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A
Summer Internship Project
On
ANALYZING THE GAP BETWEEN MANAGEMENT
PERCEPTION AND CUSTOMER PERCEPTION WITH
RESPECT TO THE SERVICES OFFERED IN RETAIL
BANKING
Enrollment no.:123456789 Submitted byNaman Shah
Submitted To:
THE NIS ACADEMY
Annamalai University
Masters of business Administrstion (MBA)
2011-2012
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CERTIFICATE
This is to certify that Mr. Naman Shah the students of MBA 2nd
year of NIS Academy,
Ahmedabad have completed their Summer Internship Project ANALYZING THE GAP
BETWEEN MANAGEMENT PERCEPTION AND CUSTOMER PERCEPTION WITH RESPECT TO
THE SERVICES OFFERED IN RETAIL BANKINGin the year 2011-2012.
Mr. ajay shad Mrs. Smita
Director Project Guide
Date:
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DECLARATION
I here by declare that the Summer internship Project titled Analyzing the Gap between
Management Perception and Customer Perception With Respect To the Services
Offered In Retail Banking is our original work and has not been published elsewhere. This
has been undertaken for the purpose of Submited in annamalai University.
Date:
Place: Students Name Signature: -------------
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PREFACE
Retail Banking has always been an integral part of the Banking activities the world over, but
it is only in the recent past that it has gathered special momentum. Though internationally this
revolution started in 80s with the advent of credit cards followed by other products of retail
financial services, yet, as far as India is concerned, the year 1995 marks the starting point of
Retail Banking Revolution with Foreign Banks and new generation Private Banks taking the
lead. Till 90s only foreign Banks were the main players in Retail Banking activities.
The paradigm shift in the Indian Banking Sector brought out by deregulation, liberalization
and globalization of the Indian economy and characterized by intense competition and wafer
thin margins has compelled banks to shift focus from Corporate Banking to Retail Banking
and look upon retail banking as a solution to some of their immediate concerns. Only a few
years ago the Retail Banking was scorned by many specialists as too voluminous, transaction
heavy and unprofitable business. Consumer and personal loans were considered unproductive
and were thus discouraged. But things have changed now. Retail Banking has regained
bankers interest not least because it is the activity where many major banks are making most
of their money but also because of the more recurrent nature of its earnings. Many European
banks that had ventured into wholesale and investment banking activities in a big way had topay a heavy price in the recent times. The economic downturn and gloomy capital market
environment has made investment banking lose mush of its shine making many banks to shift
their focus back to Retail Banking.
We therefore choose to do our project on Retail banking within the Banking Industry, which
has seen tremendous changes in the past years, promising great scope in the years to come.
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ACKNOWLEDGMENT
It is really a matter of pleasure for us to get an opportunity to thank all the persons who
contributed directly or indirectly for the successful completion of the project report,
Analyzing The Gap Between the Management Perception and Customer Perception with
reference to Services offered in Retail Banking.
First of all we are extremely thankful to our college NIS Academy for providing us
with this opportunity and for all its cooperation and contribution. We also express our
gratitude to our director MR.AJAY SHAD,and are highly thankful to him as our
respected project guide for giving us the encouragement and freedom to conduct our
project.
We are also grateful to our Project Guide Mrs. Smita and all our faculty members for
their valuable guidance and suggestions for our entire study.
We would also like to thank the Sales Manager Mr. sailendra chadda for extending their
valuable time.
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CONTENTS
1.
Banking IndustryIntroduction
2. Introduction to Retail Banking
3. Banks Profile
4. Research Methodology
5. Analysis
6. Suggestions
7. Future of Retail Banking
8. Bibliography
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EXECUTIVE SUMMARY
The report Analyzing the Gap between Management Perception and Customer Perception
With Respect To the Services Offered In Retail Banking aims to assimilate data about the
various aspects of Retail banking services, to analyze the perceptions of the management and
the customers regarding the services offered in Retail banking and to find out whether any
gaps do exist between the services offered and the customer expectations. We have taken 6
Banks which represent the Nationalized, Private and Multinational Banks of the Banking
Industry in India-
- SBI
- Corporation Bank
- HDFC Bank
- ICICI Bank
- Citibank
- ING Vyasya Bank
The criteria for selecting these banks were their deposit base. We have limited our Service
Category to the core services in Retail Banking and a few specialized services.The report is a mixture of Secondary and Primary data, with Questionnaires being our
major instrument to collect primary data.
Major topics we have attempted to cover in this project are to: -
- Explore the services and products offered by the banks to individual customers.
- Understand the perception of the management with respect to services offered by
banks.
- Understand the perception of the customers with respect to services offered by banks.
- Analyze whether there is a gap between the customer and management perceptions
about the services offered by the banks.
- Conclude and enumerate the recommendations that might help to reduce the gaps that
exist and foster the relationship of the customer more with the bank.
According to the survey we came to the conclusion that
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The new game requires new strategies with an accent on innovation for organizational
transformation and to achieve world-class competitiveness through improved efficiency and
reduced operational cost.
An organisation-centric agenda, policy, programme and operationalising accelerating
interventions need to strengthen core competencies of Indian banks; while exploring seeding
options for future growth.
Thrust on innovation is important particularly in the present context of consolidation and
convergence both within and across segments of the financial system.
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INTRODUCTION
Service with a smile: Todays finicky banking customers will settle for nothing less. The
customer has come to realize somewhat belatedly that he is the king. The customers choice
of one entity over another as his principal bank is determined by considerations of service
quality rather than any other factor. He wants competitive loan rates but at the same time also
wants his loan or credit card application processed in double quick time. He insists that he be
promptly informed of changes in deposit rates and service charges and he bristles with
customary rage if his bank is slow to redress any grievance he may have. He cherishes the
convenience of impersonal net banking but during his occasional visits to the branch he also
wants the comfort of personalized human interactions and facilities that make his banking
experience pleasurable. In short he wants financial house that will more than just clear his
cheque and updates his passbook: he wants a bank that cares and provides great services.
So do banks meet these heightened expectations? Is there a gap that exists between the
management perception and the customer perception with reference to the services offered in
Retail Banking? To find out answers to these questions we undertook a survey of six banks
selecting two banks from each of the following:
- Private Banks
- Nationalized Banks
- Multinational Banks
A lot of surveys have been done in the past by many agencies to understand the aspect of
customer satisfaction and to find out the customer friendly banks. Our research adds the
dimension of the Gap Analysis between The Management and the customer perceptions
regarding the services being offered.
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INDUSTRY PROFILE
The Banking Regulation Act 1949 defines banking as accepting the purpose of lending or
investment, of deposits of money from the public, repayable on demand or otherwise and
withdrawable by cheque, draft, order otherwise. The essential function of a bank is to provide
services related to the storing of value and the extending credit. The evolution of banking
dates back to the earliest writing, and continues in the present where a bank is a financial
institution that provides banking and other financial services. Currently the term bank is
generally understood an institution that holds a banking license. Banking licenses are granted
by financial supervision authorities and provide rights to conduct the most fundamental
banking services such as accepting deposits and making loans. There are also financialinstitutions that provide certain banking services without meeting the legal definition of a
bank, a so called non-bank. Banks are a subset of the financial services industry.
The word bank is derived from the Italian banca which is derived from German and means
bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers
to an out of business bank, having its bench physically broken. Money lenders in Northern
Italy originally did business in open areas, or big open rooms, with each lender working from
his own bench or table.
Typically, a bank generates profits from transaction fees on financial services or the interest
spread on resources it holds in trust for clients while paying them interest on the asset.
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SERVICES TYPICALLY OFFERED BY BANKS
Although the type of services offered by a bank depends upon the type of bank and the
country, services provided usually include:
Directly take deposits from the general public and issue checking and savings
accounts
Lend out money to companies and individuals
Cash checks
Facilitate money transactions such as wire transfers and cashiers checks
Issue credit cards, ATM, and debit cards
online banking
Storage of valuables, particularly in a safe deposit box
TYPES OF BANKS
There are several different types of banks including:
Central banks usually control monetary policy and may be the lender of last resort in
the event of a crisis. They are often charged with controlling the money supply,
including printing paper money. Examples of central banks are the European
Central Bank and the US Federal Reserve Bank.
