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CHAPTER – 1
OVERVIEW OF BANKING
1.1 INTRODUCTION TO BANK A bank has been described as an institution engaged in accepting deposits and granting loans. It is the institution which deals in money and credit. It can also be described as an institution which borrows idle resources, makes fund available to those who need it and helps in cheap remittance of money from one place to another. In the modern time term bank is used in wider term. Now it does not refer only to particular place of lending and depositing money but it also acts as an agent which looks after the various financial problems of its customers. 1.2 HISTORY OF BANKS: The banking system in India is based on British banking company which is largely branch banking. Commercial banks in India were started during the latter half of 19th century Bank of Bengal, Bank of Bombay and Bank of Madras were later amalgamated to form one bank called as Imperial bank of India under the Imperial bank of India Act 1920. The Imperial bank carried with business of commercial bank manages the public debt office of central and state government. The second half of 19th century saw establishment of Bank of Baroda, Allahabad bank, and Punjab National Bank. These banks were set up by merchants and traders to combined trading with banking. These led to the series if failures of banks. The strengthening of banking system took place after the establishment of Reserve Bank of India, 1939 as is empowers to regulate the banking money, inspection of mergers and acquisition in terms of Banking Companies Act 1949 which later came to be known as Banking Regulation Act 1949. 1.3 FUNCTIONS OF BANKS
Though borrowing and lending constitute the main functions of banking, yet they are not only functions of commercial banks. Commercial banks are involved in diversified activities and perform varieties of function. The functions of a modern bank are classified under the following heads: „
CHART: FUNCTION OF BANKS
ACCEPTING OF DEPOSITS
ADVANCE OF LOANS
1.4 BANKING PRODUCTS Banks in India have traditionally offered mass banking products. Most common deposit products being Savings Bank, Current Account, Term deposit Account and lending products being Cash Credit and Term Loans. Due to Reserve Bank of India guidelines, Banks have had little to do besides accepting deposits at rates fixed by Reserve Bank of India and lend amount arrived by the formula stipulated by Reserve Bank of India at rates prescribed by the latter. PLR (Prime lending rate) was the benchmark for interest on the lending products. But PLR itself
was, more often than not, dictated by RBI. Further, remittance products were limited to issuance of Drafts, Telegraphic Transfers, and Bankers Cheque and Internal transfer of funds. In view of several developments in the 1990s, the entire banking products structure has undergone a major change. As part of the economic reforms, banking industry has been deregulated and made competitive. New players have added to the competition. IT revolution has made it possible to provide ease and flexibility in operations to customers. Rapid strides in information technology have, in fact, redefined the role and structure of banking in India. Further, due to exposure to global trends after Information explosion led by Internet, customers - both Individuals and Corporate - are now demanding better services with more products from their banks. Financial market has turned into a buyer's market. Banks are also changing with time and are trying to become one-stop financial supermarkets. A few foreign & private sector banks have already introduced customized banking products like Investment Advisory Services, SGL II accounts, Photo-credit cards, Cash Management services, Investment products and Tax Advisory services. A few banks have gone in to market mutual fund schemes. Eventually, the Banks plan to market bonds and debentures, when allowed. Insurance peddling by Banks will be a reality soon. The recent Credit Policy of RBI announced on 27.4.2000 has further facilitated the entry of banks in this sector. Banks also offer advisory services termed as 'private banking' - to "high relationship - value" clients.
1.5 INTRODUCTION TO FINANCIAL SERVICES The Indian financial services industry has undergone a metamorphosis since 1990. During the late seventies & eighties, the Indian financial services industry was dominated by commercial banks and other financial institution which cater to the requirements of the Indian industry. The economic liberalization has brought in a complete transformation in the Indian financial services industry. The term “Financial Services” in a broad sense means “mobilizing and allocating savings”. Thus it includes all activities involved in the transformation of savings into investment. The „financial service‟ can also be called „financial intermediation‟. Financial intermediation is a process by which funds are mobilized from a large number of savers and make them available to all those who are in need of it and particularly to corporate customers. Thus, financial service sector is a key area and it is very vital for industrial developments. A well developed financial services industry is absolutely necessary to mobilize the savings and to allocate them to various investable channels and thereby to promote industrial development in a country. Financial services, through network of elements such as financial institution, financial markets and financial instruments, serve the needs of individuals, institutions and corporate. It is through these elements that the functioning of the financial system is facilitated. Considering its nature and importance, financial services are regarded as the fourth element of the financial system.
