INTRODUCTIONAt the time of independence in 1947, India's capital
market was relatively underdeveloped. Although there was
significant demand for new capital, there was a dearth of
providers. Merchant bankers and underwriting firms were almost
non-existent. And commercial banks were not equipped to provide
long-term industrial finance in any significantmanner. It is
against this backdrop that the government established The
Industrial Finance Corporation of India (IFCI) on July 1, 1948, as
the first Development Financial Institution in the country to cater
to the long-term finance needs of the industrial sector. The
newly-established DFI was provided access to low-cost funds through
the central bank's Statutory Liquidity Ratio or SLR which in turn
enabled it to provide loans and advances to corporate borrowers at
confessional rates. In financial economics, a financial institution
acts as an agent that provides financial services for its clients
or members. Financial institutions generally fall under financial
regulation from a government authority. Common types of financial
institutions include banks, building societies, credit unions,
stock brokerages, asset management firms, and similar
businesses.
MEANING OF FINACIAL INSTITUTION
Banks provide almost all payment services, and a bank account is
considered indispensable by most businesses, individuals and
governments. Non-banks that provide payment services such as
remittance companies are not normally considered an adequate
substitute for having a bank account. Banks borrow most funds from
households and non-financial businesses, and lend most funds to
households and non-financial businesses, but non-bank lenders
provide a significant and in many cases adequate substitute for
bank loans, and money market funds, cash management trusts and
other non-bank financial institutions in many cases provide an
adequate substitute to banks for lending savings to.
DEFINITION OF FINACIAL INSTITUTION
An institution that obtains capital from individuals,
businesses, and other organizations and invests it in various
financial assets. A generic term for banks, trust companies, credit
unions, and perhaps other investment companies that deal with
money, hold money, invest money ... Any organization in the
business of moving, investing or lending money, dealing in
financial instruments or providing financial services. Includes
commercial banks, thrifts, federal and state savings banks, savings
and loan associations and credit unions. ... Any bank, savings and
loan, credit union or other institution organized under either
national or state banking laws capable of both accepting deposits
and making loans. Private (shareholder-owned) or public
(government-owned) organizations that, broadly speaking, act as A
channel between savers and borrowers of funds (suppliers and
consumers of capital).
FUNCTION OF FINANCIAL INSTITUTIONFinancial institutions provide
a service as intermediaries of the capital and debt markets. They
are responsible for transferring funds from investors to companies,
in need of those funds. The presence of financial institutions
facilitates the flow of monies through the economy. To do so,
savings are pooled to mitigate the risk brought vide funds for
loans. Such is the primary means for depository institutions to
develop revenue. Should the yield curve become inverse, firms in
this arena will offer additional feegenerating services including
securities underwriting, and prime brokerage.
Liberalization financial institutionBy the early 1990s, it was
recognized that there was need for greater flexibility to respond
to the changing financial system. It was also felt that IFCI should
directly access the capital markets for its funds needs. It is with
this objective that the constitution of IFCI was changed in 1993
from a statutory corporation to a company under the Indian
Companies Act, 1956. Impact of Liberalisation on the Indian
Financial Sector Until 1991, the financial sector in India was
heavily controlled. Commercial banks and long term lending
institutions, the two dominant financial intermediaries, had
mutually exclusive roles and objectives and operated in a largely
stable environment, with little or no competition. Long-term
lending institutions were focused on achieving the Governments
various socio-economic objectives, including balanced industrial
growth and employment creation, especially in areas requiring
development. Long-term lending institutions were given access to
long-term funds at subsidised rates through loans and equity from
the Government and from funds guaranteed by the Government and
originating from commercial banks in India and foreign currency
resources originating from multilateral and bilateral agencies. The
focus of the commercial banks was primarily on mobilizing household
savings through demand and time deposits and to use these deposits
to meet the short-term financial needs of borrowers in industry,
trade and agriculture. In addition, the commercial banks provided a
range of banking services to individuals and business entities.
However, since 1991, there have been comprehensive changes in the
Indian financial system. Various financial sector reforms have
transformed the operating environment of the banks and long-term
lending institutions. In particular, the deregulation of interest
rates, emergence of a liberalised domestic capital market, entry of
new private sector banks and broadening of long-term lending
institutions product portfolios have progressively intensified
competition between banks and long-
term lending institutions. The RBI has permitted the
transformation of long-term lending institutions into banks,
subject to compliance with the prudential norms applicable to
banks. The Future of State-Owned Financial Institutions There is
increased evidence from official development institutions and
private economists around the world documenting the linkage between
more rapid and stable economic growth on the one hand, and sound
financial systems on the other. Despite numerous privatizations
over the past decade, publicly owned banks and other state-owned
financial institutions still serve the majority of individuals in
developing countries, according to presentations by James Hanson,
George Clarke, and Robert Cull of the World Bank. State-owned
financial enterprises are less prevalent in developed economies,
with very few exceptions, such as Germany and, to a lesser extent,
the United States, with its large government-sponsored entities
supporting residential home ownership that have implicit government
backing, according to David Marston of the International Monetary
Fund. Public ownership of these financial institutions and others
has been rationalized on several grounds: To counter the power of
strong private sector banks or to promote the development of
home-grown banks in the early stages of an economy's history the
socalled infant industry rationale. Both arguments helped justify
the formation of the First and Second National Banks of the United
States in the early 1800s, for example. To ensure that economic
growth is consistent with national objectives. This is a clear
rationale for socialist economies, but even in private economies
there is a view that governments have better knowledge of socially
beneficial investment opportunities than private banks. To ensure
that underserved groups or sectors, such as agriculture and small
businesses, receive credit. To respond to financial crises, which
have hit developed and developing countries alike. In some of these
cases, government ownership is temporary, but in some cases it
lasts for significant periods. Among government officials around
the world there is support for some government ownership of
financial institutions based on one or more of these rationales.
Economists generally, however, are skeptical of all these
rationales except for the last one.
COMMERCIAL BANKS
Commercial banks in India have traditionally focused only on
meeting the shortterm financial needs of industry, trade and
agriculture. As of September 30, 2007, there were 179 commercial
banks (175 scheduled commercial banks and 4 non-scheduled
commercial banks) in India with a network of 72,117 branches
holding approximately Rs. 28,538.3 billion in deposits and Rs.
20,409.1 billion in loans. Scheduled commercial banks are banks
listed in the schedule to the Reserve Bank of India Act, 1934, and
are further categorized as public sector banks, private sector
banks and foreign banks. Scheduled commercial banks have a presence
throughout India, with approximately 65% of bank branches located
in rural or semi-urban areas of the country. A large number of
these branches belong to public sector banks. Public Sector Banks
Public sector banks make up the largest category in the Indian
banking system. They include the SBI and its seven associate banks,
19 nationalized banks (plus IDBI Bank) and 95 regional rural banks.
Excluding the regional rural banks, the remaining public sector
banks have 50,228 branches, and accounted for 70.0% of the
outstanding gross bank credit and 70.6% of the aggregate deposits
of the scheduled commercial banks of September 30, 2007. The public
sector banks large network of branches enables them to fund
themselves out of low cost deposits. The Bank is the largest public
sector bank in India. As of September 30, 2007, the Bank and its
associate banks had 14,150 branches.
They accounted for 22.6% of the aggregate deposits and 22.9% of
the outstanding gross bank credit of all scheduled commercial
banks. Private Sector Banks After the first phase of bank
nationalisation was completed in 1969, public sector banks made up
the largest portion of Indian banking. The focus on public sector
banks was maintained throughout the 1970s and 1980s. Furthermore,
existing private sector banks which showed signs of an eventual
default were merged with state-owned banks. In July 1993, as part
of the banking reform process and as a measure to induce
competition in the banking sector, the RBI permitted entry of the
private sector into the banking system. This resulted in the
introduction of nine private sector banks. These banks are
collectively known as the new private sector banks. As of September
30, 2007, there were 24 private sector banks, of which eight were
new private sector banks and 16 were private sector banks existing
prior to July 1993. As on September 30, 2007, private sector banks
accounted for approximately 20.3% of aggregate deposits and 20.6%
of outstanding gross bank credit of the scheduled commercial banks.
Their network of 7,177 branches accounted for 10.0% of the total
branch network of scheduled commercial banks in the country.
