Documente Academic
Documente Profesional
Documente Cultură
ON
Submitted To:
Submitted By:
Prof. Geetika
Maninder Singh
Roll.No. 21312
B.B.A- 6th Sem.
DECLARATION
Date:
Maninder Singh
ACKNOWLEGEMENT
Success is not a description, but a journey. While I reach towards the end of this journey, I
realized I may not have come this far without the guidance, help and support of the people who
acted as guides, friends and torch bearers along the way.
I take this opportunity to thank Prof. Geetika without their cooperation I would not have been
able to complete this project.
I express my deepest and most sincere thanks to my organization guide, Mr. Harish Oberoi
(C.A) from who I had the opportunity to learn a lot, I would like to thank him for giving me
valuable suggestion and guidance with which, my project would have been complete.
Table of contents
Chapter
Particulars
CHAPTER 1.
DECLARATION
02
ACKNOWLEDGEMENT
03
INTRODUCTION:
1.1.
1.2.
1.3.
1.4.
1.5.
1.6.
1.7.
1.8.
CHAPTER 2.
CHAPTER 3.
3.1.
3.2.
3.3.
3.4.
Pages
CONCEPTULIZATION
6-28
29-38
RESEARCH METHODOLOGY:
PROBLEM DFINITION
OBJECTIVES
VALUATION
3.5.
RESULT
3.6.
39-42
CHAPTER 4.
CHAPTER 5.
MAJOR FINDINGS
CHAPTER 6.
LIMITATIONS
43-51
52-55
56-57
CONCLUSION
58-59
SUGGESTIONS
60-61
QUESTIONNAIRE
62-64
BIBLIOGRAPHY
65
CHAPTER 1
INTRODUCTION
INTRODUCTION
1.1. INTRODUCTION OF INDIAN BANKING SYSTEM:
In the modern sense originated in the last decades of the 18th century. The first banks were Bank
of Hindustan (1770-1829) and The General Bank of India, established 1786 and since defunct.
The largest bank, and the oldest still in existence, 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 being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East India Company.
The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's
independence, became the State Bank of India in 1955. For many years the presidency banks
acted as quasi-central banks, as did their successors, until the Reserve Bank of India was
established in 1935.
In 1969 the Indian government nationalized all the major banks that it did not already own and
these have remained under government ownership. They are run under a structure know as
'profit-making public sector undertaking' (PSU) and are allowed to compete and operate as
commercial banks. The Indian banking sector is made up of four types of banks, as well as the
PSUs and the state banks, they have been joined since the 1990s by new private commercial
banks and a number of foreign banks.
Banking in India was generally fairly mature in terms of supply, product range and reach-even
though reach in rural India and to the poor still remains a challenge. The government has
developed initiatives to address this through the State Bank of India expanding its branch
network and through the National Bank for Agriculture and Rural Development with things like
microfinance.
Indian Banking Industry currently employees 1,175,149 employees and has a total of 109,811
branches in India and 171 branches abroad and manages an aggregate deposit of 67504.54
billion (US$1.1 trillion or 820 billion) and bank credit of 52604.59 billion (US$880 billion or
640 billion). The net profit of the banks operating in India was 1027.51 billion (US$17 billion
or 12 billion) against a turnover of 9148.59 billion (US$150 billion or 110 billion) for the
fiscal year 2012-13.
In India, given the relatively underdeveloped capital market and with little internal resources,
firms and economic entities depend, largely, on financial intermediaries to meet their fund
requirements. In terms of supply of credit, financial intermediaries can broadly be categorized as
institutional and non-institutional. The major institutional suppliers of credit in India are banks
and non-bank financial institutions (that is, development financial institutions or DFIs), other
financial institutions (FIs), and non-banking finance companies (NBFCs). The non-institutional
1.3. CONCEPTUALIZATION
The last decade has seen many positive developments in the Indian banking sector. The policy
makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and related
government and financial sector regulatory entities, have made several notable efforts to improve
regulation in the sector. The sector now compares favorably with banking sectors in the region
on metrics like growth, profitability and non-performing assets (NPAs). A few banks have
established an outstanding track record of innovation, growth and value creation. This is
reflected in their market valuation. However, improved regulations, innovation, growth and value
creation in the sector remain limited to a small part of it.
The cost of banking intermediation in India is higher and bank penetration is far lower than in
other markets. Indias banking industry must strengthen itself significantly if it has to support the
modern and vibrant economy which India aspires to be. While the onus for this change lies
mainly with bank managements, an enabling policy and regulatory framework will also be
critical to their success.
The failure to respond to changing market realities has stunted the development of the financial
sector in many developing countries. A weak banking structure has been unable to fuel continued
growth, which has harmed the long-term health of their economies. In this white paper, we
emphasize the need to act both decisively and quickly to build an enabling, rather than a limiting,
banking sector in India
1. Banking Challenges
It is expected that the Indian banking and finance system will be globally competitive. For this
the market players will have to be financially strong and operationally efficient. Capital would be
a key factor in building a successful institution. The banking and finance system will improve
competitiveness through a process of consolidation, either through mergers and acquisitions
through strategic alliances. Technology would be the key to the competitiveness of banking and
finance system. Indian players will keep pace with global leaders in the use of banking
technology.
In such a scenario, on-line accessibility will be available to the customers from any part of the
globe; Anywhere and Anytime banking will be realized truly and fully. In this context, the
research paper approached Indian Banking System as the shape of the banking sector will be
the result of a strong interplay between the decisions taken by policy makers and actions of bank
managements.
