A PROJECT REPORT ON

BANKING TO UNIVERSAL BANKING

(SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF MASTERS DEGREE IN BUSINESS ADMINISTRATION) UNDER THE GUIDENCE OF: MR. SANDEEP JAGLAN LECTURER, M.B.A. DEPARTMENT. SUBMITTED BY: AARTI AHUJA MBA/04/51 2004-2006

N.C.COLLEGE OF ENGINEERING, ISRANA (KURUKSHETRA UNIVERSITY, KURUKSHETRA)

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INDEX
CERTIFICATE ACKNOWLEDEMENT EXECUTIVE SUMMARY OBJECTIVES OF THE STUDY BANKING IN GENERAL HISTORY OF UNIVERSAL BANKING AN APPROACH TO UNIVERSAL BANKING RESEARCH METHODOLOGY MAJOR POLICY GUIDELINES UNIVERSAL BANKING: AN EMERGING TREND UNIVERSAL BANKING-A PANACEA STRATEGIES OF VARIOUS BANKS EMERGING AS UNIVERSAL BANK STATE BANK OF INDIA ICICI BANK PUNJAB NATIONAL BANK IDBI BANK UTI BANK BANK OF BARODA HDFC BANK ABN-AMRO BANK BANK OF MAHARASHTRA CENTURION BANK OF PUNJAB CITI BANK JAMMU & KASHMIR BANK BANK OF INDIA CENTRAL BANK OF INDIA DENA BANK ANDHRA BANK ANALYSIS & INTERPRETATION CONCLUSION SIGNIFICANCE BIBLIOGRAPHY

ACKNOWLEDGEMENT
No big thing in the world is achieved without the help and blessing of our well wishers. I feel obliged to express my grateful thanks to all those persons who rendered me all possible help in completion of this project. Words fail to express adequately, my feeling of deep gratitude, which I owe to Ms. PUJA MANN (H.O.D., MBA Department).for her invaluable counsel, constant help and continuous encouragement at all stages of this work. I am grateful to Mr. SANDEEP JAGLAN (lecturer, MBA Department), who extended his whole-hearted and unreserved help to me throughout this project and enabled me to give the project its present shape. I would also like to extend my thanks to my supporting faculty of N.C.C.E., ISRANA, KURUKSHETRA UNIVERSITY. THANK YOU ALL!

EXECUTIVE SUMMARY
The study was undertaken to know what exactly UNIVERSAL BANKING is and what a BANK does to be a UNIVERSAL BANK. How banking and UNIVERSAL BANKING are different. How the role of a bank today is different from its traditional role. This study shows the various strategies adopted by different banks in UNIVERSAL BANKING. It also shows that it is the need of the customer which forces a BANK to be a UNIVERSAL BANK. WHAT THIS PROJECT INCLUDES: This project depicts clear understanding of UNIVERSAL BANKING and its impacts. Today UNIVERSAL BANKING is a emerging phenomenon. The term UNIVERSAL BANKS in general refers to the combination of commercial banking and investment banking, i.e., issuing, underwriting, investing and trading in securities. In a very broad sense, however, the term UNIVERSAL BANKS refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, such as, insurance. However, UNIVERSAL BANKING does not mean that every institution conducts every type of business with every type of customer. UNIVERSAL BANKING is an option; a pronounced business emphasis in terms of products, customer groups and regional activity can, in fact, be observed in most cases. This also shows different products, services, investment, loans, some value added services of some leading banks in the country. The competition emerging needs, technology demand these banks to be UNIVERSAL BANKS. The study has been conducted with the help of the material and information provided at different banks, through some books on Banking and a few websites. Some limitations may be there in a study of this nature because some confidential data may create problems for the banks in future. I have tried my best to explain the concepts.

OBJECTIVES OF THE STUDY

To study what is the concept of UNIVERSAL BANKING. To study in detail what a bank should do for being a UNIVERSAL BANK. To study strategies of various banks for UNIVERSAL BANKING. To study the factors which forced banks to go for UNIVERSAL BANKING. To study what customer needs a bank has to fulfill for being a UNIVERSAL BANK. Critically analyzing the different products of various banks which are now well said to be UNIVERSAL BANKS. To study how banking change into UNIVERSAL BANKING. To study the IMPORTANCE OF universal banking

Indian Banking - Introduction

The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions.The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or the nationalized banks have acquired a place of prominence and has since then seen tremendous progress. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look anew at their existing portfolio offering. Conservative banking practices allowed Indian banks to be insulated partially from the Asian currency crisis. Indian banks are now quoting al higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble footed in approach and armed with efficient branch networks focus primarily on the high revenue niche retail segments. The Indian banking has finally worked up to the competitive dynamics of the new Indian market and is addressing the relevant issues to take on the multifarious challenges of globalization. Banks that employ IT solutions are perceived to be futuristic and proactive players capable of meeting the multifarious requirements of the large customers base. Private Banks have been fast on the uptake and are reorienting their strategies using the internet as a medium The Internet has emerged as the new and challenging frontier of marketing with the conventional physical world tenets being just as applicable like in any other marketing medium. The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Indian nationalized banks

(banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The Indian banking can be broadly categorized into nationalized, private banks and specialized banking institutions. The Reserve Bank of India acts as a centralized body monitoring any discrepancies and shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The nationalized banks (i.e. government-owned banks) continue to dominate the Indian banking arena. Industry estimates indicate that out of 274 commercial banks operating in India, 223 banks are in the public sector and 51 are in the private sector. The private sector bank grid also includes 24 foreign banks that have started their operations here. Under the ambit of the nationalized banks come the specialized banking institutions. These cooperatives, rural banks focus on areas of agriculture, rural development etc.,

HISTORY OF UNIVERSAL BANKING

Converting into commercial banks Hitherto the business of the financial institutions has been confined to only `credit' with attendant forex business (with limitations). Apart from the proportion of existing NPAs in their balance sheets the FIs have to reckon with other important variables while moving towards commercial banking. Looking at the existing size of the financial institutions as compared to the bank with which merger is intended, the relatively short gestation period available to the bank to establish itself amdist the turbulent market/competition, the scenario is quite challenging. One might well ask what is the input from a financial institution, in a merger, to a relatively less asset based bank? FIs have had a crucial role in the years following Independence: in the then prevalent conditions, financial institutions built up infrastructure contributed to a better industrial climate. The expertise in these fields may be subserved or enlarged appropriately. However is such expertise relevant for say small, retail loans-which are promising avenues for the banks of today? Are we looking at another type of mismatch? Further, it is a matter of introspection in general: in what may be termed as `conventional' or `prudent' banking, (RBI itself had raised it in one of its circulars to banks way back in 1974) in the context of variation in profits (for whatever reasons), the net profit is to be determined within prudent levels, that is, in years where large increase in profits accrue, it was considered prudent to allocate larger amounts to `inner reserves' which were consciously not disclosed in those years. Accordingly, dividend payouts were also contained to take care of a lean period. The RBI is empowered even now by legislation on this aspect. However, in the recent past corporates/banks vie with each other to declare higher dividend payouts. What is worse ``creative accounting'' carries this process further. For instance, a prudent banker may opt for `written down value' method for depreciating fixed assets while some banks (including some of the new private sector banks) opt for the straight line method whereby, profits are more with less depreciation charged to the profit
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and loss account. Ironically they have been preaching to their borrowers those salutary goals.

The long and short of it Looked from another perspective, the financial institutions till yesterday are only for `long term' both on the assets and liabilities sides while commercial banks cater to `short term' businesses. There was a marked demarcation, though not a `Chinese wall' between these two. With the advent of market economy, the gap is getting closed through `universal banking'. The subject is in the air for sometime but currently, rising NPAs and dearth of avenues for resources for the financial institutions in the wake of falling market sentiments in the recent period, have accelerated the process. For a few of the FIs survival itself might be at stake. On the risk parameters, the long term liabilities (at higher rates of interest, in the context of declining trends) will remain as they. A relook on the assets side strongly suggests that after netting the NPAs, the existing `mismatch' might well go up. Barring one or two of the new generation banks and foreign banks of course, the concept of ALM (asset-liability management) remains an academic subject. As far as the ICICI Bank is concerned, having only recently completed the takeover of Bank of Madura, it probably needs some more time to prepare for another drastic organisational upheaval. ICICI-ICICI Bank merger (FIRST INDIAN UNIVERSAL BANK) Yet another dimension: the intended reverse merger of ICICI with ICICI Bank is unique in other ways too: the top management of ICICI `enbloc' will form the top corporate management of the ICICI Bank; among banks ICICI Bank may be the first to be headed by a non-executive Chairman and except for him, all others in the top management, after the merger might be non-bankers. Also the proposed merger is the first of its kind that a nonbank of a larger balance sheet size (Rs. 74,371 crores as on March 31, 2001) is proposed with a commercial bank (Rs. 203,809 crores); post-merger again, the larger complement of ICICI staff will be non-bankers again, having exposure to `credit' only and would probably require a refresher course on diverse banking activities, the several enactments as well as the peculiar banking practices. Staff incompatibility
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It is pertinent to mention that amalgamation between banks in the past, from a personnel angle has not been at all compatible - the striking example of the New Bank of India with the Punjab National Bank is a case in point. But here, larger strength of non-bankers needs to be groomed and accepted for banking counters! Dealings in financial institutions are structured in an easier convenient ``one to one basis''unlike in commercial banks where the personnel are rotated among different functions. There are sharp variations even in lending practices. For instance, in the FIs loan disbursals are structured over a period as compared to running accounts of borrowers in banks where they need to respond on the spot to the situations. In the context of RBI's dictates, in conformity with Basle Committee prescriptions at the international level, to banks on `risk management', apparent risks in all spheres may call for special dispensations to the merged entity and thus one more class of banks (apart from public sector, old/new private sector, foreign banks) will emerge for the central bank to deal with. Lest unhealthy precedents are permitted, the central bank may have to envision a long term strategy to respond to emerging situations. In fact, RBI's policy to have permitted private banks to be established in the early Nineties has already been reviewed and yet another phase is now seen in regard to few banks which were then established. In fact, ever since RBI talked of `risk management' since 1998, except for some sporadic responses, it is yet to percolate at the top levels of management. So far it has been yet another jugglery with figures. One has to see the kind of disclosures in annual report of banks abroad on the risk parameters. The time is not far off for such compulsions from the international arenas (as the attraction for GAAP registration increases) to take hold. Failure or inaccuracies in disclosures may do greater harm at the national levels. For example, recently the regulatory authorities in the U.S. demanded policy documents on certain aspects of banking business: here, practices exist sans any documents, notwithstanding the infamous securities scam of the 1990's; such permissiveness need to be contained. The RBI has on its record, such prescriptions but these need to be enforced with rigour to match the U.S. practices. It is time that a long term approach, which should be sustained, sans pressures from any quarters is the need of the hour.

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WHAT IS UNIVERSAL BANKING

The term UNIVERSAL BANKS in general refers to the combination of commercial banking and investment banking, i.e., issuing, underwriting, investing and trading in securities. In a very broad sense, however, the term UNIVERSAL BANKS refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, such as, insurance. However, UNIVERSAL BANKING does not mean that every institution conducts every type of business with every type of customer. UNIVERSAL BANKING is an option; a pronounced business emphasis in terms of products, customer groups and regional activity can, in fact, be observed in most cases. In the spectrum of banking, specialised banking is on the one end and the UNIVERSAL BANKING on the other. UNIVERSAL BANKS are financial institutions that may offer the entire range of financial services. They may sell insurance, underwrite securities, and carry out securities transactions on behalf of others. They may own equity interest in firms, including nonfinancial firms. They are multi-product firms in the financial services sector whose complexity is difficult to manage. In their historical development, organisational structure, and strategic direction, UNIVERSAL BANKS constitute multi-product firms, within the financial services sector. This stylized profile of UNIVERSAL BANKS presents shareholders with an anagram of more or less distinct businesses that are linked together in a complex network which draws on as set of centralised financial, information, human and organisational resources - a profile that tends to be extraordinarily difficult to manage in a way that achieves optimum use of invested capital. Economics of UNIVERSAL BANKING: From a production -function perspective, the structural form of UNIVERSAL BANKING appears to depend on the ease with which operating efficiencies and scale and scope economies can be exploited - determined in large part by product and process technologies 11

as well as the comparative organizational effectiveness in optimally satisfying client requirements and bringing to bear market power. Economies of Scale: Bankers regularly argue that 'Bigger is better' from a shareholder perspective, and usually point to economies of scale as a major reason Individually economies (diseconomies) of scale in UNIVERSAL BANKS will either be captured as increased profit margins or passed along to clients in the forms of lower (higher) prices resulting in a gain (loss) of market share. They are directly observable in cost functions of financial service suppliers and in aggregate performance measures. Economies of Scope: Economies of scope arise in multi-product firms because costs of offering various activities by different units are greater than the costs when they are offered together. On the supply side, scope economies relate to cost-savings through sharing of overheads and improving technology through sharing of overheads and improving technology through joint production of generically similar groups of services. On the demand side, economies of scope arise when the all-in cost to the buyer of multiple financial services from a single supplier - including the price of the service, plus information, search, monitoring, contracting and other transaction costs - is less than the cost of purchasing them from separate suppliers. X-efficiency: Besides economies of scale and scope, it seems likely that UNIVERSAL BANKS of roughly the same size and providing roughly the same range of services may have very different cost levels per unit of output. The reasons may involve efficiency-differences in the use of labour and capital, effectiveness in the sourcing and application of available technology, and perhaps effectiveness in the acquisition of productive inputs, organisational design, compensation and incentive systems - and just plain better management. Absolute Size and Market Power: UNIVERSAL BANKS are able to extract economic rents from the market by application of market power. Indeed, in many national markets for financial services suppliers have

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shown a tendency towards oligopoly but may be prevented by regulation or international competition from fully exploiting monopoly positions.. Value of Income -stream Diversification: There are potential risk-reduction gains from diversification in UNIVERSAL financial service organisations, and that these gains increase with the number of activities undertaken. The main risk-reduction gains appear to arise from combining commercial banking with insurance activities, rather than with securities activities. Access to Bailouts: In such a case, failure of one of the major institutions is likely to cause unacceptable systemic problems. If this turns out to be the case, then too-big-to-fail organisations create a potentially important public subsidy for UNIVERSAL BANKING organisations and therefore implicitly benefit the institutions' shareholders. Conflicts of Interest: The potential for conflicts of interest is endemic in UNIVERSAL BANKING, and runs across the various types of activities in which the bank is engaged: Salesman's Stake: it has been argued that when banks have the power to sell affiliates' products, managers will no longer dispense 'dispassionate' advice to clients. Instead, they will have a salesman's stake in pushing 'house' products, possibly to the disadvantage of the customer. Bankruptcy - risk transfer: a bank with a loan outstanding to a firm whose bankruptcy risk has increased, to the private knowledge of the banker, may have an incentive to induce the firm to issue bonds or equities - underwritten by its securities unit - to an unsuspecting public. The proceeds of such an issue could then be used to pay-down the bank loan. In this case the bank has transferred debt-related risk from itself to outside investors, while it simultaneously earns a fee and/or spread on the underwriting. Third party loans: To ensure that an underwriting goes well, a bank may make belowmarket loans to third party investors on condition that this finance is used to purchase securities underwritten by its securities unit. Tie-ins: A bank may use its lending power activities to coerce or tie-in a customer or its rivals that can be used in setting prices or helping in the distribution of securities unit. This
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type of information flow could work in the other direction as well.

