DECLARATION

I, the undersigned URVI B. SHAH a student of T.Y.B.B.A. hereby declare that the project work presented in this report is my own and has been carried out under the supervision of Ms. Darshita Ganatra of CHRIST COLLEGE, RAJKOT.

Date : Place : Rajkot Shah) (Urvi B.

PREFACE
Retail banking has emerged as a thrust area of the Indian Banking in recent years. The reasons for this phenomenon are well known. Importantly, it denotes a shift in the official policy, which had been discouraging banks from venturing in this area until 1990s. This new area has presented enormous

challenges and opportunities to India banks. They have risen to the occasion and have been proving themselves. In this report, I have put together certain critical aspects along with experiences in retail banking in India. Indeed, retail banking is a conglomeration of several heterogeneous activities ranging from simple overdrafts to mortgage loans. However, they all have a common feature namely individual-base. The discussions in the report cover virtually most of the aspects. The report deal with the overview, current scenario, problems, prospect of the banking industry and mainly the trend in retail banking in Indian banking industry and in State Bank of Saurashtra,

which is one of the seven associates of State Bank of India.

Date : Place : Rajkot (Urvi B. Shah)

ACKNOWLEDGEMENT

I feel a great sense of pride and pleasure in presenting my first FINANCE REPORT to the Saurashtra University as a student of T.Y.B.B.A. on RETAIL BANKING. I convey my heartiest gratitude to Mr. Jayesh Katrodia and Mr. Kirti Bataviya, without whom this task would not have been so easy. Also, I am thankful to Mr. Hemant Vasani and Mr. Y. B. Gosai who gave me valuable advices and required knowledge for my report. Also, I am thankful to Mr. Atul Rathod and S.B.S. university road branch at Rajkot for their co-operation. I thank Ms. Darshita Ganatra who guided me throughout in making the report and giving me motivation. 3

I thank all those who have helped me directly or indirectly in the successful completion of this project.

Date : Place : Rajkot Shah) (Urvi B.

MAIN INDEX

Chapter No. 1 2

Particulars Overview Conceptual framework

Pg. No.

3 4

Research Methodology Analysis of data and interpretation

CHAPTER 1
5

OVERVIEW

INDEX

Chapte r No. 1 2

Particulars Brief history of S.B.S. Overview of banking industry

Pg. No.

3 4 5

Problems faced by banking industry Prospect of banking industry Overall conclusion of the chapter

SBRIEF HISTORY AND DEVELOPMENT OF S.B.S.

History of S.B.S.

State Bank of Saurashtra is a growing and progressive institution, with its roots firmly entrenched in the soil of Saurashtra. The region of Saurashtra, which at present forms a part of Gujarat 7

State, comprised of many small, medium and large princely states, prior to 1948. Bhavnagar, Rajkot and The states of which were Porbandar,

among the larger states and the two smaller states, viz. Palitana and Vadia, had established their own Darbar Banks. Out of these five, Bhavnagar Darbar Bank had been established in the year 1902, to which we owe our origin. These banks were mainly catering to the needs of the respective princely states, acting as the repository for the states treasures as also the peoples savings. After the princely states were integrated to from Saurashtra state in 1948, a need was felt to amalgamate these banks and make them a state-owned bank was felt to serve as an instrument for developing the economy of the region. Accordingly, the Bhavnagar Darbar Bank was formed into a statutory corporation, called STATE BANK OF SAURASHTRA, under the Saurashtra State Bank (Amalgamation) Ordinance, 1950 and the four Darbar Banks Rajkot State Bank, Porbandar State Bank, Palitana Darbar

Bank and Vadia State Bank were merged with it with effect from 1st July, 1950 as its branches.

The

year

1960

was

the

most

important Firstly, 8

landmark in the history of the Bank.

following the formation of a separate Gujarat State, the Banks main area of operation Saurashtra became a part of Gujarat. Secondly, pursuant to the recommendations of the All India Rural Credit Survey Committee, the Bank was taken by the State Bank of India under its wings along with other major stateowned banks under the State Bank of India (Subsidiary Banks) Act, 1959. Thus, in 1960, the

State Bank of Saurashtra joined the State Bank family as one of its fully owned subsidiaries so that its policies and activities could be directed to achieve the socio-economic objectives for which the Sate Bank of India itself was constituted. These twin events brought about a significant change in the outlook of the Bank. Apart from providing the Bank with an opportunity to expand its operations and enabling use of the network of the State Bank Group for furthering its business activities, it also enabled the Bank to grow from a state of infancy into adulthood by imbibing the rich banking traditions of the State Bank of India. At the close of 1950, the Bank had only 9 branches and deposits of Rs 7 crores. A decade later the number of branches had increased to 24 with aggregate deposits of Rs 13.39 crores, total advances of Rs 7.93 crores and investment

portfolio of Rs 8.04 crores. The paid up capital and reserves were Rs 1.51 crores. The Bank had 866 people on its payroll, to take care of its operations.

Their Present By 31/03/2005, the total deposits amounted to Rs 12613.04 crores and total advances reached the level of Rs 6714.07 crores. The business of the Bank is now spread over 15 states and Union Territory of Daman and Diu with a network of 423 branches. The Banks paid up capital and reserves amounted to Rs 794.25 crores as at the end of March 2005. The Bank had Capital Adequacy Ratio of 11.45%. All branches are fully computerized and are expected to be networked to provide Anywhere Banking to our valued customers before December, 2005.

