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INTRODUCTION Customer satisfaction is a measure of how product and services supplied a company can meet the customer expectations.

Customer satisfaction is still one of the single strongest predictors of customer retention. Its considerably more expensive to attract new customers than it is to keep old once happy. In a climate of decreasing brand loyalties, understanding customer service and measuring customer satisfaction are very crucial. There is obviously a strong link between customer satisfaction and customer retention. Customer perception of service and quality of product will determine the success of the product or service in the market. With better understanding of customer perceptions, companies can determine the customers need e actions required to meet the can customers needs. They can identify their own strengths and weaknesses, where they stand in comparison to their competitors, chart out path future progress and improvement. Customer satisfaction measurement helps to promote an increased focus on customer outcomes and stimulate improvements in the work practices and processes used within the company. WHAT IS A BANK? A banker or bank is a financial institution whose primary activity is to act as a payment agent for customers, and to borrow, lend, and, in all modern banking systems, create money. Some of the definitions of bank are:

"Banking business" means the business of receiving money on current or deposit


account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).

"Banking business" means the business of either or both of the following:


1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] or with a period of call or notice of less than that period; 2. paying or collecting cheques drawn by or paid in by customers

Origin of the word The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Florentines bankers, who used to make their transactions above a desk covered by a green tablecloth. However, there are traces of banking activity even in ancient times. In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome- that of the Imperial Mint. Traditional banking activities Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM. Banks borrow money by accepting funds deposited on current account, accepting term deposits and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current account, by making installment loans, and by investing in marketable debt securities and other forms of lending. Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. Banks borrow most funds borrowed from households and non-financial businesses, and lend most funds lent to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.

Commercial role of banks However the commercial role of banks is wider than banking, and includes:

issue of banknotes (promissory notes issued by a banker and payable to bearer on


demand)

processing of payments by way of telegraphic transfer, EFTPOS, internet banking


or other means

issuing bank drafts and bank cheques accepting money on term deposit lending money by way of overdraft, installment loan or otherwise providing documentary and standby letters of credit, guarantees, performance
bonds, securities underwriting commitments and other forms of off balance sheet exposures

safekeeping of documents and other items in safe deposit boxes currency exchange sale, distribution or brokerage, with or without advice, of insurance, unit trusts and
similar financial products as a 'financial supermarket' Economic functions The economic functions of banks include: 1. Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par and effectively transferable by mere delivery in the case of banknotes, or by drawing a cheque, delivering it to the payee to bank or cash. 2. Netting and settlement of payments -- banks act both as collection agent and paying agents for customers, and participate in inter-bank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables payment flows between

geographical areas to offset, reducing the cost of settling payments between geographical areas. 3. Credit intermediation -- banks borrow and lend back-to-back on their own account as middle men 4. Credit quality improvement -- banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and the bank's own capital which provides a buffer to absorb losses without defaulting on its own obligations. However, since banknotes and deposits are generally unsecured, if the bank gets into difficulty and pledges assets as security to try to get the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position. 5. Maturity transformation -- banks borrow more on demand debt and short term debt, but provide more long term loans. Bank can do this because they can aggregate issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintain reserves of cash, invest in marketable securities that can be readily converted to cash if needed, and raise replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets) because they have a high and more well known credit quality than most other borrowers. Banking channels Banks offer many different channels to access their banking and other services:

A branch banking centre or financial centre is a retail location where a bank or


financial institution offers a wide array of face-to-face service to its customers

ATM is a computerised telecommunications device that provides a financial


institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to a wider range of users. For example in Hong Kong, most ATMs enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and entering the account

number to be credited. Also, most ATMs enable card holders from other banks to get their account balance and withdraw cash, even if the card is issued by a foreign bank.

Mail is part of the postal system which itself is a system wherein written documents
typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties. Banks also normally use mail to deliver periodic account statements to customers.

Telephone banking is a service provided by a financial institution which allows


its customers to perform transactions over the telephone. This normally includes bill payments for bills from major billers (e.g. for electricity).

Online banking is a term used for performing transactions, payments etc. over the
Internet through a bank, credit union or building society's secure website Types of banks

Retail banking: dealing directly with individuals and small businesses; Business banking: providing services to mid-market business; Corporate banking: directed at large business entities; Private banking: providing wealth management services to High Net worth
Individuals and families;

Investment banking: relating to activities on the financial markets. Central banks: are normally government owned banks, often charged with quasiregulatory responsibilities, e.g. supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as Lender of last resort in event of a crisis. RETAIL BANKING Retail Banking is that are of a bank which:

Caters the multiple banking requirements of the individuals Augmenting their asset portfolio Diversify their portfolio risk

Meaning: Retail Banking is a banking service that is geared primarily toward individual consumers. Retail banking is usually made available by commercial banks, as well as smaller community banks. Unlike wholesale banking, retail banking focuses strictly on consumer markets. Retail banking entities provide a wide range of personal banking services, including offering savings and checking accounts, bill paying services, as well as debit and credit cards. Through retail banking, consumers may also obtain mortgages and personal loans. Although retail banking is, for the most part, mass-market driven, many retail banking products may also extend to small and medium sized businesses. Today much of retail banking is streamlined electronically via Automated Teller Machines (ATMs), or through virtual retail banking known as online banking. Retail banking coverage Retail banking is quite broad in nature

Refers to dealing both on liabilities and assets sides Fixed, current, savings accounts Personal loans, housing, auto loans, and educational loans) Ancillary services include credit cards, debit cards and depository services.
Retail Banking: Characteristics

Multiple products (deposits, credit cards, insurance, investments and securities) Multiple channels of distribution (call centre, branch, Internet and kiosk) and Multiple customer groups (consumer, small business, and corporate)

Opportunities of Retail Banking in India

India a growing economy The rise of the Indian middle class Rising percentage of middle to high income households New retail customers: the homemaker, the retail shop keeper, the pensioners, selfemployed and those employed in unorganised sector

CHAPTER 02 LITERATURE REVIEW

RETAIL BANKING: ASSET PRODUCTS Retail loans:

Meant for very small entrepreneurs and individuals who are engaged in gainful
commercial activity

Loans are given on the strength of the means of the borrower with an eye on the
repaying capacity.

The quantum of loan is generally determined by the repayment capacity which


depends upon the monthly income.

Banks calculate the maximum monthly repayment capacity of a person using


methods internally developed based on the salary certificate or IT return of a borrower

Thereafter, a loan for which Equated Monthly Instalment (EMI) is within this
capacity is considered the outer limit for a person.

Loans to resident Indians for purchase of land and construction of residential


house/purchase of ready built house/for repairs and renovation of existing house.

Home Loans to Non-resident Indians Auto Loans for purchase of new/used 4 wheelers and 2 wheelers Consumer Loans for purchase of white goods and durables Personal loans for purchase of jewels, for meeting domestic consumption, etc. Educational Loans for pursuing higher education both in India and abroad Trade related advances to individuals for setting up business, retail trade, etc. Crop loans to agricultural farmers Credit Cards, etc.
Some figures

Retail loans which were at 10.6% of GDP in 2006 have grown to 11.8% of GDP in
2007.

Recently, retail lending has turned out to be a key profit driver for banks with retail
portfolio constituting 28.5 per cent of total outstanding advances as on March 2007.

Within retail segment housing loans had the least gross asset impairment.

Retail Credit Challenges

Customer tendency to borrow more and repay less may affect NPA levels Future delinquency rates are not properly factored in fixing the Retail credit pricing Increased risk weight of Consumer Credit Liquidity mismatches may emerge as an issue Slight change in economic scenario may affect the whole system Existing Retail scoring models may not predict impact of mild recession. Lack of Credit information of Retail customers from the Banking system CIBIL is addressing the issue only to a certain extent No system to eliminate multiple finances, including Personal Loans Higher level of NPA from Personal Loans Higher Loan-to-value ratio may emerge as a problem during recession Sale of assets- bank has no control- in the case of Consumer Credit Growing incidents of frauds and cyber crimes
Common features of retail loans Retail loans have certain common characteristics or features. These may be broadly classified as follows:

Retail loans are to individuals for acquiring assets for individual use- such as car,
white goods, residential property etc or for general consumption purposes which includes education.

Retail loans are small value loans Each loan in a retail loans portfolio is a very small portion it does not constitute
more than 0.2% of the portfolio

Retail loans where tangible security is given to bank to secure the borrowing
typically have a loan to asset value of 75% Repayment capacity The repayment capacity is the available surplus after meeting existing commitments and living requirements. The surplus has to be adequate to repay the new loan sought within a

reasonable period. A bank cannot grant loans for any length of time depending on the repayment available. Retail loans should be repaid within a short period except in the case of housing loan. The repayment period of different types of retail loans may be as below:

Personal loans for consumption- Two to three years; in certain cases like vacation
travel, the period of repayment be 12 months

Retail loans for consumer goods- not exceeding three years Vehicle Loan- five to seven years Housing Loans- five to twenty five years though usually 15 years is the norm Educational loans Maximum of 10 years after completion of course though
usually the period given is 5 years from completion. ELIGIBILITY CONDITIONS

In line with the character of retail loans, the eligibility conditions for availing any
retail loan is that the borrower must be an individual or a group of individuals who have a regular income in excess of their living expenses with an adequate surplus that will be adequate to service the retail loans availed.

The main criteria are the loans are to individuals, singly or jointly and that the
individuals have a regular income. Of course, the applicant should be a major and be of sound mind and not an undischarged insolvent

In sum, he should be able to enter into a valid contract.


KYC Norms

Proof of identity and place of residence


The borrower must be properly identified; KYC norms are applicable to borrowing accounts also. Further, the bank cannot give loans to any one without establishing his identity as the bank has to recover the loan with interest. Hence, the applicant for a retail loan has to show proof of identity establishing that he is what he claims to be. Photo identity is required; the usual photo identification process calls for any of the following to establish identity:

Pass port Voter Identity card PAN card Identity cards issued by Government authorities Driving Licence Any other reliable photo identification
Proof of Income and repayment ability Salary certificate from employer/salary slips received showing all direct deductions is accepted for establishing proof of income.

Net income (after deductions towards existing liabilities for which the salary paying establishment recovers the instalments and the income tax payable, if any) is the regular income that the applicant receives.

