A

Project report On

EMERGING BANKING TRENDS

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS OF BBA PROGRAMME

Prepared by: [Vangad Amar C.] BBA (6th SEMESTER), 2009 10

Under the guidance of [Prof.Priyakant Ved] MARCH/APRIL, 2010 GIDC RAJJU SHROFF ROFEL INSTITUTE OF MANAGEMENT STUDIES (B.B.A. Programme), VAPI

VEER NARMAD SOUTH GUJARAT UNIVERSITY, SURAT

( DECLARATION )

I, Mr.Amar C. Vangad, student of GIDC RAJJU SHROFF ROFEL INSTITUTE OF MANAGEMENT STUDIES, VAPI, affiliated to VEER NARMAD SOUTH GUJARAT UNIVERSITY, SURAT hereby declare that this project report is a result of culmination of my sincere efforts.

I declare that this submitted work is done solely by me and to the best of my knowledge; no such work has been submitted by any other person for the award of degree or diploma.

I also declare that all the information collected from various secondary sources has been duly acknowledged in this project report.

Our Aspirations Are Our Possibilities!!!!!!!!!!!!!

( CERTIFICATE )
This is to certify that Mr.Amar C. Vangad; has satisfactorily completed the project work entitled, Emerging Banking Trends. Based on the declaration made by the candidate and my association as a guide for carrying out this work, I recommended this project report for evaluation as a part of the BBA programme of Veer Narmad South Gujarat University.

Place: Date:

____________________ (Prof.Priyakant Ved)

The project is forwarded for evaluation to Veer Narmad South Gujarat University, Surat for viva-voce.

Place: Date: _____________________ I/C Principal (Mr. Ajay Shukla)

( ACKNOWLEDGEMENT )
I feel indebted to all those helpful and humble people whose thoughts & knowledge have been helpful in bringing out this thesis. I am thankful to my college GIDC Shri Rajju Shroff Rofel institute of Management Studies Vapi, Affiliated to Veer Narmad South Gujarat University Surat; & all the faculty members whose diligent guidelines made this project possible. I am also thankful to Dena Bank, Khanvel; & all the employees who tolerated me inside the bank & their little or more help being given to me beyond their busy schedule & ample of work load. I wholeheartedly am grateful to all of them. I am obliged to my guide Prof.Priyakant Ved; who have guided me through out the project work & I also thank him for providing the necessary co-operation & helping me to complete the project to the best of my abilities. The subject-matter of this thesis has been funneled from information provided by my guides, Internet & Books. So; I am thankful to Mr.Parmar Branch Manager of Dena Bank, Khanvel; whose patience & support was instrumental in accomplishing the task. I am heartily thankful for scrutiny & standards when he directed me with the information related to my project work. For all who have directly or indirectly contributed for the completion of this project & made it go effective; & that will really go a long way in shaping my future; I am deeply grateful. With that, I hope its enough to acknowledge my work. Thank You!

( CONTENTS )

Chapter 1. History of Banking [01-08] [1.1] Introduction..Pg.no.02 [1.2] Early history..Pg.no.02 [1.3] From World War I to Independence..Pg.no.04 [1.4] Post-independencePg.no.05 [1.5] Nationalization..Pg.no.06 [1.6] LiberalizationPg.no.07 Chapter 2. Research Design... [09-11] [2.1] Objectives of the study.Pg.no.10 [2.2] Research Methodology.Pg.no.10 [2.3] Scope of the study.Pg.no.10 [2.4] Limitations of the study...Pg.no.11 Chapter 3. Profile of Dena Bank. [12-22] [3.1] History...Pg.no.13 [3.2] Board of DirectorsPg.no.14 [3.3] General ManagersPg.no.15 [3.4] Services Provided by Dena BankPg.no.16 Chapter 4. Banking Industry in India.. [23-40] [4.1] Banking Industry StructurePg.no.24 [4.2] Growth of Banking in India.Pg.no.25 [4.3] Competition...Pg.no.25

[4.4] Public Sector Banks..Pg.no.28 [4.5] Private Sector BanksPg.no.28 [4.6] Foreign Banks...Pg.no.28 [4.7] Scheduled commercial banks in IndiaPg.no.29 [4.8] RegulationsPg.no.32 Chapter 5. Transformation in Indian Banking [35-44] [51] Classification of reforms..Pg.no.36 [5.2] Changes galore..Pg.no.38 [5.3] Increased strengthPg.no.41 [5.4] Acquisition of competitive advantage.Pg.no.42 Chapter 6. Emerging Trends in banking.. [45-62] [6.1] Trend in Banking Industry..Pg.no.46 [6.2] Basel Capital Accord IIPg.no.47 [6.3] Business process re-engineering..Pg.no.47 [6.4] E-banking..Pg.no.48 [6.5] Insurance Business by Banks..Pg.no.53 [6.6] Bancassurance...Pg.no.54 [6.7] Universal BankingPg.no.55 [6.8] Narrow Banking...Pg.no.55 [6.9] Retail Banking..Pg.no.56

[6.10] Mobile Banking...Pg.no.57 [6.11] Cross-sellingPg.no.58 [6.12] Door step banking...Pg.no.59 [6.13] Merchant Banking & Capital Market......Pg.no.61 Chapter 7. Current Scenario. [63-67] [7.1] Virtual BankingPg.no.65 [7.2] Privatization & Credit Disbursement.Pg.no.65 [7.3] Manpower Retraining & Not Retrenchment.Pg.no.66 [7.4] New products & New technologies..Pg.no.67 Chapter 8. Findings & Conclusions... [68-70] [8.1] Finding & SuggestionsPg.no.69 [8.2] Conclusions..Pg.no.69 ANNEXURES: [71-80] 1. Bibliography... Pg.no.72 A. BooksPg.no.72 B. Articles..Pg.no.72 C. Reports.Pg.no.72 D. Website.Pg.no.72 2. GlossaryPg.no.73 3. Banks in India..Pg.no.76 4. Indian Banking at a glance.Pg.no.77

(EXECUTIVE SUMMARY)
In my sense, this report Emerging Banking Trends is a construction manual. It represents the research study and its aims and objectives that integrate the whole exposure; it also offers blueprints of the objectives of the research study. The objectives included in this report are as follows: (a) To know about Banking. (b) To study Banking Industry in India. (c) Transformation in Indian Banking. (d) Study the Emerging Trends in Banking, & (e) Current scenario. This work has reached at the destiny, browsing through books, articles and currently great source of information internet; and with the help of college and company guides. Hence, this repot is the collection of brief information regarding banking and emerging trends in banking. The growth in the Indian banking Industry has been more qualitative than quantitative and it is expected to remain same in the coming years. Today, it is known to almost everybody that the recession period has crawled in and that too in almost every part of the world. Presently, in India also almost all the sectors such as IT sector, automobile industry and share market are also not in a very good condition. But, quite interestingly, the baking sector of India is booming day-by-day and that too even in the period of global crisis. The concepts in the report are my own view and ideas, and the brief information on the study. While browsing or by gulping the report one can get the concepts related to the study. It gives an idea about, what is banking? Banking industry in India, emerging trends in banking and current scenario of banking.

Chapter 1 History To Banking

"Banks are an almost irresistible attraction for that element of our society"

[1.1] Introduction to Banking

Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 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.

[1.2] Early History

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened
The Bank of Bengal, which later became the State Bank of India.

banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks.

Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s.

The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, an d another in Bombay in 1862; branches

in Madras and Pondichery, then a French colony, followed. HSBC established itself in Bengalin 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and

the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. The fervor of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalized banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".

[1.3] From World War I to independence

The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the in dependence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table:

Years

Number of banks Authorised capital Paid-up Capital that failed (Rs. Lakhs) (Rs. Lakhs)

1913 12

274

35

1914 42

710

109

1915 11

56

1916 13

231

1917 9

76

25

1918 7

209

[1.4] Post-independence
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:


In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India.

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India."

The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors. However, despite these provisions, control and regulations, banks in India except

the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalization of major banks in India on 19 July 1969.

[1.5] Nationalization
By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalizations." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969, these are those 14 banks. Central Bank of India Bank of Maharashtra Dena Bank Punjab National Bank Syndicate Bank Canara Bank Indian Bank Indian Overseas Bank Bank of Baroda Union Bank Allahabad Bank United Bank of India UCO Bank Bank of India

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of

credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalized banks from 20 to 19. After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. The nationalized banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007-2009.

[1.6] Liberalization
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%, at present it has gone up to 74% with some restrictions. The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more. Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the

private sector and foreign banks. 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. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.

Chapter 2 Research Design

The intensity of your desire governs the power with which the force is directed

[2.1] Objectives
Some specific targets and the objectives of this study are listed below: y y y y To get idea about Banking and its procedure. Study Transformation in Indian Banking. Know about the Emerging trends in banking. Current Scenario.

[2.2] Research Method

The project content i.e. various database and the information that is being depict in this report is mainly the collection and analysis of the secondary data. Mostly the data is collected from the internet and books; where as mere data is also added from the guides allotted to me from college and bank. Not only that, but report also includes my personal views, ideas and opinion regarding study on the basis of my own observation and knowledge. The information rather than adding directly in the project report is undergone through the study and analysis by me and with the permission from both the internal and external guides. The report is culmination of my personal study with the help of my guides and surfing through the internets, books and mere articles. The information in the report is related only to the banking and the part of my exposure and non other than that. I personally have visited to the Dena Bank operating at village Khanvel, Silvassa; UT of Dadra Nagar and Haveli; and accomplished my task and to justify it the certificate awarded to me and my work by manager of the bank may act the vital role.

