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Chart-1-STRUCTURE OF FINANCIAL SYSTEM

1.2 FINANCIAL SYSTEM CONSTITUENT


Financial Institutions are engaged in the business of ‘money or finance’. They can be
further classified into three categories:
• Intermediaries
• Non-Intermediaries
• Regulatory Agencies
A. Intermediaries
Intermediaries are the financial institutions that accept deposits from the savers and
channelize the same as lending/ investment to the users. In other words, financial
Intermediaries function as abridge between the savers and the users in any economy. The
financial intermediaries by their smooth ‘conduit function’ make the economy infinitely
more efficient in the usage of money.
Examples of financial intermediaries are:
Banks,
Investment Companies
Non-Banking Finance Companies [NBFCs],
Insurance companies,
Mutual funds,
Stock Brokerages
Credit Card Companies
B. Non Intermediaries
These are popularly known as Development Banks. These institutions fund the users of
money, but, as a matter of policy, do not accept deposits from ordinary savers. They get
funds from their owners or members as capital contribution/subscription & not from
depositors.
Classic examples of such institutions in the international context are
Asian Development Bank
World Bank
International Monetary Fund (IMF).
State Financial Corporations (In the Indian context)
C. Regulatory
These are agencies whose sole function is to monitor and regulate the functioning of the
intermediaries and non-intermediaries and are referred to as ‘Regulatory Authorities ’.
They are like the traffic cops that lay down the “Do’s and Don’ts” for the players in the
market. To make their regulations enforceable, these agencies are generally armed
with punitive powers, which can be exercised in case of non-compliance by any of the
players.
1.3 FINANCIAL INSTITUTIONS
Financial institutions have traditionally been the major source of long-term funds for the
economy in line with the development objective of the state. A wide variety of financial
institutions (FIs) emerged over the years. While most of them extend direct finance, some
also extend indirect finance and still some others extend largely refinance.
A financial institution acts as an agent that provides financial services for its clients or
members. Financial institutions generally fall under financial regulation from a government
authority. Common types of financial institutions include banks, building societies, credit
unions, stock brokerages, asset management firms, and similar businesses.
1.4 FUNCTION
Financial institutions provide a service as intermediaries of the capital and debt markets.
They are responsible for transferring funds from investors to companies, in need of those
funds. The presence of financial institutions facilitate the flow of monies through the
economy. To do so, savings are pooled to mitigate the risk brought vide funds for loans.
Such is the primary means for depository institutions to develop revenue. Should the yield
curve become inverse, firms in this arena will offer additional fee-generating services
including securities underwriting, and prime brokerage
1.5 TYPES OF FINNANCIAL INSTITUTIONS
Financial Institutions can be broadly categorised as all India or state level institutions
depending on the geographical coverage of their operation. Based on their major activity, all-
India financial institutions (AIFIs) can be classified as (i) term-lending institutions [IFCI
Ltd., Industrial Investment Bank of India (IIBI) Ltd., Infrastructure Development Finance
Company (IDFC) Ltd., Export-Import Bank of India (EXIM Bank) and Tourism Finance
Corporation of India (TFCI) Ltd.] which extend long-term finance to different industrial
sectors; (ii) refinance institutions [National Bank for Agriculture and Rural Development
(NABARD), Small Industries Development Bank of India (SIDBI) and National Housing
Bank (NHB)] which extend refinance to banking as well as non-banking financial
intermediaries for on-lending to agriculture, small scale industries (SSIs) and housing
sectors, respectively; and (iii) investment institutions [Life Insurance Corporation of India
(LIC) and General Insurance Corporation of India (GIC) and its erstwhile subsidiaries),
which deploy their assets largely in marketable securities. State/regional level institutions are
a distinct group and comprise various State Financial Corporations (SFCs), State Industrial
and Development Corporations (SIDCs) and North Eastern Development Finance
Corporation (NEDFi) Ltd. Some of these FIs have been notified as Public Financial
Institutions (PFIs) by the Government of India under Section 4A of the Companies Act,
1956.
1.6 INTRODUCTION OF BANKING SYSTEM

