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Banking and Insurance Semester V (2011-2012)

In partial Fulfillment of the requirement for the Award of Degree of Bachelor of Commerce Banking & Insurance.

Submitted By,

Under Guidance,


This is to certify that Mr. PARAG ANIRUDHA SAWANT of B.Com Banking & Insurance Semester V (2011-2012) has successfully completed the project on EMERGING CUSTOMER SERVICE IN BANKING under the guidance of PROF. KUNAL SONI SIR.

Course Coordinator


Project Guide/Internal Examiner

External Examiner

I am Mr. PARAG ANIRUDHA SAWANT. The student of B. com (Banking & Insurance) Semester V (2010-2011) hereby declares that have completed the Project on EMERGING CUSTOMER SERVICE IN BANKING. The information submitted is true and original to the best of my knowledge.

Signature of student Name of Student Mr. PARAG ANIRUDHA SAWANT Roll No. 47


The college, the faculty, the classmates & the atmosphere, in the college were all the favorable contributory factors right from the point when the topic was to be selected till the final copy was prepared. It was a very enriching experience throughout the contribution from the following individuals in the form in which it appears today. We feel privileged to take this opportunity to put on record my gratitude towards them. PROF. KUNAL SONI SIR made sure that the resource was made available in time & also for immediate advice & guidance throughout making this project. Vice principal of our college PROF. T.P.GHULE has always been inspiring & driving force. We are thankful to Mr. SANTOSH SHINDE associated with administration part of Banking & Insurance section has been very helpful in making the infrastructure available for data entry.


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Service Sector is the lifeline for the social economic growth of a country. It is today the largest and fastest growing sector globally contributing more to the global output and employing more people than any other sector. The real reason for the growth of the service sector is due to the increase in urbanization, privatization and more demand for intermediate and final

consumer services. Availability of quality services is vital for the well being of the economy. In advanced economies the growth in the primary and secondary sectors are directly dependent on the growth of services like banking, insurance, trade, commerce, entertainment etc. The service sector is going through almost revolutionary change, it dramatically affects the way in which we live and work. New services are continually being launched to satisfy consumers existing needs and to meet the needs that they do not even know they had. Ten years ago people did not anticipate the need for email, online banking, web hosting, online reservation and many other new services, but today many of us feel we cannot survive without them. Similar transformations are happening in Business to business marketing. Service organisations vary widely in size. At one end are the huge international corporations operating in industries such as tourism, airlines, banking, telecommunication etc whereas on the other end of the scale is a vast array of locally owned and operated small businesses including parlours , hotels , laundry n numerous business to business services. The boom in the services sector has been relatively "jobless". The rise in services share in GDP has not accompanied by proportionate increase in the sector's share of national employment. Some economists have also cautioned that service sector growth must be supported by proportionate growth of the industrial sector, otherwise the service sector grown will not be sustainable. In the current economic scenario it looks that the boom in the services sector is here to stay as India is fast emerging as global services hub.

How important is the service sector in an economy?

In most countries services add more economic value than raw materials and manufacturing combined. In developed economies employment is dominated by service jobs and most new job growth comes from services. Jobs range from high paid professionals and technicians to minimum wage positions. agriculture

Service organisations can be any size, from huge global corporations to local small businesses. Most activities by govt. agencies and non profit orgs involve service


In alignment with the global trends, Indian service sector has witnessed a major boom and is one of the major contributors to both employment and national income in recent times. The activities under the purview of the service sector are quite diverse. Trading, transportation and communication, financial, real estate and business services, community, social and personal services come within the gambit of the service industry. Service sector in India accounts for more than half of Indias GDP. According to data for the

financial year 2008, the share of services, industry and agriculture in Indias GDP is 53.7% 29.1% and 17.2% respectively. The various sectors that combine together to constitute service industry in India are stated as under: Trade Railways Communication (post and telecom) Insurance Public administrations, defence Community services Hotels and restaurants Other transport and storage Banking Business services Personal services Other service

Banks are now the most significant players in the Indian financial market. They are the biggest purveyors of credit, and they also attract most of the savings from the population. The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system.

Customer service is a series of activities designed to enhance the level of customer satisfaction that is, the feeling that a product or service has met the customer expectation."


Automated customer service

Customer service may be provided by a person (e.g., sales and service representative), or by automated means. Examples of automated means are Internet sites. An advantage with automated means is an increased ability to provide service 24-hours a day, which can, at least, be a complement to customer service by persons. However, in the Internet era, a challenge has been to maintain and/or enhance the personal experience while making use of the efficiencies of online commerce. Writing in Fast Company, entrepreneur and customer systems innovator Micah Solomon has made the point that "Online customers are literally invisible to you (and you to them), so it's easy to shortchange them emotionally. But this lack of visual and tactile presence makes it even more crucial to create a sense of personal, human-to-human connection in the online arena. Automated means can be based entirely on self service, but may also be based on service by more or less means of artificial intelligence.An automated online assistant with avatar providing automated customer service on a web page. Examples of customer service by artificial means are automated online assistants that can be seen as avatars on websites. It can avail for enterprises to reduce their operating and training cost. These are driven by chatterbots, and a major underlying technology to such systems is natural language processing.

Instant feedback
Recently, many organizations have implemented feedback loops that allow them to capture feedback at the point of experience. For example, National Express, one of the UK's leading travel companies invites passengers to send text messages whilst riding the bus. This has been shown to be useful as it allows companies to improve their customer service before the customer defects, thus making it far more likely that the customer will return next time. Technology has made it increasingly easier for companies to obtain feedback from customers. Community blogs and forums give customers to give detailed explanations of both negative and positive experiences with an organization.

A challenge working with customer service is to ensure that you have focused your attention on the right key areas, measured by the right Key Performance Indicator. There is no challenge to come up with a lot of meaningful KPIs, but the challenge is to select a few which reflects your overall strategy. In addition to reflecting your strategy it should also enable staff to limit their focus to the areas that really matter. The focus must be of those KPIs, which will deliver the most value to the overall objective, e.g. cost saving, service improving etc. It must also be done in such a way that staff sincerely believe that they can make a difference with the effort. One of the most important aspects of a customer service KPI is that of what is often referred to as the "Feel Good Factor." Basically the goal is to not only help the customer have a good experience, but to offer them an experience that exceeds their expectations. Several key points are listed as follows:


Know your product

Know what products/service you are offering back to front. In other words be an information expert. It is okay to say "I don't know," but it should always be followed up by "but let me find out" or possibly "but my friend knows!" Whatever the situation may be, make sure that you don't leave your customer with an unanswered question.


