A Project Report on PERFORMANCE EVALUATION OF BANKS WITH REFERENCE TO FINANCIAL FACTORS: A STUDY OF IDBI BANK, CHANDIGARH (Submission in partial

fulfillment of the requirement of Master of Business Administration, Distance Education, Guru Jambheshwar University of Science & Technology, Hisar)

Supervisor: Mr. Deepak Kumar Lecturer Specialization: Finance

Submitted by: Ms.Kavita Enrollment No.: 11101128002 Semester MBA IV (FM)

Session 2007-09 Director of Distance Education Guru Jambheshwer University of Science & Technology Hisar (India)

CERTIFICATE This is to certify that Ms. Kavita enrolment No. 11101128002 has proceeded under the supervision his research project report on PERFORMANCE EVALUATION OF BANKS WITH REFERENCE TO FINANCIAL FACTORS: A STUDY OF IDBI BANK,CHANDIGARH in the specialization area FINANCE. The work embodied in this report is original and is of the standard expected of an MBA student and has not been submitted in part of full to this or any other university for award of any degree or diploma. He was completed all requirement of guidelines for research project report and the work is fit for evaluation.

Signature of Supervisor (With seal) Name Designation Organization : : : Deepak kumar Lecturer SGIIT,Sirsa

Forwarded by Head/Director or Study Center (with signature, name and seal)

ACKNOWLEDGEMENT

It is with deep sense of gratitude and indebtedness that we express out sincere gratefulness to Mr.Deepak Kumar under whose able guidance, constant supervision and encouragement this work has been completed. I thank him for priceless suggestion and encouraging cooperation, which in turn helped us, enhance the economic merit of the present project work. I am greatly thankful to the academic assistance and guidance extended to me during the preparation of the project. I am also thankful the Director Rajesh Ji for his cooperation and helpful advice.

Kavita

Contents Chapter 1. Introduction Review of Literature 1-16 17-47

Chapter

2.

Research Methodology Problem statement Objective of study Scope Of Study Sources of Data

48-55 49 50 51-52 53-55

Chapter

3.

Data Analysis and Interpretation

56-62

Chapter

4.

Findings Conclusion Recommendations Questionnaire References

63-64 65-66 67-68 69-71 72-73

INTRODUCTION Brief History IDBI was set up under an Act of Parliament as a wholly-owned subsidiary of Reserve Bank of India in July 1964. In February 1976, the ownership of IDBI was transferred to Government of India. In January set 1992, up of IDBI IDBI accessed domestic retail debt market for the first time with

innovative Deep Discount Bonds and registered path-breaking success. In December 1993, IDBI Capital Market Services Ltd. as a wholly-owned subsidiary to offer a including Bond Trading, Equity Broking, Client Asset broad range financial services,

Management and Depository Services. In September 1994, in response to RBI's policy of opening up domestic banking sector to private participation, IDBI in association with SIDBI set up IDBI Bank Ltd. Overview of development banking in India The concept of development banking rose only after Second World War, Successive of the Great Depression in 1930s. The demand for reconstruction funds for the affected nations compelled in setting up a worldwide institution for reconstructions. As a result the IBRD was set up in 1945 as a worldwide institution for development and reconstruction. This concept has been widened all over the world and resulted in setting up of large number of banks around the world which coordinating the developmental activities of different nations with different objectives among the world. The course of development of financial institutions and markets during the postIndependence period was largely guided by the process of planned development pursued in India with emphasis on mobilization of savings and channelising investment to meet Plan priorities. At the time of Independence in 1947, India had a fairly well-developed banking system. The adoption of bank dominated financial development strategy was aimed at meeting the sectoral credit needs, particularly of agriculture and industry. Towards this end, the Reserve Bank concentrated on regulating and developing mechanisms for institution building. The commercial banking network was expanded to cater to the requirements of general banking and for meeting the short-

term working capital requirements of industry and agriculture. Specialized development financial institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the Reserve Bank were set up to meet the long-term financing requirements of industry and agriculture. The early history of Indian banking and finance was marked by strong governmental regulation and control. The roots of the national system were in the State Bank of India Act of 1955, which nationalized the former Imperial Bank of India and its seven associate banks. In the early days, this national system operated along side of a large private banking system. Banks were limited governments desire to maintain employment in the banking system and were often drawn into troublesome loans in order to further the governments social goals. The financial institutions in India were set up under the strong control state Governments, and of both central and

the Government utilized these institutions for the achievements in

planning and development of the nation as a whole. The all India financial institutions can be classified under four heads according to their economic importance that are: All-India Development Banks Specialized Financial Institutions Investment Institutions State-level institutions Other institutions

Industrial Development Bank of India (IDBI) The Industrial Development Bank of India (IDBI) was established on July 1, 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In February 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country.

Although Government shareholding in the Bank came down below 100% following IDBIs public issue in July 1995, the former shareholding: 58.47%). During the continues four to be of the its major shareholder IDBI (current been decades existence, has

instrumental not only in establishing a well-developed, diversified and efficient industrial and institutional structure but also adding a qualitative dimension to the process of industrial development in the country. IDBI has played a pioneering role in fulfilling its mission of promoting industrial growth through financing consonance with national plans and priorities. Over the years, IDBI has enlarged its basket of products and services, covering almost of medium and long-term projects, in

the entire spectrum of industrial activities, including manufacturing and services. IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernization and diversification purposes. In the wake of financial sector reforms unveiled by the Government since 1992, IDBI evolved an array of fund and fee-based services with a view to providing an integrated solution to meet the entire demand of financial and corporate advisory requirements of its clients. IDBI also provides indirect financial assistance by way of refinancing of loans extended by Statelevel financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms. IDBI has played a pioneering role, particularly in the pre-reform era (1964-91),in catalyzing broad based industrial development in the country in keeping with its Governmentordained development banking charter. In pursuance of this mandate, transcended specific the confines of others, balanced industrial growth through development of backward areas, industries, IDBIs activities of pure long-term lending to industry and encompassed, among modernization

employment generation, entrepreneurship development along with

support services for creating a deep and vibrant domestic capital market, including development of apposite institutional framework. In September 2003, IDBI diversified its business domain further by shareholding of Tata acquiring the entire

Finance Limited in Tata Home finance Ltd., signaling IDBIs foray into

the retail finance sector. The fully-owned housing finance subsidiary has since been renamed IDBI Home finance Limited. In following initiation view of of a the signal since changes the bank in the operating environment, reforms early nineties, without

Government of India has decided to transform IDBI into eschewing its secular development finance obligations.

commercial

The migration to the new business model of commercial banking, with its gateway to low-cost current, savings bank deposits, would help overcome most of the limitations of the current business model of development finance while simultaneously enabling it to diversify its client/ asset base. Towards this end, the IDB (Transfer of Undertaking and Repeal) Act 2003 was passed by Parliament in December 2003. The Act provides for repeal of IDBI Act, corporatisation of IDBI (with majority Government holding; current share: 58.47%) and transformation into a commercial bank. The provisions of the Act have come into force from July 2, 2004 in terms of a Government Notification to this effect. The Notification facilitated formation, incorporation and registration of Industrial Act, 1956 in and a obtaining

Development Bank of India Ltd. as a company under the requisite regulatory and

Companies

deemed Banking Company under the Banking Regulation Act 1949 and helped

statutory clearances, including those from RBI. IDBI would

commence banking business in accordance with the provisions of the new Act in addition to the business being transacted under IDBI Act, 1964 from October 1, 2004, the Appointed Date notified by the Central Government IDBI has firmed up the infrastructure, technology platform and reorientation of its human capital to achieve a smooth transition. On July 29, 2004, the Board of Directors of IDBI and IDBI Bank IDBI Bank with the accorded in principle approval Bank of India to Ltd. the to merger be of Industrial Development formed

incorporated under the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53 of 2003), subject to the approval of shareholders and other regulatory and statutory approvals. A mutually gainful proposition with positive implications for all stakeholders and clients, the merger process is expected to be completed during the current financial year ending March 31, 2005.

