Professional Documents
Culture Documents
CHAPTER 1
INTRODUCTION
1.1 Definition
Bank is defined as a person who carries on the business of banking. Banks also
perform certain activities which are ancillary to this business of accepting
deposits and lending. Since Banking involves dealing directly with money,
governments in most countries regulate this sector rather stringently.
Banking in India was defined under Section 5(A) as "any company which
transacts banking, business" and the purpose of banking business defined under
Section 5(B),"accepting deposits of money from public for the purpose of
lending or investing, repayable on demand through cheque/draft or otherwise".
In the process of doing the above-mentioned primary functions, they are also
permitted to do other types of business referred to as Utility Services for their
customers (Banking Regulation Act, 1949).
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Banking in India originated in the last decades of the 18th century. The first
banks were The General Bank of India which started in 1786, and the Bank of
Hindustan, both of which are now defunct. The oldest bank in existence in
India is the State Bank of India, which originated in the Bank of Calcutta in
June 1806, which almost immediately became the Bank of Bengal. This was
one of the three presidency banks, the other two being the Bank of Bombay and
the Bank of Madras, all three of which were established under charters from the
British East India Company. For many years the Presidency banks acted as
quasi-central banks, as did their successors. The three banks merged in 1925 to
form the Imperial Bank of India, which, upon India's independence, became the
State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed
in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad
Bank, established in 1865 and still functioning today, is the oldest Joint Stock
bank in India. It was not the first though. That honor belongs to the Bank of
Upper India, which was established in 1863, and which survived until 1913,
when it failed, with some of its assets and liabilities being transferred to the
Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from
the Confederate States, promoters opened banks to finance trading in Indian
cotton. With large exposure to speculative ventures, most of the banks opened
in India during that period failed. The depositors lost money and lost interest in
keeping deposits with banks. Subsequently, banking in India remained the
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exclusive domain of Europeans for next several decades until the beginning of
the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and
another in Bombay in 1862; branches in Madras and Pondicherry, then a
French colony, followed. HSBC established itself in Bengal in 1869. Calcutta
was the most active trading port in India, mainly due to the trade of the British
Empire, and so became a banking center. The Bank of Bengal, which later
became the State Bank of India.
The first entirely Indian joint stock bank was the Oudh Commercial Bank,
established in 1881 in Faizabad. It failed in 1958. The next was the Punjab
National Bank, established in Lahore in 1895, which has survived to the present
and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian
Mutiny, and the social, industrial and other infrastructure had improved.
Indians had established small banks, most of which served particular ethnic and
religious communities.
The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks
operated in different segments of the economy. The exchange banks, mostly
owned by Europeans, concentrated on financing foreign trade. Indian joint
stock banks were generally undercapitalized and lacked the experience and
maturity to compete with the presidency and exchange banks.
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The period between 1906 and 1911, saw the establishment of banks inspired by
the Swadeshi movement. The Swadeshi movement inspired local businessmen
and political figures to found banks of and for the Indian community. A number
of banks established then have survived to the present such as Bank of India,
Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central
Bank of India.
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1.3 Pre-Independence
The banks in India were established by the British .The period during the First
World War (1914-1918) through the end of the Second World War (1939-
1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the First World War were
turbulent, and it took its toll with banks simply collapsing despite the Indian
economy gaining indirect boost due to war-related economic activities. At least
94 banks in India failed between 1913 and 1918 as indicated in the following
table:
1916 13 231 4
1917 9 76 25
1918 7 209 1
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The World War I years (1913 to 1918) were indeed difficult years for the world
economy. The alarming inflationary situation that had developed as a result of
war financing and concentration on the war led to other problems like neglect
of agriculture. During the war period, a number of banks failed. Some banks
that failed had combined trading functions with banking functions. More
importantly, several of the banks that failed had a low capital base.
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1.4 Post-independence
The partition of India in 1947 adversely impacted the economies of Punjab and
West Bengal, paralyzing banking activities for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian banking. The
Government of India initiated measures to play an active role in the economic
life of the nation, and the Industrial Policy Resolution adopted by the
government in 1948 envisaged a mixed economy. This resulted into greater
involvement of the state in different segments of the economy including
banking and finance. The major steps to regulate banking included:
➢ In 1948, the Reserve Bank of India, India's central banking authority, was
nationalized, and it became an institution owned by the Government of
India.
➢ In 1949, the Banking Regulation Act was enacted which empowered the
Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in
India."
➢ The Banking Regulation Act also provided that no new bank or branch of
an existing bank may be opened without a license from the RBI, and no
two banks could have common directors.
➢ In 1959, the Government of India passed the State Bank of India
(Subsidiary Banks) Act, which enabled SBI to take over eight former
State-associated banks as its subsidiaries.
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The Banking Regulation Act was passed as the Banking Companies Act 1949
and came into force wef 16.3.49. Subsequently it was changed to Banking
Regulations Act 1949 wef 01.03.66. Summary of some important sections is
provided hereunder. .
➢ Demand liabilities are the liabilities which must be met on demand and
time liabilities means liabilities which are not demand liabilities 5(i)(f)
➢ States that no company shall engage in any form of business other than
those referred in Section 6(1) & 6(2).
