BankingFINAL Bibliography

OBJECTIVES AND SCOPE OF THE PROJECT
The banking industry is one of the fastest growing industry in India. It is a mirror image of the economy of the country. With the liberalization of the economy, India has become the playground of major global banking majors.
The major objectives of the study are as below: To analyse how political, economical, socio-cultural, technological factors affect this industry by PEST analysis. To find out level of competition in Indian banking industry through using porters five force model. To find out driving forces and key success factors of the industry To analyze various threats and opportunities for the industry
To focus on current trends and future of the industry.
http://techshristi.com
RESEARCH METHODOLOGY
We have done exploratory research and for that purpose we had used secondary data.
We had collected this secondary data from various published materials like newspapers, magazines, books etc and from Internet web sites. From these various information and data we had done qualitative and quantitative analysis to find out impact of various forces, effect of macro environmental factors, major trends and future of the industry.
1.1: History of Indian banking
A bank is a financial institution that provides banking and other financial services. By the term bank is generally understood an institution that holds a Banking Licenses. Banking licenses are granted by financial supervision authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so-called Non-bank. Banks are a subset of the financial services industry. The word bank is derived from the Italian banca, which is derived from German and means bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out of business bank, having its bench physically broken. Moneylenders in Northern Italy originally did business in open areas, or big open rooms, with each lender working from his own bench or table. Typically, a bank generates profits from transaction fees on financial services or the interest spread on resources it holds in trust for clients while paying them interest on the asset. Development of banking industry in India followed below stated steps.
Banking in India has its origin as early as the Vedic period. It is believed that the transistion from money lending to banking must have occurred even before Manu, the great Hindu Jurist, who has devoted a section of his work to deposits and advances and laid down rules relating to rates of interest. Banking in India has an early origin where the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company, was the turn of the agency houses to carry on the banking business. The General Bank of India was first Joint Stock Bank to be established in the year 1786. The others which followed were the Bank Hindustan and the Bengal Bank.
http://techshristi.com 3
In the first half of the 19th century the East India Company established three banks; the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843. These three banks also known as Presidency banks were amalgamated in 1920 and a new bank, the Imperial Bank of India was established in 1921. With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken by the newly constituted State Bank of India.
The Reserve Bank of India which is the Central Bank was created in 1935 by passing Reserve Bank of India Act, 1934 which was followed up with the Banking Regulations in 1949. These acts bestowed Reserve Bank of India (RBI) with wide ranging powers for licensing, supervision and control of banks. Considering the proliferation of weak banks, RBI compulsorily merged many of them with stronger banks in 1969.
The three decades after nationalization saw a phenomenal expansion in the geographical coverage and financial spread of the banking system in the country. As certain rigidities and weaknesses were found to have developed in the system, during the late eighties the Government of India felt that these had to be addressed to enable the financial system to play its role in ushering in a more efficient and competitive economy. Accordingly, a highlevel committee was set up on 14 August 1991 to examine all aspects relating to the structure, organization, functions and procedures of the financial system. Based on the recommendations of the Committee (Chairman: Shri M. Narasimham), a comprehensive reform of the banking system was introduced in 1992-93. The objective of the reform measures was to ensure that the balance sheets of banks reflected their actual financial health. One of the important measures related to income recognition, asset classification and provisioning by banks, on the basis of
objective criteria was laid down by the Reserve Bank. The introduction of capital adequacy norms in line with international standards has been another important measure of the reforms process.
1.Comprises balance of expired loans, compensation and other bonds such as National Rural Development Bonds and Capital Investment Bonds. Annuity certificates are excluded.
2. These represent mainly non- negotiable non- interest bearing securities issued to International Financial Institutions like International Monetary Fund, International Bank for Reconstruction and Development and Asian Development Bank.
3. At book value.
4.Comprises accruals under Small Savings Scheme, Provident Funds, Special Deposits of Non- Government In the post-nationalization era, no new private sector banks were allowed to be set up. However, in 1993, in recognition of the need to introduce greater competition which could lead to higher productivity and efficiency of the banking system, new private sector banks were allowed to be set up in the Indian banking system. These new banks had to satisfy among others, the following minimum requirements:
(i) (ii)
It should be registered as a public limited company; The minimum paid-up capital should be Rs 100 crore;
(iii) The shares should be listed on the stock exchange; (iv) The headquarters of the bank should be preferably located in a centre which does not have the headquarters of any other bank; and
(v) The bank will be subject to prudential norms in respect of banking operations, accounting and other policies as laid down by the RBI. It will have to achieve capital adequacy of eight per cent from the very beginning.
A high level Committee, under the Chairmanship of Shri M. Narasimham, was constituted by the Government of India in December 1997 to review the record of implementation of financial system reforms recommended by the CFS in 1991 and chart the reforms necessary in the years ahead to make the banking system stronger and better equipped to compete effectively in international economic environment. The Committee has submitted its report to the Government in April 1998. Some of the recommendations of the Committee, on prudential accounting norms, particularly in the areas of Capital Adequacy Ratio, Classification of Government guaranteed advances, provisioning requirements on standard advances and more disclosures in the Balance Sheets of banks have been accepted and implemented. The other recommendations are under consideration.
The banking industry in India is in a midst of transformation, thanks to the economic liberalization of the country, which has changed business environment in the country. During the pre-liberalization period, the industry was merely focusing on deposit mobilization and branch expansion. But with liberalization, it found many of its advances under the non-performing assets (NPA) list. More importantly, the sector has become very competitive with the entry of many foreign and private sector banks. The face of banking is changing rapidly. There is no doubt that banking sector reforms have improved the profitability, productivity and efficiency of banks, but in the days ahead banks will have to prepare themselves to face new challenges.
Indian Banking: Key Developments

1969 Government acquires ownership in major banks Almost all banking operations in manual mode Some banks had Unit record Machines of IBM for IBR & Pay roll 1970- 1980 Unprecedented expansion in geographical coverage, staff, business & transaction volumes and directed lending to agriculture, SSI & SB sector Manual systems struggle to handle exponential rise in transaction volumes - Outsourcing of data processing to service bureaux begins Back office systems only in Multinational (MNC) banks' offices 1981- 1990 Regulator (read RBI) led IT introduction in Banks Product level automation on stand alone PCs at branches
(ALPMs) In-house EDP infrastructure with Unix boxes, batch processing in Cobol for MIS. Mainframes in corporate office Expansion slows down Banking sector reforms resulting in progressive deregulation of banking, introduction of prudential banking norms entry of new private sector banks Total Branch Automation (TBA) in Govt. owned and old private banks begins New private banks are set up with CBS/TBA form the start New delivery channels like ATM, Phone banking and Internet banking and convenience of any branch banking and auto sweep products introduced by new private and MNC banks Retail banking in focus, proliferation of credit cards Communication infrastructure improves and becomes cheap. IDRBT sets up VSAT network for Banks Govt. owned banks feel the heat and attempt to respond using intermediary technology, TBA implementation surges ahead under fiat from Central Vigilance Commission (CVC), Y2K threat consumes last two years Alternate delivery channels find wide consumer acceptance IT Bill passed lending legal validity to electronic transactions Govt. owned banks and old private banks start implementing CBSs, but initial attempts face problems Banks enter insurance business launch debit cards
1991-1995
1996-2000
2000-2003
1.2: CURRENT SCENARIO
The banking industry in India is in a midst of transformation, thanks to the economic liberalization of the country, which has changed business environment in the country. During the pre-liberalization period, the industry was merely focusing on deposit mobilization and branch expansion. But with liberalization, it found many of its advances under the non-performing assets (NPA) list. More importantly, the sector has become very competitive with the entry of many foreign and private sector banks. The face of banking is changing rapidly. There is no doubt that banking sector reforms have improved the profitability, productivity and efficiency of banks, but in the days ahead banks will have to prepare themselves to face new challenges.
For the first quarter ended June 2004, the banking sector recorded a bottom line growth of 18% to Rs 4852.50 crore. Higher net interest income and lower provisioning were the main reasons for the profit growth during the quarter. However, the above results were achieved despite higher operating expenses and a lower rise in non-interest income. Among banks, public sector banks outperformed private sector banks by registering a 20% rise in the net profit compared to an 11% growth reported by private sector banks. This was mainly due to a higher rise in other income (OI) and a lower increase in operating expenses by public sector banks compared to a fall in OI and higher operating expenses by private sector banks. However, at the net interest level, private sector banks outperformed public sector banks by registering a growth of 36% compared to a 14% rise reported by public sector banks. .
The net interest income of the overall banking sector during the quarter rose 17% to Rs 11962.53 crore, mainly due to low cost of funds. The interest
earned rose 4% to Rs 29747.88 crore, contributed mainly by interest income from core operations (i.e., lending). The interest expenses decreased by 4% to Rs 17785.35 crore. The interest spread of most banks witnessed an increase over the corresponding previous quarter, as the decline of yield on lending was lower than the cost of funds. In the falling interest rate scenario, the rate on deposits for most banks fell faster than advances. Thus, interest expenses came down faster to protect profit.
The sound economic growth, soft interest rate regime, upward migration of incomes and wider distribution to cover a larger proportion of the population are expected to increase the demand for retail loans in a significant manner. The retail credit as a percentage of GDP in India is only around 5% as compared to levels of 30 - 50% in other Asian economies and, therefore, offers significant growth opportunities. Also, favourable demographic profile like 69% of the population estimated to be under 35 years and an increase in upper middle/high income households are to be the main drivers for retail credit. In the medium term, stronger demand for credit from the corporate sector is also expected consequent to the resurgence of this sector. Earlier, banks were seeing lower credit offtake from corporates because of weak business sentiments and lower credit requirement due to improved operational efficiency Also, most banks are aggressively augmenting their fee incomes and have embarked upon cross selling of products. They are also focusing on fuller utilization of their IT investments such as ATMs by entering into sharing arrangement with other banks to earn extra OI. Many banks are hopeful of effecting significant NPA recoveries due to the Securitisation Act. Recoveries from NPAs, which have been provided for, add to OI.
10
The banking sector is poised to grow in line with the growth of the economy. However, there are concerns that directed focus on lending to agriculture and SSI sector may increase NPAs of banks. Further, volatility and a sharp fall in g-sec prices may lead to trading losses or even depreciation provision for some banks, going forward.
1.3: PROSPECTS
The prospect of Indian banking sector is very good. It is going to be flourished in years to come. As India is going to become outsourcing hub for foreign companies. Some of the factors which has contributed to good prospects of banks are as under:
11
RBI's soft interest rate policy has helped increase the liquidity in the market, however credit offtake has not exactly been robust. Going forward, the scenario is set to change in favour of higher credit offtake due to expected improvement in agricultural output on the back of good monsoons as well as revival in the Indian industry. However the same cannot be said for the interest rate regime. Higher inflation and the prospect of the US raising interest rates may necessitate a hike in interest rates in the domestic markets also. This may in turn curb the growth of the credit in the economy. Hence while the growth in credit may still be robust, a higher interest rate scenario may however limit the potential. While the new law regarding securitisation and foreclosure of assets may take a while to bear any large benefits, currently the benefits of increased power in the hands of the lender are making the borrowers to come to the negotiating table. FY04 saw a scenario where the borrowers were forced to negotiate with the lenders, which consequently led to the borrowers returning some of the dues to the lenders. Going forward the new law will bring about greater accountability within the system and ensure that borrowers do not take undue advantage of the system. Already an asset reconstruction company has been set up by SBI in partnership with other institutions like ICICI Bank and IDBI. If properly implemented, this new law may lead to significant benefits for the banking sector as a whole. Currently the banking sector in the country is strongly fragmented and hence with further policy changes taking place in the sector, consolidation is likely to take place at a faster rate. However this is subject to the removal of the ceiling on voting rights will ensure that private sector and foreign banks will be in a much better position to carry out acquisitions in the banking sector. A hike in FDI capital
12
limits in the sector would further go a long way in the process of consolidation. In terms of credit growth, going forward. India's core sector is witnessing a revival of sorts. The manufacturing sector especially led by steel and cement industries has shown significant improvement in FY04. We expect the trend to continue. Hence as corporate growth picks up lending too is likely to see an up tick. Retail credit off-take is expected to remain strong going forward with the housing finance industry, the main contributor to credit off-take from this segment, expected to grow between 20%-25% in the next 3-4 years.
2: STRUCTURE OF INDIAN BANKING INDUSTRY
Organized
banking
was
active
in
India
since
the
establishment of the General Bank of India in 1786. After independence, the Reserve Bank of India (RBI) was established as the central bank and in 1955, the Imperial Bank of India, the biggest bank at the time, was taken over by the government to form state-owned State Bank of India (SBI). RBI had undertaken an exercise to merge weak banks to strong banks and the total number of banks thus reduced from 566 in 1951 to 85 in 1969. With the objective of reaching out to masses and meeting the credit needs of all sections of people, the government nationalized 14 large banks in 1969 followed by another 6 banks in 1980. This period saw enormous
growth in the number of branches and the banks branch network became wide enough to reach the weakest sections of the society in a vast country like India. Sibs network of 9033 domestic branches and 48 overseas offices is considered to be one of the largest for any bank in the world. The economic reforms unleashed by the government in early nineties included banking sector too, to a significant extent. Entry of new private sector banks was permitted under specific guidelines issued by RBI. A number of liberalisation and de-regulation measures aimed at consolidation, efficiency, productivity, asset quality, capital adequacy and profitability have been introduced by the RBI to bring Indian banks in line with International best practices. With a view to giving the state-owned banks operational flexibility and functional autonomy, partial privatisation has been authorised as a first step, enabling them to dilute the stake of the government to 51 per cent. The government further proposed, in the Union Budget for the financial year 200001, to reduce its holding in nationalised banks to a minimum of 33 per cent on a case by case basis. The banking system can be broadly classified as organized and unorganized banking system. The unorganised banking system comprises of moneylenders, indigenous bankers, lending pawnbrokers, landlords, traders, etc. Whereas the organised banking system comprises of Scheduled Banks and NonScheduled Banks that are permitted by RBI to undertake banking business.
Types of Banks
A. Scheduled Banks
14
Scheduled commercial banks are those that come under the purview of the Second Schedule of Reserve Bank of India (RBI) Act, 1934. The banks that are included under this schedule are those that satisfy the criteria laid down vide section 42 (6 of the Act).
1. The bank is dealing in banking business in India only. 2. The paid up capital and total funds of the bank should not be less than five lakhs rupees. 3. It should convince RBI that its activities would not be against the interest of investors. 4. The bank must be: (a) State cooperative bank, or (b) A company according to the definition of the companies Act1956, or (c) An institution notified by the central government, or (d) A corporation or a company incorporated by or under any law in force in any place outside India. Thus, (I) Indian Commercial Banks (II) Foreign Commercial Banks, and (iii) State Cooperative Banks fulfilling the above condition are considered as scheduled banks.
Moreover under the RBI Act section 42, the Central Government has declared the following banks as scheduled banks.
(i) (ii) (iii)
State Bank of India and its seven subsidiary banks, Twenty nationalized banks, and Urban Banks.
In June 1980 there were 149 scheduled banks which included

