PROJECT REPORT

ON

BANKING SYSTEM IN INDIA

Under the Guidance of

PROF. NEERAJ

A Project Submitted to University of Mumbai for partial completion of the

degree of Bachelor in Commerce (Accounting and Finance) Under the Faculty
of Commerce.

Submitted by,

SHETTY RAKSHITH RAJASHEKHAR

Roll No. 19592

VEDANTA COLLEGE OF MANAGEMENT AND INFORMATION TECHNOLOGY

V ITTHALWADI (W), ULHASNAGAR-3

UNIVERSITY OF MUMBAI

2019-2020
 VEDANTA COLLEGE OF MANAGEMENT AND
INFORMATION TECHNOLOGY (ULHASNAGAR)

CERTIFICATE
This is to certify that Ms./Mr. SHETTY RAKSHITH RAJASHEKHAR . Roll No.

19592 Semester-VI 2019-2020 has worked and duly completed her/his Project Work

for the degree of Bachelor in Commerce (Accounting and Finance) under the Faculty

of Commerce in the subject of PROF. NEERAJ and her/his project is

entitled “BANKING SYSTEM IN INDIA” under my supervision.

I further certify that the entire work has been done by the learner under my guidance

and that no part of it has been submitted previously for any Degree or Diploma of any

University.

It is her/ his own work and facts reported by her/his personal findings and

investigations.

Dr. Sangita Kohli . NEERAJ

(Principal) Project Guide

Prof. Anish Kalwani External Examiner

Course Co-ordinator
 Declaration
I the undersigned Miss /Mr. SHETTY RAKSHITH SHETTY student of

TYBAF here by, declare that the work embodied in this project work titled

“BANKING SYSTEM IN INDIA”, forms my own contribution to the research work

carried out under the guidance of PROF. NEERAJ is a result of my own

research work and has not been previously submitted to any other University for any

other Degree/ Diploma to this or any other University.

Wherever reference has been made to previous works of others, it has been clearly

indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and

presented in accordance with academic rules and ethical conduct.

SHETTY RAKSHITH RAJASHEKHAR

(BATCHELOR OF ACCOUNTING AND FINANCE)

Certified by,
PROF. NEERAJ
(Name and signature of the Guiding Teacher)
 Acknowledgment
To list who all have helped me is difficult because they are so numerous and the depth

is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh

dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to

do this project.

I would like to thank my Principal, Dr. Sangita Kohli for providing the necessary

facilities required for completion of this project.

I take this opportunity to thank our Coordinator Prof. Anish kalwani, for her moral

support and guidance.

I would also like to express my sincere gratitude towards my project guide

Prof. NEERAJ whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference

books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped

me in the completion of the project especially my Parents and Peers who supported

me throughout my project Completion of this project.

I take this opportunity to thank our Coordinator, for her moral support and guidance.
 INDEX

SR.N PARTICULARS PAGE

O NO

1. CHAPTER 1 - INTRODUCTION 1
1.1 HISTORY
1.2 POST INDEPENDENCE
1.3 NATIONALIZATION
1.4 LIBERALIZATION
1.5 EVOLUTION
1.6 DEFINATION
1.7 TYPES OF BANKS
1.8 BANKING TECHNOLOGIES
2. CHAPTER 2 - RESEARCH AND METHODOLOGY 30
2.1 STATEMENT OF PROBLEM
2.2 RELEVANCE OF THE STUDY
2.3 POLICY RELEVANCE
2.4 OBJECTIVES OF THE STUDY
2.5 SCOPE AND LIMITATION
2.6 STATEMENT OF THE HYPOTHESIS
2.7 JUSTIFICATION OF HYPOTHESIS
2.8 DATA COLLECTION
3. CHAPTER 3 - REVIEW AND LITERATURE 37

4. CHAPTER 4 - DATA & INTERPRETATION 41

4.1 TOP TRENDS
4.2 TRENDS IN BANCASSURANCE
4.3 CHALLENGES TO BANCASSURANCE
4.4 SWOT ANALYSIS ON BANCASSURANCE
4.5 STRENGTHS OF BANCASSURANCE
4.6 WEAKNESSES OF BANCASSURANCE
4.7 OPPORTUNITIES IN BANCAASURANCE
4.8 THREATS IN BANCASSURANCE
4.9 IMPACT OF BANCASSURANCE PRODUCT
5. QUESTIONNAIRE - FOR BANKERS 76
FOR CUSTOMERS 78

6. CONCLUSION 81
7. BIBLOGRAPHY 82
 CHAPTER 1
INTRODUCTION

1
INTRODUCTION
In the organizational context, innovation may be linked to performance and growth through
improvements in efficiency, productivity, quality, competitive positioning, market share, etc.
All organizations can innovate, including for example hospitals, universities, and local
governments.

While innovation typically adds value, innovation may also have a negative or destructive
effect as new developments clear away or change old organizational forms and practices.
Organizations that do not innovate effectively may be destroyed by those that do. Hence
innovation typically involves risk. A key challenge in innovation is maintaining a balance
between process and product innovations where process innovations tend to involve a
business model which may develop shareholder satisfaction through improved efficiencies
while product innovations develop customer support however at the risk of
costly R&D that can erode shareholder return.

In summary, innovation can be described as the result of some amount of time and effort into
researching (R) an idea, plus some larger amount of time and effort into developing (D) this
idea, plus some very large amount of time and effort into commercializing (C) this idea into a
market place with customers.

2
3
 HISTORY

The first banks were probably the religious temples of the ancient world, and were probably
established in the third millennium B.C. Banks probably predated the invention of money.
Deposits initially consisted of grain and later other goods including cattle, agricultural
implements, and eventually precious metals such as gold, in the form of easy-to-carry
compressed plates. Temples and palaces were the safest places to store gold as they were
constantly attended and well built.

As sacred places, temples presented an extra deterrent to would-be thieves. There are extant
records of loans from the 18th century BC in Babylon that were made by temple
priests/monks to merchants.

POST INDEPENDENCE

The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal,
paralyzing banking activities for months. India's independence marked the end of a regime of
the Laissez faire for the Indian banking. The Government of India initiated measures to play
an active role in the economic life of the nation, and the Industrial Policy Resolution adopted
by the government in 1948 envisaged a mixed economy.

This resulted into greater involvement of the state in different segments of the economy
including banking and finance. The major steps to regulate banking included:

In 1948, the Reserve Bank of India, India's central banking authority, was nationalized,
and it became an institution owned by the Government of India.

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) "to regulate, control, and inspect the banks in India."

The Banking Regulation Act also provided that no new bank or branch of an existing bank
could be opened without a license from the RBI, and no two banks could have common
directors. However, despite these provisions, control and regulations, banks in India except
the State Bank of India, continued to be owned and operated by private persons. This
changed with the nationalization of major banks in India on 19 July 1969.

4
 NATIONALIZATION

The RBI was nationalized on January 1, 1949 in terms of the Reserve Bank of India (Transfer
to Public Ownership) Act, 1948 By the 1960s, the Indian banking industry had become an
important tool to facilitate the development of the Indian economy. At the same time, it had
emerged as a large employer, and a debate had ensued about the possibility to nationalize the
banking industry.

Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the
annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on
Bank Nationalization." The paper was received with positive enthusiasm. Thereafter, her
move was swift and sudden, and the GOI issued an ordinance and nationalized the 14 largest
commercial banks with effect from the midnight of July 19, 1969.

Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of

political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the
Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the
presidential approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of credit delivery.

With the second dose of nationalization, the GOI controlled around 91% of the banking
business of India. Later on, in the year 1993, the government merged New Bank of India with
Punjab National Bank.

It was the only merger between nationalized banks and resulted in the reduction of the
number of nationalized banks from 20 to 19. After this, until the 1990s, the nationalized
banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

LIBERALISATION

In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust Bank (the first of such new
generation banks to be set up), which later amalgamated with Oriental Bank of Commerce,
Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank.

5
This move, along with the rapid growth in the economy of India, revitalized the banking
sector in India, which has seen rapid growth with strong contribution from all the three
sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the
norms for Foreign Direct Investment, where all Foreign Investors in banks may be given
voting rights which could exceed the present cap of 10%,at present it has gone up to 74%
with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were
used to the 4-6-4 method (Borrow at 4% Lend at 6%;Go home at 4) of functioning. The new
wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.
All this led to the retail boom in India.

People not just demanded more from their banks but also received more. Currently (2007),
banking in India is generally fairly mature in terms of supply, product range and reach-even
though reach in rural India still remains a challenge for the private sector and foreign banks.
In terms of quality of assets and capital adequacy, Indian banks are considered to have clean,
strong and transparent balance sheets relative to other banks in comparable economies in its
region. The Reserve Bank of India is an autonomous body, with minimal pressure
from the government. The stated policy of the Bank on the Indian Rupee is to manage
volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially
in its services sector-the demand for banking services, especially retail banking, mortgages
and investment services are expected to be strong. One may also expect M&As, takeovers,
and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in
Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has
been allowed to hold more than 5% in a private sector bank since the RBI announced norms
in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by
them.

In recent years critics have charged that the non-government owned banks are too aggressive
in their loan recovery efforts in connection with housing, vehicle and personal loans. There
are press reports that the banks' loan recovery efforts have driven defaulting borrowers to
suicide.

6
 EVOLUTION

The Rangarajan Committee report in early 1980s was the first step towards computerization
of banks. Banks started exploring the idea of 'Total Bank Automation (TBA)'. Although titled
'Total Bank Automation,' TBA was in most cases confined to branch automation. It was only
in the early 1990s that banks started thinking about tyingup disparate branches together to
facilitate information sharing. At the same time, private banks entered the banking arena with
radically different strategies.

Given the huge IT budgets at their disposal and with almost no legacy IT equipment to worry
about; private banks hastened the adoption of technology. The philosophy for private banks
was very clear: to provide a whole new range of financial products and services at minimal
costs. And technology made this possible. Says K.N.C. Nair, Head (IT), Federal Bank, “The
new generation banks showed the way and others had no option but to follow the tech
infusion to retain and attract profitable customers."

The improved connectivity and falling costs offered by leased lines and VSATs provided a
booster to inter-branch automation. Confirms Naresh Wadhwa, Vice President-West, Cisco
Systems (India), "With the improved services and lowered costs of service providers such as
Dot and VSNL, it became more feasible for banks to network their branches.

This gave banks an impetus to network all the branches and set up centralized databases.
With these developments it became possible for operations such as MIS to betruly automated
and centralized." With centralized infrastructure andnumerous connectivity options, banks
started exploring multipledelivery channels like ATM, Net-banking, mobile banking, and
Telebanking thus driving down cost per transaction

DEFINITION

Financial institution whose primary activity is to act as a payment agent for customers and to
borrow and lend money. Banks are important players of the market and offer services as
loans and funds.

Banking was originated in 18th century

First bank were General Bank of India and Bank of Hindustan, now defunct.

Punjab National Bank and Bank of India was the only private bank in 1906.

Allahabad bank first fully India owned bank in 1865.

7
 Types of banks

Commercial bank:

○ 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.)

○ 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.

A commercial bank is a type of financial institution that accepts deposits, offers checking
account services, makes various loans, and offers basic financial products like certificates of
deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank
is where most people do their banking, as opposed to an investment bank.

Commercial banks make money by providing loans and earning interest income from those
loans. The types of loans a commercial bank can issue vary and may include mortgages, auto
loans, business loans, and personal loans. A commercial bank may specialize in just one or a
few types of loans.

8
Community development banks:

Community development banks are regulated banks that provide financial services and credit
to underserved markets or populations. A community development bank is a financial
institution created for the purpose of promoting economic development in regions that
generally have low to moderate incomes. These banks offer checking and savings accounts as
well as loans, mortgages, credit cards and other retail banking services to those who fall
within lower income brackets.

In order for a financial institution to become a community development bank, they must be
certified by the U.S. Department of the Treasury's Community Development Financial
Institutions Fund. The CDFI certifies loan funds, credit unions, banks, and community
development venture capital funds in the interest of improving the economic conditions in
demographic groups with fewer earnings.

These banks can be chartered by the state or federal government. If chartered federally, the
bank must follow the Office of the Controller of the Currency. The regulations and
qualifications for a state charter will vary from state to state.

9
Private bank:

· Private bank manage the assets of high net worth individuals. Private banks are the banks
owned by either the individual or a general partner(s) with limited partner(s). Private banks
are not incorporated. In any such case, the creditors can look to both the "entirety of the
bank's assets" as well as the entirety of the sole-proprietor's/general-partners' assets.
These banks have a long tradition in Switzerland , dating back to at least the Revocation of
the Edict of Nantes (1685). Private bank also have a long tradition in the UK where C. Hoare
& Co. Has been in business since 1672.
The private sector banks in India are banks where the majority of the shares or equity are not
held by the government but by private share holders.
In 1969 all major banks were nationalized by the Indian government. However, since a
change in government policy in the 1990s, old and new private sector banks have re-emerged.
The private sector banks are split into two groups by financial regulators in India, old and
new. The old private sector banks existed prior to nationalization in 1968 and kept their
independence because they were either too small or specialist to be included in
nationalization. The new private sector banks are those that have gained their banking license
since the change of policy in the 1990s.

10
Offshore banks:

· Offshore banks are banks located in jurisdictions with low taxation and regulation. Many
offshore banks are essentially private banks.
An offshore bank is a bank regulated under international banking license (often called
offshore license), which usually prohibits the bank from establishing any business activities
in the jurisdiction of establishment. Due to less regulation and transparency, accounts with
offshore banks were often used to hide undeclared income. Since the 1980s, jurisdictions that
provide financial services to nonresidents on a big scale, can be referred to as offshore
financial centre . Since OFCs often also levy little or no tax corporate and/or personal income
and offer, they are often referred to as tax havens.

With worldwide increasing measures on CFT (combating the financing of terrorism) and
AML (anti-money laundering) compliance, the offshore banking sector in most jurisdictions
was subject to changing regulations. Since 2000 the Financial Action Task Force issues the
so-called FATF blacklist of "Non-Cooperative Countries or Territories" (NCCTs), which it
perceived to be non-cooperative in the global fight against money laundering and terrorist
financing.

11
While the term originates from the Channel Islands being "offshore" from the United Kingdom, and
while most offshore banks are located in island nations to this day, the term is used figuratively to
refer to any bank used for these advantages, regardless of location. Thus, some banks in
landlocked Andorra, Luxembourg, and Switzerland may be described as "offshore banks".

Savings banks:

Saving banks accept saving deposits. A savings bank is a financial institution whose primary
purpose is accepting savings deposits and paying interest on those deposits.
They originated in Europe during the 18th century with the aim of providing access to
savings products to all levels in the population. Often associated with social good these early
banks were often designed to encourage low income people to save money and have access to
banking services. They were set up by governments or by socially committed groups or
organizations such as with credit unions. The structure and legislation took many different
forms in different countries over the 20th century.

The advent of Internet banking at the end of the 20th century saw a new phase in savings
banks with the online savings bank that paid higher levels of interest in return for clients only
having access over the web.

