PEST ANALYSIS

PEST analysis of any industry investigates the important factors that affect the industry and influence the companies operating in the sector. PEST stands for Political, Economic, Social and Technological analysis. The PEST Analysis is a tool to analyze the forces that drive the industry and how those factors can influence the industry.

ECONOMICAL

GDP MONSOON INFLATION SAVINGS & ACCOUNTS AGRICULTURE CREDIT

SOCIOCULTURAL POLITICAL GOVERNMENT POLICY & BUDGECT BUDJECT MEASURES MONATORY POLICY Organizatio n CHANGES IN LIFE STYLE LITERACY RATE DEMOGRAPHIC OF LARGE POPULATION SHIFT TOWARDS

POLITICAL FACTORS Government and RBI policies affect the banking sector.

Sometimes looking into the political advantage of a particular party, the Government declares some measures to their benefits like waiver of short-term agricultural loans, to attract the farmers votes. By doing so the profits of the bank get affected. Various banks in the cooperative sector are open and run by the politicians. They exploit these banks for their benefits. Sometimes the government appoints various chairmen of the banks. Various policies are framed by the RBI looking at the present situation of the country for better control over the banks.
LEGAL TECHNICAL

FOCUS ON REGULATIONS OF GOVERNMENT

Indian Banking is least affected as compare to other developed

BANKING CORE BANKING

RESERVE BANK OF INDIA ACT

TECHNOLOGY IN BANKS

economy which is attributed to Reserve Bank of India for its robust policy framework, stricter prudential regulations with respect to capital REGULATION ACT SOLUTIONS(CBS) and liquidity. This gives India an advantage in terms of credibility over other countries.
ATM

Government affects the performance of banking sector most by legislature and framing policy .government through its budget affects the banking activities securitization act has given more power to banking sector against defaulting borrowers.

MONETARY POLICY

Monetary Policy 2009-2010

Bank Rate: The Bank Rate has been retained unchanged at 6.0%. Repo Rate It has been reduced under the Liquidity Adjustment Facility (LAF) by 25 basis points from 5.0% to 4.75% with immediate effect. Reverse Repo Rate : It has been reduced under LAF by 25 basis points from 3.5% to 3.25% with immediate effect. RBI has retained the option to conduct overnight or longer term repo/reverse repo under the LAF depending on market conditions and other relevant factors. Cash Reserve Ratio: CRR has been retained unchanged at 5.0% of NDTL.

FDI LIMIT

The move to increase Foreign Direct Investment FDI limits to 49 percent from 20 percent during the first quarter of this fiscal came as a welcome announcement to foreign players wanting to get a foot hold in the Indian Markets by investing in willing Indian partners who are starved of net worth to meet CAR norms. Ceiling for FII investment in companies was also increased from 24.0 percent to 49.0 percent and have been included within the ambit of FDI investment

BUDGET MEASURES

BUDGET PROVISIONS

Increase Farm Credit: The FM has further increase the farm credit target for 2009-10 at Rs 325000 crore compared to Rs 287000 crore targeted in 2008-09. Subvention of 1% to be paid as incentive to farmers: The Budget continued the Interest subvention scheme for short-term crop loans up to Rs 300000 per farmer at the interest rate of 7% per annum. Also additional subvention of 1% to be paid from this year, as incentive to those farmers who repay short-term crop loans on schedule. Also additional allocation of Rs 411 crore over Interim Budget 2009-10 was made for the same. Debt Waiver for Farmers: The Union Budget 2009-10

extended the debt waiver scheme by six more months for farmers owing more than 2 hectare of land. The Union Budget 2008-09 allowed these farmers 25% rebate on loan if they repay 75% of their overdue within stipulated period of 30th June 2009. Currently this facility has been extended from 30th June, 2009 to 31st December, 2009. Setting up of separate task force for those not covered under the debt waiver scheme: The government also announced that it will set up a task force to examine the issue of debt taken by a large number of farmers in some regions of Maharashtra from private money lenders who were not covered by the loan waiver scheme announced last year. OTHER PROVISIONS

The threshold for non-promoter public shareholding for all listed companies to be raised in a phased manner. To allow scheduled commercial banks setting up off-site ATMs without prior approval subject to reporting. To provide banking facilities in under-banked/un-banked areas in the next three years. A sub-committee of State level Bankers

Committee (SLBC) would identify and formulate an action plan for the same.

The Ministry has also granted Rs 100 crore of grants in aid to ensure provision of at least one Centre/Point of Sales (POS) for banking services in each of the un-banked blocks.

BUDGET IMPACT The Union Budget 2008-09 has focused on farm credit. The agriculture sector has recorded a growth of about 4% per annum with substantial increase in plan allocations and capital formation in the sector. The one-time bank loan waiver of nearly Rs 71000 crore (Rs 710 billion) to cover an estimated 40 million farmers was one of the major highlights of the last Budget. This Union Budget has provided further six months extension of 25% rebate on loan for farmers owing more than 2 hectare of land. With Government bearing this burden, banks would not be affected much. It will only help banks to clear their most stubborn NPA accounts on banks book. Moreover the emphasize on hiking promoter shareholding in Public sector banks, expanding network with ATM's, opening of banking centre in un-banked blocks are some of the positive moves for the sector. On the flipside, the spike in government borrowings is set to adversely affect the treasury income of banks in general and public sector banks in particular, through rise in yields on government securities. OUTLOOK The Union Budget 2009-10 has not granted much of new grants/stimulus to the banking sector as a whole. However it has

increased the Government borrowing to Rs 451093 crore (Rs 4510.93 billion) compared to Rs 361782 crore (Rs 3617.82 billion) targeted in the Interim Budget 2009-10. This is likely to push the Bond yields high moving forward. Despite ample liquidity in the system, the 10 year benchmark yield has zoomed above 7% levels owing to rise in borrowing target. Hardening of yields is likely to affect treasury profits of banks in general and Public sector banks in particular. BUDGET PROPOSALS 1. IIFCL to refinance 60% of loans given by commercial banks for PPPbased projects in critical sectors. IIFCL and banks together will be able to support infrastructure projects involving total investment of Rs 1,000 bn. 2. Target for agriculture credit flow set at Rs.3250 bn for the year

