Project On Banking System: Chapter - 1 Introduction To Bank

Project on Banking System
CHAPTER – 1
INTRODUCTION TO BANK
A bank has been described as an institution engaged in accepting deposits and granting loans.
It is the institution which deals in money and credit. It can also be described as an institution
which borrows idle resources, makes fund available to those who need it and helps in cheap
remittance of money from one place to another. In the modern time term bank is used in
wider term. Now it does not refer only to particular place of lending and depositing money
but it also acts as an agent which looks after the various financial problems of its customers.
HISTORY OF BANKS:
The banking system in India is based on British banking company which is largely branch
banking. Commercial banks in India were started during the latter half of 19th century Bank
of Bengal, Bank of Bombay and Bank of Madras were later amalgamated to form one bank
called as Imperial bank of India under the Imperial bank of India Act 1920. The Imperial
bank carried with business of commercial bank manages the public debt office of central and
state government. The second half of 19th century saw establishment of Bank of Baroda,
Allahabad bank, and Punjab National Bank. These banks were set up by merchants and
traders to combined trading with banking. These led to the series if failures of banks. The
strengthening of banking system took place after the establishment of Reserve Bank of India,
1939 as is empowers to regulate the banking money, inspection of mergers and acquisition in
terms of Banking Companies Act 1949 which later came to be known as Banking Regulation
Act 1949.
FUNCTIONS OF BANKS
Though borrowing and lending constitute the main functions of banking, yet they are not only
functions of commercial banks. Commercial banks are involved in diversified activities and
perform varieties of function. The functions of a modern bank are classified under the following
heads:
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CHART: FUNCTION OF BANKS
1.4 BANKING PRODUCTS

Banks in India have traditionally offered mass banking products. Most common deposit
products being Savings Bank, Current Account, Term deposit Account and lending products
being Cash Credit and Term Loans. Due to Reserve Bank of India guidelines, Banks have
had little to do besides accepting deposits at rates fixed by Reserve Bank of India and lend
amount arrived by the formula stipulated by Reserve Bank of India at rates prescribed by the
latter. PLR (Prime lending rate) was the benchmark for interest on the lending products. But
PLR itself was, more often than not, dictated by RBI. Further, remittance products were
limited to issuance of Drafts, Telegraphic Transfers, and Bankers Cheque and Internal
transfer of funds.
In view of several developments in the 1990s, the entire banking products structure has
undergone a major change. As part of the economic reforms, banking industry has been
deregulated and made competitive. New players have added to the competition. IT revolution
has made it possible to provide ease and flexibility in operations to customers. Rapid strides
in information technology have, in fact, redefined the role and structure of banking in India.
Further, due to exposure to global trends after Information explosion led by Internet,
customers - both Individuals and Corporate - are now demanding better services with more
products from their banks. Financial market has turned into a buyer's market. Banks are also
changing with time and are trying to become one-stop financial supermarkets.
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A few foreign & private sector banks have already introduced customized banking products
like Investment Advisory Services, SGL II accounts, Photo-credit cards, Cash Management
services, Investment products and Tax Advisory services. A few banks have gone in to
market mutual fund schemes. Eventually, the Banks plan to market bonds and debentures,
when allowed. Insurance peddling by Banks will be a reality soon. The recent Credit Policy
of RBI announced on 27.4.2000 has further facilitated the entry of banks in this sector. Banks
also offer advisory services termed as 'private banking' - to "high relationship - value" clients.
1.5 INTRODUCTION TO FINANCIAL SERVICES
The Indian financial services industry has undergone a metamorphosis since 1990. During the
late seventies & eighties, the Indian financial services industry was dominated by commercial
banks and other financial institution which cater to the requirements of the Indian industry.
The economic liberalization has brought in a complete transformation in the Indian financial
services industry.
The term “Financial Services” in a broad sense means “mobilizing and allocating savings”.
Thus it includes all activities involved in the transformation of savings into investment. The
‘financial service’ can also be called ‘financial intermediation’. Financial intermediation is a
process by which funds are mobilized from a large number of savers and make them
available to all those who are in need of it and particularly to corporate customers. Thus,
financial service sector is a key area and it is very vital for industrial developments. A well
developed financial services industry is absolutely necessary to mobilize the savings and to
allocate them to various investable channels and thereby to promote industrial development
in a country. Financial services, through network of elements such as financial institution,
financial markets and financial instruments, serve the needs of individuals, institutions and
corporate. It is through these elements that the functioning of the financial system is
facilitated. Considering its nature and importance, financial services are regarded as the
fourth element of the financial system.
1.6 FEATURES OF FINANCIAL SERVICE
 Customer-Oriented: Like any other service industry financial service industry is also
a customer-oriented one. That customer is the king and his requirements must be
satisfied in full should be the basic tenent of any financial service industry. It calls for
designing innovative financial products suitable to varied risk-return requirements of
customer.
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 Intangibility: Financial services are intangible and therefore, they cannot be

standardized or reproduced in the same form. Hence, there is a need to have a track
record of integrity, reputation, good corporate image and timely delivery of services.
 Simultaneous Performance: Yet another feature is that both production and supply
of financial services have to be performed simultaneously. Therefore, both suppliers
of services and consumers should have a good rapport, clear-cut perception and
effective communication.
 Dominance of Human Element: Financial services are dominated by human element
and thus, they are people-intensive. It calls for competent and skilled personnel to
market the quality financial products. But, quality cannot be homogenized since it
varies with time, place and customer to customer.
 Perishability: Financial services are immediately consumed and hence inventories
cannot be created. There is a greater need for balancing demand and supply properly.
In other words, marketing and operations should be closely inter-linked..
1.7 IMPORTANCE OF FINANCIAL SERVICES

 Economic Growth: The financial service industry mobilizes the savings of the people
and channels them into productive investment by providing various services to the
people. In fact, the economic development of a nation depends upon these savings and
investment.
 Promotion of Savings: The financial service industry promotes savings in the
country by providing transformation services. It provides liability, asset and size
transformation service by providing large loans on the basis of numerous small
deposits. It also provides maturity transformation services by offering short-term
claim to savers on their liquid deposit and providing long-term loans to borrowers.
 Capital Formation: The financial service industry facilitates capital formation by
rendering various capital market intermediary services – capital formation in the very
basis for economic growth. It is the principal mobilizer, of surplus funds to finance
productive activities and thus it promotes capital accumulation.
 Provision of Liquidity: The financial service industry promotes liquidity in the
system by allocating and reallocating savings and investment into various avenues of
economic activity. It facilitates easy conversion of financial asset into liquid cash at
the discretion of the holder of such assets.
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 Financial Intermediation: The financial service industry facilitates the function of

intermediation between savers and investors by providing a means and a medium of
exchange and by undertaking innumerable services.
 Contribution to GNP: The contribution of financial services to GNP has been going
on increasing year after year in almost all countries in recent times.
 Creation of Employment Opportunities: The financial service industry creates and
provides employment opportunities to millions of people all over the world.
1.8 SOURCES OF REVENUE

Accordingly, there are two categories of sources of income for a financial service company
namely: fund based &fee- based. Fund-based income comes mainly from interest spread,
lease rentals, income from investments in capital market and real estate. On the other hand,
fee based income has its sources in merchant banking, advisory services, custodial services,
loan syndication etc. income has its sources in merchant banking, advisory services, custodial
services, loan syndication etc. A major part of income is earned through fund-based activities.
At the same time, it involves a large share of expenditure in the form of interest & brokerage.
It means that such companies should have to compromise the quality of its investment. On
the other hand fee-based income does not involve much risk.
1.9 OBJECTIVES OF FINANCIAL SERVICES
 Fund raising: Financial services help to raise the required funds from a host of
investors, individuals, institution and corporate. For this purpose, various instruments
of finance are used.
 Funds deployment: An array of financial services is available in the financial
markets which help the players to ensure an effective deployment of funds raised.
Services such as bill discounting, parking of short-term funds in the money market,
credit rating &securitization of debts are provided by financial services firms in order
to ensure efficient management of funds.
 Specialized services: The financial service sector provides specialized services such
as credit rating, venture capital financing, lease financing, mutual funds, credit cards,
housing finance, etc besides banking and insurance. Institutions and agencies such as
stock exchanges, non-banking finance companies, subsidiaries of financial
institutions, banks & insurance companies also provide these services.
 Regulation: There are agencies that are involved in the regulation of the financial
services activities. In India, agencies such as the Securities and Exchange Board of
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India (SEBI), Reserve Bank of India (RBI) and the Department of Banking and
Insurance of the Government of India, regulate the functioning of the financial service
institutions.
 Economic growth: Financial services contribute, in good measure, to speeding up the
process of economic growth & development.
1.10 CAUSES OF FINANCIAL INNOVATION

Financial intermediaries have to perform the task of financial innovation to meet the
dynamically changing needs of the economy. There is a dire necessity for the financial
intermediaries to go for innovation due to following reasons:
VARIOUS CHANNELS THROUGH WHICH PRODUCTS & SERVICES ARE

OFFERED BY BANKS
CHARTS: VARIOUS CHANNELS OF SERVICES
BRANCHES
A branch, banking center or financial center is a retail location where a bank, credit union, or
other financial institution offers a wide array of face-to-face and automated services to its
customers.
In the period from 1100-1300 banking started to expand across Europe and banks began
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opening ‘branches’ in remote, foreign locations to support international trade. Historically,

branches were housed in imposing buildings, often in a neo-classical architecture style.
Today, branches may also take the form of smaller offices within a larger complex, such as a
shopping mall.
Traditionally, the branch was the only channel of access to a financial institution’s services.
Services provided by a branch include cash withdrawals and deposits from a demand account
with a bank teller, financial advice through a specialist, safe deposit box rentals, bureau de
change, insurance sales, etc. As of the early 21 st Century, features such as Automated Teller
Machine (ATM), telephone and online banking, allow customers to bank from remote
locations and after business hours. This has caused financial institution to reduce their branch
business hours and to merge smaller branches into larger ones. They converted some into
mini-branches with only ATMs for cash withdrawal and depositing; computer terminals for
online banking and cheque depositing machines.
Some financial institutions, to show a friendlier image, offer a boutique or coffee house-like
environment in their branches, with sit-down counters, refreshments, interactive displays.
Some branches also have drive-through teller windows or ATMs.
MOBILE BANKING
Mobile banking also known as M-Banking, SMS Banking is a term used for performing
balance checks, account transactions, payment etc. Over the last few years, the mobile and
wireless market has been one of the fastest growing markets in the world and it is still
growing at a rapid pace. With mobile technology, banks can offer services to their customers
such as doing funds transfer while travelling, receiving online updates of stock price or even
performing stock trading while being stuck in traffic.A specific sequence of SMS messages
will enable the system to verify if the client has sufficient funds in his or her wallet and
authorize a deposit or withdrawal transaction at the agent.
Many believe that mobile users have just started to fully utilize the data capabilities in their
mobile phones. In Asian countries like India, China, where mobile infrastructure is
comparatively better than the fixed-line infrastructure, and in European countries, where
mobile phone penetration is very high, mobile banking is likely to appeal even more.
Mobile Banking Services
 Account Information
1) Mini-statement and checking of account history
2) Alerts on account activity
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3) Monitoring of term deposits

