UNIVERSITY OF MUMBAI

PROJECT ON

BANKING SECTOR IN INDIA

SUBMITTED BY

GURURAJ DEVADIGA

PROJECT GUIDE

PROF. LAILA DIAS

SEMESTER V

BACHELOR OF COMMERCE (BANKING AND INSURANCE)

KHAR EDUCATION SOCIETY’S

COLLEGE OFCOMMERCE & ECONOMICS

KHAR (W),

2010-2011

1
 DECLARATION

I, Mr. GURURAJ .R. DEVADIGA, student of TYBBI at

KHAR EDUCATION SOCIETY’S COLLEGE OF COMMERCE AND
ECONOMICS hereby declare that I have completed this
project on BANKING SECTOR IN INDIA in the academic year
2010-2011, in partial fulfillment of the degree for
SEMESTER V. The information submitted in this project is
true and original to the best of my knowledge.

____________________
Gururaj R
.Devadiga

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 CERTIFICATE

I, Prof. LAILA DIAS hereby certify that this project on

‘BANKING SECTOR IN INDIA’ has been completed by Mr.
GURURAJ .R. DEVADIGA, T.Y.B.B.I student of Khar
Education Society’s College of Commerce and Economics in
the academic year 2010-2011. The information submitted
in this project is true and original to the best of my
knowledge.

________________ ___________________
__________

Signature of Project Guide Signature of Co-ordinator

Signature of Principal

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 ACKNOWLEDGEMENT

It gives me great pleasure while submitting this project on the topic ‘Banking
Sector in India’. This project provides an overview of the banking sector which is
the backbone of India’s growing economy.

I would like to begin by thanking my Project Guide, PROF. Laila Dias for helping
me throughout the project and for motivating me to give my best effort. It was a
pleasure working with such knowledgeable and helpful guide.

I would also express my gratitude to our principal Dr. Nandini Deshmukh who has
always kindled the quest for knowledge and created an atmosphere of excellence in
all round development.

Last but not the least I thank the Almighty, my family and friends for their support
and guidance in all my Endeavour’s.

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 EXECUTIVE SUMMARY

Usually all persons want money for personal and commercial purposes. Banks are
the oldest lending institutions in Indian scenario. They are providing all facilities to
all citizens for their own purposes by their terms. To survive in this modern market
every bank implements so many new innovative ideas, strategies, and advanced
technologies. For that they give each and every minute detail about their institution
and projects to Public.

They are providing ample facilities to satisfy their customers i.e. Net Banking,
Mobile Banking, Door to Door facility, Instant facility, Investment facility, Demat
facility, Credit Card facility, Loans and Advances, Account facility etc. And such
banks get success to create their own image in public and corporate world. These
banks always accept innovative notions in Indian banking scenario like Credit
Cards, ATM machines, Risk Management etc.
The last decade has seen many positive developments in the Indian banking
sector. The policy makers, which comprise the Reserve Bank of India (RBI),
Ministry of Finance and related government and financial sector regulatory
entities, have made several notable efforts to improve regulation in the sector. The
sector now compares favorably with banking sectors in the region on metrics like
growth, profitability and non-performing assets (NPAs). A few banks have
established an outstanding track record of innovation, growth and value creation.
This is reflected in their market valuation. However, improved regulations,

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innovation, growth and value creation in the sector remain limited to a small part
of it.

The cost of banking intermediation in India is higher and bank penetration is far
lower than in other markets. India’s banking industry must strengthen itself
significantly if it has to support the modern and vibrant economy which India
aspires to be. While the responsibility for this change lies mainly with bank
managements, an enabling policy and regulatory framework will also be critical to
their success.

INDEX

SR NO. TOPIC PG NO.

1. AN INTRODUCTION TO BANKING SECTOR IN 8

INDIA

2. MEANING OF BANKS 12

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3. HISTORY OF BANKS 16

4. NATIONALIZATION OF BANKS 23

5. DISTINCTION BETWEEN BANK AND 25

MONEYLENDERS

6. CURRENT SCNEARIO 27

7. TYPES OF BANK 32

8. SWOT ANALYSIS 46

9. PEST ANALYSIS 51

10. RECENT BANKING DEVELOPMENT IN INDIA 55

11. 7 P’S OF BANKING 64

12. CONCLUSION 79

13. BIBLOGRAPHY 81

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AN INTRODUCTION TO THE BANKING SECTOR
IN INDIA

Banks are the most significant players in the Indian financial market. They
are the biggest purveyors of credit, and they also attract most of the savings from
the population. Dominated by public sector, the banking industry has so far acted
as an efficient partner in the growth and the development of the country. Driven by
the socialist ideologies and the welfare state concept, public sector banks have long
been the supporters of agriculture and other priority sectors. They act as crucial
channels of the government in its efforts to ensure equitable economic
development.

The Indian banking can be broadly categorized into nationalized

(government owned), private banks and specialized banking institutions. The
Reserve Bank of India acts a centralized body monitoring any discrepancies and
shortcoming in the system. Since the nationalization of banks in 1969, the public
sector banks or the nationalized banks have acquired a place of prominence and
has since then seen tremendous progress. The need to become highly customer
focused has forced the slow-moving public sector banks to adopt a fast track
approach. The unleashing of products and services through the net has galvanized
players at all levels of the banking and financial institutions market grid to look
anew at their existing portfolio offering. Conservative banking practices allowed

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Indian banks to be insulated partially from the Asian currency crisis. Indian banks
are now quoting al higher valuation when compared to banks in other Asian
countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems
linked to huge Non Performing Assets (NPAs) and payment defaults. Co-
operative banks are nimble footed in approach and armed with efficient branch
networks focus primarily on the ‘high revenue’ niche retail segments.

The Indian banking has finally worked up to the competitive dynamics of

the ‘new’ Indian market and is addressing the relevant issues to take on the
multifarious challenges of globalization. Banks that employ IT solutions are
perceived to be ‘futuristic’ and proactive players capable of meeting the
multifarious requirements of the large customer’s base. Private Banks have been
fast on the uptake and are reorienting their strategies using the internet as a
medium The Internet has emerged as the new and challenging frontier of
marketing with the conventional physical world tenets being just as applicable
like in any other marketing medium.

The Indian banking has come from a long way from being a sleepy business
institution to a highly proactive and dynamic entity. This transformation has been
largely brought about by the large dose of liberalization and economic reforms
that allowed banks to explore new business opportunities rather than generating
revenues from conventional streams (i.e. borrowing and lending). The banking in
India is highly fragmented with 30 banking units contributing to almost 50% of
deposits and 60% of advances. Indian nationalized banks (banks owned by the
government) continue to be the major lenders in the economy due to their sheer
size and penetrative networks which assures them high deposit mobilization. The

9
Indian banking can be broadly categorized into nationalized, private banks and
specialized banking institutions.

The Reserve Bank of India acts as a centralized body monitoring any

discrepancies and shortcoming in the system. It is the foremost monitoring body
in the Indian financial sector. The nationalized banks (i.e. government-owned
banks) continue to dominate the Indian banking arena. Industry estimates
indicate that out of 274 commercial banks operating in India, 223 banks are in the
public sector and 51 are in the private sector. The private sector bank grid also
includes 24 foreign banks that have started their operations here.

The liberalize policy of Government of India permitted entry to private

sector in the banking, the industry has witnessed the entry of nine new generation
private banks. The major differentiating parameter that distinguishes these banks
from all the other banks in the Indian banking is the level of service that is offered
to the customer. Their focus has always centered around the customer –
understanding his needs, preempting him and consequently delighting him with
various configurations of benefits and a wide portfolio of products and services.
These banks have generally been established by promoters of repute or by ‘high
value’ domestic financial institutions.

The popularity of these banks can be gauged by the fact that in a short span
of time, these banks have gained considerable customer confidence and
consequently have shown impressive growth rates. Today, the private banks
corner almost four per cent share of the total share of deposits. Most of the banks
in this category are concentrated in the high-growth urban areas in metros (that

10
account for approximately 70% of the total banking business). With efficiency
being the major focus, these banks have leveraged on their strengths and
competencies viz. Management, operational efficiency and flexibility, superior
product positioning and higher employee productivity skills.

The private banks with their focused business and service portfolio have a
reputation of being niche players in the industry. A strategy that has allowed
these banks to concentrate on few reliable high net worth companies and
individuals rather than cater to the mass market. These well-chalked out
integrates strategy plans have allowed most of these banks to deliver superlative
levels of personalized services. With the Reserve Bank of India allowing these
banks to operate 70% of their businesses in urban areas, this statutory
requirement has translated into lower deposit mobilization costs and higher
margins relative to public sector banks.