Foreign Banks As of September 30, 2007, there were 29 foreign banks
with 257 branches operating in India, accounting for 6.1% of the
aggregate deposits and 6.8% of the outstanding gross bank credit of
scheduled commercial banks at of September 30, 2007. As part of the
liberalisation process, the RBI has permitted foreign banks to
operate more freely, subject to requirements largely similar to
those imposed on domestic banks. While the primary activity of most
foreign banks in India has traditionally been in the corporate
sector, some of the larger foreign banks have increasingly made
consumer financing a larger part of their portfolios, offering an
array of products such as automobile finance, home loans, credit
cards and household consumer finance.
SPECIALIZED BANKS
After the origin of commercial bank Indian government introduce
specialized bank with the view to provide financial support to
cater the specific need of different sector, basically this sector
include agriculture sector, industrial sector and the small scale
business entity there are various type of specialized banks such as
national bank for rural and agriculture development, co-operative
credit and co-operative land development bank
National Bank for Agricultural and Rural Development (NABARD)
NABARD is a specilised financial institution in the field
agriculture and rural development, it act as a mini reserve bank of
india for the agriculture sector it is the apex financial institute
focusing purely on agriculture credit and rural development NABARD
come in to existent 12th June 1982 following recommendation of the
committee to review management for institutional credit for the
agricultural and rural development NABARD was set up by central
government under the direct control and supervision of RBI.RBI has
contributed 50% of NABARD capital and other 50% has contributed by
cental government like RBI, NABARD does not deal directly with
farmer or disburesd loan directly to the farmer, however being a
apex institution plays a very important an critical in agriculture
credit. Regional rural bank The regional rural banks are
specialized bank, the basic aim to introduced the banking
formalities to the rural area where there is no banks and because
of which particular area is unaware of the banking formality and to
introduce the loan facilities to that area for agriculture and
other operational purpose the regional rural banks are formed, this
banks are specially tribal regions The group recommendat that there
should be one regional bank for one district. The regional rural
bank is sponsored by commercial bank. The government expected this
and asks commercial bank to sponsored one regional rural bank per
district. Each regional rural bank have authorised capital rupees 1
corers and paid up capital 25 lake. The paid up capital raised by
50% government , 35% sponsoring commercial bank, 50% from the own
deposits. Urban cooperative banks The duty of these urban banks
should be to try to do for the small trader, the small merchant and
the middle class population what the commercial banks are doing for
the big trader and the big merchant. It will be pertinent to
mention in context of the above recommendations of the Central
Banking Enquiry Committee that the need for Urban Co-operative
Banks.By providing credit on reasonable terms to the middle
classes, they can rescue them from the exploitation of money
lenders and other unscrupulous agencies which is particularly
important in the context of rising prices and cost of living. These
as consequent effects also on non-
cooperative landings. By financing individual small
industrialists and artisans working in urban areas , they can make
significant contribution to industrial development. The present
achievements of the Urban Banks in financing production oriented
loan proposals; in meeting the financial needs of the priority
sectors ( such small scale industries , self employed persons,
transport operators etc ) in diversifying their loan portfolios
paying more attention to the needs of industry trade , and commerce
and assigns less and less importance to consumption loans, and in
ameliorating the condition of the backward and economically weaker
section of the community are all mainly due to the policies framed
and vigorously pursued by the R.B.I. AGRICULTURE FINANCIAL BANK The
Bank has played and continues to play an important role in the
development of Indian agriculture. The Bank had 424 agricultural
development branches as of September 30, 2007. These are
specialised branches located throughout India used exclusively for
the development of the agriculture sector and its related
industries. The Banks agricultural development branches offer
products such as crop financing, farm equipment financing, and
agricultural value chain financing and serve customers involved in
a wide range of agricultural activities such as crop production,
horticulture, plantation crops, floriculture, farm mechanization,
land development and reclamation, digging of wells, tube wells and
irrigation projects, as well as activities linked to agriculture
such as storage, trading and processing. The Bank also finances
activities such as dairy production, fisheries, livestock
management and silk worm farming. The Banks focus has been on
cultivating direct relationships with the farmers, thereby allowing
them to offer more customized products to their clients.
Initiatives aimed at strengthening ties with the farming community
include attending farmers meetings and Farmers Club events as well
as a village adoption program whereby each region, encompassing 40
to 45 branches, adopts a village in order to build banking
relationships there as well as to support integrated development of
the village. PACS 1. The primary agriculture credit society (PACs)
may be started with ten more persons , normally belonging to a
village. 2. The value of each share is generally nominal so as to
enable even the poorest farmer to become a member. 3. The liability
of each member is unlimited i.e. each member is fully responsible
for the entire loss of the society in the event of failure.
4. The management of the society is under an elected body
consisting of president, secretary and Treasure. The management is
honorary, the only paid member being the accountant. 5. Short terms
loan are provided normally for a year , for carrying out
agriculture operations. The rate of interest is low. 6. Profits are
not distributed as dividend to the shareholders but they are used
for the welfare of the small and managerial farmers.
LDCB The primary co- op , credit societies and other co-op,
institution who provided finance for agriculture development could
not provide long term finance for agriculture development. There
was a need for long-term finance for agriculture development co-op.
bank , which were formerly known as land montage co-op. banks are
suppose provide credit at low rate of interest and also without
delay so as to enable them to bring about agriculture development
rapidly and help the process of India. Land development co-op.
banks are of two kinds :Central land development co-op. bank which
operate state level. Primary land development co-op..bank which
operate at district level.
FINANCIAL INSTITUTESpecialised Financial Institutions In
addition to the long-term leading institutions, there are various
specialised financial institutions which cater to the specific
needs of different sectors. They include the National Bank for
Agricultural and Rural Development, the Export-Import Bank of
India, the Small Industries Development Bank of India, Risk Capital
and Technology Finance Corporation Limited, Tourism Finance
Corporation of India Limited, National Housing Bank, Power Finance
Corporation Limited, the Infrastructure Development Finance
Corporation Ltd. and India Infrastructure Financing Company Ltd.
State Financial Institutions State financial corporations operate
at the state level and form an integral part of the
institutionalfinancing system. State financial corporations were
set up to finance and promote small and medium-sized enterprises.
The state financial institutions are expected
to achieve balanced regional socio-economic growth by generating
employment opportunities and widening the ownership base of
industry. At the state level, there are also state industrial
development corporations, which provide finance primarily to
medium-sized and large. Insurance Companies Currently, there are 32
insurance companies in India, of which 16 are life insurance
companies, 15 are general insurance companies and one is a
re-insurance company. Of the 16 life insurance companies, 15 are in
the private sector and one is in the public sector (Life Insurance
Corporation of India). Of the 15 general insurance companies, nine
are in the private sector and six are in the public sector (four
government-owned general insurance companies, Export Credit
Guarantee Corporation of India Limited and the Agriculture
Insurance Company of India). The sole reinsurance company, GIC, is
in the public sector. LIC, GIC and public sector general insurance
companies also provide long-term financial assistance to the
industrial sector. Gross premiums underwritten of all general
insurance companies increased by 22.4% in fiscal year 2007 to Rs.
250.0 billion, compared to an increase of 16.5% in fiscal year
2006. First year premiums underwritten in the life insurance sector
recorded a growth of 100.6% to reach Rs. 754.1 billion in fiscal
year 2007 compared to a 40.6% growth in fiscal year 2006. The
insurance sector in India is regulated by the Insurance Regulatory
and Development Authority. In December 1999, the Indian Parliament
passed the Insurance Regulatory and Development Authority Act Act),
which opened the Indian insurance sector to foreign and private
investors. The Act allows foreign equity participation in new
insurance companies of up to 26.0%. The new company should have a
minimum paid-up equity capital of Rs. 1.0 billion to carry out the
business of life insurance or general insurance or Rs. 2.0 billion
to carry out exclusively the business of reinsurance. In its
monetary and credit policy for fiscal year 2001, the RBI issued
guidelines governing the entry of banks and financial institutions
into the insurance business. The guidelines permit banks and
financial institutions to enter the business of insurance
underwriting through joint ventures, provided that they meet
certain criteria relating to their net worth, capital adequacy
ratio, profitability track record, level of impaired loans and the
performance of their existing subsidiary companies. The Government,
while presenting its budget for fiscal year 2005, proposed an
increase in the limit on foreign equity participation in private
sector insurance companies from 26.0% to 49.0%. However, this would
require an amendment to the Insurance Regulatory and Development
Authority Act, 1999 and has not yet been implemented. Non-Banking
Financial Institutions in India Non Companies Institutions.
