Business Planning by Banks

Business Planning by Banks

K.C. COLLEGE Page | 1

Executive Summary

The growing needs of individuals and business enterprises over the years

saw an immense change in economies across the globe. This increase led

to globalization - where business entities were open to take risks not only in

their country, but foreign nations as well. This, in turn, led to the

liberalization of economies and deregulation of certain guidelines set by

regulatory and supervisory authorities.

The Indian Banking system has The Reserve Bank of India (RBI) as the

apex body for all matters relating to the banking system. It is the ‘Central

bank’ of India and known as the banker to all other banks.

Business planning and strategies help owners and managers crystallize

their ideas, focus their efforts and monitor performance against established

objectives. This project on ‘Business Planning by Banks’ will initially begin

with giving you an overview of business planning needs, ethics and

standards followed by companies, in general.

Banks formulate business activities in order to attract more customers

hence more deposits and advances. These avenues bring interest to a

bank. But in the more recent times banks have spotted a huge business

potential in fee-based income as well. They realized that, by widening their

product base, more income from non-interest sectors could be earned.

Thus came into existence merchant banking, non-personal banking

facilities and even the merger of banking-insurance. These aspects of

business planning have also been covered through this project.



The above business avenues increase the needs of customers as well. In

order to feed this demand, banks must be able to equalise it with a steady

and probably high growing supply. But again this would require certain

guidelines to be either altered or framed in the favour of banks. Banks too,

require a certain amount of credit security while conducting various

businesses. Guidelines by the Reserve Bank of India, the Securities and

Exchange Board of India, and the Insurance Regulatory and Development

Authority have been discussed for certain business avenues of banks.

In conclusion to this extremely vast and debatable topic of Business

Planning by Banks, I have also included a case study of Canara Bank and

some of its business details, goals for the current financial year and its

most recent venture with HSBC Bank and Oriental Life Insurance

Company, during the current year.



Introduction to Business Planning

What is a business plan?

A business plan synthesizes all the essential aspects and information about

a company, whether it is being developed or already in operation. The

business plan is a substantial, detailed document containing the principal

data about the structure of the company. This includes the object of activity,

a market analysis, the specific approach to strategic marketing of the

company, management structure and personnel and all relevant financial

information.

Why Does One Need a Business Plan?

Why is a business plan of such central importance in a business? Why is it

so controversial? Why do some people seek to downplay its importance?

Surprisingly, others would claim that a business plan has no value. We can

immediately dismiss this view as without any logical basis. Every single

activity, from one day's work to longer-term projects, requires planning,

investigation and analysis.

A business plan is a valuable tool, required both for small- and medium-

sized companies as well as for major corporations, whether they wish to

start a business or to help it grow. When managers put down on paper the

data necessary to create a business plan, they are forced to organize and



structure their business ideas. The business begins to take shape. A

written plan reveals complex aspects of future work or work in progress.

Synthesizing all the data needed and structuring them into a specific

business plan is not a task to be undertaken lightly. A guesstimate analysis

is required, to take existing data into account and keep within reasonable

bounds. While it may take up to several months to formulate a viable plan,

once accomplished, it will bring about real, important benefits.

Three Reasons Why Any Business Should Have a Business Plan

A business plan is an effective tool for defining the existing realities. It

prompts you to analyze your business project or the existing situation

objectively and critically, define a focus and set realistic goals. It may

also constitute the basis for control and evaluation.

A good business plan will reveal weaknesses or omissions in your

planning. Because good business plans require a guesstimate of risk

calculation, they help to reduce risks.

They provide a valuable communication tool presented in an

organized, credible manner, which allows lenders, outside directors,

investors, banks and employees to obtain a complex view of your

business. Even if, in some cases, a business plan format is not

officially required when applying for a loan, although most lenders will

ask for one, the very existence of a plan constitutes a plus, a step

forward in obtaining the loan.



Writing Business Plans that Result

The art of writing a business plan, lies not only in the content but in the way

it is presented so as to result in a professional, convincing material.

The first requirement is a general one that should be used in the case of

any written (or spoken) statement: in order to transmit information in a

coherent, appealing manner, the business plan writer should observe the

main principles of discourse. These are: clarity, brevity/conciseness, logic

and truthfulness. In order to gain consistency and credibility, the presented

information should be backed up with figures whenever possible.

The second main requirement when writing business plans is that you

always have to keep in mind the target readers of your work and thus

putting emphasis on their particular points of interest. But this stage is a

customizable one that will be grafted on a basic common structure. Usually,

business plans have the following components:

a) Executive Summary

b) The Product/Service

c) The Market

d) The Marketing Plan

e) The Competition

f) Operations

g) The Management Team

h) Personnel

http://www.businessplanning.ws/learn/business-plan-outline-content.html



Business Plan Components

a) The Executive Summary

The first page of your business plan should be a persuasive summary that

will entice a reader to take the plan seriously and read on. The Executive

Summary should follow the cover page, and not exceed two pages in

length.

The summary should include:

A brief description of the company's history

The company's objectives

A brief description of the company's products or services

The market in which the business will compete

A persuasive statement as to why and how the business will succeed,

discussing the business's competitive advantage

Projected growth for the company and the market

A brief description of the key management team

A description of funding requirements, and how these funds will be

used

b) The Product or Service

It is important for the reader to thoroughly understand your product offering

or the services you currently provide or plan on providing. However, it is

important to explain this section in layman's terms to avoid confusion. Do



not burden the reader with technical explanations or industry jargon that he

or she will not be familiar with.

It is important to discuss the competitive advantage your product or service

has over the competition. Or, if you are entering a new market, you should

answer why there is a need for your offering. If appropriate, discuss any

patents, copyrights and trademarks the company currently owns or has

recently applied for and discuss any confidential and non-disclosure

protection the company has secured.

Discuss any barriers that you face in bringing the product to market, such

as government regulations, competing products, high product development

costs, the need for manufacturing materials, etc.

c) The Market

Investors look for management teams with a thorough knowledge of their

target market. If you are launching a new product, include your marketing

research data. If you have existing customers, provide an analysis of who

your customers are, their purchasing habits, their buying cycle. For more

information, see these companion articles: Conducting a Marketing

Analysis and Prepare a Customer Profile.