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➢ Paid up capital, reserves and rules relating to these (11 & 12)
➢ Banks not to pay any commission, brokerage, discount etc. more than
2.5% of paid up value of one share (13)
➢ To create reserve fund and 20% of the profits should be transferred to this
fund before any dividend is declared (17 (1))
➢ Every bank has to publish its balance sheet as on March 31st (29).
➢ Publish balance sheet and auditor’s report within 3 months from the end of
period to which they refer. RBI may extend the period by further three
month (31).
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The Reserve Bank of India (RBI) was established through the Reserve Bank of
India Act, 1934 and it commenced its operations on April 1, 1935. It was
established as a private shareholders' bank, then it was nationalized in 1949,
and it became fully owned by the Government of India. It draws its powers and
responsibilities through other legislations also such as the Banking Regulation
Act, 1949. The RBI has over the years been responding to changing economic
circumstances and these organizational developments.
The Reserve Bank of India Act of 1934 entrust all the important functions of a
central bank the Reserve Bank of India.
1. Bank of Issue
The Bank has the sole right to issue bank notes of all denominations. The
Reserve Bank has a separate Issue Department which is entrusted with the issue
of currency notes.
2. Banker to Government
The second important function of the Reserve Bank of India is to act as
Government banker, agent and adviser. The Reserve Bank is agent of Central
Government and of all State Governments in India excepting that of Jammu and
Kashmir. The Reserve Bank has the obligation to transact Government
business, via. To keep the cash balances as deposits free of interest, to receive
and to make payments on behalf of the Government and to carry out their
exchange remittances and other banking operations. The Reserve Bank of India
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helps the Government - both the Union and the States to float new loans and to
manage public debt.
The scheduled banks can borrow from the Reserve Bank of India on the basis
of eligible securities or get financial accommodation in times of need or
stringency by rediscounting bills of exchange. Since commercial banks can
always expect the Reserve Bank of India to come to their help in times of
banking crisis the Reserve Bank becomes not only the banker's bank but also
the lender of the last resort.
4. Controller of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power to
influence the volume of credit created by banks in India. It can do so through
changing the Bank rate or through open market operations.
The Reserve Bank of India is armed with many more powers to control the
Indian money market. Every bank has to get a license from the Reserve Bank of
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India to do banking business within India, the license can be cancelled by the
Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will
have to get the permission of the Reserve Bank before it can open a new
branch. Each scheduled bank must send a weekly return to the Reserve Bank
showing, in detail, its assets and liabilities.
(c) It controls the banking system through the system of licensing, inspection
and calling for information.
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The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi
the then prime minister. It nationalized 14 banks then. Majority of the banks
were mostly owned by businessmen and even managed by them.
Before the steps of nationalization of Indian banks, only State Bank of India
(SBI) was nationalized. It took place in July 1955 under the SBI Act of 1955.
Nationalization of Seven State Banks of India (formed subsidiary) took place
on 19th July, 1960. The State Bank of India is India's largest commercial bank
and is ranked one of the top five banks worldwide. It serves 90 million
customers through a network of 9,000 branches and it offers -- either directly or
through subsidiaries –a wide range of banking services.
The second phase of nationalization of Indian banks took place in the year
1980. Seven more banks were nationalized with deposits over 200 crores. Till
this year, approximately 80% of the banking segment in India was under
Government ownership. After the nationalization of banks in India, the
branches of the public sector banks rose to approximately 800% in deposits and
advances took a huge jump by 11,000%.
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The need for the nationalization was felt mainly because private commercial
banks were not fulfilling the social and developmental goals of banking which
are so essential for any industrializing country. Despite the enactment of the
Banking Regulation Act in 1949 and the nationalization of the largest bank, the
State Bank of India, in 1955, the expansion of commercial banking had largely
excluded rural areas and small-scale borrowers. The stated purpose of bank
nationalization was to ensure that credit allocation occur in accordance with
plan priorities. Currently there are 27 nationalized commercial banks.
Consequences of Nationalization
➢ The quality of credit assets fell because of liberal credit extension
policy.
➢ Political interference has been as additional malady.
➢ Poor appraisal involved during the loan meals conducted for credit
disbursals.
➢ The credit facilities extended to the priority sector at concessional
rates.
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In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be
known as New Generation tech-savvy banks, and included Global Trust Bank
(the first of such new generation banks to be set up), which later amalgamated
with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank
and HDFC Bank. This move, along with the rapid growth in the economy of
India, revitalized the banking sector in India, which has seen rapid growth with
strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks.
The next stage for the Indian banking has been setup with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign
Investors in banks may be given voting rights which could exceed the present
cap of 10%, at present it has gone up to 49% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this
time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at
4) of functioning. The new wave ushered in a modern outlook and tech-savvy
methods of working for traditional banks. All this led to the retail boom in
India. People not just demanded more from their banks but also received more.
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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.
With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector-the demand for banking services,
especially retail banking, mortgages and investment services are expected to be
strong. One may also expect M&A’s, takeovers, and asset sales.
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In many ways, India provides an excellent testing ground for hypotheses about
privatization and its impact, except that so far privatization has not been
attempted on a scale that researchers would like to see. The country has a large,
well diversified public sector. Unlike many of the transition economies, it also
has a long tradition of private enterprise, including big companies in the private
sector, although there are certain sectors in which private sector participation is
quite new, these sectors having been reserved until recently for the public
sector.