2009-10. Interest subvention scheme at the interest rate of 7% will be continued. Additional subvention of 1% for the farmers who repay their debt on time. 3. Farm debt waiver scheme extended to 31st December 2009 from 30th June 2009. 4. Interest subvention scheme to exporters extended to 31st March 2010. 5. Special fund of Rs.40 bn out of Rural Infrastructure Development Fund (RIDF) to provide refinance to banks and State Finance Corporation for incremental lending to Micro and Small Enterprises (MSEs). 6. Rs.1 bn to ensure provision of at least one centre/Point of Sales

(POS) for banking services in each of the unbanked blocks.

7.

Interest subsidy to poor households for loans up to Rs.1,00,000

from banks. 8. Rs.20 bn earmarked for Rural Housing Fund in National Housing

Bank (NHB) 9. Recapitalization of public sector banks and insurance companies. 10. Exemption of income of New Pension System (NPS) trust from

income tax and dividend paid to NPS trust from dividend distribution tax. Sale and purchase of equity shares and derivatives by NPS trust will be exempt from the securities transaction tax. BUDGET IMPACT: INDUSTRY 1. Long-term refinancing from IIFCL for infrastructure projects will

ensure better asset-liability match for banks. 2. Debt waiver and interest subvention schemes will not have much impact on banks. 3. Recapitalization will ensure adequate capital for the growth of the public sector banks and insurance companies. 4. Rural Housing fund will boost the resource base of NHB for their refinance operation in rural housing sector. 5. Tax break for NPS trust will have positive impact on the same. ECONOMIC FACTORS Banking is as old as authentic history and the modern commercial banking are traceable to ancient times. In India, banking has existed in one form or the other from time to time. The present era in banking may be taken to have commenced with establishment of bank of Bengal in 1809 under the government charter and with government participation in share capital. Allahabad bank was started

in the year 1865 and Punjab national bank in 1895, and thus, others followed. Every year RBI declares its 6 monthly policy and accordingly the various measures and rates are implemented which has an impact on the banking sector. Also the Union budget affects the banking sector to boost the economy by giving certain concessions or facilities. If in the Budget savings are encouraged, then more deposits will be attracted towards the banks and in turn they can lend more money to the agricultural sector and industrial sector, therefore, booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking channels

GROWING ECONOMY / GDP

Indian economy has registered a growth of more that 9 per cent for last three year and is expected to maintain robust growth rate as compare to other developed and developing countries. Banking Industry is directly related to the growth of the economy.

The contributions of various sectors in the Indian GDP for 2007-2008 Agriculture:17% Industry:29% ServiceSector:54% It is great news that today the service sector is contributing more than are as follows:

half of the Indian GDP. It takes India one step closer to the developed economies of the world. Earlier it was agriculture which mainly contributed to the Indian GDP.

The Indian government is still looking up to improve the GDP of the country and so several steps have been taken to boost the economy. Policies of FDI, SEZs and NRI investment have been framed to give a push to the economy and hence the GDP.

MONSOON

The cumulative seasonal rainfall (1st June -30th September 2009) for the country as a whole is 23 per cent below the Long Period Average (LPA). The year 2009 is the most deficient year after 1972.

LOW INTEREST RATES Reserve Bank of India controls the Interest rate, which is based on several monetary policies. Recently RBI has reduced the interest rate which stimulates the growth rate of banking industry. As on September 11, 2009 Bank Rate was 6.00 per cent, the same as on the corresponding date of last year. Call money rates (borrowing & lending) were in the range of 1.50/3.47 per cent as compared with 5.25/11.00 per cent on the corresponding date of last year.

INFLATION RATES Inflation represents a rise in general level of prices of goods and services over a period of time. It leads to an erosion in the purchasing power of money. Resultantly, each unit of currency buys fewer goods and services Different fiscal and monetary policies have curbed the Inflation rate from the high of 12.63 per cent to 3.92 per cent. To fight against the slowdown of the Economy, Government of India & Reserve Bank of India took many fiscal as well as monetary actions. Clubbed with fiscal & monetary actions, decreasing commodity prices, decreasing crude prices and lowering interest rate, we expect that Indian Economy could again register a robust growth rate in the year 2009-10. Inflation stands at 3.92 per cent on 7th February 2009 against a high of 12.63 per cent on 9th August 2008.

SAVINGS AND ACCOUNTS As stated earlier, India continues to remain one of the high savings economies among the emerging market economies. Gross Domestic Savings (GDS) of the Indian economy constitutes savings of public, private corporate and household sectors. In the recent period the high growth performance of the Indian economy is driven by rise in savings

AGRICULTURE CREDIT

Agriculture has been the mainstay of our economy with 60% of our population deriving their sustenance from it. In the recent past, the sector has recorded a growth of about 4% per annum with substantial increase in plan allocations and capital formation in the sector. Agriculture credit flow was Rs 2,87,000 crore in 2008-09. The target for agriculture credit flow for the year 2009-10 is being set at Rs.3,25,000 crore. To achieve this, I propose to continue the interest subvention scheme for short term crop loans to farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7% per annum. For this year, the government shall pay an additional subvention of 1% as an incentive to those farmers who repay their short term crop loans on schedule. Thus, the interest rate for these farmers will come down to 6% per annum. For this, I am making an additional Budget provision of Rs 411 crore over Interim BE.

DEBT

RELIEF

FOR

FARMERS

The one-time bank loan waiver of nearly Rs 71,000 crore to cover an estimated 40 million farmers was one of the major highlights of the last Budget. Under the Agricultural Debt Waiver and Debt Relief Scheme (2008), farmers having more than two hectares of land were given

time upto 30th June, 2009 to pay 75% of their overdues. Due to the late arrival of monsoon, I propose to extend this period by six months upto 31st December, 2009 .

