APROJECTREPORTON

MERGERSANDACQISI
TIONSI
NBANKSECTORININDIAWI
TH
SPECI
ALREFERNCEOFSTATEBANKOFINDI
A
SUBMI
TTEDBY

CHAVANOMKARRAJARAM ANI
TA

T.
Y.BBISEM-
V

(
2017-
2018)

Pr
ojectsubmit
tedto“Univer
sit
yOfMumbai
”inpart
ial
fulfi
l
mentf ort
he
AwardofBachel
or’
sDegreei
nB.
Com(Banki
ng&I nsurance)

UNDERTHEGUI
DANCEOF

MR.NI
TINAGARWAL

AFFI
LIATEDTOUNI
VERSI
TYOFMUMBAI

GURUKULCOLLEGEOFCOMMERCE

GHATKOPAR(
E),
MUMBAI400077.
OCTOBER2017
 CERTI
FICATE

Thi
sist
ocer
ti
fyt
hatCHAVAN OMKAR RAJARAM ANI
TA st
udentof
Gur
ukulCol
l
egeofCommer
cest
udy
ingi
nTYBBIbear
ingRol
lNo.10has
successf
ull
y compl
eted t
he pr
ojectent
it
led “ MERGERS AND
ACQUI
SITI
ON I
N BANK SECTOR I
NINDI
A WI
TH THE
SPECI
ALREFERNACEOFSTATEBANKOFI
NDI
A”aspar
t
ofassi
gnment
sundermysuper
visi
ondur
ingt
heacademi
cyear2017–
2018.

Ext
ernal
Signat
ure. Mr
.NI
TINAGARWAL

Mr
.Ni
ti
nAgar
wal
Dr.Nandi
taRoy
Co-
ordi
nat
or (
Princi
pal
)
 DECLARATI
ON

I
,CHAVANOMKARRAJARAM ANI
TAst
udentofT.
Y.B.
B.I(2017-2018)of
Gur
ukul
Col
legeofCommer
ce,
Mumbai
-400077doherebydeclarethatI
hav
ecompl
etedt
hePr
ojectWor
kti
tl MERGERSAND
ed“
ACQUI
SITI
ONSINBANKSECTORINI
NDIAWITHTHE
SPECI
ALREFRANCEOFSTATEBANKOFINDI
A.”asapar
t
ofmyacademi
cful
fi
ll
ment
.

TheI
nfor
mat
ioncont
ainedi
nthi
spr
ojectwor
kist
rueandor
igi
nalt
othe
bestofmyknowl
edgeandbel
i
ef.

_
___
___
___
___
___
___
_

Si
gnat
ureofst
udent

Dat
e:
 ACKNOWLEDGEMENT

Iwi
sht
oexpr
essmysi
ncer
eandhear
tfel
tthankst
omygui
deMr
.NI
TIN
AGARWALf
orhi
s/hersuper
visi
ont
hroughoutt
hepr
ojectwor
k.

It
hankMr
.Ni
ti
nAgar
wal
,BBICo-
ordi
nat
orf
orencour
agementandhel
p
t
ocompl
etet
hispr
ojectwor
k.

It
aket
hisoppor
tuni
tyt
oexpr
essmydeepsenseofgr
ati
tudet
oDr
.
Nandi
taRoy
(
Pri
nci
pal
),Gur
ukul
Col
l
egeofCommer
ce,
Ghat
koper(
E)f
orhav
ing
t
akent
hei
nit
iat
ivet
ost
artt
hepr
ojectwor
k.
Ial
so t
hankMr
sSeemaSar
af,Li
brar
ianf
orhersuppor
tinf
indi
ng
r
efer
encebooks,
jour
nal
sandot
hermat
eri
als

Fi
nal
l
y,Iwi
sht
oexpr
essmyhear
tfel
tgr
ati
tudet
omybel
ovedpar
ent
s
andal
lmyf
ri
endsf
ort
hei
rencour
agementandsuppor
tincompl
eti
ng
t
hispr
ojectwor
k.Abov
eal
lIt
hankLor
dAl
might
yforabundantmer
cies
andi
nfi
nit
egr
acewhi
chshoweduponmet
ocompl
etet
hispr
ojectwor
k.

_
___
___
___
___
___
___

Si
gnat
ureoft
heSt
udent
 CONTENTS
SR.
NO. TOPI
C PAGE
NO.

1. I
ntr
oduct
ionOfI
ndi
anBanki
ngSect
or 1-25

2. Rev
iewOfLi
ter
atur
e 26-34

3. Obj
ect
iveOfPr
oject 35

4. I
ntr
oduct
ionOfMer
ger
sAndAcqui
sit
ion 36-39

5. Pur
poseOfMer
ger
sAndAcqui
sit
ion 40-48

6. Pr
ocedur
eOfBankMer
ger
sAndAcqui
sit
ion 49-52

7. Ri
skI
nBankMer
ger
sAndAcqui
sit
ion 53-54

8. Chal
lengesAndOppor
tuni
ti
esI
nIndi
anBanki
ng 55-
59
Sect
or

9. Concl
usi
on 60

10. Bi
bloghr
aphy 61-62
 1.I
NTRODUCTI
ONOFI
NDI
ANBANKI
NGSECTOR

Banki
ngi
nIndi
aor
igi
nat
edi
nthel
astdecadesoft
he18t
hcent
ury
.Theol
destbanki
n
exi
stencei
nIndi
aist
heSt
ateBankofI
ndi
a,agov
ernment
-ownedbankt
hatt
racesi
ts
or
igi
nsbackt
oJune1806andt
hati
sthel
argestcommer
cialbanki
nthecount
ry.
Cent
ralbanki
ngi
sther
esponsi
bil
i
tyoft
heReser
veBankofI
ndi
a,whi
chi
n1935
f
ormal
l
ytook ov
ert
hese r
esponsi
bil
i
ties f
rom t
he t
hen I
mper
ialBank ofI
ndi
a,
r
elegat
ingi
ttocommer
cialbanki
ngf
unct
ions.Af
terI
ndi
a'
sindependencei
n1947,t
he
Reser
veBankwasnat
ional
i
zedandgi
venbr
oaderpower
s.I
n1969t
hegov
ernment
nat
ional
i
zedt
he14l
argestcommer
cialbanks;t
hegov
ernmentnat
ional
i
zedt
hesi
x
nex
tlar
gesti
n1980.(
Ahl
uwal
i
a,2002)

Cur
rent
ly,I
ndi
ahas96schedul
edcommer
cialbanks(
SCBs)-27publ
i
csect
orbanks
(
thati
swi
tht
heGov
ernmentofI
ndi
ahol
dingast
ake)
,31pr
ivat
ebanks(
thesedonot
hav
egov
ernmentst
ake;t
heymaybepubl
i
clyl
i
stedandt
radedonst
ockexchanges)
and38f
orei
gnbanks.Theyhav
eacombi
nednet
wor
kofov
er53,
000br
anchesand
17,
000ATMs.
Accor
dingt
oar
epor
tbyI
CRALi
mit
ed,ar
ati
ngagency
,thepubl
i
csect
orbankshol
d
ov
er75per
centoft
otalasset
soft
hebanki
ngi
ndust
ry,wi
tht
hepr
ivat
eandf
orei
gn
bankshol
ding18.
2%and6.
5%r
espect
ivel
y
I
nthesef
ivedecadessi
ncei
ndependence,banki
ngi
nIndi
ahasev
olv
edt
hroughf
our
di
sti
nctphases:

Foundat
ionphasecanbeconsi
der
edt
ocov
er1950sand1960st
il
lthenat
ional
i
zat
ion
ofbanksi
n1969.Thef
ocusdur
ingt
hisper
iodwast
olayt
hef
oundat
ionf
orasound
banki
ngsy
stem i
nthecount
ry.

1
Asar
esul
tthephasewi
tnessedt
hedev
elopmentofnecessar
ylegi
sl
ati
vef
ramewor
k
f
orf
aci
l
itat
ingr
e-or
gani
zat
ionandconsol
i
dat
ionoft
hebanki
ngsy
stem,f
ormeet
ing
t
her
equi
rementofI
ndi
aneconomy
.A maj
ordev
elopmentwast
ransf
ormat
ionof
I
mper
ialBankofI
ndi
aint
oSt
ateBankofI
ndi
ain1955andnat
ional
i
zat
ionof14maj
or
pr
ivat
ebanksdur
ing1969.Si
mil
arl
ydur
ing1956-
59,asar
esul
tofr
e-or
gani
sat
ionof
pr
incel
ySt
ates,t
heassoci
atebankscamei
ntof
oldofpubl
i
csect
orbanki
ng.Anot
her
ev
aluat
ionoft
hebanki
ngi
nIndi
awasunder
takendur
ing1966ast
hepr
ivat
ebanks
wer
est
il
lnotext
endi
ngt
her
equi
redsuppor
tint
hef
orm ofcr
edi
tdi
sbur
sal
,mor
e
par
ti
cul
arl
ytot
heunor
gani
sedsect
or.Eachl
eadi
ngi
ndust
ri
alhousei
nthecount
ryat
t
hatt
imewascl
osel
yassoci
atedwi
tht
hepr
omot
ionandcont
rolofoneormor
e
banki
ng compani
es.The bul
koft
he deposi
tscol
l
ect
ed,wer
e bei
ng depl
oyed i
n
or
gani
sed sect
orsofi
ndust
ryand t
rade,whi
l
ethe f
armer
s,smal
lent
repr
eneur
s,
t
ranspor
ter
s,pr
ofessi
onal
sandsel
f-
empl
oyedhadt
odependonmoneyl
ender
swho
usedt
oexpl
oitt
hem bychar
ginghi
gheri
nter
estr
ates.

I
nFebr
uar
y1966,
aSchemeofSoci
alCont
rolwasset
-upwhosemai
nfunct
ionwast
o
per
iodi
cal
l
yassesst
hedemandf
orbankcr
edi
tfr
om v
ari
oussect
orsoft
heeconomy
t
odet
ermi
net
hepr
ior
it
iesf
orgr
antofl
oansandadv
ancessoast
oensur
eopt
imum
and ef
fi
cientut
il
isat
ion ofr
esour
ces.The scheme howev
er,di
d notpr
ovi
de any
r
emedy
.Thoughano.ofbr
ancheswer
eopenedi
nrur
alar
eabutt
hel
endi
ngact
ivi
ti
es
oft
hepr
ivat
ebankswer
enotor
ient
edt
owar
dsmeet
ingt
hecr
edi
trequi
rement
soft
he
pr
ior
it
y/weakersect
ors.(
Mohan,
2013)

2
OnJul
y19,
1969,
theGov
t.pr
omul
gat
edBanki
ngCompani
es(
Acqui
si
ti
onandTr
ansf
er
ofUnder
taki
ngs)Or
dinance1969t
oacqui
re14bi
ggercommer
cialbankwi
thpai
dup
capi
talofRs.
28.
50cr
,deposi
tsofRs.
2629cr
,loansofRs.
1813crandwi
th4134
br
anchesaccount
ingf
or80%ofadv
ances.Subsequent
lyi
n1980,6mor
ebankswer
e
nat
ional
i
zedwhi
chbr
ought91% oft
hedeposi
tsand84% oft
headv
ancesi
nPubl
i
c
Sect
orBanki
ng.Dur
ingDecember1969,
RBIi
ntr
oducedt
heLeadBankSchemeont
he
r
ecommendat
ionsofFKNar
imanCommi
tt
ee.

I
nthe post
-nat
ional
i
zat
ion per
iod,t
her
e was subst
ant
iali
ncr
ease i
nthe no.of
br
anchesopenedi
nrur
al/
semi
-ur
bancent
re‟
sbr
ingi
ngdownt
hepopul
ati
onperbank
br
ancht
o12000appx.Dur
ing1976,
RRBswer
eest
abl
i
shed(
ont
her
ecommendat
ions
ofM.Nar
asi
mham Commi
tt
eer
epor
t)undert
hesponsor
shi
pandsuppor
tofpubl
i
c
sect
orbanksast
he3r
dcomponentofmul
ti
-agencycr
edi
tsy
stem f
oragr
icul
tur
eand
r
ural
dev
elopment
.TheSer
viceAr
eaAppr
oachwasi
ntr
oduceddur
ing1989.

3
OBJECTI
VEOFBANKS

Dev
elopmentBanksar
ethosef
inanci
ali
nst
it
uti
onst
hatpr
ovi
def
undsandf
inanci
al
assi
stancet
onew andupcomi
ngbusi
nessent
erpr
ises.Dev
elopmentbankhel
psi
n
Accor
dingt
oWi
l
li
anDi
amond,"
dev
elopmentbanki
saf
inanci
ali
nst
it
uti
ont
opr
omot
e
andf
inanceent
erpr
isesi
npr
ivat
esect
or.
"Dev
elopmentbanksl
i
keI
DBI
,SI
DBI
,andI
FCI
et
c.wer
esetupt
omeetl
ongt
erm andshor
tter
m capi
tal
requi
rement
soft
hei
ndust
ry.
Dev
elopmentbanks coor
dinat
ethe act
ivi
ti
es oft
hose i
nst
it
uti
ons,engaged i
n
f
inanci
ng,pr
omot
inganddev
elopi
ngi
ndust
ri
es.Theyhel
pinaccel
erat
ingi
ndust
ri
al
andeconomi
cgr
owt
h.

Thef
oll
owi
ngar
etheobj
ect
ivesofdev
elopmentbanks:

1.Rapi
dIndust
ri
algr
owt
h:

I
ndust
ri
alsect
ori
sthedy
nami
csect
oroft
heI
ndi
aneconomy
.Thi
ssect
orcont
ri
but
es
t
othegener
ati
onofempl
oymentandi
ncomei
nthecount
ry.Fundsar
epr
ovi
dedbyt
he
dev
elopmentbankst
ost
artanewbusi
nessv
ent
ure,expansi
onanddi
ver
sif
icat
ionof
t
hebusi
nessi
nnewsect
oret
c.

These f
unds ar
e ut
il
ised t
o achi
eve sev
eralobj
ect
ives t
hatl
eads t
o accel
erat
e
i
ndust
ri
esandeconomi
cgr
owt
h.Dev
elopmentbanki
ngsuppor
tst
hepr
ogr
ammesof
i
ndust
ri
ali
sat
ionoft
hecount
ry,
bypr
omot
ingent
repr
eneur
ial
act
ivi
ti
es.

2.Encour
agi
ngent
repr
eneur
s:

I
ndust
ri
ali
sat
ion hel
ps i
n cur
bing economi
c and soci
alpr
obl
ems t
her
ebymaki
ng
economi
espr
ogr
ess.Emer
gingent
repr
eneur
sar
eencour
agedt
ogi
veshapet
othei
r
i
deas. Dev
elopment bank hel
ps t
hose ent
repr
eneur
s by pr
ovi
ding f
unds f
or
commenci
ngnewbusi
ness.

4
Gov
ernmenthas r
ecogni
sed t
he i
mpor
tance ofent
repr
eneur
sint
he i
ndust
ri
al
dev
elopmentandt
huspr
ovi
dingnumberoff
aci
l
iti
esandi
ncent
ivest
omot
ivat
ethem
f
orunder
taki
ngi
ndust
ri
alpr
oject
s.

3.Bal
ancedr
egi
onal
dev
elopment
:

Ther
ehasbeenal
way
sani
ssuer
elat
edt
oregi
onaldi
spar
it
ies.Dev
elopmentbank
hel
psi
ncur
bingt
heser
egi
onaldi
spar
it
iesbypr
ovi
dingf
undst
otheent
repr
eneur
sat
l
ow r
ateofi
nter
esti
ftheor
gani
sat
ioni
spl
annedi
nthebackwar
dar
eas.Thi
swoul
d
l
eadt
othedev
elopmentofal
lar
east
her
ebymaki
ngbal
ancedr
egi
onal
dev
elopment
.

4.Fi
l
li
nggaps:

I
tisnotpossi
blef
ort
hecommer
cialbankst
oful
fi
llal
lfi
nanci
alneedsofal
lthe
cust
omer
s.Absenceofor
gani
sedcapi
talmar
ket
,absenceofadequat
efaci
l
iti
esf
or
f
inanci
ngi
ndust
ri
esar
iset
hepr
obl
em ofsl
owdev
elopmentofi
ndust
ri
ali
sat
ion.Such
dev
elopmentbankscan f
ulf
il
lthecr
edi
tgap.Theypr
ovi
del
ong-t
erm f
undsf
or
i
ndust
ri
eswher
egest
ati
onper
iodmaybel
onger
.

5.Hel
psgov
ernment
:

Gov
ernmentf
ormul
atesf
inanci
alpol
i
cieswi
tht
hehel
pofdev
elopmentbanks.They
al
sohel
pini
mpl
ement
ingt
hesepol
i
cies.Forexampl
e,NABARDbanki
ssetupasan
apex dev
elopmentbank f
orext
endi
ng suppor
ttot
he r
uralar
eas.I
thel
ps t
he
gov
ernmenti
nmat
ter
srel
ati
ngt
other
uraldev
elopment
,of
fer
str
aini
ngandr
esear
ch
f
aci
l
iti
esf
orbankswor
kingi
nthef
iel
dofr
uraldev
elopment
,andact
sasar
egul
ator
f
orco-
oper
ati
vebanksandRRB'
s.

