CHAPTER 1

1.1 History of Banks

The first banks were probably the religious temples of the ancient world, and were probably established sometime during the third millennium B.C. Banks probably predated the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves. There are extant records of loans from the 18th century BC in Babylon that were made by temple priests/monks to merchants. By the time of Hammurabi's Code, banking was well enough developed to justify the promulgation of laws governing banking operations.[1] Ancient Greece holds further evidence of banking. Greek temples, as well as private and civic entities, conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. There is evidence too of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could "cash" the note in another city, saving the client the danger of carting coinage with him on his journey. Pythius, who operated as a merchant banker throughout Asia Minor at the beginning of the 5th century B.C., is the first individual banker of whom we have records. Many of the early bankers in Greek city-states were metics or foreign residents. Around 371 B.C., Pasion, a slave, became the wealthiest and most famous Greek banker, gaining his freedom and Athenian citizenship in the process. The fourth century B.C. saw increased use of credit-based banking in the Mediterranean world. In Egypt, from early times, grain had been used as a form of money in addition to precious metals, and state granaries functioned as banks. When Egypt fell under the rule of a Greek dynasty, the Ptolemies (332-30 B.C.), the numerous scattered government granaries were transformed into a network of grain banks, centralized in Alexandria

where the main accounts from all the state granary banks were recorded. This banking network functioned as a trade credit system in which payments were effected by transfer from one account to another without money passing. In the late third century B.C., the barren Aegean island of Delos, known for its magnificent harbor and famous temple of Apollo, became a prominent banking center. As in Egypt, cash transactions were replaced by real credit receipts and payments were made based on simple instructions with accounts kept for each client. With the defeat of its main rivals, Carthage and Corinth, by the Romans, the importance of Delos increased. Consequently it was natural that the bank of Delos should become the model most closely imitated by the banks of Rome.

Christ drives the Usurers out of the Temple, a woodcut by Lucas Cranach the Elder in Passionary of Christ and Antichrist. Ancient Rome perfected the administrative aspect of banking and saw greater regulation of financial institutions and financial practices. Charging interest on loans and paying interest on deposits became more highly developed and competitive. The development of Roman banks was limited, however, by the Roman preference for cash transactions. During the reign of the Roman emperor Gallienus (260-268 AD), there was a temporary breakdown of the Roman banking system after the banks rejected the flakes of copper produced by his mints. With the ascent of Christianity, banking became subject to additional restrictions, as the charging of interest was seen as immoral. After the fall of 2

Rome, banking was abandoned in western Europe and did not revive until the time of the crusades.

Religious restrictions on interest

Most early religious systems in the ancient Near East, and the secular codes arising from them, did not forbid usury. These societies regarded inanimate matter as alive, like plants, animals and people, and capable of reproducing itself. Hence if you lent 'food money', or monetary tokens of any kind, it was legitimate to charge interest. [3] Food money in the shape of olives, dates, seeds or animals was lent out as early as c. 5000 BC, if not earlier. Among the Mesopotamians, Hittites, Phoenicians and Egyptians, interest was legal and often fixed by the state. But the Jews took a different view of the matter.[4] The Torah and later sections of the Hebrew Bible criticize interest-taking, but interpretations of the Biblical prohibition vary. One common understanding is that Jews are forbidden to charge interest upon loans made to other Jews, but allowed to charge interest on transactions with non-Jews, or Gentiles. However, the Hebrew Bible itself gives numerous examples where this provision was evaded.

During Late Antiquity and Middle Ages

Jews were ostracized from most professions by local rulers, the Church and the guilds and so were pushed into marginal occupations considered socially inferior, such as tax and rent collecting and moneylending, while the provision of financial services was increasingly demanded by the expansion of European trade and commerce. Medieval trade fairs, such as the one in Hamburg, contributed to the growth of banking in a curious way: moneychangers issued documents redeemable at other fairs, in exchange for hard currency. These documents could be cashed at another fair in a different country or at a future fair in the same location. If redeemable at a future date, they would often be discounted by an amount comparable to a rate of interest. Eventually, these documents evolved into bills of exchange, which could be redeemed at any office of the issuing banker. These bills made it possible to transfer large sums of money without the 3

complications of hauling large chests of gold and hiring armed guards to protect the gold from thieves. Beginning around 1100s, the need to transfer large sums of money to finance the Crusades stimulated the re-emergence of banking in western Europe. In 1156, in Genoa, occurred the earliest known foreign exchange contract. Two brothers borrowed 115 Genoese pounds and agreed to reimburse the bank's agents in Constantinople the sum of 460 bezants one month after their arrival in that city. In the following century the use of such contracts grew rapidly, particularly since profits from time differences were seen as not infringing canon laws against usury. In 1162, King Henry the II levied a tax to support the crusades -- the first of a series of taxes levied by Henry over the years with the same objective. The Templars and Hospitallers acted as Henry's bankers in the Holy Land. The Templars' wide flung, large land holdings across Europe also emerged in the 1100-1300 time frame as the beginning of Europe-wide banking, as their practice was to take in local currency, for which a demand note would be given that would be good at any of their castles across Europe, allowing movement of money without the usual risk of robbery while traveling. By 1200 there was a large and growing volume of long-distance and international trade in a number of agricultural commodities and manufactured goods in western Europe; some of the goods traded during that period included wool, finished cloth, wine, salt, wax and tallow, leather and leather goods, and weapons and armour. Individual trading concerns and combines often specialized in one or more of these, as did individual producers; because a large amount of capital was required to establish, e.g., a cloth manufacturing business, only the largest firms could diversify. As a result, businesses and clusters of businesses tended to market fairly narrow product lines. Big firms like the Medici bank could and did specialize; the Medicis manufacturing division had a number of manufacturing facilities producing many different types of cloth. Perhaps the best example of product policy comes from the Cistercian monastic order, where individual monasteries and granges tended to specialize in particular agricultural products or types of industrial production, usually with an eye to meeting particular local or regional market needs. 4

