MBA CP Project (Mansvi & Priyanshi)

ISLAMIC BANKING SYSTEM IN INDIA
Comprehensive Project Report

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PREFACE
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SUBJECT INDEX
Sr. No. Particular Page No.
ix
INTRODUCTION
1
What is Islamic Banking?
Banking is a concept that has been used in our society in different form and shapes.
The history of banking is as old as 2000 BC when there were trading system and the
gold coins. There are different banking systems in the world but the most famous ones
are conventional banking and the Islamic banking. The main function of conventional
bank can be summed up in one sentence: The banks borrow to lend. They borrow in
the form of deposits and lend this money to earn interest. In contrary, Islamic banking
system is based on the principle of partnership. In Islamic banking, the shareholders,
the depositors and the borrowers-all would participate on profit-loss sharing basis.
Here you will get the complete information about what is Islamic banking and is it
really Islamic?
Introduction to Islamic Banking
Islamic banking is a finance management system that is based on the Islamic rules of
Sharia. The main concept of the Islamic banking is the prohibition on collection of
interest and its utilization for the business purposes. Banking in Islam is a saving
money framework that depends on the standards of Islamic law, additionally known
as Shariah law, and guided by Islamic financial matters. Two fundamental standards
behind Islamic banking concepts are the sharing of benefit and misfortune. Gathering
interest or Riga isn't allowed under Islamic law.
Islamic banking concepts have an indistinguishable reason from traditional managing

an account aside from that it works as per the guidelines of Shari'ah, known as Fiqh
al-Muamalat. Banking in Islam as an account exercises must be polished reliable with
the Shari'ah and its pragmatic application through the improvement of Islamic
financial aspects. A significant number of these standards whereupon banking in
Islam is based are regularly acknowledged everywhere throughout the world, for quite
a long time as opposed to decades. These standards are not new but rather their unique
state has been changed throughout the hundreds of years.
2
How Does Islamic Banking Work?
It is important that you understand the rules to know how does Islamic banking work.
There is consensus among the Shariah scholars that credit price of a commodity can
genuinely be more than its cash price. The Islamic Fiqh Academy of OIC and Sharia
Boards of all Islamic banks, approve the legality of this difference. However, no
addition to price once mutually agreed.
Keeping in mind the end goal to procure cash without charging premium, Islamic
banks utilize value support frameworks. This implies if a bank credits cash to a
business, the business pays back the advance without premium, yet it gives the bank
an offer in its benefits. In the event that the business defaults on the advance or do not
win any benefits, the bank does not get any benefit either. Detailed study of Islamic
banking services is covered in mba Islamic finance and Islamic finance course -
offered by AIMS.
Islamic Banking Concepts in Early Ages of Islam
the origins of Islamic banking & financisl system
The history of banking in Islam goes back to the earliest reference point of Islam in
the 7th century. The first spouse of prophet Muhammad's, Khadija, was a dealer, and
he went about as a specialist for her business, utilizing a significant number of similar
standards utilized as a part of contemporary concepts of Islamic banking.
In the Middle Ages, exchange and business activity in the Muslim world depended on
Islamic rules as account standards, and these thoughts spread all through Spain, Baltic
States, and Mediterranean, giving a portion of the premise to western standards. From
the 1960s to 1970s, the modern world accepted the Islamic banking system.
3
HISTORY
OF
ISLAMIC
BANKING
4
1960s
• pioneering efforts in experimenting application of islamic

finance;
• . mit gharam, a savings bank in egypt
• tabung haji, islamic savings bank established by Msia government.
• pioneering islamic banking literatures : -
• prof. mohammad nejatullah siddiqi dr. mohhamad umer chapra, qureshi.
1970s
• establishment of islamic financial institutions

• IDB, development bank owned by OIC countries.
• Establishment of 1st islamic bank, dubai islamic bank.
• subsequent establishment of islamic banks in jordan, bahrain and egypt.
1980s
• move by iran, sudan and pakistan to transform their islam

