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1 Introduction: Banks 1
2 History of Banking 2
3 Origin and History of Banking 3
4 Reserve Bank of India 4
5 Functions of RBI 5
6 Structure of Banking Industry 7
7 Structure of Banking 8
8 Types of Banks 9
9 Retail Banking 23
10 Corporate Banking 30
11 Case Study : State Bank of India 36
12 Bibliography 49

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What is bank?
An organization, usually a corporation, chartered by a state or federal government,
which does most or all of the following: receives demand deposits and time deposits,
honors instruments drawn on them, and pays interest on them; discounts notes, makes
loans, and invests in securities; collects checks, drafts, and notes; certifies depositor's
checks; and issues drafts and cashier's checks.
Origin of word bank
The word bank is derived from the Italian word banco signifying a bench,which
was erected in the market-place, where it was customary to exchange money.the
Lombard jews were the first to practice this exchange business, the first bench having
been established in Italy A.D.808.the Lombard were a German people of suevic
origin, though not humorous, played. a distinguished part in the early history of
such as gold, in the form of easy to carry compressed plates. Temples and Palaces The
first banks were probably the religious temples of ancient world and were probably
established in third millennium B.C. Banks probably predated the invention of money.
Deposits initially consisted of grain & later other goods including cattle, agricultural
implements and eventually precious metals were the safest palaces to store gold as
they were constantly attended and well built.
As sacred places, temples presented an extra determent to would be thieves. There
are extent records of loans from the 18th century B.C. in Babylon that were made
temple priests/monks to merchants.
The oldest bank still in existence is monte dei paschi di siena, head quarters in siena,
Italy which has been operating continuously since 1472.

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Ch.2 History of Banking in the World
Banking in the modern sense of the word can be traced back to medieval and early
Renaissance Italy, to the rich cities in the north like Florence , Venice and Geona. The
Bardy & Peruzzi families dominated banking in the 14th century Florence,
establishing branches in many other parts of Europe. Perhaps the most famous Italian
bank was the Medici bank, set up in Geovanni Medici in 1397. The earliest state
known deposit bank, Banko di san Giorgio (Bank of St. george)was founded in 1407
at Geona, Italy.
Banks can be traced back to ancient times even before money when temples were
used to store commodities. During the Third century A.D., banks in Persia and other
territories in the Persian. Sassanid Empire issued letter of credit known as akks.
Muslim traders are known to have used the cheque or akk system since the time of
Harun al-Rashid (9th century) of the Abbasid Cali Phate.
In the 9th century t, a muslim businessman could cash an early form of the cheques
in China dracon on sources in Baghdad. A tradition that was significantly
strengthened in the 13th & 14th century, during the Mangol empire. Fragments found
in Cairo Geniza indicate that the 12th century cheques remarkably similar to our own
were in use, only smaller to save costs on the paper. They contain a sum to be paid
and then the order may so and so pay the bearer such and such an amount. The date
and the name of the issue are also apparent.

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Ch.3 Origin and History of Banking In India
Banking in India originated in the 18th century, the 1st bank were the general bank of
India which started in 1786, and The Bank of Hinduastan, both of which are now
defuct. The oldest bank in existence in India is The State Bank of India, which was
originated in The Bank of Calcutta in June 1806, which almost immediately became
the bank of Bengal. This was one of the Three presidency banks, the other two being
The Bank of Bombay and The Bank of Madras, all three of which were established
under charters from the British East India Co. For many years the presidency banks
aeted as quasi-central banks, as did their successors. The three banks merged in 1921
to form Imperial Bank of India which upon Indias independance become the State
Bank of India.
The Reserve Bank which is the Central Bank was created in 1935 by passing Reserve
Bank of India Act 1934. In the wake of the Swadeshi Movement, a number of banks
with Indian management were established in the country namely, Punjab National
Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda
Ltd, the Central Bank of India Ltd. On July 19, 1969, 14 major banks of the country
were nationalized and in 15th April 1980 six more commercial private sector banks
were also taken over by the government.
The banking in India is highly fragmented with 30 banking units contributing to
almost 50% of deposits and 60% of advances. Indian nationalized banks (banks
owned by the government) continue to be the major lenders in the economy due to
their sheer size and penetrative networks which assures them high deposit
mobilization. The Indian banking can be broadly categorized into nationalized,
private banks and specialized banking institutions.

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Ch.4 Central Bank RBI
The origin of Reserve Bank can be traced to 1926 when the royal commission of
Indian currency and finance- also known as the Hilton young commission-
recommended the credition of central bank to separate the control of currency and
credit from the government and to augment the banking facility throughout the
country. RBI, act of 1934 established the Reserve bank as the banker to to the central
government and set in motion a sense of action aulminating in the start of operations
in 1935. Since then the Reserve Banks role and functions have undergone numerous
changes as the nature of the Indian economy has changed. Todays RBI bears some
resemblance to the original institution, although our mission has expanded, broadened
and increasingly globalised economy.

The Preamble of the Reserve Bank of India describes the basic functions of the
Reserve Bank as:
" regulate the issue of Bank Notes and keeping of reserves with a view to securing
monetary stability in India and generally to operate the currency and credit system of
the country to its advantage."

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As the central bank of the country, the Reserve Bank of India performs both
the traditional functions of a central bank and a variety of developmental and
promotional functions,. The Reserve Bank of India Act, 1934, confers upon it powers
to act as note-issuing authority. Bankers bank and bankers to the Government.
Reserve Bank as Note-issuing Authority
As required by Section 38 of the Reserve Bank of India Act, Government puts into
circulation one-rupee coins and notes through Reserve Bank only. The Reserve Bank
has the sole right to issue bank notes in India. The notes issued by Reserve Bank of
India are unlimited legal tender. The issue of notes and the general banking business
of the Bank are undertaken by two separate department of the Bank. The issue
department is responsible for the issue of new notes. The business of banking is
undertaken by the Banking Department which holds stock of currency with itself.
The assets of the issue Department against which bank notes are issued consist of the
following, namely:
(a)Gold coins and bullion,
(b)Foreign securities,
(c)Rupee coins,
(d)Government of India rupee securities, and
(e)The bills of exchanges and promissory notes payable in India, which are eligible
for purchase by the bank.