Ironically, the Papal bankers were the most successful of the Western world, though often goods taken in pawn were substituted for interest in the institution termed the Monte di Piet. When Pope John XXII (born Jacques d'Euse (1249 - 1334) was crowned in Lyon in 1316, he set up residency in Avignon. Civil war in Florence between the rival Guelph and Ghibelline factions resulted in victory for a group of Guelph merchant families in the city. They took over papal banking monopolies from rivals in nearby Siena and became tax collectors for the Pope throughout Europe. In 1306, Philip IV expelled Jews from France. In 1307 Philip had the Knights Templar arrested and had gotten hold of their wealth, which had become to serve as the unofficial treasury of France. In 1311 he expelled Italian bankers and collected their outstanding credit. In 1327, Avignon had 43 branches of Italian banking houses. In 1347, Edward III of England defaulted on loans. Later there was the bankruptcy of the Peruzzi (1374) and Bardi (1353). The accompanying growth of Italian banking in France was the start of the Lombard moneychangers in Europe, who moved from city to city along the busy pilgrim routes important for trade. Key cities in this period were Cahors, the birthplace of Pope John XXII, and Figeac. Perhaps it was because of these origins that the term Lombard is synonymous with Cahorsin in medieval Europe, and means 'pawnbroker'. Banca Monte dei Paschi di Siena SPA (MPS) Italy, is the oldest surviving bank in the world.

Of Usury, from Brant's Stultifera Navis (the Ship of Fools); woodcut attributed to Albrecht Drer After 1400, political forces turned against the methods of the Italian free enterprise bankers. In 1401, King Martin I of Aragon expelled them. In 1403, Henry IV of England prohibited them from taking profits in any way in his kingdom. In 1409, Flanders imprisoned and then expelled Genoese bankers. In 1410, all Italian merchants were expelled from Paris. In 1401, the Bank of Barcelona was founded. In 1407, the Bank of Saint George was founded in Genoa. This bank dominated business in the Mediterranean. In 1403 charging interest on loans was ruled legal in Florence despite the traditional Christian prohibition of usury. Italian banks such as the Lombards, who had agents in the main economic centres of Europe, had been making charges for loans. The lawyer and theologian Lorenzo di Antonio Ridolfi won a case which legalised interest payments by the Florentine government. In 1413, Giovanni di Bicci deMedici appointed banker to the pope. In 1440, Gutenberg invents the modern printing press although Europe already knew of the use of paper money in China. The printing press design was subsequently modified, by Leonardo da Vinci among others, for use in minting coins nearly two centuries before printed banknotes were produced in the West. By the 1390s silver was short all over Europe, except in Venice. The silver mines at Kutn Hora had begun to decline in the 1370s, and finally closed down after being sacked by King Sigismund in 1422. By 1450 almost all of the mints of northwest Europe had closed down for lack of silver. The last money-changer in the major French port of Dieppe went out of business in 1446. In 1455 the Turks overran the Serbian silver mines, and in 1460 captured the last Bosnian mine. The last Venetian silver grosso was minted in 1462. Several Venetian banks failed, and so did the Strozzi bank of Florence, the second largest in the city. Even the smallest of small change became scarce.

1.2 Major events in banking history

Florentine banking The Medicis and Pittis among others. Knights Templar- earliest Euro wide /Mideast banking 1100-1300. Banknotes Introduction of paper money. 1602 - First joint-stock company, the Dutch East India Company founded. 1720 - The South Sea Bubble and John Law's Mississippi Scheme, which caused a European financial crisis and forced many bankers out of business. 1781 - The Bank of North America was found by the Continental Congress. 1800 - Rothschild family founds Euro wide banking. 1930-33 In the wake of the Wall Street Crash of 1929, 9,000 banks close, wiping out a third of the money supply in the United States.[5] 2008 - Washington Mutual collapses. It was the largest bank failure in history.

1.3 Oldest national banks

Bank of Sweden The rise of the national banks, began operations in 1668 Bank of England The evolution of modern central banking policies, established in 1694 Bank of America The invention of centralized check and payment processing technology Swiss banking United States Banking The Pennsylvania Land Bank, founded in 1723 and receiving the support of Benjamin Franklin who wrote "Modest Enquiry into the Nature and Necessity of a Paper Currency" in 1729[1].

Imperial Bank of Persia (Iran) Founded in 1888 and was merged in Tejarat Bank in 1979 History of banking in the Middle-East

1.4 History of Banking in India

Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reason of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money have become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

Early phase from 1786 to 1969 of Indian Banks Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.

Phase I The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in india as the Central Banking Authority. During those days public has lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.

Phase II

Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas. It formed State Bank of india to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalised. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:

1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1961 : Insurance cover extended to deposits. 1969 : Nationalisation of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of regional rural banks. 1980 : Nationalisation of seven banks with deposits over 200 crore.

After the nationalisation of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.