[2.3] Scope of the study

The major area of this study is to tackle with the practical knowledge of the banking to get the concepts and relate it to the syllabi being studied and further to study in the future. The study basically is oriented to meet the crisis and to understand the syllabus in the concrete terms and its implementation theoretically as well as practically. Henceforth, the study will go long to shape-up my future career and as well as to build various skills, abilities & personality which will finally result into future manager.

[2.4] Limitations 1. The project is just the collection of brief data on the banking industry. 2. It is based on the past and present data on banking industry; it may differ in future
as much more changes do take place day-by-day.

3. Project is involved with my own ideas and views which may differ from person to
person.

4. The course of project may be too short to conduct an extensive in depth study.

Chapter 3 Profile Of Dena Bank

Dena Bank aims: dynamism, dedication and the drive towards customer satisfaction.
[3.1] History

Dena Bank was founded on 26th May, 1938 by the family of Devkaran Nanjee under the name Devkaran Nanjee Banking Company Ltd. It became a Public Ltd. Company in December 1939 and later the name was changed to Dena Bank Ltd. In July 1969 Dena Bank Ltd. along with 13 other major banks was nationalized and is now a Public Sector Bank constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking Regulations Act 1949, in addition to the business of banking, the Bank can undertake other business as specified in Section 6 of the Banking Regulations Act, 1949.

Milestones
y One among six Public Sector Banks selected by the World Bank for sanctioning a loan of Rs.72.3 crores for augmentation of Tier-II Capital under Financial Sector Developmental project in the year 1995. y One among the few Banks to receive the World Bank loan for technological upgradation and training. y y y Launched a Bond Issue of Rs.92.13 crores in November 1996. Maiden Public Issue of Rs.180 Crores in November 1996. Introduced Tele banking facility of selected metropolitan centers.

Dena Bank has been the first Bank to introduce:

y y y y y Minor Savings Scheme. Credit card in rural India known as "DENA KRISHI SAKH PATRA" (DKSP). Drive-in ATM counter of Juhu, Mumbai. Smart card at selected branches in Mumbai. Customer rating system for rating the Bank Services.

[3.2] Board of Directors

Shri D.L.Rawal Chairman & Mg. Director

Shri Bhaskar Sen Executive Director

Dr Tarsem Chand Govt. Nominee Director

Shri Chandra Kishore RBI Nominee Director

Shri M.G. Shinde Workmen Employee Director

Dr. Kamlesh Kumar Goel Director

Dr.Pritam Singh Shareholder Director

Dr. Sunil Gupta Shareholder Director

Shri. Rohit Khanna Shareholder Director

[3.3] General Managers

Shri T R Chawla General Manager (IT and IRM)

Shri R. Sridharan General Manager (HRM)

Shri P.Paresh Kumar General Manager (Treasury & Forex)

Shri Anandi Lal General Manager (Priority & RRB)

Shri J.P. Kurias General Manager (Recovery Management & Legal)

Shri Mukesh Jain General Manager (Gujarat)

Shri S. K. Jain General Manager (Accounts)

Shri R. K. Gupta General Manager (Credit)

Shri S. R. Bansal General Manager (On Deputation to IIFCL)

Shri M. K. Sharma General Manager (Resource Mobilisation & Administration)

Shri Ramesh Singh Bora General Manager (I & V) and Chief Vigilance Officer

[3.4] Services Provided by Dena Bank

Core Banking Solution The Bank has been constantly endeavoring to leverage the advancements in Information Technology and communication network with a view to: Introduce new techno-centric products Enhance customer convenience Increase efficiency in operations Buildup multiple delivery channels The Bank has embarked upon massive technology based transformation through technology process in the form of implementation of Core Banking Solution (DENA GARIMA). The Bank has engaged the services of M/s Wipro, a leading service provider in IT enabled services for a period of 10 years, for providing an end-to-end solution for Core Banking Operations of the Bank on complete out sourcing basis. It is backed by Finacle software support from M/s Infosys Technologies Ltd. The Core Banking system bundles a host of customer friendly services like Internet Banking, Phone Banking, Mobile Banking and Cash Management Services, software system for Integrated Treasury operations, Integrated Risk Management, Asset Liability Management etc. mainly with a view to address Regulatory concerns and facilitate robust MIS. The Bank has its Data Centre at its own premises at Jogeshwari West, Mumbai and the Disaster Recovery Site at Bangaluru (Bangalore) to ensure business continuity. The DENA GARIMA project was kicked off with migration of existing operations at banks Mahim Branch in Mumbai on 12th March 07. All the branches of the Bank are under CBS Pursuant to the above technological initiative, the Bank has initiated a detailed study that will focus on development of new business models that will include formulating new products and services for serving our customers better. Efforts at revitalizing the entire

rank and file of the Bank, to give sharper focus to customer satisfaction and delight, are also underway. The following facilities/services to customers have been powered by DENA GARIMA : y y y y y y y Access to customer accounts from any of CBS Branches Internet Banking Facility International Debit Cards SMS banking & Alert services Phone Banking facility Payment of Directand Indirect taxes through internet RTGS & NEFT- Fund transfer facilities

Many more products and services which are on the anvil . At the Bank, core banking is not just a technology exercise, it is the first but an important step we have taken towards fulfillment of our Vision statement Dena Bank will provide its Customers, premier financial services of great value. Delivery Channels Dena Bank offers a bouquet of following Technology based Products to deliver Banking services to its customers of all CBS branches from the convenience of any location without any need to visit the Branch: y y y y Internet Banking with Alerts SMS Banking Phone Banking Dena ATM Services

Precaution 1. Dena Bank does not ask for the details of your account / PIN / password. Therefore anyone pretending to be asking you for information from the bank/technical may be fraudulent entities, so please be ware. You should know how to operate net transactions

and if you are not familiar you may refrain from doing so. You may seek bank's guidance in this regard. Bank is not responsible for online transactions going wrong. 2. We shall also not be responsible for wrong transactions and wanton disclosure of details by you. Viewing option and transactions option on the net are different. You may exercise your option diligently. Dena ATM Services Dena Bank Debit cum ATM Card offers you an easy and convenient way to do all your transactions and that too within a fraction of seconds. Presently we have more than 380 ATMs all across India. Dena Debit cum ATM Card is your Bank Account in your pocket. Get your Dena Bank Debit cum ATM Card today and avail round the clock uninterrupted service. DENA BANKS ATM SHARING ARRANGEMENT Dena Debit Card gives you the freedom to access your savings or current account at any VISA accredited POS Terminals (Merchant Establishment), ATM, Cash tree group, Cashnet group , Corporation Bank and SBI & its associates. Features You can link multiple accounts at different branches of Dena Bank to a single Debit cum ATM Card. The Account number of Debit cum ATM Card issuing branches will be the Primary account number and account at other Cards issuing branches link to the same card will be the Secondary account. Transactions 1. Cash Withdrawal:Withdraw up to Rs. 20,000/- per day subject to the balance in your account. 2. Purchase at Merchant Establishments:-

Purchase at Merchant Establishments i.e. Point of Sale (POS) upto Rs. 25000/- per day subject to the balance in your account (with effect from 1st April 2008). 3. Cash/Cheque Deposit:You can deposit up to 30 notes at a time in the ATM machine. You can also deposit your cheque in the ATM. 4. Balance Enquiry:You can check your balance of all your account. 5. Mini Statement:You can get Mini statement of your transactions. 6. PIN Change:You can change your Personal Identification Number (PIN).

Value Added Services Through ATM 1. Mobile Recharge through ATM :- You can recharge your mobile phone through ATM also. You can also recharge your mobile through Mobile Equipment and for that you have to register yourself through ATM. Presently this service is available to only customers of Airtel, Idea Orange, BPL and Reliance Service Provider. Now the customer of Reliance can also recharge their mobile. 2. Mobile Post Paid Bill Payment: You can pay your Post Paid mobile Bill through ATM. Presently this service is available to AIRTEL and Orange-Hutch customer (Mumbai Circle only) . 3. Fund Transfer:-You can transfer funds with upper limit Rs. 1 Lac per day subject to the balance in the account between your Dena Banks accounts either in same branch or different branches. Both the accounts must be linked to your Card for Fund Transfer.

Biometric ATMs Keeping to its trend of providing innovative services to its customers with the help of latest technology, Dena Bank has launched the Bio-metric ATMs at its Balwa and Chhala Branches in Gujarat. This Biometric ATM is the first of its kind in Gujarat. This ATM talks to the farmers in their local language, gently guiding him on his transactions. The ATM has a simple One- Touch transaction using the finger print technology thus eliminating the need to remember the PIN or going through the complex menus of a traditional ATM on the screen. The Bio-metric ATM launched by Dena Bank will encourage the rural population of Gujarat to make use of the ATM. Dena India Remit Dena Bank brings you a unique new service. Send money to your family anywhere in India from the US, UK and Europe. Dena India Remit is a completely web-enabled remittance service supported by superior technology, state-of-the-art operations and a highly professional team to offer you complete peace-of-mind. Bancassurance With the commitment to customer convenience, the Bank has tied up with insurance companies so that our customers can avail of insurance services also at our branches. They are the Corporate Agents of the Life Insurance Corporation of India for distribution of their life insurance products. In the general [non-life] insurance sector, our Bank has a Referral Arrangement with The Oriental Insurance Company Ltd. Both insurance partners offer a wide range of insurance products, which are available at their branches as a result of our Bancassurance tie ups. This is another value addition for our customers in their banking relationship with them.