5
TYPESOFBANKI
NG:

Banki
ngi
sdef
inedast
heaccept
ingpur
poseofl
endi
ngori
nvest
mentofdeposi
ts,
moneyf
rom t
hepubl
i
c,r
epay
abl
eondemand orot
her
wiseand wi
thdr
awabl
eby
cheque,
draf
t,or
derorot
her
wise—t
hisdef
ini
ti
oni
sgi
veni
nIndi
anBanki
ngRegul
ati
on
Act(
1949)
.Fr
om t
hisdef
ini
ti
on,
wecansayt
hatabankhast
womai
nfeat
ures:(
1)t
he
bankaccept
sdeposi
tsofmoneywhi
char
ewi
thdr
awabl
ebycheques,(
2)t
hebank
usest
hedeposi
tsf
orl
endi
ng.Tober
ecogni
sedasbankt
hei
nst
it
uti
onmustuset
he
deposi
tst
ogi
vel
oanst
othegener
alpubl
i
c.

I
fani
nst
it
uti
onaccept
sdeposi
tswi
thdr
awabl
ebychequesbutusest
hedeposi
tsf
or
i
tsownpur
pose,
suchani
nst
it
uti
oncannotber
egar
dedasabank.Postof
fi
ce,
sav
ings
banksar
enotbanks,becauset
heyacceptchequabl
edeposi
tsbutdonotsanct
ion
l
oans.I
nthesameway
.Li
eisnotbankbecausei
tdoesnotgr
antl
oansi
ngener
al.LI
TI,
non-banki
ngf
inanci
ali
nst
it
uti
onsasLI
C,I
DBIet
c.ar
eregar
dedast
het
heydonot
cr
eat
emoney
.

(
a)Or
gani
zedandunor
gani
zedbanki
ng:

I
ndi
anbanki
ngsy
stem canbr
oadl
ybecl
assi
fi
edi
ntot
wocat
egor
ies:

(
i)Or
gani
zedbanki
ngand

(
ii
)Unor
gani
zedbanki
ng.

Thatpar
tofI
ndi
anbanki
ngsy
stem whi
chdoesnotf
allundert
hecont
rolofourcent
ral
bank(
i.
e.Reser
veBankofI
ndi
a)i
scal
l
edasun-
organi
sedbanki
ng.Forexampl
e,
I
ndi
genousbanks.Wher
eas,
organi
zedbanki
ngsy
stem r
efer
stot
hatpar
toft
heI
ndi
an
banki
ngsy
stem whi
chi
sundert
hei
nfl
uenceandcont
roloft
heReser
veBankofI
ndi
a.
Forexampl
e.Commer
cial
Banks,
Indust
ri
alBanks,
Agr
icul
tur
alBanks.

6
(
b)Schedul
edandNon-
schedul
edbanks:

Undert
heReser
veBankofI
ndi
aAct
,1939,bankswer
ecl
assi
fi
edasschedul
edbanks
andnonschedul
edbanks.
.Theschedul
edbanksar
ethosewhi
char
eent
eredi
nthe
secondschedul
eofRBIAct
,1939.Schedul
edbanksar
ethosebanksanwhi
chhav
ea
pai
dupcapi
talandr
eser
vesofaggr
egat
eval
ueofnotl
esst
hanRs5l
akhsandwhi
ch
sat
isf
yRBI
.

Al
lCommer
cialBanks,Regi
onalRur
alBanks,St
ateCooper
ati
veBanksar
eschedul
ed
banks.Ont
heot
herhand,non-
schedul
ebanksar
ethosebankswhoset
otalpai
dup
capi
tali
slesst
hanRs5l
akhandRBIhasnospeci
fi
ccont
rolov
ert
hesebanks.These
banksar
enoti
ncl
udedi
nthesecondschedul
eofRBIAct
,1934.

(
c)I
ndi
genousBanker
s:

Fr
om v
eryanci
entday
sindi
genousbanki
ngasdi
ff
erentf
rom t
hemoder
nwest
ern
banki
nghasbeenor
gani
zedi
nthef
orm off
ami
l
yori
ndi
vi
dualbusi
ness.Theyhav
e
beencal
l
edbyv
ari
ousnamesi
ndi
ff
erentpar
tsoft
hecount
ryasShr
off
s,Set
hus,
Sahukar
s,Mahaj
ans,Chet
ti
sandsoon.Theyv
aryi
nthei
rsi
zef
rom pet
tymoney
l
ender
ssubst
ant
ial
Shr
off
s.

(
d)Cent
ral
Bank:

I
neachcount
ryt
her
eexi
stscent
ralbankwhi
chcont
rol
sacount
ry’
smoneysuppl
yand
monet
arypol
i
cy.I
tact
sasabankt
oot
herbanks,andal
enderofl
astr
esor
t.I
ndi
a
Reser
veBankofI
ndi
a(RBI
)ist
heCent
ral
Bank.

7
(
e)Commer
cial
Bank:

Abankdeal
i
ngwi
thgener
alpubl
i
c,accept
ingdeposi
tsf
rom maki
ngl
oanst
olar
ge
number
sofhousehol
dsandf
ir
ms.Thr
ought
hepr
ocessofaccept
ingdeposi
tsand
l
endi
ng,
commer
cialbankscr
eat
ecr
edi
tint
heeconomy
.Someexampl
es(
commer
cial
banksi
nIndi
aar
eSt
ateBankI
ndi
a(SBI
),Punj
abNat
ional
Bank(
PNB)et
c

(
f)Dev
elopmentBanks:

Dev
elopmentbanks ar
e speci
ali
sed f
inanci
ali
nst
it
uti
ons.To pr
omot
e economi
c
dev
elopment
,dev
elopmentbankspr
ovi
demedi
um t
erm and l
ong t
erm l
oanst
he
ent
repr
eneur
satr
elat
ivel
ylow r
ateoi
nter
estr
ates.Someexampl
esofdev
elopment
banksi
nIndi
aar
eIndust
ri
alDev
elopmentBankofI
ndi
a(I
DBI
),I
ndust
ri
alFi
nanci
al
Cor
por
ati
onofI
ndi
a(I
FCI
),I
ndust
ri
alCr
edi
tandI
nvest
mentCor
por
ati
onofI
ndi
a(I
CICI
)
et
c.

(
g)Co-
Oper
ati
veBanks:

Co-
oper
ati
vebanksar
eor
gani
sedundert
hepr
ovi
si
onsoft
heCo-oper
ati
vesoci
eti
es
l
aw oft
hest
ate.Thesebankswer
eor
igi
nal
l
ysetupi
nIndi
atopr
ovi
decr
edi
ttot
he
f
armer
satcheaperr
ates.Howev
er,t
heco-
oper
ati
vebanksf
unct
ional
soi
ntheur
ban
sect
ors.

(
h)LandMor
tgageBanks:

Thepr
imar
yobj
ect
iveoft
hesebanksi
stopr
ovi
del
ong-
ter
mloanst
ofar
mer
satl
ow
r
atesi
nmat
ter
srel
atedt
oland,
Thel
andmor
tgagebanksar
eal
soknownast
heLand
Dev
elopmentBanks.

8
(
i)Regi
onal
Rur
alBanks:

Regi
onalRur
alBanks(
RRBs)ar
eest
abl
i
shedi
nther
uralar
east
omeett
heneedsof
t
heweakersect
ionoft
her
ural
popul
ati
on.

(
j)Nat
ional
Bankf
orAgr
icul
tur
alandRur
alDev
elopment(
NABARD)
:

Thi
sbankwasest
abl
i
shedi
n1982i
nIndi
ainv
iewofpr
ovi
dingt
her
uralcr
edi
ttot
he
f
armer
s. 
Act
ual
l
y,i
tis an apex i
nst
it
uti
on whi
ch coor
dinat
es t
he f
unct
ioni
ng of
di
ff
erentf
inanci
ali
nst
it
uti
onswor
kingi
nthef
iel
dofr
uralcr
edi
t.NABARDhasbeen
maki
ngcont
inuousef
for
tst
hroughi
tsmi
cro-
fi
nancepr
ogr
ammeori
mpr
ovi
ngt
he
accessoft
her
uralpoort
ofor
mali
nst
it
uti
onalcr
edi
t.Thesel
fhel
pgr
oup(
SHG)–
Bankl
i
nkagepr
ogr
ammewasi
ntr
oducedi
n1992asamechani
sm t
opr
ovi
def
inanci
al
ser
vicest
other
ural
poorpeopl
eonasust
ainabl
ebasi
s.

(
k)ExchangeBanks:

Thesebanksar
eengagedi
nbuy
ingandsel
l
ingf
orei
gnexchange.Thesebankshel
p
t
hegr
owt
hofi
nter
nat
ional
trade.

(
i)Exi
m Bank:

I
tispopul
arl
yknownas‘
Expor
tImpor
tBank’
.Suchbankspr
ovi
del
ongt
ermf
inanci
al
assi
stancet
otheexpor
ter
sandi
mpor
ter
s.

9
CHALLENGESOFBANKS
Rest
ri
cti
vei
ndust
ri
all
i
censi
ng pol
i
cies hav
e been al
mostcompl
etel
yrev
ersed,
al
thought
hei
rconsequencesst
il
lli
nger(
mostnot
abl
yint
heweakper
for
manceof
I
ndi
anmanuf
act
uri
ng)
.Butbanknat
ional
i
sat
ionendur
esasami
l
lst
onear
oundt
he
I
ndi
aneconomy
,agr
imr
emi
nderandl
egacyofI
ndi
raGandhi
'
spol
i
cies.

Undoi
ngt
hisl
egacymaywel
ltur
noutt
obeoneoft
hemostcr
it
icalt
asksf
ort
he
Reser
veBankofI
ndi
a'
s(RBI
'
s)cur
rentgov
ernor
,Raghur
am Raj
an.Thepr
obl
em i
sso
i
ntr
act
abl
eandsoembeddedi
nIndi
anpol
i
ticst
hatonl
yhecan,
andcanaf
for
dto,
take
ont
hechal
l
enge.
Ont
hef
aceofi
t,t
hatt
askhasbegun.The 
RBI
 wi
l
lsoonbeawar
ding
newbanki
ng 
l
icences 
toal
l
owf
oragr
eat
err
olef
orpr
ivat
esect
orbanks.Butt
hismay
notbeenoughConsi
derwhy
.

Si
nce1991,anov
erar
chi
ngpr
inci
plef
orel
i
minat
ingi
nef
fi
ci
encyi
nvastpar
tsoft
he
economyhasbeent
his:t
opr
omot
ecompet
it
ionv
iapr
ivat
esect
orent
ryr
athert
han
changeowner
shi
pthr
oughpr
ivat
isat
ion.Thi
sappr
oachhadsomei
ntr
insi
cmer
it-af
ter
al
l
,Russi
awentf
rom communi
sm t
o gangst
eri
sm becausei
tsol
d publ
i
casset
s
cheapl
ytoaf
ewol
i
gar
chs.

Mor
eimpor
tant
ly,t
heent
ry-
fav
our
ingappr
oachhadt
hev
irt
ueofpol
i
ticalexpedi
ency
.
Pr
ivat
izi
ngpubl
i
csect
or 
compani
eswoul
dhav
eencount
eredsi
gni
fi
cantopposi
ti
on
f
rom t
hei
rmanager
saswel
lasf
rom st
ronguni
ons.Al
l
owi
ngpr
ivat
esect
orcompani
es
t
oent
ert
he 
MARKETwi
thoutt
ouchi
ngt
hepubl
i
csect
ori
ncumbent
sby
passedsome
oft
hesecost
sandal
l
owedr
efor
mtopr
oceedbyst
eal
th.

10
Thel
ogi
candhope,ofcour
se,wer
ethatav
ibr
antpr
ivat
esect
orwoul
dgr
ow r
api
dly
whi
l
ethepubl
i
csect
orwoul
dshr
ink,
atl
easti
nrel
ati
vet
erms.
Andt
hest
rat
egybr
oadl
ywor
ked.Yes,
 
AirI
ndi
a i
sst
il
lamessandapubl
i
cbur
den,
but
t
heI
ndi
an av
iat
ion and t
elecommuni
cat
ion sect
orsoft
odayar
emer
cif
ull
y-and
unr
ecogni
sabl
y-di
ff
erentf
rom whatt
heywer
e20y
ear
sago,wi
thenor
mousbenef
it
s
f
ort
heI
ndi
aneconomy
.

Publ
i
csect
orcompani
esnow accountf
orasmal
lshar
eoft
heov
eral
lsi
zeoft
hese
sect
ors.
Thi
sent
ry-
fav
our
ingst
rat
egywast
ri
edi
nbanki
ngt
oo.Si
ncet
heear
ly1990s,
a
numberofnewbanki
ngl
i
cenceswer
egi
vent
othepr
ivat
esect
or-t
hinkofI
CICI
,HDFC,
Axi
sBank,Kot
akMahi
ndr
a,YesBank,andsoon.Yet
,theshar
eof
 publ
i
csect
or
banks 
i
ntot
albanki
ng(
measur
edasashar
eofasset
sordeposi
ts)hasst
ubbor
nly
per
sist
edar
ound75percent
.Andt
her
easoni
ssi
mpl
e.Thepr
ivat
ebankshav
egr
own,
butt
hepubl
i
csect
orbankshav
egr
ownt
oobecauseI
ndi
a'
spol
i
tici
anshav
eusedt
hem
asawayt
ochannel
 
MONEY 
topr
ivat
esect
oroper
ator
s-of
tenv
eryi
nfl
uent
ialones.
Thecr
edi
tboom oft
he2000s,
whi
chi
snowmani
fest
ingi
tsel
finr
isi
ngnon-
per
for
ming
l
oans,emanat
edmost
lyi
nthepubl
i
csect
or.
 Vi
j
ayMal
l
ya 
didnotbor
rowf
rom pr
ivat
e
banks;hewasenabl
edi
ntobor
rowi
ngf
rom,andunder
mini
ng,t
hepubl
i
cones.So,
goi
ngf
orwar
dthef
actofmor
epr
ivat
ebanksi
snoguar
ant
eeofr
educi
ngt
her
oleof
publ
i
csect
orBank.

Thi
swi
l
lbeespeci
all
ytr
uei
fthenewbanksar
eencumber
edwi
thr
egul
ati
onssuchas
pr
ior
it
ysect
orl
endi
ng,
whi
chr
est
ri
ctst
hei
rabi
l
ityt
ogr
ow.So,
asnewbanki
ngl
i
cences
ar
eawar
ded,

11
t
heai
m shoul
dbet
oti
l
tthepl
ayi
ngf
iel
dasmuchaspossi
bleagai
nstt
hepubl
i
c
sect
ori
ncumbent
sinwhosef
avourt
hepl
ayi
ngf
iel
disal
readyhugel
yti
l
tedbywayof
unl
i
mit
ed 
FINANCI
AL 
suppor
tfr
om t
hepubl
i
cexchequer
.
Onepossi
bil
i
tyr
elat
est
ofor
eignbanks.I
tist
ruet
hatt
hewor
ldov
er-andespeci
all
yin
t
heUni
tedSt
ates-r
egul
ator
sar
efor
cingf
orei
gnbankst
ocr
eat
esubsi
diar
ies
i
n host
 count
ri
essot
hatt
heywi
l
lhav
emor
ecapi
tal
tocushi
onagai
nstcr
ises.Buti
n
I
ndi
athebenef
it
sofsubsi
diar
isat
ionmustbewei
ghedagai
nstt
hecost
sofdet
err
ing
f
orei
gnbankent
ry,
whi
chmi
ghthav
eot
herbenef
it
ssuchasbei
ngabl
etoef
fect
ivel
y
compet
eandout
-compet
epubl
i
csect
orbanks.

Whatcanbedonemor
edi
rect
lyt
oreducet
her
oleofpubl
i
csect
orbanks?Because
suchbanksar
eimpor
tantl
ever
sofpol
i
ticalcont
rolandi
nfl
uence,andbecausebank
uni
onsr
emai
npower
ful
,expl
i
cit
 pr
ivat
isat
ion 
seemsof
fthet
abl
e.Butt
her
eisan
i
ndi
rectwayofpr
ivat
isi
ngt
hem,oratl
eastbegi
nni
ngt
hepr
ocessofpr
ivat
isat
ion,
whi
cht
heRBIshoul
dsei
ze.Andt
heoppor
tuni
ti
escoul
dpr
esentt
hemsel
vessoon.

Asgr
owt
hdecl
i
nesandexposest
hef
ragi
l
ityofsomeoft
hepubl
i
cbanksi
nthef
orm
ofr
isi
ngnon-
per
for
ming 
l
oans,
theRBIshoul
dbebr
utal
ini
tsassessmentoft
hem,
er
ri
ngont
hesi
deofdecl
ari
ngsomebanksasunv
iabl
ecommer
cial
inst
it
uti
ons.The
gov
ernmentwi
l
lwantt
obai
loutt
hef
ail
i
ngbankst
hroughf
reshcapi
tal
inf
usi
ons.

