India Banking Industry

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Transcript of India Banking Industry

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“INDIAN BANKING INDUSTRY

” 

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CONTENTS

CHAPTER

No.CHAPTER NAME

PAGE

No.

1 Introduction: Banks 1

2 History of Banking 2

3 Origin and History of Banking 3

4 Reserve Bank of India 4

5 Functions of RBI 5

6 Structure of Banking Industry 7

7 Structure of Banking 8

8 Types of Banks 9

9 Retail Banking 23

10 Corporate Banking 30

11 Case Study : State Bank of India 36

12 Bibliography 49

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Ch.1 INTRODUCTION

What is bank?

An organization, usually a corporation, chartered by a state or federal government,

which does most or all of the following: receives demand deposits and time deposits,

honors instruments drawn on them, and pays interest on them; discounts notes, makes

loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's

checks; and issues drafts and cashier's checks.

Origin of word bank

The word bank is derived from the Italian word “banco” signifying a bench,which

was erected in the market-place, where it was customary to exchange money.the

Lombard jews were the first to practice this exchange business, the first bench having

 been established in Italy A.D.808.the Lombard were a German people of suevic

origin, though not humorous, played. a distinguished part in the early history of

Europe.

such as gold, in the form of easy to carry compressed plates. Temples and Palaces The

first banks were probably the religious temples of ancient world and were probably

established in third millennium B.C. Banks probably predated the invention of money.

Deposits initially consisted of grain & later other goods including cattle, agricultural

implements and eventually precious metals were the safest palaces to store gold as

they were constantly attended and well built.

As sacred places, temples presented an extra determent to would be thieves. There

are extent records of loans from the 18th century B.C. in Babylon that were made

temple priests/monks to merchants.

The oldest bank still in existence is monte dei paschi di siena, head quarters in siena,

Italy which has been operating continuously since 1472.

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Ch.2 History of Banking in the World

Banking in the modern sense of the word can be traced back to medieval and early

Renaissance Italy, to the rich cities in the north like Florence , Venice and Geona. The

Bardy & Peruzzi families dominated banking in the 14th century Florence,

establishing branches in many other parts of Europe. Perhaps the most famous Italian

 bank was the Medici bank, set up in Geovanni Medici in 1397. The earliest state

known deposit bank, Banko di san Giorgio (Bank of St. george)was founded in 1407

at Geona, Italy.

Banks can be traced back to ancient times even before money when temples were

used to store commodities. During the Third century A.D., banks in Persia and other

territories in the Persian. Sassanid Empire issued letter of credit known as akks.

Muslim traders are known to have used the cheque or akk system since the time of

Harun al-Rashid (9th century) of the Abbasid Cali Phate.

In the 9th century t, a muslim businessman could cash an early form of the cheques

in China dracon on sources in Baghdad. A tradition that was significantly

strengthened in the 13th & 14th century, during the Mangol empire. Fragments found

in Cairo Geniza indicate that the 12th century cheques remarkably similar to our own

were in use, only smaller to save costs on the paper. They contain a sum to be paid

and then the order” may so and so pay the bearer such and such an amount”. The date

and the name of the issue are also apparent.

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Ch.3 Origin and History of Banking In India

Banking in India originated in the 18th century, the 1st bank were the general bank of

India which started in 1786, and The Bank of Hinduastan, both of which are now

defuct. The oldest bank in existence in India is The State Bank of India, which was

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 Co. For many years the presidency banks

aeted as quasi-central banks, as did their successors. The three banks merged in 1921

to form Imperial Bank of India which upon India‟s independance become the State

Bank of India.

The Reserve Bank which is the Central Bank was created in 1935 by passing Reserve

Bank of India Act 1934. In the wake of the Swadeshi Movement, a number of banks

with Indian management were established in the country namely, Punjab National

Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda

Ltd, the Central Bank of India Ltd. On July 19, 1969, 14 major banks of the country

were nationalized and in 15th April 1980 six more commercial private sector bankswere also taken over by the government.

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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Ch.4 Central Bank RBI

The origin of Reserve Bank can be traced to 1926 when the royal commission of

Indian currency and finance- also known as the Hilton young commission-

recommended the credition of central bank to separate the control of currency and

credit from the government and to augment the banking facility throughout the

country. RBI, act of 1934 established the Reserve bank as the banker to to the central

government and set in motion a sense of action aulminating in the start of operations

in 1935. Since then the Reserve Banks role and functions have undergone numerous

changes as the nature of the Indian economy has changed. Today‟s RBI bears some

resemblance to the original institution, although our mission has expanded, broadened

and increasingly globalised economy.

Preamble

The Preamble of the Reserve Bank of India describes the basic functions of the

Reserve Bank as:

"...to regulate the issue of Bank Notes and keeping of reserves with a view to securing

monetary stability in India and generally to operate the currency and credit system of

the country to its advantage."

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Ch.5 FUNCTIONS OF RESERVE BANK OF INDIA

As the central bank of the country, the Reserve Bank of India performs both

the traditional functions of a central bank and a variety of developmental and

 promotional functions,. The Reserve Bank of India Act, 1934, confers upon it powers

to act as note-issuing authority. Bankers bank and bankers to the Government.

Reserve Bank as Note-issuing Authority

As required by Section 38 of the Reserve Bank of India Act, Government puts into

circulation one-rupee coins and notes through Reserve Bank only. The Reserve Bank

has the sole right to issue bank notes in India. The notes issued by Reserve Bank of

India are unlimited legal tender. The issue of notes and the general banking business

of the Bank are undertaken by two separate department of the Bank. The issue

department is responsible for the issue of new notes. The business of banking is

undertaken by the Banking Department which holds stock of currency with itself.

The assets of the issue Department against which bank notes are issued consist of the

following, namely:

(a)Gold coins and bullion,

(b)Foreign securities,

(c)Rupee coins,

(d)Government of India rupee securities, and

(e)The bills of exchanges and promissory notes payable in India, which are eligible

for purchase by the bank.

