A Project on Commercial Bank In India SUBMITTED BY Tejas Makwana Roll No : 51
T.Y.B.B.I. SEMESTER - V PROJECT GUIDE PROF. ARCHANA MAINKAR
SUBMITTED TO UNIVERSITY OF MUMBAI RAJASTHANI SAMMELAN'S Ghanshyamdas Saraf College of Arts & Commerce Affiliated to University of Mumbai Reaccredited by NAAC with 'A' Grade S.V. Road, Malad (West) Mumbai - 400064 A.Y. 2016 - 17 1
A Project on Commercial Bank in India SUBMITTED BY Tejas Makwana Roll No : 51
T.Y.B.B.I. SEMESTER - V PROJECT GUIDE PROF. ARCHANA MAINKAR
SUBMITTED TO UNIVERSITY OF MUMBAI RAJASTHANI SAMMELAN'S Ghanshyamdas Saraf College of Arts & Commerce Affiliated to University of Mumbai Reaccredited by NAAC with 'A' Grade S.V. Road, Malad (West) Mumbai - 400064 A.Y. 2016 - 17 2
RAJASTHANI SAMMELAN'S Ghanshyamdas Saraf College of Arts & Commerce Affiliated to University of Mumbai Reaccredited by NAAC with 'A' Grade S.V. Road, Malad (West) Mumbai - 400064 A.Y. 2016 - 17
CERTIFICATE This is to certify that Mr. Tejas Makwana Roll no : 51 of Third Year B.com (Banking & Insurance)
Semester
V
has
Successfully
completed the project on "COMMERCIAL BANK IN INDIA " under the guidance of Prof. Archana Mainkar in the Academic Year2016 2017
Project
Guide
Principal : Date :
3
:
External Examiner :
College
Seal : Date :
DECLARATION I, Tejas Makwana a Student of Ghanshyamdas Saraf College of Arts & Commerce, Malad (West) T.Y.B.Com (Banking & Insurance)
SEMESTER - V Hereby declare that I have
completed my project on "COMMERCIAL BANK IN INDIA" In the academic Year 2016-2017. This Information is true and original to the best of my knowledge.
Date
:
Signature of Student :
4
ACKNOWLEDGEMENT To list who all have helped me in difficult because they are so numerous and the depth is so enormous.
I
would
like
to
acknowledge
the
following
as being
idealistic
channels and fresh dimensions in the completion of this project.
I take this opportunity to thank the university
of Mumbai for
giving me chance to do this project.
I
would
like
to
thank
my
Principle
Dr.
Sujata
Karmakar
for
providing the necessary facilities required for completion of this project.
I take this opportunity to thank our Chief Coordinator Dr. Lipi Mukherjee and Course Coordinator Prof. Urvi Jain for their moral support and guidance.
5
I
would also like
Project
Guide
to express
Prof.
my
sincere
Archana Mainkar
gratitude
who's
towards
guidance
and
my care
made the project successful.
I would like to thank my College library, for having provided various references books and magazines related to my project.
INDEX
CHAPT ER 1
PARTICULARS
PAG E NO.
INDIAN BANKING SYSTEM 1.1 MEANING OF BANK
1
1.2 FEATURES OF BANK
1
1.3 TYPES OF BANK
4
6
2
COMMERCIAL BANK 9
2.1 INTRODUCTION
11
2.2 CLASSIFICATION OF COMMERCIAL BANKS 2.3
ADVANTAGES
&
DISADVANTAGES
OF
11
COMMERCIAL BANKING 2.4 FUNCTIONS OF COMMERCIAL BANKS 2.5 CREATION OF CREDIT 2.6 SERVICES OFFERED BY COMMERCIAL BANKS 2.7 POLICIES OFFERED BY COMMERCIAL BANKS
3
14 25 29 33
STATISTICAL DATA 3.1 Movement in assets, credit and deposit
38
growth of the SCBs 3.2 Growth in CASA deposits of the SCBs 3.3
Trend in maturity profile of assets and
liabilities 3.4 Maturity profile of select liabilities / assets of
40 41 42
the SCBs 3.5
39
Growth of select items of income and
expenditure
7
4
CASE STUDIES 4.1 HISTORY OF ICICI BANK
44
4.2 DIFFRENT TYPES OF LOAN PROVIDED BY ICICI
45
BANK
46
4.3 ARTICLE ON ICICI BANK 4.4 QUESTIONARIES 4.5 CONCLUSION
48 53 54
4.6 BIBIOLIOGRAPHY
54
4.7 REFRENCE
CHAPTER 1. INDIAN BANKING SYSTEM 1.1 MEANING OF BANK
A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers 8
that have capital deficits to customers with capital surpluses. The term bank is derived from the French word Bunco which means a Bench or Money exchange table. In olden days, European money lenders or money changers used to display (show) coins of different countries in big heaps (quantity) on benches or tables for the purpose of lending or exchanging.
1.2 CHARACTERISTICS / FEATURES
Dealing in Money:
Bank is a financial institution which deals with other people's money i.e. money given by depositors.
Individual / Firm / Company:
A bank may be a person, firm or a company. A banking company means a company which is in the business of banking.
Acceptance of Deposit:
A bank accepts money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of funds of its customers.
Giving Advances:
9
A bank lends out money in the form of loans to those who require it for different purposes.
Payment and Withdrawal:
A bank provides easy payment and withdrawal facility to its customers in the form of cheques and drafts; it also brings bank money in circulation. This money is in the form of cheques, drafts, etc.
Agency and Utility Services:
A bank provides various banking facilities to its customers. They include general utility services and agency services.
Profit and Service Orientation:
A bank is a profit seeking institution having service oriented approach.
Ever increasing Functions:
Banking is an evolutionary concept. There is continuous expansion and diversification as regards the functions, services and activities of a bank.