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 Meaning of Bank

People earn money to meet their day-to-day expenses on food, clothing, education
of children, housing, etc. They also need money to meet future expenses on
marriage, higher education of children, house building and other social functions.
These are heavy expenses, which can be met if some money is saved out of the
present income. Saving of money is also necessary for old age and ill health when
it may not be possible for people to work and earn their living.

The necessity of saving money was felt by people even in olden days. They used to
keep money in their homes. With this practice, savings were available for use
whenever needed, but it also involved the risk of loss by theft, robbery and other
accidents. Thus, people were in need of a place where money could be saved safely
and would be available when required. Banks are such places where people can
deposit their savings with the assurance that they will be able to withdraw money
from the deposits whenever required. People who wish to borrow money for
business and other purposes can also get loans from the banks at reasonable rate of
interest.

Banks also render many other useful services – like collection of bills, payment of
foreign bills, Safe-keeping of jewellery and other valuable items, certifying the
credit-worthiness of business, and so on. Banks accept deposits from the general
public as well as from the business community. Anyone who saves money for
future can deposit his savings in a bank. Businessmen have income from sales out
of which they have to make payment for expenses. They can keep their earnings
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from sales safely deposited in banks to meet their expenses from time to time.
Banks give two assurances to the depositors –
a. Safety of deposit, and
b. Withdrawal of deposit, whenever needed

On deposits, banks give interest, which adds to the original amount of deposit. It is
a great incentive to the depositor. It promotes saving habits among the public. On
the basis of deposits banks also grant loans and advances to farmers, traders and
businessmen for productive purposes.

Thereby banks contribute to the economic development of the country and well
being of the people in general. Banks also charge interest on loans. The rate of
interest is generally higher than the rate of interest allowed on deposits. Banks also
charge fees for the various other services, which they render to the business
community and public in general. Interest received on loans and fees charged for
services which exceed the interest allowed on deposits are the main sources of
income for banks from which they meet their administrative expenses.
The activities carried on by banks are called banking activity. ‘Banking’ as an
activity involves acceptance of deposits and lending or investment of money. It
facilitates business activities by providing money and certain services that help in
exchange of goods and services. Therefore, banking is an important auxiliary to
trade. It not only provides money for the production of goods and services but also
facilitates their exchange between the buyer and seller.
We may be aware that there are laws which regulate the banking activities in our
country.
Depositing money in banks and borrowing from banks are legal transactions.
Banks are also under the control of government. Hence they enjoy the trust and
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confidence of people. Also banks depend a great deal on public confidence.
Without public confidence banks cannot survive.

Bank definition:
A financial institution that is licensed to deal with money and its substitutes by
accepting time and demand deposits, making
loans, and investing in securities. The bank
generates profits from the difference in the
interest rates charged and paid.

Bank is a lawful organization, which accepts

deposits that can be withdrawn on demand. It
also lends money to individuals and business
houses that need it.

A bank is a financial intermediary that accepts deposits and channels those

deposits into lending activities, either directly or through capital markets. A bank
connects customers with capital deficits to customers with capital surpluses.

Role of Banking
Banks provide funds for business as well as personal needs of individuals. They
play a significant role in the economy of a nation. Let us know about the role of
banking.
• It encourages savings habit amongst people and thereby makes funds available
for productive use.

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• It acts as an intermediary between people having surplus money and those
requiring money for various business activities.
• It facilitates business transactions through receipts and payments by cheques
instead of currency.
• It provides loans and advances to businessmen for short term and long-term
purposes.
• It also facilitates import export transactions.
• It helps in national development by providing credit to farmers, small-scale
industries and self-employed people as well as to large business houses which lead
to balanced economic development in the country.
• It helps in raising the standard of living of people in general by providing loans
for purchase of consumer durable goods, houses, automobiles, etc.

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 History

Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India which started in 1786, and the Bank of Hindustan,
both of which are now defunct. The oldest bank in existence in India is the State
Bank of India, which originated in the Bank of Calcutta in June 1806, which
almost immediately became the Bank of Bengal. This was one of the three
presidency banks, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East
India Company. For many years the Presidency banks acted as quasi-central banks,
as did their successors. The three banks merged in 1921 to form the Imperial Bank
of India, which, upon India's independence, became the State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in
1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank,
established in 1865 and still functioning today, is the oldest Joint Stock bank in
India.(Joint Stock Bank: A company that issues stock and requires shareholders to
be held liable for the company's debt) It was not the first though. That honor
belongs to the Bank of Upper India, which was established in 1863, and which
survived until 1913, when it failed, with some of its assets and liabilities being
transferred to the Alliance Bank of Simla.

When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton.
With large exposure to speculative ventures, most of the banks opened in India
during that period failed. The depositors lost money and lost interest in keeping
deposits with banks. Subsequently, banking in India remained the exclusive

16
domain of Europeans for next several decades until the beginning of the 20th
century.

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

The Bank of Bengal, which later merged with the Bank of Bombay and the Bank
of Madras to form the Imperial Bank of India in 1921.

The first entirely Indian joint stock bank was

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

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

The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks operated
in different segments of the economy. The exchange banks, mostly owned by

17
Europeans, concentrated on financing foreign trade. Indian joint stock banks were
generally undercapitalized and lacked the experience and maturity to compete with
the presidency and exchange banks. This segmentation let Lord Curzon to observe,
"In respect of banking it seems we are behind the times. We are like some old
fashioned sailing ship, divided by solid wooden bulkheads into separate and
cumbersome compartments."

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

The favor of Swadeshi movement lead to establishing of many private banks in

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

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

Post-independence

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

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

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

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Liberalization

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

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

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

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

product range and reach-even though reach in rural India still remains a challenge
for the private sector and foreign banks. In terms of quality of assets and capital
adequacy, Indian banks are considered to have clean, strong and transparent
balance sheets relative to other banks in comparable economies in its region. The

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Reserve Bank of India is an autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupee is to manage
volatility but without any fixed exchange rate-and this has mostly been true.

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

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

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

Nationalization

The RBI was nationalized on January 1, 1949 in terms of the Reserve Bank of
India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).

By the 1960s, the Indian banking industry had become an important tool to
facilitate the development of the Indian economy. At the same time, it had emerged

21
as a large employer, and a debate had ensued about the possibility to nationalise
the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the
intention of the GOI in the annual conference of the All India Congress Meeting in
a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received
with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI
issued an ordinance and nationalised the 14 largest commercial banks with effect
from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of
India, described the step as a "masterstroke of political sagacity." Within two
weeks of the issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of Undertaking) Bill, and it received the presidential
approval on 9 August 1969.

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

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

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 Nationalization of Banks in India
The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the
then prime minister. It nationalised 14 banks then. These banks were mostly owned
by businessmen and even managed by them.

• Central Bank of India

• Bank of Maharashtra
• Dena Bank
• Punjab National Bank
• Syndicate Bank
• Canara Bank
• Indian Bank
• United Bank of India
• UCO Bank
• Bank of India

Before the steps of nationalization of Indian banks, only State Bank of India (SBI)
was nationalised. It took place in July 1955 under the SBI Act of 1955.
Nationalization of Seven State Banks of India (formed subsidiary) took place on

23
19th July, 1960.
The State Bank of India is India's largest commercial bank and is ranked one of the
top five banks worldwide. It serves 90 million customers through a network of
9,000 branches and it offers -- either directly or through subsidiaries -- a wide
range of banking services.

The second phase of nationalization of Indian banks took place in the year 1980.
Seven more banks were nationalised with deposits over 200 crores. Till this year,
approximately 80% of the banking segment in India was under Government
ownership.

After the nationalization of banks in India, the branches of the public sector banks
rose to approximately 800% in deposits and advances took a huge jump by
11,000%.

• 1955: Nationalization of State Bank of India.

• 1959: Nationalization of SBI subsidiaries.
• 1969: Nationalization of 14 major banks.
• 1980: Nationalization of seven banks with deposits over 200 corers.

• Indian Overseas Bank

• Bank of Baroda
• Union Bank
• Allahabad Bank

24
 Distinction between banks and moneylenders

You may be thinking that a bank is like a moneylender who provides funds to
borrowers and charges interest on the loan. But it is not so. A bank is quite
different from a moneylender. A bank performs two main functions. Firstly, it
accepts deposits, and on that basis it lends money. The moneylenders, on the other
hand, advance money out of their own private wealth and usually do not accept
deposits from others. The following table shows the distinction between a bank and
moneylender

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 Basis Banks Moneylenders

1. Entity Banks are organized Moneylenders are individuals

institutions.
2. Activity Banking activities include Activities of moneylender may not
acceptance of deposits as well include acceptance of deposits.
as lending of money.
3. Clients Banks meet the needs of Moneylenders meet the needs of
people in general and the agriculturists and poor people.
business community in
particular.

