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1.AN INTRODUCTION TO THE BANKING SECTOR IN
INDIA
Banks are the most significant players in the Indian financial market. They are the
biggest purveyors of credit, and they also attract most of the savings from the
population. Dominated by public sector, the banking industry has so far acted as an
efficient partner in the growth and the development of the country. Driven by the
socialist ideologies and the welfare state concept, public sector banks have long
been the supporters of agriculture and other priority sectors. They act as crucial
channels of the government in its efforts to ensure equitable economic
development.
The Indian banking can be broadly categorized into nationalized (government
owned), private banks and specialized banking institutions. The Reserve Bank of
India acts a centralized body monitoring any discrepancies and shortcoming in the
system. Since the nationalization of banks in 1969, the public sector banks or the
nationalized banks have acquired a place of prominence and has since then seen
tremendous progress. The need to become highly customer focused has forced the
slow-moving public sector banks to adopt a fast track approach. The unleashing
of products and services through the net has galvanized players at all levels of the
banking and financial institutions market grid to look anew at their existing
portfolio offering. Conservative banking practices allowed Indian banks to be
insulated partially from the Asian currency crisis. Indian banks are now quoting al
higher valuation when compared to banks in other Asian countries (viz. Hong
Kong, Singapore, Philippines etc.) that have major problems linked to huge Non
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Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble
footed in approach and armed with efficient branch networks focus primarily on
the high revenue niche retail segments.
The Indian banking has finally worked up to the competitive dynamics of the
new Indian market and is addressing the relevant issues to take on the
multifarious challenges of globalization. Banks that employ IT solutions are
perceived to be futuristic and proactive players capable of meeting the
multifarious requirements of the large customers base. Private Banks have been
fast on the uptake and are reorienting their strategies using the internet as a
medium The Internet has emerged as the new and challenging frontier of
marketing with the conventional physical world tenets being just as applicable
like in any other marketing medium.
The Indian banking has come from a long way from being a sleepy business
institution to a highly proactive and dynamic entity. This transformation has been
largely brought about by the large dose of liberalization and economic reforms
that allowed banks to explore new business opportunities rather than generating
revenues from conventional streams (i.e. borrowing and lending). The banking in
India is highly fragmented with 30 banking units contributing to almost 50% of
deposits and 60% of advances. Indian nationalized banks (banks owned by the
government) continue to be the major lenders in the economy due to their sheer
size and penetrative networks which assures them high deposit mobilization. The
Indian banking can be broadly categorized into nationalized, private banks and
specialized banking institutions.
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The Reserve Bank of India acts as a centralized body monitoring any
discrepancies and shortcoming in the system. It is the foremost monitoring body
in the Indian financial sector. The nationalized banks (i.e. government-owned
banks) continue to dominate the Indian banking arena. Industry estimates
indicate that out of 274 commercial banks operating in India, 223 banks are in the
public sector and 51 are in the private sector. The private sector bank grid also
includes 24 foreign banks that have started their operations here.
The liberalize policy of Government of India permitted entry to private sector in
the banking, the industry has witnessed the entry of nine new generation private
banks. The major differentiating parameter that distinguishes these banks from all
the other banks in the Indian banking is the level of service that is offered to the
customer. Their focus has always centered around the customer understanding
his needs, preempting him and consequently delighting him with various
configurations of benefits and a wide portfolio of products and services. These
banks have generally been established by promoters of repute or by high value
domestic financial institutions.
The popularity of these banks can be gauged by the fact that in a short span of
time, these banks have gained considerable customer confidence and
consequently have shown impressive growth rates. Today, the private banks
corner almost four per cent share of the total share of deposits. Most of the banks
in this category are concentrated in the high-growth urban areas in metros (that
account for approximately 70% of the total banking business). With efficiency
being the major focus, these banks have leveraged on their strengths and
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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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2. Meaning of Bank
People earn money to meet their day-to-day expenses on food, clothing, education
of children, housing, etc. They also need money to meet future expenses on
marriage, higher education of children, house building and other social functions.
These are heavy expenses, which can be met if some money is saved out of the
present income. Saving of money is also necessary for old age and ill health when
it may not be possible for people to work and earn their living.
The necessity of saving money was felt by people even in olden days. They used tokeep money in their homes. With this practice, savings were available for use
whenever needed, but it also involved the risk of loss by theft, robbery and other
accidents. Thus, people were in need of a place where money could be saved safely
and would be available when required. Banks are such places where people can
deposit their savings with the assurance that they will be able to withdraw money
from the deposits whenever required. People who wish to borrow money for
business and other purposes can also get loans from the banks at reasonable rate of
interest.
Banks also render many other useful services like collection of bills, payment of
foreign bills, Safe-keeping of jewellery and other valuable items, certifying the
credit-worthiness of business, and so on. Banks accept deposits from the general
public as well as from the business community. Anyone who saves money for
future can deposit his savings in a bank. Businessmen have income from sales out
of which they have to make payment for expenses. They can keep their earnings
from sales safely deposited in banks to meet their expenses from time to time.
Banks give two assurances to the depositors
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a. Safety of deposit, and
b. Withdrawal of deposit, whenever needed
On deposits, banks give interest, which adds to the original amount of deposit. It is
a great incentive to the depositor. It promotes saving habits among the public. On
the basis of deposits banks also grant loans and advances to farmers, traders and
businessmen for productive purposes.
Thereby banks contribute to the economic development of the country and well
being of the people in general. Banks also charge interest on loans. The rate of
interest is generally higher than the rate of interest allowed on deposits. Banks also
charge fees for the various other services, which they render to the business
community and public in general. Interest received on loans and fees charged for
services which exceed the interest allowed on deposits are the main sources of
income for banks from which they meet their administrative expenses.
The activities carried on by banks are called banking activity. Banking as an
activity involves acceptance of deposits and lending or investment of money. It
facilitates business activities by providing money and certain services that help in
exchange of goods and services. Therefore, banking is an important auxiliary to
trade. It not only provides money for the production of goods and services but also
facilitates their exchange between the buyer and seller.
We may be aware that there are laws which regulate the banking activities in our
country.
Depositing money in banks and borrowing from banks are legal transactions.
Banks are also under the control of government. Hence they enjoy the trust and
confidence of people. Also banks depend a great deal on public confidence.
Without public confidence banks cannot survive.
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Bank definition:
A financial institution that is licensed to deal with money and its substitutes by
accepting time and demand deposits, making loans, and investing in securities. The
bank generates profits from the difference in
the interest rates charged and paid.
Bank is a lawful organization, which accepts
deposits that can be withdrawn on demand. It
also lends money to individuals and business
houses that need it.
A bank is a financial intermediary that accepts deposits and channels those
deposits into lending activities, either directly or through capital markets. A bank
connects customers with capital deficits to customers with capital surpluses.
http://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Financial_intermediary -
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3. History of Banking Sector in India
Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India which started in 1786, and the Bank of Hindustan,both of which are now defunct. The oldest bank in existence in India is the State
Bank of India, which originated in the Bank of Calcutta in June 1806, which
almost immediately became the Bank of Bengal. This was one of the three
presidency banks, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East
India Company. For many years the Presidency banks acted as quasi-central banks,
as did their successors. The three banks merged in 1921 to form the Imperial Bank
of India, which, upon India's independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in
1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank,
established in 1865 and still functioning today, is the oldest Joint Stock bank in
India.(Joint Stock Bank: A company that issues stock and requires shareholders to
be held liable for the company's debt) It was not the first though. That honor
belongs to the Bank of Upper India, which was established in 1863, and which
survived until 1913, when it failed, with some of its assets and liabilities being
transferred to the Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton.