• rapid establishment of islamic bamk & takaful companies in
OIC countries( jordan, egypt, qatar, bahrain)
• establishment of 1st islamic bank takaful companies in south
east asia (bank islam malasiya, 1983 & takaful malaisiya, 1985)
5
LITERATURE
REVIEW
6
Abedifar ., 2015(musa)
The industry of Islamic banking represents around an 80% of the 2 trillion dollars in
assets of Islamic finance, which have grown around a 10% over the last decade.
During the financial crisis, the industry of Islamic banking has grown faster than
commercial banking.
Sherin, 2012(Malaysia)
The central bank of Malaysia’s website, Islamic banking asset has reched USD65.6
billion, with an average growth rate of 18-20% annually. Islamic banking system is
defined as a banking system whose principles underlying its operations an activities
are founded on Islamic or shariah rules.
Muhammad jaffer and irfan manarvi, 2011 (Pakistan)
The study examined and compared the performance of Islamic and conventional
banks operating inside Pakistan during 2005 to 2009 by analyzing CAMEL test
standard factors such as capital adequacy, asset quality, management quality, earning
ability and liquidity position. The financial data for the study was mined from the
bank’s financial statements existing on state bank of Pakistan website. Asset quality
for both modes of banking was almost the same, conventional banks recorded slightly
smaller loans loss ratio showing improved loan recovery policy whereas, UNCOL
ratio analysis showed nominal better performance for Islamic banking.
Dusuki and Abdullah, 2006
Explained that Islamic bankers can no longer depend on promoting the Islamic factor
but also have to improve service quality. Their survey among 750 respondents found
the three most important factors were competence, friendliness and customer service
quality.
Thambiah (2008)
Non-Muslim students viewed Islamic finance as inherently appealing to Muslims, and

did not perceive Islamic finance as provider of superior products. Overall, studies
related to Islamic banking in Malaysia have largely focused on patronage factors.
7
Dar & Presley (1999)
The old testament was the key influence on jewish and christen opposition to interest,
and may have been the original reason for the Qur’an’s dismissal of usury since the
three religions share the same belief in the god of Abraham.
Gerrard and cunningham’s (1997)
Study in Singapore found 41.4% of Muslim respondents would deposit an

unexpectedly acquired substantial sum of money in Islamic banks, but half of them
would withdraw and transfer all deposits to another bank if no profits is announced,
much like non-Muslims who deposits with banks that guarantee a return.
AL-Harn’s (1995)
Studies indicate a deeper need to investigate the importance of marketing Islamic

banking, reinforcement Proposition for market research to determine a viable Islamic
economic systems. Islamic banking should no longer be regarded as a business entity
striving to fulfill the religion obligation but as a viable business that can win over
customers.
8
RESEARCH
METHODOLOGY
9
OBJECTIVES OF THE STUDY
 To know about Islamic banking