1.6 FEATURES OF FINANCIAL SERVICE Customer-Oriented: Like any other service industry financial service industry is also a customer-oriented one. That customer is the king and his requirements must be satisfied in full should be the basic tenent of any financial service industry. It calls for designing innovative financial products suitable to varied risk-return requirements of customer. Intangibility: Financial services are intangible and therefore, they cannot be standardized or reproduced in the same form. Hence, there is a need to have a track record of integrity, reputation, good corporate image and timely delivery of services. Simultaneous Performance: Yet another feature is that both production and supply of financial services have to be performed simultaneously. Therefore, both suppliers of services and consumers should have a good rapport, clear-cut perception and effective communication. Dominance of Human Element: Financial services are dominated by human element and thus, they are people-intensive. It calls for competent and skilled personnel to market the quality financial products. But, quality cannot be homogenized since it varies with time, place and customer to customer. Perishability: Financial services are immediately consumed and hence inventories cannot be created. There is a greater need for balancing demand and supply properly. In other words, marketing and operations should be closely inter-linked..
1.7 IMPORTANCE OF FINANCIAL SERVICES
Economic Growth: The financial service industry mobilizes the savings of the people and channels them into productive investment by providing various services to the people. In fact, the economic development of a nation depends upon these savings and investment. Promotion of Savings: The financial service industry promotes savings in the country by providing transformation services. It provides liability, asset and size transformation service by providing large loans on the basis of numerous small deposits. It also provides maturity transformation services by offering short-term claim to savers on their liquid deposit and providing long-term loans to borrowers. Capital Formation: The financial service industry facilitates capital formation by rendering various capital market intermediary services – capital formation in the very basis for economic growth. It is the principal mobilizer, of surplus funds to finance productive activities and thus it promotes capital accumulation. Provision of Liquidity: The financial service industry promotes liquidity in the system by allocating and reallocating savings and investment into various avenues of economic activity. It facilitates easy conversion of financial asset into liquid cash at the discretion of the holder of such assets. Financial Intermediation: The financial service industry facilitates the function of intermediation between savers and investors by providing a means and a medium of exchange and by undertaking innumerable services. Contribution to GNP: The contribution of financial services to GNP has been going on increasing year after year in almost all countries in recent times. Creation of Employment Opportunities: The financial service industry creates and provides employment opportunities to millions of people all over the world.
1.8 SOURCES OF REVENUE Accordingly, there are two categories of sources of income for a financial service company namely: fund based &fee- based. Fund-based income comes mainly from interest spread, lease rentals, income from investments in capital market and real estate. On the other hand, fee based income has its sources in merchant banking, advisory services, custodial services, loan syndication etc. income has its sources in merchant banking, advisory services, custodial services, loan syndication etc. A major part of income is earned through fund-based activities. At the same time, it involves a large share of expenditure in the form of interest & brokerage. It means that such companies should have to compromise the quality of its investment. On the other hand fee-based income does not involve much risk. CLASSIFICATION OF FINANCIAL SERVICES
Fund-based Activities 1 .Leasing 2 .Hire Purchase 3 .Discounting 4 .Loans 5 .Venture Capital
6 .Housing Finance 7 .Factoring
1.9 OBJECTIVES OF FINANCIAL SERVICES Fund raising: Financial services help to raise the required funds from a host of investors, individuals, institution and corporate. For this purpose, various instruments of finance are used. Funds deployment: An array of financial services is available in the financial markets which help the players to ensure an effective deployment of funds raised. Services such as bill discounting, parking of short-term funds in the money market, credit rating &securitization of debts are provided by financial services firms in order to ensure efficient management of funds. 1 .Issue Management 2 .Portfolio Management 3 .Capital Restructuring 4 .Loan Syndication 5 .Merger & Acquisition 6 .Corporate Councelling 7 .Foreign Collaborations
Specialized services: The financial service sector provides specialized services such as credit rating, venture capital financing, lease financing, mutual funds, credit cards, housing finance, etc besides banking and insurance. Institutions and agencies such as
stock exchanges, non-banking finance companies, subsidiaries of financial institutions, banks & insurance companies also provide these services. Regulation: There are agencies that are involved in the regulation of the financial services activities. In India, agencies such as the Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI) and the Department of Banking and Insurance of the Government of India, regulate the functioning of the financial service institutions. Economic growth: Financial services contribute, in good measure, to speeding up the process of economic growth & development.. 1.11 PRESENT SCENARIO OF FINANCIAL SERVICES Conservatism to dynamism: At present, the financial system in India is in a process of rapid transformation, particularly after the introduction of reforms in the financial sector. The main objective of the financial sector reforms is to promote an efficient, competitive and diversified financial system in the country. This is essential to raise the allocative efficiency of available savings and to promote the accelerated growth of the economy as a whole. The emergence of various financial institution and regulatory bodies has transformed the financial services sector from being a conservative industry to a very dynamic one. Emergence of Primary Equity Market: The capital markets have become a popular source of raising finance. The aggregate funds raised by the industries have gone from Rs. 5976 crore in 1991-92 to Rs. 32382 crore in 2006-07. Thus the primary market has emerged as an important vehicle to channelize the savings of the individuals and corporates for productive purposes and thus to promote the industrial & economic growth of our nation. Concept of Credit Rating: The investment decisions of the investors have been based on factors like name recognition of the company, reputation of promoters etc. now, grading from an independent agency would help the investor in his portfolio management and thus, equity grading is going to play a significant role in investment decision making.
