REPORT On

Titled

COMPARISON OF SAVING ACCOUNTS OF DIFFERENT BANKS IN JAIPUR

Submitted in partial fulfillment for the Award of degree of Master of business administration

Submitted to: Vaishali Jain Lecturer

Submitted by: TRILOK SINGH M.B.A 4TH SEM

St. Wilfreds Business School

(2008-2010)

PREFACE
The MBA curriculum is designed in such a way that student can grasp maximum knowledge and can get practical exposure to the corporate world in minimum possible time. Business schools of today realize the importance of practical knowledge over the theoretical base.

The research report is necessary for the partial fulfillment of MBA curriculum and it provides an opportunity to the researcher in understanding the industry with special emphasis on the development of skills in analyzing and interpreting practical problems through the application of management theories and techniques. It is a new platform of learning through practical experience, which incorporates survey and comparative analysis. It gives the learner an opportunity to relate the theory with the practice, to test the validity and applicability of his classroom learning against real life business situations. The researcher has conducted a research on COMPARISON OF SAVING ACCOUNTS OF DIFFERENT BANKS IN JAIPUR.

ACKNOWLEDGEMENT

I express my sincere thanks to my project guide, Ms Vaishali Jain, Lecturer, Department of Management Studies, St. Wilfreds Business School, for guiding me right from the inception till the successful completion of the project. I sincerely acknowledge them for extending their valuable guidance, support for literature, critical reviews of project and the report and above all the moral support they had provided to me with all stages of this project.

( TRILOK SINGH

INDEX

Serial No. 1

Title

Page Number

Executive Summary

Introduction

10

Company Profile

21

Detailed Study of Companys Saving Acc.

28

Project

35

Comparison of Savings Acc.

41

Recommendations

75

Limitations

77

Questionnaire

79

10

Conclusions

82

11

Bibliography

84

EXECUTIVE SUMMARY

1) 2) 3) 4) 5)

Title : Comparative analysis of saving accounts of different banks Organisation : Kotak Mahindra Bank Reporting officer : Mr. Mayank Priyadarshi Faculty guide : Ms. Richa Mitra Students name : Ms. Sarita Jangra

OBJECTIVES:
To study the behaviour of customers towards savings accounts of different banks. To identify market potential for different products of Kotak Mahindra Bank. To know people perception of risk, rate of return, period of investment, age, profession etc. To understand various factors or criteria of selection influencing the prospects decision. To study about the awareness and interest of people in different types of saving accounts of Kotak Mahindra Bank. To study about the target customer and future potential.

To identify any particular service customers need which can increase the market share of Kotak Mahindra Bank.

SCOPE OF STUDY:
Study on consumer behaviour was done in city of Jaipur. Different gender, age groups and professions of the population are studied. Total of 100 people were taken for study.

RESEARCH METHODOLOGY:
As a market analysist, the research undertaken comprised of following objectives: Basic understanding of present and future market potential. Analysing the behaviour of different customer groups through interviewing and getting the questionnaires filled.

 Determining the satisfaction level of existing customers of Kotak Bank. Analysing the core services of the Bank and then combining it with the allied services of the Bank in order to satisfy the augmented needs of the customers.

RESEARCH DESIGN:
For study both primary data and secondary data were required: Primary data source: Survey, using a questionnaire and interview of 100 respondents was done from different regions of Jaipur. Secondary source: Internet

METHOD OF DATA COLLECTION

Primary data Questionnaires References

Secondary data Company records Newspapers Internet

MAJOR CONCLUSIONS:
People invest in saving accounts mainly for savings purpose. There is wide range of services the bank provides in comparison to other banks. People are not much aware of the existence of the Kotak Mahindra Bank in their city. Age, gender and income level plays an important role in selection of funds. Among the banks studied, the preference of Banks is as follows: HDFC > ICICI > KOTAK > STANDARD CHARTERED

RECOMMENDATIONS:
There is a need of making people more knowledgeable about the products of Kotak Mahindra Bank. Company should do promotional activities regarding its services and schemes.

INTRODUCTION

LET US FIRST UNDERSTAND ABOUT BANKING:

"Banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act.

LAWS OF BANKING: Banking law is based on a contractual analysis of the relationship between the bank and the customer. The definition of bank is given above, and the definition of customer is any person for whom the bank agrees to conduct an account. The law implies rights and obligations into this relationship as follows: The bank account balance is the financial position between the bank and the customer, when the account is in credit, the bank owes the balance to the customer, when the account is overdrawn, and the customer owes the balance to the bank. The bank engages to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit. The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer. The bank engages to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account. The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship. The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank. The bank must not disclose the details of the transactions going through the customer's account unless the customer consents, there is 10

a public duty to disclose, the bank's interests require it, or under compulsion of law. These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force in the jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship.

HISTORY OF BANKING:
The banking in India originated with the introduction of barter system: Barter System: Man was, in the dawn of history, simple & self-sufficient. He lived in caves, killed animals when hungry and he had no other wants. As

time passed, men began living in villages and started to till the ground. Often the produce of a farmers fields was more that he required. Similarly, a fisherman often caught more than his family required. In the ideal situation, the farmer would exchange his produce for fish with the fisherman. This exchange is known as barter. And in the ideal world they would both be content. However, a complication could and would arise if the farmer did not require or want fish. If the farmer required a plough and the smith requires steel there would be tremendous and horrendous difficulty in matching those that individuals had with that which they needed. And it was on account of this difficulty of meeting needs money. Money System: Money was created or rather born to reduce the value of the items people had to a common denominator to facilitate exchange of products to satisfy needs. The fisherman would sell his fish as would the farmer for money. The farmer would then; armed with the money he has in hand purchase a plough. . that the barter system surrendered to

11

The fisherman with the money he has received would buy the food he needs for his family. The earliest form of money was bones on which marks were made to distinguish between values. Metals then began to be used the most popular being gold, silver and bronze. Symbols, sizes and signs on these differed from time to time and from country to country. As men began to

travel from country to country to exchange goods and to trade, banking was born. The term money is derived from the temple of Juno Moneta which was used by the Romans as a mint for their coins.

Journey of banking:

Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. The government's regular policy for Indian bank since 1969 has paid rich dividends. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. Phase 1: The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority.

12

During those days public has lesser confidence in the banks. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Phase 2: Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. 14 major commercial banks in the country were nationalized. After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. Phase 3: This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money.

13

THE BANKING SYSTEM IN INDIA:

The Banking System in India consists of: Reserve Bank of India Development Banks Public Sector Bank. Foreign Banks Private Sector Banks Cooperative Banks Regional Rural Banks Reserve bank of India: The Reserve Bank of India is the Central Bank of the country whose function is to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.

Development banking: Financial institutions dedicated to fund new and upcoming businesses and economic development projects by providing equity capital and/or loan capital.

Public Sector Banking: The public sector is the one whose working is in the hands of the Government. The Government holds a majority stake in public sector. But due to privatization of public sector, their number has been reduced to a significant extent. It may be defined as an enterprise where there is no private ownership but its activities are not mainly confined to the maximization of profits and private interests of the enterprise but it is influenced by social interests.

14

Foreign Banks: Foreign bank means a banking institution incorporated or organized under the laws of another country, or a political subdivision of a country other than the United States, that is: Regulated as such by that country's or subdivision's government or any agency thereof; Engaged substantially in commercial banking activity; and Not operated for the purpose of evading the provisions of the Act.

Private Sector Banks: Private Banks are banks that are not incorporated. A non-incorporated bank is owned by either an individual or a general partner(s) with limited partner(s).

Cooperative Banks: Cooperative banks, also called mutual savings and loans, exist in most parts of the world. They offer financial services on a cooperative basis. A mutual savings bank is a financial institution chartered through a state or federal government to provide a safe place for individuals to save and to invest those savings in mortgages, loans, stocks, Bonds and other securities. Unlike commercial banks, savings banks have no stockholders; the entirety of profits beyond the upkeep of the bank belongs to the depositors of the mutual savings bank.

Regional Rural Banks: Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focussed upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly

15

agriculture, small scale industries, cottage and village industries, handicrafts. It helps in securing rural prosperity and its connected matters.

SECTOR BANKS: Central Bank: Reserve Bank Of India Private Banks: Axis Bank , Bank of Rajasthan Bharat Overseas Bank Catholic Syrian Bank Centurion Bank of Punjab City Union Bank .Development Credit Bank Dhanalakshmi Bank Federal Bank Ganesh Bank of Kurundwad HDFC Bank ICICI Bank IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank Karnataka Bank Limited Karur Vysya Bank Kotak Mahindra Bank Lakshmi Vilas Bank Nainital Bank Ratnakar Bank SBI Commercial and International Bank South Indian Bank Tamilnad Mercantile Bank Ltd. Foreign Banks: Citibank HSBC Standard Chartered Regional Rural Banks: South Malabar Gramin Bank Cooperative Banks: The Andaman and Nicobar State Co-operative Bank Ltd. The Arunachal Pradesh State co-operative Apex Bank Ltd. The Assam Co-operative Apex Bank Ltd The Bihar State Cooperative Bank Ltd. The Chandigarh State Co-operative Bank Ltd. The Delhi State Co-operative Bank Ltd. The Goa State Cooperative Bank Ltd. The Gujarat State Co-operative Bank Ltd. The Haryana State Co-opertive Apex Bank Ltd. The Haryana State Co-opertive Apex Bank Ltd.

