the crisis and to understand the
syllabus in the concrete terms and its implementation theoretically as well as practically.
Henceforth, the study will go long to shape-up my future career and as well as to
build various skills, abilities & personality which will finally result into future manager.

[2.4] Limitations
1. The project is just the collection of brief data on the banking industry.
2. It is based on the past and present data on banking industry; it may differ in future
as much more changes do take place day-by-day.
3. Project is involved with my own ideas and views which may differ from person to
person.
4. The course of project may be too short to conduct an extensive in depth study.

18
 PROFILE OF PUBLIC AND PRIVATE SECTOR BANKS

[3.1] History

In today’s time, if you have money, you should have a bank account too. The banking
system plays a major role in boosting economic growth by efficiently allocating
resources. It helps in promoting the economy by transforming your savings into
investments.

Banks in India are regulated by the top Bank of India, i.e., the Reserve Bank of India. It is
the most leading banking governing authority in India. In India, banks are categorized
into distinct groups, and all of them have their own way of functioning, different target
markets, benefits, and limitations.

A few banks operate in rural areas and are specifically engaged in serving small
businesses, agriculture, small cottage industries, or self-help groups. On the other hand,
commercial banks work in both rural and urban areas. Therefore, an effective banking
system is vital for the good growth of the economy.

PUBLIC SECTOR-

Public Sector Banks (PSBs) are a major type of government owned banks in India,
where a majority stake (i.e. more than 50%) is held by the Ministry of Finance of
the Government of India or State Ministry of Finance of various State Governments of
India. . The shares of these banks are listed on stock exchanges. Their main objective is
social welfare

Currently, India has 12 Public sector banks and RBI is the central authority that
manages all the banking operations in India.

19
Nationalized Banks In India 2022
Public Sector Bank is the bank that is owned by the Government or is the major
shareholder of more than 51% in the bank. Check the total nationalized banks in India,
SBI (State Bank of India) became first nationalized bank in India under the SBI Act
of 1955.

Public Sector Banks In India

RBI regulates the banking sector. The merger will help in increasing productivity,
efficiency and boosting the six-year low economy along with reducing the number
of bad loans and
NPA’s. In the past year 10 Public Sector Banks were merged into 4 banks. As of
now, the country has 12 public Sector Banks.

Public Sector Bank Headquarter

1. Punjab National Bank ( With

the merger of Oriental Bank Of
New Delhi
Commerce and United Bank Of
India)

2. Indian Bank( With Merger of

Chennai
Allahabad Bank)

3. State Bank of India Mumbai

4. Canara Bank( With Merger

Bangalore
Of Syndicate Bank)

5. Union Bank of India( With

Merger Of Andhra Bank and Mumbai
Corporation Bank)

6. Indian Overseas bank Chennai

20
7. UCO Bank Kolkata

8. Bank of Maharashtra Pune

9. Punjab and Sind Bank Rajendra Place, New Delhi

10. Bank of India Mumbai

11. Central Bank of India Mumbai

12. Bank of Baroda Gujarat

Details of Public Sector Banks In India

Punjab National Bank

PNB is the first Swadeshi Bank, which commenced its operations on April 12, 1895,
from Lahore, and had an authorized capital of Rs 2 lac and working capital of Rs 20,000.
The Bank was established to help the Indians. It is now merged with Oriental Bank Of
Commerce and United Bank Of India.

Indian Bank

Indian Bank was established on 15th August 1907 along with the Swadeshi movement. It
21
has all India presence with 9786 touch points comprising 2872 domestic branches, 3892
ATMs/BNAs, and 3022 BCs, with the merger of Allahabad Bank.
State Bank of India

STATE BANK OF INDIA

SBI is the largest commercial bank of the country and has a history of 200 years. SBI is
the largest in terms of assets, deposits, profits, branches, customers and employees, etc.
The Government of India has a stake of more than 50% in SBI.

Central Public Sector Units (Banks)

Nationalized Banks (Government Shareholding %

1. State Bank of India (57.6%)

2. Bank of Baroda (63.97%)
3. Canara Bank (62.93%)
4. Punjab National Bank (73.15%)
5. Indian Bank (79.86%)
6. Union Bank of India (83.49%)
7. Bank of India (81.41%)
8. Central Bank of India (93.08%)
9. Bank of Maharashtra (90.97%)
10. UCO Bank (95.39%)

22
 PRIVATE SECTOR-

These are the banks in which the maximum stake of shares or equity is maintained and
owned by private individuals. Initially, the Indian bank sector was dominated by the
Public Sector banks, but after the 1990s, private sector banks came into existence and
have grown immensely.

The reason for their quick growth was because they used the latest technology, used new
monetary tools, and provided contemporary innovations.

In India, private sector banks are classified into two divisions

1. Old Private sector banks (these banks emerged before 1968)

2. New Private sector banks (these banks emerged after the 1990s)

List of Private Banks in India (2021)

Here is the list of top private banks in India:

Sr. No Name of the Bank Branches Establishment Headquarter

1 Axis Bank 4528 1993 Mumbai, Maharashtra

2 Bandhan Bank 670+ 2015 Kolkata, West Bengal

3 CSB Bank 417 1920 Thrissur, Kerala

4 City Union Bank 700+ 1904 Kumbakonam, Tamil Nadu

5 DCB Bank 334 1930 Mumbai, Maharashtra

6 Dhanlaxmi Bank 270+ 1927 Thrissur city, Kerala

7 Federal Bank 1284 1931 Aluva, Kochi

23
8 HDFC Bank 5430 1994 Mumbai, Maharashtra

9 ICICI Bank 5288 1994 Mumbai, Maharashtra

10 IDBI Bank 1892 1964 Mumbai, Maharashtra

11 IDFC FIRST Bank 260 2015 Mumbai, Maharashtra

12 IndusInd Bank 2000 1994 Pune, Maharashtra

Srinagar, Jammu and

13 J&K Bank 1038 1938
Kashmir

14 Karnataka Bank 857 1924 Mangaluru, Karnataka

15 Karur Vysya Bank 779 1916 Karur, Tamil Nadu

16 Kotak Mahindra Bank 1500+ 2003 Mumbai, Maharashtra

17 Nainital Bank 150 1922 Nainital, Uttarakhand

18 RBL Bank 398 1943 Mumbai, Maharashtra

19 South Indian Bank 876 1929 Thrissur, Kerala

Tamilnad Mercantile
20 509 1921 Tuticorin, Tamilnadu
Bank

21 YES Bank 1000+ 2004 Mumbai, Maharashtra

24
 1. HDFC Bank

It is said to be one of the biggest private banks in India in terms of complete assets and
market capitalization. It is the first Bank that got ‘in-principle permission from RBI to
establish a bank in the private sector as a division of RBI’s liberalization of the Indian
Banking Industry in 1994.

In fact, their tagline itself is “We understand your world,” and they completely abide by it
by offering great services. HDFC is one of the top-performing banks, and it comes under
the listing of 100 most valuable brands across the world.

They give a big variety of financial products and services that includes wholesale & retail
banking, all type of loans, treasury, and credit cards to its customers. Their banking
network is also huge; globally, they have more than 5430 branches and 15292 ATMs.

 Revenue: Rs 105,161 Cr
 NIM: 4.3%
 Gross NPA: 1.36%
 CASA: 48%
 ATMs: 15292
 Branches: 5,430
 Customer Base: Over 49 Million
 Employees: 98,061

25
 2. ICICI Bank

It is the second-largest private sector bank in India as its total consolidated assets were
Rs.14.76 trillion in 2020. ICICI has a large network of branches nationwide; they have
5288 branches and 15158 ATMs across the country.

ICICI bank started in 1994, and its registered office is in Vadodara, Gujarat. They render
an extensive range of financial products and services, including Fixed Deposits, loans,
insurance, savings & current accounts, privileged banking, and Credit Cards.

They generate employment for more than 85000 people in the country. ICICI bank offers
services to the customers via several delivery channels and its group companies.

 Revenue: Rs 84,353 Cr
 NIM: 3.61%
 Gross NPA: 6.7%
 CASA: 45.2%
 ATMs: 15158
 Branches: 5288

26
[3.2] Services Provided by Bank
Core Banking Solution

The Bank has been constantly endeavoring to leverage the advancements in

Information Technology and communication network with a view to:

• Introduce new techno-centric products

• Enhance customer convenience

• Increase efficiency in operations

• Buildup multiple delivery channels

The Bank has embarked upon massive technology based transformation through
technology process in the form of implementation of Core Banking Solution . The Bank
has engaged the services of M/s Wipro, a leading service provider in IT enabled services
for a period of 10 years, for providing an end-to-end solution for Core Banking
Operations of the Bank on complete out sourcing basis. It is backed by ‘Finacle’ software
support from M/s Infosys Technologies Ltd. The Core Banking system bundles a host of
customer friendly services like Internet Banking, Phone Banking, Mobile Banking and
Cash Management Services, software system for Integrated Treasury operations,
Integrated Risk Management, Asset Liability Management etc. mainly with a view to
address Regulatory concerns and facilitate robust MIS.

All the branches of the Bank are under CBS

Pursuant to the above technological initiative, the Bank has initiated a detailed study that
will focus on development of new business models that will include formulating new
products and services for serving our customers better. Efforts at revitalizing the entire
rank and file of the Bank, to give sharper focus to customer satisfaction and delight, are
also underway.

