TITLE of the Project Report

Overview of Banking Sector in India With Reference to ICICI Bank &

IDBI Bank

Dissertation Submitted to the

D.Y. Patil University
In partial fulfillment of the requirements for the award of
the Degree of
MASTERS IN BUSINESS ADMINISTRATION
Submitted by:
PRAJAKTA MARATHE
(Roll No.013022)

Research Guide:
Prof. Dr. Pradip Manjarekar

Dean
D.Y. Patil University School of

Management CBD Belapur, Navi Mumbai

FEBRUARY 2014

DECLARATION

I hereby declare that the dissertation Overview of Banking Sector in India

with Reference to ICICI Bank & IDBI Bank submitted for the MBA
Degree at D.Y. Patil University School of Management is my original work and
the dissertation has not formed the basis for the award of any degree, associate
ship, fellowship or any other similar titles.

Place: Mumbai
Date:
(Prajakta R. Marathe)
Signature of the Student

CERTIFICATE
This is to certify that the dissertation entitled Overview of Banking Sector in
India with Reference to ICICI Bank & IDBI Bank is the bona- fide research
work carried out by Miss. Prajakta R. Marathe student of MBA, at D.Y. Patil
University School of Management during the year 2013 -2015, in partial
fulfillment of the requirements for the award of the Degree of Master in Business
Management and that the dissertation has not formed the basis for the award
previously of any degree, diploma, associate ship, fellowship or any other
similar title.

Signature of the Director

(Dr.R.Gopal)

Signature of the Guide

Director,
Padmashree Dr. D.Y. Patil University
Department of Business Mgt.

Place: Mumbai
Date:
3

ACKNOWLEDGEMENTS

In the first place, I thank the D. Y. Patil University, School of Management,

Navi Mumbai for giving me an opportunity to work on this project. I would
also like to thank Prof. Dr. Pradip Manjarekar, Dean, D.Y. Patil University,
School of Management, Navi Mumbai for having given me her valuable
guidance for the project. Without her help it would have been impossible for
me to complete the project.
I would also like to thank the various people from the ICICI Bank & IDBI
Bank who have provided me with a lot of information and in fact even sharing
some of the confidential Bank documents and data many of which I have used
in this report and without which this project could not have been completed.
I would be failing in my duty if I do not acknowledge with a deep sense of
Gratitude of sacrificing

Signature of the student.

TABLE OF CONTENTS
CHAPTER
NO.
A

List Of Tables

PAGE
NO.
8

List Of Abbreviations

Executive Summary

12

1.

Introduction

14

2.

History Of Banking In India

16

2.1

Introduction

16

2.2

Pre-Nationalization Era

16

2.3

Nationalization Stage

17

2.4

Post-Liberalization Era

20

3.

What Is Banks?

23

4.

Major Banks In India

24

5.

Reserve Bank Of India

25

5.1

Introduction

25

5.2

Main Functions

34

5.3

Classification of RBI

37

Banking In India

39

Overview Of Banking

39

6.
6.1

TITLE

6.2

Role Of Bank

41

6.3

Main Objectives

43

Kinds Of Banks

47

7.1

Commercial Banks

47

7.2

Co-Operative Banks

48

7.3

Central Banks

52

7.4

Industrial Banks

55

7.5

Agriculture Banks

55

7.6

Foreign Exchange Banks

56

8.

Role Of Banks In A Developing Economy

57

9.

Challenges Faced By Banking Industry In India

58

10.

Products And Service Offered By Banks

62

11.

LPG In Banking And Financial Sectors

73

12.

Recommendations Of Narsimham
Commercial Banking System (1991)

7.

12.
1
13.
13.
1
13.
2
13.

Committee

On 74

Narsimham Committee On Banking Sector Reforms 77

(1998)
ICICI

79

History

79

Balance Sheet Of Last 3 Years

83

Profit & Loss A/C Of Last 3 Years

85
6

3
13.
4
13.
5

Cash Flow Statement Of Last 3 Years

87

Key Financial Ratios Of Last 3 Years

89

IDBI

91

History

91

Balance Sheet Of Last 3 Years

93

Profit & Loss A/C Of Last 3years

95

Cash Flow Statement Of Last 3 Years

97

Key Financial Ratios Of Last 3 Years

98

15.

Comparison between ICICI bank and IDBI bank

102

16.

Objectives Of The Study

103

17.

Literature Review

104

18.

Research Methodology

107

Data analysis of ICICI bank

109

Data analysis of IDBI bank

127

19.

Conclusion

145

20.

Recommendations & Suggestions

146

21.

Bibliography

147

22.

Limitations

148

23.

Annexure

149

14.
14.
1
14.
2
14.
3
14.
4
14.
5

18.
1
18.
2

A. LIST OF TABLES
Table

Title

No

Page
No

13.2 Balance Sheet of last 3 years of ICICI Bank

83

13.3 Profit & Loss of last 3 years of ICICI Bank

85

13.4 Cash flow of last 3 years of ICICI Bank

87

13.5 Key Financial Ratio

89

14.2 Balance Sheet of last 3 years of IDBI Bank

93

14.3 Profit & Loss of last 3 years of IDBI Bank

95

14.4 Cash flow of last 3 years of IDBI Bank

97

14.5 Key Financial Ratio

98

18.1 Data Analysis of ICICI Bank

109

18.2 Data Analysis of IDBI Bank

127

B. LIST OF ABBREVIATIONS
8

RBI

Reserve Bank of India

SBI

State Bank of India

HDFC

Housing Development Finance Corporation Ltd

ICICI

Industrial Credit & Investment Corporation of India

IDBI

Industrial Development of India

HSBC

Hong Kong & Shanghai Bank Corporation

PNB

Punjab National Bank

IIBI

Industrial Investment Bank of India

SIDBI

Small Industries Development Bank of India

UTI

Unit Trust of India

LIC

Life Insurance Corporation of India

SEBI

Securities & Exchange Board of India

SLR

Statutory Liquidity Ratio

NHB

National Housing Bank

DICGC Deposit Insurance & credit Guarantee Corporation of India

BRBNMPL Bharatiya Reserve Bank Note Mudran Private Limited

9

BFS

Board for Financial Supervision

DBS

Department of Banking Supervision

DNBS

Department of Non-banking supervision

FID

Financial Institutions Division

IGIDR

Indira Gandhi Institute for Development Research

IDRBT

Institute for Development & Research in Banking Technology

NABARD National Bank for Agriculture & Rural Development

FERA

Foreign Exchange Regulation Act

IFCI

Industrial Finance Co-operation of India

National Federation Urban Cooperative Banks & credit societies

NAFCUB

Ltd

SCBs

State Co-operative Banks

CCBs

Central Co-operative Banks

UCBs

Urban Co-operative Banks

LDBs

Land Development Banks

CRR

Cash Reserve Ratio

10

QCC

Quick Cheques Collection Service

ECS

Electronic Clearance Service

KRA

Key Result Area

ATM

Automatic Teller Machine

IBA

Indian Bank Association

EFT

Electronic Funds Transfer

SMS

Short Messaging System

WAP

Wireless Application Protocol Technology

DP

Depository Participant

CAC

Capital Account Convertibility

NPA

Non-Paying Assets

C. EXECUTIVE SUMMARY:

11

Till the end of late 18th century, Banks in India, in the modern sense of the term,
werent there. During the time of the American Civil War, the supply of cotton
to Lancashire (The textile hub of UK) stopped from the Americas. At that time
some banks were opened, which functioned as entities to finance industry,
including speculative trades in cotton. Most of the banks opened in India during
that period could not survive and failed because of the high risk which came
with large exposure to speculative ventures. It was a disaster for depositors who
lost money and therefore lost interest in keeping deposits with banks.
In the year 1786, The General Bank of India was the first bank to come into
existence in India. And then, almost a century later, in the year 1870, The Bank
of Hindustan became the 2nd bank in India. Unfortunately, both these banks are
now defunct.
The oldest bank to be still in existence, that too as the largest bank in India, is
the State Bank of India. Albeit, the name was not the same as today rather was
"The Bank of Bengal which started its operations in Calcutta in June, 1806.
Interestingly, if people think that the entry of foreign banks in India is only a
post-reform phenomenon, they are absolutely incorrect. In fact, in as early as
1850s, foreign banks like Credit Lyonnais started their Calcutta (now Kolkata)
operations. At that point of time, Calcutta was the most active trading port,
thanks to the trade of the British Empire, and due to which banking activity took
roots there and prospered.
The first fully Indian owned bank was the Allahabad Bank, which was
established in 1865.
By the 1900s, the market expanded with the establishment of banks such as
Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai
12

- Both of which were founded under private ownership. The Reserve Bank of
India formally took on the responsibility of regulating the Indian banking sector
from 1935.
At least 94 banks in India failed during the years 1913 to 1918. This was really a
turbulent time for the world as a whole and the banking sector in India specially.
This was the period which witnessed the First World War (1914-1918). Since
then through the end of the Second World War (1939-1945), and two years
thereafter until India achieved independence, were very challenging period for
Indian banking. The years of the First World War were turbulent, and it took toll
on many banks which simply collapsed despite the Indian economy gaining
indirect boost due to war-related economic activities.

INTRODUCTION

CHAPTER 1.
13

th

Banking in India originated in the last decades of the 18 century. Banking

sector performs a very vital role in any countrys growth and economy. This
project report gives an outline of banking sector in India by defining various
concepts and aspects in this sector. Indian banking sector has expensive
organizational sector which has several types bank with its own significance.
Banking industry has significant part of providing diverse forms of products and
services to one person to different

small and larger firms and industries in

which RBI is known as bankers bank which also is responsible for providing
various provisions and working procedures for other banks.
Indian banking sector is the pivot of economy. In India the banking sector is
segregated into public and private sector banks and nationalized banks. The
banking system is central to a nations economy. Banks are special as they are
not only accept and deploy large amounts of uncollateralized public funds in a
fiduciary capacity, but also leverage such funds through credit creation. A health
banking system is essential for any economy striving to achieve good growth
and yet remain stable in an increasingly global business environment.
IDBI Bank has been in the forefront in leveraging Information Technology (IT) to
extend better service / products to the customers and other stakeholders, it
recognizes the need for effective IT risk management. Apart from Information
Security aspects, IDBI Bank's IT risk mitigation strategy includes aspects of
compliance & privacy also. IDBI Bank has put in place an Information Security
Policy (ISP) to ensure that information is protected from unauthorized access and
confidentiality & integrity of the information are maintained along with timely
availability of IT resources to legitimate users. A high-level Information Security

14

Steering Committee (ISSC) of IDBI Bank ensures that provisions are in place for
continued protection of IT resources of IDBI Bank. Apart from conducting regular
information security awareness programs for the employees, IDBI Bank also
communicates with the customers.
ICICI Bank is Indias second largest bank. ICICI bank has a network of about
1308 branches in India and presence in 18 countries. The principal objective was
to create a development financial institution for providing medium-term and
long term project financing to Indian businesses.

CHAPTER 2.
15

HISTORY OF BANKING IN INDIA

There are three different phases in the history of banking in India.
Pre-Nationalization Era.
Nationalization Stage.
Post Liberalization Era.
1. PRE-NATIONALIZATION ERA:

In India the business of banking and credit was practices even in very early times.
The remittance of money through Hundies, an indigenous credit instrument, was
very popular. The hundies were issued by bankers known as Shroffs, Sahukars,
Shahus or Mahajans in different parts of the country.
The modern type of banking, however, was developed by the Agency Houses of
Calcutta and Bombay after the establishment of Rule by the East India Company in
18th and 19th centuries.
During the early part of the 19th Century, ht volume of foreign trade was relatively
small. Later on as the trade expanded, the need for banks of the European type was
felt and the government of the East India Company took interest in having its own
bank. The government of Bengal took the initiative and the first presidency bank,
the Bank of Calcutta (Bank of Bengal) was established in 180. In 1840, the Bank
of Bombay and IN 1843, the Bank of Madras was also set up.
These three banks also known as Presidency Bank. The Presidency Banks had
their branches in important trading centers but mostly lacked in uniformity in their
operational policies. In 1899, the Government proposed to amalgamate these three
16

banks in to one so that it could also function as a Central Bank, but the Presidency
Banks did not favor the idea. However, the conditions obtaining during world war
period (1914-1918) emphasized the need for a unified banking institution, as a
result of which the Imperial Bank was set up in1921. The Imperial Bank of India
acted like a Central bank and as a banker for other banks.
The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of
the Country. In 1949, the Banking Regulation act was passed and the RBI was
nationalized and acquired extensive regulatory powers over the commercial banks.
In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of
India, Cooperative banks, Exchange banks and Indian Joint Stock banks.
2. NATIONALIZATION STAGES:

After Independence, in 1951, the All India Rural Credit survey, committee of
Direction with Shri. A. D. Gorwala as Chairman recommended amalgamation of
the Imperial Bank of India and ten others banks into a newly established bank
called the State Bank of India (SBI). The Government of India accepted the
recommendations of the committee and introduced the State Bank of India bill in
the Lok Sabha on 16th April 1955 and it was passed by Parliament and got the
presidents assent on 8th May 1955. The Act came into force on 1st July 1955, and
the Imperial Bank of India was nationalized in 1955 as the State Bank of India.
The main objective of establishing SBI by nationalizing the Imperial Bank of India
was to extend banking facilities on a large scale more particularly in the rural and
semi-urban areas and to diverse other public purposes.
17

In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight stateassociated banks were taken over by the SBI as its subsidiaries.
Name of the Bank
1. State Bank of Hyderabad

Subsidiary with effect from

1st October 1959

2. State Bank of Bikaner

1st January 1960

3. State Bank of Jaipur

1st January 1960

4. State Bank of Saurashtra

1st May 1960

5. State Bank of Patiala

1st April 1960

6. State Bank of Mysore

1st March 1960

7. State Bank of Indore

1st January 1968

8. State Bank of Travancore

1st January 1960

With effect from 1st January 1963, the State Bank of Bikaner and State Bank of
Jaipur with head office located at Jaipur. Thus, seven subsidiary banks State Bank
of India formed the SBI Group.
The SBI Group under statutory obligations was required to open new offices in
rural and semi-urban areas and modern banking was taken to these unbanked
remote areas.
18

On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the
nationalization of 14 major scheduled Commercial Banks each having deposits
worth Rs. 50 crore and above. This was a turning point in the history of
commercial banking in India.
Later the Government Nationalized six more commercial private sector banks with
deposit liability of not less than Rs. 200 crores on 15th April 1980, viz.
Andhra Bank.
Corporation Bank.
New Bank if India.
Oriental Bank of Commerce.
Punjab and Sind Bank.
Vijaya Bank.
In 1969, the Lead Bank Scheme was introduced to extend banking facilities to
every corner of the country. Later in 1975, Regional Rural Banks were set up to
supplement the activities of the commercial banks and to especially meet the credit
needs of the weaker sections of the rural society.
Nationalization of banks paved way for retail banking and as a result there has
been an alt round growth in the branch network, the deposit mobilization, credit
disposals and of course employment.
The first year after nationalization witnessed the total growth in the agricultural
loans and the loans made to SSI by 87% and 48% respectively. The overall growth
in the deposits and the advances indicates the improvement that has taken place in
19

the banking habits of the people in the rural and semi-urban areas where the branch
network has spread. Such credit expansion enabled the banks to achieve the goals
of nationalization, it was however, achieved at the coast of profitability of the
banks.
CONSEQUENCES OF NATIONALIZATION:

The quality of credit assets fell because of liberal credit extension policy.
Political interference has been as additional malady.
Poor appraisal involved during the loan meals conducted for credit disbursals.
The credit facilities extended to the priority sector at concessional rates.
The high level of low yielding SLR investments adversely affected the profitability
of the banks.
The rapid branch expansion has been the squeeze on profitability of banks
emanating primarily due to the increase in the fixed costs.
There was downward trend in the quality of services and efficiency of the banks.
3. POST-LIBERALIZATION ERATHRUST ON QUALITY AND PROFITABILITY:

By the beginning of 1990, the social banking goals set for the banking industry
made most of the public sector resulted in the presumption that there was no need
to look at the fundamental financial strength of this bank. Consequently they
remained undercapitalized. Revamping this structure of the banking industry was
of extreme importance, as the health of the financial sector in particular and the
economy was a whole would be reflected by its performance.

