Indian Banking

RESEARCH METHODOLOGY REPORT ON INDIAN BANKING INDUSTRY
Submitted to Prof. Ramanna Shetty Associate Professor
Su mitte! y
By Group 3
A hishe" #ais$a% Anir an &hattacharyya 'arthi" &o%%ineni Pa(an 'umar )aishna(i P
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INDIAN BANKING INDUSTRIES
INDEX TOPICS E e!uti"e #umm$ry C%$pter &' I(trodu!tio( *.* History of +n!ian an"in, in!ustry....................................................................................-. *./ Nee! for the research000000000000000000000000..........-1 *.2 O 3ecti(e of the research0000000000000000000000............-1 C%$pter )' G*ob$* S!e($rio /.* O(er(ie$............................................................................................................................-4 /./ Ma3or 5%ayers in ,%o a% an"in, in!ustry..........................................................................-6 C%$pter 3' I(di$( #!e($rio 2.* O(er(ie$............................................................................................................................*7 2./ Com5etition Scenario.........................................................................................................*1 2.2 Nationa%i8ation...................................................................................................................*9 2.. C%assification of an"in, in!ustry in +n!ia........................................................................*6 2.7 Ma3or 5%ayers in +n!ian an"in, in!ustry........................................................................../7 2.1 Rura% an"in, in +n!ia......................................................................................................../6 2.4 :r an an"in, in +n!ia.......................................................................................................2/ 2.9 Pri(ate money %en!ers........................................................................................................2/ 2.6 +nternationa% E;5osure.......................................................................................................2/ C%$pter +' PEST $($*y#i# o, I(di$( b$(-i(. i(du#try ..* Po%itica% an! Le,a% factors..................................................................................................2. ../ Economica% factors............................................................................................................../ ..2 Socio<cu%tura% factors........................................................................................................... ... Techno%o,ica% factors..........................................................................................................1 ..7 Mer,ers an! ac=uisitions.....................................................................................................4 PAGE NUMBER
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C%$pter /' Porter0# 1i"e 1or!e mode* 7.* De,ree of com5etition or ri(a%ry........................................................................................7* 7./ &ar,ainin, 5o$er of the customer.....................................................................................72 7.2 &ar,ainin, 5o$er of the su55%ier.......................................................................................72 7.. Threats of ne$ entrants......................................................................................................7. 7.7 Threats of su stitute 5ro!ucts............................................................................................7. C%$pter 2' B$(-# !%o#e( ,or $($*y#i# 1.* State an" of +n!ia..............................................................................................................77 1./ +C+C+...................................................................................................................................76 1.2 HD>C.................................................................................................................................1/ 1.. Com5arison of to5 2 an"s in +n!ia...................................................................................11 3 1uture out*oo-.....................................................................................................................14 4 Co(!*u#io(............................................................................................................................4Re,ere(!e#...............................................................................................................................4*
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EXECUTI5E SUMMARY
The &an"in, sector o(er the years has un!er,one a tremen!ous transformation o(er the 5ast fe$ !eca!es. >rom a ,o(ernment re,u%ate! in!ustry it has e(o%(e! to a hi,h%y !ere,u%ate! one. +n this re5ort $e ha(e a stu!ie! the (arious !e(e%o5ments of the an"in, sector startin, from the 5re in!e5en!ence years to the 5resent scenario. T$o im5ortant !e(e%o5ments $hich ha(e sha5e! the mo!ern !ay an"in, system are Nationa%i8ation of *616 an! the Li era%i8ation of *66/. The mar"et se,ment an! !emo,ra5hics are a%so stu!ie! in the re5ort. +n a!!ition the (arious factors %i"e 5o%itica%? economica%? socia% an! techno%o,ica% $here stu!ie! an! ho$ the im5act the an"in, sector as a $ho%e. The mo!ern !ay an"s ha(e to!ay !i(ersifie! from their tra!itiona% usiness an! no$ o5erate in !i(erse fie%!s. @ith an"in, in!ustry ecomin, hi,h%y com5etiti(e the nee! for !i(ersification has risen an! an"s are acti(e%y 5ursuin, (arious strate,ies to co5e etter $ith com5etition. &esi!es !i(ersification the %ast t$o !eca!es has seen many mer,ers an! ac=uisitions? in this re5ort ma3or mer,ers an! ac=uisitions ha(e een !iscusse!. The +n!ian an"in, in!ustry is no$ o5en to forei,n 5%ayers an! this chan,e! the fie%! of 5%ay. +n a!!ition +n!ian an"s ha(e starte! (enturin, a roa!. Nothin, has re(o%utioni8e! the $ay ho$ an"in, is !one is techno%o,y. The an"s ha(e com5%ete%y !i,iti8e! the o5erations. +n the re5ort the ma3or techno%o,ies $hich ha(e inf%uence! an"in, ha(e een !iscusse!. To!ay techno%o,y has ena %e! an"s those ser(ice $hich $here once e(en unhear! off. Post %i era%i8ation the mar"et scenario has ecome hi,h%y com5etiti(e the !omination of Pu %ic sector an"s has en!e!. To ho%! onto their mar"et shares an"s are no$ a,,ressi(e%y mar"etin, themse%(es an! 5ro(i!in, ne$ ser(ices to !ifferentiate themse%(es from others. The $or%! $itnesse! one of the ,reat economic recession since *62-s in year /--9. This $as tri,,ere! y the fai%ure y su 5rime mort,a,e an! fa%% of :.S an"in, system. E(en in these tur u%ent times the +n!ian an"in, system he%! its ,roun! an! e(en achie(e! ,ro$th. The 5o%icies of Reser(e &an" of +n!ia an! Go(ernment of +n!ia ha(e he%5e! the an"in, system han!%e the 5ressures of economic !e5ression. The +n!ian an"in, has o(er the years has fou,ht of many 5ro %ems ut there many cha%%en,es $hich a$ait the in!ustry. @ith +n!ian economy oun! to ,ro$ aroun! 9A an! hi,her an"s $i%% ha(e a ma3or ro%e to 5%ay. Rura% 5enetration of an"s is sti%% %o$ an! an"s $i%% nee! to $or" har! to ta5 into these mar"ets.
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C6APTER & INTRODUCTION

&7& 6ISTORY O1 BANKING IN INDIA @ithout a soun! an! effecti(e an"in, system in +n!ia? it cannot ha(e a hea%thy economy. The an"in, system of +n!ia shou%! not on%y e hass%e free ut it shou%! e a %e to meet ne$ cha%%en,es 5ose! y the techno%o,y an! any other e;terna% an! interna% factors. >or the 5ast three !eca!es +n!iaBs an"in, system has se(era% outstan!in, achie(ements to its cre!it. The most stri"in, is its e;tensi(e reach. +t is no %on,er confine! to on%y metro5o%itans or cosmo5o%itans in +n!ia. +n fact? +n!ian an"in, system has reache! e(en to the remote corners of the country. This is one of the main reasons of +n!iaBs ,ro$th 5rocess. Not %on, a,o? an account ho%!er ha! to $ait for hours at an" counters for ,ettin, a !raft or for $ith!ra$in, his o$n money. To!ay? he has a choice. Gone are !ays $hen the most efficient an"s transferre! money from one ranch to other in t$o !ays. No$ it is sim5%e as instant messa,in, or !ia%%in, a 5i88a. Money has ecome the or!er of the !ay. The first an" in +n!ia? throu,h conser(ati(e? $as esta %ishe! in *491. >rom *491 ti%% to!ay? the 3ourney of +n!ian an"in, system can e se,re,ate! into three !istinct 5hases. They are as mentione! e%o$C Ear%y 5hase from *491 to *616 of +n!ian an"s Nationa%i8ation of +n!ian an"s an! u5 to *66* 5rior to +n!ian an"in, sector reforms Ne$ 5hase of +n!ian an"in, system $ith the a!(ent of +n!ian financia% D an"in, sector reforms after *66* The first an" in +n!ia? ca%%e! the ,enera% an" of +n!ia $as esta %ishe! in the year *491. The East +n!ian Com5any esta %ishe! the an" of &en,a%ECa%cutta F*9-6G? an" of &om ay F*9.-G an! &an" of Ma!ras F*9.2G. The ne;t an" $as an" of Hin!ustan $hich $as esta %ishe! in *94-. These three in!i(i!ua% units F&an" of Ca%cutta? &an" of &om ay? an! &an" of Ma!rasG $ere ca%%e! as 5resi!ency an"s. A%%aha a! an" $hich $as esta %ishe! in *917 $as for the first time com5%ete%y run y +n!ians. Pun3a nationa% an" %t!. $as set u5 in *96. $ith hea! =uarters at Lahore. &et$een *6-1 an! *6*2? &an" of +n!ia? Centra% an" of
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+n!ia? &an" of &aro!a? Canara an"? +n!ian an"? an! an" of Mysore $ere set u5. +n *6/*? a%% 5resi!ency an"s $ere ama%,amate! to the im5eria% an" of +n!ia $hich $as run y Euro5ean shareho%!ers. After that the Reser(e an" of +n!ia $as esta %ishe! in A5ri% *627. At the time of first 5hase the ,ro$th of an"in, sector $as (ery s%o$. &et$een *6*2 an! *6.9 there $ere a55ro;imate%y **-- sma%% an"s in +n!ia. to stream%ine the functionin, an! acti(ities of commercia% an"s? the ,o(ernment of +n!ia came u5 $ith the an"in, com5anies act? *6.6 $hich $as %ater chan,e! to an"in, re,u%ation act *6.6 as 5er amen!in, act of *617 FAct no./2 of *617G. Reser(e an" of +n!ia $as (este! $ith e;tensi(e 5o$ers for the su5er(ision of an"in, in +n!ia as a centra% an"in, authority. After in!e5en!ence? ,o(ernment has ta"en most im5ortant ste5s in re,ar! of +n!ian an"in, sector reforms. +n *677? the im5eria% an" of +n!ia $as nationa%i8e! an! $as ,i(en the name Hstate an" of +n!iaH? to act as the 5rinci5a% a,ent of R&+ an! to han!%e an"in, transactions a%% o(er the country. +t $as esta %ishe! un!er state an" of +n!ia act? *677. Se(en an"s formin, su si!iary of state an" of +n!ia $as nationa%i8e! in *61-. On *6th #u%y? *616? ma3or 5rocess of nationa%i8ation $as carrie! out. At the same time *. ma3or +n!ian commercia% an"s of the country $ere nationa%i8e!. +n *69-? another si; an"s $ere nationa%i8e!? an! thus raisin, the num er of nationa%i8e! an"s to /-. Se(en more an"s $ere nationa%i8e! $ith !e5osits o(er /-- crores. Ti%% the year *69a55ro;imate%y 9-A of the an"in, se,ment in +n!ia $as un!er ,o(ernmentBs o$nershi5. On the su,,estions of Narsimhan committee? the an"in, re,u%ation act $as amen!e! in *662 an! thus the ,ates for the ne$ 5ri(ate sector an"s $ere o5ene!. The fo%%o$in, are the ma3or ste5s ta"en y the ,o(ernment of +n!ia to re,u%ate an"in, +nstitutions in the countryI< *6.6I Enactment of an"in, re,u%ation act. *677I Nationa%i8ation of state an" of +n!ia. *676I Nationa%i8ation of S&+ su si!iaries. *61*I +nsurance co(er e;ten!e! to !e5osits. *616I Nationa%i8ation of *. ma3or an"s. *64*I Creation of cre!it ,uarantee cor5oration. *647I Creation of re,iona% rura% an"s. *69-I Nationa%i8ation of se(en an"s $ith !e5osits o(er /-- crores.
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&7) NEED 1OR T6E RESEARC6

To un!erstan! oth the +n!ian an! ,%o a% an"in, in!ustries an! critica%%y ana%y8e their res5ecti(e im5acts on economies. A%so? to ,et a roa! 5ers5ecti(e on an"in, o5erations across (arious countries. This research $i%% he%5 us to un!erstan! the !ynamics of (arious mar"ets. One of the asic %earnin, of the stu!y is to un!erstan! the (arious factors inf%uencin, an"in, usiness i.e. on asis of PEST factors. :n!erstan!in, the e(o%ution of the an"in, usiness an! its !e(e%o5ment at !ifferent 5hases.
&73 OB8ECTI5E O1 T6E RESEARC6

To estimate the current an"in, scenario an! fi,ure out the (arious factors an! forces !ri(in, this in!ustry. An!? e(entua%%y to ,et the ,enera% a$areness of the an"in, system an! its future out%oo". &roa!%y? the o 3ecti(e of our research stu!y can u%%ete! as< To un!erstan! the ,%o a% economy an! its im5act on a nationBs economic scenario. To un!erstan! the ro%e of an"in, in a countryBs ,ro$th. To un!erstan! the ro%e of an"in, in +n!ian an! ,%o a% economy. To un!erstan! the im5act of (arious macro<economic an! en(ironment factors of an"in, in!ustry. To un!erstan! the com5etiti(eness of the an"in, in!ustry in +n!ia. To stu!y the future out%oo" of the an"in, in!ustry.
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C6APTER ) G9OBA9 SCENARIO )7& O5ER5IE:

The $or%! of commercia% com5etition? commercia% an"in, is un!er,oin, a !ee5 transformation as a resu%t of an"s are stru,,%in, to ma"e acce5ta %e mar,ins from their
mar"eta %e instruments com5etin, $ith %oans an! !eman! !e5osits. &ecause of this stron, tra!itiona% usiness enterin, into in(estment an"in,. +ncreasin, com5etition has force! an"s to search for more income at the e;5ense of more ris". &an"s that %ent hea(i%y to Asia in search of etter returns than those a(ai%a %e in @estern mar"ets are no$ ein, %ame! for a! cre!it !ecisions. The Asian crisis has rene$e! interest on cre!it ris" mana,ement castin, !ou ts on the effecti(eness of current cre!it re,u%ations. Techno%o,ica% chan,es ha(e a%so hei,htene! com5etition y ma"in, it easier to imitate an" ser(ices. The tra!itiona% a!(anta,e of 5hysica% 5ro;imity to c%ients ,i(en y e;ten!e! net$or"s of ranches has (anishe!. &an"s ha(e to com5ete $ith money mar"et mutua% fun!s for !e5osit usiness? commercia% 5a5ers? an! me!ium<term notes for an" %oans. As mar,ins are s=uee8e!? commercia% an"s in the :nite! States an! Euro5e ha(e een force! to cut costs an! ranches $hi%e !i(ersifyin, into 5ensions? insurance? asset mana,ement? an! in(estment an"in,. +n the :nite! States? many an"s ca%% themse%(es financia% ser(ice com5anies e(en in their re5orte! financia% statements. Di(ersification? ho$< e(er? has not a%$ays 5ro(e! to e an effecti(e strate,y? an! many an"s ha(e ha! to re(ert to a concentrate! usiness. These e;am5%es i%%ustrate ho$ commercia% an"s are rein(entin, themse%(es? not 3ust once ut many times. A%% these chan,es are creatin, an i!entity crisis for o%!< fashione! an"ers? %ea!in, to the "ey =uestion? J@hat is a an" to!ayKL The =uestion is !ifficu%t? ut e(i!ence su,,ests that the conce5t of an"in, is ein, mo!ifie! an! the tra!itiona% arriers amon, financia% ser(ice su in!ustries Fretai% an"in,? 5ri(ate an"in,? in(estment an"in,? asset mana,ement? insurance? etc.G are (anishin,.
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As an"s un!erta"e ne$ acti(ities? they a%so incur ne$ ris"s. Since oun!aries amon, su in!ustries are $ea"enin,? if not (anishin,? an"s %i"e a%% other financia% ser(ice com5anies must re!efine themse%(es in terms of the 5ro!ucts they offer an! the customers they ser(e. The $ay an"s 5ursue this re!efinition is throu,h a strate,ic re5ositionin, in the financia% ser(ice in!ustry. A%% these factors re5resent a ne$ cha%%en,e for commercia% an"s? 5ro(i!e! this !efinition sti%% has a uni=ue meanin,. +ncrease! com5etition? !i(ersification? ne$ 5ro!ucts? an! ne$ ,eo,ra5hic mar"ets mean that oth the s5ectrum of ris"s an! the ris" 5rofi%e for an"s are !ramatica%%y chan,in,. Not on%y ha(e the ris" 5arameters roa!ene!? they ha(e a%so chan,e!I an"s no$ face unfami%iar ty5es of ris". +n a!!ition to the tra!itiona% cre!it ris"? financia% ris" has risen an! is no$ 5%ayin, a crucia% ro%e. Thou,h the ,%o a% an"in, usiness is no$ in much etter sha5e than it $as at the time of the crisis? the nee! for raisin, %ar,e amounts of ca5ita% for !e<ris"in, an! for 5arta"in, norma% orro$in, an! %en!in, o5erations continues. Des5ite the re!uction in estimate! %oan %osses? the uncertainty surroun!in, future e;5ecte! !e%in=uencies cast !ou ts on $hether %oan %osses ha(e fina%%y a ate!. Goin, for$ar!? 5ressures on the fun!in, si!e are e;5ecte! to im5e!e an" %en!in, !ue to !e %e(era,in,? un!er%inin, the nee! for stren,thenin, ca5ita% an! %i=ui!ity uffers. The rise in income of the ,%o a% an"in, in!ustry that $as o ser(e! in /--6 ha%te! in the secon! =uarter of /-*- as a conse=uence of the s5i%%o(er of the so(erei,n !e t crisis in euro area $ith increasin, fears that an" earnin,s cou%! e affecte! ,oin, for$ar!. :n%i"e the a!(ance! economies? the an"in, system in the emer,in, mar"et economies FEMEsG remaine! resi%ient !urin, crisis e;ce5t for the "noc"<on im5act throu,h tra!e an! financia% channe%s $hich affecte! economic ,ro$th !ue to the fa%% in e;5ort !eman! an! !ryin, u5 of o(erseas financin, 5ossi i%ities. As the im5act of the crisis ,ra!ua%%y $ane!? the EMEs reco(ere! s$ift%y an! re,aine! ,ro$th momentum $hi%e 5ro(i!in, su55ort to ,%o a% !eman!. Ca5ita% inf%o$s into the EMEs ha(e resume!? %ea!in, to si,nificant re oun! in e=uity mar"ets since ear%y /--6. The an"in, systems in most of the EMEs remaine! $e%% ca5ita%i8e! an! 5rofita %e. +n +n!ia? the economic reco(ery ,aine! stren,th on the ac" of a (ariety of monetary 5o%icy initiati(es ta"en y the Reser(e &an" an! fisca% stimu%us measures y the Go(ernment $hich aime! at stimu%atin, a,,re,ate !eman!. Ho$e(er? ,oin, for$ar! the continuin,
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$ea"ness in ,%o a% economy 5oses !o$nsi!e ris"s? 5articu%ar%y throu,h a!(erse im5%ications on tra!e an! financin, channe%s.
)7) MA8OR P9AYERS IN G9OBA9 BANKING INDUSTRY

