State Bank of Saurashtra

7/27/2019 State Bank of Saurashtra

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DECLARATION

I, the undersigned URVI B. SHAH a student of

T.Y.B.B.A. hereby declare that the project work

presented in this report is my own and has been

carried out under the supervision of Ms. Darshita

Ganatra ofCHRIST COLLEGE, RAJKOT.

Date :

Place: Rajkot (Urvi B.

Shah)

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PREFACE

Retail banking has emerged as a thrust area of

the Indian Banking in recent years. The reasons for

this phenomenon are well known. Importantly, it

denotes a shift in the official policy, which had been

discouraging banks from venturing in this area until

1990s.

This new area has presented enormous

challenges and opportunities to India banks. They

have risen to the occasion and have been proving

themselves. In this report, I have put together certain

critical aspects along with experiences in retail

banking in India. Indeed, retail banking is a

conglomeration of several heterogeneous activities

ranging from simple overdrafts to mortgage loans.

However, they all have a common feature namely

individual-base. The discussions in the report cover

virtually most of the aspects.

The report deal with the overview, current

scenario, problems, prospect of the banking industry

and mainly the trend in retail banking in Indian

banking industry and in State Bank of Saurashtra,

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which is one of the seven associates of State Bank of

India.

Date :

Place : Rajkot (Urvi B. Shah)

ACKNOWLEDGEMENT

I feel a great sense of pride and pleasure in

presenting my first FINANCE REPORT to the

Saurashtra University as a student of T.Y.B.B.A. on

RETAIL BANKING.

I convey my heartiest gratitude to Mr. Jayesh

Katrodia and Mr. Kirti Bataviya, without whom

this task would not have been so easy. Also, I am

thankful to Mr. Hemant Vasani and Mr. Y. B.

Gosaiwho gave me valuable advices and required

knowledge for my report. Also, I am thankful to Mr.

Atul Rathodand S.B.S. university road branch

at Rajkotfor their co-operation.

I thank Ms. Darshita Ganatra who guided me

throughout in making the report and giving me

motivation.

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I thank allthose who have helped me directly

or indirectly in the successful completion of thisproject.

Date :

Place : Rajkot (Urvi B.

Shah)

MAIN INDEX

Chapter

No.Particulars Pg. No.

1 Overview

2 Conceptual framework

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3 Research Methodology

4

Analysis of data and

interpretation

CHAPTER 1

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OVERVIEW

INDEX

Chapte

r No.Particulars Pg. No.

1 Brief history of S.B.S.

2 Overview of banking industry

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3Problems faced by banking

industry

4 Prospect of banking industry

5Overall conclusion of the

chapter

SBRIEF HISTORY AND DEVELOPMENT OF

S.B.S.

History of S.B.S.

State Bank of Saurashtra is a growing and

progressive institution, with its roots firmly

entrenched in the soil of Saurashtra. The region of

Saurashtra, which at present forms a part of Gujarat

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State, comprised of many small, medium and large

princely states, prior to 1948. The states of

Bhavnagar, Rajkot and Porbandar, which wereamong the larger states and the two smaller states,

viz. Palitana and Vadia, had established their own

Darbar Banks. Out of these five, Bhavnagar Darbar

Bank had been established in the year 1902, to

which we owe our origin. These banks were mainly

catering to the needs of the respective princely

states, acting as the repository for the states

treasures as also the peoples savings. After the

princely states were integrated to from Saurashtra

state in 1948, a need was felt to amalgamate these

banks and make them a state-owned bank was felt

to serve as an instrument for developing the

economy of the region. Accordingly, the Bhavnagar

Darbar Bank was formed into a statutory

corporation, called STATE BANK OF SAURASHTRA,

under the Saurashtra State Bank (Amalgamation)

Ordinance, 1950 and the four Darbar Banks Rajkot

State Bank, Porbandar State Bank, Palitana Darbar

Bank and Vadia State Bank were merged with it

with effect from 1st July, 1950 as its branches.

The year 1960 was the most important

landmark in the history of the Bank. Firstly,

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following the formation of a separate Gujarat State,

the Banks main area of operation Saurashtra

became a part of Gujarat. Secondly, pursuant to therecommendations of the All India Rural Credit Survey

Committee, the Bank was taken by the State Bank of

India under its wings along with other major state-

owned banks under the State Bank of India

(Subsidiary Banks) Act, 1959. Thus, in 1960, the

State Bank of Saurashtra joined the State Bank

family as one of its fully owned subsidiaries so that

its policies and activities could be directed to

achieve the socio-economic objectives for which the

Sate Bank of India itself was constituted. These twin

events brought about a significant change in the

outlook of the Bank. Apart from providing the Bank

with an opportunity to expand its operations and

enabling use of the network of the State Bank Group

for furthering its business activities, it also enabled

the Bank to grow from a state of infancy into

adulthood by imbibing the rich banking traditions of

the State Bank of India.

At the close of 1950, the Bank had only 9

branches and deposits of Rs 7 crores. A decade

later the number of branches had increased to 24

with aggregate deposits of Rs 13.39 crores, total

advances of Rs 7.93 crores and investment

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portfolio of Rs 8.04 crores. The paid up capital and

reserves were Rs 1.51 crores. The Bank had 866

people on its payroll, to take care of its operations.

Their Present

By 31/03/2005, the total deposits amounted to

Rs 12613.04 crores and total advances reached the

level of Rs 6714.07 crores. The business of the Bank

is now spread over 15 states and Union Territory of

Daman and Diu with a network of 423 branches.

