BANKING SECTOR

Why Financial Institute

Needed?
 Exploitation by money lenders
 Borrower is squeezed for repayment
with high interest rate.
 Further loans ensure the borrower
can never pay principal.
 Borrower loses collateral, ready for
new loan.
Indian banking sector:
Overview
 contd….
 222 commercial banks in India
(133 RRBs).
 Operating with 68681 branches
(March-06).
 Nearly 70%of branches are located in
rural/semi rural area.
 Commercial bank finance for short term
working capital.
 Bank are supporting growth in the
economy by financing productive sector.
 History of Indian Banking
sector:-Phase-I
 General bank in 1786
 Bank of Hindustan & Bengal bank.
 East India company established Bank of Bengal(1809),Bank
of Bombay(1840),Bank of Madras(1843) as independent
units and called them as Presidency Bank.
 These three bank were amalgamated in 1920 and imperial
bank of India was established.
contd….
 Allahabad bank-1856
 Punjab National bank-1894
 Bank of India, central bank of India, bank of
Baroda, canara bank, Indian bank, central
bank of India, bank of Baroda, Indian bank
etc were set up between 1906-1913.
 Development after-1990
Phase-II
 1955 nationalized Imperial bank.
 Formed State Bank Of India(S.B.I) as principal agent of
R.B.I and to handle banking transaction of the union
and state government.
 The nationalization of banks in India took place in
1969 by Mrs. Indira Gandhi the then prime minister. It
nationalized 14 banks then.
 Nationalisation of Seven State Banks of India (formed
subsidiary) took place on 19th July, 1960.
 cont’d…Phase-III

 1991, under the chairmanship of M Narasimham,

a committee was set up by his name which
worked for the liberalization of banking practices.

 The country is flooded with foreign banks and

their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking
and net banking is introduced. The entire system
became more convenient and swift. Time is given
more importance than money.
(CENTRAL BANK OF INDIA)

History
 The Reserve Bank of India was set up on the basis
of the recommendations of the Hilton Young
Commission. The Reserve Bank of India Act, 1934
(II of 1934) provides the statutory basis of the
functioning of the Bank, which commenced
operations on April 1, 1935.
Board of Directors
 FUNCTION OF CENTRAL
BANK
 Bank of Issue
 Banker to Government
 Bankers' Bank and Lender of the Last
Resort
 Controller of Credit
 Custodian of Foreign Reserves
 Supervisory functions
 Promotional functions
 TOOLS
1)BANK RATE (current rate:-6%)
Rate at which Central bank rediscounts the
security presented by financial institute.
Demand Rate of Bank Rate situation
For fund Interest
inflation

deflation
 contd….
2)Open market operation.
buying and selling of securities by central bank
in the money market to influence the volume of
cash reserve with commercial banks.

Central financial situation liquidity

bank institute
Buyer seller depression injection
Seller buyer inflation absorption
 contd….

3) Cash reserve ratio (current rate:-5%)

Commercial bank keep certain minimum cash reserve
with R.B.I.

CRR Commercial bank

25% 100
- 25
75
 contd….
 S.L.R (statutory liquidity requirement)
(current rate:-25%)
Bank are forced to invest in certain government
security.
Situation S.L.R Bank
Inflation 30% 100-30=70
Depreciation 20% 100-20=80
 QUALITATIVE MEASURE
 CREDIT MARGIN
 CEILING ON CREDIT
 RATIONING OF CREDIT
Narsimham Committee Report

 Reduction in SLR & CRR:

in SLR-1991 38.5%
1999 25%
in CRR-1991 15%
2001 5.5%
o Deregulation of interest rates:
The government deregulated interest rate in 1998
on all term deposits of maturity of over 30 days.
o Capital Adequacy ratio:
in March 2000=8%
in April 2000 =9%
in March 2002 =10%
 contd….
 Prudential Norms:
100% provision for all non-performing assets.
atleast 30% provision against doubtful and
baddebts.
o Freedom of operation: The commercial banks have
been given freedom to set up new branches.
o Revised format of B/s and P/L account.
o Permission to public sector banks to raise capital:
The banks were permitted to raise capital upto 49%
through public issue.
 contd….