Their Vision To be the premier Pubic Sector Bank of Gujarat aiming at growth and profit with central focus on 10

customer delight by means of improved technology, product development, excellence in service, thus harnessing the potential for growth in alignment with national policies and priorities in a planned manner geared to meet all challenges of growth.

Their Mission State Bank of Saurashtra aims at corporate excellence and profit maximization with central focus on customer delight so as to maintain its premier position in the State of Gujarat by means of excellence in service, product development, improvement in technology, harnessing potential for growth in alignment with national objectives in a planned manner so as to emerge as a strong bank with social orientation, geared to meet all the challenges of growth. Excellence in man management and optimal use of human resources will be the banks cornerstone in establishing a position of eminence for itself in the banking industry, benchmarking itself against the highest standards and adopting national 11

and international best practices while maintaining the traditional strength developed over a century of banking.

The bank will derive its strength from its extensive rural network and reach out to the urban pockets with thrust on technology and quality service.

12

OVERVIEW OF THE INDIAN BANKING INDUSTRY

The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be broadly classified into two major categories, non-scheduled banks and scheduled banks. Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks (the old/new domestic and foreign). These banks have over 67,000 branches. The first phase of financial reforms

resulted in the nationalization of 14 major banks in 1969 and resulted in a shift from Class banking to 13

Mass banking. This in turn resulted in a significant growth in the geographical coverage of banks. Every bank had to earmark a minimum percentage of their loan portfolio to sectors identified as priority sectors. The manufacturing sector also grew during the 1970s in protected environs and the banking sector was a critical source. The next wave of reforms saw the nationalization of 6 more commercial banks in 1980. Since then the number scheduled commercial banks increased four fold and the number of banks branches increased eight fold.

After the second phase of financial sector reforms and liberalization of the sector in the early nineties, the Public Sector Banks (PSBs) found it extremely difficult to compete with the new private sector banks and the foreign banks. The new private sector banks first made their appearance after the guidelines permitting them were issued in January 1993. Eight new private sector banks are presently in operation. These banks due to their late start have access to state of the - art technology, which in turn helps them to save on manpower costs and provide better services.

14

During the year 2000, the State Bank of India (SBI) and its 7 associates accounted for 25 % share in deposits and 28.1 % share in credit. The 20 nationalized banks accounted for 53.2 % of the deposits and 47.5 % of credit during the same period. The share of foreign banks (numbering 42), regional rural banks and other scheduled commercial banks accounted for 5.7 %, 3.9 % and 12.2 % respectively in deposits and 8.41 %, 3.14 % and 12.85 % respectively in credit during the year 2000.

Current Scenario The banking industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of the Indian Banking System are in the process of shedding their flab in terms of excessive manpower, excessive Non Performing Assets (NPAs) and excessive

governmental equity, while on the other hand the private sector banks are consolidating themselves through mergers and acquisitions. PSBs, which currently account for more than 78 % of total banking industry assets are saddled with NPAs, falling revenues from traditional 15

sources, lack of modern technology and a massive workforce while the new private sector banks are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service. The PSBs are of course currently working out challenging strategies even as 20 % of their massive employee strength has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS). The private players however cannot

match the PSBs great reach, great size and access to low cost deposits. Therefore, one of the means for them to combat the PSBs has been through the merger and acquisition (M&A) route. Over the last 2 years, the industry has witnessed several such instances. For instance, HDFC Banks merger with Times Bank, ICICI Banks acquisition of ITC Classic, Anagram Finance and Bank of Madura. Private sector banks have pioneered internet banking, phone banking, anywhere banking, mobile banking, debit cards, Automated Teller Machines (ATMs) and combined various other services and integrated them into the mainstream banking arena, while the PSBs are still grappling with disgruntled employees in the aftermath of successful VRS. Also, following Indias commitment to the WTO agreement in respect of the services sector, foreign 16

banks, including both new and the existing ones, have been permitted to open up to 12 branches a year with effect from 1998 99 as against the earlier stipulation of 8 branches. Talks of government diluting their equity from 51 % to 33% have also opened up a new opportunity for the takeover of even the PSBs. Meanwhile the economic and corporate sector slowdown had led to an increasing number of banks focusing on the retail segment. Many of them are also entering the new vistas of Insurance. Banks with their phenomenal reach and a regular interface with the retail investor are the best placed to enter into the insurance sector. Banks in India have been allowed to provide fee based insurance services without risk participation, invest in an insurance company for providing infrastructure and services support and set up of a separate joint venture insurance with risk participation.

17

PROBLEMS FACED BY THE BANKING INDUSTRY

The banking industry in India is undergoing a major transformation due to changes in economic conditions and continuous deregulation. These multiple changes happening one after other has a ripple effect on a bank trying to graduate from completely regulated sellers market to completed deregulated customers market.

Deregulation : This continuous deregulation has made the

Banking market extremely competitive with greater autonomy, operational flexibility, and decontrolled interest rate and liberalized norms for foreign exchange. The deregulation of the industry coupled with decontrol in interest rates has led to entry of a number of players in the banking industry. At the same time reduced corporate credit off take thanks to sluggish economy has resulted in large number of competitors battling for the same pie.

