Harsh

CHAPTER 1 INTRODUCTION
1. INDUSTRY ANALYSIS 1.1 INTRODCTION OF BANKING INDUSTRY

The banking industry is and always has been one of the most important aspects of all industries. The reason being, every other industry needs banks to take part in any investments or financial movements as a way to better their position in their industries. The industry analysis will look at how and why the banking industry has been able to hold this position for so long through the Competitive Landscape, Porters Five Forces Analysis, Major Segments of the Industry, the Industry Life cycle, and The PESTEL Factors. These tools will help to provide data and a thorough analysis of the
performance in the banking industry. Origin of the term BANK Bank is English word, which is derived from the ITLIAN word ban co the LATIN word bancs and the French the LATIN word bancs and the French word banquet, which means a bench. According to Kindly a bank as an establishment which makes to individuals such advance of money as may be required and safety made and to which individuals entrust money when not needed by them for use. Banking in India has a long and elaborate history of more than 200 years. The beginning of this industry can be traced back to 1786, when the countrys first bank, Bank of Bengal, was established. But the industry changed rapidly and drastically, after the nationalization of banks in 1969. As a result, the public sector banks began experiencing numerous positive changes and enormous growth. Then came the muchtalked-about liberalization and economic reforms that allowed banks to explore new business opportunities and not just remain constrained to generating revenues from mere borrowing and lending. This provided the Indian banking scenario a remarkable facelift that only continues to get better with time. However, even today, despite the foray of
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foreign banks in the country, nationalized banks continue to be biggest lenders in the country.This is primarily due to the size of the banks and the penetration of the networks.
STRUCTURE The Indian banking system can be classified into nationalized banks, private banks and specialized banking institutions. The industry is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. The Reserve Bank of India is the foremost monitoring body in the Indian Financial sector. It is a centralized body that monitors discrepancies and shortcomings in the system.
Industry estimates indicate that out of 274 commercial banks operating in the country, 223 banks are in the public sector and 51 are in the private sector. These private sector banks include 24 foreign banks that have begun up their operations here. The specialized banking institutions that include cooperatives, rural banks, etc. form a part of the nationalized banks category.
1.2INDIAN BANKING SCENARIO

Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980.
Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000
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ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.
1.3CHANGES IN THE STRUCTURE OF BANKS

The financial sector reforms ushered in the year 1991 have been well calibrated and timed to ensure a smooth transition of the system from a highly regulated regime to a market economy. The first phase of reforms focused on modification in the policy framework, improvement in financial health through introduction of various prudential norms and creation of a competitive environment. The second phase of reforms started in the latter half of 90s, targeted strengthening the foundation of banking system, streamlining procedures, upgrading technology and human resources development and further structural changes. The financial sector reforms carried out so far have made the balance sheets of banks look healthier and helped them move towards achieving global benchmarks in terms of prudential norms and best practices. Under the existing Basel Capital Accord, allocation of capital follows a one-size-fit-all approach. This would be replaced by a risk based approach to capital allocation. While regulatory minimum capital requirements would still continue to be relevant and an integral part of the three pillar approach under Basel II, the emphasis is on risk based approach relying on external ratings as well as internal rating of each asset and capital charge accordingly. The internal risk based approach would need substantial investments in technology and development of MIS tools. For a rating tool for internal assessment to be effective, past data for 3 to 5 years would be required and as such, Indian banking system will have to build up the capabilities for a smooth migration to the new method. Technology is expected to be the main facilitator of change in the financial sector. Implementation of technology solutions involves huge capital outlay. Besides the heavy investment costs, technology applications also have a high degree of obsolescence. Banks will need to look for ways to optimize resources for technology applications. In this regard, global partnerships on technology and skills sharing may help.
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The pressure on capital structure is expected to trigger a phase of consolidation in the banking industry. Banks could achieve consolidation through different ways.
Mergers and acquisitions could be one way to achieve this. In the past, mergers were initiated by regulators to protect the interests of depositors of weak banks. In recent years, market led mergers between private banks have taken place. It is expected that this process would gain momentum in the coming years. Mergers between public sector banks or public sector banks and private banks could be the next logical thing / development to happen as market players tend to consolidate their position to remain in competition. Public Sector Banks had, in the past, relied on Government support for capital augmentation. However, with the Government making a conscious decision to reduce its holding in Banks, most Banks have approached the capital market for raising resources. This process could gain further momentum when the government holding gets reduced to 33% or below. It is expected that pressures of market forces would be the determining If the process of
factor for the consolidation in the structure of these banks.
consolidation through mergers and acquisitions gains momentum, we could see the emergence of a few large Indian banks with international character. There could be some large national banks and several local level banks. Opening up of the financial sector from 2005, under WTO, would see a number of Global banks taking large stakes and control over banking entities in the country. They would bring with them capital, technology and management skills. This will increase the competitive spirit in the system leading to greater efficiencies. Government policy to allow greater FDI in banking and the move to amend Banking Regulation Act to remove the existing 10% cap on voting rights of shareholders is pointers to these developments.
1.4RECENT DEVELOPMENTS
Banking strategies are presently undergoing various transformations, as the overall scenario has changed over the last couple of years. Till the recent past, most of the banks had adopted fierce cost cutting measures to sustain their competitiveness. This strategy however has become obsolete in the new light of immense growth opportunities for banking industry. Most bankers are now confident about their high performance in
terms of organic growth and in realizing high returns. Nowadays, the growth strategies of banks revolve around customer satisfaction. Improved customer relationship management can only lead to fulfillment of long-term, as well as, short-term objectives of the bankers. This requires, efficient and accurate customer database management and development of well-trained sales force to develop and sustain long-term profitable customer relationship. The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side. The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. Scheduled banks constitute of commercial banks and co-operative banks. There are about 67,000 branches of Scheduled banks spread across India. As far as the present scenario is concerned the Banking Industry in India is going through a transitional phase.
The Public Sector Banks (PSBs), which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs), massive manpower and lack of modern technology. On the other hand the Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.
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In the Indian Banking Industry some of the Private Sector Banks are IDBI Bank, ING Vyasa Bank,SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. and banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO Bank, Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank are some of the foreign banks operating in the Indian Banking Industry. The Indian banking industry has been on the path of reformation and recovery ever since the process of liberalization had begun. While the earlier highly regulated, or rather, restricted system had hampered down heavily on the sector as a whole, the liberalization process led to a total makeover of the entire sector, making it more customer and industry friendly. One of the major policies that liberalization brought in was the removal of entry barriers to the banking sector, thus ushering in a number of foreign and private banks. Thus, thanks to liberalization, the Indian banking sector became a true monopolistic competition. 1.5ROLE OF THE RESERVE BANK IN THE BANKING SECTOR The Reserve Bank of India, being the central bank of the country, has numerous monetary and financial functions to overlook. Even in a liberalized country such as the United States, the Federal Reserve has similar functions to perform. This implies that the market mechanism should not be given the sole rein to running the banking industry and setting the market rates. The functions of the Reserve Bank which have a direct bearing on the banking sector are:
1. Financial SupervisionThis aspect of the Reserve Bank is under the aegis of a Board for Financial Supervision (BFS). The objective of the BFS is: to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and nonbanking finance companies. The functions that come under the abovementioned objectives are:
a. Restructuring of the system of bank inspections
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b. Introduction of off-site surveillance, c. Strengthening of the role of statutory auditors and d. Strengthening of the internal defenses of supervised institutions. Thus, the BFS does such acts as the supervising financial institutions, consolidated accounting, looking at legal issues in bank frauds, providing assessments of non-performing assets and maintaining a supervisory rating model for banks.
2. Monetary AuthorityThe Reserve Bank is the monetary authority of the country. This implies that the Reserve Bank formulates implements and monitors the monetary policy of the country. The various monetary policies involves the availability of liquidity in the economy (i.e. the amount of money supply to the economy), and setting the interest rates in the country. These rates include the Statutory Liquidity Ratio (SLR), the Cash Reserve Ratio (CRR) and the Cash Adequacy Ratio (CAR) among others. By this function, the Reserve Bank maintains price stability in the economy and ensures that cash flow to various (important) sectors is maintained. In relation to the banking industry, the setting of interest rates is of utmost importance. This limit prescribes the conduct of the banks in the economy. It also acts as an entry barrier to the sector. 3. Regulator of the Banking System Being the regulator of the banking, the Reserve Bank prescribes a set of broad parameters from within which the countrys banking and banking and financial system functions".
The specific aims of financial regulators are usually:
a) To enforce applicable laws b) To prosecute cases of market misconduct, such as insider trading c) To license providers of financial services d) To protect clients, and investigate complaints e) To maintain confidence in the financial system.
It is evident from these points that the Reserve Bank does have an amount of control over the functioning and the conduct of the banks in the sector. The Reserve Bank and SEBI (Securities and Exchange Bureau of India) thus can even force banks to withdraw from the sector in the case of occurrence of unfair practices. 4. Banker to the banks The Reserve Bank acts as the banker to the various banks in the country and maintains banking accounts to all the scheduled banks in the country.
5. Banker to the banks The Reserve Bank acts as the banker to the various banks in the country and maintains banking accounts to all the scheduled banks in the country.
1.6Major players in the Banking Industry

Abn Amro Bank In India Allahabad Bank In India American Express Bank In India Andhra Bank In India Bank Of India Canara Bank Central Bank Of India CITI Bank Corporation Bank HDFC Bank HSBC Bank ICICI Bank IDBI Indian Overseas Bank Oriental Bank Of Commerce
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Punjab National Bank State Bank Of India (SBI) Union Bank Of India Standard Chartered Bank Axis bank
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1.7Profit Comparison of Different Banks
Union State Bank Metrics/Compan Punjab Bank Bank ICICI HDFC Bank of Indian Canar y (figures in Nationa of of Bank Bank of Barod Bank a Bank Billions INR) l Bank India India India a Revenue Metrics Net Revenue (net 40.86 of interest exp.) Net Interest 28.53 Income 161.83 75.11 73.04 52.3 264.2 75.32 85.51 54.99 70.92 % 59.62 39.11 20.21% 30.60 20.54 19.08 % 58.46 35.38 5.50%
170.21 55.34
Revenue Growth 29.87% 45.18% 50.70% 12.43% 8.49% from 2007 NIM Operating Metrics Net Income Net Margin Profit 10.71 41.57 15.9 67.29 15.41 2.93% 2.20% 4.40% 3.07% 3.58%
2.97% 2.90% 3.45% 2.42%
30.07 35.17 % 54.57
14.35 24.07% 30.27
10.09 32.98 % 16.59
15.65 26.77% 29.59
12.99% 25.69% 21.17% 25.47% 20.46% 72.43 37.65 138.11 40.06
Total Operating 25.80 Income Other Key Industry Metrics Total Assets
1095.7 3997.9 1332.5 5665.6 1795.9 1805.2 1990.48 1788.3 705.08 8 5 1 5 9 9 12.91% 12.74 % 13.25%
12.95 capital 12.51% 14.92% 13.60% 13.47% 12.96% % Adequacy Ratio Return on Assets 1.26% 1.10% 1.32% 1.01% 1.15% Net NPAs 0.15% 1.49% 0.47% 1.78% 0.64%
1.25% 0.89% 1.64% 0.92% 0.52% 0.47% 0.24% 0.84%
All figures are as on 31st March, 2008 as per the respective Company's annual report.
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1.8Market Share
It is not just the pink papers reporting that foreign financial entities (GE Money, Goldman Sachs and Merrill Lynch to name a few) are showing interest in Indian banking sector, but the concerned authorities in the country also seem to be encouraging the same. Reserve Bank of India's twin-phased roadmap for facilitating entry of foreign banks into India seems to be a step towards fulfilling the key objectives of competition, consolidation and convergence in the sector. But what is it that is enticing the foreign entities to the Indian shores? Here, we try to reason the same.
FY04 (Rs bn) SBI ICICI Bank Canara Bank PNB Bank of India Bank of Baroda HDFC Bank Standard Chartered Total
Advances 1,955 631 476 472 458 356 177 162 4,687
Market share 22.7% 7.3% 5.5% 5.5% 5.3% 4.1% 2.1% 1.9% 54.4%
1.9GOVERNMENT INITIATIVES In its platinum jubilee year, the RBI, the central bank of the country, in a notification issued on June 25, 2009, said that banks should link more branches to the National Electronic Clearing Service (NECS). Ideally, all core-banking-enabled branches should be part of NECS. NECS was introduced in September 2008 for centralized processing of repetitive and bulk payment instructions. Currently, a little over 26,000 branches of 114 banks are enabled to participate in NECS. In the Third Quarter Review of Monetary Policy for 2009-10, the RBI observed that the Indian economy showed a degree of resilience as it recorded a better-thanexpected growth of 7.9 per cent during the second quarter of 2009-10.
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In its Third Quarter Review of Monetary Policy for 2009-10, the RBI hiked the Cash Reserve Ratio (CRR) by 75 basis points (bps) to 5.75 per cent, while keeping repo and reverse repo rates unchanged. According to the RBI, the stance of monetary policy for the remaining period of 2009-10 will be to:
Anchor inflation expectations and keep a vigil on inflation trends and respond swiftly through policy adjustments,
Actively manage liquidity to ensure credit demands of productive sectors are met adequately,
Maintain an interest rate environment consistent with financial stability and price stability. The money supply (M3) growth on a year-on-year basis at 18.9 per cent as on
October 9, 2009, remained above the indicative projection of 18.0 per cent set out in the First Quarter Review of July 2009. The main source of M3 expansion was bank credit to the government, reflecting large market borrowings of the Government. Meanwhile, outstanding bank credit in the 15 days up to January 29 2010 rose by US$ 4.32 billion, pointing to a revival in credit growth. This is the highest year-on-year growth recorded since August 14, 2009. Exchange rate used: 1 USD = 46.29 INR (as on January 2010) 1 USD = 46.66 INR (as on December 2009)
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1.10REGULATORY AND LEGAL ENVIRONMENT