16

INDIAN BANKING TODAY AND TOMORROW:

The future of Indian Banking represents a unique mixture of unlimited opportunities amidst insurmountable challenges. On the one hand we see the scenario represented by the rapid process of globalization presently taking shape bringing the community of nations in the world together, transcending geographical boundaries, in the sphere of trade and commerce, and even employment opportunities of individuals. All these indicate newly emerging opportunities for Indian Banking. But on the darker side we see the accumulated morass, brought out by three decades of controlled and regimented management of the banks in the past. It has siphoned profitability of the Government owned banks, accumulated bloated NPA and threatens Capital Adequacy of the Banks and their continued stability. Nationalized banks are heavily over-staffed. The recruitment, training, placement and promotion policies of the banks leave much to be desired. In the nutshell the problem is how to shed the legacies of the past and adapt to the demands of the new age. On the brighter side are the opportunities on account of The advent of economic reforms, the deregulation and opening of the Indian economy to the global market, brings opportunities over a vast and unlimited market to business and industry in our country, which directly brings added opportunities to the banks. The advent of Reforms in the Financial & Banking Sectors (the first phase in the year 1992 to 1995) and the second phase in 1998 heralds a new welcome development to reshape and reorganize banking institutions to look forward to the future with competence and confidence. The complete freeing of Nationalized Banks (the major segment) from administered policies and Government regulation in matters of day to day functioning heralds a new era of selfgovernance and a scope for exercise of self initiative for these banks. There will be no more directed lending, pre-ordered interest rates, or investment guidelines as per dictates of the Government or RBI.

17

Banks are to be managed by themselves, as independent corporate organizations, and not as extensions of government departments. Acceptance of prudential norms with regards to Capital Adequacy, Income Recognition and Provisioning are welcome measures of self regulation intended to fine-tune growth and development of the banks. It introduces a new transparency, and the balance sheets of banks now convey both their strength and weakness. Capital Adequacy and provisioning norms are intended to provide stability to the Banks and protect them in times of crisis. These equally induce a measure of corporate accountability and responsibility for good management on the part of the banks Large scale switching to hi-tech banking by Indian Scheduled Commercial Banks (SCBs) through the application of Information Technology and computerization of banking operations, will revolutionalise customer service. The age-old methods of pen and ink systems are over. Banks now will have more employees available for business development and customer service freed from the needs of book-keeping and for casting or tallying balances, as it was earlier. All these welcome changes towards competitive and constructive banking could not however, deliver quick benefits on account insurmountable carried over problems of the past three decades. The future of Indian Banking is dependent on the success of its efforts as to how it shakes off these accumulated past legacies and carried forward ailments and how it regenerates itself to avail the new vistas of opportunities to be able to turn Indian Banking to International Standards. CURRENT POSITION OF BANKING IN INDIA: Currently, banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in

18

its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&as, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake)after merger of New Bank of India in Punjab National Bank in 1993, 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

19

COMPANY PROFILE

20

ABOUT THE BANK:

Kotak Mahindra is one of India's leading financial conglomerates, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporate.

HISTORY:
The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and Kotak & Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and that's when the company changed its name to Kotak Mahindra Finance Limited.

Since then it's been a steady and confident journey to growth and success. 1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting 1987 1990 1991 1992 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market The Auto Finance division is started The Investment Banking Division is started. Takes over FICOM, one of India's largest financial retail marketing networks Enters the Funds Syndication sector Brokerage and Distribution businesses incorporated into a separate company 1995 - Kotak Securities. Investment Banking division incorporated into a separate company - Kotak Mahindra Capital Company The Auto Finance Business is hived off into a separate company - Kotak Mahindra Prime Limited (formerly known as Kotak Mahindra Primus 1996 Limited). Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited, for financing Ford vehicles. The launch of Matrix Information Services Limited marks the Group's entry into information

21

distribution. 1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset Management Company. Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance business. 2000 Kotak Securities launches its on-line broking site (now

www.kotaksecurities.com). Commencement of private equity activity through setting up of Kotak Mahindra Venture Capital Fund.

2001

Matrix

sold

to

Friday

Corporation

Launches Insurance Services Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian company to do so. Launches India Growth Fund, a private equity fund. Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime (formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak Mahindra. Launches a real estate fund Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company and Kotak Securities.

2003 2004

2005

2006

PRESENT: The group has a net worth of over Rs. 5,824 crore, employs around 20,000 people in its various businesses and has a distribution network of branches, franchisees, representative offices and satellite offices across 370 cities and towns in India and offices in New York, London, San Francisco, Dubai, Mauritius and Singapore. The Group services around 4.4 million customer accounts.

22

THE CORPORATE IDENTITY:

BOARD OF DIRECTORS:

Dr. Shankar Acharya Non-Executive Part-time Chairman

Mr. Uday Kotak Executive Vice-Chairman and Managing Director

23

Mr. K.M. Gherda Board of the Bank as a Non- Executive Director.

Mr. Anand Mahindra Co-Promoter of the Bank

Mr. Cyril Shroff Solicitor, High Court, Mumbai and Advocate on record, Supreme Court of India

Mr. Pradeep N. Kotak Chairman and Managing Director of Kotak Agri International Private Limited

24

Mr. Shivaji Dam Led the Kotak Group into the life insurance business and Managing Director of Kotak Mahindra Old Mutual Life Insurance Limited

Mr. Dipak Gupta Executive Director,

Mr. C. Jayaram Executive Director, in charge of the Wealth Management Business

Mr. Asim Ghosh Additional Director of the Bank

KEY GROUP COMPANIES AND THEIR BUSINESSES: Kotak Mahindra Bank: The Kotak Mahindra Group's flagship company, Kotak Mahindra Finance Ltd which was established in 1985, was converted into a bank- Kotak Mahindra Bank Ltd in March 2003 becoming the first Indian company to convert into a

25

Bank. Its banking operations offer a central platform for customer relationships across the group's various businesses. The bank has presence in Commercial Vehicles, Retail Finance, Corporate Banking, Treasury and Housing Finance. Kotak Mahindra Capital Company: Kotak Mahindra Capital Company Limited (KMCC) is India's premier Investment Bank. KMCC's core business areas include Equity Issuances, Mergers & Acquisitions, Structured Finance and Advisory Services. Kotak Securities: Kotak Securities Ltd. is one of India's largest brokerage and securities distribution houses. Over the years, Kotak Securities has been one of the leading investment broking houses catering to the needs of both institutional and non-institutional investor categories with presence all over the country through franchisees and coordinators. Kotak Securities Ltd. offers online (through www.kotaksecurities.com) and offline services based on wellresearched expertise and financial products to non-institutional investors. Kotak Mahindra Prime: Kotak Mahindra Prime Limited (KMP) (formerly known as Kotak Mahindra Primus Limited) has been formed with the objective of financing the retail and wholesale trade of passenger and multi utility vehicles in India. KMP offers customers retail finance for both new as well as used cars and wholesale finance to dealers in the automobile trade. KMP continues to be among the leading car finance companies in India. Kotak Mahindra Asset Management Company: Kotak Mahindra Asset Management Company Kotak Mahindra Asset Management Company (KMAMC), a subsidiary of Kotak Mahindra Bank, is the asset manager for Kotak Mahindra Mutual Fund (KMMF). KMMF manages funds in excess of Rs 16,100 crore and offers schemes catering to en

26

DETAILED STUDY OF COMPANYS SAVINGS ACCOUNTS

27

KOTAKS SAVINGS ACCOUNT: Kotaks Savings Accounts are designed to ensure that the customers receive the benefits of quick & convenient banking transactions along with options for their money to earn high returns. The savings account goes beyond the traditional role of savings, to provide them a range of services from funds transfer options to online payments of bills to attractive returns earned through a comprehensive suite of investment options. They have a number of variants of savings accounts customized to suit individual needs so that they can pick the one that matches their requirements & sit back to enjoy the Kotak experience!

Variants of Saving Account: Ace Savings Account Pro Savings Account Edge Savings Account Classic Savings Account - available only in select locations

Easy Savings Account

28

ACE SAVINGS ACCOUNTS:

Key Features:
Free access at all domestic and international VISA ATMs Free investment account Dedicated relationship manager

Online trading account At-Home services

Kotak Mahindra Bank's Ace Savings Account has been designed as a gateway to a world of financial benefits and privileged banking transactions. The account carries benefits ranging from personal investment advisory services to concierge services to free banking transactions.

29

Pro Saving Accounts:

Key Features: Free ATM access all domestic VISA ATM network Free investment account Quick and easy funds transfer Dedicated relationship manager

Kotak Mahindra Banks Pro Savings Account is an account packed with powerful features to provide customers with a superior banking experience at a very comfortable balance requirement. Bank provides relationship manager who will specifically take care of customers banking and investment needs.

30

Edge Saving Accounts:

Key Features: Wide ATM access Financial payments facilitated through the savings account Quick and easy funds transfer Greater ATM access through the Kotak Mahindra Bank Debit Card Financial payments facilitated through the savings account Quick and easy funds transfer

Kotak Mahindra Banks Edge Savings Account is a complete financial package customized to suit your individual banking needs. Our constant Endeavour is to enable regular financial transactions through our online platform so that most of your payments can be made directly through your account or card.

31

Classic Saving Accounts:

Key Features: Free ATM access all domestic VISA ATM network Free investment account Quick and easy funds transfer Attractive returns Dedicated relationship manager

Kotak Mahindra Banks Classic Savings Account is an account packed with powerful features to provide you a superior banking experience at a very comfortable balance requirement. We provide you a relationship manager who will specifically take care of your banking and investment needs. Try the benefits of this account and you will never want to bank elsewhere!

32

Easy Saving Accounts:

Key Features: Easy to maintain, hassle-free savings avenue

You need an easy to maintain, hassle-free savings avenue for your hard-earned money. We offer you the Kotak Easy Savings Account, armed with 'userfriendly' Convenience Banking facilities. The Kotak Easy Savings Account is a convenient way to make your money work harder.

33

PROJECT

34

PROJECT TITLE:
Comparative analysis of savings accounts of different banks

OBJECTIVE OF THE PROJECT:

Learning in the classroom is partial unless it is added with practical experience and training. Training is the most important part of learning in any technical and professional education. Exposing the young prospective executive to the actual business industrial environment not only broaden their horizon but also helps them to effectively grasp the various angels of business. That will beneficial for them when they actually come to occupy the execrative position. It is an aim that practical training of small duration obviously had been made valuable and indispensable of the PGDM degree.

Hence the objective of the project is:

To get the practical knowledge about the market research. To find prospective customer for the Kotak Mahindra Bank and to find the product potential in the market. To make customer informative about the technology offered. Study how new distribution channels such as Internet Banking, ATM facility, Phone Banking have changed the face of the Banking industry. To make recommendation and suggestion about the scope and Feasibility for Kotak Mahindra Banks products.