With large exposure to speculative ventures, most of the banks opened in India
during that period failed. The depositors lost money and lost interest in keeping
deposits with banks. Subsequently, banking in India remained the exclusive
http://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/Bank_of_Madrashttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Allahabad_Bankhttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/American_Civil_Warhttp://en.wikipedia.org/wiki/Lancashirehttp://en.wikipedia.org/wiki/Confederate_Stateshttp://en.wikipedia.org/wiki/Confederate_Stateshttp://en.wikipedia.org/wiki/Lancashirehttp://en.wikipedia.org/wiki/American_Civil_Warhttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/Allahabad_Bankhttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bengal -
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domain of Europeans for next several decades until the beginning of the 20th
century.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another
in Bombay in 1862; branches in Madras and Pondicherry, then a French colony,
followed. HSBC established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and so became
a banking center.
The Bank of Bengal, which later merged with the Bank of Bombay and the Bankof Madras to form the Imperial Bank of India in 1921.
The first entirely Indian joint stock bank was
the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next
was the Punjab National Bank, established in
Lahore in 1895, which has survived to the present and is now one of the largest
banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian
Mutiny, and the social, industrial and other infrastructure had improved. Indians
had established small banks, most of which served particular ethnic and religious
communities.
The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stockbanks. All these banks operated
in different segments of the economy. The exchange banks, mostly owned by
http://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/w/index.php?title=Comptoire_d%27Escompte_de_Paris&action=edit&redlink=1http://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Puducherryhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/British_Rajhttp://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/Bank_of_Madrashttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Indian_rebellion_of_1857http://en.wikipedia.org/wiki/Indian_rebellion_of_1857http://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/File:Bank_of_Bengal.jpghttp://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/Indian_rebellion_of_1857http://en.wikipedia.org/wiki/Indian_rebellion_of_1857http://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://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/British_Rajhttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Puducherryhttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/w/index.php?title=Comptoire_d%27Escompte_de_Paris&action=edit&redlink=1http://en.wikipedia.org/wiki/Kolkata -
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Europeans, concentrated on financing foreign trade. Indian joint stock banks were
generally undercapitalized and lacked the experience and maturity to compete with
the presidency and exchange banks. This segmentation let Lord Curzon to observe,
"In respect of banking it seems we are behind the times. We are like some old
fashioned sailing ship, divided by solid wooden bulkheads into separate and
cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and
political figures to found banks of and for the Indian community. A number of
banks established then have survived to the present such as Bank of India,
Corporation Bank, Indian Bank,Bank of Baroda,Canara Bankand Central Bank
of India.
The favor of Swadeshi movement lead to establishing of many private banks in
Dakshina Kannada and Udupi district which were unified earlier and known by the
name South Canara ( South Kanara ) district. Four nationalised banks started in
this district and also a leading private sector bank. Hence undivided Dakshina
Kannada district is known as "Cradle of Indian Banking".
During the First World War (1914-1918) through the end of the Second World
War (1939-1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the First World War were turbulent,
and it took its toll with banks simply collapsing despite the Indian economygaining indirect boost due to war-related economic activities. At least 94 banks in
India failed between 1913 and 1918.
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/Canara_Bankhttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Dakshina_Kannadahttp://en.wikipedia.org/wiki/Udupi_districthttp://en.wikipedia.org/wiki/First_World_Warhttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Indian_independence_movementhttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/First_World_Warhttp://en.wikipedia.org/wiki/Udupi_districthttp://en.wikipedia.org/wiki/Dakshina_Kannadahttp://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/Indian_Bankhttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Swadeshi -
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Post-independence
The partition of India in 1947 adversely impacted the economies of Punjab and
West Bengal, paralyzing banking activities for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian banking. The
Government of India initiated measures to play an active role in the economic life
of the nation, and the Industrial Policy Resolution adopted by the government in
1948 envisaged a mixed economy. This resulted into greater involvement of the
state in different segments of the economy including banking and finance. The
major steps to regulate banking included:
In 1948, the Reserve Bank of India, India's central banking authority, wasnationalized, and it became an institution owned by the Government of
India.
In 1949, the Banking Regulation Act was enacted which empowered theReserve Bank of India (RBI) "to regulate, control, and inspect the banks in
India."
The Banking Regulation Act also provided that no new bank or branch of anexisting bank could be opened without a license from the RBI, and no two
banks could have common directors.
However, despite these provisions, control and regulations, banks in India except
the State Bank of India, continued to be owned and operated by private persons.
This changed with the nationalization of major banks in India on 19 July 1969.
http://en.wikipedia.org/wiki/Partition_of_Indiahttp://en.wikipedia.org/wiki/Punjab,_Indiahttp://en.wikipedia.org/wiki/West_Bengalhttp://en.wikipedia.org/w/index.php?title=Indian_independence_eovement&action=edit&redlink=1http://en.wikipedia.org/wiki/Laissez-fairehttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Mixed_economyhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Mixed_economyhttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Laissez-fairehttp://en.wikipedia.org/w/index.php?title=Indian_independence_eovement&action=edit&redlink=1http://en.wikipedia.org/wiki/West_Bengalhttp://en.wikipedia.org/wiki/Punjab,_Indiahttp://en.wikipedia.org/wiki/Partition_of_India -
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Liberalization
In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known
as New Generation tech-savvy banks, and included Global Trust Bank (the first of
such new generation banks to be set up), which later amalgamated with Oriental
Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC
Bank. This move, along with the rapid growth in the economy of India, revitalized
the banking sector in India, which has seen rapid growth with strong contribution
from all the three sectors of banks, namely, government banks, private banks and
foreign banks.
The next stage for the Indian banking has been set up with the proposed relaxation
in the norms for Foreign Direct Investment, where all Foreign Investors in banks
may be given voting rights which could exceed the present cap of 10%,at present it
has gone up to 74% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of
functioning. The new wave ushered in a modern outlook and tech-savvy methods
of working for traditional banks. All this led to the retail boom in India. People not
just demanded more from their banks but also received more.
Currently (2007), banking in India is generally fairly mature in terms of supply,
product range and reach-even though reach in rural India still remains a challenge
for the private sector and foreign banks. In terms of quality of assets and capital
adequacy, Indian banks are considered to have clean, strong and transparent
balance sheets relative to other banks in comparable economies in its region.
http://en.wikipedia.org/wiki/Narsimha_Raohttp://en.wikipedia.org/wiki/Liberalizationhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/UTI_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/ICICI_Bankhttp://en.wikipedia.org/wiki/UTI_Bankhttp://en.wikipedia.org/wiki/Axis_Bankhttp://en.wikipedia.org/wiki/Liberalizationhttp://en.wikipedia.org/wiki/Narsimha_Rao -
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Reserve Bank of India is an autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupee is to manage
volatility but without any fixed exchange rate-and this has mostly been true.