This section of the plan is extremely important, because if there is no need

or desire for your product or service there won't be any customers. If a

business has no customers, there is no business.

This section of the plan should include:

A general description of your market



The niche you plan on capitalizing on and why

What percentage of the market do you project you can capture

What is the growth potential of the market.

Will your share of the market increase or decrease as the market

grows

How will you price your goods or services in the growing competitive

market

d) The Marketing Strategy

Once you have identified who your market is, you'll need to explain your

strategy for reaching the market and distributing your product or service.

Potential investors will look at this section carefully to make sure there is a

viable method to reach the target market identified at a price point that

makes sense.

Analyze your competitors' marketing strategies to learn how they reach the

market. If their strategy is working, consider adopting a similar plan. If there

is room for improvement -- work on creating an innovative plan that will

position your product or service in the minds of your potential customers.

The most effective marketing strategies typically integrate multiple

mediums or promotional strategies to reach the market. The following are

some promotional options to consider.

TV / Radio / Print

Web (internet) / Direct mail

Public relations

Promotional materials



Telephone sales

One-on-one sales

If you have current samples of marketing materials or strategies that have

proved successful, make sure you include them with your plan. Developing

an innovative marketing plan is critical to your company's success.

Investors look favorably upon creative strategies that will put your product

or service in front of potential customers. Spend time developing this

section.

Once you have identified how you will reach the market, discuss in detail

your strategy for distributing the product or service to your customers. Will

you mail order, personally deliver, hire sales reps, contract with distributors

or resellers, etc.?

e) The Competition

Understanding your competition's strengths and weaknesses is critical for

establishing your product's or service's competitive advantage. If you find a

competitor is struggling, you need to know why, so you don't make the

same mistake. If your competitors are highly successful, you'll want to

identify why. You'll also want to explain why there is room for another

player in the market.

Specific areas to address in this section are:

Identify your closest competitors. Where are they located, what is

their revenue, how long have they been in business etc.

Define their target market



What percentage of the market do the competitors currently have

How do your operations differ from your competitors. What do they do

better? Where is there room for improvement

f) Operations

Now that you have had an opportunity to really sell your idea and attract

potential investors, the next question on their mind is how you will

implement the idea. What resources and processes are necessary to get

the product to market. This section of the plan should describe the

manufacturing, R&D, purchasing, staffing, equipment and facilities required

for your business.

In addition, describe the vendors you will need to build the business. Do

you have current relationships or do you need to establish new ones? Who

will you choose and why.

g) The Management Team

For most investors the experience and quality of the management team is

the most important aspect they evaluate when investing in a company.

Investors must feel confident that the management team knows its market,

product and has the ability to implement the plan. In essence, your plan

must communicate management's capabilities in obtaining the objectives

outlined in the plan. If this area is lacking, your chances for obtaining

financing are bleak.

If your team lacks in a critical area, identify how you plan on compensating

for the void. Whether it is additional training required or additional



management staff needed, show that you know the problem exists, and

provide your options for solutions.

When preparing this section of the business plan you should address the

following five areas:

1. Personal history of the principals: Business background of the

principals, tracking successes, responsibilities and capabilities,

Educational background, Personal data, Personal financial statement

with supporting documentation

2. Work experience: Direct operational and managerial experience in

this type of business, Indirect managerial experiences

3. Duties and responsibilities: Who will do what and why, Organizational

chart with chain of command and listing of duties, Who is responsible

for the final decisions?

4. Salaries and benefits:

A simple statement of what management will be paid by

position

Listing of bonuses in realistic terms

Benefits (medical, life insurance, disability)

h) Personnel

The success of a business can often be measured by its employees.

Seventy percent of consumers will go elsewhere if they don't receive



prompt and courteous service. You must consider the following questions

in completing this section of the business plan:

What are your current personnel needs (full or part-time)? How many

employees do you envision in the near future and then in the next

three to five years?

What skills must your employees have? What will their job

descriptions be?

Are the people you need readily available and how will you attract

them?

Will you be paying salaries or hourly wages?

Will there be benefits? If so, what will they be and at what cost?

Will you pay overtime?

Business Plan Implementation

The business plan implementation puts theory into practice. If theory and

practice do not come together, the plan will remain on the drawing board.

The business plan must be implemented with due regard to deadlines set.

The responsibility of each individual involved in the plan must be clearly

delineated.

The implementation plan must form an integral part of the business plan.

The manager must have a clear idea of the practical impact of his business

ideas.



Steps

a) Establishing the business objectives

b) Defining and assigning the tasks needed to attain the objectives set

c) Setting out a timescale

d) Monitoring activities and progress

Objectives

The objectives must be clearly and concisely set out, with the planning of

key stages. They must at the same time be realistic, demanding but

achievable.

Tasks

The tasks must be listed with the individuals responsible for completing

each task. They must be simply and clearly stated, and need not be

oppressive. The results envisaged should outweigh the time and effort

devoted to the tasks.

Timescale

Each task, and its duration, must be framed within a clear timescale. The

result clearly displays all the activities necessary with their deadlines.



Monitoring Activity and Progress

During the monitoring process, delays must be highlighted. This stage

identifies and rectifies the delays.

Within a business plan, several implementation plans will be needed for the

particular aspects of the business: product planning, marketing, financial

problems and human resource management.

Business Plan Reassessment

Business plan reassessment leans on re-evaluation and analysis. Experts

consider it must take place with a frequency of six months to one year. This

timescale, however, must be adjustable according to the dynamics of the

market and to the kind of business you are in. It depends also very much

on the application of your business plan.

Thus, the business plan can be reevaluated, say, every month. This

squashes any potential problems at an early stage. Recovery is more

straightforward and there are no unpleasant consequences.

Keeping your business plan under close observation may also reveal,

and help you anticipate, new tendencies on the market.

Another advantage of updating the business plan frequently lies in

the detailed written record of the development of your business. For

many investors or bankers this will constitute proof that your business

management plan is clear-eyed, calculated and responsible.