12
·

Postal Banks:

Postal savings banks are savings banks associated with national postal systems.
Postal savings systems provide depositors who do not have access to banks a safe and
convenient method to save money. Many nations have operated banking systems
involving post offices to promote saving money among the poor.
In 1861, Great Britain became the first nation to offer such an arrangement. It was supported
by Sir Rowland Hill, who successfully advocated the penny post, and William Ewart
Gladstone, then Chancellor of the Exchequer, who saw it as a cheap way to finance the public
debt. At the time, banks were mainly in the cities and largely catered to wealthy customers.
Rural citizens and the poor had no choice but to keep their funds at home or on their persons.
The original Post Office Savings Bank was limited to deposits of £30 per year with a
maximum balance of £150. Interest was paid at the rate of 2.5 percent per annum on whole
pounds in the account. Later, the limits were raised to a maximum of £500 per year in
deposits with no limit on the total amount. Within five years of the system's establishment,
there were over 600,000 accounts and £8.2 million on deposit. By 1927, there were twelve
million accounts—one in four Britons—with £283 million (£17,017 million today) on
deposit.

The British system first offered only savings accounts. In 1880, it also became a retail outlet
for government bonds, and in 1916 introduced war savings certificates, which were renamed
National Savings Certificates in 1920.[2] In 1956, it launched a lottery bond, the Premium
Bond, which became its most popular savings certificate.[2] Post Office Savings Bank became
National Savings Bank in 1969, later renamed National Savings and Investments (NS&I), an
agency of HM Treasury. While continuing to offer National Savings services, the
(then) General Post Office, created the National Girobank in 1968 (privatized as Girobank
and acquired by Alliance & Leicester in 1989).

13
Many other countries adopted such systems soon afterwards. Japan established a postal
savings system in 1875 and the Netherlands government started a systems in 1881 under the
name Rijkspostspaarbank (national postal savings bank), this was followed by many other
countries over the next 50 years. The later part of the 20th century saw a reversal where these
systems were abolished or privatized.

BANKING TECHNONOLOGIES

ONLINE BANKING

Online banking (or Internet banking) allows customers to conduct financial transactions on a
secure website operated by their retail or virtual bank, credit union or building society.

Features
Online banking solutions have many features and capabilities in common, but traditionally
also have some that are application specific.
The common features fall broadly into several categories

Transactional (e.g., performing a financial transaction such as an account to account

transfer, paying a bill, wire transfer... and applications... apply for a loan, new account, etc.)

o Electronic bill presentment and payment - EBPP

o Funds transfer between a customer's own checking and savings accounts, or to another
customer's account
o Investment purchase or sale
o Loan applications and transactions, such as repayments

Non-transactional (e.g., online statements, check links, co browsing,

Financial Institution Administration - features allowing the financial institution to manage

the online experience of their end users

ASP/Hosting Administration - features allowing the hosting company to administer the

solution across financial institutions Features commonly unique to business banking include

Support of multiple users having varying levels of authority

Transaction approval process

Wire transfer Features commonly unique to Internet banking include

14
 Personal financial management support, such as importing data into personal accounting
software. Some online banking platforms support account aggregation to allow the customers
to monitor all of their accounts in one place whether they are with their main bank or with
other institutions.

Security token devices

Protection through single password authentication, as is the case inmost secure Internet
shopping sites, is not considered secure enough for personal online banking applications in
some countries. Basically there exist two different security methods for online banking.

The PIN/TAN system where the PIN represents a password, used for the login and TANs
representing one-time passwords to authenticate transactions. TANs can be distributed in
different ways, the most popular one is to send a list of TANs to the online banking user by
postal letter. The most secure way of using TANs is to generate them by need using a security
token.
These token generated TANs depend on the time and a unique secret, stored in the security
token (this is called two-factor authentication or 2FA). Usually online banking with
PIN/TAN is done via a web browser using SSL secured connections, so that there is no
additional encryption needed.

Signature based online banking where all transactions are signed and encrypted digitally.
The Keys for the signature generation and encryption can be stored on smartcards or any
memory medium, depending on the concrete implementation

AUTOMATED TELLER MACHINE (ATM)

Smaller indoor ATMs dispense money inside convenience stores and other busy areas, such
as this off-premise Wincor Nixdorf mono-function ATM in Sweden.

An automated teller machine (ATM) is a computerized telecommunications device that

provides the customers of a financial institution with access to financial transactions in a
public space without the need for a human clerk or bank teller. On most modern ATMs, the
customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic
smartcard with a chip, that contains a unique card number and some security information,
such as an expiration date or CVC (CVV). Security is provided by the customer
entering a personal identification number (PIN).

.Using an ATM, customers can access their bank accounts in order to make cash withdrawals
(or credit card cash advances) and check their account balances as well as purchasing mobile
cell phone prepaid credit. ATMs are known by various other names including automated
transaction machine, automated banking machine, money machine, bank machine, cash
machine, hole-in-the-wall, cash point, Bancomat (in various countries in Europe and Russia),
Multibanco (after a registered trade mark, in Portugal), and Any Time Money (in
India).

15
 Financial networks

An ATM in the Netherlands. The logos of a number of interbank networks this ATM is
connected to are shown.
Most ATMs are connected to interbank networks, enabling people to withdraw and deposit
money from machines not belonging to the bank where they have their account or in the
country where their accounts are held (enabling cash withdrawals in local currency).
Some examples of interbank networks include PULSE, PLUS, Cirrus, Interac and LINK.

ATMs rely on authorization of a financial transaction by the card issuer or other authorizing
institution via the communications network. This is often performed through an ISO 8583
messaging system.

Many banks charge ATM usage fees. In some cases, these fees are charged solely to users
who are not customers of the bank where the ATM is installed; in other cases, they apply to
all users. Where machines make a charge some people will not use them, but go to a
system without fees.

In order to allow a more diverse range of devices to attach to their networks, some interbank
networks have passed rules expanding the definition of an ATM to be a terminal that either
has the vault within its footprint or utilizes the vault or cash drawer within the merchant
establishment, which allows for the use of a scrip cash dispenser. ATMs typically connect
directly to their ATM Controller via either a dial-up modem over a telephone line or directly
via a leased line. Leased lines are preferable to POTS lines because they require less time to
establish a connection. Leased lines may be comparatively expensive to operate versus a
POTS line, meaning less-trafficked machines will usually rely on a dial-up modem. That
dilemma may be solved as high-speed Internet VPN connections become more ubiquitous.
Common lower-level layer communication protocols used by ATMs to communicate back to
the bank include SNA over SDLC, TC500 over Async, X.25, and TCP/IP over Ethernet.
In addition to methods employed for transaction security and secrecy, all communications
traffic between the ATM and the Transaction Processor may also be encrypted via methods
such as

16
 CREDITS CARDS

A credit card is part of a system of payments named after the small plastic card issued to
users of the system. It is a card entitling its holder to buy goods and services based on the
holder's promise to pay for these goods and services.[1] The issuer of the card 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.

A credit card is different from a charge card, where a charge card requires the balance to be
paid in full each month. In contrast, credit cards allow the consumers to 'revolve' their
balance, at the cost of having interest charged. Most credit cards are issued by local banks or
credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1.

Credit cards are issued after an account has been approved by the credit provider, after which
cardholders can use it to make purchases at merchants accepting that card. When a purchase
is made, the credit card user agrees to pay the card issuer. The cardholder indicates consent to
pay by signing a receipt with a record of the card details and indicating the amount to be paid
or by entering a personal identification number (PIN). Also, many merchants now accept
verbal authorizations via telephone and electronic authorization using the Internet, known as
a 'Card/Cardholder Not Present' (CNP) transaction.

Electronic verification systems allow merchants to verify that the card is valid and the credit
card customer has sufficient credit to cover the purchase in a few seconds, allowing the
verification to happen at time of purchase.

The verification is performed using a credit card payment terminal or Point of Sale (POS)
system with a communications link to the merchant's acquiring bank. Data from the card is
obtained from a magnetic stripe or chip on the card; the latter system is in the United
Kingdom and Ireland commonly known as Chip and PIN, but is more technically an EMV
card.

These will typically involve the cardholder providing additional information, such as the
security code printed on the back of the card, or the address of the cardholder each month, the
credit card user is sent a statement indicating the purchases undertaken with the card, any
outstanding fees, and the total amount owed. After receiving the statement, the cardholder
may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act
for details of the US regulations). Otherwise, the cardholder must pay a defined minimum
proportion of the bill by a due date, or may choose to pay a higher amount up to the entire
amount owed.

The credit issuer charges interest on the amount owed if the balance is not paid in full
(typically at a much higher rate than most other forms of debt). Some financial institutions
can arrange for automatic payments to be deducted from the user's bank accounts, thus
avoiding late payment altogether as long as the cardholder has sufficient funds.

17
Features:

As well as convenient, accessible credit, credit cards offer consumers an easy way to track
expenses, which is necessary for both monitoring personal expenditures and the tracking of
work-related expenses for taxation and reimbursement purposes.

Credit cards are accepted worldwide, and are available with a large variety of credit6limits,
repayment arrangement, and other perks (such as rewards schemes in which points earned by
purchasing goods with the card can be redeemed for further goods and services or credit card
Cash back).Some countries, such as the United States, the United Kingdom, and France, limit
the amount for which a consumer can be held liable due to fraudulent transactions as a result
of a consumer's credit card being lost or stolen .A smart card, combining credit card and debit
card properties. The 3 by 5 mm security chip embedded in the card is shown enlarged in the
inset. The contact pads on the card enable electronic access to the chip.

DEBIT CARDS

Debit cards are essentially "pay-now" instruments linked to a checking account whereby
transactions can happen either instantaneously using online (PIN based) methods or in the
near future with offline (signature based) methods. Consumers typically have the choice of
using online or offline methods, and their selection often hinges on the respective benefits.
Online debit allows the cardholder also to withdraw cash at the point-of-sale, and offline
provides float .According to ATM & Debit News (2007), there were approximately26.5
billion debit transactions in the U.S. during 2006. This is up from6.5 billion transactions in
1999 – a four-fold increase

ELECTRONIC FUND TRANSFER

Electronic funds transfer or EFT refers to the computer-based systems used to perform
financial transactions electronically.
The term is used for a number of different concepts:

Cardholder-initiated transactions, where a cardholder makes use of a payment card

Direct deposit payroll payments for a business to its employees, possibly via a payroll
services company

Direct debit payments from customer to business, where the transaction is initiated by the
business with customer permission

Electronic bill payment in online banking, which may be delivered by EFT or paper check

18
 Transactions involving stored value of electronic money, possibly in a private currency

Wire transfer via an international banking network (generally carries a higher fee)

Electronic Benefit Transfer

Transaction types
A number of transaction types may be performed, including the following:

Sale: where the cardholder pays for goods or service

Refund: where a merchant refunds an earlier payment made by a cardholder

Withdrawal: the cardholder withdraws funds from their account, e.g. from an ATM. The
term Cash Advance may also be used, typically when the funds are advanced by a merchant
rather than at an ATM

Deposit: where a cardholder deposits funds to their own account (typically at an ATM)

Cash back: where a cardholder withdraws funds from their own account at the same time
as making a purchase

Inter-account transfer: transferring funds between linked accounts belonging to the same
cardholder

Payment: transferring funds to a third party account

Enquiry: a transaction without financial impact, for instance balance enquiry, available
funds enquiry, linked accounts enquiry, or request for a statement of recent transactions on
the account

E top-up: where a cardholder can use a device (typically POS or ATM) to add funds (top-
up) their pre-pay mobile phone

Mini-statement: where a cardholder uses a device (typically an ATM) to obtain details of

recent transactions on their account

Administrative: this covers a variety of non-financial transactions including PIN change

19
 ELECTRONIC CLEARING SERVICE (ECS)

A clearing house is a financial services company that provides clearing and settlement
services for financial transactions, usually on a futures exchange, and often acts as central
counterparty (the payor actually pays the clearing house, which then pays the payee). A
clearing house may also offer novation, the substitution of a new contract or debt for an old,
or other credit enhancement services to its members.The term is also used for banks like
Suffolk Bank that acted as a restraint on the over-issuance of private bank notes.

Clearing on options exchanges

The Options Clearing Corporation is an example of a clearing house that functions for the
purpose of clearing equity options and bond derivatives, in order to ensure the proper
implementation of these instruments.

Clearing on futures exchanges

LCH Clearnet (Formerly known as The London Clearing House), for example, provides
clearing and settlement services for the International Petroleum Exchange, London, which is
affiliated with the Intercontinental Exchange, Atlanta, Georgia. The London Clearing House
also acts as the clearing house for Euro next.liffe and the
London Metal Exchange.

In 2001, the Commodity Futures Trading Commission registered the London Clearing House
as a Derivatives Clearing Organization (DCO) in the United States, making it the first
offshore DCO to be recognized under the statutory mandate of the Commodity Futures
Modernization Act of 2000.CME Group, now a combination of the Chicago Mercantile
Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange, owns and
operates its own clearing operation while also offering clearing services (for a fee) to
other exchanges. Its "ClearPort" operation also provides clearing for certain "over-the-
counter" trades

20
 Clearing of payments
In the United States, NACHA-The Electronic Payments Association, formerly the National
Automated Clearing House Association, organizes the mechanism for the financial service
institutions that participate in the Automated Clearing House (ACH) network. These
organizations use the ACH to transfer funds either as debits or credits between participating
institutions. Most, but not all, U.S. banks are members of the NACHA. Typical uses of ACH
transactions are for automatic payroll programs, monthly mortgage or membership payments,
or among non-profit organizations, as a monthly donor/contribution program.

REAL TIME GROSS SETTLEMENT (RYGS)

Real time gross settlement systems (RTGS) are a funds transfer mechanism where transfer of
money takes place from one bank to another on a "real time" and on "gross" basis. Settlement
in "real time" means payment transaction is not subjected to any waiting
period. The transactions are settled as soon as they are processed. "Gross settlement" means
the transaction is settled on one to one basis without bunching with any other transaction.
Once processed, payments are final and irrevocable.

This "electronic" payment system is normally maintained or controlled by the Central Bank
of a country. There is no physical exchange of money; the Central Bank makes adjustments
in the electronic accounts of Bank A and Bank B, reducing the amount in
Bank A's account by $1000 and increasing the amount of Bank B's account by the same.

The RTGS system is suited for low-volume, high-value transactions. It lowers settlement
risk, besides giving an accurate picture of an institution's account at any point of time.Such
systems are an alternative to systems of settling transactions at the end of the day, also known
as the net settlement system such as BACS. In the net settlement system, all the inter-
institution transactions during the day are accumulated.

At the end of the day, the accounts of the institutions. are adjusted. Extending the example
above, say another person deposits a check drawn on Bank B in Bank A for $500. At the end
of the day, Bank A will have to "electronically" pay Bank B only $500 ($1000 - $500).The
implementation of RTGS systems by Central Banks throughout the world is driven by the
goal to minimize risk in high-value electronic payment settlement systems. In an RTGS
system, transactions are settled across accounts held at a Central Bank on a continuous gross
basis. Settlement is immediate, final and irrevocable. Credit risks due to settlement lags
are eliminated. RTGS does not require Core Banking to be implemented across participating
banks. Any RTGS would employ two sets of queues: one for testing funds availability, and
the other for processing debit/credit requests received from the Integrated Accounting
System. All transactions would be queued and submitted for funds availability testing on a
FIFO + Priority basis.