 Redefinition of priority sector.

 Effective supervision and rating of banks.
 Enactment of securitization and
reconstruction of financial asset and
Enforcement of Security Interest Act,2002.
 Prompt Corrective Action Scheme.
contd…. Phase-II(1998)
 Capital Adequacy
 Asset quality
 System & methods
 Industry structure
 Regulation & supervision
 Legal amendment
Non performing assets (NPA)
 What is NPA?

 Types of NPA s.

 Factors responsible for NPA s.

 Tackling the problem of NPA s.

 What is NPA?

 NPA s are those loans given by a bank or

a financial institution where the borrower
defaults or delays interest or principal
payments.
When an asset is treated as
NPA.
 Term loans : A term loan is treated as
NPA if interest and/or installment of
principal remains overdue for a period of
more than 180 days.
 Cash credit & overdrafts : A cash credit
overdraft account is treated as NPA if it
remains out of order for a period of more
than 180 days.
 contd….
 Bills purchased and discounted
Treated as NPA if they remain overdue or
unpaid for a period of more than 180
days.

 Agriculture advances
Advances granted for agriculture
purposes becomes NPA if interest and/or
installment of principal remains overdue
for two harvest seasons but for a period
not exceed two half year.
 Further classification
of NPA.
 Sub-standard
Factors responsible for NPA s.
1) Long drawn legal process.
2) Weak credit appraisal.
3) Diversion of fund.
4) Inherent operation problem.
5) Natural calamities.
6) Labour problem.
 Tackling the problem
of NPA s.
1) Reducing NPA should be made national
priority.
2)
 CASES
 July 26, 2004:- Reserve Bank of India
announces merger of Global Trust Bank
with Oriental Bank of Commerce, 48 hours
after imposing a moratorium on the
beleaguered new private bank.

 Oriental Bank of Commerce chairman B D

Narang says he will be able to recover 40-45
per cent of the Rs 1,500 crore non-
performing assets of Global Trust Bank
within 12 months. Oriental Bank of
Commerce gets 104 branches and 275 ATMs
besides 1,200 employees and an asset book of
Rs 6,800 crore.
 contd….
 June 20, 2005:- The boards of Bank of
Punjab and Centurion Bank meet
separately to approve the merger of the
two to create Centurion Bank of Punjab.
The merger gives Centurion access to 120
branches in the north and takes its total
branch network to 220 and asset base to
Rs 10,000 crore.
 contd….
 February 14, 2006
The Indian Overseas Bank board clears a
proposal to buy 70 per cent stake of six banks
in Bharat Overseas Bank to take over the old
private bank in which it was holding 30 per
cent stake.
The six banks are Bank of Rajasthan, Vysya
Bank, Karur Vysya Bank, Federal Bank,
South Indian Bank and Karnataka Bank. This
is the first instance of an old private bank
being taken over by a PSU bank without the
moratorium route.
 contd….
 August 20, 2006
Centurion Bank of Punjab and Lord
Krishna Bank announce their merger.
Mohan Puri, who was holding 65 per cent
in Lord Krishna Bank, had been under
pressure from the Reserve Bank to bring
down his stake.
 On an earlier occasion, it entered into an
MoU with Federal Bank for stake sale but
the deal did not materialise on serious
differences on valuation. With this,
Centurion Bank of Punjab's asset base rises
close to Rs 16,000 crore
 COMMERCIAL BANKS
1. Public sector 
Public sector banks have either the Government of
India or Reserve Bank of India as the majority
shareholder. This segment comprises of:
State Bank of India (SBI)
and
its subsidiaries other nationalized banks.
 Public sector banks
 Nationalised Banks in India
 Major objective
 State Bank of India