Equipment Companies, Banking Financial Institutions in India
comprise of Non Banking Financial (NBFCs), Mutual Funds, Insurance
Companies and Developmental According to the nature of their
business, NBFCs are further classified as Leasing (EL), Hire
Purchase (HP), Merchant Banking, Investment and Mutual Benefits
Companies etc. Developmental institutions are mainly
created to serve special purposes like agriculture development,
investments and export promotion etc. They are mainly promoted and
run by the Government and its maintained institutions. On the other
hand the insurance sector, which has recently been opened for the
private sector, is still beyond the reach of small capital holders.
Entry norms and regulatory framework makes it further difficult for
the small capital owners to think entering this field. Mutual funds
are open to the private players. But they too are beyond the reach
of small capital holders. Besides the initial requirements of large
capital and some other stringent requirements are well beyond the
reach of Islamic financial institutions.In short anybody going for
Islamic alternatives in finance has the option of choosing only the
Non Banking Financial Companies format for its easy entry norms,
low capital requirements, lower regulations and flexibility in
registration and functioning. Non-Banking Financial Companies
(NBFCs) The Non Banking Financial Corporations or Companies
(interchangeably used in this paper) are defined by the RBI
Amendment Act, 1997 as financial institutions which are registered
as companies and which have as their principal business the
receiving of deposits under any scheme or arrangement or in any
other manner and lending in any manner In India, the Non Banking
Financial Corporations (NBFCs) play an important role in the
mobilization and the deployment of financial resources. NBFCs are
popular because of their added advantage over banking institutions
in terms of high customer orientation, lower transaction costs,
quick decision-making, easy registrations, lesser regulations and
higher flexibility. Flexibility in their structure also allows
NBFCs to unbundle services provided by banks and market the
components on a competitive basis. These distinctive features armed
with economic liberalization contributed to great proliferation of
NBFCs activities in India. The significant increase in the domain
of activities of NBFCs is evident by the fact that the share of
non-bank deposits (in gross financial assets of household sector)
increased from a low of 2.2 percent in 1990-91 to 13.6 percent by
1996-97. Table 1 shows the growth of NBFCs during 1981 to 2003. The
total number of NBFCs in 1981 was merely 7063, which increased to
15358 in 1985 and by the year 1995 it jumped to over 55000 NBFCs.
However, after the new regulations came into force in 1998 the
number of NBFCs drastically reduced to 7855 in 1999. Even after
five years of the new regulations the number NBFCs could only rose
to 13849 in 2003 with only about 700 companies allowed to accept
deposits from the public.
BANK AS FINANCIAL INSTITUTE
BANKING SECTORA banker or bank is a financial institution whose
primary activity is to act as a payment agent for customers and to
borrow and lend money.
HistoryBanks have influenced economies and politics for
centuries. Historically, the primary purpose of a bank was to
provide loans to trading companies. Banks provided funds to allow
businesses to purchase inventory, and collected those funds back
with interest when the goods were sold. For centuries, the banking
industry only dealt with businesses, not consumers. Banking
services have expanded to include services directed at individuals,
and risk in these much smaller transactions are pooled. NATURE AND
SCOPE OF BANKING
Pre IndependenceBanking is the most important constituents of
the money market in India modern banking became effective in India
only after 1910. Banking system in India consists of Reserve bank
of India, commercial banks, and co-operative banks. Commercial
banks are scheduled and non- scheduled, Indian, Foreign, Public
sector and private sector and Regional rural bank. Commercial bank
created money in certain multiple of deposits. The major
principles, which banks strive to incorporate in their working, are
profitability, liquidity, safety and social welfare. Indian Banking
System is of Branch banking type and it is characterized by
excessive concentration of business in a smaller number of big
public sector banks. Banks have developed innovative approaches
such as consortium, single window and participatory lending.
Banking business is based on seasonal variances. The commercial
banking in India is not a competitive system. However, there has
been an increase in banks competition over the years. The
profitability of banks is low. Some banks are more efficient. The
major problem of banks low efficiency and productivity, over due
and bad debts and defaults and frauds. Indian banks have
diversified into many related areas such as merchant banking mutual
funds, venture capital, credit cards, leasing and housing finance.
The massive and speedy constitutive growth and unprecedentedly
growth in social banking have created a number of problems in
banking sector. Banks have made considerably progress in India. The
size of the population and the support to the government for
industrialization has made tremendous scope for banking activities
in India. The banking system touches the lives of millions and has
to be inspired by large social purpose and has to sub- served
national priorities and objectives. Development of agriculture,
export, small-scale industries and rising of employment levels and
encouragement of new entrepreneurs as well as development of
backward areas are some of special objective. For this purpose it
is necessary to take direct responsibility by the government for
extension and diversification of banking services in the country.
Mobilization of deposits through a massive programme of branch
expansion particularly in unbanked rural areas and ensuring educate
financial assistance to the priority sector of the economy.
Commercial bank plays an important role in the process of
industrialization and overall development of an economy. Till the
nationalization of commercial banks, only a few big industries were
enjoying the facilities given by the commercial banks. In order to
mobiles resources of banking system for large social purpose, the
fourteen Indian scheduled banks were nationalized on 19 July 1969.
Corporative banks are a part of vast and powerful super structure
of co- operative institution in India. The beginning of co-
operative banking dates back to about 1904 when official efforts
were initiated to create a new type of institution based on
principle of co- operative organization and management. Co-
operative banks work on no profit no loss basis and they perform
all the main banking function. They have federal structure of three
tier linkages and vertical integration. The deposits and credits of
these banks are about 15% and 35% respectively of those of
commercial banks. There is a vast scope for further improvement of
deposit mobilization. The government and RBI have initiated a
number of steps to strengthen the co- operative baking in
India.
Post-independence The partition of India in 1947 had adversely
impacted the economies of Punjab and West Bengal, and banking
activities had remained paralyzed for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian
banking. The Government of India initiated measures to play an
active role in the economic life of the nation, and the Industrial
Policy Resolution adopted by the government in 1948 envisaged a
mixed economy. This resulted into greater involvement of the state
in different segments of the economy including banking and finance.
The major steps to regulate banking included: In 1948, the Reserve
Bank of India, India's central banking authority, was nationalized,
and it became an institution owned by the Government of India. In
1949, the Banking Regulation Act was enacted which empowered the
Reserve Bank of India (RBI) "to regulate, control, and inspect the
banks in India." The Banking Regulation Act also provided that no
new bank or branch of an existing bank may be opened without a
license from the RBI, and no two banks could have common directors.
However, despite these provisions, control and regulations, banks
in India except the State Bank of India, continued to be owned and
operated by private persons. This changed with the nationalization
of major banks in India on 19th July, 1969. Nationalisation of
Banks By the 1960s, the Indian banking industry has become an
important tool to facilitate the development of the Indian economy.
At the same time, it has emerged as a large employer, and a debate
has ensued about the possibility to nationalize the banking
industry. Indira Gandhi, the-then Prime Minister of India expressed
the intention of the GOI in the annual conference of the All India
Congress Meeting in a paper entitled "Stray thoughts on Bank
Nationalisation." The paper was received with positive enthusiasm.
Thereafter, her move was swift and sudden, and the GOI issued an
ordinance and nationalised the 14 largest commercial banks with
effect from the midnight of July 19, 1969. Jayaprakash Narayan, a
national leader of India, described the step as a "masterstroke of
political sagacity." Within two weeks of the issue of the
ordinance, the Parliament passed the Banking Companies (Acquition
and Transfer of Undertaking) Bill, and it received the presidential
approval on 9th August, 1969. A second dose of nationalisation of 6
more commercial banks followed in 1980. The stated reason for the
nationalisation was to give the government more control of credit
delivery. With the second dose of nationalisation, the GOI
controlled around 91% of the banking business of India. After this,
until the 1990s, the nationalized banks grew at a pace of around
4%, closer to the average growth rate of the Indian economy.
