Final Project-Indian Banking and Economy

Indian banking and economy

RESEARCH METHODOLOGY

Problem Definition:

To determine and analyze the hidden potential in Banking sector in India so as to suggest the

investors whether to invest in shares of Banking Companies.

Objective:

Discover insights into and develop an understanding of the various Macro and Micro Economic

Factors that have bearing on the functioning of the Banking sector.

Evaluate the performance of some of the banks based on the past data and forecast the future

prospects.

Valuation:

The project involves valuation of major Indian Banks including ICICI Bank, SBI and HDFC

Bank. The methodology followed is Target Pricing, which includes estimating growth rate by

regression on historical sales to forecast next year sales, earning and Profit and Loss account.

Then EPS is calculated which is multiplied to Historical P/E to forecast intrinsic value of share.

Result:

All shares are undervalued and expected to give positive risk adjusted returns to investors. Since

the intrinsic value is more than current market price for all the companies, the share can be

recommended to conservative investors.

Past information and forecasts:

Collected the past information in the form of details of the various accounting statements

(Income Statement, Balance Sheet etc.), including the sales for the past 10 years (2000-

2010).Other forecasts include the EPS calculation and comparison of forecasted Future Target

Price with the Current Market Price.

Once the information was collected, the next step was to search for resources and constraints

with respect to the area of research.

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Constraints:

Lack of time availability with the people involved in any manner with the research

especially when decisions were to be made quickly.

Difficulty in application of Statistical Tools.

Difficulty in making accurate forecasts because of presence of Economic impediments

like inflation, RBI policies etc.

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OBJECTIVES OF THE PROJECT:

Because of the following reasons, I prefer thisProject work to get the knowledge of theBanking system.

Banking is an essential industry.

To provide suggestions for better functioning of Business.

It is vital issues and there sector’s for developing economy for the nation.

To study the growth and performance of banking company.

Today’s banking sector play a dominant role regarding investment decision.

It basically tells about how these funds are effectively and efficiently utilized in order to

maximize profits.

To find out what are the policies that we have to be adopted to increase the goodwill

of the company and economy.

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Executive Summary

The Indian Economy is driven by strong fundamentals with GDP growth at 9.1% for H1 FY07 –

strongest growth in any six months since H1 FY05 and uptrend in Industrial Cycle with Average

Index of Industrial Production growth at 10.2% being the strongest run in the past 11 years.

On political front, the Indian Government has signed nuclear deal with America indicating

India’s importance in the global context opening up many opportunities. Along with this,

Chinese President Hue is expected to visit India. This will improve trade and other ties between

two of the fastest growing economies.

In Capital Market, Strong foreign inflows with Portfolio flows of nearby USD 9.2bn took BSE

Sen.-sex to 14,000 + (50% higher) compared to FY 05-06. The Indian corporate raised USD 6bn

by issuing Initial public offer in India and abroad. High Credit growth at 30%, it continued the

trend of last 5 years where it has averaged around 25% and lastly M&A activity which was at its

peak with sectors beyond IT and Pharma making global & domestic acquisitions.

The high growth sectors are Power where power ministry and local private players

announce 9 ultra mega projects (4,000 MW each) provides visibility on power & infra

front.

Foreign investment allowed in single brand retail and Real Estate with major huge build-

out plans and Special Economic Zone policy of government is major driver of growth.

Banking in which Banks are allowed to raise hybrid capital which opens new avenues for

funding credit growth.

As such, the report focus on change factors in Banking Industry as this industry is expected to

have major impact on Indian Economy sectors.

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INDEXINDEX

RESEARCH METHODOLOGY………………………………………..1………………………………………..1

OBJECTIVE OF STUDY………………………………………………...3

EXECUTIVE SUMMARY……………………………………………….4

Chapter

No.

Particular Page

no.

INDIAN BANKING

1 History of Indian banking 6

2 Introduction 10

3 Some Important financial Institutions

(a) National Bank for Agriculture and Rural Development (NABARD) 25

(b) Export import bank of India (EXIM Bank) 27

(c) National Housing Bank 30

(d) Housing Development Financial Corporation (HDFC) 32

(e) Industrial Development Bank of India 34

(f) Industrial Credit and Investment Corporation of India (ICICI) 35

(g) Small Industrial Development Bank of India (SIDBI) 36

4 Necessary Initiative taken by RBI and Ministry of Finance to Tackle

Economic Problems

38

5 Challenges Faced by Indian Banking Industry 41

INDIAN ECONOMY

6 Indian economy Overview and History 45

7 Sector’s 49

8 External Trade and Investment 55

9 Appendix 59

Questionnaire 60

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Conclusion 63

Bibliography 64

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CHAPTER: 1

HISTORY OF BANKING

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Abstract

The banking industry in India has a huge canvas of history, which covers the traditional banking practices from the time of Britishers to the reforms period, nationalization to privatization of banks and now increasing numbers of foreign banks in India. Therefore, Banking in India has been through a long journey. Banking industry in India has also achieved a new height with the changing times. The use of technology has brought a revolution in the working style of the banks.

Never the less, the fundamental aspects of banking i.e. trust and the confidence of the people onthe institution remain the same. The majority of the banks are still successful in keeping with the confidence of the shareholders as well as other stakeholders. However, with the changing dynamics of banking business brings new kind of risk exposure.

In this paper an attempt has been made to identify the general sentiments, challenges andopportunities for the Indian Banking Industry. This article is divided in three parts. First partincludes the introduction and general scenario of Indian banking industry. The second partdiscusses the various challenges and opportunities faced by Indian banking industry. Third part concludes that urgent emphasis is required on the Indian banking product and marketingstrategies in order to get sustainable competitive edge over the intense competition from national and global banks.

This article is a small seed to existing branch of knowledge in banking industry and is useful for bankers, strategist, policy makers and researchers.

History of Banking in India

The Bank was incorporated on March 5, 1907 under the Indian Companies Act, 1882 as Indian Bank Limited and commenced operations on August 15, 1907. The Head Office of the Bank was set up at Parry’s Buildings, Parry’s Corner in Chennai (then known as Madras) and was shifted to Bentincks Buildings on Rajaji Salai (then known as North Beach Road), Chennai in July 1910. Subsequently, in May 1970, the Head Office was shifted to its present location with its address as 31, Rajaji Salai, Chennai, in a building which stands on the same site as Bentinck’s Building. On February 8, 2003 the Head Office was renumbered as 66, Rajaji Salai, Chennai 600 001, India.

For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or

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cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process.The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. The first bank in India, though conservative, was established in1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases.

Those are:

Early phase from 1786 to 1969 of Indian Banks:

Nationalizations of Indian Banks and up to 1991 prior to

Indian banking sector Reforms

New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991

The following are the steps taken by the Government of India to Regulate Banking Institutions in

the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.

1959: Nationalization of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalization of seven banks with deposits over 200 crore.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a

satisfactory service to customers. Phone banking and net banking is introduced. The entire

system became more convenient and swift. Time is given more importance than money.