The si,ns of reco(ery a55ear to e on the hori8on? the financia% crisis continues to 5%a,ue the ,%o a% an"in, system. &an"s are ein, shut !o$n on a re,u%ar asis an! interest rates continue to fa%%? ma"in, it har!er an! har!er to fin! a re%ia %e an! trust$orthy an" that a%so has a hi,h sa(in,s account rate. As sho$n e%o$? Euro5ean an"s ha(e a55eare! to fare etter than their American counter5arts. &e%o$ are the $or%!Bs ten %ar,est an"s? !etermine! y the amount of assets an! a !escri5tion of each. The fo%%o$in, are fe$ ma3or 5%ayers in the ,%o a% an"in, in!ustryI BNP P$rib$# ;BNP< M This >rench an" comes in at No.* $ith N/.61 tri%%ion in assets. &NP is one of the %ar,est ,%o a% an"in, net$or"s in the $or%! $ith o5erations in 9. countries. &NP has four !omestic retai% an"in, mar"ets %ocate! in >rance? +ta%y? &e%,ium an! Lu;em our,. +n A5ri% /--6? as a resu%t of &NPBs 47A 5urchase of >ortis &an"? the &e%,ian an" is no$ the %ar,est Euro8one !e5osit ho%!er. Roy$* B$(- o, S!ot*$(d ;RBS< Group M R&S Grou5 ran"s as the num er t$o an" in terms of assets he%!. Current%y? the &ritish ,o(ernment is the %ar,est o$ner of the an". As a resu%t of se(ere %osses an! the con!itions of a ,o(ernment ac"e! ai%out? R&S Grou5 has ha%te! !i(i!en! 5ayments. R&S Grou5 is the %ar,est an"in, ,rou5 in Scot%an! an! o5erates a $i!e (ariety of an"in, ran!s inc%u!in, 5ersona% an! usiness an"in,? 5ri(ate an"in,? insurance an! cor5orate finance throu,hout its o5erations %ocate! in Euro5e? North America an! Asia. As of May /-*-? R&S Grou5 ha! N/.47 tri%%ion in assets. B$r!*$y# P9C ;B$r!*$y0#< = &arc%ays? $ith N/./2 tri%%ion in assets? is a &ritish financia% ser(ices firm o5eratin, $or%!$i!e. +t is a ho%!in, com5any %iste! on the Lon!on an! Ne$ Yor" Stoc" e;chan,es? is a com5onent of the >TSE *-- +n!e; an! unti% /--9 $as a%so %iste! on the To"yo Stoc" E;chan,e. &arc%ays o5erates throu,h ranches? offices an! su si!iaries in the :nite! 'in,!om an! o(erseas an! 5ro(i!es retai% an"in,? cre!it car!? cor5orate an!
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in(estment an"in, an! $ea%th mana,ement ser(ices. +ts t$o ma3or usiness ,rou5s areI G%o a% Retai%in, an! Commercia% &an"in,? an! +n(estment &an"in, an! +n(estment Mana,ement. Deut#!%e B$(- = Deutsche &an"? the %ar,est German an" $ith N/.*1 tri%%ion in assets? has a stron, 5resence throu,hout Germany an! Euro5e an! continues to ,ro$ in North America an! Asia. As of March 2*? /-*-? Deutsche &an" ha! a55ro;imate%y /?--- ranches in 4/ countries. 6SBC B$(- = HS&C &an" has more than .1- an" ranches throu,hout the :nite! States? $ith the ma3ority F29-G in Ne$ Yor" State. Comin, in at num er 7 on our %ist of the i,,est an"s $ith N/.21 tri%%ion in assets? HS&C offers its . mi%%ion customers access to ,%o a% mar"ets throu,h its 5ersona% financia% ser(ices? 5ri(ate an"in,? retai% an"in,? commercia% an"in, an! ,%o a% an"in, an! mar"et se,ments. Credit A.ri!o*e = The secon! an! fina% >rench an" on the to5 *- %ist $ith N/./. tri%%ion in assets? Cre!it A,rico%e is a retai% an"in, %ea!er in >rance an! throu,hout Euro5e. +t is 5art of the CAC .-? a enchmar" >rench stoc" mar"et in!e;. +t has **?7-- ranches throu,hout the $or%!? more than *1-?--- em5%oyees an! 76 mi%%ion customers in 4- countries. B$(- o, Ameri!$ ;BAC< = &AC is the %ar,est an" ho%!in, com5any in the :nite! States? y assets? $ith N/.// tri%%ion. The com5any ser(es c%ients a%% o(er the $or%! an! has a re%ationshi5 $ith 66A of the :.S. >ortune 7-- com5anies. +n /--9? &AC ac=uire! Merri%% Lynch ma"in, it the $or%!Bs %ar,est $ea%th mana,er. +t is %iste! on the Ne$ Yor" Stoc" E;chan,e FNYSEG an! is 5art of the SDP 7-- +n!e; an! the Do$ #ones +n!ustria% A(era,e. Mit#ubi#%i U18 1i($(!i$* Group ;Mit#ubi#%i< = @ith N/./- tri%%ion in assets? Mitsu ishi is #a5anBs %ar,est an" ho%!in,Efinancia% ser(ices ,rou5. Part of the Mitsu ishi Cor5oration? the com5any 5ro(i!es a $i!e (ariety of financia% an! in(estment ser(ices inc%u!in, commercia% an"in,? trust an"in,? internationa% finance? an! assets mana,ement ser(ices. 87P7 Mor.$( C%$#e = One of the t$o so<ca%%e! Jtoo i, to fai%L an"s? a%on, $ith &an" of America? #.P. Mor,an Chase is the *-th %ar,est an" in the $or%! $ith N/.-2 tri%%ion in assets.
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The com5any 5ro(i!es 5ro!ucts an! ser(ices to its c%ients in *-- countries inc%u!in, asset mana,ement? in(estment an"in,? 5ri(ate an"in,? treasury an! securities ser(ices? an! commercia% an"in,. #.P. Mor,an Chase is tra!e! on the NYSE un!er tic"er sym o% #PM. Citi Group = Roun!in, out the to5 ten an"s in the $or%! y asset ty5e is Citi Grou5 $ith N*.91 tri%%ion in assets. Citi Grou5 is com5i%e! of many !ifferent an"in, sectors? inc%u!in, cre!it car!s? mort,a,es an! !e5osits an! is hea!=uartere! in the &i, A55%e.
The usiness si8e of ,%o a% an"in, in!ustry is :SN4- tri%%ion. Assets of the %ar,est *?--- an"s in the $or%! ,re$ y 1.9A in the /--9E/--6 financia% year to a recor! N61.. tri%%ion $hi%e 5rofits !ec%ine! y 97A to N**7 n. Gro$th in assets in a!(erse mar"et con!itions $as %ar,e%y a resu%t of reca5ita%i8ation. E: an"s he%! the %ar,est share of the tota%? 71A in /--9E/--6? !o$n from 1*A in the 5re(ious year. Asian an"sO share increase! from */A to *.A !urin, the year? $hi%e the share of :S an"s increase! from **A to *2A. >ee re(enue ,enerate! y ,%o a% in(estment an"in, tota%e! N11.2 n in /--6? u5 */A on the 5re(ious year.
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The :nite! States has the most an"s in the $or%! in terms of institutions 4?-97 Fat the en! of /--9G an! 5ossi %y ranches of 9/?---. ChinaOs to5 . an"s ha(e in e;cess of 14?--ranches. @hi%e? #a5an ha! */6 an"s an! */?--- ranches. +n /--. Germany? >rance? an! +ta%y each ha! more than 2-?--- ranches? $hich is more than !ou %e ranches in the :'. The future of financia% ser(ices? $hich focuse! on the future of the in!ustry o(er the ne;t three years? consi!erin, the !ri(ers? ris"s an! o55ortunities? as $e%% as the im5act on an! res5onses of e;istin, an! 5otentia% 5%ayers in the in!ustry. The fi(e 5rinci5a% !ri(ers that $ou%! affect a%% financia% institutionsI !emo,ra5hics? the economic cyc%e? 5o%itics? re,u%ation an! re5ortin,? an! techno%o,y. The ra5i! ,ro$th an! increasin, ,%o a% si,nificance of $hat $e ca%%e! the PE4B emer,in, economiesI China? +n!ia? &ra8i%? Russia? Me;ico? +n!onesia an! Tur"ey. O(er time? E4 economies cou%! e %ar,er than the current G4 y et$een /7A an! 47A? !e5en!in, on the measure use!. The an"in, sector is ,oin, to ,ro$ si,nificant%y faster than GDP in these emer,in, economies as they !e(e%o5. &an"s from emer,in, economies $i%% start to ma"e ma3or ac=uisitions in !e(e%o5e! mar"ets to ,ain etter access to ca5ita% mar"ets an! to ac=uire e;5ertise an! "no$<ho$.+n short? no an" can affor! to i,nore the E4 in its future strate,y? ut this a%so means that these mar"ets $i%% e hi,h%y com5etiti(e. A!o5tin, the ri,ht strate,y an! maintainin, a com5etiti(e e!,e in these emer,in, mar"ets $i%% 5ose a ma3or cha%%en,e for North American an! Euro5ean an"s see"in, to ma"e the most of these mar"ets an! i!entify the ri,ht %oca% ac=uisition tar,ets an! strate,ic or 3oint (enture 5artners.G%o a% an"in, an! insurance in!ustry is e;5ecte! to reco(er ra5i!%y from current economic recession su55orte! y the ,ro$th in emer,in, mar"et economies. &R+C nations offer ,reat 5otentia% !ue to their hu,e 5o5u%ation. Critica% to success in the an"in, is the "no$%e!,e of mar"et tren!s? 5ro!uct mi; shifts? customer nee!s an! effecti(e mar"et strate,ies. The ,%o a%i8ation of the an"in, in!ustry? !e(e%o5in, countries are etter infuse! $ith a!e=uate access to im5ro(e! =ua%ity an! efficient a(ai%a i%ity of financia% ser(ices to customers. +n S$a8i%an! an! Lesoto for e;am5%e F+5an,e%$a? /--*G? throu,h the in(o%(ement of forei,n o5erations in those economies? in(estment is faci%itate! in certain usiness areas $ith hi,h cost reco(ery. +ronica%%y? these initia% hi,h costs acte! as a !isincenti(e an!
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norma%%y unattracti(e for %oca% an"in, su55ort. Another im5act is that internationa%i8ation of the an"in, in!ustry increases em5%oyment? %ea!in, to increase! consum5tion? in!ustria%i8ation an! hi,h 5ro!ucti(ity. Ar,ua %y forei,n an"s are a%so cre!ite! $ith increase! re(enues to !e(e%o5in, states throu,h ta;ation? $hich in turn transforms into the 5ro(ision of nee!e! socia% ser(ices y ,o(ernments. >or e;am5%e? 5rior to the tren! to$ar!s ,%o a%i8ation of the an"in, system? forei,n FMcCu%%um? /---G in(o%(ement in Tan8anian? an! Ethio5ian economies? $as 7A an! /A res5ecti(e%y. The tren! !i! ho$e(er? chan,e $ith Tan8ania? current%y recor!in, a hi,h of 71A forei,n an"in, attraction in 5ro5ortion to !omestic an"in,. @ithin a simi%ar conte;t? Ethio5ia has a%so ecome a source of an antici5ate! sur,e of a hi,h 5ercenta,e attraction. The im5%ication is that this is e;5ecte! to resu%t in a conta,ion or s5rea! of economic enefits? such as effecti(e ris" mana,ement? trans5arency an! efficient financia% mana,ement throu,h the %e,acies of techno%o,ica% transfer into such economies. Other enefits FCho? *66-G inc%u!e an en,en!ere! !omestic com5etition resu%tin, in im5ro(e! financia% system architecture an! en,ineerin, such as increases in accountin, stan!ar!s? effecti(e au!itin,? a!e=uate financia% ser(ices mar"etin, an! soun! an"in, mana,ement.
Cou(try
B$(-#
B$(-#
Si>e US? tri**io( **./9 /.9
I(tere#t r$te -./7 1.71
RRR @ */*.7-
@ o, GDP *7 7.92
:SA China
>e!era% an" Peo5%es an" of china
*4.. *.-
#a5an Germany
&an" of 3a5an Deutsche un!es an"
*.7 *929
6.7. -.-*//6
-.**./7
/ /
** 4
>rance :'
&an" of >rance &an" of En,%an!
4*. 1.
*-../ **.-2/
* -.7
2 2.*
6 9.2
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Cou(try
B$(-#
B$(-#
&ra8i%
Centra% an" of ra8i%
49
Si>e US? tri**io( *.*4
I(tere#t r$te */
RRR @ /-
@ o, GDP 7.2
+ta%y Cana!a
&an" of +ta%y &an" of Cana!a
497 //
7.-*. *.99
* *
. .
1.4 4..
+n!ia
Reser(e an" of +n!ia
*67
*.2
9./7
2-
The !e(e%o5e! economies ha(e interest rates ran,in, from -.*- to *.99A an! !e(e%o5in, economies ha(e interest rates ran,in, from 1 to */A. There is a hu,e interest rate !ifference in et$een the !e(e%o5e! an! !e(e%o5in, economies. The reser(e ratio re=uirement of !e(e%o5e! economies 2 t- *-A an! that of !e(e%o5in, economies it is ran,in, from /- to 2-A. The reser(e ratio re=uirement !ifferences ma"e hu,e ,a5 in the circu%ation of money in the economy. The !e(e%o5e! economies ha(e %ess interest rates an! %o$ reser(e ratio thus ma"in, ca5ita% a(ai%a %e for in(estments to increase the in(estment acti(ities in the economy.
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C6APTER 3 INDIAN SCENARIO 37& O5ER5IE:

