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Chapter -1

The Reserve Bank of India is the central bank of the country. Central banks are a
relatively recent innovation and most central banks, as we know them today, were
established around the early twentieth century.
The Reserve Bank of India was set up on the basis of the recommendations of the Hilton
Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the
statutory basis of the functioning of the Bank, which commenced operations on April 1,
The Bank was constituted to -
* Regulate the issue of banknotes
* Maintain reserves with a view to securing monetary stability and
* To operate the credit and currency system of the country to its advantage.
The Bank began its operations by taking over from the Government the functions so far
being performed by the Controller of Currency and from the Imperial Bank of India, the
management of Government accounts and public debt. The existing currency offices at
Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became
branches of the Issue Department. Offices of the Banking Department were established in
Calcutta, Bombay, Madras, Delhi and Rangoon. Burma (Myanmar) seceded from the
Indian Union in 1937 but the Reserve Bank continued to act as the Central Bank for
Burma till Japanese Occupation of Burma and later upto April, 1947.
After the partition of India, the Reserve Bank served as the central bank of Pakistan up to
June 1948 when the State Bank of Pakistan commenced operations. The Bank, which
was originally set up as a shareholder's bank, was nationalised in 1949.
An interesting feature of the Reserve Bank of India was that at its very inception, the
Bank was seen as playing a special role in the context of development, especially
Agriculture. When India commenced its plan endeavours, the development role of the
Bank came into focus, especially in the sixties when the Reserve Bank, in many ways,
pioneered the concept and practise of using finance to catalyse development. The Bank
was also instrumental in institutional development and helped set up insitutions like the
Deposit Insurance and Credit Guarantee Corporation of India, the Unit Trust of India, the
Industrial Development Bank of India, the National Bank of Agriculture and Rural
Development, the Discount and Finance House of India etc. to build the financial
infrastructure of the country.
With liberalisation, the Bank's focus has shifted back to core central banking functions
like Monetary Policy, Bank Supervision and Regulation, and Overseeing the Payments
System and onto developing the financial markets.


Amongst the banking institutions in the organized sector, the commercial banks are the
oldest institutions having a wide network of branches, commanding utmost public
confidence and having the lion shares in the total banking operations. Initially they were
established as corporate bodies with share holdings by private individuals, but
subsequently there has been a drift towards central ownership and control.
Upto late sixties commercial banks were mainly engaged in financing organized trade,
commerce and industry, but since then they are actively participating in financing
agriculture, small business and small borrowers also.


Banking in India on western lines had started from the beginning of 19th century. The
first joint stock was established at Calcutta by the name of Hindustan and was under
European management. But this bank failed at that time, the bank of Bengal (1806), bank
of Bombay (1840) and bank of madras (1843) were started with the financial
participation of the government. These banks were called as the presidency banks and
were given the right of note issue in their respective regions. The first purely Indian joint
stock bank was the Oudh commercial bank which came into existence in 1889. The
swadeshi movement of 1905 gave great stipules to the starting of the Indian Banks. The
Indian banking system had gone through a series of crisis and consequent bank failures.
Its growth was quite slow during the first half of this century. But after independence,
the Indian banking system recorded rapid progress. This was due to planned economic
growth, increase in money supply, growth of banking habit, control and guidance by the
Reserve Bank and the nationalization of top banks etc. The nationalization of 10 top
Banks in July 1969 gave banking a sense of direction and purpose. In 1980, there was
another nationalization of six smaller banks.


The business of a commercial Bank is primarily to hold deposits and make loans and
investments with the object of securing profit for its shareholders.

It performs the following functions:

Receiving deposits from the Public
Making loans and advances
Use of the cheque system
Transfer of funds
Other functions:
1. Issuing and operating credit cards (Visa, Master) etc.,
2. Keep the valuable articles of customers in safe custody.
3. Making and receiving payments on behalf of its depositors.


Lending of funds to the constituents, mainly traders, business and industrial enterprises,
constitutes the main business of the banking company. The major portion of the banks
funds employed by way of loans and advances which is the most profitable employment
of its funds. The major part of the banks income is not without certain inherent risks
largely depending on the borrowed funds a banker cannot afford to take undue risks in
lending. While lending his funds, a banker therefore, follows a very cautious policy in
order to minimize the risks.

There are three cardinal principles of banks lending that have been followed by
the commercial banks since long. These are the principles of safety-liquidity, and
profitability. The central Government and the Reserve bank have issued a number of
directions in this regard, highlighting the social purpose which they have to sub serve.
The traditional principles of bank lending have, therefore, been followed with certain


Banking, as defined in banking regulation act, is acceptance of deposits for the purpose
of lending and investment and not repayable otherwise than on demand. With the limited
network of commercial banks, and monopolies of few presidency banks, the business
flow was spontaneous and bankers had nothing more to do than banking defined in the
statute book.

The nationalization of major commercial banks in the late 1960’s and early 1980’s and
the introduction of lead bank scheme resulted in large scale expansion of bank network in
the country.

Added to this, the financial sector reforms have brought in the entry of new private sector
and foreign banks into the country. The conventional banking as outlined above has
given way for professional and hi-tech banking. There has been a paradigm shift from the
monopolies of public sector banks to competitive banking. Public sector banks can no
longer remain complacent with their conventional products and services. There where
times, when the corporate clientele occupied the centre stage and retail ones where
pushed to the back seats. The slow down of the economy, sluggish industrial growth,
slump in agricultural activities etc. have pushed the commercial banks to look to the
retail sector.

Retail banking has both pros and cons. In a situation like today, the bankers have very
little option, but to chant the ‘retail mantra’.
What is Retail Banking?
Retail banking can be crudely defined as the antonym of wholesale or bulk banking. It is
nothing, but shade business. A deposit of Rs. 1 lakh from single customer vs small
deposits of Rs. 10000 from ten different customers. The corporate and retail divide is
nothing but internal segmentations and the customers remains always a customer.

Advantages of retail banking:

Retail banking has inherent advantages out weighing certain disadvantages. Advantages
are analyzed both from the resource angle and asset angle.

Stable and constitute core deposits.
Less bargaining for additional interest.
Low cost funds.
Builds customer base.
Increases subsidiary business.
A safe and convenient saving avenue.

Assets side:
Better yield and improved bottom line.
Good avenue for funds deployment.
Lower risk and NPA perception.
Helps economic revival of the nation through increased production activity.
Improves lifestyle and fulfills aspirations of the people through affordable credit.
Innovative product development.
Minimum marketing efforts in a demand driven economy.
Risk weight in certain segments like housing loans.
Disadvantages of retail banking:

Retail banking, though by and large, is very handy in times of slow credit off take, is not
without certain disadvantages. A major disadvantage is monitoring and follows up of
huge volume of loan accounts. Housing loan by virtue of its long repayment term in the
absence of proper follow-up, they can become NPA’s (Net Performing Assets).

From Credit Rationing to Credit Marketing:

Banks are awash with liquidity. Prime corporates do not borrow from banks except at sub
– PLR rates. Other corporates are not favored by banks. Suddenly there is a great change
in attitude of the banks. The name of the game is no longer ‘Lending to big corporates,
huge amounts to create loan assets’. Retail credit is now welcome even from RBI’s
perspective. Consumer credit is no longer considered as unproductive, as it triggers
demand for consumer products, which in turn helps manufacturers in a period of
economic showdown while the rates of interest on consumer credit have fallen, there is
still scope for further deduction.

Fixed interest rates on housing loans have fallen sharply, but not the floating rates, which
are linked to medium and long term PLR’s. Banks refuse to reduce these rates, which
appears rather unfair. Credit card business is growing and even Public Sector banks have
started marketing these cards. The interest rate on credit card however is over 2.5% for
with drawl cash. Bank is reluctant to reduce its interest rate as it hits their bottom.

The personal banking segment customers have become the centre of attraction. It is their
deposits and savings acc. That are actively sought after, and not mega deposits at a
slightly higher rate of interest. Banks are truly spreading their deposits net rather widely.
Does Retail Credit help the Economy?
“What matters is what for you is fiancé and not what against”, says the RBI quite often.
Its implication is obvious: bank fiancé being scarce and as there are competing claimants,
it has to be rationed in the best interests of national economic prosperity, by ensuring that
loan funds flow to productive sectors. That is why the RBI rightly stresses that purpose
orientation and end use principle are important in lending.

Infact, RBI has no0t encouraged consumer finance till very recently. However, things
have radically changed. Banks are awash with excess liquidity, interest rates and inflation
southwards. Corporates do not borrow from banks in a big way due to variety of reasons
like economic slow down, infrastructural constraints, etc. Prime corporates manage to
secure sub-PLR rates. Under these circumstances banks are forced to look into the retail
segment for lending and RBI no longer applies the brakes.