First Indian Universal Bank

Finally, first Indian Universal Bank will be born on March 31 2002. In effect, this means ICICI will become a bank on that day (provided the Reserve Bank of India gives it nod) fulfilling all the statutory requirements. In addition to RBI approval, this merger will be subject to various other approvals, including the approval of the shareholders of the respective companies, the High Courts of Mumbai and Gujarat, and the Centre.

The boards of ICICI and its 46 per cent banking subsidiary ICICI Bank on 25th October approved the reverse merger of the parent into the bank, the appointed date for which has been fixed as March 31, 2002 or the date of approval of the merger by the Reserve Bank of India (RBI), whichever is later.

Swap ratio will be one share of ICICI Bank for every two shares of ICICI.. The ADS holders of ICICI would, consequently, get five ADS of ICICI Bank in exchange for four ADS of ICICI, as each ADS of the FI represents five domestic equity shares, while each ADS of the bank represents two domestic shares. The swap ratio was based on the recommendations of the merchant bankers JM Morgan Stanley, appointed by ICICI, DSP Merrill Lynch, appointed by ICICI Bank, and the accounting firm, Deloitte, Haskins & Sells, appointed jointly by both the entities involved in the merger.

ICICI is going in bullet migration path towards universal banking instead of taking a gradual approach. The combination of easy liquidity and low interest rate regime has prompted the financial institution to follow this transition approach. ICICI had initially set a 18 month transition period for conversion into universal bank. However with the announcement that the merged entity will start off with the mandated CRR and SLR investments the transition period has now been reduced to 5 months.

The merged entity, which will have 11 subsidiaries, in order to adhere to norms laid down for commercial banks by the Reserve Bank of India (RBI) pertaining to cash reserve ratio (CRR), statutory liquidity ratio (SLR) would require a hefty Rs 18,000 crore towards its CRR and
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SLR

obligations.

With this merger, ICICI Bank, the merged entity, will be the second largest commercial bank in the country after the State Bank of India (SBI) with assets of Rs 95,000 crore (September 30, 2001). SBI has assets of over Rs 3,16,000 crore. The combined entity would have 396 existing branches/ extension counters of the ICICI Bank, 140 retail financial offices and centres of ICICI and 8,275 employees.

ICICIs holding of 46 per cent in its banking subsidiary would not be cancelled under the scheme of amalgamation, but is proposed to be held in Trust for the benefit of the merged entity. Financial institutions would have 20 per cent in the merged entity, with the foreign holding at 47 per cent and the rest with the public. ICICIs 46 per cent stake would correspond to a 15 per cent stake in the merged entity.

At the time of the merger, ICICI Bank would align the Indian GAAP (generally accepted accounting practices) of ICICI to those of ICICI Bank, including a higher general provision against standard assets. Further, in accordance with international best practices in accounting, ICICI Bank has decided to adopt the purchase method of accounting, which is mandatory under US GAAP, to account for the merger under well. After merger, N Vaghul will be the chairman & K V Kamath will be the managing director and CEO of the bank. H N Sinor and Lalitha Gupta will hold the number two slots in the merged entity with both being designated as joint managing directors. Kalpana Morparia, S Mukherji, Chanda D Kochhar and Nachiket M Mor will retain their positions as executive directors. The retail segment will be a key driver of growth for the merged entity, with respect to both assets and liabilities. The new entity will leverage on its large capital base, comprehensive suite of products and services, extensive corporate and retail customer relationships, technology-enabled distribution architecture, strong brand franchise and vast talent pool. Indian GAAP as

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UNIVERSAL

BANKING:

AN

OVERVIEW

Universal Banking includes not only services related to savings and loans but also investments. However in practice the term 'universal banks' refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc. Universal banking is a combination of commercial banking, investment banking and various other activities including insurance. If specialised banking is the one end universal banking is the other. This is most common in European countries.

Universal banking has some advantages as well as disadvantages. The main advantage of universal banking is that it results in greater economic efficiency in the form of lower cost, higher output and better products. However larger the banks, the greater the effects of their failure on the system. Also there is the fear that such institutions, by virtue of their sheer size, would gain monopoly power in the market, which can have significant undesirable consequences for economic efficiency. Also combining commercial and investment banking can gives rise to conflict of interests .Conflict of interests was one of the major reasons for introduction of Glass-Steagall Act in US.

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HOW BANKING TO UNIVERSAL BANKING

Universal bank is a bank where every need of a customer is solved under one umbrella that means total solution to a problem. In a universal bank, Investments, loans besides of savings plays a major important role. Many years back, bank meant a source of deposits for the people. People had a limited vision for the bank. Now due to globalization, cut throat competition, banking industry was in dilemma whether to extend its services or not. The raising standard of people, ever going businesses put a challenge to banking industry. There developed a concept of universal banking. Today in this modernized world, when nobody wants to be left behind. The banks have also started cat-mice race. Every bank today is a universal bank. The major players in banking industry like ICICI Bank, IDBI Bank, UTI Bank, HDFC Bank etc. have proved to be emerging universal banks in India. They provide solutions of every problem under one roof. The have different schemes targeting different people. Every bank has different products for loans and investment schemes. In a nut shell, we can say that every bank as a universal bank in this electronic world is proving to be a boon for a common man and fulfilling his own needs.

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UNIVERSAL

BANKING

IN

INDIA

In India Development financial institutions (DFIs) and refinancing institutions (RFIs) were meeting specific sectoral needs and also providing long-term resources at concessional terms, while the commercial banks in general, by and large, confined themselves to the core banking functions of accepting deposits and providing working capital finance to industry, trade and agriculture. Consequent to the liberalisation and deregulation of financial sector, there has been blurring of distinction between the commercial banking and investment banking. Reserve Bank of India constituted on December 8, 1997, a Working Group under the Chairmanship of Shri S.H. Khan to bring about greater clarity in the respective roles of banks and financial institutions for greater harmonisation of facilities and obligations. Also report of the Committee on Banking Sector Reforms or Narasimham Committee (NC) has major bearing on the issues considered by the Khan Working Group.

The issue of universal banking resurfaced in Year 2000, when ICICI gave a presentation to RBI to discuss the time frame and possible options for transforming itself into an universal bank. Reserve Bank of India also spelt out to Parliamentary Standing Committee on Finance, its proposed policy for universal banking, including a case-by-case approach towards allowing domestic financial institutions to become universal banks.

Now RBI has asked FIs, which are interested to convert itself into a universal bank, to submit their plans for transition to a universal bank for consideration and further discussions. FIs need to formulate a road map for the transition path and strategy for smooth conversion into an universal bank over a specified time frame. The plan should specifically provide for full compliance with prudential norms as applicable proposed period. to banks over the

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Approach

to Universal

Banking

The Narsimham Committee II suggested that Development Financial Institutions (DFIs) should convert ultimately into either commercial banks or non-bank finance companies. The Khan Working Group held the view that DFIS should be allowed to become banks at the earliest. The RBI released a 'Discussion Paper' (DP) in January 1999 for wider public debate. The feedback on the discussion paper indicated that while the universal banking is desirable from the point of view of efficiency of resource use, there is need for caution in moving towards such a system by banks and DFIs. Major areas requiring attention are the status of financial sector reforms, the state of preparedness of the concerned institutions, the evolution of the regulatory regime and above all a viable transition path for institutions which are desirous of moving in the direction of universal banking. It is proposed to adopt the following broad approach for considering proposals in this area:

The principle of "Universal Banking" is a desirable goal and some progress has already been made by permitting banks to diversify into investments and long-term financing and the DFIs to lend for working capital, etc. However, banks have certain special characteristics and as such any dilution of RBI's prudential and supervisory norms for conduct of banking business would be inadvisable. Further, any conglomerate, in which a bank is present, should be subject to a consolidated approach to supervision and regulation. Though the DFIs would continue to have a special role in the Indian financial System, until the debt market demonstrates substantial improvements in terms of liquidity and depth, any DFI, which wishes to do so, should have the option to transform into bank (which it can exercise), provided the prudential norms as applicable to banks are fully satisfied. To this end, a DFI would need to prepare a transition path in order to fully comply with the regulatory requirement of a bank. The DFI concerned may consult RBI for such transition arrangements. Reserve Bank will consider such requests on a case by case basis. The regulatory framework of RBI in respect of DFIs would need to be strengthened if they are given greater access to short-term resources for meeting their financing requirements, which is necessary. In due course, and in the light of evolution of the financial system, Narasimham Committee's recommendation that, ultimately there should be only banks and restructured NBFCs can be operationalised.

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RESEARCH METHODOLOGY
To define the research methodology, one has to go step by step. Any research methodology involves following steps: I. PROBLEM RECOGNITION II. SURVEY OF LITERATURE III. HYPOTHESIS FORMULATION IV. RESEARCH DESIGN V. SAMPLE DESIGN VI. DATA COLLECTION
VII.

ANALYSIS AND INTERPRETATION. PROBLEM RECOGNITION: Problem formulation is first and the foremost step consisting of defining and identification of problem. It is critical to the problem. Problem formulation is essential to formulate a plan precisely, since suitable techniques to generate alternative solutions can only then be applied. After formulation problem is thoroughly studied and reframed analytically. It is necessary for making research go in specific direction. The Research Problem in this study is HOW BANKING EMERGED INTO UNIVERSAL BANKING.

I.

II.

LITERATURE SURVEY: It means reviewing concepts and theories given by previous researchers. Reviewing previous research findings. It is surveyed to define a problem more specifically. I have visited sales person, websites of different banks, project reports on banking, and various search engines.

III.

HYPOTHESIS FORMULATION: Hypothesis is any assumption on the basis of which research is done. The assumption in this research is that the customer exhibit varying and diverse requirement for any product. The flexible strategies of different banks make them UNIVERSAL BANKS.

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 The diversification in the needs of the customers demands bank to be a UNIVERSAL BANK.
IV.

RESEARCH DESIGN: Research design is a framework in which research resides. The research opted is EXPLORATORY where we have tried to find out what the basic thing forces a bank to be a UNIVERSAL BANK. We also studied the strategies adopted by different banks.

V.

SAMPLE DESIGN: A sample is a representative of whole population. Researchers while conducting research has to draw certain sample for study purpose. A sample design is a definite plan determined before any data are actually collected for obtaining samples for the same study. Sample design of my study is RANDOM SAMPLING.

VI.

DATA COLLECTION: The data is of two types: PRIMARY AND SECONDRY. Data are the facts presented to the researcher from the study environment. PRIMARY DATA in this research was collected through continuous meeting with employees, retailers and consumers and also through questionnaires. SECONDARY DATA was collected through the websites of different banks and various search engines. After collection of data it is edited and edited data is put into a form that makes research meaningful.

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ISSUES OF CONCERN FOR UNIVERSAL BANKING:

Deployment of capital:
If a bank were to own a full range of classes of both the firms debt and equity the bank could gain the control necessary to effect reorganization much more economically. The bank will have greater authority to intercede in the management of the firm as dividend and interest payment performance deteriorates.

Unhealthy concentration of power:

In many countries such a risk prevails in specialized institutions, particularly when they are government sponsored. Indeed public choice theory suggests that because Universal Banks serve diverse interest, they may find it difficult to combine as a political coalition even this is difficult when number of members in a coalition is large.

Impartial Investment Advice:

There is a lengthy list of problems, involving potential conflicts between the banks commercial and investment banking roles. For example there may be possible conflict between the investment bankers promotional role and commercial bankers obligation to provide disinterested advice. Or where a UNIVERSAL BANKs securities department advises a bank customer to issue new securities to repay its bank loans. But a specialized bank that wants an unprofitable loan repaid also can suggest that the customer issues securities to do so.

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Salient operational and regulatory issues to be addressed by the FIs for conversion into a Universal Bank
a) Reserve requirements Compliance with the cash reserve ratio and statutory liquidity ratio requirements (under Section 42 of RBI Act, 1934, and Section 24 of the Banking Regulation Act, 1949, respectively) would be mandatory for an FI after its conversion into a universal bank. b) Permissible activities Any activity of an FI currently undertaken but not permissible for a bank under Section 6(1) of the B. R. Act, 1949, may have to be stopped or divested after its conversion into a universal bank.. c) Disposal of non-banking assets Any immovable property, howsoever acquired by an FI, would, after its conversion into a universal bank, be required to be disposed of within the maximum period of 7 years from the date of acquisition, in terms of Section 9 of the B. R. Act. d) Composition of the Board Changing the composition of the Board of Directors might become necessary for some of the FIs after their conversion into a universal bank, to ensure compliance with the provisions of Section 10(A) of the B. R. Act, which requires at least 51% of the total number of directors to have special knowledge and experience. e) Prohibition on floating charge of assets The floating charge, if created by an FI, over its assets, would require, after its conversion into a universal bank, ratification by the Reserve Bank of India under Section 14(A) of the B. R. Act, since a banking company is not allowed to create a floating charge on the undertaking or any property of the company unless duly certified by RBI as required under the Section. f) Nature of subsidiaries

23

If any of the existing subsidiaries of an FI is engaged in an activity not permitted under Section 6(1) of the B R Act , then on conversion of the FI into a universal bank, delinking of such subsidiary / activity from the operations of the universal bank would become necessary since Section 19 of the Act permits a bank to have subsidiaries only for one or more of the activities permitted under Section 6(1) of B. R. Act. g) Restriction on investments An FI with equity investment in companies in excess of 30 per cent of the paid up share capital of that company or 30 per cent of its own paid-up share capital and reserves, whichever is less, on its conversion into a universal bank, would need to divest such excess holdings to secure compliance with the provisions of Section 19(2) of the B. R. Act, which prohibits a bank from holding shares in a company in excess of these limits. h) Connected lending Section 20 of the B. R. Act prohibits grant of loans and advances by a bank on security of its own shares or grant of loans or advances on behalf of any of its directors or to any firm in which its director/manager or employee or guarantor is interested. The compliance with these provisions would be mandatory after conversion of an FI to a universal bank. i) Licensing An FI converting into a universal bank would be required to obtain a banking licence from RBI under Section 22 of the B. R. Act, for carrying on banking business in India, after complying with the applicable conditions. j) Branch network An FI, after its conversion into a bank, would also be required to comply with extant branch licensing policy of RBI under which the new banks are required to allot at east 25 per cent of their total number of branches in semi-urban and rural areas. k) Assets in India An FI after its conversion into a universal bank, will be required to ensure that at the close of business on the last Friday of every quarter, its total assets held in India are not less than 75 per cent of its total demand and time liabilities in India, as required of a bank under Section 25 of the B R Act.