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Currency Chest

The Reserve Bank has made adequate administrative arrangements for undertaking

the functions of distribution of currency notes and coins. The issue department has

opened its offices in 10 leading cities for this purpose. Currency chest are receptacles

(i.e., boxes and containers) in which stock of new or reissuable notes are stored along

with rupee coins

Reserve Bank as Banker to Government

The Reserve Bank of India acts as banker to the Central and State Governments.

According to Section 20, it is obligatory for the bank to transact government business

including the management of the public debt of the Union.

In terms of Section 21-A, the Reserve Bank performs similar functions on behalf of

the State governments. RBI holds cash balances of government free of interest. The

Reserve Bank is also authorized to make to the Central and State Government ways

and means advances which are repayable within 3 months from the date of making the

advances. The bank also acts as adviser to the government on important economic and

financial matters.

Reserve Bank as Bankers‟ Bank  

Reserve Bank is the banker to the banks-commercial, co-operative and Regional Rural

Banks. It means Reserve Bank has power to control and regulate the business of other

 bank such as Commercial, co-operative and regional rural banks, private and public

sector bank. Any new bank before starting its business has to get license from the RBI

and has to fulfill certain rules and regulation.

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Ch.7 STRUCTURE OF BANKING INDUSTRY:

Banking system plays an important role in a country‟s economy. It promotes growth

and development of the country. Indian money market comprises organized and the

unorganized institutions. The organized and unorganized institutions in the Indian

 banking system serve a source of short term credit to agriculture, industry, trade and

commerce.

In the Indian banking structure the Reserve Bank of India is the central bank. It

regulates, direct and controls the banking and financial institutions in the country.

There are three high banking institutions, namely, RBI, NABARD and EXIM Bank.

There are separate financial institutions catering to the needs of different sectors of

the economy. Development Banks, Investment Banks, Co-operative Banks, Land

Development Banks, Commercial Banks in public and private sectors, NABARD,

RRBs, EXIM Bank, etc. The indigenous bankers and moneylenders dominate

unorganized sector

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Ch.8 Structure of Bank

RBI

Commercial

Banks

Co-operative

Banks

Banking

InstitutionsNBFCs

Public Sector

Banks

Private Sector

Banks

Foreign Banks

Regional Rural

Banks

State and

central coop

banks

Primary

 Agricultural

Credit Societies

Land

Development

Banks

 All India

Development

Banks

State Finance

Companies

NABARD /NHB /

EXIM

Specialized

Institutions

Housing

Finance

Non - Bank

Finance

Companies

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Ch.8 TYPES OF BANKS

COMMERCIAL BANKS

It is an institution which accepts deposits, makes business loans, and offers related

services. Commercial banks also allow for a variety of deposit accounts, such as

checking, savings, and time deposit. These institutions are run to make a profit and

owned by a group of individuals, yet some may be members of the Federal Reserve

System. While commercial banks offer services to individuals, they are primarily

concerned with receiving deposits and lending to businesses.

A commercial bank is a type of   financial intermediary and a type of  bank.  It raises

funds by collecting deposits from businesses and consumers via checkable deposits, 

savings deposits,  and time (or term) deposits.  It makes loans to businesses and

consumers. It also buys corporate bonds and government bonds. Its primary liabilities

are deposits and primary assets are loans and bonds. This is what people normally call

a "bank". The term "commercial" was used to distinguish it from an investment bank. 

Since the two types of banks no longer have to be separate companies, some have

used the term "commercial bank" to refer to banks which focus mainly on companies.

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Private Sector Banks

HDFC

ONE OF THE LARGEST PRIVATE SECTOR BANK

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

The first private sector bank in India –  Indusland Bank is a new private sector bank.

Among the new private sector banks in India to be set up, was Indusind Bank set up

 by the Hinduja Group. Initially, it was one of the fastest growing Private Sector Banks

in India.

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

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

 bank in the private sector as a part of the RBI's liberalization of the Indian Banking

Industry. It was incorporated in August 1994 as HDFC Bank Limited with registered

office in Mumbai and commenced operations as Scheduled Commercial Bank in

January 1995.

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Some of the prominent Private Banks in India are:

  HDFC Bank

  ICICI Bank

  IDBI Bank

  Jammu & Kashmir Bank

  Karnataka Bank

  South Indian Bank

  Catholic Syrian Bank

  Centurion Bank of Punjab  Dhanalakshmi Bank

  Development Credit Bank

  Federal Bank

  ING Vysya Bank

  Jammu & Kashmir Bank

  Karnataka Bank

  South Indian Bank

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Foreign Banks in India

J.P. MORGAN

ONE OF THE LARGEST FOREIGN BANK IN INDIA

Foreign Banks in India always brought an explanation about the prompt services to

customers. After the set up foreign banks in India, the banking sector in India also

 become competitive and lucrative.New rules announced by the Reserve Bank of India

for the foreign banks in India the last budget has put up great hopes among foreign

 banks which allows them to grow unfettered. Now foreign banks in India are

 permitted to set up local subsidiaries. The policy conveys that foreign banks in India

may not acquire Indian ones (except for weak banks identified by the RBI, on its

terms) and their Indian subsidiaries will not be able to pen branches freely.

Some of the foreign banks in India till date are:

  ABN-AMRO Bank

  BNP Paribas Bank

  Citi Bank

  Deutsche Bank

  HSBC

  Standard Chartered Bank

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Co-operative Banks In India

INDIA‟S LARGEST CO-OPERATIVE BANK

The Co operative banks in India started functioning almost 100 years ago. The

Cooperative bank is an important constituent of the Indian Financial System, judging

 by the role assigned to co operatives, the expectations the co operative is supposed to

fulfill, their number, and the number of offices the cooperative bank operate. Though

the co operative movement originated in the West, the importance such banks have

assumed in India is rarely paralleled anywhere else in the world. The cooperative

 banks in India play an important role even today in rural financing. The businesses ofcooperative bank in the urban areas have also increased phenomenally in recent years

due to the sharp increase in the number of primary co-operative banks. Co operative

Banks in India are registered under the Co-operative Societies Act. The cooperative

 bank is also regulated by the RBI. They are governed by the Banking Regulations Act

1949 and Banking Laws (Co-operative Societies) Act, 1965.

