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INDIAN BANKING SYSTEMPresented by

AgrajJasmineHitesh KarthickNavinSanthoshSwarnaViswadharshini

BANKING Bank - Financial

institution that accepts deposits and channels those deposits into lending activities

Origin of the word - “banco” Italian word

HISTORY OF BANKING Phase-1:

Early phase from 1786 to 1986 of Indian banks

Phase-2:

Nationalization of Indian bank and up to 1991 prior to Indian banking sector reforms

Phase-3:

New phase of Indian banking system with the advent of Indian financial and banking sector reform after 1991

General bank of India 1786(first bank)Reserve bank of India 1935Slow growth and periodic failurePeople mostly save in postal depositsPublic had less confidence in banksThe Banking Company Act 1949

PHASE - 1

Nationalization of imperial bank of India and formation of state Bank Of India (1955)Nationalization of SBI and subsidiaries (1960)Branches 800%Advances took a huge jump 11,000%Implicit faith and immense confidence

PHASE - 2

M Narasimham committeeEntry of Foreign BanksPhone banking and net bankingSystem become more convenient and swiftTime is given more importance than moneyCustomer oriented

PHASE - 3

Accepting deposit from public/ others (deposit).Lending money to public (loans).Transferring money from one place to another.Acting as trustees.Keeping valuable in safe custodyGovernment business

FUNCTIONS OF BANK

WHO CONTROLS OVER BANKS?

History: Become operational on April 1, 1935Nationalized in the year 1949

Major objectives:Issuing bank notesSupervisory bodyAdministers governments monetary policiesGranting license for new banks

RESERVE BANK OF INDIA (RBI)

SWOT ANALYSIS

STRENGTHS Valuable contributor to GDP over a period of years and of

pivotal importance to the country’s economic development. High standard regulatory environment. Personal client service (Relationship Banking) Growing Bank Index Growing Customers

WEAKNESS Internal operational elements the banking industry needs to

improve upon. Lack of sales and marketing strategy. Lack of house hold savings. Fluctuation of interest rates due to Inflation and Deflation Government Intervention during recession and crisis

CHALLENGES(THREATS) Volatility in product prices

internationally Adopting International

Standards Fiscal Deficit (financial

intermediation) Human resource

development in banks Economic Changes

OPPORTUNITIES

Technology Advancement Rural Banking Attracting NRI Huge domestic market Entry of new firms Going International

Types of Bank in India

Commercial Banks1) Public Sector Banks2) Private Sector Banks3) Foreign Banks

Other Banks1) Co-operative Banks2) Rural Banks3) Specialized Banks4) Development Banks5) Non Banking

Financial Companies

Public sector bank

• Public Sector Bank is one in which the Govt of India Holds the major stake.

• United Bank of India is one of the 14 major banks which were nationalised on July 19, 1969.

• And so, it is the first public sector bank in India• Currently the market leader in Public sector bank is State

Bank of India

• State Bank of India has 7 associate Banks and has the largest network of banks in India.

• It include state bank of (Travancore, Indore, Saurastra, Hyderabad, Mysore and ‘Bikaner & Jaipur’)

Private sector bank• Private Banks originated first in Switzerland, it means Banks that are

not incorporated.• The first Private bank in India to be set up in Private Sector Banks in

India was IndusInd Bank. • It is one of the fastest growing Bank Private Sector Banks in India.

• The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited, to set up a bank in the private sector banks in India as part of the RBI's liberalisation of the Indian Banking Industry.

• IDBI ranks the tenth largest development bank in the world as Private Banks in India and has promoted a world class institutions in India.

Co operative banks in india

• A co-operative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank.

• Co-op Bank is 100 years old in India.• The Anyonya Co-operative Bank in India is considered to have been

the first cooperative bank in Asia.• It operates in 3 levels in India

A. Primary Credit Societies

B. Central Co-operative Banks

C. State Co-operative Bank

Development Banks

• Business often requires medium and long-term capital for purchase of machinery and equipment, for using latest technology, or for expansion and modernization.

• Such financial assistance is provided by Development Banks. They also undertake other development measures like subscribing to the shares and debentures issued by companies, in case of under subscription of the issue by the public.

• Industrial Finance Corporation of India (IFCI), State Financial Corporations (SFCs) are examples of development banks in India

Specialized Banks

• Specialized banks are those banks, which cater to the requirements and provide overall support for setting up business in specific areas of activity.