4.Security Banks accept tangible and Moneylenders generally accept

personal security against gold, jewellery or land as security
loans. for giving loan.

5. Process of The process of recovery is The process of

recovery of loans. flexible. recovery is stiff and strict.

6.Interest Rate Interest charged by banks on Rate of Interest is decided by the

loan is governed by RBI. moneylender and is normally very
high.

26
 Current scenario
Banks have come a long way since their origin of having started out with the basic
act of lending and borrowing money. The word Bank was derived from the Italian
word “banco”, which means “bench” over which transactions happened during the
earliest days when banking as a concept came into existence. A bank needs an
approval from the government to set up its
business. This approval or license is
applied differently in different countries.
The set of regulations vary according to the
government policies and other norms
established by the government of that
country.

Towards the last few decades of the 18th

century the concept of banking was
introduced in India. The oldest bank in India is the State Bank of India, a PSU that
was initially set up in June 1806 and is currently the largest commercial bank.
Central banking for which the Reserve Bank of India (RBI) is responsible took
over these duties from the then Imperial Bank of India. After India’s independence
in 1947, RBI was nationalized and given a wider scope to exercise its powers and
judgment. A nationalization spree occurred in 1969, when 14 of the largest
commercial banks was provided this status following another nationalization
process of the next six largest banks in 1980.

27
According to a recent count, India has 88 scheduled commercial banks (SCBs). Of
this there are 27 public sector banks (with the Government of India holding a
stake), 31 private banks (these do not have government stake; they may be publicly
listed and traded on stock exchanges) and 38 foreign banks. They have a combined
network of over 53,000 branches and 17,000 ATMs.

According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively.

Here is a partial list of the most popular banks in the country.

HDFC bank
HDFC - Housing
Development Finance
Corporation
ICICI bank
SBI
Axis bank
Allahabad bank
Bank of Rajasthan
City Union bank
Indusland bank
Catholic Syrian bank
Karnataka bank Limited
Karur Vysya bank
Limited
Kotak Mahindra bank

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Lakshmi Vilas bank Limited
Punjab National bank
Rupee Co-operative bank
State Bank of Bikaner
and Jaipur
State Bank of Hyderabad
Development Credit Bank
Dhanalakshmi bank
Federal bank
Ratnakar bank
Saraswat bank
South Indian bank - SIB
Bank of India
Bank of Baroda
State Bank of Indore
State Bank of Mysore
State Bank of Travancore
Syndicate bank
Union Bank of India
United Bank of India
Yes bank
ABN AMRO bank
Antwerp Diamond bank
ABU DHABI bank
Canara bank
Indian bank
Andhra bank
29
Bank of Maharashtra
Central Bank of India
Corporation bank
Dena bank
UCO bank
Vijaya bank
Indian overseas bank till here

NATURE OF BANKING IN INDIA

A banking company in India has been defined in the banking companies

act,1949.as one “which transacts the business of banking which means the
accepting, for the purpose of lending or investment of deposits of money from
the public, repayable on demand or otherwise and withdraw able by cheque,
draft, order or otherwise.”
Most of the activities a Bank performs are derived from the above definition. In
addition, Banks are allowed to perform certain activities which are ancillary to this
business of accepting deposits and lending. A bank's relationship with the public,
therefore, revolves around accepting deposits and lending money. Another activity
which is assuming increasing importance is transfer of money - both domestic and
foreign - from one place to another. This activity is generally known as "remittance
business" in banking parlance. The so called forex (foreign exchange) business is
largely a part of remittance albeit it involves buying and selling of foreign
currencies.

30
FUNCTIONING OF A BANK
Functioning of a Bank is among the more complicated of corporate operations.
Since Banking involves dealing directly with money, governments in most
countries regulate this sector rather stringently. In India, the regulation traditionally
has been very strict and in the opinion of certain quarters, responsible for the
present condition of banks, where NPAs are of a very high order. The process of
financial reforms, which started in 1991, has cleared the cobwebs somewhat but a
lot remains to be done. The multiplicity of policy and regulations that a Bank has
to work with makes its operations even more complicated, sometimes bordering on
illogical. This section, which is also intended for banking professional, attempts to
give an overview of the functions in as simple manner as possible. Banking
Regulation Act of India, 1949 defines Banking as "accepting, for the purpose of
lending or investment of deposits of money from the public, repayable on demand
or otherwise and withdraw able by cheques, draft, and order or otherwise."

31
 Types of Banks
There are various types of banks which operate in our country to meet the financial
requirements of different categories of people engaged in agriculture, business,
profession, etc. On the basis of functions, the banking institutions in India may be
divided into the following types:

Types of Banks

Central Bank Development Banks Specialized Banks

(RBI, in India) (EXIM Bank, IDBI, NABARD)

Commercial Banks Co-operative Banks

(i) Public Sector Banks (i) Primary Credit Societies
(ii) Private Sector Banks (ii) Central Co-operative Banks
(iii) Foreign Banks (iii) State Co-operative Banks

Now let us learn about each of these banks in detail.

Banking

a) Central Bank

32
A bank which is entrusted with the functions of guiding and regulating the banking
system of a country is known as its Central bank. Such a bank does not deal with
the general public. It acts essentially as Government’s banker, maintain deposit
accounts of all other banks and advances money to other banks, when needed. The
Central Bank provides guidance to other banks whenever they face any problem. It
is therefore known as the banker’s bank. The Reserve
Bank of India is the central bank of our country.
The Central Bank maintains record of Government revenue and expenditure under
various heads.
It also advises the Government on monetary and credit policies and decides on the
interest rates for bank deposits and bank loans. In addition, foreign exchange rates
are also determined by the central bank.
Another important function of the Central Bank is the issuance of currency notes,
regulating their circulation in the country by different methods. No other bank than
the Central Bank can issue currency.

b) Commercial Banks
Commercial Banks are banking institutions that accept deposits and grant short-
term loans and advances to their customers. In addition to giving short-term loans,
commercial banks also give medium-term and long-term loan to business
enterprises. Now-a-days some of the commercial banks are also providing housing
loan on a long-term basis to individuals. There are also many other functions of
commercial banks, which are discussed later in this lesson.

33
Types of Commercial banks: Commercial banks are of three types i.e.,
Public sector banks, Private sector banks and foreign banks.
(i) Public Sector Banks: These are banks where majority stake is held by the
Government of India or Reserve Bank of India. Examples of public sector banks
are: State Bank of India, Corporation Bank, Bank of Boroda and Dena Bank, etc.
(ii) Private Sectors Banks: In case of private sector banks majority of share
capital of the bank is held by private individuals. These banks are registered as
companies with limited liability. For example: The Jammu and Kashmir Bank Ltd.,
Bank of Rajasthan Ltd.,
Development Credit Bank Ltd, Lord Krishna Bank Ltd., Bharat Overseas Bank
Ltd., Global Trust Bank, Vysya Bank, etc.
(iii) Foreign Banks: These banks are registered and have their headquarters in a
foreign country but operate their branches in our country. Some of the foreign
banks operating in our country are Hong Kong and Shanghai Banking Corporation
(HSBC), Citibank, American
Express Bank, Standard & Chartered Bank, Grindlay’s Bank, etc. The number of
foreign banks operating in our country has increased since the financial sector
reforms of 1991.
c) Development Banks
Business often requires medium and long-term capital for purchase of machinery
and equipment, for using latest technology, or for expansion and modernization.
Such financial assistance is provided by Development Banks. They also undertake
other development measures like
Public Sector Banks comprise 19 nationalised banks and State Bank of India and
its 7 associate banks. Business Studies subscribing to the shares and debentures

34
issued by companies, in case of under subscription of the issue by the public.
Industrial Finance Corporation of India (IFCI) and State Financial
Corporations (SFCs) are examples of development banks in India.
d) Co-operative Banks
People who come together to jointly serve their common interest often form a co-
operative society under the Co-operative Societies Act. When a co-operative
society engages itself in banking business it is called a Co-operative Bank. The
society has to obtain a license from the Reserve Bank of India before starting
banking business. Any co-operative bank as a society is to function under the
overall supervision of the Registrar, Co-operative Societies of the State. As regards
banking business, the society must follow the guidelines set and issued by the
Reserve Bank of India.

