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Project on :

Products and services offered by banks

BACHELOR OF COMMERCE
(BANKING AND INSURANCE)
SEMESTER V
YEAR 2016-2017

UNIVERSITY OF MUMBAI
In Partial Fulfilment of requirement
For the award of degree of bachelor of commerce
(Banking and Insurance)
SUBMITED BY :
VINAY D. GOVILKAR
TYBCBI

UNDER THE GUIDENCE OF:


PROF. RESHMA KUKREJA

SMT. CHANDIBAI HIMATHMAL


MANSUKHANI COLLEGE
ULHASNAGER-3
SMT. CHANDIBAI HIMATHMAL
MANSUKHANI COLLEGE
ULHASNAGAR-421003

DEPARTMENT OF BANKING AND INSURANCE

CERTIFICATE
This is to certify that Mr. VINAY D. GOVILKAR, Roll no. 50 of B.
Com. (Banking and Insurance), Semester-V (2016-2017) has
successfully completed the project on PRODUCT AND
SERVICES PROVIDED BY BANK under the guidance of Prof
RESHMA KUKREJA

Prof. Reshma Kukreja Dr. Manju Lalwani Pathak


(I/C HOD, BCBI) (I/C Principal)

Prof. Bharti Valechha


(Project Guide)

Internal Examiner External


Examiner
DECLARATION

I, VINAY DATTATRAY GOVILKAR students of SMT. CHANDIBAI


HIMMATHMAL MANSUKHANI COLLEGE studying in third year of
BECHELOR OF COMMERCE BANKING & INSURANCE (TYBCBI)
hereby declare that I have complete this project on PRODUCTS AND
SERVICES PROVIDED BY BANKS in the academic year 2016-17.

This information submitted is true and original to the best of my knowledge.

VINAY GOVILKAR
Roll no. 50
TYBCBI
Acknowledgement

It is my pleasure to be indebted to various people, who directly or


indirectly contributed in the development of this project and who
influenced my thinking, behavior and acts during the course of study.
I express my sincere gratitude to the UNIVERSITY OF
MUMBAI and my college for giving me this opportunity for taking this
project, which has enhanced my knowledge about PRODUCTS AND
SERVICES PROVIDED BY BANKS.
It is with my deep gratitude, I would like to thank PROF.
RESHMA KUKREJA, under the guidance of whom I was able to
complete my project successfully. I wish to thank her for all useful
discussions and timely suggestions of the related topic and invaluable
help during preceding the project.
I also extend my sincere appreciation to all the people who helped
me to complete this project by their suggestions and valuable
information.
Objective of study

1. To analyse the various products/services distributional channels and their impact on


Productivity of banks.

2. To study and analyse the comparative efficiency in terms of profitability in partially IT using
Banks and ebanking in India.

3. To study the extent of comparative cost differences between the banks/bank groups while
managing transformation through different e-delivery channels.

4. To study the problems and prospects for ebanking in India and predict the future of
ebanking in India.

5. To suggest possible measures in the light of problems, if any, how to mould these
challenges into opportunities.

6. To study the perceptions of bank customers, bank employees regarding the use of various
products/services delivery channels and their acceptability in urban Punjab. The study will
also analyze:

- To ascertain the number of existing bank customers availing ebanking services.

- To determine the switch over rate of customers from traditional public sector banks to
modern IT equipped banks.

- To determine the factors considered by customers while selecting a bank for availing
e-services.

- To ascertain the reasons for not availing e-services by bank customers.


- To ascertain the problems, if any, faced by customers while availing e-services.
Research methodology

primary data:
visit to state bank of India, Badlapur west branch

secondary data:
The study is concerned with the banking industry in India. Post-liberalization, privatization
and globalization period has shown transformation in banking industry. Particularly, with the
introduction of IT in banking industry a lot of changes have taken place in public sector banks
but slowly whereas in new private sector banks and foreign banks working in India, these
changes have come at fast pace because these banks are fully computerized by birth. Many
public sector banks are managing transformation manually not through IT channels (due to
some internal and external constraints) but on the other hand new private sector banks and
foreign banks are managing whole process through e-channels. New private sector banks and
foreign banks as compared to public sector banks provide many new products and services.
Executive summery

Financial services are the economic services provided by the finance industry, which
encompasses a broad range of businesses that manage money, including credit unions, banks,
credit-card companies, insurance companies, accountancy companies, consumer-finance
companies, stock brokerages, investment funds and some government-sponsored enterprises.
The link between sound and well-developed financial systems and economic
growth is a fundamental one. Empirical evidence, both in developing and
advanced economies, has shown that countries with developed financial systems
grow at faster rates. Efficient and prudent allocations of resources by the financial
system is crucial for increasing productivity, boosting economic development,
enhancing equality of opportunity, and reducing poverty. Getting the financial
systems of developing countries to function more effectively in providing the
full range of financial services is thus a task that will be well rewarded with
economic growth.
This report takes a first look at the overall financial system of Iraq with a
forward looking approach. At the outset it was agreed with Iraqi authorities
that the focus of this review should be forward looking and constructive. Overall
the financial sector in Iraq is underdeveloped, and is playing a limited role in
financial intermediation. The banking system is still by far the most important
part of the Iraqi financial system, accounting for more than 75 percent of the
assets and dominated by state ownership. Non-bank financial institutions and
markets are small and under-developed but have the potential to provide access
to sources of finance.

INDEX
Chapter topic Page no.
no.
1. 1. Introduction
1 Origin of bank
1. History of bank
2 Functions of bank
1. Role of bank 1-32
3
1.
4
1.
5

2. 2. Literature review
1 33-36
3. Field study
37
4. 4. Questionnaire
1 Findings and analysis
4. Different product and services provided by bank 38-56
2 Features of bank
4.
3
4.
4
5. Case study 57-58

