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BRIEFS
A Compendium of Readings of Relevance to Bankers
HYDERABAD
MARCH 2006
(For Internal Circulation Only)
Banking Briefs
BANKING
BRIEFS
A Compendium of Readings of Relevance to Bankers
MARCH 2006
M.R. SATYANARAYANA
Chief Manager (Research)
HYDERABAD
(For Internal Circulation Only)
Banking Briefs
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Learning organization
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Network security
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Outsourcing by Banks
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Organisation Culture
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Stress Management
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Transformational Leadership
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CONTENTS
1.
PERSPECTIVES
1.
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4.
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13.
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2.
BANKING
a.
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b.
TECHNOLOGY
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c.
d.
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Universal Banking
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Currency Options
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Banking Briefs
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f.
GENERAL
81 CRM in The Banking Sector
82 Data Warehousing And Customer Relationship Management
in Banking
83 Customer Centric Management
84 Cooperative Banking In India : Focus Areas
85 Contract Farming
86 IPO Scam
3.
a.
b.
INSTITUTIONS
100 Credit Information Bureau (India) Limited (CIBIL)
101 SME Rating Agency of India Limited (SMERA)
102 Banking Codes And Standards Board of India (BCSBI)
103 The Institute For Development And Research In Banking
Technology (IDRBT)
104 National Payment Corporation of India
105 Clearing Corporation of India Ltd. (CCIL)
106 ARCIL
107 India Mortgage Guarantee Company (IMGC)
108 National Internet Exchange of India (NIXI)
109 Multi Commodity Exchange of India(MCX, NCDEX & NMCEIL)
110 Regional Rural Banks
111 Non Banking Finance Companies (NBFCs)
Banking Briefs
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c.
d.
4.
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INTERNATIONAL TRADE
133 National Foreign Trade Policy 2004-09
134 Overview of Indias Foreign Trade
135 Foreign Exchange Management Act (FEMA)
136 WTO And Liberalisation of Financial Services
137 Foreign Institutional Investors (FII)
138 External Commercial Borrowings (ECB)
139 Capital Account Liberalisation
273
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285
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MANAGEMENT
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Corporate Governance
Balanced Score Card
Transformational Leadership
Learning Organization
Intellectual Capital
Knowledge Management
E-governance
Assessment Centre
Competency Mapping
Organisation Culture
Mentoring
Banking Briefs
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298
300
302
305
307
310
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315
317
(For internal circulation only)
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5.
360Degree Technique
Emotional Intelligence
Stress Management
Empowerment
Service Quality Management
Niche Market
Relationship Banking
Cross Selling
Six Sigma - For Quality
Total Quality Management (TQM)
Benchmarking
ISO 9001
ISO 14000
Quality Circles
Business Process Outsourcing Issues Involved
Financial Engineering
Economic Value Added (EVA)
Market Value Added (MVA)
Debacles, Crises And Lessons
Fall Of Global Trust Bank
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331
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COMMITTEES
171 Recommendations of the internal group on Rural Credit
and Micro-finance
172 Report of The Working Group on Warehouse Receipts
and Commodity Futures
173 Report of The Working Group to Review Export Credit
174 Dr. Rakesh Mohan Committee on Savings Instruments
175 Sadasivan Working Group on DFIs
176 Tarapore Committee on Public Services
177 Vyas Committee on flow of credit to agriculture
178 Ganguly Working Group on SMEs
179 Chalapathy Rao Working Group on RRBs
180 Kumar Mangalam Birla Committee on Corporate Governance
181 Narasimham Committee - I on Financial Sector reforms
182 Narasimham Committee - II on Banking Sector reforms
183 Goiporia Committee on Customer Service
6.
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STATISTICAL PROFILE
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Briefcase
AMERICAN DEPOSITORY RECEIPTS (ADRs)
P - 247
ARCIL
P - 223
ARCs act as debt aggregators. They perform like a bad bank making normal operations of banks good.
ARCIL was established in 2003. ICICI bank is the highest shareholder with 29.58%. SBI holds 19.95%
ARC acquires bad bank assets, reorganizes them and sell them to investors by separating NPAs from
the core banking system.
The loss on sale of asset can be offset against capital gains on another
Banks with weak capital base and low provisioning avoid selling bad loans
Post Basel II, banks will have to exploit the benefits of ARC to meet stringent Basel norms
ASSESSMENT CENTRE
P - 312
Assesses the adequacy of various critical attributes, functional expertise, aptitudes and skills
required in the job
Used for higher level executives
Some of the competencies assessed are leadership, teamwork, decision making capability,
communication skills and market orientation
Banking Briefs
11
P - 124
Deals with: Delayed collection of cheques, non-issue of drafts, interest rate disputes, failure to honour
LC/guarantee commitments, delay in disposal of loan application
It promotes settlement through conciliation
The Act has two objectives of tracking down large transactions for better tax compliance and curbing
generation of black money in the economy
The BCTT is applicable in respect of all taxable banking transactions entered into on or after 1st June
2005
The rate of BCTT applicable is 0.1 percent (10 basis points) of the value of the taxable banking transaction.
P - 298
BASEL - II
P - 84
Basel II consists of three-mutually reinforcing Pillars, viz. minimum capital requirements, supervisory
review of capital adequacy, and market discipline.
It requires banks to hold capital not only for credit and market risk but also for operational risk (OR).
Commercial banks in India will start implementing Basel II with effect from March 31, 2007
BENCHMARKING
P - 337
BIOMETRICS
P - 76
The security advantage of biometric technology is that it can authenticate an individual by measuring his
distinct physical characteristics or behavioural traits.
Physical characteristics measured by biometrics include: face, fingerprint, iris, hand geometry and retina.
Some of the Biometrics techniques are Signature technology, Fingerprint technology, hand geometry
technology, Voice technology, Iris technology.
BOOK BUILDING
Banking Briefs
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P - 261
BUDGET - An understanding
P - 209
It is a statement of proposed expenditure and the means of financing it.
Contains 3 key documents: The Annual Financial Statement; Demand for Grants and The Finance Bill
Budgetary Deficit is the excess of total expenditure over total receipts. It is covered by borrowings from
market and from RBI.
Fiscal Deficit: Total Expenditure {(Total Receipts + market borrowings)}. In other words, it is equivalent
to borrowings from RBI.
BUY BACK
P - 262
Buy Back is an arrangement by which shares issued to equity holders are bought back by the
company
Why done: To support market price; to acquire controlling interest; to deploy surplus funds
Funds for buy back should come from authorised sources
Effects: Buy back may affect companys liquidity; profits; EPS, Book Value and gearing ratio
of the Company.
P - 342
Banking Briefs
13
Classification based on key parameters: Capital adequacy, Asset quality, Management, Earnings
performance, Liquidity and Systems (For foreign banks it is CACS- second C stands for Compliance
with regulatory guidelines).
Ratings on a scale of A to E
P - 289
P - 238
Call Money is money borrowed for shorter repayment period (1-14 days) to meet temporary
mismatch
Call market is generally a one day or an overnight market
Major Participants: Banks/FIs/PDs and Mutual Funds
Banks borrow/lend in call money to meet CRR
RBI intervenes in Call Money Market through STCI & DFHI to stabilize rate
Weighted Average Call rate presently rules around 5%
Non-banking entities to lend lesser in call money market.
P - 361
P - 65
Banking Briefs
14
Operates Collateralized Borrowing and Lending Obligation (CBLO) a repo variant with several unique
features for NDS Members.
P - 313
aims to match the competency of the employee with those of the job requirement.
Competency is a combination of knowledge, skill, behaviour and personal characteristics
There are different tools including psychometric tests used to map competency.
A formal implementation of the system will help organisations to save on costs and improve
performance.
Banking Briefs
15
P - 294
CREDIT DERIVATIVES
P - 140
As the term indicates, it is a financial contract derived from the performance of underlying securities.
It is a hedging mechanism.
It helps in risk management.
Swaps, options and notes are some of the methods in derivative trade.
CREDIT INFORMATION BUREAU (INDIA) LIMITED (CIBIL)
P - 214
CIBIL collects, collates and disseminates credit information pertaining to both commercial and consumer
borrowers.
Banks, Financial Institutions, Non Banking Financial Companies, Housing Finance Companies and Credit
Card Companies use CIBILs services.
Genesis : Rapid industrialization, expanding economy, growing aspirations, increased incomes, improved
lifestyles, availability of high quality products and services leading to rapid credit off take.
CIBIL is a composite Credit Bureau, which caters to both commercial and consumer segments
CREDIT CARD: NEW GUIDELINES
P - 126
Reserve Bank of India has framed following guidelines on credit card operations of banks. Each bank
/ NBFC must have a well-documented policy and a Fair Practices Code for credit card operations.
The guidelines cover issue of cards, interest rates and other charges, wrongful billing, use of DSAs /
DMAs and other agents.
In order to protect customers rights, the guideline outline the right to privacy, customer confidentiality
and fair practices in debt collection.
It also enumerates the mechanism for redressal of grievances.
Banking Briefs
16
Reserve Bank of India reserves the right to impose any penalty on a bank / NBFC for violation of the
guidelines.
P - 212
Credit Policy of RBI aims to influence the amount of money and credit in the Indian economy.
It tries to even out the fluctuations between demand and supply of money and sets the longterm agenda on money
Open Market operations (OMOs), Reserve requirements, Bank Rate and Repo rate are the
four major weapons used by RBI to regulate money supply
P - 259
The first credit rating Agency, CRISIL, was set up in India in 1987
Credit Rating provides a measure of credit risk associated with specific reference to the rated
instrument. In essence, the rating is done not for a company but for the instrument.
CRISIL, CARE, ICRA and Duff and Phelps are the credit rating agencies in India.
Major Credit Rating Agencies in the world 1. Moodys Investor service 2. Fitch Investor Service
3. Standard and Poors Corporation.
Rating is based on evaluation of CRAMEL- Capital Adequacy, Resources, Asset Quality,
Management Evaluation, Earnings and Liquidity.
CROSS SELLING
P - 331
it is selling additional products / services to an existing customer and it fosters brand loyalty.
it costs a bank five times less to cross sell an existing client than to acquire a new one
Cross selling helps banks to plan, implement and maintain better customer relationship
management programmes
The success of cross selling depends on offering at the right time, the relevant product to the
customer
Banking Briefs
17
P - 141
CURRENCY OPTIONS
P - 142
Currency option means the option to buy or sell a specific quantity of currency at an agreed rate.
The party to the contract pays a premium upfront for the purpose.
It is better than forward contract since the decision to buy or sell is optional
Banks in India can write options.
CURRENCY FUTURES
P - 143
Currency future is a contract to buy or sell a standard quantity of one currency in exchange for the other.
The rate of exchange and the future date of delivery are agreed at the time of contract
It is a hedging as well as a speculative mechanism.
CUSTOMER CENTRIC MANAGEMENT (In Retail Banking)
P - 181
CCM is the integrated management of a company with the customer as its focus
It has three stages namely knowledge acquisition; behaviour modeling and Product/Service
delivery
All functions of the company are aligned towards customer needs
It disaggregates customers based on their contribution to profits and thus helps in focusing on
key client base
Banking Briefs
18
P - 236
A well-developed debt market would help in financing the investment needs of infrastructure
and other essential sectors.
It helps in reducing the intermediation cost
It would provide scope for effective deployment of funds
Facilitate product innovation and better management of interest rate risk
Administered interest rate, cash credit facility and preference for shares affected its growth.
Present facilitating factors: Deregulation of interest rate; introduction of short term treasury
bills; phased reduction in SLR; introduction of PDs; credit rating
P - 270
P - 347
Long Term Capital Management (LTCM) Fund in US failed due to excessive risk taking and
huge borrowings
Barrings Bank despite 225 years tradition failed due to reckless trading by Nick Leeson and
lack of internal control
Brazilian crisis was triggered by excessive reliance on foreign investments without proper
fiscal discipline
Mexican crisis was caused by low reserves accompanied by heavy imports
Asian Currency crisis was triggered off in Thailand. Reason: Huge current account deficit,
decline in export growth and large volatile flow
P - 355
Banking Briefs
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Foreign Investment over US$ 12 bn, containment of fiscal deficit, surging forex reserves are some of the
other positives
In this background, Government has launched 4 year Bharat Nirman Plan for rural infrastructure, National
Rural Employment Guarantee Programme, railway freight corridor project, investment in telecom, further
liberalization of FDI.
One of the key concern is the labour reform
Emotional Intelligence is the capacity to recognise ones own feelings and those of others.
It helps to motivate oneself, manage emotions of self and others; contribute to effective
performance in the job and developing satisfying relationship in life
Most leaders succeed because of EI
Four essential capabilities: Emotional self awareness; self-management; social awareness
and Social skill
P - 321
P - 266
Employee stock option plan gives the right to employees to purchase share of a company at
a set price
Under this, employees are offered shares in lieu of salary or other compensation
Advantages: Increased employee commitment; no drain on cash
Disadvantages: Stock options will not be attractive when share prices fall.
EMPOWERMENT
P - 325
Empowerment is the authority to make decisions within ones area of responsibility without first having to
get approval from someone else
Empowerment is a Motivational tool in the hands of the Organisation
It enables employees to use their talents and capabilities
EMERGING TRENDS IN BANKING AND FINANCE : ROLE OF NEW
GENERATION MANAGERS
P-9
The pace of changes in the world today calls for managers who have not just probity and prudence but
the capacity to handle competing priorities
5 significant trends: Balance sheet to Off-balance sheet intermediation, Capital adequacy to capital
efficiency, physical to virtual distribution, fragmentation to consolidation and data to knowledge through
information
New Generation Managers should have the capacity to manage transition
ENTERPRISE RESOURCE PLANNING (ERP)
Banking Briefs
20
P - 71
P - 249
ETFs are funds that are listed on stock exchanges and traded like individual stocks
ETFs are linked to some index
In this the underlying shares are not traded
The prices of ETFs are determined by market dynamics
Benefits: It provides the benefit of diversified index funds and brings trading flexibility of stocks.
The operating expenses are lower
The first ETF in India was launched in 2001
P - 286
FACTORING
P - 136
Factoring involves purchase of receivables of the company for payment of cash.
In effect, the Company, which sells its goods on credit, gets cash payment immediately from a third party
called factor.
Factoring includes other functions such as account .maintenance, collection of debt and risk assumption.
FAIR LENDING PRACTICES CODE (FLPC) OF SBI
P - 52
FLPC contains 8 important declarations from the Bank.
The Code details the fair practices the Bank is adopting for information of its customers.
FALL OF GLOBAL TRUST BANK
P - 349
Established in 1994 and imposed moratorium in July 2004
High deposit rates, high cost of lending, lending to sensitive sectors, were some of the reasons for the
fall
Amalgamated to Oriental Bank of Commerce. Shareholders have lost their investment
Lessons: Need for strong systems and procedures, proper credit appraisal and credit management,
integrity of officials, well established norms and practices for high-risk exposure.
FINANCIAL ENGINEERING
Banking Briefs
21
P - 344
FINANCIAL INCLUSION
P - 22
Financial inclusion is delivery of banking services at an affordable cost to the vast section of disadvantaged
and low income groups
Financial exclusion may cause higher incidence of crime, decline in investment, difficulty in getting credit
or getting credit at higher interest rate, increased unemployment
Internationally countries like US, UK have framed laws towards financial inclusion
RBI in its Annual Policy (2005-06) urged banks to make available a basic no frill account. SBIs no frill
account is an attempt towards financial inclusion
FORFAITING
P - 137
Forfaiting, similar to factoring, involves discounting of export receivables.
Unlike factoring, in forfaiting, the forfaiting agency has no recourse to the seller in case of payment
default by the buyer.
It helps in upfront realization of credit sale, perhaps, at a discount.
FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)
P - 278
Enacted in 1999
It liberalises the dealings in foreign exchange and relaxes the punitive provisions in FERA
It attracts only civil and not criminal consequences
It introduces a new concept of Authorised Persons to include ADs/MCs/RMCs and OCBs
Some key measures: Clear definition of current and capital account; simple and transparent
rules;, fewer sections; reduction in number of forms; fewer occasions for RBI interventions;
increase in threshold limits for various transactions under the discretionary powers of the
Authorised Dealers; Alignment of NRI definition with IT act.
P - 285
FIIs entry into India began in 1993 in the wake of economic reforms
They provide much needed funds for development of the country
Unlike FDIs, FIIs bring in portfolio investment i.e investment in shares, debentures, bonds
etc.
Morgan Stanley, Templeton, Jardine Fleming are some examples of FIIs
Advantages: Provide funds; bring in international practices; promotes transparency; and bring
in venture capital.
During 2004-05 FIIs brought in around US$ 12 billion, the highest in 3 years
Banking Briefs
22
P - 360
P - 246
GOLD DEMAT
P - 254
Commodity futures including gold are traded in commodity exchanges and online exchanges such as
MCX, NCDEX, NMCE and NBoT in India.
Gold and silver are highly traded on the MCX; Agri commodities are traded more on the NMCE and the
NCDEX.
The gold traded is required to meet certain pre-set quality specifications
MCX, in association with the World Gold Council, has launched a new product - a gold contract that is
settled in a week (T+7)
GUIDELINES ON PURCHASE / SALE OF NON PERFORMING FINANCIAL ASSETS
P - 104
NPAs may be purchased/ sold only on cash basis.
Valuation procedure to ensure that the economic value of financial assets is reasonably estimated
based on the estimated cash flows arising out of repayments and recovery prospects.
Delegation of powers of various functionaries for taking decision on the purchase/ sale of the f assets to
be defined.
GUIDELINES ON OWNERSHIP AND GOVERNANCE IN PRIVATE SECTOR BANKS
P - 110
Important Shareholders (with holding of 5% and above) and directors should be fit and proper
Banks to maintain a minimum net worth of Rs. 300 Crores
Shareholding or control in excess of 10% by any singly entity require RBI approval
Foreign Bank are not allowed to hold more than 5% of the equity capital of investee bank
Foreign investment (FDI, FII and NRI) should not exceed 74%
IMPACT OF TECHNOLOGY ON BANKING AND FINANCE
P - 11
Technology in banks is no longer a matter of choice
Globalisation, online revolution, internet banking and e-commerce, computer based technologies are
some of the factors that contribute towards this trend.
Information flow, ease of supervision, creation of new delivery channels, better customer service are
some of the advantages
Thus there is a strong need to align technology with business strategy to successfully compete in future.
Banking Briefs
23
INTERNET TRADING
P - 305
Intellectual Capital is the product of commitment and competence. Both should exist in an
employee for organizational effectiveness
Competence should align with business strategy
Competence can be built, bought and borrowed by organizations
Commitment can be fostered by articulating vision and sharing power and resources with the
employees.
Banking Briefs
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P - 269
INTELLECTUAL CAPITAL
P - 248
Leaders should raise standards, set high expectations and demand more performance and
provide corresponding resources to meet high demands
ISO 9001
ISO 14000
P - 339
P - 340
IPO SCAM
P - 187
The scam came to light during the investigation of Yes Bank IPO
By opening multiple demat accounts and submitting multiple applications fraudulently, huge chunk of the
issue was cornered by a few investors.
Non-adherence to KYC norms, lack of role-clarity, lack of coordination among intermediaries were
considered to be the reasons.
INTERNET BANKING
P - 63
Some functions performed through internet: Statement of account, request for issue of cheque book,
demand draft, stop payment of cheque, transfer of funds, payment of bills
Cost of transaction through internet banking is the cheapest of all channels
Internet banking lacks popularity due to security threat, lack of zeal and negative mindset
INTERNATIONAL CAPITAL FLOWS - BENEFITS AND POLICY FRAMEWORK
P - 27
Trade liberalization without free capital flows affects economy
Capital flows create jobs and stimulate productive growth
Crisis in Mexico, Thailand, Indonesia, Korea, Russia were due to fixed exchange rate regime
International capital flows accompanied by sound macro economic policies would foster growth
Countries need to decide the manner in which they like to calibrate the movement of capital
KNOW YOUR CUSTOMER (KYC) GUIDELINES
P - 92
Issued by RBI in August 02 to protect banks against financial frauds and money laundering
Objective: To properly identify individuals/Corporates; to monitor high value transactions and transactions
of suspicious nature; and establish procedure for due diligence and reporting of such transactions
Key provisions: Open account with proper introduction/identification; monitor cash transactions above
Rs.10 lac; route all remittances above Rs.50000/- through account (and not cash); watch transactions of
suspicious nature beyond a threshold limt.
KUMAR MANGALAM BIRLA COMMITTEE (On corporate governance)
submitted in March, 2000
Banking Briefs
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Report
P - 362
KNOWLEDGE MANAGEMENT
P - 307
HRM needs to develop Knowledge Management System due to changing customer trends, competitive
products and services and changing society
The Collective knowledge of the employees gives distinct competitive advantage
The integrated system of KMS should value collection of knowledge, react quickly to market changes
and facilitate faster decisions
Banks should specifically focus on finding, creating, sharing and applying knowledge that it is relevant to
its business
LOAN POLICY SBI
P - 47
SBI Loan Policy was first approved in Nov 96 and reviewed from time to time.
The policy lays down the banks approach to sanctioning, managing and monitoring credit risk.
It aims to make the systems and controls effective.?
Some of the chapters covered are Exposure levels, CRA, credit appraisal standards, documentation,
pricing, review and renewal, take over of advances, discretionary powers
LIBERALISED BRANCH AUTHORISATION POLICY
P - 107
The Liberalised Branch Authorisation Policy is applicable to all banks except RRBs.
Liberalised and rationalised the policy for authorisation of their branches in India, retaining the current
policy for authorisation of overseas branches of Indian banks.
Banks should have achieved the target prescribed by RBI for priority sector advances.
LEARNING ORGANIZATION
P - 302
A learning organisation is one which is skilled in creating, acquiring and transferring knowledge and
changing its behaviour to reflect new knowledge and insights
Learning provides competitive advantage and helps in organisational transformation
Some of the characteristics include openness, encouragement for creative ideas, sharing and constant
change.
MONEY LAUNDERING
P - 95
As the term implies, Money laundering is a process of converting (or cleaning) dirty/illegal money into
clean/legal money
This is done by using various channels to hide the source of income
Under/Over invoicing, investment by offshore companies and trusts, large transactions in cash, opening
of benami accounts are some examples
Money Laundering Act 2002 seeks to contain the menace.
MICRO FINANCE
P - 203
A microfinance institution (MFI) is a financial intermediary, which provides very small amounts to rural,
semi-urban and urban poor.
Its objective is to raise the income and standard of living of poor Measures taken in micro financing:
Opening up of large number of branches; stipulation of 10% bank credit to weaker sections; introduction
of several programmes such as SFDA, MFA, DPAP, IRDP.
By end-July 2005, as many as 16,53,047 SHGs were linked to banks and the total flow of credit to SHGs
was Rs.7,063 crore.
SHG has emerged as one of the successful instruments in Micro financing.
MCA-21 PROJECT ON E-GOVERNANCE
P - 78
A ministry of company affairs project, it aims to provide services to business, govt and citizens through
the new mca21 portal.
Project MCA-21, one of the largest e-governance projects, will cost Rs 345 crores.
This portal will be the entry point for online registration, filing of returns, reporting financial results and
requests for permissions by businesses.
The portal will also enable citizens to report investor grievances. It will also be a tool for the public to
report investor grievances.
Banking Briefs
26
P - 250
UTI, the first mutual fund, in 1964. Public sector MFs in 1987. Private and Foreign Mutual
Funds in 1993
As at the end of Mar 05, there were 31 MFs and 462 schemes with total assets of Rs.1,49,601
Crores
Regulated by SEBI
MFs sell units in small sums to investors and deploy the funds so collected in the market as
per the investment objective of the individual schemes.
SBI MF manages asset over Rs. 6000 Cr.
MARGIN TRADING
P - 346
MVA is defined as the excess of the market value of the Company over the value of investors
capital
Thus MVA= (Market value of debt and equity Book Value of debt and equity)
Book Value of equity is the equity plus retained earnings
Banking Briefs
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P - 317
It is a process of making an employee more effective in his job through developing personal
working relationship.
Coaching, counselling, providing guidance, social and emotional support are some of the
ways.
Advantages: Higher performance of employees, building a better organisational climate,
generate positive feelings of pride and satisfaction
Institution of formal mentoring process would benefit organisations.
P - 268
MENTORING
P - 253
Introduced in 1992
Objective: To provide depth, stability and maturity to money market; and to increase returns
on investment to individual investors
Enables individuals to invest in: Treasury bills, dated government securities, CPs, CDs, call
or notice money through MMMFs scheme.
Both public and private sector MFs offer MMMF scheme
MFs are allowed to offer cheque writing facility to investors for MMMF schemes.
MVA is similar to Price Earning Ratio except that MVA indicates an absolute figure while PER
is a ratio
Banking Briefs
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P - 365
P - 329
A niche market is a group of potential customers who share common characteristics that
make them receptive to a particular produce or service
Launching a product into a niche market is far cheaper than launching a mass-market product
The Internet has features that make it ideal for niche marketing
P - 273
NICHE MARKET
P - 67
P - 368
NETWORK SECURITY
P - 70
Network is a system of interconnected computers.
Networks are classified as LAN, WAN, CAN, MAN and HAN.
Some of the security threats include Eavesdropping, traffic analysis, masquerading, spam and spoofing
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Security threats may cause loss of income, increased cost, loss of information, loss of trade secrets,
damage to reputation and legal and regulatory non-compliance
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P - 276
P - 158
It is management of the clients fund in accordance with their needs based on mutual agreement
for a fee
It helps to tap the funds of High networth individuals who expect the banks to multiply their
wealth.