New rules : 18

As a result, the market place has been redefined with new rules of the game. Banks are transforming to universal banking, adding new channels with lucrative pricing and freebees to offer.

Natural fall out of this has led to a series of innovative product offerings catering to various customer segments, specially retail credit.

Efficiency : This in turn has made it necessary to look for

efficiencies in the business. Banks need to access low cost funds and simultaneously improve the efficiency. The banks are facing pricing pressure, squeeze on spread and have to give thrust on retail assets.

19

PROSPECT OF THE BANKING INDUSTRY

The future banking, which is poised for reaping the full benefits of the developments in the field of knowledge and information technology, will be knowledge oriented and technology driven banking, thus metamorphosing the entire Indian banking scenario. The main features of Banking Vision in Prospect can be briefly summarized as :

This will be a paperless banking era dominated by plastic money.

The banks will be slim and trim in their physical size and structure and not in business volume, with emphasis on automation and outsourcing of different services so that they can tackle the increasing volumes of business efficiently and effectively and become competitive in relation to foreign and private sector banks.

20

Customer banker contact will be reduced to the bare minimum to be taken over by electronic banking, telebanking and card banking. This can very well be expressed Banking. as 365 Days 24 Hours Anywhere Banking or alternatively as Anywhere Anytime

Customer service and product innovation will be the guiding principle and the strength of the banks.

Integration of financial services, such as insurance, hire purchase and leasing, brokering, consultancy and banking, will take place thereby making the banks a delivery channel for a host of financial products and services.

Five to six nationalized banks will dominate Indian Banking scenario having global presence and sound capital base with a few all India character private sector banks along with the small regional banks suiting and catering to local requirements.

With thinning of spreads on core banking business of credit and deposit, banks have to search for alternative profit generating avenues in the form of the float fund management, thereby strengthening their treasury operations, which will be a thrust area in the emerging banking environment. 21

Risk management activities will be more pronounced in future banking because of the liberalization, deregulation and global integration of financial markets, which will be adding depth and dimensions to the banking risks. The risks are correlated and exposure to one risk may lead to another risk, therefore management of risks in a proactive, efficient and integrated manner will be the strength of the successful banks.

Thus, future banking can be compared with the hospitality industry thriving on the tailor made products suiting to the requirements of the individual customers where volumes will be of primary best the be service importance. described objective Accordingly as of the perceived Driven Anytime theme of Indian Banking Vision in Prospect can Technology Anywhere Enlightened Employee with Customer Delight with Banking.

22

OVERALL CONCLUSION OF THE CHAPTER

Growth is the innate process and natural mechanism of every organisation and system to which Indian banking is no exception. A historical glance on the development of India Banking Industry reveals that it has passed through various phases of growth, which may be classified under different phases together with future projections. The financial sector reforms have brought about significant improvements in the financial 23

strength and the competitiveness of the Indian Banking System. The banking sector reforms were basically aimed at ensuring the safety and soundness of financial institutions and the same time at making the baking system strong, efficient, functionally diverse and competitive. The reforms included measures for arresting the decline in productivity, efficiency and profitability of the banking sector. Furthermore, it was recognized that the Indian banking system should be in tune with international prudential standards regulations, of and capital adequacy, and accounting

disclosure standards. State banks in India have, over the years, played a very significant role in the development of the economy and in achieving the objectives of reaching the masses and cater to the credit needs of all segments, including weaker sections, of the economy. Technological factors played a major role. Convenience banking in the form of debit cards, internet and phone banking, anywhere and anytime banking has attracted many new customers into the banking field.

24

25

CHAPTER 2 : CONCEPTUAL FRAMEWORK

INDEX

26

Chapter No. 1 2 3 4 5 6

Particulars Definition of retail banking Meaning of retail banking Special features of retail credit SWOT Analysis Emerging issues in retail credit Conclusion of the chapter

Pg. No.

DEFINITION

27

The simplistic definition of the term retail banking could be catering to the multiple banking requirements of individuals relating to deposits, advances and associated services. The retail banking portfolio of a bank encompasses deposits and assetlinked products as well as other financial services offered to individuals for personal consumption. The retail banking on assets side of the balance sheet now includes a wide range of loan products such as housing loans, mortgage loans, consumption loans for purchase of durables, personal loans for auto specified/unspecified activities/requirements,

loans, educational loans, loans against various types of securities, loans against future rentals in addition to the traditional products on liability side of the balance sheet such as acceptance of deposits savings bank, current account or term deposits.

MEANING
28

Most of the Indian banks have largely been retail banks in their business composition. The term retail banking encompasses retail deposit schemes, retail loans, credit cards, debit cards, insurance products, mutual funds, depository services including demat facilities and a host of other services catering to the needs of the individual customers. It would be seen from the above that retail banking includes various financial services and products forming part of the assets as well as the liabilities segment of the Banks. Simply put, it refers to taking care of the banking needs of individual customers in an integrated manner. viewed as a market segment by itself. It has to be

29

SPECIAL FEATURES OF RETAIL CREDIT

One of the prominent features of retail banking products is that it is a volume driven business. Further, retail credit ensures that the business risk is widely dispersed among a large customer-base, unlike in the case of corporate lending where the risk may be concentrated lending where the risk may be concentrated on a select few clients. Ability of any bank to administer a large portfolio of retail credit products depends on such factors as the following :

Strong credit assessment capability : because of the large volume good infrastructure is required. If the credit assessment itself is qualitative, then the need for follow up in the future reduces considerably.

