Atul New Project
-
Upload
9967834602 -
Category
Documents
-
view
235 -
download
0
Transcript of Atul New Project
-
7/29/2019 Atul New Project
1/80
1
CHAPTER 1: OVERVIEW OF BANKING
1.1 INTRODUCTION OF BANK:
Banks are the important component of any financial system. They play an
important role in channelizing the savings of surplus sectors to deficit
sectors. The efficiency and competitiveness of banking system defines the
strength of any economy. That is why the banking is always considered
as the backbone of the economy of any country. Indian economy is not anexception to this and banking system in India also plays a vital role in the
process of economic growth and development of the country. The
primary function of bank is to accept the money from the public in the
form of deposit and further lend it out to the needy people in return for an
income in the form of interest. Banks also gives returns in the form of
interest to the deposit holder which is always less than what bank receivesfrom its money borrowers (Debtors). The secondary functions of bank
includes opening of Letters of credit, Issuing Bank guarantees, issuing
demand drafts, mail Transfers, telegraphic transfers and collection of
instruments, Executor Trustee services, and dealing in Forex related
transactions and offering Safe Deposit Locker facilities, accepting Safe
custody articles and so on.
In modern days, Banks performs variety of agency functions and provides
various other services such as portfolio management, credit cards, ATM
cards, venture capital finance, micro finance, insurance, merchant
banking, etc. under one roof. This concept is popularly known as
Universal banking.
-
7/29/2019 Atul New Project
2/80
2
1.2 WHAT IS BANK?
The origin of the word bank can be traced back to the German word
Bank which translated means heap or mound or joint stock fund. The
Italian word Banco was derived from this to mean heap of money.
Bank as it largely understood in English today is an institution that
accepts money as a deposit for the purpose of lending with a view to earn
profit in the form of interest. In simple words, a bank is an institution
which deals in money and credit. It acts as intermediary who handles
other peoples money for their advantage and profit.
In French bancus or banque means a bench .Business was transacted
by the Jews in France on benches in the market place. The benches
resembled banking counters. If a banker failed, his bench was broken up
by the people, lending to the word bankrupt which means one that has
lost all his money, wealth or financial resources. Today the word bank is
used as a comprehensive term for a number of institutions carrying on
certain kinds of financial business. In practice, the word 'Bank' means
which borrows money.
A bank is now a financial institution which offers various savings as well
as cheque accounts, makes loans and provides other financial services,
making profits mainly from the difference between interest paid ondeposits and those of charged for loans, plus fees for accepting bills and
other services.
http://www.blurtit.com/q361870.htmlhttp://www.anz.com/edna/dictionary.asp?action=content&content=offerhttp://www.anz.com/edna/dictionary.asp?action=content&content=cheque_accounthttp://www.anz.com/edna/dictionary.asp?action=content&content=profithttp://www.anz.com/edna/dictionary.asp?action=content&content=interesthttp://www.anz.com/edna/dictionary.asp?action=content&content=deposithttp://www.anz.com/edna/dictionary.asp?action=content&content=deposithttp://www.anz.com/edna/dictionary.asp?action=content&content=interesthttp://www.anz.com/edna/dictionary.asp?action=content&content=profithttp://www.anz.com/edna/dictionary.asp?action=content&content=cheque_accounthttp://www.anz.com/edna/dictionary.asp?action=content&content=offerhttp://www.blurtit.com/q361870.html -
7/29/2019 Atul New Project
3/80
3
1.3 HISTORY OF BANK:
The first banks were probably the religious temples of the ancient world,
and were probably established in the third millennium B.C. Banks
probably predated the invention of money. Deposits initially consisted of
grain and later other goods including cattle, agricultural implements, and
eventually precious metals such as gold, in the form of easy-to-carry
compressed plates. Temples and palaces were the safest places to store
gold as they were constantly attended and well built. As sacred places,
temples presented an extra deterrent to would-be thieves.
Banking in India originated in the last decades of the 18th century. The
first banks were The General Bank of India which started in 1786, and the
Bank of Hindustan, both of which are now defunct. The oldest bank in
existence in India is the State Bank of India, which originated in the Bank
of Calcutta in June 1806, which almost immediately became the Bank of
Bengal. This was one of the three presidency banks, the other two being
the Bank of Bombay and the Bank of Madras, all three of which were
established under charters from the British East India Company. For The
three banks merged in 1921 to form the Imperial Bank of India, which,
upon India's independence, became the State Bank of India. Indian
merchants in Calcutta established the Union Bank in 1839,. The
Allahabad Bank, established in 1865 and still functioning today, is theoldest Joint Stock bank in India. The first entirely Indian joint stock bank
was the Oudh Commercial Bank, established in 1881 in Faizabad. The
next was the National Bank established in Lahore in 1895, which is now
one of the largest banks in India.
http://en.wikipedia.org/wiki/Bankinghttp://en.wikipedia.org/wiki/Templehttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Allahabad_Bankhttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Allahabad_Bankhttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Goldhttp://en.wikipedia.org/wiki/Templehttp://en.wikipedia.org/wiki/Banking -
7/29/2019 Atul New Project
4/80
4
Around the turn of the 20th Century, the Indian economy was passing
through a relative period of stability. Indians had established small banks,
most of which served particular ethnic and religious communities.
The period between 1906 and 1911, saw the establishment of banks
inspired by the Swadeshi movement. The Swedish movement inspired
local businessmen and political figures to found banks of and for the
Indian community. A number of banks established then have survived to
the present such as Bank of India, Corporation Bank, Indian Bank, Bank
of Baroda, Canara Bank and Central Bank of India. And as the time
passed on, the Indian economy saw tremendous increase in the number of
banks establishing in India with modern technologies and innovative
ideas.
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 reason of India's growth process.
http://en.wikipedia.org/wiki/Swadeshihttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Indian_Bankhttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Indian_Bankhttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Swadeshi -
7/29/2019 Atul New Project
5/80
5
1.4 DEFINITIONS OF BANK:
According to professor Crowther , A bank is one that collects
money from those who have its spare or who are saving it out of
their income and lends the money to those who required it.
Section 5(b) of the BANKING REGULATION ACT, 1949
defines banking as accepting for the purpose of lending or investment of deposits of money from the public, repayable on
demand or otherwise and withdrawable by cheque, draft, and
order or otherwise. Section 49A prohibits any institution other
than bank to accept deposit money from public withdrawable by
cheque.
In 1899, the United States Supreme define a bank: A bank is an
institution, usually incorporated with power to issue its
promissory notes intended to circulate as money (known as bank
notes); or to receive the money of others on general deposit, to
form a joint fund that shall be used by the institution, for its own
benefit, for one or more of the purposes of making temporaryloans and discounts; of dealing in notes, foreign and domestic
bills of exchange, coin, bullion, credits, and the remission of
money; or with both these powers, and with the privileges, in
addition to these basic powers, of receiving special deposits and
making collections for the holders of negotiable paper, if the
institution sees fit to engage in such business.
-
7/29/2019 Atul New Project
6/80
6
1.5 TYPES OF BANK:
Chart 1:- Types of Bank
Source: Researcher Methodology.
1) Central Bank:
A central bank is the bank for a country. It acts as a lender of banking
system. They are bankers to the government, bankers bank and ultimate
custodian of nations foreign exchange reserves. A central bank, reserve
bank, or monetary authority is a banking institution granted the exclusive
privilege to lend a government its currency. It has a monopoly on creating
Typesof
Bank
CentralBank
ComercialBank
Co-operative
Bank
DevelopmentBank
Exhange
Bank
InternationalBank
-
7/29/2019 Atul New Project
7/80
7
the currency of that nation, which is loaned to the government in the form
of legal tender. It is a bank that can lend money to other banks in times of
need. There are different central banks such as-Reserve Bank of India in
India, Bank of England in U.K., and Federal Reserve System in U.S.
2) Commercial Bank:
A bank which undertakes all kinds of ordinary banking business is called
as commercial bank. A commercial bank is a type of financial
intermediary and a type of bank. Commercial banking is also known as
business banking. It is a bank that provides checking accounts, savingsaccounts, and money market accounts and that accepts time deposits. It
provides money and credit for commercial and trade activities it also
grants loans and advances. They also perform certain agency services.
