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Divya report

  1. 1. A PROJECT REPORT ON “STUDY THE IMPACT OF CRM ON CUSTOMERS OF BANKS OF JAIPUR CITY” (Submitted in the partial fulfillment of course for the award of The degree of Master of Business Administration)Submitted to: Submitted By:Miss. Jaya Pareek Divya SharmaMrs. Nidhi Tak PSOM, DMS PART- II POORNIMA SCHOOL OF MANAGEMENT ISI-2, RIICO Institutional Area, Goner Road, Sitapura, Jaipur.
  2. 2. CERTIFICATE Poornima School of ManagementThis is to certify that Miss Divya Sharma student of MBA 4th semester from Poornimaschool of management, Jaipur had completed its project report on the topic of ―STUDYTHE IMPACT OF CRM ON CUSTOMERS OF BANKS OF JAIPUR CITY‖ under thesupervision of miss Jaya pareek faculty member DMS PGC.To best of my knowledge report is original and has not been copied or submittedanywhere else. It is an independent work done by him. Dr. Vandana sharma Director, PSOM DMS, PGC
  3. 3. DeclarationHereby I declare that the project report entitled ―STUDY THE IMPACT OF CRM ONCUSTOMERS OF BANKS OF JAIPUR CITY‖ submitted for the degree of MBA is myoriginal work and the project report has not formed the basis for the award of anydiploma, degree, associated ship, fellowship or similar other title. It has been notsubmitted to any other university or institution for the award of any degree or diploma. Name Divya Sharma MBA 2 year 4th sem nd
  4. 4. PREFACEThe title of this study is ―STUDY THE IMPACT OF CRM ON CUSTOMERS OF BANKSOF JAIPUR CITY‖ This study shows that in current market why various banks are usingCRM activities, because overall goals of banks are to find, attract, and win new clients,nurture and retain those the company already has, entice former clients back into thefold, and reduce the costs of marketing and client service. This research is related tobasicly banks of Jaipur, specially HDFC and ICICI bank. The objective of this study is tobring insight and deeper understanding into the objectives, strategies and the expectedbenefits of CRM initiatives by organizations particularly service companies like banksand to understand consumer psyche about CRM in banking area.Method which used in this study is exploratory and source of data collection is bothsecondary and primery data collections which are collect by the questionnaire, internet,various types of newspapers, magazines and other books related to topic written byvarious author. This study will show impact on customers of various CRM activities.There are many limitation arise while study and prepare this research like The area ofstudy was Jaipur so it cannot be generalized to other cities and Time Period of theproject was not sufficient to study all the factors in deep. Key elements which considerin this study are satisfaction of customers, use of technology in banks, types of CRMactivities etc. There are not so much data available on this topic which is his limitation ofthis report. At last it is concluded that Technical solutions deployed by banks today areflexible, user-friendly and meant to facilitate specific workflow and requirements inimplementation processes. In order to simplify lives, banks have begun toimplement end-to-end technologies through all departments with the intention ofremoving human error from processes. Previously existing manual environments couldnot have been adequate for future visions, growth plans and strategies.
  5. 5. ACKNOWLEDGEMENTI express my sincere thanks to the project guide Ms. Savita Panwar and Ms. JayaPareek ,and Mrs. Nidhi Tak faculty, Department of Management Studies, PoornimaGroup of Colleges, Jaipur, for guiding me right from the inception till the successfulcompletion of the project. I sincerely acknowledge both for extending the valuableguidance, support for literature, critical review of project and the report but above all,the moral support shehad provided to me during all stages of this project study.I would also like to thanks Mr. R. K. Agarwal and all the supporting staff of Departmentof Management Studies, Poornima Group of Colleges, Jaipur for their help andcooperation throughout the project. Divya Sharma
  6. 6. EXECUTIVE SUMMARY“Customer relationship management (CRM) is a widely-implemented strategy formanaging a company‘s interactions with customers, clients and sales prospects. Itinvolves using technology to organize, automate, and synchronize business processesprincipally sales activities, but also those for marketing, customer service, andtechnical.‖Most CRM initiatives begin with a strategic need to manage the process of handlingcustomer related information more effectively. For beginners it could simply mean betterlead management capabilities or sales pipeline visibility. However, as organizationsmature in their CRM initiatives, they begin to look at CRM as tool to acquire strategicdifferentiators. The objective of this study to find out that how the expected benefits of CRM caninitiatives by organizations be described, to find out positive impact on the overallperformance of the organization in the long run, to get more knowledge about CRM inbanking sector, to understand consumer psyche about CRM in banking area, to analyzethat how CRM works as a link between banks and customers. The study might belimited by some factors like the primary data collected in form of questionnaires andinterview might have Inherent limitation of biasness and casual response, due tocompetitive advantage banks don‘t disclose their policies in public, banking sector isvery big and not full covered in limited time, many people were not serious while fillingthe Questionnaires, the sample size is very short.This research concluded that Technical solutions deployed by banks today are flexible,user-friendly and meant to facilitate specific workflow and requirements inimplementation processes. In order to simplify lives, banks have begun toimplement end-to-end technologies through all departments with the intention ofremoving human error from processes. Previously existing manual environments couldnot have been adequate for future visions, growth plans and strategies.
  7. 7. INDEXS.NO CONTENT PAGE NO.1. Introduction to industry 1-602. Introduction to organization 61-1043. Research methodology 105-110 3.1. Title of study 3.2. Duration of the project 3.3. Objective of the project 3.4. Type of research 3.5. Sample size , method of selecting sample 3.6. Scope of study 3.7. Limitation of study4. Analysis and interpretation 111-1215. Facts and finding 122-1226. SWOT analysis 123-1267. Conclusion 127-1278. Recommendation/ suggestion 128-1299. Appendix 130-132 10. Bibliography 133-135
  8. 8. INTRODUCTION OF INDUSTRYA bank is a financial intermediary that accepts deposits and channels those depositsinto lending activities, either directly or through capital markets. A bank connectscustomers with capital deficits to customers with capital surpluses.The banking section will navigate through all the aspects of the Banking System inIndia. It will discuss upon the matters with the birth of the banking concept in the countryto new players adding their names in the industry in coming few years.The banker of all banks, Reserve Bank of India (RBI), the Indian Banks Association(IBA) and top 20 banks like IDBI, HSBC, ICICI, ABN AMRO, etc. has been well definedunder three separate heads with one page dedicated to each bank. However, in theintroduction part of the entire banking cosmos, the past has been well explained underthree different heads namely: History of Banking in India Nationalization of Banks in India Scheduled Commercial Banks in IndiaThe first deals with the history part since the dawn of banking system in India.Government took major step in the 1969 to put the banking sector into systems and itnationalized 14 private banks in the mentioned year. This has been elaborated inNationalization of Banks in India. The last but not the least explains about the scheduledand unscheduled banks in India. Section 42(6)(a) of RBI Act 1934 lays down thecondition of scheduled commercial banks. The description along with a list of scheduledcommercial banks is given on this page.
  9. 9. History of Banking in IndiaBanking in India originated in the last decades of the 18th century. The first bankswere The General Bank of India, which started in 1786, and Bank of Hindustan, whichstarted in 1790; both are now defunct. The oldest bank in existence in India is the StateBank of India, which originated in the Bank of Calcutta in June 1806, which almostimmediately became the Bank of Bengal. This was one of the three presidency banks,the other two being the Bank of Bombay and the Bank of Madras, all three of whichwere established under charters from the British East India Company. For many yearsthe Presidency banks acted as quasi-central banks, as did their successors. The threebanks merged in 1921 to form the Imperial Bank of India, which, upon Indiasindependence, became the State Bank of India.Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 asa consequence of the economic crisis of 1848-49. The Allahabad Bank, established in1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint StockBank: A company that issues stock and requires shareholders to be held liable for thecompanys debt) It was not the first though. That honor belongs to the Bank of UpperIndia, which was established in 1863, and which survived until 1913, when it failed, withsome of its assets and liabilities being transferred to the Alliance Bank of Simla.When the American Civil War stopped the supply of cotton to Lancashire fromthe Confederate States, promoters opened banks to finance trading in Indian cotton.With large exposure to speculative ventures, most of the banks opened in India duringthat period failed. The depositors lost money and lost interest in keeping deposits withbanks. Subsequently, banking in India remained the exclusive domain of Europeans fornext several decades until the beginning of the 20th century.Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The ComptoiredEscompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in1862; branches in Madrasand Puducherry, then a French colony,
  10. 10. followed. HSBC established itself in Bengal in 1869. Calcutta was the most activetrading port in India, mainly due to the trade of the British Empire, and so became abanking center.The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, establishedin Lahore in 1895, which has survived to the present and is now one of the largestbanks in India.Around the turn of the 20th Century, the Indian economy was passing through a relativeperiod of stability. Around five decades had elapsed since the Indian Mutiny, and thesocial, industrial and other infrastructure had improved. Indians had established smallbanks, most of which served particular ethnic and religious communities.The presidency banks dominated banking in India but there were also some exchangebanks and a number of Indian joint stock banks. All these banks operated in differentsegments of the economy. The exchange banks, mostly owned by Europeans,concentrated on financing foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the presidency andexchange banks. This segmentation let Lord Curzon to observe, "In respect of bankingit seems we are behind the times. We are like some old fashioned sailing ship, dividedby solid wooden bulkheads into separate and cumbersome compartments."The period between 1906 and 1911, saw the establishment of banks inspired bythe Swadeshi movement. The Swadeshi movement inspired local businessmen andpolitical figures to found banks of and for the Indian community. A number of banksestablished then have survived to the present such as Bank of India, CorporationBank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.The fervour of Swadeshi movement lead to establishing of many private banksin Dakshina Kannada and Udupi district which were unified earlier and known by thename South Canara ( South Kanara ) district. Four nationalised banks started in thisdistrict and also a leading private sector bank. Hence undivided Dakshina Kannadadistrict is known as "Cradle of Indian Banking".