35

OBJECTIVE OF STUDY:
Primary: Analysis and evaluation of customer s satisfaction with respect to product performance. To determine the main characteristic which customers look upon while purchasing and selecting the product? To determine the other brand those are competing with the same product rang. Secondary: Service level and channel associate approach. To find the level of brand awareness. To find out the company market share. Firstly learned about the different types of savings accounts the Bank had and their feature.Then was motivated to introduce the product to the prospects through telle calling and appointments. Then was asked to prepare a questionnaire and conduct a market research for the Banks products ans services.

METHODOLOGY OF THE STUDY:

Research Methodology:
Research as a mean of getting knowledge can be carried out either arbitrarily or in a systematic fashion. It is a purposive investigation. Research may be a mean to know the small change and time forced upon us as individual or as a society. Research as process involves defining the problem,

36

formulating the hypothesis, organizing and evaluating the data, deriving inference and conclusion after careful testing.

DATA COLLECTION:
As data is required for any research activity, it is collected by using Both the Primary and Secondary as follows:

Primary Data:
I have collected this data through discussion with officers

Secondary Data:
This data is collected from different sources available consolidated From book publication reports, websites where used as a source of secondary data in order to do this project and to collect necessary data. I have used the manuals and leaflets of the bank

SCOPE OF THE STUDY:

Special area to be focused for increasing the sales and for sales promotion activities to be adopted. To make product more innovative and easy to understand For providing maximum satisfaction to the customer by knowing their needs and requirement about product and services. Steps to be taken at present for survival and facing the competition with other equivalent product. Continues improvement and for better management. Maintaining good relation between manager and customers

37

DEFINITION OF SAVINGS ACCOUNTS:

An account at a bank or other savings institution in which individuals can keep money that is readily accessible, but on which a relatively small interest rate is paid. Banks, credit unions, and savings and loan institutions offer savings accounts. The interest earned on the accounts is taxable.

Interest Paid:
Interest on the is determined in accordance with directives of the Reserve Bank of India. Interest is calculated on the minimum credit balance between the close of the business on the 10th. & the last day of each calendar month. Interest is paid on quarterly rests.

Eligibility:
Individuals Trusts / Societies / Charitable Organization HUFs ( for individuals for the sole purpose of business ) Resident Indians & Foreign Nationals. savings & not for the purpose of

DOCUMENTATION:
Documentation for establishing Proof of Address: Passport (not expired). Permanent driving License (not expired). Telephone bill/ Electricity bill of public and private operators in the state (not older than 3 months from the date of a/c opening). Ration card. Election card/ voters ID (if it has address). Bank A/c statement of a PSU/Private sector/ foreign bank (not older than 3 months from the date of a/c opening).

38

: Letter/Monthly outgoings bill (only from registered societies). Copy of original title deed. Lease/Leave & License agreement / Rent agreement copy duly stamped accompanied by CPV done by branch staff. Latest property tax bill/ property tax paid receipt. Senior Citizen Card issued by the state/ central Govt. of India(if it has address). Mobile Post-paid bill of public/private operators in India. Consumer gas connection card/book. Domicile certificate with communication address issued by Municipal Corporation. Arms License issued by the state/central Govt. of India authority which contains photograph of the applicant. Photo ID card with photograph (issued by J&K & Goat state govt.). Photo Social Security Card issued by the Central/state govt. /Union territories. Pension payment card issued by the state/ central Govt. of India with photograph of the applicant. (Issued by Andhra Pradesh govt.).

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COMPARISON OF SAVINGS ACCOUNTS OF DIFFERENT BANKS

40

KOTAK MAHINDRA
Saving A/C 1)Edge* 2)pro* 3)Ace*

HDFC

ICICI

STANDARD CHARTED
Axcess plus a/c Parivaar a/c Aasaan a/c Super value a/c No frills a/c Demat a/c 2 in 1 a/c Corporate salary a/c

Types of Account 1)Savings Max Account 2) Savings Plus Account 3) Savings Regular Account

Average Quarterly Balance Requirement An Average Quarterly Balance of Rs.10, 000/

41

:
Charges p.a 1) 2) 3) Rs 750/ Rs 750/ Rs 1200/ 1) Savings Max Account 25,000 2) Savings Plus Account 10,000 3) Savings Regular Account 5,000 Average Quarterly Balance Requirement Average 1) Min. Quarterly Rs10000(AQB) Balance, Non Maintenance Charges a) If AQB in the Savings Account > = Rs.10, 000/ No Charges b) If AQB in the Savings Account < = Rs.10, 000 750/per quarter c) Debit Card Charges Rs. 99/yearly d) If the amount is transfer from other state like we open our account in Dehli

42

:
Branch and someone is transfer money from M.P. or other state Per transaction charges 1,000 Rs.5

a) Savings Max Account Debit card free Rs. 99/ p.a Debit cards Rs 200

Average Quarterly Balance Requirement An Average Quarterly Balance of Rs.25, 000/ FREE OF COST

CHEQUE BOOK :

Stop payment Single cheque: Rs 100 Multiple

FREE OF COST

or
A Fixed Deposit for Rs. 1, 00,000/ linked to a Zero Balance Savings Account

43

:
b) Savings Plus Account

Check book Rs.2/- leaf

Average Quarterly Balance Requirement An Average Quarterly Balance of Rs.10, 000/ Or A Fixed Deposit for Rs.50,000/linked to a Zero Balance Savings Account Average Quarterly Balance Non maintenance Charges a) If AQB in the Savings Account>=Rs.10, 000/ Or FD balance>=Rs. 50,000/ No charges b) If the FD balance<Rs. 50,000/ and The AQB in the savings Account: c) If the balance is between Rs. 5,000/ and Rs. 10,000 / Rs. 750/ per quarter d) If the balance is <Rs. 5,000/ Rs. 1,000/ per quarter Features a) Free transactions on SBI/Andhra Bank ATMs per month.

b) 3 free transactions on any other bank ATMs per month. c) Free payable at per cheque book without any usage charge up to a limit month.

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d) Free international debit card for all account holders , for life e) Free demand draft on HDFC Bank locations, up to a limit of Rs.25, 000/ per day. f) Free bill pay and insta Alert. g) 25% off on the locker rental for the 1st year.

Cash delivery Free 1 per day

Account closure (within 6 months from the date of opening) Rs 500

c) Savings Regular Account

Monthly free

Average Quarterly Balance Requirement An Average Quarterly Balance of Rs.5, 000/at urban bank branches and Rs.2, 500/ at rural bank branches. Or A Fixed Deposit for Rs. 50,000/ linked to a Zero Balance Savings Account. Average Quarterly Balance Non maintenance Charges Rs.750/ per quarter If the AQB is below Rs. 5000/ at urban bank branches

Duplicate account statements: Up to 3 months old Rs 100 More than 3 months Rs 150

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Special charges Cheques: Deposit &returned local Rs 300. Deposit &returned out Rs 300. Stop payment Rs 100. Demand draft: Cancellation Rs 100. TOD chargesRps.250/ Demand draft cancellation Rs 250

ATM charges: Partner free VISA ATM domestic Rs. 50 VISA ATM cash withdraw international Rs.90

Payment order issue Rs 75

OTHERS: At home charges Registration fee Rs 200 p.a Certificate issuance current year bal & int. free previous year bal.& int. Rs 100. TDS issuance free. Duplicate issuance Rps.100. Account maintenance free. Balance conformation free OTHER Features a) Freedom account b) Debit card which can be used any ware c) Phone Banking d) Internet Banking

Payment order cancellation Rs 250

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Need for Basel II

The Basel I & II recommendations of the Bank of International Settlements (BIS) have been framed with the objective of ensuring adequate capitalization of banks assets and to reduce the credit and operational risks faced by the banks. With second highest growth rate and huge scientific and general work force, India is now well known for as one of the fast emerging nations of the world. Goldman Sachs and many other research reports have predicted a robust growth of Indian economy. A sound and evolved banking system would be a prime requirement to support the hectic and enhanced levels of domestic and international economic activities in the country. Though India is credited with a very strong banking system, in comparison to many peer group countries, still some better risk practices by Indian banks are required. The majority of Indian banks are either nascent or at a very low level of competence in Credit, Market and Operational risk measurement and management system. They are lagging behind in the use of modern risk methodologies and tools in comparison to their western counterparts. Economic reforms, higher market dynamics and large-scale globalization demands a robust Risk Management System in Indian banks. The current level of Risk Based Supervision and Market disclosures are also not very satisfactory in the Indian Banking system. This is more evident from the recent problems in one well-known private sector bank and in some co-operative banks. Basel II gives an opportunity and a framework for streamlining of Indian banks. The country rating of India will surely improve, and consequently assist a higher capital inflow in the country. This will tremendously help India to move on the higher growth flight in the coming decades. Basel II to India is going to be in the area of services predominantly IT and manpower. The banks all over the world shall have to make huge investments in order to be the Basel II compliant. These investments will be mainly in the areas IT systems (software tools, database management, Business Intelligence, hardware) training etc. to create risk infrastructure to address the three compliance pillars of the Basel II.

Compliance with Basel will involve a huge sum of funds to be invested by respective banks. A study of Forrester suggests a spending of around EUR 115 million over next five years, by large European banks, in order to be the Basel II compliant. Similar level or sometime higher levels of investments are required in the rest of the world too. Indian IT companies with an established reputation of system implementation and service support can and must use this opportunity to enhance their business from the financial services domain. A broad understanding among WTO countries on GATS (General Agreement on Trade and Services) should help in the movement of cheaper Indian service personnel across the globe. IT/ITES industry in Banking and Financial Services sector can enhance the present level of revenue from both on and off site services related to Basel II compliance. Some of the Indian IT majors like I flex, Infosys and Wipro are believed to be, in the advanced stage of preparation in terms of product and services, to embark upon the business opportunities provided by Basel II. The principal solecism in the Basel I proposal was that it dealt with credit risk only. Other types of risks faced by banks are interest rate risk, foreign exchange risk and operational

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risks which were not dealt with at all. Hence there was an inadequate estimation of the overall risks faced by a bank under Basel I. This could result in under-capitalization of the banking sector as a whole and could give rise to systemic risk and bank crises in the long run. One cannot possibly imagine the effects on the world financial system due to the collapse of banks like Citigroup or J.P. Morgan Chase. Basel II tries to address exactly this (systemic risk) and other forms of risks like credit risk, operational risk, systematic and market risk.

