Vidhya & Suganya

MARICO COMPANY PROFILE:Date of Establishment Revenue Market Cap Corporate Address 1988 0 ( USD in Millions ) 142522.11990895 ( Rs. in Millions ) Rang Sharda,Krishnachandra Marg,Bandra Reclamation Bandra WestMumbai-400050, Maharashtra www.maricoindia.com Management Details Chairperson - Harsh Mariwala MD - Harsh Mariwala Directors - Anand Kripalu, Atul Choksey, B S Nagesh, Bipin Shah, Ghulam Mostafa, Harsh Mariwala, Hema Ravichandar, Hemangi Ghag, Hemangi Wadkar, Jacob Kurian, Nikhil Khattau, Rachana Lodaya, Rajeev Bakshi, Rajen Mariwala, Rajendra Mariwala, Rupali Chowdhury Business Operation Household & Personal Products Background Marico is one the leading company in FMCG sector incepted in year 1988. The company has created one of biggest brands in India. Every month ,over 70 million packs from Marico reach approximately 130 million consumers in about 23 million households through a widespread distribution network of more than 2.5 Million outl Financials Total Income - Rs. 30220.3 Million ( year ending Mar 2012) Net Profit - Rs. Million ( year ending Mar 2012) Company Secretary Hemangi Ghag Bankers DBS Bank, HSBC Bank, JP Morgan Chase Bank, Royal Bank of Scotland Auditors Price Waterhouse & Co Marico is one the leading company in FMCG sector incepted in year 1988. The company has created one of biggest brands in India. Every month ,over 70 million packs from Marico reach approximately 130 million consumers in about 23 million households through a widespread distribution network of more than 2.5 Million outlets in India and overseas. Products Consumer products business Maricos consumer products has prominent market share in coconut oil,hair oils,post wash hair care,anti lice treatment ,edible oil ,fabric care,etc.Under this it created brands like Parachute, Safola, Revive, Starz, Medikar, hair & care etc. It has also entered food segment through Saffola Diabetes Management Atta mix. International products Marico presence in international market became more evident through its major acquisition of international brands namely camellia, aromatic ,Fiance, Hair Code ,Sundari, etc .Acquisition of Fiance & Hair Code gave Marico a customer base of 26 million. KAYA With KAYA Marico entered into skin care segment .Its KAYA Skin clinic offers dermatological & scientific procedures most of them approved by USFDA. Today there 65 Skin Clinics in 19 Indian cities, 9 in Middle East has a customer base of 350,000. Milestones Marico was awarded Business Leadership Awards in the FMCG (Personal Hygiene) category (July 2007) by NDTV Profit.

Marico was rated No.1 of India's Most Innovative Companies by the Business Today Monitor Group Innovation Study. Marico was one of Indias 10 best marketers by Business Today-2006. Marico was among top Eight India Global challengers according to Standard & Poors global rating of mid-size companies-2006. Future plans:

Marico plan to increase its portfolio in Food segment by launching new health food products. Marico plans to add 15 KAYA clinics every year ,expanding skin services. Marico also plan to increase its share in coconut oil market in Bangladesh & also market share of hair creams inMiddle east .

INDIAN BANKING SYSTEM: THE CURRENT STATE & ROAD AHEADTechnology to the fore Core banking: Internet Banking Services ATM: (Mobile Banking Future outlook

The pace of development for the Indian banking industry has been tremendous over the past decade. As the world reels from the global financial meltdown, Indias banking sector has been one of the very few to actually maintain resilience while continuing to provide growth opportunities, a feat unlikely to be matched by other developed markets around the world. FICCI conducted a survey on the Indian Banking Industry to assess the competitive advantage offered by the banking sector, as well as the policies and structures required to further stimulate the pace of growth. A majority of the respondents, almost 69% of them, felt that the Indian banking Industry was in a very good to excellent shape, with a further 25% feeling it was in good shape and only 6.25% of the respondents feeling that the performance of the