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Phase III This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalisation of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.

Nationalisation of Banks in India

The nationalisation of banks in India took place in 1969 by Mrs. Indira Gandhi the then prime minister. It nationalised 14 banks then. These banks were mostly owned by businessmen and even managed by them.

Central Bank of India Bank of Maharashtra Dena Bank Punjab National Bank Syndicate Bank Canara Bank

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Indian Bank Indian Overseas Bank Bank of Baroda Union Bank Allahabad Bank United Bank of India UCO Bank Bank of India

Befor the steps of nationalisation of Indian banks, only State Bank of India (SBI) was nationalised. It took place in July 1955 under the SBI Act of 1955. Nationalisation of Seven State Banks of India (formed subsidiary) took place on 19th July, 1960. The State Bank of India is India's largest commercial bank and is ranked one of the top five banks worldwide. It serves 90 million customers through a network of 9,000 branches and it offers -- either directly or through subsidiaries -- a wide range of banking services. The second phase of nationalisation of Indian banks took place in the year 1980. Seven more banks were nationalised with deposits over 200 crores. Till this year, approximately 80% of the banking segment in India were under Government ownership. After the nationalisation of banks in India, the branches of the public sector banks rose to approximately 800% in deposits and advances took a huge jump by 11,000%.

1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1969 : Nationalisation of 14 major banks. 1980 : Nationalisation of seven banks with deposits over 200 crores.

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Scheduled Commercial Banks In India

The commercial banking structure in India consists of:

Scheduled Commercial Banks in India Unscheduled Banks in India

Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches.The scheduled commercial banks in India comprise of State bank of India and its associates (8), nationalised banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank". "Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".

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The following are the Scheduled Banks in India (Public Sector):

State Bank of India State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurashtra State Bank of Travancore Andhra Bank Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Overseas Bank Indian Bank Oriental Bank of Commerce Punjab National Bank Punjab and Sind Bank Syndicate Bank Union Bank of India United Bank of India UCO Bank Vijaya Bank

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The following are the Scheduled Banks in India (Private Sector):

ING Vysya Bank Ltd Axis Bank Ltd Indusind Bank Ltd ICICI Bank Ltd South Indian Bank HDFC Bank Ltd Centurion Bank Ltd Bank of Punjab Ltd IDBI Bank Ltd

The following are the Scheduled Foreign Banks in India:

American Express Bank Ltd. ANZ Gridlays Bank Plc. Bank of America NT & SA Bank of Tokyo Ltd. Banquc Nationale de Paris Barclays Bank Plc Citi Bank N.C. Deutsche Bank A.G. Hongkong and Shanghai Banking Corporation Standard Chartered Bank. The Chase Manhattan Bank Ltd. Dresdner Bank AG.

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CHAPTER 2
2.1 History of Central Bank Of India
It was established in 1911 by Sir Sorabji Pochkhanawala and claims to have been the first commercial Indian bank completely owned and managed by Indians. In 1923, it acquired the Tata Industrial Bank in the wake of the failure of the Alliance Bank of Simla. In 1969, the Indian Government nationalized the bank on 19 July, together with 13 others. 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 realisation 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 of India as the 'property of the nation and the country's asset'. He also added that 'Central Bank of India lives on people's faith and regards itself as the people's own bank'. During the past 98 years of history the Bank has weathered many storms and faced many challenges. The Bank could successfully transform every threat into business opportunity and excelled over its peers in the Banking industry. A number of innovative and unique banking activities have been launched by Central Bank of India and a brief mention of some of its pioneering services are as under: 1921 Introduction to the Home Savings Safe Deposit Scheme to build saving/thrift habits in all sections of the society. 1924 An Exclusive Ladies Department to cater to the Bank's women clientele. 1926 Safe Deposit Locker facility and Rupee Travellers' Cheques. 1929 Setting up of the Executor and Trustee Department. 1932 Deposit Insurance Benefit Scheme. 1962 Recurring Deposit Scheme.

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Subsequently, even after the nationalisation of the Bank in the year 1969, Central Bank continued to introduce a number of innovative banking services as under: 1976 The Merchant Banking Cell was established. 1980 Centralcard, the credit card of the Bank was introduced. 1986 'Platinum Jubilee Money Back Deposit Scheme' was launched. 1989 The housing subsidiary Cent Bank Home Finance Ltd. was started with its headquarters at Bhopal in Madhya Pradesh. 1994 Quick Cheque Collection Service (QCC) & Express Service was set up to enable speedy collection of outstation cheques. Further in line with the guidelines from Reserve Bank of India as also the Government of India, Central Bank has been playing an increasingly active role in promoting the key thrust areas of agriculture, small scale industries as also medium and large industries. The Bank also introduced a number of Self Employment Schemes to promote employment among the educated youth. Among the Public Sector Banks, Central Bank of India can be truly described as an All India Bank, due to distribution of its large network in 27 out of 28 States as also in 4 out of 7 Union Territories in India. Central Bank of India holds a very prominent place among the Public Sector Banks on account of its network of 3413 branches and 237 extension counters at various centres throughout the length and breadth of the country. In view of its large network of branches as also number of savings and other innovative services offered, the total customer base of the Bank at over 25 million account holders is one of the largest in the banking industry. Customers' confidence in Central Bank of India's wide ranging services can very well be judged from the list of major corporate clients such as ICICI, IDBI, UTI, LIC, HDFC as also almost all major corporate houses in the country.