6. Conclusion 59
7. Annexure 60
8. Bibliography 61

Introduction of banks
Banks are the most significant players in the Indian financial market. They are the biggest
purveyors of credit, and they also attract most of the savings from the population. Dominated by
public sector, the banking industry has so far acted as an efficient partner in the growth and the
development of the country. Driven by the socialist ideologies and the welfare state concept,
public sector banks have long been the supporters of agriculture and other priority sectors. They
act as crucial channels of the government in its efforts to ensure equitable economic
development.The Indian banking can be broadly categorized into nationalized (government
owned), private banks and specialized banking institutions.
The Reserve Bank of India acts a centralized body monitoring any discrepancies and
shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or
the nationalized banks have acquired a place of prominence and has since then seen tremendous
progress. The need to become highly customer focused has forced the slow-moving public sector
banks to adopt a fast track approach. The unleashing of products and services through the net has
galvanized players at all levels of the banking and financial institutions market grid to look anew
at their existing portfolio offering. Conservative banking practices allowed Indian banks to be
insulated partially from the Asian currency crisis. Indian banks are now quoting al higher
valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore,
Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and
payment defaults. Co-operative banks are nimble footed in approach and armed with efficient
branch networks focus primarily on the high revenue niche retail segments.
The Indian banking has finally worked up to the competitive dynamics of the new Indian
market and is addressing the relevant issues to take on the multifarious challenges of
globalization. Banks that employ IT solutions are perceived to be futuristic and proactive
players capable of meeting the multifarious requirements of the large customers base. Private
Banks have been fast on the uptake and are reorienting their strategies using the internet as a
medium The Internet has emerged as the new and challenging frontier of marketing with the
conventional physical world tenets being just as applicable like in any other marketing medium.
The Indian banking has come from a long way from being a sleepy business institution to a
highly proactive and dynamic entity. This transformation has been largely brought about by the
large dose of liberalization and economic reforms that allowed banks to explore new business
opportunities rather than generating revenues from conventional streams (i.e. borrowing and
lending). The banking in India is highly fragmented with 30 banking units contributing to almost
50% of deposits and 60% of advances. Indian nationalized banks (banks owned by the
government) continue to be the major lenders in the economy due to their sheer size and
penetrative networks which assures them high deposit mobilization. The Indian banking can be
broadly categorized into nationalized, private banks and specialized banking institutions.The
Reserve Bank of India acts as a centralized body monitoring any discrepancies and shortcoming
in the system. It is the foremost monitoring body in the Indian financial sector. The nationalized
banks (i.e. government-owned banks) continue to dominate the Indian banking arena. Industry
estimates indicate that out of 274 commercial banks operating in India, 223 banks are in the
public sector and 51 are in the private sector. The private sector bank grid also includes 24
foreign banks that have started their operations here.

The liberalize policy of Government of India permitted entry to private sector in the banking, the
industry has witnessed the entry of nine new generation private banks. The major differentiating
parameter that distinguishes these banks from all the other banks in the Indian banking is the
level of service that is offered to the customer. Their focus has always centered on the customer
understanding his needs, preempting him and consequently delighting him with various
configurations of benefits and a wide portfolio of products and services. These banks have
generally been established by promoters of repute or by high value domestic financial
institutions.

Origin of banks
Banking: The Evolution, Origin and Growth of Banking
The word bank is used in the sense of a commercial bank. It is of Germanic origin though some
persons trace its origin to the French word Banqui and the Italian word Banca. It referred to a
bench for keeping, lending, and exchanging of money or coins in the market place by money
lenders and money changers.
There was no such word as banking before 1640, although the practice of safe-keeping and
savings flourished in the temple of Babylon as early as 2000 B.C. Chanakya in his Arthashastra
written in about 300 B.C. mentioned about the existence of powerful guilds of merchant bankers
who received deposits, and advanced loans and issued hundis (letters of transfer). The Jain
scriptures mention the names of two bankers who built the famous Dilware Temples of Mount
Abu during 1197 and 1247 A.D.
The first bank called the Bank of Venice was established in Venice, Italy in 1157 to finance the
monarch in his wars. The bankers of Lombardy were famous in England. But modern banking
began with the English goldsmiths only after 1640. The first bank in India was the Bank of
Hindustan started in 1770 by Alexander & Co., an English agency house in Calcutta which
failed in 1782 with the closure of the agency house. But the first bank in the modern sense was
established in the Bengal Presidency as the Bank of Bengal in 1806.
History apart, it was the merchant banker who first evolved the system of banking by trading in
commodities than money. Their trading activities required the remittances of money from one
place to another. For this, they issued hundis to remit funds. In India, such merchant bankers
were known as Seths.
The next stage in the growth of banking was the goldsmith. The business of goldsmith was such
that he had to take special precautions against theft of gold and jewellery. If he seemed to be an
honest person, merchants in the neighbourhood started leaving their bullion, money and
ornaments in his care. As this practice spread, the goldsmith started charging something for
taking care of the money and bullion.
As evidence for receiving valuables, he issues a receipt. Since gold and silver coins had no marks
of the owner, the goldsmith started lending them. As the goldsmith was prepared to give the
holder of the receipt and equal amount of money on demand, the goldsmith receipt became like
cheques as a medium of exchange and a means of payment.
The next stage in the growth of banking is the moneylender. The goldsmith found that on an
average the withdrawals of coins were much less than the deposits with him. So he started
advancing the coins on loan by charging interest. As a safeguard, he kept some money in
threserve.Thus the goldsmith-money- lender became a banker who started performing the two
functions of modern banking, that of accepting deposits and advancing loans

History of banks in India


There are three different phases in the history of banking in India.

1) Pre-Nationalization Era.
2) Nationalization Stage.
3) 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 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.
In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight
state-associated banks were taken over by the SBI as its subsidiaries.
Name of the Bank Subsidiary with effect from
1. State Bank of Hyderabad 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.

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.
i) Andhra Bank.
ii) Corporation Bank.
iii) New Bank if India.
iv) Oriental Bank of Commerce.
v) Punjab and Sind Bank.
vi) 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 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.

3) Post-Liberalization Era---Thrust 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.
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 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. Th the emphasis shifted to efficient and prudential banking
linked to better customer care and customer services.21st century[edit]
The early 2000s were marked by consolidation of existing banks and entrance into the market of
other financial intermediaries: non-bank financial institution. Large corporate players were
beginning to find their way into the financial service community, offering competition to
established banks. The main services offered included insurance, pension, mutual, money market
and hedge funds, loans and credits and securities. Indeed, by the end of 2001 the market
capitalisation of the worlds 15 largest financial services providers included four non-banks.
[citation needed]

The process of financial innovation advanced enormously in the first decade of the 21st century
increasing the importance and profitability of nonbank finance. Such profitability priorly
restricted to the non-banking industry, has prompted the Office of the Comptroller of the
Currency (OCC) to encourage banks to explore other financial instruments, diversifying banks'
business as well as improving banking economic health. Hence, as the distinct financial
instruments are being explored and adopted by both the banking and non-banking industries, the
distinction between different financial institutions is gradually vanishing.

The first decade of the 21st century also saw the culmination of the technical innovation in
banking over the previous 30 years and saw a major shift away from traditional banking to
internet banking.

Types of banks

1. National Copper Bank, Salt Lake City 1911


Commercial banks: the term used for a normal bank to distinguish it from an investment bank.
After the Great Depression, the U.S. Congress required that banks only engage in banking
activities, whereas investment banks were limited to capital market activities. Since the two no
longer have to be under separate ownership, some use the term "commercial bank" to refer to a
bank or a division of a bank that mostly deals with deposits and loans from corporations or large
businesses.
Community banks: locally operated financial institutions that empower employees to make local
decisions to serve their customers and the partners.
Community development banks: regulated banks that provide financial services and credit to
under-served markets or populations.
Land development banks: The special banks providing long-term loans are called land
development banks (LDB). The history of LDB is quite old. The first LDB was started at Jhang
in Punjab in 1920. The main objective of the LDBs are to promote the development of land,
agriculture and increase the agricultural production. The LDBs provide long-term finance to
members directly through their branches.[21]
Credit unions or co-operative banks: not-for-profit cooperatives owned by the depositors and
often offering rates more favorable than for-profit banks. Typically, membership is restricted to
employees of a particular company, residents of a defined area, members of a certain union or
religious organizations, and their immediate families.