Connecting Link:
10
A bank acts as a connecting between borrowers
Saving Banks
link
and
Consumers Banks
Commercial Banks
lenders of money. Banks
collect
money
from
Industrial Banks / Developmen t Banks
Exchange Banks
those who have surplus and
money
give
same
to
the
Cooperative Banks
those
who are in need of money.
Land Developmen t Banks Central / Federal / National Bank
Indigenous Banks
Banking Business:
A bank's main activity should be to do business of banking which should not be subsidiary to any other business.
Name Identity:
A bank should always add the word "bank" to its name to enable people to know that it is a bank and that it is dealing in money.
11
1.3 TYPES OF BANK 1. Central Bank
Central Bank Export Import Bank
Commercial Banks
Developmen t Banks
Saving Banks
Rural Banking
Cooperative Banks
Indigenous Bankers
Specialized Banks
A central bank functions as the apex controlling institution in the banking and financial system of the country. It functions as the controller of credit, banker’s bank and also enjoys the monopoly of issuing currency on behalf of the government. A central bank is usually
12
control and quite often owned, by the government of a country. The Reserve Bank of India (RBI) is such a bank within an India. 2. Commercial Banks It operates for profit. It accepts deposits from the general public and extends loans to the households, the firms and the government. The essential characteristics of commercial banking are as follows: - Acceptance of deposits from public - For the purpose of lending or investment - Repayable on demand or lending or investment. Withdrawal by means of an instrument, whether a cheque or otherwise. Another distinguish feature of commercial bank is that a large part of their deposits are demand deposits withdraw able and transferable by cheque. 3. Development Banks It is considered as a hybrid institution which combines in itself the functions of a finance corporation and a development corporation. They also act as a catalytic agent in promoting balanced and viable development by assuming promotional role of discovering project ideas, undertaking feasibility studies and also provide technical, financial and managerial assistance for the implementation of project. In India ‘Industrial Development Bank on India’ (IDBI) is the unique example of development bank. It has been designated as the principal institution of the country for co-coordinating the working of the institutions engaged in financing, promoting or development of industry. 13
4. Co-operative Banks The main business of co-operative banks is to provide finance to agriculture. They aim at developing a system of credit. Agriculture finance is a special field. The co-operative banks play a useful role in providing cheap exit facilities to the farmers. In India there are three wings of co-operative credit system namely – (i) (ii) (iii) (iv)
Short term, Medium-term, Long term credit. The former has a three tier structure consisting of state
5. Specialized Banks These banks are established and controlled under the special act of parliament. These banks have got the special status. One of the major bank is ‘National Bank for Agricultural and Rural development’ (NABARD) established in 1982, as an apex institution in the field of agricultural and other economic activities in rural areas. In 1990 a special bank named small industries development Bank of India (SIDBI) was established. It was the subsidiary of Industrial development Bank of India. This bank was established for providing loan facilities, discounting and rediscounting of bills, direct assistance and leasing facility. 6. Indigenous Bankers That unorganized unit which provides productive, unproductive, long term, medium term and short term loan at the higher interest rate are known as indigenous bankers. These banks can be found everywhere in cities, towns, mandis and villages. 14
7. Rural Banking A set of financial institution engaged in financing of rural sector is termed as ‘Rural Banking’. the policy of financing of these banks has been designed in such a way so that these institution can play catalyst role in the process of rural development. 8. Saving Banks These banks perform the useful services of collecting small savings commercial banks also run “saving bank” to mobilize the savings of men of small means. Different countries have different types of savings bank viz. Mutual savings bank, Post office saving, commercial saving banks etc. 9. Export - Import Bank These banks have been established for the purpose of financing foreign trade. They concentrate their working on medium and longterm financing. The Export-Import Bank of India (EXIM Bank) was established on January 1, 1982 as a statutory corporation wholly owned by the central government. 10. Foreign Exchange Banks These banks finance mostly to the foreign trade of a country. Their main function is to discount, accept and collect foreign bulls of exchange. They also buy and self-foreign currencies and help businessmen to convert their money into any foreign currency they need. Over a dozen foreign exchange banks branches are working in India have their head offices in foreign countries. 15
11. International Banks The basic list of those International Banks within India which help the banking sector of India to develop in International market.
CHAPTER 2. COMMERCIAL BANKS 2.1 INTRODUCTION The Indian Government at the time established three Presidency banks, viz., the Bank of Bengal (established in 1809), the Bank of Bombay (established in 1840) and the Bank of Madras (established in 1843). After independence, the Government of India started taking steps to encourage the spread of banking in India. In order to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a statepartnered and state-sponsored bank taking over the Imperial Bank of India and integrating with it, the former state-owned and stateassociate banks. Accordingly, State Bank of India (SBI) was constituted in 1955. 16
Commercial banking is the most important part of modern banking set up. These days, the function of commercial banks are confined not only to advancing loans to the public and accepting their deposits, their contribution in accelerating the rate of economic development in under-developed and developing countries like that of India is very effective. Not only is that, banking highly effective and useful in the fulfillment of various socio-economic objectives of the Government. Commercial banking in India occupies an important place in the banking set-up of the country, these days. Up to, 1969, the operation and functioning of commercial banks in India was confined only to medium and large sized towns and economically rich people. Agriculture, small scale and cottage industries and rural areas were generally neglected by these banks. With the nationalization of commercial banks in 1969, now these priority sectors have started getting attention, with the result they get more credit and more branches of these banks are being opened in rural areas also.
MEANING OF COMMERCIAL BANKS Commercial Banks are like other financial institutions (e.g. money lenders, indigenous bankers, cooperative societies, agricultural and industrial credit institutions) which are in the business of lending and borrowing of money or credit. Commercial banks are an organization which normally performs certain financial transactions. It performs the twin task of accepting deposits from members of public and make advances to needy and worthy people from the society. 17
DEFINITIONS OF COMMERCIAL BANKS According to the Indian Banking Company Act 1949, "A banking company means any company which transacts the business of banking. Banking means accepting for the purpose of lending of investment of deposits of money from the public, payable on demand or other wise and withdraw able by cheque, draft or otherwise."