27
The following facilities/services to customers have been powered by

 Access to customer accounts from any of CBS Branches

 Internet Banking Facility
 International Debit Cards
 SMS banking & Alert services
 Phone Banking facility
 Payment of Directand Indirect taxes through internet
 RTGS & NEFT- Fund transfer facilities

Many more products and services which are on the anvil .

Delivery Channels

Bank offers a bouquet of following Technology based Products to deliver Banking

services to its customers of all CBS branches from the convenience of any location
without any need to visit the Branch:

 Internet Banking with Alerts

 SMS Banking
 Phone Banking
 Dena ATM Services

Precaution

Bank does not ask for the details of your account / PIN / password. Therefore anyone
pretending to be asking you for information from the bank/technical may be fraudulent
entities, so please be ware. You should know how to operate net transactions and if you
are not familiar you may refrain from doing so. You may seek bank's guidance in this
regard. Bank is not responsible for online transactions going wrong.

28
2. We shall also not be responsible for wrong transactions and wanton disclosure of
details by you. Viewing option and transactions option on the net are different. You may
exercise your option diligently.

ATM Services

Bank Debit cum ATM Card offers you an easy and convenient way to do all your
transactions and that too within a fraction of seconds. Debit cum ATM Card is your Bank
Account in your pocket. Get your Dena Bank Debit cum ATM Card today and avail
round the clock uninterrupted service.

BANK’S ATM SHARING ARRANGEMENT

Debit Card gives you the freedom to access your savings or current account at any VISA
accredited POS Terminals (Merchant Establishment), ATM, Cash tree group, Cashnet
group , Corporation Bank and SBI & its associates.

Features

You can link multiple accounts at different branches of Bank to a single Debit cum ATM
Card. The Account number of Debit cum ATM Card issuing branches will be the Primary
account number and account at other Cards issuing branches link to the same card will be
the Secondary account.

Transactions

1. Cash Withdrawal:-

Withdraw up to Rs. 20,000/- per day subject to the balance in your

account.

2. Purchase at Merchant Establishments:-

Purchase at Merchant Establishments i.e. Point of Sale (POS) upto Rs.

25000/- per day subject to the balance in your account (with effect from 1st April
2008).

3. Cash/Cheque Deposit:-

29
 You can deposit up to 30 notes at a time in the ATM machine. You can
also deposit your cheque in the ATM.

4. Balance Enquiry:-

You can check your balance of all your account.

5. Mini Statement:-

You can get Mini statement of your transactions.

6. PIN Change:-

You can change your Personal Identification Number (PIN).

Value Added Services Through ATM

1. Mobile Recharge through ATM :- You can recharge your mobile phone through
ATM also. You can also recharge your mobile through Mobile Equipment and for
that you have to register yourself through ATM. Presently this service is available
to only customers of Airtel, Idea Orange, BPL and Reliance Service Provider.
Now the customer of Reliance can also recharge their mobile.
2. Mobile Post Paid Bill Payment: You can pay your Post Paid mobile Bill through
ATM. Presently this service is available to AIRTEL.
3. Fund Transfer:-You can transfer funds with upper limit Rs. 1 Lac per day subject
to the balance in the account between your Bank’s accounts either in same branch
or different branches. Both the accounts must be linked to your Card for Fund
Transfer.

Distribution of Mutual Funds

Bank is committed to providing a wide range of financial services to the

customers. In pursuance of this commitment, the Bank has tied up with the following
Mutual Funds for distribution of their mutual fund products through selected branches
across the country:

30
1. UTI Mutual Fund. 8. Kotak Mutual Fund

2. ICICI Prudential Mutual Fund 9. Birla Sunlife Mutual Fund

3. LIC Mutual Fund 10. Tata Mutual Fund

4. Franklin Templeton Investments 11. SBI Mutual Fund

5. HDFC Mutual Fund 12. Fidelity Mutual Fund

6. ING Vysya Mutual Fund 13. DSP Blackrock Mutual Fund

7. Reliance Mutual Fund 14. Shinsei Mutual Fund

This is another value addition in our services for our customers, who can avail
banking as well as insurance and mutual fund investment services at our branches.

Demat Services

The Depository system was introduced in India more than a decade back. Today
the word "Demat" is well known and most of the investors are aware of the Demat of
shares and securities.

Presently, there are only two Depositories operating in India:-

(i) National Securities Depository Limited (NSDL) and

(ii) Central Depository Services (India) Limited (CDSL).

Financial Institutions, Banks, custodians and stockbrokers complying with the

requirements prescribed by Securities & Exchange Board of India (SEBI) can be
registered as a Depository Participant (DP).

A "Depository Participant" is an agent of the Depository (NSDL or CDSL) who is

authorized to offer depository services to investors. Thus to open a Demat account of an
investor, a bank or its branch has to get registered as a DP of a depository i.e. NSDL or
CDSL or both.

31
 BANKING INDUSTRY AND ITS TRANSFORMATION IN
INDIA

"A bank is a place

that will lend you
money if you can
prove that you don't.”

The growth in the Indian Banking Industry has been more qualitative than quantitative
and it is expected to remain the same in the coming years. Based on the projections made
in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan,
the report forecasts that the pace of expansion in the balance-sheets of banks is likely to
decelerate. The total assets of all scheduled commercial banks by end-March 2010 is
estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current
market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at
an annual composite rate of 13.4 per cent during the rest of the decade as against the
growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that
there will be large additions to the capital base and reserves on the liabilities.

[4.1] Banking Industry Structure

The Indian banking system can be classified into nationalized banks, private
banks and specialized banking institutions. The industry is highly fragmented with 30
banking units contributing to almost 50% of deposits and 60% of advances. The Reserve

32
Bank of India is the foremost monitoring body in the Indian Financial sector. It is a
centralized body that monitors discrepancies and shortcomings in the system.

Industry estimates indicate that out of 274 commercial banks operating in the
country, 223 banks are in the public sector and 51 are in the private sector. These private
sector banks include 24 foreign banks that have beg up their operations here. The
specialized banking institutions that include cooperatives, rural banks, etc. form a part of
the nationalized banks category.

[4.2] Growth of Banking in India

A robust increase in non-interest income has helped the SBI post a net profit of
US$ 530.6 million in the second quarter ended September 30, 2009, up 10 per cent from
the corresponding period last year. The bank has been growing its savings bank deposit
base at the rate of US$ 1.07 billion a month in the last few months, in a bid to grow low-
cost deposits and shed high-cost term deposits. This is expected to improve net interest
margin by 10-15 basis points in every quarter. The SBI is adding 23 new branches abroad
bringing its foreign-branch network number to 160 by March 2010. This will cement its
leading position as the bank with the largest global presence among local peers.

Amongst the private banks, Axis Bank’s net profit surged by 32 per cent to US$
115.4 million on 21.2 per cent rise in total income to US$ 852.16 million in the second
quarter of 2009-10, over the corresponding period last year. HDFC Bank, the country’s
second largest private sector lender, reported a 30.21 per cent rise in its quarterly net
profit, helped by non-interest income.

For the quarter ended September 2009, ICICI Bank reported a 2.6 per cent jump
in net profit at US$ 222.1 million from US$ 216.5 million in the same period a year-back.
ICICI Bank has raised US$ 750 million through a five-year bond issue at its Bahrain
branch.

33
 YES Bank, a new private sector bank, has inked pact with Proparco, a French
financing agency, to raise US$ 20 million capital through subordinated bonds to enhance
capital adequacy.

[4.3] Competition

The conditions in the banking industry have changed and are changing all over
the world. In our country, economic reform and in particular financial sector reform has
altered the atmosphere in which the participants operate.

First, market size -Usually, a small market does not attract too many competitors. The
size of the market is so large and with GDP likely to grow at 6.5 per cent in the medium-
to long-term, the Indian banking industry has become very attractive-as never before.

Second, industry profitability-higher by the standards of the past or international

standards is attracting more new entrants. Hence, increasing competition in the industry.

Third, rapid technological change-This enables not only quicker and more efficient
service but advantage to new entrants over existing players.

Fourth, product innovations-Features such as home banking, ATMs are all making the
industry to be continuously alert, and fiercely competitive.

Fifth, entry/exit norms-While regulatory barriers have been eased, desirable barriers exist
in the form of capital and other requirements. After all banking license cannot be like a
driving license. But, entry norms are fairly clear, though exit norms are not clear yet.

Sixth, markets are increasingly getting integrated in our country also. Domestic and
foreign currency, banking and non-banking are getting closer. Correspondingly, there are
institutional innovations and interlink ages, both in ownership and operations -be it in
depositories or mutual funds.

Seventh, consumers of banking services are getting increasingly agile, enlightened, cost
and quality conscious. They are already forcing the pace of competition on price, product
and quality products.

34
Emerging Issues

First, the issue of competition is irrevocably linked with regulatory framework and level
playing field. This issue has been constantly raised in different forums and this relates to
not only banks but also to other financial intermediaries. The financial sector is still in
transition and let me assure you that this is an area that will gain greater attention in the
future.