Body Language/Communication
Most of the communication that we relay to others is done through body language. If we have a negative body language when we interact with others it can show our lack of care. Two of the most important parts of positive body language are smiling and eye contact. Make sure to look your customers in the eye. It shows that we are listening to them, not at them. And

then of course smiling is just more inviting than someone who has a blank look on their face.

Anticipate Guest Needs

Nothing surprises your customer more than an employee going the extra mile to help them. Always look for ways to serve your customer more than they expect. In doing so it helps them to know that you care and it will leave them with the "Feel Good Factor" that we are searching for.

1.Central Bank
The Central Bank maintains record of Government revenue and expenditure under various heads. It also advises the Government on monetary and credit policies and decides on the interest rates for bank deposits and bank loans. In addition, foreign exchange rates are also determined by the central bank. Another important function of the Central Bank is the issuance of currency notes, regulating their circulation in the country by different methods. No other bank than the Central Bank can issue currency.

2.Commercial Bank
Commercial Banks are banking institutions that accept deposits and grant shortterm loans and advances to their customers. In addition to giving short-term loans, commercial banks also give medium-term and long-term loan to business enterprises. Now-a-days some of the commercial banks are also providing housing loan on a long-term basis to individuals. There are also many other functions of commercial banks, which are discussed later in this lesson. Types of Commercial banks: Commercial banks are of three types i.e., Public sector banks, Private sector banks and Foreign banks.

(i) Public Sector Banks:

These are banks where majority stake is held by the Government of India or Reserve Bank of India. Examples of public sector banks are: State Bank of India, Corporation Bank, Bank of Baroda and Dena Bank, etc.

(ii) Private Sectors Banks:

In case of private sector banks majority of hare capital of the bank is held by private individuals. These banks are registered as companies with limited liability. For example: The Jammu and Kashmir Bank Ltd., Bank of Rajasthan Ltd, Development Credit Bank Ltd, Lord Krishna Bank Ltd., Bharat Overseas Bank Ltd, Global Trust Bank, Vysya Bank,

(iii) Foreign Banks:

These banks are registered and have their headquarters in a foreign country but operate their branches in our country. Some of the foreign banks operating in our country are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard & Chartered Bank, Grindlays Bank, etc. The number of foreign banks operating in our country has increased since the financial sector reforms of 1991.

3. Development Banks
Business often requires medium and long-term capital for purchase of machinery and equipment, for using latest technology, or for expansion and modernization. Such financial assistance is provided by Development Banks. They also undertake other development measures like subscribing to the shares and debentures issued by companies, in case of under subscription of the issue by the public. Industrial Finance Corporation of India (IFCI) and State Financial Corporations (SFCs) are examples of development banks in India.

4. Co-operative Banks
People who come together to jointly serve their common interest often form a cooperative society under the Co-operative Societies Act. When a co- operative society engages itself in banking business it is called a Co-operative Bank. The society has to obtain a license from the Reserve Bank of India before starting banking business. Any co-operative bank as a society is to function under the overall supervision of the Registrar, Co-operative Societies of the State. As regards banking business, the society must follow the guidelines set and issued by the Reserve Bank of India.

Types of Co-operative Banks

There are three types of co-operative banks operating in our country. They are primary credit societies, central co-operative banks and state co-operative banks. These banks are organized at three levels, village or town level, district level and state level.

(i).Primary Credit Societies:

These are formed at the village or town level with borrower and non-borrower members residing in one locality. The operations of each society are restricted to a small area so that the members know each other and are able to watch over the activities of all members to prevent frauds.

(ii). Central Co-operative Banks:

These banks operate at the district level having some of the primary credit societies belonging to the same district as their members. These banks provide loans to their members (i.e., primary credit societies) and function as a link between the primary credit societies and state co-operative banks.

(iii). State Co-operative Banks:

These are the apex (highest level) co-operative banks in all the states of the country. They mobilize funds and help in its proper channelization among various sectors. The money reaches the individual borrowers from the state co-operative banks through the central co- operative banks and the primary credit societies.

(iv). Specialized Banks

There are some banks, which cater to the requirements and provide overall support for setting up business in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of such banks. They engage themselves in some specific area or activity and thus, are called specialized banks.

(a)Export Import Bank of India (EXIM Bank):

If you want to set up a business for exporting products abroad or Import ing products from foreign countries for sale in our country, EXIM bank can provide you the required support and assistance. The bank grants loans to exporters and importers and also provides information about the international market. It gives guidance about the opportunities for export or import, the risks involved in it and the competition to be faced, etc.

(b)Small Industries Development Bank of India (SIDBI):

If you want to establish a small-scale business unit or industry, loan on easy terms can be available through SIDBI. It also finances modernization of small-scale industrial units, use of new technology and market activities. The aim and focus of SIDBI is to promote, finance and develop small-scale industries.

(c)National (NABARD):







It is a central or apex institution for financing agricultural and rural sectors. If a person is engaged in agriculture or other activities like handloom weaving, fishing, etc. NABARD can provide credit, both short-term and long-term, through regional rural banks. It provides financial assistance, especially, to co-operative credit, in the field of agriculture, small-scale industries, cottage and village industries handicrafts and allied economic activities in rural areas.

5. Retail banking
Retail banking provides general banking services to the mass public such as savings, loans, payments, mortgages and credit cards.Retail banking is perticularly to the individual customer.