SOCIO CULTUREAL FACTORS Socio culture factors also affect the business. They show in which people behave in country. Socio-cultural factors like taboos, customs, traditions, tastes, preferences, buying and consumption habit of people, their language, beliefs and values affect the business. Banking industry is also operates under this social environment and it is also affect by this factor.

These factor are changing continuously peoples life style, their behavior, consumption pattern etc. is changing and also creating opportunities and threat for banking industry. There are some socioculture factors that affect banking in India have been analyzed below.

TRADITIONAL MAHAJAN PRATHA

Before the birth of the banks, people of India were used to borrow money local moneylenders, shahukars, shroffs. They were used to charge higher interest and also mortgage land and house. Farmers were exploited by these shahukars. But farmers need money. So, they did not have any choice other than going to shahukar and borrowing money from them in spite of exploitation by these people. But after emergence of banks attitude of people was changed. Traditional mahajan pratha still exist in India specially in rural areas. This affects the banking sector. Rural people afraid to go to bank to borrow money instead they prefer to borrow from shahukar whith whom they have relationships from the time of their fore fathers. Banking infrastructure is also week in some interior areas of India. So, this is reason it still exist.

SHIFT TOWARDS NUCLEAR FAMILY

Attitude of people of India is changing. Now, younger generation wants to remain separate from their parents after they get married. Joint families are breaking up. There are many reasons behind that. But banking sector is positively affected by this trend. A family need home consumer durables like freeze, washing machine, television, bike, car, etc.. so, they demand for these products and borrow from banks. Recently there is boost in housing finance and vehicle loans. As they do not have money they go for installments. So, banks satisfy nuclear families wants.

CHANGE IN LIFE STYLE Life style of India is changing rapidly. They are demanding high class products. They have become more advanced. People want everything car, mobile, etc.. what their fore father had dreamed for. Now teenagers also have mobile and vehicle. Even middle class people also want to have well furnished home, television, mobile, vehicle and this has opened opportunities for banking secter to tap this change. Every thing is available so it has become easy to purchase anything if you do not have lump sum.

POPULATION Increase in population is one of he important factor, which affect the private sector banks. Banks would open their branches after looking into the population demographics of the area. Percentage of deposit in any branches of banks depends upon the population demographic of that area. The population of India is about 102.90 is expected to reach about 119.70 cores in 2011. About 70% of population is below 35years of age. They are in the prime earning stage and this increase the earning of the banks. Total Deposits mobilized by the Private Sector Banks increased from Rs, 2,52,335 crore as on 31st March 2004 to Rs. 3,12,645 crore as on 31 st March 2005. Deposits showed a subdued growth during 2004-05.Income distributions also affects the operations and overall business of private sector banks.

LITERACY RATE Literacy rate in India is very low compared to developed countries. Illiterate people hesitate to transact with banks. So, this impacts negatively on banks. But there is positive side of this as well i.e. illiterate people trust more on banks to deposit their money, they do not have market information. Opportunities in stocks or mutual funds. So, they look bank as their sole and safe alternative. Literacy rate of India is around 65%

LITERACY RATE IN INDIA

year 1951 1961 1971 1981 1991 2001

persons 18.3 28.3 34.5 41.4 52.2 65.4

male 27.2 40.4 46.0 53.4 64.1 75.8

female 8.9 15.3 22.0 28.5 39.3 52.1

TECHNOLOGICAL FACTORS

TECHNOLOGY IN BANKS Technology plays a very important role in banks internal control mechanisms as well as services offered by them. It has in fact given new dimensions to the banks as well as services that they cater to and the banks are enthusiastically adopting new technological innovations for devising new products and services. ATM The latest developments in terms of technology in computer and telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed anytime, anywhere banking facilities.

Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc. Through ECS we can receive the dividends and interest directly to our account avoiding the delay or chance of loosing the post.

IT SERVICES & MOBILE BANKING Today banks are also using SMS and Internet as major tool of promotions and giving great utility to its customers. For example SMS functions through simple text messages sent from your mobile. The messages are then recognized by the bank to provide you with the required information. All these technological changes have forced the bankers to adopt customer-based approach instead of product-based approach

Technology advancement has changed the face of traditional banking systems. Technology advancement has offer 24X7 banking even giving faster and secured service.

CORE BANKING SOLUTIONS

It is the buzzword today and every bank is trying to adopt it is the centralize banking platform through which a bank can control its entire operation the adoption of core banking solution will help bank to roll out new product and services.

S.W.O.T ANALYSIS OF BANKING INDUSTRY

EXECUTIVE SUMMARY The rise of retail lending in emerging economies like India has been of recent origin. Asia Pacifics vast population, combined with high savings rates, explosive economic growth, and underdeveloped retail banking services, provide the most significant growth opportunities for banks. Banks will have to serve the retail banking segment effectively in order to utilize the growth opportunity. Banking strategies are presently undergoing various transformations, as the overall scenario has changed over the last couple of years. Till the recent past, most of the banks had adopted fierce costcutting measures to sustain their competitiveness. This strategy however has become obsolete in the new light of immense growth opportunities for banking industry. Most bankers are now confident about their high performance in terms of organic growth and in realising high returns. Nowadays, the growth strategies of banks revolve around customer

satisfaction. Improved customer relationship management can only lead to fulfilment of long-term, as well as, short-term objectives of the bankers. This requires, efficient and accurate customer database management and development of well-trained sales force to develop and sustain long-term profitable customer relationship. The banking system in India is significantly different from that of the other Asian nations, because of the countrys unique geographic, social, and economic characteristics. Though the sector opened up quite late in India compared to other developed nations, like the US and the UK, the profitability of Indian banking sector is at par with that of the developed countries and at times even better on some parameters. For instance, return on equity and assets of the Indian banks are on par with Asian banks, and higher when compared to that of the US and the UK. Banks in India are mainly classified into Scheduled Banks and NonScheduled Banks. Scheduled Banks are the ones, which are included in the second schedule of the RBI Act 1934 and they comply with the minimum statutory requirements. Non-Scheduled Banks are joint stock banks, which are not included in the second Schedule of the RBI Act 134, on account of the failure to comply with the minimum requirements for being scheduled.