The an"in, in!ustry $or%!$i!e has transforme! an! $ith a 5ara!i,m shift in the +n!ian economy from manufacturin, sector to nascent ser(ice sector. +n!ian an"in, as a $ho%e in un!er,oin, a chan,e. +n!ian an"s ha(e a%$ays 5ro(e! eyon! !ou t their a!a5ta i%ity to mou%! themse%(es into a,i%e an! resi%ient or,ani8ations. The financia% sector reforms ha(e rou,ht a out si,nificant im5ro(ements in the
financia% stren,th an! the com5etiti(eness of the +n!ian an"in, system. The 5ru!entia% norms? accountin, an! !isc%osure stan!ar!s? ris" mana,ement 5ractices? etc are "ee5in, 5ace $ith ,%o a% stan!ar!s? ma"in, the an"in, system resi%ient to ,%o a% shoc"s. The conso%i!ation an! con(er,ence of an"s in +n!ia has? ho$e(er? not "e5t 5ace $ith ,%o a% 5henomena. The efforts on the 5art of the Reser(e &an" of +n!ia to a!o5t an! refine re,u%atory an! su5er(isory stan!ar!s on a 5ar $ith internationa% est 5ractices? com5etition from ne$ 5%ayers? ,ra!ua% !isin(estment of ,o(ernment e=uity in state an"s cou5%e! $ith functiona% autonomy? a!o5tion of mo!ern techno%o,y? etc are e;5ecte! to ser(e as the ma3or forces for chan,e. +n the emer,in, scenario? the su5er(isors an! the an"s nee! to 5ut in 5%ace soun! ris" mana,ement 5ractices to ensure systemic sta i%ity. Des5ite the im5ro(ements in terms of ca5ita%? %i=ui!ity an! 5rofita i%ity $itnesse! y the ,%o a% an"in, in!ustry in /--6<*-? concerns remaine! o(er (arious !o$nsi!e ris"s. The ,%o a% an"in, in!ustry continues to face si,nificant cha%%en,es to c%eanin, its a%ance sheet in or!er to im5ro(e the =ua%ity of assets an! 5rofita i%ity.
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37) COMPETITION SCENARIO The structure of the an"in, system is current%y ein, sha5e! y the three CsI com5etition? con(er,ence? an! conso%i!ation. Of these? the increase in com5etition is $i!e%y ac"no$%e!,e!. A sim5%e in!icator? i.e.? assets of 5u %ic sector an"s as a 5ercent of tota% commercia% an"in, sector assets? !ec%ine! from o(er 6- 5ercent in the e,innin, of the *66-s to aroun! 47 5ercent at en!<March /--. Q a !ec%ine of rou,h%y * 5ercent a year o(er a *7<year s5an. There is a%so an increasin, con(er,ence in acti(ities as ref%ecte! in the o(er%a55in, of acti(ities et$een an"s an! financia% institutions. Conso%i!ation acti(ities ha(e come into 5o%icy focus of %ate? $ith the !e%ineation of a roa!ma5 for the 5resence of forei,n an"s in +n!ia. +n this conte;t? the an"in, in!ustry is more inc%ine! to a mono5o%istic com5etiti(e frame$or"? a feature of an"in, structure in !e(e%o5e! countries an! other emer,in, mar"ets. More im5ortant? this su,,ests that the com5etiti(e nature of the +n!ian an"in, system is not si,nificant%y !ifferent from the an"in, system in other countries? 5articu%ar%y in (ie$ of the fact that near%y 47 5ercent of an"in, system assets is $ith state<o$ne! an"s.
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The (a%i!ation of mono5o%istic com5etition !urin, the secon! su <5erio! su,,ests that the recent tren!s to$ar! conso%i!ation %e! to more rather than %ess com5etition in the an"in, sector. @e a%so infer from the resu%ts that there is sco5e for further conso%i!ation in the an"in, in!ustry $ithout com5romisin, com5etition consi!erations. +n!iaBs GDP has een ,ro$in, at a ra5i! c%i5 o(er the 5ast !eca!e an! is set to ,ro$ at e(en a faster 5ace in the comin, !eca!e. >inancia% ser(ices 5enetration of the +n!ian economy is =uite %o$ com5are! to e(en other !e(e%o5in, economies. @ith ma3ority of the +n!ian 5o5u%ation mire! in 5o(erty? access to an"s an! financia% com5anies is =uite har! as 5eo5%e %ac" "no$%e!,e an! e!ucation. +n!iaBs an"s ha(e ,ro$n at a ra5i! 5ace o(er the 5ast / !eca!es after the financia% %i era%i8ation. Ho$e(er this ,ro$th has sti%% %ac"e! in meetin, the massi(e !eman! in the nee! of financia% interme!iation. This has %e! to the ,ro$th on non< an"in, financin, com5anies FN&>CsG an! micro finance com5anies. @ith the o5enin, of the insurance sector? financia% com5anies in +n!ia are set to enter a ne$ ,ro$th 5hase. Ma3or an"s in +n!ia are either state o$ne! or 5re(ious ,o(ernment o$ne! institutions $hich ha(e een fu%%y 5ri(ati8e! %i"e +C+C+ an! HD>C &an". &oth the state o$ne! an"s an! the 5ri(ate an"s ha(e mana,e! to ,ro$ $ithout thro$in, the $ho%e system in a crisis %i"e $hat has ha55ene! in the recent 5ast in Euro5e an! :SA an! in China in the *66-s. The an"in, system in +n!ia is si,nificant%y !ifferent from that of other Asian nations ecause of the countryBs uni=ue ,eo,ra5hic? socia%? an! economic characteristics. +n!ia has a %ar,e 5o5u%ation an! %an! si8e? a !i(erse cu%ture an! e;treme !is5arities in income? $hich are mar"e! amon, its re,ions. There are hi,h %e(e%s of i%%iteracy amon, a %ar,e 5ercenta,e of its 5o5u%ation ut? at the same time? the country has a %ar,e reser(oir of mana,eria% an! techno%o,ica%%y a!(ance! ta%ents. &et$een a out 2- an! 27 5ercent of the 5o5u%ation resi!es in metro an! ur an cities an! the rest is s5rea! in se(era% semi<ur an an! rura% centre. The countryBs economic 5o%icy frame$or" com ines socia%istic an! ca5ita%istic features $ith a hea(y ias to$ar!s 5u %ic sector in(estment. +n!ia has fo%%o$e! the 5ath of ,ro$th<%e! e;5orts rather than the Je;5orte! ,ro$thL of other Asian economies? $ith em5hasis on se%f< re%iance throu,h im5ort su stitution. These features are ref%ecte! in the structure? si8e? an! !i(ersity of the countryBs an"in, an! financia% sector. The an"in, system has ha! to ser(e the ,oa%s of economic
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5o%icies enunciate! in successi(e fi(e year !e(e%o5ment 5%ans? 5articu%ar%y concernin, e=uita %e income !istri ution? a%ance! re,iona% economic ,ro$th? an! the re!uction an! e%imination of 5ri(ate sector mono5o%ies in tra!e an! in!ustry. +n or!er for the an"in, in!ustry to ser(e as an instrument of state 5o%icy? it $as su 3ecte! to (arious nationa%i8ation schemes in !ifferent 5hases F*677? *616? an! *69-G. As a resu%t? centresG an"in, remaine! ranch internationa%%y iso%ate! Ffe$ +n!ian an"s ha! 5resence a roa! in internationa% financia% ecause of 5reoccu5ations $ith !omestic 5riorities? es5ecia%%y massi(e e;5ansion an! attractin, more 5eo5%e to the system. Moreo(er? the sector has een assi,ne! the ro%e of 5ro(i!in, su55ort to other economic sectors such as a,ricu%ture? sma%%<sca%e in!ustries? e;5orts? an! an"in, acti(ities in the !e(e%o5e! commercia% centres Fi.e.? metro? ur an? an! a %imite! num er of semi<ur an centresG. The an"in, systemBs internationa% iso%ation $as a%so !ue to strict ranch %icensin, contro%s on forei,n an"s a%rea!y o5eratin, in the country as $e%% as entry restrictions facin, ne$ forei,n an"s. A criterion of reci5rocity is re=uire! for any +n!ian an" to o5en on office a roa!. These features ha(e %eft the +n!ian an"in, sector $ith $ea"nesses an! stren,ths. A i, cha%%en,e facin, +n!ian an"s is ho$? un!er the current o$nershi5 structure? to attain o5erationa% efficiency suita %e for mo!ern financia% interme!iation. On the other han!? it has een re%ati(e%y easy for the 5u %ic sector an"s to reca5ita%i8e? ,i(en the increases in non5erformin, assets FNPAsG? as their ,o(ernment !ominate! o$nershi5 structure has re!uce! the conf%icts of interest that 5ri(ate an"s $ou%! face.
373 NATIONA9IAATION
&y the *61-s? the +n!ian an"in, in!ustry has ecome an im5ortant too% to faci%itate the !e(e%o5ment of the +n!ian economy. At the same time? it has emer,e! as a %ar,e em5%oyer? an! a !e ate has ensure! a out the 5ossi i%ity to nationa%i8e the an"in, in!ustry. +n!ira Gan!hi? the<then 5rime minister of +n!ia e;5resse! the intention of the ,o(ernment of +n!ia FGO+G in the annua% conference of the a%% +n!ia con,ress meetin, in a 5a5er entit%e! "stray thoughts on bank Nationalization". The 5a5er $as recei(e! $ith 5ositi(e enthusiasm. Thereafter? her mo(e $as s$ift an! su!!en? an! the GO+ issue! an or!inance an! nationa%i8e! the *. %ar,est commercia% an"s $ith effect from the mi!ni,ht of #u%y *6? *616. #aya5ra"ash Narayan? a nationa% %ea!er of +n!ia? !escri e! the ste5 as a "masterstroke of political sagacity" $ithin t$o $ee"s of the issue of the or!inance? the 5ar%iament 5asse! the
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an"in, com5anies Fac=uisition an! transfer of un!erta"in,G 5resi!entia% a55ro(a% on 6 au,ust? *616.
i%%? an! it recei(e! the
A secon! ste5 of nationa%i8ation of 1 more commercia% an"s fo%%o$e! in *69-. The state! reason for the nationa%i8ation $as to ,i(e the ,o(ernment more contro% of cre!it !e%i(ery. @ith the secon! ste5 of nationa%i8ation? the GO+ contro%%e! aroun! 6*A of the an"in, usiness in +n!ia. Later on? in the year *662? the ,o(ernment mer,e! ne$ an" of +n!ia $ith Pun3a nationa% an". +t $as the on%y mer,er et$een nationa%i8e! an"s an! resu%te! in the re!uction of the num er of nationa%i8e! an"s from /- to *6. After this? unti% the *66-s? the nationa%i8e! an"s ,re$ at a 5ace of aroun! .A? c%oser to the a(era,e ,ro$th rate of the +n!ian economy. The nationa%i8e! an"s $ere cre!ite! y someC inc%u!in, home minister P. Chi!am aram? to ha(e he%5e! the +n!ian economy $ithstan! the ,%o a% financia% crisis of /--4</--6. 37+ C9ASSI1ICATION O1 BANKING INDUSTRY IN INDIA +n!ian an"in, in!ustry has een !i(i!e! into t$o 5arts? or,ani8e! an! unor,ani8e! sectors. The or,ani8e! sector consists of reser(e an" of +n!ia? commercia% an"s an! co<o5erati(e an"s? an! s5ecia%i8e! financia% institutions F+D&+? +C+C+? +>C etcG. The unor,ani8e! sector? $hich is not homo,eneous? is %ar,e%y ma!e u5 of money %en!ers an! in!i,enous an"ers. An out%ine of the +n!ian an"in, structure may e 5resente! as fo%%o$sI< *. Reser(e an"s of +n!ia. /. +n!ian sche!u%e! commercia% an"s. aG State an" of +n!ia an! its associate an"s. G T$enty nationa%i8e! an"s. cG Re,iona% rura% an"s. !G Other sche!u%e! commercia% an"s. 2. >orei,n an"s .. Non<sche!u%e! an"s. 7. Co<o5erati(e an"s.
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RESER5E BANK O1 INDIA The reser(e an" of +n!ia is a centra% an" an! $as esta %ishe! in A5ri% *? *627 in
accor!ance $ith the 5ro(isions of reser(e an" of +n!ia act *62.. The centra% office of R&+ is %ocate! at Mum ai since ince5tion. Thou,h ori,ina%%y the reser(e an" of +n!ia $as 5ri(ate%y o$ne!? since nationa%i8ation in *6.6? R&+ is fu%%y o$ne! y the ,o(ernment of +n!ia. +t $as inau,urate! $ith share ca5ita% of Rs. 7 crores !i(i!e! into shares of Rs. *-- each fu%%y 5ai! u5. R&+ is ,o(erne! y a centra% oar! Fhea!e! y a ,o(ernorG a55ointe! y the centra% ,o(ernment of +n!ia. R&+ has // re,iona% offices across +n!ia. The reser(e an" of +n!ia $as nationa%i8e! in the year *6.6. the ,enera% su5erinten!ence an! !irection of the an" is entruste! to centra% oar! of !irectors of /mem ers? the ,o(ernor an! four !e5uty ,o(ernors? one ,o(ernmenta% officia% from the ministry of finance? ten nominate! !irectors y the ,o(ernment to ,i(e re5resentation to im5ortant e%ements in the economic %ife of the country? an! the four nominate! !irector y the centra% ,o(ernment to re5resent the four %oca% oar!s $ith the hea!=uarters at Mum ai? 'o%"ata? Chennai an! Ne$ De%hi. Loca% oar! consists of fi(e mem ers each centra% ,o(ernment a55ointe! for a term of four years to re5resent territoria% an! economic interests an! the interests of coo5erati(e an! in!i,enous an"s. The R&+ act *62. $as commence! on A5ri% *? *627. The act? *62. 5ro(i!es the statutory asis of the functionin, of the an" The an" $as constitute! for the nee! of fo%%o$in,I < To re,u%ate the issues of an"notes. < To maintain reser(es $ith a (ie$ to securin, monetary sta i%ity < To o5erate the cre!it an! currency system of the country to its a!(anta,e. >unctions of R&+ as a centra% an" of +n!ia are e;5%aine! rief%y as fo%%o$sI Bank of issue: the R&+ formu%ates? im5%ements? an! monitors the monitory 5o%icy. +ts main o 3ecti(e is maintainin, 5rice sta i%ity an! ensurin, a!e=uate f%o$ of cre!it to 5ro!ucti(e sector. Regulator-supervisor of the financial system: R&+ 5rescri es roa! 5arameters of an"in, o5erations $ithin $hich the countryBs an"in, an! financia% system functions. Their main o 3ecti(e is to maintain 5u %ic confi!ence in the system? 5rotect !e5ositorBs interest an! 5ro(i!e cost effecti(e an"in, ser(ices to the 5u %ic.
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Manager of exchange control: the mana,er of e;chan,e contro% !e5artment mana,es the forei,n e;chan,e? accor!in, to the forei,n e;chan,e mana,ement act? *666. The mana,erBs main o 3ecti(e is to faci%itate e;terna% tra!e an! 5ayment an! 5romote or!er%y !e(e%o5ment an! maintenance of forei,n e;chan,e mar"et in +n!ia. Issuer of currency: a 5erson $ho $or"s as an issuer? issues an! e;chan,es or !estroys the currency an! coins that are not fit for circu%ation. His main o 3ecti(e is to ,i(e the 5u %ic a!e=uate =uantity of su55%ies of currency notes an! coins an! in ,oo! =ua%ity. Developmental role: the R&+ 5erforms the $i!e ran,e of 5romotiona% functions to su55ort nationa% o 3ecti(es such as contests? cou5ons maintainin, ,oo! 5u %ic re%ations an! many more. Related functions: there are a%so some of the re%ate! functions to the a o(e mentione! main functions. They are such as? an"er to the ,o(ernment? an"er to an"s etc0. R &an"er to ,o(ernment 5erforms merchant an"in, function for the centra% an! the state ,o(ernmentsC a%so acts as their an"er. R &an"er to an"s maintains an"in, accounts to a%% sche!u%e! an"s. Controller of creditI R&+ 5erforms the fo%%o$in, tas"sI R +t ho%!s the cash reser(es of a%% the sche!u%e! an"s. R +t contro%s the cre!it o5erations of an"s throu,h =uantitati(e an! =ua%itati(e contro%s. R +t contro%s the an"in, system throu,h the system of %icensin,? ins5ection an! ca%%in, for information. R +t acts as the %en!er of the %ast resort y 5ro(i!in, re!iscount faci%ities to sche!u%e! an"s. Supervisory functions: in a!!ition to its tra!itiona% centra% an"in, functions? the reser(e an" 5erforms certain non<monetary functions of the nature of su5er(ision of an"s an! 5romotion of soun! an"in, in +n!ia. The reser(e an" act *62. an! the an"in, re,u%ation act *6.6 ha(e ,i(en the R&+ $i!e 5o$ers of su5er(ision an! contro% o(er commercia% an! co<o5erati(e an"s? re%atin, to %icensin, an! esta %ishments? ranch e;5ansion? %i=ui!ity of their assets? mana,ement an! metho!s of $or"in,? ama%,amation? reconstruction an! %i=ui!ation. The R&+ is authori8e! to carry out 5erio!ica% ins5ections of the an"s an! to ca%% for returns an! necessary information from them. The Nationa%i8ation of *. ma3or +n!ian sche!u%e! an"s in #u%y *616 has im5ose! ne$ res5onsi i%ities on the R&+ for !irectin, the ,ro$th of an"in, an! cre!it 5o%icies to$ar!s more ra5i! !e(e%o5ment of the economy an! rea%i8ation of certain !esire! socia% o 3ecti(es. The su5er(isory functions of the R&+ ha(e
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he%5e! a ,reat !ea% in im5ro(in, the stan!ar! of an"in, in +n!ia to !e(e%o5 on soun! %ines an! to im5ro(e the metho!s of their o5eration. romotional functions: $ith economic ,ro$th assumin, a ne$ ur,ency since in!e5en!ence? the ran,e of the reser(e an"Bs functions has stea!i%y $i!ene!. The an" no$ 5erforms a (ariety of !e(e%o5menta% an! 5romotiona% functions? $hich? at one time? $ere re,ar!e! as outsi!e the norma% sco5e of centra% an"in,. The reser(e an" $as as"e! to 5romote an"in, ha it? e;ten! an"in, faci%ities to rura% an! semi<ur an areas? an! esta %ish an! 5romote ne$ s5ecia%i8e! financin, a,encies. INDIAN SC6EDU9ED COMMERCIA9 BANKS The commercia% an"in, structure in +n!ia consists of sche!u%e! commercia% an"s? an! unsche!u%e! an"s. Scheduled !anks' Sche!u%e! an"s in +n!ia constitute those an"s $hich ha(e een inc%u!e! in the secon! sche!u%e of R&+ act *62.. R&+ in turn inc%u!es on%y those an"s in this sche!u%e $hich satisfy the criteria %ai! !o$n (i!e section ./F1aG of the act. Jsche!u%e! an"s in +n!iaL means the state an" of +n!ia constitute! un!er the state an" of +n!ia act? *677 F/2 of *677G? a su si!iary an" as !efine! in the s state an" of +n!ia Fsu si!iary an"sG act? *676 F29 of *676G? a corres5on!in, ne$ an" constitute! un!er section 2 of the an"in, com5anies Fac=uisition an! transfer of un!erta"in,sG act? *69- F.- of *69-G? or any other an" ein, a an" inc%u!e! in the secon! sche!u%e to the reser(e an" of +n!ia act? *62. F/ of *62.G? ut !oes not inc%u!e a co<o5erati(e an"L. >or the 5ur5ose of assessment of 5erformance of an"s? the reser(e an" of +n!ia cate,ories those an"s as 5u %ic sector an"s? o%! 5ri(ate sector an"s? ne$ 5ri(ate sector an"s an! forei,n an"s? i.e. 5ri(ate sector? 5u %ic sector? an! forei,n an"s come un!er the um re%%a of sche!u%e! commercia% an"s. Regional rural !ank' The ,o(ernment of +n!ia set u5 re,iona% rura% an"s FRR&SG on Octo er /? *647. The an"s 5ro(i!e cre!it to the $ea"er sections of the rura% areas? 5articu%ar%y the sma%% an! mar,ina% farmers? a,ricu%tura% %a ourers? an! sma%% entre5reneurs. +nitia%%y? fi(e RR&S $ere set u5 on Octo er /? *647 $hich $as s5onsore! y syn!icate an"? state an" of +n!ia? Pun3a nationa% an"? unite! commercia% an" an! unite! an" of +n!ia. The tota% authori8e! ca5ita% $as fi;e! at Rs. * crore $hich has since een raise! to Rs. 7 crores. There are se(era% concessions en3oye! y the RR&S y reser(e an" of +n!ia such as %o$er interest rates an! refinancin, faci%ities from NA&ARD %i"e %o$er cash ratio? %o$er
23 | P a g e
statutory %i=ui!ity ratio? %o$er rate of interest on %oans ta"en from s5onsorin,
an"s?
mana,eria% an! staff assistance from the s5onsorin, an" an! reim ursement of the e;5enses on staff trainin,. The RR&S are un!er the contro% of NA&ARD. NA&ARD has the res5onsi i%ity of %ayin, !o$n the 5o%icies for the RR&S? to o(ersee their o5erations? 5ro(i!e refinance faci%ities? to monitor their 5erformance an! to atten! their 5ro %ems. "nscheduled !anks' J:nsche!u%e! an" in +n!iaL means a an"in, com5any as !efine! in c%ause FcG of section 7 of the an"in, re,u%ation act? *6.6 F*- of *6.6G? $hich is not a sche!u%e! an"L. NABARD NA&ARD is an a5e; !e(e%o5ment an" $ith an authori8ation for faci%itatin, cre!it f%o$ for 5romotion an! !e(e%o5ment of a,ricu%ture? sma%%<sca%e in!ustries? cotta,e an! (i%%a,e in!ustries? han!icrafts an! other rura% crafts. +t a%so has the man!ate to su55ort a%% other a%%ie! economic acti(ities in rura% areas? 5romote inte,rate! an! sustaina %e rura% !e(e%o5ment an! secure 5ros5erity of rura% areas. in !ischar,in, its ro%e as a faci%itator for rura% 5ros5erity? NA&ARD is entruste! $ithI *. Pro(i!in, refinance to %en!in, institutions in rura% areas /. &rin,in, a out or 5romotin, institutions !e(e%o5ment an! 2. E(a%uatin,? monitorin, an! ins5ectin, the c%ient an"s &esi!es this fun!amenta% ro%e? NA&ARD a%soI R Act as a coor!inator in the o5erations of rura% cre!it institutions R To he%5 sectors of the economy that they ha(e s5ecia% cre!it nee!s for e.,. housin,? sma%% usiness an! a,ricu%tura% %oans etc. SER5ICES PRO5IDED BY BANKING ORGANIAATIONS &an"in, re,u%ation act in +n!ia? *6.6 !efines an"in, as Jacce5tin,L for the 5ur5ose of %en!in, or in(estment of !e5osits of money from the 5u %ic? re5aya %e on !eman! an! $ith!ra$ a %e y che=ues? !rafts? or!ers etc. as 5er the a o(e !efinition a an" essentia%%y 5erforms the fo%%o$in, functionsI<
24 | P a g e
R Acce5tin, !e5osits or sa(in,s functions from customers or 5u %ic account? current account? fi;e! !e5osit account? recurrin, accounts etc.
y 5ro(i!in,
an"
R The 5ayment transactions %i"e %en!in, money to the 5u %ic. &an" 5ro(i!es an effecti(e cre!it !e%i(ery system for %oana %e transactions. R Pro(i!e the faci%ity of transferrin, of money from one 5%ace to another 5%ace. >or 5erformin, this o5eration? an" issues !eman! !rafts? an"erBs che=ues? money or!ers etc. for transferrin, the money. &an" a%so 5ro(i!es the faci%ity of te%e,ra5hic transfer or te%e<cash or!ers for =uic" transfer of money. R A an" 5erforms a trust$orthy usiness for (arious 5ur5oses. R A an" a%so 5ro(i!es the safe custo!y faci%ity to the money an! (a%ua %es of the ,enera% 5u %ic. &an" offers (arious ty5es of !e5osit schemes for security of money. >or "ee5in, (a%ua %es an" 5ro(i!es %oc"er faci%ity. The %oc"ers are sma%% com5artments $ith !ua% %oc"in, system ui%t into stron, cu5 oar!s. These are store! in the an"Bs stron, room an! are fu%%y secure!. R &an"s act on eha%f of the ,o(t. to acce5t its ta; an! non<ta; recei5t. Most of the ,o(ernment !is ursements %i"e 5ension 5ayments an! ta; refun!s a%so ta"e 5%ace throu,h an"s. There are se(era% ty5es of an"s? $hich !iffer in the num er of ser(ices they 5ro(i!e an! the c%iente%e FcustomersG they ser(e. A%thou,h some of the !ifferences et$een these ty5es of an"s ha(e %essene! as they ha(e e,un to e;5an! the ran,e of 5ro!ucts an! ser(ices they offer? there are sti%% "ey !istin,uishin, traits. These an"s are as fo%%o$sI Commercial !anksB $hich !ominate this in!ustry? offer a fu%% ran,e of ser(ices for in!i(i!ua%s? usinesses? an! ,o(ernments. These an"s come in a $i!e ran,e of si8es? from %ar,e ,%o a% an"s to re,iona% an! community an"s. #lo!al !anks are in(o%(e! in internationa% %en!in, an! forei,n currency tra!in,? in a!!ition to the more ty5ica% an"in, ser(ices. Regional !ank sha(e numerous ranches an! automate! te%%er machine FATMG %ocations throu,hout a mu%ti<state area that 5ro(i!e an"in, ser(ices to in!i(i!ua%s. &an"s ha(e ecome more oriente! to$ar! mar"etin, an! sa%es. As a resu%t? em5%oyees nee! to "no$ a out a%% ty5es of 5ro!ucts an! ser(ices offere! y an"s. Community !anks are ase! %oca%%y an! offer more 5ersona% attention? $hich many in!i(i!ua%s an! sma%% usinesses 5refer. in recent years? on%ine an"sQ$hich 5ro(i!e a%% ser(ices entire%y o(er the internetQha(e entere! the mar"et? $ith some success. Ho$e(er? many tra!itiona% an"s ha(e a%so e;5an!e! to offer on%ine an"in,? an! some former%y internet<on%y an"s are o5tin, to o5en ranches.
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Savings !anks an! savings and loan associations? sometimes ca%%e! thrift institutions? are the secon! %ar,est ,rou5 of !e5ository institutions. They $ere first esta %ishe! as community< ase! institutions to finance mort,a,es for 5eo5%e to uy homes an! sti%% cater most%y to the sa(in,s an! %en!in, nee!s of in!i(i!ua%s. Credit unions are another "in! of !e5ository institution. Most cre!it unions are forme! y 5eo5%e $ith a common on!? such as those $ho $or" for the same com5any or e%on, to the same %a our union or church. Mem ers 5oo% their sa(in,s an!? $hen they nee! money? they may orro$ from the cre!it union? often at a %o$er interest rate than that !eman!e! y other financia% institutions. $ederal Reserve !anks are ,o(ernment a,encies that 5erform many financia% ser(ices for the ,o(ernment. their chief res5onsi i%ities are to re,u%ate the an"in, in!ustry an! to he%5 im5%ement our nationBs monetary 5o%icy so our economy can run more efficient%y y contro%%in, the nationBs money su55%yQthe tota% =uantity of money in the country? inc%u!in, cash an! an" !e5osits. >or e;am5%e? !urin, s%o$er 5erio!s of economic acti(ity? the >e!era% Reser(e may 5urchase ,o(ernment securities from commercia% an"s? ,i(in, them more money to %en!? thus e;5an!in, the economy. >e!era% Reser(e an"s a%so 5erform a (ariety of ser(ices for other an"s. >or e;am5%e? they may ma"e emer,ency %oans to an"s that are short of cash? an! c%ear chec"s that are !ra$n an! 5ai! out y !ifferent an"s. %he money !anks %en!? comes 5rimari%y from !e5osits in chec"in, an! sa(in,s accounts? certificates of !e5osit? money mar"et accounts? an! other !e5osit accounts that consumers an! usinesses set u5 $ith the an". These !e5osits often earn interest for their o$ners? an! accounts that offer chec"in,? 5ro(i!e o$ners $ith an easy metho! for ma"in, 5ayments safe%y $ithout usin, cash. De5osits in many state! %imit? if a an" shou%! fai%. an"s are insure! y the fe!era% !e5osit insurance cor5oration? $hich ,uarantees that !e5ositors $i%% ,et their money ac"? u5 to a
37/ MA8OR P9AYERS IN INDIAN BANKING INDUSTRY

