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Introduction of banking :

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anking, in its crude form, is an age-old phenomenon. It was

in existence even in ancient times, too. It is the business of
providing financial services to consumers and businesses.
They are the single major source of institutional finance in

the country.

According to Section 5 (c) of the Banking Regulation Act, 1949 Banking Company means any company which transacts the business of
banking in India. Section 5 (b) of the act defines banking as accepting for
the purpose of lending or investment of deposits of money fro the public
repayable on demand or otherwise and withdrawable by cheque, draft, order
or otherwise.
Banking services also serve two primary purposes. First, by
supplying customers with the basic mediums-of-exchange (cash, checking
accounts, and credit cards), banks play a key role in the way goods and
services are purchased. Without these familiar methods of payment, goods
could only be exchanged by barter (trading one good for another), which is
extremely time-consuming and inefficient. Second, by accepting money
deposits from savers and then lending the money to borrowers, banks
encourage the flow of money to productive use and investments. This in turn
allows the economy to grow. Without this flow, savings would sit idle in
someones safe or pocket, money would not be available to borrow, people
would not be able to purchase cars or houses, and businesses would not be
able to build new factories the economy needs to produce more goods and
grow. Enabling the flow of money from savers to investors is called financial
intermediation, and thus, banking is extremely important to a free market
economy.

Origin and Evolution of Indian Banking

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Opinions differ as to the origin of the work "Banking". The word

"Bank" is said to be of Germanic origin, cognate with the French word
"Banque" and the Italian word "Banca", both meaning "bench". It is
surmised that the word would have drawn its meaning from the practice of
the Jewish money-changers of Lombardy, a district in North Italy, who in the
middle ages used to do their business sitting on a bench in the market place.
Again, the etymological origin of the word gains further relevance from the
derivation of the word "Bankrupt" from the French word "Banque route" and
the Italian word "Banca-rotta" meaning "Broken bench" due probably to the
then prevalent practice of breaking the bench of the money-changer, when
he failed.
Banking is different from money-lending but two terms have in
practice been taken to convey the same meaning. Banking has two important
functions to perform, one of accepting deposits and other of lending monies
and/or investment of funds. It follows from the above that the rates of
interest allowed on deposits and charged on advances must be known and
reasonable. The money-lender advances money out of his own private
wealth hardly accepts deposits and usually charges high rates of interest.
More often, the rates of interest relate to the needs of the borrower. Moneylending was practiced in all countries including India, much earlier than the
recent type of Banking came on scene.

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Significance of Banks

The importance of a bank to modern economy, so as to enable them to

develop, can be stated as follows:
(i) The banks collect the savings of those people who can save and allocate
them to those who need it. These savings would have remained idle due to
ignorance of the people and due to the fact that they were in scattered and
oddly small quantities. But banks collect them and divide them in the
portions as required by the different investors.
(ii) Banks preserve the financial resources of the country & it is expected
that they allocate them appropriately in the suitable & desirable manner.
(iii) They make available the means for sending funds from one place to
another and do this in cheap, safe and convenient manner.
(iv) Banks arrange for payments by cheques, order or bearer, crossed and
uncrossed, which is the easiest and most convenient. Besides they also care
for making such payments as safe as possible.
(v) Banks also help their customers, in the task of preserving their precious
possessions intact and safe. To advance money, the basis of modern industry
and economy and essential for financing the developmental process, is
governed by banks.
(vii) It makes the monetary system elastic. Such elasticity is greatly desired
in the present economy, where the phase of economy goes on changing and
with such changes, demand for money is required. It is quite proper and
convenient for the government and R.B.I. to change its currency and credit

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policy frequently, this is done by RBI, by changing the supply of money

with the changing needs of the public.
Although traditionally, the main business of banks is acceptance of
deposits and lending, the banks have now spread their wings far and wide
into many allied and even unrelated activities.

Structure of Banking System

At present, the organized banking system in India can be broadly divided
into three categories:

i)

The Central Bank of the country, the Reserve Bank of India

ii)

The Commercial Banks

iii)

The Cooperative Banks.

The RBI is the apex monetary and banking authority in the country
and has the responsibility to control the banking system in India.
Commercial banks play a major role in the growth and development
of the country. They mobilize savings and make them available to large and
small industrial enterprise and traders for working capital requirements.
After 1969, commercial banks are broadly classified into nationalized or
public sector banks and private sector banks. The SBI and its associate banks
along with another 20 banks are the public sector banks. The private sector
banks include Indian scheduled banks which have not been nationalized and
branches of foreign banks operating in India. The Regional Rural Banks
came into existence since the middle of 1970s with the specific objective of
providing credit and deposits facilities to the small and marginal farmers,
agricultural labourers and artisans and small entrepreneurs.

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Banking in India

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Banking in India act as a connected link between the borrowers and lenders
of money. The banks main activity should be to do the business of banking
which should not be subsidiary to any other business. Thus, a bank should
always add the word Bank to its name to enable people to know that it is a
bank and is dealing in money.

(From small to large, commercial banking have got u

covered,
as In banking there is no such thing as one size fits
all )

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INTRODUCTION TO COMMERCIAL BANKS:

Commercial banks play a vital role in the economic development of a

nation. They are the most important source of institutional credit in the
money market as they provide short term loans and advances to its
customers. They perform a variety of functions and are the main source of
credit which is the main input for trade and business activity. Credit created
by commercial banks is a major component of money supply in a modern
economy. Modern economies depend on the banking sector for production,
exchange and distribution.
A Commercial bank is a type of financial intermediary and a type of
bank. Commercial bank has two possible meanings:
a) It is the term used for a normal bank to distinguish it from an
investment bank.
b) Commercial banking can also refer to a bank or a division of a
bank that mostly deals with deposits and loans from corporations or large
businesses, as opposed to normal individual members of the public (retail
banking).
A commercial bank is a profit seeking organization dealing in the
other peoples money, in the sense that it accepts deposits of money from the
public to keep them in its custody for safety. So also, it deals in credit, i.e., it
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creates credit by making advances out of the funds received as deposits to

needy people. It charges higher rate of interests for the loans sanctioned and
offers lower rate of interest for the deposits. The difference between the two
is the profit earned by the bank. Thus, a commercial bank functions as a
mobiliser of saving in the economy.
The most distinctive feature of a commercial bank is that it accepts
deposits called demand deposits from the public which are chequable, i.e.,
withdrawable by means of cheque. Acceptance of chequable deposits alone,
however, does not give it a status of bank. Its essential function is to make
use of these deposits for lending to others.
Commercial banks ordinarily are simple business or commercial
concerns which provide various types of financial services to 'customers in
return for payments in one form or another, such as interest, discounts, fees,
commission, and so on. So, we can say that their objective is to make profits.
A commercial bank is therefore like a reservoir into which flow the
savings, the idle surplus money of households and from which loans are
given on interest to businessmen and others who need them for investment
or productive uses.
DEFINITION
Economists have defined a Commercial Bank in various ways.
- According to Prof. Crowther, a banker is a dealer in debt, his own and
other peoples.
- According to Prof. says, Commercial Banks are institutions whose
debts usually referred to as bank deposits are commonly accepted in
final settlement of other peoples deposits.

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Thus, all these definitions clearly indicate the essential function of a

bank namely dealing in money and credit.

