A
GLOBAL / COUNTRY STUDY AND REPORT
On
BANKING INDUSTRY OF ISRAEL
Submitted to
(N. R. Institute of Business Management, Ahmedabad)IN PARTIAL FULFILLMENT OF THE
REQUIREMENT OF THE AWARD FOR THE DEGREE OFMASTER OF BUSINESS ASMINISTRATION
InGujarat Technological University
UNDER THE GUIDANCE OF
Dr. Kavita KshatriyaProf. Rajsee JoshiProf. Amish Soni
Prof. Kevlesh Rathod
Submitted by
Kanchan Bachani 117350592157Himani Dosi 117350592142Roopraj Jadeja 117350592048Jenil Choksi 117350592070Dhruvin Shah 117350592046Roshni Nair 117350592026
[Batch: 2011-13]MBA SEMESTER IV
(N.R. Institute of Business Management)MBA PROGRAMME
Affiliated to Gujarat Technological University
Declaration
We, Kanchan Bachani, Himani Dosi, Roopraj Jadeja, Roshni Nair, Dhruvin
Shah & Jenil Choksi hereby declare that the report for Global/ Country Study
Report entitled “BANKING INDUSTRY OF ISRAEL” is a result of our own
work and our indebtedness to other work publications, references, if any, have
been duly acknowledged.
Place: Ahmedabad
Date:
NAME SIGNATURE
Roshni Nair 117350592026
Dhruvin Shah 117350592046
Roopraj Jadeja 117350592048
Jenil Choksi 117350592070
Himani Dosi 117350592142
Kanchan Bachani 117350592157
TABLE OF CONTENTS
Serial
No.
Title Page
No.
1 INDUSTRY OVERVIEW
1.1 General information about the performance of banking industry of
Israel
1
1.1.1 Introduction 1
1.1.2 Forces for change in the Israeli banking system 2
1.1.3 Current Performance Scenario 4
1.1.4 Main Developments in the Balance-sheet activity 6
1.1.5 Credit Quality 6
1.1.6 Borrower Concentration 8
1.1.7 Securities Portfolio 8
1.2 Major Players in the Banking Industry of Israel 9
1.3 Overall products/services offered by the Banking Industry of Israel 10
1.4 Present trade with quantity and amount of the banks in Israel 12
1.4.1 Volume of trade in Foreign Currency Market 12
1.5 Technological Advancement in Israel 16
1.6 Requirements of resources for the industrial operations of Israel 18
1.7 WTO-Israel 20
1.8 Legal aspects and barriers in Israeli banking industry 25
1.9 Overall products/services offered by the Banking Industry of India 32
1.10 Barriers to Indian Banking Sector 38
1.11 Present trade with quantity and amount of the banks in India 39
1.12 Technological Advancement in India 40
1.13 Requirements of Resources in India 49
1.14 Comparison of Banking Industry of Israel and India 50
2 COMPARISON OF BANKS 52
2.1 Bank Hapoalim 52
2.2 Mizrahi Tefahot Bank 60
2.3 Israel Discount Bank 65
2.4 Bank Leumi 69
2.5 State Bank of India 72
2.6 ICICI Bank 78
2.7 Bank of Baroda 88
2.8 HDFC Bank 90
3 FINDINGS 98
3.1 Overall 98
3.2 India’s opportunities and challenges in Israel banking industry 100
4 CONCLUSION 104
5 BIBLIOGRAPHY 105
CHAPTER-1
INDUSTRY OVERVIEW
1.1 GENERAL INFORMATION ABOUT THE PERFORMANCE OF THE
INDUSTRY OF ISRAEL
1.1.1 Introduction
In its sixty-first year of independence, Israel had a strong, stable, and profitable banking
system. The favorable macroeconomic fundamentals that have cushioned the banks’
operations in the recent years are clearly reflected in the banks’ performance, financial
results, and exposure to risks.
The combination of rapid growth of business-sector product and a buoyant domestic capital
market was reflected in the achievements of the banking system, which reported
improvements in its capital adequacy ratio, its quality of credit, and its profits.
The shocks experienced by the global and domestic financial markets in late 2007 did not
overlook Israel’s banking system, mainly due to the banks’ holdings of asset-backed
securities. Nevertheless, their effect was relatively subdued and did not undermine system
stability.
The banking sector risk assessment includes a top-down balance sheet stress test and single
factor tests carried out by the BSD and a contingent claims analysis
The five major banks are covered, with results projected to end-2014 in order to capture the
full effects of shocks. The bank solvency tests are based on three scenarios which reflect key
macroeconomic and financial risks, particularly a domestic slowdown and the potential
impact on the Israeli economy and banks of a European crisis and U.S. slowdown:
The Base scenario is based on BOI staff’s forecasted path of the economy, which
relies on the BOI macro-model; it is more conservative than the IMF WEO October
2011 forecast.
Adverse scenario 1 assumes a domestic recession, caused by geopolitical concerns
leading to economic disruption, declining demand (especially in real estate), an
increase in unemployment, and a rising risk premium.
Adverse scenario 2 reflects a global recession and difficulties in Europe, which affect
the Israeli economy sharply. Real GDP declines relative to the baseline by about 2½
standard deviations.
Non-banking financial institutions, the Israeli capital market and banks abroad serve as a
substitute source for local banking intermediation and therefore constitute a competitive
threat to the banking system in Israel.
1.1.2 Forces for change in Israeli Banking System
Deregulation and opening-up to foreign competition
Banking in the emerging economies was traditionally a highly protected industry,
living off good spreads achieved on regulated deposit and lending rates and pervasive
restrictions on domestic and foreign entry.
For many years, there was little pressure to disturb this cozy and wasteful world.
However, global market and technology developments, macroeconomic pressures and
banking crises in the 1990s have forced the banking industry and the regulators to
change the old way of doing business, and to deregulate the banking industry at the
national level and open up financial markets to foreign competition.
As a result, borders between financial products, banks and non-bank financial
institutions and the geographical locations of financial institutions have started to
break down. These changes have significantly increased competitive pressures on
banks in the emerging economies and have led to deep changes in the structure of the
banking industry.
One of the main catalysts for increased competition at the domestic level has been the
removal of ceilings on deposit rates and the lifting of prohibitions on interest
payments on current accounts.
These deregulation measures have reduced sources of cheap funding for many banks
and put pressure on their profits. Intensified competition has made it harder for banks
to cross-subsidize different activities and has forced them to price risks more
realistically and to charge explicitly for previously free services.
Technology
The major issue about new IT is its impact on the processing of information, which is
the very essence of the banking business. Perhaps the most significant innovation has
been the development of financial instruments such as derivatives that enable risk to
be reallocated to the parties most willing and able to bear that risk, thereby inducing
more investment in real assets and fostering the development of banking and financial
markets in general.
More fundamentally, banks are increasingly losing their privileged access to
information about investment opportunities, and are thus under pressure to merge or
build alliances with domestic or foreign-owned banks and technology companies in
order to share the costs and exploit the benefits of the development of new IT
applications.
One source of concern related to new banking technology is the emergence of a
‘digital divide’ in the access to banking services. According to this view, better
educated and more affluent customers will be able to obtain improved service from
banks through the internet over the medium term, while the services provided to
poorer and older customers will deteriorate as branches are closed, particularly in
remote areas.
Changes in Corporate Behavior
The spread of information technology has affected the banking industry both directly,
through IT applications in risk management and marketing of financial products, and
indirectly, through its impact on corporate behavior and the development of financial
markets, especially in the area of financing new capital investments.
Another implication of these developments is that commercial banks in bank-centered
financial systems can no longer maintain their traditional, close relationships with
corporate customers. Because of pressure from alternative funding sources and other
domestic and foreign banks, there is growing emphasis on shareholder value as the
sole commercial objective of banks.
Banking Crises
There were many banking crises during the 1990s, often occurring shortly after the
external and banking systems were deregulated. Despite all the attention given to the
complicated derivative products that have led to the high-profile collapses of some
individual banks, most systemic banking crises are still caused by poor lending.
1.1.3 Current Performance Scenario
During the first half of 2012, the banking system continued to maintain its resilience and
stability, against the background of uncertainty in the global and domestic economies,
regional geopolitical developments, and the low interest rate environment. Negative
developments in the capital markets and the slowdown in domestic activity also influenced
corporate risk, which remains high, although it is lower than it was during the height of the
crisis (2008–09).
Balance-sheet credit increased by 3 percent, similar to the GDP growth rate. Retail
credit continued to expand, particularly housing credit, the growth rate of which
accelerated beginning in the second quarter as a result of the resurgence in the
housing market. Credit to the business sector did not grow, particularly in light of the
reduction in credit to the financial services industry. During the reviewed period, there
was a decline in borrower concentration in the credit portfolio, but it remains high.
The core tier 1 capital ratio of the five banking groups increased from 7.9 percent to
8.3 percent as a result of the new capital targets, and as of June 2012, the core capital
ratio in all of the banking groups was not less than 8.0 percent. The increase in the
ratio is the result not only of the accumulation of profits and the non-distribution of
dividends, but also the halt in growth of business sector credit.
The profitability of the banking groups in the first half of 2012 was similar to the
long-term average, and was characterized by relatively high variance between the
groups.
PRINCIPAL BANKING SYSTEM INDICES (five major banking groups)
Year Ratio of
Market
Value to
Book
Value
(MV/BV)
Avg.
yield gap
between
bonds of
the
banks &
govt.
bonds
Ratio
of
credit
to
GDP
(%)
Loan
loss
provisio
n to
total
balance
sheet
credit to
the
public
(%)
Ratio of
liquid
assets to
liquid
liabilities
Ratio of
credit to
deposits
Total
capital
ratio
(%)
Core
tier 1
capital
ratio
(%)
ROE
(%)
2001 0.8 0.8 102.3 0.9 0.81 9.4 5.8
2002 0.6 0.8 107.5 1.3 0.83 9.9 2.8
2003 0.8 0.7 104.0 1.1 0.82 10.3 8.4
2004 1 0.8 100.0 0.9 0.80 10.7 13.2
2005 1.4 0.7 97.5 0.7 0.82 10.7 13.9
2006 1.3 0.6 94.8 0.5 0.80 10.8 17.3
2007 1.2 1.1 97.0 0.3 0.85 11.0 15.6
2008 0.6 1.9 101.6 0.7 0.90 11.2 0.3
2009 1.1 1.7 94.7 0.7 0.86 13.7 7.9 8.8
2010 1.1 1.7 95.1 0.4 0.34 0.91 14.0 8.0 9.8
2011 0.7 1.5 91.9 0.4 0.40 0.89 14.0 7.9 10.2
2012 0.7 1.6 90.3 0.4 0.40 0.89 14.4 8.3 9.0
Liquid assets include cash as well as deposits at the Bank of Israel and at other banks with up
to 1 month to maturity, and government bonds.
Liquid liabilities include total deposits with up to 1 month to maturity.
The ratio of market value to book value (MV/BV) and the average yield gap between bonds
of the banks and government bonds are as of October 18, 2012.
1.1.4 Main Development in balance-sheet activity
Assets
The total aggregate balance sheet of the five major banking groups increased slightly
in the first half of the year at a moderate annual rate of 1.9 percent (about NIS 11
billion), to a total of about NIS 1.2 trillion
Two main developments characterized the banks' asset portfolio during the reviewed
period: (1) a slight increase in total net credit to the public (2.7 percent), which was
driven mainly by demand for housing credit in light of a freeze in business credit, and
(2) a change in the composition of the balance sheet and a significant increase in the
securities portfolio (30 percent), mainly due to the purchase of government bonds,
mostly at the expense of cash and deposits at banks.
Liabilities
Deposits from the public increased in the first six months of 2012, by a slight rate of
1.5 percent (about NIS 16 billion). The most marked decline was in the households
segment (8.8 percent). Bonds and subordinated debt notes increased by about 7
percent (some NIS 3 billion).
1.1.5 Credit Quality
During the first half of 2012, the risk level of companies in the economy remained high
compared to the economic boom years, although it is lower than during the height of the
crisis in 2008–09. This development is also noticeable in the banks' internal ratings and in the
ratio of loan loss provisions to total credit which was 0.4 percent in June 2012.
The ratio of net write-offs to balance-sheet credit reached 0.48 percent in June 2012, and is
slightly higher than the ratio of loan loss provisions to balance-sheet credit. The ratio of the
allowance for credit losses to impaired debt to the public—which reflects the bank's
estimation of expected credit losses relative to the size of the credit portfolio that they have
classified as impaired, was 44 percent.
INDICES OF CREDIT PORTFOLIO QUALITY OF THE FIVE MAJOR BANKING
GROUPS (December 2006 to June 2012) (in percent)
Year Leumi Hapoalim Discount Mizrahi
Tefahot
First
International
Five
Groups
Ratio of total
risk weighted
assets to total
assets
2006 67.0 72.2 59.8 66.6 61.3 66.9
2007 69.0 72.8 61.9 68.2 58.8 68.0
2008 69.5 72.3 64.8 66.9 59.1 68.3
2009 64.2 67.9 60.6 67.1 54.4 64.1
2010 68.3 68.7 67.2 58.7 61.0 66.4
2011 67.7 67.3 60.4 58.3 60.0 64.6
2012 68.3 66.8 61.8 58.8 59.1 64.8
Loan loss
provision to
total balance
sheet credit to
the public
2006 0.51 0.53 0.63 0.44 0.42 0.52
2007 0.21 0.25 0.44 0.31 0.33 0.28
2008 1.01 0.68 0.67 0.44 0.39 0.72
2009 0.74 0.93 0.87 0.39 0.44 0.75
2010 0.25 0.44 0.66 0.43 0.17 0.39
2011 0.30 0.48 0.66 0.28 0.14 0.39
2012 0.46 0.51 0.40 0.18 0.15 0.40
Net write-offs to
total gross
balance sheet
credit to the
public
2011 0.84 0.84 0.72 0.44 0.15 0.71
2012 0.59 0.57 0.52 0.18 0.19 0.48
Allowance for
credit losses to
total balance
sheet credit to
the public
2010 2.3 2.1 1.7 1.6 1.3 2.0
2011 1.6 1.6 1.7 1.4 1.3 1.6
2012 1.6 1.6 1.6 1.3 1.3 1.5
Impaired loans
to total balance
sheet credit
2010 3.8 4.7 4.7 1.5 1.9 3.7
2011 2.8 3.4 4.7 1.3 1.6 3.0
2012 2.9 3.4 4.3 1.2 1.5 2.9
Allowance for 2010 53.5 41.7 31.2 52.1 62.6 44.8
credit losses to
impaired loans
to the public
2011 50.9 43.1 31.1 48.1 74.5 44.2
2012 47.7 42.2 32.6 53.7 75.1 43.9
Impaired loans
net of provision
to capital
2010 24.2 35.9 48.3 17.6 14.3 30.2
2011 21.4 29.0 46.6 17.5 11.4 26.4
2012 22.7 28.1 41.9 14.0 10.6 25.4
1.1.6 Borrower Concentration
During the first half of the year, there was a decline in borrower concentration. Total net
indebtedness of the largest borrower groups declined during this period at most banks, and
the net indebtedness of the largest group of borrowers decreased at all banks, and as of June
2012, its weight in the capital basis ranges from 16 percent to 23 percent.
An analysis of the credit portfolio of the entire banking system indicates that the largest
borrowers in the banking system who borrowed from the capital market as well comprise
about 15 percent of the banks' balance-sheet and off-balance-sheet business credit risk (NIS
98 billion), of which about NIS 7 billion is from borrowers whose bonds were traded in
September 2012 at yields above 12 percent.
1.1.7 Securities Portfolio
The securities portfolio of the five banking groups totaled NIS 168 billion in June 2012,
constituting 14 percent of total assets (Figure 10). During the first half of the year, there has
been an increase of NIS 22 billion in the securities portfolio, resulting from the purchase of
Israel government bonds (reflecting an annualized growth rate of 30 percent).
The increase encompassed four of the five banking groups, and in some of the groups, the
increase in the securities portfolio was accompanied by a decline in the cash and bank
deposits item.