+n!iaBs GDP has een ,ro$in, at a ra5i! c%i5 o(er the 5ast !eca!e an! is set to ,ro$ at e(en a faster 5ace in the comin, !eca!e. >inancia% ser(ices 5enetration of the +n!ian economy is =uite %o$ com5are! to e(en other !e(e%o5in, economies. @ith ma3ority of the +n!ian 5o5u%ation mire! in 5o(erty? access to an"s an! financia% com5anies is =uite har! as 5eo5%e %ac" "no$%e!,e an! e!ucation. +n!iaBs an"s ha(e ,ro$n at a ra5i! 5ace o(er the 5ast / !eca!es after the financia% %i era%i8ation. Ho$e(er this ,ro$th has sti%% %ac"e! in meetin, the
26 | P a g e
massi(e !eman! in the nee! of financia% interme!iation. This has %e! to the ,ro$th on non< an"in, financin, com5anies FN&>CsG an! micro finance com5anies. @ith the o5enin, of the insurance sector? financia% com5anies in +n!ia are set to enter a ne$ ,ro$th 5hase. Ma3or an"s in +n!ia are either state o$ne! or 5re(ious ,o(ernment o$ne! institutions $hich ha(e een fu%%y 5ri(ati8e! %i"e +C+C+ an! HD>C &an". &oth the state o$ne! an"s an! the 5ri(ate an"s ha(e mana,e! to ,ro$ $ithout thro$in, the $ho%e system in a crisis %i"e $hat has ha55ene! in the recent 5ast in Euro5e an! :SA an! in China in the *66-s. Mar"et share of !e5osits
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Mar"et share of a!(ances
others, 22.6 regional rural, 2.5 foreign, 5.1 private, 18.2 nationalise d, 51.6
Here is a %ist of the *- Ma3or &an"s in +n!ia *G St$te B$(- o, I(di$ ;SBI< C S&+ is +n!iaBs Lar,est &an" $hich is ma3ority o$ne! y the Go(ernment. The Com5any has a num er of Su si!iaries an! has ha(e een mer,e! an! 7 are remainin, . R State &an" &i"aner #ai5ur R State &an" of Hy!era a! R State &an" of Mysore R State &an" of Patia%a R State &an" of Tra(ancore /G ICICI B$(- M This is the %ar,est +n!ian Pri(ate &an" $ith o5erations in a%% >inancia% Ser(ices Sectors. The Com5any has face! a a! time !urin, the Lehman !o$nturn ut has reco(ere! $e%%. Re(s of N*/.7 &i%%ion. +C+C+ &an" is a%so stron, in a%most a%% sectors of the
28 | P a g e
een a mar"et out
5erformer in recent times. Re(enues of N// &i%%ion. The S&+ has 4 su si!iaries of $hich /
financia% in!ustry an! has one of the stron,est mana,ement teams in the country. Li"e HD>C &an" ma3ority of the shareho%!in, is he%! an! is a,ain ac" on the ,ro$th tra3ectory. 2G 6D1C B$(- M HD>C &an" %i"e A;is &an" has sho$n remar"a %e ,ro$th in the %ast fe$ years. The &an" $hich $as foun!e! y +n!iaBs %ar,est housin, finance com5any HD>C has assets of aroun! N// i%%ion. One of the est rate! an"s in terms of ser(ice =ua%ity an! ,ro$th. .G Pu(D$b N$tio($* B$(- M Pun3a Nationa% &an" FPN& ? is the secon! %ar,est PS: an" $ith a out 7--- ranches across 41. cities. The &an" %i"e &O& an! S&+ has sho$n ,oo! ,ro$th $hi%e at the same time mana,e! to contro% a! !e t. 7G A i# B$(- < A;is &an" has een the est 5erformin, 5ri(ate an" a%on, $ith HD>C &an" sho$in, e;ce%%ent ,ro$th in to5 %ine an! ottom%ine. The &an" has een e;5an!in, into insurance an! in(estment an"in, Fac=uire! EnamG.A;is &an" $as former%y :T+ &an" that e,un o5erations in *66..The &an" $as 5romote! 3oint%y y :T+?L+C an! other state o$ne! ,enera% insurers. One of the est +n!ian an" stoc" 5ic"s. 1< B$(- o, B$rod$ M &an" of &aro!a F&o&G is the thir! %ar,est an" in +n!ia an! is ,o(ernment o$ne! %i"e S&+ an! PN&. &O& as it is 5o5u%ar%y "no$n has sho$n e;ce%%ent ,ro$th o(er the %ast fe$ years an! has mana,e! to contro% its Non<Performin, Asset FNPAG.The &an" has ,oo! mana,ement an! mana,es to earn nice interest s5rea!s. 4G B$(- o, I(di$ <&an" of +n!ia F&O+G is +n!iaBs .th %ar,est an"? $ith 224. ranches? inc%u!in, /4 ranches outsi!e +n!ia. +t $as the first an" in +n!ia 5romote! y +n!ian interests to ser(e a%% the communities of +n!ia. The stoc" of the com5any has not 5erforme! as $e%% as it 5eers 5ost the Lehman crisis.+t has seen its mar"et ca5 !ecrease re%ati(e to its %ar,er PS: &an" 5eers 9G IDBI B$(- < +n!ustria% De(e%o5ment &an" of +n!ia Limite!F+D&+G is a %ea!in, 5u %ic sector an"s . R&+ cate,ori8e! +D&+ as an Jother 5u %ic sector an"L. The commercia% an"in, arm? +D&+ &AN'? $as mer,e! into +D&+. This PS: &an" has su55ose! ha(e ,reat 5otentia% an! cou%! e the ne;t +C+C+ in the ma"in,.
29 | P a g e
y forei,n in(estors. The com5any $hich
o(ere;ten!e! itse%f in the /--4</--9 oom has no$ re!uce! the si8e of its ris"y se,ments
6G Kot$- M$%i(dr$ B$(- < This is the first N&>C to con(ert into a an". The an" has its ori,ins as an in(estment an" an! is sti%% (ery stron, in the ca5ita% mar"ets. The &an" an! its sister concerns are 5resent in most of the financia% se,ments of the mar"et %i"e Pri(ate E=uity? @ea%th Mana,ement? +n(estment &an"in, etc. *-G Ye# B$(- M Yes &an" $as foun!e! y Asho" 'a5ur an! Rana 'a5oor.This an" thou,h sti%% sma%% com5are! to its %ar,er 5eers? has come into the to5 *- !ue to its 5ath rea"in, 5erformance o(er the %ast fe$ years in terms of ,ro$th. +t has mana,e! to set ne$ stan!ar!s an! has ro"en out from the %ea,ue of sma%%er 5ri(ate an"s. +n!iaBs stoc" mar"et has a %ar,e share of financia% com5anies an! this is set to 5ossi %y ,ro$ as +n!iaBs an" ,ro$ at aroun! *7</-A as the +n!ian economy e;5an!s y 9<6A e(ery year. The (a%uations of some an"s are not hi,h an! ma"e a ,reat in(estment. Many of these an"s ha(e e;ce%%ent mana,ement somethin, $hich other com5anies in +n!ia sore%y %ac". &an"in, scams an! insta i%ity is much %o$er in +n!ia com5are! to other countries.
372 RURA9 BANKING IN INDIA

Rura% an"in, in +n!ia starte! since the esta %ishment of an"in, sector in +n!ia. Rura% &an"s in those !ays main%y focuse! u5on the a,ro sector. Re,iona% rura% an"s in +n!ia 5enetrate! e(ery corner of the country an! e;ten!e! a he%5in, han! in the ,ro$th 5rocess of the country. S&+ has 2- Re,iona% Rura% &an"s in +n!ia "no$n as RR&s. The rura% an"s of S&+ is s5rea! in *2 states e;ten!in, from 'ashmir to 'arnata"a an! Himacha% Pra!esh to North East. The tota% num er of S&+s Re,iona% Rura% &an"s in +n!ia ranches is /2.6 F*1AG. Ti%% !ate in rura% an"in, in +n!ia? there are *.?.47 rura% an"s in the country of $hich /*/1 F6*AG are %ocate! in remote rura% areas. @ith the e(o%ution of Rura% &an"in, Po%icy y the R&+ s%o$%y an! systematica%%y in a 5%anne! manner? the commercia% an"s in +n!ia sho$e! im5ressi(e 5erformance !urin, *-th >i(e Year P%an. Durin, **th P%an the an"s may nee! to commit themse%(es to ser(e 5ro,ressi(e%y a%% househo%!s in a (i%%a,e? initiate ste5s to esta %ish >inancia% Literacy an! Cre!it Counse%in, Centers? a!o5t Techno%o,y A55%ications? ma"e time%y an! 3u!icious use of >inancia% +nc%usion >un! an! >inancia% Techno%o,y >un! an! (o%untari%y a!o5t Mutua% Co!e
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of Con!uct. +n the 5rocess? the Go(ernment may consi!er creatin, ena %in, en(ironment an! ui%!in, rura% infrastructure to faci%itate rura% financia% institutions to ser(e a%% the rura% househo%!s y /-*7. The intro!uction of socia% an! !e(e%o5ment an"in, 5o%icy entai%e! a ra!ica% shift from 5re(a%ent 5ractice in res5ect of the o 3ecti(e an! functionin, of commercia% im5ortant feature of the 5o%icy of socia% an! !e(e%o5ment an"s. An an"in, $as that it recast
com5%ete%y the ro%e of commercia% an"s in rura% an"in,. Prior to *616? the countrysi!e $as not consi!ere! to e the 5ro %em of commercia% an"s.7 +t $as on%y after *616 that a mu%ti< institutiona% a55roach to cre!it 5ro(ision in the countrysi!e ecame 5o%icy? $ith commercia% an"s? Re,iona% Rura% &an"s an! coo5erati(e institutions esta %ishin, $i!e ,eo,ra5hica% an! functiona% reach in the +n!ian countrysi!e. The Reser(e &an" of +n!ia FR&+G issue! s5ecific !irecti(es $ith res5ect to socia% an! !e(e%o5ment an"in,. These inc%u!e! settin, tar,ets for the e;5ansion of rura% ranches? im5osin, cei%in,s on interest rates? an! settin, ,ui!e%ines for the sectora% a%%ocation of cre!it. Rura% cre!it $as an im5ortant com5onent of the P,reen re(o%utionB 5ac"a,eC the first 5ost< nationa%i8ation 5hase of e;5ansion in rura% an"in, sa$ a su stantia% ,ro$th in cre!it a!(ances for a,ricu%ture. S5ecifica%%y? a tar,et of .- 5er cent of a!(ances for the J5riority sectors?L name%y a,ricu%ture an! a%%ie! acti(ities? an! sma%%<sca%e an! cotta,e in!ustries? $as set for commercia% an"s. A!(ances to the countrysi!e increase! su stantia%%y? a%thou,h they $ere? as $as the ,reen re(o%ution itse%f? iase! in res5ect of re,ions? cro5s an! c%asses. The t$o main cro5s that ,aine! from the ,reen re(o%ution? as is $e%% reco,ni8e!? $ere $heat an! rice? an! the a55%ication of the ne$ techno%o,ies $as 5rimari%y in the irri,ate! areas of the north<$est an! south of +n!ia? $ith the enefits concentrate! amon, the richer c%asses of cu%ti(ators.
373 URBAN BANKING IN INDIA
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:r an an"in, is retai% an! commercia% an"in, or,ani8e! on a co<o5erati(e asis. Co< o5erati(e an"in, institutions ta"e !e5osits an! %en! money in most 5arts of the $or%!. Co< o5erati(e an"in,? inc%u!es retai% an"in,? as carrie! out y cre!it unions? mutua% sa(in,s an! %oan associations? usinesses. The ur an coo5erati(e an"in, system has $itnesse! 5henomena% ,ro$th !urin, the %ast one an! a ha%f !eca!es. >rom *2-4 ur an coo5erati(e an"s F:C&sG in *66*? the num er of :C&s has risen to /*-7 in the year /--.. De5osits ha(e increase! y o(er **-- 5ercent from Rs. 91-- crore to o(er Rs.*--? --- crore? $hi%e a!(ances ha(e risen from Rs. 49-crore to o(er Rs.17? --- i.e. y 422 5ercent !urin, the a o(e *7<year 5erio!. This ,ro$th 5ath has een 5ossi %e main%y on account of the ena %in, 5o%icy en(ironment in the Post *66* 5erio!? $hich encoura,e! settin, u5 of ne$ ur an coo5erati(e an"s. >urther? the !ere,u%ation of interest rates? as a(ai%a %e to commercia% an"s? ena %e! the :C&s to mo i%i8e (ast !e5osits? $hich? to,ether $ith the %i era% %icensin, 5o%icy 5ro5e%%e! the ,ro$th of :C&s in terms of num ers as a%so in si8e. This si,nificant ,ro$th in usiness? $hich has come a out in a com5etiti(e en(ironment $as %ar,e%y !ue to the efforts an! the a i%ity of the sector to harness resources from the sma%% !e5ositors. Thus? $hi%e the sector has sho$n s5ectacu%ar ,ro$th !urin, the %ast !eca!e e;hi itin, su stantia% 5otentia% for sustaine! ,ro$th? there are certain infirmities in the sector that ha(e manifeste! in the form of $ea"ness of some of the entities resu%tin, in erosion of 5u %ic confi!ence an! causin, concern to the re,u%ators as a%so to the sector at %ar,e. ui%!in, societies an! co<o5erati(es? as $e%% as commercia% an"in, ser(ices 5ro(i!e! y manua% or,ani8ations Fsuch as co<o5erati(e fe!erationsG to co<o5erati(e
374 PRI5ATE MONEY 9ENDERS IN INDIA

There are many 5eo5%e $ho ta"e !ifferent ty5es of %oan %i"e home %oan? car %oan? 5ersona% %oan? etc. They !onBt thin" a out the re5ayment at that time. 'ee5in, the trac" of a%% the !ue !ates? its month%y re5ayment? etc mi,ht ma"e you cra8y. To co5e u5 $ith this tension? one can ,o for %oan conso%i!ation. Loan conso%i!ation offers a sin,%e %oan for mu%ti5%e %oans at a much %o$er interest rate. This re!uces the tension as on%y one insta%%ment is to e 5ai! an! a%so sa(es on your money. No$a!ays e!ucation has ecome (ery cost%y? ut e(ery 5arent $ants their chi%! to e e!ucate!. +t ecomes !ifficu%t for the 5arent to arran,e fun!s to 5ay the schoo% fees? co%%e,e
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fees? tuition fees an! other e;5enses. Thus many %oan conso%i!ators 5ro(i!e 5ri(ate stu!ent %oan or 5ri(ate schoo% %oan. Pri(ate stu!ent %oan conso%i!ation is a ,reat too% as it a%%o$s the orro$er to mer,e a%% the 5ri(ate e!ucation %oans an! thus ,i(es enefits of re!uce! month%y 5ayment an! re5ayment in %on,er 5erio! of time. Pri(ate %oans are further c%assifie! as fo%%o$sI R Secure! Pri(ate Loan R :nsecure! Pri(ate Loan Se!ured Pri"$te 9o$(' Secure! 5ri(ate %oan %i"e any other secure! %oan re=uires co%%atera% as security. The co%%atera% can e in the form of 5ro5erty? e=ui5ment? machinery? etc. +n case of !efau%t? the co%%atera% is so%! to reco(er the amount. The interest rate is chea5 as there is co%%atera% in case of !efau%t. An in!i(i!ua% shou%! orro$ the amount $hich he $ou%! e a %e to re5ay $ithout any 5ro %em as co%%atera% is attache! $ith the %oan amount. U(#e!ured Pri"$te 9o$(' :nsecure! 5ri(ate %oan !oes not re=uire any security. This is suita %e for 5eo5%e $ho !onBt $ant to attach their 5ersona% assets to any o %i,ation. The interest rate is hi,h as there is no co%%atera% in case of !efau%t. Pri(ate stu!ent %oan conso%i!ation is a ,reat $ay to si,nificant%y %o$er your month%y %oan 5ayments y com inin, a%% your 5ri(ate stu!ent %oans into one mana,ea %e %oan. Refinancin, your 5ri(ate stu!ent %oans $i%% re!uce the stress of mu%ti5%e 5ayments an! a%%o$ you to u!,et more effecti(e%y $hi%e %o$erin, your interest rate. &efore se%ectin, %oan conso%i!ators thorou,h%y ,o throu,h their terms? con!itions an! interest rates an! "ee5 re(ie$in, them as their rates mi,ht f%uctuate.
37E INTERNATIONA9 EXPOSURE

The emer,ence of forei,n an"s in +n!ia has rou,ht $ith itse%f %atest techno%o,y an! %atest an"in, 5ractices in +n!ia. The forei,n an"s ha(e he%5e! the +n!ian an"s to ecome more com5etiti(e an! efficient. Go(ernment of +n!ia has come u5 $ith a roa! ma5 for the e;5ansion of the forei,n an"s in +n!ia. The roa! ma5 ha! t$o 5hase? first 5hase een et$een March /--7 an! March /--6? an! the secon! 5hase commence! /--6 on$ar!s. The forei,n an"s $ere as"e! to esta %ish a 5resence y $ay of settin, u5 a $ho%%y o$ne! su si!iary F@OSG or con(ersion of e;istin, ranches into a $ho%%y o$ne! su si!iary.
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The forei,n an"s 5henomena is not ne$ to +n!ian an"in, sector . One of the o%!est forei,n an"s o5eratin, in +n!ia is the Stan!ar! Charte! &an" $hich starte! as ear%y as *979 other one ein, Citi &an" $hich o5ene! its first ranch in +n!ia in *6-/ .HS&C starte! is o5eratin, since *672 .G%o a%i8ation an! the economic reforms of *66* encoura,e! many internationa% an"s to o5en there ranches here in +n!ia. No$ a%most a%% the internationa% an"s are o5eratin, in +n!ia. Emer,ences of forei,n an"s ha(e he%5e! the !omestic an"s to im5ro(e their 5erformance an! im5ro(e the customer ser(ice. Due to their !ifferent $or"in, sty%e the forei,n an"s ha(e een a %e to ca5ture a %ar,e customer ase here. At 5resent there are /6 forei,n an"s o5eratin, in +n!ia. >e$ of the im5ortant forei,n an"s o5eratin, in +n!ia are as fo%%o$sI

A u Dha i Commercia% &an" Citi &an" Stan!ar! Chartere! &an" #P Mor,an Chase &an" R&S Go%!man Sachs Deutsche &an"
>orei,n an"s o5eratin, in +n!ia ha(e he%5e! to im5ro(e the +n!ian >orei,n E;chan,e mar"et si,nificant%y. Durin, /--7</--1 forei,n an"s ha! turno(er of .*A an! it rose to 7/A in /--4</--9. The forei,n an"s ha(e chan,e! the $ay of $or"in, of the +n!ian an"in, system. There has een a com5%ete chan,e in the $ay the an"s $or" no$. A%% the !omestic an"s in +n!ia to!ay ha(e stream%ine! their o5eration y intro!ucin, techno%o,y an! a!o5tin, est an"in, 5ractices. The ne$ ru%es a55ro(e! y the R&+ for the forei,n an"s in +n!ia in the %ast yearBs u!,et ha(e sho$n ,reat ho5es amon, the forei,n an"s $hich a%%o$ them to ,ro$ unfettere!. Ne$ ru%es ha(e 5ermitte! the forei,n an"s to set u5 %oca% su si!iaries. The 5o%icy a%so says that forei,n su si!iaries. an"s in +n!ia may not ac=uire +n!ian an"s an! their
C6APTER + PEST ANA9YSIS O1 INDIAN BANKING INDUSTRY

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+7& PO9ITICA9 AND 9EGA9 1ACTORS Go"er(me(t re.u*$tio(#'