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http://finance.indiamart.com/investment_in_india/banking_in_india.html


The financial system of India has shown a great deal of resilience. It is sheltered from any crisis

triggered by any external macroeconomics shock as other East Asian Countries suffered. This is

all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not

yet fully convertible, and banks and their customers have limited foreign exchange exposure

Pre Nationalization The Bank commenced business as Indian Bank Limited at Madras. The Bank opened its first overseas branch in Colombo, Sri Lanka, in 1932. In 1962, the Bank acquired the businesses Of Royalaseema Bank, the Bank of Alagapuri, Salem Bank, the Mannargudi Bank and the Tracy United Bank.

Post Nationalization The Bank was nationalized on July 19, 1969. After nationalization, The Bank was renamed Indian Bank. The Bank of Thanjavur Limited (With 157 branches) was amalgamated with the Bank 1990. The first RRB, Sri Venkateswara Grameena Bank, was sponsored by the Bank In 1981.

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CHAPTER: 2

“INTRODUCTION”

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THE MEANING OF BANK:

From the Italian banca meaning 'bench', the table at which a dealer in money worked. A bank

is now a financial institution which offers savings and cheque accounts, makes loans and

provides other financial services, making profits mainly from the difference between interest

paid on deposits and charged for loans, plus fees for accepting bills and other services. Other

relevant legislation includes the Banks (Shareholdings) Act and the Reserve Bank Act. The

Reserve Bank Act gives the Reserve Bank of Australia (the central bank) a wide range of powers

over the banking sector.

BANKING SYSTEM OF INDIA:

Indian Banking System

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Types of Banks

Central Bank:

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‘

Reserve Bank of India (RBI) is India's central bank - it formulates implements and monitors

India's monetary policy. Reserve bank of India was established in 1935 and nationalized in 1949.

It is fully owned by the Government of India and its headquarters are located in Mumbai. RBI

has 22 regional offices in the various state capitals of India. It has a majority stake in the State

Bank of India.

The main functions of the Reserve Bank of India are:

The Reserve Bank of India Act of 1934 entrust all the important functions of a

Central bank the Reserve Bank of India:

Bank of Issue:

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank

notes of all denominations. The distribution of one rupee notes and coins and small coins all over

the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank

has a separate Issue Department which is entrusted with the issue of currency notes. Originally,

the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold

bullion or sterling securities provided the amount of gold was not less than Rs. 40 corers in

value. The remaining three-fifths of the assets might be held in rupee coins, Government of India

rupee securities, eligible bills of exchange and promissory notes payable in India.

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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.

Bankers' Bank and Lender of the Last Resort:

The Reserve Bank of India acts as the bankers' bank. According to the provisions

of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the

Reserve Bank a cash balance equivalent to 5% of its demand liabilities and 2 per cent of its time

liabilities in India

The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible

securities or get financial accommodation in times of need or stringency by rediscounting bills of

exchange. Since commercial banks can always expect the Reserve Bank of India to come to their

help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the

lender of the last resort.

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. 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 Each scheduled bank must send a weekly return to the Reserve Bank showing,

in detail, its assets and liabilities. The Reserve Bank has also the power to inspect the accounts of

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any commercial bank. As supreme banking authority in the country, the Reserve Bank of India,

therefore, has the following powers:

(a) It holds the cash reserves of all the scheduled banks.

(b) It controls the credit operations of banks through quantitative and

Qualitative controls.

(c) It controls the banking system through the system of licensing, inspection

And calling for information.

(d) It acts as the lender of the last resort by providing rediscount facilities to

Scheduled banks.

Custodian of Foreign Reserves:

The Reserve Bank of India has the responsibility to maintain the official rate of

Exchange. According to the Reserve Bank of India Act of 1934, .6d. Though there were periods

of extreme pressure in favor of or against the rupee. After India became a member of the

International Monetary Fund in 1946, besides maintaining the rate of exchange of the rupee, the

Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast

sterling balances were acquired and managed by the Bank. Further, the RBI has the

responsibility of administering the exchange controls of the country.

Supervisory functions

In addition to its traditional central banking functions, the Reserve bank has

Certain non-monetary functions of the nature of supervision of banks and promotion of sound

banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have

given the RBI wide powers of supervision and control over commercial and co-operative banks,

relating to licensing and establishments, branch expansion, liquidity of their assets,

management .

The supervisory functions of the RBI have helped a great deal in improving the standard of

banking in India to develop on sound lines and to improve the methods of their operation.

COMMERCIAL BANKS:

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For any financial system to mobilize and allocate savings of the country successfully and

productively and to facilitate day-today transactions there must be a class of financial institutions

that the public view as safe and convenient outlets for its savings. In virtually all countries, the

single dominant class of institutions that emerged as both the respiratory of a dominant class of

the society’s liquid savings and the entity through which payments are made is the Commercial

Banks

The commercial banks in India play a major role in the development of the country itself. These

banks are primarily concerned with providing loans and accepting deposits. Several other

facilities are also provided by the commercial banks in India. At the same time, the commercial

banks in India have the opportunity to develop manifold in the future because the economy of

India is developing at a good pace and thus the financial institutions of the country are bound to

develop with this growth. The name commercial banking may suggest a number of things, but

the term is used to differentiate the other forms of banking from this particular form. The

commercial banks in India generate funds for the purpose of financing their various financial

requirements through a definite process. The commercial banks in India accept deposits from

different sources like businesses and individuals. A wide range of financial products have been

developed by these banks to encourage the savings habit of the clients. There are savings

deposits, term deposits and many more to attract the investors. These deposits are recycled in the

economy through the loans and other credit products

Public sector banks

Private banks

Foreign banks

Public Sector Banks:

Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks

which were nationalized on July 19, 1969. Its predecessor, in the Public Sector Banks, the United

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Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Camilla

Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Camille Union Bank Ltd.

(1922) and Hooghly Bank Ltd. (1932).

a. State Bank of India and its associate banks called the State Bank Group

b. 20 nationalized banks

c. Regional rural banks mainly sponsored by public sector banks

Private Sector Banks:

Private banking in India was practiced since the beginning of banking system in India. The

first private bank in India to be set up in Private Sector Banks in India was Indus Indi Bank. It is

one of the fastest growing Bank Private Sector Banks in India. ING Vysya, yet another Private

Bank of India was incorporated in the year 1930.

a. Old generation private banks

b. New generation private banks

c. Foreign banks operating in India

d. Scheduled co-operative banks

e. Non-scheduled banks

Co-operative Sector

The co-operative sector is very much useful for rural people. The co-operative banking sector is

divided into the following categories.

a. State co-operative Banks

b. Central co-operative banks

c. Primary Agriculture Credit Societies

Development Banks/Financial Institutions

IFCI IDBI

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ICICI

IIBI

NABARD

Export-Import Bank of India

National Housing Bank

Small Industries Development Bank

of India

INDIAN BANKS’ OPERATIONS ABROAD

As on October 20,2005,fourteen Indian banks-nine from the public sector and five from

the private sector had operation overseas spread across 42 countries with a network of 101

branches,6 joint ventures,17 subsidiaries and representative offices.

