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SR. NO.
TOPICS
PAGE
NO.
1.
Introduction
2.
3.
4.
5.
6.
Sector In India
Emerging Risk In Banking Sector And Risk
7.
Management By Banks
SWOT Analysis
8.
Findings
9.
Suggestions
10.
Coclusion
11.
Bibliography
CHAPTER I
INTRODUCTION
A Bank is a financial intermediary that creates credit by lending money to a borrower, thereby
creating a corresponding deposit on the bank's balance sheet. Lending activities can be
performed either directly or indirectly through capital markets. Due to their importance in the
financial system and influence on national economies, banks are highly regulated in most
countries. Most nations have institutionalized a system known as fractional reserve banking
under which banks hold liquid assets equal to only a portion of their current liabilities. In
addition to other regulations intended to ensure liquidity, banks are generally subject to minimum
capital requirements based on an international set of capital standards, known as the Basel
Accords.
Banking in its modern sense evolved in the 14th century in the rich cities of Renaissance Italy
but in many ways was a continuation of ideas and concepts of credit and lending that had their
roots in the ancient world. In the history of banking, a number of banking dynasties notably,
the Medicis, the Fuggers, the Welsers, the Berenbergs and the Rothschilds have played a
central role over many centuries. The oldest existing retail bank is Monte dei Paschi di Siena,
while the oldest existing merchant bank is Berenberg Bank
According to the Reserve Bank of India (RBI), the banking sector in India is sound, adequately
capitalised and well-regulated. Indian financial and economic conditions are much better than in
many other countries of the world. Credit, market and liquidity risk studies show that Indian
banks are generally resilient and have withstood the global downturn well.
With a sense of optimism slowly creeping in, the banking industry expects that 2015 will bring
better growth prospects. This optimism stems from factors such as the Government working hard
to revitalise the industrial growth in the country and the RBI initiating a number of measures that
would go a long way in helping the banks to restructure. The recent announcements of RBI, it is
felt, are a clear pointer to the future of the restructured domestic banking industry.
According to Banking Encyclopedia, Bank is a financial institution which receives deposits from
the public and lends them for investment purpose i.e., deposits of money and advances of the
Main function of banks, but in the era of globalization banks indulges themselves in many
activities like Insurance, Mutual Fund Business and Investment in Stock Exchanges. These
activities of banking are considered as Para Banking Activities.
An establishment authorized by a government to accept deposits, pay interest, clear checks,
make loans, act as an intermediary in financial transactions, and provide other financial services
to its customers. In most common law jurisdictions there is a Bills of Exchange Act that
codifies the law in relation to negotiable instruments, including cheques, and this Act contains a
statutory definition of the term banker: banker includes a body of persons, whether incorporated
or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition
seems circular, it is actually functional, because it ensures that the legal basis for bank
transactions such as cheques does not depend on how the bank is structured or regulated.
HISTORY
Banking begins with the first prototype banks of merchants of the ancient world, which made
grain loans to farmers and traders who carried goods between cities. This began around 2000 BC
in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based
in temples made loans and added two important innovations: they accepted deposits and changed
money. Archaeology from this period in ancient China and India also shows evidence of money
lending activity.
The origins of modern banking can be traced to medieval and early Renaissance Italy, to the rich
cities in the north like Florence, Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi families
dominated banking in 14th-century Florence, establishing branches in many other parts of
Europe. One of the most famous Italian banks was the Medici Bank, set up by Giovanni di Bicci
de' Medici in 1397.The earliest known state deposit bank, Banco di San Giorgio (Bank of St.
George), was founded in 1407 at Genoa, Italy.
Modern banking practices, including fractional reserve banking and the issue of banknotes,
emerged in the 17th and 18th centuries. Merchants started to store their gold with the goldsmiths
of London, who possessed private vaults, and charged a fee for that service. In exchange for each
deposit of precious metal, the goldsmiths issued receipts certifying the quantity and purity of the
metal they held as a bailee; these receipts could not be assigned, only the original depositor could
collect the stored goods.
Gradually the goldsmiths began to lend the money out on behalf of the depositor, which led to
the development of modern banking practices; promissory notes (which evolved into banknotes)
were issued for money deposited as a loan to the goldsmith.The goldsmith paid interest on these
deposits. Since the promissory notes were payable on demand, and the advances (loans) to the
goldsmith's customers were repayable over a longer time period, this was an early form of
fractional reserve banking. The promissory notes developed into an assignable instrument which
could circulate as a safe and convenient form of money backed by the goldsmith's promise to
pay,allowing goldsmiths to advance loans with little risk of default.Thus, the goldsmiths of
London became the forerunners of banking by creating new money based on credit.
The Bank of England was the first to begin the permanent issue of banknotes, in 1695. The Royal
Bank of Scotland established the first overdraft facility in 1728. By the beginning of the 19th
century a bankers' clearing house was established in London to allow multiple banks to clear
transactions. The Rothschilds pioneered international finance on a large scale, financing the
purchase of the Suez canal for the British government.
TYPES OF BANKS
Banks activities can be divided into:
Most banks are profit-making, private enterprises. However, some are owned by government, or
are non-profit organizations.
Commercial Banks
The term used for a normal bank to distinguish it from an investment bank. After the Great
Depression, the U.S. Congress required that banks only engage in banking activities, whereas
investment banks were limited to capital market activities. Since the two no longer have to be
under separate ownership, some use the term "commercial bank" to refer to a bank or a division
of a bank that mostly deals with deposits and loans from corporations or large businesses.
Community Banks
Locally operated financial institutions that empower employees to make local decisions to serve
their customers and the partners.
immediate families.
Private Banks
Banks that manage the assets of high-net-worth individuals. Historically a minimum of USD 1
million was required to open an account, however, over the last years many private banks have
lowered their entry hurdles to USD 250,000 for private investors.
Offshore Banks
Banks located in jurisdictions with low taxation and regulation. Many offshore banks are
essentially private banks.
Savings Bank
In Europe, savings banks took their roots in the 19th or sometimes even in the 18th century.