Investment banks underwrite stock and bond issues and advice on mergers. Examples
of investment banks are Goldman Sachs of the USA or Nomura Securities of Japan.
Merchant banks were traditionally banks which engaged in trade financing. The
modern definition, however, refers to banks which provide capital to firms in the
form of shares rather than loans. Unlike Venture capital firms, they tend not to
invest in new companies.
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Private Banks manage the assets of the very rich. An example of a private bank is the
Union Bank of Switzerland.
Savings banks write mortgages exclusively.
Offshore banks are banks located in jurisdictions with low taxation and regulation,
such as Switzerland or the Channel Islands. Many offshore banks are essentially
private banks.
Commercial banks primarily lend to businesses (corporate banking)
Retail banks primarily lend to individuals. An example of a retail bank is Washington
Mutual of the USA.
Universal banks engage in several of these activities. For example, Citigroup, a large
American bank, is involved in commercial and retail lending; it owns a merchant
bank (Citicorp Merchant Bank Limited) and an investment bank (Salomon Smith
Barney); it operates a private bank (Citigroup Private Bank); finally, its subsidiaries
in tax-havens offer offshore banking services to customers in other countries.
SOME CHARACTERISTICS ASSOCIATED WITH BANKS IN GENERAL:
BANKS ARE PRONE TO CRISIS
The traditional bank has an inherent tendency to crisis. This is because the bank borrows
short term and lends leveraged long term. The sum of deposits and the bank's capital will
never equal more than a modest percentage of the loans the bank has outstanding.
Even if liquidity is not a concern, if there is no run on the bank, banks can simply choose a
bad portfolio of loans, and lose more money than they have. The US Savings and Loan Crisis
in the late 1980s and early 1990s is such an incident.
ROLE IN THE MONEY SUPPLY
A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or
issuing financial instruments in the money market or a securities market. The bank then lends
out most of these funds to borrowers.
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However, it would not be prudent for a bank to lend out all of its balance sheet. It must keep a
certain proportion of its funds in reserve so that it can repay depositors who withdraw their
deposits. Bank reserves are typically kept in the form of a deposit with a central bank. This
behavior is called fractional-reserve banking and it is a central issue of monetary policy.
Some governments (or their central banks) restrict the proportion of a bank's balance sheet
that can be lent out, and use this as a tool for controlling the money supply. Even where the
reserve ratio is not controlled by the government, a minimum figure will still be set by
regulatory authorities as part of banking supervision.
REGULATION
The combination of the instability of banks as well as their important facilitating role in theeconomy led to banking being thoroughly regulated. The amount of capital a bank is required
to hold is a function of the amount and quality of its assets. Major Banks are subject to the
Basel Capital Accord promulgated by the Bank for International Settlements. In addition,
banks are usually required to purchase deposit insurance to make sure smaller investors are
not wiped out in the event of a bank failure.
Another reason banks are thoroughly regulated is that ultimately, no government can allow
the banking system to fail. There is almost always a lender of last resortin the event of a
liquidity crisis (where short term obligations exceed short term assets) some element of
government will step in to lend banks enough money to avoid bankruptcy.
HOW BANKS ARE VIEWED
Banks have a long history of being characterized as heartless, rapacious creditors, hounding
honest folk down on their luck for the last dime.
In United States history, the National Bank was a major political issue during the presidency
of Andrew Jackson. Jackson fought against the bank as a symbol of greed and profit-
mongering, antithetical to the democratic ideals of the United States.
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PROFITABILITY
Large banks in the United States are some of the most profitable corporations, especially
relative to the small market shares they have. This amount is even higher if one counts the
credit divisions of companies like Ford, which are responsible for a large proportion of those
company's profits. For example, the largest bank, Citigroup, which for the past 3 years has
made more profit then any other company in the world, has only a 5 percent market share.
Now if Citigroup were to be as dominant in its industry as a Home Depot, Starbucks, or Wal
Mart in their respective industries, with a 30 percent market share, it would make more
money than the top ten non-banking US industries combined.
In the past 10 years in the United States, banks have taken many measures to ensure that theyremain profitable while responding to ever-changing market conditions. First, this includes
the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and
insurance houses. Merging banking, investment, and insurance functions allows traditional
banks to respond to increasing consumer demands for "one stop shopping" by enabling the
crossing selling of products (which, the banks hope, will also increase profitability). Second,
they have moved toward risk based pricing on loans, which mean charging higher interest
rates for those people who they deem more risky to default on loans. This dramatically helps
to offset the losses from bad loans, lowers the price of loans to those who have better credit
histories, and extends credit products to high risk customers who would have been denied
credit under the previous system. Third, they have sought to increase the methods of payment
processing available to the general public and business clients. These products include debit
cards, pre-paid cards, smart-cards, and credit cards. These products make it easier for
consumers to conveniently make transactions and smooth their consumption over time (in
some countries with under-developed financial systems, it is still common to deal strictly in
cash, including carrying suitcases filled with cash to purchase a home). However, with
convenience there is also increased risk that consumers will mis-manage their financial
resources and accumulate excessive debt. Banks make money from card products through
interest payments and fees charged to consumers and companies that accept the cards. The
banks' main obstacles to increasing profits are existing regulatory burdens, new government
regulation, and increasing competition from non-traditional financial institutions.
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INDIAN BANKING SECTOR
Banking in India has its origin as early as the Vedic period. It is believed that the transition
from money lending to banking must have occurred even before Manu, the great Hindu
Jurist, who has devoted a section of his work to deposits and advances and laid down rules
relating to rates of interest. During the Mogul period, the indigenous bankers played a very
important role in lending money and financing foreign trade and commerce. During the days
of the East India Company, it was the turn of the agency houses to carry on the banking
business. The General Bank of India was the first Joint Stock Bank to be established in the
year 1786. The others which followed were the Bank of Hindustan and the Bengal Bank.
The Bank of Hindustan is reported to have continued till 1906 while the other two failed in
the meantime. In the first half of the 19
th
century the East India Company established threebanks; the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in
1843. These three banks also known as Presidency Banks, were independent units and
functioned well. These three banks were amalgamated in 1920 and a new bank, the Imperial
Bank of India was established on 27th
January 1921. With the passing of the State Bank of
India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly
constituted State Bank of India. The Reserve Bank which is the Central Bank was created in
1935 by passing Reserve Bank of India Act 1934. In the wake of the Swadeshi Movement, a
number of banks with Indian management were established in the country namely, Punjab
National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of
Baroda Ltd, the Central Bank of India Ltd. On July 19, 1969, 14 major banks of the country
were nationalized and in 15th
April 1980 six more commercial private sector banks were also
taken over by the government.
Today the commercial banking system in India may be distinguished into:
Public Sector Banks
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
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Private Sector Banks
a. Old generation private banks
b.New generation private banks
c.Foreign banks in India
d.Scheduled Co-operative Banks
e. Non-scheduled Banks
Co-Operative Sector
The co-operative banking sector has been developed in the country to the suppliment the
village money lender. The co-operative banking sector in India is divided into 4 components:
1.
State Co-operative Banks
2.Central Co-operative Banks
3.Primary Agriculture Credit Societies
4.Land Development Banks
5.Urban Co-operative Banks
6.Primary Agricultural Development Banks
7.Primary Land Development Banks
8.State Land Development Banks
Development Banks
1.Industrial Finance Corporation of India (IFCI)
2.Industrial Development Bank of India (IDBI)
3.Industrial Credit and Investment Corporation of India (ICICI)
4.Industrial Investment Bank of India (IIBI)
5.Small Industries Development Bank of India (SIDBI)
6.SCICI Ltd.
7.National Bank for Agriculture and Rural Development (NABARD)
8.
Export Import Bank of India
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STATUS OF INDIAN BANKING INDUSTRY
It is useful to note some telling facts about the status of the Indian banking industry
juxtaposed with other countries, recognizing the differences between the developed and
the emerging economies.