&an"in, re,u%ations can (ary $i!e%y across nations an! 3uris!ictions. Some of the ,o(ernment re,u%ations are $ith res5ect to the fo%%o$in,I Minimum re&uirements Re=uirements are im5ose! on an"s in or!er to 5romote the o 3ecti(es of the re,u%ator. The most im5ortant minimum re=uirement in an"in, re,u%ation is maintainin, minimum ca5ita% ratios. Supervisory revie' &an"s are re=uire! to e issue! $ith a an" %icense y the re,u%ator in or!er to carry on usiness as a an"? an! the re,u%ator su5er(ises %icense! an"s for com5%iance $ith the re=uirements an! res5on!s to reaches of the re=uirements throu,h o tainin, un!erta"in,s? ,i(in, !irections? im5osin, 5ena%ties or re(o"in, the an"Os %icense. Market discipline The re,u%ator re=uires an"s to 5u %ic%y !isc%ose financia% an! other information? an!
!e5ositors an! other cre!itors are a %e to use this information to assess the %e(e% of ris" an! to ma"e in(estment !ecisions. As a resu%t of this? the an" is su 3ect to mar"et !isci5%ine an! the re,u%ator can a%so use mar"et 5ricin, information as an in!icator of the an"Os financia% hea%th. The o 3ecti(es of an" re,u%ation? an! the em5hasis? (ary et$een 3uris!ictions. The most common o 3ecti(es areI *. Pru!entia%< To re!uce the %e(e% of ris" to $hich an" cre!itors are e;5ose! 2. Systemic ris" re!uction< To re!uce the ris" of !isru5tion resu%tin, from a!(erse tra!in, con!itions for an"s causin, mu%ti5%e or ma3or an" fai%ures 2. A(oi! misuse of an"s< To re!uce the ris" of an"s ein, use! for crimina% 5ur5oses? e.,. %aun!erin, the 5rocee!s of crime .. To 5rotect an"in, confi!entia%ity 7. Cre!it a%%ocation< To !irect cre!it to fa(ore! sectors
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Mo(et$ry po*i!y'
After the crisis in *66*? sta i%i8ation $ent simu%taneous%y $ith structura% reforms. This Chan,e is in the conte;t of fun!amenta%%y a%terations in the monetary 5o%icy? $hich e,an to formu%ate macroeconomic an! 5rice sta i%ity %e(e%s. Continuous re a%ancin, et$een ,ro$th an! 5rice sta i%ity is the focus. >inancia% sta i%ity ascen!e! the hierarchy of monetary 5o%icy o 3ecti(es in mi! *66-s. A soun! monetary 5o%icy has the fo%%o$in, im5%ications on our financia% frame$or"I * +ncrease in term !e5osits / +ncrease in in!ustria% cre!it as $e%% as o(era%% cre!it 2 +ncrease in 5ro(isionin, re=uirements for stan!ar! assets of an"s etc.
1DI'
The ,%o a% an"in, in!ustry $eathere! tur u%ent times in /--4 an! /--9. The im5act of the economic s%o$!o$n on the an"in, an! insurance ser(ices sector in +n!ia has so far een mo!erate. The +n!ian financia% system has (ery %itt%e e;5osure to forei,n assets an! their !eri(ati(e 5ro!ucts an! it is this feature that is %i"e%y to 5ro(e an anti!ote to the financia% sector i%%s that ha(e 5%a,ue! many other emer,in, economies. O$in, to at %east a !eca!e of reforms? the an"in, sector in +n!ia has seen remar"a %e im5ro(ement in financia% hea%th an! in 5ro(i!in, 3o s. E(en in the $a"e of a se(ere economic !o$nturn? the an"in, sector continues to e a (ery !ominant sector of the financia% system. The a,,re,ate forei,n in(estment in a 5ri(ate an" from a%% sources is a%%o$e! to reach as much as 4.A un!er +n!ian re,u%ations.
9iber$*i#$tio('
+n the ear%y *66-s? the then Narsimha Rao ,o(ernment em ar"e! on a 5o%icy of %i era%i8ation? %icensin, a sma%% num er of 5ri(ate an"s. these came to e "no$n as new generation tech-savvy banks? an! inc%u!e! ,%o a% trust an" Fthe first of such ne$ ,eneration an"s to e set u5G? $hich %ater ama%,amate! $ith orienta% an" of commerce? a;is an"Fear%ier as :T+ an"G? +C+C+ an" an! HD>C an". This mo(e a%on, $ith the ra5i! ,ro$th in the economy of +n!ia re(o%utioni8e! the an"in, sector in +n!ia $hich has seen
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ra5i! ,ro$th $ith stron, contri ution from a%% the three sectors of
an"s? name%y?
,o(ernment an"s? 5ri(ate an"s an! forei,n an"s. The ne;t sta,e for the +n!ian an"in, has een setu5 $ith the 5ro5ose! re%a;ation in the norms for forei,n !irect in(estment? $here a%% forei,n in(estors in an"s may e ,i(en (otin, ri,hts $hich cou%! e;cee! the 5resent ca5 of *-A? at 5resent it has ,one u5 to .6A $ith some restrictions. The ne$ 5o%icy shoo" the an"in, sector in +n!ia com5%ete%y. &an"ers? ti%% this time? $ere use! to the .<1<. metho! F orro$ at .AC %en! at 1AC ,o home at .G of functionin,. The ne$ $a(e ushere! in a mo!ern out%oo" an! tech<sa((y metho!s of $or"in, for the tra!itiona% an"s. A%% this %e! to the retai% oom in +n!ia. Peo5%e not 3ust !eman!e! more from their an"s ut a%so recei(e! more. Current%y F/--4G? an"in, in +n!ia is ,enera%%y fair%y mature in terms of su55%y? 5ro!uct ran,e an! reach<e(en thou,h reach in rura% +n!ia sti%% remains a cha%%en,e for the 5ri(ate sector an! forei,n an"s. +n terms of =ua%ity of assets an! ca5ita% a!e=uacy? +n!ian an"s are consi!ere! to ha(e c%ean? stron, an! trans5arent a%ance sheets as com5are! to other an"s in com5ara %e economies in its re,ion. The reser(e an" of +n!ia is an autonomous o!y? $ith minima% 5ressure from the ,o(ernment. The state! 5o%icy of the an" on the +n!ian ru5ee is to mana,e (o%ati%ity ut $ithout any fi;e! e;chan,e rate< an! this has most%y een true. @ith the ,ro$th in the +n!ian economy e;5ecte! to e stron, for =uite some time< es5ecia%%y in its ser(ices sector<the !eman! for an"in, ser(ices? es5ecia%%y retai% an"in,? mort,a,es an! in(estment ser(ices are e;5ecte! to e stron,. +n March /--1? the reser(e an" of +n!ia a%%o$e! @ar ur, Pincus to increase its sta"e in 'ota" Mahin!ra an" Fa 5ri(ate sector an"G to *-A. This is the first time an in(estor has een a%%o$e! to ho%! more than 7A in a 5ri(ate sector an" since the R&+ announce! norms in /--7 that any sta"e e;cee!in, 7A in the 5ri(ate sector an"s $ou%! nee! to e (ote! y them. +n recent years critics ha(e char,e! that the non<,o(ernment o$ne! an"s are too a,,ressi(e in their %oan reco(ery efforts in connection $ith housin,? (ehic%e an! 5ersona% %oans. There are 5ress re5orts that the an"sO %oan reco(ery efforts ha(e !ri(en !efau%tin, orro$ers to suici!e.
Go"er(me(t po*i!y o( b$(-i(. i(du#try' (source:-the $ederal Reserve act )*)+ and the !anking act )*++,
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&an"s o5eratin, in most of the countries must conten! $ith hea(y re,u%ations? ru%es enforce! y fe!era% an! state a,encies to ,o(ern their o5erations? ser(ice offerin,s? an! the manner in $hich they ,ro$ an! e;5an! their faci%ities to etter ser(e the 5u %ic. A an"er $or"s $ithin the financia% system to 5ro(i!e %oans? acce5t !e5osits? an! 5ro(i!e other ser(ices to their customers. They must !o so $ithin a c%imate of e;tensi(e re,u%ation? !esi,ne! 5rimari%y to 5rotect the 5u %ic interests. The main reasons $hy the an"s are hea(i%y re,u%ate! are as fo%%o$sI R To 5rotect the safety of the 5u %icBs sa(in,s. R To contro% the su55%y of money an! cre!it in or!er to achie(e a nationBs roa! economic ,oa%. R To ensure e=ua% o55ortunity an! fairness in the 5u %icBs access to cre!it an! other (ita% financia% ser(ices. R To 5romote 5u %ic confi!ence in the financia% system? so that sa(in,s are ma!e s5ee!i%y an! efficient%y. R To a(oi! concentrations of financia% 5o$er in the han!s of a fe$ in!i(i!ua%s an! institutions. R Pro(i!e the ,o(ernment $ith cre!it? ta; re(enues an! other ser(ices. R To he%5 sectors of the economy that they ha(e s5ecia% cre!it nee!s for e.,. housin,? sma%% usiness an! a,ricu%tura% %oans etc.
9$F# o, b$(-i(.'
&an"in, %a$ is ase! on a contractua% ana%ysis of the re%ationshi5 et$een the bank an! customerQ!efine! as any entity for $hich the an" a,rees to con!uct an account. The %a$ im5%ies ri,hts an! o %i,ations into this re%ationshi5 as fo%%o$sI R The an" account a%ance is the financia% 5osition et$een the an" an! the customerI $hen the account is in cre!it? the an" o$es the a%ance to the customerC $hen the account is o(er!ra$n? the customer o$es the a%ance to the an". R The an" a,rees to 5ay the customerOs che=ues u5 to the amount stan!in, to the cre!it of the customerOs account? 5%us any a,ree! o(er!raft %imit.
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R The an" may not 5ay from the customerOs account $ithout a man!ate from the customer? e.,. che=ues !ra$n y the customer. R The an" a,rees to 5rom5t%y co%%ect the che=ues !e5osite! to the customerOs account as the customerOs a,ent? an! to cre!it the 5rocee!s to the customerOs account. R The an" has a ri,ht to com ine the customerOs accounts? since each account is 3ust an as5ect of the same cre!it re%ationshi5. R The an" has a %ien on che=ues !e5osite! to the customerOs account? to the e;tent that the customer is in!e te! to the an". R The an" must not !isc%ose !etai%s of transactions throu,h the customerOs accountQun%ess the customer consents? there is a 5u %ic !uty to !isc%ose? the an"Os interests re=uire it? or the %a$ !eman!s it. R The an" must not c%ose a customerOs account $ithout reasona %e notice? since che=ues are outstan!in, in the or!inary course of usiness for se(era% !ays. These im5%ie! contractua% terms may e mo!ifie! y e;5ress a,reement et$een the customer an! the an". The statutes an! re,u%ations in force $ithin a 5articu%ar 3uris!iction may a%so mo!ify the a o(e terms an!Eor create ne$ ri,hts? o %i,ations or %imitations re%e(ant to the an"<customer re%ationshi5.
Re.u*$tio(# ,or I(di$( b$(-#'

Current%y in most 3uris!ictions commercia% an"s are re,u%ate! y ,o(ernment entities an! re=uire a s5ecia% an" %icense to o5erate. :sua%%y the !efinition of the usiness of an"in, for the 5ur5oses of re,u%ation is e;ten!e! to inc%u!e acce5tance of !e5osits? e(en if they are not re5aya %e to the customerOs or!erQa%thou,h money %en!in,? y itse%f? is ,enera%%y not inc%u!e! in the !efinition. :n%i"e most other re,u%ate! in!ustries? the re,u%ator is ty5ica%%y a%so a 5artici5ant in the mar"et? i.e. a ,o(ernment<o$ne! Fcentra%G an". Centra% an"s a%so ty5ica%%y ha(e a mono5o%y on the usiness of issuin, an"notes. Ho$e(er? in some countries this is not the case. +n :'? for e;am5%e? the financia% ser(ices authority %icenses an"s? an! some commercia% an"s Fsuch as the an" of Scot%an!G issue their o$n an"notes in a!!ition to those issue! y the an" of En,%an!? the :' ,o(ernmentOs centra% an". Some ty5es of financia% institutions? such as ui%!in, societies an! cre!it unions? may e 5art%y or $ho%%y e;em5te! from an" %icense re=uirements? an! therefore re,u%ate! un!er se5arate ru%es. The re=uirements for the issue of a an" %icense (ary et$een 3uris!ictions ut ty5ica%%y inc%u!eI
39 | P a g e
R Minimum ca5ita% R Minimum ca5ita% ratio R Ofit an! 5ro5erO re=uirements for the an"Os contro%%ers? o$ners? !irectors? an!Eor senior officers R A55ro(a% of the an"Os usiness 5%an as ein, sufficient%y 5ru!ent an! 5%ausi %e.
1o!u# o( re.u*$tio(# o, Go"er(me(t'

+n!ian &an"in, is %east affecte! as com5are to other !e(e%o5e! economy $hich is attri ute! to Reser(e &an" of +n!ia for its ro ust 5o%icy frame$or"? stricter 5ru!entia% re,u%ations $ith res5ect to ca5ita% an! %i=ui!ity. This ,i(es +n!ia an a!(anta,e in terms of cre!i i%ity o(er other countries. Go(ernment affects the 5erformance of an"in, sector most y %e,is%ature an! framin, 5o%icy .,o(ernment throu,h its u!,et affects the an"in, acti(ities securiti8ation act has ,i(en more 5o$er to an"in, sector a,ainst !efau%tin, orro$ers.
Bud.et Me$#ure'
Each year an annua% u!,et is 5resente! y the >inance minister in the Par%iament. &u!,et has im5act on a%% in!ustries an! an"s are one of the most affecte! y it. Some of the ma3or announcements The >inance Ministry ha(e further increase! the farm cre!it tar,et for /--6< *- at Rs 2/7--- crore com5are! to Rs /94--- crore tar,ete! in /--9<-6. Su (ention of *A to e 5ai! as incenti(e to farmersI The &u!,et continue! the +nterest su (ention scheme for short<term cro5 %oans u5 to Rs 2----- 5er farmer at the interest rate of 4A 5er annum. A%so a!!itiona% su (ention of *A to e 5ai! from this year? as incenti(e to those farmers $ho re5ay short<term cro5 %oans on sche!u%e. A%so a!!itiona% a%%ocation of Rs .** crore o(er +nterim &u!,et /--6<*- $as ma!e for the same. De t @ai(er for >armersI The :nion &u!,et /--6<*- e;ten!e! the !e t $ai(er scheme y si; more months for farmers o$in, more than / hectare of %an!. The :nion &u!,et /--9<-6 a%%o$e! these farmers /7A re ate on %oan if they re5ay 47A of their o(er!ue $ithin sti5u%ate! 5erio! of 2-th #une /--6. Current%y this faci%ity has een e;ten!e! from 2-th #une? /--6 to 2*st Decem er? /--6. Settin, u5 of se5arate tas" force for those not co(ere! un!er the !e t $ai(er schemeI The ,o(ernment a%so announce! that it $i%% set u5 a tas" force to e;amine the issue of !e t ta"en y a %ar,e num er
40 | P a g e
of farmers in some re,ions of Maharashtra from 5ri(ate money %en!ers $ho $ere not co(ere! y the %oan $ai(er scheme announce! %ast year.
Bud.et Imp$!t o( B$(-i(. I(du#try

*. Lon,<term refinancin, from ++>CLS for infrastructure 5ro3ects $i%% ensure asset<%ia i%ity match for an"s. /. De t $ai(er an! interest su (ention schemes $i%% not ha(e much im5act on an"s. 2. Reca5ita%i8ation $i%% ensure a!e=uate ca5ita% for the ,ro$th of the 5u %ic sector an"s refinance o5eration in rura% housin, sector. 7. Ta; rea" for NPS trust $i%% ha(e 5ositi(e im5act on the same. etter
BASE9 Committee re!omme(d$tio(#'

Due to ,%o a%i8ation? an"in, sector of +n!ia has ecome (ery (ita% ? com5%e;ities in an"in, transactions ?ca5ita% re=uirement an! %i=ui!ity has een increasin, !ay y !ay . +n!ia ein, a mem er of @TO ? it is necessary for it to "ee5 its an"in, sector in 5ar $ith the internationa% stan!ar!s in terms of financia% hea%th ? safety ? trans5arency an! y a!o5tin, the &ase% ++ norms . The &ase% Committee on an"in, su5er(ision is a forum $hich maintains re,u%ar coo5eration on an"in, su5er(isory matters. +ts main 5ur5ose is to enhance un!erstan!in, of "ey su5er(isory issues an! im5ro(e the =ua%ity of the an"in, su5er(isory $or%! $i!e. This committee 5romotes common un!erstan!in, su5er(isory issues? techni=ues an! a55roaches. Nee! for these normsI
y e;chan,in, information on nationa%
The first recommen!ation $as "no$n as &ase% Accor! +? su,,este! on *699 an! $as im5%emente! y *66/? it intro!uce! the conce5t of minimum stan!ar!s of ca5ita% a!e=uacy.
Then in *666 &ase% Accor! ++ $as intro!uce! an! $as to e im5%emente! y /--1 ut unfortunate%y +n!ia cou%! not im5%ement ti%% /--6. Norms of &ase% ++ $ere intro!uce!
41 | P a g e
to o(ercome the !ra$ ac"s of &ase% + Accor!. As +n!ia is an! $i%% $itness increase in ca5ita% f%o$s from forei,n countries? it is necessary for +n!ia to 5ractice the &ase% norms. Characteristics of &ase% Accor! ++I &ase% ++ is the a!(ance! form of &ase% +. The &ase% ++ has three main features i.e.? Su5er(isory Re(ie$ an! Mar"et !isci5%ine? these are consi!ere! as the three 5i%%ars for ris" mana,ement. +. Re=uirement for Ca5ita% A!e=uacyI This states that an"s must maintain 9A of ca5ita% a!e=uacy of ris" mana,ement .+n +n!ia R&+ has man!ate! a minimum of 6A maintainin, of Ca5ita% A!e=uacy. This is 5o5u%ar%y "no$n as ca5ita% a!e=uacy re=uirement FCARG. ++. Su5er(isory re(ie$ I:n!er this &ase% ++ norms $ants to ensure that not on%y an"s shou%! ha(e a!e=uate ca5ita% to o(ercome a%% ris"s ? ut shou%! a%so !e(e%o5 etter ris" mana,ement techni=ue +++. Mar"et !isci5%ineI This instructs the an"s on man!atory !isc%osure on ca5ita% an! ris" e;5osure? so that mar"et 5artici5ants can ha(e an access to an"s ca5ita% a!e=uacy. Mana,ement o 3ecti(es? 5o%icies an! other =ua%itati(e !isc%osures can a%so e 5u %ishe!. &ase% ++ norms 5ro(i!e a (ariety of o5tions to measure ris". +t 5a(es the $ay to 5roacti(e%y contro% ris" an! maintain the ca5ita% re=uirement %o$ for the financia% institutions. &ut this re=uires of ui%!in, hu,e !ata $arehouses? crunchin, num ers an! 5erformin, com5%e; ca%cu%ations that 5oses ,reat cha%%en,e for an"s an! financia% institutions.
+7) ECONOMICA9 1ACTORS
42 | P a g e
GDP'
At the sectora% %e(e%? ro ust ,ro$th in community? socia%? an! 5ersona% ser(ices F//.7AG an! financia%? rea% estate? an! usiness ser(ices F9.2AG ena %e! the ser(ices sector to maintain hea%thy ,ro$th !es5ite the shar5 !ec%ine in tra!e? hote%? trans5ortation? an! communication ser(ices. The secon!ary sector in ,enera% an! the manufacturin, sector in 5articu%ar 5erforme! e;treme%y a!%y. +n the $a"e of a !ec%ine in !omestic an! e;5ort !eman!? the manufacturin, sector $itnesse! a mo!erate ,ro$th of -.6A? $hi%e ,ro$th in construction s%o$e! !o$n si,nificant%y from 6.4A to ../A. Ho$e(er? estimates for economic ,ro$th in the fina% =uarter of >Y/--9M/--6 Ffrom #anuary to March /--6G ha(e 5e,,e! the ,ro$th at 7.9A an! the fu%% yearOs GDP ,ro$th at 1.4A. These is shar5%y %o$er than the a(era,e GDP ,ro$th of 9.6A !urin, the 5re(ious four years Ffrom >Y/--.M/--7 to >Y/--4M/--9G an! a%so %o$er than 4.*A? $hich $as the officia% estimate announce! at the time of the interim u!,et in >e ruary /--6. The "ey =uestion is $hether the 7.9A ,ro$th in the fourth =uarter of >Y/--9M/--6 a%rea!y ref%ects a turnaroun! in the economy? $hich may e e;5ecte! to achie(e a hi,her GDP ,ro$th in >Y/--6M/-*-. +n our (ie$? this is far too o5timistic. The economy $i%% in a%% %i"e%ihoo! continue on its !o$n$ar! tren! in the first ha%f of >Y/--6M/-*- Ffrom A5ri% to Se5tem er /--6G efore it reco(ers in the secon! ha%f as the im5acts of the ,%o a% crisis on the +n!ian economy 5otentia%%y ta5er off y Octo er /--6. >or >Y/--6M/-*- $e e;5ect the GDP ,ro$th to e a out 1.-A? sti%% %o$er than 1.4A in >Y/--9M/--6. This estimate is ase! on a mo!e% of J%ea!in, economic in!icatorsL that is use! to forecast the GDP ,ro$th.
I(,*$tio('
+nf%ation is the sin,%e i,,est ris" that +n!ian an"s are facin, an! su se=uent%y %ea!in, to hi,h 5rices an! hi,h 5o(erty %e(e%s. &ecause of hi,h inf%ation? R&+ has increase! the CRR rates? $hich means $ith!ra$a% of more free f%o$ of fun!s from the an"in, sector an! their %en!in, source of fun!s come !o$n? there y 5rice rice can e contro%%e!. Natura%%y the an"s %i=ui!ity $i%% e affecte! an! they ha(e to ma"e money on%y $ith the %imite! source a(ai%a %e $ith them. No$ after this >inancia% Tsunami R&+ has re!uce! the CRR hi"e an! there y
43 | P a g e
more fun!s into the mar"et an! as"e! the an"ers to %en! more money to mutua% fun!s an! there y sa(e the fa%%in, share 5rices ecause of hea(y se%%in,.
Popu*$tio('
+ncrease in 5o5u%ation is one of he im5ortant factor? $hich affect the 5ri(ate sector an"s. &an"s $ou%! o5en their ranches after %oo"in, into the 5o5u%ation !emo,ra5hics of the area. Percenta,e of !e5osit in any ranches of an"s !e5en!s u5on the 5o5u%ation !emo,ra5hic of that area. The 5o5u%ation of +n!ia is a out *-/.6- is e;5ecte! to reach a out **6.4- cores in /-**. A out 4-A of 5o5u%ation is e%o$ 27years of a,e. They are in the 5rime earnin, sta,e an! this increase the earnin, of the an"s. Tota% De5osits mo i%i8e! y the Pri(ate Sector &an"s increase! from Rs? /?7/?227 crore as on 2*stMarch /--. to Rs. 2?*/?1.7 crore as on 2*st March /--7. De5osits sho$e! a su !ue! ,ro$th !urin, /--.<-7.+ncome !istri utions a%so affects the o5erations an! o(era%% usiness of 5ri(ate sector an"s.
Mo(et$ry Po*i!y'
R&+Bs monetary 5o%icy has ,reat im5act on the an"s. Some of the hi,h%i,hts of Monetary Po%icy /--6</-*- &an" Rate areI The &an" Rate has een retaine! unchan,e! at 1.-A. Re5o Rate +t has een re!uce! un!er the Li=ui!ity A!3ustment >aci%ity FLA>G y /7 asis 5oints from 7.-A to ..47A $ith imme!iate effect. Re(erse Re5o RateI +t has een re!uce! un!er LA> y /7 asis 5oints from 2.7A to 2./7A. R&+ has retaine! the o5tion to con!uct o(erni,ht or %on,er term re5oEre(erse re5o un!er the LA> !e5en!in, on mar"et con!itions an! other re%e(ant factors. Cash Reser(e RatioI CRR has een retaine! unchan,e! at 7.-A of NDTL.
9oF I(tere#t r$te'

Reser(e &an" of +n!ia contro%s the +nterest rate? $hich is ase! on se(era% monetary 5o%icies. Recent%y R&+ has re!uce! the interest rate $hich stimu%ates the ,ro$th rate of an"in, in!ustry. As on Se5tem er **? /--6 &an" Rate $as 1.-- 5er cent? the same as on the corres5on!in, !ate of %ast year. Ca%% money rates F orro$in, D %en!in,G $ere in the ran,e of *.7-E2..4 5er cent as com5are! $ith 7./7E**.-- 5er cent on the corres5on!in, !ate of %ast year.
44 | P a g e
S$"i(.# $(d A!!ou(t#'

+n!ia continues to remain one of the hi,h sa(in,s economies amon, the emer,in, mar"et economies. Gross Domestic Sa(in,s FGDSG of the +n!ian economy constitutes sa(in,s of 5u %ic? 5ri(ate cor5orate an! househo%! sectors. +n the recent 5erio! the hi,h ,ro$th 5erformance of the +n!ian economy is !ri(en y rise in sa(in,s !eri(in, their sustenance from it. +n the recent 5ast? the sector has recor!e! a ,ro$th of a out . 5er annum $ith su stantia% increase in 5%an a%%ocations an! ca5ita% formation in the sector. A,ricu%ture cre!it f%o$ $as Rs /? 94?--- crore in /--9<-6. The tar,et for a,ricu%ture cre!it f%o$ for the year /--6<*- is ein, set at Rs.2? /7?---crore.
+73 SOCIO CU9TURA9 1ACTORS

Socio cu%ture factors a%so affect the usiness. They sho$ in $hich 5eo5%e eha(e in country. Socio<cu%tura% factors %i"e ta oos? customs? tra!itions? tastes? 5references? uyin, an! consum5tion ha it of 5eo5%e? their %an,ua,e? e%iefs an! (a%ues affect the usiness. &an"in, in!ustry is a%so o5erates un!er this socia% en(ironment an! it is a%so affect y this factor. These factor are chan,in, continuous%y 5eo5%eBs %ife sty%e? their eha(ior? consum5tion 5attern etc. is chan,in, an! a%so creatin, o55ortunities an! threat for an"in, in!ustry. There are some socio<cu%ture factors that affect an"in, in +n!ia ha(e een ana%y8e! e%o$.
Tr$ditio($* M$%$D$( Pr$t%$'