24

l) Format of annual reports After converting into a universal bank, an FI will be required to publish its annual balance sheet and profit and loss account in the in the forms set out in the Third Schedule to the B R Act, as prescribed for a banking company under Section 29 and Section 30 of the B. R. Act . m) Managerial remuneration of the Chief Executive Officers On conversion into a universal bank, the appointment and remuneration of the existing Chief Executive Officers may have to be reviewed with the approval of RBI in terms of the provisions of Section 35 B of the B. R. Act. The Section stipulates fixation of remuneration of the Chairman and Managing Director of a bank by Reserve Bank of India taking into account the profitability, net NPAs and other financial parameters. Under the Section, prior approval of RBI would also be required for appointment of Chairman and Managing Director. n) Deposit insurance An FI, on conversion into a universal bank, would also be required to comply with the requirement of compulsory deposit insurance from DICGC up to a maximum of Rs.1 lakh per account, as applicable to the banks. o)Authorised Dealers Licence

Some of the FIs at present hold restricted AD licence from RBI, Exchange Control Department to enable them to undertake transactions necessary for or incidental to their prescribed functions. On conversion into a universal bank, the new bank would normally be eligible for fulfledged authorised dealer licence and would also attract the full rigour of the Exchange Control Regulations applicable to the banks at present, including prohibition on raising resources through external commercial borrowings. p) Priority sector lending On conversion of an FI to a universal bank, the obligation for lending to priority sector up to a prescribed percentage of their net bank credit would also become applicable to it . q)Prudential norms After conversion of an FI in to a bank, the extant prudential norms of RBI for the all-India financial institutions would no longer be applicable but the norms as applicable to banks would be attracted and will need to be fully complied with.

25

Major Policy Guidelines

Electronic Clearing Service (ECS) Statement for ECS Credits
CO-op banks can enter Co-branded Domestic Credit Card Business Guidelines on One-Time Settlement Scheme for SME Accounts Appointment of Foreign Nationals as directors on the board of Indian companies Risk weights increased on commercial real estate and capital market Anonymous Order Matching Trading in Government Securities Relaxation in ECB norms for non-banking finance companies Internet Banking in India- A Review Guidelines on purchase/ sale of Non Performing Financial Assets Use of International Debit Cards/Store Value Cards/Charge Cards/Smart Cards Settlement of claims in respect of deceased depositors - Simplification of Procedure Settlement of claims in respect of deceased depositors - Simplification of Procedure RBI releases the Vision Document for Payment and Settlement Systems Persons other than individuals barred from opening accounts under PPF Scheme 1968 RBI bars Mifor (Mumbai Interbank Forward Offer Rate)swaps

26

Electronic Clearing

Service

(ECS)

Statements

The RBI has asked the banks in October 2005, to provide the required details to the customers in their pass book/account statement regarding the credits effected through ECS. Following is the RBI notification-Electronic Clearing service (ECS) is increasingly being used by various users like Govt. Departments, corporate bodies, etc. for repetitive payments like salary, pension, dividends, interest, etc.br> 2. While ECS has proved to be of great convenience to both, the users and the beneficiary customers, there has been a rise in the number of complaints. The main complaint is that details provided by the banks in the Pass Book / Statement of Accounts for the ECS entries, are not complete and in the absence of details, reconciliation of transactions by the customers becomes very difficult. 3. It may be mentioned that in the ECS report (paper as well as electronic), a short abbreviation of the user name is provided to the banks to facilitate provision of details in the account statements. This abbreviation may be appropriately captured and utilized.

Approval

for

Co-branded

Domestic

Credit

Card Business

Reserve Bank of India has decided on 17th Sept 2005, to allow licensed and/or scheduled SCBs to undertake, without risk participation, co-branded domestic credit card business with tie-up arrangement with one of the scheduled commercial banks, already having arrangement for issue of credit cards, subject to their fulfilling the following terms and conditions: i. The bank should be having a minimum positive networth [real or exchangeable value of paid-up capital and reserves as defined in Section 11 of the Banking Regulation Act, 1949(AACS)] of Rs. 50 crore Report; ii. The bank should have earned net profit for the last three years and should not have accumulated losses; iii. The Gross NPA of the bank should not be more than 10 per cent; iv. The bank should not have violated prudential norms including individual and group
27

as

per

the

latest NABARD

Inspection

exposure norms fixed by and advances to

RBI/NABARD; their relatives/firms etc;

v. The bank should have complied with the instructions issued by RBI / NABARD on loans directors,

2. The permission granted to an SCB to commence the co-branded credit card business will be normally valid for a period of two years, subject to review before expiry of the said period. The SCB has to apply for renewal of the approval from the RBI (RPCD, CO) in the same way in which initial permission expiry. was obtained, three months before its

Guidelines on One-Time Settlement Scheme for SME Accounts

Following are the guidelines for one-time settlement of dues relating to NPAs of public sector banks in SME sector, issued by RBI in the September 2005. These guidelines will provide a simplified, non-discretionary and non-discriminatory mechanism for one-time settlement of chronic NPAs in the SME sector. All public sector banks are required to uniformly implement these guidelines. However, these guidelines will not, cover cases of wilful default, fraud and malfeasance. Banks shall identify cases of wilful default, fraud and malfeasance and initiate prompt action.

[i]

Coverage

a) The revised guidelines will cover all NPAs in SME sector which have become doubtful or loss as on March 31, 2004 with outstanding balance of Rs.10 crore and below on the date on which the account was classified as doubtful. b) The guidelines will also cover NPAs classified as sub-standard as on 31st March 2004, which have subsequently become doubtful or loss where the outstanding balance was Rs.10 crore and below on the date on which the account was classified as doubtful.

[ii] a)

Settlement Formulaamount
NPAs classified as Doubtful or Loss as on March 31, 2004

The minimum amount that shall be recovered under the revised guidelines in respect of onetime settlement of NPAs classified as doubtful or loss as on March 31, 2004 will be 100% of the outstanding balance in the account as on the date on which the account was categorized as doubtful NPAs.
28

b) NPAs classified as sub-standard as on March 31, 2004 which became doubtful or loss subsequently The minimum amount that shall be recovered in respect of NPAs classified as sub-standard as on March 31, 2004 which became doubtful or loss subsequently would be 100% of the outstanding balance in the account as on the date on which the account was categorised as doubtful NPAs, plus interest at existing Prime Lending Rate from April 1, 2004 till the date of final payment.

[iii]

Payment

The amount of settlement arrived at in both the above cases shall preferably be paid in one lump sum. In cases where the borrowers are unable to pay the entire amount in one lump sum, at least 25% of the amount of settlement shall be paid upfront and the balance amount of 75% should be recovered in installments within a period of one year together with interest at the existing Prime Lending Rate from the date of settlement up to the date of final payment.

[iv]

Sanctioning

Authority

The decision on the one-time settlement and consequent sanction of waiver or remission or write-off shall be taken by the competent authority under the delegated powers.

[v]

Non-discretionary

treatment

Banks shall follow the above guidelines for one-time settlement of all NPAs covered under the scheme, without discrimination and a monthly report on the progress and details of settlements should be submitted by the concerned authority to the next higher authority and their Central Office..

[vi]

Reporting to

the

Board

Banks shall submit a report on the progress in the one-time settlement of chronic NPAs under the revised guidelines every quarter to the Board of Directors. A copy of the quarterly progress report may also be sent to RBI.

Appointment of Foreign Nationals as directors on the board of Indian companies- Provision under FEMA

29

RBI has clarified that under the Foreign Exchange Management Act, 1999, appointment of a foreign national as a director on the board of directors of an Indian company does not require the Reserve Banks approval. It is further clarified that the Reserve Bank has also granted general powers to an Indian company to make payment in rupees towards sitting fees or commission or remuneration and travel expenses to and from and within India to its non-whole time director who is resident outside India and is on a visit to India for the companys work.

Prudential norms on capital adequacy Risk weights on banks exposures on commercial real estate and capital market
It has been decided to increase the risk weights for all outstanding commercial real estate exposures of banks from 100 per cent to 125 per cent with immediate effect. Commercial real estate exposure is defined as under:

a) Fund based and non-fund based exposures secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.).

b) Investments in Mortgage Backed Securities (MBS) and other securitised exposures backed by exposures as at (a) above. It has also been decided to increase with immediate effect the risk weight for credit risk on capital market exposures from 100 per cent to 125 per cent. Capital market exposures covers the following:mutual funds a. direct investment by a bank in equity shares, convertible bonds and debentures and units of equity oriented b. advances against shares to individuals for investment in equity shares (including IPOs /ESOPs), bonds and debentures, units of equity oriented mutual funds, etc c. secured and unsecured advances to stock brokers and guarantees issued on behalf of stock brokers and market makers

Anonymous Order Securities

Matching Trading

in

Government

30

Reserve Bank of India has announced the launch of the electronic order matching trading module for Government securities on its Negotiated Dealing System (RBI-NDS-GILTSOrder Matching Segment, NDS-OM in short) on August1,2005.

As part of its long term objective of developing the Government securities market, the Reserve Bank had introduced the Negotiated Dealing System (NDS) in February 2002 with the broad objectives of (i) ushering in an automated electronic reporting and settlement process, (ii) facilitating electronic auctions and (iii) providing a platform for trading in Government securities on a negotiated basis as well as through a quote driven mechanism. The broad features of the NDS-OM system are as follows:

(i). The NDS-OM module is part of Reserve Banks Negotiated Dealing System. (ii). The use of NDS-OM trading module is voluntary and will be available in addition to the existing telephonebased trading mechanism on NDS. (iii). During the first phase, the NDS-OM will serve the trading requirements of all Banks, Primary Dealers and Financial Institutions regulated by RBI that hold current NDS membership. Other NDS members will be extended access in the next phase, as appropriate. The option of extending NDS-OM to examined price/time in due course. non-NDS members will be

(iv). The system will be purely order driven with all orders being matched based on strict priority. (v). The system will be an anonymous order matching system wherein identity of parties is not revealed before or at the time of trade. The Clearing Corporation of India Limited (CCIL) will become the central counterparty to each trade done on the system. (vi). The system will allow straight-through processing (STP) and trades executed will flow straight to CCIL in a ready-for-settlement stage.

Relaxation in External Commercial Borrowings (ECB) for non-banking finance companies- June 2005
The government has relaxed rules for external commercial borrowings, allowing nonbanking finance companies to allowed to issue foreign currency raise overseas bonds. loans. Housing finance companies, with approval from the Reserve Bank of India, would be convertible

31

The government also raised the repayment limit of external commercial borrowings to $200 million from the current $100 million companies to raise an FCCB. The Housing Development Finance Corporation (HDFC) is likely to be the first off the block among housing finance The corporation had already taken shareholder approval in July 2004 to raise $500 million. HDFC is also likely to raise funds through the ECB route in keeping with its past practice of raising at least 10 from raising funds percent of through funds from the the overseas market. market. Eighteen months back, the government had clamped down on housing finance companies overseas Overseas funding is attractive today considering that the 5-year US swap rate stands reduced to below 5 per cent for the first time in a year. The 5-year swap rate is usually used to price convertible debentures.

Guidelines for External Commercial Borrowings (ECB)

The department of Economic Affairs, Ministry of Finance, and Government of India monitors and regulates Indian firms' access to global capital markets. From time to time, they announce guidelines on policies and procedures for ECB and Euro-issues. ECBs include bank loans, suppliers' and buyers' credits, fixed and floating rate bonds (without convertibility) and borrowings from private sector windows of multilateral Financial Institutions such as International Finance Corporation. Euro-issues include Euro-convertible bonds and GDRs.

The important aspect of ECB policy is to provide flexibility in borrowings by Indian corporates, at the same time maintaining prudent limits for total external borrowings. The guiding principles for ECB Policy are to keep maturities long, costs low, and encourage infrastructure and export sector financing which the economy. The ECB policy focuses on three aspects: Eligibility criteria for accessing external markets. The total volume of borrowings to be raised and their maturity structure. End use of the funds raised. Detailed guidelines were announced in July 1999. are crucial for overall growth of

32

Internet

Banking

in

IndiaGuidelines

In June 2001 banks were advised to seek prior approval of Reserve Bank of India before offering transactional services on the Internet. The position has since been reviewed and RBI has advised on 20th July 2005, that while the offering of Internet Banking services will continue to be governed by the provisions of the above circular, no prior approval of the Reserve Bank of India will be required by banks Banking services. for offering Internet

2. Banks should, however, ensure compliance with the following conditions: a. The Internet Banking policy has been approved by the Bank's Board. b. The policy fits into the bank's overall Information Technology and Information Security policy and ensures c. The confidentialityof records and security risk. systems. policy takes into and account operational

d. The policy clearly lays down the procedure to be followed in respect of "Know Your Customer" requirements, e. The policy broadly meets the parameters laid down in the earlier circular.

Reserve Bank Guidelines on purchase/ sale of Non Performing Financial Assets

Scope 1. These guidelines would be applicable to banks, FIs and NBFCs purchasing/ selling non performing financial assets, from/ to other banks/FIs/NBFCs (excluding securitisation companies/ reconstruction companies). 2. A financial asset, including assets under multiple/consortium banking arrangements, would be eligible for purchase/sale in terms of these guidelines if it is a non-performing asset/non performing investment in the books of the selling bank. 3. The reference to 'bank' in the guidelines would include financial institutions and NBFCs.

Structure
4. The guidelines to be followed by banks purchasing/ selling non-performing financial assets from / to other banks are given below. The guidelines have been grouped under the following headings:

33

i. Procedure for purchase/ sale of non performing financial assets by banks, including valuation and pricing aspects. ii. Prudential norms, in the following areas, for banks for purchase/ sale of non performing financial a. b. c. d. e. iii. assets: Asset classification norms Provisioning norms Accounting Exposure Disclosure of norms requirements recoveries norms Capital adequacy

5. Procedure for purchase/ sale of non performing financial assets, including valuation and pricing aspects i. A bank which is purchasing/ selling non-performing financial assets should ensure that the purchase/ sale is conducted in accordance with a policy approved by the Board. The Board shall lay down policies a. b. Non Norms performing and procedure and for guidelines assets purchase/ that sale covering, may of be such inter alia, sold; assets; financial purchased/ financial

c. Valuation procedure to be followed to ensure that the economic value of financial assets is reasonably estimated based on the estimated cash flows arising out of repayments and recovery prospects; d. Delegation of powers of various functionaries for taking decision on the purchase/ sale of the financial assets; etc. e. Accounting policy

ii. While laying down the policy, the Board shall satisfy itself that the bank has adequate skills to purchase non performing financial assets and deal with them in an efficient manner which will result in value addition to the bank. The Board should also ensure that appropriate systems and procedures are in place to effectively address the risks that a purchasing bank would assume while engaging in this activity.

iii) The estimated cash flows are normally expected to be realised within a period of three years and not less than 5% of the estimated cash flows should be realized in each half year.