Distribution of Mutual Funds Dena Bank is committed to providing a wide range of financial services to the customers. In pursuance of this commitment, the Bank has tied up with the following Mutual Funds for distribution of their mutual fund products through selected branches across the country: 1. UTI Mutual Fund. 2. ICICI Prudential Mutual Fund 3. LIC Mutual Fund 4. Franklin Templeton Investments 5. HDFC Mutual Fund 6. ING Vysya Mutual Fund 7. Reliance Mutual Fund 8. Kotak Mutual Fund 9. Birla Sunlife Mutual Fund 10. Tata Mutual Fund 11. SBI Mutual Fund 12. Fidelity Mutual Fund 13. DSP Blackrock Mutual Fund 14. Shinsei Mutual Fund

This is another value addition in our services for our customers, who can avail banking as well as insurance and mutual fund investment services at our branches. Demat Services The Depository system was introduced in India more than a decade back. Today the word "Demat" is well known and most of the investors are aware of the Demat of shares and securities. Presently, there are only two Depositories operating in India:(i) National Securities Depository Limited (NSDL) and (ii) Central Depository Services (India) Limited (CDSL). Financial Institutions, Banks, custodians and stockbrokers complying with the requirements prescribed by Securities & Exchange Board of India (SEBI) can be registered as a Depository Participant (DP).

A "Depository Participant" is an agent of the Depository (NSDL or CDSL) who is authorized to offer depository services to investors. Thus to open a Demat account of an investor, a bank or its branch has to get registered as a DP of a depository i.e. NSDL or CDSL or both. Dena Bank has its DP Located at Horniman Circle Fort operating as DP of NSDL and bank is also giving depository services through its collection centers at JVPD and. Mulund(East) branhces

Chapter 4 Indian Banking Industry

"A bank is a place that will lend you money if you can prove that you don't.

The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balancesheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liabilities.

[4.1] Banking Industry Structure

The Indian banking system can be classified into nationalized banks, private banks and specialized banking institutions. The industry is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. The Reserve Bank of India is the foremost monitoring body in the Indian Financial sector. It is a centralized body that monitors discrepancies and shortcomings in the system. Industry estimates indicate that out of 274 commercial banks operating in the country, 223 banks are in the public sector and 51 are in the private sector. These private sector banks include 24 foreign banks that have beg up their operations here. The specialized banking institutions that include cooperatives, rural banks, etc. form a part of the nationalized banks category.

[4.2] Growth of Banking in India

A robust increase in non-interest income has helped the SBI post a net profit of US$ 530.6 million in the second quarter ended September 30, 2009, up 10 per cent from the corresponding period last year. The bank has been growing its savings bank deposit base at the rate of US$ 1.07 billion a month in the last few months, in a bid to grow lowcost deposits and shed high-cost term deposits. This is expected to improve net interest margin by 10-15 basis points in every quarter. The SBI is adding 23 new branches abroad bringing its foreign-branch network number to 160 by March 2010. This will cement its leading position as the bank with the largest global presence among local peers. Amongst the private banks, Axis Banks net profit surged by 32 per cent to US$ 115.4 million on 21.2 per cent rise in total income to US$ 852.16 million in the second quarter of 2009-10, over the corresponding period last year. HDFC Bank, the countrys second largest private sector lender, reported a 30.21 per cent rise in its quarterly net profit, helped by non-interest income. For the quarter ended September 2009, ICICI Bank reported a 2.6 per cent jump in net profit at US$ 222.1 million from US$ 216.5 million in the same period a year-back. ICICI Bank has raised US$ 750 million through a five-year bond issue at its Bahrain branch. YES Bank, a new private sector bank, has inked pact with Proparco, a French financing agency, to raise US$ 20 million capital through subordinated bonds to enhance capital adequacy.

[4.3] Competition
The conditions in the banking industry have changed and are changing all over the world. In our country, economic reform and in particular financial sector reform has altered the atmosphere in which the participants operate.

First, market size -Usually, a small market does not attract too many competitors. The size of the market is so large and with GDP likely to grow at 6.5 per cent in the mediumto long-term, the Indian banking industry has become very attractive-as never before. Second, industry profitability-higher by the standards of the past or international standards is attracting more new entrants. Hence, increasing competition in the industry. Third, rapid technological change-This enables not only quicker and more efficient service but advantage to new entrants over existing players. Fourth, product innovations-Features such as home banking, ATMs are all making the industry to be continuously alert, and fiercely competitive. Fifth, entry/exit norms-While regulatory barriers have been eased, desirable barriers exist in the form of capital and other requirements. After all banking license cannot be like a driving license. But, entry norms are fairly clear, though exit norms are not clear yet. Sixth, markets are increasingly getting integrated in our country also. Domestic and foreign currency, banking and non-banking are getting closer. Correspondingly, there are institutional innovations and interlink ages, both in ownership and operations -be it in depositories or mutual funds. Seventh, consumers of banking services are getting increasingly agile, enlightened, cost and quality conscious. They are already forcing the pace of competition on price, product and quality products. Emerging Issues First, the issue of competition is irrevocably linked with regulatory framework and level playing field. This issue has been constantly raised in different forums and this relates to not only banks but also to other financial intermediaries. The financial sector is still in transition and let me assure you that this is an area that will gain greater attention in the future. Secondly, all other industries are vocal about the 100 million middle-classes. The corporate sector is increasingly talking about exploiting the potential in the rural-semi-

urban markets. Perhaps, we should question the relevance of rural-urban dichotomy and look at rural-urban continuum. Thirdly, when competition intensifies, there has to be inevitable changes such as mergerswhat I earlier referred to as exit norms. As one of the Conference papers pointed out, the net result in any field is either the crowding out of the weaker players or their amalgamations with the stronger ones. Fourthly, in this context, banks should concentrate on study of the success stories as well as bank failures. Internationally, there are elaborate documented studies on bank failures; Barings is just one example. We too need to make an incisive analysis of banks that failed in our country and learn not to commit similar mistakes. Fifthly, we have to think seriously about the nature of the control that exists. Banks will need to be given more autonomy, and more important, they should assert their autonomy. Here lies the importance of industry associations. The scope for self-regulatory industry norms and banking industry protocol should be explored. This will bring about more flexibility to banks and less regulatory intrusion. Sixthly, I noticed a suggestion in one of the papers to make Mumbai as an international financial centre. Similarly suggestions have been made in the past and we have some reservations, but we always have an open mind. A number of issues have to be clarified in our minds -whether such a financial centre can be started before we reach international standards? Whether we need to promote such a centre at this stage of financial sector reforms or at a later stage? Please study these issues in a more detailed and formal manner, and then we can take a view. Seventhly, there is a lot of interest from foreign entities in the opening up of the insurance sector in India. Perhaps, both banks and policy makers need to assess whether domestic banks, particularly larger banks, have an opportunity to enter into either general or life insurance through subsidiaries or collaborations, to take advantage of their existing market penetration. Could this really add to the competitive strength of the banks in financial intermediation?

[4.4] Public Sector Banks

The Public Sector Banks (PSBs), which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On the other hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.

[4.5] Private Sector Banks

In the Indian Banking Industry some of the Private Sector Banks operating are IDBI Bank, ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. and banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank are some of the foreign banks operating in the Indian Banking Industry.

[4.6] Foreign Banks

Foreign Banks in India always brought an explanation about the prompt services to customers. After the set up foreign banks in India, the banking sector in India also become competitive and accurative. New rules announced by the Reserve Bank of India for the foreign banks in India in this budget has put up great hopes among foreign banks which allows them to grow unfettered. Now foreign permitted banks to in set India up are local

subsidiaries. The policy conveys that foreign banks in India may not acquire Indian ones (except for

weak banks identified by the RBI, on its terms) and their Indian subsidiaries will not be able to open branches freely. List of Foreign Banks in India ABN-AMRO Bank Abu Dhabi Commercial Bank Bank of Ceylon BNP Paribas Bank Citi Bank China Trust Commercial Bank Deutsche Bank HSBC JPMorgan Chase Bank Standard Chartered Bank Scotia Bank Taib Bank

[4.7] Scheduled Commercial Banks in India

The commercial banking structure in India consists of: Scheduled Commercial Banks in India Unscheduled Banks in India Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches. The scheduled commercial banks in India comprise of State bank of India and its associates (204), nationalized banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings)

Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank". "Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank". The following are the Scheduled Banks in India (Public Sector): State Bank of India State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore Andhra Bank Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Overseas Bank Indian Bank Oriental Bank of Commerce Punjab National Bank Punjab and Sind Bank Syndicate Bank Union Bank of India United Bank of India UCO Bank Vijaya Bank

The following are the Scheduled Banks in India (Private Sector):

Vysya Bank Ltd Axis Bank Ltd Indusind Bank Ltd ICICI Banking Corporation Bank Ltd Global Trust Bank Ltd

HDFC Bank Ltd Centurion Bank Ltd Bank of Punjab Ltd IDBI Bank Ltd

The following are the Scheduled Foreign Banks in India:

American Express Bank Ltd. ANZ Gridlays Bank Plc. Bank of America NT & SA Bank of Tokyo Ltd. Banquc Nationale de Paris Barclays Bank Plc

Citi Bank N.C. Deutsche Bank A.G. Hongkong and Shanghai Banking Corporation Standard Chartered Bank. The Chase Manhattan Bank Ltd. Dresdner Bank AG.

