Introduction<br /><ul><li> In the early half of the 18th century, 3 Presidency Banks were established namely the Bank of Hindustan, Bank of Madras and Bank of Bombay and also can be referred as some of the oldest banking institutions in the country.
The State Bank of India was earlier known as the Imperial bank of India and is also one of the oldest bank in the generation. </li></ul>December 18, 2010<br />3<br />State Bank Of India<br />
Cont’d…<br /><ul><li> All types of banks in India are regulated and the activities monitored by a standard bank called the Reserve Bank of India(RBI) that stands at the apex of the banking structure.
It is also called the Central Bank, as major banking decisions are taken by RBI. </li></li></ul><li>Types Of Banks<br />
Public Sector Banks<br /><ul><li> All government owned banks are Public sector banks.
Besides the Reserve Bank of India , the State Bank of India and its associate banks and about 20 nationalized banks, all comprises of the public sector banks. </li></li></ul><li>Private Sector Banks<br /><ul><li>A new wave in the banking industry came about with the private sector banks in India.
With policies on liberalization being generously taken up, these private banks were established.
E.g.:- Axis Bank, Bank of Rajasthan, Catholic Syrian Bank, Federal Bank, HDFC Bank, ICICI Bank, ING Vysya Bank, Kotak Mahindra Bank and SBI Commercial and International Bank .
The Foreign Banks in India like HSBC, Citibank, and Standard Chartered bank etc. can also be clubbed here. </li></ul>December 18, 2010<br />8<br />State Bank Of India<br />
Co-operative Banks<br /><ul><li> With the aim to specifically cater to the rural population, the cooperative banks in India were set up through the country.
Issues like agricultural credit and the likes are taken care of by Co-operative banks.</li></li></ul><li>Introduction to state bank of India<br />
Vision<br /><ul><li> To be amongst most trusted power utility company of the country by providing environment friendly power on most cost effective basis , ensuring prosperity for its stakeholders and growth with human face.</li></ul>Mission<br /><ul><li>To ensure most cost effective power for sustained growth of India.
To provide clean and green power for secured future of countrymen.</li></li></ul><li>Cont’d…<br /><ul><li> To retain leadership position of the organisation in Hydro Power generation, while working with dedication and innovation in every project they undertake.
To maintain continuous pursuit for cost effectiveness, enhanced productivity for ensuring financial health of the organization, to take care of stakeholders aspirations continuously.
To be a technology driven, transparent organization, ensuring dignity and respect for its team members.
To inculcate value system all across the organization for ensuring trustworthy relationship with its constituent associates & stakeholders.</li></li></ul><li>Activities<br /><ul><li> The Bank is actively involved since 1973 in non-profit activity called Community Services Banking.
All branches and administrative offices throughout the country sponsor and participate in large number of welfare activities and social causes.
The bank is entering into many new businesses with strategic tie ups – Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition, Advisory Services, Structured products etc.</li></li></ul><li>Cont’d…<br /><ul><li> The Bank is also in the process of providing complete payment solution to its clients with its over 8500 ATMs and other electronic channels such as Internet banking, debit cards, mobile banking, etc.</li></ul> <br /><ul><li> The bank is also looking at opportunities to grow in size in India as well as Internationally.
It presently has 82 foreign offices in 32 countries across the world.
It has also Subsidiaries in India – SBI Capital Markets, SBICAP Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards - forming a formidable group in the Indian Banking scenario.</li></li></ul><li>Ten principles of Economics<br />
1) People face Trade Off<br /><ul><li> SBI has to decide whether to open branch in rural area or urban area. If it opens branch in rural area then it has to give up the customers of urban area and vice versa.</li></ul>2) The Cost Of Something Is What You Give Up To Get It<br /><ul><li> If SBI open its branch in rural area than it has to give up the customers of urban area and that will be the cost of getting rural customers.</li></ul>3) Rational People Think at Margin<br /><ul><li>SBI’s main function is to take deposit and give loans to public. Except this SBI have its mutual funds, Gold finance and etc.</li></li></ul><li>4) People Respond To Incentives<br /><ul><li> SBI recruit six new clerks in the salary of Rs.10000 per clerk and give voluntary retirement to a senior person whom it is paying Rs.60000.</li></ul>5) Trade Can Make Every One Better Off<br /><ul><li>SBI collaborate with foreign expert Insurance companies to make tie-ups with them. It makes both of them better off.</li></ul>6) Markets are usually A Good Way To Organise Economic Activity<br /><ul><li> Interest rates are decided by all the banks as invisible hand. It does not depend upon RBI. </li></li></ul><li>7) Governments Can Sometimes Improves Market outcomes<br /><ul><li> At time of inflation RBI increases the C.R.R & S.L.R. It will reduce the resources & supply of money of bank.