(i) (ii) (iii) (iv)
Public Sector Banks Private sector Banks, Foreign Exchange Banks and State Cooperative Banks.
A bank which wants to register its name as scheduled bank has to apply to the Central Government. On receiving such application, the central government orders RBI to investigate the banks accounts. If RBI gives favorable reports, the central government sanctions its proposal, and the bank is listed under schedule annexure II and is considered as a scheduled bank. Some co-operative banks come under the category of scheduled commercial banks though not all co-operative banks. PUBLIC SECTOR BANKS
Public sector banks are those in which the Government of India or the RBI is a majority shareholder. These banks include the State Bank of India (SBI) and its subsidiaries, other nationalized banks, and Regional Rural Banks (RRBs). Over 70% of the aggregate branches in India are those of the public sector banks. Some of the leading banks in this segment include Allahabad Bank, Canara Bank, Bank of Maharashtra, Central Bank of India, Indian Overseas Bank, State Bank of India, State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Travancore, Bank of Baroda, Bank of India, Oriental Bank of Commerce, UCO Bank, Union Bank of India, Dena Bank and Corporation Bank.
PRIVATE SECTOR BANKS
16
Private Banks are essentially comprised of two types: OLD AND THE NEW. The OLD PRIVATE sector banks comprise those, which were operating before Banking Nationalization Act was passed in 1969. On account of their small size, and regional operations, these banks were not nationalized. These banks face intense rivalry from the new private banks and the foreign banks. The banks that are included in this segment include: Bank of Madura Ltd. (now a part of ICICI Bank), Bharat Overseas Bank Ltd., Bank of Rajasthan, Karnataka Bank Ltd., Lord Krishna Bank Ltd., The Catholic Syrian Bank Ltd., The Dhanalakshmi Bank Ltd., The Federal Bank Ltd., The Jammu & Kashmir Bank Ltd., The Karur Vysya Bank Ltd., The Lakshmi Vilas Bank Ltd., The Nedungadi Bank Ltd. and Vysya Bank.
The new private sector banks were established when the Banking Regulation Act was amended in 1993. Financial institutions promoted several of these banks. After the initial licenses, the RBI has granted no more licenses. These banks are gearing up to face the foreign banks by focusing on service and technology. Currently, these banks are on an expansion spree, spreading into semi-urban areas and satellite towns. The leading banks that are included in this segment include Bank of Punjab Ltd., Centurion Bank Ltd., Global Trust Bank Ltd., HDFC Bank Ltd., ICICI Banking Corporation Ltd., IDBI Bank Ltd., IndusInd Bank Ltd. and UTI Bank Ltd. CO-OPERATIVE BANKS
Co-operative banks act as substitutes for moneylenders, and offer timely and adequate short-term and long-term institutional credit at reasonable rates of interest. Co-operative banks are relatively similar in terms of functions to the other banks except for the following:
17
(a)They are organized and managed on the principal of co-operation, selfhelp, and mutual help.
(b)They operate under the rule of "one member, one vote". (c) Operate on "no profit, no loss" basis.
(d) Co-operative bank conducts all the main banking functions of deposit mobilization, supply of credit and provision of remittance facilities. Cooperative banks offer limited banking products and are functionally specialists in agriculture-related products, and even in providing housing loans of late. Urban Co-operative Banks offer working capital loans and term loans as well.
(e) Co-operative banks primarily operate in the agriculture and rural sector. However, UCBs, SCBs, and CCBs function in semi urban, urban, and metropolitan areas too . (f) Co-operative banks are probably the first government sponsored, government-supported, and government-subsidized financial agency in India. They get financial and other aid from the Reserve Bank of India NABARD, central government and state governments. They are the "most favored" banking sector with risk of nationalization.
(g) Co-operative banks normally concentrate on "high revenue" niche retail segments.
DEVELOPMENT BANKS
Development banks are primarily intended to encourage industrial development by providing adequate flow of funds to industrial projects. In
other words, these institutions undertake the responsibility of aiding allround development in the countrys economy by promoting new industrial projects, and providing financial assistance for the expansion,
diversification, and up gradation of the existing units. Development Banks may be classified as All India development banks and Regional development banks. While All India development banks include Industrial Development Bank of India and Industrial Finance Corporation of India, examples of Regional development banks include State Financial Corporation and State Industrial Development Corporation.
B.
NON-SCHEDULED BANKS: The banks, which are not included in the second schedule of RBI Act, 1934, are known as non-scheduled banks. Such banks total share capital is less than five lakhs. These banks are not governed according to the RBI Act and they receive no benefits from the RBI. These banks have no place in the list of recognized banks of the RBI. These banks are not much trusted by the people and they do not get handsome deposits. Since 1951 the numbers of such banks have been gradually decreasing. In 1979 there were only five non-scheduled banks.
Generally now days we found many cooperative banks which are belongs to the non-schedule co-operative banks. Following are the types of non-schedule banks they are work like the schedule banks but here difference in its status and it not having the status of the schedule banks.
a. b. c. d. e.
Deposits Banks Cooperative Banks Central Banks Exchange Banks Investment or Industrial Banks
19
f. g.
Land Development Banks Savings Banks
(a) Deposits Banks: Generally, banks which provide short-term loans to business and industrial units and which mobilize savings of people as deposits are called deposit banks. Deposit banks accept deposits from people, and provide short-term advances. They provide overdraft and cash credit facilities to merchants. To meet the long-term requirement of industrial units is not possible for these banks. They accept three types of deposits- saving bank deposits, fixed deposits and current account deposits. They accept these deposits which are payable on demand or on short notice, and provide funds to trading and commercial units for short durations.
(b) Cooperative Banks Cooperative banks meet the short-term financial needs of farmers. Agriculturists, petty farmers and artisans organize themselves on cooperative principles and form cooperative societies and banks. Cooperative banks raise funds through various means, besides receiving all kinds of deposits to make them available as lendable funds to its members. In India developed cooperative banks supply finance for agriculture and non-agriculture activities.
(c) Central Banks A central bank is a special institution which controls and regulates the entire banking structure of country. It also strives to maintain monetary stability of the country. Central bank is also known as the apex bank of a country. Since it functions in the best interest of the country and making profits is unknown to it, it is entrusted the right it issue currency notes. No other bank is allowed this right. It operates in close cooperation with the government of implementing economic policies, thereby promoting economic development.
(d) Exchange Banks: There is a difference in financing of foreign trade and financing of internal trade. Generally a person carrying on international trade requires foreign currencies to meet his obligation. It is here that exchange banks play the role of financing the dealer for setting transactions involved in foreign trade, there are specialized banks for exchange business. In India, there is an Export-Import Bank (EXIM).
(e) Investment or Industrial Banks: Investment banks provide long-term credit to industries. They raise their funds by way of share capital, debentures, and long-term deposits from the public. They also raise funds by the issue of bonds for business operations and government agencies. Usually they underwrite fresh issue of shares and
debentures of companies. Such banks also buy the entire issue of new securities of public limited companies and try to get them subscribed at a higher price by the public.
(f) Land Development Banks: Land development banks were earlier known as land mortgage banks. In India, there is limited number of such banks. There are special institutions providing long-term loans to agricultures and farmers. They provide loans on security of land and other immovable properties. They supply long-term funds for periods exceeding six years. Agriculturists and farmers need such funds for making permanent improvements to land and for buying farming machinery and equipment.
(g) Savings Banks: Savings Banks are specialized institutions, which encourage general public to save something from their earnings. In other words such banks pool the small
savings of middle and lower income sections of society. They are the banks in the true sense of the term and their main aim is to promote and collect of the public. Not only the depositors are given interest, but also they are allowed to withdraw in times of need. The numbers of withdrawal are, however, restricted. Separate savings banks are organized in various nations. The government can also run a savings bank. In India the postal department runs the postal saving bank all over the country. It is very popular in rural areas where no branches where no branches of established commercial bank operate. In urban areas, commercial bank handles savings business
22
Table-1: Structure of the Indian banking industry, March 31, 2004 Sr. No. 1. Public Sector Banks Share Percentage 1. a State Bank Group Share (per cent) 1. b Nationalised Banks Share (per cent) 2. Private Sector Banks Share (per cent) 2.a Old Private Sector Banks Share (per cent) 2.b New Private Sector Banks Share (per cent) 3. Foreign Banks Share (per cent) 4. Total Pvt Sector Banks Share (per cent) {2+3} 5. Total Comm. Banks Share (per cent) {1+4} 6. Regional Rural Banks Share (per cent) 7. Total of Banks Share (per cent) Bank Group No. Of Deposits Banks 27 7.6 % 8 2.2 % 19 5.3 % 30 8.4 % 21 5.9 % 9 2.5 % 36 10 % 66 10796 76.8 % 3910 27.8 % 6886 49 % 2072 14.8 % 914 6.5 % 1158 8.3 % 693 4.3 % 2765 Loans & Advances 5493 72.1 % 1892 24.8 % 3604 47.2 % 1389 18.2 % 494 5.3 % 895 11.9 % 522 6.8 % 1911 25.1 % 7405 97.1 % 218 2.9 % 7623 100 % 123 69.8 % 45 25.6 % 78 44.2 % 30 16.8 % 12 7% 17 9.8 % 18 10.4 % 48 27.2 % 171 97 % 5 3% 76 100 % Net Profit
18.5 % 19.7 % 93 26 % 264 74 % 357 100 % 13559 96.6 % 483 3.4 % 14042 100 %
23
DIFFERENT SERVICES PROVIDED BY BANKS IN INDIA

Account types & other Services
Personal Banking: Deposit Scheme __ __ __ Current Account Saving Account Term Deposit
Other Different Services Gold Banking NRI Banking International banking Corporate Banking SSI Banking
(Other Deposit Scheme as per the cust. convince) Personal Finance __ __ __ __ __ __ __ Housing Loan Car Loan Educational Loan Personal Loan Festival Loan Property Loan Other Loans
Small Business Finance Development Banking Other Services
(As per banks and its customer base) Services ATM Services Credit Card Services Internet Banking Services Phone Banking Services Locker Services PPF Services
24
Deposit Scheme:
Current Account Current Account is the accounts which useful to business, a transparent and efficient banking services support to meet its day-to-day financial requirements. It offers to serve businesses financial requirements and giving maximum financial leverage and save time and cost.
Saving Accounts: Saving bank accounts is for the people who want to save for something in the future. So its necessity characteristics are safe and accessible anytime, anyplace to help meet their needs. So banks are those who help them in planning and saving their future financial requirements. Here, savings are completely liquid, and earn competitive interest in our safety.
Term Deposit Accounts: With the help of the term deposit one can earn a higher income on their surplus cash by investing this money in this type of accounts. Scheduled bank gives promise of security and trust and help you to earn extra income with your hard earned money.
Wide Choice in Period of Deposit Flexibility in period of term deposit from 15 days to 10 years It gives the benefits of Safety, Liquidity, Transferability and Flexible and Timely payment of Interest
Personal Finance: Banks second function is to give finance and through it banks can earn hand some return and generate the profits for from it. Now days banks are giving
finance on following different ways to satisfy the financial needs of the customers.
Following are the different ways through the bank give finance to its customers:
-Housing Loan, Car Loan, Personal Loan, Educational Loan, Festival Loan, Property Loan and etc,
SERVICES: In the globally competition time service is quite important for the any sector and having in nature of service sector the services of the banking sector is also most important part following are the services that providing by the banking sectors various banks but it differ from the bank to banks. ATM Services Credit Card Services Internet Banking Services Phone Banking Services Locker Services PPF Services
OTHER DIFFERENT SERVICES (CORPORATE) Large foreign banks, Public and Private sector banks provide different services to their corporate customers. For carrying out their business activity and through that services they provide financial support and facility also.
3: CUSTOMER RELATIONSHIP IN BANKING INDUSTRY