Disinvestment opens the gate for eventual privatization and this route must be
opposed. Instead, the alternative of issuing of bonds and preference shares
should be encouraged. No individual or institution should be permitted to hold
beyond 5 percent of the shares. Already foreign institutional investors are
holding sizeable shares in public sector banks as also in the major new private
sector Indian banks.
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As on Capital As on up Capital
31.03.2006 31.03.2008
PUBLIC SECTOR
BANKS
Andhra Bank 2,15,77,223 5.39 8,40,30,646 17.32
Bank of Baroda 4,75,40,615 16.14 73,33,56,892 20.13
Bank of India 2,37,64,900 4.86 6,44,68,034 13.19
Canara Bank 4,36,00,569 10.63 7,49,35,787 18.27
Corporation Bank 1,10,83,135 7.72 1,44,47,387 10.07
Indian Overseas 11,31,795 0.20 9,49,49,445 17.42
Bank
Oriental Bank of 2,53,75,968 13.17 4,97,68,926 19.86
Commerce
Punjab National 2,96,25,795 11.16 6,32,47,778 20.00
Bank
State Bank of India 6,01,97,755 11.43 6,25,03,693 11.87
Syndicate Bank 36,83,407 0.78 6,37,89,100 13.51
UCO Bank 6,25,000 0.07 1,45,71,873 1.82
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Publicly owned banks handle more than 80% of the banking business in India
and the rest is in the hands of private sector banks. However, banking in both
the government and private sector is being revolutionized by this latest
phenomenon called globalization. Globalization has offered a number of
advantages to the banking sector in India.
In order to fortify the Indian baking sector against the risks involved in
globalization, appropriate regulatory, prudential and supervisory framework
need to be adopted. This will help in strengthening the domestic banking
system in a global-environment.
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Some of the major reform initiatives in the last decade that have changed the
face of the Indian banking and financial sector are:
Interest rate deregulation. Interest rates on deposits and lending have been
deregulated with banks enjoying greater freedom to determine their rates. On
the deposit side, interest rates on all deposits, except savings accounts, have
been de-regulated. Similarly, on the bank lending, rates to be charged by the
banks on most of the credit facilities have been deregulated except a small
component for lending related to certain segments.
Adoption of prudential norms in terms of capital adequacy, asset
classification, income recognition, provisioning, and exposure limits,
investment fluctuation reserve, etc.
Reduction in pre-emption – lowering of reserve requirements (SLR and
CRR), thus releasing more lendable resources which banks can deploy
profitably.
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Government equity in banks has been reduced and strong banks have been
allowed to access the capital market for raising additional capital.
Banks now enjoy greater operational freedom in terms of opening and
swapping of branches, and banks with a good track record of profitability have
greater flexibility in recruitment.
New private sector banks have been set up and foreign banks permitted to
expand their operations in India including through subsidiaries. Banks have
also been allowed to set up Offshore banking Units in Special Economic Zones.
New areas have been opened up for bank financing: insurance, credit
cards, infrastructure financing, leasing, gold banking besides of course
investment banking asset management, factoring, etc.
New instruments have been introduced for greater flexibility and better
risk management: e.g. interest rate swaps, forward rate agreements, cross
currency forward contracts, forward cover to hedge inflows under foreign direct
investment, liquidity adjustment facility for meeting day-to-day liquidity
mismatch.
Several new institutions have been set up including the National Securities
Depositories Ltd., Central Depositories Services Ltd., Clearing Corporation of
India Ltd., Credit Information Bureau India Ltd.
Limits for investment in overseas markets by banks, mutual funds and
corporate have been liberalised. The overseas investment limit for corporate has
been raised to 100% of net worth and the ceiling of $100 million on
prepayment of external commercial borrowings has been removed. Indians are
allowed to maintain resident foreign currency (domestic) accounts. Full
convertibility for deposit schemes of NRIs introduced.
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There is no doubt that banking sector reforms have increased the profitability,
productivity and efficiency of banks. There has been an improvement in overall
capital adequacy of banks and as on March 31, 2002 92 out of 97 commercial
banks operating in India had capital adequacy above the statutory minimum
level of 9%. Introduction of prudential norms relating to asset classification,
income recognition and the most significant achievement of the financial sector
reforms has been the marked improvement in the financial health of
commercial banks in terms of capital adequacy, profitability and asset quality
as also greater attention to risk management. Further, deregulation has opened
up new opportunities for banks to increase revenues by diversifying into
investment banking, insurance, credit cards, depository services, mortgage
financing, securitisation, etc. At the same time, liberalisation has brought
greater competition among banks, both domestic and foreign, as well as
competition from mutual funds, NBFCs, post office, etc
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iii. Phasing out of directed credit programmes and redefinition of the priority
sector.
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ix. Setting up of Asset Reconstruction Fund (ARF) to take over from banks
a portion of their bad and doubtful advances at a discount.
xi. Setting up one or more rural banking subsidiaries by public sector banks.
xiv. Liberalizing the policy with regard to allowing foreign banks to open
offices in India.
xviii. Ending duality of control over banking system by Banking division and
RBI.