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Currency Chest
The Reserve Bank has made adequate administrative arrangements for undertaking
the functions of distribution of currency notes and coins. The issue department has
opened its offices in 10 leading cities for this purpose. Currency chest are receptacles
(i.e., boxes and containers) in which stock of new or reissuable notes are stored along
with rupee coins
Reserve Bank as Banker to Government
The Reserve Bank of India acts as banker to the Central and State Governments.
According to Section 20, it is obligatory for the bank to transact government business
including the management of the public debt of the Union.
In terms of Section 21-A, the Reserve Bank performs similar functions on behalf of
the State governments. RBI holds cash balances of government free of interest. The
Reserve Bank is also authorized to make to the Central and State Government ways
and means advances which are repayable within 3 months from the date of making the
advances. The bank also acts as adviser to the government on important economic and
financial matters.
Reserve Bank as Bankers Bank
Reserve Bank is the banker to the banks-commercial, co-operative and Regional Rural
Banks. It means Reserve Bank has power to control and regulate the business of other
bank such as Commercial, co-operative and regional rural banks, private and public
sector bank. Any new bank before starting its business has to get license from the RBI
and has to fulfill certain rules and regulation.

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Banking system plays an important role in a countrys economy. It promotes growth
and development of the country. Indian money market comprises organized and the
unorganized institutions. The organized and unorganized institutions in the Indian
banking system serve a source of short term credit to agriculture, industry, trade and
In the Indian banking structure the Reserve Bank of India is the central bank. It
regulates, direct and controls the banking and financial institutions in the country.
There are three high banking institutions, namely, RBI, NABARD and EXIM Bank.
There are separate financial institutions catering to the needs of different sectors of
the economy. Development Banks, Investment Banks, Co-operative Banks, Land
Development Banks, Commercial Banks in public and private sectors, NABARD,
RRBs, EXIM Bank, etc. The indigenous bankers and moneylenders dominate
unorganized sector

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Ch.8 Structure of Bank

Public Sector

Private Sector

Foreign Banks
Regional Rural
State and
central coop
Credit Societies
All India
State Finance
Non - Bank

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It is an institution which accepts deposits, makes business loans, and offers related
services. Commercial banks also allow for a variety of deposit accounts, such as
checking, savings, and time deposit. These institutions are run to make a profit and
owned by a group of individuals, yet some may be members of the Federal Reserve
System. While commercial banks offer services to individuals, they are primarily
concerned with receiving deposits and lending to businesses.
A commercial bank is a type of financial intermediary and a type of bank. It raises
funds by collecting deposits from businesses and consumers via checkable deposits,
savings deposits, and time (or term) deposits. It makes loans to businesses and
consumers. It also buys corporate bonds and government bonds. Its primary liabilities
are deposits and primary assets are loans and bonds. This is what people normally call
a "bank". The term "commercial" was used to distinguish it from an investment bank.
Since the two types of banks no longer have to be separate companies, some have
used the term "commercial bank" to refer to banks which focus mainly on companies.

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Public Sector Banks

Public sector bank profits show 100 per cent growths
PUBLIC sector banks have seen their profits zoom in fiscal 2002. Net profits of 186
banks that have announced their results have gone up by 100 per cent to Rs 4,412
crore. Particularly noteworthy is the sharp growth in profits for all the `weak banks' -
Indian Bank, United Bank of India and UCO Bank. Indian Bank turned in a profit of
Rs 33 crore compared to a loss of Rs 274 crore in the previous year while United
Bank of India which saw its profits grow more than six-fold to Rs 129 crore.
Some of the prominent Public Sector Banks in India are:
State Bank of India
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharastra
Canara Bank
Central Bank of India

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Private Sector Banks

Private banking in India was practiced since the beginning of banking system in India.
The first private sector bank in India Indusland Bank is a new private sector bank.
Among the new private sector banks in India to be set up, was Indusind Bank set up
by the Hinduja Group. Initially, it was one of the fastest growing Private Sector Banks
in India.
The first Private Bank in India to receive an in principle approval from the Reserve
Bank of India was Housing Development Finance Corporation Limited, to set up a
bank in the private sector as a part of the RBI's liberalization of the Indian Banking
Industry. It was incorporated in August 1994 as HDFC Bank Limited with registered
office in Mumbai and commenced operations as Scheduled Commercial Bank in
January 1995.

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Some of the prominent Private Banks in India are:
Jammu & Kashmir Bank
Karnataka Bank
South Indian Bank
Catholic Syrian Bank
Centurion Bank of Punjab
Dhanalakshmi Bank
Development Credit Bank
Federal Bank
ING Vysya Bank
Jammu & Kashmir Bank
Karnataka Bank
South Indian Bank

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Foreign Banks in India

Foreign Banks in India always brought an explanation about the prompt services to
customers. After the set up foreign banks in India, the banking sector in India also
become competitive and lucrative.New rules announced by the Reserve Bank of India
for the foreign banks in India the last budget has put up great hopes among foreign
banks which allows them to grow unfettered. Now foreign banks in India are
permitted to set up local subsidiaries. The policy conveys that foreign banks in India
may not acquire Indian ones (except for weak banks identified by the RBI, on its
terms) and their Indian subsidiaries will not be able to pen branches freely.
Some of the foreign banks in India till date are:
BNP Paribas Bank
Citi Bank
Deutsche Bank
Standard Chartered Bank

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Co-operative Banks In India

The Co operative banks in India started functioning almost 100 years ago. The
Cooperative bank is an important constituent of the Indian Financial System, judging
by the role assigned to co operatives, the expectations the co operative is supposed to
fulfill, their number, and the number of offices the cooperative bank operate. Though
the co operative movement originated in the West, the importance such banks have
assumed in India is rarely paralleled anywhere else in the world. The cooperative
banks in India play an important role even today in rural financing. The businesses of
cooperative bank in the urban areas have also increased phenomenally in recent years
due to the sharp increase in the number of primary co-operative banks. Co operative
Banks in India are registered under the Co-operative Societies Act. The cooperative
bank is also regulated by the RBI. They are governed by the Banking Regulations Act
1949 and Banking Laws (Co-operative Societies) Act, 1965.
The co-operative banking system in India is at a crucial juncture today. The
development over the next few years will define whether they will fulfill the purpose
of their existence or not. The banks need to take steps in the right direction namely,
increased transparency, better corporate governance and a higher degree of
professionalism in the day to day functioning.