6. Investment banking
Investment banking helps their corporate clients to raise capital through the issuance of stocks and bonds, underwrites securities and arranges mergers, disposals, acquisitions, reconstructions and floatations. demanding and lucrative aspects of financial services. offered are Fund Manager and Investment Analyst. Sound knowledge in Examples of positions finance and strong analytical skills are required since it is one of the most



TREDITIONAL SERVICES 1.FUND BASE Accepting deposits Advising clint forbest source of fund MODERN SERVICES

Granting loans and advaces Deals in primary market Deals in secondary market Deals in foreign market Participate in maney market instrument

Rendering project advisory services Corporate advisoty services Mobile banking Net banking Credit cards

2.NON FUND BASE Manage pre & post issues of capital Assist to the clints in obtaining approval Arrenging the funds for clints




Banks receive money from the public by way of deposits. The following types of deposits are usually received by banks: i) Current deposit iii) Fixed deposit ii) Saving deposit iv) Recurring deposit

v) Miscellaneous deposits

i) Current Deposit
Also called demand deposit, current deposit can be withdrawn by the depositor at any time by cheques. Businessmen generally open current accounts with banks. Current accounts do not carry any interest as the amount deposited in these accounts is repayable on demand without any restriction. The Reserve bank of India prohibits payment of interest on current accounts or on deposits upto 14 Days or less except where prior sanction has been obtained. Banks usually charge a small amount known as incidental charges on current deposit accounts depending on the number of transaction.

ii) Savings deposit

Savings deposit account is meant for individuals who wish to deposit small amounts out of their current income. It helps in safe guarding their future and also earning interest on the savings. A saving account can be opened with or without cheque book facility. There are restrictions on the withdrawls from this account.

Savings account holders are also allowed to deposit cheques, drafts, dividend warrants, etc. drawn in their favour for collection by the bank. To open a savings account, it is necessary for the depositor to be introduced by a person having a current or savings account with the same bank.

iii) Fixed deposit

The term Fixed deposit means deposit repayable after the expiry of a specified period. Since it is repayable only after a fixed period of time, which is to be determined at the time of opening of the account, it is also known as time deposit. Fixed deposits are most useful for a commercial bank. Since they are repayable only after a fixed period, the bank may invest these funds more profitably by lending at higher rates of interest and for relatively longer periods. The rate of interest on fixed deposits depends upon the period of deposits. The longer the period, the higher is the rate of interest offered. The rate of interest to be allowed on fixed deposits is governed by rules laid down by the Reserve Bank of India.

iv) Recurring Deposits

Recurring Deposits are gaining wide popularity these days. Under this type of deposit, the depositor is required to deposit a fixed amount of money every month for a specific period of time. Each instalment may vary from Rs.5/- to Rs.500/- or more per month and the period of account may vary from 12 months to 10 years. After the completion of the specified period, the customer gets back all his deposits alongwith the cumulative interest accrued on the deposits.

v) Miscellaneous Deposits
Banks have introduced several deposit schemes to attract deposits fromdifferent types of people, like Home Construction deposit scheme, Sickness Benefit deposit scheme, Children Gift plan, Old age pension scheme, Mini deposit scheme, etc.


One of the important functions of the Bank is to accept deposits from the public for the purpose of lending. In fact, depositors are the major stakeholders of the Banking System. The depositors and their interests form the key area of the regulatory framework for banking in India and this has been enshrined in the Banking Regulation Act 1949. The Reserve Bank of India is empowered to issue directives / advices on interest rates on deposits and other aspects regarding conduct of deposit accounts from time to time. With liberalization in the financial system and deregulation banks are now products within the broad guidelines issued by RBI. This policy document on deposits outlines the guiding principles in respect of formulation of various deposit products offered by the Bank and terms and conditions governing the conduct of the account. The document recognises the rights of depositors and aims at dissemination of information with regard to various aspects of acceptance of deposits from the members of the public, conduct and operations of various deposits accounts, payment of interest on various deposit accounts, closure of deposit accounts, method of disposal of deposits of deceased depositors, etc., for the benefit of customers. It is expected that this document will impart greater transparency in dealing with the individual customers and create awareness among customers of their rights. The ultimate objective is that the customer will get services they are rightfully entitled to receive without demand. While adopting this policy, the bank reiterates its commitments to individual customers outlined in Bankers Fair Practice Code of Indian Banks Association. This document is a broad framework under which the rights of common depositors are recognized. Detailed operational instructions on various deposit schemes and related services will be issued from time to time. free to formulate deposit


While various deposit products offered by the Bank are assigned different names. The deposit products can be categorized broadly into the following types. Definition of major deposits schemes are as under:i. Demand Deposits means a deposit received by the Bank which is withdrawable on demand; ii. Savings Deposits means a form of demand deposit which is subject to

restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by the Bank during any specified period;

iii. Term Deposit means a deposit received by the Bank for a fixed period withdrawable only after the expiry of the fixed period and include deposits such as Recurring / Double Benefit Deposits / Short Deposits / Fixed Deposits / Monthly Income Certificate / Quarterly Income Certificate etc. iv. Notice Deposit means term deposit for specific period but withdrawable on giving atleast one complete banking days notice. v. Current Account means a form of demand deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or upto a particular agreed amount and will also include other deposit accounts which are neither Savings Deposit nor Term Deposit.


(A) The Bank before opening any deposit account will carry out due diligence as required under Know Your Customer (KYC) guidelines issued by RBI


Money laundering

rules and

regulations and or such other norms or requires


as per the Customer Acceptance Policy of the bank adopted by the

Bank if the decision to open an account of a prospective depositor

clearance at a higher level, reasons for any delay in opening of the account will be informed to him and the final decision of the Bank will be conveyed at the earliest to him. If the decision to open an account of a prospective depositor requires clearance at a higher level, reasons for any delay in opening of the account will be informed to him and final decision of the Bank will be conveyed at the earliest to him.