About 55%- 65% of this income is to be reserved for living expenses and it is the balance that is reckoned as available for repayment

Other recoveries If the applicant has other existing loans, the loan instalments for which have not already been deducted from salary, these have to be provided for from net salary to arrive at the repayment ability

In case of self employed persons the bank has to rely on the disclosed income such as the income tax returns for the past three years which will give an indication of the average income.

Proof of other commitments and repayment record The salary slip given by the applicant may not give the deductions being made from salary in respect of other commitments of the applicant and the position of the various liabilities of applicant may not come to light.

Since we still do not have a system to collect all institutional loans availed by a person, the lending bank has to rely on the disclosures made by the applicant in respect of the other liabilities and repayment commitments.

To ascertain the willingness to repay and the tendency to honour obligations, bank usually asks the applicant to show proof of repayment such as the credit card statements, and repayment records of past loans and other commitments. These can be established through bank statements

Credit Agency Report Credit agencies such as CIBIL have records relating to credit card and other personal loan defaults of borrowers of all member banks.

A report from the credit agency will give information about the defaults if any made by applicant. The agency report is only a negative report if repayment record in respect of liabilities contracted by applicant is good.

Purpose The applicant in his application has to furnish the purpose for which the loan is sought. Retail loans are for acquisition of personal assets or for general consumption purposes.

Retail loans are not granted for investment or speculative purposes.

REPAYMENT PERIOD

The repayment period depends on the surplus available towards loan servicing and
is dependent on the expected repayment capacity.

The Bank may stipulate a maximum period for repayment of a certain category of
retail loan for instance 25 years in housing loan.

However, this period is not available to all borrowers. In fact, depending on


repayment ability, the bank will stipulate repayment conditions on a case to case basis varying from 5 years to a maximum of 15 years.

REPAYMENT METHODS Equated monthly installment (EMI)

Equated Monthly Instalment (EMI) is the monthly amount payable which includes
interest and principal amount towards repayment.

EMI depends on the loan amount and the tenure of the loan which is based on the
repayment ability. EMI and tenure of loan

In an EMI loan, major portion of the instalment goes towards interest in the initial
stages and only a small part is towards the principal debt

As the principal debt decreases, the interest amount also decreases and in the later
stages, major portion of EMI goes towards reducing principal part.

EMI calculators are available which give the amount of EMI for a given tenure
(3years, 5 years, 10 years, 15 years) at given rates of interest for a certain amount of loan (Rs 1lac). Using the EMI tables, or calculators, one can fix the EMI for a loan amount for a specific tenure.

The tenure of loan is based on the repayment ability. If repayment ability is strong,
the tenure may be low- say 3 years as against a normal repayment ability which may require a 5 year repayment period. PDCS

Post Dated Cheques (PDC s) are cheques drawn by the borrower to be paid in
future to the debit of his account with a bank other than the one from whom he has borrowed and each cheque is for amount of EMI and the cheques are dated payable on the same date every succeeding month.

For instance, a borrower may have availed a personal loan from X bank for Rs
50,000 for a period of 12 months in Jan 2008. He has a deposit account with Y bank. If the EMI is Rs 4500 per month, he gives 12 post dated cheques all of which fall due on 7th of the month following the month he has availed the loan. So the 12 PDCs, each for Rs 4500 will be dated 7th Feb, 7th Mar, and so on to 7th Jan 2009.

ECS debit authorization

Instead of giving PDC s he may opt for ECS debit authorization; this is available in
select centres. Then the lending bank X will raise a ECS debit on his account with bank Y and the borrowers account gets debited automatically if sufficient funds are available in the account.

If the borrower has a deposit account with the lending bank, he may give standing
instructions or an authority to debit his account on the 7th of every month starting from Feb 2008 to Jan 2009 towards EMI on his loan account. Standing Instructions

One may ask if the borrower can give standing instructions to his Bank Y to debit
his account with them every on the 7th from Feb 2008 with Rs 4500 towards EMI till 7th Jan 2009 and pay to Bank X. This is certainly possible but in this case, Bank Y will issue a pay order or Bankers cheque and dispatch the instrument to Bank X and for this the Bank will collect the charges for pay order issue and also the courier charges. ECS and PDCs are free of such charges. INTEREST ON LOAN The interest on loan is the cost of borrowing. Resources have a cost and the cost of borrowing is the interest. Interest charged by the bank on a loan is a function of various factors such as

Cost of funds (cost of deposits and borrowed funds) Operational cost (Cost of establishment and running the bank) Capital Cost (Cost of capital or the return to be given to the shareholders) Risk Cost (default premium)
Interest is risk premium

Interest on retail loans carries a uniform risk cost as these are small value loans.
Further, this is a profitable segment of business. Hence spread (interest received interest paid) will be high. Interest is compounded monthly.

Rate of interest is generally uniform in each category of retail loans- personal loans
carrying the highest with housing loans being charged the least.

Unsecured loans carry a higher rate of interest as risk is higher

Rate of Interest- fixed

The rate of interest charged on a loan may be fixed at a certain percentage


during the entire tenure of the loan. In this case interest rate will not be refixed.

For instance a housing loan for 15 years may carry a fixed rate of interest at 8.5%.
Through the life of the loan, interest will be at 8.5%.

However, banks now include a reset clause that the interest may be rest at fixed
intervals or in the case of certain events Rate of Interest- floating

The rate of interest is linked to a benchmark such as the prime lending rate. So as and when prime lending rate varies depending on external conditions, bank
will revise the PLR and the rate of interest on retail loan is which is linked to PLR will automatically change.

Benchmark may be the 5 year deposit rate and period of refixing may be every 6
months; so every 6 months, the interest on loan will be refixed and it is said to float.

When interest rates are declining, it is preferable to have loan on floating rate while
if interest rates are on the rise, fixed rate loans are better from the borrowers viewpoint. Option to change from fixed rate to floating rate and vice versa

Banks permit change over from fixed rate of interest to floating rate and vice versa;
however the banks collect a charge for such a switch to compensate them for the likely loss of interest.

Pre Payment Charges In case of long tenure loans, banks charge a pre-payment premium in the event of premature closure of the loan. DELINQUENCY MANAGEMENT PROCEDURES If any loan instalment or interest remains unpaid for a period of 90 days, the loan becomes classified as Non-Performing Loan. No bank will allow loans to turn NPL without trying it best to collect the dues. Recovery of loan and interest is a very important function and ensuring recovery of principal and interest makes the portfolio healthy and performing. Various tools used by ICICI Bank for delinquency management are discussed below: MARGIN Margin may be defined as the borrowers stake or contribution. The concept of margin arises only in secured advances where lending is against an asset.

Bank provides loan for a given purpose say for buying a four wheeler- as a
percentage of the asset value; in this instance, if the price of automobile is Rs 4 lacs, bank will not give Rs 4 lacs as loan and may at the most give Rs 3 lacs for a period of 5 years or 7 years depending on the repayment ability and its assessment of borrower. The amount of Rs one lac which borrower has to bring is the margin amount and it is his stake in the car. Borrower has to have a stake in the asset.

Apart from that, in case of default or any other circumstances, it may be decided to
sell the car. If the sale proceeds are less than the balance in loan account, bank runs a risk that the balance may not be paid by the borrower. The fluctuations in asset price give rise to a risk and to protect against this risk, the banks restrict the lending to the market value less a discount. This discount is known as the margin.

In case of second hand vehicles, the discount will be more say 40% instead of
25% for new cars. That is, for financing purchase of second hand cars, banks will lend only 60% of the market price. The balance 40% being the margin has to come from borrower. This discount is the borrowers contribution. So margin is known as the borrowers stake. It is also the discount to the market value and bank will finance only market value less the margin. It is the safety factor for guarding against price fluctuation.

Third Party Guarantee

The third party guarantee is a risk mitigating measure. The borrower has to provide
a third party as a guarantor who undertakes to pay the bank the sum at default in case the borrower does not pay. In most bank documents of third party guarantee the guarantor waives his rights under the Contract Act and confirms that he can be treated for all practical purposes as the borrower. So in case of default, bank can proceed against borrower and guarantor simultaneously in a court of law and if any tangible asset of the guarantor is given as security of guarantor, bank can proceed to enforce the security.

The third party guarantee in some states that in consideration of the bank granting a
certain loan amount to the borrower, the guarantor agrees to stand guarantee to the bank for the sum stated together with interest and in case the borrower does not repay on demand, the guarantor will pay the amount due on demand and that for all practical purposes, the bank may treat him as the borrower.

The third party guarantor must be well known to the borrower and have full trust in
him to undertake to give the guarantee. A financially sound and trust worthy third party guarantor is a good security to the bank.

Apart from bringing moral pressure on a defaulting borrower, the third party
guarantor will pay off the bank loan and take the place of bank (step into the shoes of the lender) (Principle of Subrogation) Loan amount and L/V ratio

In the case of retail loans which are secured by assets, bank does not usually give
the full value of security as loan amount. The asset values are subject to volatility and hence as a prudent measure, the loan amount is a proportion of the asset value.

Usually the loan amount is 75% of the asset value. L/V ratio is usually 0.75; for
instance, if the applicant desires to acquire a house which costs Rs 10 lacs, the loan amount is usually Rs 7.5 lacs or less.

The L/V ratio or the Loan to Asset Value ratio is a measure of the extent of loan
amount as compared to todays market value of asset. It is also a measure of the borrowers own stake in the asset.

If L/V ratio is one, the bank runs a risk that when asset prices fall, the applicant
may default and simply not bother about the asset as he has no stake. Security Security is a risk mitigant -an insurance against default. If the borrower defaults, bank should have something to fall back upon and realize its dues.

Security is like insurance; it is a fall back and in case the repayment is not
forthcoming, steps can be taken to enforce the security. Security is not available in case of all retail loans.

Retail loans such as housing loan, vehicle loans may be considered as secured loans
where the security is the charge on the assets acquired.

Loans for acquisition of white goods- generally known as consumer loans- require
the charge on assets acquired it is in effect unsecured as taking possession of such consumer goods is practically impossible and the resale value of such assets is quite low

The banker lends for a purpose which will generate additional income from which
he hopes to get the loan and interest repaid.

Security is called the second way out and is a fallback or secondary. The significance of security is that it is a fall back in case the expectations of
additional cash inflows do not happen.

Naturally all values of securities are volatile and hence the concept of margin on
security.

Bank will lend only a percentage of the value.


Modes of charge on security

The assets of borrower created from banks loan or his other assets are charged as
security to the banks loan.

The process of creating the charge on the assets of borrower to form the security is
known as the mode of charge. These are briefly discussed below:

Lien and appropriation Lien this is the right to retain; a banker has a general lien on all properties which come to him in the normal course of business.