With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail
banking, mortgages and investment services are expected to be strong. One may
also expect M&As, takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its
stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first timean investor has been allowed to hold more than 5% in a private sector bank since
the RBI announced norms in 2005 that any stake exceeding 5% in the private
sector banks would need to be vetted by them.
In recent years critics have charged that the non-government owned banks are too
aggressive in their loan recovery efforts in connection with housing, vehicle and
personal loans. There are press reports that the banks' loan recovery efforts have
driven defaulting borrowers to suicide
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4. Nationalization of Banks
The RBI was nationalized on January 1, 1949 in terms of the Reserve Bank of
India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
By the 1960s, the Indian banking industry had become an important tool to
facilitate the development of the Indian economy. At the same time, it had emerged
as a large employer, and a debate had ensued about the possibility to nationalise
the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the
intention of the GOI in the annual conference of the All India Congress Meeting in
a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received
with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI
issued an ordinance and nationalised the 14 largest commercial banks with effect
from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of
India, described the step as a "masterstroke of political sagacity." Within two
weeks of the issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of Undertaking) Bill, and it received the presidential
approval on 9 August 1969. A second dose of nationalization of 6 more
commercial banks followed in 1980. The stated reason for the nationalization was
to give the government more control of credit delivery. With the second dose of
nationalization, the GOI controlled around 91% of the banking business of India.
Later on, in the year 1993, the government merged New Bank of India with Punjab
National Bank. It was the only merger between nationalized banks and resulted in
the reduction of the number of nationalised banks from 20 to 19. After this, until
the 1990s, the nationalised banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.
http://en.wikipedia.org/wiki/Indian_economyhttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Nationalisationhttp://en.wikipedia.org/wiki/Jayaprakash_Narayanhttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/President_of_Indiahttp://en.wikipedia.org/w/index.php?title=New_Bank_of_India&action=edit&redlink=1http://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/w/index.php?title=New_Bank_of_India&action=edit&redlink=1http://en.wikipedia.org/wiki/President_of_Indiahttp://en.wikipedia.org/wiki/Parliament_of_Indiahttp://en.wikipedia.org/wiki/Jayaprakash_Narayanhttp://en.wikipedia.org/wiki/Nationalisationhttp://en.wikipedia.org/wiki/Government_of_Indiahttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Indian_economy -
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The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the
then prime minister. It nationalised 14 banks then. These banks were mostly owned
by businessmen and even managed by them.
Central Bank of India Bank of Maharashtra Dena Bank Punjab National Bank Syndicate Bank Canara Bank Indian Bank United Bank of India UCO Bank Bank of India
Before the steps of nationalization of Indian banks, only State Bank of India (SBI)
was nationalised. It took place in July 1955 under the SBI Act of 1955.
Nationalization of Seven State Banks of India (formed subsidiary) took place
on 19th July, 1960.The State Bank of India is India's largest commercial bank and is ranked one of the
top five banks worldwide. It serves 90 million customers through a network of
9,000 branches and it offers -- either directly or through subsidiaries -- a wide
range of banking services.
http://finance.indiamart.com/investment_in_india/central_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/punjab_national_bank.htmlhttp://finance.indiamart.com/investment_in_india/canara_bank.htmlhttp://finance.indiamart.com/investment_in_india/united_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_india.htmlhttp://finance.indiamart.com/investment_in_india/bank_of_india.htmlhttp://finance.indiamart.com/investment_in_india/united_bank_india.htmlhttp://finance.indiamart.com/investment_in_india/canara_bank.htmlhttp://finance.indiamart.com/investment_in_india/punjab_national_bank.htmlhttp://finance.indiamart.com/investment_in_india/central_bank_india.html -
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The second phase of nationalization of Indian banks took place in the year 1980.
Seven more banks were nationalised with deposits over 200 crores. Till this year,
approximately 80% of the banking segment in India was under Government
ownership.
After the nationalization of banks in India, the branches of the public sector banks
rose to approximately 800% in deposits and advances took a huge jump by
11,000%.
1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1969: Nationalization of 14 major banks. 1980: Nationalization of seven banks with deposits over 200 corers.
Indian Overseas Bank Bank of Baroda Union Bank Allahabad Bank
http://finance.indiamart.com/investment_in_india/indian_overseas_bank.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/allahabad_bank.htmlhttp://finance.indiamart.com/investment_in_india/indian_overseas_bank.html -
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Distinction between banks and moneylenders
The following table shows the distinction between a bank and moneylender
Basis Banks Moneylenders
1. Entity Banks are organized
institutions.Moneylenders are individuals
2. Activity Banking activities include
acceptance of deposits as well
as lending of money.
Activities of moneylender may not
include acceptance of deposits.
3. Clients Banks meet the needs of
people in general and the
business community in
particular.
Moneylenders meet the needs of
agriculturists and poor people.
4.Security Banks accept tangible and
personal security against
loans.
Moneylenders generally accept
gold, jewellery or land as security
for giving loan.
5. Process of
recovery of loans.
The process of recovery is
flexible.
The process of
recovery is stiff and strict.
6.Interest Rate Interest charged by banks on
loan is governed by RBI.
Rate of Interest is decided by the
moneylender and is normally very
high.
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5. Current scenario
Banks have come a long way since their origin of having started out with the basicact of lending and borrowing money. The word Bank was derived from the Italian
word banco, which means bench over which transactions happened during the
earliest days when banking as a concept came into existence. A bank needs an
approval from the government to set up its
business. This approval or license is
applied differently in different countries.
The set of regulations vary according to
the government policies and other norms
established by the government of that
country.
Towards the last few decades of the 18th
century the concept of banking was
introduced in India. The oldest bank in
India is the State Bank of India, a PSU that was initially set up in June 1806 and is
currently the largest commercial bank. Central banking for which the Reserve
Bank of India (RBI) is responsible took over these duties from the then Imperial
Bank of India. After Indias independence in 1947, RBI was nationalized and
given a wider scope to exercise its powers and judgment. A nationalization spree
occurred in 1969, when 14 of the largest commercial banks was provided this
status following another nationalization process of the next six largest banks in
1980.
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According to a recent count, India has 88 scheduled commercial banks (SCBs). Of
this there are 27 public sector banks (with the Government of India holding a
stake), 31 private banks (these do not have government stake; they may be publicly
listed and traded on stock exchanges) and 38 foreign banks. They have a combined
network of over 53,000 branches and 17,000 ATMs.
According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively.
Here is a partial list of the most popular banks in the country.