The co-operative banking system in India is at a crucial juncture today. The

development over the next few years will define whether they will fulfill the purpose

of their existence or not. The banks need to take steps in the right direction namely,

increased transparency, better corporate governance and a higher degree of

 professionalism in the day to day functioning.

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They will do well to take a leaf out of the books of the private sector banks, who in

spite of the strict regulation from the RBI have not only grown at a fast pace but have

also earned international recognition. Hence there is a strong need for cooperation

among the governments, the regulators and the bank management if the cooperative

movement in India is to be revived and pushed ahead further.

Cooperative banks in India finance urban areas under:

  Self-employment

  Industries

  Small scale units

  Home finance

  Consumer finance

  Personal finance

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BANKING INSTITUTION

Industrial Development Bank of India

IDBI Bank

Industrial Development Bank of India (IDBI) is the tength largest bank in the world in

terms of development. The National Stock Exchange (NSE), The National Securities

Depository Services Ltd. (NSDL), Stock Holding Corporation of India (SHCIL) are

some of the institutions which has been built by IDBI. IDBI is a strategic investor in a

 plethora of institutions which have revolutionized the Indian Financial Markets. IDBI

Bank, promoted by IDBI Group started in November 1995 with a branch at Indore

with an equity capital base of Rs. 1000 million.

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Housing Development Finance Corporation

HDFC

Housing Development Finance Corporation (HDFC), India`s first and largest

mortgage finance company has now grown into a comprehensive financial

conglomerate. HDFC has a strong distribution network of 116 offices across the

country serving customers in over 2,400 cities/towns.

Founded in 1977, HDFC is primarily in the business of providing services from home

loans and deposit products, to property-related services and a training facility. It also

offers specialized financial services (including consultancy) to its customer base

(including corporate and government) through partnerships with other financial

institutions. HDFC also serves as consultant to international agencies such as World

Bank, United States Agency for International Development (USAID), Asian

Development Bank, United Nations Center for Human Settlements (UNCHS),

Commonwealth Development Corporation (CDC) and United Nations Development

Program (UNDP). It has undertaken assignments for the United Nations Capital

Development Fund in Ethiopia, for the UNCHS in Nairobi, for USAID in Russia and

Bulgaria, and projects of the World Bank in Indonesia and Ghana.

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National Bank for Agriculture and Rural Development

 NABARD

 National Bank for Agriculture and Rural Development (NABARD) is a development

 bank in the sector of Regional Rural Banks in India. It provides and regulates credit

and gives service for the promotion and development of rural sectors mainly

agriculture, small scale industries, cottage and village industries, handicrafts. It also

finances rural crafts and other allied rural economic activities to promote integrated

rural development. It helps in securing rural prosperity and its connected matters.

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Introduction to Banking

Customers are broadly classified into two:

  Personal Customers: Individuals having accounts singly or jointly (including

minors)

   Non Personal Customers: Non individual customers like Proprietary concerns,

Partnerships, Companies, Trusts, Associations, Clubs, Societies, Institutions,

Govt. Departments, NGOs, SHG etc.

Accounts are broadly classified into two:

  Customer accounts (external accounts) : Deposit accounts (Savings Bank,

Current Account etc), Loan Accounts (Demand Loan, Term Loan etc) and

Contingent accounts (Bank Guarantee etc)

  Office accounts. (Internal accounts): Cash Balance accounts, fixed assets

account, Drafts account, Sundry Deposit account, Interest account etc.

Basic Deposits Account:

  Savings Bank : Running account for saving with restriction in number of

withdrawal

  Current Account: Running account without restriction on number of

withdrawals

  Term Deposit : Deposit of an amount for a fixed period where interest is paid

monthly/Quarterly

  Special Term Deposit: Deposit of an amount for a fixed period where interest

is compounded (Capitalized) and paid on maturity.

  Recurring Deposit: Regular (Monthly) deposit of a fixed amount for a fixed

 period.

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Types of Loan Account:

  Overdraft

  Demand Loan

  Term Loan

  Cash Credit

Overdraft:

  A Current account when permitted to overdraw (allowing withdrawal more

than deposited or without deposits ) becomes an overdraft account

  Can be operated by cheque, ATM, INB

  A type of advance of temporary nature/ to valued clients sometimes against

Term Deposit, NSC etc.

  A running account where further withdrawals (debits) can be permitted as and

when deposits (credits) come.

Demand Loan:

  Basically an advance payable on demand.

  Payment in installments also generally allowed.

  Given against Bank deposits, NSCs, Insurance policies

  Gold loans and Pension Loans are given as Demand loans

  Only one Debit allowed for disbursement. Cannot be operated by cheque &

ATM.

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only if a legally enforceable interest is created in his favour. This process is

called the creation of Charge.

  Lien, Pledge, Hypothecation and Mortgage are different types of charges

applicable to different types of securities.

Transaction:

There are three types of transactions:

  Cash: Where receipt payment of physical cash is involved

  Transfer: Where funds are transferred from one account to another account

without

  Clearing: Transfer transactions where funds are exchanged with other banks

through clearing

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Ch.9 RETAIL BANKING

Retail banking refers to banking in which  banking institutions execute

transactions directly with consumers, rather than corporations or other banks. Services

offered include: savings and checking accounts,  mortgages,  personal loans,  debit

cards,  credit cards,  and so forth or it is a typical mass-market banking where

individual customers use local branches of larger commercial banks.