The Banks paid up capital and reserves amounted

to Rs 794.25 crores as at the end of March 2005.

The Bank had Capital Adequacy Ratio of 11.45%.

All branches are fully computerized and are

expected to be networked to provide Anywhere

Banking to our valued customers before December,

2005.

Their Vision

To be the premier Pubic Sector Bank of Gujarat

aiming at growth and profit with central focus on

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customer delight by means of improved technology,

product development, excellence in service, thus

harnessing the potential for

growth in alignment with national policies and

priorities in a planned manner geared to meet all

challenges of growth.

Their Mission

State Bank of Saurashtra aims at corporate

excellence and profit maximization with central

focus on customer delight so as to maintain its

premier position in the State of Gujarat by means of

excellence in service, product development,

improvement in technology, harnessing potential for

growth in alignment with national objectives in a

planned manner so as to emerge as a strong bank

with social orientation, geared to meet all the

challenges of growth.

Excellence in man management and optimal

use of human resources will be the banks

cornerstone in establishing a position of eminence

for itself in the banking industry, benchmarking itself

against the highest standards and adopting national

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and international best practices while maintaining

the traditional strength developed over a century of

banking.

The bank will derive its strength from its

extensive rural network and reach out to the urban

pockets with thrust on technology and quality

service.

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OVERVIEW OF THE INDIAN BANKING

INDUSTRY

The Indian Banking industry, which is

governed by the Banking Regulation Act of India,

1949 can be broadly classified into two major

categories, non-scheduled banks and scheduled

banks. Scheduled banks comprise commercial banks

and the co-operative banks. In terms of ownership,

commercial banks can be further grouped into

nationalized banks, the State Bank of India and its

group banks, regional rural banks and private sector

banks (the old/new domestic and foreign). These

banks have over 67,000 branches.

The first phase of financial reforms

resulted in the nationalization of 14 major banks in

1969 and resulted in a shift from Class banking to

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Mass banking. This in turn resulted in a significant

growth in the geographical coverage of banks. Every

bank had to earmark a minimum percentage of theirloan portfolio to sectors identified as priority

sectors. The manufacturing sector also grew during

the 1970s in protected environs and the banking

sector was a critical source. The next wave of

reforms saw the nationalization of 6 more

commercial banks in 1980. Since then the number

scheduled commercial banks increased four fold

and the number of banks branches increased eight

fold.

After the second phase of financial sector

reforms and liberalization of the sector in the early

nineties, the Public Sector Banks (PSBs) found it

extremely difficult to compete with the new private

sector banks and the foreign banks. The new private

sector banks first made their appearance after the

guidelines permitting them were issued in January

1993. Eight new private sector banks are presently

in operation. These banks due to their late start have

access to state of the - art technology, which in

turn helps them to save on manpower costs and

provide better services.

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During the year 2000, the State Bank of

India (SBI) and its 7 associates accounted for 25 %

share in deposits and 28.1 % share in credit. The 20nationalized banks accounted for 53.2 % of the

deposits and 47.5 % of credit during the same

period. The share of foreign banks (numbering 42),

regional rural banks and other scheduled

commercial banks accounted for 5.7 %, 3.9 % and

12.2 % respectively in deposits and 8.41 %, 3.14 %

and 12.85 % respectively in credit during the year

2000.

Current Scenario

The banking industry is currently in a

transition phase. On the one hand, the PSBs, which

are the mainstay of the Indian Banking System are in

the process of shedding their flab in terms of

excessive manpower, excessive Non

Performing Assets (NPAs) and excessive

governmental equity, while on the other hand the

private sector banks are consolidating themselves

through mergers and acquisitions.

PSBs, which currently account for more

than 78 % of total banking industry assets are

saddled with NPAs, falling revenues from traditional

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sources, lack of modern technology and a massive

workforce while the new private sector banks are

forging ahead and rewriting the traditional bankingbusiness model by way of their sheer innovation and

service. The PSBs are of course currently working

out challenging strategies even as 20 % of their

massive employee strength has dwindled in the

wake of the successful Voluntary Retirement

Schemes (VRS).

The private players however cannot

match the PSBs great reach, great size and access

to low cost deposits. Therefore, one of the means for

them to combat the PSBs has been through the

merger and acquisition (M&A) route. Over the last 2

years, the industry has witnessed several such

instances. For instance, HDFC Banks merger with

Times Bank, ICICI Banks acquisition of ITC Classic,

Anagram Finance and Bank of Madura.

Private sector banks have pioneered internet

banking, phone banking, anywhere banking, mobile

banking, debit cards, Automated Teller Machines

(ATMs) and combined various other services and

integrated them into the mainstream banking arena,

while the PSBs are still grappling with disgruntled

employees in the aftermath of successful

VRS. Also, following Indias commitment to the WTO

agreement in respect of the services sector, foreign

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banks, including both new and the existing ones,

have been permitted to open up to 12 branches a

year with effect from 1998 99 as against the earlierstipulation of 8 branches.

Talks of government diluting their equity from 51 %

to 33% have also opened up a new opportunity for

the takeover of even the PSBs.

Meanwhile the economic and corporate

sector slowdown had led to an increasing number of

banks focusing on the retail segment. Many of them

are also entering the new vistas of Insurance. Banks

with their phenomenal reach and a regular interface

with the retail investor are the best placed to enter

into the insurance sector. Banks in India have been

allowed to provide fee based insurance services

without risk participation, invest in an insurance

company for providing infrastructure and services

support and set up of a separate joint venture

insurance with risk participation.