industry was just average. This optimism is reflected in the fact that 53.33% of respondents were confident in a growth rate of 15-20% for the banking industry in 2009-10 and a greater than 20% growth rate for 2014-15. (Refer: Fig 1, Pg 5) Some of the major strengths of the Indian banking industry, which makes it resilient in the current economic climate as highlighted by our survey were regulatory system (93.75%), economic growth (75%), and relative insulation from external market (68.75%). On being asked to rate India on certain essential banking parameters (Regulatory Systems, Risk Assessment Systems, Technological System and Credit Quality) in comparison with other countries i.e. China, Japan, Brazil, Russia, Hong Kong, Singapore, UK and USA the following results emerged: o Regulatory systems of Indian banks were rated better than China, Brazil, Russia, UK; at par with Japan, Singapore and Hong Kong where as all our respondents feel that we are above par or at par with USA. (Refer: Fig 3, Pg 7) o Respondents rated Indias Risk management systems more advanced than China, Brazil and Russia; 75% of the respondents feel that we are above or at par with Japan, 55.55 % with Hong Kong, Singapore & UK and 62.5% with USA. (Refer: Fig 4, Pg 8) o Credit quality of banks has been rated above par than China, Brazil, Russia, UK and USA but at par with Hong Kong and Singapore and 85.72% of the respondents feel that we are at least at par with Japan. (Refer: Fig 5, Pg 8)Indian Banking System: The Current State & Road Ahead Page | 2 o Technology systems of Indian banks have been rated more advanced than Brazil and Russia but below par with China, Japan, Hong Kong, Singapore, UK and USA. (Refer: Fig 6, Pg 9)

Respondents perceived ever rising customer expectations and risk management as the greatest challenge for the industry in the current climate. 93.75% of our respondents saw expansion of operations as important in the future, with branch expansion and strategic alliances the most important organic and inorganic means for global expansion respectively. An overwhelming 80% of respondents admitted that the primary strength of NBFCs over banks lies in their ability to provide reach to the last mile and were also were unanimous in the need to strengthen NBFCs further. Further, 81.25% also felt that there was further scope for new entrants in the market, as there continue to remain opportunities in unbanked areas. However, 57.14% felt that NBFCs may be allowed to be established as banking institutions but only if adequate capitalization levels, a tiered license that enables new entrants to enter into specific areas of the business only after satisfactorily achieving set milestones for the prior stages, cap on promoter's holdings and other regulatory limitations are ensured. 73.33% of our respondents are cent per cent compliant with core banking solution requirements, with the remainder, comprising mostly of our public sector respondents, lagging behind in implementation in rural areas. Public Sector Banks, Private Sector Banks as well as Foreign Banks view difficulty in hiring highly qualified youngsters as the major threat to their HR practices ahead of high staff cost overheads, poaching of skilled quality staff and high attrition rates. (Refer: Fig 11, Pg 16) Due to long-term maturity, the trend for prime lending rates seems to be changing now. However, there are other factors which have led to the stickiness of lending rates such as wariness of corporate credit risk (33.33%), competition from government small savings schemes (26.67%).

With regards to loan disbursement, while industry shows preference for a joint appraisal system, banks are happy with the current system and in fact 71.43% of our respondents felt that there was no need for standardized credit appraisal across the industry. Indian Banking System: The Current State & Road Ahead Page | 3 Over 92% of the participants agree with recent stress test results that Indian banks have the capacity to absorb twice the amount of their current NPA levels. Almost 80% of the banks see personal loans as having the greatest potential for default, followed by corporate loans and credit cards. (Refer: Fig 13, Pg 18) 87.5% of the respondents consider credit information bureaus vital for the measurement of asset quality. Nevertheless, at the same time, over 60% of respondents felt the need for regulation capping FDI at 49% and voting rights to 10% in Credit Information bureaus 93% of participants still find rural markets to be to be a profitable avenue, with 53% of respondents finding it lucrative in spite of it being a difficult market. More than 81.25%of all respondents have a strategy in place to tap rural markets, with the remainder as yet undecided on their plan of action. All banks in our survey weigh Cost effective credit delivery mechanisms (100%) as most important to the promotion of financial inclusion, followed by factors such as identifying needs and developing relevant financial products (75%), demographic knowledge and strong local relations (62.5%) and ensuring productive use and adequate returns on credit employed (43.75%). Almost 62% of the respondents see consolidation as an inevitable process for their banks in the future, while the remainder does not consider it an essential factor for their future progress. 77.78% of public sector respondents were of the opinion that foreign banks should not be allowed to play a greater role in the consolidation

