61268086 a-study-on-banking-industry-final-hc

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A STUDY ON BANKING INDUSTRY

1. INTRODUCTION

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 Indian banks to be insulated partially from the Asian

currency crisis. Indian banks are now quoting a 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 (NPA’s) 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

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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 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.

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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 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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HISTORY OF BANKING SECTOR IN INDIAWithout a sound and effective banking system in India it cannot have a healthy

economy. The banking system of India should not only be hassle free but it should be

able to meet new challenges posed by the technology and any other external and

internal factors.

For the past three decades India's banking system has several outstanding

achievements to its credit. The most striking is its extensive reach. It is no longer

confined to only metropolitans or cosmopolitans in India. In fact, Indian banking

system has reached even to the remote corners of the country. This is one of the main

reasons of India's growth process.

The government's regular policy for Indian bank since 1969 has paid rich

dividends with the nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for

getting a draft or for withdrawing his own money. Today, he has a choice. Gone are

days when the most efficient bank transferred money from one branch to other in two

days. Now it is simple as instant messaging or dial a pizza. Money has become the order

of the day.

There are three different phases in the history of banking in India.

1) Pre-Nationalization Era.

2) Nationalization Stage.

3) Post Liberalization Era.

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1) Pre-Nationalization Era:

In India the business of banking and credit was practices even in very early

times. The remittance of money through Hundies, an indigenous credit instrument, was

very popular. The hundies were issued by bankers known as Shroffs, Sahukars, Shahus

or Mahajans in different parts of the country.

The modern type of banking, however, was developed by the Agency Houses of

Calcutta and Bombay after the establishment of Rule by the East India Company in 18 th

and 19 th centuries.

During the early part of the 19 th Century, ht volume of foreign trade was

relatively small. Later on as the trade expanded, the need for banks of the European

type was felt and the government of the East India Company took interest in having its

own bank. The government of Bengal took the initiative and the first presidency bank,

the Bank of Calcutta (Bank of Bengal) was established in 180. In 1840, the Bank of

Bombay and in 1843, the Bank of Madras was also set up.

These three banks are also known as “Presidency Bank”. The Presidency Banks

had their branches in important trading centers but mostly lacked in uniformity in their

operational policies. In 1899, the Government proposed to amalgamate these three

banks in to one so that it could also function as a Central Bank, but the Presidency

Banks did not favor the idea. However, the conditions obtaining during world war

period (1914-1918) emphasized the need for a unified banking institution, as a result of

which the Imperial Bank was set up in1921. The Imperial Bank of India acted like a

Central bank and as a banker for other banks.

The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of

the Country. In 1949, the Banking Regulation act was passed and the RBI was

nationalized and acquired extensive regulatory powers over the commercial banks.

In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of

India, Cooperative banks, Exchange banks and Indian Joint Stock banks.

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2) Nationalization Stage:

After Independence, in 1951, the All India Rural Credit survey, committee of

Direction with Shri. A. D. Gorwala as Chairman recommended amalgamation of the

Imperial Bank of India and ten others banks into a newly established bank called the

State Bank of India (SBI). The Government of India accepted the recommendations of

the committee and introduced the State Bank of India bill in the Lok Sabha on 16 th April

1955 and it was passed by Parliament and got the president’s assent on 8 th May 1955.

The Act came into force on 1 st July 1955, and the Imperial Bank of India was

nationalized in 1955 as the State Bank of India.

The main objective of establishing SBI by nationalizing the Imperial Bank of

India was “to extend banking facilities on a large scale more particularly in the rural

and semi-urban areas and to diverse other public purposes.”

In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight state-

associated banks were taken over by the SBI as its subsidiaries.

Name of the Bank Subsidiary with effect from

1. State Bank of Hyderabad 1st October 1959

2. State Bank of Bikaner 1st January 1960

3. State Bank of Jaipur 1st January 1960

4. State Bank of Saurashtra 1st May 1960

5. State Bank of Patiala 1st April 1960

6. State Bank of Mysore 1st March 1960

7. State Bank of Indore 1st January 1968

8. State Bank of Travancore 1st January 1960

With effect from 1st January 1963, the State Bank of Bikaner and State Bank of

Jaipur with head office located at Jaipur. Thus, seven subsidiary banks State Bank of

India formed the SBI Group.

The SBI Group under statutory obligations was required to open new offices in

rural and semi-urban areas and modern banking was taken to these unbanked remote

areas.

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On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the

nationalization of 14 major scheduled Commercial Banks each having deposits worth

Rs. 50 crores and above. This was a turning point in the history of commercial banking

in India.

Central Bank of India

Bank of Maharashtra

Dena Bank

Punjab National Bank

Syndicate Bank

Canara Bank

Indian Bank

Indian Overseas Bank

Bank of Baroda

Union Bank

Allahabad Bank

United Bank of India

UCO Bank

Bank of India

Later the Government Nationalized six more commercial private sector banks with

deposit liability of not less than Rs. 200 crores on 15 th April 1980, viz.

i) Andhra Bank.

ii) Corporation Bank.

iii) New Bank if India.

iv) Oriental Bank of Commerce.

v) Punjab and Sindh Bank.

vi) Vijaya Bank.

In 1969, the Lead Bank Scheme was introduced to extend banking facilities to

every corner of the country. Later in 1975, Regional Rural Banks were set up to

supplement the activities of the commercial banks and to especially meet the credit

needs of the weaker sections of the rural society.

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Nationalization of banks paved way for retail banking and as a result there has

been an alt round growth in the branch network, the deposit mobilization, credit

disposals and of course employment.

The first year after nationalization witnessed the total growth in the agricultural

loans and the loans made to SSI by 87% and 48% respectively. The overall growth in

the deposits and the advances indicates the improvement that has taken place in the

banking habits of the people in the rural and semi-urban areas where the branch network

has spread. Such credit expansion enabled the banks to achieve the goals of

nationalization, it was however, achieved at the coast of profitability of the banks.

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 crores.

Consequences of Nationalization:

The quality of credit assets fell because of liberal credit extension policy.

Political interference has been as additional malady.

Poor appraisal involved during the loan meals conducted for credit disbursals.

The credit facilities extended to the priority sector at concessional rates.

The high level of low yielding SLR investments adversely affected the

profitability of the banks.

The rapid branch expansion has been the squeeze on profitability of banks

emanating primarily due to the increase in the fixed costs.

There was downward trend in the quality of services and efficiency of the banks.

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3) Post-Liberalization Era---Thrust on Quality and Profitability:

By the beginning of 1990, the social banking goals set for the banking industry

made most of the public sector resulted in the presumption that there was no need to

look at the fundamental financial strength of this bank. Consequently they remained

undercapitalized. Revamping this structure of the banking industry was of extreme

importance, as the health of the financial sector in particular and the economy was a

whole would be reflected by its performance.

The need for restructuring the banking industry was felt greater with the

initiation of the real sector reform process in 1992. the reforms have enhanced the

opportunities and challenges for the real sector making them operate in a borderless

global market place. However, to harness the benefits of globalization, there should be

an efficient financial sector to support the structural reforms taking place in the real

economy. Hence, along with the reforms of the real sector, the banking sector

reformation was also addressed.

The route causes for the lackluster performance of banks, formed the elements of

the banking sector reforms. Some of the factors that led to the dismal performance of

banks were.

Regulated interest rate structure.

Lack of focus on profitability.

Lack of transparency in the bank’s balance sheet.

Lack of competition.

Excessive regulation on organization structure and managerial resource.

Excessive support from government.

Against this background, the financial sector reforms were initiated to bring

about a paradigm shift in the banking industry, by addressing the factors for its dismal

performance.

In this context, the recommendations made by a high level committee on

financial sector, chaired by M. Narasimham, laid the foundation for the banking sector

reforms. These reforms tried to enhance the viability and efficiency of the banking

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sector. The Narasimha Committee suggested that there should be functional autonomy,

flexibility in operations, dilution of banking strangulations, reduction in reserve

requirements and adequate financial infrastructure in terms of supervision, audit and

technology. The committee further advocated introduction of prudential forms,

transparency in operations and improvement in productivity, only aimed at liberalizing

the regulatory framework, but also to keep them in time with international standards.

The emphasis shifted to efficient and prudential banking linked to better customer care

and customer services.

PRIVATE SECTOR BANKS

Private banking in India was practiced since the beginning of banking system in

India. The first private bank in India to be set up in Private Sector Banks in India was

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IndusInd Bank. It is one of the fastest growing Private Sector Bank in India. IDBI ranks

the tenth largest development bank in the world as Private Banks in India and has

promoted world class institutions in India.

The first Private Bank in India to receive an in principle approval from the

Reserve Bank of India was Housing Development Finance Corporation Limited, to set

up a bank in the private sector banks in India as part of the RBI's liberalization of the

Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited

with registered office in Mumbai and commenced operations as Scheduled Commercial

Bank in January 1995.

ING Vaysya, yet another Private Bank of India was incorporated in the year

1930. Bangalore has a pride of place for having the first branch inception in the year

1934. With successive years of patronage and constantly setting new standards in

banking, ING Vaysya Bank has many credits to its account.

Entry of Private Sector Banks:

There has been a paradigm shift in mindsets both at the Government level in the

banking industry over the years since Nationalization of Banks in 1969, particularly

during the last decade (1990-2000). Having achieved the objectives of Nationalization,

the most important issue before the industry at present is survival and growth in the

environment generated by the economic liberalization greater competition with a view

to achieving higher productivity and efficiency in January 1993 for the entry of Private

Sector banks based on the Nationalization Committee report of 1991, which envisaged a

larger role for Private Sector Banks.

