Indian Banking System

A PROJECT REPORT ON INDIAN BANKING SYSTEM SUBMITED TO

CENTRE FOR MANAGEMENT STUDIES GANPAT UNIVERSITY Mehsana- Gozariya Highway, Kherva Mehsana - 382711, INDIA Tele Fax : +91-2762-286080, 286924

In Practical Fulfillment of Academic Requirement of PGDBRI Program SUBMITED BY TAUSIF BAIG (01) HARSHAD PATEL (06) PGDBRI ACADEMIC YEAR: 2008-09 1 |Page

Acknowledgement To acknowledge all the persons who had helped for the fulfillment of the project is not possible for any researcher but in spite of all that it becomes the foremost responsibility of the researcher and also the part of research ethics to acknowledge those who had played a great role for the completion of the project. So in the same sequence at very first, I would like to acknowledge my parents because of whom I got the existence in the world for the inception and the conception of this project. Later on I would like to confer the flower of acknowledgement to Mrs. Akansha madam and other faculty members who taught me that how to do project through appropriate tools and techniques. Because IDBI bank has trusted me and given me a chance to do my integrated research study, I would like to give thanks to the organization and especially to Mr. Mahendra Sharma from the depth of my heart. Rest all those people who helped me are not only matter of acknowledgment but also authorized for sharing my success.

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Preface Decision making is a fundamental part of the research process. Decisions regarding that what you want to do, how you want to do, what tools and techniques must be used for the successful completion of the project. In fact it is the researcher’s efficiency as a decision maker that makes project fruitful for those who concern to the area of study. Basically when we are playing with computer in every part of life, I used it in my project not for the ease of my but for the ease of result explanation to those who will read this project. The project presents the role of financial system in life of persons. I had toiled to achieve the goals desired. Being a neophyte in this highly competitive world of business, I had come across several difficulties to make the objectives a reality. I am presenting this hand carved efforts in black and white. If anywhere something is found not in tandem to the theme then you are welcome with your valuable suggestions.

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Executive Summary Banking Industry which is basically my concern industry around which my project has to be revolved is really a very complex industry. And to work for this was really a complex and hectic task and few times I felt so frustrated that I thought to left the project and go for any new industry and new project. Challenges which I faced while doing this project were following-

Banking sector was quite similar in offering and products and because of that it was very difficult to discriminate between our product and products of the competitors.

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Sensitivity of the industry was also a very frequent factor which was very important to measure correctly.

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Area covered for the project while doing job also was very large and it was very difficult to collect right information for report.

So above challenges some time forced me to leave the project but any how I did my project in all circumstances. Basically in this project I analyzed thatWhat factors are really responsible for performance of ICICI Bank’s performance in this competitive era?

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INDEX PREFACE………………………………………………………….2 Acknowledgement…………………………………………………3 EXECUTIVE OVERVIEW…………………………………………….4

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Particular INDIAN BANKING SYSTEM History of Indian banking system Learning objectives The meaning of ‘bank’ Banking system of India private banks in India Indian banks’ operation abroad Local area banks(LAB) Pre-reforms development Lead bank scheme Co-operative banks Regional rural bank(RRB) Some important financial institution National bank for agriculture and rural development(NABARD) Export import bank of India(EXIM Bank) National housing bank(NHB) Housing and urban development corporation ltd(HUDCO) Housing development finance corporation(HDFC) Industrial development bank of India(IDBI) Industrial finance corporation of India(IFCI)Ltd. Industrial investment bank of India(IRBI) Industrial credit and investment corporation of India(ICICI) Small industries development bank of India Infrastructure development finance co.(IDFC) Life insurance corporation of India General insurance corporation of India UTI Deposit insurance and credit guarantee corporation limited Credit guarantee fund trust for small industries Export credit guarantee corporation of India limited Current situation Conclusion

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Page no. 6 9 9 10 11 11 12 12 13 14 15 15 16 17 18 19 20 20 21 22 23 25 26 27 28 29 30 35

History of Banking in India Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends With the nationalization of 14 major private banks of India. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

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Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

The Bank of Bengal which later became the State Bank of India To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase-III. Phase-I the General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935. During those day’s public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders. Phase II Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle

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banking transactions of the Union and State Governments all over the country. Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: • • • • • • • •

1949: 1955: 1959: 1961: 1969: 1971: 1975: 1980:

Enactment of Banking Regulation Act. Nationalization of State Bank of India. Nationalization of SBI subsidiaries. Insurance cover extended to deposits. Nationalization of 14 major banks. Creation of credit guarantee corporation. Creation of regional rural banks. Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Phase -III This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.