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PROBLEMS FACED BY THE BANKING

INDUSTRY

The banking industry in India is undergoing a

major transformation due to changes in economic

conditions and continuous deregulation. These

multiple changes happening one after other has a

ripple effect on a bank trying to graduate from

completely regulated sellers market to completed

deregulated customers market.

Deregulation :

This continuous deregulation has made the

Banking market extremely competitive with greater

autonomy, operational flexibility, and decontrolled

interest rate and liberalized norms for foreign

exchange. The deregulation of the industry coupled

with decontrol in interest rates has led to entry of a

number of players in the banking industry. At the

same time reduced corporate credit off take thanks

to sluggish economy has resulted in large number of

competitors battling for the same pie.

New rules :

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As a result, the market place has been redefined

with new rules of the game. Banks are transformingto universal banking, adding new channels with

lucrative pricing and freebees to offer.

Natural fall out of this has led to a series of

innovative product offerings catering to various

customer segments, specially retail credit.

Efficiency :

This in turn has made it necessary to look for

efficiencies in the business. Banks need to access lowcost funds and simultaneously improve the efficiency.

The banks are facing pricing pressure, squeeze on

spread and have to give thrust on retail assets.

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PROSPECT OF THE BANKING INDUSTRY

The future banking, which is poised for

reaping the full benefits of the developments in the

field of knowledge and information technology, will

be knowledge oriented and technology driven

banking, thus metamorphosing the entire Indian

banking scenario. The main features of Banking

Vision in Prospect can be briefly summarized as :

* This will be a paperless banking era dominated by

plastic money.

* The banks will be slim and trim in their physical size

and structure and not in business volume, with

emphasis on automation and outsourcing of different

services so that they can tackle the increasing

volumes of business efficiently and effectively and

become competitive in relation to foreign and

private sector banks.

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* Customer banker contact will be reduced to the bare

minimum to be taken over by electronic banking,

telebanking and card banking. This can very well beexpressed as 365 Days 24 Hours Anywhere

Banking or alternatively as Anywhere Anytime

Banking.

* Customer service and product innovation will be the

guiding principle and the strength of the banks.

* Integration of financial services, such as insurance,

hire purchase and leasing, brokering, consultancy

and banking, will take place thereby making the

banks a delivery channel for a host of financial

products and services.

* Five to six nationalized banks will dominate Indian

Banking scenario having global presence and sound

capital base with a few all India character private

sector banks along with the small regional banks

suiting and catering to local requirements.

* With thinning of spreads on core banking business of

credit and deposit, banks have to search for

alternative profit generating avenues in the form of

the float fund management, thereby strengthening

their treasury operations, which will be a thrust area

in the emerging banking environment.

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* Risk management activities will be more pronouncedin future banking because of the liberalization,

deregulation and global integration of financial

markets, which will be adding depth and dimensions

to the banking risks. The risks are correlated and

exposure to one risk may lead to another risk,

therefore management of risks in a proactive,

efficient and integrated manner will be the strength

of the successful banks.

Thus, future banking can be compared

with the hospitality industry thriving on the tailor

made products suiting to the requirements of the

individual customers where volumes will be of

primary importance. Accordingly the perceived

theme of Indian Banking Vision in Prospect can

best be described as Technology Driven

Enlightened Employee with Customer Delight with

the service objective of Anywhere Anytime

Banking.

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OVERALL CONCLUSION OF THE CHAPTER

Growth is the innate process and natural

mechanism of every organisation and system to

which Indian banking is no exception. A historical

glance on the development of India Banking Industry

reveals that it has passed through various phases of

growth, which may be classified under different

phases together with future projections.

The financial sector reforms have brought

about significant improvements in the financial

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strength and the competitiveness of the Indian

Banking System. The banking sector reforms were

basically aimed at ensuring the safety andsoundness of financial institutions and the same

time at making the baking system strong, efficient,

functionally diverse and competitive. The reforms

included measures for arresting the decline in

productivity, efficiency and profitability of the

banking sector. Furthermore, it was recognized that

the Indian banking system should be in tune with

international standards of capital adequacy,

prudential regulations, and accounting and

disclosure standards.

State banks in India have, over the years,

played a very significant role in the development of

the economy and in achieving the objectives of

reaching the masses and cater to the credit needs of

all segments, including weaker sections, of the

economy.

Technological factors played a major role.

Convenience banking in the form of debit cards,

internet and phone banking, anywhere and

anytime banking has attracted many new customers

into the banking field.

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CHAPTER 2 :

CONCEPTUAL

FRAMEWORK

INDEX

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Chapter


1 Definition of retail banking

2 Meaning of retail banking

3Special features of retail

credit

4 SWOT Analysis

5Emerging issues in retail

credit

6 Conclusion of the chapter

DEFINITION

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The simplistic definition of the term retail

banking could be catering to the multiple banking

requirements of individuals relating to deposits,advances and associated services. The retail banking

portfolio of a bank encompasses deposits and asset-

linked products as well as other financial services

offered to individuals for personal consumption. The

retail banking on assets side of the balance sheet

now includes a wide range of loan products such as

housing loans, mortgage loans, consumption loans

for purchase of durables, personal loans for

specified/unspecified activities/requirements, auto

loans, educational loans, loans against various types

of securities, loans against future rentals in addition

to the traditional products on liability side of the

balance sheet such as acceptance of deposits

savings bank, current account or term deposits.

MEANING

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Most of the Indian banks have largely been

retail banks in their business composition. The termretail banking encompasses retail deposit schemes,

retail loans, credit cards, debit cards, insurance

products, mutual funds, depository services

including demat facilities and a host of other

services catering to the needs of the individual

customers. It would be seen from the above that

retail banking includes various financial services and

products forming part of the assets as well as the

liabilities segment of the Banks. Simply put, it refers

to taking care of the banking needs of individual

customers in an integrated manner. It has to be

viewed as a market segment by itself.