First, the structureof the industry: In the worlds top 1000 banks, there are many more
large and medium-sized domestic banks from the developed countries than from the
emerging economies. Illustratively, according to The Banker 2004, out of the top 1000 banks
globally, over 200 are located in USA, just above 100 in Japan, over 80 in Germany, over 40
in Spain and around 40 in the UK. Even China has as many as 16 banks within the top 1000,
out of which, as many as 14 are in the top 500. India, on the other hand, had 20 banks within
the top 1000 out of which only 6 were within the top 500 banks. This is perhaps reflective of
differences in size of economies and of the financial sectors.
Second, the share of bank assets in the aggregate financial sector assets: In most
emerging markets, banking sector assets comprise well over 80 per cent of total financial
sector assets, whereas these figures are much lower in the developed economies.
Furthermore, deposits as a share of total bank liabilities have declined since 1990 in many
developed countries, while in developing countries public deposits continue to be
dominant in banks. In India, the share of banking assets in total financial sector assets is
around 75 per cent, as of end-March 2004. There is, no doubt, merit in recognizing the
importance of diversification in the institutional and instrument-specific aspects of
financial intermediation in the interests of wider choice, competition and stability.However, the dominant role of banks in financial intermediation in emerging economies
and particularly in India will continue in the medium-term; and the banks will continue to
be special for a long time. In this regard, it is useful to emphasize the dominance of
banks in the developing countries in promoting non-bank financial intermediaries and
services including in development of debt-markets. Even where role of banks is apparently
diminishing in emerging markets, substantively, they continue to play a leading role in
non-banking financing activities, including the development of financial markets.
Third, internationalization of banking operations : The foreign controlled banking
assets, as a proportion of total domestic banking assets, increased significantly in several
European countries (Austria, Ireland, Spain, Germany and Nordic countries), but increases
have been fairly small in some others (UK and Switzerland). Amongst the emerging
economies, while there was marked increase of foreign-controlled ownership in several Latin
American economies, the increase has, at best, been modest in the Asian economies.
Available evidence seems to indicate some correlation between the extent of liberalization of
capital account in the emerging markets and the share of assets controlled by foreign banks.
As per the evidence available, the foreign banks in India, which are present in the form ofbranches, seem to enjoy greater freedom in their operations, including retail banking, in the
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country on par with domestic banks, as compared with most of the other developing
countries. Furthermore, the profitability of their operations in India is considerably higher
than that of the domestically-owned banks and, in fact, is higher than the foreign banks
operations in most other developing countries. India continues to grant branch licenses more
liberally than the commitments made to the WTO.
Fourth, the share of state-owned banks in total banking sector assets: Emerging
economies, with predominantly Government-owned banks, tend to have much higher state-
ownership of banks compared to their developed counterparts. While many emerging
countries chose to privatize their public sector banking industry after a process of absorption
of the overhang problems by the Government, we have encouraged state-run banks to
diversify ownership by inducting private share capital through public offerings rather than by
strategic sales and still absorb the overhang problems. The process has helped reduce the
burden on the Government, enhance transparency, encourage market discipline and improve
efficiency as reflected in stock market valuation, promote efficient new private sector banks,
while drastically reducing the share of the wholly government owned public sector banks in a
rapidly growing industry. Our successful reform of public sector banks is a good example of
a dynamic mix of public and private ownership in banks.
BANKING SYSTEM
Introduction
The Reserve Bank of India (RBI) is India's central bank. Though the banking industry is
currently dominated by public sector banks, numerous private and foreign banks exist.
India's government-owned banks dominate the market. Their performance has been mixed,
with a few being consistently profitable. Several public sector banks are being
restructured, and in some the government either already has or will reduce its ownership.
Private and foreign banks
The RBI has granted operating approval to a few privately owned domestic banks; of these
many commenced banking business. Foreign banks operate more than 150 branches in
India. The entry of foreign banks is based on reciprocity, economic and political bilateral
relations. An inter-departmental committee approves applications for entry and expansion.
Capital adequacy norm
Foreign banks were required to achieve an 8 percent capital adequacy norm by March
1993, while Indian banks with overseas branches had until March 1995 to meet that target.All other banks had to do so by March 1996. The banking sector is to be used as a model
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for opening up of India's insurance sector to private domestic and foreign participants,
while keeping the national insurance companies in operation.
Banking
India has an extensive banking network, in both urban and rural areas. All large Indianbanks are nationalized, and all Indian financial institutions are in the public sector.
RBI banking
The Reserve Bank of India is the central banking institution. It is the sole authority for
issuing bank notes and the supervisory body for banking operations in India. It supervises
and administers exchange control and banking regulations, and administers the
government's monetary policy. It is also responsible for granting licenses for new bank
branches. 25 foreign banks operate in India with full banking licenses. Several licenses for
private banks have been approved. Despite fairly broad banking coverage nationwide, the
financial system remains inaccessible to the poorest people in India.
Indian banking system
The banking system has three tiers. These are the scheduled commercial banks; the
regional rural banks which operate in rural areas not covered by the scheduled banks; and
the cooperative and special purpose rural banks.
Scheduled and non scheduled banks
There are approximately 80 scheduled commercial banks, Indian and foreign; almost 200regional rural banks; more than 350 central cooperative banks, 20 land development
banks; and a number of primary agricultural credit societies. In terms of business, the
public sector banks, namely the State Bank of India and the nationalized banks, dominate
the banking sector.
Local financingAll sources of local financing are available to foreign-participation companies
incorporated in India, regardless of the extent of foreign participation. Under foreign
exchange regulations, foreigners and non-residents, including foreign companies, require
the permission of the Reserve Bank of India to borrow from a person or company residentin India.
Regulations on foreign banks
Foreign banks in India are subject to the same regulations as scheduled banks. They are
permitted to accept deposits and provide credit in accordance with the banking laws and
RBI regulations. Currently about 25 foreign banks are licensed to operate in India. Foreign
bank branches in India finance trade through their global networks.
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RBI restrictions
The Reserve Bank of India lays down restrictions on bank lending and other activities with
large companies. These restrictions, popularly known as "consortium guidelines" seem to
have outlived their usefulness, because they hinder the availability of credit to the non-
food sector and at the same time do not foster competition between banks.
Indian vs. foreign banks
Most Indian banks are well behind foreign banks in the areas of customer funds transfer
and clearing systems. They are hugely over-staffed and are unlikely to be able to compete
with the new private banks that are now entering the market. While these new banks and
foreign banks still face restrictions in their activities, they are well-capitalized, use modern
equipment and attract high-caliber employees.
Government and RBI regulations
All commercial banks face stiff restrictions on the use of both their assets and liabilities.
Forty percent of loans must be directed to "priority sectors" and the high liquidity ratio and
cash reserve requirements severely limit the availability of deposits for lending. The RBI
requires that domestic Indian banks make 40 percent of their loans at confessional rates to
priority sectors' selected by the government. These sectors consist largely of agriculture,
exporters, and small businesses. Since July 1993, foreign banks have been required to
make 32 percent of their loans to these priority sector. Within the target of 32 percent, two
sub-targets for loans to the small scale sector (minimum of 10 percent) and exports
(minimum of 12 percent) have been fixed.
INTEREST RATES AND NON-PERFORMING ASSETS:
The best indicator of the health of the banking industry in a country is its level of NPAs.
Given this fact, Indian banks seem to be better placed than they were in the past. A few banks
have even managed to reduce their net NPAs to less than one percent (before the merger of
Global Trust Bank into Oriental Bank of Commerce, OBC was a zero NPA bank). But as the
bond yields start to rise the chances are the net NPAs will also start to go up. This willhappen because the banks have been making huge provisions against the money they made
on their bond portfolios in a scenario where bond yields were falling.
Reduced NPAs generally gives the impression that banks have strengthened their credit
appraisal processes over the years. This does not seem to be the case. With increasing bond
yields, treasury income will come down and if the banks wish to make large provisions, the
money will have to come from their interest income, and this in turn, shall bring down the
profitability of banks.