Secondly, all other industries are vocal about the 100 million middle-classes. The
corporate sector is increasingly talking about exploiting the potential in the rural-semi-
urban markets. Perhaps, we should question the relevance of rural-urban dichotomy and
look at rural-urban continuum.

Thirdly, when competition intensifies, there has to be inevitable changes such as mergers-
what I earlier referred to as exit norms. As one of the Conference papers pointed out, the
net result in any field is either the crowding out of the weaker players or their
amalgamations with the stronger ones.

Fourthly, in this context, banks should concentrate on study of the success stories as well
as bank failures. Internationally, there are elaborate documented studies on bank failures;
Barings is just one example. We too need to make an incisive analysis of banks that
failed in our country and learn not to commit similar mistakes.

Fifthly, we have to think seriously about the nature of the control that exists. Banks will
need to be given more autonomy, and more important, they should assert their autonomy.
Here lies the importance of industry associations. The scope for self-regulatory industry
norms and banking industry protocol should be explored. This will bring about more
flexibility to banks and less regulatory intrusion.

Sixthly, I noticed a suggestion in one of the papers to make Mumbai as an international

financial centre. Similarly suggestions have been made in the past and we have some
reservations, but we always have an open mind. A number of issues have to be clarified
in our minds -whether such a financial centre can be started before we reach international
standards? Whether we need to promote such a centre at this stage of financial sector

35
reforms or at a later stage? Please study these issues in a more detailed and formal
manner, and then we can take a view.

Seventhly, there is a lot of interest from foreign entities in the opening up of the
insurance sector in India. Perhaps, both banks and policy makers need to assess whether
domestic banks, particularly larger banks, have an opportunity to enter into either general
or life insurance through subsidiaries or collaborations, to take advantage of their existing
market penetration. Could this really add to the competitive strength of the banks in
financial intermediation?

[4.4] Public Sector Banks

The Public Sector Banks (PSBs), which are the base of the Banking sector in
India account for more than 78 per cent of the total banking industry assets.
Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive
manpower and lack of modern technology. On the other hand the Private Sector Banks
are making tremendous progress. They are leaders in Internet banking, mobile banking,
phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed
in the Indian Banking Industry.

[4.5] Private Sector Banks

In the Indian Banking Industry some of the Private Sector Banks operating are
IDBI Bank, ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of
Rajasthan Ltd. and banks from the Public Sector include Punjab National bank, Vijaya
Bank, UCO Bank, Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank,
ABN-AMRO Bank, American Express Bank Ltd, Citibank are some of the foreign banks
operating in the Indian Banking Industry.

36
[4.6] Foreign Banks

Foreign Banks in India always brought an explanation about the prompt services
to customers. After the set up foreign banks in India, the banking sector in India also
become competitive and accurative. New rules announced by the Reserve Bank of India
for the foreign banks in India in this budget has put up great hopes among foreign banks
which allows them to grow unfettered. Now foreign banks in India are permitted to set up
local subsidiaries. The policy conveys that foreign banks in India may not acquire Indian
ones (except for weak banks identified by the RBI, on its terms) and their Indian
subsidiaries will not be able to open branches freely.

List of Foreign Banks in India

• ABN-AMRO Bank • Deutsche Bank

• Abu Dhabi Commercial Bank • HSBC
• Bank of Ceylon • JPMorgan Chase Bank
• BNP Paribas Bank • Standard Chartered Bank
• Citi Bank • Scotia Bank
• China Trust Commercial Bank • Taib Bank

[4.7] Scheduled Commercial Banks in India

The commercial banking structure

in India consists of:

• Scheduled Commercial Banks in

India

• Unscheduled Banks in India

Scheduled Banks in India

constitute those banks which have
been included in the Second

37
Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those
banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the
Act.

As on 30th June, 1999, there were 300 scheduled banks in India having a total network of
64,918 branches. The scheduled commercial banks in India comprise of State bank of
India and its associates (204), nationalized banks (19), foreign banks (45), private sector
banks (32), co-operative banks and regional rural banks.

"Scheduled banks in India" means the State Bank of India constituted under the State
Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of
India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted
under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings)
Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank
included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but
does not include a co-operative bank".

"Non-scheduled bank in India" means a banking company as defined in clause (c) of

section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled
bank".

The following are the Scheduled Banks in India (Public Sector):

• State Bank of India

• Bank of Baroda • Indian Overseas Bank

• Bank of India • Indian Bank

• Bank of Maharashtra • Punjab National Bank

• Canara Bank • Punjab and Sind Bank

• Central Bank of India • Union Bank of India

• UCO Bank

38
The following are the Scheduled Banks in India (Private Sector):

• Kotak Mahindra bank

• Axis Bank Ltd • HDFC Bank Ltd

• Indusind Bank Ltd • IDBI Bank Ltd

• ICICI Bank

The following are the Scheduled Foreign Banks in India:

 American Express Bank Ltd.  Standard chartered bank

 AB bank ltd  Citi bank
 Bank of America NT & SA
 BNP PARIBAS.
 DBS Bank .
 Barclays Bank Plc

[4.8] Co-operative Bank

 Bharat co-operative bank

 Janata co-operative bank
 Cosmos co-operative bank

39
[4.9] Banking Regulation Act 1949

The Banking Regulation Act was passed as the Banking Companies Act 1949 and came
into force wef 16.3.49. Subsequently it was changed to Banking Regulations Act 1949
wef 01.03.66. Summary of some important sections is provided hereunder. The section
no. is given at the end of each item. For details, kindly refer the bare Act.

• Banking means accepting for the purpose of lending or investment of deposits of

money from public repayable on demand or otherwise and withdrawable by cheque,
drafts order or otherwise (5 (i) (b)).

• Banking company means any company which transacts the business of banking
(5(i)(c)

• Transact banking business in India (5 (i) (e).

• Demand liabilities are the liabilities which must be met on demand and time
liabilities means liabilities which are not demand liabilities (5(i)(f)

• Secured loan or advances means a loan or advance made on the security of asset
the market value of which is not at any time less than the amount of such loan or
advances and unsecured loan or advances means a loan or advance not secured (5(i)(h).

• Defines business a banking company may be engaged in like borrowing, lockers,

letter of credit, traveller cheques, mortgages etc (6(1).

• States that no company shall engage in any form of business other than those
referred in Section 6(1) (6(2).

• For banking companies carrying on banking business in India to use at least one
word bank, banking, banking company in its name (7).

• Restrictions on business of certain kinds such as trading of goods etc. (8)

40
• Prohibits banks from holding any immovable property howsoever acquired except
as acquired for its own use for a period exceeding 7 years from acquisition of the
property. RBI may extend this period by five years (9)

• Prohibitions on employments like Chairman, Directors etc (10)

• Paid up capital, reserves and rules relating to these (11 & 12)

• Banks not to pay any commission, brokerage, discount etc. more than 2.5% of
paid up value of one share (13)

• Prohibits a banking company from creating a charge upon any unpaid capital of
the company. (14) Section 14(A) prohibits a banking company from creating a floating
charge on the undertaking or any property of the company without the RBI permission.

• Prohibits payment of dividend by any bank until all of its capitalised expenses
have been completely written off (15)

• To create reserve fund and 20% of the profits should be transferred to this fund
before any dividend is declared (17 (1))

• Cash reserve - Non-scheduled banks to maintain 3% of the demand and time

liabilities by way of cash reserves with itself or by way of balance in a current account
with RBI (18)

• Permits banks to form subsidiary company for certain purposes (19)

• No banking company shall hold shares in any company, whether as pledgee,

mortgagee or absolute owners of any amount exceeding 30% of its own paid up share
capital + reserves or 30% of the paid up share capital of that company whichever is less.
(19(2).

• Restrictions on banks to grant loan to person interested in management of the

bank (20)

• Power to Reserve Bank to issue directive to banks to determine policy for

advances (21)

41
• Every bank to maintain a percentage of its demand and time liabilities by way of
cash, gold, unencumbered securities 25%-40% as on last Friday of 2nd preceding
fortnight (24).

• Return of unclaimed deposits (10 years and above) (26)

• Every bank has to publish its balance sheet as on March 31st (29).

• Balance sheet is to be got audited from qualified auditors (30 (i))

• Publish balance sheet and auditors report within 3 months from the end of period
to which they refer. RBI may extend the period by further three month (31)

• Prevents banks from producing any confidential information to any authority

under Indl Disputes Act. (34A)

• RBI authorised to undertake inspection of banks (35).

• Amendment carried in the Act during 1983 empowers Central Govt to frame rules
specifying the period for which a bank shall preserve its books (45-y), nomination
facilities (45ZA to ZF) and return a paid instrument to a customer by keeping a true copy
(45Z).

• Certain returns are also required to be sent to RBI by banks such as monthly
return of liquid assets and liabilities (24-3), quarterly return of assets and liabilities in
India (25), return of unclaimed deposits i.e. 10 years and above (26) and monthly return
of assets and liabilities (27-1)

42
 ITS TRANSFORMATION IN INDIA

Financial services sector in our country has witnessed notable transformation over the last
five decades and concerted efforts have been made by the banking system to grow by
building up an extensive branch net-work, penetrating into unbanked areas, mobilizing
untapped saving, promoting banking habits and providing credit for rural development,
besides diversifying new areas of business. The process of globalization of Indian
economy has created an environment where the financial service system has to be
effective, customer oriented and technology based.

