132061599 Project on Indian Banking System PDF

8/13/2019 132061599 Project on Indian Banking System PDF

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Indian Banking System 2010

A

PROJECT REPORT

ON

COMPREHENSIVE STUDY

OF

INDIAN BANKING SYSTEM

SUBMITTED TO: MAHARISHI DAYANAND

UNIVERSITY, ROHTAK

IN THE FULFILMENT OF DEGREE OF MBA

(SESSION 200!2010"

UNDER THE GUIDENCE OF:

MRS# BHA$ANA SHARMA (COLLEGE FACULTY"

SUBMITTED TO:

SUBMITTED BY:

THE CANTROLLER OF E%AM BAJRANG

KAUSHIK

M#D#U#, ROHTAK MBA

(FINAL"

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REG#NO# 0&!

VB!'&

D#A#V# INSTITUTE OF MANAGEMENT, FARIDABAD

(HARYANA"

ACKNOWLEDGEMENT

I would take this opportunity to thank Mrs. Bhawana Sharma, Faculty, D.A.V. Institute of

Manaement! "ari#a$a#for being cooperative and helpful guide.

A note of thanks is due to all those, too many to single out by names, which have helped in no

small measure by cooperating during by providing their valuable time, inputs and assistance.

Their support, guidance and motivation were very valuable and encouraging.

Ba%ran Kaushi&

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'(E"ACE

The introduction and application of the concept of customer services entered in a welcoming way

in India only after independence. The banking system in India has come a long way during the

last two centuries. Its growth was faster and the coverage wider since 199. In 199a ma!or

position of banking sector was entrusted to the public sector. This process continued and

embraced few private banks in 19"#.

The transfer of ownership of banks from the public to private was aimed at entrusting the banks

with greater responsibilities for the economic development of India by taking banking services to

the masses and taking special care of the weaker section of the society and the priority sector of

the economy. Though the number of banks offices magnitude and the variety of their operations

has grown considerably during the period of near about three decades, but it appears that the

banking sector has entered into serious among customers.

For overcoming this problem, banking industry should seek introspection and adopt refined

management techni$ues. It has been endeavor of this study to analy%e the present state of various

banks keeping in view the primary data has been collected regarding the present state of loan

schemes in various banks by using a $uestionnaire.

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DECLA(ATION

I undersigned Ba%ran Kaushi&The student of &'A (rd )em. hereby declare that the

pro!ect work in my own work and has been carried out under the guidance of Mrs. Bhawana

Sharma Faculty &ember of DAV Institute of Manaement of )tudies in "ari#a$a#

)*ar+ana,. This *eport has been submitted to M.D. -niersit+for +valuation.

ate-

lace-

Ba%ran Kaushi&

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EXECUTIVESUMMAR

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E2EC-TIVE S-MMA(3

The Indian +conomy is driven by strong fundamentals with = growth at 9.1B for


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)hares of the company gained *s 4.4, or 1.("B, to settle at *s 9.9. The total volume of

shares traded was 14(, at the ')+.GTuesdayH

*D"C Asset Manaement to /aun0h #e$t fun# on Se4t


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OBJECTIVES OF THE STUDY

TodayEs banking sector play a dominant role regarding investment decision. It basically

tells about how these funds are effectively and efficiently utili%ed in order to maDimi%e

profits.

To study the growth and performance of banking company.

To find out what are the policies that we have to be adopted to increase the goodwill of

the company.

To provide suggestions for better functioning of business.

To know about the various loan schemes of these two banking companies i.e. I0I0I

)'I.

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SIGNI"ICANCE O" T*E ST-D3

To make a detailed study of various financial services provide by the different banks.

To analy%e customers view point regarding their banks.

To study effective and most popular bank among the customers regarding its services.

To find out the rate of interest of banks and reaction of customers on it.

To make analysis on the economic benefits provided by various banks.

)uggest the investors whether to invest in shares of 'anking 0ompanies.

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CONCE'T-ALIATION

The last decade has seen many positive developments in the Indian banking sector. The policy

makers, which comprise the *eserve 'ank of India G*'IH, &inistry of Finance and related

government and financial sector regulatory entities, have made several notable efforts to improve

regulation in the sector. The sector now compares favourably with banking sectors in the region

on metrics like growth, profitability and non5performing assets G7AsH. A few banks have

established an outstanding track record of innovation, growth and value creation. This is

reflected in their market valuation.