 Largest commercial bank

 Networks
 Four wings
o The Domestic division
o The Foreign Offices division
o The Foreign Department
o The International Services division.
 State Bank of India
 The eight banking subsidiaries of SBI are:

1-State Bank of Bikaner and Jaipur (SBBJ)

2-State Bank of Hyderabad (SBH)
3-State Bank of India (SBI)
4-State Bank of Indore (SBIR)
5-State Bank of Mysore (SBM)
6-State Bank of Patiala (SBP)
7-State Bank of Saurashtra (SBS)
8-State Bank of Travancore (SBT)
 State Bank of India
 SERVICES
 DOMESTIC TREASURY
 SBI VISHWA YATRA FOREIGN TRAVEL
CARD
 BROKING SERVICES
 REVISED SERVICE CHARGES
 ATM SERVICES
 INTERNET BANKING
 E-PAY
 E-RAIL
 RBIEFT
 SAFE DEPOSIT LOCKER
 GIFT CHEQUES
THE NORMS SET BY THE STATE BANK OF
INDIA FOR THE DISCHARGE OF ITS
FUNCTIONS.

The Bank functions with the following core values /

norms
 Core Function
 Excellence in customer service
 Profit orientation
 Fairness in all dealing and relations
 Risk taking and innovation
 Integrity
 Transparency and discipline in policies and systems
 State Bank of India
 Committees appointed by bank

 Bank has appointed various committees for

different purposes. Following are some of the
important Committees managing the key
affairs of the Bank :
a) Risk Management Committee
b) Credit Risk Management committee
c) Asset Liability Management committee
d) Operational Risk Management committee
e) Audit Committee
f) Central Management Committee
g) Central as well as Local Boards
 State Bank of India
Gross NPA (Amount) Net NPA (Amount)
ASSET QUALITY Gross NPA (%) Net NPA (%)

18000 14
16000 11.95
12
14000 9.33
Amount (Rs. in Crores)

10
12000

12456

Ratio (%)
15486

7.75
10000 8

10376
13506

5.63 5.96
8000
12667
6
4.50
6000 3.48 3.88
4
6810

6183

4000
2.65 1.87
2

5349
5442

4906
2000
0 0
Mar 02 Mar 03 Mar 04 Mar 05 Mar 06
 Balance Sheet of State Bank Of India As on 31st March 2006
(000s omitted)
As at As at
31-03-2006 31-03-2005
Capital (current (previous
year) year)
Authorized Capital 10000000 10000000

Issued, Subscribed and Paid- 5262989 5262989

up Capital
  Total 5262989 5262989

reserves & surplus

Statutory Reserve (op.bal) 14087,14,91 11605,04,96

Additional During the yr. 2933,77,45 2482,09,95

  Total 17020,92,36 14087,14,91

 Deposits

Demand Deposits

1. From Banks 70135064 73279863

2. From Others 609821437 492843349

Total 679956501 566123212

Savings Bank 1127239214 949071583

Deposits
Term Deposits

1. From Banks 51830938 63726600

2. From Others 1941433900 2091553870

Total 1993264838 2155280470

Total 2673221339 2721403682

 Investments

Investment in India in

1.Govt. Securities 1346440561 1714256916

2. Other approved securities 35351849 37295087

3. Shares 13848766 11172877

4. Debenture & Bonds 101004442 133044501

5.Subsidiary / 20209400 15214541

joint Subsidiary

6.units,caertificates of 56007034 13580021

Deposits and others

  Total 1572862052 1924563943

 Borrowings

(1).Borrowings in India

RBI - -

Other Banks 10000000

Other Inst Agencies 56423817 12420610

  Total 66423817 12420610

(2) Borrowings Outside   239988626 179422526

India

Total 306412443 191843136

 Co-operative Banks
1) Pratap corporative Banks
Govern by:-State Corporative Bank
Reserve Bank of India
2) 28% Bank deposit
72% For Lending
10% For Gov Security
3) Redeposit in other bank
eg:-3cr in Shamroa Vital bank
4) Metro--- 3cr
Rural--- 25lakhs for License
5) Customer satisfaction & profit
6) social responsibility eg:- Gujarat floods
7) Bill discounting:-
a) promissory note
b) exporter & importer
 Private sector bank
1) Private sector banks are those banks inn
which capital are generated through private
sector i.e.. IPO