process. Indian Banking System: The Current State & Road Ahead Page | 4

INTRODUCTIONRecent time has witnessed the world economy develop serious difficulties in terms of lapse of banking & financial institutions and plunging demand. Prospects became very uncertain causing recession in major economies. However, amidst all this chaos Indias banking sector has been amongst the few to maintain resilience. A progressively growing balance sheet, higher pace of credit expansion, expanding profitability and productivity akin to banks in developed markets, lower incidence of nonperforming assets and focus on financial inclusion have contributed to making Indian banking vibrant and strong. Indian banks have begun to revise their growth approach and re-evaluate the prospects on hand to keep the economy rolling. The way forward for the Indian banks is to innovate to take advantage of the new business opportunities and at the same time ensure continuous assessment of risks. A rigorous evaluation of the health of commercial banks, recently undertaken by the Committee on Financial Sector Assessment (CFSA) also shows that the commercial banks are robust and versatile. The single-factor stress tests undertaken by the CFSA divulge that the banking system can endure considerable shocks arising from large possible changes in credit quality, interest rate and liquidity conditions. These stress tests for credit, market and liquidity risk show that Indian banks are by and large resilient.

Thus, it has become far more imperative to contemplate the role of the Banking Industry in fostering the long term growth of the economy. With the purview of economic stability and growth, greater attention is required on both political and regulatory commitment to long term development programme. FICCI conducted a survey on the Indian Banking Industry to assess the competitive advantage offered by the banking sector, as well as the policies and structures that are required to further the pace of growth. The results of our survey are given in the following sections.

Introduction:The Indian banking sector has been evolving since the year 1770 when the Bank of Hindustan was established in Calcutta and subsequently in its various avatars-when the General Bank of India, which came into existence in 1886 again in Calcutta; and then Bank of Calcutta (later Bank of Bengal - 1806 ), Bank of Bombay and Bank of Madras merging in 1921 to become the Imperial Bank of India which became the State Bank of India ( SBI) in 1955.

Technology to the fore Banks have changed in their operations and moved towards universal banking along with the increased usage of technology and technology-based services offering alternate channels such as smart cards, ATMs, usage of the internet, mobile and social banking. Banks have started deploying core banking, human resource management (HRM) and enterprise risk (ERP) management and process re-engineering etc to improve on their performance and productivity. Majority of banks are insisting on cashless and paperless payment modes.

Core banking: Core bankingis another way of saying the core functions of a bank. These functions represent the essential (core) business of banking. Because of the plethora of services banks now provide, it is easy to forget that the root of banking is accepting deposits and lending money. The definition of core banking may have been muddied by the emergence of packaged computer solutions which combine core banking functions with other elements of a banks operations but