21
 CORE BANKING
Core banking is a general term used to describe the services provided by a group of
networked bank branches. Bank customers may access their funds and other simple
transactions from any of the member branch offices.

Core Banking is normally defined as the business conducted by a banking institution with its
retail and small business customers .Many banks treat the retail customers as their core
banking customers, and have a separate line of business to manage small businesses.
Larger businesses are managed via the Corporate Banking division of the institution. Core
banking basically is depositing and lending of money. Normal core banking functions will
include deposit accounts, loans, mortgages and payments. Banks make these services
available across multiple channels like ATMs, Internet banking, and branches.
Core Banking Solutions is new jargon frequently used in banking circles.

The advancement in technology, especially internet and information technology has led to
new ways of doing business in banking. These technologies have cut down time, working
simultaneously on different issues and increasing efficiency. The platform where
communication technology and information technology are merged to suit core needs of
banking is known as Core Banking Solutions. Here computer software is developed to
perform core operations of banking like recording of transactions, passbook
maintenance, interest calculations on loans and deposits, customer records, balance of
payments and withdrawal are done. This software is installed at different branches of bank
and then interconnected by means of communication lines like telephones, satellite, internet
etc. It allows the user (customers) to operate accounts from any branch if it has installed core
banking solutions. This new platform has changed the way banks are working.

Core banking is all about knowing customers' needs. Provide them with the right products at
the right time through the right channels 24 hours a day, 7 days a week using technology
aspects like Internet, Mobile ATM. While many Banks run core banning in-house, there are
some which use outsourced service providers as well. There are several Systems integrators
like IBM which implement these Core banking packages at Banks.

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 MOBILE-BANKING

"Mobile Banking refers to provision and availment of bankingand financial services with the
help of mobile telecommunication devices.The scope of offered services may include
facilities to conduct bank and stock market transactions, to administer accounts
and to access customised information."

According to this model Mobile Banking can be said to consist of three inter-related
concepts:

Mobile Accounting
Mobile Brokerage
Mobile Financial Information Services

Most services in the categories designated Accounting and Brokerage are transaction-based.
The non-transaction-based services of an informational nature are however essential for
conducting transactions - for instance, balance inquiries might be needed before committing a
money remittance. The accounting and brokerage services are therefore offered invariably in
combination with information services. Information services, on the other hand, may be
offered as an independent module.

Mobile Banking Services

Mobile banking can offer services such as the following:

Account Information

1. Mini-statements and checking of account history

2. Alerts on account activity or passing of set thresholds
3. Monitoring of term deposits
4. Access to loan statements
5. Access to card statements
6. Mutual funds / equity statements
7. Insurance policy management
8. Pension plan management
9. Status on cheque, stop payment on cheque
10. Ordering check books
11. Balance checking in the account
12. Recent transactions
13. Due date of payment (functionality for stop, change and deleting of payments)
14. PIN provision, Change of PIN and reminder over the Internet
15. Blocking of (lost, stolen) cards

23
Payments, Deposits, Withdrawals, and Transfers

1. Domestic and international fund transfers

2. Micro-payment handling
3. Mobile recharging
4. Commercial payment processing
5. Bill payment processing
6. Peer to peer payments
7. Withdrawal at banking agent
8. Deposit at banking agent

Especially for clients in remote locations, it will be important to help them deposit and
withdraw funds at banking agents, i.e., retail and postal outlets that turn cash into electronic
funds and vice versa. The feasibility of such banking agents depends on local regulation
which enables retail outlets to take deposits or not.

A specific sequence of SMS messages will enable the system to verify if the client has
sufficient funds in his or her wallet and authorize a deposit or withdrawal transaction at the
agent. When depositing money, the merchant receives cash and the system credits
the client's bank account or mobile wallet. In the same way the client can also withdraw
money at the merchant: through exchanging SMS to provide authorization, the merchant
hands the client cash and debits the client's account.

Challenges for a Mobile Banking Solution

Key challenges in developing a sophisticated mobile banking application are :

Handset operability

There are a large number of different mobile phone devices and it is a big challenge for banks
to offer mobile banking solution on any type of device. Some of these devices support J2ME
and others support WAP browser or only SMS. Initial interoperability issues
however have been localized, with countries like India using portals like R-World to enable
the limitations of low end java based phones, while focus on areas such as South Africa have
defaulted to the USSD as a basis of communication achievable with any phone.

The desire for interoperability is largely dependent on the banks themselves, where installed
applications(Java based or native) provide better security, are easier to use and allow

24
development of more complex capabilities similar to those of internet banking while SMS
can provide the basics but becomes difficult to operate with more complex transactions.

There is a myth that there is a challenge of interoperability between mobile banking

applications due to perceived lack of common technology standards for mobile banking. In
practice it is too early in the service lifecycle for interoperability to be addressed within an
individual country, as very few countries have more than one mobile banking service
provider. In practice, banking interfaces are well defined and money movements between
banks follow the IS0-8583 standard. As mobile banking matures, money movements between
service providers will naturally adopt the same standards as in the banking world.

Security
Security of financial transactions, being e executed from some remote location and
transmission of financial information over the air, are the most complicated challenges that
need to be addressed jointly by mobile application developers, wireless network service
providers and the banks' IT departments.

Scalability & Reliability

Another challenge for the CIOs and CTOs of the banks is to scale-up the mobile banking
infrastructure to handle exponential growth of the customer base. With mobile banking, the
customer may be sitting in any part of the world (true anytime, anywhere banking)

and hence banks need to ensure that the systems are up and running in a true 24 x 7 fashion.
As customers will find mobile banking more and more useful, their expectations from the
solution will increase. Banks unable to meet the performance and reliability expectations may
lose customer confidence.

There are systems such as Mobile Transaction Platform which allow quick and secure mobile
enabling of various banking services. Recently in India there has been a phenomenal growth
in the use of Mobile Banking applications, with leading banks adopting Mobile Transaction
Platform and the Central Bank publishing guidelines for mobile banking operations.

Personalization
It would be expected from the mobile application to support personalization such as :

1. Preferred Language
2. Date / Time format
3. Amount format
4. Default transactions
5. Standard Beneficiary list
6. Alerts

25
Mobile Banking through SMS

Mobile Banking with SMS is conducted through SMS codes sent to a particular number as
directed by your bank. You will receive the response in the form of a text message on your
mobile phone screen within a few seconds. For example to get details of your HDFC
bank account you will use codes like HDFCBAL, HDFCTXN,
HDFCSTM, HDFCSTP<6 digit cheque no.>, etc. for balance enquiry, last transaction details,
account statement, stop cheque payment etc. respectively

Very Small Aperture Terminal (VSAT)

A Very Small Aperture Terminal (VSAT), is a two-way satellite ground station with a dish
antenna that is smaller than 3 meters. Most VSAT antennas range from 75 cm to 1.2 m. Data
rates typically range from 56 Kbit/s up to 4 Mbit/s. VSATs access satellites
in geosynchronous orbit to relay data from small remote earth stations (terminals) to other
terminals (in mesh configurations) or master earth station "hubs" (in star configurations). g
VSATs are most commonly used to transmit narrowband data (point of sale transactions such
as credit card, polling or RFID data; or SCADA), or broadband data (for the provision of
Satellite Internet access to remote locations, VoIP or video). VSATs are also used for
transportable, on-the-move (utilizing phased array antennas) or mobile maritime
communications.

The first commercial VSATs were C band receive-only systems by Equatorial

Communications using spread spectrum technology. More than 30,000 60 cm antenna
systems were sold in the early 1980s. Equatorial later developed a C band (4/6 GHz) 2 way
system using 1 m x 0.5 m antennas and sold about 10,000 units in 1984-85.

LASER (DEBIT CARD)

Laser is the primary debit card system used in the Republic of Ireland.

Laser was launched in 1996 and currently has around 2.5 million customers. Seven Irish
financial institutions are partners in the Laser card system: Allied Irish Banks, Bank of
Ireland, EBS Building Society, First Active, National Irish Bank, Permanent TSB and Ulster
Bank. Halifax, on the other hand, issues the Visa Debit card, and is the only bank to do so in
the Republic of Ireland. Post bank do not offer Laser cards, but solely Maestro branded debit
cards.

26
Laser is primarily an electronic point of sale debit card, but can also be used by telephone and
internet. There is no maximum limit on a Chip and Pin transaction, and a EUR 1,500
maximum limit on all other transactions.[1] Laser also offers a cash back option similar to
many other cards. Laser is the only non-cash payment method that is accepted by some
discount stores in Ireland, namely Aldi and Lidl. Post bank and Halifax debit cards are not
currently accepted in these stores.

Laser cards are not widely acceptable for online purchases made on sites operated outside of
Ireland. For example, at present it is still not possible to use Laser with the Irish iTunes
Music store(although it can be used to purchase hardware there). Also some major Irish
companies such as Ryanair do not accept Laser payments.

ELECTRONIC COMMERCE

Electronic Commerce, commonly known as (electronic marketing) e-commerce or e

Commerce, consists of the buying and selling of products or services over electronic systems
such as the Internet and other computer networks. The amount of trade conducted
electronically has grown extraordinarily with widespread Internet usage.

The use of commerce is conducted in this way, spurring and drawing on innovations in
electronic funds transfer, supply chain management, Internet marketing, online transaction
processing, electronic data interchange (EDI), inventory management systems,
and automated data collection systems. Modern electronic commerce typically uses the
World Wide Web at least at some point in the transaction's lifecycle, although it can
encompass a wider range of technologies such as e-mail as well.

A large percentage of electronic commerce is conducted entirely electronically for virtual

items such as access to premium content on a website, but most electronic commerce
involves the transportation of physical items in some way. Online retailers are sometimes
known as “e-tailer” and online retail is sometimes known as e-tail. Almost all big retailers
have electronic commerce presence on the World Wide Web.

Electronic commerce that is conducted between businesses is referred to as business-to

business or B2B. B2B can be open to all interested parties (e.g. commodity exchange) or
limited to specific, pre-qualified participants (private electronic market). Electronic
commerce that is conducted between businesses and consumers, on the other hand, is referred
to as business-to-consumer or B2C. This is the type of electronic commerce conducted by
companies such as Amazon.com.

Electronic commerce is generally considered to be the sales aspect of e-business. It also

consists of the exchange of data to facilitate the financing and payment aspects of the
business transactions.

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 TELEPHONE BANKING

Telephone banking is a service provided by a financial institution which allows its customers
to perform transactions over the telephone. Most telephone banking uses an automated phone
answering system with phone keypad response or voice recognition capability.

To guarantee security, the customer must first authenticate through a numeric or verbal
password or through security questions asked by a live representative. With the obvious
exception of cash withdrawals and deposits, it offers virtually all the features of an automated
teller machine: account balance information and list of latest transactions,
funds transfers between a customer's accounts, etc.

Usually, customers can also speak to a live representative located in a call centre or a branch,
although this feature is not guaranteed to be offered 24/7. In addition to the self-service
transactions listed earlier, telephone banking representatives are usually trained to do what
was traditionally available only at the branch: loan applications, investment purchases and
redemptions, cheque book orders, debit card replacements, change of address, etc.
Banks which operate mostly or exclusively by telephone are known as phone banks.

Major Reform Initiatives in banking sector:

Some of the major reform initiatives in the last decade that have changed the face of the
Indian banking and financial sector are: · Interest rate deregulation. Interest rates on deposits
and lending have been deregulated with banks enjoying greater freedom to determine their
rates.
·
Adoption of prudential norms in terms of capital adequacy, asset classification, income
recognition, provisioning, exposure limits, investment fluctuation reserve, etc.
·
Reduction in Pre-emptions – lowering of reserve requirements (SLR and CRR),thus
releasing more lendable resources which banks can deploy profitably.

· Government equity in banks has been reduced and strong banks have been allowed to
access the capital market for raising additional capital.
·
Banks now enjoy greater operational freedom in terms of opening and swapping of branches,
and banks with a good track record of profitability have greater flexibility in recruitment.
·
New private sector banks have been set up and foreign banks permitted to expand their
operations in India including through subsidiaries. Banks have also been allowed to set up
Offshore Banking Units in Special Economic Zones.

28
· New areas have been opened up for bank financing: insurance, credit cards, infrastructure
financing, leasing, gold banking, besides of course investment banking, asset management,
factoring, etc.

· New instruments have been introduced for greater flexibility and better risk management:
e.g. interest rate swaps, forward rate agreements, cross currency forward contracts, forward
cover to hedge inflows under foreign direct investment, liquidity adjustment facility for
meeting day-to-day liquidity mismatch.
·
Several new institutions have been set up including the National Securities Depositories Ltd.,
Central Depositories Services Ltd., Clearing Corporation of India Ltd., Credit
Information Bureau India Ltd.
·
Universal Banking has been introduced. With banks permitted to diversify into long-term
finance and DFIs into working capital, guidelines have been put in place for the evolution of
universal banks in an orderly fashion.
·

Technology infrastructure for the payments and settlement system in the country has been
strengthened with electronic funds transfer, Centralized Funds Management System,

29
 CHAPTER 2
RESEARCH AND
METHODOLOGY

30
The financial services industry has recently been open to historic transformation. So-called E
developments are emerging and advancing rapidly in all areas of financial intermediation and
financial markets: e-finance, e-money, E-banking, e-brokering, e-insurance, e-exchanges, and
even e-supervision. The new information technology (IT) is turning into the most important
factor in the future development of banking, influencing banks‘ marketing and business
strategies. The driving forces behind the rapid transformation of banks are influential changes
in the economic environment: innovations in information technology, innovations in financial
products, liberalization and consolidation of financial markets, deregulation of financial
intermediation etc.

These and other factors make it complicated to design a bank‘s strategy, which process is
threatened by unforeseen developments and changes in the economic environment and
therefore strategies must be flexible to adjust to these changes. The question is not any more
whether the emergence of Internet has been a threat or an opportunity as those who have
decided to protect themselves from the threats instead of using the opportunities are
determined to vanish from the marketplace. 1 Electronic Banking lets you handle many
banking transactions via your own personal computer. For instance, you may use your
computer to view your account balance, request transfers between accounts and pay
outstanding bills electronically. Internet banking system is a method in which a personal
computer is connected to internet by an internet service provider directly to a host computer
system of a bank such that customer service requests can be processed automatically without
need for intervention by customer service representatives. The system is capable enough to
distinguish between those customer service requests which are capable of automated
fulfillment and those requests which require handling by a customer service representative.
The system is connected with the host computer system of the bank so that the remote
banking customer can access other automated services of the bank. The method of the
invention includes the steps of inputting a customer 2 banking request from among a menu of
banking requests at a remote personnel computer which transmits the banking requests to a
host computer over a network; receiving the request at the host computer; identifying the type
of customer banking request received; automatic logging of the service request, comparing
the received request to a stored table of request types, each of the request types having an
attribute to indicate whether the request type is capable of being fulfilled by a customer
service representative or by an automated system; and, depending upon the attribute,
directing the request either to a queue for handling by a customer service representative or to
a queue for processing by an automated system.