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"OC-S O" T*E '(OBLEM

The research report concentrates on macro and micro factors affecting 'anking Industry,

+volution of 'anking Industry and its current status. 2arious regulatory and reform processes

also affect banking industry. The report also throws a light on them.

The report finally ends with valuation of ma!or players in banking Industry and the ma!or

challenges faced by this industry.

1. Ban&in Cha//enes

It is eDpected that the Indian banking and finance system will be globally competitive. For this

the market players will have to be financially strong and operationally efficient. 0apital would be

a key factor in building a successful institution. The banking and finance system will improve

competitiveness through a process of consolidation, either through mergers and ac$uisitions

through strategic alliances. Technology would be the key to the competitiveness of banking and

finance system. Indian players will keep pace with global leaders in the use of banking

technology.

In such a scenario, on5line accessibility will be available to the customers from any part of the

globeM NAnywhereE and NAnytimeE banking will be reali%ed truly and fully. In this conteDt, the

research paper approached KIndian 'anking )ystemL as the shape of the banking sector will be

the result of a strong interplay between the decisions taken by policy makers and actions of bank

managements.

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penetration is far lower than in other markets. IndiaEs banking industry must strengthen itself

significantly, if it has to support the modern and vibrant economy which India aspires to be,

while the onus for this change lies mainly with bank managements, and enabling policy andregulatory framework will also be critical to their success.

9. Interna/ *in#ran0es to Ban&in In#ustr+

The research focuses on emphasi%ing the need of decisively and $uickly to build and enabling,

rather than a limiting, banking sector in India. The ma!or challenges ahead for bank management

are as follows-

First, cost management, a key to sustainability of bank profits as well as their long5term

viability.

)econd, recovery management, which is a key to the stability of the banking sector.

Third, technological intensity of banking, an area where India happens to be a world leader in

information technology, but its usage by our banking system is somewhat muted. It is wise

for Indian banks to eDploit this globally state5of5art eDpertise, domestically available, to their

fullest advantage.

Fourth, risk management, 'anks can, on their part, formulate Nearly warning indicatorsE

suited to their own re$uirements, business profile and risk appetite in order to better monitor

and manage risks.

Fifth, governance because the $uality of corporate governance in the banks becomes critical as

competition intensifies, banks strive to retain their client base, and regulators move out of

controls and micro5regulation.

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LIMITATION O" T*E ST-D3

The scope of the study will be restricted to selected 'anks.

&any of the respondents did not think hard enough while choosing the specific point.

This could have led to a biased view and thus affected the analysis.

There may be other events during the 0lean and indow eriod which may distort the

results.

2&


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RESEARC'MET'$%$($

)

(ESEA(C* MET*ODOLOG3

'ro$/em Definition5

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+Dploratory *esearch esign because the problem re$uired an in5depth study of all the related

variables.

'ast information an# fore0asts5

0ollected the past information in the form of details of the various accounting statements

GIncome )tatement, 'alance )heet etc.H, including the sales for the past 1# years G199456##H.

Forecasts are done in relation to the future performance in terms of sales for


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Constraints5

:ack of time availability with the people involved in any manner with the research

especially when decisions were to be made $uickly.

ifficulty in application of )tatistical Tools.

ifficulty in making accurate forecasts because of presence of +conomic impediments

like inflation, *'I policies etc.

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SAM'LING5 DESIGN AND '(OCED-(E5

Sam4/in Te0hniFue5

HConenien0e Sam4/inas a part of 7on5robability sampling by taking the three banks as

the ma!or performers in the Indian 'anking )ector and highlighters of sectorEs overall

performance.

Sam4/e Si7e5

)ample )i%e was restricted to (, including I0I0I 'ank,


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I#%IA#

EC$#$M

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INDIAN ECONOM3?MAC(O "ACTO(S

A""ECTING INDIAN BANKING

&a!or 0hanges in F3 6##5#4

*obust economic growth in F3#4. = is increased by over "B in F3#4M Agriculture,

industry and services to grow at 1.4B, 1#.B and 1#.4B respectively

*abi season eDperiences normal monsoon

II GIndeD of Industrial roductionH growth dips in 8ctober 6##. The poor performanceof the manufacturing sector, which forms "#B of the II indeD lead to a blip in its robust

growth trend for the past 9 months. 'oth mining and electricity grew faster than last year

at ?B and 9.4B 2s C #.1B and 4.4B respectively

I Gholesale rice IndeDH rose to .?(B for the week ending ecember 1M higher

inflation in primary commodities remains. The inflation in the coming weeks may remain

high due to lower base effect.