There are several commercial banks such as Bank of Maharashtra,
Punjab National Bank, Bank of India, Canara Bank, and State Bank of
India.
3) Co-operative Bank:
A co-operative bank is a financial entity which belongs to its members,
who are at the same time the owners and the customers of their bank. Co-
operative banks are often created by persons belonging to the same local
or professional community or sharing a common interest. Co-operative
banks generally provide their members with a wide range of banking and
financial services like loans, deposits, banking accounts. There are some
co-operative banks such as-Thane Bharat Sahakari Bank, Shyamrav
Vitthal Sahakari Bank, Thane Janata Sahakari Bank.
-
7/29/2019 Atul New Project
8/80
8
4) Development Bank:
The banks which look after development in the field of industry,
commerce are called as development banks. They are governed by RBI
norms. The first development bank In India incorporated immediately
after independence in 1948 under the Industrial Finance Corporation Act
as a statutory corporation to pioneer institutional credit to medium and
large-scale. Then after in regular intervals the government started new
and different development financial institutions to attain the different
objectives. There are development banks such as Asian Development
Bank, Industrial Development Bank of India, Small Industry development
Bank.
5) Exchange Bank:
The bank which looks after dealing in foreign currencies are exchange
banks. They have special authority to deal with foreign currencies. They
are governed by rules and regulation of Reserve Bank of India as well asgovernment of India .For example EXIM Bank.
6) International Bank:
The banks whose origin is at outside of the country are called as
International Bank. They have their branches worldwide. They have to
follow the principles of Reserve Bank of India. For example: ICICI Bank,HDFC Bank. International banks offer various financial and legal benefits
to accountholders. In fact, individuals and organizations have been
benefiting from international banking for many years. Usually, only high
net worth clients hold accounts in international banks.
-
7/29/2019 Atul New Project
9/80
9
1.7 FUNCTIONS OF BANK:
Chart No: 2:- Functions of bank:
Source: Researchers Methodology.
Functions
of Bank
PrimaryFunctions
Accepting
Deposits
Lending
Money
SecondaryFunctions
Agency
Functions
-
7/29/2019 Atul New Project
10/80
10
Deriving from the definitions and viewed solely from the point view of
customers, bank essentially performs the following function:
1. PRIMARY FUNCTIONS OF BANK:
The primary functions of a bank is usually accepting deposits from
the public and lending money to the needy people. Both these
functions are explained in detail below:
Accepting deposits from the public.-The primary functions of bank is accepting money in the form of
deposits from the public and further lend that money to the needy
people to earn an income in the form of Interest. The money is accepted
by bank as a deposit for safe keeping. The people or customers of bank
deposits money in the bank to earn interest income instead of keeping
that money idle at home. However, Bank also uses this money to earn
interest from people who are in need of money. In this case, the interest
rate charged to the borrower by the bank is usually higher than from
what it gives to its depositor. This is, in true sense, the actual business
of the bank.
The bank accepts the money from the public in the form of following
deposits:
a) Savings Deposit: The saving deposit is one of the most popular
deposits account among the savers. The main advantage of savings
account is that you easily deposit and withdraw money from the
bank and one can also earn interest on the money lying in the
account. The rate of interest given by the bank on deposit in
savings account is usually less than any other bank accounts. One
-
7/29/2019 Atul New Project
11/80
11
can withdraw money from this account for a fixed number of
times.
b) Current Deposit: Current deposit or current A/c are mainly usedby the business people who need to frequently deposit and make
payments from their accounts. A current holder can withdraw
money from his account any number of times during a month.
However, such a current holder does not earn any interest income
on his deposits. Since the rate of interest provided in the current
deposits is zero.
c) Fixed Deposit: The fixed deposit is also known as term deposit.
Since, the deposits in case of fixed deposit are accepted by a bank
for a fixed term or period. Such an account earns a higher rate of
interest than the savings bank account usually between 8 to 10 %.
However, the money of the a/c holder gets blocked for a fixedperiod of time. The fixed deposit a/c holder gets money back only
on the date of maturity. And if he wishes to withdraw the money
before the end of the fixed period or maturity, he may have to
accept a lower rate of interest as a penalty for not having retained
the deposit with the bank for the specified period.
d) Recurring Deposit: The variation of the fixed deposit is the
Recurring deposit account where the holder of this account need to
deposit a fixed amount of money at fixed interval (every
week/month) for a particular period of time, say a year or two as
per his convenience. However, the holder is not allowed to
withdraw money from this account before the fixed period. He can
do so only at the end of the fixed period.
-
7/29/2019 Atul New Project
12/80
12
Lending money to public.-
The bank acts as an intermediary between the people who have money
to lend and the people who dont have money to carry business
transactions. The bank lends money to the people in the form of loans,
advances, overdrafts, etc.
There are three types of loans depending upon their tenure of
repayment -
i. Short term loan
ii. Medium term loan
iii. Long term loan
Short term loans are those which have to be repaid in a very short
period of time say 1 or 3 years and the rate of interest charged by the
bank in this type of loan is very high since, the repayment period is
very less. Medium term loans are those which are for 5 to 10 years.
The rate of interest charged by the bank is moderate. Long term loans
are those which have to be repaid after a long period of time say 10
years or more and the rate of interest charged by the bank is very less
as compared to others since, the repayment period is very high.
Nowadays, depending upon the nature there are also other types of
loans provided by the banks such as personal loans, housing loans,
vehicle loans, educational loans, agricultural loans , etc.
-
7/29/2019 Atul New Project
13/80
13
2. SECONDARY FUNCTIONS OR AGENCY FUNCTIONS:
The banks in todays modern world perform variety of
functions other than its primary functions. These functions are popularly
known or called as Secondary or Agency functions of the bank. Some of
the agency functions of bank are listed below:
i. Transferring money from one place to other.- Bank transfers the money of both domestic and foreign from one place
to another place. This is known as a remittance services. Bank issues
demand draft, bankers cheque, money order for transferring the
money.
ii. Acts as a trustee.-
Bank acts as trustee of bank for various purposes. Whenever a
company issues a debenture, it has to appoint intermediary to protect
the interest of the debenture holder.
iii. Keeping valuable in custody.-
Bankers are in the business providing the security to the money and
valuable of the general public. Bank provides locker system.
iv. Government Business.- Banks accepts tax and non-tax receipts on behalf of government.
Pension payments and tax refund also take place through bank.
v. Maturity Transformation.- Bank borrow more on demand debt and short term debt, but provide
more long term loan.
Thus, the above all were the primary as well as secondary functions of
banks.
-
7/29/2019 Atul New Project
14/80
14
Chapter 2: BANKING IN INDIA BEFORE LPG
2.1 INSIGHTS FROM INDIAN ECONOMIC HISTORY:
From independence till the later part of the 1980s, India economic
approach was mainly based on government control and a centrally
operated market. The country did not have a proper consumer oriented
market and foreign investments were also not coming in. This did not do
anything good to the economic condition of the country and as such the
standard of living of the people did not go up.
Even if the economic liberalization policies were undertaken, it did not
find much support and the country remained in its backward economic
state. The imports started exceeding the exports and the India suffered
huge balance of payment problems. The IMF asked the country for thebailout loan. The fall of the Soviet Union, a main overseas business
market of India, also aggravated the problem. The country at this stage
was in need of an immediate economic reform.
The Indian Banking sector was also one of the victims of this. And the
failure of banking sector resulted into the worsening of the fall out
situation. Since, Banks are the most important component of any financialsystem. They play important role of channelizing the savings of surplus
sectors to deficit sectors. The efficiency and competitiveness of banking
system defines the strength of any economy. Indian economy was not an
exception to this and even then the banking system in India also played a
vital role in the process of economic growth and development.
-
7/29/2019 Atul New Project
15/80
15
Banking sector is the major sector that contributes substantially to the
finance of national economy, efficiency of commercial banks is one of
the most interesting and important issues for both the government and
private sector. After the series of banking sector reforms in last decade
the Indian commercial banks has pass through certain developments and
challenges. The Indian banking system has been regulated for most of its
subsistence.
Without 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 two 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. And
all this is because of the LPG (Liberalization, Privatization and
Globalization) which was initiated by the Government of India in the year
1991.