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LERNING OBJECTIVES THE MEANING OF BANK

From the Italian banca meaning 'bench', the table at which a dealer in money worked. A bank is now a financial institution which offers savings and cheque accounts, makes loans and provides other financial services, making profits mainly from the difference between interest paid on deposits and charged for loans, plus fees for accepting bills and other services. Other relevant legislation includes the Banks (Shareholdings) Act and the Reserve Bank Act.

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The Reserve Bank Act gives the Reserve Bank of Australia (the central bank) a wide range of powers over the banking sector. BANKING SYSTEM OF INDIA

Modern banking in India is said to be developed during the British era. In the first half of the 19th century, the British East India Company established three banks – the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843. But in the course of time these three banks were amalgamated to a new bank called Imperial Bank and later it was taken over by the State Bank of India in 1955. Allahabad Bank was the first fully Indian owned bank. The Reserve Bank of India was established in 1935 followed by other banks like Punjab National Bank, Bank of India, Canara Bank and Indian Bank. In 1969, 14 major banks were nationalized and in 1980, 6 major private sector banks were taken over by the government. Today, commercial banking system in India is divided into following categories.

Types of Banks Central Bank The Reserve Bank of India is the central Bank that is fully owned by the Government. It is governed by a central board (headed by a Governor) appointed by the Central Government. It issues guidelines for the functioning of all banks operating within the country.

Public Sector Banks Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks which were nationalized on July 19, 1969. Its predecessor, in the Public Sector Banks, the United Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932). a. State Bank of India and its associate banks called the State Bank Group b. 20 nationalized banks c. Regional rural banks mainly sponsored by public sector banks

Private Sector Banks Private banking in India was practiced since the beginning of banking system in India. The first private bank in India to be set up in Private Sector Banks in India was IndusInd Bank. It is one of the fastest growing Bank Private Sector

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Banks in India. ING Vysya, yet another Private Bank of India was incorporated in the year 1930. a. b. c. d.

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Old generation private banks New generation private banks Foreign banks operating in India Scheduled co-operative banks Non-scheduled banks

Co-operative Sector The co-operative sector is very much useful for rural people. The cooperative banking sector is divided into the following categories. a. State co-operative Banks b. Central co-operative banks c. Primary Agriculture Credit Societies Development Banks/Financial Institutions •

IFCI

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IDBI

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ICICI

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IIBI

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SCICI Ltd.

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NABARD

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Export-Import Bank of India

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National Housing Bank

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Small Industries Development Bank of India

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North Eastern Development Finance Corporation

INDIAN BANKS’ OPERATIONS ABROAD 12 | P a g e

As on October 20,2005,fourteen Indian banks-nine from the public sector and five from the private sector had operation overseas spread across 42 countries with a network of 101 branches,6 joint ventures,17 subsidiaries and representative offices. • HDFC Bank • Punjab National Bank • ICICI Bank • Andhra Bank • SBI Bank • Corporation Bank • AXIS Bank • Allahabad Bank • Yes Bank • Karur Vysya Bank career page • Indian Overseas • Canara Bank Bank • Kotak Mahindra Bank • Federal Bank for carees clicks • Syndicate Bank here. • State Bank of Mysore Besides these branches, Indian commercial banks are having representative offices in USA, Brazil, Indonesia, Iran, Egypt, Russia, Italy, Zimbabwe, China, Uzbekistan, Philippines and Vietnam. Indian commercial banks are also having wholly-owned subsidiaries and joint ventures in USA, Canada, Zambia, Nigeria, Uganda, Bhutan, Mauritius, Kenya and Nepal.

LOCAL AREA BANKS The Local Area Bank Scheme was introduced in August 1996 aimed at bridging the gaps in credit availability and enhancing the institutional credit framework in the rural and semi urban areas and providing efficient and competitive services. Since then, five LABs have been established. The review group, which was appointed by RBI in July 2002 to study and make recommendations on the LABs scheme, has in its report, drawn attention to the structural infirmities in the concept of the LABs and recommended that there, should be no licensing of new LABs. It has pointed out several weaknesses in the concept of the Local Area Bank model, particularly in regards to size, capital base and inherent inability to absorb the losses in the course of business etc. Four LABS were functional at end-march 2005. They were

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Coastal area bank ltd, Vijayawada, Andhra Pradesh, Capital local area bank ltd,phagwara,Navsari,Gujrat,

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Krishna bhima samrudhdhi local area bank limited , Mehboob Nagar,

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Subhadra local area bank limited, Kolhapur.