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a. The lowering of reserve rates will enable banks to enlarge their credit
portfolio thus improving their profits.
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Recommendations
1. Three Tier Banking: There should be three types of banks: ( i ) Two or three
large Indian Banks with international character; ( ii ) Eight or Ten large
National Banks to take care of the needs of large/medium corporate sector, and
(iii ) Large or Local Area/ Regional Banks to serve local trade, small industry
and agriculture.
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3. Narrow Banking: Week banks whose accumulated losses and net NPAs
exceed their capital funds can be rehabilitated by branding them as “Narrow
Banks” (banks which restrict their operation to only certain activities).
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deposit and borrow. It includes not only services related to savings and loans
but also investments.
However in practice the term 'universal banking' refers to those banks that offer
a wide range of financial services, beyond the commercial banking functions
like Mutual Funds, Merchant Banking, Factoring, Credit Cards, Retail loans,
Housing Finance, Auto loans, Investment banking, Insurance etc. This is most
common in European countries.
For example, in Germany commercial banks accept time deposits, lend money,
underwrite corporate stocks, and act as investment advisors to large
corporations. In Germany, there has never been any separation between
commercial banks and investment banks, as there is in the United States.
The entry of banks into the realm of financial services was followed very soon
after the introduction of liberalization in the economy. Since the early 1990s
structural changes of profound magnitude have been witnessed in global
banking systems. Large scale mergers, amalgamations and acquisitions between
the banks and financial institutions resulted in the growth in size and
competitive strengths of the merged entities. Thus, emerged new financial
conglomerates that could maximize economies of scale and scope by building
the production of financial services organization called Universal Banking.
By the mid-1990s, all the restrictions on project financing were removed and
banks were allowed to undertake several in-house activities. Reforms in the
insurance sector in the late 1990s, and opening up of this field to private and
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The solution of Universal Banking was having many factors to deal with, which
can be further analyzed by the pros and cons.
• Profitable Diversions. By diversifying the activities, the bank can use its
existing expertise in one type of financial service in providing other types. So,
it entails less cost in performing all the functions by one entity instead of
separate bodies.
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• Grey Area of Universal Bank. The path of universal banking for DFIs is strewn
with obstacles. The biggest one is overcoming the differences in regulatory
requirement for a bank and DFI. Unlike banks, DFIs are not required to keep a
portion of their deposits as cash reserves.
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• NPA Problem Remained Intact. The most serious problem that the DFIs have
had to encounter is bad loans or Non-Performing Assets (NPAs). For the DFIs
and Universal Banking or installation of cutting-edge-technology in operations
are unlikely to improve the situation concerning NPAs.
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The issue of universal banking resurfaced in Year 2000, when ICICI gave a
presentation to RBI to discuss the time frame and possible options for
transforming itself into a universal bank. Reserve Bank of India also spelt out to
Parliamentary Standing Committee on Finance, its proposed policy for
universal banking, including a case-by-case approach towards allowing
domestic financial institutions to become universal banks. Now RBI has asked
FIs, which are interested to convert itself into a universal bank, to submit their
plans for transition to a universal bank for consideration and further
discussions. FIs need to formulate a road map for the transition path and
strategy for smooth conversion into a universal bank over a specified time
frame. The plan should specifically provide for full compliance with prudential
norms as applicable to banks over the proposed period.
CHAPTER 2
bank (that is available to all the networked branches) instead of the branch
server. Depending upon the size and needs of a bank, it could be for the all the
operations or for limited operations. This task is carried through advanced
software by making use of the services provided by specialized agencies. Due
to its benefits, a no. of banks in India in recent years have taken steps to
implement the CBS with a view to build relationship with the customer based
on the information captured and offering to the customer, the customised
financial products according to their need.
For Banks:
1. Internet Banking
The total number of registered users for Internet banking in India is over two
million. But this figure needs to be adjusted for dormant users and multiple
accounts (a user having accounts with more than one bank). India has a little
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less than a million active Internet banking users. Thus indicating that, the
concept of Internet banking is surely catching on.
India lags behind other countries in Internet banking. In the US, the number of
commercial banks with transactional websites is 1,275 or 12 percent of the total
number of banks. Of these, seven could be called ‘virtual banks.’
From the Asian market experience, it is clear that Internet banking is here to
stay and will be a major channel to acquire and service customers. Markets like
Korea and Singapore have nearly 10 percent of their population banking over
the Internet.
Indian banks have an insignificant Internet banking record. ICICI Bank kicked
off online banking way back in 1996 and a host of other banks soon followed
suit. But even for the Internet as a whole, 1996 to 1998 marked the adoption
phase, while usage increased only in 1999 due to lower ISP online charges,
increased PC penetration and a tech-friendly atmosphere.