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RETAIL BANKING
Retail banking is typical mass-market banking where individual customers use local
branches of larger commercial banks. Services offered include: savings and checking
accounts, mortgages, personal loans, debit cards, credit cards, and so forth. This is verydifferent from wholesale banking.
RETAIL BANKING IN INDIA:
India is poised to become the world's fourth largest economy in the span of two decades.
Economic prosperity is providing many in this populous nation with real purchasing power; it
simply is an opportunity that cannot be overlooked by global banks. Despite its appeal, India
remains a developing economy. Thus, global banks seeking a presence or expansion in India
must craft a business strategy that considers the country's attendant challenges: long-
established competitors; rudimentary infrastructure; dynamic political environment;
restrictive regulations; and developing country operational risks.
These challenges should be weighed against the potential gains from entering the
marketplace, as well as the likely cost of doing nothing. Extensive research conducted by the
IBM Institute for Business Value pinpointed four of the most promising product areas for
global banks entering the Indian market: housing loans, automobile loans, small and medium
enterprise (SME) banking and personal financial services. However, recognizing the growth
opportunities is only the beginning. Global banks targeting India as a source of new growth
will have to do much more than just "show up" - success will lie in the details of execution.
With one of the most under penetrated retail lending markets in Asia-Pacific, India offers
great potential. India's mortgage debt in 2002 totaled only 2 percent of gross domestic
product (GDP), compared to 7 percent of Thailand's GDP, 8 percent of GDP in China and
much higher proportions in other parts of the region: Malaysia (28 percent), South Korea (30
percent) and Hong Kong (52 percent). While India remains characterized by extreme wealth
and poverty, a middle class is beginning to emerge, with absolute demand for products and
services on the rise. To seize this opportunity, new market entrants must exploit specific
market niches and leverage best-in-class capabilities while addressing the unique challengesof the Indian banking environment.
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During the last decade, India has emerged as one of the biggest and fastest growing
economies in the world. The strengthening economy in India has been fueled by the
convergence of several key influences: liberalization policies of the government, growth of
key economic sectors, development of an English-speaking, well-educated work force and
the emergence of a middle class population.
REASONS FOR THE CHANGE OVER FROM CORPORATE BANKING TO
RETAIL BANKING:
The financial sector reforms undertaken by the Government since the year 1991 have
accelerated the process of disintermediation which has encouraged blue chip
corporate to access cheaper funds to meet their working capital requirements directly
from investors in India and abroad through capital market instruments and external
Commercial Borrowings route thus by-passing Banks in the process. The deregulation
of markets and interest rates has lead to cut throat competition among Banks for
corporate loans making them to lend even at PLR or sub PLR and offer other valued
services at comparatively cheaper rates to big and high value corporates. In the
process, most of the banks have experienced substantial reduction in interest spreads
and drain on their profitability.
The introduction of stringent Asset Classification, Income Recognition and
provisioning norms has resulted in growing menace of NPAs in corporate loans which
has affected the asset quality, profitability and capital adequacy of banks adversely.
The risks involved in corporate loans are very high as corporates have to keep all their
eggs in one basket. The risks involved in retail Banking advances are comparatively
less and well diversified as loan amounts are relatively small ranging from Rs. 5000
to Rs. 100 lac and repayable normally in short period of 3-5 years except housing
loans (where repayment period is long up to 15 years in some cases) and from fixed
source of income like salaries.
Whereas corporate loans give average return of just 0.5 to 1.5 percent only, the retail
advances offer attractive interest spread of 3to 4 percent, because retail borrowers are
less interest rate sensitive than the Corporates. Another reason for large interest
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spreads on retail advances is that the retail customers are too fragmented to bargain
effectively.
While corporate loans are subject to ups and downs in trade frequently, retail loans
are comparatively independent of recession and continue to deliver even during the
sluggish phase of economy.
Retail Banking gives a lot of stability and public image to banks as compared to
corporate banking.
The housing loans, which form the major chunk of retail lending and where NPAs are
the least, carry risk weight of just 50% for capital adequacy purposes. This is likely to
come down further as new Basel Capital Accord or (Basel II) norms are put in place
from the year 2006. This offers added incentive to banks for lending to this retail
segment as against corporate lending where capital consumption is higher.
The greater amount of consumerism in the country with upswing in income levels of
burgeoning middle class, which has propensity to consume to raise their standard of
living, is enlarging the retail markets. This market is growing 2 50 percent per year
and boosting the demand for credit from households. The potential is huge as present
penetration level is just over 2 percent in the country. Given the easy liquidity
scenario in the country the growth rate in this sector is likely to go up manifold in the
years come. This offers great potential for banks to enlarge their loan books.
The Indian mindset is also changing and consumers prefer to improve their quality
of life even if it means borrowing for facilities like housing, consumer goods vehicles
and vacationing etc. Borrowing and lending is no longer considered a taboo. The peer
pressure and demonstration effect is further pushing up demand for housing loans,
consumer products and automobiles. The profiles of customers are fast changing from
conservative dodos to fashionable peacocks. All these developments give big push to
Retail Banking activities.
Retail Banking clients are generally loyal and tend not to change from one Bank to
another very often.
Large numbers of Retail clients facilitate marketing, mass selling and ability to
categorize/select clients using scoring system and data mining. Banks can cut costs
and achieve economies of scale and improve their bottom-line by robust growth in
retail business volume.
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Through product innovations and competitive pricing strategies Banks can foster
business relationship with customers to retain the existing clients and attract new
ones.
Innovative products like asset securitization can open new vistas in sustaining optimalcapital adequacy and asset liability management for banks.
Retail Banking offers opportunities to banks to cross sell other retail products like
credit card, insurance, mutual fund products and demat facilities etc. to depositors and
investors.
RETAIL BANKING PRODUCTS AND SERVICES
Contrary to plain vanilla mass Banking products that the Banks offered in the pre reform era,which the customer had either to take or leave, banks, since last couple of years are offering
well researched, tech savvy, borrower friendly, attractive, value added, make your own
Sunday type customized products at most competitive rates through a host of most modern
delivery channels viz., ATM, internet, telebanking to enhance the comfort of diverse type of
customers. Wide range of products that the bank snow offer, cover both the deposits and
advances. The core banking products of deposits i.e. Saving bank, recurring deposits and
short term deposits and advances i.e. short or medium term loans are packaged with several
value additions in different permutations and combinations and attractive brand names. They
are released in the market with adequate publicity and ad., support banks products cater to
various segments of customers like salaried persons, traders, business men, professionals,
technocrats, pensioners, housewives, children, labourers, artisans and craftsmen etc. Banks
keep on constantly reviewing their products and services portfolio to cater to the ever
escalating expectations of customers.
Retail Lending products
Major retail lending products offered by banks are the following:
- Housing loans
- Loan for consumer goods
- Personal loans for marriage, honeymoon, medical treatment and holidaying etc.
- Education loans
- Auto loans
-
Gold loans
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- Event loans
- Festival loans
- Insurance products
- Loan against rent receivables
- Loan against pension receivables to senior citizens
- Debit and credit cards
- Global and international cards
- Loan to doctors to set up their own clinics or for purchase of medical equipments
- Loan for women empowerment
- Loan for purchase of acoustic enclosures for diesel Gen. sets etc.
Retail banking products for depositors:
This is in various segments of customers like ; children, salaried persons, senior citizens,
professionals, technocrats, businessmen, retail traders and farmers etc. and it includes:
- Flexi Deposit Accounts
- Savings Bank Accounts
- Recurring Bank Accounts
- Short Term deposits
-
Deferred Pension Linked Deposit Schemes
Today pure deposit type products are giving way to multi- benefit, multi access generes of
banking products. Most of the innovation is taking place in savings bank accounts to make
the meager return of 3.55p.a. that they earn more attractive. Most of the banks now offer
sweep in and sweep out accounts, called 2-in-1 accounts or value added savings bank
accounts. This account is a combination of savings bank and term deposit accounts and offers
twin benefit of liquidity of a savings bank account and higher interest earning of term deposit
accounts.
Add-ons and Freebies
To make their products an services more attractive so as to woo maximum number of
customers, the banks are vying with each other with whole lot off frills, goodies, freebies, and
add-ons. A few of these add-ons. A few of these add-ons and freebies are as under:
- Free collection of specified number of outstation instruments.