Capital Adequacy Ratio (CAR)

This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors. A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

BASEL 1 Accord Basel I, that is, the 1988 Basel Accord, primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk, carrying risk weights of zero (for example home country sovereign debt), ten, twenty, fifty, and up to one hundred percent (this category has, as an example, most corporate debt). Banks with international presence are required to hold capital equal to 8 % of the risk-weighted assets. Since 1988, this framework has been progressively introduced in member countries of G-10, currently comprising 13 countries, namely, Belgium, Canada, France, Germany, Italy,

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Japan, Luxemburg, Netherlands, Spain, Sweden, Switzerland, United Kingdom and the United States of America. Most other countries, currently numbering over 100, have also adopted, at least in name, the principles prescribed under Basel I. The efficiency with which they are enforced varies, even within nations of the Group of Ten. However, there were drawbacks in the BASEL 1 as it did not did not discriminate between different level of risk. As a result a loan to Reliance was deemed as risky to Haldirams to use an example. Also it assigned lower weight age to loans to banks as a result banks were often keen to lend to other banks for example if European banks were keen to lend to THAI financial institutions they were able to do so without allocating too much capital and depressing their capital adequacy rations. It is one of the reasons why European banks suffered larges losses in the 1996-97 South East Asian crises. BASEL II ACCORD The Committee circulated the revised version during June 2004 (called Accord II), for adoption by the Central Banks in different parts of the world according to priorities of the respective central banks. The fundamental objective behind this revision is to further strengthen the soundness and stability of the international banking system. The committee expects its implementation, in stages, to commence from end 2006. The New Basel Capital Accord, often referred to as the Basel II Accord or simply Basel II, was approved by the Basel Committee on Banking Supervision of Bank for International Settlements in June 2004 and suggests that banks and supervisors implement it by beginning 2007,providing a transition time of 30 months. It is estimated that the Accord would be implemented in over 100 countries, including India. Basel II takes a three-pillar approach to regulatory capital measurement and capital standards.

Pillar 1 (minimum capital requirements) It specifies new standards for minimum capital requirements, along with the methodology for assigning risk weights on the basis of credit risk and market risk. It also spells out the capital requirement of a bank in relation to the credit risk in its portfolio, which is a significant change from the one size fits all approach of Basel I. Pillar 1 allows flexibility to banks and supervisors to choose from among the Standardized Approach, Internal Ratings Based Approach, and Securitization Framework methods to calculate the capital requirement for credit risk exposures. Besides, Pillar 1 sets out the allocation of capital for operational risk and market risk in the trading books of banks. The new framework maintains minimum capital requirement of 8% of risk assets. Under the new accord capital adequacy ratio will be measured as under Total capital (unchanged) = (TierI+Tier II+Tier III) Risk Weighed Assets = Credit risk + Market risk + Operational risk.

Pillar 2 (supervisory oversight)

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Enlarges the role of banking supervisors and gives them power to them to review the banks risk management systems. It provides a tool to supervisors to keep checks on the adequacy of capitalization levels of banks and also distinguish among banks on the basis of their risk management systems and profile of capital. Pillar 2 allows discretion to supervisors to (a) Link capital to the risk profile of a bank; (b) Take appropriate remedial measures if required; (c) Ask banks to maintain capital at a level higher than the regulatory minimum.

Pillar 3 (market discipline and disclosures) Defines the standards and requirements for higher disclosure by banks on capital adequacy, asset quality and other risk management processes. It provides a framework for the improvement of banks disclosure standards for financial reporting, risk management, asset quality, regulatory sanctions, and the like. The pillar also indicates the remedial measures that regulators can take to keep a check on erring banks and maintain the integrity of the banking system. Further, Pillar 3 allows banks to maintain confidentiality over certain information, disclosure of which could impact competitiveness or breach legal contracts. BASEL 2 proposals have sought to rectify the defects of the old accord. To accomplish this BASEL 2 proposes getting rid of the old risk weighted categories that treated all corporate borrowers the same replacing them with limited number of categories into which borrowers would be assigned based on assigned credit system. While some banks have been permitted to use the internal credit system, most banks would have to rely on external credit rating agencies such as Moodys and Standard & Poors. However, greater use of internal credit system has been allowed in standardized and advanced schemes, while the use of external rating. The new proposals avoid sole reliance on the capital adequacy benchmarks and explicitly recognize the importance of supervisory review and market discipline in maintaining sound financial systems. Strength from these three pillars PILLAR I of Basel II norms provide banks with guidelines to measure the various types of risks they face credit, market and operational risks and the capital required to cover these risks. Now we will discuss these risk in detail one by one. Credit risk A bank always faces the risk that some of its borrowers may renege on their promises for timely repayments of loan, interest on loan or meet the other terms of contract. This risk is called credit risk, which varies from borrower to borrower depending on their credit quality. Basel II requires banks to accurately measure credit risk to hold sufficient capital to cover it. Standard & Poor's Credit Ratings AAA AA A BBB BB B Best credit qualityExtremely reliable with regard to financial obligations. Very good credit qualityVery reliable. More susceptible to economic conditionsstill good credit quality. Lowest rating in investment grade. Caution is necessaryBest sub-investment credit quality. Vulnerable to changes in economic conditionsCurrently showing the ability to meet its financial obligations.

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CCC CC C D Currently vulnerable to nonpaymentDependent on favorable economic conditions. Highly vulnerable to a payment default. Close to or already bankruptpayment on the obligation currently continued. Payment default on some financial obligation has actually occurred.

In assessing credit risk from a single counterparty, an institution must consider three issues: 1. Default probability:- What is the likelihood that the counterparty will default on its obligation either over the life of the obligation or over some specified horizon, such as a year? Calculated for a one-year horizon, this may be called the expected default frequency. 2. Credit exposure:- In the event of a default, how large will the outstanding obligation be when the default occurs? 3. Recovery rate:- In the event of a default, what fraction of the exposure may be recovered through bankruptcy proceedings or some other form of settlement? To place credit exposure and credit quality in perspective, recall that every risk comprise two elements: exposure and uncertainty. For credit risk, credit exposure represents the former, and credit quality represents the latter. For loans to individuals or small businesses, credit quality is typically assessed through a process of credit scoring. Prior to extending credit, a bank or other lender will obtain information about the party requesting a loan. In the case of a bank issuing credit cards, this might include the party's annual income, existing debts, whether they rent or own a home, etc. A standard formula is applied to the information to produce a number, which is called a credit score. Based upon the credit score, the lending institution will decide whether or not to extend credit. The process is formulaic and highly standardized. Many forms of credit riskespecially those associated with larger institutional counterpartiesare complicated, unique or are of such a nature that that it is worth assessing them in a less formulaic manner. The term credit analysis is used to describe any process for assessing the credit quality of a counterparty. While the term can encompass credit scoring, it is more commonly used to refer to processes that entail human judgment. One or more people, called credit analysts, will review information about the counterparty. This might include its balance sheet, income statement, recent trends in its industry, the current economic environment, etc. They may also assess the exact nature of an obligation. For example, senior debt generally has higher credit quality than does subordinated debt of the same issuer. Based upon this analysis, the credit analysts assign the counterparty (or the specific obligation) a credit rating, which can be used for making credit decisions. Many banks, investment managers and insurance companies hire their own credit analysts who prepare credit ratings for internal use. Other firmsincluding Standard & Poor's, Moody's and Fitchare in the business of developing credit ratings for use by investors or other third parties. Institutions that have publicly traded debt hire one or more of them to prepare credit ratings for their debt. Those credit ratings are then distributed for little or no charge to investors. Some regulators also develop credit ratings. In the United States, the National Association of Insurance Commissioners publishes credit ratings that are used for calculating capital charges for bond portfolios held by insurance companies. The bank can also suffer losses in excess of expected losses, say, during economic downturns. These losses are called unexpected losses. Ideally, a bank should recover expected loss on a loan from its customer through loan pricing. The capital base is required to absorb the unexpected losses, as and when they arise. The manner in which credit exposure is assessed is highly dependent on the nature of the obligation. If a bank has loaned money to a firm, the bank might calculate its credit exposure

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as the outstanding balance on the loan. Another approach would be to calculate the credit exposure as being some fraction of the total line of credit, with the fraction determined based upon an analysis of prior experience with similar credits. Market risk Market risk is exposure to the uncertain market value of a portfolio. A trader holds a portfolio of commodity forwards. She knows what its market value is today, but she is uncertain as to its market value a week from today. She faces market risk. Business risk is exposure to uncertainty in economic value that cannot be marked-to-market. The distinction between market risk and business risk parallels the distinction between mark-to-market accounting and bookvalue accounting. Suppose a New England electricity wholesaler is long a forward contract for on-peak electricity delivered over the next 3 months. There is an active forward market for such electricity, so the contract can be marked to market daily. Daily profits and losses on the contract reflect market risk. Suppose the firm also owns a power plant with an expected useful life of 30 years. Power plants change hands infrequently, and electricity forward curves dont exist out to 30 years. The plant cannot be marked to market on a regular basis. In the absence of market values, market risk is not a meaningful notion. Uncertainty in the economic value of the power plant represents business risk. The distinction between market risk and business risk is ambiguous because there is a vast "gray zone" between the two. There are many instruments for which markets exist, but the markets are illiquid. Mark-to-market values are not usually available, but mark-to-model values provide a more-or-less accurate reflection of fair value. Do these instruments pose business risk or market risk? The decision is important because firms employ fundamentally different techniques for managing the two risks. Business risk is managed with a long-term focus. Techniques include the careful development of business plans and appropriate management oversight. book-value accounting is generally used, so the issue of day-to-day performance is not material. The focus is on achieving a good return on investment over an extended horizon. Market risk is managed with a short-term focus. Long-term losses are avoided by avoiding losses from one day to the next. On a tactical level, traders and portfolio managers employ a variety of risk metrics duration and convexity, the Greeks, beta, etc.to assess their exposures. These allow them to identify and reduce any exposures they might consider excessive. On a more strategic level, organizations manage market risk by applying risk limits to traders' or portfolio managers' activities. Increasingly, value-at-risk is being used to define and monitor these limits. Some organizations also apply stress testing to their portfolios