Business Carried on by Banks and its Planning

The Reserve Bank of India formally took on the responsibility of regulating

the Indian banking sector from 1935. After India's independence in 1947,

the Reserve Bank was nationalized and given broader powers. Currently,

banking in India is fairly mature in terms of supply, product range and

reach-even though reach in rural India still remains a challenge for some of

the private sector banks. In terms of quality of assets and capital adequacy,

Indian banks are considered to have clean, strong and transparent balance

sheets relative to other banks in comparable economies in its region.

Banking Regulation Act of India, 1949 defines Banking as "accepting, for

the purpose of lending or investment of deposits of money from the public,

repayable on demand or otherwise and withdrawable by cheques, draft,

order or otherwise."

Most of the activities a Bank performs are derived from the above

definition. In addition, Banks are allowed to perform certain activities which

are ancillary to this business of accepting deposits and lending. A bank's

relationship with the public, therefore, revolves around ‘accepting deposits’

and ‘lending money’. Other activities which are assuming increasing

importance are as follows:

Merchant Banking Activities:

a. Underwriting

b. Loan Syndication



Indirect / Non-Personal Banking Services

a. Credit Card / Debit Card

b. ATM Services

c. Online Banking

d. Mobile Banking

Other Miscellaneous Services

a. Bancassurance

b. Mutual Funds

c. Factoring Service

d. Core Banking Solution

Business Planning in banks is mainly concentrated on the above three

ancillary activities apart from the main business of accepting and lending.

Floor plans are designed in such a manner so as to obtain higher income

from each segment. But it is also important to be aware of the fact that

banks must mandatorily run under certain guidelines or rules under the

Reserve Bank of India and also the Banking Regulation Act of India. These

prevent a banking company from investing above a certain portion of their

earnings in each of their business avenues. It also lays down requirements

in concern with reserves (CRR and SLR) that a bank must set aside. The

different aspects of the business carried on by banks and its planning will

be explained as you read on further.



I. Accepting Deposits:

Accepting deposits is one of the two major activities of a Bank. Banks are

called custodians of public money. Basically, the money is accepted as

deposit for safe keeping. But since the Banks use this money to earn

interest from people who need money, Banks share a part of this interest

with the depositors. The quantum of interest depends upon the tenor -

length of time for which the depositor wishes to keep the money with the

Bank - and the ease of withdrawal. The thumb rule is, longer the tenor,

higher the rate of interest and lesser the restrictions on withdrawal, lesser

the interest. Deposits are accepted from both, resident (domestic) and Non-

Resident Indian customers.

It is the business of the banker to accept deposits so that he can lend it to

others and earn interest. Depending upon the liquidity position of the

market and the size of deposit, the earnings can vary and if the size of the

deposit is big enough. There are different types of bank account in Indian

banking sector. The bank accounts are as follows:

Savings Account - Savings Account can be opened for eligible person

or persons and certain organisations (as advised by Reserve Bank of

India (RBI) from time to time)

Current Account - Current account is required if you make a number

of deposits and withdrawals in a single day and many of the deposits

are drawn on outstation banks. Banks accept deposits in current



account and allow unlimited withdrawals subject to a minimum

balance. This minimum balance differs from Bank to Bank. No

interest is payable on a current account. Opening of a current

account is indicated in the case of a business enterprise or high worth

individuals who deal with a lot of third party cheques, drafts etc. or

who may at times need to borrow money from the Bank against some

security. Current Account can be opened by individuals, partnership

firms, Private and Public Limited Companies, HUFs, Specified

Associates, Societies, Trusts, etc.

Term Deposits Account - Term Deposits Account can be opened by

individuals, partnership firms, Private and Public Limited Companies,

HUFs, Specified Associates, Societies, Trusts, etc.

Non-Resident Indian Account - To meet the specific needs of non-

resident Indians related to their remittances, savings, earnings,

investments and repatriation, the Government of India introduced in

1970 Non-Resident (External) Account Rules which are governed by

the Exchange Control Regulations.

NRI accounts are maintained by banks which hold authorised

dealers' licenses from the Reserve Bank of India. Some cooperative

and commercial banks have also been specifically permitted to

maintain NRI accounts in rupees even though they are not authorised

dealers. The financial budget for 2007-08 extends NRI accounts to

regional rural banks (RRB’s) as well.



II. Lending money to the Public:

Lending money is one of the two major activities of any Bank. Banks accept

deposit from public for safe-keeping and pay interest to them. They then

lend this money to earn interest on this money. In a way, the Banks act as

intermediaries between the people who have the money to lend and those

who have the need for money to carry out business transactions. The

difference between the rate at which the interest is paid on deposits and is

charged on loans, is called the "spread". Banks lend money in various

forms and they lend for practically every activity. The types of loans

available through the banks in India are as follows:

a. Commercial Lending

This is the mainstay of Indian Banking - its bread and butter activity.

Although historically, this activity had been relegated to a secondary

position as banks were driven by the desire to excel themselves in what is

known as "priority sector banking" yet it is this part of their loan portfolio

which has kept them afloat and help meet the costs. This activity survived

despite a number of restrictions imposed on it in the past. Today fresh and

innovative products are being launched to facilitate the corporate customer

who forms the core of this business. There is big competition among banks

to secure bigger share of this business.



At present, commercial loans are available for practically any kind of

activity and also for both long and short tenures. Based on customer

profile, these loans are of two types:

i. Corporate Loans: These loans are meant for corporate bodies

(and bigger ones among other entities like proprietorships,

partnerships and HUFs) engaged in any legal activity with the

object of making profit. Banks lend to such entities on the strength

of their balance sheet, the length of cash cycle and depending

upon the products available with individual banks.

Banks analyse the audited balance sheets of the prospective

borrowers to appraise their needs as also the capacity to absorb

credit. Prospective borrowers are required to furnish their financial

details to the bankers and file an application for the loan. This

application is processed and a line of credit (limit) allowed to the

borrower. The overall limit (line of credit) is structured into various

type of facilities or accounts - each with its own limit within the

overall line of credit - depending upon the needs of the customer.

The borrower is then asked to execute Bank's standard

documents, surrender the security or title to the security to the

Bank and open suitable accounts (mostly Cash Credit accounts

with different underlying securities) with the Bank. Thereafter the

borrower can operate these accounts within the limit (line of

credit).

ii. Retail Loans: This type of lending is meant for very small

entrepreneurs as well as individuals who are engaged in gainful



commercial activity and have the capacity to repay the loan. This

in turn, depends upon the monthly income.