There are two types of portfolio managers- Discretionary and non-discretionary. Discretionary
managers exercise their discretion in investment
Portfolio Managers are to be registered with SEBI. As per SEBI directive, the minimum fund
per client is Rs. 5 lacs.
PRIORITY SECTOR
P - 112
Agriculture-both direct and indirect
SSI and SSI Ancilliary Investment in plant and machinery up to Rs.1 Crore.
Industry related service and business enterprises with investment up to Rs. 10 lakh in fixed assets,
excluding land and building will be given benefits of small scale sector.
Retail Trade
Advances to Business Enterprises and Professional and self employed
RTO s up to 10 vehicles
Housing in rural and semi urban areas up to Rs.5 lacs
Produce loans for agriculturists up to Rs.5 lacs
Overall target: 40% of net bank credit and sub-target of 10% to weaker sections
Priority sector target for foreign banks is 32%
PRIMARY DEALERS IN GOVERNMENT SECURITIES
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P - 240
QUALITY CIRCLES
P - 341
QC is a small group of employees in the same work area, who meet regularly to identify,
analyse and solve work related problems.
The members identify problems, prioritise the most important problem to be addressed, develop
solutions and implement them
Brain Storming, Pareto Analysis and Fish Bone Diagram are the key techniques used.
RELATIONSHIP BANKING
P - 330
Relationship Banking means maintaining a long and enduring relationship with clients
It aims to have 100% of a clients business, both present and future, in one bank/one service
provider.
CRM integrates people, process and technology
CRM aims to optimize profitability through enhanced customer satisfaction
Relationship Banking helps in cost reduction, better use of data and increased opportunity for
cross-selling
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P - 272
Repos means a contract to buy securities such as Treasury bills, gilts and sell them back at
an agreed future date and price
RBI uses it for open market operations to influence liquidity and short-term interest rate
The average daily turnover in repo market during Mar 04 was Rs. 13,378 Crores.
P - 198
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P - 145
Banking Briefs
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Self monitoring, change of life style, laughter and balanced life activities are our strategies at behaviour
level.
P - 264
P - 333
It is a quality tool.
It denotes tolerance of only 3.4 defects in 10 lakh operations.
Companies like Motorola and G.E have implemented this with success
Helps in customer satisfaction and retention, elimination of waste and reduction in cost
In our Bank, CAG has successfully implemented it for issue of LC.
P - 357
Banking Briefs
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P - 155
Some of its role includes optimizing balance sheet size, ensuring liquidity and matching the maturity
profile of assets and liabilities.
Treasury management includes risk management and advising clients on risk exposures.
P - 218
TRANSFORMATIONAL LEADERSHIP
P - 300
Leadership is the ability to make followers do he wants them to do, willingly or on their own, towards
accomplishing an organizational goal.
Transactional leadership is based on the leader and the followers having transacted to do it characterized
by close direction, control and follow up. The focus is on behavioural compliance and outcome. The
inner state of thinking and feeling are not matters of concern.
Transformational leadership aims at transforming people by working with and through them on their
values, beliefs, attitudes and behaviour. It aims at emotionally connecting the followers to the vision of
the leader so that they are galvanized to achieve the vision.
THE RIGHT TO INFORMATION ACT, 2005
P - 201
Enacted on May 13, 2005
Deals with right to information for citizens to secure access to information under the control of public
authorities
To promote transparency and accountability in the working of every public authority
Central/State Information Commissions set up to secure compliance with the provisions of this Act
Penalty of Rs.250/- per day with maximum of Rs.25,000/TOTAL QUALITY MANAGEMENT (TQM)
P - 335
TQM means ensuring error free functions all around in the organization
It aims to continually improve quality through employee and management participation.
It attempts to increase productivity through building teams.
The focus of TQM is to satisfy the needs and expectations of customers
Zero defects, Kaizen (continuous improvement), benchmarking are its key approaches
P - 358
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P - 191
UNIVERSAL BANKING
P - 129
Recommended by Narasimham and Khan Committees
Universal Banking means provision of all financial services by a bank under one umbrella
It is diametrically opposite to narrow banking
Examples of financial services include: Long-term loans to industries, venture capital, underwriting,
brokerage, corporate advisory services, insurance
Facilitating factors: Deregulation, fall in interest income and the wider business opportunities
Different models of universal banking such as holding company, subsidiary may be adopted
Indian banks already are moving towards universal banking.
VYAS COMMITTEE on Flow of Credit to Agriculture and Related Activities
the Banking System (Report submitted in June 2004)
f r o m
P - 359
A road map for public sector and private sector banks to reach a level of direct lending at 13.5
per cent of net bank credit - within the overall limit of 18.0 per cent of total agricultural lending
- within a period of four years
The share of small and marginal farmers in agricultural credit to be raised to 40 per cent of
disbursements
Reduction in cost of agricultural credit through enhancing the cost effectiveness of agricultural
loans
Non-performing asset (NPA) norms in agricultural credit to be attuned to the cash flow of the
farmer, coinciding with the harvesting/marketing of the crop.
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Poor growth of VCs in India may be attributed to negative mindset, delay in issue of licence, problem in
scalability, regulatory issues and difficulty to exit
P - 280
Banking Briefs
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P - 319
seeks to measure the performance of employees on the job from multiple stakeholders.
focuses more on intrinsic qualities and strengths than on achievements
promotes team work and voluntary self change.
creates an atmosphere of openness and improves inter-personal relations.
31.03.2005
31.03.2004
31.03.2003
Global deposits
367047
318619
296123
Of which domestic
352798
309798
288866
Global Advances
Of which domestic
202374
178474
157934
142026
137758
123850
Global investments
Of which domestic
197097
192456
185676
181684
172347
167885
4304
3681
3105
Total Income
39548
38073
36827
28557
28519
33722
526
526
526
23545
19705
16677
Capital Adequacy(%)
12.45
13.53
13.50
32428
30460
31087
7120
7613
5740
Operating Expenses
10074
9245
7942
6685
5872
4670
18.10
18.19
18.05
125
110
85
Cost of deposits(%)
4.70
5.48
6.43
7.68
8.17
8.97
3,39
3.04
2.95
81.79
69.94
59
36.61
38.69
38
2.65
3.48
4.50
459882
407815
375876
0.99
0.94
0.86
2.07
1.77
1.48
243
210
191
59.73
59.73
59.73
16.78
17.33
17.60
16.45
16.87
17.54
Net Profit
CAPITAL STRUCTURE
Capital
PROFITABILITY
Interest income
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9156
9093
9033
No of ATMs installed
5217
3814
1305
2225
1110
531
205
207
209
31.03.2005
31.03.2004
31.03.2003
6907
6447
5688
Officers
29.32
28.71
27.5
Clerical
45.65
46.17
47.1
Sub Staff
25.03
25.12
25.4
1093
40
260
94
4819
4215
210
156.85
128.70
- Deposits
24.51
26.05
27.40
- Advances
24.05
24.22
24.40
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PERSPECTIVES
Introduction
During the nineties and thereafter, Indian
banks have been subjected to financial sector
reforms on line with many developed and
developing countries. As a corollary, they have
been attuned to international practices and
standards. These include international
accounting standrads, RTGS (Real Time Gross
Settlement), Basel Accords, risk management,
e-payments, internet and mobile banking, etc.
As a response to the demanding situation, they
have adoped a variety of measures like
transformation in structure, systems, people,
processes and technology. The technology has
been the main faciliator in this process of
transformation. This is because of financial
integration of banking, insurance and capital
market on the one hand and globalization of
financial sector on the other. The process of
transformation in India has been at times slow
due to the following constraints.
42
EMERGING TRENDS
Banks and customers are now receptive to new
ways and types of approaches to delivering
services and payment facilities remotely.
Electronic funds transfer at point of sales with
e-cards is catching up fast. Telebanking is
gaining popularity and soon mobile banking will
become the order of the day. This does not mean
the branch is dead. Indeed, in the future, the fate
of branch banking will be a most hotly debated
issue.
43
PREPARING
ORGANISATION
INFORMATION TECHNOLOGY
44
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The total assets of all scheduled commercial banks by end March 2010 is
estimated at Rs 40,90,000 crore
Opening up of the financial sector from 2005, under WTO, would see a number of global banks taking large stakes and control over banking entities in the
country
Some of the Indian banks may also emerge global players.
Cost Control
Consolidation
Qualitative growth
46
Social banking
All these developments need not mean banks
will give the goby to social banking. Rather than
being seen as directed lending such lending
would be business driven. Rural market
comprises 74 per cent of the population, 41 per
. cent of the middle-class, and 58 per cent of
disposable income. Going Rural would be the
new mantra of banks.
Regulation
The expected integration of various
intermediaries in the financial system would
require a strong regulatory framework. It would
also require a number of legislative changes to
enable the banking system to remain
contemporary and competitive. Underscoring
that there would be an increased need for selfregulation, development of best practices could
evolve better through self-regulation rather than
based on regulatory prescriptions.
Technology
Technological developments would render flow
of information and data faster leading to faster
appraisal and decision-making. This would
enable banks to make credit management more
effective, besides leading to an appreciable
reduction in transaction cost.
To reduce investment costs in technology, banks
are likely to resort more and more to sharing
facilities such as ATM networks. Banks and
financial institutions will join together to share
facilities in the areas of payment and settlement,
back-office processing, date warehousing, and
so on.
47
Though India is the 12th largest country in terms of GDP, we do not have a bank of
international size. For example, SBI ranks 26 in size among Asian banks.
Challenges: Need for legislative amendment, willingness of small banks to lose control, cultural factors during integration
Background
48
Way forward
Presently we witness consolidations in varying
formats such as virtual consolidation through
ATM sharing, opening of JVs abroad (SBI and
Canara Bank), floating subsidiaries for asset
recovery/information sharing etc jointly ( such
as ARCIL, CIBIL) and so on. In other words, the
current tendency seems to be consolidation in
the back office and competition in the front office.
The guiding theme is collaborate where it is
advantageous and compete where it is
necessary. S.C.Gupta Committee report on
Banking Industry: Vision 2010 projects that
there would be more consolidations in coming
years due to various advantages referred in this
article. Banks and employees should gear
themselves to adapt to the Banking industry
going for a shake out driven essentially by
business considerations.
Challenges
Sensing the favourable disposition of the
present government, several large and medium
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50
to have low cost operations. But technologydriven information transformation is at the centre
of the even more important management,
marketing, and risk transitions that banks must
make. Information is only valuable if it can be
put to work and used for decision tools such as
programmed trading, target marketing, predictive
credit modeling and scoring, amongst others.
Most new financial services are in fact based on
technology. The transition from an old world of
data processing and information management
to a new world in which knowledge is being put
to work on competitive advantage will be a major
strategic preoccupation in the years ahead.
Fragmentation
to
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10
IMPACT OF TECHNOLOGY ON
BANKING AND FINANCE
52
11
53
12
54
55
14
56
15
57
16
First, economic prosperity and the consequent increase in purchasing power has
given a fillip to a consumer boom. During the
10 years after 1992, Indias economy grew
at an average rate of 6.8 per cent and continues to grow even higher - not many countries in the world match this performance.
Fifth, decline in interest rates has also contributed to the growth of retail credit by generating the demand for such credit.
Opportunities
Retail banking has immense opportunities in a
growing economy like India. As the growth story
gets unfolded in India, retail banking is going to
emerge a major driver. A. T. Kearney, a global
management consulting firm, recently identified
India as the second most attractive retail
destination of 30 emergent markets.
The rise of the Indian middle class is an important
contributory factor in this regard. The percentage
of middle to high income Indian households is
expected to continue rising. The younger
population wields increasing purchasing power
and as far as acquiring personal debt is
concerned, they are perhaps more comfortable
than previous generations. Improving consumer
purchasing power, coupled with more liberal
attiudes toward personal debt, is contributing to
growth in Indias retail banking segment.
The combination of the above factors promises
substantial growth in the retail sector, which at
present is in the nascent stage. Due to bundling
of services and delivery channels, the areas of
potential conflicts of interest tend to increase in
universal banks and financial conglomerates.
Some of the key policy issues relevant to the
retail banking sector are responsible lending,
access to finance, long-term savings, financial
capability, consumer protection, regulation and
financial crime prevention. Let us look at some
of the challenges.
Challenges
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17
WAY FORWARD
How do we see the future of retail
banking?
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CONCLUSION
18
60
19
61
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21
FINANCIAL INCLUSION
Financial inclusion is delivery of banking services at an affordable cost to the vast
section of disadvantaged and low income groups
Financial exclusion may cause higher incidence of crime, decline in investment,
difficulty in getting credit or getting credit at higher interest rate, increased
unemployment
Internationally countries like US, UK have framed laws towards financial inclusion
RBI in its Annual Policy (2005-06) urged banks to make available a basic no frill
account. SBIs no frill account is an attempt towards financial inclusion
The banking industry has shown tremendous
growth in volume and complexity during the last
few decades. Despite making significant
improvements in all the areas relating to financial
viability, profitability and competitiveness, there
are concerns that banks have not been able to
include vast segments of the population,
especially the underprivileged sections of the
society, into the fold of basic banking services.
Internationally also efforts are being made to
study the causes of financial exclusion and
designing strategies to ensure financial inclusion
of the poor and disadvantaged. The reasons
may vary from country to country and hence the
strategy could also vary, but all out efforts are
being made as financial inclusion can truly lift
the financial condition and standards of life of
the poor and the disadvantaged.
63
22
6. India Scenario
Bank nationalisation in India marked a paradigm
shift in the focus of banking as it was intended
to shift the focus from class banking to mass
banking. The rationale for creating Regional
Rural Banks was also to take the banking
services to poor people. The branches of
commercial banks and the RRBs have
increased from 8321 in the year 1969 to 68,282
branches as at the end of March 2005. The
average population per branch office has
decreased from 64,000 to 16,000 during the
same period.
64
65
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25
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26
Capital Flows
Free, or freer, movement of goods is only one
aspect of the globalization story, of course. The
free movement of capital and large-scale
movement at that is another feature of the
modern global economy. Indeed, it is not
possible to have trade liberalization without
relatively free capital flows at least not over an
extended period. Opening trade without opening
capital markets runs a high risk either under-orover invoicing as export and import activity is
used as cover for capital expor ts; or of
constraining the growth of trade as cumbersome
controls enforce capital account restrictions.
68
69
28
70
71
30
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Indian Scenario:
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32
BANKING
STATE BANK OF INDIA
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TRAINING PHILOSOPHY
Training in State Bank is a proactive, planned
and continuous process as an integral part of
organisational development. It seeks to impart
knowledge, improve skills and reorient attitudes
for individual growth and organizational
effectiveness.
VISION STATEMENT
THE BANKS PHILOSOPHY ON CODE OF
GOVERNANCE
VALUES
1. Excellence in customer service.
2. Profit orientation.
3. Belonging and commitment to the bank.
4. Fairness in all dealings and relations.
5. Risk-taking and innovation.
6. Team-playing.
7. Learning and renewal.
8. Integrity.
9. Transparency anddiscipline in policies &
systems.
HRD PHILOSOPHY
CORPORATE
COMMITTEES
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33
GOVERNANCE
SHAREHOLDERS/INVESTORS
GRIEVANCE COMMITTEE:
This committee looks into the redressal of
shareholders and investors complaints
regarding transfer of shares, non-receipt of
balance sheet, non-receipt of interest on bonds/
declared dividends etc.
Functions:
1. ACB provides direction as also oversees
the operation of the total audit function
in the Bank. Total audit function implies
the organisation, operationalization and
quality control of internal audit and
inspection within the Bank and follow-up
on the statutory/external audit of the Bank
and inspection of RBI.
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34
SUBSIDIARIES/JOINT
ASSOCIATES
VENTURES/
JOINT VENTURES:
FOREIGN SUBSIDIARIES
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OTHER ASSOCIATES:
35
The bank has developed an excellent inhouse staff training infrastructure including
a College, an Academy, an Institute for Rural
Development and an Institute for Information
Management
and
Communication
Technology. Efforts are continuously made
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36
79
STEPS : Under STEPS, the banks electronic
funds transfer system, the Products offered are
eTransfer (eT), eRealisation (eR), eDebit (CMP)
and ATM reconciliation. STEPS handles
payment messages and reconciliation
simultaneously.
Debit
RTGS
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38
Marketing - Cross-selling
As at the end of September 2005, 2,200
employees were selling life insurance products
of SBI Life Insurance Company Ltd. In the first
half of the year our branches covered more than
92,000 lives with a premium of nearly Rs.67
crore under various group covers and 33,000
lives have been covered under various individual
schemes by the trained employees designated
as Certified Insurance Facilitators, garnering a
premium of Rs.32 crore. Overall, more than
1,25,000 lives have been covered and Rs.98.35
crore of premium mobilised during the first half
of the current financial year.
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39
82
40
Efficiency Parameters
Benchmark 2005-06
Dec 05 (Actual)
ROA
ROE
Gross NPA Ratio
Net NPA Ratio
Expenses Ratio
Growth in Net Profit (YOY)
Growth in Other Income
NIM
NIM excluding one-time item
1.15
19.00
< 5.00
1.75
47.00
22.00
20.00
3.20
3.20
1.01
17.12
4.41
1.67
52.23
9.68
- 13.22
3.50
3.01
1. PRIORITY AREAS
(a) PROFITABILITY
Interest Spread
Greater thrust in lending to Retail, SME and
Agriculture segments in NBG where yields
are higher.
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Other Income
41
Overheads
The operating units and other cost centres to
contain the growth in their overheads within 5%
of FY 2005-06 level.
Staff Expenses
84
Core Banking
Focus has to be on improving processes and
addressing scaling up and performance issues.
Products designed for different customer
segments should be planned / rolled out to
harness the power of a centralised processing
environment and to bring immense business
benefits to the organisation.
During the year 2006-07, our aim should be to
bring all the branches of the Bank under CBS.
All the BPR-driven initiatives should be fully in
place and Central Processing Centres for
various areas of business with the support of
CBS should drive high volume of business.
Range of innovative products directed at our
customers in different segments to be rolled out
and marketed aggressively. In order to take full
business benefits and customer experience to
the next level in a post-core scenario, Data
based marketing, Customer Relationship
(d)
Cost of Deposits
Yield on Advances
Net Profit
Operating Loss before TPM (NBG)
Operating Profit before TPM (CBG)
Other Income
Overheads
< 10 bps
> 50 bps
> 20.00%
Reduction by 20%
Growth by 35%
20.00%
< 5.00%
Parameters
Expenses Ratio
Fresh NPAs as a % of opening balance of
Gross Advances
Gross NPA Ratio
Net NPA Ratio
Capital Adequacy Ratio
Return on Assets
Return on Equity
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Business Growth
(in percentage)
Deposits
Advances (Non-Food)
Forex Sales
Forex Purchases
Export Credit
NBG
CBG
15.50
27.00
35.00
35.00
30.00
20.50
30.00
40.00
40.00
35.00
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44
i)
87
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45
4.
88
46
Exposure Ceiling
Individuals as Borrowers
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47
Hurdle Rates:
Maturity of Advances:
Take-over of advances:
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Objectives of BPR
91
49
MEDIUM
ENTERPRISES
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50
PPF
SETTLEMENT
PROCESS
REDESIGN - The redesigned process
provides capabilities for fund settlement on
T+1 basis by eliminating the intermediary
Focal Point branches. Branches migrating
to CBS get automatically covered under the
new process.
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Interest Rates
Interest Rates for different loan products would
be made available through and in anyone or all
of the media. Customers would be entitled to
receive periodic updates on the interest rates
applicable to their accounts. On demand,
Customers can have full details of method of
application of interest.
FAIR PRACTICES:
Product Information:
Charges:
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Financial Distress:
The Bank would sympathetically reckon cases
of customers financial distress. Customers
would be encouraged to inform about their
financial distress as soon as possible.
Grievance Redressal
The Bank would have in place a Grievance
Redressal Cell/ Department/ Centre. The Bank
would make available all details, namely, Where
a complaint can be made, How a complaint
should be made, When to expect a reply, Whom
to approach for redressal of grievance etc., to
the customers individually on demand and
through the media .
Accounting Practices:
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53
Quick identification
Aim:
Two-pronged approach
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54
Reviewing Authority
Accounts with
Outstandings
Up to Rs.1cr
Reviewing authority
NBG
MCG
AGM (Region)/
DGM (Module)
DGM (Sales
Hub-Region)
ZCC
SMECC
CCC-II
MCCC
CCC-I
MCCC
Account related
Holding on operations
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55
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Treatment of LCs
56
BANKING
TECHNOLOGY
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100
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Key exclusions
The Act excludes:
Powers of attorney
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102
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60
104
v. Efficiency enhancements
vi. Rural Sector facilitation ;and
vii. Customer facilitation and protection
Roadmap for Implementation
Within one year i.e. by March 2006
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INTERNET BANKING
Some functions performed through internet: Statement of account, request for issue
of cheque book, demand draft, stop payment of cheque, transfer of funds, payment of
bills
Cost of transaction through internet banking is the cheapest of all channels
Internet banking lacks popularity due to security threat, lack of zeal and negative
mindset
With technology advancements in computers
and communications, Banks have launched
Internet Banking product, which is an alternative
banking delivery channel. It aims to provide
anywhere and anytime banking.
Cost per
transaction (US$)
Teller
1.00
ATM
0.45
Phone
0.35
Debit Card
0.25
Internet
0.10
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CHEQUE TRUNCATION
108
Decentralised scanning
branch(Branch Model)
109
each
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Settlement of transactions:
A payment transaction is deemed to have been
settled when the Settlement Account or the
Current Account of the RTGS member (which
is to be debited through the transaction) has
been debited and the Settlement Account of the
RTGS member (who is to be credited through
the transaction) has been credited. A transaction
will be settled only if there is sufficient balance
in the Settlement Account, which has to be
debited. Otherwise, the transaction will be
rejected or placed in the RTGS members logical
payment queue in the RTGS System, depending
on the properties of the transaction type of the
payment message.
On settlement of
transactions, all the RTGS members, whose
Settlement Accounts have been debited/
credited; will be notified by the Central System.
On settlement, the settlement of a payment
transaction will be final and irrevocable,
excepting for un-clear credits in respect of the
MNSB transactions. All MNSB transactions will
be settled through the RTGS System. These
include net settlement batches arising from
Cheque Clearing Operations, Foreign Exchange
Clearings, Electronic Funds Transfer, Electronic
Credit and Debit Clearings, Government
Securities Clearings and any other MNSBs.
When payments are settled on a gross basis,
each transaction is settled individually. Each
payment instruction results in an immediate
Avoidance of gridlock by providing for intraday liquidity to the participants. (Gridlock may
arise when series of interdependent
payment are stalled due to insufficient funds
to settle the primary transaction).
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Gridlock Mechanism :
RBI may invoke the gridlock resolution
mechanism of the RTGS System to settle
queued transactions at periodic intervals though
it is not obligated to invoke this mechanism to
settle queued transactions and no member of
the RTGS System can claim any right to have
its payment transactions settled through the
gridlock resolution mechanism. RTGS
members, non-settlement of whose transactions
had led to the invocation of the Gridlock
Resolution Mechanism, may be penalized by the
RBI.
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NETWORK SECURITY
Network is a system of interconnected computers.
Networks are classified as LAN, WAN, CAN, MAN and HAN.
Some of the security threats include Eavesdropping, traffic analysis, masquerading,
spam and spoofing
Security threats may cause loss of income, increased cost, loss of information, loss
of trade secrets, damage to reputation and legal and regulatory non-compliance
A computer network is a system of
interconnected
computers
and
the
communications equipment used to connect
them.
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Loss of income
Increased cost of recovery
Loss of information
Loss of trade secrets
Damage to reputation
Legal and regulatory non-compliance
(For internal circulation only)
Good reporting.
User-friendliness.
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Data Mining
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What is WAP?
It is Wireless Application Protocol, a secure
specification that allows users to access
information instantly via handheld wireless
devices such as mobile phones, pagers, twoway radios, smartphones and communicators.
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BIOMETRICS
The security advantage of biometric technology is that it can authenticate an individual
by measuring his distinct physical characteristics or behavioural traits.
Physical characteristics measured by biometrics include: face, fingerprint, iris, hand
geometry and retina.
Some of the Biometrics techniques are Signature technology, Fingerprint technology,
hand geometry technology, Voice technology, Iris technology.
Although not yet in general use, biometrics are
slowly being tested and adopted in the banking
sphere as a way of increasing security.
At the fingertips
Signature technology is not the only biometric
that is being used more. Fingerprint technology
(which will be applied to many new e-passports
in the long-term) is also being used in the
payments market. Automated teller machine
(ATM) manufacturer Diebold has supplied
fingerprint-enabled ATMs to a bank in Chile as
part of a pilot project, and NCR has installed 400
fingerprint-enabled terminals at BanCafe in
Columbia. The ATMs, purchased at the end of
2002, have been established to improve security
customers do not need to carry ATM cards
and to encourage people to open accounts.
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Computer Crimes
(a) Data Diddling
This technique involves the changing of data or
the insertion of false data, before or during its
input into the computer, with the alteration
resulting in some benefit to the perpetrators after
the altered data has been processed. This
technique is a simple and common one available
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(c) Worms
Worms are programmes that replicate
themselves from system to system without the
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(f) Spamming
Spamming is the act of sending unsolicited, bulk
(and usually commercial) electronic messages.
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(m) Wiretapping
Relatively cheap equipment is freely available to
allow the capturing of data. However, the case
books do not show this as a popular method
because of the fact that there are easier ways
to obtain or modify data. Related to this technique is traffic analysis, whereby someone examines how often particular people are contacted, the identity of contacted people, and what
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the message. When the user clicks the weblink, a malicious web page, which is exact replica of the financial institution and actually hosted
by the fraudsters, is opened. A normal user unaware of such malicious activity in turn provides
his/her personal and account details to the
fraudsters. The fraudsters use this information
for fraudulent transactions causing huge financial losses to the individuals and financial institutions.