2.2 CLASSIFICATION OF COMMERCIAL BANKS 1. Scheduled banks : Banks which have been included in the Second Schedule of RBI Act 1934. They are categorized as follows:
Public Sector Banks : are those banks in which majority
of stake are held by the government. E.g. SBI, PNB, Syndicate Bank, Union Bank of India etc. Private Sector Banks : are those banks in which majority of stake are held by private individuals. E.g. ICICI Bank, IDBI Bank, HDFC Bank, AXIS Bank etc. Foreign Banks : are the banks with Head office outside the country in which they are located. E.g. Citi Bank, Standard Chartered Bank, Bank of Tokyo Ltd. etc. 2. Non-scheduled commercial bank s: Banks which are not included in the Second Schedule of RBI Act 1934.
18
2.3 ADVANTAGES & DISADVANTAGES OF COMMERCIAL BANKING ADVANTAGES : The following are the advantages of commercial banks in India: INVESTMENT : For any new business to get off the ground and begin operations there must be capital available that can be used to purchase necessary equipment and property. Commercial banks make this capital available to new entrepreneurs through the great number of loans that they provide. If it wasn't for the role that commercial banks play, capital for starting a business would only be available to the very rich. MORTGAGES : The flat price of a home is beyond the purchasing power of most people. Only through the creation of mortgages by commercial banks is the ability to purchase a house given to the average person. A mortgage involves a fixed series of annual payments to a bank over a long period of time in exchange for the bank paying the full price of the purchase in the short term. SAVINGS : Rather than merely keeping your money in a safe place, by placing your money in a bank account you add to your wealth as the bank pays interest on the amount. This has a further advantage for society at large: As money saved in the bank isn't merely dead capital but money that the bank is actively investing in other enterprises, it helps to grow the wealth of society overall. PAYMENT : Commercial banks have devised a number of ways to aid clients in the payment of their debts. The first paper currency was created by 19
commercial banks as issued credits on physical wealth, such as gold kept in bank vaults. Commercial bank customers can use checks as well as debit cards and online bill-paying services to make payments in a quick, easy way.
DISADVANTAGES : The Following are the Disadvantages of Commercial Banks in India: LOAN APPROVALS : One disadvantage of using a large, commercial bank can easily be seen if you're trying to get a loan. Unlike a local bank, or a relatively small bank, a larger, commercial bank will have to put a loan through several different departments. Beyond that, you may have to have dozens of people sign off on a single loan. This can lead to many more people getting involved in saying yes or no to your loan, and it may lead to a lot more negotiation than you were hoping to conduct. This is especially true for a simple, relatively straightforward home or business loan. RIGID STANDARDS : Another downside of using commercial banks is that they have very rigid standards more often than not. All banks have to follow the financial laws put forth by the U.S. government, but commercial banks may treat their own, additional rules as if they're set in stone. Again, this is most often seen in the loan process. Commercial banks, due to their size and the sheer volume of the market that they command, are
20
often less likely to make concessions to customers. This can lead to a very "my way or the highway" attitude from a commercial bank.
SECURITY : One of the biggest concerns that a person has with their bank is whether or not their money is insured. If you put $10,000 in a savings account, you want to be sure that money will be available, regardless of what expenses your bank has to deal with. This is why the U.S. government created FDIC insurance, which insures up to $100,000 worth of money (though it's more than $200,000 until 2013) per depositor so that those depositors can have faith in the bank.
2.4 FUNCTIONS OF COMMERCIAL BANKS 1. 2.
PRIMARY FUNCTIONS SECONDARY FUNCTIONS
PRIMARY FUNCTIONS Primary banking functions of the commercial banks include:
Acceptance of deposits Advancing loans Creation of credit Clearing of cheques Financing foreign trade Remittance of funds
21
1)
ACCEPTANCE OF DEPOSITS :
Accepting deposits is the primary function of a commercial bank mobilizes savings of the household sector. Banks generally accept three types of deposits viz., (a) Current Deposits (b) Savings Deposits, and (c) Fixed Deposits. Current Deposits: These deposits are also known as demand deposits. These deposits can be withdrawn at any time. Generally, no interest is allowed on current deposits, and in case, the customer is required to leave a minimum balance undrawn with the bank. Cheques are used to withdraw the amount. These deposits are kept by businessmen and industrialists who receive and make large payments through banks. The bank levies certain incidental charges on the customer for the services rendered by it. Savings Deposits: This is meant mainly for professional men and middle class people to help them deposit their small savings. It can be opened without any introduction. Money can be deposited at any time but the maximum cannot go beyond a certain limit. There is a restriction on the amount that can be withdrawn at a particular time or during a week. If the customer wishes to withdraw more than the specified amount at any one time, he has to give prior notice. Interest is allowed on the credit balance of this account. The rate of interest is greater than the rate of
22
interest on the current deposits and less than that on fixed deposit. This system greatly encourages the habit of thrift or savings. Fixed Deposits: These deposits are also known as time deposits. These deposits cannot be withdrawn before the expiry of the period for which they are deposited or without giving a prior notice for withdrawal. If the depositor is in need of money, he has to borrow on the security of this account and pay a slightly higher rate of interest to the bank. They are attracted by the payment of interest which is usually higher for longer period. Fixed deposits are liked by depositors both for their safety and as well as for their interest. In India, they are accepted between three months and ten years.