HDFC bank
HDFC - Housing
Development Finance
Corporation
ICICI bank
SBI
Axis bank
Allahabad bank
Bank of Rajasthan
City Union bank
Karnataka bank Limited
Kotak Mahindra bankLakshmi Vilas bank
Limited
http://www.bankbazaar.com/guide/banks-in-india/hdfc-bank/http://www.bankbazaar.com/guide/banks-in-india/housing-development-finance-corporation-hdfc/http://www.bankbazaar.com/guide/banks-in-india/housing-development-finance-corporation-hdfc/http://www.bankbazaar.com/guide/banks-in-india/housing-development-finance-corporation-hdfc/http://www.bankbazaar.com/guide/banks-in-india/icici-bank/http://www.bankbazaar.com/guide/banks-in-india/sbi/http://www.bankbazaar.com/guide/banks-in-india/axis-bank/http://www.bankbazaar.com/guide/banks-in-india/allahabad-bank/http://www.bankbazaar.com/guide/bank-of-rajasthan-a-history/http://www.bankbazaar.com/guide/banks-in-india/city-union-bank/http://www.bankbazaar.com/guide/banks-in-india/karnataka-bank/http://www.bankbazaar.com/guide/banks-in-india/kotak-mahindra-bank/http://www.bankbazaar.com/guide/banks-in-india/lakshmi-vilas-bank-limited/http://www.bankbazaar.com/guide/banks-in-india/lakshmi-vilas-bank-limited/http://www.bankbazaar.com/guide/banks-in-india/lakshmi-vilas-bank-limited/http://www.bankbazaar.com/guide/banks-in-india/lakshmi-vilas-bank-limited/http://www.bankbazaar.com/guide/banks-in-india/kotak-mahindra-bank/http://www.bankbazaar.com/guide/banks-in-india/karnataka-bank/http://www.bankbazaar.com/guide/banks-in-india/city-union-bank/http://www.bankbazaar.com/guide/bank-of-rajasthan-a-history/http://www.bankbazaar.com/guide/banks-in-india/allahabad-bank/http://www.bankbazaar.com/guide/banks-in-india/axis-bank/http://www.bankbazaar.com/guide/banks-in-india/sbi/http://www.bankbazaar.com/guide/banks-in-india/icici-bank/http://www.bankbazaar.com/guide/banks-in-india/housing-development-finance-corporation-hdfc/http://www.bankbazaar.com/guide/banks-in-india/housing-development-finance-corporation-hdfc/http://www.bankbazaar.com/guide/banks-in-india/housing-development-finance-corporation-hdfc/http://www.bankbazaar.com/guide/banks-in-india/hdfc-bank/ -
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Punjab National bank
Rupee Co-operative bank
and Jaipur
State Bank of Hyderabad
Development Credit Bank
Federal bank
Saraswat bank
South Indian bank - SIB
Bank of India
Bank of Baroda
State Bank of Indore
State Bank of Mysore
Syndicate bank
Union Bank of India
United Bank of India
Yes bank
ABN AMRO bank
Canara bank
Indian bank
Andhra bank
Bank of Maharashtra
Central Bank of India
Corporation bank
Dena bank
UCO bank
Vijaya bank
http://www.bankbazaar.com/guide/banks-in-india/punjab-national-bank/http://www.bankbazaar.com/guide/banks-in-india/rupee-co-operative-bank/http://www.bankbazaar.com/guide/banks-in-india/state-bank-of-bikaner-and-jaipur/http://www.bankbazaar.com/guide/banks-in-india/a-preview-of-state-bank-of-hyderabad/http://www.bankbazaar.com/guide/banks-in-india/development-credit-bank/http://www.bankbazaar.com/guide/banks-in-india/federal-bank/http://www.bankbazaar.com/guide/banks-in-india/the-saraswat-co-operative-bank/http://www.bankbazaar.com/guide/banks-in-india/south-indian-bank/http://www.bankbazaar.com/guide/banks-in-india/bank-of-india/http://www.bankbazaar.com/guide/banks-in-india/bank-of-baroda/http://www.bankbazaar.com/guide/banks-in-india/state-bank-of-indore/http://www.bankbazaar.com/guide/banks-in-india/state-bank-of-mysore/http://www.bankbazaar.com/guide/banks-in-india/syndicate-bank/http://www.bankbazaar.com/guide/banks-in-india/union-bank-of-india/http://www.bankbazaar.com/guide/banks-in-india/united-bank-of-india/http://www.bankbazaar.com/guide/banks-in-india/yes-bank/http://www.bankbazaar.com/guide/banks-in-india/abn-amro-bank/http://www.bankbazaar.com/guide/banks-in-india/canara-bank/http://www.bankbazaar.com/guide/banks-in-india/indian-bank/http://www.bankbazaar.com/guide/banks-in-india/andhra-bank/http://www.bankbazaar.com/guide/banks-in-india/bank-of-maharashtra/http://www.bankbazaar.com/guide/banks-in-india/central-bank-of-india/http://www.bankbazaar.com/guide/banks-in-india/corporation-bank/http://www.bankbazaar.com/guide/banks-in-india/dena-bank/http://www.bankbazaar.com/guide/banks-in-india/uco-bank/http://www.bankbazaar.com/guide/banks-in-india/vijaya-bank/http://www.bankbazaar.com/guide/banks-in-india/vijaya-bank/http://www.bankbazaar.com/guide/banks-in-india/uco-bank/http://www.bankbazaar.com/guide/banks-in-india/dena-bank/http://www.bankbazaar.com/guide/banks-in-india/corporation-bank/http://www.bankbazaar.com/guide/banks-in-india/central-bank-of-india/http://www.bankbazaar.com/guide/banks-in-india/bank-of-maharashtra/http://www.bankbazaar.com/guide/banks-in-india/andhra-bank/http://www.bankbazaar.com/guide/banks-in-india/indian-bank/http://www.bankbazaar.com/guide/banks-in-india/canara-bank/http://www.bankbazaar.com/guide/banks-in-india/abn-amro-bank/http://www.bankbazaar.com/guide/banks-in-india/yes-bank/http://www.bankbazaar.com/guide/banks-in-india/united-bank-of-india/http://www.bankbazaar.com/guide/banks-in-india/union-bank-of-india/http://www.bankbazaar.com/guide/banks-in-india/syndicate-bank/http://www.bankbazaar.com/guide/banks-in-india/state-bank-of-mysore/http://www.bankbazaar.com/guide/banks-in-india/state-bank-of-indore/http://www.bankbazaar.com/guide/banks-in-india/bank-of-baroda/http://www.bankbazaar.com/guide/banks-in-india/bank-of-india/http://www.bankbazaar.com/guide/banks-in-india/south-indian-bank/http://www.bankbazaar.com/guide/banks-in-india/the-saraswat-co-operative-bank/http://www.bankbazaar.com/guide/banks-in-india/federal-bank/http://www.bankbazaar.com/guide/banks-in-india/development-credit-bank/http://www.bankbazaar.com/guide/banks-in-india/a-preview-of-state-bank-of-hyderabad/http://www.bankbazaar.com/guide/banks-in-india/state-bank-of-bikaner-and-jaipur/http://www.bankbazaar.com/guide/banks-in-india/rupee-co-operative-bank/http://www.bankbazaar.com/guide/banks-in-india/punjab-national-bank/ -
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NATURE OF BANKING IN INDIA
A banking company in India has been defined in the banking companiesact,1949.as one which transacts the business of banking which means the
accepting,for the purpose of lending or investment of deposits of money from
the public,repayable on demand or otherwise and withdraw able by cheque,
draft, order or otherwise.