  11. 11. During the First World War (1914-1918) through the end of the Second WorldWar (1939-1945), and two years thereafter until the independence of India werechallenging for Indian banking. The years of the First World War were turbulent, and ittook its toll with banks simply collapsing despite the Indian economy gaining indirectboost due to war-related economic activities.At least 94 banks in India failed between 1913 and 1918 as indicated in the followingtable: Number of banks Authorized capital Paid-up CapitalYears that failed (Rs. Lakhs) (Rs. Lakhs)1913 12 274 351914 42 710 1091915 11 56 51916 13 231 41917 9 76 251918 7 209 1
  12. 12. Post-IndependenceThe partition of India in 1947 adversely impacted the economies of Punjab and WestBengal, paralyzing banking activities for months. Indias independence marked the endof a regime of the Laissez-faire for the Indian banking. The Government of India initiatedmeasures to play an active role in the economic life of the nation, and the IndustrialPolicy Resolution adopted by the government in 1948 envisaged a mixed economy.This resulted into greater involvement of the state in different segments of the economyincluding banking and finance. The major steps to regulate banking included: The Reserve Bank of India, Indias central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in] In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors. NationalizationBanks Nationalization in India: Newspaper Clipping, Times of India, July, 20, 1969
  13. 13. Despite the provisions, control and regulations of Reserve Bank of India, banks in Indiaexcept the State Bank of India or SBI, continued to be owned and operated by privatepersons. By the 1960s, the Indian banking industry had become an important tool tofacilitate the development of the Indian economy. At the same time, it had emerged as alarge employer, and a debate had ensued about the nationalization of the bankingindustry. Indira Gandhi, then Prime Minister of India, expressed the intention ofthe Government of India in the annual conference of the All India Congress Meeting in apaper entitled "Stray thoughts on Bank Nationalization." The meeting received the paperwith enthusiasm.Thereafter, her move was swift and sudden. The Government of India issued anordinance and nationalised the 14 largest commercial banks with effect from themidnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, describedthe step as a "masterstroke of political sagacity." Within two weeks of the issue of theordinance, the Parliament passed the Banking Companies (Acquisition and Transfer ofUndertaking) Bill, and it received the presidential approval on 9 August 1969.A second dose of nationalization of 6 more commercial banks followed in 1980. Thestated reason for the nationalization was to give the government more control of creditdelivery. With the second dose of nationalization, the Government of India controlledaround 91% of the banking business of India. Later on, in the year 1993, thegovernment merged New Bank of India with Punjab National Bank. It was the onlymerger between nationalized banks and resulted in the reduction of the number ofnationalized banks from 20 to 19. After this, until the 1990s, the nationalized banks grewat a pace of around 4%, closer to the average growth rate of the Indian economy.LiberalizationIn the early 1990s, the then Narsimha Rao government embarked on a policyof liberalization, licensing a small number of private banks. These came to be knownas New Generation tech-savvy banks, and included Global Trust Bank (the first of such
  14. 14. new generation banks to be set up), which later amalgamated with Oriental Bank ofCommerce, Axis Bank(earlier as UTI Bank), ICICI Bankand HDFC Bank. This move,along with the rapid growth in the economy of India, revitalized the banking sector inIndia, which has seen rapid growth with strong contribution from all the three sectors ofbanks, namely, government banks, private banks and foreign banks.The next stage for the Indian banking has been set up with the proposed relaxation inthe norms for Foreign Direct Investment, where all Foreign Investors in banks may begiven voting rights which could exceed the present cap of 10%,at present it has gone upto 74% with some restrictions.The new policy shook the Banking sector in India completely. Bankers, till this time,were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning.The new wave ushered in a modern outlook and tech-savvy methods of working fortraditional banks. All this led to the retail boom in India. People not just demanded morefrom their banks but also received more.Currently (2007), banking in India is generally fairly mature in terms of supply, productrange and reach-even though reach in rural India still remains a challenge for theprivate sector and foreign banks. In terms of quality of assets and capital adequacy,Indian banks are considered to have clean, strong and transparent balance sheetsrelative to other banks in comparable economies in its region. The Reserve Bank ofIndia is an autonomous body, with minimal pressure from the government. The statedpolicy of the Bank on the Indian Rupee is to manage volatility but without any fixedexchange 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 retailbanking, mortgages and investment services are expected to be strong. One may alsoexpect M&As, takeovers, and asset sales.In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stakein Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investorhas been allowed to hold more than 5% in a private sector bank since the RBI
  15. 15. announced norms in 2005 that any stake exceeding 5% in the private sector bankswould need to be vetted by them.In recent years critics have charged that the non-government owned banks are tooaggressive in their loan recovery efforts in connection with housing, vehicle andpersonal loans. There are press reports that the banks loan recovery efforts havedriven defaulting borrowers to suicide.The Indian Banking industry, which is governed by the Banking Regulation Act of India,1949 can be broadly classified into two major categories, non-scheduled banks andscheduled banks. Scheduled banks comprise commercial banks and the co-operativebanks. In terms of ownership, commercial banks can be further grouped intonationalized banks, the State Bank of India and its group banks, regional rural banksand private sector banks (the old/ new domestic and foreign). These banks have over67,000 branches spread across the country.The first phase of financial reforms resulted in the nationalization of 14 major banks in1969 and resulted in a shift from Class banking to Mass banking. This in turn resulted ina significant growth in the geographical coverage of banks. Every bank had to earmarka minimum percentage of their loan portfolio to sectors identified as ―priority sectors‖.The manufacturing sector also grew during the 1970s in protected environs and thebanking sector was a critical source. The next wave of reforms saw the nationalizationof 6 more commercial banks in 1980. Since then the number of scheduled commercialbanks increased four-fold and the number of bank branches increased eight-fold.After the second phase of financial sector reforms and liberalization of the sector in theearly nineties, the Public Sector Banks (PSB) s found it extremely difficult to competewith the new private sector banks and the foreign banks. The new private sector banksfirst made their appearance after the guidelines permitting them were issued in January1993. Eight new private sector banks are presently in operation. These banks due totheir late start have access to state-of-the-art technology, which in turn helps them tosave on manpower costs and provide better services.