The RBI prescribed a minimum paid up capital of Rs. 100 crores for the new

bank and the shares are to be listed at stock exchange. Also the new bank after being

granted license under the Banking Regulation Act shall be registered as a public limited

company under the companies Act, 1956.

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Subsequently 9 new commercial banks have been granted license to start banking

operations. The new private sector banks have been very aggressive in business

expansion and is also reporting higher profile levels taking the advantage of technology

and skilled manpower. In certain areas, these banks have even our crossed the other

group of banks including foreign banks.

PRESENT SCENARIO OF BANKING SECTOR

The stalwarts of India's financial community nodded their heads sagaciously

when Prime Minister Manmohan Singh said in a speech: "If there is one aspect in which

we can confidentially assert that India is ahead of China, it is in the robustness and

soundness of our banking system." Indian banks have been rated higher than Chinese

banks by international rating agency Standard & Poor's.

Private Sector Banks

Old Pvt. Sector Banks (25) New Pvt. Sector Banks (9)

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With the credibility of the Indian banking system on a high, a number of Indian

banks are now leveraging it to expand overseas. State Bank of India, the country’s

largest bank has acquired 76 per cent stake in a Kenyan bank, Giro Commercial Bank,

for US$ 7 million. Canara Bank is helping Chinese banks recover their huge non-

performing assets (NPA).

To meet the challenges of going global, the Indian banking sector is

implementing internationally followed prudential accounting norms for classification of

assets, income recognition and loan loss provisioning. The scope of disclosure and

transparency has also been raised in accordance with international practices.

India has complied with almost all the Core Principles of Effective Banking

Supervision of the Basel Committee. Some Indian banks are also presenting their

accounts as per the U.S. GAAP. The roadmap for adoption of Basel II is under

formulation.

The use of technology has placed Indian banks at par with their global peers. It

has also changed the way banking is done in India. ‘Anywhere banking’ and ‘Anytime

banking’ have become a reality. The financial sector now operates in a more

competitive environment than before and intermediates relatively large volume of

international financial flows.

2. BANKING IN INDIA

Overview of Banking

Banking Regulation Act of India, 1949 defines Banking as “accepting, for the

purpose of lending or of investment of deposits of money from the public, repayable on

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demand or otherwise or withdrawable by cheque, draft order or otherwise.” The Reserve

Bank of India Act, 1934 and the Banking Regulation Act, 1949, govern the banking

operations in India.

Classification of Banks

Banks in India can be categorized into non-scheduled banks and scheduled

banks. Scheduled banks constitute of commercial banks and co-operative banks. There

are about 67,000 branches of Scheduled banks spread across India. During the first

phase of financial reforms, there was a nationalization of 14 major banks in 1969. This

crucial step led to a shift from Class banking to Mass banking. Since then the growth of

the banking industry in India has been a continuous process.

As far as the present scenario is concerned the banking industry is in a transition

phase. The Public Sector Banks (PSB’s), which are the foundation of the Indian

Banking system account for more than 78 per cent of total banking industry assets.

Unfortunately they are burdened with excessive Non Performing assets (NPA’s),

massive manpower and lack of modern technology.

On the other hand the Private Sector Banks in India are witnessing immense

progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs.

On the other hand the Public Sector Banks are still facing the problem of unhappy

employees. There has been a decrease of 20 percent in the employee strength of the

private sector in the wake of the Voluntary Retirement Schemes (VRS). As far as

foreign banks are concerned they are likely to succeed in India.

Indusland Bank was the first private bank to be set up in India. IDBI, ING Vyasa

Bank, SBI Commercial and International Bank Ltd, Dhanalakshmi Bank Ltd, Karur

Vysya Bank Ltd, Bank of Rajasthan Ltd etc are some Private Sector Banks. Banks from

the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental

Bank, Allahabad Bank, Andhra Bank etc.

ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank

etc are some foreign banks operating in India.

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Commercial Banks

The commercial banking structure in India consists of:

Scheduled Commercial Banks

Unscheduled Banks

Scheduled commercial Banks constitute those banks which have been included in the

Second Schedule of Reserve Bank of India(RBI) Act, 1934.

RBI in turn includes only those banks in this schedule which satisfy the criteria laid

down vide section 42 (60 of the Act. Some co-operative banks are scheduled

commercial banks albeit not all co-operative banks are. Being a part of the second

schedule confers some benefits to the bank in terms of access to accomodation by RBI

during the times of liquidity constraints. At the same time, however, this status also

subjects the bank certain conditions and obligation towards the reserve regulations of

RBI.

For the purpose of assessment of performance of banks, the Reserve Bank of India

categorise them as public sector banks, old private sector banks, new private sector

banks and foreign banks.

This sub sector can broadly be classified into:

1. Public sector

2. Private sector

3. Foreign banks

Public sector banks have either the Government of India or Reserve Bank of India as the

majority shareholder. This segment comprises of:

Associate Banks

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State Bank of India has the following seven Associate Banks (ABs) with controlling

interest ranging from 75% to 100%.

State Bank of Bikaner and Jaipur (SBBJ)

State Bank of Hyderabad (SBH)

State Bank of Indore (SBIr)

State Bank of Mysore (SBM)

State Bank of Patiala (SBP)

State Bank of Saurashtra (SBS)

State Bank of Travancore (SBT)

Public Sector Banks

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Allahabad Bank

Andhra Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank

Dena Bank

Indian Bank

Indian Overseas Bank

Oriental Bank of Commerce

Punjab and Sind Bank

Punjab National Bank

Syndicate Bank

UCO Bank

Union Bank of India

United Bank of India

Vijaya Bank

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IDBI and IDBI Bank Ltd. have been merged to form Industrial Development Bank of

India (IDBI) Ltd. IDBI is notified as a scheduled bank by the Reserve Bank of India

(RBI) under the Reserve Bank of India Act, 1934. RBI has categorized IDBI under a

new sub group "other public sector bank".

Private Sector Banks

Bank of Punjab Ltd. (since merged with Centurion Bank)

Centurion Bank of Punjab (since merged with HDFC Bank)

Development Credit Bank Ltd.

HDFC Bank Ltd.

ICICI Bank Ltd.

IndusInd Bank Ltd.

Kotak Mahindra Bank Ltd.

Axis Bank (earlier UTI Bank)

Yes Bank Ltd.

Foreign Banks in India

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ABN-AMRO Bank N.V.

Abu Dhabi Commercial Bank Ltd.

American Express Bank Ltd.

Barclays Bank PLC

BNP Paribas

Citibank N.A.

DBS Bank Ltd

Deutsche Bank AG

HSBC Ltd.

Standard Chartered Bank

State Bank of Mauritius Ltd.

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ROLE OF BANKS

Banks play a positive role in economic development of a country as

repositories of community’s savings and as purveyors of credit. Indian Banking has

aided the economic development during the last fifty years in an effective way. The

banking sector has shown a remarkable responsiveness to the needs of planned

economy. It has brought about a considerable progress in its efforts at deposit

mobilization and has taken a number of measures in the recent past for accelerating

the rate of growth of deposits. As recourse to this, the commercial banks opened

branches in urban, semi-urban and rural areas and have introduced a number of

attractive schemes to foster economic development.

The activities of commercial banking have growth in multi-directional ways

as well as multi-dimensional manner. Banks have been playing a catalytic role in

area development, backward area development, extended assistance to rural

development all along helping agriculture, industry, international trade in a

significant manner. In a way, commercial banks have emerged as key financial

agencies for rapid economic development.

By pooling the savings together, banks can make available funds to

specialized institutions which finance different sectors of the economy, needing

capital for various purposes, risks and durations. By contributing to government

securities, bonds and debentures of term-lending institutions in the fields of

agriculture, industries and now housing, banks are also providing these institutions

with an access to the common pool of savings mobilized by them, to that extent

relieving them of the responsibility of directly approaching the saver. This

intermediation role of banks is particularly important in the early stages of economic

development and financial specification. A country like India, with different regions

at different stages of development, presents an interesting spectrum of the evolving

role of banks, in the matter of inter-mediation and beyond.

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Mobilization of resources forms an integral part of the development process

in India. In this process of mobilization, banks are at a great advantage, chiefly

because of their network of branches in the country. And banks have to place

considerable reliance on the mobilization of deposits from the public to finance

development programmes. Further, deposit mobilization by banks in India acquired

greater significance in their new role in economic development.

Commercial banks provide short-term and medium-term financial assistance.

The short-term credit facilities are granted for working capital requirements. The

medium-term loans are for the acquisition of land, construction of factory premises

and purchase of machinery and equipment. These loans are generally granted for

periods ranging from five to seven years. They also establish letters of credit on

behalf of their clients favoring suppliers of raw materials/machinery (both Indian

and foreign) which extend the banker’s assurance for payment and thus help their

delivery. Certain transaction, particularly those in contracts of sale of Government

Departments, may require guarantees being issued in lieu of security earnest money

deposits for release of advance money, supply of raw materials for processing, full

payment of bills on the assurance of the performance etc. Commercial banks issue

such guarantees also.