LEAD BANK SCHEME The Lead Bank Scheme, introduced towards the end of 1969, envisages assignment of lead roles to individual banks (both in public sector and private sector) for the districts allotted to them. A bank having a relatively large network of branches in the rural areas of a given district and endowed with adequate financial and manpower resources has generally been entrusted with the lead responsibility for that district. Accordingly, all the districts in the country (excepting the metropolitan cities) have been allotted to various banks. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, small-scale industries and other economic activities included in the priority sector in the rural and semi-urban areas, with the district being the basic unit in terms of geographical area. The Bank has been assigned lead responsibility in respect of 140 districts out of the total 564 districts across the country. The Bank disbursed loans to the different sectors aggregating Rs.2, 033 crore in lead districts and has achieved 104% of the annual outlay for the year ended March 2004 as against 90% by All Financial Institutions. The Bank also disbursed loan aggregating Rs.11, 552 crores in the non-lead districts to various sectors and has achieved 92% of the annual outlay State Level Bankers' Committees are formed in all the States for inter-institutional coordination and joint implementation of programmes and policies by all the financial institutions operating in the State. Responsibility for convening State Level Bankers’ Committee (SLBC) meetings has been assigned to various commercial banks.

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CO- OPERATIVE BANKS The Co-operative banks have a history of almost 100 years. The Co-operative banks are an important constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill, their number, and the number of offices they operate. The cooperative movement originated in the West, but the importance that such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even today, and their business in the urban areas also has increased phenomenally in recent years mainly due to the sharp increase in the number of primary co-operative banks. While the co-operative banks in rural areas mainly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities, the cooperative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc. Some of the co-operative banks are quite forward looking and have developed sufficient core competencies to challenge state and private sector banks. Though registered under the Co-operative Societies Act of the Respective States (where formed originally) the banking related activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed by the Banking Regulations Act 1949 and Banking Laws (Cooperative Societies) Act, 1965.

Regional Rural Banks in India Rural banking in India started since the establishment of banking sector in India. Rural Banks in those days mainly focused upon the agro sector. Regional rural banks in India penetrated every corner of the country and extended a helping hand in the growth process of the country. SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI are spread in 13 states extending from Kashmir to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional Rural Banks in India

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branches is 2349 (16%). Till date in rural banking in India, there are 14,475 rural banks in the country of which 2126 (91%) are located in remote rural areas. Apart from SBI, there are other few banks which functions for the development of the rural areas in India. Few of them are as follows.

Some important financial institution NABARD National Bank for Agriculture and Rural Development (NABARD) is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts. It also finances rural crafts and other allied rural economic activities to promote

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integrated rural development. It helps in securing rural prosperity and its connected matters. NABARD's credit functions cover planning, dispensation and monitoring of credit. This activity involves: • Framing policy and guidelines for rural financial institutions • Providing credit facilities to issuing organizations • Preparation of potential-linked credit plans annually for all districts for identification of credit potential • Monitoring the flow of ground level rural credit

Major Activities • Preparing of Potential Linked Credit Plans for identification of exploitable potentials under agriculture and other activities available for development through bank credit. • Refinancing banks for extending loans for investment and production purpose in rural areas. • Providing loans to State Government/Non Government Organizations (NGOs)/Panchayati Raj Institutions (PRIs) for developing rural infrastructure. • Supporting credit innovations of Non Government Organizations (NGOs) and other non-formal agencies. • Extending formal banking services to the unreached rural poor by evolving a supplementary credit delivery strategy in a cost effective manner by promoting Self Help Groups (SHGs) • Promoting participatory watershed development for enhancing productivity and profitability of rain fed agriculture in a sustainable manner. • On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site surveillance over health of cooperatives and RRBs.

Export Import Bank of India 17 | P a g e

Export Import Bank of India is also known as Exim Bank of India and was established by an Act passed by the Indian Parliament in September, 1981. Export Import Bank of India is fully owned by the Indian government and it started its operations in March, 1982. The major objectives of Export Import Bank of India are to provide economic assistance to importers and exporters and to function as the apex financial institution. Its services include export credit, overseas investment finance, agri & SME finance, film finance and finance for units that are export oriented. The total amount of loans disbursed by Export Import Bank of India amounted to Rs. 150,389 million in 2005- 2006 and in the following year, this figure increased to Rs. 220760 million. The net profit of the Bank came to around Rs. 2707 million in 2005- 2006. In the following year this figure increased to Rs. 2994 million. The head office of Export Import Bank of India is located in Mumbai and its regional offices are located at Pune, Kolkata, Hyderabad, New Delhi, Bangalore, Chennai and Ahmadabad. The Bank's overseas offices are located at London, Washington D.C., Dakar, Dubai, Singapore and Johannesburg.