2) ADVANCING LOANS: The second primary function of a commercial bank is to make loans and advances to all types of persons, particularly to businessmen and entrepreneurs. Loans are made against personal security, gold and silver, stocks of goods and other assets. The most common way of lending is by Overdraft Facilities: In this case, the depositor in a current account is allowed to draw over and above his account up to a previously agreed limit. Suppose a businessman has only Rs. 30,000/- in his current account in a bank but requires Rs. 60,000/- to meet his expenses. He may approach his bank and borrow the additional amount of Rs. 30,000/-. The bank allows the 23
customer to overdraw his account through cheques. The bank, however, charges interest only on the amount overdrawn from the account. This type of loan is very popular with the Indian businessmen. Cash Credit: Under this account, the bank gives loans to the borrowers against certain security. But the entire loan is not given at one particular time, instead the amount is credited into his account in the bank; but under emergency cash will be given. The borrower is required to pay interest only on the amount of credit availed to him. He will be allowed to withdraw small sums of money according to his requirements through cheques, but he cannot exceed the credit limit allowed to him. Besides, the bank can also give specified loan to a person, for a firm against some collateral security. The bank can recall such loans at its option. Discounting Bills of Exchange: This is another type of lending which is very popular with the modern banks. The holder of a bill can get it discounted by the bank, when he is in need of money. After deducting its commission, the bank for a bank, they provide a very liquid asset which can be quickly turned into cash. The commercial banks can rediscount the discounted bills with the central banks when they are in need of money. These bills are safe and secured bills. When the bill matures the bank can secure its payment from the party which had accepted the bill. Money at Call:
24
Bank also grant loans for a very short period, generally not exceeding 7 days to the borrowers, usually dealers or brokers in stock exchange markets against collateral securities like stock or equity shares, debentures, etc., offered by them. Such advances are repayable immediately at short notice hence; they are described as money at call or call money. Term Loans: Banks give term
loans
to
traders,
industrialists
and
now
to
agriculturists also against some collateral securities. Term loans are socalled because their maturity period varies between 1 to 10 years. Term loans; as such provide intermediate or working capital funds to the borrowers. Sometimes, two or more banks may jointly provide large term loans to the borrower against a common security. Such loans are called participation loans or consortium finance. Consumer Credit: Banks also grant credit to households in a limited amount to buy some durable consumer goods such as television sets, refrigerators, etc., or to meet some personal needs like payment of hospital bills etc. Such consumer credit is made in a lump sum and is repayable in installments in a short time. Under the 20-point programme, the scope of consumer credit has been extended to cover expenses on marriage, funeral etc., as well. Miscellaneous Advances: Among other forms of bank advances there are packing credits given to exporters for a short duration, export bills purchased/discounted, 25
import finance-advances against import bills, finance to the selfemployed, credit to the public sector, and credit to the cooperative sector and above all, credit to the weaker sections of the community at concessional rates.
3) CREATION OF CREDIT: A unique function of the bank is to create credit. Banks supply money to traders and manufacturers. They also create or manufacture money. Bank deposits are regarded as money. They are as good as cash. The reason is they can be used for the purchase of goods and services and also in payment of debts. When a bank grants a loan to its customer, it does not pay cash. It simply credits the account of the borrower. He can withdraw the amount whenever he wants by a cheque. In this case, bank has created a deposit without receiving cash. That is, banks are said to have created credit. Sayers says “banks are not merely purveyors of money, but also in an important sense, manufacturers of money.” Promote the Use of Cheques: The commercial banks render an important service by providing to their customers a cheap medium of exchange like cheques. It is found much more convenient to settle debts through cheques rather than through the use of cash. The cheque is the most developed type of credit instrument in the money market. Financing Internal and Foreign Trade:
26
The bank finances internal and foreign trade through discounting of exchange bills. Sometimes, the bank gives short-term loans to traders on the security of commercial papers. This discounting business greatly facilitates the movement of internal and external trade. Remittance of Funds: Commercial banks, on account of their network of branches throughout the country, also provide facilities to remit funds from one place to another for their customers by issuing bank drafts, mail transfers or telegraphic transfers on nominal commission charges. As compared to the postal money orders or other instruments, bank drafts have proved to be a much cheaper mode of transferring money and have helped the business community considerably.
4) Promote the Use of Cheques: The commercial banks render an important service by providing to their customers a cheap medium of exchange like cheques. It is found much more convenient to settle debts through cheques rather than through the use of cash. The cheque is the most developed type of credit instrument in the money market. 5)Financing Internal and Foreign Trade: The bank finances internal and foreign trade through discounting of exchange bills. Sometimes, the bank gives short-term loans to traders on the security of commercial papers. This discounting business greatly facilitates the movement of internal and external trade. 6)Remittance of Funds:
27
Commercial banks, on account of their network of branches throughout the country, also provide facilities to remit funds from one place to another for their customers by issuing bank drafts, mail transfers or telegraphic transfers on nominal commission charges. As compared to the postal money orders or other instruments, bank drafts have proved to be a much cheaper mode of transferring money and have helped the business community considerably.
SECONDARY FUNCTIONS 1) AGENCY SERVICES : Banks also perform certain agency functions for and on behalf of their customers. The agency services are of immense value to the people at large. The various agency services rendered by banks are as follows: Collection and Payment of Credit Instruments: Banks collect and pay various credit instruments like cheques, bills of exchange, promissory notes etc., on behalf of their customers. Purchase and Sale of Securities: Banks purchase and sell various securities like shares, stocks, bonds, debentures on behalf of their customers. Collection of Dividends on Shares: Banks collect dividends and interest on shares and debentures of their customers and credit them to their accounts. Acts as Correspondent:
28
Sometimes banks act as representative and correspondents of their customers. They get passports, traveler’s tickets and even secure air and sea passages for their customers. Income-tax Consultancy: Banks may also employ income tax experts to prepare income tax returns for their customers and to help them to get refund of income tax. Execution of Standing Orders: Banks execute the standing instructions of their customers for making various periodic payments. They pay subscriptions, rents, insurance premium etc., on behalf of their customers. Acts as Trustee and Executor: Banks preserve the ‘Wills’ of their customers and execute them after their death. 2) GENERAL UTILITY SERVICES: In addition to agency services, the modern banks provide many general utility services for the community as given. Locker Facility: Bank provides locker facility to their customers. The customers can keep their valuables, such as gold and silver ornaments, important documents; shares and debentures in these lockers for safe custody. Traveler’s Cheques and Credit Cards: Banks issue traveler’s cheques to help their customers to travel without the fear of theft or loss of money. With this facility, the customers need not take the risk of carrying cash with them during their travels. 29
Letter of Credit: Letters of credit are issued by the banks to their customers certifying their credit worthiness. Letters of credit are very useful in foreign trade.