Now it is mandatory for non-banking financial companies to get credit rating for their debt instruments. The major credit rating agencies functioning in India are: i. ii. iii. iv. Credit Rating Information Services of India Ltd. Credit Analysis and Research Ltd. Investment Information and Credit Rating Agency. Duff Phelps Credit Rating Pvt. Ltd.
Process of Globalization: The process of globalization ha paved the way for the entry of innovative financial products into our country. The government is very keen in removing all obstacles that stand in the way of inflow of foreign capital. India is likely to enter the full convertibility era soon. Hence, there is every possibility of introduction of more and more innovative financial services in our country. Process of Liberalization: The government of India has initiated many steps to reform the financial services industry. The Government has already switched over to free pricing of issues from pricing issues by the Controller of capital issues. The interest rates have been deregulated. The private sector has been permitted to participate in banking and mutual funds and the public sector undertakings are being privatized. The financial service industry in India has to play a positive and dynamic role in the years5 India has to play a positive and dynamic role in the years to come by offering many innovative products to suit to the varied requirements of the millions of prospective investors spread throughout the country.
CHAPTER- 2 VARIOUS CHANNELS THROUGH WHICH SERVICES & PRODUCTS ARE OFFERED
CHARTS: VARIOUS CHANNELS OF SERVICES
2.1 BRANCHES A branch, banking center or financial center is a retail location where a bank, credit union, or other financial institution offers a wide array of face-to-face and automated services to its customers. In the period from 1100-1300 banking started to expand across Europe and banks began opening „branches‟ in remote, foreign locations to support international trade. Historically,
branches were housed in imposing buildings, often in a neo-classical architecture style. Today, branches may also take the form of smaller offices within a larger complex, such as a shopping mall. Traditionally, the branch was the only channel of access to a financial institution‟s services. Services provided by a branch include cash withdrawals and deposits from a demand account with a bank teller, financial advice through a specialist, safe deposit box rentals, bureau de change, insurance sales, etc. As of the early 21 st Century, features such as Automated Teller Machine (ATM), telephone and online banking, allow customers to bank from remote locations and after business hours. This has caused financial institution to reduce their branch business hours and to merge smaller branches into larger ones. They converted some into mini-branches with only ATMs for cash withdrawal and depositing; computer terminals for online banking and cheque depositing machines. Some financial institutions, to show a friendlier image, offer a boutique or coffee house-like environment in their branches, with sit-down counters, refreshments, interactive displays. Some branches also have drive-through teller windows or ATMs. 2.2 MOBILE BANKING Mobile banking also known as M-Banking, SMS Banking is a term used for performing balance checks, account transactions, payment etc. Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. With mobile technology, banks can offer services to their customers such as doing funds transfer while travelling, receiving online updates of stock price or even performing stock trading while being stuck in traffic. A specific sequence of SMS messages will enable the system to verify if the client has sufficient funds in his or her wallet and authorize a deposit or withdrawal transaction at the agent.
Many believe that mobile users have just started to fully utilize the data capabilities in their mobile phones. In Asian countries like India, China, where mobile infrastructure is comparatively better than the fixed-line infrastructure, and in European countries, where mobile phone penetration is very high, mobile banking is likely to appeal even more. Mobile Banking Services Account Information 1) Mini-statement and checking of account history 2) Alerts on account activity 3) Monitoring of term deposits 4) Access to loan statements 5) Access to card statements 6) Mutual fund/ equity statements 7) Pension plan management 8) Insurance policy management 9) Status on cheque, stop payment on cheque 10) Ordering cheque books 11) Balance checking in the account 12) Recent transactions 13) Due date of payment 14) PIN provision 15) Blocking of cards Payments, Deposits, Withdrawals and Transfers 1) Domestics and international fund transfers 2) Micro-payment handling 3) Mobile recharging 4) Commercial payment processing 5) Bill payment processing 6) Peer to Peer payments
7) Withdrawal at banking agent 8) Deposit at banking agent 2.3 TELEPHONE BANKING Telephone banking is a service provided by a financial institution , which allows its customers to perform transactions over the telephone. Most telephone banking services use an automated phone answering system with phone keypad response or voice recognition capability. To guarantee security, the customer must first authenticate through a numeric or verbal password or through security questions asked by a live representative. With the obvious exception of cash withdrawals & deposits, it offers virtually all the features of an automated teller machine: account balance information and list of latest transactions, electronic bill payments, funds transfers between a customer‟s accounts.etc Usually, customers can also speak to alive representative located in a call centre or a branch, although this feature is not always guaranteed to be offered 24/7. In addition to the self-service transactions listed earlier, telephone banking representatives are usually trained to do what was traditionally available only at the branch: loan applications, investments purchases and redemptions, cheque book orders, debit card replacements, change of address, etc Banks which operate mostly or exclusively by telephone are known as phone banks. They also help modernize the user by using special technology. 2.4 INTERNET 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 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 any how banking INTERNET 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 customer 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 payee‟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 working days. 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) Investment: 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. 5) 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 in action within no time. 6) Shopping: 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.