Their original objective was to provide easily accessible savings products to all strata of the
population. In some countries, savings banks were created on public initiative; in others, socially
committed individuals created foundations to put in place the necessary infrastructure.
Nowadays, European savings banks have kept their focus on retail banking: payments, savings
products, credits and insurances for individuals or small and medium-sized enterprises. Apart
from this retail focus, they also differ from commercial banks by their broadly decentralized
distribution network, providing local and regional outreachand by their socially responsible
approach to business and society.
Ethical Banks
Banks that prioritize the transparency of all operations and make only what they consider to be
BOTH COMBINED
Universal banks, more commonly known as financial services companies, engage in several of
these activities. These big banks are very diversified groups that, among other services, also
distribute insurance hence the term bancassurance, a portmanteau word combining "banque or
bank" and "assurance", signifying that both banking and insurance are provided by the same
corporate entity.
several well-established principles based on Islamic canons. All banking activities must avoid
interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on
the financing facilities that it extends to customers.
FUNCTIONS/ROLE OF BANK
These functions of banks are explained in following paragraphs of this article.
1. ACCEPTING DEPOSITS
The Bank collects deposits from the public. These deposits can be of different types, such
as :A. Saving Deposits
B. Fixed Deposits
C. Current Deposits
D. Recurring Deposits
A. Saving Deposits
This type of deposits encourages saving habit among the public. The rate of interest
is low. At present it is about 4% p.a. Withdrawals of deposits are allowed subject to certain
restrictions. This account is suitable to salary and wage earners. This account can be opened
in single name or in joint names.
B. Fixed Deposits
Lump sum amount is deposited at one time for a specific period. Higher rate of interest is
paid, which varies with the period of deposit. Withdrawals are not allowed before the expiry of
the period. Those who have surplus funds go for fixed deposit.
C. Current Deposits
This type of account is operated by businessmen. Withdrawals are freely allowed. No
interest is paid. In fact, there are service charges. The account holders can get the benefit of
overdraft facility.
D. Recurring Deposits
This type of account is operated by salaried persons and petty traders. A certain sum of
money is periodically deposited into the bank. Withdrawals are permitted only after the expiry of
certain period. A higher rate of interest is paid.
Overdraft
This type of advances are given to current account holders. No separate account is
maintained. All entries are made in the current account. A certain amount is sanctioned as
overdraft which can be withdrawn within a certain period of time say three months or so. Interest
is charged on actual amount withdrawn. An overdraft facility is granted against a collateral
security. It is sanctioned to businessman and firms.
Cash Credits
The client is allowed cash credit upto a specific limit fixed in advance. It can be given to
current account holders as well as to others who do not have an account with bank. Separate cash
credit account is maintained. Interest is charged on the amount withdrawn in excess of limit. The
cash credit is given against the security of tangible assets and / or guarantees. The advance is
given for a longer period and a larger amount of loan is sanctioned than that of overdraft.
Loans
It is normally for short term say a period of one year or medium term say a period of five
years. Now-a-days, banks do lend money for long term. Repayment of money can be in the form
of installments spread over a period of time or in a lumpsum amount. Interest is charged on the
actual amount sanctioned, whether withdrawn or not. The rate of interest may be slightly lower
than what is charged on overdrafts and cash credits. Loans are normally secured against tangible
assets of the company.
Discounting of Bill of Exchange
The bank can advance money by discounting or by purchasing bills of exchange both
domestic and foreign bills. The bank pays the bill amount to the drawer or the beneficiary of the
bill by deducting usual discount charges. On maturity, the bill is presented to the drawee or
acceptor of the bill and the amount is collected.
1. AGENCY FUNCTIONS
The bank acts as an agent of its customers. The bank performs a number of agency functions
which includes :
Transfer of Funds
Collection of Cheques
Periodic Payments
Portfolio Management
Periodic Collections
A. Transfer of Funds
The bank transfer funds from one branch to another or from one place to another.
B. Collection of Cheques
The bank collects the money of the cheques through clearing section of its customers. The
bank also collects money of the bills of exchange.
C. Periodic Payments
On standing instructions of the client, the bank makes periodic payments in respect of
D. Portfolio Management
The banks also undertakes to purchase and sell the shares and debentures on behalf of the
clients and accordingly debits or credits the account. This facility is called portfolio
management.
E. Periodic Collections
The bank collects salary, pension, dividend and such other periodic collections on behalf
of the client.
B. Locker Facility
The bank provides a locker facility for the safe custody of valuable documents, gold
ornaments and other valuables.
C. Underwriting of Shares
The bank underwrites shares and debentures through its merchant banking division.
E. Project Reports
The bank may also undertake to prepare project reports on behalf of its clients.
CHAPTER II
IMPORTANCE OF BANKING SECTOR IN INDIA
business perspective. It aims at delivering or meeting not only the financial needs of the
customers that too both business and personal. Investment opportunities are tremendous
nowadays with the advent of various ways of investment. Hence banks should help/point out
new and correct methods for investments to the customers which is available in the market.
There are various areas where one can work in banking sector. The candidates can work in as a
Clerk, Probationary Officer, Customer service Executive, managers, Front desk executive,
Specialist Officer , Product marketing area , Sales executive , etc. The key for survival in this
industry is the service quality.
benefits and allowances . Hence the banking career as such is very attractive.
Over the years, the banking scenario it self is booming. The general recruitment criterias is
getting tougher day by day. The selection criterias especially in case of public sector banks
involves many stages. Every candidate who is aspires to be a bank employee should undergo the
written test conducted by the authority competent to get selection. The test may cover in all
major areas such as Logical reasoning, quantitative aptitude, General awareness, Marketing and
computer aptitude etc. Only those who have the capacity in clearing the preliminary stage of test
are forwarded to the next level. Personal interview is also one area which needs in careful
preparation.