[4.8] Co-operative Banks

[4.9] Banking Regulation Act 1949

The Banking Regulation Act was passed as the Banking Companies Act 1949 and came into force wef 16.3.49. Subsequently it was changed to Banking Regulations Act 1949 wef 01.03.66. Summary of some important sections is provided hereunder. The section no. is given at the end of each item. For details, kindly refer the bare Act. Banking means accepting for the purpose of lending or investment of deposits of

money from public repayable on demand or otherwise and withdrawable by cheque, drafts order or otherwise (5 (i) (b)). (5(i)(c) Transact banking business in India (5 (i) (e). Demand liabilities are the liabilities which must be met on demand and time Banking company means any company which transacts the business of banking

liabilities means liabilities which are not demand liabilities (5(i)(f) Secured loan or advances means a loan or advance made on the security of asset

the market value of which is not at any time less than the amount of such loan or advances and unsecured loan or advances means a loan or advance not secured (5(i)(h). Defines business a banking company may be engaged in like borrowing, lockers,

letter of credit, traveller cheques, mortgages etc (6(1). States that no company shall engage in any form of business other than those

referred in Section 6(1) (6(2). For banking companies carrying on banking business in India to use at least one

word bank, banking, banking company in its name (7). Restrictions on business of certain kinds such as trading of goods etc. (8) Prohibits banks from holding any immovable property howsoever acquired except

as acquired for its own use for a period exceeding 7 years from acquisition of the property. RBI may extend this period by five years (9)

Prohibitions on employments like Chairman, Directors etc (10) Paid up capital, reserves and rules relating to these (11 & 12) Banks not to pay any commission, brokerage, discount etc. more than 2.5% of

paid up value of one share (13) Prohibits a banking company from creating a charge upon any unpaid capital of

the company. (14) Section 14(A) prohibits a banking company from creating a floating charge on the undertaking or any property of the company without the RBI permission. Prohibits payment of dividend by any bank until all of its capitalised expenses

have been completely written off (15) To create reserve fund and 20% of the profits should be transferred to this fund

before any dividend is declared (17 (1)) Cash reserve - Non-scheduled banks to maintain 3% of the demand and time

liabilities by way of cash reserves with itself or by way of balance in a current account with RBI (18) Permits banks to form subsidiary company for certain purposes (19) No banking company shall hold shares in any company, whether as pledgee,

mortgagee or absolute owners of any amount exceeding 30% of its own paid up share capital + reserves or 30% of the paid up share capital of that company whichever is less. (19(2). Restrictions on banks to grant loan to person interested in management of the

bank (20) Power to Reserve Bank to issue directive to banks to determine policy for

advances (21) Every bank to maintain a percentage of its demand and time liabilities by way of

cash, gold, unencumbered securities 25%-40% as on last Friday of 2nd preceding fortnight (24).

Return of unclaimed deposits (10 years and above) (26) Every bank has to publish its balance sheet as on March 31st (29). Balance sheet is to be got audited from qualified auditors (30 (i)) Publish balance sheet and auditors report within 3 months from the end of period

to which they refer. RBI may extend the period by further three month (31) Prevents banks from producing any confidential information to any authority

under Indl Disputes Act. (34A) RBI authorised to undertake inspection of banks (35). Amendment carried in the Act during 1983 empowers Central Govt to frame rules

specifying the period for which a bank shall preserve its books (45-y), nomination facilities (45ZA to ZF) and return a paid instrument to a customer by keeping a true copy (45Z). Certain returns are also required to be sent to RBI by banks such as monthly

return of liquid assets and liabilities (24-3), quarterly return of assets and liabilities in India (25), return of unclaimed deposits i.e. 10 years and above (26) and monthly return of assets and liabilities (27-1).

Chapter 5 Transformation In banking

It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.

Financial country

services has

sector

in

our

witnessed

notable

transformation over the last five decades and concerted efforts have been made by the banking system to grow by building up an extensive branch net-work, penetrating into unbanked areas, mobilizing untapped saving, promoting banking habits and providing credit for rural

development, besides diversifying new areas of business. The process of globalization of Indian economy has created an environment where the financial service system has to be effective, customer oriented and technology based. The banking sector plays a crucial role in the economic development of the nation. A sound, efficient, effective, vibrant and innovative banking system stimulates economic growth by mobilizing savings on a massive scale and efficiently allocating resources for the productive as well as consumption purpose. These banking sector reforms includes progressive reduction of statutory liquidity ratio (SLR) and cash reserve ratio (CRR); prescription of uniform accounting norms with regard to classification of assets, enactment of a statute providing for setting up of tribunals for expeditious adjudication and recovery of bank loans; establishment of separate board for financial supervision of bank; permission for the entry of new private banks to inject competition; rationalization and deregulation of interest rates; implementation of capital adequacy norms; recapitalization of banks; permission to banks to access capital market for mobilizing additional equity; liberalized new branch licensing and new bank licensing policy, etc.

[5.1] Classification of reforms

The banking sector reforms can be classified into six categories namely (a) measures meant for promotion of competition (b) measures meant for strengthening role of the market (c) prudential measures (d) legal measures (e) measures meant for

strengthening supervision or supervisory controls and (f) measures relating to technology. Some of these measures meant for strengthening of competition included grant of limited operational autonomy to public sector banks(PSB); dilution of government stake in the equity of PSBs permitting them to mobilize capital from the open market; adoption of transparent licensing policy enabling the entry of private sector, foreign and joint venture banks; permitting foreign direct investment (FDI) in the financial sector as well as permitting portfolio investment; issues of guidelines on ownership and governance in private sector banks; etc. Measures initiate to strengthen the role of market force included progressive reduction in SLR and CRR, market determined pricing of government securities, deregulation of interests rates etc. prudential measures which have been implemented covered fulfillment of capital adequacy norms; and new accounting, income recognition, provisioning and exposure norms, application for marked-to-market principle for investment portfolio and fixation of limits for deployment of funds in sensitive sectors and activities. In addition, know your customer (KYC) guidelines, anti-money laundering (AML) standards, introduction of capital charge for market risk, higher graded provisioning for non-performing assets (NPA), etc were adopted for implementation. Institutional and legal measures introduced for improving banks performance in the area of recovery and for asset quality upgradation included setting up of Lok Adalats, debt recovery tribunals (DRT), asset reconstruction companies (ARC), settlement advisory committees, corporate debt restructuring mechanism, etc. Enactment of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act) was another important milestone in reforms. Setting up of Credit Information Bureau (India) limited (CIBIL) for sharing credit information and establishment of the Clearing Corporation of India Limited (CCIL) to act as central counter-party for facilitating payments and settlement systems relating to fixed income securities and money instrument extended support to banks. Certain supervisory measures such as establishment of a separate Board for Financial Supervision in RBI, recasting the role of statutory auditors and increased internal control through strengthening of internal audit, strengthening of corporate governance, etc were also initiated. The technology related measures included setting up of Indian Financial NETwork (INFINET) as the

communication backbone for the financial sector, introduction of negotiated dealing system for screen based trading in government securities and implementation of RealTime Gross Settlement (RTGS) system.

[5.2] Changes galore

Reforms made significant impart on banks and their functioning. The major areas of transformation in Indian banking are as follows: Risk based management Banks in India have adopted comprehensive risk management systems for focused attention to various types of risks such as interest rate risk, credit risk, liquidity risk, market risk and operational risk. These risk management systems spell out internationally accepted risk measurement methods for various types of risk to calculate capital charge required for meeting prescribed capital adequacy ratio. Banks have set up separate risk management departments to ensure compliance with regulatory measures. Competition In post-reform era, competition between banks is continuously increasing. The market for bank services and products has now become a buyers market. Acute competition with the advent of new generation private sector banks bringing in technology has resulted in laying greater focus on product innovation backed by IT advancement and thrust on

customization of products. There is now increased focus on customer orientation in all activities of banks. Banks are now oriented to vigorous marketing of various products and services. Further increase in

competition may require banks to have simulation analysis of customer needs, products and market segments with the help of sophisticated quantitative tools.

Efficiency parameters In the post-reform period, we find a complete change in efficiency parameters. Today, what is important is the strength of balance sheet. Return on assets, return on risk adjustment capital, net interest margin, quality of assets, NPA percentage, per employee business, per employee profit and overall per employee productivity and proportion of low cost deposits are some of the vital parameters of banking today. There is added emphasis on professionalism on the part of bank officers and staff and also on good corporate governance to increase customer satisfaction and enhance shareholders value as a result of these new efficiency parameters. Value added services As a result of reforms, the trend is clearly towards providing value added services such as credit cards, insurance products, mutual funds and demat accounts with trading platform. There are no taker in the market for simple stand-alone banking services. Mergers and acquisitions In the post-reform era, we have seen many mergers and acquisitions. New bank of India, a nationalized bank and the private sector Nedungadi Bank Ltd were merged with Punjab National Bank. Bareilly Corporation Bank was merged with Bank of Baroda. Times Bank and Centurion Bank of Punjab merged with HDFC Bank. Bank of Madura, ICICI Ltd and Sangli Bank marged with ICICI Bank. Sikkim Bank was merged with Union Bank of India in 1999-2000. Global Trust Bank was merged with Oriental Bank of Commerce; United Western Bank was merged with IDBI Bank. Ganesh Bank of Kurundwad was merged with Federal Bank in 2006. Lord Krisnha Bank and Bank of Muscat SAOG were merged with Centurion Bank of Panjab. Such merger creates larger and stronger banks. Mergers may be synergy based to derive economies of scale or market driven mergers between banks and financial institutions in the interests of furthering universal banking. IT initiatives

In every bank, there has been stress on increased IT application and efforts are to absorb latest technology. Banks are striving hard to extend core banking solutions (CBS) to all branches in a phased manner. In the post-reforms era, we have seen strategic alliances among banks in areas like sharing of ATMs and funds transfer, etc. bringing all branches, including the rural ones, within the CBS network, establishment of biometric rural ATMs and introduction of mobile banking are some of the major developments expected in the future. Focus on qualitative aspects There is a gradual shift in focus from size related issues to concern in respect of productivity, efficiency, profitability, return on capital, net interest margin and return on asset, etc. In the days to come, there will be greater stress on these concerns. This will result in adoption of still better and more prudent risk management system; better and more effective management of spreads and net interest margin through cost cutting product innovation; product-wise and business line-wise cost, income and profitability analysis; steps aimed at augmentation of fee-based income, etc. Human resources In Indian banking there is a stress on objective manpower planning and adoption of scientific methods for evaluating the contributions of manpower. Outsourcing of work is also a development in post-reform period. Soon performance linked reward system may be implemented in PSBs. High average age of staff in PSBs can be reduced by shedding excess staff beyond a certain age and recruiting younger persons with good educational background and IT skills. There is a need for having suitable comprehensive training programmes at various educational institutes preparing new generation bankers relieving banks from training fresh recruits.