4) Access to loan statements
5) Access to card statements
6) Mutual fund/ equity statements
7) Pension plan management
8) Insurance policy management
9) Status on cheque, stop payment on cheque

10) Ordering cheque books
11) Balance checking in the account
12) Recent transactions
13) Due date of payment
14) PIN provision
15) Blocking of cards
 Payments, Deposits, Withdrawals and Transfers
1) Domestics and international fund transfers
2) Micro-payment handling
3) Mobile recharging
4) Commercial payment processing
5) Bill payment processing
6) Peer to Peer payments
7) Withdrawal at banking agent
8) Deposit at banking agent
TELEPHONE BANKING
Telephone banking is a service provided by a financial institution , which allows its
customers to perform transactions over the telephone. Most telephone banking services use
an automated phone answering system with phone keypad response or voice recognition
capability. To guarantee security, the customer must first authenticate through a numeric or
verbal password or through security questions asked by a live representative.
With the obvious exception of cash withdrawals & deposits, it offers virtually all the features
of an automated teller machine: account balance information and list of latest transactions,
electronic bill payments, funds transfers between a customer’s accounts.etc
Usually, customers can also speak to alive representative located in a call centre or a branch,
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although this feature is not always guaranteed to be offered 24/7. In addition to the self-
service transactions listed earlier, telephone banking representatives are usually trained to do
what was traditionally available only at the branch: loan applications, investments purchases
and redemptions, cheque book orders, debit card replacements, change of address, etc
Banks which operate mostly or exclusively by telephone are known as phone banks. They
also help modernize the user by using special technology.
INTERNET 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 web-enabled. 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 any how banking
INTERNET 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 customer 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 payee’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.
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.
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4) Investment: 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.
5) 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 in action within no time.
6) 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.
AUTOMATED TELLER MACHINE (ATM)

Automated Teller Machine is a mechanism which enables the customer to withdraw money
from his account without visiting the bank branch. An ATM card is issued to the customer by
the bank in order to make cash withdrawals at cash machine. This service helps the ATM
customer to withdraw money even when the banks are closed. This can be done by inserting
the card in the ATM and entering the Personal Identification Number & secret password.
ATMs act as off-site branches of banks and provide almost all services that are available
from a manually operated branch. The customer can, not only withdraw cash, but also deposit
money, get account statements, enable transfer of funds etc. The customer who wants to
deposit cash should put the notes in the pouch available at the ATM counter close it, seal it
by signing & put it in the slot provided for this purpose. The bank staff will collect the packet
when they come for loading cash in the machine & credit the amount to the account.
However, the customer has to sign an undertaking with the bank that he would not dispute on
the amount credited. ATM has gained prominence as a delivery channel for banking
transactions in India. Now customers will not be levied any fee on cash withdrawals using
ATM & debit cards issued by other banks. This will in turn increase usage of ATMs in India.
ATM allows customers:
 To view account information
 To deposit cheques or cash
 To order cheques and receive cash.
VARIOUS PRODUCTS & SERVICES OF BANKS
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Deposits
Banks provide various deposit schemes for keeping the savings of people. Some of these
schemes are common in nature. Banks have to comply with the ‘Know Your Customer’
(KYC) norms introduced by the Reserve Bank of India while opening & allowing operations
in the accounts. A few deposit schemes offered by banks are as follows:
CHART: TYPES OF DEPOSITS
1) Current Account:
Current account is primarily meant for businessmen, firms, companies and public enterprises
etc. that have numerous daily banking transactions. Individuals generally do not open this
account. Current accounts are meant neither for the purpose of earning interest nor for the
purpose of savings but only for convenience of business hence they are non-interest bearing
accounts. In a current account, a customer can deposit & withdraw any amount of money any
number of times, as long as he has funds to his credit.As per RBI directive, banks are not
allowed to pay any interest on the balances maintained in Current Accounts. However, in
case of death of the account holder his legal heirs are paid interest at the rates applicable to
Savings bank deposit from the date of death till the date of settlement. Because of the large
number of transactions in the account and volatile nature of balances maintained, banks
usually levy certain service charges for opening a Current Account.
2) Fixed Deposits:
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Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain
sum of money is deposited in the bank for a specified time period with a fixed rate of interest.
The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in
case of longer maturity period. There is great flexibility in maturity period & it ranges from
15 days to 5 years. The interest can be compounded quarterly, half-yearly or annually and
varies from bank to bank. Loan facility is available against bank fixed deposits upto 75-90 %
Premature withdrawal is permissible but it involves loss of interest.Fixed deposits with banks
are nearly 100% safe as all the banks operating in the country, irrespective of whether they
are nationalized, private or foreign are governed by the RBI’s rules & regulations and give
due weightage to the interest of the investors.
3) Savings Bank Account:
Savings Bank accounts are meant to promote the habit of saving among the citizens while
allowing them to use their funds when required. The main advantage of Savings Bank
Account is its high liquidity and safety. Savings Bank Account earn moderate interest. The
rate of interest is decided and periodically reviewed by the government of India. Savings
Bank Account can be opened in the name of an individual or in joint name of the depositors.
The minimum balance to be maintained in an ordinary savings bank account varies from bank
to bank. It is less in case of public sector banks and comparatively higher in case of private
banks. Savings Bank Account can now be accessed through ATM’s & internet.
4) Recurring Deposit Account:
Under recurring deposit account, a specific amount is invested in bank on monthly basis for a
fixed rate of return. The deposit has a fixed tenure, at the end of which the principal sum as
well as the interest earned during that period is returned to the investor. Recurring Bank
Account provides the element of compulsion to save at high rates of interest applicable to
Term Deposits along with liquidity to access those savings any time. Loan/ Overdraft facility
is also available against Recurring Bank Deposits.The deposit for RD account is paid in
monthly installments and each subsequent monthly installment has to be made before the end
of the month and is equal to the first deposit. In case of default in payment, penalty is levied
for the delayed deposit.
5) Demat account:
Some banks are depository participants. These banks offer demat accounts to their corporate
clients. Demat account is just like a bank account where actual money is replaced by shares.
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Just as a bank account is required if we want to save money or make cheque payments, we
need to open a demat account in order to buy or sell shares. A Demat Account holds portfolio
of shares in electronic form and obviates the need to hold shares in physical form. The
account offers a secure and convenient way to keep track of shares and investment without
the hassle of handling physical documents that get mutilated or lost in transit. The Securities
and Exchange Board of India (SEBI) mandates a demat account for share trading involving
more than 500 countries.
6) Safe-Deposit Lockers:
Safe deposit locker is a facility provided by banks to their customers to keep their valuables
like jewellery, title deeds etc. Safe deposit locker is a steel cabinet having multiple cubicles.
The safe deposit locker is kept inside the safe room and can be accessed only with the
permission of the bank officials. A customer who is in need of a locker has to approach the
bank. Customer has to mention a password in the application form for identification purpose
when he comes for operating the locker. The customer has to remit annual rent for using the
locker facility. The customer has full privacy in operating the locker.
As per RBI guidelines, the place where the locker is kept should be segregated from the place
where cash and valuables are stored using iron grill. When the customer wants to open the
locker, he has to identify himself by telling the password and sign in a register noting the date
and time of opening the locker which will be countersigned by the bank officials. The
agreement of locker is a contract of bailment and the bank can terminate the agreement and
demand the customer to vacate locker if any of the terms and conditions in the agreement are
violated or the annual rent is not remitted for a long period. At present all the banks are
having safe deposit locker facility.
3.2 CREDIT CARDS:
Credit cards are innovative ones in the line of financial services offered by commercial
banks. Credit card culture is a old hat in the western countries. In India, it is relatively a new
concept that is fast catching on. Since the plastic money has today become as good as legal
tender more people are using them in their day-to-day activities. A credit card is a card or
mechanism which enables cardholders to purchase goods, travel and dine in a hotel without
making immediate payments. It is a convenience of extended credit without formality. Credit
cards can be classified as follows:
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1) Credit Card:
NEW CREDIT CARDS
It is a normal card whereby a holder is able to purchase without having to pay cash
immediately. Generally, a limit is set to the amount of money a cardholder can spend a month
using the card. At the end of every month, the holder has to pay a percentage of outstanding.
Interest is charged for the outstanding amount which varies from 30 to 36 per cent per
annum. An average consumer prefers this type of card for his personal purchase.
2) Charge Card:
A charge card is intended to serve as a convenient means of payment for goods purchased at
Member Establishments rather than a credit facility. Instead of paying cash or cheque every
time the credit card holder makes a purchase, this facility gives a consolidated bill for a
specified period, usually one month. There are no interest charges and no spending limits
either. The charge card is useful during business trips and for entertainment expenses which
are usually borne by the company. Andhra Bank card, BOB cards, Can card, Diner’s Club
card etc. belong to this category.