The nationalization of banks was the culmination of pressures to use the banks as public
instruments of development. The GoI imposed `social control on banks. However, by the 1980s,
it was generally perceived that the operational efficiency of banks was declining. Banks were
characterized by low profitability, high and growing non-performing assets (NPAs), and low
capital base. Average returns on assets were only around 0.15% in the second half of the 1980s,
and capital aggregated an estimated 1.5% of assets. Poor internal controls and the lack of proper
disclosure norms led to many problems being kept under cover. The quality of customer service
did not keep pace with the increasing expectations. In 1991, a fresh era in Indian banking began,
with the introduction of banking sector reforms as part of the overall economic liberalization in
India.
Weaknesses:
Continued crowding out effect from govt budget deficit, combined with accelerating
private sector credit demands
Ownership restrictions
Constraints on state-owned banks' micro reforms, including HR, staff cut, branch cut
constraints.
Opportunities:
Improving secular GDP growth prospects
Establishment of special economic zones likely to promote further industrialization
Years, if not decades, of catch-up economics low per capita income, educated
workforce
Rapid financial deepening, i.e. loan growth as multiple of nominal GDP growth
Rising consumer spending, consumer credit business
Rising corporate capex, investments
M&A optionally
Threats:
"Running on empty" in terms of liquidity
Tightening in global liquidity may trickle down to India
Potentially hawkish RBI stance on inflation/monetary policy
Potential rise in long bond \ yields, MTM risk for banks
In terms of asset size, among foreign banks Citibank, HSBC and Standard Chartered bank are
leaders with asset base of Rs.45437 cr, Rs.37473 cr and Rs.48412 cr. Resp. in FY 05-06. Among
private sector banks, ICICI Bank is the leader with asset base of Rs.251389 cr followed by
HDFC Bank of size Rs.73506 cr and UTI Bank of size Rs.49731 cr. In terms of asset size, public
sector banks have highest base compared to private and foreign banks. SBI & Associated have
asset base of Rs.691872 cr while other banks such as BOB, BOI, Canara Bank and PNB Bank
have each more than Rs.100000 cr.
Credit Growth:The bank lending has expanded in a number of emerging market economies, especially in Asia
and Latin America, in recent years. Bank credit to the private sector, in real terms, was rising at a
rate between 10 and 40 per cent in a number of countries by 2005 (BIS, 2006). Several factors
have contributed to the significant rise in bank lending in emerging economies such as strong
growth, excess liquidity in banking systems reflecting easier global and domestic monetary
conditions, and substantial bank restructuring.
The recent surge in bank lending has been associated with important changes on the asset side of
banks balance sheet. First, credit to the business sector - historically the most important
component of banks assets has been weak, while the share of the household sector has
increased sharply in several countries. Second, banks investments in Government securities
increased sharply until 2004-05. As a result, commercial banks continue to hold a very large part
of their domestic assets in the form of Government securities - a process that seems to have
begun in the mid-1990s
Loan Demand:
Over the past three years, Indian Banking Industry has seen sustained strength in credit growth,
which is not just a function of economic buoyancy but also the broad-basing of loan demand.
This has recently been articulated by the central bank too:
A contextual analysis of the co-movement between macroeconomic performance and bank
credit in the current phase of the business cycle suggests that factors other than demand may
also be at work: financial deepening from a low base; structural shifts in supply elasticitys;
rising efficiency of credit markets; and competitive pressures augmenting the overall supply of
credit. (Reserve Bank of India, Monetary Policy Review, October 2006).
The slowdown of the mid-1990s hit the banks very hard because corporate, which accounted for
a lions share of bank credit, went into a less profitable and hence a financial restructuring mode.
There was no retail credit then, banks did not focus on Small and Medium Enterprises and farm
lending was done grudgingly, under compulsion. Along with the diversification of the pie that
keeps the tempo of demand intact, after a long time industry has also started demanding higher
levels of credit. In the five years prior to FY05, growth in industrial credit was almost wholly
driven by infrastructure. There is a perceptibly wider participation from other segments during
FY05 and FY06.
If a substantial portion of loan growth gets driven by the banking system taking away market
shares from informal sectors this is clearly happening to farm credit, SMEs and to a limited
extent non-mortgage retail interest rate considerations influencing demand will be relatively
low. SMEs and the rural folk have accessed credit from other sources at exorbitant interest rates,
and hence banks rates going by 200-300bps is not so meaningful. That explains the apparent
lack of correlation between rates that have been rising and loan demand.
Technology:
The trend in banking is changing from computerization of branches to laying a common platform
by having a core banking solution in all the branches. At the same time, Indian banks are looking
at internet banking which promises to grow into an alternate self-service channel. As the mindset
of the Indian customer undergoes a change, Indian banks need to encompass the extension of all
the services that are required and dictated by customers. In future, banks will need to focus on
value-differentiating services by keeping in-Houser their competitive advantages while
partnering with others who complement its services. The emergence of peer-to-peer money
transmission mechanisms (such as Western Union Money Transfer) poses a challenge to current
role of bankers and emphasizes the role of robust payment systems like RTGS in maintaining
and promoting financial stability.
Areas of Improvement:
Few challenges associated with technology adoption by banks are:
Indian banks still dont have the robust systems required for efficient functioning
of online banking. RBI has provided guidelines relating to security and other
issues and hopefully, online banking will see a surge in the usage from current 1%
to at least 10% in the next couple of years.