The general eligibility for appearing in these exams may be a Graduate level. Again for specialist
positions it may require additional qualifications too. The government bank jobs are now also
open to undergraduates too again it depends on the nature of opening
variety of sources, including country-specific data submitted by Group members. Members also
reviewed the relevant literature and undertook their own research, using the data set compiled by
the Group, which has not been previously analysed in the literature. Members coordinated and
exchanged views through conference calls and physical meetings, and conducted outreach to
experts in the private and official trade finance community. The report is organised as follows.
Section 2 discusses the role of banks in international trade, followed by a description of the
available trade finance data and their sources (Section 3). Section 4 uses this information to
estimate the overall size of the trade finance market and assess recent trends, followed by a
discussion in Section 5 of the potential impact of trade finance on the real economy and financial
stability. Section 6, taking a forward-looking perspective, considers attempts to involve non-bank
investors in trade finance markets. The final section discusses policy implications.
capital needs by providing trade finance loans to exporters or importers. In this case, the loan
documentation is linked either to an L/C or to other forms of documentation related to the
underlying trade transaction. Currently, the instrumentation of trade finance is undergoing a
period of innovation. For example, the industry recently launched the bank payment obligation
a payment method that offers a similar level of payment security to that of L/Cs, but without
banks physically handling documentary evidence. Supply chain finance is another growing
area of banks trade finance activities, where banks automate documentary processing across
entire supply chains, often linked to providing credit (eg through receivables discounting).Trade
finance versus trade credit. The principal alternative to bank trade finance is inter-firm trade
credit between importers and exporters, which is commonly referred to as trade credit. This
includes open account transactions, where goods are shipped in advance of payment, and cashin-advance transactions, where payment is made before shipment. Inter-firm trade credit entails
lower fees and more flexibility than trade finance, but leaves firms bearing more payment risk,
and potentially a greater need for working capital. Hence, the reliance on inter-firm trade credit is
more likely among firms that have well established commercial relations, form part of the same
multinational corporation and/or are in jurisdictions that have reliable legal frameworks for
collection of receivables. Firms ability to extend trade credit is supported by possibilities to
discount their receivables, eg via factoring, and the availability of financing from banks and
capital markets not directly tied to trade transactions. Firms can also mitigate payment risk by
purchasing trade credit insurance.details about trade finance, trade credit and the role of trade
credit insurance).
1. The annual flow of medium to long term trade finance exposures tracked by Dealogic
Loanware is
2. In the order of US$ 175 billion, in contrast to the flow in short term markets, estimated in this
report to be between US$ 6.5-8 trillion in 2011.
3. The industry sometimes refers to new trade finance methods, such as supply chain finance, as
open account trade finance. Traditionally, open account trade credit has been associated with
inter-firm financing of trade (trade credit), and the term is used in this sense throughout this
report.
4.Trade credit insurance is also used by banks to hedge some of their payment risks. Information
on the volume of underwritten trade credit insurance is available from the Berne Union. These
data show that in 2011 and 2012 about $1.7 trillion in new business was covered by guarantees
CHAPTER III
PRODUCT AND SERVICES OFFERED BY BANKS IN INDI
Retail Banking.
Trade Finance.
Treasury Operations.
Retail Banking and Trade finance operations are conducted at the branch level while the
wholesale banking operations, which cover treasury operations, are at the head office or a
designated branch.
Retail Banking
Deposits
Loans, Cash Credit and Overdraft
Negotiating for Loans and advances
Remittances
Book-Keeping (Maintaining All Accounting Records)
Receiving all kinds of bonds valuable for safe keeping
Trade Finance
Treasury Operations
The banks can also act as an agent of the Government or local authority. They insure, guarantee,
underwrite, participate in managing and carrying out issue of shares, debentures, etc.
Apart from the above-mentioned functions of the bank, the bank provides a whole lot of other
services like investment counseling for individuals, short-term funds management and portfolio
management for individuals and companies. It undertakes the inward and outward remittances
with reference to foreign exchange and collection of varied types for the Government.
1. Credit Card
Credit Card is post paid or pay later card that draws from a credit line-money made
available by the card issuer (bank) and gives one a grace period to pay. If the amount is not paid
full by the end of the period, one is charged interest. A credit card is nothing but a very small
card containing a means of identification, such as a signature and a small photo. It authorizes the
holder to change goods or services to his account, on which he is billed. The bank receives the
bills from the merchants and pays on behalf of the card holder. These bills are assembled in the
bank and the amount is paid to the bank by the card holder totally or by installments. The bank
charges the customer a small amount for these services. The card holder need not have to carry
money/cash with him when he travels or goes for purchasing. Credit cards have found wide
spread acceptance in the metros and big cities. Credit cards are joining popularity for online
payments. The major players in the Credit Card market are the foreign banks and some big
public sector banks like SBI and Bank of Baroda. India at present has about 10 million credit
cards in circulation.
2. Debit Cards
Debit Card is a prepaid or pay now card with some stored value. Debit Cards quickly debit
or subtract money from ones savings account, or if one were taking out cash. Every time a
person uses the card, the merchant who in turn can get the money transferred to his account from
the bank of the buyers, by debiting an exact amount of purchase from the card. To get a debit
card along with a Personal Identification Number (PIN). When he makes a purchase, he enters
this number on the shops PIN pad. When the card is swiped through the electronic terminal, it
dials the acquiring bank system either Master Card or Visa that validates the PIN and finds out
from the issuing bank whether to accept or decline the transaction. The customer never
overspread because the amount spent is debited immediately from the customers account. So, for
the debit card to work, one must already have the money in the account to cover the transaction.
There is no grace period for a debit card purchase. Some debit cards have monthly or per
transaction fees. Debit Card holder need not carry a bulky checkbook or large sums of cash when
he/she goes at for shopping. This is a fast and easy way of payment one can get debit card
facility as debit cards use ones own money at the time of sale, so they are often easier than
credit cards to obtain. The major limitation of Debit Card is that currently only some shops in
urban areas accepts it. Also, a person cant operate it in case the telephone lines are down.