 To explore the financing modes of Islamic banking
 To study future market potential of Islamic banking
 To study how Islamic banking sustain in Indian market.
RESEARCH TYPE
The researcher has been used “Exploratory research”.
SCOPE OF THE STUDY
In India the scope of Islamic banking is very large because 140 million Muslims live
in India which is around 15 percent of the Islamic population. According to Standard
& Poor’s (S&P) rating services the potential market is $4 trillion worldwide;
therefore, this can be a tool for enhancing economic development in India. This will
provide opportunities to the laborers and the working class belonging to the
community. There are several foreign banks operating in India, like Citi bank,
Standard chartered bank, HBSC are operating interest free windows in several west
Asian countries, USA and Europe. The growing awareness about the concept among
Indian banks and it is generally felt that there is a huge potential market in India for
Islamic banking. Several banks in the country have shown an inclination to undertake
this form of interest free banking. However, unless proper regulations are in place to
oversee this form of banking it will not be possible for scheduled commercial banks to
follow the Islamic banking has been approved by RBI in India. This welcome
development was expected after Dr. RaghuramRajan took over as the governor of
RBI replacing D.Subbarao whose position on Islamic banking was not favorable. Dr.
RaghuramRajan, a former Chief Economist of IMF and the Chief Economist Advisor
to the Finance Ministry, was the head of the Committee of the Financial Sector
Reforms (CFSR) of the planning commission which recommended Islamic banking to
be approved in India. So, on August 6, 2013 Dr. Manmohan Singh approved Dr.
Raghuram’s appointment as the governor of RBI, people like us got fresh hopes and
RBI finally gave a go ahead to it.
STATEMENT OF PROBLEM
10
The modern Islamic banking is about only five decades old but has gained significant
interest in almost all parts of the world. Today, Islamic banking has become one of
the fastest growing segments of the international banking and capital markets. The
spread has been more in the last ten years, especially after the global financial crisis of
the previous decade, primarily because Islamic banks were found to be more stable
and less susceptible to crisis. Another reason for its growth is to attract investments
from the Middle-East and Gulf countries besides demand from the muslim population.
Islamic banking has found its way right from the developed western world like the
United Kingdom to the Asian giants like Japan and China. The paper attempts to lay
emphasis that India too needs to accommodate Islamic Banking. If India continues to
shy away from Islamic banking it will lose huge potential investments. The paper
highlights the benefits of introducing Islamic banking in India and also identifies the
hurdles in the way of Islamic Banking in India.
RESEARCH DESIGN
In this study we will be doing comparative analysis of Islamic banking and

conventional banking in the various contexts like operational difference,
administrative difference, product difference & performance difference in two
different banks I.e. Islamic & non Islamic bank. We will also discuss Islamic banking
in the world & in India.
DATA COLLECTION
The researcher has used secondary data.
TOOLS USED FOR DATA COLLECTION
The secondary data were collected from published source like books, websites, etc.
LIMITATIONS OF THE STUDY
 The topic is very peculiar, the secondary data was very difficult to gather.
 The time period of the study is limited with three months.
11
ISLAMIC BANKING
IN INDIA
12
PRINCIPLES OF ISLAMIC BANKING
 Sharing of profit and loss

 Prohibition of investing in unlawful businesses
 Prohibition of RIBA (interest)
ISLAMIC BANKING TAKING ROOTS IN INDIA:

KERALA LAUNCHES INTEREST FREE BANK
Islamic banking taking roots in India: Kerala launches interest free bank
By Abdullah Edachalem Available

at: http://www.khabrein.info/news/Islamic_banking_taking_routes_in_India__Kerala
_launches_interest_free_bank_1299509784/
The Kerala government has taken revolutionary step launching the first ever interest-
free Islamic banking institution in India. The Al-Baraka came into action once the
Kerala High Court dismissed a couple of writ petitions which challenged the setting
up of Islamic financial institution in a secular country like India.
The Islamic Bank is promoted by Kerala State Industrial Development Corporation

(KSIDC) which has 11 percent stake in Al-Baraka Financial Services. The financial
institution which operates on Islamic principles was held back as former union
minister Subramanyam swami filed PIL challenging the move.
A division bench comprising Chief Justice J Chalameswar and Justice P R

Ramachandra Menon dismissed the petitions claiming that the government proposed
institution can follow the financial laws of the country as well as sharia rules.
The first of its like institution originally planned as government undertaking failed to
get Reserve Bank clearance as well as court rulings. An internal working group of
RBI whose report is yet be public held that such a form of banking is not possible
given present regulations.
However the system had got a shot on the arm when Prime Minister Manmohan Singh
asked the Reserve Bank of India to look into the prospects of introducing an interest-
13
free banking system in the country. “There have been demands for experimenting
with Islamic banking in the country,” Singh said.
And now the court cleared the way for setting up the financial system as a state
supported private company. Al –Baraka is proposed to work as an interest free
banking system in which a sharia board will account the power to decide on the mode
of investments.
The company will invest the money only in Shariah compliant projects such as
development and infrastructure projects, according to the promoters. The government
plans to use the Al-Baraka resources for major projects like Southwest rail corridor
and Coimbatore-Kochi corridor.
14 promoters of Al-Baraka have already contributed 40.2 million Indian rupees to the
interest free financial institution which aims to mobilize around 400 billion rupees in
total. The 17 member board of the directors is chaired by P. Mohammed Ali, veteran
GCC based business man, and C.K. Menon as vice chairman.
The government initiative is widely appreciated by people of the state mainly by