At time of recession RBI decreases the C.R.R & S.L.R. It will increase the resources & supply of money of bank.</li></ul>8) A Country’s Standard Of Living Depends On Its Ability To Produce Goods & Services<br /><ul><li> As SBI’s most of branches have become computerised and after making great amount of profit they increased their services. We can see it now-a-days.</li></li></ul><li>9)Prices Rise When the Government Prints Too Much Money<br /><ul><li>RBI increases the repo rate in November to keep control on inflation.</li></ul> <br />10) Society Faces A Short Run Trade-Off Between Inflation and Unemployment<br /><ul><li> As inflation increases it increases the demand in market. It increases the need of people and in this way there is a trade-off between inflation & unemployment.</li></li></ul><li>Economic Models<br />
First Model: The Circular Flow Diagram<br />Market for:<br /><ul><li> Bank Sell
People Buy</li></li></ul><li>Second Model : The Production Possibilities Frontier<br />
Demand Curve<br /><ul><li> The quantity demanded of any good is the amount of the good that buyers are willing to purchase.
Many things determine the quantity demanded but when we analyse how markets work, one determinant plays a central role-the price of the good.
If the price of any good increases, the demand falls down and if the price of a good decreases, the demand increases. So there is an inverse relation between the demand and price of a good.</li></li></ul><li>Cont’d…<br /><ul><li> If we relate it with the banking products, if the rate of interests on loan increases, the demand for loan will decrease and if the rate of interest decreases, the demand for loan will increase.
Sometimes other factors such as income and substitute products also affect the demand. They are called the “Income effect” and “Substitute effect”.
If the demand increases due to the increase in the income of the consumer then it is Income effect.
If our competitors decrease their prices and the quantity demanded decrease then it is Substitute effect.</li></li></ul><li>Shift in Demand curve<br /><ul><li> Any change that increases the quantity demanded at every price shifts demand curve to right and is called an increase in demand.
Any change that reduces quantity demanded at every price shifts demand curve to left and is called an decrease in demand.</li></li></ul><li>Supply Curve<br /><ul><li> The quantity supplied of any good or service is the amount that sellers are willing and able to sell.
There are many determinants for quantity supplied, but once again, price plays a special role in analysis.
The banks would like to give more loans if the rate of interest on loan is high, thus the supply and the price of the product has direct relationship.</li></li></ul><li>Shift in Supply Curve<br /><ul><li>Any change that increases the quantity supplied at every price shifts demand curve to right and is called an increase in supply.
Any change that reduces quantity supplied at every price shifts demand curve to left and is called an decrease in supply.</li></li></ul><li>Equilibrium<br /><ul><li> There is a point at which the supply and demand curves intersect.
This point is called the market’s equilibrium. The price at this equilibrium is called the equilibrium price.</li></li></ul><li>Cont’d…<br /><ul><li> At the equilibrium price, the quantity demanded equals the quantity supplied.
For example, if the bank has Rs. 5 crore to lend as loans and the bank wants to give it at the rate of 8% interest .
The bank finds exactly that much customers who want to pay the same interest rate then it will be the equilibrium price and equilibrium point for quantity demanded and supplied.
So in the equilibrium, the quantity of goods the buyers willing and able to purchase exactly balances to the quantity sellers are willing and able to sell. </li></li></ul><li>Cont’d…<br /><ul><li> The equilibrium price is sometimes called market-clearing price because at this price everyone at the market has been satisfied.
