Banking Products & Services

Banking In Financial System

College: K.J.

Somaiya College Of Science & Commerce Maam

Given By: Bharti Group Members:

>Rushabh Doshi (04) >Harsh Joshi (06) >Jigar Shah (13) >Krishnakant Sharma (15) >Siddharth Suryavanshi (23)

TOPIC:

ACKNOWLEDGEMENT:
Anyone who has made a project knows that it is quite impossible, to acknowledge every individual who has contributed in the work. I feel it is difficult to express in words my profound sense of gratitude to most respected persons who helped me make this work possible. I acknowledge my gratitude to

respected faculty-

:BHARTI MA]AM9
For this kind of topic (so vast and familiar) we do not require a lot of researching to be done. This kind of topic relies basically on your imagination, the more we can think about it, the more we can write. Then to, internet is useful to extract precise information to give our project a professional touch required at this level.

CONTENTS:
Introduction to Banking: History of Banking: Introduction to Banking Products: Banking Products: -Deposit Accounts -Bank Loans -Advisory Services -Other Services

INTRODUCTION OF BANKING:
The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or the nationalized banks have acquired a place of prominence and has since then seen tremendous progress. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look anew at their existing portfolio offering. Conservative banking practices allowed Indian banks to be insulated partially from the Asian currency crisis. Indian banks are now quoting al higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble footed in approach and armed with efficient branch networks focus primarily on the high revenue niche retail segments.

The Indian banking has finally worked up to the competitive dynamics of the new Indian market and is addressing the relevant issues to take on the multifarious challenges of globalization. Banks that employ IT solutions are perceived to be futuristic and proactive players capable of meeting the multifarious requirements of the large customers base. Private banks have been fast on the uptake and are reorienting their strategies using the internet as a medium The Internet has emerged as the new and challenging frontier of marketing with the conventional physical world tenets being just as applicable like in any other marketing medium. The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Indian nationalized banks (banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The Indian banking can be broadly categorized into nationalized, private banks and specialized banking institutions. The Reserve Bank of India Act as a centralized body

monitoring any discrepancies and shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The nationalized banks (i.e. governmentowned banks) continue to dominate the Indian banking arena. Industry estimates indicate that out of 274 commercial banks operating in India, 223 banks are in the public sector and 51 are in the private sector. The private sector bank grid also includes 24 foreign banks that have started their operations here. Under the ambit of the nationalized banks come the specialized banking institutions. These co-operatives, rural banks focus on areas of agriculture, rural development etc., Unlike commercial banks these co-operative banks do not lend on the basis of a prime lending rate. They also have various tax sops because of their holding pattern and lending structure and hence have lower overheads. This enables them to give a marginally higher percentage on savings deposits. Many of these cooperative banks diversified into specialized areas (catering to the vast retail audience) like car finance, housing loans, truck finance etc. in order to keep pace with their public sector and private counterparts, the co-operative banks too have invested heavily in information technology to offer highend computerized banking services to its clients.

HISTORY OF BANKING:
The first banks were the merchants of the ancient world that made loans to farmers and traders that carried goods between cities. The first records of such activity dates back to around 2000 BC in Assyria and Babylonia. Later in ancient Greece and during the Roman Empire lenders based in temples would make loans but also added two important innovations: accepted deposits and changing money. During this period there is similar evidence of the independent development of lending of money in ancient China and separately in ancient India. Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397. The development of banking spread through Europe and a number of important innovations took place in Amsterdam during the Dutch Republic in the 16th century and in London in the 17th century. During the 20th century developments in telecommunications and computing resulting in major changes to way banks operated and allowing them dramatically increase in size and geographic spread.

INTRODUCTION OF BANKING PRODUCTS:

Banks in India have traditionally offered mass banking products. Most common deposit products being Savings Bank, Current Account, Term deposit Account and lending products being Cash Credit and Term Loans. Due to Reserve Bank of India guidelines, Banks have had little to do besides accepting deposits at rates fixed by Reserve Bank of India and lend amount arrived by the formula stipulated by Reserve Bank of India at rates prescribed by the latter. PLR (Prime lending rate) was the benchmark for interest on the lending products. But PLR itself was, more often than not, dictated by RBI. Further, remittance products were limited to issuance of Drafts, Telegraphic Transfers, Bankers Cheque and Internal Transfer of funds. In view of several developments in the 1990s, the entire banking products structure has undergone a major change. As part of the economic reforms, banking industry has been deregulated and made competitive. New players have added