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They will do well to take a leaf out of the books of the private sector banks, who in
spite of the strict regulation from the RBI have not only grown at a fast pace but have
also earned international recognition. Hence there is a strong need for cooperation
among the governments, the regulators and the bank management if the cooperative
movement in India is to be revived and pushed ahead further.
Cooperative banks in India finance urban areas under:
Small scale units
Home finance
Consumer finance
Personal finance

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Industrial Development Bank of India

Industrial Development Bank of India (IDBI) is the tength largest bank in the world in
terms of development. The National Stock Exchange (NSE), The National Securities
Depository Services Ltd. (NSDL), Stock Holding Corporation of India (SHCIL) are
some of the institutions which has been built by IDBI. IDBI is a strategic investor in a
plethora of institutions which have revolutionized the Indian Financial Markets. IDBI
Bank, promoted by IDBI Group started in November 1995 with a branch at Indore
with an equity capital base of Rs. 1000 million.

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Housing Development Finance Corporation

Housing Development Finance Corporation (HDFC), India`s first and largest
mortgage finance company has now grown into a comprehensive financial
conglomerate. HDFC has a strong distribution network of 116 offices across the
country serving customers in over 2,400 cities/towns.
Founded in 1977, HDFC is primarily in the business of providing services from home
loans and deposit products, to property-related services and a training facility. It also
offers specialized financial services (including consultancy) to its customer base
(including corporate and government) through partnerships with other financial
institutions. HDFC also serves as consultant to international agencies such as World
Bank, United States Agency for International Development (USAID), Asian
Development Bank, United Nations Center for Human Settlements (UNCHS),
Commonwealth Development Corporation (CDC) and United Nations Development
Program (UNDP). It has undertaken assignments for the United Nations Capital
Development Fund in Ethiopia, for the UNCHS in Nairobi, for USAID in Russia and
Bulgaria, and projects of the World Bank in Indonesia and Ghana.

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National Bank for Agriculture and Rural Development

National Bank for Agriculture and Rural Development (NABARD) is a development
bank in the sector of Regional Rural Banks in India. It provides and regulates credit
and gives service for the promotion and development of rural sectors mainly
agriculture, small scale industries, cottage and village industries, handicrafts. It also
finances rural crafts and other allied rural economic activities to promote integrated
rural development. It helps in securing rural prosperity and its connected matters.

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Introduction to Banking
Customers are broadly classified into two:
Personal Customers: Individuals having accounts singly or jointly (including
Non Personal Customers: Non individual customers like Proprietary concerns,
Partnerships, Companies, Trusts, Associations, Clubs, Societies, Institutions,
Govt. Departments, NGOs, SHG etc.

Accounts are broadly classified into two:
Customer accounts (external accounts) : Deposit accounts (Savings Bank,
Current Account etc), Loan Accounts (Demand Loan, Term Loan etc) and
Contingent accounts (Bank Guarantee etc)

Office accounts. (Internal accounts): Cash Balance accounts, fixed assets
account, Drafts account, Sundry Deposit account, Interest account etc.

Basic Deposits Account:
Savings Bank : Running account for saving with restriction in number of
Current Account: Running account without restriction on number of
Term Deposit : Deposit of an amount for a fixed period where interest is paid
Special Term Deposit: Deposit of an amount for a fixed period where interest
is compounded (Capitalized) and paid on maturity.
Recurring Deposit: Regular (Monthly) deposit of a fixed amount for a fixed

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Types of Loan Account:
Demand Loan
Term Loan
Cash Credit

A Current account when permitted to overdraw (allowing withdrawal more
than deposited or without deposits ) becomes an overdraft account
Can be operated by cheque, ATM, INB
A type of advance of temporary nature/ to valued clients sometimes against
Term Deposit, NSC etc.
A running account where further withdrawals (debits) can be permitted as and
when deposits (credits) come.

Demand Loan:
Basically an advance payable on demand.
Payment in installments also generally allowed.
Given against Bank deposits, NSCs, Insurance policies
Gold loans and Pension Loans are given as Demand loans
Only one Debit allowed for disbursement. Cannot be operated by cheque &

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Term Loan:
Loan payable as per pre-determined installments over a fixed term.
Extended for acquisition of assets like house, car, land, building, Plant &
Machinery etc.
Installments are to be paid out of the income of the person in case of Personal
Segment loans
Installments are to be paid out of the income of the activity financed in case of
non-personal segment loans.

Cash Credit:
An advance facility for financing the working capital needs of commercial
A running account on the lines of Overdraft.
An account where all the receipts and payments of the activity on account of
day-to-day operations are expected to be reflected.
Extended against the stocks and receivables of the unit. (Stocks: raw materials,
semi finished goods, finished goods etc, Receivable means money to be
received towards sales).

Security and Margin:
The physical or financial asset for / against which the advance is made is
referred as security. A car is a security for which a car loan is given.
Assets acquired out of bank finance is called primary security. Any additional
security offered by the borrower is called collateral. However, in CBS
parlance all securities are referred as collaterals.
The amount contributed by the borrower to the project cost / the percentage
value of the assets owned by him is referred as margin.

An asset offered to the creditor (who lends the money) becomes a security

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only if a legally enforceable interest is created in his favour. This process is
called the creation of Charge.
Lien, Pledge, Hypothecation and Mortgage are different types of charges
applicable to different types of securities.