HDFC Bank

ICICI Bank

SBI Bank

AXIS Bank

Indian Overseas Bank

Kotak Mahindra Bank

Punjab National Bank

Andhra Bank

Corporation Bank

Allahabad Bank

Canara Bank

Federal Bank

Syndicate Bank

State Bank of Mysore

Besides these branches, Indian commercial banks are having representative offices in USA,

Brazil, Indonesia, Iran, Egypt, Russia, Italy, Zimbabwe, China, Uzbekistan, Philippines and

Vietnam. Indian commercial banks are also having wholly-owned subsidiaries and joint ventures

in USA, Canada, Zambia, Nigeria, Uganda, Bhutan, Mauritius, Kenya and Nepal.

LOCAL AREA BANKS

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http://www.statebankofmysore.co.in/

http://syndicatebank.in/default.asp

http://www.federal-bank.com/

http://www.canarabank.in/

https://allnet.allahabadbank.com/allahabadbank/index.asp

http://www.corpbank.com/

http://www.andhrabank-india.com/

http://www.netpnb.com/index.html

http://http:/www.kotak.com/Kotak_BankSite/index.htm

http://iob.in/Home.asp


The Local Area Bank Scheme was introduced in August 1996 aimed at bridging the gaps in

credit availability and enhancing the institutional credit framework in the rural and semi urban

areas and providing efficient and competitive services. Since then, five LABs have been

established.

The review group, which was appointed by RBI in July 2002 to study and make

recommendations on the LABs scheme, has in its report, drawn attention to the structural

infirmities in the concept of the LABs and recommended that there, should be no licensing of

new LABs. It has pointed out several weaknesses in the concept of the Local Area Bank model,

particularly in regards to size, capital base and inherent inability to absorb the losses in the

course of business etc.

Four LABS were functional at end-march 2005.

They were:

Coastal area bank ltd, Vijayawada, Andhra Pradesh,

Capital local area bank ltd, phagwara, Navari, Gujarat,

Sahara local area bank limited, Kolhapur.

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Foreign banks:

Foreign banks working in India like ABN-AMRO, HSBC, CITI, Standard Chartered Bank

brought the drastic changes in whole banking industry. Foreign Banks in India always brought an

explanation about the prompt services to customers. After the set up foreign banks in India, the

banking sector in India also become competitive and accretive.

Computerized functioning, core banking, ATM centers are the ideas generated by foreign

banks.

More options for customers: cash management, channel financing, foreign currency

loans.

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New innovative products being introduced and fee based income increased to meet the

challenges ahead.

Banc assurance and other products, outsourcing of some products, technology-based

payment systems.

Product innovations and process re-engineering to meet customer requirements reduce

cost, improve efficiency.

CO- OPERATIVE BANK

Co-operative banks in this country are a part of vast and powerful structure of co-operative

institutions which are engaged in tasks of production, processing, marketing, distribution,

servicing and banking in India. The beginning co-operative banking in this country dates back to

about 1904, when official efforts were made to create a new type of institution based on

principles of co-operative organization & management, which were considered to be suitable for

solving the problems peculiar to Indian conditions.

In rural areas, as far as the agricultural and related activities are concerned, the supply of credit

was inadequate, and money lenders would exploit the poor people in rural areas providing them

loans at higher rates.

Co operative Banks in India are registered under the Co-operative Societies Act. The

cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations

Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Definition:

A co-operative bank is a financial entity which belongs to its members, who are at the same time

the owners and the customers of their bank. Co-operative banks are

often created by persons belonging to the same local or professional community or sharing a

common interest. Co-operative banks generally provide their members with a wide range of

banking and financial services.

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Type / structure:

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RBI

NA

CCB’s

SC

PACS’s

SL

Branches of SLDB’sPLDB’s

CLDB’s

UCB’ (PCB’s)


Initiatives towards development of co-operative banks:

1. Re organization of PACS’s (a scheme by NABARD).

2. Licensing of new USB’s liberalized.

3. National Co-operative Bank of India (NCBI) was registered in 1993.

(Multi-state co-operative society)-it has no regulatory functions.

4. Co-operative development bank (set up by NABARD).

5. Lending and borrowing rates of all co-operative have been more or less completely freed

or deregulated.

6. Allowing all PCB’s to undertake equipment leasing and hire-purchase financing.

Establishments:

Co-operative bank performs all the main banking functions of deposit mobilization,

supply of credit and provision of remittance facilities.

Co-operative Banks belong to the money market as well as to the capital market.

Co-operative Banks provide limited banking products and are functionally specialists in

agriculture related products. However, co-operative banks now provide housing loans

also.

UCBs provide working capital loans and term loan as well.

Functions:

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Co-operative Banks are organized and managed on the principal of co-operation, self-

help, and mutual help. They work on the basis of “no profit no loss”. Profit maximization

is not their goal.

Co-operative banks do banking business mainly in the agriculture and rural sector

The State Co-operative Banks (SCBs), Central Cooperative Banks (CCBs) and Urban

Co-operative Banks (UCBs) can normally extend housing loans up to Rs 1 lakhs to an

individual. The scheduled UCBs, however, can lend up to Rs 3 lakhs for housing

purposes. The UCBs can provide advances against shares and debentures

A. Cooperative banks in India finance rural areas under:

Farming

Cattle

Milk

Hatchery

Personal finance

B. Cooperative banks in India finance urban areas under:

Self-employment

Small scale units

Home finance

Consumer finance

Personal finance

Some facts about Cooperative banks in India

Some cooperative banks in India are more forward than many of the state and private

sector banks.

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According to national federation of urban co-operative bank & credit societies ltd.

(NAFCUB) the total deposits & lending of Cooperative Banks in India is much more than

Old Private Sector Banks & also the New Private Sector Banks.

This exponential growth of Co operative Banks in India is attributed mainly to their much

better local reach, personal interaction with customers, and their ability to catch the nerve

of the local clientele.

CHAPTER: 3

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“SOME IMPORTANT

FINANCIAL

INSTITUTION”

(a) National Bank for Agriculture and Rural Development (NABARD)

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NABARD is a development bank in the sector of Regional Rural Banks in India. It

provides and regulates credit and gives service for the promotion and development of rural

sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts. It

also finances rural crafts and other allied rural economic activities to promote integrated rural

development.