The banking sector plays a crucial role in the economic development of the
nation. A sound, efficient, effective, vibrant and innovative banking system stimulates
economic growth by mobilizing savings on a massive scale and efficiently allocating
resources for the productive as well as consumption purpose. These banking sector
reforms includes progressive reduction of statutory liquidity ratio (SLR) and cash reserve
ratio (CRR); prescription of uniform accounting norms with regard to classification of
assets, enactment of a statute providing for setting up of tribunals for expeditious
adjudication and recovery of bank loans; establishment of separate board for financial
supervision of bank; permission for the entry of new private banks to inject competition;
rationalization and deregulation of interest rates; implementation of capital adequacy
norms; recapitalization of banks; permission to banks to access capital market for

43
mobilizing additional equity; liberalized new branch licensing and new bank licensing
policy, etc.

[4.9] Classification of reforms

The banking sector reforms can be classified into six categories namely (a)
measures meant for promotion of competition (b) measures meant for strengthening role
of the market (c) prudential measures (d) legal measures (e) measures meant for
strengthening supervision or supervisory controls and (f) measures relating to technology.
Some of these measures meant for strengthening of competition included grant of limited
operational autonomy to public sector banks(PSB); dilution of government stake in the
equity of PSBs permitting them to mobilize capital from the open market; adoption of
transparent licensing policy enabling the entry of private sector, foreign and joint venture
banks; permitting foreign direct investment (FDI) in the financial sector as well as
permitting portfolio investment; issues of guidelines on ownership and governance in
private sector banks; etc. Measures initiate to strengthen the role of market force included
progressive reduction in SLR and CRR, market determined pricing of government
securities, deregulation of interests rates etc. prudential measures which have been
implemented covered fulfillment of capital adequacy norms; and new accounting, income
recognition, provisioning and exposure norms, application for marked-to-market
principle for investment portfolio and fixation of limits for deployment of funds in
sensitive sectors and activities.

In addition, know your customer (KYC) guidelines, anti-money laundering

(AML) standards, introduction of capital charge for market risk, higher graded
provisioning for non-performing assets (NPA), etc were adopted for implementation.
Institutional and legal measures introduced for improving banks’ performance in the area
of recovery and for asset quality upgradation included setting up of Lok Adalats, debt
recovery tribunals (DRT), asset reconstruction companies (ARC), settlement advisory
committees, corporate debt restructuring mechanism, etc. Enactment of Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi
Act) was another important milestone in reforms. Setting up of Credit Information
Bureau (India) limited (CIBIL) for sharing credit information and establishment of the
44
Clearing Corporation of India Limited (CCIL) to act as central counter-party for
facilitating payments and settlement systems relating to fixed income securities and
money instrument extended support to banks. Certain supervisory measures such as
establishment of a separate Board for Financial Supervision in RBI, recasting the role of
statutory auditors and increased internal control through strengthening of internal audit,
strengthening of corporate governance, etc were also initiated. The technology related
measures included setting up of Indian Financial NETwork (INFINET) as the
communication backbone for the financial sector, introduction of negotiated dealing
system for screen based trading in government securities and implementation of Real-
Time Gross Settlement (RTGS) system.

[4.10] Changes galore

Reforms made significant impart on banks and their functioning. The major areas
of transformation in Indian banking are as follows:

Risk based management

Banks in India have adopted comprehensive risk management systems for focused
attention to various types of risks such as interest rate risk, credit risk, liquidity risk,
market risk and operational risk. These risk management systems spell out internationally
accepted risk measurement methods for various types of risk to calculate capital charge
required for meeting prescribed capital adequacy ratio. Banks have set up separate risk
management departments to ensure
compliance with regulatory measures.

Competition

In post-reform era,
competition between banks is
continuously increasing. The market
for bank services and products has
now become a buyers’ market. Acute
competition with the advent of new generation private sector banks bringing in

45
technology has resulted in laying greater focus on product innovation backed by IT
advancement and thrust on customization of products. There is now increased focus on
customer orientation in all activities of banks. Banks are now oriented to vigorous
marketing of various products and services. Further increase in competition may require
banks to have simulation analysis of customer needs, products and market segments with
the help of sophisticated quantitative tools.

Efficiency parameters

In the post-reform period, we find a complete change in efficiency parameters.

Today, what is important is the strength of balance sheet. Return on assets, return on risk
adjustment capital, net interest margin, quality of assets, NPA percentage, per employee
business, per employee profit and overall per employee productivity and proportion of
low cost deposits are some of the vital parameters of banking today. There is added
emphasis on professionalism on the part of bank officers and staff and also on good
corporate governance to increase customer satisfaction and enhance shareholders’ value
as a result of these new efficiency parameters.

Value added services

As a result of reforms, the trend is clearly towards providing value added services
such as credit cards, insurance products, mutual funds and demat accounts with trading
platform. There are no taker in the market for simple stand-alone banking services.

Mergers and acquisitions

In the post-reform era, we have seen many mergers and acquisitions. New bank of
India, a nationalized bank and the private sector Nedungadi Bank Ltd were merged with
Punjab National Bank. Bareilly Corporation Bank was merged with Bank of Baroda.
Times Bank and Centurion Bank of Punjab merged with HDFC Bank. Bank of Madura,
ICICI Ltd and Sangli Bank marged with ICICI Bank. Sikkim Bank was merged with
Union Bank of India in 1999-2000. Global Trust Bank was merged with Oriental Bank of
Commerce; United Western Bank was merged with IDBI Bank. Ganesh Bank of
Kurundwad was merged with Federal Bank in 2006. Lord Krisnha Bank and Bank of

46
Muscat SAOG were merged with Centurion Bank of Panjab. Such merger creates larger
and stronger banks. Mergers may be synergy based to derive economies of scale or
market driven mergers between banks and financial institutions in the interests of
furthering universal banking.

IT initiatives

In every bank, there has been stress on increased IT application and efforts are to
absorb latest technology. Banks are striving hard to extend core banking solutions (CBS)
to all branches in a phased manner. In the post-reforms era, we have seen strategic
alliances among banks in areas like sharing of ATMs and funds transfer, etc. bringing all
branches, including the rural ones, within the CBS network, establishment of biometric
rural ATMs and introduction of mobile banking are some of the major developments
expected in the future.

Focus on qualitative aspects

There is a gradual shift in focus from size related issues to concern in respect of
productivity, efficiency, profitability, return on capital, net interest margin and return on
asset, etc. In the days to come, there will be greater stress on these concerns. This will
result in adoption of still better and more prudent risk management system; better and
more effective management of spreads and net interest margin through cost cutting
product innovation; product-wise and business line-wise cost, income and profitability
analysis; steps aimed at augmentation of fee-based income, etc.

Human resources

In Indian banking there is a stress on objective manpower planning and adoption

of scientific methods for evaluating the contributions of manpower. Outsourcing of work
is also a development in post-reform period. Soon performance linked reward system
may be implemented in PSBs. High average age of staff in PSBs can be reduced by
shedding excess staff beyond a certain age and recruiting younger persons with good
educational background and IT skills. There is a need for having suitable comprehensive

47
training programmes at various educational institutes preparing new generation bankers
relieving banks from training fresh recruits.

[4.11] Increased strength

Consequent to banking sector reforms, Indian banks have emerged relatively

stronger in terms of range of products and services, capital adequacy, asset quality,
profitability, productivity and overall balance sheet strength vis-à-vis their counterparts in
other Asian countries. But, they are likely to encounter new challenges, particularly with
implementation of Basel II norms and opening up of banking sector for the entry of
foreign banks. An analysis by standard & Poor’s has shown that the Indian banking is
ahead of China, Indonesia, Philippines and Vientnam. But, the banking sectors of
Australia, New Zealand, Singapore, Hong Kong, Japan, South Korea and Thailand are
ahead of Indian banks. Another study undertaken by Moody’s Investors Service revealed
that Indian banking is qualitatively better than its counterparts even in developed
countries like, Japan, Singapore and Australia. Indian banks have posted the highest
return on equity compared to their Asian counterparts during the last four years. There
has been a distinctly discernible improvement in the performance of Indian banks on
various fronts. But, the acquisition of a globally competitive size for Indian banks is a
major challenge. Banks in other Asian countries, particularly in china, are larger in size
compared to Indian banks.

The Reserve Bank of India (RBI) has recently issued guidelines to banks on pillar
2 of Basel II framework. Pillar 2 deals with supervisory review process, the objective of
which is to ensure that banks have adequate capital to support all risks and also to
encourage them to develop and use better risk management techniques for monitoring
and managing their risks. The RBI guidelines listed some risks that banks are generally
exposed to, but which are not fully captured in the regulatory Capital to Risk Asset Ratio
(CRAR), such as interest rate risk, credit concentration risk, liquidity risks, settlement
risks and reputational risks, among others. There will be a severe strain on capital on
account of implementation of Basel II norms. RBI has advised banks to develop an
Internal Capital Adequacy Assessment Process (ICAAP) commensurate with their size,

48
level of complexity, risk profile and scope of operations. This would be in addition to
calculation of regulatory capital requirement under Pillar I.