2) Government have no direct control over the

banks.
 HDFC

The Housing Development Finance Corporation

Limited (HDFC) was amongst the first to receive an 'in
principle' approval from the Reserve Bank of India
(RBI) to set up a bank in the private sector, as part of
the RBI's liberalisation of the Indian Banking
Industry in 1994. The bank was incorporated in
August 1994 in the name of 'HDFC Bank Limited',
with its registered office in Mumbai, India. HDFC
Bank commenced operations as a Scheduled
Commercial Bank in January 1995.
 
1) TYPE OF A/Cs:-
i) Saving a/c 3.5%
ii) Current a/c
iii) Fixed a/c depending on the
tenure(15 days=5.25%)
2) Loans:-
Personal loans
Home loans
Loans against security i.e bonds, share, debentures
9.75%
Loans against property
 contd….
3) Credit facility:-
a) Credit cards i.e classic cards, special
benefit cards, premium cards.
b) Debit cards
c) Prepaid cards.

4) Investment & insurance

Mutual funds
Insurance
Bonds
Equity advice
 contd….
 Forex & trade services
Travellers cheque
Foreign currency cash
Foreign currency drafts
Remittances
Cash to master
Trade service
 contd….
Payment Services
Verified By Visa Do you want to be worry free for your
online purchases. Now you can shop securely online with
your existing Visa Debit/Credit card.
NetSafe Now shop online without revealing your HDFC
Bank Credit Card number. Whats more, you can now use
your HDFC Bank Debit Card also for online purchases.
Prepaid Refill If you are an HDFC Bank Account holder
and a prepaid customer, you can now refill your Prepaid
Mobile card with this service.
BillPay Pay your telephone, electricity and mobile phone
bills at your convenience. Through the Internet, ATMs,
your mobile phone and telephone - with BillPay, our
comprehensive bill payments solution.
 Deposits
Demand Deposits
1. From Banks 595,78 566,98
2. From Others 14,156,68 10,063,48
Total 14,752,46 10,630,46
Savings Bank 16,185,79 11,418,38
Deposits

Term Deposits
1. From Banks 860,47 393,45

2. From Others 23,998,10 13,911,96

Total 24,858,57 14,305,41

Total 55,796,82 36,354,25
Borrowings

(1).Borrowings in
India
RBI - -
Other Banks 1,234,97 3,291,00
Other Inst Agencies 166,81 510,00
Total 1,410,78 3,801,00
(2) Borrowings 1,447,70 989,01
Outside
India
Total 2,585,48 4,790,01
 Investments
Investment in
India in
1.Govt. Securities 19,632,84 11,227,07

2. Other approved 5,73 6,73

securities
3. Shares 76,94 89,55
4. Debenture & Bonds 8,121,82 6,798,79
5.Subsidiary / 21,56 2,43
joint Subsidiary
6.units,caertificates of 535,07 1,225,24
Deposits and others
Total 28,393,96 19,349,81
 Movement of 2005- 2004-05
provision for NPAs 06 (Rs.lacs)
(excluding provisions
on standard assets)
1. Opening Balance 378,54 307,66

2.Additional During the 458,22 216,01

year
3.Reductions During 483,05 145,13
the year
4. Closing balance 353,71 378,54
Basel committee
Technologies in Banking
Sector
 Internet Banking
 Automated Teller Machines (ATM)
 'Virtual' Banking
 EFTPOS
 Smart Cards
 EDI
 Image Processing
 Expert Systems
 ATM

Electronic
Banking
Branch
Banking
Branch 2 Branch 3

Branch 1
Head Office
Branch 4

Branch n Branch 5

Branch 6