Collection of Statistics: Banks collect statistics giving important information relating to trade, commerce, industries, money and banking. They also publish valuable journals and bulletins containing articles on economic and financial matters. Acting Referee: Banks may act as referees with respect to the financial standing, business reputation and respectability of customers. Underwriting Securities: Banks underwrite the shares
and
debentures
issued
by
the
Government, public or private companies. Gift Cheques: Some banks issue cheques of various denominations to be used on auspicious occasions. Accepting Bills of Exchange on Behalf of Customers: Sometimes, banks accept bills of exchange, internal as well as foreign, on behalf of their customers. It enables customers to import goods.
Merchant Banking: Some commercial banks have opened merchant banking divisions to provide merchant banking services. 30
2.5 CREATION OF CREDIT A unique function of the bank is to create credit. Banks supply money to traders and manufacturers. They also create or manufacture money. Bank deposits are regarded as money. They are as good as cash. The reason is they can be used for the purchase of goods and services and also in payment of debts. When a bank grants a loan to its customer, it does not pay cash. It simply credits the account of the borrower. He can withdraw the amount whenever he wants by a cheque. In this case, bank has created a deposit without receiving cash. That is, banks are said to have created credit. Sayers says “banks are not merely purveyors of money, but also in an important sense, manufacturers of money.” Promote the Use of Cheques : The commercial banks render an important service by providing to their customers a cheap medium of exchange like cheques. It is found much more convenient to settle debts through cheques rather than through the use of cash. The cheque is the most developed type of credit instrument in the money market.
Financing Internal and Foreign Trade : The bank finances internal and foreign trade through discounting of exchange bills. Sometimes, the bank gives short-term loans to traders on the security of commercial papers. This discounting business greatly facilitates the movement of internal and external trade. Remittance of Funds : 31
Commercial banks, on account of their network of branches throughout the country, also provide facilities to remit funds from one place to another for their customers by issuing bank drafts, mail transfers or telegraphic transfers on nominal commission charges. As compared to the postal money orders or other instruments, bank drafts have proved to be a much cheaper mode of transferring money and have helped the business community considerably. LIMITATIONS OF CREDIT CREATION Commercial Banks though have the power to create credit, their powers are not unlimited. Certain points affect the process of credit creation. They are termed as limitations to credit creation by commercial banks. 1. Amount of Deposit The most important factor which decides credit creation is the amount of deposits made by the depositors. Higher is the amount of deposits; greater is the supply of credit and vice versa 2. Cash Reserve Ratio (CRR) There exists an indirect relationship between Credit Creation and Cash Reserve Ratio (CRR). Higher is the Cash Reserve Ratio (CRR) more will be the reserves to be maintained and less credit will be created by banks. The CRR is fixed by the RBI in India. It ranges between 3% to 15%. 3. Banking Habits of People If the banking habits of the people are well-developed, then all their transactions would be through banks, and this will lead to expansion of credit and vice-versa. 32
4. Supply of Securities Loans are sanctioned on the basis of the securities provided to the banks. If securities are available then the credit creation will be more and vice-versa. 5. Willingness of people to borrow Commercial banks may have enough money to lend. Customers should be willing to borrow from the banks to facilitate credit creation. If they are willing to borrow, then the credit created by banks will be less. 6. Monetary Policy of Central Bank While credit is created by commercial banks, it is controlled by the Central Bank. Credit control is one important function of the central bank. Central Bank uses various methods of Credit Control from time to time and thus influences the banks to expand or contract credit. 7. External Drain External Drain refers to withdrawal of cash from the banking system by the public. It lowers the reserves of the banks and limits the credit creation. 8. Uniform Policy If all the commercial banks follow a uniform policy related to CRR, then credit creation would be smooth. If some banks follow liberal and others follow a conservative one, then credit creation would be affected.
2.6 SERVICES OFFERED BY COMMERCIAL BANKS INTRODUCTION Commercial banks provide a variety of important products and services. In contrast to investment banks, which deal primarily with the 33
securities markets, commercial banks accept a variety of deposit types, make various kinds loans and provide other services including checking and savings accounts, credit cards, ATM networks, safe deposit boxes, and custodial and trustee services. TYPES OF SERVICES 1. PRIMARY SERVICES 2. SECONDARY SERVICES 1. PRIMARY SERVICES : Commercial banks also provide other services to businesses and consumers for which they earn various fees. These include investment advisory services, corporate finance consulting, custodial services for estates and trusts, safekeeping of securities and other valuable items, and money transfer services. Some of the different services available from commercial banks to its customers are :
Checking/Current account Savings accounts Internet/Mobile Banking ATM Cards Check Books Deposit Accounts Loans Credit Cards etc.