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SPECIAL FEATURES OF RETAIL CREDIT

One of the prominent features of retail banking

products is that it is a volume driven business.

Further, retail credit ensures that the business risk is

widely dispersed among a large customer-base,

unlike in the case of corporate lending where the risk

may be concentrated lending where the risk may be

concentrated on a select few clients. Ability of any

bank to administer a large portfolio of retail credit

products depends on such factors as the following :

Strong credit assessment capability: because of

the large volume good infrastructure is required. If

the credit assessment itself is qualitative, then the

need for follow up in the future reduces

considerably.

Sound Documentation : a robust system for credit

documentation is a necessary pre-requisite for

healthy growth of retail credit portfolio as in the

case of credit assessment, this will also minimize the

need to follow up at a future point of time.

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Strong processing capability : since large

volumes of transactions are involved, excellent

infrastructure for processing of day-to-daytransactions, maintenance of back-ups etc., is

required.

Regular and Constant Follow-up : ideally, follow

up for loan repayments should be an ongoing

process; it should start from the customer enquiry

and last till the loan is repaid in full.

Skilled human resources : this is one of the most

important pre-requisites for the efficient

management of a large and diverse retail credit

portfolio. Only highly skilled and experienced

manpower can withstand the rigour of administering

a diverse and complex retail credit portfolio.

Technological support : this is yet another vital

requirement. Retail credit is highly technological

intensive nature, because of the large volumes of

business, the need to provide instantaneous service

to the customers at large, faster processing,

maintaining databases etc.

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T

ANALYSIS

SWOT ANALYSIS OF RETAIL BANKING

Strength

$ Maximum chunk of low cost (savings bank) and fixed

deposits, contributed by retail segment, are

considered less volatile as compared to other

deposits. Non volatile nature of these deposits help

the banks to draw their ALM strategies more

particularly for longer tenure comfortably.

$ Low cost of

operations in terms of deployment of manpower for

processing and follow up, as compared to similar

sized loans in other segments.

$ Low level of NPAs. [Tendency to default on housing

loan is low as house is considered as the big-ticket

deal of an individuals life. However, tendency of

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default on other sub-segments of retail loan is

comparatively higher].

$ Retail finance provides a higher and rather

consistent risk adjusted return to Banks due to low

level of NPAs.

$ Safe advances as these are invariably backed by

tangible security in the form of mortgage of

house/flat in case of housing loans and tangible

security, check off facility, post dated cheques, etc.

in case of other retail loans.

$ High yield return to retail depositor with safety and

liquidity.

Weakness

High manpower cost, low productivity and

automation is still a cause of concern for the

nationalized banks which increases intermediation

cost for them as compared to private sector

banks/foreign banks.

The scheme with variable deposit rates option with

the depositors has not gained popularity and as such

the cost of time deposits for the Banks remain

constant even though the rates of interest on

advances remain fluctuating.

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Largely, longer tenure of loans, ranging from

minimum 3 years to 15/20 years as against theaverage deposits of less than 3 years.

Absence of workable foreclosure laws. [The National

Housing Banks has initiated steps to set up a

Mortgage Credit Guarantee Company pursuant to

the announcement made by the Finance Minister in

his budget speech of 2002-03. The Company will

guarantee housing loans, thus providing lenders with

protection against default by the borrowers].

Opportunities

Cross selling of products. [The Banks now prepare

database of their depositors to study the nature of

transactions being routed through the deposit

accounts with a view to ascertaining the lending

requirements of their customers and do marketing

therefore].

Of late, securitization of retail loan

portfolio has been started in a big way. Nationalized

Banks, being in advantageous position in terms of

their geographical reach to a large number of

borrowers, can continue to book fresh business,

improve their customer base to cross sell their

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products and in due course off load the portfolio

through securitization route depending upon their

ALM position.

In the medium term, growth in retail lending is

expected to be outperforming than other segments

due to lower interest rates regime and increased use

of technology by banks thereby reduced cost of

intermediation.

The growth in retail lending is expected to continue

at much higher rates in the time to come as the

retail loans to GDP are still less than 5% which is

lower than the other developed/developing

countries.

Continued preferred mode of savings of the

households sector due to unattractiveness of other

options as compared to risk involved.

Reduction/gradual withdrawal of tax benefits under

other Government administered deposit schemes

also re - routing deposits to Banks.

Retail lending provides an opportunity to the Banks

to offset the lower demand of funds from corporate

sector.

Threats

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~ Incidences of concurrent borrowings are on increase

in case of retail loans through the credit card/otherroutes. This is a cause of concern for the Banks.

~ Switchover/takeover threats loom over the bank.

~ Shrinkage in the kitty of no cost [current account]

deposits thereby increasing the average cost of

deposits for the Bank.

~ The cost of maintaining low cost [saving bank]

deposits is also increasing due to increased

competition. The Banks are now compelled to

provide free ATM cards with other add-on frills.

~ Retail advances are unproductive in nature. These

advances do not directly contribute in the economic

development of the country. Continuous emphasis of

the Banks on the retail segment has reduced their

outlay of funds to other segments such as

agriculture, industry, etc.