Sound Documentation : a robust system for credit documentation is a necessary pre-requisite for healthy growth of retail credit portfolio as in the case of credit assessment, this will also minimize the need to follow up at a future point of time.

30

Strong

processing for

capability processing of

: of

since

large

volumes of transactions are involved, excellent infrastructure transactions, required. day-to-day etc., is maintenance back-ups

Regular and Constant Follow-up : ideally, follow up for loan repayments should be an ongoing process; it should start from the customer enquiry and last till the loan is repaid in full.

Skilled human resources : this is one of the most important portfolio. pre-requisites Only highly for the and efficient management of a large and diverse retail credit skilled experienced manpower can withstand the rigour of administering a diverse and complex retail credit portfolio.

Technological support : this is yet another vital requirement. Retail credit is highly technological intensive nature, because of the large volumes of business, the need to provide instantaneous service to the customers at large, faster processing, maintaining databases etc.

31

32

T
ANALYSIS
SWOT ANALYSIS OF RETAIL BANKING

Strength $ Maximum chunk of low cost (savings bank) and fixed deposits, contributed by retail segment, are considered less volatile as compared to other deposits. Non volatile nature of these deposits help the banks to draw their ALM strategies more particularly for longer tenure comfortably. $ Low cost of

operations in terms of deployment of manpower for processing and follow up, as compared to similar sized loans in other segments. $ Low level of NPAs. [Tendency to default on housing loan is low as house is considered as the big-ticket deal of an individuals life. However, tendency of

33

default on other sub-segments of retail loan is comparatively higher]. $ Retail finance provides a higher and rather

consistent risk adjusted return to Banks due to low level of NPAs. $ Safe advances as these are invariably backed by tangible security in the form of mortgage of house/flat in case of housing loans and tangible security, check off facility, post dated cheques, etc. in case of other retail loans. $ High yield return to retail depositor with safety and liquidity. Weakness High manpower cost, low productivity and

automation is still a cause of concern for the nationalized banks which increases intermediation cost for them as compared to private sector banks/foreign banks. The scheme with variable deposit rates option with the depositors has not gained popularity and as such the cost of time deposits for the Banks remain constant even though the rates of interest on advances remain fluctuating. 34

Largely,

longer

tenure

of

loans,

ranging

from

minimum 3 years to 15/20 years as against the average deposits of less than 3 years. Absence of workable foreclosure laws. [The National Housing Banks has initiated steps to set up a Mortgage Credit Guarantee Company pursuant to the announcement made by the Finance Minister in his budget speech of 2002-03. The Company will guarantee housing loans, thus providing lenders with protection against default by the borrowers].

Opportunities Cross selling of products. [The Banks now prepare database of their depositors to study the nature of transactions being routed through the deposit accounts with a view to ascertaining the lending requirements of their customers and do marketing therefore]. Of late, securitization of retail loan portfolio has been started in a big way. Nationalized Banks, being in advantageous position in terms of their geographical reach to a large number of borrowers, can continue to book fresh business, improve their customer base to cross sell their 35

products and in due course off load the portfolio through securitization route depending upon their ALM position. In the medium term, growth in retail lending is expected to be outperforming than other segments due to lower interest rates regime and increased use of technology by banks thereby reduced cost of intermediation.

The growth in retail lending is expected to continue at much higher rates in the time to come as the retail loans to GDP are still less than 5% which is lower than the other developed/developing countries. Continued options preferred as mode of to savings risk of the

households sector due to unattractiveness of other compared involved. Reduction/gradual withdrawal of tax benefits under other Government administered deposit schemes also re - routing deposits to Banks. Retail lending provides an opportunity to the Banks to offset the lower demand of funds from corporate sector. Threats 36

Incidences of concurrent borrowings are on increase in case of retail loans through the credit card/other routes. This is a cause of concern for the Banks.

~ ~

Switchover/takeover threats loom over the bank. Shrinkage in the kitty of no cost [current account] deposits thereby increasing the average cost of deposits for the Bank.

The cost of maintaining low cost [saving bank] deposits is also increasing due to increased competition. The Banks are now compelled to provide free ATM cards with other add-on frills.

Retail advances are unproductive in nature. These advances do not directly contribute in the economic development of the country. Continuous emphasis of the Banks on the retail segment has reduced their outlay of funds to other segments such as agriculture, industry, etc.

37

EMERGING ISSUES IN HANDLING RETAIL BANKING

Knowing the Customer Know Your Customer is a concept which is easier said than practiced. Banks face several hurdles in achieving this. In order that the product lines are targeted at the right customers present and prospective it is imperative that an integrated view of the customers is available to the banks. The benefits flowing out of cross selling and up selling will remain a far cry in the absence of this vital input. In this regard, the customer data bases available with most of the public sector banks, if not all, remain far from being enviable. What needs to be done is setting up of a robust data warehouse wherefrom meaningful data on customers, their preferences, their spending 38

patterns, etc. can be mined. Cleansing of existing data is the first step in this direction. PSBs have a long way to go in this regard.