Concept of Internet banking is more like an add-on service which the customers
should gradually adopt. In line with this strategy, initially the Net banking
facility was provided in order to meet the information requirements of the
customers and gradually it ventured into fund transfers and third party transfers.
others like Union Bank of India, Canara Bank and Punjab National Bank are on
the verge of doing so. SBI’s Internet banking initiative, launched in July 2001,
is in fact doing quite well and has over 18,000 registered customers across 150
branches
The introduction of ATM’s has given the customers the facility of round the
clock banking. The ATM’s are used by banks for making the customers dealing
easier. ATM card is a device that allows customer who has an ATM card to
perform routine banking transaction at any time without interacting with human
teller. It provides exchange services. This service helps the customer to
withdraw money even when the banks are closed. This can be done by inserting
the card in the ATM and entering the Personal Identification Number and secret
Password. ATM’s are currently becoming popular in India that enables the
customer to withdraw their money 24 hours a day and 365 days. It provides the
customers with the ability to withdraw or deposit funds, check account
balances, transfer funds and check statement information. The advantages of
ATM’s are many. It increases existing business and generates new business.
Advantages of ATM’s:
To the Customers
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To Banks
➢ Alternative to extend banking hours.
➢ Crowding at bank counters considerably reduced.
➢ Alternative to new branches and to reduce operating expenses.
➢ Relieves bank employees to focus on more analytical and innovative
work.
➢ Increased market penetration.
3. Mobile Banking
Mobile Banking (also known as M-Banking or SMS Banking) is a term used
for performing balance checks, account transactions, payments, etc., via a
mobile device such as a mobile phone. It was Internet Banking, which ushered
in a new era in banking convenience by bringing the entire operations to the
computer, and now mobile banking promises to take it to the next level.
Mobile banking has been at the threshold of a revolution for some time. While
many operators, as well as banks, had introduced mobile banking applications,
it never became popular due to security concerns. The number of people using
mobile banking services has jumped from under 10,000 to 120,000 in two
years. While the trend is growing, lack of awareness of services, apart from
perceived security issues are inhibiting faster take-off.
Reserve Bank of India has set-up the Mobile Payments Forum of India
(MPFI), a 'Working Group on Mobile Banking' to examine different aspects of
Mobile Banking (M-banking).
Banks offering mobile access are mostly supporting some or all of the
following services:
Account Information
➢ Mobile re-charging
Investments
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Support
Content Services
➢ Loyalty-related offers
➢ Location-based services
4. Telebanking
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➢ Facility to stop payment on request. One can easily know about the cheque
status.
➢ Information on the current interest rates.
➢ Information with regard to foreign exchange rates.
➢ Request for a DD or pay order.
➢ Demat Account related services.
➢ And other similar services.
A person who earns a salary of Rs 60,000 per annum is eligible for card. A
reference from a banker and the employers of the applicant is insisted upon.
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7. Debit Card
Debit cards will offer direct withdrawal of funds from a customer’s bank
account. The spending limit is determined by the user’s bank depending upon
available balance in the account of the user. It is a special plastic card connected
with electromagnetic identification that one can use to pay for things purchased
directly from its bank account. Under the system, cardholder’s accounts are
immediately debited against purchase or service to the computer network.
Hence, under debit card the card holder must have adequate balance in his
account. The system is intended to replace cheque system of payment. These can
be maintained only for customers maintaining satisfactory accounts and for a
minimum period of 6 months.
8. Demat Account
In India, a demat account, the abbreviation for dematerialised account, is a type
of banking account which dematerializes paper-based physical stock shares.
The dematerialised account is used to avoid holding physical shares: the shares
are bought and sold through a stock broker.
This account is popular in India. The Securities and Exchange Board of India
(SEBI) mandates a demat account for share trading above 500 shares. As of
April 2006, it became mandatory that any person holding a demat account
should possess a Permanent Account Number (PAN),
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3. Submit the DRF & share certificate(s) to DP. DP would forward them to the
issuer / their R&T Agent.
Benefits
➢ Nomination facility.
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As part of its public policy objective of promoting a safe, secure, sound and
efficient payment system, the Reserve Bank has taken several initiatives to
develop and promote electronic payments infrastructure. Towards this end, the
RBI introduced the following:
At present, about 18 million transactions flow through the ECS system every
month. This facility is currently available at 70 centers in the country.
The payment system in the country largely follows the deferred net settlement
regime, under which the net amount is settled between the banks, on a deferred
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RTGS is fully secured electronic funds transfer system where banks and
customers can receive payments on real time basis. The outreach of RTGS
transactions has also grown geographically. Out of about 75,000 bank branches
in the country, more than 48,300 bank branches now accept requests for
remittance through RTGS system for customer transactions as well as inter-
bank transactions.
A minimum threshold of rupees one lakh has been prescribed for customer
transactions to ensure that RTGS system is used only for large value
transactions and retail transactions take an alternate channel of electronic funds
transfer. The daily average of transactions is over 34,000 by volume and over
Rs.2 lakh crore by value.
The NEFT was launched by the RBI in November 2005 as a more secure,
nation-wide retail electronic payment system to facilitate funds transfer by the
bank customers, between the networked bank branches in the country. It has,
however, been observed that the public sector banks are not the most active
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Recent Trends in Public Sector Banks
users of this product and the majority of NEFT outward transactions are
originated by a few new-generation private sector banks and foreign banks.
For instance, in June 2008, while these banks, as a segment, accounted for a
little over 43 per cent each of the aggregate volume of outward and inward
NEFT transactions, the share of public sector banks in total outward NEFT
transactions was rather low at a little over 12 per cent, of which half the volume
was the contribution of the State Bank of India.
