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Commercial banking
 

Commercial banking

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    Commercial banking Commercial banking Document Transcript

    • TYBBI Commercial Banking EXECUTIVE SUMMARY Commercial banks occupy a dominant place in the money market. They, as a matter of fact, form the largest component in the banking structure of any country. They are the oldest, largest and fastest growing financial institutions in India. They are profit making institutions, dealing in money and credit. Commercial banks play a major role in the growth and development of the country due to the modern organization and functioning, huge funds and wide network all over the country. Thus, they are like a reservoir into which flow the savings, the idle surplus money of households and from which loans are given on interest to businessmen and others who need them for investment or productive uses. Commercial banks are very important source of institutional credit as they are the major depository of people’s savings. They are very important devices for providing short term credit to trade and commerce. Commercial Banks being repositories of deposits have played significant role in garnering savings of the people particularly after the nationalization. Thus, they have made praiseworthy efforts in pooling the savings.  Rationale of the study The Rationale of the study can be considered as follows:-  The study includes essential core topics.  It aims at giving a thorough grounding on the subject.  The study is comprehensive.  It helps to improve the research and investigation ability. Shri Chinai College 1
    • TYBBI Commercial Banking  It enables to think logically and practically  Hypothesis: The hypothesis being put forth for this study about Commercial banking is that awareness of Commercial banks is 100%, but there are still many people who do not know about the Commercial banks and the amenities provided by them. Commercial banks are coming up with new innovative ideas and schemes for increasing their customer base and fulfilling the needs of the general public.  Research Methodology: The research methodology is data collection through:- • PRIMARY SOURCES • SECONDARY SOURCES Primary Sources: Survey by distributing questionnaire to the people taking sample size of 100, Interviews conducted with bankers; accumulating knowledge and help from friends, professors, etc. Secondary Sources: Gathering data through books, journals, magazines, websites, newspapers, etc.  Expected Contribution Expectations from the study are that it may contribute to the real scenario of commercial banking demand and accordingly the banks can go for new innovative schemes. It will also specify some recommendations and based Shri Chinai College 2
    • TYBBI Commercial Banking on that banks can make suitable arrangements in a particular sector. It will also make people aware about Commercial banking. Shri Chinai College 3
    • TYBBI Commercial Banking  Introduction of banking : anking, in its crude form, is an age-old phenomenon. It was in existence even in ancient times, too. It is the business of providing financial services to consumers and businesses. They are the single major source of institutional finance in the country. B According to Section 5 (c) of the Banking Regulation Act, 1949 - “Banking company means any company which transacts the business of banking in India”. Section 5 (b) of the act defines banking as accepting for the purpose of lending or investment of deposits of money fro the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise. Banking services also serve two primary purposes. First, by supplying customers with the basic mediums-of-exchange (cash, checking accounts, and credit cards), banks play a key role in the way goods and services are purchased. Without these familiar methods of payment, goods could only be exchanged by barter (trading one good for another), which is extremely time-consuming and inefficient. Second, by accepting money deposits from savers and then lending the money to borrowers, banks encourage the flow of money to productive use and investments. This in turn allows the economy to grow. Without this flow, savings would sit idle in someone’s safe or pocket, money would not be available to borrow, people would not be able to purchase cars or houses, and businesses would not be able to build new factories the economy needs to produce more goods and grow. Enabling the flow of money from savers to investors is called Shri Chinai College 4
    • TYBBI Commercial Banking financial intermediation, and thus, banking is extremely important to a free market economy.  Origin and Evolution of Indian Banking Opinions differ as to the origin of the work "Banking". The word "Bank" is said to be of Germanic origin, cognate with the French word "Banque" and the Italian word "Banca", both meaning "bench". It is surmised that the word would have drawn its meaning from the practice of the Jewish money-changers of Lombardy, a district in North Italy, who in the middle ages used to do their business sitting on a bench in the market place. Again, the etymological origin of the word gains further relevance from the derivation of the word "Bankrupt" from the French word "Banque route" and the Italian word "Banca-rotta" meaning "Broken bench" due probably to the then prevalent practice of breaking the bench of the money- changer, when he failed. Banking is different from money-lending but two terms have in practice been taken to convey the same meaning. Banking has two important functions to perform, one of accepting deposits and other of lending monies and/or investment of funds. It follows from the above that the rates of interest allowed on deposits and charged on advances must be known and reasonable. The money-lender advances money out of his own private wealth hardly accepts deposits and usually charges high rates of interest. More often, the rates of interest relate to the needs of the borrower. Money- lending was practiced in all countries including India, much earlier than the recent type of Banking came on scene. Shri Chinai College 5
    • TYBBI Commercial Banking  Significance of Banks The importance of a bank to modern economy, so as to enable them to develop, can be stated as follows: (i) The banks collect the savings of those people who can save and allocate them to those who need it. These savings would have remained idle due to ignorance of the people and due to the fact that they were in scattered and oddly small quantities. But banks collect them and divide them in the portions as required by the different investors. (ii) Banks preserve the financial resources of the country & it is expected that they allocate them appropriately in the suitable & desirable manner. (iii) They make available the means for sending funds from one place to another and do this in cheap, safe and convenient manner. (iv) Banks arrange for payments by cheques, order or bearer, crossed and uncrossed, which is the easiest and most convenient. Besides they also care for making such payments as safe as possible. (v) Banks also help their customers, in the task of preserving their precious possessions intact and safe. To advance money, the basis of modern industry and economy and essential for financing the developmental process, is governed by banks. (vii) It makes the monetary system elastic. Such elasticity is greatly desired in the present economy, where the phase of economy goes on changing and with such changes, demand for money is required. It is quite proper and convenient for the government and R.B.I. to change its currency and credit policy frequently, This is done by RBI, by changing the supply of money with the changing needs of the public. Shri Chinai College 6
    • TYBBI Commercial Banking Although traditionally, the main business of banks is acceptance of deposits and lending, the banks have now spread their wings far and wide into many allied and even unrelated activities.  Structure of Banking System At present, the organized banking system in India can be broadly divided into three categories: i) The Central Bank of the country, the Reserve Bank of India ii) The Commercial Banks iii) The Cooperative Banks. The RBI is the apex monetary and banking authority in the country and has the responsibility to control the banking system in India. Commercial banks play a major role in the growth and development of the country. They mobilize savings and make them available to large and small industrial enterprise and traders for working capital requirements. After 1969, commercial banks are broadly classified into nationalized or public sector banks and private sector banks. The SBI and its associate banks along with another 20 banks are the public sector banks. The private sector banks include Indian scheduled banks which have not been nationalized and branches of foreign banks operating in India. The Regional Rural Banks came into existence since the middle of 1970s with the specific objective of providing credit and deposits facilities to the small and marginal farmers, agricultural labourers and artisans and small entrepreneurs. Shri Chinai College 7
    • TYBBI Commercial Banking  Banking in India Banking in India act as a connected link between the borrowers and lenders of money. The banks main activity should be to do the business of banking Shri Chinai College 8
    • TYBBI Commercial Banking which should not be subsidiary to any other business. Thus, a bank should always add the word “Bank” to its name to enable people to know that it is a bank and is dealing in money. (From small to large, commercial banking have got u covered, as in banking there is no such thing as “one size Fits all” ) Shri Chinai College 9
    • TYBBI Commercial Banking  INTRODUCTION TO COMMERCIAL BANKS: Commercial banks play a vital role in the economic development of a nation. They are the most important source of institutional credit in the money market as they provide short term loans and advances to its customers. They perform a variety of functions and are the main source of credit which is the main input for trade and business activity. Credit created by commercial banks is a major component of money supply in a modern economy. Modern economies depend on the banking sector for production, exchange and distribution. A Commercial bank is a type of financial intermediary and a type of bank. Commercial bank has two possible meanings: a) It is the term used for a normal bank to distinguish it from an investment bank. b) Commercial banking can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retail banking). A commercial bank is a profit seeking organization dealing in the other people’s money, in the sense that it accepts deposits of money from the public to keep them in its custody for safety. So also, it deals in credit, i.e., it creates credit by making advances out of the funds received as deposits to needy people. It charges higher rate of interests for the loans sanctioned and offers lower rate of interest for the deposits. The difference between the two Shri Chinai College 10