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BANKING
POLICIES AND ACTS
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BASEL - II
PRUDENTIAL GUIDELINES ON CAPITAL ADEQUACY- IMPLEMENTATION OF THE
NEW CAPITAL ADEQUACY FRAMEWORK
Basel II consists of three-mutually reinforcing Pillars, viz. minimum capital requirements,
supervisory review of capital adequacy, and market discipline.
It requires banks to hold capital not only for credit and market risk but also for operational
risk (OR).
Commercial banks in India will start implementing Basel II with effect from March 31,
2007
The Basel Committee on Banking Supervision
(BCBS) has come out with the document,
International Convergence of Capital
Measurement and Capital Standards: A Revised
Framework popularly known as Basel II. It builds
on the current framework to align regulatory
capital requirements more closely with
underlying risks and to provide banks and their
supervisors with several options for
assessment of capital adequacy.
Pillar III
The third pillar greatly increases the disclosures
that the bank must make. This is designed to
allow the market to have a better picture of the
overall risk position of the bank and to allow the
counterparties of the bank price and deals
appropriately.
Pillar II
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Composite Ratings
Once the component ratings are determined, a
composite (Camels or CACS) rating is assigned
as a summary and is used by the supervisors
as the prime indicator of bank condition.
Composite rating is not determined by
calculating an average of the separate
components but rather based on an independent
judgement of the overall condition of the bank.
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Capital Funds
Tier 1 Capital in the case of Indian banks would
mean paid-up capital, statutory reserves and
other disclosed free reserves, if any. Capital
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Further Developments
ii) assign a risk weight of 100 per cent on the
open position limits on foreign exchange and
gold; and
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KYC Policy
(i) Know Your Customer (KYC) procedure
should be the key principle for identification
of an individual/corporate opening an
account. The customer identification should
entail verification through an introductory
reference from an existing account holder/a
person known to the bank or on the basis of
documents provided by the customer.
(ii) The Board of Directors of the banks should
have in place adequate policies that establish
procedures to verify the bonafide identification
of individual/corporates opening an account.
The Board should also have in place policies
that establish processes and procedures to
monitor transactions of suspicious nature in
accounts and have systems of conducting
due diligence and reporting of such
transactions.
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monitoring
of
cash
b. Terrorism Finance
c. Internal Audit / Inspection
d. Identification and Reporting of Suspicious
Transactions
e. Adherence to Foreign Contribution
Regulation Act (FCRA), 1976
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4. Threshold Limit:
At the time of opening the account based on
customer s profile, a threshold limit of
transactions is to be determined. As it is
proposed to report all the transactions of
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7. Conclusion:
The KYC guidelines impose greater responsibility
on different functionaries in the bank. Money
laundering done through bank would not only
affect its image but also the officials who were
used as instruments in the process. Properly
followed, KYC guidelines would provide sufficient
protection to banks against financial frauds and
money laundering. However, we need to ensure
adherence to KYC guidelines without
inconveniencing the customer and by convincing
them that these are well intended in their longterm interests.
5. Record Keeping:
All financial records, which have been reported
to the controlling authorities under suspicious
transactions list, should be retained for atleast
10 years after the date of transaction.
6. Internal Control System:
Ensure to train all the staff of KYC norms
Strengthening the internal audit system
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MONEY LAUNDERING
As the term implies, Money laundering is a process of converting (or cleaning) dirty/
illegal money into clean/legal money
This is done by using various channels to hide the source of income
Under/Over invoicing, investment by offshore companies and trusts, large transactions
in cash, opening of benami accounts are some examples
Money Laundering Act 2002 seeks to contain the menace.
Money laundering is called what it is because
that perfectly describes what takes place-illegal,
or dirty money is put through a cycle of
transactions, or washed, so that it comes out at
the other end as legal, or clean, money. In other
words, the source of illegally obtained funds is
obscured through a succession of transfers and
deals in order that those same funds can
eventually be made to reappear as legitimate
income.
Common Factors
There are four factors common to all money
laundering operations. To begin with, the true
ownership and the real source of the money is
concealed. Next, the form it takes is changed.
The launder-ers change the form of the proceeds
in order to shrink the huge volume of cash
generated by the initial unlawful activi-ty. Thirdly,
the trail left by the process is obscured so as to
make it difficult to follow the money from
beginning to end. And finally, constant control is
maintained over the money.
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Government Initiative
The prevention of Money Laundering Act 2002
has the following provisions:
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Information to be preserved
Banks are required to maintain the following
information in respect of the following
transactions:
(i) the nature of the transactions;
(ii) the amount of the transaction and the
currency in which it was denominated;
(iii) the date on which the transaction was
conducted; and
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What is US GAAP
US GAAP-Generally Accepted Accounting
Principles in the United States, is a set of rules,
conventions, standards and procedures for
reporting financial information. The Financial
Accounting Standards Board (FASB) in US
primarily establishes GAAP, which is an
independent agency like the Institute of
Chartered Accountants in India (ICAI).
Increasingly, many companies across the world
are adopting US GAAP to tap funds from US
market.
Why US GAAP
As mentioned earlier, Indian companies need not
adopt US GAAP for reporting. Despite this,
companies adopt US GAAP mainly to tap
resources from US market where large funds
are available.
Valuation of investments
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Depreciation
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Investments :
Current Practice: Entire investment portfolio is
treated as Current and all unrealized losses
are provided for. Excess provision for
depreciation is written back while unrealized
gains are ignored. Unrealized gains/losses do
not form part of income statement.
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SARFAESI ACT
Enacted in 2002, the Act is intended to strengthen Banks and Fis to recover NPAs
faster.
The Act empowers banks and Fis to seize the assets without Courts intervention
and sell them off
The Act does not cover loans up to Rs. 1 lac, security interest created on Agricultural
lands and where the amount due is less than 20% of the principal and interest
The Act was amended in 2004 to relax certain provisions in the interest of borrowers.
Today the biggest problem faced by the
entire banking industry in India is the NonPerforming Assets (NPAs), i.e. the loans, where
the principal and interest cannot be recovered,
thus the assets stop earning any income. The
unbearable level of NPAs has led to lower
interest income and loan loss provisioning
requirements which has destroyed the
profitability of the banks to a great extent.
Besides this, the recycling of funds is restricted,
thus leading to serious asset liability
mismatches. The load of NPAs, amounting over
Rs.110000 crores on the Indian economy is
devastating. The supply of credit to potential
borrowers have been blocked which is having a
harmful effect on the capital formation and
hampering the economic activity of the country.
So the NPA problem is an issue of public debate
and of national priority.
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Banks should have achieved the target prescribed by RBI for priority sector advances.
basic banking activity viz., acceptance of deposits
and provision of credit and quality of customer
service as, inter alia, evidenced by the number of
complaints received and the redressal mechanism
in place in the bank for the purpose.
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PRIORITY SECTOR
Agriculture-both direct and indirect
SSI and SSI Ancilliary Investment in plant and machinery up to Rs.1 Crore.
Industry related service and business enterprises with investment up to Rs. 10 lakh in
fixed assets, excluding land and building will be given benefits of small scale sector.
Retail Trade
Advances to Business Enterprises and Professional and self employed
RTO s up to 10 vehicles
Housing in rural and semi urban areas up to Rs.5 lacs
Produce loans for agriculturists up to Rs.5 lacs
Overall target: 40% of net bank credit and sub-target of 10% to weaker sections
Priority sector target for foreign banks is 32%
Detailed classification containing the list of
items in different segments of priority sector
advances is given below.
1. AGRICULTURE
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Small Business:
Small Business would include individuals
and firms managing a business enterprise
established mainly for the purpose of
providing any service other than professional
services whose original cost price of the
equipment used for the purpose of business
does not exceed Rs. 20 lakh. Banks are free
to fix individual limits for working capital
depending upon the requirements of different
activities.
Only such professional and self-employed
persons whose borrowings (limits) do not
exceed Rs. 10 lakh of which not more than
Rs. 2 lakh should be for working capital
requirements, should be covered under this
category.
However, in the case of professionally
qualified medical practitioners, setting up of
practice in semi-urban and rural areas, the
borrowing limits should not exceed Rs. 15
lakh with a sub-ceiling of Rs. 3 lakh for
working capital requirements.
Advances granted by banks to professional
and self-employed persons for acquiring
personal computers for their professional
use, may be classified in this category,
provided the ceiling of total borrowings of Rs.
10 lakh of which working capital should not
be more than Rs. 2 lakh per borrower, is
complied with in each case for the entire
credit inclusive of credit provided for
purchase of personal computer.
State Sponsored Organisations
Scheduled Castes/ Scheduled Tribes
for
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OUTSOURCING BY BANKS
Key Risks in Outsourcing: Strategic risk, reputation risk, counterparty risk, country
risk, contractual risk, access risk, concentration risk and systemic risk. Banks have
to manage these risks
Board of directors to provide direction and guidance to banks to adopt sound and
responsive risk management practices for outsourcing
Banks to have in place a management structure to monitor and control its outsourcing
activities.
Outsourcing may be defined as use of a third
party (either an affiliated entity within a corporate
group or an entity that is external to the corporate
group) to perform activities on a continuing basis
that would normally be undertaken by the bank
itself. Third party or service provider refers to the
entity that is undertaking the outsourced activity
on behalf of the bank. There are some key risks
in outsourcing such as strategic risk, reputation
risk, counterparty risk, country risk, contractual
risk, access risk, concentration risk and
systemic risk. It would be imperative for the bank
outsourcing its activities to ensure effective
management of these risks.
The failure of a service provider in providing a
specified service, a breach in security/
confidentiality, or non-compliance with legal and
regulatory requirements by either the service
provider or the outsourcing bank can lead to
financial losses for the bank and could also lead
to systemic risks within the entire banking system
in the country. Hence, its board of directors and
management of bank need to provide direction
and guidance to banks to adopt sound and
responsive risk management practices for
effective oversight, due diligence and
management of risk arising out of such
outsourcing activities.
Some outsourcing arrangements, if disrupted,
have the potential to significantly impact banks
business operations, reputation or profitability.
Such arrangements are considered material
outsourcing. Banks should use qualitative
judgement to assess whether or not an
outsourcing arrangement that is in existence or
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country exposes a bank to country risk economic, social and political conditions and
events in a foreign country that may adversely
affect the bank. Such conditions and events
could prevent the service provider from carrying
out the terms of its agreement with the bank. To
manage the country risk involved in such
outsourcing activities, the bank should take into
account and closely monitor government
policies and political, social, economic and legal
conditions in countries where the service provider
is based.
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b)
c)
d)
e)
f)
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b)
c)
d)
e)
f)
g)
h)
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District Forum
Commission.
before
the
State
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Right to privacy
Unsolicited cards should not be issued.
Unsolicited loans or other credit facilities
should not be offered to the credit card
customers. The card issuing bank /
NBFC should not unilaterally upgrade
credit cards and enhance credit limits.
The card issuing bank / NBFC should
maintain a Do Not Call Registry (DNCR)
containing the phone numbers (both cell
phones and land phones) of customers
as well as non-customers (nonconstituents) who have informed the
bank / NBFC that they do not wish to
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UNIVERSAL BANKING
Issued by RBI in August 02 to protect banks against financial frauds and money
laundering
Recommended by Narasimham and Khan Committees
Universal Banking means provision of all financial services by a bank under one
umbrella
It is diametrically opposite to narrow banking
Examples of financial services include: Long-term loans to industries, venture capital,
underwriting, brokerage, corporate advisory services, insurance
Facilitating factors: Deregulation, fall in interest income and the wider business
opportunities
Different models of universal banking such as holding company, subsidiary may be
adopted
Indian banks already are moving towards universal banking.
In general, universal bank is a name given
to banks engaged in diverse kind of banking
business, which in the Anglo-Saxon tradition
would be handled by different types of banking
institutions. According to one school of thought
there are four different types of universal banks
in the world:
i. Fully integrated universal bank: One
institutional entity offering the complete range
of services.
ii. Partly
integrated
financial
conglomerates: One which offers range of
services, but some of the range (for example,
mortgage banking, leasing and insurance)
are provided through wholly owned or
partially owned subsidiaries.
iii. Bank subsidiary structure: one which
focuses essentially on commercial banking
and other functions, including investment
banking and insurance, which are carried out
through legally separate subsidiaries of the
Bank.
iv. Bank holding company structure: One
financial holding company owns both
banking and non-banking subsidiaries that
are legally separate and individually
capitalised in so far as financial services
other than banking are permitted by law.
Rise of Universal Banking
Earlier clear demarcation lines used to exist
between the functions of different institutions
within the financial system. This situation existed
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The rate of BCTT applicable is 0.1 percent (10 basis points) of the value of the
taxable banking transaction.
HUF or Rs. 1,00,000 in case of any other
person.
Objectives:
The Act has two objectives of tracking down
large transactions for better tax compliance and
curbing generation of black money in the
economy.
Applicable Transactions:
A cash withdrawal would fall within the scope of
a taxable banking transaction if it satisfies the
following conditions:
(i) The cash withdrawal (by whatever mode) is
from an account other than a savings bank
account.
(ii) The account is maintained with any
scheduled bank.
(ii) The amount of cash withdrawn on a single
day from the same account should exceed
Rs. 25,000 in the case of an individual or a
HUF or Rs. 1,00,000 in the case of any other
person.
Similarly, receipt of cash on encashment of term
deposits would fall within the scope of a taxable
banking transaction if it satisfies the following
conditions:
(i) The cash is received on encashment of a
term deposit or deposits.
(ii) The term deposit or deposits are in any
scheduled bank.
(iii) The amount of cash received in a single day
exceeds Rs. 25,000 in the case of a deposit
or deposits in the name of an individual or a
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Amount of Tax:
The rate of BCTT applicable is 0.1 percent (10
basis points) of the value of the taxable banking
transaction.
Multiple withdrawals:
Multiple withdrawals of cash from the same
account or multiple receipts of cash
onencashment of a term deposit or deposits in
the name of the same person on any single day
shall be treated as a single taxable banking
transaction. Therefore, if an individual were to
withdraw Rs.80,000 in a single day in multiples
of Rs. 20,000 from one account, he would be
liable to pay BCTT on the aggregate cash
withdrawal of Rs. 80,000. However, if the
individual maintains two or more accounts in a
bank and withdraws upto Rs. 25,000 from each
account in a single day, he would not be liable
for BCTT.
Benefit in respect of exemption limit:
For transactions in excess of these limits, no
benefit is available in respect of the exemption
limit. For example, in respect of a transaction of
cash withdrawal of Rs.30,000/- on any single
day from a current account maintained by an
individual with a scheduled bank, BCTT is
leviable on the amount of Rs. 30,000 and not
only on the excess of Rs. 5,000 over the
exemption limit.
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BANKING
CREDIT AND DERIVATIVE
PRODUCTS
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INFRASTRUCTURE FINANCING
Infrastructure financing implies lending to sectors such as power and transportation
India needs more than 800000 Crores of investment in this area
Rakesh Mohan Committee recommended measures for commercialization of infrastructure
projects
Two options to finance infrastructure: Concession and Strucuture option
Concession option: BOT, BOLT, BOOT, BOO, BOOS
Structure option: non-recourse, limited, recourse, escrow, cash flow, subordinated debt
and take out finance.
Need for efficient infrastructure services are
increasingly recognised as a sine qua non of
high and sustainable economic growth. So far,
the provision of infrastructure services in India
is largely in the Government sector. Budgetary
allocation has been the principal source of
financing capacity additions in infrastructure. As
budgetary resources to support capacity
additions have become scarce, development
and financing of infrastructure was opened up
to private/foreign participation.
The Expert Group on the Commercialisation of
infrastructure Projects (Chairman: Dr. Rakesh
Mohan), in its report submitted in June 1996, (for
more details please see under committees)
has argued that the total fund requirement of the
infrastructure sector over the next five years is
expected to be of the order of Rs.4,000 - 4,500
billion. The new approaches to finance
infrastructure projects can be broadly classified
as (i) Concession Approach and, (ii) Structured
Financing Option.
The Concession Approach
In the concession approach, the concessionaire
builds the project which is thereafter granted a
franchise period during which the costs and
returns can be recovered.
The projects may be executed on principles of
Build- Own-Operate-Transfer (BOOT), BuildOperate-Transfer (BOT), Build-Own-Lease-andTransfer (BOLT) and Build-Own-Operate-Shareand- Transfer (BOOST) and other variants. The
projects could typically be promoted by
consortiums comprising private and public
sector companies, financial institutions and
multinationals.
The brief explanations of various modes of
financing are:
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i.
Escrow mechanism
Take-out Financing
Bankability
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SECURITISATION
Securitisation means converting future cash inflows as securities and selling them in
the market.
It helps in raising immediate funds against future cash.
It helps the issuer to reduce its exposure in the intended asset, which is sold
Securitisation Act provides legal framework to securitisation
Securitisation means to convert (an asset,
specially a loan) into marketable securities,
typically for the purpose of raising cash,
according to the Concise Oxford Dictionary.
Securitisation is a process by which the forecast
future income (the money that is due to come
in) of an entity is transformed and sold as debt
instruments, such as bonds, with a fixed rate of
return. Securitisation allows the company to get
cash upfront which can be put to productive use
in the business. Securitisation is done by
suitably repackaging the cash flows or the free
cash generated by the firm thats issuing these
bonds. The assets securitized will go out of the
books of the finance company once they are
securitized and the risk from its books are
removed.
Securitisation has emerged globally as an
important technique of debt financing. Over the
last 20 years, securitisation has become one of
the largest sources of debt financing in the US
and is enjoying a very strong growth across
Europe and Asia. In India, securitisation
transactions have been taking place for some
time now. However, the participation of the banks
and financial institutions in the securitisation
activity, but for a few major players, is very
minimal. This activity is however, picking up.
A high-powered, Andhyarujina Committee was
constituted to suggest changes in banking laws
comprising of officials from RBI, ministry of
finance, ministry of law and ICICI. The
Committee
which
submitted
its
recommendations in February 2000, suggested
the enactment of a new Securitisation Bill that
would provide the legal framework for
securitisation.
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FACTORING
Factoring involves purchase of receivables of the company for payment of cash.
In effect, the Company, which sells its goods on credit, gets cash payment immediately
from a third party called factor.
Factoring includes other functions such as account .maintenance, collection of debt
and risk assumption.
The term factor has its origin in the Latin word
Facere meaning to make or do, i.e., to get things
done. The International Institute for the Unification
of Private Law in 1988 defined Factoring means
an arrangement between a Factor and his Client
which includes at least two of the following
services to be provided by the Factor: (1)
Finance, (2) Mainte-nance of Accounts, (3)
Collection of Debts and (4) Protection against
Credit Risks.
Factoring has also been defined as a continuous
relationship between a financial institution (the
factor) and a business concern selling goods
and/or providing service (the client) to a trade
customer (customer) on an open account basis,
whereby the factor purchases the clients book
debts (accounts receivables) with or without
recourse to the client thereby controlling the
credit extended to the customer and also
undertaking to administer the sales ledgers
relevant to the transaction.
Factoring refers to management of receivables
of a company by a financial intermediary (factor)
for a fee. The need for factoring arose on account
of the inordinate delays faced by suppliers for
realising their bills from their customers.
Factoring could be with or without recourse to
the supplier, on whose behalf this service is
undertaken. While with recourse factoring is like
our usual bill discounting facility where the
money is recovered on the return of the bill, in
without recourse factoring the factor takes the
risk of non-payment of bills. Factoring business
is characterised by low margin and high risk.
A factoring transaction takes place along the
following lines:
Upon a sale taking place, the seller (client)
forwards invoices on buyer (customer) to factor.
The Factor sends copy of invoice and notice of
assignment to buyer (customer) and makes a
prepayment of say, 75 to 80 percent of invoice
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FORFAITING
Forfaiting, similar to factoring, involves discounting of export receivables.
Unlike factoring, in forfaiting, the forfaiting agency has no recourse to the seller in
case of payment default by the buyer.
It helps in upfront realization of credit sale, perhaps, at a discount.
The term forfaiting has been drawn from French
language and means give up our right. It is a
mechanism of financing of exports by
discounting export receivables evidenced by bills
of exchange or promissory note, without
recourse to the seller (exporter), on a fixed rate
basis (discount) upto 100 per cent of the
contract value.
Simply put, forfaiting is the non-recourse
discounting of export receivables. In a forfaiting
transaction, the exporter surren-ders, without
recourse to him, his rights to claim for payment
on goods delivered to an importer, in return for
immediate cash payment from a forfaiter. As a
result, an exporter in India can convert a credit
sale into a cash sale, with no recourse to him or
to his banker. It helps the exporters to
concentrate on the export front without bothering
about collection of export bills.
In a forfaiting transaction, Bills of Exchange or
Promissory Notes backed by co-acceptance (or
avalisation) from the buyers bank are endorsed
by the exporter, without recourse, in favour of
the forfaiting agency in exchange for discounted
cash proceeds.
The operating mechanism for an Indian Exporter
in a forfaiting transaction, is as follows.
1. Indian exporter initiates negotiation with the
foreign import-er.
2. Exporter approaches Exim Bank to obtain
indicative quote from a forfaiting agency.
3. Exim Bank obtains indicative quotes of
discount,
commitment
fees
and
documentation fees, if any, and
communicates these to the exporter.
4. Exporter finalises the contract with the
foreign buyer.
5. Exim Bank is informed of the final contract
and the exporter requests the Exim Bank to
obtain a firm quote from the forfaiting agency.
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COMMERCIAL PAPER
CP is an instrument issued by companies to borrow short-term finance from the market.
It can be issued for period ranging from 7 days to One year.
It is transferable by endorsement and delivery.
Generally blue chip companies are major players.
It is an unsecured, short-term debt instrument
issued by a corporation, typically for the financing
of accounts receivable, inventories and meeting
short-term liabilities. The debt is usually issued
at a discount, reflecting prevailing market interest
rates.
It has emerged as a popular instrument for
financing working capital requirements of
corporate borrowers of commercial banks.
Commercial Paper (CP) is an unsecured
money market instrument issued in the form of
a promissory note. This instrument was
introduced in India in 1990 so as to enable the
highly rated corporate borrowers of commercial
banks to diversify their sources of short-term
borrowings. Besides, it was an additional
instrument for investment provided to the
investing community.
Commercial paper issued by corporates was
initially marketed as a privately placed
instrument. Subsequently, the instrument
received a wider connotation from the point of
view of both the issuers as well as the investors.
The CP market is largely controlled by FIMMDA
(Fixed Income Money Market and Derivatives
Association of India) which has also laid down
standard procedures in this regard in
consonance with the standard best practices
and the RBI guidelines.
One of the main reasons for the growing
popularity of CP as an instrument of financing
working capital requirements is that the rate of
interest underlying a CP transaction is
substantially lower than the interest charged by
commercial banks against fund based working
capital limits provided by them. The difference
is substantial and many of the large corporates
with a good credit rating take advantage of this
situation.
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CREDIT DERIVATIVES
As the term indicates, it is a financial contract derived from the performance of
underlying securities.
It is a hedging mechanism.
It helps in risk management.
Swaps, options and notes are some of the methods in derivative trade.
A credit derivative is a financial contract outlining
an exchange of payments in which at least one
leg of the cash flows is linked to the performance
of a specified under-lying credit-sensitive asset
or liability. The underlying markets or reference
assets include bank loans, corporate debt, trade
receivables, emerging market and municipal debt,
and convertible securities, as well as the credit
exposure generated from other derivatives-linked
activities. The performance of such credit reflects
perceived risk and the cost of a potential default.
As in other more traditional derivative markets,
swap, note, and option-based products form the
foundation for all credit derivative products. For
example, a credit option or credit-linked note can
be structured to pay the purchaser in the event
of default or credit downgrade. Credit derivatives
can also take the form of financial swaps in which
counter-party exchanges the total return of a
certain in return for some spread over a specified
benchmark, such as LIBOR.
Why Use Credit Derivatives?
Credit derivatives provide users such as banks
or other financial institutions with an efficient,
tailor-made, on-or off-balance-sheet means of
attaining or hedging credit risk. Credit derivatives
offer tremendous flexibility in terms of tailoring a
structure to meet end users individual
specifications, thereby enabling users to
overcome a variety of market and non-market
impediments and achieve their investment and
hedging objectives. By potentially reducing capital
requirements and greatly easing back office
administrative burdens, credit derivatives are
often a more efficient, lower cost alternative to
the underlying cash markets for the banks. Users
also can choose the degree of leverage, if any,
that best suits their particular investment and risk
management style.
From a hedging standpoint, credit derivatives are
powerful, innovative credit risk management tools.
Credit derivatives represent the first broad-based
products designed specifically for the
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CURRENCY SWAPS
Currency swap is the exchange of one currency for the other.
It is used as a hedging mechanism to guard against adverse currency fluctuations
It is also used to obtain cheaper borrowings.
It helps in efficient management of currency exposure and cash flows
There are two main applications of a currency
swap. These are:
DISADVANTAGES
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CURRENCY OPTIONS
Currency option means the option to buy or sell a specific quantity of currency at an
agreed rate.
The party to the contract pays a premium upfront for the purpose.
It is better than forward contract since the decision to buy or sell is optional
Banks in India can write options.
A foreign exchange (or currency) option gives
the buyer the right, but not the obligation, to buy
or sell a specific quantity of a currency at an
agreed rate, and for a specified period. The
option buyer pays the seller a premium for the
privilege of being able to buy or sell the currency
at a fixed price without actual-ly being committed
to do so.