Types of Co-operative Banks

There are three types of co-operative banks operating in our country. They are
primary credit societies, central co-operative banks and state co-operative banks.
These banks are organized at three levels, village or town level, district level and
state level.
(i) Primary Credit Societies: These are formed at the village or town level with
borrower and non-borrower members residing in one locality. The operations of
each society are restricted to a small area so that the members know each other and
are able to watch over the activities of all members to prevent frauds.
(ii) Central Co-operative Banks: These banks operate at the district level having
some of the primary credit societies belonging to the same district as their
members. These banks provide loans to their members (i.e., primary credit

35
societies) and function as a link between the primary credit societies and state co-
operative banks.
(iii) State Co-operative Banks: These are the apex (highest level) co-operative
banks in all the states of the country. They mobilize funds and help in its proper
channelization among various sectors. The money reaches the individual borrowers
from the state co-operative banks through the central co-operative banks and the
primary credit societies.
e) Specialized Banks
There are some banks, which cater to the requirements and provide overall support
for setting up business in specific areas of activity. EXIM Bank, SIDBI and
NABARD are examples of such banks. They engage themselves in some specific
area or activity and thus, are called specialized banks. Let us know about them.
i. Export Import Bank of India (EXIM Bank): If you want to set up a business
for exporting products abroad or importing products from foreign countries for sale
in our country, EXIM bank can provide you the required support and assistance.
The bank grants loans to exporters and importers and also provides information
about the international market. It gives guidance about the opportunities for export
or import, the risks involved in it and the competition to be faced, etc.

ii. Small Industries Development Bank of India (SIDBI): If you want to

establish a small-scale business unit or industry, loan on easy terms can be
available through SIDBI. It also finances modernization of small-scale industrial
units, use of new technology and market activities. The aim and focus of SIDBI is
to promote, finance and develop small-scale industries.
iii. National Bank for Agricultural and Rural Development (NABARD): It is a
central or apex institution for financing agricultural and rural sectors. If a person is
36
engaged in agriculture or other activities like handloom weaving, fishing, etc.
NABARD can provide credit, both short-term and long-term, through regional
rural banks. It provides financial assistance, especially, to co-operative credit, in
the field of agriculture, small-scale industries, cottage and village industries
handicrafts and allied economic activities in rural areas.

Functions of Commercial Banks

The functions of commercial banks are of
two types.
(A) Primary functions; and
(B) Secondary functions.
Let us discuss details about these
functions.
(i) Primary functions
The primary functions of a commercial
bank include:
a) Accepting deposits; and
b) Granting loans and advances.
a) Accepting deposits
The most important activity of a commercial bank is to mobilise deposits from the
public. People who have surplus income and savings find it convenient to deposit
the amounts with banks.
Depending upon the nature of deposits, funds deposited with bank also earn
interest. Thus,

37
Business Studies deposits with the bank grow along with the interest earned. If the
rate of interest is higher, public are motivated to deposit more funds with the bank.
There is also safety of funds deposited with the bank.
b) Grant of loans and advances
The second important function of a commercial bank is to grant loans and
advances. Such loans and advances are given to members of the public and to the
business community at a higher rate of interest than allowed by banks on various
deposit accounts. The rate of interest charged on loans and advances varies
according to the purpose and period of loan and also the mode of repayment.
i) Loans
A loan is granted for a specific time period. Generally commercial banks provide
short-term loans. But term loans, i.e., loans for more than a year may also be
granted. The borrower may be given the entire amount in lump sum or in
installments. Loans are generally granted against the security of certain assets. A
loan is normally repaid in installments. However, it may also be repaid in lump
sum.
ii) Advances
An advance is a credit facility provided by the bank to its customers. It differs from
loan in the sense that loans may be granted for longer period, but advances are
normally granted for a short period of time. Further the purpose of granting
advances is to meet the day-to-day requirements of business. The rate of interest
charged on advances varies from bank to bank.
Interest is charged only on the amount withdrawn and not on the sanctioned
amount.

38
Types of Advances
Banks grant short-term financial assistance by way of cash credit, overdraft and
bill discounting.
Let us learn about these.
a) Cash Credit
Cash credit is an arrangement whereby the bank allows the borrower to draw
amount up to a specified limit. The amount is credited to the account of the
customer. The customer can withdraw this amount as and when he requires.
Interest is charged on the amount actually withdrawn. Cash Credit is granted as per
terms and conditions agreed with the customers.
b) Overdraft
Overdraft is also a credit facility granted by bank. A customer who has a current
account with the bank is allowed to withdraw more than the amount of credit
balance in his account.
It is a temporary arrangement. Overdraft facility with a specified limit may be
allowed either on the security of assets, or on personal security, or both.
c) Discounting of Bills
Banks provide short-term finance by discounting bills that is, making payment of
the amount before the due date of the bills after deducting a certain rate of
discount. The party gets the funds without waiting for the date of maturity of the
bills. In case any bill is dishonoured on the due date, the bank can recover the
amount from the customer.
Banking

ii) Secondary functions

39
In addition to the primary functions of accepting deposits and lending money,
banks perform a number of other functions, which are called secondary functions.
These are as follows.
Issuing letters of credit, traveler’s cheque, etc.
b. Undertaking safe custody of valuables, important document and securities by
providing safe deposit vaults or lockers.
c. Providing customers with facilities of foreign exchange dealings.
d. Transferring money from one account to another; and from one branch to
another branch of the bank through cheque, pay order, demand draft.
e. Standing guarantee on behalf of its customers, for making payment for purchase
of goods, machinery, vehicles etc.
f. Collecting and supplying business information.
g. Providing reports on the credit worthiness of customers.
i. Providing consumer finance for individuals by way of loans on easy terms for
purchase of consumer durables like televisions, refrigerators, etc.
j. Educational loans to students at reasonable rate of interest for higher studies,
especially for professional courses.

 Major Banks in India

 ABN-AMRO Bank
 Abu Dhabi Commercial Bank
 American Express Bank
 Andhra Bank
 Allahabad Bank
 Bank of Baroda

40
 Bank of India
 Bank of Maharashtra
 Bank of Punjab
 Bank of Rajasthan
 Bank of Ceylon
 BNP Paribas Bank
 Canara Bank
 Catholic Syrian Bank
 Central Bank of India
 Centurion Bank
 Indian Overseas Bank
 IndusInd Bank
 ING Vysya Bank
 Jammu & Kashmir Bank
 JPMorgan Chase Bank
 Karnataka Bank
 Karur Vysya Bank
 Laxmi Vilas Bank
 Oriental Bank of Commerce
 Punjab National Bank
 Punjab & Sind Bank
 • Scotia Bank
 South Indian Bank
 Standard Chartered Bank
 State Bank of India (SBI)
41
 State Bank of Bikaner & jaipur
 China Trust Commercial bank
 Citi Bank
 City Union Bank
 Corporation Bank
 Dena Bank
 Deutsche Bank
 Development Credit Bank
 Dhanalakshmi Bank
 Federal Bank
 HDFC Bank
 HSBC
 ICICI Bank
 IDBI Bank
 Indian Bank
 State Bank of Hyderabad
 State Bank of Indore
 State Bank of Mysore
 State Bank of Saurastra
 State Bank of Travancore
 Syndicate Bank
 Taib Bank
 UCO Bank
 Union Bank of India
 United Bank of India
42
 United Bank Of India
 United Western Bank
 UTI Bank
 Vijaya Bank

Indian Banks Abroad

List of subsidiaries of Indian Banks abroad as on November 30, 2007

Name of the Bank Name of the Centre

SBI (Canada) Ltd. Toronto Vancouver, Mississauga

Los Angeles, Artesia,San Jose

SBI (California) Ltd.
(Silicon Valley)

SBI Finance Inc. Delaware U.S.A.

SBI International (Mauritius) (Off-shore Bank)Mauritius

Bank of Baroda Uganda) Ltd. Uganda

Bank of Baroda(Kenya) Ltd. Kenya

Bank of Baroda (U.K.) Nominee Ltd. London, UK

(Converted into Restricted

BOB (Hong Kong)Ltd.
Licensed Bank) Hongkong

Bank of India Finance(Kenya) Ltd. Kenya

43
IOB Properties Pte Ltd. Singapore

Bank of Baroda(Botswana) Ltd. Gaborone Botswana

Georgetown Guyana (South

Bank of Baroda(Guyana)Inc.
America)

ICICI Bank UK Ltd London (UK)

ICICI Bank Canada Ltd Toronto (Canada)

Bank of Baroda (Tanzania) Tanzania

Bank of Baroda (Dubai, Abu Dhabi, Ras Al

United Arab Emirates
Khaimah, Deira,Dammam, Salalah, Al Ain)

Bank of Baroda Sultanate of Oman, Muscat,

Bank of Baroda Belgium, Brussels

ICICI Bank Eurasia LLC Russia

PT Bank Indomonex Indonesia

Indian Ocean International Bank Ltd. (IOIB) Mauritius, Port Louis

Punjab National Bank International Limited

United Kingdom, London
(PNBIL)

Bank of Baroda (Trinidad and Tobago) Limited Trinidad & Tobago

PT Bank Swadesi Tbk Indonesia

44
Bank of Baroda (Trinidad and Tobago) Limited Trinidad & Tobago

45
 SWOT ANALYSIS OF BANKS

STRENGTH
Indian banks have compared favorably on growth, asset quality and profitability
with other regional banks over the last few years. The banking index has grown at
a compounded annual rate of over 51 per cent since April 2001 as compared to a
27 per cent growth in the market index for the same period.
• Policy makers have made some notable changes in policy and regulation to
help strengthen the sector. These changes include strengthening prudential norms,
enhancing the payments system and integrating regulations between commercial
and co-operative banks.
• Bank lending has been a significant driver of GDP growth and employment.