    • TYBBI Commercial Banking is the profit earned by the bank. Thus, a commercial bank functions as a mobiliser of saving in the economy. The most distinctive feature of a commercial bank is that it accepts deposits called demand deposits from the public which are chequable, i.e., withdrawable by means of cheque. Acceptance of chequable deposits alone, however, does not give it a status of bank. Its another essential function is to make use of these deposits for lending to others. Commercial banks ordinarily are simple business or commercial concerns which provide various types of financial services to 'customers in return for payments in one form or another, such as interest, discounts, fees, commission, and so on. So, we can say that their objective is to make profits. A commercial bank is therefore like a reservoir into which flow the savings, the idle surplus money of households and from which loans are given on interest to businessmen and others who need them for investment or productive uses. Definition: Economists have defined a Commercial Bank in various ways. - According to Prof. Crowther, “a banker is a dealer in debt, his own and other people’s.” - According to Prof. sayes, “Commercial Banks are institutions whose debts – usually reffered to as bank deposits – are commonly accepted in final settlement of other people’s deposits.” Thus, all these definitions clearly indicate the essential function of a bank namely dealing in money and credit. Shri Chinai College 11
    • TYBBI Commercial Banking  FUNCTIONS OF COMMERCIAL BANKS Commercial banks perform several crucial functions to satisy the needs of the various sectors of the economy, which may be classified into two categories: (I) Primary functions, and (II) Secondary functions. (I) Primary banking functions of the commercial banks include: 1. Acceptance of deposits from the public; 2. Lending of funds; 3. Use of cheque system; and 4. Remittance of funds. 1. Acceptance of Deposits from the Public Accepting deposits is the primary function of a commercial bank. By receiving deposits from the public, commercial banks mobilise savings of the household sector. Banks generally accept deposits in three types of accounts: (i) Current Account, (ii) Savings Account, and (iii) Fixed Deposits Account. Deposits in Current Account are withdrawable by the depositors by cheques for any amount to the extent of the balance at their credit, at any time without any prior notice. Deposits of current accounts are, thus, known Shri Chinai College 12
    • TYBBI Commercial Banking as Demand deposits. Such accounts are maintained by commercial and industrial firms and businessmen, and the cheque system is the most convenient and very safe mode of payment. No interest is provided for such deposits. In fact bank charge certain commission for providing the facility. Saving Accounts are maintained for encouraging savings of households. Withdrawals from deposits from savings account are not freely allowed as in the case of current account. There are some restrictions on the amount to be withdrawn at a time and also on the number of withdrawals made during a period. Indian commercial banks have, however, relaxed these rules of savings accounts to a certain extent in recent times. Banks pay a rate of interest on the savings account deposits as prescribed by the central bank. Presently, it is 5 % p.a. A nominal rate of interest is provided for such deposits. Deposits in Fixed Account are time deposits. In the normal course, deposits cannot be withdrawn before the expiry of the specified time period of the deposits. A premature withdrawal is, however, permitted only at the cost of forfeiture of the interest payable, at least partly. On these deposits commercial banks pay higher rates of interest, and the rate becomes higher with the increase in duration. Longer the time period, higher would be the rate of interest and vice versa. By creating such varieties of deposits, banks motivate savers and depositors in a variety of ways and encourage savings in the economy. Further, by keeping deposits with banks, depositors’ money is not secure and remains in safe custody, but it yields interest also. Moreover, banks demaand deposits are in the form of liquid cash, for they serve as money to the business community and, therefore, is called bank money. Shri Chinai College 13
    • TYBBI Commercial Banking 2. Lending of funds Another major function of commercial banks is to extend loans and advances out of the money which comes to them by way of deposits to businessmen and entrepreneurs against approved such as gold or silver bullion, government securities, easily saleable stocks and shares, and marketable goods. Banks advances to customers may be made in many ways: (i) Overdrafts, (ii) Cash Credits, (iii) Discounting Trade Bills, (iv) Money-at-call or very short-term advances, (v) Term loans, (vi) Consumer Credit, (vii) Miscellaneous Advances. (i) Overdraft: A commercial bank grants overdraft facility to an account holder by which he is allowed to draw an amount in excess of the balance hels in the account, up to the extent of stipulated limit. Overdrafts are permissible in current account only. Suppose, a customer has Rs. 50,000 in his current account with the bank. Bank grants him overdraft facility up to Rs. 10,000. Then, this customer is entitled to issue cheques upto Rs. 60,000 on his account. Obviously, overdraft facility sanctioned up to Rs.10,000 by the bank in this case is as good as credit granted by the bank to that extent. (ii) Cash credit: Bank give credit in cash to business firms in industry and trade, against pledge or hypothecation of goods, or personal guarantee given Shri Chinai College 14
    • TYBBI Commercial Banking by the borrowers. It is essentially a drawing account against credit sanctioned by the bank and is operated like a current account on which an overdraft is sanctioned. It is the most popular mode of advance in the Indian banking system. (iii) Discounting trade bill: The banks facilitate trade and commerce by discounting bills of exchange called trade bills. Traders often draw bill of exchange to meet their obligations in business transitions. Such a trade bill is payable in cash on maturity, after a stipulated date. Discounting of bills by the bank amounts to granting of credit to the party concerned till the maturity date of the bill. This method of bank lending is widely adopted for two reasons: (a) such loans are self liquidatory in character; and (b) these trade bills are rediscountable with the central bank. (iv) Money at call or very short term advances: Bank also grants loans for a very short period, generally not exceeding 7 days to the borrowers, usually dealers or brokers in stock exchange markets against collateral securities like stock or equity shares, debentures, etc., offered by them. Such advances are repayable immediately at notice hence, they are described as money at call or call money. (v) Term Loans: Banks give term loans to traders, industrialists and now to agriculturists also against some collateral securities. Term loans are so- called because their maturity period varies between 1 to 10 years. Term loans as such provide intermediate or working capital funds to the borrowers. Sometimes, two or more banks may jointly provide large term Shri Chinai College 15
    • TYBBI Commercial Banking loans to the borrower against a common security. Such loans are called participation loans or consortium finance. (vi) Consumer Credit: Banks also grant to households in a limited amount to buy some durable consumer goods such as television sets, refrigerators, etc; or to meet some personal needs like payment of hospital bills, etc. such consumer credit is made in a lump sum and is repayable in installments in a short time. Under the 20-point programme, the scope of consumer credit has been extended to caver expenses on marriage funeral etc; as well. (vi) Miscellaneous Advances: Among other forms of bank advances there are packing credits given to exporters for a short duration, exports bills purchased/ discounted, import finance - advances against import bills, finance to the self employed, credit to the public sector, credit to the cooperative sector and above all, credit to the weaker sections of the community at concessional rates. 3. Use of cheque system: It is a unique feature and function of banks that they have introduced the cheque system for the withdrawl of deposits. There are two types of cheques: i) the bearer cheque and ii) the crossed cheque. Shri Chinai College 16
    • TYBBI Commercial Banking A bearer cheque is encashable immediately at the bank by its possessor. Since, it is negotiable, it serves as good as cash on transferability. A crossed cheque, on the other hand, is one that is crossed by two parallel lines on its face at the left hand corner and such a cheque is not immediately encashable. It has to be deposited only in the payee’s account. It is not negotiable. In modern business transactions, the use of cheques to settle debts is found to be much more convenient than the use of cash. Commercial banks, thus, render an important service by providing an inexpensive medium of exchange such as cheques. In fact, a cheque is also considered as the most developed credit instrument. 4. Remittance of Funds: Commercial banks, on account of their network of branches throughout the country, also provide facilities to remit funds from one place to another for their customers by issuing bank drafts, mail transfers or Shri Chinai College 17
    • TYBBI Commercial Banking telegraphic transfers on nominal commission charges. As compared to the postal money orders or other instruments, bank drafts have proved to be a much cheaper mode of transferring money and has helped the business community considerably. (II) Secondary banking functions of the commercial banks are also known as non-banking functions. They perform a multitude of other non- banking functions which may be classified as: 1. Agency Services, and 2. General Utility Services. 1. Agency Services Bankers perform certain functions for & on behalf of their clients, as: a) To collect or make payments for bills, cheques, promissory notes, interest, dividends, rents; subscriptions, insurance premia, etc. For these services, some charges are usually levied by the banks. b) To remit funds on behalf of the clients by drafts or mail or telegraphic transfers. c) To act as executor, trustee and attorney for the customer’s will. d) Sometimes, bankers also employ income-tax exporters not only to prepare income-tax returns for their customers but also to help them to get refund of income-tax in appropriate cases. e) To work as correspondents, agents or representatives of their clients. Often, bankers obtain passports, traveller’s tickets, secure passages for their customers, and receive letters on their behalf. 2. General Utility Services Shri Chinai College 18