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 dialing a number and ordering a pizza. Money has become
the order of the day.
http://finance.indiamart.com/investment_in_india/banking_in_india.htmlhttp://finance.indiamart.com/investment_in_india/banking_in_india.htmlhttp://finance.indiamart.com/investment_in_india/banking_in_india.htmlhttp://finance.indiamart.com/investment_in_india/banking_in_india.html -
7/29/2019 Atul New Project
16/80
16
This is why it becomes quintessential for all of us to look back and
understand the pre Liberalization, Privatization and Globalization era of
our Indian banking system.
The first bank in India, though conservative, was established in 1786.
From 1786 till today, the journey of Indian Banking System before LPG
can be segregated into three distinct phases. They are as mentioned
below:
Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian
banking sector Reforms.
New phase of Indian Banking System with the advent of Indian
Financial & Banking Sector Reforms after 1991.
To make this journey more explanatory, we can prefix the scenario as
Phase I, Phase II and Phase III.
-
7/29/2019 Atul New Project
17/80
17
2.2 PHASE - I (Early Phase of Indian banks):
The General Bank of India was set up in the year 1786. The Next was
Bank of Hindustan and Bengal Bank. The East India Company
established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of
Madras (1843) as independent units and called it Presidency Banks.
These three banks were amalgamated in 1920 and Imperial Bank of India
was established which started as private shareholders banks, mostly
Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively byIndians, Punjab National Bank Ltd. was set up in 1894 with headquarters
at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India,
Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were
set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also
experienced periodic failures between 1913 and 1948. There were
approximately 1100 banks, mostly small. To streamline the functioning
and activities of commercial banks, the Government of India came up
with The Banking Companies Act, 1949 which was later changed to
Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23
of 1965). Reserve Bank of India was vested with extensive powers for the
supervision of banking in India as the Central Banking Authority.
During those days public has lesser confidence in the banks. As an
aftermath deposit mobilization was slow. Abreast of it
the savings bank facility provided by the Postal department was
comparatively safer. Moreover, funds were largely given to traders.
http://finance.indiamart.com/investment_in_india/banking_in_india.htmlhttp://finance.indiamart.com/investment_in_india/banking_in_india.html -
7/29/2019 Atul New Project
18/80
18
2.3 PHASE - II (Banking in India prior LPG):
Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalized Imperial Bank of India with
extensive banking facilities on a large scale especially in rural and semi-
urban areas. It formed State Bank of India to act as the principal agent of
RBI and to handle banking transactions of the Union and State
Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalizedin 1960 on 19th July, 1969, major process of nationalization was carried
out. It was the effort of the then Prime Minister of India, Mrs. Indira
Gandhi. 14 major commercial banks in the country were nationalized.
Second phase of nationalization Indian Banking Sector Reform was
carried out in 1980 with seven more banks. This step brought 80% of thebanking segment in India under Government ownership.
The following are the steps taken by the Government of India to Regulate
Banking Institutions in the Country:
1949: Enactment of Banking Regulation Act.
1955: Nationalization of State Bank of India.
1959: Nationalization of SBI subsidiaries.
1961: Insurance cover extended to deposits.
1969: Nationalization of 14 major banks.
1971: Creation of credit guarantee corporation.
1975: Creation of regional rural banks.
1980: Nationalization of seven banks with deposits over 200 crore.
-
7/29/2019 Atul New Project
19/80
19
After the nationalization of banks, the branches of the public sector bank
India rose to approximately 800% in deposits and advances took a huge
jumpby11,000%.
Banking in the sunshine of Government ownership gave the public
implicit faith and immense confidence about the sustainability of these
institutions. However, during these days the operational functioning
of the Indian banks was totally restricted to India and also the
foreign investment were totally disallowed.
Also the maximum participation of government in the banking and othersectors created at thick wall which restricted or prevented them from
going global and over a period of time, the whole entrepreneurial abilities
of a people were tied down to the myriad of all controls with a set of
regulations and licenses - so much so that the Indian economy was called
a License Raj . So, When you want to produce something, you needs a
licence, to increase production you needs a licence, to re-allocate yourresources, you needed a licence - every decision was taken by the Babus
(Bureaucrats)) rather than the entrepreneurs themselves. And to these
myriads of controls and regulations, the entire productive potential was
tied down. Later on, in true sense Liberalization was basically initiated
for unleashing the productive potential of people in terms of reducing the
kind of constraints imposed over a period of time upon the entrepreneurs.This is the true meaning of liberalization. And privatization was meant
for the minimizing the participation of the government and instead grant
license for private players while globalization was for opening the doors
for the foreign investment and private new entrants or players from the
outside world.
-
7/29/2019 Atul New Project
20/80
20
2.4 Phase III (Indian Banking after LPG):
This phase has introduced many more products and facilities in the
banking sector in its reforms measure. In 1991, under the chairmanship of
M Narashimham, a committee was set up by his name which worked for
the liberalization of banking practices.
As a result of these reforms or after these reforms, the country is flooded
with foreign banks and their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking and net banking isintroduced. The entire system became more convenient and swift. Time is
given more importance than money. The approach of Indian banks was
transformed from profit oriented to the customer oriented or service
oriented. Customer choice and satisfaction gained more importance.
Since, there is constant bombarding from the foreign competitors.
The financial system of India has shown a great deal of resilience. It issheltered from any crisis triggered by any external macroeconomics
shock as other East Asian Countries suffered. This is all due to a flexible
exchange rate regime, the foreign reserves are high, the capital account is
not yet fully convertible, and banks and their customers have
limited foreign exchange exposure.
http://finance.indiamart.com/investment_in_india/banking_in_india.htmlhttp://finance.indiamart.com/investment_in_india/banking_in_india.html -
7/29/2019 Atul New Project
21/80
21
Chapter 3: LPG A major transformation
in Indian Financial System
3.1 PARADIGM SHIFT IN THE INDIAN ECONOMY:
It is a fact that any national story is often a tale of turning points. When a
catastrophe takes place, the mindset of a nation changes and it decides the
course of its destiny. If August 15, 1947 marked the Indian Independence
- from political slavery to colonial power, then definitely August of 1991could be marked as the beginning of Indian Economic Freedom.
Many of us are alive to see the historical realities of the rise and fall of
nations. We realize that it is those who had the ability to innovate have
always won the day. If you look at the history of human civilization, we
see that those who had the ability to innovate, may be a war horse, may be
cannon or may be a steam engine have won the day.
In early 1990s the Indian economy had similarly witnessed some
dramatic policy changes in the form of LPG. It was in this 1990s period
when the first initiation towards globalization and economic liberalization
was undertaken by Dr Manmohan Singh, who was the Finance Minister
of India under the Congress government headed by P.V. NarashimhamRao. This is perhaps the milestone in the economic growth if India and it
aimed towards welcoming globalization. Since, the liberalization plan,
the economic condition gradually started improving and today India is
one of the fastest growing economies in the world with an average yearly
growth rate of around 6-7%.
-
7/29/2019 Atul New Project
22/80
22
The idea behind the new economic model known as Liberalization,
Privatization and Globalization in India (LPG) , was to make the
Indian economy one of the fastest growing economies in the world. An
array of reforms was initiated with regard to industrial, trade and social
sector to make the economy more competitive. The economic changes
initiated have had a dramatic effect on the overall growth of the economy.
It also heralded the integration of the Indian economy into the global
economy.
-
7/29/2019 Atul New Project
23/80
23
3.2 BUT ESSENTIALLY - WHAT IS LPG?
Since after the post independence period, we had adopted economic
strategy of planned growth. This policy continued up to 1991 in which
the State had to play a major role. Over a period of time, the whole
entrepreneurial abilities of a people were tied down to the myriad of all
controls with a set of regulations and licenses - so much so that the Indian
economy was called a Licen se Raj. When you want to produce
something, you needs a licence, to increase production you needs alicence, to re-allocate your resources, you needed a licence - every
decision was taken by the Babus (Bureaucrats)) rather than the
entrepreneurs themselves. And to these myriads of controls and
regulations, the entire productive potential was tied down. Liberalization
basically meant unleashing the productive potential of people in terms of
reducing the kind of constraints imposed over a period of time upon theentrepreneurs. This is the true meaning of liberalization.
Over a period of time in the 1950-60s when the private sector was not
developed enough, it was only to be expected that the Government would
need to come in a big way and take a lead in the industry as a producer.