2.5 AUTOMATED TELLER MACHINE (ATM) Automated Teller Machine is a mechanism which enables the customer to withdraw money from his account without visiting the bank branch. An ATM card is issued to the customer by the bank in order to make cash withdrawals at cash machine. This service helps the ATM customer to withdraw money even when the banks are closed. This can be done by inserting the card in the ATM and entering the Personal Identification Number & secret password. ATMs act as off-site branches of banks and provide almost all services that are available from a manually operated branch. The customer can, not only withdraw cash, but also deposit money, get account statements, enable transfer of funds etc. The customer who wants to deposit cash should put the notes in the pouch available at the ATM counter close it, seal it by signing & put it in the slot provided for this purpose. The bank staff will collect the packet when they come for loading cash in the machine & credit the amount to the account. However, the customer has to sign an undertaking with the bank that he would not dispute on the amount credited. ATM has gained prominence as a delivery channel for banking transactions in India. Now customers will not be levied any fee on cash withdrawals using ATM & debit cards issued by other banks. This will in turn increase usage of ATMs in India. ATM allows customers: To view account information To deposit cheques or cash To order cheques and receive cash.
Benefits of ATM: To the ATM Customer 1) ATM customer can utilize any possible facility availed from the ATM e.g. balance enquiry, withdrawal, deposits, etc
2) Anytime banking, 24 hours a day, 7 days a week has become a main service to the ATM customers who cannot manage to visit bank during banking hours 3) Convenience acts as a tremendous psychological benefit all the time 4) Cash withdrawal from any branch through ATM To the Bank 1) Innovative, secure, competitive and presents the bank as technology driven in the banking sector market. 2) Reduces customer visits to the branch & thereby human intervention. 3) Inter-branch reconciliation is immediate thereby reducing chances of fraud. 4) It acts as a value added product to the bank so that the banks can attract more new generation customers.
CHAPTER- 3 VARIOUS PRODUCTS & SERVICES OF BANKS
VARIOUS PRODUCTS & SERVICES OF BANKS 3.1 Deposits
Banks provide various deposit schemes for keeping the savings of people. Some of these schemes are common in nature. Banks have to comply with the „Know Your Customer‟ (KYC) norms introduced by the Reserve Bank of India while opening & allowing operations in the accounts. A few deposit schemes offered by banks are as follows:
CHART: TYPES OF DEPOSITS
Current Account SafeDeposits Lockers Fixed Deposit
Reccurin g Deposit
1) Current Account: Current account is primarily meant for businessmen, firms, companies and public enterprises etc. that have numerous daily banking transactions. Individuals generally do not open this account. Current accounts are meant neither for the purpose of earning interest nor for the purpose of savings but only for convenience of business hence they are non-interest bearing accounts. In a current account, a customer can deposit & withdraw any amount of money any number of times, as long as he has funds to his credit. As per RBI directive, banks are not allowed to pay any interest on the balances maintained in Current Accounts. However, in case of death of the account holder his legal heirs are paid interest at the rates applicable to Savings bank deposit from the date of death till the date of settlement. Because of the large number of transactions in the account and volatile nature of balances maintained, banks usually levy certain service charges for opening a Current Account.
2) Fixed Deposits: Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in case of longer maturity period. There is great flexibility in maturity period & it ranges from 15 days to 5 years. The interest can be compounded quarterly, half-yearly or annually and varies from bank to bank. Loan facility is available against bank fixed deposits upto 75-90 % Premature withdrawal is permissible but it involves loss of interest. Fixed deposits with banks are nearly 100% safe as all the banks operating in the country, irrespective of whether they are nationalized, private or foreign are governed by the RBI‟s rules & regulations and give due weightage to the interest of the investors. 3) Savings Bank Account: Savings Bank accounts are meant to promote the habit of saving among the citizens while allowing them to use their funds when required. The main advantage of Savings Bank Account is its high liquidity and safety. Savings Bank Account earn moderate interest. The rate of interest is decided and periodically reviewed by the government of India. Savings Bank Account can be opened in the name of an individual or in joint name of the depositors. The minimum balance to be maintained in an ordinary savings bank account varies from bank to bank. It is less in case of public sector banks and comparatively higher in case of private banks. Savings Bank Account can now be accessed through ATM‟s & internet. 4) Recurring Deposit Account: Under recurring deposit account, a specific amount is invested in bank on monthly basis for a fixed rate of return. The deposit has a fixed tenure, at the end of which the principal sum as well as the interest earned during that period is returned to the investor. Recurring Bank Account provides the element of compulsion to save at high rates of interest
applicable to Term Deposits along with liquidity to access those savings any time. Loan/ Overdraft facility is also available against Recurring Bank Deposits. The deposit for RD account is paid in monthly installments and each subsequent monthly installment has to be made before the end of the month and is equal to the first deposit. In case of default in payment, penalty is levied for the delayed deposit. 5) Demat account: Some banks are depository participants. These banks offer demat accounts to their corporate clients. Demat account is just like a bank account where actual money is replaced by shares. Just as a bank account is required if we want to save money or make cheque payments, we need to open a demat account in order to buy or sell shares. A Demat Account holds portfolio of shares in electronic form and obviates the need to hold shares in physical form. The account offers a secure and convenient way to keep track of shares and investment without the hassle of handling physical documents that get mutilated or lost in transit. The Securities and Exchange Board of India (SEBI) mandates a demat account for share trading involving more than 500 countries. Benefits of Demat Account Protection against loss, theft, mutilation etc Transfer of shares immediately Shorter settlement cycles Protection against bad deliveries.