Banks need to explore newer channels such as SMS, WAP and 3G mobile
telephony applications to facilitate online access to customers.
Banks, in a drive to carry on with tremendous expansion in terms of customer
base, needs to have employees who are well informed about products and services
and are comfortable with technology which requires extensive training.
Potential Pitfalls:
Banks should not get overwhelmed by the concept of automation and online banking. The banks
need to realize that they need to maintain different delivery for different generations. Banks still
need to maintain brick-and-mortar locations that people feel comfortable with.
In FY 06-07, services sector account for major 55% of India GDP followed by 25% in Industrial
sector and 20% in agriculture sector.
Sectoral Composition of India GDP
As per the figures available for 2011 fiscal, almost 52 percent of Indias GDP comes from the
agricultural sector and the services sector is the second biggest contributor with 34 percent. The
industrial sector contributes almost 14 percent of Indias GDP.
HSBC, a leading global bank has stated that in 2012-13 fiscal Indias chronological and yearly
growth will be a moderate one. It had previously stated that in the same period Indias GDP will
grow by 7.5 percent but has now brought down the forecast to 6.2%. HSBC opines that in 2014
India will see a better growth rate of almost 7.4 percent previously it had forecast 8.2 percent
for the period. - See more at: http://business.mapsofindia.com/india-gdp/#sthash.C9t3Umh1.dpuf
FY07 Vs Q2FY06, the growth rate in GDP components are as follows:
Agriculture: 1.7%
Industry: 10.5%
Service: 10.7
and other central banks worldwide would not only pause rate hikes but soon get into rate the
current fiscal at 7.50% but
Real interest rate indicated by spread between inflation and 10 year benchmark yield has
trended in the range of 2-4%. The real interest rate in developed economies is normally in the
range of 2-3%. However, the marginal productivity of capital being much higher in the
developing economy like India. Due to this, real interest should be higher than those prevailing
in more matured economies.
5. Rising Oil prices and Exchange Rate:
World over, the central bankers led by US Federal Reserves embarked on withdrawal of
monetary accommodation through a series of rate hikes as the rising oil and asset prices
threatened the global economies with inflationary pressures. The US Fed, which embarked
on an aggressive rate hike campaign through 17 consecutive rate hikes of the magnitude of
25 bps, several economies including Euro-zone and Japan hiked their key policy rates. In
response to the same, RBI has hiked the key policy Repo and Reverse Repo rates five times
over the past two years. This has led to a significant hardening of interest rates over the past
4-5 quarters, which has adversely impacted the cost of funds for banks.
6. Capital Market:
Financial markets in India and globally have seen little volatility over the last few Years.
There have been only two spikes in India in April 2004 when the UPA government came to
power and in May 2006. In India, stock markets will be the most impacted by negative news
flows as other areas where shocks can be absorbed such as the currency, interest rate and
corporate bond markets are not free or well developed. The Capital Market has seen balance
sheet value being unlocked through monetization of embedded assets, demergers, IPOs, etc.
Indian companies continue to build value in the balance sheet as newer opportunities emerge
through smart capex, inorganic growth and extracting value thru the revenue statement.
CHAPTER 2
LITERATURE REVIEW
Review related to policy framework and regulatory measures:Anantha Swami made an attempt in his paper, in the context of financial sector reforms, to
identify the factors which could have led to changes in the position of four bank groups, i.e.
Public Sector Banks, Old Private Sector Banks, New Private Sector Banks and Foreign
Banks in term of their share in the overall banking industry during the period 1995-96 to
1999-2000. For analytical examination of the impact of reforms on the banks' performance, the
very performance of a bank has to be evaluated as per appropriate criteria by choosing selected
parameters like share of different bank-groups in total assets, share of rural branches, Average
branch size, trends in banks' profitability, share of priority sector advances, share of wages in
expenditure, provision and contingencies as percentage to total assets, ratio of NPAs to Net
advances, ratio of contingent liabilities to total liabilities, spread as a percentage to total assets,
Intermediation costs, etc.
By using these parameters, Swami made an in-depth analysis and came out with interesting
conclusion like:
(i) The setting up of a new competitive environment has resulted in new challenges for the PSBs
and the share of PSBs in the total assets of the banking sector has shown a steady decline while
new private sector banks have succeeded in enhancing their position,
(ii) He further observed that foreign banks too have been facing stiff competition from the new
private banks,
(iii) The profit performance has been quite varied among different bank groups and within each
group in respect of individual banks as well,
(iv) In the face of new competition and recognizing the need to undertake cost reduction, PSBs
have brought about reduction in the wage bill component while this has shown an increase in the
case of foreign banks and ne\v private sector banks during the period of study,
(v) Foreign banks as well as the new private banks had the advantage of large-sized branches
when compared to public sector and old private banks,
(vi) Level of NPAs of PSBs remain high, a noteworthy development has been their significant
reduction in relation to net advances in recent years.
Nair KNC (2006) in his paper Banking and Technology to meet 21st Century challenges,
published in Bank net India, has discusses the future challenges of technology in banking. The
author also point out how IT posses a bright future in rural banking, but is neglected as it is
traditionally considered unviable in the rural segment. A successful bank has to be nimble and
agile enough to respond to the new market paradigm and ineffectively controlling risks.
Innovation will be the key extending the banking services to the untapped vast potential at the
bottom of the pyramid.