[5.3] Increased strength

Consequent to banking sector reforms, Indian banks have emerged relatively stronger in terms of range of products and services, capital adequacy, asset quality, profitability, productivity and overall balance sheet strength vis--vis their counterparts in

other Asian countries. But, they are likely to encounter new challenges, particularly with implementation of Basel II norms and opening up of banking sector for the entry of foreign banks. An analysis by standard & Poors has shown that the Indian banking is ahead of China, Indonesia, Philippines and Vientnam. But, the banking sectors of Australia, New Zealand, Singapore, Hong Kong, Japan, South Korea and Thailand are ahead of Indian banks. Another study undertaken by Moodys Investors Service revealed that Indian banking is qualitatively better than its counterparts even in developed countries like, Japan, Singapore and Australia. Indian banks have posted the highest return on equity compared to their Asian counterparts during the last four years. There has been a distinctly discernible improvement in the performance of Indian banks on various fronts. But, the acquisition of a globally competitive size for Indian banks is a major challenge. Banks in other Asian countries, particularly in china, are larger in size compared to Indian banks. The Reserve Bank of India (RBI) has recently issued guidelines to banks on pillar 2 of Basel II framework. Pillar 2 deals with supervisory review process, the objective of which is to ensure that banks have adequate capital to support all risks and also to encourage them to develop and use better risk management techniques for monitoring and managing their risks. The RBI guidelines listed some risks that banks are generally exposed to, but which are not fully captured in the regulatory Capital to Risk Asset Ratio (CRAR), such as interest rate risk, credit concentration risk, liquidity risks, settlement risks and reputational risks, among others. There will be a severe strain on capital on account of implementation of Basel II norms. RBI has advised banks to develop an Internal Capital Adequacy Assessment Process (ICAAP) commensurate with their size, level of complexity, risk profile and scope of operations. This would be in addition to calculation of regulatory capital requirement under Pillar I.

[5.4] Acquisition of competitive advantage

The vision for a strong, vibrant and globally competitive banking sector in India is based on achievement of competitive advantage, the acquisition of which is possible only through stress on efficiency, increase in productivity and improvement in profitability, up-scaling of technological upgradation and continued improvement of overall balance

sheet strength. This world also require adoption of global best practices on the part of banks. Facing the challenge of change in terms of range of products, delivery channels, processes, culture, structure and overall capabilities would require key structural changes such as consolidation, full implementation of Basel II norms, implementation of RTGs at all branches, more effective risk management practices, better credit management techniques, good corporate governance, better technology, effective customer relation management, improvement in human resource capabilities and increase in

professionalism at all levels. Concentrated attention on these vital aspects can alone fetch competitive advantage. Productivity Business per employee of Indian banks increased from INR 5.4 million in 1992 to INR 16.3 million in 2004 and profit per employee rose from INR 20,000 to INR 1,50,000 in the same period. Business per branch also increased from INR 109.9 million to INR 254.5 million in the above period. Measures of profitability such as return on assets and operating profit ratio, and efficiency measures such as net interest margin, ratio of operating profit to staff expense, operating cost ratio and staff expenses ratio have to be improved. There is therefore need to increase business volumes by leveraging technology to reduce cost of intermediation. All controllable costs must be reduced by bank. Internal controls Banks today find it difficult to maintain the minimum required controls expected in a new complex and increasingly regulated business environment. The traditional audit and inspection provide assurance that control systems are adequate and function satisfactorily. But, they are in fact a post-mortem and the finding emerging there from are only after the transactions are over. Further, they may not cover all transactions and many may go unnoticed. Auditors are rarely able to check all transactions in detail from control and compliance angle. Therefore, there is a risk of even frauds remaining undetected. To assist in the efficient capture and evaluation of data, sophisticated software tools need to be used for evaluation of disclosure controls and procedures, and internal controls and supervision over financial reporting.

Corporate governance Corporate governance is of crucial importance for banks. The corporate governance philosophy of banks has to be based on the pursuit of sound business ethics and strong professionalism that aligns the interest of all stakeholders and the society at large. It is therefore necessary to constantly strengthen corporate governance mechanism in all banks. Disclosure of reliable information facilities market discipline, strengthen confidence and reduce the chances for rumours and creation of atmosphere of suspicion and misleading information that may bring about market instability. There is still a vast scope for improvement in Indian accounting standards to bring them at par with the global practices. Innovative business model Introduction to innovative business models and financial technologies world over has received an impetus through slashing operating cost by higher labour productivity, business process re-engineering, further reduction in NPAs, micro planning, branchcentric profit planning, effective implementation of plans and monitoring of results, market centric human resource management (HRM) policies and manpower planning. Very high average age of staff, requirement of new skills and talents, working in a computerized environment, foray into new and emerging areas require recruitment of new staff and specialists, extensive training, etc. although 86 percent of PSBs are fully computerized, only 44 percent are actually functioning under CBS platform. Covering all branches in all banks under CBS will be one of the major challenges for banks. Increased customer-orientation and customer focused product innovation; greater use of multiple channels like ATMs, internet and mobile banking; efficient credit delivery besides building up sound financial are vital for banking for facing emerging challenges and obstacles. Financial inclusion

There are abundant opportunities for intermediation and mobilization of saving and extension of bank credit at the bottom of the pyramid. About 60 to 70 percent of enterprise and individuals in our country do not have access to basic financial services such as saving and credit. Hence, increased financial inclusion of all those who presently stand excluded is of paramount importance. Bank linkage with self help group (SHG), financing of small and medium enterprises, rural artisans, rural non-farm activities, etc will prove to be great business opportunities for banks. Emphasis on volume-led growth to competitive balance sheet size, shift of focus from interest income to non-interest income and from capital adequacy to capital efficiency, etc are vital for maintain benchmarks of return on assets, return on owned funds, net NPAs, capital adequacy, cost to income ratio, net interest margin and intermediation cost. In bracing for tomorrow a paradigm shift in bank financing through innovative mechanism such as, templates for assessing customer risk and pricing products and services, credit scoring, ensuring availability and use of information, etc are absolutely essential. Retail banking requires product development and differentiation, innovation and business process re-engineering, micro planning, technology upgradation for home, electronic and mobile banking, cost reduction and cross selling. Developing immunity Banks have to adopt and implement strategies to ensure immunity of their balance sheets from interest rate fluctuations by paying greater attention to non-interest income. Merchant banking, international trade, payment and settlements, consultancy services, financial derivatives, etc open up new income sources for banks. But, what is required is a total transition from branch banking to virtual banking, market segmentation to customer segmentation and product to customer profitability.

Chapter 6 Emerging Trends In Banking

Progress is the activity of today and the assurance of tomorrow.

[6.1] Trends in Banking Industry

At the beginning of the 21st century, the biggest banks in the industrial world have become complex financial organizations that offer a wide variety of services to international markets and control billions of dollars in cash and assets. Supported by the latest technology, banks are working to identify new business niches, to develop customized services, to implement innovative strategies and to capture new market opportunities. With further globalization, consolidation, deregulation and diversification of the financial industry, the banking sector will become even more complex. Although, the banking industry does not operate in the same manner all over the world, most bankers think about corporate clients in terms of the following:
y

Commercial banking - banking that covers services such as cash management (money transfers, payroll services, bank reconcilement), credit services (assetbased financing, lines of credits, commercial loans or commercial real estate loans), deposit services (checking or savings account services) and foreign exchange;

Investment banking - banking that covers an array of services from asset securitization, coverage of mergers, acquisitions and corporate restructuring to securities underwriting, equity private placements and placements of debt securities with institutional investors.

Over the past decade there has been an increasing convergence between the activities of investment and commercial banks, because of the deregulation of the financial sector. Today, some investment and commercial banking institutions compete directly in money market operations, private placements, project finance, bonds underwriting and financial advisory work. Furthermore, the modern banking industry has brought greater business

diversification. Some banks in the industrialized world are entering into investments, underwriting of securities, portfolio management and the insurance businesses. Taken

together, these changes have made banks an even more important entity in the global business community.

[6.2] Basel Capital Accord II

The Basel Committee on Banking Supervision (BCBS) had released the guidelines on capital measures and capital standards in July 1988 which were accepted by Central Banks in various countries including RBI (called Basel -I). In India these were implemented on 1.4.92. Later on the revised version of the guidelines was issued by BCBS in June 2006, which are being implemented by banks all over the world. Basel II implementation in India RBI issued detailed guidelines during April 2007 according to which the schedule for implementation is as under: (a) Foreign banks operating in India and Indian banks having presence outside India would migrate to the standardized approach for credit risk and the basic indicator approach for operational risk under Basel II with effect from Mar 31, 2008, (b) All other banks (excluding IRBs and Local Area Banks) are to migrate by Mar 31, 2009.

[6.3] Business process re-engineering

In the banking industry, the business Process Re-engineering (BPR) means transforming the select processes and procedures with a view to empower the bank with contemporary technologies, business solutions and innovations that enhances the competitive advantage. Objective: The objective of a BPR initiate is to create and enhance the value of the bank for the customers. It takes into account 4 important aspects customer (to given him enhanced value), competition (to meet it successfully), change (to manage it) and cost (to reduce).

The basic objective of BPR are to reduce the transaction process time without sacrificing security aspect, quality and real time service to clients and extensive propagation of single window concept. BPR basically aimed at maintaining long term profitability and strengthening the competitive edge of banks in conforming to transforming market realities. Benefits: There is growing need for use of BPR to further the strategic goal of banks. BPR can benefit the customer through significantly reduced transaction time, flexibility in servicing and improved value. The banks can be benefited by increased volume of business and higher productivity, reduced operational cost leading to higher profits, improved employee loyalty and sense of belongingness and establishment of bank within a branch concept. Employees benefit through empowerment leading to higher job satisfaction, effective job rotation as an additional incentive and effective interface with customers as work load is evenly distributed.

