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DECLARATION
I, the undersigned URVI B. SHAH a student of
T.Y.B.B.A. hereby declare that the project work
presented in this report is my own and has been
carried out under the supervision of Ms. Darshita
Ganatra ofCHRIST COLLEGE, RAJKOT.
Date :
Place: Rajkot (Urvi B.
Shah)
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PREFACE
Retail banking has emerged as a thrust area of
the Indian Banking in recent years. The reasons for
this phenomenon are well known. Importantly, it
denotes a shift in the official policy, which had been
discouraging banks from venturing in this area until
1990s.
This new area has presented enormous
challenges and opportunities to India banks. They
have risen to the occasion and have been proving
themselves. In this report, I have put together certain
critical aspects along with experiences in retail
banking in India. Indeed, retail banking is a
conglomeration of several heterogeneous activities
ranging from simple overdrafts to mortgage loans.
However, they all have a common feature namely
individual-base. The discussions in the report cover
virtually most of the aspects.
The report deal with the overview, current
scenario, problems, prospect of the banking industry
and mainly the trend in retail banking in Indian
banking industry and in State Bank of Saurashtra,
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which is one of the seven associates of State Bank of
India.
Date :
Place : Rajkot (Urvi B. Shah)
ACKNOWLEDGEMENT
I feel a great sense of pride and pleasure in
presenting my first FINANCE REPORT to the
Saurashtra University as a student of T.Y.B.B.A. on
RETAIL BANKING.
I convey my heartiest gratitude to Mr. Jayesh
Katrodia and Mr. Kirti Bataviya, without whom
this task would not have been so easy. Also, I am
thankful to Mr. Hemant Vasani and Mr. Y. B.
Gosaiwho gave me valuable advices and required
knowledge for my report. Also, I am thankful to Mr.
Atul Rathodand S.B.S. university road branch
at Rajkotfor their co-operation.
I thank Ms. Darshita Ganatra who guided me
throughout in making the report and giving me
motivation.
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I thank allthose who have helped me directly
or indirectly in the successful completion of thisproject.
Date :
Place : Rajkot (Urvi B.
Shah)
MAIN INDEX
Chapter
No.Particulars Pg. No.
1 Overview
2 Conceptual framework
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3 Research Methodology
4
Analysis of data and
interpretation
CHAPTER 1
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OVERVIEW
INDEX
Chapte
r No.Particulars Pg. No.
1 Brief history of S.B.S.
2 Overview of banking industry
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3Problems faced by banking
industry
4 Prospect of banking industry
5Overall conclusion of the
chapter
SBRIEF HISTORY AND DEVELOPMENT OF
S.B.S.
History of S.B.S.
State Bank of Saurashtra is a growing and
progressive institution, with its roots firmly
entrenched in the soil of Saurashtra. The region of
Saurashtra, which at present forms a part of Gujarat
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State, comprised of many small, medium and large
princely states, prior to 1948. The states of
Bhavnagar, Rajkot and Porbandar, which wereamong the larger states and the two smaller states,
viz. Palitana and Vadia, had established their own
Darbar Banks. Out of these five, Bhavnagar Darbar
Bank had been established in the year 1902, to
which we owe our origin. These banks were mainly
catering to the needs of the respective princely
states, acting as the repository for the states
treasures as also the peoples savings. After the
princely states were integrated to from Saurashtra
state in 1948, a need was felt to amalgamate these
banks and make them a state-owned bank was felt
to serve as an instrument for developing the
economy of the region. Accordingly, the Bhavnagar
Darbar Bank was formed into a statutory
corporation, called STATE BANK OF SAURASHTRA,
under the Saurashtra State Bank (Amalgamation)
Ordinance, 1950 and the four Darbar Banks Rajkot
State Bank, Porbandar State Bank, Palitana Darbar
Bank and Vadia State Bank were merged with it
with effect from 1st July, 1950 as its branches.
The year 1960 was the most important
landmark in the history of the Bank. Firstly,
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following the formation of a separate Gujarat State,
the Banks main area of operation Saurashtra
became a part of Gujarat. Secondly, pursuant to therecommendations of the All India Rural Credit Survey
Committee, the Bank was taken by the State Bank of
India under its wings along with other major state-
owned banks under the State Bank of India
(Subsidiary Banks) Act, 1959. Thus, in 1960, the
State Bank of Saurashtra joined the State Bank
family as one of its fully owned subsidiaries so that
its policies and activities could be directed to
achieve the socio-economic objectives for which the
Sate Bank of India itself was constituted. These twin
events brought about a significant change in the
outlook of the Bank. Apart from providing the Bank
with an opportunity to expand its operations and
enabling use of the network of the State Bank Group
for furthering its business activities, it also enabled
the Bank to grow from a state of infancy into
adulthood by imbibing the rich banking traditions of
the State Bank of India.
At the close of 1950, the Bank had only 9
branches and deposits of Rs 7 crores. A decade
later the number of branches had increased to 24
with aggregate deposits of Rs 13.39 crores, total
advances of Rs 7.93 crores and investment
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portfolio of Rs 8.04 crores. The paid up capital and
reserves were Rs 1.51 crores. The Bank had 866
people on its payroll, to take care of its operations.
Their Present
By 31/03/2005, the total deposits amounted to
Rs 12613.04 crores and total advances reached the
level of Rs 6714.07 crores. The business of the Bank
is now spread over 15 states and Union Territory of
Daman and Diu with a network of 423 branches.
The Banks paid up capital and reserves amounted
to Rs 794.25 crores as at the end of March 2005.
The Bank had Capital Adequacy Ratio of 11.45%.