Shroff FT (2007) in his paper, Modern Banking Technology, - Bank net Publications has
given a summary of how Indian banking system has evolved over the year. The paper discusses
some issues face by these systems. The author also gives examples of comparable banking
system for other countries and the lesson learnt. Indian banking is at the threshold of the
paradigm shift. The application of technology and product innovations is bringing about structure
change in the Indian banking system.
ICRA (2003),In a the paper titled comparative study on Indian banking, tried to analyze
the fast-changing environment, the Indian Bank's Association (IBA) has Commissioned ICRA
Advisory Services (ICRA) to carry out a study to benchmark the strengths and weaknesses of
Indian Banks against those of select international banks. The scope of work for the study is to
benchmark the performance of Indian Banks vis--vis select global banks along three
dimensions-structural factors, operational factors and efficiency factors. As suggested by IBA, 21
Indian Banks (those with asset over Rs. 20,000 Crore as on 31st March, 2003) and Seven
International Banks have been selected for the study. The parameters, which have been used for
benchmarking, are Risk weighted capital norms, Income Recognition norms, asset classification
norms, provisioning norms, which come under "Structural Parameters". Return on Assets, Return
on Equity, Net interest margin, Operating expense ratio and Asset quality are concerned with
"Operational Parameters". Business per employee, Business per branch, Operating expenses per
Branch, Establishment expenses per employee, profitability per employee, profitability per
Branch are 'Efficient Parameters'.
ICRA Limited, in this study, found that the profitability of Indian Banks in recent years compares
well with that of the global benchmark banks primarily because of the higher share of profit on
the sale of investments, higher leverage and higher net interest margins. However, many of these
drivers of higher profits of Indian Banks may not be sustainable. To ensure Long-term
profitability, ICRA Ltd. suggest that Indian Banks should diversify their loans across several
customer segments; they should introduce robust risk scoring techniques to ensure better quality
of loans; they should reduce their operating expenses by upgrading banking technology and they
should improve the management of market risk
Patel has highlighted the problem of bad loans and growing level of Non-Performing Assets
in commercial banks in the post-reform period. It was observed that it is important for the
banks and' supervisory authorities to adopt more effective lending practices. At the same time, it
was also emphasized that corporate entities should be made more accountable through following
more stringent disclosure and transparency practices and corporate governance principles.
Efficient legal machinery, the larger number of Debt Recovery Tribunals and Settlement
Advisory Committees and Credit Information Bureau in banks can prove effective in quick
recovers of dues.
Mathur's paper examines the arguments usually extended to build a case for privatization of
public sector banks in India. An examination of the main arguments usually extended to build a
case for privatization of Public Sector Banks (PSBs) in India reveals that the arguments are based
on
(a) Perceptions, rather than factual analysis,
(b) The use of partial information,
(c) Evidence on international experience which is not unambiguous.
Broadly, four main arguments are made by the proponents of privatization of PSBs in India:
(a) Frequent recapitalization of state owned banks is a huge burden on the government budget;
(b) State ownership of banks reduces competition and thus breeds inefficiency,
(c) There is no evidence that state Ownership lowers the profitability of banking crisis; and
(d) Private and foreign banks stimulate efficiency, innovation and economic growth.
Examination of these arguments reveals that the case for privatization of PSBs in India is not
strong enough at least on the grounds usually proposed by the advocates of privatization. Private
Sector Banking would have a larger probability of crisis if the' supporting legal and regulatory
framework were not sound enough to insulate the systems from extraneous pressures. It may,
therefore, be safe to maintain the public sector characters of the banks for privatization are
conducive enough.
Nagarajan and Khannan made an attempt to identify the factors influencing spread of SCBs in
India. The study is carried out for the period 1995-96 to 1999-2000 by covering 27 PSBs, 31 PBs
and 28 FBs. Pooled data lode and Generalized Least Square approach was used for carrying the
analysis. The researchers in this study found that size of the bank does not necessarily imply
higher spreads. Further, they found that non-interest income as a share of total assets enable
banks to tolerate low spread. With regard to regulatory requirements variables, it was found that
capital plays an important role in affecting spreads of PSBs.
Mukhopadhyay, K.K.threw light on the challenges that the public Sector bank has to face
on the initiation of reform measures. The author expressed that Indian Banking system is
passing through a metamorphosis due to the impact of the revolutionary reform process initiated
since 1992. The author felt that PSBs today have already started feeling the pinch and are
definitely going to confront for stiffer challenges in the next millennium. Challenges like
competition especially from the new private sector banks and foreign banks, low staff
productivity, changing life styles of the customers; technological progress, non-performing
assets, etc. definitely put the PSBs in a very tight position. So, it is up to the PSBs to welcome
them or choose for extinction.
Shroff (2007) gives a summary of how Indian banking system has evolved over the year. The
paper discusses some issues face by these systems. The author also gives examples of
comparable banking system for other countries and the lesson learnt. Indian banking is at the
threshold of the paradigm shift. The application of technology and product innovations is
bringing about structure change in the Indian banking system.
Kumar (2006) studied the bank nationalization in India marked a paradigm shift in the
focus of banking as it was intended to shift the focus from class banking to mass banking.
Internationally also efforts are being made to study causes of financial inclusion and designing
strategies to ensure financial inclusion of the poor disadvantaged. The banks also need to
redesign their business strategies to incorporate specific plans to promote financial inclusion of
low income group treating it both a business opportunity as well as a corporate social
responsibilities. Financial inclusion can emerge as commercial profitable business.