Advantages of ATMs
To the Customers
To Banks
ATMs can be installed anywhere like Airports, Railway Stations, Petrol Pumps, Big Business
arcades, markets, etc. Hence, it gives easy access to the customers, for obtaining cash. The ATM
services provided first by the foreign banks like Citibank, Grind lays bank and now by many
private and public sector banks in India like ICICI Bank, HDFC Bank, SBI, UTI Bank etc. The
ICICI has launched ATM Services to its customers in all the Metropolitan Cities in India. By the
end of 1990 Indian Private Banks and public sector banks have come up with their own ATM
Network in the form of SWADHAN. Over the past year upto 44 banks in Mumbai, Vashi and
Thane, have became a part of SWADHAN a system of shared payments networks, introduced
by the Indian Bank Association (IBA).
4. E-Cheques
The E-cheques consists five primary facts. They are the consumers, the merchant, consumers
bank the merchants bank and the e-mint and the clearing process. This cheaqing system uses the
network services to issue and process payment that emulates real world chaquing. The payer
issue a digital cheaques to the payee ant the entire transactions are done through internet.
Electronic version of cheaques are issued, received and processed. A typical electronic cheque
transaction takes place in the following manner:
The customer accesses the merchant server and the merchant server presents its goods to
the customer.
The consumer selects the goods and purchases them by sending an e-cheque to the
merchant.
The merchant validates the e-cheque with its bank for payment authorization.
The merchant electronically forwards the e-cheque to its bank.
The merchants bank forwards the e-cheque to the clearing house for cashing.
The clearing house jointly works with the consumers bank clears the cheque and
The e-chequing is a great boon to big corporate as well as small retailers. Most major banks
accept e-cheques. Thus this system offers secure means of collecting payments, transferring
value and managing cash flows.
disbursed by issued cheques or issuing cash. The payment office directs the computer to credit an
employees account with the persons pay.
6.Telebanking
Telebanking refers to banking on phone services.. a customer can access information about
his/her account through a telephone call and by giving the coded Personal Identification Number
(PIN) to the bank. Telebanking is extensively user friendly and effective in nature.
To get a particular work done through the bank, the users may leave his instructions in
7. Mobile Banking
A new revolution in the realm of e-banking is the emergence of mobile banking. On-line banking
is now moving to the mobile world, giving everybody with a mobile phone access to real-time
banking services, regardless of their location. But there is much more to mobile banking from
just on-lie banking. It provides a new way to pick up information and interact with the banks to
carry out the relevant banking business. The potential of mobile banking is limitless and is
expected to be a big success. Booking and paying for travel and even tickets is also expected to
be a growth area. According to this system, customer can access account details on mobile using
the Short Messaging System (SMS) technology where select data is pushed to the mobile device.
The wireless application protocol (WAP) technology, which will allow user to surf the net on
their mobiles to access anything and everything. This is a very flexible way of transacting
banking business. Already ICICI and HDFC banks have tied up cellular service provides such as
Airtel, Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobile banking services to
their customers.
8. Internet Banking
Internet banking involves use of internet for delivery of banking products and services. With
internet banking is now no longer confirmed to the branches where one has to approach the
branch in person, to withdraw cash or deposits a cheque or request a statement of accounts. In
internet banking, any inquiry or transaction is processed online without any reference to the
branch (anywhere banking) at any time. The Internet Banking now is more of a normal rather
than an exception due to the fact that it is the cheapest way of providing banking services. As
indicated by McKinsey Quarterly research, presently traditional banking costs the banks, more
than a dollar per person, ATM banking costs 27 cents and internet banking costs below 4 cents
approximately. ICICI bank was the first one to offer Internet Banking in India.
Reduce the transaction costs of offering several banking services and diminishes the
need for longer numbers of expensive brick and mortar branches and staff.
Increase convenience for customers, since they can conduct many banking
Easy online application for all accounts, including personal loans and mortgages
Companies are developing electronic replicas of all existing payment system: cash, cheque,
credit cards and coins.
Automatic Payments
Utility companies, loans payments, and other businesses use on automatic payment system with
bills paid through direct withdrawal from a bank account.
Direct Deposits
Earnings (or Government payments) automatically deposited into bank accounts, saving time,
effort and money.
Cyber Banking
It refers to banking through online services. Banks with web site Cyber branches allowed
customers to check balances, pay bills, transfer funds, and apply for loans on the Internet.
9. Demat
Demat is short for de-materialisation of shares. In short, Demat is a process where at the
customers request the physical stock is converted into electronic entries in the depository
system. In January 1998 SEBI (Securities and Exchange Board of India) initiated DEMAT
ACCOUNT System to regulate and to improve stock investing. As on date, to trade on shares it
has become compulsory to have a share demat account and all trades take place through demat.
Currently in India we have different types of loans available ranging from personal loans
to marriage loans. But when to use which loan is a smart way of managing your money. Hence
first let us look at different type of loans available.
SECURED
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as
collateral. A mortgage loan is a very common type of money, used by many individuals to
purchase things. In this arrangement, the money is used to purchase the property. The financial
institution, however, is given security a lien on the title to the house until the mortgage is
paid off in full. If the borrower defaults on the loan, the bank would have the legal right to
repossess the house and sell it, to recover sums owing to it. In some instances, a loan taken out to
purchase a new or used car may be secured by the car, in much the same way as a mortgage is
secured by housing. The duration of the loan period is considerably shorter often
corresponding to the useful life of the car. There are two types of auto loans, direct and indirect.
A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is
where a car dealership acts as an intermediary between the bank or financial institution and the
consumer.
UNSECURED
Unsecured loans are monetary loans that are not secured against the borrower's assets. These
may be available from financial institutions under many different guises or marketing packages:
The interest rates applicable to these different forms may vary depending on the lender and the
borrower. These may or may not be regulated by law. In the United Kingdom, when applied to
individuals, these may come under the Consumer Credit Act 1974.
Interest rates on unsecured loans are nearly always higher than for secured loans, because an
unsecured lender's options for recourse against the borrower in the event of default are severely
limited. An unsecured lender must sue the borrower, obtain a money judgment for breach of
contract, and then pursue execution of the judgment against the borrower's unencumbered assets
(that is, the ones not already pledged to secured lenders). In insolvency proceedings, secured
lenders traditionally have priority over unsecured lenders when a court divides up the borrower's
assets. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the
debt may be uncollectible.