Retail Banking has wider connotation and is not the same as that of retail lending.

Retail Banking refers to the efforts of the bankers to reach up to the customers on both

fronts of the balance sheet i.e., Liabilities side as well as Assets side. Under the

liabilities side, we have deposits. Under the assets side, we have credit schemes of the

various banks. The job of the banker has become very difficult in this segment too.

Bankers today are offering various sops to attract the potential customers.

Defining retail banking activity :

Retail banking activity is commonly understood to comprise:

   banking services for consumers (individuals/private households) and

   banking services for small- and medium-sized enterprises (SMEs).

The delineation of each of these two segments, however, is not standardized by, for

instance a nomenclature for central banks‟ statistics or other official databases. The

inclusion or exclusion of customer categories from these segments depends, to a large

extent, on cultural habits, market developments or the individual business strategies of

 banks. In some countries or specialized banks, for example, services for wealthy

individuals and households fall under the so-called segment of private banking.

Moreover, whether a certain size category of SMEs belongs to the segment of retail

 banking or the segment of corporate banking varies from bank to bank.

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In order to reduce this complexity, the Authority has used the following definitions

for the purposes of the sector inquiry:

  Personal banking, i.e. banking products and services for consumers

including current accounts (and related services such as ATM, direct

debit and credit transfers), sight deposits and other savings accounts,

credit lines/overdrafts (no limits on individual asset size) and consumer

loans;

   business banking, i.e. banking services for enterprises up to a

maximum turnover of EUR 10 million annually and including services

such as current accounts, term loans and credit lines. This report,

following industry and literary usage, will also use the term „SME

 banking‟ or „SME customers‟ for this sub-segment.

  In carrying out the inquiry and, for instance, addressing comprehensive

questionnaires to banks in the EFTA States, the Authority has not

applied a rigid definition within these general parameters. This

approach has allowed for individually flexible definitions, for example

 by accepting the banks‟ own definition of SME business even where

they may be narrower in scope.

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General characteristics of retail banking markets:

The supply side of retail banking markets shows common features that are typical for

 banking markets in general. The main difference between retail banking and other

 banking fields is the fragmented demand side of the first, comprising individualconsumers and small enterprises. In the following, the characteristics of the supply

and demand sides of the market will thus be discussed separately.

The demand-side of retail banking markets is, as would be expected, fragmented.

Bank customers are often faced with information asymmetry, i.e. lack of full

information about the products and services on offer and hence cannot make

meaningful comparisons. Moreover, there are numerous barriers to customer mobility

(e.g. tying and bundling of products, switching costs such as closure charges, etc.) that

result in a certain reluctance to switch suppliers, hence making price competition less

efficient.

Regulation of retail banking :

Across the EEA, competition authorities are increasingly turning their attention to

 banking markets. Competition authorities in both Iceland and Norway have dealt with

several cases involving retail banking markets over the years.14 It is by now firmly

established that EEA competition law applies to the banking sector.

One tool of prudential regulation is entry regulation by means of bank license

requirements. This is explainable by the rules on own funds adequacy. However, the

 promotion of stability and the avoidance of a systemic crisis cannot justify all

occurring entry restrictions. Such restrictions may also be used by governments to

 prevent foreign entries or takeovers and thus impede effective competition. Another

regulatory issue that also affects market entry concerns specific rules on the

ownership and activity of certain types of banks such as savings banks and co-

operative banks.

The Authority scrutinizes advantages provided to certain financial institutions by

means of State aid control in order to ensure a level playing field for all market

 participants and to enhance undistorted competition. In particular, the Authority

ensures that public and private institutions operate under similar conditions by

removing unlimited state guarantees or fiscal advantages favoring particular banks

and by applying the so-called Market Economy Investor Principle (MEIP).

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Drivers Of Retail Growth:

CHANGING CONSUMER DEMOGRAPHICS

  Growing disposable incomes

  Youngest population in the world

  Increasing literacy levels

  Higher adaptability to technology

  Growing consumerism

  Fiscal incentives for home loans

  Changing mindsets-willingness to borrow/lend

  Desire to improve lifestyles  Banks vying for higher market share

Future Of Retail Banking:

  The accelerated retail growth has been on a historically low base

  Penetration continues to be significantly low compared to global bench marks

  Share of retail credit expected to grow from 22% to 36%

  Retail credit expected to grow to Rs.575,000 crs by 2010 at an annual growth

rate of 25%

  Dramatic changes expected in the credit portfolio of Banks in the next 5 years

  Housing will continue to be the biggest growth segment, followed by Auto

loans

  Banks need to expand and diversify by focussing on non urban segment as

well as varied income and demographic groups

  Rural areas offer tremendous potential too which needs to be exploited

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Challenges:

  Sustaining Customer loyalty

   NPA reduction & Fraud prevention

  Avoiding Debt Trap for customers

  Bringing Rural masses into mainstream banking

Current scenario in Retail banking

The Indian players are bullish on the Retail business.

  India compares pretty poorly with the other economies of the world

that are now becoming comparable in terms of spending patterns with

the opening up of our economy.

  Retail loans in Taiwan is around 41% of GDP, the figure in India

stands at less than 5%.

Opportunities in retail sector

  Retail banking has immense opportunities in a growing economy like

India.

  The rise of Indian middle class

  Increasing purchasing power

  The above factors promises substantial growth to retail banking sector

which is in the nascent stage

Scope for retail banking

All round increase in economic activity

Increase in the purchasing power. The rural areas have the large purchasing

 power at their disposal and this is an opportunity to market Retail Banking.

India has 200 million households and 400 million middleclass population

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more than 90% of the savings come from the house hold sector. Falling

interest rates have resulted in a shift. “Now People Want To Save Less And

Spend More.”

 Nuclear family concept is gaining much importance which may lead to large

savings, large number of banking services to be provided are day- by-day

increasing.

.