31
Statement of Problem

In many banks throughout the world, e-banking is now the focal area of bankers because it
reduces the cost of doing transactions, attracts new customers, makes transactions faster than
before, creates new markets, and enhances service quality. E-banking is a new industry and
consumer acceptance and use of e-banking is still limited. There is only a vague
understanding of factors influencing consumers‘ adoption of e-banking. Many corporate and
consumers in India either do not trust or do not have access to the necessary infrastructure to
be able to process e-payments. Very little research has been undertaken in India on
infrastructure and security measures of E-banking in India in general and in Pune city in
particular, hence the need for a study of this nature was felt. The following question can
therefore be asked:

What are the factors that influence the adoption of e-banking in Pune City?• An
understanding of how demographic characteristics, social influences, consumer• perceptions
and attitudes toward e-banking influence the adoption of e-banking? What are the various
infrastructure and security measures taken up by RBI and PSBs?• This study will enable
banks to develop solutions and plans to attract consumers and to adopt proper infrastructure
and security measures.

Relevance of the study

The developing countries can not develop without the progress of E-banking. Development
of E-banking would result in : Cost reduction• Fast delivery of services• Reaching more
customers• Speedy economic and commercial development.• As a result of this fact,
countries which don‘t want or cannot obtain this chance; will gradually vanish from universal
economics. 1.3.1 Academic relevance The present study shall be helpful in many ways.

To further the understanding about Infrastructure And Security Measures of E-banking

System and their role in economic development. This study shall help in promoting
appropriate culture of growth in modern business. This study shall be of a great use in
understanding the driving forces and principles to govern Indian Public Sector Banks for
Implementation of E-banking System. 1.3.2 Research relevance Banking has a history of
more than 150 years in India. How these institutions have worked in Indian context? What
are their objectives, functions and purposes? can be rightly understood if one understands the
systems, mission, vision, and objectives of banking.

From this point of view, the study is of great use to know about the infrastructures of
banking and its prevailing practices. It will also help to understand the strengths and
weaknesses in the present system. It shall throw light on the areas where security measures of
E-banking can contribute positively and how it can enhance the growth process.

32
Policy relevance
This study can also help to know what the important aspects of infrastructure And Security
Measures of E-banking are, what challenges are faced by implementation of E-banking in
public sector banks and how the E-banking system can resolve the critical issues it is
presently facing.

Objectives of the study

The following objectives have been set for this study: 1.To review the progress of E-banking
in India. 2. To evaluate the difficulties faced by Indian banks to create infrastructure for E-
banking in India. 3. To study the security measures undertaken by Indian banks for the safety
of E-banking. 4. To understand the bank costumers‘ perception regarding security measures.

Scope and Limitation Scope of the study:

1. Geographical scope is confined to Pune city.

2. Only four PSBs are selected for the purpose of study.

3. Study pertains to E-banking infrastructure and security measures hence, theoretical scope
covers an overview of PSBs, modern E-banking services and associated risks, e-banking
infrastructure and security measures adopted so far.

Limitations of the study:

1. Study is limited to Pune city only.

2. Responses from only four banks out of twenty one have been collected.
3. Responses generated from the respondents are based on their personal views.

Statement of the Hypothesis

The hypotheses set for this study are:

1. Indian public sector banks lack state of the art infrastructural facilities(AIF) for
developing E- banking

2. Indian public sector banks do not observe the principles of operational risk(POR) for the
development of E-banking

3. Indian banks lack adequate cultural infrastructure(CI) for developing E-banking.

4. Indian banks lack adequate legal infrastructure (LI) for developing E-banking.
33
Justification of hypothesis
The hypothesis set for the study can be justified as follows:

1 The hypothesis stresses on the foundation for commencing E-banking in promoting trade
and economy. It is necessary to identify the factors that help a banking system to work as an
intermediary between banking and society, banking and government, economy, costumers
and other related systems and organizations. The researcher believes that because of its
inappropriateness of defined role, E-banking infrastructures can contribute in multiple ways
for development of financial systems, trading community as well as for promoting banking
system.

2: Second hypothesis stresses on the principles of operational risk(POR) for commencing E-

banking in public sector banks in India. It is necessary to identify the principles of
operational risk (POR) for developing E-banking that help banking system in public sector of
India. The researcher believes that because of its inappropriateness of defined role of
principles of operational risk (POR) in E-banking can’t help to public sector banks as well as
for promoting banking system in India. 3) Justification of Hypothesis

3: Development of E-banking helps to promote various activities related with the growth
financial system and economy. It is necessary to identify the cultural infrastructure(CI) that
help to banking system. Banks can manage their revenue that works as a vital item in order to
have appropriate distribute of its services in society, economy and other related systems and
organized. It offers potential opportunities of trade development on one hand and
development of an appropriate trading culture on the other. It helps banking system to drive
its business in a best way as well as it helps the government to increase the scope of its
economic activities. 4) Justification of Hypothesis

4: The role of a legal infrastructure (LI) is essential to be performed E-banking system. On

the contrary, it has become both- ministerial and developmental in approach. There are
various issues associated with developmental process. It is necessary that the legal
infrastructure (LI) should correlate these issues in a logical manner so that all the society are
properly been benefitted. The role of legal infrastructure (LI) of banking system is
promotional, developmental and image maker. As an essential option in financial institution,
it promotes trading and economic opportunities for its users and it contributes in economic
development and also it works to develop a positive image of its users which may include the
traders, industrialists and etc. Hence this is important.

34
Working definition of the terms used Electronic bank

To do banking affairs by internet or other electronic medias, computers are being used
instead of papers (paperless systems) Electronic banking

• Preparing goods and services and retailing them through electronic channels. Risk
management

• The identification, analysis, assessment, control, and avoidance, minimization, or

elimination of unacceptable risks. An organization may use risk assumption, risk avoidance,
risk retention, risk transfer, or any other strategy (or combination of strategies) in proper
management of future events. Bank portfolio

• To collected of services that each bank offer to their customers. Electronic money

• A value saved digitally which is paid for quick transactions. Fundamental factors in
electronic banking

• The basic items necessary to establish electronic banking.

Data Collection:
The present study is of analytical and exploratory nature. Accordingly, the use is made of
primary data. The primary data is collected with the help of questionnaires from a sample of
respondents (100 bank officers and 200 customers) from Pune City using the E-banking
services provided by the various branches of PSBs. The key intention of the study is to
evaluate the security and infrastructure measures of electronic banking adopted so far.
Therefore main objective of the study is evaluation of E-banking measures adopted in
nationalized banks with reference to Pune City.

Research methodology:

a. Primary data: this is first hand information is collected from the respondents associated
with selected banks. Structured questionnaire prepared by the researcher and it is filled
up by 200 bank customers and 100 bank officers. Respondents‘ responses are collected
from pune city b. Secondary data: This shall be collected by using a verity of sources.
These sources are: Publications of Public sector banks

b. • RBI reports

c. • Journals Of banking and finance.

35
d. • Web site of RBI• In the present study, sample is divided into two subgroups based on
service users opinion regarding e-banking based on the PSBs. Service users are selected
randomly from the respective banks. The stratified random sampling technique is used
for selection of service users for collecting data from Pune City for the study purpose.

e. This method is used to make research procedure faster by obtaining a large number of
accomplished questionnaires rapidly and efficiently. This helps to choose the banking
sector in Pune City and their websites. These websites help to get all essential
information of the E-banking services. The selected public sector banks operating in
Pune City in form the universe of the study.

f. The survey of 200 E-banking service users of the selected Public sector banks has been
done. The required data has been collected from respondents through the well-structured
and pre-tested questionnaire. Number of sample units is to be selected from stratum
decided by the researcher in advance.

g. This number is known as quota which is fixed according to some specific characteristics
such as usage of E-banking services via - ATM, Internet and mobile. Quota sampling
technique is used for selecting E-banking service users for the research purpose. From
study area, 50 service users per bank have been selected. The researchers applied their
judgments in the choice of the sample and get the required information quickly.

36
 CHAPTER 3

Review of Literature

37
Banking is a prime mover in the economic development of a nation and research is so
essential to improve its working results. The management without any right policy is like
"building a house on sand". It means an effective management always needs a thorough and
continuous search into the nature of the reasons for, and the consequences of organization. In
line with this, some related earlier studies conducted by individuals and institutions are
reviewed to have an in-depth insight into the problem and exploring the reformation of
banking policy. The main theme and essence of few relevant studies are presented below.

Domar and Timbergen (1946), measured the profitability of banks for the economic
development purpose and settled the theoretical framework in expanded form which was first
introduced by Jorgenson and Nishimizudin for international economic growth comparison
and development.

Sharma (1974) said, "The expansion of banking facilities was uneven and lopsided and banks
were concentrating their operations in metropolitan cities and towns. A fairly large number of
rural and semi urban centre with reasonable potentialities of growth failed to attract the
attention of commercial banks. As far as the deposit mobilization in the rural areas is
concerned, much remains to be done."This gives emphasis on the rural and semi urban
growth of banks.

Gopal Karkal(1977) said, "Some regions have done well in spreading the banking facilities,
while some regions have still very backward. Further, our clients are larger merchants and big
industrialists. They approach with their demand for larger loans and advances, and in return
give large business. If we transfer our limited resources to small industry, agriculture etc.,
how can we increase our deposits, advances etc., and how can we survive." As it give
emphasis on a policy of planned and systematic branch expansion laying stress not only on
opening branches in the underdeveloped and neglected areas but
also in the providing additional banking facilities to the growing metropolitan and Chapter 1
Introduction urban areas to cope with the ever-increasing requirements of trade, industry and
commerce is more desirous.

Raghupathy (1977), gave his view on the system of banking sector that "if the objectives are
not fully achieved, the fault does not lie entirely with the bankers. The fault lies in our, not
being able to integrate all powerful instruments of development into an effective system".

Shah (1977) gave his view regarding bank profitability and productivity. He has expressed
concern about increased expenses and overheads. Slow growth in productivity and efficiency

is due to wasteful work of the banks. He concludes that the higher profitability can be result
from increased spread and innovations have a limited role. He favored written job
descriptions for improvement of staff productivity. He also emphasized reduction of costs,
creation of a team spirit improvement in the management for improving bank profitability
and productivity. V.N. Saxena(1978)^^analsyed that "Improvement in the systems and
procedures of inspection of stocks, maintenance of stock register is required. Reforms should
be initiated in extension of sponsorship schemes, recovery, and consultancy". This can be
supporting tools for banks.

38
Desai (1978), conducted a study entitled "Measuring Staff Productivity in Bank - A New
Approach" in 1981, covering a regional office of a premier bank having 155 branches in the
region. Primary objective of the study was to detect and correct staffing Imbalances.

The study emphasized on providing for the management of productivity related staff
development technique. He followed it up with another study of Patna Circle of the bank
having 607 branches, in 1982. The main objective again was to provide management with the
productivitybased technique for rational manpower development. It identified 'Labour-
Intensive and Less Labour-Intensive' banking sector and identified pockets of staffing
imbalances. He felt that a services industry like banking with wide variations in work mix, a
universally applicable and fully scientific formula is difficult to involve in any area of
management.

Divatia and Venkatachalam (1978), in their study of operational efficiency and performance.
They recognized the problems in creating such a composite index, some of which will be due
to understanding of the term: operational efficiency. This study divided the chosen indicators
into operational efficiency in terms of productivity, operational efficiency in terms of social
objectives, and profitability. The approach was taking to the approach profitability of banks
proposed to create a composite index that would explore certain indicators that would
suitably represent varied aspects of banks of PEP Committee.

Kulkarni (1979) examined his study on developmental responsibility and profitability of

banks stated that while considering banks costs and profits-social benefits arising out of bank
operations cannot be ignored. He claimed that profit maximization approach is out of place
while referring to profitability of banks. He recognized that while fulfilling the social
responsibility, banks should try to make the developing business as successful as possible, to
reduce costs, improve banking system and increase the overall productivity.

Venkatachalam (1979), give the reasons for erosion in bank profits and profitability in recent
years. This study is purely based on published figures. They argued that there is a trade-off
between social obligations to be performed by the banks and increasing profits.

Mumupilly (1980), examined the cost and profitability of commercial banks in India. The
study provides an analytical view of the trends in the components of cost of earnings of
different groups of Indians commercial banks since nationalization. The study mainly focuses
on the cost and profitability of banking industry as whole rather than individual banks.

Subrata Sarkar(1988), anaysed that "Present day corporate customers value efficiency highly
rather than old connections and acquaintances. A well equipped and modern bank which
functions smoothly and efficiently would be the first choice of a corporate customer. The
bank should create an image of efficiency so as to attract good corporate customers".

S. Chandran (1989), narrated that "Legal action should not be the inevitable last step in the
process, branches should be educated to evaluate this option for recovery, like any other
option, objectively before launching the same. Building up an information infrastructure at
the apex level first and at the lower tiers subsequently should be initiated".

39
Ajay Maindiratta (1989) in his paper, analysis DEA, which evaluates input savings that could
have been affected by a decision-making unit, given its observed task, to inquire into whether
even greater savings would be possible if the task were to be optionally apportioned to a
number of smaller units. The notion of size efficiency is introduced to measure this potential
for further input reductions, and then compared and contrasted to the extent notion of scale
efficiency. The existence of a largest radically size-efficient output scale is
established as a ray property of the production frontier.

Singh (1990, has studied the productivity in the Indian Banking Industry. He has studied
Intra-bank, Inter-Bank groups and inter-bank groups productivity of public sector banks and
SBI group. He has analyzed branch productivity, peremployee productivity, and financial
parameters at constant prices. But his study does not consider nationalized banks and causes
of varying productivity in banks. Related to the branch expansion policy,

Satya Sundaram (199l stated that, "there are still wide disparities in spread of banking
facilities regionally. The lead bank surveys at the district level have identified a number of
unbanked rural centers which have potentials for opening branch office".

40
 CHAPTER 4
DATA ANALYSIS AND
INTERPRETATION

41
Top Trends in Banking and Financial Services in India

The Banking industry and financial institutions are vital sectors of any economy.
Development of these two sections of the economy can impact the growth of the country in
an incredible way. In the era of “Digital India”, the banking and financial services in India
have undergone a massive evolution and the phenomenon continues. The change can be
attributed to various components like new regulatory policies and customer expectations.
However, the one element that has affected banking and financial services the most is
technological advancement.

The emergence of innovative financial technology has revolutionized financial services in

India as well as the banking sector. It has resulted in the introduction and advancement of
several technology trends that have contributed to the radical transformation, growth, and
advancement of these industries. The alliance between the innovative technologies of the
financial sector and banking services has changed the conventional systems of handling
money, and this collaboration is expected to create a massive shift with emerging trends in
financial services.