IDBI

would

continue

to

provide

the

extant

products and services as part of its

development finance role even after its conversion into a banking company. In addition, the new entity would also provide an array of wholesale and retail banking products, designed to suit the specific needs cash flow requirements of corporates and individuals. In particular, IDBI would leverage the strong corporate relationships built up over the years to offer customized and total financial solutions for all corporate business needs, single-window appraisal for term loans and working capital finance, strategic advisory and Hand-holding support at the implementation phase of projects, among others. IDBIs transformation into a commercial bank would provide a gateway to low-cost deposits like Current and Savings Bank Deposits. This would have a positive impact on the Banks overall cost of funds and facilitate lending at more competitive rates to its clients. The new entity would offer various retail products, leveraging upon its existing relationship with retail investors under its existing Suvidha Flexi-bond schemes. In the emerging scenario, the new IDBI hopes to realize its mission of positioning itself as a one stop super-shop and most preferred brand for providing total financial and banking solutions to corporates and individuals, capitalizing on its intimate knowledge of the Indian industry and client requirements and large retail base on the liability side. On July 29, 2004, the Board of Directors of IDBI and IDBI Bank accorded in principle

approval to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. to be formed incorporated under the Companies Act, 1956 pursuant to the IDB (Transfer of Undertaking and Repeal) Act, 2003 (53 of 2003), subject to the approval of shareholders and other regulatory and statutory approvals. A mutually gainful proposition with positive implications for all stakeholders and clients, the merger process is expected to be completed during the current financial year ending March 31, 2005.

RETAIL BANKING: DEPOSITORY, FUNCTIONING & SERVICES Profile The tenth largest development bank in the world has promoted world-class institutions in India. A few of such institutions built by IDBI are The National Stock Exchange (NSE), The National Securities Depository Services Ltd. (NSDL), Stock Holding Corporation of India SHCIL) etc. IDBI is a strategic investor in a plethora of institutions, which have revolutionized the Indian Financial Markets. IDBI promoted idbi bank to mark the formal foray of the IDBI group into commercial banking. This initiative has blossomed into a major success story. idbi bank, which began with an equity capital base of Rs.1000 million (Rs.800 million contributed by IDBI and Rs.200 million by SIDBI), commenced its first branch at Indore in November 1995. Thereafter in less than seven years the bank has attained a front ranking position in the Indian Banking Industry. The Bank The birth of the bank took place after RBI issued guidelines for entry of new private sector banks in January 93. Subsequently, IDBI as promoters sought permission to establish a commercial bank and retained KPMG a management consultant of international repute to prepare the groundwork for establishing a commercial bank. The Reserve Bank of India conveyed it's in principle approval to establish idbi bank on February 11th, 1994. Thereafter the bank was incorporated at Gwalior under Companies Act on 15th of September 1994 (Registration No. 10-08624 of 1994) with its registered office at Indore. Management Team - The Core Strength of The Bank Since August 2000 the bank has witnessed a transformation in the top management structure with top talent from foreign banks and private banks coming together to create a world-class management team. It is totally a customer-focused organization. Existing talented people within the bank were re-aligned to a functionally driven product &

10

sales

organizational

structure. Also,

to

align

employee

interests

with

shareholder

interests founder Stock Options (ESOPs) in October 2000 covering 75 % of the existing employees of idbi bank were distributed. Technology Initiatives Keeping in line with its policy of leveraging technology to drive its business, bank deployed Finacle, the e-age banking solution from Infosys to consolidate its position, meet challenges and quickly seize new business opportunities. Entire Finacle rollout was remarkable considering the fact that it was implemented across all branches in a record time frame of 5 months. Finacle will provide the critical technology platform to propel the bank's new thrust and direction. Achievement of these significant milestones is consistent with idbi bank's continued focus to create customer and shareholder value through deployment of superior technology. Investments in technology is part of the plan to put in place building blocks for creating the right organizational infrastructure which will help idbi bank in consistently delivering superior products, convenient access channels and efficient service to our retail and corporate customers. Strategic Retail Initiatives Idbi bank in the previous calendar year initiated its formal foray into retail banking. idbi bank's depository services product E-Sec is a major success story and the bank today is in the top three league in India in this segment. A spate of retail products were introduced such as home finance, loans against shares, educational loans, car loans, Sweep in account, SMS mobile banking etc. on very competitive terms. The bank has recently announced its strategic alliance with TATA AIG General

Insurance Company for selling General Insurance Products through select branches & ATMs of bank. The bank announced a landmark strategic alliance to make available widely, both organization products through each others distribution channels. Now you can buy coveted savings Products like the National Savings Certificates (NSC) and Kisan Vikas Patra (KVP) on Internet. It recently had a tie up with Birla group in the name of Birla Sun Life

11

Insurance. The new products, which are going to be announced shortly, are Credit Cards, Debit Cards etc. idbi bank is continuously looking for ways to leverage its technical strengths and bring to the retail customer convenience products at reasonable cost. It has started converting its ATM card into ATM cum Debit card. Corporate Banking And Credit The bank has also invested in Credit Rating System software from CRISIL to strengthen its corporate risk assessment mechanism. This goes live from the first quarter of 2001-2002. Corporate Governance Idbi bank has adopted governance standards based on best practices prevalent internationally. It has a structure of governance which meets with the requirements and fully meets the recommendations by internationally acclaimed and recognized norms of governance. Following globalization in India, retail banking has made strong inroads into Indian banking. Every bank, small or big, new or old, private or foreign is chanting the retail mantra. Since retail banking is evolving at a faster pace, the players are redrawing their strategies to optimize on the business potential. Retail banking has been at the forefront of the growth for many a consumer economy worldwide. Following globalization in India, the FMCG and consumer durable products opened up to international players. Retail banking made strong inroads into Indian banking as well. Retail banking generally refers to offering financial services, products related to deposits and assets to individual customers for personal consumption. Banks concentrate class on various Different segments like professionals, housewives, pensioners, children, salaried etc.

types of products like recurring deposits, savings bank deposits, fixed deposits, credit cards, housing and consumer loans and educational loans are offered by banks to the above mentioned market segments.

12

Retail banking is a business activity, which is subject to evolutionary change and development, as its processes, structure and market place are all, modified. Strategy however exists as a technique for operating the bank within the environment, which essentially consists of the marketplace, and for analyzing the bank and marketplace in detail. Thus it provides the framework in which suitable action can take place. This framework enables the management to: Engage in long term planning. Allocate resources optimally. Set objectives.

The application of strategic methodology to retail banking as a practical exercise is a vital element in structuring and focusing bank's energies towards an increasingly complex and volatile business environment. The value of applying generalized, conceptual thinking to an industry as apparently dynamic as the Banking industry is often questioned. It is thought that its long-term view is not justified given the realities of the market place, with its framework for action not allowing effective entrepreneurial opportunities. Strategy however attempts to take a holistic view of business activity taking into account all the interacting elements that make up the business environment. The strategy proposed should be a synthesis of the entire interacting element so that it is practical enough, to respond flexibly to short term changes, which are either related to the organization or to the environment. Clearly accommodate action. Retail Banking- The Need Poor industrial production due to lack of demand has resulted in poor credit off take. Banks cannot rely on big corporate. As there is regular rise in deposits, banks are flushed with funds. Banks do changing patterns of the more able and a strategy is able to deal in a cohesive way with the totality of factors that effect the business the more able it is to business provide successful long term lines of