It helps in securing rural prosperity and its connected matters

This activity involves

a) Framing policy and guidelines for rural financial institution

b) Providing credit facilities to issuing organizations

c) Preparation of potential-linked credit plans annually for all districts for

Identification of credit potential

d) Monitoring the flow of ground level rural credit

NABARD provides:

a) Long term finance for minor irrigation facilities, plantations, horticulture, land

development, farm mechanizations, animal husbandry, fisheries etc.

b) Short term loan assistance fir financing of seasonal agricultural operations, marketing of

crops, purchase/procurement/distribution of agricultural inputs etc.

c) Medium loan facilities for approved agricultural purposes;

d) Working capital refinance for handloom weavers

Besides this pivotal role, NABARD also:

a) Acts as a coordinator in the operations of rural credit institutions

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b) Extends assistance to the government, the Reserve Bank of India and other organizations

in matters relating to rural development

c) Offers training and research facilities for banks, cooperatives and organizations working

in the field of rural development

d) Helps the state governments in reaching their targets of providing assistance to eligible

institutions in agriculture and rural development

Acts as regulator for cooperative banks and RRBs

Role of NABARD:

General aspects:

a) NABARD should be a managing agency of Government of India for public investments

in rural India.

b) It should be the chief overseer, grand planner for public investment and ensure that each

rupee spent in rural India generates a net positive return for rural India.

c) NABARD should not resort to passive funding. NABARD has to make things happen by

organizing people and providing knowledge.

d) The strength of NABARD is its good networking capabilities. It can act as a coordinating

agency for all the developmental works taking place at the grass roots level.

e) The greatest comparative advantage of NABARD is its ability to decontaminate the

effects of subsidy and making public spending more efficient.

(b) Export Import Bank of India (EXIM BANK) :

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Export Import Bank of India is also known as Exim Bank of India and was established by an Act

passed by the Indian Parliament in September, 1981. Export Import Bank of India is fully owned

by the Indian government and it started its operations in March, 1982.

The major objectives of Export Import Bank of India are to provide economic assistance to

importers and exporters and to function as the apex financial institution. Its services include

export credit, overseas investment finance, agric & SME finance, film finance and finance for

units that are export oriented.

The total amount of loans disbursed by Export Import Bank of India amounted to Rs. 150,389

million in 2005- 2006 and in the following year, this figure increased to Rs. 220760 million.

The net profit of the Bank came to around Rs. 2707 million in 2005- 2006. In the following year

this figure increased to Rs. 2994 million. The head office of Export Import Bank of India is

located in Mumbai and its regional offices are located at Pune, Kolkata, Hyderabad, New Delhi,

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Bangalore, Chennai and Ahmadabad. The Bank's overseas offices are located at London,

Washington D.C., Dakar, Dubai, Singapore and Johannesburg.

Activities performed by EXIM Bank:

It grants direct loans in India and outside for the purpose of imports and exports;

Refinances loans to banks and other notified financial institutions for the purpose of

international trade ;

Rediscounts usance export bills for banks;

Provide overseas investment finance for Indian companies toward their equity

participation in joint venture abroad and guarantees, along with banks, obligations on

behalf of project exporters;

It is also a co-coordinating agency in the field of international finance and it undertakes

development of merchant banking activities in relation to export oriented industries;

Thus it provides fund based as well as non fund based assistance in the foreign trade

sector.

The main objective of Export-Import Bank (EXIM Bank) is to provide financial assistance to

promote the export production in India. The financial assistance provided by the EXIM Bank

widely includes the following:

Direct financial assistance

Direct financial assistance

Foreign investment finance

Term loaning options for export production and export development

Pre-shipping credit

Buyer's credit

Lines of credit

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Re-loaning facility

Export bills rediscounting

Refinance to commercial banks

The Export-Import Bank also provides non-funded facility in the form of guarantees to the

Indian exporters.

Various Stages of Exports Covered by EXIM Bank-

Development of export makers

Expansion of export production capacity

Production for exports

Financing post-shipment activities

Export of manufactured goods

Export of projects

Export of technology and software’s

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(c)National Housing Bank India (NHB) :

The National Housing Bank (NHB) was established on 9th July 1988 the National Housing

Bank Act, 1987 to function as a principal agency to promote Housing Finance Institutions and to

provide financial and other support to such institutions.

The National Housing Bank Act empowers National Housing Bank or NHB to:

o Direct and regulate the functioning of housing finance institutions for fair practices

o Provide loans, advances or any other financial assistance to Banks and housing finance

institutions for slum improvement

o Supervise mobilization of resources and extension of credit for housing

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NHB has the main objective of promoting a network of highly efficient and dedicated housing

finance institutions to cater to the finance needs from various regions and income groups. In

order to upgrade the housing stock in the country, National Housing Bank undertakes

augmentation of supply of buildable land and building materials.

Besides raising resources for the housing sector, NHB also provides refinance to major housing

finance institutions. All the Housing Finance Companies registered with the National Housing

Bank are eligible for refinance support from NHB if they have net

Owned funds of minimum Rs. 10.0 corers. National Housing Bank has contributions in equity

capital of five Housing Finance Companies (HFC).

Along with the HFC's, National Housing Bank also engages in direct lending to state housing

boards and development authorities. It also provides financial assistance to people affected by

natural calamities like earthquake, flood, cyclones etc.

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http://www.indiahousing.com/home-finance-companies.html


(d)HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC):

About Us:

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.

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Promoter’s:

HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

Business focusHDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank's business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People.

Technology:

HDFC Bank operates in a highly automated environment in terms of information technology and communication systems. All the bank's branches have online connectivity, which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best technology available internationally, to build the infrastructure for a world class bank. The Bank's business is supported by scalable and robust systems which ensure that our clients always get the finest services we offer.

The Bank has prioritised its engagement in technology and the internet as one of its key goals and has already made significant progress in web-enabling its core businesses. In each of its businesses, the Bank has succeeded in leveraging its market position, expertise and technology to create a competitive advantage and build market share.

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(e)Industrial Development Bank India (IDBI):

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Corporate Details:

Industrial Development Bank India or IDBI, incorporated in 1964, has been playing an important

role in the evolution of Indian industrial sector and is at present the tenth largest development

bank of the world. The primary purpose of the Industrial Development Bank India is to cater the

requirement of credit and other products for the growth of the Indian industry. The institutions

like the National Stock Exchange of India (NSE), the National Securities Depository Services

Ltd. (NSDL) and the Stock Holding Corporation of India (SHCIL) are built by the Industrial

Development Bank of India. Currently the IDBI hosts nearly 7500 employees at different

branches.

Activities:

The products and services offered by the Industrial Development Bank India are:

Deposits – savings account, current accounts, fixed deposits, fixed deposit plus fixed

deposit, pension accounts,

Loans – loans for education, home, against securities, personal loan, IPO finance

Payments – tax, stamp duty, cash to card money transfer, online payments

Investments – demat account

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Insurance – family care, life insurance

Cards- Gold Debit Card, International Debit cum ATM Card, Gift Card, World Currency

Card

Treasury products- foreign exchange, money market

Corporate banking – project finance, film financing, corporate loan, TUFS, rehabilitation

finance, commercial products

(f)INDUSTRIAL Credit and Investment Corporation of India (ICICI)

ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion (US$ 93

billion) at March 31, 2012 and profit after tax Rs. 64.65 billion (US$ 1,271 million) for the year

ended March 31, 2012. The Bank has a network of 2,770 branches and 9,363 ATMs in India, and

has a presence in 19 countries, including India.