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3. RESERVE BANK OF INDIA (RBI)

The central bank of the country is the Reserve Bank of India (RBI). It was

established in April 1935 with a share capital of Rs. 5 crores on the basis of the

recommendations of the Hilton Young Commission. The share capital was divided

into shares of Rs. 100 each fully paid which was entirely owned by private

shareholders in the beginning. The Government held shares of nominal value of Rs.

2,20,000.

Reserve Bank of India was nationalized in the year 1949. The general

superintendence and direction of the Bank is entrusted to Central Board of Directors

of 20 members, the Governor and four Deputy Governors, one Government official

from the Ministry of Finance, ten nominated Directors by the Government to give

representation to important elements in the economic life of the country, and four

nominated Directors by the Central Government to represent the four local Boards

with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards

consist of five members each Central Government appointed for a term of four years

to represent territorial and economic interests and the interests of co-operative and

indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The

Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.

The Bank was constituted for the need of following:

To regulate the issue of banknotes

To maintain reserves with a view to securing monetary stability and

To operate the credit and currency system of the country to its advantage.

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FUNCTIONS OF RESERVE BANK OF INDIA

The Reserve Bank of India Act of 1934 entrust all the important functions of a

central bank the Reserve Bank of India.

Bank of Issue:

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole

right to issue bank notes of all denominations. The distribution of one rupee notes

and coins and small coins all over the country is undertaken by the Reserve Bank as

agent of the Government. The Reserve Bank has a separate Issue Department which

is entrusted with the issue of currency notes. The assets and liabilities of the Issue

Department are kept separate from those of the Banking Department. Originally, the

assets of the Issue Department were to consist of not less than two-fifths of gold

coin, gold bullion or sterling securities provided the amount of gold was not less

than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in

rupee coins, Government of India rupee securities, eligible bills of exchange and

promissory notes payable in India. Due to the exigencies of the Second World War

and the post-was period, these provisions were considerably modified. Since 1957,

the Reserve Bank of India is required to maintain gold and foreign exchange reserves

of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as

it exists today is known as the minimum reserve system.

Banker to Government

The second important function of the Reserve Bank of India is to act as

Government banker, agent and adviser. The Reserve Bank is agent of Central

Government and of all State Governments in India excepting that of Jammu and

Kashmir. The Reserve Bank has the obligation to transact Government business, via.

to keep the cash balances as deposits free of interest, to receive and to make

payments on behalf of the Government and to carry out their exchange remittances

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and other banking operations. The Reserve Bank of India helps the Government -

both the Union and the States to float new loans and to manage public debt. The

Bank makes ways and means advances to the Governments for 90 days. It makes

loans and advances to the States and local authorities. It acts as adviser to the

Government on all monetary and banking matters.

Bankers' Bank and Lender of the Last Resort

The Reserve Bank of India acts as the bankers' bank. According to the provisions of

the Banking Companies Act of 1949, every scheduled bank was required to maintain

with the Reserve Bank a cash balance equivalent to 5% of its demand liabilites and 2

per cent of its time liabilities in India. By an amendment of 1962, the distinction

between demand and time liabilities was abolished and banks have been asked to

keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The

minimum cash requirements can be changed by the Reserve Bank of India.

The scheduled banks can borrow from the Reserve Bank of India on the basis of

eligible securities or get financial accommodation in times of need or stringency by

rediscounting bills of exchange. Since commercial banks can always expect the

Reserve Bank of India to come to their help in times of banking crisis the Reserve

Bank becomes not only the banker's bank but also the lender of the last resort.

Controller of Credit

The Reserve Bank of India is the controller of credit i.e. it has the power to

influence the volume of credit created by banks in India. It can do so through

changing the Bank rate or through open market operations. According to the Banking

Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the

whole banking system not to lend to particular groups or persons on the basis of

certain types of securities. Since 1956, selective controls of credit are increasingly

being used by the Reserve Bank.

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The Reserve Bank of India is armed with many more powers to control the Indian

money market. Every bank has to get a license from the Reserve Bank of India to do

banking business within India, the license can be cancelled by the Reserve Bank of

certain stipulated conditions are not fulfilled. Every bank will have to get the

permission of the Reserve Bank before it can open a new branch. Each scheduled

bank must send a weekly return to the Reserve Bank showing, in detail, its assets

and liabilities. This power of the Bank to call for information is also intended to give

it effective control of the credit system. The Reserve Bank has also the power to

inspect the accounts of any commercial bank.

As supreme banking authority in the country, the Reserve Bank of India, therefore,

has the following powers:

(a) It holds the cash reserves of all the scheduled banks.

(b) It controls the credit operations of banks through quantitative and qualitative

controls.

(c) It controls the banking system through the system of licensing, inspection and

calling for information.

(d) It acts as the lender of the last resort by providing rediscount facilities to

scheduled banks.

Custodian of Foreign Reserves

The Reserve Bank of India has the responsibility to maintain the official rate

of exchange. According to the Reserve Bank of India Act of 1934, the Bank was

required to buy and sell at fixed rates any amount of sterling in lots of not less than

Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was

able to maintain the exchange rate fixed at lsh.6d. though there were periods of

extreme pressure in favour of or against the rupee. After India became a member of

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the International Monetary Fund in 1946, the Reserve Bank has the responsibility of

maintaining fixed exchange rates with all other member countries of the I.M.F.

Besides maintaining the rate of exchange of the rupee, the Reserve Bank has

to act as the custodian of India's reserve of international currencies. The vast sterling

balances were acquired and managed by the Bank. Further, the RBI has the

responsibility of administering the exchange controls of the country.

Supervisory functions

In addition to its traditional central banking functions, the Reserve bank has

certain non-monetary functions of the nature of supervision of banks and promotion

of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation

Act, 1949 have given the RBI wide powers of supervision and control over

commercial and co-operative banks, relating to licensing and establishments, branch

expansion, liquidity of their assets, management and methods of working,

amalgamation, reconstruction, and liquidation. The RBI is authorized to carry out

periodical inspections of the banks and to call for returns and necessary information

from them. The nationalization of 14 major Indian scheduled banks in July 1969 has

imposed new responsibilities on the RBI for directing the growth of banking and

credit policies towards more rapid development of the economy and realisation of

certain desired social objectives. The supervisory functions of the RBI have helped a

great deal in improving the standard of banking in India to develop on sound lines

and to improve the methods of their operation.

Promotional functions

With economic growth assuming a new urgency since Independence, the

range of the Reserve Bank's functions has steadily widened. The Bank now performs

a variety of developmental and promotional functions, which, at one time, were

regarded as outside the normal scope of central banking. The Reserve Bank was

asked to promote banking habit, extend banking facilities to rural and semi-urban

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areas, and establish and promote new specialised financing agencies. Accordingly,

the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the

Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the

Industrial Development Bank of India also in 1964, the Agricultural Refinance

Corporation of India in 1963 and the Industrial Reconstruction Corporation of India

in 1972. These institutions were set up directly or indirectly by the Reserve Bank to

promote saving habit and to mobilize savings, and to provide industrial finance as

well as agricultural finance. As far back as 1935, the Reserve Bank of India set up

the Agricultural Credit Department to provide agricultural credit. But only since

1951 the Bank's role in this field has become extremely important. The Bank has

developed the co-operative credit movement to encourage saving, to eliminate

moneylenders from the villages and to route its short term credit to agriculture. The

RBI has set up the Agricultural Refinance and Development Corporation to provide

long-term finance to farmers.

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4. PRODUCTS AND SERVICES OFFERED BY BANKS

BROAD CLASSIFICATION OF PRODUCTS IN A BANK

The different products in a bank can be broadly classified into:

Retail Banking.

Trade Finance.

Treasury Operations.

Retail Banking and Trade finance operations are conducted at the branch level

while the wholesale banking operations, which cover treasury operations, are at the

hand office or a designated branch.

Retail Banking:

Deposits

Loans, Cash Credit and Overdraft

Negotiating for Loans and advances

Remittances

Book-Keeping (maintaining all accounting records)

Receiving all kinds of bonds valuable for safe keeping.

Trade Finance:

Issuing and confirming of letter of credit.

Drawing, accepting, discounting, buying, selling, collecting of bills of

exchange, promissory notes, drafts, bill of lading and other securities.

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Treasury Operations:

Buying and selling of bullion. Foreign exchange

Acquiring, holding, underwriting and dealing in shares, debentures, etc.

Purchasing and selling of bonds and securities on behalf of constituents.

The banks can also act as an agent of the Government or local authority. They

insure, guarantee, underwrite, participate in managing and carrying out issue of

shares, debentures, etc.

Apart from the above-mentioned functions of the bank, the bank provides a

whole lot of other services like investment counseling for individuals, short-term

funds management and portfolio management for individuals and companies. It

undertakes the inward and outward remittances with reference to foreign exchange

and collection of varied types for the Government.

Common Banking Products Available:

Some of common available banking products are explained below:

1) Credit Card:

Credit Card is “post paid” or “pay later” card that draws from a credit line-

money made available by the card issuer (bank) and gives one a grace period to pay.

If the amount is not paid full by the end of the period, one is charged interest.

A credit card is nothing but a very small card containing a means of

identification, such as a signature and a small photo. It authorizes the holder to

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change goods or services to his account, on which he is billed. The bank receives the

bills from the merchants and pays on behalf of the card holder.

These bills are assembled in the bank and the amount is paid to the bank by

the card holder totally or by installments. The bank charges the customer a small

amount for these services. The card holder need not have to carry money/cash with

him when he travels or goes for purchasing.