Operational risk The Basel Committee (2004) defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The committee indicates that this definition includes legal risk but excludes systemic risk and reputational risk. During the 1990s, financial firms and other corporations focused increasing attention on the emerging field of financial risk management. This was motivated by concerns about the risks posed by the rapidly growing OTC derivatives markets; publicized financial losses, including those of Barings Bank, Orange County and Metallgesellschaft; regulatory initiatives, especially the Basel Accords. During the early part of the decade, much of the focus was on techniques for measuring and managing market risk. As the decade progressed, this shifted to techniques of measuring and managing credit risk. By the end of the decade, firms and regulators were increasingly focusing

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on risks "other than market and credit risk." These came to be collectively called operational risks. This catch-all category of risks was understood to include, employee errors, systems failures, fire, floods or other losses to physical assets, fraud or other criminal activity. Firms had always managed these risks. The new goal was to do so in a more systematic manner. The approach would paralleland be integrated withthose that were proving effective with market risk and credit risk. Another problem was that operational contingencies don't always fall into neat categories. Losses can result from a complex confluence of events, which makes it difficult to predict or model contingencies. In 1996, the Crdit Lyonnais trading floor was destroyed by fire. This might be categorized as a loss due to fire. It might also be categorized as a loss due to fraud investigators suspect employees deliberately set the fire in order to destroy evidence of fraud. The Basel Committee outlined basic practices in a (February 2003) paper Sound Practices for the Management and Supervision of Operational Risk. That paper, together with efforts by researchers and risk managers at major banks have helped to shape emerging risk management practices for operational risk. Most operational risks are best managed within the departments in which they arise. Information technology professionals are best suited for addressing systems-related risks. Back office staff are best suited to address settlement risks, etc. However, overall planning, coordination, and monitoring should be provided by a centralized operational risk management department. This should closely coordinate with market risk and credit risk management departments within an overall enterprise risk management framework. Contingencies broadly fall into two categories: those that occur frequently and entail modest losses; those that occur infrequently but may entail substantial losses. Accordingly, operational risk management should combine both qualitative and quantitative techniques for assessing risks. For example, settlement errors in a trading operation's back office happen with sufficient regularity that they can be modeled statistically. Other contingencies affect financial institutions infrequently and are of a non-uniform nature, which makes modeling difficult. Examples include acts of terrorism, natural disasters, and trader fraud. Qualitative techniques include: loss event reports, management oversight, employee questionnaires, exit interviews, management self assessment, and Internal audit. Quantitative techniques have been developed primarily for the purpose of assigning capital charges for banks' operational risks. Much work in this field was performed by regulators developing the Basel II accord on bank capital adequacy. Early results were reported in a (January 2001) consultative document, which was included in a package of documents outlining the proposed Basel II accord. Extensive industry feedback on that document leads the

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committee to issue a follow-up (September 2001) working paper on operational risk. A subsequent (April 2003) consultative document made further modifications to Basel II. The final Basel II accord was released in 2004. Basel II allows large banks to base operational risk capital requirements on their own internal models. This has spawned considerable independent research into methods for measuring operational risk. Techniques have been borrowed from fields such as actuarial science and engineering reliability analysis. Contingencies of an infrequent but potentially catastrophic nature can, to some extent, be modeled using techniques developed for property & casualty insurance. Contingencies that arise more frequently are more amendable to statistical analysis. Statistical modeling requires data. For operational contingencies, two forms of data are useful: data on historical loss events, and data on risk indicators. Loss events run the gamutsettlement errors, systems failures, petty fraud, customer lawsuits, etc. Losses may be direct (as in the case of theft) or indirect (as in the case of damage to the institution's reputation). There are three ways data on loss events can be categorized: event cause consequence For example, an event might be a mis-entered trade. the cause might be inadequate training, a systems problem or employee fatigue. Consequences might include a market loss, fees paid to a counterparty, a lawsuit or damage to the firm's reputation. Any event may have multiple causes or consequences. Tracking all three dimensions of loss events facilitates the construction of event matrices, identifying the frequency with which certain causes are associated with specific events and consequences. Even with no further analysis, such matrices can identify for management areas for improvement in procedures, training, staffing, etc. Once operational risks have beenqualitatively or quantitativelyassessed, the next step is to somehow manage them. Solutions may attempt to avoid certain risks, accept others, but attempt to mitigate their consequences, or simply accept some risks as a part of doing business. Specific techniques might include: employee training, close management oversight, segregation of duties, purchase of insurance, employee background checks, exiting certain businesses, and the capitalization of risks. Choice of techniques will depend upon a cost-benefit analysis. Retail Lending and Basel-II The major cause for growth in retail banking is globalization, advancement in IT and booming economies. These factors relate to fiscal incentives from the governments, low credit off-take from the commercial and corporate sector, lowering of cost of housing, consumer durables and automobiles due to competition and technological innovations leading to increasing use of credit/debit cards, ATMs, etc. Retail lending has become more attractive under Basel II in view of the lower charges assigned to residential mortgage and credit card lending, which may accelerate the existing shift of EMEs particularly Asian banks towards retail banking. Under Basel-IIs standardized approach, the

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risk weighting for retail exposures is 25% less than under Basel-I. Under the IRB approach, the capital required is not fixed irrespective of risk but varies with the riskiness of the portfolio. Under Basel-IIs standardized approach, risk-weightings for retail exposures remain specified by the framework on a more sophisticated basis than under Basel- I. However, residential mortgages apart, retail lending continues to be treated on an undifferentiated basis. Under the standardized Basel-II approach, retail lending such as credit cards qualifies, subject to certain conditions, for a lower 75% risk-weighting compared to the 100% risk-weighting at present. Thus, less capital should be required to support credit card portfolios than under the present framework. There is separate treatment to retail credit in Basel-II. For retail credit there is only one approach namely advanced internal rating approach. Under the IRB approach, the risk weighting of credit card balances vary with both the Loss Given Default (LGD) and Probability of Default (PD), thus for a riskier Qualifying Revolving Retail Exposures (QRRE) portfolio, more capital is required. The retail credit risk models typically follow a scoring algorithm using data classification techniques like decision trees, cluster analysis, regression analysis, neural networks, genetic algorithms, judgmental experts, etc. In other words, retail risk analysis continues to be based on statistical analysis of past performance, while corporate risk assessment relies on theories about corporate borrower behavior. With the introduction of Basel-II, some convergence between retail and corporate approach to credit risk assessment is expected.

Impact of Basel II Accord Impact on Indian Banks While there is no second opinion regarding the purpose, necessity and usefulness of the proposed new accord - the techniques and methods suggested in the consultative document would pose considerable implementational challenges for the banks especially in a developing country like India. 1. Capital Requirement:- The new norms will almost invariably increase capital requirement in all banks across the board. Although capital requirement for credit risk may go down due to adoption of more risk sensitive models - such advantage will be more than offset by additional capital charge for operational risk and increased capital requirement for market risk. This partly explains the current trend of consolidation in the banking industry. 2. Profitability:- Competition among banks for highly rated corporates needing lower amount of capital may exert pressure on already thinning interest spread. Further, huge implementation cost may also impact profitability for smaller banks. 3. Risk Management Architecture:- The new standards are an amalgam of international best practices and call for introduction of advanced risk management system with wider application throughout the organization. It would be a daunting task to create the required level of technological architecture and human skill across the institution. 4. Rating Requirement:- Although there are a few credit rating agencies in India, the level of rating penetration is very low. A study revealed that in 1999, out of 9640 borrowers enjoying fund-based working capital facilities from banks, only 300 were rated by major agencies. Further, rating is a lagging indicator of the credit risk and the agencies have poor track record in this respect. There is a possibility of rating blackmail through unsolicited rating. Moreover rating

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in India is restricted to issues and not issuers. Encouraging rating of issuers would be a challenge. 5. Choice of Alternative Approaches:- The new framework provides for alternative approaches for computation of capital requirement of various risks. However, competitive advantage of IRB approach may lead to domination of this approach among big banks. Banks adopting IRB approach will be more sensitive than those adopting standardized approach. This may result in high-risk assets flowing to banks on standardized approach, as they would require lesser capital for these assets than banks on IRB approach. Hence, the system as a whole may maintain lower capital than warranted and become more vulnerable. 6. Incentive to Remain Unrated:- In case of unrated sovereigns, banks and corporate, the prescribed risk weight is 100%, whereas in case of those entities with lowest ratting, the risk weight is 150%. This may create incentive for the category of counterparties, which anticipate lower rating to remain unrated. 7. Supervisory Framework:- Implementation of Basel II norms will prove a challenging task for the bank supervisors as well. Given the paucity of supervisory resources, there is a need to reorient the resource deployment strategy. Supervisory cadre has to be properly trained for understanding of critical issues for risk profiling of supervised entities and validating and guiding development of complex IRB models. 8. National Discretion:- Basel II norms set out a number of areas where national supervisor will need to determine the specific definitions, approaches or thresholds that they wish to adopt in implementing the proposals. The criteria used by supervisors in making these determinations should draw upon domestic market practice and experience and be consistent with the objectives of Basel II norms. 9. Disadvantage for Smaller Banks:- The new framework is very complex and difficult to understand. It calls for revamping the entire management information system and allocation of substantial resources. Therefore, it may be out of reach for many smaller banks. 10. Discriminatory against Developing Countries:- Developing countries have high concentration of lower rated borrowers. The calibration of IRB has lesser incentives to lend to such borrowers. This, along with withdrawal of uniform risk weight of 0% on sovereign claims may result in overall reduction in lending by internationally active banks in developing countries and increase their cost of borrowing. 11. External and Internal Auditors:- The working Group set up by the Basel Committee to look into implementation issues observed that supervisors may wish to involve third parties, such a external auditors, internal auditors and consultants to assist them in carrying out some of the duties under Basel II. The precondition is that there should be a suitably developed national accounting and auditing standards and framework, which are in line with the best international practices. Minimum qualifying criteria for firms should be those that have a dedicated financial services or banking division that is properly researched and have proven ability to respond to training and upgrades required of its own staff to complete the tasks adequately. With the implementation of the new framework, internal auditors may become increasingly involved in various processes, including validation and of the accuracy of the data inputs, review of activities performed by credit functions and assessment of a bank's capital assessment process.