1.2 MAJOR PLAYERS IN THE BANKING INDUSTRY OF ISRAEL
The major players in the banking industry of Israel are as follows:
Banking
Group
Established Number
of
Branches
Total
Assets
(NIS
billion)
Share of
total
banking
system
assets
Share of
total
banking
system
credit
Share of
total
banking
system
deposits
Hapoalim
group
1921 320 273.3 30.0 31.3 29.1
Bank Leumi
group
1902 232 272.8 29.9 29.9 30.2
Discount
Bank group
1935 195 154.8 17.0 14.2 17.7
Mizrahi-
Tefahot
Bank group
1923 123 86.3 9.5 10.9 9.7
First
International
Bank group
1975 103 71.9 7.9 7.3 8.4
1.3 OVERALL PRODUCTS/SERVICES OFFERED BY THE BANKING
INDUSTRY OF ISRAEL
Most of the major banks have branches all over the country, but whereas city branches are
likely to offer extensive services, local branches may have restricted opening hours and offer
limited services.
Most banks in Israel offer both telephone and internet banking, and also internet-only
banking, with most of these services available in English. Most banks will provide bank
statements and other related paperwork in English. You are required by law to keep bank
statements for a period of seven years.
Many Israeli banks provide dedicated foreign currency exchange services, although you will
also find specialist local money exchange services throughout Israel, typically in the main
shopping areas of larger towns and cities. Israeli banks offer a wide variety of accounts,
including:
Current accounts - typically used for everyday banking, but offering low interest rates.
Savings accounts - more competitive interest rates (possibly a variable rate), with
higher rates of interest on longer-term accounts, with limited short-term access to
funds.
Fixed-term accounts - a defined rate of interest for a fixed term - typically ranging
from a month to several years. They may offer little or no access to funds until
account maturity.
Credit cards (Visa and MasterCard) are widely used and accepted in Israel, and credit cards
can be used to withdraw cash from ATMs. However, cash withdrawals are likely to incur a
fee. There are two main types of credit card in Israel:
Credit cards that can be used for transactions in Israel using local currency only.
Credit cards that can be used worldwide, in foreign currencies.
Cheques are widely used and accepted in Israel as a form of payment, and you can post-date
cheques for up to a year ahead, and even deposit post-dated cheques (which will be credited
to your account when the due date is reached).
Bouncing more than 10 cheques in a month will lead to suspension of the account and all
future banking privileges at any bank in Israel for a year. If this happens three times in a 12-
month period, the suspension extends to five years.
ATMs are widespread, with services available 24 hours a day. Using an ATM card is
typically cheaper than using a credit card to withdraw cash. ATMs are normally located
outside bank branches, and standard daily limits allow you to withdraw up to 01,000 ILS
(shekels) a day - approximately £170 GBP (pound sterling).
1.4 PRESENT TRADE WITH QUANTITY AND AMOUNT OF THE BANKS IN
ISRAEL
Israeli banks offer a wide variety of accounts, including current accounts, savings accounts
and fixed-term accounts.
Current accounts are typically used for everyday banking needs, but offering low
interest rates.
Savings accounts will offer more competitive interest rates, with higher rates of
interest being offered to longer-term accounts with restricted short-term access to
funds. Interest rates may be variable or fixed.
Fixed-term accounts offer a defined rate of interest for a fixed term – typically
ranging from a month to several years. Fixed-term accounts may offer little or no
access to funds until the account matures. When the account matures (i.e., the fixed
period expires), customers have the option to re-invest the capital and the interest
earned.
Most banks also provide these accounts in a range of major currencies, including £ GBP
(pounds sterling) and $ US (US dollars). It is worth assessing whether a foreign currency
account will be useful for meeting everyday banking needs, such as making regular
transactions in shekels for services such as utilities.
1.4.1 The Volume of Trade in the Foreign Currency Market
There was a decline in average daily trading volume, in contrast to an increase in
nonresidents' share of trading volume
The total volume of trade in foreign currency in January was about $102 billion,
compared with $100 billion in December. Average daily trading volume declined by
about 3 percent in January, and reached about $4.8 billion.
The volume of trade in spot and forward transactions (conversions) was about $40
billion in January, compared with $44 billion in December. The average daily trading
volume in those transactions declined in January by about 12 percent, compared with
December, to about $1.9 billion.
The volume of trade in over the counter foreign currency options (which are not
traded on the stock exchange) totaled about $13.3 billion in January, compared with
$8.8 billion in December. The average daily trading volume in those options in
January was $635 million, an increase of 44 percent from December.
The trading volume of swap transactions was about $48 billion in January, compared
with $47 billion in December. Average daily turnover declined by about 3 percent, to
$2.3 billion in January.
Nonresidents' share of total trade (spot and forward transactions, options and swaps)
increased in January to 44 percent, compared with 41 percent in December. The
increase derived primarily from an increase in nonresidents' volume of activity in spot
and forward transactions, and options.
Figure 4: International comparison of implied volatility of shekel/dollar options
4%
8%
12%
16%
20%
24%
28%
32%
01/0
8
03/0
8
05/0
8
07/0
8
09/0
8
11/0
8
01/0
9
03/0
9
05/0
9
07/0
9
09/0
9
11/0
9
01/1
0
03/1
0
05/1
0
07/1
0
09/1
0
11/1
0
01/1
1
03/1
1
05/1
1
07/1
1
09/1
1
11/1
1
01/1
2
03/1
2
05/1
2
07/1
2
09/1
2
11/1
2
01/1
3
Average of emergingmarketsAverage of advancedeconomiesIsrael
Emerging markets: Chile, Hungary, Mexico, the Philippines, Poland, Singapore, South Africa, South Korea, Thailand and Turkey.Advanced economies: Australia, Canada, the eurozone, Japan, UK, Switzerland.
0%
10%
20%
30%
40%
50%
60%
70%
01/1
002
/10
03/1
004
/10
05/1
006
/10
07/1
008
/10
09/1
010
/10
11/1
012
/10
01/1
102
/11
03/1
104
/11
05/1
106
/11
07/1
108
/11
09/1
110
/11
11/1
112
/11
01/1
202
/12
03/1
204
/12
05/1
206
/12
07/1
208
/12
09/1
210
/12
11/1
212
/12
01/1
3
Figure 5: Nonresidents' share of total trading volume Options & Conversions
Swap Transactions
Bank Hapoalim
Number of Branches: 320
Total Assets (NIS billion): 273.3
19
Share of total banking system assets: 30.0
Share of total banking system credit: 31.3
Share of total banking system deposits: 29.1
Mizrahi Tefahot Bank
Number of Branches: 123
Total Assets (NIS billion): 86.3
Share of total banking system assets: 9.5
Share of total banking system credit: 10.9
Share of total banking system deposits: 9.7
Discount Bank
Number of Branches: 195
Total Assets (NIS billion): 154.8
Share of total banking system assets: 17
Share of total banking system credit: 14.2
Share of total banking system deposits: 17.7
Bank Leumi
Number of Branches: 232
Total Assets (NIS billion): 272.8
Share of total banking system assets: 29.9
Share of total banking system credit: 29.9
Share of total banking system deposits: 30.2
20
1.5 TECHNOLOGICAL ADVANCEMENT IN ISRAEL
Technology has been a boon to many industries and especially to the banking industry. With
the help of technology banks are able to reach out to more customers and provide better
services to them. Also, it helps them function in an organized and secure way.
As for us (the customers) we have ATMs, Cash deposit machines, online banking, phone
banking etc which are all fruits of technological advances which have made our banking
experience much easier. Imagine having to run to the bank every time you wanted to check
your balance or make a deposit or withdrawal.
According to conventional wisdom, new information technology is not at present likely to
impinge much on the development of the banking industry in the emerging economies, which
remain technologically behind the industrial countries. For example, the low level of
penetration in most emerging economies means that the internet is not seen as a threat to
traditional banks. Given the signs of a possible bursting of the e-banking “bubble” in the
United States and Europe, some have also argued that the issue of electronic banking may go
away before the emerging markets need to worry about it.
21
This conventional view can be challenged on several grounds. As noted above, the major
issue about new IT is its impact on the processing of information, which is the very essence
of the banking business. Perhaps the most significant innovation has been the development of
financial instruments such as derivatives that enable risk to be reallocated to the parties most
willing and able to bear that risk, thereby inducing more investment in real assets and
fostering the development of banking and financial markets in general.
The use of such instruments is not the preserve of industrial countries: with their increasingly
sophisticated IT applications, banks in the emerging economies use new financial instruments
daily in their transactions. Their banking systems and financial markets are thus in a position
to advance much more rapidly from a rudimentary to a fairly advanced stage of development
of risk management and other commercial banking functions.
Such potential skipping of financial development stages would not have been possible in the
past, when information processing technology was not readily available, and when the
development of futures markets and other domestic financial institutions that enable
unbundling and shifting of risks on a large scale was much more time-consuming and costly.
Likewise, the potential for rapid development of commercial banking functions offered by
alternative delivery channels such as ATMs, debit cards, telephone, internet and electronic
banking should not be underestimated.
Despite the still low level of usage of such channels (with the exception of ATMs, which are
now very widespread), the vast majority of banks in the emerging economies see such
channels as a must for their industry. Banks fighting for some important part of the retail
market believe that they have to offer such services as an essential marketing tool, although
the true demand for them has so far been limited.
As in advanced economies, new technology is affecting the structure and performance of the
banking industry in the emerging markets mainly through its impact on the costs and the
determination of optimal scale. Branch-based transactions are much more expensive than
alternative delivery channels. This cost advantage would seem to favor smaller institutions, as
investments needed to attract deposits or provide banking services via the internet are in
principle lower than the costs of setting up a traditional branch network.
22
At the same time, investments needed to develop adequate back office and risk assessment
systems are very high, creating considerable cost advantages for larger institutions.
Moreover, branch networks are not expected to shrink as a result of the development of
alternative delivery channels, although branches are generally expected to become smaller.
1.6 REQUIREMENTS OF RESOURCES FOR THE INDUSTRIAL OPERATIONS
OF ISRAEL
Channels
Channels are the vehicles through which customers can interact with a bank. These channels
may be used for either sales or service interactions.
Customer Relationship Management
Customers tend to have products and services from multiple product areas across a Bank. It
is important to bridge these divisions both from the Bank's perspective - so that a group wide
view of customer risk can be assembled - and from a customer perspective - so that a single
customer isn't faced with myriad service personnel.
Given these requirements CRM is a vital part of Banking Operations. We have
disaggregated this operational area into three key units.
1. Customer Risk
2. Customer Static
3. Contact Management
23
Banking Product Engines
Banks offer a variety of products each of which requires a combination of back office staff
and complex computer systems to set up and maintain. It is these systems, staff and
processes that we refer to here as 'Engines'.
We have identified eight key banking engines that are referred:
1. Core Banking
2. Insurance
3. Asset Finance
4. Capital Markets
5. Fund Management
6. Cards
7. Mortgages
8. Stock Broking
Management Information
Management Information is all about deriving information from a Bank's other activities.
Financial Services companies are heavily regulated. In addition to the statutory reporting of
all companies, they have to provide regulatory information to:
Government Tax Authorities - Information on customer tax withheld and the country of
residence of customers.
Government Security Services - Information on Suspected Terrorists, Money Laundering
and Fraud.
Central Bank and Financial Services Regulators - Information on credit exposures,
capital adequacy and liquidity
Finally, since the raw material, work in progress and finished goods of financial services
groups is information, it lends itself to the production of management accounting
24
information. As a consequence, financial services groups have very large databases for
analyzing assets, liabilities, costs and income as well as non-financial data for a variety of
marketing and other management needs.
1.7 WTO-ISRAEL
Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member
countries' trade and related policies are examined and evaluated at regular intervals.
Significant developments that may have an impact on the global trading system are also
monitored. All WTO members are subject to review, with the frequency of review depending
on the country's size.
1. Israel has not been spared the effects of the global economic crisis, but its financial system
has weathered the crisis comparatively well. Since its last TPR, in 2006, real GDP growth
has averaged around 5% per year, only interrupted by a sharp decline in growth in 2009.
Recently, there are again signs of slowing economic activity. The resilience and stability of
the financial system has been attributed, inter alia, to cautious lending and limited exposure to
"toxic" assets by Israeli banks, and a conservative supervisory approach by the Bank of
Israel. There was no need for any bank bailout or major stimulus programme, although the
Government has substantially increased its exposure to credit guarantees in order to stimulate
exports. Public debt as a percentage of GDP has been reduced (74% in 2011).
2. Israel is a high-income country with a GDP per capita of US$31,000 in 2011, up from
US$17,700 ten years earlier. Its GDP of about US$240 billion is roughly equal to the size of
Singapore's. Some of Israel's main economic challenges lie in the high burden of defence
spending, low labour-market participation among certain communities, and resulting income
25
inequality. Israel has been largely dependent on imports for its energy needs, but major
discoveries of offshore natural gas may change its economic prospects.
3. The Israeli economy is dominated by high-tech goods and services. The main high-tech
(non defence) activities are in the area of computer components manufacturing, software
engineering, medical technologies, and pharmaceuticals. Israeli businesses also play an
important role in the world's diamond industry.
4. One of the core strengths of the Israeli economy is its capacity for innovation, be it in
agriculture or the high-tech sector. Expenditure on civilian R&D amounted to about 4.4% of
GDP in 2010, the highest share in the world.
Israel's innovation policy encourages domestic R&D in generic and applied technologies,
including the development and acquisition of intellectual property rights, through a range of
incentive schemes. The availability of domestic and foreign venture capital further
encourages start-up companies.
5. A significant share of foreign direct investment is made in Israeli start-up companies.
Investments in the industrial sector benefit from export-contingent incentives. Israel
maintains foreign ownership restrictions in a few sectors, including air and maritime
transport, telecommunications and broadcasting, energy, and tourism, mainly for public
interest, (energy) security and cultural reasons. There is no special approval or screening
process for investments by foreigners.
6. Israel is a relatively export-oriented economy. Its trade continues to be affected by the
geopolitical situation that prevails in the Middle East, which seriously impedes trade between
Israel and its neighbours. The European Union and the United States remain Israel's main
trading partners, although Israel's trade with Asia continued to increase over the review
period. The current account has been in surplus since 2003.
7. Israel pursues trade liberalization through active participation in the DDA negotiations,
bilaterally through reciprocal preferential agreements, and unilaterally through autonomous
initiatives. Israel's network of FTAs covers some of its main trading partners (EU, United
States, EFTA, and Turkey), although none of its FTAs currently includes services provisions.
Since its last TPR, Israel has concluded a free-trade agreement with MERCOSUR, and Israel
26
and the European Union have further liberalized their bilateral trade in agricultural products.
FTA negotiations have been launched WT/TPR/S/272 Trade Policy Review Page viii with
India and Colombia. Nonetheless, the relative importance of trade via free-trade agreements
has steadily declined due to the rising importance of trade with Asian countries.
8. In the summer of 2011, Israel experienced unprecedented popular protests against the high
cost of living, triggered by consumer complaints about high prices of some dairy products
("cottage cheese uprising"). In response, and as part of a package of reforms, the
Government has unilaterally dismantled some import barriers. Applied MFN tariffs on a
range of non-food consumer goods were eliminated with immediate effect (400 tariff lines at
HS 8-digit level).
In July 2012, the Government announced a further unilateral initiative to eliminate or reduce
import duties on items such as electrical appliances, textiles and apparel, and food trade
policy measures.
9. Israel's average applied MFN tariff is 7% in 2012. Over half of the tariffs are duty-free
lines, and less than 5% of tariff lines exceed the 20% rate. The average applied MFN tariff
on non agricultural products is relatively low (4.2%), while tariffs on agricultural goods
(WTO definition), average 24.5%. For agricultural products, market-access opportunities are
provided, inter alia, by duty-free access (i.e. about one third of applied MFN tariffs are zero),
preferential tariffs, and over 100 agricultural tariff quotas (MFN and preferential). Numerous
mixed or compound MFN duties add complexity to the agricultural tariff regime. Israel has
not yet transposed its Schedule of concessions from HS 1996 nomenclature, which makes a
comparison with its applied MFN tariffs (HS 2012) difficult because of the difference in
nomenclatures.