A banker can retain proceeds of a cheque, a fixed deposit or any other instrument or
property belonging to the borrower which comes to the banker towards amounts owed by the borrower.

Appropriation or the right of set off- Banker can appropriate or set off credit
balances with debit balances of the borrower provided both accounts are in the same name and same mode Pledge Pledge- Bailment of movable goods as security for moneys borrowed. Banker can sell the goods kept with him in pledge after giving notice of sale. Borrower retains the title to goods while the possession is with the bank. Hypothecation

Hypothecation- also called the floating charge on movable assets. In hypothecation the borrower is the owner of the goods and the possession is also
with him. He can deal with the goods in any manner in the normal course of business.

The floating charge becomes crystallized when the banker takes possession of the
hypothecated goods. Mortgage

Mortgage- Mortgage charge is a creation of an interest in a specific


property- usually immovable but mortgage charge on movable is also possible. Mortgages are of different types- Registered mortgage, equitable mortgage, Usufructary mortgage, English mortgage etc.

Assignment

Assignment- Assignment of future receivables can be made by way of notice. For


example - A policy of life insurance can be assigned to the bank as security and the value of the security is the surrender value of policy Third party guarantee

Third party guarantee is an assurance from an independent party of known means


and respectability to the bank that the loan to the borrower is guaranteed by him and that if the borrower does not pay the bank as per the terms agreed to by the borrower, he the guarantor will make good the loss.

The third party guarantee reduces the risk of the bank to some extent. The risk, that the guarantor, in spite of his assurances and undertakings, may not
pay when called upon to do so in the event of default by the borrower, still persists.

The comfort that is derived from a third party guarantee is only that you have
another person who can bring some pressure on the borrower to repay and also have recourse to the guarantor for recovery of dues. CONSUMER CREDIT APPROVAL PROCESS Decisions to be made in the processing segment of Consumer Credit

Retail loan sanctions are mostly automated. Based on the details given in the
application credit scores are worked out as per the model and depending on the cut off score the application is approval or rejected.

Since a large number of applications are centrally evaluated using the scoring
model based on defined parameters very little scope for discretion is given

It is to be borne in mind that the scoring model has been built on observed trends of
transactions and default history.

Review of scoring model

So normally, rejections of applications are not subject to a review. Either the


application goes through the gate or crosses the hurdle credit score (is accepted) or is rejected.

To ensure that the model is working well and is not rejecting applications which
would qualify, a review of the rejected applications is undertaken periodically.

This along with a portfolio review of the performance of approved loans will give
an indication of the suitability of model. Decisions in various Processing Segments of Consumer Credit

Deviation from sanction process

In some cases, the approval process may have rejected on the basis of credit score
(Credit Score being less than the cut off).

However, it may be that the applicant is offering good security or the guarantee of a
third party that has an excellent account with the bank. These factors may not be captured by the model. Quite often, retail loans are sanctioned to persons on the

basis of their standing in society without any rating process being adopted in the belief that the custom of the noted persona will help in furthering banks business.

These are deviations from the regular sanction of retail loans.


Record of deviations

Deviations have to be sanctioned by a superior authority The sanction of such loans has to be in writing explicitly stating the reasons for
deviation from practice. For instance, if an application which would normally have been rejected on the basis of credit scoring is approved on the strength of the guarantors dealings with bank and his standing in society and ability to repay the advance in case of default, the sanctioning authority will make a note of these factors and record the treasons for the sanction.

It is needless to add that the deviations from the approved practice for retail loans
will a small percentage. Methods of disbursement: consumer and vehicle loans

Disbursement methods vary depending on the purpose In case of assets being acquired such as consumer goods and vehicles, the practice
is to collect from the borrower the margin amount and to debit the loan amount to borrowers account and the full cost of asset is paid to the seller of asset by means of a pay order or Bankers cheque. Methods of disbursement: Home loans

If the loan is towards acquiring plot and constructing house, the disbursement will
be in stages- first to the seller of the land and for the construction the disbursement will be to the building contractor at predetermined stages

However, if a ready built apartment/flat is being acquired, the loan amount with
margin will be paid to the seller/developer through pay order.

Methods of disbursement: Personal loans

In the case of personal loans, the loan amount being for consumption purposes, the
loan amount will be debited to borrowers loan account and will be credited to his savings account if the borrower has account with the bank.

In cases, where the borrower does not have a savings account, the loan amount will
be debited and a pay order issued favouring the borrower or as per instructions given by the borrower. Methods of disbursement: Educational loans

In the case of educational loans, the loan amount is for the duration of the studies
and every semester/year the loan account is debited and the college term/examination/special fees are paid directly to the college/institute where the borrower is studying.

When the loan amount covers hostel expenses also, the room rent is paid directly
while the mess charges incurred are reimbursed to the borrower on his production of paid bills. Discharge of Security

Security given to the bank for due repayment of the loan is to be released or
discharged upon the closure of loan through repayment by periodical payments or prepayment.

Security in case of secured assets may be in the form of pledge, mortgage,


assignment, hypothecation etc. When the loan is repaid, it is necessary for the bank to release its charge on the asset given as security. In case of pledged articles, all that the bank has to do is to return the goods lodged with it as security.

In case of motor vehicles the banks charge on the vehicle will have been
registered in the books of Road Transport Authority and will be shown in the RC book. The bank has to give a letter to RTA for deletion of the charge in the RC book in the prescribed format.

In case of mortgages, if mortgage is by deposit of title deeds, discharge is by return


of title deeds. However, if the mortgage is a registered mortgage- simple or English

Mortgage- this will be registered with the Sub Registrar of Conveyances and has to be discharged through a stamped document duly signed by the bank stating that the loan has been paid in full and the mortgage is discharged.

This release document has to be registered with the sub registrar who will enter the
discharge in his books.

Assignment of policy or future receivables has to be reassigned on the account


being closed. This is also through a written document and the reassignment is noted in the books of the debtor; for example in the case of a life policy, the assignment at the time of creation of charge and the reassignment upon release will be registered in the books of the insurance company. Regulatory requirements of Retail Loans

Exposures by way of investments in securities (such as bonds and equities),


whether listed or not;

Mortgage loans to the extent that they qualify for treatment as claims secured by
residential property;

Loans and advances to banks own staff which are fully covered by superannuation
benefits and mortgage of flat/ house;

Capital market exposures; Consumer credit, including personal loans and credit card receivables; Venture capital funds.
Qualifying criteria

Orientation criterion - The exposure is to an individual person or persons or to a


small business; Person under this clause would mean any legal person capable of entering into contracts and would include but not be restricted to individual, HUF, partnership firm, trust, private limited companies, public limited companies, cooperative societies etc. Small business is one where the total average annual turnover is less than Rs. 50 crore. The turnover criterion will be linked to the average of the last three years in the case of existing entities and projected turnover in the case of new entities.

Product criterion - The exposure takes the form of any of the following: Revolving credits and lines of credit (including overdrafts), term loans and leases
(e.g. instalments loans and leases, student and educational loans) and small business facilities and commitments.

Granularity criterion - Banks must ensure that the regulatory retail portfolio is
sufficiently diversified to a degree that reduces the risks in the portfolio, warranting the 75% risk weight. One way of achieving this is that no aggregate exposure to one counterpart should exceed 0.2% of the overall regulatory retail portfolio. Aggregate exposure means gross amount (i.e. not taking any benefit for credit risk mitigation into account) of all forms of debt exposures (e.g. loans or commitments) that individually satisfy the three other criteria. In addition, one counterpart means one or several entities that may be considered as a single beneficiary (e.g. in the case of a small business that is affiliated to another small business, the limit would apply to the bank's aggregated exposure on both businesses). While banks ma y appropriately use the group exposure concept for computing aggregate exposures, they should evolve adequate systems to ensure strict adherence with this criterion. NPA s under retail loans are to be excluded from the overall regulatory retail portfolio when assessing the granularity criterion for risk-weighting purposes.

Low value of individual exposures. The maximum aggregated retail exposure


to one counterpart should not exceed the absolute threshold limit of Rs. 5 crore. Regulatory guidelines

For the purpose of ascertaining compliance with the absolute threshold, exposure
would mean sanctioned limit or the actual outstanding, whichever is higher, for all fund based and non-fund based facilities, including all forms of off-balance sheet exposures. In the case of term loans and EMI based facilities, where there is no scope for redrawing any portion of the sanctioned amounts, exposure shall mean the actual outstanding.

Banks exposures which satisfy all the criteria prescribed for inclusion in the
regulatory retail portfolio, irrespective of the sector to which the exposure is, may be included under the regulatory retail portfolio if such exposures have not been specifically addressed.

CHAPTER 03 THEORETICAL PERSPECTIVE

RETAILBANKING: LIABILITY PRODUCTS

Savings Bank Account Recurring Deposit Account Current Deposit Account Term Deposit Account Zero Balance Account for salaried class people No Frill Account for the common man Senior Citizen Deposit Accounts, etc.
Why does a customer make a deposit with a banker?

that the money will be available when he needs it that the money will be invested with greater professional skill than the depositor is
capable of

that the money turned over is money lent to the banker and the depositor cannot
follow the specific sum of money and seek the return of money from a specific asset of the bank Deposit is a debt

Deposits made with the bank are in the nature of debts of a bank Deposits are not moneys given in trust If there are such conditions attached to the deposit, the banker cannot lend or invest
the funds using his best judgement to produce the best returns with the least risk exposure. (Such relations do exist between bankers and customers but they are special.) Deposit: conditions

Deposits are repayable on demand or on maturity at the branch where account was
opened.

With internet banking, deposits into an account are possible from any centre. Also
transfers. ATMs offer cash withdrawal from any centre.

Traditional banking required cheques/ specified forms; in internet banking this is


not necessary. Customer: Unsecured creditor

On the issue of repayment, the customer is in the position of an unsecured creditor. If bank goes into liquidation, customer's claim will rank along with other creditors
of the bank.

However, all deposits are guaranteed up to a limit of Rs1,00,000 by the Deposit


Insurance Corporation Retail Deposits

The banks deposit portfolio consists of a large number of current, savings and term
deposit accounts.

Of these savings and term deposits come mostly from individual savers. These
deposits are small in value and large in number.