0** G0ash *eserve *atioH hike of # bps to absorb *s.1(bn from the system. The 0**

rate hike of #bps came as a surprise but it reflects that *'IEs intention of controlling

credit off5take and li$uidity management by raising repo and reverse repo rate could not

achieve the desired results due to which *'I used 0** rate hike C a new instrument to

control li$uidity

+Dports growth back on track in 7ovember 6##. 8n the basis of the 'o, in


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The In#ian E0onom+ has seen ma%or Ma0ro 0hanes in5

1. Gross Domesti0 'ro#u0t5

The Indian +conomy is driven by the strong fundamentals and uptrend in industrial cycle.

The Indian economy maintained a strong growth momentum for the third successive year in

6##5# with real = growth accelerating to ".?B 6##5#. The services sector recorded

double digit growth to contribute nearly three5fourths of incremental =. A consistent

increase in domestic investment rate from 6(.#B of = in 6##15#6 to (#.1B in 6##?5#

supported a high credit growth witnessed during the past few years. The manufacturing

sector C the key growth driver for banking credit, clocked a healthy growth of 9.#B during

F3#.

)ource- www.rbi.org.in

In F3 #5#4, services sector account for ma!or B of India = followed by 6B in Industrial

sector and 6#B in agriculture sector.

F3#4 2s R6F3#, the growth rate in = components are as follows-

2"
http://www.rbi.org.in/http://www.rbi.org.in/


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Agriculture- 1.4B

Industry- 1#.B

)ervice- 1#.4


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1#, 6## during the current fiscal, which poses a significant threat to *'IEs efforts of

containing inflation in the desired range of .#5.B.

Gross "is0a/ Defi0it5

The gross fiscal deficit G=FH to = ratio for 6##5# was at ?.1 per cent as against the

budget estimate of ?.( per cent. Fiscal and revenue deficit for April57ovember 6## widened

to 46."B of '+ and 99.4B of '+ 2s 4?.4B of '+ and 91.B of '+ respectively in April5

7ovember 6##. The current levels are much higher than the last monthEs fiscal deficit of".B of '+ and revenue deficit of49.?B of '+. The improvement in the =F was

facilitated by a decline in capital outlay and the availability of disinvestment proceeds. The

revenue deficit, though lower in absolute terms, remained at budgeted level of 6.4 per cent of

= in 6##5#.

)ource- *'I, &inistry of commerce and Industry

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*# Interest (ate5

The yield on dated government securities G=5)ecH has been moving up since the

beginning of F3#. The yield on 1# year paper began during R1 to close the $uarter at

".16B. uring ;uly #, it continue to move up to ".?6B but reacted sharply thereafter to

once again come down to 4.?B at present as the market participants believed that ) Fed

and other central banks worldwide would not only pause rate hikes but soon get into rate thecurrent fiscal at 4.#B but moved up $uite sharply cut mode.

)ource- *'I

*eal interest rate indicated by spread between inflation and 1# year benchmark yield has trended

in the range of 65?B. The real interest rate in developed economies is normally in the range of 65

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(B.


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I#%IA#BA#*I#)

I#%USTR34


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INDIAN BANKING IND-ST(3

In India, given the relatively underdeveloped capital market and with little internal resources,

firms and economic entities depend, largely, on financial intermediaries to meet their fundre$uirements. In terms of supply of credit, financial intermediaries can broadly be categori%ed as

institutional and non5institutional. The ma!or institutional suppliers of credit in India are banks

and non5bank financial institutions Gthat is, development financial institutions or FIsH, other

financial institutions GFIsH, and non5banking finance companies G7'F0sH. The non5institutional

or unorgani%ed sources of credit include indigenous bankers and money5lenders. Information

about the unorgani%ed sector is limited and not readily available.

An important feature of the credit market is its term structure-

GaH )hort5term credit

GbH &edium5term credit

GcH :ong5term credit.

hile banks and 7'F0s predominantly cater for short5term needs, FIs provide mostly medium

and long5term funds.