2. Postal savings banks: savings banks associated with national postal systems.
Private banks: banks that manage the assets of high-net-worth individuals. Historically a
minimum of USD 1 million was required to open an account, however, over the last years many
private banks have lowered their entry hurdles to USD 250,000 for private investors.[citation
needed]
Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore
banks are essentially private banks.
Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the
18th century. Their original objective was to provide easily accessible savings products to all
strata of the population. In some countries, savings banks were created on public initiative; in
others, socially committed individuals created foundations to put in place the necessary
infrastructure. Nowadays, European savings banks have kept their focus on retail banking:
payments, savings products, credits and insurances for individuals or small and medium-sized
enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly
decentralized distribution network, providing local and regional outreachand by their socially
responsible approach to business and society.
Building societies and Landesbanks: institutions that conduct retail banking.
Ethical banks: banks that prioritize the transparency of all operations and make only what they
consider to be socially responsible investments.
A direct or internet-only bank is a banking operation without any physical bank branches,
conceived and implemented wholly with networked computers.

3. Types of investment banks


Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own
accounts, make markets, provide investment management, and advise corporations on capital
market activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade finance. The modern definition,
however, refers to banks which provide capital to firms in the form of shares rather than loans.
Unlike venture caps, they tend not to invest in new companies.
.
4. Other types of banks
Central banks are normally government-owned and charged with quasi-regulatory
responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They
generally provide liquidity to the banking system and act as the lender of last resort in event of a
crisis.
Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around
several well-established principles based on Islamic canons. All banking activities must avoid
interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on
the financing facilities that it extends to customers.
Challenges within the banking industry
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5. Citibank, The People's Trust Company Building, Brooklyn.


The United States banking industry is one of the most heavily regulated and guarded in the
world,[22] with multiple specialized and focused regulators. All banks with FDIC-insured
deposits have the Federal Deposit Insurance Corporation (FDIC) as a regulator. However, for
soundness examinations (i.e., whether a bank is operating in a sound manner), the Federal
Reserve is the primary federal regulator for Fed-member state banks; the Office of the
Comptroller of the Currency (OCC) is the primary federal regulator for national banks; and the
Office of Thrift Supervision, or OTS, is the primary federal regulator for thrifts. State non-
member banks are examined by the state agencies as well as the FDIC. National banks have one
primary regulatorthe OCC.

Each regulatory agency has their own set of rules and regulations to which banks and thrifts must
adhere. The Federal Financial Institutions Examination Council (FFIEC) was established in 1979
as a formal inter-agency body empowered to prescribe uniform principles, standards, and report
forms for the federal examination of financial institutions. Although the FFIEC has resulted in a
greater degree of regulatory consistency between the agencies, the rules and regulations are
constantly changing.

In addition to changing regulations, changes in the industry have led to consolidations within the
Federal Reserve, FDIC, OTS, and OCC. Offices have been closed, supervisory regions have
been merged, staff levels have been reduced and budgets have been cut. The remaining
regulators face an increased burden with increased workload and more banks per regulator.
While banks struggle to keep up with the changes in the regulatory environment, regulators
struggle to manage their workload and effectively regulate their banks. The impact of these
changes is that banks are receiving less hands-on assessment by the regulators, less time spent
with each institution, and the potential for more problems slipping through the cracks, potentially
resulting in an overall increase in bank failures across the United States.

The changing economic environment has a significant impact on banks and thrifts as they
struggle to effectively manage their interest rate spread in the face of low rates on loans, rate
competition for deposits and the general market changes, industry trends and economic
fluctuations. It has been a challenge for banks to effectively set their growth strategies with the
recent economic market. A rising interest rate environment may seem to help financial
institutions, but the effect of the changes on consumers and businesses is not predictable and the
challenge remains for banks to grow and effectively manage the spread to generate a return to
their shareholders.The management of the banks asset portfolios also remains a challenge in
todays economic environment. Loans are a banks primary asset category and when loan quality
becomes suspect, the foundation of a bank is shaken to the core. While always an issue for
banks, declining asset quality has become a big problem for financial institutions.

6. Safra National Bank, New York


There are several reasons for this, one of which is the lax attitude some banks have adopted
because of the years of good times. The potential for this is exacerbated by the reduction in the
regulatory oversight of banks and in some cases depth of management. Problems are more likely
to go undetected, resulting in a significant impact on the bank when they are discovered. In
addition, banks, like any business, struggle to cut costs and have consequently eliminated certain
expenses, such as adequate employee training programs.

Banks also face a host of other challenges such as aging ownership groups. Across the country,
many banks management teams and board of directors are aging. Banks also face ongoing
pressure by shareholders, both public and private, to achieve earnings and growth projections.
Regulators place added pressure on banks to manage the various categories of risk. Banking is
also an extremely competitive industry. Competing in the financial services industry has become
tougher with the entrance of such players as insurance agencies, credit unions, cheque cashing
services, credit card companies, etc.
As a reaction, banks have developed their activities in financial instruments, through financial
market operations such as brokerage and have become big players in such activities.

7. Loan activities of banks


To be able to provide home buyers and builders with the funds needed, banks must compete for
deposits. The phenomenon of disintermediation had to dollars moving from savings accounts and
into direct market instruments such as U.S. Department of Treasury obligations, agency
securities, and corporate debt. One of the greatest factors in recent years in the movement of
deposits was the tremendous growth of money market funds whose higher interest rates attracted
consumer deposits.[23]
To compete for deposits, US savings institutions offer many different types of plans:[23]
Passbook or ordinary deposit accounts permit any amount to be added to or withdrawn from
the account at any time.
NOW and Super NOW accounts function like checking accounts but earn interest. A
minimum balance may be required on Super NOW accounts.
Money market accounts carry a monthly limit of preauthorized transfers to other accounts or
persons and may require a minimum or average balance.
Certificate accounts subject to loss of some or all interest on withdrawals before maturity.
Notice accounts the equivalent of certificate accounts with an indefinite term. Savers agree to
notify the institution a specified time before withdrawal.

8. Brokered deposits
One source of deposits for banks is brokers who deposit large sums of money on behalf of
investors through trust corporations. This money will generally go to the banks which offer the
most favorable terms, often better than those offered local depositors. It is possible for a bank to
engage in business with no local deposits at all, all funds being brokered deposits. Accepting a
significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a
difficult and sometimes risky position, as the funds must be lent or invested in a way that yields a
return sufficient to pay the high interest being paid on the brokered deposits. This may result in
risky decisions and even in eventual failure of the bank. Banks which failed during 2008 and
2009 in the United States during the global financial crisis had, on average, four times more
brokered deposits as a percent of their deposits than the average bank. Such deposits, combined
with risky real estate investments, factored into the savings and loan crisis of the 1980s.
Regulation of brokered deposits is opposed by banks on the grounds that the practice can be a
source of external funding to growing communities with insufficient local deposits.[25] There
are different types of accounts: saving, recurring and current accounts.