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CURRENCY FUTURES
Currency future is a contract to buy or sell a standard quantity of one currency in
exchange for the other.
The rate of exchange and the future date of delivery are agreed at the time of contract
It is a hedging as well as a speculative mechanism.
A currency future is a contract for the sale or
purchase of a standard quantity of one currency
in exchange for another currency at a specified
rate of exchange, and for delivery at a specified
future time. They are bought and sold on a
futures exchange, the largest being the
International Monetary Market division (IMM) of
the Chicago Mercantile Exchange (CME), and
can be used to hedge currency exposures.
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BANKING
MANAGEMENT OF
ASSETS & LIABILITIES
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Key elements: Risk profiling of banks; supervisory cycle; Monitorable Action Plan;
Enforcement process; and role of external auditors
Risk profiling of banks will be done for Business risks and Control risks.
Business risks are eight and are: Capital, credit, market, earnings, liquidity, business
strategy and environment, operational and group risks.
Control risks are four and are: Internal control, organisation, management and
Compliance risk
The overall risk of bank will be assessed as low, moderate, fair or high
Banks with lower risks will have longer supervisory cycle and lesser supervisory
intervention
BACKGROUND
CURRENT APPROACH
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Systemic improvement
Focused follow up
1.
2.
Supervisory cycle
3.
Supervisory programme
MAJOR COMPONENT
Negative factors
4.
Inspection process
5.
Credit concentration
6.
Credit quality
7.
Supervisory organisation
8.
9.
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Positive factors
DIRECTION OF RISK
A specimen of Risk Assessment template for a
sample assessment area is furnished below for
understanding:
RBI, for the purpose of risk profiling, besides
using CAMEL rating, would draw upon a range
of sources of information such as off-site
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CONCLUSION :
Adoption of RBS would enable banks to be ready
for implementation of the Second Capital Accord
of Basel Committee on Banking Supervision,
which will be implemented by 2007. As
mentioned earlier, Banks have to undertake
suitable change initiatives to ensure smooth
transition to RBS.
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RISKS IN BANKING
Risks in banking are many. These risks can be
broadly classi-fied into three categories. They
are:
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RISK CONTROL
b) Efficiency in Operations,
i)
d) Earnings stability,
e) Uninterrupted operations,
g) Preservation of reputation.
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Risk
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ASSET-LIABILITY MANAGEMENT
It involves management of banks assets and liabilities.
It essentially focuses on managing risks caused by changes in liquidity, interest rates
and fluctuations in foreign currency rates
Success of ALM depends on availability of information, existence of sound policies
and risk management system.
In liberalised financial markets, banks assets
and liabilities variations are considerably
influenced by interest rate and exchange rate
volatility. The competitive environment in the
banking system due to removal of various
barriers in their operations has added pressure
to the importance of financial management.
Banks have to manage not only credit risk but a
variety of other financial risks including interest
rate, exchange rate, liquidity, settlement, and
transfer risks to maximise profit and minimise
risks. The complexity of financial risks requires
that a strong and dedicated risk management
system is put in place covering: (1) assets,
liabilities and off-balance sheet risks, (2)
information and scientific risk management
techniques and (3) dedicated asset-liability
managers or committee (ALCO). Asset-Liability
management as a mean of risk management
technique is an important function in a bank. It
primarily focuses on how various functions of
the bank are adequately co-ordinated, essentially
covering planning, directing, and controlling of
the levels, changes and mixes of the various
balance sheet accounts.
In Asset-Liability management (ALM), a bank is
strategically concerned with management of
market risk consisting of (a) interest rate risk,
(b) foreign exchange risk, (c) equity price risk
and (d) commodity price risk. Also ALM function
covers liquidity management and capital
planning. Broadly, the ALM objectives are to
control the volatility of net interest income and
net economic value of a bank. In order to achieve
these results, the asset-liability managers or
ALCO must be guided by policies that
specifically address the banks overall assetliability management goals and risk limits, and
by information that relates directly to its assetliability positions.
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Policy Issues
Strengthening of information technology in
commercial banks would be an important
prerequisite to implement effectively ALM
system in banks. The data base of banks has
to cover all operations of branches for a detailed
analysis of assets and liabilities and for
forecasting a comprehensive projection of
liquidity conditions under various scenarios. The
software packages used must be well tested
and have extensive computing power to analyse
the massive amount of Asset/Liability data under
alternative interest rate scenarios.
It is well understood that every financial
transaction or commitment has implications for
a banks liquidity. A proper liquidity management
would help the management in formulating
business strategy. A schedule of liquidity reviews
with depth should be provided for. These reviews
provide the opportunity to re-examine and refine
a banks liquidity policies and practices in the
light of a banks liquidity experience and
developments in its business. For banks with
an international presence, the treatment of
assets and liabilities in multiple currencies adds
yet another layer of complexity. In the event of a
disturbance, a bank may not always be able to
mobilise domestic liquidity to meet foreign
currency funding requirements. Hence, better
liquidity management becomes an important
concern when banks undertake business in
multi currency transactions.
The ALCO at SBI is engaged in evolving optimal
asset/liability structure for the Bank on an ongoing basis with a view to containing
mismatches, optimizing profits and ensuring risk
management. The Bank is using Risk Manager
module to strengthen the processes of Risk
Management.
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Conclusion
In conclusion it is worth reiterating that in todays
fast changing market environment, treasury
management is inevitably acquiring a greater
degree of complexity and sophistication. The
success of any treasury thus depends a great
deal on strong risk management, independent
back-office operations and first rate technology.
These become all the more important as
profita-bility and commercial viability become key
criteria for assessing performance. And, it is
these very fundamentals that make a successful
treasury that can sustain efficient allo-cation of
internal resources on one hand and accelerate
the globalisation of our financial markets on the
other.
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PORTFOLIO MANAGEMENT
It is management of the clients fund in accordance with their needs based on mutual
agreement for a fee
It helps to tap the funds of High networth individuals who expect the banks to multiply
their wealth.
Portfolio Managers are to be registered with SEBI. As per SEBI directive, the minimum
fund per client is Rs. 5 lacs.
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Custody of securities;
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Structure
CDR system will have a three tier structure
namely CDR Standing Forum and its Core
Group, CDR Empowered Group and CDR Cell.
CDR Standing Forum: The top tier of the CDR
Mechanism in India, A self-empowered general
body having representatives of all FIs and banks
participating in CDR system. The forum lays
down policies and guidelines, monitors the
progress of Corporate Debt Restructuring, and
provides a platform for creditors and borrowers
to evolve mutually beneficial policies. The
Standing Forum monitors the progress of the
CDR Mechanism. The Forum meets at least
once every six months.
CDR Core Group: It is a sub-committee of the
CDR Standing Forum to assist the latter in
convening the meetings and taking decisions on
behalf of the standing forum on matters relating
to policy. It consists of CEOs of IDBI, SBI, ICICI
Bank Ltd, BOB, BOI, PNB, IBA, Deputy
Chairman of IBA representing foreign banks in
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Cost of Capital
Extent of Sacrifice
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Cases Referred, Approved, Rejected, Withdrawn and Net cases under CDR
(Status as on October 31, 2005)
Sl. No.
Proposals
Number
175
81716
Cases approved
OF WHICH :-
138
75756
(a)
Cases withdrawn
12
1651
(b)
Cases exited
9517
(c)
Cases merged
(330)*
(d)
121
64588
* Debt involved in respect of the merged entity computed in the aggregate total.
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Exclusions:
I. Eligibility:
The following entities, which are viable or
potentially viable:
a) Sole banking: All corporate / non-corporate
SMEs irrespective of the level of dues.
b) Multiple/consortium banking: All corporate
SMEs, which have FB+NFB outstanding up
to Rs. 10 crore.
c) BIFR cases: Branches must obtain approval
from BIFR before implementing the package.
d) Wilful defaulters, in exceptional cases, may
be considered as advised in para II below.
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to check such fraud and forgeries. The preventive vigilance helps banks to put in place the system of internal control and to create alertness,
foresightedness and a sense of responsibility
among employees for observing systems and
procedures meticulously.
Summing Up
Emerging markets are following developed
markets in consumer revolution. The consumer
is being leveraged through mortgages, auto
loans, credit lcards, personal loans and other
loans. This has become the focus of all banksboth in the public and private sectors. The retail
loan market in India is in the nascent stage. The
retail loan has contributed significantly to credit
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BANKING
GENERAL
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3. The Opportunity
Today, the competition in the banking industry
has forced every bank to opt for this novel tool to
inveigle the customer. The time is not far away
when these very Indian banks will take on their
foreign counterparts on the global scene. There
is a big scope for change and improvement. In
fact, this is a very dynamic tool without any thumb
rule of operation. As a result, it is very flexible
and each bank designs its own formulations, best
suited for its own customers, for its own
environment and for its own people.
4. Present Status of CRM Software in Bank
Only three foreign banks have installed CRM
packages for maintaining customer details and
the packages used are: Citibank-Seibel;
American Express-Seibel; ABN Amro-People
soft. The Citibank system is equipped with the
Sales module for providing customers readily
available information about their assets and
liabilities with the bank. It also enables the
Citibank relationship managers in maintaining a
history of contacts with their customers, thus
assisting them in serving better. Though the other
banks have started implementing CRM, they
have not implemented any technology or CRM
software. Among the private banks, ICICI and
IDBI have installed CRM software for managing
customer details and services. The remaining
banks surveyed have also initiated CRM in
various forms, i.e., providing efficient services
to customers through mobile telephony or the
internet, but still have to adopt a technology or
software for the same.
Among public sector banks, Bank of India is
already in the process of fast adopting a software
package, either Seibel or SAP. SBI uses a
software developed by the BK Systems of
Hyderabad, which covers its corporate and NRI
clients. The central bank uses a software SWIFT,
but it is used only for managing its foreign
accounts and transactions. The other banks in
this category, who are still far from implementing
any technology or software package, are
venturing into providing internet and mobile
services to their customers.
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Potential costs
implementation.
involved
in
CRM
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Successful CRM implementation needs a wellplanned CRM infrastructure in place that allows
capture, storage and analysis of customer data.
Organizations must select a CRM software
based on the incremental ROI it will bring to the
organisation.
There is an increasing need for CRM training
programmes as this could save enormous cost
and time for organizations on learning and
implementing the same.
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OLTP
Data Warehousing
Typical user
Clerical
Professional
Run business
Analyze business
User interaction
Pre-determined
Ad-hoc
Unit of work
Transaction
Query
Work characteristics
Read / write
Mostly read
Records accessed
Tens
Millions
Number of users
Thousands
Hundreds
Focus
Data in
Information out
Data storage
Contents
Accuracy
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services
Reviewing and designing business
strategies
Effective monitoring
productivity.
of
employees
Summary
Thus, one can see a clear relationship between
IT architecture and Customer Relationship
Management based on the concept of data
warehousing. The limitations of prevailing stateof-the-art IT is felt by majority of banks in India.
The need to have core banking solution is
identified by the committee appointed by the
Reserve Bank of India and is being pursued by
many banks to meet the emerging challenges
particularly in the area of customer service,
innovations and improvement.
It is now a well-established fact that it is not
possible to meet the future challenges by old
methods and branch level marketing efforts any
more. What is needed is integration of business
development planning with clearly defined IT road
map. Only enhancement in business quality and
volumes through customer satisfaction will
justify the investment in IT because sooner than
later every bank will have level playing ground
in terms of Core Banking Solution. What will
matter is how innovative the bank management
becomes with new products and services on
one hand and how the workforce supports them
to add value to technological platforms by giving
excellent service to excite the customers on the
other hand.
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CCM is the integrated management of a company with the customer as its focus
It has three stages namely knowledge acquisition; behaviour modeling and Product/
Service delivery
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CONTRACT FARMING
Contract farming has considerable potential where small and marginal farmers are
no longer competitive.
The farmer is contracted to plant the contractors crop on his land
He will harvest and deliver to the contractor a quantum of produce based upon
anticipated yield and contracted acreage at a pre agreed price
Towards these ends, the contractor can supply the farmer with selected inputs
The main feature of contract farming is that
farmers grow selected crops under a buy back
agreement with an agency engaged in trading
or processing. Contract farming has been
prevalent in various parts of the country for
commercial crops like sugarcane, cotton, tea,
coffee, etc.
Contract farming helps when markets do not
exist or are underdeveloped; conversely,
contracts diminish in importance with
development of competitive markets. Contract
farming works when specific quality
requirements must be met. Contracts are
effective when there is no zero-sum game (one
partys gain at the expense of the other). They
are ideal for win-win situations, since they
represent a natural mutual dependency.
Contracts succeed when they contain fair risk
transfer or coverage measures and trust
relationships built over long periods.
The advantages of Contract Farming :
Promotes long
investments
term
planning
and
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IPO SCAM
The scam came to light during the investigation of Yes Bank IPO
By opening multiple demat accounts and submitting multiple applications fraudulently,
huge chunk of the issue was cornered by a few investors.
Non-adherence to KYC norms, lack of role-clarity, lack of coordination among
intermediaries were considered to be the reasons.
THE buoyancy in the secondary market has had
a cascading impact on the primary market as
well. Most of the recent issues are quoting at a
premium to the issue price, which has attracted
newer investors into the market. But quick
money brings with itself a host of problems, The
one that has gained prominence recently is the
phenomenon of investors opening multiple demat
accounts and making multiple applications to
subscribe to IPOs in the hope of getting
allotment.
In the recent Yes Bank IPO, SEBI found that
about 7,630 benami applications were used to
corner about 11,44,500 equity shares of the 175
crore equity shares on offer for retail investors.
Current regulations prohibit multiple bids or
applications by a single person. The depository
system, however, has been subverted by
creating a large number of benami demat
accounts to corner shares, thereby affecting
genuine retail investors.
SEBI has ordered depository NSDL to look into
the operations of its depository participants
(DPs). The latter have dug out 14,000 benami
demat accounts, including 7,630 already traced
by SEBI. These were used to subscribe to the
Yes Bank IPO. But the manipulation in the Yes
Bank IPO has proved to a tip of the iceberg. On
12 January 2006, SEBI unearthed another
45,000 benami demat accounts floated by 39
entities to corner shares meant for retail
investors in the IPO of IDFC.
Shares in an IPO under retail category are
allotted on a proportionate basis. However, if
there is heavy over subscription, not all the
applicants will get the minimum allotment. For
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Inflation below 5%
Agriculture
Agricultural sector is projected to grow at 2.3%
in 2005-06 compared to less than 1% growth in
2004-05. Food grain production is expected to
increase by more than 5 mn tons with total output
crossing 209 mt.
Industry and Services
Industrial sector is projected to grow over 9%
during the current year. Within Industrial sector,
manufacturing is set to grow by 9.4% during
2005-06. However there is a deceleration in the
growth of mining and quarrying. Services sector
has shown robust growth. Industry and Services
have acted as twin engines of growth. Between
2001 and 2006, on an average Service sector
had a share of 52% of GDP and contributed to
65% of GDP growth. Industrial sector during the
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AGRICULTURE:
Irrigation: Command Area Development
Programme to be revamped to allow
participatory irrigation management through
water users associations; 20,000 water bodies
with a command area of 1.47 million hectares
identified in the first phase for repair, renovation
and restoration.
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Rs.50,015 crore.
The eight flagship
programmes are North Eastern Region (NER),
Sarva Siksha Abhiyan, Mid-day Meal Scheme,
Drinking Water and Sanitation , National Rural
Health Mission, Integrated Child Development
Services, National Rural Employment Guarantee
Scheme and Jawaharlal Nehru National Urban
Renewal Mission.
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FINANCIAL SECTOR
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Service tax
New services to be covered including ATM
operations, maintenance and management;
registrars, share transfer agents and bankers
to an issue; sale of space or time, other than in
the print media, for advertisements; sponsorship
of events, other than sports events, by
companies; international air travel excluding
economy class passengers; container services
on rail, excluding the railway freight charges;
business support services; auctioneering;
recovery agents; ship management services;
travel on cruise ships; and public relations
management services. coverage of certain
services now subject to service tax to be
expanded. leasing and hire purchase to be
treated on par with loan transactions, interest
and instalment of principal amount to be abated
in calculating value of the service.
GST: Proposal to set April 1, 2010 as the date
for introducing national level Goods and Service
Tax .
Direct Taxes
No change in rates of personal income tax or
corporate income tax; one-by-six scheme will
stand abolished. marginal revision in certain
tax rates in the quest for equity- Minimum
Alternate Tax (MAT) rate increased from 7.5 per
cent of book profits to 10 per cent which is only
one-third of the normal rate; long-term capital
gains arising out of securities included in
calculating book profits; period to take credit for
MAT increased from five years to seven years.
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RECOMMENDATIONS OF
THE TWELFTH FINANCE COMMISSION
12th Finance Commission is for the period 2005-06 to 2009-10.
The targets for fiscal and revenue deficit are 3% and 0%
The target for tax to GDP ratio is 17.6% and debt-GDP ratio is 75%
States to enact Fiscal Responsibility Legislation
System of on-lending by the Centre to States phased out
The major recommendations of the Twelfth Finance Commission (TFC) (Chairman: Dr. C.
Rangarajan) of the period 2005-06 to 2009-10
pertain to restructuring of public finances, resource transfers from the Centre to States
through tax devolution, grants and debt relief.
Under the TFCs recommendations, the targets
for the fiscal and the revenue deficit (relative to
GDP) for the Centre and States are placed at
three per cent and zero, respectively. The targets for the revenue deficit and the fiscal deficit
are to be achieved by 2008-09 and 2009-10, respectively. The targets for the combined (Centre and States) tax-GDP ratio and the debt-GDP
ratio are set at 17.6 per cent and 75 per cent,
respectively, to be achieved by 2009-10. Enactment of Fiscal Responsibility Legislation (FRL)
by States is recommended. Furthermore, the
system of on-lending by the Centre to the States
is to be phased out.
Correction of vertical and horizontal imbalances
is sought to be achieved by increasing States
share in the divisible pool of taxes to 30.5 per
cent from 29.5 per cent recommended by the
Eleventh Finance Commission (EFC), implying
transfer of an estimated Rs. 6,13,112 crore to
the States during the award period. Furthermore,
in case of enactment of any legislation on service tax, the revenue accruing to a State should
not be less than the share that would accrue to
it had the entire service tax proceeds been part
of the shareable pool. Tax devolvement among
the States has been based on weights to facBanking Briefs
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A critical assessment:
Despite a large number of programmes and
schemes subsidised by the government and
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Miscellaneous
The provisions of this Act shall have effect
notwithstanding anything inconsistent therewith
contained in the Official Secrets Act, 1923, and
any other law for the time being in force or in
any instrument having effect by virtue of any law
other than this Act.
No court shall entertain any suit, application or
other proceeding in respect of any order made
under this Act and no such order shall be called
in question otherwise than by way of an appeal
under this Act.
The Central/State Information Commission, as
the case may be, shall, as soon as practicable
after the end of each year, prepare a report on
the implementation of the provisions of this Act
during that year and forward a copy thereof to
the appropriate Government.
Conclusion
Human rights are all about rights of lives, liberty,
freedom, justice, equality, dignity and security
of men, women, youth and children. Therefore,
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MICRO FINANCE
A microfinance institution (MFI) is a financial intermediary, which provides very small
amounts to rural, semi-urban and urban poor.
Its objective is to raise the income and standard of living of poor Measures taken in
micro financing: Opening up of large number of branches; stipulation of 10% bank
credit to weaker sections; introduction of several programmes such as SFDA, MFA,
DPAP, IRDP.
By end-July 2005, as many as 16,53,047 SHGs were linked to banks and the total
flow of credit to SHGs was Rs.7,063 crore.
SHG has emerged as one of the successful instruments in Micro financing.
According to the Asian Development Bank, one
of the biggest donors for micro-finance, the
provision of financial services, such as
deposits, loans, payment services, money
transfers & insurance to the poor and lowincome households and their micro-enter-prises
are broadly called micro-financing. The term
micro-finance came into greater currency since
the early 1990s and has largely supplanted the
term micro-credit.
A microfinance institution (MFI) is a financial
intermediary, which provides credit to the rural
populace. This most often are NGOs, but can
also be some other bodies like the panchayats,
anganwadi teachers, etc. This MFI then sets up
Self-help Groups (SHGs) which comprise about
20 people (mostly women) who deposit (save)
a certain amount each week/month. Then the
MFI puts in an equal amount (or upto four times
the amount) and the loan is given to individual
members of the SHGs. The loans are given
individually but the liability is the collective
responsibility of the SHG. In turn, the MFIs are
re-financed by commercial banks.
The origin of SHGs can be traced to 1976, when
Professor Mohammud Yunus of Bangladesh
started womens group in Bangladesh. This
group later developed into the Bangladesh
Grameen Bank. In India, the pioneer in this field
was Self Employed Womens Association
(SEWA). Although it started as a trade union for
women in the unorganised sector almost 40
years ago, today it boasts of running the first
womens bank in the country. In southern India,
organisations like Pradan, Myrada, Asseefa,
Malar etc. have entered this rural credit system.
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e. Employee welfare
o. Gifts and
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f.
j.
Festival celebrations
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BUDGET - An understanding
It is a statement of proposed expenditure and the means of financing it.
Contains 3 key documents: The Annual Financial Statement; Demand for Grants and
The Finance Bill
Budgetary Deficit is the excess of total expenditure over total receipts. It is covered
by borrowings from market and from RBI.
Fiscal Deficit: Total Expenditure {(Total Receipts + market borrowings)}. In other
words, it is equivalent to borrowings from RBI.
Whats in the Budget?
The presentation of the Union Budget is an
annual exercise looked forward to with
considerable anticipation by the financial
community. No other event generates as much
debate, analysis or comment as the proposals
contained in the Budget. Yet, the Budget is not
the preserve of accountants, financial analysts,
economists and others with a pathological affinity
to numbers.
Purpose
A Budget is a statement of financial position for
a future period, setting out proposed expenditure
and the means of financing it. The Union Budget
lays down the statement of the estimated
receipts and expenditure of the government of
India for the coming financial year. It sets out
exactly how the government proposes to allocate
financial resources among the various agencies
that make claims on it and how it proposes to
raise the finances for this.
Components
The Budget is made up of three key documents.
The Annual Financial Statement - setting out
the estimated revenue and capital account
of the government for the financial year.
Demands for grants - detailing the requests
for funds made by different government
departments and ministries.
The Finance Bill - containing the proposals
for the levy of new taxes and modification of
the existing tax structure.
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Budget speak
Revenue receipts: receipts by way of direct
and indirect taxes, interest, dividends and
profits from investments, fees and other
receipts from services rendered by the
government.
Capital receipts: Receipts by way of loans
raised from the market, borrowings from the
RBI, external assistance from foreign
governments, recoveries of loans and
advances.
Revenue Expenditure: Expenditure incurred
for the normal running of government
departments, interest charges on debt, and
subsidies expenditure which does not result
in the creation of assets.
Capital Expenditure : Expenditure on
acquisition of assets and investments, loans
and advances to states, government
companies.
Plan Expenditure: Outlays on schemes and
programmes formulated by various
ministries under the five year plan.
Non-plan expenditure: Expenditure outside
of that incurred in keeping with the
programmes formulated under the five year
plans.
Revenue Deficits: Excess of government
revenue expenditure over revenue receipts.
Budgetary deficits: Excess of total
expenditure (capital and revenue) over total
receipts, bridged through borrowings from
the market and the RBI.
Fisical Deficits: Excess of total expenditure
over revenue receipts and capital receipts
after excluding borrowings.
Primary Deficits: The fiscal deficits reduced
by expenditure on interest payments.
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211
Credit Policy of RBI aims to influence the amount of money and credit in the Indian
economy.
It tries to even out the fluctuations between demand and supply of money and sets the
long-term agenda on money
Open Market operations (OMOs), Reserve requirements, Bank Rate and Repo rate
are the four major weapons used by RBI to regulate money supply
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CERTIFYING AUTHORITY
IDRBT has become a digital certification
authority (CA), licensed by the Controller
of Certification Authority (CCA), Government
of India and will fulfill the need for trusted third
party services in Electronic Commerce by issuing
Digital Certificates that attests to some fact about
the subject of the certificate, which provides
independent confirmation of an attribute claimed
by a person offering a Digital Signature.
Following this move, digital certificates issued by
the IDRBT CA are now legally valid in the Indian
courts as per the Information Technology Act
2000.
For securing the transactions through INFINET,
IDRBT provides high end Public Key Infrastructure
(PKI) based services and solutions to individuals,
organizations as well as governments, that enable
trust and security. IDRBT has set up a high-end,
global standards- based processing Center
capable of issuing thousands of Digital
Certificates, an important component of PKI.
IDRBT CA will issue, administer and revoke the
digital certificates which are trust worthy and
legally valid.
The IDRBT Certifying Authority has issued over
25,000 Digital Certificates, which accounts for
70% of the digital certificates issued by all CAs
put together in India. The Banks and Financial
Institutions are using the Certificates issued by
IDRBT CA for Corporate E-mail, RTGS, SFMS,
Web Servers used for Internet Banking,CFMS,
EFT/ECS and CCIL Settlement Applications.
Indian Financial Computer Emergency
Response Team (INFICERT)
The Institute is in the process of developing a
portal on INFICERT for the benefit of INFINET
CUG members. This portal would disseminate
information that would facilitate Incident Handling/
Remedial Response to the Banking and Financial
community. The Institute is also in the process of
analysing different tools available for Incident
Handling/Remedial Response.
Service Bureau (SB) for all SWIFT Users :
IDRBT has initiated steps for the establishment
of a Service Bureau (SB) for all SWIFT Users in
India. A White paper has been circulated to the
banks highlighting the concept, model and the
possible cost saving on joining the SB. Meanwhile,
the SWIFT have agreed in principle to the idea
of SB being established bythe IDRBT
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ARCIL
Established in August 2003 under SARFAESI Act.