Retail credit is not unproductive from the natio0nal economy prospective. The spurt in
retail credit like consumer finance, automobiles, two wheelers, financial services and
home loans sector indirectly help the economy by pushing up the sales of the products
and services involved. That is why central bankers now view with favor retail segment

Interest rates are still high on consumer finance part of the retail credit which includes
personal loans, clean loans, share loans, equipment finance loans, etc. Perhaps, interest
rates while fall further in course of time. Banks need to avoid scattered lending and
concentrate on contiguous arrears and institutional employees for financing. Government
banks have to understand that rigorous marketing is essential to face competition and
they have to device ways to train and deploy a percentage of the surplus staff in
marketing efforts. Innovations like gratuated payment mortgages, adjustable rate
mortgages etc. have to be introduced to suit the convenience of the borrowers, in place of
the present stand alone EMI structures.
The Retail Mantra

Indian Banking till recently, was not known for its aggressiveness in retail banking, even
though there is tremendous scope to build up high volumes. Retail loans account for a
mere 2-6% of GDP in India, in comparison to around 40-60% in Korea and Taiwan and
75% in USA. Thanks to the radical change in the perception, banks in India are now
extending retail finance very significantly to the sectors like housing, consumer durables,
share loans and other personal loans.

With the onset of superior technology, retail products have become cost effective with
new channels of distribution like ATM’S, credit cards, Internet, mobile phones, etc.
technology is also literally forcing banks to design more innovative products. Credit
products have to possess pricing efficiency with provision of integrated services.
Insurance pricing will become more rational. Investing will become automated, enabling
consumers to develop portfolios that meet their personal needs and risk preferences.

Towards a more Profitable Banking

Banks are chasing retail deposits, which have vast potential to reduce cost of funds. In
this endeavor, they are helped with the modern banking devices like Tele banking,
Internet banking, Mobile, banking, Credit cards, etc.

On the assets side, in a scenario of economic slowdown and rising defaults, corporates
are no longer the preferred borrowers. Personal segment advances have therefore come to
the limelight. There is the fierce competition in the form of balance takeovers for credit
cards and housing loan out standings, on finer terms. While retail banking results in wide
distribution of credit risk, the transaction costs could be higher, except in an automated
Retailing : A safe bet

Economic slowdown could be fought through retail banking. Competition, rising NPA’s,
low employee productivity, high operation costs, low quality corporate credit are the
reasons that pushed banks into the retail way. Banks need to adopt strategies like product
innovation, high quality service, speed of delivery, etc.

Retail banking: gaining momentum

Retail banking has made massive strides from the beginning of this millennium. Almost
all banks and leading lending agencies are now vying with each other to park their funds
to the maximum extend in retail banking sector, since it is a safe and secured advance
with better income earning. Leading finance companies and commercial banks ion the
public and private sectors including all the nationalized banks and new and old
generation private banks, are launching innovative loan products / schemes tailor made to
suit all sections of the society / different sectors of the public.

Public Sector Banks

Bank of Baroda,

State Bank of India,

Canara Bank,

Punjab National Bank,

Allahabad Bank

Private Sector Banks

HDFC Bank,

ICICI bank,

Kotak Mahindra Bank,

UTI Bank

Foreign Sector Banks

Citi Bank,

Standard Chartered PLC,

HSBC Bank,


American Express

The market share is defined as a bank’s total business in a particular segment (say,
deposits or advances) divided by the overall industry size for the year under review.
Obviously, the total banking business, that is, the business of all banks, keeps growing
year after year. It is reasonable to expect that the actual business mobilised by each bank
will also grow but its market share may remain the same or even decline.

The term public sector banks (PSBs) is too vast and heterogeneous in scope to be useful
in any analysis. It is, therefore, customary to adopt the following classification: SBI,
associates of SBI, nationalised banks, old private banks, new private banks and foreign
banks. The first three categories are government owned. Nationalised banks are those
taken over by the Government in two phases beginning 1969. New private banks were set
up in the reform era of the 1990s with adequate capital and a modern technology
platform. With no constraint imposed by government ownership or trade unions, these
banks were expected to do well. But it is only a few of them with the advantage of strong
promoters that have done well.

New private banks gain

Even so, the performance of the relatively small number of new private banks has been
good enough to redraw the contours of the banking space and make a big dent in the
market share of SBI as also in those of the old private banks and nationalised banks.
According to the RBI report, between 2001-02 and 2006-07, the banking industry, on an
average, grew by roughly 20 per cent a year to Rs. 46,19,373 crore from Rs. 18,51,367
crore in March 2002. (The RBI defines banking business as deposits minus advances
minus inter-bank liabilities). The new private banks led by ICICI Bank grew by 35 per
cent per annum. Their market share has gone up from 9 per cent (2002) to 16 per cent
(2007). Old private banks lost two percentage points from 7 per cent to 5 per cent and
foreign banks have retained their 6 per cent share over the five year period. Nationalised
banks have seen their market share drop by one percentage point to 49 per cent. SBI and
its associate banks put together have lost four percentage points to 24 per cent.
Clubbing SBI and its associates may be unfair to the latter. In fact, associates of
SBI — seven including State Bank of Saurashtra — have not fared badly at all when
compared to the industry average and in fact have done very well compared to SBI. In
fact, if one analyses over a longer, say, seven year period beginning 2000, there will be
more startling conclusions. An interesting study made by Janmejaya K Sinha, India head
of leading consultancy firm Boston Consulting, and published in a financial daily, has
some startling conclusions.

Between 2000 and 2007, the nationalised banks’ share in deposits fell by five
points. SBI’s share fell from 22 per cent to 16 per cent, a six point drop over seven years.
To put it differently in percentage terms, SBI has lost 27 per cent. Equally significant,
SBI’s associates more or less retained their share. The practice of clubbing SBI and its
associates is probably meant to play down SBI’s loss of market share.

Obviously, this has added significance in the context of the almost certain
merger of SBI and its associates. Will SBI’s slide be checked after the merger or will it
drag the associates too downhill? Nationalised banks have been losing their market
shares by far less than SBI. The other big category of losers has been the old private

The market share is but one of the several yardsticks to measure a bank’s
performance. There are a number of related questions that need to be asked and can be
answered only by looking at the totality of circumstances. For instance, SBI’s loss in
market share has translated into ICICI Bank’s gain.

Again, while the performance of individual new private banks has been
commendable, there were many licensed in the 1990s that have disappointed. So, is it
possible to base these important developments _ such as loss of market share _ on
ownership patterns? Here again, SBI has always been less of a government bank than
other nationalised banks of 1969. Yet it has lost significant market shares to its
competitors. There are obviously a number of other factors at play here. These include
HR policies, the speed of decision making and the ability to scale up financial
technology, to name just a few. For now, the relative alignments in the market shares of
banks may be the best indicator of things to come.

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
and scheduled banks. Scheduled banks comprise commercial banks and the co-operative
banks. In terms of ownership, commercial banks can be further grouped into nationalized
banks, the State Bank of India and its group banks, regional rural banks and private
sector banks (the old/ new domestic and foreign). These banks have over 67,000
branches spread across the country. The first phase of financial reforms resulted in the
nationalization of 14 major banks in 1969 and resulted in a shift from Class banking to
Mass banking. This in turn resulted in a significant growth in the geographical coverage
of banks. Every bank had to earmark a minimum percentage of their loan portfolio to
sectors identified as “priority sectors”. The manufacturing sector also grew during the
1970s in protected environs and the banking sector was a critical source. The next wave
of reforms saw the nationalization of 6 more commercial banks in 1980. Since then the
number of scheduled commercial banks 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 the early nineties, the Public Sector Banks (PSB) s found it
extremely difficult to compete with the new private sector banks and the foreign banks.
The new private sector banks first made their appearance after the guidelines permitting
them were issued in January 1993. Eight new private sector banks are presently in
operation. These banks due to their late start have access to state-of-the-art technology,
which in turn helps them to save on manpower costs and provide better services.
During the year 2000, the State Bank of India (SBI) and its 7 associates accounted for a
25 percent share in deposits and 28.1 percent share in credit. The 20 nationalized banks
accounted for 53.2 percent of the deposits and 47.5 percent of credit during the same
period. The share of foreign banks (numbering 42), regional rural banks and other
scheduled commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent
respectively in deposits and 8.41 percent, 3.14 percent and 12.85 percent respectively in
credit during the year 2000.
At the all India level, the credit-deposit (C-D) ratio of commercial banks stood at
71.5% as of September 2007. Among states and union territories, Tamil Nadu (TN)
reported the highest C-D ratio at 109.8%. TN was followed by Chandigarh with a ratio of
Foreign banks had the highest C-D ratio of 79.9%. For SBI and associates and
other scheduled commercial banks, the C-D ratio was 72.5%. The ratio was lower for
nationalised banks (70.2%), and lowest for RRBs (61.5%). The C-D ratio of all
commercial banks in metros was the highest at 83.2%, followed distantly by rural centres
(60.5%) and urban centres (56.9%). Semi-urban centres recorded the lowest C-D ratio at