20

The need for restructuring the banking industry was felt greater with the initiation
of the real sector reform process in 1992. the reforms have enhanced the
opportunities and challenges for the real sector making them operate in a
borderless global market place. However, to harness the benefits of globalization,
there should be an efficient financial sector to support the structural reforms taking
place in the real economy. Hence, along with the reforms of the real sector, the
banking sector reformation was also addressed.
The route causes for the lackluster performance of banks, formed the elements of
the banking sector reforms. Some of the factors that led to the dismal performance
of banks were.
Regulated interest rate structure.
Lack of focus on profitability.
Lack of transparency in the banks balance sheet.
Lack of competition.
Excessive regulation on organization structure and managerial resource.
Excessive support from government.
Against this background, the financial sector reforms were initiated to bring about
a paradigm shift in the banking industry, by addressing the factors for its dismal
performance.
In this context, the recommendations made by a high level committee on financial
sector, chaired by M. Narasimham, laid the foundation for the banking sector
reforms. These reforms tried to enhance the viability and efficiency of the banking
sector. The Narasimham Committee suggested that there should be functional
autonomy, flexibility in operations, dilution of banking strangulations, reduction in
21

reserve requirements and adequate financial infrastructure in terms of supervision,

audit and technology. The committee further advocated introduction of prudential
forms, transparency in operations and improvement in productivity, only aimed at
liberalizing the regulatory framework, but also to keep them in time with
international standards. The emphasis shifted to efficient and prudential banking
linked to better customer care and customer services.

CHAPTER 3.
WHAT IS BANK?

22

A bank is a financial intermediary that accepts deposits and channels those

deposits into lending activities, either directly by loaning or indirectly through
capital markets. A bank links customers that have capital deficits and customers
with capital surpluses.
Banking is generally a highly regulated industry, and government restrictions on
financial activities by banks have varied over time and location. The current sets
of global bank capital standards are called Basel II. In some countries such as
Germany, banks have historically owned major stakes in industrial corporations
while in other countries such as the United States banks are prohibited from
owning non-financial companies. In Japan, banks are usually the nexus of a
cross-shareholding entity known as the keiretsu. In Iceland banks had very light
regulation prior to the 2008 collapse.
The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in
Siena, Italy, and has been operating continuously since 1472.

CHAPTER 4.
MAJOR BANKS IN INDIA:

23

LIST OF BANKS IN
INDIA
RBI

ABN AMRO Bank

Andhra Bank

Axis Bank

Bank of Baroda

Bank Of India

Barclays Bank

Canara Bank

Central Bank of India

Citibank

Corporation Bank

Dena Bank

Deutsche Bank

GE Financial

HDFC

HSBC

ICICI

IDBI

India bulls Financial

Indian Bank

Indian Overseas Bank

Kotak Mahindra Bank

LIC Housing Finance

Services
ING Vysya

Corporation
National Housing Bank

Oriental Bank of

PNB

Commerce
Punjab & Sind Bank

Reliance Money

SBI

Standard Chartered

Syndicate Bank

Union Bank of India

United Bank of India

CHAPTER 5.
RESERVE BANK OF INDIA
24

RBI
FORMATION:
The Reserve Bank of India is the central bank of the country. Central banks are a
relatively recent innovation and most central banks, as we know them today, were
established around the early twentieth century.
The Reserve Bank of India was set up on the basis of the recommendations of the
Hilton Young Commission. The Reserve Bank of India Act, 1934 (II of 1934)
provides the statutory basis of the functioning of the Bank, which commenced
operations on April 1, 1935.
The Bank was constituted to:
Regulate the issue of banknotes
Maintain reserves with a view to securing monetary stability and
To operate the credit and currency system of the country to its advantage.

The Bank began its operations by taking over from the Government the functions
so far being performed by the Controller of Currency and from the Imperial Bank
of India, the management of Government accounts and public debt. The existing
currency offices at Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore and
Cawnpore (Kanpur) became branches of the Issue Department. Offices of the
Banking Department were established in Calcutta, Bombay, Madras, Delhi and
Rangoon.
Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank
continued to act as the Central Bank for Burma till Japanese Occupation of Burma
and later up to April, 1947. After the partition of India, the Reserve Bank served as
the central bank of Pakistan up to June 1948 when the State Bank of Pakistan

25

commenced operations. The Bank, which was originally set up as a shareholder's

bank, was nationalized in 1949.
An interesting feature of the Reserve Bank of India was that at its very inception,
the Bank was seen as playing a special role in the context of development,
especially Agriculture. When India commenced its plan endeavors, the
development role of the Bank came into focus, especially in the sixties when the
Reserve Bank, in many ways, pioneered the concept and practice of using finance
to catalyze development. The Bank was also instrumental in institutional
development and helped set up institutions like the Deposit Insurance and Credit
Guarantee Corporation of India, the Unit Trust of India, the Industrial
Development Bank of India, the National Bank of Agriculture and Rural
Development, the Discount and Finance House of India etc. to build the financial
infrastructure of the country.
With liberalization, the Bank's focus has shifted back to core central banking
functions like Monetary Policy, Bank Supervision and Regulation, and Overseeing
the Payments System and onto developing the financial markets.

PREAMBLE

26

The Preamble of the Reserve Bank of India describes the basic functions of the
Reserve Bank as:
"...to 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."
Central Board
The Reserve Bank's affairs are governed by a central board of directors. The
board is appointed by the Government of India in keeping with the Reserve
Bank of India Act.
Appointed/nominated for a period of four years

Constitution:
Official Directors

Full-time : Governor and not more than four Deputy Governors

Non-Official Directors

Nominated by Government: ten Directors from various fields and

one government Official

Others: four Directors - one each from four local boards

Local Boards

One each for the four regions of the country in Mumbai, Calcutta,
Chennai and New Delhi

Membership:

consist of five members each

27

appointed by the Central Government

for a term of four years

Functions:
To advise the Central Board on local matters and to represent territorial and
economic interests of local cooperative and indigenous banks; to perform such
other functions as delegated by Central Board from time to time.

Financial Supervision
The Reserve Bank of India performs this function under the guidance of the
Board for Financial Supervision (BFS). The Board was constituted in November
1994 as a committee of the Central Board of Directors of the Reserve Bank of
India.

Objective
Primary objective of BFS is to undertake consolidated supervision of the
financial sector comprising commercial banks, financial institutions and nonbanking finance companies.

Constitution
28

The Board is constituted by co-opting four Directors from the Central Board as
members for a term of two years and is chaired by the Governor. The Deputy
Governors of the Reserve Bank are ex-officio members. One Deputy Governor,
usually, the Deputy Governor in charge of banking regulation and supervision,
is nominated as the Vice-Chairman of the Board.
BFS meetings
The Board is required to meet normally once every month. It considers
inspection reports and other supervisory issues placed before it by the
supervisory departments.
BFS through the Audit Sub-Committee also aims at upgrading the quality of the
statutory audit and internal audit functions in banks and financial institutions.
The audit sub-committee includes Deputy Governor as the chairman and two
Directors of the Central Board as members.
The BFS oversees the functioning of Department of Banking Supervision
(DBS), Department of Non-Banking Supervision (DNBS) and Financial
Institutions Division (FID) and gives directions on the regulatory and
supervisory issues.

Functions

29

Some of the initiatives taken by BFS include:

i.

Restructuring of the system of bank inspections.

ii.

Introduction of off-site surveillance.

iii.

strengthening of the role of statutory auditors and

iv.

Strengthening of the internal defenses of supervised institutions.

The Audit Sub-committee of BFS has reviewed the current system of concurrent
audit, norms of empanelment and appointment of statutory auditors, the quality
and coverage of statutory audit reports, and the important issue of greater
transparency and disclosure in the published accounts of supervised institutions.
Current Focus

supervision of financial institutions

consolidated accounting

legal issues in bank frauds

divergence in assessments of non-performing assets and

Supervisory rating model for banks.

Legal Framework
Umbrella Acts
30

Reserve Bank of India Act, 1934: governs the Reserve Bank functions.

Banking Regulation Act, 1949: governs the financial sector.

Acts governing specific functions

Public Debt Act, 1944/Government Securities Act (Proposed): Governs

government debt market

Securities Contract (Regulation) Act, 1956: Regulates government

securities market.

Indian Coinage Act, 1906: Governs currency and coins.

Foreign Exchange Regulation Act, 1973/Foreign Exchange Management

Act, 1999: Governs trade and foreign exchange market

"Payment and Settlement Systems Act, 2007: Provides for regulation and
supervision of payment systems in India"

Acts governing Banking Operations

Companies Act, 1956:Governs banks as companies

Banking Companies (Acquisition and Transfer of Undertakings) Act,

1970/1980: Relates to nationalization of banks

Bankers' Books Evidence Act

Banking Secrecy Act

Negotiable Instruments Act, 1881

Acts governing Individual Institutions

State Bank of India Act, 1954

31

The Industrial Development Bank (Transfer of Undertaking and Repeal)

Act, 2003

The Industrial Finance Corporation (Transfer of Undertaking and Repeal)

Act, 1993

National Bank for Agriculture and Rural Development Act

National Housing Bank Act

Deposit Insurance and Credit Guarantee Corporation Act

Offices

Has 22 regional offices, most of them in state capitals.

Training Establishments
Has six training establishments

Three, namely, College of Agricultural Banking, Bankers Training

College and Reserve Bank of India Staff College are part of the Reserve
Bank

Others are autonomous, such as, National Institute for Bank Management,
Indira Gandhi Institute for Development Research (IGIDR), Institute for
Development and Research in Banking Technology (IDRBT)

Subsidiaries

32

Fully owned: National Housing Bank(NHB), Deposit Insurance and Credit

Guarantee Corporation of India(DICGC), Bharatiya Reserve Bank Note Mudran
Private Limited(BRBNMPL)
Majority stake: National Bank for Agriculture and Rural Development
(NABARD) .The Reserve Bank of India has recently divested its stake in State
Bank of India to the Government of India.

MAJOR FUNCTIONS OF THE RBI ARE AS FOLLOWS:

1. Issue Of Bank Notes:
33

The Reserve Bank of India has the sole right to issue currency notes except one
rupee notes which are issued by the Ministry of Finance. Currency notes issued by
the Reserve Bank are declared unlimited legal tender throughout the country.
This concentration of notes issue function with the Reserve Bank has a number of
advantages: (i) it brings uniformity in notes issue; (ii) it makes possible effective
state supervision; (iii) it is easier to control and regulate credit in accordance with
the requirements in the economy; and (iv) it keeps faith of the public in the paper
currency.
2. Banker To Government:
As banker to the government the Reserve Bank manages the banking needs of the
government. It has to-maintain and operate the governments deposit accounts. It
collects receipts of funds and makes payments on behalf of the government. It
represents the Government of India as the member of the IMF and the World Bank.
3. Custodian Of Cash Reserves Of Commercial Banks:
The commercial banks hold deposits in the Reserve Bank and the latter has the
custody of the cash reserves of the commercial banks.
4. Custodian Of Countrys Foreign Currency Reserves:
The Reserve Bank has the custody of the countrys reserves of international
currency, and this enables the Reserve Bank to deal with crisis connected with
adverse balance of payments position.

5. Lender Of Last Resort:

34

The commercial banks approach the Reserve Bank in times of emergency to tide
over financial difficulties, and the Reserve bank comes to their rescue though it
might charge a higher rate of interest.
6. Central Clearance And Accounts Settlement:
Since commercial banks have their surplus cash reserves deposited in the Reserve
Bank, it is easier to deal with each other and settle the claim of each on the other
through book keeping entries in the books of the Reserve Bank. The clearing of
accounts has now become an essential function of the Reserve Bank.
7. Controller Of Credit:
Since credit money forms the most important part of supply of money, and since
the supply of money has important implications for economic stability, the
importance of control of credit becomes obvious. Credit is controlled by the
Reserve Bank in accordance with the economic priorities of the government.
Promotional Functions Of Reserve Bank of India!
The functions of the Reserve Bank of India are multi-dimensional. The bank
performs a number of developmental and promotional functions. Apart from credit
regulation, the Reserve Bank effectively channelizes credit, especially to priority
sectors, such as agriculture, exports, transport operations, and small scale
industries.
It makes institutional arrangements for rural and industrial finance. For instance,
special agricultural credit cells have been set-up by the bank. The Industrial
Development Bank of India has been set-up to solve the allied problems of
industries.

35

The bank also assists the government in its economic planning. The banks credit
planning is devised and coordinated with the five-year plans of the country.
The Reserve Bank of India is also keen on improving the working of the Indian
money market. In this regard, it has introduced two Bill Market Schemes in 1952
and 1971.
The Bank has also established the Discount and Finance House of India Ltd.
(DFHI) in 1988.
With the object of providing security to depositors with the banks, and thereby
promoting the growth of banking in the country, the Reserve Bank of India took
initiative to set-up the Deposit Insurance Corporation of India in 1962.
The Reserve Bank of India has also assisted the emergence and growth of
development banking and other term-lending institutions, such as the Unit Trust of
India (UTI).
The Reserve Bank of India appoints ad hoc committees/ expert groups, from time
to time, to enquire into specific money/banking problems and make
recommendations to solve them. Recently, for instance, the bank had appointed the
Chakravarty Committee to review the functioning of the monetary system in India.
The Committee submitted its Report in 1985.