(Through new technology and product development)
26
Liberalisation and de-regulation process initiated by the Indian Government in early nineties has completely changed the face of the Indian banking industry. The entry of new private sector banks with the state-of-the-art technology and lean structures has forced the old private-sector and public sector banks to respond to the new challenges with aggressive restructuring measures. The past five years have seen the public sector banks rapidly introducing new products and services, computerising and networking key branches, rationalising manpower and launch a number of initiatives to improve operating efficiencies. Are they on the right track? Are these strategies to become leaner and meaner sufficient to gain a competitive advantage to survive and grow in the long run? This article argues that while all the above measures are no doubt necessary to survive, they are by no means sufficient. To survive and thrive in the long run, banks need to pursue strategies that enable them to develop resources that are inimitable, rare, durable and superior to competitors. Current development in the banking industry which make it more attractive and it push this Industry in the market place
Introduction of new products and services: Many of the public sector banks launched an array of products and services, especially on the retail front, to match the competition. Some of the new products include debit cards, credit cards, international cards, special deposits, sweep-in accounts, and demat accounts and any-where-banking. Some of the new services include round-the-clock phone banking, Automated Teller Machines (ATMs), inter-city, inter-branch banking, net-banking and bill payment services. Many public sector banks have even launched their own asset management companies to offer mutual fund services to their customers.
Computerisation and networking of branches:

Banks invested aggressively in computerisation and networking of branches. The oldest and the biggest bank, SBI, had computerised 3701 branches by March 2004, constituting nearly 41 per cent of its total branches. Many of these branches were also networked so that their customers could be offered anytime, any-where banking services. The other public sector banks too embarked on a similar computerisation drive.
Installation of ATM networks All banks have made heavy investments in the installation of large networks of ATMs. As of March 2004, SBI had a network of 1305 ATMs, Canara Bank had 282 ATMs, Corporation Bank had 475 ATMs to match the ATM network of private sector banks such as HDFC Bank and ICICI Bank. ATMs proved a tremendous success by reducing the load on branches significantly as, apart from carrying out routine transactions such as cash withdrawal etc, customers can avail such services as transfer of funds and payment of utility bills by visiting any of the ATMs located conveniently.
4: OUTLOOK MONEY SURVEY
CUSTOMER FRIENDLY BANKS WITH DIFFERENT PARAMETER Service with a smile: todays finicky banking customer will settle for nothing less. Hes come to realize, somewhat belatedly, that he is king: he demands that banks roll out not just world-class products and services, but a red carpet as well. His choice of one entity over another as his principal bank is determined by considerations of service quality rather than any other factor. He wants competitive loan rates, yes, but he also wants his loan or credit card application processed in double-quick time. He cherishes the convenience of
impersonal Net banking, yes, but during his occasional visits to the branch, he also wants the comfort of personalised, human interactions and facilities that make his banking experience pleasurable. In short, he wants a financial house that will more than just clear his cheques and update his passbook: he wants a bank that caresand for more than just his custom. He wants a customer-friendly bank. So, do banks meet these heightened expectations? And which are Indias most customer-friendly banks? To find answers to these questions, Outlook Money commissioned market research agency C fore to carry out a survey of bank customers in five citiesDelhi, Mumbai, Chennai, Kolkata and Bangalore. The exhaustive survey, carried out in early August, covered 5,127 customers of 24 short listed banks: the 10 biggest nationalised banks and the 10 biggest Indian private banks (in terms of deposit base) and the only four multinational banks that offer retail banking services. For all the differences in their ownership, these 24 banks are all competing in the metros for your custom, so its only fair to compare them within a unified cluster; yet, when comparisons within their respective peer sets throw up interesting patterns, well take note of them. These, then, are the significant findings of the survey:
Indias most customer-friendly bank is ICICI Bank, which outperforms even multinational banks on this count (Overall Rankings)
Ranking a close second is Citibank, which also tops the ranking of MNC banks on the overall score For an entity thats not highly visible, seventh-ranked UTI Bank fares surprisingly well, breaking into the top 10 in all the six parameters on which the banks were rated
Strikingly, but not surprisingly, no nationalised bank figures in the top 10 banks, ranked on the overall score; the most customer-friendly PSU bank,
29
Bank of Baroda, kicks in at No. 12; even the two banks (ING Vysya Bank and The South Indian Bank) that rank a joint 6th in the smaller universe of private banks score more overall than the top-ranked PSU bank
State Bank of India, by far Indias largest bank, comes in a lowly 16th in the overall rankings; even among the smaller universe of PSU banks, it ranks only 5th, despite the fact that the survey methodology assigns some weightage to size to acknowledge big banks problems in servicing a large customer base.
It isnt as if the entire universe of PSU banks is uniformly insensitive to customers expectations on service quality. Bank of Baroda aside, Indian Overseas Bank, Syndicate Bank and, to a lesser extent, Canara Bank give some of the pretentious private sector banks a run for their money.
Likewise, all MNCs are not all there in keeping their customers happy: Standard Chartered not only lags its MNC peers on most counts, it ranks 16th on service quality in the overall rankings. A more rigorous analysis of the banks ratings on some of these
parameters throws up interesting findings about how customer-friendly these banks are. Service Quality This is an index of the core of what makes a bank customer-friendly: its overall service standards, rated for ease of opening an account; how courteous, accessible and knowledgeable its staff are; transaction time for services; how innovative the bank is in introducing products and services; how proactively the bank informs customers of changes in deposit rates or service charges; how quickly it redresses grievances; how likely it is to retain customers; and how probable it is that its customers will recommend the bank to others. On this count, HSBC tops the 24-bank ranking, followed closely by ABN Amro. In third place here is a dark horse, The South Indian Bank.
30
HSBC scores fairly well on most of the sub-parametersexcept product and service innovation. ABN Amro tops the MNC banks cluster on such customer friendly features as ease of opening account, transaction time for services, product and service innovation (such as its attractive home loan product All Smiles, which comes at 6.5 per cent fixed rate for the first two years, after which the then-prevailing floating rate applies), promptness in keeping customers informed, and its banking hours (10 am to 7 pm; no weekly holiday). The South Indian Banks good showing here is a reflection of its capacity to own up to its customers, small though that base is, and service them well. Much the same can be said of Federal Bank, IndusInd Bank, Karur Vysya Bank and ING Vysya Bank, all of which break into the Top 10. Strikingly, ICICI Bank fares poorly on service quality, coming in joint 12th (along with Bank of Rajasthan). Within its peer set of private banks, it falters on such sub-parameters as ease of opening account, transaction time for cash withdrawal, and promptness in keeping customers informed. No nationalised bank makes it to the Top 10 on service quality, but given the wide variance within this grouping, it seems unfair to hang all PSU banks together. IOB and Syndicate Bank, for instance, fare well among peer PSUs on all the sub-parameters. On the other hand, Union Bank of India, Bank of India, UCO Bank and SBI run each other close for the bottom rank. SBI is last in line in respect of customer retention and customer recommendation. In fact, SBIs abysmal scores on all service standard sub-parameters weigh down its overall customer-friendliness ranking. Branch facilities Walk into any branch of a multinational or leading Indian private bank, and youll believe youre in a plush country club. Many other banks, of course, have miles to go in this sphere, but theres a growing realisation among them that offering a pleasant banking ambiencewith comfortable seating, air-
31
conditioning, restroom and drinking water facilitiesand easy, uncluttered access to bank stationery makes for good business. The rankings here hold no surprise: MNCs HSBC, Citibank, and ABN Amro take the top three slots, and IndusInd Bank, the first Indian commercial bank to secure ISO 9002 certification for all its branches, comes in at No. 4. House-proud PSU banks IOB and Syndicate Bank top the rankings within their peer set, but fail to make it to the Top 10 overall. SBI scrapes the bottom at rank 23. ATM service By automating the most common day-to-day banking transactionscash withdrawal, cheque deposits and statement generationATMs have, in a sense, liberated customers from time-wasting branch visits and surly staff. But how often have you faced automated chaos: an ATM that whimsically rejects your card or runs out of cash? How often have you felt an overwhelming urge to cut up your ATM card into tiny slivers and post it along with a cheery letter that says no, thank you. Increasingly, however, banks are waking up to the merits of an expansive, glitch-free ATM network. Theyre investing in technology (read newer machines), so theyll be fewer card rejects. And theyre entering into tie ups with one another to share their ATM network (for a nominal fee, to be paid by customers); which means you no longer have to bear the agony of having to stand in overlong queues at your banks ATMs and gape at a state-of-the-art SBI ATM nearby that forever seems empty. ICICI Banks wide network of ATMs (1,790) gives it top ranking among all 24 banks; likewise, SBIs ATM penetration (including many in some of the remotest corners of Indiaand Indias first floating ATM, on a Kerala backwater ferry!) gives it second rank on this parameter. And MNC banks, which have far fewer ATMs, targeted sharply at their metropolitan
customers, slip to the bottom. But remove the surveys weightage for ATM reach, and judge banks only vastly different picture emerges. on how glitch-free their ATM service is, and a
Cards Grievance redress A lost credit card, a debit card billing for a transaction you never made: on occasions like these, youre hurriedly working your banks helpline numbers and want a sympathetic hearing, and a prompt response. These are also the times when a banks grievance redress mechanism is tested. How quickly and well a bank responds, and whether youre subject to an elaborate runaround and paperwork are critical determinants of how customer-friendly it is. Here too, the methodology assigns weightage to card penetration. Consequently, ICICI Bank (2.4 million credit cards; 6 million debit cards) is No. 1, followed by SBI and HDFC Bankeven though within the universe of private banks HDFC Bank scores rather dismally on grievance redress. Next in line are Bank of Baroda and Canara Bank, their high rankings (even higher than Citibank, for instance) a testimony to the mass popularity of Bobcards and Cancards. But when the weightage is removed, the rankings change dramatically.
Loans Speed of disbursal When youve identified your dream home and cant wait to move in, or when youre eager to cash in on an early bird discount on new bookings, you want a lender who cuts through the paperwork and processes your home loan in a trice. This sub-parameter is a measure of how quickly a bank processes loan
applications and disburses funds. Here too, assigning weightage for the number of loan accounts, the rankings hold few surprises: SBI tops, followed by Bank of Baroda, ICICI Bank and HDFC Bank. Among MNC banks, ABN Amro emerges on top, matching product innovation in this space with speedy disbursal; among private Indian banks, HDFC Bank is No. 2, perhaps having learnt a thing or two from HDFC, Indias largest home loan provider.
Phone/Net banking Its somewhat ironic that a technology-driven service that has made banking far more impersonal should now be seen as a pillar of customer-friendliness. But with phone/Net banking, geography is well and truly history. True, it hasnt acquired a critical mass of adherents: only 4 per cent of our survey respondents avail of phone/Net banking services, against 80 per cent who avail of over-thecounter banking services, and 63 per cent who use ATMs. Even so, 21 banks in our surveyall but Karur Vysya Bank, Bank of Rajasthan and Karnataka Bank offer these services: its a symptom of the fact that these are no longer considered premium services, but are percolating down and becoming a musthave, pretty much like what happened to ATMs some years ago. Predictably, new-age MNC and Indian private banks, whose young, upwardly mobile customers are typical users of phone/Net banking, claim this service space for themselves. Among private banks, HDFC Bank leads its bigger rival ICICI Bank in this space. And among PSU banks, IOB, Syndicate Bank and Bank of Baroda are streets ahead of the others. IOB even breaks into the Top 10 across all 24 banks on this parameter, ahead of new-age banks like ING Vysya Bank and IndusInd Bank.
34
35
5: NEW MARKETING CHANNEL
New marketing channel is creating strong base for the banking industry and it will help banks to push their products in the market places. New private sector banks are used DSA level for pushing their products in the market place so they appoint different team for different territory and those teams are works for that area and make strong position in marketing of that banks.
Here, in this channel the cost of employee is variable because generally appointment of team is based on their works. This team is work for only marketing so it will help the bank in creating the strong position in the market place also. Banks are also involved in inventing new marketing and distribution channels like E-banking, net banking and tele-banking. The next era would be of all these. Now customers want services to be delivered at their convenience. The first mover advantages will surely going to work. About 25% of transactions are projected to be carried on through E-Banking by 2008
6: BANKING INDUSTRTY DOMINANT ECONOMIC FEATURES
36
Market size:
Banking industry market size is around Rs.14, 04,341 crore deposits by 357 commercial banks.
Scope of competitive rivalry:
There are 357 commercial banks in banking sector, which includes domestic and foreign banks, and finance sector also provides strong fight to the banking sector companies.
Market life cycle:
In India it is in secondary stage and more and more chance for growth
Market growth rate:
The Indian government adopted the policy of liberalization and it is since then that this sector has shown high annual growth through various in various services like ATM, Net Banking, Phone Banking and its growth rate is also increasing from heavily from last 4-5year.
Number of companies Now a day around 357 commercial banks; among them 27 in industry: public sector banks, 30 private sector banks then 36 foreign banks and remaining are co-operative banks, they providing their service in this industry.
Customers:
Entrepreneurs those who willing to invest in businesses especially young and mature people and layman, those use different banking services, are customers of banks.
Ease of entry/exit:
Entry in Indian banking sector has become easy. Now foreign banks are also allowed to carry on their business. But exit is difficult due to large investment and government rules & regulation. All players fight desperately to survive.
37
Technology/innovation: Technology is main issue in global era and changes are fast; biggest changes are occurring in products innovation and new era technology like net-banking mobile banking or ATM banking. Now a days all banks are concentrating on technology related innovative products.
Degree of vertical integration:
Here no question of degree of vertical integration but some large banks provides different services so in those case the degree of integration come in to light but it not effect so much in this industrys basic service.
Product Characteristics: Homogeneous services by all banks little difference in services offered.
Economies of scale:
Moderate
all
companies
have
virtually
equal
service cost due to rules and regulation of RBI but scale of economies exists in new era services and marketing and other integration work. Learning and experience effects: Capacity Utilization: Quite important factor because it decides various skills and operational works also. Service efficiency is highest in private and in foreign banks its around 70 to 80 percent but in public sector it is quite low.
7: Porter's Five Forces Model of Competition

