Professional Documents
Culture Documents
SUBMITTED TO ICL INSTITUTE OF MANAGEMENT AND TECHNOLOGY SOUNTLI (KURUKSHETRA UNIVERSITY, KURUKSHETRA)
ACKNOWLEDGEMENT
Gratitude is the hardest of emotions to express and one often does not find adequate words to convey what one feels and trying to express it The present project file is an amalgamated of various thoughts and experiences .The successful completion of this project report would have not been possible without the help and guidance of number of people and specially to my project guide .I take this opportunity to thank all those who have directly and indirectly inspired, directed and helped me towards successful completion of this project report. I am also immensely indebted to my project guide, MS.YUVIKA ASSISTANT PROFESSOR, ICLIMT, for his/her illumining observation, encouraging suggestions and constructive criticisms, which have helped me in completing this research project successfully. I also acknowledge with deep sense of gratitude and wholeheartedness to several other people who also deserve much more than a mere acknowledgement for their exemplary help and cooperation intended to me by them.
SURINDER SINGH
PREFACE
Project Report is very important and significant part of MBA program as it tries to bridge the gap between theory and practical It skillfully blends the theoretical aspects with practical business situation, thus preparing an MBA in batter manner for the feature responsibilities and challenge that he likely to face when he enter the business would to start his career and growth. This project report really provided me an opportunity to demonstrate my ability in applying theory to practical business situations. The study undertaken by me Ending Of Development Banking Moves To Dawn Of Universal Banking- A Case study of ICICI,IFCI,IDBI,IIBI BANKS. The whole project comprises of five sections :First section shed light on "Commercial banks at a glance". In the second section a brief effort has been made to explain meaning feature and functions of development banks. Third section gives a brief view of failure of development banks. Fourth section shed lights on beginning of universal banking. Fifth section covers finding and suggestions.
DECLARATION
I hereby declare that, the project entitled Ending Of Development Banking Moves To Dawn Of Universal Banking- A Case study of ICICI,IFCI,IDBI,IIBI BANKS assigned to me for the partial fulfillment of MBA degree from Kurukshetra University, Kurukshetra. The work is originally completed by me and the information provided in the study is authentic to the best of my knowledge. This study has not been submitted to any other institution or university for the award of any other degree.
CERTIFICATE
This is to certify that SURINDER SINGH has completed the project entitled Ending Of Development Banking Moves To Dawn Of Universal Banking- A Case study of ICICI,IFCI,IDBI,IIBI BANKS under my supervision. To the best of my knowledge, the report consists of result of the empirical study conducted by the student. In my opinion, the work is of requisite standard expected from an MBA student. Therefore, I recommend the same to be sent for evaluation to the university.
INDEX
1. INTRODUCTION TO BANKING INDUSTRY IN INDIA COMMERCIAL BANKS AT GLANCE DEVELOPMENT BANKING VARIOUS DEVELOPMENT BANKS IDBI-An Introduction ICICI- An Introduction IFCI- An Introduction IIBI- An Introduction
EVALUATION OF DEVELOPMENT BANKS/ENDING OF DEVELOPMENT BANKS DAWNING OF UNIVERSAL BANKING MERGER ICICI Ltd with ICICI Bank IFCI with PNB Board IDBI with nationalised bank 2. 3. 4. 5. 6. 7. OBJECTIVE OF STUDY RESEARCH METHODOLOGY FINDING & SUGGESTIONS LIMITATIONS OF STUDY CONCLUSION BIBLIOGRAPHY
8.
ANNEXURE
With the objective of reaching out to masses and meeting the credit needs of all sections of people, the government nationalized 14 large banks in 1969 followed by another 6 banks in 1980. This period saw enormous growth in the number of branches and the banks branch network became wide enough to reach the weakest sections of the society in a vast country like India. SBIs network of 9033 domestic branches and 48 overseas offices is considered to be one of the largest for any bank in the world.
The economic reforms unleashed by the government in early nineties included banking sector too, to a significant extent. Entry of new private sector banks was permitted under specific guidelines issued by RBI. A number of liberalization and de-regulation measures aimed at consolidation, efficiency, productivity, asset quality, capital adequacy and profitability have been introduced by the RBI to bring Indian banks in line with International best practices. With a view to giving the state-owned banks operational flexibility and functional autonomy, partial privatization has been authorized as a first step enabling them to dilute the stake of the government to 51 per cent. The government further proposed, in the Union Budget for the financial year 2000-01, to reduce its holding in nationalized banks to a minimum of 33 per cent on a case by case basis.