1.6(A). DEFINATION OF A BANK

The term bank is generally understood as an institution that holds a banking license granted
by the Bank regulatory authority and is provided rights to conduct the most fundamental
banking services. All banks come under the Intermediaries categories functioning as a
bridge between the savers and the users.
Bank is a commercial institution licensed as a receiver of deposits. It is a financial institution
that accepts deposits and channels the money into lending activities. It provides banking
services for profit. The essential function of a bank is to provide services related to
the storing of deposits and extending of credit. A bank generates profits from transaction
fees on financial services and on the interest it charges for lending.
1.6(B). BANKING SERVICES
Although the nature of services offered by a bank depends upon the type of the bank and the
country, the primary services provided include
• Taking deposits from the general public and issuing checking and savings
• Accounts, keeping money safe while also allowing withdrawals when needed
• Providing loans to individuals, businesses & Corporate
• Encashing cheques
• Facilitating money transactions such as wire transfers and cashiers checks
(Inter Bank, Intra Bank, Inter/Intra country etc…)
• Issuing credit cards, ATM, and debit cards
• Storing valuables, particularly in a safe deposit box
• Facilitation of standing orders and direct debits, so that payments for bills can be
made automatically

1.6(C). BANKING SYSTEM IN INDIA

Indian Banking System is fairly complex because of the presence of a variety of banks and a
phenomenal number of branches. (Possibly; in terms of sheer branch network, Indian
banking system could be reckoned as the largest in the world. Incidentally, SBI
is the largest bank in terms of number of branches/ personnel. As for the structure, the
Ministry of Finance is the super-regulator with RBI operating under its guidance. RBI is
the regulator of the banking system in India. It is responsible for bank licensing, as well
as branch licensing, issuing directives and supervising the functioning of banks.
It is empowered with punitive powers that can be exercised against errant banks.
Besides the RBI, there are agencies such as the Deposit Insurance, Corporation &
Guarantee Corporation of India (DICGC) and the Banking Ombudsman that have
Jurisdiction over banks in select matters
Categories of banks in India include: Public Sector Banks, Private Sector Banks,
Foreign Banks, Cooperative Banks, Local Area Banks and Regional Rural Banks. Examples
of Public sector banks are SBI & its associates and nationalized banks such as Canara Bank,
UCO Bank, Syndicate Bank, etc. Old generation Private sector banks include: Karur Vysya
Bank, Federal Bank, Catholic Syrian Bank, etc. & those incorporated after 1992 are
branded as “New Private Sector Banks. E.g.: HDFC Bank, ICICI Bank and Indusind Bank.
Foreign banks are those that are incorporated outside India but carry on their operations in
India under license from the RBI [E.g.: Citibank, Standard Chartered, HSBC Bank, etc.
While the above categories of banks are treated as ‘commercial banks’, there are also other
banks in India such as Cooperative Banks, Local Area Banks and Regional Rural Banks. The
regulatory framework could vary in detail from one category of banks to another.
1.6(D). KINDS OF BANKS
Financial requirements in a modern economy are of a diverse nature, distinctive variety and
large magnitude. Hence, different types of banks have been instituted to cater to the varying
needs of the community.
Banks in the organized sector may, however, be classified in to the following major
forms:
1. Commercial banks
2. Specialized banks
3. Co-operative banks
4. Central bank
-: COMMERCIAL BANKS:-

Commercial banks are joint stock companies dealing in money and credit. In India,
however there is a mixed banking system, prior to July 1969, the entire commercial
Banks-73 scheduled and 26 non-scheduled banks, except the state bank of India and its
Subsidiaries-were under the control of private sector. On July 19, 1969, however, 14 major
commercial banks with deposits of over 50 Croers were nationalized. In April 1980, another
six commercial banks of high standing were taken over by the government.
At present, there are 20 nationalized banks plus the state bank of India and its 7 subsidiaries
constituting public sector banking which controls over 90 per cent of the banking
business in the country.