[6.4] E-banking:
Internet banking (or E-banking) means any user with a personal computer and a browser can get connected to his bank -s website to perform any of the virtual banking functions. In internet banking system the bank has a centralized database that is webenabled. All the services that the bank has permitted on the internet are displayed in menu. Any service can be selected and further interaction is dictated by the nature of service. The traditional branch model of bank is now giving place to an alternative delivery channels with ATM network. Once the branch offices of bank are interconnected through terrestrial or satellite links, there would be no physical identity for any branch. It would a borderless entity permitting anytime, anywhere and anyhow banking. The network which connects the various locations and gives connectivity to the central office within the organization is called intranet. These networks are limited to organizations for which they are set up. SWIFT is a live example of intranet application.

Internet banking in India The Reserve Bank of India constituted a working group on Internet Banking. The group divided the internet banking products in India into 3 types based on the levels of access granted. They are: i) Information Only System: General purpose information like interest rates, branch location, bank products and their features, loan and deposit calculations are provided in the banks website. There exist facilities for downloading various types of application forms. The communication is normally done through e-mail. There is no interaction between the customer and bank's application system. No identification of the customer is done. In this system, there is no possibility of any unauthorized person getting into production systems of the bank through internet. ii) Electronic Information Transfer System: The system provides customer- specific

information in the form of account balances, transaction details, and statement of accounts. The information is still largely of the 'read only' format. Identification and authentication of the customer is through password. The information is fetched from the bank's application system either in batch mode or off-line. The application systems cannot directly access through the internet. iii) Fully Electronic Transactional System: This system allows bi-directional capabilities. Transactions can be submitted by the customer for online update. This system requires high degree of security and control. In this environment, web server and application systems are linked over secure infrastructure. It comprises infrastructure. Automated Teller Machine (ATM): ATM is designed to perform the most important function of bank. It is operated by plastic card with its special features. The plastic card is replacing cheque, personal attendance of the customer, banking hours restrictions and paper based verification. There are debit cards. ATMs used as spring board for Electronic Fund Transfer. ATM technology covering

computerization, networking and security, inter-bank payment gateway and legal

itself can provide information about customers account and also receive instructions from customers - ATM cardholders. An ATM is an Electronic Fund Transfer terminal capable of handling cash deposits, transfer between accounts, balance enquiries, cash withdrawals and pay bills. It may be on-line or 0ff-line. The on-line ATN enables the customer to avail banking facilities from anywhere. In off-line the facilities are confined to that particular ATM assigned. Any customer possessing ATM card issued by the Shared Payment Network System can go to any ATM linked to Shared Payment Networks and perform his transactions. Credit Cards/Debit Cards: The Credit Card holder is empowered to spend wherever and whenever he wants with his Credit Card within the limits fixed by his bank. Credit Card is a post paid card. Debit Card, on the prepaid card with Every time a other hand, is a some stored value. person uses this Banking house

card, the Internet gets money

transferred to its bank of the buyer. account is debited amount of

account from the The with the buyers exact An

purchases.

individual has to

open an account with the issuing bank which gives debit card with a Personal Identification Number (PIN). When he makes a purchase, he enters his PIN on shops PIN pad. When the card is slurped through the electronic terminal, it dials the acquiring bank system - either Master Card or VISA that validates the PIN and finds out from the issuing bank whether to accept or decline the transactions. The customer can never overspend because the system rejects any transaction which exceeds the balance in his account. The bank never faces a default because the amount spent is debited immediately from the customers account. Smart Card:

Banks are adding chips to their current magnetic stripe cards to enhance security and offer new service, called Smart Cards. Smart Cards allow thousands of times of information storable on magnetic stripe cards. In addition, these cards are highly secure, more reliable and perform multiple functions. They hold a large amount of personal information, from medical and health history to personal banking and personal preferences. E-Banking Services: (1) Bill payment service You can facilitate payment of electricity and telephone bills, mobile phone, credit card and insurance premium bills as each bank has tie-ups with various utility companies, service providers and insurance companies, across the country. To pay your bills, all you need to do is complete a simple one-time registration for each biller. You can also set up standing instructions online to pay your recurring bills, automatically. Generally, the bank does not charge customers for online bill payment. (2) Fund transfer You can transfer any amount from one account to another of the same or any another bank. Customers can send money anywhere in India. Once you login to your account, you need to mention the payees's account number, his bank and the branch. The transfer will take place in a day or so, whereas in a traditional method, it takes about three working days. ICICI Bank says that online bill payment service and fund transfer facility have been their most popular online services. (3) Credit card customers With Internet banking, customers can not only pay their credit card bills online but also get a loan on their cards. If you lose your credit card, you can report lost card online.

(4) Railway pass

This is something that would interest all the aam janta. Indian Railways has tied up with ICICI bank and you can now make your railway pass for local trains online. The pass will be delivered to you at your doorstep. But the facility is limited to Mumbai, Thane, Nashik, Surat and Pune. (5) Investing through Internet banking You can now open an FD online through funds transfer. Now investors with interlinked demat account and bank account can easily trade in the stock market and the amount will be automatically debited from their respective bank accounts and the shares will be credited in their demat account. Moreover, some banks even give you the facility to purchase mutual funds directly from the online banking system. Nowadays, most leading banks offer both online banking and demat account. However if you have your demat account with independent share brokers, then you need to sign a special form, which will link your two accounts. (6) Recharging your prepaid phone Now; just top-up your prepaid mobile cards by logging in to Internet banking. By just selecting your operator's name, entering your mobile number and the amount for recharge, your phone is again back in action within few minutes. (7) Shopping With a range of all kind of products, you can shop online and the payment is also made conveniently through your account. You can also buy railway and air tickets through Internet banking. Advantage of Internet banking As per the Internet and Mobile Association of India's report on online banking 2006, "There are many advantages of online banking. It is convenient, it isn't bound by operational timings, there are no geographical barriers and the services can be offered at a miniscule cost."

Through Internet banking, you can check your transactions at any time of the day, and as many times as you want to. Where in a traditional method, you get quarterly statements from the bank. If the fund transfer has to be made outstation, where the bank does not have a branch, the bank would demand outstation charges. Whereas with the help of online banking, it will be absolutely free for you. Security Precautions Customers should never share personal information like PIN numbers, passwords etc with anyone, including employees of the bank. It is important that documents that contain confidential information are safeguarded. PIN or password mailers should not be stored, the PIN and/or passwords should be changed immediately and memorized before destroying the mailers. Customers are advised not to provide sensitive account-related information over unsecured e-mails or over the phone. Take simple precautions like changing the ATM PIN and online login and transaction passwords on a regular basis. Also ensure that the logged in session is properly signed out.

[6.5] Insurance Business by Banks

With the opening up of insurance sector, the banks in India can undertake insurance business either on risk participation basis (called underwriting) by setting up insurance joint venture or undertake insurance business as agent of insurance companies on fee basis, without any risk participation by banks themselves or their subsidiaries (called Bancassurance). Benefits: The insurance business offers an opportunity for banks to increase fee based business for improving their profits and make utilization of their branch network and customer base optimally, to increase the fee-based income. Insurance is an appropriate option since banks fulfill three major requirements for a successful insurance business i.e. asset management and investment skills, distribution and capital adequacy.

Parameters: As per RBI guidelines on insurance business (of March 16, 2000), the banks can undertake insurance business (of underwriting) where: 1. Net worth is not less than Rs.500 crore. 2. Capital to risk weighted asset adequacy ratio is not below 10%. 3. There is a three year track record of continuous profits. 4. Non-performing assets are at reasonable level. 5. There is a satisfactory track record of existing subsidiaries.

[6.6] Bancassurance
Bancassurance stands for distribution of financial products particularly the insurance policies (both the life and non-life), also called referral business, by banks as corporate agents, and through their branches located in different parts of the country. License for Bancassurance Banks are required to obtain prior approval of the Insurance Regulatory and Development Authority (IRDA) for acting as composite corporate agent or referral arrangement with insurance companies. Banks need not obtain prior approval of RBI to undertake Bancassurance. Benefits of Bancassurance Bancassurance helps the banks to build synergies between the insurance business and bank branch network to sell insurance products through banking channels, as the bank branches have a ready customer in need of financial products/services. Since those customers are already having their dealing with the banking, they trust the branch staff, more than a private agent.

[6.7] Universal Banking

R H Khan Committee had recommended the concept of universal banking. Universal banking means allowing FIs and banks to undertake all kinds of activity of banking or development financing or activity associated with that, subject to compliance of statutory and other requirements prescribed by RBI, Govt. and related legal Acts. Activities in Universal Banking: These activities may include accepting deposits, granting loans, investing in securities, credit cards, project finance, remittances, payment system, project counseling, merchant banking, foreign exchange operations, insurance etc. Objective: The basic objective is to help bring harmony in the role of FIs/Banks, offer world class services to clients by using information technology and cross selling, reduce per customer cost and per customer revenue, take benefit of economize of scale and compete with international banks by expanding business beyond the boundaries of the country.

[6.8] Narrow Banking

In India, the concept of narrow banking came into discussion after submission of the repot by the committee on Capital Account Convertibility (Tarapore Committee). It was suggested as the solution of the problem of high NPAs and related matters. The committee proposed that incremental resources of these narrow banks should be restricted only to investments in government securities.