There are three types of transactions:
Cash: Where receipt payment of physical cash is involved
Transfer: Where funds are transferred from one account to another account
Clearing: Transfer transactions where funds are exchanged with other banks
through clearing

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Retail banking refers to banking in which banking institutions execute
transactions directly with consumers, rather than corporations or other banks. Services
offered include: savings and checking accounts, mortgages, personal loans, debit
cards, credit cards, and so forth or it is a typical mass-market banking where
individual customers use local branches of larger commercial banks.
Retail Banking has wider connotation and is not the same as that of retail lending.
Retail Banking refers to the efforts of the bankers to reach up to the customers on both
fronts of the balance sheet i.e., Liabilities side as well as Assets side. Under the
liabilities side, we have deposits. Under the assets side, we have credit schemes of the
various banks. The job of the banker has become very difficult in this segment too.
Bankers today are offering various sops to attract the potential customers.

Defining retail banking activity :

Retail banking activity is commonly understood to comprise:
banking services for consumers (individuals/private households) and
banking services for small- and medium-sized enterprises (SMEs).

The delineation of each of these two segments, however, is not standardized by, for
instance a nomenclature for central banks statistics or other official databases. The
inclusion or exclusion of customer categories from these segments depends, to a large
extent, on cultural habits, market developments or the individual business strategies of
banks. In some countries or specialized banks, for example, services for wealthy
individuals and households fall under the so-called segment of private banking.
Moreover, whether a certain size category of SMEs belongs to the segment of retail
banking or the segment of corporate banking varies from bank to bank.

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In order to reduce this complexity, the Authority has used the following definitions
for the purposes of the sector inquiry:

Personal banking, i.e. banking products and services for consumers
including current accounts (and related services such as ATM, direct
debit and credit transfers), sight deposits and other savings accounts,
credit lines/overdrafts (no limits on individual asset size) and consumer
business banking, i.e. banking services for enterprises up to a
maximum turnover of EUR 10 million annually and including services
such as current accounts, term loans and credit lines. This report,
following industry and literary usage, will also use the term SME
banking or SME customers for this sub-segment.
In carrying out the inquiry and, for instance, addressing comprehensive
questionnaires to banks in the EFTA States, the Authority has not
applied a rigid definition within these general parameters. This
approach has allowed for individually flexible definitions, for example
by accepting the banks own definition of SME business even where
they may be narrower in scope.

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Retail banking products and services:
Within the two segments mentioned above, the Authority has focused on the
following main products:
Within the segment of banking services for consumers, three sets of retail banking
products form the core of the sector inquiry:
Current accounts the bank account which individuals use for most of
their household transactions such as receiving wages or paying bills.
Deposit accounts an account which individuals use for saving. The
accounts provide instant (sight deposits) or time-limited (time
deposits) access to funds.
Consumer term loans a loan account operating for a specified time
period, which is used to fund personal or household consumption.

In addition to these three sets of products, the sector inquiry has also taken some
account of other retail banking products for individuals such as payment cards,
mortgages and investment funds.

The analysis of banking services for small enterprises (SMEs) focuses on:
Current accounts the bank account which SMEs use for the bulk of
the payments they make and receive.
Term loans - a loan account operating for a specified time period,
which an SME uses to finance its business expenditure.
Credit lines an open-ended facility which incorporates the credit
element of a loan enabling SMEs to draw down finance and the
flexibility of a current account for making and receiving payments.
In addition to these three sets of products, the sector inquiry has also taken some
account of other products for SMEs such as leasing (which involves a banks paying
for part or all of the cost of a capital asset for an SME and the bank then leases this
asset to the SME).

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General characteristics of retail banking markets:
The supply side of retail banking markets shows common features that are typical for
banking markets in general. The main difference between retail banking and other
banking fields is the fragmented demand side of the first, comprising individual
consumers and small enterprises. In the following, the characteristics of the supply
and demand sides of the market will thus be discussed separately.
The demand-side of retail banking markets is, as would be expected, fragmented.
Bank customers are often faced with information asymmetry, i.e. lack of full
information about the products and services on offer and hence cannot make
meaningful comparisons. Moreover, there are numerous barriers to customer mobility
(e.g. tying and bundling of products, switching costs such as closure charges, etc.) that
result in a certain reluctance to switch suppliers, hence making price competition less
Regulation of retail banking :

Across the EEA, competition authorities are increasingly turning their attention to
banking markets. Competition authorities in both Iceland and Norway have dealt with
several cases involving retail banking markets over the years.14 It is by now firmly
established that EEA competition law applies to the banking sector.
One tool of prudential regulation is entry regulation by means of bank license
requirements. This is explainable by the rules on own funds adequacy. However, the
promotion of stability and the avoidance of a systemic crisis cannot justify all
occurring entry restrictions. Such restrictions may also be used by governments to
prevent foreign entries or takeovers and thus impede effective competition. Another
regulatory issue that also affects market entry concerns specific rules on the
ownership and activity of certain types of banks such as savings banks and co-
operative banks.
The Authority scrutinizes advantages provided to certain financial institutions by
means of State aid control in order to ensure a level playing field for all market
participants and to enhance undistorted competition. In particular, the Authority
ensures that public and private institutions operate under similar conditions by
removing unlimited state guarantees or fiscal advantages favoring particular banks
and by applying the so-called Market Economy Investor Principle (MEIP).