But in the spate of enthusiasm we overdid it so much so that by 1991 wewere boasting of PSUs commanding heights in the Indian economy over
the private sector. It turned out that, if you looked at the total investment
made is above Rs.4, 00,000 crore in the Public Sector Undertakings, Rs.2,
50,000 crores for the State level Public Sector Undertakings and what is
the rate of return that the country has given on this, it is really 2.5%. So
we had to face a very strange situation in 1991 where the Government
was borrowing from the market at the rate of 14 % and was investing
-
7/29/2019 Atul New Project
24/80
24
where the rate of return was only 2.5 %. But this Just could not go on.
This was a sure recipe for disaster and indeed it did strike us. No matter
you think how special you are, you are not immune from the basic laws
of economics and we were made to realize that in terms of a crisis which
started in 1991. And as a result privatization was meant or initiated for
the minimizing the participation of the government and instead giving an
opportunity or chance to private players by granting license to them while
globalization was for opening the doors of Indian economy for the
foreign investment and private new entrants from the outside world. And
it was from then onwards that we started changing our policies , mindsets and have now come a long way.
In other words, the need for the Liberalization, Privatization and
Globalization arised due to the Indian economy which was in deep crisis
in July 1991, when foreign currency reserves had plummeted to almost $1
billion; Inflation had roared to an annual rate of 17 percent; fiscal deficitwas very high and had become unsustainable; foreign investors and NRIs
had lost confidence in Indian Economy. Capital was flying out of the
country and we were close to defaulting on loans. Along with these
bottlenecks at home, many unforeseeable changes swept the economies of
nations in Western and Eastern Europe, South East Asia, Latin America
and elsewhere, around the same time. These were the economiccompulsions at home and abroad that called for a complete overhauling
of the Indias economic policies and programs which ultimately paved the
way for economic reforms like LPG (Liberalization, Privatization and
Globalization) in India. These economic reforms initiated by government
of India in early 1990s later on have brought about a sea change in
operational environment, its functioning and outlook of Indian banks and
the financial system on a whole.
-
7/29/2019 Atul New Project
25/80
25
3.3 MEASURES FOR INITIATING LPG IN INDIA:
The Major measures initiated as a part of the liberalization, Privatization
and globalization strategy in the early nineties by the government of India
included the following:
Devaluation: The first step towards globalization was taken with the
announcement of the devaluation of Indian currency by 18-19 percent
against major currencies in the international foreign exchange market. In
fact, this measure was taken in order to resolve the BOP crisis.
Disinvestment - In order to make the process of globalization smooth,
privatization and liberalization policies are moving along as well. Under
the privatization scheme, most of the public sector undertakings have
been/ are being sold to private sector.
Dismantling of The Industrial Licensing Regime At present, only six
industries are under compulsory licensing mainly on accounting of
environmental safety and strategic considerations. A significantly
amended locational policy in tune with the liberalized licensing
policy is in place. No industrial approval is required from the government
for locations not falling within 25 kms of the periphery of cities having apopulation of more than one million.
Allowing Foreign Direct Investment (FDI) across a wide spectrum of
industries and encouraging non-debt flows. The Department has put in
place a liberal and transparent foreign investment regime where most
activities are opened to foreign investment on automatic route without
any limit on the extent of foreign ownership. Some of the recent
-
7/29/2019 Atul New Project
26/80
26
initiatives taken to further liberalize the FDI regime, inter alias, include
opening up of sectors such as Insurance (upto 26%); development of
integrated townships (upto 100%); defence industry (upto 26%);
tea plantation (upto 100% subject to divestment of 26% within five years
to FDI); enhancement of FDI limits in private sector banking, allowing
FDI up to 100% under the automatic route for most manufacturing
activities in SEZs; opening up B2B e-commerce; Internet Service
Providers (ISPs) without Gateways; electronic mail and voice mail to
100% foreign investment subject to 26% divestment condition; etc. The
Department has also strengthened investment facilitation measuresthrough Foreign Investment Implementation Authority (FIIA).
Non Resident Indian Scheme the general policy and facilities for
foreign direct investment as available to foreign investors/ Companies are
fully applicable to NRIs as well. In addition, Government has extended
some concessions especially for NRIs and overseas corporate bodieshaving more than 60% stake by NRIs.
The reduction of the peak customs tariff from over 300 per cent prior
to the 30 per cent rate that applies now. Severe restrictions on short-term
debt and allowing external commercial borrowings based on external debtsustainability.
Wide-ranging financial sector reforms in the banking, capital
markets, and insurance sectors, including the deregulation of interest
rates, strong regulation and supervisory systems, and the introduction of
foreign/private sector competition.
-
7/29/2019 Atul New Project
27/80
-
7/29/2019 Atul New Project
28/80
28
Chapter 4: IMPACT OF GLOBALIZATION ON
INDIAN BANKING INDUSTRY
4.1 AFTERMATH EFFECT OF LPG IN INDIA :
The most important thing that happened in 1991 is that the Indian
economy started increasingly integrating into the world economy. India
certainly will be not left out in the way side in the industrial revolution of our time. Sure enough Indian is already in the forefront of Information
Technology which is beginning to change our lives so dramatically.
With the onset of these reforms to liberalize the Indian economy in July
of 1991, a new chapter has dawned for India and her billion plus
population. This period of economic transition has had a tremendousimpact on the overall economic development of almost all major sectors
of the economy, and its effects over the last decade can hardly be
overlooked. Besides, it also marks the advent of the real integration of the
Indian economy into the global economy.
This era of reforms has also ushered in a remarkable change in the Indianmindset, as it deviates from the traditional values held since
Independence in 1947, such as self reliance and socialistic policies of
economic development, which mainly due to the inward looking
restrictive form of governance, resulted in the isolation, overall
backwardness and inefficiency of the economy, amongst a host of other
problems. This despite the fact, that India had always the potential to be
on the fast track to prosperity.
-
7/29/2019 Atul New Project
29/80
29
Now that India is in the process of restructuring her economy, with
aspirations of elevating herself from her present desolate position in the
world, the need to speed up her economic development is even more
imperative. And having witnessed the positive role that Foreign Direct
Investment (FDI) has played in the rapid economic growth of most of the
Southeast Asian countries and most notably China, India has embarked
on an ambitious plan to emulate the successes of her neighbors to the east
and is trying to sell herself as a safe and profitable destination for FDI.
Globalization has many meanings depending on the context and on theperson who is talking about. Though the precise definition of
globalization is still unavailable a few definitions are worth viewing,
Guy Brainbant, says that the process of globalization not only includes
opening up of world trade, development of advanced means of
communication, internationalization of financial markets, growingimportance of MNCs, population migrations and more generally
increased mobility of persons, goods, capital, data and ideas but also
infections, diseases and pollution.
The term globalization refers to the integration of economies of the world
through uninhibited trade and financial flows, as also through mutualexchange of technology and knowledge. Ideally, it also contains free
inter-country movement of labour.
In context to India, this implies opening up the economy to foreign direct
investment by providing facilities to foreign companies to invest in
-
7/29/2019 Atul New Project
30/80
30
different fields of economic activity in India, removing constraints and
obstacles to the entry of MNCs in India, allowing Indian companies to
enter into foreign collaborations and also encouraging them to set up joint
ventures abroad; carrying out massive import liberalization programs by
switching over from quantitative restrictions to tariffs and
Import duties, therefore globalization have been identified with the policy
reforms of 1991 in India.
Globalization in India has allowed companies to increase their base of
operations, expand their workforce with minimal investments, andprovide new services to a broad range of consumers.
The process of globalization has been an integral part of the recent
economic progress made by India. Globalization has played a major role
in export-led growth, leading to the enlargement of the job market in
India.
One of the major forces of globalization in India has been in the growth
of outsourced IT and business process outsourcing (BPO) services and
also banking as well as other financial services. The last few years have
seen an increase in the number of skilled professionals in India employed
by both local and foreign companies to service customers in the US and
Europe in particular. Taking advantage of Indias lower cost but educated
and English-speaking work force, and utilizing global communications
technologies such as voice-over IP (VOIP), email and the internet,
international enterprises have been able to lower their cost base by
establishing outsourced knowledge-worker operations in India.
http://www.economywatch.com/economy-articles/globalization-in-india.htmlhttp://www.economywatch.com/economy-articles/globalization-in-india.htmlhttp://www.economywatch.com/economy-articles/globalization-in-india.htmlhttp://www.economywatch.com/economy-articles/globalization-in-india.htmlhttp://www.economywatch.com/economy-articles/globalization-in-india.htmlhttp://www.economywatch.com/economy-articles/globalization-in-india.html -
7/29/2019 Atul New Project
31/80
31
Globalization in India has been advantageous for companies that have
ventured in the Indian market. By simply increasing their base of
operations, expanding their workforce with minimal investments, and
providing services to a broad range of consumers,
large companies entering the Indian market have opened up many
profitable opportunities.