Liberalization Period
In the early 1990s the then Narsimha Rao government embarked on
a policy of liberalisation and gave licences to a small number of
private banks, which came to be known as New Generation tech-savvy
banks, which included banks such as Global Trust Bank (the first of
such new generation banks to be set up)which later amalgamated with
Oriental Bank of Commerce,UTI Bank(now re-named as Axis Bank),
ICICI Bank and HDFC Bank. This move, along with the rapid growth in
the economy of India, kick started the banking sector in India,
which has seen rapid growth with strong contribution from all the
three sectors of banks, namely, government banks, private banks and
foreign banks. The next stage for the Indian banking has been setup
with the proposed relaxation in the norms for Foreign Direct
Investment, where all Foreign Investors in banks may be given
voting rights which could exceed the present cap of 10%,at present
it has gone up to 49% with some restrictions. The new policy shook
the Banking sector in India completely. Bankers, till this time,
were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at
4) of functioning. The new wave ushered in a modern outlook and
tech-savvy methods of working for traditional banks. All this led
to the retail boom in India. People not just demanded more from
their banks but also received more. The economic reforms initiated
by the Government of India in early 90s have brought a sea change
in operational environment of financial sector, its functioning and
outlook of Indian banks. The Indian Banking Industry has been
undergoing a metamorphosis since the commencing of liberalisation
in 1991 following the recommendation of the Narashimham Committee
on the financial system. Measures like: Reduction in Reserve
requirements Deregulation of interest rate Introduction of
prudential norms relating to capital adequacy, income recognition,
assets classification and provisioning Liberalisation of banks'
licensing policy etc. Forced the Banks to re-look at their business
strategies. Opening up of doors to private sector banks and foreign
banks have added to the competition. The financial markets will be
continually characterised by four, significant trends, viz.,
financial liberalisation, disintermediation, internationalisation
and technological advancement. Financial liberalisation leads to
the rise of nonbanks like finance companies, mutual funds,
investment banks, insurance companies and even non-financial firms
as purveyors of liquidity and risk management services.
Disintermediation erodes banks' share and role because banks
evolved within a culture of very cautions credit risk-taking. This
culture has been encouraged or even demanded by regulators for
which banks have erected expensive credit, audit and risk
management departments. The rise of secondary markets for bank
loans not only helps to satisfy the liquidity needs of
non-traditional investors but also conscripts banks' role.
Internationalisation is a result of liberalisation and
disintermediation. It encourages consolidation and concentration
within the industry.
Indian Banking is on major technological upgradation drive after
having successfully absorbed the international standard in their
operating norms. It is commonly perceived that technology is
important to enhance the quality of customer service and to make it
customer-friendly; it will also improve the operational efficiency
and productivity. Banks are expected to use all new technological
developments in the field of computerisation and communication.
Universal BankingSince the early 1990s, banking systems
worldwide have been going through a rapid transformation. Mergers,
amalgamations and acquisitions have been undertaken on a large
scale in order to gain size and to focus more sharply on
competitive strengths. This consolidation has produced financial
conglomerates that are expected to maximise economies of scale and
scope by bundling the production of financial services. The general
trend has been towards Downstream linkages: Universal banking where
banks have undertaken traditionally non-banking activities such as
investment banking, insurance, mortgage financing, securitisation,
and particularly, insurance. Upstream linkages: Where non-banks
undertake banking business, are also on the increase. The global
experience can be segregated into broadly three models. There is
the Swedish or Hong Kong type model in which the banking corporate
engages in in-house activities associated with banking. In Germany
and the UK, certain types of activities are required to be carried
out by separate subsidiaries. In the US type model, there is a
holding company structure and separately capitalised subsidiaries.
In India, the first impulses for a more diversified financial
intermediation were witnessed in the 1980s and 1990s when banks
were allowed to undertake leasing, investment banking, mutual
funds, factoring, hire-purchase activities through separate
subsidiaries. By the mid-1990s, all restrictions on project
financing were removed and banks were allowed to undertake several
activities in-house. In the recent period, the focus is on
Development Financial Institutions (DFIs), which have been allowed
to set up banking subsidiaries and to enter the insurance business
along with banks. DFIs were also allowed to undertake working
capital financing and to raise short-term funds within limits. It
was the Narasimham Committee II Report (1998) which suggested that
the DFIs should convert themselves into banks or non-bank financial
companies, and this conversion was endorsed by the Khan Working
Group (1998). The Reserve Banks Discussion Paper (1999) and the
feedback thereon indicated the desirability of universal banking
from the point of view of efficiency of resource use, but it also
emphasised the need to take into account factors such as the status
of reforms, the state of preparedness of the institutions, and a
viable transition path while moving in
the desired direction. Accordingly, the mid-term review of
monetary and credit policy, October 1999 and the annual policy
statements of April 2000 and April 2001 enunciated the broad
approach to universal banking and the Reserve Banks circular of
April 2001 set out the operational and regulatory aspects of
conversion of DFIs into universal banks. The need to proceed with
planning and foresight is necessary for several reasons. The move
towards universal banking would not provide a panacea for the
endemic weaknesses of a DFI or its liquidity and solvency problems
and/or operational difficulties arising from undercapitalisation,
non-performing assets, and asset liability mismatches, etc. The
overriding consideration should be the objectives and strategic
interests of the financial institution concerned in the context of
meeting the varied needs of customers, subject to normal prudential
norms applicable to banks. From the point of view of the regulatory
framework, the movement towards universal banking should entrench
stability of the financial system, preserve the safety of public
deposits, improve efficiency in financial intermediation, ensure
healthy competition, and impart transparent and equitable
regulation.
Current situation Currently (2008), banking in India is
generally fairly mature in terms of supply, product range and
reach-even though reach in rural India still remains a challenge
for the private sector and foreign 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. The Reserve Bank of
India is an autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupee is to
manage volatility but without any fixed exchange rate-and this has
mostly been true. With the growth in the Indian economy expected to
be strong for quite some timeespecially in its services sector-the
demand for banking services, especially retail banking, mortgages
and investment services are expected to be strong. One may also
expect M&As, takeovers, and asset sales. The nationalised banks
in particular have to go long way towards professionalization in
their operations to build up public confidence in banking system.
The Banking Industry has to play active role to its Assets
Liabilities Management to reduce risk and simultaneously to improve
its profitability. In the quest of providing better and efficient
customer service a technological revolution is a must in the Indian
Banking Sector.
Origin of the word The name bank derives from the Italian word
banco "desk/bench", used during the Renaissance by Florentines
bankers, who used to make their transactions above a desk covered
by a green tablecloth. However, there are traces of banking
activity even in ancient times In fact, the word traces its origins
back to the Ancient Roman Empire, where moneylenders would set up
their stalls in the middle of enclosed courtyards called macella on
a long bench called a bancu, from which the words bank and bank are
derived. As a moneychanger, the merchant at the bancu did not so
much invest money as merely convert the foreign currency into the
only legal tender in Romethat of the Imperial Mint. Definition as
per Banking Regulation Act, 1949 As per Section 5(c) of Banking
Regulation Act, 1949 a "Banking Company" means any companywhich
transacts the business of banking in India. Explanation: Any
company which is engaged in the manufacture of goods or carries on
any trade and which accepts the deposits of money from public
merely for the purpose of financing its business as such
manufacturer or trader shall not be deemed to transact the business
of banking within the meaning of this clause." .
Wider commercial role
issue of banknotes (promissory notes issued by a banker and
payable to bearer on demand) processing of payments by way of
telegraphic transfer, EFTPOS, internet banking or other means
issuing bank drafts and bank cheques accepting money on term
deposit lending money by way of overdraft, installment loan or
otherwise providing documentary and standby letters of credit,
guarantees, performance bonds, securities underwriting commitments
and other forms of off balance sheet exposures safekeeping of
documents and other items in safe deposit boxes currency exchange
sale, distribution or brokerage, with or without advice, of
insurance, unit trusts and similar financial products as a
'financial supermarket'
Economic functionsThe economic functions of banks include: 1.
issue of money, in the form of banknotes and current accounts
subject to cheque or payment at the customer's order. These claims
on banks can act as money because they are negotiable and/or
repayable on demand, and hence valued at par and effectively
transferable by mere delivery in the case of banknotes, or by
drawing a cheque, delivering it to the payee to bank or cash.
2. netting and settlement of payments -- banks act both as
collection agent and paying agents for customers, and participate
in inter-bank clearing and settlement systems to collect, present,
be presented with, and pay payment instruments. This enables banks
to economies on reserves held for settlement of payments, since
inward and outward payments offset each other. It also enables
payment flows
between geographical areas to offset, reducing the cost of
settling payments between geographical areas.
3. credit intermediation -- banks borrow and lend back-to-back
on their own account as middle men
4. credit quality improvement -- banks lend money to ordinary
commercial and personal borrowers (ordinary credit quality), but
are high quality borrowers. The improvement comes from
diversification of the bank's assets and the bank's own capital
which provides a buffer to absorb losses without defaulting on its
own obligations. However, since banknotes and deposits are
generally unsecured, if the bank gets into difficulty and pledges
assets as security to try to get the funding it needs to continue
to operate, this puts the note holders and depositors in an
economically subordinated position.