  16. 16. During the year 2000, the State Bank Of India (SBI) and its 7 associates accounted fora 25 percent share in deposits and 28.1 percent share in credit. The 20 nationalizedbanks accounted for 53.2 percent of the deposits and 47.5 percent of credit during thesame period. The share of foreign banks (numbering 42), regional rural banks and otherscheduled commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percentrespectively in deposits and 8.41 percent, 3.14 percent and 12.85 percent respectivelyin credit during the year 2000.Current ScenarioThe industry is currently in a transition phase. On the one hand, the PSBs, which arethe mainstay of the Indian Banking system are in the process of shedding their flab interms of excessive manpower, excessive non Performing Assets (Npas) and excessivegovernmental equity, while on the other hand the private sector banks are consolidatingthemselves through mergers and acquisitions.PSBs, which currently account for more than 78 percent of total banking industry assetsare saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues fromtraditional sources, lack of modern technology and a massive workforce while the newprivate sector banks are forging ahead and rewriting the traditional banking businessmodel by way of their sheer innovation and service. The PSBs are of course currentlyworking out challenging strategies even as 20 percent of their massive employeestrength has dwindled in the wake of the successful Voluntary Retirement Schemes(VRS) schemes.The private players however cannot match the PSB‘s great reach, great size andaccess to low cost deposits. Therefore one of the means for them to combat the PSBshas been through the merger and acquisition (M& A) route. Over the last two years, theindustry has witnessed several such instances. For instance, Hdfc Bank‘s merger withTimes Bank Icici Bank‘s acquisition of ITC Classic, Anagram Finance and Bank ofMadura. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank are said to be onthe lookout. The UTI bank- Global Trust Bank merger however opened a pandora‘s box
  17. 17. and brought about the realization that all was not well in the functioning of many of theprivate sector banks.Private sector Banks have pioneered internet banking, phone banking, anywherebanking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and combinedvarious other services and integrated them into the mainstream banking arena, whilethe PSBs are still grappling with disgruntled employees in the aftermath of successfulVRS schemes. Also, following India‘s commitment to the W To agreement in respect ofthe services sector, foreign banks, including both new and the existing ones, have beenpermitted to open up to 12 branches a year with effect from 1998-99 as against theearlier stipulation of 8 branches.Talks of government diluting their equity from 51 percent to 33 percent in November2000 has also opened up a new opportunity for the takeover of even the PSBs. The FDIrules being more rationalized in Q1FY02 may also pave the way for foreign bankstaking the M& A route to acquire willing Indian partners.Meanwhile the economic and corporate sector slowdown has led to an increasingnumber of banks focusing on the retail segment. Many of them are also entering thenew vistas of Insurance. Banks with their phenomenal reach and a regular interface withthe retail investor are the best placed to enter into the insurance sector. Banks in Indiahave been allowed to provide fee-based insurance services without risk participation,invest in an insurance company for providing infrastructure and services support and setup of a separate joint-venture insurance company with risk participation.Aggregate Performance of the Banking IndustryAggregate deposits of scheduled commercial banks increased at a compounded annualaverage growth rate (Cagr) of 17.8 percent during 1969-99, while bank credit expandedat a Cagr of 16.3 percent per annum. Banks‘ investments in government and otherapproved securities recorded a Cagr of 18.8 percent per annum during the same period.
  18. 18. In FY01 the economic slowdown resulted in a Gross Domestic Product (GDP) growth ofonly 6.0 percent as against the previous year‘s 6.4 percent. The WPI Index (a measureof inflation) increased by 7.1 percent as against 3.3 percent in FY00. Similarly, moneysupply (M3) grew by around 16.2 percent as against 14.6 percent a year ago.The growth in aggregate deposits of the scheduled commercial banks at 15.4 percent inFY01 percent was lower than that of 19.3 percent in the previous year, while the growthin credit by SCBs slowed down to 15.6 percent in FY01 against 23 percent a year ago.The industrial slowdown also affected the earnings of listed banks. The net profits of 20listed banks dropped by 34.43 percent in the quarter ended March 2001. Net profitsgrew by 40.75 percent in the first quarter of 2000-2001, but dropped to 4.56 percent inthe fourth quarter of 2000-2001.On the Capital Adequacy Ratio (CAR) front while most banks managed to fulfill thenorms, it was a feat achieved with its own share of difficulties. The CAR, which atpresent is 9.0 percent, is likely to be hiked to 12.0 percent by the year 2004 based onthe Basle Committee recommendations. Any bank that wishes to grow its assets needsto also shore up its capital at the same time so that its capital as a percentage of therisk-weighted assets is maintained at the stipulated rate. While the IPO route was amuch-fancied one in the early ‗90s, the current scenario doesn‘t look too attractive forbank majors.Consequently, banks have been forced to explore other avenues to shore up theircapital base. While some are wooing foreign partners to add to the capital others areemploying the M& A route. Many are also going in for right issues at prices considerablylower than the market prices to woo the investors.Interest Rate SceneThe two years, post the East Asian crises in 1997-98 saw a climb in the global interestrates. It was only in the later half of FY01 that the US Fed cut interest rates. India hashowever remained more or less insulated. The past 2 years in our country wascharacterized by a mounting intention of the Reserve Bank Of India (RBI) to steadily
  19. 19. reduce interest rates resulting in a narrowing differential between global and domesticrates.The RBI has been affecting bank rate and CRR cuts at regular intervals to improveliquidity and reduce rates. The only exception was in July 2000 when the RBI increasedthe Cash Reserve Ratio (CRR) to stem the fall in the rupee against the dollar. Thesteady fall in the interest rates resulted in squeezed margins for the banks in general.Governmental PolicyAfter the first phase and second phase of financial reforms, in the 1980s commercialbanks began to function in a highly regulated environment, with administered interestrate structure, quantitative restrictions on credit flows, high reserve requirements andreservation of a significant proportion of lendable resources for the priority and thegovernment sectors. The restrictive regulatory norms led to the credit rationing for theprivate sector and the interest rate controls led to the unproductive use of credit and lowlevels of investment and growth. The resultant ‗financial repression‘ led to decline inproductivity and efficiency and erosion of profitability of the banking sector in general.This was when the need to develop a sound commercial banking system was felt. Thiswas worked out mainly with the help of the recommendations of the Committee on theFinancial System (Chairman: Shri M. Narasimham), 1991. The resultant financial sectorreforms called for interest rate flexibility for banks, reduction in reserve requirements,and a number of structural measures. Interest rates have thus been steadilyderegulated in the past few years with banks being free to fix their Prime LendingRates(PLRs) and deposit rates for most banking products. Credit market reformsincluded introduction of new instruments of credit, changes in the credit delivery systemand integration of functional roles of diverse players, such as, banks, financialinstitutions and non-banking financial companies (Nbfcs). Domestic Private SectorBanks were allowed to be set up, PSBs were allowed to access the markets to shore uptheir Cars.
  20. 20. Implications of Some Recent Policy MeasuresThe allowing of PSBs to shed manpower and dilution of equity are moves that will lendgreater autonomy to the industry. In order to lend more depth to the capital markets theRBI had in November 2000 also changed the capital market exposure norms from 5percent of bank‘s incremental deposits of the previous year to 5 percent of the bank‘stotal domestic credit in the previous year. But this move did not have the desired effect,as in, while most banks kept away almost completely from the capital markets, a fewprivate sector banks went overboard and exceeded limits and indulged in dubious stockmarket deals. The chances of seeing banks making a comeback to the stock marketsare therefore quite unlikely in the near future.The move to increase Foreign Direct Investment FDI limits to 49 percent from 20percent during the first quarter of this fiscal came as a welcome announcement toforeign players wanting to get a foot hold in the Indian Markets by investing in willingIndian partners who are starved of networth to meet CAR norms. Ceiling for FIIinvestment in companies was also increased from 24.0 percent to 49.0 percent andhave been included within the ambit of FDI investment.The abolishment of interest tax of 2.0 percent in budget 2001-02 will help banks pass onthe benefit to the borrowers on new loans leading to reduced costs and easier lendingrates. Banks will also benefit on the existing loans wherever the interest tax costelement has already been built into the terms of the loan. The reduction of interest rateson various small savings schemes from 11 percent to 9.5 percent in Budget 2001-02was a much awaited move for the banking industry and in keeping with the reducinginterest rate scenario, however the small investor is not very happy with the move.Some of the not so good measures however like reducing the limit for tax deducted atsource (TDS) on interest income from deposits to Rs 2,500 from the earlier level of Rs10,000, in Budget 2001-02, had met with disapproval from the banking fraternity whofeared that the move would prove counterproductive and lead to increasedfragmentation of deposits, increased volumes and transaction costs. The limit was