Groups of individuals have a saving and spending pattern. So, at any given point in
time, a core portion of SB and current account funds will remain with bank. Similarly Current accounts of small firms, traders and other business also display definite characteristics of deposits and withdrawals and balances with the bank

The trend is also seen in term deposits. A core portion of term deposits will get
renewed and funds will stay with banks.

These types of deposits are known as retail deposits. Retail deposits, in general
display lower volatility than bulk deposits. They also display definite patterns of withdrawal and deposit cycles. Banks plan their asset growth based on such patterns. Interest on deposits related to market rates

Prior to financial sector reforms RBI used to prescribe interest rates for all
maturities and neither the banker nor the customer had a choice in the matter.

However, with liberalisation banks are now free to quote market interest rates. The
rates change as often as RBI changes benchmark rates or even in response to economic conditions. Obligations of a bank

Obligation to honour cheques: A banker has an obligation to honour cheques


drawn on an account opened by him, provided the account is in funds. S. 31 of the Negotiable Instruments Act provides that a banker who defaults in this obligation must compensate the customer for any loss or damage.

Obligation to maintain secrecy: A banker is bound to maintain secrecy about the


details of the customers account with him. This obligation is subject to disclosures when compelled by law.

Obligation not to close account without notice: Having opened an account for
the customer, the banker has a contractual obligation to maintain and service the account. If the banker has sufficient reasons to consider the account undesirable, in terms of costs of maintenance, or other reasons he can close the account after due notice to the customer. The notice is necessary to provide for transactions in the pipeline to be completed, or contemplated by customer. CLASSIFICATION OF DEPOSITS Deposits are primarily classified into demand and term deposits, sometimes called as demand and term liabilities. Demand deposits

Current and Savings Bank deposits are knows as demand deposits. These are plain vanilla deposit products that banks offer to customers who require
a bank account for making payments, or use money readily available to meet day to day expenses.

People prefer a bank account for keeping their savings that would fetch them some
small interest. Additionally bank deposits provide safety to the savings, unlike cash kept in houses which do not produce any return and there is the further risk of theft.

Current and Savings accounts

A current account is a running account. Unlimited operations. The basic objective of a current account is to facilitate use of cheques for payments
and avoiding cash dealings.

Current accounts constitute low cost deposits for a bank However banker plans liquidity to meet demand for funds. There is thus a cost
attached to idle/less than optimally invested funds

SB account rules limit drawings; interest is paid at 3.5%p.a on lowest balance


between 10 and last day of the month.
th

There are other servicing costs: cheque books issued, ledger (or nowadays digital
records) maintenance costs. Core SB and Current accounts

Demand liabilities are at call by the customers. In practice it is not so. A certain amount of these deposits would stay with the
banks as core balances in the Savings and Current account balances of the bank.

These core funds are available as long term resources to the banks and are available
for lending and investment.

Of course, banks do not earmark funds for lending as so much out of current
account, so much out of savings account etc. They lend out of a pool of funds. SB account with ICICI Bank

The bank offers a savings account in two options. The first option is just like any
savings a/c with the conditions that a minimum average quarterly balance of Rs. 5,000 must always be maintained else Rs. 150 per quarter will be charged. The second option, known as the sweep-in account combines the feature of a fixed deposit and a savings account. With no minimum balance requirement, one has to keep a fixed deposit of Rs. 25,000 and when in need of cash can just transfer or sweep in funds to the savings account. Here again non-maintenance will attract a penal charge of Rs. 150 per quarter. Deposits are held in units of Rs. 1, which gives

one the flexibility to withdraw the exact amount needed without losing up on interest. One can even jump from option 1 to option 2. However, this will attract an account closure charge of Rs.100 Term deposits

A term deposit is about the safest investment option for a saver who has funds
that he can invest for a definite period of time. It is the most attractive option that combines with it an element of safety. Bank deposits are guaranteed up to a limit of Rs.100000 by the Deposit Insurance Corporation.

Deposits placed with a bank for periods of 7 days and more are called term
deposits.

Term deposits are accepted for a period up to 10 years. But, deposits are accepted
up to a maturity of 3 years. The reason being neither the banker nor the customer is willing to commit to an interest rate that far into the future. Term deposits- maturities

To begin with banks were only short term lenders; their loans were for short periods
and generally for not more than a year. So, their need for resources, i.e. deposits was for a period of one year.

As banks started lending for medium term up to three years and later for longer
periods, they needed deposits with longer maturities.

Term deposits with maturities of more than one year, and up to 10 years were
introduced.

Changes in the demand for credit, changes in savings patterns of customers, have
compelled the banks to come up with variations in term deposit products Term Deposits- Changes in maturity range

Although banks did not offer intermediate maturities i.e. say 7 months, banks
would accept such deposits and pay interest at the rate applicable to the next lower maturity in this case 6 months.

The need for offering suitable maturities led to term deposits with maturities
starting from 3 months to 10 years.

Banker would prefer to handle fewer term deposit maturities and preferably not
short term. But the driver is the availability of funds of certain maturities and the bankers needs. Term Deposits- Product innovations of ICICI Bank

At least to begin with there was no marketing for deposits on the part of banks. When banks needed more funds for more credit they had to change their product
orientation to meet customer expectation and not the banks convenience.

They came up with term deposit as a product. Again, to begin with banks were short term lenders making loans up to a years
duration. So term deposits started off as short term one year deposits

Next step in the process was when a customer having made a deposit for a definite
period had urgent need of funds and asked the banker to pay him back the money.

This gave rise to some new products: a) premature payments and levy of penalty b)
overdrafts or loans against fixed deposits with higher rates of interest and c) term deposits of varying durations to suit the needs of both customers and the bankers.

The first two would be innovations of asset products while the third a new set of
liability products.

Based on the patterns of a large number of customers deposit maturities were set at
3 months, 6 months, one year, above one year, two years and so on. New Products & Controls

In India, new products and product innovations have not been always driven by
market forces. Until the financial sector reforms in 1991, RBI stipulated both interest rates and the periods for term deposits.

For a considerable period of time deposits below 3 months were not permitted.
With maturing markets and the investing publics ability to understand and use short term products, RBI dismantled controls and deposits with 15 days and later 7 day maturities have come into being

Reinvestment Deposit

Another innovation-reinvestment deposit. Interest accruals added on to


principal with quarterly compounding of interest on principal plus interest

Product was attractive to a class of investors who were not dependent upon
periodical interest income.

Cash Certificates: another variant. Certificate issued with an upfront discount on


face value. The discount is the rate of interest payable on the deposit Recurring or Cumulative Deposits

Recurring deposits or cumulative deposits are those where the deposits are made in
monthly instalments and the maturity payment is a lump sum

Special deposit is a variant allowing recurring or periodic deposits at intervals other


than monthly i.e. quarterly or half yearly etc.

Annuity deposits and Permanent income (or Pension) plans were another
development with periodic deposits (sometimes annual) build up into a corpus and then the bank pays out monthly amounts for an agreed number of years akin to a pension.

On fixed deposits or term deposits the banks pay interest at quarterly intervals.
However if a customer wants monthly interest they make such payments discounting the quarterly interest amount. Flexi Deposits

Flexi deposits: partly a response to customer demand for return on large current
account balances and partly because technology made it possible to offer such a product.

As RBI did not permit interest payments on current account balances, banks came
up with flexi deposit as a product moving surplus funds in current account into deposits & moved them back into current accounts when there was a demand for funds, breaking down only the minimum needed units of deposits

Flexi deposit: how it works?

Technology makes it possible to hold a term deposit in small units of Rs.100 or


even Rs.1. So exact amount required to meet a cheque could be made available and balance in term deposit would continue to earn interest.

Such term deposits are sometimes called Multi-option deposits or flexi deposits
Auto sweep and Reverse sweep

Where a customer has two accounts, one in funds and the other with inadequate
funds to meet the cheque drawn on the latter account, the operating software of the bank can be programmed to automatically transfer funds to the latter accounts to meet the cheque. This facility is called sweep- sweeping funds out of the account with funds into the one requiring funds.

Reverse sweep is a facility which offers the customer a choice to transfer idle funds
out of an operating account into one that would earn him some interest income. E.g. balances in a current account above a certain specified limit could be automatically transferred to a term deposit account for agreed durations. Supersaver account

Yet another product is the super saver account. This is similar to HSBC s Smart
Money Account. With a minimum amount of Rs. 25,000 in a fixed deposit one can withdraw up to 75% of the deposit by paying 2% plus interest tax (for a limit of Rs. 0.2 mn) over the deposit rate only for the period one uses the money. Auto Renewal

Under this facility when the fixed deposit a/c attains maturity, the bank will
automatically renew the principal and accrued interest for a further period as stipulated by the a/c holder.

ACCOUNT OPENING PROCEDURES Introduction

A bank account is a means of keeping ones savings safe, keeping a record of ones
savings and expenses and earning some income on the money.

Bank accounts also provide a means of payment of dues, settlement of debt,


payment for purchases etc. A means that is more convenient than lugging cash around everywhere and facing the risks involved in carrying cash, especially to distant locations. Opening accounts

Bank account creates a legal and contractual relationship between banker and
customer. Bankers duties and obligations are onerous. Therefore a banker has to exercise care when he opens an account.

Before opening a new account banker should make inquiries about customer, his
profession or trade, nature and purpose of account he desires to open.

If the person is unknown the banker must ask for introduction from a person known
to the banker or call for references. RBI has directed that bankers must ask and find out from the referees how long they have known the customer who is being introduced to the bank.

If proper enquiries are not made at the time of opening the account and subsequent
events lead to a fraud being committed, then the banker will be held to be negligent and will not enjoy the statutory protections available to him under S.131 of the Negotiable Instruments Act, even if he has otherwise performed his duty as a banker. Opening accounts: individuals

There are risks in opening accounts for individuals or even firms. A person could
be an undesirable individual who could be depositing stolen funds in to the bank.

As per RBIs directives, banks must obtain photographs of customers while


opening the account. A copy of the photograph is kept with the signature card and another is pasted to the passbook, if a passbook is issued.