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EMERGING ISSUES IN HANDLING RETAIL

BANKING

Knowing the Customer

Know Your Customer is a concept which is

easier said than practiced. Banks face severalhurdles in achieving this. In order that the product

lines are targeted at the right customers present

and prospective it is imperative that an integrated

view of the customers is available to the banks. The

benefits flowing out of cross selling and up selling

will remain a far cry in the absence of this vital input.

In this regard, the customer data bases available

with most of the public sector banks, if not all,

remain far from being enviable.

What needs to be done is setting up of a

robust data warehouse wherefrom meaningful data

on customers, their preferences, their spending

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patterns, etc. can be mined. Cleansing of existing

data is the first step in this direction. PSBs have a

long way to go in this regard.

Technology Issues

Retail banking calls for huge investments in

technology. Whether it is setting up of a Customer

Relationship Management System or Establishing

Loan Process Automation or providing anytime,

anywhere convenience to the vast number of

customers or establishing channel/product/customer

profitability, technology plays a pivotal role. And it is

a long haul. The issues involved include adoption of

the right technology at the right time and at thesame time ensuring volumes and margins to sustain

the investments. It is pertinent to remember that

Citibank, known for its development of technology,

took nearly a decade to make profits in credit cards.

It has also to be added in the same breath that

without adequate technology support, it would be

well nigh impossible to administer the growing retail

portfolio without allowing its health to deteriorate.

Further, the key to reduction in transaction costs

simultaneously with increase in ability to handle

huge volumes of business, lies only in technology

adoption.

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PSBs are on their way to catch up with the

technology much required for the success of retail

banking efforts. Lack of connectivity, stand alonemodels, concept of branch customer as against bank

customer, lack of convergence amongst available

channels, absence of customer profiling, lack of

proper MIS and decision support systems, etc., are a

few deficiencies that are being overcome in a great

way. However, the initiatives in this regard should

include creating flexible computing architecture

amenable to changes and having scalability, a

futuristic approach, networking across channels,

development of a strong Customer Information

System (CIS) and adopting Customer Relationship

Management (CRM) models for getting a 360 degree

view of the customer.

Organizational Alignment

It is of utmost importance that the culture and

practices of an institution support its stated goals.

Having decided to take a plunge into retail banking,

banks need to have a well defined business strategy

based on the competitive profile of the bank and its

potential. Creation of a proper organisation structure

and business operating models which would

facilitate easy work flow are the need of the hour.

The need for building the organizational capacity

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needed to achieve the desired results cannot be

over stated. This would mean a strong

commitment at all levels, intensive training of therank and file, putting in place a proper incentive

scheme, etc. As a part of organizational alignment,

there is also the need for setting up of an effective

Corporate Marketing Division. Most of the public

sector banks have only publicity departments and

not marketing set - up. A full - fledged marketing

department or division would help in evolving a

brand strategy, address the issue of alienation from

the upwardly mobile, high net worth customer group

and improve the recall value of the institution and its

products by arresting the trend of getting receded

from public memory. The much needed tie ups

with manufacturers / distributors / builders will also

be facilitated smoothly. It is time to break the myth

that PSBs are not customer friendly. The attention is

to be diverted to vast data bases of customers lying

with the PSBs still unexploited for marketing.

Product Innovation

Product innovation continues to be yet another

major challenge. Even though bank after bank is

coming out with new products, not all are successful.

What is of crucial importance is the need to

understand the difference between novelty and

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innovation? Peter Drucker in his path breaking book :

Management Challenges for the 21st century has in

fact sounded a word of caution : innovation that isnot in tune with the strategic realities will not work;

confusing novelty with innovation (should be

avoided); test of innovation is that it creates value;

novelty creates only amusement. The days of

selling the products available in the shelves are

gone. Banks need to innovate products suiting the

needs and requirements of different types of

customers. Revisiting the features of the existing

products to continue to keep them on demand,

should not also be lost sight of.

Pricing of Products

The next challenge is to have appropriate

pricing policies in place. The industry today is

witnessing a price war, with each Bank wanting to

have a larger slice of the cake, that is, the market,

without much of a scientific study into the cost of

funds involved, margins, etc. The strategy of each

player in the market seems to be: undercutting

others and wooing the clients of others. Most of the

banks that use rating models for determining the

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health of the retail portfolio do not use them for

pricing the products. The much needed

transparency in pricing is also missing, with manyhidden charges. There is a tendency, at least on the

part of a few to camouflage the price. The situation

cannot remain this way for long. This will be one

issue that will be gaining importance in the near

future.

Process Changes

Business Process Re engineering is yet

another key requirement for banks to handle the

growing retail portfolio. Simplified processes and

aligning them around delivery of customer serviceimpinging on reducing customer touch points are

of essence. A realization has to dawn that

automating the inefficiencies will not help anyone

and continuing the old processes with new

technology would only make the organisation an old

expensive one. Workflow and document

management will be integral part of process

changes. The documentation issues have to remain

simple both in terms of documents to be submitted

by the customer at the time of loan application and

those to be executed upon sanction.

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Issues Concerning Human Resources

While technology and product innovation arevital, the soft issues concerning the human capital of

the banks are more vital. The corporate initiatives

need too focus on bringing around a front line

revolution. Though the changes envisaged are seen

at the front line, the initiatives have really to come

from the bank

end. The top management of banks must be seen

as practicing what it preaches. The initiatives should

aim at improved delivery time and methods of

approach. There is an imperative need to create a

perception that the banks are market oriented.