    • TYBBI Commercial Banking Modern commercial banks usually perform certain general utility services for their community, such as: a) Letters of credit may be given by the banks at the behest of the importer in favour of the exporter. b) Bank drafts and traveller’s cheques are issued in order to provide facilities for transfer of funds from one part of the country to another. c) Banks may deal in foreign exchange or finance foreign trade by accepting or collecting foreign bills of exchange. Shares floated by government, public bodies and corporations may be underwritten by banks; d) Certain banks arrange for safe deposit vaults, so that customers may entrust their securities and valuables to them for safe custody. e) Banks also compile statistics and business information relating to trade, commerce, and industry. Some banks may publish valuable journals or bulletins containing research on financial, economic and commercial matters. • Commercial Banks Play an Important Role in a Modern Economy 1) They constitute the very life-blood of modern trade, commerce & industry, as they provide the necessary funds for their working capital such as to buy raw materials, to pay wages, to incur current business expenses in marketing of goods, etc 2) These banks encourage people’s savings habit through their various savings deposit schemes. 3) They also mobilize idle saving resources from households to business people for productive use. Shri Chinai College 19
    • TYBBI Commercial Banking 4) They transmit money from place to place with economy and safety. 5) Their agency services are, no doubt, of immense value to the people at large, as they case their difficulties, save their time & energy &provide them safety & security.  NATIONALISATION OF COMMERCIAL BANKS By the 1960’s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. With effect from July 19, 1969, 14 largest commercial banks were nationalized. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. After this, until the 1990’s the nationalized banks grew at a place of around 4%, closer to the average growth rate of the Indian economy. So, these nationalization of banks was carried out with the aim of ‘removal of control by a few’ and to bring about a more optimal allocation of bank funds. After nationalization, the credit policy of public sector banks underwent a radical change, with special emphasis being placed on credit to priority sectors including agriculture, small scale industry and programmes for poverty alleviation. The main objectives of nationalization were as follows: 1. To introduce social banking by directing bank funds at concessional rates to the weaker sections of societ for productive purposes. 2. To prevent monopolies in the banking sector caused due to use of major share of funds by a few private entrepreneurs. Shri Chinai College 20
    • TYBBI Commercial Banking 3. To introduce & promote banking facilities in backward areas & reduce regional disparities in branch expansion and growth of banking. 4. To expand the role of Commercial banking in agricultural credit.  PERFORMANCE OF COMMERCIAL BANKS IN THE POST -NATIONALIZATION PERIOD 1. Achievements: (a) Lead Bank Scheme: After nationalization, it was felt that banks should be allotted particular districts where they would take the lead in studying the need and scope for banking development. Under the scheme, districts were allotted to the State Bank Group, 14 nationalised banks and 3 private banks. Each bank was assigned the status of ‘lead bank’ in a particular district. The lead bank had to study and understand the socio-economic condition of the district and undertake surveys for this purpose. Through the surveys the lead bank would collect useful information about the credit needs, development needs and pattern of production and nature of employment in the district. After such informations were gathered, the lead bank would then plan and implement development programmes in the area, with the help of other banks and financial institutions. This scheme was a unique experiment and it helped in branch expansion, deposit mobilization and expansion of priority sector lending. (b) Branch Expansion: After nationalization, there was massive expansion of bank branches, especially in the rural areas. The Lead Ban k scheme played played a major role in this. During the first fifteen years after Shri Chinai College 21
    • TYBBI Commercial Banking nationalization, branches expanded at about 2,400 per year. Total number of bank branches has increased from 8262 in 1969 to 67,283 in 2007. Over 80% of bank offices are located in backward states and in semi-urban areas and rural areas. This, to some extent took care of regional imbalance in the spread of banking. (c) Deposit Mobilization: As a result of expansion of banking facilities, there was a large increase in deposits. In 1969, deposits amounted to 13% of the GDP, by 2004 this ratio increased 350 times. The increase in rural deposits as production of total has been from 3% to 15%. Bank deposits now constitute about 40% of financil assets held by households. (d) Bank Lending: Traditionally, banks in India had concentrated in providing working capital to industry and trade. Only after nationalization, loans are being given for agricultural operations. Bank credit stood at Rs. 3, 399 crore in 1969. In the next 3 decades, his increased by about 200 times. In 1968, large and medium industries accounted for about 200 times. In 1968, large and medium industries accounted for about 60% of aggregate bank credit. Agriculture accounted for about 2%. This changed drastically after nationalization and bank credit to priority sector, including agriculture was close to 40% of total credit. (e) Directed Credit Programmes: A major objective of bank nationalization was to make bank credit available the priority sector, comprising of agriculture, small scale industries, exports, transporters and small traders at concessional rates. This system of directed bank credit was expected to contribute to contribute to economic growth as well as social justice. Success was achieved in this direction after nationalization. Shri Chinai College 22
    • TYBBI Commercial Banking 2. Shortcomings: (a) Inadequate Banking facilities: Despite achievements in branch expansion, banking facilities continue to remain inadequate to meet the needs of the large population. The national average population per bank branch is still very high at about 12000. This ratio is higher than the national average in some states like Bihar, Orissa, West Bengal and Madhya Pradesh. Banking facilities are still not equitably distributed among all states. (b) Inadequate Deposit Mobilization: Banking habits of people in India are still not very good. A large part of the population still prefer to carry out transactions in cash and are not covered by the banking system . Therefore, there is a large scope for further increasing deposits and bring in more money in the banking system. (c) Inadequate lending: Even though there has been significant increase in lending to priority sectors, it is still inadequate in comparison to the needs of these sectors. Because of these small farmers and traders have to still depend on the unorganized sector for meeting their credit requirements. (d) Increased Expenditure: After nationalization, there has been significant increase in expenditure on banking operations. This is due to Shri Chinai College 23
    • TYBBI Commercial Banking aggressive and sometimes irrational branch expansion. There has been over- staffing in nationalized banks and some of their operations in rural areas are simply not economically feasible. (e) Low Level of Efficiency: Public sector banks have suffered from lack of proper supervision and control. Due to high degree of political interference and lack of competition, these banks have become highly insufficient. There work culture was poor compared to private sector banks. However, this scenario has now changed with these banks becoming more profit oriented and autonomous. Thus, nationalization of Commercial banks was done with the objective of social and economic development. But this resulted in several problems and desortions in the banking system. Till 1990s public sector banks operated with low profitability and efficiency. In early 1990s, the government implemented the Narsimham Committee Recommendations in order to bring about much needed reforms in the banking sector. Since then, the sector has been performing with higher profitability and efficiency. Shri Chinai College 24
    • TYBBI Commercial Banking  TYPES OF COMMERCIAL BANKS: • Scheduled banks • Non- Scheduled Banks - Scheduled Banks: A scheduled bank is one which is registered in the second schedule of the Reserve Bank of India. The following conditions must be fulfilled by a bank for inclusion in the schedule: i) The banker concerned must be in business of banking in India; ii) It is either a company defined in Section 3 of the Indian Companies Act, 1956, or corporation or a company incorporated by or under any law in force in any place outside India or an institution notified by the central government in this behalf; iii) It must have paid-up capital and reserves of an aggregate role of exchangeable value of not less than rupees five lakhs; iv) It must satisfy the Reserve Bank of India that its affairs are not conducted in a manner detrimental to the interests of its depositors. Scheduled banks come under the purview of the various credit control measures of th Reserve Bank of India. They are required to maintain a Shri Chinai College 25
    • TYBBI Commercial Banking certain minimum balance in their accounts with the RBI, and do certain things prescribed by law. The Scheduled banks are entitled to bprrowings and rediscounting facilities from the RBI. These are similar to the member banks of the U.S.A. - Non- Scheduled Banks: Banks, which are not included in the Second Schedule of the RBI, are known as non-scheduled banks. They may be classified into 4 groups: a) Banks with paid-up capital and reserves in excess of Rs. 5 lakhs; b) Banks with paid-up capital and reserves ranging between Rs. 50,000 and one lakh of rupees; c) Banks with paid-up capital and reserves ranging between one lakh of rupees and 5 lakhs; d) Banks with paid-up capital and reserves below Rs. 50,000. Non- Scheduled banks are not entitled to all those facilities that the scheduled banks avail of from the Reserve Bank of India. Since the enactment of the Banking Regulation Act in 1949, non-scheduled banks have also come under the ambit of the RBI control. It has become obligatory on the part of these banks to carry a portion of their deposits with the RBI or in the vault with the bank itself, and prepare their annual accounts and balance sheets in accordance with the requirements stipulated in Section 29 of the Banking Companies Act. Scheduled Banks may be classified into two groups: Indian Scheduled Banks and Foreign Scheduled Banks. The Indian Scheduled Banks are those Shri Chinai College 26
    • TYBBI Commercial Banking which have their registered officers in India and are registered in the second schedule if the RBI. As against this, foreign scheduled banks comprise those commercial banks which are registered in the said schedule but have their registered offices outside India. These banks have played a prominent role in India’s foreign trade; in fact, they had complete sway in this sphere until the Second World War. Since then, a number of leading Indian scheduled banks entered the field of foreign trade and have in the course of time achieved an important position in this field. Indian scheduled banks may be distinguished in two broad sectors: a) Public sector commercial banking comprising the State Bank of Indian and its subsidiaries and the twenty nationalized banks; b) Private sector commercial banking comprising all the other Indian scheduled banks that do not fall in the above group. Shri Chinai College 27