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Drivers Of Retail Growth:

Growing disposable incomes
Youngest population in the world
Increasing literacy levels
Higher adaptability to technology
Growing consumerism
Fiscal incentives for home loans
Changing mindsets-willingness to borrow/lend
Desire to improve lifestyles
Banks vying for higher market share

Future Of Retail Banking:

The accelerated retail growth has been on a historically low base

Penetration continues to be significantly low compared to global bench marks

Share of retail credit expected to grow from 22% to 36%

Retail credit expected to grow to Rs.575,000 crs by 2010 at an annual growth
rate of 25%

Dramatic changes expected in the credit portfolio of Banks in the next 5 years

Housing will continue to be the biggest growth segment, followed by Auto
Banks need to expand and diversify by focussing on non urban segment as
well as varied income and demographic groups
Rural areas offer tremendous potential too which needs to be exploited

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Sustaining Customer loyalty

NPA reduction & Fraud prevention

Avoiding Debt Trap for customers

Bringing Rural masses into mainstream banking

Current scenario in Retail banking
The Indian players are bullish on the Retail business.
India compares pretty poorly with the other economies of the world
that are now becoming comparable in terms of spending patterns with
the opening up of our economy.
Retail loans in Taiwan is around 41% of GDP, the figure in India
stands at less than 5%.
Opportunities in retail sector
Retail banking has immense opportunities in a growing economy like
The rise of Indian middle class
Increasing purchasing power
The above factors promises substantial growth to retail banking sector
which is in the nascent stage
Scope for retail banking
All round increase in economic activity
Increase in the purchasing power. The rural areas have the large purchasing
power at their disposal and this is an opportunity to market Retail Banking.
India has 200 million households and 400 million middleclass population

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more than 90% of the savings come from the house hold sector. Falling
interest rates have resulted in a shift. Now People Want To Save Less And
Spend More.
Nuclear family concept is gaining much importance which may lead to large
savings, large number of banking services to be provided are day- by-day

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Corporate Banking represents the wide range of banking and financial services
provided to domestic and international operations of large local corporates and local
operations of multinationals corporations. Services include access to commercial
banking products, including working capital facilities such as domestic and
international trade operations and funding, channel financing, and overdrafts, as well
as domestic and international payments, INR term loans (including external
commercial borrowings in foreign currency), letters of guarantee etc.
Banks normally provide credit in the form of overdrafts, loans, bills discounted, or
import and export finance. The process of extending any of the said forms to
corporate borrowers passes through two distinctive phases; the credit decision making
process (account relationship management) and the banks' internal operations.
Corporate Banking services are an integral part of the Corporate Investment Banking
and Markets (CIBM) structure, which focuses on offering a full range of services to
multinationals, large domestic corporates and institutional clients. The Investment
Banking and Markets division brings together the advisory and financing, equity
securities, asset management, treasury and capital markets, and private equity
activities of the Group to complete the CIBM structure and provide a complete range
of financial products to our clients. Increasingly, ECA financing is being considered
by customers and we work closely with our project export finance teams, both
onshore and offshore, to provide structured solutions. Clients are serviced by sector
based client service teams that combine relationship managers, product specialists and
industry specialists to develop customized financial solutions. These form the
relationship team along with the Investment Banking & Advisory division. Each team
supports the client's worldwide operations, ensuring a full understanding of the
company's business and financial needs. Based on our client's requirement, HSBC
also assigns Global Relationship Management teams to provide structured solutions.

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In todays global Banking arena, Corporate Bankers are facing a string of
unprecedented and sweeping challenges in the areas like Treasury Management,
Trade Finance, Risk Management, Compliance Management, Electronic Trading and
Derivatives Markets. Compounding this are the mounting complexities from ongoing
regulatory changes, decreasing margins and fierce competition Global Relationship
Management teams are tasked with understanding in depth the sectors in which our
clients operate with the aim of adding value through detailed industry knowledge and
structured financial solutions.
The bank mostly lend against appropriate tangible securities such as deposits, shares,
debentures, property, guarantees supported by tangible securities, life policies, goods,
gold or other precious metal. The bank may also lend against intangible securities
such as unsupported guarantees or assignment of sums due to the borrower by third
It is essential that the bank follows the proper procedures in order to obtain good title
when taking a security. There is a difference between possession and ownership.
The various forms of documents used for obtaining different types of security are
also important. Inadequate documentation may well cause losses to the is particularly
true for the Trade Financing documentation and the Securities Agreement relating to
goods. The bank must also follow proper procedures to realise securities otherwise
losses may be incurred. The corporate operations divisions are normally responsible
for maintaining securities documentation and updating the customers' mandates with
fresh account documentation, account statements, financial statements and
relationship reviews. Handling and treatment of delinquent accounts is also an
important area of operations. Grading of bad and doubtful debts for an effective
recovery process is important. An effective delinquency policy is essential to avoid
unnecessary financial losses.

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Corporate banking framework

Key Offerings

Corporate Customer Information
Finacle provides a 360 degree unified view of the corporate customer through its
Customer Information File. This enables the bank to create and maintain customer
records, which detail financial, group, product preference and trade finance
information. The customer record can be linked with related corporate customers and
individuals, such as authorized signatories, guarantors, shareholders and
representatives. This enables the maintenance of aggregated and consolidated
customer, account and relationship information, across the enterprise.

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Commercial Lending
Finacle has rich features and functionality for commercial lending. This includes:
Flexible and custom-defined product creation
Highly parameterized custom-scheduled disbursement
Differential interest rate setup for draw-down, automatic interest
accrual and booking
Flexible repayment scheduling such as holiday on loans, normal
periodic repayments and bullet payments
Adjustment or offset sequence on collections - option to first adjust
interest demands or principal demands
Customer level appropriation of a single amount to multiple
commercial loan accounts of the customer in accordance with a pre-
defined account sequence
Detailing of account information related to linked accounts and
associated project details
Handling of pre-payments and calculation of interest on pre-payment
Booking of forward contracts against the loan account
Debt consolidation and crystallization of overdue installments
Automatic asset classification, partial write-off and provisioning
definition in accordance with the banks norms

Liquidity Management
Liquidity management in Finacle includes a comprehensive range of fund
solutions for corporate customers, designed to enhance return on funds, minimize
overdraft charges and optimize funds positions. Finacle offers liquidity management
solutions in two proven models, popularly deployed the world over:
Target Balancing
Notional Pooling