[4.12] Acquisition of competitive advantage

The vision for a strong, vibrant and globally competitive banking sector in India is
based on achievement of competitive advantage, the acquisition of which is possible only
through stress on efficiency, increase in productivity and improvement in profitability,
up-scaling of technological upgradation and continued improvement of overall balance
sheet strength. This world also require adoption of global best practices on the part of
banks. Facing the challenge of change in terms of range of products, delivery channels,
processes, culture, structure and overall capabilities would require key structural changes
such as consolidation, full implementation of Basel II norms, implementation of RTGs at
all branches, more effective risk management practices, better credit management
techniques, good corporate governance, better technology, effective customer relation
management, improvement in human resource capabilities and increase in
professionalism at all levels. Concentrated attention on these vital aspects can alone fetch
competitive advantage.

Productivity

Business per employee of Indian banks increased from INR 5.4 million in 1992 to
INR 16.3 million in 2004 and profit per employee rose from INR 20,000 to INR 1,50,000
in the same period. Business per branch also increased from INR 109.9 million to INR
254.5 million in the above period. Measures of profitability such as return on assets and
operating profit ratio, and efficiency measures such as net interest margin, ratio of
operating profit to staff expense, operating cost ratio and staff expenses ratio have to be
improved. There is therefore need to increase business volumes by leveraging technology
to reduce cost of intermediation. All controllable costs must be reduced by bank.

Internal controls

Banks today find it difficult to maintain the minimum required controls expected
in a new complex and increasingly regulated business environment. The traditional audit

49
and inspection provide assurance that control systems are adequate and function
satisfactorily. But, they are in fact a post-mortem and the finding emerging there from are
only after the transactions are over. Further, they may not cover all transactions and many
may go unnoticed. Auditors are rarely able to check all transactions in detail from control
and compliance angle. Therefore, there is a risk of even frauds remaining undetected. To
assist in the efficient capture and evaluation of data, sophisticated software tools need to
be used for evaluation of disclosure controls and procedures, and internal controls and
supervision over financial reporting.

Corporate governance

Corporate governance is of crucial importance for banks. The corporate

governance philosophy of banks has to be based on the pursuit of sound business ethics
and strong professionalism that aligns the interest of all stakeholders and the society at
large. It is therefore necessary to constantly strengthen corporate governance mechanism
in all banks.

Disclosure of reliable information facilities market discipline, strengthen

confidence and reduce the chances for rumours and creation of atmosphere of suspicion
and misleading information that may bring about market instability. There is still a vast
scope for improvement in Indian accounting standards to bring them at par with the
global practices.

Innovative business model

Introduction to innovative business models and financial technologies world over

has received an impetus through slashing operating cost by higher labour productivity,
business process re-engineering, further reduction in NPA’s, micro planning, branch-
centric profit planning, effective implementation of plans and monitoring of results,
market centric human resource management (HRM) policies and manpower planning.
Very high average age of staff, requirement of new skills and talents, working in a
computerized environment, foray into new and emerging areas require recruitment of
new staff and specialists, extensive training, etc. although 86 percent of PSBs are fully

50
computerized, only 44 percent are actually functioning under CBS platform. Covering all
branches in all banks under CBS will be one of the major challenges for banks.

Increased customer-orientation and customer focused product innovation; greater

use of multiple channels like ATMs, internet and mobile banking; efficient credit
delivery besides building up sound financial are vital for banking for facing emerging
challenges and obstacles.

Financial inclusion

There are abundant opportunities for intermediation and mobilization of saving

and extension of bank credit at the bottom of the pyramid. About 60 to 70 percent of
enterprise and individuals in our country do not have access to basic financial services
such as saving and credit. Hence, increased financial inclusion of all those who presently
stand excluded is of paramount importance. Bank linkage with self help group (SHG),
financing of small and medium enterprises, rural artisans, rural non-farm activities, etc
will prove to be great business opportunities for banks. Emphasis on volume-led growth
to competitive balance sheet size, shift of focus from interest income to non-interest
income and from capital adequacy to capital efficiency, etc are vital for maintain
benchmarks of return on assets, return on owned funds, net NPAs, capital adequacy, cost
to income ratio, net interest margin and intermediation cost.

In bracing for tomorrow a paradigm shift in bank financing through innovative

mechanism such as, templates for assessing customer risk and pricing products and
services, credit scoring, ensuring availability and use of information, etc are absolutely
essential. Retail banking requires product development and differentiation, innovation
and business process re-engineering, micro planning, technology upgradation for home,
electronic and mobile banking, cost reduction and cross selling.

Developing immunity

Banks have to adopt and implement strategies to ensure immunity of their balance
sheets from interest rate fluctuations by paying greater attention to non-interest income.
Merchant banking, international trade, payment and settlements, consultancy services,

51
financial derivatives, etc open up new income sources for banks. But, what is required is
a total transition from branch banking to virtual banking, market segmentation to
customer segmentation and product to customer profitability.

52
 EMERGING TRENDS IN BANKING

“Progress is the activity of today and the

assurance of tomorrow.”
[5.1] Trends in Banking Industry

At the beginning of the 21st century, the biggest banks in the industrial world
have become complex financial organizations that offer a wide variety of services to
international markets and control billions of dollars in cash and assets. Supported by the
latest technology, banks are working to identify new business niches, to develop
customized services, to implement innovative strategies and to capture new market
opportunities. With further globalization, consolidation, deregulation and diversification
of the financial industry, the banking sector will become even more complex.

Although, the banking industry does not operate in the same manner all over the
world, most bankers think about corporate clients in terms of the following:

 Commercial banking - banking that covers services such as cash management

(money transfers, payroll services, bank reconcilement), credit services (asset-
based financing, lines of credits, commercial loans or commercial real estate
loans), deposit services (checking or savings account services) and foreign
exchange;
 Investment banking - banking that covers an array of services from asset
securitization, coverage of mergers, acquisitions and corporate restructuring to
securities underwriting, equity private placements and placements of debt
securities with institutional investors.

Over the past decade there has been an increasing convergence between the activities
of investment and commercial banks, because of the deregulation of the financial sector.
Today, some investment and commercial banking institutions compete directly in money

53
market operations, private placements, project finance, bonds underwriting and financial
advisory work.

Furthermore, the modern banking industry has brought greater business

diversification. Some banks in the industrialized world are entering into investments,
underwriting of securities, portfolio management and the insurance businesses. Taken
together, these changes have made banks an even more important entity in the global
business community.

[5.2] Basel Capital Accord II

The Basel Committee on Banking Supervision (BCBS) had released the

guidelines on capital measures and capital standards in July 1988 which were accepted by
Central Banks in various countries including RBI (called Basel -I). In India these were
implemented on 1.4.92. Later on the revised version of the guidelines was issued by
BCBS in June 2006, which are being implemented by banks all over the world.

Basel II implementation in India

RBI issued detailed guidelines during April 2007 according to which the schedule
for implementation is as under:

(a) Foreign banks operating in India and Indian banks having presence outside India
would migrate to the standardized approach for credit risk and the basic indicator
approach for operational risk under Basel II with effect from Mar 31, 2008,
(b) All other banks (excluding IRBs and Local Area Banks) are to migrate by Mar
31, 2009.

[5.3] Business process re-engineering

In the banking industry, the business Process Re-engineering (BPR) means

transforming the select processes and procedures with a view to empower the bank with

54
contemporary technologies, business solutions and innovations that enhances the
competitive advantage.

Objective:

The objective of a BPR initiate is to create and enhance the value of the bank for
the customers. It takes into account 4 important aspects customer (to given him enhanced
value), competition (to meet it successfully), change (to manage it) and cost (to reduce).
The basic objective of BPR are to reduce the transaction process time without sacrificing
security aspect, quality and real time service to clients and extensive propagation of
single window concept. BPR basically aimed at maintaining long term profitability and
strengthening the competitive edge of banks in conforming to transforming market
realities.

Benefits:

There is growing need for use of BPR to further the strategic goal of banks. BPR
can benefit the customer through significantly reduced transaction time, flexibility in
servicing and improved value. The banks can be benefited by increased volume of
business and higher productivity, reduced operational cost leading to higher profits,
improved employee loyalty and sense of belongingness and establishment of bank within
a branch concept. Employees benefit through empowerment leading to higher job
satisfaction, effective job rotation as an additional incentive and effective interface with
customers as work load is evenly distributed.

[5.4] E-banking:

Internet banking (or E-banking) means any user with a personal computer and a
browser can get connected to his bank -s website to perform any of the virtual banking
functions. In internet banking system the bank has a centralized database that is web-
enabled. All the services that the bank has permitted on the internet are displayed in
menu. Any service can be selected and further interaction is dictated by the nature of
service. The traditional branch model of bank is now giving place to an alternative

55
delivery channels with ATM network. Once the branch offices of bank are interconnected
through terrestrial or satellite links, there would be no physical identity for any branch. It
would a borderless entity permitting anytime, anywhere and anyhow banking.
The network which connects the various locations and gives connectivity to the central
office within the organization is called intranet. These networks are limited to
organizations for which they are set up. SWIFT is a live example of intranet application.