-
Instant credit of outstanding cheques upto Rs. 15000/-
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- Concession in exchange on demand drafts and pay-orders and commission on bills of
exchange
- Issuance of free personalized cheque books
- Free accident insurance covers
- Free doorsteps opening of accounts
- Free issuance of ATM, Debit, Credit and Add-on Cards
- Free investment advisory services
- Grant of redeemable reward points on use of credit cards
- Free internet banking, phone banking and anywhere banking facilities
- Issuance of discount coupons for purchase of various products like computer
accessories, music CDs, cassettes, books, toys, garments etc.
- Issuance of free PVR, trade fair tickets etc.
- Concession in rate of interest on Group advances
- Exemption in upfront fees.
These concessions, freebies and add-ons are based on the True relationship Value (TRV) of
the customers and is calculated by the return on various products and services of the banks
availed by them. These concessions and freebies are usually offered for purchase of consumer
goods but now they have become an integral part of Retail banking products and services
also.
New delivery channels for retail banking Products and Services:
The advent of new delivery channels viz. ATM, Internet and Telebanking have
revolutionalised the retail banking activities. These channels enable Banks to deliver Retail
banking products and services in an efficient and cost effective manner. Now-a-days the
banks are under great pressure to attract new and retain old customers, as margins are turning
wafer thin. In these circumstances reducing administrative and transaction costs has become
crucial. Banks are making special offerings to customers through these channels retail
banking has been immensely benefited with the revolution in IT and communication
technology. The automation of the banking processes is facilitating extension of their reach
and rationalization of their costs as well. They are the engine for growth of retail banking
business of Banks. The networking of branches has extended the scope of banking to
anywhere and anytime 24x 7 days a week banking. It has enabled customers to be the
customer of a bank rather than the customers of a particular branch only. Customers can
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transact Retail Banking transactions at any of the networked branches without any extra cost.
As a matter of fact the Retail Banking per se has taken off because of the advent of multiple
banking channels. These channels have enabled banks to go on a massive customer
acquisition mode since transaction volumes spread over multiple channels lessen the load on
the brick and mortar bank branches.
SOME ASPECTS OF RETAIL BANKING
Impact of Retail Banking:
The major impact of retail Banking is that, the customers have become the Emperors
the fulcrum of all Banking activities, both on the asset side and the liabilities front.
The hitherto sellers market has transformed into buyers market the customers have
multiple of choices before them now for cherry picking products and services, which
suit their lifestyles and tastes and financial requirements as well. Banks now go to
their customers more often than the customers go to their banks.
The Non-Banking finance companies which have hitherto been thriving on retail
business due to high risk and high returns thereon have been dislodged from their
profit munching citadel
Retail Banking is transforming banks into one stop financial super markets.
The share of retail loans is fast increasing in the loan books of banks.
Banks can foster lasting business relationship with customers and retain the existing
customers and attract new ones. There is a rise in their service as well.
Banks can cut costs and achieve economies of scale and improve their revenues and
profits by robust growth in retail business. Reduction in costs offers a win win
situation both for banks and the customers.
It has affected the interface of banking system through different delivery mechanism
It is not that banks are sharing the same pie of retail business, the pie itself is growing
exponentially. Retail Banking has fuelled a considerable quantum of purchasing
power through a slew of retail products.
Banks can diversify risks in their credit portfolio and contain the menace of NPAs.
Retail banking allows bank to cross sell other products and services as it is far more
easier to sell other products to the same customer rather than search for absolutely
new ones. Cross selling is one of the best avenues for relationship
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Banking and retention of customers. Banks can thus increase their business volume
and improve their bottom-line substantially.
Re-engineering of business with sophisticated technology based products will lead tobusiness creation, reduction in transaction costs and enhancement in efficiency of
operations.
Problems faced in Retail Banking:
Retail Banking has all its attendant risks. It is highly sensitive .Banks got to move
cautiously. It is easy to enter, but difficult to get out. A systematic and a calculated
approach is the pre-requisite for success in the long run.
Retail Banking is being introduced with the concept of serving customer with better
and innovative products with the latest technology and easy availability. It becomes
so popular and widely acceptable that more and more customers had started to use it.
Now it becomes a mass product. Customer database have tremendously increased and
it becomes difficult to manage them.
To match the customer inflows and current customers requirement as well as service
standards banks have to set up more branches, distribution channels and new trained
staff as well as improvement in back office operations also in very near future. This
itself a time bounded problem and banks have to do it as early as possible.
Todays competitive market customer has more than one options for his retail banking
needs. Every bank is providing more or less similar kind of products. So an
unsatisfied customer can easily switch over to the another competitors bank. So
banks need to be very careful in handling the customers. They have to continually
improve their service standards.
Retail Banking is so wide accepted by the customer as well as very aggressively
promoted by the bankers that if the bankers do not take adequate care in distributing
and recovering advances, there are chances of increasing in NPAs in coming feature.
And that would be an alarming situation.
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CORE SERVICES FACILITATING
SERVICES
SUPPORTING
SERVICES
Payment services Cash
Foreign currencyrequirements
Travelers cheques DD/Bankers cheque
TT
EFT
Making payments
at doorsteps
Internet banking
Telephone banking
Current a/c & savings a/c ATM Card
Standing instruction
from customers for
making payments
Inter branch/inter
banks transfer offunds
Safety vault
Credit cards
Debit cards
Services to seniorcitizens
Telephone banking
Internet banking Conversion of
excess balance to
time deposit
Loan product: consumer
loans, personal loans,
housing loans, educational
loans
Current a/c
Savings a/c
Time deposit a/c
Delivery of time atpromised time
period
Interest rate option:fixed/floating
Flexibility in
prepayment of loan
Counseling on real
estate markets
Legal services for
documentation
ECS for paymentof loan installments
Insurance products : life
insurance Pension schemes Current a/c
Savings a/c
Time deposits
Safety vaults
Additionalinsurance facility
for family members
Counseling on post
retirement savings
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BANKING PRODUCTS PORTFOLIO
A. Deposits:
There are many products in retail banking like F.D., Savings A/c, Current A/c, Recurring
A/c, NRI A/c, Corporate Salary A/c, Free Demat A/c, Kids A/c, Senior Citizen Scheme,
Cheque Facilities, Overdraft Facilities, Free Demand Draft Facilities, Locker Facilities,
Cash Credit Facilities, etc. They are listed and explained as follows:
1. Fixed Deposit:
The deposit with the bank for a period, which is specified at the time of making the
deposit is known as fixed deposit. Such deposits are also known as F.D or term
deposit .A F.D is repayable on the expiry of a specified period. The rate of interest
and other terms and conditions on which the banks accepted F.D were regulated by
the R.B.I. in section 21 and 35A of the Banking Regulation Act 1949.
Each bank has prescribed their own rate of interest and has also permitted higher
rates on deposits above a specified amount. R.B.I has also permitted the banks to
formulate F.D. schemes specially meant for senior citizen with higher interest than
normal.
2. Savings A/c:
Saving bank A/c is meant for the people who wish to save a part of their current
income to meet their future needs and they can also earn in interest on their savings. The
rate of interest payable on by the banks on deposits maintained in savings account isprescribed by R.B.I. The bank should not poen a saving account in the name of :
1. Govt. Department.
2. Municipal Corporation
3. Panchayat Samities
4. State housing Boards
5. Water and Sewerage Boards
Now a days the fixed deposit is also linked with saving account. Whenever there
is excess of balance in saving a/c it will automatically transfer into Fixed deposit
and if there is shortfall of funds in savings a/c , by issuing cheque the money is
transferred from fixed deposit to saving a/c. Different banks give different nameto this product.
3. Current A/c:
A current A/c is an active and running account, which may be operated upon any
number of times during a working day. There is no restriction on the number and the
amount of withdrawals from a current account. Current account suit the requirements of a
big businessmen, joint stock companies, institutions, public authorities and public
corporation etc.