    • TYBBI Commercial Banking COMMERCIAL BANKS IN INDIA Shri Chinai College 28
    • TYBBI Commercial Banking As part of the financial services industry, insurance, commercial banking, and capital markets companies worldwide are attempting to compete better by improving core operations and differentiating the customer experience. However, this is not easily achieved because of the volume of business challenges financial services companies deal with today.  Names of Banks providing Commercial Banking services in India: o ABM AMRO India o Abu Dhabi Commercial Bank (India) o Allahabad Bank o Andhra Bank o Bank of Baroda o Bank of India o Bank of India U.S operation o Bank of Punjab o Bank of Madura o Bank of Maharashtra o Canara Bank o Centurion Bank of Punjab o Corporation Bank o DCB (Development Credit Bank Ltd.) o Dena Bank o Deutsche Bank India o Dhanalakshmi Bank o Federal Bank Shri Chinai College 29
    • TYBBI Commercial Banking o HSBC in India o ICICI Bank o Indus Bank Ltd. o State Bank of India, etc.  Services typically offered by Commercial Banks Although the basic type of services offered by a commercial bank depends upon the type of bank and the country, services provided usually include: - Taking deposits from their customers and issuing current (UK) or checking (US) accounts and savings accounts to individuals and businesses. - Extending loans to individuals and businesses; Cashing cheques - Facilitating money transactions such as wire transfers and cashier's checks - Issuing credit cards, ATM cards, and debit cards - Storing valuables, particularly in a safe deposit box - Cashing and distributing bank rolls - Consumer & commercial financial advisory services - Pension & retirement planning. Financial transactions can be performed through many different channels: Shri Chinai College 30
    • TYBBI Commercial Banking - A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face to face service to its customers. - ATM is a computerised telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller. - Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. - Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. - Online banking is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website. DEBIT CARD CREDIT CARD MAIL Shri Chinai College 31
    • TYBBI Commercial Banking ATM ONLINE BANKING TELEPHONE BANKING  EFFECT OF COMMERCIAL BANKING ON BUSINESS AND INDUSTRY IN INDIA? he term Commercial Bank is not meant only for Business and industry. Commercial bank is meant primarily for personal banking and secondarily for commercial developments. The banks looking mainly deposits from public and lending small and short term loans to public and short businessmen. T Banking sector is called the “Nerve centres of the nation's economy” and “Backbones of modern Industries and Commerce”. A minor change in the basis points by the nation's central bank can make a huge impact on the 1. nation's production and 2. inflation. Commercial banks facilitate the growth of the business. Be it rural small scale (Cottage industries) or Very large scale investments. The deposits from public is mobilised to fund the commercial activities. These activities in turn generate income which is added to the gross domestic product of the nation. Thus, banks are the most crucial sector that helps a nation grow economically. Shri Chinai College 32
    • TYBBI Commercial Banking  CHALLENGES BEFORE INDIAN COMMERCIAL BANKS Major challenges which Indian commercial banks are facing today and which are likely to be more poignant in the ensuing years in view of the irreversible process of the reforms and resultant verisimilitude of more players entering the banking sector are discussed below.  Problem of pressure on profitability: The greatest challenge which PSBs are facing in recent years arises out of pressure on their profitability. With continuous expansion in number of branches and manpower, thrust on social and rural banking, directed sector lending, maintenance of higher reserve ratios, waiver of loans under ARDR-type concessions, repayment defaults by large industrial corporate and other borrowers etc. had their telling impact on the profitability of the banks. Further with the introduction of prudential norms, to be effective from March 1993 a majority of the commercial banks balance sheets had shown huge losses. In order to improve financial health of these banks the Shri Chinai College 33
    • TYBBI Commercial Banking Government provided a dose of hybrid capital and in return these banks were made to sign a memorandum of understanding with RBI. Accordingly, the focus of operation of banks shifted from deposit mobilization to services marketing. Further, accent of banks operation shifted to non-fund based business with an eye on capital adequacy achievement and other ancillary business which may cross subsidize the cost of certain unremunerative services, the banks have to offer.  Problem of low productivity: Another furious challenge which indian commercial banks are confronting is low productivity. The low productivity has been due to huge surplus manpower, absence of good work culture, andbabsence of employees commitment to the organization. . The management have continued to prefer not to see the problem in its proper perspective due to the fear of strong unions. They have camouflaged the issue by diverting their attention to such apparent face saving devices like redeployment, repositioning , retraining, etc.. There are various ways of minimizing the size of the staff, such as voluntary retirement scheme or golden shakehand. The problem before the management at present is how to cut size of the staff and improve productivity of the bank.  Problem of Non-Performing Assets(NPA): A serious threat to the survival and success of Indian banking system is uncomfortably high level of non-performing assets. In its Report on trend and Progress of banking In India, 1997-98, the RBI reported that gross NPAs as percentage of advances of PSBs was 16 percent as on March 31, 2000 with a colossal amount of about Rs. 52,000 crore being locked up. This might have recently recorded further increase due to default in Shri Chinai College 34
    • TYBBI Commercial Banking repayment by the industrial units affected by the two-year old recession. This is much higher than the international level of below 5%. Spiraling non- performing assets are hurting bank’s profitability and even the basic inability of the banking system by way of both non-recognition of interest income and loan loss provisioning.  Problem from customers: In view of unleashing of competitive forces and fast changing life styles and values of customers who are now better informed and more sophisticated and discerning and who have a wide choice to choose from various banking and non-banking intermediaries have become more demanding and their expectations in terms of products, delivery and price are increasing, the PSBs lacking in customers’ orientation are finding it difficult to even retain their highly valued customers what to talk of attracting the new clients particularly when the foreign banks are also the new breed of private sector banks have embarked upon aggressive marketing programme aiming at niche markets. The telebanking, anywhere banking, virtual or internet banking, ATM, credit cards and newly introduced interest rate swap, forward rate agreements, etc. are some of the products innovated by the new players. Although the PSBs are trying to computerize their operations, the pace of progress in this direction has been decidedly slow. The rather tardy progress in the area has been due to the initial reservation of the staff unions against computerization for the lurking fear of employment cut, as also the existence of huge number of branches in the rural areas, where suitable logistics are not available. Market share of PSBs both in deposits and lending has declined. This has already become a serious cause Shri Chinai College 35
    • TYBBI Commercial Banking of concern for PSBs regulating strategic efforts for thwarting the challenges from the new players.  Competition from New Banks: The commercial banks in India which enjoyed monopoly position until recently are facing perilous challenges particularly on quality, cost and flexibility fronts from the newly emerging players who by dint of their invigorating ambience and work culture supported by pragmatic leadership committed, courteous, affable and trained staff and modern ultra gadgets are offering excellent customers services and making inroads in the business centres. The new banks have set the tone and to extent also the standard for technological improvements and product innovations which the vastly dominating PSBs will have to bring about in their own operations if they have to maintain their present position of dominance. For instance, Bank of Punjab has opened a new savings bank product-swagat with a minimum balance requirement . HDFC has launched q new retail account-Freedom-for customers who would be using the non-branch infrastructure of the bank like ATM, phone banking and internet banking . The ICICI Bank has product offerings tailor-made to specific categories of customers, such as students, traders, NRIs as well as the salary customers.It is going to offer a special scheme for senior citizens. By resorting to latest methods in human resources management as well as information technology, the new entrants in the field have suddenly sensitised even the ordinary user of the banking services in India to the type and quality of services he can expect from his bank. Shri Chinai College 36
    • TYBBI Commercial Banking The market has become highly competitive and largely customers centric. This calls for an ability to reach the client at his door step and meet his requirements of products and services in a customized manner. The race for customers could at times lead to adverse selections. This situation demands aggression laced with caution, in turn, calls for highly efficient management by the banks of both liabilities and assets. These banks have to work in a market which will not know any geographical barriers and therefore will have to develop abilities of product innovation and delivery comparable to the best in the world.  Competition from global majors Globalisation and integration of Indian financial market with world and the consequent entry of foreign players in domestic market has infused, in its wake, brutal competitive pressure on the Indian commercial banks. Foreign players endowed with robust capital adequacy, high quality assets, world-wide connectivity, benefits of economies of scale and stupendous risk management skills are posing serious threats to the existing business of the Indian banks. In order to compete successfully with the new entrants, Indian banks need to possess matching financial muscle, as fair competition is possible only along the equals. Average size of an Indian bank is niggardly low in comparison to a foreign bank. The question before the major Indian Commercial Banks, therefore, is how to acquire competitive size.  Problem of Managing Duality of Ownership: Managing duality of ownershipis a peculiar problem which the PSBs have to encounter because of participation of the private shareholders in their capital. A public sector bank to survive and grow successfully is expected to operate according to Shri Chinai College 37