STRENGTH Indian banks have compared favourably on growth, asset quality and profitability with other regional banks over the last few years. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period.

Policy makers have made some notable changes in policy and regulation to help strengthen the sector. These changes include strengthening prudential norms, enhancing the payments system and integrating regulations between commercial and cooperative banks.

Bank lending has been a significant driver of GDP growth and employment.

Extensive reach: the vast networking & growing number of branches & ATMs. Indian banking system has reached even to the remote corners of the country.

The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India.

In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region.

India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake)after merger of New Bank of India in Punjab National Bank in 1993, 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.

Foreign banks will have the opportunity to own up to 74 per cent of Indian private sector banks and 20 per cent of government owned banks.

WEAKNESS PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing, service operations, risk management and the overall organisational performance ethic & strengthen human capital. Old private sector banks also have the need to fundamentally strengthen skill levels. The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. Structural weaknesses such as a fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labour laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus.

Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital.

Impediments in sectoral reforms: Opposition from Left and resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growth prospects in the medium term.

OPPORTUNITY

The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. These require new skills in sales & marketing, credit and operations.

\banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. This will expose the weaker banks.

With increased interest in India, competition from foreign banks will only intensify.

Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks.

New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments; actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. Attracting, developing and retaining more leadership capacity

Foreign banks committed to making a play in India will need to adopt alternative approaches to win the race for the customer and build a value-creating customer franchise in advance of regulations potentially opening up post 2009. At the same time, they should stay in the game for potential acquisition opportunities as and when they appear in the near term. Maintaining a fundamentally long-term value-creation mindset.

reach in rural India for the private sector and foreign banks. 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.

the Reserve Bank of India (RBI) has approved a proposal from the government to amend the Banking Regulation Act to permit banks to trade in commodities and commodity derivatives.

Liberalisation of ECB norms: The government also liberalised the ECB norms to permit financial sector entities engaged in infrastructure funding to raise ECBs. This enabled banks and financial institutions, which were earlier not permitted to raise such funds, explore this route for raising cheaper funds in the overseas markets.

Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has allowed them to raise perpetual bonds and other hybrid capital securities to shore up their capital. If the new instruments find takers, it would help PSU banks, left with little headroom for raising equity. Significantly, FII and NRI investment limits in these securities have been fixed at 49%, compared to 20% foreign equity holding allowed in PSU banks.

THREATS

Threat of stability of the system: failure of some weak banks has often threatened the stability of the system.

Rise in inflation figures which would lead to increase in interest rates.

Increase in the number of foreign players would pose a threat to the PSB as well as the private players.

Vision To emerge as the most preferred bank in the country in terms of brand, values, principles with core competence in fostering customer aspirations, to build high quality assets leveraging on the strong and vibrant technology platform in pursuit of excellence and customer delight and to become a major contributor to the stable economic growth of the nation.

Mission To provide a secure, agile, dynamic and conducive banking environment to customers with commitment to values and unshaken confidence, deploying the best technology, standards, processes and procedures where customer convenience is of significant importance and to increase the stakeholders value.

i. Salient features of Know Your Customer Norms and the need for production of documents for opening of accounts. (KYC Norms)

Objectives of KYC Norms: The main objective of the KYC policy is to prevent banks from being used, intentionally or unintentionally, by criminal elements for money laundering activities. In order to arrest money laundering, where Banks are mostly used in the process, it is imperative that they know their customers well. RBI has issued the KYC guidelines under Section 35 (A) of the Banking Regulation Act, 1949 and any contravention of the same will attract penalties under the relevant provisions of the Act. Thus, the Bank has to be fully compliant with the provisions of the KYC procedures. KYC procedures also enable Banks to know and understand their customers and their financial dealings better which in turn help them manage their risks

prudently. Know Your Customer is the principle on which the banking system operates to avoid the pitfalls of operational, legal and reputation risks and consequential losses by scrupulously adhering to the various procedures laid down for opening and conduct of accounts.

For the purpose of KYC, a customer is defined as: A person or entity that maintains an account and/or has a business relationship with the bank. One on whose behalf the account beneficial owner) is maintained (i.e., the

Beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc., as permitted under the law Any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.

To achieve the objectives of KYC guidelines, the following four key elements have been made as the basis:

1. Customer Acceptance Policy 2. Customer Identification procedures 3. Monitoring of transactions 4. Risk Management

Customer Acceptance Policy:

Our Banks Customer Acceptance Policy is based on two principles namely

No account is opened in anonymous or fictitious/ benami name(s) Customers are categorized based on risk perceptions in terms of the nature of business activity, location of customer and his clients, mode of payments, volume of turnover, social and financial status etc.

Customer profile: Branches should prepare a profile for each new customer. The customer profile contains information relating to Customers social /financial status, nature of business activity, information about his clients business and their location etc. However, while preparing customer profile, branches should take care to seek only such information from the customer which is relevant and should not be intrusive. The customer profile will be a confidential document and details contained therein shall not be divulged for cross selling and any other purposes. The customer profile should be updated on periodical basis.

Customer Identification procedures: Customer identification means identifying the customer and verifying his/her/its identity by using reliable, independent source documents, data or information. Banks need to obtain sufficient information to establish the identity of each new customer and the branches must be able to satisfy the competent authorities that due diligence was observed based on the risk profile of the customer in compliance with the extant guidelines in place. In the competitive scenario, individuals are increasingly averse to provide a third party introduction. In respect of Savings Bank and Term Deposit accounts of individuals, Banks would require following documents to verify the identity and location of the customer.