Buther
eiswher
etheRBIshoul
dst
andf
ir
m,ur
gingt
hegov
ernmentt
olett
hem go,
on
t
hegr
oundst
hataf
ragi
l
eeconomycanaf
for
dnei
thert
hef
iscalcost
sofbai
l
out
snor
t
heef
fi
ciencycost
sofbadbankscont
inui
ng

12
t
obepr
olongedonl
i
fesuppor
t.Thewor
set
heeconomy
,themor
ethebar
gai
ning
chi
psDrRaj
anwi
l
lhav
e.Andheshoul
duset
hem t
oresol
vet
hebadpubl
i
cbanks,i
n
par
tbyt
ransf
err
ingt
hei
rgoodpar
tst
othepr
ivat
esect
or.
Thi
sst
rat
egymay
 sound 
dif
fi
cul
ttoi
mpl
ement
. 
Indeed,
itwi
l
lbe.Buti
tist
heonl
yway
f
orwar
d.Thepastt
wodecadeshav
etaughtust
hatpr
ivat
ebankscannotr
eal
l
ygr
ow
unl
essandunt
ilpubl
i
csect
orbanksar
eshr
unk.Thatshr
inki
ngmayhav
eto be
achi
evedbyal
l
owi
ngt
hebadpubl
i
csect
orbankst
ofai
lbecausepol
i
ticswi
l
lnev
er
al
l
owgoodpubl
i
csect
orbankst
obepr
ivat
ised.I
twasf
amousl
ysai
dthati
nsci
ence
pr
ogr
essi
smadeonef
uner
alatat
ime.Unf
ort
unat
ely
,thatmaybet
heonl
yreal
i
sti
c
wayofr
efor
mingI
ndi
anbanki
ngt
oo.(
Mohan,
2013)
.

13
I
MPORATANCEOFBANK
Banki
ngpl
aysani
mpor
tantr
olei
nthef
inanci
all
i
feofabusi
ness,andt
hei
mpor
tance
ofbankscanbeseenf
rom t
hef
actt
hatt
heyar
econsi
der
edast
obet
hel
i
fe-
bloodof
moder
neconomy
.Al
thoughnoweal
thi
scr
eat
edbyBank,
butt
hei
ressent
ialact
ivi
ti
es
f
aci
l
itat
est
hepr
ocessofpr
oduct
ion,exchangeanddi
str
ibut
ionofweal
th.I
nthi
sway
t
heybecomet
heef
fect
ivepar
tner
sint
hepr
ocessofeconomi
cdev
elopmentand
gr
owt
h.I
nthe wor
ds of
 St
ephenson & Br
it
ain 
“Banks ar
ethe cust
odi
ans and
di
str
ibut
ionofl
i
qui
dcapi
tal
,whi
chi
sthel
i
fe-
bloodofourcommer
cialandi
ndust
ri
al
act
ivi
ti
esandupont
hepr
udenceoft
hei
radmi
nist
rat
iondependt
heeconomi
cwel
l
-
bei
ngoft
henat
ion”
.

1.Col
l
ect
ionsofSav
ingsandAdv
anci
ngLoans

Accept
anceofdeposi
tandadv
anci
ngt
hel
oansi
sthebasi
cfunct
ionofcommer
cial
banks.On t
hisf
unct
ion,al
lot
herf
unct
ions depend accor
dingl
y.Bank oper
ates
di
ff
erentt
ypesofaccount
sfort
hei
rcust
omer
s.

2. MoneyTr
ansf
er

Bankshav
efaci
l
itat
edt
hemaki
ngofpay
ment
sfr
om onepl
aceorper
sonst
oanot
her
bymeansofcheques,bi
l
lofexchangeanddr
aft
s,i
nst
eadofcash.Pay
mentt
hough
cheques,dr
afti
smor
esaf
eandconv
eni
ent
,especi
all
yincaseofhugepay
ment
s,t
his
f
aci
l
ityi
sagr
eathel
pfort
rader
sandbusi
nessmen.I
treal
l
yenhancest
hei
mpor
tance
ofbanksf
orbusi
nesscommuni
ty.

14
3. Encour
agesSav
ings

Banksper
for
m ani
nval
uabl
eser
vicebyencour
agi
ngsav
ingsamongt
hepeopl
e.They
i
nducet
hem t
osav
eforpr
ofi
tabl
einv
est
mentf
ort
hemsel
vesandf
ornat
ionali
nter
est
.
Thesesav
ingshel
pincapi
tal
for
mat
ion.

4. Tr
ansf
erSav
ingsi
ntoI
nvest
ment

Bankt
ransf
ert
hesav
ingscol
l
ect
edf
rom t
hepeopl
eint
oinv
est
mentandt
husi
ncr
ease
t
heamountofef
fect
ivecapi
tal
,whi
chhel
pst
hepr
ocessofeconomi
cgr
owt
h.

5. Ov
erdr
aftFaci
l
iti
es

Thebanksal
l
owt
heov
erdr
aftf
aci
l
iti
est
othei
rtr
ust
edcust
omer
sandt
hushel
pthem
i
nov
ercomi
ngoft
empor
aryf
inanci
aldi
ff
icul
ti
es.

6. Di
scount
ingBi
l
lofExchange

I
mpor
tanceofbankscanbeseent
hrought
hef
aci
l
ityofdi
scount
ingbi
l
lofexchange.
Banksdi
scountt
hei
rbi
l
lofexchangeofconsumer
sandhel
pthem i
nthef
inanci
al
di
ff
icul
ti
es.Bydi
scount
ingbi
l
lofexchange,t
heyabl
etogett
hedesi
reamountf
or
i
nvest
mentt
heywant
.

7. Fi
nanci
ngI
nter
nal
&Ext
ernal
Trade

Banks hel
p mer
chant
s and t
rader
sinf
inanci
ng i
nter
naland ext
ernalt
rade by
di
scount
ingf
orei
gnbi
l
lofexchange,
issui
ngofl
ett
erofcr
edi
tandot
herguar
ant
eesf
or
t
hei
rcust
omer
s.

15
8. ActasanAgent

Thebankactasaagentandhel
pthei
rcust
omer
sint
hepur
chaseandsal
esofshar
es,
pr
ovi
sionofl
ocker
spay
mentofmont
hlyanddi
vi
dendsonst
ock.

9. I
ssueofTr
avel
er’
sCheques

Fort
heconv
eni
enceandsecur
it
yofmoneyf
ort
rav
eler
sandt
our
ist
s,bankpr
ovi
des
t
hef
aci
l
ityoft
rav
eler
’scheques.Thesechequesenabl
ethet
rav
eler
sandt
our
ist
sto
meett
hei
rexpensesdur
ingt
hei
rjour
ney
,ast
hesear
eaccept
edbyi
ssui
ngbanker
s,
r
est
aur
ant
s,andot
herbusi
nessmenbot
hathomeandabr
oad.Nodoubt
,thi
sisal
so
oneoft
hegr
eatf
unct
ionsofbanksandshowst
hei
mpor
tanceofbanksf
orusi
nmor
e
pr
eci
seway
s.

16
FUNCTI
ONSOFBANKS
Pr
imar
yFunct
ionsofBanks:
Thepr
imar
yfunct
ionsofabankar
eal
soknownasbanki
ngf
unct
ions.Theyar
ethe
mai
nfunct
ionsofabank.

Accept
ingDeposi
ts:Thebankcol
l
ect
sdeposi
tsf
rom t
hepubl
i
c.Thesedeposi
tscan
beofdi
ff
erentt
ypes,
suchas
a. Sav
ingDeposi
ts
b. Fi
xedDeposi
ts
c. Cur
rentDeposi
ts
d.r
ecur
ri
ngDeposi
ts

a)SAVI
NGDEPOSI
TS
Thi
sty
peofdeposi
tsencour
agessav
inghabi
tamongt
hepubl
i
c.Ther
ateofi
nter
esti
s
l
ow.Atpr
esenti
tisabout4% p.
a.Wi
thdr
awal
sofdeposi
tsar
eal
l
owedsubj
ectt
o
cer
tai
nrest
ri
cti
ons.Thi
saccounti
ssui
tabl
etosal
aryandwageear
ner
s.Thi
saccount
canbeopenedi
nsi
ngl
enameori
njoi
ntnames.
b)FI
XEDDEPOSI
TS
Lumpsum amounti
sdeposi
tedatonet
imef
oraspeci
fi
cper
iod.Hi
gherr
ateof
i
nter
esti
spai
d,whi
chv
ari
eswi
tht
heper
iodofdeposi
t.Wi
thdr
awal
sar
enotal
l
owed
bef
oret
heexpi
ryoft
heper
iod.Thosewhohav
esur
plusf
undsgof
orf
ixeddeposi
t.

c)CURRENTDEPOSI
TS
Thi
sty
peofaccounti
soper
atedbybusi
nessmen.Wi
thdr
awal
sar
efr
eel
yal
l
owed.No
i
nter
esti
spai
d.I
nfact
,ther
ear
eser
vicechar
ges.Theaccounthol
der
scangett
he
benef
itofov
erdr
aftf
aci
l
ity
.

17
d)RECURRI
NGDEPOSI
TS
Thi
sty
peofaccounti
soper
atedbysal
ari
edper
sonsandpet
tyt
rader
s.Acer
tai
nsum
ofmoneyi
sper
iodi
cal
l
ydeposi
tedi
ntot
hebank.Wi
thdr
awal
sar
eper
mit
tedonl
yaf
ter
t
heexpi
ryofcer
tai
nper
iod.Ahi
gherr
ateofi
nter
esti
spai
d.

GRANTI
NGOFLOANSANDADVANCES:
Thebankadv
ancesl
oanst
othebusi
nesscommuni
tyandot
hermember
soft
he
publ
i
c.Ther
atechar
gedi
shi
ghert
hanwhati
tpay
sondeposi
ts.Thedi
ff
erencei
nthe
i
nter
estr
ates(
lendi
ngr
ateandt
hedeposi
trat
e)i
sit
spr
ofi
t.

Thet
ypesofbankl
oansandadv
ancesar
e:-
a. Ov
erdr
aft
b. CashCr
edi
ts
c. Loans
d. Di
scount
ingofBi
l
lofExchange

a)OVERDRAFT
Thi
sty
peofadv
ancesi
sgi
vent
ocur
rentaccounthol
der
s.Nosepar
ateaccounti
s
mai
ntai
ned.Al
lent
ri
es ar
e made i
nthe cur
rentaccount
.A cer
tai
n amounti
s
sanct
ionedasov
erdr
aft
swhi
chcanbewi
thdr
awnwi
thi
nacer
tai
nper
iodoft
imesay
t
hreemont
hsorso.I
nter
esti
schar
gedonact
ualamountwi
thdr
awn.Anov
erdr
aft
f
aci
l
ityi
sgr
ant
edagai
nstacol
l
ater
alsecur
it
y.I
tissanct
ionedt
obusi
nessmanand
f
ir
ms.

18
b)CASHCREDI
TS
Thecl
i
enti
sal
l
owedcashcr
edi
tupt
oaspeci
fi
cli
mitf
ixedi
nadv
ance.I
tcanbegi
ven
t
ocur
rentaccounthol
der
saswel
last
oot
her
swhodonothav
eanaccountwi
thbank.
Separ
ate cash cr
edi
taccounti
s mai
ntai
ned.I
nter
esti
s char
ged on t
he amount
wi
thdr
awni
nexcessofl
i
mit
.Thecashcr
edi
tisgi
venagai
nstt
hesecur
it
yoft
angi
ble
asset
sand/orguar
ant
ees.Theadv
ancei
sgi
venf
oral
ongerper
iodandal
arger
amountofl
oani
ssanct
ionedt
hant
hatofov
erdr
aft
.

c)LOANS
I
tisnor
mal
l
yforshor
tter
m sayaper
iodofoney
earormedi
um t
erm sayaper
iodof
f
ivey
ear
s.Now-
a-day
s,banksdol
endmoneyf
orl
ongt
erm.Repay
mentofmoneycan
bei
nthef
orm ofi
nst
all
ment
sspr
eadov
eraper
iodoft
imeori
nal
umpsum amount
.
I
nter
esti
schar
gedont
heact
ualamountsanct
ioned,whet
herwi
thdr
awnornot
.The
r
ateofi
nter
estmaybesl
i
ght
lyl
owert
hanwhati
schar
gedonov
erdr
aft
sandcash
cr
edi
ts.Loansar
enor
mal
l
ysecur
edagai
nstt
angi
bleasset
soft
hecompany
.
d)DI
SCOUNTI
NGOFBI
LLOFEXCHANGE
Thebankcanadv
ancemoneybydi
scount
ingorbypur
chasi
ngbi
l
lsofexchangebot
h
domest
icand f
orei
gnbi
l
ls.Thebankpay
sthebi
l
lamountt
othedr
awerort
he
benef
ici
aryoft
hebi
l
lbydeduct
ingusualdi
scountchar
ges.Onmat
uri
ty,t
hebi
l
lis
pr
esent
edt
othedr
aweeoraccept
oroft
hebi
l
landt
heamounti
scol
l
ect
ed.

19
SECONDARYFUNCTI
ONSOFBANKS:
Thebankper
for
msanumberofsecondar
yfunct
ions,al
socal
l
edasnon-
banki
ng
f
unct
ions.
AGENCYFUNCTI
ONS:Thebankact
sasanagentofi
tscust
omer
s.Thebankper
for
ms
anumberofagencyf
unct
ionswhi
chi
ncl
udes:
-
a. Tr
ansf
erofFunds
b. Col
l
ect
ionofCheques
c. Per
iodi
cPay
ment
s
d. Por
tfol
i
oManagement
e. Per
iodi
cCol
l
ect
ions
f
. Ot
herAgencyFunct
ions

a)TRANSFEROFFUNDS
Thebankt
ransf
erf
undsf
rom onebr
ancht
oanot
herorf
rom onepl
acet
oanot
her
.

b)COLLECTI
ONOFCHEQUES
Thebankcol
l
ect
sthemoneyoft
hechequest
hroughcl
ear
ingsect
ionofi
tscust
omer
s.
Thebankal
socol
l
ect
smoneyoft
hebi
l
lsofexchange.

c)PERI
ODI
CPAYMENTS
On st
andEt
tyi
ng i
nst
ruct
ionsoft
hecl
i
ent
,thebankmakesper
iodi
cpay
ment
sin
r
espectofel
ect
ri
cit
ybi
l
ls,
rent
,et
c.

d)PORTFOLI
OMANAGEMENT
Thebanksal
sounder
taket
opur
chaseandsel
ltheshar
esanddebent
uresonbehal
fof
t
hecl
i
ent
sandaccor
dingl
ydebi
tsorcr
edi
tst
heaccount
.

20
Thi
sfaci
l
ityi
scal
l
edpor
tfol
i
omanagement
.
e)PERI
ODI
CCOLLECTI
ONS
Thebankcol
l
ect
ssal
ary
,pensi
on,di
vi
dendandsuchot
herper
iodi
ccol
l
ect
ionson
behal
foft
hecl
i
ent
.

f
)OTHERAGENCYFUNCTI
ONS
Theyactast
rust
ees,execut
ors,adv
iser
sandadmi
nist
rat
orsonbehal
fofi
tscl
i
ent
s.
Theyactasr
epr
esent
ati
vesofcl
i
ent
stodeal
wit
hot
herbanksandi
nst
it
uti
ons.

GENERALUTI
LITYFUNCTI
ONS:Thebankal
soper
for
msgener
alut
il
it
yfunct
ions,
such
as:
-

a. I
ssueofDr
aft
s,Let
terofCr
edi
ts,
etc.
b. LockerFaci
l
ity
c. Under
wri
ti
ngofShar
es
d. Deal
i
ngi
nFor
eignExchange
e. Pr
ojectRepor
ts
f
. Soci
alWel
far
ePr
ogr
ammer
s

a)I
SSUEOFDRAFTSANDLETTEROFCREDI
TS
Banksi
ssuedr
aft
sfort
ransf
err
ingmoneyf
rom onepl
acet
oanot
her
.Ital
soi
ssues
l
ett
erofcr
edi
t,especi
all
yincaseof
,impor
ttr
ade.I
tal
soi
ssuest
rav
ell
ers'
cheques.

21
b)LOCKERFACI
LITY
Thebankpr
ovi
desal
ockerf
aci
l
ityf
ort
hesaf
ecust
odyofv
aluabl
edocument
s,gol
d
or
nament
sandot
herv
aluabl
es.

c)UNDERWRI
TINGOFSHARES
Thebankunder
wri
tesshar
esanddebent
urest
hroughi
tsmer
chantbanki
ngdi
vi
si
on.

d)DEALI
NGI
NFOREI
GNEXCHANGE
Thecommer
cial
banksar
eal
l
owedbyRBIt
odeal
inf
orei
gnexchange.

e)PROJECTREPORTS
Thebankmayal
sounder
taket
opr
epar
epr
ojectr
epor
tsonbehal
fofi
tscl
i
ent
s.

f
)SOCI
ALWELFAREPROGRAMMES
I
tunder
takessoci
alwel
far
epr
ogr
ams,
suchasadul
tli
ter
acypr
ogr
ams,
publ
i
cwel
far
e
campai
gns,
etc.

22
E-
BANKI
NG
Tr
adi
ti
onalbanks of
fermany ser
vices t
othei
rcust
omer
s,i
ncl
udi
ng accept
ing
cust
omermoneydeposi
ts,pr
ovi
ding v
ari
ousbanki
ng ser
vicest
o cust
omer
s,and
maki
ngl
oanst
oindi
vi
dual
sandcompani
es.Compar
edwi
tht
radi
ti
onalchannel
sof
of
fer
ingbanki
ngser
vicest
hroughphy
sicalbr
anches,e-
banki
ngusest
he 
Int
ernet
 t
o
del
i
vert
radi
ti
onalbanki
ngser
vicest
othei
rcust
omer
s,suchasopeni
ngaccount
s,
t
ransf
err
ingf
unds,
andel
ect
roni
cbi
l
lpay
ment
.