(B) The account opening forms and other material would be provided to the prospective depositor by the Bank. The same will contain details of information to be furnished and documents to be produced for verification and or for record, it is expected of the Bank official opening the account, to explain the procedural formalities and provide necessary clarifications sought by the prospective depositor including information to prepare a profile for Risk categorization of the Customer into High /Medium/Low when he approaches for opening a deposit account. The bank may not open account where the prospective customer is unable to furnish information and or in the event of non-cooperation by him. (C) For Deposit products like Savings Bank Account and Current Deposit

Account, the Bank will normally stipulate certain minimum balances to be maintained as part of terms and conditions governing operation of such accounts. Failure to maintain minimum balance in the account will attract levy of charges as specified by the Bank from time to time. For Savings Bank Account the Bank may also place restrictions on number of transactions, cash withdrawals, etc., for given period. Similarly, the Bank may specify charges for issue of cheques books, additional statement of accounts, duplicate pass book, folio charges etc. All such details, regarding terms and conditions for operation of the accounts

and schedule of charges for various services provided will be communicated to the prospective depositor while opening the account. (D) Savings Bank Accounts can be opened for eligible person / persons and certain organizations / agencies {as advised by Reserve Bank of India (RBI) from time totime}.Current Accounts can be opened by individuals / partnership firms / Private and Public Limited Companies / HUFs / Specified Associates / Societies, Trusts, epartments of authority created by Government (Central or State), Limited Liability Partnership, etc. Term Deposits Accounts can be opened by individuals / partnership firms / Private and Public Limited Companies / HUFs / Specified Associates / Societies / Trusts, Departments of authority created by Government (Central or State), Limited Liability Partnership, etc. (E) The due diligence process, while opening a deposit account will involve satisfying about the identity of the person, verification of address, satisfying about his occupation and source of income. Obtaining introduction of the prospective depositor from a person acceptable to the Bank and obtaining recent photograph of the person/s opening / operating the account are part of due diligence process. (F) In addition to the due diligence requirements, under KYC norms the Bank is required by law to obtain Permanent Account Number (PAN) or General Index Register (GIR) Number or alternatively declaration in Form No.60 or 61 as specified under the Income Tax Act / Rules. (G) Deposit accounts can be opened by an individual in his own name (status: known asaccount in single name) or by more than one individual in their own names (status:known as Joint Account). Savings Bank Account can also be opened by a minor jointly with natural guardian or with mother as the guardian

(Status: known as Minors Account). Minors above the age of 10 will also be allowed to open and operate Savings Bank Account independently provided the minor should be able to read and write and be capable in the opinion of Branch Manager/ Joint Manager of understanding what he /she does. However, no overdraft will be granted to these such minors. SB account can also be opened by a minor represented by guardian or jointly with a major, where minor is represented by natural guardian. Minors above the age of 10 will also be allowed to open and operate SB account subject to restrictions on transactions and no cheque books will be provided to such accounts

i. Interest shall be paid on saving account at the rate specified by Reserve Bank of India directive from time to time. However, term deposit interest rates are decided by the Bank within the general guidelines issued by the Reserve Bank of India from timeto time. ii. In terms of Reserve Bank of India directives, interest shall be calculated at quarterly intervals on term deposits and paid at the rate decided by the Bank depending upon the period of deposits. In case of monthly deposit scheme, the interest shall be calculated for the quarter and paid monthly at discounted value. The interest on term deposits is calculated by the Bank in accordance with the formulae and conventions advised by Indian Banks Association. iii. The rate of interest on deposits will be prominently displayed in the branch premises. Changes, if any, with regard to the deposit schemes and other related services shall also be communicated upfront and shall be prominently displayed. iv. The Bank has statutory obligation to deduct tax at source if the total interest paid / payable on all term deposits held by a person exceeds the amount specified under the Income Tax Act. The Bank will issue a tax deduction certificate (TDS

Certificate) for the amount of tax deducted. The depositor, if entitled to exemption from TDS can submit declaration in the prescribed format at the beginning of every financial year.

i. The minor can open Savings Bank Account and the same can be operated by the natural guardian or by minor himself / herself, if he / she is above the age of 10 years. The account can also be opened jointly. ii. On attaining majority, the erstwhile minor should confirm the balance in his/her account and if the account is operated by the natural guardian / guardian, freshspecimen signature of erstwhile minor duly verified by the natural guardian would be obtained and kept on record for all operational purposes.


The Bank may at its discretion open deposit accounts other than Current Accunts of illiterate person. The account of such person may be opened provided he/she calls on the Bank personally along with a witness who is known to both the depositor and the Bank. Normally, no cheque book facility is provided for such Savings Bank Account. At the time of withdrawal / repayment of deposit amount and/or interest, the account holder should affix his / her thumb impression or mark in the presence of the authorized officer who should verify the identity of the person. The bank will explain the need for proper care and safe keeping of the pass book etc. given to the

account holder. The Bank official shall explain governing the account to the illiterate/ blind person.


terms and




The rate at which commercial banks make funds available to people isk n o w n a s Lending-rate. The lending rates also vary depending uponthe nature of loans and advances. The rates also vary according to thepurpose in view. For example if the loan is sanctioned for the purposeof activities for the development of backward areas, the rate of interestis relatively lower as against loans and advances for commercial/businesspurposes. Similarly for smaller amounts of loan the rate of interest ishigher as compared to larger amounts. Again lending rates for consumerdurables, e.g. loans for purchase of two-wheelers, cars, refrigerators,etc. are relatively higher than for commercial borrowings.However, the Reserve Bank of India from time to time announceschanges in the interest-rate structure to regulate the lending of fundsby banks. Different rates of interest are prescribed for various categoriesof advances, such as advances to agriculture, small scale

industries,road transport, etc. Graded rates of interest are prescribed for backwardareas. Lower rate is normally charged from agencies selling food-grainsat fixed price through Govt. approved outlets.Lastly, lower rate of interest is charged for loans granted to personsbelonging to weaker sections of the society.

Loans and Advances 1. Introduction

In the previous lesson you have learnt the meaning and types of deposit-accounts including the procedure of opening and operating bank accounts. We have seen that the commercial banks accept deposits and also lend money to the people who require it for various purposes. Lending of funds to traders, businessmen and industrial enterprises is one of the important activities of commercial banks. The major part of the deposits received by banks is lent out, and a large part of their income is earned from interest on such lending. There is a considerable difference between the rate of interest which the commercial bank grants on deposits, and the rate they charge on loans and advances. It is this difference which constitutes the main source of bank earnings. Operation and expansion of business and commercial activities dependa great deal on the availability of loans/advances from commercial banks. In this lesson, you will learn about the procedure of getting loans and advance, cash credits, overdrafts, etc from the commercial banks.