National Housing Bank India The National Housing Bank (NHB) was established on 9th July 1988 the National Housing Bank Act, 1987 to function as a principal agency to promote Housing Finance Institutions and to provide financial and other support to such institutions. The National Housing Bank Act empowers National Housing Bank or NHB to: o

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

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Provide loans, advances or any other financial assistance to Banks and housing finance institutions for slum improvement Supervise mobilization of resources and extension of credit for housing

NHB has the main objective of promoting a network of highly efficient and dedicated housing finance institutions to cater to the finance needs from various regions and income groups. In order to upgrade the housing stock in the country, National Housing Bank undertakes augmentation of supply of buildable land and building materials. Besides raising resources for the housing sector, NHB also provides refinance to major housing finance institutions. All the Housing Finance Companies registered with the National Housing Bank are eligible for refinance support from NHB if they have net owned funds of minimum Rs. 10.0 crores. National Housing Bank has contributions in equity capital of five Housing Finance Companies (HFC). Along with the HFC's, National Housing Bank also engages in direct lending to state housing boards and development authorities. It also provides financial assistance to people affected by natural calamities like earthquake, flood, cyclones etc.

HOUSING AND URBAN DEVELOPMENT CORPORATION LTD. (HUDCO)

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HUDCO - Housing And Urban Development Corporation Ltd was incorporated on 25th April 1970. HUDCO India was formed to assist various agencies and authorities in upgrading the housing conditions in the country. Special emphasis was laid on the development of housing facilities or HUDCO Niwas Yojana for the lower income group (LIG) and the economically weaker sections (EWS) of the society. Starting with an initial equity base of Rs. 2 crores, HUDCO India has a net worth of Rs. 3977 crores today. HUDCO Inc primarily aims to provide financing for housing developments. HUDCO Financial Services are the task of HUDCO Bank that has mobilized finances from: o o o o

Financing institutions like LIC, GIC and other banking institutions International assistance from KfW, JBIC, ADB, USAID etc. Market borrowings through debentures, taxable and tax-free bonds Public deposits

HUDCO has been associated with not just housing development but the overall infrastructure development assistance. The activity areas of HUDCO include: HOUSING o o o o o o o o o o

Urban housing Rural housing Staff rental housing Repairs and renewal Shelter and sanitation facilities for footpath dwellers Workingwomen ownership condominium housing Housing through private builders/ joint sector Individual HUDCO housing loans and HUDCO home loan for construction and renovation through 'HUDCO Niwas' Land acquisition Valmiki Ambedkar Awas Yojana (VAMBAY)

HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC) Objectives & Background

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FOCUS Until the establishment of ICICI in 1956 and IDBI in 1964, IFCI remained solely responsible for implementation of the government’s industrial policy initiatives. It made a significant contribution to the modernization of Indian industry, export promotion, import substitution, pollution control, energy conservation and generation through commercially viable and market- friendly initiatives. Some sectors that have directly benefited from IFCI include: Agro-based industry (textiles, paper, sugar)  

Service industry (hotels, hospitals) Basic industry (iron & steel, fertilizers, basic chemicals, cement)

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Capital & intermediate goods industry (electronics, synthetic fibers, synthetic plastics, miscellaneous chemicals) and Infrastructure (power generation, telecom services)

IFCI’s economic contribution can be measured from the following: 1. Cumulatively, IFCI has sanctioned financial assistance of Rs 462 billion to 5707 concerns and disbursed Rs 444 billion since inception. 2. In the process, IFCI has catalyzed investments worth Rs 2,526 billion in the industrial and infrastructure sectors. 3. By way of illustration, IFCI’s assistance has been helped create production capacities of:

Industrial Investment Bank of India Ltd. The industrial investment bank of India is one of oldest banks in India. The Industrial Reconstruction Corporation of India Ltd., set up in 1971 for rehabilitation of sick industrial companies, was reconstituted as Industrial Reconstruction Bank of India in 1985 under the IRBI Act, 1984. With a view to converting the institution into a full-fledged development financial institution, IRBI was incorporated under the

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Companies Act, 1956, as Industrial Investment Bank of India Ltd. (IIBI) in March 1997. IIBI offers a wide range of products and services, including term loan assistance for project finance, short duration non-project asset-backed financing, working capital/ other short-term loans to companies, equity subscription, asset credit, equipment finance as also investments in capital market and money market instruments. In view of certain structural and financial problems adversely impacting its long-term viability, IIBI submitted a financial restructuring proposal to the Government of India on July 25, 2003. IIBI has since received certain directives from the Government of India, which, inter alias, include restricting fresh lending to existing clients approved cases rated corporate, restrictions on fresh borrowings, an action plan to reduce the overhead expenditure, disposal of fixed assets and a time-bound plan for asset recovery/reconstruction. The Government of India has also given its approval for the merger of IIBI with IDBI and the latter has already started the due diligence process.