Most banks nowadays have a product for financing the purchase

of automobiles and other consumer durable items.

b. Priority Sector Lending

The Government of India through the instrument of Reserve Bank of India

(RBI) mandates certain type of lending on the Banks operating in India

irrespective of their origin. RBI sets targets in terms of percentage (of total

money lent by the Banks) to be lent to certain sectors, which in RBI's

perception would not have had access to organised lending market or

could not afford to pay the interest at the commercial rate. This type of

lending is called Priority Sector Lending. Financing of Small Scale Industry,

Small business, Agricultural Activities and Export activities fall under this

category. This is also called directed credit in Indian Banking system.

Financing Priority Sector in the economy is not strictly on commercial basis

as not only the general approach is liberal but also the rate of interest

charged on such loans is less. Export finance is, in fact, available at a

discount of 20% or more on the normal rate of interest to Indian corporates.

In a recent notification issued on 19th May 2008, the RBI said that the

recently issued guidelines on the priority sector have been modified to

include loans granted to persons who belong to the weaker sections and

are from minority communities. Banks have to lend up to 40 per cent of

their adjusted net bank credit to the priority sector, which include farmers,

borrowers of home loans up to Rs 20 lakh, and education loans up to Rs 10

lakh for domestic education and Rs 20 lakh for overseas education.



c. Real Estate / Home Loans

Home loan is the latest craze in the banking sector with the development of

the infrastructure. The RBI has also liberalized the interest rates of home

loan in order to match the repayment capability of even middle class

people. Almost all banks are dealing in home loan. SBI, ICICI, HDFC,

HSBC are the leading banks. Home Loans, Home extension loans, home

improvement loans, Non Resident Indian (NRI) loans and home equity

loans fall under the category of housing loans. In May 2008, the limit of

bank loans for housing was enhanced to Rs.30 lakh from Rs.20 lakh by the

Reserve Bank of India

d. Bank Overdrafts and Bill Discounting

The word overdraft means the act of overdrawing from a Bank account. In

other words, the account holder withdraws more money from a Bank

Account than has been deposited in it. This Facility is available to current

account holders and prime lenders

Bill discounting is a major activity with some of the smaller Banks. Under

this type of lending, the bank, takes the bill drawn by borrower on the

customer and pays him immediately deducting some amount as

discount/commission. The Bank then presents the Bill to the borrower's

customer on the due date of the Bill and collect the total amount. If the bill



is delayed, the borrower or his customer pays the Bank a pre-determined

interest depending upon the terms of transaction.

III. Merchant Banking Activities:

In India, merchant banks operate in the form of Divisions of Indian and

Foreign banks and financial institutions, subsidiary companies

established by banks like SBI Capital Markets Ltd., can Bank Financial

Services Ltd., PNB Capital Services Ltd., Indian Bank Merchant Banking

services Ltd., etc., the firm organized by the stock brokers, stock

exchange dealers, the financial and technical consultants and chartered

accountants. Securities and Exchange Board of India (SEBI) has divided

merchant bankers into four categories, having regard to their nature and

range of activities and their responsibilities to SEBI, investors and

issuers of securities, which are as follows:-

CATEGORIES ACTIVITIES NETWORTH

Category I

To carry on the activity of issue

management and to act as adviser,

consultant, manager, underwriter,

portfolio manager.

Rs.5crore

Category II

To act as adviser, consultant, co-

manager, underwriter, portfolio

manager.

Rs.2 crore

Category III To act as underwriter, adviser or

consultant to an issue. Rs. 1 crore



Category IV To act only as adviser or consultant

to an issue Nil

In recent times, Merchant Banking in India has grown a considerable

amount, due to liberalized policies by the RBI on banks. In 2006 deal

activity was largely restricted to the IT and Telecom sectors, but as of 2008,

merchant banking activities have spotted the potential growth in funding

real estate sectors as well.

In the days ahead, merchant bankers have very significant role to play

tuning their activities to the requirements of the growth pattern of corporate

sector, the industry and the economy as a whole, which is, in it, a

challenging task and to meet these challenges merchant bankers will have

to be more vigorous and strategic in playing their role. They will have also

to adopt new ways and means in discharging their role.

I shall be putting forward a few merchant banking activities that banking

companies in India today, prefer to invest their time and money in. These

are the activities on which a bank gets most returns and profits. Potential

growth is seen in the following business avenues by banks:

a. Underwriting:

Underwriting is like insurance against the failure of an issue. It is a

guarantee to the issuing the company, that the money that it requires for its

project will definitely be raised. It means that even if the issue is not fully

subscribed to by the public, the underwriters will make up the short fall.



Underwriting involves the underwriter agreeing to subscribe directly, or to

procure subscription for the unsubscribe portion of the issue, which is not

taken up. For the risk that the underwriter takes, he is paid commission.

New companies face number of problems in raising funds from the market.

One of the biggest problems of course that the company is not well known

and many investors will be unwilling to invest in such ventures.

Underwriters on their part need to satisfy themselves about the viability of

the project and also about the integrity of the promoters of the company.

Only then will they agree to bear the risk of underwriting. It must be noted

that when an issue is under subscribed, the underwriters will pick the

shares, or rather, they will underwrite the unsubscribed part of the issue. In

future, when the company makes excess profits, the underwriter (merchant

bank) can sell the shares in the market, get their money back, and also

make a decent profit. Underwriting banks also have a hold on the

company’s, upto the extent of ensuring that the management carries on

business to maximize returns. This holding power gives the merchant

banker a surety that the shares of the company will bring optimum returns.

According to rule 3(1) of the Regulations, no person shall act as an

underwriter unless he holds a certificate granted by SEBI under the

Regulations. The current underwriting limit for any merchant banker or

qualified financial institution, as per regulation 15(2) of the SEBI, is as

under. It must also be noted that the merchant banker acting as an

underwriter, must procure subscription funds with a limit of 45 days as per

regulation 15(3) of the Regulations.

Net Worth Multiple of Net Worth



Between Rs. 1cr – Rs.