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Finacle supports securitization by providing an avenue for banks to dispose assets to
investor groups through creation of a pool of accounts. This is premised on pre-
parameters such as customer, product and collateral. Pool processing, assessment,
reassessment and cancellation are supported. Receivables management through an
Escrow account for Special Purpose Vehicles (SPV) is supported. Purchase
consideration can be computed on the basis of principal outstanding with or without
the discounting factor, with a wide range of service fees computation, at the pool and
account levels.
Finacle universal banking solution supports a global, centralized structure for limits
management. Online real time monitoring and updating of multi-currency exposure
transaction completion, is supported. A hierarchical structure with unlimited levels of
limits and sub-limits for a customer or a corporate group can be defined. Other
features include:
Revolving and non-revolving limits, for funded and non-funded lines of credit
Exception handling on busting of limits during account opening, maintenance and
transaction events
Limit level interest rates for overdraft and term loan accounts
Shared limits for multiple customers and user-maintained ad-hoc limits
Transfer facility limits and re-transfer limits; support for future-dated limits

Collateral Management
Finacle universal banking solution supports the definition and maintenance of a wide
range of movable and immovable securities in multiple currencies, linked to various
credit facilities. The collateral can be linked to a limit or an account and drawing
power can be derived from the value of the collateral on a pre-defined basis such as
valuation, margin, loan-to-value ratio and revaluation, in terms of market value. This
helps banks manage online exceptions at the account, limit and transaction levels on
collateral value erosion, withdrawal of lodged collateral and expiry of collateral.

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Trade Finance
Finacles trade finance offerings are full-fledged and present multiple products and
services that cater to every trade requirement of the banks corporate clientele. Banks
can initiate inward and outward remittances with STP capabilities for major payment
systems used in cross-border funds transfer. Import and export financing is enabled
with products such as pre-shipment & packing credits, post-shipment credits,
documentary credits and bill discounting. Finacle universal banking solution can
handle forward contracts and linkage of the contract to various events such as
disbursement, rollover and offset. The solution supports maintenance of Nostro and
Vostro accounts, while facilitating reconciliation and online position updates on
account of cross-currency transactions.
Finacle offers multiple avenues for facilitation of syndication arrangements for project
financing and large corporate loans involving multiple banks. It supports syndicated
products over a three layer structure referred as the facility, tranche and drawdown
support for complex transactions involving payments, interest, notices, fees, charges,
drawdown and documentation.

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Introduction to State Bank of India:
Evolution of SBI:
Born as Bank of Calcutta (2 June 1806).
Renamed Bank of Bengal (2 January 1809).
Bank of Bombay (15 April 1840).
Bank of Madras (1 July 1843).
All three were called Presidency Banks.
Amalgamated as Imperial Bank of India on 27 January 1921.

Birth of SBI:
An Act was passed in Parliament in May 1955 and the State Bank of
India was constituted on 1 July 1955.
State Bank of India (Subsidiary Banks) Act was passed in 1959,
enabling the State Bank of India to take over eight former State-associated
banks as its subsidiaries (later named Associates).
State Bank of India was thus born with a new sense of social purpose
with 480 offices, 3 Local Head Offices and a Central Office.

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History of SBI:
The evolution of State Bank of India can be traced back to the first decade of the 19th
century. It began with the establishment of the Bank of Calcutta in Calcutta, on 2 June
1806. The bank was redesigned as the Bank of Bengal, three years later, on 2nd
January 1809. It was the first ever joint-stock bank of the British India, established
under the sponsorship of the Government of Bengal. Subsequently, the Bank of
Bombay (established on 15 April 1840) and the Bank of Madras (established on 1
July 1843) followed the Bank of Bengal. These three banks dominated the modern
banking scenario in India, until when they were amalgamated to form the Imperial
Bank of India, on 27 January 1921. An important turning point in the history of State
Bank of India is the launch of the first Five Year Plan of independent India, in 1951.
The Plan aimed at serving the Indian economy in general and the rural sector of the
country, in particular. Until the Plan, the commercial banks of the country, including
the Imperial Bank of India, confined their services to the urban sector. Moreover, they
were not equipped to respond to the growing needs of the economic revival taking
shape in the rural areas of the country. Therefore, in order to serve the economy as a
whole and rural sector in particular, the All India Rural Credit Survey Committee
recommended the formation of a state-partnered and state-sponsored bank. The All
India Rural Credit Survey Committee proposed the take over of the Imperial Bank of
India, and integrating with it, the former state-owned or state-associate banks.
Subsequently, an Act was passed in the Parliament of India in May 1955. As a result,
the State Bank of India (SBI) was established on 1 July 1955. This resulted in making
the State Bank of India more powerful, because as much as a quarter of the resources
of the Indian banking system were controlled directly by the State. Later on, the State
Bank of India (Subsidiary Banks) Act was passed in 1959. The Act enabled the State
Bank of India to make the eight former State-associated banks as its subsidiaries.

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State Bank Today
(Rupees in Crores)
Balance Sheet size 7,21,526
Aggregate Deposits 5,37,404
Total Advances 4,16,768
Capital Funds 69,762.64
Net Profit 6,729.12
Paid-up Capital 631.47

(In percentage terms)
Yield on Advances (Domestic) 9.90
Cost of Deposits (Domestic) 5.59
Net Interest Margin 3.07
Gross NPA Ratio 3.04
Net NPA Ratio 1.78
Capital Adequacy Ratio 13.47
Return on Average Assets 1.01

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No. of Branches 10,186
No. of Foreign Offices 84
No. of Branches on CBS All Branches
No. of employees 1,79,205
No. of ATMs > 8,000

The Bank handles almost the entire gamut of financial services. It is a
financial supermarket.
The Bank extends banking services to:
o Corporate Sector
o SMEs
o Rural sector, especially Agriculture and allied activities
o Retail sector, i.e., Personal Segment
The Bank has designed both Deposits as well as Advances products for
specific segments as per their requirements.
The loans range from Rs.100/- to say, Rs. 10,000 crores.