13

not want to take risk by financing second rung manufacturers in recession. With narrowing investment opportunities and poor credit off take, banks turn towards retail banking, reasonable return. Growing which presents attractive opportunity with lesser risk and consumerism in India also encourages retail banking. The domain of retail banking market has tremendous growth potential for banks and finance companies, as at present it is largely untapped. The penetration level is 2.5 to 3%. And this is in a scenario when the requirements of the consumers are growing. In the past, people never believed in buying consumer goods on credit. But today the attitude is changing. The demand for consumer products has increased. Today, about 70% of consumer goods purchased are through finance schemes/loans as against 40% about five to six years ago. In retailing of deposits also banks have better scope now. The stock markets and real estate market are not performing to the expectations of the investors. To tap this market, banks should come out with a variety of new deposit products. Due to recession and industrial slowdown, many of the corporate have either shelved or postponed their development plans. A number of corporate borrowers are sidetracking banks and raising money through commercial paper and the debt market. These are not only cheaper than bank credit but at times they money at rates below bank strategies to go for retail banking as a major thrust area. Indian Outlook & Scenario In order to reduce transaction costs, banks are trying to shift to technology supported banking succeed in raising rate. To overcome these problems banks have formulated

from the age-old brick. Many banks introduced Voluntary Retirement Scheme (VRS) to cut the operational costs. Banks are aggressively trying to become a one-stop financial shop providing all types of financial services to suit their customer needs. They are selling products ranging from insurance policies to government securities to increase their non-interest income. This helps them in acquainting themselves with products/segments where they do not have any experience. Banks are concentrating on vehicle loans, housing loans, other fee-based business like guarantees, remittances, gold banking etc. Public sector banks have increased their exposure to housing loans by 53% to Rs. 29,456 cr. during the year ended March 31, 2002 as compared

14

to Rs. 19,204 cr. during the earlier year. Borrowers are comfortable with the falling interest rate regime. The financiers for home loans have slashed their lending rates to align with the current falling interest rates structure. This has made the home loans very attractive. Banks are expected to reach a higher market share in the current fiscal as they have a low risk weightage of 50% as against 75% for housing finance companies. Traditional branch banking has changed. A number of banks have adopted a new model of branch banking. The customers avoid standing in queue in branches; instead they prefer transacting at offsite locations like supermarkets, petrol pump stations etc. This is the reason why retail-banking products like credit cards, vehicle loans are available at offsite locations also. In fact, this mode is becoming more popular these days. Banks are making tie-ups with shopping malls and supermarkets which are offering such retail Banking products to the customers. The banks for promoting credit card services have also appointed direct selling agents. Such agents arrange for door-to-door campaigning of these products. These steps are being taken to ensure customer's convenience, which is the most important factor on the retail business agenda of banks. Credit card business is growing in India at the rate of about 25% per year. There are about 5.5 billion cardholders in India but the average amount spent is very low. Slowly people are getting acquainted with the plastic money culture.The urban and metropolitan centers have a large concentration of corporate and commercial advances and wholesale deposits. In the rural and semi-urban centers, deposits and advances are probably categories of depositors and borrowers like mostly retail in

nature, considering big-ticket advances are non-existent. These customers include all farmers, households, service and other professionals mainly located in rural and semi-urban areas. At present, much of the action in the retail financial services segment is mainly restricted to urban and metro centers as now. The entire banking operation in rural areas is completely branch-centered and alternate delivery channels are yet to develop. The ATMs are the main distribution channel for migration of branch transactions and the pace also is slow. World over there are over one million machines operating in over 100 countries. India has about 5,000

15

machines-a

small

numbers

given

the country's size. While the use of ATMs is on the

upswing, use of ATMs for services other than cash withdrawals is yet minimal investors, reveals an extremely low usage of ATMs in India. As per the study almost 81% of respondents have stated that they have never used an ATM. The study indicates a higher usage of ATMs in the south zone (28%) as compared to other geographical regions. The percentage of customers using ATMs in North is 14, East 11 and West 14. In UK, ATMs are being used to recharge `pay as you go' mobile phones. Stamps and phone cards are also sold through ATMs. Trading in shares and applying for loans are being pursued in a number of countries. ATMs that check cash for people without bank accounts are developing in the US. In China, banks are testing ATM units that give instant credit to the account for bulk cash deposits. Compared to the international trends, ATMs usage in our country is still poor. To optimize the return on investment, banks have to push the customers to migrate to the ATMs/Internet channels, so that marketing of the financial services will deepen among the branches of various banks. According to CK Prahalad (Business Standard, November 5, 2002) the delivery and retail focus should be directed towards the 60% of the population whose income, consumption and savings levels are really low. This is all about per capita consumption, and retail services should increase their penetration and reach. Targeting such customers and providing services to them will be the greatest challenge for retail banking business.

16

REVIEW OF LITERATURE

17

Retail Banking & Technology Banking remains an essential input of a modern economy. The three functions of purveying liquidity, facilitating payments and traditional Banking

maturity

transformation

(inter-generation risk distribution) will be needed in future too. However, the crucial difference would be, banks would not be essential for doing these. At Best, A Second Best The (commercial) Bank is a product of an inefficient market, a second-best institutional solution to an `incomplete-contracts environment'. The 20th century has witnessed the lowest entropy of change in the spheres' of technology, information availability and the property rights environment. As a result, the banking institutional appellation (the functions have So become that separable from their commercial bank). the institutional form is fast

becoming immaterial it tallies with the declining share of traditional banking functions in banks. The banks' share of intermediate assets between today and half-a-century back remains stable on average only when the non-interest assets. Banks continue to be safe delivery systems for financial services due to institutional appellation. However, today the banking functions are fast becoming separable from banks. Non-Banks like financial companies, insurance companies, specialist firms etc., offer income is capitalized and added to the bank

almost all-banking products. Thus, banks' survival is threatened by the rise of non-banks. Dawn Of Digital Economy: The New Economy There are many synonyms for the `new economy': `virtual economy', `digital economy', `e-economy', `Internet economy', `e-commerce' etc., although all these sound less capacious than `new economy'. It heralds `end of geography' and a truly borderless world. The new economy not only stands for all the informational goods and services, but also emphasizes

18

that development, production and provision of these goods and services are critically dependent on digital technologies. Information is both a dominant final output and also intermediate input in such an economy. It contributes to high growth and low inflation. Any prospect of being excluded from the `information from economic progress. The Technological Divide: Leaving Cash and Paper behind Few financial analysts and banks doubt the depth of internet-banking capabilities and the huge impact it will have on the bottom lines of banks. Internet banking represents a paradigm shift in the business-modeling mindset of banks. The opportunities are unlimited. With customers becoming more tech-savvy and sophisticated, they to choose products from, than to be chosen for them, view the Internet as the newfound ability. Thus, the Internet represents a critical shift in the customerrelationship-marketing environment for banks. Internet capabilities look pretty impressive; some of which are presented in table below. TABLE 1 POSITIVE Low Costs Better data mining Better market segmentation Channel Integration Unbundling, financial re-packaging P NEGATIVE High investment costs Low barriers to entry Reduced profitability Customer defection Co-ordination risks economy' amounts to being excluded

19

 Improved work culture B2B Brand equity creation Better capital allocation End of geography New revenue avenues

SOURCE: ICFAI journal (January issue 2003) Spreading of thin spreads Competition from newcomers E-payments under pressure Customer empowerment More aggregators More systemic risk A cursory look at the table reveals that the Internet can provide customers an S makes

customized pitches attractive due to low transaction costs and ease of use. At the same time, Commoditization need not make customers `sticky'. Instead, it may make them `stingy', and fickle-minded thus, eroding customer loyalty. TABLE 2 SOME INTERNET CAPABILITIES 1. Channel Variety PC Internet Banking SIM or WAP mobile Banking PDA Banking

20

2. Transaction Capability Credit card account activity Wire transfer to third parties Funds transfer Account activity, balance inquiry etc Bil presentment and payment 3. Customer Service E-mail alerts Internet phone Other customer inquiries 4. Online Lending Online loan applications Online loan approvals 5. Cross-Selling Online stock broking Online insurance Online mutual funds 6. Financial Portal Personal planning modules Stock quotes and news Loan calculators