The Indian economy witnessed GDP growth rate of 6.9% on top of a high 8.5% Growth achieve in the preceding year. The resistance that the economy has achieve was demonstrated by the fact this growth of 6.9% took place in the face of deficient monsoon, steep hike globally in oil price& steel prices. The tragic & calamitous tsunami that hit India and a change of government at the centre. .The latest world Bank report places India for the 1st time among the top ten economy in the world, in term of absolute GDP size. Its purchasing power is taken into consideration India jump to the 4th position among all countries
While the Industrial sector registered a growth of 8.3%(6.5 previous) reflecting buoyancy in manufacturing activity, service sector maintained its earlier growth momentum and grew by 8.6% however for the agriculture sector growth increase by only 1.1% due to erratic monsoon in spite of a decelaration in the overall growth rate, the continuing momentum in the growth of India service sector has kept business confidence at a high level. Inflation which registered a sharp increase during the 1st half from 4.6% (march 2004 ) to 8.7% (aug 2004 ) back to 5% (march 05 )in the second half. The average inflation rate of 6.4% reflected a reverse of the beginning situation obtaining in the earlier years. The necessitated of certain monetary measure by RBI viz increase in the cash reserve ratio and reserve rapo rate. There was consequently an impact on the overall interest rate of the last few years halted and interest rate started firming up during the years. Export were buoyant with an increase of 24.4% (in us $ term ) during the year. However as export increase at a higher rate of 35.6% the trade deficit widened to US $ 26.5 billion capital inflow however continued and the country foreign exchange reserve stood at US $ 141.5 billion at the end of march 05, with a net acieration of US $ 28.6 billion during the year. The capital market has also been liety and turnover on both the NSE & BSE inversed statically FII remained net buyer almost throughout the year. The market indices (sensex Nifty ) touched new high and market capitalization reached higher level due to substantial increase in stock price. The domestic financial market remained stable although the hardening of interest rates had an impact on the profitability of Banks credit off take especially non fund credit, increase significantly and out stripped deposit growth in the Banking system. The trend of high growth in retail credit continued during the year. Retail lending (especially mortgage financing )accreted for a significant position of the portfolio for most Banks there was also sizable growth in industrial credit Issue of long term import including merger and acquisition among Banks and the criteria for entry for foreign Bank continued to engage in the attention of the authorities . RBI involved a road ownership in private sector bank. The finance minister in his Budget speech in February 2005 referred to the need to have Bank in India that match the size of international Banks. The days ahead promise tobe eventful for the Banking industry.
COMMERCIAL BANK
banks to introduce flexible interest rate system for new deposits, announce a maximum spread over PLR for all advance other the conserve credits and to review the present maximum spread over PLR and reduce them wherever they are unreasonable high.
For increasing operational efficiency of banks, the union budget for 2002-2003 proposed
seating into a pilot asset reconstructions company to conduct auctions of non performing assets (NPA's) in banking sectors, and also to develop a market for securitised loans. Accordingly a pilot assets reconstruction Company was set up by ICICI. The "enactment of securitisation, Reconstruction of financial Assets of enforcement of security Interest Act, 2002 marks a watershed in process of on-going economic reforms. This act enables the setting up of assets management companies for addressing the problem of non-performing assets of banks and FIIs. Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 1. A securitisation company or reconstruction Company having own funds of net less then Rs.2 corer or such other amount not exceeding 15% of total financial assets acquired or to be acquired as specified by RBI can commence business after obtaining a certificate of registration, subject to fulfillment certain norms set by reserve bank. 2. Securitisation or Reconstruction Company may acquire assets of any bank or FIs by issuing debenture or bond or any other security for consideration agreed upon between such company and bank or FIs. 3. Notice of acquisition of financial assets accepts may be send by bank or FIs to an obligator. The obligator on receipt of notice will make payment- to securitisation company concerned. 4. A securitisation Company may raise funds from qualified institutional buyer by formulating schemes for acquiring financial assets. 5. Secured Credit is entitled to enforce any security interest created in its favor without the intervention of court or tribunal.
6.
A securitisation or reconstruction company may provide for proper Management of business of borrower, sale or lease a part or whole of business of borrower, settlement of due payments by borrower with in the trade mark of RBI
7.
Securitisation Company includes acting as an agent for any bank and financial institute for the purpose of recovery of their dues.
8.
In case of failure to discharge the liabilities in a stipulated period, the second credit is entitled to take possession of secured assets, take over the management of secured assets and appoint any person to manage them.
9.