    • TYBBI Commercial Banking the expectations if one of its principal shareholders. In the changed scenario, there would be two major groups of shareholders, viz., the government of India and RBI on the one hand and the private shareholder , on the other . Since the expectations of these two categories of owners are not necessarily identical, the bankers will have to manage conflicting interests.  OPPORTUNITIES FOR INDIAN COMMERCIAL BANKS Challenges are the driving forces that keep on going. They prevent us from being vagary because they also bring in their wake opportunities. In fact, challenges & opportunities are like healthy twins, knocking at our door steps. The process of globalization and liberalization have thrown open tremendous opportunities for the banks in terms of widening of scope of business, greater freedom to operate in financial markets – both national and international freedom to deloy relatively largest funds because of reduction in preemption requirements. The Commercial banks are now enjoying greater autonomy in reviewing & revising existing branch network & greater discretion to reduce amplitude of cross subsidization to priority sector. Indian Commercial banks have also got the autonomy in respect of pricing of bank products. In the regulated regime, interest’s rates on both deposits and advances of Commercial banks were tightly regulated and so was the product range. With gradual deregulation of interest rates, banks are blessed with more power in pricing and structuring their products. As we know, Commercial banks are in the business of providing banking services to individuals, small businesses and large organizations. While the banking sector has been consolidating, it is worth noting that far Shri Chinai College 38
    • TYBBI Commercial Banking more people are employed in the commercial banking sector than any other part of the financial services industry. Jobs in banking can be exciting and offer excellent opportunities to learn about business interact with people and build up a clientele. If you are well-prepared and enthusiastic about entering the field, you are likely to find a wide variety of opportunities open to you.  STRENGTHS OF INDIAN COMMERCIAL BANKS: Indian commercial banks possess the following strengths which are distinct from others: i. Tremendous branch network giving an access to almost entire spectrum of customers ii. High market coverage iii. Diversified operations iv. Intimate knowledge of local environment v. High class human resource pool  WEAKNESS OF INDIAN COMMERCIAL BANKS: Indian commercial banks have been ailing from the following weakness because of which they are finding it to difficult to out beat the new players and exploit the emerging opportunities: i. Lower Profitability ii. High Operating Costs iii. High NPAs iv. Low Productivity v. High Provisioning vi. Complex and Non- responsive organizational structure Shri Chinai College 39
    • TYBBI Commercial Banking vii. Poor asset management viii. Inadequate HRD strategy ix. Low work culture x. Action flippant and inward looking management and employees xi. Strong, militant and non-responsive unions xii. Limited automation.  BASIC PROBLEM OF A COMMERCIAL BANK The basic problem facing a bank manager is to have a satisfactory trade off between liquidity and profitability - the two principal but conflicting goals of a bank. A bank deals in the money of the people. The success of the business of a bank depends partly on the efficiency with which it can provide services to its creditors (depositories), but mainly on the confidence it inspires among the depositors. It has been able to attract the deposits of the people not only by promising some returns on their money but also by committing itself to repayment on demand. This is why the public accepts bank deposits as being “as good as cash.” The banker must, therefore, ensure an adequate amount of liquidity in his assets so that he may be able to meet any claims upon it in cash on demand. The perfectly liquid asset is cash itself because it can fully satisfy the depositors’ claims. The more cash a banker holds, the more obviously he can, without difficulty of any kind, offer cash in exchange for deposits. Further, the banker with an adequate amount of cash in hand can meet the credit needs of the community and can make speculative gains. However, cash is a sterile asset which earns no income at all. A banker cannot afford to ignore income because the ultimate object of a bank is to make earnings on its business which are sufficient to compensate it for the cost which it incurs on raising Shri Chinai College 40
    • TYBBI Commercial Banking funds, besides paying the wages of the staff and meeting other expenses. If a banker holds a large portion of his funds in ready cash without earning any income on it, his business will result in losses, and sound the death-knell of the bank after some time. He must therefore, employ the bulk of the bank’s resources in giving loans and advances, and in investing them in high- yielding securities. Such investments are, however, subject to credit risk – the risk arising from default in repayment money lent out and the money rate risk – the risk arising out of fluctuations in the market rate of interest. The banker will not be able to satisfy the cash requirements of the depositors on demand with the funds deployed in the other investments. Once the depositor’s cheques are not honored, the bank will lose the confidence of the public, which will result in a mass run on the bank’s counters and jeopardize the liquidity position of the bank. Ultimately, the very survival of the bank is endangered. Liquidity and profitability are, therefore, inimical to each other. Cash has perfect liquidity but lacks yield. At the other ends are some loans and investments which yield a high rate of interest, but are hardly liquid at all. The conflict between liquidity and income is not as sharp as it appears. In order to ensure long-run earnings, the commercial bank must retain public confidence in order to continue to survive and provide for the liquidity needs of the bank. The art of commercial banking lies in the resolution of the conflicts between liquidity and profitability. “It is an art because science ha not furnished inviolable rules; banks must be managed with discrimination and good judgement. Rules and scientific procedures for doing the whole job cannot be framed.”1 A number of approaches, ways and means of resolving Shri Chinai College 41
    • TYBBI Commercial Banking the conflicts have been developed from time-to-time. These approaches subsequently came to be known as theories of liquidity management.  BANK DEPOSITS AND THEIR STRUCTURE: Commercial banks being repositories of deposits have played significant role in garnering savings of the people particularly after their nationalization, as is evidenced from Table below. It may e noted from the Table that bank deposits boomed by over Rs. 7,84,000 crores between 1947 and 20003 . There was acceleration in deposit mobilization after nationalization of banks. This was because of tremendous branch expansion, growth in interest rates and introduction of innovative deposit schemes. As a result, per capita deposits to national income rose significantly from 15.5% as on June 1969 to over 41% as at the end of July 2000. Amount of bank deposits soared to Rs. 9, 91,318 crore as on May 4, 2001 with per capital deposits of the order of Rs. 9,900. Deposits of Commercial Banks during 1947- 2007 Year Amount in crore of Rs Per capita Deposits (Rs.) Deposits as or of National Income As on December 1947 1,080 32 NA June 1969 4,661 44 15.5 June 1976 15,255 1,198 22.8 June 1986 92,233 2,368 41.5 March 1991 2,00,569 5,402 42.1 Shri Chinai College 42
    • TYBBI Commercial Banking March 1997 5,03,596 7,157 41.0 Dec. 2000 6,79,894 7,617 42.6 Sept. 2003 7,61,678 7,851 42.4 July, 2005 7,85,165 9,900 41.0 May, 2007 9,91,318 9,900 NA  ASSET-LIABILITY MANAGEMENT (ALM) In the recent past, banks in India have started using the Asset-Liability Management (ALM) as the technique or strategy for financial management. ALM aims at planning, directing, and regulating the levels, changes, mixes of assets and liabilities of banks in the short-run, usually three to twelve months, with a view to enable them to achieve their long-term objectives. The net interest margin and its variability are the focus of its attention so as to maximise Return On Equity (ROE), and to minimise fluctuations in ROE. It also links capital, non-interest income and expenses, and strategic choices regarding products, markets, and bank structure. ALM involves giving balanced emphasis necessary in a competitive environment characterised by deregulatiom. and greater viability (volatility) of interest rates, variable rates pricing, and the use of interest rates derivatives. ALM is an integrated strategic managerial approach of managing a total Balance Sheet dynamics having regard to the size and quality in such a way that the net earnings from interest are maximized. This is done by matching of liabilities and assets in terms of maturity, cost and yield rates. The focus of ALM is not to build up deposits and loans/assets in isolation, but on net interest income and recognizing interest rates and liquidity risks. Thus, ALM is essentially a guide for survival of a bank in deregulated environment. Shri Chinai College 43
    • TYBBI Commercial Banking Diagramatic presentation of ALM is brought out in the following chart: Asset-Liability Management Structure - Objectives of ALM Shri Chinai College 44 Asset Management Asset-LiAbiLity MAnAgeMent General Specific Asset, Liability & Capital Management Financial Balance Sheet Management Income & Expenditure Management Liability Management
    • TYBBI Commercial Banking Primary objective of ALM approach is to manage market risk in such away as to minimize the impact of net interest income fluctuations in the short run and protect the net economic value of the bank in the long run. Precisely speaking, ALM has the following objectives: 1. To control the volatility of net interest income and net economic value of a bank. 2. To control volatility in all target accounts . 3. To control liquidity risk, and 4. To ensure an acceptable Balance profitability and growth rate. - ALM And Commercial Banks: 1) Reformed process in India has emerged mew players, new instrument and new products at competitive rates has increased banks risks. 2) This new development forced the Commercial banks to take a re-look on ALM to remain competitive & withstand the risk. 3) RBI also advised Commercial Banks to tighten their Asset-Liability management and to furnish data in a format outlined by it. In the recent past, banks in India have started using the Asset-Liability Management (ALM) as the technique or strategy for financial management. ALM aims at planning, directing, and regulating the levels, changes, mixes of assets and liabilities of banks in the short-run, usually three to twelve months, with a view to enable them to achieve their long-term objectives. The net interest margin and its variability are the focus of its attention so as to maximise Return On Equity (ROE), and to minimise fluctuations in ROE. It also links capital, non-interest income and expenses, and strategic choices regarding products, markets, and bank structure. ALM involves giving Shri Chinai College 45