  21. 21. thankfully partially restored to Rs 5000 at the time of passing the Finance Bill in theParliament.April 2001-Credit Policy ImplicationsThe rationalization of export credit norms in will bestow greater operational flexibility onbanks, and also reduce the borrowing costs for exporters. Thus this move could triggerexports growth in the future. Banks can also hope to earn increased revenue with theinterest paid by RBI on CRR balances being increased from 4.0 percent to 6.0 percent.The stock market scam brought out the unholy nexus between the Cooperative banksand stockbrokers. In order to usher in greater prudence in their operations, the RBI hasbarred Urban Cooperative Banks from financing the stock market operations and is alsoin the process of setting up of a new apex supervisory body for them. Meanwhile theforeign banks have a bone to pick with the RBI. The RBI had announced that forexloans are not to be calculated as a part of Tier-1 Capital for drawing up exposure limitsto companies effective 1 April 2002. This will force foreign banks either to infuse freshcapital to maintain the capital adequacy ratio (CAR) or pare their asset base. Further,the RBI has also sought to keep foreign competition away from the nascent net bankingsegment in India by allowing only Indian banks with a local physical presence, to offerInternet banking.Crystal GazingOn the macro economic front, GDP is expected to grow by 6.0 to 6.5 percent while theprojected expansion in broad money (M3) for 2001-02 is about 14.5 percent. Credit anddeposits are both expected to grow by 15-16 percent in FY02. Indias foreign exchangereserves should reach US$50.0 billion in FY02 and the Indian rupee should hold steady.The interest rates are likely to remain stable this fiscal based on an expected downwardtrend in inflation rate, sluggish pace of non-oil imports and likelihood of declining global
  22. 22. interest rates. The domestic banking industry is forecasted to witness a higher degree ofmergers and acquisitions in the future. Banks are likely to opt for the universal bankingapproach with a stronger retail approach. Technology and superior customer service willcontinue to be the imperatives for success in this industry.Public Sector banks that imbibe new concepts in banking, turn tech savvy, leaner andmeaner post VRS and obtain more autonomy by keeping governmental stake to theminimum can succeed in effectively taking on the private sector banks by virtue of theirsheer size. Weaker PSU banks are unlikely to survive in the long run. Consequently,they are likely to be either acquired by stronger players or will be forced to look out forother strategies to infuse greater capital and optimize their operations.Foreign banks are likely to succeed in their niche markets and be the innovators interms of technology introduction in the domestic scenario. The outlook for the privatesector banks indeed looks to be more promising vis-à-vis other banks. While theirfocused operations, lower but more productive employee force etc will stand them good,possible acquisitions of PSU banks will definitely give them the much needed scale ofoperations and access to lower cost of funds. These banks will continue to be the earlytechnology adopters in the industry, thus increasing their efficiencies. Also, they havebeen amongst the first movers in the lucrative insurance segment. Already, banks suchas Icici Bank and Hdfc Bank have forged alliances with Prudential Life and StandardLife respectively. This is one segment that is likely to witness a greater deal of action inthe future. In the near term, the low interest rate scenario is likely to affect the spreadsof majors. This is likely to result in a greater focus on better asset-liability managementprocedures. Consequently, only banks that strive hard to increase their share of fee-based revenues are likely to do better in the future.Without a sound and effective banking system in India it cannot have a healthyeconomy. The banking system of India should not only be hassle free but it should beable to meet new challenges posed by the technology and any other external andinternal factors.
  23. 23. For the past three decades Indias banking system has several outstandingachievements to its credit. The most striking is its extensive reach. It is no longerconfined to only metropolitans or cosmopolitans in India. In fact, Indian banking systemhas reached even to the remote corners of the country. This is one of the main reasonsof Indias growth process. The governments regular policy for Indian bank since 1969has paid rich dividends with the nationalization of 14 major private banks of India.Not long ago, an account holder had to wait for hours at the bank counters for getting adraft or for withdrawing his own money. Today, he has a choice. Gone are days whenthe most efficient bank transferred money from one branch to other in two days. Now itis simple as instant messaging or dials a pizza. Money has become the order of theday.The first bank in India, though conservative, was established in 1786. From 1786 tilltoday, the journey of Indian Banking System can be segregated into three distinctphases. They are as mentioned below: Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II andPhase III.Phase IThe General Bank of India was set up in the year 1786. Next came Bank of Hindustanand Bengal Bank. The East India Company established Bank of Bengal (1809), Bank ofBombay (1840) and Bank of Madras (1843) as independent units and called itPresidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of
  24. 24. India was established which started as private shareholders banks, mostly Europeansshareholders.In 1865 Allahabad Bank was established and first time exclusively by Indians, PunjabNational Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,and Bank of Mysore were set up. Reserve Bank of India came in 1935.During the first phase the growth was very slow and banks also experienced periodicfailures between 1913 and 1948. There were approximately 1100 banks, mostly small.To streamline the functioning and activities of commercial banks, the Government ofIndia came up with The Banking Companies Act, 1949 which was later changed toBanking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965).Reserve Bank of India was vested with extensive powers for the supervision of bankingin India as the Central Banking Authority.During those days public has lesser confidence in the banks. As an aftermath depositmobilization was slow. Abreast of it the savings bank facility provided by the Postaldepartment was comparatively safer. Moreover, funds were largely given to traders.Phase IIGovernment took major steps in this Indian Banking Sector Reform after independence.In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a largescale especially in rural and semi-urban areas. It formed State Bank of India to act asthe principal agent of RBI and to handle banking transactions of the Union and StateGovernments all over the country.Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19thJuly, 1969, major process of nationalization was carried out. It was the effort of the thenPrime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the countrywere nationalized.
  25. 25. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980with seven more banks. This step brought 80% of the banking segment in India underGovernment ownership.The following are the steps taken by the Government of India to Regulate BankingInstitutions in the Country: 1949: Enactment of Banking Regulation Act. 1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1961: Insurance cover extended to deposits. 1969: Nationalization of 14 major banks. 1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. 1980: Nationalization of seven banks with deposits over 200 crore.After the nationalization of banks, the branches of the public sector bank India rose toapproximately 800% in deposits and advances took a huge jump by 11,000%. Bankingin the sunshine of Government ownership gave the public implicit faith and immenseconfidence about the sustainability of these institutions.Phase IIIThis phase has introduced many more products and facilities in the banking sector in itsreforms measure. In 1991, under the chairmanship of M Narasimham, a committee wasset up by his name which worked for the liberalization of banking practices.The country is flooded with foreign banks and their ATM stations. Efforts are being putto give a satisfactory service to customers. Phone banking and net banking isintroduced. The entire system became more convenient and swift. Time is given moreimportance than money.The financial system of India has shown a great deal of resilience. It is sheltered fromany crisis triggered by any external macroeconomics shock as other East Asian
  26. 26. Countries suffered. This is all due to a flexible exchange rate regime, the foreignreserves are high, the capital account is not yet fully convertible, and banks and theircustomers have limited foreign exchange exposure.Nationalization of Banks in IndiaThe nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the thenprime minister. It nationalized 14 banks then. These banks were mostly owned bybusinessmen and even managed by them. Central Bank of India Bank of Maharashtra Dena Bank Punjab National Bank Syndicate Bank Canara Bank Indian Bank Indian Overseas Bank Bank of Baroda Union Bank Allahabad Bank United Bank of India UCO Bank Bank of IndiaBefore the steps of nationalization of Indian banks, only State Bank of India (SBI) wasnationalized. It took place in July 1955 under the SBI Act of 1955. Nationalization ofSeven State Banks of India (formed subsidiary) took place on 19th July, 1960.The State Bank of India is Indias largest commercial bank and is ranked one of the topfive banks worldwide. It serves 90 million customers through a network of 9,000
  27. 27. branches and it offers -- either directly or through subsidiaries -- a wide range ofbanking services.The second phase of nationalization of Indian banks took place in the year 1980. Sevenmore banks were nationalized with deposits over 200 crores. Till this year,approximately 80% of the banking segment in India was under Government ownership.After the nationalization of banks in India, the branches of the public sector banks roseto approximately 800% in deposits and advances took a huge jump by 11,000%. 1955: Nationalization of State Bank of India. 1959: Nationalization of SBI subsidiaries. 1969: Nationalization of 14 major banks. 1980: Nationalization of seven banks with deposits over 200 crores. Banks in India
  28. 28. In India the banks are being segregated in different groups. Each group has their ownbenefits and limitations in operating in India. Each has their own dedicated targetmarket. Few of them only work in rural sector while others in both rural as well as urban.Many even are only catering in cities. Some are of Indian origin and some are foreignplayers.All these details and many more is discussed over here. The banks and its relation withthe customers, their mode of operation, the names of banks under different groups andother such useful information are talked about.One more section has been taken note of is the upcoming foreign banks in India. TheRBI has shown certain interest to involve more of foreign banks than the existing onerecently. This step has paved a way for few more foreign banks to start business inIndia.