Technology Issues Retail banking calls for huge investments in technology. Whether it is setting up of a Customer Relationship Management System or Establishing Loan Process Automation or providing anytime, anywhere convenience to the vast number of customers or establishing channel/product/customer profitability, technology plays a pivotal role. And it is a long haul. The issues involved include adoption of the right technology at the right time and at the same time ensuring volumes and margins to sustain the investments. It is pertinent to remember that Citibank, known for its development of technology, took nearly a decade to make profits in credit cards. It has also to be added in the same breath that without adequate technology support, it would be well nigh impossible to administer the growing retail portfolio without allowing its health to deteriorate. Further, the key to reduction in transaction costs simultaneously with increase in ability to handle huge volumes of business, lies only in technology adoption.

39

PSBs are on their way to catch up with the technology much required for the success of retail banking efforts. Lack of connectivity, stand alone models, concept of branch customer as against bank customer, lack of convergence amongst available channels, absence of customer profiling, lack of proper MIS and decision support systems, etc., are a few deficiencies that are being overcome in a great way. However, the initiatives in this regard should include creating flexible computing architecture amenable to changes and having scalability, a futuristic approach, networking across channels, development of a strong Customer Information System (CIS) and adopting Customer Relationship Management (CRM) models for getting a 360 degree view of the customer.

Organizational Alignment It is of utmost importance that the culture and practices of an institution support its stated goals. Having decided to take a plunge into retail banking, banks need to have a well defined business strategy based on the competitive profile of the bank and its potential. Creation of a proper organisation structure and business operating models which would facilitate easy work flow are the need of the hour. The need for building the organizational capacity 40

needed to achieve the desired results cannot be over stated. This would mean a strong commitment at all levels, intensive training of the rank and file, putting in place a proper incentive scheme, etc. As a part of organizational alignment, there is also the need for setting up of an effective Corporate Marketing Division. Most of the public sector banks have only publicity departments and not marketing set - up. A full - fledged marketing department or division would help in evolving a brand strategy, address the issue of alienation from the upwardly mobile, high net worth customer group and improve the recall value of the institution and its products by arresting the trend of getting receded from public memory. The much needed tie ups with manufacturers / distributors / builders will also be facilitated smoothly. It is time to break the myth that PSBs are not customer friendly. The attention is to be diverted to vast data bases of customers lying with the PSBs still unexploited for marketing.

Product Innovation Product innovation continues to be yet another major challenge. Even though bank after bank is coming out with new products, not all are successful. What is of crucial importance is the need to understand the difference between novelty and 41

innovation? Peter Drucker in his path breaking book : Management Challenges for the 21 st century has in fact sounded a word of caution : innovation that is not in tune with the strategic realities will not work; confusing novelty with innovation (should be avoided); test of innovation is that it creates value; novelty creates only amusement. The days of selling the products available in the shelves are gone. Banks need to innovate products suiting the needs and requirements of different types of customers. Revisiting the features of the existing products to continue to keep them on demand, should not also be lost sight of.

Pricing of Products The next challenge is to have appropriate pricing policies in place. The industry today is witnessing a price war, with each Bank wanting to have a larger slice of the cake, that is, the market, without much of a scientific study into the cost of funds involved, margins, etc. The strategy of each player in the market seems to be: undercutting others and wooing the clients of others. Most of the banks that use rating models for determining the 42

health of the retail portfolio do not use them for pricing the products. The much needed transparency in pricing is also missing, with many hidden charges. There is a tendency, at least on the part of a few to camouflage the price. The situation cannot remain this way for long. This will be one issue that will be gaining importance in the near future.

Process Changes Business Process Re engineering is yet another key requirement for banks to handle the growing retail portfolio. Simplified processes and aligning them around delivery of customer service impinging on reducing customer touch points are of and essence. A realization the old has to dawn with that new automating the inefficiencies will not help anyone continuing one. will processes and part technology would only make the organisation an old expensive management Workflow be integral document of process

changes. The documentation issues have to remain simple both in terms of documents to be submitted by the customer at the time of loan application and those to be executed upon sanction.

43

Issues Concerning Human Resources While technology and product innovation are vital, the soft issues concerning the human capital of the banks are more vital. The corporate initiatives need too focus on bringing around a front line revolution. Though the changes envisaged are seen at the front line, the initiatives have really to come from the bank end. The top management of banks must be seen as practicing what it preaches. The initiatives should aim at improved delivery time and methods of approach. There is an imperative need to create a perception that the banks are market oriented. This would mean a lot of proactive steps on the part of bank managements staff at which would levels, include devising empowering various

appropriate tools for performance measurement, bringing about a transformation form cant do to can do mind set, change from restrictive practices to total flexible work place, say, by having universal tellers, bringing in managerial control in work place, provision of intensive training on products and processes, etiquette, emphasizing, good coaching and and ensuring behavioral manners best

models, formulating objective appraisals, bringing in transparency, putting in place good and acceptable reward and punishment system, facilitating the 44

placement of young / youthful staff in front line, defining a new role for front line staff by projecting them as sellers of products rather than clerks at work and changing the image of the bank from a transaction provider to a solution provider.