The Current Scenario

The industry is currently in a transition phase. On the one hand, the PSBs, which
are the mainstay of the Indian Banking system are in the process of shedding their flab in
terms of excessive manpower, excessive non Performing Assets (NPAs) and excessive
governmental equity, while on the other hand the private sector banks are consolidating
themselves through mergers and acquisitions. PSBs, which currently account for more
than 78 percent of total banking industry assets are saddled with NPAs (a mind-boggling
Rs 830 billion in 2000), falling revenues from traditional sources, lack of modern
technology and a massive workforce while the new private sector banks are forging
ahead and rewriting the traditional banking business model by way of their sheer
innovation and service. The PSBs are of course currently working out challenging
strategies even as 20 percent of their massive employee strength 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 and
access to low cost deposits. Therefore one of the means for them to combat the PSBs has
been through the merger and acquisition (M& A) route. Over the last two years, the
industry has witnessed several such instances. For instance, HDFC Bank’s merger with
Times Bank ICICI Bank’s acquisition of ITC Classic, Anagram Finance and Bank of
Madura. Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank are said to be on
the lookout. The UTI bank- Global Trust Bank merger however opened a pandora’s box
and brought about the realization that all was not well in the functioning of many of the
private sector banks. Private sector Banks have pioneered internet banking, phone
banking, anywhere banking, mobile banking, debit cards, Automatic Teller Machines
(ATMs) and combined various other services and integrated them into the mainstream
banking arena, while the PSBs are still grappling with disgruntled employees in the
aftermath of successful VRS schemes. Also, following India’s commitment to the W To
agreement in respect of the services sector, foreign banks, including both new and the
existing ones, have been permitted to open up to 12 branches a year with effect from
1998-99 as against the earlier stipulation of 8 branches.
Talks of government diluting their equity from 51 percent to 33 percent in
November 2000 have also opened up a new opportunity for the takeover of even the
PSBs. The FDI rules being more rationalized in Q1FY02 may also pave the way for
foreign banks taking the M& A route to acquire willing Indian partners.
Meanwhile the economic and corporate sector slowdown has led to an increasing
number of banks focusing on the retail segment. Many of them are also entering the new
vistas of Insurance. Banks with their phenomenal reach and a regular interface with the
retail investor are the best placed to enter into the insurance sector. Banks in India have
been allowed to provide fee-based insurance services without risk participation invest in
an insurance company for providing infrastructure and services support and set up of a
separate joint-venture insurance company with risk participation.

Aggregate performance of the Banking Industry: Aggregate deposits of scheduled

commercial banks increased at a compounded annual average growth rate (Cagr) of 17.8
percent during 1969-99, while bank credit expanded at a Cagr of 16.3 percent per annum.
Banks’ investments in government and other approved securities recorded a Cagr of 18.8
percent per annum during the same period. In FY01 the economic slowdown resulted in a
Gross Domestic Product (GDP) growth of only 6.0 percent as against the previous year’s
6.4 percent. The WPI Index (a measure of inflation) increased by 7.1 percent as against
3.3 percent in FY00. Similarly, money supply (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 in FY01 percent was lower than that of 19.3 percent in
the previous year, while the growth in 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 20 listed banks dropped by 34.43 percent in the quarter
ended March 2001. Net profits grew by 40.75 percent in the first quarter of 2000-2001,
but dropped to 4.56 percent in the fourth quarter of 2000-2001.
On the Capital Adequacy Ratio (CAR) front while most banks managed to fulfill
the norms, it was a feat achieved with its own share of difficulties. The CAR, which at
present is 9.0 percent, is likely to be hiked to 12.0 percent by the year 2004 based on the
Basle Committee recommendations. Any bank that wishes to grow its assets needs to
also shore up its capital at the same time so that its capital as a percentage of the risk-
weighted assets is maintained at the stipulated rate. While the IPO route was a much-
fancied one in the early ‘90s, the current scenario doesn’t look too attractive for bank
Consequently, banks have been forced to explore other avenues to shore up their
capital base. While some are wooing foreign partners to add to the capital others are
employing the M& A route. Many are also going in for right issues at prices considerably
lower than the market prices to woo the investors.

Interest Rate Scene: The two years, post the East Asian crises in 1997-98 saw a climb in
the global interest rates. It was only in the later half of FY01 that the US Fed cut interest
rates. India has however remained more or less insulated. The past 2 years in our country
was characterized by a mounting intention of the Reserve Bank of India (RBI) to steadily
reduce interest rates resulting in a narrowing differential between global and domestic
The RBI has been affecting bank rate and CRR cuts at regular intervals to
improve liquidity and reduce rates. The only exception was in July 2000 when the RBI
increased the Cash Reserve Ratio (CRR) to stem the fall in the rupee against the dollar.
The steady fall in the interest rates resulted in squeezed margins for the banks in general.
After the first phase and second phase of financial reforms, in the 1980s
commercial banks began to function in a highly regulated environment, with
administered interest rate structure, quantitative restrictions on credit flows, high reserve
requirements and reservation of a significant proportion of lendable resources for the
priority and the government sectors. The restrictive regulatory norms led to the credit
rationing for the private sector and the interest rate controls led to the unproductive use of
credit and low levels of investment and growth. The resultant ‘financial repression’ led to
decline in productivity and efficiency and erosion of profitability of the banking sector in
This was when the need to develop a sound commercial banking system was
felt. This was worked out mainly with the help of the recommendations of the Committee
on the Financial System (Chairman: Shri M. Narasimham), 1991. The resultant financial
sector reforms called for interest rate flexibility for banks, reduction in reserve
requirements, and a number of structural measures. Interest rates have thus been steadily
deregulated in the past few years with banks being free to fix their Prime Lending Rates
(PLRs) and deposit rates for most banking products. Credit market reforms included
introduction of new instruments of credit, changes in the credit delivery system and
integration of functional roles of diverse players, such as, banks, financial institutions and
non-banking financial companies (NBFCs). Domestic Private Sector Banks were allowed
to be set up, PSBs were allowed to access the markets to shore up their Cars.

An analysis of Indian Banking sector including Growth in advances and deposits,

Market share, NPAs, CAR, Exposure norms, Retail Banking Initiatives and Major

- The Reserve Bank of India (RBI), as the central bank of the country, closely monitors
developments in the whole financial sector.
- The banking sector is dominated by Scheduled Commercial Banks (SCBs). As at end-
March 2002, there were 296 Commercial banks operating in India. This included 27
Public Sector Banks (PSBs), 31 Private, 42 Foreign and 196 Regional Rural Banks. Also,
there were 67 scheduled co-operative banks consisting of 51 scheduled urban co-
operative banks and 16 scheduled state co-operative banks.
- Scheduled commercial banks touched, on the deposit front, a growth of 14% as against
18% registered in the previous year. And on advances, the growth was 14.5%against 17.3
% registered as of the earlier year.
- State Bank of India is still the largest bank in India with the market share of 20%. ICICI
and its two subsidiaries merged with ICICI Bank, leading creating the second largest
bank in India with a balance sheet size of Rs1040bn.
- Higher provisioning norms, tighter asset classification norms, dispensing with the
concept of ‘past due’ for recognition of NPAs, lowering of ceiling on exposure to a
single borrower and group exposure etc., are among the important measures in order to
improve the banking sector.
- A minimum stipulated Capital Adequacy Ratio (CAR) was introduced to strengthen the
ability of banks to absorb losses and the ratio has subsequently been raised from 8% to
9%. It is proposed to hike the CAR to 12% by 2004 based on the Basle Committee
- Retail Banking is the new mantra in the banking sector. The home loans alone account
for nearly two-third of the total retail portfolio of the bank. According to one estimate,
the retail segment is expected to grow at 30-40% in the coming years.
- Net banking, phone banking, mobile banking, ATMs and bill payments are the new
buzz words that banks are using to lure customers.
- With a view to provide an institutional mechanism for sharing of information on
borrowers/ potential borrowers by banks and Financial Institutions, the Credit
Information Bureau (India) Ltd. (CIBIL) was set up in August 2000. The Bureau
provides a framework for collecting, processing and sharing credit information on
borrowers of credit institutions. SBI and HDFC are the promoters of the CIBIL.
- The RBI is now planning to transfer of its stakes in the SBI, NHB and National Bank
for Agricultural and Rural Development to the private players. Also, the Government has
sought to lower its holding in PSBs to a minimum of 33 per cent of total capital by
allowing them to raise capital from the market.
- Banks are free to acquire shares, convertible debentures of corporates and units of
equity-oriented mutual funds, subject to a ceiling of 5% of the total outstanding advances
(including Commercial Paper) as on March 31 of the previous year.
- The finance ministry spelt out structure of the government-sponsored ARC called the
Asset Reconstruction Company (India) Limited (ARCIL), this pilot project of the
ministry would pave way for smoother functioning of the credit market in the country.
The Government will hold 49% stake and private players will hold the rest 51% - the
majority being held by ICICI Bank (24.5%).