&efore the irth of the an"s? 5eo5%e of +n!ia $ere use! to orro$ money %oca% money %en!ers? shahu"ars? shroffs. They $ere use! to char,e hi,her interest an! a%so mort,a,e %an! an! house. >armers $ere e;5%oite! y these shahu"ars. &ut farmers nee! money. So? they !i! not ha(e any choice other than ,oin, to shahu"ar an! orro$in, money from them in s5ite of e;5%oitation y these 5eo5%e. &ut after emer,ence of an"s attitu!e of 5eo5%e $as chan,e!. Tra!itiona% maha3an 5ratha sti%% e;ist in +n!ia es5ecia%%y in rura% areas. This affects the an"in, sector. Rura% 5eo5%e afrai! to ,o to an" to orro$ money instea! they 5refer to orro$ from shahu"ar $hith $hom they ha(e re%ationshi5s from the time of their fore fathers. &an"in, infrastructure is a%so $ee" in some interior areas of +n!ia. So? this is reason it sti%% e;ist.
45 | P a g e
S%i,t toF$rd# (u!*e$r ,$mi*y'

Attitu!e of 5eo5%e of +n!ia is chan,in,. No$? youn,er ,eneration $ants to remain se5arate from their 5arents after they ,et marrie!. #oint fami%ies are rea"in, u5. There are many reasons ehin! that. &ut an"in, sector is 5ositi(e%y affecte! y this tren!. A fami%y nee! home consumer !ura %es %i"e free8e? $ashin, machine? te%e(ision? i"e? car? etc.. So? they !eman! for these 5ro!ucts an! orro$ from an"s. Recent%y there is oost in housin, finance an! (ehic%e %oans. As they !o not ha(e money they ,o for insta%%ments. So? an"s satisfy nuc%ear fami%ies $ants.
C%$(.e i( *i,e #ty*eI

Life sty%e of +n!ia is chan,in, ra5i!%y. They are !eman!in, hi,h c%ass 5ro!ucts. They ha(e ecome more a!(ance!. Peo5%e $ant e(erythin, car? mo i%e? etc. @hat their forefather ha! !reame! for. No$ teena,ers a%so ha(e mo i%e an! (ehic%e. E(en mi!!%e c%ass 5eo5%e a%so $ant to ha(e $e%% furnishe! home? te%e(ision? mo i%e? (ehic%e an! this has o5ene! o55ortunities for an"in, sector to ta5 this chan,e. E(erythin, is a(ai%a %e so it has ecome easy to 5urchase anythin, if you !o not ha(e %um5 sum.
9iter$!y r$teI
Literacy rate in +n!ia is (ery %o$ com5are! to !e(e%o5e! countries. +%%iterate 5eo5%e hesitate to transact $ith an"s. So? this im5acts ne,ati(e%y on an"s. &ut there is 5ositi(e si!e of this as $e%% i.e. i%%iterate 5eo5%e trust more on an"s to !e5osit their moneyC they !o not ha(e mar"et information. O55ortunities are in stoc"s or mutua% fun!s. So? they %oo" an" as their so%e an! safe a%ternati(e.
+7+ TEC6NO9OGICA9 1ACTORS
46 | P a g e
Techno%o,y 5%ays a (ery im5ortant ro%e in an"Bs interna% contro% mechanisms as $e%% as ser(ices offere! y them. +t has in fact ,i(en ne$ !imensions to the an"s as $e%% as ser(ices that they cater to an! the an"s are enthusiastica%%y a!o5tin, ne$ techno%o,ica% inno(ations for !e(isin, ne$ 5ro!ucts an! ser(ices.
ATM ;Autom$ted Te**er M$!%i(e#<'

The %atest !e(e%o5ments in terms of techno%o,y in com5uter an! te%ecommunication ha(e encoura,e! the an"ers to chan,e the conce5t of ranch an"in, to any$here an"in,. The use of ATM an! +nternet the 3o an"in, has a%%o$e! Panytime? any$here an"in, faci%ities. Automatic (oice recor!ers no$ ans$er sim5%e =ueries? currency accountin, machines ma"es easier an! se%f<ser(ice counters are no$ encoura,e!. Cre!it car! faci%ity has encoura,e! an era of cash%ess society. To!ay MasterCar! an! )isa car! are the t$o most 5o5u%ar car!s use! $or%! o(er. The an"s ha(e no$ starte! issuin, smartcar!s or !e it car!s to e use! for ma"in, 5ayments. These are a%so ca%%e! as e%ectronic 5urse. Some of the an"s ha(e a%so starte! home an"in, throu,h te%ecommunication faci%ities an! com5uter techno%o,y y usin, termina%s insta%%e! at customers home an! they can ma"e the a%ance in=uiry? ,et the statement of accounts? ,i(e instructions for fun! transfers? etc.
IT Ser"i!e# G Mobi*e B$(-i(.'

To!ay an"s are a%so usin, SMS an! +nternet as ma3or too% of 5romotions an! ,i(in, ,reat uti%ity to its customers. >or e;am5%e SMS functions throu,h sim5%e te;t messa,es sent from your mo i%e. The messa,es are then reco,ni8e! y the an" to 5ro(i!e you $ith the re=uire! information. A%% these techno%o,ica% chan,es ha(e force! the an"ers to a!o5t customer< ase! a55roach instea! of 5ro!uct< ase! a55roach Techno%o,y a!(ancement has chan,e! the face of tra!itiona% an"in, systems. Techno%o,y a!(ancement has offer /.T4 an"in, e(en ,i(in, faster an! secure! ser(ice.
Core B$(-i(. So*utio(#'

47 | P a g e
+t is the u88$or! to!ay an! e(ery an" is tryin, to a!o5t it is the centra%i8e an"in, 5%atform throu,h $hich a an" can contro% its entire o5eration the a!o5tion of core an"in, so%ution $i%% he%5 an" to ro%% out ne$ 5ro!uct an! ser(ices.
+7/ MERGERS AND ACHUISITIONS IN BANKING SECTOR

Mer,ers an! ac=uisitions in an"in, sector ha(e ecome common 5henomena in ma3ority of the an"s a%% o(er the $or%!. A %ar,e num er of an"s may it e internationa% or !omestic are en,a,e! in mer,ers an! ac=uisition acti(ities a%% o(er the $or%!. The main o 3ecti(e ehin! the mer,ers an! ac=uisition in this sector is to attain the 5rofits of economics of sca%e. The other enefits of mer,ers an! ac=uisition in the an"in, sector are that the an"s can achie(e si,nificant ,ro$th in their o5erationa% 5rocess an! minimi8e their e;5ense to a ,reat e;tent. Another ma3or a!(anta,e ehin! the 5rocess of mer,ers an! ac=uisition is that the com5etition is re!uce! to a ,reat e;tent as it e%iminates com5etitors from the an"in, sector . Mer,ers an! ac=uisition in the +n!ian an"in, sector is nothin, ne$? as these are ,oin, on from 5re<in!e5en!ence 5erio! .>irst of them ein, &an" of &om ay ? &an" of ma!ras an! &an" of Ca%cutta to form State &an" of +n!ia . The ma3or mer,ers an! ac=uisition in +n!ia after %i era%i8ation are state! e%o$I *G P:N#A& NAT+ONAL &AN' FPN&G @+TH NE@ &AN' O> +ND+AI This mer,er $as the on%y mer,er of any nationa%i8e! an"s in +n!ia. This mer,er rou,ht the tota% num er of nationa%i8e! an"s in +n!ia to nineteen from t$enty. This ac=uisition too" 5%ace in *662? after the ac=uisition PN& $as a %e to enhance the usiness y ,reat e;tent an! to!ay it is one of the %ar,est an"s in the country.
/G +D&+ @+TH +TS O@N S:&S+D+ARY +D&+ &AN'I
48 | P a g e
Another ma3or ac=uisition in the recent years is the mer,er
et$een +D&+ F+n!ustria%
De(e%o5ment an" of +n!iaG an! its o$n su si!iary +D&+ &an". This !ea% $as !one in /--7 an! the tota% $orth of the !ea% $as N *4..1 mi%%ion or Rs. 4.1 i%%ion in +n!ian currency. 2G PN& @+TH CENT:R+ON &AN'I This mer,er resu%te! in the formation of a ne$ an" ca%%e! Centurion &an" of Pun3a ?$ith ,ross assets of aroun! Rs 6?.-- crore an! !e5osits of Rs 4?9-- crore .The ne$ an" ha! aroun! /.- ranches? 291 ATMs an! /./m customers . +n this mer,er the shareho%!ers of PN& recei(e! nine shares of centurion e(ery four shares they ha!. At 5resent there are more than 7--- em5%oyees in Centurion &an" $ith o(er .-2 ranches. Centurion &an" is %iste! in +n!ian as $e%% as Lu;em ur, Stoc" E;chan,e. +n /2r! May /--9 HD>C too" o(er Centurion &an" of Pun3a . .G &AN' O> &ARODA @+TH &AN' O> &ANARASI This mer,er too" 5%ace in /--/? after the mer,er the ranches of an" of &anaras starte! functionin, as an" of &aro!a .These an"s $ere ama%,amate! un!er the section .7 of an"in, re,u%ation act. The &an" of &aro!a ,aine! *-7 ranches across the country .&an" of &aro!a asset ase $as Rs 1/..1/ i%%ion. +n contrast? &enares State &an" ha! assets $orth Rs **.2. i%%ion. +n March /--*? its !e5osit %ia i%ity $as to the tune of Rs *-.2* i%%ion? a!(ances Rs /.2- i%%ion an! in(estments Rs 1.2* i%%ion. &enares State &an" $as the secon! :P< ase! an" to e mer,e! $ith &an" of &aro!a o(er the %ast fe$ years. T$o years a,o? &arei%%y Cor5oration &an" $as mer,e! $ith &an" of &aro!a. &enares State &an" $as a%so the thir! :P< ase! an" to e mer,e! $ith state run an"s o(er the %ast one !eca!e. The other t$o are Hin!ustan Commercia% &an" Fmer,e! $ith Pun3a 'ashinath State &an" Fmer,e! $ith State &an" of +n!iaG. These $ere the fe$ ma3or an" mer,ers an! ac=uisitions in the +n!ian an"in, sector. Nationa% &an"G an!
List of ma3or mer,ers D ac=uisition of &an"s in +n!ia
49 | P a g e
* / 2 . 7 1 4 9 6 * * *
&AN'S +D&+ Lt!. +D&+ Lt!. PN& The >e!era% &an" Orienta% &an" of Commerce &an" of &aro!a +C+C+ &an" HD>C &an" :nion &an" &arei%%y Cor5oration &an" &an" of Pun3a
MERGEDEACU:+RED +D&+ &an" :nite! @estern an" Centurion an" Ganesh &an" of 'urun!$a! G%o a% Trust &an" &anaras State &an" &an" of Ma!ura Centurion an" of Pun3a Si""im &an" &an" of &aro!a F&o&G Ne!un,a!i &an"
PER+OD / A5ri% /--7 2r! Octo er /--9 /4th Se5tem er? /--7 /7th #an /--1 *.th Au, /--. /-th #une /--/ *-th March /--* /2r! May /--9 //n! Dec *666
n!
*st A5ri% *669 *st >e /--2
C6APTER /
50 | P a g e
PORTER0S 1I5E 1ORCES MODE9 The mo!e% attem5ts to a!!ress "ey strate,ic issues in a $i!er sco5e. Many of the issues mentione! in the mo!e%? inc%u!in, the forces an! the mana,ement of those forces? are re%e(ant to the an"in, sector as $e%% as any other ser(ice<oriente! usiness. The resu%ts? $hich $i%% e o taine! y the a55%ication of this mo!e%? shou%! e ,i(en the (a%ue of the time of the ana%ysis an! that a continuous re(ie$ is necessary in or!er to a(oi! ein, myo5ic or o so%ete $ith the resu%ts. Michae% Porter 5ro(i!e! a frame$or" that mo!e%s an in!ustry as ein, inf%uence! y fi(e forces FPorter? *69-G.
+t is a mo!e% of 5ure com5etition? $hich im5%ies that ris"<a!3uste! rates of return shou%! e constant across firms an! in!ustries. Ho$e(er? numerous economic stu!ies ha(e affirme! that !ifferent in!ustries can sustain !ifferent %e(e%s of 5rofita i%ityC 5art of this !ifference is e;5%aine! y in!ustry structure. Any strate,ic usiness mana,er see"in, to !e(e%o5 an e!,e o(er ri(a% firms can use this mo!e% to etter un!erstan! the in!ustry conte;t in $hich the firm o5erates. The mana,er can then use the ana%ysis as a asic too% for strate,ic !ecision ma"in,
51 | P a g e
for the current situation or future. The
an"in, sector of +n!ia can a%so consi!er the
a55%ication of this mo!e% for some strate,ic !ecision 5rocesses. A !iscussion of each com5onent of the mo!e% is as fo%%o$sC /7& DEGREE O1 COMPETITION OR RI5A9RY +n the tra!itiona% economic mo!e%? com5etition amon, ri(a% firms !ri(es 5rofits to 8ero. Ho$e(er? com5etition is not 5erfect an! firms are not unso5histicate! 5assi(e 5rice ta"ers. Rather? firms F an"sG stri(e for a com5etiti(e a!(anta,e o(er their ri(a%s. The intensity of ri(a%ry amon, firms (aries across in!ustries? an! strate,ic ana%ysts are intereste! in these !ifferences. These !ifferences ,i(e some firms a com5etiti(e a!(anta,e $hi%e to others a !isa!(anta,e. These !ifferences a%so 5ose a cha%%en,e to the uniform a55%ication of this mo!e% across the oar!. Economists measure ri(a%ry y in!icators of in!ustry concentration. The Concentration Ratio FCRG is one of such measures. A hi,h concentration ratio in!icates that a hi,h concentration of mar"et share is he%! y the %ar,est firms < the in!ustry is concentrate!. @ith on%y a fe$ firms ho%!in, a %ar,e mar"et share? the com5etiti(e %an!sca5e is %ess com5etiti(e Fc%oser to a mono5o%yG. A %o$ concentration ratio in!icates that the in!ustry is characteri8e! y many ri(a%s? none of $hich has a si,nificant mar"et share. These fra,mente! mar"ets are sai! to e com5etiti(e. The concentration ratio is not the on%y a(ai%a %e measureC the tren! is to !efine in!ustries in terms that con(ey more information than !istri ution of mar"et share. +f ri(a%ry amon, firms in an in!ustry is %o$? the in!ustry is consi!ere! to co!e of con!uct. Ri(a%ry amon, com5etitors is (ery hi,h in +n!ian an"in, in!ustry. The ser(ice an"s offer is more of homo,eneous $hich ma"es the com5any to offer the same ser(ice at %o$er rate an! eat their com5etitorBs mar"et share. Mar"et 5%ayers use a%% sorts of a,,ressi(e se%%in, strate,ies an! acti(ities for intensi(e a!(ertisement cam5ai,ns to 5romotiona% stuff. E(en consumer can s$itch from one an" to another? if there is a $i!e s5rea! in the interest rates. The intensity of ri(a%ry is (ery hi,h. The an"in, in!ustry is hi,h%y com5etiti(e. The financia% ser(ices in!ustry has een aroun! for hun!re!s of years an! 3ust a out e(eryone $ho nee!s an"in, ser(ices a%rea!y has
52 | P a g e
e !isci5%ine!. This !isci5%ine may resu%t from the in!ustryOs history of
com5etition? the ro%e of a %ea!in, firm? or informa% com5%iance $ith a ,enera%%y un!erstoo!
them. &ecause of this? an"s must attem5t to %ure c%ients a$ay from com5etitor an"s. They !o this y offerin, %o$er financin,? 5referre! rates an! in(estment ser(ices. The an"in, sector is in a race to see $ho can offer oth the est an! fastest ser(ices? ut this a%so causes an"s to e;5erience a %o$er ROA. They then ha(e an incenti(e to ta"e on hi,h<ris" 5ro3ects. +n the %on, run? $eOre %i"e%y to see more conso%i!ation in the an"in, in!ustry. Lar,er an"s $ou%! 5refer to ta"e o(er or mer,e $ith another an" rather than s5en! the money to mar"et an! a!(ertise to 5eo5%e. Chan,in, 5rices < raisin, or %o$erin, 5rices to ,ain a tem5orary a!(anta,e. +m5ro(in, 5ro!uct !ifferentiation < im5ro(in, features? im5%ementin, inno(ations in the manufacturin, 5rocess an! in the 5ro!uct itse%f Creati(e%y usin, channe%s of !istri ution < usin, (ertica% inte,ration or usin, a !istri ution channe% that is no(e% to the in!ustry. The intensity of ri(a%ry is inf%uence! y the fo%%o$in, in!ustry characteristicsI FiG A %ar,er num er of firms increase ri(a%ry ecause more firms must com5ete for the same customers an! resources. The ri(a%ry intensifies if the firms ha(e simi%ar mar"et share? %ea!in, to a stru,,%e for mar"et %ea!ershi5 FiiG Hi,h fi;e! costs resu%t in an economy of sca%e effect that increases ri(a%ry. @hen tota% costs are most%y fi;e! costs? the firm must 5ro!uce near ca5acity to attain the %o$est unit costs. Since the firm must se%% this %ar,e =uantity of 5ro!ucts? hi,h %e(e%s of 5ro!uction %ea! to a fi,ht for mar"et share an! resu%ts in increase! ri(a%ry. FiiiG Lo$ %e(e%s of 5ro!uct !ifferentiation are associate! $ith hi,her %e(e%s of ri(a%ry. &ran! i!entification? on the other han!? ten!s to constrain ri(a%ry
/7) BARGAINING PO:ER O1 CUSTOMER
53 | P a g e
&ar,ainin, 5o$er of customer is %o$ ut cor5orate c%ients ha(e hi,h ar,ainin, 5o$er. +n!i(i!ua% uyer has %ess ar,ainin, 5o$er as s$itchin, costs are (ery hi,h &uyer information a(ai%a i%ity FH+GHGI @hen +nternet an! ser(ice. &uyer 5rice sensiti(ity FH+GHGI +nterest Rate an! ser(ice char,e is sensiti(e in!icator for customer in an" in!ustry? customer may !ue to those in!icators to !ra$ out a%% or a %ot amount of ca5ita% from an" to an"E other financia% institution. The s$itchin, cost of this action is %o$. A(ai%a i%ity of e;istin, su stitute 5ro!ucts FH+GHGI Many su stitute 5ro!uct or ser(ice 5resent in recent year? such as currency e;chan,e? insurance an! %oan. They main%y 5ro(i!e! y other financia% institution. /73 BARGAINING PO:ER O1 SUPP9IER ;9O:< The su55%iers of ca5ita% mi,ht not 5ose a i, threat? ut the threat of su55%iers %urin, a$ay human ca5ita% !oes. +f a ta%ente! in!i(i!ua% is $or"in, in a sma%%er re,iona% an"? there is the chance that 5erson $i%% e entice! a$ay y i,,er an"s? in(estment firms &an" ca5ita% su55%ier FLo$GI De5ositor a%so is ca5ita% su55%ier of an"? they $i%% com5are $ith other financia% 5ro!uct to see $hether !ra$ out ca5ita% or not. Com5uter e=ui5ment su55%ier FLo$GI The concentration ratio of com5uter is hi,h? many com5anies use +&M? ut it !oesnBt mean other com5uter com5anies are not ,oo!? such as Sun Microsystems? >u3itsu an! He$%ett<Pac" a%so 5ro(i!e simi%ar com5uter e=ui5ment an! so%ution. Cre!it Car! su55%ier FMe!iumGI Cre!it Car! in!ustry is a hi,h concentration ratio in!ustry? )+SA? Master Car! an! American E;5ress is the most 5o5u%ar cre!it car! in the $or%!. A%thou,h other or,ani8ation a%so re%ease cre!it car! system? such as #C&? there mar"et share in the $or%! is much %ess than these three or,ani8ations. Moreo(er? these three or,ani8ations ran! name is %ou!er than other or,ani8ations? so the s$itchin, cost from these or,ani8ations to others may e too %ar,e. /7+ T6REATS O1 NE: ENTRANTSI
54 | P a g e
ecomes chan,in, 5eo5%eBs %ife?
customer can easi%y o tain information throu,h +nternet? they can easi%y com5are the 5rice
The a(era,e 5erson canOt come a%on, an! start u5 a an"? ut there are ser(ices? such as internet i%% 5ayment? on $hich entre5reneurs can ca5ita%i8e. &an"s are fearfu% of ein, s=uee8e! out of the 5ayments usiness? ecause it is a ,oo! source of fee< ase! re(enue. Another tren! that 5oses a threat is com5anies offerin, other financia% ser(ices. On%y one 5ri(ate an" is ,i(en 5ermission after *66..More forei,n an"s are enterin, +n!ia as *--A >D+ is a%%o$e! there are more forei,n an"s o5eratin, in +n!ia than PS: an"s an! 5ri(ate an"s.
/7/ T6REATS O1 SUBSTITUTE PRODUCT +n PorterOs mo!e%? su stitute 5ro!ucts refer to 5ro!ucts in other in!ustry. To the economist? a threat of su stitutes e;ists $hen a 5ro!uctOs !eman! is affecte! y the 5rice chan,e of a su stitute 5ro!uct. A 5ro!uctOs 5rice e%asticity is affecte! y su stitute 5ro!ucts < as more su stitutes ecome a(ai%a %e? the !eman! ecomes more e%astic since customers ha(e more a%ternati(es. A c%ose su stitute 5ro!uct constrains the a i%ity of firms F an"sG in an in!ustry to raise 5rices. The com5etition en,en!ere! y a Threat of Su stitute comes from 5ro!ucts outsi!e the in!ustry +nternet ma"es many or,ani8ations can use sma%%er amount of money re%ati(e%y to 5ro(i!e simi%ar e(en same ser(ice? an! the ser(ice char,e ecome sma%%er. Customer $i%% !ue to con(enience? %o$ cost an! hi,h efficiency to chan,e the ser(ice to other or,ani8ation. Rea%<time money transfer Fi.e. @estern :nionG? rea%<time 5ayment Fi.e. Pay5a%G? currency e;chan,e Fi.e. Te.comG an! insurance Fi.e. +ns@e .comG? they throu,h +nternet to 5ro(i!e a hi,h =ua%ity ut %o$ ser(ice char,e ser(ice. Chances are there that non Non< an"in, finance cor5orations may offer same ty5es of ser(ices. As +n!ian an"in, is not hi,h%y 5enetrate! an! co(era,e is %o$ so the 5eo5%e in rura% +n!ia are sti%% ,oin, for 5ri(ate %en!ers. Go%! %oan money %en!ers %i"e Mannu5uram an! Muthot finance are o5eratin, $ith hi,h num er of ranches an! offerin, ,o%! %oans %ess than a minute. Micro finance com5anies %i"e S'C .etc. Com5anies offerin, %oans %i"e &a3a3 finance offerin, (ehic%e %oans? +n!ia &u%%s offerin, Home %oans .etc.
C6APTER 2
55 | P a g e
BANKS C6OSEN 1OR ANA9YSIS *. State &an" of +n!ia /. +C+C+ &an" 2. HD>C &an" 27& STATE BANK O1 INDIA +t is the %ar,est state<o$ne! an"in, an! financia% ser(ices com5any in +n!ia? y a%most e(ery 5arameter < re(enues? 5rofits? assets? mar"et ca5ita%i8ation? etc. The an" traces its ancestry to &ritish +n!ia? throu,h the +m5eria% &an" of +n!ia? to the foun!in, in *9-1 of the &an" of Ca%cutta? ma"in, it the o%!est commercia% an" in the +n!ian Su continent. The Go(ernment of +n!ia nationa%i8e! the +m5eria% &an" of +n!ia in *677? $ith the Reser(e &an" of +n!ia ta"in, a 1-A sta"e? an! rename! it the State &an" of +n!ia. +n /--9? the Go(ernment too" o(er the sta"e he%! y the Reser(e &an" of +n!ia. S&+ 5ro(i!es a ran,e of an"in, 5ro!ucts throu,h its (ast net$or" of ranches in +n!ia an! o(erseas? inc%u!in, 5ro!ucts aime! at NR+s. The State &an" Grou5? $ith o(er *1?--- ranches? has the %ar,est an"in, ranch net$or" in +n!ia. @ith an asset ase of N27/ i%%ion an! N/97 i%%ion in !e5osits? it is a re,iona% an"in, ehemoth. +t has a mar"et share amon, +n!ian commercia% an"s of a out /-A in !e5osits an! a!(ances? an! S&+ accounts for a%most one<fifth of the nationOs %oans. S&+ has trie! to re!uce o(er<staffin, y com5uteri8in, o5erations an! H,o%!en han!sha"eH schemes that %e! to a f%i,ht of its est an! ri,htest mana,ers. These mana,ers too" the retirement a%%o$ances an! then $ent on to ecome senior mana,ers in ne$ 5ri(ate sector an"s. The State an" of +n!ia is the *-th most re5ute! com5any in the $or%! accor!in, to >or es.
S%$re%o*di(. G 9iIuidity
Reser(e &an" of +n!ia is the %ar,est shareho%!er in the an" $ith 76.4A sta"e fo%%o$e! y O(erseas in(estors inc%u!in, GDRs $ith *6.49A sta"e as on Se5tem er -1. +n!ian financia% +nstitutions he%! */.2A $hi%e +n!ian 5u %ic he%! 3ust 9./A of the stoc". R&+ is the monetary authority an! ha(in, ma3ority shareho%!in, ref%ects conf%ict of interest.
56 | P a g e
-istory
The roots of the State &an" of +n!ia rest in the first !eca!e of *6th century? $hen the &an" of Ca%cutta? %ater rename! the &an" of &en,a%? $as esta %ishe! on / #une *9-1. The &an" of &en,a% an! t$o other Presi!ency an"s? name%y? the &an" of &om ay Fincor5orate! on *7 A5ri% *9.-G an! the &an" of Ma!ras Fincor5orate! on * #u%y *9.2G. A%% three Presi!ency an"s $ere incor5orate! as 3oint stoc" com5anies? an! $ere the resu%t of the roya% charters. These three an"s recei(e! the e;c%usi(e ri,ht to issue 5a5er currency in *91* $ith the Pa5er Currency Act? a ri,ht they retaine! unti% the formation of the Reser(e &an" of +n!ia. The Presi!ency an"s ama%,amate! on /4 #anuary *6/*? an! the reor,ani8e! an"in, entity too" as its name +m5eria% &an" of +n!ia. The +m5eria% &an" of +n!ia continue! to remain a 3oint stoc" com5any. Pursuant to the 5ro(isions of the State &an" of +n!ia Act F*677G? the Reser(e &an" of +n!ia? $hich is +n!iaOs centra% an"? ac=uire! a contro%%in, interest in the +m5eria% &an" of +n!ia. On 2- A5ri% *677 the +m5eria% &an" of +n!ia ecame the State &an" of +n!ia. The Go(t. of +n!ia recent%y ac=uire! the Reser(e &an" of +n!iaOs sta"e in S&+ so as to remo(e any conf%ict of interest ecause the R&+ is the countryOs an"in, re,u%atory authority. +n *676 the Go(ernment 5asse! the State &an" of +n!ia FSu si!iary &an"sG Act? ena %in, the State &an" of +n!ia to ta"e o(er ei,ht former State<associate! an"s as its su si!iaries. On *2 Se5tem er /--9? State &an" of Saurashtra? one of its Associate &an"s? mer,e! $ith State &an" of +n!ia. S&+ has ac=uire! %oca% an"s in rescues. >or instance? in *697? it ac=uire! &an" of Cochin in 'era%a? $hich ha! */- ranches. S&+ $as the ac=uirer as its affi%iate? State &an" of Tra(ancore? a%rea!y ha! an e;tensi(e net$or" in 'era%a.
57 | P a g e
an! of engal
an! of o#$a %
"#peri al an! of "ndia
State an! of "ndia
an! of &adra s
.ssociate !anks
S&+ has fi(e associate an"s that $ith S&+ constitute the State &an" Grou5. A%% use the same %o,o of a %ue "eyho%e an! a%% the associates use the HState &an" ofH name fo%%o$e! y the re,iona% hea!=uartersO name. Ori,ina%%y? the then se(en an"s that ecame the associate an"s e%on,e! to 5rince%y states unti% the ,o(ernment nationa%i8e! them et$een Octo er? *676 an! May? *61-. +n tune $ith the first >i(e Year P%an? em5hasi8in, the !e(e%o5ment of rura% +n!ia? the ,o(ernment inte,rate! these an"s into State &an" of +n!ia to e;5an! its rura% outreach. There has een a 5ro5osa% to mer,e a%% the associate an"s into S&+ to create a Hme,a an"H an! stream%ine o5erations. The first ste5 to$ar!s unification occurre! on *2 Au,ust /--9 $hen State &an" of Saurashtra mer,e! $ith State &an" of +n!ia? re!ucin, the num er of state an"s from se(en to si;. Then on *6 #une /--6 the S&+ oar! a55ro(e! the mer,er of its su si!iary? State &an" of +n!ore? $ith itse%f. S&+ ho%!s 69.2A in the an"? an! the a%ance *.44A is o$ne! y in!i(i!ua%s? $ho he%! the shares 5rior to its ta"eo(er y the ,o(ernment. The ac=uisition of State &an" of +n!ore a!!e! .4- ranches to S&+Os e;istin, net$or" of */?..9 an! o(er /*?--- ATMs. A%so? fo%%o$in, the ac=uisition? S&+Os tota% assets $i%% inch (ery c%ose to the Rs *-<%a"h crore mar". Tota% assets of S&+ an! the State &an" of +n!ore
58 | P a g e
stoo! at Rs 669?**6 crore as on March /--6. The 5rocess of mer,in, of State &an" of +n!ore $as com5%ete! y A5ri% /-*-. The associate an"s of S&+ areI