What is narrow banking? A Narrow Bank in its narrow sense, can be defined as the system of banking under which a bank places its funds in risk-free assets with maturity period matching its

liability maturity profile, so that there is no problem relating to asset liability mismatch and the quality of asset remains intact without leading to emergence of sub-standard assets. What are advantages? Such an approach can ensure the regular deployment of funds in low risk liquid asset. With such patter of deployment of funds, these banks are expected to remove the problems of bank failures and the consequent systemic risk and loss to depositors. What is status of narrow banking in India? The concept is practically being implemented by the Indian banking system partly, as a large part of deposits mobilized by the banks, has been deployed in government securities as it provides a safe avenue of investment but at a very low return. This keeps the level of non-performing assets low and the requirement of capital adequacy ratio also low, as the risk weight allotted to such securities is only 2.5% compared to 100% in loan assets.

[6.9] Retail Banking

Retail banking sector is characterized by three basic characteristics: a. Multiple products (deposits, credit cards, insurance, investments etc.); b. Multiple delivery channels (call center, branch and internet); and c. Multiple customer groups (customer, small business, and corporate).

Retail banking objectives The objective of retail banking is to increase penetration by providing increasing level of services and increased access, by offering value added services to customers by

packing them with retail banking products and services. The retail banking offers considerably better spread of 3-4% compared to very thin spread available to banks in case of corporate clients. Various segments in retail banking Basically there are three important segments in retail banking which include deposit products (convenient deposit schemes such as flexi-deposits), loan products (such as housing loans, education loans, conveyance loans, personal loans for diverse purpose such as medical expenses, travel abroad) and other products. Various delivery channels in retail banking The delivery of these products and service can be through branch banking, internet banking or by automated teller machines. These can be called home banking, internet banking, mobile banking, credit cards, etc. Other advantages of retail banking Banks have excellent opportunity to cross sell various retail products like credit cards, insurance policies, funds investment services (including mutual funds), ancillary services like dematerialization, portfolio management, safe custody etc.

[6.10] Mobile Banking

Reserve Bank has brought out a set of operating guidelines (Oct 08, 2008) of adoption by banks, u/s 18 of the payment and settlement system act, 2007 (Act 51 of 2007).

Mobile banking transactions: For the purpose of these Guideline, mobile banking transaction is undertaking banking transactions using mobile phones by bank customers that involve credit/debit to their accounts. Regulatory and Supervisory Issues 1. Only banks which are licensed and supervised in India and have a physical in India will be permitted to offer mobile banking services. 2. The service should be restricted on to the customer of the bank and/or holders of debit/credit cards issued as per the extent Reserve Bank of India guidelines. 3. Only Indian rupee based domestic service shall be provided. Use of mobile banking services for cross border inward and outward transfers is strictly prohibited. 4. Banks may also use the services of Business Correspondent appointed in compliance with RBI guidelines, for extending this facility to their customers. 5. Banks shall file Suspicious Transaction Report to Financial Intelligence Unit India for mobile banking transactions as in the case of normal banking transactions. Transaction Limit 1. For the present, banks can offer this facility to their customers subject to a daily cap of Rs.5000/- per customer for funds transfer and Rs.10000/- per customer for transactions involving purchase of goods/services. 2. Banks may also fix monthly transaction limit depending on the banks own risk perception of the customer.

[6.11] Cross-selling
Cross-selling stands for offering to the existing and new customer, some additional banking products, with a view to expand banking business, reduce the per

customer cost of operations and provide more satisfaction and value to customer. For instance, when a bank is in a position to sell to a deposit customer, a loan product such as housing loan, credit card, personal loan or vice versa, this would result into additional business and lead to low per customer cost and higher per customer earning. Cross-selling is not transaction based activity; it is primarily, a relationship building exercise. Scope of cross selling The cross selling can be taken place on the liability side (i.e. different kind of deposit accounts), or on the asset side (i.e. loans for different requirements) or between the two. It could be at the initiative of the customers or a bank can implement it as a well prepared strategy. Benefits of Cross selling The major benefit is in terms of cost reduction as for a bank, the cost of contacting a new customer is much higher than to serve an existing customer. Further, through cross selling the benefits of economies are available to the bank, which reduce the cost further and increase the profits. Another additional advantage is that the cross selling helps in building brand value if the loyalty of the customer could be ensured for the brand, as in that case the likelihood of shifting the business dealing to another organization/bank by the customer , is much less.

[6.12] Door step banking

RBI had advised banks on Apr 30, 2005 (u/s 23 of Banking Regulation Act 1949) to formulate the scheme, for providing services at the premises of a customer and submit it to RBI for approval. RBI laid down general principles/parameters to be followed by banks while offering doorstep services to their customers:

Guidelines for Doorstep Banking The services can be delivered by the banks either (a) through own employees or (b) trough the agents. Where banks engage the services of agents for delivery of services banks will refer to RBI guidelines on Managing Risks and code of conduct in outsourcing of financial Services by Banks. Delivery Process 1. Cash collected from the customer should be acknowledged by issuing a receipt on behalf of the bank and should be credited to the customers account on the same day or next working day, depending on the time of collection. 2. The customer should be informed of the date of credit by issuing a suitable advice. 3. Delivery of demand draft should be done by debit to the account on the basis of requisition in writing/cheque received and not against cash or instruments collected at the doorstep. 4. Cash delivery services may be offered to the corporate clients/PSUs/departments of Central and State Government against telephonic request. No such facility, however, shall be made available to individual customers. Other conditions 1. Doorstep facility should be offered to only those customers in whose case KYC procedure have been followed. 2. The services should be offered at either the residential or office, the address of which should be clearly and explicitly mentioned in the agreement. 3. The agreement with the customer shall clearly specify that the bank will be responsible for acts of omissions and commission of its agent. 4. The Scheme should not restricted to any particular client/customer or class of customer.

5. Banks may keep in view, the restriction imposed by section 10 (1) (b) (ii) (b) of the Banking Regulation Act, 1949, while making payment for the services.

[6.13] Credit card Business

RBI issued the following guidelines (on Nov 21, 2005) on the recommendation of its Working Group on Regulatory Mechanism: Issue of card 1. Banks should assess the credit limit for credit card customer having regard to the limits enjoyed by the cardholder from other banks on the basis of self declaration/credit information. 2. The card issuing banks would be solely, responsible for fulfillment of all KYC requirement, even where DSAs/DMAs or other agents solicit business on their behalf. Interest rates and other charges 1. Card issuers should quote annualized %age rates (APR) on card products (separately for retail purchase and for cash advance if different). The late payment charges and the number of days should be prominently indicated. 2. The bank should not levy any charge that was not explicitly indicated at the time of issue of the card 3. Changes in charges (other than interest) may be made only with prospective effect with notice of one month. Wrongful billing Wrong bills should not be raised and issued to customers. In case, a customer protests he should be provided explanation/documentary evidence within 60 days.

Right to privacy If the unsolicited card is issued and activated without the consent of the recipient and the latter is billed for the same, the bank shall reverse the charges forthwith and also pay a penalty without demur to the recipient amounting to twice the value of the charges reversed. Redressal of Grievances 1. A time limit of 60 days may be given to the customer for preferring their complaints. 2. If a complaint does not get satisfactory response within a maximum period of 30 days from the date of his lodging the complaint, he will have the option to approach the office of the concerned Banking Ombudsman for Redressal of his grievance/s.

Chapter 7 Current Scenario

Now is the time. Needs are greater, but your possibilities are greater.

Today, it is known to almost everybody that the recession period has crawled in and that too in almost every part of the world. Presently, in India also almost all the sectors such as IT sector, automobile industry and

share market are also not in a very good condition. But, quite interestingly, the baking sector of India is booming day-by-day and that too even in the period of global crisis. With the advent of high-tech communication and information technology numerous factors have facilitated the growth of the banking sector such as the Indian Internet banking, ATM Network, electronically transfer of funds and fast dissemination of information between different-different branches. With the entry of more and more foreign banks and private sector banks, the lean and agile footed structure, became the story of past and such factors have escalated the growth potentials in the banking sector of India. The structural reforms are improving the health of Indian banking sector. Although, the Indian share market has plunged to more than half of their value in one year the banking sector of India has managed to post profits in the third quarter of 2008. The SBI (State Bank of India) declared a quarterly profit rise of 40 percent over the last quarter. The SBI is India's first non oil based sector to feature in fortune up to 500 esteemed list of companies. It has maintained the trust of Indian investors and FDIs with this good news. Moreover, the banking sector of India is growing continuously without any interruption because, even in the period of global crisis, it is still standing tall and is regarded as one of the safest places for investing money. Recently, the banking industry of India has grown by over 25 percent.

[7.1] Virtual Banking:

SBI has yet to computerize its operations and network all its branches. The computers currently available serve only to relieve the burden of the clerical staff of maintaining manual ledgers and not to penetrate into areas of customer service. ATMs, Anytime-Anywhere, round the clock and telephone banking is still a far cry. These computers at the best remain only as desk ornaments. With the New Telecom Policy (NTP) almost in place, telecom sector will soon be revolutionized. E-commerce, telephone banking, consumer banking, Internet banking, insurance et al are waiting just around the corner. At least in major metros, virtual banking will soon take-over from the brick-mortar banks.

[7.2] Privatization and Credit disbursement:

Talks about privatization of the banks ownership have been initiated but the SBI act of 1955 does not permit RBIs ownership to be diluted to below 55%. This act is outdated and needs to be re-addressed. However, efforts have been initiated by SBI to privatize its non banking subsidiaries like SBI Caps, SBI Gilts, SBI Funds Management, where SBIs holding is about 85% of the equity. But the pace has to be hastened so that investments thus released can migrate to more important areas like development of new technologies and products in customer service and service intensive areas. Privatization also helps to professionalize the banks day-to-day operation, which will allow the management more freedom in decision making during credit disbursement. To aid privatization and effect a better price realization, the bank is attempting to change over its accounting and reporting procedures to comply with US GAAP norms. This is a prerequisite for trying out the ADR route, as it is known that US market is by far the undisputed biggest market and can offer the best price. At the moment, the SBI stock is undervalued at Rs.240 whereas experts expect Rs.300 would be a more realistic value. Action on this front at blitzkrieg pace is the need of the hour.

