INTRODUCTION TO BANKING

Banking regulation Act, 1949, defines banking as accepting

for the purpose of lending or investment, of deposits of

money from the public, repayable on demands or otherwise

and with drawable on demand by cheques, draft or order

otherwise.

Functions of Commercial Banks :

 To change cash for bank deposits and bank deposits for

cash.

 To transfer bank deposits between individuals and or

companies.

 To exchange deposits for bills of exchange, govt. bonds,

the secured and unsecured promises of trade and industrial

units.

 To underwrite capital issues. They are also allowed to

invest 5% of their incremental deposit liabilities in shares

and debentures in the primary and secondary markets.

 The lending or advancing of money either upon securities

or without securities.
 The borrowing, raising or taking of money.

 The collecting and transmitting of money and securities.

 The buying and selling of foreign exchange including

foreign bank notes.

Banking scence in India

The banking sector in India is passing through a period of

structural change under the combined impact of financial

sector reforms, internal competition, changes in regulations,

new technology, global competitive pressure and fast

evolving strategic objectives of banks and their existing and

potential competitors. Until the last decade, banks were

regarded largely as institutions rather akin to public utilities.

The market for banking services were oligopolies and

Centralized while the market place was regulated and banks

were expected to receive assured spreads over their cost of

funds. This phenomenon, which was caricatured as 3-6-3

banking in the united states, meaning that banks accepted

deposits at 3%, lent at 6%, and went home at 3 p.m. to play

golf, was the result of the sheltered markets and

administrated prices for banking products. Existence of entry

barriers for new banks meant that competition was restricted

to existing players, who often operated as a cartel, even in

areas where the freedom to price their products existed.

The market place began to change for banks in India as a

result of reforms of the financial sectors initiated in the

current decade. On account of policy measures introduce to

infuse greater competitive vitality in the system, the banking

has entered in to a competitive phase. Competition has

emerged not only from within the banking system but also

from non-banking institutions. Lowering of entry barriers,

deregulation of interest rates and growing sophistication of

customers have made banking far less oligopolistic today.

Introduction of capital adequacy and other prudential norms,

freedom granted to enter into new turf’s and greater overlap

of functions between banks and non-banks have forced banks

to get out of their cozy little world and think of the future of

the banking.
Emerging environment in India
 Full convertibility of rupee leading to free mobility of capital, which will

mean virtual collapse of the national borders for trade and capital flows.

 Greater coordination between monetary, fiscal and exchanged rate

policies for achieving the goals of faster and sustainable economic growth,

macro-economic stability and export promotion.

 Close integration of various financial markets such as money market,

capital market and forex market.

 Removal of lowering of existing barriers of competitiveness, which are

present today in the form of quantitative instructions on certain imports

protective custom duties, reservation of certain utilities for the public

sector.

 Growing privatization and commercialization infrastructure sector.

Today, Banks customers are better informed, more sophisticated and discerning.

They also have a wide choice to choose from various banks and non-bank

intermediaries. Their expectations are soaring. This is particularly true for banks

corporate clientele but also applies to customers from personal segment.

This is changing profile of customer’s call for a shift from product-based

approach to customers-based approach. A bank aiming at maximizing customer

value must, of necessity, plan for customized products. A combination of

marketing skills and state-of-the-art technology should enable to bank in

maximizing its profits through customer satisfaction.

In the next millenium banks will have to be more and more cautions about

customer service, profitability, increased productivity, to keep face with changing

banking scenario. As banks in India prepare themselves for the millenium these

are the shifts in the paradigm they are likely to experience. The 21st century may

see the dawn of “DARWINIAN BANKING”. Only the banks could fulfill the

demands of markets and changing items would survive and prosper.