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2.2 Profile of Central bank of India

Central Bank of India, a government-owned bank, is one of the oldest and largest commercial banks in India. The bank currently has 3,168 branches and 270 extension counters across 27 Indian states. Mr S Sridhar [Ex CMD National Housing Bank] has been appointed as the Chairman and Managing Director of state-run Central Bank of India as on 2 March 2009. The post had been lying vacant and the appointment was cleared by the government yesterday, the Bank said in a statement. To improve the Bank's capital adequacy ratio and enable it to support the credit requirements of the productive sectors of the economy, the Centre has recently decided to infuse Rs 1,400 crore in the Bank. Under the proposed capital infusion plan, Central Bank of India will get Rs 700 crore by this month-end, while the balance amount will be made available to the Bank in next fiscal. Central bank of India is one of 18 Public Sector banks in India to get recapitalization.finance from the government over the next 24 months. The infusion of fund will improve the financial health of the banks as their capital adequacy ratio (CAR) will be raised more than desired level of 12 percent. The increase in CAR of the banks will also enable them to lend more money. The CAR of Central Bank of India was less than 12 percent as on June 30 2006. The wholly-owned public sector bank, based in Mumbai, will convert an amount of Rs. 800 crore out of its Rs. 1,124.14-crore total equity capital into perpetual non-cumulative preference shares.The preference shares would carry an annual floating coupon rate of eight per cent, which would be benchmarked to 100 basis points above the repo rate. It will shore up the balance-sheet of the bank and enable it to raise capital from the markets. According to an official statement, the equity capital restructuring would lead to an improvement in the bank's credit rating as also facilitate the adoption of Basel II norms.

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For financial year 2008-2009, Central Bank of India's Q3 standalone net profit went up at Rs 353.26 crore from Rs 201.01 crore (YoY). The bank's standalone net interest income, NII was up at Rs 671.94 crore versus Rs 544.85 crore . At a time when the global banking industry is feeling the pinch of the global credit crunch, Central Bank of India is planning to expand its foreign presence. The publicsector lender has approached the Reserve Bank of India (RBI) for permission to open representative offices in five locations - Singapore, Dubai, Doha, London and Hong Kong. This is the first time the bank is venturing an independent overseas foray after the Sethia scam in the 1970s forced the bank to close down its London office. RBI had then asked the other two banks, who had operations in London, to close down. As on March 31, 2006, the bank's reserves and surplus stood at Rs. 1,810.19 crore. Its total business at the end of the last fiscal amounted to Rs. 1,05,677 crore.The bank had a staff strength of 37,241 as on Nov 2006. Central Bank of India partnered with TCS[ Tata Consultancy Services ] for its Core Banking Solution. The solution set to be implemented will include B@NCS from Sydney-based Financial Network Solutions (FNS), Exim Bills Trade Finance software from China Systems and eTreasury from TCS. With 703 banks in the core banking system (CBS), it was planned that by the end of March 2008 a total of 1,000 branches would be brought under the CBS. As of 31 March 2006, the bank achieved a landmark: crossing a business mix of Rs. 1,05,000.00 crores. The next target has been fixed at doubling this figure in the next three years. Krishnan Subharamaniam, Executive Director of the bank, in his message to staff members, has called upon them to achieve the target and suggested some steps. One of these steps is to change the manner in which employees extend service to customers across different delivery channels. He has advocated the adoption of the '3R' principles when dealing with customers - recognition, respect and response. This is asserted to be the path to make customers experience 'Customer Delight'. Subbaraman is of the view that to be able to achieve the coveted goal of at least Rs.2,00,000.00 crores in three years'

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time, it is urgent to add large numbers of new customers to the bank's existing portfolio. Central Bank also came with its IPO, which was oversubscribed 64 times. The bank has plans to change the bank's signboard across the country, trying to impart a new look to the bank after the IPO. A number of innovative and unique banking activities have been launched by Central Bank of India and a brief mention of some of its pioneering services are as under: 1921 1924 1926 1929 1932 1962 Introduction to the Home Savings Safe Deposit Scheme to build saving/thrift habits in all sections of the society. An Exclusive Ladies Department to cater to the Bank's women clientele. Safe Deposit Locker facility and Rupee Travellers' Cheques. Setting up of the Executor and Trustee Department. Deposit Insurance Benefit Scheme. Recurring Deposit Scheme.

Subsequently, even after the nationalisation of the Bank in the year 1969, Central Bank continued to introduce a number of innovative banking services as under: 1976 The Merchant Banking Cell was established. 1980 Centralcard, the credit card of the Bank was introduced. 1986 'Platinum Jubilee Money Back Deposit Scheme' was launched. 1989 The housing subsidiary Cent Bank Home Finance Ltd. was started with its headquarters at Bhopal in Madhya Pradesh. 1994 Quick Cheque Collection Service (QCC) & Express Service was set up to enable speedy collection of outstation cheques. Further in line with the guidelines from Reserve Bank of India as also the Government of India, Central Bank has been playing an increasingly active role in promoting the key thrust areas of agriculture, small scale industries as also medium and large industries. The Bank also introduced a number of Self Employment Schemes to promote employment among the educated youth.