A. Passport alone where the address on the passport is the same as the address on the account opening form OR B. Any one document from each of the below 2 lists, for a photo identity and proof of residence/address:

List I (latest/ recent) for legal List II (latest/ recent) for correct name permanent address. and any other name(s) used. 1. Passport where the address differ 2. Voters Identity Car 3. PAN car 4. Driving License 5. Govt./ Defense ID card 6. ID cards of reputed employers 7. Letter from a recognized public authority or public servant verifying the identity and Residence of the customer.* 2) Bank Account statement 3) Income/ Wealth Tax assessment Order 4) Credit Card statement 5) Electricity bill 6) Ration car 7) Letter from employer* 1) Telephone bill

Subject to the Banks satisfaction. 1. In case of joint independently accounts, applicants are required to

establish their identity and address

2. Care of .. or incomplete address will not be accepted. 3. Ration card is not to be used as a document for establishing identity or proof of residence, as per directives of Government of India.

C. In respect of Nonresident accounts, High Net Worth customers and current accounts, customers would be asked to submit additional information and documentary evidence, (besides the normal documents mentioned in the List I and List II in column B).

Type of Customers/ accounts I. For opening Non Resident Account

Additional information/ Document Introduction in the form of passport and/ or by another bank/Indian Embassy/Notary Public/Person known to the account opening branch.

ii. For opening accounts of High In addition to obtension of Net worth customers documents/ information for identityand location of the iii. For Current Accounts customer in addition to documents iv. For accounts of other than mentioned individuals in List I and List II, introduction by an existing account holder or by a person known to the branch.

D. For customers that are legal persons or entities, we furnish the features required by the Bank for verification and also the documents to be obtained by the Bank for opening of accounts:

Features for verification of the Documents required for the Bank Bank Accounts of partnership firm Legal Name Address Registration registered Partnership deed certificate if

Names of all partners and Power of Attorney granted to a partner or an employee of the firm their to transact business on its behalf. addresses Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses Telephone numbers of the Telephone bill in the name of firm and partners firm

and partners Accounts of companies Name of the Company o Certificate of incorporation and Memorandum Association Principal place of business & Articles of

o Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account

Mailing address Company

of

the o Power of Attorney granted to its managers, officers or employees to transacts business on its behalf

Telephone/ FAX number

o Copy of PAN allotment letter

o Copy of Telephone bill

Quoting of PAN As per Clause (C) of rule 114 B of Income Tax rules 1962, PAN (Permanent Account Number) or GIR number (General Index Register Number where PAN has not been allotted) allotted by the Income Tax Department has to be quoted:

i. In the account opening forms pertaining to time deposits exceeding Rs.50,000/- and / or ii. For opening of account

Hence, Banks would obtain the PAN / GIR number of the customer (whether individual or otherwise) for noting in the opening form. Branches have already been advised to issue / pay travelers cheques, demand drafts, mail transfers, telephonic transfers, electronic funds transfers and other remittances for Rs.50,000/- and above only by debit/ credit to customers accounts or against cheques and not against cash. Further, the applicants (whether customers or not) for the above transactions for amount of Rs.50000/- and above, should affix PAN (Permanent Account Number allotted by Income Tax authorities) on the applications. In case PAN or GIR Number has not been allotted or the person is not an Income Tax Assesse, a declaration in Form No. 60 or 61 as the case may be, would be obtained.

Guidelines for opening of new accounts:

Opening of account amounts to a contract between the bank and the customer in which the parties assume certain obligations and become entitled to certain legally enforceable rights. Hence, the Bank has to ensure that the prospective customer has contractual capacity and

also has any restrictions are imposed by any law on the contractual capacity of the prospective customer before opening deposit account for him/her.

The prospective account holder should normally be required to fill in the account opening form in the presence of banks official. The account will not be normally opened without meeting between bank official and the customer.

Following declaration is available in our current account opening form.

I/We am/are not enjoying credit facilities with any other bank or any other branch of your Bank, and I/we undertake to inform you in writing, as soon as any credit facility is availed by us from any other Bank or any other branch of your Bank (OR) I/We am/are enjoying credit facilities with the bank(s)/other branch(es) of your bank as per details given in the enclosed sheet.

In the case of a prospective customer who is a corporate or large borrower enjoying credit facilities from more than one bank, branches should carry out the due diligence while opening the account. Branches should inform the fact of opening of account to the consortium leader, if the account is under consortium, or the banks concerned, if it is under multiple banking arrangement. Branches may open current accounts of prospective customers in case no response is received from the existing bankers after a minimum waiting period of a fortnight. If response is received within a fortnight, branches should assess the situation with reference to the information provided by the bank concerned on the prospective customer. Branches are not required to solicit a formal No objection certificate from the existing bankers consistent with the true freedom to the customer of banks as well as needed due diligence by the bank on the customer.

New accounts should be opened only with cash. In special cases (e.g., NRI, Government accounts, etc.) cheques on our Bank drawn in favour of the prospective customer may be accepted for opening the account. No account should be opened with cheques in favour of some third party and endorsed in favour of the prospective customer.

Obtention of photographs:

Two copies of latest passport size photographs should be obtained from all the account holders opening deposit accounts such as SB, Current Account, Fixed deposit, RD, RIP etc. One copy of the photograph obtained should be kept along with the opening form after obtaining the depositors signature, name and account number on the reverse of the photograph duly attested by the Officer. The second copy (with the same details marked therein) should be kept along with the specimen signature card/ in a separate cover.

In the case of joint account and partnership accounts, photographs of all depositors/ partners authorized to operate the account should be obtained. In the case of operating accounts, viz., SB, CA, the photographs should be obtained from all the persons authorized to operate the accounts. In case of Limited Companies, Clubs, Associations, Societies, Trust, Institutions etc., the photograph of person(s)/ official(s) who are authorized to operate the account should be obtained. Photographs need not be returned at the time of closure of the account and they need to be retained along with the other records.