A word about SBI card

SBI Segment :

Small business credit card (SBI credit card)

Preamble :

Small business units, retail traders, artisans, village

industries, small-scale industrial units and tiny units,

professionals and self employed persons etc., contribute

significantly to the growth of our economy. The entrepreneur

himself manages many of the units. Very often, these

entrepreneurs complain of procedural delay in sanctions and

renewal of limits. They also find it difficult to cope with the

demands for audited balance sheet and other statements

sought by the bank from time to time for availing credit

facilities. With a view to providing hassle free financial

supports to the above categories of entrepreneurs who have

shown commitment to run the unit successfully and who are

dealing with the banks for last two years satisfactorily, new

and friendly credit product namely small business credit

card scheme is designed. Under the scheme, cumbersome

procedural aspects relating to reviews and renewals,

submission of balance sheet, stock statements and other

statements are done with credit delivery made simple and

easy.

Purpose :

To meet the credit requirements of small business units,

industrial unit, retail trader, artisan, Small Scale Industry (SSI)

and tiny units.

Eligibility :
A. Customers of the following segments with a

satisfactory track record for the last two years enjoying

credit facilities.

 Small industrial units (SSI and tiny units including

artisans)

 Small retail traders (Under SBF)

 Professional and self employed persons

 Small business enterprise

B. Units who do not enjoy credit limit with us/other banks

at present with excellent performance and credential

may be considered.

Quantum of loan :

Loan up to Rs. 5 Lakh can be sanctioned to eligible persons.

Assessment :

The small business credit card limit can be fixed as follows :

 For small business, retail trader etc. 20% of the

annual turnover declared for tax purpose or last twelve

months turnover in the operative accounts, whichever is

higher.
In respect of parties with good track record, where sales tax returns are not available, the credit
limits may be decided taking into consideration the actual turnover in the accounts during the last
two years.

 For professionals and self employed persons,

50% of their gross annual income as per IT return shall

be considered as the limit for issuing the SBI credit card.

 For small scale industrial units, tiny sector units

the assessment norms in vogue as per the Nayak

Committee recommendations would continue.

Validity :

 Credit card limit will be valid for a period of three

years, subject to satisfactory conduct of the accounts.

 Annual review will be done based on

conduct/operations of the A/cs. A major portion of the

sales turnover should have been routed through the

accounts as revealed by the credit summations.

Repayment :

 The working capital advance may be continued subject

to that review every year provided the credit

summations in the account is not less than 50% of the

projected sales turnover. If the credit summations is less

 than 50% of projected sales turnover. The outstanding as

on the due date of review should be made repayable in

suitable monthly installments.

 The term loan is repayable in suitable installments with

in a maximum period of five years.

 In case of composite loans, only the term loan is

repayable in installments up to a maximum period of five

years.

Interest rate :

As per extent instructions issued from time to time relating

the market segment.

Refinance :

No refinance is to be claim from SIDBI

Security :

Primary : Hypothecation of the stock in trade receivables,

machinery, office equipment.

Collateral :

Under SSI-No collateral security as per existing guidelines of

RBI.
User SBF :

Up to Rs. 25000/- No collateral security.

Over Rs. 25000/- charge over movable/immovable property

or third party granted.

However, in case of the excellent track record, sanctioning

authority may waive collateral requirement.

Margins :

Up to Rs. 25000/- NIL

Rs. 25001/- to Rs. 5,00,000/- 20%

Documentation :

Documents as per extant instructions.

Methodology :

The credit card is a hassle free convenient banking product

aimed at simplifying the credit delivery mechanism.

Cumbersome procedural aspects relating to reviews and

renewals, submission of stock statement, balance sheet and

other statements are done away with. The credit limit will be

worked as detail above.

Small business credit card

Card No.
Name
Account No.
Tel. No.
Limit Rs.
Date of issue
Valid upto
………….. (Branch Code)
Signature of the Brach Manager

Card holder’s Photograph with signature

 The borrower would be issued a photo card indicating sanctioned
limit and validity of the limit (sample card)

Insurance :

 Fixed assets/stock pledged/hypothecated to the bank be fully insured at

least to the extent of the bank interests.

 Bank may waive insurance of assets for equipment against the fire and

other risk up to Rs.25000/-

Cover under credit guarantee scheme :

All eligible laon accounts sanctioned for small scale industries (other than

services) would qualify for cover under CGTFSI scheme (presently the scheme

has been introduce in five circles on pilot basis viz. New Delhi, Chandigarh,

Lucknow, Patna & Hydrabad).