INDUSTRIAL Credit and Investment Corporation of India (ICICI) 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 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. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates

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like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from nonJapan Asia to be listed on the NYSE. ICICI Bank is India's second-largest bank with total assets of Rs. 3,744.10 billion (US$ 77 billion) at December 31, 2008 and profit after tax Rs. 30.14 billion for the nine months ended December 31, 2008. The Bank has a network of 1,416 branches and about 4,644 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA

Small Industries Development Bank of India [SIDBI] as the principal financial institution for promotion, financing and development of industry in the small scale sector, has been assisting the entire spectrum of the SSI sector, including the Tiny, Village and Cottage industries. During the year 2002-03, the aggregate sanctions and disbursements of SIDBI amounted to Rs.10904 crore and Rs.6789 crore respectively. Cumulative assistance, as at the end of March 2003, surged to Rs.86, 158 crore in terms of sanctions and at Rs.59, 101 crore of disbursements, thus recording a compounded annual growth rate of 13.4 % and 11.4 % respectively. Net worth of the Bank is Rs.4075 crore as at the end of March 2003.

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About SIDBI Small Industries Development Bank of India (SIDBI) was established in April 1990 under an Act of Indian Parliament as the principal financial institution for: - Promotion - Financing - Development of industry in the small scale sector and - Co-ordinating the functions of other institutions engaged in similar activities The bank provides its services through a network of 49 offices located all over India.

Current Scenario SIDBI runs several financing for Small and Medium Enterprises (SMEs) schemes across the Following broad areas: ♦ Direct Finance ♦ Bills Finance ♦ Refinance ♦ International Finance ♦ Promotion and Development ♦ Micro-finance SIDBI's financial assistance for professionals is available through commercial banks, state financial corporations and state investment corporations. You may please approach your banker, SFC or SIDC located in your region for further details of the scheme of assistance.

INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED (IDFC) IDFC was established in 1997 as a private sector enterprise by a consortium of public and Private investors. IDFC operates as a professionally managed commercial entity with the Objective of maximizing shareholder value. Its expertise in the infrastructure sector and strong

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Relationships with government and infrastructure sponsors provides it with a platform for Facilitating private investment and public-private partnerships in infrastructure projects in Sectors where market structures, government policy and regulation are evolving. IDFC is a Specialized intermediary in infrastructure financing. It not only provides project finance but Also arranges and facilitates the flow of private capital to infrastructure development by Creating appropriate structures and financing vehicles for a wide range of market participants. IDFC formed one of the first infrastructure focused private equity funds in India and played A key role in introducing innovative structures like take-out financing that enabled the Participation of a broader section of lenders and investors in infrastructure financing. Its clients include prominent participants in infrastructure development in India. Its product portfolio caters to the diverse needs of these clients across all layers of the capital structure. IDFC’s mission is to be India’s specialist infrastructure financier across the entire Infrastructure value chain by creating a strong platform that combines businesses that offer high return on equity with more traditional lending-related businesses. IDFC is focused on Enhancing shareholder value by pursuing strategies that enhance its profitability, return on Assets and return on equity. In the last five years, IDFC’s loan book and balance sheet have grown by 50% per annum And 40% per annum respectively. Today IDFC is already the single largest debt & equity Financier of privately sponsored infrastructure in the country. It has a balance sheet of US$ 4.3 billion and US$ 630 million of third party equity capital under management for Deployment only in the Indian infrastructure space.

LIFE INSURANCE CORPORATION (LIC)

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The story of insurance is probably as old as the story of mankind. The same instinct that prompts modern businessmen today to secure themselves against loss and disaster existed in primitive men also. They too sought to avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era – past few centuries – yet its beginnings date back almost 6000 years. Life Insurance in its modern form came to India from England in the year 1818. Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian Soil. All the insurance companies established during that period were brought up with the purpose of looking after the needs of European community and Indian natives were not being insured by these companies. However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But Indian lives were being treated as sub-standard lives and heavy extra premiums were being charged on them. Bombay Mutual Life Assurance Society heralded the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal rates. Starting as Indian enterprise with highly patriotic motives, insurance companies came into existence to carry the message of insurance and social security through insurance to various sectors of society. Bharat Insurance Company (1896) was also one of such companies inspired by nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies established during the same period. Prior to 1912 India had no legislation to regulate insurance business. In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary. But the Act

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discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage. LIC has been one of the pioneering organizations in India who introduced the leverage of Information Technology in servicing and in their business. Data pertaining to almost 10 crore policies is being held on computers in LIC. We have gone in for relevant and appropriate technology over the years. 1964 saw the introduction of computers in LIC. Unit Record Machines introduced in late 1950’s were phased out in 1980’s and replaced by Microprocessors based computers in Branch and Divisional Offices for Back Office Computerization. Standardization of Hardware and Software commenced in 1990’s. Standard Computer Packages were developed and implemented for Ordinary and Salary Savings Scheme (SSS) Policies.

