A

Summer Training Report

On

RETAIL BANKING
Completed at

State Bank of India

IGIMS Branch Patna

Submitted to

MANAGEMENT PROGRAMME

Department Of Applied Economics & Commerce Patna University, Patna In the partial fulfillment for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION (FINANCE)

2012
Under the supervision of: Dr. B.N. Pandey Director, Mgt. Programme Deptt. of A.E. & Commerce Patna University, Patna Submitted by: Amar Nath Jha Roll No. 08 MBA(Finance) Session: 2010-12

CERTIFICATE OF THE SUPERVISOR

This is to certify that Mr. Popind Prabhat, Class Roll No.-53, Session: 2010-12 has prepared the Summer Training Report entitled DEALERS PERCEPTION ABOUT KANSAI NEROLAC PAINTS LTD. under my general Supervision in the partial fulfillment of the requirement of the MBA course of Patna University.

Signature Supervisor

of

the

Prof.(Dr.) N.K.JHA, Department of Applied, Economics and Commerce, Patna University, Patna.

DECLARATION
I hereby declare that the Summer Training Report entitled DEALERS PERCEPTION ABOUT KANSAI NEROLAC PAINTS LTD. submitted in the partial fulfillment of the requirement for the award of the degree of Master of Business Administration (MBA-Marketing) at Department of Applied Economics and Commerce, Patna University, Patna is my genuine work and it is not submitted for the award of any other degree, diploma or any other similar type of award.

Popind Prabhat

ACKNOWLEDGEMENT
The preparation of this SUMMER TRAINING REPORT has been made possible through the direct and indirect co-operation of various persons for whom I wish to express my appreciation and gratitude. First and foremost, I express deep sense of gratitude to my honorable Prof. and my internal supervisor Dr. N.K.JHA of Deptt. of A.E. & Commerce, P.U., who assigned me the task of completing this summer training report. I would also like to express my sincere thanks to Dr. Md. Alamgir and senior faculty members Dr. A.L. Chakrabrati, Dr, Jyoti Shekhar, Dr. B.N.Pandey and Dr. M. C. Prasad. I express my gratitude and respect to Mr. Uttam Kumar (ASM) for providing me an opportunity to pursue the summer training project from KANSAI NEROLAC PAINTS LTD. (Patna). I am obliged to my training supervisor Mr. Deepak Kumar (TSO) who has guided me in the preparation of this report and who gave his valuable guidance and suggestions in putting my thoughts in the course of preparation of this summer training report. Besides this I am also thankful to all the staffs of KANSAI NEROLAC PAINTS LTD. Patna. Last but not least I would like to thank my parents, friends, relatives and well-wishers for their continuous support and encouragement. Popind Prabhat

PREFACE
Every activity in this world is guided by some motive and that motive is either derives some benefits or social welfare. This SUMMER TRAINING REPORT is prepared for the partial fulfillment of the award of the degree of MBA from Patna University. The curiosity to find something new out of any problem inspires me and the compulsion of practical training attracts me for such an investigation and research study. SBI is a largest bank of India. It played vital role in banking sectors. It is a company which can be associated with trust and confidence so it fascinated me to select such a corporation for taking up the summer training. SUBJECT entitled RETAIL BANKING have important bearing on the profitability and financial health of the corporation. Report is divided into chapters. It also includes findings and suggestions. Performance of SBI IGIMS Branch (PATNA) based on detailed study during my summer training programme. Amar Nath Jha

CONTENTS

Letter of the Department (i) Certificate of the Organization (ii) Certificate of the Supervisor (iii) Declaration (iv) Acknowledgement (v) Preface PARTICULARS

(vi) PAGE Nos. 1-4 5-21

Chapter I: Chapter II:

Introduction Organizational Profile

2.1. Introduction of State Bank Of India

Chapter III: Retail Banking A General CONCEPT

22-34

Chapter IV: Analytical study of Retail Banking at State Bank of India IGIMS Patna
35-55

Chapter V: Conclusion and Suggestions

56-57

Conclusion Suggestions

Annexure:
Questionnaire Bibliography

CHAPTER-1 INTRODUCTION

RETAIL BANKING
MEANING OF RETAIL Retail means sale of goods in small quantities, it is concerned with buying of goods in small quantities from the wholesaler and selling them in small quantities to the ultimate consumers as per their requirements. The person engaged in this trade is called the retailer. He acts as a link between the wholesaler and the customers. In retail trade goods are sold to the ultimate consumers for personal use and for the use of the business in small quantities only. The retailer does not specialize in a particular line or a particular product. Rather he maintains a large variety of goods. Generally, sales are limited to a local and on a small scale. MEANING OF BANKING Banking has come to occupy a pivotal position in a nations economy. According to the modern concept, banking is a business which not only deals with borrowings, lending and remittance of funds, but also an important instrument for fostering economic growth. The Banking Regulation Act 1949, defines the term banking as the accepting for the purpose of lending or investment of deposits of money from the public or otherwise and withdraw able by cheque, draft, order or otherwise. Thus, the essentials of banking are: (1) There should be acceptance of deposited. (2) Deposits should be from the public. (3) Deposits should be repayable on demand or expiry of a term or after a specified periods. (4) The purpose of deposits should be lending or investment. Bank is an institution which deals in money and credit. It buys money from depositors and sell to the borrowers. It is body of persons whether incorporated or not who carry on the business of banking. A bank may defined as a corporation or person which collects deposits from the public, repayable on demand and which supplies and facilitates all kinds of exchanges.