Bank accounts have been frequently used to transmit money for terror related
activities and since 2003 when the world trade centre was destroyed in terrorist attacks, governments the world over have taken steps to control and monitor bank accounts to prevent money laundering transactions that pass through bank accounts KNOW YOUR CUSTOMER -INTRODUCTION

All the rigours of KYC are meant to weed out bad customers and to protect the
good ones

KYC processes ensure that banking operations are clean and help banks in
transparent and legal conduct of business, maintaining the integrity and reputation of banks

KYC is a basic tenet in banking. It helps in:

Complying with legal requirements Understanding customer needs and extending requisite services Customer profiling according to size, habits, types preference etc And to categorise them into risk classes

RBI initiatives

Guidelines issued in 2002, refined in 2004 RBI guidelines are meant to

Prevent banks from being used intentionally or unintentionally by criminal elements for their money laundering activities To help banks know their customers and their financial transactions and by this to manage their risk prudently

RBI expects all banks to have comprehensive KYC policies evolved and
adopted by their Boards and put in place processes to ensure that these policies and procedures are faithfully implemented

Customer Acceptance Policy

No fictitious accounts to be opened in anonymous fictitious or benami names No accounts to be opened, or existing accounts continued without due diligence
with regard to id of customer, availability of evidential documents on proof of domicile etc,

Ensuring that the new or existing customer is not an undesirable person i.e. He is
not a person with a known criminal background, does not belong to a banned entity like a terrorist organisation he is not a violator of law etc

When a customer desires to act on behalf of another person, an analysis should be


made on the circumstances under which such operation is required the type and size of such transactions do not infringe the law of the land

Document requirements and other information to be collected in respect of


different categories of customers depend upon the risk perception and relate to provisions of Prevention of Money Laundering Act. Customer Identification processes:

Customer identification means the identification of the customer and the verifying
of his/her identity by using reliable and independent source document, data or information

For customers who are natural persons banks should obtain sufficient identification
data to verify the identity of the person, his/her address location and also recent photograph

For customers who are legal persons or entities banks should Verify the legal status through proper or legal documents Verify that any person purporting to act on behalf of the legal person/entity is so
authorised and

Verify the identity of that person Understand the ownership and control structure of the customer and determine the
natural persons who ultimately control the entity

the Banks board should lay down the policy on acceptance of documents
establishing identity, it should also issue guidelines on review documents on existing accounts and where these need to be obtained afresh, Monitoring Customer Transactions

The banks policy and procedures should clearly help parameterise the type and
normal size of transactions in a customers account

It should be possible through procedures to quickly identify an ICICI BANKormal


transaction like one that falls outside the normal level and pattern of activity recorded for initiating further enquiry

It should facilitate special attention on all complex, unusually large transactions,


suspicious patterns that violate laws of the country

It should ensure that no structuring i.e. manipulation of the size of


individual transactions occur that will keep the transactions below the threshold level that require reporting

Transactions that involve large amounts of cash inconsistent with customers


normal/expected activity should receive special attention

Very high account turnover inconsistent with balance maintained or income


declared might be indicative of washing of illegal funds

A record should be kept of all transactions- deposits and withdrawals- of Rs.10 lacs
and above

And banks should have an internal monitoring system to report these and other
suspicious transactions Customer Privacy

KYC processes should not lead to harassment of customers Banks collecting information for other than KYC purposes should not use account
opening form for such information

Customer should have the option to provide the information or not. It should be
voluntary

Banks may issue educational brochures on why elaborate questions are being asked

Information collected should not be commercially used


Banks should have:-

an organisational structure in place to evolve, implement, maintain and review


KYC policy and processes

guidelines for opening /reviewing of accounts of various categories of customers;


identification of high value transactions; monitoring suspicious transactions and reporting them; accountability for KYC implementation; systems for updating their information and processes KYC documentation

Customer Identification is best done by obtaining an introductory reference from an


existing account holder or person known to the bank and

Through documents that establish the identity and domicile/residence of the


customer

The table below gives two lists one for photo identification and the second for proof
of residence List of documents to establish identity/proof of residence For Identity

Passport where the address differs from that on the application Election ID card PAN card Government, Defense ID card Driving License
For Residence

Salary slip Income wealth tax assessment order Electricity bill Telephone bill

Credit Card statement


Account opening: formalities

On opening an account the bank supplies the customer with a book of pay in slips, a
cheque book (or in a savings account if such a facility is not granted then withdrawal slips), a passbook etc.

While in the normal course a banker has no duty to verify the source of funds,
given that money today is moved around financing terror, drugs, for political destabilization and other undesirable or unlawful activities, there is a need for the banker to Know his customer.

The foregoing however underscores the importance of formalities associated with


opening of accounts with banks. Accounts: Risk classification

An individual would normally open a savings bank account. So, if he wants to


open a current account the banker has a duty to seek reasons on why the customer needs a current account

He has a further duty to make inquiries if a cheque for collection is deposited


immediately after opening the account

In line with guidelines related to managing operations risk, banks now classify
accounts as low, medium or high risk. Such classification is based on the type of account, nature of transactions, the probability that the account could carry undesirable or illegal transactions in it etc.

When the banker obtains information for opening an account in an account opening
form, and verifies the particulars furnished in accordance with the tenets of Know Your Customer, a fair amount of the issues discussed in the preceding points is automatically taken care of

Account opening form: Details An account opening form starts with a request by the customer to the banker to open an account for him

In a typical form he is asked to make a product choice: 1.Savings account 2. Term


Deposit- interest payable or reinvestment 3.Recurring Deposit 4. Current account 5. Others

Customer details: name in full, PAN number, Income tax details like when assessed
to tax, IT ward circle etc, residential address with landmarks, PIN code, telephone no, mailing address if separate

Details of education, occupation, salaried or self-employed, name of employer,


income and family income monthly etc...

Details of existing bank accounts with branch name, account number etc Mode of operation in case of joint accounts, either single or joint etc Benefits customer desire: debit card, ATM card, name that should appear on card,
whether a photo debit card is desired.

Cheque book- whether local or multi-city use, Whether internet, phone banking, mobile banking facilities are required Whether e-statements are required, if so e mail address Nomination under section 45ZA of the Banking Regulation Act, with particulars
and nomination declaration with signature

Details of initial deposit, cash cheque with amount and particulars If term deposit account, tenure: days months, years, maturity instructions like auto
renewal, payment instructions etc. Rules binding on customer

Every customer is deemed to have read the rules governing the conduct of accounts
with the bank and there is usually a statement to the effect in the account opening form of the bank which the customer signs before the bank opens the account for the customer.

Mandate for operations

Sometimes a customer wants to authorise person to operate his account. A mandate


is given by him to the banker. This mandate must specify the exact authority given to the mandate holder. Whether he can sign cheques, give receipts, whether an overdraft created by him, inadvertently or otherwise will be binding on the customer etc. Joint accounts: mandates

It could be either or survivor, anyone or survivor, former or survivors to whom the


balance should be paid.

Account can be operated singly, jointly by all or any two or three or in other
combinations.

These mandates can be withdrawn at any time by any one of the account holders Such joint accounts can also be opened for a married woman with her husband. Where a single account is opened for a married woman, if there is an overdraft,
inadvertent or otherwise a banker will have no recourse against the husbands estate. ACCOUNTS OF INDIVIDUALS: SPECIAL CASES Joint accounts

Two or more individuals can open joint accounts with a bank; a savings, current or
term deposit account for a common purpose.

The banker should obtain information on the purpose for which the account is
opened, if the persons joining together for opening an account have no natural relationship or other apparent reason for so getting together.

Banker should obtain a clear mandate on who would operate the account and to
whom the balance or maturity proceeds should be paid when the account is closed either voluntarily or otherwise.

Accounts of a minor

S.3 of the Indian Majority Act, 1875 provides that a person who has not attained the
age of 18 is a minor. And if a court appoints a guardian before the age of 18, such guardianship would continue until he completes the age of 21; and he will continue to be a minor.

According to the Indian Contract Act, a minor cannot enter into a valid contract and
if he does such a contract is void against the minor except where it is a contract for supply of necessities of life. Precautions to be taken in minors account

The banker therefore must take precautions while dealing with a minor or a minors
account

He can open a savings account for a minor (not a current account) to be operated by
a guardian or by himself if he is over the age of 14.

The minors account should be closed and the balance in the account paid to the
minor on the date he attains majority. The bank must have a record of the minors date of birth.

The father of a minor is the natural guardian of a minor. If the father dies during
minority, then the mother becomes the natural guardian who can operate the account. In the event of both father and mother dying, either a testamentary guardian or a court appointed guardian may operate the account.

In case of the minors death the balance in the account can be withdrawn by the
guardian

If the banker permits an overdraft in the minors account, the banker cannot recover
the amount and he has no legal remedy.

No advance can be granted to the minor against the guarantee of a third party. As
irrespective of the third party, the contract of loan between the banker and the minor is invalid and the banker cannot enforce the contract.

A minor may draw, endorse or negotiate a cheque or a bill He will have no liability
on the instrument. The instrument itself will be valid and all other parties to the instrument will be liable in their respective capacities.

A deposit account can be opened in the name of a minor by a bank, in the style
of,........., father and natural guardian of ........, minor.

Banks open a Savings Bank account with cheque book facility for a minor who is
above 14 years of age. This is done at the banks discretion, on an assessment that the risks are minimal in allowing an account for a minor for his personal use while at school etc. Accounts in the name of a married woman

A banker can open a single account or a joint account with her husband for a
married woman

In the case of a joint account, he should ask for clear instructions on who should
operate the account.

In the event of death of either of them, the banker should have clear instructions
on to whom the balances in the account should be paid.

In the event of death of the husband, banker cannot without verification pay the
balance to the widow as there could be other heirs.

If a banker grants an overdraft or loan to a married woman, he can recover his dues,
only from property owned independently in her name. A married woman cannot make her husband responsible for her debts

Even if there is property in her name, it might be that she only has right to the
income from the property and not to sell it or encumber it. In such a case, the banker will not be entitled his dues from that property. Account of illiterate person

Banker can open an account in the name of an illiterate person allowing operations
in the account, against his thumbprint.

His photograph should be taken on record; and he would be required to come in


person to the bank for operations in the account.

Transactions in the account must be in the presence of the Manager, who should
explain the transaction, read out to the illiterate person the balance in his account and record the fact that such explanation was offered to the customer. Only a SB or term deposit account will be opened for illiterate customers. Accounts of executors and administrators of estates:

An executor is appointed by a person to manage the affairs of his estate after his
death.

In the absence of a testator appointing an executor, a court will appoint an


administrator for the execution of a will and manage the affairs of the deceaseds estate.

On the death of a customer, the accounts with the bank are frozen. The banker must
stop operations in the account.

The executor will be allowed to operate on the account on production of a probate


of the will obtained from the court.

The administrator will be allowed to operate the account on production of letters of


administration obtained from the court.