CLASSIFICATION OF RBIS FUNCTION:

36

1) The RBI: The RBI is the supreme monetary and banking authority in the
country and has the responsibility to control the banking system in the country.
It keeps the reserves of all scheduled banks and hence is known as the Reserve
Bank.
2) Public Sector Banks:
a .State Bank of India and its associate banks called the State Bank Group.
b. 20 nationalized banks.
c. Regional rural banks mainly sponsored by public sector banks
3) Private Sector Banks:
a. Old generation private banks
b. New generation private banks
c. foreign banks operating in India
d. Scheduled co-operative banks
e. Non-scheduled banks

4) Co-operative Sector Banks:

The co-operative sector is very much useful for rural people. The cooperative banking sector is divided into the following categories.
State Co-operative Banks
Primary Agricultural Credit Societies
Land Development Banks
37

 State Land Development Banks

Central Co-operative banks

5) Development Banks: Development Banks mostly provide long term finance

for setting up industries. They also provide short-term finance (for export and
import activities)

Industrial Finance Co-operation of India (IFCI)

Industrial Development of India (IDBI)
Industrial Investment Bank of India (IIBI)
Small Industries Development Bank of India (SIDBI)
National Bank for Agriculture and Rural Development (NABARD)
Export-Import Bank of India

CHAPTER 6.

38

BANKING IN INDIA:
Banking in India originated in the last decades of the 18th century. The first
banks were The General Bank of India, which started in 1786, and Bank of
Hindustan, which started in 1790; both are now defunct. The oldest bank in
existence in India is the State Bank of India, which 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 Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The three banks
merged in 1921 to form the Imperial Bank of India, which, upon India's
independence, became the State Bank of India
Overview of Banking:
Banking Regulation Act of India, 1949 defines Banking as accepting, for the
purpose of lending or of investment of deposits of money from the public,
repayable on demand or otherwise or withdrawable by Cheque, draft order or
otherwise. The Reserve Bank of India Act, 1934 and the Banking Regulation
Act, 1949, govern the banking operations in India.

Organizational Structure of Banks in India:

39

Sources: www.google.com

ROLE OF BANKS:

40

A proper financial sector is of special importance for the economic growth of

developing and underdeveloped countries. The commercial banking sector
which forms one of the backbones of the financial sector should be well
organized

and

efficient

for

the

growth

dynamics

of

growing

economy. No underdeveloped country can progress without first setting up a

sound system of commercial banking. The importance of a sound system of
commercial banking for a developing country may be depicted as follows:
Capital Formation: The rate of saving is generally low in an underdeveloped
economy due to the existence of deep-rooted poverty among the people. Even
the potential savings of the country cannot be realized due to lack of adequate
banking facilities in the country. To mobilize dormant savings and to make them
available to the entrepreneurs for productive purposes, the development of a
sound system of commercial banking is essential for a developing economy.
Monetization: An underdeveloped economy is characterized by the existence of
a large non monetized sector, particularly, in the backward and inaccessible
areas of the country. The existence of this non monetized sector is a hindrance in
the economic development of the country. The banks, by opening branches in
rural and backward areas, can promote the process of monetization in the
economy.
Innovations: Innovations are an essential prerequisite for economic progress.
These innovations are mostly financed by bank credit in the developed
countries. But the entrepreneurs in underdeveloped countries cannot bring about
these

innovations

for

lack

of

bank

credit

in

an

adequate measure. The banks should, therefore, pay special attention to the
41

financing of business innovations by providing adequate and cheap credit to

entrepreneurs.
Finance for Priority Sectors: The commercial banks in underdeveloped countries
generally hesitate in extending financial accommodation to such sectors as
agriculture and small scale industries, on account of the risks involved there in.
They mostly extend credit to trade and commerce where the risk involved is far
less .But for the development of these countries it is essential that the banks take
risk in extending credit facilities to the priority sectors, such as agriculture and
small scale industries.
Provision for Medium and Long term Finance: The commercial banks in
underdeveloped countries invariably give loans and advances for a short period
of time. They generally hesitate to extend medium and long term loans to
businessmen.

As

is

well

known,

the

new

business

need

medium and long term loans for their proper establishment. The commercial
banks should, therefore, change their policies in favor of granting medium and
long term accommodation to business and industry.
Cheap Money Policy: The commercial banks in an underdeveloped economy
should follow cheap money policy to stimulate economic activity or to meet the
threat of business recession. In fact, cheap money policy is the only policy
which

can

help

promote

the

economic

growth

of

an

underdeveloped country. It is heartening to note that recently the commercial

banks have reduced their lending interest rates considerably.
Need for a Sound Banking System: A sound system of commercial banking is
an essential prerequisite for the economic development of a backward country.
42

MAIN OBJECTIVE:
Monetary authority
The Reserve Bank of India is the main monetary authority of the country and
beside that the central bank acts as the bank of the national and state
governments. It formulates implements and monitors the monetary policy as
well as it has to ensure an adequate flow of credit to productive sectors.
Objectives are maintaining price stability and ensuring adequate flow of credit
to productive sectors. The national economy depends on the public sector and
the central bank promotes an expansive monetary policy to push the private
sector since the financial market reforms of the 1990s.
The institution is also the regulator and supervisor of the financial system and
prescribes broad parameters of banking operations within which the country's
banking and financial system functions. Objectives are to maintain public
confidence in the system, protect depositors' interest and provide cost-effective
banking services to the public. The Banking Ombudsman Scheme has been
formulated by the Reserve Bank of India (RBI) for effective addressing of
complaints by bank customers. The RBI controls the monetary supply, monitors
economic indicators like the gross domestic product and has to decide the design
of the rupee banknotes as well as coins.

Manager of exchange control

43

The central bank manages to reach the goals of the Foreign Exchange
Management Act, 1999. Objective: to facilitate external trade and payment and
promote orderly development and maintenance of foreign exchange market in
India.
Issuer of currency
The bank issues and exchanges or destroys currency and coins not fit for
circulation. The objectives are giving the public adequate supply of currency of
good quality and to provide loans to commercial banks to maintain or improve
the GDP. The basic objectives of RBI are to issue bank notes, to maintain the
currency and credit system of the country to utilize it in its best advantage, and
to maintain the reserves. RBI maintains the economic structure of the country so
that it can achieve the objective of price stability as well as economic
development, because both objectives are diverse in themselves.
Developmental role
The central bank has to perform a wide range of promotional functions to
support national objectives and industries. The RBI faces a lot of inter-sectoral
and local inflation-related problems. Some of these problems are results of the
dominant part of the public sector.
Related functions
The RBI is also a banker to the government and performs merchant banking
function for the central and the state governments. It also acts as their banker.
The National Housing Bank (NHB) was established in 1988 to promote private

44

real estate acquisition. The institution maintains banking accounts of all

scheduled banks, too.
There is now an international consensus about the need to focus the tasks of a
central bank upon central banking. RBI is far out of touch with such a principle,
owing to the sprawling mandate described above. The recent financial turmoil
world-over, has however, vindicated the Reserve Bank's role in maintaining
financial stability in India.

Supervisory Functions:
In addition to its traditional central functions, the Reserve bank
has certain non- monetary functions of the nature of supervision of banks and
promotion of sound banking in India. The Reserve Bank Act, 1934, and the
Banking Regulation Act, 1949 have given the RBI wide powers of supervision
and control over commercial and cooperative banks, relating to licensing and
establishments, branch expansion, liquidity of their assets, management and
methods of working, amalgamation, reconstruction and liquidation. The RBI is
authorized to carry out periodical inspections of the banks and to call for returns
and necessary information from them. The nationalization of 14 major Indian
scheduled banks in July 1969 has imposed new responsibilities on the RBI for
directing the growth of banking and credit policies towards more rapid
development of the economy and realization of certain desired social objectives.
The supervisory functions of the RBI have helped a great deal in improving the
standard of banking in India to develop on sound lines and to improve the
methods of their operation.

45

Promotional Functions:
With economic growth assuming a new urgency since Independence, the range
of the Reserve Banks functions have steadily widened. The Bank now performs
a variety of developmental and promotional functions, which, at one time, were
regarded as outside the normal scope of central banking. The Reserve Bank was
asked to promote banking habit, extend banking facilities to rural and semiurban areas, and establish and promote new specialized financing agencies.
Accordingly, the Reserve bank has helped in the setting up of the IFCI and the
SFC: it set up the Deposit Insurance Corporation of India in 1963 and the
Industrial Reconstruction Corporation of India in 1972. These institutions were
set up directly or indirectly by the Reserve Bank to promote saving habit and to
mobilize savings, and to provide industrial finance as well as agricultural
finance. As far back as 1935, the RBI set up the Agricultural Credit Department
to provide agricultural credit. But only since 1951 the Banks role in this field
has become extremely important. The Bank has developed the co-operative
credit movement to encourage saving, to eliminate money-lenders from the
villages and to route its short term credit to agriculture. The RBI has set up the
Agricultural Refinance and Development Corporation to provide long-term
finance to farmers.

CHAPTER 7.
46

KINDS OF BANKS:
COMMERCIAL BANKS:
A commercial bank (or business bank) is a type of financial institution and
intermediary. It is a bank that provides transactional, savings, and money market
accounts and that accepts time deposits.
After the implementation of the GlassSteagall Act, the U.S. Congress required
that banks engage only in banking activities, whereas investment banks were
limited to capital market activities. As the two no longer have to be under
separate ownership under U.S. law, some use the term "commercial bank" to
refer to a bank or a division of a bank primarily dealing with deposits and loans
from corporations or large businesses. In some other jurisdictions, the strict
separation of investment and commercial banking never applied. Commercial
banking may also be seen as distinct from retail banking, which involves the
provision of financial services direct to consumers. Many banks offer both
commercial and retail banking services.
Features of Commercial Banks:
A commercial bank is the one that generally has the following features:
Accepts Deposits, Makes Business Loans and offers related service.
Allows a variety of deposit account such as checking, savings and time
deposits.
Run to make a profit and owned by a group of individuals.
Offer services to individual and are primarily concerned with receiving
deposits and lending to businesses.
47

CO-OPERATIVE BANKS:
The Co-operative bank has a history of almost 100 years. The Cooperative banks are an important constituent of the Indian Financial System,
judging by the role assigned to them, the expectations they are supposed to
fulfill, their number, and the number of offices they operate. The co-operative
movement originated in the West, but the importance that such banks have
assumed in India is rarely paralleled anywhere else in the world. Their role in
rural financing continues to be important even today, and their business in the
urban areas also has increased phenomenally in recent years mainly due to the
sharp increase in the number of co- operative banks.
While the co-operative banks in rural areas mainly finance agricultural based
activities including farming, cattle, milk, hatchery, personal finance etc. along
with some small scale industries and self-employment driven activities, the cooperative banks in urban areas mainly finance various categories of people for
self-employment, industries, small scale units, home finance, consumer finance,
personal finance, etc. Some of the co-operative banks are quite forward looking
and have developed sufficient core competencies to challenge state and private
sector banks.
According to NAFCUB the total deposits & lendings of Co-operative Banks is
much more than Old Private Sector Banks & also the New Private Sector Banks.
This exponential growth of Co-operative Banks is attributed mainly to their
much better local reach, personal interaction with customers, and their ability to
catch the nerve of the local clientele. Though registered under the Co-operative
Societies Act of the Respective States (where formed originally) the banking
related activities of the co-operative banks are also regulated by the Reserve
48

Bank of India. They are governed by the Banking Regulations Act 1949 and
Banking Laws (Co-operative Societies) Act, 1965.
There are two main categories of the co-operative banks:
(a) Short term lending oriented co-operative Banks within this category there
are three sub categories of banks viz state co-operative banks, District cooperative banks and Primary Agricultural co-operative societies.
(b) Long term lending oriented co-operative Banks within the second category
there are land development banks at three levels state level, district level and
village level.

Features of Cooperative Banks

Co-operative Banks are organized and managed on the principal of co-operation,
self-help, and mutual help. They function with the rule of one member, one
vote. Function on no profit, no loss basis. Co-operative banks, as a principle,
do not pursue the goal of profit maximization. Co-operative bank performs all
the main banking functions of deposit mobilization, supply of credit and
provision of remittance facilities. Co-operative Banks provide limited banking
products and are functionally specialists in agriculture related products.
However, co-operative banks now provide housing loans also.

UCBs provide working capital loans and term loan as well.

The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and
Urban Co- operative Banks (UCBs) can normally extend housing loans upto Rs

49

1 lakh to an individual. The scheduled UCBs, however, can lend upto Rs 3 lakh
for housing purposes.
The UCBs can provide advances against shares and debentures also. Cooperative bank do banking business mainly in the agriculture and rural sector.
However, UCBs, SCBs, and CCBs operate in semi urban, urban, and
metropolitan areas also.
The urban and non-agricultural business of these banks has grown over the
years. The co-operative banks demonstrate a shift from rural to urban, while the
commercial banks, from urban to rural. Co-operative banks are perhaps the first
government sponsored, government-supported, and government-subsidized
financial agency in India. They get financial and other help from the Reserve
Bank of India NABARD, central government and state governments. They
constitute the most favoured banking sector with risk of nationalization. For
commercial banks, the Reserve Bank of India is lender of last resort, but cooperative banks it is the lender of first resort which provides financial resources
in the form of contribution to the initial capital (through state government),
working capital, refinance.
Co-operative Banks belong to the money market as well as to the capital market.
Primary agricultural credit societies provide short term and medium term loans.
Land Development Banks (LDBs) provide long-term loans. SCBs and CCBs
also provide both short term and term loans. Co-operative banks are financial
intermediaries only partially. The sources of their funds (resources) are (a)
central and state government, (b) the Reserve Bank of India and NABARD, (c)
other co-operative institutions, (d) ownership funds and, (e) deposits or
debenture issues. It is interesting to note that intra-sectoral flows of funds are
much greater in co-operative banking than in commercial banking. Inter-bank
50

deposits, borrowings, and credit from a significant part of assets and liabilities of
co-operative banks. This means that intra-sectoral competition is absent and
intra-sectoral integration is high for co-operative bank.
Some co-operative banks are scheduled banks, while others are non-scheduled
banks. For instance, SCBs and some UCBs are scheduled banks but other cooperative banks are non-scheduled banks. At present, 28 SCBs and 11 UCBs
with Demand and Time Liabilities over Rs 50 crore each included in the Second
Schedule of the Reserve Bank of India Act.
Co-operative Banks are subject to CRR and liquidity requirements as other
scheduled and non- scheduled banks are. However, their requirements are less
than commercial banks. Since 1966 the lending and deposit rate of commercial
banks have been directly regulated by the Reserve Bank of India. Although the
Reserve Bank of India had power to regulate the rate co-operative bank but this
have been exercised only after 1979 in respect of non-agricultural advances they
were free to charge any rates at their discretion. Although the main aim of the
co-operative bank is to provide cheaper credit to their members and not to
maximize profits, they may access the money market to improve their income so
as to remain viable.