to the competition. IT revolution has made it possible to provide ease and flexibility in operations to customers. Rapid strides in information technology have, in fact, redefined the role and structure of banking in India. Further, due to exposure to global trends after Information explosion led by Internet, customers - both Individuals and Corporates - are now demanding better services with more products from their banks. Financial market has turned into a buyer's market. Banks are also changing with time and are trying to become one-stop financial supermarkets. Market focus is shifting from mass banking products to class banking with introduction of value added and customized products. A few foreign & private sector banks have already introduced customized banking products like Investment Advisory Services, SGL II accounts, Photo-credit cards, Cash Management services, Investment products and Tax Advisory services. A few banks have gone in to market mutual fund schemes. Eventually, the Banks plan to market bonds and debentures, when allowed. Insurance peddling by Banks will be a reality soon. The recent Credit Policy of RBI announced on 27.4.2000 has further facilitated the entry of banks in this sector. Banks also offer advisory services termed as 'private banking' - to "high relationship - value" clients.

BANKING PRODUCTS:
1-DEPOSIT ACCOUNTS:
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank, and represent the amount owed by the bank to the customer. Savings Bank Account: If a person has limited income and wants to save money for future needs, the Saving Bank Account is most suited for his purpose. This type of account can be opened with a minimum initial deposit that varies from bank to bank. Money can be deposited any time in this account. Withdrawals can be made either by signing a withdrawal form or by issuing a cheque or by using ATM card. Normally banks put some restriction on the number of withdrawal from this account. Interest is allowed on the balance of deposit in the account. The rate of interest on savings bank account varies from bank to bank and also

changes from time to time. A minimum balance has to be maintained in the account as prescribed by the bank. Current Deposit Account: Big businessmen, companies and institutions such as schools, colleges, and hospitals have to make payment through their bank accounts. Since there are restriction on number of withdrawals from savings bank account, that type of account is not suitable for them. They need to have an account from which withdrawal can be made any number of times. Banks open current account for them. Like savings bank account, this account also requires certain minimum amount of deposit while opening the account. On this deposit bank does not pay any interest on the balances. Rather the accountholder pays certain amount each year as operational charge. For the convenience of the accountholders banks also allow withdrawal of amounts in excess of the balance of deposit. This facility is known as overdraft facility. It is allowed to some specific customers and upto a certain limit subject to previous agreement with the bank concerned. Fixed Deposit Account: Many a time people want to save money for long period. If money is deposited in savings bank account, banks allow a lower rate of interest. Therefore, money is deposited in a fixed deposit account to earn an interest at a higher rate. This

type of deposit account allows deposit to be made of an amount for a specified period. This period of deposit may range from 15 days to three years or more during which no withdrawal is allowed. However, on request, the depositors can encash the amount before its maturity. In that case banks give lower interest than what was agreed upon. The interest on fixed deposit account can be withdrawn at certain intervals of time. At the end of the period, the deposit may be withdrawn or renewed for a further period. Banks also grant loan on the security of fixed deposit receipt. Recurring Deposit Account: This type of account is suitable for those who can save regularly and expect to earn a fair return on the deposits over a period of time. While opening the account a person has to agree to deposit a fixed amount once in a month for a certain period. The total deposit along with the interest therein is payable on maturity. However, the depositor can also be allowed to close the account before its maturity and get back the money along with the interest till that period. The account can be opened by a person individually or jointly with another, or by the guardian in the name of a minor. The rate of interest allowed on the deposits is higher than that on a savings bank deposit but lower than the rate allowed on a fixed deposit for the same period.

2-BANK LOANS:
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. Personal Loans: Personal Bank Loans are the credits which a bank offers to its customer to meet his instant personal requirements ranging from home renovation to purchasing of new laptop, a getaway with family or for reimbursing the credit card liabilities, for buying a new car or for child's education, etc. Personal loan simplifies the cash flow of the customer besides handling its immediate needs. Home Loans: To buy a dream home is the dream of every person. Home Loan has helped in changing every Indian's dream into reality. However, the every increasing property rates and escalating rates of interest sometimes act as an obstacle. Therefore, before opting for a home loan it is advisable to check every prospect of the product.

Loans Against Property: Property Loan or Loan against property is a kind of loan which is allowed by the bank on the condition of keeping the customer's current assets as a security with them. These loans are very useful when other resources of financing get exhausted. It is significant to recognize that a loan against property is not similar to mortgage. While loan against property is obtained from the bank by allocating customer's current assets as a security against the credit, a mortgage is an instrument for purchasing an asset. Business Loans: Before starting a business, the entrepreneur should be mentally and financially prepared to encounter the fiscal setbacks during the process. To bail the companies out from the fiscal crunch, several banks in India offers business Loans both for meeting urgent official growth and expenses. Car Loans: Every individual want to own a car. Hence, the need for car loans emerges at some point or the other. While selecting a car loan it is always wise to scrutinize the various options accessible in the market besides analyzing its fiscal suitability.