2. Meaning of Loans and Advances

The term loan refers to the amount borrowed by one person from another. The amount is in the nature of loan and refers to the sum paid to the borrower. Thus. from the view point of borrower, it is borrowing and from the view point of bank, it is lending. Loan may be regarded as credit granted where the money is disbursed and its recovery is made on a later date. It is a debt for the borrower.

While granting loans, credit is given for a definite purpose and for a predetermined period. Interest is charged on the loan at agreed rate and intervals of payment. Advance on the other hand, is a credit facility granted by the bank. Banks grant advances largely for short-term purposes, such as purchase of goods traded in and meeting other short-term trading liabilities. There is a sense of debt in loan, whereas an advance is a facility being availed of by the borrower. However, like loans, advances are also to be repaid. Thus a credit facility- repayable in instalments over a period is termed as loan while a credit facility repayable within one year may be known as advances. However, in the present lesson these two terms are used interchangeably.

3. Utility of Loans and Advances

Loans and advances granted by commercial banks are highly beneficial to individuals, firms, companies and industrial concerns. The growth and diversification of business activities are effected to a large extent through bank financing. Loans and advances granted by banks help in meeting short-term and long term financial needs of business enterprises.We can discuss the role played by banks in the business world by wayof loans and advances as follows :(a) Loans and advances can be arranged from banks in keeping withLoans and Advances :: 61the flexibility in business operations. Traders, may borrow moneyfor day to day financial needs availing of the facility of cash credit, bank overdraft and discounting of bills. The amount raised as loan may be repaid within a short period to suit theconvenience of the borrower. Thus business may be run efficiently with borrowed funds from banks for financing its working capital requirements. (b) Loans and advances are utilized for making payment of current liabilities, wage and salaries of employees, and also the tax liability of business (c) Loans and advances from banks are found to be economical for traders and businessmen, because banks charge a reasonable rate of interest on such loans/advances. For loans from money lenders, the rate of interest charged is very high. The interest charged by commercial banks is regulated by the Reserve Bank of India. (d) Banks generally

do not interfere with the use, management and control of the borrowed money. But it takes care to ensure that the money lent is used only for business purposes. (e) Bank loans and advances are found to be convenient as far as its repayment is concerned. This facilitates planning for future and timely repayment of loans. Otherwise business activities would have come to a halt. (f) Loans and advances by banks generally carry element of secrecy with it. Banks are duty-bound to maintain secrecy of their transactions with the customers. This enhances peoples faith in the banking system.

4. Borrowing Rate and Lending Rate

People make their funds available to the banks by depositing their savings in various types of accounts. In other words, bank fundsmainly consist of deposits from the public, though banks may also borrow money from other institutions and the Reserve Bank of India. Banks, thus mobilises funds through its deposits. On public deposits the banks pay interest at and the rate of interest vary according to the type of deposit. The borrowing rate refers to the rate of interest paid by a bank on its deposits. The rates which the banks allow depend upon the nature of deposit account and the period for which the deposit is made with the bank. No interest is generally paid on current account deposits. The rate is relatively lower on savings account deposits. Higher rates ranging from 6% to 12% per annum are paid on Fixed deposit accounts according to the period of deposit.Loans and Advances :: 63 Banks also borrow from other institutions as well as from the Reserve Bank of India. When the Reserve Bank of India lends money to commercial banks, the rate of interest it charges for lending is known as Bank Rate The rate at which commercial banks make funds available to people is known as Lending-rate. The lending rates also vary depending upon the nature of loans and advances. The rates also vary according to the purpose in view. For example if the loan is sanctioned for the purpose of activities for the development of backward areas, the rate of interest is relatively lower as against loans and advances for commercial/business purposes. Similarly for smaller amounts of loan the rate of interest is higher as compared to

larger amounts. Again lending rates for consumer durables, e.g. loans for purchase of two-wheelers, cars, refrigerators, etc. are relatively higher than for commercial borrowings. However, the Reserve Bank of India from time to time announces changes in the interest-rate structure to regulate the lending of funds by banks. Different rates of interest are prescribed for various categories of advances, such as advances to agriculture, small scale industries, road transport, etc. Graded rates of interest are prescribed for backward areas. Lower rate is normally charged from agencies selling food-grains at fixed price through Govt. approved outlets. Lastly, lower rate of interest is charged for loans granted to persons belonging to weaker sections of the society.

5. Lending of Money
You have noted in the earlier lessons that commercial banks lend money in four different ways: (a) direct loans, (b) cash credit, (c) overdraft, and (d) discounting of bills.

These are briefly discussed below: Loans

Loan is the amount borrowed from bank. The nature of borrowing is that the money is disbursed and recovery is made in instalments. While lending money by way of loan, credit is given for a definite purpose and for a pre-determined period. Depending upon the purpose and period of loan, each bank has its own procedure for granting loan. However the bank is at liberty to grant the loan requested or refuse it depending upon its own cash position and lending policy. There are two types of loan available from banks :

Demand loan
A Demand Loan is a loan which is repayable on demand by the bank. In other The entire amount of demand loan is words, it is repayable at short-notice.

disbursed at one time and the borrower has to pay interest on it. The borrower can repay the loan either in lumpsum (one time) or as agreed with the bank. For example, if it is so agreed the amount of loan may be repaid in suitable instalments. Such loans are normally granted by banks against security. The security may include materials or goods in stock, shares of companies or any other asset. Demand loans areLoans and Advances :: 65 raised normally for working capital purposes, like purchase of raw materials, making payment of short-term liabilities.

Term Loans :
Medium and long term loans are called term loans. Term loans are granted for more than a year and repayment of such loans is spread over a longer period. The repayment is generally made in suitable instalments of a fixed amount.Term loan is required for the purpose of arting a new business activity, renovation, modernization, expansion/extension of existing units, rchase of plant and machinery, purchase of land for setting up of a factory, construction of factory building or purchase of other immovable assets. These loans are generally secured against the mortgage of land, plant and machinery, building and the like.