10. Since its last TPR, Israel has launched trade facilitation initiatives for authorized
economic operators and couriers (pre-clearance of air shipments). On the other hand, Israel
maintains non automatic import licensing procedures on a vast range of products for various
reasons, such as health, safety, security, and tariff-quota administration. Up-to-date
notifications would help improve the transparency of these import procedures. In general,
Israel's notification record has been mixed. There is room for improvement in a number of
areas where Israel has outstanding notification obligations, such as agriculture, regional trade
agreements, and import licensing.
27
11. Israel maintains export licensing and approval (permit) schemes but there are no export
taxes or levies. Israel has not used export subsidies on agricultural products since 2010. One
export state trading enterprises is active in the groundnut sector.
12. Israel has made considerable progress in aligning its technical regulations and food
standards with mandatory standards of international, regional or foreign origin. The
Government aims to accomplish full harmonization of Israeli technical regulations with
overseas mandatory standards by end-2012 (end-2013 for food standards). Israel has notified
three new or revised SPS measures since its last TPR in 2006. The SPS notifications concern
alignment of Israel's phyto sanitary import requirements with international standards, and an
amendment of BSE-related import requirements.
13. Israel remains a significant user of anti-dumping measures, but overall the incidence of
new measures remains within the long-term trend. During the review period, Israel
introduced safeguard legislation to implement the WTO Agreement on Safeguards and
initiated two safeguard investigations.
14. Israel applies value-added tax on imported and domestic goods and services currently at
the rate of 16%. A number of items, including fruit and vegetables, are zero-rated. Certain
luxury and consumer goods, as well as alcoholic beverages are subject to purchase tax. For
the assessment of purchase tax on imported products, Israel uses a type of surcharge, called
TAMA, which approximates domestic wholesale prices. A tax reform for alcoholic
beverages is to be implemented whereby TAMA will be cancelled and replaced by a specific
tax on domestic and imported alcoholic beverages alike.
15. Israel is party to the Agreement on Government Procurement (GPA) and has participated
in the negotiations of the revised GPA. Israel has made a number of market-access
commitments that enhance the opportunities for foreign companies to compete in its
government procurement market. It has also undertaken to phase out its offset regime with
respect to procurement covered by GPA. It will progressively reduce the current 20% offset
level and eliminate offsets entirely after 15 years from the entry into force of the revised
GPA for Israel. The Israeli tender legislation has been reformed since 2006.
16. Israel has a well developed intellectual property system, which underpins the country's
status as one of the most innovative economies. A significant development in Israeli
28
intellectual property law is the introduction of the Copyright Act 2007, which, inter alia,
replaced the doctrine of fair dealing with that of fair use, thus providing a more flexible
approach to copyright exceptions - an exceptional step that few jurisdictions have taken so
explicitly. Israel has reached an agreement with the United States to amend certain
pharmaceutical IPR provisions relating to patent-term extension, patent-application
publication, and data exclusivity.
17. Israel continues to face competition-related challenges for reasons such as high tariff
protection (agriculture), the small size of the economy, a certain degree of geographic
isolation with little regional trade and language barriers, contributing to market-entry barriers.
One of the Government's key policy objectives has been to enhance competition in the
domestic market.
Since its last TPR in 2006, it has made a series of structural reforms in various sectors to
strengthen competition in the economy, including in financial services, telecommunications,
and transport services. Moreover, a reform of the competition law in the area of oligopolies
has been enacted.
29
1.8 LEGAL ASPECTS AND BARRIERS IN ISRAELI BANKING
INDUSTRY
Banking, which remains the largest sector in Israel’s financial markets, is characterized by
significant entry barriers, a high concentration of assets among a relatively small number of
banks, limited credit allocation, and relatively narrow choice of financial products. For these
reasons, it can be reasonably inferred that there is not a significant level of competition
among incumbent banks over households and SMEs.
Although the level of competition in retail banking cannot be directly observed, our analysis
suggests that such entry barriers confer on Israel’s five large banks a considerable ability to
exploit market power and extract monopoly rents. The combination of barriers to entry with
the banks’ market positions can be particularly harmful for SMEs and households because it
results in considerable rationing of credit.
Market concentration, which measures how much output is controlled by a single bank or
group of banks, is sometimes incorrectly used as an indicator of whether a certain market is
competitive. A common presumption is that fewer firms and more concentrated markets
diminish incentives to compete. But when the concentration is caused by barriers that prevent
additional firms from entering the market, either because of government policy or a lack of
30
the necessary production assets, the entry barriers—not market concentration—are the
underlying cause of limited competition, as is the case in the Israeli credit markets.
Accordingly, measures of market concentration should not be confused with market power,
which pertains to the ability of firms to extract monopoly rents. First, market concentration
does not necessarily result from excluding competitors or creating entry barriers. Economies
of scale—the cost savings obtained by supplying or buying larger quantities through a single
firm—could also give rise to concentration. Second, even in the most concentrated markets, a
firm (e.g., a monopoly) does not necessarily benefit from an ability to extract monopoly rents.
If a firm’s activities are undermined by the potential entry of rivals, it would not be able to
extract monopoly rents, regardless of its size or market share. Therefore, market
concentration alone does not indicate a market’s competitiveness.
In retail banking, this implies that a concentrated market is not necessarily an uncompetitive
one. Small banking segments, in particular, may become considerably concentrated because
of the cost advantages of economies of scale.
Regardless of the specific causes for the banking concentration in Israel, three empirical
regularities clearly arise from our analysis: Considerable concentration is characteristic of
small economies, the retail banking market in Israel is exceedingly concentrated relative to
developed markets, and this high concentration has not declined in recent years. Israel’s three
leading banks controlled 88 percent of all bank assets in 2006, compared with an average 72
percent for OECD nations. While such concentration may be on par with certain small
economies, the combination of the five banks’ large market shares and the entry barriers
detailed in this section severely limits credit competitiveness and capital access.
Entry Barrier 1: Limited Access to Credit Scoring and History
In contrast to traditional market settings where consumers are valued based on their
willingness to pay for a given product, retail banking typically requires extensive information
to assess a consumer’s ability to repay debt. Information about a borrower’s assets, credit
worthiness, payment commitments, and history is essential for any bank in assessing the risk
of extending credit to a potential customer. Therefore a bank’s viability depends on private
information held exclusively by its rivals
.
31
For this reason, disclosure of consumer credit history has been regulated in most developed
nations for nearly four decades. The 1970 U.S. Fair Credit Reporting Act (FCRA), which was
amended in 1996, is considered by many to be an effective framework for disseminating
credit information. Israel passed a credit scoring law in 2002 and specific credit scoring
regulations in 2004.
2. Limited Access to Payment Card Networks:
One important feature of banking competition that has evolved over the past two decades is
competition between credit card networks. Credit card networks serve both banks and
cardholders by enabling a cardholder to make purchases against either credit or funds the
cardholder holds at the card-issuing institution.
More importantly, with respect to lending competition, credit card networks can presumably
facilitate credit provision by enabling rival banks to issue credit lines to different individuals
even if they do not manage their demand deposit bank accounts.
In the past decade, the Antitrust Authority has made numerous attempts to improve both
payment card membership rules and fees. However, our analysis suggests that the four
leading banks’ control of the three card networks in Israel—Visa, MasterCard and American
express - largely eliminates any provision of household credit by rival card networks. This
conclusion is based on three important observations: (a) limited intra-brand competition
among card issuers (b) limited credit allocation through payment cards and (c) limited access
to payment card networks.
If there are both significant entry barriers to retail banking that prevent competition in the
provision of credit, as well as the potential for undermining such barriers through credit
cards, then incumbent banks may find it profitable to sacrifice revenue in their credit card
network to collectively foreclose the retail banking segment.
Although there are clear benefits, even in the scenario above, for banks to enable an
additional issuer to join their card network, conflicts may arise when incumbent banks find it
privately profitable to block access to their networks altogether. Such conflicts could be
harmful if there is very little inter-brand competition (between American Express and
MasterCard, for instance) and incumbent banks prevent non-bank members from issuing
credit through payment card networks.
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The alleged conflict between private interests of incumbent banks and competitive access to
issuers does not justify a divestiture of payment cards from banks. While the economic basis
for such divestiture is questionable, the potential competitive outcome of such market share
redistribution is even less clear. It is, however, imperative to maintain inter-brand
competition between card networks. In this respect, control of two payment card brands by a
single large bank could be anticompetitive if it transforms the credit card industry from a
three player to a two-player market structure.
3. Prohibitive Regulatory Oversight:
Because the financial well-being of banking institutions contributes considerably to a
country’s financial stability, banks require oversight. Such oversight affects the strategies,
effectiveness, and level of competition among banks subject to regulation. Considerable
research in the past decade has come to question the effectiveness of supervisory oversight of
banks while demonstrating that such oversight has significant implications for competition.
The regulatory situation in Israel exemplifies the complexities of evaluating the effectiveness
of strict banking oversight. Israel has not witnessed a severe banking crisis since 1983 and
has so far withstood the current financial crisis. But is this perceived stability occurring
because of or in spite of the current regulatory regime? Is Israel’s regulatory oversight
harmful to competition, and if so, in what way? Both questions are complex and should be
thoroughly addressed beyond this brief discussion. We will, however, attempt to highlight
specific policies that could harm competition, independent of their potential impact on
financial stability.
Bank of Israel Proper Conduct Code
The Proper Conduct of Banking Business Regulations affords the Bank of Israel significant
regulatory discretion over banking. In addition to risk management or prudential standards,
the conduct code also regulates such things as dividends, corporate governance, standards for
handling telephone transactions, and requirements for days of operations.
33
Although certain requirements in the conduct regulation may have an impact on banks’
financial stability, the totality of such standards could also cause significant compliance costs,
which would ultimately prohibit potential entrants from accepting deposits or issuing credit.
In this context, there are two groups of competitors that may be affected by the conduct
regulation provisions: foreign banks and non-depository financial firms. To the extent that
foreign banks or non-depository firms in Israel (such as insurance or fund managers) face
fewer restrictions in their respective markets, offering credit and complying with the conduct
regulation could be prohibitively costly for such firms. This may be particularly true when
there is significant variation in regulatory requirements between banks and other financial
institutions.
Despite the Bank of Israel’s stated non-discriminatory policy, foreign banks have not made
significant investments in large-scale branching or operations in Israel. According to a recent
comparison of regulatory practices, Israel fares poorly with respect to entry barriers imposed
on foreign banks.
Regulation of Commissions and Fees
Another concern is the regulation of banks’ commissions and fees. Although the Bank of
Israel recently revised certain aspects of fee setting to attain better coherence, it left the
regulation of fees fundamentally unchanged by continuing to review, authorize, and
ultimately determine fee changes as stipulated in the Banking (Customer Service) Law, 5741-
1981.
This practice is troubling for a number of reasons. Given recent allegations that bank fees
have been subject to illegal price fixing as well as the tendency of price regulation to provide
“convenient” focal points for coordination between competitors, it is unclear whether fee
regulation is altogether effective. Also, it is possible that regulation, even if effective at
reducing fees, can be offset by other banking revenue, such as interest rates.
Licensing Requirements for Accepting Deposits
The Banking (Licensing) Law, 5741-1981 requires any financial institution that accepts cash
deposits to obtain a banking license and comply with the Supervisor of Banks’ prudential and
34
conduct oversight. Accordingly, non depository institutions such as provident or mutual
funds, which pose the most immediate competitive threat to retail banks in Israel, are
prohibited from investing funds from their investors directly in credit to households and
SMEs.
Although a licensing requirement is common in most, if not all, developed financial markets,
in Israel this requirement limits the ability of non-depository institutions to offer competitive
credit to households and SMEs.
4. Limits on Non-bank Consumer Loans
The Regulation of Non-Bank Loans Law, 5753-1993, which was revised in 2007 to cover
loans of up to NIS 1 million, was initiated to protect consumers from exploitation by non-
bank lenders.
The law was intended to address certain “black market” lenders that reportedly offered loans
at annual interest rates exceeding 100 percent. It requires minimal disclosure of the name of
the lender, annual interest rate, repayment schedule, and other relevant information.
It also caps the legal interest rates for all non-bank loans at the average un-indexed interest
rate reported by the Bank of Israel multiplied by 2.25. In August 2009, the average un-
indexed rate was 4.01 percent, making 9 percent the legal maximum for non-bank lending.
This legal limit on interest rates, from which banks and their subsidiaries are exempt, has a
severe anticompetitive impact for two reasons. It prevents non-bank institutions from offering
credit to the one group that needs it most: risky customers who cannot obtain a bank loan. In
this respect, it places financial distress on customers who have faced difficulties obtaining
credit from banks. It also restricts non-banks to levels of interest rates that may not be
profitable.
For these two reasons, such limitations serve as an entry barrier. In summary, based on the
analysis of entry barriers above, we find that the absence of credit unions, community
35
development financial institutions, foreign banks, and other alternatives largely results from a
failure to accommodate the economics of non-depository institutions through proper
legislation and regulation.
It should be further noted that, in contrast to the insurance industry, where two of Israel’s
leading insurance firms are controlled by foreign companies, none of Israel’s leading banks
has been acquired by foreign banks despite the fact that foreign banks play a vital role in
international markets and the domestic financial markets of many small economies.
Recent Banking Reforms
It has been suggested by many that the divestiture of provident and mutual funds stipulated
by the 2005 Bachar reforms has brought non-financial firms closer to retail banking
competition by providing a toehold in household financial services. These reforms have
reduced the level of banking assets in Israel However, it is imperative to recognize that
divesting complimentary products (long-term savings, for example) from retail banking
services (such as management of checking accounts) does not necessarily reduce the ability
of retail banks to extract monopoly rents.
Reviewing the interest rate margins of the leading five banks since the reforms suggests that
the reforms to date have not produced a significant decline in interest rate margins For this
reason, and as was initially stated in the Bachar Committee report, it is critical to resolve any
regulatory barriers to retail banking so additional financial firms can provide meaningful
competition. As we argue below, it is critical to address all three entry barriers for meaningful
competition in the banking segment to take place.
New Accounting Standards:
The impending implementation of IFRS in 2011 will have a significant impact for the
banking sector particularly in the area of treatment of taxes. The core group of the ministry of
corporate affairs extended the deadline for banks and NBFCs to April 2013 at a recent
meeting held on March 29, 2010. The top five accounting challenges to be faced by banks are
36
loan impairment, use of fair value, derivatives and hedge accounting, de-recognition of
financial assets and consolidation of entities.
Risk Management:
Banks in India are also moving from the individual silo system to an enterprise wide risk
management system. Banks would be required to allocate significant resources towards this
objective over the next few years.
1.9 OVERALL PRODUCTS/SERVICES OFFERED BY THE BANKING
INDUSTRY OF INDIA
Some of common available banking products of Indian banks are explained below:
Credit Card
Credit Card is “post paid” or “pay later” card that draws from a credit line-money
made available by the card issuer (bank) and gives one a grace period to pay. If the
amount is not paid full by the end of the period, one is charged interest. A credit card
is nothing but a very small card containing a means of identification, such as a
signature and a small photo. It authorizes the holder to change goods or services to his
account, on which he is billed.
The bank receives the bills from the merchants and pays on behalf of the card holder.
These bills are assembled in the bank and the amount is paid to the bank by the card
holder totally or by installments. The bank charges the customer a small amount for
these services. The card holder need not have to carry money/cash with him when he
travels or goes for purchasing. Credit cards have found wide spread acceptance in the
‘metros’ and big cities. Credit cards are joining popularity for online payments.
37
The major players in the Credit Card market are the foreign banks and some big
public sector banks like SBI and Bank of Baroda. India at present has about 3 million
credit cards in circulation.
Debit Cards
Debit Card is a “prepaid” or “pay now” card with some stored value. Debit Cards
quickly debit or subtract money from one’s savings account, or if one were taking out
cash.
Every time a person uses the card, the merchant who in turn can get the money
transferred to his account from the bank of the buyers, by debiting an exact amount of
purchase from the card.
