Indian Banking Industry Analysis

An internship is on-the-job training for many professional jobs, similar to an apprenticeship, more often taken up by college and university students during his undergraduate or master degree in their free time to supplement their formal education and expose them to the world of work.

Internships offer various occasion to interns during internship programs to expand familiarity in their choose area of work , to find out what they have an importance in an exacting in specific line of business, develop professional network links, build interpersonal skill or get some credit points if it’s a sandwich course they are in.

Employers too benefit from an internship arrangement as it gives access to interns with some skills to execute relevant tasks for the employer. Many interns end up with permanent service with the same organization in which they are interned. Their worth to the organization may be greater than before by the fact that they require modest or less training.

An internship may be compensated, non-compensated or some time to some extent paid. Internships may be part-time or full-time; in general, they are part-time during the academy year and full-time in the summer vacations. They usually last for six weeks to two months, its tenure varies from organization to organization, and it may be shortening or long based on the organization for which they intern.

Since the 1990’s economic reforms in India, that’s brought a sea change in business and academic culture, internships have found a prominent place in the life of a business and management studies. An increasing presence of multinational companies, rapid economic growth, and globalization, individual’s aspirations, urbanization have all influenced the role and desirability of internships.

In my summer internship, I have worked in various branches of Bangalore City Co-operative Bank Limited for a period of 8 weeks from 17th May 2018 to 14th July 2018.

This report is a short description of my 8 weeks internship carried out as a compulsory component of MBA Programme, Jain University. The internship was carried out within the organization: Bangalore City Co-operative Bank Ltd, Bangalore.

• To understand the functioning and working conditions of a Co-operative Bank
• To see what skills and knowledge I still need to work in a professional environment
• To learn about the organizing of a research project (Planning, Preparation, Permission)
• To learn about research methodologies ( Field methods/methods to analyze data)
• To get fieldwork experience / collect data in an environment was not familiar to me
• To see if this kind of work is a possibility for my future career.

How they process loans, how to verify the loan and advances files and documents, what are their investments products etc. were understood practically.

In this organization study an attempt is made to analyze the banking process at Bangalore City Co-operative Bank Limited, how do they mobilize investments and advances and their financial position.

Industry Profile

The word bank originated the French word conqueror Italian bank which means an office for a monitory transaction over the counter. In those days or desks were used as centers for monitory transactions. During the barter system also, there existed traces of banking, i.e. people used to deposit cattle and agricultural products in specified places get loans to get loans of some other form in exchange for these. There is solid evidence found in records excavated form Mesopotamia, showing some bank existed around a standard for valuation.

Greece was the first country to introduce a satisfactory system of coinage. After the invention of Coins started, a meaningful system of banking came into existence taking into account all the avenue of banking a credit system. Rome was the first country to start a bank at the department of state level in the 4th century B.C. with transactions such as depositing and investments in other forms. In India, ancient records show that banking was popular and money lending was a common practice among the common people. In the olden days Goldsmith, merchants and money lenders conducted the business. They had transactions among themselves by which funds were transferred from one business firm to another. They had no general or uniform principles of banking, lending, the rate of interest, etc.

A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers that have capital deficits to customers with capital surpluses. Due to their critical status within the financial system and the economy generally, banks are highly regulated in most countries. They are generally subject to minimum capital requirements which are based on an international set of capital standards, known as the Basel Accords.

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors, then the nationalization of banks in 1969 liberalization in 1991. In India, the Banking sector is segregated as public sector banks, private sector banks, and co-operative banks. Banks in India can be categorized into non-scheduled banks and scheduled banks constitute of commercial banks. There are about 67,000 branches of scheduled banks across India. During the first phase of financial reforms, there was a nationalized of 14 banks in 1969. The crucial step led to a shift from class banking to mass banking. Since then the growth of the banking industry in India has been a continuous progress.

As far as the present scenario is concerned the banking industry in a transaction phase. The public sector banks (PSBs), which are the foundation of the Indian banking system account for more than 78% of the total banking industry assets. The banking industry has revolutionized the transactions and financial services system worldwide. Through the development of technology, banking services have been availed to customers at all times, even after the normal banking hours. Banking industry services are nothing but the access to most of banking related services verification of account details, going with the transaction, etc.

The Indian banking sector is broadly classified into scheduled banks and non-scheduled banks. The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are further classified into nationalized banks, State Bank of India and its associates, Regional Rural Banks, foreign banks and other Indian private sector banks. The term commercial banks refer to both scheduled and non-scheduled commercial banks regulated under the Banking Regulation Act, 1949.

Generally banking in India is fairly mature in terms of supply, product range and reach-even though reach in rural India and to the poor still remains a challenge. The government has developed initiatives to address this through the State Bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development (NABARD) with facilities like microfinance.

Definition of Banking

Sec 5(1) (b) defines banking as accepting for the purpose of lending or investments of deposits of money from the public repayable on demand or otherwise and withdrawal by cheque, draft, and order or otherwise

Importance of Banking In India

Banking plays a very important role in the economic development of a country. They touch every aspect of the modern banking. Some of the important roles played by banking for the development of Indian economy are as follows.

• Banking mobilizes the small, scattered and ideal saving of the people and makes available for the productive purposes i.e., they help in the process of capital formation.
• By offering interest banks attracts depositors and promote the habit of thrift and saving among people.
• The bank is a convent and economic means payment and transfer of funds i.e. cheque, DD, banks drafts.
• Banks help the movement of funds from regions where they are not very useful to regions where they can be more usefully employed.
• Though the supply of money (bank money and credit money) bank expert a powerful influence on the interest rates in the money market.
• Banks directs the flow of funds into productive channels. While lending money they discriminate in favor of essential activities and against non-essential activities.