FY08 (Rs bn) Advances Market share

SBI 1,955 22.7%
ICICI Bank 631 7.3%
Canara Bank 476 5.5%
PNB 472 5.5%
Bank of India 458 5.3%
Bank of Baroda 356 4.1%
HDFC Bank 177 2.1%
Standard Chartered 162 1.9%
Total 4,687 54.4%

The fact that the top 8 banks account for barely 54 per cent of the market share suggests
that several smaller players occupy the remaining 46 per cent.

It is here that the foreign players see the 'opportunity'. Although the smaller players
together account for a reasonable share, most of them are undercapitalized, on a
standalone basis.

The need to cater to the burgeoning credit demand also calls for additional capital
requirement, for which their foreign counterparts can come to the rescue of the smaller
Indian banks.

Also, since the new foreign players will not be allowed to expand freely, the ones taking
the subsidiary route for expansion will not be subjected to rural branch norms (25 per
cent of branches to be set up in rural areas) as well as priority sector lending requirement
(35 per cent). They can thus concentrate their focus on the lucrative urban markets.
Chapter –2
The success story of any organization are shown by visionary entrepreneurs
perceiving a potential opportunity and relating to their common aspiration and growing
concern through collective efforts, shared vision and with a definite purpose. They are
guided by their own philosophy that gets reflected in the various initiatives and activities
of their organization. Through an effective percolation of such a philosophy to all levels,
they transform excellence into a way of life in their functioning. The success story of the
Karnataka bank limited is no exception.
The South Kanara district of Karnataka State well known as the cradle of
banking has witnessed the birth of 22 banks since 1906. There was a patriotic zeal and
fervour in the district after swadeshi movement. Several merchants, landlords, doctors
and lawyer with an indomitable zeal began to conceptualize modern banking concepts. 5
banks have been originated out of it. One is private banks - Canara Bank, Syndicate
Bank, Vijaya Bank, Corporation Bank and Karnataka Bank. In which first four are public
sector banks and Karnataka bank is private sector bank.
Setting up of service industries has been a hallmark of the entrepreneurial skill of
the people of Dakshina Kannada. Karnataka state occupies a unique place in the nation’s
banking history. The people of this district have always exhibited an innovative and
adventurous spirit, which coupled with their inherent entrepreneurial abilities, served as
one of the pillars of the progress of the district. The lawyers and agriculturists of
Dakshina Kannada joined together and established the bank on 18 Feb 1924. Its
incorporation was obtained from the District Asst. Registrar of Joint Stock Company.
The founder of the bank named it as Karnataka bank much before the old Mysore state
was officially renamed as the Karnataka state.
The founder directors are:
B.R.Vyasraya Achar, Mangalore
Nellikai Venkat Rao,Mangalore
Pejavar Narayana Charaya, Kenjar village
Pangal Subba Roa, Mangalore
Udupi Venkat Rao, Udupi
Narikombu Rama Rao, Mangalore
Kalmadi Laxminaraya Rao, Mangalore
Vaderahobli Narasimhakaranth Vaderahobli
Badakkala Venkatramana Bhat, Mangalore

The bank commenced business at Mangalore, Dongerkery. On May 23 rd 1924,

Sri B.R. Vyasaray Achar selected the first chairman of the Karnataka bank.The initial
paid up capital was Rs.54 lakhs. By the end of the first year, deposits were Rs 68,449
with a Net Profit of Rs 3,591. It declared its maiden dividend at 6.25%. In 1930 the
second branch of the bank was opened at George Town, Madras, the third branch of the
bank was opened at carstreet Udupi.
The bank ended its first decade of existence with deposits of Rs 14.8 lakhs with
three branches. It was able to withstand the impediments of time and celebrate its silver
jubilee in 1949, with total deposits of Rs 56 lakhs and advances of Rs 41 lakhs.
In the stride towards progress and expansion, the bank got reinforced by the take
over of three banks namely, Sri Sringeri Sharada Bank Limited on April 1 st 1960, which
had four branches. The Bank took over Chitradurga Bank Limited on December 30th
1964 in Mysore state, which had deposits of Rs.56000 and advances of Rs.96000 and
Bank of Karnataka Limited on December 29th 1966, which had thirteen branches. In
1970, the Paid up share capital of the bank was increased to Rs.20 lakhs . The year 1971
was a year of pride for the bank, as it opened its 100 th branch. In 1972 bank witnessed
two milestones in the history of the bank. The banks own multi-stored head office
building built at a cost of Rs 20 lakhs was inaugurated in that year.
During the golden jubilee year of the bank in 1974, the bank had deposits of
Rs.33.14 crores and advances of Rs.22.09 crores with 156 branches and 1314 employees.
In 1975, 150th branch was opened at bagalkot and in 1977 authorized share capital was
increased to Rs One crore and its 200th branch was opened in Narve.
In 1979 Shri K.S.N Adiga, Chairman retired from the services of the bank was
succeeded by Shri K.N Basri and the deposits crossed rupees 100 crores. In 1980 Shri
K.N Basri chairman retired from the services of the bank and was succeeded by Shri
P.Raghuram. In 1984, Abhyudata house Magazine was introduced for the first time in the
history of Karnataka. In 1985, Shri P.Sunder Rao became the chairman. In 1986, the
bank installed an In house computer at the head office. Several activities at the head
office are intensively computerized. The installation at the HO is managed by computer
engineers with appropriate exposure to an OLT and 4 GL working environment. Besides
all departments at the Head Office is equipped with PC’S.
Specialized branches have been established to cater customer segment in core
areas such as agriculture, industry and foreign exchange. It has also entered merchant
banking lease financing, krishi card, stock invest and NRI customer cell. The krishi card
has been introduced for agriculturists.
Karnataka bank is deeply committed to its social obligation of extending credit
and other banking services to its rural customers. It has also contributed a lot in irrigating
the dry lands in the state through lending for the purchase of sprinklers sets, pumpsets, oil
engines etc. The bank has also assisted the villagers for establishing cottage and small
scale industries. The farmers are also assisted for the purchase of tractors and other
agricultural implements. The bank apart from rendering financial assistance has being
issuing health care pamphlets periodically to its customer as well as to the public through
its branches in Karnataka through its objectives of education and social maladies like
drinking, smoking etc. to help them lead happy and healthy life.
Improving irrigation facility, mainly sprinkler irrigation is one of the
contributing factors for the improvement in agricultural productivity in the country. The
bank has undertaken projects with a view to irrigate in the drought stricken Bagalkot
Taluk ,similar schemes are launched in the district of Tumkur, Shimoga, Dharwad,
Chickamagalur and Bijapur. This policy of the bank has been oriented towards helping
the citizens to increase production and to improve their financial status.
The bank has invested its funds in various securities/bonds of the state
government, Karnataka State Co-operative Land Development Bank, Karnataka State
Housing Board, Bangalore Water Supply Board, Karnataka Power Corporation,
Karnataka Electricity Board, Karnataka State Industrial Corporation etc. in order to
extend support to all the developmental departmental activities of Karnataka state.
With over 81 years of experience at the forefront of providing professional
banking services to customers, Karnataka bank today has a national presence with a
network of 433 branches, 8 regional offices, an internal division, one data centre, 3
service branches, 2 currency chests and 10 extension counters, spread across 18 states
and 2 union territories. The banks head office is functioning near Mahaveer
Managed by a dedicated and professional Management team, bank has 4679
employees, 97000 shareholders and 2.67 million clientele base. Karnataka bank has
emerged as a leading financial service institution in India under the leadership of present
chairman and CEO, Shri Ananthakrishna. With 93 branches in rural areas, the bank has
acquired the reputation of being approachable.
Amongst other banks, it was Karnataks bank Ltd, which first realized the
important of having a centralized banking system and was among the first to deploy the
core banking system in the year 2000. Adoption of core banking Anytime/Anywhere
banking and networking have enabled the bank in offering customer centric value added
product and services like multi branch banking(MBB), flexi term deposits, ATM card
linked credit facility(K-Power), etc. The bank is offering free ATM cards, Ordinary card
and Privilege cards. Ordinary cards are those cards, which are offered to the regular
customers for their convenience. Those who have this card should maintain a balance in
their account and can withdraw the cash up to minimum balance of Rs.100. Privilege
cards are given to some important customers to whom it is allowed to withdraw cash for
a certain fixed amount, even when there is no balance in their account for a fixed charge
of interest.
Karnataka bank has deployed the state of art technology from the best players in
the industries like Infosys and Wipro. These systems provide the highest reliability thus
enabling the bank to offer non stop services of the highest order.