RETAIL BANKING Retail banking means mobilizing deposit form individuals and providing loan facilities to them in the form of home loans, auto loans, credit cards, etc, is becoming popular. This

used to be considered by the banks as a tough proposition because of the volume of operations involved. But during the last couple of years or so, banks seem to have realized that the only sustainable way to increase deposits is to look at small and middle class consumer retail deposit and not the price sensitive corporate depositors. With financial sector reforms gathering momentum, the banking system is facing increasing companies from non-banks and the capital market. More and more companies are tapping the capital market directly for finance. This is one of the main reasons for the banks to focus vigourously on the much ignored retail deposits. Another reason is the current liquidity the margins are 1 to 2 percent above the prime rate; in retail market they are 3to4 percent. It is reported that Indian retail market has the potential to be second only to the USA. National Readership Survey 5puts Indian households with monthly of over Rs. 5000 at 4.5 million. According to the survey, the category of households with annual income of Rs. 2 lakhs and above is growing at the rate of 30 per cent per annum. No winder, banks with vision and insight are trying to woo this market through a series of innovative additions to their products, services, technology and marketing methods. Fixed and unfixed Deposits, (cluster deposits which can be broken into smaller units to help meet depositors overdraft without breaking up entirely), centralised database for any branch banking (whereby the customer can access his account in any of the branches irrespective of where the account is maintained), room services (whereby the customers are visited at their residences offices to enable them to open their accounts), automatic teller machines, tele banking network, extended banking time, courier pickup for cheques and documents, etc are some of the privileges extended to the customers by the banks in are eagerness to cultivate the retail market. In short, in the bold new world of retail banking the customer is crowned as king. RETAIL BANKING-A COOL OASIS To bankers struggling through the shifting sands of corporate credit, retail banking looks like a cool oasis. Corporate Credit, retail banking looks like a cool oasis. Corporate customers rely less on commercial banks every day as other fund raising avenues present themselves. As this disintermediation takes place and competition shrinks margins, retail banking has gained an irresistible allure for banks because of its apparently higher margins and potential fir growth. With their large branch networks, banks have secured sizeable deposits-23 percent of GDP. On the assets side, however, retail advances account for a mere seven per cent of total lending. The penetration of products like car loans or credit cards is very low. With very few focused multi-line banks, non banks are often significant players in retail lending, as HDFC is in house

loans. Yet, many non-banks lack the minimum size to make the necessary investments and address the challenges of retail banking. A large number of banks and non-banks have launched or relaunched retail products and are attempting to grow their share of the personal financial services market. Even the term lending institutions have decided that they need to go retail to raise funds. Many organization like ICICI are betting that a large part of their future growth will come from retail customers. Retail banking is much more than as opportunity to addressing dwindling margins. It is an imperative to preserve profits and market positions. Customers now have many more personal financial options, a growing credit culture, a willingness to switch between financial services providers, and a demand for lower interest rates. As they witness these trends, banks realize that they cannot remain passive. The new private sector banks are making inroads in the markets they serve, while competition from non-banks is growing. In respect, older institutions need to revamp their distribution capabilities, customer management capabilities, operating culture, compensation system and operations processing.

WEB IMPACT ON BANKS RETAIL REVENUES: For all those gurus whove been predicting that the net will end the business of said banks, heres a shocker. Even in the SILICON valley-driven USA, Internet is not expected to have a major impact in banks retail revenues. The reason: the absence of a convenient alternative at present to using cash. According to a report by moodys Investors service, at least in the intermediate term, the internet is not expected to impact large US banks core profitability or competitive position.

This is despite the despite business being the simple-most important profit source for most American retail banks. The core retail banking business of deposit taking will be sheltered form web-based competitors and margin shrinkage on this business. Need for convenient access to physical locations coupled with the advantages of multiple delivery channels like branch, ATM, telephone and computers, consumers need to leave money in transactional accounts; customer inertia and the relatively limited cost savings available to consumers from net banking, are cited as the main factors supporting its view. The moodys report, however, cautions that other consumer business such as residential mortgages, auto loans and credit cards may be more vulnerable to web-based competitors. However, most US banks have thin margins or low market shares in these businesses mitigating this impact, says the report made available to the Economic Times. The rating agency is skeptical of banks ability to generate substantial incremental revenues from cross-selling financial products to existing customers via the net. Banks have to maintain a comprehensive and effective web based capability to maintain their competitive position, cautions moodys. The need for customers to take frequent physical receipts, make convenient physical receipts, make convenient physical delivery of cheques using ATMs, inhibition towards paying ATM charges for using another banks ATM network by the consumer and time consuming, difficult and disruptive nature of switching accounts also contribute to the stickiness of retail deposits. With low bank fees for individual transactions and relatively small bank deposits, the opportunity cost in terms of interest income for customers is not material where the deposits are not large.