CURRENT SCENARIO OF COMMERCIAL BANKING:

Currently (2010)overall, banking in India is considered as fairly mature in
terms of supply, product range and reach-even though reach in rural India
still remains a challenge for the private sector and foreign banks. Even in
terms of quality of assets and capital adequacy, Indian banks are considered
to have clean, strong and transparent balance sheets-as compared to other
banks in comparable economies in its region. The Reserve Bank of India is
an autonomous body, with minimal pressure from the government. The
stated policy of the Bank on the Indian Rupee is to manage volatilitywithout any stated exchange rate-and this has mostly been true. With the
growth in the Indian economy expected to be strong for quite some timeespecially in its services sector, the demand for banking services-especially
retail banking, mortgages and investment services are expected to be strong.
M&As, takeovers, asset sales and much more action (as it is unraveling in
China) will happen on this front in India.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to
increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%.
This is the first time an investor has been allowed to hold more than 5% in a
private sector bank since the RBI announced norms in 2005 that any stake
exceeding 5% in the private sector banks would need to be vetted by them.

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Currently, India has 88 scheduled commercial banks (SCBs) - 28 public

sector banks (that is with the Government of India holding a stake), 29
private banks (these do not have government stake; they may be publicly
listed and traded on stock exchanges) and 31 foreign banks. They have a
combined network of over 53,000 branches and 17,000 ATMs. According to
a report by ICRA Limited, a rating agency, the public sector banks hold over
75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively.
We know that, in banking, there is no such thing as "one size fits all." But
today's commercial banks are more diverse than ever. You'll find a
tremendous range of opportunities in Commercial banking, starting at the
branch level because Commercial bankers, now are highly experienced in
working with businesses to develop the right financial package to meet your
unique business needs.
Thus, Commercial lending today is a very intense activity, with banks
carefully analyzing the financial condition of their business clients to
determine the level of risk in each loan transaction

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FUNCTIONS OF COMMERCIAL BANKS

Commercial banks perform several crucial functions to satisfy the

needs of the various sectors of the economy, which may be classified into
two categories:
(I) Primary functions, and
(II) Secondary functions.
(I)

Primary banking functions of the commercial banks include:

1. Acceptance of deposits from the

public;
2. Lending of funds;
3. Use of cheque system; and
4. Remittance of funds.
1.

Acceptance of Deposits from the Public

Accepting deposits is the primary function of a commercial bank. By
receiving deposits from the public, commercial banks mobilize savings of
the household sector.
Banks generally accept deposits in three types of accounts:

(i)

Current Account,
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(ii)

Savings Account, and

(iii)

Fixed Deposits Account.

Deposits in Current Account are withdrawable by the depositors by
cheques for any amount to the extent of the balance at their credit, at any
time without any prior notice. Deposits of current accounts are, thus, known
as Demand deposits. Such accounts are maintained by commercial and
industrial firms and businessmen, and the cheque system is the most
convenient and very safe mode of payment. No interest is provided for such
deposits. In fact bank charge certain commission for providing the facility.
Saving Accounts are maintained for encouraging savings of
households. Withdrawals from deposits from savings account are not freely
allowed as in the case of current account. There are some restrictions on the
amount to be withdrawn at a time and also on the number of withdrawals
made during a period. Indian commercial banks have, however, relaxed
these rules of savings accounts to a certain extent in recent times. Banks pay
a rate of interest on the savings account deposits as prescribed by the central
bank. Presently, it is 5 % p.a. A nominal rate of interest is provided for such
deposits.
Deposits in Fixed Account are time deposits. In the normal course,
deposits cannot be withdrawn before the expiry of the specified time period
of the deposits. A premature withdrawal is, however, permitted only at the
cost of forfeiture of the interest payable, at least partly. On these deposits
commercial banks pay higher rates of interest, and the rate becomes higher
with the increase in duration. Longer the time period, higher would be the
rate of interest and vice versa.
By creating such varieties of deposits, banks motivate savers and
depositors in a variety of ways and encourage savings in the economy.
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Further, by keeping deposits with banks, depositors money is not secure and
remains in safe custody, but it yields interest also. Moreover, banks demand
deposits are in the form of liquid cash, for they serve as money to the
business community and, therefore, are called bank money.

2.

Lending of funds
Another major function of commercial banks is to extend loans and
advances out of the money which comes to them by way of deposits to
businessmen and entrepreneurs against approved such as gold or silver
bullion, government securities, easily saleable stocks and shares, and
marketable goods.
Banks advances to customers may be made in many ways:
(i)

Overdrafts,

(ii) Cash Credits,

(iii) Discounting Trade Bills,
(iv) Money-at-call or very short-term advances,
(v) Term loans,
(vi) Consumer Credit,
(vii) Miscellaneous Advances.
(i) Overdraft: A commercial bank grants overdraft facility to an account
holder by which he is allowed to draw an amount in excess of the balance
held in the account, up to the extent of stipulated limit. Overdrafts are
permissible in current account only. Suppose, a customer has Rs. 50,000 in
his current account with the bank. Bank grants him overdraft facility up to
Rs. 10,000. Then, this customer is entitled to issue cheques upto Rs. 60,000
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on his account. Obviously, overdraft facility sanctioned up to Rs.10,000 by

the bank in this case is as good as credit granted by the bank to that extent.
(ii) Cash credit: Bank give credit in cash to business firms in industry and
trade, against pledge or hypothecation of goods, or personal guarantee given
by the borrowers. It is essentially a drawing account against credit
sanctioned by the bank and is operated like a current account on which an
overdraft is sanctioned. It is the most popular mode of advance in the Indian
banking system.
(iii) Discounting trade bill: The banks facilitate trade and commerce by
discounting bills of exchange called trade bills. Traders often draw bill of
exchange to meet their obligations in business transitions. Such a trade bill is
payable in cash on maturity, after a stipulated date. Discounting of bills by
the bank amounts to granting of credit to the party concerned till the
maturity date of the bill. This method of bank lending is widely adopted for
two reasons: (a) such loans are self liquidator in character; and
(b) these trade bills are rediscountable with the central bank.
(iv) Money at call or very short term advances: Bank also grants loans for
a very short period, generally not exceeding 7 days to the borrowers, usually
dealers or brokers in stock exchange markets against collateral securities like
stock or equity shares, debentures, etc., offered by them. Such advances are
repayable immediately at notice hence, they are described as money at call
or call money.

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(v) Term Loans: Banks give term loans to traders, industrialists and now to
agriculturists also against some collateral securities. Term loans are so-called
because their maturity period varies between 1 to 10 years. Term loans as
such provide intermediate or working capital funds to the borrowers.
Sometimes, two or more banks may jointly provide large term loans to the
borrower against a common security. Such loans are called participation
loans or consortium finance.
(vi) Consumer Credit: Banks also grant to households in a limited amount
to buy some durable consumer goods such as television sets, refrigerators,
etc; or to meet some personal needs like payment of hospital bills, etc. such
consumer credit is made in a lump sum and is repayable in installments in a
short time. Under the 20-point programme, the scope of consumer credit has
been extended to caver expenses on marriage funeral etc; as well.
(vi) Miscellaneous Advances: Among other forms of bank advances there
are packing credits given to exporters for a short duration, exports bills
purchased/ discounted, import finance - advances against import bills,
finance to the self employed, credit to the public sector, credit to the
cooperative sector and above all, credit to the weaker sections of the
community at concessional rates.
3.

Use of cheque system:

It is a unique feature and function of banks that they have introduced
the cheque system for the withdrawl of deposits.
There are two types of cheques:

i)

The bearer cheque and

ii)

The crossed cheque.

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A bearer cheque is encashable immediately at the bank by its possessor.

Since, it is negotiable, it serves as good as cash on transferability.