Extensive reach: the vast networking & growing number of

branches & ATMs. Indian banking system has reached even
to the remote corners of the country.
• The government's regular policy for Indian bank since 1969has paid rich
dividends with the nationalization of 14 major private banks of India.
• In terms of quality of assets and capital adequacy, Indian banks are considered
to have clean, strong and transparent Balance sheets relative to other banks in
comparable economies in its region.
• India has 88 scheduled commercial banks (SCBs) - 27 public sector banks
(that is with the Government of India holding a stake)after merger of New Bank of
India in Punjab National Bank in 1993, 29 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges) and
31 foreign banks. They have a combined network of over 53,000 branches and

46
17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public
sector banks hold over 75 percent of total assets of the banking industry, with the
private and foreign banks holding 18.2% and 6.5% respectively.
• Foreign banks will have the opportunity to own up to 74 percent of Indian
private sector banks and 20 per cent of government owned banks.

• With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector-the demand for banking services, especially
retail banking, mortgages and investment services are expected to be strong.
• the Reserve Bank of India (RBI) has approved a proposal from the government
to amend the Banking Regulation Act to permit banks to trade in commodities and
commodity derivatives.
• Liberalization of ECB norms: The government also liberalized the ECB norms to
permit financial sector entities engaged in infrastructure funding to raise ECBs.
This enabled banks and financial institutions, which were earlier not permitted to
raise such funds, explore this route for raising cheaper funds in the overseas
markets.
• Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has
allowed them to raise perpetual bonds and other hybrid capital securities to shore
up their capital. If the new instruments find takers, it would help PSU banks, left
with little headroom for raising equity. Significantly, FII and NRI investment
limits in these securities have been fixed at 49%, compared to 20% foreign equity
holding allowed in PSU banks.

47
WEAKNESS

• PSBs need to fundamentally strengthen institutional skill levels especially in

sales and marketing, service operations, risk management and the overall
organizational performance ethic & strengthen human capital.
• Old private sector banks also have the need to fundamentally strengthen skill
levels.
• The cost of intermediation remains high and bank penetration is limited to
only a few customer segments and geographies.
• Structural weaknesses such as a fragmented industry structure, restrictions on
capital availability and deployment, lack of institutional support infrastructure,
restrictive labour laws, weak corporate governance and ineffective regulations
beyond Scheduled Commercial Banks (SCBs), unless industry utilities and service
bureaus.
Refusal to dilute stake in PSU banks: The government has refused to dilute its
stake in PSU banks below 51% thus choking the headroom available to these banks
for raining equity capital.
• Impediments in sectoral reforms: Opposition from Left and resultant cautious
approach from the North Block in terms of approving merger of PSU banks may
hamper their growth prospects in the medium term.

OPPORTUNITY
• The market is seeing discontinuous growth driven by new products and
services that include opportunities in credit cards, consumer finance and wealth

48
management on the retail side, and in fee-based income and investment banking on
the wholesale banking side. These require new skills in sales & marketing, credit
and operations.

Banks will no longer enjoy windfall treasury gains that the decade-long secular
decline in interest rates provided. This will expose the weaker banks.

• With increased interest in India, competition from foreign banks will only
intensify.
• Given the demographic shifts resulting from changes in age profile and
household income, consumers will increasingly demand enhanced institutional
capabilities and service levels from banks.
• New private banks could reach the next level of their growth in the Indian
banking sector by continuing to innovate and develop differentiated business
models to profitably serve segments like the rural/low income and affluent/HNI
segments; actively adopting acquisitions as a means to grow and reaching the next
level of performance in their service platforms. Attracting, developing and
retaining more leadership capacity
• Foreign banks committed to making a play in India will need to adopt
alternative approaches to win the “race for the customer” and build a value-
creating customer franchise in advance of regulations potentially opening up post
2009. At the same time, they should stay in the game for potential acquisition
opportunities as and when they appear in the near term. Maintaining a
fundamentally long-term value- creation mindset.
• reach in rural India for the private sector and foreign banks.
• With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector-the demand for banking services, especially
retail banking, mortgages and investment services are expected to be strong.
49
• the Reserve Bank of India (RBI) has approved a proposal from the government
to amend the Banking Regulation Act to permit banks to trade in commodities and
commodity derivatives.
• Liberalization of ECB norms: The government also liberalized the ECB norms to
permit financial sector entities engaged in infrastructure funding to raise ECBs.
This enabled banks and financial institutions, which were earlier not permitted to
raise such funds, explore this route for raising cheaper funds in the overseas
markets.

• Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI
has allowed them to raise perpetual bonds and other hybrid capital securities
to shore up their capital. If the new instruments find takers, it would help
PSU banks, left with little headroom for raising equity. Significantly, FII and
NRI investment limits in these securities have been fixed at 49%, compared
to 20% foreign equity holding allowed in PSU banks.

THREATS
• Threat of stability of the system: failure of some weak banks has often
threatened the stability of the system.
• Rise in inflation figures which would lead to increase in interest rates.
• Increase in the number of foreign players would pose threat to the PSB as well
as the private players.

50
 PEST ANALYSIS
TECHNOLOGICAL ENVIROMENT

Technology plays a very important role in bank’s internal control

mechanisms as well as services offered by them. It has in fact given new
dimensions to the banks as well as services that they cater to and the banks are
enthusiastically adopting new technological innovations for devising new products
and services.

The latest developments in terms of technology in computer and

telecommunication have encouraged the bankers to change the concept of branch
banking to anywhere banking. The use of ATM and Internet banking has allowed
‘anytime, anywhere banking’ facilities. Automatic voice recorders now answer
simple queries, currency accounting machines makes the job easier and self-service
counters are now encouraged. Credit card facility has encouraged an era of
cashless society. Today MasterCard and Visa card are the two most popular cards
used world over. The banks have now started issuing smartcards or debit cards to
be used for making payments. These are also called as electronic purse. Some of
the banks have also started home banking through telecommunication facilities and
computer technology by using terminals installed at customers home and they can
make the balance inquiry, get the statement of accounts, give instructions for fund
transfers, etc. Through ECS we can receive the dividends and interest directly to
our account avoiding the delay or chance of losing the post.

Today banks are also using SMS and Internet as major tool of promotions
and giving great utility to its customers. For example SMS functions through

51
simple text messages sent from your mobile. The messages are then recognized by
the bank to provide you with the required information.

All these technological changes have forced the bankers to adopt customer-
based approach instead of product-based approach.

ECONOMICAL ENVIROMENT

Banking is as old as authentic history and the modern commercial banking

are traceable to ancient times. In India, banking has existed in one form or the
other from time to time. The present era in banking may be taken to have
commenced with establishment of bank of Bengal in 1809 under the government
charter and with government participation in share capital. Allahabad bank was
started in the year 1865 and Punjab national bank in 1895, and thus, others
followed

Every year RBI declares its 6 monthly policy and accordingly the various
measures and rates are implemented which has an impact on the banking sector.
Also the Union budget affects the banking sector to boost the economy by giving
certain concessions or facilities. If in the Budget savings are encouraged, then
more deposits will be attracted towards the banks and in turn they can lend more
money to the agricultural sector and industrial sector, therefore, booming the
economy. If the FDI limits are relaxed, then more FDI are brought in India through
banking channels.

52
POLITICAL/ LEGAL ENVIROMENT

Government and RBI policies affect the banking sector. Sometimes looking
into the political advantage of a particular party, the Government declares some
measures to their benefits like waiver of short-term agricultural loans, to attract the
farmer’s votes. By doing so the profits of the bank get affected. Various banks in
the cooperative sector are open and run by the politicians. They exploit these banks
for their benefits. Sometimes the government appoints various chairmen of the
banks.

Various policies are framed by the RBI looking at the present situation of
the country for better control over the banks.

SOCIAL ENVIROMENT

Before nationalization of the banks, their control was in the hands of the
private parties and only big business houses and the effluent sections of the society
were getting benefits of banking in India. In 1969 government nationalized 14
banks. To adopt the social development in the banking sector it was necessary for
speedy economic progress, consistent with social justice, in democratic political
system, which is free from domination of law, and in which opportunities are open
to all. Accordingly, keeping in mind both the national and social objectives,
bankers were given direction to help economically weaker section of the society
and also provide need-based finance to all the sectors of the economy with flexible
and liberal attitude. Now the banks provide various types of loans to farmers,

53
working women, professionals, and traders. They also provide education loan to
the students and housing loans, consumer loans, etc.