ARCs act as debt aggregators and engage in acquisition and resolution of NPAs.
It can restructure debts, strip & sell assets, settle with promoters, act as managers
and agents for recovery.
Foreign investors can now participate in equity capital of ARCs through FDI Route
Internationally, Asset Reconstruction Companies
(ARCs) have been created to bring about a
system-wide clean up of NPAs resulting from
financial and economic crises. In Asia, ARCs are
used to resolve bad-loan problems, and have
had a varying degree of success. ARCs act as
debt aggregators and engage in acquisition and
resolution of NPAs; and ARCs thus provide a
focused approach to the NPA resolution issue
by isolating NPAs from the banking system,
freeing the banking system to focus on their core
activities, facilitating their return to equity markets
and normal banking business.
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Overview of ARCIL
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ARCILs objectives
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FDI/FII in ARCs
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2) PERFORMANCE OF RRBs
In initial stages, RRBs financed only the weaker
sections of the rural community-small and
marginal farmers, agricultural labourers, small
traders, and so on. Along with commercial
banks, they participated vigorously in poverty
alleviation schemes(IRDP) and disadvantaged
area programmes(Drought-prone, Desert
Development. With 95% of their branches in
rural areas, they have made substantial
contribution in financing agriculture.. RRBs
quickly became an important and integral part
of the rural credit system. However, their
financial viability was initially overstretched by
policy rigidities coupled with lower capital base
in an environment of inadequate infrastructure
and deeper social and economic disparities. In
the post reform era, more particularly after midnineties RRBs have adopted a multi pronged
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Rs.in Crores
As at the
end of
No.of
RRBs
Dec.75
Jun82
June 88
Mar91
Mar95
Mar04
Mar05
Districts
No.of
covered branches
6
121
196
196
196
196
196
12
207
365
381
425
516
522
Deposits Advances
17
5393
13586
14527
14509
14433
14484
0.20
382
2,455
4,989
11,150
56,350
62,283
3) REFORM MEASURES
CD Ratio
0.10
462
2,428
3,609
6,290
26,074
32,939
50
121
99
72
56
46
53
SHGs
Bank Loan
No.
Amount
(Rs. In Crores)
Commercial Bank
3,61,061
50
114.95
56
RRBs
2,77,340
39
72.72
36
Cooperatives
78,959
11
17.20
280
231
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4 times of NOF
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Administered interest rate, cash credit facility and preference for shares affected its
growth.
Importance
A well-developed and strong debt market would
offer many benefits to the economy. It would
facilitate financing massive investment needs
of sectors such as power, telecom, ports and
housing, while reducing intermediation costs
relative to comparable instruments like bank
deposits and equity. The debt market would
enable banks and financial institutions to shore
up their Tier II capital by issuing bonds without
diluting the equity base. It would provide
conducive environment for the central bank to
move away to open market operations an
effective indirect instrument of monetary policy.
Institutional investors such as pension and
provident funds will find profitable avenues for
deploying funds at their disposal through the debt
market. The costs of borrowing for the Central
and State Governments could come down with
broadening of market for gilt edged securities
an important subsegment of the debt market
which is a captive market at present. And finally
such a market would encourage development
of new products for risk management such as
interest rate futures and options thus enabling
market participants to better manage interest
rate risk.
Structure
The Indian debt market includes the money
market and the bond market. While the money
market is fairly well developed with a wide range
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Offering market-related
Government securities.
on
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yields
Call Money is money borrowed for shorter repayment period (1-14 days) to meet
temporary mismatch
RBI intervenes in Call Money Market through STCI & DFHI to stabilize rate
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Benefits: Help place primary issues in government securities with committed participant
in auctions; active secondary market for Government Securities; conduit for open market
operations of RBI; provides signals to RBI for market intervention
SBI DFHI Ltd. posted a net loss of Rs. 94.80 Cr during 04-05 due to hardening of interest
rate and consequential depreciation.
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255
It is freely tradable and can be cancelled any time. Cancelled GDRs can be re-issued
(i.e two-way fungibility is permitted)
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ADRs help companies in accessing funds from US; improve accounting and disclosure
practices; and get better valuation
ICICI, Satyam Infoway, Infosys are some companies which floated ADRs.
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The issuing company should have pre-issue paid up capital and free reserves of min
US $ 100 million and turnover US $ 500 million
The issue in any financial year shall not exceed 15% of the capital.
b.
c.
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248
ETFs are funds that are listed on stock exchanges and traded like individual stocks
Benefits: It provides the benefit of diversified index funds and brings trading flexibility of
stocks. The operating expenses are lower
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UTI, the first mutual fund, in 1964. Public sector MFs in 1987. Private and Foreign
Mutual Funds in 1993
As at the end of Mar 05, there were 31 MFs and 462 schemes with total assets of
Rs.1,49,601 Crores
Regulated by SEBI
MFs sell units in small sums to investors and deploy the funds so collected in the
market as per the investment objective of the individual schemes.
Mutual Fund
Worldwide, the Mutual Fund, or Unit Trust as it
is called in some parts of the world, has a long
and successfull history. The popularity of the
Mutual Fund has increased manifold. In
developed financial markets, like the United
States, Mutual Funds have almost overtaken
bank deposits and total assets of insurance
funds. As at the end of December 1999, in the
US alone there were 7,791 Mutual Funds with
total assets of over US$ 6.8 trillion (Rs.296 lac
crores).
In India, the Mutual Fund industry started with
the setting up of Unit Trust of India in 1964. Public
Sector banks and financial institutions began to
establish Mutual Funds in 1987. The private
sector and foreign institutions were allowed to
set up Mutual Funds since 1993. As at the end
of Mar 05 , there were 31 Mutual Funds and 462
schemes with total assets of Rs.1,49,601
crores. During 2003-04 MFs have mobilized Rs.
47,684 Crores through 467 schemes.
Traditionally debt oriented schemes topped the
funds mobilization of MFs and the trend
continued in 2003-04 as well.
In February 2003, following the repeal of the Unit
Trust of India Act 1963 UTI was bifurcated into
two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets
under management of Rs.29,835 crores
representing broadly, the assets of US 64
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Growth Schemes
(A) By Structure
Open-Ended Schemes
These do not have a fixed maturity. You deal
directly with the Mutual Fund for your investments
and redemptions. The key feature is liquidity. You
can conveniently buy and sell your units at Net
Asset Value (NAV) related prices.
Close-Ended Schemes
Schemes that have a stipulated maturity period
(ranging from 2 to 15 years) are called closeended schemes. You can invest directly in the
scheme at the time of the initial issue and
thereafter you can buy or sell the unit of the
scheme on the stock exchanges where they are
listed. The market price at the stock exchange
could vary from the schemes NAV on account
of demand and supply situation, unitholders
expectations and other market factors. One of
the characterisitcs of the close-ended schemes
is that they are generally traded at a discount to
NAV; but closer to maturity; the discount narrows.
Balanced Schemes
Aim to provide both growth and income by
periodically distributing a part of the income and
capital goals they earn. They invest in both
shares and fixed income securities in the
proportion indicated in their offer documents. In
a rising stock market, the NAV of these schemes
may not normally keep pace, or fall equally when
the market falls.
Ideal for :
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Special Schemes
This category includes index schemes that
attempt to replicate the performance of a
particular index such as the BSE Sensex or the
NSE 50, or industry specific scheme (which
invest in specific industries) or sectoral schemes
(which invest exclusively in segments such as
A Group shares or initial public offerings).
Index fund schemes are ideal for investors who
are satisfied with a return approximately equal
to that of an index.
Sectoral fund schemes are ideal for investors
who have already decided to invest in a particular
sector or segment.
About AMFI
AMFI stands for Association of Mutual Fund in
India. It has got a website which can be
accessed at www. Amfiindia.com. SEBI has
mandated all Mutual Fund companies to update
the Net Asset Values (NAVs) of various schemes
on this website by 8 P.M everyday to enable the
investors to know the NAV position on a daily
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basis.
AMFI also conducts various
examinations for different functionaries such as
Mutual Fund Advisors etc. As per SEBI
guidelines, it has become mandatory for all
agents, distributors and persons engaged in
sales and marketing of Mutual Funds to obtain
certification from AMFI. Our Bank has introduced
a special incentive scheme for our staff
members for obtaining the certification from
AMFI.
ABOUT SBI MUTUAL FUND
SBI Mutual Fund was set up in June 1987. Today,
the fund has a market share of 3.1% with more
than 8 lac investors spread over 18 schemes.
The total Asset Under Management (AUM) of SBI
Mutual Fund as on 31st March, 2005 is Rs. 6635
Crores. SBI MF reported a net profit of Rs. 15.05
Crores for the year ended Mar 05. The readers
can get more information on SBI Mutual Fund
on the website www. Sbimf.com.
In July 04, our Bank signed a MOU with Societe
Generale Asset Management (SGAM) to divest
37% of our holding in the Mutual Fund arm for
an amount exceeding US$ 35 million. SGAM is
the asset management arm of Societe Generale
group which manages more than Euro 252 billion
and operates in 20 countries including the U.S,
U.K, Japan, Thailand, Korea, China, Singapore
besides the Eurozone countries. SGAM would
bring its expertise in the area of Product
Development, innovation, economic Research
and strategy, investment process, risk control
and compliance.
As at the end of Dec 05, there were more than
200 equity funds in India. SBI MF's Magnum Tax
gain topped the return chart with 98% during
2005. 5 out of top 15 equity funds in terms of
returns were from SBIMF.
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Introduced in 1992
Objective: To provide depth, stability and maturity to money market; and to increase
returns on investment to individual investors
Enables individuals to invest in: Treasury bills, dated government securities, CPs, CDs,
call or notice money through MMMFs scheme.
MFs are allowed to offer cheque writing facility to investors for MMMF schemes.
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his investment.
Public sector, mutual funds required prior
authorisation of only the RBI and the private
sector mutual fund needs to approach the RBI
as well as SEBI to setup MMMFs.
MMMFs, which invest exclusively in various
money market instruments like treasury bills,
dated government securities with an unexpired
maturity of up to one year, call and notice money,
commercial paper (CPs) and certificate of
deposit can now determine the extent of their
investment in individual instruments except in
the case of CPs, where RBI has kept a limit on
a MMMFs exposure to CPs issued by a company
to three percent of the total corpus. Allowing
corporates to invest also added to the optimism.
Kothari Pioneer Mutual Fund was the first to
launch a money market scheme and now many
MFs offer Money Market Schemes.
In its Credit Policy of April, 1999 RBI has allowed
banks to offer cheque writing facility for the
investors of money market mutual funds
(MMMF).
It should be in the nature of a drawing account
and no deposits can be made in the account. It
should clearly specify the drawal limit and the
number of cheques that can be drawn as
prescribed by the MMMF.
RBI has said that as MMMFs are non-banks and
cannot provide cheque writing facility directly,
this facility has to be in the nature of a tie-up
arrangement with a bank.
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GOLD DEMAT
Commodity futures including gold are traded in commodity exchanges and online
exchanges such as MCX, NCDEX, NMCE and NBoT in India.
Gold and silver are highly traded on the MCX; Agri commodities are traded more
on the NMCE and the NCDEX.
MCX, in association with the World Gold Council, has launched a new product - a
gold contract that is settled in a week (T+7)
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The first credit rating Agency, CRISIL, was set up in India in 1987
Credit Rating provides a measure of credit risk associated with specific reference to
the rated instrument. In essence, the rating is done not for a company but for the
instrument.
CRISIL, CARE, ICRA and Duff and Phelps are the credit rating agencies in India.
Major Credit Rating Agencies in the world 1. Moodys Investor service 2. Fitch Investor
Service 3. Standard and Poors Corporation.
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under:
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BOOK BUILDING
Under this, the offer price is not determined by the issuer but by the quotes given by
the prospective buyers. Hence, it is also called price discovery mechanism.
Benefits: Evaluation of the intrinsic worth of the shares; savings on issue expenses;
investors have a say in pricing; market determined pricing; reduction in lead time.
Concept
Book building is rather a new concept for us in
India, being introduced only in 1995. Under book
building process, the issuer (or issuing
company) is required to tie up the issue amount
by way of private placement. The issue price is
not priced in advance. It is determined by offer
of potential investors about the price which they
may be willing to pay for the issue. In course of
the roadshow exercises, the issue manager,
called Book-Runner, records the amounts
offered by various investors. The price of the
instrument (i.e., equity, debenture or bonds) is
arrived at as an weighted average at which the
majority of investors are willing to buy the
instrument.
Determining Issue Price
Book building is a process of price discovery.
Book building is a pricing mechanism whereby
new securities are valued on the basis of a
demand feedback following a period of
marketing. Book building is a transparent and
flexible system based on real time feed-back of
investors and is an alternative to the rigidity of
the existing system of fixed pricing. Book
building enables fair pricing of the issue. Fair
price is supposed to emerge out of offers given
by various institutional investors.
Statutory Requirements
Book building is a novel concept and is in infancy
in India. The concept has assumed significance
in India as the SEBI has approved the book
building process in pricing new issues with effect
from the 1st November, 1995. SEBI has further
clarified in December 1996 that the option of
book building is available to all body corporates
which are otherwise eligible to make an issue
of capital to the public.
SEBI has thrown open the doors for public issue
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BUY BACK
Buy Back is an arrangement by which shares issued to equity holders are bought back
by the company
Why done: To support market price; to acquire controlling interest; to deploy surplus
funds
Effects: Buy back may affect companys liquidity; profits; EPS, Book Value and gearing
ratio of the Company.
back as a weapon to soothe their nerves
by supporting the share price during periods
of temporary weakness.
2.
3.
2.
4.
3.
Returning
surplus
cash
to
shareholders: If the company is generating
more cash than they need or when the
business in which they are operating does
not offer substantial opportunity for growth
and does not find long term avenues for
deployment, then the company may decide
to return the surplus cash to shareholders.
1. Ultimate Sources:
Buy back shall be out of the following sources
as per Section 77A1 of the Companies Act.
1.
1.
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CONDITIONS:
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3.
PROCEDURE:
1.
2.
3.
4.
5.
2.
3.
2.
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Standardisation implies that size, date of expiry and other features are standardized.
iv)
v)
b)
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c)
d)
e)
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Employee stock option plan gives the right to employees to purchase share of a
company at a set price
Under this, employees are offered shares in lieu of salary or other compensation
Disadvantages: Stock options will not be attractive when share prices fall.
ESOP Accounting
A Stock option confers on an employee the right
to purchase the share of the company at a set
price, after a set period of time. As the
companys share price goes up, so will the value
of the option.
Nowhere the use of employees stock options is
as widely prevalent as in corporate America.
Today it is not only the chief executive who gets
paid in stocks but also the lower level employee.
Much of the success of the tech companies of
Silicon Valley as also the techies who inhabit it
is ascribed to the stock options. Tech companies
whose success depends on the skill of human
assets found stock options a handy device to
lure the human capital.
The underlying logic is that when managers own
part of the stock of the firm they tend to make
decisions that increase the value of the firm as
also that of their holdings in the process.
Also, stock options do not result in a drain on
cash resources up front, unlike other forms of
compensation. For employees the booty
represented a beautiful road to riches. The stock
options turned many of the young techies into
millionaries.
The accounting framework makes the stock
options a cheaper way to pay. In simpler terms
devoid of jargon what it means is that when the
salaries are paid in cash they become cost and
reduce the reported profits. When the salaries
are paid in the form of stock options they do not.
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MARGIN TRADING
Only corporate brokers with net worth of at least Rs.3 crore would be eligible to
participate
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INTERNET TRADING
It helps in transparency, creates a fair and efficient market and reduces systemic risk.
ICICI, HSBC, ABN-Amro are some of the banks which provide internet trading facility.
Objectives
Regulatory initiatives
investor protection
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Benefits: Eliminates risks of forgery and bad delivery; no stamp duty on transfers;
reduction in transaction costs; speedy transfer; reduction in paper work; no risk of loss
of share certificate in transfer
Account opening
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Easy liquidity.
No postage/courier charges.
Dematerialisation/Rematerialisation
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Electronic Trading
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Corporate Benefits
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REPOS
Repos means a contract to buy securities such as Treasury bills, gilts and sell them
back at an agreed future date and price
RBI uses it for open market operations to influence liquidity and short-term interest rate
The average monthly turnover in repo market during 2004-2005 was Rs. 17,135 Crores.
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Objectives: To double our share in global trade (presently around 0.70%) by 2009 and
to act as an effective instrument of economic growth with thrust on employment
generation particularly in semi-urban and rural areas
Sectors with export prospects and potential for employment in rural and semi-urban
areas are identified as thrust sectors
A new scheme- Vishesh Krishi Upaj Yojana introduced to boost exports of fruits,
vegetables, flowers, minor forest produce
Target Plus, served from India scheme, removal of age of goods and decrease in cut
off of minimum depreciated value to Rs. 25 Cr for imported goods are other special
features.
Unshackling of controls;
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b.
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&
Co-acceptance/ Avalisation
Board of Trade
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Inflows and outflows of foreign exchange take place under two accounts- Capital and
Current
Current Account: Import and Export of goods and invisibles (Services and remittance)
Indias exports and imports during 04-05 was Rs. 3.61 lac Crores and 4.90 lac Crores
(i)
Current account
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2002-03
2003-04
2004-05
April 05-Dec 05
255137
293367
361879
293829
22.1
15.0
23.4
15.2
52.72
63.84
80.54
66.43
20.3
21.0
26.2
18.1
297206
359108
490532
425667
21.2
20.8
36.6
24.2
61.41
78.15
109.17
96.24
19.4
27.3
39.7
27.3
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Projected Growth
Indias share in global foreign trade is still below
1%. EXIM Policy seeks to achieve a global share
of 1% while National Foreign Trade Policy aims
to double our share in global trade (which means
more than 1.35%) by 2009. It may be noted that
in the budget 2006, the finance minister has
projected the global share of exports at 1.5%
for 2006 - 2007.
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Enacted in 1999
It liberalises the dealings in foreign exchange and relaxes the punitive provisions in
FERA
Some key measures: Clear definition of current and capital account; simple and
transparent rules;, fewer sections; reduction in number of forms; fewer occasions for
RBI interventions; increase in threshold limits for various transactions under the
discretionary powers of the Authorised Dealers; Alignment of NRI definition with IT act.
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Provides forum for establishing an open and liberal global environment free from trade
restrictions
Objectives: Expand production and trade, optimize use of global resources, raise standard
of living and income and ensure full employment
Steps taken by India under WTO: Reduction in number of items under QR; amendment
to Patents Act, Copyrights Act, Trade Marks law; and relaxation in investment norms
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The Principles
The Principles of the WTO aim to create a liberal
and open trading environment through which
business enterprises can trade under conditions
of fair and undistorted competition. Four
principles guide the trading rules:
Protection through tariffs: The WTO has
advocated liberal trade but recognises that
members need to protect domestic production
against foreign competition. The underlying
principles is to keep such protection at low
levels.
Bound Tariffs: Members are advised to reduce
and eliminate protection to domestic production
by reducing tariffs and eliminating non-tariff
barriers. The principle followed is to bind the
reduced tariffs as committed in the respective
national schedules against further increase.
Most favoured nation treatment : The
principle is favour one-favour all. Tariffs and
regulations must be applied to imports or exports
without discrimination among members.
It prevents discrimination among goods
originating from different countries, i.e. between
imported products and equivalent domestically
produced goods, especially in levying internal
taxes and domestic regulations.
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The Framework
The WTO framework is based on legally
enforceable trading rules, dispute settlement,
trade policy review mechanism, and a platform
for future negotiations. The agreements,
covering goods, services and intellectual
property, are the basis of the framework. They
spell out rules of trading based on liberalisation
and permitted exceptions. Commitment to lower
customs tariff and other trade barriers remain a
primary consideration while drawing up trading
rules. Besides goods, trade in services was
brought under the aegis of the WTO as it
accounted for more than 20 per cent of world
trade. The dispute settlement system set
procedures for settling trade-related
controversies within a stipulated timeframe. The
trade policy review mechanism ensures that
members respect their commitments. Besides
agriculture and services, other issues are
investments, environment, competition policy,
labour standards, etc.
WTO Agreements
WTO Agreements, which formed part of the
Uruguay Round results concluded in 1994, cover
goods, services and intellectual projects. (Its
predecessor GATT dealt only with trade in
goods). These agreements generally spell out
the principles of liberalisation and the permitted
exceptions.
The agreements are under 3 broad groupings
viz., the General Agreement on Tariffs and
Trade-GATT 1994 (for goods), the General
Agreement on Trade in Services (GATS) and the
Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS).
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Patents
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Copyrights
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Trade Marks
Geographical Indications
Industrial Designs
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FIIs entry into India began in 1993 in the wake of economic reforms
They provide much needed funds for development of the country
Unlike FDIs, FIIs bring in portfolio investment i.e investment in shares, debentures,
bonds etc.
Morgan Stanley, Templeton, Jardine Fleming are some examples of FIIs
Advantages: Provide funds; bring in international practices; promotes transparency;
and bring in venture capital.
During 2004-05 FIIs brought in around US$ 12 billion, the highest in 3 years
in terms of taking reasonably medium to longterm view of the company as also ensuring
proper assessment before investing. Better
disclosures and corporate governance and
ensuring that the decisions of the company are
in consonance with the investor perceptions are
the things that have changed over the last 7
years. FIIs along with other institutions have had
a very significant role in causing these changes.
FIIs are transparent and this has made Indian
Companies to follow suit.
Increasingly companies are using the annual
reports as a medium to communicate their
strategies and vision to the world.
Carrots and sticks
The nature of FII investment flows into Indian
markets requires them to focus on medium to
long-term investment horizon. While the arrival
of FIIs led to greater institutionalization of the
Indian market, their activity also provided depth
to the market. Institutionalization also helped in
lending better price discovery mechanism in the
capital market. Since the kind of FIIs operating
in India are long-term players, they tend to put
pressure on policy markers to ensure continuity
of sound economic and business policies.
FIIs have also played a catalytic role in nurturing
the nascent venture capital culture in India.
Future Role
The clout of foreign institutional investors is
immense. Even a tiny fraction of this would mean
lot of money to the emerging markets. They have
become a force to reckon within the global
financial markets. During 2004-05, FIIs have
brought in a net inflow of US $ 12 billion to Indiaone of the highest in the last three years.
Harbingers of transparency
FIIs have brought in a set of practices and
standards in terms of researching a company,
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ECB can be accessed under two routes, viz., Automatic Route and Approval Route
Prepayment of ECB up to USD 100 million is permitted without prior approval of RBI
i) Eligible borrowers
iv) End-use
b)
c)
a)
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b)
a)
c)
d)
b)
c)
v) Guarantees
Guarantee/standby letter of credit or letter of
comfort by banks/financial institutions and
NBFCs relating to ECB is not permitted.
vi) Parking of ECB proceeds overseas
ECB proceeds should be parked overseas until
actual requirement in India.
vii) Prepayment
Prepayment of ECB up to USD 200 million is
permitted without prior approval of RBI, subject
to compliance with the stipulated minimum
average maturity period as applicable for the
loan.
viii) Refinance of existing ECB
Refinancing of existing ECB by raising fresh
loans at lower cost is permitted subject to the
condition that the outstanding maturity of the
original loan is maintained.
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c)
d)
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Resident individuals allowed to remit upto US$25000 freely per calendar year
Residents allowed to book forward contracts and hedge risk in forex market
Non-residents permitted to enter into forward sale contracts with ADs in India to hedge
currency risk
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CORPORATE GOVERNANCE
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Shareholder/investors
Grievance
Committee of the Board looks into the
redressal of shareholders and investors
complaints regarding transfer of shares,
non receipt of Balance sheet, dividend/
interest etc.
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Conclusion
In sum, Corporate Governance aims to maintain
a high level of business ethics and to optimize
the value for all stakeholders. Corporate
Governance facilitates effective management
and control of business. Corporate Governance
has become a corporate business imperative.
Since banks deal with public money, proper
implementation of corporate governance
practices in banks would safeguard depositors
interest while ensuring better returns for
stakeholders.
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Through measurement monitors, it attempts to link the vision, mission and values of
the organisation for application by employees
Background
Balanced Scorecard (BSC) is a management
decision tool for performance measurement and
management. Traditional perfomance
measurement tools such as financial reports ,
sales reports , production reports, customer
survey reports etc measure performance on
multiple dimensions and hence are not balanced
in providing better view of performance. A new
approach to strategic management was
developed in the early 1990s by Drs. Robert
Kaplan (Harvard Business School) and David
Norton. They named this system the balanced
scorecard. Recognizing some of the
weaknesses and vagueness of previous
management approaches, the balanced
scorecard approach provides a clear
prescription as to what companies should
measure in order to balance the financial
perspective.
The balanced scorecard is a management
system (not only a measurement system) that
enables organizations to clarify their vision and
strategy and translate them into action. It
provides feedback around both the internal
business processes and external outcomes in
order to continuously improve strategic
performance and results. When fully deployed,
the balanced scorecard transforms strategic
planning from an academic exercise into the
nerve center of an enterprise.
The balanced scorecard suggests that we view
the organization from four perspectives, and to
develop metrics, collect data and analyze it
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of
Balanced
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desired outcome.
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TRANSFORMATIONAL LEADERSHIP
Leadership is the ability to make followers do he wants them to do, willingly or on their
own, towards accomplishing an organizational goal.
Transactional leadership is based on the leader and the followers having transacted to
do it characterized by close direction, control and follow up. The focus is on behavioural
compliance and outcome. The inner state of thinking and feeling are not matters of concern.
