Banking System in India

Banking System in India

Indian Financial System:
Financial Institutions Banking Institutions Non Banking Institutions Financial Market: Money Market Capital Market Financial Instruments: Term Type Financial Services: Fund/Asset Based Fee Based

The Indian financial system comprises the following institutions: 1. Commercial banks a. Public sector b. Private sector c. Foreign banks d. Cooperative institutions 2. Financial institutions a. All-India financial institutions (AIFIs) b. State financial corporations (SFCs) c. State industrial development corporations(SIDCs) 3. Nonbanking financial companies (NBFCs) 4. Capital market intermediaries

Pre LPG period - Most Banks were state owned - BSE was a closed market - No derivative market - All FIs were controlled by RBI and MOF - Banks, Pension Funds and Ins Cos were forced to buy stakes in bond issues-primary investments - Difficult to start a Bank, MF, Ins Co, Broking Firm etc - Bureaucratic environment - Big hurdles were-MRTP Act1969, Cap Issue Cont Act 1947, Companies Act 1956, FERA 1973, Ind Act 1956.

Post LPG period - Banking Regulations Act simplified - SEBI constituted - FEMA passed &FERA repealed - Pvt. players allowed to start Banking & insurance business - SEZ opened - FDI encouraged - MNC allowed - MRTP deactivated

Benefits to Lenders - Lenders risks reduced substantially - Liquidity position improved - Lenders got impetus to save more - Accurate information from Spl Fin Inst - Borrowers selections was judicious Benefits to Borrowers - Scope to raise funds soared - Sourced enhanced - Could seek specialised and professional assistance

Phase IV: Transition : Most Indian banks were lagging behind in the areas of customer funds transfer and clearing systems. Over-staffed and not able to compete with new generation private banks .New banks are well-capitalized, Use modern equipment and Attract high-caliber employees. Indian banks were given time to strengthen their balance sheets, consolidate and overall become more robust, so that they could compete.

Phase V: Entry of Foreign Banks : Two of domestic banks in India have turned like Foreign Banks. About 74 per cent of holdings of ICICI and HDFC bank are in the hands of foreigners. New Royal Bank of Scotland, Switzerland's UBS, US-based GE Capital, Credit Suisse Group, Industrial and Commercial Bank of China branches set up in India Areas of Concentration are Risk Management, customizing the products and Value creation.

Cooperative banks in india The Co operative banks in India started functioning almost 100 years ago. The cooperative banks in India plays an important role even today in rural financing because of their local reach and ability to catch the nerve of the local clientle. Co operative Banks in India are registered under the Co-operative Societies Act and regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Rural banking National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts

The Banking Sector Today : In-depth Countrywide coverage Large number of players Increasingly sophisticated financial markets Technology based operations Emergence of integrated players Diversifying capital deployment Leveraging synergies Robust regulatory system Aligned to international standards Efficient monetary management

The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: 1935 : Reserve Bank of India set up 1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1961 : Insurance cover extended to deposits. 1969 : Nationalisation of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of Regional Rural Banks. 1980 : Nationalisation of 6 banks with deposits over 200 crore. 1992 : Banking Sector Reforms 1993 : Amendment in BR Act.

In the liberalised, privatised and globalised environment, banks operating in India have diversified their banking activities by offering Para Banking facilities like
Merchant banking/Mutual funds ATMs/Credit Cards/Internet banking Venture capital funds Factoring

Sector Snapshot :
Total assets of more than Rs 100 lac crore Total deposits of more than Rs 75 lac crore Number of banks Over 260 Scheduled Banks Public sector: 25 Private sector: new 7 Private sector: old 24 Coop Banks 82 Foreign Banks: 40 Regional Rural Banks - 82 Branch network Over 86,000 Public sector: 66,000 Private sector: 5,500 Foreign: 200 Regional Rural: 14,400

Todays Banking Technology Driven products: ATM Tele Banking Debit/Credit Cards POS Demat A/c Online Banking Digital Payment System RTGS NEFT Electronic Data Exchange Clearing House Automated Payment System(CHAPS) SWIFT Digital Payment System/Cyber Cash Customer centric banking

Banking Sector Reforms i. Deregulation of Interest rates: Base Rate introduced> ii. Statutory Reserve : Lowered to increase liquidity> iii. Banking supervision: BFS established by RBI. iv. Regulatory &Prudential Norms: Norms for capital adequacy, income recognition, asset classification& provisioning. v. Risk Management system: Credit Risk, Market Risk, Operational Risk.

Banking Sector Reforms(cont) vi. New Private Banks: 12 new pvt banks set up with max74% FII holding. vii. Foreign Banks: Foreign Banks were permitted. viii. Credit Information: CRISIL was set up. ix. Disclosure & Transparency: 49 disclosures made compulsory. x. Customer grievances redressal: Banking Ombudsman Scheme introduced.

Banking Sector Reforms(cont) xi. Payment Mechanism: BPSS introduced by RBI. xii. Basel II implementation: refinement of risk management & improvement of capital efficiency.