Exemptions from obtaining photographs: a. For accounts of Banks, Government Departments and Local Bodies the photographs need not be insisted. b. Photographs need not be obtained in the case of SB account operated by withdrawal slips only (non-cheque operated accounts) and in case of term deposits of Rs.10000/- and below.

c. Photographs need not be obtained for existing account holders as on 31.12.1993 and for employees accounts.

However, when a fresh account is opened by an existing customer or additional name is added to existing account, then photographs should be obtained from such a customer or from all the joint account holders who are authorized to operate the account.

Introduction of accounts to the Bank

It is essential that the introducer should know full well the prospective account holder whom he/she is introducing for a sufficiently long time. The introducer should be in a position to identify or be able to give more particulars about the account holder from his personal knowledge, when there arises any occasion at a later date. Introducer should be aware of his/her responsibility on the implications of introducing an account. Where the introducer was not present while introducing the customer at the time of opening the account, no cheque/draft shall be collected till a confirmation of being introduced the account is received.

Relaxed KYC Procedure

Refers to acceptance of an introduction in lieu of full KYC procedure subject to certain conditions prescribed.

This relaxation is applicable for Low Income Group customers, individuals falling under the 'No frill category, persons affected by natural calamities like floods, cyclone, tsunami, etc.

Low Income group customers are those who keep balances not exceeding Rs.50000/- in all their accounts (FDR/CA/SB) taken together and the total credit summation in all the accounts taken together is not expected to exceed Rupees One Lakh (Rs.100000/-) in a year. For these customers, branches are permitted to open accounts subject to the following conditions:

i.

An introduction (in lieu of the KYC documents) from another account holder who has been subjected to full KYC procedure should be given.

ii. The introducer's account with the Bank should be at least six months old and should show satisfactory transactions. iii. The photograph of the customer who proposes to open the account and his address need to be certified by the introducer.

When, at any point of time, the total balance in all his/her accounts (FDR/SB/CA) with the Bank taken together exceeds Rupees Fifty thousands (Rs.50000/-) or total credit summation in all the accounts exceeds Rupees one lakh (Rs.100000/-) in a year, no further transactions will be permitted until the full KYC procedure is completed.

KYC norms Customer Identification documents for opening of accounts of close relatives (eg. Wife, son, daughter, and parents, etc., who live with their husband, father/ mother and son, as the case may be) at the same address: RBI observed that close relatives (eg. Wife, son, daughter, and parents, etc., who live with their husband, father/ mother and son, as the case may be) at the same address are finding it difficult to open account, as the utility bills (Telephone bill, Electricity Bill, Ration Card etc.), required for address verification are not in their name. In such cases, RBI had advised that banks can obtain an identity document and a utility bill of the relative with whom the prospective customer is living along with a declaration from the relative that the

said person wanting to open an account is a relative and is usually staying with him/her at the same address.

Closure of accounts on account of non-cooperation from the customer

If the Bank is not able to adhere to the KYC norms in a particular account due to non cooperation by the customer or non-reliability of the data/ information furnished to the Bank, it may close the account, after giving due notice to the customer explaining the reasons for such a decision.

Customer Education:

As implementation of KYC procedure requires branches to demand certain information from customers which may be of personal nature or which has hitherto never been called for, it may sometimes lead to a lot of questioning by the customer as to the motive and purpose of collecting such information. Therefore specific literature/ pamphlets etc., will be prepared and distributed to branches so as to educate the customer of the objectives of the KYC programmed so that it is implement smoothly without giving room for customer complaints.

BUSINESS MODEL OF INDIAN BANK

Banking and financial services have increasingly been using information technology to improve efficiency, cut costs and mitigate risks. But now they are using it to go a few steps further. Having successfully implemented the core systems, banks in India are now focused on differentiating themselves by delivering superior customer experience across all touch points, Mr Shanker Ramamurthy, General Manager of Global Banking & Financial Markets at IBM Corporation, tells Business Line.

Future growth for banks in emerging markets such as India is likely to hinge on financial inclusion of the unbanked. As in the case of FMCG firms and telecom service providers, the hinterland is what is offering growth prospects amid a perceptible saturation in urban markets. Do you see technology applications having a major role in taking banking to the masses? Technology and business model transformation are the two most powerful tools for taking banking to the masses. Traditional banking technology and business models were developed around the characteristics of urban areas: high density of clients, relative proximity to cash distribution centres, availability of infrastructure from a telecommunications perspective. Not surprisingly, the economics of these models are not appropriate for serving clients in rural areas. Technology, however, has enabled new ways to interact with rural clients at significantly lower cost levelsit is important to note that technology by itself is not sufficient to reach these new client segments; a consistent business model transformation is also required to capture this growth in the banking industry. What are the key drivers of business transformation across the financial markets? There are three main trends driving business transformation in the financial markets space worldwide. First, clients and regulators alike are pushing for more transparency in the marketplace, which is driving the demand for new regulation. Second, the 2008 financial crisis revealed that banks need to become more sophisticated in understanding and managing risk effectively. Today, many of the basic assumptions and models are being re-thought and will continue to be re-examined. Third, banks and financial services companies have to figure out how to rebuild trust between financial institutions and their clients. The industry is going to be grappling with these themes for several years and the industry ecosystem is going to look quite different as the themes play out over the next several years. IBM is said to be doing some interesting work with the Bank of China, London. Could you elaborate on it? Besides measurable deliverables such as reduced paper consumption, does technology intervention involve streamlining the bank's business strategy or improving the service levels for its customers?