The advent of liberalization and globalization has seen a lot of changes in the focus of Reserve Bank of India as a regulator of the banking industry. De-regulation of interest rates and moving away from issuing operational prescriptions have been important changes. The focus has clearly shifted from micro monitoring to macro
management. Supervisory role is also shifting more towards off-site surveillance rather than on-site inspections. The focus of inspection is also shifting from transaction-based exercise to risk-based supervision. In a totally de-regulated and globalized banking
scenario, a strong regulatory framework would be needed. The role of regulator would be critical for: Ensuring soundness of the system by fixing benchmark standards for capital adequacy and prudential norms for key performance parameters. Adoption of best practices especially in areas like risk-management, provisioning, disclosures, credit delivery, etc. Adoption of good corporate governance practices. Creation of an institutional framework to protect the interest of depositors. Regulating the entry and exit of banks including cross-border institutions. Further, the expected integration of various intermediaries in the financial system would add a new dimension to the role of regulators. Also as the co-operative banks are expected to come under the direct regulatory control of RBI as against the dual control system in vogue, regulation and supervision of these institutions will get a new direction. The integration of various financial services would need a number of legislative changes to be brought about for the system to remain contemporary and competitive. The need for changes in the legislative framework has been felt in several areas and steps have been taken in respect of many of these issues, such as, Abolition of SICA / BIFR setup and formation of a National Company Law Tribunal to take up industrial re-construction.
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Enabling legislation for sharing of credit information about borrowers among lending institutions. Integration of the financial system would change the way we look at banking functions. The present definition of banking under Banking Regulation Act would require changes, if banking institutions and non-banking entities are to merge into a unified financial system
HR practices and training needs of the banking personnel would assume greater importance in the coming days. Here again, common benchmarks could be evolved. Evolution of Corporate Governance being adopted by banks, particularly those who have gone public, will have to meet global standards over a period of time. In future, Corporate Governance will guide the way Banks are to be run. Good Corporate Governance is not a straight jacketed formula or process; there are many ways of achieving it as international comparisons demonstrate, provided the following three basic principles are followed: Management should be free to drive the enterprise forward with the minimum interference and maximum motivation. Management should be accountable for the effective and efficient use of this freedom. There are two levels of accountability of management to the Board and of the Board to the Shareholders. The main task is to ensure the continued competence of management, for without adequate and effective drive, any business is doomed to decline. As stated by J. Wolfensohn, President, World Bank Corporate governance is about promoting corporate fairness, transparency and accountability. In order to enlist the confidence of the global investors and international market players, the banks will have to adopt the best global practices of financial accounting and reporting. This would essentially involve adoption of judgmental factors in the classification of assets, based on Banks estimation of the future cash flows and existing environmental factors, besides strengthening the capital base accordingly.
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When we talk about adoption of International accounting practices and reporting formats it is relevant to look at where we stand and the way ahead. Accounting practices being followed in India are as per Accounting Standards set by the Institute of Chartered Accountants of India (ICAI). Companies are required to follow disclosure norms set under the Companies Act and SEBI guidelines relating to listed entities. Both in respect of Accounting Practices and disclosures, banks in India are guided by the Reserve bank of India guidelines issued from time to time. Now these are, by and large, in line with the Accounting Standards of ICAI and other regulatory bodies. It is pertinent to note that Accounting Standards of ICAI are based on International Accounting Standards (IAS) being followed in a large number of countries. Considering that US forms 40% of the financial markets in the world compliance with USGAAP has assumed greater importance in recent times. Many Indian banks desirous of raising resources in the US market have adopted accounting practices under USGAAP and we expect more and more Indian Financial entities to move in this direction in the coming years. In the Indian context, one issue which is likely to be discussed in the coming years is the need for a common accounting standard for financial entities. While a separate standard is available for financial entities under IAS, ICAI has not so far come out with an Indian version in view of the fact that banks, etc. are governed by RBI guidelines. It is understood that ICAI is seized of the matter. It is expected that banks would migrate to global accounting standards smoothly in the light of these developments, although it would mean greater disclosure and tighter norms.
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1.11SWOT ANALYSIS OF INDIAN BANKING INDUSTRY IN INDIA
STRENGTHS
Indian banks have compared favorably on growth, asset quality and profitability with other regional banks over the last few years. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. Bank lending has been a significant driver of GDP growth and employment. Extensive reach: the vast networking & growing number of branches & ATMs. Indian banking system has reached even to the remote corners of the country. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. Foreign banks will have the opportunity to own up to 74 per cent of Indian private sector banks and 20 per cent of government owned banks
WEAKNESS
PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing, service operations, risk management and the overall organizational performance ethic & strengthen human capital. Old private sector banks also have the need to fundamentally strengthen skill levels. The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital.
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Impediments in sectorial reforms: Opposition from Left and resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growth prospects in the medium term.
OPPORTUNITY
Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. This will expose the weaker banks. With increased interest in India, competition from foreign banks will only intensify. Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments; actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. Attracting, developing and retaining more leadership capacity Reach in rural India for the private sector and foreign banks. With the growth in the Indian economy expected to be strong for quite some time especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong.
THREATS
Threat of stability of the system: failure of some weak banks has often threatened the stability of the system. Rise in inflation figures which would lead to increase in interest rates. Increase in the number of foreign players would pose a threat to the PSB as well as the private players.
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1.12PORTERS FIVE FORCES FRAMEWORK (PFFF)

More than two decades ago, Professor Michael Porter suggested some driving forces which could help to analyses the attractiveness of any industry/sector as well as its competitive positioning. This framework is widely used and known as Porters Five Forces. Professor Porter invented this model in 1979 and this was published in his book in 1980. Whether the business is service oriented or physical goods, there are always competitive forces in any perfect competitive business environment, like that of the banking sector in Tanzania.
1.13.1 RATIONALE OF THE PORTERS FIVE FORCES MODEL IN THE