All branches are fully computerized and are
expected to be networked to provide Anywhere
Banking to our valued customers before December,
2005.
Their Vision
To be the premier Pubic Sector Bank of Gujarat
aiming at growth and profit with central focus on
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customer delight by means of improved technology,
product development, excellence in service, thus
harnessing the potential for
growth in alignment with national policies and
priorities in a planned manner geared to meet all
challenges of growth.
Their Mission
State Bank of Saurashtra aims at corporate
excellence and profit maximization with central
focus on customer delight so as to maintain its
premier position in the State of Gujarat by means of
excellence in service, product development,
improvement in technology, harnessing potential for
growth in alignment with national objectives in a
planned manner so as to emerge as a strong bank
with social orientation, geared to meet all the
challenges of growth.
Excellence in man management and optimal
use of human resources will be the banks
cornerstone in establishing a position of eminence
for itself in the banking industry, benchmarking itself
against the highest standards and adopting national
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and international best practices while maintaining
the traditional strength developed over a century of
banking.
The bank will derive its strength from its
extensive rural network and reach out to the urban
pockets with thrust on technology and quality
service.
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OVERVIEW OF THE INDIAN BANKING
INDUSTRY
The Indian Banking industry, which is
governed by the Banking Regulation Act of India,
1949 can be broadly classified into two major
categories, non-scheduled banks and scheduled
banks. Scheduled banks comprise commercial banks
and the co-operative banks. In terms of ownership,
commercial banks can be further grouped into
nationalized banks, the State Bank of India and its
group banks, regional rural banks and private sector
banks (the old/new domestic and foreign). These
banks have over 67,000 branches.
The first phase of financial reforms
resulted in the nationalization of 14 major banks in
1969 and resulted in a shift from Class banking to
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Mass banking. This in turn resulted in a significant
growth in the geographical coverage of banks. Every
bank had to earmark a minimum percentage of theirloan portfolio to sectors identified as priority
sectors. The manufacturing sector also grew during
the 1970s in protected environs and the banking
sector was a critical source. The next wave of
reforms saw the nationalization of 6 more
commercial banks in 1980. Since then the number
scheduled commercial banks increased four fold
and the number of banks branches increased eight
fold.
After the second phase of financial sector
reforms and liberalization of the sector in the early
nineties, the Public Sector Banks (PSBs) found it
extremely difficult to compete with the new private
sector banks and the foreign banks. The new private
sector banks first made their appearance after the
guidelines permitting them were issued in January
1993. Eight new private sector banks are presently
in operation. These banks due to their late start have
access to state of the - art technology, which in
turn helps them to save on manpower costs and
provide better services.
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During the year 2000, the State Bank of
India (SBI) and its 7 associates accounted for 25 %
share in deposits and 28.1 % share in credit. The 20nationalized banks accounted for 53.2 % of the
deposits and 47.5 % of credit during the same
period. The share of foreign banks (numbering 42),
regional rural banks and other scheduled
commercial banks accounted for 5.7 %, 3.9 % and
12.2 % respectively in deposits and 8.41 %, 3.14 %
and 12.85 % respectively in credit during the year
2000.
Current Scenario
The banking industry is currently in a
transition phase. On the one hand, the PSBs, which
are the mainstay of the Indian Banking System are in
the process of shedding their flab in terms of
excessive manpower, excessive Non
Performing Assets (NPAs) and excessive
governmental equity, while on the other hand the
private sector banks are consolidating themselves
through mergers and acquisitions.
PSBs, which currently account for more
than 78 % of total banking industry assets are
saddled with NPAs, falling revenues from traditional
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sources, lack of modern technology and a massive
workforce while the new private sector banks are
forging ahead and rewriting the traditional bankingbusiness model by way of their sheer innovation and
service. The PSBs are of course currently working
out challenging strategies even as 20 % of their
massive employee strength has dwindled in the
wake of the successful Voluntary Retirement
Schemes (VRS).
The private players however cannot
match the PSBs great reach, great size and access
to low cost deposits. Therefore, one of the means for
them to combat the PSBs has been through the
merger and acquisition (M&A) route. Over the last 2
years, the industry has witnessed several such
instances. For instance, HDFC Banks merger with
Times Bank, ICICI Banks acquisition of ITC Classic,
Anagram Finance and Bank of Madura.
Private sector banks have pioneered internet
banking, phone banking, anywhere banking, mobile
banking, debit cards, Automated Teller Machines
(ATMs) and combined various other services and
integrated them into the mainstream banking arena,
while the PSBs are still grappling with disgruntled
employees in the aftermath of successful
VRS. Also, following Indias commitment to the WTO
agreement in respect of the services sector, foreign
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banks, including both new and the existing ones,
have been permitted to open up to 12 branches a
year with effect from 1998 99 as against the earlierstipulation of 8 branches.
Talks of government diluting their equity from 51 %
to 33% have also opened up a new opportunity for
the takeover of even the PSBs.
Meanwhile the economic and corporate
sector slowdown had led to an increasing number of
banks focusing on the retail segment. Many of them
are also entering the new vistas of Insurance. Banks
with their phenomenal reach and a regular interface
with the retail investor are the best placed to enter
into the insurance sector. Banks in India have been
allowed to provide fee based insurance services
without risk participation, invest in an insurance
company for providing infrastructure and services
support and set up of a separate joint venture
insurance with risk participation.
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PROBLEMS FACED BY THE BANKING
INDUSTRY
The banking industry in India is undergoing a
major transformation due to changes in economic
conditions and continuous deregulation. These
multiple changes happening one after other has a
ripple effect on a bank trying to graduate from
completely regulated sellers market to completed
deregulated customers market.