6) Safe-Deposit Lockers: Safe deposit locker is a facility provided by banks to their customers to keep their valuables like jewellery, title deeds etc. Safe deposit locker is a steel cabinet having multiple cubicles. The safe deposit locker is kept inside the safe room and can be accessed only with the permission of the bank officials. A customer who is in need of a locker has to approach the bank. Customer has to mention a password in the application
form for identification purpose when he comes for operating the locker. The customer has to remit annual rent for using the locker facility. The customer has full privacy in operating the locker. As per RBI guidelines, the place where the locker is kept should be segregated from the place where cash and valuables are stored using iron grill. When the customer wants to open the locker, he has to identify himself by telling the password and sign in a register noting the date and time of opening the locker which will be countersigned by the bank officials. The agreement of locker is a contract of bailment and the bank can terminate the agreement and demand the customer to vacate locker if any of the terms and conditions in the agreement are violated or the annual rent is not remitted for a long period. At present all the banks are having safe deposit locker facility. 3.2 CREDIT CARDS: Credit cards are innovative ones in the line of financial services offered by commercial banks. Credit card culture is a old hat in the western countries. In India, it is relatively a new concept that is fast catching on. Since the plastic money has today become as good as legal tender more people are using them in their day-to-day activities. A credit card is a card or mechanism which enables cardholders to purchase goods, travel and dine in a hotel without making immediate payments. It is a convenience of extended credit without formality. Credit cards can be classified as follows: CHART: TYPES OF CREDIT CARDS
OLD CREDIT CARDS
NEW CREDIT CARDS
Credit Card Charge Card
Corporate Credit Card Business Card
Smart Card Debit Card
Old types of Credit Cards: 1) Credit Card: It is a normal card whereby a holder is able to purchase without having to pay cash immediately. Generally, a limit is set to the amount of money a cardholder can spend a month using the card. At the end of every month, the holder has to pay a percentage of outstanding. Interest is charged for the outstanding amount which varies from 30 to 36 per cent per annum. An average consumer prefers this type of card for his personal purchase. 2) Charge Card: A charge card is intended to serve as a convenient means of payment for goods purchased at Member Establishments rather than a credit facility. Instead of paying cash or cheque every time the credit card holder makes a purchase, this facility gives a consolidated bill for a specified period, usually one month. There are no interest charges and no spending limits either. The charge card is useful during business trips and for entertainment expenses which are usually borne by the company. Andhra Bank card, BOB cards, Can card, Diner‟s Club card etc. belong to this category.