Functions of banks
These primary functions of banks are explained below.

1. Accepting Deposits

The bank collects deposits from the public. These deposits can be of different
types, such as :-
Saving Deposits
Fixed Deposits
Current Deposits
Recurring Deposits

a.Saving deposits
This type of deposits encourages saving habit among the public. The rate of interest is low. At
present it is about 4% p.a. Withdrawals of deposits are allowed subject to certain restrictions.
This account is suitable to salary and wage earners. This account can be opened in single name
or in joint names.

b.Fixed Deposits

Lump sum amount is deposited at one time for a specific period. Higher rate of interest is paid,
which varies with the period of deposit. Withdrawals are not allowed before the expiry of the
period. Those who have surplus funds go for fixed deposit.

c.Current Deposits

This type of account is operated by businessmen. Withdrawals are freely allowed. No interest is
paid. In fact, there are service charges. The account holders can get the benefit of overdraft
facility.

d.Recurring Deposits

This type of account is operated by salaried persons and petty traders. A certain sum of money is
periodically deposited into the bank. Withdrawals are permitted only after the expiry of certain
period. A higher rate of interest is paid.

2. Granting of Loans and Advances


The bank advances loans to the business community and other members of the public. The rate
charged is higher than what it pays on deposits. The difference in the interest rates (lending rate
and the deposit rate) is its profit.

The types of bank loans and advances are :-


Overdraft
Cash Credits
Loans
Discounting of Bill of Exchange

a. Overdraft

This type of advances are given to current account holders. No separate account is maintained.
All entries are made in the current account. A certain amount is sanctioned as overdraft which
can be withdrawn within a certain period of time say three months or so. Interest is charged on
actual amount withdrawn. An overdraft facility is granted against a collateral security. It is
sanctioned to businessman and firms.

b. Cash Credits

The client is allowed cash credit upto a specific limit fixed in advance. It can be given to current
account holders as well as to others who do not have an account with bank. Separate cash credit
account is maintained. Interest is charged on the amount withdrawn in excess of limit. The cash
credit is given against the security of tangible assets and / or guarantees. The advance is given for
a longer period and a larger amount of loan is sanctioned than that of overdraft.

c. Loans

It is normally for short term say a period of one year or medium term say a period of five years.
Now-a-days, banks do lend money for long term. Repayment of money can be in the form of
installments spread over a period of time or in a lumpsum amount. Interest is charged on the
actual amount sanctioned, whether withdrawn or not. The rate of interest may be slightly lower
than what is charged on overdrafts and cash credits. Loans are normally secured against tangible
assets of the company.

d. Discounting of Bill of Exchange

The bank can advance money by discounting or by purchasing bills of exchange both domestic
and foreign bills. The bank pays the bill amount to the drawer or the beneficiary of the bill by
deducting usual discount charges. On maturity, the bill is presented to the drawee or acceptor of
the bill and the amount is collected.

The bank performs a number of secondary functions, also called as non-banking


functions.
These important secondary functions of banks are explained below.

1. Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency
functions which includes :-
Transfer of Funds
Collection of Cheques
Periodic Payments
Portfolio Management
Periodic Collections
Other Agency Functions

a.Transfer of Funds
The bank transfer funds from one branch to another or from one place to another.
b. Collection of Cheques
The bank collects the money of the cheques through clearing section of its customers. The bank
also collects money of the bills of exchange.

c. Periodic Payments
On standing instructions of the client, the bank makes periodic payments in respect of electricity
bills, rent, etc.

d. Portfolio Management
The banks also undertakes to purchase and sell the shares and debentures on behalf of the clients
and accordingly debits or credits the account. This facility is called portfolio management.

e. Periodic Collections
The bank collects salary, pension, dividend and such other periodic collections on behalf of the
client.

f. Other Agency Functions


They act as trustees, executors, advisers and administrators on behalf of its clients. They act as
representatives of clients to deal with other banks and institutions.

2. General Utility Functions


The bank also performs general utility functions, such as :-
Issue of Drafts, Letter of Credits, etc.
Locker Facility
Underwriting of Shares
Dealing in Foreign Exchange
Project Reports
Social Welfare Programmes
Other Utility Functions

a. Issue of Drafts and Letter of Credits


Banks issue drafts for transferring money from one place to another. It also issues letter of credit,
especially in case of, import trade. It also issues travellers' cheques.

b. Locker Facility
The bank provides a locker facility for the safe custody of valuable documents, gold ornaments
and other valuables.

c. Underwriting of Shares
The bank underwrites shares and debentures through its merchant banking division.

d. Dealing in Foreign ExchangeThe commercial banks are allowed by RBI to deal in


foreign exchange.

e. Project Reports
The bank may also undertake to prepare project reports on behalf of its clients.

f. Social Welfare Programs


It undertakes social welfare programmes, such as adult literacy programmes, public welfare
campaigns, etc.

g. Other Utility Functions


It acts as a referee to financial standing of customers. It collects creditworthiness information
about clients of its customers. It provides market information to its customers, etc. It provides
travellers' cheque facility.

Role of banks
1. Mobilising Saving for Capital Formation:
The commercial banks help in mobilising savings through network of branch banking. People in
developing countries have low incomes but the banks induce them to save by introducing variety
of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of
the few rich. By mobilising savings, the banks channelise them into productive investments.
Thus they help in the capital formation of a developing country.

2. Financing Industry:
The commercial banks finance the industrial sector in a number of ways. They provide short-
term, medium-term and long-term loans to industry. In India they provide short-term loans.
Income of the Latin American countries like Guatemala, they advance medium-term loans for
one to three years. But in Korea, the commercial banks also advance long-term loans to industry.
In India, the commercial banks undertake short-term and medium-term financing of small scale
industries, and also provide hire- purchase finance. Besides, they underwrite the shares and
debentures of large scale industries. Thus they not only provide finance for industry but also help
in developing the capital market which is undeveloped in such countries.

3. Financing Trade:
The commercial banks help in financing both internal and external trade. The banks provide
loans to retailers and wholesalers to stock goods in which they deal. They also help in the
movement of goods from one place to another by providing all types of facilities such as
discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc.
Moreover, they finance both exports and imports of developing countries by providing foreign
exchange facilities to importers and exporters of goods.

4. Financing Agriculture:
The commercial banks help the large agricultural sector in developing countries in a number of
ways. They provide loans to traders in agricultural commodities. They open a network of
branches in rural areas to provide agricultural credit. They provide finance directly to
agriculturists for the marketing of their produce, for the modernisation and mechanisation of
their farms.

5. Financing Consumer Activities:


People in underdeveloped countries being poor and having low incomes do not possess sufficient
financial resources to buy durable consumer goods. The commercial banks advance loans to
consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way,
they also help in raising the standard of living of the people in developing countries by providing
loans for consumptive activities.