Banking Industry has been witness great studies in technology up gradation. Electronic fund transfer facilities is currently available in 13 major cities of the country Transfer of fund on the same day basic is available at for metro center with three settlements per day from January 2002. These has been extended to multiple settlements RBI is considering a proposal to commence national electronic funds transfer with the operationalisation of this facility, it would be possible to make facility of EFT available from any branch of banks which has connectivity to the Indian financial network ( INFINET)
FINANCIAL PERFORMANCE :
There was an improvement in the performance of the SCBs during the year 2009-10. The operating profits of SCBs increased by over 50 percent from Rs. 19,755 crore in 2008-09, to Rs. 29,814 crore in 2004-05. The ratio of operating profits to total assets increased from 1.5 percent to 1.9 percent in the same period. The operating profits of public sector banks (PSBs) increased by 57 percent in 2009-10, which was higher than the increase, recorded by the foreign banks (13 percent) and new private sector banks (54.3 percent). Old private sector banks recorded a higher growth of 70.5 percent in their in their operating profits in 2009-10. Working Results Of Scheduled Commercial Banks For 2009-10 Items SBI group banks 2009-10 Rs. Crore A. Income I) Interest income II) Other Income B. Expenditure I) Interest expended II) Intermediation cost III) Provisions and contingencies C. Operating profit (A-Bi-Bii) D. Net profit (A-B) E. Total assets 44763 38746 6017 41313 26556 9487 5270 8720 3450 449509 Nationa lised Banks 2009-10 72486 61976 10510 67635 42598 16935 8102 12953 4851 7062281 Public sector Banks 2009-10 117249 100722 16527 108948 69154 26422 13372 21673 8301 1155737 2009-10 12960 9700 3260 11468 6054 3393 2021 3513 1492 112096 Foreign banks Old Pvt sector Banks 2009-10 10946 8725 2221 9942 6495 1935 1512 2516 1004 93226 New Pvt. Sector Bank 2009-10 9871 7823 2048 9096 5813 1946 1337 2112 775 174454
As per cent of total assets A. Income 10.0 10.3 10.1 11.6 I) Interest income 8.6 8.8 8.7 8.7 II) Other Income 1.3 1.5 1.4 2.9 B. Expenditure 9.2 9.6 9.4 10.2 I) Interest expended 5.9 6.0 6.0 5.4 II) Intermediation 2.1 2.4 2.3 3.0 cost III) Provisions and 1.2 1.1 1.2 1.8 contingencies C. Operating profit 1.9 1.8 1.9 3.1 D. Net profit 0.8 0.7 0.7 1.3 (Source Report on trends and progress of banking in India 2008-2009)
Interest Spread :
The interest spread the difference between interest charged to borrowers and interest paid to depositors is an important indicator of efficiency of banks. A higher interest spread means higher cost of intermediation. With the interest income higher than interest expenditure, interest spread increased by 6.8 percent in 2009-10.
Ratio Of Spread Of Total Assets Banks Spread (Rs. Crore) Percent to total assets 2009-10 2.7 2.7 2.7 1.6 2.4 1.2 3.3 2.6
2007-08 2008-09 2009-10 2007-08 2008-09 1. Public sector 24040 29436 13568 2.7 2.9 (a) SBI & Associates 9283 11249 12190 2.8 2.8 (b) Nationalised 14757 18187 19378 2.7 2.9 2. Private Sector 2853 3808 4214 2.2 2.3 (a) Old 1702 2123 2231 2.3 2.5 (b) New 1151 1685 2010 1.9 2.1 3. Foreign 3250 3707 3646 3.9 3.6 4. SCBs (1+2+3) 30143 36951 39455 2.7 2.9 (Source Report on trends and progress of banking in India 2009-20010)
The ratio of interest spread to total assets of SCBs declined from 2.9 percent in 2009-10 to 2.6 percent in 2009-10. The decline was seen across all bank groups. While there was a marginal decline in the ratio in the case of public sector and foreign banks the decline in the ratio was significant in the case of private sector banks from 2.3 percent in 2008-09 to 1.6 percent in 2009-10.
Non-performing assets :
The gross non-performing assets of SCBs increased by 7,164 crores to Rs. 70,905 crores in 2009-10. Net NPAs increased by Rs. 3,084 crores to Rs. 35,546 crores. This increase is mainly on account of the inclusion of an amount of Rs. 4,512 crores in the gross NPAs consequent on the merger of ICICI with ICICI bank. While the incremental NPAs of the public sector banks increased from Rs. 1,639 crores in 2008-09 to Rs. 1,835 crores in 2009-10, foreign bank registered a decline in their incremental NPAs from Rs. 492 crores to Rs. (-) 380 crores during the same period. The increase in the incremental NPAs of private sector banks by Rs. 5,709 crores can be attributed to the effect of ICICI merger.