The nature of competition in an industry in large part determines the content of strategy, especially business-level strategy. Based as it is on the fundamental economics of the industry, the very profit potential of an industry is determined by competitive interactions. Where these interactions are intense, profits tend to be whittled away by the activities of competing. Where they are mild and competitors appear docile, profit potential tends to be high. Yet a full
understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend.
Porter has identified five basic forces that collectively describe the state of competition in an industry: 1. The intensity of rivalry among competitors 2. The threat of new entrants to the market 3. The amount of bargaining power possessed by the firm's/industry's suppliers 4. The amount of bargaining power possessed by the firm's/industry's customers 5. The extent that substitute products present a threat to a firm's/industry's products
These forces assist in identifying the presence or absence of potential high returns. The weaker are Porter's five forces, the greater is the opportunity for firms in an industry to experience superior profitability. More generally, understanding how these forces affect competition within an industry allows the strategist to identify the most advantageous strategic position. The actors within an industry on whom these forces exert pressure are, respectively, the industry's competing firms themselves, potential new entrants to the industry's markets, suppliers (vendors), customers, and makers of substitute products. Obviously, the starting point for conducting an analysis of the five forces of competition is to identify all the competitors, potential new entrants, major suppliers, the demographics of customers, and makers of and nature of substitute products. Competitors would not only have to be identified, but various distinguishing data about the industry would also have to be
specified. For each competitor this data would include market share, product line differences/similarities, market segments served, price/quality relationships represented by products, growth/decline trends, financial strength differences, and any other information that will help describe the industry.
Porters FIVE-FORCE analysis for Indian banking industry
BARGAINING POWER OF SUPPLIERS

-Low supplier bargaining power -Few alternatives available -Subject to RBI Rules and Regulations -Not concentrated -Forward integration -Nature of suppliers
THREAT OF THREAT OF NEW ENTRANT

-Low barriers to entry -Government policies are supportive -Globalization and liberalisation policy http://techshristi.com -High exit barriers INDUSTRY RIVARLY Intense competition Many private, public, Co-operative, foreign banks
SUBSTITUTES
High threat from substitutes Like Mutual funds, T-bills, Government securities .
40
BARGAINING POWER OF CUSTOMERS

-High bargaining power -Low switching cost -Large no. of alternatives -Homogeneous service by banks -Full information available with customers
RIVALRY AMONG THE INDUSTRY
Rivalry in banking industry is very high. There are so many private, public, co-operative and non-financial institutions operating in the industry. They are fighting for same customers. Due to government liberalisation and globalization policy, banking sector became open for everybody. So, newer and newer private and foreign firms are opening their branches in India. This has intensified the competition. The no. of factors have contributed to increase rivalry those are:
1.A large no. Of banks There are so many banks and non-financial institutions fighting for same pie, which has intensified competition.
2.High market growth rate India is seen as one of the biggest market place and growth rate in Indian banking industry is also very high. This has ignited the competition.
3.low switching cost Customer switching cost is very low. They can easily switch from one bank to another bank and very little loyalty exists.
4.indifferentiate services Almost every bank provides similar services. No differentiation exists. Every bank tries to copy each other services and technology, which increases the level of competition.
5.high fixed cost
6.High exit barrier High exist barriers humiliate banks to earn profit and retain customers by providing world-class services.
7. Low government regulations: There are low regulation exist to start a new business due LPG policy adopted by India. So, sector is open for everybody.
BARGAINING POWER OF SUPPLIERS
Suppliers of banks are depositors. These are those people who have excess money and prefer regular income and safety. In banking industry Suppliers have low bargaining power. Following are the reasons for low bargaining power of suppliers.
42
1.Nature of suppliers Suppliers of banks are generally those people who prefer low risk and those who need regular income and safety as well. Bank is best place for them to deposit their surplus money. They believe that banks are very safe than other investment alternatives. So, they do not consider other alternatives very seriously, which lower their bargaining power. 2.few alternatives Suppliers are risk averters and want regular income. So, they have few alternatives available with them to invest like Treasury bills, government bonds. So, few alternatives lower their bargaining power. 3.RBI Rules and Regulations Banks are subject to RBI rules and regulations. Banks have to behave in the way that RBI wants. So, RBI takes all decisions relating to interest rates. This reduces suppliers bargaining power.
4. Suppliers are not concentrated Banking industrys suppliers are not concentrated. There are numerous suppliers with negligible portion to offer. So, this reduces their bargaining power. If they were concentrated then they can bargain with banks or can collectively invest in other no-risky projects.
5.Forward integration Forward integration is possible like mutual funds, but only few people now about this. Only educated people can forwardly integrate where as large no. Of suppliers are unaware about these alternatives.
BARGAINING POWER OF CUSTOMERS
43
Customers of the banks are those who take loans, advances and use services of banks. Customers have high bargaining power. Following are the reasons for high bargaining power of customers.
1. Large no. Of alternatives Customers have very large no. of alternatives. There are so many banks, which fight for same pie. There are many non-financial institutions like ICICI, HDFC, IFCI etc., which has also jumped into these business. There are foreign banks, private banks, cooperative banks and development banks together with the specialized financial companies that provide finance to customers. These all increase preferences for customers.
2.low switching cost Cost of switching from one bank to another is low. Banks are also providing zero balance account and other types of facilities. They are free to select any banks service. Switching costs are becoming lower with Internet Banking gaining momentum and as a result consumers loyalties are harder to retain.
3.undiffernciated service Banks provide merely similar services. There is no much difference in services provided by different banks. So, bargaining power of customers increases. They cannot be charged for differentiation.
4.Full information about the market Customers have full information about the market due to globalization and digitization consumers have become advance and sophisticated. They are aware with each market conditions. So, banks have to be more competitive and customer friendly to serve them.
44
THREAT OF NEW ENTRANT
Barriers to an entry in banking industry no longer exist. So, lots of private and foreign banks are entering in the market. Competitors can come from any industry to disintermediate banks. Product differentiation is very difficult for banks and exit is difficult. So, every bank strives to survive in highly competitive market. So, we see intense competition and mergers and acquisition. Government policies are supportive to start a new bank. There are less statutory requirements needed to start a new venture. Every bank tries to achieve economies of scale through use of technology and selecting and training manpower.
THREAT OF SUBSTITUTES
Competition from the non-banking financial sector is increasing rapidly. Sony and Software giants such as Microsoft are attempting to replace the banks as intermediaries. The threat of substitute products is very high. These new products include credit unions and investment houses. One feature of using an investment house is that the fees that the investment house charges are tax deductible, where as a bank it is considered a personal expense, which are not tax deductible. The rate of return with using investment houses is greater than a bank. There are other substitutes as well for banks like mutual funds, stocks (shares), government securities, debentures, gold, real estate etc. so, there is a high threat fro substitute.
Conclusion:
Indian banking sector is one of the highly competitive sectors where high growth rate and high degree of competition exist. Low entry barriers and high exit
barriers ignites competition in this industry. Every bank strives to survive in the shadow of these barriers. There are so many substitutes available with customers and they have high bargaining power where as suppliers i.e. depositors have low power in their hands.
8: KEY SUCCESS FACTORS

An industrys key success factors are those things that most affect industry members ability to prosper, competencies, competitive capabilities and business outcomes that spell the difference between profit and loss and ultimately, between competitive success or failure.
With increasing number of players in the banking industry, the following are some of the key success factors. .
1. Access to technology 2. Computerization 3. Low employee cost 4. Management of NPAs 5. Transparency of public disclosure and best practices 6. Diversified products
1. COMPUTERISATION AND ACCESS TO NEW TECHNOLOGY
A sound and effective banking system is the backbone of an economy. The economy of a country can function smoothly and without many hassles if the banking system backing it is not only flexible but also capable of meeting the new challenges posed by the technology and other external as well as internal factors. The importance and role of information technology for achieving this benign objective cannot be undermined. There is an urgent need for not only
technology up gradation but also its integration with the general way of functioning of banks to give them an rim in respect of services provided to the customers, better housekeeping, optimizing the use of funds and building up of management information system for decision making. The technology has the potential to change methods of marketing, advertising, designing, pricing and distributing financial products and services and cost savings in the form of an electronic, self-service product-delivery channel. The technology holds the key to the future success of Indian Banks. Thus, Internet Banking is the need of the hour, which cannot be lost sight of except at the cost of elimination from the competition. The existence of Internet banking also becomes inevitable due to the standards required to be matched at the international level. Thus, the domestic as well as the international standards mandates the adoption of Internet banking at the earliest possible moment Within the banks, their IT strategy has taken different forms. While quite a few banks have moved towards core banking, other banks have adopted different models. However, there seems to convergence on the type of services which are offered - like internet banking, anytime, anywhere banking, telebanking, remote access, multi city chequing facilities etc. Some of the banks have scaled up further by setting up call center facilities. Banks have also gone for sharing of their technological infrastructure, as in the case of ATM networks. With gradual scaling up, public sector banks are expected to gain competitive advantages arising out of their vast branch network and large customer base. 2. GREATEST ASSETS HUMAN RESOURCE (low cost per employee) To achieve the service excellence and in order to succeed in a market place where competition is fierce, banks need to focus on yet another area - People. Bank is harnessing its human resources to keep up the efficiency levels by adopting people-centric policies. It is well realized that human assets are hidden assets and we are nurturing this capital to maximize the competency
levels. The Bank has created enabling environment to bring out the best from its people through a process of strong training system to hone the skills in the areas of marketing and technology. Strategies to make the employee more productive Reward, recognition and incentives to employee who perform will send the right signal, ensuring job satisfaction, boosting and employee morale and building employee commitment. Identify and outsource non-strategic work, leaving employees free to concentrate on core banking activities especially high value added activities. To keep employee skills updated the training systems of banks need to be revamped to train employees at every level as well as location of branch. Raising the skill bar at entry level to ensure that people with requisite skills get into banks. Actively encourage physical fitness in employees banks can organize ongoing basis stress management programmes, yoga etc.
To make people grow and realize their productivity, therefore a big push is needed to unleash their potential. Past efforts to measure employee productivity have focused on business narrowly defined as deposits plus advances. However, the parameters need to be expanded to reflect the contribution of non-fund based activities also. But ultimately, employee motivation is critical because a committed employee is a productive employee
3. MANAGEMENT OF NPAS
48
Non Performing Assets are disease for Indian banks. The size of the NPA portfolio in the Indian Banking industry is around Rs.1,00,000 crore which is nearly 6% of Indias GDP. However due to the active steps taken by the regulatory authorities and the banks, the gross NPA level has been reduced. To ensure long-term profitability, banks have to manage NPAs effectively by adopting the many techniques.
4. TRANSPARENCY OF PUBLIC DISCLOSURE AND BEST PRACTICES There is an increasing movement worldwide towards building a safe and sound banking system backed by a strong supervisory/regulatory regime in accordance with the core principles for effective banking supervision. The banking industry in the new millennium will also have to ensure greater transparency and disclosure in their financial statements for the information of market players, investors, depositors and rating agencies. Such disclosures would enable the users of that information to accurately assess the bank's financial condition, performance, and business activities, risk profile and management practices. Processes of transparency and market disclosure of critical information describing the risk profile, capital structure and capital adequacy are assuming increasing importance in the emerging environment. Besides making banks more accountable and responsive to better-informed investors, these processes enable banks to strike the right balance between risks and rewards and to improve the access to market. Improvements in market discipline also call for greater coordination between banks and regulators. Efforts have also been made to set up a Credit Information Bureau to collect and share information on borrowers and improve the credit appraisal of banks and financial institutions within the ambit of the existing legislation.
5. DIVERSIFIED PRODUCTS (The innovation imperative)
49
Successful innovation is crucial to the competitive edge of all businesses. But it is particularly important for banking and finance companies. Innovation, which transcends invention, represents the point of convergence of invention and insight. Strategic factors to devise effective responses to innovation challenges include quick response to identified customer needs, product quality, short cycle times for product development, developing marketing and technical capabilities, extensive training, rewards and recognition of performance. Innovation is a key driver of growth that surprises and delights the customer with new, differentiated and relevant benefits. This is not a clich but a defining characteristic of the modern corporate saga. This can be substantiated by innovation within a global framework. Indian banks will be able to weather the competition provided they are relevant to consumers in terms of technology, quality, reliability, pricing, performance and support. As the convergence of the ICE (information, communication) technologies, "technological evangelization" and narrowing of the "digital gap" are significant instruments of the growth escalation process; integration of technology and business is required.
50
PEST ANALYSIS
9: PEST ANALYSIS
The PEST analysis considers the broad external environment facing the business organization. It is an outward looking analysis. The PEST analysis attempts to answer the question: What broad determinants are going to
affect the macro environment in which the firm will be competing, over the next five (or more) years? The PEST analysis is so-called, because it is an acronym for the four categories into which the analyst will try and include all of the relevant factors and trends: Political, Economic, Social, and Technological. Like any model, the PEST model is a simplification; the choice of Political, Economic, Social, and Technological factors may strike you as arbitrary. You may be right. However, these categories are as adequate as any in attempting to put a form to the myriad trends, developments, events and causations that will assist or hinder the firm as it attempts to breach the Gap between where its is now, and where it ultimately wants to be. .
9.1 : Political-legal factors