Deregulation :
This continuous deregulation has made the
Banking market extremely competitive with greater
autonomy, operational flexibility, and decontrolled
interest rate and liberalized norms for foreign
exchange. The deregulation of the industry coupled
with decontrol in interest rates has led to entry of a
number of players in the banking industry. At the
same time reduced corporate credit off take thanks
to sluggish economy has resulted in large number of
competitors battling for the same pie.
New rules :
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As a result, the market place has been redefined
with new rules of the game. Banks are transformingto universal banking, adding new channels with
lucrative pricing and freebees to offer.
Natural fall out of this has led to a series of
innovative product offerings catering to various
customer segments, specially retail credit.
Efficiency :
This in turn has made it necessary to look for
efficiencies in the business. Banks need to access lowcost funds and simultaneously improve the efficiency.
The banks are facing pricing pressure, squeeze on
spread and have to give thrust on retail assets.
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PROSPECT OF THE BANKING INDUSTRY
The future banking, which is poised for
reaping the full benefits of the developments in the
field of knowledge and information technology, will
be knowledge oriented and technology driven
banking, thus metamorphosing the entire Indian
banking scenario. The main features of Banking
Vision in Prospect can be briefly summarized as :
* This will be a paperless banking era dominated by
plastic money.
* The banks will be slim and trim in their physical size
and structure and not in business volume, with
emphasis on automation and outsourcing of different
services so that they can tackle the increasing
volumes of business efficiently and effectively and
become competitive in relation to foreign and
private sector banks.
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* Customer banker contact will be reduced to the bare
minimum to be taken over by electronic banking,
telebanking and card banking. This can very well beexpressed as 365 Days 24 Hours Anywhere
Banking or alternatively as Anywhere Anytime
Banking.
* Customer service and product innovation will be the
guiding principle and the strength of the banks.
* Integration of financial services, such as insurance,
hire purchase and leasing, brokering, consultancy
and banking, will take place thereby making the
banks a delivery channel for a host of financial
products and services.
* Five to six nationalized banks will dominate Indian
Banking scenario having global presence and sound
capital base with a few all India character private
sector banks along with the small regional banks
suiting and catering to local requirements.
* With thinning of spreads on core banking business of
credit and deposit, banks have to search for
alternative profit generating avenues in the form of
the float fund management, thereby strengthening
their treasury operations, which will be a thrust area
in the emerging banking environment.
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* Risk management activities will be more pronouncedin future banking because of the liberalization,
deregulation and global integration of financial
markets, which will be adding depth and dimensions
to the banking risks. The risks are correlated and
exposure to one risk may lead to another risk,
therefore management of risks in a proactive,
efficient and integrated manner will be the strength
of the successful banks.
Thus, future banking can be compared
with the hospitality industry thriving on the tailor
made products suiting to the requirements of the
individual customers where volumes will be of
primary importance. Accordingly the perceived
theme of Indian Banking Vision in Prospect can
best be described as Technology Driven
Enlightened Employee with Customer Delight with
the service objective of Anywhere Anytime
Banking.
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OVERALL CONCLUSION OF THE CHAPTER
Growth is the innate process and natural
mechanism of every organisation and system to
which Indian banking is no exception. A historical
glance on the development of India Banking Industry
reveals that it has passed through various phases of
growth, which may be classified under different
phases together with future projections.
The financial sector reforms have brought
about significant improvements in the financial
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strength and the competitiveness of the Indian
Banking System. The banking sector reforms were
basically aimed at ensuring the safety andsoundness of financial institutions and the same
time at making the baking system strong, efficient,
functionally diverse and competitive. The reforms
included measures for arresting the decline in
productivity, efficiency and profitability of the
banking sector. Furthermore, it was recognized that
the Indian banking system should be in tune with
international standards of capital adequacy,
prudential regulations, and accounting and
disclosure standards.
State banks in India have, over the years,
played a very significant role in the development of
the economy and in achieving the objectives of
reaching the masses and cater to the credit needs of
all segments, including weaker sections, of the
economy.
Technological factors played a major role.
Convenience banking in the form of debit cards,
internet and phone banking, anywhere and
anytime banking has attracted many new customers
into the banking field.
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CHAPTER 2 :
CONCEPTUAL
FRAMEWORK
INDEX
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Chapter
No.Particulars Pg. No.
1 Definition of retail banking
2 Meaning of retail banking
3Special features of retail
credit
4 SWOT Analysis
5Emerging issues in retail
credit
6 Conclusion of the chapter
DEFINITION
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The simplistic definition of the term retail
banking could be catering to the multiple banking
requirements of individuals relating to deposits,advances and associated services. The retail banking
portfolio of a bank encompasses deposits and asset-
linked products as well as other financial services
offered to individuals for personal consumption. The
retail banking on assets side of the balance sheet
now includes a wide range of loan products such as
housing loans, mortgage loans, consumption loans
for purchase of durables, personal loans for
specified/unspecified activities/requirements, auto
loans, educational loans, loans against various types
of securities, loans against future rentals in addition
to the traditional products on liability side of the
balance sheet such as acceptance of deposits
savings bank, current account or term deposits.
MEANING
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Most of the Indian banks have largely been
retail banks in their business composition. The termretail banking encompasses retail deposit schemes,
retail loans, credit cards, debit cards, insurance
products, mutual funds, depository services
including demat facilities and a host of other
services catering to the needs of the individual
customers. It would be seen from the above that
retail banking includes various financial services and
products forming part of the assets as well as the
liabilities segment of the Banks. Simply put, it refers
to taking care of the banking needs of individual
customers in an integrated manner. It has to be
viewed as a market segment by itself.