Internet banking in India

The Reserve Bank of India constituted a working group on Internet Banking. The
group divided the internet banking products in India into 3 types based on the levels of
access granted. They are:

i) Information Only System: General purpose information like interest rates, branch
location, bank products and their features, loan and deposit calculations are provided in
the banks website. There exist facilities for downloading various types of application
forms. The communication is normally done through e-mail. There is no interaction
between the customer and bank's application system. No identification of the customer is
done. In this system, there is no possibility of any unauthorized person getting into
production systems of the bank through internet.

ii) Electronic Information Transfer System: The system provides customer- specific
information in the form of account balances, transaction details, and statement of
accounts. The information is still largely of the 'read only' format. Identification and
authentication of the customer is through password. The information is fetched from the
bank's application system either in batch mode or off-line. The application systems
cannot directly access through the internet.

iii) Fully Electronic Transactional System: This system allows bi-directional capabilities.
Transactions can be submitted by the customer for online update. This system requires
high degree of security and control. In this environment, web server and application
systems are linked over secure infrastructure. It comprises technology covering

56
computerization, networking and security, inter-bank payment gateway and legal
infrastructure.

Automated Teller Machine (ATM):

ATM is designed to perform the most important function of bank. It is operated

by plastic card with its special features. The plastic card is replacing cheque, personal
attendance of the customer, banking hours restrictions and paper based verification.
There are debit cards. ATMs used as spring board for Electronic Fund Transfer. ATM
itself can provide information about customers account and also receive instructions from
customers - ATM cardholders. An ATM is an Electronic Fund Transfer terminal capable
of handling cash deposits, transfer between accounts, balance enquiries, cash withdrawals
and pay bills. It may be on-line or 0ff-line. The on-line ATN enables the customer to
avail banking facilities from anywhere. In off-line the facilities are confined to that
particular ATM assigned. Any customer possessing ATM card issued by the Shared
Payment Network System can go to any ATM linked to Shared Payment Networks and
perform his transactions.

Credit Cards/Debit Cards:

The Credit Card holder is empowered to spend wherever and whenever he wants with his
Credit Card within the limits fixed by his bank. Credit Card is a post paid card. Debit
Card, on the other hand, is a prepaid card with some stored value. Every time a person
uses this card, the Internet Banking house gets money transferred to its account from the
bank of the buyer. The buyers account is debited with the exact amount of purchases. An
individual has to open an account with the issuing bank which gives debit card with a

57
Personal Identification Number (PIN). When he makes a purchase, he enters his PIN on
shops PIN pad. When the card is slurped through the electronic terminal, it dials the
acquiring bank system - either Master Card or VISA that validates the PIN and finds out
from the issuing bank whether to accept or decline the transactions. The customer can
never overspend because the system rejects any transaction which exceeds the balance in
his account. The bank never faces a default because the amount spent is debited
immediately from the customers account.

Smart Card:

Banks are adding chips to their current magnetic stripe cards to enhance security
and offer new service, called Smart Cards. Smart Cards allow thousands of times of
information storable on magnetic stripe cards. In addition, these cards are highly secure,
more reliable and perform multiple functions. They hold a large amount of personal
information, from medical and health history to personal banking and personal
preferences.

E-Banking Services:

(1) Bill payment service

You can facilitate payment of electricity and telephone bills, mobile phone, credit
card and insurance premium bills as each bank has tie-ups with various utility companies,
service providers and insurance companies, across the country. To pay your bills, all you
need to do is complete a simple one-time registration for each biller. You can also set up
standing instructions online to pay your recurring bills, automatically. Generally, the
bank does not charge customers for online bill payment.

(2) Fund transfer

You can transfer any amount from one account to another of the same or any
another bank. Customers can send money anywhere in India. Once you login to your
account, you need to mention the payees's account number, his bank and the branch. The
transfer will take place in a day or so, whereas in a traditional method, it takes about three

58
working days. ICICI Bank says that online bill payment service and fund transfer facility
have been their most popular online services.

(3) Credit card customers

With Internet banking, customers can not only pay their credit card bills online
but also get a loan on their cards. If you lose your credit card, you can report lost card
online.

(4) Railway pass

This is something that would interest all the aam janta. Indian Railways has tied up
with ICICI bank and you can now make your railway pass for local trains online. The
pass will be delivered to you at your doorstep. But the facility is limited to Mumbai,
Thane, Nashik, Surat and Pune.

(5) Investing through Internet banking

You can now open an FD online through funds transfer. Now investors with
interlinked demat account and bank account can easily trade in the stock market and the
amount will be automatically debited from their respective bank accounts and the shares
will be credited in their demat account. Moreover, some banks even give you the facility
to purchase mutual funds directly from the online banking system.

Nowadays, most leading banks offer both online banking and demat account.
However if you have your demat account with independent share brokers, then you need
to sign a special form, which will link your two accounts.

(6) Recharging your prepaid phone

Now; just top-up your prepaid mobile cards by logging in to Internet banking. By
just selecting your operator's name, entering your mobile number and the amount for
recharge, your phone is again back in action within few minutes.

(7) Shopping

59
 With a range of all kind of products, you can shop online and the payment is also
made conveniently through your account. You can also buy railway and air tickets
through Internet banking.

Advantage of Internet banking

As per the Internet and Mobile Association of India's report on online banking
2006, "There are many advantages of online banking. It is convenient, it isn't bound by
operational timings, there are no geographical barriers and the services can be offered at a
miniscule cost."

Through Internet banking, you can check your transactions at any time of the day,
and as many times as you want to. Where in a traditional method, you get quarterly
statements from the bank. If the fund transfer has to be made outstation, where the bank
does not have a branch, the bank would demand outstation charges. Whereas with the
help of online banking, it will be absolutely free for you.

Security Precautions

Customers should never share personal information like PIN numbers, passwords
etc with anyone, including employees of the bank. It is important that documents that
contain confidential information are safeguarded. PIN or password mailers should not be
stored, the PIN and/or passwords should be changed immediately and memorized before
destroying the mailers.

Customers are advised not to provide sensitive account-related information over

unsecured e-mails or over the phone. Take simple precautions like changing the ATM
PIN and online login and transaction passwords on a regular basis. Also ensure that the
logged in session is properly signed out.

[5.5] Insurance Business by Banks

With the opening up of insurance sector, the banks in India can undertake
insurance business either on risk participation basis (called underwriting) by setting up
insurance joint venture or undertake insurance business as agent of insurance companies

60
on fee basis, without any risk participation by banks themselves or their subsidiaries
(called Bancassurance).

Benefits:

The insurance business offers an opportunity for banks to increase fee based
business for improving their profits and make utilization of their branch network and
customer base optimally, to increase the fee-based income. Insurance is an appropriate
option since banks fulfill three major requirements for a successful insurance business i.e.
asset management and investment skills, distribution and capital adequacy.

Parameters:

As per RBI guidelines on insurance business (of March 16, 2000), the banks can
undertake insurance business (of underwriting) where:

1. Net worth is not less than Rs.500 crore.

2. Capital to risk weighted asset adequacy ratio is not below 10%.
3. There is a three year track record of continuous profits.
4. Non-performing assets are at reasonable level.
5. There is a satisfactory track record of existing subsidiaries.

[5.6] Bancassurance

Bancassurance stands for distribution of financial products particularly the

insurance policies (both the life and non-life), also called referral business, by banks as
corporate agents, and through their branches located in different parts of the country.

License for Bancassurance

Banks are required to obtain prior approval of the Insurance Regulatory and
Development Authority (IRDA) for acting as ‘composite corporate agent’ or referral
arrangement with insurance companies. Banks need not obtain prior approval of RBI to
undertake Bancassurance.

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Benefits of Bancassurance

Bancassurance helps the banks to build synergies between the insurance business
and bank branch network to sell insurance products through banking channels, as the
bank branches have a ready customer in need of financial products/services. Since those
customers are already having their dealing with the banking, they trust the branch staff,
more than a private agent.

[5.7] Universal Banking

R H Khan Committee had recommended the concept of universal banking.

Universal banking means allowing FIs and banks to undertake all kinds of activity of
banking or development financing or activity associated with that, subject to compliance
of statutory and other requirements prescribed by RBI, Govt. and related legal Acts.

Activities in Universal Banking:

These activities may include accepting deposits, granting loans, investing in

securities, credit cards, project finance, remittances, payment system, project counseling,
merchant banking, foreign exchange operations, insurance etc.

Objective:

The basic objective is to help bring harmony in the role of FIs/Banks, offer world
class services to clients by using information technology and cross selling, reduce per
customer cost and per customer revenue, take benefit of economize of scale and compete
with international banks by expanding business beyond the boundaries of the country.

[5.8] Narrow Banking

In India, the concept of narrow banking came into discussion after submission of
the repot by the committee on Capital Account Convertibility (Tarapore Committee). It
was suggested as the solution of the problem of high NPAs and related matters. The

62
committee proposed that incremental resources of these narrow banks should be
restricted only to investments in government securities.

What is narrow banking?

A ‘Narrow Bank’ in its narrow sense, can be defined as the system of banking
under which a bank places its funds in risk-free assets with maturity period matching its
liability maturity profile, so that there is no problem relating to asset liability mismatch
and the quality of asset remains intact without leading to emergence of sub-standard
assets.

What are advantages?

Such an approach can ensure the regular deployment of funds in low risk liquid
asset. With such patter of deployment of funds, these banks are expected to remove the
problems of bank failures and the consequent systemic risk and loss to depositors.

What is status of narrow banking in India?