A bank cannot survive without performing the following nonbanking activities :
Banks help their customers to make utility payments with ease. They perform merchant banking for their customers. They provide factoring services to their clients. 34
They They They They
accounts. They offer credit and debit cards facility. They also offer leasing services. They give hire-purchase services to owners of various goods. They are now allowed to offer insurance services. They provide funds (capital) for starting new ventures.
manage mutual funds and minimize investment risks. issue gift cheques to the people. conduct feasibility study and submit the feasibility report. facilitate the share transactions by maintaining demat
2. SECONDARY SERVICES MODERN TECHNOLOGICAL SERVICES Technology : Banks in India have started using technology in a proactive manner. The huge number of bank customers and their myriad needs are being met in increasingly sophisticated ways. In a number of areas, the foreign banks and the new private sector banks have been the first movers in the application of technology, but public sector banks are also catching up. One major advantage that Indian banks have is the availability of major IT companies in India who are the world leaders in IT applications. Mobile Banking : Some banks have started offering mobile banking and tele-banking to customers. The expansion in the use and geographical reach of mobile phones has created new opportunities for banks to use this mode for banking transactions and also provide an opportunity to extend banking facilities to the hitherto excluded sections of the society. With ICICI Bank Mobile Banking, you can have following access through your mobile 35
Check your account balance Transfer funds 24 x 7 Pay your bills Book bus and flight tickets Recharge your prepaid mobile or DTH connection
Our Mobile Banking services work with almost all types of handsets and help you access your ICICI Bank account easily and securely. Internet Banking : Through its website, a bank may offer its customers online access to account information and payment and fund transfer facilities. The range of services offered differs from bank to bank depending mainly on the type and size of the bank. Internet banking is changing the banking industry and affecting banking relationships in a major way. The services provided through internet banking are:
Money manager Fund transfer Bills payment Quick pay Receive funds Prepaid mobile recharge
Electronic Banking : Electronic banking services provided by commercial banks include :
The maintenance and expansion of 24-hour ATM networks. Wire transfers. Banking websites that allow consumers and business to
obtain account information. Open new accounts. Order checks. 36
Transfer funds between accounts. Bill payments.
2.7 POLICIES OFFERED BY COMMERCIAL BANKS
INVESTMENT POLICY The financial position of a commercial bank is reflected in its balance sheet. The balance sheet is a statement of the assets and liabilities of the bank. The assets of the bank are distributed in accordance with certain guiding principles. These principles underline the investment policy of the bank. They are discussed below:
Liquidity : In the context of the balance sheet of a bank the term liquidity has two interpretations. First, it refers to the ability of the bank to honor the claims of the depositors. Second, it connotes the ability of the bank to convert its non-cash assets into cash easily and without loss. It is a well-known fact that a bank deals in funds belonging to the public. Hence, the bank should always be on its guard in handling these funds. The bank should always have enough cash to meet the demands of the depositors. In fact, the success of a bank depends to a considerable extent upon the degree of confidence it can instill in the minds of its depositors. If the depositors lose confidence in the integrity of their bank, the very existence of the bank will be at stake. So, the bank should always be prepared to meet the claims of the depositors by having enough cash. Among the various items on the 37
assets side of the balance sheet, cash on hand represents the most liquid asset. Next comes cash with other banks and the central bank. The order of liquidity goes on descending. Liquidity also means the ability of the bank to convert its non-cash assets into cash easily and without loss. The bank cannot have all its assets in the form of cash because each is an idle asset which does not fetch any return to the bank. So some of the assets of the bank, money at call and short notice, bills discounted, etc. could be made liquid easily and without loss.
Profitability :
A commercial bank by definition is a profit hunting institution. The bank has to earn profit to earn income to pay salaries to the staff, interest to the depositors, dividend to the shareholders and to meet the day-to-day expenditure. Since cash is the least profitable asset to the bank, there is no point in keeping all the assets in the form of cash on hand. The bank has got to earn income. Hence, some of the items on the assets side are profit yielding assets. They include money at call and short notice, bills discounted, investments, loans and advances, etc. Loans and advances, though the least liquid asset, constitute the most profitable asset to the bank. Much of the income of the bank accrues by way of interest charged on loans and advances. But, the bank has to be highly discreet while advancing loans. 38
Safety or Security :
Apart from liquidity and profitability, the bank should look to the principle of safety of its funds also for its smooth working. While advancing loans, it is necessary that the bank should consider the three ‘C’s of credit character, capacity and the collateral of the borrower. The bank cannot afford to invest its funds recklessly without considering the principle of safety. The loans and investments made by the bank should be adequately secured. For this purpose, the bank should always insist on security of the borrower. Of late, somehow or other the banks have not been paying adequate importance to safety, particularly in India.
Diversity :
The bank should invest its funds in such a way as to secure for itself an adequate and permanent return. And while investing its funds, the bank should not keep all its eggs in the same basket. Diversification of investment is necessary to avoid the dangerous consequences of investing in one or two channels. If the bank invest its funds in different types of securities or makes loans and advances to different objectives and enterprises, it shall ensure for itself a regular flow of income.
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Salability of Securities :
Further, the bank should invest its funds in such types of securities as can be easily marketed at a time of emergency. The bank cannot afford to invest its funds in very long term securities or those securities which are unsalable. It is necessary for the bank to invest its funds in government or in first class securities or in debentures of reputed firms. It should also advance loans against stocks which can be easily sold.
Stability in the Value of Investments :
The bank should invest its funds in those stocks and securities the prices of which are more or less stable. The bank cannot afford to invest its funds in securities, the prices of which are subject to frequent fluctuations.
Principles of Tax-Exemption of Investments :
Finally, the investment policy of a bank should be based on the principle of tax exemption of investments. The bank should invest in those government securities which are exempted from income and other taxes. This will help the bank to increase its profits. Of late, there has been a controversy regarding the relative importance of the 40
various principles influencing the investment policy of a bank particularly between liquidity and profitability. It is interesting to examine this controversy.