at the most basic level core banking manages financial transactions and their impact on the accounts of its customers. To achieve this it is obviously necessary to hold details of the banks customers (often called customer static data - their names and addresses, for example) or to link into another database that holds that data. Therefore a core banking system will often offer a basic customer database function, often referred to as a Customer Information File or CIF. Often, a core banking system will maintain linkages between accounts and customers. A banking system that holds a single instance of a customers record and then relates all of that customers accounts to that record is said to be customer centric. By looking at the customer a banker will then be able to see all of that customers accounts which enables the bank to manage across the entire customer relationship (CRM or customer relationship management). A core system that holds a list of accounts without linking them back to a single instance of a customer is said to be account centric. In this day of integrated banking services and cross-selling there is little scope for account centric systems, although these may exist in other, more specialised areas of the bank. Internet Banking Services Now monitor, transact and control your bank account online through our net banking service. You can do multiple things from the comforts of your home or office with Axis Bank Internet Banking - a one stop solution for all your banking needs. You can now get all your accounts details, submit requests and undertake a wide range of transactions online. Our E-Banking service makes banking a lot more easy and effective. Features

Account Details: View your bank account details, account balance, download statements and more. Also view your Demat, Loan & Credit Card Account Details too all in one place. Fund Transfer: Transfer fund to your own accounts, other Axis Bank accounts or Other Bank account seamlessly. Request Services: Give a request for Cheque book, Demand Draft, Stop Cheque Payment, Debit Card Loyalty Point Redemption etc. Investment Services: View your complete Portfolio with the bank, Create Fixed Deposit, Apply for IPO etc. Value Added Services: Pay Utility bills for more than 160 billers, Recharge Mobile, Create Virtual Cards, Pay any Visa Credit Card bills, Register for estatement and sms banking etc.

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Internet Banking Services Availability View Account Details/Balance Download Account Statement Request for Stop Cheque Payment Request for Cheque book Create Fixed Deposit View Credit Card Details Pay Credit Card Bills Redeem Debit Card loyalty points View Demat Account Details View your Portfolio Summary/Snapshot Apply for IPO Online View your Loan A/C Details Mail Facility Edit Personal Profile Details Register for e-statement Register for SMS Banking Transfer Fund to Own Axis Bank Account Transfer Fund to Other Axis Bank Account Transfer Fund to Other Bank Account Transfer Fund to Visa Credit Card Recharge Mobile Request for Demand Draft Pay utility Bills Shop online and pay using Axis Bank Internet Banking Indian banks get top billing globally This has resulted in putting 20 Indian banks in their standing globally. In 2010, the UK-based Brand Finance's annual ranking put these banks in the top 500 banks by their brand value. In 2007, only six Indian banks had the top standing globally. To see further growth in the banking sector regulators and policy makers have been emphasising on financial inclusion to cover all sections of the society. Half of India's population does not bank. The regulators and policy makers have started taking a serious view of this. As a result, the top regulator the Reserve Bank of India (RBI) is now encouraging various entities including non-banking finance companies (NBFCs),

Internet Banking With Passwords Yes Yes Yes Yes Yes* Yes Yes* Yes Yes Yes Yes* Yes Yes Yes Yes Yes Yes* No No No No No No

Internet Banking With Passwords + Netsecure Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes

co-operative banks, regional rural banks (RRBs), self-help entities, business correspondents in rural areas and microfinance companies which have now given exposure to non-banked rural areas. This shows that at some point of time banking services would reach rural areas as much as they do in urban and semi-urban areas. The government and the regulator have taken several measures including mandatory opening of at least 25 per cent of new bank branches in unbanked rural areas, giving impetus to opening of new branches in tier III-VI cities. The mandatory and simplified Know Your Customer (KYC) detailing for opening small accounts have made things easier for banks to extend their reach. Future outlook The banking system has to implement Basel III guidelines as per the directive of the RBI to make it a stronger sector. Some of the key measures of this include creating firm measures to make it foolproof of systemic risks, stringent timelines, ongoing improvement of quality and quantity of capital, liquidity risk management, value-based practices, solid mechanism, disclosures for total transparency and reduction of systemic risk in derivative and other money-related markets. The RBI has stipulated a time frame of five years to implement Basel III norms. But there are economy related hurdles as the government which holds majority stake in the public sector banks (PSBs) copes with the high fiscal deficit. Once the government decides to dilute its shares in the PSBs and brings it down to around 51 per cent, the Indian banking sector would see a sea change. Also, a large number of foreign players and big Indian corporates are awaiting government clearances for setting up new generation banks. Once there is clarity on this issue things would change drastically. ATM: THERE is no contesting the fact that the introduction of Automated Teller Machine (ATM) has changed the face of electronic payment in Nigerian banks. Banks in the country are now adopting self-service technology because it is cost effective in the long-run. In the past few years, banks and the financial services industry, in particular have embraced the