5cr 10 times

Higher then Rs. 5cr 20 times

b. Syndication of Loans:

As the size of loans increased, individual banks found it difficult to take up

risks single handedly. Regulatory authorities in most countries also limit the

size of the individual exposure. Hence the practice of inviting other banks to

participate in a loan, to form a consortium, came into being. A syndicated

credit is a loan in which a group of merchant bankers and financial

institutions make funds available on common terms and conditions to a

particular borrower. The tenor of such loans may typically range from 3-8

years. The activity involves a lead bank or group of banks that takes a

percentage of the loan and syndicates or sells the rest to other banks.

One of the greatest advantage to a lender (bank) and the main reason to

arrange for a loan syndicate, is to diversify the risk of loans with high value.

This results in mitigation of credit risk and exposure to a single borrower.

Loan syndication also gives smaller banks an opportunity to invest in larger

and more profitable ventures.

The increase in overseas borrowing and merger and acquisitions by Indian

corporates in 2007 has been a tidy earning opportunity for Indian banks.

The State Bank of India jumped to the number one spot, in terms of fees

earned ($35 million) from loan syndication in the Asia Pacific region. The

state-run bank was ranked fifth in 2006. ICICI Bank moved to the fourth

position in 2007 ($12 million) from 24th in 2006. The focus on syndication



fees by these banks, is aimed at increasing the non-interest income. The

pricing hinges on global factors and is market-driven and hence there are

no domestic considerations, even if the client happens to be an Indian

company.

IV. Indirect/Non-Personal Banking Services:

a. Credit Card / Debit Card

A credit card is a system of payment named after the small plastic card

issued to users of the system. In the case of credit cards, the issuer lends

money to the consumer (or the user) at a fixed rate of interest. A user is

issued credit after an account has been approved by the credit provider,

and is given a credit card, with which the user will be able to make

purchases from merchants accepting that credit card up to a pre-

established credit limit. Each month, the credit card user is sent a

statement indicating the purchases undertaken with the card, any

outstanding fees, and the total amount owed. The cardholder must pay a

defined minimum proportion of the bill by a due date, or may choose to pay

a higher amount up to the entire amount owed. The credit provider charges

interest on the amount owed. Credit card issuers waive interest charges if

the balance is paid in full each month.

A debit card is very similar to a cash card, but it allows you to do a lot more

than use an ATM machine. A debit card is like an electronic cheque that

you can use to pay for goods and services. When you use a debit card to

pay for something, the money will normally be taken from your account

within three working days. As the money is automatically taken from your



account, it means that you can only spend the amount that’s available in

your account at the time. A debit card can be used at an ATM machine.

The card holder will be issued with a Personal Identification Number (PIN

number) which needs to be keyed in each time the card is used.

b. ATM Services

An automated teller machine (ATM) is a computerized telecommunications

device that provides the customers of a bank with access to financial

transactions in a public space without the need for a human clerk or bank

teller. On most modern ATMs, the customer is identified by inserting a

plastic ATM card with a magnetic stripe or a plastic smartcard with a chip,

that contains a unique card number and some security information, such as

an expiration date. Security is provided by the customer entering a

personal identification number (PIN). They are sometimes incorrectly

referred to as "ATM machines", a technically redundant term. Using an

ATM, customers can access their bank accounts in order to make cash

withdrawals (or credit card cash advances) and check their account

balances as well as purchasing mobile cell phone prepaid credit.

The importance of ATM transactions is increasing each year. Hence banks

plan their business in such a way so as to draw more customers. For

example, a Savings Bank Account with UTI Bank entitles you to a free ATM

card, which enables you to access your account anytime and at any ATM

centre across the country. You can withdraw and deposit money and

cheques with your ATM card. Unlike most other ATMs, a UTI Bank ATM

allows you to withdraw up to Rs. 20,000 a day. In addition, cash can be



withdrawn from any of the ATMs against your MasterCard

(domestic/international) with additional interest charged on the transaction.

c. Online Banking

The delivery channels include direct dialup connections, private networks,

public networks, etc. with the popularity of computers, easy access to

Internet and World Wide Web (WWW), Internet is increasingly used by

banks as a channel for receiving instructions and delivering their products

and services to their customers. This form of banking is generally referred

to as Internet Banking, although the range of products and services offered

by different banks vary widely both in their content and sophistication.

Through the medium of internet banking, banks can build a brand image in

the market and attract more customers.

Banking Services through Internet: -

i. The Basic Level Service is the banks’ web sites which disseminate

information on different products and services offered to customers

and members of public in general. It may receive and reply to

customer’s queries through e-mail.

ii. In the next level are Simple Transactional Web sites which allows

customers to submit their instructions, applications for different



services, queries in their account balances, etc. excluding fund

based transactions.

iii. The third level of Internet banking service are offered by Fully

Transactional Web sites which allow the customers to operate on

their accounts for transfer of funds, payment of different bills,

subscribing to other products of the bank and to transact purchase

and sale of securities, etc.

d. Mobile Banking

Mobile banking (also known as m-Banking, SMS Banking) is a term used

for performing balance checks, account transactions, payments etc. via a

mobile device such as a mobile phone. Mobile banking today, is most often

performed via SMS or the Mobile Internet.

Mobile phones as a delivery channel for extending banking services have

off-late been attaining greater significance. With the rapid growth in the

number of mobile phone subscribers in India (about 261 million as at the

end of March 2008 and growing at about 8 million a month), banks have

been exploring the feasibility of using mobile phones as an alternative

channel of delivery of banking services. Some banks have started offering

information based services like balance enquiry, stop payment instruction

of cheques, transactions enquiry, location of the nearest ATM/branch etc.

Acceptance of transfer of funds instruction for credit to beneficiaries of

same/or another bank in favor of preregistered beneficiaries have also

commenced in a few banks. In order to ensure a level playing field and

considering that the technology is relatively new, Reserve Bank has

brought out a set of operating guidelines for adoption by banks.



Regulatory & Supervisory Issues as on 19th Sept, 2008.

Only banks which are licensed and supervised in India and have a

physical presence in India will be permitted to offer mobile banking

services.

The services shall be restricted only to customers of banks and

holders of debit/credit cards issued as per the extant Reserve Bank of

India guidelines.