Transformational leadership aims at transforming people by working with and through
them on their values, beliefs, attitudes and behaviour. It aims at emotionally connecting
the followers to the vision of the leader so that they are galvanized to achieve the vision.
TRANSFORMATIONAL LEADERSHIP
Transformational leadership, on the other hand,
is defined in terms of the ability of a leader to
influence the values, attitudes, beliefs and
behaviours of others by working with and through
them in order to accomplish the organisations
mission and goal. (Rouche, Baker, and Rose,
1989)
Transformational leaders foster model values of
honesty, loyalty, and fairness and end values of
justice, equality and human rights.
Transformational leadership aims at
transforming people.
CHARACTERISTICS OF
TRANSFORMATIONAL LEADERS
The following six characteristics are likely to be
present in the transformational leaders:
TRANSACTIONAL LEADERSHIP
1. VISIONARY:
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4. CONSIDERATE:
Transformational leaders treat every individual
as a distinct and significant human being. They
have positive regard for every follower, and listen
to their problems with empathy. They take
interest in the development of each individual.
5. TRUSTWORTHY:
Transformational leaders enjoy the trust of their
followers by being value based and maintaining
high standards of personal credibility. They are
ethical in their dealings, keep their
commitments. They also trust their followers.
They have no difficulty in delegating decisionmaking.
6. CONFIDENT:
Transformational leaders always maintain a
positive self-concept and exhibit self-confidence
and optimism. They also repose confidence in
their followers. They treat their followers with
dignity and respect. They accept issue based
differences of opinion.
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LEARNING ORGANIZATION
A learning organisation is one which is skilled in creating, acquiring and transferring
knowledge and changing its behaviour to reflect new knowledge and insights
Learning provides competitive advantage and helps in organisational transformation
Some of the characteristics include openness, encouragement for creative ideas,
sharing and constant change.
Introduction
In a competitive environment, the market place
is characterized by moves and counter-moves
thereby moving beyond the traditional business
ethics. The organization needs to unlearn many
of the business practices and stategies which
have out-lived their utility and redefine its
business, rediscover the markets, realign its
attitudes that foster customer delight. In order
to meet such a growing international
competition, it is imperative for all organizations
- irrespective of their activity - to reposition their
competitive edge by reorienting their business
goals, strategies and their management
practices.
This emerging economic and business order
calls for a new approach on the part of the
organizations to transform themselves into a
treasure of newer skills, knowledge and abilities
which can translate the emerging competition
into business advantage by discovering new
products and services meeting the everchanging customer demands and preferences.
Besides, the sudden breakthrough in the
Information Technology and Business
Communication renders the traditional skills and
knowledge redundant, thereby making even
some of the high-profile academic literates
virtually computer illiterates. As human beings
strive to exist in the organization, for their very
survival even in the midst of turbulence, there is
every need for them to acquire new skills,
knowledge and attitudes lest the system itself
will make them redundant. This is possible only
when there exists a collective and continuous
system for effective learning in the organizations
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INTELLECTUAL CAPITAL
Intellectual Capital is the product of commitment and competence. Both should exist
in an employee for organizational effectiveness
Commitment can be fostered by articulating vision and sharing power and resources
with the employees.
Leaders should raise standards, set high expectations and demand more performance
and provide corresponding resources to meet high demands
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KNOWLEDGE MANAGEMENT
HRM needs to develop Knowledge Management System due to changing customer
trends, competitive products and services and changing society
The Collective knowledge of the employees gives distinct competitive advantage
The integrated system of KMS should value collection of knowledge, react quickly to
market changes and facilitate faster decisions
Banks should specifically focus on finding, creating, sharing and applying knowledge
that it is relevant to its business
The importance of knowledge for achieving
competitive success has been recognized in the
early 1990s, but it is only recently that the formal
system for managing the acquisitions and the
use of knowledge has begun to emerge, often
created on the back of new information
technology applications and systems. Banking
today is more competitive and technology driven
where human capital can play a pivotal role in
determining the worth of the institution. The
organizational structure of the banks is gradually
changing and in keeping with the global trend,
most banks are focusing on the implementation
of core banking solution where the branch
network should be downsized but the delivery
system will be more dependent on technology.
The rapid pace with which the changes are taking
place in the banking industry is phenomenal. In
order to keep pace with the changes, it is
essential that the Human Resource
Development (HRD) in the banks develop the
Knowledge Management System (KMS) within
the organization so that maximum benefit
accrues to the organization. From a business
strategic perspective, changing customer
trends, competitive products and services and
changing societal and governmental pressures
make the existing business models, business
practices and business value propositions
obsolete. Banks that can figure out the next right
thing and prepare well in advance to ride the next
wave will be more effective in the longer run. All
the information, technology and database cannot
assure banks competitive advantage in the longterm unless the same are translated into
actionable value propositions. Banks have to
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E-GOVERNANCE
E-governance is using Information Technology to improve the methods of governance
Select areas to make e-governance project successful: Local language support, Easy
access to users, extensibility and scalability, reuse of existing public infrastructure,
standard interchange formats, technology upgrades, documentation, continued
training, endurance and flexibility.
E-governance is using IT to improve the
methods of governance. More importantly, it is
about using IT to take governance to more and
more of the population, rather than make them
come to the government. So, it is about enabling
people to have easier government interactions
and making available government services and
information, preferably over public networks.
What does it take to build successful egovernance systems? There are twelve areas
that make e-governance project successful.
Depending on the scope of the project, one may
be give more importance to some over the
others.
1. Local language support
Governance in this country is carried out at the
grassroots level in the local language and not in
English. Hence systems have to work in the
language of governance. Depending on the
location, e-governance systems would have to
use a changing mix of languages, and should
have facilities for translation or transliteration
across them, for them to be successfully
adopted.
2. Easy access for users
Designers of e-governance systems should take
extra care to ensure that ease of access to the
system is enhanced. This could range all the
way from establishing public access kiosks
where they are needed the most, to using
standard access technologies, such as a
browser. Similarly, locations such as village
libraries and Panchayat offices need to be
evaluated for locating systems requiring public
access.
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serve out over many, many years. Any egovernance system will undergo substantial
modification over time and it would be futile to
expect this to be possible without good
documentation.
Good documentation is not a one-time process,
but a continuing one.
10. Continued training
Till such time as IT becomes commonplace,
provision needs to be made in government
budgets for continued user and administrator
training. And traditional training courses should
also include modules on IT and e-governance
systems.
11. Endurance
Government systems, whatever may be the
media of delivery, are to be built to endure.
Information stored in those systems has to be
available for generations, if not for centuries. For
example, land ownership and mutation records
are already available for more than a century in
most states and will have to be recorded for
possibly many more.
12. Flexibility
The endurance required of e-governance
implementation also means that they have to
be flexible. The rules and requirements of
governance are not written in stone and evolve
with time. As society evolves, new demands
would be placed on existing systems of
governance. E-governance systems require
more flexibility and should be more
accommodating of change than traditional
enterprise systems.
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ASSESSMENT CENTRE
2.
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3.
4.
5.
6.
7.
COMPETENCY MAPPING
aims to match the competency of the employee with those of the job requirement.
There are different tools including psychometric tests used to map competency.
A formal implementation of the system will help organisations to save on costs and
improve performance.
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Personal Characteristics
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ORGANISATION CULTURE
Organisation culture refers to the way we do things here
It is the easiest thing to comprehend but most difficult to define
It is unique and distinct for every organisation
The Johnson and Scholes cultural web model contains six inter related elements
rituals and routines, stories, organisation structure, symbols, power structures and
control systems
INTRODUCTION
Every Organisation has its own distinct culture
and structure.
Culture has its origin in the organisational
interaction.
Culture pervades all the
relationships in the organisation and influences
all its decisions.
Organisational Culture is the easiest thing to
comprehend and at the same time the most
difficult thing to define. This is because of the
aura of mystique that surrounds Organisational
Culture.
DEFINITION:
Organisation Culture refers to a system of
shared meaning held by members that
distinguishes the organisation from other
organisations. Organisation culture is the key
to much that happens (or does not happen).
Organisation Culture is the fabric of meaning in
terms of which human beings interpret their
experience and guide their action.
An organisations culture is also described as
the way we do things here. It is a combination
of deeply felt values, beliefs and attitudes about
how the work of the organisation should be
done. Cultures are acquired during periods of
success, and employees see the culture as the
reason for that success. However, the real
reasons for success are more likely to relate to
the organisations markets and the relevance of
its competencies
Organisation culture is akin to the DNA of a
human organism, which is unique and specific.
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MENTORING
Coaching, counselling, providing guidance, social and emotional support are some of
the ways.
Background
Every organization has its own culture as defined
by formal and informal organization. The
Should and Should nots in any organization
are sometimes at variance with what any
individual has experienced before joining the
organization. Besides this, the political climate
and culture of any organization are unknown to
new recruits or new role holders. The new
recruits many times are unable to reconcile the
dilemma
between
competition
and
collaboration. These and many other processes
are clarified through a process of mentoring,
where the new recruit can approach the mentor
without the fear of putting his/her career at stake.
What is Mentoring ?
Mentoring has been a recognized form of
personal development for thousand years. Since
most ancient experiences in mentoring are
informal, considering the benefits of mentoring,
many organizations have introduced formal
mentoring processes in their companies.
Mentoring is a process of making a person
(generally new recruits or new role holders) more
effective in the profession by developing
personal working relationship. A mentor is
someone with the skills, experience and
perspectives that are needed by the
organization; who has a reasonable amount of
organizational influence; and who is willing to
develop a personal working relationship with
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360DEGREE TECHNIQUE
seeks to measure the performance of employees on the job from multiple stakeholders.
Methodology
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assess.
Empowerment is facilitated.
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Conclusion
The 360-degree feed back provides a broader
perspective about employees strengths and
weakness: It facilitates greater self development
to employees. It enables an employee to
compare his or her perceptions about self with
the perceptions of the assessors. Besides, 360degree feedback creates an atmosphere of
more openness, improved inter personal
relations and teamwork. It makes employees
feel more accountable to the internal and
external customers. However, there are
drawbacks associated with 360-degree
feedback. Receiving feedback on performance
from multiple sources can be intimidating.
Further, selecting the assessors, designing
questionnaires and analyzing data may be
cumbersome and time consuming tasks. In
addition, there might be difficulties in getting
objective feedback due to personal differences
and biases. Notwithstanding, more and more
number of companies are using 360-degree
feedback. It is essential that the organization
should follow the above-mentioned guidelines
and create a conducive environment by
emphasizing the positive impact of the technique
on employees performance and development.
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EMOTIONAL INTELLIGENCE
Emotional Intelligence is the capacity to recognise ones own feelings and those of
others.
It helps to motivate oneself, manage emotions of self and others; contribute to effective
performance in the job and developing satisfying relationship in life
Self-management:
Social Awareness:
Self-Awareness :
Emotional self-awareness:
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Social Skills:
their
and
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STRESS MANAGEMENT
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SYMPTOMS OF STRESS
Physical
Psychological
Behavioural
Tension headaches
Migraine
Sleep disorder
Nervousness
Anxiety
Irritability/ anger
Fatigue
Overeating
Loss of appetite
Constipation/ diarrhea
Reduced performance
Lower productivity
Mistrust or hostility
towards associates
Missing deadlines
Shirking responsibilities
Minor accidents
Increased errors
Depression
Losing sense of humour
Feeling withdrawn
Feeling that you do not want
to do things that you have to do
Feeling emotionally drained
Indecisive use of drugs
Difficulty in remembering
Excessive use of drugs
Excessive use of alcohol
Excessive use of tobacco
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II. MIND:
a) Positive thinking and attitude: We
can use the power of mind for self
hypnosis and imagery training. We can
replace our negative thoughts with
positive thoughts and this in turn will
influence our thinking.
b) Prayer: Prayer simply means passing on
our worries and anxieties to Almighty or
Mother Nature. Scientific studies have
shown that believers have significantly
lower rates of stress related ailments.
III. BEHAVIOUR
Self Monitoring: Take a few minutes for
yourself in the evening/ night to analyse
stressful situations of the day and plan
corrective action for the future.
Change life style: Getting up early,
regularity of exercise, food habits, time
management, reasonable working hours
etc. and take corrective action.
Laughter: Develop a habit of laughing at
yourself by saying Do not take this
person seriously. A good laugh relaxes
muscles, lowers blood pressures,
suppresses stress related hormones
and enhances the immune system.
Balanced life activities: Avoid building
your life around one person or one thing.
Live a balanced life, have many sources
of happiness.
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EMPOWERMENT
Empowerment is the authority to make decisions within ones area of responsibility without
first having to get approval from someone else
Empowerment is a Motivational tool in the hands of the Organisation
It enables employees to use their talents and capabilities
Empowerment has become a buzzword in the
late 1990s. Organisations see it as a competitive
edge and have started using this as a Motivation
tool.
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The quality service delivery results in customer satisfaction and their retention
Quality is a winning attitude and it always needs improvement
Quality is difficult to define because it is highly
dependent upon customer perception. The task
is made more complicated in the case of
services industries because of the intangible
nature of services and the variation in services
offered to different customers.
The American Society for Quality Control has
defined quality as the totality of features and
characteristics of a product or a service that bear
on its ability to satisfy stated or implied needs
e.g. Banking services is not only for selling of
products and services to the customers but also
the total environment attached to it like how much
value is added to the products and services
including the physical ambience and the quality
of the products and services.
The well known approaches to improvement of
quality are:(a) Bottom-up approach
(b) Top-down approach
In case of bottom up approach, the
implementation of any policy begins from the
lowest level of employees. It slowly transmits
itself upwards. For example, card punching or
swiping of cards at entry or exit from workplace
may begin with the lowest cadre employee and
later adopted by higher levels of management
to give a semblance of fairness.
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Reasons are:
to
address
the
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NICHE MARKET
A niche market is a group of potential customers who share common characteristics
that make them receptive to a particular produce or service
Launching a product into a niche market is far cheaper than launching a mass-market
product
The Internet has features that make it ideal for niche marketing
A niche market is a group of potential custom- enough, and that is not owned by one estabers who share common characteristics that lished vendor already.
make them receptive to a particular produce or Three Steps of Niche Market
service.
First off, its too expensive and usually a very
A niche market is a focused, targeted portion of difficult task to try and develop ones own niche.
a market. By definition, a business that focuses Its better to identify and plan on addressing an
on a niche market is addressing a need for a existing niche that has good potential for using
product or service that is not being addressed unique product or services.
by mainstream providers. One can think of a
niche market as a narrowly defined group of For example, it is assumed that one has invented
a fantastic sports drink and want to develop the
potential customers.
market for his product.
Launching a product into a niche market is far
cheaper than launching a mass-market product. Here are the first three steps to find niche:
The potential customers are easier to identify 1. Assess self and determine what areas of
life are most interested (in the product) and
and to target. Niche markets often develop from
how it will interface with product.
mass markets and mass-market manufacturers
sometimes choose to launch niche product as 2. Assess potential market to determine if
well. Conversely, what are expected to be niche
there is an area that could use services.
markets sometimes develop into mass markets.
An easy way to make this determination is
When Apple came up with the PC in the early
just to talk to the people in targeted
1980s, for instance, it did not expect it to becommunity. Another is to join groups of
come a mass-market product. Yet, it did, and out
people who have similar interests such as
of that mass market there ultimately emerged
health clubs, little league boosters, and
some niches, such as the educational PC marsoccer clubs or at car racing activities.
ket.
3. Once a promising niche is found, then it
The trouble with niche markets that do not deneeds to be determined whether the same
velop into mass markets is that they soon reach
can be comfortable with the anticipated
their maximum size. A niche, which can be so
income from it.
helpful in getting a product off the ground, can
soon become a straitjacket. Manufacturers have A brief history:
to find another niche product, or another market Some have seen niche marketing as a phase in
a 20th - century journey from mass marketing to
in which to sell their existing product.
The Internet has features that make it ideal for one-to-one marketing. The 50s and 60s were the
niche marketing. Through its mailing lists and heyday of mass marketing. There was one kind
newsgroups it gathers electronically in one spot of Coca-Cola soft drink for the thirsty, one kind
of cyberspace precisely those groups of cus- of Holiday Inn hotel for the traveler. The 70s betomers with similar interests that are a niche came a decade segmentation and line extension.
marketers dream. Mailing lists and newsgroups It was followed in the early 80s by intensified
focus on specific topics. In each discussion niche marketing that sliced market into smaller
group there can be as many as regular readers and smaller groups of consumers. The whole
world has started moving from mass marketing
with a special interest in that topic.
to segmented marketing to niche marketing to
The trick to capitalizing on a niche market is to tomorrows world of one to one marketing through
find or develop a market niche that has custom- Internet in the 21st Century.
ers who are accessible, that is growing fast
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RELATIONSHIP BANKING
Relationship Banking means maintaining a long and enduring relationship with clients
It aims to have 100% of a clients business, both present and future, in one bank/one
service provider.
Relationship Banking helps in cost reduction, better use of data and increased opportunity
for cross-selling
b)
c)
d)
e)
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CROSS SELLING
it costs a bank five times less to cross sell an existing client than to acquire a new one
Cross selling helps banks to plan, implement and maintain better customer relationship
management programmes
The success of cross selling depends on offering at the right time, the relevant product
to the customer
Banking Briefs
383
331
Research studies have established that the percentage of loyalty increases with the number of
products the customer takes. The reasons may
be for convenience, service, price and value
offerings by the bank for the total product solutions to the customer.
strategy is built.
Banking Briefs
384
332
It is a quality tool.
Companies like Motorola and G.E have implemented this with success
Helps in customer satisfaction and retention, elimination of waste and reduction in cost
SIGMA
Defects
Per Million
Defects
Percentage
One
7,00,000
70%
Two
3,00,000
30%
Three
67,000
6.7%
Four
6,000
0.6%
Five
230
0.0002%
Six
3.4
0.000034%
385
333
Banking Briefs
386
TQM means ensuring error free functions all around in the organization
Zero defects, Kaizen (continuous improvement), benchmarking are its key approaches
a.
Participative management
b.
ESSENTIALS OF TQM
c.
Use of teams
TQM DEFINED
TQM is a co-operative form of doing business
that relies on talents and capabilities of both
labour and management to continually improve
quality and productivity using teams. Embodied
in this definition are three main ingredients
necessary for TQM to flourish in an organisation:
387
335
Benchmarking
CONCLUSION
Banking Briefs
388
BENCHMARKING
In effect, it implies setting benchmarks for excellence and working towards it.
389
Banking Briefs
390
338
ISO 9001
What is ISO
ISO stands for International Standards
Organisation. It is a worldwide federation of
National standards bodies. National standard
bodies of different countries are members of ISO.
ISO was first established in 1985 when around
85 countries became signatories to this universal
standard. The Headquarters of ISO is in Geneva,
Switzerland. Earlier different countries followed
different standards and hence there was no
uniformity. ISO seeks to establish universal
standards of quality and thus help in bringing
about quality improvement worldwide.
Establishment Standards
The work of preparing International Standards is
normally carried out through ISO technical
committees. Each member body interested in a
subject for whom a technical committee has been
established has the right to be represented on
that committee. International organisations,
governmental and non-governmental, in liaison
with ISO, also take part in the work. Publication
as an International Standard requires approval
by at least 75% of the member bodies casting a
vote on draft International Standards.
What is Quality
Auditing
Revision
The ISO standard was first adopted in 1987. It
was later revised in 1994. The present version
ISO 9001:2000 is adopted in 2000. The standard
Banking Briefs
391
ISO 14000
It helps in reduction of energy consumption, liability and risk and improves compliance
to legal and regulatory requirements
392
QUALITY CIRCLES
QC is a small group of employees in the same work area, who meet regularly to identify,
analyse and solve work related problems.
The members identify problems, prioritise the most important problem to be addressed,
develop solutions and implement them
Brain Storming, Pareto Analysis and Fish Bone Diagram are the key techniques used.
2.
3.
4.
5.
6.
7.
8.
Identity Problems
Develop solution
Implement solution
393
394
342
Banking Briefs
395
343
FINANCIAL ENGINEERING
Definition
Financial engineering is a multi-disciplinary
approach to the management of risk and return
which involves the use of derivative instruments
to decompose standard financial transactions
into their elements and then synthesise these
elements into innovative cross market structures
customised to the particular re-quirements of
counter parties.
The term financial engineering was coined in
the mid 1980s, among London investment banks
and is the product of several parallel
developments.
The emergence of both derivative instruments
and financial engi-neering has only been possible
because of the development of new information
technology, in particular, the PC and
spreadsheet software. These innovations have
provided a fast and flexible means of managing
the large volumes of information which are
necessary to construct complex transactions.
Other innovations, mainly in the field of
telecommunications, have reduced the cost of
generating and delivering the information. Lower
costs have in turn increased the availability of
information, which has extended the range of
opportunities for financial engineering to exploit.
An important force behind the emergence of
financial engineering has been the trend towards
liberalisation of financial markets which began
at the end of the 1970s. The removal of official
barriers has permitted the cross-market activity
that characterises financial engineering. The
competition it has unleashed has encouraged
the process. However, care needs to be taken
Banking Briefs
396
EVA= Net Operating Profit After Tax (NOPAT) (Cost of capital * Operating Capital)
Eg: If NOPAT is Rs. 100000/-; Capital employed is Rs.500000 and Cost of Capital is
12% then EVA= {100000- (500000 * 12%)= 100000-60000= Rs.40000
Capital includes both equity and debt; and determining cost of equity is difficult
The speciality of EVA is that it takes into account Capital employed and the risk as
measured by cost of capital
397
MVA is defined as the excess of the market value of the Company over the value of
investors capital
Thus MVA= (Market value of debt and equity Book Value of debt and equity)
MVA is similar to Price Earning Ratio except that MVA indicates an absolute figure
while PER is a ratio
398
346
Long Term Capital Management (LTCM) Fund in US failed due to excessive risk taking
and huge borrowings
Barrings Bank despite 225 years tradition failed due to reckless trading by Nick Leeson
and lack of internal control
Brazilian crisis was triggered by excessive reliance on foreign investments without proper
fiscal discipline
Asian Currency crisis was triggered off in Thailand. Reason: Huge current account
deficit, decline in export growth and large volatile flow
399
400
348
High deposit rates, high cost of lending, lending to sensitive sectors, were some of the
reasons for the fall
Amalgamated with Oriental Bank of Commerce. Shareholders have lost their investment
Lessons: Need for strong systems and procedures, proper credit appraisal and credit
management, integrity of officials, well established norms and practices for high-risk
exposure.
401
LESSONS
The fall of GTB provides the following lessons
for the bankers:
Moratorium
RBI, in exercise of its powers under Banking
Regulation Act, 1949, imposed moratorium on
GTB on 24th July 04. RBI acted swiftly and
concluded the amalgamation of GTB with
Oriental Bank of Commerce. For OBC, it has
taken an immediate hit of Rs. 800 Cr profit in its
books ( though there are provisions of tax rebate
etc) and got more than Rs. 7,000 Cr deposits,
one million customers, entry into south, a branch
network of 130, 250 ATMs, common technology
platform and high networth clients. The
shareholders of GTB have, however, lost their
money, though they are entitled to the residual
surplus, if any, after 12 years following the
liquidation of impaired loans.
Banking Briefs
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350
COMMITTEES
Banking Briefs
403
404
Banking Briefs
405
352
406
407
354
Suggested appropriate benchmarking and spread rules for administered interest rate
408
Banking Briefs
409
356
DFIs which have been constituted as companies and are performing developmental
roles should be classified as a new category of NBFCs called Development Financial
Companies (DFCs)
Banking Briefs
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357
TARAPORE COMMITTEE
on Procedures and Performance Audit on Public Services
Report submitted in 2004
The Reserve Bank Note Refund Rules to be written in easily understandable language
Banking Briefs
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358
VYAS COMMITTEE
on Flow of Credit to Agriculture and Related Activities from the Banking System
(Report submitted in June 2004)
A road map for public sector and private sector banks to reach a level of direct lending
at 13.5 per cent of net bank credit - within the overall limit of 18.0 per cent of total
agricultural lending - within a period of four years
The share of small and marginal farmers in agricultural credit to be raised to 40 per
cent of disbursements
Non-performing asset (NPA) norms in agricultural credit to be attuned to the cash flow
of the farmer, coinciding with the harvesting/marketing of the crop.
Banking Briefs
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359
413
360
Banking Briefs
414
361
2.
3.
4.
Banking Briefs
415
5.
6.
7.
362
8.
9.
2.
3.
416
363
4.
5.
6.