But Globalization, of course, was as much as an opportunity as it was
a challenge.
First and foremost, an opportunity of specializing in areas of comparativeadvantage and thus achieving the benefits of skill especially as there is
now increasingly the possibility of gradual access to worlds best
technology determined by commercial terms of trade rather than
patronizing the terms of aid.
When LPG came in India in 1991 it was a major turning point. When weall recall that for the first time we had a situation where the Indian
economy was almost a marginalized one. Our people had forgotten about
the glories of the Indian economy, foreign exchange reserves dwindled to
a level of less than one billion dollars and the nation was on the verge of
bankruptcy. We were very close on the brink of default and that was the
time when finally changes started taking place in a positive manner.Economic reforms started taking place in a big way.
http://www.economywatch.com/economy-articles/globalization-in-india.htmlhttp://www.economywatch.com/economy-articles/globalization-in-india.html -
7/29/2019 Atul New Project
32/80
32
4.2 EFFECT OF LPG ON INDIAN BANKING SECTOR :
If we look at the Indian economic reforms, we can think of two distinct
facets - technically we call them micro economic stabilization and
structural adjustments. Micro economic stabilization is basically meant to
Stabilize the economy, whereas structural advantage essentially involved
re-structuring of the whole economy and that process is divided into three
core areas
i) Liberalization
ii) Privatizationiii) Globalization.
These three are popularly known as LPG. Although LPG (Liquid
Petroleum Gas) is explosive but this LPG combination has been a
welcome sign throughout the world.
As far as banking in India is concerned, there are three distinct spells of development of banking industry in post independent India, the pre-
nationalization era from 1947 to 1969, the post-nationalization cum pre
liberalization era from 1969 to 1991 and the neo-liberalization era from
1991 onwards. The first phase was mostly city-centric private Banking
marked by frequent failures and liquidation of Banks and consequent
pauperization of numerous poor and middle class depositors and loss of jobs for the employees.
The post-nationalization era saw a sea change in the Banking scenario:
financial stability of Public Sector Banks (PSBs) controlling more than
84% of Banking business of the country, PSBs commanding trust and
confidence of the Banking-public, expansion of Branch net-work of
Banks particularly in hitherto unbanked rural and semi-urban centres ,
-
7/29/2019 Atul New Project
33/80
33
opening up the banking services accessible to the rural poor, expansion of
credit to agriculture, small scale industries and small entrepreneurs,
artisans even to the marginal farmers, small shop owners, vegetable
vendors etc. Such expansion of Branch network, coupled with such mass-
banking, created considerable job opportunities on the one hand, and, on
the other, it helped a green revolution on the agricultural sector, obviating
dependence of import of food grains, as also a spurt in the development
of Small and Medium Scale Industries. It also rescued a vast section of
the rural poor from the exploitation by village-money-lenders. By tapping
the hitherto untapped huge rural savings, the PSBs could help the growthof large-scale and capital intensive industries too. Even the most ardent
critics of Public Sector too have had to recognize and appreciate the
laudable role of PSBs towards development of economic self reliance.
During this post nationalization era, Regional Rural Banks (RRBs) were
established in 1975 onwards under the auspices of PSBs to cater to thecredit needs of rural-India. Till 1990, priority sector lending constituted
over 70% of the advance portfolio of RRBs giving further fillip to the
rural economy. During the last four decades of their productive existence,
the PSBs have taken up the services of employees and the liability of
depositors of number of Private Banks going on liquidation due to
mismanagement by and the greed of their private owners.
With the onset of World Bank-IMF dictated reforms, euphemistically
called liberalization, successive Governments at the centre then were
consistently been trying to undo all the good work of the PSBs as also to
dismantle and privatize the PSBs altogether.
-
7/29/2019 Atul New Project
34/80
34
On 14th August 1991, the Government of India (GOI) appointed a
Committee headed by Mr. M. Narashimham (called Narashimham
Committee I) to suggest the modus operandi for reforms of the
Banking Sector. On 16th November 1991, the said Committee submitted
its Repost suggesting downsizing of PSBs through closure of Branches,
merger of PSBs, reduction of priority sector lending from the then
prevailing 40% to 10% of total advance portfolio, abolition of Banking
Service Recruitment Board, granting of more autonomy to PSBs in
respect of both financial and administrative matters, to reduce the
supervisory and regulatory control of Reserve Bank of India (RBI), theCentral Bank of the country, and, to top it all, dilution of Government
Holding in PSBs through suitable amendment of relevant legislations.
Thereafter, a number of committees, such as Narashimham Committee
II, Khan Committee, Verma Committee, S.C.Gupta Committee,
Raghuram Rajan Committee, Anwarul Hoda Committee, to name a few,
have been appointed to assess the progress in implementation of theRecommendations of the Narashimham Committee I as also to
suggest measures for carrying forward the reforms of the Banking Sector
further as per dictates of the World Bank-IMF.
Following the Recommendations of these Committees, successive
Governments have persistently been trying to carry forward the reformsdictated by World Bank-IMF. In the process, law has been amended to
pave the way for reduction of Govt. holding of shares in PSBs from 100%
to 51% and, in pursuance of such amendment, most of the PSBs (except
two major PSBs and two subsidiaries of State Bank of India) have made
public issue of shares, thus, reducing Government holding. Instead of
filling up more than one-hundred thousand vacant posts through
employment, the PSBs have reduced its workforce through Voluntary
-
7/29/2019 Atul New Project
35/80
35
Retirement Scheme on the one hand, and, on the other outsourcing even
the regular and core banking jobs to outside agencies. The role of RBI, as
the regulatory and supervisory authority over the banks have been
redefined and undermined considerably. RRBs have been directed to give
more emphasis on conventional Banking and, consequently, its priority
lending stands reduced to around 40% (from 70%) of total advances
today.
Still, all is not yet lost altogether, as least, so far our country, India, is
concerned. Bank employees in India have been fighting relentlesslyagainst the machinations of the successive Governments to the reform the
Banking Sector at the dictates of the World Bank-IMF combine. It is
most encouraging that all the nine unions having all-India presence in the
Banking Industry five Workmens Unions and four Officers Unions
representing almost 100% of the workforce in the Industry have joined
hands to form a United Forum of Bank Unions (UFBU). All the Unionsare, in the main, united in principle, against the reforms. Since the onset
of the reforms regime in 1991, the Bank employees have undertaken,
apart from other forms of struggle-programmes, not less than 19 one-day
strike and 3 two-day strike programmes (total 25 days of strike); these
strikes are apart from the strikes undertaken jointly with other sections of
Trade Union movement on popular demands.
Because of all these strike/struggle of Bank Employees and the role
played by the left parties, the successive Governments have not been able
to push through their much cherished reforms-programme to the fullest
extent they wished they could have done, to dismantle the PSBs that they
would have liked. The PSBs still retain their Nationalized character, save
and except State Bank of Sourastra (a subsidiary of State Bank of India)
-
7/29/2019 Atul New Project
36/80
36
which has been merged with State Bank of India, no other PSB has so far
been merged with any other by way of reform (merger of New Bank of
India with Punjab National Bank was actuated by commercial
considerations and not by way of reforms; hence no TU opposed the said
merger). The top echelons of PSBs, on their part, have not yet been able
to introduce outsourcing to the extent they would have liked.
The result is there for all of us to see. Because of the presence of a strong
and dominant Public Sector, the financial sector in our country, though
affected, has not crushed down with the melt down of the financial sectorin the United States of America and other major economies of the
capitalist world; not a single copper of public money has to be spent to
dole out/save any PSB, none of the depositors in any Bank has lost a
single farthing of his/her deposit; when the financial giants all over the
world have been happily off-loading their employees in thousands to tide
over the crisis, not a single Bank-employee in India has lost his job just toaccommodate the financial health of his/her employer. Pension, the only
post superannuation succor of employees, still remains assured. It is
therefore very much important to understand the changing way or pattern
of the Indian banking sector after the reforms.