The Bank of China in London was manually processing over 3,000 paper messages a day which posed avoidable operational risks, and was costly in terms of manpower and paper consumption. The bank came to IBM for help to move to a digitised model that would help the company slash messaging-related paper use from about 50 a day to about 2.5, or about 18,000 annually. With new electronic systems in place, BoC employees now have access to messages through an online search capability, allowing them to monitor transactions as they are sent and received by the bank. This new system dramatically helps the bank boost the core efficiency of its settlement reporting process. What are the Smarter Banking' initiatives that have been launched from IBM's array of products? Smarter Banking is an IBM initiative to help banks adopt solutions to transform the efficiency of their enterprises, cut costs and mitigate risk. A smarter bank anticipates client needs and delivers innovative products faster and more consistently than the competition. It has full visibility, in real-time, of its risk position and responds quickly and nimbly to changes in market conditions. In the insurance space, IBM has helped a major insurance provider in Japan, Dai-ichi Life, transform its claims processing system to boost customer service and shorten the claims lifecycle. Working on a first-of-a-kind project, IBM researchers developed a new software technology that used semantic analysis to give Dai-ichi Life a clear view of what was going on inside its claims processes. The industry is going to be grappling with these themes for several years and the industry ecosystem is going to look quite different as the themes play out over the next several years. In India, are there any specific instances of working with a banking sector client? Also, are there any specific IT interventions that you think are relevant in the context of the Indian banking sector? IBM is a key partner to the leading banks offering a broad range of solutions and services that are relevant for their current and future business needs.

The Indian banks use IBM technology to run core transaction systems, integrate applications and payment systems, and ensure business continuity by managing their IT infrastructure and information security. Having successfully implemented the core systems, banks in India are now focused on differentiating themselves by delivering superior customer experience across all touch points. NEW TECHNOLOGY In this area, IBM is leveraging its data warehousing and business analytics technology to help banks understand their customers better, customise marketing campaigns, reduce fraud and manage enterprise risk. Indian banks are also preparing themselves to compete with the best in the business both in India and globally and we have helped through benchmarking their IT capability and suggesting a roadmap for the future. IBM's IBV research also shows that Indian banks, as well as other banks in the growth markets, are seeing encouraging growth rates of 20-30 per cent. Moving ahead, we will also see greater use of mobile technology being leveraged for financial inclusion and payments

DIFFERENT SERVICES PROVIDED BY BANKS IN INDIA

Account types & other Services

Personal Banking: Services

Deposit Scheme

Other Different

Gold Banking

____

Current Account

NRI

Banking

____

Saving Account banking

International

____

Term Deposit

Corporate

Banking (Other Deposit Scheme as per the cust. convince) SSI Banking

Personal Finance

Small Business

Finance ____ Housing Loan Development

Banking ____ ____ ____ ____ ____ ____ Car Loan Educational Loan Personal Loan Festival Loan Property Loan Other Loans Other Services

(As per banks and its customer base)

Services ATM Services Credit Card Services Internet Banking Services

Phone Banking Services Locker Services PPF Services

Deposit Scheme:

Current Account Current Account is the accounts which useful to business, a transparent and efficient banking services support to meet its day-to-day financial requirements. It offers to serve businesses financial requirements and giving maximum financial leverage and save time and cost.

Saving Accounts: Saving bank accounts is for the people who want to save for something in the future. So its necessity characteristics are safe and accessible anytime, anyplace to help meet their needs. So banks are those who help them in planning and saving their future financial requirements. Here, savings are completely liquid, and earn competitive interest in our safety.

Term Deposit Accounts: With the help of the term deposit one can earn a higher income on their surplus cash by investing this money in this type of accounts. Scheduled bank gives promise of security

and trust and help you to earn extra income with your hard earned money.

Wide Choice in Period of Deposit Flexibility in period of term deposit from 15 days to 10 years It gives the benefits of Safety, Liquidity, Transferability and Flexible and Timely payment of Interest

Personal Finance: Banks second function is to give finance and through it banks can earn hand some return and generate the profits for from it. Now days banks are giving finance on following different ways to satisfy the financial needs of the customers.

Following are the different ways through the bank give finance to its customers:

-Housing Loan, Car Loan, Personal Loan, Educational Loan, Festival Loan, Property Loan and etc, ____

SERVICES:

In the globally competition time service is quite important for the any sector and having in nature of service sector the services of the banking sector is also most important part following are the services that providing by the banking sectors various banks but it differ from the bank to banks. ATM Services Credit Card Services Internet Banking Services Phone Banking Services Locker Services PPF Services

7: Porter's Five Forces Model of Competition

The nature of competition in an industry in large part determines the content of strategy, especially business-level strategy. Based as it is on the fundamental economics of the industry, the very profit potential of an industry is determined by competitive interactions. Where these interactions are intense, profits tend to be whittled away by the activities of competing. Where they are mild and competitors appear docile, profit potential tends to be high. Yet a full understanding of the elements of competition within an industry is easy to overlook and often difficult to comprehend.

Porter has identified five basic forces that collectively describe the state of competition in an industry: 1. The intensity of rivalry among competitors 2. The threat of new entrants to the market 3. The amount of bargaining power possessed by the firm's/industry's suppliers 4. The amount of bargaining power possessed by the firm's/industry's customers 5. The extent that substitute products present a threat to a firm's/industry's products These forces assist in identifying the presence or absence of potential high returns. The weaker are Porter's five forces, the greater is the opportunity for firms in an industry generally, to experience superior how profitability. forces More affect understanding these

competition within an industry allows the strategist to identify the most advantageous strategic position. The actors within an industry on whom these forces exert pressure are, respectively, the industry's competing firms themselves, potential new entrants to the industry's markets, suppliers (vendors), customers, and makers of substitute products. Obviously, the starting point for conducting an analysis of the five forces of competition is to identify all the competitors, potential new entrants, major suppliers, the demographics of customers, and makers of and nature of substitute products. Competitors would not only have to be identified, but various distinguishing data about the industry would also have to be specified. For each competitor this data would include market share,

product

line

differences/similarities,

market

segments

served,

price/quality relationships represented by products, growth/decline trends, financial strength differences, and any other information that will help describe the industry.