Banking Briefs
417
364
NARASIMHAM COMMITTEE - I
(On Financial Sector Reforms-1991)
418
b)
c)
d)
Banking Briefs
419
366
Banking Briefs
420
367
NARASIMHAM COMMITTEE - II
(On Banking Sector Reforms - 1998)
Major areas covered: Strengthening capital adequacy, Asset quality, Prudential norms
& disclosure requirements; Systems and methods in Banks and structural issues
The
following
are
the
important
recommendations of the Committee:
Asset Quality
Banking Briefs
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368
Prudential Norms
Requirements
and
Banking Briefs
422
Disclosure
Structural Issues
369
Banking Briefs
423
370
GOIPORIA COMMITTEE
(On Customer Service)
Banking Briefs
424
371
Banking Briefs
425
372
Banking Briefs
426
373
STATISTICAL
PROFILE
Banking Briefs
427
31.03.2005
31.03.2004
31.03.2003
Global deposits
367047
318619
296123
Of which domestic
352798
309798
288866
Global Advances
Of which domestic
202374
178474
157934
142026
137758
123850
Global investments
Of which domestic
197097
192456
185676
181684
172347
167885
4304
3681
3105
Total Income
39548
38073
36827
28557
28519
33722
526
526
526
23545
19705
16677
Capital Adequacy(%)
12.45
13.53
13.50
32428
30460
31087
7120
7613
5740
Operating Expenses
10074
9245
7942
6685
5872
4670
18.10
18.19
18.05
125
110
85
Cost of deposits(%)
4.70
5.48
6.43
7.68
8.17
8.97
3,39
3.04
2.95
81.79
69.94
59
36.61
38.69
38
2.65
3.48
4.50
459882
407815
375876
0.99
0.94
0.86
2.07
1.77
1.48
243
210
191
59.73
59.73
59.73
16.78
17.33
17.60
16.45
16.87
17.54
Net Profit
CAPITAL STRUCTURE
Capital
PROFITABILITY
Interest income
Banking Briefs
428
9156
9093
9033
No of ATMs installed
5217
3814
1305
2225
1110
531
205
207
209
31.03.2005
31.03.2004
31.03.2003
6907
6447
5688
Officers
29.32
28.71
27.5
Clerical
45.65
46.17
47.1
Sub Staff
25.03
25.12
25.4
1093
40
260
94
4819
4215
210
156.85
128.70
- Deposits
24.51
26.05
27.40
- Advances
24.05
24.22
24.40
Banking Briefs
429
2003-04
2004-05
Variation
Absolute
Percentage
51,875.27
53,512.54
1,637.27
3.16
(100.00)
(100.00)
Interest Income
40,956.39
44,045.35
3,088.96
7.54
(78.95)
(82.31)
16,250.05
18,919.56
2,669.51
16.43
20,864.16
21,326.48
462.32
2.22
10,918.88
9,467.19
-1,451.69
-13.30
(21.05)
(17.69)
4,217.36
4,792.99
575.63
13.65
46,256.55
47,836.68
1,580.13
3.42
(100.00)
(100.00)
25,395.15
24,842.08
-553.07
-2.18
(54.90)
(51.93)
24,027.79
23,275.67
-752.12
-3.13
8,744.80
9,584.29
839.49
9.60
(18.90)
(20.04)
A. Income (i+ii)
i)
Income on Investments
ii) Other Income
of which : Commission and Brokerage
B. Expenditure (i+ii+iii)
i)
Interest Expended
51,999.92
1,406.83
-3,793.09
-72.95
12,116.60
13,410.31
1,293.71
10.68
(26.19)
(28.03)
8,318.98
9,009.43
690.45
8.30
14,363.52
15,260.15
896.63
6.24
5,618.72
5,675.86
57.14
1.02
15,561.24
19,203.27
3,642.03
23.40
5,49,123.72
6,27,074.70
77,950.98
14.20
C. Profit
i)
Operating Profit
Banking Briefs
430
376
2003-04
1
A. Income (i+ii)
i)
Interest Income
Absolute
Percentage
1,83,872.12
1,93,268.88
9,396.76
5.11
100.00
100.00
1,44,346.81
1,58,438.26
14,091.45
9.76
19.31
(78.50)
(81.98)
83,573.94
13,524.09
66,104.78
66,171.79
67.01
0.10
Other Income
39,525.31
34,830.62
-4,694.69
-11.88
(21.50)
(18.02)
11,837.60
14,913.49
3,075.89
25.98
1,61,601.18
1,71,948.72
10,347.54
6.40
3,974.25
4.54
Income on Investments
B. Expenditure (i+ii+iii)
i)
Variation
70,049.85
2004-05
Interest Expended
(100.00)
(100.00)
87,562.75
91,537.00
(54.18)
(53.24)
77,667.58
77,611.84
-55.74
-0.07
30,329.28
30,363.86
34.58
0.11
(18.77)
(17.66)
17,441.31
7,105.92
-10,335.39
-59.26
Operating Expenses
43,709.15
50,047.86
6,338.71
14.50
(27.05)
(29.11)
26,359.53
29,032.26
2,672.73
10.14
i)
Operating Profit
52,600.22
51,684.02
-916.20
-1.74
ii)
Net Profit
22,270.94
21,320.16
-950.78
-4.27
56,784.06
66,901.26
10,117.20
17.82
19,74,017.00
23,55,982.67
3,81,965.67
19.35
ii)
iii)
C. Profit
Banking Briefs
431
Banking Briefs
432
378
12,29,462.52
1,41,318.27
3,21,016.66
7,67,127.59
Deposits
3.
61,994.34
87,616.41
14,71,077.38
58,308.21
60,483.70
100.00 16,92,578.55
3.96
12,552.02
3,98,059.06
3,48,556.25
62,642.41
8,09,257.72
92,514.37
15,463.25
3,249.48
5,49,447.26
0.87
100.00
3.57
0.74
23.52
20.59
3.70
47.81
5.47
0.91
0.19
32.46
32.65
39.03
3.66
5.18
100.00
7.98
2.53
52.25
22.27
9.42
83.94
4.68
Total Assets
Other Assets
6.
11,531.49
0.78
19.35
2,84,697.02
Fixed Assets
3.26
20.42
43.03
6.72
6,33,035.49
98,906.45
1.16
34.50
0.19
5,07,451.67
2,780.10
b) Outside India
a) In India
5,52,696.74
3.93
5.73
5.
4.
1,35,009.46
42,874.14
8,84,446.87
3,76,883.99
1,59,419.6
100.00 16,92,578.55
9.98
2.06
52.15
21.82
9.61
6,60,674.36
6,26,175.69
57,784.74
84,241.76
14,71,077.38
79,139.46
1,4805.57
83.58 14,20,749.92
4.39
1.00
42.57
Investments
2.
3.
1.
Assets
Total Liabilities
5.
30,256.50
Borrowings
4.
64,566.94
Capital
2.
14,675.56
2005
Amount Per cent
to total
2004
1.
Liabilities
Item
17,73,938.80
64,833.11
13,441.44
4,39,832.66
3,49,839.94
64,998.69
8,54,671.29
1,02,670.81
15,463.25
3,249.48
5,64,345.51
5,67,594.99
6,85,729.05
65,271.60
89,992.31
17,73,938.80
1,45,335.26
92,879.68
8,93,770.96
3,78,775.88
1,63,305.72
14,35,852.56
84,343.96
15,527.34
100.00
3.65
0.76
24.79
19.72
3.66
48.18
5.79
0.87
0.18
31.81
32.00
38.66
3.68
5.07
100.00
8.19
5.24
50.38
21.35
9.21
80.94
4.75
0.88
2005#
2004
9,21,953.66
34,332.05
8,181.99
1,85,057.47
2,00,523.35
26,938.87
4,12,519.69
71,066.75
11,784.71
2,577.16
2,93,445.42
2,96,022.58
3,78,874.04
29,966.23
58,079.66
9,21,953.66
62,593.11
13,441.07
5,02,387.39
2,14,311.11
77,727.56
7,94,426.26
37,853.46
13,639.76
100.00
3.72
0.89
20.07
21.75
2.92
44.74
7.71
1.28
0.28
31.83
32.11
41.09
3.25
6.30
100.00
6.79
1.46
54.49
23.25
8.43
86.17
4.11
1.48
2005
10,65,503.85
35,593.35
9,008.12
2,49,916.57
2,39,425.43
35,188.86
5,24,530.86
67,634.37
10,817.33
2731.66
3,18,786.75
3,21,518.41
3,99,970.11
33,925.20
62,396.21
10,65,503.85
69,823.68
19,398.71
5,76,275.63
2,50,666.64
88,158.24
9,15,100.51
47,411.18
13,769.77
10
100.00
3.34
0.85
23.46
22,47
3.30
49.23
6.35
1.02
0.26
29.92
30.18
37.54
3.18
5.86
100.00
6.55
1.82
54.08
25.53
8.27
85.88
4.45
1.29
11
Nationalised Banks
5,49,123.72
23,976.16
3,349.50
99,639.55
99,889.11
20,987.14
2,20,515.80
27,739.72
5,352.74
202.94
2,14,006.25
2,14,209.19
2,47,301.65
27,818.51
26,162.10
5,49,123.72
69,522.75
16,815.43
2,64,740.20
1,06,705.35
63,590.71
4,35,036.26
26,713.48
1,035.80
12
28,069.14
25,220.20
6,27,074.70
65,185.78
23,475.43
3,08,171.24
1,26,217.35
71,260.82
5,05,649.41
31,728.28
1,035.80
14
100.00
4.37
0.61
18.15
18.19
3.82
40.16
5.05
0.97
0.04
38.97
39.01
6,27,074.70
24,890.35
3,463.90
1,48,142.49
1,09,130.82
27,453.55
2,84,726.86
24,880.00
4,645.92
517.82
2,30,660.51
2,31,178.33
100.00
3.97
0.55
23.62
17.40
4.38
45.41
3.97
0.74
0.08
36.78
36.87
41.57
4.48
4.02
100.00
10.40
3.74
49.14
20.13
11.36
80.64
5.06
0.17
15
45.04 2,60,704.215
5.07
4.76
100.00
12.66
3.06
48.21
19.43
11.58
79.22
4.86
0.19
13
2005
Banking Briefs
433
379
0.82
100.00
4.26
2.16
30.71
12.27
3.50
46.48
10.73
0.22
0.03
26.18
26.20
37.15
4.04
5.91
100.00
9.70
10.99
51.34
10.92
10.93
73.18
5.31
3,67,299.50
6. Other Assets
Total Assets
7,924.10
15,656.63
5. Fixed Assets
1,12,794.36
45,064.82
12,868.58
1,70,727.76
39,406.40
790.67
96.83
96,142.61
96,239.44
1,36,436.51
14,828.93
21,725.57
b) Outside India
a) In India
3. Investments
Assets
3,67,299.50
35,636.62
Total Liabilities
40,365.62
4. Borrowings
1,88,554.54
40,093.07
40,134.73
2,68,782.34
3. Deposits
3,028.14
19,486.78
`2
Per cent
to total
2004
2005
4,27,915.51
18,156.50
7,726.76
1,47,669.95
56,448.69
17,029.98
2,21,148.62
42,083.92
613.00
113.58
97,077.49
97,191.07
1,39,887.99
19,671.45
21,324.19
4,27,915.51
38,259.95
44,443.41
2,18,745.55
50,662.98
45,221.19
3,14,629.72
27,217.93
3,364.50
Amount
Amount
1. Capital
Liabilities
Item
100.00
4.24
1.81
34.51
13.19
3.98
51.68
9.83
0.14
0.03
22.69
22.71
32.69
4.60
4.98
100.00
8.94
10.39
51.12
11.84
10.57
73.53
6.36
0.79
Per cent
to total
1,20,723.75
3,580.46
1,512.23
24,823.56
25,564.62
5,192.51
55,580.69
11,631.40
690.93
83.54
35,202.78
35,286.32
47,608.65
6,172.94
6,268.68
1,20,723.75
5,741.88
2,129.85
78,787.41
16,983.84
9,793.11
1,05,564.36
6,654.95
632.71
Amount
2004
100.00
2.97
1.25
20.56
21.18
4.30
46.04
9.63
0.57
0.07
29.16
29.23
39.44
5.11
5.19
100.00
4.76
1.76
65.26
14.07
8.11
87.44
5.51
0.52
Per cent
to total
1,33,494.06
3,828.41
1,581.53
32,475.82
30,063.05
5,645.17
68,184.04
9,338.12
522.01
75.79
34,743.40
34,819.19
44,679.32
8,135.39
7,085.37
1,33,494.06
6,481.54
2,149.69
85,259.20
20,004.24
11,672.64
1,16,936.08
7,118.35
808.40
Amount
2005
100.00
2.87
1.18
24.33
22.52
4.23
51.08
7.00
0.39
0.06
26.03
26.08
33.47
6.09
5.31
100.00
4.86
1.61
63.87
14.99
8.74
87.60
5.33
0.61
Per cent
to total
2004
2,46,575.75
12,076.17
6,411.77
87,970.80
19,500.20
7,676.07
1,15,147.07
27,775.00
99.74
13.39
60,939.83
60,953.12
88,827.86
8,655.99
15,456.89
2,46,575.75
29,894.74
38,235.77
1,09,767.13
23,109.23
30,341.62
1,63,217.98
12,831.83
2,395.43
10
Amount
100.00
4.90
2.60
35.68
7.91
3.11
46.70
11.26
0.04
0.01
24.71
24.72
36.02
3.51
6.27
100.00
12.12
15.51
44.52
9.37
12.31
66.19
5.20
0.97
11
Per cent
to total
2005
2,94,421.45
14,328.09
6,145.23
1,15,194.13
26,385.94
11,384.81
1,52,964.58
32,745.80
90.99
37.79
62,334.09
62,371.88
95,208.67
11,536.06
14,238.82
2,94,421.45
31,778.41
42,293.72
1,33,486.35
30,658.74
33,548.55
1,97,693.64
20,099.58
2,556.10
12
Amount
100.00
4.87
2.09
39.13
8.96
3.87
51.95
11.12
0.03
0.01
21.17
21.18
32.34
3.92
4.84
100.00
10.79
14.37
45.34
10.41
11.39
67.15
6.83
0.87
13
Per cent
to total
2004
2005
Amount
Per cent
to total
Amount
Per cent
to total
4.55
1
Liabilities
1. Capital
4,644.53
3.42
7,012.90
10,200.61
7.52
11,968.42
7.77
3. Deposits
80,205.49
59.13
86,504.76
56.13
21,784.27
16.06
26,068.49
16.91
12,567.56
9.27
15,505.33
10.06
45,853.66
33.81
44,930.94
29.15
4. Borrowings
24,939.75
18.39
30,993.21
20.11
15,649.74
11.54
17,649.07
11.45
1,35,640.12
100.00
1,54,128.36
100.00
7,278.23
5.37
6770.41
4.39
Total Liabilities
Assets
1. Cash and balances with RBI
2. Balances with banks and
money at call and short notice
3. Investments
3.1. In Government Securities (a+b)
a) In India
9,419.38
6.94
11,260.75
7.31
41,586.86
30.66
42,518.36
27.59
32,671.94
24.09
34,116.70
22.14
32,671.94
24.09
34,116.70
22.14
b) Outside India
3.2. In other approved Securities
172.22
0.13
215.22
0.14
8,742.70
6.45
8,186.44
5.31
60,507.40
44.61
75,318.25
48.87
6,172.92
4.55
7,515.55
4.88
26,729.84
19.71
30,771.73
19.97
27,604.64
20.35
37,030.97
24.03
5. Fixed Assets
1,953.46
1.44
1,882.71
1.22
6. Other Assets
14,894.79
10.98
16,377.88
10.63
1,35,640.12
100.00
1,54,128.36
100.00
Total Assets
: Nil / Negligible.
Source : Report on Trend and progress of banking in India, 2004-05.
Banking Briefs
434
380
Banking Briefs
435
381
11,231.11
(2.27)
14,363.52
(2.62)
15,260.15
(2.43)
18,486.13
(2.34)
24,926.58
(2.70)
23,431.01
(2.20)
29,717.24
(2.31)
39,290.10
(2.67)
39,413.18
(2.22)
38,691.13
(2.29)
40,681.94
(2.39)
52,600.22
(2.66)
51,684.02
(2.20)
50,962.00
(2.24)
Operating
Profit
(3+11)
4,511.52
(0.91)
5,618.72
(1.02)
5,675.86
(0.91)
7,783.94
(0.98)
10,927.66
(1.19)
9,494.04
(0.89)
12,295.46
(0.96)
16,546.38
(1.12)
15,784.40
(0.89)
15,169.90
(0.90)
17,077.22
(1.01)
22,270.94
(1.13)
21,320.16
(0.91)
20,705.66
(0.91)
Net
Profit
(4-7)
2004-05
2003-04
2004-05
2003-04
Nationalised Banks
2002-03
2004-05#
2004-05
2003-04
2004-05#
2004-05
2003-04
Year
48,866.65
(9.88)
51,875.27
(9.45)
53,512.54
(8.53)
79,597.73
(10.06)
85,712.04
(9.30)
87,548.03
(8.22)
1,28,464.38
(9.99)
1,37,587.31
(9.35)
1,47,626.25
(8.32)
1,41,060.57
(8.33)
1,72,345.02
(10.14)
1,83,872.12
(9.31)
1,93,268.88
(8.21)
1,86,703.20
(8.22)
Income
(5 + 6)
40,864.01
(8.26)
40,956.39
(7.46)
44,045.35
(7.02)
66,368.04
(8.39)
68,590.96
(7.44)
73,645.20
(6.91)
107,232.05
(8.34)
109,547.35
(7.45)
123,001.99
(6.93)
117,690.55
(6.95)
140,742.48
(8.28)
144,346.81
(7.31)
158,438.26
(6.73)
153,126.82
(6.74)
Interest
Income
8,002.64
(1.62)
10,918.88
(1.99)
9,467.19
(1.51)
13,229.69
(1.67)
17,121.08
(1.86)
13,902.83
(1.30)
21,232.33
(1.65)
28,039.96
(1.91)
24,624.26
(1.39)
23,370.02
(1.38)
31,602.54
(1.86)
39,525.31
(2.00)
34,830.62
(1.48)
33,576.38
(1.48)
44,355.13
(8.97)
46,256.55
(8.42)
47,836.68
(7.63)
71,813.79
(9.38)
74,784.38
(8.11)
78,053.99
(7.33)
1,16,168.92
(9.04)
1,21,040.93
(8.23)
1,31,841.85
(7.43)
1,25,890.67
(7.44)
1,55,267.80
(9.14)
1,61,601.18
(8.19)
1,71,948.72
(7.30)
1,65,997.54
(7.30)
Other Expenditure
Income
(8+9+11)
27,206.64
(5.50)
25,395.15
(4.62)
24,842.08
(3.96)
42,645.95
(5.39)
40,369.38
(4.38)
41,446.03
(3.89)
69,852.59
(5.43)
65,764.53
(4.47)
71,223.85
(4.02)
66,288.11
(3.92)
93,596.27
(5.51)
87,562.75
(4.44)
91,537.00
(3.89)
86,601.26
(3.81)
Interest
Expended
10,428.90
(2.11)
12,116.60
(2.21)
13,410.31
(2.14)
18,465.65
(2.33)
20,416.08
(2.21)
22,670.99
(2.13)
28,894.55
(2.25)
32,532.68
(2.21)
36,989.22
(2.09)
36,081.30
(2.13)
38,066.81
(2.24)
43,709.15
(2.21)
50,047.86
(2.13)
49,139.94
(2.16)
TotaL
7,382.78
(1.49)
8,318.98
(1.51)
9,009.43
(1.44)
13,062.10
(1.65)
14,262.25
(1.55)
15,434.50
(1.45)
20,444.88
(1.59)
22,581.23
(1.54)
24,742.61
(1.39)
24,443.93
(1.44)
23,610.14
(1.39)
26,359.53
(1.34)
29,032.26
(1.23)
28,733.58
(1.26)
10
Of which:
Wage Bill
Operating Expenses
6,719.59
(1.36)
8,744.80
(1.59)
9,584.29
(1.53)
10,702.19
(1.35)
13,998.92
(1.52)
13,936.97
(1.31)
17,421.78
(1.36)
22,743.72
(1.55)
23,628.78
(1.33)
23,521.26
(1.39)
23,604.72
(1.39)
30,329.28
(1.54)
30,363.86
(1.29)
30,256.34
(1.33)
11
Provisions
and Contingencies
13,657.37
(2.76)
15,561.24
(2.83)
19,203.27
(3.06)
23,722.09
(3.00)
28,221.58
(3.06)
32,199.17
(3.02)
37,379.46
(2.91)
43,782.82
(2.98)
51,778.14
(2.92)
51,402.44
(3.04)
47,146.21
(2.77)
56,784.06
(2.88)
66,901.26
(2.84)
66,525.56
(2.93)
12
Spread
(NII)
Banking Briefs
436
382
3,728.14
(3.20)
4,985.53
(3.68)
4,597.26
(2.98)
4,432.13
(2.31)
5,132.93
(2.08)
5,434.64
(1.85)
2,804.43
(2.67)
3,191.66
(2.64)
2,238.94
(1.70)
722.02
(0.89)
Operating
Profit
(3+11)
1,824.04
(1.56)
2,243.07
(1.65)
2,002.39
(1.30)
1,725.98
(0.90)
2,035.01
(0.83)
3,097.56
(1.05)
1,231.74
(1.17)
1,446.48
(1.20)
435.81
(0.33)
614.50
(0.76)
Net
Profit
(4-7)
12,034.58
(10.32)
13,008.35
(9.59)
13,034.44
(8.46)
20,567.23
(10.70)
21,721.43
(8.81)
22,099.23
(7.51)
11,278.83
(10.75)
11,555.03
(9.57)
10,508.96
(8.00)
6,565.68
(8.07)
Income
(5 + 6)
8,957.63
(7.68)
9,137.04
(6.74)
9,170.85
(5.95)
15,633.01
(8.13)
16,541.52
(6.71)
16,990.13
(5.77)
8,919.79
(8.50)
9,120.90
(7.56)
9,275.29
(7.06)
5,311.44
(6.53)
Interest
Income
3,076.95
(2.64)
3,871.31
(2.85)
3,863.59
(2.51)
4,934.22
(2.57)
5,179.91
(2.10)
5,109.10
(1.74)
2,359.04
(2.25)
2,434.13
(2.02)
1,233.67
(0.94)
1,254.24
(1.54)
10,210.54
(8.75)
10,76528
(7.94)
11,032.05
(7.16)
18,841.25
(9.80)
19,686.42
(7.98)
19,001.67
(6.45)
10,047.09
(9.57)
10,108.55
(8.37)
10,073.15
(7.67)
5,951.18
(7.31)
Other Expenditure
Income
(8+9+11)
5,055.01
(4.33)
4,268.52
(3.15)
4,039.91
(2.62)
12,361.45
(6.43)
11,547.82
(4.68)
10,600.40
(3.60)
6,327.22
(6.03)
5,981.88
(4.96)
5,672.84
(4.32)
4,935.74
(6.07)
Interest
Expended
3,251.43
(2.79)
3,754.30
(2.77)
4,397.27
(2.85)
3,773.65
(1.96)
5,040.68
(2.04)
6,064.19
(2.06)
2,147.18
(2.05)
2,381.49
(1.97)
2,597.18
(1.98)
907.92
(1.12)
TotaL
1,038.65
(0.89)
1,199.67
(0.88)
1,345.30
(0.87)
828.76
(0.43)
1,178.41
(0.48)
1,483.39
(0.50)
1,297.85
(1.24)
1,400.22
(1.16)
1,460.96
(1.11)
298.68
(0.37)
10
Of which:
Wage Bill
Operating Expenses
1,904.10
(1.63)
2,742.46
(2.02)
2,564.87
(1.68)
2,706.15
(1.41)
3,097.92
(1.26)
2,337.08
(0.79)
1,572.69
(1.50)
1,745.18
(1.45)
1,803.13
(1.37)
107.52
(0.13)
11
Provisions
and Contingencies
3,902.62
(3.35)
4,868.52
(3.59)
5,130.94
(3.33)
3,271.56
(1.70)
4,993.70
(2.03)
6,389.73
(2.17)
2,592.57
(2.47)
3,139.02
(2.60)
3,602.45
(2.74)
375.70
(0.46)
12
Spread
(NII)
# : Excluding
Note : 1.
2.
3.
4.
5.
6.
7.
2004-05
2003-04
Foreign Banks
2002-03
2004-05
2003-04
2004-05
2003-04
Year
Banking Briefs
437
383
8.04
7.95
7.58
6.67
7.12
11.05
8.68
6.17
6.46
8.03
8.21
7.05
7.10
7.29
6.08
13.55
6.63
7.60
7.10
5.42
5.26
8.87
6.10
5.75
6.07
14.15
7.59
Tier I
28.
20.
21.
22.
23.
24.
25.
26.
27.
Nationalised Banks
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab and Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of india
Vijaya Bank
State Bank Group
State Bank of India
State Bank of Bikaner and Jaipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Pattala
State Bank of Saurashtra
State Bank of Travancore
Other Public Sector Bank
IDBI Ltd.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Sr.
No.
4.11
4.65
4.10
4.94
4.96
3.16
2.77
4.88
6.07
4.08
4.40
4.47
5.58
5.49
6.07
2.68
5.28
6.54
7.10
3.79
4.20
5.91
4.60
5.51
6.02
4.01
5.33
Tier II
CRAR
15.51
12.45
12.60
11.74
11.61
12.08
14.21
11.45
11.05
12.53
12.11
12.61
11.52
12.68
12.78
12.15
16.23
11.91
14.14
14.20
9.21
9.46
14.78
10.70
11.26
12.09
18.16
12.92
Total
1.74
2.65
1.61
0.61
1.00
0.92
1.23
1.40
1.81
1.28
0.28
1.45
2.77
2.15
1.88
2.98
1.12
5.23
1.35
1.27
1.29
8.11
0.20
1.59
2.93
2.64
2.43
0.59
Net NPAs/
Net
Advances
3.35
7.70
7.75
7.33
7.67
8.15
7.34
8.49
7.77
7.83
8.06
6.86
6.71
7.40
7.28
8.28
7.84
7.48
7.34
7.77
7.40
7.89
7.04
7.11
7.50
7.96
7.93
8.00
0.79
1.69
2.15
1.33
1.23
2.69
1.23
0.85
1.58
1.57
2.67
1.39
1.29
1.20
1.48
1.46
1.97
1.35
1.45
1.26
1.00
1.62
1.39
1.07
1.09
1.23
1.78
1.35
Interest Non-Interest
Income /
Income /
Working
Working
Funds
Funds
0.46
2.61
3.25
2.25
2.43
3.15
2.94
2.76
3.10
2.64
3.52
2.45
1.62
1.71
2.48
2.56
3.68
1.94
2.45
2.63
2.50
1.63
2.25
1.88
1.73
2.52
2.56
3.01
Operating
Profit /
Working
Funds
0.78
0.99
0.88
0.72
0.79
1.25
0.91
0.27
0.86
1.20
1.59
0.75
0.38
0.54
1.01
0.53
1.40
0.26
1.08
1.28
1.40
-0.45
1.12
0.82
0.73
1.10
1.04
1.43
10
Return
on
Assets
1349.60
243.08
220.29
339.74
293.88
203.54
361.15
249.60
346.25
282.00
346.25
310.37
320.00
294.65
351.12
206.89
438.00
313.00
246.00
269.48
515.00
217.57
276.87
280.22
321.00
346.72
208.00
312.89
11
6.85
2.07
1.69
1.91
2.07
2.16
2.48
0.56
2.21
2.86
3.97
1.71
0.80
1.25
2.48
0.93
3.95
0.60
1.87
2.66
5.20
-0.74
2.42
1.53
1.43
2.81
1.72
3.48
12
Business
Profit
Per
per
Employe
employee
(Amount in Rs. Lakh)
Banking Briefs
438
384
7.84
9.28
7.49
10.05
6.12
6.42
-0.25
5.20
12.48
12.15
14.36
5.67
7.57
11.30
10.44
6.44
23.01
5.68
16.22
2.43
Tier I
21.