Rural Orientation As of now, action that is taking place on the retail front is by and large confined to metros and big cities. There is still a cast market available in rural India, which remains to be tapped. Multi National Corporations, as manufacturers and distributors, have already taken the lead in showing the way by coming out with exquisite products, packaging and promotion, keeping available the rural customer an in mind. Washing stand powders and shampoos in Re. 1 sachets made through efficient network testimony to the determination of the MNCs to penetrate the rural market. In this scenario, banks cannot lag behind. In particular, PSBs, which have a strong rural customers in a big way. This and only this will propel a retail growth that is envisaged as a key strategy for portfolio expansion by most of the banks.

45

CONCLUSION OF THE CHAPTER

Retail lending has turned out to be a key profit driver for banks. In fact, retailing make ample business sense in the banking sector. While private sector banks have been able to create a niche in this regard, the public sector banks have not lagged behind.

Technological

innovations

relating

to

increasing use of credit / debit cards, ATMs, direct debits and phone banking has contributed to the growth of retail banking in India.

There is a need of constant innovation in retail banking. In bracing for tomorrow, a paradigm shift in bank financing through innovative products and mechanisms involving constant upgradation and revalidation of the banks internal systems and processes is called for. Banks now need to use retail as a growth trigger, this requires product development and differentiation, innovation and 46

business process reengineering, micro planning, marketing, technological prudent pricing, home / customization, electronic / upgradation,

mobile banking, cost reduction and cross selling.

CHAPTER

RESEARCH METHODOLOGY

47

INDEX

Chapter No. 1 2 3 4 5 6 7

Particulars Analysis of retail banking Objective of the study Data collection and period of study Hypothesis of study Tools and techniques used for analysis Limitation of study Conclusion

Pg. No.

48

ANALYSIS OF RETAIL BANKING

With the onset of financial sector reforms, banks had to face stiff competition and they experienced the threat of disintermediation. Walk - in business was a thing of the past and banks were on their toes to capture quality business. With the slowdown in the economy, corporate credit has deteriorated in quality. Good corporates demand finer interest rates under sub PLR, which means thinning margins. Banks therefore had to scout in for 49

retail business. Retail banking has many advantages like stable deposits, low cost of funds, larger customer base etc. on the resources side. On the asset side, the advantages are better yields and higher profitability, larger volumes of credit absorption, well diversified risk and lower NPAs, economic recovery through increased production and sales, and innovation product development.

With rising income, the life style of the average Indian Middle Class is family a had improved amount of considerably. There greater

consumerism in the country and raising debt for the consumer needs is on the increase. Consumer credit is no longer considered as unproductive, as it triggers demand for consumer products, which in turn helps manufacturers in a period of economic slowdown. With foreign bans coming into the retail sector and offering newer products, Indian Banks also had to evolve its products and services to cater to the demands of the aggressive middle class. Retail Banking became the buzzword in banking and banks have developed innovative retail banking products tailored to the customers needs.

Retail advances portfolio for selected banks

50

2002 ICICI Bank HDFC Bank IDBI Bank Bank of Baroda Canara Bank Union Bank SBI 6,125.00 1,430.00 408.00 989.80 3,334.00 3,975.80 17,705.00

2003 19,132.00 3,163.00 1,608.00 1,455.00 5,685.00 5,213.70 24,300.0 0

Retail credit, especially housing and automobile loans, which account for over 85 % of the retail market, have been showing strong growth in the last 3 4 years. As growth in corporate advances has slowed, banks have been increasingly focusing on building up their retail assets portfolio of banks grew at over 25 %. At present, retail assets constitute 10 12 % of the total advances of scheduled commercial banks.

51

OBJECTIVES OF THE STUDY

The following are the objectives for the study of retail banking: It identifies whether the retail portfolio has achieved the targeted budget or not. It helps in knowing the growth in the specific sector such as housing loan, educational loan, etc. before and after implementing the new schemes.

52

 It also provides the position in the Retail sector of India Banking Industry. It also provides the ratio of growth in public sector banks as well as the private sector. It helps in improving the service capability.

DATA COLLECTION AND PERIOD OF STUDY

There are mainly two types of data : 1] Primary data and 2] Secondary data Primary data is that which is published or calculated for the first time. Secondary data is such data which is available by further calculation of

53

primary data i.e. data obtained with the help of primary data is considered as secondary data. I have selected secondary data for research in retail banking. This data is of last 3 years and I have obtained from P & SB department from the head office of S.B.S. situated at Bhavnagar. Also, I have collected other information for my report from different magazines like : 1] IBA Bulletin, 2] Banking Annual 3] Bank Quest. Moreover, I have surfed the sites like, 1] www.sbsbank.com 2] www.rbi.org.in 3] www.sbi.co.in 4] www.google.com

HYPOTHESIS OF THE STUDY

The assumption regarding retail banking that I have assumed for my research is increasing trend. The retail banking has increased tremendously in the banking industry. Moreover, the different schemes put forward by banks in retail 54

loans have helped to widen the market. The decrease in the rates of loans has also added its contribution in increase of retail sector, i.e. the reasonable rates available in the retail banking has given a push in its increase. The housing finance has played an important role in the retail banking.

Considering banking.

these

all

factors,

the

assumption should be increasing trend in retail

TOOLS OR TECHNIQUES USED FOR ANALYSIS OF FINANCIAL DATA

55

There are many tools and techniques used for analysis of financial data. They are ratio analysis, trend analysis, statistical analysis, etc. I have selected trend analysis as a tool to analyze the trend in the retail banking sector of State Bank of Saurashtra.