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Among the Public Sector Banks, Central Bank of India can be truly described as an All India Bank, due to distribution of its large network in 27 out of 28 States as also in 4 out of 7 Union Territories in India. Central Bank of India holds a very prominent place among the Public Sector Banks on account of its network of 3541 branches and 218 extension counters at various centres throughout the length and breadth of the country. In view of its large network of branches as also number of savings and other innovative services offered, the total customer base of the Bank at over 25 million account holders is one of the largest in the banking industry. Customers' confidence in Central Bank of India's wide ranging services can very well be judged from the list of major corporate clients such as ICICI, IDBI, UTI, LIC, HDFC as also almost all major corporate houses in the country.

2.3 Management Body Of The Bank

Shri S. Sridhar
Chairman & Managing Director

Shri Ramnath Pradeep

Executive Director

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Shri Arun Kaul

Executive Director

Dr.Shashank Saksena
Director

Shri M.K. Bhattacharya

Director

Shri M.S. Johar

Director, (Chartered Accountant)

Ms. Indu Singh Pawar

Director

Shri C.M. Puri

Director

Shri N. K. Pareek
Director

Shri Brijlal Kshatriya

Director

Prof. N. Balakrishnan
Director

2.4 Products and services of the bank

Deposits
Money Multiplier Deposit Certificate (MMDC) Monthly Interest Deposit Receipt (MIDR)

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Quarterly Interest Deposit Receipt (QIDR) Central's Senior Citizen Deposit Scheme CENT Bachat Khata

CENT Uttam Scheme Central's Flexi Yield Deposit Scheme CENT Tax Saving Deposit

Other Services
Central Card Electronic Debit Card Gift Cheques CENT Billpay Depository Services Visa Platinum Card Central Card Traveller's Cheques Cash Management Services Bancassurance Mutual Funds Bank Visa Gold Card

International Banking
Repatriable Schemes Facilties for Exporters & Importers Addresses Opening of NRI Accounts Foreign Exchange Remittance Facilities to Resident Indians Non-Repatriable Schemes BIC Branch Swift Code Gulf War Claims Facilities To NRIs Returning To India MoneyGram / ExpressMoney

Loans
Cent Suvidha Cent Buy Cent Jewel Cent Liquid Scheme Cent Multipurpose Cent Safar Cent Vehicle Cent Vivah Central Kisan Credit Card Loans to Pensioners Drawing Cent Home Loan Plus Scheme Cent Computer Loan Cent Kalyani Cent Mortgage Cent Rentals Cent Trade Cent Vidyarthi (Click Here to Apply Online) Centvyapari Scheme Housing Finance Scheme Personal Loan Scheme (Corporate) 23

Pension Personal Loan Scheme (Noncorporate) Personal Loan To Teachers Cent Swabhiman Personal Loan To Commission Agents LIC Cent Nano

E-Payments
DGFT Online E-Payment Central Excise & Service Tax

2.5 Interest rates of the bank for deposits and loans

DEPOSITS
NATURE ACCOUNT RATE OF INTEREST NORMAL SENIOR CITIZEN MINIMUM BALANCE RURAL SEMIURBAN URBAN

1. Savings Account - Domestic a. With Cheque book facility b. Without cheque book facility c. No frills Account 3.5 3.5 3.5 -

2. Term Deposits (% p.a.) A. Domestic Rates For Deposits Upto Rs. 15 Lacs Rates For Deposits Above Rs. 15 Lacs to Less Than Rs. 1 Crore Rates For Deposits Rs. 1 Crore & Above

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(w.e.f. 01.08.2009) Term Deposits (All Maturities) 7 days to 14 days 15 days to 45 days 46 days to 90 days 91 days to 179 days 180 days to 269 days 270 days to 364 days 1 year to less than 2 years 2 years to less than 3 years 3 years to less than 5 years 5 years and above 3.00 3.75 4.25 5.50 6.25 6.50 6.50 6.75 7.00 7.50

(w.e.f. 22.06.2009)

(w.e.f. 22.04.2009)

2.50 3.50 4.00 5.00 5.75 6.50 6.50 7.00 7.00 7.50

2.00 2.50 3.00 3.50 4.50 5.50 6.00 6.00 6.00 6.00

An additional interest rate of 0.50% p.a. over and above the normal rate of interest for any of the Time Deposit Schemes will be given as incentive for deposits of Senior Citizens who are above 60 years of age.

B. Non Resident Accounts a. NRO (All Maturities) b. NRE (All Maturities)

Rate of Interest (%) NRO rates are same as domestic deposit rates. 3.71% - 4.13% p.a.

C. FCNR (B)- 1 year & w.e.f. 01-July- above but < 2009 2 years i) USD ii) GBP iii) EUR iv) CAD v) AUD 2.61 2.70 2.50 2.55 5.28

2 years & above but < 3 years 2.53 3.32 2.84 2.18 5.18

3 years & above but < 4 years 3.12 4.02 3.30 2.87 5.88

4 years & above but < 5 years 3.57 4.46 3.64 3.29 6.35

For 5 years only 3.93 4.72 3.91 3.62 6.58

Overdue Deposit 1.61 1.70 1.50 1.55 4.28

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Resident Foreign Currency Account (RFC) - w.e.f. 01-July-2009 Description 6 months to less that 12 months and Savings A/c Overdue Deposit % p.a. 1.61 Nil

Non-Resident (External) Accounts (NRE) In Indian Rupees - w.e.f. 01-July-2009 Description 1 Year to less than 2 years 2 Years to less than 3 years 3 year only NRE Savings Bank % p.a. 3.36 3.28 3.87 Remains unchanged at 3.50%

LOANS
BPLR (w.e.f. 01.04.2009) 12.00% p.a.