  29. 29. ABN-AMRO Bank Indian Overseas Bank American Express Bank IndusInd Bank Andhra Bank ING Vysya Bank Allahabad Bank Jammu & Kashmir Bank Axis Bank (Earlier UTI Bank) JPMorgan Chase Bank Bank of Baroda Karnataka Bank Bank of India Karur Vysya Bank Bank of Maharastra Laxmi Vilas Bank Bank of Punjab Oriental Bank of Commerce Bank of Rajasthan Punjab National Bank Bank of Ceylon South Indian Bank BNP Paribas Bank Standard Chartered Bank Canara Bank State Bank of India (SBI) Catholic Syrian Bank State Bank of Bikaner & Jaipur Central Bank of India State Bank of Hyderabad Centurion Bank State Bank of Indore Citi Bank State Bank of Saurastra City Union Bank State Bank of Travancore Corporation Bank Syndicate Bank Dena Bank Taib Bank Deutsche Bank UCO Bank Development Credit Bank Union Bank of India Federal Bank United Bank of India HDFC Bank United Western Bank HSBC Vijaya Bank ICICI Bank Kotak Mahindra Bank IDBI Bank Yes Bank Indian BankScheduled Commercial Banks In India
  30. 30. The commercial banking structure in India consists of: Scheduled Commercial Banks in India Unscheduled Banks in IndiaScheduled Banks in India constitute those banks which have been included in theSecond Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes onlythose banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a)of the Act.As on 30th June, 1999, there were 300 scheduled banks in India having a total networkof 64,918 branches. The scheduled commercial banks in India comprise of State bankof India and its associates (8), nationalized banks (19), foreign banks (45), privateSector banks (32), co-operative banks and regional rural banks."Scheduled banks in India" means the State Bank of India constituted under the StateBank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank ofIndia (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constitutedunder section 3 of the Banking Companies (Acquisition and Transfer of Undertakings)Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition andTransfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bankincluded in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934),but does not include a co-operative bank"."Non-scheduled bank in India" means a banking company as defined in clause (c) ofsection 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduledbank".The following are the Scheduled Banks in India (Public Sector): State Bank of India
  31. 31. State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Saurashtra State Bank of Travancore Andhra Bank Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Overseas Bank Indian Bank Oriental Bank of Commerce Punjab National Bank Punjab and Sind Bank Syndicate Bank Union Bank of India United Bank of India UCO Bank Vijaya BankThe following are the Scheduled Banks in India (Private Sector): ING Vysya Bank Ltd Axis Bank Ltd Indusind Bank Ltd
  32. 32. ICICI Bank Ltd South Indian Bank HDFC Bank Ltd Centurion Bank Ltd Bank of Punjab Ltd IDBI Bank Ltd Jammu & Kashmir Bank Ltd.Banking services in IndiaWith years, banks are also adding services to their customers. The Indian bankingindustry is passing through a phase of customers market. The customers have morechoices in choosing their banks. A competition has been established within the banksoperating in India.With stiff competition and advancement of technology, the services provided by bankshave become more easy and convenient. The past days are witness to an hour waitbefore withdrawing cash from accounts or a cheque from north of the country beingcleared in one month in the south.This section of banking deals with the latest discovery in the banking instruments alongwith the polished version of their old systems.Financial and Banking Sector ReformsThe last decade witnessed the maturity of Indias financial markets. Since 1991, everygovernments of India took major steps in reforming the financial sector of the country.The important achievements in the following fields are discussed under separateheads:
  33. 33. Financial markets Regulators The banking system Non-banking finance companies The capital market Mutual funds Overall approach to reforms Deregulation of banking system Capital market developments Consolidation imperativeNow let us discuss each segment separately.Financial MarketsIn the last decade, Private Sector Institutions played an important role. They grewrapidly in commercial banking and asset management business. With the openingsin the insurance sector for these institutions, they started making debt in the market.Competition among financial intermediaries gradually helped the interest rates todecline. Deregulation added to it. The real interest rate was maintained. Theborrowers did not pay high price while depositors had incentives to save. It wassomething between the nominal rate of interest and the expected rate of inflation.RegulatorsThe Finance Ministry continuously formulated major policies in the field of financialsector of the country. The Government accepted the important role of regulators.The Reserve Bank of India (RBI) has become more independant. Securities andExchange Board of India (SEBI) and the Insurance Regulatory and DevelopmentAuthority (IRDA) became important institutions. Opinions are also there that thereshould be a super-regulator for the financial services sector instead of multiplicity of
  34. 34. regulators.The banking systemAlmost 80% of the business is still controlled by Public Sector Banks (PSBs). PSBsare still dominating the commercial banking system. Shares of the leading PSBs arealready listed on the stock exchanges.The RBI has given licences to new private sector banks as part of the liberalisationprocess. The RBI has also been granting licences to industrial houses. Many banksare successfully running in the retail and consumer segments but are yet to deliverservices to industrial finance, retail trade, small business and agricultural finance.The PSBs will play an important role in the industry due to its number of branchesand foreign banks facing the constrait of limited number of branches. Hence, in orderto achieve an efficient banking system, the onus is on the Government to encouragethe PSBs to be run on professional lines.Development finance institutionsFIss access to SLR funds reduced. Now they have to approach the capital marketfor debt and equity funds. Convertibility clause no longer obligatory for assistance tocorporate sanctioned by term-lending institutions. Capital adequacy norms extendedto financial institutions. DFIs such as IDBI and ICICI have entered other segments offinancial services such as commercial banking, asset management and insurancethrough separate ventures. The move to universal banking has started.Non-banking finance companiesIn the case of new NBFCs seeking registration with the RBI, the requirement ofminimum net owned funds, has been raised to Rs.2 crores Until recently, the money
  35. 35. market in India was narrow and circumscribed by tight regulations over interest ratesand participants. The secondary market was underdeveloped and lacked liquidity.Several measures have been initiated and include new money market instruments,strengthening of existing instruments and setting up of the Discount and FinanceHouse of India (DFHI).The RBI conducts its sales of dated securities and treasury bills through its openmarket operations (OMO) window. Primary dealers bid for these securities and alsotrade in them. The DFHI is the principal agency for developing a secondary marketfor money market instruments and Government of India treasury bills. The RBI hasintroduced a liquidity adjustment facility (LAF) in which liquidity is injected throughreverse repo auctions and liquidity is sucked out through repo auctions.On account of the substantial issue of government debt, the gilt- edged marketoccupies an important position in the financial set- up. The Securities TradingCorporation of India (STCI), which started operations in June 1994 has a mandate todevelop the secondary market in government securities.Long-term debt market: The development of a long-term debt market is crucial to thefinancing of infrastructure. After bringing some order to the equity market, the SEBIhas now decided to concentrate on the development of the debt market. Stamp dutyis being withdrawn at the time of dematerialization of debt instruments in order toencourage paperless trading.The capital marketThe number of shareholders in India is estimated at 25 million. However, only anestimated two lakh persons actively trade in stocks. There has been a dramaticimprovement in the countrys stock market trading infrastructure during the last fewyears. Expectations are that India will be an attractive emerging market withtremendous potential. Unfortunately, during recent times the stock markets have
  36. 36. been constrained by some unsavory developments, which has led to retail investorsdeserting the stock markets.Mutual fundsThe mutual funds industry is now regulated under the SEBI (Mutual Funds)Regulations, 1996 and amendments thereto. With the issuance of SEBI guidelines,the industry had a framework for the establishment of many more players, bothIndian and foreign players.The Unit Trust of India remains easily the biggest mutual fund controlling a corpus ofnearly Rs.70,000 crores, but its share is going down. The biggest shock to themutual fund industry during recent times was the insecurity generated in the mindsof investors regarding the US 64 scheme. With the growth in the securities marketsand tax advantages granted for investment in mutual fund units, mutual fundsstarted becoming popular. The foreign owned AMCs are the ones which are nowsetting the pace for the industry. They are introducing new products, setting newstandards of customer service, improving disclosure standards and experimentingwith new types of distribution.The insurance industry is the latest to be thrown open to competition from the privatesector including foreign players. Foreign companies can only enter joint ventureswith Indian companies, with participation restricted to 26 per cent of equity. It is tooearly to conclude whether the erstwhile public sector monopolies will successfully beable to face up to the competition posed by the new players, but it can be expectedthat the customer will gain from improved service.The new players will need to bring in innovative products as well as fresh ideas onmarketing and distribution, in order to improve the low per capita insurancecoverage. Good regulation will, of course, be essential.Overall approach to reforms