• EXIM Bank and SIDBI are examples of such banks.

• They engage themselves in some specific area or activity and thus, are called specialised banks

Rural Banking• Rural banking in India started since the establishment of

banking sector in India. • Rural Banks initially focussed mainly upon the agro

sector.

• The Haryana State Cooperative Apex Bank Ltd. commonly called as HARCOBANK plays a vital role in rural banking in the economy of Haryana State .

• NABARD is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts.

Foreign banks in India

• Foreign Banks in India always brought an explanation about the prompt services to customers. After the set up foreign banks in India, the banking sector in India also become competitive and accurative.

• There are separate policies introduced by RBI for foreign banks.

1) HSBC2) Citibank3) Standard Charted Banks4) RBS

Present scenario • Banks today are market driven and market responsive.

• Commercial Banks together with co operative banks account for nearly 70 percent of the total assets of Indian financial institutions.

• With the entry of new players and multiple channels, customers (both corporate and retail) have become more discerning and less "loyal" to banks. This makes it imperative that banks provide best possible products and services to ensure customer satisfaction.

• As per the Union Budget 2010, government plans to invest US$ 3.63 billion into public sector banks

They have been managing a world of information about customers - their profiles, location, needs, requirements, cash positions, etc.

Contd.• They are focusing on region-specific campaigns rather than national media

campaigns as effective strategy for a diverse country like India.

• Customer-centricity also implies increasing investment in technology.

• Apart from the Mobile Banking, including of SMS Banking, Net Banking and ATMs are the major steps taken by the banks in India towards modernization.

• The RBI, announced that banks should link more branches to the National Electronic Clearing Service (NECS)

• Currently, over 26,000 branches of 114 banks are enabled to participate in NECS

Functions of bank

Functions of Commercial BanksThe functions of commercial banks are of two types.

• Primary functions• Secondary functions

Services and Function

The primary functions of a commercial bank include:

a) Accepting depositsb) Granting loans and advances.

And other secondary functions and services are as follows

Secondary Functions

• Issuing letters of credit, travelers cheque, etc.• Undertaking safe custody of valuables, important document

and securities by providing safe deposit vaults or lockers.• Providing customers with facilities of foreign exchange

dealings.• .Transferring money from one account to another; and from

one branch to another branch of the bank through cheque, pay order, demand draft.

• Standing guarantee on behalf of its customers, for making payment for purchase of goods, machinery, vehicles etc.

New Services

• Demat account

• Cash management

• Insurance product

• Mutual fund products

• ECS(Electronic clearance system)

• Taxes

• Gold

• Collecting and supplying business information.• Providing reports on the credit worthiness of customers.• Providing consumer finance for individuals by way of loans on

easy terms for purchase of consumer durables like televisions, refrigerators, etc.

• Educational loans to students at reasonable rate of interest for higher studies, especially for professional courses

IT USAGES BY BANKS

Core Banking Systems (CBS)

Internet Banking

Mobile Banking

Mobile Automated Teller Machines (ATMs)

Multifunctional ATMs shared ATM services

Large scale usage of Real Time Gross Settlement (RTGS)

National Electronic Fund Transfer ( NEFT)

Main competitors for banking sector

• Post offices.

• Mutual fund

• Share market

• Insurance.

• Money lenders

• Family and friends

SBI has 8500+ ATM’s all over the countryRBI had printed 6,39,948 lakhs crore notes till 6th Nov 2009 Transaction done through ATM’s is around 70,000 crore in a year

FACTS & FIGURES

8 p's

PRODUCT

The product mix of a company includes all different product lines a company offers to its customers.

The product line of a bank might easily include more than 100 different services.

PERSONAL BANKING

Credit Card

Savings Account

Mortgages

Loan

Savings

Investments

Insurance

Travel And International

SAVINGS ACCOUNT

ATM 7 Day Banking Tele Banking Internet Banking Mobile Banking

For credit card holders

Rewards

Dial a draft

24-Hour ATMs

Credit Limit Increase

Photo card

Concession on Personal Remittances

Overdraft facility

Free ATM Card

STATE BANK OF INDIA• SBI Term Deposits

• SBI Loan For Pensioners

• SBI Recurring Deposits

• Loan Against Mortgage Of Property

• SBI Housing Loan

• Loan Against Shares & Debentures

• SBI Car Loan

• Rent Plus Scheme

• SBI Educational Loan

• Medi-Plus Scheme

AGRICULTURAL / RURAL BANKING

Agricultural Banking

Micro Credit

Rural Banks

Other Products And Services NRI Banking

Foreign Currency Loans

Finance/ Service To Exporters

Finance / Service To Importers

Remittances

Forex & Treasury Services

Correspondent Services

DEMAT Services

E – Tax

Public Provident fund

PLACEPlace is the deciding factor to start the branches.