21

SOURCE: ICFAI Journal (January issue 2003) Internet As A Prominent Delivery Channel Migration to Internet channel by various users is happening much faster than

expected due to rapid technological advancements and increased usage of IT. For example, in Europe, the percentage of Internet users is estimated to increase from 10% in 1999 (38 million) to 50% in 2007 (190 million). Broadband transmission, Web TV and wireless Internet access via mobile phones are providing greater impetus for this transformation and exponential growth in the number of users. Another trend, which is having a significant impact on the banking, is the proliferation of mobile phone users. By 2003, the number of customers using mobile phones is projected to be 230 million in Europe alone and these phones are likely to find additional utility as `pocket banks'. Similar trends are discernible to 19 million by 2007. The Future of Financial Services' succinctly summarizes the impact of new technologies on the financial services industry as below: Credit : Credit providers will no longer be able to price mortgage rates at premiums to the market because the public can easily get market information. Firms that integrate financing with services will dominate. Real estate agents, for example, will link financing with house sales in a single package. Multiple mortgage lenders will bid online to finance a home sale. Insurance : Life and health products will become far more integrated with investment and other financial products. Technology improvements that facilitate risk assessment _ such as the use of sensors to detect the condition of a car,
22

in the case of online broking customers. The number of online

broking customers stood at 1.2 million in 1999 in Europe and estimated to increase progressively

for example-will give insurers accurate data with which to price insurance specifically for each driver. Investments : occur. With Further integration of financial products with the help consumers' meet needs will

of Personal Financial Booths (PFBs), investing will become their personal

automated, enabling consumers to develop portfolios that best

needs and risk preferences, without having to become stock market experts. Money Management : Where money is stored and how it is greatly. PFBs will retrieved will change Digital

manage consumers' funds ensuring that the return is optimized. Personal

Eventually, multiple services will be combined through a wireless Assistant (PDA) or other device.

Think customers, not products, by developing and personalizing innovative, easyto-use offerings that focus on customers' lifestyle organizations around customers. goals-and by structuring their

Partner with best-of-breed product providers to develop tailored customer solutions in real time, weaving the needed financial services into the fabric of overall product offerings.

Be

accessible

to

customers

whenever

and

however customers

want,

interact

with them efficiently through multiple channels. Also development in Electronic Commerce is perforce forcing the banks to review their service delivery strategies. First it was business-to-Consumer (B2C), then Businessto-Business (B2B) and Person-to-Person (P2P). Today it is all about mobile commerce through Internet. Will the next wave be a transaction conducted through a television set-top box (t-

23

commerce)

or transactions initiated

through voice commands

(v-commerce)

or

beaming of value from one device to another through infrared or blue tooth technology through proximity commerce (p-commerce)? These channels and devices are creating a new environment where buyers and sellers will be able to conduct business anywhere and anyway which is termed as universal commerce (u-commerce). The Pervasiveness Of Technology History has clearly demonstrated that technology, properly applied, drives efficiencies, productivity, and value. As technology becomes more pervasive-think of the explosive growth of Non-technology as well as ongoing capital investments in technology at the enterprise level there is a larger platform on which to leverage innovations and new applications. Increasing Bandwidth And Connectivity Bandwidth has been doubling every nine months or roughly at twice the growth rate of computing power. It is not hard to imagine a world where every electronic device has its own Internet connection and interactivity is possible in appliances as ubiquitous as televisions, medicine cabinets and refrigerators. Increasing bandwidth will lead to the creation of what is being called the `ever net; where billions of devices will be connected to the hyper speed, broadband, multiform at Web. In the future, the Internet will always be `on'. As these trends are revolutionizing the banking operations world over, there are certain challenges, which are emerging for banks particularly in the area of Internet banking. Around 35% of the companies offering Internet banking services have recently entered the market. These new entrants will give stiff competition to existing banks in offering various financial services. As the barriers between various players in financial markets collapse and technology enables to develop alternative channels of delivery,
24

there is every possibility that service providers grab the market through efficiency and price competitiveness. Some of the above-enunciated trends are taking roots in India as well. Is Internet Always Preferred? The Internet is in fashion but it is not what the customers want when markets turn volatile and times get tough. It is quite possible that the Internet can serve some investors better all the time, all investors only some time, but not all investors all the time. That is why a multi-channel strategy makes better sense where the Internet can serve as a shock absorber of aggregate profit volatility besides adding to profitability. Therefore, brick and mortar business channel retains its basic role even if the dominant business is only click-of-a-mouse away. Concerns Of Technology 1) Information Security : Security problems arise in a variety of ways: what is perceived as the key issue varies from place to place and from B2B. Worries that "the tax authorities will know how large my turnover (or sometimes even personal expenditure) is" are particularly common in areas with a thriving black economy. Most pervasive, business however, are the classic worries about assurance of payment for the seller and assurance of delivery to

specification for the buyer; as a sub-set of this, there are worries about the security of both Banking and trading online against the depredations and disruptions of hackers. Fortunately, these commonplace problems are very rapidly generating commonplace answers, sometimes in the form of commercial products or services e.g. online credit card authorization service providers, and sometimes in the widespread use of techniques that are effectively in the public domain. (E.g. P.G.P. encryption) 2) Transaction Security : It is evident that bank, although very interested in Internet banking is also concerned with the risks connected with procedures for transactions over the Internet. Today, banks are already loosing enormous amounts through cheques and credit card fraud. The security solutions of the future are therefore high on the bank's agenda. If customers distrust the

25

security it may create multiple problems. Banks will find it hard to launch Internet banking services if demand is low because of security doubts. Banks are in some senses trendsetters in determining the technology that will be used in the future. Concerning specific security solutions for Banks transactions over the Internet, there is a strong support for smart cards solutions. a majority of the banks believe that smart cards based security solutions will be the most widely used solution in Internet Banking in the future. However, some banks are still concerned about the pricing of existing smart card technology to win widespread acceptance. Other (compared to magnetic stripes ones). A significant reduction in prices may be necessary for the threats exist in the form of new conceptions of electronic money and attempts to overturn the payment methods currently employed - Cyber Cash, Dig Cash, First Virtual and Net Bill. Why Technology Underperformed The three main reasons for technology under performing were : Developers were away from actual customers: People who developed the technology were not in direct contact with the end-user. More often than not they had to depend on the instructions from the companies themselves. Customers were not comfortable: As it is the case with anything new, there is inertia that needs to be overcome, secondly the customers were not used to technology, at least in India, and the learning curve is that much longer. Technology could be duplicated: Most of the companies that used technology to

differentiate themselves found that their competitors closed this gap pretty rapidly.

26

The Bank, Its Products And Services IDBI have been providing many services to its customers. It divides its services into two divisions: 1. Retail Banking Services. 2. Corporate Banking Services. The following are the Retail Banking Services: Deposits The bank provides normal Savings Bank Accounts, Current Accounts, Fixed Deposits, and Pension Accounts. But it also provides Deposits accounts & Sabka Accounts. Loans The bank provides various loans like: 1. Home Loans. 2. Loans against home. 3. Education Loans. 4. Personal Loans. 5. Security Loans. Easy Payments Bank provides its customers with a facility of easy bill payments. It provides facility of payment of tax, Stamp Duty, Easy Fill, Online Transfer, etc. special accounts like Suvidha plus Fixed

27

Money Transfer Sending money within India has never been this simple, convenient, fast and safe!

IDBI's Card to Card Money Transfer facility; a first-of-its-kind money transfer service in India is the absolute way to send money anywhere, anytime to any Visa Debit or Credit cardholder in India. Bank's customers can now transfer money from their Bank account or Visa card to any other Visa debit or credit card across the country through this service. Funds can be transferred to any debit or credit card in India. Sender needs to know only the card number of the Can be accessed using ATM, Internet Banking or through the Funds will be transferred within 2-3 working days. Cheaper, faster and more convenient than Demand Drafts, telegraphic transfers and Payable-At -Par cheques. No geographical limitation within India. Beneficiary location need not be known. Funds will be transferred within 2-3 working days. Payment of credit card bills. Transfer Funds We can use Internet Banking, ATMs or branches for transferring money across the beneficiary. branch.

country. The only information we need to know is the 16-digit card number of the transferee. To carry out a transfer, simply log on to IDBI's Internet Banking at www.idbibank.com, or visit the nearest IDBI ATM or branch and transfer the required amount. The money is directly credited into the recipient's card, no matter where he is. For any further assistance, click here to call our phone banking numbers nearest to your location.