34

iv) A bank may purchase/sell non-performing financial assets from/to other banks only on 'without recourse' basis, i.e., the entire credit risk associated with the non-performing financial assets should be transferred to the purchasing bank. Selling bank shall ensure that the effect of the sale of the financial assets should be such that the asset is taken off the books of the bank and after the sale there should not be any known liability devolving on the selling bank.

v) Banks should ensure that subsequent to sale of the non performing financial assets to other banks, they do not have any involvement with reference to assets sold and do not assume operational, legal or any other type of risks relating to the financial assets sold. Consequently, the specific financial asset should not enjoy the support of credit enhancements / liquidity facilities in any form or manner.

Reserve Bank Guidelines on purchase/ sale of Non Performing Financial Assets

6. (A) Prudential norms for banks for the purchase/ sale transactions Asset classification norms

(i). The non-performing financial asset purchased, may be classified as 'standard' in the books of the purchasing bank for a period of 90 days from the date of purchase. Thereafter, the asset classification status of the financial asset purchased, shall be determined by the record of recovery in the books of the purchasing bank with reference to cash flows estimated while purchasing the asset which should be in compliance with requirements in Para5 (iii). (ii). The asset classification status of an existing exposure (other than purchased financial asset) to the same obligor in the books of the purchasing bank will continue to be governed by the record of recovery of that exposure and hence may be different. (B) Provisioning norms selling bank books on transfer. Books of

i. When a bank sells its non-performing financial assets to other banks, the same will be removed from its ii. If the sale is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall should be debited to the profit and loss account of that year. iii. If the sale is for a value higher than the NBV, the excess provision shall not be reversed but will be utilized to meet the shortfall/ loss on account of sale of other non performing
35

financial Books of

assets. purchasing bank

The asset shall attract provisioning requirement appropriate to its asset classification status in the books of (C) Accounting the of purchasing recoveries bank.

Any recovery in respect of a non-performing asset purchased from other banks should first be adjusted against its acquisition cost. Recoveries in excess of the acquisition cost can be recognised as profit. (D) Capital Adequacy

For the purpose of capital adequacy, banks should assign 100% risk weights to the nonperforming financial assets purchased from other banks. In case the non-performing asset purchased is an investment, then it would attract capital charge for market risks also. For NBFCs the relevant instructions on capital adequacy would be applicable. (E) Exposure Norms

The purchasing bank will reckon exposure on the obligor of the specific financial asset. Hence these banks should ensure compliance with the prudential credit exposure ceilings (both single and group) after reckoning the exposures to the obligors arising on account of the purchase. For NBFCs the relevant instructions on exposure norms would be applicable. 7. Disclosure Requirements

Banks which purchase non-performing financial assets from other banks shall be required to make the following disclosures in the Notes on Accounts to their Balance sheets:

Use of International Debit Cards/Store Value Cards/Charge Cards/Smart Cards by Resident Indians while on a visit outside India

Reserve Bank of India in June 2005 has issued clarifications to the banks on the usage of International Debit Cards by Resident Indians while on a visit outside India A. International Debit Cards 2. It is understood that banks authorised to deal in foreign exchange (AD banks) are issuing
36

International Debit Cards (IDCs) which can be used by a resident for drawing cash or making payment to a merchant establishment overseas during his visit abroad. It is clarified that IDCs can be used only for permissible current account transactions and the item-wise limits as amended from time to time, are equally applicable to payments made through use of these cards. 3. It is further clarified that the IDCs cannot be used on internet for purchase of prohibited items like lottery tickets, banned or proscribed magazines, participation in sweepstakes, payment for call-back services etc., i.e. for such items/activities for which drawl of foreign exchange B. Store Value is Cards/ not Charge permitted. Cards/Smart Cards etc.

4. It has come to RBI notice that certain AD banks are also issuing Store Value Card/Charge Card/Smart Card to residents traveling on private/business visit abroad which are used for making payments at overseas merchant establishments and also for drawing cash from ATM terminals. It is clarified that no prior permission from Reserve Bank is required for issue of such cards. However, the use of such cards is limited to permissible current account transactions and subject to the prescribed limits under the Foreign Exchange Management (Current Account Transactions) Rules, 2000, as amended time. from time to

Settlement of claims in respect of deceased depositors - Simplification of Procedure

In the light of the recommendations of the Committee on Procedure and Performance Audit on Public Services (CPPAPS) Reserve Bank has issued on 9th June 2005, following instructions to facilitate expeditious and hassle-free settlement of claims on the death of a depositor. 2. (A) ACCESS Accounts TO with BALANCE survivor/nominee IN DEPOSIT clause ACCOUNTS

2.1 As you are aware, in the case of deposit accounts where the depositor had utilized the nomination facility and made a valid nomination or where the account was opened with the survivorship clause ("either or survivor", or "anyone or survivor", or "former or survivor" or "latter or survivor"), the payment of the balance in the deposit account to the survivor(s)/nominee of a deceased deposit account holder represents a valid discharge of the
37

bank's

liability

provided

a. the bank has exercised due care and caution in establishing the identity of the survivor(s) / nominee and the fact of death of the account holder, through appropriate documentary from the account of the deceased; evidence; and b. there is no order from the competent court restraining the bank from making the payment c. it has been made clear to the survivor(s) / nominee that he would be receiving the payment from the bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him shall not affect the right or claim which any person may have against the survivor(s) / nominee to whom the payment is made.

2.2 It may be noted that since payment made to the survivor(s) / nominee, subject to the foregoing conditions, would constitute a full discharge of the bank's liability, insistence on production of legal representation is superfluous and unwarranted and only serves to cause entirely avoidable inconvenience to the survivor(s) / nominee and would, therefore, invite serious supervisory disapproval. In such case, therefore, while making payment to the survivor(s) / nominee of the deceased depositor, the banks are advised to desist from insisting on production of succession certificate, letter of administration or probate, etc., or obtain any bond of indemnity or surety from the survivor(s)/nominee, irrespective of the amount (B) standing to the credit the of the deceased account holder.

Accounts

without

survivor/nominee

clause

2.3 In case where the deceased depositor had not made any nomination or for the accounts other than those styled as "either or survivor" (such as single or jointly operated accounts), banks are advised to adopt a simplified procedure for repayment to legal heir(s) of the depositor keeping in view the imperative need to avoid inconvenience and undue hardship to the common person. In this context, banks may, keeping in view their risk management systems, fix a minimum threshold limit, for the balance in the account of the deceased depositors, up to which claims in respect of the deceased depositors could be settled without insisting on production of any documentation other than a letter of indemnity.

38

3.

Premature

Termination of

term

depositaccounts

In the case of term deposits, banks are advised to incorporate a clause in the account opening form itself to the effect that in the event of the death of the depositor, premature termination of term deposits would be allowed. The conditions subject to which such premature withdrawal would be permitted may also be specified in the account opening form. Such premature withdrawal would not attract any 4. Treatment of flows in the name of penal charge. the deceased depositor

In order to avoid hardship to the survivor(s) / nominee of a deposit account, banks are advised to obtain appropriate agreement / authorization from the survivor(s) / nominee with regard to the treatment of pipeline flows in the name of the deceased account holder. In this regard, banks could consider adopting either of the following two approaches: The bank could be authorized by the survivor(s) / nominee of a deceased account holder to open an account styled as 'Estate of Shri ________________, the Deceased' where all the pipeline flows in the name of the deceased account holder could be allowed to be credited, provided no withdrawals are made. OR The bank could be authorized by the survivor(s) / nominee to return the pipeline flows to the remitter with the remark "Account holder deceased" and to intimate the survivor(s) / nominee accordingly. The survivor(s) / nominee / legal heir(s) could then approach the remitter to effect payment through a negotiable instrument or through ECS transfer in the name 5. Access of to the the safe deposit appropriate lockers / safe beneficiary. custody articles

For dealing with the requests from the nominee(s) of the deceased locker-hirer / depositors of the safe-custody articles (where such a nomination had been made) or by the survivor(s) of the deceased (where the locker / safe custody article was accessible under the survivorship clause), for access to the contents of the locker / safe custody article on the death of a locker hirer / depositor of the article, the banks are advised to adopt generally the foregoing approach, mutatis mutandis, as indicated for the deposit accounts. Detailed guidelines in this regard are, however, being issued separately.

Financing

of

acquisition

of

equity
39

in

overseas

companies

RBI has decided on 7th June 2005, to allow banks to extend financial assistance to Indian companies for acquisition of equity in overseas joint ventures/wholly owned subsidiaries or in other overseas companies, new or existing, as strategic investment, in terms of a Board approved policy, duly incorporated in the loan policy of the bank. Such policy should include overall limit on such financing, terms and conditions of eligibility of borrowers, security, margin, etc.

3. While the Board may frame its own guidelines and safeguards for such lending, such acquisition(s) should be country. 4. The finance would be subject to compliance with the statutory requirements under Section 19(2) of the Banking Regulation Act, 1949. beneficial to the company and the

RBI RELEASES VISION DOCUMENT FOR PAYMENT AND SETTLEMENT SYSTEMS

The Reserve Bank of India has released on the 3rd May 2005, the Vision Document for Payment and Settlement Systems. The document lists the accomplishments in the area of payment system during the last three years and gives a roadmap for its further advancement during the next three years.

Safety, security, soundness and efficiency have been identified in the document as the key themes of the payment systems upgradation efforts. Whereas safety in payment and settlement systems relates to risk reduction measures, security pertains to confidence in the integrity of the payment systems. All payment systems are envisaged to be on sound footing with adequate legal backing for operational procedures and transparency norms. Efficiency enhancements are envisaged by leveraging the benefits of technology effective solutions. for cost

The document also details the action points for upgradation of the payment systems with definite milestones during next three years. During the first year, i.e., 2005-06, focus would be on setting up of a new institution for all retail payment systems and operationalising a National Settlement System (NSS). The new institution would be a limited company, owned
40

and operated by banks and would act as an umbrella organisation for all retail clearing operations - both paper based and electronic. Apart from starting robust technology intensive electronic credit system (ECS) and electronics funds transfer (EFT) facility, the proposed institution would take initiatives on converting existing MICR clearing to cheque truncation based clearing. ATM switching, multi application smart card, e-commerce and m-commerce would be other activities of the new institution. The proposed NSS system would facilitate centralised settlement of all clearing transactions at one place so that banks can pool their balances and manage their liquidity optimally. To start with, all clearing settlements at the four metropolitan centres (i.e., Mumbai, Delhi, Kolkata and Chennai) would be settled under NSS system by December 2005.

The Vision Document emphasises creation of a sound legal base by way of Payment System Act and regulations made under the bill. Making all large value payment systems like RTGS, Government Securities Clearing (G-Sec Clearing), FOREX Clearing and High Value Clearing compliant with Core Principles of Systemically Important Payment Systems (SIPS) has been indicated as another important objective. Creating a sound legal base will form a part of this compliance initiative. The Vision Document also indicates that MICR clearing would be introduced at 14 centres (in addition to 40 existing March 2007. Government of India Notification dated May 13, 2005 issued by Ministry of Finance, has amended the provisions of the PPF Scheme, 1968 with effect from May 13, 2005. i) Sequel to amendments to various Small Savings Schemes to restrict the scope of investments only to individuals, the accounts, if any, opened by juristic persons (HUFs, Trusts, Provident Funds, etc.) i.e. persons other than individuals (through single or joint accounts or deposits by guardians on behalf of minors and persons of unsound mind as per rules) on or after May 13, 2005, under any of the small savings scheme including Public Provident Fund Scheme, 1968, shall be treated as void ab initio and immediate action should be taken to close such accounts and to refund the deposits without any interest to the depositors. ii) It may, however, be noted that the above amendments shall not be applicable to the existing accounts opened in accordance with the rules in operation prior to the amendments dated May 13, 2005. These shall continue till maturity and deposits/withdrawals in/from these accounts shall be allowed to be made in accordance with the said rules. However, any centres) by

41

extension of existing accounts shall be subject to the amendments dated May 13, 2005.

Reserve Bank of India bars Mifor (Mumbai Interbank Forward Offer Rate)swaps
The Reserve Bank of India (RBI) has asked market participants to discontinue trades in Mifor swaps. On specific request from players, the RBI had earlier permitted Libor rates, which was used to price Mifor rates, the central bank has now asked players to use domestic benchmarks for market making or hedging balance sheets.

While the RBI has been concerned about the rapid growth in outstanding contracts in Mifor to over Rs 1,00,000 crore, the more important issue is of it being used as a mere speculative tool by corporates, without any underlying exposure such as loans under ECBs.
RBI Circular dated 20th May 2005

Please refer to the guidelines for interest rate derivatives circulated on July 7, 1999 whereby banks / FIs and PDs were enabled to use Forward Rate Agreements (FRA) and Interest Rate Swaps (IRS) in order to manage and control risks arising from deregulation of interest rates. These institutions were also permitted to use the products for market making and offer them to corporates for hedging balance sheet exposures. 2. However, on specific requests from banks, LIBOR was permitted to be used as benchmark, since rupee benchmarks other than the MIBOR were then still to develop and find wide acceptance. Market participants, are therefore, advised that henceforth, they should use only domestic rupee benchmarks for interest rate derivatives. Market participants are, however, given a transition period of six months for using MIFOR as a benchmark, subject to review and are advised to desist from taking any measures that would undermine the intent of this circular.

3. The existing contracts with non-domestic rupee benchmarks may however continue as per the terms of the contract or be closed out on mutually agreed terms between the counterparties to the contract.

Customer service

in

Banking

Operations-

Report of RBI's Committee on Procedures and Performance Audit on Public Services

42

Customers of foreign and new private banks are discouraged by these banks from transacting through bank branches. These banks often refuse to give an acknowledgement on the deposit slip if the cheques are deposited at branch counters. Following instructions will bring relief to a large section Cheque Drop Box of customers.

Facility

RBI's Committee on Procedures and Performance Audit on Public Services has recommended that both the drop box facility and the facility for acknowledgement of the cheques at the regular collection counters should be available to customers and no branch should refuse to give an acknowledgement if the customer tenders the cheques at the counters. We agree with the recommendation and advise that it is important that there is no curtailment of the rights of the depositor to obtain an acknowledgement by goingto concerned Issue of counter. Books the

Cheque

The Committee has observed that some banks do not allow depositors to collect their cheque book at the branch but insist on despatching the cheque book by courier to the depositor. Further, it is stated by the Committee that the depositor is forced to sign a declaration that a despatch by the courier is at the depositor's risk and consequence and that the depositor shall not hold the bank liable in any manner whatsoever in respect of such despatch of cheque book. Committee has observed this as an unfair practice and advised banks to refrain from obtaining such undertakings from depositors. Banks should also ensure that cheque books are delivered over the counters on request to the depositors or his authorised Statement representative. of Accounts/Pass Books

The Committee has noted that banks invariably show the entries in depositors passbooks / statement of accounts as "By Clearing" or "By Cheque". Further, in the case of Electronic Clearing System (ECS) and RBI Electronic Funds Transfer (RBIEFTR) banks invariably do not provide any details even though brief particulars of the remittance is provided to the receiving bank. In some cases computerized entries use sophisticated codes which just cannot be deciphered. With a view to avoiding inconvenience to depositors, banks are advised to avoid such inscrutable entries in passbooks / statements of account and ensure that brief, intelligible particulars are invariably entered in passbooks / statements of account.