  37. 37. The last ten years have seen major improvements in the working of various financialmarket participants. The government and the regulatory authorities have followed astep-by-step approach, not a big bang one. The entry of foreign players has assistedin the introduction of international practices and systems. Technology developmentshave improved customer service. Some gaps however remain (for example: lack ofan inter-bank interest rate benchmark, an active corporate debt market and adeveloped derivatives market). On the whole, the cumulative effect of thedevelopments since 1991 has been quite encouraging. An indication of the strengthof the reformed Indian financial system can be seen from the way India was notaffected by the Southeast Asian crisis.However, financial liberalization alone will not ensure stable economic growth. Sometough decisions still need to be taken. Without fiscal control, financial stability cannotbe ensured. The fate of the Fiscal Responsibility Bill remains unknown and highfiscal deficits continue. In the case of financial institutions, the political and legalstructures hve to ensure that borrowers repay on time the loans they have taken.The phenomenon of rich industrialists and bankrupt companies continues. Further,frauds cannot be totally prevented, even with the best of regulation. However,punishment has to follow crime, which is often not the case in India.Deregulation of banking systemPrudential norms were introduced for income recognition, asset classification,provisioning for delinquent loans and for capital adequacy. In order to reach thestipulated capital adequacy norms, substantial capital were provided by theGovernment to PSBs. Government pre-emption of banks resources throughstatutory liquidity ratio (SLR) and cash reserve ratio (CRR) brought down in steps.Interest rates on the deposits and lending sides almost entirely were deregulated.New private sector banks allowed to promote and encourage competition. PSBs
  38. 38. were encouraged to approach the public for raising resources. Recovery of debtsdue to banks and the Financial Institutions Act, 1993 was passed, and specialrecovery tribunals set up to facilitate quicker recovery of loan arrears.Bank lending norms liberalized and a loan system to ensure better control overcredit introduced. Banks asked to set up asset liability management (ALM) systems.RBI guidelines issued for risk management systems in banks encompassing credit,market and operational risks. A credit information bureau being established toidentify bad risks. Derivative products such as forward rate agreements (FRAs) andinterest rate swaps (IRSs) introduced.Capital market developmentsThe Capital Issues (Control) Act, 1947, repealed, office of the Controller of CapitalIssues was abolished and the initial share pricing were decontrolled. SEBI, thecapital market regulator was established in 1992.Foreign institutional investors (FIIs) were allowed to invest in Indian capital marketsafter registration with the SEBI. Indian companies were permitted to accessinternational capital markets through euro issues.The National Stock Exchange (NSE), with nationwide stock trading and electronicdisplay, clearing and settlement facilities was established. Several local stockexchanges changed over from floor based trading to screen based trading.Private mutual funds permittedThe Depositories Act had given a legal framework for the establishment ofdepositories to record ownership deals in book entry form. Dematerialization ofstocks encouraged paperless trading. Companies were required to disclose allmaterial facts and specific risk factors associated with their projects while makingpublic issues.
  39. 39. To reduce the cost of issue, underwriting by the issuer were made optional, subjectto conditions. The practice of making preferential allotment of shares at pricesunrelated to the prevailing market prices stopped and fresh guidelines were issuedby SEBI.SEBI reconstituted governing boards of the stock exchanges, introduced capitaladequacy norms for brokers, and made rules for making client or broker relationshipmore transparent which included separation of client and broker accounts.Buyback of shares allowedThe SEBI started insisting on greater corporate disclosures. Steps were taken toimprove corporate governance based on the report of a committee.SEBI issued detailed employee stock option scheme and employee stock purchasescheme for listed companies.Standard denomination for equity shares of Rs. 10 and Rs. 100 were abolished.Companies given the freedom to issue dematerialized shares in any denomination.Derivatives trading starts with index options and futures. A system of rollingsettlements introduced. SEBI empowered to register and regulate venture capitalfunds.The SEBI (Credit Rating Agencies) Regulations, 1999 issued for regulating newcredit rating agencies as well as introducing a code of conduct for all credit ratingagencies operating in India.Consolidation imperativeAnother aspect of the financial sector reforms in India is the consolidation of existinginstitutions which is especially applicable to the commercial banks. In India thebanks are in huge quantity. First, there is no need for 27 PSBs with branches allover India. A number of them can be merged. The merger of Punjab National Bank
  40. 40. and New Bank of India was a difficult one, but the situation is different now. No oneexpected so many employees to take voluntary retirement from PSBs, which at onetime were much sought after jobs. Private sector banks will be self consolidatedwhile co-operative and rural banks will be encouraged for consolidation, and anywayplay only a niche role.In the case of insurance, the Life Insurance Corporation of India is a behemoth,while the four public sector general insurance companies will probably move towardsconsolidation with a bit of nudging. The UTI is yet again a big institution, eventhough facing difficult times, and most other public sector players are already exitingthe mutual fund business. There are a number of small mutual fund players in theprivate sector, but the business being comparatively new for the private players, itwill take some time.We finally come to convergence in the financial sector, the new buzzwordinternationally. Hi-tech and the need to meet increasing consumer needs isencouraging convergence, even though it has not always been a success till date. InIndia organizations such as IDBI, ICICI, HDFC and SBI are already trying to offervarious services to the customer under one umbrella. This phenomenon is expectedto grow rapidly in the coming years. Where mergers may not be possible, alliancesbetween organizations may be effective. Various forms of banc assurance are beingintroduced, with the RBI having already come out with detailed guidelines for entry ofbanks into insurance. The LIC has bought into Corporation Bank in order to spreadits insurance distribution network. Both banks and insurance companies havestarted entering the asset management business, as there is a great deal of synergyamong these businesses. The pensions market is expected to open up freshopportunities for insurance companies and mutual funds.It is not possible to play the role of the Oracle of Delphi when a vast nation like Indiais involved. However, a few trends are evident, and the coming decade should be asinteresting as the last one.
  41. 41. Reserve Bank of India (RBI)Reserve Bank of India (RBI) is the central bank of the country and is different fromCentral Bank of India.The central bank of the country is the Reserve Bank of India (RBI). It was established inApril 1935 with a share capital of Rs. 5 crores on the basis of the recommendations ofthe Hilton Young Commission. The share capital was divided into shares of Rs. 100each fully paid which was entirely owned by private shareholders in the beginning. TheGovernment held shares of nominal value of Rs. 2, 20,000.Reserve Bank of India was nationalized in the year 1949. The general superintendenceand direction of the Bank is entrusted to Central Board of Directors of 20 members, theGovernor and four Deputy Governors, one Government official from the Ministry ofFinance, ten nominated Directors by the Government to give representation to importantelements in the economic life of the country, and four nominated Directors by theCentral Government to represent the four local Boards with the headquarters atMumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members eachCentral Government appointed for a term of four years to represent territorial andeconomic interests and the interests of co-operative and indigenous banks.The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934(II of 1934) provides the statutory basis of the functioning of the Bank.The Bank was constituted for the need of following: To regulate the issue of banknotes To maintain reserves with a view to securing monetary stability and To operate the credit and currency system of the country to its advantage.Functions of Reserve Bank of India
  42. 42. The Reserve Bank of India Act of 1934 entrust all the important functions of a centralbank the Reserve Bank of India.Bank of IssueUnder Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issuebank notes of all denominations. The distribution of one rupee notes and coins andsmall coins all over the country is undertaken by the Reserve Bank as agent of theGovernment. The Reserve Bank has a separate Issue Department which is entrustedwith the issue of currency notes. The assets and liabilities of the Issue Department arekept separate from those of the Banking Department. Originally, the assets of the IssueDepartment were to consist of not less than two-fifths of gold coin, gold bullion orsterling securities provided the amount of gold was not less than Rs. 40 crores in value.The remaining three-fifths of the assets might be held in rupee coins, Government ofIndia rupee securities, eligible bills of exchange and promissory notes payable in India.Due to the exigencies of the Second World War and the post-was period, theseprovisions were considerably modified. Since 1957, the Reserve Bank of India isrequired to maintain gold and foreign exchange reserves of Ra. 200 crores, of which atleast Rs. 115 crores should be in gold. The system as it exists today is known as theminimum reserve system.Banker to GovernmentThe second important function of the Reserve Bank of India is to act as Governmentbanker, agent and adviser. The Reserve Bank is agent of Central Government and of allState Governments in India excepting that of Jammu and Kashmir. The Reserve Bankhas the obligation to transact Government business, via. to keep the cash balances asdeposits free of interest, to receive and to make payments on behalf of the Governmentand to carry out their exchange remittances and other banking operations. The Reserve