LIMITATION OF THE

STUDY

56

The limitation of the study is stated as below : We cant know the position of the bank as a whole. The study is made on the secondary data not the primary data. We cant know the branch wise contribution in the retail portfolio.

CONCLUSION OF THE CHAPTER

57

The research on retail banking helps in knowing the position of the bank in the banking industry due to its retail credit schemes. The study involves the various aspects and needs the reliable data sources. Moreover the data collected is to be analyzed using proper tools and techniques.

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CHAPTER 4 ANALYSIS OF DATA AND INTERPRETATION

59

INDEX

Chapter No. 1 2 3 4 data

Particulars Analysis and interpretation of

Pg. No.

Summary and findings Suggestions Bibliography

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ANALYSIS AND INTERPRETATION OF DATA

1.

Housing Loan Scheme For construction, purchase of new / old house / flat / repair and renovation & furnishing of house / flat or purchase of land.

All individuals above 21 to 65 years are eligible.

Loan amount to the extent of 48 to 60 times net monthly income or 4 to 5 times net annual income depending upon the age.

No maximum amount fixed. However for purchase of land alone, the loan amount not to exceed Rs. 10 lacs.

Spouse income can be included for arriving at the quantum of loan.

Margin 15 % for construction, 20 % for renovation and 30 % for purchase of land.

Repayment can be upto 20 years for person below 45 years and upto 15 years for person above 45 years.

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Processing charges 0.5 % of the loan amount.

HOUSING LOAN SCHEME Floating Rate Tenor w.e.f. 16/02/2004 Upto 5 years Above 5 years to 15 years Above 15 years to 20 years 7.50 % 7.75 % Fixed Rate w.e.f. 16/02/2004 7.75 % 8.00 %

8.25 %

8.50 %

HOUSING LOAN DATA OF S.B.S. Particulars 2002 - 03 2003 04 2004 05 Housing 353.0 227.96 771.54 Loan 3

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800 700 600 500 400 300 200 100 0 227.96 353.03

771.54

Housing Loan

2002 - 03 2003 04 2004 05

Interpretation : In the year 2003 2004 there has been a little increase in the housing loan. But in the year 2004 2005 there has been an increase of more than double housing loans.

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2.

Car Loan Scheme

To purchase new / old car (not more than 4 years old).

All permanent employees, professionals and self employed are eligible.

Loan amount not exceeding 24 times net monthly of 2 times net annual income with a maximum of Rs. 12 lacs for new cars and Rs. 5lacs for old cars.

Margin 15 % for loans upto Rs. 4 lacs, 20 % for loans above Rs. 4 lacs and 30 % for old cars. Repayable in 84 / 60 months for new / old car.

Comprehensive obtained.

insurance

of

the

vehicle

to

be

No processing charges.

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CAR LOAN SCHEME Floating Rate New vehicles w.e.f. 01/04/2005 For premium segment cars ( 8 lakhs & above) For metro & urban centre : a. upto 3 years b. above 3 years and upto 5 years c. above 5 years and upto 7 years For rural & semi urban centre : 8.50 % 65 8.50 % 9.00 % 8.25 % 8.75 % 8.00 % 8.50 % 7.50 % 8.00 % Fixed Rate w.e.f. 01/04/2005

a. upto 3 years b. above 3 years and upto 5 years c. above 5 years and upto 7 years ( Cars with repayment period of more than 3 years ) 9.00 % 9.50 % 8.75 % 9.00 % 9.25 %

CAR LOAN DATA OF S.B.S. Particulars 2002 - 03 2003 04 2004 05 Car 1802 2019 2084 Loan

2100 2050 2000 1950 1900 1850 1800 1750 1700 1650

2084 2019

1802

Car Loan

2002 - 03

2003 04

2004 05

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Interpretation : There was a notable increase in the car loan during 2003 2004 as compared to that of 2002 2003. But not much increase in the year 2004 2005.

3.

Education Loan To provide financial assistance for higher education in India and abroad for those secured admission in recognized / reputed institutions.

Loans depending upon the course requirements, future prospects. Need based finance considered subject to repayment capacity with a ceiling of Rs. 10 lacs for studies in India and Rs. 20 lacs for studies abroad.

Expenses considered include fees payable to college / school / hostel etc. essential for completion of the course. 67

No margin, no security for loans upto 4 lacs. For loans above Rs. 4 lacs to Rs. 7.50 lacs security only in terms of suitable third party guarantee, for loans above Rs. 7.50 lacs suitable collateral security equal to 100 % of loan amount and a margin of 15 % for studies abroad and 5 % for studies in India.

No minimum marks criteria.

Repayment within 5 7 years after getting the employment or 1 year after completion of course.

Interest charged on simple rate basis during the course period (moratorium). 1 % interest remission, if the interest is serviced during the moratorium period.

No processing charges.

EDUCATION LOAN SCHEME Floating Rate Tenor w.e.f. 16/02/2004 Fixed Rate w.e.f. 16/02/2004 Note : upto 10.50 % moratorium period simple interest 68

For loans upto Rs. 4 lakhs

For loans above Rs. 4 lakhs

11.50 %

EDUCATION LOAN DATA OF S.B.S. Particulars 2002 - 03 2003 04 2004 05 Educatio n Loan 2213 3365 3429

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3500 3000 2500 2000 1500 1000 500 0 2213

3365

3429

Education Loan

2002 - 03 2003 04 2004 05

Interpretation : There was a little increase in the year 2003 2004 than year 2003 2004 but a very minor increase in the education loan during 2004 2005.