Most of the activities a Bank performs are derived from the above definition. In
addition, Banks are allowed to perform certain activities which are ancillary to this
business of accepting deposits and lending. A bank's relationship with the public,
therefore, revolves around accepting deposits and lending money. Another activity
which is assuming increasing importance is transfer of money - both domestic and
foreign - from one place to another. This activity is generally known as "remittance
business" in banking parlance. The so called forex (foreign exchange) business is
largely a part of remittance albeit it involves buying and selling of foreign
currencies.
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FUNCTIONING OF A BANK
Functioning of a Bank is among the more complicated of corporate operations.
Since Banking involves dealing directly with money, governments in most
countries regulate this sector rather stringently. In India, the regulation traditionally
has been very strict and in the opinion of certain quarters, responsible for the
present condition of banks, where NPAs are of a very high order. The process of
financial reforms, which started in 1991, has cleared the cobwebs somewhat but a
lot remains to be done. The multiplicity of policy and regulations that a Bank has
to work with makes its operations even more complicated, sometimes bordering on
illogical. This section, which is also intended for banking professional, attempts to
give an overview of the functions in as simple manner as possible. Banking
Regulation Act of India, 1949 defines Banking as "accepting, for the purpose of
lending or investment of deposits of money from the public, repayable on demand
or otherwise and withdraw able by cheques, draft, and order or otherwise."
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6. Types of Banks
There are various types of banks which operate in our country to meet the financial
requirements of different categories of people engaged in agriculture, business,
profession, etc. On the basis of functions, the banking institutions in India may be
divided into the following types:
Types of Banks
Central Bank Development Banks Specialized Banks
(RBI, in India) (EXIM Bank, IDBI, NABARD)
Commercial Banks Co-operative Banks
(i) Public Sector Banks (i) Primary Credit Societies
(ii) Private Sector Banks (ii) Central Co-operative Banks
(iii) Foreign Banks (iii) State Co-operative Banks
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Now let us learn about each of these banks in detail.
a) Central Bank
A bank which is entrusted with the functions of guiding and regulating the banking
system of a country is known as its Central bank. Such a bank does not deal with
the general public. It acts essentially as Governments banker, maintain deposit
accounts of all other banks and advances money to other banks, when needed. The
Central Bank provides guidance to other banks whenever they face any problem. It
is therefore known as the bankers bank. The Reserve
Bank of India is the central bank of our country.
The Central Bank maintains record of Government revenue and expenditure under
various heads.
It also advises the Government on monetary and credit policies and decides on the
interest rates for bank deposits and bank loans. In addition, foreign exchange rates
are also determined by the central bank.
Another important function of the Central Bank is the issuance of currency notes,
regulating their circulation in the country by different methods. No other bank than
the Central Bank can issue currency.
b) Commercial Banks
Commercial Banks are banking institutions that accept deposits and grant short-
term loans and advances to their customers. In addition to giving short-term loans,
commercial banks also give medium-term and long-term loan to business
enterprises. Now-a-days some of the commercial banks are also providing housing
loan on a long-term basis to individuals. There are also many other functions of
commercial banks, which are discussed later in this lesson.
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Types of Commercial banks
Commercial banks are of three types i.e., Public sector banks, Private sector banks
and foreign banks.
(i) Public Sector Banks: These are banks where majority stake is held by the
Government of India or Reserve Bank of India. Examples of public sector banks
are: State Bank of India, Corporation Bank, Bank of Boroda and Dena Bank, etc.
(ii) Private Sectors Banks: In case of private sector banks majority of share
capital of the bank is held by private individuals. These banks are registered as
companies with limited liability. For example: The Jammu and Kashmir Bank Ltd.,
Bank of Rajasthan Ltd.,
Development Credit Bank Ltd, Lord Krishna Bank Ltd., Bharat Overseas Bank
Ltd., Global Trust Bank, Vysya Bank, etc.
(iii) Foreign Banks: These banks are registered and have their headquarters in a
foreign country but operate their branches in our country. Some of the foreign
banks operating in our country are Hong Kong and Shanghai Banking Corporation
(HSBC), Citibank, American
Express Bank, Standard & Chartered Bank, Grindlays Bank, etc. The number of
foreign banks operating in our country has increased since the financial sector
reforms of 1991.
c) Development Banks
Business often requires medium and long-term capital for purchase of machinery
and equipment, for using latest technology, or for expansion and modernization.
Such financial assistance is provided by Development Banks. They also undertake
other development measures like Public Sector Banks comprise 19 nationalised
banks and State Bank of India and its 7 associate banks. Business Studies
subscribing to the shares and debentures issued by companies, in case of under
subscription of the issue by the public. Industrial Finance Corporation of India
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(IFCI) and State Financial Corporations (SFCs) are examples of development
banks in India.
d) Co-operative Banks
People who come together to jointly serve their common interest often form a co-
operative society under the Co-operative Societies Act. When a co-operative
society engages itself in banking business it is called a Co-operative Bank. The
society has to obtain a license from the Reserve Bank of India before starting
banking business. Any co-operative bank as a society is to function under the
overall supervision of the Registrar, Co-operative Societies of the State. As regards
banking business, the society must follow the guidelines set and issued by the
Reserve Bank of India.
Types of Co-operative Banks
There are three types of co-operative banks operating in our country. They are
primary credit societies, central co-operative banks and state co-operative banks.
These banks are organized at three levels, village or town level, district level and
state level.
(i) Primary Credit Societies: These are formed at the village or town level with
borrower and non-borrower members residing in one locality. The operations of
each society are restricted to a small area so that the members know each other and
are able to watch over the activities of all members to prevent frauds.
(ii) Central Co-operative Banks: These banks operate at the district level having
some of the primary credit societies belonging to the same district as their
members. These banks provide loans to their members (i.e., primary credit
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societies) and function as a link between the primary credit societies and state co-
operative banks.
(iii) State Co-operative Banks: These are the apex (highest level) co-operative
banks in all the states of the country. They mobilize funds and help in its proper
channelization among various sectors. The money reaches the individual borrowers
from the state co-operative banks through the central co-operative banks and the
primary credit societies.
e) Specialized Banks
There are some banks, which cater to the requirements and provide overall support
for setting up business in specific areas of activity. EXIM Bank, SIDBI and
NABARD are examples of such banks. They engage themselves in some specific
area or activity and thus, are called specialized banks. Let us know about them.
i. Export Import Bank of India (EXIM Bank): If you want to set up a business
for exporting products abroad or importing products from foreign countries for sale
in our country, EXIM bank can provide you the required support and assistance.
The bank grants loans to exporters and importers and also provides information
about the international market. It gives guidance about the opportunities for export
or import, the risks involved in it and the competition to be faced, etc.
ii. Small Industries Development Bank of India (SIDBI): If you want to
establish a small-scale business unit or industry, loan on easy terms can be
available through SIDBI. It also finances modernization of small-scale industrial
units, use of new technology and market activities. The aim and focus of SIDBI is
to promote, finance and develop small-scale industries.
iii. National Bank for Agricultural and Rural Development (NABARD): It is a
central or apex institution for financing agricultural and rural sectors. If a person is
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engaged in agriculture or other activities like handloom weaving, fishing, etc.