28

Investment We believe that all investors share a common goal, regardless of their objectives: superior and sustained returns with a tight control over risk. Meeting your long-term investment goal is dependent on a number of factors: your investment capital, your expected offer you investment options based on your Relationship after Managers are equipped to rate of return, inflation, taxes and your investment time horizon. To meet your requirements, we risk tolerance and return expectations. on various investment avenues advise you

thoroughly understanding your investment profile. They then help you with your

investments and subsequently support you by tracking your investments on a regular basis. Mutual Funds Mutual funds offer a simple and effective way to diversify your investment without the hassles of tracking individual stocks on a daily basis. Click here for more details on the options we offer GoI 8.0% Savings (Taxable) Bonds. 8% GoI Savings Bonds is a good option for investors looking for high yielding risk free instruments. Capital Gain bonds Invest your long-term capital gains on sale of your asset in the specified assets. Insurance Services IDBI brings to you Birla Sun Life Insurance, one of the leading providers of life insurance products. To invest in an insurance policy, just walk into any of our branches and meet our Certified Insurance Officer. After studying your profile, short-term and long-term needs and your plans for the future, he will recommend a policy that's best for you.

29

NRI account Being an NRI (non-resident Indian) and privy to special benefits and privileges in India, its only but natural to expect world class levels be it banking or any other service. Welcome to IDBI, where you are treated as special and your needs exclusive. While we offer basic NRI banking products like Non Resident Rupee Checking Account, Non Resident Rupee Term Deposits and Foreign Currency Non Resident Deposit, we realise that your requirements are manifold. Hence, we provide seasoned banking professionals to handle your queries and offer value added services. The value-added services we provide range from answers to online tax and foreign exchange related queries and needs with special emphasis on FEMA guidelines issued by The Reserve Bank of India from time to time. Our International Debit Card is designed to offer you the convenience of accessing your funds with us from any ATM and also pay for your purchases from any merchant establishments across the world. You can avail of our advanced funds transfer facility to transfer funds from your account to that of your family members' account held with any IDBI branch across India. Our other services, such as providing free nomination and mandate facility enables hassle free banking operations to your family member authorized by you to operate your account. We provide high-end solutions such as high yielding foreign exchange products, wealth management and insurance. Non-Resident External (NRE) Repatriable account for your investment needs access your account anytime, anywhere with Internet Banking, shop at more than 8.3 million locations and withdraw funds in 140 countries.

30

Non-Resident Ordinary (NRO) An account for your local income and expenses, access your account at more than 250 ATM's across the country, pay your bills in India from anywhere in the world. FCNR Retain your funds in foreign currency, no exchange risk; earn attractive returns on your fund. Foreign Exchange Services Spot Contracts Spot contract is the simplest and most common foreign exchange transaction very widely used by the corporates to cover their receivables and payables. It is a commitment by the client to buy or sell one currency against another at a fixed rate for delivery two business days after the transaction. Example: Say an Indian company wants to pay its overseas supplier in US dollars 5 MM. Using a Spot Contract it purchases dollars for immediate (2 business days). It has funds delivered to the supplier's Bank Account overseas. The exchange rate is fixed by the current market. The equivalent Indian Rupees is debited to the company's account. Forward Contracts With Forward contracts, you can negotiate a rate today to exchange foreign currency on a future date. Forward contract is a contract to buy or sell currency on a future date at a predetermined rate. The rate on the forward exchange contract is based on the spot rate and the differential in interest rates between the two markets involved. This type of transaction helps you manage your foreign exchange risk because, by setting the exchange rate in advance, you eliminate the uncertainty related to fluctuations in the currency until the time you pay for it or receive it.

31

Example: Say, an Indian company has an import payable USD 5 million in three months from a US exporter. The company must protect itself from an adverse fluctuation in the exchange rate of USD/INR. Forward cover decisions. Outright forward contracts. Forward to forward. Currency switching. De-link cross from INR. Cover USD/INR exposure. Cover cross exposure. Partial cover. Fixed date - FC deliverable at a fixed date.

Option forward Deliverable during a specified period. Maximum one calendar month. Last date holiday and declared holiday. Deliverable preceding working day.

Forward Rate Agreements A forward rate agreement is a financial contract between a bank and the customer to exchange interest payments for a "notional principal" amount on settlement date, for a specified period from start date to maturity date. Accordingly, on the settlement date, cash payments based on contract (fixed) and the settlement rate, are made by the bank and the customer. The settlement rate is the agreed benchmark or reference rate prevailing on the settlement date. Forward rate agreement provides means for hedging the interest rate risk arising on account of lending or borrowing made at fixed or variable interest rates.
32

Currency Swaps A foreign exchange transaction in which a bank agrees to exchange specified amount of one currency for another currency at a fixed price, i.e., the bank and the customer agree to exchange payment streams or cash flows both in terms of principal and interest. Simply stated, currency swap is an extended forward contract and normally for periods beyond one year. An Indian company that has raised the borrowing in foreign currency can exchange the same for the equivalent INR thereby matching foreign currency liabilities. There will be series of forward contracts for both principal and interest payments at the agreed exchange rate over the period of the loan/borrowing. Phone Banking At IDBI, we endeavor to raise the bar to meet the rising requirements of our

customers, by providing quality products and services to suit varied banking needs. Our Phone Banking service is yet another, technology and customer centric step in that direction. IDBI's Phone Banking service enables you to access authentic, instantaneous clock, 365 days a year. To view the different services that are available through our Phone Banking facility, click here. A telephone and your 4-digit TIN (telephone identification number) is all that you need to access your account. SMS Banking Business is on the move and so are the people who conduct it. For you to enjoy banking convenience while on the move, IDBI is here with its SMS Banking facility. Our SMS banking initiatives permit you to access your Bank account and carry out various banking transactions and inquires. information on

your account balances and transactions. The service is available totally free of cost round the

33

NON-WAP Enabled Mobile Phones If you have a non-WAP enabled mobile phone, you can use the SMS facility and conduct the following operations using the messaging services of your service provider. Balance enquiry Last three transactions. Cheques payment status. Cheques book. Statement request. Demat - free balance holding. Demat - last two transactions. Bill payment.

WAP Enabled Mobile Phones If you are WAP enabled mobile phone user, you can do interactive banking with us. If you need to draw cash while you travel, your mobile will indicate to you the nearest IDBI branch and its phone number. Transactions using WAP are WAP-WTLS compliant (meaning you have the comfort of transacting at the highest level of security standard available internationally). Account Alert IDBI's new Account Alert service gives you all this and more. With Account Alert, your bank account transaction information will be delivered to you automatically, wherever you are. No more visiting the bank branch or ATM to check routine things like account balances, cheques clearance, verification of ATM transactions, bill payment verifications, etc. Account Alerts allows you to monitor filely any type of activity on your accounts, and be notified by e-mail or

34

cell phone SMS as and when they are executed. Gold card The card can be used to transact at IDBI ATMs and 13,000 VISA/Plus ATMs in India and for making purchases at 1.2 lac Visa locations. It is having International validity. The Gold Debit Card can also be used abroad to make purchases at 13 million merchant locations and withdraw local currency at 8.5 lac Visa/Plus ATMs. It also helps for Petrol surcharge waiver*: Currently, there is a surcharge of 2.5% at all petrol pump transactions. This petrol surcharge will be waived off for transactions carried out on the Gold Debit Card. It also provides Insurance cover, where the consumer can withdraw cash upto Rs. 75,000 and make purchases worth Rs. 75,000 in a day. IDBI has tied up with various merchant establishments. He can avail of attractive discounts at these merchant establishments by making purchases through the Gold Debit Card. The details will be sent across to you from time to time. Debit cum credit card This card enables you to access your IDBI account from anywhere in the world, anytime of the day or night. It not only lets you withdraw money from any of our ATMs (Automated Teller Machines) and our associated bank's ATMs, but also empowers you to shop, dine and travel without the worry of carrying cash with you all the time. Gift card The IDBI GiftCard allows your loved one to purchases goods and services at over 1.8 lac merchant establishments in India that accept Visa cards. No heartaches of being bound to specific stores with gift vouchers. The GiftCard can be used more than once giving you the flexibility to shop at will from different stores and at different times.