ICICI Bank offers a wide range of banking products and financial services to corporate and retail

customers through a variety of delivery channels and through its specialised subsidiaries in the

areas of investment banking, life and non-life insurance, venture capital and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in

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United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International

Finance Centre and representative offices in United Arab Emirates, China, South Africa,

Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in

Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock

Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New

York Stock Exchange (NYSE).

Banking products and services

Discover a wide range of traditional deposits and accounts.

As our valued customer, you enjoy added benefits on our traditional banking products. Better terms on loans, superior products, easier access to lockers and accounts – that's the Wealth Management difference!

Savings Account Family Wealth Account Home Loans Car Loans Foreign Exchange Services Lockers Demat Account

(g)SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA(SIDBI):

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http://www.icicibank.com/wealth-management/personal/demataccount.html

http://www.icicibank.com/wealth-management/personal/lockers.html

http://www.icicibank.com/wealth-management/personal/foreignexchangeservices.html

http://www.icicibank.com/wealth-management/personal/carloans.html

http://www.icicibank.com/wealth-management/personal/homeloans.html

http://www.icicibank.com/wealth-management/personal/familywealthaccount.html

http://www.icicibank.com/wealth-management/personal/savingsaccount.html


Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an Act of

Indian Parliament, is the Principal Financial Institution for the Promotion, Financing and

Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination

of the functions of the institutions engaged in similar activities.

Small Industries Development Bank of India [SIDBI] as the principal financial institution for

promotion, financing and development of industry in the small scale sector, has been assisting

the entire spectrum of the SSI sector, including the Tiny, Village and Cottage industries.

About SIDBI

Small Industries Development Bank of India (SIDBI) was established in April 1990 under an

Act of Indian Parliament as the principal financial institution for:

- Promotion

- Financing

- Development of industry in the small scale sector and

- Co-coordinating the functions of other institutions engaged in similar activities

The bank provides its services through a network of 49 offices located all over India.

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Current Scenario

SIDBI runs several financing for Small and Medium Enterprises (SMEs) schemes across the:

Following broad areas:

♦ Direct Finance

♦ Bills Finance

♦ Refinance

♦ International Finance

♦ Promotion and Development

♦ Micro-finance

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CHAPTER: 4

NECESSARY INITIATIVE

TAKEN BY RBI

&MINISTRYOF FINANCE

TO TACKLE

ECONOMIC PROBLEMS

NECESSARY INITIATIVES TAKEN BY RBI & MINISTRY OF FINANCE TO

TACKLE ECONOMIC PROBLEMS:

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As most of economists feel that the most horrible problem which India is facing currently

is inflation which has crossed 12%. To come out of these problems RBI and ministry of finance

and other relevant government and regulatory entities are taking various initiatives which are as

follows...

RBI MONITORY POLICY:

With the introduction of the Five year plans, the need for appropriate adjustment in

monetary and fiscal policies to suit the pace and pattern of planned development became

imperative. The monitory policy since 1952 emphasized the twin aims of the economic policy of

the government:

Spread up economic development in the country to raise national income and standard of

living, and

To control and reduce inflationary pressure in the economy.

This policy of RBI since the First plan period was termed broadly as one of controlled

expansion, i.e.; a policy of “adequate financing of economic growth and at the same time the

time ensuring reasonable price stability”. Accordingly, RBI helped the economy to expand via

expansion of money and credit and attempted to check in rise in prices by the use of selective

controls.

OBJECTIVES OF MONITORY POLICY

PRICE STABILITY

MONITORY TARGETTING

INTEREST RATE POLICY

RESTRUCTURING OF MONEY MARKET

REGULATION OF FOREIGN EXCHANGE MARKET

WEAPONS OF MONITORY POLICY

Central banks generally use the three quantitative measures to control the volume of

credit in an economy, namely:

o Raising bank rates

o Open market operations and

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o Variable reserve ratio

However, there are various limitations on the effective working of the quantitative

measures of credit control adapted by the central banks and, to that extent, monetary measures to

control inflation are weakened. In fact, in controlling inflation moderate monetary measures, by

themselves, are relatively ineffective. On the other hand, drastic monetary measures are not good

for the economic system because they may easily send the economy into a decline.

In a developing economy there is always an increasing need for credit. Growth requires

credit expansion but to check inflation, there is need to contract credit. In such an encounter, the

best course is to resort to credit control, restricting the flow of credit into the unproductive,

inflation-infected sectors and speculative activities, and diversifying the flow of credit towards

the most desirable needs of productive and growth-inducing sector. In modern community,

tangible, wealth is typically represented by claims in the form of securities, bonds, etc., or near

moneys, as they are called. Such near moneys are highly liquid assets, and they are very close to

being money Thus, there is no immediate and direct relationship between money supply and the

price level, as is normally conceived by the traditional quantity theories. When there is inflation

in an economy, monetary restraints can, in conjunction with other measures, play a useful role in

controlling inflation.

FISCAL POLICY

Fiscal policy is another type of budgetary policy in relation to taxation, public borrowing,

and public expenditure. To curve the effects of inflation and changes in the total expenditure,

fiscal measures would have to be implemented which involves an increase in taxation and

decrease in government spending. During inflationary periods the government is supposed to

counteract an increase in private spending. It can be cleared noted that during a period of full

employment inflation, the aggregate demand in relation to the limited supply of goods and

services is reduced to the extent that government expenditures are shortened.

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CHAPTER: 5

CHALLENGES FACED BY

INDIAN BANKING

INDUSTRY

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CHALLENGES FACED BY INDIAN BANKING INDUSTRY:

The banking industry in India is undergoing a major transformation due to changes in economic

conditions and continuous deregulation. These multiple changes happening one after other has a

ripple effect on a Bank trying to graduate from completely regulated sellers market to completed

deregulated customers market.

DEREGULATION

This continuous deregulation has made the Banking market extremely competitive with greater

autonomy, operational flexibility, and decontrolled interest rate and liberalized norms for foreign

exchange. The deregulation of the industry coupled with decontrol in interest rates hassled to

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entry of a number of players in the banking industry. At the same time reduced corporate credit

off take thanks to sluggish economy has

Resulted in large number of competitors battling for the same pie.

NEW RULES

As a result, the market place has been redefined with new rules of the game. Banks are

transforming to universal banking, adding new channels with lucrative pricing and freebees to

offer. Natural fall out of this has led to a series of innovative product offerings catering to

various customer segments, specifically retail credit.

EFFICIENCY

This in turn has made it necessary to look for efficiencies in the business. Banks need to access

low cost funds and simultaneously improve the efficiency. The banks are facing pricing pressure,

squeeze on spread and have to give thrust on retail assets.