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Banks may also ensure that they adhere to the monthly periodicity prescribed by us while sending statement of accounts.

Universal Trend

Banking:

An

Emerging

Economic historians have long emphasized the importance of financial institutions in industrialization. More recently, economists have begun more intensive investigation of the links between financial system structure and real economic outcomes. In theory, the organization of financial institutions partly determines the extent of competition among financial intermediaries, the quantity of financial capital drawn into the financial system, and the distribution of that capital to ultimate uses. The choice between universal and specialized banking may affect interest rates, underwriting costs, and the efficiency of secondary markets in securities. Furthermore, the presence or absence of formal bank relationships may affect the quality of investments undertaken, strategic decision-making, and even the competitiveness of industry. Particularly since World War II, many economists and historians have argued that Germanstyle universal banks offer advantages for industrial development and economic growth. Universal banking efficiency combined with close relationships between banks and industrial firms, they hypothesize, spurred Germanys rapid development at the end of the nineteenth century and again in the post-World War II reconstruction. A corollary to this view holds that countries that failed to adopt the universal-relationship system suffered as a consequence. Adherents suggest that British industry has declined over the past hundred years or more, and that the American economy has failed to reach its full potential, due to short-comings of the financial system that lead to relatively high costs of capital. In Indian context, the phenomenon of universal bankingas different from narrow banking has been in the news in the recently. With the last Narasimham Committee and the Khan Committee reports recommending consolidation of the banking industry through mergers and integration of financial activities, the stage seems to be set for a debate on the entire issue. A universal bank is a one-stop supplier for all financial products and activities, like deposits, short-term and long-term loans, insurance, investment banking etc. Global
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experience with universal banking has been varied. Universal banking has been prevalent in different forms in many European countries, such as Germany, Switzerland, France, Italy etc. For example, in these countries, commercial banks have been selling insurance products, which have been referred to as Banc assurance or Allfinanz. After the stock market crash of 1929 and banking crisis of the 1930s, the US banned all forms of universal banking through what is known as the Glass- Steagall Act of 1933. This prohibited commercial banks from investment banking activities, taking equity positions in borrowing firms, selling insurance products etc. The idea was to mitigate risky behaviour by restricting commercial banks to their traditional activity of accepting deposits and lending. Research on the effects of universal banking has been inconclusive as there is no clear-cut evidence in favour of or against it anywhere. Nevertheless, the United States has once again started moving cautiously towards universal banking through the Gramm-Leach-Bliley Act of 1999 which rolled back many of the earlier restrictions. Some recent phenomenon, like the merger between Citicorp (banking group) and Travelers (insurance group) confirmed the fact that universal banking is here to stay. Hence it becomes all the more imperative to know whether we need universal banks in India. And whether it is a more efficient concept than the traditional narrow banking. What are the benefits to banks from universal banking? The standard argument given everywherealso by the various Reserve Bank committees and reportsin favour of universal banking is that it enables banks to exploit economies of scale and scope. What it means is that a bank can reduce average costs and thereby improve spreads if it expands its scale of operations and diversifies its activities. By diversifying, the bank can use its existing expertise in one type of financial service in providing the other types. So, it entails less cost in performing all the functions by one entity instead of separate specialized bodies. A bank possesses information on the risk characteristics of its clients, which it can use to pursue other activities with the same clients. This again saves cost compared to the case of different entities catering to the different needs of the same clients. A bank has an existing network of branches, which can act as shops for selling products like insurance. This way a big bank can reach the remotest client without having to take recourse to an agent. Many financial services are inter-linked activities, e.g. insurance and lending. A bank can use its instruments in one activity to exploit the other, e.g., in the case of project lending to the same firm which has purchased insurance from the bank.

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Now, let us turn to the benefits accruing to the customers. The idea of one-stop-shopping saves a lot of transaction costs and increases the speed of economic activity. Another manifestation of universal banking is a bank holding stakes in a firm. A banks equity holding in a borrower firm acts as a signal for other investors on the health of the firm, since the lending bank is in a better position to monitor the firms activities. This is useful from the investors point of view. Of course, all these benefits have to be weighed out against the problems. The obvious drawback is that universal banking leads to a loss in economies of specialization. Then there is the problem of the bank indulging in too many risky activities. To account for this, appropriate regulation can be devised, which will ultimately benefit all the participants in the market, including the banks themselves. In spite of the associated problems, there seems to be a lot of interest expressed by banks and financial institutions in universal banking. In India, too, a lot of opportunities are there to be exploited. Banks, especially the financial institutions, are aware of it. And most of the groups have plans to diversify in a big way.Even though there might not be profits forthcoming in the short run due to the switching costs incurred in moving to a new business. The long-run prospects, however, are very encouraging. At present, only an arms-length relationship between a bank and an insurance entity has been allowed by the regulatory authority, i.e. the Insurance Regulatory and Development Authority (IRDA). This means that commercial banks can enter insurance business either by acting as agents or by setting up joint ventures with insurance companies. And the RBI allows banks to only marginally invest in equity (5 per cent of their outstanding credit). Development financial institutions (DFIs) can turn themselves into banks, but have to adhere to the statutory liquidity ratio and cash reserve requirements meant for banks. Even then, some groups like the HDFC (commercial banking and insurance joint venture with Standard Assurance), ICICI (commercial banking), SBI (investment banking) etc., have already started diversifying from their traditional activities through setting up subsidiaries and joint ventures. In a recent move, the Life Insurance Corporation increased its stakes in Corporation Bank and is planning to sell insurance to the customers of the Bank. Corporation Bank itself has been planning to set up an insurance subsidiary since a long time. Even a specialized DFI, like IIBI, is now talking of turning into a universal bank.

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All these can be seen as steps towards an ultimate culmination of financial intermediation in India into universal banking.

Mobile Banking
Vipera Mobile Banking Solution enables banks to easily provide their customers with mobile access to banking services. Customers can securely view account information, manage transfers, pay bills and more using their Java compatible mobile phone, anytime, anywhere.

HOW IT WORKS
The Vipera Mobile Banking Solution combines the security and flexibility of a client-server approach with the ease of use of Internet browser navigation. Main components of the solution are:

A client Java (J2ME-MIPD) application on the mobile device (WAP and SMS based interaction also supported), through which users can access all the features of their bank accounts by simple interactions with forms, menus and buttons. The user interface is tailored to the limited screen real-estate of different mobile devices and limited text input capabilities of phone keyboards;

a backend application that manages information and transactions exchange between the client and the bank's existing infrastructure;

The Vipera Network, that securely and reliably manages all the communication
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between the client application and the backend application.

Thoughts on universal banking:

One key question: the financial institutions, with subsidised funds, tax incentives and other concessions have been unable to add to their resources (capital formation) over decades.

IN THE early Nineties the forces of globalisation were unleashed on the hitherto protected Indian environment. The financial sector was crying out for reform. Public sector banks which had a useful role to play earlier on now faced deteriorating performance. For these and certain other reasons private banking was sought to be encouraged in line with the Narasimham Committee's recommendations. It would be pertinent to recapitulate the prevailing conditions in the banking industry in the early Nineties: the nationalized sector had outlived its utility; in fact they became burdened with unwelcome legacies; customer service had become a casualty; need for computerization, including networking among the vast branch network was felt. Private banking in that context was viewed a brand new approach, to bypass the structural and other shortcomings of the public sector. A few of the new ones that were promoted by the institutions such as the IDBI and ICICI did establish themselves, though in varying degrees, surviving the market upheavals of the 1990.That was possible apart from other factors due to the highly professional approach some of them adopted: it helped them stay clear of the pitfalls of nationalized banking. Yet in less than a decade after the advent of these new generation banks, some of the successful ones, are being forced to change organisationally and in every other way. Who benefits after this restructuring is something that has to be asked. It is essential to assimilate history of banking as well as the role of the financial institutions till recently. The branch banking concept with which we are familiar and practiced since inception is basically on certain `protected' fundamentals. The insulated economy till the Nineties provided comforts to public sector banks, in areas of liquidity management while in an administered interest regime, discretion of managements was limited and consequently, the risk parameters in these spheres were hazy and not quantifiable. The share of private sector banks which is distinctly known as old private sector banks' established
48

before 1994, was thus not substantial while operations of foreign banks were also restricted. Staff orientation especially at the branch level is a key ingredient for success and neither the older private banks nor the nationalised banks were successful in that respect. The woes of the public sector banks till date relate to handling volumes, be it in the area of transactions or staff complement or branch offices. Post nationalisation, mass banking sans commercial or professional goals, indiscreet branch expansion, lack of networking, wide gaps/inefficiency at the levels of control apart from environmental impacts, contributed to their present status. Turning to recent merger announcement between the ICICI and its more recently promoted banking subsidiary the following become relevant. One of the main motivations has been the need to access a low cost retail deposit base. Public sector banks, by way of contrast never had to face such a constraint. Today, in a market driven economy, to face the competition, one factor is the size and hence, mergers are advocated. Talking of the PSBs it is relevant to note that except for a build up of savings accounts (as low cost deposits), the advantage of vast branch network is yet to be exploited by them while on the other hand, most of the complaints, irregularities, mounting arrears in reconciliation are attributable to such branch expansion. At the same time, this has enabled a few of the smart foreign/new private sector banks to enrich themselves by offering cash management products, utilising the same branch network! All these pose a question to the recent merger of Bank of Madura - will the ICICI Bank decide to shed unwanted, unremunerative branches? Pertinently for all banks the RBI has already provided an exit route but there have been no takers among the public sector banks, for obvious reasons. Pertinent again is to note that another set of banks, namely, foreign banks prospered during all these difficult days. Even today, these banks do not have branch network to speak of but in terms of volume, profitability they are far ahead of the public sector banks. Only a couple of new private sector banks have posed any challenge to them in the recent years.

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UNIVERSAL BANKING-A PANACEA

UNIVERSAL BANKING, believed to be the panacea for beleaguered development financial institutions (DFIs), is almost here. Last October, ICICI set in motion the process to transform itself into a universal bank. It was soon followed by IDBI in submitting a universal banking proposal to the regulator, the Reserve Bank of India. For a while, it appeared that DFIs had finally found a solution to their problems. Just for a while though. A few days ago none other than the RBI Governor, Mr Bimal Jalan, publicly suggested that universal banking was unlikely to be the antidote to DFIs' historical baggage. Now, we are back to asking a basic question: What can universal banking actually do? A recap Universal banking has been in the air for long. ICICI has used every forum to acquaint people with the concept and likely benefits of universal banking for a DFI like itself. Interest in universal banking surged following governing board level approval for ICICI's plan to merge itself with ICICI Bank in October 2001. Both the companies are in the process of seeking approvals from shareholders, courts and the RBI. Soon after ICICI's announcement, IDBI too submitted a proposal on converting itself into a universal bank. Both proposals are being examined. Universal banks Simply put, a universal bank is a supermarket for financial products. Under one roof, corporates can get loans and avail of other handy services, while individuals can bank and borrow. To convert itself into a universal bank, an entity has to negotiate several regulatory requirements. Therefore, universal banks in the Indian context have been in the form of a group offering a variety of services under an umbrella brand such as ICICI or HDFC. Even finance companies such as Sundaram Finance use the goodwill associated with their brand, and the years of information and insight, to offer a number of services under an umbrella brand. Need to move farther

50

Since ICICI already practices a form of universal banking, the company's decision to merge with ICICI Bank begs the question, why change the system now? The answer to that question lies in the complex and messy past of DFIs in this context ICICI, IDBI and IFCI. The DFIs were established to assess and finance viable industrial projects that required long-term funds. The government made available subsidised funds to help carry out onlending. In the early 1990s, subsidised funding to DFIs was terminated, thereby forcing them to rely on the market for resources. Soon after, loans granted by DFIs in the early and mid-1990s to industrial projects in steel, textiles and basic chemicals, among others, began to experience time- and cost-over-runs. Thus, in the past few years, DFIs had to deal with two huge problems the termination of subsidised funding and a significant chunk of loans turning bad. ICICI was the earliest to articulate a new strategy to combat the problems. Once loans to commodity industries began to turn bad, the company's incremental lending was directed at short-term loans for working capital and retail customers. At the same time, ICICI lobbied for years to reverse-merge itself with ICICI Bank a commercial bank promoted by ICICI in January 1994. Banks, by virtue of collecting savings and time deposits, have the cheapest source of funds, and a merger with ICICI Bank should help ICICI access the funds at the lowest possible cost for a commercial entity. After years of lobbying, ICICI took the step to convert itself into a universal bank last October. IDBI, still owned largely by the Government and subject to a different set of rules, has begun to work towards a merger with a commercial bank. Though IDBI has promoted a commercial bank, IDBI Bank, the DFI is believed to be exploring the possibility of a merger with a state-owned commercial bank. Grey areas of universal banking The path to universal banking for ICICI is strewn with obstacles. The biggest one is overcoming the differences in regulatory requirements for a bank and a DFI. Unlike banks, DFIs are not required to keep a portion of their deposits as cash reserves. In the event of a merger with ICICI Bank, ICICI will have to set aside about Rs 18,000 crore as reserves. The combined entity will have a balance-sheet size of Rs 95,000 crore, making it the second largest bank in India. ICICI's reserve requirement is perhaps not too difficult to meet. More taxing would be the problem of priority sector loans.

51

About 40 per cent of a bank's lending is directed towards the priority sector. Given the size of priority sector lending, it seems unlikely that the merged entity, ICICI Bank, can realign its portfolio. Instead ICICI has asked for concessions in meeting this requirement.