35

World currency card The World Currency Card is a prepaid multi currency card that provides you the convenience of making purchases and withdrawing cash while traveling almost anywhere abroad. The Card does away with the inconvenience of carrying travelers cheques, is much safer than carrying foreign currency and is more economical than credit cards.

Safe Deposit The Safe Deposit Locker facility offers invaluable safety for you valuables. It also have on offer a variety of sizes to fit your requirements. The deposit lockers can be operated at your convenience during extended banking hours. The bank provide the maximum safety to your valuables that are placed in our Safe Deposit Lockers. For opening a locker all consumer has to do is: Open a savings bank account with Rs 5,000. Pay a one time administrative charge (non refundable) including legal fees/stamp paper charges. Pay only one year's rent in advance upfront. No additional fixed deposit required. Services for Corporate Sector Home / Project Finance Scheme Project finance involves providing credit and other facilities to a borrower with a credit

rating normally of 'A' or 'BBB' (provided adequate mitigates are in place), for setting up new projects, expansion, diversification and modernization of existing industrial units. While considering the project for assistance, IDBI evaluates technical feasibility, commercial and economic viability and financial soundness of the project. The interest rate and other fees for credit and other facilities would be based on

36

creditworthiness relevant factors.

of

borrower,

rating,

risk perception, tenure of loan / facilities and other

The repayment of the loans and facilities is normally fixed on case to case basis depending on projected cash flow of the borrower. Technology Up gradation Fund Scheme The Government of India introduced the Technology Upgradation Fund Scheme

(TUFS) for Textile and Jute Industries, which is valid upto March 31, 2007. The Scheme is intended to facilitate induction of state-of-the-art or near state-of-the-art technology in Textiles Industry. Existing units with or without expansion and new units are eligible under TUFS. IDBI is a Nodal Agency for textile industry (Non-SSI Sector). Normally the project would be evaluated as per project finance norms. The rate of interest is normal applicable rates prevailing at the time of sanction / execution of loan documents. However, Government of India (GoI), Ministry of Textiles (MoT), gives interest reimbursement of 5% p.a. to eligible projects sanctioned assistance under TUFS. As regards FC Loan, GoI, MoT provides a cover for actual adverse exchange fluctuations not exceeding 5% from the base rate (the base rate being the weighted average rate covering all disbursements of the loan) or cost of forward cover premium limited to 5% p.a. on the base rate of exchange, as an option, to be exercised only once in each Financial Year. Corporate Loan Under the Corporate Loan Scheme, IDBI provides rupee and/or foreign currency loans to corporates with minimum 5 years of operations, continuous profits for the last 2 years with credit rating normally 'A' or 'BBB' (provided adequate mitigants are in place) and satisfactory track & credit record with lenders for normal capital expenditure, working capital margin, shortfall in working capital and general corporate purposes, including expenses on Voluntary Retirement Scheme and business acquisition where no tangible asset creation is envisaged. The

37

interest rate would be based on creditworthiness of borrower, rating, risk perception, tenure of loan and other relevant factors. The repayment period for the loans would normally not exceed 5 1/2 years. Treasury Product Facility (TPF) Under years scheme the Treasury Product Facility, IDBI provides rupee and/or foreign currency

loans to well performing corporates with credit rating of minimum 'AA minus', 5 of operations and satisfactory track & credit record, for providing finance for general term nature. rate Assistance would be under based the on would be minimum Rs.10 cr. The interest corporate purposes with fund requirement of short

creditworthiness of borrower, rating, risk perception, tenure of loan and other relevant factors. The repayment period would not exceed 18 months. Film Financing IDBI provides finance for production of feature films as defined under the Cinematograph

(Certification) Rules, 1983. Advertisement films, short films, documentaries etc. are not eligible for financing. A corporate entity, promoted by reputed producers, backed by established directors & other technicians and possessing satisfactory track record are eligible to avail assistance under the scheme. In case the entity is recently corporatised, track record of the main promoter(s) is considered. Assistance would be not less than Rs.2 crores and not exceeding 50% of the estimated cost of the film. Interest rate would be cap rate in the prevailing interest rate band. Direct Discounting of Bills For sales, financially IDBI sound machinery deferred / equipment manufacturer, who wish to promote

provides

credit facility for sale / purchase of indigenous machinery /

equipment under its easy to operate direct discounting scheme. Assistance would be 100% of the

38

total value (including insurance, taxes & freight). Interest rate / discount rate would be as prevalent at the time of discounting of bills, depending on monthly / quarterly / half-yearly/ yearly payments and according to temporal profile of bills. Scheme for Lending to Real Estate Sector IDBI provides finance in the form of project funding and securitization of lease rentals, to a borrower (promoter group in case of SPV), with continuous profit for the last 3 years, internal rating of 'A' and above, for productive construction activity in real estate. Assistance would be in the form of term loans and total term loans including IDBI loan should not exceed 30% of the project cost. For projects exclusively for lease out, the ceiling on total loans will be 60% of project cost. Interest rate would be based on creditworthiness of borrower, rating, risk perception, tenure of loan and other relevant factors. The assistance would be short to medium term in nature not exceeding 5 years. As regards securitization of lease rentals, the strength of the lessee and lesser would be assessed on the basis of financials, reputations, track record and cash flows. The exposure would be on the basis of present value of lease rentals of maximum 7 years excluding expenses (like TDS, maintenance, property tax and adjustment of advance payment) or 60% of the property value less advanced payment received from the lessor, whichever is lower. Rehabilitation Finance Department IDBI has in its portfolio certain potentially viable, weak and sick companies, which can be revived by way of merger/takeover. Rehabilitation Finance Department (RFD), a specialized department, created to achieve the said objective, is on the lookout for resourceful parties interested in takeover/merger or joining in as co-promoter. Industry-wise classification of such companies is given ahead. Industries, where companies are presently available, are given. In addition, IDBI has in its portfolio, other companies which can be revived by undertaking various measures such as strengthening of management, Upgradation of technology, infusion of fresh funds, etc.

39

IDBI would like to interact with potential investors / clients who may be interested in takeover, merger or joining as co-promoters etc. in order to achieve the said objectives. Forex Services / Treasury General corporate purposes with fund requirement of short term nature. The eligibility criteria are: Past Performance Well performing corporate with minimum 5 years of operations and satisfactory track & Credit record with lenders. Credit Rating: Minimum 'AA-' (read as 'double A minus') Net Worth: Not less than Rs.25 crores (only equity and free reserves to be included). Long Term Debt to Equity Ratio: Maximum 1.25:1 Current Ratio: Minimum 1.1:1 Terms of assistance Nature of Assistance

Rupee and Foreign Currency Loan Extent of Assistance: Minimum Rs.10 crore Interest Rate on Rupee Loan: Fixed or

floating rate, as per creditworthiness of borrower, rating, risk perception, tenure of loan and other relevant factors. Interest rate to be reset for longer maturity loans. Interest Rate on Foreign Currency Loan: Normally floating rate based on LIBOR plus a fixed spread according to creditworthiness of borrower, rating, risk perception, tenure of loan and other relevant factors.Repayment period: Maximum upto 18 months with call / put option where considered necessary.

40

Security for the assistance: Demand Promissory Note. Power of Attorney in favour of IDBI to create charge on assets/Undertaking to create Charge on assets of the company in the event of default. Any other acceptable security.