Central Banks:

51

Established in 1911, Central Bank of India was the first Indian commercial bank
which was wholly owned and managed by Indians. The establishment of the
Bank was the ultimate realization of the dream of Sir Sorabji Pochkhanawala,
founder of the Bank. Sir Pherozesha Mehta was the first Chairman of a truly
'Swadeshi Bank'. In fact, such was the extent of pride felt by Sir Sorabji
Pochkhanawala that he proclaimed Central Bank of India as the 'property of the
nation and the country's asset'. He also added that 'Central Bank of India lives on
people's faith and regards itself as the people's own bank'.
During the past 99 years of history the Bank has weathered many storms and
faced many challenges. The Bank could successfully transform every threat into
business opportunity and excelled over its peers in the Banking industry.
A number of innovative and unique banking activities have been launched by
Central Bank of India and a brief mention of some of its pioneering services are
as under:

1921 Introduction to the Home Savings Safe Deposit Scheme to build

saving/thrift habits in all sections of the society.

52

1924 An Exclusive Ladies Department to cater to the Bank's women

clientele.
1926 Safe Deposit Locker facility and Rupee Travellers' Cheques.
1929 Setting up of the Executor and Trustee Department.
1932 Deposit Insurance Benefit Scheme.
1962 Recurring Deposit Scheme.

Subsequently, even after the nationalization of the Bank in the year 1969,
Central Bank continued to introduce a number of innovative banking services as
under:

1976 The Merchant Banking Cell was established.

1980 Central card, the credit card of the Bank was introduced.
1986 'Platinum Jubilee Money Back Deposit Scheme' was launched.
1989 The housing subsidiary Cent Bank Home Finance Ltd. was started
with its headquarters at Bhopal in Madhya Pradesh.
1994 Quick Cheques Collection Service (QCC) & Express Service was set
up to enable speedy collection of outstation cheques.
Further in line with the guidelines from Reserve Bank of India as also the
Government of India, Central Bank has been playing an increasingly active role
53

in promoting the key thrust areas of agriculture, small scale industries as also
medium and large industries. The Bank also introduced a number of Self
Employment Schemes to promote employment among the educated youth.
Among the Public Sector Banks, Central Bank of India can be truly described
as an All India Bank, due to distribution of its large network in 27 out of 29
States as also in 3 out of 7 Union Territories in India. Central Bank of India
holds a very prominent place among the Public Sector Banks on account of its
network of 3656 branches and 178 extension counters at various centers
throughout the length and breadth of the country.
Customers' confidence in Central Bank of India's wide ranging services can very
well be judged from the list of major corporate clients such as ICICI, IDBI, UTI,
LIC, HDFC has also almost all major corporate houses in the country.

INDUSTRIAL BANKS:

54

Ordinarily, the industrial banks perform three main functions:

Firstly, acceptance of Long term deposits: Since the industrial bank give long
term loans; they cannot accept short term deposits from the public. Secondly,
Meeting the credit requirements of companies: Firstly the industries require
purchasing land to erect buildings and purchase heavy machinery. Secondly the
industries require short term loans to buy raw materials & to make payment of
wages to workers. Thirdly it does some Other Functions - The industrial banks
tender advice to big industrial firms regarding the sale & purchase of shares &
debentures.
AGRICULTURAL
BANKS:
As the commercial & the industrial Banks are not in a position to meet the
Credit requirements of agriculture, there arises the need for setting up special
types of banks to finance agriculture. Firstly, the farmers require short term
loans to buy seeds, fertilizers, ploughs and other inputs. Secondly, the farmers
require

long

term

loans

to

purchase

land,

to

effect

permanent improvements on the land to buy equipment & to provide for

irrigation works.

FOREIGN EXCHANGE BANKS:

55

Their main functions is to make international payments through the

Purchase and sale of exchange bills. As is well known, the exporters of a
country prefer to receive the payment for their exports in their own currency
Hence their arises the problem of converting the currency of one country into
the currency of another. The foreign exchange banks try to solve this problem.
These banks specialize in financing foreign trade.

CHAPTER 8.
ROLE OF BANKS IN A INDIAN ECONOMY:
56

In India, as in many developing countries, the commercial banking sector has

been the dominant element in the countrys financial system. The sector has
performed the key functions of providing liquidity and payment services to the
real sector and has accounted for the Bulk of the financial intermediation
process. Besides institutionalizing savings, the banking sector has contributed to
the process of economic development by serving as a major source of credit to
households, government, and business and to weaker sectors of the economy
like village and small-scale industries and agriculture. Over the years, over 3040% of gross household savings have been in the form of bank deposits and
around 60% of the assets of all financial institutions accounted for by
commercial banks. An important landmark in the development of banking sector
in recent years has been the initiation if reforms following the recommendations
of the first Narasimham Committee on Financial System. In reviewing the
strengths and weaknesses of these banks, the Committee suggested several
measures to transform the Indian banking sector from a highly regulated to
amore market oriented system and to enable it to compete effectively in an
increasingly globalized environment. Many of the recommendations of the
Committee especially those pertaining to Interest rate, an institution of
prudential regulation and transparent accounting norms were in line with
banking policy reforms implemented by a host of developing countries since
1970s.

CHAPTER 9.
CHALLENGES FACING BANKING INDUSTRY IN INDIA:
57

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 seller market to completed deregulated
customers market.

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.
Diffused Customer loyalty: This will definitely impact Customer preferences, as
they are bound to react to the value added offerings. Customers have become
demanding and the loyalties are diffused. There are multiple choices; the wallet
share is reduced per bank with demand on flexibility and customization. Given
the relatively low switching costs; customer retention calls for customized
service and hassle free, flawless service delivery.
Misaligned mindset: These changes are creating challenges, as employees are
made to adapt to changing conditions. There is resistance to change from
employees and the Seller market mindset is yet to be changed coupled with Fear
of uncertainty and Control orientation. Acceptance of technology is slowly
creeping in but the utilization is not maximized.
Competency Gap: Placing the right skill at the right place will determine
success. The Competency gap needs to be addressed simultaneously otherwise
58

there will be missed opportunities. The focus of people will be on doing work
but not providing solutions, on escalating problems rather than solving them and
on disposing customers instead of using the opportunity to cross sell.
Strategic options with banks to cope with the challenges
Leading players in the industry have embarked on a series of strategic and
tactical initiatives to sustain leadership. The major initiatives include:
Investing in state of the art technology as the back bone to ensure reliable
service delivery
Leveraging the branch network and sales structure to mobilize low cost
current and savings deposits
Making aggressive forays in the retail advances segment of home and
personal loans
Implementing organization wide initiatives involving people, process and
technology to reduce the fixed costs and cost per transaction. Focusing on
fee based income to compensate for squeezed spread, (e.g. CMS, trade
services)
Innovating Products to capture customer mind share to begin with and
later the wallet share
Improving the asset quality as per Base II norms

Transformation initiatives needed for banks

The ECS value proposition for helping banks in their transformation
59

agenda
We at ECS have vast experience in partnering with leading players in banking
for addressing these challenges in a holistic manner. Our expertise is reflected in
our product offerings for addressing the key challenges. A select few are
outlined below:

Strategy
Sales & Marketing strategy for both retail & wholesale banking
Expanding geographies
Brand
Understanding the values of the brand
Repositioning the brand to communicate the values
Organization restructuring
Re organization of the bank in line with the strategic thrust
Re-engineering of the key business processes
Redesign of Sales processes to increase conversion ratio
Six Sigma process improvements for branch channel, Call Center & back
office processes
Centralization of branch operations and deferred processes to free up resources

Cost efficiency
Reduction in Total cost of acquisition

60

 Reduction in transaction costs

Reduction in fixed and overheads cost

Right sizing and matching of skills

Manpower modeling for branch & back office at various volume scenarios
Productivity improvement for sales & service functions
Competency Assessments & profiling
Creating a high performing organization
Define new roles & responsibilities, KRA
Assessing competencies of people across levels and match the position with
the skillset
Designing and implementing a new PMS for restructured organization
Change management & creating a new mind set
Developing critical mass of champions and drive Change across the
organization to move from conventional banking to new age banking

CHAPTER 10.
PRODUCTS & SERVICES OFFERED BY BANKS:
61

Broad Classification of Products in a bank:

The different products in a bank can be broadly classified into:
Retail Banking.
Trade Finance.
Treasury Operations.
Retail Banking and Trade finance operations are conducted at the branch level
while the wholesale banking operations, which cover treasury operations, are at
the hand office or a designated branch.
Retail Banking:
Deposits
Loans, Cash Credit and Overdraft
Negotiating for Loans and advances
Remittances
Book-Keeping (maintaining all accounting records)
Receiving all kinds of bonds valuable for safe keeping
Trade Finance:
Issuing and confirming of letter of credit.
Drawing, accepting, discounting, buying, selling, collecting of bills of
exchange, promissory notes, drafts, bill of lading and other securities.

Treasury Operations:
Buying and selling of bullion. Foreign exchange
62

 Acquiring, holding, underwriting and dealing in shares, debentures, etc.

Purchasing and selling of bonds and securities on behalf of constituents.
The banks can also act as an agent of the Government or local
authority. They insure, guarantee, underwrite, participate in managing and
carrying out issue of shares, debentures, etc. Apart from the above-mentioned
functions of the bank, the bank provides a whole lot of other services like
investment counseling for individuals, short-term funds management and
portfolio management for individuals and companies. It undertakes the inward
and outward remittances with reference to foreign exchange and collection of
varied types for the Government.
Common Banking Products Available:
Some of common available banking products are explained below:
1) Credit Card: Credit Card is postpaid or pay later card that draws from a
credit line-money made available by the card issuer (bank) and gives one a grace
period to pay. If the amount is not paid full by the end of the period, one is
charged interest.
A credit card is nothing but a very small card containing a means of
identification, such as a signature and a small photo. It authorizes the holder to
change goods or services to his account, on which he is billed. The bank
receives the bills from the merchants and pays on behalf of the card holder.

BANKING SERVICES IN INDIA

These bills are assembled in the bank and the amount is paid to the bank by the
card holder totally or by installments. The bank charges the customer a small
63

amount for these services. The card holder need not have to carry money/cash
with him when he travels or goes for purchasing.
Credit cards have found wide spread acceptance in the metros and big cities.
Credit cards are joining popularity for online payments. The major players in the
Credit Card market are the foreign banks and some big public sector banks like
SBI and Bank of Baroda. India at present has about 3 million credit cards in
circulation.
2) Debit Cards: Debit Card is a prepaid or pay now card with some stored
value. Debit Cards quickly debit or subtract money from ones savings account,
or if one were taking out cash. Every time a person uses the card, the merchant
who in turn can get the money transferred to his account from the bank of the
buyers, by debiting an exact amount of purchase from the card. To get a debit
card along with a Personal Identification Number (PIN).
When he makes a purchase, he enters this number on the shops PIN pad. When
the card is swiped through the electronic terminal, it dials the acquiring bank
system either Master Card or Visa that validates the PIN and finds out from
the issuing bank whether to accept or decline the transaction. The customer
never overspread because the amount spent is debited immediately from the
customers account. So, for the debit card to work, one must already have the
money in the account to cover the transaction. There is no grace period for a
debit card purchase. Some debit cards have monthly or per transaction fees.
Debit Card holder need not carry a bulky checkbook or large sums of cash when
he/she goes at for shopping. This is a fast and easy way of payment one can get
debit card facility as debit cards use ones own money at the time of sale, so
they are often easier than credit cards to obtain. The major limitation of Debit
Card is that currently only some 3000-4000 shops country wide accepts it. Also,
64

a person cant operate it in case the telephone lines are down.

3) Automatic Teller Machine: The introduction of ATMs has given the
customers the facility of round the clock banking. The ATMs are used by banks
for making the customers dealing easier. ATM card is a device that allows
customer who has an ATM card to perform routine banking transaction at any
time without interacting with human teller. It provides exchange services. This
service helps the customer to withdraw money even when the banks ate closed.
This can be done by inserting the card in the ATM and entering the Personal
Identification Number and secret Password.
ATMs are currently becoming popular in India that enables the customer to
withdraw their money 24 hours a day and 365 days. It provides the customers
with the ability to withdraw or deposit funds, check account balances, transfer
funds and check statement information. The advantages of ATMs are many. It
increases existing business and generates new business. It allows the customers.
To transfer money to and from accounts.
To view account information.
To order cash.
To receive cash.

Advantages of ATMs:
To the Customers
ATMs provide 24 hrs, 7 days and 365 days a year service.
Service is quick and efficient
Privacy in transaction
Wider flexibility in place and time of withdrawals.
65

 The transaction is completely secure you need to key in Personal

Identification Number (Unique number for every customer).
To Banks
Alternative to extend banking hours.
Crowding at bank counters considerably reduced.
Alternative to new branches and to reduce operating expenses.
Relieves bank employees to focus on more analytical and innovative
Work.
Increased market penetration.
ATMs can be installed anywhere like Airports, Railway Stations,
Petrol Pumps, Big Business arcades, markets, etc. Hence, it gives easy access to
the customers, for obtaining cash.
The ATM services provided first by the foreign banks like Citibank, Grind lays
bank and now by many private and public sector banks in India like ICICI Bank,
HDFC Bank, SBI, UTI Bank etc. The ICICI has launched ATM Services to its
customers in all the Metropolitan Cities in India. By the end of 1990 Indian
Private Banks and public sector banks have come up with their own ATM
Network in the form of SWADHAN. Over the past year upto 44 banks in
Mumbai, Vashi and Thane, have become a part of SWADHAN a system of
shared payments networks, introduced by the Indian Bank Association (IBA).
4) E-Cheques: The e-cheques consists five primary facts. They are the
consumers, the merchant, consumers bank the merchants bank and the e-mint
and the clearing process. This cheaquring system uses the network services to
issue and process payment that emulates real world cheaquring. The payer issues

66

a digital cheques to the payee ant the entire transactions are done through
internet. Electronic version of cheques are issued, received and processed. A
typical electronic cheques transaction takes place in the following manner:
The customer accesses the merchant server and the merchant server presents its
goods to the customer.
The consumer selects the goods and purchases them by sending an e-cheque to
the merchant.
The merchant validates the e-cheques with its bank for payment authorization.
The merchant electronically forwards the e-cheques to its bank.
The merchants bank forwards the e-cheques to the clearing house for cashing.
The clearing house jointly works with the consumers bank clears the cheques
and transfers the money to the merchants banks.
The merchants bank updates the merchants account.
The consumers bank updates the consumers account with the withdrawal
information.
The e-cheaquring is a great boon to big corporate as well as small
retailers. Most major banks accept e-cheques. Thus this system offers secure
means of collecting payments, transferring value and managing cash flows.
5) Electronic Funds Transfer (EFT): Many modern banks have computerized
their cheques handling process with computer networks and other electronic
equipments. These banks are dispensing with the use of paper cheques. The
system called electronic fund transfer (EFT) automatically transfers money from
one account to another. This system facilitates speedier transfer of funds
electronically from any branch to any other branch. In this system the sender and
the receiver of funds may be located in different cities and may even bank with
different banks. Funds transfer within the same city is also permitted. The
scheme has been in operation since February 7, 1996, in India.
67

The other important type of facility in the EFT system is automated clearing
houses. These are the computer centers that handle the bills meant for deposits
and the bills meant for payment. In big companies pay is not disbursed by issued
cheques or issuing cash. The payment office directs the computer to credit an
employees account with the persons pay.
6) Telebanking: Telebanking refers to banking on phone services. A customer
can access information about his/her account through a telephone call and by
giving the coded Personal Identification Number (PIN) to the bank. Telebanking
is extensively user friendly and effective in nature.
To get a particular work done through the bank, the users may leave his
instructions in the form of message with bank.
Facility to stop payment on request. One can easily know about the cheques
status.
Information on the current interest rates.
Information with regard to foreign exchange rates.
Request for a DD or pay order.
D-Mat Account related services.
And other similar services.