6. Financing Employment Generating Activities:


The commercial banks finance employment generating activities in developing countries. They
provide loans for the education of young persons studying in engineering, medical and other
vocational institutes of higher learning. They advance loans to young entrepreneurs, medical and
engineering graduates, and other technically trained persons in establishing their own business.
Such loan facilities are being provided by a number of commercial banks in India. Thus the
banks not only help inhuman capital formation but also in increasing entrepreneurial activities in
developing countries.

7. Help in Monetary Policy:


The commercial banks help the economic development of a country by faithfully following the
monetary policy of the central bank. In fact, the central bank depends upon the commercial
banks for the success of its policy of monetary management in keeping with requirements of a
developing economy.

Thus the commercial banks contribute much to the growth of a developing economy by granting
loans to agriculture, trade and industry, by helping in physical and human capital formation and
by following the monetary policy of the country.
Review of literature

Introduction:-

The financial sectors involvement with marketing has had a relatively short
and turbulent history, Almost all organisations have adopted the concept since it came
in to fashion in the mid 1960's, but few have implemented it fully. Much research
studies have not been undertaken in the field of financial service marketing in India.
The commercial banks in their administered and over controlled set up were not
concerned with market research. The continuous deterioration in the quality of
customer services voiced by various sections of the people and the press forced the
Government of India and Reserve Bank of India to appoint committees and working
groups to examine the matter in detail. Besides the Indian Bankers Association also
conducted certain studies regarding customer service through National Institute of
Bank Management, Pune and other institutes. Commercial banks had also studied the
different marketing aspects but the results were used only for their internal use. In this
situation the present study reviewed the research work in two dimensions. The first
being the findings and recommendations of various committees and commissions and
the second dimension highlighted the empirical studies conducted by bankers and
academicians.
2.1 Literature Review

Yu and Boon (2003), in their study, examined the implications of technological


advances in the banking sector in Malaysia. An empirical study was made through a
structured questionnaire. The results highlighted that electronic channels provide
alternatives for faster delivery of banking services to the customers. They described that
prior to adoption of electronic channels like ATMs, kiosks, internet banking; investment
costs must be identified to ensure a more cost-effective and efficient execution of echannel
services. The authors analyzed the commercial banks in Malaysia via frequency
analysis and factor analysis. The results of the study indicated that banks operation
management was the main factor affecting the success of ATMs, PC and branch banking,
while product innovation and knowledge development factors were found to have most
significant effect on the success of banking kiosks and phone banking respectively.

Lympero and Chaniotakir (2004) evaluated the implication of e-banking


adoption through a survey of the branch employees perception. The researchers framed
a questionnaire of 527 branch employees and analyzed the existence of four distinct
factors which were hard advantages, soft advantages, market effects and risks. The
authors selected 17 commercial banks for the study. They highlighted the advantages
which influence the employees feel easy to adopt e-banking, i.e., cost alienation,
customers service and foreign competition. They focused that branch employees
perception toward e- banking depends upon their position in branch hierarchy,
qualification, employers size and type of ownership. So, in order to facilitate the
promotion of e-banking services, bank managers should make systematic efforts in
exploiting internet marketing processes such as continuous education, flawless
information and an attempt to minimize negative perception.

Suleiman et al. (2005) studied the impact of E-banking on Malaysian banking


sector. The study aimed at providing an overview of E-banking adoption in Malaysia.
Out of 53.9 per cent, who used e-banking, 85 per cent used it for savings bank facility,
55.8 per cent for current account facility, 37 per cent for bill payment, 35.3 per cent for
49
visa /master card and 30.8 per cent used for third party transfer. The researchers analyzed
websites of the banks in order to know the impact of e-banking. Evaluation of websites
contained 32 elements, and a survey was conducted to obtained customers perspective
of e-banking. The researchers overviewed that results of the study cannot be generalized
to the general population. Nevertheless, the results provide a fair indication of what
services e-banking users find useful and which group of customers were likely to use the
services more.
Heng Michael et al. (2006) analyzed the impact of e-banking on brick and mortar
banks through innovation model. The researchers analyzed 8 core capabilities to assist
the banks migrated to e-banking environment. Their capabilities fall into two groups
relating to configuration of existing business model. They suggested that banks need to
develop uniquely innovative services and products on the one hand and innovative
business model that changes the way banks operate on the other. They concluded that
eight core capabilities (technical dynamic capabilities and business dynamic capabilities)
provided a blue print for sustaining a banks ability to exploit e-banking.

.
Singh and Malhotra (2007) made an attempt to discover factors affecting a
banks decision to adopt internet banking in India. The study was based on 88 banks
comprising of public, private and foreign banks covering financial years from 1997 to
2005. The results of the study showed that large banks having high fixed expenses, high
income and expenditure tend to use more technology. Banks had used internet banking
as complementary channel to existing branch network. However, the private and foreign
banks were quick adopter to internet banking than public sector banks. The adoption of
this innovation by other banks increases the probability that a decision to adapt will be
made as it has increased the profitability and productivity of banks.

Suresh (2008) highlighted that recently developed e-banking technology had


created unpredicted opportunities for the banks to organize their financial products,
profits, service delivery and marketing. The objectives of the study were to evaluate the
difference between traditional and e-banking, and to identify the core capabilities for the
best use of e-banking. The author analyzed that e-banking will be an innovation if it
preserved both business model and technology knowledge, and disruptive if it destroys
both the model and knowledge. He also differentiated e-banking from traditional banking
in five ways, namely, value proportion, market scope, cost structure, profit potential and
value network. However, in order to exploit technical and business capabilities of ebanking,
banks should generate more customers inside and outside India so that more
revenues could be generated that lead to better future of Indian economy.

Hua G. (2009) investigates the online banking acceptance in China by conducting an


experiment to investigate how users perception about online banking is affected by the
perceived ease of use of website and the privacy policy provided by the online banking
website. The 110 undergraduate students in Chinese University are involved in the
investigation. The study finds that both perceived ease of use and privacy policy have a
significant impact on users adoption of online banking. The study also investigates relative
importance of perceived ease of use, privacy, and security. Perceived ease of use is of less
importance than privacy and security. Security is the most important factor influencing users
adoption. The study also discusses the implications of these results and limitations.
Ismail A., Abdullah M.M.B. and Sebastian K.F. (2009) explore the relationships among
service quality features (responsiveness, assurance, and empathy), perceived value and
customer satisfaction in context of Malaysia. The empirical data is drawn from 102 members
of an academic staff of a Malaysian public institution of higher learning using a survey
questionnaire. The results indicate that the interaction between perceived value and
responsiveness is not significantly correlated with customer satisfaction, the interaction
between perceived value and assurance also does not correlate significantly with customer
satisfaction and the interaction between perceived value and empathy correlated significantly
with customer satisfaction. Thus the results demonstrate that perceived value has increased
the effect of empathy on customer satisfaction, but it has not increased the effect of
responsiveness and assurance on customer satisfaction.