The rise of Fin tech companies, internet banking, and mobile banking are some of the classic
examples of emerging trends in the banking sector and financial services. In addition to the
betterment of traditional systems, these banking and financial services industry trends are a
few steps toward creating a cashless society, complete digital transformation, and the rise of
Fin tech. In this time of change, the only thing that is constant is change.

Few Trends in Banking and Financial Services in India That Are Changing
the Entire Scenario

Digitization:
With the rapid growth of digital technology, it became imperative for banking and financial
services in India to keep up with the changes and innovate digital solutions for the tech-savvy
customers. Besides the financial institutions, insurance, healthcare, retail, trade, and
commerce are some of the major industries that are experiencing the enormous digital shift.
To stay competitive, it is necessary for the banking and financial industry to take the leap on
the digital bandwagon.
In India, it all began not earlier than the 1980s when the banking sector introduced the use of
information technology to perform basic functions likes customer service, book-keeping, and
auditing. Soon, Core Banking Solutions were adopted to enhance customer experience.
However, the transformation began in the 1990s during the time of liberalization, when the
Indian economy exposed itself to the global market. The banking sector opened itself for
private and international bank which is the prime reason for technological changes in the
banking sector. Today, banks and financial institutions have benefitted in many ways by

42
adopting newer technologies. The shift from conventional to convenience banking is
incredible.
Modern trends in banking system make it easier, simpler, paperless, signature less and
branchless with various features like IMPS (Immediate Payment Service), RTGS (Real Time
Gross Settlement), NEFT (National Electronic Funds Transfer), Online Banking, and Tele
banking. Digitization has created the comfort of “anywhere and anytime banking.” It has
resulted in the reduced cost of various banking procedures, improved revenue generation, and
reduced human error. Along with increased customer satisfaction, it has enabled the
customers creating personalized solutions for their investment plans and improve the overall
banking experience.

Enhanced Mobile Banking:

Mobile banking is one of the most dominant current trends in banking systems. As per the
definition, it is the use of a smart phone to perform various banking procedures like checking
account balance, fund transfer, and bill payments, without the need of visiting the branch.
This trend has taken over the traditional banking systems. In the coming years, mobile
banking is expected to become even more efficient and effortless to keep up with the
customer demands. Mobile banking future trends hint at the acquisition of lot and Voice-
Enabled Payment Services to become the reality of tomorrow. These voice-enabled services
can be found in smart televisions, smart cars, smart homes, and smart everything. Top
industry leaders are collaborating to adopt lot-connected networks to create mobile banking
technologies that require users’ voice to operate.

UPI (Unified Payments Interface):

UPI or Unified Payments Interface has changed the way payments are made. It is a real-time
payment system that enables instant inter-bank transactions with the use of a mobile platform.
In India, this payment system is considered the future of retail banking. It is one of the fastest
and most secure payment gateways that is developed by National Payments Corporation of
India and regulated by the Reserve Bank of India. The year 2016 saw the launch of this
revolutionary transactions system. This system makes funds transfer available 24 hours, 365
days unlike other internet banking systems. There are approximately 39 apps and more than
50 banks supporting the transaction system. In the post-demonetization India, this system
played a significant role. In the future, with the help of UPI, banking is expected to become
more “open.”

43
Block Chain:
Block chain is the new kid on the block and the latest buzzword. The technology that works
on the principles of computer science, data structures and cryptography and is the core
component of crypto currency is said to be the future of banking and financial services
globally. Block chain uses technology to create blocks to process, verify and record
transactions, without the ability to modify it.

NITI Aayog is creating India Chain, India’s largest block chain network, which is expected to
revolutionize several industries, reduce the chances of fraud, enhance transparency, speed up
the transaction process, lower human intervention and create un hack able database. Several
aspects of banking and financial services like payments, clearance and settlement systems,
stock exchanges and share markets, trade finance, and lending are predicted to be impacted.
With its strenuous design, block chain technology is a force to be reckoned with.

Artificial Intelligence Robots:

Several private and nationalized banks in India have started to adopt chat bots or Artificial
intelligence robots for assistance in customer support services. For now, the use of this
technology is at a nascent stage and evolution of these chat bots is not too far away. Usage of
chat bots is among the many emerging trends in the Indian banking sector that is expected to
grow.

More chat bots with the higher level of intelligence are forecasted to be adopted by the banks
and financial institutions for improved customer interaction personalized solutions. The
technology will alleviate the chances of human error and create accurate solutions for the
customers. Also, it can recognize fraudulent behavior, collate surveys and feedback and assist
in financial decisions.

The rise of Fin tech companies:

Previously, banks considered Fin tech companies a disrupting force. However, with the
changing trends in the financial services sector in India, fin tech companies have become an
important part of the sector. The industry has emerged as a significant part of the ecosystem.

With the use of financial technology, these companies aim to surpass the traditional methods
of finance. In the past few decades, massive investment has been made in these companies
and it has emerged into a multi-billion-dollar industry globally

44
Fin tech companies and fin tech apps have changed the way financial solutions are provided
to the customers. Besides easy access to financial services, fin tech companies have led to a
massive improvement in services, customer experience, and reduced the price paid. In India,
the dynamic transformation has been brought upon by several important elements like fin
tech startups, established financial institutions, initiatives like “Start-Up India” by
Government of India, incubators, investors, and accelerators. According to a report by
National Association of Software and Services Companies (NASSCOM), the fin tech
services market is expected to grow by 1.7 times into an $8 billion market by 2020.

Digital-Only Banks:
It is a recent trend in the Indian financial system and cannot be ignored. With the entire
banking and financial services industry jumping to digital channels, digital-only banks have
emerged to create paperless and branchless banking systems. This is a new breed of banking
institutions that are overtaking the traditional models rapidly. These banks provide banking
facilities only through various IT platforms that can be accessed on mobile, computers, and
tablets. It provides most of the basic services in the most simplified manner and gives access
to real-time data. The growing popularity of these banks is said to be a real threat to
traditional banks.
ICICI Pockets is India’s first digital-only bank. These banks are attractive to the customers
because of their cost-effective operating models. At the same time, though virtually, they
provide high-speed banking services at very low transaction fees. In today’s fast lane life,
these banks suit the customer needs because they alleviate the need of visiting the bank and
standing in a queue.

Cloud Banking:
Cloud technology has taken the world by storm. It seems the technology will soon find its
way in the banking and financial services sector in India. Cloud computing will improve and
organize banking and financial activities. Use of cloud-based technology means improved
flexibility and scalability, increased efficiency, easier integration of newer technologies and
applications, faster services and solutions, and improved data security. In addition, the banks
will not have to invest in expensive hardware and software as updating the information is
easier on cloud-based models.

45
Biometrics:

Essentially for security reasons, a Biometric Authentication system is changing the national
identity policies and the impact is expected to be widespread. Banking and financial services
are just one of the many other industries that will be experiencing the impact. With a
combination of encryption technology and OTPs, biometric authentication is forecasted to
create a highly-secure database protecting it from leaks and hackers attempts. Financial
services in India are exploring the potential of this powerful technology to ensure
sophisticated security to customers’ account and capital.

Wearable:

With smart watch technology, the banking and financial services technology is aiming to
create wearable for retail banking customers and provide more control and easy access to the
data. Wearable have changed the way we perform daily activities. Therefore, this technology
is anticipated to be the future retail banking trend by providing major banking services with
just a click on a user-friendly interface on their wearable device.

These are some of the recent trends in the banking and financial sector of India and all these
new technologies are predicted to reshape the industry of business and money. The future is
going to bring upon a revolution of sorts with historical changes in traditional models. The
massive shift in the landscape has few challenges. Nonetheless, the customers are open to
banking innovations and the government is showing great support with schemes like “Jan
Dhan Yojana,” which aims at proving a bank account to every citizen. Meanwhile, the
competition from the foreign and private sector banks have strained the government
regulators, nationalized banks and financial institutions to adopt new technology in order to
stay relevant in the race.

46
 DATA ANALYSIS AND INTERPRETATION

The main objective of this study is to find out the impact of bancassurance product on
banking industry in India. In order to study the need of bancassurance, survey was conducted
among the customers as well as the bank employees of eight banks to know the popularity
and growth perspective of bancassurance. The banks which have been selected as simple
random samples for this purpose are as follows:

1. Andhra Bank
2. Canara Bank
3. Corporation Bank
4. HDFC BANK
5. ICICI Bank
6. IDBI Bank
7. SBI

Although bancassurance business is wide spread over the country, this survey is confined to
only one location i.e. Vadodara. As this location is having overseas business, industrial
manufacturing activities, and higher educational institutes, this location is believed to be a
representative of any well developed business centre.

The collected data is analyzed and interpreted by applying various statistical tools and
techniques. It is presented in the form of tables, pie and multiple bar diagrams which is
converted into charts, maps and graphs to analyze the data. This chapter includes:

Various Trends of Bancassurance.

Challenges to bancassurance.
SWOT analysis.
Analysis based on the impact of bancassurance product on banking
Business in India.
Analysis and interpretation of primary data collected.

47
VARIOUS TRENDS OF BANCASSURANCE:
Bancassurance is still evolving in Asia and is still in its infancy stage in India so it is too early
to evaluate. However, an immediate survey revealed that a large number of public and private
banks including foreign banks are now making use of the bancassurance channels in one form
or the other in India.

Following trends of bancassurance are significantly followed.

1. Bancassurers have not only targeted the mass market but have also carefully begun to
segment the market which has resulted in the tailor‐made or rather perfect products for
each segment.
2. Some bancassurers focus exclusively on distribution. In some markets, face‐to‐face
contact is preferred which proves to be a favorable arrangement for the development of
bancassurance business.
3. Initially banks opt for either ‘referral models’ or ‘corporate agency’

4. Banks are offering space in their own premises to accommodate the insurance staff for
selling the insurance products or giving access to their client’s database. Insurance
companies can use this opportunity to increase their sale.
5. Nowadays banks are campaigning and marketing the insurance products across the globe.
Number of banks in India act as ‘corporate agents’ to insurance company

CHALLENGES TO BANCASSURANCE:
It is extremely a difficult task to expand bancassurance in the emerging markets. Globally,
the insurers are successfully persuading bancassurance to gain hold in markets with low
insurance penetration and a limited variety of distribution channels. The following are the
challenges that are faced by bancassurance industry in India:
1. The change from manufacturing to pure distribution of insurance requires banks to pull
together the incentives of different suppliers with their own products in a more improved
way.
2. Bank employees are usually low on enthusiasm. Lack of sales culture itself is a big barrier
than the lack of marketing skills in the employees. Banks are generally used to only

48
3. Private sector insurance firms are finding ‘change management’ as a major challenge. A
public sector bank frequently gets a new chairman almost every two years from different
bank. This results in an absolute change in the distribution strategy and further creates
dissimilarity between public and private sector banks.

4. Human resource management has experienced some complications due to such association
in the financial industry. Recently some issues like increased work load, maintaining the
motivation levels have cropped up quite occasionally among the employees. Therefore,
human resource issues should be given first priority before entering into bancassurance
business.

5. The banks also fear that at some point the insurance partner may end up cross‐selling
banking products to their policy holders. If the insurer is selling the products by agents as
well as banks then there is a risk of clash between both if the agents targeting the same
customers.

6. Banks will have to be geared up for probable interference from client relations arising from
numerous general insurance claims.

SWOT ANALYSIS ON BANCASSURANCE:

Banking and insurance are two different entities. Banks have lesser risk in business as
compared to the insurance companies. However, in India bancassurance as a means of
distribution of insurance products is already in force in some form or the other. The functions
of bancassurance also differ.

Banks observe bancassurance as a means of product diversification and a source for earning
additional fee income. Insurance companies regard it as a tool for increasing their market
penetration and premium turnover. Customers can expect improved premium rates and
better‐quality services delivered at their doorsteps. So, everyone is getting benefited here.

Appling bancassurance effectively can help the banks to develop a sales culture within the
organization. This can be used by the bank to promote traditional banking products and other
financial services. Bancassurance helps banks and insurance companies to perfectly
complement each other’s strengths. It is therefore essential to have a SWOT analysis done
before experimenting bancassurance in India. A SWOT analysis of bancassurance is given
below

49
STRENGTHS OF BANCASSURANCE:

In a country like India, a huge population is lying ahead, to make the most of life insurance
products.

Banks other strength lies in the huge set of skilled professionals, who may easily be blended
together for any bancassurance venture.
Banks have the integrity established with their customers because of the variety of services
and schemes provided by them.

Banks have the benefit of their wide network of branches, even in the remote areas. This can
help them to implement a particular task on a large and massive scale.
They also enjoy position of pride in the hearts of many people because of their charisma and
sustained image.
Banks are well aware of the psychology of the customers because they interact with them on
regular basis. This can help the bankers to guess the attitude and various needs of the
customers which would in turn help them to change the face of insurance distribution to
personal line insurance.

In India, people trust more on Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC) for taking insurance. If the products of LIC and GIC
are routed through bancassurance, this would provide an additional benefit to the insurance
companies.
Banks can take the advantage of their brand name, trained staff and reliability of people for
selling of the insurance products in a more sophisticated way.

50
WEAKNESSES OF BANCASSURANCE:

In spite of the growing emphasis on total branch mechanism and full computerization of bank
branches, the rural and semi‐urban banks are still to see information technology (IT) as a
facility. The IT culture is unfortunately missing completely in all of the future collaborations.
The internet connections are also not properly provided to the staff.1
In order to distribute insurance products, the bank employees have to undergo a definite
period of training, followed by a test and then get them licensed. Moreover, the standard of
examinations has been raised lately making it impossible for many examinees to clear.

Banks are traditionally ‘demand driven’ organizations and have active selling philosophy.
Insurance organizations are usually ‘need driven’ and have an aggressive selling philosophy.
So there may arise differences in the way of thinking between bankers and the managers of
the insurance companies

Generally, a customer visits a bank for doing simple transactions like deposit or withdrawal.
Busy customers will have no time to have a long‐term discussion on a durable purchase like
insurance across the counter. Moreover, the visits in urban or metro branches are also going
to be less because of ATM’s and e‐banking.

Another weakness is the inflexibility of the products i.e. it cannot be always perfect as
demanded by the customers. So an in‐built flexibility is necessary for a bancassurance
venture to succeed, so as to make the product eye‐catching to the customers.

OPPORTUNITIES IN BANCASSURANCE:
There are many people in the country who are still unaware about insurance and its various
products and are waiting for someone to guide them.
Customers are willing to avail many services like lockers, safe deposits schemes and
additional products and services from banks in urban and metro areas. This provides an
excellent opportunity to promote many properties linked general insurance policies like fire
insurance, burglary insurance, Medi-claim insurance etc.
Banks provide finance in the form of loans for cars, buying a house etc. to clients, They can
take advantage of this by cross‐selling insurance products and combine it as a package.
Bankers can promote insurance by taking advantage of the corporate customers and tying up
for the insurance of the employees of corporate customers. Usually, banks offer salary
payment and loan facilities but here they can also provide insurance as well. This may prove
to be a good prospect with easy access to the bankers.