Credit cards have found wide spread acceptance in the ‘metros’ and big cities. Credit

cards are joining popularity for online payments. The major players in the Credit

Card market are the foreign banks and some big public sector banks like SBI and

Bank of Baroda. India at present has about 3 million credit cards in circulation.

2) Debit Cards:

Debit Card is a “prepaid” or “pay now” card with some stored value.

Debit Cards quickly debit or subtract money from one’s savings account, or if one

were taking out cash.

Every time a person uses the card, the merchant who in turn can get the

money transferred to his account from the bank of the buyers, by debiting an exact

amount of purchase from the card. To get a debit card along with a Personal

Identification Number (PIN).

When he makes a purchase, he enters this number on the shop’s PIN pad.

When the card is swiped through the electronic terminal, it dials the acquiring bank

system – either Master Card or Visa that validates the PIN and finds out from the

issuing bank whether to accept or decline the transaction. The customer never

overspread because the amount spent is debited immediately from the customers

account. So, for the debit card to work, one must already have the money in the

account to cover the transaction. There is no grace period for a debit card purchase.

Some debit cards have monthly or per transaction fees.

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Debit Card holder need not carry a bulky checkbook or large sums of cash when

he/she goes at for shopping. This is a fast and easy way of payment one can get debit

card facility as debit cards use one’s own money at the time of sale, so they are often

easier than credit cards to obtain.

The major limitation of Debit Card is that currently only some 3000-4000

shops country wide accepts it. Also, a person can’t operate it in case the telephone

lines are down.

3) Automatic Teller Machine:

The introduction of ATM’s has given the customers the facility of round the

clock banking. The ATM’s are used by banks for making the customers dealing

easier. ATM card is a device that allows customer who has an ATM card to perform

routine banking transaction at any time without interacting with human teller. It

provides exchange services. This service helps the customer to withdraw money even

when the banks ate closed. This can be done by inserting the card in the ATM and

entering the Personal Identification Number and secret Password.

ATM’s are currently becoming popular in India that enables the customer to

withdraw their money 24 hours a day and 365 days. It provides the customers with

the ability to withdraw or deposit funds, check account balances, transfer funds and

check statement information. The advantages of ATM’s are many. It increases

existing business and generates new business. It allows the customers.

To transfer money to and from accounts.

To view account information.

To order cash.

To receive cash.

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Advantages of ATM’s:

To the Customers

ATM’s provide 24 hrs., 7 days and 365 days a year service.

Service is quick and efficient

Privacy in transaction

Wider flexibility in place and time of withdrawals.

The transaction is completely secure – you need to key in Personal

Identification Number (Unique number for every customer).

To Banks

Alternative to extend banking hours.

Crowding at bank counters considerably reduced.

Alternative to new branches and to reduce operating expenses.

Relieves bank employees to focus on more analytical and innovative work.

Increased market penetration.

ATM’s can be installed anywhere like Airports, Railway Stations, Petrol

Pumps, Big Business arcades, markets, etc. Hence, it gives easy access to the

customers, for obtaining cash.

The ATM services provided first by the foreign banks like Citibank, Grind

lays bank and now by many private and public sector banks in India like ICICI Bank,

HDFC Bank, SBI, UTI Bank etc. The ICICI has launched ATM Services to its

customers in all the Metropolitan Cities in India. By the end of 1990 Indian Private

Banks and public sector banks have come up with their own ATM Network in the

form of “SWADHAN”. Over the past year upto 44 banks in Mumbai, Vashi and

Thane, have became a part of “SWADHAN” a system of shared payments networks,

introduced by the Indian Bank Association (IBA).

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4) E-Cheques:

The e-cheques consists five primary facts. They are the consumers, the

merchant, consumer’s bank the merchant’s bank and the e-mint and the clearing

process. This chequring system uses the network services to issue and process

payment that emulates real world cheaquing. The payer issues a digital cheque to the

payee ant the entire transactions are done through internet. Electronic version of

cheques are issued, received and processed. A typical electronic cheque transaction

takes place in the following manner:

The customer accesses the merchant server and the merchant server presents

its goods to the customer.

The consumer selects the goods and purchases them by sending an e-cheque

to the merchant.

The merchant validates the e-cheque with its bank for payment authorization.

The merchant electronically forwards the e-cheque to its bank.

The merchant’s bank forwards the e-cheque to the clearing house for cashing.

The clearing house jointly works with the consumer’s bank clears the cheque

and transfers the money to the merchant’s banks.

The merchant’s bank updates the merchant’s account.

The consumer’s bank updates the consumer’s account with the withdrawal

information.

The e-cheaquing is a great boon to big corporate as well as small retailers.

Most major banks accept e-cheques. Thus this system offers secure means of

collecting payments, transferring value and managing cash flows.

5) Electronic Funds Transfer (EFT):

Many modern banks have computerized their cheque handling process with

computer networks and other electronic equipments. These banks are dispensing

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with the use of paper cheques. The system called electronic fund transfer (EFT)

automatically transfers money from one account to another. This system facilitates

speedier transfer of funds electronically from any branch to any other branch. In this

system the sender and the receiver of funds may be located in different cities and

may even bank with different banks. Funds transfer within the same city is also

permitted. The scheme has been in operation since February 7, 1996, in India.

The other important type of facility in the EFT system is automated clearing

houses. These are the computer centers that handle the bills meant for deposits and

the bills meant for payment. In big companies pay is not disbursed by issued cheques

or issuing cash. The payment office directs the computer to credit an employee’s

account with the person’s pay.

6) Telebanking:

Telebanking refers to banking on phone services.. a customer can access

information about his/her account through a telephone call and by giving the coded

Personal Identification Number (PIN) to the bank. Telebanking is extensively user

friendly and effective in nature.

To get a particular work done through the bank, the users may leave his

instructions in the form of message with bank.

Facility to stop payment on request. One can easily know about the cheque

status.

Information on the current interest rates.

Information with regard to foreign exchange rates.

Request for a DD or pay order.

D-Mat Account related services.

And other similar services.

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7) Mobile Banking:

A new revolution in the realm of e-banking is the emergence of mobile

banking. On-line banking is now moving to the mobile world, giving everybody with

a mobile phone access to real-time banking services, regardless of their location. But

there is much more to mobile banking from just on-lie banking. It provides a new

way to pick up information and interact with the banks to carry out the relevant

banking business. The potential of mobile banking is limitless and is expected to be

a big success. Booking and paying for travel and even tickets is also expected to be a

growth area.

According to this system, customer can access account details on mobile

using the Short Messaging System (SMS) technology6 where select data is pushed to

the mobile device. The wireless application protocol (WAP) technology, which

allows user to surf the net on their mobiles to access anything and everything. This

is a very flexible way of transacting banking business.

Already ICICI and HDFC banks have tied up cellular service provides such as

Airtel, Vodafone, Sky Cell, etc. in Delhi and Mumbai to offer these mobile banking

services to their customers.

8) Internet Banking:

Internet banking involves use of internet for delivery of banking products and

services. With internet banking is now no longer confirmed to the branches where

one has to approach the branch in person, to withdraw cash or deposits a cheque or

request a statement of accounts. In internet banking, any inquiry or transaction is

processed online without any reference to the branch (anywhere banking) at any

time.

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The Internet Banking now is more of a normal rather than an exception due to

the fact that it is the cheapest way of providing banking services. As indicated by

McKinsey Quarterly research, presently traditional banking costs the banks, more

than a dollar per person, ATM banking costs 27 cents and internet banking costs

below 4 cents approximately. ICICI bank was the first one to offer Internet Banking

in India.

Benefits of Internet Banking:

Reduce the transaction costs of offering several banking services and

diminishes the need for longer numbers of expensive brick and mortar branches

and staff.

Increase convenience for customers, since they can conduct many banking

transaction 24 hours a day.

Increase customer loyalty.

Improve customer access.

Attract new customers.

Easy online application for all accounts, including personal loans and

mortgages

Financial Transaction on the Internet:

Electronic Cash: Companies are developing electronic replicas of all existing

payment system: cash, cheque, credit cards and coins.

Automatic Payments: Utility companies, loans payments, and other

businesses use on automatic payment system with bills paid through direct

withdrawal from a bank account.

Direct Deposits: Earnings (or Government payments) automatically deposited

into bank accounts, saving time, effort and money.

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Stored Value Cards: Prepaid cards for telephone service, transit fares,

highway tolls, laundry service, library fees and school lunches.

Point of Sale transactions: Acceptance of ATM/Cheque at retail stores and

restaurants for payment of goods and services. This system has made functioning

of the stock Market very smooth and efficient.

Cyber Banking: It refers to banking through online services. Banks with web

site “Cyber” branches allowed customers to check balances, pay bills, transfer

funds, and apply for loans on the Internet.

9) Demat:

Demat is short for de-materialization of shares. In short, Demat is a process

where at the customer’s request the physical stock is converted into electronic

entries in the depository system.

In January 1998 SEBI (Securities and Exchange Board of India) initiated

DEMAT ACCOUNTANCY System to regulate and to improve stock investing. As

on date, to trade on shares it has become compulsory to have a share Demat account

and all trades take place through Demat.

How to Operate DEMAT ACCOUNT?

One needs to open a Demat Account with any of the branches of the bank.