concept of e-money. Changes are beginning to take place in the Nigerian financial landscape and customers are increasingly raising the hope of expectations of quality customer services. ATM was introduced into the banking system to solve the problem associated with late night or off banking withdrawal of money. In other words, it was introduced to serve the people where there are no tellers (bank officials) either due to closure or over the weekend when there is limited working hours. It could only be natural, therefore, that the whole world, including Nigeria would embrace this innovation aimed at making banking easier and faster. The banking industry grew due to the mechanical device because of the desire of bank customers to do banking transaction at the speed of lightning. The various facilities provided by the ATM are cash withdrawals, cash deposits, balance inquiry, request for statement of accounts, change of Personal Identification Number (PIN), cheque book requests, transfer of funds from one account to the other and other services like bill payment. Also, ATM provides 24 hours services. It provides service round the clock. A customer can withdraw cash up to a certain limit anytime of the day or night and need not wait to be attended to by bank staff or be affected by the instability of the banking system. The technology promotes faster service delivery. It is a common phenomenon in Nigerian banking institution to see queues inside the banking hall struggling and at times, quarreling for their turns to make withdrawals and deposits. This situation has promoted the common trend of bank robbery because of the raw cash lying bare in the banking hall. Today, the story has changed. Nigerians now engage in faster service delivery in withdrawal of cash. ATM gives convenience to bank customers. Nowadays, the ATM is located in convenient places such as the airport, railway stations, hotels etc and not necessarily at the bank premises. It suffices to be noted that ATMs are installed offsite (away from bank premises) as well as onsite (within bank premises). It provides mobility in banking services for withdrawal. It offers convenience and provides banking services well beyond traditional brick and mortar service period. They also ensure that a lot of cash is still within the banking system where it can be managed and channeled into productive use instead of bulk withdrawals that we used to witness in the recent past.

It reduces the work load of bank staff. Since the ATM is a do it yourself technology, bank staff are relieved from the cries, worries and nuisance of customers. Their time is channeled to more productive use than the pay me 2000nairasystem. ATM is very beneficial to travelers. They need not carry large amount of cash with them. They can withdraw cash from any city or state across the country and even from outside the country. The buying and selling world has benefited from this innovation since traders need not carry the chunk of their raw capital to market any longer to make purchases and risk the terror of armed robbers. ATM may give customers new currency notes. It is common to get brand new currency notes from ATM. In other words, one looks up to the ATM as the right means to obtain new notes. In Nigeria, the excitement and ecstasy experienced by customers as a result of obtaining new notes from ATM cannot be over-emphasized. Moreso, the machine does not subject cash to bad handling often common with cash across the counter. ATM provides privacy in banking transactions. In the use of the device, the activity of a customer is personal to him. No other person is privileged to witness the transaction. There is a sense of satisfaction felt by customers when they realize that their banking transaction is confidential. However, in line with the Nigerian system or any innovation, various customer-unfriendly issues have been raised over the introduction of ATM in the banking industry. The complaints and cries of bank customers over the ills of the ATM cannot be overlooked anymore in light of its raging pains to customers. The first issue that comes to the fore is the efficiency of the ATM in Nigeria. The machine has been notable for gross malfunctioning. This may partly be due to lack of in-depth technical knowledge of the handlers. For instance, it is common for the ATM to deduct money from ones account without actual payment to the owner only to re-credit such account. There is also the pick failure which prevents the equipment from dispensing the correct amount of cash. Many banks in Nigeria today do not encourage its use as such because of the associated problems which may not allow account balance in some instance, although those who invented the ATM actually anticipated some problems with its introduction. However, the type of problem being encountered in Nigeria may defer entirely from the ones anticipated in a healthier society. By far, the most disturbing problem is that of fraud by some