Banks offer convenience and choice and the web-based channels of banks have reported rapid growth in the number of customers by retaining current customers. According to moodys a survey indicated that 35 per cent of Internet banking customer disconnect because they dont find it convenient. Customers prefer to use a variety of channels to conduct their banking which is why it remains to be seen whether a business model based solely on internet banking will generate adequate returns and sustain long term competition against conventional banking systems. The advent of the internet could, however have a powerful effect on banks acquisition strategies by creating uncertainty about the value of purchasing large branch networks, the study says. For some banks, however, the Internet could facilitate an increase in fee income by generating fees from Internet service arrangements like bill presentment and clearing. However, if smart cards or stored value cards or other electronic cash substitute gain popularity, alternatives could become more attractive to customers. On the other hand, banks might be able to reduce costs of servicing the retail customers by moving them over into a paperless environment. Banks could introduce various incentives to the persuade customers to forego paper statements for the basic savings account and credit card, says moodys. THE RULES HAVE CHANGED As the 1900s come to their close and we look eagerly towards the new millennium, a revolution that will change the rules and every thing we have understood of the retail market, financial products and other services. Economic boundaries are disappearing, and the global village is a reality where the retail customer will have a choice in a manner we may have never imagined.

Providers of retail products and services will battle for market and market share. It is battle that will be fought at different levels and the real winner will be the customer, who will benefit from increased competition through better products, distribution, technology, pricing, and post transaction service. The quality and range of products will expand exponentially convenience of usage, customization to individual needs, and a host of other user-friendly add-ons will create a whole new frontier of applications. Companies will have to innovate and continuously upgrade their products. Anticipation, listening and responding to your customers needs, will be the buzz-words of this thrust. Distribution will be the next key benchmark of success. The customer will demand (and therefore the provider will have to respond) for greater convenience of access to the product or service and all this at the best cost of delivery. Re-defined methods, the use of technology specifically the Internet-and realigned strategies will drive this important criterion of success. Constraints of location, timing, accessibility etc will all be history. No matter how brilliant the product you have, your distribution flexibility will be the customers selection parameter. Again, quality of the product and responsive strategies for distribution will also have a link to price. Efficiencies on this front will be the next item on your report card. Through innovation in production and delivery and cost reduction strategies, the price to the customer will have to be at maximum benefit. The intelligent customer will be ruthless with any price distortions, which as a consequence of inefficiencies or market exploitation his cost benefit analysis will not allow for these variables. Would you prefer a product, which (hopefully) is never expected to need post sale service or one which offers the best after sale service if required ? Clearly, the relationship with the customer starts with the transaction, does not and with it. Organisation we have to give equal importance to cost sale needs of customers as the pitch made prior to the sale.

Technology will perhaps be the single largest driver of this detail thrust. The entire strategy will evolve around the absolute ability of the organisation to be at the cutting as edge of technology. We will have to invest in technology far ahead of immediate needs and be able to anticipate the future direction at a pace we are perhaps not used to. Being able to keep abreast, but more importantly, being able to recognize the immense potential that technology provides at all stages in the retail chain will be of paramount importance. To leverage, exploit and link technology to your business will be the greatest challenge of the new millennium and I am convinced that the retail war will be won and lost on this one aspect, purely because technology increasingly we influence on the entire chain in a retail business cycle. Above all these, I would list attitude towards customer as the single point basis on determining the winner of the race. Attitude to the customer will influence all the areas we have discussed and will ensure excellence in each one of them. It is an intangible, it is not prescribed in a manual nor is it a quantifiable item in the balance sheet, but an organizations attitude to the customer will be the basis determinant of success for any retail operation. There are interesting and challenging times ahead the future promises a lot but will also make extraordinary demands. The customer will be the most important aspect of your business and ultimately the winner of the retail war. RISK INVOLVED IN RETAIL BUSINESS There are of course, considerable risks in retail banking. They are : (a) (b) (c) (d) (e) (f) Databases on credit history are large. Collection mechanisms are poor. Investments in technology are large. Operating efficiency level needs to be very high. Unlike corporate banking, retail banking involves a large number of small accounts. Demands on processing capabilities are higher.

(g) (h)

Retail segment is not something you can get into overnight. The right systems and the right architecture needs to be put in place first.

Literature review________________________________

HISTORY OF BANKING IN INDIA

There are three different phases in the history of banking in India. 1) 2) 3) Pre-Nationalization Era. Nationalization Stage. Post Liberalization Era.