The concept is practically being implemented by the Indian banking system

partly, as a large part of deposits mobilized by the banks, has been deployed in
government securities as it provides a safe avenue of investment but at a very low return.
This keeps the level of non-performing assets low and the requirement of capital
adequacy ratio also low, as the risk weight allotted to such securities is only 2.5%
compared to 100% in loan assets.

[5.9] Retail Banking

Retail banking sector is characterized by three basic characteristics:

a. Multiple products (deposits, credit cards, insurance, investments etc.);

b. Multiple delivery channels (call center, branch and internet); and
c. Multiple customer groups (customer, small business, and corporate).

63
Retail banking objectives

The objective of retail banking is to increase penetration by providing increasing

level of services and increased access, by offering value added services to customers by
packing them with retail banking products and services. The retail banking offers
considerably better spread of 3-4% compared to very thin spread available to banks in
case of corporate clients.

Various segments in retail banking

Basically there are three important segments in retail banking which include
deposit products (convenient deposit schemes such as flexi-deposits), loan products (such
as housing loans, education loans, conveyance loans, personal loans for diverse purpose
such as medical expenses, travel abroad) and other products.

Various delivery channels in retail banking

The delivery of these products and service can be through branch banking,
internet banking or by automated teller machines. These can be called home banking,
internet banking, mobile banking, credit cards, etc.

Other advantages of retail banking

Banks have excellent opportunity to cross sell various retail products like credit
cards, insurance policies, funds investment services (including mutual funds), ancillary
services like dematerialization, portfolio management, safe custody etc.

64
[5.10] Mobile Banking

Reserve Bank has brought out a set of operating guidelines (Oct 08, 2008) of
adoption by banks, u/s 18 of the payment and settlement system act, 2007 (Act 51 of
2007).

Mobile banking transactions:

For the purpose of these Guideline, “mobile banking transaction” is undertaking

banking transactions using mobile phones by bank customers that involve credit/debit to
their accounts’.

Regulatory and Supervisory Issues

1. Only banks which are licensed and supervised in India and have a physical in
India will be permitted to offer mobile banking services.
2. The service should be restricted on to the customer of the bank and/or holders of
debit/credit cards issued as per the extent Reserve Bank of India guidelines.
3. Only Indian rupee based domestic service shall be provided. Use of mobile
banking services for cross border inward and outward transfers is strictly
prohibited.
4. Banks may also use the services of Business Correspondent appointed in
compliance with RBI guidelines, for extending this facility to their customers.
5. Banks shall file Suspicious Transaction Report to Financial Intelligence Unit –
India for mobile banking transactions as in the case of normal banking
transactions.

Transaction Limit

1. For the present, banks can offer this facility to their customers subject to a daily
cap of Rs.5000/- per customer for funds transfer and Rs.10000/- per customer for
transactions involving purchase of goods/services.
65
 2. Banks may also fix monthly transaction limit depending on the bank’s own risk
perception of the customer.

[5.11] Cross-selling

Cross-selling stands for offering to the existing and new customer, some
additional banking products, with a view to expand banking business, reduce the per
customer cost of operations and provide more satisfaction and value to customer. For
instance, when a bank is in a position to sell to a deposit customer, a loan product such as
housing loan, credit card, personal loan or vice versa, this would result into additional
business and lead to low per customer cost and higher per customer earning.

Cross-selling is not transaction based activity; it is primarily, a relationship

building exercise.

Scope of cross selling

The cross selling can be taken place on the liability side (i.e. different kind of
deposit accounts), or on the asset side (i.e. loans for different requirements) or between
the two. It could be at the initiative of the customers or a bank can implement it as a well
prepared strategy.

Benefits of Cross selling

The major benefit is in terms of cost reduction as for a bank, the cost of
contacting a new customer is much higher than to serve an existing customer. Further,
through cross selling the benefits of economies are available to the bank, which reduce
the cost further and increase the profits. Another additional advantage is that the cross
selling helps in building brand value if the loyalty of the customer could be ensured for
the brand, as in that case the likelihood of shifting the business dealing to another
organization/bank by the customer , is much less.

66
[5.12] Door step banking

RBI had advised banks on Apr 30, 2005 (u/s 23 of Banking Regulation Act 1949)
to formulate the scheme, for providing services at the premises of a customer and submit
it to RBI for approval. RBI laid down general principles/parameters to be followed by
banks while offering “doorstep” services to their customers:

Guidelines for Doorstep Banking

The services can be delivered by the banks either (a) through own employees or
(b) trough the agents.

Where banks engage the services of agents for delivery of services banks will
refer to RBI guidelines on Managing Risks and code of conduct in outsourcing of
financial Services by Banks.

Delivery Process

1. Cash collected from the customer should be acknowledged by issuing a receipt on

behalf of the bank and should be credited to the customer’s account on the same
day or next working day, depending on the time of collection.
2. The customer should be informed of the date of credit by issuing a suitable
advice.
3. Delivery of demand draft should be done by debit to the account on the basis of
requisition in writing/cheque received and not against cash or instruments
collected at the doorstep.
4. Cash delivery services may be offered to the corporate clients/PSUs/departments
of Central and State Government against telephonic request. No such facility,
however, shall be made available to individual customers.

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Other conditions

1. Doorstep facility should be offered to only those customers in whose case KYC
procedure have been followed.
2. The services should be offered at either the residential or office, the address of
which should be clearly and explicitly mentioned in the agreement.
3. The agreement with the customer shall clearly specify that the bank will be
responsible for acts of omissions and commission of its agent.
4. The ‘Scheme’ should not restricted to any particular client/customer or class of
customer.
5. Banks may keep in view, the restriction imposed by section 10 (1) (b) (ii) (b) of
the Banking Regulation Act, 1949, while making payment for the services.

[5.13] Credit card Business

RBI issued the following guidelines (on Nov 21, 2005) on the recommendation of
its Working Group on Regulatory Mechanism:

Issue of card

1. Banks should assess the credit limit for credit card customer having regard to the
limits enjoyed by the cardholder from other banks on the basis of self
declaration/credit information.
2. The card issuing banks would be solely, responsible for fulfillment of all KYC
requirement, even where DSAs/DMAs or other agents solicit business on their
behalf.

Interest rates and other charges

1. Card issuers should quote annualized %age rates (APR) on card products
(separately for retail purchase and for cash advance if different). The late payment
charges and the number of days should be prominently indicated.

68
 2. The bank should not levy any charge that was not explicitly indicated at the time
of issue of the card
3. Changes in charges (other than interest) may be made only with prospective effect
with notice of one month.

Wrongful billing

Wrong bills should not be raised and issued to customers. In case, a customer
protests he should be provided explanation/documentary evidence within 60 days.

Right to privacy

If the unsolicited card is issued and activated without the consent of the recipient and the
latter is billed for the same, the bank shall reverse the charges forthwith and also pay a
penalty without demur to the recipient amounting to twice the value of the charges
reversed.

Redressal of Grievances

1. A time limit of 60 days may be given to the customer for preferring their
complaints.
2. If a complaint does not get satisfactory response within a maximum period of 30
days from the date of his lodging the complaint, he will have the option to
approach the office of the concerned Banking Ombudsman for Redressal of his
grievance/s.

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 CURRENT SCENARIO

“Now is the
time. Needs are
greater, but
your
possibilities are
greater.”

Today, it is known to almost everybody that the recession period has crawled in and that
too in almost every part of the world. Presently, in India also almost all the sectors such
as IT sector, automobile industry and share market are also not in a very good condition.
But, quite interestingly, the baking sector of India is booming day-by-day and that too
even in the period of global crisis.

With the advent of high-tech communication and information technology

numerous factors have facilitated the growth of the banking sector such as the Indian
Internet banking, ATM Network, electronically transfer of funds and fast dissemination
of information between different-different branches. With the entry of more and more
foreign banks and private sector banks, the lean and agile footed structure, became the
story of past and such factors have escalated the growth potentials in the banking sector
of India. The structural reforms are improving the health of Indian banking sector.
Although, the Indian share market has plunged to more than half of their value in one
year the banking sector of India has managed to post profits in the third quarter of 2008.
The SBI (State Bank of India) declared a quarterly profit rise of 40 percent over the last

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quarter. The SBI is India's first non oil based sector to feature in fortune up to 500
esteemed list of companies. It has maintained the trust of Indian investors and FDIs with
this good news. Moreover, the banking sector of India is growing continuously without
any interruption because, even in the period of global crisis, it is still standing tall and is
regarded as one of the safest places for investing money. Recently, the banking industry
of India has grown by over 25 percent.

[6.1] Virtual Banking:

SBI has yet to computerize its operations and network all its branches. The
computers currently available serve only to relieve the burden of the clerical staff of
maintaining manual ledgers and not to penetrate into areas of customer service. ATMs,
Anytime-Anywhere, round the clock and telephone banking is still a far cry. These
computers at the best remain only as desk ornaments. With the New Telecom Policy
(NTP) almost in place, telecom sector will soon be revolutionized. E-commerce,
telephone banking, consumer banking, Internet banking, insurance et al are waiting just
around the corner. At least in major metros, virtual banking will soon take-over from the
brick-mortar banks.