When he makes a purchase, he enters this number on the shop’s PIN pad. When the
card is swiped through the electronic terminal, it dials the acquiring bank system –
either Master Card or Visa that validates the PIN and finds out from the issuing bank
whether to accept or decline the transaction. The customer never overspread because
the amount spent is debited immediately from the customer’s account.
So, for the debit card to work, one must already have the money in the account to
cover the transaction. There is no grace period for a debit card purchase. Some debit
cards have monthly or per transaction fees.
Debit Card holder need not carry a bulky checkbook or large sums of cash when
he/she goes at for shopping. This is a fast and easy way of payment one can get debit
card facility as debit cards use one’s own money at the time of sale, so they are often
easier than credit cards to obtain.
The major limitation of Debit Card is that currently only some 8000-10000 shops
country wide accepts it. Also, a person can’t operate it in case the telephone lines are
down.
Automatic Teller Machine
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The introduction of ATM’s has given the customers the facility of round the clock
banking. The ATM’s are used by banks for making the customers dealing easier.
ATM card is a device that allows customer who has an ATM card to perform routine
banking transaction at any time without interacting with human teller. It provides
exchange services.
This service helps the customer to withdraw money even when the banks are closed.
This can be done by inserting the card in the ATM and entering the Personal
Identification Number and secret Password. ATM’s are currently becoming popular in
India that enables the customer to withdraw their money 24 hours a day and 365 days.
It provides the customers with the ability to withdraw or deposit funds, check account
balances, transfer funds and check statement information. The advantages of ATM’s
are many. It increases existing business and generates new business. It allows the
customers to transfer money to and from accounts, to view account information, to
order cash, and to receive cash.
E-Cheques
The e-cheques consists five primary facts. They are the consumers, the merchant,
consumer’s bank the merchant’s bank and the e-mint and the clearing process. This
cheque system uses the network services to issue and process payment that emulates
real world cheque. The payer issues a digital cheque to the payee ant the entire
transactions are done through internet.
Electronic version of cheques are issued, received and processed. A typical electronic
cheque transaction takes place in the following manner:
1. The customer accesses the merchant server and the merchant server presents its goods
to the customer.
2. The consumer selects the goods and purchases them by sending an e-cheque to the
merchant.
39
3. The merchant validates the e-cheque with its bank for payment authorisation.
4. The merchant electronically forwards the e-cheque to its bank.
5. The merchant’s bank forwards the e-cheque to the clearing house for cashing.
6. The clearing house jointly works with the consumer’s bank clears the cheque and
transfers the money to the merchant’s banks.
7. The merchant’s bank updates the merchant’s account.
8. The consumer’s bank updates the consumer’s account with the withdrawal
information.
9. The e-cheque is a great boon to big corporate as well as small retailers. Most major
banks accept e-cheques. Thus this system offers secure means of collecting payments,
transferring value and managing cash flows.
Electronic Funds Transfer (EFT)
Many modern banks have computerized their cheque handling process with computer
networks and other electronic equipments. These banks are dispensing with the use of
paper cheques. The system called electronic fund transfer (EFT) automatically
transfers money from one account to another.
This system facilitates speedier transfer of funds electronically from any branch to
any other branch. In this system the sender and the receiver of funds may be located
in different cities and may even bank with different banks. Funds transfer within the
same city is also permitted. The scheme has been in operation since February 7, 1996,
in India.
The other important type of facility in the EFT system is automated clearing houses.
These are the computer centers that handle the bills meant for deposits and the bills
meant for payment. In big companies pay is not disbursed by issued cheques or
issuing cash. The payment office directs the computer to credit an employee’s account
with the person’s pay.
Tele-banking
40
Tele-banking refers to banking on phone services; a customer can access information
about his/her account through a telephone call and by giving the coded Personal
Identification Number (PIN) to the bank. Tele-banking is extensively user friendly
and effective in nature.
Mobile Banking
A new revolution in the realm of e-banking is the emergence of mobile banking. On-
line banking is now moving to the mobile world, giving everybody with a mobile
phone access to real-time banking services, regardless of their location. But there is
much more to mobile banking from just online banking.
It provides a new way to pick up information and interact with the banks to carry out
the relevant banking business. The potential of mobile banking is limitless and is
expected to be a big success. Booking and paying for travel and even tickets is also
expected to be a growth area.
According to this system, customer can access account details on mobile using the
Short Messaging System (SMS) technology where select data is pushed to the mobile
device, the wireless application protocol (WAP) technology, which will allow user to
surf the net on their mobiles to access anything and everything. This is a very flexible
way of transacting banking business.
Already ICICI and HDFC banks have tied up cellular service provides such as Airtel,
Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobile banking services to
their customers.
Internet Banking
Internet banking involves use of internet for delivery of banking products and
services. With internet banking is now no longer confirmed to the branches where one
has to approach the branch in person, to withdraw cash or deposits a cheque or
requests a statement of accounts.
41
In internet banking, any inquiry or transaction is processed online without any
reference to the branch (anywhere banking) at any time. The Internet Banking now is
more of a normal rather than an exception due to the fact that it is the cheapest way of
providing banking services.
As indicated by McKinsey Quarterly research, presently traditional banking costs the
banks, more than a dollar per person, ATM banking costs 27 cents and internet
banking costs below 4 cents approximately. ICICI bank was the first one to offer
Internet Banking in India.
Demat
Demat is short for de-materialization of shares. In short, Demat is a process where at
the customer’s request the physical stock is converted into electronic entries in the
depository system. In January 1998 SEBI (Securities and Exchange Board of India)
initiated DEMAT ACCOUNTANCY System to regulate and to improve stock
investing. As on date, to trade on shares it has become compulsory to have a share
demat account and all trades take place through demat.
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1.10 BARRIERS TO INDIAN BANKING SECTOR
Enhanced Customer Experience:
Banks are facing challenges as customers have become demanding and the loyalties are
diffused with low switching costs. High service user charges are also concern.
Asset Quality:
Asset quality in the banking sector is set to be a key issue as Crisil projects net NPA as a
percentage of net Advances to touch 2.3% in FY11, as fallout of the downturn and
consequent restructuring of advances.
Transparency and Supervision:
The disclosure requirements have become stringent over the years and covers Capital
adequacy, Asset quality, Asset liability management, Profitability, Country risk exposure,
Risk exposures in derivatives, Segment reporting and Related Party disclosures.
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1.11 PRESENT TRADE WITH QUANTITY AND AMOUNT OF THE
BANKKS IN INDIA
State Bank of India
Number of Branches: 14,119 branches, including 157 foreign offices in 32 countries
Total Assets (NIS billion): US$360 billion
Share of total banking system deposits: 20
ICICI Bank
Number of Branches: 2883
Total Assets (NIS billion): US$ 98.99 billion
HDFC Bank
Number of Branches: 2776
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Total Assets (NIS billion): US$ 70.17 billion
Bank of Baroda
Number of Branches: 4007
Total Assets (NIS billion): US$ 83.25 billion
1.12 TECHNOLOGICAL ADVANCEMENT IN INDIA
Information technology is one of the most important facilitators for the transformation of the
Indian banking industry in terms of its transactions processing as well as for various other
internal systems and processes. The various technological platforms used by banks for the
conduct of their day to day operations, their manner of reporting and the way in which
interbank transactions and clearing is affected has evolved substantially over the years.
The technological evolution of the Indian banking industry has been largely directed by the
various committees set up by the RBI and the government of India to review the
implementation of technological change. No major breakthrough in technology
implementation was achieved by the industry till the early 80s, though some working groups
and committees made stray references to the need for mechanization of some banking
processes.
This was largely due to the stiff resistance by the very strong bank employees unions. The
early 1980s were instrumental in the introduction of mechanization and computerization in
Indian banks. This was the period when banks as well as the RBI went very slow on
mechanization, carefully avoiding the use of ‘computers’ to avoid resistance from employee
45
unions. However, this was the critical period acting as the icebreaker, which led to the slow
and steady move towards large scale technology adoption.
Computerization
The process of computerization marked the beginning of all technological initiatives in the
banking industry. Computerization of bank branches had started with installation of simple
computers to automate the functioning of branches, especially at high traffic branches.
Thereafter, Total Branch Automation was in use, which did not involve bank level branch
networking, and did not mean much to the customer.
Networking of branches are now undertaken to ensure better customer service. Core
Banking Solutions (CBS) is the networking of the branches of a bank, so as to enable the
customers to operate their accounts from any bank branch, regardless of which branch he
opened the account with.
The networking of branches under CBS enables centralized data management and aids in the
implementation of internet and mobile banking. Besides, CBS helps in bringing the
complete operations of banks under a single technological platform.
Satellite Banking
Satellite banking is also an upcoming technological innovation in the Indian banking
industry, which is expected to help in solving the problem of weak terrestrial communication
links in many parts of the country. The use of satellites for establishing connectivity between
branches will help banks to reach rural and hilly areas in a better way, and offer better
facilities, particularly in relation to electronic funds transfers. However, this involves very
high costs to the banks. Hence, under the proposal made by RBI, it would be bearing a part
of the leased rentals for satellite connectivity, if the banks use it for connecting the north
eastern states and the under banked districts.
Development of Distribution Channels
The major and upcoming channels of distribution in the banking industry, besides branches
are ATMs, internet banking, mobile and telephone banking and card based delivery systems.
46
Automatic Teller Machines
ATMs were introduced to the Indian banking industry in the early 1990s initiated by foreign
banks. Most foreign banks and some private sector players suffered from a serious handicap
at that time- lack of a strong branch network. ATM technology was used as a means to
partially overcome this handicap by reaching out to the customers at a lower initial and
transaction costs and offering hassle free services. Since then, innovations in ATM
technology have come a long way and customer receptiveness has also increased manifold.
Public sector banks have also now entered the race for expansion of ATM networks.
Development of ATM networks is not only leveraged for lowering the transaction costs, but
also as an effective marketing channel resource.
Introduction of Biometrics
Banks across the country have started the process of setting up ATMs enabled with
biometric technology to tap the potential of rural markets. A large proportion of the
population in such centers does not adopt technology as fast as the urban centers due to the
large scale illiteracy.
Development of biometric technology has made the use of self service channels like ATMs
viable with respect to the illiterate population. Though expensive to install, the scope of
biometrics is expanding rapidly. It provides for better security system, by linking credentials
verification to recognition of the face, fingerprints, eyes or voice.
Some large banks of the country have taken their first steps towards large scale introduction
of biometric ATMs, especially for rural banking. At the industry level, however, this
technology is yet to be adopted; the high costs involved largely accounting for the delay in
adoption.
Multifunctional ATMs
47
Multifunctional ATMs are yet to be introduced by most banks in India, but have already
been recognized as a very effective means to access other banking services. Multifunctional
ATMs are equipped to perform other functions, besides dispensing cash and providing
account information. Mobile recharges, ticketing, bill payment, and advertising are relatively
new areas that are being explored via multifunctional ATMs, which have the potential to
become revenue generators for the banks by effecting sales, besides acting as delivery
channels. Most of the service additions to the ATM route require specific approval from the
regulator.
ATM Network Switches
ATM switches are used to connect the ATMs to the accounting platforms of the respective
banks. In order to connect the ATM networks of different banks, apex level switches are
required that connect the various switches of individual banks. Through this technology,
ATM cards of one bank can be used at the ATMs of other banks, facilitating better customer
convenience. Under the current mechanism, banks owning the ATM charge a fee for
allowing the customers of some other bank to access its ATM.
Internet Banking
Internet banking in India began taking roots only from the early 2000s. Internet banking
services are offered in three levels. The first level is of a bank’s informational website,
wherein only queries are handled; the second level includes Simple Transactional Websites,
which enables customers to give instructions, online applications and balance enquiries.
Under Simple Transactional Websites, no fund based transactions are allowed to be
conducted. Internet banking in India has reached level three, offering Fully Transactional
Websites, which allow for fund transfers and various value added services.
Internet banking poses high operational, security and legal risks. This has restrained the
development of internet banking in India. The guidelines governing internet banking
operations in India covers a number of technological, security related and legal issues to be
addressed in relation to internet banking. According to the earlier guidelines, all internet
banking services had to be denominated in local currency, but now, even foreign exchange
services, for the permitted underlying transactions, can be offered through internet banking.
48
Phone Banking and Mobile Banking
Phone and mobile banking are a fairly recent phenomenon for the Indian banking industry.
There exist operative guidelines and restrictions on the type and quantum of transactions that
can be undertaken via this route. Phone banking channels function through an Interactive
Voice Response System (IVRS) or tele-banking executives of the banks.
The transactions are limited to balance enquiries, transaction enquiries, stop payment
instructions on cheques and funds transfers of small amounts (per transaction limit of Rs
2500, overall cap of Rs 5000 per day per customer). According to the draft guidelines on
mobile banking, only banks which are licensed and supervised in India and have a physical
presence in India are allowed to offer mobile banking services.
Besides, only rupee based services can be offered. Mobile banking services are to be
restricted to bank account and credit card account holders which are KYC and AMC
compliant.
Card Based Delivery Systems
Among the card based delivery mechanisms for various banking services, are credit cards,
debit cards, smart cards etc. These have been immensely successful in India since their
launch. Penetration of these card based systems have increased manifold over the past
decade. Aided by expanding ATM networks and Point of Sale (POS) terminals, banks have
been able to increase the transition of customers towards these channels, thereby reducing
their costs too.
Payment and Settlement Systems
The innovations in technology and communication infrastructure in recent years have
impacted banks in a large way through the development of payment and settlement systems,
which are central to the major portion of the businesses of banks.
In order to strengthen the institutional framework for the payment and settlement systems in
the country, the RBI constituted, in 2005, a Board for Regulation and Supervision of
49
Payment and Settlement Systems (BPSS) as a Committee of its Central Board.
The BPSS now lays down policies relating to the regulation and supervision of all types of
payment and settlement systems, sets standards for existing and future systems, approves
criteria for authorization of payment and settlement systems, and determines criteria for
membership to these systems, including continuation, termination and rejection of
membership.
Thereafter, the government and the RBI felt the need for a legal framework dedicated to the
efficient functioning of the payment and settlement systems. The Payment and Settlement
Systems Act was passed in December 2007, which empowered the RBI to regulate and
supervise the payment and settlement systems and provided a legal basis for multilateral
netting and settlement.
Paper Based Clearing Systems
Among the most important improvement in paper based clearing systems was the
introduction of MICR technology in the mid 1980s. Though improvements continued to be
made in MICR enabled instruments, the major transition is expected now, with the
implementation of the Cheque Truncation System for the processing of cheques.
Cheque Truncation System (CTS)
Truncation is the process of stopping the movement of the physical cheque which is to be
truncated at some point en-route to the drawee branch and an electronic image of the cheque
would be sent to the drawee branch along with the relevant information like the MICR
fields, date of presentation, presenting banks etc. Thus, the CTS reduce the probability of
frauds, reconciliation problems, logistics problems and the cost of collection.
The cheque truncation system was launched on a pilot basis in the National Capital Region
of New Delhi on February 1, 2008, with the participation of 10 banks. The main advantage
50
of the cheque truncation system is that it obviates the physical presentation of the cheque to
the clearing house. Instead, the electronic image of the cheque would be required to be sent
to the clearing house.
This would provide a more cost-effective mode of settlement than manual and MICR
clearing, enabling realization of cheques on the same day. Amendments have already been
made in the NI Act to give legal recognition to the electronic image of the truncated cheque,
providing for a sound legal framework for the introduction of CTS.
Electronic Clearing Service
The Electronic Clearing Service (ECS) introduced by the RBI in 1995, is akin to the
Automated Clearing House system that is operational in certain other countries like the US.
ECS has two variants- ECS debit clearing and ECS credit clearing service. ECS credit
clearing operates on the principle of ‘single debit multiple credits’ and is used for
transactions like payment of salary, dividend, pension, interest etc.
ECS debit clearing service operates on the principle of ‘single credit multiple debits’ and is
used by utility service providers for collection of electricity bills, telephone bills and other
charges and also by banks for collections of principal and interest repayments. Settlement
under ECS is undertaken on T+1 basis. Any ECS user can undertake the transactions by
registering themselves with an approved clearing house.