Nee# for Ban&s

35

*ole of 'ank


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In#ian Ban&in Se0tor EJ4erien0e

India inherited a weak financial system after Independence in 19?4. At end519?4, there were 6

commercial banks in India, with an asset base of *s. 11.1 billion. 0ommercial banks mobili%ed

household savings through demand and term deposits, and disbursed credit primarily to large

corporations. Following Independence, the development of rural India was given the highest

priority. The commercial banks of the country including the I'I had till then confined their

operations to the urban sector and were not e$uipped to respond to the emergent needs of

economic regeneration of the rural areas. In order to serve the economy in general and the rural

sector in particular, the All India *ural 0redit )urvey 0ommittee recommended the creation of a

state5partnered and state5sponsored bank by taking over the I'I, and integrating with it, theformer state5owned or state5associate banks. Accordingly, an act was passed in arliament in

&ay 19, and the )tate 'ank of India G)'IH was constituted on ;uly 1, 19. &ore than a

$uarter of the resources of the Indian banking system thus passed under the direct control of the

)tate. )ubse$uently in 199, the )tate 'ank of India G)ubsidiary 'ankH Act was passed G)'I

ActH, enabling the )'I to take over " former )tate5associate banks as its subsidiaries Glater named

AssociatesH.

The =oI also felt the need to bring about wider diffusion of banking facilities and to change the

uneven distribution of bank lending. The proportion of credit going to industry and trade

increased from a high "(B in 191 to 9#B in 19". This increase was at the eDpense of some

crucial segment of the economy like agriculture and the small5scale industrial sector. 'ank

failures and mergers resulted in a decline in number of banks from ?" Gincluding 94 scheduled

36

0hannel

household savings

)ervice

rovider*iskTransformation


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commercial banks or )0's and 1 non5)0'sH in 19?4 to "9 in 199 Gcomprising 4( )0's and

1 non5)0'sH. The lop5sided pattern of credit disbursal, and perhaps the spate of bank failures

during the siDties, forced the government to resort to nationali%ation of banks. In ;uly 199, the=oI nationali%ed 1? scheduled commercial banks G)0'sH, each having minimum aggregate

deposits of *s. ## million. )tate5control was considered as a necessary catalyst for economic

growth and ensuring an even distribution of banking facilities. )ubse$uently, in 19"#, the =oI

nationalised another banks6, each having deposits of *s. 6,### million and above.

The nationali%ation of banks was the culmination of pressures to use the banks as public

instruments of development. The =oI imposed Ssocial controlE on banks.


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INDIAN "INANCIAL SE(VICES SECTO(

SWOT ANAL3SIS

Strenths5

roven asset $uality resilience in past downturns

roven management teams, track record

)table industry dynamics

ell5established regulatory framework

)tableOlow 7: formation rates

Wea&nesses5

0ontinued crowding out effect from govt budget deficit, combined with accelerating

private sector credit demands

8wnership restrictions

0onstraints on state5owned banks micro reforms, including


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O44ortunities5

Improving secular = growth prospects

+stablishment of special economic %ones likely to promote further industriali%ation

3ears, if not decades, of catch5up economicsU low per capita income, educated

workforce

*apid financial deepening, i.e. loan growth as multiple of nominal = growth

*ising consumer spending, consumer credit business

*ising corporate capeD, investments

&A optionality

Threats5

J*unning on emptyJ in terms of li$uidity

Tightening in global li$uidity may trickle down to India

otentially hawkish *'I stance on inflationOmonetary policy

otential rise in long bond V yields, &T& risk for banks

otential for valuation pullback, should earnings delivery disappoint eDpectations

3"


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STRUCTURE

$+4&


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,anking

ST(-CT-(E O" T*E BANKING SECTO(

The banking sector in India functions under the umbrella of the *'IUthe regulatory, central

bank. The *eserve 'ank of India Act was passed in 19(? and the *'I was constituted in 19( as

the apeD bank. The 'anking *egulations Act was passed in 19?9. This Act brought the *'I

under government control. nder the Act, the *'I received wide5ranging powers in regards to

establishment of new banks, mergers and amalgamations of banks, opening and closing of

branches of banks, maintaining certain standards of banking business, inspection of banks, etc.

The Act also vested licensing powers and the authority to conduct inspections with the *'I.

'anks in India can broadly be classified as regional rural banks or **'s, scheduled commercial

banks or )0's, and co5operative banks. The scope of the report includes the )0's only(.