After opening an account with any bank, by filling the Demat request form one can

handover the securities. The rest will be taken care by the bank and the customer

will receive credit of shares as soon as it is confirmed by the Company/Register and

Transfer Agent. There is no physical movement of share certification any more. Any

buying or selling of shares is done via electronic transfers.

1) If the investor wants to sell his shares, he has to place an order with his

broker and give a “Delivery Instruction” to his DP (Depository Participant).

The DP will debit hi s account with the number of shares sold by him.

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2) If one wants to buy shares, he has to inform his broker about his Depository

Account Number so that the shares bought by him are credited in to his

account.

3) Payment for the electronic shares bought or sold is to be made in the same

way as in the case of physical securities.

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BANKING SERVICES

Banking covers so many services that it is difficult to define it. However,

these basic services have always been recognized as the hallmark of the genuine

banker. These are…

The receipt of the customer’s deposits

The collection of his cheques drawn on other banks

The payment of the customer’s cheques drawn on himself

There are other various types of banking services like:

1) Advances – Overdraft, Cash Credit, etc.

2) Deposits – Saving Account, Current Account, etc.

3) Financial Services – Bill discounting etc.

4) Foreign Services – Providing foreign currency, travelers cheques, etc.

5) Money Transmission – Funds transfer etc.

6) Savings – Fixed deposits, etc.

7) Services of place or time – ATM Services.

8) Status – Debit Cards, Credit Cards, etc.

Customer Services in Commercial Banks:

Customer service is the service provided in support of a bank’s core products.

Customer service often includes answering questions; handling complaints.

Customer service can occur on site (as when an onstage employee helps a customer

or answers a question) or it can occur over the phone or the Internet. Quality

customer service is essential to building cordial customer relationship.

Banking being a service industry, a lot depends on efficient and prompt

customer service. Customer service is the most important duty of the banking

operations. Prompt and efficient service with smile will develop good public

relations reduce complaints and increase business.

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Why is Customer Service Important?

Changing customer expectations: Today the customer is more demanding

and more sophisticated than he or she was thirty years ago.

The increased importance of customer service: With changing customer

expectations, competitors are seeing customer service as a competitive weapon

with which they differentiate their products and services.

The need for a relationship strategy: To ensure that a customer service

strategy that will create a value preposition for customers should be formulated

implemented and controlled. It is necessary to give it a central role and not one

that is subsumed in the various elements of the marketing mix.

The customer is the kingpin in growth organizations like commercial banks.

Only those institutions which work according to his dictates will flourish. Quality,

Consistency and Durability at low price are the final expectations of a customer.

Quality will have to be unambiguous, of world class quality. Quality cannot be of

minimum acceptable standards. Customer responsiveness must be quick and also

competent. Speed, performance and cost will be the new values “mantra” for

success.

The ten key areas of customer’s services to be attended timely and regularly are:

a) Submission of statement of A/Cs to customers

b) Updating of savings pass books.

c) Teller system efficiency.

d) Cleanliness and Upkeep of premises.

e) Intermediate Credit for institution cheques/land bills.

f) Advance intimation to customers for rewards of Term Deposits Receipts on

maturity.

g) Advance for Debit/credit to accounts.

h) Punctuality of staff.

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i) Handling of complaint register.

j) Maintain a complaint register.

Customer’s dissatisfaction in the banking industry is neither recent nor

unknown. This is mainly due to delays in handling transactions across the counter in

collections, update of passbooks supply of statements of accounts, etc.

Failure to provide prompt and efficient customer service is likely to lead to

reduction in the number of customers and they may have to face closure. To event

such situation the following improvements in the customer services may be carried

out:

1) Personal relations of the bank employee with customers will improve

customer satisfaction. 1 service with smile should be the motto of every bank

employee.

2) Rapid customer services should be provided through automation of work and

simplification of procedures.

3) ATM’s may be introduced in all the branches of the banks, based upon the

volume of transactions. This shall facilitate non-stop banking.

4) Credit Cards Services, Debit Card Services, which should be provided to the

customers, must a link service with all the banks and branches if possible to

facilitate the customer and the business organizations.

5) E-mail service made freely available at all banking centers.

6) Foreign Exchange transactions are to be extended to all the branches to

facilitate trade and industries.

7) All the customers are not homogenous in their needs. Hence need based

schemes may be introduced.

8) Totally deregulated interest rate structure should be there.

9) The banking staff must be trained to understand the customer’s psychology,

so they may provide customer service in a qualified manner.

10)Educating the customers will increase better utilization of banking services.

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BANK MARKETING:

The banking business is essentially other people’s money and banker’s brain.

The secret of its success lies in satisfying customer needs for which the banks have

to rediscover the marketing concept.

It is right to mention that bank marketing is a managerial process by which

services are matched with markets. The matching of services with market is meant

formulation of overall marketing strategies which suit the taste, temperament, needs

and requirements of customers.

In view of the above, marketing of banking services is concerned with

product, promotion, pricing, and place. In addition, it is also concerned with people,

process and physical appearance.

Objectives of Bank Marketing:

Profitability

Providing high return on investment

Achieving certain market share/growth

Development of an image

Developing new products to meet emerging customer requirements.

Increase in deposits and loans

Directing customers to certain products

Increasing awareness

Increasing customer base through greater customer satisfaction.

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5. ROLE OF INFORMATION TECHNOLOGY (IT) IN

THE BANKING SECTOR

Banking environment has become highly competitive today. To be able to

survive and grow in the changing market environment banks are going for the latest

technologies, which is being perceived as an ‘enabling resource’ that can help in

developing learner and more flexible structure that can respond quickly to the

dynamics of a fast changing market scenario. It is also viewed as an instrument of

cost reduction and effective communication with people and institutions associated

with the banking business.

The Software Packages for Banking Applications in India had their

beginnings in the middle of 80s, when the Banks started computerizing the branches

in a limited manner. The early 90s saw the plummeting hardware prices and advent

of cheap and inexpensive but high powered PC’s and Services and banks went in for

what was called Total Branch Automation (TBA) packages. The middle and late 90s

witnessed the tornado of financial reforms, deregulation globalization etc. coupled

with rapid revolution in communication technologies and evolution of novel concept

of convergence of communication technologies, like internet, mobile/cell phones etc.

Technology has continuously played on important role in the working of banking

institutions and the services provided by them. Safekeeping of public money,

transfer of money, issuing drafts, exploring investment opportunities and lending

drafts, exploring investment are being provided.

Information Technology enables sophisticated product development, better

market infrastructure, implementation of reliable techniques for control of risks and

helps the financial intermediaries to reach geographically distant and diversified

markets. Internet has significantly influenced delivery channels of the banks.

Internet has emerged as an important medium for delivery of banking products and

services.

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The customers can view the accounts; get account statements, transfer funds

and purchase drafts by just punching on few keys. The smart card’s i.e., cards with

micro processor chip have added new dimension to the scenario. An introduction of

‘Cyber Cash’ the exchange of cash takes place entirely through ‘Cyber-books’.

Collection of Electricity bills and telephone bills has become easy. The

upgradeability and flexibility of internet technology offer unprecedented

opportunities for the banks to reach out to its customers. No doubt banking services

have undergone drastic changes and so also the expectation of customers from the

banks has increased greater.

IT is increasingly moving from a back office function to a prime assistant in

increasing the value of a bank over time. IT does so by maximizing banks of pro-

active measures such as strengthening and standardizing banks infrastructure in

respect of security, communication and networking, achieving inter branch

connectivity, moving towards Real Time gross settlement (RTGS) environment the

forecasting of liquidity by building real time databases, use of Magnetic Ink

Character Recognition and Imaging technology for cheque clearing to name a few.

Indian banks are going for the retail banking in a big way

The key driver to charge has largely been the increasing sophistication in

technology and the growing popularity of the Internet. The shift from traditional

banking to e-banking is changing customer’s expectations.

E-Banking:

E-banking made its debut in UK and USA 1920s. It becomes prominently

popular during 1960, through electronic funds transfer and credit cards. The concept

of web-based baking came into existence in Eutope and USA in the beginning of

1980.

In India e-banking is of recent origin. The traditional model for growth has

been through branch banking. Only in the early 1990s has there been a start in the

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non-branch banking services. The new pribate sector banks and the foreign banks are

handicapped by the lack of a strong branch network in comparison with the public

sector banks. In the absence of such networks, the market place has been the

emergence of a lot of innovative services by these players through direct distribution

strategies of non-branch delivery. All these banks are using home banking as a key

“pull’ factor to remove customers away from the well entered public sector banks.

Many banks have modernized their services with the facilities of computer

and electronic equipments. The electronics revolution has made it possible to

provide ease and flexibility in banking operations to the benefit of the customer. The

e-banking has made the customer say good-bye to huge account registers and large

paper bank accounts. The e-banks, which may call as easy bank offers the following

services to its customers:

Credit Cards – Debit Cards

ATM

E-Cheques

EFT (Electronic Funds Transfer)

D-MAT Accounts

Mobile Banking

Telephone Banking

Internet Banking

EDI (Electronic Data Interchange)

Benefits of E-banking:

To the Customer:

Anywhere Banking no matter wherever the customer is in the world.

Balance enquiry, request for services, issuing instructions etc., from anywhere

in the world is possible.

Anytime Banking – Managing funds in real time and most importantly, 24

hours a day, 7days a week.

Convenience acts as a tremendous psychological benefit all the time.

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Brings down “Cost of Banking” to the customer over a period a period of

time.

Cash withdrawal from any branch / ATM

On-line purchase of goods and services including online payment for the

same.