-: SPECIALIZED BANKS:-

There are specialized forms of banks catering to some special needs with this
Unique nature of activities. There are thus,
1. Foreign exchange banks,
2. Industrial banks,
3. Development banks,
4. Land development banks,
5. Exim bank.
-:CO-OPERATIVE BANKS:-

Co-operative banks are a group of financial institutions organized under the provisions
of the Co-operative societies Act of the states.
The main objective of co-operative banks is to provide cheap credits to their
members. They are based on the principle of self-reliance and mutual co-operation. Co-
operative banking system in India has the shape of a pyramid a three tier structure,
constituted by
Chart-2

-: CENTRAL BANK:-

A central bank is the apex financial institution in the banking and financial system of a
country. It is regarded as the highest monetary authority in the country. It acts as the leader
of the money market. It supervises, control and regulates the activities of the commercial
banks. It is a service oriented financial institution.
India’s central bank is the reserve bank of India established in 1935.a central bank is usually
state owned but it may also be a private organization. For instance, the reserve bank of
India (RBI), was started as a shareholders’ organization in 1935, however, it was
nationalized after independence, in 1949.it is free from parliamentary.
1.6(E). INDIAN BANKING INDUSTRIES
In India the banks are being segregated in different groups. Each group has their own
benefits and limitations in operating in India. Each has their own dedicated target market.
Few of them only work in rural sector while others in both rural as well as urban. Many even
are only catering in cities. Some are of Indian origin and some are foreign players.
Table-1
MAJOR BANKS IN INDIA

• ABN-AMRO Bank • Indian Overseas Bank


• Abu Dhabi Commercial Bank • Indusind Bank
• American Express Bank • ING Vysya Bank
• Andhra Bank • Jammu & Kashmir Bank
• Allahabad Bank • JPMorgan Chase Bank
• Bank of Baroda • Karnataka Bank
• Bank of India • Karur Vysya Bank
• Bank of Maharashtra • Laxmi Vilas Bank
• Bank of Punjab • Oriental Bank of Commerce
• Bank of Rajasthan • Punjab National Bank
• Bank of Ceylon • Punjab & Sind Bank
• BNP Paribas Bank • Scotia Bank
• Canara Bank • South Indian Bank
• Catholic Syrian Bank • Standard Chartered Bank
• Central Bank of India • State Bank of India (SBI)
• Centurion Bank • State Bank of Bikaner & Jaipur
• China Trust Commercial bank • State Bank of Hyderabad
• Citi Bank • State Bank of Indore
• City Union Bank • State Bank of Mysore
• Corporation Bank • State Bank of Saurastra
• Dena Bank
• Deutsche Bank • State Bank of Travancore
• Development Credit Bank • Syndicate Bank
• Dhanalakshmi Bank • Taib Bank
• Federal Bank • UCO Bank
• HDFC Bank • Union Bank of India
• HSBC • United Bank of India
• ICICI Bank • United Bank Of India
• IDBI Bank • United Western Bank
• Indian Bank • UTI Bank
• Vijaya Bank

1.6F. UPCOMING FOREIGN BANKS IN INDIA


By 2009 few more names is going to be added in the list of foreign banks in India. This is as
an aftermath of the sudden interest shown by Reserve Bank of India paving roadmap for
foreign banks in India greater freedom in India. Among them is the world's best private bank
by EuroMoney magazine, Switzerland's UBS.
The following are the list of foreign banks going to set up business in India:-
• Royal Bank of Scotland
• Switzerland's UBS
• US-based GE Capital
• Credit Suisse Group
• Industrial and Commercial Bank of China