This would mean a lot of proactive steps on the partof bank managements which would include

empowering staff at various levels, devising

appropriate tools for performance measurement,

bringing about a transformation form cant do to

can do mind set, change from restrictive practices

to total flexible work place, say, by having universal

tellers, bringing in managerial control in work place,

provision of intensive training on products and

processes, emphasizing, coaching and ensuring

etiquette, good manners and best behavioral

models, formulating objective appraisals, bringing in

transparency, putting in place good and acceptable

reward and punishment system, facilitating the

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placement of young / youthful staff in front line,

defining a new role for front line staff by projecting

them as sellers of products rather than clerks atwork and changing the image of the bank from a

transaction provider to a solution provider.

Rural Orientation

As of now, action that is taking place on the

retail front is by and large confined to metros and

big cities. There is still a cast market available in

rural India, which remains to be tapped. Multi

National Corporations, as manufacturers and

distributors, have already taken the lead in showing

the way by coming out

with exquisite products, packaging and promotion,

keeping the rural customer in mind. Washing

powders and shampoos in Re. 1 sachets made

available through an efficient network stand

testimony to the determination of the MNCs to

penetrate the rural market. In this scenario, banks

cannot lag behind. In particular, PSBs, which have a

strong rural customers in a big way. This and only

this will propel a retail growth that is envisaged as a

key strategy for portfolio expansion by most of the

banks.

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CONCLUSION OF THE CHAPTER

Retail lending has turned out to be a key

profit driver for banks. In fact, retailing make ample

business sense in the banking sector. While private

sector banks have been able to create a niche in this

regard, the public sector banks have not lagged

behind.

Technological innovations relating toincreasing use of credit / debit cards, ATMs, direct

debits and phone banking has contributed to the

growth of retail banking in India.

There is a need of constant innovation in

retail banking. In bracing for tomorrow, a paradigm

shift in bank financing through innovative products

and mechanisms involving constant upgradation and

revalidation of the banks internal systems and

processes is called for. Banks now need to use retail

as a growth trigger, this requires product

development and differentiation, innovation and

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business process reengineering, micro planning,

marketing, prudent pricing, customization,

technological upgradation, home / electronic /mobile banking, cost reduction and cross selling.

CHAPTER 3

RESEARCHMETHODOLOGY

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INDEX

Chapter


1 Analysis of retail banking

2 Objective of the study

3Data collection and period of

study

4 Hypothesis of study

5Tools and techniques used for

analysis

6 Limitation of study

7 Conclusion

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ANALYSIS OF RETAIL BANKING

With the onset of financial sector reforms,

banks had to face stiff competition and they

experienced the threat of disintermediation. Walk - -

in business was a thing of the past and banks were

on their toes to capture quality business. With the

slowdown in the economy, corporate credit has

deteriorated in quality. Good corporates demand

finer interest rates under sub PLR, which means

thinning margins. Banks therefore had to scout in for

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retail business. Retail banking has many advantages

like stable deposits, low cost of funds, larger

customer base etc. on the resources side. On theasset side, the advantages are better yields and

higher profitability, larger volumes of credit

absorption, well diversified risk and lower NPAs,

economic recovery through increased production

and sales, and innovation product development.

With rising income, the life style of the average

Indian Middle Class family had improved

considerably. There is a greater amount of

consumerism in the country and raising debt for the

consumer needs is on the increase. Consumer credit

is no longer considered as unproductive, as it

triggers demand for consumer products, which in

turn helps manufacturers in a period of economic

slowdown. With foreign bans coming into the retail

sector and offering newer products, Indian Banks

also had to evolve its products and services to cater

to the demands of the aggressive middle class.

Retail Banking became the buzzword in banking and

banks have developed innovative retail banking

products tailored to the customers needs.

Retail advances portfolio for selected banks

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2002 2003

ICICI Bank 6,125.00 19,132.00

HDFC Bank 1,430.00 3,163.00IDBI Bank 408.00 1,608.00

Bank of Baroda 989.80 1,455.00

Canara Bank 3,334.00 5,685.00

Union Bank 3,975.80 5,213.70

SBI 17,705.00 24,300.00

Retail credit, especially housing and automobile

loans, which account for over 85 % of the retail

market, have been showing strong growth in the last

3 4 years. As growth in corporate advances has

slowed, banks have been increasingly focusing on

building up their retail assets portfolio of banks grew

at over 25 %. At present, retail assets constitute 10

12 % of the total advances of scheduled commercial

banks.

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OBJECTIVES OF THE STUDY

The following are the objectives for the study

of retail banking:

It identifies whether the retail portfolio has

achieved the targeted budget or not.

It helps in knowing the growth in the specific

sector such as housing loan, educational loan,

etc. before and after implementing the new

schemes.

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It also provides the position in the Retail sector

of India Banking Industry.

It also provides the ratio of growth in public

sector banks as well as the private sector.

It helps in improving the service capability.

DATA COLLECTION AND PERIOD OF

STUDY

There are mainly two types of data :

1] Primary data and

2] Secondary data

Primary data is that which is published or

calculated for the first time. Secondary data is such

data which is available by further calculation of

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primary data i.e. data obtained with the help of

primary data is considered as secondary data.

I have selected secondary data for

research in retail banking. This data is of last 3 years

and I have obtained from P & SB departmentfrom

the head office of S.B.S. situated at Bhavnagar.

Also, I have collected other information

for my report from different magazines like :

1] IBA Bulletin,

2] Banking Annual

3] Bank Quest.

Moreover, I have surfed the sites like,

1]

www.sbsbank.com

2] www.rbi.org.in

3] www.sbi.co.in

4] www.google.com

HYPOTHESIS OF THE STUDY

The assumption regarding retail banking

that I have assumed for my research is increasing

trend. The retail banking has increased

tremendously in the banking industry. Moreover, the

different schemes put forward by banks in retail

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loans have helped to widen the market. The

decrease in the rates of loans has also added its

contribution in increase of retail sector, i.e. thereasonable rates available in the retail banking has

given a push in its increase. The housing finance has

played an important role in the retail banking.