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4. Recurring Deposit:
A variant of the saving bank a/c is the recurring deposit or cumulative deposit a/c
introduced by banks in recent years. Here, a depositor is required to deposit an amount
chosen by him. The rate of interest on the recurring deposit account is higher than as
compared to the interest on the saving a/c. Banks open such accounts for periods ranging
from 1 to 10 years. TDS is not applicable to this type of deposit. The recurring depositaccount can be opened by any number of persons, more than one person jointly or
severally, by a guardian in the name of a minor and even by a minor.
5. NRI Account:
NRI accounts are maintained by banks in rupees as well as in foreign currency.
Four types of Rupee account can be open in the names of NRI.
1.Non Resident Rupee Ordinary Account (NRO)
2.Non Resident External Account (NRE)
3.Non Resident ( Non Repatriable Deposit Scheme ) ( NRNR)
4.Non Resident ( special)Rupee Account Scheme ( NRSR)
Apart from this, foreign currency account is the account in foreign currency. The account
can be open normally in US dollar , Pound Sterling , Euro. The accounts of NRIs are
Indian millenium deposit, Resident foreign currency, housing finance scheme for NRI
investment schemes.
6. Corporate Salary Account:
Corporate Salary a/c is a new product by certain private sector banks, foreign
banks and recently by some public sector banks also. Under this account salary is
deposited in the account of the employees by debiting the account of employer. The only
thing required is the account number of the employees and the amount to be paid them as
salary. In certain cases the minimum balance required is zero. All other facilities available
in savings a/c is also available in corporate salary a/c.
7. Demat Account:
Dematerialization is a process by which physical share certificates / securities are
taking back by the company or registrar and destroyed ultimately. An equivalent number of
shares are credited electronically to customers depository account. Just like saving/current
account with a bank one can open a securities account with the depository through adepository participant (DP).
8. Kids Account: ( Minor Account )
Children are invited as customer by certain banks. Under this, Account is opened
in the name of kids by parents or guardians. The features of kids account are free
personalized cheque book which can be used as a gift cheque , internet banking ,
investment services etc.
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9. Senior Citizenship Scheme :
Senior citizens can open an account and on that account they can get interest rate
somewhat more than the normal rate of interest. This is due to some social responsibilities
of banks towards aged persons whose earning are mainly on the interest rate.
B. Loans and Advances:
The main business of the banking company is lending of funds to the constituents,
mainly traders, business and industrial enterprises. The major portion of a banks funds is
employed by way of loans and advances, which is the most profitable employment of its
funds.
There are three main principles of bank lending that have been followed by the
commercial banks and they are safety , liquidity, and profitability.
Banks grant loans for different periods like short term, medium term, long term andalso for different purpose.
1. Personal Loans:
This is one of the major loans provided by the banks to the individuals. There the
borrower can use for his/her personal purpose. This may be related to his/her business
purpose. The amount of loan is depended on the income of the borrower and his/her
capacity to repay the loan.
2. Housing Loans:
NHB is the wholly own subsidiary of the RBI which control and regulate whole
industry as per the guidance and information , home loans rates is going to be cheaper so
that infrastructure sector gets motivation for development home loans rate is decline up to
7.5% EMI at declining rate so that it becomes cheaper. The purpose of loan to purchase,
extension , renovation, and land development.
3. Education Loans:
Loans are given for education in country as well as abroad.
4. Vehicle Loans:Loans are given for purchase of scooter, auto-rickshaw, car, bikes etc.. The market
size of auto finance is RS 7500 cr. Low interest rates, increasing income levels of people
are the factors for growth in this sector. Even for second hand car finance is available.
5.Professional Loans:
Loans are given to doctor, C.A, Architect, Engineer or Management Consultant.
Here the loan repayment is normally done in the form of equated monthly.
6. Consumer Durable Loans:
Under this,loans are given for acquisition of T.V,Cellphones,A.C,Washing
Machines,Fridge and other items.
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7.Loans against Shares and Securities:
Finance against shares are given by banks for different uses. Now a days finance
against shares are given mostly in demat shares. A margin of 50% is normally accepted by
the bank on market value. For these loans the documents required are normally DP notes,
letter of continuing security, pledge form, power of attorney. This loan can be used for
business or personal purpose.
Services Provided By the Banks-
1. Credit Cards:
A credit card is an instrument, which provides immediate credit facilities to its holder to
avail a variety of goods and services at the merchant outlets. It is made of plastic and
hence popularly called as Plastic Money.
Such cards are issued by bank to persons with minimum income ranging between RS
50000 and RS 100000 per annum. And are accepted by a variety of business
establishments which are notified by the card issuing bank.
Some banks insist on the cardholder being their customers while others do not.
Few banks do not charge any fee for issuing credit cards while others impose an initial
enrollment fee and annual fee also.
If the amount is not paid within the time duration the bank charges a flat interest of 2.5%
Leading Indian Banks such as : SBI, BOB, Canara Bank, ICICI, HDFC and a few foreign
banks like CITIBANK, Standard Chartered etc are the important issuers of credit card in
India.
2. DEBIT CARDS:
It is a new product introduced in India by Citibank a few years ago in association with
MasterCard.
A debit card facilitates purchases or payments by the cardholder .
It debits money from the a/c of the cardholder during a transaction. This implies that the
cardholder can spend only if his account permits.
3. NET BANKING:
This facilitates the customers to do all their banking operations from their home by using
the internet facility.
With Net Banking one can carry out all banking and shopping transactions safely and
with total confidentiality.
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With Net Banking one can easily perform various functions:
1. Check Account Balance
2.
Download Account Statement3. Request for a stop payment of a cheque.
4. Request for a new cheque book.
5. Make a FD/TDS enquiry.
6. Access DEMAT a/c
7. Transfer funds.
8. Facilitate bill Payments.
9. Open a FD
10.Pay Credit Card dues instantly.
4.
Mobile Banking:To avail the mobile banking, one needs to have a savings, current and FD a/c and mobile
connection.
Using mobile banking facility one can
1. Check Balance
2. Check last three transactions.
3. Request for a statement
4. Request for a cheque book.
5. Enquire on a cheque status.
6. Instruct stock cheque payment.
7.
View FD details.
8. Transfer funds.
9. Pay Utility Bills.
5. Phone Banking:
It helps to conduct a wide range of banking transactions from the comfort of ones home
or office.
Using phone banking facility one can
1. Check Balance
2.
Check last three transactions.3. Request for a cheque book.
4. Transfer funds.
5. Enquire on a cheque status, and much more.
6. Anywhere Banking:
One can operate his roaming current a/c at one centre at any other designated of a
particular across any other centre.
One can deposit or withdraw cash from any branch of a particular bank all over the
country up to a prescribed limit.
One can also transfer funds.
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7.Automated Teller Machines ( ATM) :
ATMs features user-friendly graphic screens with easy to follow instructions. The ATMs
interact with customers in their local language for increased convenience.
ATMs are generally located in commercial areas, residential localities, major petrol pumps,airports, near railway stations and other places, which are conveniently accessible to
customers.
ICICI Banks ATM network is one of the largest and most widespread ATM network in
India.
Following are the features available on ATMs which can be accessed from anywhere at
anytime :
1. Cash Withdrawal
2.
Cash Deposit3. Balance Enquiry
4. Mini A/c Statements
5. Cheque Book Request
6. Transaction at various merchant establishments.
9. Smart Card:
The smart card, a latest additional to the world of banking and information technology
has emerged as the largest volume driven end-product in the world due to its data
portability, security and convenience. Smart Card is similar in size to todays plastic
payment card, it has a memory chip embedded in it. The chip stores electronic data and
programmes that are protected by advanced security features. When coupled with a
reader, the smart card has the processing power to serve many different applications. As
an access-control device, smart cards make personal and business data available only to
appropriate users.
To ensure the confidentiality of all banking service, smart cards have mechanisms
offering a high degree of security. These mechanisms are based on private and public key
cryptography combined with a digital certificate, one of the most advanced security
techniques currently available. Infact , it is possible to connect to the web banking service
without a smart card.