3) In-Store Card: The in-store cards are issued by retailers or companies. These cards have currency only at the issuer‟s outlets for purchasing products of the issuer company. Payment can be on monthly or extended credit basis. For extended credit facility interest is charged. In India, such cards are normally issued by Five Star Hotels, resorts and big hotels. NEW TYPES OF CREDIT CARDS 1) Corporate Credit Cards: Corporate cards are issued to private and public limited companies and public sector units. Depending upon the requirements of each company, operative Add-on cards will be issued to the persons authorized by the company. The name of the company will be embossed on Add-on cardholder. The transactions made by Add-on cardholders are billed to the main card and debits are made to the Company‟s Account. 2) Business Card: A business card is similar to a corporate card.it is meant for the use of proprietary concerns, firms, firms of Chartered Accountants etc. This card helps to avail of certain facilities for reimbursement and makes their business trip convenient. 3) Smart Card: It is a new generation card. When a transaction is made using the card, the value is debited and the balance comes down automatically. Once the monetary value comes down to nil, the balance is to be restored all over again for the card to become operational. The primary feature of smart card is security. It prevents card related frauds & crimes. 4) Debit Cards: Debit card is popularly known as ATM card on the move. The debit card gives the freedom to access savings or current account through ATM‟s at merchant locations. Debit cards are also issued independent of ATM in which case the card is presented to the merchant establishment at the time of purchase as in a case of credit card. However, the account of the card holder will be debited instantly when the charge slip is presented by
the merchant establishment instead of the card holder remitting the money as is being done in the case of credit card. Therefore, the card holder has to keep sufficient balance in his account before he uses the card. The debit card does have a daily limit which could be somewhere around Rs 15000 at ATMs and Rs 10000 at merchant locations. This again is subject to the balance available in the account. 5) ATM Card: An ATM (Automated Teller Machine) card is useful to a card holder as it helps him to withdraw cash from banks even when they are closed. This can be done by inserting the card in the ATM installed at various bank location. 6) Virtual Card: A virtual card is a card that can be generated by anybody at any time provided he has already registered his name in the Bank‟s website. One can also set monetary limits for each card, usually limited to the value of the item he intends to purchase and the value should be limited to his bank balance or the credit limit. This completely prevents misuse. It is a kind of facility offered to existing cardholders at free of cost. 3.3 LOANS It is an arrangement by which a bank advance loans against any security like jewels, shares or debentures or insurance policy or personal security of the borrower. The interest is payable on the entire loan amount as decided by the bank. Loans can be classified as follows:
CHART: VARIOUS TYPES OF LOANS
1) Personal loans: The personal loans are granted to any customer or the non-custome if the bank is satisfied with the repayment capacity of the borrower. The borrower should have a steady income. Installment can be paid by depositing post dated cheques, authorization to debit the amount to the borrower‟s savings or current account, authorization to transfer interest on term deposit to the loan account, authorization to deduct the installment from the salary by the employer and remit to the bank etc. The interest varies from bank to bank. Normally banks allow 12 months to 60 months for repayment. Banks also charge time processing fee ranging from 1 to 3 percent per annum. Personal loans are generally unsecured because in most cases there is no primary security.
Therefore, many banks demand collateral security in the form of landed property, gold ornaments, third party guarantee etc. Some banks instead of third party guarantee insist that another person should join as co-obligant. Many banks prefer co-obligant as a guarantor because a co-obligant signs the original loan documents along with the borrower & therefore has a joint liability. The documentation is quite simple because there will be only a promissory note. 2) Housing Loans: Housing loans are given as direct loans and indirect loans. Direct loans are those loans given to the individuals or group of individuals including co-operative societies. The indirect loans are the term loans granted to housing finance institution, housing boards etc primarily engaged in the business of supplying serviced land and constructed house units. Banks are permitted to extend term loans to private builders. Banks are also granting loans under priority sector for housing purpose. Eligibility: Any person above 21 years but below the age of 65 years having sufficient disposable income, can avail housing loan from a bank. Some banks permit even upto 70 years if the borrower can produce proof of sufficient income to repay the loan. A self-employed person can also avail of housing loan, subject to compliance of the income criteria. Amount of Loan: The loan amount starts from Rs 2 lakh. However for weaker sections the loan can be availed even for a small amount. The maximum amount of loan is decided after considering the disposable income of the borrower. While calculating the income eligibility spouse‟s income can also be considered. The other factors considered for deciding the repayment capacity are age, qualification, status of assets, liabilities, stability and continuity of occupation and savings history etc. 3) Educational Loans: Educational loans are extended with the aim to provide financial support from the banking system to deserving students for pursuing higher education in India & abroad.
The main emphasis is that every student should get an opportunity to pursue education with financial support from the banking system on affordable terms and conditions. All banks are offering educational loans, but the schemes differs from bank to bank. The scheme aims at providing financial assistance on reasonable terms to the poor and needy to undertake basic education. Student Eligibility: The student should be an Indian national and should have secured admission to professional courses through entrance test process or should have secured admission to foreign university. The student have scored minimum 60 percent in the qualifying examination for admission to graduation courses. Repayment: Course period + 1 year or 6 months after getting job, whichever is earlier. The loan has to be repaid in five to seven years from commencement of repayment. If the student is not able to complete the course for the reasons beyond his control, sanctioning authority may at his discretion consider such extensions as may be deemed necessary to complete the course. Security: Up to Rs 2 lakh:- no security Above Rs 2 lakh:- collateral security equal to 100 % of the loan. Amount of guarantee of third person known to bank for 100% of the loan amount. 4) Automobile Loans: Banks are extending credit for purchase of new two or four wheeler for personal or professional use. Bank finance is also available for purchase of used cars less than 3 years old. Each bank has formulated their own schemes. Vehicle finance has now become one of the highly profitable area and therefore banks and other financial institutions are competing with each other for attracting the customers, even by offering some concessions. As a result, the margin, interest rate & eligibility criteria differ from one bank to the other. The loans are to be
repaid in 36 to 60 equated monthly instalments. The maximum amount of loan is limited to 3 times of net income annual salary subject to a maximum of Rs 10 lakh. Security: Hypothecation of vehicle financed by the bank. Bank‟s lien to be noted with the transport authorities. Guarantee of the spouse In case of unmarried, third party guarantee of sufficient means or other collateral securities acceptable to the bank. 5) Mortgage Loans: Mortgage loan is a financing arrangement in which a lender extends finance for acquisition of real estate against the security of the real estate purchased out of the loan. The borrower executes a mortgage deed which registers a lien on the property in favour of the lender. The title will be re-transferred when the borrower repays the loan in full with interest. Banks provide loan/overdraft facility against mortgage of property at low rate of interest to people engaged in trade, commerce and business and also to professionals and self employed, partnership firms, companies, NRI‟s and individuals with high net worth including salaried people. The product provides an opportunity to customers to borrow against a fixed asset at short notice.