5. maturity transformation -- banks borrow more on demand debt
and short term debt, but provide more long term loans. Bank can do
this because they can aggregate issues (e.g. accepting deposits and
issuing banknotes) and redemptions (e.g. withdrawals and
redemptions of banknotes), maintain reserves of cash, invest in
marketable securities that can be readily converted to cash if
needed, and raise replacement funding as needed from various
sources because they have a high and more well known credit quality
than most other borrowers.
Powers of RBIAs supreme banking authority in the country, the
Reserve Bank of India, therefore, has the following powers: 1. It
holds the cash reserves of all the scheduled banks. 2. It controls
the credit operations of banks through quantitative and qualitative
controls. 3. It controls the banking system through the system of
licensing, inspection and calling for information.
4. It acts as the lender of the last resort by providing
rediscount facilities to scheduled banks. Banker to Government The
second important function of the Reserve Bank of India is to act as
Government banker, agent and adviser. The Reserve Bank is agent of
Central Government and of all State Governments in India excepting
that of Jammu and Kashmir. The Reserve Bank has the obligation to
transact Government business, via. to keep the cash balances as
deposits free of interest, to receive and to make payments on
behalf of the Government and to carry out their exchange
remittances and other banking operations. The Reserve Bank of India
helps the Government - both the Union and the States to float new
loans and to manage public debt. The Bank makes ways and means
advances to the Governments for 90 days. It makes loans and
advances to the States and local authorities. It acts as adviser to
the Government on all monetary and banking matters.
Net Banking income
The major Indian Banks fall into three categories: Public sector
(State Bank of India, Bank of Baroda, Bank of India, Punjab
National Bank, Canara Bank), Private sector (ICICI Bank, HDFC Bank)
and Foreign Banks (Citibank, Standard Chartered Bank)
Non-interest income
RBIs shareholding in State Bank of India (SBI) transferred to
Government of India in accordance with Narasimhan Committee IIs
report that RBI should not own the institutions it regulates. Banks
in India earn a significant portion (75%-85%) of their income from
interest
Products Improved Asset Quality: Gross and Net NPAs declined to
2.7% and 1.1% respectively in India Strong Growth: 41.4% growth on
loans and advances
Housing Credit: Housing comprises 52% of all retail credit and
it grew at 44.35% Due to strong credit growth, there was marginal
rise in Interest Income but significant rise in expense hence lower
profit (as %) before tax & provisions. But with lower
provisions, profit after tax & provisions was higher.
CONTROLLER OF CREDIT The Reserve Bank of India is the controller
of credit i.e. it has the power to influence the volume of credit
created by banks in India. It can do so through changing the Bank
rate or through open market operations. According to the Banking
Regulation Act of 1949, the Reserve Bank of India can ask any
particular bank or the whole banking system not to lend to
particular groups or persons on the basis of certain types of
securities. Since 1956, selective controls of credit are
increasingly being used by the Reserve Bank. The Reserve Bank of
India is armed with many more powers to control the Indian money
market. Every bank has to get a license from the Reserve Bank of
India to do banking business within India, the license can be
cancelled by the Reserve Bank of certain stipulated conditions are
not fulfilled. Every bank will have to get the permission of the
Reserve Bank before it can open a new branch. Each scheduled bank
must send a weekly return to the Reserve Bank showing, in detail,
its assets and liabilities. This power of the Bank to call for
information is also intended to give it effective control of the
credit system. The Reserve Bank has also the power to inspect the
accounts of any commercial bank.
SOME OF THE VITAL CHALLENGES IN STATE BANK OF INDIA
Competition from foreign banks and now private sector banks The
competition in the State Bank Of India have intensified with the
entry of more and more foreign banks and now private sector banks
with better technology , market orientation and cost effective
measures. The State Banks Of India the share of business of public
sector banks has considerable declined. Technological advancement
In State Bank of India have a advance technology both in terms of
computers and communication. With the help of technology it is own
possible to have 24 hours a data banking and all seven days in a
week. Innovation Innovation is another important force of change in
the State Bank Of India. They play a dynamic role not as a finance
provider but also as a departmental store of finance. Due to this
new instruments and new product like factoring, leasing , merchant
banking , forfeiting venture capital, corporate advisory services
are emerging. Diversified Activities In State Bank Of India
diversification normally through insurance depository participation
services, investment etc. All this diversified activities have made
the banks to develop and offer counseling and customer designed
packers for efficient management of funds. Customer awareness and
satisfaction In urban area State Bank Of India customers demand
more facilities than offered since they are more knowledgeable.
They look for services that are cheaper, faster, and better in
quality. Development of skills of banks personnel The new
challenges in State Bank Of India have develop novel ways of
meeting the customers demand. To get sufficient knowledge and
exposure to technonology, suitable packages relating to hardware
and software application are to be provided. For meeting the
challenges the human resource departments in banks have to prepare
proper manpower plans and strategies.
Profitability Nature
Profit are need to meet the expectation of the share holders,
benefit of employees and also for building capital. State Bank Of
India also take attention to product development and management
skill, modern credit management skills, new risk management
practices, new focus on customer and his needs, audit skills,
etc.
Types of Retail Banks :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
partnersCommunity development banks: regulated banks that provide
financial services and credit to under-served markets or
populations. Postal savings banks: savings banks associated with
national postal systems. Private banks: manage the assets of high
net worth individuals. Offshore banks: banks located in
jurisdictions with low taxation and regulation. Many offshore banks
are essentially private banks. Savings bank: 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, while in others socially committed
individuals created foundations to put in place the necessary
infrastructure. Building societies and Landesbanks: Conduct retail
banking. Ethical banks: banks that prioritize the transparency of
all operations and make only what they consider to be
socially-responsible investments.
PEST ANALYSIS
POLITICAL/ LEGAL ENVIROMENT Government and RBI policies affect
the banking sector. Sometimes looking into the political advantage
of a particular party, the Government declares some measures to
their benefits like waiver of short-term agricultural loans, to
attract the farmers votes. By doing so the profits of the bank get
affected. Various banks in the cooperative sector are open and run
by the politicians. They exploit these banks for their benefits.
Sometimes the government appoints various chairmen of the banks.
Various policies are framed by the RBI looking at the present
situation of the country for better control over the banks.
ECONOMICAL ENVIROMENT Banking is as old as authentic history and
the modern commercial banking are traceable to ancient times. In
India, banking has existed in one form or the other from time to
time. The present era in banking may be taken to have commenced
with establishment of bank of Bengal in 1809 under the government
charter and with government participation in share capital.
Allahabad bank was started in the year 1865 and Punjab national
bank in 1895, and thus, others followed Every year RBI declares its
6 monthly policy and accordingly the various measures and rates are
implemented which has an impact on the banking sector. Also the
Union budget affects the banking sector to boost the economy by
giving certain concessions or facilities. If in the Budget savings
are encouraged, then more deposits will be attracted towards the
banks and in turn they can lend more money to the agricultural
sector and industrial sector, therefore, booming the economy. If
the FDI limits are relaxed, then more FDI are brought in India
through banking channels.
SOCIAL ENVIROMENT
Before nationalization of the banks, their control was in the
hands of the private parties and only big business houses and the
effluent sections of the society were getting benefits of banking
in India. In 1969 government nationalized 14 banks. To adopt the
social development in the banking sector it was necessary for
speedy economic progress, consistent with social justice, in
democratic political system, which is free from domination of law,
and in which opportunities are open to all. Accordingly, keeping in
mind both the national and social objectives, bankers were given
direction to help economically weaker section of the society and
also provide need-based finance to all the sectors of the economy
with flexible and liberal attitude. Now the banks provide various
types of loans to farmers, working women, professionals, and
traders. They also provide education loan to the students and
housing loans, consumer loans, etc. Banks having big clients or big
companies have to provide services like personalized banking to
their clients because these customers do not believe in running
about and waiting in queues for getting their work done. The
bankers also have to provide these customers with special
provisions and at times with benefits like food and parties. But
the banks do not mind incurring these costs because of the kind of
business these clients bring for the bank. Banks have changed the
culture of human life in India and have made life much easier for
the people.
TECHNOLOGICAL ENVIROMENT
Technology plays a very important role in banks internal control
mechanisms as well as services offered by them. It has in fact
given new dimensions to the banks as well as services that they
cater to and the banks are enthusiastically adopting new
technological innovations for devising new products and services.