1.Government policy and budget:
Government affects the performance of banking sector most by legislature and framing policies. Government through its budget affects the banking activities. The much-needed reforms in the banking sector have transformed the sector drastically in the last few years. Falling interest rates as well as strengthening of the hands of banks (Securitisation Act) have changed the dynamics of the Indian
banking sector itself. The new Securitisation Act has given more power to the banking sector against defaulting borrowers. Further, changes to be implemented on the issue of voting rights among private sector banks is likely to speed up the consolidation process. The impact that budget 2004-05 will have on banking has been analysed below:
Budget measures:
1. The government has proposed to double credit to the agriculture sector in the next three years. 2. There has been a significant emphasis on making credit available towards infrastructure development. 3. Inter-institutional group comprising select banks and financial institutions incorporated to ensure speedy conclusion of loan agreements for infrastructure projects. Nearly Rs 400 bn will be kept aside by this consortium for infrastructure support.
4. Task force to be set up to explore reforms in the cooperative banking sector. 5. Securitisation Act to be amended. 6. FDI in the insurance sector to be hiked from 26% to 49%. 7. Abolition of tax deducted at source on bank fixed deposits. 8. Increase in the foreign investment limit in Private sector banks to 74% and state run banks to 49%. 9. The Indian Banking Association (IBA) has suggested the relaxation for listed banks and financial institutions from adhering to accounting standards not synchronous with banking operations. (Globally there is separate set of accounting standards for banks under IAS - 42). 10. Tax benefits allowed to individuals in respect of housing loans may be
53
continued.
BUDGET IMPACT:
1. As per the common minimum program (CMP), the budget has focused a lot on the need to improve credit to the agriculture sector and banks will be at the forefront of disbursing credit. Vagaries of monsoons impact the agriculture sector heavily and banks are vulnerable if monsoon fails. Also, the RBI has released new guidelines for banks with regards to agricultural lending. However, it is too early to ascertain the impact. The impact of these initiatives by the government will only be apparent over the longterm. 2. Banks are likely to benefit from increased lending to the infrastructure sector. This will come about in two ways i.e. direct equity participation and indirectly (corporates borrowing for expanding capacity). While this would provide an impetus to core advances of banks, the quality of such advances is likely to be better. In this light, there is relatively less NPA risk. 3. Reforms in the banking sector in the form of amendments to the Securitisation Act may strengthen the backbone of the financial sector. 4. A hike in the FDI in the insurance sector is likely to significantly raise investments in the nascent insurance sector. Domestic banks like ICICI Bank, ING Vysya, Kotak Bank and SBI who have joint ventures with international insurance majors will be able to infuse more capital into their insurance business. In the future, there may be an opportunity for these domestic banks to unlock value from such investments as well.
BUDGET OVER THE YEARS:

BUDGET 2001-02: Reduction in dividend tax to 10% from 20%. Cut in small savings rates 1-1.5% Limit for TDS on deposits reduced to Rs 2,500 from the current Rs 10,000. Abolishment of banking service recruitment board BUDGET 2002-03: Cut in most administered interest rates by 0.5% (by 50 basis points) from March 1, 2002. Setting up of Asset Reconstruction Company by June 2002. Banks are now allowed to deduct 7.5% of their total income against provisions made by them for bad and doubtful debts. Banks are given option to deduct up to 10% of their non-performing assets (NPAs) falling in the category of loss or doubtful assets from total income. Bill on the banking sector reforms is to be introduced in Parliament. Foreign banks permitted to operate in India with fully owned branches after the specific permission of RBI.
BUDGET 2004-05: The FDI limit in private sector banks has been raised to 74% from the existing 49%. The SBI will have to lend at lower rates to the agricultural sector as well as SSIs. SBI will now offer loans in the range 2% above its Prime Lending Rate (PLR) or 2% below its PLR. Tax exemption on interest on housing loans maintained at Rs 150,000 per year. The government has agreed to buy back older government borrowing with high interest rates from banks.
Reduction in the interest rates on all small savings schemes by 1%.
POSITIVE IMPACT OF BUDGET ON BANKING INDUSTRY:
1. Securitisation Act fillip - Improved asset quality 2. VRS push - PSU banks like SBI, BOB and BOI after having successfully implementing VRS schemes, have become much more streamlined and efficient. This is likely to result not only in higher cash flow in the future, but also long term benefits like improvement in efficiency levels. 3. Retail segment driver - Low interest rates have led to a dramatic growth in credit off take from the retail segment. And this has helped banks to weather a weak industrial credit offtake scenario. Going forward, with the revival in the industrial sector ands robust volumes in the retail segment, banks are in a good position to tap this expected demand. 4. Government proactive ness - The government may take a second look at the issue of FDI limits and voting right limits in the private sector banks. If the policy is further amended in the form of higher FSDI limits and a removal of voting right ceiling of 10%, then we may see further consolidation among private sector banks. 5. Improved asset quality - Most of the public sector banks that have been ridden by huge NPAs in the past have been able to restructure and provides aggressively for their NPAs in the last 2-3 years. This has helped these banks to significantly improve their asset quality and they are now in a much better position to tap the emerging opportunities in the domestic market.
NEGATIVE IMPACT OF BUDGET ON BANKING INDUSTRY:
1. Agri lending concerns - The government has announced measures to boost lending to the agricultural sector and banks will have to be at the forefront of
this scheme and this means that they will have to significantly increase their exposure to this segment. With the unpredictability of the monsoons a reality in the country and lack of proper irrigation facilities, lending to the agri sector is fraught with risks and going forwards banks may witness a higher rate of defaults in this sector. 2. Lack of policy clarity - Although the government has increased the FDI limit to 49%, it is not yet clear that whether FDI limit includes FII limit also. Also the limit for state run banks still stands at 20%. This will limit the scope of consolidation in this sector and consequently the benefits of scale to the various participants. Also the new government has indicated that there will be no sell off of stake in public sector banks in the country. Thus further limiting the scope of consolidation in the sector. 3. Interest rate dampener - The Indian economy is witnessing rising inflationary pressure and this has the potential to curtail the credit growth in the economy. As inflation inches close to the 6% mark, the Reserve Bank of India (RBI) may be forced to hike interest rates and this may prohibit potential borrowers from borrowing. A hike in interest rates may have a bigger impact on the high growth retail segment, which has a higher sensitivity to rising interest rates. Thus to that extent banks may witness a slowdown in credit offtake.
2.GOVERNMENT LAWS AND REGULATIONS: There are so many laws enacted by government of India to regulate banking activity. The RBI was established under Reserve Bank Of India Act 1934. RBI regulates the banking activities in India. Other than this there are other laws like Reserve Bank of India Act, 1934. National Bank for Agriculture and Rural Development (NABARD) Act 1981
57
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 (for management of NPA). Banking Regulation Act, 1949 The Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and Fis Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 Draft Bill on Credit Information Bureau Regulation. Bank Deposit Insurance Corporation Bill. Draft Bill on Government Securities. Bills under Consideration of the Parliament

Financial Companies Regulations Bill, 2000. Banking Regulation (Amendment) Bill, 2003. Banking Regulation (Amendment) and Miscellaneous Provisions Bill, 2003.
3.MONETARY POLICY Another policy that impact most is RBIs monetary policy. This policy is meant to regulate activities of banking in India. It controls the flow of money in the country. In its recent policy RBI has retained its stance regarding interest rates and the broader economy in its monetary policy for 2004-05. The central bank has left the bank rate and the repo rate untouched at 6% and 4.5% respectively. The overall stance of the monetary policy 2004-05 as stated by the RBI is as follows:
Provision of adequate liquidity to meet credit growth and support investment demand in the economy while continuing a vigil on movements in the price level.
In line with the above, to continue with the present stance of preference for a soft and flexible interest rate environment within the framework of macroeconomic stability.
As expected, while the monetary policy did not have any major announcements, the key highlights include: 1. Bank Rate kept stable at 6.0 per cent. 2. Repo Rate unchanged at 4.5 per cent. 3. Banks are encouraged to align the pricing of credit to assessment of credit risk to improve credit delivery and credit culture. 4. As far as the outlook for the Indian economy in 2004-2005 is concerned, the RBI has stated that Indias GDP is expected to grow between 6.5% to 7.0% in FY05. The RBIs forecast is based on sustained growth in industrial sector, normal monsoons and good performance of exports. 5. In FY04, the RBIs inflation target was 4.0% to 4.5%. However, firm crude prices resulted in average inflation hovering at around 5.4%. RBI expects inflation at 5% levels for 2004-05. 6. The RBI has also forecasted an increase in non-food credit in the range between 16.0%-16.5% in FY05. 7. Expansion in money supply in FY05 has been pegged at 14% indicating that the central bank is forecasting a scenario of ample liquidity in the market. Fiscal deficit as indicated by the Union Budget is pegged at 4.4% of GDP in FY05. 8. The RTGS (Real Time Gross Settlement) system is expected to be implemented by June 2004, thus paving way for the stock markets migrating into the T+1 system.
9. The RBI has also proposed the reintroduction of the Capital Indexed bonds (CIBs), wherein the returns will be linked to the inflation in the economy. Instruments like CIBs are very popular in the global markets and offer an option for investors to mitigate risk of higher inflation and the consequent impact of the same on returns. 10. Revised LAF scheme operationalised. 11. Almost all banks have adopted the new system of BPLR and the rates are lower from their earlier PLRs.
A lot of emphasis has been placed on the agricultural sector, considering the high dependence of the country on the same. RBI has provided further sops in the form of concessions in credit delivery. Banks may waive margin/security requirements for agricultural loans up to Rs 50,000. Apart from this, concessions have been made towards NPA recognition for the agricultural sector. The RBI has also proposed to expand the scope of the infrastructure sector to include sectors like (i) construction relating to projects involving agro-processing and supply of inputs to agriculture; (ii) construction for preservation and storage of processed agro-products and (iii) construction of educational institutions and hospitals. Measures to increase credit availability to the infrastructure sector have also been proposed. Overall, these measures could enable better access of credit for these sectors in the long-term. 4. FDI LIMIT Government has decided to increase the foreign investment limit in Private sector banks to 74% and state run banks to 49%. This will affect the banking sector performance. Newer and newer foreign banks will come to India with their advanced technology and there will be intense competition in the market. Every bank will try to survive by building competitive advantages in different
areas and will introduce new technology and distribution channel. This step also presents opportunity for Indian banks to become globally competitive and compete better in foreign markets.
9.2: ECONOMIC FACTORS