2.5. RBI GUIDELINES ON CREDIT RATING

Banks should have a comprehensive risk scoring/rating system that serves as a single point
indicator of diverse risk factors of counter party and for taking credit decisions in a
consistent manner. T o facilitate this, a substantial degree of standardization is required in
ratings across borrowers. The risk rating system should be designed to reveal the overall
risk of lending, critical input for setting pricing and non-price terms of loans as
also present meaningful information for review and management of loan portfolio.
This risk rating, in short, should reflect the underlying credit risk of the loan book.
The rating exercise should also facilitate the credit granting authorities some comfort in its
knowledge of loan quality at any moment of time. The risk rating system should be
drawn up in a structured manner, incorporating, inter alia, financial analysis,
projections and sensitivity, industrial and management risks. The banks may use any number
of financial ratios and operational parameters and collaterals as also qualitative aspects of
management and industry characteristics that have bearings on the creditworthiness
of borrowers. Banks can also weigh the ratios on the basis of the years to which
they represent for giving importance to near term developments. Within the
rating framework, banks can also prescribe certain level of standards or critical parameters,
beyond which no proposals should be entertained. Banks may also consider separate
rating framework for large corporate/small borrowers, traders, etc. that exhibit varying
nature and degree of risk. Forex exposures assumed by corporate who have no natural hedges
have significantly altered the risk profile of banks. Banks should, therefore, factor
the unhedged market risk exposures of borrowers also in the rating framework. The
overall score for risk is to be placed on a numerical scale ranging between 1-6, 1-
8, etc. On the basis of credit quality. For each numerical category, a quantitative
definition of the borrower, the loan’s underlying quality, and an analytic representation of
the underlying financials of the borrower should be presented. Further, as a
prudent risk management policy, each bank should prescribe the minimum rating below
which no exposures would be undertaken. Any flexibility in the minimum standards
and conditions for relaxation and authority, therefore, should be clearly articulated in the
Loan Policy. The credit risk assessment exercise should be repeated biannually (or even at
shorter intervals for low quality customers) and should be delinked invariably from the
regular renewal exercise.
The updating of the credit ratings should be undertaken normally at quarterly intervals or at
least at half-yearly intervals, in order to gauge the quality of the portfolio at periodic
intervals. Variations in the ratings of borrowers over time indicate changes in credit quality
and expected loan losses from the credit portfolio. Thus, if the rating system is to be
meaningful, the credit quality reports should signal changes in expected loan losses. In order
to ensure the consistency and accuracy of internal ratings, the responsibility for setting or
confirming such ratings should vest with the Loan Review function and examined by an
Independent Loan Review Group. The banks should undertake comprehensive study
on migration (upward – lower to higher and downward – higher to lower) of borrowers
in the ratings to add accuracy in expected loan loss calculations.

5.2 FINDINGS
 It can be distilled from data that syndicate bank has good market share
as compared to its competitors considering the amount of resources deployed by them in
the market.
 The credibility of syndicate bank is good in comparison to its
competitors as GOI (Government of India) is a major share holder in the company.
 Syndicate bank will improve loan processing times by turning the
linear process into a virtual process. The flexibility of a virtual process allows employees
to work on any part of the loan process at any time, increasing productivity and reducing
costs.
 Loan officer of syndicate Bank consider the current ratio and the
debt/equity ratio the most significant in determining whether to grant a loan and the
amount to lend. Bank prefer a high current ratio since it reduces their risk
 The SMEs are not aware of the credit schemes offered by the
commercial banks and nodal agencies.
 The delays in sanctioning of the loan and the neglecting attitude of
the bank officials are the main causes behind the bad perception of SMEs towards the
banks.
 The network of syndicate in Hyderabad is lagging behind a little than
its competitors like ICICI bank and HDFC bank.

5.3 SUGGESTIONS
Based on the data collected through the questionnaire and interactions with the students
the following recommendations are made for consideration:
 Before approving the loan concerned officer should check the

document and analyze the financial statement properly.

 Besides opening more branches it should also look for opening some

extension counter in rural areas.