Currently in India we have different types of loans available ranging from personal loans to
marriage loans. But when to use which loan is a smart way of managing your money. Hence first
let us look at different type of loans available.
1. Home Loan
Home loan as name suggest is the loan against buying property. Every individual currently have
dreams to have their own home. To make affordable best option is home loan. Again their are
sub-categories of home loans which are as below.
You may also find different variant of home loans other than above. But I listed basic type of
home loans.
2. Personal Loan
It is the loan granted to fulfill your expenses which ranges from buying some expensive
electronic gadgets to booking your air tickets :)Yes people used to use this facility for anything
they can. They forget that usually rate of interest on such loans will be higher than other types of
loans. But still to have something in advance end up them to borrower of such type of loans.
Here we may find two types of loans
Secured Loans-Where you provide some collateral as a safety against loans.
Unsecured Loans-In such type of loans borrower collateral not required.
4. Education Loan
This is actually a handy tool for parents who not planned well for their kids higher education.
For a detailed view on this visit my earlier post Know all about Education Loan features.
5. Gold Loan
This was one of the easiest and fastest way of loan when gold rate was at its peak. But currently
lot of lenders may not feel it better collateral due to falling in gold price, especially gold loan
companies. Recently RBI banned any gold loans against gold ETFs and gold mutual funds.
Eventhough it forms easiest and fastest way of getting loan but better to look for risks involved
in it, especially when you are dealing with NBFCs.
get more value from this. Reason is, both the investments (if mutual fund is of equity oriented)
then fluctuation in values will be high. Hence to protect their loan amount usually lenders offer
less loan.
CHAPTER IV
GROWTH OF BANKINS SECTOR IN LAST DECADE
India is poised to become the worlds fourth largest economy in the span of twodecades.
Economic prosperity is providing many in this populous nation with real purchasing power; it
simply is an opportunity that cannot be overlooked by global banks. Despite its appeal, India
remains a developing economy. Thus, global banksseeking a presence or expansion in India must
craft a business strategy thatconsiders the countrys attendant challenges: longestablished
competitors;rudimentary
infrastructure;
dynamic
political
environment;
restrictive
sector banks hold over 75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5%respectively
THE FIGURE BELOW SHOWS THAT THE BANKEX AND THE SENSEX
HAVE HAD
The High CAGR exhibited by Indias Bankex demonstrates the industrys resilience
to
recession and economic instability. This resilience primarily stems from two factors. First,
the highly regulated Indian banking sector restricts exposure to high risk assets and
excessive leveraging. Second, Indian economys overallgrowth rate has been much higher
than other economies worldwide
However, the recent crisis in the eurozone is likely to affect the Indian economy and in
particular the countrys banking sector. The RBIs Financial Stability Report estimates the claim
of European Banks on India at approximately 8.6 per cent of the countrys GDP, while some
analysts estimate the figure to have reached 15 per cent of
implementation of
the
recent
significantly. Data from the International Monetary Fund (IMF) suggests that these banks will
deleverageup to US$ 2.6 trillion by the end of 2013 especially from the sale of securities and
Non-Core assets. This will see the credit supply to businesses shrinking by 1.7 percent, thereby
driving Indian companies to borrow from the Indian banks at a higher cost in times of
inflation and in a period of depreciation in the value of rupee. The non performing assets
(NPAs) of banks were pegged at 2.9 percent in the fourth quarter of 2011, and are expected to
rise to 3.5 per cent by 2012. All these factors might hamper the performance of the Indian
banking
sector. However, amongst positive initiatives taken by the government, the RBI
mandated banks to maintain 70 per cent of the provision coverage ratio of their bad loans as on
September 2010, thereby mitigating the effect of NPAs to a certain extent. The NPAs of
public, private and foreign banks in India are exhibited in Figure 2
The solace for Indian banks, however, lies in the fact that India has shown a
comparatively robust growth in its GDP over past years, which analysts closely correlate
to the performance of the banking industry. The report forecasts that Indias GDP growth
will take the size of the countrys banking sector, to the third largest in the world by 2025.
Figure 3 shows the data from the Ministry of Finance that supports this.
Figure 3 demonstrates that the growth of the banking sector in terms of percentage contribution
to the GDP has remained mostly uniform over FY 06-10. The banking sector is currently
growing at approximately the same rate as the countrys economy.
Another important parameter for assessing the performance of the banking industry is the
domestic credit provided as a percentage of the GDP, as exhibited in Figure 4 below
CHAPTER V
IMPACT OF MARKETING TO GROWTH OF BANKINS
SECTOR
IMPACT OF LIBERALISATION
The year 1991 marked a decisive changing point in India's economic policy since Independence
in 1947.Following the 1991 balance of payments crisis, structural reforms were initiated that
fundamentally changed the prevailing economic policy in which the state was supposed to take
the "Commanding Heights" of the economy. After decades of far reaching government
involvement in the business world, known as the "Mixed Economy" approach, the private sector
started to play a more prominent role
The enacted reforms not only affected the real sector of the economy, but the banking sector as
well.Characteristics of banking in India before 1991 were a significant degree of state ownership
and farreaching regulations concerning among others the allocation of credit and the setting of
interest rates. The blueprint for banking sector reforms was the 1991 report of the Narasimham
Committee. Reform steps taken since then include a deregulation of interest rates, an easing of
directed credit rules under the priority sector lending arrangements, a reduction of statutory preemptions, and a lowering of entry barriers for both domestic and foreign players
The regulations in India are commonly characterized as "financial repression". The financial
liberalization literature assumes that the removal of repressionist policies will allow the banking
sector to better perform its functions of mobilizing savings and allocating capital what ultimately
results in higher growth rates (Levine, 1997, p. 691). If India wants to achieve its ambitious
growth targets of 7-8% per year as lined out in the Common Minimum Programme of the current
government, a successful management of the systemic changes in the banking sector is a
necessary precondition.