Considering these all factors, the

assumption should be increasing trend in retail

banking.

TOOLS OR TECHNIQUES USED FOR

ANALYSIS OF FINANCIAL DATA

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There are many tools and techniques

used for analysis of financial data. They are ratio

analysis, trend analysis, statistical analysis, etc.

I have selected trend analysis as a tool to

analyze the trend in the retail banking sector of

State Bank of Saurashtra.

LIMITATION OF THE STUDY

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The limitation of the study is stated as below :

We cant know the position of the bank as awhole.

The study is made on the secondary data not

the primary data.

We cant know the branch wise contribution in

the retail portfolio.

CONCLUSION OF THE CHAPTER

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The research on retail banking helps in knowing

the position of the bank in the banking industry due to

its retail credit schemes. The study involves the

various aspects and needs the reliable data sources.

Moreover the data collected is to be analyzed using

proper tools and techniques.

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CHAPTER 4

ANALYSIS OF DATA

AND

INTERPRETATION

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INDEX

Chapter


1Analysis and interpretation of

data

2 Summary and findings

3 Suggestions

4 Bibliography

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ANALYSIS AND INTERPRETATION OF DATA

1. Housing Loan Scheme

For construction, purchase of new / old house / flat /

repair and renovation & furnishing of house / flat or

purchase of land.

All individuals above 21 to 65 years are eligible.

Loan amount to the extent of 48 to 60 times net

monthly income or 4 to 5 times net annual income

depending upon the age.

No maximum amount fixed. However for purchase of

land alone, the loan amount not to exceed Rs. 10 lacs.

Spouse income can be included for arriving at the

quantum of loan.

Margin 15 % for construction, 20 % for renovation and

30 % for purchase of land.

Repayment can be upto 20 years for person below 45

years and upto 15 years for person above 45 years.

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Processing charges 0.5 % of the loan amount.

HOUSING LOAN SCHEME

Tenor

Floating Rate

w.e.f.

16/02/2004

Fixed Rate

w.e.f.

16/02/2004

Upto 5 years 7.50 % 7.75 %

Above 5 years to

15 years7.75 % 8.00 %

Above 15 years to

20 years8.25 % 8.50 %

HOUSING LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05

Housing

Loan227.96

353.0

3771.54

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227.96

353.03

771.54

0

100

200300

400

500

600

700

800

2002 - 03 2003 04 2004 05

Housing Loan

Interpretation :

In the year 2003 2004 there has been a

little increase in the housing loan. But in the year

2004 2005 there has been an increase of more

than double housing loans.

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2. Car Loan Scheme

To purchase new / old car (not more than 4 years old).

All permanent employees, professionals and self

employed are eligible.

Loan amount not exceeding 24 times net monthly of 2

times net annual income with a maximum of Rs. 12

lacs for new cars and Rs. 5lacs for old cars.

Margin 15 % for loans upto Rs. 4 lacs, 20 % for loans

above Rs. 4 lacs and 30 % for old cars. Repayable in

84 / 60 months for new / old car.

Comprehensive insurance of the vehicle to be

obtained.

No processing charges.

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CAR LOAN SCHEME

New vehiclesFloating Rate

w.e.f.

01/04/2005

Fixed Rate

w.e.f. 01/04/2005

For premium

segment cars

( 8 lakhs &

above)

7.50 % 8.00 %

For metro &

urban centre :

a. upto 3

years

b. above 3

years and

upto 5years

c. above 5

years and

upto 7

years

8.00 %

8.25 %

8.50 %

8.50 %

8.75 %

9.00 %

For rural & semi

urban centre : 8.50 %

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a. upto 3

years

b. above 3years and

upto 5

years

c. above 5

years and

upto 7

years

8.75 %

9.00 %

9.00 %

9.25 %

9.50 %

( Cars with repayment period of more than 3 years )

CAR LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05

CarLoan

1802 2019 2084

1802

2019

2084

1650

1700

1750

1800

1850

1900

1950

2000

2050

2100

2002 - 03 2003 04 2004 05

Car Loan

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Interpretation :

There was a notable increase in the car

loan during 2003 2004 as compared to that of 2002

2003. But not much increase in the year 2004

2005.

3. Education Loan

To provide financial assistance for higher education in

India and abroad for those secured admission in

recognized / reputed institutions.

Loans depending upon the course requirements,

future prospects. Need based finance considered

subject to repayment capacity with a ceiling of Rs. 10

lacs for studies in India and Rs. 20 lacs for studies

abroad.

Expenses considered include fees payable to college /

school / hostel etc. essential for completion of the

course.

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No margin, no security for loans upto 4 lacs. For loans

above Rs. 4 lacs to Rs. 7.50 lacs security only in termsof suitable third party guarantee, for loans above Rs.

7.50 lacs suitable collateral security equal to 100 % of

loan amount and a margin of 15 % for studies abroad

and 5 % for studies in India.

No minimum marks criteria.

Repayment within 5 7 years after getting the

employment or 1 year after completion of course.

Interest charged on simple rate basis during the

course period (moratorium). 1 % interest remission, if

the interest is serviced during the moratorium period.


EDUCATION LOAN SCHEME

Tenor

Floating Rate

w.e.f.

16/02/2004

Fixed Rate

w.e.f.

16/02/2004

For loans upto Rs.