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Ch.10 CORPORATE BANKING

Corporate Banking represents the wide range of banking and financial services

 provided to domestic and international operations of large local corporates and local

operations of multinationals corporations. Services include access to commercial

 banking products, including working capital facilities such as domestic and

international trade operations and funding, channel financing, and overdrafts, as well

as domestic and international payments, INR term loans (including external

commercial borrowings in foreign currency), letters of guarantee etc.

Banks normally provide credit in the form of overdrafts, loans, bills discounted, or

import and export finance. The process of extending any of the said forms to

corporate borrowers passes through two distinctive phases; the credit decision making

 process (account relationship management) and the banks' internal operations.

Corporate Banking services are an integral part of the Corporate Investment Banking

and Markets (CIBM) structure, which focuses on offering a full range of services to

multinationals, large domestic corporates and institutional clients. The Investment

Banking and Markets division brings together the advisory and financing, equity

securities, asset management, treasury and capital markets, and private equity

activities of the Group to complete the CIBM structure and provide a complete range

of financial products to our clients. Increasingly, ECA financing is being considered

 by customers and we work closely with our project export finance teams, both

onshore and offshore, to provide structured solutions. Clients are serviced by sector

 based client service teams that combine relationship managers, product specialists and

industry specialists to develop customized financial solutions. These form the

relationship team along with the Investment Banking & Advisory division. Each team

supports the client's worldwide operations, ensuring a full understanding of the

company's business and financial needs. Based on our client's requirement, HSBC

also assigns Global Relationship Management teams to provide structured solutions.

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In today‟s global Banking arena, Corporate Bankers are facing a string of

unprecedented and sweeping challenges in the areas like Treasury Management,

Trade Finance, Risk Management, Compliance Management, Electronic Trading and

Derivatives Markets. Compounding this are the mounting complexities from ongoing

regulatory changes, decreasing margins and fierce competition Global Relationship

Management teams are tasked with understanding in depth the sectors in which our

clients operate with the aim of adding value through detailed industry knowledge and

structured financial solutions.

CORPORATE BANKING OPERATIONS

The bank mostly lend against appropriate tangible securities such as deposits, shares,

debentures, property, guarantees supported by tangible securities, life policies, goods,

gold or other precious metal. The bank may also lend against intangible securities

such as unsupported guarantees or assignment of sums due to the borrower by third

 parties.

It is essential that the bank follows the proper procedures in order to obtain good title

when taking a security. There is a difference between possession and ownership.

The various forms of documents used for obtaining different types of security are

also important. Inadequate documentation may well cause losses to the is particularly

true for the Trade Financing documentation and the Securities Agreement relating to

goods. The bank must also follow proper procedures to realise securities otherwise

losses may be incurred. The corporate operations divisions are normally responsible

for maintaining securities documentation and updating the customers' mandates with

fresh account documentation, account statements, financial statements and

relationship reviews. Handling and treatment of delinquent accounts is also an

important area of operations. Grading of bad and doubtful debts for an effective

recovery process is important. An effective delinquency policy is essential to avoid

unnecessary financial losses.

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Corporate banking framework

Key Offerings 

Corporate Customer Information 

Finacle provides a 360 degree unified view of the corporate customer through its

Enterprise

Customer Information File. This enables the bank to create and maintain customer

records, which detail financial, group, product preference and trade finance

information. The customer record can be linked with related corporate customers andindividuals, such as authorized signatories, guarantors, shareholders and

representatives. This enables the maintenance of aggregated and consolidated

customer, account and relationship information, across the enterprise.

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Commercial Lending

Finacle has rich features and functionality for commercial lending. This includes:

  Flexible and custom-defined product creation

  Highly parameterized custom-scheduled disbursement  Differential interest rate setup for draw-down, automatic interest

accrual and booking

  Flexible repayment scheduling such as holiday on loans, normal

 periodic repayments and bullet payments

  Adjustment or offset sequence on collections - option to first adjust

interest demands or principal demands

  Customer level appropriation of a single amount to multiple

commercial loan accounts of the customer in accordance with a pre-

defined account sequence

  Detailing of account information related to linked accounts and

associated project details

  Handling of pre-payments and calculation of interest on pre-payment

amount

  Booking of forward contracts against the loan account

  Debt consolidation and crystallization of overdue installments

  Automatic asset classification, partial write-off and provisioning

definition in accordance with the bank‟s norms 

Liquidity Management

Liquidity management in Finacle includes a comprehensive range of fund

management

solutions for corporate customers, designed to enhance return on funds, minimize

overdraft charges and optimize funds positions. Finacle offers liquidity management

solutions in two proven models, popularly deployed the world over:

  Target Balancing

   Notional Pooling

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Securitization

Finacle supports securitization by providing an avenue for banks to dispose assets to

investor groups through creation of a pool of accounts. This is premised on pre-

defined parameters such as customer, product and collateral. Pool processing, assessment,

reassessment and cancellation are supported. Receivables management through an

Escrow account for Special Purpose Vehicles (SPV) is supported. Purchase

consideration can be computed on the basis of principal outstanding with or without

the discounting factor, with a wide range of service fees computation, at the pool and

account levels.

LimitsFinacle universal banking solution supports a global, centralized structure for limits

management. Online real time monitoring and updating of multi-currency exposure

on

transaction completion, is supported. A hierarchical structure with unlimited levels of

limits and sub-limits for a customer or a corporate group can be defined. Other

features include:

• Revolving and non-revolving limits, for funded and non-funded lines of credit

• Exception handling on busting of limits during account opening, maintenance and

transaction events

• Limit level interest rates for overdraft and term loan accounts 

• Shared limits for multiple customers and user -maintained ad-hoc limits

• Transfer facility limits and re-transfer limits; support for future-dated limits

Collateral Management

Finacle universal banking solution supports the definition and maintenance of a wide

range of movable and immovable securities in multiple currencies, linked to various

credit facilities. The collateral can be linked to a limit or an account and drawing

 power can be derived from the value of the collateral on a pre-defined basis such as

valuation, margin, loan-to-value ratio and revaluation, in terms of market value. This

helps banks manage online exceptions at the account, limit and transaction levels on

collateral value erosion, withdrawal of lodged collateral and expiry of collateral.