The latest developments in terms of technology in computer and
telecommunication have encouraged the bankers to change the
concept of branch banking to anywhere banking. The use of ATM and
Internet banking has allowed anytime, anywhere banking facilities.
Automatic voice recorders now answer simple queries, currency
accounting machines makes the job easier and self-service counters
are now encouraged. Credit card facility has encouraged an era of
cashless society. Today MasterCard and Visa card are the two most
popular cards used world over. The banks have now started issuing
smartcards or debit cards to be used for making payments. These are
also called as electronic purse. Some of the banks have also
started home banking through telecommunication facilities and
computer technology by using terminals installed at customers home
and they can make the balance inquiry, get the statement of
accounts, give instructions for fund transfers, etc. Through ECS we
can receive the dividends and interest directly to our account
avoiding the delay or chance of loosing the post. Today banks are
also using SMS and Internet as major tool of promotions and giving
great utility to its customers. For example SMS functions through
simple text messages sent from your mobile. The messages are then
recognized by the bank to provide you with the required
information.
7 PS of BANKING SECTOR
It is very important for any bank to identify the 7 Ps of
services so was understands their customers better and provide them
with best of service. The 7 Ps are: 1. PRODUCT MIX 2. PRICE MIX 3.
PLACE 4. PROMOTION 5. PEOPLE 6. PROCESS 7. PHYSICAL EVIDENCE
PRODUCT MIX 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. In
todays competitive scenario it has become very necessary for a bank
to provide its customers with a wide variety of services and the
best technology in order to attract them. In State Bank Of India
Savings Account is just the right product for everyone, salaried,
employees or businessmen, high net worth individuals and NRI's.
Bank Savings Bank account given below brings the benefits of
better, efficient and hassle free banking.
CURRENT ACCOUNT
In State Bank Of India ATM Debit Card and have access to the
widest network of ATMs across the country to withdraw cash, enquire
about your balance, etc. Moreover, your card enables you to shop at
a large number of Merchant Establishments in India. You can also
avail yourself of our International ATM-cum-Debit Card which can be
used within as well as outside India, at a nominal fee. PREMIUM
SAVINGS ACCOUNT State Bank of India Premium Savings Account
provides an enriched version of Savings Bank account consisting of
various concessions and add-ons. It is suitable for our High Net
worth Individual/ Mass Affluent customers. SAVINGS BANK ACCOUNT In
State Bank of India Savings Bank Account helps you to plan and save
for your future financial requirements. Your savings remain liquid,
safe and earn moderate interest. The bank can understand that
everyone wants to save for something in the future. We also realize
that everyone wants their savings to be safe and accessible
anytime, anyplace to help meet their needs. So we bring to you the
SBI Savings Account, which helps you plan and save for your future
financial requirements. Your savings are completely liquid, and
earn competitive interest in our safety.
7-Day Banking At select branches spread over the country, you
can bank on all the 7 days of the week (except for public
holidays), over extended working hours. Telebanking Telebanking
service provides you instant access to your account. It offers you
a wide range of services over the phone such as account
information, Balance Enquiry, Transaction Details, Statement of
Account, Status of your Cheque, etc.
SBI Credit Card
SBI Credit Card or State Bank of India Credit Card offers you
exclusive deals and convenience of cashless shopping with complete
online payments and balance transfer solutions and all this come
with redeemable reward points system. The benefits and features of
State Bank of India credit cards do not end here. The available SBI
Credit Cards are: SBI Silver, Gold & Platinum Card and SBI
partnership cards that include Go Air, Hero Honda, LG, SBI
Advantage Card, SBI Card For Doctors, Employee Card, Lifestyle
Card, Railway Card, Vishal Mega Mart Card, Social Card, UBI Cards,
Spice Jet SBI Card and more. SBI Credit Card Payment has been made
a lot easier with the introduction of newer payment channels by the
bank. State Bank of India now offers you a mix of payment modes to
make it more convenient for the customers. State Bank of India or
SBI offers the credit card holders to make their credit card
payments through cash by just mentioning their credit card number,
the amount to be paid and a contact number. An instant electronic
receipt is provided to the customer at all 3500 Easy Bill merchant
outlets. This is an online bill payment facility for SBI cards. All
you have to do is enter your SBI Credit Card and payment details
and you will be directed to your bank's net banking option where
after authenticating your login and reconfirming the details, the
amount would be debited to your account online. A transaction
confirmation and reference number is provided and an e-mail
acknowledging the transaction is sent to you on the mail id
provided.
24-Hour ATMs State bank of India provides a 24 x 7 SBI ATM Card
Help line that direct you to the customer care centres of SBI where
in you can enquire about the nearest State Bank of India ATM
locations, address and contact number. You can also register and
report the card loss to this help line and avail the zero card loss
liability facility provided by SBI India. For application for a new
ATM card, you can directly login to sbicard website and read all
the terms and conditions and the ATM rules to be followed, get the
ATM form online and register for State Bank of India's ATM
service.
State Bank of India spans the country with over 7200 ATM network
to ensure maximum reach. Certain cities like Bangalore, Chennai,
Delhi, Gurgaon, Noida, Mumbai, Navi Mumbai, Pune and more have
multiple SBI ATM branch network. Free ATM Card The State Bank Of
India Credit Card offers you a free ATM Card, which can be used at
over 7200 SBI Bank ATM centers all over India. All you have to do
is open a saving bank/current Account with SBI Bank.
PRODUCT LEVELS
Core Benefit: It is the main or core reason why the customer
will buy the service of the bank. More like the basic purpose or
necessity. Basic Product: The core benefit is converted into a
basic product. That is the service can used by the customer in
order to fulfill his/her needs. Expected Product: It refers to the
set of attributes and conditions expected by the customers when
they purchase the service. Augmented Product: It is the additional
feature that the banks provide which exceeds the customers
expectations. Potential Product: Innovations and product
differential is the bases of a Potential Product. If the banks
alter its services according to the requirements of the individual
customers it reaches this level.
Core Product
Basic Product
Expected Product
Augmented Product
Potential Product
The basic necessity to use banking services in order to handle
finance more efficiently
Safety of deposits Loanable funds etc.
Timely service Long banking hours Low interest rates
Goods waiting rooms Extensive ATM network Promotional
Discounts
Mobile and internet Banking New Schemes tailored for specific
customers
Thus it can be seen how a particular product passes through
different levels. In todays competitive scenario most banks try
offering services at the Augmented and Potential level.
PRICE MIX
The price mix in the banking sector is nothing but the interest
rates charged by the different banks. In todays competitive
scenario where customer is the king, the banks have to charge them
interest at a rate in accordance with the RBI directives. Banks
also compete in terms of annual fees for services like credit
cards, DMAT etc. Another important aspect of the banks pricing
policy today is the interest charged on the Home Loans and Car
Loans. With Indias economy progressing, there are more and more
buyers seeking these loans but at a very competitive interest rate.
Thus, inspite of the constraints in the pricing policy due to the
RBI directives there are mainly three types of pricing methods
adopted by banks. They are: Value pricing: Banks having unique or
different products or schemes mainly do this type of pricing. They
usually charge a combination of high and low prices depending on
the customer loyalty as well as the products. This type of pricing
strategy is usually coupled with promotion programmes. Going Rate
pricing: The most commonly used pricing technique is the going rate
pricing. In going rate pricing, the bank bases its price largely
depending on the competitors prices. The banks however have to stay
within the RBI directives and compete. The banks may charge higher
or lower than their competitors. After 1991 when the foreign banks
entered the Indian market this method of pricing has gained
increasing importance. Mark up pricing: This is a pricing technique
wherein the cost of the service is determined and a small margin is
added to it and then the final price is offered to the customers.
This type of pricing is the not very popular since in the banking
sector it is not very easy to arrive at the cost of the service.
Thus most banks use a combination of mark up pricing and going rate
pricing. PLACE MIX
Place mix is the location analysis for banks branches. There are
number a factors affecting the determination of the location of the
branch of bank. It is very necessary a bank to situated at a
location where most of its target population is located. Some of
the important factors affecting the location analysis of a bank
are: The trade area Population characteristics Commercial structure
Industrial structure Banking structure Proximity to other
convenient outlets 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. 1. The Trade Area: The trade
area is a very important factor determining the place where a bank
branch should be set up. For e.g. a particular location maybe a
huge trading place for textiles, diamonds or for that case even the
stock market. Such locations are ideal for setting up of bank
branches. 2. Population Characteristics: The demography of a place
is a very important factor. This includes: The income level of the
population The average age The average male female population The
caste, religion, culture and customs The average spending and
saving habit of the people.