Cash credit
Cash credit is a flexible system of lending under which the borrower has the option to withdraw the funds as and when required and to the extent of his needs. Under this arrangement the banker specifies a limit of loan for the customer (known as cash credit limit) up to which the customer is allowed to draw The cash credit limit is based on the borrowers need and as agreed with the bank. Against the limit of cash credit, the borrower is permitted to withdraw as and when he needs money

subject to the limit sanctioned. It is normally sanctioned for a period of one year and secured by the security of some tangible assets or personal guarantee. If the account is running satisfactorily, the limit of cash credit may be renewed by the bank at the end of year. The interest is calculated and charged to the customers account. Cash credit, is one of the types of bank lending against security by way of pledge or /hypothetication of goods. Pledge means66 :: Business Studies bailment of goods as security for payment of debt. Its primary purpose is to put the goods pledged in the possession of the lender. It ensures recovery of loan in case of failure of the borrower to repay the borrowed amount. In Hypothetication, goods remain in the possession of the borrower, who binds himself under the agreement to give possession of goods to the banker whenever the banker requires him to do so. So hypothetication is a device to create a charge over the asset under circumstances in which transfer of possession is either inconvenient or impracticable.

Overdraft facility is more or less similar to cash credit facility. Overdraft facility is the esult of an agreement with the bank by which a current account holder is allowed to draw over and above the credit balance in his/her account. It is a shortperiod facility. This facility is made available to current account holders who operate their account through cheques. The customer is permitted to withdraw the amount of overdraft allowed as and when he/she needs it and to repay it through deposits in the account as and when it is convenient to him/her. Overdraft facility is generally granted by a bank on the basis of a written request by the customer. Sometimes the bank also insists on either a promissory note from the borrower or personal security of the borrower to ensure safety of amount withdrawn by the customer. The interest rate on overdraft is higher than is charged on loan. The following are some of the benefits of cash credits and overdraft :(i) Cash credit and overdraft allow flexibility of borrowing, which depends upon the need of the borrower.

(ii) There is no necessity of providing security and documentation again and again for borrowing funds. (iii) This mode of borrowing is simple and elastic and meets the short term financial needs of the business.Loans and Advances (IV) Discounting of Bills Apart from sanctioning loans and advances, discounting of bills of exchange by bank is another way of making funds available to the customers. Bills of exchange are negotiable instruments which enable debtors to discharge their obligations to the creditors. Such Bills of exchange arise out of commercial transactions both in inland trade and foreign trade. When the seller of goods has to realise his dues from the buyer at a distant place immediately or after the lapse of the agreed period of time, the bill of exchange facilitates this task with the help of the banking institution. Banks invest a good percentage of their funds in discounting bills of exchange. These bills may be payable on demand or after a stated period. In discounting a bill, the bank pays the amount to the customer in advance, i.e. before the due date. For this purpose, the bank charges discount on the bill at a specified rate. The bill so discounted , is retained by the bank till its due date and is presented to the drawee on the date of maturity. In case the bill is dishonoured on due date the amount due on bill together with interest and other charges is debited by the bank to the customers account.

(1)Short-term loans
Short term loans are granted by banks to meet the working capital needs of business. The working capital needs refer to financial needs for such purposes as,

purchase of raw materials, payment of wages, electricity bill, taxes etc. Such loans are granted by banks to its borrowers to be repaid within a short period of time not exceeding 15 months. Short term loans are normally granted against the security of tangible assets like goods in stock, shares, debentures, etc. The rate of interest charged on short term loans ranges from 12% to 18% p.a.

Term Loans

Medium and long term loans are generally known as term loans. These loans are granted for more than 15 months. In case of medium term loan, the period ranges from 15 months to less than 5 years. Medium term loans are generally granted for heavyLoans and Advances :: 69 repairs, expansion of existing units, modernisation/renovation etc. Such loans are sanctioned against the security of immovable assets. The normal rate of interest ranges between 12% to 18% depending upon the period, purpose, nature and amount of the loan. Though banks may grant long term loans, they avoid granting loan for more than 5 years.

In one academic model, mobile banking is defined as: Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices.The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customised information."

According to this model Mobile Banking can be said to consist of three inter-related concepts: Mobile Accounting Mobile Brokerage Mobile Financial Information Services Most services in the categories designated Accounting and Brokerage are transaction-based. The non-transaction-based services of an informational nature are however essential for conducting transactions - for instance, balance inquiries might be needed before committing a money remittance. The accounting and brokerage services are therefore offered invariably in combination with information services. Information services, on the other hand, may be offered as an independent module. Mobile phone banking may also be used to help in business situations

Trends in mobile banking

Mobile banking (also known as M-Banking, mbanking, SMS Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered over SMS. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers. Mobile banking has until recently (2010) most often been performed via SMS or the Mobile Web. Apple's initial success with iPhone and the rapid growth of phones based on Google's Android (operating system) have led to increasing use of special client programs, called apps, downloaded to the mobile device. The advent of the Internet has enabled new ways to conduct banking business, resulting in the creation of new institutions, such as online banks, online brokers and wealth managers. Such institutions still account for a tiny percentage of the industry. Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. According to the GSM Association and Ovum, the number of mobile subscribers exceeded 2 billion in September 2005, and now (2009) exceeds 2.5 billion (of which more . According to a study by financial consultancy Celent, 35% of online banking households will be using mobile banking by 2010, up from less than 1% today. Upwards of 70% of bank center call volume is projected to come from mobile phones. Mobile banking will eventually allow users to make payments at the physical point of sale. "Mobile contactless payments will make up 10% of the contactless market by 2010. Another study from 2010 by Berg Insight forecasts that the number of mobile banking users in the US will grow from 12 million in 2009 to 86 million in 2015. The same study also predicts that the European market will grow from 7 million mobile banking users in 2009 to 115 million users in 2015.

Many believe that mobile users have just started to fully utilize the data capabilities in their mobile phones. In Asian countries like India, China, Bangladesh, Indonesia and Philippines, where mobile infrastructure is comparatively better than the fixedline infrastructure, and in European countries, where mobile phone penetration is very high (at least 80% of consumers use a mobile phone), mobile banking is likely to appeal even more.