While the transition process in the banking sector has certainly not yet come to an end, sufficient
time has passed for an interim review. The objective of this paper therefore is to evaluate the
progress made in liberalizing the banking sector so far and to test if the reforms have allowed the
banking sector to better perform its functions.
The paper proceeds as follows: section 2 gives a brief overview over the role of the banking
sector in an economy and possible coordination mechanisms. A discussion of different repressive
policies and theireffect on the functioning of the banking sector follows in section 3. Section 4
gives a short historical overview over developments in the Indian banking sector and over the
reforms since 1991. An evaluation of the status of the reforms and their effects follows in section
5. Section 6 concludes.
IMPACT OF PRIVATIZATION
Interest Rate is more in private sector banks ascomparative to the public sector banks.
Private Banks are responsible for thisrecession in the world & also in india.
Private banks give loans to the realestate sector and many other similar sectors with the
eyes closednot taking even some proper securities by these companies.
Previously the public money was safeguard throughDeposit Insurance corporation but
now thiscorporation is abolished.
Since now in the private banks government hasless control over the bank activities ,
Privatesector use private recovering agencies torecover bad loans.
These agencies uses wrong means and force torecover loans from people .
Some people even commit suicide under thepressure of the recovery agents.
The employees of Private sector banks arenot pretty satisfied with the policies of
theprivate banks. As the working hours aremore and the salaries are less. Thats whymore
than 800,000 PSU bank employeesrecently protest against privatization
SBI was formed under the SBI Act in 1955. Thegovernment hold around 93% of the
equity, leaving7% to private ownership. By this act the equity of RBIcannot be diluted
below 55%.
This act was outdated and needs to be re-addressed.However, efforts were initiated by
SBI to privatize itsnon banking subsidiaries like SBI Caps, SBI FundsManagement etc,
where SBIs holding is about 85%of the equity.
Later Indian government announced itsdecision to reduce its stakes in publicsector banks
to 33%.
Are The Banks Really Sick? The answer is No. Public sector banks are making
profits.Even the loss-making banks like UCO bankhave turned the corner in recent years.
Then why this outcry of privatization. Later Indian government announced itsdecision to
reduce its stakes in publicsector banks to 33%.
IMPACT OF GLOBALISATION
The concept of Globalisation infers that the globe is a single unit which functions as one when it
comes to decision-making. In other words, Globalisation implies the free movement of goods,
services and capital throughout the world. Globalisation involves the opening up of national
economies to global markets. This naturally and simultaneously results in the simultaneous
reduction in the role of the State to shape national policies. Many Socialists define Globalisation
as a primarily economic phenomenon, which involves increasing interaction and integration of
national economic systems. This leads in turn to growth in international trade, investment and
capital flows. Moreover, there is a rapid increase in cross-border social, cultural and
technological exchanges because of the phenomenon of globalisation.
The sociologist defines globalisation as a decoupling of space and time. With the advent of
instantaneous communications, knowledge, trade and culture can be shared around the world
simultaneously. This will ultimately result in an increase in international trade, investment and
capital flows.
On the other hand, some critics define Globalisation as ''the worldwide drive towards a
globalised economic system, dominated by supranational corporate trade and banking
institutions that are not accountable to the democratic processes or national governments. Due to
Globalization, all important institutions like the nation, state, family, work, services, trade,
leisure, culture, knowledge etc. are changing. As a result of this, life styles of people throughout
the world are also changing, making the world a single unit when it comes to decision making.
The middle and late 90s witnessed great innovations in financial reforms, restructuring,
convergence globalization etc. These were accompanied by a rapid revolution in communication
CHAPTER VI
EMERGING RISK IN BANKING SECTOR AND RISK
MANAGEMENT BY BANKS
RISK MANAGEMENT
Risk Management in Indian banks is a relatively newer practice, but has already shown to
increase efficiency in governing of these banks as such procedures tend to increase the corporate
governance of a financial institution. In times of volatility and fluctuations in the market,
financial institutions need to prove their mettle by withstanding the market variations and
achieve sustainability in terms of growth and well as have a stable share value. Hence, an
essential component of risk management framework would be to mitigate all the risks and
rewards of the products and service offered by the bank. Thus the need for an efficient risk
management framework is paramount in order to factor in internal and external risks.
The financial sector in various economies like that of India are undergoing a monumental change
factoring into account world events such as the ongoing Banking Crisis across the globe. The
2007present recession in the United States has highlighted the need for banks to incorporate the
concept of Risk Management into their regular procedures. The various aspects of increasing
global competition to Indian Banks by Foreign banks, increasing Deregulation, introduction of
innovative products, and financial instruments as well as innovation in delivery channels have
highlighted the need for Indian Banks to be prepared in terms of risk management.
Indian Banks have been making great advancements in terms of technology, quality, as well as
stability such that they have started to expand and diversify at a rapid rate. However, such
expansion brings these banks into the context of risk especially at the onset of increasing
Globalization and Liberalization. In banks and other financial institutions, risk plays a major part
in the earnings of a bank. The higher the risk, the higher the return, hence, it is essential to
maintain a parity between risk and return. Hence, management of Financial risk incorporating a
set systematic and professional methods especially those defined by the Basel II becomes an
essential requirement of banks. The more risk averse a bank is, the safer is their Capital base.
In the course of their operations, banks are invariably faced with different types of risks
that may have a potentially negative effect on their business. Risk management in bank
operations includes risk identification, measurement and assessment, and its objective is to
minimize negative effects risks can have on the financial result and capital of a bank. Banks are
therefore required to form a special organizational unit in charge of risk management. Also, they
are required to prescribe procedures for risk identification, measurement and assessment, as well
as procedures for risk management.
The risks to which a bank is particularly exposed in its operations are: liquidity risk, credit risk,
market risks (interest rate risk, foreign exchange risk and risk from change in market price of
securities, financial derivatives and commodities), exposure risks, investment risks, risks relating
to the country of origin of the entity to which a bank is exposed, operational risk, legal risk,
reputational risk and strategic risk.