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Key Areas of Operations
The business operations of SBI can be broadly classi.ed into the key income
generating areas such as National Banking, International Banking, Corporate
Banking, & Treasury operations. The functioning of some of the key divisions is
enumerated below

a) Corporate Banking
The corporate banking segment of the bank has total business of around Rs1,193bn.
SBI has created various Strategic Business Units (SBU) in order to streamline its
TheseSBUs are as follows:
a.1) Corporate Accounts
This SBU is important for the bank as its loan portfolio constituted about 27.05% of
the banks commercial and institutional non-food credit and 12.85% of the total
domestic credit portfolio as on 31st March 2006.
Some of the products under corporate accounts SBU are as follows:
SBI-FAST, which is the cash management product offered by this SBU, had a
turnover of Rs.4,705.75bn as of 31st March 2006. This product is now a
comprehensive cash management solution, offering payments in addition to
Vendor .nancing activity is being integrated with core banking through the internet
platform. This is identi.ed as a focus area to capture the credit portfolio of vendors.
The foreign exchange business grew by around 55% y-o-y and reached
Rs.1,747.70bn as of 31st March 2006. This SBU now handles nearly 12% of the
countrys visible trade and about 43% of banks forex business.
a.2) Leasing

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This SBU is not writing any leases since the past few years as unfavorable business
climate and availability of alternative funding options at cheaper cost. As at the end
March 2006, the disbursements and capitalization were zero and pro.t amounted to
a.3) Project Finance
This SBU focuses on funding core projects like power, telecom, roads, ports, airports,
special economic zones and others. During FY06, total sanctions for 18 projects
involving a total amount of Rs.42.11bn were in place as against 13 projects involving
Rs.25.08bn in the previous year. It also handles non-infrastructure projects with
certain ceilings on minimum project costs. During FY06 sanctions for 29 projects
involving a total amount of Rs.55.80bn were in place as against 27 projects involving
Rs.51.63bn in the previous year. As a whole, this SBU achieved total sanctions of
Rs.238.86bn (fund based and non fund based) including syndication amount of
Rs.140.95bn during the period ended March 2006. During FY06, this SBU entered
into .nancing of aviation sector actively by sanctioning loans for modernization of
airports and acquisition of aircrafts.
a.4) Mid Corporate Group
The Mid Corporate Group (MCG) created in June 2004 has 7 MCG Regional Of.ces
controlling 28 large branches with high concentration of Mid Corporate (MC)
business. The entire Off-Site MC business of all branches at 31 identi.ed centres has
been brought under the fold of MCG. The average processing time of credit proposals
is about 15 days and quicker decision making on credit proposals of the Mid
Corporate units has resulted in greater customer satisfaction.
As of March 2006, 21 MCG branches have been migrated to core banking platform.
New technology products like RTGS, CINB, Multi-City cheque facility and Core
Power have been, introduced in all these branches. These technology products
coupled with quick Turn Around Time (TAT) have enabled Mid-Corporate Group to
increase its business substantially and generate higher income, both interest and fee

a.5) Stressed Assets Management
During FY06, the banking industry witnessed a major policy initiative by Reserve
Bank of India with the opening up of sale / purchase of non performing assets to

Page | 43

banks, FIs and non-banking .nance companies (NBFCs). During FY06, the bank sold
NPAs to the tune of Rs.8.9bn against security receipts and Rs.11.41bn on cash basis
to Asset Reconstruction Company (ARCIL). The progress in enforcing the security
interest has somewhat slowed down due to the requirement of withdrawing suits
pending before the tribunal prior to action being initiated against the defaulting
borrowers under the SARFAESI Act.
b) National Banking
The national banking group has 14 administrative circles encompassing a vast
network of 9,177 branches, 4 sub-of.ces, 12 exchange bureaus, 104 satellite of.ces and
679 extension counters, to reach out to customers, even in the remotest corners of the
country. Out of the total branches, 809 are specialized branches. This group consists
of four business group which are enumerated below:
b.1) Personal Banking SBU
This SBU is mainly responsible for retail business. During FY06, personal banking
advances increased from Rs.464.51bn to Rs.610.67bn, showing a growth of
Rs.146.16bn at the rate of 31.47 % against a growth rate of 40.12% in the previous
year. On the home loan front, several new products were introduced, tailored to .t the
needs of speci.c customer segments, such as SBIMaxgain (minimize interest burden,
earn on savings, at no extra cost), SBI NRI-Home Loans, SBI Freedom Home Loans
(Loans given without mortgage of property, but against alternate securities, instead),
SBI Tribal Plus Home Loans. The auto loans portfolio has shown a growth of
Rs.17.74bn in absolute terms and 65% which is considerably higher than last years
growth, mainly due to implementation of well planned strategies.

b.2) Small & Medium Enterprises
The SME Business Unit implemented comprehensive strategies, revamped business
processes and with its focus on market dynamics and customer preferences, achieved
commendable business growth. The initiative was implemented by focusing on
speci.c industry segments, and concentrating on various players in the value chain.
Debt restructuring mechanism for units in SME sector has been devised to ensure
restructuring of debt of all eligible Small and Medium Enterprises (SMEs) on
favourable terms.
Focused on the SME sector, projects under Uptech are taken up in location speci.c
and activity speci.c industry clusters. So far the bank has taken 28 projects for

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modernization under the Project Uptech covering industries like foundry, pumps,
glass, auto components, and knitwear, etc. The bank has also covered agro based
industries like rice mills, sago andstarch and horticulture activities like Apple
Orchards and grape farming under the scheme. The deposits of the SME SBU
increased to Rs.1,042.70bn as at the end of March 2006 from Rs.890.60bn of previous
year recording a growth of 17.08% during the year. SME advances increased to
Rs.456.53bn from Rs.328.30bn of previous year, recording a growth of 39.06 %.
The criteria laid down by the Government of India for growth in SME advances is

b.3) Agricultural Banking
This SBU is accountable for agricultural credit both traditional and new thrust areas
like contract farming, farmers .nanced through Agri Export Zones (AEZs) and value
chain .nancing. Increase in disbursements during FY06 was 83% against the Govt. of
India target of 30%. Agricultural advances grew from a level of Rs.205.26bn in FY05
to Rs.305.16bn as at the end of March 06. As on November 2006, agriculture loans
contribute 11% of the total loan book.