These factors are very important for a bank as the help them
decide the kind of business the branch will get.
3. Commercial Structure: The commercial structure refers to the
level of commerce i.e. business activities taking place at a
particular location. The higher the level of business activities
taking place in a particular location the more preferable it is for
setting up a bank branch. 4. Industrial Structure: This is nothing
but a combination of the trade area analysis and the commercial
structure. However the industrial structure focuses more on the
kind of industries operating in a particular location. For example,
an area like SEEPZ is marked with a lot of electronic manufacturing
units. Thus the industrial stricture determines the kind of
financial transactions that could take place in a particular
location. 5. Banking Structure: The Banking structure refers to the
existence of other banks in the area. Whether there is already an
efficient network of other bank branches operating at that
particular area. Thus the overall infrastructure needed for the
working of a bank. 6. Proximity of other convenient outlets: This
refers to the other branches of the same bank as well other
commercial, entertainment and industrial outlets. 7. Real Estate
Rates: This is mainly dealing with the cost factor involved in
opening up a bank branch at a particular location. The real estate
rate is a very strong factor influencing the location decision for
a bank branch. 8. Proximity to public transportation: The location
should be proximate to public transportation facilities. This means
it should have bus stops close by as well as it should be proximate
to railway stations so as to make it convenient for the common man.
9. Drawing Time: Drawing time refers to the time period during
which a customer can draw money from the banks. It should be
convenient to the customer and somewhat flexible to accommodate the
customers needs. No bank has more than a certain amount with them
and in case a customer wants to withdraw an amount more than that
available with the
bank, the bank needs to draw that amount from other banks.
Hence, a location must be such that it facilitates minimum drawing
time.
10. Location of Competition:The existence of other banks also
means competition. If the level of competition is very high in a
particular location, it is necessary that a bank does a lot of
market research before opening a branch so as to estimate the kind
of business it would get.
11. Visibility:The location of a branch should be such that it
is visible and easily noticed by the customers as well other
people.
12. Access:The bank branch should be very easily accessible to
the customers. If this is not the case, the customer might switch
to some other bank, which is more convenient to him and very easily
accessible. The location should be such that it is very convenient
for the customer to reach.
Promotion Mix
Promotion is nothing but making the customer more and more aware
of the services and benefits provided by the bank. The banks today
can use a lot of new technology to communicate to their customers.
Different Ways of Promotion Public Relations: In todays competitive
scenario developing strong public relations is very important for
any bank to be successful. Most banks today have a separate Public
Relations department. However primarily it is considered as a
responsibility of the
various bank managers to develop a steady and strong
relationship with their present customers as well as potential
customers. This can be done by a constant follow up, small
programmes etc. Personal Selling: Personal selling is found to be
one of the most effective and popular forms of promoting bank
business. The main reason for this is that banking is a service in
which trust plays a very important role. In personal selling, a
bank representative goes to the customers and explains the scheme
to the customers. Also he gives the customers any kind consultation
he might need. He provides the customers all the information sought
by him. The representative tries to persuade the customers to go
for the scheme provided by the bank by telling him all the
benefits. Here are some of the important features of personal
selling It is a direct relation between the buyers and the seller
It is oral presentation in conversation It is personal and social
behavior It is found to be more effective in service oriented
organizations It is based on the professional excellence or
expertise of an individual Sales Promotion: Sales promotions are
basically giving the customers some additional benefits, maybe at
times just some small gifts, in order to promote the schemes. The
more innovative the sales promotions the more positive are the
results. Some of the most popular sales promotions techniques are
gifts, contests, fairs and shows, discounts and commission,
entertainment and traveling plans for bankers, additional
allowance, low interest financing etc. It is very important that
the sales promotions benefits are designed in such a manner that
they are better than those of the competitors.
Word of mouth Promotion: This form of promotions is not only
very effective in banking services but in any kind of service.
However it is more important in banking for the only reason that
this is a service where trust plays a very important role. If a
particular banks services are recommended by friends, relatives, or
other well wishers the person is more influenced and inclined
towards that bank. It is very important to note that the internal
employees of the bank play a very important role in word of mouth
promotion technique. This is because they can start the process by
recommending the bank to their friends and relatives and after that
it is like a chain, which spreads like a wild fire. Telemarketing:
In recent times telemarketing has gained increasing importance as
an effective tool for promotion. The telemarketing is a process of
making use of sophisticated communication network for promoting the
banks. This includes promoting through television, telephone, and
radio. Nowadays, cell phones are used extensively for the same.
This is the most popular form of promotion. Banks today have
started using SMS and many other services supported by cell phones
to provide benefits to their customers and thus have tried to
increase their sales. In todays competitive and modern scenario it
very important that banks makes use of telemarketing techniques
very efficiently to have desirable results. Internet: The use of
Internet as a promotional tool is increasing. More and more banks
are using Internet to promote their services. The online banking
has made it even easier for the customers to avail the banks
services. No longer do people have to go to their bank branches for
small petty matters like checking their balance etc. All this can
be done with the help of a few clicks. Thus, these were the
numerous ways in which a bank can promote its services and create
more awareness amongst the people.
People People are the employees that are the service providers.
In a banking sector, the service provider plays a very important
and determinant role in rendering the customers a satisfactory and
a good service. It is extremely essential that the service provider
understand what his customers expect from him. In the banking
sector, the customer needs to be guided in a lot of matters, which
is possible only with the help of the service provider. The
position in the eyes of the customer will be perceived by
appearance, attitude and behavior of the customer contact
employees. Not only does the customer contact employee influence
the customers perception but also the customer base of the
organization does so.
Process Mix The process mix constitutes the overall procedure
involved in using the services offered by the bank. It is very
necessary that the process is very customer friendly. In other
words a process should be such that the customer is easily able to
understand and easy to follow. Today if particular banks
formalities are long and the procedure very complicated the overall
process fails and the customer may not be inclined towards using
that banks services. Lets take for example the process for
application for a car loan. Now this mainly involves 3 things. 1.
Producing of proper documents 2. Filling up of application form 3.
Paying for the initial down payment.
Here the process may fail in the following cases: 1. If the
customer is asked to produce a number of forms out of which some
may not be necessary at all. Thus it is very necessary that the
customer be asked for the minimum but most necessary document and
not the other unnecessary documents. 2. In case of application
form, the application form must be in a language best understood by
the customers and it should not be very lengthy one or demanding a
lot of unnecessary information. 3. Finally the payment of initial
amount. The customer should be given options as to how he would
like to pay by cheques or by credit card. Once again the amount
should be very competitive not very high above the regular rates
prevailing in the markets. 4. The smaller and simpler the
procedure, the better the process, and the customer will be more
satisfied.
PHYSICAL EVIDENCE Physical evidence is the overall layout of the
place i.e. how the entire bank has been designed. Physical evidence
refers to all those factors that help make the process much easier
and smoother. For example, in case of a bank, the physical evidence
would be the placement of the customer service executives desk, or
the location of the place for depositing cheques. 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. Thus, these are the 7 Ps of services. Each of them plays a
very important and a pivotal role in determining the quality of the
service provided to the customer.
RATER Analysis For State Bank Of IndiaThere are many reasons why
a customer should be given quality services. The most of them are:
1. Industry being so competitive that a customer should be given
the best services as they have many competitors (the company) and
if even a single customer is lost in todays JLT world then it very
difficult to win back the customer. 2. Most of the customers do not
complain as they just opt out and do get satisfied with better
services elsewhere. When it comes to services, there are 10 quality
dimensions. Each of the dimensions is of ultmost importance since
human element is involved and it relates to services. But Zeithaml,
Bitner and Parsuraman have developed a new and concise model by
clubbing some points. This model consists of the following
dimensions:
Reliability Assurance Tangibility Empathy Responsiveness
RELIABILITY
RESPONSIVENESS
ASSURANCE
EMPATHY
TANGIBILITY
RELIABILITY It is defined as the ability to perform the promised
service dependably and accurately. In its broadest sense,
reliability means that the company delivers on its promisespromises
about delivery, service provision, problem resolution, and pricing.
It is also known as the No Excuses service delivery. State Bank Of
India faces stiff competition from many other banks within its
vicinity and some of these banks are foreign banks. But the
existing customers have faith, loyalty and trust in this bank. The
customers are well aware that the bank will provide them back the
best and reliable services. For e.g. ,No person likes to wait to
withdraw his/her money. In order to correct this problem, Indian
Overseas Bank has ensured that
whoever comes in for cash withdrawal will receive his/her cash
within five to ten minutes.