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SPECIAL FEATURES OF RETAIL CREDIT
One of the prominent features of retail banking
products is that it is a volume driven business.
Further, retail credit ensures that the business risk is
widely dispersed among a large customer-base,
unlike in the case of corporate lending where the risk
may be concentrated lending where the risk may be
concentrated on a select few clients. Ability of any
bank to administer a large portfolio of retail credit
products depends on such factors as the following :
Strong credit assessment capability: because of
the large volume good infrastructure is required. If
the credit assessment itself is qualitative, then the
need for follow up in the future reduces
considerably.
Sound Documentation : a robust system for credit
documentation is a necessary pre-requisite for
healthy growth of retail credit portfolio as in the
case of credit assessment, this will also minimize the
need to follow up at a future point of time.
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Strong processing capability : since large
volumes of transactions are involved, excellent
infrastructure for processing of day-to-daytransactions, maintenance of back-ups etc., is
required.
Regular and Constant Follow-up : ideally, follow
up for loan repayments should be an ongoing
process; it should start from the customer enquiry
and last till the loan is repaid in full.
Skilled human resources : this is one of the most
important pre-requisites for the efficient
management of a large and diverse retail credit
portfolio. Only highly skilled and experienced
manpower can withstand the rigour of administering
a diverse and complex retail credit portfolio.
Technological support : this is yet another vital
requirement. Retail credit is highly technological
intensive nature, because of the large volumes of
business, the need to provide instantaneous service
to the customers at large, faster processing,
maintaining databases etc.
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T
ANALYSIS
SWOT ANALYSIS OF RETAIL BANKING
Strength
$ Maximum chunk of low cost (savings bank) and fixed
deposits, contributed by retail segment, are
considered less volatile as compared to other
deposits. Non volatile nature of these deposits help
the banks to draw their ALM strategies more
particularly for longer tenure comfortably.
$ Low cost of
operations in terms of deployment of manpower for
processing and follow up, as compared to similar
sized loans in other segments.
$ Low level of NPAs. [Tendency to default on housing
loan is low as house is considered as the big-ticket
deal of an individuals life. However, tendency of
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default on other sub-segments of retail loan is
comparatively higher].
$ Retail finance provides a higher and rather
consistent risk adjusted return to Banks due to low
level of NPAs.
$ Safe advances as these are invariably backed by
tangible security in the form of mortgage of
house/flat in case of housing loans and tangible
security, check off facility, post dated cheques, etc.
in case of other retail loans.
$ High yield return to retail depositor with safety and
liquidity.
Weakness
High manpower cost, low productivity and
automation is still a cause of concern for the
nationalized banks which increases intermediation
cost for them as compared to private sector
banks/foreign banks.
The scheme with variable deposit rates option with
the depositors has not gained popularity and as such
the cost of time deposits for the Banks remain
constant even though the rates of interest on
advances remain fluctuating.
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Largely, longer tenure of loans, ranging from
minimum 3 years to 15/20 years as against theaverage deposits of less than 3 years.
Absence of workable foreclosure laws. [The National
Housing Banks has initiated steps to set up a
Mortgage Credit Guarantee Company pursuant to
the announcement made by the Finance Minister in
his budget speech of 2002-03. The Company will
guarantee housing loans, thus providing lenders with
protection against default by the borrowers].
Opportunities
Cross selling of products. [The Banks now prepare
database of their depositors to study the nature of
transactions being routed through the deposit
accounts with a view to ascertaining the lending
requirements of their customers and do marketing
therefore].
Of late, securitization of retail loan
portfolio has been started in a big way. Nationalized
Banks, being in advantageous position in terms of
their geographical reach to a large number of
borrowers, can continue to book fresh business,
improve their customer base to cross sell their
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products and in due course off load the portfolio
through securitization route depending upon their
ALM position.
In the medium term, growth in retail lending is
expected to be outperforming than other segments
due to lower interest rates regime and increased use
of technology by banks thereby reduced cost of
intermediation.
The growth in retail lending is expected to continue
at much higher rates in the time to come as the
retail loans to GDP are still less than 5% which is
lower than the other developed/developing
countries.
Continued preferred mode of savings of the
households sector due to unattractiveness of other
options as compared to risk involved.
Reduction/gradual withdrawal of tax benefits under
other Government administered deposit schemes
also re - routing deposits to Banks.
Retail lending provides an opportunity to the Banks
to offset the lower demand of funds from corporate
sector.
Threats
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~ Incidences of concurrent borrowings are on increase
in case of retail loans through the credit card/otherroutes. This is a cause of concern for the Banks.
~ Switchover/takeover threats loom over the bank.
~ Shrinkage in the kitty of no cost [current account]
deposits thereby increasing the average cost of
deposits for the Bank.
~ The cost of maintaining low cost [saving bank]
deposits is also increasing due to increased
competition. The Banks are now compelled to
provide free ATM cards with other add-on frills.
~ Retail advances are unproductive in nature. These
advances do not directly contribute in the economic
development of the country. Continuous emphasis of
the Banks on the retail segment has reduced their
outlay of funds to other segments such as
agriculture, industry, etc.
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EMERGING ISSUES IN HANDLING RETAIL
BANKING
Knowing the Customer
Know Your Customer is a concept which is
easier said than practiced. Banks face severalhurdles in achieving this. In order that the product
lines are targeted at the right customers present
and prospective it is imperative that an integrated
view of the customers is available to the banks. The
benefits flowing out of cross selling and up selling
will remain a far cry in the absence of this vital input.