7) Mobile Banking: A new revolution in the realm of e-banking is the

emergence of mobile banking. On-line banking is now moving to the mobile
world, giving everybody with a mobile phone access to real-time banking
services, regardless of their location. But there is much more to mobile banking
from just on-lie banking. It provides a new way to pick up information and
interact with the banks to carry out the relevant banking business. The potential
68

of mobile banking is limitless and is expected to be a big success. Booking and

paying for travel and even tickets is also expected to be a growth area.
According to this system, customer can access account details on mobile using
the Short Messaging System (SMS) technology6 where select data is pushed to
the mobile device. The wireless application protocol (WAP) technology, which
will allow user to surf the net on their mobiles to access anything and
everything. This is a very flexible way of transacting banking business.
Already ICICI and HDFC banks have tied up cellular service provides such as
Airtel, Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobile
banking services to their customers.

8) Internet Banking: Internet banking involves use of internet for delivery of

banking products and services. With internet banking is now no longer
confirmed to the branches where one has to approach the branch in person, to
withdraw cash or deposits a cheque or requests a statement of accounts. In
internet banking, any inquiry or transaction is processed online without any
reference to the branch (anywhere banking) at any time.
The Internet Banking now is more of a normal rather than an exception due to
the fact that it is the cheapest way of providing banking services. As indicated
by McKinsey Quarterly research, presently traditional banking costs the banks,
more than a dollar per person, ATM banking costs 27 cents and internet banking
costs below 4 cents approximately. ICICI bank was the first one to offer Internet
Banking in India.
Benefits of Internet Banking:

69

 Reduce the transaction costs of offering several banking services and

diminishes the need for longer numbers of expensive brick and mortar branches
and staff.
Increase convenience for customers, since they can conduct many banking
transaction 24 hours a day.
Increase customer loyalty.
Improve customer access.
Attract new customers.
Easy online application for all accounts, including personal loans and
mortgages
Financial Transaction on the Internet:
Electronic Cash: Companies are developing electronic replicas of all existing
payment system: cash, cheques, credit cards and coins.
Automatic Payments: Utility companies, loans payments, and other businesses
use on automatic payment system with bills paid through direct withdrawal from
a bank account.
Direct Deposits: Earnings (or Government payments) automatically deposited
into bank accounts, saving time, effort and money.
Stored Value Cards: Prepaid cards for telephone service, transit fares, highway
tolls, laundry service, library fees and school lunches.

70

Point of Sale transactions: Acceptance of ATM/Cheques at retail stores and

restaurants for payment of goods and services. This system has made
functioning of the stock Market very smooth and efficient.
Cyber Banking: It refers to banking through online services. Banks with web
site Cyber branches allowed customers to check balances, pay bills, transfer
funds, and apply for loans on the Internet.

9) Demat: Demat is short for de-materialization of shares. In short, Demat is a

process where at the customers request the physical stock is converted into
electronic entries in the depository system. In January 1998 SEBI (Securities
and Exchange Board of India) initiated DEMAT ACCOUNTANCY System to
regulate and to improve stock investing. As on date, to trade on shares it has
become compulsory to have a share demat account and all trades take place
through demat.
How to Operate DEMAT ACCOUNT?
One needs to open a Demat Account with any of the branches of
the bank. After opening an account with any bank, by filling the demat request
form one can handover the securities. The rest will be taken care by the bank
and the customer will receive credit of shares as soon as it is confirmed by the
Company/Register and Transfer Agent. There is no physical movement of share
certification any more. Any buying or selling of shares is done via electronic
transfers.

71

1) If the investor wants to sell his shares, he has to place an order with his
broker and give a Delivery Instruction to his DP (Depository Participant).
The DP will debit his account with the number of shares sold by him.
2) If one wants to buy shares, he has to inform his broker about his Depository
Account Number so that the shares bought by him are credited in to his
account.
3) Payment for the electronic shares bought or sold is to be made
in the same way as in the case of physical securities.

CHAPTER 11.
LPG IN BANKING & FINANCIAL SECTOR:
Liberalization:
72

In the early 1990s the then Narasimham Rao government embarked on a policy
of liberalization and gave licenses to a small number of private banks, which
came to be known as New Generation tech-savvy banks, which included banks
such as Global Trust Bank which later amalgamated with Oriental Bank of
commerce, ICICI Bank,HDFC Bank.
Privatization:
Privatization is the incidence or process of transferring ownership of business
from the public sector to the private sector. In a broader sense, privatization
refers to transfer of any government function to the private sector including
governmental functions like revenue collection and law enforcement.
Globalization:
Globalization in a literal sense is international integration; it can be described as
a process by which the people of the world are unified into a single society and
functioning together. Globalization, as a term, is very often used to refer to
economic globalization that is integration of national economies into the
international economy through trade, foreign direct investment, capital flow,
migration, and spread technology.

CHAPTER 12.
RECOMMENDATION
OF
NARASIMHAM
COMMERCIAL BANKING SYSTEM (1991)

COMMITTEE

ON

73

The Narasimham committee (1991) assumed that the financial resources of the
commercial banks from the general public and were by the banks in trust and
that the bank funds were to be deployed for maximum benefit of the depositors.
This assumption automatically implied that even the government had no
business to endanger the solvency, health and efficiency of the nationalized
banks under the pretext of using banks funds for social banking, poverty
eradication, etc. Accordingly, the Narasimham committee aimed at achieving
three major changes in the banking sector in India;

Ensuring a degree of operational flexibility.

Internal autonomy for the banks in their decision making process.

Greater degree of professionalism in banking operations.

Towards this end, Narasimham committee recommendations covered such

subjects as directed investments, directed credit programmes, structural of rate
of interest, structural reorganization of the Indian banking system, and
organization, methods and procedures of banks in India.
In Structural Reorganization of the Banking System
To bring about greater efficiency in banking operations, the Narasimham
committee (1991) proposed substantial reduction in number of public sector
banks through mergers and acquisition. According to committee, the broad
pattern should consist of;

Three or four large banks including SBI should become international in

character.

74

Eight to ten banks should national bank with wide network of branches
throughout the country.

The rest should remain as local banks with operations are confined to a
specific region.

RBI should permit the establishment of new banks in the private sector,
provided they conform to the minimum start-up capital and other
requirements. The government should make declaration that no further
banks be nationalized.

Foreign banks are allowed to open their branches in India either as fully
owned or subsidiaries. This would improve efficiency.

Foreign banks and Indian banks are allowed to set-up joint ventures in
regard to merchant and investment banking.

Since the country had already a network of rural and semi-urban branches,
the system of licensing of branches with the objective of spreading the
banking habit should be discontinued. Banks should have freedom to open
branches.

On Organization and Methods and Procedures in Banks

In order to tone up the working of the banks, the Narasimham committee (1991)
recommended that;

Each bank should be free and autonomous.

Every bank should go for a radical change in working technology and

culture, so to become competitive internally and to be in step with wideranging innovations taking place.
Over- regulation and over- administration should be avoided and greater
reliance should be placed on internal audit and internal inspection.
75

The various guidelines issued by government or RBI in regard to internal

administration should be examined in the context of the independence and
autonomy of bank.

The quality of control over the banking system between RBI and the
banking division of ministry and finance should end forthwith and RBI
should be the primary agency for regulation.

The appointment of chief executive of bank and the board of directors

should not be based on political considerations but on professionalism and
integrity.

So despite impressive quantitative achievements in resources mobilization and

in extending the credit reach, several distortions had crept into the banking
system over the years. Several public sector banks had become weak financially
and were unable to meet the challenges of the competitive environment. The
Narasimham committee was forthright in apportioning the blame to the
government of India and the finance ministry of this sad state of affairs. The
public sector banks has been used and abused by the government, the officials
and the bank employees and the trade unions. The recommendations of
Narasimham committee(1991) has been revolutionary in many aspects and were
opposed by trade unions and even by finance ministry of central government and
of course, the progressive economist who generally championed the public
sector banks. The government however accepted many of the recommendations
of the Narasimham committee (1991).
NARASIMHAM COMMITTEE ON BANKING SECTOR REFORMS
(1998):

76

The finance ministry of government of India appointed Mr. M. Narasimham as

chairman of one more committee, this time it was called as the committee on
banking sector reforms. The committee was asked to review the progress of
banking sector reforms to the date and chart a programmes on financial sector
reforms necessary to strengthen Indias financial system and make it
internationally competitive. The Narasimham committee on banking sector
reforms submitted this report to the government in April 1998. This report
covers the entire issues relating to capital adequacy, bank mergers, the condition
of global sized banks, recasting of banks boards etc. some important findings are
as follows;

Need For Stronger Banking System: The Narasimham committee has

made out a stronger banking system in country, especially in the context
of capital account convertibility (CAC) which would involve large
amount of inflow and outflow of capital and consequent complications for
exchange rate management and domestic liquidity. To handle this India
would need a strong resilient banking and financial system.

Experiment With The Concept of Narrow Banking: The Narasimham

committee is seriously concerned with the rehabilitation of weak public
sector banks which have accumulated a high percentage of non-paying
assets (NPA), and in some cases, as high as 20% of their total assets. They
suggested the concept of narrow banking to rehabilitate such weak banks.

Small Local Banks: The Narasimham committee has argued that While
two or three banks with an international orientation and 8 to 10 of larger
banks should take care of their needs of the large and medium corporate
sector ad larger of the small enterprises, there will still be a need for a

77

large number of local banks. The committee has suggested the setting up
of small local banks which should be confined to states or clusters of
districts in order to serve local trade, small industry etc.

Capital Adequacy Ratio: The Narasimham committee has also

suggested that the government should consider raising the prescribed
capital adequacy ratio to improve the inherent strength of banks and to
improve their risk taking ability.

Public Ownership and Real Autonomy: The Narasimham committee

has argued that government ownership and management of banks does not
enhance autonomy and flexibility in working of public sector banks.
Accordingly, the committee has recommended a review of functions of
banks boards with a view to make them responsible for enhancing
shareholder value through formulation of corporate strategy.

Review And Updating Banking Laws: The Narasimham committee has

suggested the urgent need to review and amended the provisions of RBI
Act, Banking Regulation Act, State Bank of act etc. so as to bring them on
same line of current banking needs.

Really speaking there was no purpose of setting up the second Narasimham

committee on banking sector reforms even before a decade has elapsed for the
full implementation of the recommendations of First committee. As one critics
has commented: barring this is, a stray recommendation here or there like the
categorical rejection of the merger of weak with strong banks and the suggestion
to try out narrow banking, as far as all other issues are concerned

CHAPTER 13.
78

ICICI Bank
HISTORY
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian
financial institution, and was its wholly-owned subsidiary. ICICI's shareholding
in ICICI Bank was reduced to 46% through a public offering of shares in India
in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in
fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock
amalgamation in fiscal 2001, and secondary market sales by ICICI to
institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955
at the initiative of the World Bank, the Government of India and representatives
of Indian industry. The principal objective was to create a development financial
institution for providing medium-term and long-term project financing to Indian
businesses.
In the 1990s, ICICI transformed its business from a development financial
institution offering only project finance to a diversified financial services group
offering a wide variety of products and services, both directly and through a
number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become
the first Indian company and the first bank or financial institution from nonJapan Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the context of
the emerging competitive scenario in the Indian banking industry, and the move
towards universal banking, the managements of ICICI and ICICI Bank formed
the view that the merger of ICICI with ICICI Bank would be the optimal
79

strategic alternative for both entities, and would create the optimal legal
structure for the ICICI group's universal banking strategy. The merger would
enhance value for ICICI shareholders through the merged entity's access to lowcost deposits, greater opportunities for earning fee-based income and the ability
to participate in the payments system and provide transaction-banking services.
The merger would enhance value for ICICI Bank shareholders through a large
capital base and scale of operations, seamless access to ICICI's strong corporate
relationships built up over five decades, entry into new business segments,
higher market share in various business segments, particularly fee-based
services, and access to the vast talent pool of ICICI and its subsidiaries.
In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the
merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI
Personal Financial Services Limited and ICICI Capital Services Limited, with
ICICI Bank. The merger was approved by shareholders of ICICI and ICICI
Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March
2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of
India in April 2002. Consequent to the merger, the ICICI group's financing and
banking operations, both wholesale and retail, have been integrated in a single
entity.
ICICI Bank has formulated a Code of Business Conduct and Ethics for its
directors and employees.

OVERVIEW:

80

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00
billion (US$ 81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion
(US$ 896 million) for the year ended March 31, 2010. The Bank has a network
of 2,528 branches and 6,000 ATMs in India, and has a presence in 19 countries,
including India.
ICICI Bank offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and
through its specialized subsidiaries in the areas of investment banking, life and
non-life

insurance,

venture

capital

and

asset

management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada,
branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar
and Dubai International Finance Centre and representative offices in United
Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and
Indonesia. Our UK subsidiary has established branches in Belgium and
Germany.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and
the National Stock Exchange of India Limited and its American Depositary
Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

vision:
To be the leading provider of financial services in India and a major global
bank.