Economic factors show the way in which economy is moving. How these all affect the industry should be analyzed. Economic factors such as Interest rates, inflation rates, unemployment rates, gross national product, sectoral growth rate of agriculture, industry infrastructure, level of disposable income, availability of credits affect each industry.
61
1.GDP: Gross domestic product (GDP) is the measure of national income. Its trend shows the actual picture of countrys economy. It is a measure of wealth and health of economy. India is one of the fastest growing economies in world today. Everybody is looking at India. Its GDP is higher than most countries in the world.
Source: CMIE
In the FY 2004 GDP grew at 8%. This affect positively on banking sector. Overall economy boosted. There was increase in transactions and increase in investment. Demand for money increased and good sign for economy. GDP is expected to grow at 7% in FY2005. Which is good sign for economy.
There is consistent increase in growth rate of GDP. The Goldman Sachs has projected long term trend in GDP, which is expected to be higher than other developing countries like china and Brazil.
62
Above is the long term forecast of GDP we can see that GDP of India is expected to grow at a consistent rate where as mighty Chinese GDP is expected to fall in coming years and will remain around 2%.
2.MONSOON: India is an agriculturist country. More than 70% of population of India depends on agriculture for their livelihood. And Indian agriculture depends mainly on monsoon because there is no proper irrigation infrastructure. If monsoon is below average it can negatively affect Indian economy at large. So, monsoon has direct impact on performance of any industry, too with banking sector. The trend of monsoon over the years and its relationship with GDP has been given below:
63
There is also a direct correlation between monsoon and the overall GDP.A good monsoon has always preceded a year of good GDP growth. This is accentuated by the GDP growth data for the last 10 years. If one compares the percentage of areas receiving normal or excess rainfall in a calendar year with the overall GDP growth rate of that financial year one can find that whenever the monsoon has been good, the GDP growth for that year has been good. This year monsoon is below average. And in FY 2004-05 monsoon is estimated to remain below average.
TABLE: Monsoon Versus GDP growth Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 % Of area receiving normal/excess rainfall 81 67 66 68 44 76 80 GDP growth 6.5 6.1 4.4 5.6 4.3 8.0 7.0
Source: IMD, CMIE estimates
So, there will be decrease in GDP. It directly affects the agricultural production. Purchasing power of farmers has reduced which in turn
affected the performance of banks in India. Due to poor monsoon, the housing segment (most booming sector in the banking) can take a hit. Reduction in housing loans may adversely affect margins. Due to poor monsoon other sectors like auto, FMCG etc. would also be hurt, leading to more chances of defaults.
3.INFLATON High inflation can adversely affect Indian economy. It is a high inflation period in India due to increase in crude oil prices in international market and below average monsoon in India this year.
Exhibit: inflation during July-August 2004
inflation (WPI) in july-August 2004
8.5 7.96 7.61 7.94 8.17
percent
8 7.5 7
31-Jul
07-Aug
14-Aug
21-Aug
week ended
Source: RBI
Inflation, measured in movement in wholesale price index (WPI), has increased from 7.61% during week ended 31 July to 8.17% during week ended 21. August 2004.rising crude oil price in the international market is the min reason behind the recent spurt in inflation. In the mean time government has shown its sincerity in containing inflation within manageable limit.
It is the joint responsibility of RBI and Government to bring down inflation. RBI through some measures like change in interest rate cut in CRR and SLR and open market operations control the inflation. This will directly have a impact on banking sector if there is rise in CRR ratio, the banks will left with less amount to offer to public and can affect their profitability. Interest rate changes can affect banks as well.
65
High inflation discourages deposits especially long term. Because the real increase in deposit will be negligible if there is high inflation. So, people invest their money in mutual funds and stock market to earn higher return.
4.SAVINGS AND INVESTMENT The main activity of banking sector is to provide link between those who have surplus money and those who have deficit. It takes money from savers and distribute to investors. The amount of savings can affect the performance of banking sector. There can be positive and negative impact of savings on banking sector as well on economy also. If there are enough savings, then entrepreneurs will get loans at cheaper rates and encourage them to take risk and start new venture and this will boost overall economy. It has negative side also. High savings shows that people are not spending money. There expenditure is less and not making demand. So, if there is less demand which in turn affect the investment, employment and economy negatively.
Exhibit: Sector wise saving Rates
Source: RBI
The rate of financial savings of the household sector, as per the annual report 2003-04 of the Reserve Bank of India, has increased in 2003-04 to 11.8 per cent of the gross domestic product (GDP) at current market prices
compared with the revised estimate of 10.7 per cent in 2002-03. The household sector reflected its keenness for saving in the form of deposits, claims on government, currency and contractual schemes (life insurance, provident and pension funds)
5.AGRICULTURE CREDIT: As per the agenda of its Common Minimum Program (CMP), the UPA government plans to double agricultural credit by 2007. This means a CAGR of 25% over the next three years. The agricultural credit has been growing at a healthy 17-18% in the last three years. At a more realistic 20% CAGR too, the agricultural credit would touch around Rs1500bn by 2007. This means a bonanza for farmers, as it will put more money in their hands.
Exhibit: Expected growth in agricultural credit

1600 1400 1200 1000 800 600 400 200 0 2001 2002 2003 2004 2005E 2006E 2007E
Source: RBI, IIL Estimates
Rs.bn
A look at the composition of total agricultural credit shows some interesting details. The exposure of commercial banks in total agricultural credit has declined over the last few years from 53% in 2001 to 50% in 2004, while on the other hand the share of Co-op banks have shown a corresponding increase. Banks will be asked to directly lend to the farmers instead of following the usual indirect lending practice of subscribing to NABARD bonds.
67
EXHIBIT: Flow of Agricultural Credit

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
50 6 44
50 7 43
53 7 40
53 8 39
50 8 42
50 7 43
50 6 44
53 8 39
Commercial Banks RRBs Co-op banks
19 98
19 99
20 00
20 01
20 02
20 03
20 04 E
Source: Economic Survey, IIL Estimates
6.STOCK MARKET Recently there is a bullish trend in stock market. Sensex is going to touch 6000 points. Most of the shares are at their historic high positions. Investors confidence in stock market has increased. They expect this trend to persist for a long time. This has affected negatively on banking industry. People has attracted toward direct investment in shares as they are giving higher return than banks. Mutual funds are performing best, so all these factors have contributed toward fall in deposits. But on the other economy flourishes, demand for money for investment is increasing.
7.INTEREST RATE By monetary policy 2004-05 RBI kept interest rate unchanged at 6%. Before that Interest rate was decreasing. This will lead to increase in demand for loans because if the loans are available at cheaper rate then people will ask for more loans to make investments.
68
20 05 E
9.3: SOCIO-CULTURAL FACTORS
Socio-cultural factors also affect the business. They show way in which people behave in country. Socio-cultural factors like taboos, customs, traditions, tastes, preferences, buying and consumption habit of the people, their language, beliefs and values affect the business. Banking industry is also operates under these social environment and it is also affected by this factors. These factors are changing continuously. Peoples life style, their behaviour, consumption pattern etc. is changing and also creating opportunities and threat for banking industry. There are some socio-cultural factors that affect banking in India have been analyzed below:
1.TRADITIONAL MAHAJAN PRATHA Before the birth of the banks, people of India were used to borrow money from local moneylenders, shahukars, mahajan and shroffs. They were used to charge higher interest and also mortgage land and house. Farmers were exploited by these shahukars. But farmers need money. So, they did not have any choice other than going to shahukars and borrow money from them in spite of exploitation by these people. But after emergence of banks attitude of people was changed.
Traditional mahajan pratha still exist in India especially in rural areas. This affects the banking sector. Rural people afraid to go to banks to borrow money instead they prefer to borrow from shahukars with whom they have relationships from the time of their fore fathers. Banking infrastructure is also week in some interior areas of India. So, this is reason it still exist.
2.SHIFT TOWARDS NUCLEAR FAMILY Attitude of people of India is changing. Now, younger generation wants to remain separate from their parents after they get married. Joint families are breaking-up. There are many reasons behind that. But banking sector is positively affected by this trend. A family need home, consumer durables like freeze, washing machine, television, bike, car etc. so, they demand for these products and borrow from banks. Recently there is a boost in housing finance and vehicle loans. As they do not have money they go for installments. So, banks satisfy nuclear families wants.
3.CHANGE IN LIFE STYLE Life style of people of India is changing rapidly. They are demanding high-class products. They have become more advanced. People want everything car, mobile etc. what their forefather had dreamed of. Now teenagers also have mobile and vehicle. Even middle class people also want to have well furnished home, television, mobile, vehicle and this has opened opportunities for banking sector to tap this change. Every thing is available on installment so it has become easy to purchase anything even if you do not have lump sum.
4.LITERACY RATE Literacy rate in India is very low compared to developed countries. Illiterate people hesitate to transact with banks. So, this impacts negatively on banks. But there is positive side of this as well i.e. illiterate people trust more on banks to deposit their money, they do not have market information. Opportunities in stocks or mutual funds. So, they look bank as their sole and safe alternative. Literacy rate of India is around 65%.
TABLE: literacy rate in India http://techshristi.com 70
Year 1951 1961 1971 1981 1991 2001
Persons 18.3 28.3 34.5 41.4 52.2 65.4
Male 27.2 40.4 46.0 53.4 64.1 75.8
Female 8.9 15.3 22.0 28.5 39.3 52.1
Source: census of India 2001, series 1 India, paper 1 of 2001.
5.DEMOGRAPHIC OF LARGE POPULATION: About 60% of Indian population composed of youth. And these people do not have enough savings, as their expenditure is large because they have to settle in life. Even if they have savings, they do not prefer to deposit in banks rather they prefer to invest in share market and mutual funds. TABLE: Percentage distribution of Indias population by age group Year 0-14 (Age) 1931 1961 1971 1981 1991 2001 38.3 41.0 41.4 39.7 36.5 35.7 15-60 age 60.2 53.3 53.4 54.1 57.1 57.6 60 and above age 1.5 5.7 5.2 6.2 6.4 6.7
Source: census of India 2001, series 1 India, paper 1 of 2001.
Young people take high risk expecting high return.
Banks
interest rate does not attract them. But it has positive side also. These people use different facilities of banks maximum. And are of entrepreneur nature so, take loans to start new business.
9.4: TECHNOLOGICAL FACTORS

Technology in Banks:
Both public and private banks are spending large amounts of money on technology to provide innovative products and services to their customers with more convenience and satisfaction. Technology is reducing the
cost of transaction and helping to increase customer base and enable wider reach. These innovations are happening not only in the retail-banking segment but also in the corporate segment.
Today, banks are able to provide products, which were a distant dream in the past. For example, RBI declared that it is going to start an innovative payment and settlement system named Real Time Gross Settlement, which will make the banking, services faster and more efficient for the customers. Funds transfer between banks under the system will be on real time basis.
Technology is changing the way banks interface with their customers, resulting in increased customer base for the banks. The customer need not go to a branch for a transaction; he can do it via Internet, mobile phone or even the landline.
Core Banking Solution
Core banking solution is the buzzword today and every bank is trying to adopt it. It is a centralized banking platform through which a bank can control its entire operation. The adoption of core banking solution will help banks to roll out new products and services. ATMs China has around 65,000 installed ATMs and the global average is of two or three ATMs per branch. Compared to these figures, India is far behind with an installed ATMs base of around 10,000. Though banks plan to invest heavily in new ATMs in the coming two to three years, it is expected that there will be only around 17,000 ATMs by the end of 2004. Cost per transaction at an ATM is much less than a transaction at the branch and it can be reduced by as much as 50% of the cost at a branch.
73
Internet While Internet banking is in place for the last four years in India, it has just started showing signs of picking up. Today, banks in India are in the process of Web-enabling their services in order to offer Internet banking to their customers. Through Internet, banks can provide their services in a cost-effective manner. Internet Banking has numerous benefits like greater reach to customers, quicker time to market, ability to introduce new products and services quickly and successfully, ability to understand its customers needs, greater customer loyalty etc.
10: CHALLENGES BEFORE THE INDIAN BANKING INDUSTRY
The second phase of financial sector reforms has provided the necessary architecture for strengthening the Indian banking system and the banks have a vital role to play as the repository of liquidity, as an important channel for flow of funds from the surplus sectors to the deficit sectors and as the backbone of the payment and settlement systems. Increasing deregulation and globalization, greater competition from within the country and cross-border dealings has exposed banks to greater risk. Diversification into non-traditional products like insurance, derivatives etc., has added to the complexity of banking business.
Further, Internet banking, e-commerce, e-money and other information technology related innovations are adding new dimensions to risks faced by the banking sector. Mergers and acquisitions as well as outsourcing of some non-core activities are undertaken by the banks with some strategic objectives they also enhance the risks in banking. Considering the speed with which banking is changing, it is recognized that there is a need to enlarge the focus and thrust of Risk-Based Supervision (RBS) so as to be able to improve the risk sensitivity of the supervisory approach Following are the recent developments and challenges before the banking sector and the strategies and initiatives undertaken to meet them.
1.Competition and Consolidation