NABARD can provide credit, both short-term and long-term, through regional
rural banks. It provides financial assistance, especially, to co-operative credit, in
the field of agriculture, small-scale industries, cottage and village industries
handicrafts and allied economic activities in rural areas.
Functions of Commercial Banks
The functions of commercial banks are of
two types.
(A) Primary functions; and
(B) Secondary functions.
Let us discuss details about these
functions.
(i) Primary functions
The primary functions of a commercial
bank include:
a) Accepting deposits; and
b) Granting loans and advances.
a) Accepting deposits
The most important activity of a commercial bank is to mobilise deposits from the
public. People who have surplus income and savings find it convenient to deposit
the amounts with banks.
Depending upon the nature of deposits, funds deposited with bank also earn
interest. Thus,
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Types of Advances
Banks grant short-term financial assistance by way of cash credit, overdraft and
bill discounting.
Let us learn about these.
a) Cash Credit
Cash credit is an arrangement whereby the bank allows the borrower to draw
amount up to a specified limit. The amount is credited to the account of the
customer. The customer can withdraw this amount as and when he requires.
Interest is charged on the amount actually withdrawn. Cash Credit is granted as per
terms and conditions agreed with the customers.b) Overdraft
Overdraft is also a credit facility granted by bank. A customer who has a current
account with the bank is allowed to withdraw more than the amount of credit
balance in his account.
It is a temporary arrangement. Overdraft facility with a specified limit may be
allowed either on the security of assets, or on personal security, or both.
c) Discounting of Bills
Banks provide short-term finance by discounting bills that is, making payment of
the amount before the due date of the bills after deducting a certain rate of
discount. The party gets the funds without waiting for the date of maturity of the
bills. In case any bill is dishonoured on the due date, the bank can recover the
amount from the customer.
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ii) Secondary functions
In addition to the primary functions of accepting deposits and lending money,
banks perform a number of other functions, which are called secondary functions.
These are as follows.
a. Issuing letters of credit, travelers cheque, etc.
b. Undertaking safe custody of valuables, important document and securities by
providing safe deposit vaults or lockers.
c. Providing customers with facilities of foreign exchange dealings.
d. Transferring money from one account to another; and from one branch to
another branch of the bank through cheque, pay order, demand draft.
e. Standing guarantee on behalf of its customers, for making payment for purchase
of goods, machinery, vehicles etc.
f. Collecting and supplying business information.
g. Providing reports on the credit worthiness of customers.
i. Providing consumer finance for individuals by way of loans on easy terms for
purchase of consumer durables like televisions, refrigerators, etc.
j. Educational loans to students at reasonable rate of interest for higher studies,
especially for professional courses.
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7. SWOT ANALYSIS OF BANKS
STRENGTH
Indian banks have compared favorably on growth, asset quality and profitability
with other regional banks over the last few years. The banking index has grown at
a compounded annual rate of over 51 per cent since April 2001 as compared to a
27 per cent growth in the market index for the same period.
Policy makers have made some notable changes in policy and regulation to
help strengthen the sector. These changes include strengthening prudential norms,
enhancing the payments system and integrating regulations between commercialand co-operative banks.
Bank lending has been a significant driver of GDP growth and employment.
Extensive reach: the vast networking & growing number of
branches & ATMs. Indian banking system has reached even
to the remote corners of the country.
The government's regular policy for Indian bank since 1969has paid rich
dividends with the nationalization of 14 major private banks of India.
In terms of quality of assets and capital adequacy, Indian banks are considered
to have clean, strong and transparent Balance sheets relative to other banks in
comparable economies in its region.
India has 88 scheduled commercial banks (SCBs) - 27 public sector banks
(that is with the Government of India holding a stake)after merger of New Bank of
India in Punjab National Bank in 1993, 29 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges) and
31 foreign banks. They have a combined network of over 53,000 branches and
17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public
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sector banks hold over 75 percent of total assets of the banking industry, with the
private and foreign banks holding 18.2% and 6.5% respectively.
Foreign banks will have the opportunity to own up to 74 percent of Indian
private sector banks and 20 per cent of government owned banks.
With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector-the demand for banking services, especially
retail banking, mortgages and investment services are expected to be strong.
the Reserve Bank of India (RBI) has approved a proposal from the government
to amend the Banking Regulation Act to permit banks to trade in commodities and
commodity derivatives.
Liberalization of ECB norms: The government also liberalized the ECB norms to
permit financial sector entities engaged in infrastructure funding to raise ECBs.
This enabled banks and financial institutions, which were earlier not permitted to
raise such funds, explore this route for raising cheaper funds in the overseas
markets.
Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has
allowed them to raise perpetual bonds and other hybrid capital securities to shore
up their capital. If the new instruments find takers, it would help PSU banks, left
with little headroom for raising equity. Significantly, FII and NRI investment
limits in these securities have been fixed at 49%, compared to 20% foreign equity
holding allowed in PSU banks.
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WEAKNESS
PSBs need to fundamentally strengthen institutional skill levels especially in
sales and marketing, service operations, risk management and the overall
organizational performance ethic & strengthen human capital.
Old private sector banks also have the need to fundamentally strengthen skill
levels.
The cost of intermediation remains high and bank penetration is limited to
only a few customer segments and geographies.
Structural weaknesses such as a fragmented industry structure, restrictions on
capital availability and deployment, lack of institutional support infrastructure,
restrictive labour laws, weak corporate governance and ineffective regulations
beyond Scheduled Commercial Banks (SCBs), unless industry utilities and service
bureaus.
Refusal to dilute stake in PSU banks: The government has refused to dilute its
stake in PSU banks below 51% thus choking the headroom available to these banks
for raining equity capital.
Impediments in sectoral reforms: Opposition from Left and resultant cautious
approach from the North Block in terms of approving merger of PSU banks may
hamper their growth prospects in the medium term.
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With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector-the demand for banking services, especially
retail banking, mortgages and investment services are expected to be strong.
the Reserve Bank of India (RBI) has approved a proposal from the government
to amend the Banking Regulation Act to permit banks to trade in commodities and
commodity derivatives.
Liberalization of ECB norms: The government also liberalized the ECB norms
to permit financial sector entities engaged in infrastructure funding to raise ECBs.
This enabled banks and financial institutions, which were earlier not permitted to
raise such funds, explore this route for raising cheaper funds in the overseas
markets.
THREATS
Threat of stability of the system: failure of some weak banks has often
threatened the stability of the system.
Rise in inflation figures which would lead to increase in interest rates.
Increase in the number of foreign players would pose threat to the PSB as well
as the private players.
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8. PEST ANALYSIS
TECHNOLOGICAL ENVIRONMENT
Technology plays a very important role in banks internal control mechanisms as
well as services offered by them. It has in fact given new dimensions to the banks
as well as services that they cater to and the banks are enthusiastically adopting
new technological innovations for devising new products and services.