BANKING INDUSTRY The model attempts to address key strategic issues in a wider scope. Many of the issues mentioned in the model, including the forces and the management of those forces, are relevant to the banking sector as well as any other service-oriented business. The results, which will be obtained by the application of this model, should be given the value of the time of the analysis and that a continuous review is necessary in order to avoid being
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myopic or obsolete with the results. Michael Porter provided a framework that models an industry as being influenced by five forces (Porter, 1980). It is a model of pure competition, which implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure. Any strategic business manager seeking to develop an edge over rival firms can use this model to better understand the industrycontext in which the firm operates. The manager can then use the analysis as a basic toolfor strategic decision making for the current situation or future. The banking sector can also consider the application of this model for some strategic decision processes. 1. Threat of New Entrants: The average person can't come along and start up a bank, but there are services, such as internet bill payment, on which entrepreneurs can capitalize. Banks are fearful of being squeezed out of the payments business, because it is a good source of fee-based revenue. Another trend that poses a threat is companies offering other financial services. What would it take for an insurance company to start offering mortgage and loan services? Not much. Also, when analyzing a regional bank, remember that the possibility of a mega bank entering into the market poses a real threat. 2. Power of Suppliers: The suppliers of capital might not pose a big threat, but the threat of suppliers luring away human capital does. If a talented individual is working in a smaller regional bank, there is the chance that person will be enticed away by bigger banks, investment firms, etc. 3. Power of Buyers: The individual doesn't pose much of a threat to the banking industry, but one major factor affecting the power of buyers is relatively high switching costs. If a person has a mortgage, car loan, credit card, checking account and mutual funds with one particular bank, it can be extremely tough for that person to switch to another bank. In an attempt to lure in customers, banks try to lower the price of switching, but many people would still rather stick with their current bank. On the other hand, large corporate clients
have banks wrapped around their little fingers. Financial institutions - by offering better exchange rates, more services, and exposure to foreign capital markets - work extremely hard to get high-margin corporate clients. 4. Availability of Substitutes: As you can probably imagine, there are plenty of substitutes in the banking industry. Banks offer a suite of services over and above taking deposits and lending money, but whether it is insurance, mutual funds or fixed income securities, chances are there is a non-banking financial services company that can offer similar services. On the lending side of the business, banks are seeing competition rise from unconventional companies. Sony (NYSE: SNE), General Motors (NYSE:GM) and Microsoft (Nasdaq: MSFT) all offer preferred financing to customers who buy big ticket items. If car companies are offering 0% financing, why would anyone want to get a car loan from the bank and pay 5-10% interest? 5. Competitive Rivalry: The banking industry is highly competitive. The financial services industry has been around for hundreds of years and just about everyone who needs banking services already has them. Because of this, banks must attempt to lure clients away from competitor banks. They do this by offering lower financing, preferred rates and investment services. The banking sector is in a race to see who can offer both the best and fastest services, but this also causes banks to experience a lower ROA. They then have an incentive to take on high-risk projects. In the long run, we're likely to see more consolidation in the banking industry. Larger banks would prefer to take over or merge with another bank rather than spend the money to market and advertise to people.
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1.13COMPANY PROFILE
The dawn of twentieth century witnesses the birth of a banking enterprise par excellenceUNION BANK OF INDIA- that was flagged off by none other than the Father of the Nation, Mahatama Gandhi. Since that the golden moment, Union Bank of India has this far unflinchingly traveled the arduous road to successful banking........ a journey that spans 88 years. We at Union Bank of India, reiterate the objective of our inception to the profound thoughts of the great Mahatama. "We should have the ability to carry on a big bank, to manage efficiently Crores of rupees in the course of our national activities. Though we have not many banks among us, it does not follow that we are not capable of efficiently managing Crores and tens of Crores of rupees."
Union Bank of India is firmly committed to consolidating and maintaining its identity as a leading, innovative commercial Bank, with a proactive approach to the changing needs of the society. This has resulted in a wide gamut of products and services, made available to its valuable clientele in catering to the smallest of their needs. Today, with its efficient, value-added services, sustained growth, consistent profitability and development of new technologies, Union Bank has ensured complete customer delight, living up to its image of, GOOD PEOPLE TO BANK WITH. Anticipative banking- the ability to gauge the customer's needs well ahead of real-time - forms the vital ingredient in value-based services to effectively reduce the gap between expectations and deliverables.
The key to the success of any organization lies with its people. No wonder, Union Bank's unique family of about 26,000 qualified / skilled employees is and ever will be dedicated and delighted to serve the discerning customer with professionalism and wholeheartedness.
Union Bank is a Public Sector Unit with 55.43% Share Capital held by the Government of India. The Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and Follow on Public Offer in February 2006. Presently 44.57 % of Share Capital is presently held by Institutions, Individuals and Others.
Over the years, the Bank has earned the reputation of being a techno-savvy and is a front runner among public sector banks in modern-day banking trends. It is one of the pioneer public sector banks, which launched Core Banking Solution in 2002. Under this solution umbrella, All Branches of the Bank have been 1135 networked ATMs, with online Telebanking facility made available to all its Core Banking Customers - individual as well as corporate. In addition to this, the versatile Internet Banking provides extensive information pertaining to accounts and facets of banking. Regular banking services apart, the customer can also avail of a variety of other value-added services like Cash Management Service, Insurance, Mutual Funds and Demat.
The Bank will ever strive in its endeavor to provide services to its customer and enhance its businesses thereby fulfilling its vision of becoming The Bank Of First Choice In Our Chosen Area By Building Beneficial And Lasting Relationship With Customers Through A Process Of Continuous Improvement.
Union bank of India, a public sector bank, is the most modern among public sector banks (the first large Public Sector Bank in the country to have achieved 100% core banking solution (CBS) roll out). It is also the sixth largest among public bank with an asset base of Rs. 1,610 billion as on 31st March 2009 and is based in western India. From 2006 to 2009, the bank managed to open an additional 500 branches, far outpacing the 72 branches opened from 1996 to 2006. In FY 09, the Bank began offering anywhere banking services to all of its branches, also known as core banking solutions (CBS). With 100% CBS branches, the Bank managed to increase its total business (sum of deposits and advances) by 31.84%, to reach Rs. 2,390 billion compared to Rs. 1,797 billion in FY08. The bank had net interest margin of 3.24% which is 39 bps higher than its peers
average, aided by lowest cost of funds in the industry at 6.35%. With the continuous competition from private and other PSU Banks, Union Bank of India has been focusing on increasing other income streams like Insurance, Mutual Fund and wealth management services. During FY09, the Bank enhanced its profitability by focusing on high yielding loan portfolio - retail, MSME (Medium, Small and Micro Enterprises) and agriculture credit, and reduced its exposure on low yielding advances. As a result, its return on assets stood at 1.27% which was well above its peers average of 1.10% as on 31st March 2009. Similarly, return on equity stood at 24.79% against its peers average of 22.04%.
1.13.1CORPORATE MISSION
1. A logical extension of the Vision Statement is the Mission of the Bank, which is to gain market recognition in the chosen areas. 2. To build a sizeable market shares in each of the chosen areas of business through effective strategies in terms of pricing, product packaging and promoting the product in the market. 3. To facilitate a process of restructuring of branches to support a greater efficiency in the retail banking field. 4. To sustain the mission objective through harnessing technology driven banking and delivery channels. 5. To promote confidence and commitment among the staff members, to address the expectations of the customers efficiently and handle technology banking with ease.
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1.13.2 ORGANISATIONAL STRUCTURE
List Of Regional Offices Bank has a lean three-tier structure. The delegated powers have been enhanced. The decentralized power structure has accelerated decision making process and thereby Bank quickly responds to changing needs of the customers and has also been able to adjust with the changing environment.
Bank has nine General Manager Offices at Ahmedabad, Pune, Lucknow, Delhi, Bangalore, Bhopal, Mumbai, Calcutta and Chennai which function as an extended arm of corporate office. It also has two Zonal Offices at Bhopal and Pune. Tier 3 comprises of 54 Regional Offices at various geographical center of the country.
1.13.3 CORPORATE OVERVIEW Union Bank of India was inaugurated by Mahatma Gandhi, on November 11, 1919 and started its operations in 1920. It was only from 1960 onwards that the bank's growth phase began and it aligned its activities in line with national priorities. In the context of the foreign exchange crisis faced by the country in the late 50s and early 60s, the bank geared itself to assist the export sector and push its foreign exchange business with an added emphasis. After nationalization in 1975, Belgaum bank Ltd., a private sector bank was merged with Union Bank of India. In 1985, Miraj State Bank Ltd., a private sector bank and in 1999 the Sikkim bank Ltd. were merged with the bank. The Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and followed on the Public Offer in February 2006. In the last decade, the bank extended financial support to developing segments like educational, housing and trade sectors. As on June 2009, the bank had 2600 branches comprising total of 762- Rural areas, 564 metro cities, 607 Urban areas and 625- Semi urban areas.
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1.13.4 BUSINESS AND FINANCIAL METRICS OF UNION BANK OF INDIA
Metric (in Billions INR) Total Interest Income Non - Interest Income Total Revenue Cost Income ratio Net Profit Credit - Deposit Ratio Net NPA's(%) Return on Average Assets (%) Total Assets
2005 49.70 7.66 57.36 48.90% 7.1906 61.87% 2.61% 1.10% 724.13
2006 58.64 6.25 64.89 42.40% 6.75 68.78% 1.60% 0.80% 891.26
2007 73.82 8.42 82.24 42.50% 8.45 72.68% 1.0% 0.90%
2008 94.47 12.33 106.80 38.17% 13.87 72.33% 0.15% 1.26%
2009 118.89 14.83 133.72 41.81% 17.27 70.45% 0.34% 1.27%
1,026.78 1,240.73 1,609.76
In FY2009, Union Bank of India earned total revenue of Rs. 133.72 billion, a 25.20% rise compared to Rs. 106.80 billion in 2008. This was largely driven by strong growth in its total interest income at 25%, whereas non-interest income registered a growth of over 20.25%. Fee based Income grew by 29.22% mainly due to the new stream of income from Syndication of loans, Wealth Management Services and Channel Financing.Despite an increase in NPA to 0.35% from 0.17%, the bank still has the lowest Non-Performing Assets (NPAs) among its top peers. Union Bank is one of the few banks which has a Net Interest Margin (NIM) of over 3% (it signifies efficiency in core banking business) and as on March, 2009, NIM was 3.24%, an increase of 31bps from 2.93% in 2008. Union Bank of India Top Sector Exposures during the year 2008-2009 Total Business of the bank increased to Rs. 2,369.68 billion in 2009 from Rs. 1,797.37 billion in 2008, propelled by 33.55% increase in deposits and 29.50% growth in advances. The bank has steadily grown its asset base over the last 5 years at a CAGR of 22.10%, aided by strong growth in deposits. As on FY2009, the banks total deposits stood at Rs. 1,384.16 billion - a growth of 33.28% compared to Rs. 1,038.59 billion a year ago, and the bank is largely funded through term deposits. The Banks current account and savings account deposits increased from Rs. 362.04 billion in FY08 to Rs.
417.11 billion in FY09, growth was much slower at 15.2%, leading to a 479-bps decline in the ratio (from 34.86% in FY08 to 30.07% in FY09). In FY2009, the company posted a consolidated net profit of Rs. 17.27 billion, up from Rs. 13.87 billion in FY2008 driven by significant growth in fee income and strong advances growth. However the Banks Staff expenses increased by 36.34% due to arrear payments and pension provisions during the year, which was much higher than a decrease in same by 3.50% in FY08. In order to secure its future capital risk, During 2008-09, the bank has started building up Tier I capital by issuing Rs. 2 billion perpetual bonds to augment capital funds. As a result, the banks capital adequacy ratio stood at 13.27% as on March, 2009, as against the peers average of 13.66%. 1.13.5 Top Sector Exposures
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1.13.6 Union Bank of India Total Revenue and Operating Profit Breakdown by Segment during the year 2008-2009
1.13.7BUSINESS SEGMENTS Wholesale Banking (40.35% of Revenues, 23.51% of Operating Profit) Wholesale Business banking has been Union Bank of India's perennial strong point, accounting for 40.35% of total FY2009 revenue. During 2008-09, total revenue increased over 35.50% to Rs. 53.96 billion from Rs. 39.82 billion in FY2008. Operating Profit followed a similar trend and grew about 35.5% y-o-y to Rs. 5.51 billion during 2008-09. Corporate Advances witnessed the highest growth of 35.95%, followed by Medium, Small and micro enterprises of 31.91%, Agricultural Loan 17.84%. During 2008-09, The Bank implemented Loan Automation Solution for its Retail, MSME and Corporate asset portfolios. This facilitates significant streamlining of Turn-around-
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Time (TAT) in sanctioning of credit facilities, enhances customer experience and supports key requirements like Monitoring and MIS. Retail Banking (32.58% of Revenues, 57.43% of Operating Profit) Retail banking is the field where the Bank has been focusing by leveraging its developed technology and during the year 2008-09 it made all of its branches CBS. With more than 2600 Branches, over 1,790 ATMs and more than 33 million customers the company is able to attract, retain and deepen customer relationships through a wide range of banking products and services. The Banks retail banking segment earned Rs. 13.47 billion as operating profit on revenue of Rs. 53.96 billion, which increased by 75.13% and 25.75% respectively during 2008-2009. During 2008-09, the Banks Retail loan portfolio increased to Rs.100.92 billion (10.26% of total loan portfolio), from Rs. 78.36 billion comprising of 65.61% - Housing, 10.02 Autos, 9.76% - Education, 3.03% - Personal, 11.58-others. During 20089-09, the Bank's depositors account increased by 4.10 million to reach a total deposit clientele of 23.60 million as on 31st March 2009. Treasury Income (25.63% of Revenues, 38.35% of Operating Profit) Treasury income increased by around 20% from Rs. 28.56 billion in FY2008, to Rs. 34.27 billion in FY2009 and constituting 25.63% of the Banks total revenue. Operating income rose by 25% y-o-y to Rs. 8.99 billion in FY2009. The Bank has a well-defined treasury operations and risk management system. It has been trying to optimize its investment decisions based on internal risk - return trade-off and the boards risk management guidelines. As a result, the Banks yield on investments has increased to 7.24% during FY09, from 6.96% for the same period a year ago.
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1.13.8 Share Holding Pattern Union Bank of India holding pattern

(As on March 31, 2009)
Entity Gov. of India Indian Financial Institutions Public and others Foreign Institutional Investors
Percentage 55.43% 15.92% 14.53% 14.12%
As on 31st March 2008, total advances were estimated at Rs. 21,815.50 billion. Union Bank of India with total advances of Rs. 758.78 billion had a market share of 3.41%.
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CHAPTER 2 PRODUCT AND SERVICE MARKET
2.1 RETAIL BANKING