Madhavankutty (2007) concludes the banking system in India has attained enough maturity and
is ready to address prudential management practices as comprehensively as possible, which an
integral part of policy is making. Banking in India is poised to enter yet another phase of
reforms once the door opens further to foreign players in 2009. This requires further
improvement in technology management, human resource management and the ability to foresee
rapid changes in the financial landscape and adopt quickly. At present, there is a huge hiatus
between the top management earnings of state owned banks and private, as well as foreign
banks. Banks have to lay down sound risk management strategies and internal capital adequacy
assessment committees to ensure that they do not diverge from the prudential requirements.
Review related to impact of reforms:Singh, Sultan (2001) made an attempt in his Ph.D. Thesis titled An appraisal of banking
sector reforms in India in Guru Jambeshwar University Haryana, to Access the impact of the
reforms on the operational performance and efficiency of the Commercial Banks in India. Ratio
analysis has been used as a major tool for assessing the performance of the selected Commercial
Banks. The study revealed that total income as a percentage of working funds and/or total Assets
and Spread as a percentage of total Income/Working fund/total advances/ total deposits have
improved in the reform period against the pre-reform period in most of the banks. Total Income,
interest earned other income, spread, total expenses, interest expended, operating expenses and
establishment expenses are comparatively more consistent in the reform period. The hypothesis
that the profitability position has improved in reform period may be accepted to some extent. It
was observed that in the PSBs the size of NPAs has also been reduced to some extent and quality
of service has improved in reform period. The priority sector lending has registered a decline in
the deregulation era.
The focal point of the study made by RadhaT. (2002), in her Ph D Thesis, titled, Impact of
banking sector reforms on the performance of commercial banks in India, in Andhra
University, Visakhapattanam, was to critically evaluate the impact of Banking Sector Reforms on
the performance of Commercial Banks in India. In this Study, Radha analysis the magnitude of
deposits and borrowings, and trends in branch expansion, advances and investments, trends
income and expenditure and also studied the magnitude of achievements in priority sector
advances, capital adequacy, CD ratio, staff position in different bank groups and individual banks
within the group. This study covered the period 1989-90 to 1998-99. Simple statistical
techniques like percentages and growth rates were used in this study. Major findings of the study
are..: (i) Total Deposits of all Commercial Banks put together may be divided as SBI (21.5 per
cent), Associate Banks (6.6 per cent), Nationalized Banks (58.6 per cent), Private Banks (6.9 per
cent) and Foreign Banks (6.3 per cent) respectively, (ii) In the total borrowings of SCBs,
Nationalized banks, on an average, accounted for 39.42 per cent followed with 22.77 per cent by
Foreign Banks, 23.54 per cent by SBI, 7.76 per cent by Private Banks and 3.47 percent by
associate banks, (iii) In Branch expansion, Indian Private Sector Banks, registered 21.36 per cent
growth rate which is highest amongst SCBs, during the study period, followed by Foreign Banks
with 16.96 per cent, Associate Banks with 12.77 per cent, Nationalized Banks with 11.36 per
cent, SBI with 6.23 per cent, (iv) Total investments of Commercial Banks in India increased to
Rs. 346271 Crore in 1998-99 from Rs. 97,199 Crore in 1989-90, (v) Priority Sector advances as
proportion of net bank credit after exceeding the target of 40 percent in 1991 has been
continuously falling short of target up to 1999, (vi) Foreign Banks in India as a group achieved
highest capital adequacy ratio among all groups of SCBs, (vii) Among all Indian banking groups,
Indian private sector banks recorded highest CD ratio with 67.06 'per cent.
Padwal S.M. in his paper made an attempt to assess the impact of liberalization on Indian
Banking. Padwal came to a conclusion that high cost of branch expansion, growing percentage
of credit portfolio to low yielding assets; increasing operating and establishment expenses have
adversely affected banks' profitability. The scholar in this paper strongly felt that deregulation in
the banking sector is expected to help to widen credit market, enhance saving mobilization and
stimulate competition but there is a need to prepare the banking industry to face the consequence
of liberalization.
Muniappan (2002) studied paradigm shift in banks from a regulator point of view in Indian
Banking: Paradigm Shift, IBA Bulletin, and No 24 3. He concluded the positive effect of
banking sector reforms on the performance of banks. He suggested many effective measures to
strengthen the Indian banking system. The reduction of NPAs, more provisions for standards of
the banks, IT, sound capital bare are the positive measures for a paradigm shift. A regulatory
change is required in the Indian banking system. Madhavankutty (2007) concludes the banking
system in India has attained enough maturity and is ready to address prudential management
practices as comprehensively as possible, which an integral part of policy is making. Banking in
India is poised to enter yet another phase of reforms once the door opens further to foreign
players in 2009. This requires further improvement in technology management, human resource
management and the ability to foresee rapid changes in the financial landscape and adopt
quickly. At present, there is a huge hiatus between the top management earnings of state owned
banks and private, as well as foreign banks. Banks have to lay down sound risk management
strategies and internal capital adequacy assessment committees to ensure that they do not diverge
from the prudential requirements.