Uppal R.K. (2010) studies the extent of mobile banking in Indian banking industry during
2000-2007. The study concludes that among all e-channels, ATM is the most effective while
mobile banking does not hold a strong position in public and old private sector but in new
private sector banks and foreign banks m-banking is good enough with nearly 50 pc average
branches providing m-banking services. M-banking customers are also the highest in ebanks
which have positive impact on net profits and business per employee of these banks. Among
all, foreign banks are on the top position followed by new private sector banks in providing
m-banking services and their efficiency is also much higher as compared to other groups. The
study also suggests some strategies to improve m-banking services

Field study
Bank details: state bank of india
Branch: badlapur west
Person visited: Mrs. karmbe
branch manager
State bank of india

Introduction of SBI
State Bank of India (SBI) is an Indian multinational, public sector
banking and financial services company. It is a government-owned
corporation with its headquarters in Mumbai, Maharashtra. As of 2014-
15, it had assets of 20.480 trillion (US$300 billion) and more than
14,000 branches, including 191 foreign offices spread across 36
countries, making it the largest banking and financial services company
in India by assets.[4][5][6] The company is ranked 232nd on the Fortune
Global 500 list of the world's biggest corporations as of 2016.[7
State Bank of India is one of the Big Four banks of India, along with
ICICI Bank, Bank of Baroda and Punjab National Bank.[8]

The bank traces its ancestry to British India, through the Imperial
Bank of India, to the founding, in 1806, of the Bank of Calcutta, making
it the oldest commercial bank in the Indian Subcontinent. Bank of
Madras merged into the other two "presidency banks" in British India,
Bank of Calcutta and Bank of Bombay, to form the Imperial Bank of
India, which in turn became the State Bank of India in 1955.[9]
Government of India owned the Imperial Bank of India in 1955, with
Reserve Bank of India (India's Central Bank) taking a 60% stake, and
renamed it the State Bank of India. In 2008, the government took over
the stake held by the Reserve Bank of India.

State Bank of India is a banking behemoth and has 20% market


share in deposits and loans among Indian commercial banks

State bank of India


Founded 2 June 1806
Headquarter Mumbai ,Maharashtra India
Key people Smt. arundhati bhattacharya
(chairperson)
Revenue (2016) 272,871.03 crore
Profit 12,743.28 crore
Owner Government of India
Number of employees 293,459
Slogan The banker to every Indian
Website www.sbi.co.in

Questionnaire
A. Whether offers new products for the customers?
Yes no

B. Your bank offers different types of services for different types of cutomers?
Yes no

C. For selling your products your bank adopts latest technology?


Yes no

D. Whether your bank adopts fixed marketing strategy?


Yes no

E. Whether your research and development department works on future


strategies?
Yes no

F. Are there any product or services that are specially given to NRIs?
Yes no

G. Does retaining customers is challenge for you?


Yes no

H. Is customer services is an instrument to create a sense of competition among


banks?
Yes no
I. Do you made any future strategies for enhancing services?

Yes no

FINDING AND ANAYSIS

Whether your bank offers new products for the customers?


Sales

yes no

Whether your bank offer different types of services for different


types of customers?

Chart Title

no

yes

0 10 20 30 40 50 60 70 80 90
Series 2 Series 3

For selling your product bank adopts latest technology?


Series 1
120
100
80
60
40
20
0
yes NO
Series 1

Whether your bank adopts fine marketing strategies?

Sales

yes no

Whether your research and development department wors on


future strategies?
Chart Title

no

yes

0 10 20 30 40 50 60 70 80 90
Series 2 Series 3

Are there any product or services that are specially given to NRIs?

Chart Title
120
100
80
60
40
20
0
yes no Category 4
Series 3

Is customer retaining is challenge for you?

Sales

yes no

Is there any channel preferred for marketing services?


Series 1

no

yes

0 10 20 30 40 50 60 70 80 90 100
Series 1

Is customer service is an instrument to create a sense of


competition among banks?

Series 1
120

100

80

60

40

20

0
yes no

Series 1

Do you made any future strategies for enhancing services?


Sales

yes no

Financial product provided by bank:


1. Merchant banking.:
. A merchant bank deals with the commercial banking needs of international finance, long-term
company loans, and stock underwriting. This type of bank does not have retail offices where a
customer can go and open a savings or checking account. A merchant bank is sometimes said to
be a wholesale bank, or in the business of wholesale banking. This is because merchant banks
tend to deal primarily with other merchant banks and other large financial institutions.
The most familiar role of the merchant bank is stock underwriting. A large company that wishes
to raise money from investors through the stock market can hire a merchant bank to implement
and underwrite the process. The merchant bank determines the number of stocks to be issued, the
price at which the stock will be issued, and the timing of the release of this new stock. The bank
then files all the paperwork required with the various market authorities, and is also frequently
responsible for marketing the new stock, though this may be a joint effort with the company and
managed by the merchant bank. For very large stock offerings, several merchant banks may
work together, with one being the lead underwriter.
By limiting their scope to the needs of large companies, merchant banks can focus their
knowledge and be of specific use to such clients. Some merchant banks specialize in a single
area, such as underwriting or international finance Loan syndication

2. Loan syndication.
A merchant banking subsidiary set up by several banks that may or may not be of the
same nationality. consortium banks are common in the Euromarket and are active in loan
syndication.
OTHER ADVANTAGES OF SYNDICATED LOANS
In addition, economists and syndicate executives contend that there are other, less obvious
ssadvantages to going with a syndicated loan. These benefits include:
Syndicated loan facilities can increase competition for your business, prompting other
banks to increase their efforts to put market information in front of you in hopes of being
recognized.
Flexibility in structure and pricing. Borrowers have a variety of options in shaping their
syndicated loan, including multicurrency options, risk management techniques, and prepayment
rights without penalty.
Syndicated facilities bring businesses the best prices in aggregate and spare companies
the time and effort of negotiating individually with each bank.
Loan terms can be abbreviated.
Increased feedback. Syndicate banks sometimes are willing to share perspectives on
business issues with the agent that they would be reluctant to share with the borrowing business.
Syndicated loans bring the borrower greater visibility in the open market. Bunn noted that
"For commercial paper issuers, rating agencies view a multi-year syndicated facility as stronger
support than several bilateral one-year lines of credit."