E-
BANKI
NGADAVANTAGES

 I
nter
netbanki
ng i
sconv
eni
entand qui
ckcompar
ed t
o doi
ng y
ourbanki
ng i
n
per
sonorov
ert
het
elephone.Younev
erhav
etowai
ttobeser
vedatabank
count
er,orwor
kyourwayt
hrought
hel
ayer
sofquest
ionst
haty
ouof
tengetwi
th
anaut
omat
edphoneser
vice.I
fyouknowwhaty
ouar
edoi
ng,y
oucanchecky
our
accountbal
ance,
transf
ermoney
,et
cinamat
terofmi
nut
eswhenbanki
ngonl
i
ne.

 Onl
i
neaccessal
sogi
vesy
ouasenseofcont
rolov
ery
ouraccount
,asy
oucan
per
for
m al
lyourev
ery
daybanki
ngt
asksy
our
sel
f,r
atherhav
ingt
ogot
hrougha
bankst
affmember
,whi
chcansomet
imesbet
ime-
consumi
ngandf
rust
rat
ing.You
canal
sogetaneasi
erov
erv
iew ofy
ouraccount
,andsear
char
chi
vesf
orol
der
t
ransact
ions.

 Youal
way
shav
e24hourbanki
ngwi
thbanki
ngonl
i
ne.Whenv
isi
ti
ngabanki
n
per
son,andsomet
imeswi
tht
elephoneser
vicest
oo,t
her
ear
erest
ri
ctedhour
sof
oper
ati
on.

 Banki
ngcanef
fect
ivel
ybedonepaper
lesst
hev
astmaj
ori
tyoft
het
ime.Noneed
f
ormount
ainsofst
atement
s,l
ett
ers,
tobef
il
ed

23
andst
oredf
orf
utur
eref
erence.Somebanksof
ferdeal
sify
ougopaper
lesst
oo.

 Mostbanksnow of
fery
ousmar
tphoneapps,al
l
owi
ngcust
omert
omoni
torand
managet
hei
rfi
nancesont
hemov
e,aswel
lasv
iaahomeorwor
kcomput
er.

 I
nter
netbanki
ngi
sespeci
all
yusef
ulandconv
eni
entf
orset
ti
ngupandmoni
tor
ing
r
egul
arbi
l
lpay
ment
sforut
il
it
yser
vices,
rent
,ormor
tgagepay
ment
set
c.

 I
tdoesn’
tmat
terwher
eyouar
ewheny
oudoy
ourbanki
ngonl
i
ne-y
oucanbei
n
anot
herpar
toft
hecount
ryt
owher
eyourbankoper
atesandst
il
lhav
eaccesst
o
y
ouraccount
,orev
enaccessy
ouraccountf
rom abr
oadf
ornoext
racost
.

 Somet
imesbanki
ngv
iat
hewebi
scheaper
.Thi
sisbecausei
tcost
sthebankl
ess
i
nter
msofst
aff
ing,pr
oper
tyupkeepet
c.Youcant
her
efor
eof
tengetsomegr
eat
bar
gai
nswi
thi
nter
netaccount
s.

 I
t'
sof
tenpossi
blet
ogetbet
teri
nter
estr
atest
hroughonl
i
nebanki
ng.Someof
fer
s
anddeal
sar
eal
soonl
yav
ail
abl
eonl
i
ne.

DI
SADAVANTAGESOFE-
BANKI
NG

 Your
eal
l
yneedt
ohav
eatl
eastabasi
clev
elofi
nter
netandcomput
erexper
ience,
i
fyouwi
sht
odoy
ourbanki
ngonl
i
ne.Peopl
ewhoar
eusedt
otr
adi
ti
onalbanki
ng
wi
l
lfi
ndt
hatt
heonl
i
nev
ersi
oni
scompl
etel
ydi
ff
erent
.Usi
ngawebsi
tei
snot
st
rai
ght
for
war
dtoanov
iceandof
tent
hehel
pandsuppor
tfr
om t
hebanki
s
sev
erel
yli
mit
ed.

 Fr
audandI
Dthef
tar
ethebi
ggestcausesofconcer
nformanypeopl
e,al
though
i
t’
sfai
rtosayi
npr
act
icet
hatmor
epeopl
ear
edef
raudedt
hroughscamswher
e
f
raudul
entemai
l
saskt
hem t
osi
gni
ntot
hei
raccountoncount
erf
eitwebsi
tes
(
giv
ingt
hei
rnameandpasswor
d),knownas"
phi
shi
ng"
,rat
hert
hanbyhav
ing
t
hei
raccount
shackedi
ntobyout
sider
s.

24
Fi
nanci
alor
gani
zat
ionsdol
osesensi
ti
vei
nfor
mat
ionsomet
imes,
howev
er.

 I
tcanbeeasyt
oloset
rackofaut
omat
edbi
l
lpay
ment
s.Yousett
hem upandt
hen
don’
tmoni
tort
hem.Si
xmont
hsl
atery
oumaycomebackt
ofi
ndt
haty
ourbi
l
lhas
changedandy
ouhav
ebeenov
erpay
ing.Al
ter
nat
ivel
y,somet
imesy
ouhav
emor
e
moneydebi
tedf
rom y
ouraccountt
hany
ouwer
eexpect
ing.

 Banki
ngonl
i
nei
scompl
etel
yimper
sonal
.Aswel
lasmaki
ngt
heexper
iencel
ess
f
ri
endl
y,t
his can cr
eat
e pr
obl
ems wi
th mor
e compl
ex t
ransact
ions such as
appl
yi
ngf
oral
oan.Theabi
l
ityt
oconv
eysubt
lei
nfor
mat
ioni
sof
tenl
ostwhen
banki
ngonl
i
neandi
tisal
sodi
ff
icul
ttoknowi
ftheper
sonatt
heot
herendgr
asps
whaty
ouar
etr
yingt
osay
.

 I
nter
netbanki
ngwebsi
tesar
eof
tensetupt
opr
ior
it
izeadv
ert
isi
ngandsel
lext
ra
banki
ngser
vices,r
athert
hant
ohel
pthecust
omeruset
hewebsi
te.Adv
ert
sof
ten
t
akeupmostoft
hespar
espaceont
hepage,whi
l
eli
nkst
ohel
pandsuppor
t,or
cont
actdet
ail
sforspeaki
ngt
oamemberofst
affi
nper
sonar
esmal
ltextl
i
nks
t
hatcanbehar
dtof
ind.

 Onl
i
nebanki
ngal
sor
eli
esony
ouhav
ingatt
hev
eryl
east
,awor
kingcomput
erand
ar
eli
abl
eint
ernetconnect
ion.I
fyourcomput
eri
s unr
eli
abl
e orol
d,ory
our
connect
ionspeedi
ssl
ow,
orpat
chy
,iti
sadi
ff
icul
tser
vicet
ouse.

25
 2.
REVI
EW OFLI
TERATUREOFBANK

Ast
udyonpubl
i
candpr
ivat
esect
orbanksandt
hei
rst
udyshowst
hatqual
i
tygap
bet
weenexpect
ati
onsofconsumer
sandper
cept
ionsofser
vicedel
i
ver
edi
shi
ghesti
n
publ
i
csect
orbanksandl
owesti
npr
ivat
esect
orbanks(
usi
nggap5)
.Anot
herst
udy
f
oundoutt
hatpubl
i
csect
orbanksar
ebet
tert
hanpr
ivat
esect
orbanks.Ot
herst
udi
es
andt
hei
rfi
ndi
ngsar
egi
venbel
ow

JosephM.etal(
1999)
-Thest
udyi
nvest
igat
esr
oleoft
echnol
ogyonAust
ral
i
an
banki
ngsect
orand300cust
omer
swer
esur
vey
ed.Thef
indi
ngssuggest
edt
hatexcept
f
rom conv
eni
ence/
accur
acyandef
fi
ciencyebanki
ngser
vicesdi
dnotmat
chwi
th
i
mpor
tancer
ati
ngspeci
fi
edbycust
omer
s.

Lassar
,etal(
2000)
-Thest
udycompar
ed t
wo model
s,t
hati
s,SERVQUALand
t
echni
cal
/funct
ionalqual
i
tymodeloft
echnol
ogyusi
ng 65 bankcust
omer
susi
ng
SERPERFSCALE.Thef
indi
ngsr
eveal
edt
hatt
echni
cal
/f
unct
ionalqual
i
tymodelwas
bet
tert
hanSERVQUALbecausel
att
erwasl
acki
ngt
echni
caldi
mensi
ons.2model
s
wer
ehav
ingdi
sti
nctanduni
quest
rengt
hformeasur
ingser
vicequal
i
tyaspect
s.

Bahi
a,KandJNant
el(
2000)
-Thepapersuggest
edanal
ter
nat
ivescal
eformeasur
ing
ser
vicequal
i
tyi
nret
ailbanki
ng.Thest
udydev
elopedascal
ecal
l
edasBanki
ngSer
vice
Qual
i
tyScal
ewhi
chcont
ainedf
act
orsl
i
keef
fect
ivenessandassur
ance,access,pr
ice,
t
angi
bles,
ser
vicepor
tfol
i
oandr
eli
abi
l
ity
.

26
Thi
smodel
wasf
oundt
obemor
erel
i
abl
ethanSERVQUAL
Jamal
,A.
,Naser
,K.
,2002-
Thest
udyexami
nedkeydr
iver
sofcust
omersat
isf
act
ion
usi
ng167cust
omer
sandi
twasf
oundt
hatcor
eandr
elat
ionalper
for
manceshad
i
mpacton cust
omersat
isf
act
ion and t
her
e was negat
iver
elat
ionshi
p bet
ween
cust
omerexper
ti
seandcust
omersat
isf
act
ion

Sur
eshchandaretal
(2002)
.-Thest
udyex
ami
nedr
elat
ionshi
pbet
weenser
vicequal
i
ty
and cust
omersat
isf
act
ion i
nIndi
an banki
ng sect
or.These wer
efound t
o be
i
ndependentbutcl
osel
yrel
ated.Bot
hconst
ruct
svar
ysi
gni
fi
cant
lyi
ncor
eser
vices
,
human el
ement
, sy
stemat
izat
ion of ser
vice del
i
ver
y,t
angi
bles and soci
al
r
esponsi
bil
i
ty.

GaniA,
Musht
aqBhat
t(2003)
-Thest
udyi
sconduct
edt
odoacompar
ati
vest
udyof
ser
vice qual
i
ty ofcommer
cialbanks and i
ts di
mensi
ons i
n commer
cialbanks.
SERVQUALi
susedandsampl
esi
zewas800cust
omer
s.Thest
udyf
oundoutt
hatCI
TI
bankandSt
andar
dchar
ter
edbankar
egoodi
ntangi
bil
i
tyandi
nrel
i
abi
l
ityal
sot
heyar
e
good.I
nresponsi
venesspar
amet
erI
ndi
anbanksar
einf
eri
ort
ofor
eignbanks.I
n
Assur
anceandempat
hyI
ndi
anbanksar
einf
eri
or.

Nav
deepAggar
walandMohi
tGupt
a(2003)
-Thi
sst
udybasi
cal
l
yfi
ndsoutt
hepr
imar
y
di
mensi
onsandsubdi
mensi
onsofser
vicequal
i
ty.I
nfor
malst
ruct
uredi
nter
viewsar
e
conduct
edwi
thbr
anchmanager
sandacademi
ci
anst
ofor
mul
ateabanki
ngser
vice
qual
i
tymodel
.Thest
udyf
oundoutt
hatser
vicet
imeandper
sonal
int
eract
ionsar
ever
y
i
mpor
tantal
ongwi
thambi
encef
orser
vicequal
i
ty.

27
Zhou,L(2004)
-Thest
udyanal
ysedi
mpactofser
vicequal
i
tyi
nbanksoncust
omer
sat
isf
act
ioni
nchi
na’
sret
ailbanki
ngandi
twasf
oundoutt
hatr
eli
abi
l
ityandassur
ance
wer
ethepr
imar
ydr
iver
sofcust
omersat
isf
act
ion.I
twasal
sof
oundoutt
hatt
her
e
wer
esi
gni
fi
cantv
ari
ati
onsi
nexpect
ati
onsandper
cept
ionsi
ncust
omer
s.

Ar
oraS(
2005)
-Thi
sst
udyanal
ysedf
act
orsi
nfl
uenci
ngcust
omersat
isf
act
ioni
npubl
i
c
sect
or,pr
ivat
esect
orandf
orei
gnbanksi
nnor
ther
nIndi
a.300cust
omer
swer
egi
ven
quest
ionnai
res whi
ch r
evel
ed t
hat si
gni
fi
cant di
ff
erences exi
st i
n cust
omer
sat
isf
act
ionl
evel
ofcust
omer
sineachgr
oupofbanksr
egar
dingr
out
ineoper
ati
onand
si
tuat
ionalandi
nter
act
ivef
act
ors.For
eignbankswer
efoundt
obet
hel
eader
sin
mechani
zat
ionandaut
omat
ion.

Debashi
sandMi
shr
a(2005)
-Thest
udyanal
ysedandmeasur
edcust
omersat
isf
act
ion
i
nbr
anchser
vicespr
ovi
dedbynat
ional
i
zedbanksi
nnor
ther
nIndi
a.1200cust
omer
s
wer
egi
venquest
ionnai
resandi
twasf
oundoutt
hatcomput
eri
zat
ion,accur
acyi
n
t
ransact
ions,
att
it
udeofst
affandav
ail
abi
l
ityofst
affi
nfl
uencedcust
omersat
isf
act
ion.
Leasti
mpor
tantf
act
orwaspr
omot
ionoft
hepr
oduct
sandv
ari
ousschemes.

Musht
aqM Bhat(
2005)
-Thi
sst
udyf
indsoutser
vicequal
i
typar
amet
ersi
nbank
t
hroughSERVQUALandi
nfl
uenceofdemogr
aphi
cvar
iabl
es.Thest
udywasl
i
mit
edt
o
SBI
,
PNB,
JammuandKashmi
rbankCi
tibankandSt
andar
dChar
ter
edGr
indl
ay’
sbank.
Sampl
esi
zewas800andst
udyf
oundoutt
hatf
orei
gnbanksar
ebet
tert
hanI
ndi
an
banks.SBIwasf
oundt
ober
elat
ivel
ypooronr
eli
abi
l
ityandr
esponsi
veness.
Banksi
nDel
hiwer
ecompar
ati
vel
ybet
teri
nser
vicequal
i
ty.

28
JoshuaAJ,
VMol
i
,P.Koshi
(2005)
-Thest
udyev
aluat
edandcompar
edser
vicequal
i
ty
i
nol
dandnewbanksusi
ngsampl
esi
zeof480.Thest
udyf
oundoutt
hatcust
omer
s
wer
esat
isf
iedi
nrel
i
abi
l
ity
,empat
hyandpr
iceandf
orot
herpar
amet
erst
hedi
ff
erence
bet
weenexpect
ati
onsandper
cept
ionswer
esmal
l
ert
hanpubl
i
csect
orbanks.

Mohammadetal
(2005)
-Thest
udyt
ri
est
odev
elopacompr
ehensi
vemodel
ofbanki
ng
aut
omat
edser
vicequal
i
tyt
aki
ngi
ntoconsi
der
ati
onuni
queat
tri
but
esofeachdel
i
ver
y
channel
andot
herdi
mensi
onswhi
chi
nfl
uenceser
vicequal
i
ty.

Rauland Ahmed(
2005)
-The st
udyi
nvest
igat
ed cust
omerser
vice i
n publ
i
csect
or
banksi
n3di
str
ict
sinAssam andi
twasf
oundt
hatcust
omer
swer
edi
ssat
isf
iedwi
th
t
hemanagement
,technol
ogyandi
nter
act
ivef
act
orsal
ongwi
thhi
ghser
vicechar
ges.
Communi
cat
iongapwast
her
ootcauseofpoorser
viceandser
vicewasdi
ff
erenti
n
r
ural
andur
bansect
ors.

Shar
maandShar
ma(2006)
-Thest
udyanal
ysedcust
omerdel
i
ghti
nur
banconsumer
banki
ng.Thest
udyf
oundoutt
hatcust
omer
swer
esat
isf
iedwi
thl
oanf
aci
l
iti
es,bank
env
ironment
,rout
ine wor
k pr
ocedur
es,l
ocat
ion ,
i
nter
est r
ates et
c and wer
e
di
ssat
isf
iedwi
thl
oanf
ormal
i
tiesandpr
omot
iont
hroughmedi
a.

Dashetal
(2007)
-Thest
udymeasur
edcust
omersat
isf
act
iont
hrough5ser
vicequal
i
ty
di
mensi
onsi
nNoi
daandGhazi
abadandf
indi
ngsr
eveal
edt
hatassur
ancewast
he
most i
mpor
tant di
mensi
on of ser
vice qual
i
ty f
oll
owed by r
eli
abi
l
ity and
r
esponsi
veness.Tangi
bleswasf
oundt
obel
easti
mpor
tant
.

29
Shar
maS,etal(
2007)
-Thest
udydi
dacompar
isonofpubl
i
candpr
ivat
ebankswi
th
r
espectt
oper
cept
ionsofcust
omer
sregar
dingser
vicequal
i
ty.I
twasf
oundoutt
hat
ser
vicequal
i
tyi
sassoci
atedwi
thsat
isf
act
ionandt
her
ewassi
gni
fi
cantdi
ff
erence
bet
weenqual
i
tyofser
vicespr
ovi
dedbybanks.Banksi
nsmal
l
erci
ti
esar
efarbehi
nd
bi
gci
ti
esi
nthi
sregar
d.