4.

Scooter Loan To purchase new scooter / motor cycle etc.

70

All permanent employees and other income tax assessee with minimum net monthly income of Rs. 5,000/- is eligible.

Loan amount 6 times net monthly income.

Margin 10 % for loans upto Rs. 50,000/- and 20 % for loans above Rs. 50,000/-.

Repayable in 36 months.

Processing charges 1 % of the loan amount.

Security : Hypothecation of vehicle with check off facility or third party guarantee or tangible collateral security. Comprehensive insurance to be obtained.

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SCOOTER LOAN SCHEME Floating Rate Tenor w.e.f. 16/02/2004 Vehicle 11.00 % Fixed Rate w.e.f. 16/02/2004 11.25 %

SCOOTER LOAN DATA OF S.B.S. Particulars 2002 - 03 2003 04 2004 05 Scooter 523 575 553 Loan

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580 570 560 550 540 530 520 510 500 490

575 553

523

Scooter Loan

2002 - 03

2003 04

2004 05

Interpretation : There was a increase from 523 crores scooter loan in 2002 2003 to 575 crores in 2003 2004. But it decreased to 553 crores during 2004 2005.

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5.

Personal Loan General purpose loans including for purchase of consumer durable like T.V., fridge, washing machine, etc.

Employees of government, PSUs, profit making public limited companies and reputed institutions with minimum 2 years service and Rs. 4,000/- net monthly income, self employed engineers, doctors, CAs with minimum 2 years standing and Rs. 48,000/- net annual income are eligible.

VRS optees upto the age of 60 with a minimum net monthly income of Rs. 4,000/- are also eligible.

Loan amount 12 times net monthly income (including spouse income) with a maximum of Rs. 5 lacs in metro and Rs. 2.50 lacs at other centres for salaried and self employed. Rs. 1.50 lacs for VRS optees at all centres.

Security NIL, loan is subject to credit rating model.

Repayment maximum 48 months ( 36 months for VRS optees).

Processing charges 1 % of the loan amount.

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PERSONAL LOAN SCHEME Floating Rate Tenor w.e.f. 16/02/2004 Personal loan & festival loan for public 12.75 % Fixed Rate w.e.f. 16/02/2004

PERSONAL LOAN DATA OF S.B.S. Particulars 2002 - 03 2003 04 2004 05 Personal 6466 9767 9890 Loan

75

10000 8000 6000 4000 2000 0 6466

9767

9890

Personal Loan

2002 - 03 2003 04 2004 05

Interpretation : There was a gradual increase during 2003 2004 but a little increase in the year 2004 2005.

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6.

Pensioner Loan

Pensioners upto the age of 70, drawing pension from SBS are eligible for loans to meet personal expenses upto 12 times pension or maximum of Rs. 75,000/-.

Repayable in 24 months.

No processing charges.

For family pensioners loan equivalent to 9 months of pension with a ceiling of Rs. 50,000/-.

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PENSIONER LOAN SCHEME Floating Rate Tenor w.e.f. 16/02/2004 Loan to pensioners Fixed Rate w.e.f. 16/02/2004

12.25 %

PENSIONER LOAN DATA OF S.B.S. Particulars 2002 - 03 2003 04 2004 05 Pensione 431 848 864 r

78

Loan

900 800 700 600 500 400 300 200 100 0

848

864

431 Pensioner Loan

2002 - 03

2003 04

2004 05

Interpretation : Almost an increase is seen in the year 2003 2004 than

79

2002 2003. But a bit increase is observed during 2004 2005.

SUMMARY AND FINDINGS

Summary The retail credit has been the emerging bubble for the banking industry. The retail credit has found its way through the new schemes and new banks being introduced. The concept of retail banking is not new to the Indian Banks but only in the recent times it has attracted the special attention of banks. As opposed to wholesale banking, it focuses

individuals and their personal needs. The retail banking strategy of banks is a response to the changing banking environment. 80

Findings

Banks now find themselves in a market where the customer has more options than ever before and the bank has therefore been compelled to constantly review his package of products and services to suit the ever escalating expectation of customers. Before the reforms most of the products offered by banks were plain vanilla banks had the products and the customers had to take them or leave them. Banks in India traditionally offered mass banking products. With the reforms, massive expansion of products and services took palce in Indian Banking scene, driven by rapid advances in technology that had a dramatic impact on the delivery systems and ability to service a grater number Market of products has especially from retail mass products. banking

focus

shifted

products to class banking with value added and customized products. About S.B.S.:

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State Bank of India along with its seven associated branches have not lagged behind in the reforms. They adopted the new technology, new concepts and came with a new mask. There was a tremendous increase in retail sector during the year 2003 2004.

BIBLIOGRAPHY
Magazines 1] IBA Bulletin

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2] Banking Annual 3] Bank Quest 4] Policy guideline book Sites 1] www.sbsbank.com 2] www.rbi.org.in 3] www.sbi.co.in 4] www.google.com 5] www.breeze.com

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