A crossed cheque, on the other hand, is one that is crossed by two parallel
lines on its face at the left hand corner and such a cheque is not immediately
encashable. It has to be deposited only in the payees account. It is not
negotiable.
In modern business transactions, the use of cheques to settle debts is
found to be much more convenient than the use of cash. Commercial banks,
thus, render an important service by providing an inexpensive medium of
exchange such as cheques. In fact, a cheque is also considered as the most
developed credit instrument.
4.

Remittance of Funds:
Commercial banks, on account of their network of branches
throughout the country, also provide facilities to remit funds from one place
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to another for their customers by issuing bank drafts, mail transfers or

telegraphic transfers on nominal commission charges. As compared to the
postal money orders or other instruments, bank drafts have proved to be a
much cheaper mode of transferring money and have helped the business
community considerably.
(II)

Secondary banking functions of the commercial banks are also

known as non-banking functions. They perform a multitude of other nonbanking functions which may be classified as:
1. Agency Services, and
2. General Utility Services.
1.

Agency Services
Bankers perform certain functions for & on behalf of their clients, as:

a)

To collect or make payments for bills, cheques, promissory notes,

interest, dividends, rents; subscriptions, insurance premia, etc. For these
services, some charges are usually levied by the banks.

b)

To remit funds on behalf of the clients by drafts or mail or telegraphic

transfers.

c)

To act as executor, trustee and attorney for the customers will.

d)

Sometimes, bankers also employ income-tax exporters not only to

prepare income-tax returns for their customers but also to help them to get
refund of income-tax in appropriate cases.

e)

To work as correspondents, agents or representatives of their clients.

Often, bankers obtain passports, travellers tickets, secure passages for
their customers, and receive letters on their behalf.

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Commercial Banking

General Utility Services

Modern commercial banks usually perform certain general utility

services for their community, such as:

a) Letters of credit may be given by the banks at the behest of the importer in
favour of the exporter.
b) Bank drafts and travellers cheques are issued in order to provide facilities
for transfer of funds from one part of the country to another.
c) Banks may deal in foreign exchange or finance foreign trade by accepting or
collecting foreign bills of exchange.
Shares floated by government, public bodies and corporations may be
underwritten by banks;
d) Certain banks arrange for safe deposit vaults, so that customers may entrust
their securities and valuables to them for safe custody.
e) Banks also compile statistics and business information relating to trade,
commerce, and industry. Some banks may publish valuable journals or
bulletins containing research on financial, economic and commercial
matters.

Commercial Banks Play an Important Role in a Modern Economy

1) They constitute the very life-blood of modern trade, commerce & industry,
as they provide the necessary funds for their working capital such as to buy
raw materials, to pay wages, to incur current business expenses in marketing
of goods, etc
2) These banks encourage peoples savings habit through their various savings
deposit schemes.
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3) They also mobilize idle saving resources from households to business people
for productive use.
4) They transmit money from place to place with economy and safety.
5) Their agency services are, no doubt, of immense value to the people at large,
as they case their difficulties, save their time & energy &provide them safety
& security.
NATIONALISATION OF COMMERCIAL BANKS
By the 1960s, the Indian banking industry has become an important tool to
facilitate the development of the Indian economy. With effect from July 19,
1969, 14 largest commercial banks were nationalized. A second dose of
nationalization of 6 more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of
credit delivery. With the second dose of nationalization, the GOI controlled
around 91% of the banking business of India. After this, until the 1990s the
nationalized banks grew at a place of around 4%, closer to the average
growth rate of the Indian economy. So, these nationalization of banks was
carried out with the aim of removal of control by a few and to bring about
a more optimal allocation of bank funds. After nationalization, the credit
policy of public sector banks underwent a radical change, with special
emphasis being placed on credit to priority sectors including agriculture,
small scale industry and programmes for poverty alleviation.
The main objectives of nationalization were as follows:
1. To introduce social banking by directing bank funds at concessional rates
to the weaker sections of societ for productive purposes.
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2. To prevent monopolies in the banking sector caused due to use of

major

share of funds by a few private entrepreneurs.

3. To introduce & promote banking facilities in backward areas & reduce
regional disparities in branch expansion and growth of banking.
4. To expand the role of Commercial banking in agricultural credit.

PERFORMANCE OF COMMERCIAL BANKS IN THE

POST -NATIONALIZATION PERIOD

1. Achievements:
(a) Lead Bank Scheme: After nationalization, it was felt that banks should
be allotted particular districts where they would take the lead in studying the
need and scope for banking development. Under the scheme, districts were
allotted to the State Bank Group, 14 nationalised banks and 3 private banks.
Each bank was assigned the status of lead bank in a particular district. The
lead bank had to study and understand the socio-economic condition of the
district and undertake surveys for this purpose. Through the surveys the lead
bank would collect useful information about the credit needs, development
needs and pattern of production and nature of employment in the district.
After such information was gathered, the lead bank would then plan and
implement development programmes in the area, with the help of other
banks and financial institutions. This scheme was a unique experiment and it
helped in branch expansion, deposit mobilization and expansion of priority
sector lending.
(b) Branch Expansion: After nationalization, there was massive expansion
of bank branches, especially in the rural areas. The Lead Ban k scheme
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played played a major role in this. During the first fifteen years after
nationalization, branches expanded at about 2,400 per year. Total number of
bank branches has increased from 8262 in 1969 to 67,283 in 2007.
Over 80% of bank offices are located in backward states and in semi-urban
areas and rural areas. This, to some extent took care of regional imbalance in
the spread of banking.
(c) Deposit Mobilization: As a result of expansion of banking facilities,
there was a large increase in deposits. In 1969, deposits amounted to 13% of
the GDP, by 2004 this ratio increased 350 times. The increase in rural
deposits as production of total has been from 3% to 15%. Bank deposits
now constitute about 40% of financial assets held by households.
(d) Bank Lending: Traditionally, banks in India had concentrated in
providing working capital to industry and trade. Only after nationalization,
loans are being given for agricultural operations. Bank credit stood at Rs. 3,
399 crore in 1969. In the next 3 decades, his increased by about 200 times.
In 1968, large and medium industries accounted for about 200 times. In
1968, large and medium industries accounted for about 60% of aggregate
bank credit. Agriculture accounted for about 2%. This changed drastically
after nationalization and bank credit to priority sector, including agriculture
was close to 40% of total credit.
(e)

Directed

Credit

Programmes:

A major

objective

of

bank

nationalization was to make bank credit available the priority sector,

comprising of agriculture, small scale industries, exports, transporters and
small traders at concessional rates. This system of directed bank credit was

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expected to contribute to contribute to economic growth as well as social

justice. Success was achieved in this direction after nationalization.

2.

Shortcomings:

(a) Inadequate Banking facilities: Despite achievements in branch expansion,

banking facilities continue to remain inadequate to meet the needs of the
large population. The national average population per bank branch is still
very high at about 12000. This ratio is higher than the national average in
some states like Bihar, Orissa, West Bengal and Madhya Pradesh. Banking
facilities are still not equitably distributed among all states.
(b) Inadequate Deposit Mobilization: Banking habits of people in India are
still not very good. A large part of the population still prefers to carry out
transactions in cash and is not covered by the banking system . Therefore,
there is a large scope for further increasing deposits and brings in more
money in the banking system.
(c) Inadequate lending: Even though there has been significant increase in
lending to priority sectors, it is still inadequate in comparison to the needs of
these sectors. Because of these small farmers and traders have to still depend
on the unorganized sector for meeting their credit requirements.