51
THREATS IN BANCASSURANCE:

Success of a bancassurance venture requires change in approach, thinking and work culture
on the part of everybody involved. The work forces are so well‐established at every level that
there may arise specific threat of opposition to any change that bancassurance may set in.
Any rearrangement to a new company or subsidiary or change from one work to a different
style of work can be offended with intensity.

Another possible threat may come from non‐response from the target customers. This
happened in USA in 1980s after the enactment of Garn ‐ St Germaine Act. A rush of joint
ventures took place between banks and insurance companies and all these failed due to the
non‐response from the target customers. US banks have now again (since late 1990s) turned
their attention to insurance mainly life insurance.2

Insurance in India is more accepted as a saving option than providing risk cover. So this can
create an adverse effect in the minds of the bankers that such products may reduce the sales
of regular bank saving products. Also selling of investment and good returns on policy can
affect the fixed‐deposit portfolio of the banks.

There may arise a problem of ‘reputational contagion’ i.e. loss of market confidence. Like
one venture leading to loss of confidence on the other because of identical brand recognition,
similar management and consolidated financial reporting etc.

􀂾 The most common obstacle to the success of bancassurance are poor manpower
management, lack of sales culture within the bank, no involvement by the branch
manager, insufficient product promotions, failure to integrate marketing plans,
marginal database expertise, poor sales channel linkages, inadequate incentives,
resistance to change, negative attitudes towards insurance and intense marketing
strategy

52
ANALYSIS BASED ON THE IMPACT OF BANCASSURANCE
PRODUCT ON BANKING BUSINESS IN INDIA

The performance of both banks and insurance companies inter‐depend on each other. The
following study shows the impact of bancassurance on the overall financial performance of
banks in India. For this purpose, the researcher has selected eight different banks from
different areas in Vadodara district. The figures of Net worth, Deposits, Advances, Interest
income, % Net of Non performing Assets, Dividends and Net profit reveal that bancassurance
has paved the way for banks to grow. Although there are number of other factors which
contributed to the growth of banks, but bancassurance is one of the factors.

STATE BANK OF INDIA (SBI)

State Bank of India (SBI) is a multinational banking and financial services company with its
headquarters in Mumbai, Maharashtra. The bank traces its ancestry to British India, through
the Imperial Bank of India, to the founding in 1806 of The Bank of Calcutta, making it the
oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other
two presidency banks i.e. Bank of Calcutta and Bank of Bombay, to form the Imperial Bank
of India, which in turn became the State Bank of India.

Government of India nationalized the Imperial Bank of India in 1955, with Reserve Bank of
India taking a 60% stake, and renamed it the State Bank of India. In 2008, the government
took over the stake held by the Reserve Bank of India.

Under bancassurance business, State Bank of India has subsidiary named SBI Life Insurance
Co. Ltd. and SBI General Insurance Co. Ltd. SBI Life Insurance Co. Ltd. is a joint venture
between SBI and BNP Paribas. It was launched in the year 2001. SBI General Insurance
Company Ltd. is a joint venture between SBI and Insurance Australia Group (IAG). It was
launched in the year 2010.

53
Financial position of SBI and income derived from its bancassurance business

YEAR NET ADVANCES DEPOSITS NET DIVDEN NET % OF SBI LIFE SBI
WORTH D PROFIT NPA INSURANC GENERAL
INCOME E CO. LTD INSURANC
E CO. LTD

2008 57,94 5,48,503 7,42,073 20,87 1,841 9,121 1.76 (-26) -

-09 8 3 %

2009 65,94 6,31,914 8,40,116 23,67 1,905 9,166 1.79 276 -

-10 9 1 %

2010 64,98 7,56,719 9,33,933 32,52 1,906 8,265 1.72 366 (-27)
-11 6 6 %

2011 83,95 8,67,579 10,43,64 43,29 2,349 11,70 2.07 556 (-95)
-12 1 7 1 7 %

2012 98,88 10,45,61 12,01,74 44,33 2,839 14,10 1.81 622 (-145)
-13 4 7 0 1 5 %

54
The net worth of SBI Bank for the year 2008‐09 was Rs. 57,948 crores and a growth of
13.81% for the year ended 2009‐10. It has reduced slightly by ‐1.46% i.e. from Rs. 65,949
crores in 2009‐10 to Rs. 64,986 crores in 2010‐11. There was a growth of 29.18% in the year
2011‐12 and in the year 2012‐13, net worth increased from Rs. 83,951 crores in previous year
to Rs. 98,884 crores i.e. registering a growth of 17.79%.

Advances increased by 16.48% and earned Rs. 6, 31,914 crores for year 2009‐2010 from Rs.
5, 42,503 crores of 2008‐09. The bank registered a growth of 19.75% from Rs. 5, 42,503
crores of 2009‐10 to Rs. 7, 56,719 crores of 2010‐11 and a growth of 14.65% from 2010‐11
to 2011‐12. Advances reached to Rs. 10, 45,617 crores registering a growth of 20.52% in the
year 2012‐13.

SBI Bank’s total deposits amounted to Rs. 8, 04,116 crores as on March 2010 showing a
growth of 8.36% over previous year’s i.e. 2008‐09 deposits of Rs. 7, 42,073 crores. It has
grown by 16.14% to reach Rs. 9, 33,933 crores in the year 2010‐11 and 11.75% to reach Rs.
10, 43,647 crores in the year 2011‐12. In the year 2012‐13, IDBI Bank’s total deposits
amounted to Rs. 12, 01,740 crores showing an addition of Rs. 1, 58,093 crores and growth
rate of 15.24% over previous year.

Total net interest income of SBI has shown an increase of 13.41% from Rs. 20,873 crores in
year 2008‐09 to Rs. 23,671 crores in the year 2009‐10. The bank registered a robust growth
of 37.41% from 2009‐10 to 2010‐11. Year 2011‐12 showed a growth of 33.10% i.e. Rs.
43,291 crores over previous year’s interest income of Rs. 32,526 crores. It registered a slight
growth of 2.40% for the year ended 2012‐13 with Rs. 44,331 crores.

Dividend of Rs. 1,841 crores was recommended by the Board of Directors of SBI for the year
2008‐09. It was Rs. 1,905 crores for the year 2009‐10, Rs. 1,906 crores for the year 2010‐11
and Rs. 2,349 crores for the year 2011‐12. Dividend proposed for the year ended 2012‐13 was
Rs.2, 839 crores.

Net profit increased registering a growth by 0.49% to Rs. 9,166 crores in 2009‐10 from Rs.
9,121 crores in the previous year 2008‐09. It decreased by ‐9.83% from Rs. 9,121 crores in
2009‐10 to Rs. 8,265 crores of 2010‐11. In the year 2011‐12 it has shown a increase of
41.66% and earned a profit of Rs. 11,707 crores as compared to previous year’s profit of Rs.
8,265 crores. Net profit of the bank has increased by 20.48% as compared to the previous
years of Rs. 11,707 crores and earned a profit of Rs. 14,105 crores during the year 2012‐13.

The Net Non Performing Assets (NPA) to Net Advances stood at 1.76% for the year 2008‐09.
It stood at 1.79% for the year ended 2009‐10. It has slightly reduced from 1.79% in the
previous year to 1.72% for the year 2010‐11. It increased to 2.07% in the year 2011‐12. For
the year 2012‐13, Net Non Performing Assets (NPA) to Net Advances stood at 1.81%

Under bancassurance business, State Bank of India has subsidiary named SBI Life Insurance
Co. Ltd. and SBI General Insurance Co. Ltd. In the year 2009‐10, bank earned a Net profit of
Rs. 276 crore from SBI Life Insurance Co. Ltd. against the loss of ‐26 crores from previous
year 2008‐ 09. It earned a Net profit of Rs. 366 crores in the year 2010‐11 and Rs. 556 crores
for the year 2010‐11. In the year 2012‐13 the bank recorded a commission income of Rs. 622
crores.
55
SBI General Insurance Co. Ltd. completed its third year in full operation in the financial year
2012‐13. The bank recorded a Net loss of Rs. ‐27 crores during the year 2010‐11. In the
subsequent years i.e. 2011‐12 and 2012‐13 they recorded a net loss of Rs. ‐95 crores and Rs.
‐145 crores respectively. The company is expected to turn around during the financial year
2014‐1

ANDHRA BANK
Andhra Bank was founded in 1923 by Dr. Bhogaraju Pattabhi Sitaramayya in Machilipatnam;
Andhra Pradesh. It is a medium‐sized public sector bank (PSB), with a network of 1,938
branches, 15 extension counters and 38 satellite offices.
Under bancassurance business, Andhra Bank along with Bank of Baroda and Legal &
General Group of UK has formed a joint venture life insurance company IndiaFirst Life
Insurance Company. It was launched in the month of November 2009

56
Financial position of Andra bank and income derived from its bancassurance business
YEAR NET ADVANCES DEPOSITS NET DIVDEND NET % NPA INDIA
WORTH INCOME PROFIT FIRST LIFE
INSURANCE
COMPANY

2008- 3,647 44,428 59,390 1,627 194 653 0.18% -

09

2009- 4,410 56,505 77,688 2,195 218 1,046 0.17% 16

10

2010- 6,492 71,435 92,156 3,221 243 1,267 0.38% 47

11

2011- 7,479 83,642 1,05,851 3,759 358 1,345 0.91% 23

12

2012- 8,441 98,373 1,23,796 3,757 327 1,289 2.45% 28

13

the net worth of Andhra Bank for the year 2008‐09 was Rs. 3,647 crores and a growth of
20.18% for the year ended 2009‐10. It has grown substantially from Rs. 4,410 crores in
2009‐10 to Rs 6,492 crores in 2010‐11 i.e. an increase of 47.21%. There was a growth of
15.2% in the year 2011‐12 and in the year 2012‐13, net worth increased from Rs. 7,479 crores
in the previous year to Rs. 8,441 crores i.e. registering a growth of 12.86%.

Advances for the year 2008‐09 were Rs. 44,428 crores. It increased by 27.19% i.e. Rs. 56,505
crores for year 2009‐2010 from Rs. 44,428 crores of 2008‐09. The bank registered a growth
of 26.42% from 2009‐10 to 2010‐11 and a growth of 17.09% from 2010‐11 to 2011‐12.
Advances reached to Rs. 98,373 crores registering a growth of 18% in the year 2012‐13.
Bank’s total deposits amounted to Rs. 77,688 crores as on March 2010 showing a growth of
30.81% over previous year’s i.e. 2008‐09 deposits of Rs.59,390 crores. It has grown by
18.62% to reach Rs 92,156 crores in the year 2010‐11 and 14.90% to reach Rs. 1, 05,851
crores in the year 2011‐12. In the year 2012‐13, Andhra Bank’s total deposits amounted to
Rs. 1, 23,796 crores showing an addition of Rs. 17, 947 crores and growth rate of 17% over
previous year.

Total net interest income of Andhra Bank has shown a growth of 34.90% from Rs. 1,627
crores in year 2008‐09 to Rs. 2,195 crores in the year 2009‐10. The bank showed a robust
growth of 46.76% from 2009‐10 to 2010‐11. Year 2011‐12 registered a growth of 16.71% i.e.
Rs. 3,759 crores over previous year’s interest income of Rs. 3,221 crores.

57
Dividend of Rs. 194 crores was recommended by the Board of Directors of Andhra Bank for
the year 2008‐09. It was Rs. 218 crores for the year 2009‐10, Rs. 243 crores for the year
2010‐11 and Rs. 358 crores for the year 2011‐12. Dividend proposed for the year ended
2012‐13 was Rs. 327 crores.

Net profit increased registering a strong growth by 60.15% to Rs. 1,046 crores in 2009‐10
from Rs. 653 crores in the previous year 2008‐09. It increased by 21.15% from Rs. 1,046
crores in 2009‐10 to Rs. 1,267 crores of 2010‐11. It has grown by 6.1% to reach Rs. 1,345
crores in the year 2011‐12. Net profit for the year 2012‐13 stood at Rs. 1,289 crores. It
reduced by showing a loss of ‐4.16%.

The asset profile of the bank continues to be very healthy. The Net Non Performing Assets
(NPA) to Net Advances stood at 0.18% for the year 2008‐09. It stood at 0.17% for the year
ended 2009‐10. It has improved from 0.18% in the previous year to 0.38% for the year
2010‐11 to 0.91% for the year 2011‐12. For the year 2012‐13, Net Non Performing Assets
(NPA) to Net Advances stood at 2.45%

Andhra Bank along with Bank of Baroda and Legal & General Group of UK has formed a
joint venture life insurance company i.e. IndiaFirst Life Insurance Company under
bancassurance business. It was launched in the month of November 2009. It posted a net
profit of Rs. 16 crores in the year 2009‐10 and a whopping profit of Rs. 47 crores for the year
2010‐11. During the year 2011‐12, the net profit from life insurance business dropped down
to Rs. 23 crores from Rs. 47 crores in previous year. In the year 2012‐13 the bank recorded a
net profit of 28 crores .

58
CANARA BANK

Canara Bank was founded in 1906 by Shri Ammembal Subba Rao Pai, a great visionary and
philanthropist, at Mangalore, then a small port in Karnataka. The bank was nationalized in
1969. Today, the bank has a network of 3564 branches and 4000 ATMs spread across India.
It also has offices abroad in London, Hong Kong, Moscow, Shanghai, Doha, and Dubai.

The bank has tie up arrangements in both life and general insurance through Canara HSBC
Oriental Bank of Commerce and United India Insurance Company Ltd. (UIICL) under
bancassurance division. It started its Bancassurance business from June 2008.

59
 Financial position of canara bank and income derived from its bancassurance business
YEAR NET ADVANCES DEPOSITS NET DIVDEND NET % OF CANARA UNITED
WORTH INCOME PROFIT NPA LIFE INDIA
INSURANCE INSURANCE
LTD LTD

2008-09 12,208 1,38,219 1,86,893 4,718 328 2,072 1.09% 18 6

2009-10 14,672 1,69,335 2,34,651 5,681 410 3,019 1.06% 53 8

2010-11 20,039 2,12,467 2,93,973 7,823 487 4,025 1.11% 51 11

2011-12 22,690 2,32,490 3,27,054 7,689 487 3,282 1.46% 26 12

2012-13 24,878 2,42,177 3,55,856 7,879 576 2,872 2.18% 26 13

The net worth of Canara Bank for the year 2008‐09 was Rs. 12,208 crores and a growth of
20.92% for the year ended 2009‐10. It has grown substantially from Rs. 14,672 crores in
2009‐10 to Rs 20,039 crores in 2010‐11 i.e. an increase of 36.59%. There was a growth of
13.22% in the year 2011‐12 and in the year 2012‐13, net worth increased from Rs. 22,690
crores of previous years to Rs. 24,878 crores i.e. registering a growth of 9.64%.

Advances for the year 2008‐09 were Rs. 1, 38,219 crores. It increased by 22.51% i.e. Rs. 1,
69,335 crores for year 2009‐2010 from Rs. 1, 38,219 crores of 2008‐09. The bank registered a
growth of 25.74% from 2009‐10 to 2010‐11 and a growth of 9.42% from 2010‐11 to 2011‐12.
Advances reached to Rs. 2, 42,177 crores registering a moderate growth of 4.17% in the year
2012‐13.