Direct Housing Finance Scheme w.e.f. 10.11.2008 Floating Category Upto 5 Yrs Over 5 Yrs & Less than 10 Yrs. 10 Yrs. & above Fixed Category Upto 5 Yrs Over 5 Yrs & Less than 10 Yrs. 10 Yrs. & above

Rate of Interest Upto Rs. 30 Lakhs 9.00% 9.50% 10.00% Upto Rs. 30 Lakhs 10.00% -NA-NAAbove Rs. 30 Lakhs 10.25% 10.75% 11.25% Above Rs. 30 Lakhs 11.25% -NA-NAProcessing Charges*

1% of Loan Amount, minimum Rs.1000/1% of Loan Amount, minimum Rs.1000/1% of Loan Amount, minimum Rs.1000/Processing Charges 1% of Loan Amount, minimum Rs.1000/1% of Loan Amount, minimum Rs.1000/1% of Loan Amount, minimum Rs.1000/-

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*- For changing from fixed Rate of Interest to Floating Rate of Interest, 1% Service Charges on the balance outstanding as on the date of change over. - For changing from floating Rate of Interest to Fixed Rate of Interest, 1% Service Charges on the balance outstanding as on the date of change over.

Personal Loan (a) Consumer Durable Loan (Cent Buy) (b) Senior Citizen - Loan to Pensioner For General Pensioners and for ex-staff of Central Bank of India drawing pension (b) Senior Citizen - Cent Swabhimaan (Reverse Mortgage Loan)

Rate of Interest BPLR 0.25%

Processing Charges Rs. 200/- per proposal

BPLR

NIL

10.00%

Upfront fee @ 0.15% of Loan Amount, Minimum 10,000/Rs. 500/- per proposal Rs. 500/- per proposal Rs. 500/- per proposal 1% of loan amount, minimum Rs. 250/-

(c) Personal Loan - Loan to corporate employees BPLR (c) Personal Loan - Loan to Non-Corporate Employees (c) Personal Loan - Loan to teachers & Employees of Educational Institute (c) Personal Loan - Loan to LIC Agents BPLR + 1.00% BPLR 1.25% BPLR

Vehicle Loan Two wheeler Loan For new vehicles repayable upto 36 months For new vehicles repayable beyond 36 months For second hand vehicles Four wheeler Loan For new vehicles repayable upto 36 months For new vehicles repayable beyond 36 months For second hand vehicles

Rate of Interest

Processing Charges

BPLR - 2.00% BPLR - 1.00% BPLR

Rs. 500/- per proposal Rs. 500/- per proposal Rs. 500/- per proposal

BPLR - 2.00% BPLR - 1.00% BPLR

Rs. 2000/- per proposal Rs. 2000/- per proposal Rs. 2000/- per proposal

Cent Vidyarthi - Education Loan (Irrespective of Amount of Loan and Place of study i.e. India or Abroad)

Rate of Interest Normal Student IIT/ IIM Students

Processing Charges

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Male Female SC, ST, & Minority Community Student (Female & Male)

BPLR 2.00% BPLR 2.50% BPLR 2.50%

BPLR - 2.50% Nil BPLR - 3.00% Nil BPLR - 3.00% Nil

Name of Scheme

Rate of Interest

Processing Charges - Upto Rs. 25,000/- : NIL - More than Rs. 25,000/- upto Rs. 2 Lakh: Rs. 250/per proposal. - More than Rs. 2 lakh upto Rs. 50 lakh: 0.5% of loan amount Rs. 1000/- per proposal 0.5% of loan amount. Rs. 100/- per proposal 1% of loan amount, minimum Rs. 500/NIL Rs. 500/- per proposal NIL Rs. 1000/- per proposal NIL Rs. 500/- per proposal

Cent Trade

BPLR - 1%

Cent Vyapari Cent Rental (Irrespective of Loan Amount) Cent Computer Cent Liquid Cent School Cent Jewel Cent Vivah Cent Safar Cent Suvidha Cent Home Loan Plus

BPLR - 1% BPLR - 1% BPLR BPLR BPLR - 1% 10.00% 10.00% BPLR BPLR 1% higher than Housing Loan Rate

Cent Multipurpose 50% of processing charges as otherwise applicable I. Housing Loan As applicable in under particular scheme at the time of disbursement II. Cent Buy or Car Loan respective scheme of loan under related scheme III. Personal Loan Jeevan Astha BPLR - 2.00% (Loan/Overdraft Facility Against LIC's Jeevan Astha Policy) Cent Mortgage For Term Loan Repayable within 3 years BPLR Processing Charges 0.5% of loan amount

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Repayable beyond 3 years For overdraft facility

BPLR + 0.50% BPLR + 0.50%

0.5% of loan amount 0.5% of loan amount

Cent Udaan Upto Rs. 15 lakh Female Students Male Students BPLR - 1% BPLR - 0.50% Above Rs. 15 lakh BPLR - 0.50% BPLR Processing Charges Upto Rs. 15 lakh: NIL Above Rs. 15 lakh: 1% of loan amount in excess of Rs. 15 lakh BPLR - 4% minimum 8%

Scheme of Interest Subsidy for Housing the Urban Poor (ISHUP)

2.6 Recent News/ Initiatives about the bank

Mr S Sridhar has been appointed as the Chairman and Managing Director Central Bank of India launched Visa Platinum and Visa Gold cards Central Bank of India was conferred with the 1st Award under National Awards for Excellence in MSE Lending based on its outstanding performance in lending to Micro and Small Enterprises during the year 2007-08.