State &an" of &i"aner D #ai5ur State &an" of Hy!era a! State &an" of Mysore State &an" of Patia%a State &an" of Tra(ancore
#roup companies

S&+ Ca5ita% Mar"ets Lt! S&+ Mutua% >un! FA TrustG S&+ >actors an! Commercia% Ser(ices Lt! S&+ D>H+ Lt! S&+ Car!s an! Payment Ser(ices P(t Lt! S&+ Life +nsurance Com5any Limite! < &ancassurance FLife +nsuranceG S&+ >un!s Mana,ement P(t Lt! S&+ Cana!a
Branches of SBI

S&+ has /*--- ATMs. S&+ has /17-- ranches? inc%usi(e of ranches that e%on, to its Associate an"s. S&+ a%one has *97-- ranches. S&+ is the on%y an" consistin, /1A 5artici5ation in 5u %ic sector an"s an! 26A 5artici5ation in commercia% an"s in +n!ia.
Produ!t# o,,ered *. +n(estment an"in,

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/. Consumer an"in, 2. Commercia% an"in, .. Retai% an"in, 7. Pri(ate an"in,

1. Asset mana,ement
27) ICICI BANK Corpor$te pro,i*e

+C+C+ &an" is +n!iaOs secon!<%ar,est i%%ion F:SN 44 an" $ith tota% assets of Rs. 2?71/./9
i%%ionG at Decem er 2*? /--6 an! 5rofit after ta; Rs. 2-.*6 ranches an! a out .?992 ATMs in +n!ia an!
i%%ion F:SN 1.9.9 mi%%ionG for the nine months en!e! Decem er 2*? /--6. The &an" has a net$or" of *?117 5resence in *9 countries. +C+C+ &an" offers a $i!e ran,e of cor5orate throu,h an! its retai% customers throu,h an! s5ecia%i8e! su si!iaries an"in, 5ro!ucts an! financia% ser(ices to a (ariety in of !e%i(ery areas channe%s of an! affi%iates the in(estment
an"in,? %ife an! non<%ife insurance? (enture ca5ita% an! asset mana,ement. +C+C+ &an"Os e=uity shares are %iste! in +n!ia on &om ay Stoc" E;chan,e an! the Nationa% Recei5ts Stoc" FADRsG E;chan,e are %iste! of on +n!ia the Limite! Ne$ an! its Stoc" American E;chan,e De5ositary FNYSEG. Yor"
6i#tory o, ICICI
&E//' The +n!ustria% Cre!it an! +n(estment Cor5oration of +n!ia Limite! F+C+C+G $as incor5orate! at the initiati(e of @or%! &an"? the Go(ernment of +n!ia an! re5resentati(es of +n!ian financia% in!ustry? $ith for the o 3ecti(e 5ro(i!in, of creatin, a an! !e(e%o5ment %on,<term institution me!ium<term
5ro3ect financin, to +n!ian usinesses.
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&EE+' +C+C+ esta %ishe! &an"in, Cor5oration as a an"in, su si!iary. >ormer%y +n!ustria% Cre!it an! +n(estment Cor5oration of +n!ia. Later? +C+C+ &an"in, Cor5oration $as rename! as O+C+C+ &an" Limite!O. +C+C+ foun!e! a se5arate %e,a% entity? +C+C+ &an"? to un!erta"e norma% an"in, o5erations < ta"in, !e5osits? cre!it car!s? car %oans etc. )JJ&' +C+C+ ac=uire! &an" of Ma!ura Fest. *6.2G. &an" of Ma!ura $as a Chettiar an"? an! ha! ac=uire! Chettina! Mercanti%e &an" Fest. *622G an! +%%an3i &an" Festa %ishe! *6-.G in the *61-s. )JJ)' The &oar!s of Directors of +C+C+ an! +C+C+ &an" a55ro(e! the re(erse mer,er of +C+C+? +C+C+ Persona% >inancia% Ser(ices Limite! an! +C+C+ Ca5ita% Ser(ices Limite!? into +C+C+ &an". After recei(in, a%% necessary re,u%atory a55ro(a%s? +C+C+ inte,rate! the ,rou5Os financin, an! an"in, o5erations? oth $ho%esa%e an! retai%? into a sin,%e entity. At the same time? +C+C+ starte! its internationa% e;5ansion y o5enin, re5resentati(e offices in Ne$ Yor" an! Lon!on. +n +n!ia? +C+C+ &an" ou,ht the Shim%a an! Dar3ee%in, ranches that Stan!ar! Chartere! &an" ha! inherite! $hen it ac=uire! Grin! %ays &an". )JJ3' +C+C+ o5ene! su si!iaries in Cana!a an! the :nite! 'in,!om F:'G? an! in the :' it esta %ishe! an a%%iance $ith L%oy!s TS&. +t a%so o5ene! an Offshore &an"in, :nit FO&:G in Sin,a5ore an! re5resentati(e offices in Du ai an! Shan,hai. )JJ+' +C+C+ o5ene! a re5resentati(e office in &an,%a!esh to ta5 the e;tensi(e tra!e et$een that country? +n!ia an! South Africa. )JJ/' +C+C+ ac=uire! +n(estitsionno<'re!itny &an" F+'&G? a Russia an" $ith a out
:SN.mn in assets? hea! office in &a%a ano(o in the 'a%u,a re,ion? an! $ith a ranch in Mosco$. +C+C+ rename! the an" +C+C+ &an" Eurasia. A%so? +C+C+ esta %ishe! a ranch in Du ai +nternationa% >inancia% Centre an! in Hon, 'on,. )JJ2' +C+C+ &an" :' o5ene! a ranch in Ant$er5? in &e%,ium. +C+C+ o5ene! re5resentati(e offices in &an,"o"? #a"arta? an! 'ua%a Lum5ur. )JJ3' +C+C+ ama%,amate! San,%i &an"? $hich $as hea!=uartere! in San,%i? in Maharashtra State? an! $hich ha!*79 ranches in Maharashtra an! another 2* in 'arnata"a State. San,%i &an" ha! een foun!e! in *6*1 an! $as 5articu%ar%y stron, in rura% areas. @ith res5ect to the
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internationa% s5here? +C+C+ a%so recei(e! 5ermission from the ,o(ernment of Uatar to o5en a ranch in Doha. A%so? +C+C+ &an" Eurasia o5ene! a secon! Peters ur,. )JJ4' The :S >e!era% Reser(e 5ermitte! +C+C+ to con(ert its re5resentati(e office in Ne$ Yor" into a ranch. +C+C+ a%so esta %ishe! a ranch in >ran"furt. ranch? this time in St.
S%$re %o*di(. p$tter(

Deutsche an" trust ho%! /1.66A of shares. >++?NR+? >orei,n an"s? >orei,n com5anies? OC&Bs? forei,n nationa%s an! NR+ !irectors ho%! 26..9A of shares. +nsurance com5anies ha(e *1.1.A shares. +n!i(i!ua%s ho%! 7..9A of shares. Cor5orate o!ies ha(e ..-*A of share. Mutua% fun!s ho%! 1.97A an! an"s an! financia% institutions an! :T+ M> ha(e -.77A share.
Br$(!%e# $(d NetForThe an" has su si!iaries in the :nite! 'in,!om? Russia? an! Cana!aC ranches in :nite! States? Sin,a5ore? &ahrain? Hon, 'on,? Sri Lan"a? Uatar an! Du ai +nternationa% >inance CentreC an! re5resentati(e offices in :nite! Ara Emirates? China? South Africa? &an,%a!esh? Thai%an!? Ma%aysia an! +n!onesia. The com5anyOs :' su si!iary has esta %ishe! ranches in &e%,ium an! Germany &an" has a net$or" of /?722 ranches an! 1?9-- ATMs in +n!ia? an! has a 5resence in *6 countries? inc%u!in, +n!ia Pro!ucts offere!I *. >inance an! insurance /. Retai% an"in, 2. Commercia% an"in, .. Pri(ate an"in, 7. +n(estment an"in, 1. Asset mana,ement
62 | P a g e
&an"in, in +n!ia e,an in the year *491 $ith the esta %ishment of the Genera% &an" of +n!ia an! %ater &an" of Hin!ustan came into e;istence. Ho$e(er? these t$o an"s are not current%y functionin, in +n!ia. At 5resent? the o%!est an" in +n!ia 5osition is he%! y the State &an" of +n!ia? $hich came into e;istence in the year *9-1. No$? not on%y 5u %ic sector an"s? ut a num er of 5ri(ate sector an"s are a%so functionin, in +n!ia. The %ist of %ea!er in the an"in, sector is ,i(en e%o$I To5 ten an"s in +n!iaI R State &an" of +n!ia R HD>C &an" R A;is &an" R &an" of +n!ia R Pun3a Nationa% &an" R &an" of &aro!a R +C+C+ &an" Limite! R :nion &an" of +n!ia R Citi an" R Canara &an"
273 6OUSING DE5E9OPMENT 1INANCE CORPORATION ;6D1C<
1orm$tio( o, t%e !omp$(y

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The Housin, De(e%o5ment >inance Cor5oration Limite! FHD>CG $as amon,st the first to recei(e an Oin 5rinci5%eO a55ro(a% from the Reser(e &an" of +n!ia FR&+G to set u5 a an" in the 5ri(ate sector? as 5art of the R&+Os %i era%i8ation of the +n!ian &an"in, +n!ustry in *66.. The an" $as incor5orate! in Au,ust *66. in the name of OHD>C &an" Limite!O? $ith its re,istere! office in Mum ai? +n!ia. HD>C &an" commence! o5erations as a Sche!u%e! Commercia% &an" in #anuary *667.
Promoter
HD>C is +n!iaOs 5remier housin, finance com5any an! en3oys an im5ecca %e trac" recor! in +n!ia as $e%% as in internationa% mar"ets. Since its ince5tion in *644? the Cor5oration has maintaine! a consistent an! hea%thy ,ro$th in its o5erations to remain the mar"et %ea!er in mort,a,es. +ts outstan!in, %oan 5ortfo%io co(ers $e%% o(er a mi%%ion !$e%%in, units. HD>C has !e(e%o5e! si,nificant e;5ertise in retai% mort,a,e %oans to !ifferent mar"et se,ments an! a%so has a %ar,e cor5orate c%ient ase for its housin, re%ate! cre!it faci%ities. @ith its e;5erience in the financia% mar"ets? a stron, mar"et re5utation? %ar,e shareho%!er ase an! uni=ue consumer franchise? HD>C $as i!ea%%y 5ositione! to 5romote a an" in the +n!ian en(ironment.
Bu#i(e## ,o!u#
HD>C &an"Os mission is to e a @or%!<C%ass +n!ian &an". The o 3ecti(e is to ui%! soun! customer franchises across !istinct usinesses so as to e the 5referre! 5ro(i!er of an"in, ser(ices for tar,et retai% an! $ho%esa%e customer se,ments? an! to achie(e hea%thy ,ro$th in 5rofita i%ity? consistent $ith the an"Os ris" a55etite. The an" is committe! to maintain the hi,hest %e(e% of ethica% stan!ar!s? 5rofessiona% inte,rity? cor5orate ,o(ernance an! re,u%atory com5%iance. HD>C &an"Os usiness 5hi%oso5hy is ase! on four core (a%ues M O5erationa% E;ce%%ence? Customer >ocus? Pro!uct Lea!ershi5 an! Peo5%e.
C$pit$* #tru!ture
The authori8e! ca5ita% of HD>C &an" is Rs77- crore FRs7.7 i%%ionG. The 5ai!<u5 ca5ita% is Rs./..1 crore FRs.../ i%%ionG. The HD>C Grou5 ho%!s *6..A of the an"Os e=uity an! a out *4.1A of the e=uity is he%! y the ADS De5ository Fin res5ect of the an"Os American De5ository Shares FADSG +ssueG. Rou,h%y /9A of the e=uity is he%! y >orei,n +nstitutiona% +n(estors F>++sG an! the an" has a out 74-?--- shareho%!ers. The shares are %iste! on the Stoc" E;chan,e? Mum ai an! the Nationa% Stoc" E;chan,e. The an"Os American
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De5ository Shares are %iste! on the Ne$ Yor" Stoc" E;chan,e FNYSEG un!er the sym o% OHD&O.
Time# b$(- $m$*.$m$tio(