Every institution has its own logo; it is the prestige, proudness. The sytem of
banking is to have a good relationship with customers. To have a close relationship with
customers the logo should be simple and beautiful. By this customer should be able to
see the interior system of the bank.
The year 1977 was an important one in the history of the bank. During the year
bank adopted the logo (star) as its symbol. It symbolizes stability, discipline, harmony
and confidence. Bank logo is indicative of creation and potency, which is also a
manifestation of human soul, which has the external existence with infinitive. Logo also
represents growth with safety, security and enduring success for all the beings. The sign
also signifies with family concept of father, mother and their progeny, symbolizing their
security which is reflected in the bank motto – “Your family bank across India”.
The Bank has adopted a new brand colour, which signifies brightness,
cheerfulness and forward looking nature. At Karnataka bank they understand that
customer are different in unique ways, which is why regardless of the size of your
business or your aspiration, we treat every one as individual and special among other
things, this means offering you choice, not only in relation to our products and services
but also in the way you interact with us. We understand the changes in your lifestyle
recognize these changes and support you with a high standard of professionalism and

We at Karnataka bank offer a total value package, a one stop shop for all your
banking needs. We thoroughly research these needs and create the right solution with
speed and efficiency, for your maximum benefit.
There are various departments in the Head Office to assist in the smooth
functioning of the banking activities namely
Advance Department
Credit Department
Treasury and Accounts Department
Risk Management Department
Inspection and Audit Department
Human Resource and Industrial relations Department
Recovery Department
Investment Department
Advances Department
Planning and Development Department
Vigilance cell
Management Information System Department
Legal Department
IT Department
Company Secretariat

Credit Department
The main function of this department is lending of loans and advances to the borrowers,
recovery of non performing assets, settling of dues, providing various loan schemes like
housing loan scheme etc.
Treasury and account Department
Treasury operations mainly comprises of surplus statutory liquidity ratios, the non-
statutory liquidity ratios investment.
Risk Management Department
Effective risk management is essential for the success of the bank. The bank has already
formed committees of executives for identification, measurement, monitoring and
management of risks.
Inspection and Audit Department
The audit committee of Board of Directors is supervising the internal audit and
compliances functions. The system of regular inspection, short term inspection and credit
inspection of branches forms part of system of internal control.
Human Resource and Industrial Relation Department
The quality of Human resource in any organization will have an important effect on
quality of services rendered by the organization. HR department provides necessary and
adequate training to the staff members to upgrade their skill and knowledge.
The HR and IR Department of Karnataka Bank Ltd. has the authority to monitor all sort
of HR functions of the bank. It is leaded by the DGM who is supported by 30 staff
numbers including 2 chief managers.
List of activities being carried out by the HR department:
Salaries across bank branches/offices
Recruitment, promotions, transfers
Staff provident Fund
Pension and gratuity
Staff quarters
Leave position/man power
Travelling allowance sanctioning
Hospitalization and medical facilities.

Activities being carried out by the IR department

Matters related to complaints
Legal Matters

Recovery Department
Main function of this department is to recover all dues. They make a list of all the Non
performing assets and take follow up measures thereafter.
Investment Department
This department deals with how the surplus amount has to be invested in particular
sectors or areas with regard to RBI regulations.
Advance Department
The activities undertaken by the advance department are general advance, specialized
advance, large advance, forex division, lease finance.
Planning and Development Department
Main function is to plan the development of the organization which includes launching of
new products, offering ATM services, deposits, insurance, mutual funds etc.
Vigilance Cell
The functioning of this department is similar to that of the inspection department.
Inspection department looks into the general aspect while the Vigilance department
concentrates on the specific problem area.
Management Information System Department
The important function of this department is to collect information from various branches
for onward functioning of the bank.
Legal Department
In the organization if there are any legal complications like filing a suit etc., any advice
required in relation to these matters can be obtained from the legal section headed by the
legal specialists.
IT Department
Information technology follows the core banking systems. Management of information
technology is the main function of this department.
Company Secretariat
The Secretarial department heads the general meeting. The main function of this
department is issuing of shares, transfer of shares and conducting annual meetings.

Area of Operation/ Distribution Network

The bank has 433 branches, 148 ATM outlets, 7 extention counters, 8 regional
offices, 1 international division, 1 data centre, 4 service branches, 2 currency chests
spread over 19 states and 2 union territories.

Credit Rating
The credit rating agency, ICRA ltd. (ICRA), one of the leading credit rating
agencies of the country has accorded ‘A1+’ rating to the banks certificate of deposit
programme. The rating symbol,’A1+’ indicates highest degree of safety for timely
payment of principal and interest.
CRISIL, India’s top credit rating agency awarded the top ‘P+’ to the Bank’s
certificate of deposit programme. The economic survey of Indian banks has accorded the
top rank to the bank among all time-tested Indian private banks.


To be a technology savvy, customer centric progressive bank with a national
presence, driven by the highest standard of corporate governance and guided by
sound ethical values.

We believe in total quality at all levels. We are aiming at a total value package, a
one-stop shop for all your banking needs.
Our motto is to serve you with high standard professionalism with a personal touch
built on trust. After all, this is your bank…. your family bank…. Across INDIA


Deposit Products:
Karnataka bank ltd aims to help customers build on a strong foundation by
maximizing returns on investments and increasing their assets. Customer can make use of
their customized product to take care of their specific banking needs.
Abhyudaya Cash Certificate
A growth oriented scheme with maximum returns. Money invested multiplies
after the specified period. The minimum period of deposit is 6 months and the maximum
period is 120 months.
Fixed Deposit
A deposit scheme for specified periods ranging from 15 days to 10 years with
interest payments made monthly, quarterly, half-yearly or yearly as required by the
Ready Money Deposit
A unique term deposit cum overdraft account, where by a minimum deposit of Rs
10000/- enables the customers withdraw up to 75% of the amount by cheque without
presentation of the deposit receipt.
Soulabhaya Deposit
A flexible ‘twin gain’ deposit scheme that allows withdrawal of deposit in unit of
Rs 1000 each in case of need, without affecting the interest payable on the remaining
units. Minimum amount of deposit is Rs 5000 and in multiples of Rs 1000 thereto.
Cumulative Deposit
A monthly deposit scheme whereby a fixed amount is to be contributed monthly
for a minimum period of 6 months and a maximum period of 10 years. This is an ideal
scheme to save a fixed amount for future plans such as education, buying a home etc.
Insurance Linked Saving Bank Deposit
By maintaining a stipulated minimum balance in SB account, customers become
entitled to free accident insurance coverage of up to Rs 2 lakhs and Rs 10000 towards re-
imbursement of hospitalization expenses arising out of accidents.
K- Flexi Deposit
A facility for all existing account holders that maximizes the return on surplus
funds in the account. The stipulated level at present is Rs.10000. Whenever the balance
in the SB a/c surpasses this amount the excess amount gets transferred to a term deposit
in multiples of Rs 5000 for a specified period and earns interest applicable to a term
deposit of that period.
Resident Foreign Currency (domestic) Account
This account can be opened by current account only. Foreign currency in USD,
GBP and euros may be deposited. The account carries no interest with it and there is no
minimum amount for opening the account. Foreign exchange acquired in the form of
currency notes, travelers cheques, gifts, honorarium received outside India, gifts received
from relatives and earnings through the export of goods and services can be credited to
this account.
NRI Service
There are a wide range of deposit schemes for non- resident Indians. It includes
non resident rupee account (NRE), foreign currency non-resident (bank) scheme (FCNR
[B]) and Non resident (ordinary) account (NRO) with very attractive and competitive
rates. Resident foreign currency (RFC)(domestic) account for returning Indians is also
Loans Schemes:
Karnataka bank ltd provides their customer with all the conveniences of modern
Banking through their network 433 branches. Offering personal financial solutions
relevant to them as an individual, they value the opportunity of building a relationship
with them, developing an understanding of the customers changing financial needs at
different stages of their lives. Their customer centric focus over the years has enabled
them to change with time, offering them quality products through means that are
convenient to the customers.
KBL Apna Ghar
Fulfills customer’s dreams of buying or constructing their own home or
renovation, remodeling, repairs of existing house with the housing loan scheme. The
maximum quantum of loans is 50 lakhs.
KBL Niveshan Scheme
For the purchase of house site(converted land only), a loan amount of Rs.15 lakhs
or 75% of the registration value of the site, whichever is less, is sanctioned.
KBL Varthak Loan
Traders, commission agents, distributors, dealers and stockiest with business
licenses are eligible to avail finance for working capital to keep things running smoothly.
The maximum quantum of loan under this scheme is Rs 9 lakh.
KBL Udyog Mithra
If you are a doctor, lawyer, engineer, chartered accountant or tax consultant with
2 year of experience and are a customer of the bank, you are eligible for finance to
purchase medical equipment, machinery, computers, books, furniture and furnishings for
the setting up of customers own office or work place.
KBL Car Finance
Finance is available for the purchase of a new car of customers choice up to 85%
of the invoice value excluding vehicle tax and insurance. Car finance scheme also
finances the purchases of second hand cars up to Rs 1.50 lakhs. Any individual who is an
income tax assessee or a company or its ED/MD or a managing partner of a firm is
eligible for the loan.
Vidyanidhi Education Loan Scheme
The education loan helps customers to finance their child’s studies in India and
abroad. The loan covers expenses for tuition fees, books, study material, hostel boarding,
and air travel.
KBL Vahana Mithra
Finance is also available for the purchase of new as well as old auto rickshaw,
jeep, car, maxi, cab, tempo, traveler, TATA sumo, TOYOTA quails, bus, lorry etc. and
also for purchase of new tractor, JCB , crane etc to be registered as public transport
vehicle for hire.
KBL Easy Ride
KBL loan scheme for 2 wheelers is a versatile loan available for individuals,
professionals and companies. The quantum of loan will be 100% of the invoice value of
the vehicle. The loan is repayable in 5 years in easy equated monthly installments.
KBL Lease and Encash
This scheme is made available to meet the credit requirement of property owners
(building, flat, godowns etc) who have rented their premises against future rent
KBL Insta Cash
This is for consumption purpose. Under this scheme, the loan amount ranges from
Rs.5000 to 5 lakhs with necessary margin and securities there under. The scheme enables
credit while keeping the borrowers investment intact. The facility covers persons in the
age group of 18-70.
KBL Swarna Nidhi
This is an innovative scheme to facilitate working and non- working/ self-
employed/ professional women to purchase gold coins/ bars or gold ornaments from
reputed established jewellers.
K-power Personal Loans Scheme Linked to ATM Card
Special facility to withdraw cash from any money plant ATM, and from
corporation bank ATMs, even if there is no balance in customer account. Customer can
withdraw up to Rs 15000 as a personal loan.
Scheme for Financing Salaried Persons
As customers and their families grow, their needs will keep changing and so will
priorities. This scheme for permanent employees of reputed companies or institutions is
for the purchase of consumer durables, religious ceremonies, educational or medical
expenses, home repairs and obsequies.
Krishi Card
This is an innovation credit card extending finance for various activities under
agriculture. The krishi card covers crops loans, crops insurance, agri-inputs like
fertilizers etc. and personal accident insurance.