Education Loans: Education Loans offered by various banks in India provide much required assistance to fund your child's education when all other resources of finance get exhausted. Education Loans are offered by almost every Indian bank thus providing ample opportunity to students to undergo higher education both in India and abroad. Cash Credit: Cash Credit is also known as Working Capital .Cash Credit is a facility to withdraw the amount from the business account even though the account may not have enough credit balance. The limit of the amount that can be withdrawn is sanctioned by the bank based on the business cycle of the client and the working capital gap and the drawing power of the client. This drawing power is determined, based on the stock and book debts statements submitted by the borrower at monthly intervals against the security by hypothecating of stock of commodities and/ or book debts. The excess withdrawal of cash is made generally on demand from the customer and the customer has to pay interest on the excess amount he/she has withdrawn.

Overdraft: An Overdraft facility allows the customer to withdraw the money even if the amount to be withdrawn is in excess of the credit balance available. This facilitates the customer to honor the payment to be made to the party though the account may not have sufficient balance. The maximum overdraft limit is sanctioned by the bank and is agreed upon by the customer. The excess amount withdrawn is charged interest upon and must be settled by the customer on demand from the bank. Based on the security provided to the bank, a certain limit is fixed to the extent of which the customer is allowed drawing. The securities which are preferred by the banks or lending institutes. Bill Discounting: Bill Discounting is a process where the bank gets the Bill of Exchange before its maturity date and below its par value. Hence the amount or cash realized may vary depending upon the number of days until maturity and the risk involved. Discounting the bill of exchange is practiced to get the same immediately encashed before the maturity date. The liability in case of dishonor of the bill remains with the person in whose favor the bill is generated.

3-ADVISORY SERVICES:
Merchant Banking: A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to. Both commercial banks and investment banks may engage in merchant banking activities. Historically, merchant banks' original purpose was to facilitate and/or finance production and trade of commodities, hence the name "merchant". Few banks today restrict their activities to such a narrow scope. Mutual Funds: Mutual Funds Definition refers to the meaning of Mutual Fund, which is a fund, managed by an investment company with the financial objective of generating high Rate of Returns. These asset management or investment management companies collects money from the investors and invests those money in different Stocks, Bonds and other financial securities in a diversified manner. Before investing they carry out thorough research and detailed analysis on the market conditions and market trends of stock and bond prices. These things help the fund managers to speculate properly in the right direction. The investors who invest their money in the Mutual fund of

any Investment Management Company, receive an Equity Position in that particular mutual fund. When after certain period of time, whether long term or short term, the investors sell the Shares of the Mutual Fund, they receive the return according to the market conditions. Money Transfer: Banks are helping business and society for transfer of money from person to person or place to place. For this purpose, Demand Draft, Pay Orders, Telegraphic Transfer, Mail Transfer, Credit Cards etc. type methods are used. Portfolio Management: It is rare to find investors investing their entire savings in a single security. Instead, they tend to invest in a group of securities. Such a group of securities is called portfolio. Creation of a portfolio helps to reduce risk, without sacrificing returns. Portfolio management deals with the analysis of individual securities as well as with the theory and practice of optimally combining securities into portfolios. An investor who understands the fundamental principles and analytical aspects of portfolio management has a better chance of success.

4-OTHER SERVICES:
Credit Cards: Everyone carries a credit card these days. A credit card is basically a plastic card with a magnetic strip invented with the intention to simplify the complicated banking process for an individual in case he/she is short of cash, be it something casual like shopping or something severe like an emergency situation. ATM: An automated teller machine (ATM), also known as a Cash Point, Cash Machine or sometimes a Hole in the Wall in British English, is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. ATMs are known by various other names including ATM Machine, automatic banking machine, and various regional variants derived from trademarks on ATM systems held by particular banks. Tele Banking: Telephone banking is a service provided by banks, which allows its customers to perform transactions over the telephone.

CONCLUSION:
THUS WE CAN CONCLUDE BY SAYING THAT THERE ARE LARGE NUMBERS OF BANKING PRODUCTS & SERVICES IN INDIA. THIS IS VERY ESSENTIAL IN DAY TO DAY LIFE OF PEOPLES TO FULFILL THEIR DAILY NEEDS.