DIFFUSED CUSTOMER LOYALTY

This will definitely impact Customer preferences, as they are bound to react to the value added

offerings. Customers have become demanding and the loyalties are diffused. There are multiple

choices; the wallet share is reduced per bank with demand on flexibility and customization.

Given the relatively low switching costs; customer

Attention calls for customized service and hassle free, flawless service

Delivery

MISALLIGNED MINDSET

These changes are creating challenges, as employees are made to adapt to changing conditions.

There is resistance to change from employees and the Seller market mindset is yet to be changed

coupled with Fear of uncertainty and Control orientation. Acceptance of technology is slowly

creeping in but the utilization is not maximized.

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COMPETENCE GAP

Placing the right skill at the right place will determine success. The Competency gap needs to be

addressed simultaneously otherwise there will be missed opportunities. The focus of people will

be on doing work but not providing solutions, on escalating problems rather than solving them

and on disposing customers instead of using the opportunity to cross sell.

STRATEGIES OPTIONS WITH BANKS TO COPE WITH

THOSE CHALLENGES

Leading players in the industry have embarked on a series of Strategic and tactical initiatives

to sustain leadership. The major initiatives include:

a) Investing in state of the art technology as the back bone of to ensure reliable service

delivery

b) Leveraging the branch network and sales structure to mobilize low cost current and

savings deposits

c) Making aggressive forays in the retail advances segment of home and personal loans

d) Implementing organization wide initiatives involving people, process and technology to

reduce the fixed costs and the cost per transaction

e) Focusing on fee based income to compensate for squeezed

Spread, (e.g. CMS, trade services)

f) Innovating Products to capture customer ‘mind share’ to

begin with and later the wallet share

g) Improving the asset quality as per Basel II norms

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CHAPTER: 6

INDIAN ECONOMY

OVERVIEW & HISTORY

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Indian Economy Overview

Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per

year in the 23-year growth record.

Indian economy has posted an excellent average GDP growth of 6.8% since 1994 India,

the fastest growing free-market democracy in the world, registered a growth rate of 8.2

percent in FY 2006.

Agriculture has fall to a drop because of a bad monsoon in 2006. There is a paramount

need to bring more area under irrigation.

Export revenues from the sector are expected to grow from $8 billion in 2007 to $46

billion in 2009

India’s foreign exchange reserves are over US$ 102 billion and exceed the forex reserves

of USA, France, Russia and Germany. This has strengthened the Rupee and boosted

investor confidence greatly.

A strong BOP position in recent years has resulted in a steady accumulation of foreign

exchange reserves. The level of foreign exchange reserves crossed the US $100 billion

mark on Dec 19, 2004 and was $142.13 billion on March 18, 2005.

During the current financial year 2004-05, broad money stock (M3) (up to December 10,

2004) increased by 7.4 per cent (exclusive of conversion of non-banking entity into

banking entity, 7.3 per cent).

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Economics experts and various studies conducted across the globe envisage India and

China to rule the world in the 21st century.

History of Indian Economy

The 12th largest economy in the world in terms of the market exchange rate, the Indian economy has come a long way to become one of the fastest growing economies. In order to have an idea of the various economic stages, one needs to make an analysis of the Indian economy history.

The pre colonial era of Indian economy

India is one of the world's oldest civilizations. The main source of economy and income for the people in the ancient ages was agriculture. The fertile plains, rivers and water bodies and a favorable climate provided a wonderful scope for agricultural produce in the country. The ancient civilizations of India like Indus Valley, the Aryan civilization, Mauryan Empire, Gupta Empire and most other dynasties had a planned economic system. In some dynasties, even coins were issued. However, the chief form of trading in those times was the barter system. According to the economic rule, the farmers and villagers were required to provide a part of their crops or produce to the kings or the landlords.

Even in the Muslim rule, the economy of India was mainly based on agricultural produce. Towards the later part of the Mughal period, some trade relations were established between the Mughal Empire and the British, French and Portuguese merchants. Eventually, after the Battle of Plassey, the British East India Company eventually came into power. Thus the colonial rule in India started.

The colonial era of India is a significant part of the India Economy history. It brought a considerable change in the process of taxation from the revenue taxes to the property taxes which resulted in large scale economic breakdown. In fact a number of industries like the Indian handicrafts industry suffered huge losses. During India's freedom struggle, the Indian Nationalists advocated for the Swadeshi Movement in which the British products were boycotted.

However, the British rule also developed the country to a great extent. The financial and banking system as well as free trade was established, a single currency system with exchange rates was brought into being, standardization of weights and measures took place and also a capital market came into existence. Stress was also given to the development of infrastructure and new telegraph lines were laid, railway lines were constructed and roads were made.

Post Independence to the 1990s

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After India gained independence, stress was given to stabilize the economic system of the country. Wide scale development was made in sectors such as agriculture, village industries, mining, defense and so on. New roads were built, dams and bridges were constructed, and electricity was spread to the rural areas to improve the standard of living.

In the subsequent Five Year Plans, a number of economic reforms and policies were formulated. Public and rural sectors were developed, emphasis was given to increase the quantity and quality of the export items, making the country self sufficient and minimize imports and other related reforms. The political leaders also put stress on business regulations, central planning and nationalization of the industries in mining, electricity and infrastructure.

Another major economic reform that was initiated in the 1960s was to make India self sufficient in food grain production. In this regard, the ‘Green Revolution' movement was initiated for aforestation, more irrigational projects, improved seed usage, better farming techniques and use of fertilizers and lots more.

In the 1980s, the first step towards market liberalization was undertaken by the then government headed by Rajiv Gandhi. In his tenure, restrictions on a number of sectors were eased, pricing regulations were abolished and efforts were made to improve the GDP of the country.

From 1990s to the present times

India's economic condition in the initial stage of the 1990s was dismal. The main trading partner, Soviet Union was dissolved and India faced huge balance of payment problems. The loans kept on increasing and the IMF asked for a bailout loan. In this situation, Manmohan Singh, the then Finance Minister initiated the liberalization plan. This is one of the milestones in the history of Indian Economy. In the liberalization plan, foreign direct investments were welcomed, public monopolies were abolished and banking, service and tertiary sectors were developed. Boost was also given to develop the money and capital market.

Since the open market plan in the 1990s, India has experienced favourable economic growth. Today it has become one of the fastest growing economies in the world with a GDP growth rate of around 6-7 %. To complement the growing GDP, the country has also experienced growth in per capita income, standard of living and industrial development.

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CHAPTER: 7

SECTOR’S

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Primary Sector of Indian Economy

The Primary sector of the economy is the change of natural resources into primary products.

Most products from this sector provides raw materials for other industries. The share of primary

sector has decreased from the past four decades. In 1970 the share of the sector was 50% which

has reduced to 29% in 1995 and is now further reduced to 25%. Major businesses in this sector

are agriculture, agribusiness, fishing, forestry, all mining and quarrying industries.

Agriculture

Agriculture in India is the major sector of its economy. Almost two-thirds of the total work-force

earns their livelihood though farming and other allied sectors like forestry, logging and fishing

which account 18% of the GDP. These sectors provide employment to 60% of the country’s total

population. About 43% of the country’s total geographical area is used for agricultural purposes.