Impact on Business Model

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The impact on the business models of the banks will be as follows: -

Fig 2: Effect on Business Model With the advent of Basel II, banks with a risk appetite, i.e. high risk - high return lending strategy or lending without proper appraisal merely to generate additional business will find the going tough. We believe that such business models, which take unduly high risks, will not survive. The business models, which should survive, will be where risks are within acceptance levels for the banks backed by adequate returns.

Impact on Borrowers

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Exhibit 3: Borrower wise Impact of Basel II The more efficient borrowers will have easier and larger access to funds while the more risky borrowers will find it tough to acquire funds at favorable rates. In the extreme case, some borrowers will find no banks that are willing to lend to them. One can imagine the effect it will have on the companies. Imagine two companies from the same sector - one with a high credit rating say AAA and other with a lower rating say BBB. Even a 2% interest rate degree of difference here can transform into a huge competitive edge for the AAA rated borrower. This will force the inefficient players to get more disciplined in order to be competitive in the market place. This will promote greater efficiency and led to a more efficient and stronger banking, financial and the corporate sector. Further under Basel II, with the sense of competitiveness introduced within the banking as well as the corporate sector, the competition will become more service focused rather than cost based. Banks will need to differentiate based on the services provided rather than the customer segment catered to (low risk/high risk). Its because we do not expect business models that are based on risk appetite to survive under Basel II. In addition, the inefficient players will be weeded out or will have to fall in line. All this should lead to improved quality of services for the consumer. Further the improved solvency of the banks will also benefits the customers, as the quality of their investments will improve.

Cross-border implementation of the New Accord 1. The Basel Committee recognizes that the New Accord will require more cooperation and coordination between home country and host country supervisors, especially for complex banking groups. The New Accord will accentuate the need for cooperation because the new rules will be applied at each level of the banking group, so that there is a technical requirement on the part of both home country and host country supervisors to provide a Pillar1 and Pillar 2 assessment. In addition, there may need to be some coordination regarding Pillar 3 requirements. Consequently, the Basel Committee encourages supervisors to elaborate further on the practical implications of the Basel Concordat (see below) for the implementation of the New Accord.

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2. Where a banking group has operations in at least one country other than the home country, the implementation of the New Accord may require it to obtain approval for its use of certain approaches from relevant host country supervisors on an individual or sub-consolidated basis, as well as from its home country supervisor in respect of consolidated supervision. The need for approval of more than one supervisor is not a precedent; the 1996 Market Risk Amendment entailed similar requirements. However, the New Accord could significantly extend the scope of such multiple approvals and is therefore likely to create some new implementation challenges. 3. Closer cooperation between supervisors can assist the implementation efforts of both supervisors and banking groups. There are a variety of supervisory responsibilities under the New Accord, including: (1) initial approval and validation of advanced approaches (eg IRB, AMA) under Pillar 1; (2) the supervisory review process under Pillar 2; and (3) ongoing assessments to verify that banking groups are applying the New Accord properly and that the conditions for advanced approaches continue to be met. The degree and nature of cooperation between supervisors may differ across these different supervisory responsibilities. Whatever arrangements are employed, banks have an important role to play in assisting the effective and efficient cross-border implementation efforts of supervisors. 4. While arrangements for cooperation among supervisors must be practical, the Basel Committee has a clear interest in implementing the New Accord in a way that strengthens the quality of bank supervision across countries. The Committee should also promote the ability of all host supervisors, and especially of those from emerging market economies, to exercise effective host banking supervision over foreign institutions operating in their jurisdictions.

5. The Basel Committee believes that fostering closer practical cooperation between supervisors is essential to implement the New Accord as effectively and efficiently as possible. In particular, the following six principles apply: Principle 1: The New Accord will not change the legal responsibilities of national supervisors for the regulation of their domestic institutions or the arrangements for consolidated supervision already put in place by the Basel Committee on Banking Supervision Principle 2: The home country supervisor is responsible for the oversight of the implementation of the New Accord for a banking group on a consolidated basis. Principle 3: Host country supervisors, particularly where banks operate in subsidiary form, have requirements that need to be understood and recognized. Principle 4: There will need to be enhanced and pragmatic cooperation among supervisors with legitimate interests. The home country supervisor should lead this coordination effort. Principle 5: Wherever possible, supervisors should avoid performing redundant and uncoordinated approval and validation work in order to reduce the implementation burden on the banks, and conserve supervisory resources. Principle 6: In implementing the New Accord, supervisors should communicate the respective roles of home country and host country supervisors as clearly as possible to banking groups with significant cross-border operations in multiple jurisdictions. The home country supervisor would lead this coordination effort in cooperation with the host country supervisors

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6. Cross-border responsibilities of supervisors, as set out in The Basel Concordat and Minimum Standards1 (the Basel Concordat) will continue to apply with the implementation of the New Accord. In essence, home country supervisors are responsible for consolidated supervision and host country supervisors are responsible for supervision on an individual or sub-consolidated basis for entities operating in their country. 7. The implementation of the New Accord should build on the existing framework of the Basel Concordat to achieve effective implementation across jurisdictions without imposing an undue burden on banking groups. The degree of closer practical cooperation between supervisors will be facilitated by certain preconditions for effective exchange of information and practical mutual recognition (e.g. the degree of equivalence of regulatory and supervisory systems, and acceptable approaches to information sharing and confidentiality). 8. For situations where the home country and host country supervisors adopt different approaches, the home country supervisor will have the final determination on such matters as they relate to the group on a consolidated basis. This does not mean that the home country supervisor will necessarily perform all of the assessment and analysis. In exercising its responsibilities, the home country supervisor may seek input from host country supervisors, particularly where a subsidiary in the host country is material to the group or the subsidiarys business differs significantly from that of the parent bank. 9. Given the nature of Pillar 2, the responsibility for Pillar 2 assessments of a consolidated banking group must rest with the home country supervisor. However, depending on the Organization of the banking group and the importance of activities within the host country, host Country supervisors may provide important input into the home country assessment of Pillar 2 for the consolidated banking group. Home country supervisors should seek host country input, where appropriate. 10. In each country, banks operating in subsidiary form must satisfy the supervisory and legal requirements of the host jurisdiction. Certain jurisdictions may also have relevant requirements in the case of foreign bank branches. 11. Host country supervisors have an interest in accepting the methods and approval processes that the bank uses at the consolidated level, in order to reduce the compliance burden and avoid regulatory arbitrage. However, host country supervisors have other legitimate interests which may prevent them from recognizing for use at the sub consolidation level an approach approved at the group level. 12. The sharing of supervisory results is an evolving practice. Supervisors should look for ways to continue to enhance cooperation and the exchange of information (e.g. sharing of examination results). Requests by host country supervisors for information on banking groups with operations in the host country should be reasonable in relation to the responsibilities and interests of both the home country and host country supervisors. Whatever arrangements are employed, the emphasis should be on those practical tools and procedures for fostering effective cross-border cooperation. 13. Supervisors should coordinate their respective work plans as far as possible, taking into account legal and other constraints. Over time, greater cooperation between home country and host country supervisors will increase efficiencies for both banks and supervisors. 14. As needed, the home country supervisor would be responsible for measures to organize practical cooperation between supervisors responsible for the material operations of the banking group. This would include holding discussions with the senior management of the

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group about their implementation plans, communicating these plans as necessary to relevant host country supervisors and agreeing with them the work to be undertaken by each supervisor. The home country supervisor would also develop an appropriate communication strategy with the relevant host country supervisors, supplementing existing cooperative agreements where necessary. As a practical matter, the frequency and scope of communication between supervisors would vary depending on the materiality of operations within the host country. 15. Agreements on cooperation and exchange of information should be recorded on whatever basis best suits individual supervisors. Some supervisors may opt for formal arrangements (like Memoranda of Understanding (MOUs) or other bilateral agreements), while others may prefer less formal communication strategies. 16. For initial and on-going validation and approval there is likely to be a particular need for cooperation between home country and host country supervisors because the nature of complex banking group structures increases the likelihood that different techniques will be used in different jurisdictions. 17. The Pillar 1 approval of a credit risk rating system for an IRB capital calculation or an Advanced Measurement Approach for operational risk involves many bank functions. In any given banking group, some of these functions will be carried out at the group level, while others will be performed at the level of the individual entity. It will be highly desirable for supervisors to coordinate their activities, as far as possible, to reflect the organisation and management structure of a banking group, in order to improve efficiency and thereby reduce the implementation burden on both banks and supervisors. 18. The degree of integration in a banking groups risk management, the extent to which a banking group uses a common approach, the availability of data and other factors (such as legal responsibilities), are likely to condition the nature of desirable cross-border arrangements. Where mind and management are centralized in the banking group or where techniques are consistently applied across the group, the home country supervisor will probably be better placed to lead approval work. In such circumstances, the host country supervisor may choose to rely entirely on approval work conducted by the home country supervisor. Conversely, where there is limited integration or where one or more operating companies within the group are using different techniques from the rest of the group, or where, for example, an entity located in the host country manages a global business line, the host country supervisor may be better placed to take the lead for approval work regarding those techniques or those operations. But in this case the home country supervisor will need to maintain a sufficient level of information about the banking group and its operations in the host country, in order to allow it to meet its responsibilities under the New Accord. 19. It is desirable for home country supervisors, in cooperation with the host country supervisors, to develop a plan well in advance of the implementation date, detailing, as far as possible, the practical arrangements between the home country supervisor and relevant host country supervisors to be followed in implementing the New Accord. This will be particularly desirable for those advanced complex banking structures with significant cross-border operations because the practical supervisory arrangements will depend on how the banking group operates. This plan should be communicated to the affected banking group. In communicating the supervisory plan, supervisors will take care to clarify that existing supervisory legal responsibilities remain unchanged.