 As Government is the majority share holder in the shares of syndicate

bank, which makes this bank more reliable than other private banks, this thing can be used

in the favors of syndicate bank by making people aware about this fact and winning their

faith.
 Banks should also provide consultancy services and

professional guidance at the time of setting up for considering the long-term and short-term

financial requirements of a small unit for lending purposes.

 The entrepreneurs are of the opinion that , the funding institutions

are taking much time in sanctioning the loan. Hence it is suggested that the funding

institutions should take less time in offering credit to the entrepreneurs.

CONCLUSION
The financial services sector and capital markets have a significant influence on how
economies develop, principally through their role in allocating financial capital
between different economic activities, as well as through their own operations,
not only do banks manage their own financial and sustainability performance, they
are in a position to influence Socio-economic and environmental performance in
client organizations and through their lending strategies.
Banks are the oldest lending institutions in Indian scenario. They are
providing all facilities to all citizens for their own purposes by their terms. Syndicate
Banks play an important role in the industrial economy of India. Bank loans are the primary
source of funds for private limited companies. Though lending is the primary activity of the
bank, they are very cautious in granting the loans to their clients because their funds are
collected from the general public in the form of deposits that can be withdrawn at a short
notice at any time.
Lending always invokes some amount of risk. The banker should evaluate the
borrowers’ credit history i.e. track records which reveal the morale of lenders. The basis for
analysis and decision-making is financial information. Financial information is needed to
predict, compare and evaluate the firms earning ability in all respects. The financial
information is reported through the financial statement, other accounting reports and ratio
analysis.
My project speaks about the banking system India, different type’s banks and its
services. Its gives better idea about the major banking sectors and its operations in India. It
contains company profile of syndicate bank, its products chart, organizational chart and
lending procedure. It also tells about the different types of financial ratio and its uses.
This study would help manager to find out the market response of corporate
loans and its credit risk before its launch. It helps them to know the different types of
financial ratios and its uses. It provides a feedback to the company about their product. It
provides the information about the company’s stand in the market. It helps the manager to
apply the various activities, which is useful to increase the market share of its product. It
helps the manager to know about the preference and choice of the customers so that they can
plan out their future analysis and strategies on that basis.

5.6 REFERENCES
Books and magazine

• Bank Management & Financial Services, Seventh Edition, pp. 521-642, McGraw Hill
International Edition.
• Selvam, M., Vanitha, S., & Babu (2004), “ A study on financial health of cement
industry-“Z score analysis”, The Management Accountant, July, Vol.39, No.7,
pp591-593
• Bagechi S K (2004), “ Accounting Ratios For Risk Evaluation”, The Management
Accountant, July, Vol.39, No.7, pp571-573
• Krishna Chaitanya V (2005), “Measuring Financial Distress of IDBI Using Altman Z
–Score Model”, The ICFAI Journal of Bank Management, August, Vol. IV , No.3 ,
pp7-17
• Trend and progress of banking in India.

• Management Control System

• The ICFAI journal of bank management.

• Indian banking system.

• The economist magazine.


Website

• Wikipedia.org
• Iloveindia.com
• Idbibank.com
• Scribd.com
SCOPE OF THE STUDY

Lending always invokes some amount of risk. The banker should evaluate the borrowers’
credit history i.e. track records which reveal the morale of lenders. The basis for analysis and
decision-making is financial information. Financial information is needed to predict,
compare and evaluate the firms earning ability in all respects. The financial information is
reported through the financial statement, and other accounting reports. It contains a wealth of
information that if properly analyzed and interpreted can provide valuable insights of
purposes, which range from a simple analysis of short-term liquidity position of the firm to
comprehensive assessment of the strengths and weakness of the firm in various areas. In
other words, financial statements are mirrors; which reflect the financial position and
operating strengths and weaknesses of the concern. These statements are useful to
management, bankers and other interested parties. The company should be careful while
supplying the information to the stakeholders, especially Bankers. Hence, the present study
seeks to make an in-depth analysis of ratio of a company from a banker’s perspective

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