Multi-branch Banking
A special facility that provides connectivity and flexibility, allowing customers
operate their account in branches other then the branch where they have their account. An
ideal facility if customers are on the move between cities, it’s like having their own
account away from home. This multi-point, multi-branch facility is available in over 222
branches across India.
Insurance Cover
Bank has taken up the corporate agency of MetLife India, an affiliate of MetLife,
and the largest Life insurance Company in USA to provide customized life insurance
solutions to customers. Bank also entered into the field of General (asset) insurance as
corporate agents of Bajaj Allianz Gen. Insurance Co. Ltd., a joint venture of Bajaj Auto,
the country’s leading two and three wheeler manufacturer and Allianz AG of Germany,
the world’s largest general insurer.
Money Plant ATM’s
As an account holder, customers can use their ATM card to withdraw cash,
make balance enquiries and request statements, cheque books etc. Money Plant ATM’s
give customer “round the clock” access to their account through ATM counters across
the country, as well as those ATM’s under arrangement with Corporation Bank.
Utility Bill Payment made Easy
At Karnataka bank, customers can now make telephone bill payments through
the bank itself. To provide customers with more convenience, the bank has tied-up with
cell one and the Telecoms of Goa and Bangalore. Now customers need not wait for long
hours in a queue to pay their phone bills. They can do it at Karnataka bank and save their
precious time.
Western Union Money Transfer
A strategic arrangement with Western Union Financial Services Inc. of USA facilitates
quick, reliable and convenient transfer of funds anywhere in the world.
Speedy Money Transfers Worldwide
The bank is also a member of the Society for Worldwide Interbank Financial
Telecommunication (swift) for expeditious two way transfer of funds and has a wide
network of correspondent banks in 43 countries around the globe.
Instant Credit of Outstation Cheques
The facility of immediate credit of Rs. 15,000/- is available at all branches of the bank.
(Subject to terms and conditions).
Internet Banking service
Under this service, Karnatka Bank LTD will help the customers by transferring funds
between the account of some customer and third party accounts within the bank and
across other bank.

The bank’s HRD policy has been guided by the Chinese proverb, “If you are
planning for one year, grow rice. If you are planning for 20 years, plant trees. If you’re
planning for centuries, invest in human development.” Adequate training has been
improved for up gradation of skills to operate improved technology.
Recruitment is done followed by 2 methods namely Internal Method & External Method.
As far as filling up of vacancies of officers is concerned the management goes
for recruitment from outside only upto 20% and remaining 80% is filled up by internal
Performance appraisal report in the bank is prepared every year. Performance
evaluations are done by the chief manager. The report is finally submitted to DGM of HR
and IR department. The bank has maintained cordial and healthy industrial relations with
the employees of the bank.
Karnataka bank staffs are divided in 3 levels: Officer Level, Clerk level and
Sub-staff level.
The bank gives prominence not only to academic performance, but also on the
total contribution of the staff to the organization. They also contribute for the total
customer value.
The bank believes in the view of constant staff enrichment and work
improvement. Regular and intensive training for the staff in area of new product
development, program communication and customer care will make the bank staff well-
equipped to take on the competition .Training officer is a person who is in charge of
selecting a staff for a particular training program and finally evaluate the knowledge of
the staff obtained through training.
The bank possesses employee force with various skills. The organization
encourages and provides for development of skills of employees @ different levels. The
bank is proposed to conduct training program for the potential entrepreneurs in 3 stages:
Entrepreneur awareness program(EAP)
Entrepreneur Development program(EDP)
Skill development program(SDP)
Priority area in today’s agenda are leadership training, technical training and
customer designed training. It enables the employees become more effective on the job
and also regarding various skills necessary to do the actual job.
The bank provides training on the areas like role efficiency, creativity and self
development, computer skills, customer service committee recommendation, job
enrichment training, interpersonal skills practical problems on banking case studies,
product awareness and customer complaints. Practical exercises are done to enhance the
skills of the employees.

Net Profit:
Years N/P (in crores)
2003.2004 133.16
2004.2005 147.14
2005.2006 176.03
2006.2007 177.03
2007-2008 241.74

Dividend paid:
Years Dividend (in %)
2003.2004 40
2004.2005 20
2004.2006 30
2006.2007 35
2007-2008 50

Capital and Reserves:

Years Capital and Reserves (in lakhs)
2003.2004 69815.23
2004.2005 97804.06
2005.2006 111113.06
2006-2007 123862.77
2007-2008 137960.33
Years Deposits (in lakhs)
2003.2004 940693.68
2004.2005 1083705.81
2005.2006 1324316.04
2006-2007 1403743.54
2007-2008 1701619.23

Years Advances (in lakhs)
2003.2004 466791.50
2004.2005 628749.06
2005.2006 779156.78
2006-2007 955267.99
2007-2008 1084197.46


The bank contributes old computers to schools in rural areas and other institutions that
may be in need of it. It joins hands with Corporation bank and other banks to conduct
social and cultural programmes for the old age homes, orphanages, special schools for
the mentally retarded etc. and also renders some financial help to such institutions.


Banking: - the term banking is defined as “accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on demand or otherwise,
and withdraw able by cheque, draft, and order or otherwise”.
Customer: - A person who has a bank account in his name and for whom the banker
undertakes to provide the facilities as a banker is considered to be a customer.
Loan: - under the loan system, credit is given for a definite purpose and for a
predetermined period
Interest: - payments made y a borrower for the use of money, calculated as percentages
of the capital borrowed.
Moratorium period: - temporary stop of repayments of interest on loan or capital owned.
Repayment period: - It is a period in which the loan amount should be repaid.