Operation :

 Small business credit card accounts should be

maintained in a separate ledger.

 Cheque book should be issued and marked as small

business credit card account.

 Pass book should be issued for mall business credit

card holders.

 Stock statement waived.

 Submission of audited balance sheet waived.

 Borrower would be issued a small business credit card

with photograph thereon. Cost of photograph to be

borne by banks.

 IRAC norms would be applicable.

 Brief opinion report should be recorded. Marked

inquiries should be made and recorded in the opinion

report and singed by the field officer/cash officer or

officers not below that rank.

 Units within a radius of 5 kilometers may be covered

intensively for the issue of credit card. This condition

may be waived for such of those units already in the

book of the branch as on 31-2-2002.

Inspections :
Half-yearly inspection/monitoring to ensure the end user

funds.

Sanction :

Required loan may be sanctioned with in a week after receipt

of detailed information.

Control return after sanction may be sent to next higher

authority for approval .

Scoring Model :

Loan would be sanctioned up to Rs. 5,00,000/- based on the

simplified scoring model as given in annexure- II. Those who

are scoring less than 60% would not qualify for the loan.

Rationale :

New schemes for hassle free credit facilities to small

borrower.

Automatic Teller Machine (ATM)

An ATM (Automatic Teller Machine) card is useful to a card holder as it

helps him to withdraw cash from banks even when they are closed. This

can be done by inserting the card in the ATM installed at various banks

locations.
 State Bank Cash Plus CARD

 Signature Panel.

 Magnetic Stripe

Features of State Bank Cash Plus Card

 State Bank Cash Plus Card having the 19 digit.

 Name of the card holders mention there on it.

 In case of State Bank Cash Plus Card, there is no expiry

period but for the old card, the date after which your

card needs to be renewed is the last day of the month

indicated on your card.

 Signature panel on which you must sign as soon as

you’re your card. It identifies the card as your State Bank

Card Plus Card.

 The magnetic stripe, which contains encoded

information.

 ATM card possess pincode which having the 4 digit.

Use of State Bank Cash Plus Card

 We uses our State Bank Cash Plus Card for cash

withdrawal from ATMs.

We uses it for making the payments for purchase made at the merchant

establishments.

Significance of the Study

This study entitled “comparative study of various credit

schemes of SBI V/s other banks” will be helpful for bankers to

maintain customers service policy, for customers while

deciding their financing needs and also helpful for other

researchers for further research in the future.

SBI card provides customers with an option, in addition to the

existing banking credit facilities available. With an SBI card

customers can enjoy hassle-free credit facilities.

This study would help us to know about the problems that are

faced by the consumers during transactions. It would also

reveal the problems that are being faced by the bank

employees while dealing with customers and would also

highlight the future prospect of SBI card.

Review of existing literature

It is very essential to know whether the study has already

been conducted before. If so, how and to what extent ? And

because of this scholar has to go through all the existing

literature related to the study. SBI Card is a new concept

introduced in Bhiwani by State Bank of India only a few

months back, very limited studies have been conducted on

the subject. Due to the time restrictions scholar could seek

advice from only the limited literature, which is available with

the bank.

As the concept is completely under the control of various

banks and RBI. So the information is directly taken from these

sources.
 Conceptualization
As the concept includes two terms i.e. cash credit or working capital loans and

terms loans. Therefore both the terms are taken into consideration in the

proposed study. Due to the privatization of banking sector many big private

players entered in this sector giving a tough competition to the existing players.

So, to face this stiff competition all the public sector banks have to review their

functioning. These aspects will be given importance in this study.

The concept of SBI card is quite new to the people of Bhiwani. Question crops in

mind what is a SBI card, What is its shape and size, what is its function. A SBI

card is nothing but a identity card containing card holder’s photographs with

signature, card no. Name, A/c No. limit, validity period, branch code with

signature of Branch Manager.