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20. The home country supervisor would lead the development and communication of a supervisory plan. The level of detail contained within such a plan should be flexible and tailored to the individual circumstances of a banking group.

Are the Indian banks ready for Basel II ? The Indian banks are not prepared to implement the stringent Basel-II norms including that of capital adequacy and non-performing assets in total by 2006, according to the Federation of Indian Chambers of Commerce and Industry survey. More than half the respondents felt banks would require two years beyond 2006 to meet the Basel norms and an overwhelming 87 per cent of respondents maintained that the provision for capital changes to address operational risks would put pressure on capital adequacy requirements. The survey covered 216 key decision makers from foreign, private, public sector banks and corporate. The internal rating based on recommendations of Basel II norms would make Indian banks more resilient to risk and help them face competition better, the survey said. On access to foreign players to Indian banking market, the survey said the banking industry would need 2-3 years to gear up to meet challenges of full market access to overseas entities. The FICCI survey said about 56 per cent of respondents favored lifting restrictions on branch expansion, while 52 per cent sought removal of discriminatory limitations on foreign equity. However, 82 per cent have welcomed the government's move to hike foreign direct investment limit in private sector banks, helping to consolidate the industry, it said some of the important findings of the survey are enumerated as below:

I. GENERAL STATE OF PREPAREDNESS 87 percent of the respondents were confident of meeting the deadline of implementing the Basel II norms by 31st March 2007. These banks have already prepared the detailed Implementation Roadmap as been instructed by Reserve Bank of India. 80 per cent of these banks faced Data Collection as the biggest challenge in preparing the Basel II roadmap. They also expressed that they require an ongoing support from the regulatory authorities in this regard. 77 percent of respondent banks are still in the process of putting in place a robust Management Information System (MIS) in order to comply with the requirements of Pillar III Market Discipline of the new norms. II. CAPITAL REQUIREMENT

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54 percent of the banks are technologically equipped to face the future challenges being posed by the Basel II norms. These banks have already put in place the core banking solutions. Also enough attention has been focused upon networking the banks. All the respondent banks already have 70-90 % level of computerization in their bank. However 60 percent of these banks are of an opinion that lower level of computerization would not hinder their progress in implementing these norms. Perhaps this is because banks feel that lower level of the computerization in the rural areas is not likely to effect the implementation of Basel II norms because the bulk of banks operations are in urban areas, which already have 100% computerization. 87 percent of respondent banks have already estimated the incremental capital required for this purpose in their organization. 27 per cent banks expect their capital requirements to increase by 1-2 % while 20 per cent banks expect their capital requirements to increase by more than 3 % during the implementation stage of Basel II norms.

III. IMPACT ON CREDIT 87 percent of the respondent banks quoted that increased capital requirements imposed by the Basel accord will not make their banks more risk averse towards credit dispensation. Merely 13% felt that implementation of Basel II could have an adverse impact on banks lending to commercial sector. Small and Medium enterprises and Farm and rural sectors are likely to be the most affected sectors. The very aspect of capital adequacy has always been regarded as a feature of strength in the Indian financial system. A capital to risk-weighted assets system was introduced for bands in India since April 1992, in conformity with the international standards, which called for the banks to achieve an 8 percent capital to risk-weighted assets ratio. This capital was supposed to be made up of Tier 1 and Tier 2 capital. In a survey that was meant to see the position of Indian banks to implement the Basel 2 norms, it was found that in the year 1999, only 26 of the Indian banks were able to achieve the target level of CRAR, and in the year 2001, 25 out of 27 public sector banks complied with the minimum level of CRAR. Moreover, The Basic Indicator approach specifies that banks should hold capital charge for operational risk equal to the average of the 15% of annual positive gross income over the past three years, excluding any year when the gross income was negative. In ICRAs estimates, Indian banks would need additional capital to the extent of Rs. 120 billion to meet the capital charge requirement for operational risk under Basel II. Most of this capital would be required by the public sector banks (Rs. 90 billion), followed by the new generation private sector banks (Rs. 11 billion), and the old generation private sector bank (Rs. 7.5 billion). In ICRAs view, given the asset growth witnessed in the past and the expected growth trends, the capital charge requirement for operational risk would grow 15-20% annually over the next three years, which implies that the banks would need to raise Rs. 180-200 billion over the medium term. Thus as far as the Indian banks are concerned, they need to consider the integration of its Basel 2 solution with its existing technical infrastructure and any other major systems of implementation that are already planned. However, over the long term, they would derive benefits from improved operational and credit risk management practices.

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CONCLUSION For the overall Indian Banking Industry, it will bestow a number of benefits. It will give the Reserve Bank of India (RBI) a greater say in the world forum. Imagine how difficult it will be for the RBI to represent the Indian Banking case if we do not follow the global best practices. In addition, it will also help to resolve the inherent principal-agent conflict in the banking industry. The agents (individual bank management) are more concerned about increasing profitability i.e. Return on Equity (ROE) in order to deliver greater returns to the Principal (shareholders). This could be achieved by taking on additional risks and not properly accounting for the risks involved. For example, the bank may raise ROE by lending to risky customer while at the same time not creating sufficient provisions against these loans. This may hamper the solvency of the bank in the long run. This is where the regulator (RBI) steps in. The regulator is concerned more with the solvency and stability of the banks as the collapse of even a single bank can affect other associated banks and may even trigger a banking crisis. Basel II will help in this respect, as it will lead to a more rigorous analysis of the risks of transaction undertaken by each individual bank, which will lead to better risk management. The Indian banking system is now better prepared to face the rigor and adopt the revised version (Basel II) than it was in 1992. Most of the PSBs are capital market fit mobilizing capital from the market and less dependent on government. Profitability levels are improved and somewhat stabilized, if not reached international standards. Return on assets is almost stabilized around 1% with net interest margins, in a deregulated interest rate scenario, around

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2.75% mark. Operational efficiency is also improving, thanks to the increasing adoption of information technology and HRD interventions, with the operational expenditure to working funds ratio coming down substantially from more than 3% to 2.25% now. NPA proportions both gross and netcame down substantially with coverage ratio more than 50% thus bringing down net NPA levels to around 4% of net advances. Risk management systems, though a long way to go, made a substantial progress both in credit as well as market risk, mainly triggered by several initiatives taken by the RBI. In the above backdrop, with experience and on the basis of some assumptions, an attempt is made in this paper to gauge the magnitude of additional capital required, if any, to achieve the Basel II standards in India by March 2007, touching along with the related policy and strategic issues involved therewith. While the proportion of risk weighted assets to total funded assets is around 50% for the Indian banking system under Basel I, under Basel II the same is assumed to go up by 15-30%. Half of such expected increase is due to the operational risk element while the other half of increment is likely to be due to more rigorous credit risk measurement framework and adoption of the full-fledged amended frame (1996) of Basel I for market risk. If growth trends of the net worth and assets during 1997-2003 is any indication for future, banks in India will not have any problem in maintaining the present trend of the comfortable Basel Ibased capital adequacy ratio, which is likely to be around 11.8% by March 2007. In fact, the CRAR was 12.3% in March 2003. Only nationalized banks will be a little hard-pressed at 10.5% in 2007 under the Basel I mode. However, under Basel II, the scenario in March 2007 becomes vulnerable, especially the nationalized banks and private sector groups, which are likely to be below 10% mark envisaged under the Narasimham Committee-II. Foreign banks are likely to be comfortable even under Basel II, while the SBI group is also likely to be above the regulatory minimum, but without the existing comfort of cushion over the regulatory minimum. In order to maintain the status quo CRAR, i.e., 12%, under Basel II (wherein 15-30% increase in risk weighted assets is assumed), the amount of Capital Adequacy Gap for all scheduled commercial banks (excluding RRBs) is likely to be in the range of Rs. 30,000 cr. to Rs. 57,000 cr.a shortfall of 17-32% from the trend-based projected net worth by March 2007. Among various groups of banks the situation for PSBs is likely to be critical especially when the market developments force them to increase their credit-deposit ratio on account of low level of preemptions like CRR and SLR, besides the projected improvement in the fiscal deficit position, leading to less scope for government borrowing. Even if such investment scope exists, it may not be commercially attractive to go beyond the statutory minimum levels. Private sector players, already having higher CD ratio and consequently higher proportion of risk weighted assets, are equally vulnerable in the transition from Basel I to Basel II. In this context, the viability of small local banks including cooperative banks, poses a bigger challenge for regulators as the size of these banks and their risk bearing capacity may become a constraint, while their need and utility in the Indian context may not be in doubt. As a part of the preparation process towards a smooth transition from Basel I to Basel II, consolidation of the banking system may be necessary through an orderly merger and acquisition process, through both in-market and cross-market mergers including holding company route, etc., guided purely by the expected synergies. The minimum market share of business in such a scenario for an all India or international bank should preferably be not less than 15%. Reliable database, of minimum 5 years period, on risk management, especially about credit risk, is a sine qua non for switching over to IRB, which is in fact, the essence of Basel II, besides economic capital and disclosure standards. A technology-driven collaborative effort of credit risk database among banks at state level as well as the national level is a must in this context, to reflect the diversity of our country in the geographical, sectorial, economic and cultural terms.