1) Pre-Nationalization Era:
In India the business of banking and credit was practices even in very early times. The remittance of money through Hundies, an indigenous credit instrument, was very popular. The hundies were issued by bankers known as Shroffs, Sahukars, Shahus or Mahajans in different parts of the country. The modern type of banking, however, was developed by the Agency Houses of Calcutta and Bombay after the establishment of Rule by the East India Company in 18th and 19th centuries.During the early part of the 19th Century, ht volume of foreign trade was relatively small. Later on as the trade expanded, the need for banks of the European type was felt and the government of the East India Company took interest in having its own bank. The government of Bengal took the initiative and the first presidency bank, the Bank of Calcutta (Bank

of Bengal) was established in 180. In 1840, the Bank of Bombay and IN 1843, the Bank of Madras was also set up. These three banks are also known as Presidency Banks. The Presidency Banks had their branches in important trading centers but mostly lacked in uniformity in their operational policies. In 1899, the Government proposed to amalgamate these three banks in to one so that it could also function as a Central Bank, but the Presidency Banks did not favor the idea. However, the conditions obtained during world war period (1914-1918) emphasized the need for a unified banking institution, as a result of which the Imperial Bank was set up in1921. The Imperial Bank of India acted like a Central bank and as a banker for other banks. The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of the Country. In 1949, the Banking Regulation act was passed and the RBI was nationalized and acquired extensive regulatory powers over the commercial banks. In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of India, Cooperative banks, Exchange banks and Indian Joint Stock banks.

2) Nationalization Stages:
After Independence, in 1951, the All India Rural Credit survey, committee of Direction with Shri. A. D. Gorwala as Chairman recommended amalgamation of the Imperial Bank of India and ten others banks into a newly

established bank called the State Bank of India (SBI). The Government of India accepted the recommendations of the committee and introduced the State Bank of India bill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got the presidents assent on 8th May 1955. The Act came into force on 1st July 1955, and the Imperial Bank of India was nationalized in 1955 as the State Bank of India. The main objective of establishing SBI by nationalizing the Imperial Bank of India was to extend banking facilities on a large scale more particularly in the rural and semi-urban areas and to diverse other public purposes. In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight state-associated banks were taken over by the SBI as its subsidiaries. Name of the Bank 1. State Bank of Hyderabad 2. State Bank of Bikaner 3. State Bank of Jaipur 4. State Bank of Saurashtra 5. State Bank of Patiala 6. State Bank of Mysore 7. State Bank of Indore 8. State Bank of Travancore Subsidiary with effect from 1st October 1959 1st January 1960 1st January 1960 1st May 1960 1st April 1960 1st March 1960 1st January 1968 1st January 1960

With effect from 1st January 1963, the State Bank of Bikaner and State Bank of Jaipur with head office located at Jaipur. Thus, seven subsidiary banks State Bank of India formed the SBI Group. The SBI Group under statutory obligations was required to open new offices in rural and semi-urban areas and modern banking was taken to these unbanked remote areas. On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the nationalization of 14 major scheduled Commercial Banks each having deposits worth Rs. 50 crore and above. This was a turning point in the history of commercial banking in India. Later the Government Nationalized six more commercial private sector banks with deposit liability of not less than Rs. 200 crores on 15th April 1980, viz. i) Andhra Bank. ii) Corporation Bank. iii) New Bank if India. iv) Oriental Bank of Commerce. v) Punjab and Sind Bank. vi) Vijaya Bank. In 1969, the Lead Bank Scheme was introduced to extend banking facilities to every corner of the country. Later in 1975, Regional Rural Banks were

set up to supplement the activities of the commercial banks and to especially meet the credit needs of the weaker sections of the rural society. Nationalization of banks paved way for retail banking and as a result there has been an all round growth in the branch network, the deposit mobilization, credit disposals and of course employment. The first year after nationalization witnessed the total growth in the agricultural loans and the loans made to SSI by 87% and 48% respectively. The overall growth in the deposits and the advances indicates the improvement that has taken place in the banking habits of the people in the rural and semi-urban areas where the branch network has spread. Such credit expansion enabled the banks to achieve the goals of nationalization, it was however, achieved at the coast of profitability of the banks.

Consequences of Nationalization:
* The quality of credit assets fell because of liberal credit extension policy. * Political interference has been as additional malady. * Poor appraisal involved during the loan meals conducted for credit disbursals. * The credit facilities extended to the priority sector at concessional rates. * The high level of low yielding SLR investments adversely affected the profitability of the banks. * The rapid branch expansion has been the squeeze on profitability of banks emanating primarily due to the increase in the fixed costs. * There was downward trend in the quality of services and efficiency of the banks

3) Post-Liberalization Era---Thrust on Quality and Profitability:

By the beginning of 1990, the social banking goals set for the banking industry made most of the public sector resulted in the presumption that there was no need to look at the fundamental financial strength of this bank. Consequently they remained undercapitalized. Revamping this structure of the banking industry was of extreme importance, as the health of the financial sector in particular and the economy was a whole would be reflected by its performance. The need for restructuring the banking industry was felt greater with the initiation of the real sector reform process in 1992. The reforms have enhanced the opportunities and challenges for the real sector making them operate in a borderless global market place. However, to harness the benefits of globalization, there should be an efficient financial sector to support the structural reforms taking place in the real economy. Hence, along with the reforms of the real sector, the banking sector reformation was also addressed. The root causes for the lackluster performance of banks, formed the elements of the banking sector reforms. Some of the factors that led to the dismal performance of banks were: * Regulated interest rate structure. * Lack of focus on profitability. * Lack of transparency in the banks balance sheet. * Lack of competition. * Excessive regulation on organization structure and managerial resource.