LENDING POLICY Types of Lending A. Fund based (Current & Fixed Assets)
Overdrafts Cash Credits Bills Finance – Demand or Usance Bills Demand Loans 5.Term Loans Other Loans - Car Loans, Consumer Durables, Educational
Loans, Housing Loans, Professionals Personal Loans, Credit Cards and so on… B. Non-Fund based (Fee based) C. Others
Issue of Guarantees Issue of Letters of Credit Deferred Payments Guarantees Lease Finance Hire Purchase Finance
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CHAPTER 3 : STATISTICAL DATA 3.1 Movement in assets, credit and deposit growth of the SCBs
The slowdown in growth in the balance sheets of banks witnessed since 2011-12 continued during 2014-15. The moderation in assets growth of scheduled commercial banks (SCBs) was mainly attributed to tepid growth in loans and advances to below 10 per cent (Chart 1). Growth in investments also slowed down marginally. The decline in credit growth reflected the slowdown in industrial growth, poor earnings growth reported by the corporate, risk aversion on the part of 42
banks in the background of rising bad loans and governance related issues. Further, with the availability of alternative sources, corporate also switched part of their financing needs to other sources such as external
commercial
borrowings
(ECBs),
corporate
bonds
and
commercial papers. On the liabilities side, growth in deposits and borrowings also declined signify cantly. Bank-group wise, public sector banks (PSBs) witnessed deceleration in credit growth in 2014-15; private sector banks (PVBs) and foreign banks (FBs), however, indicated higher credit growth.
3.2 Growth in CASA deposits of the SCBs
Growth in current account and saving account (CASA) deposits moderated due to decline in saving deposits which in turn got reflected in deceleration in overall deposit growth (Chart 2). Bank-group wise, 43
PSBs recorded decline in CASA deposits while PVBs and FBs recorded higher growth during 2014-15.
3.3 Trend in maturity profile of assets and liabilities
The
maturity
profile
of
liabilities
of
the
SCBs
witnessed
an
improvement during 2014-15 as the proportion of short-term liabilities declined and that of long-term liabilities increased. On the assets side, share of long-term assets declined and the share of short-term assets increased marginally (Chart 3). This can be seen in the light of risk 44
aversion on the part of banks in the backdrop of rising share of nonperforming loans. The proportion of long-term loans and advances declined to 27.3 per cent in 2014-15 from 28.9 per cent in the previous year (Chart 4).
3.4 Maturity profile of select liabilities / assets of the SCBs
The PSBs, however, had 52 per cent of their investments in more than 5 year maturity bracket during 2014-15 while investments of the PVBs 45
and FBs in that tenor, aggregated 30.4 per cent and 5.6 per cent, respectively.
3.5 Growth of select items of income and expenditure
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Both interest earnings and interest expended recorded a lower growth during 2014-15 as compared to the previous year. Interest earnings reflected the impact of slower credit growth. However, decline in interest income was marginally higher than interest expended. As a result, net interest income grew less than the previous year despite an improvement in the operating expenses (through reduction in the growth of wage bill). Also, the pace of increase in provisions and contingencies due to delinquent loans declined sharply. This led to an increase in net profits at the aggregate level by 10.1 per cent during 2014-15 as against a decline in net profits during the previous year.
Table 1 : ROA and ROE of SCBs – Bank-group wise
Bank group
Return on assets
Return on equity
Public sector banks 1.1 Nationalized
0.50 0.45
0.46 0.37
8.47 7.76
7.76 6.44
banks 1.2 State Bank Private sector banks Foreign banks All SCBs
0.63 1.65 1.54 0.81
0.66 1.68 1.87 0.81
10.03 16.22 9.03 10.68
10.56 15.74 10.24 10.42
Notes: Return on Assets = Net profit/Average total assets. Return on Equity = Net profit/Average total equity. * : Nationalized banks include IDBI Bank Ltd. Source: Annual accounts of banks and RBI staff calculations.
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CHAPTER 4. CASE STUDY ICICI BANK CASE STUDY
4.1 HISTORY ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 48
2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees. ICICI Bank is one of the Big Four banks of India, along with State Bank of India, Punjab National Bank and HDFC Bank. Loans provided by ICICI Banks : ICICI Bank offers wide variety of Loans Products to suit your requirements. Coupled with convenience of networked branches/ ATMs and facility of E-channels like Internet and Mobile Banking, ICICI Bank brings banking at your doorstep. Select any of our loan product and provide your details online and our representative will contact you for getting loans.
4.2 Different types of loans provided by ICICI Bank:
Home Loans
The No. 1 Home Loans Provider in the country, ICICI Bank Home Loans offers some unbeatable benefits to its customers - Doorstep Service, Simplified Documentation and Guidance throughout the Process. It's really easy!
Personal Loans 49
If you're looking for a personal loan that's easy to get, your search ends here. ICICI Bank Personal Loans are easy to get and absolutely hassle free. With minimum documentation you can now secure a loan for an amount up to Rs. 15 lakhs.
Car Loans
The most preferred financier for car loans in the country. Network of more than 1000 channel partners in over 200 locations. Tie-ups with all leading automobile manufacturers to ensure the best deals. Flexible schemes & quick processing. Hassle free application process on the click of a mouse.
Commercial Vehicle Loans
We have extended products like funding of new vehicles, finance on used vehicles, top up on existing loans, working capital loans & other banking products.
Loans against Securities
You don’t have to sell your securities. All you have to do is pledge your securities in favor of ICICI Bank. We will then grant you an overdraft facility up to a value determined on the basis of the securities pledged by you.
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4.3 Article on ICICI Bank ICICI Bank follow SBI; revise FD rates by up to 0.5 pc MUMBAI: Private sector banks like ICICI Bank and HDFC Bank on Wednesday reduced interest rates on fixed deposits by at least 50 basis point. The reduction in deposit rates comes at a time when the economy is slowing down and credit pick up is slack. One basis point is equal to one hundredth of a percentage. Last week, State Bank of India had reduced interest rate on deposits by as much as 100 basis points across maturities to maintain profitability after lowering lending rates. ICICI Bank has cut rates across maturities ranging from 91 days to less than five years. It now offers a maximum 8.75 per cent interest on retail term deposits compared to 9.25 per cent earlier. In the shorter tenure ranging between seven days to 45 days, however, the bank has increased rate by 50-75 basis points. A reduction in statutory reserve ratio, the amount of funds to be held in government bonds, by a percentage point is also help the banks lend Rs 15,000 crore more to corporate or retail customers. Deposits grew 14.1% year on year against RBI's projection of 16%. Pratip Chaudari, chairman State Bank of India had said, “As of now, we are surplus in deposit for SBI," said Chaudhuri. ""The challenge is more on pushing credit."" Also, the cut in SLR is providing some comfort. This is helping banks in meeting the credit demand, which is climbing marginally. Recent RBI data shows that credit has grown 16.7% year on year.