Chapter -3
Lending of funds to the constituents, mainly traders, business and industrial
enterprises constitutes the main business of the banking company. The major portion of
the banks funds is employed by way of loans and advances which is the most profitable
employment of its funds. There were times when the corporate clientele occupied the
centre stage and retail ones where pushed to the back seats but the slow down of the
economy, sluggish industrial growth, slump in agricultural activities etc. have pushed the
commercial banks to look to the retail sector.
Suddenly there is a great change in attitude of the banks. The name of the game
is no longer ‘Lending to big corporates, huge amounts to create loan assets’. Retail credit
is now welcome even from RBI’s perspective. Consumer credit is no longer considered
as unproductive, as it triggers demand for consumer products, which in turn helps
manufacturers in a period of economic showdown while the rates of interest on consumer
credit have fallen, there is still scope for further deduction.
As retail lending involves providing the various retail loan schemes to the
individual customers, customer satisfaction plays a very important role. Customers will
estimate which product offers the most value. They form an expectation of value and act
on it. Whether or not the product lives up to the value expectation affects both
satisfaction and repurchase probability. Therefore the bank must offer innovative
products to its customers and offer them at reasonable interest rates so as to enhance their
level of satisfaction.

3.1 TITLE OF THE STUDY – “Customer satisfaction regarding Consumer

Financing/Retail Lending with reference to Karnataka Bank Ltd., Mangalore.

3.2 STATEMENT OF THE PROBLEM – Lending money to the people is one of the
main areas of a bank’s business. So the bank would like to know about the problems and
perception of its customers. Hence this study is undertaken to find out the extent of
satisfaction of customers with regard to retail loan schemes provided by Karnataka Bank

3.3 SCOPE OF THE STUDY – The study is conducted with Karnataka Bank Ltd,
The city of Mangalore is chosen for two main reasons
1. It has a lot of people working as in different occupations.
2. The income disparities among the residents are very high.
The study will also be limited to people who have an account with the KBL and who
have availed off the various retail loan schemes provided by the bank.


• To analyze the level of satisfaction of customers regarding the various Retail
Lending Schemes provided by Karnataka Bank.
• To analyze the various retail lending schemes of KBL.
• To find out the efficiency and viability of the various retail loan schemes.


Data Collection Methods –
The data has been collected mainly through two sources:
a) Primary Data
b) Secondary Data

Primary Data –
• Information has been obtained through general discussion with the Company
Guide and other concerned employees of the Bank.
• Data has also been collected through personal interaction with the customers.
• Information has been collected through questionnaire.
Secondary Data – The secondary data for the study is mainly collected through:
a) Annual Reports
b) Circulars &
c) Internet


Since the population of the customers of Karnataka Bank Ltd. is very vast in the
city of Mangalore, it will be very difficult to carry out 100 percent coverage study within
a limited period; hence the sampling survey method is adopted for this study.

a) Sampling Frame: All those people who are customers of KBL and who have
availed off any of the retail loan schemes provided by the Bank.
b) Sampling methods: A pre requisite for doing probability sampling is that there
should be complete knowledge about all the sampling units in the universe. Since
this is not so, non probability sampling is used.

Sample size: Sampling size is 60 respondents who are using various retail loan schemes.


a) The study will be limited to one or two branches of Karnataka Bank in

b) The study will be constrained only to the innovations in retail lending/consumer
c) The study does not include competition from the various other lending
institutions with regards to Consumer Financing.
d) The study is not an extensive one due to the time constraint.
Chapter – 4
Table number 4.1: Number of Male and Female Respondents

Number Percent
Male 33 55.0
Female 27 45.0
Total 60 100.0

Figure number 4.1: Number of Male and Female Respondents




55.0% 27

Male Female


From the above table, it is seen that out of the 50 respondents 55% are males and 45%
are females. This indicates that it is the male population that avails loans more frequently
compared to female population.

Table number 4.2: Nature of employment

Number Percent
Self-employed 10 16.7
Business 12 20.0
Salaried 27 45.0
Others 11 18.3
Total 60 100.0

Figure number 4.2: Nature of employment

Nature of employment

11 10
Others Self-employed
18.33% 16.67%



Table number 4.2 states that salaried people take loans more frequently e.i., 45%
followed by business people by 20% and self employed by 16.67% and others comprises
of 18.33%.
Table number 4.3: Monthly income

Number Percent
Below 10000 9 15.0
10000-20000 12 20.0
20000-30000 17 28.3
30000 & above 11 18.3
No Response 11 18.3
Total 60 100.0
Figure number 4.3: Monthly income

Monthly income




10000-20000 11 11
20.0% 30000 & above No Response
5 9
18.33% 18.33%
Below 10000

Below 10000 10000-20000 20000-30000 30000 & above No Response

Monthly income

From the above table, it is seen that 15% of the respondents have a monthly income of
below Rs.10000, 20% of them between 10000 to 20000, 28.33% of them between 20000
to 30000 and 18.33% above Rs.30000.(18.33% of the respondents have not replied to the
above question).
Table number 4.4: Kind of account the customers have with KBL.

Number Percent
Current Account 14 23.3
FD Account 13 21.7
Savings Account 33 55.0
Total 60 100.0

Figure number 4.4: Kind of account the customers have with KBL.
If yes, what kind of an account do you have?

Current Account
FD Account
Savings Account

Current Account

Savings Account

FD Account

23.33% of the respondents have a Current account with Karnataka Bank, followed by
21.67% who have a Fixed Deposit account and 55% having a Savings Bank account in
KBL. This implies that most customers have an SB account with KBL.

Table number 4.5: Customers possible avenues for loans

Number Percent
Banks 58 96.7
Financial Institutions 2 3.3
Total 60 100.0

Figure number 4.5: Customers possible avenues for loans

What are your possible avenues for loans?

Financial Institutions

Financial Institutions


The above table states that 96.67% of the respondents prefer Banks to avail loans from
while Financial Institutions came second with just 3.33% of the respondents. This
indicates that people generally prefer to avail loans from banks.

Table number 4.6: Customers preference of banks from which to avail the loan from

Number Percent
Private banks 20 33.3
Nationalized banks 35 58.3
Foreign banks 5 8.3
Total 60 100.0
Figure number 4.6: Customers preference of banks from which to avail the loan from

Among the various banks, which bank would you prefer to avail the loan

Private banks
Nationalized banks
Foreign banks
Foreign banks

Private banks

Nationalized banks

The above chart indicates that 58.33% of the respondents prefer to take loan from
nationalised banks while 33.33% preferred to avail loan from Private Sector Banks and
only 8.33% of the respondents preferred to take loan from Foreign Banks. This indicates
that people usually prefer to take loans from nationalized banks rather than the private
sector or foreign sector banks.

Table number 4.7: The kind of loan schemes that people have availed off from KBL.

Number Percent
Housing Loan 19 31.7
Education loan 15 25.0
Vehicle loan 15 25.0
others 11 18.3
Total 60 100.0
Figure number 4.7: The kind of loan schemes that people have availed off from KBL.

Which of the following mentioned loan schemes have you availed of?

Housing Loan
Education loan
Vehicle loan

Housing Loan

Vehicle loan

Education loan

From the above table, we can see that 31.67% of the respondents have availed Housing
loan from the bank while 25% of them have availed Vehicle Loan, 25% of them
education loan and 18.33% of them have availed various other types of loan such as
Overdraft, Personal loan etc.

Table number 4.8: People’s opinion about the interest charged on the loans that they have
availed off.

Number Percent
Very high 1 1.7
High 19 31.7
Reasonable 37 61.7
Low 3 5.0
Total 60 100.0
Figure number 4.8: People’s opinion about the interest charged on the loans that they have
availed off.

What do you think of the interest charged on the said loan?

Very high
3 1
Low Very high



Table number 4.8 indicates that 61.67% of the respondents think that the rate of interest
charged on the various loans is reasonable while 31.67% think that it is high, 5% think
that it is low and 1.67% of them think that it is very high. This implies that the rate of
interest charged by KBL on various retail loan schemes is reasonable.
Table number 4.9: The various sources of loan awareness

Number Percent
Print media 25 41.7
Bank officials 13 21.7
Colleagues 6 10.0
Friends and others 16 26.7
Total 60 100.0
Figure number 4.9: The various sources of loan awareness

Which among these have been the sources of loan awareness?

Print media
Bank officials
Friends and others

Friends and others

Print media


Bank officials

While 41.67% of the respondents have got to know about the various loan schemes
offered by Karnataka Bank through Print Media, 26.67% of them have got to know
through friends and others. For 21.67% of the respondents the Bank officials have been
the source of loan awareness while 10% of them got to know through their colleagues.
Table number 4.10: Reason why people approached KBL for loans.

Number Percent
Friendliness of Manager/staff 23 38.3
Quality of service 24 40.0
Quick processing 11 18.3
Others 2 3.3
Total 60 100.0
Figure number 4.10: Reason why people approached KBL for loans.

What made you approach this bank?