MISSION:
81

We will leverage our people, technology, speed and financial capital to:

Be the banker of first choice for our customers by delivering high quality,
world-class products and services.

Expand the frontiers of our business globally.

Play a proactive role in the full realization of Indias potential.

Maintain a healthy financial profile and diversify our earnings across

businesses and geographies.

Maintain high standards of governance and ethics.

Contribute positively to the various countries and markets in which we

operate.

Create value for our stakeholders.

BALANCE SHEET OF LAST 3 YEARS

82

(Rs In Cr.)
2014

2013

2012

Share Warrants And

6.57

4.48

2.39

Outstanding
Share Capital

1155.04

1153.64

1152.77

Total Reserves

72051.71

65547.84

59250.09

Deposits

331913.66

292613.63

255499.96

Borrowings

154759.05

145341.49

140164.91

Shareholders Funds

73213.33

66705.96

60405.24

Other Liabilities And

34755.55

32133.60

32998.69

Provisions
TOTAL LIABILITIES

594641.58

536794.68

489608.80

APPLICATION OF FUNDS
Cash And Balance With RBI

21821.83

19052.73

20461.29

Balance With Banks And

19707.77

22364.79

15768.02

Notice
Investments

177021.82

171393.60

159560.04

Advances

338702.65

290249.44

253727.66

Gross Block

9950.61

9643.58

9424.39

SOURCES OF FUNDS

Money At Call And Short

83

Less:
Accumulated Depreciation

5272.47

4996.53

4809.70

Less:
Impairment Of Assets

0.00

0.00

0.00

Net Block

4678.14

4647.06

4614.69

Lease Adjustment

0.00

0.00

0.00

Capital Work In Progress

0.00

0.00

0.00

Other Assets
TOTAL ASSETS

32709.39
594641.58

29087.07
536794.68

34937.10
489068.80

Contingent Liabilities
Bills For Collection

781430.45
13534.91

789989.31
12394.53

915465.11
7572.06

Source : Dion Global Solutions Limited

PROFIT AND LOSS A/C OF LAST 3 YEARS

(Rs In Cr.)
2014

2013

2012

Interest Earned

44178.15

40075.60

33542.65

Other Incomes

10427.87

8345.70

7502.76

TOTAL INCOME

54606.02

48421.30

41045.41

INCOME

EXPENDITURE
84

Interest Expended

27702.59

26209.18

22808.50

Operating Expense

10308.86

9012.88

7850.44

PBIDT

16594.57

13199.23

10386.47

Provisions And

2626.41

1802.54

1583.05

Contingency
Profit Before Tax

13968.16

11396.69

8803.43

Taxes

4157.69

3071.22

2338.17

TOTAL

44795.55

40095.82

34580.15

PAT

9810.48

8325.47

6465.26

Extraordinary Items

0.00

0.00

0.00

Profit Brought Forward

9902.29

7054.23

5018.18

Adjusted Net Profit

0.00

0.00

0.00

TOTAL PROFIT AND

9810.48

8325.47

6465.26

Appropriations

19712.76

15379.71

11483.44

Equity Dividend (%)

0.00

0.00

0.00

PROFIT AND LOSS

LOSS

85

Earning Per Shares(In Rs)

0.00

0.00

0.00

Book Value( In Rs)

0.00

0.00

0.00

Source : Dion Global Solutions Limited

CASH FLOW STATEMENT FOR LAST 3 YEARS

Net Profit Before Tax

(Rs In Cr.)
2014
13968.17

2013
11396.69

2012
8803.42

Adjustments For Expenses And

1717.93

1737.27

2113.48

Provisions
Adjustments For Liabilities And

(6856.51)

1166.95

(24033.75)

Assets
Cash Flow From Operating

4668.60

11102.01

(15238.00)

Activities
Cash Flow From Investing

(12246.48)

(9431.56)

(12280.17)

Activities
Cash Flow From Financing

6838.37

2989.72

28751.76

Activities
Effect Of Exchange Fluctuations

851.59

528.03

905.63

On Translation Reserves
Net Increase /(Decrease )In Cash

(739.51)

4660.17

1233.60

And Cash Equivalents

Opening Cash And Cash

41417.52

36229.31

34090.08

Equivalents
86

Cash And Cash Equivalents On

0.00

0.00

0.00

Amalgamation/Takeovers/Merger
Cash And Cash Equivalents Of

0.00

0.00

0.00

Subsidiaries Under Liquidations

Translation Adjustments On

0.00

0.00

0.00

From Subsidiaries
Effect Of Foreign Exchange

0.00

0.00

0.00

Fluctuations
Closing Cash And Cash

41529.60

41417.52

36229.31

Reserves/ Op. Cash Balances

Equivalents
Source : Dion Global Solutions Limited

87

KEY RATIOS OF LAST 3 YEARS

(Rs In Cr.)
2014

2013

2012

Earnings Per Share (Rs.)

84.94

72.17

56.09

DPS(Rs.)

23.00

20.00

16.50

Book NAV/share (Rs.)

633.83

578.22

524.02

Yield On Advances

13.04

13.81

13.22

Yield On Investment

6.76

6.75

6.28

Cost Of Liabilities

5.69

5.98

5.76

NIM

2.96

2.76

2.39

Interest Spread

7.35

7.82

7.46

ROA(%)

0.00

3.40

1.44

ROE(%)

14.02

13.10

11.20

ROCE(%)

10.82

10.04

9.48

Cost Income Ratio

38.32

40.58

43.05

Core Cost Income Ratio

39.44

41.39

42.87

Operating Cost To Assets

0.00

0.00

1.61

OPERATIONAL AND
FINANCIAL RATIOS:

MARGIN RATIOS:

PERFORMANCE RATIOS:

EFFICIENCY RATIOS:

88

Capitalization Ratios:
Tier 1 Ratio

0.00

0.00

0.00

Tier 2 Ratio

0.00

0.00

0.00

CAR

0.00

0.00

0.00

PER(x)

14.66

14.48

15.82

PCE(x)

69.46

68.65

14.72

Price/Book(X)

9.82

9.04

1.69

Yield(%)

1.85

1.91

1.86

EV/ net sales(x)

6.76

6.64

7.23

EV/core EBITDA(x)

17.99

20.15

23.34

EV/EBIT(x)

7.17

7.07

7.67

EV/CE(x)

0.00

0.00

0.50

M Cap/ Sales

3.26

3.01

3.05

Core Operating Income Growth

18.82

29.18

19.04

Operating Profit Growth

7.28

(5.77)

(37.35)

Net Profit Growth

17.84

28.77

25.51

BV PS growth

9.62

10.34

9.55

Advances Growth

16.69

14.39

17.27

EPS growth (%)

17.69

28.68

25.40

Loans/ Deposits(X)

0.47

0.50

0.55

Total Debt/Equity(X)

0.07

0.07

0.08

Current Ratio(X)

0.53

0.59

0.62

Quick Ratio(X)

46.63

49.67

54.86

VALUATION PARAMETERS:

GROWTH RATIOS:

LIQUIDITY RATIOS:

89

Total debt/ Mcap (x)

0.00

0.00

0.00

Net NPA in Rs. Million

0.00

0.00

0.00

Source : Dion Global Solutions Limited

CHAPTER14.
IDBI BANK
HISTORY
The Industrial Development Bank of India (IDBI) was established in 1964 under an Act of
Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 1976, the ownership of
IDBI was transferred to the Government of India and it was made the principal financial
institution for coordinating the activities of institutions engaged in financing, promoting and
developing industry in India. IDBI provided financial assistance, both in rupee and foreign
currencies, for green-field projects as also for expansion, modernization and diversification
purposes. In the wake of financial sector reforms unveiled by the government since 1992, IDBI
also provided indirect financial assistance by way of refinancing of loans extended by State-level
financial institutions and banks and by way of rediscounting of bills of exchange arising out of
sale of indigenous machinery on deferred payment terms.
After the public issue of IDBI in July 1995, the Government shareholding in the Bank came
down from 100% to 75%.
IDBI played a pioneering role, particularly in the pre-reform era (196491), in catalyzing broad
based industrial development in India in keeping with its Government-ordained development
banking

charter.

Some of the institutions built with the support of IDBI are the Securities and Exchange Board of
India (SEBI), National Stock Exchange of India (NSE), the National Securities Depository
Limited (NSDL), the Stock Holding Corporation of India Limited (SHCIL), the Credit Analysis
& Research Ltd, the Exim Bank (India), the Small Industries Development Bank of
India (SIDBI) and the Entrepreneurship Development Institute of India.
OVERVIEW:

90

Development Banking emerged after the Second World War and the Great Depression in 1930s.
The demand for reconstruction funds for the affected nations compelled in setting up of national
institutions for reconstruction. At the time of Independence in 1947, India had a fairly developed
banking system. The adoption of bank dominated financial development strategy was aimed at
meeting the sectoral credit needs, particularly of agriculture and industry. Towards this end, the
Reserve Bank concentrated on regulating and developing mechanisms for institution building.
The commercial banking network was expanded to cater to the requirements of general banking
and for meeting the short-term working capital requirements of industry and agriculture.
Specialised development financial institutions (dfis) such as the IDBI, NABARD, NHB and
SIDBI, etc., with majority ownership of the Reserve Bank were set up to meet the long-term
financing requirements of industry and agriculture.

VISION:
To be the most preferred and trusted bank enhancing value for all stakeholders.
MISSION:

To be the most preferred and trusted bank enhancing value for all stakeholders.

mission

Delighting customers with our excellent service and comprehensive suite of best-in-class
financial solutions;

Touching more people's lives with our expanding retail footprint while maintaining our
excellence on corporate and infrastructure financing;

Continuing to act in an ethical, transparent and responsible manner, becoming the role
model for corporate governance;

91

Deploying world class technology, systems and processes to improve business efficiency
and exceed customers expectations;

Encouraging a positive, dynamic and performance-driven work culture to nurture

employees grow them and build a passionate and committed work force;

Expanding our global presence;

Relentlessly striving to become a greener bank.

BALANCE SHEET OF LAST 3 YEARS

(Rs In Cr.)
2014

2013

2012

Total Share Capital

1603.94

1332.75

1278.38

Equity Share Capital

1603.94

1332.75

1278.38

Share Application Money

0.45

0.77

0.00

Preference Share Capital

0.00

0.00

0.00

Reserves

22034.92

19902.51

16295.61

Revaluation Reserves

0.00

0.00

1853.93

NET WORTH

23639.31

21236.03

19427.92

CAPITAL AND LIABILITIES

92

Deposits

235773.63

227116.47

210492.56

Borrowings

60146.29

65808.87

53477.64

TOTAL DEBTS

295919.92

292925.34

263970.20

Other Liabilities And Provisions

9437.40

8607.14

7439.12

TOTAL LIABILITIES

328996.63

322768.51

290837.24

12711.11

10543.95

15090.21

7380.57

2967.44

ASSETS
Cash and balance with RBI

Balance With Banks And Money 4106.80

At Call
Advances

197686.00

196306.45

181158.43

Investments

103773.50

98800.93

83175.36

GROSS BLOCK

2963.06

2908.56

4548.74

Accumulated Depreciation

0.00

0.00

1554.43

NET BLOCK

2963.06

2908.56

2994.31

Capital Work In Progress

20.14

16.72

24.50

Other Assets

7736.01

6811.32

5426.98

TOTAL ASSETS

328.996.62

322768.50

290837.23

Contingent Liabilities

196540.68

187819.01

122965.13

Bills For Collection

0.00

0.00

31232.30

Book Value(Rs.)

147.38

159.33

137.47

Source : Dion Global Solutions Limited

93

PROFIT AND LOSS A/C OF LAST 3 YEARS

(Rs In Cr.)
2014

2013

2012

Interest Earned

26608.14

25075.66

23389.06

Other Income

3112.11

3333.96

2196.50

TOTAL INCOME

29720.25

28409.62

25585.56

Interest Expended

20558.15

19674.11

18818.07

Employee Cost

1600.60

1742.88

1362.50

Selling And Admin Expenses

0.00

0.00

0.00

Depreciation

116.60

128.34

120.42

Miscellaneous Expenses

6278.70

4958.01

3271.46

Preoperative Exp Capitalized

0.00

0.00

0.00

Operating Expenses

3387.81

3211.98

2711.19

Provisions And Contingencies

4608.09

3617.25

2043.19

INCOME

EXPENDITURE

94

TOTAL EXPENSE

28554.05

26503.34

23572.45

Net Profit For The Year

1166.20

1906.29

2013.12

Minority Interest

14.46

12.90

10.62

Share Of P/L Of Associates

0.00

4.49

0.00

Net P/L After Minority Interest And

1151.74

1888.90

2002.50

Extraordinary Items

0.00

0.00

0.00

Profit Brought Forward

547.79

325.50

306.36

TOTAL

1713.99

2231.79

2319.48

Preference Dividend

0.00

0.00

0.00

Equity Dividend

160.41

466.47

391.43

Corporate Dividend Tax

31.23

75.94

63.50

Earning Per Share(Rs.)

7.27

14.30

15.75

Equity Dividend(%)

0.00

0.00

0.00

Book Value (Rs.)

147.34

159.08

151.68

Transfer To Statutory Reserves

540.32

962.65

774.95

Transfer To Other Reserves

402.74

161.55

753.48

Proposed Dividend/Transfer To

191.64

542.41

454.93

564.82

547.79

325.50

Share Of Associates

Per Share Data (Annualized)

APPROPRIATIONS

Government
Balance C/F To Balance Sheet

95

TOTAL

1699.52

2214.40

2308.86

Source : Dion Global Solutions Limited

CASH FLOW STATEMENT OF LAST 3 YEARS

(Rs In Cr.)
2014

2013

2012

Net Profit Before Tax

1741.14

2621.78

2629.70

Net Cash From Operating Activities

(2005.99)

(346.03)

(3109.60)

Net Cash (Used In )/ From Investing

(222.93)

(122.16)

(159.17)

Activities
Net Cash (Used In )/ From Financing

1122.30

335.05

560.35

Activities
Net (Decrease)/Increase In Cash And

(1106.61)

(133.13)

(2708.42)

Cash Equivalents
Opening Cash And Cash Equivalents

17324.52

18057.65

20766.07

Closing Cash And Cash Equivalents

16817.19

17924.52

18057.65

Source : Dion Global Solutions Limited

KEY RATIOS OF LAST 3 YEARS

(Rs In Cr.)
2014

2013

2012

INVESTMENT VALUATION
96

RATIOS:
Face Value

10.00

10.00

10.00

Dividend Per Share

--

--

--

Operating Profit Per Share (Rs.)

17.32

17.39

15.49

Net Operating Profit Per Share (Rs.)

165.89

188.15

182.96

Free Reserves Per Share (Rs.)