Tr
aceyDagger,
Ji
ll
i
anSweeney(
2007)
-Thest
udyconsi
stsofqual
i
tat
iver
esear
cht
o
i
nvest
igat
etheef
fectofconsumpt
ionst
ageonser
vicequal
i
typer
cept
ionsandt
hen
dev
elopmentofhy
pot
hesi
s.Thef
indi
ngsi
ndi
cat
etheev
idencet
hatcust
omer
srel
y
mor
eheav
il
yonat
tr
ibut
est
hatar
esear
chbased i
nthei
nit
ialst
agesofser
vice
exper
ienceandi
nlat
erst
agesconsumpt
ionbecomesi
mpor
tant
.

Dr
.Vanni
raj
an&B.
Anbazagan(
2007)
-The st
udy t
ri
es t
o make an assessmentof
SERVPERFscal
eint
heI
ndi
anRet
ailbanki
ngsect
orbydoi
ngasur
veyi
nbanksat
Madhur
ai.
Thest
udyf
ound t
hati
n publ
i
csect
orbankst
angi
blesand assur
ancear
emost
i
mpor
tantandi
npr
ivat
esect
orbanksr
eli
abi
l
ity,
,
responsi
venessandt
angi
blesar
e
mosti
mpor
tant
.

PKGupt
a(2008)
-Obj
ect
iveoft
hisst
udywast
ofi
ndoutt
hebehav
iorofcust
omer
s
wi
thr
espectt
oint
ernetbanki
ngv
is-
à-v
isconv
ent
ionalbanki
ng.Thest
udyf
oundout
t
hati
nter
netbanki
ngwasf
oundt
obeeasi
erandspeedi
ert
hanconv
ent
ionalbanki
ng
andt
rust
,accur
acyandconf
ident
ial
i
tywer
ethemosti
mpor
tantf
act
orsher
e.

El
l
aine Wal
l
ce&Lesl
i
e De Cher
atat
ony
(2009)
-St
udy f
inds outt
he i
mpor
tance of
,
assur
anceandr
eli
abi
l
ity
,cust
omeror
ient
ati
ont
eamwor
ket
cinper
for
manceof.Al
so
t
hest
udyhi
ghl
i
ght
scr
it
ical
i
tyofbr
anch&empl
oyeet
eamwor
kforper
for
mance.
30
Cont
inuouscommi
tmentandser
vicer
ecov
erywer
eal
sof
oundi
mpor
tant
.
MohammedSi
ddi
queKhan,
SibaSankarMahapat
ra(
2009)
-Thest
udywast
oident
if
y
i
mpor
tantpar
amet
ersaf
fect
ingser
vicequal
i
tyi
nint
ernetbanki
ng.Fact
oranal
ysi
sof
t
hedat
acol
l
ect
edf
inds7f
act
orswhi
chi
ncl
udedf
act
orsl
i
ker
eli
abi
l
ity
,access,user
f
ri
endl
i
ness pr
ivacy et
c.Cor
rel
ati
on anal
ysi
s shows t
hata si
gni
fi
cantposi
ti
ve
cor
rel
ati
onex
ist
sbet
weenf
act
ors.
.Al
soi
twasf
oundoutt
hatbusi
nesscl
assdi
ff
ers
f
rom ot
hercl
assesi
nper
cept
ion.

PadhyPKandBNSwar
(2009)
-thepaperi
nvest
igat
edr
oleoft
echnol
ogyi
nbanki
ng
andi
tsi
mpactonper
cei
vedser
vicequal
i
tyi
npubl
i
c,pr
ivat
eandf
orei
gnbanksi
n
Or
issausi
ngasampl
esi
zeof300cust
omer
s.For
eignbankwasf
oundt
obev
ery
cl
oset
oexpect
ati
onsofcust
omer
sfol
l
owedbyI
CICIandAXI
S.Ser
vicequal
i
tyi
n
publ
i
csect
orbankswasf
oundt
obev
eryl
ow.

Rodetal
(2009)
-Thest
udyf
ocusedonr
elat
ionshi
pbet
weenser
vicequal
i
ty,ov
eral
l
i
nter
netbanki
ngser
vicequal
i
tyandcust
omersat
isf
act
ioni
nNewZeal
and.Thest
udy
f
oundoutt
hatonl
i
necust
omerser
vicequal
i
tyandonl
i
nei
nfor
mat
ionsy
stemswer
e
si
gni
fi
cant
lyandposi
ti
vel
yrel
atedt
oov
eral
lcust
omeri
nter
netbanki
ngser
vicequal
i
ty.
Ov
eral
lint
ernetbanki
ngser
vicequal
i
tyandcust
omersat
isf
act
ionwer
eposi
ti
vel
y
cor
rel
ated.

Sandi
pKhoshHazr
a,Dr
.Kai
l
ashSr
ivat
ava(
2010)
-Thest
udywasdonet
ofi
ndoutt
he
associ
ati
onbet
weenser
vicequal
i
ty,cust
omersat
isf
act
ion,
l
oyal
tyandcommi
tment
.
SERVQUALi
susedandt
hest
udyf
indsoutt
hati
npr
ivat
ebanksdi
mensi
onsofser
vice
qual
i
ty,assur
anceandr
eli
abi
l
ityar
esi
gni
fi
cantf
orsat
isf
act
ionofcust
omer
s,l
oyal
ty
andcommi
tment
.Thebankst
akendi
ff
eredi
nthesepar
amet
ers.

31
Aki
koUeno(
2010)
-Thepapert
alksaboutt
hei
mpor
tanceofqual
i
ty.Thest
udyf
inds
outt
hef
eat
urest
hatar
efundament
ali
nsuppor
ti
ngser
vicequal
i
ty.Thesecondar
y
r
esear
chf
indsoutt
hehumanr
esour
cef
unct
ionsl
i
ker
ecr
uit
ment
,teamwor
ket
cin
mai
ntai
nser
vicequal
i
ty

Moni
ca Bedi
(2010)
-The st
udy i
nvest
igat
es r
elat
ionshi
p bet
ween ser
vice qual
i
ty,
cust
omersat
isf
act
ion and behav
ior
ali
ntent
ions.The f
indi
ngs al
so i
ndi
cat
ed t
he
i
mpor
tanceofser
vicequal
i
ty.Thest
udyal
sof
oundoutt
hatbanksdi
ff
eredi
nthe
ser
vicequal
i
typar
amet
ers.

Ful
bagSi
ngh,Dav
inderKaur
(2010-
11)
-Thest
udycombi
nesal
lli
ter
atur
erev
iew done
i
nser
vicequal
i
tyAndr
elat
edar
easi
nbanki
ngt
il
l2010.I
tcont
ainst
hewor
ksof
Cr
oni
n&Tay
lor
,Bahi
aandNant
elandot
her
sont
hisar
ea.

DrRav
ichandr
an etal
(2010)
-The paperanal
yses exi
sti
ng st
udy and t
ri
es t
o
under
standsoci
odemogr
aphi
candr
ati
onalpr
ofi
l
eofpubl
i
cret
ailbanki
ngconsumer
s.
I
tal
so f
inds outt
he i
mpor
tance ofser
vice qual
i
ty di
mensi
ons t
o pr
edi
ctt
he
mul
ti
dimensi
onalmodelofbehav
ior
ali
ntent
ionsamongpubl
i
csect
orconsumer
sin
I
ndi
a.Loy
alt
ywasf
oundt
obei
nfl
uencedbyoper
ati
nghour
s,moder
nequi
pment
s,
er
rorf
reer
ecor
dset
c.Ser
vicequal
i
typar
amet
ersl
i
ket
angi
bil
i
ty,r
esponsi
venessand
empat
hydi
mensi
onswer
eal
sof
oundt
obev
eryi
mpor
tant
.

Dav
oodFei
zetal
(2010)
-Thest
udyuseshy
pot
hesi
stof
indoutser
vicequal
i
tyi
nIr
an
r
ail
way
s.I
twasf
oundoutt
hatper
cei
vedser
vicewasf
oundt
obewi
thi
nzoneof
t
oler
anceandser
vicewassat
isf
act
ory
.Thedi
ff
erencebet
weeni
deall
evelandcur
rent
l
evelwassi
gni
fi
cant
.Ther
ewassi
gni
fi
cantr
elat
ionshi
pbet
weenser
viceadequacy
v
ari
abl
esandper
cei
vedv
alue.
32
Thest
udyi
nnut
shel
lgi
vesani
mageofser
vicequal
i
ty.

Sachi
n Mi
tt
al& Raj
nish Jai
n(2010)
-Thi
s paperi
s basi
cal
l
ya l
i
ter
atur
erev
iew of
banki
ngi
ndust
ryandef
fectofI
Tbasedser
vicesoncust
omersat
isf
act
ion.Thest
udy
hi
ghl
i
ght
scust
omersat
isf
act
ionl
evel
samongy
oungcust
omer
sinbanki
ngi
ndust
ry.A
sur
veyi
ndi
cat
est
he gapsbet
ween cust
omer
’sexpect
ati
onsand per
cept
ion wi
th
r
espectt
oITbasedbanki
ngser
vices.
Fi
ndi
ngsi
ndi
cat
edneedt
oimpr
ovet
heI
Tbasedser
vicesf
orenhanci
ngcust
omer
sat
isf
act
ion.

H.
Emar
ietal
(2011)
-The mai
n obj
ect
ive oft
hisr
esear
ch was t
o det
ermi
ne t
he
di
mensi
onsofser
vicequal
i
tyi
nthebanki
ng i
ndust
ryofI
ran.Fort
hist
hest
udy
empi
ri
cal
l
y exami
ned t
he Eur
opean per
spect
ive suggest
ing t
hatser
vice qual
i
ty
consi
stsoft
hreedi
mensi
ons,t
echni
cal
,funct
ionalandi
mage.Ther
esul
tsf
rom a
banki
ngser
vicesampl
erev
eal
edt
hatt
heov
eral
lser
vicequal
i
tyi
sident
if
iedmor
ebya
consumer
’sper
cept
ionoft
echni
cal
qual
i
tyt
hanf
unct
ional
qual
i
ty.

Kumbhar
,Vi
j
ay(
2011)
-Itexami
nedt
her
elat
ionshi
pbet
weent
hedemogr
aphi
csand
cust
omer
s’sat
isf
act
ioni
nint
ernetbanki
ng,
.Ital
sof
oundoutr
elat
ionshi
pbet
ween
ser
vicequal
i
tyandcust
omer
s’sat
isf
act
ionaswel
lassat
isf
act
ioni
nint
ernetbanki
ng
ser
vicepr
ovi
dedbyt
hepubl
i
csect
orbankandpr
ivat
esect
orbanks.Thest
udyf
ound
outt
hatov
eral
lsat
isf
act
ionofempl
oyees,busi
nessmenandpr
ofessi
onal
sar
ehi
gher
i
nint
ernetbanki
ngser
vice.Al
soi
twasf
oundt
hatt
her
eissi
gni
fi
cantdi
ff
erencei
nthe
cust
omer
s’per
cept
ioni
nint
ernetbanki
ngser
vicespr
ovi
dedbyt
hepubl
i
candpr
ivat
es
sect
orbanks.

33
Kai
l
ashM (
2012)
-Thepapercompar
espubl
i
candpr
ivat
esect
orbanksi
nVi
j
ayawada
ci
tyusi
ngSERVQUALmodel
.Thef
indi
ngsr
eveal
edt
hatpr
ivat
esect
orbankshav
e
goodser
vicest
ocust
omer
sandt
heyr
etai
nedcust
omer
sbypr
ovi
dingbet
terf
aci
l
iti
es.
Thest
udyf
indsouti
mpor
tanceofnewpr
oduct
sandser
vicesf
orbanksf
orr
etai
ning
cust
omer
s.

The st
udi
es ment
ioned abov
e cl
ear
lypoi
nts outt
othe i
mpor
tance ofhav
ing a
st
ruct
ured st
udyon t
hiswher
ebanksi
n di
ff
erentcat
egor
iesar
ecompar
ed wi
th
r
espectt
otheser
vicequal
i
tyaspectwhi
chwi
l
lhel
pthem t
ofi
ndoutt
hei
rcor
e
compet
enci
esandt
ocapi
tal
i
zeont
hem andatt
hesamet
imef
indoutt
hear
easwher
e
t
heycani
mpr
ove.Thi
sist
hemaj
orai
m ofmyt
hesi
s.

34
 3.OBJECTI
VEOFPROJECT

OBJECTI
VES
Tost
udyt
hepur
poseofmer
ger
sandacqui
si
ti
onsi
ntheBanki
ngsect
or
Tost
udyt
hebenef
it
sofmer
ger
sandacqui
si
ti
ons.
Tounder
standBankmer
ger
/amal
gamat
ionunderv
ari
ousAct
s
Tost
udyt
hePr
ocedur
eofBankMer
ger
sandAcqui
si
ti
ons
Tost
udyt
hemot
ivesbehi
ndconsol
i
dat
ioni
ntheBanki
ngsect
or.
Tost
udyt
her
iski
nvol
vedi
nmer
gerandacqui
si
ti
on.
Tost
udyt
heHRi
ssuesdur
ingmer
gerandacqui
si
ti
on.
Tounder
standt
hechal
l
engesandoppor
tuni
ti
esi
ntheI
ndi
anBanki
ngSect
or.
Tost
udyt
hemaj
orBanksi
nvol
vedi
nMer
ger
sandAcqui
si
ti
ons.

DATACOLLECTI
ON

Theanal
ysi
sispur
elybasedont
hesecondar
ydat
a.
Secondar
yResear
chbasedon:
Busi
nessMagazi
nes
I
nter
netSour
ces
Fi
nancebooks

35
 4.I
NTRODUCTI
ONOFMERGERSANDACQUI
SIATI
ON

MERGER
Mer
geri
sdef
inedascombi
nat
ionoft
woormor
ecompani
esi
ntoasi
ngl
ecompany
wher
eonesur
viv
esandt
heot
her
sloset
hei
rcor
por
ateexi
stence.Thesur
viv
or
acqui
resal
ltheasset
saswel
lasl
i
abi
l
iti
esoft
hemer
gedcompanyorcompani
es.
Gener
all
y,t
hesur
viv
ingcompanyi
sthebuy
er,whi
chr
etai
nsi
tsi
dent
it
y,andt
he
ext
ingui
shed companyi
sthe sel
l
er.Mer
geri
sal
so def
ined asamal
gamat
ion.
Mer
geri
sthef
usi
onoft
woormor
eexi
sti
ngcompani
es.Al
lasset
s,l
i
abi
l
iti
esand
t
hest
ockofonecompanyst
andt
ransf
err
edt
o
Tr
ansf
ereeCompanyi
nconsi
der
ati
onofpay
menti
nthef
orm of
:

Equi
tyshar
esi
nthet
ransf
ereecompany
,

Debent
uresi
nthet
ransf
ereecompany
,

Cash,
or

Ami
xoft
heabov
emodes.

TYPESOFMERGERS

Mer
geroracqui
sit
iondependsupont
hepur
poseoft
heof
fer
orcompanyi
twant
sto
achi
eve.Basedont
heof
fer
ors‟obj
ect
ivespr
ofi
l
e,combi
nat
ionscoul
dbev
ert
ical
,
hor
izont
al,ci
rcul
arandcongl
omer
ati
caspr
eci
sel
ydescr
ibedbel
owwi
thr
efer
ence
t
othepur
posei
nvi
ewoft
heof
fer
orcompany
.

36
(
A)Ver
ti
cal
combi
nat
ion:

Acompanywoul
dli
ket
otakeov
eranot
hercompanyorseeki
tsmer
gerwi
tht
hat
companyt
oexpandespousi
ngbackwar
dint
egr
ati
ont
oassi
mil
atet
her
esour
cesof
suppl
yandf
orwar
dint
egr
ati
ont
owar
dsmar
ketout
let
s.Theacqui
ri
ngcompany
t
hrough mer
gerofanot
heruni
tat
tempt
s on r
educt
ion ofi
nvent
ori
es ofr
aw
mat
eri
alandf
ini
shedgoods,
impl
ement
sit
spr
oduct
ionpl
ansaspert
heobj
ect
ives
and economi
zes on wor
king capi
tali
nvest
ment
s.I
n ot
herwor
ds,i
nver
ti
cal
combi
nat
ions,
themer
gingunder
taki
ngwoul
dbeei
ther

Thef
oll
owi
ngmai
nbenef
it
saccr
uef
rom t
hev
ert
icalcombi
nat
iont
otheacqui
rer
companyi
.e.
I
tgai
nsast
rongposi
ti
onbecauseofi
mper
fectmar
ketoft
hei
nter
medi
ary

(
B)Hor
izont
alcombi
nat
ion:
I
tisamer
geroft
wocompet
ingf
ir
mswhi
char
eatt
hesamest
ageofi
ndust
ri
al
pr
ocess.Theacqui
ri
ngf
ir
m bel
ongst
othesamei
ndust
ryast
het
argetcompany
.The
mai
npur
poseofsuchmer
ger
sist
oobt
aineconomi
esofscal
einpr
oduct
ionby
el
i
minat
ingdupl
i
cat
ionoff
aci
l
iti
esandt
heoper
ati
onsandbr
oadeni
ngt
hepr
oductl
i
ne,
r
educt
ioni
ninv
est
menti
nwor
kingcapi
tal
,el
i
minat
ioni
ncompet
it
ionconcent
rat
ioni
n
pr
oduct
,reduct
ioni
nadv
ert
isi
ngcost
s,i
ncr
easei
nmar
ketsegment
sandexer
cise
bet
tercont
rol
onmar
ket
.