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We could see the private players now reduce lending rates to get competitive as many public sector banks like State Bank of India and Andhra Bank have cut rates on select retail products,'' said a banking analyst with a domestic brokerage. ICICI Bank is also doing this to maintain a healthy margin of over 3%,'' he added.
4.4 Questions Asked To the Branch Manager of ICICI Bank 1.
What is the Balance that is required for ICICI Savings
Account? - ICICI Savings account requires an Average Monthly Balance of Rs. 75,000 in a combination of savings account/ current account and fixed deposits including a minimum monthly balance of Rs. 25,000 in the savings account / current account or Smart Money facility with a minimum fixed deposit of Rs. 200,000. However, a "No Frills" Account can be opened with Zero balance. 2.
What is the Average Monthly Balance (AMB) required to
be maintained in the case of an ICICI Savings Account? How is the AMB calculated? - The minimum AMB required to be maintained for ICICI Savings Account is Rs. 75,000. The AMB is calculated by adding the end of day balances for each day in the month and dividing it by the number of days in that month.
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3.
Is
there
a
charge
for
non-maintenance
of
Average
Monthly Balance (AMB)? - There is a charge levied for non-maintenance of AMB. The charge is Rs. 250+ per month. You may please refer to our tariff on www.icici.co.in for further details on applicable charges. 4.
Do I need to give an advance notice for withdrawal of
cash beyond a limit from a branch? - Prior notice (normally 24 hours) is to be given to the branch from where the cash withdrawal is to be made for an amount greater than Rs.1, 00,000. 5.
How can I earn higher returns on funds in my Current /
Savings Account? - Currently, as per RBI regulations you earn interest at 4.00% p.a. (paid half yearly) on your Savings Account balances and NIL interest on your Current Account balances. However, if you choose, the moment your savings cross the required balance amount, the excess amount will get transferred to a Fixed Deposit, thereby earning you a higher rate of interest. 6.
Can I access my account when I am out of town /
travelling in India? - Yes, you can check both the balances in your account as well as your transaction history at any of our branches or ATMs. Moreover you can also apply for our Internet Banking or Phone Banking facility which will give you access to your account balances and other services anytime, anywhere. 53
7.
Can I withdraw cash in any other city where I do not have
a Current / Savings Account? - It is possible to withdraw cash using the debit card at any ICICI or non ICICI VISA ATM in India or overseas (a transaction fee is applicable for withdrawals from non-ICICI ATMs in India and from any ATM overseas). 8.
What if I need foreign exchange for my current account
transactions? - In respect of any other current account transaction please approach the branch with: A letter detailing and self-certifying the details of remittance and the beneficiary to whom it is being made. Supporting document detailing the nature of the transaction, value and beneficiary Complete the following forms given to you by the branch: Application in Form A2 signed by the remitter FEMA declaration Draft or Telegraphic transfer application form Once the Bank is satisfied with the nature of the transaction the Bank will be able to effect the remittance as required. While most transactions would be processed by the bank on the basis of the above, there could be situations that could call for supplementary information or reference to Reserve Bank. The Branch staff will guide you on this when they are contacted. 9.
Can I use my International credit/debit card to meet my
expenses? Your International/debit card can be put to good use on various occasions: While you are on holiday outside India to meet your expenses. 54
When you are outside India to purchase an item of import. When you are in India, to make a payment in foreign exchange for purchase of books and other items through Internet.
10.
I am having a Saving Bank / Current account with ICICI. I
want to register for Online ICICI now. What do I do? - By visiting the branch we can request for internet banking password. After 8 days we can access our account online. It passes through 3 channels:
Branch Phone-banking Internet banking
11. What is the present CRR & SLR in ICICI BANK? - CRR-4.5% & SLR-23%. 12. What is impact of IT development on commercial banks? - As it is in need to adopt supervision technology, it develops the transaction of banks faster. It is also convenient to customers, staff as well as experts. 13. How much % of loan is given against asset? - Maximum 85% of asset value is given by ICICI Bank. 14. Is the prime lending rate same for all types of loan? - It depends on the loan taken by the borrower. 15. How the NPA’s are managed? - The NPA’s are managed by experts. It’s not branch activity; it’s conducted by divisional head office. The managed activities of overall bank’s NPAs are under RBI guidelines.
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4.5 CONCLUSION : My study concludes that commercial banks form the most important part of financial intermediaries. It accepts deposits from the general public and extends loans to the households, firms and the government. Banks form a significant part of the infrastructure essential for breaking vicious circle of poverty and promoting economic growth. A commercial bank is a bank that operates with a profit earning goal i.e. a business bank while a non-commercial bank is a financial institution that operates with the aim of alleviating…banking on the development of bank-customer relationship in the value creation process. Banks are financial institutions that can make or break economy. Unsupervised and uncontrolled behavior from banks can spell doom to the economy and for the customers as well. Banks are the regular banks that provide basic banking facilities to its customers. I also conclude that I had done my field study on ICICI Bank as a commercial bank in India & collected many information related to its services, relations with customers and many more aspects. ICICI Bank provides a great customer service. They treat well to their customers,
be it a new or the older ones. They provide all types 56
of facilities under one roof. My family being a member of ICICI Bank is very much satisfied by the care they provide.
4.6 WEBLIOGRAPHY :
www.Scribd.Com
www.Slideshare.Net
www.indian.bank.com
www.commercialbank.com
www.rbi .com
4.7 BOOKS& REFERENCES :
International Banking & Insurance Innovation in Banking &Insurance
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