  43. 43. Bank of India helps the Government - both the Union and the States to float new loansand to manage public debt. The Bank makes ways and means advances to theGovernments for 90 days. It makes loans and advances to the States and localauthorities. It acts as adviser to the Government on all monetary and banking matters.Bankers Bank and Lender of the Last ResortThe Reserve Bank of India acts as the bankers bank. According to the provisions of theBanking Companies Act of 1949, every scheduled bank was required to maintain withthe Reserve Bank a cash balance equivalent to 5% of its demand liabilities and 2 percent of its time liabilities in India. By an amendment of 1962, the distinction betweendemand and time liabilities was abolished and banks have been asked to keep cashreserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cashrequirements can be changed by the Reserve Bank of India.The scheduled banks can borrow from the Reserve Bank of India on the basis of eligiblesecurities or get financial accommodation in times of need or stringency byrediscounting bills of exchange. Since commercial banks can always expect theReserve Bank of India to come to their help in times of banking crisis the Reserve Bankbecomes not only the bankers bank but also the lender of the last resort.Controller of CreditThe Reserve Bank of India is the controller of credit i.e. it has the power to influence thevolume of credit created by banks in India. It can do so through changing the Bank rateor through open market operations. According to the Banking Regulation Act of 1949,the Reserve Bank of India can ask any particular bank or the whole banking system notto lend to particular groups or persons on the basis of certain types of securities. Since1956, selective controls of credit are increasingly being used by the Reserve Bank.The Reserve Bank of India is armed with many more powers to control the Indianmoney market. Every bank has to get a license from the Reserve Bank of India to do
  44. 44. banking business within India, the license can be cancelled by the Reserve Bank ofcertain stipulated conditions are not fulfilled. Every bank will have to get the permissionof the Reserve Bank before it can open a new branch. Each scheduled bank must senda weekly return to the Reserve Bank showing, in detail, its assets and liabilities. Thispower of the Bank to call for information is also intended to give it effective control of thecredit system. The Reserve Bank has also the power to inspect the accounts of anycommercial bank.As supreme banking authority in the country, the Reserve Bank of India, therefore, hasthe following powers:(a) It holds the cash reserves of all the scheduled banks.(b) It controls the credit operations of banks through quantitative and qualitativecontrols.(c) It controls the banking system through the system of licensing, inspection and callingfor information.(d) It acts as the lender of the last resort by providing rediscount facilities to scheduledbanks.Custodian of Foreign ReservesThe Reserve Bank of India has the responsibility to maintain the official rate ofexchange. According to the Reserve Bank of India Act of 1934, the Bank was requiredto buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000.The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able tomaintain the exchange rate fixed at lsh.6d. though there were periods of extremepressure in favor of or against the rupee. After India became a member of theInternational Monetary Fund in 1946, the Reserve Bank has the responsibility ofmaintaining fixed exchange rates with all other member countries of the I.M.F.Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act asthe custodian of Indias reserve of international currencies. The vast sterling balances
  45. 45. were acquired and managed by the Bank. Further, the RBI has the responsibility ofadministering the exchange controls of the country.Supervisory functionsIn addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of soundbanking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity oftheir assets, management and methods of working, amalgamation, reconstruction, andliquidation. The RBI is authorized to carry out periodical inspections of the banks and tocall for returns and necessary information from them. The nationalization of 14 majorIndian scheduled banks in July 1969 has imposed new responsibilities on the RBI fordirecting the growth of banking and credit policies towards more rapid development ofthe economy and realization of certain desired social objectives. The supervisoryfunctions of the RBI have helped a great deal in improving the standard of banking inIndia to develop on sound lines and to improve the methods of their operation.Promotional functionsWith economic growth assuming a new urgency since Independence, the range of theReserve Banks functions has steadily widened. The Bank now performs a variety ofdevelopmental and promotional functions, which, at one time, were regarded as outsidethe normal scope of central banking. The Reserve Bank was asked to promote bankinghabit, extend banking facilities to rural and semi-urban areas, and establish andpromote new specialized financing agencies. Accordingly, the Reserve Bank has helpedin the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in1964, the Agricultural Refinance Corporation of India in 1963 and the IndustrialReconstruction Corporation of India in 1972. These institutions were set up directly orindirectly by the Reserve Bank to promote saving habit and to mobilize savings, and to
  46. 46. provide industrial finance as well as agricultural finance. As far back as 1935, theReserve Bank of India set up the Agricultural Credit Department to provide agriculturalcredit. But only since 1951 the Banks role in this field has become extremely important.The Bank has developed the co-operative credit movement to encourage saving, toeliminate moneylenders from the villages and to route its short term credit to agriculture.The RBI has set up the Agricultural Refinance and Development Corporation to providelong-term finance to farmers.Classification of RBIs functionsThe monetary functions also known as the central banking functions of the RBI arerelated to control and regulation of money and credit, i.e., issue of currency, control ofbank credit, control of foreign exchange operations, banker to the Government and tothe money market. Monetary functions of the RBI are significant as they control andregulate the volume of money and credit in the country.Equally important, however, are the non-monetary functions of the RBI in the context ofIndias economic backwardness. The supervisory function of the RBI may be regardedas a non-monetary function (though many consider this a monetary function). Thepromotion of sound banking in India is an important goal of the RBI, the RBI has beengiven wide and drastic powers, under the Banking Regulation Act of 1949 - thesepowers relate to licensing of banks, branch expansion, liquidity of their assets,management and methods of working, inspection, amalgamation, reconstruction andliquidation. Under the RBIs supervision and inspection, the working of banks hasgreatly improved. Commercial banks have developed into financially and operationallysound and viable units. The RBIs powers of supervision have now been extended tonon-banking financial intermediaries. Since independence, particularly after itsnationalisation 1949, the RBI has followed the promotional functions vigorously and hasbeen responsible for strong financial support to industrial and agricultural developmentin the country.
  47. 47. RESERVE BANK OF INDIA ADDRESSReserve Bank of India,Central Office,Shaheed Bhagat Singh Road,Mumbai - 400 001. Website of Reserve Bank of India -www.rbi.org.inTop Banks in IndiaWith the advancement of technology and the birth of competition, banks are in the raceof becoming the best in the country. With an eye upon customer satisfaction policy theyare providing best of the best services with the minimum hazards.Banks like ABN AMRO introduced banking with a coffee. It made a tie-up with one ofthe best coffee bar in the country, Barista and remained open till late evening forcustomers with a setup of a coffee bar in the premises.Few banks have introduced world ATM card to make travelers across the globe moresafe and secure. What else. Internet and Phone Banking is the call of the day for banks.In this race towards the best, we have selected top 20 banks in the country from allsegment. It is not the ranking of banks but only for general information about the topbanks in India.Indian Banks Association (IBA)The Indian Banks Association (IBA) was formed on the 26th September, 1946 with 22members. Today IBA has more than 156 members comprising of Public Sector banks,Private Sector banks, Foreign banks having offices in India, Urban Co-operative banks,Developmental financial institutions, Federations, merchant banks, mutual funds,housing finance corporations, etc.
  48. 48. The functioning of IBA To promote sound and progressive banking principles and practices. To render assistance and to provide common services to members. To organize co-ordination and co-operation on procedural, legal, technical, administrative and professional matters. To collect, classify and circulate statistical and other information. To pool together expertise towards common purposes such as reduction in costs, increase in efficiency, productivity and improve systems, procedures and banking practices. To project good public image of banking through publicity and public relations. To encourage sports and cultural activities among bank employees.The Organizational Structure of IBAThe Managing Committee manages the affairs, business and funds of IBA. Themanaging Committee is elected by the Ordinary members of the Association, and is thehighest management and policy making body of the Association.The Chairman of the Association heads upon the working of the Association. Heprovides guidelines to the Association. The administrative head of IBA is the ChiefExecutive of IBA. He is also the Secretary to the Managing Committee. He leads a teamof executives, officers and other staff members.