Canara Bank’s total deposits amounted to Rs. 2, 34,651 crores as on March 2010 showing a
growth of 25.60% over previous year’s i.e. 2008‐09 deposits of Rs. 1, 86,893 crores. It has
grown by 25.28% to reach Rs. 2, 93,973 crores in the year 2010‐11 and 11.25% to reach Rs.
3, 27,054 crores in the year 2011‐12. In the year 2012‐13, Canara Bank’s total deposits
amounted to Rs. 3, 55,856 crores showing an addition of Rs.28, 802 crores and growth rate of
8.8% over previous year.
Total net interest income of Canara Bank has shown a growth of 20.41% from Rs. 4,718
crores in year 2008‐09 to Rs. 5,681 crores in the year 2009‐10. The bank showed a strong
growth of 37.72% from 2009‐10 to 2010‐11. In the year 2011‐12, growth rate decreased by ‐
1.71% i.e. Rs. 7,689 crores over previous year’s interest income of Rs. 7,823 crores. It
registered a growth of 2.47% for the year ended 2012‐13 with Rs. 7,879 crores.

Dividend of Rs. 328 crores was recommended by the Board of Directors of Canara Bank for
the year 2008‐09. It was Rs. 410 crores for the year 2009‐10, Rs. 487 crores for the year
2010‐11 as well as for the year 2011‐12. Dividend proposed for the year ended 2012‐13 was
60
Dividend of Rs. 328 crores was recommended by the Board of Directors of Canara Bank for
the year 2008‐09. It was Rs. 410 crores for the year 2009‐10, Rs. 487 crores for the year
2010‐11 as well as for the year 2011‐12. Dividend proposed for the year ended 2012‐13 was
Rs. 576 crores.

Net profit increased registering a strong growth by 45.2% to Rs. 3,019 crores in 2009‐10
from Rs. 2,072 crores in the previous year 2008‐09. It increased by 33.2% from Rs. 3,019
crores in 2009‐10 to Rs. 4,025 crores of 2010‐11. In the year 2011‐12 it has reduced by
‐18.49% and earned a profit of Rs. 3,281 crores as compared to previous year’s profit of Rs.
4,026 crores. Net profit for the year 2012‐13 stood at Rs. 2,872 crores. It reduced by ‐12.49%.

The asset profile of the bank continues to be very healthy. The Net Non Performing Assets
(NPA) to Net Advances stood at 1.09% for the year 2008‐09. It stood at 1.06% for the year
ended 2009‐10. It has improved from 1.06% in the previous year to 1.11% for the year
2010‐11 to 1.46% for the year 2011‐12. For the year 2012‐13, Net Non Performing Assets
(NPA) to Net Advances stood at 2.18%
Canara Bank has a tie up arrangements in both life and general insurance segments under
bancassurance division. It started its Bancassurance business from June 2008. In the year
2008‐09, bank earned a commission income of Rs. 18 crores from its joint venture Canara
HSBC OBC Life Insurance Co. Ltd.

61
CORPORATION BANK

Corporation Bank is a public sector banking company with headquarters in Mangalore. It was
founded on 12th March 1906 in the Temple Town of Udupi, by a small group of
philanthropists led by Khan Bahadur Haji Abdulla Haji Kasim Saheb Bahadur. Today the
bank has 1869 branches, 1425 ATMs and 3545 branchless banking units.

Corporation Bank has a tie up arrangement under bancassurance segment for both life
insurance through Life Insurance Corporation of India from the year 2008 and general
insurance through New India Assurance Co. Ltd. from the year 2009.

Financial position of corporatiom bank and income derived from its bancassurance business
YEAR NET ADVANCES DEPOSITS NET DIVIDEND NET % OF LIFE NEW INDIA
WORTH INCOME PROFIT NPA INSURANCE ASSURANCE
OF CO.LTD
CORPORATION
BANK
2008- 4,897 48,512 73,884 1,691 210 893 0.29% 18 -
09

2009- 5,775 63,203 92,734 2,210 277 1,170 0.31% 20 11

10

2010- 7,138 86,850 1,16,748 2,939 344 1,413 0.46% 23 9

11

2011- 8,276 1,00,469 1,36,142 3,147 353 1,506 0.87% 43 12

12

2012- 9,566 1,18,717 1,66,005 3,425 334 1,435 1.91% 45 15

13

The net worth of Corporation Bank for the year 2008‐09 was Rs. 4,897 crores and a growth
of 17.94% for the year ended 2009‐10. It has grown substantially from Rs. 5,775 crores in
2009‐10 to Rs 7,138 crores in 2010‐11 i.e. an increase of 23.60%. There was a growth of
15.94% in the year 2011‐12 and in the year 2012‐13, net worth increased from Rs. 8,276
crores of previous years to Rs. 9,566 crores i.e. registering a growth of 15.58%.

Advances increased by 30.28% i.e. Rs. 63,203 crores for year 2009‐2010 from Rs. 48,512
crores of 2008‐09. The bank registered a growth of 37.41% from Rs. 63,203 crores of
2009‐10 to Rs. 86,850 crores of 2010‐11 and a growth of 15.68% from 2010‐11 to 2011‐12.
Advances reached to Rs. 1, 18,717 crores registering a growth of 18.16% in the year 2012‐13.

62
Corporation Bank’s total deposits amounted to Rs. 92,734 crores as on March 2010 showing
a growth of 25.34% over previous year’s i.e. 2008‐09 deposits of Rs. 73,984 crores. It has
grown by 25.90% to reach Rs. 1, 16,748 crores in the year 2010‐11 and 16.61% to reach Rs.
1, 36,142 crores in the year 2011‐12. In the year 2012‐13, Corporation Bank’s total deposits
amounted to Rs. 1, 66,005 crores showing an addition of Rs. 29, 863 crores and growth rate
of 21.93% over previous year.
Total net interest income of Corporation Bank has shown a growth of 30.71% from Rs. 1,691
crores in year 2008‐09 to Rs. 2,210 crores in the year 2009‐10. The bank registered a growth
of 33% from 2009‐10 to 2010‐11. Year 2011‐12 showed a slight growth of 7.05 % i.e. Rs.
3,147 crores over previous year’s interest income of Rs. 2,939 crores. It registered a growth
of 8.86% for the year ended 2012‐13 with Rs 3,425 crores.

Dividend of Rs. 210 crores was recommended by the Board of Directors of Corporation Bank
for the year 2008‐09. It was Rs. 277 crores for the year 2009‐10, Rs. 344 crores for the year
2010‐11 and Rs. 353 crores for the year 2011‐12. Dividend proposed for the year ended
2012‐13 was Rs. 334 crores.

Net profit increased registering a strong growth by 31.08% to Rs. 1,170 crores in 2009‐10
from Rs. 893 crores in the previous year 2008‐09. It increased by 20.77% from Rs. 1,170
crores in 2009‐10 to Rs. 1,413 crores of 2010‐11. In the year 2011‐12 it has shown a
moderate growth of 6.58% and earned a profit of Rs. 1,506 crores as compared to previous
year’s profit of Rs. 1,413 crores.

Net profit of the bank has marginally decreased from Rs. 1,506 crores in previous year
2011‐12 to Rs 1,435 crores during the year 2012‐13. It reduced by ‐4.71%.

The asset profile of the bank continues to be very healthy. The Net Non Performing Assets
(NPA) to Net Advances stood at 0.29% for the year 2008‐09. It stood at 0.31% for the year
ended 2009‐10. It has improved from 0.31% in the previous year to 0.46% for the year
2010‐11 to 0.87% for the year 2011‐12. For the year 2012‐13, Net Non Performing Assets
(NPA) to Net Advances stood at 1.91%
Corporation Bank has a tie up arrangement under bancassurance segment for both life
insurance and general insurance through Life Insurance Corporation of India and New India
Assurance Co. Ltd.

It started its Bancassurance business in the year 2008 for life insurance and for general
insurance from the year 2009.

In the year 2008‐09, under Life Insurance segment, bank earned a commission income of Rs.
18 crores from Life Insurance Corporation of India. It earned a huge commission income of
Rs. 20 crores in the year 2009‐10 and Rs. 23 crores for the year 2010‐11. During the year
2011‐12, the net profit from life insurance business increased significantly to Rs. 43 crores
from Rs. 23 crores in previous year. In the year 2012‐13 the bank recorded a commission
income of Rs. 45 crores.

For General Insurance business, the bank has a tie‐up arrangement with New India Assurance
Co. Ltd. from the 2009. Corporation Bank recorded a commission income of Rs. 11 crores
63
during the year 2009‐10. In the year 2010‐11 bank’s commission income dropped down to
Rs. 9 crores from Rs. 11 crores of previous year. In the year 2011‐12, the bank recorded a
commission income of Rs. 12 crores and Rs. 15 crores for the year 2012‐13

INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA

(ICICI) BANK

ICICI Bank was established by the Industrial Credit and Investment Corporation of India, an
Indian financial institution. It was formed in 1955 as a joint‐venture of the World Bank,
India's public‐sector banks and public‐sector insurance companies to provide project
financing to Indian industry.

Under bancassurance business, ICICI Bank has subsidiary named ICICI Prudential Life
Insurance Co. Ltd. and ICICI Lombard General Insurance Co. Ltd. ICICI Prudential Life
Insurance Co. Ltd. is a joint venture between ICICI bank and Prudential Plc, a leading
international financial services group whose headquarters is in the United Kingdom. It was
established in December 2000 after receiving an approval from Insurance Regulatory
Development Authority (IRDA). ICICI Lombard General Insurance Co. Ltd. was established
in August 2001. It is a joint venture between ICICI Bank Ltd. and Fairfax Financial Holding
Ltd, Canada.

64
Financial position of icici bank and income derived from its bancassurance business
YEAR NET ADVANCES DEPOSITS NET DIVDEND NET % OF ICICI ICICI
WORTH INCOME PROFIT NPA PRUDENTIAL LOMBARD
LIFE INSURANCE
INSURANCE LTD
LTD
2008- 49,883 2,18,311 2,18,348 8,366 1,225 3,758 1.96% (-780) 24
09
2009- 51,618 1,81,205 2,02,017 8,144 1,338 4,025 1.87% 258 144
10
2010- 55,091 2,16,366 2,25,602 9,014 1,613 5,151 0.94% 808 (-80)
11
2011- 60,405 2,53,723 2,55,500 10,734 1,902 6,465 0.62% 1,384 (-416)
12
2012- 66,706 2,90,249 2,92,614 13,866 2,307 8,325 0.64% 1,496 3.06
13

The net worth of ICICI Bank for the year 2008‐09 was Rs. 49,883 crores and a growth of
3.48% for the year ended 2009‐10. It has grown from Rs. 51,618 crores in 2009‐10 to Rs.
55,091 crores in 2010‐11 i.e. an increase of 6.73%. There was a growth of 9.65% in the year
2011‐12 and in the year 2012‐13, net worth increased from Rs. 60,405 crores in previous year
to Rs. 66,706 crores i.e. registering a growth of 10.43%.

Advances decreased by ‐17% and earned Rs. 1, 81,206 crores for year 2009‐2010 from Rs. 2,
18,311 crores of 2008‐09. The bank registered a growth of 11.67% from Rs. 1, 81,205 crores
of 2009‐10 to Rs. 2, 16,366 crores of 2010‐11 and a growth of 17.27% from 2010‐11 to
2011‐12. Advances reached to Rs. 2, 90,249 crores registering a growth of 14.4% in the year
2012‐13.

ICICI Bank’s total deposits decreased by ‐7.48% and earned Rs. 2, 02,017 crores for the year
2009‐2010 over previous year’s i.e. 2008‐09 deposits of Rs. 2,18,348 crores. It has grown by
11.67% to reach Rs. 2, 25,602 crores in the year 2010‐11 and 13.25% to reach Rs. 2, 55,500
crores in the year 2011‐12. In the year 2012‐13, ICICI Bank’s total deposits amounted to Rs.
2, 92,614 crores showing an addition of Rs. 37,114 crores and growth rate of 14.4% over
previous year.

Total net interest income of ICICI Bank showed that the growth rate has decreased by ‐3.02%
from Rs. 8,366 crores in year 2008‐09 to Rs. 8,114 crores in the year 2009‐10. The bank
registered a growth of 11.12% from 2009‐10 to 2010‐11. Year 2011‐12 showed a growth of
19.04% i.e. Rs. 10,734 crores over previous year’s interest income of Rs. 9,017 crores. It
registered a growth of 29.18% for the year ended 2012‐13 with Rs. 13,866 crores.

Dividend of Rs. 1,225 crores was recommended by the Board of Directors of ICICI Bank for
the year 2008‐09. It was Rs.1, 338 crores for the year 2009‐10, Rs. 1,613 crores for the year
2010‐11 and Rs. 1,902 crores for the year 2011‐12. Dividend proposed for the year ended
2012‐13 was Rs. 2,303 crores.
65
Net profit increased registering a strong growth by 7.10% to Rs. 4025 crores in 2009‐10 from
Rs. 3,758 crores in the previous year 2008‐09. It increased by 27.98% from Rs. 4,025 crores
in 2009‐10 to Rs. 5,151 crores of 2010‐11. In the year 2011‐12 it has shown a significant
growth of 25.51% and earned a profit of Rs. 6,465 crores as compared to previous year’s
profit of Rs. 5,151 crores. Net profit of the bank has increased by 28.77% from Rs. 6,465
crores in previous year 2011‐12 to Rs. 8,325 crores during the year 2012‐13.

The Net Non Performing Assets (NPA) to Net Advances stood at 1.96% for the year 2008‐09.
It stood at 1.87% for the year ended 2009‐10. It has reduced from 1.87% in the previous year
to 0.94% for the year 2010‐11 and also decreased to 0.62% in the year 2011‐12. For the year
2012‐13, Net Non Performing Assets (NPA) to Net Advances stood at 0.64%

Under bancassurance business, ICICI Bank has subsidiary named ICICI Prudential Life
Insurance Co. Ltd. and ICICI Lombard General Insurance Co. Ltd. In the year 2008‐09, under
life insurance segment, ICICI Life incurred a loss of Rs. ‐780 crores. In the year 2009‐10, it
earned. a profit of Rs. 256 crores as compared to the loss of Rs. ‐780 crores in the year
2008‐09. Profit increased from Rs. 256 crores in the year 2009‐10 to Rs. 808 crores in
2010‐11. In the year 2011‐12 it earned a profit of Rs. 1,384 crores from Rs 808 crores of
previous years i.e. 2010‐11. In the year 2012‐13 the bank recorded a commission income of
Rs. 1,496 crores.

66
HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC) BANK
LTD.
HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation
Limited (HDFC), India's largest housing finance company. It was among the first companies
to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in
the private sector.