Service with a smile: Todays finicky banking customers will settle for nothing less. The customer has come to realize somewhat belatedly that he is the king. The customers choice of one entity over another as his principal bank is determined by considerations of service quality rather than any other factor. He wants competitive loan rates but at the same time also wants his loan or credit card application processed in double quick time. He insists that he be promptly informed of changes in deposit rates and service charges and he bristles with customary rage if his bank is slow to redress any grievance he may have. He cherishes the convenience of impersonal net banking but during his occasional visits to the branch he also wants the comfort of personalized human interactions and facilities that make his banking experience pleasurable. In short he wants financial house that will more than just clear his cheque and updates his passbook: he wants a bank that cares and provides great services. So, do banks meet these heightened expectations? Is there a gap that exists between the management perception and the customer perception with reference to the services offered in Retail Banking? What is Retail Banking? Retail banking is, however, quite broad in nature - it refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed, current / savings accounts on the liabilities side; and mortgages, loans (e.g., personal, housing, auto, and educational) on the assets side, are the more important of the products offered by banks. Related ancillary services include credit cards, or depository services. Todays retail banking sector is characterized by three basic characteristics:
multiple products (deposits, credit cards, insurance, investments and securities);

multiple channels of distribution ( branch, internet); and Multiple customer groups (consumer, small business, and corporate).
2.2 RETAIL BANKING IN INDIA Retail banking in India is not a new phenomenon. It has always been prevalent in India in various forms. For the last few years it has become synonymous with mainstream banking for many banks. The typical products offered in the Indian retail banking segment are housing loans, consumption loans for purchase of durables, auto loans, credit cards and educational loans. The loans are marketed under attractive brand names to differentiate the products offered by different banks. As the Report on Trend and Progress of India, 2003-04 has shown that the loan values of these retail lending typically range between Rs.20,000 to Rs.100 lakh. The loans are generally for duration of five to seven years with housing loans granted for a longer duration of 15 years. Credit card is another rapidly growing sub-segment of this product group. In recent past retail lending has turned out to be a key profit driver for banks with retail portfolio constituting 21.5 per cent of total outstanding advances as on March 2004. The overall impairment of the retail loan portfolio worked out much less than the Gross NPA ratio for the entire loan portfolio. Within the retail segment, the housing loans had the least gross asset impairment. In fact, retailing make ample business sense in the banking sector. While new generation private sector banks have been able to create a niche in this regard, the public sector banks have not lagged behind. Leveraging their vast branch network and outreach, public sector banks have aggressively forayed to garner a larger slice of the retail pie. By international standards, however, there is still much scope for retail banking in India. After all, retail loans constitute less than seven per cent of GDP in India vis--vis about 35 per cent for other Asian economies South Korea (55 per cent), Taiwan (52 per cent), Malaysia (33 per cent) and Thailand (18 per cent). As retail banking in India is still growing from modest base, there is a likelihood that the growth numbers seem to get
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somewhat exaggerated. One, thus, has to exercise caution in interpreting the growth of retail banking in India. 2.3 DRIVERS OF RETAIL BANKING BUSINESS IN INDIA Some of the basic reasons which led to the retail banking growth are as follows: First,economic prosperity and the consequent increase in purchasing power have given a fillip to a consumer boom. During the 10 years after 1992, India's economy grew At an average rate of 6.8 percent and continues to grow at almost the same rate not many countries in the world match this performance. Second, changing consumer demographics indicate vast potential for growth in consumption both qualitatively and quantitatively. India is one of the countries having highest proportion (70%) of the population below 35 years of age (young population). The BRIC report of the Goldman-Sachs, which predicted a bright future for Brazil, Russia, India and China, mentioned Indian demographic advantage as an important positive factor for India. Third, technological factors played a major role. Convenience banking in the form of debit cards, internet and phone-banking, anywhere and anytime banking has attracted many new customers into the banking field. Technological innovations relating to increasing use of credit / debit cards, ATMs, direct debits and phone banking has contributed to the growth of retail banking in India. Fourth, the treasury income of the banks, which had strengthened the bottom lines of banks for the past few years, has been on the decline during the last few years. In such a scenario, retail business provides a good vehicle of profit maximization. Considering the fact that retails share in impaired assets is far lower than the overall bank loans and advances, retail loans have put comparatively less provisioning burden on banks apart from diversifying their income streams.
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Fifth, decline in interest rates have also contributed to the growth of retail credit by generating the demand for such credit. 2.4 OPPORTUNITIES AND CHALLENGES OF RETAIL BANKING IN INDIA Retail banking has immense opportunities in a growing economy like India. As the growth story gets unfolded in India, retail banking is going to emerge a major driver. How does the world view us? As already referred to the BRIC Report, talking India as an economic superpower; A. T. Kearney, a global management consulting firm, recently identified India as the "second most attractive retail destination" of 30 emergent markets. The rise of the Indian middle class is an important contributory factor in this regard. The percentage of middle to high income Indian households is expected to continue rising. The younger population not only wields increasing purchasing power, but as far as acquiring personal debt is concerned, they are perhaps more comfortable than previous generations. Improving consumer purchasing power, coupled with more liberal attitudes toward personal debt, is contributing to India's retail banking segment. Global investors are attracted to India because of the growing number of well-educated, English-speaking workers who are comfortable working in information technology. India's IT work force will be augmented by a booming population of engineering students. Furthermore, India's labor pool also serves as an expanding customer base for retail bank products and services. The development of India's economy is boosting overall consumer purchasing power. The percentage of middle to high income Indian households is expected to continue rising. The younger, more educated population not only wields increasing purchasing power, but it is more comfortable than previous generations with acquiring personal debt. The combination of the above factors promises substantial growth in the retail sector, which at present is in the nascent stage. Due to bundling of services and delivery channels, the areas of potential conflicts of interest tend to increase in universal banks and financial conglomerates. Some of the key policy issues relevant to the retail banking sector are: financial inclusion, responsible lending, access to finance, long-term savings,
financial capability, consumer protection, regulation and financial crime prevention. The challenges for the industry and its stakeholders are as follows: First, retention of customers is going to be a major challenge. According to a research by Reichheld and Sasser in the Harvard Business Review, 5 per cent increase in customer retention can increase profitability by 35 per cent in banking business, 50 per cent in insurance and brokerage, and 125 per cent in the consumer credit card market. Thus, banks need to emphasize on retaining customers and increasing market share. Second, rising indebtednesscould turn out to be a cause for concern in the future. India's position, of course, is not comparable to that of the developed world where household debt as a proportion of disposable income is much higher. Such a scenario creates high uncertainty. Expressing concerns about the high growth witnessed in the consumer credit segments, the Reserve Bank has, as a temporary measure, put in place risk containment measures and increased the risk weight from 100 per cent to 125 per cent in the case of consumer credit including personal loans and credit cards (Mid-term Review of Annual Policy, 2004-05). Third, information technology poses both opportunities and challenges. Even with ATM machines and Internet Banking, many consumers still prefer the personal touch of their neighborhood branch bank. Technology has made it possible to deliver services throughout the branch bank network, providing instant updates to checking accounts and rapid movement of money for stock transfers. However, this dependency on the network has brought IT departments additional responsibilities and challenges in managing, maintaining and optimizing the performance of retail banking networks. Illustratively, ensuring that all bank products and services are available, at all times, and across the entire organization is essential for todays retails banks to generate revenues and remain competitive. Besides, there are network management challenges, whereby keeping these complex distributed networks and applications operating properly in support of business objectives becomes essential. Specific challenges include ensuring that account transaction applications run efficiently between the branch offices and data centers.
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Fourth, KYC Issues and money laundering risks in retail banking is yet another important issue. Retail lending is often regarded as a low risk area for money laundering because of the perception of the sums involved. However, competition for clients may also lead to KYC procedures being waived in the bid for new business. Banks must also consider seriously the type of identification documents they will accept and other processes to be completed. The Reserve Bank has issued detailed guidelines on application of KYC norms in November 2004. But how competitive are the players? The entry of new generation private sector banks has changed the entire scenario. Earlier the household savings went into banks and the banks then lent out money to corporates. Now they need to sell banking. The retail segment, which was earlier ignored, is now the most important of the lot, with the banks jumping over one another to give out loans. The consumer has never been so lucky with so many banks offering so many products to choose from. With supply far exceeding demand it has been a race to the bottom, with the banks undercutting one another. A lot of foreign banks have already burnt their fingers in the retail game and have now decided to get out of a few retail segments completely. The nimble footed new generation private sector banks have taken a lead on this front and the public sector banks are trying to play catch up. The PSBs have been losing business to the private sector banks in this segment. PSBs need to figure out the means to generate profitable business from this segment in the days to come. 2.5 REASONS FOR THE CHANGE OVER FROM CORPORATE BANKING TO RETAIL BANKING: The financial sector reforms undertaken by the Government since the year 1991 have accelerated the process of disintermediation which has encouraged blue chip corporate to access cheaper funds to meet their working capital requirements directly from investors in India and abroad through capital market instruments and external Commercial Borrowings route thus by-passing Banks in the process. The deregulation of markets and interest rates has lead to cut throat competition among Banks for corporate loans making them to lend even at PLR or sub PLR
and offer other valued services at comparatively cheaper rates to big and high value corporates. In the process, most of the banks have experienced substantial reduction in interest spreads and drain on their profitability. The introduction of stringent Asset Classification, Income Recognition and provisioning norms has resulted in growing menace of NPAs in corporate loans which has affected the asset quality, profitability and capital adequacy of banks adversely. The risks involved in corporate loans are very high as corporates have to keep all their eggs in one basket. The risks involved in retail Banking advances are comparatively less and well diversified as loan amounts are relatively small ranging from Rs. 5000 to Rs. 100 lakh and repayable normally in short period of 3- years except housing loans (where repayment period is long up to 15 years in some cases) and from fixed source of income like salaries. Retail Banking gives a lot of stability and public image to banks as compared to corporate banking. The housing loans, which form the major chunk of retail lending and where NPAs are the least, carry risk weight of just 50% for capital adequacy purposes. This is likely to come down further as new Basel Capital Accord or (Basel II) norms are put in place from the year 2006. This offers added incentive to banks for lending to this retail segment as against corporate lending where capital consumption is higher. Through product innovations and competitive pricing strategies Banks can foster business relationship with customers to retain the existing clients and attract new ones. Innovative products like asset securitization can open new vistas in sustaining optimal capital adequacy and asset liability management for banks. Retail Banking offers opportunities to banks to cross-sell other retail products like credit card, insurance, mutual fund products and Demat facilities etc. to depositors and investors.
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2.6 PROBLEMS FACED IN RETAIL BANKING: Retail Banking has all its attendant risks. It is highly sensitive .Banks got to move cautiously. It is easy to enter, but difficult to get out. A systematic and a calculated approach is the pre-requisite for success in the long run. Retail Banking is being introduced with the concept of serving customer with better and innovative products with the latest technology and easy availability. It becomes so popular and widely acceptable that more and more customers had started to use it. Now it becomes a mass product. Customer database have tremendously increased and it becomes difficult to manage them. To match the customer inflows and current customer requirements as well as service standards, banks have to set up more branches, distribution channels and new trained staff as well as improvement in back office operations also in very near future. This itself a time bounded problem and banks have to do it as early as possible. Todays competitive market customer has more than one option for his retail banking needs. Every bank is providing more or less similar kind of products. So an unsatisfied customer can easily switch over to another competitors bank. So banks need to be very careful in handling the customers. They have to continually improve their service standards. Retail Banking is so wide accepted by the customer as well as very aggressively promoted by the bankers that if the bankers do not take adequate care in distributing and recovering advances, there are chances of increasing in NPAs in coming feature. And that would be an alarming situation.
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2.7 RETAIL BANKING PRODUCTS PORTFOLIO 2.7.1 A. DEPOSITS: There are many products in retail banking like Fixed Deposit, Savings Account, Current Account, Recurring Account, NRI Account, Corporate Salary Account, Free Demat Account, Kids Account, Senior Citizen Scheme, Cheque Facilities, Overdraft Facilities, Free Demand Draft Facilities, Locker Facilities, Cash Credit Facilities, etc. They are listed and explained as follows: 1. Fixed Deposit: The deposit with the bank for a period, which is specified at the time of making the deposit is known as fixed deposit. Such deposits are also known as FD or term deposit .A FD is repayable on the expiry of a specified period. The rate of interest and other terms and conditions on which the banks accepted FD were regulated by the RBI, in section 21 and 35A of the Banking Regulation Act 1949.Each bank has prescribed their own rate of interest and has also permitted higher rates on deposits above a specified amount. RBI has also permitted the banks to formulate FD schemes specially meant for senior citizen with higher interest than normal. 2. Savings Account: Saving bank account is meant for the people who wish to save a part of their current income to meet their future needs and they can also earn in interest on their savings. The rate of interest payable on by the banks on deposits maintained in savings account is prescribed by RBI. Now-a-days the fixed deposit is also linked with saving account. Whenever there is excess of balance in saving account it will automatically transfer into Fixed deposit and if there is shortfall of funds in savings account, by issuing cheque the money is transferred from fixed deposit to saving account. Different banks give different name to this product.
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3. Current Account: A current account is an active and running account, which may be operated upon any number of times during a working day. There is no restriction on the number and the amount of withdrawals from a current account. Current account, suit the requirements of a big businessmen, joint stock companies, institutions, public authorities and public corporation etc. 4. Recurring Deposit: A variant of the saving bank a/c is the recurring deposit or cumulative deposit a/c introduced by banks in recent years. Here, a depositor is required to deposit an amount chosen by him. The rate of interest on the recurring deposit account is higher than as compared to the interest on the saving account. Banks open such accounts for periods ranging from 1 to 10 years. The recurring deposit account can be opened by any number of persons, more than one person jointly or severally, by a guardian in the name of a minor and even by a minor. 5. NRI Account: NRI accounts are maintained by banks in rupees as well as in foreign currency. Four types of Rupee account can be open in the names of NRI: a) Non Resident Rupee Ordinary Account (NRO) b) Non Resident External Account (NRE) c) Non Resident ( Non Repatriable Deposit Scheme ) ( NRNR) d) Non Resident ( special)Rupee Account Scheme ( NRSR) Apart from this, foreign currency account is the account in foreign currency. The account can be open normally in US Dollar, Pound Sterling, Euro. The accounts of NRIs are Indian millenium deposit, Resident foreign currency, housing finance scheme for NRI investment schemes.
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6. Corporate Salary Account: Corporate Salary account is a new product by certain private sector banks, foreign banks and recently by some public sector banks also. Under this account salary is deposited in the account of the employees by debiting the account of employer. The only thing required is the account number of the employees and the amount to be paid them as salary. In certain cases the minimum balance required is zero. All other facilities available in savings a/c is also available in corporate salary account. 7. Demat Account: Dematerialization is a process by which physical share certificates / securities are taken back by the company or registrar and destroyed ultimately. An equivalent number of shares are credited electronically to customers depository account. Just like saving/current account with a bank one can open a securities account with the depository through a depository participant 8. Kids Account (Minor Account): Children are invited as customer by certain banks. Under this, Account is opened in the name of kids by parents or guardians. The features of kids account are free personalized cheque book which can be used as a gift cheque , internet banking , investment services etc. 9. Senior Citizenship Scheme: Senior citizens can open an account and on that account they can get interest rate somewhat more than the normal rate of interest. This is due to some social responsibilities of banks towards aged persons whose earnings are mainly on the interest rate.
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2.7.2 B. LOANS AND ADVANCES: The main business of the banking company is lending of funds to the constituents, mainly traders, business and industrial enterprises. The major portion of a banks funds is employed by way of loans and advances, which is the most profitable employment of its funds. There are three main principles of bank lending that have been followed by the commercial banks and they are safety , liquidity, and profitability. Banks grant loans for different periods like short term, medium term, long term and also for different purpose. 1. Personal Loans: This is one of the major loans provided by the banks to the individuals. There the borrower can use for his/her personal purpose. This may be related to his/her business purpose. The amount of loan is depended on the income of the borrower and his/her capacity to repay the loan. 2. Housing Loans: NHB is the wholly own subsidiary of the RBI which control and regulate whole industry as per the guidance and information. The purpose of loan is mainly for purchase, extension, renovation, and land development. 3. Education Loans: Loans are given for education in country as well as abroad. 4. Vehicle Loans: Loans are given for purchase of scooter, auto-rickshaw, car, bikes etc. Low interest rates, increasing income levels of people are the factors for growth in this sector. Even for second hand car finance is available. 5. Professional Loans: Loans are given to doctor, C.A, Architect, Engineer or Management Consultant. Here the loan repayment is normally done in the form of equated monthly. 6. Consumer Durable Loans: Under this, loans are given for acquisition of T.V, Cell phones, A.C, Washing Machines, Fridge and other items.
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7. Loans against Shares and Securities: Finance against shares are given by banks for different uses. Now-a-days finance against shares are given mostly in demat shares. A margin of 50% is normally accepted by the bank on market value. For these loans the documents required are normally DP notes, letter of continuing security, pledge form, power of attorney. This loan can be used for business or personal purpose. 2.7.3 C. RETAIL BANKING SERVICES 1. CREDIT CARDS: A credit card is an instrument, which provides immediate credit facilities to its holder to avail a variety of goods and services at the merchant outlets. It is made of plastic and hence popularly called as Plastic Money. Such cards are issued by bank to persons with minimum income ranging between RS 50000 and RS 100000 per annum and are accepted by a variety of business establishments which are notified by the card issuing bank. Some banks insist on the cardholder being their customers while others do not. Few banks do not charge any fee for issuing credit cards while others impose an initial enrollment fee and annual fee also. If the amount is not paid within the time duration the bank charges a flat interest of 2.5%. Leading Indian Banks such as : SBI, BOB, Canara Bank, ICICI, HDFC and a few foreign banks like CITIBANK, Standard Chartered etc are the important issuers of credit card in India. 2. DEBIT CARDS: It is a new product introduced in India by Citibank a few years ago in association with MasterCard. A debit card facilitates purchases or payments by the cardholder .It debits money from the account of the cardholder during a transaction. This implies that the cardholder can spend only if his account permits.
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3. NET BANKING: This facilitates the customers to do all their banking operations from their home by using the internet facility. With Net Banking one can carry out all banking and shopping transactions safely and with total confidentiality. With Net Banking one can easily perform various functions: a) Check Account Balance b) Download Account Statement c) Request for a stop payment of a cheque. d) Request for a new cheque book. e) Access demat account f) Transfer funds. g) Facilitate bill Payments. h) Pay Credit Card dues instantly. 4. MOBILE BANKING: Using mobile banking facility one can a. Check Balance b. Check last three transactions. c. Request for a statement d. Request for a cheque book. e. Enquire on a cheque status. f. Instruct stock cheque payment. g. View FD details. h. Transfer funds. i. Pay Utility Bills. 5. PHONE BANKING: It helps to conduct a wide range of banking transactions from the comfort of ones home or office. Using phone banking facility one can:
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a. Check Balance b. Check last three transactions. c. Request for a cheque book. d. Transfer funds. e. Enquire on a cheque status, and much more. 6. ANYWHERE BANKING: One can deposit or withdraw cash from any branch of a particular bank all over the country up to a prescribed limit. One can also transfer funds. 7. AUTOMATED TELLER MACHINES (ATM): ATMs feature user-friendly graphic screens with easy to follow instructions. The ATMs interact with customers in their local language for increased convenience. ICICI Banks ATM network is one of the largest and most widespread ATM network in India. Following are the features available on ATMs which can be accessed from anywhere at any time: a. Cash Withdrawal b. Cash Deposit c. Balance Enquiry d. Cheque Book Request e. Transaction at various merchant establishments. 8. SMART CARD: The smart card, a latest additional to the world of banking and information technology has emerged as the largest volume driven end-product in the world due to its data portability, security and convenience. Smart Card is similar in size to todays plastic payment card; it has a memory chip embedded in it. The chip stores electronic data and programmes that are protected by advanced security features. When coupled with a reader, the smart card has the processing power to serve many different applications. As
an access-control device, smart cards make personal and business data available only to appropriate users. To ensure the confidentiality of all banking service, smart cards have mechanisms offering a high degree of security. These mechanisms are based on private and public key cryptography combined with a digital certificate, one of the most advanced security techniques currently available. Infact, it is possible to connect to the web banking service without a smart card.
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CHAPTER 3 FINANCIAL ANALYSIS