(
C)Ci
rcul
arcombi
nat
ion:
Compani
es pr
oduci
ng di
sti
nctpr
oduct
s seek amal
gamat
ion t
o shar
e common
di
str
ibut
ionandr
esear
chf
aci
l
iti
est
oobt
aineconomi
esbyel
i
minat
ionofcoston
dupl
i
cat
ionandpr
omot
ingmar
ketenl
argement
.
37
Theacqui
ri
ng companyobt
ainsbenef
it
sint
hef
orm ofeconomi
esofr
esour
ce
shar
inganddi
ver
sif
icat
ion.

(
D)Congl
omer
atecombi
nat
ion:

I
tisamal
gamat
ionoft
wocompani
esengagedi
nunr
elat
edi
ndust
ri
esl
i
keDCM and
ModiI
ndust
ri
es.Thebasi
cpur
poseofsuchamal
gamat
ionsr
emai
nsut
il
izat
ionof
f
inanci
alr
esour
cesandenl
argesdebtcapaci
tyt
hroughr
e-or
gani
zi
ngt
hei
rfi
nanci
al
st
ruct
uresoast
oser
vicet
heshar
ehol
der
sbyi
ncr
easedl
ever
agi
ngandEPS,
lower
ing
av
eragecostofcapi
talandt
her
ebyr
aisi
ngpr
esentwor
thoft
heout
standi
ngshar
es.
Mer
gerenhancest
heov
eral
lst
abi
l
ityoft
heacqui
rercompanyandcr
eat
esbal
ancei
n
t
he company
‟st
otalpor
tfol
i
o ofdi
ver
se pr
oduct
s and pr
oduct
ion pr
ocesses.A
suppl
i
erorabuy
erusi
ngi
tspr
oductasi
nter
medi
arymat
eri
alf
orf
inal
product
ion.

ACQUI
SITI
ON

“
Acor
por
ateact
ioni
nwhi
chacompanybuy
smost
,i
fnotal
l
,oft
het
argetcompani
es
Owener
shi
pst
akesi
nor
dert
oassumecont
roloft
het
argetf
ir
m.Acqui
sti
onar
eof
ten
madeaspar
tofcompany
’sgr
owt
hst
rat
egywher
ebyi
tismor
ebeni
fi
ti
alt
otakeov
er
Anexi
sti
ngf
ir
m’soper
ati
on&ni
checompar
edt
oexpandi
ngoni
tsown.

Acqui
sit
ionAr
eof
tenpai
dincash,
theacqui
ri
ngcompany
’sst
ockoracombi
nat
ionof
bot
h’’
Acqui
sit
ioni
ngener
alsensei
sacqui
ri
ngt
heowner
shi
pint
hepr
oper
ty.I
nthecont
ext
ofbusi
nesscombi
nat
ions,an acqui
sit
ion i
sthepur
chasebyonecompanyofa
cont
rol
l
ingi
nter
esti
ntheshar
ecapi
tal
ofanot
herexi
sti
ngcompany
.
38
Met
hodsofAcqui
sit
ion:

Anacqui
sit
ionmaybeaf
fect
edby
:-
Agr
eementwi
tht
heper
sonshol
dingmaj
ori
tyi
nter
esti
nthecompanymanagement
l
i
kemember
soft
heboar
dormaj
orshar
ehol
der
scommandi
ngmaj
ori
tyofv
oti
ng
power
;

Pur
chaseofshar
esi
nopenmar
ket
;

Tomaket
akeov
erof
fert
othegener
albodyofshar
ehol
der
s;

Pur
chaseofnewshar
esbypr
ivat
etr
eat
y;

39
 5.PURPOSESOFMERGERSANDACQUI
SITI
ONS

The pur
pose f
oran of
fer
orcompanyf
oracqui
ri
ng anot
hercompanyshal
lbe
r
efl
ect
edi
nthecor
por
ateobj
ect
ives.I
thast
odeci
det
hespeci
fi
cobj
ect
ivest
obe
achi
evedt
hroughacqui
sit
ion.Thebasi
cpur
poseofmer
gerorbusi
nesscombi
nat
ion
i
stoachi
evef
ast
ergr
owt
hoft
hecor
por
atebusi
ness.Fast
ergr
owt
hmaybehad
t
hroughpr
oducti
mpr
ovementandcompet
it
iveposi
ti
on.Ot
herpossi
blepur
posesf
or
acqui
sit
ionar
eshor
tli
stedbel
ow:
-

Pr
ocur
ementofsuppl
i
es:

Tosaf
eguar
dthesour
ceofsuppl
i
esofr
awmat
eri
alsori
nter
medi
arypr
oduct
;

Toobt
aineconomi
esofpur
chasei
nthef
orm ofdi
scount
,sav
ingsi
ntr
anspor
tat
ion
cost
s,ov
erheadcost
sinbuy
ingdepar
tment
,et
c.;

Toshar
ethebenef
it
sofsuppl
i
ers‟economi
esbyst
andar
dizi
ngt
hemat
eri
als.

(
2)Rev
ampi
ngpr
oduct
ionf
aci
l
iti
es:

Toachi
eveeconomi
esofscal
ebyamal
gamat
ingpr
oduct
ionf
aci
l
iti
est
hroughmor
e
i
ntensi
veut
il
iz
ati
onofpl
antandr
esour
ces;

Tost
andar
dizepr
oductspeci
fi
cat
ions,
impr
ovementofqual
i
tyofpr
oduct
,expandi
ng
Mar
ketand ai
ming atconsumer
s sat
isf
act
ion t
hrough st
rengt
heni
ng af
tersal
e
Ser
veTo obt
aini
mpr
ovedpr
oduct
iont
echnol
ogyandknow-
how f
rom t
heof
fer
ed
company
.
40
Tor
educecost
,impr
ovequal
i
tyandpr
oducecompet
it
ivepr
oduct
stor
etai
nand
I
mpr
ovemar
ketshar
e.

(
3)Mar
ketexpansi
onandst
rat
egy
:

Toel
i
minat
ecompet
it
ionandpr
otectexi
sti
ngmar
ket
;

Toobt
ainanewmar
ketout
let
sinpossessi
onoft
heof
fer

Toobt
ainnewpr
oductf
ordi
ver
sif
icat
ionorsubst
it
uti
onofexi
sti
ngpr
oduct
sandt
o
enhancet
hepr
oductr
ange;

St
rengt
heni
ngr
etai
nout
let
sandsal
ethegoodst
orat
ional
i
zedi
str
ibut
ion;

Tor
educeadv
ert
isi
ngcostandi
mpr
ovepubl
i
cimageoft
heof
fer
eecompany
;

St
rat
egi
ccont
rol
ofpat
ent
sandcopy
right
s.

(
4)Fi
nanci
alst
rengt
h:

Toi
mpr
ovel
i
qui
dit
yandhav
edi
rectaccesst
ocashr
esour
ce;

Todi
sposeofsur
plusandout
dat
edasset
sforcashoutofcombi
nedent
erpr
ise;

Toenhancegear
ingcapaci
ty,bor
row onbet
terst
rengt
handt
hegr
eat
erasset
s
backi
ng;

41
Toav
ail
taxbenef
it
s;

Toi
mpr
oveEPS(
Ear
ningPerShar
e).

(
5)Gener
algai
ns:

Toi
mpr
ovei
tsowni
mageandat
tr
actsuper
iormanager
ialt
alent
stomanagei
ts
af
fai
rs;

Toof
ferbet
tersat
isf
act
iont
oconsumer
soruser
soft
hepr
oduct
.

(
6)Owndev
elopment
alpl
ans:

Thepur
poseofacqui
sit
ioni
sbackedbyt
heof
fer
orcompany
‟sowndev
elopment
al
pl
ans.Acompanyt
hinksi
nter
msofacqui
ri
ngt
heot
hercompanyonl
ywheni
thas
ar
ri
vedati
tsowndev
elopmentpl
ant
oexpandi
tsoper
ati
onhav
ingexami
nedi
tsown
i
nter
nalst
rengt
h wher
eitmi
ghtnothav
eanypr
obl
em oft
axat
ion,account
ing,
v
aluat
ion,et
c.Butmi
ghtf
eelr
esour
ceconst
rai
ntswi
thl
i
mit
ati
onsoff
undsandl
ack
ofski
l
lmanager
ialper
sonnel
‟s.I
thast
oai
m atsui
tabl
ecombi
nat
ionwher
eitcoul
d
hav
e oppor
tuni
ti
es t
o suppl
ementi
tsf
unds by i
ssuance ofsecur
it
ies,secur
e
addi
ti
onalf
inanci
alf
aci
l
iti
es,el
i
minat
e compet
it
ion and st
rengt
hen i
ts mar
ket
posi
ti
on.

42
Fur
ther
,reser
vebanki
sempower
edt
odet
ermi
net
heMar
keyv
alueofshar
esof
mi
nor
it
yshar
ehol
der
swhohav
evot
edagai
nstt
heschemeofamal
gamat
ion.Si
nce
nat
ional
i
zedbanksar
enotBaki
ngCompani
esandSBIi
sgov
ernedbyasepar
ate
st
atue,t
hepr
ovi
sionsofsect
ion44Aonv
olunt
aryamal
gamat
ionar
enotappl
i
cabl
ein
t
he case ofamal
gamat
ion oft
wo publ
i
c sect
orbanks orf
ort
he mer
gerofa
nat
ional
i
zedbank/
SBIwi
thabanki
ngcompanyorv
icev
ersa.Thesemer
ger
shav
eto
beat
tempt
edi
nter
msoft
hepr
ovi
sionsi
nther
espect
ivest
atut
eunderwhi
cht
heyar
e
const
it
uted.Mor
eov
er,
thesect
iondoesnotenv
isageappr
oval
ofRBIf
ort
hemer
gerof
anyot
herf
inanci
alent
it
ysuchasNBFCwi
thabanki
ngcompanyv
olunt
ari
l
y.Ther
efor
e
abaki
ngcompanycanbeamal
gamat
edwi
thanot
herbanki
ngcompanyonl
yunder
sect
ion44Aoft
heBRact
.

Sect
or45-Compul
sor
yAmal
gamat
ionofbanks
Undersect
ion45(
4)oft
hebanki
ngr
egul
ati
onact
,reser
vebankmaypr
epar
eascheme
ofamal
gamat
ionofabanki
ngcompanywi
thot
heri
nst
it
uti
on(
thet
ransf
ereebank)
undersub-sect
ion(
15)ofsect
ion45.Banki
ngi
nst
it
uti
onmeansanybanki
ngcompany
andi
ncl
udesSBIandsubsi
diar
ybanksoracor
respondi
ngnewbank.
Acompul
sor
yamal
gamat
ioni
sapr
essedi
ntoact
ionwher
ethef
inanci
alposi
ti
onof
t
he bank has become week and ur
gentmeasur
es ar
erequi
red t
o be t
aken t
o
saf
eguar
dthedeposi
tor
‟si
nter
est
.Sect
ion45oft
heBanki
ngr
egul
ati
onAct
,1949
pr
ovi
desf
orabankt
ober
econst
ruct
edoramal
gamat
edcompul
sor
il
y‟i
.e.wi
thoutt
he
consentofi
tsmember
sorcr
edi
tor
s,wi
thanyot
herbanki
ngi
nst
it
uti
onsasdef
inedi
n
subsect
ion(
15)t
her
eof
.Act
ionundert
her
epr
ovi
si
onoft
hissect
ioni
stakenby
r
eser
vebanki
nconsul
tat
ionwi
tht
hecent
ralgov
ernmenti
nthecaseofbanks,whi
ch
ar
eweak,
unsoundori
mpr
oper
lymanaged.

43
Undert
hepr
ovi
sions,RBIcanappl
ytot
hecent
ralgov
ernmentf
orsuspensi
onof
busi
ness by a banki
ng company and pr
epar
e a scheme ofr
econst
it
uti
on or
amal
gamat
ioni
nor
dert
osaf
eguar
dthei
nter
est
soft
hedeposi
tor
s.

Undercompul
sor
yamal
gamat
ion,r
eser
vebankhast
hepowert
o amal
gamat
ea
banki
ng company wi
th any ot
herbanki
ng company
,nat
ional
i
zed bank,SBIand
subsi
diar
yofSBI
.Wher
easunderv
olunt
aryamal
gamat
ion,
abanki
ngcompanycanbe
amal
gamat
ed wi
th banki
ng companycan beamal
gamat
ed wi
th anot
herbanki
ng
companyonl
y.Meani
ng t
her
eby
,a banki
ng companycan notbemer
ged wi
tha
nat
ional
i
zedbankoranyot
herf
inanci
alent
it
y.

Compani
esAct

Sect
ion394oft
hecompani
esact
,1956i
sthemai
nsect
iont
hatdeal
swi
tht
he
r
econst
ruct
ion and amal
gamat
ion oft
hecompani
es.Undersect
ion 44A oft
he
banki
ng Regul
ati
on Act
,1949 t
wo banki
ng compani
es can be amal
gamat
ed
v
olunt
ari
l
y.I
ncaseofanamal
gamat
edofanycompanysuchasanonbanki
ng
f
inancecompanywi
thabanki
ngcompany
,themer
gerwoul
dbecov
eredundert
he
pr
ovi
sionsofsect
ion394oft
hecompani
esactandsuchschemescanbeappr
oved
byt
hehi
ghcour
tsandsuchcasesdonotr
equi
respeci
fi
cappr
ovaloft
heRBI
.Under
sect
ion396oft
heact
,cent
ralgov
ernmentmayamal
gamat
etwoormor
ecompani
es
i
npubl
i
cint
erest
.

44
 St
ateBankofI
ndi
aAct
,1955

Sect
ion35oft
heSt
ateBankofI
ndi
aAct
,1955conf
erspoweronSBIt
oent
eri
nto
negot
iat
ionf
oracqui
ri
ngbusi
nessi
ncl
udi
ngasset
sandl
i
abi
l
iti
esofanybanki
ng
i
nst
it
uti
onwi
tht
hesanct
ionoft
hecent
ralgov
ernmentandi
fsodi
rect
edbyt
he
gov
ernmenti
nconsul
tat
ionwi
tht
heRBI
.Thet
ermsandcondi
ti
onsofacqui
si
ti
onby
cent
ralboar
doft
heSBIandt
heconcer
nedbanki
ngi
nst
it
uti
onandt
her
eser
vebank
ofI
ndi
aisr
equi
redt
obesubmi
tt
edt
othecent
ralgov
ernmentf
ori
tssanct
ion.The
cent
ralgov
ernmenti
sempower
edt
osanct
ionanyschemeofacqui
si
ti
onandsuch
schemes ofacqui
sit
ion become ef
fect
ivef
rom t
he dat
e speci
fi
ed i
n or
derof
sanct
ion.

Aspersub-
sect
ion(
13)ofsect
ion38oft
heSBIact
,banki
ngi
nst
it
uti
oni
sdef
inedas
under“
banki
ngi
nst
it
uti
on”i
ncl
udesanyi
ndi
vi
dualoranyassoci
ati
onofi
ndi
vi
dual
s
(
whet
heri
ncor
por
atedornotorwhet
heradepar
tmentofgov
ernmentorasepar
ate
i
nst
it
uti
on)
,car
ryi
ngont
hebusi
nessofbanki
ng.

SBImay
,ther
efor
e,acqui
rebusi
nessofanyot
herbanki
ngi
nst
it
uti
on.Anyi
ndi
vi
dualor
anyassoci
ati
onofi
ndi
vi
dual
scar
ryi
ngonbanki
ngbusi
ness.Thescopepr
ovi
dedf
or
acqui
sit
ion undert
he SBIacti
sver
ywi
de whi
ch i
ncl
udesanyi
ndi
vi
dualorany
associ
ati
onofi
ndi
vi
dual
scar
ryi
ngonbanki
ngbusi
ness.Thatmeanst
hei
ndi
vi
dualor
bodyofi
ndi
vi
dual
scar
ryi
ngonbanki
ngbusi
ness.Thatmeanst
hei
ndi
vi
dualorbodyof
i
ndi
vi
dual
scar
ryi
ngonbanki
ngbusi
nessmayal
soi
ncl
udeur
bancooper
ati
vebankson
NBFC.Howev
eri
tmay be obser
ved t
hatt
her
eis no speci
fi
c ment
ion ofa
cor
respondi
ngnewbankorabanki
ngcompanyi
nthedef
ini
ti
onofbanki
ngi
nst
it
uti
on
undersect
ion38(
13)oft
heSBIact
.