The RBI has recently launched the National Electronic Clearing Service (NECS), in
September 2008, which is an improvement over the ECS currently operational. Under
NECS, all transactions shall be processed at a centralized location called the National
Clearing Cell, located in Mumbai, as against the ECS, where processing is currently done at
74 different locations.
Electronic Funds Transfer Systems
The launch of the electronic funds transfer mechanisms began with the Electronic Funds
Transfer (EFT) System. The EFT System was operationalised in 1995 covering 15 centers
where the Reserve Bank managed the clearing houses.
51
Special EFT (SEFT) scheme, a variant of the EFT system, was introduced with effect from
April 1, 2003, in order to increase the coverage of the scheme and to provide for quicker
funds transfers. SEFT was made available across branches of banks that were computerized
and connected via a network enabling transfer of electronic messages to the receiving branch
in a straight through manner (STP processing). In the case of EFT, all branches of banks in
the 15 locations were part of the scheme, whether they are networked or not.
A new variant of the EFT called the National EFT (NEFT) was decided to implemented
(November 2005) so as to broad base the facilities of EFT. This was a nationwide retail
electronic funds transfer mechanism between the networked branches of banks.
NEFT provided for integration with the Structured Financial Messaging Solution (SFMS) of
the Indian Financial Network (INFINET). The NEFT uses SFMS for EFT message creation
and transmission from the branch to the bank’s gateway and to the NEFT Centre, thereby
considerably enhancing the security in the transfer of funds.
While RTGS is a real time gross settlement funds transfer product, NEFT is a deferred net
settlement funds transfer product. As the NEFT system stabilized over time, the number of
settlements in NEFT was increased from the initial two to six. NEFT now provides six
settlement cycles a day and enables funds transfer to the beneficiaries account on T+0 basis,
bringing it closer to real time settlement.
RTGS
The other payment and settlement systems deployed were mostly aimed at small value
repetitive transactions, largely for the retail transactions. The introduction of RTGS in 2004
was instrumental in the development of infrastructure for Systemically Important Payment
Systems (SIPS).
The payment system in India largely followed a deferred net settlement regime, which meant
that the net amount was settled between banks on a deferred basis. This posed significant
settlement risks. RTGS was launched by RBI, which enabled a real time settlement on a
gross basis. To ensure that RTGS system is used only for large value transactions and retail
52
transactions take an alternate channel of electronic funds transfer, a minimum threshold of
one lakh rupees was prescribed for customer transactions under RTGS on January 1, 2007.
RTGS minimizes systemic risks too, in addition to settlement risks, as paper based funds
settlement through the Interbank clearing are replaced by the electronic, credit transfer based
RTGS system. High systemic risks are posed by high value interbank transfers, so, it is
considered desirable that all major interbank transfers among commercial banks having
accounts with RBI be routed only through the RTGS system.
The RTGS system had a membership of 107 participants (96 banks, 8 primary dealers, the
Reserve Bank and the Deposit Insurance, Credit Guarantee Corporation and Clearing
Corporation of India Ltd.) as at end-August 2009. The reach and utilization of the RTGS has
witnessed a sustained increase since its introduction in 2004. The bank/branch network
coverage of the RTGS system increased to 58,720 branches at more than 10,000 centers
facilitating the increased usage of this mode of funds transfer.
Technology Vendors
Many Indian banks handled technological issues in house till the late 1990s. Thereafter, the
complications of the business necessitated the engagement of specialized vendors to handle
complex issues. Due to the complexities involved, most banks now prefer to engage IT
vendors to introduce specialized software to help in their risk management systems, retail
and corporate banking, card management systems, complete back office support including
data management systems.
53
1.13 REQUIREMENTS OF RESOURCES IN INDIA
DEMAND DRIVERS FOR BANKING SEGMENT
Market dynamics
Increasing reach of banks into rural areas and Tier2/Tier3 cities. Banks aim to achieve
a penetration level of 74% and 81.5% in 2013 and 2018.
Micro finance emerging as a major thrust area
Increasing Mergers and acquisitions to reap the benefits of consolidation.
Improving competitiveness in terms of lower interest rates, increased productivity,
better working capital management, deleveraging.
Growth in Indian exports and imports.
Technology
54
Technology in banking is drawing more and more customers for banking related
products and services as they become more cost effective and customer friendly.
Banks renders various technology based services such as mobile banking, net
banking, tele banking, atm/credit cards, etc.
Banking sector spend about 46% of its technology budget in business continuity, 32%
for adding product functionality/new products/new features and the remaining 22% in
new technology which can change the business process.
Household savings
Bank deposits have been the mainstay of the saving process in the Indian economy
and banks have played an increasingly important role in stepping up the financial
savings rate, physical savings, nevertheless, have tended to grow in tandem with the
financial savings. With the shrinking share of household sector deposits in total
deposits, banks need to explore ways of broadening the depositor base, especially in
rural and semi-urban areas by offering customized products and features suitable to
individual risk-return requirements.
1.14 COMPARISON OF BANKING INDUSTRY OF ISRAEL AND INDIA
ISRAEL INDIA
Forces of Changes Deregulation, Technology
and Banking Crises are the
major drivers of changes in
Israel.
Technology and Privatization
are the most important
drivers of changes in the
Indian banking industry.
Major Players Bank Leumi, Mizrahi
Tefahot Bank, Discount
Bank, and Bank Hapoalim
are the major players.
State Bank of India, HDFC
Bank, ICICI Bank, Bank of
Baroda, HSBC Bank, and
Axis Bank, etc. are some of
the major players.
Services Offered by the
Banks
Different types of accounts
like savings, current and
Different types of accounts
like savings, current, Demat
55
fixed term accounts; ATM
facilities, Credit card
facilities, Tele-Banking,
Cheques, etc.
accounts; ATM as well as
credit card facilities,
Cheques, E-Banking, etc.
Present Trade Volume (in
mode of total assets) (In NIS
million for Israel and in US$
billion for India)
Bank Hapoalim-273.3
Bank Mizrahi-86.3
Discount Bank-154.8
Bank Leumi-272.8
SBI Bank-360
ICICI Bank-98.99
HDFC Bank-70.17
BOB-83.25
Technological Advancement In case of Israel due to
technology various services
like ATM, mobile banking,
etc. have emerged but still
the people are not much
convenient with the new
technology usage except for
the ATM facilities.
In case of India, larger
proportion of growth of
banking industry can be
attributed to the
technological advancement.
All the facilities via
technology like ATM, credit
card; E-banking, etc. have
been widely accepted in
India.
56
Barriers Some of the barriers in
banking industry of Israel
are:
Licensing
requirements for
accepting deposits
Limited credit
allocation
Narrow choice of
financial products
Lack of necessary
production assets
Limited access to
credit card networks
Some of the barriers in
Indian banking industry are:
Asset Quality - is the
most important in
order to excel in the
industry
Enhanced customer
experience –
customers require
more better services
in order to be loyal as
the switching costs
are low
Transparency &
Supervision –
stringent measures
are taken to ensure it
Requirements of Resources Resources in case of Israeli
banking system is obtained
from different channels,
Customer relationship model,
Management Information
system, Govt. tax authorities,
regulatory bodies, etc.
Demand drivers in Indian
banking sector are the
Technology, Household
savings and market
dynamics.
57
CHAPTER-2
COMPARISON OF BANKS
58
2.1 BANK HAPOALIM
Bank Hapoalim BM is an Israel-based financial institution. Bank Hapoalim is Israel’s leading
bank. Overseas, the bank operates through 44 branches, subsidiaries, and representative
offices. The Company’s operations are divided into seven segments of activity.
The Households Segment provides a range of banking services and financial products to
households.
The Private Banking Segment provides a range of banking services and financial products,
including investment advisory services, to private customers of medium to high net worth in
Israel and abroad.
The Small Business Segment provides products and services to small businesses.
The Commercial Segment provides products and services to medium-sized business clients.
The Corporate Segment provides products and services to large business clients.
The Financial Management Segment is responsible for the management of the Company’s
assets and liabilities. It also includes the activity of the Company’s dealing rooms. Others and
Adjustments includes all other activities of Bank Hapoalim BM.
In Israel, the Bank Hapoalim Group has 288 full-service branches, eight regional business
centers, and dedicated Customer Relationship Managers for major corporate customers,
including financial institutions. The bank is recognized for its expertise in helping customers
choose the products and services that are best suited to their business requirements.
59
PRODUCT OFFERINGS
Bank Hapoalim offers its services in the various following categories:
Investment Services
Bank Hapoalim offers a broad and deep array of financial instruments for access to the
world’s investment markets. Investment services are offered through Hapoalim Securities
USA, Inc. (Hapoalim Securities), a wholly-owned non-bank subsidiary of Bank Hapoalim.
Hapoalim Securities is a registered broker/dealer providing a vast range of investment
products and service with established international capabilities.
Various services offered are:
Foreign Currency Trading - Bank Hapoalim New York offers expert execution in
multiple currencies utilizing the safety, security, and expertise of our real-time trading
systems. Each of these products is designed to help you take advantage of positive
interest rate movement and hedge against adverse fluctuations. Foreign currency
trades include Spot Transactions, Forwards Contracts, Non-Deliverable Forward
Currency Contracts and Call and Put Options.
Financial Derivatives – There are two types of derivatives offered Interest rate
derivatives and Foreign exchange derivatives.
Money Market Sweep Accounts - A Money Market Sweep Account allows the
investor to invest automatically. A daily target balance is set in the checking account
to cover all the expected distributions. At the end of each day, any amount above the
target is automatically transferred into a highly rated Money Market Investment Fund
of the investor’s choice. The sweep account allows earning a competitive return on
money that would otherwise sit idle in a non-interest bearing account.
Mutual Funds - Hapoalim Securities offers the ability to invest in many top
performing mutual funds.
60
Cash Management
Bank Accounts - There are three main types of accounts:
Checking Account - Designed for businesses, business owners, executives, private
banking customers and philanthropic organizations with sophisticated requirements.
Savings Account - This account allows the cash to grow with a competitive interest
rate while providing immediate access to funds.
Money Market Deposit Account – It is an alternative savings account that provides a
relatively higher interest rate, but requires a higher minimum balance and a limited
number of withdrawal and check-writing privileges per month.
Credit/Debit Cards
Credit Cards – The Bank Hapoalim New York Branches’ MasterCard® is available to
U.S. and qualifying international clients. For non-U.S. residents who travel
frequently, consider the American Express® Charge Card to handle Foreign
Exchange charges. Your monthly bill may be debited from your Bank Hapoalim
checking account. American Express offers Green, Gold, or Platinum cards and, by
exclusive invitation, the Centurion card.
Debit Card - The Bank Hapoalim Debit Card provides safe payment convenience
anywhere MasterCard is accepted. Time-consuming check approvals can be avoided,
tracking of spending using monthly account statements can be done, and cash
withdrawals possible at any ATM. All transactions will appear on the regular monthly
account statement and will be automatically debited from the account.
Loan Sweep Accounts - A Loan Sweep Account with Bank Hapoalim allows paying
off the business loan faster and reduces the amount of interest to be paid. A daily
target balance is set in the business checking account to cover all the expected
distributions. At the end of each day, any amount above the target is automatically
applied to the outstanding business loan payment.
61
Check Collections - Bank Hapoalim facilitates the international collection process by
negotiating checks in a range of foreign currencies and U.S. Dollars. When funds are
received from the correspondent bank, they may be converted to U.S. Dollars or
credited to the account in the same currency as the check.
Money Transfer - Money Transfer service provides secure and timely execution
throughout the global network. Benefit is obtained from both intra-day liquidity and
settlement at a competitive price. Wire transfers are one of the fastest and safest ways
to transfer money overseas.
Time Deposits - A Time Deposit allows money to grow at a guaranteed interest rate
when held over a specified term period. Terms for Time Deposit accounts range from
one week to 10 years.
Credit and Lending
Term Loans - Bank Hapoalim offers competitive fixed- and adjustable-rate term
loans. All loans are subject to credit approval. Automatic payments may be scheduled
from the Bank Hapoalim Checking Account.
Private Real Estate Financing - Bank Hapoalim offers a portfolio of financing
solutions for real estate investors, developers, and owner occupants.
Bridge Loans - A Bridge Loan from Bank Hapoalim can help to meet the current
obligations until the investors are able to obtain long-term financing.
VARIOUS OTHER INNOVATIVE SERVICES OFFERED BY BANK HAPOALIM
ARE:
62
Poalim Mobile Banking
Bank Hapoalim leads in mobile banking and offers a range of possibilities that
facilitate management of financial transactions and that includes exclusive national
and international applications while taking advantage of the unique capabilities of
smart phones and their advanced graphics; application for capital market trading;
mobile wallet to carry out transfers and payments; capital market information
application open to customers of all banks; implementation of fast payment of bills by
photocopying the voucher without having to enter any details; money transfer through
“bumps” without having to enter the account particulars to which the money is being
transferred; smart graphs that enable a comparison between share and index
performances.
Poalim Connect
Realizing that customers, who are characterized by heavy use of direct channels,
prefer available personalized solutions without having to give up the option of
receiving branch service, the bank launched a comprehensive total solution that
includes personal service in direct channels without relinquishing the relationship
with the branch.
In this manner, customers operating through Poalim Connect are connected to their
account: through advanced interface that displays all of the important data on one
main screen and in a design adapted to tablet computers.
The new interface includes real time alerts, including the option of receiving
customized SMSs, contact initiated by the banker for important, personal events in the
customer’s life, receiving reminders to carry out transactions and options for phone
calls or meetings in the branch with specialist consultants.
Dan Haschan
63
In 2010, activities were also launched to promote the importance of savings among
children and their parents. Coin deposit machines were positioned in public places
that allow children to deposit coins they collected into their account. Today, children
can view transactions carried out in their account, and they are awarded a designated
ATM card that allows them to print out bank statements just like their parents.
Poalim in Hi-Tech
Designated service for hi-tech companies in which bankers specializing in providing
service to hi-tech companies are trained and positioned in 22 designated branches in
geographical areas with high concentrations of Hi-tech companies like (Ramat
Hahayal, Herzliya Pituah, Har Hotzvim in Jerusalem, etc.). The service is provided to
companies in various stages of their operational lifecycle, from start-up to mature.
Poalim for the Community
As part of its community activities, the bank operated Dan Haschan summer camps,
which integrated the learning of money-saving habits into entertainment and
recreational activities.
OVERALL OPERATIONS
64
During its 89 years of operation, the bank has developed a network of branches and
widespread commercial activity in all banking sectors, enabling it to offer customers a wide
range of banking and financial services. The bank serves the majority of its clients through its
two main divisions: a Corporate Division that serves most of its business clients, and a Retail
Division, operating via an affiliate system, that serves household customers, private banking,
and small businesses, and also spearheads the bank's consumer credit and mortgage activity.
This division is comprised of 270 branches and business representatives, providing complete
and comprehensive banking services.
Bank Hapoalim has extensive overseas activities, operating via banking subsidiaries,
financial companies, the bank's overseas branches and representative offices, and through
relationships with over 2,400 banks worldwide. The bank strives to expand its operations
overseas, with the aim of increasing profitability and diversifying risk in all the bank's
international activities. The bank's international operations currently include activities in
Europe, the US, Canada, Latin America, Australia, Hong Kong and Singapore. Its
international activities are focused on private banking, activity in emerging markets, and the
corporate sector.
As part of its operations in emerging markets, Bank Hapoalim has recently acquired banks in
Turkey and Kazakhstan. In addition to its business achievements, the bank also generates,
through its activities and operations, a multitude of added value benefits essential to its
clients, including imparting a sense of responsibility and accountability for their financial
activities after they have received the proper guidance and knowledge from bank personnel.
CODE OF CONDUCT
65
Bank Hapoalim is a leading financial institution in Israel and is in the business of providing
banking services and products to customers in Israel and abroad. Maintaining this position
requires meticulous attention to innovation and initiative and a constant striving for success,
while adhering to professional and behavioral ethics.
The Code of Ethical Conduct endeavors to express its organizational vision and values and to
establish Bank Hapoalim as a reliable leading brand, trusted by customers and employees.