In this regard, the customer data bases available
with most of the public sector banks, if not all,
remain far from being enviable.
What needs to be done is setting up of a
robust data warehouse wherefrom meaningful data
on customers, their preferences, their spending
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patterns, etc. can be mined. Cleansing of existing
data is the first step in this direction. PSBs have a
long way to go in this regard.
Technology Issues
Retail banking calls for huge investments in
technology. Whether it is setting up of a Customer
Relationship Management System or Establishing
Loan Process Automation or providing anytime,
anywhere convenience to the vast number of
customers or establishing channel/product/customer
profitability, technology plays a pivotal role. And it is
a long haul. The issues involved include adoption of
the right technology at the right time and at thesame time ensuring volumes and margins to sustain
the investments. It is pertinent to remember that
Citibank, known for its development of technology,
took nearly a decade to make profits in credit cards.
It has also to be added in the same breath that
without adequate technology support, it would be
well nigh impossible to administer the growing retail
portfolio without allowing its health to deteriorate.
Further, the key to reduction in transaction costs
simultaneously with increase in ability to handle
huge volumes of business, lies only in technology
adoption.
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PSBs are on their way to catch up with the
technology much required for the success of retail
banking efforts. Lack of connectivity, stand alonemodels, concept of branch customer as against bank
customer, lack of convergence amongst available
channels, absence of customer profiling, lack of
proper MIS and decision support systems, etc., are a
few deficiencies that are being overcome in a great
way. However, the initiatives in this regard should
include creating flexible computing architecture
amenable to changes and having scalability, a
futuristic approach, networking across channels,
development of a strong Customer Information
System (CIS) and adopting Customer Relationship
Management (CRM) models for getting a 360 degree
view of the customer.
Organizational Alignment
It is of utmost importance that the culture and
practices of an institution support its stated goals.
Having decided to take a plunge into retail banking,
banks need to have a well defined business strategy
based on the competitive profile of the bank and its
potential. Creation of a proper organisation structure
and business operating models which would
facilitate easy work flow are the need of the hour.
The need for building the organizational capacity
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needed to achieve the desired results cannot be
over stated. This would mean a strong
commitment at all levels, intensive training of therank and file, putting in place a proper incentive
scheme, etc. As a part of organizational alignment,
there is also the need for setting up of an effective
Corporate Marketing Division. Most of the public
sector banks have only publicity departments and
not marketing set - up. A full - fledged marketing
department or division would help in evolving a
brand strategy, address the issue of alienation from
the upwardly mobile, high net worth customer group
and improve the recall value of the institution and its
products by arresting the trend of getting receded
from public memory. The much needed tie ups
with manufacturers / distributors / builders will also
be facilitated smoothly. It is time to break the myth
that PSBs are not customer friendly. The attention is
to be diverted to vast data bases of customers lying
with the PSBs still unexploited for marketing.
Product Innovation
Product innovation continues to be yet another
major challenge. Even though bank after bank is
coming out with new products, not all are successful.
What is of crucial importance is the need to
understand the difference between novelty and
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innovation? Peter Drucker in his path breaking book :
Management Challenges for the 21st century has in
fact sounded a word of caution : innovation that isnot in tune with the strategic realities will not work;
confusing novelty with innovation (should be
avoided); test of innovation is that it creates value;
novelty creates only amusement. The days of
selling the products available in the shelves are
gone. Banks need to innovate products suiting the
needs and requirements of different types of
customers. Revisiting the features of the existing
products to continue to keep them on demand,
should not also be lost sight of.
Pricing of Products
The next challenge is to have appropriate
pricing policies in place. The industry today is
witnessing a price war, with each Bank wanting to
have a larger slice of the cake, that is, the market,
without much of a scientific study into the cost of
funds involved, margins, etc. The strategy of each
player in the market seems to be: undercutting
others and wooing the clients of others. Most of the
banks that use rating models for determining the
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health of the retail portfolio do not use them for
pricing the products. The much needed
transparency in pricing is also missing, with manyhidden charges. There is a tendency, at least on the
part of a few to camouflage the price. The situation
cannot remain this way for long. This will be one
issue that will be gaining importance in the near
future.
Process Changes
Business Process Re engineering is yet
another key requirement for banks to handle the
growing retail portfolio. Simplified processes and
aligning them around delivery of customer serviceimpinging on reducing customer touch points are
of essence. A realization has to dawn that
automating the inefficiencies will not help anyone
and continuing the old processes with new
technology would only make the organisation an old
expensive one. Workflow and document
management will be integral part of process
changes. The documentation issues have to remain
simple both in terms of documents to be submitted
by the customer at the time of loan application and
those to be executed upon sanction.
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Issues Concerning Human Resources
While technology and product innovation arevital, the soft issues concerning the human capital of
the banks are more vital. The corporate initiatives
need too focus on bringing around a front line
revolution. Though the changes envisaged are seen
at the front line, the initiatives have really to come
from the bank
end. The top management of banks must be seen
as practicing what it preaches. The initiatives should
aim at improved delivery time and methods of
approach. There is an imperative need to create a
perception that the banks are market oriented.
This would mean a lot of proactive steps on the partof bank managements which would include
empowering staff at various levels, devising
appropriate tools for performance measurement,
bringing about a transformation form cant do to
can do mind set, change from restrictive practices
to total flexible work place, say, by having universal
tellers, bringing in managerial control in work place,
provision of intensive training on products and
processes, emphasizing, coaching and ensuring
etiquette, good manners and best behavioral
models, formulating objective appraisals, bringing in
transparency, putting in place good and acceptable
reward and punishment system, facilitating the
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placement of young / youthful staff in front line,
defining a new role for front line staff by projecting
them as sellers of products rather than clerks atwork and changing the image of the bank from a
transaction provider to a solution provider.