ASSURANCE Assurance is defined as employees knowledge and
courtesy and the ability of the firm and its employees to inspire
trust and confidence. It includes the ability, knowledge,
genuineness, and honesty to provide the best services to the
customer from the frontline staff. In this dimension the front line
staff is more important rather than the owner. At State Bank Of
India every customer who comes is treated with utmost care and any
problem that takes place is solved with great enthusiasm. It
assures the customers coming up to the bank that the money they
invest is secure; the interest rate that is being provided to them
is at par or sometimes even higher as compared to other banks.
Also, it assures the customers that the money they have invested
will be returned to them as and when required with proper interest.
It tries to empower their customer contact people and regularly
train them in skills to build trust and loyalty between employees
and the customers. They have assigned some of their staff members
to build relationships with the customers by getting to know them
personally.
TANGIBLITY Tangibles are defined as the appearances of physical
facilities, equipments, personnel and communication materials. All
of these provide physical representations or images of the service
that customers, particularly new customers, will use to evaluate
quality. At State Bank Of India the entire premise is
air-conditioned. They have computerized systems in place and
therefore quick, accurate and efficient service can be provided to
the customers. The tables and chairs are conveniently located for
the customers. The personnel always have a cheerful and helping
veneer and are always
ready to help out the customers. The entire place is done up in
bright colours and thus the customer can immediately feel the
warmth and the radiance of the place. EMPATHY Empathy is defined as
the caring, individualized attention the firm provides its
customers. The essence of empathy is conveying, through
personalized or customized service, the customers are unique and
unique special. The empathy shown by the employees of the State
Bank Of India is good as they are always polite humble and helpful.
There was a case where once a customer misplaced Rs. 1,00,000
within the premises of the bank. He panicked but the bank personnel
put him at rest and assured him that they would locate the same for
him. Since he was a regular customer, they knew him very well and
took the situation under control. They quickly located the cash and
thus, the customer was placated. The bank personnel went out of
their way to help this customer and thus understood his
predicament. This bank regularly holds seminars and training
workshops so that they can understand the consumer better and thus
serve him better.
RESPONSIVENESS Responsiveness is the willingness to help the
customer and provide him with immediate and fast service.
The State Bank Of India is prompt at providing its customers
with the information and services that they seek. It is extremely
prompt when it comes to resolving the complaints of the customers.
The customers, in their feedback form, mentioned this as one of the
most important factor that has prompted them to continue with this
bank.
All the five dimensions basically aim at serving the customers
to the best of their ability, giving them quality services and if
things are followed as they are demanded,
(i.e., according to the customers demand) then there would be no
problems in facing any type of people. The successful service
organizations set up speeds for service standards.
MARKET SEGMENTATIONAn organization is supposed to cater to the
changing needs of customers; it is only natural that all customers
have their own likes and dislikes. They have some uniqueness, which
throws a big imprint on their lifestyles. This makes the task of
understanding a bit difficult. It has the context that we go
through the problem of market segmentation in the banking service.
The study of the needs of customers invites a plethora of problems
since in addition to other aspects; the regional considerations
also influence the hierarchy of needs. To be more specific in the
banking services, the banking organizations are supposed to satisfy
different types of customers living in different segments. The
segmentation of market makes the task of bank professionals easier.
If the market segmentation is done in a right fashion, the task of
satisfying the customers is simplified considerably. The modern
marketing theories advocate the formulation of marketing policies
and strategies for each segment, which an organization plans to
solicit. The marketing segmentation is based in the principle of
divide and rule. If we divide the market into different segments,
the size of market is made small and the process of study is found
convenient. We find market segmentation division and subdivision of
a market based on considerations. The bank professionals have to
segment the market in such a way that the expectations of all
potential customers are studied in a right perspective and the
marketing resources are developed to fulfill the same. The
marketing efforts can be made more proactive if the process and
bases of segmentation are right.
It is essential that the bank professionals assign due weightage
to the difference that we find in the market behavior due to
geographical, age, sex, nationality, educational background, income
classes, occupation, social and other considerations. If they
overlook or underestimate key bases while segmenting, the study
results cant be proactive to the formulation of creative marketing
decisions. This makes it essential that the bank professionals are
well aware of the criteria for market segmentation. The agriculture
sector, industrial sector, services sector, household sector are
found important in the very context. The gender segment is found
important no doubt but we cant underestimate institutional and
professional segments. Since the banking organizations serve
different sectors and segments, the segmentation should be done
carefully.
In State Bank Of India other banking services
Personal Banking NRI Banking Online Banking Online Money
Transfer Demat Services Online Trading Pension Plan Personal Loan
Home Loans Life Insurance
Loan
S SBI Personal Banking
State Bank of India Personal Banking is rendered through the
countrywide SBI branch network and also through SBI Internet
Banking service. SBI personal banking includes deposit schemes,
personal loans and other specialized services. The transparency in
all banking services by state bank of India has helped the bank
earn a reputation ossf trust with the customers. SBI personal
banking products are customized to the individual demands of each
customer and available 24-hour through SBI Online banking . SBI
personal deposit schemes include SBI savings accounts, term
deposits, current accounts, multi option deposit schemes, fixed and
recurring deposits and special SBI tax saving deposit schemes. The
personal finance schemes by State Bank of India include all the
personal loans like housing loans, car loans, education and career
loans, loans against securities and more. The other specialized
personal banking services include eZ-trade for online trading by
SBI, demat services through SBI Demat Accounts , special SBI Vishwa
Yatra Card,
gift cards, eZ-pay card, internet banking, Anytime Banking
(through SBI ATMs), inward remittances, PPF, .
SBI NRI Banking SBI NRI Banking Services are a specially
designed customized set of banking products and services to cater
to the global banking needs of the NRI's. India's largest bank -
State Bank of India offers various NRI deposit schemes, NRI loans,
remittance and other services. The Internet banking facility at SBI
called SBI Online has enabled the globally scattered NRIs to access
banking services of India's most trusted bank. SBI NRI accounts
include NRE Rupee Accounts, Usual Savings Accounts, Current
Account, Fixed Deposits (in foreign currencies like Pound,
Sterling, US$, Euro, Canadian Dollar & Australian Dollar), Term
Deposits (interest compounded quarterly and paid out quarterly),NRO
Accounts, and Foreign Currency NRI (FCNR) Accounts. Besides the
usual savings and finance products by SBI, NRI banking services
also include investment and tax benefit schemes customized for the
NRIs. Special banking facilities are also provided for the
returning Indians. Freedom to maintain the assets acquired or
inherited abroad, maintaining and operating foreign currency
accounts with foreign banks.
SBI Online
SBI Online has been an initiative of the State Bank of India to
offer the Banking Services online. SBI Online is a form of Internet
Banking Service that enables us to avail our accounts via the
internet and even transact and invest in SBI Mutual Funds. The
State Bank of India, the largest Bank in India, in terms of
Branches and Infrastructure, introduced the SBI Online method in
order to facilitate the personal as well corporate Banking Services
in a quicker as well as convenient manner.SBI Online offers
information regarding the member's profile and details like the
Account Summary, Account Balance, etc. In fact, it is almost like a
virtual trip to your SBI Branch. With a secured login system, you
can avail the Bank statement and then take a print out, at the same
time, transferring Funds to any other SBI Account or an Account
with any other Branch in India or Abroad is very easy and
convenient.
The SBI Internet Banking is one of its kind is many regards. The
login and transaction on the website is so easy that even
first-time users can access their account and perform the
transaction functions with ease. The value added services enable us
to make the payments of our Telephone Bills, Electricity Bills etc
online and this reflects the reach of The State Bank of India.
SBI Money Transfer to India SBI Online Money Transfer to India
is offered through SBI Online GLS or Global Link Service handling
SBI Express Remit for instant online money transfer to India from
US. With a vast network of over 10, 000 branches, State Bank of
India online money transfer services are most economical and secure
way to transfer funds to India. SBI express remit service enables
the remitter to track the entire remittance process online. State
Bank of India offers lowest interest rates and service charges with
the most favorable exchange rates to provide you more value for
each Dollar sent by you. The funds are transferred directly to the
beneficiary account in over 1,000 select SBI branches and drafts on
all State Bank of India branches can be couriered to the
beneficiary or his banker . The facility of SBI Express Remit is
handled by SBI Online G