The financial sector reforms in general and the banking reforms inparticular have been a key ingredient of the Indian reforms process. As a
result of these reforms, statutory pre-emption of banks (in the form of
high cash reserves and statutory liquidity ratio) got reduced to a great
extent so was the extent of financial repression. Interestingly the asset
quality of the Indian banks has improved to a great extent with a distinct
improvement in capital to risk adjusted assets ratio (CRAR) of banks
which is much above the stipulated level (9 percent) and drastic reduction
-
7/29/2019 Atul New Project
37/80
37
in NPA levels, notwithstanding the transition to 90 day delinquency norm
in 2004.
Table 3: Indicators of Indian banking reforms
(Percent)
Period
Quality of
Assets
Extent of Competition
(Percentage share in total Bank
Assets)
GrossNPL /
Assets
NetNPL /
Assets
ForeignBanks
PrivateSector
Banks
PublicSector
Banks
1996 - 97 7.0 3.3 7.9 7.7 84.4
2000 - 01 4.9 2.5 7.9 12.6 79.5
2002 - 03 4.0 1.8 6.9 17.5 75.7
2003 - 04 3.3 1.2 6.9 18.6 74.5
2004 - 05 2.5 0.9 6.5 18.2 75.3
2005 - 06 1.9 0.7 7.2 20.4 72.3
Source: Reserve Bank of India Survey, 2005 - 06
-
7/29/2019 Atul New Project
38/80
38
The major impact of banking sector reforms can also be viewed from the
following chart:
Chart 4: Indian Banking on the Reforms Path
Reforms Initiatives Impact on Banks
1. Deregulation of deposit
interest rate
2. Increase in CapitalAdequacy Ratio
3. Deregulation of lending
rates
4. Lower CRR & SLR
5.
Asset classification andprovisioning norms
6. Increase competition
7. Entry into new business
lines
8. Increased thrust on
banking supervision
and risk management
1. Helped banks to gain control
over cost of deposits
2. More stability in the bankingsystem
3. Flexibility to price loan products
and competitive pricing
4. Availability of more funds for
lending
5.
Encourage banks to strengthentheir credit and this brought
down the NPA generate rate
6. Pressure to retain customers,
enhance service quality and
efficiency
7. Emerge as financial super
markets and build the top and
bottom line
8. Help banks in proper allocation
of funds across various business
lines and adapt global best
practices of risk management to
enhance their competitiveness.
-
7/29/2019 Atul New Project
39/80
39
Source: Researchers methodology
The implications of globalization for a national economy are many.
Globalization has intensified interdependence and competition between
economies in the world market. These economic reforms have yielded the
following significant benefits:
Globalization in India had a favorable impact on the overall growth
rate of the economy. ( This is major improvement given that Indias
growth rate in the 1970s was very low at 3% and GDP growth in
countries like Brazil, Indonesia, Korea, and Mexico was more thantwice that of India. Though Indias average annual growth rate
almost doubled in the eighties to 5.9%, it was still lower than the
growth rate in China, Korea and Indonesia).
The pickup in GDP growth has helped improve Indias global
position. Consequently Indias position in the global economy hasimproved from the 8 th position in 1991 to 4th place in 2001; when
GDP is calculated on a purchasing power parity basis.
During 1991-92 the first year of Raos reforms program, t he Indian
economy grew by 0.9%only. However, the Gross Domestic
Product (GDP) growth accelerated to 5.3 % in 1992-93, and 6.2%1993- 94. A growth rate of above 8% was an achievement by the
Indian economy during the year 2003- 04. Indias GDP growth rate
can be seen from the following graph since independence.
-
7/29/2019 Atul New Project
40/80
40
Chart 5 : India GDP growth rate
Source: Economic survey 2001
Due to globalization not only the GDP has increased but also the
direction of growth in the sectors has also been changed. Earlier
the maximum part of the GDP in the economy was generated from
the primary sector but now the service industry, especially banking
industry, is devoting the maximum part of the GDP. The services
sector remains the growth driver of the economy with a
contribution of more than 57 per cent of GDP.
India is ranked 18th among the worlds leading exporters of
services (including banking as well as other) with a share of 1.3 per
cent in world exports. The services sector is expected to benefit
from the ongoing liberalization of the foreign investment regime
into the sector. Software, Banking and the ITES-BPO sectors have
-
7/29/2019 Atul New Project
41/80
41
recorded an exponential growth in recent years. Growth rate in the
GDP from major sectors of the economy can be seen from the
following Table.
Table-6: Structure of the Economy (Percentage)
(% of GDP) 1984-85 2002-03 2003-04 2004-05
Agriculture 35.2 26.5 21.7 20.5
Industry 26.1 22.1 21.6 21.9
Services 38.7 51.4 56.7 57.6
Source: Economic Survey 2000 & 2005
Not only this, globalization also brought about significant changes in theoverall attitude and outlook of Indian financial sector especially in the
banking sector. The entry of new banks has resulted in the paradigm shift
in the ways of banking in India. The growing competition, growing
expectations led to increased awareness amongst banks on the role and
importance of technology in banking. The arrival of foreign and private
banks with their superior sate of the art technology based services pushed
Indian Banks also to follow suit by going in for the latest technologies so
as to meet of competition and retain their customer base.
The economic reforms initiated by Government of India have brought
about a sea change in operational environment, its functioning and
outlook of Indian banks. The Indian banking industry has been
-
7/29/2019 Atul New Project
42/80
42
undergoing a metamorphosis since the commencing of liberalization,
Privatization and Globalization in India.
Today, post liberalization, privatization and globalization our Indian
financial system is rapidly changing. Some of the features of this change
are:
Increasing sophistication of capital markets Emergence of global investments. Industry consolidation.
Heightened focus on customer relations. Proliferation of new players entering the market.
In broader economic view, an efficient financial sector is an engine for
economic growth. It converts the fuel of savings into the kinetic energy
for the machine of the economy. The banking industry which is at the
core of the financial sector must take the lead.
And exactly same our Indian banking industry is doing right now. This
dominant position in the financial sector of banking has come from the
reform process started in the 90s which gave the banking an opportunity.
In this new environment, old methods of intermediation will not serve the
purpose. However, it has been empirically proved that every problem is
an opportunity in disguise.
-
7/29/2019 Atul New Project
43/80
43
Chapter 5: BANK OF MAHARASHTRA
Bank Profile
5.1 INTRODUCTION AND HISTORY:
i. The fledgling First Steps:
The bank was founded by a group of visionaries led by the
late Prof. V.G.Kale and the late Shri. D.K.Sathe and registered as a
banking company on 16th September, 1935 at Pune. The authorized
capital was Rs.10 lakhs and issued capital of Rs. 5 lakhs. Their vision was
to reach out and serve the comman man and meet all their working needs.
Successive leadership of the Bank and the employees has endeavoured to
fulfill their vision. Today, Bank of Maharashtra has over 12 millioncustomers across the length and breadth of the country served through a
network of 1428 branches in 22 states and2 union territories a truly pan
India bank.
-
7/29/2019 Atul New Project
44/80
44
Milestones in the journey for nation building:
The Bank of Maharashtra was registered on 16-09-1935
Commitment as stated in the prospectus issued on 21-10-1935:
Steadily to spread its business operations all over Maharashtra and as
opportunity allows, outside that area offering varied services to the
general public while trying to be useful to trade, commerce and industry
consistently with high standards of safety and efficiency
1936 : Commenced operations on 08-02-1936 in Pune
1938 : Second branch of the bank was opened in 1938 at Fort, Bombay.