If two or more persons are appointed as executors or administrators, then they must
open a joint account with the bank. Operations in the account will be based on clear written mandate given by all the executors or administrators

Banker cannot exercise his right of set-off the credit balance in the executors
account against the debit balance in the account of deceased.

Banker should not allow transfer of funds from the estate account to the personal
account of the executor

Grant of loans to the estate of the deceased, against estate property pledged by the
executors will depend upon the provisions in the will or the court order Account by an attorney for a customer

Banker should be guided by the provisions of the registered copy of the power of
attorney document

Banker should verify, that the document is properly drawn up, stamped, notarized,
and make a note of all the terms that have a bearing on the operation of the bank account

The document should contain specific power given to the attorney to open an
account with the bank, and must contain instructions about operations of the account.

The account opening form must be signed by the principal and the signature of the
attorney must be attested by him. Pardanashin women:

The banker cannot establish or verify the identity of a pardanashin woman.


Therefore as a rule, he should refuse to open an account. If there are other compulsions, he must ensure that at each point of time her identity is verified before the transaction is put through. Banks not to open accounts

Banks will not open accounts for known insolvents, insane persons, drunkards and
other undesirable persons

Some banks do not open accounts for lawyers, and do not extend them loans A banker should refuse to open an account for a lunatic. If an account holder
becomes a lunatic, operations in the account must be frozen, and wait for a court order for further action. The Banker must however obtail absolute proof of a persons lunacy, before he/she stops operations in the account, else he lays himself open to a claim for damages. Confidentiality of customer accounts

What will impact the bankers duty to maintain confidentiality of customers


account information?

Answer: A duty to assist the Law enforcement agencies in their efforts to combat
crime.

Banker can part with customer information in response to a lawful enquiry from
police, income tax or a court of law.

He will offer opinion on creditworthiness of a customer to a fellow banker in


response to enquiries. This is a banking practice. But the banker cannot offer such opinions if a customer expressly forbids such furnishing of opinions on his creditworthiness. Information requests

Criminal Procedure Code provides for calling of information from banks, by the
police to assist them in their investigations.

There are stipulations about when and how they can do it and the level of
officer who can call for information etc. Banker should take legal advice when acting on such requests.

The request from police or from courts can be complied with by showing the
official the records in banks premises. In general, it would not be necessary to physically produce original records at the police station or the court

If required for evidence, a certified copy of the relevant records or extracts from
the records can be produced, as provided under the Bankers Books of Evidence Act.

Income Tax Authorities can call for information from banks. The request must
relate to an actual assessment that the authorities are pursuing; a roving inquiry is not permitted.

If the request received from the tax authorities under S.131 of the Income Tax Act,
1961 is a specific request banks must comply with it. Disclosures permitted by law and practice

Under law: A Banker is justified in disclosing information about the customers


account when he is statutorily required to do so under (a) income Tax Act, 1961 (Section 131 & Section 133(6), (b) Companies Act, 1956 (Section 235 and Section 237), (c) Bankers Book Evidence Act, 1891 (Section 4), (d) Reserve Bank of India Act, 1937 (Section26), (f) Foreign Exchange Management Act 1973 (Section 11) (g) Gift Tax Act, 1958 (Section 36).

Under express or implied consent of the customer : A customer can permit some
disclosures. For example, the customer may permit giving information about his account to his prospective guarantor or suppliers.

Common courtesy among bankers: It is customary among bankers, that when a


bank makes inquiries with another bank, such as, about proposed sureties or acceptors, such information is shared. An implied consent of the customer is presumed to exist. However, such information is kept confidential at both the ends

Disclosure in the banks interest: A banker can disclose information when it is


essential to protect his own interest, legally. For instance, if there is any dispute between the customer and a banker, regarding balance standing in the account of the customer or if there is a loan default, then the bank will be justified in revealing the information to the guarantor or to a solicitor for initiating legal proceedings in the court of law. Disclosures: Public interest

Disclosure in Public/National interest : Banker may be required to make


disclosure in the interest of the nation and public at large.

Public interest may be reckoned only according to the prevailing circumstances.


Death of an account holder Death of a minor

On death of an account holder balance in account become payable to his legal heirs. Balance in minors account is payable to his guardian The father and after him the mother is the natural guardian of a minor and it is to
them that the balance is payable

If there is a court appointed guardian then the balance is payable to such guardian

Death of one of the account holders

In the event of death of one of the account holders, balance in the account is
payable according to mandate in the form of either or survivor, former or survivor, both or survivor etc.

If there is no mandate balance is payable jointly to survivor and legal heirs of


deceased.

There is a facility to nominate a person to receive the balances in the account if the
depositor(s) dies. Nomination entitles the person(s) nominated to receive the balance in the account, but it does not mean that nomination overthrows the legal claims of the heirs of the deceased. Payment of balance to heirs

In the absence of nomination, or will, legal heirs must obtain a succession


certificate from court. The certificate must list bank deposit as an asset.

If no will is left, heirs must approach court for appointment of an executor to the
estate and obtain letters of administration. This will provide necessary authority to deal with bank balances.

For relatively small sums, a banker may overlook the requirement of a succession
certificate or a letter of administration and pay out the balances in the account, after obtaining a suitable indemnity from the apparent heirs of the deceased. Account closure

Like commercial contracts, the terms governing bank account are subject to
changes by either party subject to notice and acceptance by the other party.

Banker can change terms under which an account was opened by putting customer
on notice and seek his acceptance.

For example minimum balance stipulations for an account. If the banker proposes
to increase the minimum balance in an account he has to put the customer on notice & give him reasonable time to meet this requirement.

If customer does not meet the demands nor agree to it then banker can ask customer
to close the account. Banker can close the customers account:

When customer has sent a notice of his intention to close the account on death of a customer on notice of customers insanity, on verification on customers insolvency on receiving an order from a court of law on receiving a notice of an assignment made by the customer, of his credit balance
Closure of account by customer

When customer closes account, banker must maintain a record of instructions by


the customer on closing his account

While the customer can choose to close his account with the bank, without any
notice, the banker cannot do so. He has to give sufficient notice to the customer, in order that any transactions in the pipeline involving the account are completed, all cheques issued by the customer are paid or dishonoured etc Obstinate customer:

Banker can close account of undesirable and obstinate customer who refuses to
close his account even after due notice, by returning the money in his account.

The banker should call for the return of the unused cheque book/leaves and also
refuse to accept credits into the account When customer dies

Death of a customer terminates authority for payment of cheques issued by


customer.

Banker needs official notification. Until then he has to exercise caution. Balance in the account of the customer is paid to his nominee.

CHAPTER 04 RESEARCH METHODOLOGY

Research Methodology Research is the systematic process of collecting and analyzing information (data) in order to increase our understanding of the phenomenon about which we are concerned or interested. Research is a common parlance refers to a search for knowledge. The urge of understand things may be rightly termed as research, in other words we can also refer research as a scientific and systematic search of pertinent information of specific topic. The concept of research is thus closely linked with human endeavor for better understanding of his evolution, environment and growth through diverse stages of human history. Research therefore, has been an integral part of academic pursuits in the past. It has served two fold purpose, intellectual sharpening and evolving new theories to explain diverse phenomenon through which mankind survived with the progress of modern era. Human curiosity has leads to understand his environment in different angles. This process of studying this awareness of man manifested in a process known as research Research Design Descriptive Research Descriptive Research is a fact finding investigation which is aimed at describing the characteristics of individual, situation or a group (or) describing the state of affairs as it exists at present. The type of research method used is descriptive. The aim of descriptive research is to verify formulated hypotheses that refer to the present situation in order to elucidate it. Descriptive research is used because the research is primarily concerned with describing the nature and conditions and degree in detail of the present situation A descriptive research is conducted using 100 respondents, where in the detailed analysis of preference of shopping, preference on organized and unorganized outlets, latest trend towards branded retail outlets especially on Reliance Fresh .Satisfaction level of customers towards more retail outlets. Where in the detailed analysis of the quality of the service is analyzed with respect to various variables and compared with the competitors to arrive at a conclusion on the basis of finding and suggestions, which would help the company to provide greater service and make necessary improvements in the service quality.

BUSINESS REVIEW: ICICI BANK During fiscal 2008, the Bank continued to grow and diversify its asset base and revenue streams by leveraging the growth platforms created over the past few years. We maintained our leadership position in retail credit, achieved robust growth in our fee income from both corporate and retail businesses, strengthened our deposit franchise and significantly scaled up our corporate and international banking operations. Retail Banking We were among the first banks to identify the growth potential of retail credit in India. Between 2003 and 2006 the banking system as a whole saw significant expansion of retail credit, with retail loans accounting for a major part of overall systemic credit growth. However, due to the increase in interest rates following inflationary pressures, retail credit growth in the banking system has moderated from about 30% over the last few years to about 1015% currently. We continue to believe that retail credit has robust long-term growth potential, driven by sound fundamentals, namely, rising income levels and favourable demographic profile. At the same time, the retail credit business requires a high level of credit and analytical skills and strong operations processes backed by technology. Our retail strategy is centred on a wide distribution network, comprising our branches and offices, direct marketing agents and dealer and real estate developer relationships; a comprehensive and competitive product suite; technology-enabled back-office processes; and a robust credit and analytical framework. We are the largest provider of retail credit in India. Our total retail portfolio was Rs. 1,316.63 billion at March 31, 2008, constituting 58% of our total loans at that date. During fiscal 2008, we continued our focus on strengthening our retail deposit franchise to create a stable funding base. Our current and savings account (CASA) deposits as a percentage of total deposits increased from 22% at March 31, 2007 to 26% at March 31, 2008, with savings account deposits increasing by 36% during fiscal 2008. During the year, we have expanded our branch network substantially. At March 31, 2008, we had 1,262 branches & extension counters compared to 755 branches & extension