Porters FIVE-FORCE analysis for Indian banking industry

BARGAINING POWER OF SUPPLIERS -Low supplier bargaining power THREAT OF NEW ENTRANT -Low barriers to entry -Government policies are supportive -Few alternatives available THREAT OF SUBSTITU TES High threat from substitutes Like

INDUSTRY RIVARLY Intense

BARGAINING POWER OF CUSTOMERS -High bargaining power -Low switching cost -Large no. of alternatives -Homogeneous service by

RIVALRY AMONG THE INDUSTRY

Rivalry in banking industry is very high. There are so many private, public, co-operative and non-financial institutions operating in the industry. They are fighting for same customers. Due to government liberalisation and globalization policy, banking sector became open for everybody. So, newer and newer private and foreign firms are opening their branches in India. This has intensified the competition. The no. of factors have contributed to increase rivalry those are:

1.A large no. Of banks There are so many banks and non-financial institutions fighting for same pie, which has intensified competition.

2.High market growth rate India is seen as one of the biggest market place and growth rate in Indian banking industry is also very high. This has ignited the competition.

3.low switching cost

Customer switching cost is very low. They can easily switch from one bank to another bank and very little loyalty exists.

4.indifferentiate services Almost every bank provides similar services. No differentiation exists. Every bank tries to copy each other services and technology, which increases the level of competition.

5.high fixed cost

6.High exit barrier High exist barriers humiliate banks to earn profit and retain customers by providing world-class services.

7. Low government regulations: There are low regulation exist to start a new business due LPG policy adopted by India. So, sector is open for everybody.

BARGAINING POWER OF SUPPLIERS

Suppliers of banks are depositors. These are those people who have excess money and prefer regular income and safety. In banking industry Suppliers have low bargaining power. Following are the reasons for low bargaining power of suppliers.

1.Nature of suppliers Suppliers of banks are generally those people who prefer low risk and those who need regular income and safety as well. Bank is best place for them to deposit their surplus money. They believe that banks are very safe than other investment alternatives. So, they do not consider other alternatives very seriously, which lower their bargaining power. 2.few alternatives Suppliers are risk averters and want regular income. So, they have few alternatives available with them to invest like Treasury bills, government bonds. So, few alternatives lower their bargaining power. 3.RBI Rules and Regulations Banks are subject to RBI rules and regulations. Banks have to behave in the way that RBI wants. So, RBI takes all decisions relating to interest rates. This reduces suppliers bargaining power.

4. Suppliers are not concentrated Banking industrys suppliers are not concentrated. There are numerous suppliers with negligible portion to offer. So, this reduces their bargaining power. If they were concentrated then they can bargain with banks or can collectively invest in other no-risky projects.

5.Forward integration Forward integration is possible like mutual funds, but only few people now about this. Only educated people can forwardly integrate where as large no. Of suppliers are unaware about these alternatives.

BARGAINING POWER OF CUSTOMERS

Customers of the banks are those who take loans, advances and use services of banks. Customers have high bargaining power. Following are the reasons for high bargaining power of customers.

1. Large no. Of alternatives Customers have very large no. of alternatives. There are so many banks, which fight for same pie. There are many non-financial institutions like ICICI, HDFC, IFCI etc., which has also jumped into these business. There are foreign banks, private banks, cooperative banks and development banks together with the specialized financial companies that provide finance to customers. These all increase preferences for customers.

2.low switching cost

Cost of switching from one bank to another is low. Banks are also providing zero balance account and other types of facilities. They are free to select any banks service. Switching costs are becoming lower with Internet Banking gaining momentum and as a result consumers loyalties are harder to retain.

3.undiffernciated service Banks provide merely similar services. There is no much difference in services provided by different banks. So, bargaining power of customers increases. They cannot be charged for differentiation.

4.Full information about the market Customers have full information about the market due to globalization and digitization consumers have become advance and sophisticated. They are aware with each market conditions. So, banks have to be more competitive and customer friendly to serve them.

THREAT OF NEW ENTRANT

Barriers to an entry in banking industry no longer exist. So, lots of private and foreign banks are entering in the market. Competitors can come from any industry to disintermediate banks. Product differentiation is very difficult for banks

and exit is difficult. So, every bank strives to survive in highly competitive market. So, we see intense competition and mergers and acquisition. Government policies are supportive to start a new bank. There are less statutory requirements needed to start a new venture. Every bank tries to achieve economies of scale through use of technology and selecting and training manpower.

Threat of substitutes

Competition Microsoft are

from to

the

non-banking the

financial banks as

sector is increasing rapidly. Sony and Software giants such as attempting replace intermediaries. The threat of substitute products is very high. These new products include credit unions and investment houses. One feature of using an investment house is that the fees that the investment house charges are tax deductible, where as a bank it is considered a personal expense, which are not tax deductible. The rate of return with using investment houses is greater than a bank. There are other substitutes as well for banks like mutual funds, stocks (shares), government securities, debentures, gold, real estate etc. so, there is a high threat from substitute.

Conclusion:

Indian banking sector is one of the highly competitive sectors where high growth rate and high degree of competition exist. Low entry

barriers and high degree of competition exist. Low entry barriers and high exit barriers ignites competition in this industry. Every bank strives to survive in the shadow of these barriers. There are so many substitutes available with customers and they have high bargaining power where as suppliers i.e. depositors have low power in their hands.

STRATEGIES ADOPTED BY INDIAN BANK

1) INTERNAL CONSULTANT/CHANGE AGENT

To act as catalyst for change in attitudes and orientation of banking staff and to provide expertise and consultative support

2) FEEDBACK SUPPLIER

To capture and structure feedback from trainees and from the market

3) THINK TANK

To provide expert and informed suggestions, model, business strategies, analysis of market developments from a banker perspective

4) RESEARCH AND DEVELOPMENT ROLE

To carry out research on contemporary subjects which are relevant to the banks short term and medium term and operational needs and policy formulation