1940 : Third branch came up at Deccan Gymkhana, Pune
1944 : Status as Scheduled Bank obtained
1946 : Deposits crossed Rs One crore mark
Formed fully owned subsidiary, The Maharashtra Executor &
Trustee Company
First branch outside Maharashtra opened in Hubli (Mysore
Starte, Now Karnataka)
1949 : Expansion to Andhra Pradesh: Hyderabad branch opened
1963 : Expansion to Goa: Panjim Branch opened
1966 : Expansion to Madhya Pradesh: Indore branch opened
Entered in Gujarat: Baroda branch opened
1969 : Nationalized along with 13 other Banks
Entry in Delhi by opening Karol bagh branch on 19-12-69
-
7/29/2019 Atul New Project
45/80
45
1974 : Deposit base crossed Rs. 100 Crore mark
1976 : Marathwada Grameena Bank, first RRB established on 26-08-1976
1978 : New Head Office building inaugurated by Hon'ble Prime
Minister of India Shri. Morarji Desai. Deposits crossed the figure
of Rs.500 Crores
1979 : Mahabank Agricultural Research and Rural Development
Foundation, registered as a public trust, was established for
undertaking research and extension work and to provide more
extensive services to farmers.
1985 : 500th branch in Maharashtra state was opened at the hands of the
then Prime Minister, Mrs. Indira Gandhi at Nariman Point,
Mumbai.
First Advanced Ledger Posting Machine (ALPM) was installed
at the branch.
Golden Jubilee Year Celebrations launched at the hands of Dr.
Manmohan Singh, Governor Reserve Bank of India
1986 : Thane Grameena Bank sponsored
1987 : The 1000th branch of the Bank was inaugurated at Indira
vasahat, Bibwewadi, Pune at the auspicious hands of Dr.Shankar
Dayal Sharma, the Honorable Vice President of India
1991 : "Mahabank Farmer Credit Card " was launched
Entered in to Domestic Credit Card Business
Main Frame Computer installed
Became member of the SWIFT
-
7/29/2019 Atul New Project
46/80
46
1995 : Diamond Jubilee Celebrations - Dr C Rangarajan the RBI
Governor was the Chief Guest
Deposits crossed Rs 5000 crore mark
1996 : Moved into A category from the earlier C category.
Autonomy obtained
2000 : Deposits crossed Rs 10000 crore mark
2004 : Public Issue of Shares 24% owned by Public
Listed in BSE and NSE
2005 : Bancassurance and Mutual Fund distribution business started2006 : Crossed total business level of Rs.50,000 Crore
Branch CBS Project started
2009 : Entered in to 75th year of dedicated service to the Nation
Adopted 75 underdeveloped villages for integrated overall
development
2010 : 100% CBS of branches achieved
Total Business crossed Rs One lakh crore
Opened 76 branches in the Platinum Year taking the total to 1506
ii. Mission:
To ensure quick and efficient response to customer expectations. To innovate products and services to cater to diverse sections of
society.
To adopt latest technology on a continuous basis. To build proactive, professional and involved workforce. To enhance the shareholders wealth through best practices and
corporate governance.
-
7/29/2019 Atul New Project
47/80
47
To enter international arena through branch network.
iii. The Birth:
The Bank of Maharashtra was registered on 16th Sept 1935
with an authorized capital of Rs 10.00 lakh and commenced business on
8th Feb 1936.
iv. The Childhood:
The Bank of Maharashtra, known as a common man's bank
since inception, its initial help to small units has given birth to many of
today's industrial houses. After nationalization in 1969, the bank
expanded rapidly. It now has 1428 branches all over India. The Bank has
the largest network of branches by any Public sector bank in the state of Maharashtra.
v. The Adult:
The bank has fine tuned its services to cater to the needs of
the common man and incorporated the latest technology in banking
offering a variety of services.
vi. Vision Statement 2010:
To be a vibrant, forward looking, techno-savvy, customer
centric bank serving diverse sections of the society, enhancing
shareholders and employees value while moving towards global
presence.
-
7/29/2019 Atul New Project
48/80
48
vii. Logo:
The Deepmal - With its many lights rising to greater heights. The Pillar - Symbolizing strength of organization. The Diyas - Symbolizing service of branches. The 3 M's Symbolizing
a. Mobilization of Money
b. Modernization of Methods and
c. Motivation of Staff.
viii. Aim: The bank wishes to cater to all types of needs of the entire family,
in the whole country. Its dream is "One Family, One Bank, Bank
of Maharashtra ".
ix. The Autonomy:
-
7/29/2019 Atul New Project
49/80
49
The Bank attained autonomous status in 1998. It helps in giving
more and more services with simplified procedures without
intervention of Government.
x. Social Aspect: The bank excels in Social Banking, overlooking the profit aspect; it
has a good share of Priority sector lending having 38% of its
branches in rural areas.
xi. Other Attributes: Bank is the convener of State level Bankers committee. Bank offers Depository services and Demat facilities at 131
branches.
Bank has a tie up with LIC of India and United India InsuranceCompany for sale of Insurance policies.
All the branches of the Bank are fully computerized.
-
7/29/2019 Atul New Project
50/80
50
xii. Organization Structure and Hierarchy:
Organization structure changed from four-tier to a three
tier structure since Feb 2008.
Three-tier structure consists of three levels:
1. Central Office
2. Regional Offices
3. Branches
Organization Hierarchy Chairman Managing Director Executive Director General Manager Deputy general Manager
Assistant Manager Chief Manager Senior Manager Manager Deputy Manager Clerk.
-
7/29/2019 Atul New Project
51/80
51
xiii. Key Personnel:
Shri Allen C A Pereira
(Chairman and Managing Director)
Shri M.G. Sanghvi
(Executive Director)
Shri V.P. Bhardwaj
(Director (Government nominee)
Shri S.K. Gogia
Director (RBI nominee)
Shri T Parameswara Rao
(Director)
Shri Anand Kamalnayan Pandit
(Shareholder Director)
Dr. Dinesh Shantilal Patel
(Shareholder Director)
Dr. S. U. Despande
(Officer Director)
Shri S.H. Kocheta
(Director)
-
7/29/2019 Atul New Project
52/80
52
ix. CORPORATE SOCIAL RESPONSIBILITIES (CSR)
ACTIVITIES OF BANK OF MAHARASHTRA:
The Bank of Maharashtra being one of the oldest public sector banks in
India has wholeheartedly accepted its responsibility towards the
development and upliftment of the society. That is why the bank has so
far made and still making several attempts in the upliftment of the poor
farmers, destroying unemployment, women empowerment and education.
In this context, the bank of Maharashtra has initiated many social
programmes and activities. The Bank of Maharashtras Bank Rural
Development Centres at Hadapsar and Bhigwan in Pune region are
undertaking various developmental activities for the benefit of the famers.
Its object is to set up Lab to Land project, reuse / rehabilitation of Saline
Soil and advice on scientific use of inputs for optimum results.
The Mahabank Agricultural Research and Rural DevelopmentFoundation (MARDEF) is active in socio-economic development of
villages by encouraging farmers to take diversified activities like dairy,
EMU farming, goat rearing, grape cultivation, horticulture and scientific
use of various inputs like fertilizers etc. The foundation assists farmers,
especially small and marginal farmers, in receiving timely bank credit.
a) Mahabank Self Employment Training Institute (M-SETI):
The Bank has established Five Mahabank Self Employment Training
Institutes (MSETI), one each at Pune, Aurangabad, Nagpur, Nasik and
Amravati. These provide training to rural youth and women for self
-
7/29/2019 Atul New Project
53/80
53
employment. A total of 4605 candidates have been trained by the
institutes so far.
M -SETI was established in December 2001 under the aegis of MARDEF with a view to fostering entrepreneurship skill development
for educated unemployed youths, especially from rural areas.
Various Rural Entrepreneurship Development Programmes and
Entrepreneurship Development Programmes courses are conducted
through 3 M-SETI centres at Pune, Aurangabad and Nagpur.
These M -SETI centres have conducted 187 programmes and trained
3905 unemployed youths of which 2696 have successfully started their
own livelihood activities.
-
7/29/2019 Atul New Project
54/80
54
b) Gramin Mahila VA Balak Vikas Mandal (GMBVM)
Gramin Mahila VA Balak Vikas Mandal (GMVBVM), an NGO formed
in 1989 by Bank of Maharashtra, is actively involved in formation,
nurturing of SHGs and facilitating linkage to Bank Credit. TheGMVBVM also helps SHGs to market their products through two sales
outlets in Pune City named SAVITRI. GMVBVM assists the SHGs to
secure quality raw material and inputs for their products and extends
marketing and sales support. Matured SHGs are assisted to upgrade into
Small and Medium Enterprises. GMVBVM has been declared as Mother
NGO by Govt. of Maharashtra.