The deregulation in interest rates, grant of functional autonomy to banks in the area of credit, entry of foreign banks and emergence of new private banks has made the banking environment more competitive. While the total share in bank credit continues to be dominated by public sector banks, the share of foreign banks is showing an increasing trend. As announced in the Union Budget for 2002-2003, it has been decided to give an option to foreign banks to either operate as branches of their parent banks or to set up subsidiaries. As per the recent RBI guidelines, the overall ceiling for foreign direct investment in private sector banks has also been enhanced. In the changed scenario, it has now become extremely important for Indian banks to remain competitive for surviving.
Universally there is a move towards consolidation and convergence. It has been our contention that the Government and supervisory
authorities should only provide a conducive environment for consolidation and convergence through appropriate fiscal and monetary policies supported by a sound regulatory and supervisory framework. Hence, bank consolidation/ merger process should be primarily market driven and such proposals should come voluntarily from the banks themselves depending on the organizational synergy and the market share.
2.MANAGEMENT OF NPAS
Management of NPAs continues to be the foremost challenge of the Indian banking System. In the recent past there has been a conscious and persistent effort through the prescription of strict objective norms for the identification and classification of NPAs. This was also supplemented by the sustained efforts both by the Government and the RBI for setting up the requisite infrastructure as also systems/ procedures for effecting recoveries/ reduction of NPAs. The result has been encouraging. However, realizing the rigidities in the legal system, Govt. of India/ RBI have taken several special steps to ensure that legal inadequacies do not thwart the resolve to reduce the NPAs of banks. In addition, banks have been advised to strengthen their credit administration machinery and put in place effective credit risk management systems to reduce the fresh incidence of NPAs. The less strong banks, which suffered capital erosion due to rising levels of non-performing assets were recapitalised. Secondly, capital to risk-weighted assets ratio of 8 percent was introduced. This is now at 9 percent. Thirdly, prudential norms for income recognition, classification of assets and provisioning for bad debts were introduced. The management of NPAs has been fortified by the enactment of the Securitisation & Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002 which provides statutory support for the enforcement of creditors rights and inter alia, paved the way for the establishment of Asset Reconstruction Companies. Fourthly, Debt Recovery Tribunals were set up to assist the banks in the recovery of loans. Fifthly, the Scheme of Ombudsman was introduced in 1995,
to look into and resolve customer grievances. Sixthly, the State Bank of India Act, 1955 and the Bank Nationalisation Act of 1970 were amended to enable the banks to access the capital market for debt and equity.
3.TIGHTENING OF PRUDENTIAL STANDARDS

The prudential standards need to be enhanced to fall in line with the international best practices. In this direction, Reserve Bank of India has introduced the 90 days delinquency norm for identification of NPAs with effect from the year ending March 2004 and reduced the timeframe for classification of a substandard asset as a doubtful asset from 18 months to 12 months with effect from the year ending March 2005. In some countries, doubtful assets, irrespective of their status i.e. secured or unsecured, are required to be classified as loss assets and fully provided for. However, in India, doubtful assets backed by collateral, are provided for only up to 50% of the outstanding balances, irrespective of the number of years in which the accounts remain in this category. Given the delay in recovery of dues through the legal process, the current provisioning norms followed in India do not entirely cover the latent losses inherent in such advances. The existing provisioning requirements would have to be enhanced in line with the international best practices.
4.THE PROPOSED BASEL CAPITAL ACCORD

The Basel Committee recognises that the New Accord is more extensive and complex than the 1988 Accord. The New Accord is more risk sensitive and it contains a range of new options for measuring both credit and operational risks. The New Accord is likely to be finalised next year and would be implemented in member jurisdictions in 2006. The adoption of the New Basel Capital Adequacy Framework, relating to assigning capital on a consolidated basis, use of external credit assessments as a means for assigning preferential risk weights, sophisticated techniques for estimating economic capital, etc., may need suitable modifications to adequately reflect the institutional realities and macro-economic
factors specific to emerging market economies including India. Recognising these implications, RBI has been impressing on the Basel Committee that some of these proposals may require modification / flexibility to fully reflect the concerns of the emerging market economies. Notwithstanding the above, it is imperative that the banks in India study the proposed Capital adequacy framework, identify their Transition path and initiate steps to be fully prepared for adoption of the new standards when introduced.
5.RISK MANAGEMENT SYSTEMS

In view of the diverse financial and non financial risks confronted by banks in the wake of the financial sector deregulation, the risk management practices of banks have to be upgraded by adopting sophisticated techniques like VaR, Duration and Simulation and adopting internal model-based approaches as also credit risk modeling techniques, at least by top banks. Banks need to evolve an integrated risk management system depending on their size, complexity and the risk appetite. As a step towards enhancing and fine-tuning the existing risk management practices in banks RBI has recently issued the draft guidance notes on credit and market risks.
6.RISK BASED SUPERVISION

Financial sector supervision is expected to become increasingly risk oriented and Concerned more with validation of systems. Bank managements will have to develop internal capital assessment processes in accordance with their risk profile and control environment. These internal processes would then be subjected to review and supervisory intervention if necessary. The emphasis will be on evaluating the quality of risk management and the adequacy of risk containment. The transaction based internal /external audit would have to give way to risk based audit system. As banks are computerizing more areas of their operations, they would be required to introduce information system audit also.
78
7.Corporate Governance
An adequate institutional and legal framework is in place in India for effectively implementing a code of sound corporate governance in banks. The statutes have built-in legal provisions that prohibit or strongly limit activities and relationships that diminish the quality of corporate governance in banks. As a major step towards strengthening corporate governance in banks, they have been advised to place before their Board of Directors the Report of the Consultative Group of Directors of banks and FIs (Dr Ganguly Group) set up to review the supervisory role of Boards of banks. The recommendations include the responsibility of the Board of Directors, role and responsibility of independent and non-executive directors, fit and proper norms for nomination of directors in private sector banks, etc. The banks were advised to adopt and implement the recommendations on the basis of the decision taken by their Board.
Transparency and disclosure standards are also important constituents of a sound corporate governance mechanism. Transparency and accounting standards in India have been enhanced to align with international best practices. However, there are many gaps in the disclosures in India vis--vis the international standards, particularly in the areas of risk management strategies and practices, risk parameters, risk concentrations, performance measures, components of capital structure, etc. Hence, the disclosure standards need to be further broad-based in consonance with improvements in the capability of market players to analyse the information objectively.
8.Technology Issues
The delivery of products and services need extensive use of information technology necessitating high magnitude of investment. However, with a view to enhance the quality of customer service as also to enhance the quality of control, one of the prime thrust areas for the future would be completion of branch computerization and networking of banks. This would also necessitate putting in place of appropriate legal and security systems.
Nobel Laureate Robert Solow had once remarked that computers are seen everywhere excepting in productivity statistics. More recent developments have shown how far this state of affairs has changed. Innovation in technology and worldwide revolution in information and communication technology (ICT) have emerged as dynamic sources of productivity growth. The relationship between IT and banking is fundamentally symbiotic. In the banking sector, IT can reduce costs, increase volumes, and facilitate customised products; similarly, IT requires banking and financial services to facilitate its growth.
As far as the banking system is concerned, the payment system is perhaps the most important mechanism through which such interactive dynamics gets manifested. Recognising the importance of payments and settlement systems in the economy, banks have embarked on technology-based solutions for the improvement of the payment and settlement system infrastructure, coupled with the introduction of new payment products such as the computerized settlement of clearing transactions, use of Magnetic Ink Character Recognition (MICR) technology for cheques clearing which currently accounts for 65 per cent of the value of cheques processed in the country, the computerisation of Government Accounts and Currency Chest transactions, operationalisation of Delivery versus Payment (DvP) for Government securities transactions. Twoway inter-city cheques collection and imaging have been operationalisation at the four metros. The coverage of Electronic Clearing Service (Debit and Credit) has been significantly expanded to encourage non-paper based funds movement and develop the provision of a centralised facility for effecting e-payments. The scheme for Electronic Funds Transfer operated by the Reserve Bank has been significantly augmented and is now available across major cities. The scheme, which was originally intended for small value transactions, is processing high value.
The Centralised Funds Management System (CFMS), which would enable banks to obtain consolidated account-wise and centre-wise
positions of their balances with all offices of the Deposits Accounts Departments of the Reserve Bank has begun to be implemented in a phased manner. A holistic approach has been adopted towards designing and development of a modern, robust, efficient, secure and integrated payment and settlement system taking into account certain aspects relating to potential risks, legal framework and the impact on the operational framework of monetary policy.
The approach to the modernization of the payment and settlement system in India has been three-pronged:
(a) Consolidation, (b) Development, (c) Integration.
The consolidation of the existing payment systems revolves around strengthening Computerised Cheque clearing, expanding the reach of Electronic Clearing Services and Electronic Funds Transfer by providing for systems with the latest levels of technology. The critical elements in the developmental strategy are the opening of new clearinghouses, interconnection of clearing houses through the INFINET; optimizing the deployment of resources by banks through Real Time Gross Settlement System, Centralised Funds Management System (CFMS); Negotiated Dealing System (NDS) and the Structured Financial Messaging Solution (SFMS). While integration of the various payment products with the systems of individual banks is the thrust area, it requires a high degree of standardisation within a bank and seamless interfaces across banks. . The setting up of the apex-level National Payments Council in May 1999 and the operationalisation of the INFINET by the Institute for Development and Research in Banking Technology (IDRBT), Hyderabad have
81
been some important developments in the direction of providing a communication network for the exclusive use of banks and financial institutions. Membership in the INFINET has been opened up to all banks in addition to those in the public sector. At the base of all inter-bank message transfers using the INFINET is the Structured Financial Messaging System (SFMS). It would serve as a secure communication carrier with templates for intra- and inter-bank messages in fixed message formats that will facilitate straight through processing. All inter-bank transactions would be stored and switched at the central hub at Hyderabad while intra-bank messages will be switched and stored by the bank gateway. Security features of the SFMS would match international standards.
In order to maximise the benefits of such efforts, banks have to take pro-active measures to: Further strengthen their infrastructure in respect of standardisation, high levels of security and communication and networking; Achieve inter-branch connectivity early; Popularize the usage of the scheme of electronic funds transfer (EFT); and Institute arrangements for an RTGS environment online with a view to integrating into a secure and consolidated payment system.
Information technology has immense untapped potential in banking. Strengthening of information technology in banks could improve the effectiveness of asset-liability management in banks. Building up of a related database on a real time basis would enhance the forecasting of liquidity greatly even at the branch level. This could contribute to enhancing the risk management capabilities of banks.
9.Cross-border Supervision
82
Due to globalization many Indian banks are now operating in many countries. Because they should render services where their customers want. Indians have reached everywhere and banks too. So, This would involve a greater focus on overseas operations of Indian banks and in having information sharing arrangements with overseas supervisors on a firmer and more formal footing. In the context of money laundering concerns raised by some of the supervisors, it needs to be ensured that some of the branches, especially those which are not compliant with the anti-money laundering principles of the Financial Action Task Force (FATF), are not causes of serious operational and reputational risks to their parent banks in India.
10.Money Laundering
Post September 11, the issue that bank supervisors the world over is grappling with is "How to root out the menace of money laundering?" Until recently, the governments talked tough about the problem, but did little about it. All that changed three years ago. The FATF was conceived by G-7 countries as a helpful mechanism to persuade governments to combat money laundering and offer them technical assistance to do so. The laws being enacted typically require a bank to "know the customer" to be confident that his money is obtained by legitimate means, and to report any suspicious activity. This involves a Herculean effort, thanks in part, to the growth of "Correspondent banking relationships." In effect, this means banks must know their customers customers as well. Banking supervision all over the world has to achieve the delicate balance between respect for customer privacy and making banks report suspicious transactions. This raised the toughest question: What exactly are efforts against money laundering trying to achieve? So far, countries have been free to define what they regard as illegal sources of money. Some include drugs, racketeering and other dark crimes in their definition of illegal money. Some, such as France, consider tax evasion to be money laundering. Others like
Switzerland have more flexible laws. However, as recently as last week, Switzerland has agreed in principle to dismantle the veil of secrecy governing its banking activity in order to comply with anti-money laundering requirements. This is a landmark development.
It is fair to say that despite many challenges, Indian banks have made some progress towards their goals. There has been progressive intensification of financial sector reforms, and the financial sector as a whole is more sensitized than before to the need for internal strength and effective Management as well as to the overall concerns for financial stability. At the same time, in view of greater disclosure and tougher prudential norms, the weaknesses in our financial system are more apparent than before. There is greater awareness now of the need to prepare the banking system for the technical and capital requirements of the emerging prudential regime and a greater focus on core strengths and niche strategies. Banks have also made some progress in assessing financial system against international best practices and in benchmarking the future directions of progress. Several contemplated changes in the surrounding legal and institutional environment have been proposed for legislation. Nevertheless, several sources of vulnerability persist. The NPA levels remain too large by international standards and concerns relating to management and supervision within the ambit of corporate governance are being tested during the period of downturn of economic activity. There is also a sense Those banks have a lot to acquire and adapt in terms of the technical expertise necessary to measure and manage risks better. The structure of the financial system is changing and supervisory and regulatory regimes are experiencing the strains of accommodating these changes. Certain weak links in the decentralized banking and non-bank financial sectors have also come to notice. In a fundamental sense, regulators and supervisors are under the greatest pressures of
change and bear the larger responsibility for the future. For both the regulators and the regulated, eternal vigilance is the price of growth with financial stability.
11.1: OPPORTUNITIES
1.UNIVERSAL BANKING:
Universal Banking includes not only services related to savings and loans but also investments. However in practice the term 'universal banks' refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc. Universal banking is a combination of commercial banking, investment banking and various other activities including insurance. If specialized banking is the one end universal banking is the other. This is most common in European countries. Universal
. advantages as well as
banking
has
85
some
disadvantages. The main advantage of universal banking is that it results in
greater economic efficiency in the form of lower cost, higher output and better products. However larger the banks, the greater the effects of their failure on the system. Also there is the fear that such institutions, by virtue of their sheer size, would gain monopoly power in the market, which can have significant undesirable consequences for economic efficiency. Also combining commercial and investment banking can gives rise to conflict of interests. Conflict of interests was one of the major reasons for introduction of Glass-Steagall Act in US.
Universal banking in India
In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sectoral needs and also providing long-term resources at confessional terms, while the commercial banks in general, by and large, confined themselves to the core banking functions of accepting deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking.
Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial institutions for greater harmonisation of facilities and obligations. Also report of the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues considered by the Khan Working Group. .
The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an universal bank. Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy for
universal banking, including a case-by-case approach towards allowing domestic financial institutions to become universal banks. .
Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit their plans for transition to a universal bank for consideration and further discussions. FIs need to formulate a road map for the transition path and strategy for smooth conversion into an universal bank over a specified time frame.
2. E- BANKING
Competition and the constant changes in technology and lifestyles have changed the face of banking. Nowadays, banks are seeking alternative ways to provide and differentiate amongst their varied services. Customers, both corporate as well as retail, are no longer willing to queue in banks, or wait on the phone, for the most basic of services. They demand and expect to be able to transact their financial dealings where and when they wish to. With the number of computers increase in every year, the electronic delivery of banking services is becoming the ideal way for banks to meet their clients expectations.
Online banking or e-banking can be defined as online systems which allow customers to plug into a host of banking services from a personal computer by connecting with the banks computer over the telephone wires. Technology continues to make online banking easier for the average consumer. Banks are using a variety of names for online banking services, such as PC banking, home banking, electronic banking or Internet banking. Regardless of the given name, these systems certainly offer specific advantages over the traditional banking methods.
Why banks adopt E-banking?
87
COMPETITION: there is intense competition in the market. Every bank strives hard to survive in this highly competitive market. Exit is not easy and due to low entry barriers newer and newer private and foreign banks are entering in the market. Banks feel the need to offer e-banking services today just to keep up with the competitors and to be able to retain their existing customers. EXPLORING NEW MARKETS: The Internet is not only a low cost approach to determine new distribution channels but also to establish a presence in new and up coming markets. COST REDUCTION: E-banking is an opportunity for banks to reduce their overhead costs as the need for physical branches is drastically cut down. The running cost of an ordinary bank account for 50-60 per cent of their revenues, whereas the running cost of Internet banking are a mere 1520 per cent of revenues. For example, in India, Net banking is estimated to cost just INR 2 per transaction compared to the INR 43 incurred while banking at the branch. CUSTOMER SERVICE: E-banking offers banks an opportunity to improve on their customer service by collecting and managing information pertaining to their customers and their individualistic preferences. REVENUE POTENTIAL: E-banking also provides an opportunity to build on their relationships with their existing customers. For Example, bank Web portals could offer purchasing services for business travel or insurance to generate more revenue.
CUSTOMER BENEFITS FROM E-BANKING