Objective of LIC

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Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost.

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Maximize mobilization of people's savings by making insurance-linked savings adequately attractive.

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Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return.

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Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders.

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Act as trustees of the insured public in their individual and collective capacities.

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Meet the various life insurance needs of the community that would arise in the changing social and economic environment.

•

Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy.

•

Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

GENERAL INSURANCE CORPORATION (GIC) The entire general insurance business in India was nationalized by General Insurance Business (Nationalization) Act, 1972 (GIBNA). The Government of India (GOI), through Nationalization took over the shares of 55 Indian insurance companies and the undertakings of 52 insurers carrying on general insurance business. General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of GIBNA. It was incorporated on

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22 November 1972 under the Companies Act, 1956 as a private company limited by shares. GIC was formed for the purpose of superintending, controlling and carrying on the business of general insurance. As soon as GIC was formed, GOI transferred all the shares it held of the general insurance companies to GIC. Simultaneously, the nationalized undertakings were transferred to Indian insurance companies. After a process of mergers among Indian insurance companies, four companies were left as fully owned subsidiary companies of GIC (1) National Insurance Company Limited, (2) The New India Assurance Company Limited, (3) The Oriental Insurance Company Limited, and (4) United India Insurance Company Limited The next landmark happened on 19th April 2000, when the Insurance Regulatory and Development Authority Act, 1999 (IRDAA) came into force. This act also introduced amendment to GIBNA and the Insurance Act, 1938. An amendment to GIBNA removed the exclusive privilege of GIC and its subsidiaries carrying on general insurance in India. In November 2000, GIC is refortified as the Indian Reinsurer and through administrative instruction; its supervisory role over subsidiaries was ended. With the General Insurance Business (Nationalization) Amendment Act 2002 (40 of 2002) coming into force from March 21, 2003 GIC ceased to be a holding company of its subsidiaries. Their ownership were vested with Government of India GICs play an important role in a balanced portfolio because of the security they offer. GICs provide a secure way to save for short-term goals, like a vacation, or for longer-term plans, like buying a house or retirement. Either way, a GIC is a sound investment option.

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When you buy a GIC, you invest a sum of money for a specific term, or period of time. At the end of that term, you are guaranteed to receive your full principal - your initial investment - plus interest income on your money.

UTI Jan 14, 2003 is when UTI Mutual Fund started to pave its path following the vision of UTI Asset Management Company Limited, who has been appointed by the UTI Trustee Pvt. Limited Co. for managing the schemes of UTI Mutual Fund and the schemes transferred/migrated from the erstwhile Unit Trust of India. The UTI Asset Management Company provides professionally managed back office support for all business services of UTI Mutual Fund in accordance with the provisions of the Investment Management Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of the schemes. State-of-the-art systems and communications are in place to ensure a seamless flow across the various activities undertaken by UTIMF. UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers) Regulations, 1993 on 3rd February 2004, for undertaking portfolio management services and also acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI International Limited, registered in Guernsey, Channel Islands.

Vision to be the most Preferred Mutual Fund. Our mission is to make UTI Mutual Fund: • The most trusted brand, admired by all stakeholders • The largest and most efficient money manager with global presence • The best in class

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customer service provider • The most preferred employer • The most innovative and best wealth creator • A socially responsible organization known for best corporate governance

Deposit insurance and credit Guarantee Corporation limited The concept of insuring deposits kept with banks received attention for the first time in the year 1948 after the banking crises in Bengal. The question came up for reconsideration in the year 1949, but it was decided to hold it in abeyance till the Reserve Bank of India ensured adequate arrangements for inspection of banks. Subsequently, in the year 1950, the Rural Banking Enquiry Committee also supported the concept. Serious thought to the concept was, however, given by the Reserve Bank of India and the Central Government after the crash of the Palai Central Bank Ltd., and the Laxmi Bank Ltd. in 1960. The Deposit Insurance Corporation (DIC) Bill was introduced in the Parliament on August 21, 1961. After it was passed by the Parliament, the Bill got the assent of the President on December 7, 1961 and the Deposit Insurance Act, 1961 came into force on January 1, 1962. The Deposit Insurance Scheme was initially extended to functioning commercial banks only. This included the State Bank of India and its subsidiaries, other commercial banks and the branches of the foreign banks operating in India. Since 1968, with the enactment of the Deposit Insurance Corporation (Amendment) Act, 1968, the Corporation was

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required to register the 'eligible co-operative banks' as insured banks under the provisions of Section 13 A of the Act. Effective from April 1, 1981, the Corporation extended its guarantee support to credit granted to small scale industries also, after the cancellation of the Government of India's credit guarantee scheme. With effect from April 1, 1989, guarantee cover was extended to the entire priority sector advances, as per the definition of the Reserve Bank of India. However, effective from April 1, 1995, all housing loans have been excluded from the purview of guarantee cover by the Corporation.