Commercial Paper IDBI subscribes to bonds, debentures and other debt instruments. The applicable

coupon rate or purchase price would vary based on the issuer, rating assigned and tenure of the instrument. The issuer or holder of the instrument or the arranger to the issue may place the instrument with IDBI. 1. Bonds: IDBI subscribes to bonds issued mainly by banks or public sectors units. Bonds may be secured or unsecured. 2. Debentures: IDBI subscribes to tradable debentures of short to medium term maturity issued by corporates. The debentures should be rated by rating agencies accredited by SEBI/RBI. INR Derivatives 1. Interest Rates Swaps (DRS) IDBI contracts to exchange a fixed interest rate liability for a floating interest rate liability or vice versa, on behalf of its clients. The principal amount is not exchanged, with only the differences in cash flows being settled. Capital adequacy norms as being followed. Benchmark normally used. per RBI guidelines are rates from NSE MIBOR, Reuters MIBOR, T-Bills rates are

41

2. Rupee-Dollar Interest Rate and Currency Swap IDBI enters into agreements involving exchange of liability in US Dollars for a liability in Indian rupees or vice-versa, and may also include exchange of fixed rate liability for floating rate liability or vice-versa. Swaps are used for hedging currency and/or interest rate risk, or for liability management. 3. Forward Rate Agreements (FRA's) IDBI offers FRA's, which are contracts to exchange interest payments for a specified period starting from a pre-specified start date in the future. These instruments are used to manage interest rate risk. 4. Forward Contracts IDBI enters into agreements to exchange a predetermined amount of one currency for another at a specific rate of exchange on a specified future date. These instruments are generally used to hedge against exchange rate fluctuations. Recent developments To meet emerging challenger and to keep up with reforms in financial sector, IDBI has taken steps to reshape its role from a development finance institution to a commercial institution. With Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, IDBI

attained the status of a limited company viz. "Industrial Development Bank of India Limited" (IDBIL). Subsequently, the Central Government notified October 1, 2004 as the 'Appointed Date' and RBI issued the requisite notification on September 30, 2004 incorporating IDBI Ltd. as a 'scheduled bank' under the RBI Act, 1934. Consequently, IDBI, the erstwhile Development Financial Institution of the country, formally entered the portals of banking business as IDBIL from October 1, 2004, over and above the business currently being transacted. As of July,2006 the employees association of the IFCI have sought its merger

42

with the Bank.

RESEARCH METHODOLOGY

43

STATEMENT OF PROBLEM

The banking industry is facing an upheaval .From the time of Independence, the banking sector is growing at the rapid rate and the government is providing facilities to banks for the purpose to grow. The rise of nations banks is but a pointer to the dramatic changes sweeping through the industry for some years now. A growing economy, greater consumer confidence and increasing appetite for credit, and greater thrust on technology have helped the more aggressive PSU banks not just grow their business, but drum their balance sheets into shape. On the whole, the industrys focus now is on scaling up both domestically and in markets abroad, widening the product and services portfolio, and better using technology to make banking more accessible and efficient. As far as the sector is growing, so the study is of much more significant so that the more and more customer can be tapped out and to provide customers the various transaction channels so that the banking become easy accessible and the various other services provided by banks can be utilized by the customers and the overall result of all these with the help of international banking can fuel India as a global economic powerhouse. With this in mind we seek to develop some insights into the factors behind the current situation and explore their long term consequences.

44

OBJECTIVE The professional objectives which are being covered in this project are as followingTo know about financial environmental factors affecting IDBI Banks performance. To analyze the role of recession for bank performance. To know the perception and conception of customers towards banking products and specially focused for IDBI Banks product. To explore the potential areas for the new bank branches which will provide both price and people to the bank with constant promotion and placing strategy.

45

SCOPE OF STUDY Each and every project study along with its certain objectives also have scope for future. And this scope in future gives to new researches a new need to research a new project with a new scope. Scope of the study not only consist one or two future business plan gives idea about a new business which becomes much researches then the older one. Scope of the study could give the projected scenario for a new successful strategy with a but sometime it also profitable for the more

proper implementation plan. Whatever scope I observed in my project are not exactly having all the features of the scope which I described above but also not lacking all the features. Research study could give an idea of network expansion for capturing more market and customer with better services and lower cost, with out compromising with quality. In future customer requirements could be added with the product and services for getting an edge over competitors. Consumer behavior could also be used for the purpose of launching a new product with extra benefits which are required by customers for their account (saving or current ) and/or for their investments. Factors which are responsible for the performance for bank can also be used for the modification of the strategy and product for being more profitable. Factors observed while doing project study are followingCompetitors Customer Financial Behaviour Advertisement/promotional activities Attitude of manpower and Economic conditions These all could also be interchanged with each other for each other in banks strategies for making

46

a final business plan to effect the market with a positive way without disturbing a lot to market, customers and competitors with disturbance in market shares. SOURCES OF DATA Tools and Technique As no study could be successfully completed without proper tools and techniques, same with my project. For the better presentation and right explanation I used tools of statistics and computer very frequently. And I am very thankful to all those tools for helping me a lot. Basic tools which I used for project from statistics are - Bar Charts - Pie charts - Tables The bar charts and pie charts are really useful tools for every research to show the result in a well clear, ease and simple way. Because I used bar charts and pie cahrts in project for showing data in a systematic way, so it need not necessary for any observer to read all the theoretical detail, simple on seeing the charts any body could know that what is being said. Technological Tools Ms- Excel Ms-Access Ms-Word Above application software of Microsoft helped me a lot in making project more interactive and productive. Microsoft-Excel had a great role in my project, it created for me a situation of you sit and get. I provided it simply all the detail of data and in return it given me all the relevant information. Microsoft-Access did the performance of my personal assistant who organizes my all the

details of document without disturbing them even a single time in all the project duration. And

47

in last Microsoft-Word did help me for the documentation of the project in a presentable form. Applied Principles and Concepts While I started to do the project the main thing which was the matter of concern was that around what principles I have to revolve my project. Because with out having any hypothesis and objective we can not determine that what output or result we are expecting form the project. And second thing is that having only tools and techniques for the purpose of project is not relevant until unless we have the principals for which we have to use those tools and techniques. Mathematical Averages Standard Deviation Correlation Sources of Primary and Secondary data For the purpose of project data is very much required which works as a food for process which will ultimately give output in the form of information. So before mentioning the source of data for the project I would like to mention that what type of data I have collected for the purpose of project and what it is exactly. Primary Data Primary data is basically the live data which I collected on field while doing cold calls with the customers and I shown them list of question for which I had required their responses. In some cases I got no response form their side and than on the basis of my previous experiences I filled those fields. Source: Main source for the primary data for the project was questionnaires which I got filled by the customers or some times filled myself on the basis of discussion with the customers. Secondary Data Secondary data for the base of the project I collected from intranet of the Bank and from internet, RBI Bulletin, Journal by ICFAI University.

48

Statistical Analysis In this segment I findings will be shown in the form of graphs and charts. All the data collected form the market will not be disclosed over here , but extract of that , in the form of information will definitely be here. Detail Size of Data Area Type of Data Industry Respondent : : : : : 250 Chandigarh Primary as well as Secondary Banking Customers

49

DATA ANALYSIS AND INTERPRETATION

Table 1 Correlation between awareness of customers about IDBI bank & their Age

AGE GROUP 20-25 25-30 30-35 35-40 40-45 45-50 50-60 60-ABOVE

NO. OF RESPONSE 25 46 34 23 21 22 24 55

60 50 40 30 20 10 0 20-25 25-30 30-35 35-40 40-45 45-50 50-60 60-ABOV E NO. OF R PONS ES E

Table 2:

Perception Of IDBI As A Bank RESPONSES 50 45 100 55

TYPES OF BANK PRIVATE PUBLIC PRIVATE/PUBLIC DONT KNOW

R S ONS S EP E

D ON'T K NOW

PR ATE IV PUBL IC

PR ATE/PUB IV LIC

PR ATE IV PUB IC L PR ATE/PUB IV LIC D ON'T K NOW

Table 3 : Rating Of Customers For IDBI Bank As A Good Bank

PARAMETER EFFICIENCY INTERNET BANKING/ATMS PRODUCT RANGE NETWORK PHONE BANKING 75% 25% 95% 33% 22%

P AME E AR TR
22% 33% 75% E F IE Y F IC NC INT RNE E T BANK /AT ING M'S P ROD T R UC ANG E NE WOR T K 25% 95% P ONEBANK H ING