  49. 49. ChannelsBanks offer many different channels to access their banking and other services: ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller. Some ATMs provide additional services. A branch is a retail location Call center Mail: most banks accept check deposits via mail and use mail to communicate to their customers, e.g. by sending out statements Mobile banking is a method of using ones mobile phone to conduct banking transactions Online banking is a term used for performing transactions, payments etc. over the Internet Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a videoconference enabled bank branch.Products and Services of bankRetail Business loan Cheque account Credit card Home loan Insurance advisor
  50. 50.  Mutual fund Personal loan Savings accountWholesale Capital raising (Equity / Debt / Hybrids) Mezzanine finance Project finance Revolving credit Risk management (FX, interest rates, commodities, derivatives) Term loanTypes of banksBanks activities can be divided into retail banking, dealing directly with individuals andsmall businesses; business banking, providing services to mid-market business;corporate banking, directed at large business entities; private banking, providing wealthmanagement services to high net worth individuals and families; and investmentbanking, relating to activities on the financial markets. Most banks are profit-making,private enterprises. However, some are owned by government, or are non-profitorganizations.Types of retail banks Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership,
  51. 51. some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses. Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners. Community development banks: regulated banks that provide financial services and credit to under-served markets or populations. Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families. Postal savings banks: savings banks associated with national postal systems. Private banks: banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.[citation needed] Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks. Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralized distribution network, providing local and regional outreach—and by their socially responsible approach to business and society. Building societies and Landesbanks: institutions that conduct retail banking. Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
  52. 52.  A Direct or Internet-Only bank is a banking operation without any physical bank branches, conceived and implemented wholly with networked computers.Types of investment banks Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions. Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.Both combined Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance— hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.Other types of banks Central banks are normally government-owned and charged with quasi- regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis. Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead,
  53. 53. the bank earns profit (markup) and fees on the financing facilities that it extends to customers. INTRODUCTION OF CRM CRM, or Customer relationship management, is a number of strategies andtechnologies that are used to build stronger relationships between companies and theircustomers. A company will store information that is related to their customers, and theywill spend time analyzing it so that it can be used for this purpose. Some of the methodsconnected with CRM are automated, and the purpose of this is to create marketingstrategies which are targeted towards specific customers. The strategies used will bedependent on the information that is contained within the system. Customer relationshipmanagement is only used by corporations, and they will focus on maintaining a strongrelationship with their clients.There are a number of reasons why CRM has become so important in the last 10 years.The competition in the global market has become highly competitive, and it hasbecome easier for customers to switch companies if they are not happy with the servicethey receive. One of the primary goals of CRM is to maintain clients. When it is usedeffectively, a company will be able to build a relationship with their customers that canlast a lifetime. Customer relationship management tools will generally come in the for ofsoftware. Each software program may vary in the way it approaches CRM. It isimportant to realize that CRM is more than just a technology.Customer relationship management could be better defined as being amethodology, an approach that a company will use to achieve their goals. It should bedirectly connected to the philosophy of the company. It must guide all of its policies, andit must be an important part of customer service and marketing. If this is not done, theCRM system will become a failure. There are a number of things the ideal CRM systeshould have. It should allow the company to find the factors that interest their customers
  54. 54. the most. A company must realize that it is impossible for them to succeed if they do notcater to the desires and needs of their customers. Customer relationship managementis a powerful system that will allow them to do this.It is also important for the CRM system to foster a philosophy that is oriented towardsthe customers. While this may sound like on sense, there are a sizeable number ofcompanies that have failed to do it, and their businesses suffered as a result. WithCRM, the customer is always right, and they are the most important factor in thesuccess of the company. It is also important for the company to use measures that aredependent on their customers. This will greatly tip the odds of success in their favor.While CRM should not be viewed as a technology, it is important to realize that thereare end to end processes that must be created so that customers can be properlyserved. In many cases, these processes will use computers and software.Customer support is directly connected to CRM. If a company fails to provide qualitycustomer support, they have also failed with their CRM system. When a customermakes complaints, they must be handled quickly and efficiently. The company shouldalso seek to make sure those mistakes are not repeated. When sales are made, theyshould be tracked so that the company can analyze the m fro m variousaspects. It is also important to understand the architecture of Customer relationshipmanagement.The architecture of CRM can be broken down into three categories, and these arecollaborative, operational, and analytical. The collaborative aspect of CRM deals withunication between companies and their clients. The operational aspect ofthe architecture deals with the concept of making certain processes automated. Theanalytical aspect of CRM architecture deals with analyzing customer information andusing if for business intelligence purposes. Each one of these elements are critical forthe success of a CRM system. A company must learn how to use all three properly,and when they do this proficiently, they will be able to build strong customerrelationships and ensure their profits for a long period of time. As more businessescontinue to compete on a global level, it will become more important for them to usesuccessful Customer relationship management techniques.
  55. 55. MEANING OF CRM Customer Relationship Management is the establishment, development,maintenance and optimization of long-ter m mutually valuable relationshipsbetween consumers and the organizations. Successful customer relationshipmanagement focuses on understanding the needs and desires of the customers and isachieved by placing these needs at the heart of the business by integrating them withthe organizations strategy, people, technology and business processes.At the heart of a perfect CRM strategy is the creation of mutual value for all the partiesinvolved in the business process. It is about creating a sustainable competitiveadvantage by being the best at understanding, uncaring, and delivering, anddeveloping existing customer relationships in addition to creating andkeeping new customers.DEFINITION OF CRM―Customer Relationship Management (CRM) is a co-ordinate approach to the sellingprocess allowing the various operational, customer contact and salespromotional functions of an organization to function as a whole.‖ INTRODUCTION OF CRM IN BANKS Today, customers have more power in deciding their bank of choice.Consequently, keeping existing customers, as well as attracting new ones, is a criticalconcern for banks. Customer satisfaction is an important variable in evaluation andcontrol in a bank marketing management. Poor customer satisfaction will lead toa decline in customer loyalty, and given the extended offerings from the competitors,customers can easily switch banks. Banks need to leverage effectively on their
  56. 56. customer relationships and make better use of customer information across theinstitution.Competition in the financial services industry has intensified in recent years, owing toevents such as technology changes and financial industry deregulation.Conventional banking distribution has been gradually supplemented by the emerginguse of electronic banking. Many bank customers prefer using ATMs or a website ratherthan visiting a branch, while technology has also reduced barriers to entry for newcustomers.CRM--A POWERFUL TOOL CRM is a powerful management tool that can be used to exploit sales potentialand maximize the value of the customer to the bank. Generally, CRM integrates variouscomponents of a business such as sales, marketing, IT and accounting. This strategymay not increase a businesss profit today or tomorrow, but it will add customer loyaltyto the business.In the long term, CRM produces continuous scrutiny of the banks business relationshipwith the customer, thereby increasing the value of the Customer‘s business. AlthoughCRM is known to be a relatively new method in managing customer loyalty, it has beenused previously by retail businesses for many years.The core objective of modern CRM methodology is to help businesses to usetechnology and human resources to gain a better view of customer behavior. With this,a business can hope to achieve better customer service, make call centres moreefficient, cross-sell products more effectively, simplify marketing and sales processes,identify new customers and increase customer revenues.As an example, banks may keep track of a customers life stages in order to marketappropriate banking products, such as mortgages or credit cards to their customers at
  57. 57. the appropriate time. The next stage is to look into the different methods customersinformation are gathered, where and how this data is stored and how it is currentlybeing used. For instance, banksmay interact with customers in a countless ways via mails, emails, call centres,marketing and advertising. The collected data may flow between operational systems(such as sales and stock systems) and analytical systems that can help sort throughthese records to identify patterns. Business analysts can then browse through the datato obtain an in- depth view of each customer and identify areas where better servicesare required.CRM AND BANKS One of the banks greatest assets is their knowledge of their customers. Bankscan use this asset and turn it into key competitive advantage by retaining thosecustomers who represent the highest lifetime value and profitability. Banks can developcustomer relationships across a broad spectrum of touch points such as at bankbranches, kiosks, ATMs, internet, electronic banking and call centres. CRM is not a new phenomenon in the industry. Over the years, banks haveinvested heavily in CRM, especially in developing call centres, which, in the past, weredesigned to improve the process of inbound calls. In future, call centres will evolve toencompass more than just cost reduction and improved efficiency. According to GartnerGroup, more than 80 per cent of all US banks will develop their call centres asalternative delivery channels and revenue centres, to be used for the delivery ofexisting products and services.But to be successful, a bank needs more than the abilityto handle customer service calls. It needs a comprehensive CRM strategy in which alldepartments within the bank are integrated.
  58. 58. OBJECTIVES OF CRM IN BANKS CRM, the technology, along with human resources of the banks, enables thebanks to analyze the behavior of customers and their value. The main areas offocus are as the name suggests: customer, relationship, and themanagement of relationship and the main objectives to implement CRM in thebusiness strategy are: • To simplify marketing and sales process • To make call centers more efficient • To provide better customer service • To discover new customers and increase customer Revenue • To cross sell products more effectivelyThe CRM processes should fully support the basic steps of customer life cycle. Thebasic steps are:• Attracting present and new customers• Acquiring new customers• Serving the customers• Finally, retaining the customers In todays increasingly competitive environment, maximizing organic growththrough sales momentum has become a priority for Banks and Financial institutions. Tobuild this momentu m banks are focusing on Customer relationshipmanagement initiatives to improve