3) In-Store Card:
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The in-store cards are issued by retailers or companies. These cards have currency only at the
issuer’s outlets for purchasing products of the issuer company. Payment can be on monthly or
extended credit basis. For extended credit facility interest is charged. In India, such cards are
normally issued by Five Star Hotels, resorts and big hotels.
NEW TYPES OF CREDIT CARDS
1) Corporate Credit Cards:
Corporate cards are issued to private and public limited companies and public sector units.
Depending upon the requirements of each company, operative Add-on cards will be issued to
the persons authorized by the company. The name of the company will be embossed on Add-
on cardholder. The transactions made by Add-on cardholders are billed to the main card and
debits are made to the Company’s Account.
2) Business Card:
A business card is similar to a corporate card.it is meant for the use of proprietary concerns,
firms, firms of Chartered Accountants etc. This card helps to avail of certain facilities for
reimbursement and makes their business trip convenient.
3) Smart Card:
It is a new generation card. When a transaction is made using the card, the value is debited
and the balance comes down automatically. Once the monetary value comes down to nil, the
balance is to be restored all over again for the card to become operational. The primary
feature of smart card is security. It prevents card related frauds & crimes.
4) Debit Cards:
Debit card is popularly known as ATM card on the move. The debit card gives the freedom to
access savings or current account through ATM’s at merchant locations. Debit cards are also
issued independent of ATM in which case the card is presented to the merchant establishment
at the time of purchase as in a case of credit card. However, the account of the card holder
will be debited instantly when the charge slip is presented by the merchant establishment
instead of the card holder remitting the money as is being done in the case of credit card.
Therefore, the card holder has to keep sufficient balance in his account before he uses the
card. The debit card does have a daily limit which could be somewhere around Rs 15000 at
ATMs and Rs 10000 at merchant locations. This again is subject to the balance available in
the account.
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1) Personal loans:
An ATM (Automated Teller Machine) card is useful to a card holder as it helps him to
withdraw cash from banks even when they are closed. This can be done by inserting the card
in the ATM installed at various bank location.
LOANS
It is an arrangement by which a bank advance loans against any security like jewels, shares or
debentures or insurance policy or personal security of the borrower. The interest is payable
on the entire loan amount as decided by the bank. Loans can be classified as follows:
CHART: VARIOUS TYPES OF LOANS
The personal loans are granted to any customer or the non-custome if the bank is satisfied
with the repayment capacity of the borrower. The borrower should have a steady income.
Installment can be paid by depositing post dated cheques, authorization to debit the amount to
the borrower’s savings or current account, authorization to transfer interest on term deposit to
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the loan account, authorization to deduct the installment from the salary by the employer and
remit to the bank etc. The interest varies from bank to bank. Normally banks allow 12 months
to 60 months for repayment.Banks also charge time processing fee ranging from 1 to 3
percent per annum. Personal loans are generally unsecured because in most cases there is no
primary security. Therefore, many banks demand collateral security in the form of landed
property, gold ornaments, third party guarantee etc. Some banks instead of third party
guarantee insist that another person should join as co-obligant. Many banks prefer co-
obligant as a guarantor because a co-obligant signs the original loan documents along with
the borrower & therefore has a joint liability. The documentation is quite simple because
there will be only a promissory note.
2) Housing Loans:
Housing loans are given as direct loans and indirect loans. Direct loans are those loans given
to the individuals or group of individuals including co-operative societies. The indirect loans
are the term loans granted to housing finance institution, housing boards etc primarily
engaged in the business of supplying serviced land and constructed house units. Banks are
permitted to extend term loans to private builders. Banks are also granting loans under
priority sector for housing purpose.
3) Educational Loans:
Educational loans are extended with the aim to provide financial support from the banking
system to deserving students for pursuing higher education in India & abroad. The main
emphasis is that every student should get an opportunity to pursue education with financial
support from the banking system on affordable terms and conditions. All banks are offering
educational loans, but the schemes differs from bank to bank. The scheme aims at providing
financial assistance on reasonable terms to the poor and needy to undertake basic education.
4) Mortgage Loans:
Mortgage loan is a financing arrangement in which a lender extends finance for acquisition of
real estate against the security of the real estate purchased out of the loan. The borrower
executes a mortgage deed which registers a lien on the property in favour of the lender. The
title will be re-transferred when the borrower repays the loan in full with interest. Banks
provide loan/overdraft facility against mortgage of property at low rate of interest to people
engaged in trade, commerce and business and also to professionals and self employed,
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partnership firms, companies, NRI’s and individuals with high net worth including salaried
people. The product provides an opportunity to customers to borrow against a fixed asset at
short notice.
INVESTMENT
Investment is the employment of funds with the aim of getting return on it. It is the
commitment of funds which have been saved from current consumption with the hope that
some benefits will receive in future. Thus, it is a reward for waiting for money. Savings of the
people are invested in assets depending on their risk and return. Investment avenues are the
outlets of funds. In India, investment alternatives are continuously increasing along with new
developments in the financial market. An investor can himself select the best avenue after
studying the merits and demerits of different avenues. Even financial advertising, newspapers
supplements on financial matters and investment journals offer guidance to investors in the
selection of suitable investment avenues.
CHART: ALTERNATIVES AVENUES FOR INVESTMENT
1) Public Provident Fund (PPF):
Public Provident Fund is one attractive tax sheltered investment scheme for middle class
and salaried persons. It is even useful to businessmen and higher income earning
people. The PPF scheme is very popular among the marginal income tax payers.
2) Government of India Savings Bond:
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The GOI has recently started issuing 6.50% bonds which are reasonably attractive and
secured investment for individuals and institutions.
3) Real Estate Properties:
Investment in the real estate is popular due to high saleable value after some years. Such
properties include buildings, commercial premises, industrial land, plantations,
farmhouses, agricultural land etc. They purchase such properties at low prices and do
not sale them unless there is substantial increase in the market price. The resale price
will be attractive in due course when they can recover 4 times the price paid. This is
one attractive as well as profitable avenue for investment.
4) Investment in Gold, Silver:
In India, there is attraction for gold and silver since the early historical period. These two
precious metals are used for making ornaments and also for investment of surplus
funds over a long period. The prices of both the metals are continuously increasing.
These metals are highly liquid, also provides a sense of security to the investors. The
benefit of capital appreciation is also available. As a result, investment in gold and
silver is one avenue for investment.
5) Bonds & Debentures:
It is possible to purchase bonds and debentures of joint stock companies for investment
purpose. Debenture indicates loan given to the company at a specific rate of interest.
Debentures are more popular than shares due to the safety and security available.
Easy transferability by endorsement and delivery. Investment exempted from wealth-
tax. Maturity period from 5-25 years.
INNOVATIVE FINANCIAL PRODUCTS AND SERVICES
1) Merchant Banking:
A merchant banker is a financial intermediary who helps to transfer capital from those who
possess it to those who need it. Merchant banking includes a wide range of activities such as
management of customer securities, portfolio management, project counseling and appraisal,
underwriting of shares and debentures, loan syndication, acting as banker for the refund
orders, handling interest and dividend warrants etc. Thus, a merchant banker renders a host of
services to corporate and thus promotes industrial development in the country.
2) Loan Syndication:
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This is more or less similar to ‘consortium financing’. But, this work is taken up by the
merchant banker as a lead manager. It refers to a loan arranged by a bank called lead manager
for a borrower who is usually a large corporate customer or a Government Department. The
other banks who are willing to lend can participate in the loan by contributing an amount
suitable to their own lending policies. Since a single bank cannot provide such a huge sum of
loan, a number of banks join together and form a syndicate.
3) Leasing:
A lease is an agreement which a company or a firm acquires a right to make use of capital
asset like machinery, on payment of a prescribed fee called “rental charges”. The lessee
cannot acquire any ownership to the asset, but he can use it and have full control over it. He
is expected to pay for all maintenance charges and repairing and operating cost. In countries
like the U.S.A., the U.K. and Japan equipment leasing is very popular and nearly 25% of
plant and equipment is being financed by leasing companies. In India also, many financial
companies have started equipment leasing business by forming subsidiary companies.
4) Mutual Funds:
A mutual fund refers to a fund raised by a financial service company by pooling the savings
of the public. It is invested in a diversified portfolio with a view to spreading and minimizing
risk. The fund provides Investment Avenue for all small investors who cannot participate in
the equities of big companies. It ensures low risk, steady returns, high liquidity and better
capital appreciation in the long run.
5) Factoring:
Factoring refers to the process of managing the sales ledger of a client by a financial service
company. In other words, it is an arrangement under which a financial intermediary assumes
the credit risk in the collection of book debts for its clients. The entire responsibility of
collecting the book debts passes on to the factor. His services can be compared to del credre
agent who undertakes to collect debts. But, a factor provides credit information, collects
debts, monitors the sales ledger and provides finance against debts. Thus, he provides a
number of services apart from financing.
6) Forfeiting:
Forfeiting is a technique by which a forfeitor (financing agency) discounts an export bill