3. Internet banking

Internet banking is a system of banking that enables customers to perform various financial
transactions on a secure website via the Internet. There are many banks and credit union that
operate websites for internet banking. Internet Banking is basically conducted via a personal
computer connected to Internet. Apart from it, people can also do financial transactions using
Internet banking on their cellular phones or personal digital assistants. Internet banking offers
large number of benefits for people involved in financial transactions. There is no need to visit
your bank every time you need to transfer money. You can do so by internet banking from the
comfort of your home. With net banking facility, one can not only transfer money, but also pay
bills, check bank statements, check account balance, request for check book and various other
financial transactions.
Internet banking has become widely popular among the masses because of its wide array of
benefits. All banks offer the online banking facility for their customers nowadays. Online
banking has made the lives easier for people who are too busy to go to bank for conducting their
financial transactions. Net banking offers the flexibility to do financial transaction on any day
irrespective of the time. In todays fast paced life, people are too much stressed out because of
their work pressure and net banking offers them peace of mind as they can pay their bills, book
their tickets, do online shopping, etc. by relaxing on couch in their home. Best part of net
banking is that it is very easy to do any transaction over the net and highly secure website takes
care of all your worries.
All one need is a computer, PDA or cell phone with active internet connection to get going with
net banking. Before using net banking, one needs to activate net banking facility with his/her
bank. Bank provides a unique user ID and password for its customers to login into the bank
website for conducting financial transactions using net banking. For any transaction, one should
have an active bank account, appropriate bank balance for transactions,bank account number,
customers user ID, debit/credit card number,and Internet banking PIN number along with access
to the internet.
Banks have designed their websites in a very user-friendly manner for net banking facilities.
Most of the banking interfaces are easily viewable and instructions are provided at every step so
that people can carry out any transaction almost effortlessly. In case, a person gets stuck in any
transaction due to internet failure or any other reason, he/she can take assistance from phone
banking facility offered by banks. The phone banking feature allows the customers to call the
banks toll-free number and get required assistance in finishing their transactions. To avail the
phone banking facility customers are provided with phone banking PIN along with their ATM
PIN and net banking PIN.
When a customer opens an account with a bank, he/she receives a welcome kit from the bank.
This kit contains all the important documents including confidential information required by the
customer including document with account number, Debit cum ATM card, ATM PIN, customers
user ID, online banking password, phone banking password, checkbook, etc

4. Factoring
Factoring is a financial option for the management of receivables. In simple definition it is the
conversion of credit sales into cash. In factoring, a financial institution (factor) buys the accounts
receivable of a company (Client) and pays up to 80 %( rarely up to 90%) of the amount
immediately on agreement. Factoring company pays the remaining amount (Balance 20%-
finance cost-operating cost) to the client when the customer pays the debt. Collection of debt
from the customer is done either by the factor or the client depending upon the type of factoring.
We will see different types of factoring in this article. The account receivable in factoring can
either be for a product or service. Examples are factoring against goods purchased, factoring for
construction services (usually for government contracts where the government body is capable of
paying back the debt in the stipulated period of factoring. Contractors submit invoices to get cash
instantly), factoring against medical insurance etc. Let us see how factoring is done against an
invoice of goods purchased.

Characteristics of factoring
1. Usually the period for factoring is 90 to 150 days. Some factoring companies allow even
more than 150 days.
2. Factoring is considered to be a costly source of finance compared to other sources of
short term borrowings.
3. Factoring receivables is an ideal financial solution for new and emerging firms without
strong financials. This is because credit worthiness is evaluated based on the financial strength of
the customer (debtor). Hence these companies can leverage on the financial strength of their
customers.
4. Bad debts will not be considered for factoring.
5. Credit rating is not mandatory. But the factoring companies usually carry out credit risk
analysis before entering into the agreement.
6. Factoring is a method of off balance sheet financing.
7. Cost of factoring=finance cost + operating cost. Factoring cost vary according to the
transaction size, financial strength of the customer etc. The cost of factoring varies from 1.5% to
3% per month depending upon the financial strength of the client's customer.
8. Indian firms offer factoring for invoices as low as 1000Rs
9. For delayed payments beyond the approved credit period, penal charge of around 1-2%
per month over and above the normal cost is charged (it varies like 1% for the first month and
2% afterwards).

5. Portfolio management
Third-Party Portfolio Management Services (PMS) are designed for a select few who want more
from their investments. You can consider how more sophisticated investment strategies could be
applied for your benefit, even if it means taking on additional volatility in investment returns. A
reputed portfolio manager will then craft a portfolio especially for you, based on your specific
objectives. Your portfolio may combine a basket of securities including derivatives, stocks,
bonds and money market instruments, and your portfolio manager may take a more focused
exposure in select securities at times, to maximize your opportunity from them.

Some benefits of building an investment portfolio comprising of mutual funds and third-party
PMS through Standard Chartered Private Bank:

Fund & Portfolio Classification


Specialized Research
Convenience
Confidentiality

6. Letter of credit

A letter of credit is a promise to pay. Banks issue letters of credit as a way to ensure sellers that
they will get paid as long as they do what they've agreed to do.
Letters of credit are common in international trade because the bank acts as an uninterested party
between buyer and seller. For example, importers and exporters might use letters of credit to
protect themselves. In addition, communication can be difficult across thousands of miles and
different time zones. A letter of credit spells out the details so that everybody's on the same page.

7. Mortgage bank
Mortgage bank specializes in originating and/or servicing mortgage loans.
A mortgage bank is a state-licensed banking entity that makes mortgage loans directly to
consumers. The difference between a mortgage banker and a mortgage broker is that the
mortgage banker funds loans with its own capital.
Generally, a mortgage bank originates a loan and places it on a pre-established warehouse line of
credit until the loan can be sold to an investor such as Fannie Mae, or Freddie Mac. The process
of selling a loan from the mortgage bank to another investor is referred to as selling the loan on
the secondary market.
Mortgage banks frequently use the secondary market to sell loans because the funds received pay
down their warehouse lines of credit which enables the mortgage bank to continue to lend. A
mortgage bank is not regulated as a federal or state bank and does not take deposits from
consumers or businesses. A mortgage bank raises some equity which it uses to guarantee the
warehouse line and the bulk of the funds are provided by the warehouse lender.

A line of credit is any credit source extended to a government, business or individual by a bank
or other financial institution. A line of credit may take several forms, such as overdraft
protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase
of commercial bills, etc. It is effectively a bank account that can readily be tapped at the
borrower's discretion. Interest is paid only on money actually withdrawn, although the borrower
may be required to pay an unused line fee, often an annualized percentage fee on the money not
withdrawn. Lines of credit can be secured by collateral or unsecured.
Lines of credit are often extended by banks, financial institutions and other licensed consumer
lenders to creditworthy customers (though certain special purpose lines of credit may not have
creditworthiness requirements) to address liquidity problems; such a line of credit is often called
a personal line of credit. The term is also used to mean the credit limit of a customer, that is, the
maximum amount of credit a customer is allowed.

8. Cash credits
A cash credit is a short-term cash loan to a company. A bank provides this type of funding, but
only after the required security is given to secure the loan. Once a security for repayment has
been given, the business that receives the loan can continuously draw from the bank up to a
certain specified amount.

9. Overdraft
An overdraft occurs when money is withdrawn from a bank account and the available balance
goes below zero. In this situation the account is said to be "overdrawn". If there is a prior
agreement with the account provider for an overdraft, and the amount overdrawn is within the
authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative
balance exceeds the agreed terms, then additional fees may be charged and higher interest rates
may apply.