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(d) Increased Expenditure: After nationalization, there has been significant

increase in expenditure on banking operations. This is due to aggressive and
sometimes irrational branch expansion. There has been over-staffing in
nationalized banks and some of their operations in rural areas are simply not
economically feasible.
(e) Low Level of Efficiency: Public sector banks have suffered from lack of
proper supervision and control. Due to high degree of political interference
and lack of competition, these banks have become highly insufficient. There
work culture was poor compared to private sector banks. However, this
scenario has now changed with these banks becoming more profit oriented
and autonomous.
Thus, nationalization of Commercial banks was done with the
objective of social and economic development. But this resulted in several
problems and desortions in the banking system. Till 1990s public sector
banks operated with low profitability and efficiency. In early 1990s, the
government implemented the Narsimham Committee Recommendations in
order to bring about much needed reforms in the banking sector. Since then,
the sector has been performing with higher profitability and efficiency.

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TYPES OF COMMERCIAL BANKS:

Scheduled banks

Non- Scheduled Banks

- Scheduled Banks:
A scheduled bank is one which is registered in the second schedule of the
Reserve Bank of India. The following conditions must be fulfilled by a bank
for inclusion in the schedule:
i)

The banker concerned must be in business of banking in India;

ii)

It is either a company defined in Section 3 of the Indian Companies

Act, 1956, or corporation or a company incorporated by or under any law in

force in any place outside India or an institution notified by the central
government in this behalf;
iii)

It must have paid-up capital and reserves of an aggregate role of

exchangeable value of not less than rupees five lakhs;

iv)

It must satisfy the Reserve Bank of India that its affairs are not conducted
in a manner detrimental to the interests of its depositors.

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Scheduled banks come under the purview of the various credit control
measures of the Reserve Bank of India. They are required to maintain a
certain minimum balance in their accounts with the RBI, and do certain
things prescribed by law. The Scheduled banks are entitled to borrowings
and rediscounting facilities from the RBI. These are similar to the member
banks of the U.S.A.
- Non- Scheduled Banks:
Banks, which are not included in the Second Schedule of the RBI, are
known as non-scheduled banks. They may be classified into 4 groups:
a)

Banks with paid-up capital and reserves in excess of Rs. 5 lakhs;

b)

Banks with paid-up capital and reserves ranging between Rs.

50,000 and one lakh of rupees;

c)

Banks with paid-up capital and reserves ranging between one lakh
of rupees and 5 lakhs;

d)

Banks with paid-up capital and reserves below Rs. 50,000.

Non- Scheduled banks are not entitled to all those facilities that the
scheduled banks avail of from the Reserve Bank of India. Since the
enactment of the Banking Regulation Act in 1949, non-scheduled banks
have also come under the ambit of the RBI control. It has become obligatory
on the part of these banks to carry a portion of their deposits with the RBI or
in the vault with the bank itself, and prepare their annual accounts and
balance sheets in accordance with the requirements stipulated in Section 29
of the Banking Companies Act.

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Scheduled Banks may be classified into two groups: Indian Scheduled

Banks and Foreign Scheduled Banks. The Indian Scheduled Banks are those
which have their registered officers in India and are registered in the second
schedule if the RBI. As against this, foreign scheduled banks comprise those
commercial banks which are registered in the said schedule but have their
registered offices outside India. These banks have played a prominent role in
Indias foreign trade; in fact, they had complete sway in this sphere until the
Second World War. Since then, a number of leading Indian scheduled banks
entered the field of foreign trade and have in the course of time achieved an
important position in this field.
Indian scheduled banks may be distinguished in two broad sectors:
a) Public sector commercial banking comprising the State Bank of
Indian and its subsidiaries and the twenty nationalized banks;
b) Private sector commercial banking comprising all the other Indian
scheduled banks that do not fall in the above group.

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COMMERCIAL BANKS IN INDIA

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As part of the financial services industry, insurance, commercial banking,

and capital markets companies worldwide are attempting to compete better
by improving core operations and differentiating the customer experience.
However, this is not easily achieved because of the volume of business
challenges financial services companies deal with today.

Names of Banks providing Commercial Banking services in India:

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o ABM AMRO India

o Abu Dhabi Commercial Bank (India)
o Allahabad Bank
o Andhra Bank
o Bank of Baroda
o Bank of India
o Bank of India U.S operation
o Bank of Punjab
o Bank of Madura
o Bank of Maharashtra
o Canara Bank
o Centurion Bank of Punjab
o Corporation Bank
o DCB (Development Credit Bank Ltd.)
o Dena Bank
o Deutsche Bank India
o Dhanalakshmi Bank
o Federal Bank
o HSBC in India
o ICICI Bank
o Indus Bank Ltd.
o State Bank of India, etc.

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Services typically offered by Commercial Banks

Although the basic type of services offered by a

commercial bank depends upon the type of bank and
the country, services provided usually include:
- Taking deposits from their customers and issuing current (UK) or
checking (US) accounts and savings accounts to individuals and
businesses.
- Extending loans to individuals and businesses; Cashing cheques
- Facilitating money transactions such as wire transfers and cashier's
checks
- Issuing credit cards, ATM cards, and debit cards
- Storing valuables, particularly in a safe deposit box
- Cashing and distributing bank rolls
- Consumer & commercial financial advisory services
- Pension & retirement planning.
Financial transactions can be performed through many different channels:
- A branch, banking centre or financial centre is a retail location where
a bank or financial institution offers a wide array of face to face
service to its customers.
- ATM is a computerised telecommunications device that provides a
financial institution's customers a method of financial transactions in a
public space without the need for a human clerk or bank teller.
- Mail is part of the postal system which itself is a system wherein
written documents typically enclosed in envelopes, and also small
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packages containing other matter, are delivered to destinations around

the world.
- Telephone banking is a service provided by a financial institution
which allows its customers to perform transactions over the telephone.
- Online banking is a term used for performing transactions, payments
etc. over the Internet through a bank, credit union or building society's
secure website.

DEBIT CARD

ATM

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CREDIT CARD

ONLINE BANKING

MAIL

TELEPHONE BANKING

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EFFECT OF COMMERCIAL BANKING ON BUSINESS AND

INDUSTRY IN INDIA

he term Commercial Bank is not meant only for Business and

industry. Commercial bank is meant primarily for personal
banking and secondarily for commercial developments. The
banks looking mainly deposits from public and lending small

and short term loans to public and short businessmen.

Banking sector is called the Nerve centres of the nation's economy and
Backbones of modern Industries and Commerce. A minor change in the
basis points by the nation's central bank can make a huge impact on the
1 nation's production and
2 inflation.
Commercial banks facilitate the growth of the business. Be it rural small
scale (Cottage industries) or Very large scale investments. The deposits
from public is mobilised to fund the commercial activities. These activities
in turn generate income which is added to the gross domestic product of
the nation. Thus, banks are the most crucial sector that helps a nation grow
economically.

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CHALLENGES BEFORE INDIAN COMMERCIAL BANKS

Major challenges which Indian commercial banks are facing today

and which are likely to be more poignant in the ensuing years in view of the
irreversible process of the reforms and resultant verisimilitude of more
players entering the banking sector are discussed below.