* Excessive support from government. Against this background, the financial sector reforms were initiated to bring about a paradigm shift in the banking industry, by addressing the factors for its dismal performance. In this context, the recommendations made by a high level committee on financial sector, chaired by M. Narasimham, laid the foundation for the banking sector reforms. These reforms tried to enhance the viability and efficiency of the banking sector. The Narasimham Committee suggested that there should be functional autonomy, flexibility in operations, dilution of banking strangulations, reduction in reserve requirements and adequate financial infrastructure in terms of supervision, audit and technology. The committee further advocated introduction of prudential forms, transparency in operations and improvement in productivity, only aimed at liberalizing the regulatory framework, but also to keep them in time with international standards. The emphasis shifted to efficient and prudential banking linked to better customer care and customer services.

PRIVATE SECTOR BANKS

Private banking in India was practiced since the beginning of banking system in India. The first private bank in India to be set up in Private Sector Banks in India was Indus Ind Bank. It is one of the fastest growing Bank Private Sector banks in India. IDBI ranks the tenth largest development bank in the world as Private Banks in India and has promoted a world class institution in India.

The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited, to set up a bank in the private sector banks in India as part of the RBI's liberalization of the Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced operations as Scheduled Commercial Bank in January 1995. ING Vaysya, yet another Private Bank of India was incorporated in the year 1930. Bangalore has a pride of place for having the first branch inception in the year 1934. With successive years of patronage and constantly setting new standards in banking, ING Vaysya Bank has many credits to its account.

Entry of Private Sector Banks:

There has been a paradigm shift in mindsets both at the Government level in the banking industry over the years since Nationalization of Banks in 1969, particularly during the last decade (1990-2000). Having achieved the objectives of Nationalization, the most important issue before the industry at present is survival and growth in the environment generated by the economic liberalization greater competition with a view to achieving higher productivity and efficiency in January 1993 for the entry of Private Sector banks based on the Nationalization Committee report of 1991, which envisaged a larger role for Private Sector Banks. The RBI prescribed a minimum paid up capital of Rs. 100 crores for the new bank and the shares are to be listed at stock exchange. Also the new bank

after being granted license under the Banking Regulation Act shall be registered as a public limited company under the companies Act, 1956. Subsequently 9 new commercial banks have been granted license to start banking operations. The new private sector banks have been very aggressive in business expansion and is also reporting higher profile levels taking the advantage of technology and skilled manpower. In certain areas, these banks have even our crossed the other group of banks including foreign banks.

CURRENT SCENARIO
There have been major structural changes in the financial sector since banking sector reforms were introduced in India in 1992. Since then Banks have been lending aggressively providing funds towards infrastructure sector. Major policy measures include phased reductions in statutory pre-emption like cash reserve and statutory liquidity requirements and deregulation of interest rates on deposits and lending, except for a select segment. The diversification of ownership of banking institutions is yet another feature which has enabled private shareholding in the public sector banks, through listing on the stock exchanges, arising from dilution of the Government ownership. Foreign direct investment in the private sector banks is now allowed up to 74 per cent. The co-existence of the public sector, private sector and the foreign banks has generated competition in the banking sector leading to a significant improvement in efficiency and customer service. The share of private and foreign banks in total assets increased to 31.5 per cent at end-March 2007 from 27.6 per cent at end-March 2006 and less than 10.0 per cent at the inception of reforms.

* The nationalized banks have more branches than any other types of banks in India. Now there are over 53,000 Branches in India, as on March 2009. * Investments of scheduled commercial banks (SCBs) also saw an increase from Rs 8, 04,199 crore in March 2006 to Rs 8,43,081 crore in the same month of 2007. * India's retail-banking assets are expected to grow at the rate of 18% a year over the years 2006-2010. * Retail loan to drive the growth of retail banking in future. Housing loan accounts for major chunk of retail loan.

ORGANIZATIONAL STRUCTURE OF BANKS IN INDIA

In India banks are classified in various categories according to differ rent criteria. The following charts indicate the banking structure:

Broad Classification of Banks in India:

1) The RBI: The RBI is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserves of all scheduled banks and hence is known as the Reserve Bank. 2) Public Sector Banks: * State Bank of India and its Associates (8) * Nationalized Banks (19) * Regional Rural Banks Sponsored by Public Sector Banks (196) 3) Private Sector Banks: * Old Generation Private Banks (22)

* Foreign New Generation Private Banks (8) * Banks in India (40) 4) Co-operative Sector Banks: * State Co-operative Banks * Central Co-operative Banks * Primary Agricultural Credit Societies * Land Development Banks * State Land Development Banks 5) Development Banks: Development Banks mostly provide long term finance for setting up industries. They also provide short-term finance (for export and import activities) * Industrial Finance Co-operation of India (IFCI) * Industrial Development of India (IDBI) * Industrial Investment Bank of India (IIBI) * Small Industries Development Bank of India (SIDBI) * National Bank for Agriculture and Rural Development (NABARD) * Export-Import Bank of India