Only Indian Rupee based domestic services shall be provided. Use of

mobile banking services for cross border transfers is strictly

prohibited.

Banks may also use the services of Business Correspondent

appointed in compliance with RBI guidelines, for extending this facility

to their customers.

Only banks who have implemented core banking solutions would be

permitted to provide mobile banking services.

Banks shall put in place a system of document based registration with

mandatory physical presence of their customers, before commencing

mobile banking service.

On registration of the customer, the full details of the Terms and

Conditions of the service offered shall be communicated to the

customer.

A per transaction limit of Rs. 2500/- shall be imposed on all Mobile

Banking transactions. Subject to an overall cap of Rs. 5000/- per day,

per customer.



Banks may also put in place monthly transaction limit depending on

the bank’s own risk perception of the customer.

Mobile banking shall operate on the factor of authentication of an

mPIN or any higher standard in an encrypted format. The mPIN shall

be stored in a secure environment.

V. Other Miscellaneous Services:

a. Bancassurance

Bancassurance is defined as ‘Selling Insurance products through banks’.

The word is a combination of two words ‘Banc’ and ‘assurance’ signifying

that both banking and insurance products and service are provided by one

common corporate entity or by banking company with collaboration with

any particular Insurance company. It is profitable both to Banks and

Insurance companies and has a very bright future to be the most

developed and efficient means of distribution of Insurance products.

Insurance company can sell both life and non-life policies through banks. It

is predicted by experts that in future 90% of share of premium will come

from Bancassurance business only.

The banking business also generates more profit by way of premium

collected by them. They also receive commission like insurance agents,

which increases their profits. Their service base also increases and banks

able to provide more service which attracts more customers to the bank.

Over and above Banks that build fee income can cover more of their



operating expenses, and one way to build fee income is through the sale of

insurance products. Banks that effectively cross-sell financial products, can

leverage their distribution to earn higher from this avenue.

In India, Bancassurance is guided by the Insurance Regulatory and

Development Authority Act (IRDA), 1999 and Reserve Bank of India. All

banks and insurance company have to meet particular requirement to get

into Bancassurance business.

RBI guideline for banks entering into insurance sector provides three

options for banks. They are:

Joint ventures will be allowed for financially strong banks wishing to

undertake insurance business with risk participation;

For banks which are not eligible for this joint-venture option, an

investment option of up to 10% of the net worth of the bank or Rs.50

crores, whichever is lower, is available;

Finally, any commercial bank will be allowed to undertake insurance

business as agent of insurance companies. This will be on a fee

basis with no-risk participation.

The Insurance Regulatory and Development Authority (IRDA) guidelines for

the bancassurance are:

Each bank that sells insurance must have a chief insurance executive

to handle all the insurance activities.



All the people involved in selling should under-go mandatory training

at an institute accredited by IRDA and pass the examination

conducted by the authority.

Commercial banks, including cooperative banks and regional rural

banks, may become corporate agents for one insurance company.

Banks cannot become insurance brokers.

b. Mutual Funds

Mutual fund is a kind of trust that manages the pool of money collected

from various investors and it is managed by a team of professional fund

managers (usually called an Asset Management Company) for a fee. The

investments by the Mutual Funds are made in equities, bonds, debentures,

call money etc., depending on the terms of each scheme floated by the

Fund. The current value of such investments is now-a-days calculated

almost on daily basis and the same is reflected in the Net Asset Value

(NAV) declared by the funds from time to time. This NAV keeps on

changing with the changes in the equity and bond market. Therefore, the

investments in Mutual Funds is not risk free, but a good managed Fund can

give you regular and higher returns than when you can get from fixed

deposits of a bank etc.

The origin of mutual fund industry in India is with the introduction of the

concept by UTI in the year 1963. Though the growth was slow, but it

accelerated from the year 1987 when non-UTI players entered the industry.



In India today, most banks offer Mutual Fund Schemes for investment in

the Indian as well as foreign market. The provisions for overseas

investments by Mutual Funds registered with Securities and Exchange

Board of India (SEBI) have been further liberalized and enhanced from

USD 4 billion to USD 5 billion.

The State Bank of India, UTI, Canara Bank, Punjab National Bank,

CitiBank, HDFC and HSBC are among the large players. The Bank of India

and The Union Bank have recently entered the Mutual Fund market.

As a business avenue, Mutual Funds are gaining more and more pace and

banks are putting their best efforts to draw potential customers in order to

increase their fee-based income.

c. Factoring Services

Factoring is a word often misused synonymously with accounts receivable

financing. Factoring is a financial transaction whereby a business sells its

accounts receivable (i.e., invoices) at a discount. Factoring differs from a

bank loan in three main ways. First, the emphasis is on the value of the

receivables, not the firm’s credit worthiness. Secondly, factoring is not a

loan - it is the purchase of an asset (the receivable). Finally, a bank loan

involves two parties whereas factoring involves three.

The three parties directly involved are: the seller, debtor, and the factor.

The seller is owed money (usually for work performed or goods sold) by the

second party, the debtor. The seller then sells one or more of its invoices at



a discount to the third party, the Bank (factor) to obtain cash. The debtor

then directly pays the factor the full value of the invoice.

This form of business performed by a banking company is a fee based

service, where the company who sells its assets does so at a discount.

Interest rate is payable to the bank. The bank on the other hand may

provide for overdraft facilities to the company. Factoring services are

mainly extended to exporters and importers and the EXIM bank of India is

the largest in terms of this credit extension.

Reserve Bank of India in its notification dated 12th February 2008, has

permitted banks to extend financial assistance to support the factoring

business of Factoring Companies which comply with the following criteria:

The companies carry out all the components of a standard factoring

activity, viz., financing of receivables, sale-ledger management and

collection of receivables.

They derive at least 80% of their income from factoring activity.

The receivables purchased/financed, irrespective of whether on 'with

recourse' or 'without recourse' basis, form at least 80% of the assets

of the Factoring Company.

The assets/income referred to above would not include the

assets/income relating to any bill discounting facility extended by the

Factoring Company.

The financial assistance extended by the Factoring Companies is

secured by hypothecation or assignment of receivables in their

favour.



d. Core Banking Solution (CBS)

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.