The )0's for the purpose of this comment can be classified into the following three categories-

ublic sector banks or )'s G)'I its associates, and nationali%ed banksHM

rivate sector banks Gold and newHM and

Foreign banks

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"

6#

69 (#

)'I Associa tes 7a tiona lised 'a nks .riva te 'a nks Foreign 'a nks

0ategory of 'anks

No. of Banks in India for FY 05-06

)ource- I'A

19"

1(64

AA

6#1

)'I Associa tes 7ationa lised 'a nks .riva te 'anks Foreign 'anks

0ategory o f 'anks

Asset Size of Banks for FY 05-06 ('000 crores)

)ource - I'A

In terms of asset si%e, among Foreign banks C 0itibank,


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have asset base of *s.91"46 cr while other banks such as '8', '8I, 0anara 'ank and 7'

'ank have each more than *s.1##### cr.

Cre#it Growth

The bank lending has eDpanded in a number of emerging market economies, especially in Asia

and :atin America, in recent years. 'ank credit to the private sector, in real terms, was rising at arate between 1# and ?# per cent in a number of countries by 6## G'I), 6##H. )everal factors

have contributed to the significant rise in bank lending in emerging economies such as strong

growth, eDcess li$uidity in banking systems reflecting easier global and domestic monetary

conditions, and substantial bank restructuring.

The recent surge in bank lending has been associated with important changes on the asset side of

banks balance sheet. First, credit to the business sector 5 historically the most important

component of banks assets C has been weak, while the share of the household sector has

increased sharply in several countries. )econd, banks investments in =overnment securities

increased sharply until 6##?5#. As a result, commercial banks continue to hold a very large part

of their domestic assets in the form of =overnment securities 5 a process that seems to have

begun in the mid5199#s

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MICR$

-ACT$RS

MIC(O "ACTO(S A""ECTING INDIAN

BANKING IND-ST(3

Loan Deman#5

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8ver the past three years, Indian 'anking Industry has seen sustained strength in credit growth,

which is not !ust a function of economic buoyancy but also the broad5basing of loan demand.

This has recently been articulated by the central bank too-A contextual analysis of the co-movement between macroeconomic performance and bank

credit in the current phase of the business cycle suggests that factors other than demand may

also be at work: financial deepening from a low base structural shifts in supply elasticity!s

rising efficiency of credit markets and competitive pressures augmenting the overall supply of

credit"# G*eserve 'ank of India,$onetary Policy %eview, 8ctober 6##H.

:oan growth sustained for very long

&ource: %B'

The slowdown of the mid5199#s hit the banks very hard because corporate, which accounted for

a lionEs share of bank credit, went into a less profitable and hence a financial restructuring mode.

There was no retail credit then, banks did not focus on )mall and &edium +nterprises and farm

lending was done grudgingly, under compulsion. Along with the diversification of the pie that

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keeps the tempo of demand intact, after a long time industry has also started demanding higher

levels of credit. In the five years prior to F3#, growth in industrial credit was almost wholly

driven by infrastructure. There is a perceptibly wider participation from other segments duringF3# and F3#.

If a substantial portion of loan growth gets driven by the banking system taking away market

shares from informal sectors C this is clearly happening to farm credit, )&+s and to a limited

eDtent non5mortgage retail C interest rate considerations influencing demand will be relatively

low. )&+s and the rural folk have accessed credit from other sources at eDorbitant interest rates,

and hence banksE rates going by 6##5(##bps is not so meaningful. That eDplains the apparent

lack of correlation between rates that have been rising and loan demand.

(isin fun#in 0osts with soft /en#in rates irrationa/5

'/ent+ of histori0a/ ei#en0e of return of 4ri0in 4ower to $an&s5

0oncerns are often eDpressed about banksE ability to increase lending rates in the face of

competition and government pressure. The reality is that banks, which led the mortgage price

war, have increased mortgage rate by 6##5(##bps from the bottom, and is yet to see significantresistance. That ) banks raised prime lending rates twice in. 0ompetition from overseas

borrowings is a serious factor only with AAA companies, and banks have reduced eDposure to

them considerably during the last (5? years. =overnment stand is understandably against higher

interest rates.


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savings have moved out of e$uities and long5term products to bank deposits in percentage terms.

The point to note here is that component of cash GcurrencyH has marginally risen C thatEs the real,

incremental opportunity as more cash from chests moves into bank deposits first beforepotentially going to other avenues.

The R?F3#4 is eDpected to be a period of margin pressure. This is because as the last interest5

rate cycle showed, deposit costs increase first, and followed by lending rates. R? is also usually a

period of tight li$uidity, and the *'I could be increasing 0** or ):* re$uirements to further

tighten the li$uidity. Also, banks will be cautious about the actual implementation of the lending

rate increases and may do it in a graduated fashion so as not to invite outright resistance or overt

attention from the government.