[7.3] Manpower Retraining and not Retrenchment:

As a hangover of the past socialistic mindset, all the nationalized banks have excess workforce. This is indeed a hot potato for the management of many enterprises and is therefore being handled with kid gloves. In India, it is everyones worry to look at business as a source of employment, while making money is secondary. In this ocean of manpower, every institution does have its share of highly skilled and talented manpower, which contribute to asset building. It is the semi skilled manpower having outdated skills, which form the excess baggage. All banks must invest in re-training the manpower so that they can migrate from the areas that will be vacated by computerization. The level of Non-Performing-Assets (NPAs) is still at very high levels and to start with, some of this excess manpower can cover areas of debt recovery. At the same time, one should also take note of the flight of talent from these nationalized banks to newly set-up private and foreign banks. And, it is these new banks top officials after migrating from the government banks are targeting at the top corporate clients and thus poaching into the corporate business, which has been the mainstay of the nationalized banks. This will soon become a problem of serious proportion unless the banks initiate steps to stem the flow. It is difficult, to exclusively address the problem of excess manpower by schemes such as voluntary retrenchment scheme (VRS) because while attempting to remove dead wood, talent also takes an exit. Many industries have faced this problem. Also it will be over simplicity to state that the salaries should be raised because that will only start a wage war. Instead, the banks should involve the services of international consultants specialized in this field and take a holistic view of the problem. Retraining and Rationalization of manpower commands higher priority over Retrenchment of manpower.

[7.4] New Products & New technologies:

Nationalized banks have generally been preoccupied with treasury business. The new product areas that require greater penetration are personal banking, housing finance, consumer durable finance, auto-finance, internet banking, insurance, telephone banking etc. Development of these new areas call for heavy investments and this cash - flow can only generated by privatization. In addition, surplus manpower once retrained can be absorbed in the new ventures.

Chapter 8 Findings & Conclusions

Start by doing what is necessary, then what is possible & suddenly you are doing the impossible

[8.1] Findings & Suggestions

1. Awareness : Banking have developed and still developing and going on adding to services and new facilities to it; but many people are not aware of these facilities, and even if they know they are not able to utilize this services and facilities. 2. Need of basic know-how to the customers: Many times the customer are not aware about the services that are been provided by the bank so; its necessary that banks make some effort to give knowledge of the services been provided and guide the customer. 3. Make easy mandatory requirements: Any service to be adopted from bank requires the lot much of documentation and mandatory requirements so; it get haste and panic to the customers to utilize such services. Hence this should be considered and take some actions that make it easy to adopt any services from the banks. 4. Safety: Now-a-days, with the increase in the facilities and services the risk respectively has increased. Mostly, when it comes to e-banking many people do fraud and hack the accounts of innocent people.

[8.2] Conclusions
1. The study and the project resulted from it, is the data base and its execution is totally based on the study and relevant to the study itself. The ideas and view of mine are to assist this work and for the partial fulfillment of the project; satisfies my work and project completion. This project consisting the database and the information relevant to the banking industry under the study and that is the soul of the written work being depicted in the project report. 2. Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. 3. Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and

38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. 4. The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. 5. The banking sector plays a crucial role in the economic development of the nation. A sound, efficient, effective, vibrant and innovative banking system stimulates economic growth by mobilizing savings on a massive scale and efficiently allocating resources for the productive as well as consumption purpose. 6. At the beginning of the 21st century, the biggest banks in the industrial world have become complex financial organizations that offer a wide variety of services to international markets and control billions of dollars in cash and assets. Supported by the latest technology, banks are working to identify new business niches, to develop customized services, to implement innovative strategies and to capture new market opportunities. With further globalization, consolidation, deregulation and diversification of the financial industry, the banking sector will become even more complex. 7. Today, it is known to almost everybody that the recession period has crawled in and that too in almost every part of the world. Presently, in India also almost all the sectors such as IT sector, automobile industry and share market are also not in a very good condition. But, quite interestingly, the baking sector of India is booming day-by-day and that too even in the period of global crisis.

Annexure

Knowledge helps you to reach your destiny.

[ 1 ] Bibliography
[A] Books:
K. ASWATHAPPA [2006]. ESSENTIALS OF BUSINESS ENVIRONTMENT 8e. Himalaya Publication House, Mumbai 400 004

N. S. TOOR [2009]. HANDBOOK OF BANKING INFORMATION 29e. Skylark Publication, New Delhi 110 001

[B] Article:
Transformation in Indian Banking (pg.28) Volume iii No.10; [October 2008]. THE INDIAN BANKER. The monthly journal published by The Indian Banks Association, Mumbai 400 020

[C] Reports:
1. Report on trend and progress of banking in India 2005-06. 2. Report on trend and progress of banking in India 2008-09. 3. November 27, 2007 RBI report on trend and progress of banking in India. 4. November, 2003 IBA committee report on Banking Industry.

[D] Websites:
1. en.wikipedia.org 2. www.money control.com 3. www.rbi.org.in 4. www.bankingindiaupdate.com

[ 2 ] Glossary
Bancassurance It stands for distribution of financial products particularly the insurance policies, also called referral business, by banks as corporate agents.

Bank Establishment for keeping money that is being paid out on customers order.

Bank balance Amount of money in the bank account.

Banker Person involved in banking.

Banking Business of running a bank.

Bank rate Bank rate is one of the general control measures. It is the rate at which RBI rediscounts or lends money to commercial banks.

Bankrupt Unable to pay once ones debt.

Bankruptcy State of being bankrupt.

Banking Ombudsman Are the courts for Redressal of banking related grievances.

Business Process Re-engineering It means transforming the select processes and procedures with a view to empower the bank with contemporary technologies, business solutions and innovations that enhances the competitive advantage.

Banking system The banking system constitutes the core of the financial sector and plays a critical role in transmitting monitory policy impulses to the economy.

Cash reserve ratio (CRR) CRR requires that every bank should keep certain minimum cash with RBI.

Credit Card It is a post paid card. The Credit Card holder is empowered to spend wherever and whenever he wants with his Credit Card within the limits fixed by his bank.

Credit Risk The risk to a bank when there is possibility of default by the counter party to meet its obligation. Credit risk is prevalent in case of loans.

Cross Selling It stands for offering to the existing and new customer, some additional banking products, with a view to expand banking business, reduce the per customer cost of operations and provide more satisfaction and value to customer.

Debit Card It is a prepaid card with some stored value.

Doorstep Banking Provides services at the premises of customer and submit it to RBI for approval.

E- Banking Internet banking (or, e-banking) means any user with a personal computer and browser can get connected to his banks website to perform any of the virtual banking function.

Financial Sector Constitutes of financial institutions, instruments and markets, which act as a conduit for the transfer of financial resources from the net savers to net borrowers.

Foreign Banks As per RBI roadmap in terms of WTO commitments (Mar 2005), RBI allowed foreign banks to establish presence in India

Interest Rate Risk This is the risk arising from adverse movement of interest rates during the period when the asset or liability was held by the bank.

Liquidity Risk This is the risk arising from funding of long term assets by short term liabilities or vice versa.

Mobile Banking It undertakes banking transactions using mobile phones by bank customers that involve credit/debit to their accounts.

Narrow Banking The system of banking under which a bank places its funds in risk free assets.

Operational Risk It is the risk that arises due to failed internal processes, people or systems or from external events.

Retail Banking It is a banking sector with multiple products with multiple delivery channels in multiple customer groups.

Rate Measure of value or cost.

Risk Management This systems spell out internationally accepted risk measurement methods for various types of risk to calculate capital charge required for meeting prescribed capital adequacy ratio.

Statutory liquidity ratio (SLR) SLR mandates that every bank should deposit, in the form of liquid assets, a certain percentage of its total time and demand deposit.

Universal Banking It allows FIs and banks to undertake all kinds of activity of banking or development financing or activity associated with that, subject to compliance of statutory and other requirements prescribed by RBI, Govt. and related legal Acts.

[ 3 ] Banks in India
 Axis Bank  Allahabad Bank  American Express Bank Ltd  Andhra Bank  ABN AMRO Bank  Bank Muscat (S A O G)  Bank Of America  Bank Of India  Bank Of Baroda India  Canara Bank India  Centurion Bank Ltd  Citibank  Corporation Bank  Ceylon Bank  Catholic Syrian Bank  DBS Bank Ltd.  Dena Bank  Dhanlakshmi Bank Ltd  Deutsche Bank India  Export-Import Bank Of India  Federal Bank India  Global Trust Bank Ltd  HDFC Bank India  ICICI Bank Ltd  IDBI Bank Ltd  Indian Overseas Bank  IndusInd Bank Ltd  Industrial Development Bank Of India

 ING Vasya Bank Ltd  Jammu and Kashmir Bank  JP Morgan Chase Bank  Karnataka Bank  Karur vysya Bank Limited  Kotak Mahindra Bank  Lakshmi Vilas Bank  Mizuho Corporate Bank  Oriental Bank of Commerce  Punjab and Sind Bank  Punjab National Bank  Reserve Bank Of India  Ratnakar Bank  Standard Chartered Bank  State Bank Of India  State Bank Of Indore  State Bank of Hyderabad  State Bank of Patiala  State Bank of Mysore  State Bank of Travancore  State Bank Of Bikaner And Jaipur  Syndicate Bank India  SBI Commercial and International  Tamilnad Mercantile Bank  The Nainital Bank Ltd.  Union Bank Of India  United Bank of India  UCO Bank  Vijaya Bank