Repayment: The loan has to be repaid within a period of eight years by way of equated monthly installments. The repayment shall commence from the month subsequent to the month in which final disbursement is made or 6 months from the first disbursement, whichever is earlier. In case of agriculturists the repayment is related to the generation of farm income from crops & other subsidiary activities.
CHAPTER 5 OVERVIEW OF ICICI BANK
CHAPTER 5 OVERVIEW OF ICICI BANK
5.1 HISTORY OF ICICI BANK ICICI Bank was originally promoted in1994 by ICICI Limited, an Indian financial institution, and was its wholly owned subsidiary. ICICI‟s shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in India in fiscal 1998. ICICI Bank was formed in1995 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from nonJapan Asia to be listed on the NYSE. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, the management of ICICI & ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be optimal strategic
alternative for both entities and would create the optimal legal structure for the ICICI group‟s universal banking strategy.
5.2 INTRODUCTION OF ICICI BANK ICICI Bank is the largest private sector bank in India in terms of market capitalization. It is also the second largest bank in India in terms of assets with a total asset of Rs. 3,674.19 billion (US$ 77 billion) as on June 30, 2009, the total profit after tax has been Rs. 8.78 billion. Formerly known as Industrial Credit and Investment Corporation of India, ICICI Bank has an extensive network of 1,544 branches with about 4,816 ATMS located across India and in 18 other countries. ICICI Bank serves about 24 Million customers throughout the world. It is considered as one of the „Big Four Banks‟ in India along with State Bank of India, HDFC Bank and Axis Bank. ICICI Bank provides a wide range of banking products and financial services to its retail and corporate customers. It has a wide variety of delivery channels and specialized affiliates and subsidiaries that ensure the flow of its offerings in the areas like investment banking, venture capital, life and non-life insurance and asset management. This bank is also India‟s largest credit card issuer. The equity share of ICICI Bank is listed on various stock exchanges like NSE, BSE, Calcutta Stock Exchange and Vadodara Stock Exchange etc. Its ADRs are also listed on the New York Stock Exchange. ICICI Bank also has the largest international balance sheet among all the banks in India. It is also expanding its business in the overseas market at an enviable pace. In Q2 September 2008, ICICI Bank recorded a 1.15% growth in net profit over Q2 September 2007 to reach at Rs 1,014.21crores. The current and savings account (CASA) ratio of bank also went up from 25% in 2007 to 30% in 2008 Vision
Our vision is a world free of poverty in which every individual has the freedom and power to create and sustain a just society in which to live. Mission Our mission is to create and support strong independent organisations which work towards empowering the poor to participate in and benefit from the Indian growth process.