FINANCIAL STATEMENTS ANALYSIS OF UNION BANK OF INDIA 3.1Performance highlights
HEAD
Total Business Total Deposits CASA Total Advances Operating Profit Net Profit 3.2Operating Profits
% IN INCREASE YOY 23.47 19.18 27.67 29.90 32.53 35.97
Operating Profits for the quarter ended Jun'10 improved by 32.53% to Rs. 1043 crs from Rs. 787 crs in the previous year.
3.3Net Profits
Net Profit for Q1-11 has grown by 35.97% on YoY basis from Rs. 442 crore to Rs. 601 crore. The growth is over a growth of 93.86% recorded last year. Net Interest income growth of 64.87% is the main component of improving Net Profit growth. 3.4Net Interest Income
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3.5Net Interest Margin
The cost of Funds has come down from 6.02 in June 09 to 4.95 in June 2010 Yield on Funds has come down from 8.09 in June 2010 to 7.80 in June 2010 As a result NIM on Earning Assets has improved from 2.32 to 3.
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3.6 Deposits
o Total Deposits grew by 19.18% to Rs. 171484 crs. o CASA Deposits have increased by 27.67% to Rs 55845 crs. o CASA as % of Total Deposits has improved from 30.40% to 32.57% 3.7Cost to Income ratio
Cost to Income ratio had moderated upto 40.31% as of June 2008 from peak of 49.01% on implementation of operational efficiency measures.
The ratio was among the best in Industry as also among peer banks The ratio of 41.45% as of June'10 is marginally reflecting an upward bias mainly on account of the Bank gathering pace in capacity creation as part of its business plan. The Bank has created a visibility in market through marketing in print and electronic media which though added to its cost will generate income in the near term. 3.8Non-Performing assets
3.9Distribution Channels
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3.10Growth across key parameters
In the past one year, Added 374 ATMs to the network Issued 1.8 million debit cards (From 3.3mn - 5.1mn) Added over 1 lakh customers on internet banking facility Added over 8.5 lakh customers on SMS banking facility
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3.11Efficiency
Productivity measured by Business per employee increased from Rs. 805 lacs to Rs. 1004 lacs. Gross Profit per employee has increased from Rs. 11.31 lacs to Rs.15.12 lacs.
3.12 UBI EYES 25PC CREDIT GROWTH IN FY11
The state-owned Union Bank of India (UBI) said it is targeting a credit growth of at least 25 per cent in this fiscal. "In FY10, our credit growth was 22 per cent. This year our credit growth should be at least 25 per cent," UBI chairman and managing director MV Nair told reporters after announcing the fourth quarter results. The public sector lender has sought between Rs 1,200 and Rs 2,000 crore capital infusions from the government (from the World Bank fund) during this fiscal to strengthen its tier I capital base. "We have requested the government to sanction between Rs 1,200 and Rs 2,000 crore to strengthen our tier I capital base. We expect to get the amount by the month-end," Nair said. On expansion plan, he said UBI will open 290 new branches and 1,440 ATMs this fiscal. At present, the bank has 2,805 branches and 2,310 ATMs. On the NPA front, Nair said, "for the year ended March 2010, the bank's gross NPA was 2.20 per cent. We will endeavor to reign in our gross NPA below 2.10 per cent by March 2012."
"Our CASA (Current Account, Savings Account) deposits increased by 29.36 per cent to Rs 53,957 crore in the past fiscal up from Rs 41,711 crore a year-ago. We aim to up our CASA to at least 35 per cent by March 2012," he said. For the full year, the bank's net profit increased by 20.15 per cent to Rs 2,075 crore against Rs 1,727 crore in the previous fiscal, while operating profit jumped 18.72 per cent to Rs 3,659 crore for the year ending March from Rs 3,082 crore the previous year. Total income in FY10 stood at Rs 15,277 crore as against Rs 13,371 crore in the year-ago period. For the quarter ending March, its net profit increased 27.47 per cent to Rs 594 crore against Rs 466 crore over the same period last year, while total income rose to Rs 4,054 crore from Rs 3,849 crore. The board proposed a dividend of Rs 5.50 per share or 55 per cent per share for fiscal 2009-10.
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CHAPTER 4 RESEARCH METHODOLOGY