ROLE OF BANKS
Banks play a positive role in economic development of a country as repositories of communitys savings and as purveyors of credit. Indian Banking has aided the economic development during the last fifty years in an effective way. The banking sector has shown a remarkable responsiveness to the needs of planned economy. It has brought about a considerable progress in its efforts at deposit

mobilization and has taken a number of measures in the recent past for accelerating the rate of growth of deposits. As recourse to this, the commercial banks opened branches in urban, semi-urban and rural areas and have introduced a number of attractive schemes to foster economic development. The activities of commercial banking have growth in multidirectional ways as well as multi-dimensional manner. Banks have been playing a catalytic role in area development, backward area development, extended assistance to rural development all along helping agriculture, industry, international trade in a significant manner. In a way, commercial banks have emerged as key financial agencies for rapid economic development. By pooling the savings together, banks can make available funds to specialized institutions which finance different sectors of the economy, needing capital for various purposes, risks and durations. By contributing to government securities, bonds and debentures of term-lending institutions in the fields of agriculture, industries and now housing, banks are also providing these institutions with an access to the common pool of savings mobilized by them, to that extent relieving them of the responsibility of directly approaching the saver. This intermediation role of banks is particularly important in the early stages of economic development and financial specification. A country like India, with different regions at different stages of development, presents an interesting spectrum of the evolving role of banks, in the matter of inter-mediation and beyond. Mobilization of resources forms an integral part of the development process in India. In this process of mobilization, banks are at a great advantage, chiefly because of their network of branches in the country. And banks have to

place considerable reliance on the mobilization of deposits from the public to finance development programs. Further, deposit mobilizations by banks in India acquired greater significance in their new role in economic development. Commercial banks provide short-term and medium-term financial assistance. The short-term credit facilities are granted for working capital requirements. The medium-term loans are for the acquisition of land, construction of factory premises and purchase of machinery and equipment. These loans are generally granted for periods ranging from five to seven years. They also establish letters of credit on behalf of their clients favoring suppliers of raw materials/machinery (both Indian and foreign) which extend the bankers assurance for payment and thus help their delivery. Certain transaction, particularly those in contracts of sale of Government Departments, may require guarantees being issued in lieu of security earnest money deposits for release of advance money, supply of raw materials for processing, full payment of bills on the assurance of the performance etc. Commercial banks issue such guarantees also. There are three different phases in the history of banking in India. 1) 2) 3) Pre-Nationalization Era. Nationalization Stage. Post Liberalization Era.

1) Pre-Nationalization Era:
In India the business of banking and credit was practices even in very early times. The remittance of money through Hundies, an indigenous credit

instrument, was very popular. The hundies were issued by bankers known as Shroffs, Sahukars, Shahus or Mahajans in different parts of the country. The modern type of banking, however, was developed by the Agency Houses of Calcutta and Bombay after the establishment of Rule by the East India Company in 18th and 19th centuries.During the early part of the 19th Century, ht volume of foreign trade was relatively small. Later on as the trade expanded, the need for banks of the European type was felt and the government of the East India Company took interest in having its own bank. The government of Bengal took the initiative and the first presidency bank, the Bank of Calcutta (Bank of Bengal) was established in 180. In 1840, the Bank of Bombay and IN 1843, the Bank of Madras was also set up. These three banks are also known as Presidency Banks. The Presidency Banks had their branches in important trading centers but mostly lacked in uniformity in their operational policies. In 1899, the Government proposed to amalgamate these three banks in to one so that it could also function as a Central Bank, but the Presidency Banks did not favor the idea. However, the conditions obtained during world war period (1914-1918) emphasized the need for a unified banking institution, as a result of which the Imperial Bank was set up in1921. The Imperial Bank of India acted like a Central bank and as a banker for other banks. The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of the Country. In 1949, the Banking Regulation act was passed and the RBI was nationalized and acquired extensive regulatory powers over the commercial banks.

In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of India, Cooperative banks, Exchange banks and Indian Joint Stock banks.

2) Nationalization Stages:
After Independence, in 1951, the All India Rural Credit survey, committee of Direction with Shri. A. D. Gorwala as Chairman recommended amalgamation of the Imperial Bank of India and ten others banks into a newly established bank called the State Bank of India (SBI). The Government of India accepted the recommendations of the committee and introduced the State Bank of India bill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got the presidents assent on 8th May 1955. The Act came into force on 1st July 1955, and the Imperial Bank of India was nationalized in 1955 as the State Bank of India. The main objective of establishing SBI by nationalizing the Imperial Bank of India was to extend banking facilities on a large scale more particularly in the rural and semi-urban areas and to diverse other public purposes. In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight state-associated banks were taken over by the SBI as its subsidiaries. Name of the Bank 1. State Bank of Hyderabad Subsidiary with effect from 1st October 1959

2. State Bank of Bikaner 3. State Bank of Jaipur 4. State Bank of Saurashtra 5. State Bank of Patiala 6. State Bank of Mysore 7. State Bank of Indore 8. State Bank of Travancore

1st January 1960 1st January 1960 1st May 1960 1st April 1960 1st March 1960 1st January 1968 1st January 1960