Structure of the Indian Banking Sector

The Indian banking system consists of 27 public sector banks, 21 private sector banks, 45 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions.

As per the Reserve Bank of India, India’s banking sector is sufficiently capitalized and well regulated. The financial and economic conditions in the country are far superior to many other countries in the world. Credit, market, and liquidity risk studies suggest that Indian banks are generally resilient and have withstood the global downturn well.

Indian banking industry has recently witnessed the roll-out of innovative banking models like payments and small finance banks.

Functions of Banking

The main functions are as follows:

• Borrowing of money in the form of deposits.
• Lending or advancing of money in the form of different types of loan.
• The drawing, making, accepting, discounting, buying and selling, collecting and dealing in bills of exchange, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, securities both negotiable and non-negotiable.
• The granting and issuing of credit, traveler's cheques, etc.
• The acquiring, holding, issuing on commission, underwriting, dealing in stock, funds, shares, debentures, bonds, securities of all kinds.
• Providing safe deposits vaults.
• Collecting transmitting of money and securities.
• Buying and selling of foreign notes.
• The purchasing and selling of bonds scripts and other forms of securities on behalf of constituents or others.
• The subsidiary functions of banks are:
• Acting as agents for governments or local authorities or any other persons.
• Carrying out agency business of any description.
• Contracting for public and private loans and negotiation and issuing the same.
• Carrying on guarantee and indemnity business.
• Managing to sell and realize any property or any interest in any such property.
• Undertaking and executing trusts. Granting of pensions and allowances and making payments towards pensions.

Reserve Bank of India

The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the beginning. The Government held shares of nominal value of Rs. 2, 20,000. Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.

The Bank was constituted for the need of following:

• To regulate the issue of banknotes
• To maintain reserves with a view to securing monetary stability
• To operate the credit and currency system of the country to its advantage.

Functions of Reserve Bank of India

The Reserve Bank of India Act of 1934 entrust all the important functions of a Central bank Bank of India.

• Bank of Issue.
• Bank to Government
• Bankers Bank
• Lender of the Last Resort
• Controller of Credit
• Custodian of Foreign Reserves
• Supervisory functions

Improved Risk Management Practices

Indian banks are increasingly focusing on adopting an integrated approach to risk management.

Banks have already embraced the international banking supervision accord of Basel II.; interestingly, according to RBI, the majority of the banks already meet capital requirements of Basel III, which has a deadline of 31 March 2019.

Most of the banks have put in place the framework for asset-liability match, credit & derivatives risk management.

Diversification of Revenue stream

Total lending has increased at a CAGR of 12.38 percent during FY07-17 and total deposits have increased at a CAGR of 10.08 percent, during FY07-17 & are further poised for growth, backed by demand for housing and personal finance.

Technological innovations

As of February 2017, the total number of ATMs in India increased to 207,402 & is further expected to double over next few years, thereby leading to increase in the number of ATMs per million people in India from 105 in 2012, to about 300 by 2017.

New trends like UPI, Digital Payments are widely being used by the public.

Focus on financial inclusion

RBI has emphasized the need to focus on spreading the reach of banking services to the unbanked population of India.

Indian banks are expanding their branch network in the rural areas to capture the new business opportunity. According to RBI, 490,000 unbanked villages were identified & allotted to banks for coverage under the second phase of Pradhan Mantri Jan Dhan Yojna.

Consolidation

With the entry of foreign banks, competition in the Indian banking sector has intensified

Banks are increasingly looking at consolidation to derive greater benefits such as enhanced synergy, cost takeout’s from economies of scale, organizational efficiency & diversification of risks

Demonetization

RBI Deputy Governor said that since demonetization the Central Bank has collected over US$ 185.81 billion in demonetized notes from various bank branches

The effects of demonetization are also visible in the fact that bank credit plunged by 0.8 percent from November 8 to November 25, as US$ 9.85 billion was paid by defaulters. As per RBI, a total of US$ 125.53 billion was deposited in banks till November 27, 2016.

As of March 2017, debit cards have radically replaced credit cards as the preferred payment mode in India, after demonetization. As of October 2016, debit cards garnered a share of 42 percent of the total card spending, which increased to 60 percent, post demonetization.

Focus towards Jan Dhan Yojana

A key objective of Pradhan Mantri Jan Dhan Yojana (PMJDY) is to increase the accessibility of financial services such as bank accounts, insurance, pension, credit facilities, etc. mostly to the low-income groups.

Under the Jan Dhan Yojana, as on April 5, 2017, 282.3 million new accounts were opened & around US$ 9,515.30 million was deposited with the banks under this scheme.

As on November 9, 2016, 194.4 million ‘Rupay’ debit cards were issued to users

Wide usability of RTGS and NEFT

Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are being implemented by Indian banks for fund transaction

Securities Exchange Board of India (SEBI) has included NEFT & RTGS payment system to the existing list of methods that a company can use for payment of a dividend or other cash benefits to their shareholders & investors.

Know Your Client

RBI mandated the Know Your Customer (KYC) Standards, wherein all banks are required to put in place a comprehensive policy framework in order to avoid money laundering activities

The KYC policy is now mandatory for opening an account or making any investment such as mutual funds.