Because of the importance the Bank attaches to the Code of Ethical Conduct, it has appointed
a Management Team member, the Head of Human Resources, Logistics and Procurement
Division, as the Head of Ethics in the Bank.
The Bank strictly observes the law and government regulations, which are anchored in its
procedures. The Code of Ethical Conduct is intended to provide guidance and orientation in
cases where rules of conduct are not adequately defined by the law or Bank procedures. The
Code sets standards that can ensure that Bank employees behave appropriately when they
encounter such ethical problems, in all units and at all levels.
The Bank has also appointed an Ethics Officer from HR division, Leadership and
Development Unit, whose job will be to ensure that employees’ enquiries and complaints
relating to ethical conduct issues will be forwarded to and dealt with by the authorized
functions and to assist the Head of Ethics to implement the Code of Ethical Conduct in the
Bank.
2.2 MIZRAHI TEFAHOT BANK
66
Mizrahi Tefahot Bank Ltd (Mizrahi Tefahot), formerly United Mizrahi Bank Ltd., is an
Israel-based bank offering international, commercial, mortgage, domestic and personal
financial services. It also provides fund and portfolio management. The Bank offers a variety
of short-term investment programs for periods ranging from one to five years, with fixed and
varying interest rates. Mizrahi Tefahot operates through 166 branches in Israel, and affiliates
in Israel and abroad, with branches or representation internationally, Los Angeles, Cayman
Islands, Mexico, Switzerland, Netherland and London. The Bank has interests in
telecommunications and industrial companies, such as Mofet Israel Technology Fund Ltd.,
Pesagot Jerusalem Ltd. and Plenus Technology.
PRODUCT OFFERINGS
Mizrahi Tefahot offers Various Banking Services:
Special accounts for young persons, soldiers, students, employees, the self-employed
and retirees
Private banking - Investments in deposits, savings accounts, provident and mutual
funds, Loans readily available for different purposes, advanced products and services
in foreign currency sectors and a diverse range of advanced capital market activities.
Commercial banking - Individually tailored mortgage programs, Expertise in real
estate communication and information processing technologies, etc.
Private Banking
67
Mizrahi Tefahot Bank offers professional Private Banking services specifically tailored to fit
the needs of domestic clients as well as foreign residents from all over the world.
In case of Domestic Private Banking, Mizrahi-Tefahot Bank has created a system of
professional and personalized Private Banking services for the high net-worth clients,
bringing the full range of banking needs to customer’s door. Personal attention combined
with high skills and a tailor-made portfolio is the hallmark of Mizrahi-Tefahot Private
Banking, which is made available to customers through Private Banking advisor.
In case of International Private Banking (IPB), foreign residents can take advantage of
numerous opportunities provided in Israel and around the world by Mizrahi-Tefahot
International Private Banking Units.
The various services are:
- Global money markets and securities exchanges
- International trade and commerce
- Real-estate and mortgages
- Trust services
- Incomparable investment and economical advice
- Deposits - High Interest Yield, Liquidity and Convertibility
Mizrahi-Tefahot Bank (UMTB) operates a computerized system for securities transactions
used by brokers on the Tel-Aviv Stock Exchange (TASE). Complemented by online
international communications with major banks and with UMTB-affiliated dealing rooms, the
professional brokerage services include: Stocks, Commodities, Mutual funds, Foreign-
currency trading, Bonds, Options and futures, Precious metals, etc.
Retail Dominance
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Mizrahi Tefahot provides "comprehensive service" at the highest level to the household and
private customer sector, offering a range of unique products and services, enabling them to
manage their financial affairs simply and cost-effectively. These services include advanced
account management services with attractive commission rates, credit facilities at
advantageous interest rates, various mortgages and loans for any purpose and a variety of
rewarding investment options. The Bank provides high net worth individuals with personal
and professional services, which are tailored to meet their own particular requirements.
Mizrahi Tefahot "Live"
Mizrahi Tefahot is characterized by its unique products and services that provide added value
to clients. Mizrahi Tefahot is the only bank in Israel that operates "LIVE" virtual branches
that offer full banking services provided by a personal banker who is easily available via
advanced and sophisticated virtual channels. Currently the Bank operates four "LIVE"
branches.
Mortgage Leader
Mizrahi-Tefahot is the No. 1 mortgage leader in Israel, through "Tefahot" the largest and
leading mortgage brand in Israel, with a market share encompassing one third of the domestic
market. The combination between commercial-retail activities and mortgage activities creates
a "positive link" between checking accounts and mortgage loans, enabling clients of the Bank
to utilize unique products and services that are a direct result of the link between these two
activities. The mortgage activities of the Bank include Bank Adanim, a subsidiary of
Mizrahi-Tefahot that was merged into the Bank at the beginning of 2009.
Control of Bank Yahav
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The Mizrahi-Tefahot Group includes Bank Yahav, in which the Bank has a 50% holding.
Bank Yahav was for many years a niche bank serving government and public sector
employees. The Bank now offers banking services to all retails clients. As part of the
cooperation within the group, we have opened mortgage representatives of "Tefahot" in the
main branches of Bank Yahav.
Corporate Banking and Trading Rooms
Mizrahi-Tefahot provides a wide range of products and services to the corporate sector. The
Corporate Division and the Regional Business Centers throughout the country, offer
corporate and business customers personal and professional services, tailored to each
corporation or business needs according to size and nature. Mizrahi Tefahot operates a
sophisticated and advanced trading room and offers the private and business customers a
wide range of foreign currency, financial instruments and capital markets operations,
activities where the bank has a market share much larger than its relative size.
International Presence
The Bank has subsidiaries in Switzerland and the Netherlands and branches and
representative offices in UK, USA, Germany, Mexico, Uruguay, Panama and the Cayman
Islands. Mizrahi-Tefahot is the first Israeli bank to link its Israeli and global foreign trading
rooms into one synchronized floor.
Investment and Pension Advisory Services
The professional investment advisors of Mizrahi-Tefahot provide personal advisory services
to suit the customer’s specific needs. In addition, the Bank provides objective advanced
pension advisory services to both self-employed and salaried employees.
Labor Agreement Ensuring Industrial Quiet until 2015
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Mizrahi-Tefahot enjoys good labor relations and internal work environment, thus enabling
full focus on the business plan of the Bank. Management and the employees’ representatives
have signed a labor agreement ensuring industrial quiet until the end of 2015. The agreement
also includes a voluntary retirement plan for 200 employees, enabling the Bank to continue to
improve efficiencies regarding the size and quality of the work force.
Community Involvement
As a community orientated business, Mizrahi-Tefahot is deeply committed to the community.
The Bank has taken a strategic decision to shift from a policy of donations to active social
involvement. Currently, the majority of the Bank's branches and head office units actively
cooperate with associations and organizations that work with children having special needs.
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2.3 ISRAEL DISCOUNT BANK LTD
Israel Discount Bank is the third largest bank and a leading financial group in Israel. With
nation-wide coverage and a strong and growing domestic franchise, Discount Bank provides
a full spectrum of corporate and retail financial products and services to its clients, both in
Israel and in key financial centers around the world.
Domestically, the Group is comprised of commercial banks and financial services companies
active in credit cards, investment banking, portfolio management, trustee services and
leasing. Discount bank also holds a 26.45% equity stake in First International bank of Israel,
the 5th largest bank in the country.
In addition to its traditional branch system, Discount Bank is leading the retail market with
new and innovative concept branches, internet and call-center based banking, and offers
extended evening branch hours.
As part of its long-term strategy, Discount Bank intends to lead the domestic retail sector in
terms of improved service standards and client satisfaction, while strengthening the bank's
franchise in both the corporate and middle-market sectors.
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Abroad, the bank operates through a network of subsidiaries, branches and representative
offices in North America, Europe and Latin America, with a focus primarily on commercial
and private banking. Israel Discount Bank New York (IDBNY) is the largest Israeli-owned
bank operating outside of Israel.
In terms of corporate social responsibility, Discount is recognized for its particularly active
community involvement – bank employees volunteer extensively within the communities in
which the bank operates. The bank is a member of the Tel-Aviv Stock Exchange.
HISTORY
Israel Discount Bank’s story parallels the history of the State of Israel; it combines pioneering
idealism with the dedication and pragmatism needed to build a nation. The Bank was founded
by Leon Recanati, a leader of the Zionist movement in Greece, who immigrated with his
family to the small pre-State Jewish settlement in the Land of Israel. Recanati, who wanted to
play an active part in the formation of this new society, quickly understood that the fledgling
economy needed financing in order to grow and prosper. An experienced merchant, he chose
to embark on a new path and in 1935 established Israel Discount Bank’s first office in Tel
Aviv.
The Bank’s first branch was opened in 1943 – in Jerusalem, with a branch in Tel Aviv
established five years later. This was a period of rapid development of the Israeli economy,
and Israel Discount Bank was a key player in this growth. As business grew, the Bank
expanded its domestic network, acquiring controlling interest in Palestine Mercantile Bank,
and later the Israel branches of Ottoman Bank.
From the beginning, the Bank combined the highest professional standards with an
international orientation. In 1949, the Bank opened its first branch in Haifa, as its first
representative office abroad – in New York. It also extended its services into Latin America,
opening an office in Montevideo, Uruguay in 1958.
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In Israel, the Bank was the preferred financial institution of small and medium-sized
businesses and professionals. As such it enjoyed an extremely high level of customer
confidence, as shown by its rapid growth in deposits and loans, which often exceeded the
average rate for all banks in Israel. To finance its rapid growth, the Bank early on turned to
the capital markets, making its first public offering in Israel in 1963 and in the United States
in 1964.
The Bank’s New York operations grew substantially, and the representative office became a
full service branch in 1962. In 1967, after acquiring a U.S. bank, it became Israel Discount
Bank of New York. Insured by the Federal Deposit Insurance Corporation (FDIC), Israel
Discount Bank of New York took over the major portion of the Bank’s Southern Hemisphere
banking operations in1980, and has grown to become one of the largest banks in New York
State and the United States.
During the next two decades the Bank continued its international expansion, opening a
branch in Los Angeles, three branches in Florida, a branch in London, and representative
offices in Paris, Berlin, Buenos Aires, Santiago and Sao Paulo. In addition, a subsidiary of
Israel Discount Bank of New York -- Discount Bank Latin America -- was opened in
Montevideo and Punta del Este, with representative offices in Buenos Aires, Lima, Mexico
City, Porto Alegre and Rio de Janeiro.
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PRODUCT SPECIFIC DIMENSIONS
1. Corporate and trade finance
General corporate loans and overdrafts
Invoice Financing and Factoring
Syndicated Loans
Documentary Credits
Guarantees, including HM Customs and Excise Duty Deferment
Receivable Discounting
Standby L/Cs
Import/Export Finance
Produce Loans and Commodity Finance
2. Property finance
Residential and investment finance (excluding owner occupation)
Commercial, including Industrial
Hotel finance : specializing in financing hotels in distressed condition, assisting
with their purchase and refurbishment
3. Treasury service
Deposits in all major currencies
Structured products
Foreign Exchange
Interest rate and FX Risk Management
Bonds
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2.4 LEUMI BANK
Type : Public company (TASE: LUMI)
Industry : Banking
Founded : 27 February 1902
Headquarters : Tel Aviv, Israel
Area served : Israel and 21 other countries
Key people : Rakefet Russak-Aminoach (President and CEO) Eitan Raff, Chairman
Products : Credit cards, consumer banking, corporate banking, finance and
insurance, investment banking, mortgage loans, private
banking, private equity, savings, Securities, asset management, wealth
management.
Services : Financial Services
Revenue : NIS 7,750 million (2011)
Net income : NIS 1,891 million (2011)
Total assets : NIS 365,854 million (2011)
Total equity : NIS 23,628 million (2011)
Employees : 13,490 (2011)
Subsidiaries : Arab Israel Bank
Website : www.leumi.co.il
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SERVICES
Investment Services: For those with over £250,000 (or currency equivalent) to
invest, they offer both Advisory and Execution only services accessed directly
through our experienced team of Relationship Managers.
Advisory Service: They offer investment advice on fund choice and asset allocation,
providing you with comprehensive portfolio valuations in all the major currencies.
They also structure one-off deposit solutions for our clients using a range of
parameters and in close cooperation with our Dealing Room. They do not advise on
individual equities and on their derivatives.
Execution Only Service: They are able to execute the purchase and sale of a
comprehensive range of securities products.
Wealth Planning Solutions and Fiduciary Services: They structure, establish and
administer trusts, private investment companies registered in various locations, and
foundations; all through our subsidiary in Jersey.
Treasury and Dealing Services: Our Relationship Managers, in conjunction with our
Dealing Room, are able to offer a full dealing service and provide you with the latest
market information. They offer immediate competitive pricing in all major currencies,
covering spot and forward periods and swaps trades. For sophisticated investors they
offer access to a range of derivative instruments as investments, or for protection
against interest, exchange, and equity risk.
Banking Services: They offer a full range of banking services in all major currencies,
a comprehensive selection of deposit products and provide payment services, debit
and charge cards and a wide-ranging internet banking offering – Leumi online.
Lending: They offer lending facilities against portfolios of securities, bank
guarantees, cash deposits, and on a back-to-back basis.
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Executive Residential Mortgages: They offer a flexible five-year interest only
mortgage for a minimum amount of £1m. These mortgages feature a multi currency
option and are intended for UK and expatriate high net worth individuals for the
purchase of their main residential property in the UK.
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2.5 STATE BANK OF INDIA
PRODUCT SPECIFIC DIMENSIONS
Corporate banking
Corporate Banking application provides features to administer and manage non personal
accounts online.
Features
User management at your fingertips
Easy synchronization with Corporate ERP System
Bulk file upload facility for payments
Pay Direct, Indirect, State Govt. Taxes & EPF Payments online
Provision for highly customized MIS
Personal banking
Our internet banking portal provides personal banking services that gives you complete
control over all your banking demands online.
Features
International Funds Transfer
Online SBI launched for Mobile!
State Bank Virtual Card
Online Term Deposits
Convenient Utility Bill Payments
ASBA facility
Tax payments
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SBI express remit
On our website, you provide prior information of intended wire transfer and generate
unique tracking number for the same and then wire transfer money to our account
with complete information along with tracking number.
Most Competitive Exchange Rates.
Send up to a maximum of USD 100,000 (minimum of USD 50) per transaction.
A unique transaction reference number helps to track your transaction online 24X7
through every stage of money transfer.
Online SBI global
Online shopping
Foreign travel card
PRODUCT OFFERINGS
Home Loan : "THE MOST PREFERRED HOME LOAN PROVIDER" voted
in AWAAZ Consumer Awards along with the MOST PREFERRED BANK
AWARD in a survey conducted by...
Education Loan : A term loan granted to Indian Nationals for pursuing higher
education in India or abroad where admission has been secured. All courses
having...
Loan against Property : A dream comes true! An all purpose loan for
anything that life throws up at you!! Do you need funds for a marriage
ceremony, want to take your.
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Business Loan : Traders Easy Loan scheme is launched by SBI to provide
hassle free loan to Traders. Any businessman/ entrepreneur/ professional and
self employed...
Personal Loan : SBI Saral - Personal Loan makes funds readily available to
you whenever you desire or need. Access this facility from over 3000
branches across the...
Car Loan : Move ahead in life with SBI Car Loans with more than 6000
Branches offering Car Loans. If you have been putting off purchasing that Car,
SBI...
VARIANTS AVAILABLE IN THE PRODUCT OFFERINGS
Account view / Statement
Online SBI can generate an account statement for a date range for any of your
accounts. The statement includes transaction details, opening, and closing and
accumulated balance in the account.
Funds Transfer
You can now avail a bouquet of funds transfer services through Internet
banking
Transfer funds within your own accounts
Transfer funds to third party account held in the same bank
Make an Inter bank funds transfer to any account held in any bank
including State Bank Group
Pay any VISA credit card bill
Transfer funds to religious and Charitable institutions
Record standing instructions to transfer a fixed amount at a scheduled
frequency for a period not exceeding one year
Transfer funds to NRE PIS accounts to facilitate online trading
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Third party funds transfer (RTGS/NEFT)
RTGS- Real Time Gross Settlement- This is a system where the
processing of funds transfer instructions takes place at the time they
are received (real time). Also the settlement of funds transfer
instructions occurs individually on an instruction by instruction basis
(gross settlement). RTGS is the fastest possible interbank money
transfer facility available through secure banking channels in India.