After independence additional areas were brought under cultivation and new methods, practices

and techniques of irrigation and farming were introduced by the government. The “Green

Revolution” and “Operation Flood” in the country have made India self sufficient in producing

food grains and milk. Among other things, the government also tried to decrease the dependence

on monsoons. Better seeds, use of fertilizer, education of farmers and provision of agricultural

credit and subsidies are reasons for increase in agricultural productivity.

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Today, India is the major producer of milk, cashew nuts, coconuts, tea, ginger, turmeric and

black pepper in the whole world. It is the second largest producer of wheat, sugar, groundnut and

inland fish. It is the third largest producer of tobacco and rice. India accounts for 10 per cent of

the world fruit production with first rank in the production of banana and sapota (Sapodilla).

Agriculture in India is the responsibility of the states rather than the central government. The

central government formulates policy and provides financial assistance to the states. States like

Punjab, Haryana, Uttar Pradesh, Andhra Pradesh, Tamil Nadu, Karnataka and West Bengal are

major producers of food grains in India. Himachal Pradesh and Jammu and Kashmir are famous

for fruit production. Tea is produced in the high altitudes of Assam, Darjeeling in West Bengal,

Tripura, Ooty in Tamil Nadu, Himachal Pradesh and Kerala. Kerala is also the largest producer

of natural rubber and spices in India. Rajasthan is among the major producers of edible oils in

India and second largest producer of oil seeds. Production of non-conventional items like moong

(a type of lentil), soyabeans and peanuts are gradually gaining importance.

Even though there has been a steady decline in its share in the GDP, agriculture still remains the

largest economic sector and plays a crucial role in the socio-economic development of the

country.

Fishing

Fish breeding has increased almost five times since India got independence and is a prime

industry in coastal regions.

The economic zone of India runs up to Indian ocean (370 Km) covering an area more than 2

million square kilometers. Approximately 4.5 million ton catches are expected from that area.

India has about 14000 Km2 brackish water for aquaculture, out of which 600 Km2 were being

farmed in early 1990s; about 16,000 Km2 of freshwater lakes, ponds and swamps; and nearly

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64,000 kilometers of rivers and streams.

Mining

Mining is the term used for the extraction of useful material from the treatment of ore, vein or

coal seam. Materials obtained from extraction may be base metals, precious metals, iron,

uranium, coal, diamonds, limestone, oil shale, rock salt and potash. Any material obtained from

agriculture or cultured in laboratory requires to be mined.

Secondary Sector of Indian Economy

The secondary sector of the economy includes those economic sectors that create a finished

usable product and hence depend on primary sector industries for the raw materials. This sector

includes Mining, manufacturing and construction. The secondary sector contributes 24% of the

share in Indian economy.

Industry

India’s industrial sector accounts for 27.6% of the GDP and gives employment to 17% of the

total workforce. Though agriculture is the foremost occupation of the majority of the people, the

government had always laid stress on the industrial development of the country. Thus policies

and strategies were framed to give a boost to India’s industry. The government aims at achieving

self-sufficiency in production and protection from foreign competition. Since independence,

India is marching ahead to become a diverse industrial base.

Today India holds some key industries in the sectors like steel, engineering and machine tools,

electronics, petrochemicals, textiles and software. Importance has also been give to improve the

infrastructure of the country. The government has liberalized its industrial policy thereby

attracting huge foreign direct investment. If on one hand several multinational companies opened

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their offices in India, on the other hand many Indian companies started their operations in foreign

countries.

Construction

The process of building or assembling of infrastructure is known as a term commonly used in

architecture and civil engineering- “construction”. Construction job is all about multitasking and

needs the services from project manager, construction manager, design engineer, construction

engineer and project architect.

Tertiary Sector of Indian Economy

The Tertiary sector includes service industry and it holds the highest importance among all

sectors. The tertiary sector of economy involves the provision of services to business as well as

final consumers. Services may involve the transport, distribution and sale of goods from

producer to consumers as may happen in wholesaling and retailing, or may involve the provision

of a service, such as in pest control or entertainment. The tertiary sectors account for 51% of the

GDP.

The tertiary sectors may include:

Insurance

Banking

Transport

The higher the productivity in primary and secondary sector and lower the employment in these

sectors, the better it is. People need more and more services for leading qualitatively better

lifestyle. They need more means of transport, more communication and educational facilities,

more training, more medical facilities, entertainment, technical facilities, banking facilities etc.

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Tertiary sector depends on scientific research and innovative developments to increases

productivity and it provides engineering and construction consultancy support services for all

projects in all sectors. Developed countries employ more than 80% the services sector.

India is the fifteenth largest country in the world in terms of services' output. This sector

provides employment to 23% of the workforce and is the fastest growing sector, with a growth

rate of 7.5% in 1991–2000 up from 4.5% in 1951–80. It has the largest share in the GDP,

accounting for 53.8% in 2005 up from 15% in 1950.

Business services like information technology, information technology enabled services,

business process outsourcing contribute to one third of the total output of services in 2000.

The growth in the IT sector is due to the availability of a large pool of low cost and highly

skilled, educated and fluent English-speaking people. Foreign clients have also expressed their

interest in outsourcing much of their operations to India Excellent infrastructure in the service

sector and the lowest communication cost has helped India to be a dominant player in these

sectors.

Insurance

The concept of Insurance dates long back in 1818. Life Insurance premium accounts for 2.5% of

the nation’s GDP while general insurance contributes 0.65% of India’s GDP. Government of

India opened gate for private insurance companies to enter the arena and FDI of 26% in the

Insurance sector in 1999 untill then only LIC was there to provide insurance facilties.

Private Insurance companies like ICICI, Max Newyork, Bajaj allianz, Kotak Mahindra, Metlife

are providing life insurance, general insurance, medical insurance etc.

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CHAPTER: 8

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“EXTERNAL TRADE AND

INVESTMENT

External Trade and Investments

Global Trade Relations

India's economy largely depends on its huge internal market and the external trade contributes

only 20% of the country's GDP. India's annual imports were US$236 and exports stood at

US$155.5 billion in March 2008.

India accounted for 1.45% of global merchandise trade and 2.8% of global commercial services

export. India was isolated from the world markets, to safeguard its economy and to relay on itself

in 1991.

Foreign direct investment (FDI) involved restrictions on technology transfer, export obligations

and prior government approvals were needed for 60% of new foreign investments in industries.

As per rules foreign investments are restricted to an average only around US$200 million

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annually between 1985 and 1991.

The capital flows in the form of foreign aid, commercial borrowing and deposits of non-resident

Indians. After 15 years of independence India's exports stabilized only because of predominance

of tea, jute and cotton manufactures. Machinery, equipment and raw materials, were imported

from other countries due to prurient industrialization.