Under bancassurance business, HDFC Bank has a joint venture named HDFC Standard Life
Insurance Co. Ltd. and HDFC Ergo General Insurance Co. Ltd. HDFC Standard Life
Insurance Co. Ltd. was established in the year 2000. It became the first private life insurance
company in India. HDFC Ergo General Insurance was established in the year 2002. It is a
joint venture between HDFC Ltd. which is India’s housing finance institution and ERGO
International AG, the primary insurance entity of Munich Re Group.

Financial position of hdfc bank and income derived from its bancassurance business

YEAR NET ADVANCE DEPOSITS NET DIVDEN NET % 0F HDFC LIFE HDFC
WORTH S INCOME D PROFI NPA INSURANC ERGO
T E LTD INSURANC
E LTD

2008 15,05 98,833 1,42,81 7,421 425 2,24 0.63 327 22

-09 3 2 5 %

2009 21,52 1,25,831 1,67,40 8,387 549 2,94 0.13 534 54

-10 2 4 9 %

2010 25,37 1,59,983 2,08,58 10,54 768 3,92 0.19 670 78

-11 9 6 3 6 %

2011 29,92 1,95,420 2,46,70 12,29 1,009 5,16 0.18 456 110
-12 5 6 7 7 %

2012 36,21 2,39,721 2,96,24 15,81 1,309 6,72 0.20 472 126
-13 4 7 1 6 %

67
The net worth of HDFC Bank for the year 2008‐09 was Rs. 15,053 crores and a growth of
42.98% for the year ended 2009‐10. It has grown substantially from Rs. 21,522 crores in
2009‐10 to Rs. 25,379 crores in 2010‐11 i.e. an increase of 17.92%. There was a growth of
17.91% in the year 2011‐12 and in the year 2012‐13, net worth increased from Rs. 29,925
crores in previous year to Rs. 36,214 crores i.e. registering a growth of 21.02%.

Advances for the year 2008‐09 were Rs. 98,883 crores. It increased by 27.25% i.e. Rs. 1,
25,831 crores for year 2009‐2010 from Rs. 98,883 crores of 2008‐09. The bank registered a
growth of 27.1% from Rs. 1,25,831 crores of 2009‐10 to Rs. 1,59,983 crores of 2010‐11 and
a growth of 22.2% from 2010‐11 to 2011‐12. Advances reached to Rs. 2, 39,721 crores
registering a growth of 22.7% in the year 2012‐13.

HDFC Bank’s total deposits amounted to Rs. 1, 67,404 crores as on March 2010 showing a
growth of 17% over previous year’s i.e. 2008‐09 deposits of Rs. 1, 42,812 crores. It has
grown by 27.1% to reach Rs. 2, 08,586 crores in the year 2010‐11 and 18.3% to reach Rs. 2,
46,706 crores in the year 2011‐12. In the year 2012‐13, HDFC Bank’s total deposits
amounted to Rs. 2, 96,247 crores showing an addition of Rs. 49,541 crores and growth rate of
20.1% over previous year.
Total net interest income of HDFC Bank has shown a growth of 13.01% from Rs. 7,421
crores in year 2008‐09 to Rs. 8,387 crores in the year 2009‐10. The bank registered a growth
of 25.71% from 2009‐10 to 2010‐11. Year 2011‐12 has shown a reduction of 16.63% i.e. Rs.
12,297 crores over previous year’s interest income of Rs. 10,543 crores. It registered a
growth of 28.58% for the year ended 2012‐13 with Rs. 15,811 crores.

Dividend of Rs. 425 crores was recommended by the Board of Directors of HDFC Bank for
the year 2008‐09. It was Rs. 549 crores for the year 2009‐10, Rs. 768 crores for the year
2010‐11 and Rs. 1,009 crores for the year 2011‐12. Dividend proposed for the year ended
2012‐13 was Rs. 1,309 crores.

Net profit of HDFC Bank increased registering a strong growth by 30.2% to Rs. 2,949 crores
in 2009‐10 from Rs. 2245 crores in the previous year 2008‐09. It increased by 33% from Rs.
2949 crores in 2009‐10 to Rs. 3,926 crores of 2010‐11. In the year 2011‐12 it has shown a
significant growth of 31.6% and earned a profit of Rs. 5,167 crores as compared to previous
year’s profit of Rs. 3,926 crores. Net profit of the bank during the year 2012‐13 was Rs.
6,726 crores, increased by 30.17%.

The Net Non Performing Assets (NPA) to Net Advances stood at 0.63% for the year 2008‐09.
It stood at 0.13% for the year ended 2009‐10. It has improved from 0.13% in the previous
year to 0.19% for the year 2010‐11 and decreased to 0.18% in the year 2011‐12. For the year
2012‐13, Net Non Performing Assets (NPA) to Net Advances stood at 0.20%

Under bancassurance business, HDFC Bank has a joint venture named HDFC Standard Life
Insurance Co. Ltd. and HDFC Ergo General Insurance Co. Ltd. HDFC Standard Life

68
Insurance Co. Ltd. was established in the year 2000. It became the first private life insurance
company in India. HDFC Ergo General Insurance was established in the year 2002. It is a
joint venture between HDFC Ltd. which is India’s housing finance institution and ERGO
International AG, the primary insurance entity of Munich Re Group.

In the year 2008‐09, under life insurance segment, bank earned a commission income of Rs.
327 crore from HDFC Standard Life Insurance Co. Ltd. It earned a huge commission income
of Rs. 534 crores in the year 2009‐10 and Rs. 670 crores for the year 2010‐11. During the
year 2011‐12, the income from life insurance business decreased significantly to Rs. 456
crores from Rs.670 crores in previous year. In the year 2012‐13 the bank recorded a
commission income of Rs. 472 crores.

Under HDFC Ergo General Insurance Co. Ltd. HDFC Bank recorded a commission income
of Rs. 22 crores during the year 2008‐09. In the year 2009‐10, bank’s commission income
increased to Rs. 54 crores from Rs. 22 crores in previous year and increased to Rs. 78 crores
in the year 2010‐11. In the year 2011‐12, the bank recorded a commission income of Rs. 110
crores and Rs. 126 crores for the year 2012‐13.

INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)

The Industrial Development Bank of India (IDBI) was established on 1st July 1964 under an
Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February
1976, the ownership of IDBI was transferred to the Government of India and it was made the

69
principal financial institution for coordinating the activities of institutions engaged in
financing, promoting and developing industry in the country.
IDBI Bank offers Life Insurance Solutions to suit various customers segments through IDBI
Federal Life Insurance Co. Ltd. It was formed on March 2008. It is a joint venture between
three financial companies i.e. IDBI Bank, Federal Bank and European insurer Ageas formally
known as Fortis. The bank has also entered into an agreement with Bajaj Allianz General
Insurance Co. Ltd. to provide Non Life or General insurance requirement from 2008.6

Financial position of idbi bank and income derived from bancassurance business

YEAR NET ADVANCES DEPOSITS NET DIVIDEND NET % OF IDBI BAJAJ

WORTH INCOME PROFITS NPA FEDERAL ALLIANZ
LIFE INSURANCE
INSURANCE LTD
LTD

2008- 9,564 1,03,444 1,12,401 1,326 181 859 0.87% 6 2

09

2009- 10,293 1,38,202 1,67,667 2,267 217 1,031 1.00% 21 2

10

2010- 14,570 1,57,098 1,80,487 4,329 345 1,650 1.06% 33 4

11

2011- 19,391 1,80,572 2,10,493 4,545 389 2,032 1.61% 31 3

12

2012- 21,231 1,96,306 2,27,116 5,373 467 1,882 1.58% 45 4

13

The net worth of IDBI Bank for the year 2008‐09 was Rs. 9,564 crores and a growth of
7.62% for the year ended 2009‐10. It has grown from Rs. 10,293 crores in 2009‐10 to Rs.
14,570 crores in 2010‐11 i.e. an increase of 41.56%. There was a growth of 33.09% in the
year 2011‐12 and in the year 2012‐13, net worth increased from Rs. 19,391 crores in previous
year to Rs. 21,236 crores i.e. registering a growth of 9.51%.

Advances increased by 33.60% and earned Rs. 1, 38,202 crores for year 2009‐2010 from Rs.
1, 03,444 crores of 2008‐09. The bank registered a growth of 13.67% from Rs. 1,38,202
crores of 2009‐10 to Rs. 1, 57,098 crores of 2010‐11 and a growth of 14.94% from 2010‐11
to 2011‐12. Advances reached to Rs. 1, 96,306 crores registering a growth of 8.71% in the
year 2012‐13.

70
IDBI Bank’s total deposits amounted to Rs. 1, 67,667 crores as on March 2010 showing a
growth of 49. 17% over previous year’s i.e. 2008‐09 deposits of Rs. 1, 12,401 crores. It has
grown by 7.65% to reach Rs. 1, 80,487 crores in the year 2010‐11 and 16.63% to reach Rs. 2,
10,493 crores in the year 2011‐12. In the year 2012‐13, IDBI Bank’s total deposits amounted
to Rs. 2, 27,116 crores showing an addition of Rs. 16,623 crores and growth rate of 7.9%
over previous year.

Total net interest income of IDBI Bank has shown a strong growth of 71.01% from Rs. 1,326
crores in year 2008‐09 to Rs. 2,267 crores in the year 2009‐10. The bank registered a robust
growth of 90.92% from 2009‐10 to 2010‐11. Year 2011‐12 showed a moderate growth of
4.99% i.e. Rs. 4,545 crores over previous year’s interest income of Rs. 4,329 crores. It
registered a growth of 18.22% for the year ended 2012‐13 with Rs. 5,373 crores.

Dividend of Rs. 181 crores was recommended by the Board of Directors of IDBI Bank for
the year 2008‐09. It was Rs. 217 crores for the year 2009‐10, Rs. 345 crores for the year
2010‐11 and Rs. 389 crores for the year 2011‐12. Dividend proposed for the year ended
2012‐13 was Rs. 467 crores.

Net profit IDBI Bank increased registering a growth by 20.20% to Rs. 1,030 crores in
2009‐10 from Rs. 859 crores in the previous year 2008‐09. It increased by 60.04% from Rs.
1,031 crores in 2009‐10 to Rs. 1,650 crores of 2010‐11. In the year 2011‐12 it has shown a
significant growth of 23.15% and earned a profit of Rs. 2,032 crores as compared to previous
year’s profit of Rs. 1,650 crores. Net profit of the bank has decreased as compared to the
previous years of Rs. 2,032 crores and earned a profit of Rs. 1,882 crores during the year
2012‐13. It has reduced by ‐7.38%.

The asset profile of the bank continues to be very healthy. The Net Non Performing Assets
(NPA) to Net Advances stood at 0.87% for the year 2008‐09. It stood at 1% for the year
ended 2009‐10. It has moderately increased from 1% in the previous year to 1.06% for the
year 2010‐11. It increased to 1.61% in the year 2011‐12. For the year 2012‐13, Net Non
Performing Assets (NPA) to Net Advances stood at 1.58%.

Under bancassurance business, IDBI Bank offers life insurance solution to various customers
through IDBI Federal Life Insurance Co. Ltd and also has a corporate agent Bajaj Allianz
General Insurance Co. Ltd for general insurance. In the year 2008‐09, the bank earned a net
profit of Rs. 6 crores from IDBI Federal Life Insurance Co. Ltd. It earned a huge profit of Rs.
21 crores in the year 2009‐10 and Rs. 33 crores for the year 2010‐11. During the year
2011‐12, the profit from life insurance business decreased to Rs. 31 crores from Rs. 33 crores
in previous year. In the year 2012‐13 the bank recorded a profit of Rs. 45 crores.
Under Bajaj Allianz General Insurance Co. Ltd. the Bank recorded a Net profit of Rs. 2
crores during the year 2008‐09 which remained the same for the year 2009‐10. In year
2010‐11 bank’s profit increased to Rs. 4 crores from Rs. 2 crores in previous year and
decreased to Rs. 3 crores in the year 2011‐12. The bank recorded a commission income of Rs.
4 crores for the year 2012‐13.

71
72
73
74
75
 Questionnaire

For Bankers

76
77
For Customers

Objective: Data are collected for research work and other than this has no other purpose.
The information collected from respondents would be kept confidential.
------------------------------------------------------------------------------------------------
Personal Particulars
Name: Rakshith R Shetty
Age: 20
Sex: Male
Name of Bank holding account: Corporation bank
---------------------------------------------------------------------------
--------------------------------------
Note: Tick ( √ ) the option of your choice.

1Which type of bank account do you hold?

(a) Saving (√)

(b) Recurring deposit
(c) Fixed deposit
(d) Current account
(e) Others

2. How frequently do you visit to your bank?

(a) Bi-weekly
(b) Weekly
(c) Fortnightly
(d) Monthly
(e) As and when required. (√)

3. How do you feel when you visit to your bank?

(a) Very happy

(b) Happy
(c) Normal (√)
(d) Not happy
(e) Cannot say

4. Who have convinced you to open an account or avail banking services from your bank?

(a) Branch manager

(b) Advertising (√)

78
(c) Goodwill of bank
(d) Employees of bank
(e) Others

5. How much time do you stand in queue for operating your account?

(a) Up to 10 minutes (√)

(b) 11 - 20 minutes
(c) 21 - 30 minutes
(d) Above 30 minutes

6. Do the employees pay proper attention towards customers?

(a) Utmost attention

(b) High attention
(c) Average attention (√)
(d) Less attention
(e) No attention

7. What level of interest employees have shown in their job?

(a) Most interested

(b) Highly interested
(c) Interested (√)
(d) Less interested
(e) Not interested

8. Do you find the employees have required level of competencies for performing jobs?

(a) Highest level

(b) Higher level
(c) High level
(d) Average level (√)
(e) Low level

9. While performing the job did you find the employees face difficulties?

(a) Always
(b) Often
(c) Sometimes
(d) Rarely
(e) Never (√)

79
10. Did employees get involved in arguments with you while dealing?

(a) Always
(b) Often
(c) Sometimes
(d) Rarely
(e) Never (√)

80
CONCLUSION

The face of banking is changing rapidly. Competition is going to be tough and with financial
liberalisation under the WTO, banks in India will have to benchmark themselves against the
best in the world. For a strong and resilient banking and financial system, therefore, banks
need to go beyond peripheral issues and tackle significant issues like improvements in
profitability, efficiency and technology, while achieving economies of scale through
consolidation and exploring available cost-effective solutions. These are some of the
issues that need to be addressed if banks are to succeed, not just survive, in the changing
milieu.

Over the last three decades the role of banking in the process of financial intermediation has
been undergoing a profound transformation, owing to changes in the global financial system.
It is now clear that a thriving and vibrant banking system requires a well developed financial
structure with multiple intermediaries operating in markets with different risk profiles.

Taking the banking industry to the heights of international excellence will require a
combination of new technologies, better processes of credit and risk appraisal, treasury
management, product diversification, internal control and external regulations and not the
least, human resources. Fortunately, we have a comparative advantage in almost all these
areas. Our professionals are at the forefront of technological change and financial
developments all over the world. It is time to harness these resources for
development of Indian banking in the new century.

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 BIBLOGRAGHY

WWW.GOOGLE.COM

WWW.YAHOO.COM

WWW.WIKIPEDIA.COM

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