Liquidity Risk
Liquidity Risk is the risk of negative effects on the financial result and capital of the bank caused
by the banks inability to meet all its due obligations.
Credit Risk
Credit Risk is the risk of negative effects on the financial result and capital of the bank caused by
borrowers default on its obligations to the bank.
Market Risk
Market risk includes interest rate and foreign exchange risk.
Interest rate risk is the risk of negative effects on the financial result and capital of the bank
caused by changes in interest rates.
Foreign exchange risk is the risk of negative effects on the financial result and capital of the bank
caused by changes in exchange rates.
A Special type of market risk is the risk of change in the market price of securities, financial
derivatives or commodities traded or tradable in the market.
Exposure Risks
Exposure Risk include risks of banks exposure to a single entity or a group of related entities,
and risks of banks exposure to a single entity related with the bank.
Investment Risks
Investment Risk include risks of banks investments in entities that are not entities in the
financial sector and in fixed assets.
Risks Relating To The Country Of Origin Of The Entity To Which A Bank Is Exposed
(Country Risk) is the risk of negative effects on the financial result and capital of the bank due to
banks inability to collect claims from such entity for reasons arising from political, economic or
social conditions in such entitys country of origin. Country risk includes political and economic
risk, and transfer risk.
Operational Risk
Operational Risk is the risk of negative effects on the financial result and capital of the bank
caused by omissions in the work of employees, inadequate internal procedures and processes,
inadequate management of information and other systems, and unforeseeable external events.
Legal Risk
Legal Risk is the risk of loss caused by penalties or sanctions originating from court disputes due
to breach of contractual and legal obligations, and penalties and sanctions pronounced by a
regulatory body.
Reputational Risk
Reputational Risk is the risk of loss caused by a negative impact on the market positioning of the
bank.
Strategic Risk
Strategic Risk is the risk of loss caused by a lack of a long-term development component in the
banks managing team.
HACKERS
In the computer security context, a hacker is someone who seeks and exploits weaknesses in a
computer system or computer network. Hackers may be motivated by a multitude of reasons,
such as profit, protest, challenge, enjoyment, or to evaluate those weaknesses to assist in
removing them. The subculture that has evolved around hackers is often referred to as the
computer underground and is now a known community. While other uses of the word hacker
exist that are related to computer security, such as referring to someone with an advanced
understanding of computers and computer networks, they are rarely used in mainstream context.
[citation needed] They are subject to the longstanding hacker definition controversy about the
term's true meaning. In this controversy, the term hacker is reclaimed by computer programmers
who argue that someone who breaks into computers, whether computer criminal (Black Hats) or
computer security expert (White Hats), is more appropriately called a cracker instead.Some
white hat hackers[who?] claim that they also deserve the title hacker, and that only black hats
should be called "Crackers".
In recent months, cyber terrorists have accessed the records of 21.5 million American public
service employees, infiltrated the German parliaments network, and blocked a French national
television broadcasters 11 television channels for several hours.
A Malware Attack compromised the operations of more than 1,000 energy companies, giving
hackers the ability to cripple wind turbines, gas pipelines, and power plants in 84 countries,
including the United States, Spain, France, Italy, Germany, Turkey, and Poland at the click of a
mouse.
For many years, the world has benefited from information technology advances that have
improved the productivity of almost every industry banking, healthcare, technology, retail,
transportation, and energy. But we continue to underestimate the dark side of this equation:
Greater dependence on information technology is resulting in an increasing and unprecedented
number of cyberattacks.
More than 30 countriesIncluding Germany, Italy, France, the United Kingdom, the U.S.,
Japan, and Canadahave now rolled out cybersecurity strategies. Financial services regulators
in the United Kingdom are working with top banks to improve their cyber-risk management.
Germany is weighing a cybersecurity law that will require companies deemed critical to the
nations infrastructure to immediately report cyber incidents to the government. And on June 29,
the Latvian Presidency of the Council of the European Union reached an understanding with the
European Parliament on the main principles of what could become a unified cybersecurity
RISK.
ATM and branch office transaction volumes are flat (As A Percent Of Total Transactions), while
call center channels are growing modestly and electronic access (Online And Mobile Access) is
booming. Mobile banking, barely a blip on the radar in 2008, is expected to grow to more than
42 million users in 2012, according to Tower Group research
Unfortunately these fastest growing channels are also the most vulnerable. For example, in a
Gartner survey of 50 banks, more than half reported that their institutions had been the target of a
phishing attack in the previous year.The anonymity of ecommerce makes it more difficult to
uncover bogusWeb communications and hidden relationships.
fraud up to a month later suffered an average loss of $572. Those who took up to five months
lost nearly three times as much ($1,207) as victims who detected the fraud within one day. Of
course, this is no surprise. What can be a surprise is how much that figure escalates when you
add associated costs, such as lost wages, loss of goodwill and legal fees.
Collectively, these realities create a daunting environment for financial services institutions:
They would like to accurately identify the patterns and perpetrators, but they usually lack
turn up a lot of false positives that are costly and fruitless to investigate.
They would like to unify the fraud management process, but disparate data sources and
cryptic interfaces make the system inaccessible to all but a few.
SWOT ANALYSIS
The accelerating shift in economic power from the developed to emergingeconomies is
dramatically changing the banking industry across the world. Theinternational banking scene has
in recent years witnessed strong trends towardsglobalization and consolidation of the financial
system. Stability of the financialsystem has become the central challenge to bank regulators and
supervisorsthroughout
the
world.
The
multi-lateral
initiatives
leading
to
evolution
STRENGTHS
In the short-term, most developed economies experienced a significanteconomic slowdown or
recession in 2008-9, reducing significantly the growth of domestic banking assets. Emerging
economies such as India by contrast tended tomaintain relatively high growth rates, although
some temporary economicslowdown was experienced in certain cases. In 2010, however,
emergingeconomies grew strongly in general, while the recovery in Europe in particular
remained relatively weak.
High standard regulatory environment. The policy makers, which comprisethe Reserve
Bank of India (RBI), Ministry of Finance and related overnmentand financial sector
regulatory entities, have made several notable efforts toimprove regulation in the sector.