Rural Orientation
As of now, action that is taking place on the
retail front is by and large confined to metros and
big cities. There is still a cast market available in
rural India, which remains to be tapped. Multi
National Corporations, as manufacturers and
distributors, have already taken the lead in showing
the way by coming out
with exquisite products, packaging and promotion,
keeping the rural customer in mind. Washing
powders and shampoos in Re. 1 sachets made
available through an efficient network stand
testimony to the determination of the MNCs to
penetrate the rural market. In this scenario, banks
cannot lag behind. In particular, PSBs, which have a
strong rural customers in a big way. This and only
this will propel a retail growth that is envisaged as a
key strategy for portfolio expansion by most of the
banks.
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CONCLUSION OF THE CHAPTER
Retail lending has turned out to be a key
profit driver for banks. In fact, retailing make ample
business sense in the banking sector. While private
sector banks have been able to create a niche in this
regard, the public sector banks have not lagged
behind.
Technological innovations relating toincreasing use of credit / debit cards, ATMs, direct
debits and phone banking has contributed to the
growth of retail banking in India.
There is a need of constant innovation in
retail banking. In bracing for tomorrow, a paradigm
shift in bank financing through innovative products
and mechanisms involving constant upgradation and
revalidation of the banks internal systems and
processes is called for. Banks now need to use retail
as a growth trigger, this requires product
development and differentiation, innovation and
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business process reengineering, micro planning,
marketing, prudent pricing, customization,
technological upgradation, home / electronic /mobile banking, cost reduction and cross selling.
CHAPTER 3
RESEARCHMETHODOLOGY
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INDEX
Chapter
No.Particulars Pg. No.
1 Analysis of retail banking
2 Objective of the study
3Data collection and period of
study
4 Hypothesis of study
5Tools and techniques used for
analysis
6 Limitation of study
7 Conclusion
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ANALYSIS OF RETAIL BANKING
With the onset of financial sector reforms,
banks had to face stiff competition and they
experienced the threat of disintermediation. Walk - -
in business was a thing of the past and banks were
on their toes to capture quality business. With the
slowdown in the economy, corporate credit has
deteriorated in quality. Good corporates demand
finer interest rates under sub PLR, which means
thinning margins. Banks therefore had to scout in for
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retail business. Retail banking has many advantages
like stable deposits, low cost of funds, larger
customer base etc. on the resources side. On theasset side, the advantages are better yields and
higher profitability, larger volumes of credit
absorption, well diversified risk and lower NPAs,
economic recovery through increased production
and sales, and innovation product development.
With rising income, the life style of the average
Indian Middle Class family had improved
considerably. There is a greater amount of
consumerism in the country and raising debt for the
consumer needs is on the increase. Consumer credit
is no longer considered as unproductive, as it
triggers demand for consumer products, which in
turn helps manufacturers in a period of economic
slowdown. With foreign bans coming into the retail
sector and offering newer products, Indian Banks
also had to evolve its products and services to cater
to the demands of the aggressive middle class.
Retail Banking became the buzzword in banking and
banks have developed innovative retail banking
products tailored to the customers needs.
Retail advances portfolio for selected banks
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2002 2003
ICICI Bank 6,125.00 19,132.00
HDFC Bank 1,430.00 3,163.00IDBI Bank 408.00 1,608.00
Bank of Baroda 989.80 1,455.00
Canara Bank 3,334.00 5,685.00
Union Bank 3,975.80 5,213.70
SBI 17,705.00 24,300.00
Retail credit, especially housing and automobile
loans, which account for over 85 % of the retail
market, have been showing strong growth in the last
3 4 years. As growth in corporate advances has
slowed, banks have been increasingly focusing on
building up their retail assets portfolio of banks grew
at over 25 %. At present, retail assets constitute 10
12 % of the total advances of scheduled commercial
banks.
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OBJECTIVES OF THE STUDY
The following are the objectives for the study
of retail banking:
It identifies whether the retail portfolio has
achieved the targeted budget or not.
It helps in knowing the growth in the specific
sector such as housing loan, educational loan,
etc. before and after implementing the new
schemes.
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It also provides the position in the Retail sector
of India Banking Industry.
It also provides the ratio of growth in public
sector banks as well as the private sector.
It helps in improving the service capability.
DATA COLLECTION AND PERIOD OF
STUDY
There are mainly two types of data :
1] Primary data and
2] Secondary data
Primary data is that which is published or
calculated for the first time. Secondary data is such
data which is available by further calculation of
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primary data i.e. data obtained with the help of
primary data is considered as secondary data.
I have selected secondary data for
research in retail banking. This data is of last 3 years
and I have obtained from P & SB departmentfrom
the head office of S.B.S. situated at Bhavnagar.
Also, I have collected other information
for my report from different magazines like :
1] IBA Bulletin,
2] Banking Annual
3] Bank Quest.
Moreover, I have surfed the sites like,
1]
www.sbsbank.com
2] www.rbi.org.in
3] www.sbi.co.in
4] www.google.com
HYPOTHESIS OF THE STUDY
The assumption regarding retail banking
that I have assumed for my research is increasing
trend. The retail banking has increased
tremendously in the banking industry. Moreover, the
different schemes put forward by banks in retail
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loans have helped to widen the market. The
decrease in the rates of loans has also added its
contribution in increase of retail sector, i.e. thereasonable rates available in the retail banking has
given a push in its increase. The housing finance has
played an important role in the retail banking.