[6.2] Privatization and Credit disbursement:

Talks about privatization of the bank’s ownership have been initiated but the SBI
act of 1955 does not permit RBI’s ownership to be diluted to below 55%. This act is
outdated and needs to be re-addressed. However, efforts have been initiated by SBI to
privatize its non – banking subsidiaries like SBI Caps, SBI Gilts, SBI Funds
Management, where SBI’s holding is about 85% of the equity. But the pace has to be
hastened so that investments thus released can migrate to more important areas like
development of new technologies and products in customer service and service intensive
areas. Privatization also helps to professionalize the banks’ day-to-day operation, which
will allow the management more freedom in decision making during credit disbursement.

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 To aid privatization and effect a better price realization, the bank is attempting to
change – over its accounting and reporting procedures to comply with US – GAAP
norms. This is a prerequisite for trying out the ADR route, as it is known that US market
is by far the undisputed biggest market and can offer the best price. At the moment, the
SBI stock is undervalued at Rs.240 whereas experts expect Rs.300 would be a more
realistic value. Action on this front at blitzkrieg pace is the need of the hour.

[6.3] Manpower Retraining and not Retrenchment:

As a hangover of the past socialistic mindset, all the nationalized banks have
excess workforce. This is indeed a hot potato for the management of many enterprises
and is therefore being handled with kid gloves. In India, it is everyone’s worry to look at
business as a source of employment, while making money is secondary. In this ocean of
manpower, every institution does have its share of highly skilled and talented manpower,
which contribute to asset building. It is the semi skilled manpower having outdated skills,
which form the excess baggage. All banks must invest in re-training the manpower so
that they can migrate from the areas that will be vacated by computerization. The level of
Non-Performing-Assets (NPAs) is still at very high levels and to start with, some of this
excess manpower can cover areas of debt recovery.

At the same time, one should also take note of the flight of talent from these
nationalized banks to newly set-up private and foreign banks. And, it is these new banks’
top officials after migrating from the government banks are targeting at the top corporate
clients and thus poaching into the corporate business, which has been the mainstay of the
nationalized banks. This will soon become a problem of serious proportion unless the
banks initiate steps to stem the flow. It is difficult, to exclusively address the problem of
excess manpower by schemes such as voluntary retrenchment scheme (VRS) because
while attempting to remove dead wood, talent also takes an exit. Many industries have
faced this problem. Also it will be over simplicity to state that the salaries should be
raised because that will only start a wage war. Instead, the banks should involve the

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services of international consultants specialized in this field and take a holistic view of
the problem. Retraining and Rationalization of manpower commands higher priority over
Retrenchment of manpower.

[6.4] New Products & New technologies:

Nationalized banks have generally been preoccupied with treasury business. The new
product areas that require greater penetration are personal banking, housing finance,
consumer durable finance, auto-finance, internet banking, insurance, telephone banking
etc. Development of these new areas call for heavy investments and this cash - flow can
only generated by privatization. In addition, surplus manpower once retrained can be
absorbed in the new ventures.

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 CONCLUSION & SUGGESTIONS

[7.1] Conclusions
1. The study and the project resulted from it, is the data base and its execution is totally
based on the study and relevant to the study itself. The ideas and view of mine are to
assist this work and for the partial fulfillment of the project; satisfies my work and project
completion. This project consisting the database and the information relevant to the
banking industry under the study and that is the soul of the written work being depicted in
the project report.

2. 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.

3. Currently, India has 96 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.

4. The growth in the Indian Banking Industry has been more qualitative than quantitative
and it is expected to remain the same in the coming years. Based on the projections made
in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan,
the report forecasts that the pace of expansion in the balance-sheets of banks is likely to
decelerate.

5. The banking sector plays a crucial role in the economic development of the nation. A
sound, efficient, effective, vibrant and innovative banking system stimulates economic
growth by mobilizing savings on a massive scale and efficiently allocating resources for
the productive as well as consumption purpose.

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6. At the beginning of the 21st century, the biggest banks in the industrial world have
become complex financial organizations that offer a wide variety of services to
international markets and control billions of dollars in cash and assets. Supported by the
latest technology, banks are working to identify new business niches, to develop
customized services, to implement innovative strategies and to capture new market
opportunities. With further globalization, consolidation, deregulation and diversification
of the financial industry, the banking sector will become even more complex.

7. Today, it is known to almost everybody that the recession period has crawled in and
that too in almost every part of the world. Presently, in India also almost all the sectors
such as IT sector, automobile industry and share market are also not in a very good
condition. But, quite interestingly, the baking sector of India is booming day-by-day and
that too even in the period of global crisis.

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[7.2] Suggestions
1. Awareness : Banking have developed and still developing and going on adding to
services and new facilities to it; but many people are not aware of these facilities, and
even if they know they are not able to utilize this services and facilities.

2. Need of basic know-how to the customers: Many times the customer are not aware
about the services that are been provided by the bank so; its necessary that banks make
some effort to give knowledge of the services been provided and guide the customer.

3. Make easy mandatory requirements: Any service to be adopted from bank requires
the lot much of documentation and mandatory requirements so; it get haste and panic to
the customers to utilize such services. Hence this should be considered and take some
actions that make it easy to adopt any services from the banks.

4. Safety: Now-a-days, with the increase in the facilities and services the risk
respectively has increased. Mostly, when it comes to e-banking many people do fraud
and hack the accounts of innocent people.

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 ANNEXURE
[ 1 ] Bibliography

[A] Books:

K. ASWATHAPPA [2006]. ESSENTIALS OF BUSINESS ENVIRONTMENT 8e.

Himalaya Publication House, Mumbai – 400 004

N. S. TOOR [2009]. HANDBOOK OF BANKING INFORMATION 29e.

Skylark Publication, New Delhi – 110 001

[B] Article:
Transformation in Indian Banking (pg.28)
Volume iii No.10; [October 2008]. THE INDIAN BANKER.
The monthly journal published by The Indian Banks’ Association, Mumbai – 400 020

[C] Reports:

1. Report on trend and progress of banking in India 2005-06.

2. Report on trend and progress of banking in India 2008-09.

3. November 27, 2007 RBI report on trend and progress of banking in India.

4. November, 2003 IBA committee report on Banking Industry.

[D] Websites:

1. en.wikipedia.org

2. www.money control.com

3. www.rbi.org.in

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4. www.bankingindiaupdate.com

[ 2 ] Glossary
Bancassurance It stands for distribution of financial products particularly the insurance
policies, also called referral business, by banks as corporate agents.

Bank Establishment for keeping money that is being paid out on customer’s order.

Bank balance Amount of money in the bank account.

Banker Person involved in banking.

Banking Business of running a bank.

Bank rate Bank rate is one of the general control measures. It is the rate at which RBI
rediscounts or lends money to commercial banks.

Bankrupt Unable to pay once one’s debt.

Bankruptcy State of being bankrupt.

Banking Ombudsman Are the courts for Redressal of banking related grievances.

Business Process Re-engineering It means transforming the select processes and

procedures with a view to empower the bank with contemporary technologies, business
solutions and innovations that enhances the competitive advantage.

Banking system The banking system constitutes the core of the financial sector and
plays a critical role in transmitting monitory policy impulses to the economy.

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Cash reserve ratio (CRR) CRR requires that every bank should keep certain minimum
cash with RBI.

Credit Card It is a post paid card. The Credit Card holder is empowered to spend
wherever and whenever he wants with his Credit Card within the limits fixed by his bank.

Credit Risk The risk to a bank when there is possibility of default by the counter party to
meet its obligation. Credit risk is prevalent in case of loans.

Cross Selling It stands for offering to the existing and new customer, some additional
banking products, with a view to expand banking business, reduce the per customer cost
of operations and provide more satisfaction and value to customer.

Debit Card It is a prepaid card with some stored value.

Doorstep Banking Provides services at the premises of customer and submit it to RBI
for approval.

E- Banking Internet banking (or, e-banking) means any user with a personal computer
and browser can get connected to his banks’ website to perform any of the virtual
banking function.

Financial Sector Constitutes of financial institutions, instruments and markets, which act
as a conduit for the transfer of financial resources from the net savers to net borrowers.

Foreign Banks As per RBI roadmap in terms of WTO commitments (Mar 2005), RBI
allowed foreign banks to establish presence in India

Interest Rate Risk This is the risk arising from adverse movement of interest rates
during the period when the asset or liability was held by the bank.

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Liquidity Risk This is the risk arising from funding of long term assets by short term
liabilities or vice versa.

Mobile Banking It undertakes banking transactions using mobile phones by bank

customers that involve credit/debit to their accounts.

Narrow Banking The system of banking under which a bank places its funds in risk free
assets.

Operational Risk It is the risk that arises due to failed internal processes, people or
systems or from external events.

Retail Banking It is a banking sector with multiple products with multiple delivery
channels in multiple customer groups.

Rate Measure of value or cost.

Risk Management This systems spell out internationally accepted risk measurement
methods for various types of risk to calculate capital charge required for meeting
prescribed capital adequacy ratio.

Statutory liquidity ratio (SLR) SLR mandates that every bank should deposit, in the
form of liquid assets, a certain percentage of its total time and demand deposit.

Universal Banking It allows FIs and banks to undertake all kinds of activity of banking
or development financing or activity associated with that, subject to compliance of
statutory and other requirements prescribed by RBI, Govt. and related legal Acts.

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