Muslims who account for close to 24 percent of the 32 million population. It has
warmly welcomed by nonresident Keralites in which Muslims play 50% role in
umbers as well as in the total remittance into the state.
However, a few people believe that its’ a government agenda to tap the huge amount
of money from expatriate Muslims who are keeping away from interest-smitten
financial systems. Political opposition has been blaming the CPI (M) led left
government for their minority appeasement move.
But state government is firm on its stance projecting the example of Britain having an
Islamic bank with seven branches where Muslims account for only 3% of population.
They also claim that there are nearly 500 Islamic finance institutions worldwide,
managing $1 trillion in assets.
The promoters of Al-Baraka proposed that Indian banking regulations would be

changed to accommodate Islamic banking services. It would benefit the largest
minority of the country as well as those who wish for interest-free banking services.
14
DIFFERENCE
BETWEEN
ISLAMIC BANK
&
CONVENTIONAL
BANK
15
NO. CONVENTIONAL ISLAMIC BANKING

BANKING
1. The functions and operating The functions and operating modes are
modes are based on fully man based on the principles of Islamic
made principles. shariah.
2. It aims at maximizing profit it also aims at maximizing profit but

without any restriction. subject to shariah restriction.
3. It can charge additional money This type of banking has no provision
[penalty and compound interest] in to charge any extra money from the
case of defaulters. defaulters. Only small amount of
compensation is charged and these
proceeds are given to charity.
4. Lending money and getting it Participation in partnership business
back with compound interest is is the fundamental function of the
the fundamental function of the Islamic bank.
conventional bank.
5. The investor is assured of a It promoters risk sharing between
predetermined rate of interest. provider of capital and the user of
funds.
6. Since income from the advance Since it shares profit and loss, the
is fixed, it gives little importance Islamic banks pays greater attention
to developing expertise in to developing project appraisal and
project appraisal and evaluation. evaluation.
7. The status of a conventional The status of Islamic bank in relation
bank, in relation to its clients is to its clients is that of partners,
that of creditor and debtor. investors and trader, buyer and seller.
8. Conventional banking practices Islamic banking practices are
are concerned with elimination concerned with risk bearing when
of risk when involve in any involved in any transaction.
transaction.
9. It does not deal with zakat In the modern Islamic banking
(Islamic tax) systems, it has become one of the
service-oriented functions of the
16
Islamic banks to be a zakat collection

center and they also pay out their
zakat.
10. When conventional banks Islamic banks bear all liability when
involve in transaction with involve in transaction with consumer.
consumer they do not take the Getting out any benefit without
liability only get the benefit bearing its liability is declared haram
from consumer in from of in islam.
interest.
17
PRODUCT
OF
ISLAMIC &
CONVENTIONAL
BANKS
18
ISLAMIC BANKING PRODUCTS
deposits investment
products products
financing insurance
products products
DEPOSITS PRODUCTS
1. Wadiah (safekeeping)
In wadiah a bank is deemed as a keeper and trustee of funds. A person
deposits funds in bank and the bank gurantees refund of the entire amount of
the deposits or any part of the outstanding amount, when the depositor
demands it.
2. Jibah
A token given voluntarily by a debtor in return for loan.
INVESTMENT PRODUCTS
19
1. Murabahah
Refers to the sale of goods at a price, including a profit margin agreed to by
both parties, and clearly stated in the sale agreement.
The bank can not charge additional profit on late payments, however, the
assets remains as a mortgage with banks until the default is settled.
2. Mudarabah (profit sharing)
Is a contract with one party providing 100% of the capital and the other party
providing its specialized knowledge to invest the capital and manage the
investment project. Profit sharing ratio is usually 1:1 or 3:2, which is usually
predetermined.
3. Sukak
It refers to Islamic equivalent of bonds. Sukuk securities are structured to
comply with Islamic law and its investment principles, which prohibits interest
charging. This is generally done by involving a tangible assets in the
investment, such a by giving partial ownership of property built by the
investmentcompany to the board owner.
FINANCING PRODUCTS
1. Musharakah (joint venture)