Mobile banking business models

A wide spectrum of Mobile/branchless banking models is evolving. However, no matter what business model, if mobile banking is being used to attract low-income populations in often rural locations, the business model will depend on banking agents, i.e., retail or postal outlets that process financial transactions on behalf telcos or banks. The banking agent is an important part of the mobile banking business model since customer care, service quality, and cash management will depend on them. Many telcos will work through their local airtime resellers. However, banks in Colombia, Brazil, Peru, and other markets use pharmacies, bakeries, etc. These models differ primarily on the question that who will establish the relationship (account opening, deposit taking, lending etc.) to the end customer, the Bank or the Non-Bank/Telecommunication Company (Telco). Another difference lies in the nature of agency agreement between bank and the Non-Bank. Models of branchless banking can be classified into three broad categories - Bank Focused, Bank-Led and Nonbank-Led.

Bank-focused model
The bank-focused model emerges when a traditional bank uses non-traditional lowcost delivery channels to provide banking services to its existing customers. Examples range from use of automatic teller machines (ATMs) to internet banking or mobile phone banking to provide certain limited banking services to banks customers. This model is additive in nature and may be seen as a modest extension of conventional branch-based banking.

Bank-led model
The bank-led model offers a distinct alternative to conventional branch-based banking in that customer conducts financial transactions at a whole range of retail agents (or through mobile phone) instead of at bank branches or through bank employees. This model promises the potential to substantially increase the financial services outreach by using a different delivery channel (retailers/ mobile phones), a different trade partner (telco / chain store) having experience and target market distinct from traditional banks, and may be significantly cheaper than the bankbased alternatives. The bank-led model may be implemented by either using correspondent arrangements or by creating a JV between Bank and Telco/non-bank. In this model customer account relationship rests with the bank

Non-bank-led model
The non-bank-led model is where a bank has a limited role in the day-to-day account management. Typically its role in this model is limited to safe-keeping of funds. Account management functions are conducted by a non-bank (e.g. telco) who has direct contact with individual customers.


The common features fall broadly into several categories Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire transfer, apply for a loan, new account, etc.) Payments to third parties, including bill payments and telegraphic/wire transfers
Funds transfers between a customer's own transactional account and savings

Investment purchase or sale Loan applications and transactions, such as repayments of enrollments

Non-transactional (e.g., online statements, cheque links, cobrowsing, chat) Viewing recent transactions

Downloading bank statements, for example in PDF format Viewing images of paid cheques

Financial Institution Administration Management of multiple users having varying levels of authority Transaction approval process

Features commonly unique to Internet banking include

Personal financial management support, such as importing data into personal accounting software. Some online banking platforms support account aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main bank or with other institutions.

The precursor for the modern home online banking services were the distance banking services over electronic media from the early 1980s. The term online became popular in the late '80s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. Home banking can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services started in New York in 1981 when four of the citys major banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) offered home banking services[1] using the videotex system. Because of the commercial failure of videotex these banking services never became popular except in France where the use of videotex (Minitel) was subsidised by the telecom provider and the UK, where the Prestel system was used. The UK's first home online banking services[2] was set up by Bank of Scotland for customers of the Nottingham Building Society (NBS) in 1983.[3] The system used was based on the UK's Prestel system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) connected to the telephone system and television set.

The system (known as 'Homelink') allowed on-line viewing of statements, bank transfers and bill payments. In order to make bank transfers and bill payments, a written instruction giving details of the intended recipient had to be sent to the NBS who set the details up on the Homelink system. Typical recipients were gas, electricity and telephone companies and accounts with other banks. Details of payments to be made were input into the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the payee and an advice giving details of the payment was sent to the account holder. BACS was later used to transfer the payment directly. Stanford Federal Credit Union was the first financial institution to offer online internet banking services to all of its members in October 1994.[citation needed] Today, many banks are internet only banks. Unlike their predecessors, these internet only banks do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves by offering better interest rates and online banking features.


Security token devices Protection through single password authentication, as is the case in most secure Internet shopping sites, is not considered secure enough for personal online banking applications in some countries. Basically there exist two different security methods for online banking.

The PIN/TAN system where the PIN represents a password, used for the login and TANs representing one-time passwords to authenticate transactions. TANs can be distributed in different ways, the most popular one is to send a list of TANs to the online banking user by postal letter. The most secure way of using TANs is to generate them by need using a security token. These token generated TANs depend on the time and a unique secret, stored in the security token (this is called two-factor authentication or 2FA). Usually online banking with PIN/TAN is done via a web browser using SSL secured connections, so that there is no additional encryption needed.

Another way to provide TANs to an online banking user is to send the TAN of the current bank transaction to the user's (GSM) mobile phone via SMS. The SMS text usually quotes the transaction amount and details, the TAN is only valid for a short period of time. Especially in Germany and Austria, many banks have adopted this "SMS TAN" service as it is considered very secure. Signature based online banking where all transactions are signed and encrypted digitally. The Keys for the signature generation and encryption can be stored on smartcards or any memory medium, depending on the concrete implementation.


There has been a growth on electronic payment due to the shift in technology, growing access to internet among the customers and convenient modes of delivery and payment. Plastic money also known as Plastic cards acts as a vital tool for every day transaction of people today. The various Plastic cards include ATM cards,Debit Card,ATM cum Debit Card,Credit Cards, Smart Card, Charge Cards, Co-branded cards, add on cards and so on. Plastic money is a term that is used predominantly in reference to the hard plastic cards we use everyday in place of actual bank notes. They can come in many different forms such as cash cards, credit cards, debit cards, pre-paid cash cards and store cards. Plastic money are the alternative to the cash or the standard 'money'. Plastic money is used to refer to the credit cards or the debit cards that we use to make purchases in our everyday life. Plastic money is much more convenient to carry around as you do not have to carry a huge some of money with you. It is also much safer to carry it along or to travel with it as if it is stolen one can consult the bank whose service you are using and get it blocked hence saving your money from getting stolen or even lost. Nowadays even developing countries like India are encouraging the use of these plastic money more than cash due to these reasons. Furtermore these credit and debit cards also have plastic used in their making and that is where the name 'platic money' has originated from.