unscrupulous Nigerians. As usual with some Nigerians, they have been devising various means of stealing money from the ATMs. In actual fact, many have succeeded in robbing bank customers through the ATM while some were not that lucky as they were caught in the process and handed to law enforcement agents. Unfortunately, those activities of fraudsters are responsible for the management of different banks in the country deciding not to leave the machines outside the banking hall when they close for the day. Ordinarily, the ATMs are expected to operate 24hours a day, but nowadays, most banks place the machines permanently in the bank premises to prevent thieves from stealing money from it. Other challenges facing other businesses in Nigeria like power outages, telecoms breakdown and others do affect electronic payment platform like ATM services in the country. With regard to power, most machines run on generators, UPS and inverters to back up PHCN in some extreme cases. At times, it is either that the ATM does not have money to dispense or there is a down time as a result of network failure, or that the machine does not have payment slips to print out details of transactions. Another problem worth mentioning is the long queues experienced at ATM terminals. As a result of the fear of banks to install their machines within the city, the grossly few available ones have been hosting large number of customers from dawn to dusk. The aim of speedy cash disposal is thus defeated. Irrespective of the long hours spent in queues, some customers end up not being able to access the machines. Such long queues have given birth to further problems like fighting, maneuvering and lack of privacy in the use of the machine. In addition, the machine has been noted for insufficiency of funds. Most times, the money put in the machine by the management is not usually enough for the large number of customers due to the need to use such money for household needs or business transactions. The level of illiteracy of the larger populace of Nigerians also affects the use of these machines and can easily lead to fraud. This is because the ATM, being an electronic machine, is operated with the use of an electronic card that is coded; it needs to be uncoded by the use of pins issued to the customer by the bank. These cards, before use, have to be activated, and because some Nigerians cannot activate these cards, they seek the assistance of someone, else, thus exposing themselves to

the risk of being defrauded.Basic ATM Card Functions The ATM bank card can be used in a variety of ways that include: withdrawing cash at an ATM machine payment for goods and services purchased at stores and restaurants payment for goods and services purchased online checking your account balances at an ATM machine depositing cash, checks, and paychecks at an ATM machine withdrawing local currency at a foreign bank's ATM machine at a fair exchange rate

The growth of mobile banking technology is increasingly hard to ignore. Analyst firm Javelin Strategy & Research reports that nearly 50 percent of all mobile users in the United States will be using mobile banking within four years and that nearly 50 percent of iPhone and other smartphone users already use mobile financial services today. With 2010 being the year in which mobile banking broke into the mainstream, 2011 will be the year in which financial institutions will look to capitalize on the full potential of the mobile channel -- moving from basic user functionality to full mobile finance; or, "Your bank in your pocket." Where We Are Now (Mobile Banking 1.0) The majority of banks currently are in transition between their introductory mobile solutions and a second generation of offerings with greater capabilities. The introductory mobile offerings most banks deploy closely mirror users' online experiences. While this is a fraction of the full potential of the mobile channel, it is an essential stepping-stone to move users from the branch and online banking to their own handsets for financial interaction. While the mobile channel still is far from being definitively proven, consumers demand it. Banks are moving from oneway alerts and simple notifications to proactive content in the form of real-time, "actionable alerts." These are personalized, two-way alerts that enable customers to quickly and easily take action directly on their mobile devices in response to previously set alert thresholds or financial events as defined by