Is a relationship between two parties or more that contribute capital to a
business and divide the net profit and loss pro rata.
 The profit is distributed the partners in pre-agreed ratios.
 The loss is supported strictly in proportion to capital contributions.
2. Ijarah ( lease or rent )
Refers to selling the benefits of user or service for a fixed price or wage.
Under this concept, the bank makes available to the customer the use of
service of asset/ equipment such as plant, office automation, motor vehicle
for a fixed period and price.
3. Qurd hassan ( good loan )
20
Is a loan extended on a goodwill basis, with the debtor only required to

repay the amount of the loan as a taken of appreciation to the creditor.
INSURANCE PRODUCTS
1. Takaful
Takaful os based on the idea that what is uncertain to an
individual may be uncertain to a very large number of
similar individuals. It’s a type of insurance where members
contribute money into a pooling system in order to guarantee
Each other against loss or damage.
21
CONVENTIONAL BANKING PRODUCS
CONVENTIONAL
BANK PRODUCTS
Treasury
Retail Banking Trade Finance
Operations
RETAIL BANKING
1. Deposits
2. Loans, Cash Credit and Overdraft
3. Negotiating for Loans and advances
4. Remittances
5. Book-Keeping (maintaining all accounting records)
6. Receiving all kinds of bonds valuable for safe keeping
TRADE FINANCE
1. Issuing and confirming of letter of credit.

2. Drawing, accepting, discounting, buying, selling, collecting of bills of
exchange, promissory notes, drafts, bill of lading and other securities.
TREASURY OPERATIONS
1. Buying and selling of bullion, Foreign exchange.

2. Acquiring, holding, underwriting and dealing in shares, debentures, etc.
22
3. Purchasing and selling of bonds and securities on behalf of constituents.

4. The banks can also act as an agent of the Government or local authority. They
insure, guarantee, underwrite, participate in managing and carrying out issue of
shares, debentures, etc.
23
OPERATIONAL
DIFFERENCE
BETWEEN
ISLAMIC BANKS
&
CONVENTIONAL
BANKS
24
The operations of any banks includes the functioning, i.e. its

sources of funds, its mobilization of funds etc. In short the
operations of banks means whole working mechanism of any
banks.
Here we will show comparison between operational functions of

Islamic banks & conventional banks.
sources of fund
capital & equity
transections
deposits
investment
deposits
CAPITAL & EQUITY
1. Capital is the amount injected into Islamic bank during the

setting up stages i.e. the paid-up capital of the Islamic
bank.
2. Equity is usually the retained earnings of Islamic bank that
accumulated during its operational period.
25
Transection deposits
1. CURRENT ACCOUNT
They are based on the principle of wadiah, where the

depositors get the guarantee of repayment of funds, and they
do not receive remuneration on such deposits
2. SAVINGS ACCOUNT
It is also based on the principle of wadiah. Here the
depositor gets the income(hiba/premium) on deposits.
INVESTMENT DEPOSITS
1. INVESTMENT ACCOUNT
It is operated under the principle of mudaraba, in which
mudrib (active partner). Should have absolute freedom in
the management of investment of the subscribed capital.
 Higher fixed premium amount
 A longer duration deposits
 Depositor may lose some of all his funds if the banks
make loss.
2. SPECIAL INVESTMENT ACCOUNT
Special investment account is also operated under the
principle, and usually are directed towards larger investors
& institutions.
26
APPLICATION OF FUNDS
cost
deferred
plus/mark
payment
up
prepaid
purchase
benvolent
loans
manufact
leasing uring
1. MURABHA (COST PLUS/ MARK UP)