Bank lending has been a significant driver of GDP growth and employment.
Approximately 53000 networks of branches spread all over the country provides easy
access to entire spectrum of customers.
Technological up gradation changing the way the banking is done. Anywhere banking
and anytime banking has become a reality and thusmaking service faster, error free and
competitive.
WEAKNESS
Indian commercial banks, particularly PSBs have been witnessing the followingchallenges which
have become bottlenecks in achieving competitive edge over their rivals.
Financial exclusion
The cost of banking intermediation in India is higher and bank penetration isfar lower
than in other markets
Inadequate risk management skills particularly to cope with market risks and per Basel II
norms
The inability of bank managements (with some notable exceptions) toimprove capital
allocation, increase the productivity of their service platforms and improve the
performance ethic in their organisations couldseriously affect future performance
OPPORTUNITIES
Increase the profitability by accessing international financial market for procuring funds
cheaply and deploy funds prudently.
The emerging economies banking sectors are expected to outgrow those inthe developed
economies.
As per the PWC projection in Banking 2050 By 2050 the leading emerging economies
could have domestic banking assets and profits thatexceed those in the G7 by around
50%.
India has particularly strong long-term growth potential and PWC projections suggest it
could become the third largest domestic banking sector by 2050 after China and theUS,
but ahead of Japan, the UK and Germany.Brazil could also rise strongly up the global
banking league table over this period.
THREATS
Competition among banks for highly rated corporates needing lower amountof capital
may exert pressure on already thinning interest spread. Further,huge implementation cost
may also impact profitability for smaller banks.
The biggest challenge is the re-structuring of the assets of some of the banksas it would
be a tedious process, since most of the banks have poor assetquality leading to significant
Proportion of NPA. This also may lead to Mergers & Acquisitions, whichitself would be
loss of capital to entire system
Huge surplus manpower, absence of good work culture, antiquated labour laws, inflexible
and inefficient labour and existence of strong labour union.
High level of Non Performing assets [NPA]. 6 percent of the advances arestill blocked
up which is about 58000 Crore. Therefore problem of nonrecognition of interest income
and loan loss provisioning exists.
The house hold savings comprising financial assets are moving away from bank deposits
to more sophisticated form of financial assets such as mutualfunds, stocks and
derivatives.
Demanding customers are ready to jump from one bank to another whenthey are not
satisfied with the service provided. This causes major threat particularly to PSUs.
FINDINGS
The interest income to total income is higher in public sector banks as compared to
private banks which itself says that there are more depositsing FDs in public banks. The
reliability lies with them.
The non interest income tototal income is more in private sector banks, this is because
they provide more feeand fund based services like depository services. The establishment
expenses tototal expenses is more in public sector banks, thus we can say that private
sector banks are much more efficient than public sector.
The ratio of NPA to total assets is lessin private sector banks. This is because of the large
assets with public sector banks.The high assets with them balance out the NPA
The interest on advances to total income is more in public sector banks. This showsthat
the deposits are more with the public sector banks. Other income to totalincome is less in
public sector banks.
SUGGESTIONS
In todays context we can see a major shift in the investment portfolio of theinvestors. A
major portion of them has started investing in modern investingschemes rather than the
same old conventional ones. At the onset of the new erathe banking industry has
enmarked a growth. Thus we can suggest the investors togo for investments in banking
sector.
The private sector has started giving better services through efficient and efficacious use
of its technical and human resources.As far as the reliability is concerned it still lies in the
hands of the public sector.With the help of this analysis the powered growth of banking
industry as a wholecan be seen. The growing economy favors the investment
opportunities.
CONCLUSION
India's banking sector will see the onset of a process of churning, mergers,acquisitions and
consolidation. The banking sector has got multifaceteddimensions. The project analyses the
banking industry in a comprehensive manner still the study is able to enumerate only the broad
aspects of the enormousinvestment opportunities available in the overall banking sector. It can
beconcluded that this sector have full of unlimited opportunities for those who areinterested in
safe and regular income on their investments. The deregulation of banking industry and the entry
of private entrants have made this sector anattractive field of investment for the investors. The
sector has performed well evenin times when the sensex was dipping and there was a bearish
sentiment in theoverall stock market. The passage of asset securitisation bill has given more
nailsto the banks enabling them to recover with their NPAs in a more efficient manner and
thereby enhancing their profitability position. With the technology drive large branch networks
customized services and more efficient professional staff, thesector is in no way lagging behind
the other sectors
Moreover, with the manufacturing
beginnings of an investment cycle. Many companies that built capacities in the first half of
the1990s are seeing their surplus capacity squeezed out by growth in demand.To be sure,
productivity improvement can raise output without large increases ininvestment. Nevertheless,
more than 150 listed companies to plan, on an average,something like Rs 250 crore of
investment per firm over the next three quarters - or Rs 37,500 crore of additional funds
requirement. If we add to this the capital needed for infrastructure projects, we could be looking
at a hefty growth ininvestment demand. In such a milieu, I don't expect interest rates to soften.
Indeed,they may even marginally harden by June-July 2007. Still, the balance sheets and profit
and loss accounts of many of our public sector banks are going to look better than before ( E.g
SBI recorded a Net P rofit of Rs.1099.35 cr for the quarter ended 31 st December 2006
compared to Rs.919.44 cr. in quarter ended 31 st December 2005, registering a growth of
19.57%), as they have found new areas of earning.
BIBLIOGRAPHY
BOOKS REFFERED
India's Financial Sector: An Era of Reforms
Author- Vyuptakesh Sharan
Publisher- Sage India [14 October 2009]
WEBILOGRAPHY
https://www.scribd.com/doc/30350917/Growth-of-Banking-Sector-in-India
https://en.wikipedia.org/wiki/Banking_in_India
http://www.mbaknol.com/business-finance/different-products-offered-by-banks/
http://www.ibef.org/industry/banking-india.aspx
https://en.wikipedia.org/wiki/Risk_management_in_Indian_banks