Considering these all factors, the
assumption should be increasing trend in retail
banking.
TOOLS OR TECHNIQUES USED FOR
ANALYSIS OF FINANCIAL DATA
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There are many tools and techniques
used for analysis of financial data. They are ratio
analysis, trend analysis, statistical analysis, etc.
I have selected trend analysis as a tool to
analyze the trend in the retail banking sector of
State Bank of Saurashtra.
LIMITATION OF THE STUDY
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The limitation of the study is stated as below :
We cant know the position of the bank as awhole.
The study is made on the secondary data not
the primary data.
We cant know the branch wise contribution in
the retail portfolio.
CONCLUSION OF THE CHAPTER
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The research on retail banking helps in knowing
the position of the bank in the banking industry due to
its retail credit schemes. The study involves the
various aspects and needs the reliable data sources.
Moreover the data collected is to be analyzed using
proper tools and techniques.
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CHAPTER 4
ANALYSIS OF DATA
AND
INTERPRETATION
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INDEX
Chapter
No.Particulars Pg. No.
1Analysis and interpretation of
data
2 Summary and findings
3 Suggestions
4 Bibliography
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ANALYSIS AND INTERPRETATION OF DATA
1. Housing Loan Scheme
For construction, purchase of new / old house / flat /
repair and renovation & furnishing of house / flat or
purchase of land.
All individuals above 21 to 65 years are eligible.
Loan amount to the extent of 48 to 60 times net
monthly income or 4 to 5 times net annual income
depending upon the age.
No maximum amount fixed. However for purchase of
land alone, the loan amount not to exceed Rs. 10 lacs.
Spouse income can be included for arriving at the
quantum of loan.
Margin 15 % for construction, 20 % for renovation and
30 % for purchase of land.
Repayment can be upto 20 years for person below 45
years and upto 15 years for person above 45 years.
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Processing charges 0.5 % of the loan amount.
HOUSING LOAN SCHEME
Tenor
Floating Rate
w.e.f.
16/02/2004
Fixed Rate
w.e.f.
16/02/2004
Upto 5 years 7.50 % 7.75 %
Above 5 years to
15 years7.75 % 8.00 %
Above 15 years to
20 years8.25 % 8.50 %
HOUSING LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05
Housing
Loan227.96
353.0
3771.54
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227.96
353.03
771.54
0
100
200300
400
500
600
700
800
2002 - 03 2003 04 2004 05
Housing Loan
Interpretation :
In the year 2003 2004 there has been a
little increase in the housing loan. But in the year
2004 2005 there has been an increase of more
than double housing loans.
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2. Car Loan Scheme
To purchase new / old car (not more than 4 years old).
All permanent employees, professionals and self
employed are eligible.
Loan amount not exceeding 24 times net monthly of 2
times net annual income with a maximum of Rs. 12
lacs for new cars and Rs. 5lacs for old cars.
Margin 15 % for loans upto Rs. 4 lacs, 20 % for loans
above Rs. 4 lacs and 30 % for old cars. Repayable in
84 / 60 months for new / old car.
Comprehensive insurance of the vehicle to be
obtained.
No processing charges.
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CAR LOAN SCHEME
New vehiclesFloating Rate
w.e.f.
01/04/2005
Fixed Rate
w.e.f. 01/04/2005
For premium
segment cars
( 8 lakhs &
above)
7.50 % 8.00 %
For metro &
urban centre :
a. upto 3
years
b. above 3
years and
upto 5years
c. above 5
years and
upto 7
years
8.00 %
8.25 %
8.50 %
8.50 %
8.75 %
9.00 %
For rural & semi
urban centre : 8.50 %
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a. upto 3
years
b. above 3years and
upto 5
years
c. above 5
years and
upto 7
years
8.75 %
9.00 %
9.00 %
9.25 %
9.50 %
( Cars with repayment period of more than 3 years )
CAR LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05
CarLoan
1802 2019 2084
1802
2019
2084
1650
1700
1750
1800
1850
1900
1950
2000
2050
2100
2002 - 03 2003 04 2004 05
Car Loan
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Interpretation :
There was a notable increase in the car
loan during 2003 2004 as compared to that of 2002
2003. But not much increase in the year 2004
2005.
3. Education Loan
To provide financial assistance for higher education in
India and abroad for those secured admission in
recognized / reputed institutions.
Loans depending upon the course requirements,
future prospects. Need based finance considered
subject to repayment capacity with a ceiling of Rs. 10
lacs for studies in India and Rs. 20 lacs for studies
abroad.
Expenses considered include fees payable to college /
school / hostel etc. essential for completion of the
course.
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No margin, no security for loans upto 4 lacs. For loans
above Rs. 4 lacs to Rs. 7.50 lacs security only in termsof suitable third party guarantee, for loans above Rs.
7.50 lacs suitable collateral security equal to 100 % of
loan amount and a margin of 15 % for studies abroad
and 5 % for studies in India.
No minimum marks criteria.
Repayment within 5 7 years after getting the
employment or 1 year after completion of course.
Interest charged on simple rate basis during the
course period (moratorium). 1 % interest remission, if
the interest is serviced during the moratorium period.
No processing charges.
EDUCATION LOAN SCHEME
Tenor
Floating Rate
w.e.f.
16/02/2004
Fixed Rate
w.e.f.
16/02/2004
For loans upto Rs.