4 lakhs10.50 %

Note : upto

moratorium period

simple interest

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For loans above

Rs. 4 lakhs11.50 % -

EDUCATION LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05

Educatio

n

Loan

2213 3365 3429

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2213

3365 3429

0

500

1000

1500

2000

2500

3000

3500

2002 - 03 2003 04 2004 05

Education

Loan

Interpretation :

There was a little increase in the year 2003

2004 than year 2003 2004 but a very minor

increase in the education loan during 2004 2005.

4. Scooter Loan

To purchase new scooter / motor cycle etc.

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All permanent employees and other income tax

assessee with minimum net monthly income of Rs.5,000/- is eligible.

Loan amount 6 times net monthly income.

Margin 10 % for loans upto Rs. 50,000/- and 20 % for

loans above Rs. 50,000/-.

Repayable in 36 months.

Processing charges 1 % of the loan amount.

Security : Hypothecation of vehicle with check off

facility or third party guarantee or tangible collateral

security. Comprehensive insurance to be obtained.

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SCOOTER LOAN SCHEME

Tenor

Floating Rate

w.e.f.

16/02/2004

Fixed Rate

w.e.f.

16/02/2004

Vehicle 11.00 % 11.25 %

SCOOTER LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05Scooter

Loan523 575 553

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523

575

553

490

500510

520

530

540

550

560

570

580

2002 - 03 2003 04 2004 05

Scooter Loan

Interpretation :

There was a increase from 523 crores scooter

loan in 2002 2003 to 575 crores in 2003 2004. But

it decreased to 553 crores during 2004 2005.

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5. Personal Loan

General purpose loans including for purchase ofconsumer durable like T.V., fridge, washing machine,

etc.

Employees of government, PSUs, profit making public

limited companies and reputed institutions with

minimum 2 years service and Rs. 4,000/- net monthly

income, self employed engineers, doctors, CAs with

minimum 2 years standing and Rs. 48,000/- net

annual income are eligible.

VRS optees upto the age of 60 with a minimum net

monthly income of Rs. 4,000/- are also eligible.

Loan amount 12 times net monthly income (including

spouse income) with a maximum of Rs. 5 lacs in

metro and Rs. 2.50 lacs at other centres for salaried

and self employed. Rs. 1.50 lacs for VRS optees at

all centres.

Security NIL, loan is subject to credit rating model.

Repayment maximum 48 months ( 36 months for VRS

optees).

Processing charges 1 % of the loan amount.

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PERSONAL LOAN SCHEME

Tenor

Floating Rate

w.e.f.

16/02/2004

Fixed Rate

w.e.f. 16/02/2004

Personal loan

& festival loan

for public

12.75 % -

PERSONAL LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05

Personal

Loan6466 9767 9890

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6466

9767 9890

0

2000

4000

6000

8000

10000

2002 - 03 2003 04 2004 05

Personal Loan

Interpretation :

There was a gradual increase during 2003

2004 but a little increase in the year 2004 2005.

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6. Pensioner Loan

Pensioners upto the age of 70, drawing pension from

SBS are eligible for loans to meet personal expenses

upto 12 times pension or maximum of Rs. 75,000/-.

Repayable in 24 months.


For family pensioners loan equivalent to 9 months of

pension with a ceiling of Rs. 50,000/-.

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PENSIONER LOAN SCHEME

TenorFloating Rate

w.e.f.

16/02/2004

Fixed Ratew.e.f.

16/02/2004

Loan to

pensioners12.25 % -

PENSIONER LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05

Pensione

r

431 848 864

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Loan

431

848 864

0

100

200

300

400

500

600

700

800

900

2002 - 03 2003 04 2004 05

Pensioner Loan

Interpretation :

Almost an increase is seen in the year 2003

2004 than

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2002 2003. But a bit increase is observed during

2004

2005.

SUMMARY AND FINDINGS

Summary

The retail credit has been the emerging bubble

for the banking industry. The retail credit has found

its way through the new schemes and new banks

being introduced. The concept of retail banking isnot new to the Indian Banks but only in the recent

times it has attracted the special attention of banks.

As opposed to wholesale banking, it focuses

individuals and their personal needs. The retail

banking strategy of banks is a response to the

changing banking environment.

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Findings

Banks now find themselves in a market where

the customer has more options than ever before and

the bank has therefore been compelled to constantly

review his package of products and services to suit

the ever escalating expectation of customers.Before the reforms most of the products offered by

banks were plain vanilla banks had the products

and the customers had to take them or leave them.

Banks in India traditionally offered mass banking

products. With the reforms, massive expansion of

products and services took palce in Indian Banking

scene, driven by rapid advances in technology that

had a dramatic impact on the

delivery systems and ability to service a grater

number of products especially retail products.

Market focus has shifted from mass banking

products to class banking with value added and

customized products.

About S.B.S.:

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State Bank of India along with its seven

associated branches have not lagged behind in the

reforms. They adopted the new technology, new

concepts and came with a new mask. There was a

tremendous increase in retail sector during the year

2003 2004.

BIBLIOGRAPHY

Magazines

1] IBA Bulletin

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2] Banking Annual

3] Bank Quest

4] Policy guideline book

Sites

1] www.sbsbank.com

2] www.rbi.org.in

3] www.sbi.co.in

4] www.google.com

5] www.breeze.com
http://www.sbsbank.com/http://www.rbi.org.in/http://www.sbi.co.in/http://www.google.com/http://www.breeze.com/http://www.sbsbank.com/http://www.rbi.org.in/http://www.sbi.co.in/http://www.google.com/http://www.breeze.com/

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