Check Accounts Information, Receive airlines mileage for banking with certain banks co promotion
Receive and pay e-bills online Download account information to the personal finance management software viz., Quicken or MS-Money Deposit Products online including Checking Savings, Money Market and Certificate of Deposits Access financial planning tools to calculate loan payments/ tax burden View time-trend of various financial indicators, including interest rates Transfer funds between accounts Interactive tools to help customers find an account that best suits their needs Single login provides access to multiple accounts held at a Bank Internal transfers from deposit A/c to loan A/c, Including Credit Cards Online mortgaging
View a/c balances and transfer money through Web-enabled Cell
Phones or PDAs.
E-banking in India
In India, the Internet banking market is in the earliest stages of development. Only 51 banks are currently offering any kind of Internet banking services. Out of which 55% are Entry Level sites, offering little more than company information and basic marketing materials. Only 8% offer advanced transactional services, such as online fund transfer, transactions and cash management services. In general, the foreign and private banks are far ahead of the Public Sector or Cooperative Banks in terms of the number of sites and their level of development.
89
3.M-Banking
The revolution in banking sector through M-banking is coming. There is burgeoning growth in mobile phone users in India and this opens gate for mbanking. Customers can transact with their banks through mobile, no need to go to bank. They can deposit, pay bills, check balances by their cell phones. The scene is set for an eruption of m-Banking services during the years to come. The time is right and the only remaining question is, which banks and financial will place itself in a position to benefit from this revolutionary new distribution channel. There are several reasons dictating why the time is right to enter this market, including:
Mobile penetration is rising quickly and approaching what surely must be the peak of its growth curve;
The penetration of m-Banking-enabled phones is also paving the way for a revolution in the way consumers access their finances;
Internet banking is well on its way to becoming a mainstream banking service;
Regulatory structures are evolving to reduce uncertainty surrounding issues such as transaction security;
The infrastructure required for the development of m-Banking services is in place: it could even be argued that content providers are struggling to keep pace with technological advancement in the mobile communications industry;
The high level of commitment from powerful industry players, both in the financial service industry and the mobile communications industry.
4.Plastic Money
With the help of plastic money instruments like credit card, debit card, ATM cards etc. banks reduces the risk of carrying high value of money. It is more
90
convenient instrument, which is getting popularity day by day and is capturing major part of the market. It is a deemed opportunity to expand business of banks.
5.Bank Assurance
It is a new concept according to which the banks and insurance companies join hands. The insurance companies use banks established network of branches to distribute and market their products. By using this concept banks can attract more customers and can add one more facility
6.RETAIL BANKING
Now a days bank are focusing more on retail banking. Retail Banking is the new mantra in the banking sector. The home loans alone account for nearly two-third of the total retail portfolio of the bank. According to one estimate, the retail segment is expected to grow at 30-40% in the coming years. Banks have become more customers centric and are providing more and more facilities to individual customer. Retail banking, which is designed to meet the requirements of individual customers and encourage their savings, includes payment of utility bills, consumer loans, credit cards, checking account balances, ATMs, transferring funds between accounts and the like. With spreads shrinking, Indian banks are following their global counterparts and focusing on increasing the share of their fee- based income. ``Fee-based income'' may increase marginally in future. The ratio of non-interest income to total funds has increased for some banks. A rising ratio is expected in the future. The main advantage of getting into retail banking is that the risks involved are lesser in this segment. There are lower Non Performing Assets (NPAs) in retail banking. This is one of the reasons why loans such as those for housing, automotive, etc are being touted by banks like never before. Credit cards and debit cards is another focus area for banks.
91
6. Differentiation
The customer is interested in how he/she can benefit from the bank and its products. That's why it becomes necessary for a bank to differentiate its products from the others. Some of the ways in which differentiation can be introduced are through specialization, new products, and increasing the added value.
Specialization basically means that the bank gets involved only in selected areas. For example, the bank might be getting involved only in housing finance. Or, it could be limiting its services just for corporate banking clients. Another way to specialize could be by handling just specific sets of portfolios. Banks can differentiate themselves by adding new products to their range of services. This will provide the bank with better yields per contact. Increasing the added value of products is another way of differentiation for banks. Operational excellence is also a key factor in effective differentiation from the competition.
7.Non-bank activities
These include underwriting stocks and providing insurance. Also Banks can merger or buy smaller investment houses to become an investing bank as well as a commercial bank.
11.2: THREATS
1.FOREIGN BANKS
The biggest threats against Indian banks are foreign banks. The government is planning to remove barriers in FDI flow in banking sector. It means 100% FDI will be allowed in banks. Foreign banks are much more ahead in technology than Indian banks and they have experience, economies of scale and are more customer friendliness than Indian banks. This will produce greatest threat against domestic banks. But this also brings an opportunity i.e. Indian banks will become more tougher and will adopt advanced technology, focus more on efficiencies and this will help them to compete in global market also. 2. INTEREST RATE The interest rates are decreasing day by day. Because of it the group of customers who want fixed income are dissatisfied and so, they will look for new sources of income like mutual fund, insurance policies government securities that give them higher return and this is the reason deposits with banks are decreasing.
3.FAILURE OF CO-OPERATIVE BANKS Failure of co-operative banks also produces threat for banking sector. Cooperative banks have significance proportion in total banking activities and their contribution in overall contribution of banking sector cannot be denied. But due to bankruptcy of some of co-operative banks, peoples trust has been lost. Now they are attracted towards other sources of investment.
4.SUBSTITUTE BANKING These include credit unions and other companies that provide banking services, for example Merrill Lynch.
BIBLIOGRAPHY
BOOKS
Jha, Bank Marketing, New Delhi: HPH Publications,2002 120 pp Prasad, Banking Finance System, New Delhi:HPH Publications,2003 Reddy, Theory & Practice of Banking, New Delhi : HPH Publications,2002 Gordon, Banking Theory & Practices, New Delhi: HPH Publications, 2004 Singh, Indian Banking Industry, Deep Publications, 2004 Chawla, Indian Banking Towards, Deep Publications,2003
Khan,M.Y Indian Financial System, PHI Publications,2004
WEBSITES
1. www.banknetindia.com 2. www.capitalmarket.com 3. www.equitymaster.com 4. www.ficci.com 5. www.financianexpress.com 6. www.hindu.com 7. www.imf.org 8. www.ibspublishung.com 9. www.indiainfoline.com 10. www.indianbanksassociation.org 11. www.rbi.org 12. www.sify.com 13. www.moneycontro.com 14. www.worldbank.org 15. www.valuenotes.com
NEWSPAPERS
1. 2. 3. 4. Economic Times Times of India Financial Express Business Standard
MEGAZINES:
1. Capitamarket 2. Business today 3. Charted Secretary: Banking Special Edition
94

BankingFINAL Bibliography

Încărcat de

Informații document

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

BankingFINAL Bibliography

Încărcat de

Drepturi de autor:

Formate disponibile

OBJECTIVES AND SCOPE OF THE PROJECT

To focus on current trends and future of the industry.

1.1: History of Indian banking

Indian Banking: Key Developments

1.2: CURRENT SCENARIO

2: STRUCTURE OF INDIAN BANKING INDUSTRY

(i) (ii) (iii)

In June 1980 there were 149 scheduled banks which included

(i) (ii) (iii) (iv)

PRIVATE SECTOR BANKS

Land Development Banks Savings Banks

DIFFERENT SERVICES PROVIDED BY BANKS IN INDIA

Small Business Finance Development Banking Other Services

3: CUSTOMER RELATIONSHIP IN BANKING INDUSTRY

Computerisation and networking of branches:

4: OUTLOOK MONEY SURVEY

5: NEW MARKETING CHANNEL

6: BANKING INDUSTRTY DOMINANT ECONOMIC FEATURES

Scope of competitive rivalry:

Market life cycle:

Market growth rate:

Degree of vertical integration:

7: Porter's Five Forces Model of Competition

Porters FIVE-FORCE analysis for Indian banking industry

BARGAINING POWER OF SUPPLIERS

THREAT OF THREAT OF NEW ENTRANT

BARGAINING POWER OF CUSTOMERS

RIVALRY AMONG THE INDUSTRY

5.high fixed cost

BARGAINING POWER OF SUPPLIERS

BARGAINING POWER OF CUSTOMERS

THREAT OF NEW ENTRANT

8: KEY SUCCESS FACTORS

1. COMPUTERISATION AND ACCESS TO NEW TECHNOLOGY

9.1 : Political-legal factors

BUDGET OVER THE YEARS:

Reduction in the interest rates on all small savings schemes by 1%.

POSITIVE IMPACT OF BUDGET ON BANKING INDUSTRY:

NEGATIVE IMPACT OF BUDGET ON BANKING INDUSTRY:

9.2: ECONOMIC FACTORS

Source: IMD, CMIE estimates

Exhibit: Expected growth in agricultural credit

Source: RBI, IIL Estimates

EXHIBIT: Flow of Agricultural Credit

Commercial Banks RRBs Co-op banks

Source: Economic Survey, IIL Estimates

9.3: SOCIO-CULTURAL FACTORS

TABLE: literacy rate in India http://techshristi.com 70

Year 1951 1961 1971 1981 1991 2001

Persons 18.3 28.3 34.5 41.4 52.2 65.4

Male 27.2 40.4 46.0 53.4 64.1 75.8

Female 8.9 15.3 22.0 28.5 39.3 52.1

Source: census of India 2001, series 1 India, paper 1 of 2001.

Source: census of India 2001, series 1 India, paper 1 of 2001.

Young people take high risk expecting high return.

9.4: TECHNOLOGICAL FACTORS

Core Banking Solution

10: CHALLENGES BEFORE THE INDIAN BANKING INDUSTRY

1.Competition and Consolidation

3.TIGHTENING OF PRUDENTIAL STANDARDS

4.THE PROPOSED BASEL CAPITAL ACCORD

5.RISK MANAGEMENT SYSTEMS

6.RISK BASED SUPERVISION