Cost of funds to fall If the ICICI group's merger takes place and the merged entity ICICI Bank commences operations, the implications will be significant. As a bank, the cost of funds will drop, thereby allowing it to compete more effectively for short-term lending. For example, ICICI Bank's current cost of deposits is about 7.77 per cent, while ICICI's loan funds cost is 11.41 per cent. The difference is likely to make a significant difference in the market for shorter duration loans. However, since the borrowings of banks are generally of shorter durations, the opportunities to lend long-term are likely to be limited. In the case of the traditional project finance an area where DFIs tread carefully becoming a bank may not make a big difference. Project finance and infrastructure finance are generally long gestation projects and would require DFIs to borrow long-term. Therefore, the transformation into a bank may not be of great assistance in lending longterm. With respect to DFIs, the cost of funds is likely to be critical when studied in the context of the trend in sectoral disbursal of loans. ICICI, for instance, has radically altered the composition of its disbursal in favour of medium-term and short-term loans over the last four years. In 1997-98, 16 per cent of ICICI's disbursals went towards corporate finance (generally shorter duration loans such as working capital). By 2000-01, about 69 per cent of ICICI's disbursals went to corporate finance. The change does not appear to have been so stark in the cases of IDBI and IFCI. For both institutions, there are signals that project finance will decline in importance. Therefore, a significant quantum of incremental lending will be towards shorter duration lending, thereby making the cost of funds critical to future profitability. NPAs: The problem remains In the last few years, the most serious problem DFIs have had to encounter is bad loans or
52

non-performing assets (NPAs). For DFIs, universal banking or the installation of cuttingedge technology in operations are unlikely to improve the situation concerning NPAs. The bulk of the NPAs came out of loans to commodity sectors such as steel, chemicals and textiles in the early- and mid-1990s. The improper use of DFI funds by project promoters, a sharp change in operating environment and poor appraisals by DFIs combined to destroy the viability of some projects. The NPAs of these projects have dented, in varying degrees, the balance-sheets of the three DFIs. ICICI seems to have suffered the least, mainly because size of its balance-sheet size, which has grown by a compound annual growth rate of 19.25 per cent over the last four years. At the same time, the company's gross NPAs have grown by 21 per cent. Though the gross NPAs grew faster than the balance-sheet, the combined effect of the growth in the absolute size of the balance-sheet and accelerated provisioning has brought down ICICI's net NPAs to 5.2 per cent of total loan assets in 2000-01 from 6.8 per cent in 1996-97. IDBI's gross NPAs have also grown at a worrisome speed. Between 1996-97 and 2000-01, IDBI's gross NPAs grew by 18.10 per cent to Rs 10,879 crore.The quality of IDBI's gross NPAs has also worsened; doubtful assets (NPAs that are over 18 months old) were 69 per cent of gross NPAs in 2000-01 against 39 per cent of gross NPAs in 1996-97. IDBI's balance-sheet grew at 9.28 per cent over the last four years to stand at Rs 71,783 crore in March 2001, noticeably slower than that of ICICI. The slower growth in its balance-sheet has left IDBI with a bigger dent on account of NPAs. IFCI is the worst hit among the DFIs. Over 90 per cent of its outstanding loans are in project finance, and to compound matters, the disbursal of loans has declined over the last three years. Mounting NPAs in the backdrop of a shrinking balance-sheet led to gross NPAs of about 21 per cent of IFCI's March 2001 balance-sheet. As the RBI Governor, Mr Bimal Jalan, suggested, universal banking will not solve the NPA problem. If commodity sectors are the baggage of the past, the growing problems in power sector loans may compound the NPA problem. At the moment, it would appear that the IDBI is likely to be the worst hit considering the negative developments at the Dabhol Power Company (DPC). IDBI's total exposure to the

53

project is believed to be about Rs 2,500 crore, and if a solution is not found soon the implications will prove disastrous for all the DFIs. Keeping aside the grey areas that accompany the move to universal banks, DFIs seeking a merger with a commercial bank makes sense. While the move may not solve the NPA problem, it may mitigate the problem of competing in a market that has players with a significantly lower cost of funds. Moving on to the equity market, the situation does not look bright. There is the possibility that all three DFI stocks may move up a notch if equities firm up.But when looked at individually, there seems little to attract the prudent investor. The DFIs are not a good investment opportunity at the moment.

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STRATEGIES OF VARIOUS BANKS EMERGING AS UNIVERSAL BANK

To meet the various needs of different people, every bank has extended its services and has proved to be universal bank. A universal bank is a bank where every problem of a customer is solved under one roof. The bank has diversified its activities. The scope of banking has widened. So every bank has started providing different facilities to its customers to have an edge over another bank. In India, every bank is giving facilities like investments, loans besides savings. So they have proved to be a boon for a common man. The different banks in India are: ICICI BANK IDBI BANK UTI BANK BANK OF BARODA BANK OF MAHARASHTRA PUNJAB NATIONAL BANK CENTURION BANK OF PUNJAB JAMMU & KASHMIR BANK CITI BANK HDFC BANK ABN AMRO BANK STATE BANK OF INDIA CENTRAL BANK BANK OF INDIA

55

ICICI Bank offers wide variety of Products to suit your requirements. Coupled with convenience of networked branches/ ATMs and facility of E-channels like Internet and Mobile Banking, ICICI Bank brings banking at your doorstep. Select any of our deposit products and provide your details online and our representative will contact you for Account Opening.

Safety, Flexibility, Liquidity, Returns!!! ICICI Bank offers wide variety of Deposit Products to suit your banking requirements.

Simplified Documentation, Quick Processing, Hassle Free!!! Select any of our Loan Product & provide your details online and our representative will contact you for getting loans.

Exclusive, Economical, Expert Advice!!! ICICI Banks power-packed, feature-rich investment options for meeting all your investment needs.

Simpler, Safer, Smarter!!!

A truly world class service as ICICI bank cards have both national and international acceptance.

Secure, Reliable, Convenient!!! Convenience has always been synonymous with ICICI Bank and keeping in line we offer the facility of buying Insurance policies online.

Banking at your fingertips!!! Why be inline when you can be online for paying your utility bills, mobile bills, prepaid recharge codes, Shopping, Credit card, insurance premium and lots more.

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PERSONAL BANKING DEPOSITS LOANS INVESTMENTS CARDS SOLUTIONSINSURANCE INSURANCE DEMAT SERVICES ONLINE SERVICES

NRI SERVICES MONEY TRANSFER BANK ACCOUNTS INVESTMENTS PROPERTY LOANS

CORPORATE BANKING -CORPORATE NET BANKING -CASH MANAGEMENT -TRADE SERVICES -TRADEWAY -FOREX ONLINE -SME SERVICES PRIVATE BANKING -ASSET PRODUCTS -BANKING -CREDIT CARDS -DEBIT CARDS -DEPOSITORY SERVICES -EXCLUSIVE PHONE BANKING

MOBILE BANKING -BANK ACCOUNTS -CREDIT CARDS -DEMAT -LOANS

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PUNJAB NATIONAL BANK

Established in 1895 at Lahore, undivided India, Punjab National Bank (PNB) has the distinction of being the first Indian bank to have been started solely with Indian capital. The bank was nationalized in July 1969 along with 13 other banks. From its modest beginning, the bank has grown in size and stature to become a front-line banking institution in India at present.

Quality Policy
To effectively meet customers' requirements and endeavor to achieve total customer satisfaction. To gain consistent faith and confidence of customers and potential customers regarding the quality of services rendered. To pursue excellence through continuous improvement in all areas and to distinguish ourselves by the quality of our services. To achieve operational efficiency by attaining better productivity and profitability. To work and act in such a manner that all services rendered in due course of banking lead to excellence and improved credibility and image of the Bank.

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59

PRODUCTS AND SERVICES OF PUNJAB NATIONAL BANK

PERSONAL BANKING
MY PLACE WOMEN SALARIED STAFF STUDENTS FARMERS SENIOR CITIZENS BANKING PROFESSIONALS ARMY PERSONNEL/ EX-SERVICEMEN NRIs/ NRI NRI A/Cs INTEREST RATES FOREIGN OFFICES OFFSHORE UNIT NRIs IN UAE FACILITIES FOR RESIDENTS MONEY TRANSFER SERVICE BANKING ANYWHERE CENTRALISED BANKING ATM SERVICE 12-HOUR BANKING REMOTE ACCESS BRANCHES LOCATOR FACILITIES LOCATOR

SERVICES
-LOCKER FACILITIES -RTGS/NEFT/SFMSPNB Insta Remit -ISSUE OF DRAFTS & CASH ORDER -DEPOSITORY SERVICES -CREDIT CARD -EFT -IMMEDIATE CREDIT OF COLLECTION CHEQUES -GOVT. DEPOSIT SCHEMES -ECS -PNB RUPEE Travelers Cheque

CORPORATE BANKING
LOAN AGAINST FUTURE LEASE RENTALS EXIM FINANCE CASH MANAGEMENT SERVICES SSI SECTOR GOLD CARD SCHEME FOR EXPORTERS

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BANK OF BARODA

It has been a long and eventful journey of almost a century across 21 countries. Starting in 1908 from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate Centre in Mumbai, is a saga of vision, enterprise, financial prudence and corporate governance.

Our mission

statement

To be a top ranking National Bank of International Standards committed to augmenting stake holders' value through concern, care and competence. It all started with a visionary Maharaja's uncanny foresight into the future of trade and enterprising in his country. On 20th July 1908, under the Companies Act of 1897, and with a paid up capital of Rs 10 Lacs started the legend that has now translated into a strong, trustworthy financial body, THE BANK OF BARODA.

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PERSONAL BANKING
DEPOSITS -FIXED DEPOSIT -CURRENT DEPOSIT -SAVINGS DEPOSIT CREDIT CARDS DEBIT CARDS RETAIL LOANS SERVICES HOUSING LOAN MULTI CITY HOUSING LOAN TO CHEQUE NRIs/PIOs BARODA MONEY HOME IMPROVEMENT EXPRESS LOAN COLLECTION EDUCATION LOAN SERVICES CAR LOAN ECS TWO WHEELER GOVT. BUSINESS LOAN INTERNET/MOBILE CONSUMER DURABLE BANKING LOAN BILL PAYMENT PERSONAL LOAN SENIOR CITIZENS DESH VIDESH YATRA LOCKERS LOAN MARRIAGE LOAN FESTIVAL LOAN ADVANCE AGAINST SECURIRIES ADVANCE AGAINST PROPERTY LOAN TO PENSIONERS PROFESSIONAL LOAN LOAN TO DOCTORS TRADER LOAN LOAN PUBLIC ISSUES/ IPOs

BUSINESS BANKING

DEPOSITS LOANS & ADVANCES FIXED DEPOSIT WORKING CAPITAL CURRENT DEPOSITS FINANCE TERM FINANCE SSI SME GOLD CARD SMALL BUSINESS/ BORROWERS TRADERS LOAN

SERVICES DEBIT CARDS ECS COLLECTION SERVICES MULTI CITY CHEQUE BOB MONEY EXPRESS LOCKERS

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CORPORATE BANKING
DEPOSITS LOANS & ADVANCES BASED SERVICES -FIXED DEPOSIT -WORKING CAPITAL -CURRENT DEPOSITS FINANCE -LINE OF CREDIT -EXPORT FINANCE -BILL FINANCE -FCNR LOANS -BRIDGE LOANS -ADVANCE AGAINST SHARES -LOAN AGAINST RENT RECEIVABLES -TERM FINANCE -SHORT TERM CORPORATE LOAN -LOANS TO SMALL AND MEDIUM ENTERPRISE -TAKEOVER OF A/Cs NON FUND

INTERNATIONAL SERVICES NRI SERVICES: -REMITTANCE FACILITIES -PRODUCTS & SERVICES -HOW TO OPEN DEPOSIT ACCOUNTS -TAXATION -FACILITIES TO RETURNING INDIANS FGN CURRENCY CREDITS ECB FCNR LOANS OFFSHORE BANKING EXPORT FINANCE IMPORT FINANCE CORRESPONDENT BANKING TRADE FINANCE INSTITUTIONAL TREASURY
63

VALUE ADDED SERVICES -BARODA INTERNET/ MOBILE BANKING -BARODA OMNI -BARODA REMIT EXPRESS -MONEY TRANSFER SERVICE SCHEME -MULTI CITY CHEQUE

TREASURY -DOMESTIC OPERATION -FOREX OPERATION RURAL DEPOSITS: -FIXED DEPOSITS -CURRENT DEPOSITS -SAVING DEPOSITS SERVICES: -REMITTANCES -COLLECTION SERVICES -PENSION LOCKERS PRIORITY SECTOR ADVANCES -AGRICULTURE -SSI -SMALL BUSINESSES -RETAIL LOAN -GOVT SPONSORED SCHEMES -BARODA GENERAL CREDIT CARD SCHEME

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CENTURION
BANK OF PUNJAB

Centurion Bank of Punjab is a new generation private sector bank offering a wide spectrum of retail, SME and corporate banking products and services. It has been among the earliest banks to offer a technology-enabled customer interface that provides easy access and superior customer service. Centurion Bank of Punjab has a nationwide reach through its network of 241 branches and 389 ATMs. The bank aims to serve all the banking and financial needs of its customers through multiple delivery channels, each of which is supported by state-of-the-art technology architecture. Centurion Bank of Punjab was formed by the merger of Centurion Bank and Bank of Punjab, both of which had strong retail franchises in their respective markets. FOREIGN EXCHANGE: Centurion Bank of Punjab offers a one-stop shop for a traveller's foreign exchange needs. We have dedicated foreign exchange staff that is drawn from the very best in the industry and specially trained to offer highest standards in service. Many branches of the Bank offer dedicated forex bureaus that offer travel related foreign exchange services from special counters that offer service beyond banking hours.