Problem of pressure on profitability:

The greatest challenge which PSBs are facing in recent years arises
out of pressure on their profitability. With continuous expansion in number
of branches and manpower, thrust on social and rural banking, directed
sector lending, maintenance of higher reserve ratios, waiver of loans under
ARDR-type concessions, repayment defaults by large industrial corporate
and other borrowers etc. had their telling impact on the profitability of the
banks.
Further with the introduction of prudential norms, to be effective from
March 1993 a majority of the commercial banks balance sheets had shown
huge losses. In order to improve financial health of these banks the
Government provided a dose of hybrid capital and in return these banks
were made to sign a memorandum of understanding with RBI. Accordingly,
the focus of operation of banks shifted from deposit mobilization to services
marketing. Further, accent of banks operation shifted to non-fund based
business with an eye on capital adequacy achievement and other ancillary
business which may cross subsidize the cost of certain unremunerative
services, the banks have to offer.
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Problem of low productivity:

Another furious challenge which indian commercial banks are
confronting is low productivity. The low productivity has been due to huge
surplus manpower, absence of good work culture, andbabsence of
employees commitment to the organization. .
The management have continued to prefer not to see the problem in its
proper perspective due to the fear of strong unions. They have camouflaged
the issue by diverting their attention to such apparent face saving devices
like redeployment, repositioning , retraining, etc.. There are various ways of
minimizing the size of the staff, such as voluntary retirement scheme or
golden shakehand. The problem before the management at present is how to
cut size of the staff and improve productivity of the bank.

Problem of Non-Performing Assets(NPA):

A serious threat to the survival and success of Indian banking
system is uncomfortably high level of non-performing assets. In its Report
on trend and Progress of banking In India, 1997-98, the RBI reported that
gross NPAs as percentage of advances of PSBs was 16 percent as on March
31, 2000 with a colossal amount of about Rs. 52,000 crore being locked up.
This might have recently recorded further increase due to default in
repayment by the industrial units affected by the two-year old recession.
This is much higher than the international level of below 5%. Spiraling nonperforming assets are hurting banks profitability and even the basic inability
of the banking system by way of both non-recognition of interest income
and loan loss provisioning.

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Problem from customers:

In view of unleashing of competitive forces and fast changing
life styles and values of customers who are now better informed and more
sophisticated and discerning and who have a wide choice to choose from
various banking and non-banking intermediaries have become more
demanding and their expectations in terms of products, delivery and price
are increasing, the PSBs lacking in customers orientation are finding it
difficult to even retain their highly valued customers what to talk of
attracting the new clients particularly when the foreign banks are also the
new breed of private sector banks have embarked upon aggressive marketing
programme aiming at niche markets. The telebanking, anywhere banking,
virtual or internet banking, ATM, credit cards and newly introduced interest
rate swap, forward rate agreements, etc. are some of the products innovated
by the new players. Although the PSBs are trying to computerize their
operations, the pace of progress in this direction has been decidedly slow.
The rather tardy progress in the area has been due to the initial reservation of
the staff unions against computerization for the lurking fear of employment
cut, as also the existence of huge number of branches in the rural areas,
where suitable logistics are not available. Market share of PSBs both in
deposits and lending has declined. This has already become a serious cause
of concern for PSBs regulating strategic efforts for thwarting the challenges
from the new players.
Competition from New Banks:

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The commercial banks in India which enjoyed monopoly position

until recently are facing perilous challenges particularly on quality, cost and
flexibility fronts from the newly emerging players who by dint of their
invigorating ambience and work culture supported by pragmatic leadership
committed, courteous, affable and trained staff and modern ultra gadgets are
offering excellent customers services and making inroads in the business
centres.
The new banks have set the tone and to extent also the standard for
technological improvements and product innovations which the vastly
dominating PSBs will have to bring about in their own operations if they
have to maintain their present position of dominance.
For instance, Bank of Punjab has opened a new savings bank product-swagat
with a minimum balance requirement . HDFC has launched q new retail
account-Freedom-for customers who would be using the non-branch
infrastructure of the bank like ATM, phone banking and internet banking .
The ICICI Bank has product offerings tailor-made to specific categories of
customers, such as students, traders, NRIs as well as the salary customers.It
is going to offer a special scheme for senior citizens.
By resorting to latest methods in human resources management as
well as information technology, the new entrants in the field have suddenly
sensitised even the ordinary user of the banking services in India to the type
and quality of services he can expect from his bank.
The market has become highly competitive and largely customers
centric. This calls for an ability to reach the client at his door step and meet
his requirements of products and services in a customized manner. The race
for customers could at times lead to adverse selections. This situation

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demands aggression laced with caution, in turn, calls for highly efficient
management by the banks of both liabilities and assets.
These banks have to work in a market which will not know any
geographical barriers and therefore will have to develop abilities of product
innovation and delivery comparable to the best in the world.
Competition from global majors
Globalization and integration of Indian financial market with world
and the consequent entry of foreign players in domestic market has infused,
in its wake, brutal competitive pressure on the Indian commercial banks.
Foreign players endowed with robust capital adequacy, high quality assets,
world-wide connectivity, benefits of economies of scale and stupendous risk
management skills are posing serious threats to the existing business of the
Indian banks. In order to compete successfully with the new entrants, Indian
banks need to possess matching financial muscle, as fair competition is
possible only along the equals. Average size of an Indian bank is niggardly
low in comparison to a foreign bank. The question before the major Indian
Commercial Banks, therefore, is how to acquire competitive size.

Problem of Managing Duality of Ownership: Managing duality of

ownership is a peculiar problem which the PSBs have to encounter because
of participation of the private shareholders in their capital. A public sector
bank to survive and grow successfully is expected to operate according to
the expectations if one of its principal shareholders. In the changed scenario,
there would be two major groups of shareholders, viz., the government of
India and RBI on the one hand and the private shareholder, on the other.
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Since the expectations of these two categories of owners are not necessarily
identical, the bankers will have to manage conflicting interests.

OPPORTUNITIES FOR INDIAN COMMERCIAL BANKS

Challenges are the driving forces that keep on going.

They prevent us from being vagary because they also bring in

their wake opportunities. In fact, challenges & opportunities are
like healthy twins, knocking at our door steps. The process of
globalization and liberalization have thrown open tremendous
opportunities for the banks in terms of widening of scope of business,
greater freedom to operate in financial markets both national and
international freedom to deloy relatively largest funds because of reduction
in preemption requirements. The Commercial banks are now enjoying
greater autonomy in reviewing & revising existing branch network & greater
discretion to reduce amplitude of cross subsidization to priority sector.
Indian Commercial banks have also got the autonomy in respect of
pricing of bank products. In the regulated regime, interests rates on both
deposits and advances of Commercial banks were tightly regulated and so
was the product range. With gradual deregulation of interest rates, banks are
blessed with more power in pricing and structuring their products.
As we know, Commercial banks are in the business of providing
banking services to individuals, small businesses and large organizations.
While the banking sector has been consolidating, it is worth noting that far
more people are employed in the commercial banking sector than any other
part of the financial services industry. Jobs in banking can be exciting and
offer excellent opportunities to learn about business interact with people and

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build up a clientele. If you are well-prepared and enthusiastic about entering

the field, you are likely to find a wide variety of opportunities open to you.

STRENGTHS OF INDIAN COMMERCIAL BANKS:

Indian commercial banks possess the following strengths which are distinct
from others:
i.

Tremendous branch network giving an access to almost entire spectrum of

customers

ii.

High market coverage

iii.

Diversified operations

iv.

Intimate knowledge of local environment

v.

High class human resource pool

WEAKNESS OF INDIAN COMMERCIAL BANKS:
Indian commercial banks have been ailing from the following weakness
because of which they are finding it to difficult to out beat the new players
and exploit the emerging opportunities:

i.

Lower Profitability

ii.

High Operating Costs

iii.

High NPAs

iv.