4.1 STATEMENT OF THE PROBLEM:
The retail banking encompasses deposit and assets linked products as well as other financial services offered to individual for personal consumption. In retail banking to stay in the market, all the banking needs of individual customers should be taken care in an integrated manner. Customer perception and there needs are most important factor in success of retail banking, the study enlists To analyze Customer Perception towards Retail Banking with special reference to Union Bank of India, Hampanakatta Branch, Mangalore.
4.2 THEORETICAL BACKGROUND OF THE STUDY:

Customer Perception is an important component of an organizations relationship with their customers. Customer satisfaction is a mental state which results from the customers comparison of expectations prior to a purchase with performance perception after a purchase. Strong customer service helps an organization to reach up to customers expectations. Customer Perception on Service: Customer Service is the service provided in support of a companys core products. Customer Service most often includes answering questions, taking orders, dealing with billing issues, handling complaints, and perhaps scheduling maintenance or repairs. Customer Service can occur on site, or it can occur over the phone or via the internet. Many companies operate customer service call centers, often staffed around the clock. Typically there is no charge for customer service. Quality customer service is essential to building customer relationships. It should not, however, be confused with the services provided for sale by a company. Services tend to be more intangible than manufactured products. There is a growing market for services and
increasing dominance of services in economies worldwide. There are generally two types of customer expectations. The highest can be termed as desired service: the level of service the customer hopes to receive. The threshold level of acceptable service which the customers will accept is adequate service. Yet there is hard evidence that consumers perceive lower quality of service overall and are less satisfied. Possible reasons may be: With more companies offering tiered service based on the calculated profitability of different market segments, many customers are in fact getting less service than they have in past. Increasing use by companies of self-service and technology-based service is perceived as less service because no human interaction or human personalization is provided. Technology-based services (Automated Voice Systems, Internet-Based Services, and Technology Kiosks) are hard to implement, and there are many failures and poorly designed systems in place. Customer expectations are higher because of the excellent service they receive from some companies. Thus they expect the same from all and are frequently disappointed. Organizations have cut costs to the extent that they are too lean and are too understaffed to provide quality service. The intensely competitive job market results in less skilled people working in frontline service jobs; talented workers soon get promoted or leave for better opportunities. Many companies give lip service to customer focus and service quality; but they fail to provide the training, compensation, and support needed to actually deliver quality service. Delivering consistent, high-quality service is not easy, yet many companies promise it.
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The gaps model positions the key concepts, strategies, and decisions in services marketing in a manner that begins with the customer and builds the organizations tasks around what is needed to close the gap between customer expectations and perceptions. The gaps model positions the key concepts, strategies, and decisions in services marketing in a manner that begins with the customer and builds the organizations tasks around what is needed to close the gap between customer expectations and perceptions. The central focus of the gaps model is the customer gap, the difference between customer expectations and perceptions. Firms need to close this gap- between what customers expect and receive in order to satisfy their customers and build long term relationships with them. To close this all important customer gap, the model suggests that four gapsthe provider gaps- need to be closed. The following four service provider gaps, shown below are the underlying causes behind the customer gap: Gap 1: Not knowing what customers expect. Gap 2: Not selecting the right service designs and standards. Gap 3: Not delivering to service standards. Gap 4: Not matching performance to promises.
4.3 LITERATURE REVIEW

Anil Dutta and Kirti Dutta in their paper reveal the expectations and perceptions of the consumers across the three banking sectors in India. The study revealed that gap varies across the banking sector with public sector banks showing the widest gap and foreign banks showing a narrow gap. It is important for the service providers to know the level of customer expectations so that they can meet and even exceed them to gain maximum customer satisfaction 1.
In the study of Mark Durkin et al., customer satisfaction questionnaire was issued to over 2,000 retail customers. Twenty-five senior branch bank managers were then asked to rank the same set of issues to ascertain what they felt to be the key influencers to customer registration for internet banking. The three factors that the managers failed to identify fell into two broad categories: relationship management status and comfort with new technology 2. The purpose of the paper by Aurto Molina is to investigate the impact of relational benefits on customer satisfaction in retailbanking. This paper presents a causal model that identifies a connection between the relational benefits achieved through a stable and long-term relationship with a given bank and customer satisfaction with retailbanking. Based on a theoretical framework regarding the relationship between relational benefits and customer satisfaction, an empirical study using a sample of 204 bank customers was conducted, and the theoretical model is tested. Multi-item indicators from prior studies were employed to measure the constructs of interest, and the proposed relationships were tested using structural equations modeling methods. The results show that confidence benefits have a direct, positive effect on the satisfaction of customers with their bank. However, special treatment benefits and social benefits did not have any significant effects on satisfaction in a retailbanking environment. The findings suggest that banks can create customer satisfaction through relational strategies that focus on building customer confidence. Therefore, frontline employees should be committed to establishing and maintaining confidence benefits for customers. Thus the study provides useful information on the relationship between customer satisfaction and specific relational benefits in retailbanking 3. The important change drivers in most European retailbanking systems are found to be competition and IT developments. Two broad strategic themes are explored. The first is the evolution of retailbanking in a strategic marketing context from a supply focus towards a much greater demand orientation. The second theme explored is the intensifying strategic imperative towards a shareholder value culture. The key features and strategic challenges of the `new' retailbanking revolution are finally summarized in the study of Gardener Edwar and Howcroft Barry 4.
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Due to increasing competition in retailbanking, understanding the customerperception about service quality is becoming indispensable. The private sector banks are posing a very stiff competition to the public sector banks through their initiatives for meeting customer expectations and gaining a cutting edge. This is reflected by the increasing market share and better profitability of private banks in comparison to that of public sector banks. At the same time, public sector banks have also responded to the challenges posed by the private sector banks through conscious efforts to enhance their service quality. This study (R.A.Ravi) compares public sector banks and private sector banks in terms of user perceptionof their retailbankingservices5.
In his article in Business Line T. B. Kapali, explains the perceived stability of the income stream from the retail business is probably the most important driver of the push into retail. Cross-country studies clearly point - increasing urbanization, rising income levels; all indicating that the demand for retail finance will continue to be very strong well into the future. ICICI or HDFC over the past few years does show the stability which has been imparted to the overall revenue stream by the retail business 6. In the age of consumerism, the customer is king. And the banking sector is latching on to this mantra of sales and marketing. Although the sector is part of the service industry, only recently have individual banks woken up to the fact that offering products and services tailored to meet the customers' specific needs can actually bring in more business. Banks today do much more than lend and borrow money. The new-age private sector banks can be said to be the forerunners in offering such customer-oriented service. Banks are even taking loans to the customers. Banks have also become a one-stop shop for selling products such as mutual funds, insurance and RBI bonds and offer service such as payment of utility bills and equity trading. Cross-selling also helps banks personalize products for their customers. For instance, banks give loans against insurance, or link deposit schemes to insurance, depending on customer needs. The banks are converting to the age of commoditized business i.e., Give the consumer a product and a reason to use it 7.
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The rapid and provocative changes facing the retail sector seems to vary somewhat from country to country, retail banks everywhere are working vigorously to address new technological, regulatory and competitive realities. Collectively, they are trying to determine strategies and tactics needed to secure their franchises and their futures. The bank of the future will not win by creating a single strategy. Rather, each of its activities within products, customer channels, and support services will be the subject of a discreet "business unit" strategy, which will be benchmarked against market-segmented customer demand and profitability, and competitors' businesses in this area 8. The above studies show that retail banking business will continue to be very strong, well into the future. The increasing competition is compelling the service providers to know the level of customer expectations and meet them. The studies also suggest that the bank of the future will not win by creating a single strategy but focus on building customer confidence, knowing there perception, needs and extensive online services. The present study looks into understanding the customers perception towards the retail banking and also their awareness regarding the various retail banking services.
4.4OBJECTIVES OF THE STUDY 4.4.1 PRIMARY OBJECTIVE

The basic and primary objective of the study is to know the customer perception towards retail banking. 4.4.2 SECONDARY OBJECTIVES 1. bank. 2. To analyze the effectiveness of retail banking. To understand the customers perception on the service delivery of the
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4.5 SCOPE OF THE STUDY

The study deals with the analyze perception of customers towards retail banking and is carried out at Union Bank of India, Hampanakatta branch, Mangalore and study is constrained to 300 customers only.
4.6 DATA COLLECTION:

4.6.1 Primary Data: The primary data was collected by means of a survey. Questionnaire was prepared and customers of the bank were approached to fill up the questionnaire. The filled up information was later analyzed to obtain the required information. 4.6.2 Secondary Data: In order to have a proper understanding of the sector of Retail Banking, an in depth study was done from the various books, magazines, journals and articles written on the subject. Information was also taken from the internet related to industry, company, competitors, etc.
4.7 SAMPLING:
4.7.1 POPULATION: Customers of Union Bank of India Hampanakatta, Mangalore. 4.7.2 SAMPLING UNIT:Daily Customers who are visiting to the bank. 4.7.3 SAMPLING METHOD: o Convenience Sampling: Convenience sampling is a non-probability sampling technique where subjects are selected because of their convenient accessibility and proximity to the researcher. It is Useful when researcher is unable to access a wider population, for example due to time or cost constraints. Researchers use convenience sampling not just because it is easy to use, but because it also has other research advantages. This sampling technique is also useful in documenting that a particular quality of a substance or phenomenon occurs within a given sample. Such studies are also very useful for detecting relationships among different phenomena. Sample size: Sampling size of the study is 10% of total customer I.e. 300.
4.8 STATISTICAL TECHNIQUES USED AND ITS RELEVANCE:

Bar charts and pie chart: Bar Charts, like pie charts, are useful for comparing classes or groups of data. In bar charts, a class or group can have a single category of data, or they can be broken down further into multiple categories for greater depth of analysis. Cross tabs: Crosstabs is an SPSS procedure that cross-tabulates two variables, thus displaying their relationship in tabular form. In contrast to Frequencies, which summarizes information about one variable, Crosstabs generates information about bivariate relationships. Crosstabs creates a table that contains a cell for every combination of categories in the two variables. Inside each cell is the number of cases that fit that particular combination of responses. SPSS can also report the row, column, and total percentages for each cell of the table. Crosstabs creates a row for each value in one variable and a column for each value in the other, the procedure is not suitable for continuous variables that assume many values. Crosstabs is designed for discrete variables--usually those measured on nominal or ordinal scales.
4.9 LIMITATIONS OF THE STUDY:
The data from the sample may not reflect the universe; since it is restricted only to the area Hampanakatta, Mangalore and only 300 customers. There were also time limitations. As the topic is wide, all matters regarding the study could not be analyzed.
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CHAPTER 5 DATA ANALYSIS