On December 29, 2008, Kotak Mahindra Asset Management Company, one of India's leading mutual fund houses, entered into a distribution tie-up with Central Bank of India. Under the agreement Central Bank of India will offer the entire bouquet of Kotak Mutual Fund products from the Bank's branches.

The Bank has been in the forefront in business growth also. The total business of the Bank sharply increased by 124% touching the level of Rs.1,97,162/- as of 30 September, 2008 from Rs. 87,857 crore as of 30 June, 2005.

The Core Banking System (CBS) of the Bank covers 77% of its business. And, all CBS Branches have been enabled for both RTGS and NEFT services. IT Enabled Financial Inclusion at Hoshangabad which will bring the financial services to the door steps of those who are living in remotest parts of the country.

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The Bank will deliver deposit, loan and other financial services by engaging Business Correspondent, who will use hand-held mobile devices and issue Smart Cards to the customers.

In order to develop rural entrepreneurship, the Bank launched a Rural Development and Self Employment Training Institute (Rudseti) at Hoshangabad. This will provide intensive entrepreneurship training to rural youth, to enable them to take up vocational activities. The Bank has already set Rudsetis at Kota and Muzaffarpur.

A Financial Literacy and Credit Counseling Centre - Centsahyog was launched at Vadkun in Thane District. This will provide free counseling to the villagers on the various banking products, both deposits and loans and also counseling to distressed borrowers, irrespective of whether they are bank's clients or not.

The Bank also launched Perizaad Zorabian, a well-known personality in the film industry as its Brand Ambassador. Operating Profit of the Bank was up by 13.28% at Rs. 1,436.74 crore in 2008-09 over the Operating Profit of Rs. 1,268.30 crore in 2007-08. Net Profit of the Bank in 2008-09 went up to Rs. 571.24 crore up 3.83% over the net profit of Rs. 550.16 crore in 2007-08. Net Profit per employee as on March, 2009 increased to Rs. 1.71 lacs from Rs.1.56 lacs as on March, 2008. The Bank had launched a special Housing Loan Scheme in January 2009 at 8.5% rate of interest for five years. The interest rate was brought down to 8% for a period of one year.

A special deposit scheme for children up to the age of 12 years was launched as "Cent Bal Bhavishya" scheme with an insurance wrap in December 2008. Bank has received 'Best Education Loan Provider" and runner up award for "Best Home Loan Provider" by Outlook Money NDTV profit Award 2008". Bank ranked first amongst all Banc assurance partners of Life Insurance Corporation of India.

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CHAPTER 3 Ratio Analysis

Ratio analysis involves establishing a relevant financial relationship between components of financial statement. Two companies may have earned the same amount of profit in a year, but unless the profit is related to sales or total assets, it is not possible to conclude which of them is more profitable. Ratio analysis helps in identifying significant relationship between financial statement items for further investigation. If used with understanding of industry factor and general economic conditions, it can be powerful tool for recognizing a companys strengths as well as its potential trouble spots. Ratio-analysis is a concept or technique which is as old as accounting concept. Financial analysis is a scientific tool. It has assumed important role as a tool for appraising the real worth of an enterprise, its performance during a period of time and its pit falls. Financial analysis is a vital apparatus for the interpretation of financial statements. It also helps to find out any cross-sectional and time series linkages between various ratios.

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Unlike in the past when security was considered to be sufficient consideration for banks and financial institutions to grant loans and advances, nowadays the entire lending is need-based and the emphasis is on the financial viability of a proposal and not only on security alone. Further all business decision contains an element of risk. The risk is more in the case of decisions relating to credits. Ratio analysis and other quantitative techniques facilitate assessment of this risk.

3.1 Current Ratio :Current Assets -----------------------Current Liabilities 388947093 / 30084333 = 551346838 / 36063426 = 742994818 / 33408958 = 12.92 : 1 15.28 : 1 22.24 : 1

2005 -06 2006 -07 2007 -08

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Current Ratio
25 20 ratio 15 10 5 0 Year year 2005-06 2006-07 2007-08

Interpretation :It is generally believed that 2:1 shows a comfortable working capital condition, that is current assets should be twice to the current liabilities. Current ratio means ability of the firm to meet its obligation. Here the ratios are above ideal level ratio and it has slightly increased in 2006-07 compare to 2005-06 but it is jumping in 2007-08. Because there are no inter office adjustment amount in the year 2007-08, which decreases the current liabilities. It shows significant increase in current assets of the company. So company is in strong position against its current obligations. So company should try to maintain and increase the ratio.

3.2 Quick ratio

Current asset Inventories -----------------------------------Current liabilities Bank O.D.

2005 06 2006 07 2007 -08

388947093 / 30084333 = 551346838 / 36063426 = 742994818 / 33408958 =

12.92 : 1 15.28 : 1 22.24 : 1

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Quick Ratio
25 20
Ratio

15 10 5 0
Year

2005-06 2006-07 2007-08

Interpretation :This is very exacting standard of liquidity and it is satisfactory if the ratio is 0.5:1. Here the quick ratio is same as the current ratio because there is no any bank overdraft and not any inventories. So as per the standard the liquid condition of the company is good and satisfactory. There is little bit up in ratios but after that there is good increase. In fact in 2007-08 the ratio is 22.24:1 and it is very good to meet its obligations.