Subbaroo PS (2007), in his paper Changing Paradigm in Indian Banking- Gyan
Management, has concluded that the Indian banking system has undergone transformation itself
from domestic banking to international banking. However, the system requires a combination of
new technologies, well regulated risk and credit appraisal, treasury management, product
diversification, internal control, external regulations and professional as well as skilled human
resource to achieve the heights of the international excellence to play its role critically in meeting
the global challenge. This paper mainly concentrates on the major trends that change the banking
industry world over, viz. consolidation of players through mergers and acquisitions globalization
of players, development of new technology, universal banking and human resource in banking,
profitability, rural banking and risk management. Banks will have to gear up to meet stringent
prudential capital adequacy norms under Basel I and II, the free trade agreements. Banks will
also have to cope with challenges posed by technological innovations in banking.
Tiwari S (2005) in his paper Development of Financial Institutions in Indian Banking- A
paradigm Shift, Punjab Journal of Business Studies, has proposed a view that among the
financial intermediaries banks and financial institutions are vital players in running the funding
activities of the industries. In the bank based system the financial institutions dominate in the
aggregate assets of the financial system while in market based system, equity market has largest
share of assets in the aggregate assets of the financial system.
Uppal and Kaur (2007), in their paper titled, Analysis of the efficiency of all the bank
groups in the post banking sector reforms era. Their time period of study was related to
second post banking sector reforms (1999-2000 to 2004-05). The paper concludes that the
efficiency of all the bank groups has increased in the second post banking sector reforms period
but these banking sector reforms are more beneficial for new private sector banks and foreign
banks. This paper also suggests some measures for the improvement of efficiency of Indian
nationalized banks. The sample of the study in Indian banking industry which comprises five
different ownership groups and the ratio method is used to calculate the efficiency of different
bank groups. New private sector banks are compelling with foreign banks for continuous
improvement in their performance.
Vashisht A K (2004), studied commercial banking in the globalize environment, published in
Political Economy Journal of India, has presented the recent global developments, which has
transformed the environment in which commercial banks operate. Globalization has expanded
economic interdependence and interaction of countries greatly. Under the regime of globalize
environment, the financial performance of the commercial banks has changed and the
commercial banks will face new challenge and also new opportunities in the coming years.
Wahab A (2001)in his book Commercial Banks under reforms-performance and issues,
book edited by Deep and Deep Publications New Delhi, has tried to analyze the performance of
the commercial banks under reforms. He also highlighted the major issues need to be considered
for further improvement. He concluded that reforms have produced favorable effects on
performance of commercial banks in general but still there are some distortions like low priority
sector advances, low profitability etc. that needs to be reformed again.
The RBI (1999) through its study Report on Currency and Finance, provides the Central Bank's
perspective on how deregulation had impacted on bank performance. The RBI's review covers all
categories of banks, not just PSBs. The principal findings of this review are worth highlighting:
I. There has been a decline in spreads, a widely used measure of efficiency in banking, and a
tendency towards their convergence across all bank-groups, except foreign banks.
II. Intermediation costs as a percentage of total assets had also declined, especially for PSBs and
new private sector banks, largely to a decline in their wage costs.
III. Capital adequacy and asset quality (measured by the net NPAs as a percentage of net
advances) have both improved over the period 1995-96 to 1999-2000.
IV. Median Profit per employee of PSBs witnessed a significant rise between 1996-97 and 19992000, due largely to a rise in the same in the case of the SBI Group.
V. Non-Interest income to working funds rose moderately for the median PSBs.
VI. The ratio of wage bill to total expenses remained at a high level of PSBs.
VII. The cost to income ratio declined both at the SBI Group and the Nationalized Banks.
Joshi, P.N. has made an attempt to analyze the 'impact of financial sector reforms on the weaker
sections of society. Joshi in this article felt that Financial Sector reforms may have encouraged
banks to go in for innovative measures, develop business, earn profit and benefit the
shareholders; however, the social content of banking has suffered continuous neglect. The social
objectives before banks were side tracked and the emphasis today in a financial strength, capital
adequacy and profitability. The banking philosophy in the country changed mercilessly against
the poor. Today, 60 per cent of India's population including the weaker sections of society is
without banking facilities. At one stage, Josh (emphasized that rural branches accounted for 576
per cent of the total branch network but at present, it forms only 50 per cent of total branch
network. Between 1992 and 1999, the number of borrower accounts declined by exactly 13
million. Credit-Deposit ratio which was 47.32 per cent in March 1996 declined to 39.35 per cent
in March, 2000 and in Semi-urban areas it was 40 per cent in 1996 declined to 34.38 per cent in
March, 2000.
Joshi Vijaya and Little observed that on the eve of banking reforms Indian Banking Sector was
financially unsound, unprofitable and inefficient. They made a critical examination of the
changes that have taken place in the banking sector after reforms. Further, what remains to be
done with respect of pre-emption of bank resources, directed credit, deregulation of interest rates,
etc. in the field of banking sector were also elaborately discussed.
CONCLUSION:
In all the above review of literature various review of made by various
researchers, authors have made evaluation of the performance of commercial banks the earlier
studies differed from one another in the selection of period, selection of banks, selection of
indicators and selection of statistical tools and techniques. In contrast, the present study focuses
its attention on the impact of reforms on Indian banking system in post liberlisation era. The
period therefore starts from the year 1991-92 i.e. the year from which reform measures were
initiated up to 2010-11 twenty year period for which data are available. The study, instead of
taking a large number of parameters, of which some are alternative specifications, took six
parameters to evaluate the efficiency of banks, five to assess profitability and health parameters,
i.e. Non-performing assets and capital adequacy. Apart from quantitative aspects, this study has
taken qualitative aspect, i.e., customer perceptions on service quality of selected public and
private banks as an ancillary to the main study.