Low Productivity

v.

High Provisioning

vi.

Complex and Non- responsive organizational structure

vii.

Poor asset management

viii.

Inadequate HRD strategy

ix.

Low work culture

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x.

Action flippant and inward looking management and employees

xi.

Strong, militant and non-responsive unions

xii.

Limited automation.

BASIC PROBLEM OF A COMMERCIAL BANK

The basic problem facing a bank manager is to have a satisfactory
trade off between liquidity and profitability - the two principal but
conflicting goals of a bank. A bank deals in the money of the people. The
success of the business of a bank depends partly on the efficiency with
which it can provide services to its creditors (depositories), but mainly on
the confidence it inspires among the depositors. It has been able to attract the
deposits of the people not only by promising some returns on their money
but also by committing itself to repayment on demand. This is why the
public accepts bank deposits as being as good as cash. The banker must,
therefore, ensure an adequate amount of liquidity in his assets so that he may
be able to meet any claims upon it in cash on demand. The perfectly liquid
asset is cash itself because it can fully satisfy the depositors claims. The
more cash a banker holds, the more obviously he can, without difficulty of
any kind, offer cash in exchange for deposits. Further, the banker with an
adequate amount of cash in hand can meet the credit needs of the community
and can make speculative gains. However, cash is a sterile asset which earns
no income at all. A banker cannot afford to ignore income because the
ultimate object of a bank is to make earnings on its business which are
sufficient to compensate it for the cost which it incurs on raising funds,
besides paying the wages of the staff and meeting other expenses. If a
banker holds a large portion of his funds in ready cash without earning any
income on it, his business will result in losses, and sound the death-knell of
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the bank after some time. He must therefore, employ the bulk of the banks
resources in giving loans and advances, and in investing them in highyielding securities. Such investments are, however, subject to credit risk
the risk arising from default in repayment money lent out and the money rate
risk the risk arising out of fluctuations in the market rate of interest. The
banker will not be able to satisfy the cash requirements of the depositors on
demand with the funds deployed in the other investments. Once the
depositors cheques are not honored, the bank will lose the confidence of the
public, which will result in a mass run on the banks counters and jeopardize
the liquidity position of the bank. Ultimately, the very survival of the bank is
endangered.
Liquidity and profitability are, therefore, inimical to each other. Cash
has perfect liquidity but lacks yield. At the other ends are some loans and
investments which yield a high rate of interest, but are hardly liquid at all.
The conflict between liquidity and income is not as sharp as it appears. In
order to ensure long-run earnings, the commercial bank must retain public
confidence in order to continue to survive and provide for the liquidity needs
of the bank.
The art of commercial banking lies in the resolution of the conflicts
between liquidity and profitability. It is an art because science ha not
furnished inviolable rules; banks must be managed with discrimination and
good judgement. Rules and scientific procedures for doing the whole job
cannot be framed.1 A number of approaches, ways and means of resolving
the conflicts have been developed from time-to-time. These approaches
subsequently came to be known as theories of liquidity management.

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BANK DEPOSITS AND THEIR STRUCTURE:

Commercial banks being repositories of deposits have played

significant role in garnering savings of the people particularly after their
nationalization, as is evidenced from Table below. It may e noted from the
Table that bank deposits boomed by over Rs. 7,84,000 crores between 1947
and 20003. There was acceleration in deposit mobilization after
nationalization of banks. This was because of tremendous branch expansion,
growth in interest rates and introduction of innovative deposit schemes. As a
result, per capita deposits to national income rose significantly from 15.5%
as on June 1969 to over 41% as at the end of July 2000.
Amount of bank deposits soared to Rs. 9, 91,318 crore as on May 4, 2001
with per capital deposits of the order of Rs. 9,900.
Deposits of Commercial Banks during 1947- 2007
Year

Amount in

Per capita

Deposits as or of

crore of Rs

Deposits (Rs.)

National Income

As on December
1947
June 1969
June 1976
June 1986
March 1991
March 1997
Dec. 2000
Sept. 2003
July, 2005
May, 2007

1,080

32

NA

4,661
15,255
92,233
2,00,569
5,03,596
6,79,894
7,61,678
7,85,165
9,91,318

44
1,198
2,368
5,402
7,157
7,617
7,851
9,900
9,900

15.5
22.8
41.5
42.1
41.0
42.6
42.4
41.0
NA

ASSET-LIABILITY MANAGEMENT (ALM)

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In the recent past, banks in India have started using the Asset-Liability
Management (ALM) as the technique or strategy for financial management.
ALM aims at planning, directing, and regulating the levels, changes, mixes
of assets and liabilities of banks in the short-run, usually three to twelve
months, with a view to enable them to achieve their long-term objectives.
The net interest margin and its variability are the focus of its attention so as
to maximise Return On Equity (ROE), and to minimise fluctuations in ROE.
It also links capital, non-interest income and expenses, and strategic choices
regarding products, markets, and bank structure. ALM involves giving
balanced emphasis necessary in a competitive environment characterised by
deregulatiom. and greater viability (volatility) of interest rates, variable rates
pricing, and the use of interest rates derivatives.
ALM is an integrated strategic managerial approach of managing a total
Balance Sheet dynamics having regard to the size and quality in such a way
that the net earnings from interest are maximized. This is done by matching
of liabilities and assets in terms of maturity, cost and yield rates.
The focus of ALM is not to build up deposits and loans/assets in isolation,
but on net interest income and recognizing interest rates and liquidity risks.
Thus, ALM is essentially a guide for survival of a bank in deregulated
environment.
Diagramatic presentation of ALM is brought out in the following
chart:

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Asset-Liability Management Structure

Asset-Liability Management
General
Asset, Liability & Capital Management

Specific

Asset Management

Liability Management
Financial

Balance Sheet
Management

Income & Expenditure

Management

- Objectives of ALM
Primary objective of ALM approach is to manage market risk in such away
as to minimize the impact of net interest income fluctuations in the short run
and protect the net economic value of the bank in the long run. Precisely
speaking, ALM has the following objectives:

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1. To control the volatility of net interest income and net economic value
of a bank.
2.

To control volatility in all target accounts .

3.

To control liquidity risk, and

4.

To ensure an acceptable Balance profitability and growth rate.

- ALM And Commercial Banks:

1) Reformed process in India has emerged mew players, new instrument
and new products at competitive rates has increased banks risks.
2) This new development forced the Commercial banks to take a re-look
on ALM to remain competitive & withstand the risk.
3) RBI also advised Commercial Banks to tighten their Asset-Liability
management and to furnish data in a format outlined by it.
In the recent past, banks in India have started using the Asset-Liability
Management (ALM) as the technique or strategy for financial management.
ALM aims at planning, directing, and regulating the levels, changes, mixes
of assets and liabilities of banks in the short-run, usually three to twelve
months, with a view to enable them to achieve their long-term objectives.
The net interest margin and its variability are the focus of its attention so as
to maximise Return On Equity (ROE), and to minimise fluctuations in ROE.
It also links capital, non-interest income and expenses, and strategic choices
regarding products, markets, and bank structure. ALM involves giving
balanced emphasis necessary in a competitive environment characterised by
deregulatiom. and greater viability (volatility) of interest rates, variable rates
pricing, and the use of interest rates derivatives.