and pay ready cash to the exporter who can concentrate on the export front without
bothering about collection of export bills. The forfeitor does so without any recourse to the
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exporter and the exporter is protected against the risk of non-payment of debts by the
importers.
7) Venture Capital:
A venture capital is another method of financing in the form of equity participation. A

venture capitalist finances a project based on the potentialities of a new innovative project. It
is in contrast to the conventional “security based financing”. Much thrust is given to new
ideas or technological innovations. Finance is being provided not only for ‘start-up capital’
but also for ‘development capital’ by the financial intermediary.
8) Reverse Mortgage:
In 2007-08, the National Housing Bank and commercial banks have introduced an innovative
product viz., reverse mortgage to enable the senior citizens to fetch value out of their property
without selling it. In normal mortgage, a home buyer borrows money to finance his home. In
a Reverse Mortgage (RM) the owner of a house property surrenders the title of his property to
a lender and raises money. Again, in normal mortgage the borrower gets 60-70% of the
money upfront. But, in a RM generally the lender does not pay the entire amount. On the
other hand, he pays out a regular sum each month for the agreed time. The owner, normally a
senior citizen, can use the property and stay with his spouse for the rest of their lives. Thus,
the owner can ensure a regular cash flow in times of need and enjoy the benefit of using the
property. Usually, after the death of the owner, the spouse can continue to use the property. In
case, both die during the period of the RM scheme the lender will sell the property, take his
share and distribute the rest among the heirs. It is called reverse mortgage because the
payment steam is “reversed.” Instead of making monthly payments to the lender, as in the
case of a regular mortgage, a lender makes regular payments to the senior citizen. A RM
facilitates to convert an immovable asset into an income generating one
Profile of Bank BANKF OF BARODA
Bank Of Baroda, is a Body Corporate (Nationalised Bank) constituted under The Banking
Companies (Acquisition and Transfer of Undertakings) Act, 1970, with its Head Office at
Mandvi, Baroda and Corporate Office at Mumbai. Bank of Baroda, a leading global Bank of
Indian origin has been expanding its international presence with footprints in 25 countries
and a Pan India network of 2853 branches is a fifth largest bank in India. Bank of Baroda is
one of the oldest banking institutions in India, having been established in 1908 from a small
building in Baroda, Gujarat State. B.O.B has a core set of values and culture that it adhere to
& at all times seeks to be trustworthy, international, courageous, determined and responsive.
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Today the bank employs 39,529 people. It also has four subsidiaries, BOB Housing Finance
Ltd., BOB Asset Management Co. Ltd., BOBCARDS Ltd. and BOB Capital Markets Ltd.For
financial year ending 31 March 2008, the bank reported a net profit of Rs.1436 crore. The
bank had a total business of Rs.2,59,000 crore, as on March 31, 2008, and is eyeing 22 per
cent growth to Rs.3,10,000 crore by the end of this financial year. It is looking at a growth of
20 per cent in deposits and 23 per cent in advances. Bank of Baroda sanctions loans/credit
assistance to Small Scale Industries for acquisition of fixed assets (factory land/buildings &
machinery) and working capital requirements at very competitive interest rates and against
soft margins Rate of interests effective from 01.06.2003
History
Bank of Baroda was founded on July 20, 1908 with a paid up capital of Rs.10 lakhs by
Maharaja Sayajirao Gaekwad III of Baroda, one man who made a difference, rooted in Indian
values. Yet Global in vision, rock solid in fundamentals. Nurture a culture where success
does not come in the way of the need to keep learning a fresh, to keep innovating, to keep
experimenting. It has now come a long way to becoming the strong trustworthy financial
institution. It is growing day by day. The emblem of Bank of Baroda represents wealth,
safety, industrial development and an inclination to better and promote the company’s
agrarian economy. It is a coin with an unpraised arm indicating wealth that indicated that the
depositor’s money is in the safe hands. Since then bank has traversed an eventful and
successful journey of almost 100 years. Today, Bank of Baroda has a network of 2853
branches. In mid-eighties, the Bank of Baroda diversified into areas of merchant banking,
housing finance, credit cards and mutual funds. In 1995 the Bank raised Rs.300 crores
through a Bond issue. In 1996 the Bank tapped the capital market with an IPO of Rs.850
crores. Bank of Baroda took the lead in shifting from manual operating systems to a
computerized work environment. Today, the Bank has 1918 computerized branches, covering
70% of its network and 91.64% of its business. Bank of Baroda gives high priority to quality
service. In its quest for quality, the Bank has secured the ISO 9001:2000 certifications for 15
branches by end of the 2005-06.
Nature
The nature of the business that decide the company belongs to which industry and it helps the
many stakeholders and parties like government, NGO, etc, to decide the parameter and other
concerned issue binding to the organization, for e.g. environmental protection, tax rate,
incentives, and rules and regulations. The Bank of baroda belongs to the service sector, which
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provides various types of financial solution related to banking industry. As Indian economy is
emerging as a major services provider in the world, which can be seen by it’s contribution in
GDP of India which is closed to 55%.
Mission
“To be a top ranking National Bank of International Standards committed to augmenting
stake holders' value through concern, care and competence” “Bank’s new logo is a unique
representation of a universal symbol. It comprises dual ‘B’ letterforms that hold the rays of
the rising sun. Bank of baroda calls this the Baroda Sun”The sun is an excellent
representation of what bank stands for. It is the single most powerful source of light and
energy – its far reaching rays dispel darkness to illuminate everything they touch. At Bank of
Baroda, it seeks to be the source that will help all its stakeholders realise their goals. To
bank’s customers, it seeks to be a one-stop, reliable partner who will help them address
different financial needs. To its employees, it offers rewarding careers and to its investors and
business partners, maximum return on their investment. The single-colour, compelling
vermillion palette has been carefully chosen, for its distinctivenes as it stands for hope and
energy. It also recognize that bank is characterised by diversity. Its network of branches
spans geographical and cultural boundaries and rural-urban divides. Its customers come from
a wide spectrum of industries and backgrounds. The Baroda Sun is a fitting face for its brand
because it is a universal symbol of dynamism and optimism – it is meaningful for its many
audiences and easily decoded by all.
Organizational Structure
Organizational structure is one of the most important decision mode by top management
before starting the business, as it generally depend on the nature and size of the company, it
has lot to do with the job description and job specification. The organizational structure is
nothing but hierarchical and departmental process. Every organization differ in structure.
There is a well defined system in the Bank regarding decision making process. Lending and
administrative decisions are taken at various levels from JMGS I to Top Executive grade
Scale VII and also by Executive Director and Chairman & Managing Director depending
upon their positions as per the discretionary lending powers delegated to them by the Board.
Branches receive applications for credit facilities and recommend to the appropriate
sanctioning authority. In the case of major retail loan products applications are processed at
branches and Centralised Credit Processing Cells at select centers. There is a well defined
organizational structure and clear system of accountability based on RBI / CVC guidelines.
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All credit decisions approved by any sanctioning authority are reported to the next higher
authority for control purpose. The system of exercising proper delegation of power and
submission of control reports is in place and they are monitored by control officers and
through internal inspection. By observing the following is a common structure as per
company guidance.
Product Profile
Followings are the main products of The Bank of baroda.
 Deposits
 Gen-next
 Loans
 Credit Cards
 Debit Cards
 Services
 Lockers
Introduction of SBI
The origin of the State Bank of India goes back to the first decade of the nineteenth century
with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later
the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A
unique institution, it was the first joint-stock bank of British India sponsored by the
Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1
July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern
banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.
Primarily Anglo-Indian creations, the three presidency banks came into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European
commerce and were not imposed from outside in an arbitrary manner to modernise India's
economy. Their evolution was, however, shaped by ideas culled from similar developments
in Europe and England, and was influenced by changes occurring in the structure of both the
local trading environment and those in the relations of the Indian economy to the economy of
Europe and the global economic framework.The State Bank of India, the country’s oldest
Bank and a premier in terms of balance sheet size, number of branches, market capitalization
and profits is today going through a momentous phase of Change and Transformation – the
two hundred year old Public sector behemoth is today stirring out of its Public Sector legacy
Page 24
and moving with an agility to give the Private and Foreign Banks a run for their money. The
bank is entering into many new businesses with strategic tie ups – Pension Funds, General
Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant
Acquisition, Advisory Services, structured products etc – each one of these initiatives having
a huge potential for growth. The Bank is forging ahead with cutting edge technology and
innovative new banking models, to expand its Rural Banking base, looking at the vast
untapped potential in the hinterland and proposes to cover 100,000 villages in the next two
years. It is also focusing at the top end of the market, on whole sale banking capabilities to
provide India’s growing mid / large Corporate with a complete array of products and
services. It is consolidating its global treasury operations and entering into structured
products and derivative instruments. Today, the Bank is the largest provider of infrastructure
debt and the largest arranger of external commercial borrowings in the country. It is the only
Indian bank to feature in the Fortune 500 list. The Bank is changing outdated front and back
end processes to modern customer friendly processes to help improve the total customer
experience. With about 8500 of its own 10000 branches and another 5100 branches of its
Associate Banks already networked, today it offers the largest banking network to the Indian
customer. The Bank is also in the process of providing complete payment solution to its
clientele with its over 8500 ATMs, and other electronic channels such as Internet banking,
debit cards, mobile banking, etc. With four national level Apex Training Colleges and 54
learning Centres spread all over the country the Bank is continuously engaged in skill
enhancement of its employees. Some of the training programes are attended by bankers from
banks in other countries. The bank is also looking at opportunities to grow in size in India as
well as Internationally. It presently has 82 foreign offices in 32 countries across the globe. It
has also 7 Subsidiaries in India – SBI Capital Markets, SBICAP Securities, SBI DFHI,
SBI Factors, SBI Life and SBI Cards - forming a formidable group in the Indian Banking
scenario. It is in the process of raising capital for its growth and also consolidating its various
holdings.
Throughout all this change, the Bank is also attempting to change old mindsets, attitudes and
take all employees together on this exciting road to Transformation. In a recently concluded
mass internal communication programme termed ‘Parivartan’ the Bank rolled out over 3300
two day workshops across the country and covered over 130,000 employees in a period of
100 days using about 400 Trainers, to drive home the message of Change and inclusiveness.
The workshops fired the imagination of the employees with some other banks in India as well
Page 25
as other Public Sector Organizations seeking to emulate the Program. An important turning
point in the history of State Bank of India is the launch of the first Five Year Plan of
independent India, in 1951. The Plan aimed at serving the Indian economy in general and the
rural sector of the country, in particular. Until the Plan, the commercial banks of the country,
including the Imperial Bank of India, confined their services to the urban sector. Moreover,
they were not equipped to respond to the growing needs of the economic revival taking shape
in the rural areas of the country. Therefore, in order to serve the economy as a whole and
rural sector in particular, the All India Rural Credit Survey Committee recommended the
formation of a state-partnered and state-sponsored bank. The All India Rural Credit Survey
Committee proposed the take over of the Imperial Bank of India, and integrating with it, the
former state-owned or state-associate banks. Subsequently, an Act was passed in the
Parliament of India in May 1955. As a result, the State Bank of India (SBI) was established
on 1 July 1955. This resulted in making the State Bank of India more powerful, because as
much as a quarter of the resources of the Indian banking system were controlled directly by
the State. Later on, the State Bank of India (Subsidiary Banks) Act was passed in 1959. The
Act enabled the State Bank of India to make the eight former State-associated banks as its
subsidiaries. The State Bank of India emerged as a pacesetter, with its operations carried out
by the 480 offices comprising branches, sub offices and three Local Head Offices, inherited
from the Imperial Bank. Instead of serving as mere repositories of the community's savings
and lending to creditworthy parties, the State Bank of India catered to the needs of the
customers, by banking purposefully. The bank served the heterogeneous financial needs of
the planned economic development.
Branches
The corporate center of SBI is located in Mumbai. In order to cater to different functions,
there are several other establishments in and outside Mumbai, apart from the corporate
center. The bank boasts of having as many as 14 local head offices and 57 Zonal Offices,
located at major cities throughout India. It is recorded that SBI has about 10000 branches,
well networked to cater to its customers throughout India.
ATM Services
SBI provides easy access to money to its customers through more than 8500 ATMs in India.
The Bank also facilitates the free transaction of money at the ATMs of State Bank Group,
which includes the ATMs of State Bank of India as well as the Associate Banks – State Bank
of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, etc. You may also
transact money through SBI Commercial and International Bank Ltd by using the State Bank
Page 26
ATM-cum-Debit (Cash Plus) card.

Subsidiaries
The State Bank Group includes a network of eight banking subsidiaries and several non-
banking subsidiaries. Through the establishments, it offers various services including
merchant banking services, fund management, factoring services, primary dealership in
government securities, credit cards and insurance.
The eight banking subsidiaries are:
 State Bank of Bikaner and Jaipur (SBBJ)

 State Bank of Hyderabad (SBH)
 State Bank of India (SBI)
 State Bank of Indore (SBIR)
 State Bank of Mysore (SBM)
 State Bank of Patiala (SBP)
 State Bank of Saurashtra (SBS)
 State Bank of Travancore (SBT)
Products And Services

Personal Banking
 SBI Term Deposits SBI Loan For Pensioners

 SBI Recurring Deposits Loan Against Mortgage Of Property
 SBI Housing Loan Loan Against Shares & Debentures
 SBI Car Loan Rent Plus Scheme
 SBI Educational Loan Medi-Plus Scheme
Other Services
 Agriculture/Rural Banking
 NRI Services
 ATM Services
 Demat Services
 Corporate Banking
 Internet Banking
Page 27
 Mobile Banking
 International Banking
 Safe Deposit Locker
 RBIEFT
 E-Pay
 E-Rail
 SBI Vishwa Yatra Foreign Travel Card
 Broking Services
 Gift Cheques
The CNN IBN, Network 18 recognized this momentous transformation journey, the State
Bank of India is undertaking, and has awarded the prestigious Indian of the Year – Business,
to its Chairman, Mr. O. P. Bhatt in January 2008
INVESTMENT
MUTUAL FUND EQUITY SCHEMES
DABT SCHEMES
BALANCED SCHEMES
EXCHANGE TREADED SCHEMES
LIFE INSURENCE Unit Linked Products: Pension
Products:Pure Protection
Products:Protection cum Savings
Products:Money Back Scheme
Products:SBI Life - SARAL
ULIP Protection Plans: Specialized Term
Insurance:Retirement Solutions: SBI Life -
Swadhan (Group): SBI Life - Dhanaraksha
Plus: SBI Life - Grameen Shakti, Health
Products:
EQUITY ALL TYPES
SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track
record in judicious investments and consistent wealth creation.
The fund traces its lineage to SBI - India’s largest banking enterprise. The institution has
grown immensely since its inception and today it is India's largest bank, patronised by over
Page 28
80% of the top corporate houses of the country.
SBI Mutual Fund is a joint venture between the State Bank of India and Société Générale
Asset Management, one of the world’s leading fund management companies that
manages over US$ 500 Billion worldwide.
Mumbai, August 26, 2008 – SBI Life Insurance has achieved a unique distinction of