India's major trading partners are China, the US, the UAE, the UK, Japan and the EU. The

exports increased to $12.31 billion during April 2007 with the growth of 16% and import were

$17.68 billion with an increase of 18.06% from the previous year.

In 2006-07, major export commodities included engineering goods, petroleum products,

chemicals and pharmaceuticals, gems and jewelry, textiles and garments, agricultural products,

iron ore and other minerals whereas crude oil and related products, machinery, electronic goods,

gold and silver were imported.

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and

WTO. India has opposed the inclusion of labour and environment issues and other non-tariff

barriers into the WTO policies.

Balance of Payments

Since India got independence, her balance of payments on its current account has decreased.

Since liberalization in the 1990s, India's exports have been consistently rising, covering 80.3% of

its imports in 2002–03, an increase over 66.2% in 1990–91. Huge current account deficit might

be due to growing oil import bill. In 2007-08, India imported 120.1 million tons of crude oil at a

price tag of $61.72 billion.

Since 1996–97 India’s overall balance of payments has been positive due to increase in foreign

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direct investment and deposits from non-resident Indians. As a result, India's foreign currency

reserves stood at $285 billion in 2008.

Due to recession in late 2000 both the exports and imports of India declined by 29.2% and 39.2%

respectively in June 2009. The sharp decline was because United States and members of the

European Union which account for more than 60% of Indian exports has been hit hard by this

recession.

Decline in interest rates and reduction in borrowings decreased India's debt service ratio to 4.5%

in 2007. External Commercial Borrowings (ECBs) by Government of India and regulated by

Ministry of Finance provides an additional source of funds to Indian corporate.

Foreign direct investment in India

Share of top five investing countries in FDI inflows. (2000-2007)Ran

kCountry

Inflows(Million USD)

Inflows (%)

1 Mauritius 85,178 44.24%2 United States 18,040 9.37%3 United Kingdom 15,363 7.98%4 Netherlands 11,177 5.81%5 Singapore 9,742 5.06%

India is the fourth-largest economy in the world in PPP terms. India holds strengths in

information technology, auto components, chemicals, apparels, pharmaceuticals, and jewelery

and are the fields that attract foreign direct investments.

Despite a flow of foreign investments, rigid FDI policies offered hindrances. India has

positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region. India has

a large pool of skilled managerial and technical expertise.

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Recent FDI policy which came in 2005 allows up to a 100% FDI stake in ventures. Industrial

policy reforms have reduced the requirement of industrial licensing, removed restrictions on

expansion and facilitated easy access to foreign technology and foreign direct investment. In

March 2005, the government rectified the rules and allowed 100 per cent FDI in the construction

business.

A number of changes were approved on the FDI policy to remove the caps in civil aviation,

construction development, industrial parks, petroleum and natural gas, commodity exchanges,

credit-information services and mining.

According to the government's Secretariat for Industrial Assistance FDI inflows into India

reached $19.5 billion in fiscal year 2006-07 (April-March) which is increased to $24 billion in

2007-08.

The economic growth and potential to be an economic superpower will largely depend on how

the government can create incentives for FDI flow across a large number of sectors in India.

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Appendix

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QUESTIONNAIRE

Dear Sir/Madam,

I am a student of Bachelor of Commerce (BANKING & INSURANCE) SEM VAs part of the requirements for my University project I am required to do a research based

project on Indian Banking &Economy. Kindly spend a few minutes of your valuable time and

fill in this questionnaire: (This research is being done only for academic purpose only.)

1. Name of the Bank: ___________________________________________

2. Name of Bank Manager: _____________________________________

3. Location: ________________ Date:___________

4. Is the business a part of a group of companies?

Yes: No:5. If yes; it is subsidiary or parent company?

Subsidiary: Parent:

6. If it’s a subsidiary is the parent country based or overseas based?

Country based: Overseas based:7. 8.Which Bank does it bank with?

(By "Main Bank" we mean the Bank that handles the majority of its everyday receipts and payments.)

Main Bank name:2nd Bank name:2nd Bank purpose:3rd Bank name:

9. Does your banking business ever hold credit funds’? (Section 5)

Yes: No:

10. Does the business have an overdraft facility?

Yes: No:

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(If yes how much is the limit RS /- ________.)

11. What is the interest rate margin charged on overdraft?On main overdraft %

12. Do the businesses hold any credit funds?

Always / Often /Occasionally / Rarely

13. Do the businesses earn interest? YES /NO

(On Deposits: % On Current a/c: %)

14. Do the businesses hold funds on trust?

Yes: No:

15. Are deposit account fund held with the main bank?

Yes: No:

16. Does this bank put funds in Money Market (MM) deposits?

Yes: No:

(Average interest rate %)

17. Does the business place MM fund with other Banks or Institution?

Yes: No:

18. Arrangement fees comes under a number of different labels (e.g.: Overdraft, Lending, Renewal, negotiation fees /charges...etc.)

a) Does your bank business pay arrangement fees on its borrowing? Yes: No:

b) How much has the business paid in arrangement fees in last 7mths?Rs/-______________.

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c) What rate% is been charged on such arrangement? __________

19. How do you view present market for investment?

20. Does Indian economic factor affecting banking industry? Yes: No:

If yes what factors? _____________________________________

___________________________________________________.

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----------------------Thanks sir; --------------------

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Conclusion:

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

reach. As far as private sector and foreign banks are concerned, the reach in rural India

still remains a challenge.

The Indian banking situation is very different from that in Europe and the US. There,

banks' distress is the cause of the economic crisis.

Indian banks are not directly impacted by the financial crisis because of their low

exposure to the sub-prime market.

The slowing down of the economy impacts on banks. But, you have to remember that

economic growth of 6% is still pretty good for any banking system.

In earlier step of banks in India which functioned as entities to finance industry, including

speculative trades in cotton. Most of the banks opened in India during that period could

not survive and failed because of the high risk

With passing time, Indian economy is further expected to grow and be strong for quite

some time-especially in its services sector.

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Bibliography

Websites:

www.nabard.org

www.eximbankindia.com

www.hdfcbank.com

www.hudco.org

www.icicibank.com

www.idbi.com

www.thehindubusinessline.com

www.idbi.com

www.indiahousing.com

www.nhb.org.in

www.financialexpress.com

www.licindia.com

www.sidbi.com

Journals & other references:

Introduction to banking (Vijayaragavan iyengar)

The Economic Times

REPORTS/ARTICLES REFFERED:

Overview of banking sector

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http://www.sidbi.com/

http://www.licindia.com/

http://www.financialexpress.com/

http://www.nhb.org.in/

http://www.indiahousing.com/

http://www.idbi.com/

http://www.thehindubusinessline.com/

http://www.idbi.com/

http://www.icicibank.com/

http://www.hudco.org/

http://www.hdfcbank.com/

http://www.eximbankindia.com/

http://www.nabard.org/


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Final Project-Indian Banking and Economy

Documents

fastest growing

tackle economic

national stock

generation

private insurance

foreign direct

small scale

principal