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Trade Finance

Finacle‟s trade finance offerings are full-fledged and present multiple products and

services that cater to every trade requirement of the bank‟s corporate clientele. Banks

can initiate inward and outward remittances with STP capabilities for major paymentsystems used in cross-border funds transfer. Import and export financing is enabled

with products such as pre-shipment & packing credits, post-shipment credits,

documentary credits and bill discounting. Finacle universal banking solution can

handle forward contracts and linkage of the contract to various events such as

disbursement, rollover and offset. The solution supports maintenance of Nostro and

Vostro accounts, while facilitating reconciliation and online position updates on

account of cross-currency transactions.

Syndication

Finacle offers multiple avenues for facilitation of syndication arrangements for project

financing and large corporate loans involving multiple banks. It supports syndicated

loan

 products over a three layer structure referred as the facility, tranche and drawdown

with

support for complex transactions involving payments, interest, notices, fees, charges,

drawdown and documentation.

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Introduction to State Bank of India:

Evolution of SBI:

  Born as Bank of Calcutta (2 June 1806).

  Renamed Bank of Bengal (2 January 1809).

  Bank of Bombay (15 April 1840).

  Bank of Madras (1 July 1843).

  All three were called Presidency Banks.

  Amalgamated as Imperial Bank of India on 27 January 1921.

Birth of SBI:

  An Act was passed in Parliament in May 1955 and the State Bank of

India was constituted on 1 July 1955.

  State Bank of India (Subsidiary Banks) Act was passed in 1959,

enabling the State Bank of India to take over eight former State-associated

 banks as its subsidiaries (later named Associates).

  State Bank of India was thus born with a new sense of social purpose

with 480 offices, 3 Local Head Offices and a Central Office.

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History of SBI:

The evolution of State Bank of India can be traced back to the first decade of the 19th

century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June

1806. The bank was redesigned as the Bank of Bengal, three years later, on 2nd

January 1809. It was the first ever joint-stock bank of the British India, established

under the sponsorship of the Government of Bengal. Subsequently, the Bank of

Bombay (established on 15 April 1840) and the Bank of Madras (established on 1

July 1843) followed the Bank of Bengal. These three banks dominated the modern

 banking scenario in India, until when they were amalgamated to form the Imperial

Bank of India, on 27 January 1921. An important turning point in the history of State

Bank of India is the launch of the first Five Year Plan of independent India, in 1951.

The Plan aimed at serving the Indian economy in general and the rural sector of the

country, in particular. Until the Plan, the commercial banks of the country, including

the Imperial Bank of India, confined their services to the urban sector. Moreover, they

were not equipped to respond to the growing needs of the economic revival taking

shape in the rural areas of the country. Therefore, in order to serve the economy as a

whole and rural sector in particular, the All India Rural Credit Survey Committee

recommended the formation of a state-partnered and state-sponsored bank. The All

India Rural Credit Survey Committee proposed the take over of the Imperial Bank of

India, and integrating with it, the former state-owned or state-associate banks.

Subsequently, an Act was passed in the Parliament of India in May 1955. As a result,

the State Bank of India (SBI) was established on 1 July 1955. This resulted in making

the State Bank of India more powerful, because as much as a quarter of the resources

of the Indian banking system were controlled directly by the State. Later on, the State

Bank of India (Subsidiary Banks) Act was passed in 1959. The Act enabled the State

Bank of India to make the eight former State-associated banks as its subsidiaries.

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State Bank Today

(Rupees in Crores)

BALANCE SHEET AS AT 31ST MARCH 2009

Balance Sheet size 7,21,526

Aggregate Deposits 5,37,404

Total Advances 4,16,768

Capital Funds 69,762.64

 Net Profit 6,729.12

Paid-up Capital 631.47

(In percentage terms)

BALANCE SHEET AS AT 31ST MARCH 2009

Yield on Advances (Domestic) 9.90

Cost of Deposits (Domestic) 5.59

 Net Interest Margin 3.07

Gross NPA Ratio 3.04

 Net NPA Ratio 1.78

Capital Adequacy Ratio 13.47

Return on Average Assets 1.01

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AS AT 31ST MARCH 2009

 No. of Branches 10,186

 No. of Foreign Offices 84

 No. of Branches on CBS All Branches

 No. of employees 1,79,205

 No. of ATMs > 8,000

  The Bank handles almost the entire gamut of financial services. It is a

financial supermarket.

  The Bank extends banking services to:

o  Corporate Sector

o  SMEs

o  Rural sector, especially Agriculture and allied activities

o  Retail sector, i.e., Personal Segment

  The Bank has designed both Deposits as well as Advances products for

specific segments as per their requirements.

  The loans range from Rs.100/- to say, Rs. 10,000 crores.

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Key Areas of Operations

The business operations of SBI can be broadly classi.ed into the key income

generating areas such as National Banking, International Banking, Corporate

Banking, & Treasury operations. The functioning of some of the key divisions isenumerated below

a) Corporate Banking

The corporate banking segment of the bank has total business of around Rs1,193bn.

SBI has created various Strategic Business Units (SBU) in order to streamline its

operations.

TheseSBUs are as follows:a.1) Corporate Accounts

This SBU is important for the bank as its loan portfolio constituted about 27.05% of

the bank‟s commercial and institutional non-food credit and 12.85% of the total

domestic credit portfolio as on 31st March 2006.

Some of the products under corporate accounts SBU are as follows:

• SBI-FAST, which is the cash management product offered by this SBU, had a

turnover of Rs.4,705.75bn as of 31st March 2006. This product is now a

comprehensive cash management solution, offering payments in addition to

collections.