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BANKS BALANCESHEET & PORTFOLIO MANAGEMENT

Conventionally, banks publish balance sheets in their annual reports. The
balance sheets contains particulars of a Banks current assets and current
liabilities. Assets items refer to all credit items in indicating the wealth and
claims possessed by the bank. Liability items refer to all debit items
indicating the obligations of the bank. Thus, the balance sheet indicates the
manner in which the bank has raised funds and invested them in various
types of assets. It is the means by which the banks financial position its
solvency and liquidity is judged. There is, of course the equity of assets
and liabilities in the balance sheet of a bank, as in the case of any other
balance sheet.
In a balance sheet, it is customary to state the liabilities on the left and assets
on the right. The liabilities of the banks are the items which are to be paid by
it either to its shareholders or depositors. The assets of the banks are those
items fro which it hopes to get an income. Thus, the assets include all the
amounts owed by others to the bank.
A much simplified format of a banks balance sheet may be illustrated as
follows:

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The Format of Balance Sheet of A Bank

Liabilities
Assets
1. Share capital

1. Cash in hand

2. Reserve Funds

with central bank

3. Deposits:

with other banks

a) Time deposits

2. Money at call and short notice.

b) Demand deposits

3.

c) Savings deposits

bills.

Bills discounted, including treasury

4. Borrowings

4. Investments

5. Other items

5.Advances
6.Other Items

- Objectives of portfolio management:

A commercial bank has to manage its assets and liabilities with three
considerations in mind namely, liquidity, profitability and solvency.
Liquidity means the capacity of the bank to give cash on demand in
exchange for deposits. But since a bank is a commercial concern, it aims at
profitability. Profits come from the income accruing from the assets the bank
holds. The banker must arrange hiss assets in such a way that he makes more
income. Hence, in acquiring assets, the banker will be influenced by the
consideration of profit. A bank acquires assets mainly out of the deposits of
the public. Public confidence in the bank, however, depends on the belief
that the bank will always be able to exchange deposits for cash. A bank,
therefore, must keep a sufficient amount of cash balance to meet the actual
demand, while for meeting the potential demand, it has to keep its assets
sufficiently liquid. Cash has perfect liquidity, but yields no returns at all,
while other income-yielding assets such as loans are profitable but have no
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liquidity. Liquidity and profitability are, therefore, conflicting consideration

for the bankers.
Another consideration of the bank is its solvency and security. This refers to
the liquidity and shift ability of assets. Liquidity is the capacity to produce
cash on demand. Shift ability means that type of assets acquired by a bank
be easily shift able to other banks or to the central bank. Therefore a banker
will prefer securities which can be quickly disposed of and which are easily
shift able without any loss to the bank or to those which are highly risky but
more profitable. But a bank is liquid only to the extent that it can turn its
assets into cash to meet the demands of depositors and other creditors.
Thus, the two motives of a banks liquidity and profitability are contradictory,
but have to be reconciled. A good banker is one who follows a wise
investment policy and distributes the assets in such a way both the
requirements of liquidity and profitability are satisfied. The assets should
bring in maximum profit and should provide maximum security to the
depositors. The secret of success of a bank lies in striking a sound balance
between liquidity and profitability.
In reading a balance sheet of a bank, we have to examine the liabilities and
assets portfolios which reveals how best the two objectives of liquidity and
profitability have been reconciled by the banker.

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o Liabilities Portfolio
The liabilities portfolio of a bank is comparatively simple. It shows how the
bank raises funds. Every commercial bank usually gets its funds in three
ways: by share capital, reserve fund and deposits from the general public.
For instance, liabilities may be incurred by accepting or endorsing bills of
exchange on behalf of customers.
o Assets Portfolio
The assets portfolio of the bank is both complex and interesting. It
represents more faithfully the varied nature and ramification of the banks
functions and investment policies.
In fact the asset side of the balance sheet indicates the manner in
which the funds entrusted to the bank are deployed. Usually, every banker
seems to arrange its assets in an ascending order of profitability and
descending order of liquidity. Thus, the structure of a balance sheet indicates
assets appearing in the descending order or liquidity.

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OVERVIEW OF ICICI BANK & SBI BANK

ICICI Bank is India's second-largest bank with total assets of Rs.

3,446.58 billion (US$ 79 billion) at March 31, 2007 and profit after tax of
Rs. 31.10 billion for fiscal 2007. ICICI Bank is the most valuable bank in
India in terms of market capitalization and is ranked third amongst all the
companies listed on the Indian stock exchanges in terms of free float market
capitalization. The Bank has a network of about 950 branches and 3,300
ATMs in India and presence in 17 countries. ICICI Bank offers a wide range
of banking products and financial services.

The origin of the State Bank of India goes back to the first decade of the
ninet eenth century with the establishment of the Bank of Calcutta in
Calcutta on 2 June 1806 and three years later, it was re-designed as the Bank
of Bengal (2 January 1809). A unique institution, it was the first joint-stock
bank of British India sponsored by the Government of Bengal. The Bank of
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Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the
Bank of Bengal. These three banks remained at the apex of modern banking
in India till their amalgamation as the Imperial Bank of India on 27 January
1921.

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ICICI Bank today

Large capital base

Vast talent pool

Low operating costs

Technology focus

Strong corporate
relationships

ss largest
largest
private
private sector
sector
bank
bank and
and one
one
of
the financial
top financial
stop
solution
solutions
provider
provider with
with aa
diversified
diversified and
and
derrisked
deisked
business
business model
model

Performance of ICICI Bank

ICICI Bank, India's largest bank in the private sector. It is India's secondlargest bank with total assets of Rs. 3,446.58 billion at March 31, 2007.
ICICI Bank is the most valuable bank in India in terms of market
capitalization.The Bank has a network of about 950 branches and 3,300
ATMs in India and presence in 17 countries. ICICI Bank offers a wide range
of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its specialised
subsidiaries and affiliates in the areas of investment banking, life and nonlife insurance, venture capital and asset management. The Bank currently
has subsidiaries in the United Kingdom, Russia and Canada, branches in
Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance
Centre and representative offices in the United States, United Arab Emirates,
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China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our

UK subsidiary has established a branch in Belgium.

ICICI offers various products and services in India in areas of commercial

banking, online stock trading, loans (home, auto, personal etc), insurance,
foreign exchange trading and mutual funds. It also offers services to nonresident Indians like money transfer, NRE and NRO savings accounts and
certain investment options as well.

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MAIN BRANCH OF STATE BANK OF INDIA, PANAJI

Performance of State Bank of India (SBI)

SBI is the number one Bank in India and is regarded as India's largest commercial
bank, listed in the Fortune 500 among Banks world wide and is having more than
9300 branches world wide (approximately 14% of all bank branches) and
commands one-fifth of deposits and loans of all scheduled commercial banks in
India. The main Branch Of State Bank Of India is at Panaji, has the unique
privilege in Goa to trace back its roots to two centuries of banking. As there was
no formal transition either in Government or in banking from Portuguese control,
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for a time the entire territory of Goa was without any commercial banking facility.
In this backdrop, Panaji Branch then became first Branch of a Bank to start
functioning in Goa.

The State Bank Group includes a network of eight banking subsidiaries and
several non-banking subsidiaries offering merchant banking services, fund
management, factoring services, primary dealership in government securities,
credit
cards
and
insurance.
The eight banking subsidiaries are:
- State Bank of Bikaner and Jaipur (SBBJ)
- State Bank of Hyderabad (SBH)
- State Bank of India (SBI)
- State Bank of Indore (SBIR)
- State Bank of Mysore (SBM)
- State Bank of Patiala (SBP)
- State Bank of Saurashtra (SBS)
- State Bank of Travancore (SBT)
The origins of State Bank of India date back to 1806 when the Bank of Calcutta
(later called the Bank of Bengal) was established. In 1921, the Bank of Bengal and
two other Presidency banks (Bank of Madras and Bank of Bombay) were
amalgamated to form the Imperial Bank of India. In 1955, the controlling interest
in the Imperial Bank of India was acquired by the Reserve Bank of India and the
State Bank of India (SBI) came into existence by an act of Parliament as successor
to the Imperial Bank of India.