Gramin Mahila VA Balak Vikas Mandal is a Trust sponsored by the
bank in 1989. Its objective is the empowerment of rural women through
the medium of Self help groups. Today GMBVM is working in 5 lead
districts of Bank of Maharashtra i.e. Pune, Satara, Nasik, Thane and
Jalna, nuturing self help groups covering over 1 lakh women.
-
7/29/2019 Atul New Project
55/80
55
The trust has the following thrust areas of work:
1. It is the only NGO which not only guides SHGs in taking up income
generating activities but also markets the products of SHG. Towards this
end the bank has made available space at Model Colony, Pune to run an
emporium called SAVITREE
2. Educating of SHG members
3. Insurance of SHG members
4. Training in all activities to become a successful SHG
5. Credit linkages with banks
Upto 31st March 08 GMBVM has formed 15739 SHG s and credit liked
13175 SHGs. Out of which, 8974 SHGs are credit linked through
branches of bank.
-
7/29/2019 Atul New Project
56/80
56
c) Councelling for farmers in Vidharbha:
The Mahabank Vidharbha Shetkari Jagruti Abhiyan, a joint effort of
Bank of Maharashtra and Hanuman Vyayam Prasarak Mandal hasreached out to more than 5750 Farmers in distress in six districts of
Vidharbha through counseling and training sessions
The bank has taken its social responsibility seriously. With the high
number of suicides amongst the farmers in Maharashtra, the bank has
taken innovative steps to bring the farmers into the formal banking sector
and stem the depressive trend.
In its endeavor to provide counseling to the farmers in Vidharbha
region, Bank of Maharashtra thought of going beyond extending financial
assistance to them, and it came out with an idea of providing technical
inputs to farmers in the drought-affected Vidharbha region.
-
7/29/2019 Atul New Project
57/80
57
The bank, in association with the NGO, conducts these programmes
every Saturday and Sunday in various parts of Amaravati and Yavatmal
districts. Agriculture experts give technical inputs to these farmers,
numbering around 100 to 150 in batch, on various matters. The
programme educates farmers not to depend on a single crop but also
encourages them to take up some ancillary activities.
So far 3736 farmers from Akola, Amravati, Yeotmal and Buldhana
Districts have so far been given training under this programme.
d) Women Empowerment:Ever since 2001- the Year of Women, the bank is implementing the 13-
point action plan in letter and spirit. The total credit extended to women
beneficiaries amounted to rs.1469 crores covering 167327 women
borrowers as on march 08.
e) Rural Development Centre: The bank has established Mahabank Agricultural research and rural
Development Foundation in1980 for supporting farmers by providing
credit plus services along with extension services, technical support,
operational research and development in the field of agriculture.
Considering the need for upgrading the technology adoption inagriculture and allied activities and to educate farmers for improving
productivity the bank has established 2 rural development centres one at
Hadapsar and another at Bhigwan way back in 1984.
The centres are implementing various developmental programmes like
soil reclamation, crop production, organic farming and activity specific
training programmes through NABARD and other agencies.
-
7/29/2019 Atul New Project
58/80
58
5.2 BANKING BEFORE LPG IN BANK OFMAHARASHTRA
The Bank of Maharashtra was registered on 16th Sept 1935 with an
authorized capital of Rs 10.00 lakh and commenced business on 8th Feb
1936. However, this was the pre independence period and during this
period the British rule was still pertaining in India. This was the time
when the Indians were more conservative and were less known to
banking products and services. It was a major challenge for any bank to
perform the banking activities then since, during the early age of Indian
banking there were no modern technologies and less were the marketingsources or communication channels. That is why, during the pre
independence period all the Indian banks were merely confined to
providing traditional banking activities like accepting deposits and
lending money to the people.
The Bank of Maharashtra was also not an exception to this. The bank of Maharashtra known as a common man's bank since inception, focused on
providing initial help to small units during the pre independence or pre
LPG period. This practice of Bank of Maharashtra later on gave birth to
many of today's industrial houses.
The traditional banking products or services offered by the bank werevery much popular among the common man but were hardly seem
enough attractive for the high earning people of India. As they constantly
wanted better services within a very less time which was not possible
then for a public sector bank like Bank of Maharashtra.
After nationalization in 1969, the bank expanded rapidly. It established
various branches across the different states of India and as a result today
-
7/29/2019 Atul New Project
59/80
59
it has 1428 branches all over India. The Bank has the largest network of
branches by any Public sector bank in the state of Maharashtra.
It would be tough to imagine a bank like Bank of Maharashtra to be a
passive mood. Though it was a real fact but this was the outcome of the
government restrictive rules and regulations which were in practice
before LPG.
The Bank of Maharashtra from the beginning itself believed in providing
services at cheaper rates and faster pace especially to the poor and
helpless common man of India. And this helped the bank to constantlychange and adapt to the changing world. The Bank of Maharashtra
always made an attempt to increase its customer base and expand its
business without worrying about the governments rules and regulations
and also about the competitors. The bank started a tradition of serving the
people of India along with the foreigners world class quality financial
service or banking products right from the date of its inception. Thereforms of LPG in India, however just provided the Bank of Maharashtra
the wings to fly in the global market and live like a global giant in the
banking industry.
-
7/29/2019 Atul New Project
60/80
60
5.3 IMPACT OF GLOBALIZATION ON THE PERFORMANCE
OF BANK OF MAHARASHTRA:
E ffects of Globalization on Indian banking Industry started when thegovernment opened the country's markets to foreign investments in the
early 1990s. Globalization of the Indian Industry took place in its
various sectors such as steel, pharmaceutical, petroleum, chemical,
textile, cement, retail, banking and BPO.
Globalization means the dismantling of trade barriers between
nations and the integration of the nations economies through financial
flow, trade in goods and services, and corporate investments between
nations. Globalization has increased across the world in recent years
due to the fast progress that has been made in the field of technology
especially in communications and transport. The government of Indiamade changes in its economic policy in 1991 by which it allowed
direct foreign investments in the country. As a result of this,
globalization of the Indian banking Industry along with many other
such industries took place on a major scale.
However, this impact can be clearly seen from the performance of the
Bank of Maharashtra after the globalization period. The various
beneficial effects of globalization in Bank of Maharashtra are that it
brought in huge amounts of money in the form of deposits from
various foreign depositors or investors. And also post globalization
many foreign companies set up industries in India in collaborations
with the Indian companies, especially in the pharmaceutical, BPO,
-
7/29/2019 Atul New Project
61/80
61
petroleum, manufacturing, and chemical sectors and this helped the
Bank of Maharashtra to provide various counseling, financial, etc.
services to them and also provide employment to many people in the
country. This helped to reduce a small amount of the level of
unemployment and poverty in the country.
The major benefit of the Effects or impact of Globalization on Indian
Industry that the foreign companies brought in highly advanced
technology with them and started providing various new technological
and innovative mechanisms. This helped the Bank of Maharashtra to
be a customer of such companies and make changes or adapt to the
changing world and provide better and cheaper customer services at a
faster pace. And also it give a better platform or room for bank of
Maharashtra to modify its way of working and also to introduce or
provide innovative as well as modern services or banking products to
its domestic as well as international customers.
The various negative Effects of Globalization on Bank of Maharashtra,
inspite of being a public sector bank, are that it faced severe or
increased competition in the Indian market between the foreign banks
and domestic banks. With the foreign goods or services being better
than the Indian goods or services, the consumer preferred to buy the
foreign goods or services. This reduced the amount of profit of theBank o. This happened mainly in the pharmaceutical, manufacturing,
chemical, and steel industries. The negative Effects of Globalization on
Indian Industry are that with the coming of technology the number of
labor required decreased and this resulted in many people being
removed from their jobs. This happened mainly in the pharmaceutical,
chemical, manufacturing, and cement industries.
-
7/29/2019 Atul New Project
62/80
62
The effects of globalization on Bank of Maharashtra have proved to be
positive as well as negative. The government of India must try to make
such economic policies with regard to Indian Industry's Globalization
that are beneficial and not harmful.
The aftermath effect of globalization in Bank of Maharashtra can be
clearly seen with respect to 7 Ps as follows:
1. Product:
A) Huge Range of Products:
1) Retail financing
2) Housing loan to public
3) Model Educational Loan scheme-from learning t