    • TYBBI Commercial Banking balanced emphasis necessary in a competitive environment characterised by deregulatiom. and greater viability (volatility) of interest rates, variable rates pricing, and the use of interest rates derivatives.  BANKS BALANCESHEET & PORTFOLIO MANAGEMENT Conventionally, banks publish balance sheets in their annual reports. The balance sheets contains particulars of a Bank’s current assets and current liabilities. Assets items refer to all credit items in indicating the wealth and claims possessed by the bank. Liability items refer to all debit items indicating the obligations of the bank. Thus, the balance sheet indicates the manner in which the bank has raised funds and invested them in various types of assets. It is the means by which the banks financial position – its solvency and liquidity – is judged. There is, of course the equity of assets and liabilities in the balance sheet of a bank, as in the case of any other balance sheet. In a balance sheet, it is customary to state the liabilities on the left and assets on the right. The liabilities of the banks are the items which are to be paid by it either to its shareholders or depositors. The assets of the banks are those items fro which it hopes to get an income. Thus, the assets include all the amounts owed by others to the bank. A much simplified format of a bank’s balance sheet may be illustrated as follows: Shri Chinai College 46
    • TYBBI Commercial Banking The Format of Balance Sheet of A Bank Liabilities Assets 1. Share capital 2. Reserve Funds 3. Deposits: a) Time deposits b) Demand deposits c) Savings deposits 4. Borrowings 5. Other items 1. Cash in hand ’’ with central bank ’’ with other banks 2. Money at call and short notice. 3. Bills discounted, including treasury bills. 4. Investments 5.Advances 6.Other Items - Objectives of portfolio management: A commercial bank has to manage its assets and liabilities with three considerations in mind namely, liquidity, profitability and solvency. Liquidity means the capacity of the bank to give cash on demand in exchange for deposits. But since a bank is a commercial concern, it aims at profitability. Profits come from the income accruing from the assets the bank holds. The banker must arrange hiss assets in such a way that he makes more income. Hence, in acquiring assets, the banker will be influenced by the consideration of profit. A bank acquires assets mainly out of the deposits of the public. Public confidence in the bank, however, depends on the belief that the bank will always be able to exchange deposits for cash. A bank, Shri Chinai College 47
    • TYBBI Commercial Banking therefore, must keep a sufficient amount of cash balance to meet the actual demand, while for meeting the potential demand, it has to keep its assets sufficiently liquid. Cash has perfect liquidity, but yields no returns at all, while other income-yielding assets such as loans are profitable but have no liquidity. Liquidity and profitability are, therefore, conflicting consideration for the bankers. Another consideration of the bank is its solvency and security. This refers to the liquidity and shiftability of assets. Liquidity is the capacity to produce cash on demand. Shiftability means that type of assets acquired by a bank be easily shiftable to other banks or to the central bank. Therefore a banker will prefer securities which can be quickly disposed of and which are easily shiftable without any loss to the bank or to those which are highly risky but more profitable. But a bank is liquid only to the extent that it can turn its assets into cash to meet the demands of depositors and other creditors. Thus, the two motives of a banks liquidity and profitability are contradictory, but have to be reconciled. A good banker is one who follows a wise investment policy and distributes the assets in such a way both the requirements of liquidity and profitability are satisfied. The assets should bring in maximum profit and should provide maximum security to the depositors. The secret of success of a bank lies in striking a sound balance between liquidity and profitability. In reading a balance sheet of a bank, we have to examine the liabilities and assets portfolios which reveals how best the two objectives of liquidity and profitability have been reconciled by the banker. Shri Chinai College 48
    • TYBBI Commercial Banking o Liabilities Portfolio The liabilities portfolio of a bank is comparatively simple. It shows how the bank raises funds. Every commercial bank usually gets its funds in three ways: by share capital, reserve fund and deposits from the general public. For instance, liabilities may be incurred by accepting or endorsing bills of exchange on behalf of customers. o Assets Portfolio The assets portfolio of the bank is both complex and interesting. It represents more faithfully the varied nature and ramification of the banks functions and investment policies. In fact the asset side of the balance sheet indicates the manner in which the funds entrusted to the bank are deployed. Usually, every banker seems to arrange its assets in an ascending order of profitability and descending order of liquidity. Thus, the structure of a balance sheet indicates assets appearing in the descending order or liquidity. Shri Chinai College 49
    • TYBBI Commercial Banking  CURRENT SCENARIO OF COMMERCIAL BANKING: Currently (2007), overall, banking in India is considered as fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. Even in terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets-as compared to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility- without any stated exchange rate-and this has mostly been true. 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. M&As, takeovers, asset sales and much more action (as it is unravelling in China) will happen on this front in India. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly Shri Chinai College 50
    • TYBBI Commercial Banking listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 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. We know that, in banking, there is no such thing as "one size fits all." But today's commercial banks are more diverse than ever. You'll find a tremendous range of opportunities in Commercial banking, starting at the branch level because Commercial bankers, now are highly experienced in working with businesses to develop the right financial package to meet your unique business needs. Thus, Commercial lending today is a very intense activity, with banks carefully analysing the financial condition of their business clients to determine the level of risk in each loan transaction Shri Chinai College 51
    • TYBBI Commercial Banking Shri Chinai College 52
    • TYBBI Commercial Banking OVERVIEW OF ICICI BANK & SBI BANK ICICI Bank is India's second-largest bank with total assets of Rs. 3,446.58 billion (US$ 79 billion) at March 31, 2007 and profit after tax of Rs. 31.10 billion for fiscal 2007. ICICI Bank is the most valuable bank in India in terms of market capitalization and is ranked third amongst all the companies listed on the Indian stock exchanges in terms of free float market capitalization. The Bank has a network of about 950 branches and 3,300 ATMs in India and presence in 17 countries. ICICI Bank offers a wide range of banking products and financial services. HYPERLINK "http://images.google.co.in/imgres? imgurl=http://www.apitco.org/images/sbi_logo.jpg&imgrefurl=http://www.apitco.or g/our_promoters.html&h=134&w=134&sz=3&hl=en&start=48&tbnid=vUPZo2guL 0MgjM:&tbnh=92&tbnw=92&prev=/images%3Fq%3Dlogo%2Bof%2BSBI%2B %2Bbank%26start%3D36%26gbv%3D2%26ndsp%3D18%26svnum %3D10%26hl%3Den%26sa%3DN" INCLUDEPICTURE "http://tbn0.google.com/images? Shri Chinai College 53
    • TYBBI Commercial Banking q=tbn:vUPZo2guL0MgjM:http://www.apitco.org/images/sbi_logo.jpg" * MERGEFORMATINET The origin of the State Bank of India goes back to the first decade of the ninet eenth century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806 and three years later, it was re-designed as the Bank of Bengal (2 January 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal. These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921. Shri Chinai College 54
    • TYBBI Commercial Banking Performance of ICICI Bank Shri Chinai College 55 India’s largest private sector bank and one stop financial solutions provider with a diversified and de-risked business model India’s largest private sector bank and one of the top financial solution provider with a diversified and de-risked business model ICICI Bank today  Large capital base  Vast talent pool  Low operating costs  Technology focus  Strong corporate relationships
    • TYBBI Commercial Banking ICICI Bank, India's largest bank in the private sector. It is India's second- largest bank with total assets of Rs. 3,446.58 billion at March 31, 2007. ICICI Bank is the most valuable bank in India in terms of market capitalization.The Bank has a network of about 950 branches and 3,300 ATMs in India and presence in 17 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, life and non- life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and representative offices in the United States, United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established a branch in Belgium. ICICI offers various products and services in India in areas of commercial banking, online stock trading, loans (home, auto, personal etc), insurance, foreign exchange trading and mutual funds. It also offers services to non- resident Indians like money transfer, NRE and NRO savings accounts and certain investment options as well. Form ‘A’ BALANCE SHEET OF ICICI BANK Shri Chinai College 56
    • TYBBI Commercial Banking BALANCE SHEET as on 31st March: - 2006-2007 Rs. in 000’s CAPITAL & LIABILITIES Sch 2007 2006 Capital 1 12,493,437 12,398,345 Reserves and Surplus 2 234,139,207 213,161,571 Deposits 3 2,305,101,863 1,650,831,713 Borrowings 4 512,560,263 385,219,136 Other liabilities & Provisions 5 382,286,356 252,278,777 Total 3,446,581,126 2,513,889,542 ASSETS Cash & balances with RBI 6 187,068,794 89,343,737 Balance with banks & money at call & short notice 7 184,144,452 81,058,508 Investments 8 912,578,418 715,473,944 Advances 9 1,958,655,996 1,461,631,089 Fixed Assets 10 39,234,232 39,807,115 Other assets 11 164,899,234 126,575,149 Total Assets 3,446,581,126 2,513,889,542 Contingent liabilities 12 5,629,599,060 3,950,336,655 Bills for collection 40,465,610 43,384,648 Common size Statement of ICICI Bank Shri Chinai College 57
    • TYBBI Commercial Banking CAPITAL & LIABILITIES Sch 2007 % Capital 1 12,493,437 1 Reserves and Surplus 2 234,139,207 7 Deposits 3 2,305,101,863 67 Borrowings 4 512,560,263 15 Other liabilities & Provisions 5 382,286,356 10 Total 3,446,581,126 100 ASSETS Cash & balances with RBI 6 187,068,794 5 Balance with banks & money at call & short notice 7 184,144,452 6 Investments 8 912,578,418 26 Advances 9 1,958,655,996 57 Fixed Assets 10 39,234,232 1 Other assets 11 164,899,234 5 Total Assets 3,446,581,126 100 Contingent liabilities 12 5,629,599,060 163 Bills for collection 40,465,610 1 Comparative Size Statement of ICICI Bank Shri Chinai College 58