Banks having big clients or big companies have to provide services like
personalized banking to their clients because these customers do not believe in
running about and waiting in queues for getting their work done. The bankers also
have to provide these customers with special provisions and at times with benefits
like food and parties. But the banks do not mind incurring these costs because of
the kind of business these clients bring for the bank.

Banks have changed the culture of human life in India and have made life
much easier for the people.

54
 Recent banking developments in India

The Indian banking sector has witnessed wide ranging changes under the influence
of the financial sector reforms initiated during the early 1990s. The approach to
such reforms in India has been one of gradual and non-disruptive progress through
a consultative process. The emphasis has been on deregulation and opening up the
banking sector to market forces. The Reserve Bank has been consistently working
towards the establishment of an enabling regulatory framework with prompt and
effective supervision as well as the development of technological and institutional
infrastructure.
Persistent efforts have been made towards adoption of international benchmarks as
appropriate to Indian conditions. While certain changes in the legal infrastructure
are yet to be effected, the developments so far have brought the Indian financial
system closer to global standards.

Statutory Pre-emptions

In the pre-reforms phase, the Indian banking system operated with a high level of
statutory preemptions, in the form of both the Cash Reserve Ratio (CRR) and the
Statutory Liquidity Ratio (SLR), reflecting the high level of the country’s fiscal
deficit and its high degree of monetization. Efforts in the recent period have been
focused on lowering both the CRR and SLR. The statutory minimum of
25 per cent for the SLR was reached as early as 1997, and while the Reserve Bank
continues to pursue its medium-term objective of reducing the CRR to the statutory
55
minimum level of 3.0 per cent, the CRR of the Scheduled Commercial Banks
(SCBs) is currently placed at 5.0 per cent of NDTL (net demand and time
liabilities). The legislative changes proposed by the Government in the Union
Budget, 2005-06 to remove the limits on the SLR and CRR are expected to provide
freedom to the Reserve Bank in the conduct of monetary policy and also lend
further flexibility to the banking system in the deployment of resources.

Interest Rate Structure

Deregulation of interest rates has been one of the key features of financial sector
reforms. In recent years, it has improved the competitiveness of the financial
environment and strengthened the transmission mechanism of monetary policy.
Sequencing of interest rate deregulation has also enabled better price discovery and
imparted greater efficiency to the resource allocation process. The process has
been gradual and predicated upon the institution of prudential regulation of the
banking system, market behaviour, financial opening and, above all, the underlying
macroeconomic conditions.
Interest rates have now been largely deregulated except in the case of: (i) savings
deposit accounts; (ii) non-resident Indian (NRI) deposits; (iii) small loans up to
Rs.2 lakh; and (iv) export credit.
After the interest rate deregulation, banks became free to determine their own
lending interest rates.

56
As advised by the Indian Banks’ Association (a self-regulatory organisation for
banks), commercial banks determine their respective BPLRs (benchmark prime
lending rates) taking into consideration:
(i) actual cost of funds; (ii) operating expenses; and (iii) a minimum margin to
cover regulatory requirements of provisioning and capital charge and profit
margin. These factors differ from bank to bank and feed into the determination of
BPLR and spreads of banks. The BPLRs of public sector banks declined to 10.25-
11.25 per cent in March 2005 from 10.25-11.50 per cent in March 2004.With a
view to granting operational autonomy to public sector banks, public ownership in
these banks was reduced by allowing them to raise capital from the equity market
of up to 49 per cent of paid-up capital. Competition is being fostered by permitting
new private sector banks, and more liberal entry of branches of foreign banks,
joint-venture banks and insurance companies.

Recently, a roadmap for the presence of foreign banks in India was released which
sets out the process of the gradual opening-up of the banking sector in a
transparent manner. Foreign investments in the financial sector in the form 238
BIS Papers No 28 of Foreign Direct Investment (FDI) as well as portfolio
investment have been permitted. Furthermore, banks have been allowed to
diversify product portfolio and business activities. The share of public sector banks
in the banking business is going down, particularly in metropolitan areas. Some
diversification of ownership in select public sector banks has helped further the
move towards autonomy and thus provided some response to competitive
pressures. Transparency and disclosure standards have been enhanced to meet
international standards in an ongoing manner.

57
Exposure Norms

The Reserve Bank has prescribed regulatory limits on banks’ exposure to

individual and group borrowers to avoid concentration of credit, and has advised
banks to fix limits on their exposure to specific industries or sectors (real estate) to
ensure better risk management. In addition, banks are also required to observe
certain statutory and regulatory limits in respect of their exposures to capital
markets.

Asset-Liability Management

In view of the growing need for banks to be able to identify, measure, monitor and
control risks, appropriate risk management guidelines have been issued from time
to time by the Reserve Bank, including guidelines on Asset-Liability Management
(ALM). These guidelines are intended to serve as a benchmark for banks to
establish an integrated risk management system. However, banks can also develop
their own systems compatible with type and size of operations as well as risk
perception and put in place a proper system for covering the existing deficiencies
and the requisite upgrading. Detailed guidelines on the management of credit risk,
market risk, operational risk, etc. have also been issued to banks by the Reserve
Bank. The progress made by the banks is monitored on a quarterly basis. With
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regard to risk management techniques, banks are at different stages of drawing up
a comprehensive credit rating system, undertaking a credit risk assessment on a
half yearly basis, pricing loans on the basis of risk rating, adopting the Risk-
Adjusted Return on Capital (RAROC) framework of pricing, etc.

Some banks stipulate a quantitative ceiling on aggregate exposures in specified risk

categories; analyze rating-wise distribution of borrowers in various industries, etc.
In respect of market risk, almost all banks have an Asset-Liability Management
Committee. They have articulated market risk management policies and
procedures, and have undertaken studies of behavioural maturity patterns of
various components of on-/off-balance sheet items.

Board for Financial Supervision (BFS)

An independent Board for Financial Supervision (BFS) under the aegis of the
Reserve Bank has been established as the apex supervisory authority for
commercial banks, financial institutions, urban banks and NBFCs. Consistent with
international practice, the Board’s focus is on offsite and on-site inspections and on
banks’ internal control systems. Offsite surveillance has been strengthened through
control returns.
The role of statutory auditors has been emphasized with increased internal control
through strengthening of the internal audit function. Significant progress has been
made in implementation of the Core Principles for Effective Banking Supervision.

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The supervisory rating system under CAMELS has been established, coupled with
a move towards risk-based supervision.
Consolidated supervision of financial conglomerates has since been introduced
with bi-annual discussions with the financial conglomerates. There have also been
initiatives aimed at strengthening corporate governance through enhanced due
diligence on important shareholders, and fit and proper tests for directors.
A scheme of Prompt Corrective Action (PCA) is in place for attending to banks
showing steady deterioration in financial health. Three financial indicators, viz.
capital to risk-weighted assets ratio
(CRAR), net non-performing assets (net NPA) and Return on Assets (RoA) have
been identified with specific threshold limits. When the indicators fall below the
threshold level (CRAR, RoA) or go above it (net NPAs), the PCA scheme
envisages certain structured/discretionary actions to be taken by the regulator.
The structured actions in the case of CRAR falling below the trigger point may
include, among other things, submission and implementation of a capital
restoration plan, restriction on expansion of risk weighted assets, restriction on
entering into new lines of business, reducing/skipping dividend payments, and
requirement for recapitalization.
The structured actions in the case of RoA falling below the trigger level may
include, among other things, restriction on accessing/renewing costly deposits and
CDs, a requirement to take steps to increase fee-based income and to contain
administrative expenses, not to enter new lines of business, imposition of
restrictions on borrowings from the interbank market, etc.
In the case of increasing net NPAs, structured actions will include, among other
things, undertaking a special drive to reduce the stock of NPAs and containing the
generation of fresh NPAs, reviewing the loan policy of the bank, taking steps to
upgrade credit appraisal skills and systems and to strengthen follow-up of
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advances, including a loan review mechanism for large loans, following up suit
filed/ decreed debts effectively, putting in place proper credit risk management
policies/processes/procedures/prudential limits, reducing loan concentration, etc.
Discretionary action may include restrictions on capital expenditure, expansion in
staff, an increase of stake in subsidiaries. The Reserve Bank/Government may take
steps to change promoters/ ownership and may even take steps to
merge/amalgamate/liquidate the bank or impose a moratorium on it if its position
does not improve within an agreed period.