counters at March 31, 2007, including the addition of about 200 branches through the merger of Sangli Bank. Our branch network has further increased to 1,367 as of May 31, 2008. We continued to expand our electronic channels, namely internet banking, mobile banking, call centres, point of sale terminals and ATMs, and migrate customer transaction volumes to these channels. We increased our ATM network to 3,881 ATMs at March 31, 2008 from 3,271 ATMs at March 31, 2007. Our call centres have a total seating capacity of approximately 6,375 sales and service workstations. Transaction volumes on internet and mobile banking have grown significantly, constituting an increasing percentage of total customer transactions. During the year, we launched a mobile banking service enabling a wide range of banking transactions using the mobile phone. Cross-selling new products and also the products of our life and general insurance subsidiaries to our existing customers is a key focus area for the Bank. Cross-sell allows us to deepen our relationship with our existing customers and helps us reduce origination costs as well as earn fee income. Our branches and other channels are increasingly becoming important points of sale for our insurance subsidiaries. In fiscal 2008, about 19% of ICICI Prudential Life Insurance Companys new business was generated through ICICI Bank. We will continue to focus on cross-sell as a means to improve profitability and offer a complete suite of products to our customers. We continue to leverage our multi-channel network for distribution of other third party products like mutual funds, Government of India relief bonds and initial public offerings of equity. Customer service is a key focus area for the Bank and we have adopted a multi -pronged approach to continuously monitor and enhance customer service levels. The Customer Service Council comprising wholetime directors and senior management meets regularly to review our customer service initiatives. We have implemented a structured customer feedback process where feedback is received from customers through e-mail, mobile messaging and telephone. We conduct regular training programmes for employees to improve customer handling and interaction and have incorporated customer service metrics

in performance evaluation. Our service quality team is also responsible for tracking resolution and turn-around times for service requests, identifying root causes to be addressed through process improvements, rewarding achievements in customer service and institutionalizing learnings from customer feedback. The Customer Service Committee of the Board of Directors periodically reviews the initiatives taken by the Bank in this area. Small Enterprises During the fiscal year 2008, our small enterprises customer base increased by 26% to about 1.1 million accounts. We have introduced our service offerings in over 400 new branches, increasing our coverage to over 1,000 branches. During the year, we have focused on product specialisation including investment banking for SMEs. We have continued to focus on shaping the small and medium enterprises sphere in India through initiatives such as the Emerging India Awards, the SME CEO Knowledge Series - a platform to mentor and assist SME entrepreneurs, and the SME Dialogue - a weekly feature in a leading financial newspaper sharing SME best practices and success stories. During the year, we have launched several new products and services like the SME toolkit an online business and advisory resource for SMEs. Rural banking and agri-business We believe the rural economy has high growth potential and offers large credit growth opportunities. Towards this end, our suite of products and services is targeted to address the needs of both the farm and non-farm sectors. Our retail product suite encompasses loans for crop production, purchase of farm equipment; commodity based finance as well as various savings, investment and insurance products. We also offer micro-finance and jewel loans. We have also focused on enhancing credit to farmers by leveraging on corporate partnerships. For example, we have partnered with various dairies to provide financing to farmers for purchase of milch cattle. We also provide credit and banking services to SMEs active in the agricultural value chain. To enhance our service quality and

product delivery capabilities we have developed a large network of rural branches which is further augmented by non-branch channels. Rural banking in India is still at a nascent stage and the deployment of technology channels and modern banking methods for rural lending continues to be an evolving process. In line with our learnings from our rural banking operations, we undertook a comprehensive review of and realigned our channel architecture, credit underwriting processes and account management systems. We have put in place a robust risk management structure to mitigate and manage credit, operational and fraud risks. Through this, we aim to create a strong foundation for scaling up of our rural business. PROMOTING INCLUSIVE GROWTH Indias economic outlook is buoyant but there are millions of Indians who are currently not integrated into the economic mainstream. Engaging them in the growth process is crucial for Indias sustainable growth and social development. This would address existing inequalities and drive GDP growth to an even higher level. The ICICI Groups financial inclusion initiatives: Access to financial services is one of the key enablers for participation in the nations economy. The ICICI Group is seeking to combine a sustainable business model with a social and human development agenda through a range of initiatives aimed at providing access to financial services to those who are currently not within the ambit of formal financial services. The aim is to build a business model that can provide financial services effectively across rural India and deliver value to this market at a low cost. The ICICI Group is working with key stakeholders including agri-based industries, government authorities and micro finance institutions in this direction. Technology, including biometric authentication tools, forms a core element of the strategy to accelerate the penetration of financial services. The ICICI Groups key initiatives towards financial inclusion include: Microfinance: ICICI Banks microfinance programme facilitates extension of credit to low income households. With a portfolio of Rs. 9.6 billion and having touched the lives of

about 3.5 million people, this microfinance programme is one of the largest among private sector banks in India. ICICI Bank was able to scale up this programme through the innovative Partnership model. ICICI Banks participation has catalysed the growth of smaller micro-finance institutions (MFIs) in India. The Bank has focused on development and capacity-building in the MFI sector. In 2007, there were only five MFIs in India with 500,000 or more customers. The ICICI Group has worked to significantly expand the sector by developing new MFIs. The Banks Emerging MFI team, its Social Initiatives Group and the Centre for Microfinance at the Institute of Financial Management & Research (IFMR) worked in collaboration in this area. The Banks Social Initiatives Group acted as a catalyst for the development of appropriate channels and products that make basic financial services accessible to the poorest clients. This has resulted in partnership with venture capital funds engaged in identifying opportunities, providing equity finance, mentoring new entrepreneurs and facilitating product development. The Centre for Microfinance at IFMR worked with large MFIs, whose volumes required stronger planning and processes at different levels to expand or consolidate their operations, refine their risk assessment and manage an increasing inflow and outflow of funds. The Emerging MFI team in the Bank identified and developed organisations or individuals at varying stages of readiness to take up micro-finance as a viable business. It also worked to resolve the geographical asymmetry of micro finance in India. ICICI Banks other innovations in the field of micro-finance include the first securitisation deals in the micro finance industry in India in 2004. The Banks current major initiatives include introduction of biometric smart cards towards ensuring Know Your Customer (KYC) compliance and roll out of the banking correspondent model. Other micro-financial services: To provide easy savings for low-income customers, ICICI Bank has launched a micro-savings facility. A state-of-the-art solution based on a biometric-enabled smart card and a battery-operated authentication device developed by Financial Innovation & Network Operations (FINO), a partner organisation, this microsavings product provides access to a savings account with convenient features. Apart from

this savings account, the Bank also offers recurring and fixed deposits to enable customers to avail higher return on their savings. The perpetual uncertainties in the income cycle of the poor increases their vulnerability to economic shocks. ICICI Prudential Life Insurance (ICICI Life) provides micro insurance services which have promoted financial security among the rural poor and improved their ability to avail credit facilities for undertaking income generating activities. Similarly, ICICI Lombard General Insurance (ICICI General) provides a range of non-life insurance products, including health, weather and cattle insurance to help mitigate the impact of other contingencies such as illness and crop failure. ICICI Prudential Asset Management Company (ICICI AMC) has launched Indias first Micro Systematic Investment Plan (MSIP), a mutual fund targeted for the poor, with a minimum investment amount as low as US$1. Government welfare schemes: Implementation of several of the governments social and welfare initiatives can be outsourced for better results. ICICI General has structured needbased, cost effective insurance solutions for a number of state governments and ministries of the Government of India covering around 36 million lives for personal accident insurance and health insurance. The benefit for the government has been the transfer of risk to ICICI General, greater accountability and transparency and streamlined reporting. Innovative farmer finance: ICICI Bank has sought to introduce several new products to meet the farmers need for credit. Soon after harvest, prices for all commodities are at their lowest. The smaller and marginal farmers are most likely to succumb to a low price since their need for realisation of funds is the most acute. Availability of finance at the right time strengthens farmers inventory holding capacity. ICICI Bank launched warehouse receipt based financing to address this need. This allows the farmer to take a loan against the produce (stored in a warehouse) and avoid distress sale. The Bank has also focused on enhancing credit to farmers by leveraging on corporate partnerships. For example, it has partnered with various dairies to provide financing to farmers for purchase of milch cattle.

Scaling up inclusive growth initiatives Committed to improving social, economic and human development outcomes at the national level, the ICICI Group has established The ICICI Foundation for Inclusive Growth (www.icicifoundation.org). ICICI Bank and its subsidiaries will contribute 0.75%1.0% of their annual profits to the Foundation and work with it closely to help it achieve its mission. The Foundations mission is to improve the incomes of the low-income households in India. It believes that improving market access for low income households is the only sustainable way to bring about increase in their incomes and therefore it principally focuses its attention on redressing market failures which constrain them. However, low income households are often not able to access even well functioning markets because they lack the necessary physical capacity and education due to lack of access to healt hcare and schooling. It is also possible that even well-developed markets may not provide a level playing field for low income households. Also in the long-run markets may pursue strategies that are not environmentally sustainable. Driven by these concerns, the Foundations is actively mentoring institutions that work on these defined focus areas: Markets: The Foundation focuses on facilitating universal access to finance to make markets more responsive to the needs of the poor and to link with low-income households both as producers and consumers. This is done through developing appropriate channels, business models and back-ends for financial services access. It also supports research and model building for expanding financial services access. The Foundation works closely with and mentors the IFMR Foundation (www.ifmrfoundation.org.in) and its partners to fulfill its own mission of increasing the incomes of low income households in a sustainable manner. It is the Foundations belief that addressing financial market failures substantively will have an impact on the access of low income households to a variety of other markets including healthcare, schooling and drinking water. Human Capacity: A focus on fundamental human capacities such as health and education is crucial for people to reach their full potential and lead productive lives. Child survival and early childhood development are amongst the most urgent development challenges facing India today.