3.3 Net working capital

Current Asset Current Liabilities

2005 06 2006 07 2007 -08

388947093 - 30084333 = 551346838 - 36063426 = 742994818 - 33408958 =

358862760 515283412 709585860

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Net Working Capital

800000000 Amount 600000000 400000000 200000000 0 Year year 2005-06 2006-07 2007-08

Interpretation :Here the graph indicates that there is significant increase in Net Working Capital. So we can say that the working capital is maintained and is satisfactory in 200708. It is highest in 2007-08 at Rs 709585860000 . Net Working Capital is essential to meet day to day expenses of the company.

3.4 Gross Profit Ratio

= Gross Profit ----------------- * 100 Sales 5658,98,48 * 100 / 5916,40,28 6211,85,20 * 100 / 6709,86,48 8236,44,52 * 100 / 8786,60,89 95.64 % 92.57 % 93.73 %

2005 06 2006 07 2007 -08

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Gross Profit Ratio

96 95.5 95 94.5 Percentage 94 93.5 93 92.5 Year

year 2005-06 2006-07 2007-08

Interpretation :It is a relationship between sales and gross profit. A high gross profit margin relative to the industry implies that the firm is able to produce at low cost. Generally high gross profit ratio is a sign of good management. Here the gross profit ratio is good. So there is not much problem. It is highest in 2005-06 at 95.64 %. But it is decreasing slowly in coming year, so company should take care and stop it decreasing and try to maintain and increase it. Though it is increasing some what in the year 2007-08. Over all we can say that the gross profit ratio of the bank is highly satisfactory. Low gross profit ratio may reflect higher cost of goods sold due to firms inability.

3.5 Operating Ratio

Sales G.P. + Operating Expenses -------------------------------------------- * 100 Sales 5916,40,28-5658,98,48+1716,22,12 / 5916,40,28 = 33.35 %

2005 06

36

2006 07 2007 -08

6709,86,486211,85,20+1684,35,61/6709,86,48 = 8786,60,898236,44,52+1745,83,31/8786,60,89 =

32.52 % 26.13 %

Operating Ratio
35 30 25 20 Percentage 15 10 5 0 Year

Year 2005-06 2006-07 2007-08

Interpretation :Here the operating ratio is decreasing in every next year. The decrease in the 2006-07 is slight but it has decreased more in 2007-08 to 26.13%. That is good sign for the company. So we can say that the bank is trying to reduce its operating expenses. So the company must try to decrease its operating expenses to maintain its operating ratio.

3.6 Net Profit Ratio

= Net Profit After Tax -------------------------- * 100 Sales 257,41,80 * 100 / 5916,40,28 = 498,01,28 * 100 / 6709,86,48 = 550,16,37 * 100 / 8786,60,89 = 4.35 % 7.42 % 6.26 %

2005 06 2006 07 2007 -08

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Net Profit Ratio

8 6 Percentage 4 2 0 Year Year 2005-06 2006-07 2007-08

Interpretation :This ratio indicates how well company is performing. It is the basic criteria for measuring the performance of the company. It measures how many percentage of net profit generated by sales. Net profit is also known as the net margin. It measures the relationship between net profit and sales of the firm. A firm with high net profit would be in advantageous position to survive in the face of falling selling prices, rising cost of production or declining demand. Here net profit ratio is increasing in 2006-07 but decreasing in 2007-08. Though there is good amount of increase in the sales but not proportionate increase in profit. It shows that there is not significant increase in profit as compare to the sales.

3.7 Fixed Asset Turn Over Ratio

= Sales ----------------Total Fixed Assets 5916,40,28 / 724,83,60 = 6709,86,48 / 767,26,98 = 8.16 times 8.74 times

2005 06 2006 07

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2007 -08

8786,60,89 / 2320,29,13 =

3.78 times

Fixed Asset Turnover Ratio

10 8 Times 6 4 2 0 Year Year 2005-06 2006-07 2007-08

Interpretation :Assets are used to generate sales. There for a firm should manage its assets efficiently to maximize sales. This ratio shows the firms ability In generating sales from all financial resources committed to total assets. Here the ratio indicates that the firm is able to generate good services from the given amount of total assets. In 2005-06 it is 8.16 times while it is increasing some what in 2006-07. that indicate that the company has used its total assets effectively in that particular year. But it has significantly decreased to 3.78 times in 2007-08. So it indicates that there is poor utilization of fixed assets to increase the sales. Overall we can say that the company is making effective use of its fixed assets.

3.8 Current Asset Turn Over Ratio

= Sales ----------------Total Current Assets 5916,40,28 / 388947093 = 6709,86,48 / 551346838 = 0.15 times 0.12 times 39

2005 06 2006 07

2007 -08

8786,60,89 / 742994818 =

0.11 times

Current Asset Turnover Ratio

0.15 0.1 Times 0.05 0 Year Year 2005-06 2006-07 2007-08

Interpretation :-

Here the current asset turnover ratio indicates that the bank has very good amount of current assets to increase its sales but the bank is not efficiently utilizing its current assets to increase its sales.. In 2005-06 it is 0.15 times while it is decreasing in 200607 to 0.12. that indicate that the company has not used its current assets effectively in that particular year. It has decreased to 0.11 times in 2007-08. Overall we can say that the company is making very poor utilization of its current assets.

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