10. Bill discounting


A debt is that which one party, the debtor, owes to a second party, the creditor; usually this refers
to assets owed, but the term can also be used metaphorically to cover moral obligations and other
interactions not based on economic value.
A debt is created when a creditor agrees to lend a sum of assets to a debtor. Debt is usually
granted with expected repayment; in modern society, in most cases, of the original sum plus
interest.
In finance, debt is a means of using anticipated future purchasing power in the present before it
has actually been earned. Some companies and corporations use debt as a part of their overall
corporate finance strategy.

11. Mutual funds

ICICI Bank Mutual Funds services aim at helping you design the ideal portfolio for your
investment requirements. At ICICI Bank, we help you identify the appropriate mix of Mutual
Fund schemes on the basis of asset allocation strategies. Invest in various schemes of multiple
mutual funds with a satisfactory performance record and reap the benefits. Additionally, ICICI
Bank Mutual Funds services also equip you with various research reports to help you make an
informed decision.

12. Home loan


A home loan, or mortgage, is a secured loan that borrowers obtain in order to purchase a home.
Because a home is the largest purchase many individuals will ever make, most borrowers utilize
home loans to assist with their home purchase.
A home loan, or mortgage, is a secured loan that borrowers obtain in order to purchase a home.
Because a home is the largest purchase many individuals will ever make, most borrowers utilize
home loans to assist with their home purchase.

13. Core banking

Core Banking is normally defined as the business conducted by a banking institution with its
retail and small business customers. Many banks treat the retail customers as their core banking
customers, and have a separate line of business to manage small businesses. Larger businesses
are managed via the corporate banking division of the institution. Core banking basically is
depositing and lending of money.
Nowadays, most banks use core banking applications to support their operations where CORE
stands for "centralized online real-time exchange". This basically means that all the bank's
branches access applications from centralized datacenters. This means that the deposits made are
reflected immediately on the bank's servers and the customer can withdraw the deposited money
from any of the bank's branches throughout the world. These applications now also have the
capability to address the needs of corporate customers, providing a comprehensive banking
solution.
A few decades ago it used to take at least a day for a transaction to reflect in the account because
each branch had their local servers, and the data from the server in each branch was sent in a
batch to the servers in the datacenter only at the end of the day (EoD).
Normal core banking functions will include deposit accounts, loans, mortgages and payments.
Banks make these services available across multiple channels like ATMs, Internet banking, and
branches.

Features of banking
1. Dealing in Money
Bank is a financial institution which deals with other people's money i.e. money given by
depositors.

2. Individual / Firm / Company


A bank may be a person, firm or a company. A banking company means a company which is in
the business of banking.

3. Acceptance of Deposit
A bank accepts money from the people in the form of deposits which are usually repayable on
demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It
also acts as a custodian of funds of its customers.

4. Giving Advances
A bank lends out money in the form of loans to those who require it for different purposes.

5. Payment and Withdrawal


A bank provides easy payment and withdrawal facility to its customers in the form of cheques
and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts,
etc.

6. Agency and Utility Services


A bank provides various banking facilities to its customers. They include general utility services
and agency services.

7. Profit and Service Orientation


A bank is a profit seeking institution having service oriented approach
8. Ever increasing Functions
Banking is an evolutionary concept. There is continuous expansion and diversification as regards
the functions, services and activities of a bank.

9. Connecting Link
A bank acts as a connecting link between borrowers and lenders of money. Banks collect money
from those who have surplus money and give the same to those who are in need of money.

10. Banking Business


A bank's main activity should be to do business of banking which should not be subsidiary to any
other business.

11. Name Identity


A bank should always add the word "bank" to its name to enable people to know that it is a bank
and that it is dealing in money.

Case studies
The customer

The State Bank of India (SBI) is an Indian multinational providing public

sector banking and financial services. Headquartered in Mumbai, it is a

government-owned corporation with assets of US$388 billion and 17,000

branches, including 190 foreign offices, making it the largest banking and

financial services company in India by assets. The bank traces its ancestry

through the Imperial Bank of India to the founding, in 1806, of the Bank of

Calcutta, making it the oldest commercial bank in the Indian Subcontinent.

The challenge

SBI had been operating a distributed independent architecture comprising

20 distinct IT siloes across its vast geographical range one for each local

head office. This was both inefficient and reaching peak performance.

The bank wanted to streamline and centralise its cheque truncation

system in order to more quickly process cheques and thereby deliver

better customer service.

Managing and collecting data from multiple siloes was difficult and
timeconsuming

and the infrastructure could no longer cope with the rising

volume, explains Mr. LM Mishra, Assistant General Manager, Information


Technology Services Department, SBI. We needed a new approach to the

underlying technology but this was unchartered territory for us so a partner

that could provide the requisite expertise and experience was crucial to the

projects success.

SBI was looking for an IT specialist that could demonstrate tangible

experience in similar projects as well as the local presence to deliver in the

region. Following a tender process, it selected a number of tier one vendors

to handle various parts of this comprehensive upgrade. Fujitsu was qualified

through the banks process to streamline the core clearing system in

conjunction with NCR, which provided the application layer.

Fujitsu had the necessary feet on the ground as well as demonstrable

success in leading comparable programmes, adds Mishra. This made

it the ideal partner to provide the core clearing system, which is the

backbone of cheque processing.

The solution

Fujitsu consolidated the 20 disparate siloes into one centralised data centre,

which automates the collection and processing of data. The data centre

runs on a combination of clustered Fujitsu ETERNUS storage and Fujitsu

PRIMERGY servers in tandem with Symantec backup and Brocade switches.


Conclusion

The banking scenario has changed drastically. The changes which have been
took place in the last ten years are more than the changes took place in last fifty
years because of the institutionalization, liberalization, globalization and
automation in banking industry. Now, bank has spread out in to remote areas of our
country through innovative technology.
To face competition it is necessary for banks to absorb the technology and
upgrade their services. Today bank is marked by customer expectation and
technological innovations. Various banks that have harnessed and leveraged
technology having innovative strategies.
In todays context are following the strategy of innovative banking than
retail banking which in need of the hour. Banks retains their customers according
to their profiles and preferences. Prompt and efficient banking service, thus has
become very significant
Annexure

1) Whether your bank offers new products for the customers?


2) Whether your bank offer different types of services for different types of
customers?
3) For selling your products bank adopts latest technology?
4) Whether your bank adopts fine marketing strategies?
5) Whether your research and development department works on future
strategies?
6) Are there any product or services that are specially given to NRIs?
7) Is customer retaining is challenge for you?
8) Is there any channel preferred for marketing services?
9) Is customer service is an instrument to create a sense of competition among
banks?
10) Do you made any future strategies for enhancing services?
Bibliography

Primary data : Visit at state bank of india ,


Badlapur west branch
And meeting with Mrs. karambe
Secondary data:
Books and magazines
Innovations in banking and insurance
-Romeo mascarenhas
Environmental management and financial services
- Romeo mascarenhas

News papers - economic times

Websites www.wikipedia.com
www.sbi.co.in.