Technological Infrastructure

In recent years, the Reserve Bank has endeavored to improve the efficiency of the
financial system by ensuring the presence of a safe, secure and effective payment
and settlement system. In the process, apart from performing regulatory and
oversight functions the Reserve Bank has also played an important role in
promoting the system’s functionality and modernization on an ongoing basis.

The consolidation of the existing payment systems revolves around strengthening

computerized cheque clearing, and expanding the reach of Electronic Clearing
Services (ECS) and Electronic Funds BIS Papers No 28 241 Transfer (EFT). The
critical elements of the developmental strategy are the opening of new clearing
houses, interconnection of clearing houses through the Indian Financial Network
(INFINET) and the development of a Real-Time Gross Settlement (RTGS)
System, Centralized Funds Management System (CFMS), a Negotiated Dealing
System (NDS) and the Structured Financial Messaging System (SFMS). Similarly,
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integration of the various payment products with the systems of individual banks
has been another thrust area.

An Assessment

These reform measures have had a major impact on the overall efficiency and
stability of the banking system in India. In recent years, the Indian economy has
been undergoing a phase of high growth coupled with internal and external
stability characterized by price stability, fiscal consolidation, overall balance of
payments alignment, improvement in the performance of financial institutions and
stable financial market conditions and the service sector taking an increasing share,
enhanced competitiveness, increased emphasis on infrastructure, improved market
microstructure, an enabling legislative environment and significant capital inflows.
This has provided the backdrop for a more sustained development of financial
markets and reform.

INNOVATION IN BANK’S
Innovation drives organizations to grow, prosper and transform in sync with the
changes in the environment, both internal and external. Banking is no exception to
this.In fact, this sector has witnessed radical transformation of late, based on many
innovations in products, processes, services, systems, business models, technology,
governance and regulation. A liberalized and globalize financial infrastructure has
provided an additional impetus to this gigantic effort.

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The pervasive influence of information technology has revolutionalized banking.
Transaction costs have crumbled and handling of astronomical number of
transactions in no time has become a reality. Internationally, the number brick and
mortar structure has been rapidly yielding ground to click and order electronic
banking with a plethora of new products. Banking has become boundary less and
virtual with a 24 * 7 model. Banks who strongly rely on the merits of relationship
banking’ as a time tested way of targeting and serving clients, have readily
embraced Customer Relationship Management (CRM), with sharp focus on
customer centricity, facilitated by the availability of superior technology.

CRM has, therefore, become the new mantra in customer service management,
which is both relationship based and information intensive.
Risk management is no longer a mere regulatory issue.basel-2 has accorded a
primacy of place to this fascinating exercise by repositioning it as the core of
banking. The evolution of many novel deferral products like credit derivatives,
especially the Credit Risk Transfer (CRT) mechanism, as a consequence. CRT,
Characterized by significant product innovation, is a very useful credit risk
management tool that enhances liquidity and market efficiency. Securitization is
yet another example in this regard, whose strategic use has been rapidly rising
globally. So is outsourcing.

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 7 P’s of BANKING

• PRODUCT MIX

• PROMOTIONAL MIX

• PRICE MIX

• THE PEOPLE

• THE PEOPLE

• THE PHYSICAL EVIDENCE

• PLACE MIX

1. PRODUCT MIX

The banks primarily deal in services and therefore, the formulation of product mix
is required to be in the face of changing business environment conditions. Of
course the public sector commercial banks have launched a number of policies and
programs for the development of backward regions and welfare of the weaker
sections of the society but at the same time it is also right to mention that their
development-oriented welfare programs are not optimal to the national socio-
economic requirements. A proportional contraction in the number of customers is
found affecting the business of public sector commercial banks. The changing

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psychology, the increasing expectation, the rising income, the changing lifestyles,
the increasing domination of foreign banks and the changing needs and
requirements of the customers at large make it essential that they innovate their
service mix and make them of worked class. The development of new generic
product, especially when the business environment is regulated is found a difficult
task. However, it is pertinent that banks formulate a package in tune with the
changing business conditions. Against this background, we find it significant that
the banking organizations minify, magnify, combine and modify their service mix.

In the formulation of service mix, the banks can follow two guidelines, first is
related to the processing of product to market needs and the second is concerned
with the processing of market needs to product. In the first process, the needs to the
target market are anticipated and visualized and therefore, we expect the prices
likely to be productive. In the second process, the banks react to the expressed
needs and therefore we consider it reactive. It is essential that every product is
measured up to the accepted technical standards. This is because no consumer
would buy a product, which contains technical faults. Technical perfection in
service is meant prompt delivery, quick disposal, and presentation of right data,
right filing, proper documentation or so. If computers start disobeying, the
command and the customers get wrong facts, the use of technology would be a
minus point, and you don’t have any excuse for your faults.

Marketing aims not only offering but also at creating\innovating the

services\schemes found new to the competitors vis-a vis- to the customers. The
enhanced customer support would be a reward to the bank. The additional
attractions, the product attractiveness would be a plus point of your mix, which
would help you in many ways. This makes it essential that the banking
organizations are sincere to the innovations process and try to enrich their

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peripheral services much earlier than the competitors. We also find the product
portfolio of the banks. While formulating the services mix, it is also pertinent that
the bank professionals make possible affair synchronization of core and peripheral
services. To be more specific, the peripheral services need an intensive care since
the core services are found by and large the same. Innovating the peripheral
services thus appears to be an important functional responsibility of marketing
professionals. We can’t deny the fact that if the foreign banks have been getting a
positive response; the credibility goes to their innovative peripheral services.
Thus, the formulation of product mix is found to be a difficult task that requires
world-class professionalism.

2. PROMOTIONAL MIX:

Promotion mix includes advertising, publicity, sales promotion, word – of – mouth

promotion, personal selling and telemarketing. Each of these services needs to be
applied in different degree. These components can be useful in the banking
business in the following ways:

Advertising

Advertising is paid form of communication. Banking organizations use this

component of the promotion mix with motto of informing, sensing and persuading
the customers. While advertising it is essential to be aware of key decision making
areas so that instrumentally helps banks at micro and macro levels.

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Finalizing the budget:

This is related to the formulation of the budget for advertisement. The bank
professionals, senior executives and even the policy planners are found to be
involved in the process. The business of a bank determines the scale of the
advertisement budget. In addition, the intensity of competition also plays a decisive
role since in the majority of cases; we find a increase in the budget due to a change
in the competitor’s strategy.

Selecting a suitable vehicle:

There are a number of devices to advertise, such as broad cast media, telecast
media and print media. In the face of the budgetary provisions, it is necessary to
select a suitable vehicle. For promoting the banking business, the print media is
found to be economic as well as effective.

Making possible creative:

The advertising professionals bear the responsibility of making the appeals,

slogans and messages more creative. Here, creative means making the
advertisement programs distinct to the competitive organizations, which are active
in influencing the impulse of the customers and successful in informing and
sensing the customers. This requires an in-depth knowledge of the receiving
capacity of the target market for which the advertisements are designed.

Testing the effectiveness:

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It bears an analogous significance that our advertisements are effective in
influencing the impulse of customers by energizing persuasion. For making the
process effective, it is essential to test the effectiveness before launching of the
commercial advertisements.

Instrumentality of branch managers:

At micro level, a branch manager bears the responsibility of advertising locally so

that the messages reach the target audience.

Characters and themes:

At apex level it is also important that while advertising the senior executives watch
the process minutely and select events, characters having a regional orientation.
The popular characters and sensational moments are likely to be impact generating.
The theme for appeals and messages also needs due attention. Of course, they have
a legitimate right of advertising but it is not meant that like the goods
manufacturing organizations, the service generating organizations also start
making invasion on culture. It is necessary to regulate a bias to gender, profession,
region or so.

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Public relations:

In the banking services the effectiveness of public Relations is found in high

magnitude. It is in this context that difference is found in designing of the mix for
promoting the banking services.

Telemarketing:

The telemarketing is a process of promoting the business with the help of

sophisticated communication network. Telemarketing is found instrumental in
advertising the banking services and the banking organizations can use this tool of
the promotion mix both for advertising and selling. This minimizes the dependence
of banking organizations on sales people and just a counter or center as listed in the
call numbers may service multi- dimensional services.

Telemarketing is likely to play an incremental role in marketing the banking

services. The leading foreign banks and even some of the private sector
commercial banks have been found promoting telemarketing and they have been
getting positive results for their efforts.

Word-Of- Mouth:

Much communication about the banking services actually takes place by word- of-
mouth information, which is also known as word- of- mouth promotion. The oral
publicity plays an important role in eliminating the negative comments and
69
improving the services. This also helps the banker to know the feedback, which
may simplify the task of improving the quality of services. This component of
promotion mix is not to influence budget adversely or generate additional financial
burden. By improving the quality of services and by offering small gifts to the
word- of- mouth promoters, bankers can get more business command in their area.