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Banking on Retail
With a jump in the Indian economy from a manufacturing sector, that never really took off, to
a nascent service sector, Banking as a whole is undergoing a change. A larger option for the
consumer is getting translated into a larger demand for financial products and customization
of services is fast becoming the norm than a competitive advantage. With the Retail banking
sector expected to grow at a rate of 30% [Chanda Kochhar, ED, ICICI Bank] players are
focusing more and more on the Retail and are waking up to the potential of this sector of
banking. At the same time, the banking sector as a whole is seeing structural changes in
regulatory frameworks and securitization and stringent NPA norms expected to be in place by
2004 means the faster one adapts to these changing dynamics, the faster is one expected to
gain the advantage.
The reasons behind the euphemism regarding the Retail-focus of the Indian banks and how
much of it is worth the attention that it is attracting are the question here..
Potential for Retail in India: Is sky the limit?
The Indian players are bullish on the Retail business and this is not totally unfounded. There
are two main reasons behind this. Firstly, it is now undeniable that the face of the Indian
consumer is changing. This is reflected in a change in the urban household income pattern.
The direct fallout of such a change will be the consumption patterns and hence the banking
habits of Indians, which will now be skewed towards Retail products. At the same time, India
compares pretty poorly with the other economies of the world that are now becoming
comparable in terms of spending patterns with the opening up of our economy. For instance,
while the total outstanding Retail loans in Taiwan is around 41% of GDP, the figure in India
stands at less than 5%. The comparison with the West is even more staggering. Another
comparison that is natural when comparing Retail sectors is the use of credit cards. Here also,
the potential lies in the fact that of all the consumer expenditure in India in 2001, less than
1% was through plastic, the corresponding US figure standing at 18%.
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But how competitive are the players?
The fact that the statistics reveal a huge potential also brings with it a threat that is true for
any sector of a country that is opening up. Just how competitive are our banks? Is the threat
of getting drubbed by foreign competition real? To analyze this, one needs to get into theshoes of the foreign banks. In other words, how do they see us? Are we good takeover
targets?
Going by international standards, a large portion of the Indian population is simply not
bankable taking profitability into consideration. On the other hand, the financial services
market is highly over-leveraged in India. Competition is fierce, particularly from local private
banks such as HDFC and ICICI, in the business of home, car and consumer loans. There,
precisely lie the pitfalls of such explosive growth. All banks are targeting the fluffiest
segment i.e. the upwardly mobile urban salaried class. Although the players are spreading
their operations into segments like self- employed and the semi-urban rich, it is an open
secret that the big city Indian yuppies form the most profitable segment. Over-dependence on
this segment is bound to bring in inflexibility in the business.
What about the foreign giants?
The foreign banks have identified this problem but there are certain systematic risks involved
in operating in the Retail market for them. These include regulatory restrictions that prevent
them from expanding their branch network. So these banks often take the Direct Selling
Agent (DSA) route whereby low-end jobs like sourcing or transaction processing are
outsourced to small regional layers. So now on, when you see a loan mela or a road show
showcasing the retail bouquet of an elite MNC giant, you know that a significant commission
earned out of any such booking gets ploughed back to our own economy. Perhaps, one of the
biggest impediments in foreign players leveraging the Indian markets is the absence of
positive credit bureaus. In the west the risk profile can be easily mapped to things like SSNs
and this information can be publicly traded.
PAN is a step in this direction but lot more work need to be done. What has been a positive
step towards this is a negative file sharing started by a consortium of 11 banks. However, as a
McKinsey study points out actual write-offs on NPAs show a strong negative correlation with
sharing of positive information. On top of this, the spend-now-pay-later credit culture in
India is just not picking up. A swift legal procedure against consumers creating bad debt is
virtually non-existent. Finally, the vast geographical and cultural diversity of the countrymakes credit policy formulation a tough job and it simply cannot be dictated from a Wall
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Street or a Singapore boardroom! All these add up to the unattractiveness of the Indian retail
market to the foreign players.
So over the past few years, in spite of the entry of MNCs in many industries, Retail Banking
has seen a flurry of panicky exits. Fewer than 40 remain in India and their share of total bank
assets currently 7.2% is falling. Those that remain might be thought to be likely buyers of
Indian banks. Yet Citibank, HSBC and Standard Charteredall in India for more than a
century, and with relatively large retail networksseem to have no pressing need to acquire a
local bank. Established foreign banks have preferred to take over customers or businesses
from other foreign banks that want to leave. Thus HSBC, in recent years, has acquired
customers from France's BNP, Germany's Deutsche Bank and Japan's Bank of Tokyo-
Mitsubishi. ABN Amro took over Bank of America's retail business.
So all for the keeping then?
This will perhaps be the most wrongful
inference that can be drawn from the above. We just cannot afford to look inwards and repeat
the mistakes that were the side effects of the Nationalization of the Banking System. A
growing market can never be an alibi for lack of innovation. Indian banks have shown little
or no interest in innovative tailor-made products. They have often tried to copy process
designs that have been tested, albeit successfully, in the West. Each economic culture has its
own traits and one who successfully adapts those to the business is the eventual winner. A
case in point is the successful implementation of micro-credit networks in Bangladesh.
Positioning a bank as a tech-savvy financial vendor in a country where Internet penetration is
an abysmal 1.65% can only add to the over-leveraging as pointed out earlier. The focus of the
sector should remain in macroeconomic wealth creation and not increasing the per capita
indebtedness that will do little but add to the NPA burden. Retail Banking in India has to be
developed in the Indian way, notwithstanding the long queues in front of the teller counters in
the Public sector banks.
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Company Profile
ING group originated in 1990 from the merger between Nationale Nederlanden the largest
Dutch Insurance Company and NMB Post Bank Group. Combining roots and ambitions,
the newly formed company called Internationale Nederlanden Group . Market circles soon
abbreviated the name to I-N-G. The company followed suit by changing the statutory name to
ING Group. ING is a global financial services company providing banking, investments, life
insurance and retirement services and operates in more than 50 countries.
ING is a global financial institution of Dutch origin offering banking, investments, life
insurance and retirement services. ING serve more than 85 million private, corporate and
institutional customers in Europe, North and Latin America, Asia and Australia. They draw
on their experience and expertise, their commitment to
excellent service and their global scale to meet the needs of a broad customer base,
comprising individuals, families, small businesses, large corporations, institutions and
governments
ING Vysya FOUNDATION (INGCSR)
World over ING has strengthened its name as a good corporate citizen. The ING Chances for
Children initiative (CFC) a global program in partnership with UNICEF is to educate 50,000
underprivileged children in three countries, Ethiopia, India and Brazil by 2008. In India the
focus is primarily in the districts of Dharampuri and Krishnagiri in Tamil Nadu. Through the
national Child labor Elimination (NCLP) bridge schools, ING provides much needed support
to UNICEF, to fund, monitor, and provide children with quality primary education
The Indian arm of the Chances for Children programs is run by the support of ING business
units in India (ING, ING Life Insurance and ING Investment Management) through the ING
Vysya Foundation.
The Foundation was set up almost 3 year ago and was actively involved in the post Tsunami
rehabilitation of the victims. ING Group set up a dedicated Tsunami Support account. In
India, the Foundation partnered with five NGO providing much needed financial support,
from rebuilding of schools to providing fishing boats, giving much needed hope to destroyed
lives.
The Indian chapter of CFC involves the partnership of the Foundation with 7 NGO working
in primary education. Not only does the Foundation provide much needed financial support to
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these organizations but also runs strong voluntary programs giving the employees a chance to
meet the children, work with them and take ownership and responsibility for the vision of its
partners. The Foundation creates systems that ensure CSR activities within the organization.
Various programs are initiated with the employees, whether it is taking 100 children for a day
out to the planetarium or watching a film with them. It collectively influences the culture of
the organization; and also provides the employees with an opportunity to contribute to the
vision of the organizations CSR.
Recently ING Vysya Foundation launched its initiative Run Ricky Run. In this initiative,
for every run Ricky makes the Foundation will sponsor one child to go to school through its
association with its NGO partner in Bangalore, SUKRUPA.
Addressing health care, poverty or human rights issues, there is no better way than through
the corridors of education. The main focus of the Foundation in India is to support not for
profit organizations working in the area of education.