The latest developments in terms of technology in computer and
telecommunication have encouraged the bankers to change the concept of branch
banking to anywhere banking. The use of ATM and Internet banking has allowed
anytime, anywhere banking facilities. Automatic voice recorders now answer
simple queries, currency accounting machines makes the job easier and self-service
counters are now encouraged. Credit card facility has encouraged an era of
cashless society. Today MasterCard and Visa card are the two most popular cards
used world over. The banks have now started issuing smartcards or debit cards to
be used for making payments. These are also called as electronic purse. Some of
the banks have also started home banking through telecommunication facilities and
computer technology by using terminals installed at customers home and they can
make the balance inquiry, get the statement of accounts, give instructions for fund
transfers, etc. Through ECS we can receive the dividends and interest directly to
our account avoiding the delay or chance of losing the post.
Today banks are also using SMS and Internet as major tool of promotions and
giving great utility to its customers. For example SMS functions through simple
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text messages sent from your mobile. The messages are then recognized by the
bank to provide you with the required information.
All these technological changes have forced the bankers to adopt customer-based
approach instead of product-based approach.
ECONOMICAL ENVIRONMENT
Banking is as old as authentic history and the modern commercial banking are
traceable to ancient times. In India, banking has existed in one form or the other
from time to time. The present era in banking may be taken to have commenced
with establishment of bank of Bengal in 1809 under the government charter and
with government participation in share capital. Allahabad bank was started in the
year 1865 and Punjab national bank in 1895, and thus, others followed
Every year RBI declares its 6 monthly policy and accordingly the various measures
and rates are implemented which has an impact on the banking sector. Also the
Union budget affects the banking sector to boost the economy by giving certain
concessions or facilities. If in the Budget savings are encouraged, then more
deposits will be attracted towards the banks and in turn they can lend more money
to the agricultural sector and industrial sector, therefore, booming the economy. If
the FDI limits are relaxed, then more FDI are brought in India through banking
channels.
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POLITICAL/ LEGAL ENVIRONMENT
Government and RBI policies affect the banking sector. Sometimes looking into
the political advantage of a particular party, the Government declares some
measures to their benefits like waiver of short-term agricultural loans, to attract the
farmers votes. By doing so the profits of the bank get affected. Various banks in
the cooperative sector are open and run by the politicians. They exploit these banks
for their benefits. Sometimes the government appoints various chairmen of the
banks.
Various policies are framed by the RBI looking at the present situation of thecountry for better control over the banks.
SOCIAL ENVIRONMENT
Before nationalization of the banks, their control was in the hands of the private
parties and only big business houses and the effluent sections of the society were
getting benefits of banking in India. In 1969 government nationalized 14 banks. To
adopt the social development in the banking sector it was necessary for speedy
economic progress, consistent with social justice, in democratic political system,
which is free from domination of law, and in which opportunities are open to all.
Accordingly, keeping in mind both the national and social objectives, bankers were
given direction to help economically weaker section of the society and also provide
need-based finance to all the sectors of the economy with flexible and liberal
attitude. Now the banks provide various types of loans to farmers, working women,
professionals, and traders. They also provide education loan to the students and
housing loans, consumer loans, etc.
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9. 7 Ps of BANKING
PRODUCT MIX
PROMOTIONAL MIX
PRICE MIX
THE PEOPLE
THE PEOPLE
THE PHYSICAL EVIDENCE
PLACE MIX
1. PRODUCT MIX
The banks primarily deal in services and therefore, the formulation of product mix
is required to be in the face of changing business environment conditions. Of
course the public sector commercial banks have launched a number of policies and
programs for the development of backward regions and welfare of the weaker
sections of the society but at the same time it is also right to mention that their
development-oriented welfare programs are not optimal to the national socio-
economic requirements. A proportional contraction in the number of customers is
found affecting the business of public sector commercial banks. The changing
psychology, the increasing expectation, the rising income, the changing lifestyles,
the increasing domination of foreign banks and the changing needs and
requirements of the customers at large make it essential that they innovate their
service mix and make them of worked class. The development of new generic
product, especially when the business environment is regulated is found a difficult
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task. However, it is pertinent that banks formulate a package in tune with the
changing business conditions. Against this background, we find it significant that
the banking organizations minify, magnify, combine and modify their service mix.
In the formulation of service mix, the banks can follow two guidelines, first is
related to the processing of product to market needs and the second is concerned
with the processing of market needs to product. In the first process, the needs to the
target market are anticipated and visualized and therefore, we expect the prices
likely to be productive. In the second process, the banks react to the expressed
needs and therefore we consider it reactive. It is essential that every product is
measured up to the accepted technical standards. This is because no consumer
would buy a product, which contains technical faults. Technical perfection in
service is meant prompt delivery, quick disposal, and presentation of right data,
right filing, proper documentation or so. If computers start disobeying, the
command and the customers get wrong facts, the use of technology would be a
minus point, and you dont have any excuse for your faults.
Marketing aims not only offering but also at creating\innovating the
services\schemes found new to the competitors vis-a vis- to the customers. The
enhanced customer support would be a reward to the bank. The additional
attractions, the product attractiveness would be a plus point of your mix, which
would help you in many ways. This makes it essential that the banking
organizations are sincere to the innovations process and try to enrich their
peripheral services much earlier than the competitors. We also find the productportfolio of the banks. While formulating the services mix, it is also pertinent that
the bank professionals make possible affair synchronization of core and peripheral
services. To be more specific, the peripheral services need an intensive care since
the core services are found by and large the same. Innovating the peripheral
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services thus appears to be an important functional responsibility of marketing
professionals. We cant deny the fact that if the foreign banks have been getting a
positive response; the credibility goes to their innovative peripheral services.
Thus, the formulation of product mix is found to be a difficult task that requires
world-class professionalism.
2. PROMOTIONAL MIX:
Promotion mix includes advertising, publicity, sales promotion, wordofmouth
promotion, personal selling and telemarketing. Each of these services needs to be
applied in different degree. These components can be useful in the banking
business in the following ways:
Advertising
Advertising is paid form of communication. Banking organizations use thiscomponent of the promotion mix with motto of informing, sensing and persuading
the customers. While advertising it is essential to be aware of key decision making
areas so that instrumentally helps banks at micro and macro levels.
Finalizing the budget:
This is related to the formulation of the budget for advertisement. The bank
professionals, senior executives and even the policy planners are found to be
involved in the process. The business of a bank determines the scale of the
advertisement budget. In addition, the intensity of competition also plays a decisive
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Instrumentality of branch managers:
At micro level, a branch manager bears the responsibility of advertising locally so
that the messages reach the target audience.
Characters and themes:
At apex level it is also important that while advertising the senior executives watch
the process minutely and select events, characters having a regional orientation.
The popular characters and sensational moments are likely to be impact generating.
The theme for appeals and messages also needs due attention. Of course, they have
a legitimate right of advertising but it is not meant that like the goods
manufacturing organizations, the service generating organizations also start
making invasion on culture. It is necessary to regulate a bias to gender, profession,
region or so.
Public relations:
In the banking services the effectiveness of public Relations is found in high
magnitude. It is in this context that difference is found in designing of the mix for
promoting the banking services.
Telemarketing:
The telemarketing is a process of promoting the business with the help of
sophisticated communication network. Telemarketing is found instrumental in
advertising the banking services and the banking organizations can use this tool of
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the promotion mix both for advertising and selling. This minimizes the dependence
of banking organizations on sales people and just a counter or center as listed in the
call numbers may service multi- dimensional services.