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.

Core Banking Solutions is new jargon frequently used in banking circles.

The advancement in technology especially internet and information

technology has led to new way of doing business in banking. The

technologies have cut down time, working simultaneously on different

issues and increased efficiency. The platform where communication

technology and information technology are merged to suit core needs of

banking is known as Core Banking Solutions. Here computer software is

developed to perform core operations of banking like recording of

transactions, passbook maintenance, interest calculations on loans and

deposits, customer records, balance of payments and withdrawal are done.

This software is installed at different branches of bank and then

interconnected by means of communication lines like telephones, satellite,



internet etc. It allows the user (customers) to operate accounts from any

branch if it has installed core banking solutions.

The Four standard software tools used are Intellect Suite from POLARIS,

Flexcube from iFlex Solutions, Finacle from Infosys, and B@ncs from

TATA Consultancy Services.

Most of the nationalized banks in India for example: State Bank of India,

Punjab National Bank, Canara Bank, Allahabad Bank, HDFC and ICICI

Bank today supports core banking.

VI. Reserve Requirements by the RBI:

a. Cash Reserve Ratio (CRR)

In terms of Section 42(1) of the RBI Act 1934, Scheduled Commercial

Banks are required to maintain with RBI an average cash balance, the

amount of which shall not be less than three percent of the total of the Net

Demand and Time Liabilities (NDTL) in India, on a fortnightly basis and RBI

is empowered to increase the said rate of CRR to such higher rate not

exceeding twenty percent of the Net Demand and Time Liabilities (NDTL)

under the RBI Act, 1934. At present the rate of CRR is 9% of the NDTL. If

any Scheduled Commercial Bank fails to observe the minimum level of

CRR on any day/s during the relevant fortnight, the bank will not be paid

interest to the extent of one fourteenth of the eligible amount of interest,

even if there is no shortfall in the CRR on average basis.



b. Statutory Liquidity Ratio (SLR)

In terms of Section 24 (2-A) of the B.R. Act, 1949 all Scheduled

Commercial Banks, in addition to the average daily balance which they are

required to maintain under Section 42 of the RBI Act, 1934, are required to

maintain in India, in cash, or in gold valued at a price not exceeding the

current market price, in unencumbered approved securities valued at a

price as specified by the RBI from time to time, an amount which shall not,

at the close of the business on any day, be less than 25% of the total of its

demand and time liabilities in India as on the last Friday of the second

preceding fortnight.

Case Study

Canara Bank - Introduction

Canara Bank, established in 1906 as Canara Bank Hindu Permanent Fund

in Mangalore, India, by Ammembal Subba Rao Pai, is one of the oldest and

major commercial banks of India. Its name was changed to Canara Bank

Limited in 1910. The bank, along with 13 other major commercial banks of

India, was nationalised on 19 July 1969, by the Government of India. In

1985, Canara Bank acquired Lakshmi Commercial Bank in a rescue.

As of 2008, the bank has a network of 2641 branches, spread across India

and other countries. Its head office is located in Bangalore, India. The bank

also has international presence in several centers, including London, Hong

Kong, Moscow, Shanghai, Doha, and Dubai. In terms of business it is one



of the largest nationalized commercial banks in India, with a total business

of about Rs.2 trillion.

Subsidiary Companies

CanFin Homes Limited

Canbank Venture Capital Fund Limited

Gilt Securities Trading Limited

Canbank Investment Management Services Limited

Canbank Financial Services Limited

Canara HSBC Oriental Life Insurance Company Limited

Business Planning by Canara Bank (2007-2008)

Canara Bank's Net profit for the first half year of FY08 recorded a 16.18%

growth to reach Rs.642 crore, after making a total provision of Rs.620

crore, compared to a net profit level of Rs.553 crore for the corresponding

period of last year. Net profit for the second quarter of the FY08 reached

Rs.402 crore as compared to Rs.362 crore in the corresponding quarter a

year ago, recording a y-o-y growth of 11%. Sequentially, net profit for Q2

registered a 67% growth over Q1 in the current financial. Operating profit

for Q2 stood at Rs.650 crore, recording a growth of 8.41% as against

Rs.600 crore for the same period last year.

Earnings per Share (EPS) (not annualized) improved from Rs.13.48 as at

September 2006 to Rs.15.66 as at September 2007. Book value rose to

Rs.213.32 as at September 2007 from Rs.184.95 for the corresponding

period last year. Return on Average Assets for the Q2 remained at 0.97%

as compared to 1.05% for the same quarter a year ago.



With a strong 39% growth in the interest income from core lending

operations, the Bank's total income registered a 36% growth to touch

Rs.7815 crore as against Rs.5733 crore for the same period of the previous

year. Non-interest income for the half year amounted to Rs.952 crore,

registering a 76% growth. Total expenditure for the half year under review

stood at Rs.6552 crore. Aggregate business of the Bank reached a level of

Rs.2,40,537 crore as at September 2007, registering a 18% growth

compared to Rs.2,04,692 crore for September 2006.

Aggregate business was driven by a 19% growth in deposits and 15%

growth in advances. While aggregate deposits touched Rs.145193 crore,

advances (net) reached a level of Rs.95344 crore as at September 2007.

Outstanding advances to the priority segments registered a 25.08% growth

to reach Rs.38,920 crore as at September 2007. Credit disbursement to

agriculture during the first half year stood at Rs.5192 crore, taking the

outstanding agricultural advances to Rs.16412 crore.

Continuing the focus on SME financing and its growing importance in the

Indian economy, credit to SME segments recorded a 35.49% y-o-y growth

to reach Rs.16385 crore as at September 2007 compared to a level of

Rs.12093 crore a year ago. Canara Bank was awarded the "First National

Award", instituted by the Ministry of Micro, Small & Medium Enterprises,

Govt. of India for excellence in "Micro & Small Enterprises (MSE) Lending"

for 2006-07. Shri M B N Rao, C&MD received the prestigious award from

the Honorable Prime Minister of India, Dr. Manmohan Singh on 30th

August 2007.



In the realm of education loan, Canara Bank continues to lead the

nationalized banks with a loan portfolio of Rs.1545 crore, recording a

growth of 37% and covering more than 1,04,000 students.