Like here, banks wanted to lend Rs.5 crores at the rate of 8% interest and all the customers also wanted to borrow the same amount of money at the same interest of rate. </li></li></ul><li>Elasticity And its Applications<br />
Elasticity of Demand<br />The Price Elasticity of Demand<br /><ul><li> The price elasticity of demand measures how much the quantity demanded responds to the change in price.
Demand to a good is said to be Elastic if the quantity demanded responds substantially to the changes in the price.
Demand is said to be Inelastic if the quantity demanded responds only slightly to changes in price.</li></li></ul><li>What determines the price elasticity of demand??? <br />Determinants of Price Elasticity<br /><ul><li>Availability of close substitutes
Time Horizon</li></li></ul><li>TOTAL REVENUE AND THE PRICE ELASTICITY OF DEMAND<br /><ul><li> When demand is inelastic, price and total revenue move in the same direction.
When demand is elastic, price and total revenue move in opposite direction.
When demand is unit elastic, total revenue remains constant when price changes.</li></li></ul><li>THE INCOME ELATICITY OF DEMAND<br /><ul><li> The income elasticity of demand measures how the quantity demanded changes as consumer’s income changes.
Most goods are normal goods. Higher income raises the quantity demanded because income and quantity demanded move in the same direction.
Normal goods have positive income elasticity. While in Inferior goods higher income lowers the quantity demanded.</li></li></ul><li>Cont’d…<br /><ul><li> In banks, if the income of customer increases, he/she will deposit more money or he/she will take more loans because he/she would like to have all the luxurious items at his/her home.
So when income increases the demand for a normal good also increases.
But loans can also be counted as inferior good because when income will increase, the customer will have more money in hand so he/she won’t has any need to take a loan from the bank.</li></li></ul><li>THE ELASTICITY OF SUPPLY <br /><ul><li> The price elasticity of supply measures how much the quantity supplied responds to the change in price.
Supply of a good is said to be elastic if the quantity supplied responds substantially to changes in price.
Supply is said to be inelastic if the quantity supplied responds only slightly to the changes in price.</li></li></ul><li>Cont’d…<br /><ul><li>All banking products have elastic supply because there are so many substitutes available.
But in exception cases like if RBI decreases the repo rate then the quantity supplied will increase substantially.
If it increase the repo rate then the quantity of money supplied for loan will automatically decrease.</li></li></ul><li>Producer surplus<br /><ul><li>In developing cities e.g. Ahmadabad where lots of projects are running therefore now-a-days demand of home loans increases. So bank has increased its interest of home loans.
It can charge the interest more than what it wants to willing to charge. Then it is producer’s surplus.
E.g. if SBI wants to charge 3% but as demand increase for home loan & now it charges 5% than 2% is producer surplus.</li></li></ul><li>Consumer surplus<br /><ul><li> In urban area bank charge for cash credit loan 10% but for same loan in rural areas bank charge 6% - 7%.
Therefore it is called consumer surplus. As they are willing to pay 10% but bank charge 6%. That’s why it is consumer surplus.</li></li></ul><li>RELATION WITH THE CONSUMER CHOICE THEORY<br /><ul><li>The budget constraint shows the various bundles of goods that the consumer can buy for a given income.
The slope of budget constraint measures the rate at which consumer can trade one good for the other.
As shown in diagram point C gives optimum satisfaction. Any point on budget constraint gives the customer same level of satisfaction while point D gives less satisfaction.
When point A and E are out of the budget which is not possible for customer.</li></li></ul><li>Conclusion<br /><ul><li> The basic function of a bank is to give loans and to take the deposits.
The State bank of India has developed its business very well at economies of scale and it is going further in functions like mutual funds, insurance, stock market accounts and investments so it has developed the economies of scope as well.
This is the reason why it is the most developed and trusted bank of India.</li></li></ul><li>BIBLIOGRAPHY<br />Economics: Principles and Application by Mankiw<br />2. www.statebankofindia.com<br />3. www.sbi.co.in<br /> <br />