the consumer. For instance, if a customer's account balance falls below a predefined threshold, an actionable alert is sent to the customer, who can then instantly transfer funds by responding to the alert. Many financial industry analysts, including Javelin, believe that the delivery of real-time, two-way, transaction-driven alerts is one of the keys for financial institutions to provide value to their customers and to drive adoption and usage of mobile banking. Where We're Going mobile banking As mobile banking gives firms the ability to fully engage in conversations with customers through their mobile devices, coordination of a "business workflow" across different banking systems is required. In order to accomplish this, mobile banking providers must establish open ways to access these different sources of information. This "connectivity" is crucial to delivering fully mobile banking. By opening up the mobile channel to multiple back-end and third-party systems or networks such as VisaNet, mobile payments hubs such as CashEdge or PayPal, remote checkdeposit capture technologies such as those offered by Mitek, or contextual marketing systems capable of determining when to present offers, banks can capitalize on the full capabilities of the mobile phone as a consolidation point of all other existing bank channels -- e-mail, online, customer service, and mobilespecific SMS or push notification alerts. In order to provide authoritative value to customers and produce strong adoption (and with it, definitive ROI), thirdgeneration mobile banking solutions must empower institutions to use the mobile channel as an extension of and integrative point for existing technologies. This will instantly resolve consumer issues and complete tasks faster and more economically -- making alerts fully actionable. Many financial institutions and mobile vendors today, however, still are tied to basic core functionality, either because they developed a non-scalable, non-adaptable elementary mobile solution, or because they signed binding contracts with core financial technology providers in order to rush a baseline mobile solution to market. The smart mobile banking solutions of tomorrow must anticipate the future

expectations of consumers and recognize the potential that the mobile channel represents -- a technology set to increase customer loyalty and satisfaction via conversation creation. Traditional Banking system:Indian banking industry The banking industry in India has been in the process of transformation and consolidation ever since 1961. The Banking Regulation Act, 1949 empowers the regulator with the approval of the government to amalgamate weak banks with stronger ones. Majority of the mergers in India have been crafted to bail out weak banks to safeguard depositors interest and to protect the financial system. The report of the Committee on Banking Sector Reforms (the Second Narasimham Committee - 1998), however, discouraged this practice. It recommended a multi-tier banking system with existing banks to merge into 3-4 international banks at the topmost level, 8-10 nationalbanks engaged in universal banking at the next level and local and rural banks confined to specific regions. Strengths Liquidity: Liquidity has been a traditional strength of the Indian banking system. Banks are required to keep a stipulated proportion of their total demand and time liabilities in the form of liquid assets which affect their liquidity position. RBI has been easing the requirements with several roundsof reduction in the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR). Sound banking systems: The banking system in India has generally been stable and sound in terms of growth, asset quality and profitability. It is because of healthy, prudent and well capitalised policies and practices implemented by the RBI from time to time. The same is evident from the remarkable resilience of the Indian financial sector to the global financial turmoil which erupted during 2008-09. Weaknesses Competition from foreign banks: Foreign banks will be soon allowed to spread their business in India which will create intense competition for Indian banks. The RBI Report on Currency and Finance presents the view that mergers are the only way to face competition

from foreign banks. High cost of intermediation: Intermediation cost (operating expenses as a proportion of total assets), an indicator of competitiveness, is higher in India as compared to international levels. High level of fragmentation: There is a high level of fragmentation, especially among cooperative banks, as compared to some of the advanced economies of the world, which poses a serious threat to their profitability and viability in conducting business. About 1,00,000 entities in the cooperative sector share just 4 percent of the total banking assets in the economy. Lack of product differentiation: The financial products offered by banks in India are similar across the industry with no distinctive features, thereby leading to unhealthy competition. Low penetration: There is an uneven distribution of banking services in the country. It is limited to few customer segments and geographies only. Of the total 611 districts in the country, 375 districts are underbanked. There is a need for banks to open branches at these locations and establish connectivity with the help of a core banking solution. According to a report on banking sector consolidation by Ernst & Young, the country would require 11,600 branches by 2013 and an additional 20,300 branches by 2018 in order to achieve the desired penetration levels of 74 per cent and 81.5 per cent in 2013 and 2018 respectively.