Retail Banking Loan Products Auto Loan Gold Loan House Loan Credit cards Education Loan Loan against Securities Retail Banking Business

Deposit Products Deposits Saving Accounts Current Accounts Fixed / Recurring Corporate Salary

Whole sale Banking Commercial Banking Term Loan Guarantees Bill Collection Letter of Credit Working Capital Forex & Derivatives Wholesale Deposits

Transaction Banking Cash Management Custodian Services Clearing Bank Services Tax Collections Banker to Public Issues Commodities(Incl Hedging)

Other Products / Services NRI services POS Terminals Private Banking Demat Services Mutual Fund Sales Foreign Exchange Services

Key Segment Large Corporate Emerging Corporate Financial Institutions Government/PSUs Agriculture Commodities

Treasury Banking Product Segment Equities Derivatives Capital Market Debt Securities Foreign Exchange

Others Cash Management Statutory Reserve Financial Decisions Asset Liability Management

What is Banking? Basic Definition: A system of trading money which: i. provides a safe place to save excess cash, known as deposits. ii. supplies liquidity to the economy by loaning this money out to help businesses grow and to allow consumers to purchase consumer products, homes, cars etc.

What are Banks? Institutions which deals in money and credit. An intermediary, which handles other peoples money both for their advantage and to its own profits. A financial institution that links the flow of funds from savers to the users. Plays an important role in the economy of any country as they hold the saving of the public.

Types of Banks in India
Central Bank: The Reserve Bank of India is the central Bank that is fully owned by the Government Public Sector Banks: State Bank Group, Regional Rural Banks
Private Sector Banks: Foreign Banks, Scheduled and NonScheduled Banks

Co-operative Sector: State Co-operative Banks, Central Cooperative Banks, Primary Agriculture Credit Societies
Development Banks/Financial Institutions: IDBI, ICICI, NABARD

Commercial Role of Banking Connect between customers with capital deficiencies and customers with capital surplus. Issue of banknotes (promissory notes issued by a banker and payable to bearer on demand) Processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means Issuing bank drafts and bank cheques Accepting money on term deposit Lending money by way of overdraft, installment loan or otherwise

Commercial Role of Banking( Cont) Providing documentary and standby letters of credit (trade finance), guarantees, performance bonds, securities underwriting commitments and other forms of off-balance sheet exposures Safekeeping of documents and other items in safe deposit boxes Currency exchange Acting as a 'financial supermarket' for the sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products

Economic Role of Banking Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. Netting and settlement of payments. Credit intermediation Credit quality improvement Maturity transformation

Bank Marketing Bank marketing is the aggregate of functions, directed at providing services to satisfy customers financial (and other related) needs and wants, more effectively and efficiently than the competitors keeping in view the organizational objectives of the bank.

Why Bank Marketing necessary? The existence of the bank has little value without the existence of the customer. Aim is not only to create and win more and more customer but also to retain them through effective customer service. Appropriate promise to a customer through a range of services (products) and also to ensure effective delivery through satisfaction is important

Concept of Bank Marketing Identifying the most profitable markets now and in future; Assessing the present and future needs of customers; Setting business development goals and making plans to meet them Managing the various services and promoting them to achieve the plans Adapting to a changing environment in the market place.

Bank Marketing Strategies Designed after taking into account the strengths and weaknesses of the organization. bank with clientele from various segments could think of market penetration by offering the existing range of services to existing customers. Bank which are not facing acute competition could think of Market Development by offering the existing services to new customers. design new product range for their customers of various segments

Segmentation Banks deal with individuals, group of persons and corporate More or less homogenous groups in terms of their needs and expectations. Market segments, targeting one or more segments, developing products and marketing programs tailor-made for these segments.

Types of Marketing Traditional External Marketing Internal Marketing Interactive Marketing

Traditional External Marketing consists of usual four Ps of Product, Price, Place and Promotion of marketing mix Product: The products offered are the services which includes various types of bank accounts, different types of loans, investment services, Credit cards, Demat accounts, online banking, mobile banking and many more.

Pricing includes interest , fees or commission charged by the bank. Also the interest paid by the bank. Place Promotion Products

Internal Marketing It involves the People(5th P) of the bank i.e. the employees. Employees should also be treated as internal customers, and sort of marketing mix should be followed. Quality Human resource can be a point of differentiation

Interactive Marketing The quality of service provided during the buyeremployee interaction. Efforts for previous strategies will turn futile if the interaction does not takes place satisfactorily. It involves : Process(6thP) Physical Evidence(7thP)

Process Refers to the systems used to assist the organization in delivering the service. Aids to the promotion of customer satisfaction It involves: speeding delivery of services reducing the paper work standardization of procedures customization as per individual demand simplicity etc.

Physical Evidence It includes signage, reports, punch lines, other tangibles, employees dress code etc. The companys financial reports are issued to the customers to emphasis or credibility. Signage: Each and every bank has its logo by which a person can identify the company. It creates visualization and corporate identity for the banks. Tangibles: banks give pens, writing pads to the customers. Punch lines: Depicts the philosophy and attitude of the bank. Banks have influential punch lines to attract the customers.

Current Marketing Strategies Referral services Direct mailing Cold calling
Offering items having your brand identity

Using the media Getting celebrities to endorse the product or service. Sponsoring events Using permission-based Marketing

Customers Satisfaction Recommendation of Talwars committee,1975: Establishment of customer service committee/staff committee in the every ranch. Customer meets to be held at the branches at least once in a half year. 15th of every month (next day if 15th is a holiday) to be observed as customers day at branches and administrative offices. Provision of complaint-cum-suggestion box in every branch.

Customers Satisfaction (Cont) Provision of May I help You counter in branches. Immediate credit of cheques up to Rs.2,500 which has since been increased to Rs.15,000. Payment of penal interest in case of delay of collection of cheques. In the year 1995 Banking Ombudsman was established by RBI with objective of resolving customer grievances in a quick and inexpensive manner.

Banking System in India

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Banking System in India