5.3 PRODUCTS & SERVICES: ICICI Bank offers a host of products and services to its clients. The various types of services are as follows: 1) Deposits Savings Account Advantage Deposit Special Savings Account Life Plus Senior Citizens Savings Account Fixed Deposits Security Deposits Recurring Deposits Young Stars Savings Account Advantage Woman Savings Account
Self Help Group Accounts Family banking 2) Cards ICICI Bank is India‟s largest issuer of credit cards. It also offers other types of card. The various cards offered by ICICI bank are as follows: Consumer Cards Credit Cards Travel Cards Debit Cards Commercial Cards Corporate Cards Prepaid Cards Purchase Cards Distribution Cards Business Cards 3) Loans Home Loans Loan against Property Personal Loans Car Loans Two Wheeler Loans Commercial Vehicle Loans Loans against Securities Loan against Gold Ornaments Pre-approved Loans 4) Investments ICICI Bank Tax Saving Bonds Mutual Funds
Government of India Bonds Initial Public Offers by Corporate Foreign Exchange Services ICICI Bank Pure Gold Senior Citizens Savings Scheme 5) NRI Services Money Transfer Bank Accounts Investments Home Loans Insurance Loan against 6) Insurance ICICI Bank offers various types of insurance. Home Insurance Health Insurance Health Advantage Plus Family Floater Personal Accident Travel Insurance Individual Overseas Travel Insurance Student Medical Insurance Motor Insurance Car Insurance Two Wheeler Insurance Life Insurance ICICI Pru Life Time Gold
5.4 Awards and Recognitions ICICI Bank was voted as the Most Trusted Brand among private sector banks in the 2010 Economic Times – Brand Equity Most Trusted Brands Awards and ranked 7th in the list of the Top 50 service brands. ICICI Bank received the 2010 World Finance UK award for: i. ii. iii. Excellence in Remittance Business, Worldwide Excellence in NRI Services, Worldwide Excellence in Private Banking Business, APAC Region
For a sixth time in a row, ICICI Bank has received the Most Preferred Auto Loan Brand in the Financial Services category at the CNBC Consumer Awards. ICICI Bank has won Gold in the Readers Digest Trusted Brands 2010 Consumer award in the Finance category for. i. ii. Best Bank Best Credit Card Issuing Bank
ICICI Bank amongst the top 3 to receive the FE-EVI Green Business Leaders Award, in the banking industry. ICICI Bank wins the Asian Banker Award for Best Banking Security System. Forbes 2000 most powerful listed companies survey ranked ICICI Bank 4th among the Indian companies and 282nd globally. ICICI Bank wins the Asian Banker Award for Excellence in SME Banking 2009. Mr. N. Vaghul, Former Chairman, ICICI Bank was awarded the “Padma Bhushan
CHAPTER- 6 DATA ANALYSIS AND INTERPRETATION
Q1) Awareness of people regarding various types of financial services banks
provided by the
Awareness about financial services
Fully aware Had an idea 1st Qtr 37% 2nd Qtr 46% 3rd Qtr 17% No idea Total
4th Qtr 100%
From the above chart we came to know that, overall percentage of service class people having complete knowledge about different types of services provided by the bank is 37%, those having some idea about it is 46% and the percentage of people having no awareness of various services provided by the bank is 17%. It can reasonably, be concluded that nearly 85% of the population is having awareness about newly introduced services.
Q2 Awareness of various banking services provided by banks
Awareness about different Banking Services
30.00% 25.00% 20.00% 15.00% Percentage 10.00% 5.00% 0.00% ATM Debit Card Credit Card Phone Mobile Internet Banking Banking Banking
Interpretation Banks constitute various channels through which services are provided in terms of ATMs, Debit Card, Credit Card, Phone Banking, Mobile Banking, Internet Banking etc, of which the first six have been covered. Amongst these ATM scores the largest used service status (26.03%) as indicated by above figures. Close on the heels is Debit card (17.75%), Credit card (14.79%), while phone banking lags behind by scoring the least (11.83 %.)
Q 3) Sources from which the respondents get the knowledge about the innovative financial services.
Sources of Awareness about various innovative financial products
4% 26% 21% 15% Personal Visit Executive from Bank Advertisements Friends/Relatives 34% Others
Interpretation The above table indicates the percentage distribution of awareness avenues, the major are in favour of advertisements, which score 34% among different avenues such as personal visit, executives of the banks, advertisements and friend/relatives. While the least score is for personal visit and that of other sources.
Q4) Is your Bank following the Know Your Customer (KYC) norms in providing services.
Formulation of KYC norms
Interpretation The above table indicates the KYC norms followed by the banks. The banks are providing the customer with proper information about various banking services. The banks are trying to find the expected service of the customer.
Q5) Growth rate of credit cards
Number of credit cards
0.0 2007 (0.2) 2008 2009
The above table indicates the growth rate of credit cards, which scores 0.3 million in the year 2008 and it has grown upto 0.6 million in 2009.The growth rate is 100%. This indicates that the distribution of credit cards is on large scale. The ICICI Bank is considered as largest issuer of credit cards.
The project of Financial Services of Banks was undertaken at ICICI Bank Ltd. Working under this project I learned various services in detail which banks generally follow. It also helped in gaining knowledge about different concepts provided under different services . The Financial Services of the Banks has become very vital in the smooth operation of the banking activities. The Project work has certainly enriched the knowledge about the effective management of the various services in Banking Sector. Lastly as according to data collection we conclude that given findings and suggestions need to be considered which can prove to be effective to the Banks.
Prevention against frauds of Credit Cards To take necessary action against defaulters Providing with proper information relating to various services Guidance for investment in various securities in order to protect the interest of investors. Approaching the customers for investment in innovative financial services. Special schemes to be provided on some types of services
1) Which type of financial services are offered by Banks? 2) Which types of Credit Cards are provided to the customers? 3) What kind of actions are taken by the banks against defaulters? 4) Is the bank following RBI guidelines from time to time? 5) What are the steps taken by the bank to settle the claims? 6) Which type of innovative financial services are provided by the LPG? 7) Are the new customers attracted by the physical environment of the bank? 8) What are the future plans of the bank? bank after
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