--

--

--

Bonus In Equity Capital

15.26

18.36

19.15

Interest Spread

6.50

--

--

Adjusted Cash Margin (%)

4.31

7.16

8.33

Net Profit Margin

3.87

6.64

7.82

Return On Long Term Fund (%)

91.92

101.78

107.43

Return On Net Worth (%)

4.87

8.90

10.32

Adjusted Return On Net Worth (%)

4.93

8.99

10.38

Return On Assets Excluding

147.34

159.08

151.68

Revaluations
Return On Assets Including

147.34

159.08

151.68

RATIOS:
Interest Income/Total Funds

8.17

8.18

8.60

Net Interest Income/Total Funds

1.86

1.76

1.68

PROFITABILITY RATIOS:

Revaluations
MANAGEMENT EFFICIENCY

97

Non Interest Income/Total Funds

0.96

1.09

0.81

Interest Expended/Total Funds

6.31

6.42

6.92

Operating Expenses/Total Funds

1.00

1.01

0.95

Profit Before Provisions/Total Funds

1.77

1.80

1.49

Net Profit/Total Funds

0.36

0.62

0.74

Loans Turnover

0.14

0.13

0.14

Total Income/Capital Employed (%)

9.12

9.27

9.41

Interest Expended/Capital Employed

6.31

6.42

6.92

(%)
Total Assets Turnover Ratios

0.08

0.08

0.09

Asset Turnover Ratio

0.08

0.08

0.09

RATIOS:
Interest Expended/Interest Earned

77.26

78.46

80.46

Other Income/Total Income

10.47

11.74

8.58

Operating Expense/Total Income

11.01

10.85

10.13

Selling Distribution Cost Composition

--

--

--

Capital Adequacy Ratio

--

--

--

Advances/Loans Funds (%)

67.19

70.56

72.85

PROFIT AND LOSS ACCOUNT

BALANCE SHEET RATIOS:

DEBT COVERAGE RATIOS:

98

Credit Deposit Ratio

85.19

86.22

86.43

Investment Deposit Ratio

43.65

41.47

38.61

Cash Deposit Ratio

5.03

5.87

8.87

Total Debt To Owners Fund

9.97

10.70

10.84

Financial Charges Coverage Ratio

1.23

1.23

1.22

Financial Charges Coverage Ratio Post

1.06

1.10

1.11

Current Ratio

0.03

0.86

0.86

Quick Ratio

22.84

24.50

28.63

Dividend Payout Ratio Net Profit

16.63

28.71

22.71

Dividend Payout Ratio Cash Profit

15.10

26.88

21.42

Earning Retention Ratio

83.57

71.55

77.41

Cash Earnings Retention Ratio

85.07

73.35

78.68

Adjusted Cash Flow Times

183.64

111.51

98.54

Tax
LEVERAGE RATIOS:

Cash Flow Indicator Ratios:

Source : Dion Global Solutions Limited

99

CHAPTER 15.
COMPARISON BETWEEN ICICI AND IDBI BANK
ICICI BANK
Despite being the second largest bank in the country after SBI in terms of asset size, ICICI Bank
lost its share of the banking sector's advances from 10.2% in FY07 to 8% in FY12. At the end of
March 2012, the bank had assets of over Rs 4.8 trillion and a franchise of over 9,000 ATMs and
2,750 branches spread across the country. Retail assets constituted 34% of advances in FY12 as
against 65% in FY07. The bank is focusing on loan origination in the large corporate, SME and
agrie segments and on non-fund based products and services. Besides the bank itself being the
market leader across retail loan portfolios, its subsidiaries ICICI Life Insurance, ICICI General
Insurance and ICICI AMC are leaders in their respective businesses.
IDBI BANK
After the amalgamation of IDBI with IDBI Bank and later with the beleaguered United Western
Bank (UWB) in 2006, the bank has managed to integrate the additional branches and employees
with itself. The bank had a franchise of over 1,200 ATMs and 720 branches at the end of March
2010. Retail assets constituted 16% of advances in FY10, up from 13% in FY05

100

CHAPTER 16.
OBJECTIVES OF THE STUDY:
1. To understand the importance of financial services in our economy.
2. To comprehend the new developments in banking sector.
3. To know the complexity involved in workings of the sector.
4. To understand the importance of banking sector.
5. The know the role and importance of technology in banking.
6. To study about ICICI bank and IDBI bank and its related aspects like its
history, benefits to customers etc.
7. To study the financial position of ICICI bank in comparison with IDBI
bank.

101

CHAPTER 17.
REVIEW OF LITERATURE:
1. Journal of Banking, Information Technology and Management- Performance
of Indian Banking Sector
Author: Vinod k.Bhatnagar & Prakash Sharma)
Indian banking sector is the pivot of economy. The performance of banks
depends on the policy implemented by the Reserve Bank of India.The banks
play an important role in the concentration of the monetary economy of the
nation.

2. Elements of Banking Sector & Insurance

Author: Jyotsna Sethi & Nishwan Bhatia)
The present book is an attempt to describe the role of banking and insurance
sectors in the current era of globalization, privatization and liberalization. There
has been a multifold increase in the demand for banking services.

3. Theory & Practice of Banking

102

Author: K.K.Upadhyay
Although banking is an old activity and has its root in economics, finance and
commerce, the word banking technology is of recent origin. This book
attempts to demystify the word banking technology and offers much broader
meaning and more realistic.
4. Banking sector Reforms in India
Author: Sultan Singh
This book primarily aims at assessing the impact of Banking Sector Reforms on
the general nature of functioning and operating performance of commercial
banks in India.

5. Banking Sector Efficiency in Globalized Economy

Author: Pramod Kumar
This book refers to the globalization of financial markets has gained additional
momentum as a result of liberalization programmes undertaken by various
countries.

6. Banking in the New Millennium

Issues, Challenges and Strategies
Author: R.K.Uppal & Rimpi kaur
This book examines the changes after liberalization and globalization process
installed since 1991 significant impact on the financial system particularly on
103

the banking industry. Indian banking and financial system in the new
millennium is facing a series of new challenges.

7. Principles of Banking Management

Author: Neelam C.Gulati
The banking system is of great importance for the economic growth of less
developed and developing countries. A well-developed commercial banking
system can prove a boon for an economy.
8. Bank Management
Author: Timothy W.Koch
The purpose of bank management is multifaceted. The banking industry is
consolidating and diversifying simultaneously. The book focuses on decision
making and offers a unique approach to understanding bank management.

104

CHAPTER 18.
RESEARCH METHODOLOGY:
This phase mainly involve stating the conceptual structure within which research
would be conducted. As the process of analysis the financial statement is a
thought provoking process, it is totally based on the secondary data.
The process of analysis of the financial statement is being carried out in the
following stages.
Primary Data:
The primary data will be conducted through the questionnaire designed. In the
process of data collection we went to respective banks to get the questionnaire
filled. The preparation of the project report required me to visit the various other
banks in order to collect data.

Secondary Data:
The secondary data was collected through internet such as search engine
www.google.com and miscellaneous sources (library, journals) under external
sources.

105

Sample Size:
The sample size for research consisted of 50 customers.

Definition of Problem:
The main purpose of the project is to understand the whole concept of overview
of banking sector in India.
For the purpose of lending or investment of deposits of money from the public,
repayable on demand and otherwise and withdrawals by cheques, draft, order or
otherwise.

106

DATA ANALYSIS OF ICICI BANK

Age

Male

Female

20-40

12

13

AGE

52%

48%

MALE
FEMALE

Interpretation:

107

The above data shows that out of 25 sample size 12 are males and 13 are
females.48% males and 52% females.

1) Occupation
a)

Government Employee-0

b) Private Employee-8
c)

Self Employed-7

d) Student-4
e) Housewife-6

OCCUPATION

GOVERNMENT EMPLOYEE
24%

32%

PRIVATE EMPLOYEE
SELF EMPLOYED
STUDENT

16%
28%

HOUSEWIFE

108

Interpretation:
From the above response it can be seen that
0% respondents occupation is government employee.
32% respondents occupation is private employee.
28% respondents occupation is self-employed.
16% respondents occupation is students.
24% respondents occupation is housewife.
2) Are you satisfied with services of ICICI banks?
a)

Yes-22

b) No-3

109

SERVICES
12%
YES
NO
88%

Interpretation:
From the above response it can be seen that:
88% respondents are satisfied with services of ICICI bank.
12% respondents are not satisfied with services of ICICI bank.

3) In which bank you have an A/C.

a) ICICI-13
b) IDBI-1
c) Others if specify-11

110

BANK ACCOUNT

ICICI

44%

52%

IDBI
OTHER

4%

Interpretation:
52% respondents have an account with ICICI bank.
4% respondents have an account with IDBI bank.
44% respondents have an account with other banks.

4) If get an opportunity in future would you like to get attached with IDBI
Bank?
a)

Yes-15

b)

No-10

111

OPPORTUNITY

40%

YES
60%

NO

Interpretation:
60% respondents are ready to get attached with IDBI bank in future if
they get an opportunity.
40% respondents are not interested in getting attached with IDBI bank.

5) What are the factors which you considered before opening account in a
particular bank?
a)

Financial Position-2

b)

Current Market Position-1

112

c)

Goodwill-8

d)

Future Prospects-11

e)

Any others -3

FACTORS

12%

CURRENT MARKET
POSITION

4% 8%

FINANCIAL POSITION
32%
44%

GOODWILL
FUTURE PROSPECTS
ANY OTHERS

Interpretation:
From the above response it can be seen that:
8% respondents considered financial position factor of a particular bank
before opening account.
4% respondents considered current market position factor of a particular
bank before opening account.
32% respondents considered goodwill as a factor of a particular bank
before opening account.
A huge no of 44% respondents considered future prospects factor of a
particular bank before opening account.
113

 12% respondents considered any other factor of a particular bank before

opening account.
6) Which of the following A/C do you have in IDBI/ICICI bank?
a) Current A/C-2
b) Saving A/C-15
c) Fixed Deposit-4
d) Demat A/C-2
f) NRI-1
g) Others Plz Specify-1

ACCOUNTS

8%

CURRENT A/C

4% 4% 8%

SAVING A/C
FIXED DEPOSITS

16%

DEMAT A/C
60%

NRI
OTHERS

Interpretation:
From above response it can be seen that:
8% respondents have current A/C & Demat A/C in ICICI bank.
114

 Majority of 60% respondents have saving A/C in ICICI bank.

16% respondents have Fixed Deposits in ICICI bank.
4% respondents have NRI A/C & others A/C in ICICI bank.

7) Which mode of transaction do you avail frequently?

a)

Pay Order-1

b)

DD-5

c)

Cheque-14

d)

Any other-5

MODES OF TRANSACTIONS

4%

20%

20%

PAY ORDER
DD
CHEQUE
ANY OTHYER

56%

Interpretation:
From above responses it can be seen that:
4% respondent frequently avail Pay order mode of transaction.
115

 20% respondent frequently avail DD & other mode of transaction.

56% respondent frequently avail Cheque mode of transaction.
8) Which of the following innovative service of ICICI banks would you like to
go in for?
a) ATM services-8
b) Internet Banking-4 c)
Mobile Banking-0
d) Core Banking-2 e)
Phone

Banking-0

f)

Bill Payment-0
g) None of These-2
h) All of These-9

INNOVATIVE SERVICES
ATM
INTERNET BANKING
32%

36%

MOBILE BANKING
CORE BANKING
PHONE BANKING

8%

8%

16%

BILL PAYMENT
NONE OF THESE
ALL OF THESE

Interpretation:
116

From above response it can be seen that:

32% respondents would like to go in for ATM innovative service of ICICI
bank.
16% respondents would like to go in Internet banking innovative service of
ICICI bank.
0% respondents would like to go in for Mobile banking, Phone banking &
Bill payment innovative service of ICICI bank.
8% respondents would like to go in for Core banking & none of these
innovative services of ICICI bank.
36% respondents would like to go in for All of these innovative service of
ICICI bank.

9) Is other bank providing better facilities than ICICI bank?

a) Yes-4
b) No-4
c) Cant Say-17

117

BETTER FACILITIES

16%
16%
68%

YES
NO
CAN'T SAY

Interpretation:
From above response it can be seen that:
16% respondents are aware & are not aware of other banks providing
better facilities than ICICI bank.
68% respondents are not sure which banks are better.

10)

Which bank is more secured?

a) ICICI-17
b) IDBI-0
c) Other-8

118

SECURITY

32%

ICICI
IDBI
68%

OTHER

Interpretation:
From the above response it can be seen that:
68% respondent says that ICICI bank is more secured.
0% respondent says IDBI bank is more secured.
32% respondent says other banks are more secured.

11) Have you availed loan facilities from your ICICI bank?
a)

Yes-7

b)

No-18

119

If yes, type of loan a)

a) Car Loan-1
b) Personal Loan-2
c) Consumer durable Loan-0
d) Loan against shares-1
e) Housing Loan-2
f) Others (Plz specify)-1

LOAN FACILITIES

22% 3%
7%

56%

3%

YES

CAR LOAN

PERSONEL LOAN

CONSUMER DURABLE
LOAN

LOAN AGAINST SHARES

HOUSING LOAN

OTHERS

NO

3% 6%

Interpretation:
From the above response it can be seen that:

120

 22% respondent have availed loan facilities from ICICI bank.

56% respondent have not availed loan facilities from ICICI bank.
3% respondent have availed car loan, Loan against shares & other loan
facilities from ICICI bank.
7% respondent have availed Personal loan facilities from ICICI bank.
0% respondent have availed Consumer durable loan facilities from ICICI
bank.
6% respondent have availed Housing loan facilities from ICICI bank.
12)

How would you describe the products the ICICI bank offer?
a) Adequate-10
b) Average-14
c) Inadequate-1

DESCRIBE THE PRODUCTS

4%
ADEQUATE
40%

56%

AVERAGE
INADEQUATE

Interpretation:
From above response it can be seen that:
121

 40% respondent perception about the product the ICICI bank offer is
Adequate & Inadequate.

56% respondent perception about the product the ICICI bank offer is
Average.

13) What are the reasons that attract you to be a customer of ICICI

bank?
a) Its image-5
b) Its service-5
c) Products-1
d) All of the above-14

REASONS

20%

ITS IMAGE
ITS SERVICES

56%

20%
4%

PRODUCTS
ALL OF THE ABOVE

Interpretation:

122

 20% respondent feels that its image & its service are the reasons that
attract them to be the customer of ICICI bank.
4% respondent feels that its products are the reasons that attract them to
be the customer of ICICI bank.
56% respondent feels that all three is the reasons that attract them to be the
customer of ICICI bank.