In the InfoTech arena, the Bank continued to make consistent progress for

enhancing tech-enabled service delivery channels in tune with the growing

customer demands and fast and effective delivery of products/services.

The Bank has so far brought in 331 branches under Core Banking Solution.

The ATM strength of the Bank has further moved to 1485, covering 566

centres. With the ATM sharing arrangement under National Financial

Switch (NFS) and alliance with SBI group, the Bank's customers have now

wider access to more than 23,000 ATMs across the country. As at

September 2007, the Debit-cum-ATM card base of the Bank stood at over

27 lakh. With 1157 branches providing Internet and Mobile Banking (IMB)

services, Anywhere Banking (AWB) services were further expanded to

cover 1717 branches of the Bank.

In keeping with a fast changing environment, the Bank has undertaken a

robust 'Brand Building' exercise to improve the visibility and position

'Canara Bank' as a strong customer centric bank, catering to all customer

segments. The entire branding exercise is focused on the Bank's overall

objective of responding to the changing times, customer preferences and

articulating its long-term vision. An effective marketing strategy has been

formulated to execute strategies and realize business goals. The Bank has

roped in an internationally reputed consultancy viz., M/s Boston Consulting

Group for a comprehensive study on 'Corporate Business Strategy'. The

work in this area has already commenced.



In pursuit of the global aspirations, the Bank has moved a step closer in its

overseas expansion drive, with permission by the RBI for commissioning of

five branches obtained out of the 21 international centres identified for

expansion in the medium term. Its Representative Office at Shanghai is

being converted into a full fledged branch shortly.

Goals for 2007-08:

The Bank targets a global business level of Rs.2,90,000 crore for 2007-08,

with a growth rate of over 20%, comprising Rs.1,70,000 crore under

deposits and Rs.1,20,000 crore under advances. Advances growth will be

significantly driven by agriculture, SME, infrastructure and other productive

segments, including services sector.

Canara HSBC Oriental Life Insurance (JV) Company Launched in India

Canara HSBC Life Insurance in association with Oriental Bank of

Commerce is a joint venture Life insurance company in India launched in

March 2007 and inaugurated on 16th June 2008 with headquarters in

Gurgaon, Haryana. Stalwarts like Canara Bank, HSBC and OBC have

come together to form this alliance that fuses their individual customer bank

consisting of more than 40 million people and 3600 branches across the

country. This strategic alliance of three most trusted banks in India have

the entire basic infrastructure needed to become a significant Life insurer in

India within no time.



The respective holdings in the venture are:

Canara Bank - 51%

HSBC - 26%

Oriental Bank of Commerce - 23%

Besides the individual capital contribution, HSBC would take charge of the

management services including providing senior level executives to the

company. The nascent Life insurance market in India has shown great

growth potentials that is being capitalized by the private insurers entering

the market. In this scenario, Canara HSBC Oriental Life Insurance has a

promising future.

Canara Bank is an established name in commercial banking services,

mutual funds, housing and venture capital financing, factoring and

insurance segments. The Life Insurance and Non Life Insurance products

of Canara Bank are front runners in the industry. This Canara HSBC OBC

collaboration would bring best of value added international insurance

products to the Indian markets.

Oriental Bank of Commerce has its rural and semi-urban reach to

contribute to the collaboration. With over 1350 branches and extension

counters in all important centres across the country, OBC understands the

needs of local populace that would help design customer-friendly life

insurance products that would in turn bring a fair market share.



''With the support of Canara Bank and Oriental Bank of Commerce and

HSBC's insurance expertise, we have made significant progress in getting

the company ready to operate. All three shareholders are committed to

ensuring that the new company is operated to world-class standards and is

competitive in India's fast-growing insurance market,'' David L Fried,

Chairman and Chief Executive of HSBC Insurance (Asia-Pacific) Holdings

Limited.

Conclusion

Banks have evolved a great deal in comparison to the number of products

and level of sophistication in terms of business today, and back in the past.

Banks not only operate on their basic banking business of accepting

deposits and lending their customers money to others to earn profit, but

have ventured out into aspects that fetches them a high amount of fee for

the service provided.

The merchant banker plays a vital role in channelising the financial surplus

of the society into productive investment avenues. The use of technological

facilities by banks makes payment mechanism speedy and hassle free.

ATMs and Credit Cards are the need of the hour. People today own credit

cards with an intention to earn status, and some, since it is much easier

than to carry bundles of currency notes. Banks today, are absorbing

maximum advantage of these situations to earn fee based income. This is

possible when card holders make interbank transactions or exceed credit

limits. Banks also induce customers to deposit upto a certain amount in

order to get additional facilities on the credit card.

Consumer Loans and corporate loans today, are available for practically

any commodity. Rates are being sacked by the RBI in order to meet the

needs of the market. This in one way may prove negative, because

reduction of interest rates would induce customers to borrow more and this

can put the bank at a risk of non-repayment of principal and interest. The

most interesting fact about business planning by banks is that, banks



cannot work under rules set by them. They must function under a

framework of regulations, be it in the sector of providing advances or

making technological changes. Even new business avenues that are being

entered into must gain prior approval of various regulatory authorities.

Finally, I would like to conclude my project on Business Planning by Banks.

The project had been taken up by me, to get an insight of how the banking

business functions in its numerous activities bearing in mind the guidelines,

that must be mandatorily followed. I take this project as a success since I

have achieved the needful objectives that had been ‘PLANNED’ by me.

BIBLIOGRAPHY

The information provided in this project on Business Planning by Banks,

has been obtained from the following sources:

http://www.rbi.org.in

http://www.sebi.gov.in

http://www.irdaindia.org

http://va-interactive.com

http://www.businessplanning.ws

http://www.indiahousing.com

http://www.banknetindia.com

http://www.rbi.org.in/

http://www.sebi.gov.in/

http://va-interactive.com/

http://www.businessplanning.ws/

http://www.indiahousing.com/

http://www.banknetindia.com/



http://money.rediff.com

http://finance.indiamart.com

http://economictimes.indiatimes.com

http://www.financialexpress.com

http://money.rediff.com/

http://finance.indiamart.com/

http://economictimes.indiatimes.com/

http://www.financialexpress.com/