Friendliness of
Quality of service
2 Quick processing
3.33% Others

Quick processing

Friendliness of Manager/staff

Quality of service

From the above table, it is evident that 40% of the respondents approached the bank
because of the quality of service while 38.33% of them approached the bank because of
the friendliness of the Manager/staff, 18.33% of them because of quick processing 3.33%
due to other reasons. This implies that the quality of service that KBL provides is good.
Table number 4.11: Whether customers are satisfied with KBL's retail finance.

Number Percent
No 19 31.7
Yes 41 68.3
Total 60 100.0

Figure number 4.11: Whether customers are satisfied with KBL's retail finance.
Are you satisfied with KBL's retail finance?




In the above table, it is clearly stated that 68.33% of the respondents are satisfied with
KBL’s Retail finance while 31.67% of them are not satisfied. This indicates that most of
the retail customers of KBL are satisfied with KBL’s retail finance.
Table number 4.12: Features that people look for while availing a loan.

Number Percent
Affordable EMI 24 40.0
Availability options 10 16.7
Flexible installments 18 30.0
Maximum loan amount 8 13.3
Total 60 100.0
Figure number 4.12: Features that people look for while availing a loan.

What are the features you look for while availing a loan?

Affordable EMI
Availability options
Flexible installments
Maximum loan amount
Maximum loan amount

Affordable EMI

Flexible installments

Availability options

Table number 4.12 shows that 40% of the respondents look for an affordable EMI while
taking a loan, while 30% of them look for flexible instalments, 16.67% for availability
options and 13.33% of the respondents look for maximum loan amount.
Table number 4.13: Effectiveness of KBL in post-loan servicing.

Number Percent
Excellent 9 15.0
good 37 61.7
Average 14 23.3
Total 60 100.0

Table number 4.13: Effectiveness of KBL in post-loan servicing.

How effective has Karnataka Bank been in post-loan servicing?


14 15.0%


While 15% of the respondents are very much satisfied with KBL’s post loan services,
61.67% of them said that it was good, 23.33% of them said it was average. This implies
that KBL has been effective in post loan servicing.
Table number 4.14: People’s opinion of the processing charges of KBL compared other
private sector banks and national banks.

Number Percent
High 8 13.33
Reasonable 52 86.67
Total 60 100.0
Figure number 4.14: People’s opinion of the processing charges of KBL compared
other private sector banks and national banks.

What do you think of the processing charges of Karnataka Bank in

comparison to other private sector banks and national banks?




The above table states that 86.67% of the respondents think that the processing charges
of KBL are reasonable compared to other private sector banks and Nationlised banks
while 13.33% of them think that it is high. This implies that the processing charges
charged by KBL are pretty reasonable.
Table number 4.15: Customers’ willingness to avail of loans from KBL in future.

Number Percent
No 14 23.3
Yes 46 76.7
Total 60 100.0

Figure number 4.15: Customers’ willingness to avail of loans from KBL in future.
Would you be willing to avail of loans from Karnataka Bank in the future?




Table number 4.15 shows that 76.67% of the respondents are willing to avail loans from
KBL in future while 23.33% of them said they are not willing to take loan from KBL in
Chapter – 5


• From the survey conducted, it is found that it is the male population that avails off
retail loans more frequently than the female population.
• It is the salaried people who avail retail loans more often than the business people
or other self employed people.

• Majority of the respondents have a Savings Bank account with KBL.

• Majority of the respondents said that they would prefer to avail loans from
Nationalised banks in the current scenario.

• Out of the various retail loan schemes offered by the KBL, Housing loan is in
more demand compared to vehicle loan, education loan and other retail loan

• Majority of the respondents feel that the interest rates on the various loans and the
processing charges of the bank are reasonable.

• 24 out of the 60 respondents approached KBL because of the quality of service

provided by the bank which implies that most people are satisfied with the service
provided by KBL.

• 68% of the respondents said that they are satisfied with KBL’s retail finance.

• 40% of the respondents said that they look for an affordable EMI while taking a
loan, while 30% of them look for flexible instalments, 16.7% for availability
options and 13.3% of the respondents look for maximum loan amount.

• Majority of the respondents felt that KBL has been effective in post-loan

• 77% of them would be willing to avail loan from KBL in future.

Chapter – 6

• As part of the marketing strategy, banks could organize special exhibitions, trade
shows in strategic locations at times of festival celebrations/events, etc. to create
awareness among people about the various loan schemes provided because there
are a number of retail loan schemes provided by KBL which people are not aware

• Small pamphlets (containing specific retail loan products, features, EMI structure
both on floating and fixed interest basis, repayment periods, required
documentations, etc.) can be distributed while customers visit to the branches to
avoid delay in the processing of loans as well as to educate them on the
importance of retail loan schemes.

• Depending up on the quantum of loan and credit rating of customer, softer

repayment terms/schedule, specially for availing various schemes, could be
thought of which would result in more satisfaction among the retail customers.

• Interest should be attractive so that more and more people can avail loans easily.

• Quick payment and easy recovery should be there making it more customer

• KBL should make efforts to further improve the quality of service so as to yield
more customer satisfaction.

• Banks should take advantage of the present low interest rate scenario and try to
build up lending volumes through effective marketing and various delivery

• The Indian retail banking industry is still at a nascent stage, but it is undergoing
tremendous changes, though not-in-line with global proportions. As the players in
the market adapt to retail banking, they need to alter their product mix, delivery
channels and corporate structure to better equip themselves to face the stiff
competition ahead.

• To increase their foothold in the retail finance market, banks will have to learn
that change should not be only limited to the product profile and competitive

• Retail banking has changed the relationship between banks and customers.
Service and speed of delivery are equally important. Moreover, the credit is no
longer a scarce commodity and bankers are operating in the buyer market. Now
almost all the banks are laying the thrust in terms of retail lending and this is
mainly attributed to the fact that the customer is the key in the industry.

• Innovative methods should be brought so that the customers are satisfied with the
bank’s service.
• www.ktkbankltd.com
• "Major Challenges and Issues Facing the Indian Banking Industry". Business
Wire. Sept 7, 2007. FindArticles.com. 25 Jul. 2008.
• http://rbi.org.in
• http://en.wikipedia.org/wiki/Banking_in_India

• Karnataka Bank Annual Reports
• Karnataka Bank manuals and Circulars

• Banking Theory and Practice – Bedi and Hardikar, 10th edition, 2001, United
Book Sellers, Publishers and Distributors, New Delhi.
• Banking Theory and Practice – B.S.Raman, 1st edition, 1998, United Publishers,

I am Susheetha S. Anchan, MBA student of Aloysius Institute of Business

Administration, conducting a survey titled “An analysis on customer satisfaction
regarding retail lending” with reference to Karnataka Bank Ltd. as a part of my project of
the MBA programme. I would be grateful if you could spare some time in filling this
questionnaire. I further declare that whatever information would be given by you will be
kept strictly confidential and will be used for academic purpose only.

1) Name………………………………….
2) Gender a) Male b) Female
3) Nature of employment
a) Self employed b) Business (owned)
c) Salaried d) Others, please specify………………………..
4) Monthly Income
a) Below Rs. 10000 b) 10000-20000
c) 20000-30000 d) Above Rs. 30000

5) Are you an Account Holder in Karnataka Bank?

a) Yes b) No
6) If yes, what kind of an account do you have?
a) Current Account b) Fixed Deposit Account
c) Savings Account d) Others, please specify………………………
7) What are your possible avenues for loans?
a) Banks b) Financial Institutions
c) Money lenders d) Others, please specify………………………
8) Among the various banks, which bank would you prefer to avail the loan from?
a) Private banks b) Nationalized banks
c) Foreign banks d) others, please specify……………………….
9) Which of the following mentioned loan schemes have you availed of?
a) Housing loan b) Education loan
c) Vehicle loan d) others, please specify………………………
10) What do you think of the interest charged on the said loan?
a)Very High b) High
c) Reasonable d) Low
11) Which among these have been the sources of loan awareness?
a) Print media b) Bank officials
c) Colleagues d) Friends and others
12) What made you approach this bank?
a) Friendliness of Manager/staff b) Quality of service
c) Quick processing d) Any other (please specify)………………….
13) Are you satisfied with KBL’s retail finance?
a) Yes b) No
14) What are the features you look for while availing a loan?
a) Affordable EMI b) Availability options
c) Flexible installments d) Maximum loan amount
e) Others, please specify
15) How effective has Karnataka Bank been in post-loan servicing?
a) Excellent b) good
c) Average d) Poor
16) What do you think of the processing charges of Karnataka Bank in comparison
to other private sector banks and national banks?
a) Very high b) High
c) Reasonable d) low
17) Would you be willing to avail off loans from Karnataka Bank in the future?
a) Yes b) No

18) Do you suggest any improvement to the retail finance of the bank?