This chapter has exhibited the studies conducted and review of literature available on the subject
of research. It has been divided into four major parts according to the subject area. After this
review of literature it is found that, though there are several studies conducted on the subject,
most of the studies are conducted on performance appraisal studies or impact studies of financial
reforms and its impact on individual banks. There are very few studies have been conducted on
the financial reforms and its impact on Indian public sector and private sector banks. Thus there
was a gap of the study on the subject. Therefore after finding the gap of research, the study has
been undertaken on the above mentioned subject. After the review of literature, we will study
the development and reforms taken place in the post liberalization period in both public and
private sector banks.
CHAPTER 3
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
3.1. Problem Definition:
To determine and analyze the hidden potential in Banking sector in India so as to suggest the
investors whether to invest in shares of Banking Companies.
3.2. Objectives:
I.
To discover insights into and develop an understanding of the various Macro and Micro
Economic Factors those have bearing on the functioning of the Banking sector.
II.
To evaluate the performance of some of the banks based on the past data and forecast the
future prospects.
3.4. Result:
All shares are undervalued and expected to give positive risk adjusted returns to investors. Since
the intrinsic value is more than current market price for all the companies, the share can be
recommended to conservative investors.
Resources:
Various Publications like
AT Kearney Report, 2005
FICCI Survey on status of Indian Banking Industry Progress and Agenda Ahead
Indian Banks Association, Various Years, Performance Highlights of Banks (Mumbai).
Reserve Bank of India, 2005, Annual Policy Statement for the year 2005-06 (Mumbai).
Company Reports
Constraints:
Lack of time availability with the people involved in any manner with the research
especially when decisions were to be made quickly.
CHAPTER 4
DATA ANALYSIS AND
INTERPRETATION
INTERPRETATION
Above graphical representation shows that 37% of them are having saving account.
Least of them are having current account.
2. The following chart shows that the numbers of customers having account for
many long time.
INTERPRETATION
Above graphical representation shows that 46% of them are possessing account in
HDFC Bank since last 1-2 years.
3. The following chart shows that respondents having what total numbers of
account in HDFC bank
INTERPRETATION
Above graphical representation shows that 42% customers are having single
accounts.
4. The following chart shows that customer holding total numbers of Products with
them of HDFC bank.
INTERPRETATION
Above graphical representation shows that 42% of customer holding more than
two products
5 .This charts shows the percent of customer making investments in HDFC Bank
and where they have invested their money.
INTERPRETATION
In this chart, it is shown that 36% dont make any type of investments and 64% of
customers make investments in HDFC Bank and out of 64% of customers 40 % do
fixed deposits, 37% makes life insurance and 23% invest in mutual funds.
6. Chart shows the percent of customer using credit card of HDFC Bank.
INTERPRETATION
Above graphical representation shows that 37% of customers having Credit cards
of HDFC Bank and 63% have not taken any type of Credit card.
7. This chart shows the percent of customer taken loan from HDFC Bank.
INTERPRETATION
Above graphical representation shows that 39% of customers have taken loan form
HDFC Bank and 61% have not taken any type of loan.
8. This Question shows that the numbers customers currently using services of
HDFC Bank and option where given of multiple choice.
INTERPRETATION
Above graphical representation shows that majority of customers using debit card
i.e.81, while the numbers of credit card customers are 37, 48 and 69 of customers
avails the benefit of net banking and Insta alert provided to them and 19 of them
are using National Electronic Fund Transfer (NEFT) mainly this type of services
current account users are using and 24 number of customer using phone/mobile
banking.
CHAPTER 5
MAJOR FINDINGS
MAJOR FINDINGS
Major Macro Economic Factors include Gross Domestic Product which has grown by over
8% in 2005-06, FDI Confidence Index where India stands II in the world, Inflation which has
slow down due to falling crude prices, Gross Fiscal Deficit Interest Rate the UPA government
is confident to achieve the budgeted targets, Rising Oil prices & Exchange Rate Indian
government and oil companies are relax as oil prices have fallen beside Indian Rupee has
strengthen against USD, EURO and Yen and Capital Market the year is booming for market
with FII and mutual fund are pumping money increasing BSE Sensex returns over 50%.
In June 2006, Indian Banking System is spread through 66000 branches with an asset base of
about $270 billion. There are 87 Scheduled Commercial Banks operating in India including 8
Bank of SBI & Associates, 20 Nationalized Banks, 29 Private Banks and 30 Foreign Banks. In
terms of asset size, public sector banks have highest base compared to private and foreign banks.
SBI & Associated have asset base of Rs.691872 cr. Bank group-wise, new private sector banks
grew at the highest rate during 2005-06 (43.2 per cent), followed by foreign banks (31.2 per
cent), public sector banks (13.6 per cent) and old private sector banks (12.2 per cent).
As a result, the relative significance of PSBs declined significantly with their share in total assets
of SCBs declining to 72.3 per cent at end-March 2006 from 75.3 per cent at end-March 2005,
while that of new private sector banks increasing to 15.1 per cent from 12.5 per cent.