Frequency Table Fig 5.1 Demographic details of the respondents Frequency 21 - 30 Years 31 - 40 Years 41 - 50 Years Above 51 Years Total 118 113 43 26 300 Percent 39.3 37.7 14.3 8.7 100.0
Interpretation: From the above data, it is observed that 39.3% of the respondents are belonging to the age category of 21-30 yrs. and 37.7% are belongs to the age category of 31-40 yrs. So it is concluded that the majority of the respondents fall under this category.
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Frequency Table Fig 5.2 Gender ratio of the respondent's Frequency Male 261 Percent 87.0 13.0 100.0
Female 39 Total 300
Interpretation: From the data it is observed that 87% of the respondents are males. So, it is concluded that the majority of the respondents are males.
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Frequency Table Fig 5.3 Education details of the respondents Frequency School UG PG Total 138 153 9 300 Percent 46.0 51.0 3.0 100.0
Interpretation: From the above data, it is observed that 51% of the respondents are graduated whereas 46% have school education; the remaining 3% being post graduated.
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Frequency Table Fig 5.4 Occupation details of the respondents
Frequency Student Job holder Business Pensioner House wife Total 39 130 97 12 22 300
Percent 13.0 43.3 32.3 4.0 7.3 100.0
Interpretation: From the above data, it is observed that 43.3% of the respondents are in job holders while only 4% are pensioner. So it is concluded that the majority of the respondents fall under the job holder category.
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Frequency Table Fig 5.5 Income details of the respondents
Frequency 5000 15000 15001 25000 25001 - 35000 Above 35000 Total 122 127 36 15 300
Percent 40.7 42.3 12.0 5.0 100.0
Interpretation: From the above data, it is observed that 42.3% of the respondents are belonging to the income category of Rs.15001- 25000p.m. So it is concluded that the majority of the respondents fall under the middle level income category.
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Frequency Table Fig 5.6 Number of years the respondents has been associated with Bank
Frequency < 1 Year 1 - 5 Years 6 - 10 Years > 10 Years Total 40 167 59 34 300
Percent 13.3 55.7 19.7 11.3 100.0
Interpretation: The above data shows that 55.7% of the respondents are associated with the bank from last 1-5 years.
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Frequency Table Fig 5.7 Accounts the respondents have with the bank
Frequency Percent Savings A/C Current A/C NRI A/C Total 237 43 20 300 79.0 14.3 6.7 100.0
Interpretation: The above data makes it very clear that only very few (6.7%) customers have NRI account from the bank and most (79%) of them are having savings account.
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Frequency Table Fig 5.8 Rating with regard to speed, accuracy & promptness in transaction
Frequency Percent Excellent 46 15.3 40.3 40.7 2.7 1.0 100.0
Very Good 121 Good Average Poor Total 122 8 3 300
Interpretation: The above data shows that 40.7% of the respondents have rated the speed, accuracy & promptness in transaction they receive from the banks personnel is good and thus it is interpreted that the service of the bank is good.
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Frequency Table Fig 5.9 Type of loan taken by respondents Frequency Gold loan Education loan Personal loan House loan Vehicle loan Others Total 5 4 7 31 15 7 69 Percent 7.2 5.8 10.1 44.9 21.7 10.1 100.0
Interpretation: There are only 69 respondents have taken loan, out of that 44.9% of them are availed housing loan and the least is education loan (5.8%).
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Frequency Table Fig 5.10 Attribute consider by respondents to choose a bank for loan Frequency Interest offered Security Demanded Efficient customer service Repayment period Total 224 22 42 10 298 Percent 75.2 7.4 14.1 3.4 100.0
Interpretation: The above data shows that 75.2% of the respondents will consider the interest rate charged by banks before going for loans.
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Frequency Table Fig 5.11 Rating the interest rates currently being offered by the bank
Frequency Very good Good Average Poor Total 6 67 87 12 172
Percent 3.5 39.0 50.6 7.0 100.0
Interpretation: The above data shows that 50.6% of the respondents are not satisfied by the interest rate currently being charged by the bank.
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Frequency Table Fig 5.12 Rating with regard to the Debit & Credit card services Frequency Excellent Very good Good Average Total 13 58 193 35 299 Percent 4.3 19.4 64.5 11.7 100.0
Interpretation: The above data shows that 64.5% of the respondents are rating the debit and credit card services are good. So it can be concluded that the customers are satisfied with this service.
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Frequency Table Fig 5.13 Rating with regard to quality of the banks ATM services Frequency Excellent Very good Good Average Poor Total 27 100 143 23 2 295 Percent 9.2 33.9 48.5 7.8 .7 100.0
Interpretation: The above data shows that 48.5% of the respondents are rated the quality of the banks ATM services are good. So it can be concluded that the customers are satisfied with theATM service.
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Frequency Table Fig 5.14 Rating with regard to quality of the Internet banking services Frequency Excellent Very good Good Average Poor Total 19 60 90 9 1 179 Percent 10.6 33.5 50.3 5.0 .6 100.0
Interpretation: The above data shows that 50.3% of the respondents are rated the quality of the banks internet banking services are good. So it can be concluded that the customers are satisfied with theE-banking service.
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Frequency Table Fig 5.15 Internet banking lowers the transaction cost, saves money & time
Frequency Strongly Disagree 5 Neutral Agree Strongly Agree Total 18 122 30 175
Percent 2.9 10.3 69.7 17.1 100.0
Interpretation: The above data shows that 69.7% of the respondents are agree that internet banking lowers the transaction cost, saves lot of money and time.
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Frequency Table Fig 5.16 Mobile banking helps to get alerts like deposits, withdrawal etc. Frequency Strongly Disagree 32 Disagree Neutral Agree Strongly Agree Total 37 68 24 3 164 Valid Percent 19.5 22.6 41.5 14.6 1.8 100.0
Interpretation: The above data shows that 41.5% of the respondents are neutral about the statement mobile banking helps them to get regular alerts like deposits, withdrawal etc. So the customers are not happy with the mobile banking.
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Frequency Table Fig 5.17 Rating with regard to quality of the Mobile banking services Frequency Excellent Very good Good Average Poor Total 4 5 49 89 17 164 Percent 2.4 3.0 29.9 54.3 10.4 100.0
Interpretation: The above data shows that 54.3% of the respondents are rated the quality of the banks internet banking services is average. So it can be concluded that the customers are dissatisfied with the mobile banking service.
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Frequency Table Fig 5.18 Differentiation of Union bank service with other banks
Frequency Interest rate/Profit Convenience Cost of the bank Service Total 18 83 19 180 300
Percent 6.0 27.7 6.3 60.0 100.0
Interpretation: The data shows that 60% of the customers are differentiating the Bank with other banks with regards to service given by bank.
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Frequency Table Fig 5.19 Rating of Bank with regard to retail banking Frequency Excellent Very good Good Average Poor Total 69 162 52 12 5 300 Percent 23.0 54.0 17.3 4.0 1.7 100.0
Interpretation: The data shows that 54% of the customers are rated that the retail banking of the Union bank is very good, it intercept that most of the customers are satisfied by the bank service.
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CROSS TABULATION Fig 5.20 Type of loan taken by respondent's * Income details of the respondents Cross tabulation Count Income details of the respondents 5000 15000 Type of loan taken Gold loan by respondent's Education loan Personal loan House loan Vehicle loan Others Total 1 4 0 9 7 2 23 15001 25000 2 0 5 15 5 3 30 - 25001 35000 0 0 1 4 1 1 7 - Above 35000 2 0 1 3 2 1 9 5 4 7 31 15 7 69 Total
Interpretation: The above data reveals that more than half of the respondentswho are taken loan falls under the income in between 5000-15000 and 1500-25000 I.e. lower middle and middle class people.
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Fig 5.21 Rating with regard to quality of the Internet banking services * Occupation details of the respondents Cross tabulation
Count Occupation details of the respondents Student Job holder Rating with regard to Excellent quality of the Internet Very good banking services Good Average Poor Total 34 2 11 20 1 0 84 17 27 36 4 0 45 0 16 26 2 1 8 0 3 4 1 0 8 Business Pensioner House wife 0 3 4 1 0 19 60 90 9 1 179 Total
Interpretation: The above data reveals that most of the respondents who are using internet banking are job holders and business people.
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CHAPTER 6 SUMMARY OF FINDINGS

SUMMARY OF FINDINGS 39.3% of the respondents fall under the age category of 21-30 years. 87% of the respondents are male. 51% of the respondents are graduates. 43% of the respondents are job holders, followed by 32% of business people. 42% of the respondents have Rs. 15000- 25000 as their income level per month. 55.7% of the respondents are associated with the bank from the past 1-5 years. Only 6.7% of the respondents have NRI accounts, whereas 79% have savings accounts. 40.7% of the respondents have rated the speed, accuracy & promptness in transaction they receive from the banks personnel is good. There are only few respondents have taken loan, out of that 44.9% of them are availed housing loan and the least is education loan (5.8%). 75.2% of the respondents will consider the interest rate charged by banks before going for availing loans. 50.6% of the respondents not happy with the current interest rate charged by the bank for the loans. 64.5% of the respondents are satisfied with debit and credit card services of bank. 48.5% of the respondents are rated the quality of the banks ATM services are good. 50.3% of the respondents are happy with the quality of the banks internet banking services are. 69.7% of the respondents are agreeing that internet banking lowers the transaction cost, saves lot of money and time.
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41.5% of the respondents are neutral about the statement mobile banking helps them to get regular alerts like deposits, withdrawal etc. 54.3% of the respondents are rated the quality of the banks mobile banking services is not satisfactory. 60% of the customers are differentiating the Bank with other banks with regards to excellent service given by bank. 54% of the customers are rated that the retail banking of the Union bank is very good, it intercept that most of the customers are satisfied by the bank service.
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CHAPTER 7 Suggestions, Conclusion and Future Line of Research

SUGGESTIONS
50.6% of the respondents felt that the interest rates on loan were high and hence the interest rates may be reduced to attract more customers. Since a large number of the respondents are unaware of the services provided through internet, mobile banking; initiatives, such as posting a list of services that are rendered to the customers inside the bank premises, demo of the services in the bank website; can be done to make the customers aware. 54.3% of the respondents are not satisfied by the quality of the banks mobile banking services so the bank can take some measures to improve mobile banking service. The bank can introduce some more number of ATMs to avoid customer inconvenience. The bank can go for more creative and innovative retail products to take competitive advantage over other banks. Most of the internet users are business people and job holders, so bank can give some offers and better service to these customers to retain them for long term. In the bank premises the customers are confused about the counters. The bank authority should name the particular counters properly.
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CONCLUSION Customers always look for more user- friendly products and better interest rates when compared to other banks they have account with, so, through product innovation and competitive pricing strategy the bank can foster business relationship with its customers. In the field of retail banking innovative products matters a lot to gain more customers. The customer gap can be minimized by better technology, customer service and also by creating awareness about the various services; thereby increasing the customer base. So as to retain the existing customers and to build up customer loyalty, Customer Relationship Management should be given more importance.
SCOPE FOR FURTHER RESEARCH