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The asset price deflation Gread real estate pricesH may hurting banksE asset $uality has been

blown out of proportion.

(esi#entia/ mortaes5

It is very unlikely in near term that there can be a large5scale increase in delin$uencies on loans

taken for the first house Gtypically self5occupiedHM unless there is a household income problem, it

does not matter to the borrower whether the price of the house he is staying in is rising or falling.

+ven then, with an average loan5to5value of 4B, a 6B fall is theoretically not possible. :T2

ratios had gone up to more risky levels at the peak of the mortgage boom.

roblems can arise more fre$uently for loans taken for the second house, typically for

investmentOspeculation. 'anks have been reluctant to disclose the eDact volume of second houses

financed. &ost banks claim that it is in the range of 65B of incremental mortgage lending.

There is a possibility that some individuals have been hiding from banks the fact that they

already have one more loan, but this is becoming increasingly difficult with a credit bureau now

in full swing. +ven if the assumption that 1#B of the outstanding mortgages are for the second

house and all of that goes bad, it will mean 1B of the banking systemEs loans go bad.

0ommercial real estate- According to figures disclosed by the *'I itself, real estate loans

constituted 6.#B of gross non5food credit of banks as of end5;une 6##. +ven if it has been

growing at high percentage rates is not material as the base was very low. In any case, by

increasing standard assets provisioning on these loans to 1##bps from 6bps, risk weights from

1##B to 1#B and instructing banks not to lend unless the developer has Kall the permissions.

8ne stark eDample of this is the largest bank )'I itself. In the mid 199#s, )'IEs portfolio was

distributed between large corporate, farm credit and trade, with little coming from others. The

)epE# portfolio looks dramatically different.

SBIs /oan 4ortfo/io now Fuite #iersifie#

4"


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)ource- 0ompany data,

Cost of $orrowin has risen! $ut so hae in0omes5

The apparent disconnect between interest rates rising now for two years and lending not losing

steam can be eDplained by iH rising incomes in case of individuals, thereby imparting increased

thrust to retail lending, and iiH improved corporate profitability through better pricing power.

hile there are several studies illustrating the household income growth in India, according to7ational 0ouncil for Applied +conomic *esearch, an eDplosive growth is underway in the

percentage of households earning *s91, ###51,###,### pa, the most prominent individual

borrowers for banks.

The corporate pricing power story is less known because of the media harping on high

competition and margin compression. hile these issues cannot be summarily dismissed, it is a

fact that manufactured product inflation has been rising. +ven the *'I has recently commented

on the increased ability of manufacturers to pass on cost increases. And with a considerably de5

leveraged corporate India compared with the earlyOmid 199#s, these levels of increases in interest

costs have been easily absorbed by companies.

Te0hno/o+55&


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The trend in banking is changing from computeri%ation of branches to laying a common platform

by having a core banking solution in all the branches. At the same time, Indian banks are looking

at internet banking which promises to grow into an alternate self5service channel. As the mindset

of the Indian customer undergoes a change, Indian banks need to encompass the eDtension of all

the services that are re$uired and dictated by customers. In future, banks will need to focus on

value5differentiating services by keeping in5


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VA(UATI$#

T$$(S

ICICI Ban&5

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Business

I0I0I 'ank was promoted in 199? by I0I0I :td., an Indian development financial institution.

The two entities subse$uently merged to become the largest commercial bank in the private

sector. A new generation bank, I0I0I 'ank started with all the latest technologies to hit the

Indian banking industry in the second half of the nineties. All its branches are fully computeri%ed

with the state5of5the5art technology and systems, networked through 2)AT technology. The

bank is connected to the )IFT International network. In 6##, it eDpanded its network to 6

branches and 1,91# AT&s. It continued to eDpand its electronic channels, namely internet

banking, mobile banking, call centers and AT&s, and migrate customer transaction volumes to

these channels. 8ver 4#B of customer induced transactions take place through these electronic

channels. It has ac$uired a small *ussian banking entity, Investitsionno5@reditny 'ank GI@'H,

which will help boost its corporate business and deposit franchise overseas. The bank has also

built several strategic alliances with banks like ells Fargo in )A, :loyds T)' in @ and

') in )ingapore.