14) How do you get to know about the various products of ICICI
banks?
a) Advertisement-8
b) Sales Agent-0
c) Personal Banker-4
d) All the above-13

KNOWLEDGE OF THE PRODUCTS

32%
52%

ADVERTISEMENT
SALES AGENTS
PERSONAL BANKERS

16%

ALL THE ABOVE

123

Interpretation:
From the above it can be seen that:
32% respondent comes to know about the various products of ICICI
banks through Advertisement.
0% respondent comes to know about the various products of ICICI banks
through Sales agent.
16% respondent comes to know about the various products of ICICI
banks through Personal banker.
52% respondent comes to know about the various products of ICICI
banks through all the above three.

15)

Which Services of ICICI banks would you rate the best?

a) Saving A/C-6
b) Fixed Deposits-2
c) Current A/C-0
d) Demat A/C-1
e) Credit card-0
f) Insurance-10
g) Mutual funds-1
h) Loans-5
i) Debit Card-0

124

RATE THE SERVICES

SAVING A/C
FIXED DEP
20%

CURRENT A/C

24%

DEMAT A/C

4%
8%
4%
40%

CREDIT CARD
INSURANCE
MUTUAL FUNDS
LOANS
DEBIT CARD

Interpretation:
From the above it can be seen that:
24% respondents rate the saving A/C as the best service of ICICI bank.
8% respondents rate the fixed deposits as the best service of ICICI bank.
0% respondents rate the current A/C, credit card & debit card as the best
service of ICICI bank.
4% respondents rate the demat A/C & Mutual funds as the best service of
ICICI bank.
40% respondents rate the insurance as the best service of ICICI bank.
20% respondents rate the loans as the best service of ICICI bank.
125

DATA ANALYSIS OF IDBI BANK

Age

Male

Female

20-40

16

AGE

36%

MALE
64%

FEMALE

Interpretation:
The above data shows that out of 25 sample size 16 are males and 9 are
females.64% males and 36% females.
1) Occupation
a)

Government Employee-2

b) Private Employee-11

126

c)

Self Employed-4

d) Student-4
e) Housewife-

OCCUPATION

16%

GOVERNMENT EMPLOYEE

8%

PERSONAL EMPLOYEE
SELF EMPLOYED

16%

44%
16%

STUDENT
HOUSEWIFE

Interpretation:
From the above response it can be seen that
8% respondents occupation is government employee.
44% respondents occupation is private employee.
16% respondents occupation is self-employed, students & housewife.

127

2) Are you satisfied with services of IDBI banks?

a) Yes-24
b) No-1

SERVICES
4%
YES
NO
96%

Interpretation:
From the above response it can be seen that:
96% respondents are satisfied with services of IDBI bank.
4% respondents are not satisfied with services of IDBI bank.

128

3) In which bank you have A/C.

a) ICICI-0
b) IDBI-17
c) Others if specify-8

BANK ACCOUNT

32%

IDBI
ICICI
68%

OTHERS

Interpretation:
0% respondents have an account with ICICI bank.
68% respondents have an account with IDBI
bank.
32% respondents have an account with other banks.

129

4) If get an opportunity in future would you like to get attached with IDBI
Bank?
a) Yes-9
b) No-16

OPPORTUNITY

36%
YES
64%

NO

Interpretation

36% respondents are ready to get attached with ICICI bank in future if
they get an opportunity.
64% respondents are not interested in getting attached with ICICI bank.

130

5) What are the factors which you considered before opening account in a
particular bank?
a) Financial Position-0
b) Current Market Position-0
c) Goodwill-0
d) Future Prospects-15
e ) Any others -10

FACTORS

CURRENT MARKET
POSITION
FINANCIAL POSITION

40%
60%

GOODWILL
FUTURE PROSPETS
ANY OTHERS

Interpretation:
From the above response it can be seen that:

131

 0% respondents considered financial, market & goodwill position factor

of a particular bank before opening account.
A huge no of 60% respondents considered future prospects factor of a
particular bank before opening account.
40% respondents considered any other factor of a particular bank before
opening account.

6) Which of the following A/C do you have in IDBI bank?

a) Current A/C-2
b) Saving A/C-17
c) Fixed Deposit-3
d) Demat A/C-1
e) NRI-2
f) Others Plz Specify-0

132

ACCOUNTS

4%

8%

CURRENT A/C

8%

SAVING A/C

12%

FIXED DEPOSITS
DEMAT A/C
68%

NRI
OTHERS

Interpretation:
From above response it can be seen that:
8% respondents have current A/C & NRI A/C in IDBI bank.
Majority of 68% respondents have saving A/C in IDBI bank.
12% respondents have Fixed Deposits in IDBI bank.
4% respondents have Demat A/C in IDBI bank.
0% respondents have other accounts in IDBI bank.

7) Which mode of transaction do you avail frequently?

a) Pay Order-3
b) DD-4
133

c) Cheque-16
d) Any other-2

MODES OF TRANSACTIONS

6%

12%
16%

PAY OREDR
DD
CHEQUE

65%

ANY OTHER

Interpretation:
From above responses it can be seen that:
12% respondent frequently avail Pay order mode of transaction.
16% respondent frequently avail DD mode of transaction.
64% respondent frequently avail Cheque mode of transaction.
8% respondent frequently avail other mode of transaction.

8) Which of the following innovative service of IDBI banks would you like
to go in for?
a) ATM services-9
134

b) Internet Banking-6
c) Mobile Banking-0
d) Core Banking-0
e) Phone Banking-0
f) Bill Payment-0
g) None of These-0
h) All of These-10

INNOVATIVE SERVICES
ATM
INTERNET BANKING
36%

40%

MOBILE BANKING
CORE BANKING
PHONE BANKING
BILL PAYMENT

24%

NONE OF THESE
ALL OF THESE

Interpretation:
From above response it can be seen that:
36% respondents would like to go in for ATM innovative service of
135

IDBI bank.
24% respondents would like to go in Internet banking innovative service
of IDBI bank.
0% respondents would like to go in for Mobile, core, phone & Bill
payment banking, none of these innovative services of IDBI bank.
40% respondents would like to go in for All of these innovative service of
IDBI bank.

9) Is other bank providing better facilities than IDBI bank?

a) Yes-2
b) No-6
c) Cant Say-17

BETTER FACILITIES

8%
24%

YES
NO

68%

CAN'T SAY

Interpretation:
From above response it can be seen that:

136

 8% respondent is aware of other banks providing better facilities than

IDBI bank.
24% respondent is not aware of other bank providing better facilities than
IDBI bank.
68% respondent is not sure which banks are better.

10)

Which bank is more secured?

a)

ICICI-17

b) IDBI-0
c) Other-8

SECURITY

12%
ICICI
IDBI
OTHERS
88%

Interpretation:
From the above response it can be seen that:

137

 0% respondent says that ICICI bank is more secured.

88% respondent says IDBI bank is more secured.
12% respondent says other banks are more secured.
11) Have

you availed loan facilities from your IDBI bank?

aYes-14
b) No-11

If yes, type of loan

a) Car Loan-3
b) Personal Loan-4
C) Consumer durable Loan-0
d) Loan against shares-0
e) Housing Loan-6
f) Others (Plz specify)-1

138

LOAN FACILITIES

28%
36%
3%
15% 10% 8%

YES

CAR LOAN

PERSONAL LOAN

CONSUMER DURABLE
LOANS

LOAN AGAINST SHARES

HOUSING LOAN

OTHERS

NO

Interpretation:
From the above response it can be seen that:
36% respondent have availed loan facilities from IDBI bank.
28% respondent have not availed loan facilities from IDBI bank.
8% respondent have availed car loan facilities from IDBI bank.
10% respondent have availed Personal loan facilities from IDBI bank.
0% respondent have availed Consumer durable loan & Loan against
shares facilities from IDBI bank.
15% respondent have availed Housing loan facilities from IDBI bank.
3% respondent have availed other loan facilities from IDBI bank.
12) How would you describe the products the IDBI bank offer?
a) Adequate-16
b) Average-9
c) Inadequate-0
139

DESCRIBE THE PRODUCTS

36%

ADEQUATE
AVERAGE
64%

INADEQUEATE

Interpretation:
From above response it can be seen that:
64% respondent perception about the product the IDBI bank offer is
Adequate.

36% respondent perception about the product the IDBI bank offer is
Average.

0% respondent perception about the product the IDBI bank offer is

Inadequate.

13) What are the reasons that attract you to be a customer of IDBI bank?
a) Its image-6
b) Its service-5
c) Products-0
140

d) All of the above-14

REASONS

24%

ITS IMAGE
ITS SERVICES

56%

PRODUCTS
20%

ALL OF THE ABOVE

Interpretation:
24% respondent feels that its image is the reasons that attract them to be
the customer of IDBI bank.
20% respondent feels that its service is the reasons that attract them to be
the customer of IDBI bank.
0% respondent feels that its products are the reasons that attract them to
be the customer of IDBI bank.
56% respondent feels that all three is the reasons that attract them to be the
customer of IDBI bank.

14) How do you get to know about the various products of IDBIbanks?
141

a)

Advertisement-5

b) Sales Agent-0
c) Personal Banker-4
d) All the above-16

KNOWLEDGE OF THE PRODUCTS

20%

ADVERTISEMENT
SALES AGENTS

64%

16%

PERSONAL BANKERS
ALL OF THE ABOVE

Interpretation:
From the above it can be seen that:
20% respondent comes to know about the various products of HDFC
banks through Advertisement.
0% respondent comes to know about the various products of HDFC banks
through Sales agent.
16% respondent comes to know about the various products of HDFC
banks through Personal banker.
142

 64% respondent comes to know about the various products of HDFC

banks through all the above three.

15) Which Services of IDBI banks would you rate the best?
a) Saving A/C-9
b) Fixed Deposits-3
c) Current A/C-0
d) Demat A/C-2
e) Credit card-0
f) Insurance-1
g) Mutual funds-2
h) Loans-8
i) Debit Card-0

RATE THE SERVICES

SAVING A/C
FIXED DEPOSITS
CURRENT A/C
32%

36%

DEMAT A/C
CREDIT CARD

8%

INSURANCE
4%

8%

12%

MUTUAL FUNDS
LOANS
DEBIT CARD

Interpretation:
143

From the above it can be seen that:

36% respondents rate the saving A/C as the best service of IDBI bank.
12% respondents rate the fixed deposits as the best service of IDBI
bank.
0% respondents rate the current A/C, credit card & debit card as the best
service of IDBI bank.
8% respondents rate the demat A/C & mutual funds as the best service of
IDBI bank.
4% respondents rate the insurance as the best service of IDBI bank.
32% respondents rate the loans as the best service of IDBI bank.

CHAPTER 19.
CONCLUSION:
The needs of the nation and its people have finally prevailed and privatization of
banking is now a really towards further liberalization of the Indian economy.
With the opening up of the Industry after reforms, private sector operators in
collaboration with their overseas partners are likely to bring in a more
professional and focused approach. Hence, in this millennium, banking industry
is likely to play an important role in changing the economic landscape of the
country. However the success of the banking industry will primarily depend
upon meeting the rising expectations of the customers.

144

After nationalization process, the banks advances started getting stingy and bad
debts started to increase. By the admission of foreign investors in Indian
banking sector the competition and the service value also started to increase. All
these reflects that the Indian banking sector has bloomed little due the entrance
of foreign investors in Indian banking sector but that ignores one of the main
aspects of the Indian economy that is agriculture sector.

CHAPTER 20.
RECOMMENDATIONS AND SUGGESTIONS:
Documentation and formalities should be less.

Processing time and charged should be less.

Easy and quick accessibility of information should be there.

Reduction in interest rates for loan and overcharges.

Banks should try to aim at providing better service to the customers.

145

Banks should also adopt latest trends for advertising of their products.

Banks officials should improve their work behavior and they should
maintain sound relation with their customers.

At the time of providing loan bank should have less terms and conditions.

More branches should be open.

They must open more number of ATM centers near stations and many
more places.

They should do their work on time and also fast.

CHAPTER 21.
BIBLIOGRAPHY:
Site Name:
www.google.com
www.rbi.org
www.hdfcbank.com
www.icicibank.com
A project report on comparison between IDBI bank & amp; ICICI bank

146

CHAPTER 22.
LIMITATIONS:
Every work has its own limitations. Limitations are extent to which the process
should not exceed. Limitations of this project are:
1. The project was constrained by time limit.
2. The project study is restricted to banking sector in India only.
3. It was difficult task to convince them to fill in the personal details of
questionnaire.
4. The figures have been taken as approx.
147

CHAPTER 23.
ANNEXURE:
QUESTIONNAIRE
AGE:

GENDER:-

1) Occupation

148

a) Government Employee
b) Private Employee
c) Self Employed
d) Student
e) Housewife

2) Are you satisfied with services of ICICI/IDBI banks?

a) Yes
b) No

3) In which bank you have A/C.

a) ICICI
b) IDBI
c) Others if specify.

3) If get an opportunity in future would you like to get

attached with ICICI Bank/IDBI Bank?
a)

Yes

b) No
4) What are the factors which you considered before
opening account in a particular bank?
a) Financial Position
149

b) Current Market Position

c) Goodwill
d) Future Prospects
e) Any others

5) Which of the following A/C do you have in IDBI /ICICI

bank?

a) Current A/C
b) Saving A/C
c) Fixed Deposit
d) Demat A/C
e) NRI
f) Others Plz Specify

6) Which mode of transaction do you avail frequently?

a) Pay Order
b) DD
c) Cheque
e) Any other

7) Which

of

the

following

innovative

service

of

ICICI/IDBIbanks would you like to go in for?

150

a) ATM services
b) Internet Banking
c) Mobile Banking
d) Core Banking
e) Phone Banking
f) Bill Payment
g) None of These
h) All of These
9) Is other bank providing better facilities than IDBI/ICICI bank?
a) Yes
b) No
c) Cant Say

10) Which bank is more secured?

a) ICICI
b) IDBI
c) Other

11) Have you availed loan facilities from your ICICI/IDBI bank?
a) Yes
b) No
If yes, type of loan
151

a) Car Loan
b) Personal Loan
c) Consumer durable Loan
d) Loan against shares
e) Housing Loan
f) Others (Plz specify)
12) How would you describe the products the ICICI/IDBI bank offer?
a) Adequate
b) Average
c) Inadequate

13) What are the reasons that attract you to be a customer of ICICI/IDBI
bank?

a) Its image
b) Its service
c) Products
d) All of the above
14) How do you get to know about the various products of ICICI/IDBI
banks?
a) Advertisement
152

b) Sales Agent
c) Personal Banker
d) All the above
15) Which Services of ICICI/IDBI banks would you rate the best?
a) Saving A/C
b) Fixed Deposits
c) Current A/C
d) Demat A/C
e) Credit card
f) Insurance
g) Mutual funds
h) Loans
i) Debit Card

153