ranking third globally in terms of number of Million Dollar Round Table (MDRT) members.
Of the 40,000 SBI Life Insurance Advisors, 1,662 have qualified for the prestigious MDRT
membership. Among these, 124 qualified for Court of Table (COTs) and 20 for Top of Table
(TOTs).
2008
RAN COMPANY COUNTR MEMBE
K NAME Y RS
1 Samsung Life Ins Korea 2,486
2 New York Life USA 2,167
SBI Life
3 Insurance India 1,662
Northwestern
4 Mutual USA 1,411
Hong
5 AIA-Hong Kong Kong 1,159
11 LIC of India India 595
BOB Standard
14 Life India 536
Max New York
22 Life India 343
68 BOB Pru India 125 Management
69 Birla Sunlife India 124
The bank has 14 directors on the Board
and is responsible for the management of the
Bank’s business. The board in addition to monitoring corporate performance also carries out
functions such as approving the business plan, reviewing and approving the annual budgets
and borrowing limits and fixing exposure limits. Mr. O. P. Bhatt is the Chairman of the bank.
The five-year term of Mr. Bhatt will expire in March 2011. Prior to this appointment, Mr.
Page 29
Bhatt was Managing Director at State Bank of Travancore. Mr. Bhatt has more than 30 years
of experience in the Indian banking industry and is seen as futuristic leader in his approach
towards technology and customer service. Mr. Bhatt has had the best of foreign exposure in
SBI. We believe that the appointment of Mr. Bhatt would be a key to SBI’s future growth
momentum. Mr. T S Bhattacharya is the Managing Director of the bank and known for his
vast experience in the banking industry. Recently, the senior management of the bank has
been broadened considerably. The positions of CFO and the head of treasury have been
segregated, and new heads for rural banking and for corporate development and new business
banking have been appointed. The management’s thrust on growth of the bank in terms of
network and size would also ensure encouraging prospects in time to come.
CRM IN INDIAN BANKS
In recent years, the banking industry around the world has been undergoing a rapid
transformation. In India also, the wave
of deregulation of early 1990s has created heightened competition and greater risk for banks
and other financial intermediaries. The
cross-border flows and entry of new players
and products have forced banks to adjust the product-mix and undertake rapid changes in
their processes and operations to remain competitive. The deepening of technology
has facilitated better tracking and fulfillment of commitments, multiple delivery channels for
customers and faster resolution of miscoordinations. Unlike in the past, the banks today are
market driven and market responsive. The top concern in the mind of every bank's CEO is
increasing or at least maintaining the market share in every line of business against the
backdrop of heightened competition. With the entry of new players and multiple channels,
customers (both corporate and retail) have become more discerning and less "loyal" to banks.
This makes it imperative that banks provide best possible products and services to ensure
customer satisfaction. To address the challenge of retention of customers, there have been
active efforts in the banking circles to switch over to customer-centric business model. The
success of such a model depends upon the approach adopted by banks with respect to
customer data management and customer relationship management.
Over the years, Indian banks have expanded to cover a large geographic & functional
area to meet the developmental needs. They have been managing a world of information
about customers - their profiles, location, etc. They have a close relationship with their
customers and a good knowledge of their needs, requirements and cash positions. Though
this offers them a unique advantage, they face a fundamental problem. During the period of
Page 30
planned economic development, the bank products were bought in India and not sold. What
our banks, especially those in the public sector lack are the marketing attitude. Marketing is a
customer-oriented operation. What is needed is the effort on their part to improve their
service image and exploit their large customer information base effectively to communicate
product availability. Achieving customer focus requires leveraging existing customer
information to gain a deeper insight into the relationship a customer has with the institution,
and improving customer service-related processes so that the services are quick, error free
and convenient for the customers. Furthermore, banks need to have very strong in-house
research and market intelligence units in order to face the future challenges of competition,
especially customer retention. Marketing is a question of demand (customers) and supply
(financial products & services, customer services through various delivery channels). Both
demand and supply have to be understood in the context of geographic locations and
competitor analysis to undertake focused marketing (advertising) efforts. Focusing on region-
specific campaigns rather than national media campaigns would be a better strategy for a
diverse country like India.
IMPORTANCE OF CRM IN INDIAN BANK
For long, Indian banks had presumed that their operations were customer-centric, simply
because they had customers. These banks ruled the roost, protected by regulations that did not
allow free entry into the sector. And to their credit, when the banking sector was opened up,
they survived by adapting quickly to the new rules of the game. Many managed to post
profits. For them an unexpected bonanza came from government bonds in which most were
hugely invested.
Ironically, the Reserve Bank of India's moves to cut aggressively the interest rates after
1999, pushed up the prices of bonds. So banks had a windfall doing almost nothing. The bond
profits, like manna from heaven, improved the balance-sheets of all banks irrespective of
their core performance. However, the era of lazy banking is soon to end. The mesh of rules
that propped up the Indian banking industry is now being dismantled rapidly.
According to a RBI road-map, India will have a competitive banking market

after 2009. As one of the most attractive emerging market destinations, India will see foreign
banks come in, what with more freedom to come in, grow and acquire. Therefore, it is
imperative that Indian banks wake up to this reality and re-focus on their core asset — the
Page 31
customer. A greater focus on Customer Relationship Management (CRM) is the only way the
banking industry can protect its market share and boost growth.
CRM would also make Indian bankers realize that the purpose of their business is to
"create and keep a customer" and to "view the entire business process as consisting of a
tightly integrated effort to discover, create, and satisfy customer needs."
What is CRM, and what will it deliver to the banks? CRM is, probably, one of the
least clearly defined business acronyms, as there is no single definition for it. It is probably
easier to say what CRM is not. Unfortunately, CRM has also become a misnomer for a range
of solutions from IT vendors, each providing its own spin on the idea.
CRM is variously misunderstood as a fancy sales strategy, an expensive software

product, or even a new method of data collection. It is none of these. Customer Relationship
Management (CRM) in the Indian banking system is fundamental to building a customer-
centric organization. CRM systems link customer data into a single and logical customer
repository. CRM in banking is a key element that allows a bank to develop its customer base
and sales capacity. The goal of CRM is to manage all aspects of customer interactions in a
manner that enables banks to maximize profitability from every customer. Increasing
competition, deregulation, and the internet have all contributed to the increase in customer
power. Customers, faced with an increasing array of banking products and services, are
expecting more from banks in terms of customized offerings, attractive returns, ease of
access, and transparency in dealings. Retaining customers is a major concern for banking
institutions which underscores the importance of CRM. Banks can turn customer relationship
into a key competitive advantage through strategic development across a broad spectrum.
This book examines issues related to changing banking industry in India and the challenges in
CRM.
CRM is a simple philosophy that places the customer at the heart of a business
organization’s processes, activities and culture to improve his satisfaction of service and, in
turn, maximize the profits for the organization. A successful CRM strategy aims at
understanding the needs of the customer and integrating them with the organization’s
strategy, people, and technology and business process. Therefore, one of the best ways of
launching a CRM initiative is to start with what the organization is doing now and working
out what should be done to improve its interface with its customers. Then and only then,
Page 32
should it link to an IT solution.
While this may sound quite straightforward, for large organizations it can be a
mammoth task unless a gradual step-by-step process is adopted. It does not happen simply by
buying the software and installing it. For CRM to be truly effective, it requires a well-
thought-out initiative involving strategy, people, technology, and processes. Above all, it
requires the realization that the CRM philosophy of doing business should be adopted
incrementally with an iterative approach to learn at every stage of development.
IMPLEMENTATION OF CRM IN INDIAN BANKS
Although CRM as a concept is of recent origin its tenets have been around for sometime.
Field officers in the banks have always promoted close relation-ship with customers, but the
focus on customer orientation rather than product orientation as a commitment has been on
the Indian banking scene for nearly a decade. But the fact remains that implementing
customer relationship management is not easy
Customers Relationship Management– A new mantra in Indian banking
Nowadays banks have to work keeping in mind the position of the financial market and
anticipate change in the market place and prepare themselves accordingly. They have to make
new resolutions to build further on their own strengths to explore new avenues of Customers
Relationship Management. This is the only strategic weapon to be pursued for excellence in
the pursuit of performance and achievement. Both the retention of old business as well as to
search for new business, CRM is the only choice. CRM, being the essence of modern
banking, a sound understanding of the key principles, its theories and practices should be
revisited and redefined to provide a road map to new ideas and techniques in the field. Over
the years, banking institutions have been feeling the pressing need of putting up greater thrust
on this initiative for improving their operations and appearances.
CRM PRINCIPLES
The main principles of CRM can be grouped into seven guiding factors:
1. Customer focus
The first and foremost important guiding principle in CRM is customer focus. Who is a
customer? This question is very fundamental. A customer is a person or group of persons
who receives the product or service—the final output of a process or group of processes. A
Page 33
customer is the final arbiter of quality, value and price of a product or service. A satisfied
customer only assigns value to a service, on the contrary, to a dissatisfied customer a
product or service has no value, even if the concerned service or product has been
designed with lot of effort, energy and cost after a thorough planning. A satisfied
customer motivates his fellow members to go in for the service or product that he has
already acquired. But a dissatisfied customer always counsels his friends, and fellow
members not to go to banks where his experience proved to be wrong or other-wise. So
customer’s delight or customer’s satisfaction is the essence of any CRM program. As a
part of this focus on customers, banks should ensure that clients are identified; their
requirements are determined, understood and met enhancing customers’ satisfaction. The
main thrust of CRM is to improve an organization’s efficiency, economy and effectiveness
through reduction of sales cycle times and selling costs, identification of new markets and
channels for expansion, improvement of customer value, satisfaction, retention and
thereby increasing profitability and market share of the enterprise. Successful CRM
focuses on understanding the needs and desires of the customers and is achieved by
placing these needs at the heart of the business by integrating them with the organization’s
strategy, people, technology and business processes. (Heygate, 1999). There must be total
commitment for the enterprise towards this end.
2. Leadership Persuasion, judgment and decision-making abilities are the main
attributes of quality leadership. When there is a slight chance of getting a business but
the client is hesitating or in a fix, or not in a position to decide properly, it should be
followed up by the relationship manager by patient hearing, mild counseling and to
stand by the side of the prospective client to help clear his doubts and to make him feel
happy by realizing that he is going in the right direction and he is very right in
choosing his requirements. The following points may be found helpful in this regard:
(a) It is to be communicated to all employees that all customers should be given a proper
hearing and it should be supported from all levels.
(b) Ways and means should be identified and practiced of getting and staying closer to
customers.
(c) Proper respect should be extended to the customers. All relevant information should be
collected from them with humble and polite approach. Proper value should be given to
their feedback.
(d) There should be proper re-action to the information and feedback provided by the
Page 34
customers in designing, developing and providing desired products at afford-able cost.