I0I0I has entered into strategic alliance with rudential plc. of @ for its mutual find

business. The duo has been fairly aggressive through their companies, rudential I0I0I

Asset &anagement 0ompany :imited and rudential I0I0I Trust :imited. The bank is

also keen to offer its services to the Indian agricultural sector. 8ver 6,### Internet kiosks

and 4# agri5desks have been established in locations with large agricultural markets.

Dee/o4ments

I0I0I 'ank launched S&utual Fund )weep AccountS 5 an automatic sweeping facility

which allows current account holders to park their short5term surpluses into li$uid mutual

funds and earn higher returns. Initially, I0I0I 'ank current account customers will have

the facility to invest their account surpluses in the li$uid fund schemes of rudential

I0I0I Asset &anagement 0ompany and =I0 &utual Fund.

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The bank is in the process of the reverse merger of I0I0I with I0I0I 'ank. The merger

of two wholly5owned subsidiaries of I0I0I, I0I0I ersonal Financial )ervices :imitedand I0I0I 0apital )ervices :imited, with I0I0I 'ank is also underway.

I0*A has assigned an A1 rating, indicating highest safety in the short5term, to the *s

## crore certificates of deposit G0H programme of I0I0I 'ank :td GI':H. The rating

agency said in its report that the rating takes into consideration I':Ss strategic

importance to its parent I0I0I, I':Ss comfortable profitability and capital ade$uacy,

good control on asset $uality.

I0I0I 'ank has tied up with &aster0ard International to launch I0I0I 'ank &aster0ard

credit cards. At present I0I0I 'ankEs credit card base stands at around , #,###, while

for debit cards it is ?,#,###. I0I0I 'ank is the largest card issuer in the market. The

bank is adding credit and debit cards at the rate of 1,##,### per month. The bank had

launched the credit card business 6 years back, while the debit card business is relatively

new.

I0I0I 'ank is Indias second5largest bank with total assets of *s. (,6.6" billion G)P 44

billionH at ecember (1, 6##9 and profit after taD *s. (#.19 billion G)P ?"." millionH for the

nine months ended ecember (1, 6##9. The 'ank has a network of 1,? branches and about

?,""( AT&s in India and presence in 1" countries. I0I0I 'ank offers a wide range of banking

products and financial services to corporate and retail customers through a variety of delivery

channels and through its specialised subsidiaries and affiliates in the areas of investment

banking, life and non5life insurance, venture capital and asset management. The 'ank currently

has subsidiaries in the nited @ingdom, *ussia and 0anada, branches in nited )tates,

)ingapore, 'ahrain,


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*D"C Ban&5


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Te0hno/o+5


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'ased on its superior product delivery O service levels and strong customer orientation,

the 'ank has made significant inroads into the banking consortia of a number of leading

Indian corporates including multinationals, companies from the domestic business houses

and prime public sector companies. It is recognised as a leading provider of cash

management and transactional banking solutions to corporate customers, mutual funds,

stock eDchange members and banks.

(etai/ Ban&in Seri0es5

The ob!ective of the *etail 'ank is to provide its target market customers a full range of

financial products and banking services, giving the customer a one5stop window for all

hisOher banking re$uirements. The products are backed by world5class service and

delivered to customers through the growing branch network, as well as through

alternative delivery channels like AT&s, hone 'anking, 7et'anking and &obile

'anking.

The


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G8)H terminals for debit O credit cards acceptance at merchant establishments. The 'ank

is well positioned as a leader in various net based '60 opportunities including a wide

range of internet banking services for FiDed eposits, :oans, 'ill ayments, etc.

Treasur+

ithin this business, the bank has three main product areas 5 Foreign +Dchange and

erivatives, :ocal 0urrency &oney &arket ebt )ecurities, and +$uities. ith the

liberalisation of the financial markets in India, corporates need more sophisticated risk

management information, advice and product structures. These and fine pricing on

various treasury products are provided through the banks Treasury team. To comply with

statutory reserve re$uirements, the bank is re$uired to hold 6B of its deposits in

government securities. The Treasury business is responsible for managing the returns and

market risk on this investment portfolio.