To the Bank:

Innovative, scheme, addresses competition and present the bank as

technology driven in the banking sector market

Reduces customer visits to the branch and thereby human intervention

Inter-branch reconciliation is immediate thereby reducing chances of fraud

and misappropriation

On-line banking is an effective medium of promotion of various schemes of

the bank, a marketing tool indeed.

Integrated customer data paves way for individualized and customized

services.

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IMPACT OF IT ON THE SERVICE QUALITY:

The most visible impact of technology is reflected in the way the banks

respond strategically for making its effective use for efficient service delivery. This

impact on service quality can be summed up as below:

With automation, service no longer remains a marketing edge with the large

banks only. Small and relatively new banks with limited network of branches

become better placed to compete with the established banks, by integrating IT

in their operations.

The technology has commoditizing some of the financial services. Therefore

the banks cannot take a lifetime relationship with the customers as granted and

they have to work continuously to foster this relationship and retain customer

loyalty.

The technology on one hand serves as a powerful tool for customer

servicing, on the other hand, it itself results in depersonalizing of the banking

services. This has an adverse effect on relationship banking. A decade of

computerization can probably never substitute a simple or a warm handshake.

In order to reduce service delivery cost, banks need to automate routine

customer inquiries through self-service channels. To do this they need to invest

in call centers, kiosks, ATM’s and Internet Banking today require IT

infrastructure integrated with their business strategy to be customer centric.

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IMPACT OF IT ON BANKING SYSTEM:

The banking system is slowly shifting from the Traditional Banking towards

relationship banking. Traditionally the relationship between the bank and its

customers has been on a one-to-one level via the branch network. This was put into

operation with clearing and decision making responsibilities concentrated at the

individual branch level. The head office had responsibility for the overall clearing

network, the size of the branch network and the training of staff in the branch

network. The bank monitored the organization’s performance and set the decision

making parameters, but the information available to both branch staff and their

customers was limited to one geographical location.

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Traditional Banking Sector

The modern bank cannot rely on its branch network alone. Customers are now

demanding new, more convenient, delivery systems, and services such as Internet

banking have a dual role to the customer. They provide traditional banking services,

but additionally offer much greater access to information on their account status and

on the bank’s many other services. To do this banks have to create account

information layers, which can be accessed both by the bank staff as well as by the

customers themselves.

The use of interactive electronic links via the Internet could go a ling way in

providing the customers with greater level of information about both their own

financial situation and about the services offered by the bank.

CUSTOMER CUSTOMER CUSTOMER

BANK BRANCH BANK BRANCH BANK BRANCH

CLEARING DECISION CLEARING DECISION CLEARING DECISION

CENTRAL CLEARING HEAD OFFICE

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The New Relationship Oriented Bank

CUSTOMER

TELEPHONE, BRANCH, ELECTRONIC BANKING, etc

SHARED INFORMATION

CLEARING SYSTEM HEAD OFFICE RISK MONITOIRING

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IMPACT OF IT ON PRIVACY AND CONFIDENTIALITY OF

DATA:

Data being stored in the computers is now being displayed when required on

through internet banking mobile banking, ATM’s etc. all this has given rise to the

issues of privacy and confidentially of data are:

The data processing capabilities of the computer, particularly the rapid

throughput, integration, and retrieval capabilities, give rise to doubts in the

minds of individuals as to whether the privacy of the individuals is being

eroded.

So long as the individual data items are available only to those directly

concerned, everything seems to be in proper place, but the incidence of data

being cross referenced to create detailed individual dossiers gives rise to

privacy problems.

Customers feel threatened about the inadequacy of privacy being maintained

by the banks with regard to their transactions and link at computerized

systems with suspicion.

Aside from any constitutional aspect, many nations deem privacy to be a

subject of human right and consider it to be the responsibility of those who

concerned with computer data processing for ensuring that the computer use does not

revolve to the stage where different data about people can be collected, integrated

and retrieved quickly. Another important responsibility is to ensure the data is used

only for the purpose intended.

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6. RECENT TRENDS IN BANKING

Today, we are having a fairly well developed banking system with different

classes of banks – public sector banks, foreign banks, private sector banks – both old

and new generation, regional rural banks and co-operative banks with the Reserve

Bank of India as the fountain Head of the system.

In the banking field, there has been an unprecedented growth and diversification of

banking industry has been so stupendous that it has no parallel in the annals of

banking anywhere in the world.

During the last 39 years since 1969, tremendous changes have taken place in

the banking industry. The banks have shed their traditional functions and have been

innovating, improving and coming out with new types of the services to cater to the

emerging needs of their customers.

Massive branch expansion in the rural and underdeveloped areas, mobilization

of savings and diversification of credit facilities to the either to neglected areas like

small scale industrial sector, agricultural and other preferred areas like export sector

etc. have resulted in the widening and deepening of the financial infrastructure and

transferred the fundamental character of class banking into mass banking.

There has been considerable innovation and diversification in the business of

major commercial banks. Some of them have engaged in the areas of consumer

credit, credit cards, merchant banking, leasing, mutual funds etc. A few banks have

already set up subsidiaries for merchant banking, leasing and mutual funds and many

more are in the process of doing so. Some banks have commenced factoring

business.

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The major challenges faced by banks today are as to how to cope with

competitive forces and strengthen their balance sheet. Today, banks are groaning

with burden of NPA’s. It is rightly felt that these contaminated debts, if not

recovered, will eat into the very vitals of the banks. Another major anxiety before

the banking industry is the high transaction cost of carrying Non Performing Assets

in their books. The resolution of the NPA problem requires greater accountability on

the part of the corporate, greater disclosure in the case of defaults, an efficient credit

information sharing system and an appropriate legal framework pertaining to the

banking system so that court procedures can be streamlined and actual recoveries

made within an acceptable time frame. The banking industry cannot afford to sustain

itself with such high levels of NPA’s thus, “lend, but lent for a purpose and with a

purpose ought to be the slogan for salvation.”

The Indian banks are subject to tremendous pressures to perform as otherwise

their very survival would be at stake. IT plays an important role in the banking

sector as it would not only ensure smooth passage of interrelated transactions over

the electric medium but will also facilitate complex financial product innovation and

product development. The application of IT and e-banking is becoming the order of

the day with the banking system heading towards virtual banking.

As an extreme case of e-banking World Wide Banking (WWB) on the pattern

of World Wide Web (WWW) can be visualized. That means all banks would be

interlinked and individual bank identity, as far as the customer is concerned, does

not exist. There is no need to have large number of physical bank branches,

extension counters. There is no need of person-to-person physical interaction or

dealings. Customers would be able to do all their banking operations sitting in their

offices or homes and operating through internet. This would be the case of banking

reaching the customers.

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Banking landscape is changing very fast. Many new players with different

muscle powers will enter the market. The Reserve Bank in its bid to move towards

the best international banking practices will further sharpen the prudential norms and

strengthen its supervisor mechanism. There will be more transparency and

disclosures.

In the days to come, banks are expected to play a very useful role in the

economic development and the emerging market will provide ample business

opportunities to harness. Human Resources Management is assuming to be of greater

importance. As banking in India will become more and more knowledge supported,

human capital will emerge as the finest assets of the banking system. Ultimately

banking is people and not just figures.

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7. STRAINS AND CHALLENGES

Liberalization process has increasingly exposed Indian Industry to

international competition and banking being a service industry is also not an

exception. Banking Sector in India too faces same strains and challenges at local,

national and international level.

Indian Banks, functionally diverse and geographically widespread, have

played a crucial role in the socio-economic progress of the country after

independence. However, the growth led to strains in the operational efficiency of

banks and the accumulation of non-performing assets (NPA’s) in their loan

portfolios.

Banks face increasing pressure to stand out from the crowd. On the Internet,

this means offering your target customers an increasingly broader range of services

than your competitors and that too in unique way.

All this has resulted in a challenge to managers of banks to develop the right mix of

acquired and internally grown IT applications which suits customer’s expectations.

Banking sector reforms and liberalization process raised many challenges

before Indian Banks and for sustainable development it has become necessary to face

these challenges effectively:

1. Intense Competition: The RBI and Government of India kept banking

industry open for the participants of private sector banks and foreign banks.

The foreign banks were also permitted to set up shop on India either as

branches or as subsidiaries. Due to this lowered entry barriers many new

players have entered the market such as private banks, foreign banks, non-

banking finance companies, etc. The foreign banks and new private sector

69


banks have spearheaded the hi-tech revolution. Heavy weight foreign banks

with huge base, latest technology innovative and globally tested products are

spreading their wings and wooing away customers form other banks. For

survival and growth in highly competitive environment banks have to follow

the new “Guru Mantra” of prompt and efficient customer service, which calls

for appropriate customer centric policies and customer friendly procedures.

2. Technological Up gradation: Already electronic transfers, clearings,

settlements have reduced translation times. To face competition it is necessary

for banks to absorb the technology and upgrade their services. However use of

High-Tech sophisticated technology leaves the predominantly rural, poor and

even illiterate mans in the lurch to which the level of automation and

efficiency of services are immaterial.

3. Privacy and Safety: Among the most important aspects, of savings, i.e.,

safety liquidity and profitability, safety has to be accorded top most priority.