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Personal Banking Retail Loans Savings Bank Two Wheeler Account Loans Current Account Personal Loans Fixed Deposits Property Loans Global Debit Card Commercial Visa Money Vehicle Transfer Construction Premium Pay Equip. Internet Banking Auto Loans Mobile Refill Agriculture Loans Education Loans Forex Services Offered Location Become a Partner Buy Forex Online Todays Rates NRI Services Foreign Currency Deposits Savings / Current Account Term Deposits Welcome Aboard Correspondent Banks Features at Glance Interest Rates

Wealth Management Corporate Banking Insurance Corporate and Mutual Funds SME Portfolio Tracker Treasury Equity FIG Group Fixed Income Products Channel Finance IPO Buzz Trade Finance

Demat Overview How to Avail ? Benefits Tariff

Cash Management Collection Services Payment Services

Senior Citizens

ePay Solutions How it Works? Functionality

Bill Pay List of Billers FAQ's BillPay Login

Gift Card

SMS Alerts

66

IDBI BANK

IDBI Ltd. is committed to creating long term economic value for all its stakeholders, including shareholders, depositors, customers, employees and the society as a whole. IDBI Ltd. is committed to maintaining high standards of ethical and professional conduct in all its corporate activities. Vision Statement "To be trusted partner in progress by leveraging quality human capital and setting global standards of excellence to build the most valued financial conglomerate"

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PERSONAL BANKING
DEPOSITS SAVING ACCOUNT CURRENT ACCOUNT FIXED DEPOSITS PENSION ACCOUNT SABKA ACCOUNT INVESTMENTS DEMAT ACCOUNT INVEST SERVICES LOANS HOME LOANS LOANS AGAINST HOME PERSONAL LOAN IPO FINANCE LOAN AGAINST SECURITY PAYMENTS TAX PAYMENT STAMP DUTY PAYMENT EASY FILL CARD TO CARD MONEY TRANSFER ONLINE PAYMENTS INSURANCE FAMILY CAR LIFE INSURANCE

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PREFFERED BANKING
-RELATIONSHIP

BANKING -ASSET PRODUCTS

NRI SERVICES INSTITUTIONAL BANKING

-INSTITUTIONAL SAVING ACCOUNT -CORPORATE PAYROLL ACCOUNT -CITIZEN IDBI BANK

CORPORATE PRODUCTS
-DEPOSIT PRODUCTS -LOAN & ADVANCES -TRADE FINANCE -CAPITAL MARKET -INTERNET BANKING -CASH MANAGEMENT SERVICES

TREASURY PRODUCTS
-FOREX -MONEY MARKET

24-HOUR BANKING
-PHONE BANKING -SMS BANKING -ACCOUNT ALERTS -INTERNET BANKING

CARDS
-GOLD DEBIT CARD -INTERNATIONAL DEBIT CUM ATM CARD -GIFT CARD -WORLD CURRENCY CARD

CORPORATE BANKING
-PROJECT FINANCE -FIRM FINANCING -CORPORATE LOAN -DIRECT DISCOUNTING -TUFS(TECHNOLOGY UPGRADATION FUND SCHEME) -REFINANCE -BILLS REDISCOUNTING -REHABILITATION FINANCE -COMMERCIAL PRODUCTS -TREASURY PRODUCTS

OTHER PRODUCTS:
-LOCKERS -INDIA POST CITIZEN IDBI BANK

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The Jammu & Kashmir Bank is today one of the fastest growing banks in India with a network of more than 500 branches/offices spread across the country offering world class banking products/services to its customers. Today, the Bank has a status of value driven organization and is always working towards building trust with Shareholders, Employees, Customers, Borrowers, Regulators and other diverse Stakeholders, for which it has adopted a strategy directed to developing a sound foundation of relationship and trust aimed at achieving excellence, which of course, comes from the womb of good Corporate Governance. Good Governance is a source of competitive advantage and a critical input for achieving excellence in all pursuits.

DEPOSIT SCHEMES LOAN SCHEMES INSURANCE SERVICES -TERM DEPOSITS -CONSUMER LOAN -GENERAL INSURANCE -SAVING BANK -HOUSING LOAN -LIFE INSURANCE DEPOSITS -CAR LOAN -VALUE ADDED -EDUCATIONAL LOAN SCHEMES -PERSONAL CONSUMPTION -GIFT CHEQUE LOAN SCHEME -LOAN AGAINST MORTGAGE -LOAN AGAINST SHARES/ NRI SERVICES BONDS -MORTGAGE LOAN FOR CARDS TRADE DEPOSITORY SERVICES

70

BANK OF INDIA

Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai. The Bank was under private ownership and control till July 1969 when it was nationalized along with 13 other banks.

Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth over the years and blossomed into a mighty institution with a strong national presence and sizable international operations. In business volume, the Bank occupies a premier position among the nationalized banks. The Bank has 2613branches in India spread over all states/ union territories including 93 specialized branches. These branches are controlled through 48 Zonal Offices. There are 23 branches/ offices (including three representative offices) abroad. The Bank came out with its maiden public issue in 1997. Total number of shareholders as on 31/03/2006 is 2,38,708.

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PRODUCT & SERVICES CREDIT SCHEME -PERSONAL LOAN -BULLION BANKING -KISAN CREDIT CARD -BILL FINANCE -BANK GUARANTEE -EXPORT FINANCE -INTEREST RATES -BOI MEDI MOBILE SCHEME -CHANNEL CREDIT -CORPORATE LOAN -DISCOUNTING OF FUTURE CASH FLOWS -FOREIGN CURRENCY SWING LINKS SERVICES -STAR INSTA REMIT -STAR CASH MANAGEMENT SERVICES -DEPOSITORY SERVICES -SAFE DEPOSITS VAULT -SAFE CUSTODY SERVICES -TECHNOLOGY PRODUCTS/ SERVICES BRANCHES)-GOVT RELIEF BONDS -MULTI CITY CHEQUE FACILITY CALCULATOR -DEPOSIT CALCULATOR -EMI CALCULATOR DEPOSIT SCHEME -TERM DEPOSIT SCHEME -NRI DEPOSIT SCHEME -NRI YIELD ENHANCING SCHEME -BOI SAVING PLUS SCHEME -BOI CURRENT DEPOSIT PLUS SCHEME -FOREIGN CURRENCY DEPOSIT SCHEME RATES -SPECIAL DEPOSIT PRODUCTS -BOI FLOATING DEPOSIT SCHEME -STAR GOLD/DIAMOND CURRENT ACCOUNT -BASIC SAVING ACCOUNT

INTERNET BANKING -STAR CONNECT (CUSTOMER OF MBB BRANCHES) -STAR CONNECT (CUSTOMER OF NRI BRANCHES) -STAR CONNECT RETAIL (FOR CORE BANKING BRANCHES) -STAR CONNECT CORPORATE (FOR CORE BANKING

NRI SERVICES -STAR CONNECT (INTERNET BANKING FOR NRI BRANCHES) -NRI DEPOSIT SCHEMES -NRI YIELD ENHANCING SCHEME -FOREIGN CURRENCY DEPOSIT SCHEME RATES

CARD PRODUCTS: -DEBIT CARD -CREDIT CARD

72

UTI Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation Ltd. and its associates viz. National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United Insurance Company Ltd.

The Bank today is capitalized to the extent of Rs. 278.62 Crores with the public holding (other than promoters) at 72.27%.

The Bank's Registered Office is at Ahmedabad and its Central Office is located at Mumbai. Presently the Bank has a very wide network of more than 420 branch offices and Extension Counters. The Bank has a network of over 1841 ATMs providing 24hrs a day banking convenience to its customers. This is one of the largest ATM networks in the country.

73

Products & Services Consumer Banking Savings Account Current Account Fixed Deposits Recurring Deposits Lockers Debit Card Power 24 Encash 24 NRIs Our Offering Documentation Remittances Internet banking NRI Loans Portfolio Investment Scheme Our Correspondent Banks Tax and Advisory Services India News Retail Loans Power Drive Power Home Personal Power Treasury International Banking Money Market Desk Capital Markets Debenture Trusteeship Clearing Bank for NSE / BSE / OTCEI Corporate Banking Current Account CMS Advisory Services Fixed Deposits Lending / Financing Salary Power Merchant Banking

Foreign Exchange Desk Depository Services

Loans against Securities Constituent SGL Facility Clearing Members for Derivatives Segment Consumer Power Study Power Interest Rate Charts Retail Gsec Deposit Rate Newsletter Live G-Sec Quotes Broker Financing Issue Management M&A Advisory IPO Funding RBI Bonds Mutual Funds E-Broking Financial Advisory Services Our Offering Mutual Funds Insurance Equity Tax Consultancy Real Estate Calculators Auto Loans Home Loans Personal Loans Consumer Loans Retirement Planners Investment Planners FAQ's Auto Loans

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Fixed Income Products Portfolio Tracker Planning Tools IPO Buzz

Tax Planners Budgeting Fixed Income & Bonds

HDFC BANK

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. When you bank with us, we ensure your money is not just in safe hands; it also works to your advantage. We help you invest wisely through our financial and investment services. Profit from our expertise.

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LOANS
Resident Indians Home Loans Home Improvement Home Extension Short Term Bridging Land Purchase Loans to Professionals for Non Residential Premises Loan Home Equity Loan HDFC offers special repayment facilities on its loan products Non Resident Indians Home Loans Home Improvement Home Extension Land Purchase About NRI NRI FAQs Deposits Individual Fixed Rate Deposits Monthly Income Plan Non-Cumulative Deposits Annual Income Plan Cumulative Deposits Easy Way Savings Senior Citizen Deposits Variable Rate Deposits Monthly Income Plan Non-Cumulative Deposits Annual Income Plan Cumulative Deposits WizKid Deposit Plan Senior Citizen Deposits Interest Rate

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TRUSTS FIXED RATE DEPOSITS -MONTHLY INCOME PLAN -NON CUMULATIVE DEPOSITS -ANNUAL INCOME PLAN -CUMULATIVE DEPOSITS INTEREST RATES VARIABLE RATE DEPOSITS -MONTHLY INCOME PLAN -NON CUMULATIVE DEPOSITS -ANNUAL INCOME PLAN -CUMULATIVE DEPOSITS

REAL ESTATE -E-NEWS LETTER -BUILDER -PROPERTY RELATED SERVICES -HDFC REALTY LISTING OF SECURITIES

NRIs SERVICES -HOME LOANS -HOME IMPROVEMENT -HOME EXTENSIONS -LAND PURCHASE CORPORATE GOVERNANCE

-EQUITY HISTORY -FINANCIAL CALENDER AT -STOCK EXCHANGE/TRUSTEE HDFC -SHARE PRICE -COMMITTEE .BSE * AUDIT COMMITTEE .NSE * COMPENSATION COMMITTEE -STOCK MARKET DATA INVESTOR GRIEVANCE INTERACTIVE TOOLS -EMI CALCULATOR -LOAN ELIGIBILITY CALCULATOR -DEPOSIT CALCULATOR

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ABN-AMRO BANK
ABN AMRO is an international bank with European roots. We have a clear focus on consumer and commercial clients in our local markets and focus globally on select multinational corporations and financial institutions, as well as private clients. Our business mix gives us a competitive edge in our chosen markets and client segments. ABN AMRO is a prominent international bank, our history going back to 1824. ABN AMRO ranks 11th in Europe and 20th in the world based on tier 1 capital, with over 3,000 branches in more than 60 countries, a staff of about 96,000 full-time equivalents and total assets of EUR 880.8 billion (as at 31 December 2005).

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Why ABN AMRO is ideally positioned to deliver cash, trade and card products and services that

are

cut

above the

rest:

Our global network brings together product experts from different locations and

from a range of client segments, enabling us to drive innovation.

We have over 175 years experience at the forefront of banking services. Our global presence encompasses 3,000 branches across 62 countries and territories. We have major Transaction Banking hubs in Europe, Latin America and North

America and we are investing in emerging centres like India and China. ABN AMRO offers a range of products that meet the everyday financial needs of individuals. We serve millions of clients around the world, with leading operations in the Netherlands, the US Midwest (LaSalle Bank) and Brazil (Banco Real).

The wide range of financial services we offer enables us to build and expand long-term relationships with our clients. We can help consumer clients in the following areas: Personal loans Credit cards Mortgages Savings Retirement planning Education planning Personal internet banking Insurance Online trading

Preferred Banking
ABN AMRO also offers a relationship-banking approach for mass-affluent customers, professionals and business owners. Our approach is designed to meet our clients' needs for individual recognition and fulfill their desire for a greater range of products and services, beyond simple banking transactions.

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Private Banking
Our aim is to help clients structure, manage and enhance their wealth, making sure they receive highly professional and confidential financial solutions. Private clients have an assigned relationship manager who will discuss their unique financial circumstances with them and tailor products to meet their objectives. We can help private clients in the following areas: Banking Investment advisory Discretionary portfolio management Investment funds International estate planning Trust

Business and Commercial Clients

Our services can help clients finance their business, manage their cash flow, trade internationally, succeed in e-commerce and find new opportunities.

With millions of customers around the globe and a major presence in a range of markets, we have considerable scope for economies of scale and sharing of best practices. We have a local presence and a domestic focus on our various markets. At the same time, the advantages we gain from the synergies between our businesses benefit our clients.

Corporate and Institutional Clients

Our clients increasingly require a comprehensive choice of products, specialist skills and excellence of service, both locally and globally. ABN AMRO meets these demands by integrating corporate and investment banking services for our corporate and institutional clients across 50 of the 60 countries where ABN AMRO is active. This combination offers clients the best of both worlds: a full spectrum of products that give them exactly what they need, regardless of whether they are a mid-sized company or a world leader in their sector.
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Our aim is to be the preferred corporate and investment banking provider for global pioneers operating across regions, including both rising champions in emerging markets and ambitious companies in developed markets.

Transaction Banking
ABN AMRO Transaction Banking delivers cash, trade and card products and services to corporations and businesses, financial institutions, retail customers and private clients globally. These services are available in some 3,000 locations in over 60 countries, including La Salle Bank in the US and Banco Real in Brazil. Underpinning this extensive global network is integrated technology supporting billions of payment, trade and card transactions every year. Global scale, a commitment to continuing product and service innovation and an in-depth understanding of local and global markets are key components of our offer.

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CITI BANK

82

LOANS AND CREDITS

Loans
Personal

Credit Cards
Loans Premium Cards - Indian Oil Citibank Gold Card - Jet Airways Citibank Gold Card - Citibank Cash Back Gold Card - Citibank Gold Card Extra Value Cards - Hutch Citibank Card -Jet Airways Citibank Silver Card - MTV Citibank Card - Indian Oil Citibank Card -International times card -first citizen Citibank card Special Interest cards -CRY Citi bank card -WWF Citi bank card -Citi bank womans card -Citi bank womans visa mini card Basic cards -Citi bank silver card -Citi bank cash back card -Citi bank choice card Travel cards -Citi bank world money card Diners -Diners club international card -TAJ epicure diners club

Home Loans Loan against Property Auto Loans Loan against Shares Ready Credit Overdraft

BANKING, INVESTMENTS & INSURANCE BANKING:

-Citi bank account -Suvidha account
-Debit

card

-Citi gold wealth management -Citi business INVESTMENTS: -mutual funds -Demat -Deposits -GOI Bonds INSURANCE: -Life insurance solution -Credit shield plus suraksha -Insurance on ur home loans Foreign Exchange Services: -Womans account

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PRODUCTS & SERVICES

PRODUCTS: -ATM Card -ATM/Debit Cards & Reward Programs at-a-glance -Basic Checking -Checking Plus (Variable Rate) -CitiAssist Graduate Law & Bar Study Loans -CitiAssist Health Profession & Residency Loan -CitiAssist Undergraduate & Graduate Loans -Citibank Access Account -Credit & Charge Cards at-a-glance -Day-to-Day Savings -EZ Checking -Essential Term Life Insurance through CIAI -Federal PLUS Loans -Home Equity Line of Credit -IRAs and Rollovers -Investing at-a-glance -Investing with Citicorp Investment Services -Long Term Care through Citicorp Insurance Agency -Pricing Packages at-a-glance -Roth IRA -Special Relationships at-a-glance -Super Yield Money Market -Traditional IRA -e-Savings account -ATM/Debit Card -Basic Banking -Certificates of Deposit (CD) -Checking at-a-glance -CitiAssist K-12 -CitiGold -Citibank Everything Counts -Credit Card -Debit Card -Federal Consolidation Loan -Federal Stafford Loans -Home Equity Loan -Installment Loan -Lines & Loans at-a-glance -Mortgages -Rollover IRA -Student Loans -The Citibank Account -Women & Co.