+n a mi%estone transaction in the +n!ian an"in, in!ustry? Times &an" Limite! Fanother ne$ 5ri(ate sector an" 5romote! y &ennett? Co%eman D Co.ETimes Grou5G $as mer,e! $ith HD>C &an" Lt!.? effecti(e >e ruary /1? /---. As 5er the scheme of ama%,amation a55ro(e! y the shareho%!ers of oth an"s an! the Reser(e &an" of +n!ia? shareho%!ers of Times &an" recei(e! * share of HD>C &an" for e(ery 7.47 shares of Times &an". The ac=uisition a!!e! si,nificant (a%ue to HD>C &an" in terms of increase! ranch net$or"? e;5an!e! ,eo,ra5hic reach? enhance! customer ase? s"i%%e! man5o$er an! the o55ortunity to cross<se%% an! %e(era,e a%ternati(e !e%i(ery channe%s.
Di#tributio( (etForHD>C &an" is hea!=uartere! in Mum ai. The &an" at 5resent has an en(ia %e net$or" of o(er *//6 ranches s5rea! o(er ... cities across +n!ia. A%% ranches are %in"e! on an on%ine rea%<time asis. Customers in o(er */- %ocations are a%so ser(ice! throu,h Te%e5hone &an"in,. The &an"Os e;5ansion 5%ans ta"e into account the nee! to ha(e a 5resence in a%% ma3or in!ustria% an! commercia% centres $here its cor5orate customers are %ocate! as $e%% as the nee! to ui%! a stron, retai% customer ase for oth !e5osits an! %oan 5ro!ucts. &ein, a c%earin,Esett%ement an" to (arious %ea!in, stoc" e;chan,es? the &an" has ranches in the centres $here the NSEE&SE has a stron, an! acti(e mem er ase. The &an" a%so has a net$or" of a out o(er /7/1 net$or"e! ATMs across these cities. Moreo(er? HD>C &an"Os ATM net$or" can e accesse! y a%% !omestic an! internationa% )isaEMasterCar!? )isa E%ectronEMaestro? P%usECirrus an! American E;5ress Cre!itEChar,e car!ho%!ers.
Te!%(o*o.y
HD>C &an" o5erates in a hi,h%y automate! en(ironment in terms of information techno%o,y an! communication systems. A%% the an"Os ranches ha(e on%ine connecti(ity? $hich ena %es the an" to offer s5ee!y fun!s transfer faci%ities to its customers. Mu%ti< ranch access is a%so 5ro(i!e! to retai% customers throu,h the ranch net$or" an! Automate! Te%%er Machines FATMsG. The &an" has ma!e su stantia% efforts an! in(estments in ac=uirin, the est techno%o,y a(ai%a %e internationa%%y? to ui%! the infrastructure for a $or%! c%ass an". The &an"Os usiness is su55orte! y sca%a %e an! ro ust systems $hich ensure that our c%ients
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a%$ays ,et the finest ser(ices $e offer. The &an" has 5rioriti8e! its en,a,ement in techno%o,y an! the internet as one of its "ey ,oa%s an! has a%rea!y ma!e si,nificant 5ro,ress in $e <ena %in, its core usinesses. +n each of its usinesses? the &an" has succee!e! in %e(era,in, its mar"et 5osition? e;5ertise an! techno%o,y to create a com5etiti(e a!(anta,e an! ui%! mar"et share.
Bu#i(e## ,o!u#
HD>C &an"Os mission is to e a @or%!<C%ass +n!ian &an". The o 3ecti(e is to ui%! soun! customer franchises across !istinct usinesses so as to e the 5referre! 5ro(i!er of an"in, ser(ices for tar,et retai% an! $ho%esa%e customer se,ments? an! to achie(e hea%thy ,ro$th in 5rofita i%ity? consistent $ith the an"Os ris" a55etite. The an" is committe! to maintain the hi,hest %e(e% of ethica% stan!ar!s? 5rofessiona% inte,rity? cor5orate ,o(ernance an! re,u%atory com5%iance. HD>C &an"Os usiness 5hi%oso5hy is ase! on four core (a%ues< O5erationa% E;ce%%ence? Customer >ocus? Pro!uct Lea!ershi5 an! Peo5%e.
Produ!t #!ope
HD>C &an" offers a unch of 5ro!ucts an! ser(ices to meet the e(ery nee! of the 5eo5%e. The com5any cares for oth? in!i(i!ua%s as $e%% as cor5orate an! sma%% an! me!ium enter5rises. >or in!i(i!ua%s? the com5any has a ran,e accounts? in(estment? an! 5ension scheme? !ifferent ty5es of %oans an! car!s that assist the customers. The customers can choose the suita %e one from a ran,e of 5ro!ucts $hich $i%% suit their %ife<sta,e an! nee!s. The 5ro!ucts of the com5any are cate,ori8e! into (arious sections $hich are as fo%%o$sI Pro!ucts offere! y HD>CI *. >inance an! insurance /. +n(estment an"in, 2. Commercia% an" .. Retai% an"in, 7. Pri(ate an"in, 1. Asset mana,ement 4. Mort,a,es
66 | P a g e
9. Cre!it car!s
Mi*e#to(e# i( t%e %i#tory

HD>C &an" e,an its o5erations in *667 $ith a sim5%e missionI to e a H@or%!<c%ass +n!ian &an"H. They rea%i8e! that on%y a sin,%e<min!e! focus on 5ro!uct =ua%ity an! ser(ice e;ce%%ence $ou%! he%5 us ,et there. To!ay? they are 5rou! to say that they are $e%% on our $as to$ar!s that ,oa%. +t is e;treme%y ,ratifyin, that their efforts to$ar!s 5ro(i!in, customer con(enience ha(e een a55reciate! oth nationa%%y an! internationa%%y.
Mer.er
HD>C &an" an! Centurion &an" of Pun3a mer,er at share s$a5 ratio of *I/6.The &oar!s of HD>C &an" an! Centurion &an" of Pun3a met on /7 >e ruary? /--9 an! a55ro(e!? su 3ect to !ue !i%i,ence? the share s$a5 ratio for the 5ro5ose! mer,er of Centurion &an" of Pun3a of Centurion &an" of Pun3a . $ith HD>C &an". The Scheme of Ama%,amation en(isa,es a share e;chan,e ratio of one share of HD>C &an" for t$enty nine shares
The com ine! entity $ou%! ha(e a nation$i!e net$or" of *?*.9 ranches Fthe %ar,est amon,st 5ri(ate sector &an"sG a stron, !e5osit ase of aroun! Rs. *?/-- i%%ion an! net a!(ances of aroun! Rs. 97- i%%ion. The a%ance sheet si8e of the com ine! entity $ou%! e o(er Rs. *?7-- i%%ion.
27+ COMPARISON O1 T6E TOP 3 BANKS O1 INDIA
Parameters
S&+
+C+C+
HD>C
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Gro$thFAG
*/6.2-
27.*9
.7./2
&ranches
**?***
/2-7
*691
ATMs
/7?---
7/*6
7.4*
Net 5rofitFRs. nG
*66
91.*1
*-.94
Tota% assetsFcrG
611?9*7.97
227?621.61
/-4?29/./9
3 1UTURE OUT9OOK
&an"in, in!ustry in +n!ia is itse%f a (ery i, in!ustry $hich has een su55orte! y its ,ro$th rate an! 5ositi(e !e(e%o5ments in the %ast !eca!e. +ts 5o%icy ma"ers $hich com5rises of Reser(e an" of +n!ia FR&+G? ministry of finance an! re%ate! ,o(ernment an! financia% sector re,u%atory entities has come u5 $ith se(era% efforts to im5ro(e the re,u%ation in the in!ustry so that the in!ustry can e stren,then. &an"in, sector are measure! on the asis of ,ro$th? 5rofita i%ity an! non 5erformin, assets FNPAsG. &an"s norma%%y focuses u5on inno(ation? ,ro$th an! (a%ue creation to increase their mar"et (a%uation. The an"in, in!e; has ,ro$n at a com5oun!e! annua% rate of o(er 7* 5ercent since A5ri% /--* as com5are! to a /4 5er cent ,ro$th in the mar"et in!e; for the same 5erio!.
Opportu(itie# $(d !%$**e(.e# i( ,uture' >uture cha%%en,es $hich has to e confronte! efore tastin, the success for the an"in, in!ustry are M >irst the mar"et is seein, the f%uctuatin, ,ro$th fo%%o$e! y ne$ 5ro!ucts an! ser(ices $hich inc%u!es o55ortunities in cre!it car!s? consumer finance an! the $ea%th mana,ement on the retai% si!e an! in fee ase! income an! in(estment an"in, on the
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$ho%esa%e
an"in, si!e. These re=uire ne$ s"i%%s in sa%es an! mar"etin,? cre!it an!
o5erations. Secon! an"s $i%% no %on,er en3oy $in!fa%% treasury ,ains that the !eca!e %on, secu%ar !ec%ine in interest rates 5ro(i!e!. That $i%% e;5ose the $ea"er an"s. Thir!? $ith increase! interest in +n!ia? com5etition from forei,n an"s $i%% on%y intensify. >ourth? ,i(en the !emo,ra5hic shifts resu%tin, from chan,es in a,e 5rofi%e an! househo%! income? consumers $i%% increasin,%y !eman! enhance! institutiona% ca5a i%ities an! ser(ice %e(e%s from an"s. The actions et$een 5o%icy an! re,u%atory inter(entions an! mana,ement strate,ies $i%% e(a%uate the sco5e an! the 5erformance of the an"in, in!ustry o(er the ne;t comin, years. These actions $i%% ha(e !ramatica%%y !ifferent outcomes the sector cou%! account for o(er 4.4 5er cent of GDP $ith o(er Rs. 4?7-- i%%ion in mar"et ca5? $hi%e at the other it cou%! account for 3ust 2.2 5er cent of GDP $ith a mar"et ca5 of Rs. /?.-- i%%ion. &an"in, sector interme!iation? as measure! y tota% %oans as a 5ercenta,e of GDP? cou%! ,ro$ mar,ina%%y from its current %e(e%s of 2- 5er cent to .7 5er cent or ,ro$ si,nificant%y to o(er *-- 5er cent of GDP. +n a%% of this? the sector cou%! ,enerate em5%oyment to the tune of *.7 mi%%ion com5are! to -.6 mi%%ion to!ay. A(ai%a i%ity of ca5ita% $ou%! e a "ey factor Q the an"in, sector $i%% re=uire as much as Rs. 1-- i%%ion F:SN *. i%%ionG in ca5ita% to fun! ,ro$th in a!(ances? non<5erformin, %oan FNPLG $rite offs an! in(estments in +T an! human ca5ita% u5 ,ra!ation to reach the hi,h<5erformin, scenario. Amen!ments in re,u%ations an! an" ca5a i%ities ha(e re!uce! interme!iation costs $hich %ea! to increase! ,ro$th? inno(ation an! 5ro!ucti(ity. &an"in, ecomes a hu,e contri utor of GDP ,ro$th an! em5%oyment an! %ar,e sections of the 5o5u%ation ,ain access to =ua%ity an"in, 5ro!ucts. >orei,n an"s are (ery much acti(e in MDA Fmer,er an! ac=uisitionsG acti(ities as they ha(e a%rea!y ou,ht some o%! 5ri(ate an"s as $e%% as ne$ 5ri(ate an"s. No$ 5u %ic an! 5ri(ate sector an"s ha(e a%so starte! $ith MDA acti(ities to increase the ,ro$th rate an! co5e u5 $ith some future re=uirements. As a resu%t? forei,n an! ne$ 5ri(ate an"s ,ro$ at rates of 7- 5er cent? $hi%e PS&s im5ro(e their ,ro$th rate to *7 5er cent. The share of the 5ri(ate sector an"s Finc%u!in, throu,h mer,ers $ith PS&sG increases to 27 5er cent an! that of forei,n an"s increases to /- 5er cent of tota% sector assets. The share of an"in, sector (a%ue a!!s in GDP increases to o(er 4.4 5er cent? from current %e(e%s of /.7 5er cent. >un!in, this !ramatic ,ro$th $i%% re=uire as much as Rs. 1-- i%%ion in ca5ita% o(er the ne;t fe$ years.
69 | P a g e
&an"in, sector in +n!ia has sti%% not come u5 to the sta,e $here it can e com5are! $ith the !e(e%o5e! mar"et so to co5e u5 it sti%% nee!s to a!o5t si,nificant chan,es in 5o%icy an! re,u%ation an! in ca5a i%ity ui%!in, measures es5ecia%%y y 5u %ic sector an! o%! 5ri(ate sector an"s. +n this 5resent scenario? ne$ 5ri(ate sector an"s is 5rimari%y fo%%o$in, the MDA acti(ities? $hich ta"e o(er some o%! 5ri(ate an"s an! a%so mer,e amon, themse%(es. As a resu%t? ,ro$th of these an"s increases to 27 5er cent. >orei,n an"s a%so ,ro$ faster at 2- 5er cent !ue to a re%a;ation of some re,u%ations. The share of 5ri(ate sector an"s increases to 2- 5er cent of tota% sector assets? from current %e(e%s of *9 5er cent? $hi%e that of forei,n an"s increases to o(er */ 5er cent of tota% assets. The share of an"in, sector (a%ue a!!s to GDP increases to o(er ..4 5er cent. To im5ro(e the 5erformance of this sector the re,u%atory entities shou%! co or!inate effort to ena %e 5ositi(e action. PS&s nee! to fun!amenta%%y stren,then institutiona% s"i%% %e(e%s es5ecia%%y in sa%es an! mar"etin,? ser(ice o5erations? ris" mana,ement an! the o(era%% or,ani8ationa% 5erformance ethic. O%! 5ri(ate sector e;amine their 5artici5ation in the +n!ian an"s a%so ha(e the nee! to fun!amenta%%y stren,then s"i%% %e(e%s. Ho$e(er? e(en more im5erati(e is their nee! to an"in, sector an! their a i%ity to remain in!e5en!ent in the %i,ht of the !iscontinuities in the sector. Ne$ 5ri(ate an"s cou%! reach the ne;t %e(e% of their ,ro$th in the +n!ian an"in, sector y continuin, to inno(ate an! !e(e%o5 !ifferentiate! usiness mo!e%s to 5rofita %y ser(e se,ments %i"e the rura%E%o$ income an! aff%uentE HN+ se,mentsC acti(e%y a!o5tin, ac=uisitions as a means to ,ro$ an! reachin, the ne;t %e(e% of 5erformance in their ser(ice 5%atforms.
Attractin,? !e(e%o5in, an! retainin, more %ea!ershi5 ca5acity $ou%!
e "ey to
achie(in, this an! $ou%! 5ose the i,,est cha%%en,e. At the same time? they shou%! stay in the ,ame for 5otentia% ac=uisition o55ortunities as an! $hen they a55ear in the near term. Maintainin, a fun!amenta%%y %on,<term (a%ue<creation min!set $i%% e their ,reatest cha%%en,e. So +n!ian an"in, sector has a (ery roa! future $ith %ot of cha%%en,es to confront off fo%%o$e! y the usefu% o55ortunities $hich can he%5 them to ,ro$ further.
70 | P a g e
4 CONC9USION
After con!uctin, the research for the re5ort it $as foun! that the financia% sector reforms im5%emente! y the ,o(ernment of +n!ia in ear%y *66-s ha! a 5ositi(e im5act on the an"in, sector of the country. The ,o(ernment ,i(in, 5ermission to the forei,n an"s to $or" free%y im5ro(e! the o(era%% $or"in, cu%ture of the an"in, sector. This com5%ete%y chan,e! the scenario of the +n!ian &an"in, +n!ustry. The sector $hich $as once !ominate! y Pu %ic Sector &an"s has o5en u5 an! ecome a %e(e% 5%ayin, fie%!. Customers in +n!ia to!ay ha(e a %ar,e num er of o5tions efore them an! they can se%ect the est an"in, o5tion accor!in, to the ser(ice that they offer an! the =ua%ity of ser(ice. +t $as a%so foun! out that mer,ers an! ac=uisition that $ere ma!e in the an"in, sector contri ute! to the inor,anic ,ro$th of the res5ecti(e an"s an! he%5e! the an"s to e;5an! their usiness an! ta"e it o the ne;t %e(e%. +tBs not an"s to!ay are ,ro$in, in one !imension. &an"s ha(e ta"en the 5ath of !i(ersification since they ha(e rea%i8e! that in or!er to "ee5 ,ro$in, re%yin, on one ser(ice $onBt e a ,oo! o5tion. To!ay an"s !o more than 3ust o5enin, accounts or %en!in, money. Pension >un!s? Genera% +nsurance? Custo!ia% Ser(ices? Pri(ate E=uity? Mo i%e &an"in,? Point of Sa%e? Mer,ers an! Ac=uisition? A!(isory Ser(ices? Structure! Pro!ucts are some ma3or
71 | P a g e
ser(ices $hich are offere! y an"s. &an"s are the ac" one of any economy an! in +n!ia it is no !ifferent? +n!ian economy no$ is a ser(ice oriente! economy an! an"in, is ma3or 5art of it. The economic crisis $hich hit the $or%! in /--9 !i!nBt ha(e a ma3or im5act on the +n!ian &an"in, in!ustry. The system sur(i(e! the tur u%ent times $hich sa$ some of the i,,est an"s ,oin, an"ru5t? main%y !ue to 5o%icy frame$or" %ai! y the ,o(ernment an! 5ro5er re,u%ation !one y Reser(e &an" of +n!ia. &ut the cha%%en,es are sti%% not o(er $ith many economies aroun! the $or%! sti%% in !e5ression? +n!ia nee! to maintain its stron, foun!ation of the an"in, sector.
Techno%o,y has chan,e! ho$ 5eo5%e %i(e their %ife an! an"in, has not remaine! untouche!. The mo!ern an"in, structure is com5%ete%y !i,iti8e! an! ,one are the !ays of 5a5er. Techno%o,y has ena %e! an"s to mo(e eyon! con(entiona% frame$or" an! 5ro(i!e a host of ne$ ser(ices. Techno%o,y has ma!e an"in, efficient an! con(enient for the common man. +n!iaBs rura% 5o5u%ation is sti%% untouche! y the ma3or an"in, ser(ices an! this 5ro(i!es a ,reat 5otentia% of ,ro$th for a%% the an"s.
RE1ERENCES
1.
Re!!y? Y.). F/--/GI Pu %ic Sector &an"s an! the Go(ernance Cha%%en,eI +n!ian E;5erience? inI R&+ &u%%etin? May? 55. 224<271. +CRA F/--.GI The +n!ian &an"in, +n!ustry? Ne$ De%hi. Shirai? Sayuri F/--/ GI Roa! from State to Mar"et M Assessin, the Gra!ua% A55roach to &an"in, Sector Reforms in +n!ia? inI Asian De(e%o5ment &an" +nstitute Research Pa5er? No. 2/? 55. *<42.
2. 3.
4.
Arun? T.G.E Turner? #.D. F/--/aGI >inancia% %i era%isation in +n!ia? inI #ourna% of +nternationa% &an"in, Re,u%ation? . F/G? 55. *92<*99 Ganesan? P. F/--2GI +m5act of Priority Sector A!(ances on Profita i%ity of Pu %ic Sector &an"s in +n!ia? inI #ourna% of >inancia% Mana,ement an! Ana%ysis? *1 F/G? 55. *.</4
5.
6.
&hi!e? M. G.E Prasa!? A.E Ghosh? Sai a% F/--*GI Emer,in, Cha%%en,es in +n!ian &an"in,? inI @or"in, Pa5er Stanfor! :ni(ersity? No. *-2? 55. *< 1*.
72 | P a g e
7.
Hanson? #ames A. F/--*GI +n!ian &an"in,I Mar"et Li era%i8ation an! the Pressures for +nstitutiona% an! Mar"et >rame$or" Reform? inI @or"in, Pa5er Stanfor! :ni(ersity? No. *-.? 55. *<24.
8.
#oshi? )i3ayE Litt%e? +.M.D F*664GI +n!iaBs Economic Reforms *66*< /--*? De%hi et a%. 'um ha"ar? Su a% C.ESar"ar? Su rata F/--2GI Dere,u%ation? O$nershi5? an! Pro!ucti(ity Gro$th in the &an"in, +n!ustryI E(i!ence from +n!ia? inI #ourna% of Money? &an"in,? an! Cre!it? 27 F2G? 55. .-2< ./..
9.
10.
Mu"her3i? #oy!ee5 F/--/GI +n!iaBs Lon, March to Ca5ita%ism? inI +n!ia Re(ie$? * F/G? 55. /6<1-.
73 | P a g e

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RESEARCH METHODOLOGY REPORT ON INDIAN BANKING INDUSTRY

Submitted to Prof. Ramanna Shetty Associate Professor

A hishe" #ais$a% Anir an &hattacharyya 'arthi" &o%%ineni Pa(an 'umar )aishna(i P

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

C6APTER & INTRODUCTION

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

&7) NEED 1OR T6E RESEARC6

&73 OB8ECTI5E O1 T6E RESEARC6

INDIAN BANKING INDUSTRIES

C6APTER ) G9OBA9 SCENARIO )7& O5ER5IE:

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

)7) MA8OR P9AYERS IN G9OBA9 BANKING INDUSTRY

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

Si>e US? tri**io( **./9 /.9

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INDIAN BANKING INDUSTRIES

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&an" of +ta%y &an" of Cana!a

Reser(e an" of +n!ia

INDIAN BANKING INDUSTRIES

C6APTER 3 INDIAN SCENARIO 37& O5ER5IE:

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

i%%? an! it recei(e! the

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

37/ MA8OR P9AYERS IN INDIAN BANKING INDUSTRY

INDIAN BANKING INDUSTRIES

INDIAN BANKING INDUSTRIES

Mar"et share of a!(ances

een a mar"et out

INDIAN BANKING INDUSTRIES

y forei,n in(estors. The com5any $hich

INDIAN BANKING INDUSTRIES

372 RURA9 BANKING IN INDIA

INDIAN BANKING INDUSTRIES

373 URBAN BANKING IN INDIA

INDIAN BANKING INDUSTRIES

374 PRI5ATE MONEY 9ENDERS IN INDIA

INDIAN BANKING INDUSTRIES

37E INTERNATIONA9 EXPOSURE

INDIAN BANKING INDUSTRIES

C6APTER + PEST ANA9YSIS O1 INDIAN BANKING INDUSTRY

INDIAN BANKING INDUSTRIES

+7& PO9ITICA9 AND 9EGA9 1ACTORS Go"er(me(t re.u*$tio(#'

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