The RBI has been pursuing the matter with the PSBs for increasing their
participation in the NEFT system in terms of the number of NEFT-enabled
branches and the number of NEFT transactions originated by them. I would like
to urge upon the bankers present here to initiate appropriate measures to
stimulate greater usage of this payment medium and thereby, improve their
share in this regard.
In order to popularise the e-payments in the country, the RBI, on its part, has
waived the service charges to be levied on the member banks, till March 31,
2009, in respect of the RTGS and NEFT transactions. The RBI also provides,
free of charge, intra-day liquidity to the banks for the RTGS transactions. The
service charges to be levied by banks from their customers for RTGS & NEFT
have, however, been deregulated and left to discretion of the individual bank.
While some of the banks have rationalized their service charges and a few have
made it even cost-free to the customers, there are also certain banks that have
fixed multiples slabs or unreasonably high service charges, at times linked to
the amount of the transaction, for providing these services to their customers –
even though the RBI provides these services to the banks free of charge.
The latest electronic payment product introduced by the RBI is the Cheque
Truncation System, which was launched, on a pilot basis, in the National
Capital Region of New Delhi on February 1, 2008, with the participation of 10
banks. At present all the banks are participating in the system through 53 direct
member banks.
The main objective of the CTS is to improve the efficiency and substantially
reduce the cheque processing time in the system. The traditional clearing
system requiring the physical presentation of cheques in the clearing house for
payment and settlement, inevitably entails consequential inefficiencies in terms
of clearing time and infrastructure required.
Once the CTS become fully operational, the system would be the largest in the
world and would leapfrog the country from the paper-based instruments to a
fully electronic mode of payment and settlement. Necessary amendments have
been made to the Negotiable Instruments Act, 1881, which provides legal
recognition to the electronic image of the truncated cheque. These amendments
provide a legal basis for the cheque truncation system. .
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Recent Trends in Public Sector Banks
Destination banks would receive their inward clearing data / file at a central
location, through the web server. The National ECS would leverage the Core
Banking platform of the commercial banks, to enable around 50,000 core-
banking-enabled branches of the various banks, to avail of this service. The
system would facilitate end-to-end seamless posting of the NECS transactions
in a straight-through-processing (STP) environment. This would help the users
and member banks to send, receive and process the data files at one centralised
place, thereby improving the efficiency of the payment system.
The system which became operational during Feb 2002 facilitates the
submission of bids/applications for auctions/floatation of govt. securities
through pooled terminal facility located at Regional Offices of Public Debt
Offices across the country and through member terminals. The system can be
used for daily Repo and Reverse Repo auctions under Liquidity Adjustment
Facility.
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CHAPTER 3
MARKETING TRENDS
The bank of the future has to be essentially a marketing organisation that also
sells banking products. New distribution channels are being used; more & more
banks are outsourcing services like disbursement and servicing of consumer
loans, Credit card business. Direct Selling Agents (DSAs) of various Banks go
out and sell their products. They make house calls to get the application form
filled in properly and also take your passport-sized photo. Home banking has
already become common, where you can order a draft or cash over
phone/internet and have it delivered home. ICICI bank was the first among the
new private banks to launch its net banking service, called Infinity. It allows the
user to access account information over a secure line, request cheque books and
stop payment, and even transfer funds between ICICI Bank accounts. Citibank
has been offering net banking to its Suvidha program to customers. Banks can
no longer confine themselves to selling the traditional way.
Initially the public sector banks were dominating the banking scene so they
never felt the need for marketing. However Post liberalization, several new-
generation private-sector banks changed the face of the industry. Customers no
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Recent Trends in Public Sector Banks
longer had to stand in long queues or make 10 trips for loans to be sanctioned.
Private-sector banks brought in concepts like customer relations officers,
focused marketing teams and single-window banking. Moreover, with new
technology, private-sector banks like ICICI Bank and HDFC Bank could offer
customer services like ATMs, phone banking, Internet banking, automatic
money transfers and computerised monthly statements.
Public sector banks have woken up to competition. Industry estimates state that
roughly 12 per cent to 15 per cent of public-sector bank customers shifted to
private-sector banks in the late nineties. Now public-sector banks are finally
getting their act together. Still holding 82 per cent of the lending market, they
are cashing in on their strengths like experience, network, products, and
facility. All it takes is to package it and sell it well.
Indian Bank:
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Recent Trends in Public Sector Banks
UBI is gradually changing the look of its big branches and pumping in Rs
25 lakh (Rs 2.5 million) to Rs 30 lakh (Rs 3 million) for each one. Smaller ones
will undergo Rs 10 lakh (Rs 1 million) refurbishments. Already, 800 branches
out of 2,020 have a new look. And, from launching around one product in a
year about six years ago, this year it has launched close to 30 new products.
UBI also plans to increase the number of marketing officers. In 2001, for the
first time 117 marketing officers were put in place in key branches.
To give itself a uniform look, in 2001, the bank changed its logo. Today
all the branches sport the same boards. The bank spent close to Rs 11 crore (Rs
110 million) on mass media advertising last year.
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CHAPTER 4
OTHER TRENDS
4.1 Retail Banking
While new generation private sector banks have been able to create a niche in
this regard, the public sector banks have not lagged behind. Leveraging their
vast branch network and outreach, public sector banks have aggressively
forayed to garner a larger slice of the retail pie. By international standards,
however, there is still much scope for retail banking in India.