There are number a factors affecting the determination of the location of the branch of bank.

FACTORS ARE The trade area

Population characteristics

Commercial structure

Industrial structure

Banking structure

Proximity to other convenient outlets

Contd.. Real estate rates Proximity to public transportation Drawing time Location of competition Visibility Access

It is not necessary that all the above conditions have to be satisfied while selecting the location but it should be tried to satisfy as many of them as possible.

PRICE

1.customer-focused pricing strategies.2.New competitors threaten established players.3.New expectations from customers create new pricing

opportunities.4.Risk-based pricing is not the optimal approach for retail

banking.5.Are you segmenting your market for optimal profitability.6.Plug revenue leakage holes.7.Use your data more effectively to set prices.

PROMOTION

Promotion has different aspects for different industries, products and services. Its final goal is to communicate positive word of mouth among existing and potential customers about the corporate, product and service. In banking the customers must be ensured that services provided by a particular bank have been designed to give them maximum value of their money.

People• Sophisticated technologies add strength and efficiency to the

service .• People ( employees ) are more important as they are directly

in contact with customers and they should better understand the needs and expectation of the customers.

• Image of the company is formed by how these people behave with the customers

• Personally committed employees• Technology + committed employee effort = RESULTS• Human resources can be developed through education,

training and by psychological tests. • Even incentives can inject efficiency and can motivate people

for productive and qualitative work.

Process• The process mix constitutes the overall procedure

involved in using the services offered by the bank.• Flow of activities: all the major activities of banks

follow RBI guidelines • It should be customer friendly ie; easy to

understand and follow• Process can be divided into two Standardization: banks have got standardized

procedures got typical transactions. Customization: There are specialty counters at

each branch to deal with customers of a particular scheme.

Example : Process for application for a car loan

• Producing of proper documents• Filling up of application form• Paying for the initial down payment.

It may fail

• If asked to produce documents that are not necessary • Incase the application form is lengthy and not in language

understood by the customers .• Payment mode of the initial payment – options should be

given • The smaller and simpler the procedure, the better the

process, and the customer will be more satisfied.

Physical EnvironmentPhysical environment is the overall layout of the place i.e.

how the entire bank has been designed.

Physical environment refers to all those factors that help

make the process much easier and smoother.

It is very necessary that the place be designed in such a

manner so as to ensure maximum convenience to the customer

and cause no confusion to him.

Contd., It includes signage, reports, punch lines, other tangibles,

employee’s dress code etc.

Signage: Each and every bank has its logo by which a person

can identify the company. It creates visualization and

corporate identity for the banks.

Tangibles: banks give pens, writing pads to the customers.

Punch lines: Depicts the philosophy and attitude of the bank.

Banks have influential punchlines to attract the customers.

PRODUCTIVITY

• The rise in banking productivity was associated with

strongly expanding customer services and with advances in

computer technology and their rapid diffusion throughout

the industry.

• The Reserve Bank of India (RBI) has revealed that the

productivity of the employees of Indian banks has seen a

notable increase during the last five-year period.

Which among the above P dominates?????

Price

Why.?Because

Marketing strategy of bank

Why Bank Marketing?

Products and services• Deposits

• Investment

• Loans

• Cards

• Demat services

• Net banking

• Merchant banking

• Mobile Banking

• NRI services

• Consumer finance

• ATM

• SWARN MUDRA ( INDIAN BANK PURE GOLD )

Schemes given by bank to attract customers• Indian bank Kisan card and kisan credit card plus.

• Golden harvest scheme.

• Financing agriculturists for purchase of tractors.

• Purchase of second hand Tractors by agriculturists

• Indian bank kisan bike scheme.

• Land purchase scheme.

• Vidhya shobha SHG education loan.

• Grih Lakshmi – SHG housing loan.

• Gramin Mahila Sowbhagya scheme.