The bank finances purchase of goods or assets by buying it
on behalf of its client & adding a markup before reselling
it to the client on a cost plus profit basis contract.
2. BAI MUAJJAL (DEFERRED PAYMENT)
Islamic banks also do purchase & resale of the properties
on a deferred payment basis. It is considered lawful in to
charge a higher price of goods if payment are to be made
at a later date.
3. BAI SALAM (PREPAID PURCHASE)
This method is really the opposites of the murabaha. There
the bank gives the commodity first and then receives the
money later. Here bank pays money first & receives
27
commodity later. This is generally used to finance

agriculture products.
4. ISTISNAA (MANUFACTURING)
This is a contract to acquire goods on behalf of a third
party where the price is paid to manufacturer in advance &
goods are produced & delivered later.
5. QARD (BENEVOLENT LOANS)
This is the zero return kind of loan that the holy quran
urges muslim to make available to those who need them
6. IJARAH & IJARA WA LQTINA (LEASING)
Under this mode, the banks buy the equipment & lease it
out to their clients who may opt to buy the items
eventually, in which the monthly payment will consists of
A. rent for the use
B. installment towards the purchase price.
28
SOURCES OF FUNDS OF CONVENTIONAL BANKING
sources of funds capital

deposits
borrowings
CAPITAL
The bank capital represents the net worth of the bank or its value to investors. A
bank’s capital can be though of as the margin to which creditors are covered if a bank
liquidities its assets. Loan-loss reserves or loan-loss provisions are amounts set aside
by banks to allow for any loss in the value of the loans they have offered.
1. Paid-up capital
Paid-up/share capital indicates contribution made by the shareholders of the
bank. By definition, it is part of subscribed capital which has been called-up
and paid, while subscribed capital is the part of the authorized capital which
29
has been issued and taken up by the public including shares issued to and paid
by sponsor.
2. Reserve fund
It is amount accumulated over the years out of undistributed profit. It actually
belongs to the shareholders. The accumulation of such retained reserve is an
essential condition for financial soundness, stability and growth of the bank to
fulfill special roles assigned to them from time to time.
DEPOSITS
Deposits from public represent by far the most powerful sources of fund to a bank,
accounting for over 90% of the total. These deposits are key to a bank’s potential
growth. These funds are liabilities of the bank, because these have to returned to the
owners on demand.
1. Current deposits
The depositors of such
30
31
PERFORMANCE
ANALYSIS
OF ISLAMIC & NON
ISLAMIC BANKS
32
In evaluate of the financial performance of the banks, the financial ratio is used on the
study. Financial ratio procedure to evaluate the banks performance was introduced by
Cole (1972) (as cited in Rosly and Bakar, 2003). The ratios are grouped under three
broad categories. They are profitability ratio, liquidity ratio and credit risk ratio.
Profitability ratio consists of the return on assets ratio and return on equity ratio.
Liquidity ratio includes the net loan to asset ratio, while, credit risk ratio includes
common equity to total asset ratio and total equity to net loans ratio.
a) Profitability Ratio
The profitability ratios are used to assess the capability of the banks to generate the
earnings as compared to their expenses and other relevant costs incurred during
certain period of time. This study used the following ratio to evaluate the profitability
performance of the banks. .
1. Return on Assets (ROA) = net profit / total asset
KERALA GRAMIN BANK
2016-17 2017-18
Net profit 1029362 537806
Total assets 189120754 208242692
Return on assets 0.0054 0.0025
33
CHERAMAN FINANCIAL SERVICE LIMITED
2016-17 2017-18
Net profit 3525527 8093136
Total assets 267124305 302984072
Return on assets 0.0132 0.0267
RETURN ON ASSTS
0.03
0.025
0.02
0.015
0.01
0.005
0
2016-17 2017-18
kerla gramin charamen finance
INTERPRETATION
 The higher the value of the ROA is indicator of higher capability of the firm
 Here it can be seen that return on assets of both banks is not up to the mark i.e.
near to zero.
 But return on assets of Islamic bank is higher than the other so, it can be said
that its profitability is high.
34
2. Return on Equity (ROE) = net profit / equity
KERALA GRAMIN BANK
2016-17 2017-18
Net profit 1029362 537806
Equity 84143 84143
Return on equity 12.223 6.3915
2016-17 2017-18
Net profit 3525527 8093136
Equity 336200000 318000000
Return on equity 0.0105 0.0255
35
RETURN ON EQUITY
14
12
10
0
2016-17 2017-18
Axis Title
kerala gramin bank cheraman finance
INTERPRETATION
 The higher the value of the ROE is indicator of higher financial performance.
It assesses how effectively the banks used the shareholder funds.
 Here it can be seen that kerala gramin bank does not have much equity. So
ROE is quiet higher in the year 2017, which becomes its half in the year 2018
due to the reduction in net profit.
 Here the ROE of cheraman finance is very low in both the years 2017 & 2018.
36
2 LIQUIDITY RATIO
Liquidity means how quickly the cash availability in the bank converts its assets into
cash to meet the needs of the depositors and borrowers.
Net Loans to Asset Ratio (NetLTA) = net loans/ total asset.
KERALA GRAMIN BANK
2016-17 2017-18
Net loans 117602781 143100924
Total assets 189120754 208242692
Net loan to asset ratio 0.6218 0.6871
2016-17 2017-18
Net loans 99065877 10217699
Total assets 302984072 267124305
Net loan to asset ratio 0.3269 0.3825
37
NET LOAN TO ASSET RATIO