The safety aspect assumes more significance in the emerging scenario as the

economic loss caused internationally by these types of crimes might risk area

and any lacunae is safety would result in erosion of confidence and the same

might possibly paralyze the entire network. The areas among other things,

which might endanger security in e-banking can be:

Changes in input data such as changing the amount in ledges,

increasing the limits in accounts or face value of cheques. Though these

trends could be detected consequently, prevention is a major problem with

these types of crimes.

Use of stolen or falsified cards in ATM machines.

Computer forgery could be committed by way of gaining access

to other account, deliberate damage through viruses on data stored in

computers. In this case, same criminals might gain entry into the

computers and cause damage to the system. This apart, another through

69


which security and privacy are maintained. If a hacker has found out the

password, he can cause havoc to the entire network. Also, if the password

is stolen money could be transferred from one account to another.

Software privacy is another area of potential danger faced by the

banking industry. In this the entire software could be stolen. If this is

done, the hackers could operate a parallel network.

4. Human Resources Management: In the recent past the human resource

Policies in banks were mainly guided by the concept of permanent

employment and its necessary concomitants of creating career paths, terminal

benefits, etc. for the employees. In today’s fast-changing world of employee

mobility both horizontally and vertically and value systems, the public sector

banks need to hire the right talent at market related compensation and to shed

surplus manpower/staff. Thus many banks are going for URS schemes to

reduce the burden of excessive staff. Schemes like VRS are going to change

the nature of workforce with many senior and experienced persons opting for

it.

The key elements that shall provide a competitive edge to banking

sector will not be physical assets but knowledge assets and information.

Therefore, banks must understand how to retain knowledge based employees

and prevent them to migrating to some other organization. Banks must believe

in people, customer orientation, and continuous improvement of excellence.

Therefore it becomes necessary for banks to encourage all employees to take

risks and work towards continuous improvements and breakthroughs.

Successful banks overcoming the challenges will be those that harness technology in

a customer friendly yet cost effective way. This requires enormous internal and

external management and the crux of the solution lies in blending human resources

with information technology.

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8. CASE STUDY

ICICI BANK

INTRODUCTION

Company Profile

ICICI Bank is India's second-largest bank with total assets of Rs. 3,997.95

billion (US$ 100 billion) at March 31, 2008 and profit after tax of Rs. 41.58 billion

for the year ended on March 31, 2008. ICICI Bank is the second amongst all the

companies listed on the Indian stock exchanges in terms of free float market

capitalization. The Bank has a network of about 1,308 branches and 3,950 ATMs in

India and a presence in 18 countries. ICICI Bank offers a wide range of banking

products and financial services to corporate and retail customers through a variety of

delivery channels and through its specialized subsidiaries and affiliates in the areas

of investment banking, life and non-life insurance, venture capital and asset

management or wealth management. The Bank currently has its subsidiaries in the

United Kingdom, Russia and Canada, branches in Unites States, Singapore, Bahrain,

Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and

representative offices in United Arab Emirates, China, South Africa, Bangladesh,

Thailand, Malaysia and Indonesia. The bank’s UK subsidiary has established

branches in Belgium and Germany.

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ICICI Bank's equity shares are listed in India on Bombay Stock Exchange

(BSE) and the National Stock Exchange of India Limited and its American

Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

Over the last few years, the ICICI Bank has taken rapid strides in developing

new businesses in line with its proposition to offer complete financial services to

both corporate and retail customers.

With the recent addition of insurance, the proposition of ICICI Bank is now

fulfilled. Going forward, the challenge for ICICI will be to continue innovating to

improve market shares and maintain its competitive edge. In this endeavor, ICICI

will continue to benchmark with global best practices to ensure optimum utilization

of its resources and the finest exposure to its work force. The speed with which it

has been able to transform the organization and successfully start so many new

businesses is almost singularly owing to the skills, enterprise and the depth of its

human resources.

ICICI Bank is committed to enriching this valuable resource which in turn,

will allow it to bring innovative practices to the world of financial services in India.

With technology playing the key role mainly the vision is to develop ICICI Bank

into an organization that is empowered by bright and talented individuals, working

in teams and riding on the backbone of world class technology.

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HISTORY

The ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian

financial institution, and was its wholly owned subsidiary. ICICI's shareholding in

ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal

year 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal year

2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock

amalgamation in fiscal year 2001, and secondary market sales by ICICI to

institutional investors in fiscal year 2001 and fiscal year 2002. ICICI was formed in

year 1955 at the initiative of the World Bank, the Government of India and

representatives of Indian industry. The principal objective was to create a

development financial institution for providing the medium-term and long-term

project financing to Indian businesses. In the 1990s, the ICICI transformed its

business from a development financial institution offering only single project

finance to a diversified financial services group offering a wide variety of products

and services, both directly and through a number of subsidiaries and affiliates like

ICICI Bank. In 1999, the ICICI become the first Indian company and the first bank

or financial institution from non-Japan Asia to be listed on the New York Stock

Exchange (NYSE).

After consideration of various corporate structuring alternatives in the context

of the emerging competitive scenario in the Indian banking industry, and the move

towards universal banking scenario, the managements of the ICICI and ICICI Bank

formed the view that the merger of ICICI with ICICI Bank would be the optimal

strategic alternative for both of the entities, and would create the optimal legal

structure for the ICICI group's universal banking strategy. The merger would

enhance value for the ICICI shareholders through the merged entity's access to low-

cost deposits, much greater opportunities for earning fee-based income and the

ability to participate in the payments system and provide transaction-banking

services. The merger would enhance value for the ICICI Bank shareholders through

a large capital base and scale of operations, seamless access to ICICI's strong

69


corporate relationships built up over five decades, entry into new business segments,

higher market share in various business segments, particularly fee-based services,

and access to the vast talent pool of the ICICI and its number of subsidiaries. In

October 2001, the Boards of Directors of the ICICI and ICICI Bank approved the

merger of ICICI and two of its wholly owned retail finance subsidiaries, the ICICI

Personal Financial Services Limited and the ICICI Capital Services Limited, with

the ICICI Bank. The merger was approved by shareholders of the ICICI and ICICI

Bank in January 2002, by the High Court of Gujarat at Ahmadabad in March 2002,

and by the High Court of Judicature at Mumbai and the Reserve Bank of India in

April 2002. Consequent to the merger, the ICICI group's financing and banking

operations, both the wholesale and retail, have been integrated in a single i.e. the

ICICI Bank.

PRESENT SCENARIO

ICICI Bank USP is their working hours which have been extended from 8 am

to 8 pm. This was consciously done in the year 2001 taking into consideration that

majority of the customers fall into the age group of 19 – 45 years. Most Nationalized

banks have their working hour from 9am to 4 pm, which hardly leaves any time for

customers to complete their bank formalities before or after work hours. Tapping

this area, ICICI bank began this strategy.

ICICI Bank is one of the first banks that started the trend of tying up with call

centers like Stream International, Wipro etc. for salary accounts, which most banks

followed suit.

Among the customers more emphasis are given to those who are termed as

High Network individuals who have a bank balance of more than Rs. 10 lakhs. These

customers are given special preference to a special cabin made especially for them

called the ‘wealth management cabin wherein they can just enter the bank and into

the cabin for their queries or any other formalities. They do not have to wait in long

queues as they are immediately attended to. In order to appease them, ICICI bank

69


has gone a step further by creating and distributing personalized calendars such as if

a customer surname is ‘Fernandes’, the calendar would have a mention of the name,

’Fernandes and Co.’ or ‘Fernandes and Sons’.

Under their mobile banking service, there is a pilot project that exists at the

BKC branch wherein account holders can switch on their Bluetooth of their phone

before entering the bank premises. This enables the bank to receive the information

of their customer entering the bank within 30 seconds. In order to customize their

service the employee at the counter would call out the name of the person instead of

the token number.

Retail Banking

ICICI Bank edged past foreign banking majors Citibank and Standard

Chartered Bank to emerge as the best retail bank in India, according to the latest

issue of 'Asian Banker Journal'.

ICICI Bank was second only to HSBC, Hong Kong in the list of top five retail

banks in the Asia-Pacific region.

ICICI Bank scored over some Asian heavyweights like DBS Bank of

Singapore, Citibank (India) and Kookmin Bank of Korea.

ICICI Bank's success is attributed to its dynamic executive director Chanda

Kochhar who was named the retail banker of the year for 2004.

ICICI Bank hit by Global Sub-prime Crisis

The ICICI Bank had been hit by the International sub-prime mortgage crisis.

ICICI Bank has lost nearly US$ 264, till the end of January 2008. As per the banks

statement, the loss was not due to investments in the US sub-prime loan market, but

due to the fall in the value of securities in the global market. The rise in the

69


international interest rates due to the subprime mortgage crisis was the main cause

for the fall in the value of securities in the global market, which forced ICICI bank

to make up the difference from its turnover.

The loss, though, is speculative, as the bank has not sold out these securities.

The bank holds securities worth face value of US$ 1.6 billion and one of its

divisions holds securities worth US$ 0.5 billion. ICICI bank is the first Indian Bank

to report such kind of loss. However, other public sector banks are expected to report

similar losses in the recent future. The bank expects that the loss due to the sub-

prime crisis would take away nearly 9% of the yearly turnover. The main cause of

the sub-prime crisis is expected to be the huge amount of loans given to the domestic

borrowers in United States with bad credit history, i.e. low repayment power called

sub-prime borrowers in United States. These borrowers were unable to repay the

loans due to the slowdown of the US economy, which affected the accounts of these

banks, thereby starting the chain reaction of the fall in the value of the securities in

the international market.