The above facts make it clear that such kind of promotion is influenced by a
number of factors. The most dominating factor is the quality of services offered.
The bank professionals, the frontline staff and the senior executives should realize
that degeneration in quality would make this tool effective.

3. PRICE MIX:

In the formulation of marketing mix, the pricing decisions occupy a place of

outstanding significance. The pricing decisions include the decisions related to
interest and fee or commission charged by banks. Pricing decisions are found
instrumental in motivating or influencing the target market. The RBI regulates the
rate of interest and the Indian Banks’ Association controls other charges. In our
country, the price mix is more important
because the banking organizations are also
supposed to sub serve the interests of the
weaker sections and the backward regions.
Also in making the pricing decisions, the
Government Of India instrumentalists or
commands everything as a shadow policy
maker. This also complicates the price mix for banking sector.

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Pricing policy of a bank is considered important for raising the number of
customer’s vis-à-vis the accretion of deposits. Also the quality of service provided
has direct relationship with the fees charged. Thus while deciding the price mix
customer services rank the top position. Banks also have to take the value
satisfaction variable in to consideration. The value and satisfaction cannot be
quantified in terms of money since it differs from person to person. Keeping in
view the level of satisfaction of a particular segment, the banks have to frame the
pricing strategies.

The banking organizations are required to frame two- fold strategies. First, the
strategy is concerned with interest and fee charged and the second strategy is
related to the interest paid. Since both the strategies throw a vice- versa impact, it
is important that banks attempt to establish a correlation between two. It is
essential that both the buyers as well as the sellers have feeling of winning.

4. THE PEOPLE

Sophisticated technologies no doubt, inject life and strength to our efficiency but
the instrumentality of sophisticated
technologies start turning sour id the human
resources are not managed in a right
fashion. We can’t deny the fact that if
foreign banks are performing fantastically;
it is not only due to the sophisticated
information technologies they use but the
result of a fair synchronization of new information technologies and a team of
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personally committed employees. The moment they witness lack of productive
human resources even the new generation of information technologies would
hardly produce the desired results. In addition to the professional excellence, the
employees working in the foreign banks are generally value- based. Thus we
accept the fact that generation of efficiency is substantially influenced by the
quality of human resources. The quality for banking sector is an aggregation of all
the properties, which are found essential for generating the efficiency and
projecting a fair image. Even efficiency essentially is supported by ethical
dimension, humanity and humanism.

The development of human resources makes the ways for the formation of human
capital. Human resources can be developed through education, training and by
psychological tests. Even incentives can inject efficiency and can motivate people
for productive and qualitative work.

5. THE PROCESS

Flow of activities: all the major activities of banks follow RBI guidelines. There
has to be adherence to certain rules and principles in the banking operations. The
activities have been segregated into various departments accordingly.

Standardization: banks have got standardized procedures got typical transactions.

In fact not only all the branches of a single-bank, but all the banks have some
standardization in them. This is because of the rules they are subject to. Besides
this, each of the banks has its standard forms, documentations etc. Standardization
saves a lot of time behind individual transaction.

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Customization: There are specialty counters at each branch to deal with customers
of a particular scheme. Besides this the customers can select their deposit period
among the available alternatives.

Number of stores: numbers of steps are usually specified and a specific pattern is
followed to minimize time taken.

Simplicity: in banks various functions are segregated. Separate counters exist

with clear indication. Thus a customer wanting to deposit money goes to
‘deposits’ counter and does not mingle elsewhere. This makes procedures not only
simple but consume less time. Besides instruction boards in national boards in
national and regional language help the customers further.

Customer involvement: ATM does not involve any bank employees. Besides,
during usual bank transactions, there is definite customer involvement at some or
the other place because of the money matters and signature requires.

6. THE PHYSICAL EVIDENCE

The physical evidences include signage, reports, punch lines, other tangibles,
employee’s dress code etc. The company’s financial reports are issued to the
customers to emphasis or credibility. Even some of the banks follow a dress code
for their internal customers. This helps the customers to feel the ease and comfort

Signage: each and every bank has its logo by which a person can identify the
company. Thus such signages are significant for creating visualization and
corporate identity.

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Tangibles: banks give pens, writing pads to the internal customers. Even the
passbooks, chequebooks, etc reduce the inherent intangibility of services.

Punch lines: punch lines or the corporate statement depict the philosophy and
attitude of the bank. Banks have influential punch lines to attract the customers.

Banking marketing consists of identifying the most profitable markets now

and in future, assessing the present and future needs of customers, setting business
development goals, making plans-all in the context of changing environment.

7. PLACE MIX

Place mix is the location analysis for banks branches. There are number a
factors affecting the determination of the location of the branch of bank. It is very
necessary a bank to situated at a location where most of its target population is
located.

Some of the important factors affecting the location analysis of a bank are:

1. The trade area

2. Population characteristics
3. Commercial structure
4. Industrial structure
5. Banking structure
6. Proximity to other convenient outlets
7. Real estate rates

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 8. Proximity to public transportation
9. Drawing time
10.Location of competition
11.Visibility
12.Access
It is not necessary that all the above conditions have to be satisfied while selecting
the location but it should be tried to satisfy as many of them as possible.

1. The Trade Area:

The trade area is a very important factor determining the place where a bank
branch should be set up. For e.g. a particular location maybe a huge trading place
for textiles, diamonds or for that case even the stock market. Such locations are
ideal for setting up of bank branches.

2. Population Characteristics:

The demography of a place is a very important factor. This includes:

 The income level of the population

 The average age
 The average male female population
 The caste, religion, culture and customs

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  The average spending and saving habit of the people.
These factors are very important for a bank as the help them decide the kind
of business the branch will get.

3. Commercial Structure:

The commercial structure refers to the level of commerce i.e. business

activities taking place at a particular location. The higher the level of business
activities taking place in a particular location the more preferable it is for setting up
a bank branch.

4. Industrial Structure:

This is nothing but a combination of the trade area analysis and the
commercial structure. However the industrial structure focuses more on the kind of
industries operating in a particular location. For example, an area like SEEPZ is
marked with a lot of electronic manufacturing units. Thus the industrial stricture
determines the kind of financial transactions that could take place in a particular
location.

5. Banking Structure:

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 The Banking structure refers to the existence of other banks in the area.
Whether there is already an efficient network of other bank branches operating at
that particular area. Thus the overall infrastructure needed for the working of a
bank.

6. Proximity of other convenient outlets:

This refers to the other branches of the same bank as well other commercial,
entertainment and industrial outlets.

7. Real Estate Rates:

This is mainly dealing with the cost factor involved in opening up a bank
branch at a particular location. The real estate rate is a very strong factor
influencing the location decision for a bank branch.

8. Proximity to public transportation:

The location should be proximate to public transportation facilities. This

means it should have bus stops close by as well as it should be proximate to
railway stations so as to make it convenient for the common man.

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 9. Drawing Time:

Drawing time refers to the time period during which a customer can draw
money from the banks. It should be convenient to the customer and somewhat
flexible to accommodate the customer’s needs. No bank has more than a certain
amount with them and in case a customer wants to withdraw an amount more than
that available with the bank, the bank needs to draw that amount from other banks.
Hence, a location must be such that it facilitates minimum drawing time.

10. Location of Competition:

The existence of other banks also means competition. If the level of

competition is very high in a particular location, it is necessary that a bank does a
lot of market research before opening a branch so as to estimate the kind of
business it would get.

11. Visibility:

The location of a branch should be such that it is visible and easily

noticed by the customers as well other people.

12. Access:

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 The bank branch should be very easily accessible to the customers. If
this is not the case, the customer might switch to some other bank, which is more
convenient to him and very easily accessible. The location should be such that it is
very convenient for the customer to reach.

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 CONCLUSION

We are very close to the vision of a sound and well-functioning banking system . It
is fair to say that despite a turbulent year and many challenges, we have made
some progress towards this goal. 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. We have also made some progress in assessing our 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.

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. 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 nonbank financial sectors have also come to notice.
In a fundamental sense, regulators and supervisors are under the greatest pressures
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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.

We should strive to move towards realizing our vision of an efficient and sound
banking system of international standards with redoubled strength. Our greatest
asset in this endeavor is the fund of technical and scientific human capital
formation available in the country. The themes which are being covered in this
Conference under structural, operational and governance issues should help in
defining the road map for the future.

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 BIBLOGRAPHY

 Service Marketing Mix- M.K RAMPAL & SL Gupta

 Service Marketing –Christopher Lovelock
 Marketing Management- Philip Kotler
 www.google.com
 www.banknetindia.com
 www.rbi.org
 www.moneycontrol.com
 www.financeexpress.com
 www.bankbazaar.com/guide/banks-in-india/

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