    • TYBBI Commercial Banking CAPITAL & LIABILITIES Sch 2007 2006 Growth % (+)/(-) Capital 11 12,493,437 12,398,345 95092 1 Reserve and surplus 2 234,139,207 213,161,571 20977636 10 Deposit 3 2,305,101,863 1,650,831,713 654270150 40 Borrowing 4 512,560,263 385,219,136 127341127 33 Other liabilities 5 382,286,356 252,278,777 130007579 52 Total Liabilities 3,446,581,126 2,513,889,542 932691584 37 ASSETS Cash & balance with RBI 6 187,068,794 89,343,737 97725057 109 Balance with banks & money at call & short notice 7 184,144,452 81,058,508 103085944 127 Investments 8 912,578,418 715,473,944 197104474 28 Advances 9 1,958,655,996 1,461,631,089 497024907 34 Fixed Asset 10 39,234,232 39,807,115 (572883) (1) Other assets 11 164,899,234 126,575,149 38324085 30 Total Assets 3,446,581,126 2,513,889,542 932691584 37 Contingent liabilities 12 5,629,599,060 3,950,336,655 1679262405 43 Bills for collection 40,465,610 43,384,648 (2919038) (7) Trend Analysis of ICICI Bank Shri Chinai College 59
    • TYBBI Commercial Banking CAPITAL & LIABILITIES Sch 2003 % 2004 % 2005 % 2006 % 2007 % Capital 1 9,626,600 100 9,664,012 100 10,867,758 113 112,398,345 11681 12,493,437 130 Reserve and surplus 2 63,206,538 100 73,941,561 117 118,131,954 187 213,161,571 337 234,139,207 370 Deposit 3 481,693,063 100 681,085,845 141 998,187,775 207 1,650,831,713 343 2,305,101,863 479 Borrowing 4 343,024,203 100 307,402,393 90 335,444,960 98 385,219,136 112 512,560,263 149 Other liabilities 5 170,569,258 100 180,194,930 106 213,961,606 125 252,278,777 148 382,286,356 224 Total 1,068,119,662 100 1,252,288,741 117 1,676,594,053 157 2,513,889,542 235 3,446,581,126 323 ASSETS Cash & balance with RBI 6 48,861,445 100 54,079,966 111 63,449,004 130 89,343,737 183 187,068,794 383 Balance with banks & money at call & short notice 7 16,028,581 100 30,626,378 191 65,850,719 411 81,058,508 506 184,144,452 1149 Investments 8 354,623,002 100 434,355,214 122 5,04,873,525 142 715,473,944 202 912,578,418 257 Advances 9 532,794,144 100 626,476,288 118 914,051,517 172 1,461,631,089 274 1,958,655,996 368 Fixed Assets 10 40,607,274 100 40,564,141 100 40,380,361 99 39,807,115 98 39,234,232 97 Other Assets 11 75,205,216 100 66,186,754 88 87,988,927 117 126,575,149 168 164,899,234 219 Total Assets 1,068,119,662 100 1,252,288,741 117 1,676,594,053 157 2,513,889,542 235 3,446,581,126 323 Contingent liabilities 12 894,385,070 100 2,029,419,027 227 2,681,537,382 300 3,950,336,655 442 5,629,599,060 629 Bills for collection 13,367,843 100 15,109,352 113 23,920,922 179 43,384,648 325 40,465,610 303 Shri Chinai College 60
    • TYBBI Commercial Banking MAIN BRANCH OF STATE BANK OF INDIA, PANAJI Performance of State Bank of India (SBI) Shri Chinai College 61
    • TYBBI Commercial Banking SBI is the number one Bank in India and is regarded as India's largest commercial bank, listed in the Fortune 500 among Banks world wide and is having more than 9300 branches world wide (approximately 14% of all bank branches) and commands one-fifth of deposits and loans of all scheduled commercial banks in India. The main Branch Of State Bank Of India is at Panaji, has the unique privilege in Goa to trace back its roots to two centuries of banking. As there was no formal transition either in Government or in banking from Portuguese control, for a time the entire territory of Goa was without any commercial banking facility. In this backdrop, Panaji Branch then became first Branch of a Bank to start functioning in Goa. The State Bank Group includes a network of eight banking subsidiaries and several non-banking subsidiaries offering merchant banking services, fund management, factoring services, primary dealership in government securities, credit cards and insurance. The eight banking subsidiaries are: - State Bank of Bikaner and Jaipur (SBBJ) - State Bank of Hyderabad (SBH) - State Bank of India (SBI) - State Bank of Indore (SBIR) - State Bank of Mysore (SBM) - State Bank of Patiala (SBP) - State Bank of Saurashtra (SBS) - State Bank of Travancore (SBT) The origins of State Bank of India date back to 1806 when the Bank of Calcutta (later called the Bank of Bengal) was established. In 1921, the Bank of Bengal and two other Presidency banks (Bank of Madras and Bank of Bombay) were amalgamated to form the Imperial Bank of India. In 1955, the controlling interest in the Imperial Bank of India was acquired by the Reserve Bank of India and the Shri Chinai College 62
    • TYBBI Commercial Banking State Bank of India (SBI) came into existence by an act of Parliament as successor to the Imperial Bank of India. Today, State Bank of India (SBI) has spread its arms around the world and has a network of branches spanning all time zones. SBI's International Banking Group delivers the full range of cross-border finance solutions through its four wings - the Domestic division, the Foreign Offices division, the Foreign Department and the International Services division. FEATURES OF STATE BANK OF INDIA - Extended Banking Hours - Round the Clock ATM and Telebanking - Attractive Deposit Schemes - The first Branch in operation in Post Liberation Goa - Warm unmatched ambience that you will love - Fully computerized Branch with latest Technological value added services. - Branch with the largest number of Customers among all Banks - The number one Bank in Goa - Part of a group with over a century of Banking traditi Shri Chinai College 63
    • TYBBI Commercial Banking Form ‘A’ BALANCE SHEET OF SBI BANK LTD BALANCE SHEET as on 31st March: - 2007-2006 Rs in 000’s CAPITAL &LIABILITIES Sch 2007 2006 Capital 1 526,29,89 526,29,89 Reserve and surplus 2 30772,25,75 27117,78,72 Deposit 3 435521,0894 380046,05,53 Borrowing 4 39703,33,52 30641,24,43 Other liabilities 5 60042,25,78 55697,56,88 Total 566565,23,88 494028,95,45 Assets Cash & balance with RBI 6 29076,42,50 21652,70,39 Balance with banks & money at call & short notice 7 22892,26,50 22907,29,72 Investments 8 149148,88,25 162534,24,10 Advances 9 337336,49,35 261800,93,59 Fixed Assets 10 2818,86,67 27529339 Other assets 11 252923061 22380,84,26 Total 566565,23,88 494028,95,45 Contingent liabilities 12 306590,01,55 22,888,37,72 Bills for collection 23367,51,09 20592,9535 Shri Chinai College 64
    • TYBBI Commercial Banking Common size Statement of SBI Bank CAPITAL & LIABILITIES Sch 2007 % Capital 1 526,29,89 1 Reserves and Surplus 2 30772,25,75 5 Deposits 3 435521,0894 77 Borrowings 4 39703,33,52 7 Other liabilities & Provisions 5 60042,25,78 10 Total liabilities 566565,23,88 100 ASSETS Cash & balances with RBI 6 29076,42,50 5 Balance with banks & money at call & short notice 7 22892,26,50 4 Investments 8 149148,88,25 26 Advances 9 337336,49,35 59 Fixed Assets 10 2818,86,67 1 Other assets 11 252923061 5 Total Assets 566565,23,88 100 Contingent liabilities 12 306590,01,55 54 Bills for collection 23367,51,09 4 Shri Chinai College 65
    • TYBBI Commercial Banking Comparative Size statement of SBI bank Capital &Liabilities Sch 2007 2006 Growth % (+)/(-) Capital 1 526,29,89 526,29,89 - - Reserves and surplus 2 30772,25,75 27117,78,72 3654,47,03 13 Deposits 3 435521,0894 380046,05,53 55475.03,41 15 Borrowings 4 39703,33,52 30641,24,43 9062,09,09 30 Other liabilities 5 60042,25,78 55697,56,88 4344,68,90 8 Total Liabilities 566565,23,88 494028,95,45 72536,28,43 15 Assets Cash & balance with RBI 6 29076,42,50 21652,70,39 7423,72,11 34 Balance with banks & money at call & short notice 7 22892,26,50 22907,29,72 (15,03,22) (0.1) Investments 8 149148,88,25 162534,24,10 (13385,35,85) (8) Advances 9 337336,49,35 261800,93,59 75535,55,76 29 Fixed Assets 10 2818,86,67 27529339 659328 2 Other assets 11 252923061 22380,84,26 29114635 13 Total Assets 566565,23,88 494028,95,45 72536,28,43 15 Contingent liabilities 12 306590,01,55 22,888,37,72 77708,63,83 34 Bills for collection 23367,51,09 20592,9535 2774,55,74 13 Trend Analysis Shri Chinai College 66
    • TYBBI Commercial Banking Shri Chinai College 67 CAPITAL & LIABILITIES Sch 2006 % 2007 % Capital 1 526,29,89 100 526,29,89 - Reserve and surplus 2 27117,78,72 100 30772,25,75 113 Deposit 3 380046,05,53 100 435521,0894 115 Borrowing 4 30641,24,43 100 39703,33,52 130 Other liabilities 5 55697,56,88 100 60042,25,78 108 Total 494028,95,45 100 566565,23,88 115 ASSETS Cash & balance with RBI 6 21652,70,39 100 29076,42,50 134 Balance with banks & money at call & short notice 7 22907,29,72 100 22892,26,50 100 Investments 8 162534,24,10 100 149148,88,25 92 Advances 9 261800,93,59 100 337336,49,35 129 Fixed Assets 10 27529339 100 2818,86,67 102 Other assets 11 22380,84,26 100 252923061 113 Total Assets 494028,95,45 100 566565,23,88 115 Contingent liabilities 12 22,888,37,72 100 306590,01,55 1340 Bills for collection 20592,9535 100 23367,51,09 113
    • TYBBI Commercial Banking COMMENTS: - • Common size Analysis:- From the above common size statement of SBI bank we observe that the percentage of capital is almost same as compared to ICICI bank. SBI banks percentage of major funds from deposits and advances is high. The borrowed funds are also less which is again not a good sign. Hence they should introduce borrowing and diversify their assets and funds. As we go through common size balance sheet of ICICI bank we see that percentage of capital of these bank is same as compared to SBI. Deposits and advances is less over here, but its Reserves and surplus, borrowings, call money, etc. is high and we also know that its flow of funds is spread in other sources also. • Comparative Analysis: - Capital of ICICI bank has increased by 1%, whereas capital of SBI has remained constant, but there is growth in capital of ICICI bank which indicate that this is having sound position in market. Reserves & Surplus of ICICI bank is approximately around 10%. But SBI bank has 13% which indicate ICICI bank have less Reserves & Surplus which is dangerous in future to expand & face challenges. Deposits of ICICI BANK is 40% but SBI bank’s deposit is 15% due to which it has failed to raise fresh capital from potential or present customer. Borrowing of ICICI bank is 33% and that of SBI is 30%. A bank should borrow from outside to expand their work and business, which will increase their profitability growth. Shri Chinai College 68
    • TYBBI Commercial Banking Cash in hand balance with other bank call money deposits of ICICI bank is high as compared to SBI bank which indicates that ICICI bank has good track record. The loans & advances of ICICI bank is also higher as compared to SBI bank, which shows ICICI bank is earning more interest profit. • Trend analysis:- When we go through the trend analysis of SBI bank we can observe that even they are doing a fair business and are able to increase their customer base. The total asset of ICICI is increasing year by year and they are able to gain income, profit, & public confidence. ICICI bank: - When we go through trend analysis of ICICI bank, we see that there is a tremendous growth in capital, deposits and borrowings which shows that it has gained confidence of public and also its profit has gone satisfying upwards. As far as total assets are concerned there has been tremendous increase in assets including loans & advances, investments, etc which shows that profits and incomes of ICICI bank are increasing. SBI bank: - When we go through trend analysis of SBI bank, we can find that there has been a very slow growth in deposits, borrowing and also in capital, which shows that it has failed to attract the customers which has resulted in low profit margin and less incomes as compared to ICICI. Shri Chinai College 69