As per the estimated losses, banks like the Merrill Lynch, Citibank and

Deutsche Bank have lost out nearly US$ 180 billion due to the sub-prime mortgage

crisis.

On the 4th of March, 2008, the ICICI Bank stock fell more than 5% and was

closed at Rs 971 on the Bombay Stock Exchange. Stock of several other banks also

experienced a fall. Canara Bank fell nearly 6.43% and closed at Rs 239, PNB fell

about 5.36% and closed at Rs 516, Bank of India fell about 5.88% and closed at Rs

309 and SBI fell around 2.57% and closed at Rs 1,873. The index pertaining to the

banking shares fell at a rate of 4% with the expectation that several other banks

would announce their losses due to the global sub-prime crisis.

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PRODUCT OFFERINGS

1) DEPOSITS

ICICI Bank offers wide variety of Deposit Products to suit the requirements

of the customers. Convenience of networked branches/ ATMs and facility of E-

channels like Internet and Mobile Banking.

a) Savings Account:

A Savings Account for everyone with a host of convenient features and

banking channels to transact through. So now people can bank at their

convenience, without the stress of waiting in queues. ICICI service savings

accounts with 8 to 8 banking and ‘out of branch’ banking.

b) Life Plus Senior Citizens Savings Account :

ICICI Bank understand that a Savings Account needs to do more after

people reach the age of seniority; the bank understand customers concerns for

safety and security. The bank has an ideal Savings Bank Service for those who

are 60 years and above. The Senior Citizen Services from ICICI Bank has

several advantages that are tailored to bring more convenience and enjoyment

in their life.

c) Young Stars Savings Account :

It's really important to help children learn the value of finances and money

management at an early age. Banking is a serious business, but ICICI make

banking a pleasure and at the same time fun. Children learn how to manage

their personal finances.

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d) Fixed Deposits:

ICICI provides Safety, Flexibility, Liquidity and Returns in the case of fixed

deposits. A combination of unbeatable features of the Fixed Deposit from ICICI

Bank.

e) Recurring Deposits:

When expenses are high, people may not have adequate funds to make big

investments. An ICICI Bank Recurring Deposit lets the customers invest small

amounts of money every month that ends up with a large saving on maturity. So

the customers enjoy twin advantages- affordability and higher earnings.

f) Easy Receive Savings Account :

Easy receive account is a unique savings account that caters to domestic

banking needs, while offering additional benefits for remittances received in the

account from abroad.

2) LOANS:

ICICI Bank offers wide variety of Loans Products to suit your requirements.

Coupled with convenience of networked branches/ ATMs and facility of E-channels

like Internet and Mobile Banking, ICICI Bank brings banking at customer’s

doorstep.

a. Home Loans:

The No. 1 Home Loans Provider in the country, ICICI Bank Home Loans

offers some unbeatable benefits to its customers - Doorstep Service, Simplified

Documentation and Guidance throughout the Process.

b. Personal Loans:

If customers want personal loan that's easy to get with the help of ICICI

69


Bank then ICICI Bank Personal Loans are easy to get and absolutely hassle

free. With minimum documentation people can now secure a loan for an amount

up to Rs. 15 lakhs.

c. Car Loans:

ICICI Bank is the No. 1 financier for car loans in the country. It has network

of more than 2500 channel partners in over 1000 locations. It has tie-ups with

all leading automobile manufacturers to ensure the best deals. A number of

flexible schemes & quick processing are available. Hassle-free application

process is available on the click of a mouse.

d. Commercial Vehicle Loans:

Range of services on existing loans & extended products like funding of

new vehicles, refinance on used vehicles, balance transfer on high cost loans,

top up on existing loans, extend product, working capital loans & other banking

products.

e. Two Wheeler Loans:

Customers can avail attractive schemes at competitive interest rates from the

No 1 Financier for Two Wheeler Loans in the country. There is finance facility

up to 90% of the On Road Cost of the vehicle, repayable in convenient

repayment options and comfortable tenors from 6 months to 36 months.

f. Farm Equipment Loans:

ICICI is the preferred financier for almost all leading tractor manufacturers

in the country. There are flexible repayment options in tandem with the farmer's

seasonal liquidity. They can choose from Monthly, Quarterly and Half-yearly

repayment patterns. There are comfortable repayment tenures from 1 year to 9

years.

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g. Business Installment Loans:

Business Installment Loan (BIL) by ICICI Bank helps the entities take giant

strides by fulfilling their business requirements, be it working capital

requirement, business expansion or to grab that once in a lifetime business

opportunity.

3) CARDS:

ICICI Bank offers a variety of cards to suit different transactional needs of its

customers. Its range includes Credit Cards, Debit Cards and Prepaid cards. These

cards offer customers convenience for their financial transactions like cash

withdrawal, shopping and travel. These cards are widely accepted both in India and

abroad.

a) Credit Cards:

Credit Cards give customers a smart way to shop, and offer them flexibility

and convenience in managing their finances. ICICI Bank credit cards provide a

host of exciting offers and benefits to the customers such as low interest rates,

rewards programs, and a high credit and cash limit. The bank offer different

types of credit cards to suit the different needs and requirements for added

features.

b) Travel Cards:

The traveler’s card is the Hassle Free way to Travel the world. Customers

traveling with US Dollar, Euro, Pound Sterling or Swiss Francs; Looking for

security and convenience; can opt for ICICI Bank Travel Card. It is issued in

duplicate. It offers Pin based security and has the convenience of usage of

Credit or Debit card.

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4) BANK ANYTIME ANYWHERE

Customer’s always had one bank branch. Now every ICICI Bank branch

becomes people’s branch. Every branch manager is the personal manager. People can

get personal attention wherever their business takes them.

5) BANKING ON CALL.

Banking has never been so convenient before. Now customers can use the

phone to make Balance Enquiries, Request for a Cheque Book, Stop Payment and

more.

6) INTERNET BANKING.

Customers can do all the banking they want without getting up from their

chair. With ICICI Bank's Internet Banking customers can access their account from

wherever they are, by logging in to their account at www.icicibank.com. The

customers can check their balance, pay their bills, transfer funds or even pay their

taxes sitting at their desk.

7) MOBILE BANKING.

Now the entire customer’s need to keep in touch with their account through

their mobile. Sign up for alerts on daily balance, cheque clearing alerts or bounced

cheque alerts.

8) CARD-TO-CARD TRANSFER

Transfer funds for free from the customer’s existing ICICI Bank account to

any Visa Card (debit or credit) in India. They can even pay their Visa credit card bill

through this facility available on www.icicibank.com

9) DEMAT SERVICES

ICICI Bank Demat Services boasts of an ever-growing customer base of over

11.5 lacs account holders. In ICICI’s continuous endeavor to offer best of the class

services to the customers the bank offer the following features:

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a) E-Instructions:

Customers can transfer securities 24 hours a day, 7 days a week through

Internet & Interactive Voice Response (IVR) at a lower cost. Now with "Speak

to transfer", customer can also transfer or pledge instructions through our

customer care officer.

b) Consolidation Demat Account:

Customers can dematerialize the physical shares in various holding patterns

and consolidate all such scattered holdings into the primary Demat account at

reduced cost.

c) Digitally Signed Statement:

Customers can receive the account statement and bill by email.

d) Corporate Benefit Tracking:

Customers can track the dividend, interest, bonus through the account

statement.

e) Mobile Request:

Customers can access the Demat account by sending SMS to enquire about

Holdings, Transactions, Bill & ISIN details.

10)MOBILE ALERTS:

Customers can receive SMS alerts for all debits/credits as well as for any

request which cannot be processed.

a) Dedicated customer care executives specially trained at the bank’s call

centre, to handle all their queries.

b) Countrywide network of over 235 branches, customers are never far from

an ICICI Bank Demat Services outlet.

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FUTURE OF ICICI BANK

The future of ICICI bank is perceived to be very technological advance.

There exist a pilot project at Bandra Kurla Complex, wherein a cash vending

machine enables cash deposits and incase a fake note is put in it, it just throws the

note out of the machine. They plan to have this everywhere at all branches.

They also want to have at all their branches a machine where a customer can

just punch in a few of his personal details at the duration of a statement wanted

which the machine then provides after absorbing the information.

They also plan to popularize a machine that provides debit cards to customers

with a fee of Rs. 210/- deducted automatically from their account after typing in

their personal details.

Another technique that they want to follow in order to customize the bank is

that even if the customer posses his debit card as he enters the bank premises certain

sensors will detect his presence and call out his name his wait time.

On asked about the welfare of the employees on stabilizing the above

initiatives, we got a reply saying that they do perceive their employees as being an

important part of their organization. They feel that they do require people for

example, let’s take the cash vending machine if when the machine throws out the

fake note, people normally pick it up and use it again. So in this case ICICI bank

requires a person to destroy that note and also lodge an FIR as per the rules.

They also require people to sell their insurance and other financial products.

This can be effectively done only on a one on one basis with the customer. Basically

because 70% of the work constitutes of giving bank statements, cash deposits and

debit cards which will all be automated, they can now concentrate better on meeting

customer needs and providing more efficient services.

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9. BIBLOGRAPHY

Banking Development in India - V.R. Mutalik Desai.

Banking in India: A managerial approach – Hrishikesh Bhattacharya.

WEBSITES:

www.economywatch.com

www.business.mapsofindia.com

www.iba.org.in

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