Legal

Framework/Objective

The functions of the DICGC are governed by the provisions of 'The Deposit Insurance and Credit Guarantee Corporation Act, 1961' (DICGC Act) and 'The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961' framed by the Reserve Bank of India in exercise of the powers conferred by sub-section (3) of Section 50 of the said Act. The preamble of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 states that it is an Act to provide for the establishment of a Corporation for the purpose of insurance of deposits and guaranteeing of credit facilities and for other matters connected therewith or incidental thereto.

CREDIT GUARANTEE FUND TRUST FOR SMALL INDUSTRIES Objective Availability of bank credit without the hassles of collaterals / third party guarantees would be a major source of support to the first generation entrepreneurs to realize their dream of setting up a unit of their own Micro and Small Enterprise (MSE). Keeping this objective in view, Ministry of Micro,

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Small & Medium Enterprises (MSME), Government India launched Credit Guarantee Scheme (CGS)

of

The main objective is that the lender should give importance to project viability and secure the credit facility purely on the primary security of the assets financed. The other objective is that the lender availing guarantee facility should endeavor to give composite credit to the borrowers so that the borrowers obtain both term loan and working capital facilities from a single agency.

Credit Guarantee Any collateral / third party guarantee free credit facility (both fund as well as non fund based) extended by eligible institutions, to new as well as existing Micro and Small Enterprise, including Service Enterprises, with a maximum credit cap of Rs.100 lakh (Rupees Hundred lakh only) are eligible to be covered. The guarantee cover available under the scheme is to the extent of 75% / 80% of the sanctioned amount of the credit facility, with a maximum guarantee cap of Rs.62.50 lakh / Rs. 65 lakh. The extent of guarantee cover is 85% for micro enterprises for credit up to Rs.5 lakh. The extent of guarantee cover is 80%(i) Micro and Small Enterprises operated and/or owned by women; and (ii) all credits/loans in the North East Region (NER). In case of default, Trust settles the claim up to 75% (or 80%) of the amount in default of the credit facility extended by the lending institution. The lender should cover the eligible credit facilities as soon as they are sanctioned. In any case, the lender should apply for guarantee cover in respect of eligible credits sanctioned in one calendar quarter latest by end of subsequent calendar quarter. Guarantee will commence from the date of payment of guarantee fee and shall run through the agreed tenure of the term credit in case of term loans / composite loans and for a period of 5 years where working capital facilities alone are extended to borrowers, or for such period as may be specified by the Guarantee Trust in this behalf.

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EXPORT CREDIT CORPORATION OF INDIA

GUARANTEE

Export Credit Guarantee Corporation of India Limited was established in the year 1957 by the Government of India to strengthen the export promotion drive by covering the risk of exporting on credit.

Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, and Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, and insurance and exporting community.

ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores.

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i n f o r m a t i o n o n c r e d i t w o r t h i n e s s o f o v e r s e a s b

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Current situation Today, the banking sector in India is fairly mature in terms of supply, product range and reach. As far as private sector and foreign banks are concerned, the reach in rural India still remains a challenge. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate. Till now, there is hardly any deviation seen from this stated goal which is again very encouraging. With passing time, Indian economy is further expected to grow and be strong for quite some time-especially in its services sector. The demand for banking services, especially retail banking, mortgages and investment services are expected to grow stronger. Therefore, it is not hard to forecast few M&as, takeovers, and asset sales in the sector. Consolidation is going to be another order of the day. The significant change in the policy and attitude that is currently being seen is encouraging for the banking sector growth. In March 2006, the Reserve Bank of India allowed Warburg Pincus, a private foreign investor, to increase its stake in Kotak Mahindra Bank to 10%. Notably, this is the first time that a foreign individual investor has been allowed to hold more than 5% in a private sector bank since 2000. Earlier, The RBI in 2005 announced that any stake exceeding 5% by foreign individual investors in the private sector banks would need to be vetted by them.

“Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to

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a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.”1 Despite the current global slowdown, despite the fear of US economic recession, despite the volatility of Indian stock markets, every informed observer is more or less optimistic about the 8% to 10% growth per annum for the Indian economy till the next few years. Therefore, it can safely be said that the banking industry in India will only surge ahead in coming years. We can also expect to see many other sea changes in terms of their operations, funding and structures. As they say, this is just the beginning!

1

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WE UNDERSTAND WORLD

YOUR

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an ‘in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment. HDFC Bank began operations in 1995 with a simple mission: to be a “World Class Indian Bank.” We realized that only a single mindedfocus on product quality and service excellence would help us get there. Today, we are proud to say that we are well on our way towards that goal.

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HDFC BANK PRODUCT AND CUSTOMER SEGMENTS PERSONAL BANKING Loan Product •• • • • • • • • • • • •

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Auto Loan Loan Against Security Loan Against Property Personal loan Credit card 2-wheeler loan Commercial vehicles finance Home loans Retail business banking Tractor loan Working Capital Finance Construction Equipment Finance Health Care

Deposit Product • • • • •

Saving a/c Current a/c Fixed deposit Demat a/c Safe Deposit Lockers

Investment & Insurance • • • • • • •

Mutual Fund Bonds Knowledge Centre Insurance General and Health Insurance Equity and Derivatives Mudra Gold Bar

• •

Finance Education Loan Gold Loan Cards

• • •

Payment Services

Credit Card Debit Card Prepaid Card

------------------------------Forex Services ------------------------------• Product & Services • Trade Services • Forex service Branch Locater • RBI Guidelines

• • • • • • •

• •

•

Net Safe Merchant Prepaid Refill Bill pay Visa Billpay InstaPay Direct Pay VisaMoney Transfer e–Monies Electronic Funds Transfer Online Payment of Direct Tax

Access To Bank • NetBanking • One View • InstaAlert Mobile Banking • ATM • Phone Banking • Email Statements • Branch Network

WHOLESALE BANKING Corporate

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Small and Medium Enterprises

Financial Institutions and Trusts

• • • •

Funded Services Non Funded Services Value Added Services Internet Banking

• • • • •

Funded Services Non Funded Services Specialized Services Value added services Internet Banking

•

BANKS Clearing Membership

Sub-

•

RTGS – sub membership • Fund Transfer • ATM Tie-ups • Corporate Salary a/c • Tax Collection Financial Institutions Mutual Funds Stock Brokers Insurance Companies Commodities Business Trusts

NRI SERVICES Accounts & Deposits • • • • •

Rupee Saving a/c Rupee Current a/c Rupee Fixed Deposits Foreign Currency Deposits Accounts for Returning Indians

Remittances • • • • • • •

North America UK Europe South East Asia Middle East Africa Others

Quick remit India Link Cheque Lockbox Telegraphic/ Wire Transfer Funds Transfer Cheques/DDs/TCs

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Investment & Insurances • • • •

Mutual Funds Insurance Private Banking Portfolio Investment Scheme

Loans • • • •

Home Loans Loans Against Securities Loans Against Deposits Gold Credit Card

Payment Services • • • • • •

Net Safe Bill Pay InstaPay Direct Pay Visa Money Online Donation

Access To Bank • • • • • • •

Net Banking One View InstaAlert ATM PhoneBanking Email Statements Branch Network

C0nclusion: • Today, the banking sector in India is fairly mature in terms of supply, product range and reach. As far as private sector and foreign banks are concerned, the reach in rural India still remains a challenge. • The Indian banking situation is very different from that in Europe and the US. There, banks' distress is the cause of the economic crisis. 42 | P a g e

• Indian banks are not directly impacted by the financial crisis because of their low exposure to the sub-prime market. • The slowing down of the economy impacts on banks. But, you have to remember that economic growth of 6% is still pretty good for any banking system. • In earlier step of banks in India which functioned as entities to finance industry, including speculative trades in cotton. Most of the banks opened in India during that period could not survive and failed because of the high risk • With passing time, Indian economy is further expected to grow and be strong for quite some timeespecially in its services sector. • Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a 43 | P a g e

combined network of over 53,000 branches and 17,000 ATMs.

Bibliography Websites: www.oppapers.co m www.nabard.org www.eximbankind ia.com www.ecgc.in www.indiastat.co m www.hdfcbank.co m www.hudco.org www.icicibank.co m

www.idbi.com www.thehindubusi nessline.com www.idbi.com www.indiahousing .com www.nhb.org.in www.financialexpr ess.com www.licindia.com www.sidbi.com www.utimf.com www.cgtmse.in

Journals & other references:  Introduction to banking – Vijayaragavan iyengar  The Economic Times

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 Business Standard  Business India

REPORTS/ARTICLES REFFERED:  Overview of banking sector

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