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Recent Trends in Public Sector Banks
Traditionally, banking was personal, where customer knew the bank employee
and vice versa. The main bondage was the relationship the customer enjoys
with the bank- the closer the customer feels to the bank, the more are his
chances of remaining as future customer. Things have changed now. Newer
technologies result in lack of personal touch and a customer can be lured by big
financial institutions at the end of world by providing better services than any
local bank. So banks are turning to Customer Relationship Management (CRM)
in search of effective ways to woo and retain their clients. The satisfied
customers always help in improving the business turnover through referrals and
positive publicity.
Offering the right product to the right customer at the right time through the
right delivery channel is basic concept of CRM. Now the banks have realized
that they cannot expect to own their customers. The primary goal is to uncover
cross selling opportunities and provide more customized services to retain
customers. In real terms, CRM can be implemented only if proper infrastructure
is created. The introduction of concepts like customer profiling and
segmentation, target marketing, customer’s life time value analysis, campaign
analysis, etc. become necessary. The bank will be required to collect continuous
feedback and take necessary steps to improve the brand image.
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Recent Trends in Public Sector Banks
Logos give a brand its identity. They are a company’s most valuable asset. It’s
no secret that a whole lot of Fortune 500 companies devote millions of dollars
each year to develop their brands and promote their corporate identity. In fact,
logos are what instantly make a brand recognisable. They make a brand
memorable. Logos are strong symbols that have the power to unite, not just
organisations, but people too.
Competitors & competition makes organisations sit up and take charge. Banks
are all about image & service. With a whole lot of multinationals setting up,
Indian banks realised it was time they changed. A whole lot of them developed
new corporate identities to look younger & trendy.
Public sector banks are going in for a change in logo as a means of re-branding
and re positioning their services to the ‘new age customer’ in a new market
scenario. As a part of the strategy to face the changed scenario, one finds the
country's public sector banks, one by one, going in for image overhauls. It
begins with a change in logo –witness the new ‘Rising Baroda Sun’ which the
Bank of Baroda has gone in for, as part of its re-branding. Next in line was
Canara Bank. A couple of months ago, Union Bank of India unveiled its new
logo. Banks don’t want to be perceived as ‘last-generation’s banks’ and a new
logo gives a quick facelift.
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Recent Trends in Public Sector Banks
State Bank of India (SBI) recently advertised for hiring 20,000 clerical staff
across India. Corporation Bank and Bank of Maharashtra have also advertised
for probationary officers, clerks and other officers. Other banks like Union
Bank of India and Bank of Baroda, too, are planning to hire in the range of
1000 employees, while other banks like Indian Overseas Bank (IOB), Canara
Bank are in the process accessing the staff requirements.
Other public sector banks are also hiring since a huge chunk of employees. This
is because government-owned banks had gone in for massive recruitment in the
early 70s. Senior officials from Bank of India said that they are looking at
hiring 500 people for clerical cadre and another 1,000 as officers in the year
2009. According to experts, the large-scale retirements in PSBs and the change
in the business models of banks with the implementation of core banking
solution (CBS) are driving recruitment.
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Recent Trends in Public Sector Banks
CHAPTER 5
Punjab National Bank of India, the first Indian bank started only with Indian
capital, was nationalized in July 1969 and currently the bank has become a
front-line banking institution in India with 4525 Offices including 432
Extension Counters. The corporate office of the bank is at New Delhi. Punjab
National Bank of India has set up representative offices at Almaty
(Kazakhstan), Shanghai (China) and in London and a fully fledged Branch in
Kabul (Afghanistan).
Punjab National Bank with 4497 offices and the largest nationalized bank is
serving its 3.5 crore customers with the following wide variety of banking
services:
➢ Corporate banking
➢ Personal banking
➢ Industrial finance
➢ Agricultural finance
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Recent Trends in Public Sector Banks
➢ Financing of trade
➢ International banking
Punjab National Bank has been ranked 38th amongst top 500 companies by The
Economic Times. PNB has earned 9th position among top 50 trusted brands in
India.
Punjab National Bank India maintains relationship with more than 200 leading
international banks worldwide. PNB India has Rupee Drawing Arrangements
with 15 exchange companies in UAE and 1 in Singapore.
Punjab National Bank (PNB) was registered on May 19, 1894 under the
Indian Companies Act with its office in Anarkali Bazaar Lahore. The Bank is
the second largest government-owned commercial bank in India with about
4,500 branches across 764 cities. It serves over 37 million customers. The bank
has been ranked 248th biggest bank in the world by Bankers Almanac, London.
The bank's total assets for financial year 2007 were about US$60 billion. PNB
has a banking subsidiary in the UK, as well as branches in Hong Kong and
Kabul, and representative offices in Almay, Dubai, Oslo, and Shanghai.
➢ 1895: PNB commenced its operations in Lahore. PNB has the distinction of
being the first Indian bank to have been started solely with Indian capital
that has survived to the present. (The first entirely Indian bank, the Ouch
Commercial Bank, was established in 1881 in Faizabad, but failed in 1958.)