NEFT- National Electronic Fund Transfer- This system of fund
transfer operates on a Deferred Net Settlement basis. Fund transfer
transactions are settled in batches as opposed to the continuous,
individual settlement in RTGS. Presently, NEFT operates in hourly
batches from 8 am to 7 pm on week days and 8 am to 1 pm on
Saturdays.
Demand Draft request
Online SBI enables customers to issue demand drafts online. Customer has the
option to collect the draft from branch or give his mandate to dispatch the draft
by courier to the beneficiary.
Demat view facility
Corporate Internet Banking enables you to view your Corporate Demat
account online. You can view the account details, and generate the following
statements online.
Statement of holding
Statement of transactions
Statement of billing
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OVERALL OPERATIONS
State Bank of India (SBI) on Saturday announced it will get Rs. 3,004 Crore as part of
the government’s capital infusion plan for the current fiscal.
The fund infusion will enable the bank to support national and international banking
operations undertaken through its subsidiaries and associates, SBI said in a BSE
filing. “The central board of the bank in its meeting today has approved infusion of
capital funds in the bank by the Government of India to the tune of Rs 3,004 Crore
during 2012-13,” it said.
The capital will be infused by way of preferential allotment of equity shares to the
government. The proposal is subject to necessary regulatory approvals, it said.
Last fiscal, the government had infused Rs. 7, 900 Crore in SBI to increase the Tier-I
capital of the country’s largest bank.
Following the capital infusion in March 2012, the government holding in SBI rose to
61.58 per cent from 59.4 per cent. The government approved infusion of Rs. 12,517
Crore in around 10 state-owned banks by March.
MARKET SHARE
India's second-largest private sector lender HDFC Bank overtook largest bank SBI in
terms of market capitalization on Tuesday. At Rs 471.80 a share, HDFC Bank's
market cap works out to 1.10 lakh Crore - almost a percent higher than SBI's Rs 1.09-
lakh Crore.
HDFC Bank's total assets is almost one-sixth of SBI's total assets which stand at over
12 lakh Crore. According to analysts tracking banks, the decline in SBI's share price
helped HDFC Bank gain higher m-cap. Also, SBI has been battling with negative
sentiments and headwinds in the form of declining net interest margins, fears of
higher NPAs and exposure to sectors like power, aviation and infrastructure. SBI has
the largest exposure to Kingfisher.
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Financial highlights of company's performance
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08
Balance sheet 12 months 12 months 12 months 12 months 12 months
Capital and Liabilities:
Total Share Capital 671.04 635.00 634.88 634.88 631.47
Equity Share Capital 671.04 635.00 634.88 634.88 631.47
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 83,280.16 64,351.04 65,314.32 57,312.82 48,401.19
Revaluation Reserves 0.00 0.00 0.00 0.00 0.00
Net Worth 83,951.20 64,986.04 65,949.20 57,947.70 49,032.66
Deposits 1,043,647.36 933,932.81 804,116.23 742,073.13 537,403.94
Borrowings 127,005.57 119,568.96 103,011.60 53,713.68 51,727.41
Total Debt 1,170,652.93 1,053,501.77 907,127.83 795,786.81 589,131.35
Other Liabilities &
Provisions
80,915.09 105,248.39 80,336.70 110,697.57 83,362.30
Total Liabilities 1,335,519.22 1,223,736.20 1,053,413.7
3
964,432.08 721,526.31
Assets:
Cash & Balances with RBI 54,075.94 94,395.50 61,290.87 55,546.17 51,534.62
Balance with Banks, Money
at Call
43,087.23 28,478.65 34,892.98 48,857.63 15,931.72
Advances 867,578.89 756,719.45 631,914.15 542,503.20 416,768.20
Investments 312,197.61 295,600.57 285,790.07 275,953.96 189,501.27
Gross Block 14,792.33 13,189.28 11,831.63 10,403.06 8,988.35
Accumulated Depreciation 9,658.46 8,757.33 7,713.90 6,828.65 5,849.13
Net Block 5,133.87 4,431.95 4,117.73 3,574.41 3,139.22
Capital Work In Progress 332.68 332.23 295.18 263.44 234.26
Other Assets 53,113.02 43,777.85 35,112.76 37,733.27 44,417.03
Total Assets 1,335,519.24 1,223,736.20 1,053,413.7
4
964,432.08 721,526.32
Contingent Liabilities 698,064.74 585,294.50 429,917.37 614,603.47 736,087.59
Bills for collection 201,500.44 205,092.29 166,449.04 152,964.06 93,652.89
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Book Value (Rs) 1,251.05 1,023.40 1,038.76 912.73 776.48
2.6 ICICI BANK
PRODUCT SPECIFIC DIMENSIONS
Privilege banking
Privilege Banking customers enjoy relationship privileges across ICICI Bank Products and
services including deposits, loans, cards, Forex and locker facilities.
Relationship Privileges
Pre-qualification for loan eligibility
Preferential interest rates and/or processing fees on Loan products
Discounts on Locker facility and preferential allotment
Preferential pricing on purchase of gold, sale/purchase of Forex
Wealth management
Over the course of your lifetime, wealth will play different roles from starting
a new business, to preserving and protecting it, providing for your children,
planning your retirement or leaving a legacy behind. We understand your
financial needs at different life stages and offer you a comprehensive suite of
Wealth Management services to cater these changing financial needs.
Private banking
At ICICI Bank Private Banking our offerings are centered on you and your
vision for life. Our panel of expert analysts develops incisive solutions based
on in-depth methodical research. This assures you of solutions, specifically
conceived for your unique needs. We believe in going that extra mile to offer
you solutions that work for you and suit your lifestyle.
85
NRI banking
With a view to attract the savings and other remittance into India through
banking channels from the person of Indian Nationality / Origin who are
residing abroad and bolster the balance of payment position, the Government
of India introduced in 1970 Non-Resident(External) Account Rules which are
governed by the Exchange Control Regulations. The funds held in Non-
Resident (External) Accounts (NRE Accounts) qualify for certain benefits like
exemptions from taxes in India, free repatriation facilities, etc.
Corporate banking
Personal banking
PRODUCT OFFERINGS
Credit cards
A credit card is a payment card issued to users as a system of payment. It allows the
cardholder to pay for goods and services based on the holder's promise to pay for
them.[1] The issuer of the card creates a revolving account and grants a line of credit to
the consumer (or the user) from which the user can borrow money for payment to a
merchant or as a cash advance to the user.
Finance and insurance
Financial services are the economic services provided by the finance industry, which
encompasses a broad range of organizations that manage money, including credit
unions, banks, credit card companies, insurance companies, consumer finance
companies, stock brokerages, investment funds and some government sponsored
enterprises. As of 2004, the financial services industry represented 20% of the market
capitalization of the S&P 500 in the United States
86
Investment banking
An investment bank is a financial institution that assists individuals, corporations, and
governments in raising capital by underwriting and/or acting as the client's agent in
the issuance of securities. An investment bank may also assist companies involved in
mergers and acquisitions, and provide ancillary services such as market making,
trading of derivatives, fixed income instruments, foreign exchange, commodities, and
equity securities.
Mortgage loans
A mortgage loan is a loan secured by real property through the use of a mortgage note
which evidences the existence of the loan and the encumbrance of that realty through
the granting of a mortgage which secures the loan. However, the word mortgage
alone, in everyday usage, is most often used to mean mortgage loan.
Retail banking
Retail banking is banking in which banking institutions execute transactions directly
with consumers, rather than corporations or other banks. Services offered include
savings and transactional accounts, mortgages, personal loans, debit cards, and credit
cards.
o Commercial bank is the term used for a normal bank to distinguish it from an
investment bank. (After the great depression, the U.S. Congress required that
banks only engage in banking activities, whereas investment banks were
limited to capital markets activities. This separation is no longer mandatory.)
o Commercial bank can also refer to a bank or a division of a bank that mostly
deals with deposits and loans from corporations or large businesses, as
opposed to normal individual members of the public (retail banking). It is the
most successful department of banking.
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VARIANTS AVAILABLE IN THE PRODUCT OFFERINGS
A) Secured Loans
FEATURES
Lending Exposure:
Upto Rs 50.0 million for working capital and capital expenditure needs
Acceptable collaterals:
Residential/Commercial/Industrial property, liquid securities
Eligible entities:
Sole Proprietorship Firm, Partnership Firms, Private limited Companies,
Public limited Companies
Pre-requisites :
Minimum one year business operation & audited financial.
(*and such other pre-requisites as may be desired by the bank)
BENEFITS
Low collateral requirement-
Lending available upto 3 times of the value of the collateral
Fast processing -
De-centralized operations for fast processing and quick availability of
loans
Convenient Documentation -
Convenient documentation process to offer ease and flexibility
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Attractive Pricing -
Low interest rates and commission charges
Priority sector clients -
Attractive pricing offered for customers under priority sector lending.
Fast and Easy renewals -
Hassle free renewals with less documentation
Dedicated and exclusive relationship managers -
Dedicated relationship managers to provide complete financial solutions
Easy Accessibility -
Leverage on our anywhere banking services through 2500 plus branch network
B) Business Loans Backed by CGTMSE
This is a facility specially designed under the Credit Guarantee Fund Trust for Micro and
Small Enterprises (CGTMSE) scheme of SIDBI and Ministry of Small and Medium
Enterprises.
FEATURES
Facilities offered:
Cash Credit for meeting working capital finance requirement
Letter of Credit to facilitate trade
Bank Guarantees for performance and financial obligations
Term Loan for purchase of commercial assets & business expansion needs
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Lending Exposure:
Up to Rs 10 million for meeting working capital and capital expenditure needs
Eligible entities:
Sole Proprietorship Firms, Partnership Firms, Private limited Companies, Public limited
Companies
Eligible business segment:
Manufacturers
Pre- requisites*:
Audited financial statements of past two years
Existing Track record of loans
Investment in Plant & Machinery to be less than Rs. 50 million
(*and such other pre-requisites as may be desired by the bank)
BENEFITS
1. Collateral free loan -
No collateral is taken providing ease to customers.
2. Fast processing -
De-centralized operations and simple documentation enabling fast
turnaround time.
3. Convenient Documentation -
Convenient documentation process to offer ease and flexibility
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4. Hassle -free loan -
No third party guarantee required
5. Attractive Pricing -
Low interest rates and commission charges
6. Wide reach -
Loan can be availed at any of our 2500 plus branch network
7. Multiple banking possible -
Multiple banking facilities can be availed by offering Pari passu charge on
current assets
OVERALL PROCESS OF CONDUCT
Selection Process
At ICICI Bank, the selection process aims at getting applicants who are likely to succeed at
various roles in the Bank. The endeavor is to select people who have a high service
orientation, are passionate about their career goals, and who display integrity and ethics in all
engagements.
Depending on the level of recruitment, the selection process consists of following
combinations:
Aptitude Tests
Group Discussion (This method is primarily used for campus selection process)
Psychometric Profiling
Personal Interview
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Aptitude Tests:
Designed for entry level jobs in the Bank, the aptitude test aims to assess basic aptitude of
applicants including Numerical, Verbal comprehension, logical reasoning and basic checking
abilities.
Group Discussion:
Based on case studies, the group discussions are mainly conducted to judge applicants on
their analytical thinking, approach to hypothetical building around business situations and the
ability to break down complex problems to arrive at simple solutions.
Psychometric Profiling:
A questionnaire - based psychometric tool that assesses the typical or preferred behavior of
individuals in work settings. Applicants are required to complete the questionnaire before
they appear for the interview. This tool gives us a better understanding of the applicant and is
not used for elimination of applicants.
Personal Interview:
All applicants are expected to go through the interview round, which is the final step in the
selection process.
OVERALL OPERATIONS
ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion (US$ 93
billion) at March 31, 2012 and profit after tax Rs. 64.65 billion (US$ 1,271 million) for the
year ended March 31, 2012. The Bank has a network of 2,900 branches and 10,021 ATMs in
India, and has a presence in 19 countries, including India.
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ICICI Bank offers a wide range of banking products and financial services to corporate and
retail customers through a variety of delivery channels and through its specialized
subsidiaries in the areas of investment banking, life and non-life insurance, venture capital
and asset management.
The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in
United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International
Finance Centre and representative offices in United Arab Emirates, China, South Africa,
Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches
in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock
Exchange and the National Stock Exchange of India Limited and its American Depositary
Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).
MARKET SHARE
Primary Markets
We are the leading collecting bankers (market leader) to Public/ Rights/ Private
Placement/ Mutual Funds/ Capital Gains Bonds issues. ICICI Bank is the only Bank to
cross Rs. 1 trillion Collections. We are the market leader in IPO Collection with a 34%
share and 65% market share in Retail and HNI Segment.
Escrow and Paying Bankers We act as escrow and paying bankers to Mergers and
Acquisitions.
Secondary Markets
As mentioned above, ICICI Bank acts as a 'clearing and settlement' banker for members
of NSE, BSE, NCDEX, MCX and Spot Exchange. ICICI Bank also offers following
products/services:
Cash Management Services
NRI accounts
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Payment gateway
Portfolio management services accounts
Supply Chain Management Account
Corporate Internet Banking
Financial highlights of company's performance
94
2.7 BANK OF BARODA
INTRODUCTION:
Bank of Baroda is the third largest bank in India, after the State Bank of India and the Punjab
National Bank and ahead of ICICI Bank. BOB has total assets in excess of Rs.
2.27 lakh Crore, or Rs. 2,274 billion, a network of over 3,000 branches and offices, and about
1,100 ATMs. IT plans to open 400 new branches in the coming year. It offers a wide range of
banking products and financial services to corporate and retail customers through a variety of
delivery channels and through its specialized subsidiaries and affiliates in the areas of
investment banking, credit cards and asset management. Its total business was Rs. 4,402
billion as of 30 June 2010.
PRODUCTS DIMENSIONS:
Net banking
Lockers
NRI services
Accounts
PRODUCT OFFERINGS:
Wholesale Banking
Rural/Agri Banking
Wealth Management
CPPC - Pension
Baroda Health
Pre-paid Cards
Interest Rates Deposit Products
Loan Products
Internet Banking
Mobile Banking
ATM / Debit Cards
Demat
95
Variants available in product offering of Bank of Baroda
Banc assurance -
Under banc assurance, the customers can obtain the general insurance products of NIC Ltd
through the bank’s branch network.
Baroda Health -
It is a Mediclaim insurance policy available for the account holder’s w.e.f. 23-02-2006 at all
our branches across the country. (Details can be found on the bank’s website
www.bankofbaroda.com)
Mutual Fund -
Bank facilitates in selling the products of UTI Mutual Fund and Birla Mutual Fund to its
customers through its designated branches
Information given in this booklet is subject to change / revision. This booklet should not be
considered as a legal document creating rights and obligations. It is for promoting better
understanding between Customer and Banker. Only key information on various services /
facilities is given in this booklet. Each service has its own detailed terms and conditions
which can be made available on request.
96
2.8 HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC)
INTRODUCTION:
The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its
registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995.
PRODUCT SPECIFIC DIMENSIONS :
PRODUCT OFFERINGS:
Products of HDFC bank are as follows:
Accounts & deposits Loans Cards Investments Insurance Forex Premium banking Private banking
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Product DimensionsService Quality
Safe deposit Lockers
Fast tech friendly
bank
Best Managed
Boards
Finest Online Bank
1. Accounts & deposits: Savings account Salary account Current account Deposit Demat account Safe deposit Rural account
2. Loans Personal loan Business loan Car loan Home loan Two wheeler loan Loan against assets Education loan Government Sponsored Programs Rural loan
3. Cards Debit Credit Prepaid Credit Cards Reward Program
4. Investments Wealth service Investments Products
5. Insurance Life Health Travel Motor Home
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6. Forex Travel solutions Remittance Products Other Forex Services
7. Premium Banking Imperia Banking Preferred Banking Classic Banking
VARIANTS AVAILABLE IN THE PRODUCTS OFFERINGS:
HDFC Bank to launch Times Card:
This unique credit card has been specifically designed to cater to the lifestyle and
entertainment needs of young professionals between the ages of 24 and 38 years and offers
exceptional value-for-money in the movies and dining space.