SERVICES: -ATM Reimbursements -ATM/Debit Cards & Reward Programs at-a-glance -Auto Deduct -Auto Save -Bills & Payments at-a-glance -Checking Plus (Variable Rate) -Citi Identity Theft Solutions -CitiPhone Banking -Citibank en Espaol -Citibank Global Transfers -Citicorp Investment Services Auto Invest -Citipro financial check-up -Deposits at-a-glance -Direct Deposit -E-mail & Wireless Banking Alerts -Financial Centers -Identity Monitor from Citi -Inter Institution Transfers -Linking Accounts -My Citi -Online Account Access at-a-glance -Online Bank Statements -Online Bill Payment -Online Check Images -Overdraft Protection at-a-glance -SafeWeb Online Fraud Protection -Safety Check

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BANK OF MAHARASHTRA

The

Birth 1936.

Registered on 16th Sept 1935 with an authorized capital of Rs 10.00 lakh and commenced business on 8th Feb The Childhood

Known as a common man's bank since inception, its initial help to small units has given birth to many of today's industrial houses. After nationalization in 1969, the bank expanded rapidly. It now has 1292 branches (as of 30th September 2005) all over India. The Bank has the largest network of branches by any Public sector bank in the state of Maharashtra. The Adult The bank has fine tuned its services to cater to the needs of the common man and incorporated the latest technology in banking offering a variety of services. Our Aims

The bank wishes to cater to all types of needs of the entire family, in the whole country. Its dream is "One Family, One Bank, Maharashtra Bank". The Autonomy The Bank attained autonomous status in 1998. It helps in giving more and more services with simplified procedures without intervention of Government

85

Savings Account, Current Account, Recurring Deposit, Fixed Deposits. Mahabank Yuva Yojana, Mahabank Lok Bachat Yojana, Mahabank Family Banking Card, Quarterly Interest Deposit Scheme (QIDS), Mixie Deposit Scheme, Floating Rate Deposit Scheme, Savings Deposit, Current Deposit, Monthly Interest Deposit Scheme (MIDS), Fixed Deposit Scheme (FDR), Cumulative Deposit Scheme (CDR), Recurring Deposit Scheme, Mahabank Unit Deposit Scheme, Sulabh Jama Yojana

Personal Loans, Corporate Loans, Education Loans, Adhar Scheme, Mahabank Gold Card Scheme for Exporters Term Loans, Overdrafts, Letters of Credit, Guarantees and many more such products are included in the credit basket. Recognizing individual customer needs Bank of Maharashtra has identified Customer segments. For the individual we have finance schemes that translate your dreams into reality.

Consumer Finance Scheme For Professionals Personal loans SSI Charter Exporters Mahabank Renewable Energy Equipments

Housing Finance Scheme For Entrepreneurs Educational Loans Declaration Vehicle Loan Mahabank Eco - friendly products

For Individuals For Corporates For Agriculturists Mahabank Salary Gain Scheme Mahabank Realty Finance

Resident Foreign Currency Account, Non-Resident External (NRE) Account.

Credit Card, Locker Facility, BANCS, ATM.

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Remote Access, Query Terminal, Telebanking

METCO Tariff Card, Mahabill Pay, RTGS (Real Time Gross Settlement).

Our Trustee Company offers you the following range of trusted services.

Executor of will Management of Private Trust Management of Public Charitable Trusts Management of Investments and House Properties as Attorney Guardianship of Minors' Property

87

STATE BANK OF INDIA

The origin of the State Bank of India goes back to the first decade of the nineteenth century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921. The State Bank of India was thus born with a new sense of social purpose aided by the 480 offices comprising branches, sub offices and three Local Head Offices inherited from the Imperial Bank. The concept of banking as mere repositories of the community's savings and lenders to creditworthy parties was soon to give way to the concept of purposeful banking subserving the growing and diversified financial needs of planned economic development. The State Bank of India was destined to act as the pacesetter in this respect and lead the Indian banking system into the exciting field of national development.

88

Personal Banking

-Deposit Schemes -Personal Finance

Services

NRI Services

-Agricultural/Rural -Agricultural Banking - Micro Credit - Regional Rural Banks

-Trade Finance - Merchant Banking - Correspondent Banking

CORPORATE BANKING
-Corporate Accounts -Mid Corporate Group -Project Finance -Products & Services

SERVICES:
* Internet Banking *ATM Services *Broking Services

Govt. Business:

Govt. Accounts

Public Provident Fund

SBI e-Tax

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CENTRAL BANK OF INDIA

Established in 1911, Central Bank of India was the first Indian commercial bank which was wholly owned and managed by Indians. The establishment of the Bank was the ultimate realization of the dream of Sir Sorabji Pochkhanawala, founder of the Bank. Sir Pherozesha Mehta was the first Chairman of a truly 'Swadeshi Bank'. In fact, such was the extent of pride felt by Sir Sorabji Pochkhanawala that he proclaimed Central Bank as the 'property of the nation and the country's asset'.

MONEY MULTIPLIER DEPOSIT CERTIFICATE (MMDC) MONTHLY INTEREST DEPOSIT RECEIPT (MIDR) QUARTERLY INTEREST DEPOSIT RECEIPT (QIDR) CENT UTTAM SCHEME CENTRAL'S SENIOR CITIZEN DEPOSIT SCHEME CENTRAL'S FLEXI YIELD DEPOSIT SCHEME

At Central Bank we offer various loan facilities. Details for each of them can be found in the links below. Loan Policy Cent Vivah Cent Safar Cent Jewel Cent VEHICLE Cent Buy Housing Finance Scheme Cent Kalyani
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Centvyapari Scheme Personal Loan Scheme(Corporate) Personal Loan Scheme(Noncorporate) Cent Rentals Cent Mortgage Cent Trade Cent Computer Loan Loans to Pensioners Drawing Pension CentVidyarthi Central Kisan Credit Card Cent Multipurpose Cent Liquid Scheme Personal Loan To Teachers

CENTRAL CARD ELECTRONIC CENTRAL CARD DEBIT CARD TRAVELLER'S CHEQUES GIFT CHEQUES CASH MANAGEMENT SERVICES CENT BILLPAY

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'Andhra Bank was founded by Dr.Bhogaraju Pattabhi Sitaramayya. The Bank was registered on 20th November 1923 and commenced business on 28th November 1923 with a paid up capital of Rs 1.00 lakh and an authorised capital of Rs 10.00 lakhs. The Bank's Total Business as on date stood at over Rs.52046 Crores with a Clientele base over 1.42 Crores. The Bank is rendering services through 1723 Business Delivery Channels spread over 21 States and 2 Union Territories as at the end of December2005. The Bank has entered into Sharing Arrangements with State Bank of India, HDFC Bank, IDBI Bank, Indian Bank and UTI Bank, offering over 9,000 ATMs spread across the Country for use by Customers. Instant Funds Transfer Facility is provided through Branches. All the Branches computerized, 890 branches networked under core banking solution providing "ANYWHERE BANKING".

Technology Products:
-Multi City Check Facility -Real Time Gross Settlement (RTGS) -ATM Services - Electronic Fund Transfer (EFT) -On-Line Tax Accounting System (OLTAS) -Instant Fund Transfer (IFT List) -Any Branch Banking -Electronic Clearing Service (ECS)

NRI Banking:
-NRI Products and Services - Western Union Money Transfer -NOSTRO details for remittance

Corporate Banking:
-Working Capital Loans -Bill Finance -Foreign Currency Loans -Advance against Rent Receivables -Term Finance -Corporate Loans -Infrastructure Project Finance -Export & Import Finance -Sub BMPLR Finance -Advance against Shares -Advance to Real Estate Developers -Bridge Loans -Project Finance -Takeover Accounts

Agriculture Loans:
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-AB Pattabhi Agricard - AB Rural Godowns -AB Kisan Sampathi - Tractor Financing -Bank Linkage Programme -AB Surya Sakthi
Other Schemes

-AB Kisan Chakra -AB Agri Clinics/Agro Service Centers -AB Kisan Bandhu -AB Self Help Groups -AB Andhra Bank Kisan Green Card -AB Solar Cookers

-AB Finance Purchase of Land for Agri Purpose -AB For Financing To Dairy Agents

Retail Loans:
-AB Housing Loans -AB Vanitha Vahan -AB Vehicle Loans -AB Mortagage Loans
AB Other Scheme

-AB Dr. Pattabhi Vidya Jyothi -AB Personal Loan -AB Clean Loans

-AB

Advance Against Rentals Receivables

Deposit Schemes:
AB Savings Accounts: -AB Easy Savings (No-frills account) -AB Abhaya Gold SB A/c -AB Jeevan Abhaya Scheme AB Current Account: -AB Insurance Linked Current A/c AB Term Deposits: -AB Fixed Deposits -AB Recurring Deposits -AB Jeevan Prakash Plus -AB Kalpataruvu Deposits -AB Jeevan Prakash -AB Abhaya SB A/c -AB Kids Kazhana -AB Freedom Savings Account

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Dena Bank, in July 1969 along with 13 other major banks was nationalized and is now a Public Sector Bank constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking Regulations Act 1949, in addition to the business of banking, the Bank can undertake other business as specified in Section 6 of the Banking Regulations Act, 1949.

Mission Dena bank will provide its Customers - premier financial services of great value, Staff - positive work environment and opportunity for growth and achievement, Shareholders - superior financial returns, Community - economic growth Vision DENA BANK will emerge as the most preferred Bank of customer choice In its area of operations, by its reputation and performance

Personal Banking Deposit Schemes -Dena Savifix -Dena Samruddhi -Dena Freedom Deposit Loan Schemes -Dena Niwas -Dena Vidya Laxmi -Dena Auto Finance -Dena Mortgage

94

Services
Any Branch Banking Multi-City Cheque Facility Internet Banking Dena ATM Dena Cards Dena BillPay Mobile banking Telebanking Bancassurance Inbound Remittances Direct tax collection

95

 Priority & SME Agriculture Dena Kisan Gold Credit Card Scheme Regional Rural Banks SME Specialized SSI Branches Products & Services Technology Upgradation Fund for Textile Industry Credit Linked Capital Subsidy Scheme National Equity Fund Dena Laghu Udhyami Credit Card Dena Artisan Credit card Credit Guarantee Fund Trust for Small Industries Interest Rates on SSI Dena Rural Internet Kiosk Finance Scheme Dena Shakti DRDF (Dena RUDSETI) Dena Swachchh Gram Yojana Dena Paryavaran Suraksha Yojana SME ANNOUNCEMENT Corporate Specific Schemes Educational Institutions Builders & Developers Hospitals Hotels & Restaurants

ANALYSIS & INTERPRETATION

Banking is leading industry in Indian market. All of this requires successful banks to take a radical approach to strategic planning. The pressures outlined earlier have major potential implications for the type of business conducted by banks and the way business is conducted. This was the major implication noted earlier of the pressures operating on the banking industry. New analysis and perceptions may be needed about: the nature of the industry; the position and business of the banking firm; the way that banks provide their services; and the range of services offered. In particular, there is a need to distinguish between the
96

fundamentals of banking: what banks actually do; and the way they do it. The starting point is to identify the fundamentals, or core competencies, of the banking firm, that is, what gives banks competitive advantage. The fundamentals of banking are essentially: Information advantages; Risk-analysis expertise; monitoring of borrowers and enforcement of loan contracts; Broking potential (bringing various counterparties together); Delivery capacity; and acting as the core of the payments system which acts as the first point of contact with customers. Banks overwhelming advantage is the information they have on their customer base which is obtained through economies of scale, investment in information systems and expertise, and economies of scope or synergies. By managing a customers account, and through the banks continuous monitoring of customers, a bank necessarily acquires information that can be used in various ways. Information gained through one part of the business operation can be used in others. Banks are essentially in the information business. In this regard, banks need to focus on two elements: the gathering, storing and retrieval of data, and the transformation of that data into usable information. Banks have a great deal of data but there is also enormous potential to transform this into valuable information. These six elements are the banks core competencies. In essence, banks have traditionally used their comparative advantages to specialize in the provision, holding and monitoring of loans that are not readily marketable. However, they can be used in a variety of ways. Thus, information advantages can be used by a bank to make loans, underwrite capital market issues of their customers, conduct broking operations, and can be used as a basis for cross-selling a variety of products and services. the question of what is the fundamental business of banks is different from the question of what banks do. The theme is that individual banks need to identify their core competencies, as they will differ from one bank to another. This is the necessary starting point in strategic planning exercises. The above are likely to remain the core competencies of banking firms, even if in some areas they have become less powerful. While the core competencies may be permanent and enduring, how banks exploit them changes over time and, at any point in time, is influenced by a combination of: Current technology;

97

 Regulation; The power of entry barriers; Competition; and The strategic objectives of potential new competitors. The successful development of corporate strategy is ultimately a question of defining comparative advantages, and developing alternative ways of exploiting such advantages. Thus, while banks may continue to have information advantages with respect to their customers, this does not necessarily mean they are only to be exploited in the form of making loans and/or holding loans on the balance sheet. Information advantages can be exploited in many other ways such as servicing the capital market. While banks may lose market share in some of their traditional markets, they will gain and develop other business and use their core competencies in different ways. They should retain powerful core competencies and these can be exploited in new ways and in different markets, thus limiting the extent of any secular decline. However, this may require a radical review of what business banks are in, and how core competencies can be exploited for competitive advantage. It may also require a restructuring of the banking firm. These might be the reasons why banks have transformed into UNIVERSAL BANKS upto a large extent.

CONCLUSION
The principle of "Universal Banking" is a desirable goal and some progress has already been made by permitting banks to diversify into investments and long-term financing and the DFIs to lend for working capital, etc. However, banks have certain special characteristics and as such any dilution of RBI's prudential and supervisory norms for conduct of banking business would be inadvisable. Further, any conglomerate, in which a bank is present, should be subject to a consolidated approach to supervision regulation.
98

and

These are the factors which forces a bank to be a UNIVERSAL BANK. current technology; regulation; changing needs of customers; competition; and the strategic objectives of potential new competitors Today the technology needs and demands of the people demand from a bank the solution to all of their problems under one roof. That is why banking is emerging into UNIVERSAL BANKING.

SIGNIFICANCE OF THE STUDY

This study shows what UNIVERSAL BANKING is. This reveals that banks have started providing customized products to meet the consumer needs and stand above others in cut-throat competition. The various strategies adopted by different banks, their investment patterns, their loans strategies make them UNIVERSAL in nature.
99

It shows that in even banking its not all about selling the product, Its all about selling yourself. It shows the factors which are responsible for convergence of banking into UNIVERSAL BANKING. By this study one can analyze that diversification of customer needs, competition, various liberal policies are the forces behind a bank changed into a UNIVERSAL BANK.

BIBLIOGRAPHY

www.google.com, SEARCH ENGINE www.altavista.com, SEARCH ENGINE

INDIA TODAY BUSINESS TODAY ECONOMIC TIMES

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 WEB SITES OF DIFFERENT BANKS

RESEARCH METHODOLOGY By C.R.KOTHARI

101