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RBI, Rating Agencies, Indian Banks Association and Bank Management Institutes, etc., shall play useful role in this endeavor. Banks need a strong credit culture to remain sound as well as competitive in the Basel II era as credit and credit alone will give the banks a cutting edge. Marketing, appraisal and delivery systems need a thorough overhaul with proper backup in the form of sound policies, strategies, structures and evaluation systems, which encourage growth of healthy credit portfolios. Audit and vigilance systems, notwithstanding many attempts to improve them, still possess a predominantly governmentalized element, not conducive to promote professional, accountable and business like culture. The most important transition need is bringing in true corporate governance of international standards for which government ownership need not be a weakness but a strength leaving the management of banks, especially PSBs, to the professionally chosen boards. Creating a market orientation, level playing field between private and PSBs, input side reforms in structure and people management policies, etc. will be right steps for a smooth transition to Basel II. A recent announcement by the Government of India about the requisite managerial autonomy to these banks is a positive step in this direction. Relatively speaking, the Indian banking system is less volatile in its risk exposures, especially with liquidity and operational risks. Risk management and control systems in market risk are yet to get stabilized. Long-term database for credit risk is the need of the hour. Draft guidelines issued by RBI in February 2005 on Basel II implementation clearly indicate a phased approach, without putting undue pressure on the banking system, while at the same time aiming to reach international standards. Basel II transition should further strengthen the banks to play a crucial role in ensuring that the fruits of economic reforms, more so the financial sector reforms, are in the reach of vast and vulnerable sections of the society.

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DATA ANALYSIS:
Introduction: Data analysis and interpretation plays an important role in turning quantity of paper into defensible, actionable sets of conclusions and reports. It is actually a set of method and technique that can be used to obtain information and insights from data. It can lead the researcher to information and insights that would not be available. It can help to avoid erroneous judgments and conclusion. It can provide a background to help interpret and understand analysis conducted by others. Knowledge of power of data analysis techniques can constructively influence research objectives and research design.

DATA TABLE NO 1: MARKET COVERAGE OF THE COMPETITIVE BANKS INCLUDING KOTAK MAHINDRA BANK LTD:

BANK NAME

NO OF RESPONDENTS

PERCENTAGE RESPONDENTS

OF

HDFC ICICI Kotak Mahindra bank CO-OPERATIVES OTHERS POTENTIAL MARKET TOTAL

22 25 14 9 8 22 100

22% 25% 14% 9% 8% 22% 100%

ICICI Bank Ltd scores top position in market coverage of Saving account in Kota Region. HDFC Bank gets a second position. KOTAK MAHINDRA BANK takes the third position.The amount of potential market is as high as 22% 67

GRAPH NO 1 MARKET COVERAGE OF THE COMPETITIVE BANKS

NO OF RESPONDENTS

POTENTIAL MARKET 22% OTHERS 8% UTI 14% KOTAK MAHINDRA BANK 9%

HDFC 22%

HDFC ICICI UTI KOTAK MAHINDRA OTHERS POTENTIAL MARKET

ICICI 25%

TABLE NO 2

MARKET POTENTIAL FOR VARIOUS SAVING ACCOUNT

Types of accounts No of Companies 42 Percentage of companies 42%

Pro Savings Accounts Edge Savings Account Ace Savings Account Nova Savings Account &

20 13

20% 13%

25

25%

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: Easy Savings Account

Total 100 100%

45 40 35 30 25 20 15 10 5 0

42 No of Companies Percentage of companies 25% NOVA +SAVING

25 20 13 42% 20% 13%

PRO ACE EDGE SAVING SAVING SAVING

INTERPRETATION: Out of the all type of saving accounts market potential of saving Regular Account is 42% which is highest .Second highest market potential is for Kids Advantage Account is 25%.

TABLE NO 3: CUSTOMERS SELECTION PARAMETERS OF HDFC BANK LTD PARAMETERS OF BANK PERCENTAGE SELECTION BRAND NAME PERVIOUS EXPERIENCE RELIABILITY CUSTOMER CHOICE 23.60% 22.40% 22.10% OF

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EASY ACCESS BANKING HOURS 19.80% 14.10%

120 100 80 60 40 20 0 HDFC ICICI UTI KOTAK OTHERS MAHNDRA 80 30 70 11 15 33 19

4 7 5 9

4 3 5 8

8 12 4 6

13

11 10 UNSATISFACTIORY SATISFACTORY FAIR GOOD EXCELLENT

31 27

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INTERPRETATION: ATM Network of ICICI Bank is rated excellent (80%). Followed by HDFC Bank (75%). UTI Bank gets third position. (70%) KOTAK MAHINDRA Banks are rated as fair by 30% of the respondents and satisfactory by 31% of the respondents. Other Banks are rated as excellent by 33% of the respondents and fair by 27% of the respondents.

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TABLE NO 4: Strengthens and weakness of KOTAK MAHINDRA BANK Score Card Parameters Regulatory System Technology Advancements Credit Quality Diversification of market beyond big cities Size of Bank Banking Infrastructure Labor Inflexibilities 5 4 3 Score 5 6 5 4

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STRENGTHS AND WEAKNESS OF KOTAK MAHINDRA BANK Score

Labor Inflexibilities

Banking Infrastructure

4
5 4 5 6 5 0 2 4 6 8

Size of Bank Diversification of market beyond big cities Credit Quality

Technology Advancement

Regulatory Systems

INTERPRETATION: The Indian banking sector has scored over its counterparts not only in developing but also even in developed world such as Japan, Singapore and Australia on significant parameters.

Technology has given birth to a new era in banking. Technology can be the key differentiator between two banks and a major factor to attain competitive edge. Though slow in the beginning, KOTAK MAHINDRA Bank seem to have paced up in adoption of advanced technology.

While enhancement of credit is an important function of the Banks, it is equally imperative to

keep a check on the quality of credit to ensure good health of the banking system and effective functioning of market for distressed assets.

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: One of the key fundamentals of banking sector Credit Quality too has been rated fairly well in comparison with other Banks. Even though KOTAK MAHINDRA Bank is a big player in Indian Banking sector still it is not yet penetrated in the rural areas of India to a very great extend. KOTAK MAHINDRA Bank as earlier said is a large player in the Indian Banking Sector, however when it comes to banking infrastructure it is one of its weak. And so labour inflexibilities.

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RECOMMENDATIONS

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: Since ATM is the most popular point of interaction with the Bank it is imperative that the Bank increases the number of ATM machines. KOTAK MAHINDRA BANK must enter into alliances with other Banks. So that its customers can use those Banks ATM facility free of any charge. The Bank should take advantage of its world wide network of ATM machines, as more and more Indians are travelling abroad. The advantages of being able to access ones account anywhere in the world must be highlight. The Bank should reduce the transaction cost of non- Kotak ATM machine. Account holders feel that it would be good if the Bank offered incentives, freebies to its existing customers , this would keep the customers happy and satisfied with the Bank. Happy hours should be introduced. Bank timing should be increase. Animated movies should be make for promoting various products of Bank in local language and according to culture. Touch screen facility can helpful to provide detail knowledge of various products and it can save manual time. More branches should be open at nearby towns so that customer fell convenience. Account opening processing time should be decrease and cash account opening facility should introduce so that customer would not feel any problem. Mahindra bank

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LIMITATIONS

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: Bank timing is short (9:30 am to 3:30pm). No. of ATMs less according to population. Customer have threat that bank have hidden charges. Low income class people face difficulty to maintain AQB. Customers not use frequently Net banking, Mobile banking. The study was limited only JAIPUR city other part of country. Many times respondents were so busy that they didnt give reply. There were biased replies also. Hence findings may be differ from

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QUESTIONAIRE

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1. Person Name: ____________________________________________ 2.Types of business or Working area A) Electric and Electronics B) Information Technology C) Automobile D) Pharmaceutical E) Infrastructure F) Telecommunication g) Others: please specify __________________________________ 3. No.of Person in family: _____________________________________________ 4. Designation: ________ _______________________________________ 5. Contact Number: ____________________________________________ 6. e- Mail id: _________________________________________________ 7. No. of Depended and their age: __________________________________________ 8. Current Banker: _____________________________________________ 9. Total annual income of person: _________________________________________________________ 10. Special offer provided from existing bank: a) P.L. Rate: __________________________________________ b) H.L Rate: __________________________________________ c) Vehicle loan Rate: ___________________________________ d) Others: ____________________________________________

11. Are you satisfied with existing Banker? a) Yes b) No

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12. Do you expect better products and services from your banker? a) Yes b) No

13. How is the Relationship between you & your Bank? a) Excellent b) Good c) Satisfactory d) Unsatisfactory 14. Did you change your banker recently? A) Yes b) No

15. If yes: From - ____________________________________________ To - ____________________________________________ 16. How is Customer Responsiveness of your Bank? a) Good b) Satisfactory C) Unsatisfactory 17. Would you like to shift to other Bank, if provided better product &Services? a) Yes b) No

18. Given options, which Bank, you would like to shift? Please mention: ___________________________________________ Date Place Thank you Signature

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CONCLUSIONS

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KOTAK MAHINDRA BANK is Leading Bank in the country, it provides a variety of products and services to different segments of customers. The Bank aims to serve customers from teenagers to senior citizens, hence different products designed to suit specific requirements of the above. Aims to serve all classes of the society from the salaried middle class to the high income business class. Customers are categorized and segmented according to their requirements and needs. For Example , the Saving Regular and Plus Account aims to serve middle class customers so minimum balance required to be maintained is RS.5,000/- or RS. 10000. While the Saving Max Account is targeted at high income customers, the minimum balance requirement is RS.25,000. Customers who are more profitable to the Bank (High Value Customers) are provided special facilities. Priority Banking is meant to serve these high value customers. The Bank prides itself with the ability to provide differentiate products in the crowed market of saving accounts. Bank offers free insurance, special co-branded debit cards which makes its product unique. The Credit/Debit Cards provided by the Bank are Internationally Accepted around the world, Hence giving the customers the convenience to transact anytime , anywhere. The Bank has tied up with other Banks so that its customers can use other Banks ATM facility for free (four free transactions) The Bank also provides DEMAT account and also sells Mutual Funds, this provides the Bank and Government additional revenue. The Bank has been very successful in enlarging its customer base during the last couple of years. The Bank wants its customers to transact more trough Internet Banking and ATMs, rather than the customers using the branch.

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BIBLIOGRAPHY

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www.hdfcbank.com www.axisbank.com www.icicibank.com www.kotak.com www.wikipedia.com www.google.com

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