With effect from 1st January 1963, the State Bank of Bikaner and State Bank of Jaipur with head office located at Jaipur. Thus, seven subsidiary banks State Bank of India formed the SBI Group. The SBI Group under statutory obligations was required to open new offices in rural and semi-urban areas and modern banking was taken to these unbanked remote areas. On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the nationalization of 14 major scheduled Commercial Banks each having deposits worth Rs. 50 crore and above. This was a turning point in the history of commercial banking in India. Later the Government Nationalized six more commercial private sector banks with deposit liability of not less than Rs. 200 crores on 15th April 1980, viz. i) Andhra Bank. ii) Corporation Bank.

iii) New Bank if India. iv) Oriental Bank of Commerce. v) Punjab and Sind Bank. vi) Vijaya Bank. In 1969, the Lead Bank Scheme was introduced to extend banking facilities to every corner of the country. Later in 1975, Regional Rural Banks were set up to supplement the activities of the commercial banks and to especially meet the credit needs of the weaker sections of the rural society. Nationalization of banks paved way for retail banking and as a result there has been an all round growth in the branch network, the deposit mobilization, credit disposals and of course employment. The first year after nationalization witnessed the total growth in the agricultural loans and the loans made to SSI by 87% and 48% respectively. The overall growth in the deposits and the advances indicates the improvement that has taken place in the banking habits of the people in the rural and semi-urban areas where the branch network has spread. Such credit expansion enabled the banks to achieve the goals of nationalization, it was however, achieved at the coast of profitability of the banks.

Consequences of Nationalization:
* The quality of credit assets fell because of liberal credit extension policy. * Political interference has been as additional malady.

* Poor appraisal involved during the loan meals conducted for credit disbursals. * The credit facilities extended to the priority sector at concessional rates. * The high level of low yielding SLR investments adversely affected the profitability of the banks. * The rapid branch expansion has been the squeeze on profitability of banks emanating primarily due to the increase in the fixed costs. * There was downward trend in the quality of services and efficiency of the banks

3) Post-Liberalization Era---Thrust on Quality and Profitability:

By the beginning of 1990, the social banking goals set for the banking industry made most of the public sector resulted in the presumption that there was no need to look at the fundamental financial strength of this bank. Consequently they remained undercapitalized. Revamping this structure of the banking industry was of extreme importance, as the health of the financial sector in particular and the economy was a whole would be reflected by its performance. The need for restructuring the banking industry was felt greater with the initiation of the real sector reform process in 1992. The reforms have enhanced the opportunities and challenges for the real sector making them operate in a borderless global market place. However, to harness the benefits of globalization, there should be an efficient financial sector to support the structural reforms taking place in the real economy. Hence, along with the reforms of the real sector, the banking sector reformation was also addressed.

The root causes for the lackluster performance of banks, formed the elements of the banking sector reforms. Some of the factors that led to the dismal performance of banks were: * Regulated interest rate structure. * Lack of focus on profitability. * Lack of transparency in the banks balance sheet. * Lack of competition. * Excessive regulation on organization structure and managerial resource. * Excessive support from government. Against this background, the financial sector reforms were initiated to bring about a paradigm shift in the banking industry, by addressing the factors for its dismal performance. In this context, the recommendations made by a high level committee on financial sector, chaired by M. Narasimham, laid the foundation for the banking sector reforms. These reforms tried to enhance the viability and efficiency of the banking sector. The Narasimham Committee suggested that there should be functional autonomy, flexibility in operations, dilution of banking strangulations, reduction in reserve requirements and adequate financial infrastructure in terms of supervision, audit and technology. The committee further advocated introduction of prudential forms, transparency in operations and improvement in productivity, only aimed at liberalizing the regulatory framework, but also to keep them in time with international standards. The emphasis shifted to efficient and prudential banking linked to better customer care and customer services.

PRIVATE SECTOR BANKS

Private banking in India was practiced since the beginning of banking system in India. The first private bank in India to be set up in Private Sector Banks in India was Indus Ind Bank. It is one of the fastest growing Bank Private Sector banks in India. IDBI ranks the tenth largest development bank in the world as Private Banks in India and has promoted a world class institution in India. The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited, to set up a bank in the private sector banks in India as part of the RBI's liberalization of the Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced operations as Scheduled Commercial Bank in January 1995. ING Vaysya, yet another Private Bank of India was incorporated in the year 1930. Bangalore has a pride of place for having the first branch inception in the year 1934. With successive years of patronage and constantly setting new standards in banking, ING Vaysya Bank has many credits to its account.

Entry of Private Sector Banks:

There has been a paradigm shift in mindsets both at the Government level in the banking industry over the years since Nationalization of Banks in 1969, particularly during the last decade (1990-2000). Having achieved the objectives of

Nationalization, the most important issue before the industry at present is survival and growth in the environment generated by the economic liberalization greater competition with a view to achieving higher productivity and efficiency in January 1993 for the entry of Private Sector banks based on the Nationalization Committee report of 1991, which envisaged a larger role for Private Sector Banks. The RBI prescribed a minimum paid up capital of Rs. 100 crores for the new bank and the shares are to be listed at stock exchange. Also the new bank after being granted license under the Banking Regulation Act shall be registered as a public limited company under the companies Act, 1956. Subsequently 9 new commercial banks have been granted license to start banking operations. The new private sector banks have been very aggressive in business expansion and is also reporting higher profile levels taking the advantage of technology and skilled manpower. In certain areas, these banks have even our crossed the other group of banks including foreign banks.