Credit to the priority sector increased by 33.7 per cent in 2005-06 as against 40.3 per cent in the
previous year. The agriculture and housing sectors were the major beneficiaries, which together
accounted for more than two-third of incremental priority sector lending in 2005-06. Credit to
small scale industries also accelerated. Retail loans, which witnessed a growth of over 40.0 per
cent in 2004-05 and again in 2005-06, have been the prime driver of the credit growth in recent
years. Retail loans as a percentage of gross advances increased from 22.0 per cent in March 2004
to 25.5 per cent in March 2006.
ICICI Bank is the leading market player with change in loans market share in FY02-06 of over
5% and change in deposits market share in FY 02-06 is nearby 2.5%. HDFC Bank and UTI Bank
are also in high growth phase. The laggards are SBI Bank, Bank of Baroda Bank, Bank of India
and Punjab National Bank.
Bank stocks declined after a committee set up by the Reserve Bank of India (RBI) on
credit pricing framework submitted a draft report on Thursday, 10 April 2014. ICICI
Bank (down 1.06%), Axis Bank (down 0.38%), HDFC Bank (down 0.12%) and State
Bank of India (SBI) (down 0.34%) declined. Kotak Mahindra Bank rose 0.26%.
The Indian economys liberalization in the early 1990s has resulted in the conception of
various private sector banks. This has sparked a boom in the countrys banking sector in the past
two decades4. The revenue of Indian banks grew four-fold from US$ 11.8 billion to US$ 46.9
billion, whereas the profit after tax rose nearly nine-fold from US$ 1.4 billion to US$ 12 billion
over 2001-105. This growth was driven primarily by factors. First, the influx of Foreign Direct
Investment (FDI) of up to 74 per cent with certain restrictions4. Second, the conservative
policies of the Reserve Bank of India (RBI), which have shielded Indian banks from recession
and global economic turmoil.
Banking in India is moderately consolidated, with the top 10 players accounting for
approximately 60 per cent of the total industry. The Indian banking sector is major dominated by
public sector banks.
The State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB)
had the first, second and third largest credit portfolios, respectively. HDFC emerged as among
the best performers with a strong NIM ratio and the lowest NPA ratio, whereas, ICICI (with the
fourth largest credit portfolio) reported a high NPA ratio.
CHAPTER 6
LIMITATIONS
LIMITATIONS
CHAPTER 7
Conclusion
CONCLUSION
. The methodology followed is Target Pricing, which including estimating growth rate by
regression on historical sales to forecast next year sales, earning and Profit and Loss account.
Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share.
All shares are undervalued and expected to give positive risk adjusted returns to investors. Since
the intrinsic value is more than current market price for all the companies, the share can be
recommended to conservative investors.
Chapter 8
Suggestions
Suggestions
Indian banking needs to focus on the following aspects and build required capabilities to cope up
with the challenges of the dynamic banking environment.
Without adversely affecting the quality of services, the banks should device the strategies
to cut down and control the costs.
The future strategies of banks should be to earn more of other income and reduce
dependence of interest income.
To fulfill the expectations of customers, to improve the profitability and efficiency, banks
should adopt latest and cost-effective technology, because technology has emerged as a
strategic tool in the operations of banks.
In the coming years, the key word is marketing would be innovation. It would become
impossible to survive and prosper unless organizational skills are effectively canalized
towards innovating new ideas, new products, and new strategies for winning over and
retaining the customer.
Since the service sector in India started contributing around 50 per cent to the Gross
Domestic Product; banks should explore the possibilities to tap this sector.
Another area, which requires urgent attention, is improving staff productivity particularly
in public sector banks. There is need to downsize staff to cut high cost of staff expenses.
It is also necessary to redistribute staff to strengthen the neglected areas of marketing.
Since customers perception of banks products are influenced more by the quality of
services associated with it than by the physical product itself, banks have to undertake a
continuous process of monitoring customers perceptions of service quality, identifying
the causes for service quality shortfalls and taking appropriate remedial action to improve
quality.
QUESTIONNAIRE
Dear Sir/Madam,
I am a student of RAYAT INSTITUTE OF MANAGEMENT, RAILMAJRA. As part of the
requirements for my Post Graduation Diploma in Business Management I am
required to do a research based project. Kindly spend a few minutes of your
valuable time and fill in this questionnaire.
1. Your Age: ____________________
2. Education Qualification
Undergraduate
Graduate
Post graduate
3. Marital Status.
Married
Single
4. Occupation.
Business
Profession
Service
(Please mention below the type of business/profession you are in incase of service
please mention your organization name and designation)
<than 2 lack
Between 2 to 5 lack
Between 5 to 8 lack
>than 8 lack
Yes
No
Yes
No
Yes
No
Private bank
Nationalize banks
Private bank
Nationalize banks
And why?
Yes
No
Yes
No
BIBLIOGRAPHY
Company Reports
Government of India, 1998, Report of the Committee on Banking Sector Reforms
Government of India, 1991, Report of the Committee on the Financial System
IMF Working Paper - Competition in Indian Banking by A. Prasad and Saibal Ghosh
Indian Banks Association, Various Years, Performance Highlights of Banks (Mumbai).
Indian Banking Association
Ministry of commerce and Industry
Reserve Bank of India, 2008, Annual Policy Statement for the year 2007-08 (Mumbai).
Reserve Bank of India (a), Various Years, Report on Trend and Progress of Banking in
India (Mumbai).
Reserve Bank of India (b), Various Years, Statistical Tables Relating to Banks in India
(Mumbai).
http://business.mapsofindia.com/india-gdp/#sthash.C9t3Umh1.dpuf