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2016-17 2017-18
INTERPRETATION
 The higher the Net LTA is indicator of less liquid the bank will be.
 The chart shows net loan to assets ratio of both the banks of kerala for the year
2017 & 2018.
 It can be seen that Net LTA ratio of kerala gramin bank is almost double than
the cheraman finance.
 This indicates higher liquidity of cheraman finance service limited as
compared to kerala gramin bank.
38
3) CREDIT RISK RATIO

Credit risk is the likelihood that a borrower will default on its loan or lease, causing
the bank to lose any potential interest earned. Following are the financial ratio that
used to measuring the credit risk performance of the banks.
i. Common Equity to Total Asset ratio (CETA) = common equity/ total assets.
KERALA GRAMIN BANK
2016-17 2017-18
Common equity 84143 84143
Total assets 189120754 208242692
Common equity to 0.000445 0.000404

total asset ratio
2016-17 2017-18
Common equity 336200000 318000000
Total assets 302984072 267124305
Common equity to 1.1096 1.1905

total asset ratio
39
COMMON EQUITY TO TOTAL ASSET RATIO

1.4
1.2
0.8
0.6
0.4
0.2
0
2016-17 2017-18
Axis Title
Krla gramin bank cheraman finance
INTERPRETATION
 The higher the ratio of CETA indicates the greater capacity for the bank to
maintain the assets losses.
 It can be clearly seen that the CETA of kerala gramin bank is half of CETA of
cheraman finance whose CETA is 1.1.
 This indicates that cheraman finance (Islamic bank) has the greater capacity
to maintain assets losses.
40
ii. Total Equity to Net loans (TENL) = total equity/ net loans.
KERALA GRAMIN BANK
2016-17 2017-18
Total equity 84143 84143
Net loans 117602781 143100924
Total equity to net 0.000715 0.00058

loans
2016-17 2017-18
Total equity 336200000 318000000
Net loans 99065877 102176799
Total equity to net 3.394 3.112