CURRENT SCENARIO
There have been major structural changes in the financial sector since banking sector reforms were introduced in India in 1992. Since then Banks have been lending aggressively providing funds towards infrastructure sector. Major policy measures include phased reductions in statutory pre-emption like cash reserve and statutory liquidity requirements and deregulation of interest rates on deposits and lending, except for a select segment. The diversification of ownership of banking institutions is yet another feature which has enabled private shareholding in the public sector banks, through listing on the stock exchanges, arising from

dilution of the Government ownership. Foreign direct investment in the private sector banks is now allowed up to 74 per cent. The co-existence of the public sector, private sector and the foreign banks has generated competition in the banking sector leading to a significant improvement in efficiency and customer service. The share of private and foreign banks in total assets increased to 31.5 per cent at end-March 2007 from 27.6 per cent at end-March 2006 and less than 10.0 per cent at the inception of reforms. * The nationalized banks have more branches than any other types of banks in India. Now there are over 53,000 Branches in India, as on March 2009. * Investments of scheduled commercial banks (SCBs) also saw an increase from Rs 8, 04,199 crore in March 2006 to Rs 8,43,081 crore in the same month of 2007. * India's retail-banking assets are expected to grow at the rate of 18% a year over the years 2006-2010. * Retail loan to drive the growth of retail banking in future. Housing loan accounts for major chunk of retail loan.

ORGANIZATIONAL STRUCTURE OF BANKS IN INDIA

In India banks are classified in various categories according to differ rent criteria. The following charts indicate the banking structure:

Broad Classification of Banks in India:

1) The RBI: The RBI is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the reserves of all scheduled banks and hence is known as the Reserve Bank.

2) Public Sector Banks: * State Bank of India and its Associates (8) * Nationalized Banks (19) * Regional Rural Banks Sponsored by Public Sector Banks (196) 3) Private Sector Banks: * Old Generation Private Banks (22) * Foreign New Generation Private Banks (8) * Banks in India (40) 4) Co-operative Sector Banks: * State Co-operative Banks * Central Co-operative Banks * Primary Agricultural Credit Societies * Land Development Banks * State Land Development Banks 5) Development Banks: Development Banks mostly provide long term finance for setting up industries. They also provide short-term finance (for export and import activities) * Industrial Finance Co-operation of India (IFCI) * Industrial Development of India (IDBI) * Industrial Investment Bank of India (IIBI) * Small Industries Development Bank of India (SIDBI) * National Bank for Agriculture and Rural Development (NABARD) * Export-Import Bank of India

ROLE OF BANKS
Banks play a positive role in economic development of a country as repositories of communitys savings and as purveyors of credit. Indian Banking has aided the economic development during the last fifty years in an effective way. The banking sector has shown a remarkable responsiveness to the needs of planned economy. It has brought about a considerable progress in its efforts at deposit mobilization and has taken a number of measures in the recent past for accelerating the rate of growth of deposits. As recourse to this, the commercial banks opened branches in urban, semi-urban and rural areas and have introduced a number of attractive schemes to foster economic development. The activities of commercial banking have growth in multidirectional ways as well as multi-dimensional manner. Banks have been playing a catalytic role in area development, backward area development, extended assistance to rural development all along helping agriculture, industry, international trade in a significant manner. In a way, commercial banks have emerged as key financial agencies for rapid economic development. By pooling the savings together, banks can make available funds to specialized institutions which finance different sectors of the economy, needing capital for various purposes, risks and durations. By contributing to government securities, bonds and debentures of term-lending institutions in the fields of agriculture, industries and now housing, banks are also providing these institutions with an access to the common pool of savings mobilized by them, to that extent relieving them of the responsibility of directly approaching the saver. This

intermediation role of banks is particularly important in the early stages of economic development and financial specification. A country like India, with different regions at different stages of development, presents an interesting spectrum of the evolving role of banks, in the matter of inter-mediation and beyond. Mobilization of resources forms an integral part of the development process in India. In this process of mobilization, banks are at a great advantage, chiefly because of their network of branches in the country. And banks have to place considerable reliance on the mobilization of deposits from the public to finance development programs. Further, deposit mobilizations by banks in India acquired greater significance in their new role in economic development. Commercial banks provide short-term and medium-term financial assistance. The short-term credit facilities are granted for working capital requirements. The medium-term loans are for the acquisition of land, construction of factory premises and purchase of machinery and equipment. These loans are generally granted for periods ranging from five to seven years. They also establish letters of credit on behalf of their clients favoring suppliers of raw materials/machinery (both Indian and foreign) which extend the bankers assurance for payment and thus help their delivery. Certain transaction, particularly those in contracts of sale of Government Departments, may require guarantees being issued in lieu of security earnest money deposits for release of advance money, supply of raw materials for processing, full payment of bills on the assurance of the performance etc. Commercial banks issue such guarantees also.