• Vendor .nancing activity is being integrated with core banking through the internet

 platform. This is identi.ed as a focus area to capture the credit portfolio of vendors.

• The foreign exchange business grew by around 55% y-o-y and reached

Rs.1,747.70bn as of 31st March 2006. This SBU now handles nearly 12% of the

country‟s visible trade and about 43% of bank‟s forex business. 

a.2) Leasing

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This SBU is not writing any leases since the past few years as unfavorable business

climate and availability of alternative funding options at cheaper cost. As at the end

March 2006, the disbursements and capitalization were zero and pro.t amounted to

Rs.245.9mn.

a.3) Project Finance

This SBU focuses on funding core projects like power, telecom, roads, ports, airports,

special economic zones and others. During FY06, total sanctions for 18 projects

involving a total amount of Rs.42.11bn were in place as against 13 projects involving

Rs.25.08bn in the previous year. It also handles non-infrastructure projects with

certain ceilings on minimum project costs. During FY06 sanctions for 29 projects

involving a total amount of Rs.55.80bn were in place as against 27 projects involving

Rs.51.63bn in the previous year. As a whole, this SBU achieved total sanctions of

Rs.238.86bn (fund based and non fund based) including syndication amount of

Rs.140.95bn during the period ended March 2006. During FY06, this SBU entered

into .nancing of aviation sector actively by sanctioning loans for modernization of

airports and acquisition of aircrafts.

a.4) Mid Corporate Group

The Mid Corporate Group (MCG) created in June 2004 has 7 MCG Regional Of.ces

controlling 28 large branches with high concentration of Mid Corporate (MC)

 business. The entire Off-Site MC business of all branches at 31 identi.ed centres has

 been brought under the fold of MCG. The average processing time of credit proposals

is about 15 days and quicker decision making on credit proposals of the Mid

Corporate units has resulted in greater customer satisfaction.

As of March 2006, 21 MCG branches have been migrated to core banking platform.

 New technology products like RTGS, CINB, Multi-City cheque facility and Core

Power have been, introduced in all these branches. These technology products

coupled with quick Turn Around Time (TAT) have enabled Mid-Corporate Group to

increase its business substantially and generate higher income, both interest and fee

 based.

a.5) Stressed Assets Management

During FY06, the banking industry witnessed a major policy initiative by Reserve

Bank of India with the opening up of sale / purchase of non performing assets to

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 banks, FIs and non-banking .nance companies (NBFCs). During FY06, the bank sold

 NPAs to the tune of Rs.8.9bn against security receipts and Rs.11.41bn on cash basis

to Asset Reconstruction Company (ARCIL). The progress in enforcing the security

interest has somewhat slowed down due to the requirement of withdrawing suits

 pending before the tribunal prior to action being initiated against the defaulting

 borrowers under the SARFAESI Act.

 b) National Banking

The national banking group has 14 administrative circles encompassing a vast

network of 9,177 branches, 4 sub-of.ces, 12 exchange bureaus, 104 satellite of.ces and

679 extension counters, to reach out to customers, even in the remotest corners of the

country. Out of the total branches, 809 are specialized branches. This group consists

of four business group which are enumerated below:

 b.1) Personal Banking SBU

This SBU is mainly responsible for retail business. During FY06, personal banking

advances increased from Rs.464.51bn to Rs.610.67bn, showing a growth of

Rs.146.16bn at the rate of 31.47 % against a growth rate of 40.12% in the previous

year. On the home loan front, several new products were introduced, tailored to .t the

needs of speci.c customer segments, such as SBIMaxgain (minimize interest burden,

earn on savings, at no extra cost), SBI NRI-Home Loans, SBI Freedom Home Loans

(Loans given without mortgage of property, but against alternate securities, instead),

SBI Tribal Plus Home Loans. The auto loans portfolio has shown a growth of

R s.17.74bn in absolute terms and 65% which is considerably higher than last year‟s

growth, mainly due to implementation of well planned strategies.

 b.2) Small & Medium Enterprises

The SME Business Unit implemented comprehensive strategies, revamped business

 processes and with its focus on market dynamics and customer preferences, achieved

commendable business growth. The initiative was implemented by focusing on

speci.c industry segments, and concentrating on various players in the value chain.

Debt restructuring mechanism for units in SME sector has been devised to ensure

restructuring of debt of all eligible Small and Medium Enterprises (SMEs) on

favourable terms.

Focused on the SME sector, projects under Uptech are taken up in location speci.c

and activity speci.c industry clusters. So far the bank has taken 28 projects for

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modernization under the Project Uptech covering industries like foundry, pumps,

glass, auto components, and knitwear, etc. The bank has also covered agro based

industries like rice mills, sago andstarch and horticulture activities like Apple

Orchards and grape farming under the scheme. The deposits of the SME SBU

increased to Rs.1,042.70bn as at the end of March 2006 from Rs.890.60bn of previous

year recording a growth of 17.08% during the year. SME advances increased to

Rs.456.53bn from Rs.328.30bn of previous year, recording a growth of 39.06 %.

The criteria laid down by the Government of India for growth in SME advances is

20%.

 b.3) Agricultural Banking

This SBU is accountable for agricultural credit both traditional and new thrust areas

like contract farming, farmers .nanced through Agri Export Zones (AEZs) and value

chain .nancing. Increase in disbursements during FY06 was 83% against the Govt. of

India target of 30%. Agricultural advances grew from a level of Rs.205.26bn in FY05

to Rs.305.16bn as at the end of March 06. As on November 2006, agriculture loans

contribute 11% of the total loan book.

 b.4) Government Banking

With the establishment of the government business unit and the consequent focus on

marketing, business turnover of this segment has grown substantially over the years.