ATM Cards
Automated Teller machine (ATM) cards is capable of doing variety of functions.It can perform both cash and non-cash transactions in secured environment. * * * * * * ATM Cash Transactions includes deposits and withdrawals Non cash transactions incude Providing Mini Statement of last five transactions.In some banks upto last Balance enquiry Stop Payment instructions Transfer of funds between acounts Requisition of Cheque books,drafts etc. Bill payments ( electricity bills,Telephone bills etc)

ten transactions

Debit Card:
The bank issues debit card only if the person has an account in the bank.This card is useful to make payment from Member Establishments (ME) who have arrangements with the card issuing bank or agency.They check the balance and deduct the amount from the bank balance online. When a debit card is issued to make the payment,the total amount charged is instantly reduced from the bank balance of the account holder. All credit and debit cards are affiliated to two major issuers-VISA and Master Card.Master Card and VISA are global non-profit organizations who promote the growth of the card business throughout the world.They have built vast network of Member Establishments so that customers can use the cards worldwide for their debit and credit purchases.

Debit Cum ATM Card:

This is most common nowadays.The same debit card can be used to draw cash from the ATM and also make payment to the shops for purchases.This is two in one card.

Credit Cards:
This card enables the client to obtain goods or services from the various shops having arrangement with the issuing agency even if there is no balance in his/her savings or current account.The bank assumes that the loan will be repaid by the customers at later date.The credit card holder has to make payment for the dues before the due date. Otherwise late payment fee is levied in the next billing statement. Normally,a limit of the credit will be fixed by the bank for the amount of purchases to be made by the customer based on the net worth of the customer.

Charge Cards:
A Charge card has all features of credit card.But, after using the charge card the entire payments of the bills has to be made by the due date.If it is failed to be done,then the client is likely to be considered as a defaulter and he has to pay a steep late payment charges. But in case of Credit cards, the client is not declared as a defaulter if he misses to pay by due date..In such case,a late fee is levied in the next billing statements of the credit card holder. cards.They have their own merchant establishments and tie ups and does not depend on the network of Master card or VISA. These care are typically meant for the high income group categories and companies. AMEX (American Express) and Diners Club card are well known branded charge These cards are not acceptable at many outlets. But wide variety of special privileges are enjoyed by the AMEX card holders and Diners Club Cardholders.

Smart Cards:
A smart Card contains an electronic chip which is used to store Cash. This is most useful to pay for small purchases for example in Fairs,coffee shops etc. No identification,signature or payment authorization is required for using this card. The

exact amount of purchase is deducted from smart card during payment.Currently, this product is available in very developed countries like US.

Affinity Card:
The card issuer has a tie up with popular organizations and institutions which are often non-profit organizations like Stanchart Cricket Cards or City WWF card.When a card is used, a certain percentage is contributed to the organization or institution by the card issuer.

Photo Card:
When a Photo is imprinted on the card,it helps to identify the user of the credit card and is considered to be safer. In many cases,Photo card can also be used as identity card.

Global Card:
Global cards can be used as credit cards instead of cash and traveler cheques while traveling abroad to foreign countries for business or personal reasons.

Add On Cards:
It is a privilege offered to the spouse, parents, Children or other family members of the original card holder.Normally, an issuing bank permits two add on cards per credit card. All expenses incurred on add on card are billed to the primary card holder.

Petro Card:
Some Petroleum companies allow customers to pay for the fuel through electronic medium.It offers a scheme of gifting the points to the customers,when they pay for

the fuel using petro card.It is convenient, secured and speedy mode of transaction. Co-branded credit cards like IOC-Citi bank and HPCL-ICICI bank are the cobranded petro cards avaiable in the market. Today,the Indian mode of payment has shifted from currency to electronic mode.This is due to the high money valued transactions and more risk involvement.The new electronic payment and settlement act should follow the strict norms for banks and merchants to make secure payments and prevent money laundering as the transactions through plastic money will be increasing and increasing in the near future..


Good Customer Services

Good service is when the customer gets treatment that meets his/her expectations.

Customer Expectation

What Customer Receives

Bad Customer Services

Bad service is when the customer gets treatment which is less than his/her expectations.

Customer Expectation

What Customer Receives

Excellent Customer Services

When the customer gets a little more than what he/she expected ,Good Service becomes Excellent Service.

Customer Expectation What Customer Receives

This case is about the "Get up to 100% Cash Back" promotional offer announced by ICICI Bank, the largest private sector bank in India, in October 2006. According to this offer, a customer could get back cash ranging from a minimum of 1% to a maximum of 100% of the transaction amount for any purchase transaction of over

Rs. 2,000 made on his/her ICICI Bank credit card This case will enable students to discuss the impact of the "Get up to 100% Cash Back" offer on ICICI Bank's credit card business. Students can also discuss the pros and cons of the scheme from the consumer's perspective

Understand the impact of a cash back promotional offer on the credit card issuer Discuss the pros and cons of the cash back scheme from the consumer's perspective

ICICI Bank, credit card, Cash Back Offer, Promotional Scheme, merchant establishments, Banking and Financial Services Industry, Consumer Behavior, Quantitative Methods, Probability


Before 1991, there is a restriction on the financial service provider like a bank. However after 1991, Libralisation, privatisation and globalisation was existed. Due to libralisation and globalisation their stiff competition was existed in the market. To service in that competition bankes must have to provide innovative and new services to the customer. Thus, it is suggested that they has to run the business as per following suggetion. Bankers has to update him self as per changing situation. They always try to provide innovative servies. Bankers has to understand the needs of customer and try to satisfy theirneeds. Bankers has to maintain continious communication with their customer.

After providing service they has to take a feedback from customer and see

the problem face by the customer and try to provide solutions to the problem.

From the above presentation it is conclude that, present banking system was innovative in nature. They always try to provide the innovative produce to the customer which reduce the time improve the service and gives the satisfaction to the customer. For Example : ICICI bank introduce cheque deposit machine in that machine customer has to write details of customer. This machine accepted the cheque if the details is right after the accepting cheque machines gives us an acknoledgement, such machine provide a copy of details of check immideatly.

12. BIBLIOGRAPHY www.google.com www.scribd.com www.managementparadise.com