22.
23.
24.
25.
26.
27.
28.
29.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Sr.
No.
5.40
21.42
4.03
2.56
4.19
4.38
2.68
3.79
0.17
4.91
5.67
3.86
2.13
4.04
4.85
4.24
3.89
2.67
2.01
1.71
5.65
4.17
3.55
1.97
2.86
0.55
4.21
3.52
2.43
Tier II
CRAR
9.23
39.22
9.88
12.16
11.78
11.62
12.80
12.66
18.81
12.75
14.95
11.35
12.18
10.16
11.27
3.99
9.09
15.15
14.16
16.07
11.32
11.74
14.85
12.41
9.30
23.56
9.89
19.74
4.86
Total
4.64
2.51
6.83
0.24
1.65
2.71
0.37
1.39
-
2.50
1.56
3.80
3.37
3.92
2.21
8.32
2.13
1.41
2.29
1.66
4.98
4.22
5.54
4.30
7.65
3.81
2.95
5.97
Net NPAs/
Net
Advances
6.93
9.74
6.29
6.85
6.94
8.11
7.71
6.94
4.49
7.24
7.05
8.14
8.36
7.58
8.14
7.86
7.54
7.65
7.79
8.13
7.66
8.24
8.15
8.12
8.05
6.30
7.47
9.49
6.99
0.15
1.81
1.89
1.44
2.52
1.79
2.42
1.50
2.72
0.88
0.62
1.02
0.96
0.58
1.45
-0.30
0.92
0.41
2.05
1.56
0.98
0.05
1.04
0.62
0.52
2.26
1.08
1.26
0.94
Interest Non-Interest
Income /
Income /
Working
Working
Funds
Funds
0.41
0.65
-0.09
2.56
2.18
2.87
2.44
2.04
-0.83
1.14
1.75
1.74
2.35
0.73
2.74
-2.58
0.76
1.75
3.16
2.74
1.40
2.34
1.18
0.35
2.66
1.82
3.23
1.20
Operating
Profit /
Working
Funds
-1.29
0.64
-3.38
1.47
1.59
1.35
1.56
1.21
-0.29
0.38
0.62
0.24
1.33
-0.83
0.54
-2.58
-0.25
0.47
1.27
1.45
0.08
1.25
-1.17
-1.52
-2.10
0.09
1.47
-1.40
10
Return
on
Assets
355.93
383.49
392.29
806.00
880.00
925.78
387.27
895.00
687.93
231.18
422.00
215.97
325.80
292.70
366.00
124.28
394.92
435.00
380.90
387.00
296.00
306.35
162.32
220.75
105.35
527.06
352.00
316.97
309.00
11
-3.24
1.69
-10.84
8.80
11.00
10.12
5.37
7.03
-1.82
0.86
1.86
0.37
3.23
-1.65
1.39
-0.73
2.00
3.35
3.75
0.17
1.74
-1.73
-1.66
-9.73
0.24
3.60
-3.12
12
Business
Profit
Per
per
Employe
employee
(Amount in Rs. Lakh)
Banking Briefs
439
385
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
7.89
12.03
10.23
26.81
108.00
92.06
23.39
9.84
48.30
14.36
21.65
19.88
6.10
58.46
53.00
8.60
10.00
12.62
34.45
11.38
74.97
9.44
99.59
58.03
28.82
13.20
61.53
103.73
7.10
29.76
120.07
Tier I
2.66
2.35
0.64
13.18
1.39
0.20
6.68
1.82
1.10
0.91
10.45
0.97
3.31
1.48
2.31
2.18
4.40
3.60
0.61
2.65
0.75
1.42
2.11
1.52
0.32
3.28
2.08
3.36
1.30
1.53
Tier II
10.55
14.38
10.87
39.99
109.39
92.26
30.07
11.66
49.40
15.27
32.10
20.85
9.41
59.94
55.31
10.78
14.40
16.22
35.06
14.03
74.97
10.19
101.01
60.14
30.34
13.52
64.81
105.81
10.46
31.06
121.60
Total
0.35
12.73
0.99
0.18
10.49
5.53
13.76
3.08
0.01
0.58
6.02
1.00
0.30
0.50
55.05
1.90
1.12
4.08
-
Net NPAs/
Net
Advances
7.28
7.68
9.29
4.61
4.38
4.49
4.75
5.94
4.26
4.33
4.75
1.65
6.21
6.60
6.44
7.17
7.40
4.37
5.46
6.39
0.02
5.20
4.92
8.11
5.19
5.99
3.96
7.00
8.16
7.10
5.02
7
3.49
2.07
8.64
0.76
5.38
-0.44
2.19
0.43
2.92
1.41
4.77
6.66
2.38
1.04
2.51
3.07
1.40
4.57
0.56
2.60
1.23
12.05
0.35
1.04
1.87
0.57
1.09
24.00
1.72
0.41
1.58
Interest Non-Interest
Income /
Income /
Working
Working
Funds
Funds
3.55
0.26
2.66
2.31
6.23
-1.44
2.60
0.31
3.30
1.87
5.51
6.20
1.99
1.96
5.24
3.81
-0.70
2.40
1.76
3.79
3.15
11.63
1.32
1.19
2.86
-0.15
1.20
12.00
3.50
2.16
4.16
Operating
Profit /
Working
Funds
: Nil / Neglibible.
Note : Data reported in this table may not exactly tally witgh those reported in Appendix Table III.17 Appendix Table III.23 on account of conceptual differences.
Source : Balance sheets of respective banks.
Source : Report on Trend and progress of banking in India, 2004-05.
Sr.
No.
CRAR
1.27
-2.57
0.55
1.00
3.43
-0.98
1.46
-3.77
1.19
-0.35
0.93
4.53
0.50
-7.68
2.49
2.84
-0.80
0.72
0.89
1.21
4.38
3.58
0.03
1.10
2.20
-2.86
1.61
4.00
1.61
1.20
2.13
10
Return
on
Assets
823.70
1,061.10
237.53
2,267.01
183.07
274.51
1,707.72
820.00
628.76
2,085.17
663.58
188.49
980.52
628.66
1,109.39
1,359.51
1,885.82
1,608.93
1,110.99
779.45
593.74
460.75
521.26
608.21
1,132.28
1,057.90
92.29
786.36
1,191.00
494.64
11
10.24
-77.24
1.05
33.40
10.29
-4.15
29.47
-28.00
7.95
-6.30
6.45
160.21
4.70
-52.51
40.94
21.75
-15.04
20.31
14.52
8.90
69.96
0.19
36.99
19.25
-40.79
25.40
3.35
11.50
18.00
21.99
12
Business
Profit
Per
per
Employe
employee
(Amount in Rs. Lakh)
Outstanding as on
Variation
March 21,
2003
March 19
2004
March 18,
2005
2003-04
2004-05
669534
49479
620055
764383
35961
728422
972587
41121
931466
211609
263834
345627
a) Agriculture
73518
90541
122370
60394
65855
76114
77697
107438
147143
235168
22578
247210
24867
290186
33814
150700
192511
261839
94849
-13518
108367
(100.0)
52225
(48.2)
17023
(15.7)
5461
(5.0)
29741
(27.4)
12042
2289
(38.6)
41811
(38.6)
208204
5160
203044
(100.0)
81793
(40.3)
31829
(15.7)
10259
(5.1)
39705
(19.6)
42976
8947
(34.1)
69328
(34.1)
36587
7219
14127
2001
51981
8274
16802
2020
75173
8655
18610
2390
15394
1055
2675
19
23192
381
1808
370
5894
27905
22708
2428
49202
5577
35165
26346
3269
57687
10612
58812
29310
3455
65914
668576
763855
971809
-317
7260
3638
841
8485
(7.8)
95279
5035
23647
2964
186
8227
(4.1)
207954
1
I. Gross Bank Credit (1+2)
1. Public Food Procurement Credit
2. Non-food Gross Bank Credit (A+B+C+D)
A. Priority Sector ## (a+b+c)
of which :
a) Housing
b) Consumer Durables
c) Non-Banking Financial Companies
d) Loans to Individuals against Shares
and Debentures / Bonds
e) Real Estate Loans
f) Other Non-Priority Sector Personal Loans
g) Advances against Fixed Deposits
h) Tourism and Tourism related Hotels
II. Export Credit
[including under item I(2)]
III. Net Bank Credit
[including inter-bank participations]
## : DAta in this statement may not agree with those quoted elsewhere in the report as the data base are different.
Note : 1. Date are provisional and relate to select scheduled commercial banks which account for about 90 percent of bank credit of all scheduled
commercial banks. Gross bank Credit date include bills rediscounted with RBI, IDBI, EXIM Bank, other approved financial institutions and interbank participations. Net bank credit data are exlusive of bills rediscounted with RBI, IDBI, EXIM Bank and other approved financial institutions.
2. Figures in brackets are proportions to incremental non-food gross bank credit.
Source : Report on Trend and progress of banking in India, 2004-05.
Banking Briefs
440
386
Item
Urban Co-Operative
Banks (UCBs)
Number
Owned Funds
Deposits
Borrowings
Working Capital
Loans Outstanding
C-D Ratio
2.
State Co-operative
Banks (StCBs)
3.
4.
5.
District Central
Co-operative Banks
(CCBs)
State Co-operative
Agriculture and Rural
Development Banks
(SCARDBs)
Primary Co-operative
Agriculture and Rural
Development Banks
(PCARDBs)
2001-02
2002-03
2003-04 P
2004-05 P
1,854
13,797
93,069
N.A.
1,15,596
62,060
67
1,941
9,830
1,01,546
1,590
1,11,746
64,880
64
1,926
12,348
1,10,256
1484
N.A.
67,930
62
1,872
N.A.
1,05,017
N.A.
N.A.
66,905
65
Number
Owned Funds
Deposits
Borrowings
Working capital
Loans Issued
Loans Outstanding
Recovery Performance
(as per cent to demand)
C-D Ratio
30
6,712
36,191
11,672
54,262
34,663
32,678
30
7,979
39,386
12,209
57,600
38,118
34,761
31
8,520
43,486
12,457
58,889
34,466
35,105
31
N.A.
44,338
14,626
N.A.
38,319
37,347
82
90
80
88
84
81
N.A.
84
Number
Owned Funds
Deposits
Borrowings
Working Capital
Loans Issued
Loans Outstanding
Recovery Performance
(as per cent to demand)
C-D Ratio
368
14,141
68,181
18,820
99,424
55,915
59,316
367
16,836
73,919
19,639
1,08,265
59,544
64,214
365
19,131
79,153
20,256
1,14,372
58,964
67,152
367
N.A.
81,013
20,899
N.A.
55,764
72,797
66
87
61
87
62
85
N.A.
90
Number @
Owned Funds
Deposits #
Borrowings
Working Capital
Loans Issued
Loans Outstanding
Recovery Performance
(as per cent to demand)
20
2,494
533
14,832
18,753
2,746
14,110
20
2,906
501
15,892
20,609
2,962
15,354
20
3,504
605
16,882
21,250
2942
16,212
20
N.A.
518
17,005
N.A.
3,235
17,435
55
49
44
N.A.
Number
Membership (in lakhs)
Owned Funds
Deposits #
Borrowings
Working Capital
Loans Issued
Loans Outstanding
Recovery Performance
(as per cent to demnad)
768
142
2,480
255
10,331
13,986
2,045
10,005
768
136
2,722
214
11,214
15,374
2,151
10,809
768
N.A.
2,971
252
11,880
15,851
2,200
11,209
730
N.A.
N.A.
168
12,572
N.A.
2,517
11,877
48
44
44
N.A.
P : Provisional.
N.A. : Not Available
@ : Maharashtra SCARDB came under Federal structure as on October 1, 2001 with Maharashtra SCARDB at the Apex level and 29 PCARDBs at ground
l
e
v
e
l
.
# : Deposits of SCARDBs and PCARDBs include advnace repayment by LDBs.
Source : NABARD.
Source : Report on Trend and progress of banking in India, 2004-05.
Banking Briefs
441
387
Banking Briefs
442
388
: Nil / Negligible.
@ : Data are provisional
Note : Figures in brackets represent percentages to net bank credit.
Source : Report on Trend and progress of banking in India, 2004-05.
2.6
0.4
0.1
ii) Indirect
0.5
1.6
i) Direct
1.7
June
1969
I. Agriculture
Sector
258
81
19
153
158
March
2002
273
88
17
165
168
March
2003
301
94
17
188
190
March
2004
319
85
18
17
191
208
March
2005@
3,016
441
(14.6)
22
(0.7)
257
(8.5)
122
(4.0)
40
(1.3)
162
(5.4)
June
1969
3,94,064
1,71,484
(43.5)
59,074
(15.07)
54,268
(13.8)
14,123
(3.6)
44,019
(11.2)
58,142
(14.8)
March
2002
4,85,271
1,99,786
(41.2)
76,638
(15.8)
52,646
(10.8)
19,017
(3.9)
51,484
(10.6)
70,501
(14.5)
March
2003
5,60,819
2,44,456
(43.6)
1,01,710
(18.1)
58,311
(10.4)
22,265
(4.0)
62,170
(11.1)
84,435
(15.1)
10
March
2004
7,17,304
3,10,093
(43.2)
1,29,984
(18.1)
67,634
(9.4)
29,862
(4.2)
82,613
(11.5)
1,12,475
(15.7)
11
March
2005@
1991
2000
2001
2002
2003
2004
57,372
2,29,109
22,701
70,576
2. ICICI@
7,084
65,571
3. IFCI
5,835
22,800
818
4,004
5. EXIM Bank
1,984
6,995
6. SIDBI
5,317
16,388
12,664
33,082
8. NHB
969
6,251
9. TFCI
985
10. IDFC
2,457
10,049
24,518
6,412
12,218
3,637
12,300
C. Investment Institutions
(13 to 15)
13. UTI+
58,566
2,61,885
23,164
75,102
14. LIC
29,040
1,59,949
6,362
26,834
D. Other Insitutions
(16 and 17)
16. DICGC
1,988
6,954
1,744
5,607
244
1,347
5,22,466
2,42,062
5.7
68,822
-2.5
73,676
12.4
21,808
-4.4
4,232
5.7
7,362
5.3
16,909
3.2
38,655
16.8
6,836
9.4
862
-12.5
2,901
18.1
31,993
30.5
12,692
3.9
19,301
56.9
3,07,732
17.5
85,426
13.7
1,92,482
20.3
29,824
11.1
7,954
14.4
6,311
12.6
1,643
22.0
5,89,741
1,71,215
-29.3
65,444
-4.9
N.A.
N.A.
20,723
-5.0
4,089
-3.4
8,051
9.4
17,458
3.2
44,454
15.0
6,872
0.5
872
1.2
3,252
12.1
38,904
21.6
12,712
0.2
26,192
35.7
3,50,538
13.9
64,223
-24.8
2,44,448
27.0
41,867
40.4
8,596
8.1
6,933
9.9
1,663
1.2
5,69,253
1,80,740
5.6
61,831
-5.5
N.A.
N.A.
21,127
2.0
3,183
-22.2
12,269
52.4
17,427
-0.2
50,642
13.9
9,802
42.6
791
-9.3
3,668
12.8
53,044
36.3
17,026
33.9
36,018
37.5
3,34,570
-4.6
N.A.
N.A.
2,89,630
18.5
44,940
7.3
9,523
10.8
7,786
12.3
1,737
4.4
5,77,877
1,95,247
8.0
66,322
7.3
N.A.
N.A.
18,165
-14.0
2,849
-10.5
15,456
26.0
19,140
9.8
55,642
9.9
11,344
15.7
710
-10.2
5,619
53.2
60,942
14.9
20,708
21.6
40,234
11.7
4,33,178
29.5
N.A.
N.A.
3,72,052
28.5
61,126
36.0
10,973
15.2
9,094
16.8
1,879
8.2
7,00,340
4. IIBI
7. NABARD
17. ECGC
2005P
1,39,153
-28.7
N.A.
N.A.
N.A.
N.A.
15,976
-12.0
2,439
-14.4
18,369
18.8
18,161
-5.1
60,544
8.8
17,405
53.4
592
-16.6
5,668
0.9
60,942#
20,708#
40,234#
4,39,409
1.4
N.A.
N.A.
3,72,052#
67,357
10.2
12,336
12.4
10,146
11.6
2,190
16.6
6,51,840
Banking Briefs
443
389
Banking Briefs
444
390
Non-Scheduled
Commercial Banks
(Local Area Banks)
7.
8.
288
196
31
29
19
32,091
(47.7)
4
(20.0)
11,922
(82.4)
1,106
(19.1)
13,582
(40.9)
1,409
(30.8)
4,068
(45.3)
Rural
15,151
(22.5)
9
(45.0)
2,134
(14.7)
(14.2)
1,768
(30.5)
7,190
(21.6)
1,588
(34.7)
2,462
(27.4)
11,070
(16.4)
7
(35.0)
396
(2.7)
31
(85.8)
1537
(26.5)
6,801
(20.5)
849
(18.5)
1,449
(16.1)
Urban
Total
4.
6.
Nationalised Banks
3.
Associates of SBI
2.
5.
1.
7
No. of
Bank *
Bank Group
9,001
(13.4)
20
(0.1)
188
(100.0
1,383
(23.9)
5,668
(17.1)
732
(16.0)
1,010
(11.2)
Metro
politan
67,313
(100.0)
20
(100.0)
14,472
(100.0)
219
5,794
(100.0)
(3.1)
33,241
(100.0)
4,578
100.0
8,989
(100.0)
Total
32,095
(47.0)
4
(17.4)
11,922
(82.2)
(0.4)
1,097
(17.9)
5
(16.4)
13,587
(40.4)
1,412
(30.5)
4,068
(45.0)
Rural
Number of Branches
15,396
(22.5)
9
(39.1)
2,158
(14.9)
1
(16.9)
1,831
(29.9)
26
(42.8)
7,291
(21.7)
1,605
(34.7)
2,475
(27.4)
Semi
urban
11,504
(16.8)
10
(43.5)
401
(2.8)
42
(82.7)
1,714
(28.0)
68
(37.7)
6,935
(20.6)
864
(18.7)
1,470
(16.3)
10
Urban
DISTRIBUTION OF COMMERCIAL BANK BRANCHES IN INDIA BANK GROUP AND POPULATION GROUP WISE
9,344
(13.7)
20
(0.1)
206
(100.0)
1,479
(24.2)
60
(100.0)
5,812
(17.3)
744
(16.1)
1,023
(11.3)
11
Metro
politan
68,339
(100.0)
23
(100.0)
14,501
(100.0)
249
6121
(100.0)
159
33,625
(100.0)
4,625
(100.0)
9,036
(100.0)
12
Total
Banking Briefs
445
396
Nationalised Banks
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
Indian Bank
Indiand Overseas Bank
Oriental Bank of Commerce
Punjab and Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
United Bank of India
United Bank of India
Vijaya Bank
State Bank Group
State Bank of India
State Bank of Bikaner and Jaipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Masore
State Bank of Patiala
State Bank of Saurashtra
State Bank of Travancore
13,588
970
380
1,160
1,237
542
760
1,381
178
392
468
527
253
294
1,930
648
775
793
645
255
5,480
4,068
313
290
132
213
277
140
47
Rural
20.
21.
22.
23.
24.
25.
26.
27.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
Sr.No.
7,291
323
316
558
489
233
683
760
143
215
351
374
302
110
802
421
336
469
203
203
4,080
2,475
229
285
132
149
211
136
463
Semi urban
6,935
389
274
476
423
242
551
556
214
192
321
337
323
218
752
402
333
439
248
245
2,334
1,470
133
202
64
116
170
69
110
Urban
Branches
5,813
248
153
486
402
263
525
433
234
243
229
282
260
136
521
346
286
349
210
207
1,767
1,023
138
138
110
149
87
73
49
Metropolitan
33,627
1,930
1,123
2,680
2,551
1,280
2,519
3,130
769
1,042
1,369
1,520
1,138
758
4,005
1,817
1,730
2,050
1,306
910
13,661
9,036
813
915
438
627
745
418
669
Total
3,205
80
77
171
145
33
647
32
229
137
126
198
306
6
399
202
75
274
47
21
1,548
415
154
261
99
184
208
77
150
On-site
1,567
11
253
1
115
12
63
1
572
18
14
38
183
151
41
4
80
9
1
3,672
3,197
97
69
76
19
43
56
115
Off-site
ATMs
4,772
91
330
172
260
45
710
33
801
155
140
236
489
6
550
243
79
354
56
22
5,220
3,612
251
330
175
203
251
133
265
10
Total
4.66
0.57
22.53
0.04
4.51
0.94
2.50
0.03
74.38
1.73
1.02
2.50
16.08
3.77
2.26
0.23
3.90
0.69
0.11
26.88
35.38
11.93
7.54
17.35
3.03
5.77
13.40
17.19
11
Banking Briefs
446
397
994
104
8
32
32
5
23
31
8
232
95
35
38
12
18
22
51
68
46
48
86
108
16
82
5
5
-
Rural
22.
23.
24.
25.
26.
27.
28.
29.
30.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
Sr.No.
1499
80
9
171
36
11
82
269
13
38
87
69
81
47
15
24
47
214
57
61
88
348
36
15
90
100
22
25
6
54
-
Semi urban
1150
95
40
64
42
10
41
91
8
104
110
82
67
27
21
18
46
78
45
54
107
589
34
33
146
168
50
55
11
92
-
Urban
Branches
868
90
34
33
26
41
27
63
2
50
94
47
36
26
14
10
40
2
62
25
65
81
640
45
29
194
158
43
36
36
96
3
Metropolitan
4511
369
91
300
136
67
173
454
31
424
386
233
222
112
68
74
184
2
422
173
228
362
1685
115
77
446
508
120
116
53
247
3
Total
800
35
15
35
11
59
31
111
114
26
112
10
42
7
2
59
9
57
65
1883
146
87
544
569
117
115
35
269
1
On-site
441
19
15
62
1
145
56
2
44
2
1
64
13
3
14
3729
79
72
603
1341
212
80
11
1330
1
Off-site
ATMs
1241
54
15
50
11
121
32
256
170
28
156
10
44
8
2
123
22
60
79
5612
225
159
1147
1910
329
195
46
1599
2
10
Total
9.78
5.15
5.00
92.54
0.58
31.94
13.21
0.52
18.88
1.79
1.35
15.17
7.51
1.32
3.87
221.31
68.70
93.51
135.20
263.98
176.67
68.97
20.75
538.46
33.33
11
Banking Briefs
447
398
Foreign Banks
ABN-AMRO Bank N.V.
Abu Dhabi Commercial Bank Ltd.
American Express Bank Ltd.
Antwerp Diamond Bank
Arab Bangladesh Bank Ltd.
Bank Internasional Indonesia
Bank of America NA
Bank of Bahrain and Kuwait B.S.C.
Bank of Ceylon
Bank of Nova Scotia
Bank of Tokyo-Mitsubishi Ltd.
Barclays Bank PLC
BNP Paribas
Chinatrust Commercial Bank
Chohung Bank
Citibank N.A.
Calyon Bank
Deutsche Bank AG
DBS Bank Ltd.
HSBC Ltd.
ING Bank N.V.
JP Morgan Chase Bank
Krung Thai Bank Public Co.Ltd.
Mashreqbank psc
Mizuho Corporate Bank Ltd.
Oman International Bank S.A.O.G.
Societe Generate
Sonali Bank
Satndard Chartered Bank
State Bank of Mauritius Ltd.
UFJ Bank Ltd.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
: Nil / Neglibible.
Source : Report on Trend and progress of banking in India, 2004-05.
Rural
Sr.No.
Semi urban
38
2
1
10
9
1
15
-
Urban
Branches
204
17
2
8
1
1
1
4
2
1
4
3
1
9
4
1
1
25
1
5
30
2
1
1
2
1
1
2
1
68
3
1
Metropolitan
242
19
2
8
1
1
1
4
2
2
4
3
1
9
4
1
1
35
1
5
39
2
1
1
2
1
2
2
1
83
3
1
Total
218
24
1
9
2
44
59
1
78
-
On-site
579
54
2
1
4
332
99
87
-
Off-site
ATMs
797
78
3
10
6
376
158
1
165
-
10
Total
239.26
284.21
100.00
12.50
200.00
948.57
253.85
104.82
-
11
448
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