Bank‟s business turnover from the government business segment during 2004-05 was

Rs.8,843.81bn. The turnover increased by 10.52 % to Rs.9,773.90bn during FY06.

c) International Banking

SBI has a network of 73 overseas of.ces in 30 countries in all time zones and

correspondent relationship with 520 international banks in 123 countries. The bank is

keen to implement core banking solution to its international branches also. During

FY06, 25 foreign of.ces were successfully switched over to Finacle software. SBI has

installed ATMs at Male, Muscat and Colombo Of.ces. In recent years, SBI acquired

76% shareholding in Giro Commercial Bank Limited in Kenya and PT Indomonex

Bank Ltd. in Indonesia. The bank incorporated a company SBI Botswana Ltd. at

Gaborone.

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d) Treasury

The bank manages an integrated treasury covering both domestic and foreign

exchange markets. In recent years, the treasury operation of the bank has become

more active amidst rising interest rate scenario, robust credit growth and liquidity

constraints. The bank diversi.ed its operations more actively into alternative assets

classes with a view to diversify the portfolio and build alternative revenue streams in

order to offset the losses in .xed income portfolio. Reorganisation of the treasury

 processes at domestic and global levels is also being undertaken to leverage on the

operational synergy between business units and network. The reorganization seeks to

enhance the ef.ciencies in use of manpower resources and increase maneuverability of

 banks operations in the markets both domestic as well as international.

e) Associates & Subsidiaries

The State Bank Group with a network of 14,061 branches including 4,755 branches of

its seven Associate Banks dominates the banking industry in India. In addition to

 banking, the Group, through its various subsidiaries, provides a whole range of

.nancial services which includes Life Insurance, Merchant Banking, Mutual Funds,

Credit Card, Factoring, Security trading and primary dealership in the Money Market.

e.1) Associates Banks:

SBI has seven associate banks namely

• State Bank of Indore 

• State Bank of Travancore 

• State Bank of Bikaner and Jaipur  

• State Bank of Mysore

• State Bank of Patiala 

• State Bank of Hyderabad 

• State Bank of Saurashtra 

All associate banks have migrated to Core Banking (CBS) platform. Single window

delivery system has been introduced in all associate banks. SBI‟s seven associate

 banks are the .rst amongst the public sector banks in India to get fully networked

through CBS, providing anytime-anywhere banking to its customers to facilitate a

 bouquet of innovative customer offerings.

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e.2) Non-Banking Subsidiaries/Joint Ventures

i) SBI Life:

SBI Life is the third largest private insure with the market share of 10.21% among the

 private players and number one in terms of number of lives insured amongst private

 players (no. of lives insured and policies is 25mn). In H1FY07 gross premium was

Rs.7.68bn.

ii) SBI Capital Markets Limited (SBICAP)

SBI Caps forged ahead in issue management, project advisory and structured .nance,

sales and distribution. To capitalize on the emerging opportunities, SBI Caps has

 promoted four wholly owned subsidiaries viz. SBICAP Securities Ltd. for

undertaking stock broking activities, SBICAPS Ventures Limited, SBICAP Trustee

Company Limited for undertaking venture capital business and SBI CAP (UK) LTD.,

for carrying on the Financial Services Authority (FSA) regulated activities.

On the international front, the expertise of SBI Caps in the infrastructure and project

advisory has received international acclaim. In addition, the company has been placed

11th globally in the Mandated Project Advisor league tables  by Thompson‟s, and one

of the projects handled by the company has been selected as the Asia Paci.c

Infrastructure deal of the year for FY06.

SBI Caps booked gross income amounting to Rs.1.79bn in FY06 as against Rs.1.75bn

in the previous year, while PAT of the company was at Rs.906.2mn in FY06 as

against Rs.881.2mnin the last year.

iii) SBI DFHI LTD

SBI group holds 67.01% of the company‟s paid up capital, while other nationalized

 banks hold 22.46%. All India .nancial institutions and private sector banks hold

5.84% and the Asian Development Bank holds 4.69% as on March 31, 2006. For the

year ended 31st March, 2006, the company has earned a PAT of Rs.24.4mn. Total

secondary market turnover of the company was Rs.285.39bn which amounted to a

market share of 12.89% among all primary dealers.

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iv) SBI Cards & Payments Services Pvt. Ltd. (SBICSPL)

SBICSPL is ranked 2nd in industry with cards in force over 3mn as on September 06.

During FY06, the aggregate revenue generated by the SBICSPL was Rs.5.27bn while

 pre-tax pro.t was Rs.558.6mn.

v) SBI Funds Management (P) Ltd. (SBIFMPL)

SBI Mutual Fund is the mutual funds arm of the bank. SBIFMPL reported a total

in.ow of Rs.481.67bn in the various schemes during the year. The total assets under

management are Rs.132.49bn. The company reported a net pro.t of Rs.186.4mn as at

the end of March, 2006.

f) Human Resources

The bank had total staff strength of 198,774 on the 31st March, 2006. Of this, 29.51%

are of.cers, 45.19% clerical staff and the remaining 25.30% were sub-staff. SBI had

launched VRS scheme for its employees in FY01 in which it has reduced it staff by

approximately 5,000 and estimates natural retirement of another 5,000 employees in

next 4-5 year.

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OUR VISION:

MY SBI

MY CUSTOMER FIRST

MY SBI: FIRST IN CUSTOMER SATISFACTION

MISSION:

  We will be prompt, polite and proactive with our customers.

  We will speak the language of young India.

  We will create products and services that help our customers achieve their

goals.

  We will go beyond the call of duty to make our customers feel valued.

  We will be of service even in the remotest part of our country.

  We will offer excellence in services to those abroad as much as we do to those

in India.

  We will imbibe state of the art technology to drive excellence.

VALUES :

  We will always be honest, transparent and ethical.

  We will respect our customers and fellow associates.

  We will be knowledge driven.

  We will learn and we will share our learning.

  We will never take the easy way out.

  We will do everything we can to contribute to the community.

  We will nurture pride in India.

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