Today, State Bank of India (SBI) has spread its arms around the world and has a
network of branches spanning all time zones. SBI's International Banking Group
delivers the full range of cross-border finance solutions through its four wings the Domestic division, the Foreign Offices division, the Foreign Department and
the International Services division.
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FEATURES OF STATE BANK OF INDIA

- Extended Banking Hours

- Round the Clock ATM and Telebanking
- Attractive Deposit Schemes
- The first Branch in operation in Post Liberation Goa
- Warm unmatched ambience that you will love
- Fully computerized Branch with latest Technological value added services.
- Branch with the largest number of Customers among all Banks
- The number one Bank in Goa
- Part of a group with over a century of banking tradition

Thus, we can conclude that the profit of ICICI bank is much more
than SBI bank.

PERFORMANCE HIGHLIGHTS OF ICICI BANK

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15%
Capital

Reserves & Surplus

5%

Deposits

5% 1% 7%

Borrowings

Cash
67%bal. with RBI

Fixed & other Assets

PERFORMANCE HIGHLIGHTS OF SBI BANK

5% 1% 5%
7% 5%
Capital

Reserves & Surplus

Deposits

Borrowings

Cash bal. with RBI

77%

Fixed & Other Assets

CASE STUDY OF ICICI BANK & SBI BANK

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In spite of all this, the long case on ICICI is compelling. In my opinion,

ICICI's earnings growth will continue thanks to the rising middle class
income in India. More and more people now have disposable income on
their hands to buy car(s), buy houses, invest or just plain deposit in the
savings accounts. In speaking to a lot of my friends and family back in India,
almost everyone from the younger generation prefers private banks like
ICICI or SBI bank.
The younger generation does not like government-owned banks because
they do not understand the concept of "customer service"-- they treat you
like they are doing you a favor by safe-keeping your hard-earned money.
Average salary increases in India are currently at 30% and this alone gives
people a lot of disposable income at hand.

Competition and personal experience

ICICI faces competition primarily from SBI bank, which is another growing
bank in the private sector, as well as others like HDFC, Canara bank, and
Punjab National Bank. But here we will focus on two banks ICICI and SBI.
Also, after having spoken to friends and family back in India, I got the
impression that ICICI was more aggressive in terms of its marketing
strategies as well as following-up with potential customers. One of my uncle
was trying to open up an NRE savings account about a year back, he was
exploring options with SBI as well as ICICI. After having emailed both
through their respective company websites, he is still waiting on hearing
back from SBI, whereas ICICI got in touch with him within 48 hours. This
gave me the impression that if SBI bank did not care about a potential
customer, it wouldn't care much after we actually became their customer - no
points for guessing he finally ended up opening an account with SBI.

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Conclusion
All in all, I think ICICI has a very compelling growth story ahead of it as
Indian economy continues to boom as we have seen above by doing
analysis of the financial statements which is in the form of Common size,
Comparative and Trend analysis.

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CONCLUSION:
Friends, as we know, over five decades the Commercial banks in India
achieved astounding success by enormously spreading banking services in
far-flung and unbanked areas of the country through their massive branch
network are garnering burgeoning amount of savings which represent half of
the GDP of the country. A major portion of these resources had been
deployed to meet the needs of priority sectors which are critical to the
economy.
However, it is crucial for the commercial banking industry to meet the
increasingly complex savings and financing needs of the economy by
offering a wider and flexible range of financial products tailored for all types
of customers. In recent years, it is being felt widely that the commercial
banking system has not actually grown as sound & vibrant as it needed to
be. Strong capital positions and balance sheets places the Commercial banks
in a better position to deal with and absorb the economic shocks. These
Banks need to face competition without diluting the operating standards.
In banking, there is no such thing as "one size fits all." But today's
commercial banks are more diverse than ever. You'll find a tremendous
range of opportunities in commercial banking, starting at the branch level
because commercial bankers, now are highly experienced in working with
businesses to develop the right financial package to meet your unique
business needs. The face of Commercial banking is changing rapidly.
Competition is going to be tough Banks should avail of the existing and
upcoming opportunities as well as address the above-discussed issues if they
have to succeed, not just survive, in the changing environment.

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Thus, Commercial Banks occupy a dominant place in the money

market, they are like a reservoir into which flow the savings, the idle
surplus, money of households and from which loans are given on interest to
businessmen & others who need them for investment or productive uses.

RECOMMENDATIONS
Banking in India has made a remarkable progress in its growth and
expansion, as well as business with social perspective in the fulfillment of
national objectives. Indian Commercial banking has developed, but, its
perfection is yet to be seen. There still remains many tasks to be fulfilled.
1. Still there are villages left without banking facilities, so many more rural
banks branches need to be opened.
2. Quality of Commercial banking facilities should be improved to the
atmost satisfaction of the customer.
3. Operational costs of Commercial banks should be reduced to the
minimum profitability and working results must be maximized.
4. Banking staff should be adequately trained.
5. More lending should be made in favour of priority sectors.
6. Malpractices, fraud, corruption and red-tapism must be done away with.
7. More attention should be paid to the development of exports.
8. Nationalised banks should give more technical assistance to the small
industrialists.
9. Interest rates on deposits should be enhanced reasonably up to 12-13 %
so that savers get their legitimate returns.
10. The high level of overdues of banks have become a matter of concern.
So, banks should make all possible efforts to reduce their overdues. This
all requires that no loans should be given without proper identification
and address of the deserving rural poor.
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Thus, in order that the association of banks with industry is more fruitful and
rewarding, many innovations have to be planned and introduced
systematically and greater degree of managerial competence will have to be
developed in Commercial banking sector.

FUTURE PROSPECTS OF COMMERCIAL BANKING:

Indian banking has developed. But, its perfection is yet to be seen. There
still remain many tasks to be fulfilled. Historically, profitability from lending
activities has been cyclic and dependent on the needs and strengths of loan
customers. In recent history, investors have demanded a more stable revenue
stream and banks have therefore placed more emphasis on transaction fees,
primarily loan fees but also including service charges on array of deposit
activities and ancillary services (international banking, foreign exchange,
insurance, investments, wire transfers, etc). However, lending activities still
provides and in future, too will provide bulk of a Commercial bank's
income.
As part of the financial services industry, commercial banking are worldwide
attempting to compete better by improving core operations and
differentiating the customer experience. The banking sector has been
consolidating; it is worth noting that far more people are employed in the
Commercial banking sector than any other part of the financial services
industry. Jobs in banking can be exciting and offer excellent opportunities to
learn about business, interact with people and build up a clientele. In future,
if we are well-prepared and enthusiastic about entering the field, we are
likely to find a wide variety of opportunities open to us.
Thus, we can predict the future of Commercial bank, to be spreaded world
wide. They will be providing an unprecedented level of service to a wide
range of business clients, from small business, through to multi-national
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corporate clients. In future, Commercial Bank will come up with more

innovative and experienced depth knowledge of specific sectors, to meet all
of our banking requirements.
BIBLIOGRAPHY
Books
Commercial Banking Management By Reed Edward
Banking, Theory and Practice By Reddy P N
Banking by Parker J

Websites
www.rbibulletin.com
www. icici.com
www. britannica.com

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