There is a wide scope to extend this study in the future. Future researchers may continue the study by taking number of private or public sector banks, to bring about the potential of retail banking industry.
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BIBLIOGRAPHY
BOOKS:
MAGAZINES: Dr. Ashish Srivastava (March 2010) Mobile Phone Banking, Professional Banker pp 11-16 Ramasundaram G, Sakthivel Murugan M, Ramachandra Aryasri Retail Banking In India Factors Underlining Consumer Behaviour, The IAMS Journal of Business Spectrum, Vol. 11 No. 2 pp 30-38
WEBSITES:
1. http://business.mapsofindia.com/banks-in-india/ubi.html Last accessed on 11/06/2010 2. http://webcache.googleusercontent.com/search?q=cache:http://www.scribd.com/d oc/15827 Last accessed on 11/06/2010 3. 198/Indian-Banking-SectorSWOT Last accessed on 11/06/2010 4. http://www.scribd.com/swapnilimpact Last accessed on 11/06/2010 5. http://www.managementparadise.com/forums/strategic-management-banking insurance/52883-swot-analysis-indian-banking-sector.html Last accessed on 11/06/2010 6. http://www.equitymaster.com/research-it/rr/index.asp?symbol=UNBK Last accessed on 11/06/2010 7. http://www.docstoc.com/docs/1021354/Banking-Industry-Analysis (imp) Last accessed on 12/06/2010 8. http://www.wikinvest.com/stock/Union_Bank_of_India_(BOM:532477) Last accessed on 12/06/2010
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19. http://www.google.co.in/url?sa=t&source=web&cd=3&ved=0CCIQFjAC&url=http %3A%2F%2Fwww.scribd.com%2Fdoc%2F18544537%2FA-Study-on-CustomerPerception-in-Banking-Industry-Using-GapAnalysis&ei=ZnI0TOSyIIqUrAf27PD2Bg&usg=AFQjCNENyJPKKAPHax3Y3Gcu25bu_ paJPA Last accessed on 20/06/2010 20. http://www.google.co.in/url?sa=t&source=web&cd=2&ved=0CCIQFjAB&url=http %3A%2F%2Fwww.scribd.com%2Fdoc%2F13282604%2FCustomer-PerceptionTowardsInternetBanking&ei=03Q0TK6yC4ixrAej58z2Bg&usg=AFQjCNFGgRyxhBI3GMT8Ee Za6XRWT6vQbA Last accessed on 20/06/2010
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ANNEXURE 1
QUESTIONNAIRE
I will be thankful to the respondents, if you will spare 4-5 minutes from your valuable time to answer this questionnaire, which will help, the Union Bank of India to reach up to your expectations in Retail Banking and also finish my project towards the partial fulfillment of MBA Degree. The information provided by you will be strictly kept confidential and use only for academic purpose.
Yours faithfully Harshavardhan.D MBA
A) PERSONAL DETAILS
1. Name: ______________________________________
2.
Age:
20-30 years
30-40 years
40-50 years
Above 50 years
3.
Gender:
Male
Female
4.
Educational Qualification:
School
UG
PG
5.
Occupation:
Student Pensioner
Job holder House-wife
Business
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6. Income Level monthly: Rs. 5000 Rs.15000 Rs. 25001- Rs. 35000
Rs. 15001- Rs 25000 Above Rs. 35000
B) RESEARCH RELATED DATA
1.
For how long are you associated with the Union Bank? 1 5 Years 6 10 Years
Less than a year
More than 10 years
2.
In Union Bank of India, you have:
Savings A/c NRI account
Current A/c Demat account
3. Are you happy with the speed, accuracy, and promptness in transaction?
Excellent
Very Good
Good
Average
Poor
4. Which Retail loan you have taken from UBI?
Gold Loan Personal Loan Vehicle Loan
Educational Loan House Loan Others
5. Which attribute you consider to choose a bank before going for a bank loan?
Interest rates offered Security demanded Efficient Customer Service Repayment Period
6. How do you rate the interest rate of retail loans provided by UBI?
Excellent
Very Good
Good
Average
Poor
7.
How do you rate the Union Bank of India With regard to the Debit&Credit card services offered by the bank?
Excellent
Very Good
Good
Average
Poor
8.
How do you rate Union Banks ATM services when compared to its competitors?
Excellent
Very Good
Good
Average
Poor
9. How do you rate Union Banks Internet banking services when compared to its competitors?
Excellent
Very Good
Good
Average
Poor
10. Internet banking lowers transaction costs, saves time and money.
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
11. Is the Mobile Banking helps you to get alerts like Deposit maturing soon, loan repayment alert, minimum balance alert etc...
Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree
Page 92
12. How do you rate Union Banks Mobile banking services?
Excellent
Very Good
Good
Average
Poor
13. How do you differentiate Union bank services with other bank? (tick any one)
Interest rate/ profit Convenience Cost of banking Service
14. How do you rate UBI when compared to other banks in the field of retail banking?
Excellent Average
Very Good Poor
Good
15. Please recommend a retail product, not currently available, which if offered, will be readily availed by you. __________________________________________________________________
Page 93
ANNEXURE 2
Financial Statement
BALANCE SHEET
Mar ' 10 Sources of funds Owner's fund Equity share capital Share application money Preference share capital Reserves & surplus Loan funds Secured loans Unsecured loans Total Uses of funds Fixed assets Gross block Less : revaluation reserve Less : accumulated depreciation Net block Capital work-in-progress Investments Net current assets Current assets, loans & advances Less : current liabilities & provisions Total net current assets Miscellaneous expenses not written Total Notes: Book value of unquoted investments Market value of quoted investments Contingent liabilities Number of equity shares outstanding (Lacs) Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
505.12 8,302.69
505.12 6,549.26
505.12 5,118.19
505.12 4,228.16
505.12 3,587.36
1,70,039.74 1,38,702.83 1,03,858.65 85,180.22 74,094.30 1,78,847.55 1,45,757.21 1,09,481.95 89,913.50 78,186.78
3,396.98 1,615.97 1,101.50 679.51 9.96 54,403.53
3,220.65 1,685.98 893.35 641.32 7.86 42,996.96
2,937.45 1,724.40 741.62 471.44 4.57 33,822.63
1,487.21 456.59 664.49
1,382.03 465.68 587.17
366.13 329.18 2.28 15.56 27,981.77 25,917.65
3,360.89 5,483.01 -2,122.13 52,970.87
3,124.23 9,647.43 -6,523.20 37,122.94
3,604.10 8,106.43 -4,502.33 29,796.31
3,058.24 8,092.26 -5,034.02 -
2,627.50 6,499.18 -3,871.69 -
23,316.16 22,390.71
76,903.26 5051.18
85,639.94 5051.18
65,693.83 5051.18
43,431.98 44,623.75 5051.18 5051.18
Page 94
Profit loss account

Mar ' 10
Income Operating income Expenses Material consumed Manufacturing expenses Personnel expenses Selling expenses Administrative expenses Expenses capitalized Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciation Other write offs Adjusted PBT Tax charges Adjusted PAT Nonrecurring items Other non-cash adjustments Reported net profit Earnings before appropriation Equity dividend Preference dividend Dividend tax Retained earnings
Mar ' 09 12,901.70 1,152.36 132.63 1,339.02 2,624.01 2,201.88 499.99 2,701.87 8,075.81 136.58 2,565.28 630.00 1,717.31 9.24 1,726.55 1,727.20 252.56 42.92 1,431.72
Mar ' 08 10,123.58 845.68 34.49 1,196.21 2,076.39 1,686.24 380.99 2,067.23 6,360.95 101.82 1,965.41 487.15 1,387.32 -0.29 1,387.03 1,387.51 202.05 34.34 1,151.13
Mar ' 07 7,691.41 873.80 19.55 826.21 1,719.56 1,379.89 261.61 1,641.50 4,591.96 86.37 1,555.13 535.00 845.78 -0.39 845.39 845.94 176.79 27.80 641.35
Mar ' 06 6,259.34 866.91 20.34 584.77 1,472.02 1,297.89 161.24 1,459.13 3,489.42 86.13 1,373.00 219.45 674.27 0.91 675.18 716.17 176.79 24.79 514.59
14,667.24 1,354.99 38.98 1,652.65 3,046.62 2,510.35 728.16 3,238.51 9,110.27 160.14 3,078.37 758.00 2,075.56 -0.64 2,074.92 2,075.75 277.81 47.21 1,750.72
CASH FLOW
Profit before tax Net cash flow-operating activity Net cash used in investing activity Net cash used in fin. activity Net inc/dec in cash and equivalent Cash and equivalent begin of year Cash and equivalent end of year Mar ' 10 -505.07 -200.43 497.26 -208.24 15,984.93 15,776.69 Mar ' 09 5,599.13 -309.76 597.72 5,887.09 10,097.84 15,984.93 Mar ' 08 1,930.64 -209.32 -49.92 1,671.40 8,426.44 10,097.84 Mar ' 07 1,956.28 -101.33 180.98 2,035.93 6,390.51 8,426.44 Mar ' 06 -1,124.99 -53.87 997.41 -181.45 6,571.97 6,390.52
Page 95
RATIOS
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07
Per share ratios
Mar ' 06 13.35 15.05 13.37 15.07 3.50 25.69 81.02 90.24 123.92 26.15 20.73 19.35 10.51 11.84 16.47 16.49 107.10 18.10 5.23 4.57 0.40 0.03 9.29 29.85 26.47 70.11 73.49 97.44 1.42 1.22 0.32 0.90 -
Adjusted EPS (Rs) Adjusted cash EPS (Rs) Reported EPS (Rs) Reported cash EPS (Rs) Dividend per share Operating profit per share (Rs) Book value (excl rev res) per share (Rs) Book value (incl rev res) per share (Rs.) Net operating income per share (Rs) Free reserves per share (Rs)
Profitability ratios
41.09 44.26 41.08 44.25 5.50 49.70 174.37 206.36 290.37 58.38 17.11 16.02 13.47 14.52 23.56 23.55 135.60 19.31 4.92 4.34 0.61 0.01 24.65 15.66 14.54 84.35 85.47 76.06 1.36 1.25 0.26 0.94 -
34.00 36.70 34.18 36.89 5.00 43.59 1.07 1.08 255.42 47.04 17.06 16.00 12.88 13.83 24.34 24.47 147.75 19.66 4.83 4.04 0.32 0.02 11.26 17.11 15.85 82.80 84.07 74.82 1.33 1.23 1.02 0.93 -
27.47 29.48 27.46 29.48 4.00 33.38 111.33 145.47 200.42 41.91 16.65 15.65 13.20 14.17 24.67 24.66 146.45 18.47 5.13 3.45 0.44 0.03 10.78 17.04 15.87 82.97 84.13 69.74 1.32 1.23 0.34 0.90 -
16.74 18.45 16.74 18.45 3.50 27.32 93.71 102.75 152.27 41.33 17.94 16.81 10.62 11.72 17.86 17.86 126.18 18.00 5.26 5.19 0.37 0.03 8.82 24.20 21.95 75.82 78.06 91.38 1.36 1.20 0.25 0.90 -
Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted cash margin (%) Adjusted return on net worth (%) Reported return on net worth (%) Return on long term funds (%)
Leverage ratios
Long term debt / Equity Total debt/equity Owners fund as % of total source Fixed assets turnover ratio
Liquidity ratios
Current ratio Current ratio (inc. st loans) Quick ratio Inventory turnover ratio
Payout ratios
Dividend payout ratio (net profit) Dividend payout ratio (cash profit) Earning retention ratio Cash earnings retention ratio
Coverage ratios
Adjusted cash flow time total debt Financial charges coverage ratio Fin. charges cov.ratio (post tax)
Component ratios
Material cost component (% earnings) Selling cost Component Exports as percent of total sales Import comp. in raw mat. consumed Long term assets / total Assets Bonus component in equity capital (%)
Page 96

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CHAPTER 1 INTRODUCTION

1. INDUSTRY ANALYSIS 1.1 INTRODCTION OF BANKING INDUSTRY

Aloysius Institute of Management and Information Technology

1.2INDIAN BANKING SCENARIO

1.3CHANGES IN THE STRUCTURE OF BANKS

Aloysius Institute of Management and Information Technology

factor for the consolidation in the structure of these banks.

Aloysius Institute of Management and Information Technology

a. Restructuring of the system of bank inspections

Aloysius Institute of Management and Information Technology

The specific aims of financial regulators are usually:

1.6Major players in the Banking Industry

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

1.7Profit Comparison of Different Banks

2.97% 2.90% 3.45% 2.42%

30.07 35.17 % 54.57

14.35 24.07% 30.27

10.09 32.98 % 16.59

15.65 26.77% 29.59

12.99% 25.69% 21.17% 25.47% 20.46% 72.43 37.65 138.11 40.06

1.25% 0.89% 1.64% 0.92% 0.52% 0.47% 0.24% 0.84%

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

1.10REGULATORY AND LEGAL ENVIRONMENT

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

1.11SWOT ANALYSIS OF INDIAN BANKING INDUSTRY IN INDIA

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

1.12PORTERS FIVE FORCES FRAMEWORK (PFFF)

1.13.1 RATIONALE OF THE PORTERS FIVE FORCES MODEL IN THE

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

1.13.2 ORGANISATIONAL STRUCTURE

Aloysius Institute of Management and Information Technology

1.13.4 BUSINESS AND FINANCIAL METRICS OF UNION BANK OF INDIA

2007 73.82 8.42 82.24 42.50% 8.45 72.68% 1.0% 0.90%

2008 94.47 12.33 106.80 38.17% 13.87 72.33% 0.15% 1.26%

2009 118.89 14.83 133.72 41.81% 17.27 70.45% 0.34% 1.27%

1,026.78 1,240.73 1,609.76

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

1.13.8 Share Holding Pattern Union Bank of India holding pattern

Percentage 55.43% 15.92% 14.53% 14.12%

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CHAPTER 2 PRODUCT AND SERVICE MARKET

2.1 RETAIL BANKING

multiple products (deposits, credit cards, insurance, investments and securities);

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology

Aloysius Institute of Management and Information Technology