    • TYBBI Commercial Banking As far as the fixed assets are concerned they have increased by 2%. Loans and advances of SBI bank is showing less growth as compared to that of ICICI bank. Thus, we can conclude that the profit of ICICI bank is much more than SBI bank. Shri Chinai College 70
    • TYBBI Commercial Banking PERFORMANCE HIGHLIGHTS OF ICICI BANK 1% 7% 67% 15% 5% 5% Capital Reserves & Surplus Deposits Borrowings Cash bal. with RBI Fixed & other Assets PERFORMANCE HIGHLIGHTS OF SBI BANK 1% 5% 77% 7% 5% 5% Capital Reserves & Surplus Deposits Borrowings Cash bal. with RBI Fixed & Other Assets CASE STUDY OF ICICI BANK & SBI BANK Shri Chinai College 71
    • TYBBI Commercial Banking In spite of all this, the long case on ICICI is compelling. In my opinion, ICICI's earnings growth will continue thanks to the rising middle class income in India. More and more people now have disposable income on their hands to buy car(s), buy houses, invest or just plain deposit in the savings accounts. In speaking to a lot of my friends and family back in India, almost everyone from the younger generation prefers private banks like ICICI or SBI bank. The younger generation does not like government-owned banks because they do not understand the concept of "customer service"-- they treat you like they are doing you a favor by safe-keeping your hard-earned money. Average salary increases in India are currently at 30% and this alone gives people a lot of disposable income at hand. Competition and personal experience ICICI faces competition primarily from SBI bank, which is another growing bank in the private sector, as well as others like HDFC, Canara bank, and Punjab National Bank. But here we will focus on two banks ICICI and SBI. Also, after having spoken to friends and family back in India, I got the impression that ICICI was more aggressive in terms of its marketing strategies as well as following-up with potential customers. One of my uncle was trying to open up an NRE savings account about a year back, he was exploring options with SBI as well as ICICI. After having emailed both through their respective company websites, he is still waiting on hearing back from SBI, whereas ICICI got in touch with him within 48 hours. This gave me the impression that if SBI bank did not care about a potential customer, it wouldn't care much after we actually became their customer - no points for guessing he finally ended up opening an account with SBI. Conclusion All in all, I think ICICI has a very compelling growth story ahead of it as Indian economy continues to boom as we have seen above by doing analysis of the financial statements which is in the form of Common size, Comparative and Trend analysis. SHRI CHINAI COLLEGE OF COMMERCE & ECONOMICS Shri Chinai College 72
    • TYBBI Commercial Banking Survey for Project on Commercial Banking NAME: - DESIGNATION: - SIGNATURE: - CONTACT NO.: - 1) Does a Commercial Bank play a major role in growth & development of the country? Yes No 2) You open an account in a Commercial bank for what reason? High profits Quick Services Why? 3) How quick is your Commercial Bank at responding to your queries & problem? Poor Bad Good Excellent Why? 4) In which areas of a commercial bank you need improvement? Interest Service Behaviours Schemes Others Comment for Improvement: PROJECT GUIDE: Mrs. Leena Nair Survey conducted by: SARIKA. A. SHETTY SIGNATURE: ____________________ TYBBI Roll No. 47 - AnAlysis - Shri Chinai College 73
    • TYBBI Commercial Banking 1) Does a Commercial bank play a major role in growth and development of the country? 8% 92% YES NO Analysis: From the above graph we can analyze that 92% of the people interviewed think that a Commercial Bank does play a major role in economic development whereas there are still 8 % of them who don’t feel the same way. 2) How do you find depositing in a Commercial Bank? 75% 25% Simple Complex Analysis From the above graph we can analyze that 75% of the people interviewed find it convenient for depositing in a Commercial Bank, whereas 25% of the people find it difficult for depositing. Shri Chinai College 74
    • TYBBI Commercial Banking 3) How quick is your Commercial Bank at responding to your queries and problem? 15% 24% 5% 56% Poor Bad Good Excellent Analysis From the above graph we can analyze that 56% of the people are contented with the way a commercial bank response to their queries and problems. 4) In which areas of a Commercial bank you need improvement? 17% 51% 2% 22% 8% Interest Service Behaviour Schemes Others Analysis From the above graph we can analyze that 51% of the people want reasonable interest rates. And about 22% of the people want new, effective and efficient schemes to be introduced by the banks. And about 27% of the people want convenient and effective services to be provided by commercial banks. Shri Chinai College 75
    • TYBBI Commercial Banking  CONCLUSION: Friends, as we know, over five decades the Commercial banks in India achieved astounding success by enormously spreading banking services in far-flung and unbanked areas of the country through their massive branch network are garnering burgeoning amount of savings which represent half of the GDP of the country. A major portion of these resources had been deployed to meet the needs of priority sectors which are critical to the economy. However, it is crucial for the commercial banking industry to meet the increasingly complex savings and financing needs of the economy by offering a wider and flexible range of financial products tailored for all types of customers. In recent years, it is being felt widely that the commercial banking system has not actually grown as sound & vibrant as it needed to be. Strong capital positions and balance sheets places the Commercial banks in a better position to deal with and absorb the economic shocks. These Banks need to face competition without diluting the operating standards. In banking, there is no such thing as "one size fits all." But today's commercial banks are more diverse than ever. You'll find a tremendous range of opportunities in commercial banking, starting at the branch level because commercial bankers, now are highly experienced in working with businesses to develop the right financial package to meet your unique business needs. The face of Commercial banking is changing rapidly. Competition is going to be tough Banks should avail of the existing and upcoming opportunities as well as address the above-discussed issues if they have to succeed, not just survive, in the changing environment. Thus, Commercial Banks occupy a dominant place in the money market, they are like a reservoir into which flow the savings, the idle surplus, money of households and from which loans are given on interest to businessmen & others who need them for investment or productive uses. Shri Chinai College 76
    • TYBBI Commercial Banking  RECOMMENDATIONS Banking in India has made a remarkable progress in its growth and expansion, as well as business with social perspective in the fulfillment of national objectives. Indian Commercial banking has developed, but, its perfection is yet to be seen. There still remains many tasks to be fulfilled. 1. Still there are villages left without banking facilities, so many more rural banks branches need to be opened. 2. Quality of Commercial banking facilities should be improved to the atmost satisfaction of the customer. 3. Operational costs of Commercial banks should be reduced to the minimum profitability and working results must be maximized. 4. Banking staff should be adequately trained. 5. More lending should be made in favour of priority sectors. 6. Malpractices, fraud, corruption and red-tapism must be done away with. 7. More attention should be paid to the development of exports. 8. Nationalised banks should give more technical assistance to the small industrialists. 9. Interest rates on deposits should be enhanced reasonably up to 12-13 % so that savers get their legitimate returns. 10. The high level of overdues of banks have become a matter of concern. So, banks should make all possible efforts to reduce their overdues. This all requires that no loans should be given without proper identification and address of the deserving rural poor. Thus, in order that the association of banks with industry is more fruitful and rewarding, many innovations have to be planned and introduced systematically and greater degree of managerial competence will have to be developed in Commercial banking sector. Shri Chinai College 77
    • TYBBI Commercial Banking  FUTURE PROSPECTS OF COMMERCIAL BANKING: Indian banking has developed. But, its perfection is yet to be seen. There still remain many tasks to be fulfilled. Historically, profitability from lending activities has been cyclic and dependent on the needs and strengths of loan customers. In recent history, investors have demanded a more stable revenue stream and banks have therefore placed more emphasis on transaction fees, primarily loan fees but also including service charges on array of deposit activities and ancillary services (international banking, foreign exchange, insurance, investments, wire transfers, etc). However, lending activities still provides and in future, too will provide bulk of a Commercial bank's income. As part of the financial services industry, commercial banking are worldwide attempting to compete better by improving core operations and differentiating the customer experience. The banking sector has been consolidating; it is worth noting that far more people are employed in the Commercial banking sector than any other part of the financial services industry. Jobs in banking can be exciting and offer excellent opportunities to learn about business, interact with people and build up a clientele. In future, if we are well-prepared and enthusiastic about entering the field, we are likely to find a wide variety of opportunities open to us. Thus, we can predict the future of Commercial bank, to be spreaded world wide. They will be providing an unprecedented level of service to a wide range of business clients, from small business, through to multi-national corporate clients. In future, Commercial Bank will come up with more innovative and experienced depth knowledge of specific sectors, to meet all of our banking requirements. Shri Chinai College 78
    • TYBBI Commercial Banking Annexure I had visited ICICI Bank, Andheri [w] branch on 28th August 2007. There I interviewed Miss. Shubhangi Gaikwad – Assistant Manager of the bank. It was a very good experience interviewing her. Also she entertained me to the full extent and rendered full support by providing me with the relevant information in regards to the completion of this project. Shri Chinai College 79
    • TYBBI Commercial Banking BIBLIOGRAPHY Websites • www.google.comwww.rbibulletin.com • www. icici.com • www. britannica.com Books • Commercial Banking Management – By “Reed Edward” • Banking, Theory and Practice – By “Reddy P N” • Banking – by Parker J Magazines - PROFESSIONAL BANKERS (The ICFAI University, June 2007) Other sources: Interview with Miss Shubhangi Gaikwad (Assisstant Manager) of ICICI Bank, Andheri(W) Branch and Mrs. Mithila Jadhav ( Chief Manager) of SBI, Andheri (E) Branch. Shri Chinai College 80