b.4) Government Banking
With the establishment of the government business unit and the consequent focus on
marketing, business turnover of this segment has grown substantially over the years.
Banks business turnover from the government business segment during 2004-05 was
Rs.8,843.81bn. The turnover increased by 10.52 % to Rs.9,773.90bn during FY06.

c) International Banking
SBI has a network of 73 overseas of.ces in 30 countries in all time zones and
correspondent relationship with 520 international banks in 123 countries. The bank is
keen to implement core banking solution to its international branches also. During
FY06, 25 foreign of.ces were successfully switched over to Finacle software. SBI has
installed ATMs at Male, Muscat and Colombo Of.ces. In recent years, SBI acquired
76% shareholding in Giro Commercial Bank Limited in Kenya and PT Indomonex
Bank Ltd. in Indonesia. The bank incorporated a company SBI Botswana Ltd. at

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d) Treasury
The bank manages an integrated treasury covering both domestic and foreign
exchange markets. In recent years, the treasury operation of the bank has become
more active amidst rising interest rate scenario, robust credit growth and liquidity
constraints. The bank diversi.ed its operations more actively into alternative assets
classes with a view to diversify the portfolio and build alternative revenue streams in
order to offset the losses in .xed income portfolio. Reorganisation of the treasury
processes at domestic and global levels is also being undertaken to leverage on the
operational synergy between business units and network. The reorganization seeks to
enhance the ef.ciencies in use of manpower resources and increase maneuverability of
banks operations in the markets both domestic as well as international.

e) Associates & Subsidiaries
The State Bank Group with a network of 14,061 branches including 4,755 branches of
its seven Associate Banks dominates the banking industry in India. In addition to
banking, the Group, through its various subsidiaries, provides a whole range of
.nancial services which includes Life Insurance, Merchant Banking, Mutual Funds,
Credit Card, Factoring, Security trading and primary dealership in the Money Market.

e.1) Associates Banks:
SBI has seven associate banks namely
State Bank of Indore
State Bank of Travancore
State Bank of Bikaner and Jaipur
State Bank of Mysore
State Bank of Patiala
State Bank of Hyderabad
State Bank of Saurashtra
All associate banks have migrated to Core Banking (CBS) platform. Single window
delivery system has been introduced in all associate banks. SBIs seven associate
banks are the .rst amongst the public sector banks in India to get fully networked
through CBS, providing anytime-anywhere banking to its customers to facilitate a
bouquet of innovative customer offerings.

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e.2) Non-Banking Subsidiaries/Joint Ventures
i) SBI Life:
SBI Life is the third largest private insure with the market share of 10.21% among the
private players and number one in terms of number of lives insured amongst private
players (no. of lives insured and policies is 25mn). In H1FY07 gross premium was

ii) SBI Capital Markets Limited (SBICAP)
SBI Caps forged ahead in issue management, project advisory and structured .nance,
sales and distribution. To capitalize on the emerging opportunities, SBI Caps has
promoted four wholly owned subsidiaries viz. SBICAP Securities Ltd. for
undertaking stock broking activities, SBICAPS Ventures Limited, SBICAP Trustee
Company Limited for undertaking venture capital business and SBI CAP (UK) LTD.,
for carrying on the Financial Services Authority (FSA) regulated activities.
On the international front, the expertise of SBI Caps in the infrastructure and project
advisory has received international acclaim. In addition, the company has been placed
11th globally in the Mandated Project Advisor league tables by Thompsons, and one
of the projects handled by the company has been selected as the Asia Paci.c
Infrastructure deal of the year for FY06.
SBI Caps booked gross income amounting to Rs.1.79bn in FY06 as against Rs.1.75bn
in the previous year, while PAT of the company was at Rs.906.2mn in FY06 as
against Rs.881.2mnin the last year.

SBI group holds 67.01% of the companys paid up capital, while other nationalized
banks hold 22.46%. All India .nancial institutions and private sector banks hold
5.84% and the Asian Development Bank holds 4.69% as on March 31, 2006. For the
year ended 31st March, 2006, the company has earned a PAT of Rs.24.4mn. Total
secondary market turnover of the company was Rs.285.39bn which amounted to a
market share of 12.89% among all primary dealers.

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iv) SBI Cards & Payments Services Pvt. Ltd. (SBICSPL)
SBICSPL is ranked 2nd in industry with cards in force over 3mn as on September 06.
During FY06, the aggregate revenue generated by the SBICSPL was Rs.5.27bn while
pre-tax pro.t was Rs.558.6mn.

v) SBI Funds Management (P) Ltd. (SBIFMPL)
SBI Mutual Fund is the mutual funds arm of the bank. SBIFMPL reported a total
in.ow of Rs.481.67bn in the various schemes during the year. The total assets under
management are Rs.132.49bn. The company reported a net pro.t of Rs.186.4mn as at
the end of March, 2006.

f) Human Resources
The bank had total staff strength of 198,774 on the 31st March, 2006. Of this, 29.51%
are of.cers, 45.19% clerical staff and the remaining 25.30% were sub-staff. SBI had
launched VRS scheme for its employees in FY01 in which it has reduced it staff by
approximately 5,000 and estimates natural retirement of another 5,000 employees in
next 4-5 year.

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We will be prompt, polite and proactive with our customers.
We will speak the language of young India.
We will create products and services that help our customers achieve their
We will go beyond the call of duty to make our customers feel valued.
We will be of service even in the remotest part of our country.
We will offer excellence in services to those abroad as much as we do to those
in India.
We will imbibe state of the art technology to drive excellence.

We will always be honest, transparent and ethical.
We will respect our customers and fellow associates.
We will be knowledge driven.
We will learn and we will share our learning.
We will never take the easy way out.
We will do everything we can to contribute to the community.
We will nurture pride in India.

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B Bi ib bl li io og gr ra ap ph hy y


Union Bank manuals and circulars
Financial Management, Prasanna Chandra
Credit management ( a practical approach)