CHAPTER 05 DATA ANALYSIS

GENERAL ANALYSIS OF THE BANK This section compares the various private sector banks using certain parameters for analysis. All the figures given are for the year 2004-2005 given in crores of rupees. REVENUE
16000 14000 12000 10000 8000 6000 4000 2000 0 ABN AMRO HSBC STANCHART UTI GTB HDFC ICICI

Figure 1 In case of revenues for banks, larger the revenue earned by the bank, the better it is as revenues contribute directly to the profitability of the bank. In this regard, Stan chart is the undisputed leader with revenues of Rs. 15,302.8 crores. ICICI bank follows up as close second with revenues amounting to Rs. 12, 056 crores. NET PROFIT AND DEPOSITS
12000 10000 8000 6000 4000 2000 0

DEPO

Figure 2 As in the case of any business, even in the case of the banking sector probability and sources of funds are important. As such, higher the net profit and higher the deposits the better for the bank. While high profits are indication of the bank, high deposits speak of the extent to which the bank has been in a position to mobilize funds from customers. ICICI

bank has both the highest net profit as well as the largest deposit base among the private sector and foreign banks that have been compared. OPERATING EFFICENCY
12 10 8 6 4 2 0
INTEREST INCOME/AV G

Figure 3 Measured in terms of interest income/ average working funds, it speaks of the extent to which the funds have been deployed effectively to earn interest revenue for the bank. Higher this ratio the better. On this parameter, Stan chart is the most efficient of all the banks. ICICI banks performance is close to the average performance of the banks. Measured in terms of non-interest income/ average working funds, this ratio speaks of the amount of fee-based income that a bank can earn from its working funds. Judged on these parameters, the performance of GTB surpasses that of all other banks. ICICI bank with a ratio of about 2.01 is once again close to the average performance of the banks. EARNING QUALITY
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
ICICI GTB STANCHART ABN AMRO

OPERATING PROFITS / AVG

Figure 4 Judged on the basis of operating profit/ avg-working funds, it speaks of how profitably the funds of the bank have been used. Stan chart is the leader in this arena with a ratio of 4.15. ICICI bank is way below this figure with a ratio of 2.12 indicating that the funds probably have not been utilized properly. Taken as a ratio of other income / net interest income, the ratio speaks of the ability of the bank to work on lower spreads. Based on this parameter, the performance of ICICI bank is way beyond that of the other banks speaking of the ability of the banks to cut down interest rates if the need arises. PRODUCTIVITY

50 45 40 35 30 25 20 15 10 5 0

BUSINESS PER

Figure 5

Productivity of the bank has been measured in terms of the business and profitability per employee. It speaks of whether the bank is over or understaffed. Based on these parameters, ICICI bank is leader with the highest ratios for productivity based on both business per employee and revenue per employee.

ASSET QUALITY Net NPAs / Net Advances (%)


4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
STANC HART ABN AMRO HSBC

Figure 6

Asset quality measured in terms of net NPAs as a percentage of net advances speak of the assets that are doubtful to return the interest due in the near future. Judged on this basis, ICICI BANK bank has been most judicious in its lendings. the performance of ICICI bank is close to average performance for all the banks. MANAGEMENT QUALITY

RETURN ON ASSETS
4 3.5 3 2.5 2 1.5 1 0.5 0
ABN AMR O

Figure 7

ICICI 1.7

HDFC 1.9

GTB 1.3

UTI 0.7

STANCHART HSBC 4 0.9

ICICI BANK 1.6

Measured in terms of return on assets, it speaks of how successful the management was in using the assets judiciously. On this parameter Stan chart once again out performs the remaining banks. The performance of ICICI banks is again close to average performance of the banks. TRENDS AMONG THE PRIVATE INDIAN BANKS Analysis made on the basis of any one years figures could always lead to faulty conclusions as the year of review could have been an exceptional case. For example around the year 2006 ICICI bank went in for its ADR and this could have affected the return on assets of the bank. As such the consolidated figures of ICICI bank and ltd have been taken and compared with the figures of the other banks for the year 2004-2005. While the scope for error is still present as two years in still not a good indicator, the fact that any banks have not published the audited results for the year 2005 has been a constraining factor in this regard.

ICICI Branches 2004 2005 820 1400

HDFC

GTB

UTI

256 518

150 310

169 314

Size of the bank Deposits ( in crores) 2004 2005 47378 65749 32658 48759 21734 34976 18924 27985

Net profit ( Rs in crores)

2004 2005

1100 1411

657 993

265 357

190 270

Operational Efficiency Interest income / Avg Working funds 2004 2005 9.0 40.5 4.7 8.6 10.7 9.4 10.8 8.2

Non-interest income/ Avg working funds 2004 2005 2.0 6.3 1.9 1.1 3.8 1.7 2.0 1.5

Earning Quality Operating profits / Avg Working fund 2004 2005 2.1 10.6 4.2 2.4 4.13 2.1 2.6 1.3

Other income / net interest income 2004 2005 22.2 15.7 Productivity Business per employee 2004 2005 46.44 8.15 9.42 14.7 8.55 10.08 12.49 9.59 40.5 14.7 36 18.3 18.9 18.6

Operating profits per employee 2004 2005 .98 .06 .09 NA .12 .17 .07 .07

Table 1

A look at the ratios and figures and both for 2004 and 2005 reveals that as compared to all the other banks in the private sector in India, ICICI bank has grown by leaps and bounds. Its branch network has increased and so has its deposit base. But this was primarily due to the merger between ICICI bank and the bank of Madura. However, the profitability of the company has dropped drastically. This drop has come primarily from the corporate lending of the erstwhile ICICI ltd. The net profit as well as the non interest income continues to be way beyond the income of the other three banks in the private sector. Similarly is the case with earning quality ratios. The fall in the profitability has also affected the productivity ratios of the bank. As far as the banking sector is concerned, banks in India have turned risk averse. Banks, which are predominant financial intermediaries in the economy, are turning in to business that has to be profitable. Banks are more interested in putting their money into risk free government securities rather than to the industry. The reason for this could be that lending to the industry entails higher risk, which impacts the banks capital adequacy forcing the bank to raise equity, which is difficult in a barely active capital market. The very fact that most of the foreign banks have treasury services as a thrust area proves the point that banks are averse to lending to corporates. While the importance levied on profitability has increased tremendously, banks on the size are levying an almost equal importance. To fight foreign banks with global presence, banks today have to be big. And size here is not just in terms of asset base but I also in terms of geographical research. And to do so a vast majority of the banks going in mergers. This is evidence by the plethora of mergers that have been taking place in the last two years. Size is of importance t cut costs. If a bank wishes to become a universal bank provided solutions to al the financial requirements of an individual or corporate, if it wishes to have to ensure that they are big enough to provide services that reach the customers. Apart from size, one area that is gaining importance is the sector of fee-based income. Being a risk free source of revenues, banks are more and more concentrating on pushing fee-based activity. The market size of the fee-based activity is about Rs.111.1 bn. This sector grew at about 83% the net increase in interest income in 2001 and amounted to about to about 50% of interest income.

CHAPTER 06 FINDING, CONCLUSION & SUGGESTION

FINDINGS The old prophecy that once a customer is a customer has become a myth in the present day competitive world. Brand image on banking sector no longer works a magic with the consumer. So to hold the customer to the bank and attract new consumers the ICICI Bank must come up with strategies that is efficient and competent in the present scenario. After analyzing the response of the respondent through questionnaire and observation the following were found in the study.

In the case of revenue of banks, Standard Chartered bank is the undisputed leader. ICICI follows up as second in revenues. In the case of net profit and deposits ICICI bank is leading with both the highest net profit and largest deposit among the private sector and foreign banks. In the case of operating efficiency, standard chartered bank is the most efficient of all the banks. Avg performance is shown by ICICI bank. In the case of earning quality, standard chart is the leader in this arena with a ratio of 4.15. ICICI bank is way below this figure with a ratio of 2.12 indicating that the funds probably have not been utilized properly. In the case of productivity, ICICI is the leader with the highest ratio of productivity based on both business per employee and revenue per employee. In the case of asset quality, ICICI BANK bank has been most judicious in its landings. ICICI bank is close of Avg performance for all the banks. In the case of management quality, stand chartered once again out performs the other banks

RECOMMENDATIONS Based on the findings regarding the performance and thrust area of the other competing private sector and foreign banks, the trends in the banking sector and the future of the sector as such an attempt has been made to point our areas that the bank can possibly concentrate upon. Corporate sector 1. Continue focus on cash management service: with more and more companies preferring to outsource their collection and payment, the sector fee based activity growing. Given the vast geographical presence of ICICI bank that can be leveraged upon, the bank is better placed to offer these services at a competitive rate as compared to foreign banks. 2. Continue targeting SME segment: small and medium enterprises through in existence for long, have gained prominence only in the recent past. In fact ICICI bank got this segment as a result of their merger with the bank of Madura. The foreign banks have also only just started targeting this segment. As such leveraging on the expertise of the personnel of bank of Madura, ICICI bank ca try to move faster than competitive and make use of the first move for merger. 3. Focus on FX services: FX services are an area that is being concentrated upon only by one bank- Citibank. None of the other banks are targeting this product. With Indian industries looking for a global presence, the need for this product is likely to grow. That apart, FX services from close to 13% of the market for fee-based product. With that market growing, FX services would also grow. As such, ICICI bank could target this product and try to make attractive offerings to the clients in the sector. 4. Provide advisory services via specialists. The bank could appoint specialists in certain definite industrial sectors who would not only evaluate projects for the bank but would also give advisory services to the clients on the changes that make in their investment. This person could be independent of any financing that the bank would so that there is no clash of interest for him has evaluated the projects.

5. Single point interface: one of the complaints that clients had against private sector and foreign banks was that, the company had to deal with multiple managers depending upon the products that the company required. That is, for cash management services there was one relationship manager, while treasury had another. The companies found this highly disconcerting and preferred to deal with a single individual from a bank, which could in turn interact with his colleagues. 6. Decentralization of decision making: another complaint that clients had against banks was that there was a delay information transfer and approvals, primarily because all banks branches had to contact the officials in their head offices before approving clients. Decentralization on behalf of the bank would solve this problem. 7. Flexibility and personalization of services: yet another reason, that some of the companies mentioned, for their sticking on to the public sector banks was the rigidity and impersonal touch with the foreign and private sector banks. 8. Collecting bank for direct and indirect taxes: an offshoot of the fact that clients dealing only with one or two foreign banks were dealing with HDFC bank because of their statues of being a collecting banker for direct taxes. Retail sector 1. Loan against shares and house loans: given the growing importance of the retail sector and the bank offerings being the strongest in case of house loan and loan against shares, ICICI bank could look at pushing home loans and loan against shares. 2. Tie up with American express: ICICI bank could look at possible tie up with American express not only for travelers cheque but also for providing ATM facilities to the customers of American express. This would get them high net worth clients. 3. Continue corporate credit cards: corporate credit cards would help employees pay official bills through cards. This would save both then and the company the trouble of reimbursing the expenditure. Electronic clearing house: with RBI giving it approval for establishment of an electronic clearing house by the banks, a move in this direction would help banks hasten their clearing process and provide retail- time on-line service to their clients that would help corporate.

ANNEXURE

BIBLOGRAPHY

BIBLIOGRAPHY

The sources of data used for the preparation of this project are listed below: Training study materials of ICICI Bank Financial Report of ICICI Bank for the FY 2007-08 Performance Report of ICICI Bank for the FY 2007-08 ICICI Banks official website: www.icicibank.com Questionnaire answered by bank officials of the branch Banking Law and Practice in India by M. L. Tannan