45
I
tis notcl
earwhet
herundert
he pr
ovi
si
ons ofsect
ion 35,SBIcan acqui
rea
cor
respondi
ngnewbankoraRRBori
tsownsubsi
diar
yfort
hatmat
ter
.Suchapower
mathav
etobepr
esumedbyi
nter
pret
ingt
hedef
ini
ti
onofbanki
ngi
nst
it
uti
oni
nwi
dest
possi
blet
ermst
oincl
udeanyper
sondoi
ngbusi
nessofbanki
ng.I
tcanal
sobear
gued
t
hati
fSt
ateBankofI
ndi
aisgi
venapowert
oacqui
ret
hebusi
nessofanyi
ndi
vi
dual
doi
ng banki
ng busi
nessi
tshoul
d beper
missi
blet
o acqui
reanycor
por
atedoi
ng
banki
ng busi
ness subj
ectt
o compl
i
ance wi
thl
aw whi
ch i
s appl
i
cabl
eto such
cor
por
ate.Buti
nourv
iew,i
tisnotadv
isabl
etor
elyonsuchi
nter
pret
ati
onsi
nthe
mat
terofacqui
sit
ionofbusi
nessofbanki
ngbei
ngconduct
edbyanycompanyor
ot
hercor
por
ate.Anysuchacqui
sit
ionaf
fect
sri
ghtt
opr
oper
tyandr
ight
sofmany
ot
herst
akehol
der
sint
heor
gani
zat
iont
obeacqui
red.Thepower
sforacqui
si
ti
onar
e
t
her
efor
erequi
redt
obev
erycl
ear
lyandspeci
fi
cal
l
ypr
ovi
dedbyst
atuesot
hatany
possi
bil
i
tyofchal
l
enget
otheact
ionofacqui
si
ti
onbyanyst
akehol
derar
emi
nimi
zed
andsuchst
akehol
der
sar
eawar
eoft
hei
rri
ght
sbyv
irt
ueofcl
earst
atut
orypr
ovi
si
ons.

Nat
ional
i
sedbanksmaybeamal
gamat
edwi
thanyot
hernat
ional
i
zedbankorwi
th
anot
herbanki
ngi
nst
it
uti
on.i
.e.banki
ngcompanyorSBIorasubsi
diar
y.Anat
ional
i
zed
bankcannotbeamal
gamat
edwi
thNBFC.

Undert
hepr
ovi
sionsofsect
ion9i
tisper
missi
blef
ort
hecent
ralgov
ernmentt
omer
ge
acor
respondi
ngnewbankwi
thabanki
ngcompanyorv
icev
ersa.I
facor
respondi
ng
new bankbecomesat
ransf
erorbankandi
smer
gedwi
thabanki
ngcompanybei
ng
t
het
ransf
ereebank,aquest
ionar
isesast
otheappl
i
cabi
l
ityoft
hepr
ovi
si
onsoft
he
compani
esacti
nrespectt
othemer
ger
.Thepr
ovi
si
onsofsec.9donotspeci
fi
cal
l
y
excl
udet
heappl
i
cabi
l
ityoft
hecompani
esactt
oanyschemeofamal
gamat
ionofa
company
.

46
Fur
thersect
ion394(
4)(
b)oft
hecompani
esactpr
ovi
dest
hatat
ransf
ereecompany
doesnoti
ncl
udeanycompanyot
hert
hancompanywi
thi
nthemeani
ngofcompani
es
act
.Butat
ransf
erorcompanyi
ncl
udesanybodycor
por
atewhet
hert
hecompanyi
s
wi
thi
nthemeani
ngofcompani
esactornot
.Theef
fectoft
hispr
ovi
si
oni
sthat
pr
ovi
sioncont
ainedi
nthecompani
esactr
elat
ingt
oamal
gamat
ionandmer
ger
sappl
y
i
ncaseswher
eanycor
por
ati
oni
stobemer
gedwi
thacompany
.

Ther
efor
eifundersect
ion9(
2)(
c)ofnat
ional
i
zat
ionactacor
respondi
ngnewbanki
s
t
omer
gedwi
thabanki
ngcompany
(tr
ansf
ereecompany
),i
twi
l
lbenecessar
yto
compl
ywi
tht
hepr
ovi
sionsoft
hecompani
esact
.Itwi
l
lbenecessar
ythatshar
ehol
der
oft
het
ransf
ereebanki
ngcompany¾ t
hei
nval
uepr
esentandv
oti
ngshoul
dappr
ove
t
heschemeofamal
gamat
ion.Sect
ion44A oft
heBanki
ng Regul
ati
onActwhi
ch
empower
sRBIt
oappr
oveamal
gamat
ionofanyt
wobanki
ngcompani
esr
equi
res
appr
ovalofshar
ehol
der 3rd i
sofeachcompany2/ nval
ue.Butsi
ncesect
ion44Adoes
notappl
yifaBanki
ngcompanyi
stobemer
gedwi
thacor
respondi
ngnew bank,
appr
ov 4thi
alof3/ nval
ueofshar
ehol
der
swi
l
lappl
ytosuchmer
geri
ncompl
i
ancewi
th
t
hecompani
esact
.

Amal
gamat
ionofco-
oper
ati
vebankswi
thOt
herEnt
it
ies

Co-
oper
ati
vebanksar
eundert
her
egul
ati
onandsuper
visi
onofr
eser
vebankofI
ndi
a
undert
hepr
ovi
sionofbanki
ngr
egul
ati
onact1949(
asappl
i
cabl
etocooper
ati
ve
banks)
.Howev
erconst
it
uti
on,composi
ti
onandadmi
nist
rat
ionoft
hecooper
ati
ve
soci
eti
esar
eundersuper
visi
onofr
egi
str
arofco-
oper
ati
vesoci
eti
esofr
espect
ive
st
ates(
incaseofMahar
asht
raSt
ate,cooper
ati
vesoci
eti
esar
egov
ernedbyt
he
posi
ti
onsofMahar
asht
racooper
ati
vesoci
eti
esact
,1961)
.

47
Amal
gamat
ionofcooper
ati
vebanks

Undersect
ion18Aoft
heMahar
asht
raSt
atecooper
ati
vesoci
eti
esact1961(
MCSAct
)
r
egi
str
arofcooper
ati
ves soci
eti
es i
s empower
ed t
o amal
gamat
etwo ormor
e
cooper
ati
vebanksi
npubl
i
cint
erestori
nor
dert
osecur
ethepr
opermanagementof
oneormor
ecooper
ati
vebanks.Onamal
gamat
ion,
anewent
it
ycomesi
ntobei
ng.

48
 6.PROCEDUREOFBANKMERGERSANDAQUI
SITI
ONS

Thepr
ocedur
eformer
gerei
therv
olunt
aryorot
her
wisei
sout
li
nedi
nther
espect
ive
st
atest
atut
es/t
heBanki
ngr
egul
ati
onAct
.TheRegi
str
ars,
bei
ngt
heaut
hor
it
iesv
est
ed
wi
tht
her
esponsi
bil
i
tyofadmi
nist
eri
ngt
heAct
s,wi
l
lbeensur
ingt
hatt
heduepr
ocess
pr
escr
ibedi
ntheSt
atut
eshasbeencompl
i
edwi
thbef
oret
heyseekt
heappr
ovalof
t
heRBI
.Theywoul
dal
sobeensur
ingcompl
i
ancewi
tht
hest
atut
orypr
ocedur
esf
or
not
if
yingt
heamal
gamat
ionaf
terobt
aini
ngt
hesanct
ionoft
heRBI
.

Bef
oredeci
dingont
hemer
ger
,theaut
hor
izedof
fi
ci
alsoft
heacqui
ri
ngbankandt
he
mer
gingbanksi
ttoget
heranddi
scusst
hepr
ocedur
almodal
i
tiesandf
inanci
alt
erms.
Af
tert
heconcl
usi
onoft
hedi
scussi
ons,aschemei
spr
epar
edi
ncor
por
ati
ngt
her
ein
t
heal
lthedet
ail
sofbot
hthebanksandt
hear
eat
ermsandcondi
ti
ons.Oncet
he
schemei
sfi
nal
i
zed,i
tist
abl
edi
nthemeet
ingofBoar
dofdi
rect
orsofr
espect
ive
banks.Theboar
ddi
scussest
heschemet
hreadbar
eandaccor
dsi
tsappr
ovali
fthe
pr
oposal
isf
oundt
obef
inanci
all
yvi
abl
eandbenef
ici
ali
nlongr
un.

Af
tert
heBoar
dappr
ovaloft
hemer
gerpr
oposal
,anext
raor
dinar
ygener
almeet
ingof
t
heshar
ehol
der
soft
her
espect
ivebanksi
sconv
enedt
odi
scusst
hepr
oposaland
seekt
hei
rappr
oval
.

Af
tert
heboar
dappr
ovaloft
hemer
gerpr
oposal
,ar
egi
ster
edv
alueri
sappoi
ntedt
o
v
aluat
ebot
hthebanks.Thev
aluerv
aluat
est
hebanksont
hebasi
sofi
tsshar
ecapi
tal
,
mar
ketcapi
tal
,asset
sandl
i
abi
l
iti
es,i
tsr
eachandant
ici
pat
edgr
owt
handsendsi
ts
r
epor
ttot
her
espect
ivebanks.

49
Oncet
hev
aluat
ioni
saccept
edbyt
her
espect
ivebanks,t
heysendt
hepr
oposalal
ong
wi
thal
lrel
evantdocument
ssuchasBoar
dappr
oval
,shar
ehol
der
sappr
oval
,val
uat
ion
r
epor
tet
ctoReser
veBankofI
ndi
aandot
herr
egul
ator
ybodi
essuchSecur
it
y&
exchangeboar
dofI
ndi
a(SEBI
)fort
hei
rappr
oval
.

Af
terobt
aini
ngappr
oval
sfr
om al
ltheconcer
nedi
nst
it
uti
ons,aut
hor
izedof
fi
ci
alsof
bot
hthebankssi
ttoget
heranddi
scussandf
inal
i
zeshar
eal
l
ocat
ionpr
opor
ti
onbyt
he
acqui
ri
ngbankt
otheshar
ehol
der
soft
hemer
gingbank.

Af
tercompl
eti
onoft
heabov
epr
ocedur
es,amer
gerandacqui
si
ti
onagr
eementi
s
si
gnedbyt
hebank.

RBIGui
del
i
nesonMer
ger
s&Acqui
sit
ionsofBanks

Wi
thav
iew t
ofaci
l
itat
ing consol
i
dat
ion and emer
gence ofst
rong ent
it
ies and
pr
ovi
dinganav
enuef
ornondi
srupt
iveexi
tofweak/
unv
iabl
eent
it
iesi
nthebanki
ng
sect
or,
ithasbeendeci
dedt
ofr
amegui
del
i
nest
oencour
agemer
ger
/amal
gamat
ioni
n
t
hesect
or.

Al
thought
heBanki
ngRegul
ati
onAct
,1949(
AACS)doesnotempowerReser
veBank
t
ofor
mul
ateaschemewi
thr
egar
dtomer
gerandamal
gamat
ionofbanks,t
heSt
ate
Gov
ernment
shav
eincor
por
atedi
nthei
rrespect
iveAct
sapr
ovi
si
onf
orobt
aini
ng
pr
iorsanct
ioni
nwr
it
ing,ofRBIf
oranor
der
,int
eral
i
a,f
orsanct
ioni
ngaschemeof
amal
gamat
ionorr
econst
ruct
ion.
Ther
equestf
ormer
gercanemanat
efr
om banksr
egi
ster
edundert
hesameSt
ateAct
orf
rom banksr
egi
ster
edunder
atheMul
tiSt
ateCo-
oper
ati
veSoci
eti
esAct(
Cent
ral
Act
)fort
akeov
erofabank/
sregi
ster
edunderSt
ateAct
.
50
Whi
l
ethe St
ate Act
s speci
fi
cal
l
y pr
ovi
de f
ormer
gerofco-
oper
ati
ve soci
eti
es
r
egi
ster
edundert
hem,t
heposi
ti
onwi
thr
egar
dtot
akeov
erofaco-
oper
ati
vebank
r
egi
ster
edundert
heSt
ateActbyaco-
oper
ati
vebankr
egi
ster
edundert
heCENTRAL

Al
thought
her
ear
enospeci
fi
cpr
ovi
sionsi
ntheSt
ateAct
sort
heCent
ralActf
ort
he
mer
gerofaco-
oper
ati
vesoci
etyundert
heSt
ateAct
swi
tht
hatundert
heCent
ralAct
,
i
tisf
eltt
hat
,ifal
lconcer
nedi
ncl
udi
ngadmi
nist
rat
orsoft
heconcer
nedAct
sar
e
agr
eeabl
etoor
dermer
ger
/amal
gamat
ion,RBImayconsi
derpr
oposal
sonmer
it
s
l
eav
ingt
hequest
ionofcompl
i
ancewi
thr
elev
antst
atut
est
otheadmi
nist
rat
orsoft
he
Act
s.I
not
herwor
ds,Reser
veBankwi
l
lconf
inei
tsexami
nat
iononl
ytof
inanci
al
aspect
sandt
othei
nter
est
sofdeposi
tor
saswel
last
hest
abi
l
ityoft
hef
inanci
al
sy
stem whi
l
econsi
der
ingsuchpr
oposal
s.

51
MOTI
VESBEHI
NDCONSOLI
DATI
ONI
NBANKI
NGSECTOR

Basedont
hecases,
wecannar
rowdownt
hemot
ivesbehi
ndM&Ast
othe
fol
l
owing:
Gr
owt
h-
Organicgr
owthtakest
imeanddy nami
cfi
rmspr
eferacqui
sit
ionst
ogr
ow
quickl
yinsi
zeandgeographi
cal
reach.
Sy
ner
gy-
Themergedenti
ty,
inmostcases,hasbett
erabi
l
ityi
nter
msofbot
h
rev
enueenhancementandcostreduct
ion.
Manager
ial
eff
ici
ency-
Acqui
rercanbett
ermanagether
esour
cesoft
het
argetwhosev
alue,
int
urn,
ri
sesaft
ertheacqui
sit
ion.
St
rat
egi
cmot
ives-
Twobankswit
hcomplementar
ybusinessi
nter
est
scanst
rengt
hent
hei
r
posi
ti
onsi
nthemarkett
hroughmerger.
Mar
ketent
ry-
Cashr
ichf
ir
msuset heacqui
sit
ionrout
et obuyoutanest
abl
i
shedpl
ayeri
n
anewmarketandt
henbuildupontheexisti
ngplat
for
m.
Taxshiel
dsandfi
nanci
alsafeguards-Taxconcessionsactasacat
aly
stf
or
astr
ongbanktoacquir
edistressedbanksthathaveaccumulat
ed
l
ossesanduncl
aimeddepreciati
onbenefi
tsinthei
rbooks.

52
 7.
RISKSI
NBANKMERGERSANDACQUI
SITI
ONS

Whent
wobanksmer
gei
ntoonet
hent
her
eisani
nev
itabl
eincr
easei
nthesi
zeoft
he
or
gani
zat
ion.Bi
gsi
zemaynotal
way
sbebet
ter
.Thesi
zemaygett
oowi
del
yandgo
bey
ondt
hecont
roloft
hemanagement
.Thei
ncr
easedsi
zemaybecomeadr
ugr
ather
t
hananasset
.

Consol
i
dat
iondoesnotl
eadt
oinst
antr
esul
tsandt
her
eisani
ncubat
ionper
iodbef
ore
t
her
esul
tsar
ri
ve.Mer
ger
sandacqui
sit
ionsar
esomet
imesf
oll
owedbyl
ossesand
t
oughi
nter
veni
ngper
iodsbef
oret
heev
ent
ualpr
ofi
tspouri
n.Pat
ience,f
orbear
ance
andr
esi
l
iencear
erequi
redi
nampl
emeasur
etomakeanymer
gerasuccessst
ory
.Al
l
maynotbeupt
othepl
an,whi
chexpl
ainswhyt
her
ear
ehi
ghr
ateoff
ail
uresi
n
mer
ger
s.

Consol
i
dat
ionmai
nlycomesduet
othedeci
si
ont
akenatt
het
op.I
tisat
op-
heav
y
deci
sionandwi
l
li
ngnessoft
her
ankandf
il
eofbot
hent
it
iesmaynotbef
ort
hcomi
ng.
Thi
s l
eads t
o pr
obl
ems of i
ndust
ri
al r
elat
ions, depr
ivat
ion, depr
essi
on and
demot
ivat
ionamongt
heempl
oyees.Suchawor
kfor
cecannev
erchur
noutgood
r
esul
ts.Ther
efor
e,per
sonalmanagementatt
hehi
ghestor
derwi
thhumanet
ouch
al
onecanpav
etheway
.

Thest
ruct
ure,sy
stemsandt
hepr
ocedur
esf
oll
owedi
ntwobanksmaybev
ast
ly
di
ff
erent
,forexampl
e,a PSU bank oran ol
d gener
ati
on bank and t
hatofa
t
echnol
ogi
cal
l
y super
ior f
orei
gn bank.The er
stwhi
l
e st
ruct
ures,sy
stems and
pr
ocedur
esmaynotbeconduci
vei
nthenew mi
l
ieu.A t
hor
oughov
erhaul
i
ngand
sy
stemsanal
ysi
shast
obedonet
oassi
mil
atebot
htheor
gani
zat
ions.

53
Thi
sisat
imeconsumi
ngpr
ocessandr
equi
resl
otofcaut
ionsappr
oachest
oreduce
t
hef
ri
cti
ons.

Ther
eisapr
obl
em ofv
aluat
ionassoci
atedwi
thal
lmer
ger
s.Theshar
ehol
derof
exi
sti
ngent
it
ieshast
obegi
vennewshar
es.Ti
l
lnowaf
ool
proofv
aluat
ionsy
stem f
or
t
ransf
erandcompensat
ioni
syett
oemer
ge.