4 lakhs10.50 %
Note : upto
moratorium period
simple interest
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For loans above
Rs. 4 lakhs11.50 % -
EDUCATION LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05
Educatio
n
Loan
2213 3365 3429
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2213
3365 3429
0
500
1000
1500
2000
2500
3000
3500
2002 - 03 2003 04 2004 05
Education
Loan
Interpretation :
There was a little increase in the year 2003
2004 than year 2003 2004 but a very minor
increase in the education loan during 2004 2005.
4. Scooter Loan
To purchase new scooter / motor cycle etc.
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All permanent employees and other income tax
assessee with minimum net monthly income of Rs.5,000/- is eligible.
Loan amount 6 times net monthly income.
Margin 10 % for loans upto Rs. 50,000/- and 20 % for
loans above Rs. 50,000/-.
Repayable in 36 months.
Processing charges 1 % of the loan amount.
Security : Hypothecation of vehicle with check off
facility or third party guarantee or tangible collateral
security. Comprehensive insurance to be obtained.
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SCOOTER LOAN SCHEME
Tenor
Floating Rate
w.e.f.
16/02/2004
Fixed Rate
w.e.f.
16/02/2004
Vehicle 11.00 % 11.25 %
SCOOTER LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05Scooter
Loan523 575 553
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523
575
553
490
500510
520
530
540
550
560
570
580
2002 - 03 2003 04 2004 05
Scooter Loan
Interpretation :
There was a increase from 523 crores scooter
loan in 2002 2003 to 575 crores in 2003 2004. But
it decreased to 553 crores during 2004 2005.
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5. Personal Loan
General purpose loans including for purchase ofconsumer durable like T.V., fridge, washing machine,
etc.
Employees of government, PSUs, profit making public
limited companies and reputed institutions with
minimum 2 years service and Rs. 4,000/- net monthly
income, self employed engineers, doctors, CAs with
minimum 2 years standing and Rs. 48,000/- net
annual income are eligible.
VRS optees upto the age of 60 with a minimum net
monthly income of Rs. 4,000/- are also eligible.
Loan amount 12 times net monthly income (including
spouse income) with a maximum of Rs. 5 lacs in
metro and Rs. 2.50 lacs at other centres for salaried
and self employed. Rs. 1.50 lacs for VRS optees at
all centres.
Security NIL, loan is subject to credit rating model.
Repayment maximum 48 months ( 36 months for VRS
optees).
Processing charges 1 % of the loan amount.
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PERSONAL LOAN SCHEME
Tenor
Floating Rate
w.e.f.
16/02/2004
Fixed Rate
w.e.f. 16/02/2004
Personal loan
& festival loan
for public
12.75 % -
PERSONAL LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05
Personal
Loan6466 9767 9890
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6466
9767 9890
0
2000
4000
6000
8000
10000
2002 - 03 2003 04 2004 05
Personal Loan
Interpretation :
There was a gradual increase during 2003
2004 but a little increase in the year 2004 2005.
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6. Pensioner Loan
Pensioners upto the age of 70, drawing pension from
SBS are eligible for loans to meet personal expenses
upto 12 times pension or maximum of Rs. 75,000/-.
Repayable in 24 months.
No processing charges.
For family pensioners loan equivalent to 9 months of
pension with a ceiling of Rs. 50,000/-.
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PENSIONER LOAN SCHEME
TenorFloating Rate
w.e.f.
16/02/2004
Fixed Ratew.e.f.
16/02/2004
Loan to
pensioners12.25 % -
PENSIONER LOAN DATA OF S.B.S.Particulars 2002 - 03 2003 04 2004 05
Pensione
r
431 848 864
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Loan
431
848 864
0
100
200
300
400
500
600
700
800
900
2002 - 03 2003 04 2004 05
Pensioner Loan
Interpretation :
Almost an increase is seen in the year 2003
2004 than
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2002 2003. But a bit increase is observed during
2004
2005.
SUMMARY AND FINDINGS
Summary
The retail credit has been the emerging bubble
for the banking industry. The retail credit has found
its way through the new schemes and new banks
being introduced. The concept of retail banking isnot new to the Indian Banks but only in the recent
times it has attracted the special attention of banks.
As opposed to wholesale banking, it focuses
individuals and their personal needs. The retail
banking strategy of banks is a response to the
changing banking environment.
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Findings
Banks now find themselves in a market where
the customer has more options than ever before and
the bank has therefore been compelled to constantly
review his package of products and services to suit
the ever escalating expectation of customers.Before the reforms most of the products offered by
banks were plain vanilla banks had the products
and the customers had to take them or leave them.
Banks in India traditionally offered mass banking
products. With the reforms, massive expansion of
products and services took palce in Indian Banking
scene, driven by rapid advances in technology that
had a dramatic impact on the
delivery systems and ability to service a grater
number of products especially retail products.
Market focus has shifted from mass banking
products to class banking with value added and
customized products.
About S.B.S.:
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State Bank of India along with its seven
associated branches have not lagged behind in the
reforms. They adopted the new technology, new
concepts and came with a new mask. There was a
tremendous increase in retail sector during the year
2003 2004.
BIBLIOGRAPHY
Magazines
1] IBA Bulletin
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2] Banking Annual
3] Bank Quest
4] Policy guideline book
Sites
1] www.sbsbank.com
2] www.rbi.org.in
3] www.sbi.co.in
4] www.google.com
5] www.breeze.com
http://www.sbsbank.com/http://www.rbi.org.in/http://www.sbi.co.in/http://www.google.com/http://www.breeze.com/http://www.sbsbank.com/http://www.rbi.org.in/http://www.sbi.co.in/http://www.google.com/http://www.breeze.com/