STRATEGY
INGs overall mission is to help customers manage their financial future. Capitalizing on
changing customer preferences and building on our solid business capabilities, INGs
strategic focus is on banking, investments, life insurance and retirement services. They
provide retail customers with the products they need during their lives to grow savings,
manage investments and prepare for retirement with confidence. With wide range of
products, innovative distribution models and strong footprints in both mature and developing
markets, ING has the long-run economic, technological and demographic trends on their side.
ING aligns its business strategy around a universal customer ideal: saving and investing for
the future should be easier. While steering the business through turbulent times, ING will
execute efforts across all its business lines to strengthen customer confidence and meet their
needs, preserve a strong capital position, further mitigate risks and bring its costs in line with
revenue expectations.
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Product of bank
Types of saving accounts offered by ING Vysya Bank
A)ORANGE SAVINGS ACCOUNT:
This account is the basic product of ING Vysya Bank. In this account minimum cash balance
required to open an account & the Quarterly Average Balance requirement is Rs5000. Some
of the major features and benefits of this account are:
FREE
Free issue of International Debit Card.
Unlimited ATM transactions at over 25,000 (Cirrus/Cashnet) ATMs in India, where
QAB is maintained.
Shopping convenience at over 2 Lakh merchant locations, with the ING Vysya
International Debit card.
Unlimited ATM transactions at over 196 ING Vysya ATMs.
2 Demand Drafts with a value not exceeding Rs.50,000 per annum, where QAB is
maintained.
Unlimited usage of payable at par (PAP) Cheques.
Transfer of funds across all branches.
National Electronic Funds Transfer (NEFT) through the internet banking channel.
Electronic Bill Payment service.
Smartserv - Personal Assistance Service.
Statement of Account through E-mail.
Mi-b@nk - Internet banking facility.
RTGS (Real Time Gross Settlement) transactions at all branches.
AAA Cash deposit (Customers) Free up to 2 transactions per month and a value
limit of Rs. 50,000/-
BENEFITS
Free unlimited access to 25,000 + other bank ATMs- enhanced accessibility.
Free multi branch, Multi-city banking convenience.
Payable at par Cheques.
Smart serv- Personal Concierge Services.
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B)ING FORMULA SAVINGS ACCOUNT:
This is the product of ING Vysya Bank which is targeted towards the upper middle class
segment of the society. Basically the targeted segment is the age group between 18-40 yrs.This product has its significance particularly in Metropolitan/A grade cities. This product is
also useful for people who travel frequently particularly to Metropolitan/A grade cities.
Minimum cash balance required to open this account and Quarterly Average Balance
requirement is Rs. 25000/-
Some of the major features and benefits of this account are :
Maximum withdrawal limit from INGs ATM or any other banks ATM is Rs.
50,000.
Maximum shopping limit through INGs ATM/Debit card is Rs. 75,000.
Free Payable at Par cheques.
Exclusive F1 themed, Internet Banking services.
Formula 1 International Debit card.
Free sms alerts on transactions above Rs. 1500.
SPECIAL BENEFITS CARDFUEL GAUGE
Fill fuel across any petrol pump in India and get the 2.5% surcharge waived.
SPEED LAP
Shop using your ING Formula savings account and get Formula One merchandise.
RACE DAY
Whenever there is a Formula 1 race anywhere in the world, there is a race for u as
well. Shop using your ING Formula debit card on the day of the race and top 25
spenders for the race day wins vouchers from ING.
3 winnersGift vouchers worth Rs. 5000/-
10 runner ups- Gift vouchers worth Rs. 2000/-
12 second runner ups- Gift vouchers worth Rs. 1000/-
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B)PLATINA ACCOUNTS
This product (account) of ING Vysya Bank is a special product for special class of customers.
This can also be termed as Preferred Platina Banking. This product is designed to reduce the
efforts put in handling banking and financial needs. This product has special features whichare mainly meant for business class people who have to make large payments and have
regular transactions. The Platina account holder becomes the preferred customer of the bank.
The average quarterly balance (QAB) is Rs. 100,000
Features:
Dedicated Relationship Manager
Our dedicated relationship managers can help you manage your money; while you pursue
your passion, be it business or pleasure.
Wealth Management Service
Our preferred banking services offer you customized financial strategies on how to invest
and where to invest based on simple financial risk profiling.
ING Platina Debit Card
Use your ING Platina Gold Debit Card and withdraw cash up to Rs1 lac per day
from any ATM, Avail a 1% cash back on shopping with your Debit Card.
Account Representative Services
Now when you are out building a business empire or taking that well deserved
vacation, just nominate someone else to do your routine banking enquires.
Preferential rates on ING products
Get more out of the Platina relationship. Avail preferential rates on Demat, Bank
Lockers, Personal and Home loans.
CORPORATE RESPOSIBILITY
ING wants to pursue profit on the basis of sound business ethics and respect for its
stakeholders. Corporate responsibility is therefore a fundamental part of INGs strategy:
ethical, social and environmental factors play an integral role in business decisions.
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Finanicial BalanceSheet
The ING Vysya BANK Ltd.
ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya Bank
Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse, ING of
Dutch origin, during Oct 2002.
The origin of the erstwhile Vysya Bank was pretty humble. It was in the year 1930 that a
team of visionaries came together to form a bank that would extend a helping hand to those
who weren't privileged enough to enjoy banking services.
ING and ING Vysya Life Insurance are headquartered at Bangalore, while the corporate
office of ING Investment Management is situated at Mumbai. The synergies arising out of
the three distinct but complimentary businesses are bound to be an asset to the group in the
changing market dynamics of the future. The first such signs are already visible on the
horizon with combined products being successfully launched by the different entities of the
group in conjunction with each other
It's been a long journey since then and the Bank has grown in size and stature to encompass
every area of present-day banking activity and has carved a distinct identity of being India's
Premier Private Sector Bank.
In 1980, the Bank completed fifty years of service to the nation and post 1985; the Bank
made rapid strides to reach the coveted position of being the number one private sector bank.
In 1990, the bank completed its Diamond Jubilee year. At the Diamond Jubilee Celebrations,
the then Finance Minister Prof. Madhu Dandavate, had termed the performance of the bank
stupendous. The 75th anniversary, the Platinum Jubilee of the bank was celebrated during
2005. The long journey of seventy-five years has had several milestones
1930 Set up in Bangalore
1948 Scheduled Bank
1985 Largest Private Sector Bank
1987 The Vysya Bank Leasing Ltd. Commenced
1988 Pioneered the concept of Co branding of Credit Cards
1990 Promoted Vysya Bank Housing Finance Ltd.
1992 Deposits cross Rs.1000 crores
1993 Number of Branches crossed 300
1996 Signs Strategic Alliance with BBL., Belgium. Two National Awards by Gem & Jewellery Export
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Promotion Council for excellent performance in Export Promotion
1998
Cash Management Services, & commissioning of VSAT. Golden Peacock Award - for the best HR
Practices by Institute of Directors. Rated as Best Domestic Bank in India by Global Finance
(International Financial Journal - June 1998)
2000 State -of - the -art Date Centre at ITPL, Bangalore.RBI clears setting up of ING Vysya Life Insurance Company
2001 ING-Vysya commenced life insurance business.
2002
The Bank launched a range of products & services like the Vys Vyapar Plus, the range of loan
schemes for traders, ATM services, Smartserv, personal assistant service, Save & Secure, an
account that provides accident hospitalization and insurance cover, Sambandh, the International
Debit Card and the mi-b@nk net banking service.
2002 ING takes over the Management of the Bank from October 7th , 2002
2002 RBI clears the new name of the Bank as ING Vysya Bank Ltd, vide their letter of 17.12.02
2003 Introduced customer friendly products like Orange Savings, Orange Current and Protected HomeLoans .
2004 Introduced Protected Home Loans - a housing loan product
2005Introduced Solo - My Own Account for youth and Customer Service Line Phone Banking
Service
2006Bank has networked all the branches to facilitate AAA transactions i.e. Anywhere, Anytime &
Anyhow