Telemarketing is likely to play an incremental role in marketing the banking
services. The leading foreign banks and even some of the private sector
commercial banks have been found promoting telemarketing and they have been
getting positive results for their efforts.
Word-Of- Mouth:
Much communication about the banking services actually takes place by word- of-
mouth information, which is also known as word- of- mouth promotion. The oral
publicity plays an important role in eliminating the negative comments and
improving the services. This also helps the banker to know the feedback, which
may simplify the task of improving the quality of services. This component of
promotion mix is not to influence budget adversely or generate additional financial
burden. By improving the quality of services and by offering small gifts to the
word- of- mouth promoters, bankers can get more business command in their area.
The above facts make it clear that such kind of promotion is influenced by a
number of factors. The most dominating factor is the quality of services offered.
The bank professionals, the frontline staff and the senior executives should realize
that degeneration in quality would make this tool effective.
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3. PRICE MIX:
In the formulation of marketing mix, the pricing decisions occupy a place of
outstanding significance. The pricing decisions include the decisions related to
interest and fee or commission charged by banks. Pricing decisions are found
instrumental in motivating or influencing the target market. The RBI regulates the
rate of interest and the Indian Banks Association controls other charges. In our
country, the price mix is more important because the banking organizations are
also supposed to sub serve the interests of the weaker sections and the backward
regions. Also in making the pricing decisions, the Government Of India
instrumentalists or commands everything as a shadow policy maker. This also
complicates the price mix for banking sector.
Pricing policy of a bank is considered important for raising the number of
customers vis--vis the accretion of deposits. Also the quality of service provided
has direct relationship with the fees charged. Thus while deciding the price mix
customer services rank the top position. Banks also have to take the value
satisfaction variable in to consideration. The value and satisfaction cannot be
quantified in terms of money since it differs from person to person. Keeping in
view the level of satisfaction of a particular
segment, the banks have to frame the pricing
strategies.
The banking organizations are required to
frame two- fold strategies. First, the strategy is
concerned with interest and fee charged and
the second strategy is related to the interest paid. Since both the strategies throw a
vice- versa impact, it is important that banks attempt to establish a correlation
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6. THE PHYSICAL EVIDENCE
The physical evidences include signage, reports, punch lines, other tangibles,
employees dress code etc. The companys financial reports are issued to the
customers to emphasis or credibility. Even some of the banks follow a dress code
for their internal customers. This helps the customers to feel the ease and comfort
Signage: each and every bank has its logo by which a person can identify the
company. Thus such signages are significant for creating visualization and
corporate identity.
Tangibles: banks give pens, writing pads to the internal customers. Even the
passbooks, chequebooks, etc reduce the inherent intangibility of services.
Punch lines: punch lines or the corporate statement depict the philosophy and
attitude of the bank. Banks have influential punch lines to attract the customers.
Banking marketing consists of identifying the most profitable markets now and in
future, assessing the present and future needs of customers, setting business
development goals, making plans-all in the context of changing environment.
7. PLACE MIX
Place mix is the location analysis for banks branches. There are number a factors
affecting the determination of the location of the branch of bank. It is very
necessary a bank to situated at a location where most of its target population is
located.
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Some of the important factors affecting the location analysis of a bank
1. The Trade Area:The trade area is a very important factor determining the place where a bank
branch should be set up. For e.g. a particular location maybe a huge trading place
for textiles, diamonds or for that case even the stock market. Such locations are
ideal for setting up of bank branches.
2. Population Characteristics:The demography of a place is a very important factor. This includes:
The income level of the population The average age The average male female population The caste, religion, culture and customs The average spending and saving habit of the people.
These factors are very important for a bank as the help them decide the kind of
business the branch will get.
3. Commercial Structure:The commercial structure refers to the level of commerce i.e. business activities
taking place at a particular location. The higher the level of business activities
taking place in a particular location the more preferable it is for setting up a bank
branch.
4. Industrial Structure:This is nothing but a combination of the trade area analysis and the commercial
structure. However the industrial structure focuses more on the kind of industries
operating in a particular location. For example, an area like SEEPZ is marked with
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10. Location of Competition:
The existence of other banks also means competition. If the level of competition
is very high in a particular location, it is necessary that a bank does a lot of
market research before opening a branch so as to estimate the kind of business
it would get.
11. Visibility:
The location of a branch should be such that it is visible and easily noticed by
the customers as well other people.
12. Access:
The bank branch should be very easily accessible to the customers. If this is not
the case, the customer might switch to some other bank, which is more convenient
to him and very easily accessible. The location should be such that it is very
convenient for the customer to reach.
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10. Recent banking developments in India
The Indian banking sector has witnessed wide ranging changes under the influence
of the financial sector reforms initiated during the early 1990s. The approach to
such reforms in India has been one of gradual and non-disruptive progress through
a consultative process. The emphasis has been on deregulation and opening up the
banking sector to market forces. The Reserve Bank has been consistently working
towards the establishment of an enabling regulatory framework with prompt and
effective supervision as well as the development of technological and institutional
infrastructure.
Persistent efforts have been made towards adoption of international benchmarks as
appropriate to Indian conditions. While certain changes in the legal infrastructure
are yet to be effected, the developments so far have brought the Indian financial
system closer to global standards.
Statutory Pre-emptions
In the pre-reforms phase, the Indian banking system operated with a high level of
statutory preemptions, in the form of both the Cash Reserve Ratio (CRR) and the
Statutory Liquidity Ratio (SLR), reflecting the high level of the countrys fiscal
deficit and its high degree of monetization. Efforts in the recent period have been
focused on lowering both the CRR and SLR. The statutory minimum of
25 per cent for the SLR was reached as early as 1997, and while the Reserve Bank
continues to pursue its medium-term objective of reducing the CRR to the statutory
minimum level of 3.0 per cent, the CRR of the Scheduled Commercial Banks
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BPLR and spreads of banks. The BPLRs of public sector banks declined to 10.25-
11.25 per cent in March 2005 from 10.25-11.50 per cent in March 2004.With a
view to granting operational autonomy to public sector banks, public ownership in
these banks was reduced by allowing them to raise capital from the equity market
of up to 49 per cent of paid-up capital. Competition is being fostered by permitting
new private sector banks, and more liberal entry of branches of foreign banks,
joint-venture banks and insurance companies.
Recently, a roadmap for the presence of foreign banks in India was released which
sets out the process of the gradual opening-up of the banking sector in a
transparent manner. Foreign investments in the financial sector in the form 238
BIS Papers No 28 of Foreign Direct Investment (FDI) as well as portfolio
investment have been permitted. Furthermore, banks have been allowed to
diversify product portfolio and business activities. The share of public sector banks
in the banking business is going down, particularly in metropolitan areas. Some
diversification of ownership in select public sector banks has helped further the
move towards autonomy and thus provided some response to competitive
pressures. Transparency and disclosure standards have been enhanced to meet
international standards in an ongoing manner.
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Board for Financial Supervision (BFS)
An independent Board for Financial Supervision (BFS) under the aegis of the
Reserve Bank has been established as the apex supervisory authority for
commercial banks, financial institutions, urban banks and NBFCs. Consistent with
international practice, the Boards focu