The Times Card comes with a specially crafted rewards program and year-long discounts.
This includes 25% off on movie tickets, 20% discount on dining, and best-in-segment deals.
Users also have the exclusive option to redeem accumulated points against air miles in
addition to the usual catalogue based redemption options. Another first in the credit card
space is the presence of the QR code on the Times Card plastic. The QR code can be scanned
using any Smart phone to reach www.hdfcbank.timescard.com, where customers can view
the latest offers and also apply for the Card.
The collaboration brings together Times Group’s understanding of the youth lifestyle
segment and the entertainment space, coupled with HDFC Bank's understanding of the end-
users, as the leading player in the credit card segment.
Times Card will be launched in eight cities, namely Mumbai, Chennai, Delhi, Kolkata,
Hyderabad, Bangalore, Pune, and Chandigarh. It will be available in two variants, Platinum
and Titanium, which will be offered exclusively on the MasterCard platform, allowing
customers to transact at millions of global merchant establishments and giving them access to
benefits across the world. The Platinum Times Card is the premium variant and entitles
cardholders to higher reward points on their spends as well as exclusive privileges on their
card in addition to the wide range of benefits available on the Titanium Times Card.
99
“As a leader in the digital and print media space we have always carefully chosen our
strategic partnerships. The association with HDFC Bank helps us create a unique product in
the entertainment space that is in line with our goal to consistently deliver unique products
and services to our customers. Aimed at young working professionals, the card provides a
slew of benefits and privileges that provide value-for-money. We are sure the co-branded
credit card will provide superior customer experience enabling us to deepen our relationship
with our wide customer base,” said Ms. Archana Vohra, Vice President and Business Head,
Times Internet Limited.
“As the country's leading credit card issuer, we are constantly offering our customers world
class products that are customized to suit their ever-evolving needs. We have always believed
in offering every Indian a product designed specifically for him or her. Keeping this goal in
mind we have launched credit cards for women, doctors, teachers, and most recently for
farmers. We now have a premium product of the highest quality and great customer value for
the discerning youth of India and young at heart as they enjoy exclusivity. HDFC Bank's
partnership with Times Internet will further enhance our product offering and provide young
Indians with an unrivalled entertainment experience,” said Mr. Parag Rao, Senior Executive
Vice-president and Business Head, Credit Cards & Merchant Acquiring Services, HDFC
Bank
Financial Performance :
Mar '12 Mar '11 Mar '10 Mar '09
INVESTMENT VALUATION RATIOS
Face Value 2.00 10.00 10.00 10.00
Dividend Per Share 4.30 16.50 12.00 10.00
Operating Profit Per Share (Rs) 37.71 160.36 106.25 92.36
Net Operating Profit Per Share
(Rs)
138.66 524.34 436.03 464.77
Free Reserves Per Share (Rs) 97.01 419.10 363.55 252.37
Bonus in Equity Capital -- -- -- --
100
PROFITABILITY RATIOS
Interest Spread 5.80 5.95 5.89 6.98
Adjusted Cash Margin (%) 17.59 18.13 16.71 13.15
Net Profit Margin 15.93 16.09 14.76 11.35
Return on Long Term Fund (%) 76.06 59.91 56.08 83.31
Return on Net Worth (%) 17.26 15.47 13.70 15.32
Adjusted Return on Net Worth (%) 17.26 15.47 13.68 15.29
Return on Assets Excluding
Revaluations
127.52 545.53 470.19 344.44
Return on Assets Including
Revaluations
127.52 545.53 470.19 344.44
MANAGEMENT EFFICIENCY RATIOS
Interest Income / Total Funds 10.58 9.76 9.84 12.50
Net Interest Income / Total Funds 5.70 6.01 6.00 6.86
Non Interest Income / Total Funds -0.03 -- 0.01 --
Interest Expended / Total Funds 4.87 3.76 3.84 5.63
Operating Expense / Total Funds 2.83 3.02 3.60 4.38
Profit Before Provisions / Total
Funds
2.67 2.79 2.21 2.26
Net Profit / Total Funds 1.68 1.57 1.45 1.42
Loans Turnover 0.18 0.17 0.18 0.24
Total Income / Capital Employed
(%)
10.54 9.76 9.85 12.50
Interest Expended / Capital
Employed (%)
4.87 3.76 3.84 5.63
Total Assets Turnover Ratios 0.11 0.10 0.10 0.13
Asset Turnover Ratio 0.12 0.11 0.11 0.14
PROFIT AND LOSS ACCOUNT RATIOS
Interest Expended / Interest
Earned
54.93 47.09 48.14 54.56
Other Income / Total Income -0.32 -- 0.09 --
Operating Expense / Total Income 26.82 30.94 36.59 35.06
Selling Distribution Cost 0.46 0.65 0.41 0.54
101
Composition
BALANCE SHEET RATIOS
Capital Adequacy Ratio 16.52 16.22 17.44 15.69
Advances / Loans Funds (%) 79.19 79.34 77.24 78.87
DEBT COVERAGE RATIOS
Credit Deposit Ratio 78.06 76.02 72.44 66.64
Investment Deposit Ratio 36.99 34.45 37.85 44.43
Cash Deposit Ratio 8.81 10.79 9.35 10.71
Total Debt to Owners Fund 8.24 8.22 7.78 9.75
Financial Charges Coverage Ratio 0.58 0.79 0.63 0.44
Financial Charges Coverage Ratio
Post Tax
1.38 1.47 1.43 1.29
LEVERAGE RATIOS
Current Ratio 0.08 0.06 0.03 0.04
Quick Ratio 6.20 6.89 7.14 5.23
CASH FLOW INDICATOR RATIOS
Dividend Payout Ratio Net Profit 22.69 22.72 21.72 22.16
Dividend Payout Ratio Cash Profit 20.54 20.16 19.15 19.10
Earning Retention Ratio 77.30 77.29 78.25 77.79
Cash Earning Retention Ratio 79.46 79.84 80.82 80.87
Adjusted Cash Flow Times 43.22 47.14 50.14 54.91
Earnings Per Share 22.02 84.40 64.42 52.77
Book Value 127.52 545.53 470.19 344.44
MARKET SHARE:-
The Bank’s target market is primarily large, blue-chip manufacturing companies in the Indian
corporate sector and to a lesser extent, small & mid-sized corporate and agri-based
businesses. It carries Market Cap of 156,510.44 Cr.
In each of its businesses, the Bank has succeeded in leveraging its market position, expertise
and technology to create a competitive advantage and build market share.
102
OVERALL OPERATIONS OF HDFC :-
There are various operations that HDFC performs and some of them which can be listed
down here are as follows:-
HDFC Bank caters to a wide range of banking services covering commercial and investment
banking on the wholesale side and transactional / branch banking on the retail side. The bank
has three key business segments:
Wholesale Banking
103
The Bank's target market is primarily large, blue-chip manufacturing companies in the Indian
corporate sector and to a lesser extent, small & mid-sized corporate and agri-based
businesses.
Retail Banking
The objective of the Retail Bank is to provide its target market customers a full range of
financial products and banking services, giving the customer a one-stop window for all
his/her banking requirements.
Treasury
Within this business, the bank has three main product areas - Foreign Exchange and
Derivatives, Local Currency Money Market & Debt Securities, and Equities.
The bank is committed to maintain the highest level of ethical standards, professional
integrity, corporate governance and regulatory compliance. HDFC Bank’s business
philosophy is based on four core values: Operational Excellence, Customer Focus, Product
Leadership and People.
104
CHAPTER-3
FINDINGS
105
3.1 OVERALL
The Israeli banking sector is relatively deep and well developed, but it remains highly
concentrated. The total assets of the banks account for 138 percent of GDP in 2010.
There are five major banking groups in Israel, which hold 93 percent of the total
assets of the banking system (Leumi – 28.7 percent, Hapoalim – 28 percent, Discount
– 16.2 percent, Mizrahi-Tefahot– 11.7 percent and First International – 8.8 percent).
In addition, there are three independent banks – Union Bank (3 percent of total
assets), Bank of Jerusalem and Dexia Israel Bank, each with less than one percent of
total banking sector assets.
Five branches of foreign banks (Barclays Bank, Citibank, HSBC, BNP Paribas and
the State Bank of India) constitute about two percent of the banking system.
The high concentration in the banking system is directly linked to the concentrated
structure of the Israeli economy, where a number of conglomerates (often family-
owned) control leading positions in several industries. In recent years, the greatest
impact on the competitive environment has come from the rapid development of the
domestic (corporate) bond market, while banks retain more competitive power in their
household lending business.
The banking system’s balance sheet reflects that of a conservative banking system
which is mainly based on the classic banking activities of extending credit and raising
deposits. Credit accounts for around 69 percent of total assets, with credit to the
government being negligible.
Israeli banks have the largest credit exposure towards private individuals (34.2
percent of total credit, with almost half of this being housing loans). Construction and
real estate is the second largest recipient of bank credit with 16.2 percent, followed by
borrowers’ activity abroad with 13 percent, and manufacturing with 10 percent.
After credit, the second largest item on the asset side of the balance sheet are
securities, which represent 13.8 percent of total assets, with 66 percent of them being
106
government bonds. Israeli banks mainly fund their activities with a broad and stable
deposit base, which represents 77.2 percent of total liabilities and equity. At the same
time, they exhibit low reliance on wholesale debt, given the loan-to deposit ratio of
less than 100 percent (90 percent).Bonds and subordinated loans account for 7.9
percent of total liabilities and equity.
Banks are supervised by the Bank of Israel. The regulation and supervision of Israeli
banks is relatively good and has contributed significantly to the resilience of the
banking sector during the financial crisis. The banking system adopted Basel II on 31
December 2009 and is preparing to gradually introduce the system of international
standards as required by Basel III. Nevertheless, areas for improvement exist and the
Bank of Israel continues to enhance its regulatory and supervisory framework.
Performance and soundness indicators of Israeli banks do not point to immediate risks
to the banking sector’s stability. The banks enjoy stable funding profiles and healthy
liquidity, while the economy’s strong performance has supported asset quality. Israeli
banks’ presence in most customer segments and a broad product range further support
their earnings. Furthermore, the banks benefit from a very high likelihood and
capability of systemic support, while the supervisory approach of the Bank of Israel is
conservative and proactive.
3.2 INDIA OPPORTUNITIES AND CHALLENGES IN ISRAEL BANKING
INDUSTRY
107
Management of Risks
The growing competition increases the competitiveness among banks. But, existing
global banking scenario is seriously posing threats for Indian banking industry.
According to Shrieves (1992), there is a positive association between changes in risk
and capital. Research studied the large sample of banks and results reveal that
regulation was partially effective during the period covered. Moreover, it was
concluded that changes in bank capital over the period studied was risk-based.
Wolgast, (2001) studied the Merger and acquisition activity among financial firms.
The author focused bank supervisors in context with success of mergers, risk
management, financial system stability and market liquidity. The study concluded that
large institutions are able to maintain a superior level of risk management. Al-Tamimi
and Al-Mazrooei (2007) examined the risk management practices and techniques in
dealing with different types of risk. Moreover, they compared risk management
practices between the two sets of banks. The study found the three most important
types of risk i.e. commercial banks foreign exchange risk, followed by credit risk, and
operating risk
Sensarma and Jayadev (2009) used selected accounting ratios as risk management
variables and attempted to gauge the overall risk management capability of banks.
They used multivariate statistical techniques to summarize these accounting ratios.
Moreover, the paper also analyzed the impact of these risk management scores on
stock returns through regression analysis. Researchers found that Indian banks' risk
management capabilities have been improving overtime. Returns on the banks' stocks
appeared to be sensitive to risk management capability of banks. The study suggest
that banks want to enhance shareholder wealth will have to focus on successfully
managing various risks.
Growth of Banking
Zhao, Casu and Ferrari (2008) used a balanced panel data set covering the period of
1992-2004 and employing a Data Envelopment Analysis (DEA)-based Malmquist
Total Factor Productivity (TFP) index. The empirical study indicated that, after an
108
initial adjustment phase, the Indian banking industry experienced sustained
productivity growth, which was driven mainly by technological progress.
Banks' ownership structure does not seem to matter as much as increased competition
in TFP growth. Foreign banks appear to have acted as technological innovators when
competition increased, which added to the competitive pressure in the banking
market. Finally, our results also indicate an increase in risk-taking behavior, along
with the whole deregulation process .
It was found in the study of Goyal and Joshi (2011a) that small and local banks face
difficulty in bearing the impact of global economy therefore, they need support and it
is one of the reasons for merger. Some private banks used mergers as a strategic tool
for expanding their horizons. There is huge potential in rural markets of India, which
is not yet explored by the major banks.
Human Resource Management
Gelade and Ivery (2003) examined relationships between human resource
management (HRM), work climate, and organizational performance in the branch
network of a retail bank. Significant correlations were found between work climate,
human resource practices, and business performance.
The results showed that the correlations between climate and performance cannot be
explained by their common dependence on HRM factors, and that the data are
consistent with a mediation model in which the effects of HRM practices on business
performance are partially mediated by work climate Bartel (2004) studied the
relationship between human resource management and establishment performance of
employees on the manufacturing sector.
Using a unique longitudinal dataset collected through site visits to branch operations
of a large bank, the author extends his research to the service sector. Because branch
managers had considerable discretion in managing their operations and employees,
the HRM environment could vary across branches. Site visits provided specific
examples of managerial practices that affected branch performance.
109
An analysis of responses to the bank’s employee attitude survey that controls for
unobserved branch and manager characteristics shows a positive relationship between
branch performance and employees’ satisfaction with the quality of performance
evaluation, feedback, and recognition at the branch—the “incentives” dimension of a
high-performance work system. In some fixed effects specifications, satisfaction with
the quality of communications at the branch was also important.
Global Banking
It is practically and fundamentally impossible for any nation to exclude itself from
world economy. Therefore, for sustainable development, one has to adopt integration
process in the form of liberalization and globalization as India spread the red carpet
for foreign firms in 1991. The impact of globalization becomes challenges for the
domestic enterprises as they are bound to compete with global players. If we look at
the Indian Banking Industry, then we find that there are 36 foreign banks operating in
India, which becomes a major challenge for Nationalized and private sector banks.
These foreign banks are large in size, technically advanced and having presence in
global market, which gives more and better options and services to Indian traders.
Financial Inclusion
Financial inclusion has become a necessity in today’s business environment.
Whatever is produced by business houses, that has to be under the check from various
perspectives like environmental concerns, corporate governance, social and ethical
issues. Apart from it to bridge the gap between rich and poor, the poor people of the
country should be given proper attention to improve their economic condition.
Dev (2006) stated that financial inclusion is significant from the point of view of
living conditions of poor people, farmers, rural non-farm enterprises and other
vulnerable groups, financial inclusion, in terms of access to credit from formal
institutions to various social groups. Apart from formal banking institutions, which
should look at inclusion both as a business opportunity and social responsibility, the
author conclude that role of the self-help group movement and microfinance
institutions is important to improve financial inclusion.
110
CHAPTER-4
111
CONCLUSION
The major banks that we have discussed here like Hapoalim Bank, Leumi Bank. Discount
Bank, Mizrahi-Tefahot Bank has various new and valuable services that they provide to the
people of Israel. The trade taking places in these banks are also noticeable and profitable to
112
the economy of the country. The legal aspects and barriers in banking industry are also easy
to understand and manageable.
Also we can see that when compared to the banking industry of India the results are
somewhat satisfactory. The working of the banking industry in both the countries is different
and from the findings it is clear that the Israeli banking sector remains highly concentrated.
Also some of the rules differ from that of the Indian banking Rules.
There are opportunities to enter the banking industry in Israel but with the help of deep
research and required resources only. With the challenges like management of risks, growth
of banking, human resource management, global banking and financial inclusion it is
necessary to understand in deep the banking industry of the country.
CHAPTER-5
113
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114
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