loans
41
Total equity to net loans ratio

4
3.5
3
2.5
2
1.5
1
0.5
0
2016-17 2017-18
Axis Title
INTERPRETATION
 The higher the ratio of TENL indicates the higher capacity for a bank to adjust
the loans losses.
 The chart clearly shows that cheraman finance’s ratio is almost 3 times of
kerala gramin bank’s TENL ratio.
 Therefore it can be said that cheraman finance has higher capacity to adjust its
losses on loans.
42
FINDINGS
&
SUGGESTIONS
43
FINDINGS
44
SUGGESTIONS
45
CONCLUSION
46
BIBLIOGRAPHY
 https://www.scribd.com/doc/16522911
 https://ifinanceexpert.wordpress.com/
 https://scroll.in/article/845062/with-first-sharia-compliant-co-op-
bank-in-kerala-has-islamic-banking-moved-ahead-in-india
 https://zulkiflihasan.wordpress.com/2011/03/08/islamic-banking-
taking-roots-in-india-kerala-launches-interest-free-bank/
 https://www.researchgate.net/publication/265625647_Islamic_Ban
ks_from_a_Global_Perspective
 https://www.sc.com/global/av/pk-ib-cb-differences.pdf
 https://www.researchgate.net/profile/Michael_Skully/publication/2
65625647_Islamic_Banks_from_a_Global_Perspective/links/54bf4
0bd0cf28ce68e6b4650/Islamic-Banks-from-a-Global-
Perspective.pdf?origin=publication_detail
47
ANNEXURE
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ISLAMIC BANKING SYSTEM IN INDIA

Comprehensive Project Report

Under the Guidance of

In partial Fulfilment of the Requirement of the award of the degree of

MBA (Semester - IV)

Month & Year

I/We hereby declare that the Comprehensive Project Report titled

__________________________________________________>”is a result of my/our

Enrollment No. Name Signature

Place: Rajkot Date: _____/_____/2019

This is to certify that project work embodied in this report entitled

The report is approved / not approved.

Comments of External Examiner:

 Put this page blank (One page per student)

PLAGIARISM REPORT: DIGITAL RECEIPT

PLAGIARISM REPORT: SIMILARITY PERCENTAGE PAGE

 Name of Dean: Dr. Sunil Kumar Jakhoria

Sr. No. Particular Page No.

What is Islamic Banking?

Introduction to Islamic Banking

Islamic banking concepts have an indistinguishable reason from traditional managing

How Does Islamic Banking Work?

Islamic Banking Concepts in Early Ages of Islam

the origins of Islamic banking & financisl system

• pioneering efforts in experimenting application of islamic

• establishment of islamic financial institutions

• move by iran, sudan and pakistan to transform their islam

Muhammad jaffer and irfan manarvi, 2011 (Pakistan)

Dusuki and Abdullah, 2006

Non-Muslim students viewed Islamic finance as inherently appealing to Muslims, and

Dar & Presley (1999)

Gerrard and cunningham’s (1997)

Study in Singapore found 41.4% of Muslim respondents would deposit an

Studies indicate a deeper need to investigate the importance of marketing Islamic

OBJECTIVES OF THE STUDY

 To know about Islamic banking

The researcher has been used “Exploratory research”.

SCOPE OF THE STUDY

In this study we will be doing comparative analysis of Islamic banking and

The researcher has used secondary data.

TOOLS USED FOR DATA COLLECTION

LIMITATIONS OF THE STUDY

PRINCIPLES OF ISLAMIC BANKING

 Sharing of profit and loss

ISLAMIC BANKING TAKING ROOTS IN INDIA:

By Abdullah Edachalem Available

The Islamic Bank is promoted by Kerala State Industrial Development Corporation

A division bench comprising Chief Justice J Chalameswar and Justice P R

The government initiative is widely appreciated by people of the state mainly by

The promoters of Al-Baraka proposed that Indian banking regulations would be

NO. CONVENTIONAL ISLAMIC BANKING

made principles. shariah.

2. It aims at maximizing profit it also aims at maximizing profit but

Islamic banks to be a zakat collection

ISLAMIC BANKING PRODUCTS

1. Musharakah (joint venture)

3. Qurd hassan ( good loan )

Is a loan extended on a goodwill basis, with the debtor only required to

CONVENTIONAL BANKING PRODUCS

1. Issuing and confirming of letter of credit.

1. Buying and selling of bullion, Foreign exchange.

3. Purchasing and selling of bonds and securities on behalf of constituents.

The operations of any banks includes the functioning, i.e. its

Place: Rajkot Date: _/_/2019