Fur
ther
,ther
eisal
soapr
obl
em ofbr
andpr
oject
ion.Thi
sbecomesmor
ecompl
i
cat
ed
whenexi
sti
ngbr
andst
hemsel
veshav
eagoodappeal
.Quest
ionar
iseswhet
hert
he
ear
li
erbr
andsshoul
dcont
inuet
obepr
oject
edorshoul
dtheybesubmer
gedi
nfav
our
ofanew compr
ehensi
vei
dent
it
y.Goodwi
l
lisof
tent
owar
dsabr
andandi
tssub-
mer
geri
susual
l
ynott
akenki
ndl
y.

54
 8.CHALLENGESANDOPPORTUNI
TIESI
NINDI
ANBANKI
NG
SECTOR
I
naf
ew y
ear
sfr
om now t
her
ewoul
dbegr
eat
erpr
esenceofi
nter
nat
ionalpl
ayer
sin
I
ndi
anf
inanci
alsy
stem andsomeoft
heI
ndi
anbankswoul
dbecomegl
obalpl
ayer
sin
t
hecomi
ngy
ear
s.Al
socompet
it
ioni
snotonl
yonf
orei
gnt
urfbutal
soi
nthedomest
ic
f
iel
d.Thenew mant
raf
orI
ndi
anbanksi
stogogl
obali
nsear
chofnew mar
ket
s,
cust
omer
sandpr
ofi
ts.Butt
odosot
heI
ndi
anbanki
ngi
ndust
rywi
l
lhav
etomeet
cer
tai
nchal
l
enges.Someoft
hem ar
e–

FOREI
GNBANKS–I
ndi
aisexper
ienci
nggr
eat
erpr
esenceoff
orei
gnbanksov
ert
ime.
Asar
esul
tnumberofi
ssueswi
l
lar
isel
i
kehowwi
l
lsmal
l
ernat
ionalbankscompet
ein
I
ndi
awi
tht
hem,andwi
l
ltheyt
hemsel
vesneedt
ogener
ateal
argeri
nter
nat
ional
pr
esence?Second,ov
erl
apsandpot
ent
ialconf
li
ctsbet
weenhomecount
ryr
egul
ator
s
off
orei
gn banksand hostcount
ryr
egul
ator
s:how wi
l
lthesebeaddr
essed and
r
esol
vedi
nthey
ear
stocome?I
thasbeenseeni
nrecenty
ear
sthatev
enr
elat
ivel
y
st
rong r
egul
ator
yact
ion t
aken byr
egul
ator
sagai
nstsuch gl
obalbankshashad
negl
i
gibl
emar
ketorr
eput
ati
onali
mpactont
hem i
nter
msoft
hei
rst
ockpr
iceor
si
mil
armet
ri
cs.Thus,t
her
eisl
ossofr
egul
ator
yef
fect
ivenessasar
esul
toft
he
pr
esenceofsuchf
inanci
alcongl
omer
ates.Hencet
her
eisi
nev
itabl
etensi
onbet
ween
t
hebenef
it
sthatsuchgl
obalcongl
omer
atesbr
ingandsomer
egul
ator
yandmar
ket
st
ruct
ureandcompet
it
ioni
ssuest
hatmayar
ise.

GREATERCAPI
TALMARKETOPENNESS-Ani
mpor
tantf
eat
ureoft
heI
ndi
anf
inanci
al
r
efor
m pr
ocesshasbeent
hecal
i
brat
edopeni
ngoft
hecapi
talaccountal
ongwi
th
cur
rentaccountconv
ert
ibi
l
ity
.Ithast
obeseent
hatt
hev
olat
il
it
yofcapi
tali
nfl
ows
doesnotr
esul
tinunaccept
abl
edi
srupt
ioni
nexchanger
ate

55
det
ermi
nat
ionwi
thi
nev
itabl
erealsect
orconsequences,andi
ndomest
icmonet
ary
condi
ti
ons.Thev
ulner
abi
l
ityoff
inanci
ali
nter
medi
ari
escanbeaddr
essedt
hrough
pr
udent
ialr
egul
ati
ons and t
hei
rsuper
visi
on;r
isk managementofnon-
fi
nanci
al
ent
it
ies.Thi
swi
l
lrequi
remar
ketdev
elopment
,Enhancementofr
egul
ator
ycapaci
tyi
n
t
hesear
eas,
aswel
lashumanr
esour
cedev
elopmenti
nbot
hfi
nanci
ali
nter
medi
ari
es
andnon-
fi
nanci
alent
it
ies.

TECHNOLOGYI
STHEKEY–I
Tiscent
ralt
obanki
ng.For
eignbanksandt
henew
pr
ivat
e sect
orbanks hav
e embr
aced t
echnol
ogyr
ightf
rom t
hei
rincept
ion and
cont
inuet
odosoev
ennow.Al
thoughpubl
i
csect
orbankshav
ecr
ossedt
he70%l
evel
ofcomput
eri
zat
ion,t
hedi
rect
ioni
stoachi
eve100%.Net
wor
kingi
nbankshasal
so
beenr
ecei
vi
ngf
ocusedat
tent
ioni
nrecentt
imes.Mostr
ecent
lyt
het
rendobser
vedi
n
t
hebanki
ngi
ndust
ryi
stheshar
ingofATMsbybanks.Thi
sisonear
eawher
eper
haps
I
ndi
aneedst
odosi
gni
fi
cant„
cat
chi
ngup‟
.Iti
swi
sef
orI
ndi
anbankst
oexpl
oitt
his
gl
obal
l
yst
ate-
of-
artexper
ti
se,
domest
ical
l
yav
ail
abl
e,t
othei
rful
l
estadv
ant
age.

CONSOLI
DATI
ON–Wear
esl
owl
ybutsur
elymov
ingf
rom ar
egi
meof"
lar
genumber
ofsmal
lbanks"t
o"smal
lnumberofl
argebanks.
"Thenewer
aisoneofconsol
i
dat
ion
ar
ound i
dent
if
ied cor
e compet
enci
es i
.e.
,mer
ger
s and acqui
si
ti
ons.Successf
ul
mer
gerofHDFCBankandTi
mesBank;St
anchar
tandANZGr
indl
ays;Cent
uri
onBank
andBankofPunj
abhav
edemonst
rat
edt
hist
rend.Ol
dpr
ivat
esect
orbanks,manyof
whi
ch ar
e notabl
eto cushi
on t
hei
rNPA‟
s,expand t
hei
rbusi
ness and i
nduct
t
echnol
ogyduet
oli
mit
edcapi
talbaseshoul
dbet
hinki
ngser
iousl
yaboutmer
ger
s
andacqui
si
ti
ons.

56
PUBLI
C SECTOR BANKS -I
tist
hepubl
i
csect
orbankst
hathav
ethel
argeand
wi
despr
eadr
each,
andhencehav
ethepot
ent
ialf
orcont
ri
but
ingef
fect
ivel
ytoachi
eve
f
inanci
ali
ncl
usi
on.Buti
tisal
sot
heywhof
acet
hemostdi
ff
icul
tchal
l
engesi
nhuman
r
esour
cedev
elopment
.Theywi
l
lhav
etoi
nvestv
eryheav
il
yinski
l
lenhancementatal
l
l
evel
s:

att
het
opl
evelf
ornew st
rat
egi
cgoalset
ti
ng;att
hemi
ddl
elev
elf
ori
mpl
ement
ing
t
hesegoal
s;andatt
hecut
ti
ngedgel
owerl
evel
sfordel
i
ver
ingt
henewser
vicemodes.
Gi
vent
hecur
rentagecomposi
ti
onofempl
oyeesi
nthesebanks,t
heywi
l
lal
sof
ace
new r
ecr
uit
mentchal
l
enges i
nthe f
ace ofadv
erse compensat
ion st
ruct
ures i
n
compar
isonwi
tht
hef
reerpr
ivat
esect
or.

BaselI
I–Asof2006,
RBIhasmadei
tmandat
oryf
orSchedul
edbankst
ofol
l
owBasel
I
Inor
ms.BaselI
Iisext
remel
ydat
aint
ensi
veandr
equi
resgoodqual
i
tydat
aforbet
ter
r
esul
ts.Dat
aver
sioni
ngconf
li
ctsanddat
a.st
reaml
i
net
hei
roper
ati
onsandadopt
ent
erpr
isewi
deI
Tar
chi
tect
ures.Banksneedt
olookt
owar
dsensur
ingar
iskcul
tur
e,
whi
chpenet
rat
est
hroughoutt
heor
gani
zat
ion.

COSTMANAGEMENT–Costcont
ainmenti
sakeyt
osust
ainabi
l
ityofbankpr
ofi
tsas
wel
las t
hei
rlong-
ter
m v
iabi
l
ity
.InI
ndi
a,howev
er,i
n 2003,oper
ati
ng cost
s as
pr
opor
ti
onoft
otalasset
sofschedul
edcommer
cialbanksst
oodat2.
24%,whi
chi
s
qui
tehi
ghascompar
edt
oinot
hereconomi
es.Thet
asksaheadar
ethuscl
earand
wi
thi
nreach.

RECOVERYMANAGEMENT–Thi
sisakeyt
othest
abi
l
ityoft
hebanki
ngsect
or.I
ndi
an
bankshav
edonear
emar
kabl
ejobi
ncont
ainmentofnon-
per
for
mingl
oans(
NPL)
consi
der
ingt
heov
erhangi
ssuesandov
eral
ldi
ff
icul
tenv
ironment
.
57
Recov
erymanagementi
sal
sol
i
nkedt
othebanks‟
i
nter
estmar
gins.Costand r
ecov
ery managementsuppor
ted by enabl
i
ng l
egal
f
ramewor
khol
dthekeyt
ofut
ureheal
thandcompet
it
ivenessoft
heI
ndi
anbanks.
I
mpr
ovi
ngr
ecov
erymanagementi
nIndi
aisanar
ear
equi
ri
ngexpedi
ti
ousandef
fect
ive
act
ionsi
nlegal
,i
nst
it
uti
onal
andj
udi
cial
processes.

REACH AND I
NNOVATI
ON -Hi
ghersust
ainedgr
owt
hiscont
ri
but
ingt
oenhanced
demandf
orf
inanci
alsav
ingsoppor
tuni
ti
es.I
nrur
alar
easi
npar
ti
cul
ar,t
her
eal
so
appear
stobei
ncr
easi
ngdi
ver
sif
icat
ionofpr
oduct
iveoppor
tuni
ti
es.Al
soi
ndust
ri
al
expansi
onhasaccel
erat
ed;mer
chandi
set
radegr
owt
hishi
gh;andt
her
ear
evast
demandsf
ori
nfr
ast
ruct
urei
nvest
ment
,fr
om t
hepubl
i
csect
or,pr
ivat
esect
orand
t
hroughpubl
i
cpr
ivat
epar
tner
shi
ps.Thus,
thebanki
ngsy
stem hast
oext
endi
tsel
fand
i
nnov
ate.Bankswi
l
lhav
etoi
nnov
ateandl
ookf
ornew del
i
ver
ymechani
smsand
pr
ovi
debet
teraccesst
othecur
rent
lyunder
-ser
ved.I
nnov
ati
vechannel
sforcr
edi
t
del
i
ver
yforser
ving new r
uralcr
edi
tneeds wi
l
lhav
eto be f
ound.The buddi
ng
expansi
onofnon-
agr
icul
tur
eser
viceent
erpr
isesi
nrur
alar
easwi
l
lhav
etobef
inanced.
Gr
eat
eref
for
tswi
l
lneedt
obemadeoni
nfor
mat
iont
echnol
ogyf
orr
ecor
dkeepi
ng,
ser
vice del
i
ver
y,and r
educt
ion i
ntr
ansact
ions cost
s,r
isk assessmentand r
isk
management
.Bankswi
l
lhav
etoi
nvesti
nnew ski
l
lst
hroughnew r
ecr
uit
mentand
t
hroughi
ntensi
vet
rai
ningofexi
sti
ngper
sonnel
.

RI
SKMANAGEMENT–Banki
ngi
nmoder
neconomi
esi
sal
laboutr
iskmanagement
.
Thesuccessf
ulnegot
iat
ionandi
mpl
ement
ati
onofBaselAccor
disl
i
kel
ytol
eadt
oan
ev
enshar
perf
ocusont
her
iskmeasur
ementandr
iskmanagementatt
hei
nst
it
uti
onal
l
evel
.

58
Soundr
iskmanagementpr
act
iceswoul
dbeani
mpor
tantpi
l
larf
orst
ayi
ngaheadof
t
hecompet
it
ion.Bankscan,
ont
hei
rpar
t,f
ormul
ate„
ear
lywar
ningi
ndi
cat
ors‟sui
ted
t
othei
rownr
equi
rement
s,busi
nesspr
ofi
l
eandr
iskappet
it
einor
dert
obet
termoni
tor
andmanager
isks.

GOVERNANCE–Thequal
i
tyofcor
por
ategov
ernancei
nthebanksbecomecr
it
icalas
compet
it
ioni
ntensi
fi
es,banksst
ri
vet
oret
aint
hei
rcl
i
entbase,andr
egul
ator
smov
e
outofcont
rol
sandmi
cro-
regul
ati
on.
Theobj
ect
iveshoul
dbet
ocont
inuousl
yst
ri
vef
orexcel
l
ence.I
mpr
ovementi
npol
i
cy-
f
ramewor
k,r
egul
ator
yregi
me,mar
ketper
cept
ions,andi
ndeed,popul
arsent
iment
s
r
elat
ingt
ogov
ernancei
nbanksneedt
obeont
het
opoft
heagenda–t
oser
veour
soci
ety
’sneedsandr
eal
i
tieswhi
l
ebei
ngi
nhar
monywi
tht
hegl
obal
per
spect
ive.

59
 9.CONCLUSI
ON

Post
-li
ber
ali
zat
ion,mostI
ndi
anbusi
nesshousear
eunder
goi
ngmaj
orst
ruct
ural
changes,
thel
evelofr
est
ruct
uri
ngact
ivi
tyi
sincr
easi
ngr
api
dlyandt
heconsol
i
dat
ion
t
hroughM&Ahav
ereachedev
erycor
por
ateboar
droom.

mostoft
hemer
gert
hatt
ookpl
acei
nIndi
adur
ingt
hel
astdecadeseemedt
ohav
e
f
oll
owt
heconsequencesofmer
geri
nIndi
a.Cor
robor
atet
heconcl
usi
on

Basedont
het
rendsi
nthebanki
ngsect
orandt
hei
nsi
ght
sfr
om t
hecaseshi
ghl
i
ght
ed
i
nthi
sst
udy
,onecanl
i
stsomest
epsf
ort
hef
utur
ewhi
chbanksshoul
dconsi
der
,bot
h
i
nter
msofconsol
i
dat
ionandgener
albusi
ness.Fi
rst
ly,bankscanwor
ktowar
dsa
sy
ner
gy-
basedmer
gerpl
ant
hatcoul
dtakeshapel
atestby2009endwi
thmi
nimi
sat
ion
oft
echnol
ogy
-rel
atedexpendi
tur
easagoal
.Ther
eisal
soaneedt
onot
ethatmer
ger
orl
argesi
zei
sjustaf
aci
l
itat
or,butnoguar
ant
eef
ori
mpr
ovedpr
ofi
tabi
l
ityona
sust
ained basi
s.Hence,t
he t
hrustshoul
d be on i
mpr
ovi
ng r
isk management
capabi
l
iti
es,cor
por
ategov
ernanceandst
rat
egi
cbusi
nesspl
anni
ng.I
ntheshor
trun,
at
temptopt
ionsl
i
keout
sour
cing,st
rat
egi
cal
l
iances,et
c.canbeconsi
der
ed.Banks
needt
otakeadv
ant
ageoft
hisf
astchangi
ngenv
ironment
,wher
epr
oductl
i
fecy
cles
ar
eshor
t,t
imet
omar
keti
scr
it
icalandf
ir
stmov
eradv
ant
agecoul
dbeadeci
siv
e
f
act
ori
ndeci
dingwhowi
nsi
nfut
ure.Post
-M&A,t
her
esul
ti
ngl
argersi
zeshoul
dnot
af
fectagi
l
ity
.Theai
m shoul
dbet
o cr
eat
eani
mbl
egi
ant
,rat
hert
hanacl
umsy
di
nosaur
.Att
hesamet
ime,l
ackofsi
zeshoul
dnotbet
akent
oimpl
yir
rel
evanceas
speci
ali
zedpl
ayer
scanst
il
lseekt
opr
ovi
deni
cheandbout
iqueser
vices.

60
 10.BI
BLOGRAPHY

1.www.
bankof
raj
ast
han.
com
2.WWW.
WIKI
PEDI
A.COM
3.WWW.
SBI
.CO.
IN

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CORPORATERESTRUCTUREI
NINDI
A

 KAMATAN SRI
NIVAN,MERGERS & ACQI
SITI
ONS
I
NINDI
ANBANKI
NGSECTOR
ASTUDYOFSELECTEDBANK

 JAYSHREE BOSE, BANK MERGERS I

NDI
AN
SCENARI
O

 ABHI
SHEK THRI
PATHI
, MERGERS AND
ACUI
SITI
ONSI
NINDI
ANBANKI
NGI
NDUSTRY

 APDASH,MERGERSANDACQUI
SITI
ONS

[
61]
 VASANT DESAI
, BANK AND I
NSTI
TUTI
ONAL
MANAGEMENT

 S.M.Jha,
BANKMARKETI
NG

 SONALIJAI
N,BANKI
NGI
NDUSTRYI
NINDI
A
Ref
orms,
Regul
ati
ons&ser
viceQual
i
ty.

[
62]