Manaement5

&r. ;agdish 0apoor took over as the banks 0hairman in ;uly 6##1. rior to this, &r. 0apoor was

a eputy =overnor of the *eserve 'ank of India. The &anaging irector, &r. Aditya uri, has

been a professional banker for over 6 years, and before !oining


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SBI 5

State Ban& of In#iaG)'IH is the largest bank in India. It is also, measured by the number of

branch offices and employees, the largest bank in the world. +stablished in 1"# as 'ank of

'engal, it remains the oldest commercial bank in the Indian )ubcontinent and also the most

successful one providing various domestic, international and 7*I products and services, through

its vast network in India and overseas. ith an asset base of P16 billion and its reach, it is a

regional banking behemoth. The bank was nationali%ed in 19 with the *eserve 'ank of India

having a #B stake. It has laid emphasis on reducing the huge manpower through =olden

handshake schemes and computeri%ing its operations.

)tate 'ank of India has often acted as guarantor to the Indian =overnment, most notably during

0handra )hekhars tenure as rime &inister of India. ith more than 9?## branches and a

further ?### associate bank branches, the )'I has eDtensive coverage. )tate 'ank of India has

electronically networked most of its metropolitan, urban and semi5urban branches under 0ore'anking )ystemG0')H. The bank has the largest AT&network in the country having more than

## in numberW1X. The )tate 'ank of India has had steady growth over its history, though it

was marred by the


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)'I Factors and 0ommercial )ervices :td

)'I F


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MA.$R-I#%I#)S

61


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MA@O( "INDINGS

Ma%or Ma0ro E0onomi0 "a0torsinclude =ross omestic roduct C which has grown by over

"B in 6##5#, FI 0onfidence IndeD C where India stands II in the world, Inflation C which has

slow down due to falling crude prices, =ross Fiscal eficit Interest *ate C the A government

is confident to achieve the budgeted targets, *ising 8il prices +Dchange *ate C Indian

government and oil companies are relaD as oil prices have fallen beside Indian *upee has

strengthen against ), +*8 and 3en and 0apital &arket C the year is booming for market

with FII and mutual fund are pumping money increasing ')+ )enseD returns over #B.

In ;une 6##, Indian 'anking )ystem is spread through ### branches with an asset base of

about P64# billion. There are "4 )cheduled 0ommercial 'anks operating in India including "

'ank of )'I Associates, 6# 7ationali%ed 'anks, 69 rivate 'anks and (# Foreign 'anks. In

terms of asset si%e, public sector banks have highest base compared to private and foreign banks.

)'I Associated have asset base of *s.91"46 cr. 'ank group5wise, new private sector banks

grew at the highest rate during 6##5# G?(.6 per centH, followed by foreign banks G(1.6 per

centH, public sector banks G1(. per centH and old private sector banks G16.6 per centH.

As a result, the relative significance of )'s declined significantly with their share in total assetsof )0's declining to 46.( per cent at end5&arch 6## from 4.( per cent at end5&arch 6##,

while that of new private sector banks increasing to 1.1 per cent from 16. per cent.

0redit to the priority sector increased by ((.4 per cent in 6##5# as against ?#.( per cent in the

previous year. The agriculture and housing sectors were the ma!or beneficiaries, which together

accounted for more than two5third of incremental priority sector lending in 6##5#. 0redit to

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small scale industries also accelerated. *etail loans, which witnessed a growth of over ?#.# per

cent in 6##?5# and again in 6##5#, have been the prime driver of the credit growth in recent

years. *etail loans as a percentage of gross advances increased from 66.# per cent in &arch 6##?to 6. per cent in &arch 6##.

I0I0I 'ank is the leading market player with change in loans market share in F3#65# of over

B and change in deposits market share in F3 #65# is nearby 6.B.


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/0n/si0n

64


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CONCL-SION

The pro!ect involves valuation of ma!or Indian 'anks including I0I0I 'ank, )'I and


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BIB(I$)RA'

66


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BIBLIOG(A'*3

0ompany *eports

=overnment of India, 199",Report of the Committee on Banking SectorReforms

=overnment of India, 1991,Report of the Committee on the Financia S!stem

I&F orking aper 5 0ompetition in Indian 'anking by A. rasad and )aibal =hosh

Indian 'anks Association, 2arious 3ears,"erformance Highights of BanksG&umbaiH.

Indian 'anking Association

&inistry of commerce and Industry

*eserve 'ank of India, 6##", KAnnual olicy )tatement for the year 6##45#"L G&umbaiH.

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*eserve 'ank of India GaH, 2arious 3ears,Report on Tren# an# "rogress ofBanking in

In#iaG&umbaiH.

*eserve 'ank of India GbH, 2arious 3ears,Statistica Ta$es Reating to Banks inIn#ia

G&umbaiH.

Documents

132061599 Project on Indian Banking System PDF