PNB's founders included several leaders of the Swadeshi movement such as
Dyal Singh Majithia and Lala HarKishen Lal, Lala Lalchand, Shri Kali
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Recent Trends in Public Sector Banks
Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram,
and Lala Dholan Dass. Lala Lajpat Rai was actively associated with the
management of the Bank in its early years.
➢ 1904: PNB established branches in Karachi and Peshawar.
➢ 1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located in
Delhi circle.
➢ 1947: Partition of India and Pakistan at Independence. PNB lost its premises
in Lahore, but continued to operate in Pakistan.
➢ 1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat
Bank became Bharat Nidhi Ltd.
➢ 1961: PNB acquired Universal Bank of India.
➢ 1963: The Government of Burma nationalized PNB's branch in Rangoon
(Yangon).
➢ September 1965: After the Indo-Pak war the government of Pakistan seized
all the offices in Pakistan of Indian banks, including PNB's head office,
which may have moved to Karachi. PNB also had one or more branches in
East Pakistan (Bangladesh).
➢ 1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue.
➢ 1969: The Government of India (GOI) nationalized PNB and 13 other major
commercial banks, on July 19, 1969.
➢ 1976 or 1978: PNB opened a branch in London.
➢ 1986 The Reserve Bank of India required PNB to transfer its London branch
to State Bank of India after the branch was involved in a fraud scandal.
➢ 1986: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue.
The acquisition added Hindustan's 142 branches to PNB's network.
➢ 1993: PNB acquired New Bank of India, which the GOI had nationalized in
1980.
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Recent Trends in Public Sector Banks
Achievements
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Recent Trends in Public Sector Banks
➢ In spite of being at the forefront of PLR cuts, the bank posted a healthy
growth in Net Interest Income (NII) of 29% y-o-y.
➢ Gross and Net NPA ratios remained stable sequentially at 1.8% and
0.2%, with the bank not adopting the guidelines of treating floating
provisions as part of tier 2 capital instead of adjusting against NPAs on
express permission from the RBI.
Vision
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Recent Trends in Public Sector Banks
Mission
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Recent Trends in Public Sector Banks
Apart from these, and the PNB also offers locker facilities, senior citizens
schemes, PPF schemes and various E-services.
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Recent Trends in Public Sector Banks
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Recent Trends in Public Sector Banks
Article
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Recent Trends in Public Sector Banks
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Recent Trends in Public Sector Banks
Conclusion
Entry of new banks resulted in a paradigm shift in the ways of banking in India.
The growing competition, growing expectations led to increased awareness
amongst banks on the role and importance of technology in banking. The
arrival of foreign and private banks with their superior state-of-the-art
technology-based services pushed Indian Banks also to follow suit by going in
for the latest technologies so as to meet the threat of competition and retain
their customer base. Deregulation and technological change are the two single
biggest changes in the banking environment.
In India, investments in technologies by financial services organizations are
increasing, and new initiatives emerging, albeit at a basic level. However, in the
long run, it is evident that technology investments in transaction and process
automation will cease to be a differentiator.
Technology has enabled banks to overcome the barriers of time and extending
their services to customers. The new technology channels like ATMs, EFT
(Electronic funds transfer), debit and credit cards mobile banking, telebanking,
etc. are accessible to customers on a 24 x 7 basis.
With automation, banks can offer single window service, extend business hours
and provide anywhere anytime banking. It gives bank personnel more time to
devote to business planning and development also facilitates each player in
market to have its unique products and services for competitive advantage. New
technology driven channels help the banks to reduce cost as the cost of
transaction in new channel is a fraction of what it was on branch counter.
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Recent Trends in Public Sector Banks
For e.g.: A counter transaction in typical branch would cost around Rs 50-60,
while it is around only Rs.15 to 20, if done through ATM. The cost will be
further lowered if done through internet. Recently RBI issued a circular stating
that withdrawal from ATM would be free irrespective of the card issuing bank
which will be effect from April 1st, 2009.
1. Access to liquidity.
2. Transformation of assets.
3. Monitoring of risks.
4. Information technology and the communication networking systems have
a crucial bearing on the efficiency of money, capital and foreign exchange
markets.
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Recent Trends in Public Sector Banks
Recommendation
The primary reason for slow pace of adoption of the electronic modes of funds
transfer, particularly in the retail segment, is the lack of education – particularly
on the part of the bank staff at the branch level that have interface with the
public.
A survey conducted by one of the Regional Offices of the RBI in the recent
past revealed that in the limited sample covered; there were several bank
branches in the State which were not even aware of the National Electronic
Fund Transfer system. The banks, therefore, need to make concerted efforts to
increase the degree of awareness at the level of the branch staff so that the
electronic fund transfer services percolate down to the level of the public in a
significant manner.
The other side of the coin is the lack of customer education and awareness
about the features and benefits of the EFT, which precludes wider adoption of
this product and leads to carrying on with the traditional modes of payment.
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Recent Trends in Public Sector Banks
Bibliography
New Trends in Banking – Ravi Kumar VV
4PS Business & Marketing
Innovations in Banking & Insurance – Romeo S. Mascarenhas
Financial Service Management – Gordon & Natrajan
Webliography
WWW.GOOGLE.COM
WWW.SBI.CO.IN
WWW.IBA.ORG.IN
WWW.RBI.ORG.IN
WWW.PNBINDIA.COM
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