3. Process approach
A process transforms an input into desired output by the use of resources, energies and
time. In producing an output there may one single process or a group of inter-related
processes. In case of inter-related processes, often the output from one process directly
forms the input to the next. For effective functioning of an organization, it has to identify
and manage numerous linked activities with the help of different processes for
accomplishing its goal.
Proper attention should be given to the following points:
(a) All processes should be de-signed keeping in view the requirements and desires of the
customers, within the policy, resource availability, strategy of the company.
(b) All processes should meet the legal and statutory requirements to perform the activity
or deliver the product or service.
(c) Time involved in processing should be minimum with least waiting time to the
customers. If required delegation of authority and assignment of account-ability at various
executive levels should be addressed, revised and fine-tuned to meet the requirements.
(d) All the processes should be properly integrated to meet the goal congruence and should
not function at cross-purpose.
(e) There should be in built control mechanism for ease of measuring, reviewing and
taking corrective action.
4. System approach
Customer’s requirement is one level of commitment. That level implies a system that is
reactive and provides to customers what they want but the target should be to achieve
more and to exceed the customer’s expectation to accommodate future requirement and to
build a cushion against the competitors’ attributes.
CRM denotes the management of the entire system and is not confined to only one or the
other sub-systems or functional departments. CRM is based on a system approach to
management. Its primary objective is to increase value to customers on a continuous basis
by designing and improving organizational processes and systems on a ongoing basis.
Meeting Each sub-system may have its own goal but the goal and objectives of all sub-
systems are to be integrated to achieve the overall goal. There may be one sub-system to
acknowledge the customer’s order, a separate one to deliver the product within the
delivery schedule, another sub-system to comply with the complaints of the customers etc,
but all directed to accomplish the goal—value to the customers. The total system as a
Page 35
whole should decide what product to make or what service to offer, what should be the
quality involved, what should be the price, what markets and customers to target upon and
similar other issues.
5. Involvement of people
The fundamentals of CRM bear the genes of customer relationship through involvement of
people, i.e., the work-force at the disposal of the organization. The whole gamut of CRM
is for the people, of the people and by the people. People involvement at all levels is
essential for the success of a CRM program. The bank managers and staff must be in a
position to exploit the concept of customer relationship completely. Customer relation
may be defined as that dimension of relationship marketing that seeks and ensures
customer loyalty by fulfilling promises and continuing to satisfy customer’s wants and
needs so that defection is zero. It comprises of three levels of relationships; financial
relationship, social relationship and structural relationship. The main focus of financial
relationship is frequency marketing programs based on financial incentives such as
reduction of processing fees, lower rate of commitment charges, organization of loan mela
on special occasions etc. A social relationship program revolves round a social bonding
between company and its customers and establish brand loyalty. Bankers, nowadays, make
house calls, offer different services outside their for-mal activities, share the feelings and
emotions of clients and even send clients flowers on birthdays and anniversaries. A
marketing relation with the middleman and interested groups is developed in an in-side-
out manner mainly based on software, which would help in data warehousing, data mining
and data analysis. The optimization of structural relationship lies in the replacement of
physical resources by total service replacement. Drawing of money through ATMs instead
of physical presence in the branch for withdrawal of cash through cheques or withdrawal
forms may be sited as example. To obtain the full benefits of people involvement, the
human resource management should focus on employee empowerment, productivity
linked reward, zero defeat service oriented train-ing and total quality management.
6. Mutually beneficial customer relationship
The relationship with the customer should be based on a mutually beneficial relation-ship.
A bank should not concentrate its attention towards earning of profits only, but focus
should be directed to the customers’ wealth creation or value enhancement with the motto
of earning through service. As an example we can talk of a savings account that’s ‘fixed
up’ to give you more interest. It ensures that any balance in your savings account above a
certain amount, say, Rs 3,000 automatically gets transferred to a fixed deposit to give you
Page 36
higher returns, which will be swept back into your savings account, when you need it.
Sometimes, other benefits are also extended, such as, free personal accident insurance
coverage along with fixed deposit scheme above a certain amount and above a certain
term. Banks are no more restricting their activities to deposit and advances; rather they
work with the mot-to of offering ‘Integrated Total Package Solutions to all needs of a
customer. Banks have gone to the extent of booking cinema tickets, paying utility bills,
school fees etc. for the ease of their clients who are very busy and do not find time for
such work. Many of such activities are not profitable in terms of time and efforts spend by
the bank. But banks are carrying out such services for mutual benefits, which pays in the
long run. Wealthy individuals are in the habit of placing all sorts of demands on their
private bankers and a bank has to respond to such requests not merely for income
generation but as a gesture of goodwill and at times such activities add a consider-able
percentage to a bank’s fee based income. According to an estimate, a bank can earn Rs
35,000 to Rs 100,000 per an-num for a good customer. But generally it is found that
earnings start after the first two- three years of dealing with the customer. In a mature
relation-ship, such fee-based income is a regular feature and is very much crucial in
today’s banking where interest spread is getting reduced due to competition and fee based
income can increase the bottom line. But in many instances, the expenses in terms of time,
effort, recognizing individual needs and offering a customized investment solution are
high.
\7. Continual improvement
Another objective of CRM is the efforts towards continuous improvement in the customer
relationship through the provision of value added ser-vices at favorable cost. Business
processes in the areas of finance, system integration, human resource management etc. are
to be automated and optimized with an aim to increase the efficiency and effectiveness of
operations. The most effective way of improvement lies in innovation and change
management. Today’s successful organizations must stimulate and foster innovation and
master the art of change. Organizations that maintain their flexibility, spontaneity and
unpredictability, continually improve their quality and, beat their competitors to the market
place with a constant stream of innovative products and services, will be the winners.
The major areas to be targeted are:
(i) Improving the effectiveness of marketing.
(ii) Implementing multichannel trigger driven marketing.
(iii) Implementing a strategic analysis capability to support strategic decision making.
Page 37
(iv) The ability to deliver the increasing levels service demanded by customers.
(v) Building a transparent communication system and employee participation to better
define the needs of the customers and deliver the right services and products
Page 38
CHAPTER II
2.1 The objectives of my project are :

 To study the existing Indian Financial System.
 To have a conceptual viewpoint of Indian Banking System.
 To study the international experience with respect to adoption of Indian Banking
System Model, its advantages, limitations and other issues
2.2 Hypothesis
H0 :- Services Provided by Private Sector is not good as compare to public sector.
H1:- Services Provided by Private Sector is good as compare to public sector.

2.3 SCOPE OF STUDY
The findings of this study is helpful for banks in understanding of impact of Indian Banking
System and taking decision regarding the Indian Banking System
 To analyze the emerging trends in Indian Banking System, regulatory requirements

given by RBI & other committee recommendations in India with respect to specific
cases of ICICI, IDBI & SBI.
 To determine the Future Role of DFI’s & Various Operational Issues required to be
considered.
2.4 LIMITATIONS OF INDIAN BANKING SYSTEM

The main argument in favour of Indian Banking System is that it results in greater economic
efficiency in the form of lower cost, higher output and better products. This logic stems from
the reason that when sector participants are free to choose the size and product-mix of their
operations, they are likely to configure their activities in a manner that would optimize the
use of their resources and circumstances.
2.5 Research Methodology
Research in common parlance refers to a search of knowledge. One can also define research
as a scientific and systematic search for pertinent information on a specific topic. Research is,
thus, an original contribution to the existing stock of knowledge making for its advancement.
Research methodology is a way to systematically solve the research problem. Thus, when
we talk of research methodology we not only talk of the research methods but also consider
the logic behind the methods we use in the context of our research study and explain why we
Page 39
are using a particular method or technique and why we are not using others so that research
results are capable of being evaluated either by the researcher himself or by others. The study
of research methodology gives the student the necessary training in gathering materials from
the various sources.
Here , descriptive and analytical research has been used.
For carrying out this project study, various sources of data were used. The data used were of
two types, i.e. Primary as well as Secondary.
 PRIMARY DATA:- This constituted mainly the information provided by my project
guide and interviews conducted at the ICICI Bank, SBI and IDBI.
 SECONDARY DATA:- This constituted mainly of information collected through
 Internet;
 Audited Financial statements of respective organizations.
 Various publications of ICICI, IDBI and SBI and related to RBI.
 Technical and trade journals to banking industry.
 Books and magazines;
 Reports and publications of various associations connected with banks, etc
2.6 Data collection:
Primary data:
 Consumer survey on Indian Banking System .
Secondary data:
 Study reports from internet.
 Articles in newspaper and internet.
Data collection tools:

 Questionnaire survey.
 Internet.
 Newspapers.
Page 40
2.7 Types of research:
 Explanatory research.
 Descriptive research.
2.8 Sampling:
 Sampling unit- Individual respondent.
 Sample size- 100 respondents only.
 Sampling method- Random sampling method
Page 41
CHAPTER III
Literature Review
Debasish (2003), in his research paper titled, “Prime Discriminants of Profitability in
the Indian Commercial Banks” tried to develop a discriminant function for bank
profitability using the most significant ratios/parameters. The validity of the model
was assessed by calculating the analysis sample (78 banks). The hit ratio for analysis
sample was 49/78 = 62.82 per cent. The efficiency was judged on four major
parameters: Liquidity of the bank, Return performance, Expense parameters, and
Operational efficiency. As per step-wise discriminant analysis, out of various
measures, i.e., smallest Ratio, Mahalnobis Distance, and Wilk Lambda, the study
employs Wilk Lambda with minimum value required for entry as 3.84 and maximum
value for removal of the independent variable as 2.71. At each step the variable that
minimizes the overall Wilk Lambda is entered. The computation ends when any
further entry of variables fails to minimize the Wilk Lambda.
Krishana et al. (2003), in their research paper, “Performance of Regional
Rural Banks in Karnataka − An Application of Principal Components and
Discriminant Function Analysis” tried to identify the important discriminating
characteristics of the two identified groups of Regional Rural Banks in the state of
Karnataka. They used the discriminate function approach and sought to obtain linear
discriminate coefficient, such that the squared difference between the mean Z-score
for the one group and the mean Z-score for the other group was as large as possible in
relation to the variation of scores within the groups. They concluded that the number
of employees per branch had maximum discriminating power to the extent of
55%, followed by amount of borrowings (18%), credit deposit ratio (14%) and
income to expenditure ratio (13%).
Nair (2004) in his paper titled, “Village Co-operatives − A Century of Service to the
Nation” observed that by 2004, the formal institutionalized co-operative sector
completed a century of its service to the nation. Analysing the progress of Primary
Agricultural Co-operative Societies, he observed that during the half century spread
over 1951-2001, the PACs made rapid strides in membership, owned funds, deposits,
and channelising production credit for farmers. They were versatile in the sense; they
can take up any type of rural financing and rural service activity at short notice and at
lowest transaction cost. But besides excelling on all fronts, the co-operatives are
Page 42
feeling handicapped due to mounting NPAs. The overdue loans of PACs increased to
`95,899.60 million in 2000-01 as compared to `63.79 million indicated in 1950-51,
thereby subjecting them to a sustained and systematic process of reviews,
reorganisation and restructuring.
Carlos et al. (2015) studied productivity changes in European co- operative banks
and concluded that an effective use of technology between 1996 and 2003 had
increased productivity for majority of the European co-operative banks under study.
An appropriate policy recommendation by the researchers was for larger or
centralized co-operative banks to develop and franchise technology to smaller co-
operatives.
NABARD (2015) conducted a study “Development in Co-operative Banking”, to
evaluate the financial performance of 1872 urban co-operative banks and 1, 06,919
rural co-operative credit institutions. The findings of the study revealed that in all
financial institutions in the rural sector (SCBs, DCCBs, SCARDBS, and PCARDBS),
percentage of NPAs in the substandard category declined, while it had increased in
doubtful category. NABARD was worried about deterioration in asset quality of these
banks. However, all the institutions were able to meet the necessary
provisioning requirements. It further highlighted that NPAs ratio in DCCBs
varied significantly across the states from 5% to 68% at the end March 2004.
Only in four states(Haryana, Himachal Pradesh, Punjab and Uttranchal), the NPA
ratio was less than 10%. NABARD suggested that co-operative banks should
implement One Time Settlement system (OTS) and refer small value advances to Lok
Adalats and high value advances to Debt Recovery Tribunals (DRTS). Further,
State Governments were requested to help co-operative banks in reducing NPAs
by taking special recovery derives.
Mr. Joseph (2015) studied the performance of Lead Bank Scheme in Kerala, the
mobilisation of bank deposits in Kerala by commercial Banks. He observed that
competition from co-operative and other institutions was the main obstacles to
achieving the deposit mobilisation target. The popularity of private financial
institutions was due to their personal relations with local people. 56.4 percent of the
customers (self employed) surveyed had their first percent dealing with banks for
taking loans.
Mr. Laurent (2006) studied the perception of customers on five competing banks in a
medium size city in UK for private deposits. He observed that these five banks
Page 43
differed from each other as a result of oligopolistic market situation only on seven
attributes i.e., friendliness, quality of service, community spirit, modem facilities,
convenience, range of services and ownership. These seven attributes accounted for
91 percent of the overall differences between the five banks. The study revealed that
on the basis of perception of overall image of the five banks relative to each other,
there existed the different market segments.
K. Avadhani (2007) studied the performance of rural branches of some commercial
banks in order to identify the factors influencing deposit mobilisation in rural areas in
different states. He came out with the opinion that there existed sufficient relationship
between the deposits of a rural branch and its age. The growth of deposits is at a faster
rate in the first six years and tapers off subsequently. The growth rate in deposits of
commercial banks cannot be explained in terms of price differentials as co-operatives
offer high rates of interest. Therefore product differentials would offer a better
explanation of the disparate growth rates in deposits.
Mr. Nag and Mr. Shivaswamy (2008) studied the comparative performance of
foreign and Indian banks and observed that there was a distinct preference of bank
customers to bank with foreign banks notwithstanding the fact that foreign banks
stipulate relatively high levels of minimum amounts to be maintained as deposits and
charge relatively high interest rates and service costs. In respect of deposit supplies,
their strategy had been to procure from a segmented part of the total supplies of
deposits of large size from a relatively small number of depositors. Large accretion of
non-resident deposits with foreign banks was mainly because of the familiarity of the
names of foreign banks operating in India to banks abroad.
Raju (2009) studiedthe levels of savings and the manner of their distribution among
different physical and financial assets of household sector in Kerala and identified the
factors influencing their savings behaviour. He found that major portions of the
savings of households in Kerala were in the form of financial savings and that too in
the form of bank deposits.
Subramanian (2010) analyzedthe empirical analysis on dis-intermediation from the
household sectors portfolio preferences point of view based on demand model of
five assets including bank deposits The study revealed that the household sectors
preferences between bank deposits and lending to private corporate sector tended to
be in favour of the latter and against the former.
Nalini (2011) studied on the impact of mutual funds on the deposit mobilisationof
Page 44
commercial banks examined the awareness level and adoption level of mutual funds
among household investors in Thiruvananthapuram district. She found that the advent
of mutual funds has brought in expected changes in the growth of bank deposits and
their ownership pattern, but the changes were not of a significant magnitude.
Satyanarayane (1996) studied productivity beyond per employee business, and

suggested a model to measure overall efficiency of the banks. He emphasised that the
size of the bank should be squared off while measuring efficiency of bank. According
to him, Productivity of bank = (Average index market share of all the output
factors/Average index market share of all the input factors) X 100 where, output
factors were deposits, non-deposit working funds, loans & advances, investments,
interest spread, non-interest income and the net profit. The input factors were network
of branches, numb of staff, wage bill, non-wage operating expenses, etc. In order to
facilitate comparison of one bank with the other, irrespective of size, the market share
of each factor in percentage terms has to be taken into account instead of absolute
levels.
Niranjanraj and Chitanbaram (2000), in their study titled, “Measuring the

Performance of DCCBs” observed that suitable models should be developed to
evaluate the performance of co-operative banks. They considered 23 parameters
falling into four major groups for measuring the performance of District Central Co-
operative Banks and assigned appropriate weights to each parameter. They ranked 14
District Central Co-operative Banks of Kerala based on composite marks. They
suggested that performance of co-operative banks should not be measured in terms of
financial/ economic achievements only but their performance as co-
operative organizations (social achievements) should also be evaluated.
Satyasai and Badatya (2000) conducted a study regarding restructuring Rural Credit
Co-operative Institutions. They analysed performance of rural co-operative credit
institutions on the basis of borrowings and lending operations, cost structure, financial
viability, etc. and found that co-operative system, in general, had failed to perform its
functions properly. They advised the co-operative banks to diversify their
business and also to overcome internal (rising transaction cost, declining
business level, mismanagement of overdues) and external (excessive
Page 45
bureaucratization, politicization) weaknesses.
Verma and Reddy (2000), conducted a study analyzing the causes Overdues in Co-
operatives under SWOOD, to assess recovery and NPAs position in these banks.
Policy distortions in liberalized economy and inefficient management were identified
as main reasons for poor recovery. Misutilisation of credit, political interference at
every level, successive crop failures, non-remunerative prices of agriculture produce,
inadequate income and natural calamities, were some other factors, which affect the
working culture of co-operative banks considerably. To improve the working of these
banks, the study suggested that available credit size should be need based and
production-oriented. Effective supervision of loans to minimize misutilisation
and close social relations with loanee members were two other suggestions to improve
the profitability and productivity of these banks.
Das (2001) in his study titled, “A Study on the Repayment Behaviour of

Sample Borrowers of Arunachal Pradesh State Co-operative Apex Bank Limited”,
examined the repayment behaviour of loanees, covering a period of 1994-95 to 1998-
99. On the basis of primary data collected, researchers concluded that incidence of
default was highest among borrowers for agriculture allied activities loans.
Agriculture loanees, horticulture loanees, small business loanees and service sector
loanees were ranked 2nd, 3rd, 4th and 5th in a descending order on the basis of
percentage defaulters. Study further revealed that the number of defaulter loanees was
highest in government sponsored schemes.
Viswanath (2001) in his study titled, “An Analysis of Performance of Agricultural
Credit Co-operatives and their Overdues Problems in India” concluded that during the
crore to `14,201 crore i.e. 587 times, but unfortunately this increase was followed by a
corresponding increase in overdues. The results of Development Index in PACs of 16
states indicated that the performance of only 5 states, i.e., Karnataka, Gujarat, Tripura,
Orissa, and Maharashtra was above the National average, while that of the remaining
11 states including Punjab were below the average. Using correlation technique, the
extent of relationship between overdues and four variables, i.e., number of societies,
total membership, working capital and total amount of loans advanced was studied.
He concluded that there was a direct and positive link between overdues and
membership on one hand, and overdues and working capital, amount of loans
Page 46
advanced on the other.
Debasish (2003), in his research paper titled, “Prime Discriminants of Profitability in

the Indian Commercial Banks” tried to develop a discriminant function for bank
profitability using the most significant ratios/parameters. The validity of the model
was assessed by calculating the analysis sample (78 banks). The hit ratio for analysis
sample was 49/78 = 62.82 per cent. The efficiency was judged on four major
parameters: Liquidity of the bank, Return performance, Expense parameters, and
Operational efficiency. As per step-wise discriminant analysis, out of various
measures, i.e., smallest F- Ratio, Mahalnobis Distance, and Wilk Lambda, the study
employs Wilk Lambda with minimum value required for entry as 3.84 and maximum
value for removal of the independent variable as 2.71. At each step the variable that
minimizes the overall Wilk Lambda is entered. The computation ends when any
further entry of variables fails to minimize the Wilk Lambda.
Krishana et al. (2003), in their research paper, “Performance of Regional

Rural Banks in Karnataka − An Application of Principal Components and
Discriminant Function Analysis” tried to identify the important discriminating
characteristics of the two identified groups of Regional Rural Banks in the state of
Karnataka. They used the discriminate function approach and sought to obtain linear
discriminate coefficient, such that the squared difference between the mean Z-score
for the one group and the mean Z-score for the other group was as large as possible in
relation to the variation of scores within the groups. They concluded that the number
of employees per branch had maximum discriminating power to the extent of
55%, followed by amount of borrowings (18%), credit deposit ratio (14%) and
income to expenditure ratio (13%).
Page 47
CHAPTER IV
Finding & Analysis
1. What is your assessment of your readiness for the new Basel proposals with respect to
capital requirements?
CREDIT RISK MARKET RISK OPERATIONAL RISK

FULLY 50 50 50
PREPARED
PARTIALLY 30 30 30
PREPARED
NOT YET 20 20 20
PREPARED
60%
50% 50% 50%

50%
40%
30% 30% 30% Credit Risk

30%
Market Risk
Operational Risk
20% 20% 20%
20%
10%
0%
Fully Prepared Partially Prepared Not Yet Prepared
Explanation:-
From the above graph we analyze 50% of respondent are Fully Prepared for Credit Risk,
Market Risk and Operational Risk. While 20% of respondent are Partially Prepared for Credit
Risk, Market Risk and Operational Risk. There are also 30% of respondent who are not yet
Prepared for Credit Risk, Market Risk and Operational Risk.
Page 48
2. Have you done a gap analysis between current risk management practice and new

YES 80 80 80
NO 20 20 20
90%
80% 80% 80%
80%
70%
60%
50%
Yes
40% No
30%
20% 20% 20%
20%
10%
0%
Credit Risk Market Risk Operational Risk
Explanation:-
From the above graph we analyze 80% of respondent have done Gap analyze between for
Credit Risk, Market Risk and Operational Risk. While 20% of respondent have not done Gap
analyze between for Credit Risk, Market Risk and Operational Risk.
Page 49
3. Do you have assigned Credit risk, Market risk and Operational risk manager in your
bank?

YES 50 50 50
NO 50 50 50
60%
50% 50% 50% 50% 50% 50%

50%
40%
Credit Risk
30%
Market Risk
Operational Risk
20%
10%
0%
Yes No
Explanation:-
From the above graph we analyze 50% of Banks aasigned for Credit Risk, Market Risk and
Operational Risk. While 50% of Banks are not Assigned for Creidt Risk, Market Risk and
Operational Risk.
Page 50
4. What is the assigned manager’s time dedicated to this activity?

