Retails n Fore Ex

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Transcript of Retails n Fore Ex

PROJECT REPORT

ON

EVOLUTION IN BANKING SERVICES & FOREIGN EXCHANGE AT BRANCH LEVEL (RETAIL BANKING)

AT

AXIS BANK LTD.VASANT VIHAR NEW DELHI

Submitted By:JYOTI LOHARIA Master of Business Administration -II SEM 2009-2011 Institute of Business Management and Research, IPS ACADEMY, INDORE 1

ACKNOWLEDGEMENT

It is a matter of great satisfaction and pleasure to present this report on EVOLUTON OF BANKING SERVICES & FOREX MANAGEMENT AT BRANCH LEVEL taking Axis bank as basis. I take this opportunity to owe my thanks to all those involved in my training. This project report could not have been completed without the encouragement of Mrs. MEENA BAKSHI (MANAGER-VASANT VIHAR BRANCH), Mr. AJAY DARNAL (MANANGER-OPERATIONS) and Mr. BRIJESH ARORA (MANAGER- BUSINESS BANKING). Their timely help & guidance helped me to complete this project successfully. I thank Mr. SURESH MEHRA (ASST. VICE PRESIDENT- HR) for giving me opportunity to work at AXIS BANK, as a FINANCE TRAINEE. I am thankful to Mrs. GEETA SACHDEVA (MANAGER-FOREX DEPT.) and Ms. SAMMY (ASSISTANT MANAGER-FOREX DEPT.) for their encouragement and guidance at every stage of my training work. I express my gratitude towards the entire staff of AXIS BANK, VASANT VIHAR, those who have helped me directly or indirectly in completing the training.

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EXECUTIVE SUMMARY

This project was aimed at understanding two thingsTo know how the services offered by banks have changed over the years and what are the new services that have emerged and changed the whole face of banks To understand the working of forex department in retail banking at branch level

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TABLE OF CONTENTS

Acknowledgements Executive Summary 1. Introduction An introduction to Banking in India About AXIS Bank 2. Evolution of Banking Services 3. Forex Meaning and Characteristics 4. Foreign Exchange in India 5. Regulatory Bodies of Forex in India 6. Foreign Exchange at Branch Level 7. Bibliography

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5 10 11 21 22 33 34 37 47

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AN INTRODUCTION TO BANKING IN INDIAWithout a sound and effective banking system a nation cannot have a healthy economy. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dialing for a pizza. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 which brought 80% of the banking segment in India under Government ownership. Third phase introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. The country is now flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system has become more convenient and swift. Time is given more importance than money. 5

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure. Currently, banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The 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.

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CURRENT RATE OF BANKS BY RBI Reserve Ratios 1. CRR- Bank in India are required to hold a certain proportion of their deposits in the form of cash. However, actually Banks dont hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivalent to holding cash with them. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. For example, if the reserve ratio in India is determined by RBI to be 9%, this means all banks must have 9% of their depositors' money on reserve in the bank. So, if a depositor deposits Rs. 100 with the bank, the banks will have to hold additional Rs 9 with RBI and will be able to use only Rs 91 for investments and lending / credit purpose 2. SLR- SLR stands for Statutory Liquidity Ratio. This is the amount of liquid assets, such as cash, precious metals or other short-term securities, that a bank must maintain in its reserves. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits). It regulates the credit growth in India.

Policy Rates1. Bank Rate- Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply. Bank rate is a long-term measure and is governed by the longterm monetary policies of the governing bank concerned.

2. Repo Rate- It is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

3. Reverse Repo Rate- It is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in 7

the banking system. An increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep their money with the RBI. OTHER RATES

Prime Lending Rate- Interest rate charged by banks to their largest, most secure and creditworthy (prime) customers on short-term loans is called as PLR. Generally a bank's best customers consist of large corporations. This rate is used as a guide for computing interest rates for other borrowers. The prime rate is also important for retail customers, as the prime rate directly affects the lending rates which are available for mortgage, small business and personal loans.

Base Rate- The Base Rate system has replaced the PLR system with effect from April 1, 2010. Banks now determine their actual lending rates on loans and advances with reference to the Base Rate. Base Rate includes all those elements of the lending rates that are common across all categories of borrowers. While each bank may decide its own Base Rate, some of the criteria that could go into the determination of the Base Rate are: (i) cost of deposits; (ii) adjustment for the negative carry in respect of CRR and SLR; (iii) unallocatable overhead cost for banks such as aggregate employee compensation relating to administrative functions in corporate office, directors and auditors fees, legal and premises expenses, depreciation, cost of printing and stationery, expenses incurred on communication and advertising, IT spending, and cost incurred towards deposit insurance; and (iv) profit margin

LIBOR (London Inter Bank Offered Rate) - An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Assoc