Table 4: Market Shares In Chandigarh In Comparision To Competitors

BANK NAME SBI IDBI ICICI PNB

90 HDFC 80 70 100 60 HSBC 50 80 40 60 OTHERS 30 20 40 10 20 0

% OF SHARE 30% 15% 25% 10% 5% 5% 10% East

Wes t North SI B IDB I ICICI

t 0 1s Qtr 2ndQtr 3rdQtr 4thQtr 1s 2nd 3rd 4th t Qtr Qtr Qtr Qtr

35% 30% 25% 20% 15% 10% 5%

SI B PARAMETERS ICICI PRODUCT

ADVERTISEMENT

% OF SHARE 50% 5% 25% 2% 5% 10% 3%

IDB I MANPOWER PNB OTHER NET-BANKING S HDF C HS B C PHONE BANKING

INVESTMENT

SI B IDB I ICICI PNB HDF C HS C B OTHER S

0% SCHEME NETWORK %OF S HAR E

Table 5: Factors Responsible For Performance Of BANK in CHD

50% 45% 40% 35% 30% PER ENTAGE 25% C 20% 15% 10% 5% 0%

50% PR ODUC T ADV ERTIS EMENT MANPOWER NET- BANK ING PH ONE MANK ING INV TMENT S HEME ES C NETWOR K

25% 10% 3%

5%

2%

5%

%OFS HARE PARAMETER

TABLE 6 : Comparative Study With Major Competitors On Basic Parameters

PARAMETERS/BAN KS PRODUCT (%) ADVERTISEMENT (%) MANPOWER (%) NET-BANKING (%) PHONE BANKING (%) INVESTMENT SCHEME (%) NETWORK (%)

IDBI

ICICI

SBI

PNB HSBC

CANARAH BANK 20 3 10 3 10 5 2 15 45 50 50 40 25 40 30 15 2 10 5 50 40 15 20 3 12 5 10 5 10 7 25 8 30 5 3 10 10 10 17 10 5 10

CREDIBILITY (%)

20

10

40

20

COMPAR IVEGR AT APH

50% 40% 30% PE CE AGE R NT 20% 10% 0% P RODUC T ADVERTIS EMENT MANP OWER NET-BANKING P HONE BANKING IDBI S BI
B ANK S

HS BC

INVES TMENT S HEME C NETWORK C REDIBIL ITY

TABLE 7: THE EFFECTIVENESS OF COMMERCIALS OF IDBI BANK

DAYS AFTER THE AD IS SEEN 0-5 DAYS 6-10 DAYS 11-15 DAYS MORE THAN 15

POSITIVE RESPONSE 100 67 43 40

DAYS

P IT RE PONS OS IVE S E
100 NO. OFPEOPLE 80 60 REMEMBERED 40 TH AD E 20 0

0-5 DAY S

11-15 DAY S

POS E RES ITIV PONS E

NO. OFD S AF AY TER AD

FINDINGS The credibility of IDBI bank is good in comparison to its competitors GOI (Government Of India) is a major share holder in the company. as

The financial recession has acted as a booster for public sector banking business.

Investors from the group 10-20% and 20-30% are the major part for necessary saving in their income every month.

making

IDBI bank has potential a tapped market in CHANDIGARH in region and hence has an opportunities for growth.

The products of IDBI bank has good credibility in the region compare to its competitors.

The advertisement of the bank was very effective from the first day till the fifth day and there after it starts declining.

of

its

airing

The initial balance for A/C opening is Rs, 5000/- and thats why people are reluctant in opening the same.

CONCLUSIONS

Consumers of Chandigarh have good awareness level about IDBI bank as well as about its services and products. The advertising campaign has successfully been able share of IDBI in Chandigarh. The modern days technology like internet banking, phone banking, used by IDBI bank for providing consumes. The network of IDBI in Chandigarh is lagging behind competitors like ICICI bank and HDFC bank. It can be distilled from data that IDBI bank has good market share as compared to its competitors considering the amount of resources deployed by them in the market. a little than its banking services has sent positive signals in the mind of to increase the market

RECOMMENDATIONS

Since there is only two branches of IDBI bank and

only

three

ATMs in

Chandigarh, so it is necessary for IDBI bank to open more branches and install more atms to serve the vast market of Chandigarh especially. Its also increasingly becoming essential for the bank to leverage the aftermath of financial crisis worldwide with local urgency. More resources should be allocated in the market of Chandigarh as there is big untapped market in Chandigarh, so it becomes necessary for IDBI bank for taking an edge over the competitors. A short advertising campaign in Chandigarh has produced good results in a short span of times, so to gain long term benefits is very necessary for IDBI bank to carry on this campaign with more intensity. Besides opening more branches it should also look for opening some extension counter or ATM bank sites in Business areas as well as in shopping areas.

As Government is the majority share holder in the shares of IDBI bank, which makes this bank more reliable than other private banks, this thing can be faith. used in the favour of IDBI bank by making people aware about this fact and winning their

QUESTIONNAIRE NAME... AGE. SEX: MALE/FEMALE

ADDRESS:... CITYPIN CODE...... CONTACT NO.

1. DO YOU KNOW ABOUT IDBI BANK LTD.? YES NO

2. IDBI BANK IS A PRIVATE BANK PUBLIC BANK PRIVATE/PUBLIC BANK DONT KNOW

3. RANK THE IDBI BANK ON THE FOLLOWEING FEATURES (RANK 1 FOR BEST AND 5 FOR WORSE ON 1 TO 5 SCALE) MANPOWER NETWORK PHONE BANKING

EFFICENCY INTERNET BANKING/ATMs PRODUCT RANGE

4. YOU WOULD LIKE TO BE A CUSTOMER OF BANK BECAUSE . .

5. YOU WOULD NOT LIKE TO BE A CUSTOMER BANK BECAUSE.

6. NAME THE BANK WHICH COMES IN YOUR MIND AT VERY FIRST AND WHY? . .

7. DO YOU THINK IDB IBANK IS A SAFE PLACE FOR YOUR MONEY? YES NO

8. DO YOU THINK IDBI BANK NEED MORE ADVERTISMENT? YES NO

9. YOUR LEVEL OF SATISFACTION WITH IDBI BANKVERY SATISFIED DISSATISFIED SATISFIED NORMAL

VERY DISSATIFIED

10. IF YOU WILL HAVE OPTION AGAINEST IDBI BANK YOU WILL GO FOR

SBI ICICI

PNB OTHER

11. DO YOU REMEMBER THE COMMERCIAL OF IDBI BANK? YES NO

12. WHEN DID YOU LAST SEE THE ADVERTISEMENT OF IDBI BANK? 0-5 DAYS BACK 1 1-15 DAYS BACK 6-10 DAYS BACK MORE THAN 15 DAYS BACK

13. DO YOU KNOW WHERE THE BRANCH OF IDBI LOCATED IN PANCHKULA IS? . 14. IDBI BANK LTD. IN PANCHKULA IS EFFECTIVE BECAUSE.

15. IDBI BANK LTD. IN PANCHKULA IS NOT EFFECTIVE BECAUSE.

16. IDBI BANK LTD. IS A GOOD BANK FORSERVICE PEOPLE POLITICIANS PUBLIC BUSINESS PERSONS GENERAL ALL OF ABOVE

17. NAME IDBI BANK LTD. GIVE BLUE-PRINT IN YOUR MIND OFHIGH NETWORK EFFICIENT BANK CUSTOMER FRIENDLY OTHER (PLEASE SPECIFY) FINANCILALLY HI-TECH BANK

REFERENCES

Websites:www.Idbi.com www.moneycontrol.com www.livemint.com

Books Magazines & Periodicals: News paper:Economic Times Dainik Bhaskar The Tribune Indian Express Indian Financial Systems Indian History of Banking IDBI Annual Report Corporate Brochures Customer Reviews Studies on Banking Behavior

DNA Newspaper Times of India Hindustan times IBA Journal