0-20% 60 60 60
20-50% 40 40 40
>50% 70 70 70
80%
70% 70% 70%
70%
60% 60% 60%
60%
50%
40% 40% 40% CREDIT RISK
40%
MARKET RISK
OPERATIONALRISK
30%
20%
10%
0%
0-20% 20-50% >50%
Explanation:-
From the above graph we analyze 50% of Bank Managers are assigned for Credit Risk,
Market Risk and Operational Risk of 0-20%. While 40% of respondent are Partially Prepared
for Credit Risk, Market Risk and Operational Risk of 20-50%. There are also 60% of
respondent who are not yet Prepared for Credit Risk, Market Risk and Operational Risk not
more than > 50%
Page 51
5. How many people work in this department?
1-3 50 50 50
3-5 50 50 50
5-10 50 50 50
>10 50 50 50
70%
60% 60%
60%
50%50%50% 50%50%50% 50%

50%
40%40%40%
40%
CREDIT RISK
MARKET RISK
30% OPERATIONAL RISK
20%
10%
0%
1 BY 3 3 BY 5 5 BY 10 > 10
Explanation:-
From the above graph we analyze 50% of People work in this Department for Credit Risk,
Market Risk and Operational Risk of 1-3. While 50% of People are Work in this Department
for Credit Risk, Market Risk and Operational Risk of 3-5. There are also 50% of People who
are Work in the Department for Credit Risk, Market Risk and Operational Risk 5-10.
Page 52
6. Do you have a Risk Committee?

YES 50 50 50
NO 60 60 60
70%
60% 60% 60%

60%
50% 50% 50%

50%
40%
CREDIT RISK
MARKET RISK
20%
10%
0%
YES NO
Explanation:-
From the above graph we analyze 50% of Respondent are having Risk Committee for Credit
Risk, Market Risk and Operational Risk. While 60% of respondent are not Having Risk
Committee for Credit Risk, Market Risk and Operational Risk.
Page 53
7. Are you produce reporting for

REGULATORY 50 50 50
PURPOSE
MONITORING 40 40 40
DECISION 60 60 60
MAKING
PURPOSE
70%
60%
60%
50% 50% 50% 50% 50% 50%
50%
40% 40%
40%
30%
20% CREDIT RISK

MARKET RISK
0%
O SE O SE IN
G
URP URP AK
P P M
Y N
OR NG SIO
T RI C
UL
A ITO DE
RE
G ON
M
Explanation:-
From the above graph we analyze 50% of Respondent Producing Report for Regulatory
Purpose in Credit Risk, Market Risk and Operational Risk. While 50% of Respondent
Producing Report for Monitoring Work in Credit Risk, Market Risk and Operational Risk
There is also 60% of Respondent who produce Reporting in Decision Making Purpose in
Credit Risk, Market Risk and Operational Risk
Page 54
8. Does external reporting drive your internal reporting?

VERY 60 60 60
SIGNIFICANTLY
SIGNIFICANTLY 40 40 40
NOT AT ALL 50 50 50
SIGNIFICANTLY
70%
60% 60% 60%

60%
50% 50% 50%

50%
40% 40% 40%

40%
CREDIT RISK
MARKET RISK
20%
10%
0%
VERY SIGNIFICANTLY SIGINFICANTLY NOT AT ALL
Explanation:-
From the above graph we analyze 50% of Respondent Having Internal Reporting Very
Significantly in Credit Risk, Market Risk and Operational Risk. While 50% of Respondent
Having Internal Reporting Significantly in Credit Risk, Market Risk and Operational Risk
There is also 60% of Respondent Having Internal Reporting Not at all in Credit Risk, Market
Risk and Operational Risk
Page 55
9. Will you develop an IT solution for Risk Management?

YES 50 50 50
NO 40 40 40
70%
60%
60%
50% 50% 50%

50%
40% 40%
40%
CREDIT RISK
MARKET RISK
20%
10%
0%
YES NO
Explanation:-
From the above graph we analyze 50% of Respondent are in Solution In Risk Management
Department for Credit Risk, Market Risk and Operational Risk. While 50% of Respondent
are not in IT Solution in Credit Risk, Market Risk and Operational Risk.
Page 56
10. What difficulties do you foresee?

CREDIT RISK MARKET RISK OPERATIONAL
RISK
INTEGRATION 60 60 60
CAPABILITIES
DATABASE DESIGN 40 40 40
MODELS 30 30 30
BUDGET 20 20 20
DATA GATHERING 10 10 10
HUMAN RESOURCE 10 10 10
OTHER (SPECIFY) 10 10 10
70%
60%
60%
60%
60%
50%
40%
40%
40%
40%
30%
30%
30%
30%
CREDIT RISK
20%
20%
20%
20% MARKET RISK
10%
10%
10% 5%5%5%
0%
N E S T E
IO AS EL GE NG RC
T B D D ERI U
RA TA M
O BU TH SO
EGE DA GA RE
IN
T
TA AR
M
DA HU
Explanation:-
From the above graph we analyze 50% of Respondent Facing Difficulties in Integreation
Capabilites in Credit Risk, Market Risk and Operational Risk. While 50% Respondent
Facing Database in Credit Risk, Market Risk and Operational Risk There is also 60%
Respondent Facing Difficulties in Budget in Credit Risk, Market Risk and Operational Risk
Page 57
Conclusion
In my report I have tried to show the basic different between the Personal Loan of BOB &
SBI Banks. Both the Banks are good in terms of customer satisfaction’s has an edge because it
is the leading Government regulated bank in India. BOB is new to this segment (when
compared to SBI) .SBI is preferred because it’s a government bank. Procedure of loan
financing is easy in BOB Bank. Family members & increasing standard of living plays an
important role in influencing the decision of taking home loan.
1. SBI Bank is Leading Bank in the country, it provides a variety of products and services to
different segments of customers.
2. The Bank aims to serve customers from teenagers to senior citizens, hence different
products designed to suit specific requirements of the above.
3. Aims to serve all classes of the society from the salaried middle class to the high income
business class. Customers are categorized and segmented according to their requirements and
needs. For Example , the Saving Regular and Plus Account aims to serve middle class
customers so minimum balance required to be maintained is RS.5,000/- or RS. 10000. While
the Saving Max Account is targeted at high income customers, the minimum balance
requirement is RS.25,000.
4. SBI Bank provides personal loan at low interest rate which good for customers.
5. The Bank prides itself with the ability to provide differentiate products in the crowed
market of saving accounts. Bank offers free insurance, special co-branded debit cards which
makes it’s product unique.
Page 58
Bibliography
1. Website of Reserve Bank of India
2. Website of Bank of Baroda
3. BSE/NSE websites
4. Indian institute of Banking and Finance
5. Website of SBI, BOI, CANARA bank.
6. Companies Act.
7. Indian Banks Association website
8. Ministry of Finance website
Page 59
Annexure
1. Name of your bank:
2.Please indicate the name of the Name:
contact Qualification:
Person for this questionnaire and his/her Position:
position in the Bank.
3.To which of the following types of o Public sector
Banks o Private sector
Does your bank belong? o Foreign Bank
4.Where is your parent/head office located?
8. What is your assessment of your readiness for the new Basel proposals with respect to
FULLY
PREPARED
PARTIALLY
PREPARED
NOT YET
PREPARED
2. Have you done a gap analysis between current risk management practice and new capital
requirements?
YES
NO
3. Do you have assigned Credit risk, Market risk and Operational risk manager in your bank?
YES
NO
4. What is the assigned manager’s time dedicated to this activity?
Page 60

0-20%
20-50%
>50%
5. How many people work in these department?

1-3
3-5
5-10
>10
6. Do you have a Risk Committee?

YES
NO
7. Are you produce reporting for

REGULATORY
PURPOSE
MONITORING
DECISION
MAKING
PURPOSE
8. Does external reporting drive your internal reporting?

VERY
SIGNIFICANTLY
SIGNIFICANTLY
NOT AT ALL
SIGNIFICANTLY
9. Will you develop an IT solution for Risk Management?

Page 61
RISK
YES
NO
10. What difficulties do you foresee?

RISK
INTEGRATION
CAPABILITIES
DATABASE DESIGN
MODELS
BUDGET
DATA GATHERING
HUMAN RESOURCE
OTHER (SPECIFY)
PLACE:
_____________________
DATE: SIGNATURE
Page 62

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Project on Banking System

CHART: FUNCTION OF BANKS

1.4 BANKING PRODUCTS

 Intangibility: Financial services are intangible and therefore, they cannot be

1.7 IMPORTANCE OF FINANCIAL SERVICES

 Financial Intermediation: The financial service industry facilitates the function of

1.8 SOURCES OF REVENUE

1.10 CAUSES OF FINANCIAL INNOVATION

VARIOUS CHANNELS THROUGH WHICH PRODUCTS & SERVICES ARE

CHARTS: VARIOUS CHANNELS OF SERVICES

opening ‘branches’ in remote, foreign locations to support international trade. Historically,

3) Monitoring of term deposits

9) Status on cheque, stop payment on cheque

AUTOMATED TELLER MACHINE (ATM)

VARIOUS PRODUCTS & SERVICES OF BANKS

Old types of Credit Cards:

NEW CREDIT CARDS

CHART: VARIOUS TYPES OF LOANS

1) Public Provident Fund (PPF):

Forfeiting is a technique by which a forfeitor (financing agency) discounts an export bill

A venture capital is another method of financing in the form of equity participation. A

ATM-cum-Debit (Cash Plus) card.

 State Bank of Bikaner and Jaipur (SBBJ)

Products And Services

 SBI Term Deposits SBI Loan For Pensioners

80% of the top corporate houses of the country.

Mumbai, August 26, 2008 – SBI Life Insurance has achieved a unique distinction of

According to a RBI road-map, India will have a competitive banking market

CRM is variously misunderstood as a fancy sales strategy, an expensive software

should it link to an IT solution.

IMPLEMENTATION OF CRM IN INDIAN BANKS

Customers Relationship Management– A new mantra in Indian banking

customers in designing, developing and providing desired products at afford-able cost.

2.1 The objectives of my project are :

H0 :- Services Provided by Private Sector is not good as compare to public sector.

H1:- Services Provided by Private Sector is good as compare to public sector.

System and taking decision regarding the Indian Banking System

 To analyze the emerging trends in Indian Banking System, regulatory requirements

2.4 LIMITATIONS OF INDIAN BANKING SYSTEM

 SECONDARY DATA:- This constituted mainly of information collected through

 Audited Financial statements of respective organizations.

 Various publications of ICICI, IDBI and SBI and related to RBI.

 Technical and trade journals to banking industry.

 Books and magazines;

 Reports and publications of various associations connected with banks, etc

2.6 Data collection:

 Articles in newspaper and internet.

Data collection tools:

2.7 Types of research:

 Sampling unit- Individual respondent.

 Sample size- 100 respondents only.

 Sampling method- Random sampling method

Satyanarayane (1996) studied productivity beyond per employee business, and

Niranjanraj and Chitanbaram (2000), in their study titled, “Measuring the

bureaucratization, politicization) weaknesses.

Das (2001) in his study titled, “A Study on the Repayment Behaviour of

advanced on the other.

Debasish (2003), in his research paper titled, “Prime Discriminants of Profitability in

Krishana et al. (2003), in their research paper, “Performance of Regional