Focus areas of marketing effortTarget marketing and Tapped new markets

customer acquisition

Share of wallet

Channel strategy and management

Relationship management and database marketing

Product development & innovation

Credit approval

Superior Financial Services

Designed Innovative Products

Accessed Low cost NRI funds

Marketing approach

For Urban Areas

The marketing strategy should be based on customer service and the use of modern technology in banking.

Attracting new customers and retaining existing customers is possible only with

customer service.

Use of modern technology in urban areas will also go long way for marketing of banking services. Technology based service like credit card, debit card, ATM, anywhere banking, internet banking, and mobile banking are necessary for urban areas. to attract business and people.

To attract business and wholesale customers, banks need to adopt technology based product and service which is suitable to such class of customer. For instance RTGS, collection of out station cheques, issuing the cheques at par at any branch in the country, cash management facility, DD boutiques etc. are necessary.

Contd..

Another strategy for effective marketing is bank need to change the focus from the traditional banking to universal banking.

The term ‘universal banking’ in general refers to the combination of commercial banking and investment banking, i.e., issuing, underwriting, investing and trading in securities.

• For Rural Areas:

– For effective rural marketing product development, promotion and communication is important.

• Here bank need to innovate product that could attract the depositors. Various loan schemes that are suitable for them for getting funds at right time and also they find convenient to repay.

• Banks need to develop some scheme which would attract them to bank with. For loans and advances products which are suitable to farmers, small traders, small scale agro based rural industries are already in existence

• Banks need to see that how value addition can be made to these existing schemes.

• Another potential area which can be explored by the banks in the rural area is retail banking.

• With the steady increase in the income of the rural people there is ample scope for retail loan products like housing loans and loans for consumer durables

Marketing Strategies Used By Banks

Targeting

Differentiated Marketing Strategy

• Tailors its marketing campaigns to meet the needs of its targetprospects• Creates differentiatedproduct offering for differentsegment• Use of technologyin tracking customer segment

Distribution Strategy

•Cross selling of products as a major area of focus

• Creation of concept of DSA (Direct Selling Agent)

• Creation of concept of DST (Direct Selling Team)

• Effort on the part of the bank to reach the customer rather than waiting for the customer

• Use of internet, mobile, ATM’s and other technological device to reach and serve the customers

PROMOTION STRATEGYCorporate branding

Product branding

• Brand: result of customer interactionsAs Brand exists in the customers’ mind, Brand is entirely the product of customer experiences. Every kind of interaction with the customer that they can relate to our brand name leaves behind some perception that contributes to, or detracts from Brand. Hence, every interface between our company and the customer is a medium for building Brand.

Product Promotion:• Aimed at generating sales• Communicates product features and benefits• Mainly through print media• Point of purchase promotion tools for

different products to reach the relevant customer segment.

Internet banking

Centralized Processing Units Derived Economies of Scale

Electronic Straight Through Processing

Reduced Transaction Cost

Data Warehousing , CRM Improve cost efficiency, Cross sell

InnovativeTechnology Application Provide new or superior products

Use of technology for both internal and external processed

Process are system driven and independent of the people handling it

Standardization of service across the branches

Extensive investment in software solutions for process systemization

OUT-DOOR ACTIVITIES

Need to be seen…everywhere!!’

Events at corporate campus

Promotional material at channel partner outlets

Billboards

Signage's

Kiosks in residential and commercial complexes

OTHER Methods

Co-Branding Initiatives

– Alliance with Amway India for launch of the international credit card. The card will enable Amway distributors to purchase Amway products and earn and redeem reward points

• Indian Railways Catering And Tourism Development Corporation, in conjunction with ICICI Bank, announced the launch of mobile payments and ticketing system, offering IRCTC customers to book railway tickets via SMS and make payments through their ICICI Bank account

• Young Stars Account – Promotion through tie-up with Cartoon Network, and in-series promotion through Tom & Jerry

• Seminars in partnership with media channels

Technologyalone does not helps bank do all

•Increase market share in India’s expanding banking and financial services industry by following a disciplined growth strategy focusing on quality and not on quantity and delivering high quality customer service.•Orientation towards customer service• Division of SME, Personal Banking and other functions at the branch level• Effort towards providing sophisticated and modern image of the bank through its people.•Continue to develop products and services that reduce bank’s cost of funds. •Maintain current high standards for asset quality through disciplined credit risk management.•Setting up call centers and outbound sales force to secure new customers•cross sales of other products.