Gross NPAs (Rs. crore) 2008-09 2009-10 Bank Group 1 Public Sector 2 Private Sector 3 Foreign 4 SCBs (1+2+3) Bank Group 1 Public Sector 2 Private Sector 3 Foreign 4SCBs (1+2+3) 54672 5963 3106 63741 56507 11672 2726 70905
Percentage of gross advances 2008-09 12.4 8.4 6.5 11.4 2009-10 11.1 9.6 5.4 10.4
Percentage to total assets 2008-09 5.3 3.7 3.0 4.9 2009-10 4.9 4.4 2.4 4.6
Net NPAs (Rs. crore) 27977 27958 3700 785 32462 6668 920 35546
Percentage to net advances 6.7 5.8 5.4 1.8 6.2 5.7 1.9 5.5
Percentage to total assets 2.7 2.3 0.8 2.5 2.4 2.5 0.8 2.3
INTRODUCTIONDEVELOPMENT BANKING
DEVELOPMENT BANKING
Development banks :Development banks are specialized financed institutions, which provide an opportunity to promote enterprises from conception to realisation. These banks perform twin functions of providing medium and long term finance to private entrepreneurs and performing various promotional sale conductive to economic development. Development banks are those banks engaged in promotion and development of industry, agriculture, exports and other key sectors. These banks provide all development services like provisions of risk capital, underwriting of new issue, identification of investment projects, and provision of technical advice so as to accelerate to economic development
William Diamond A development bank is that bank which give priority to development objectives."
K.V. Prabhakar A development bank is a multipurpose institution which shares entrepreneurial risk, changes its approach in time with industrial climate and encourages new industrial projects to being about speedier economic growth
1)
2) 3) 4) 5) 6) 7) 8)
Necessity of medium and long term capital To channelise savings Modernisation of small scale industries Transformation of agriculture Trade oriented growth Underdeveloped capital market Privatization Globalization :
DFIs have come to occupy a place of importance in planning and promotion of industries in the country. They only constantly increased the flow of assistance, but developed a coordinated approach to industrial financing. There is hardly any project now in private sector especially the large one, which could materialize without support from the institutions.
Establishment :
Form of assistance/function: Gives loan for maximum period of 25 years. Underwriting share & debenture. Gives loans in foreign exchange. It generates loan raised by industry in open market. Buy stock and shares. Give security regarding deferred payment for import to capital goods.
Management of IFCI:The corporation is managed by 12 members board of director two directors are nominated by Govt. of India, 4 by IDBI and 6 by other institutions. Besides this there is a control committee of 5 members assist BOD on day-to-day matters.
Assistance Sanctioned & Disbursed Period 1948-56 1956-1966 1974-80 1980-90 1990-2000 2009-2010 Cumulative upto end march 2010 Sanctions 35.16 244.15 578.93 6886.31 47083.50 2611.80 111842.70 Disbursement 16.78 198.17 377.50 4608.24 333297.80 1902.1 71385.30
IFCI Group Institution promoted TFCI ICRA TAFSCIL TCO MDI ILD Subsidiaries IFCI (financial service ltd) IFCI(venture capital fund ltd.) Co- sponseored SHCIL STCIL OTCEI NSE LIC HFL GIC HFL
2.
Establishment:IDBI was established on July 1,1964. This development bank was started by Govt of India as a subsidiary of RBI. On Feb 16, 1976 it become independent of the RBI.
Objective:To coordinate, regular and supervise the activities of other financial institution such as IFCI, ICICI , UTI , LIC and Commercial banks.
It offers facility of refinance, in 1964 refinance corporation was merged with industrial bank. The bank has established Development Assistance Fund. This is for the benefit of those industries, which fail to get loans, anywhere.
This bank organizes investment surveys. Management of IDBI:The bank is managed by BOD comprising of 24 members of these, the chairman is appointment by government and vice-chairman by Reserve bank. Others 18 members are also appointed by central Govt and 4 shareholders.
Function of IDBI:Functions
Direct finance Project finance Underwriting and Subscription of share & debenture Guarantee for Deferred payment & Loans Bill Discounting Equipment Finance
Indirect finance Refinance of term Rediscounting of bill Support to share & bond to other distribution
1.
Period 1964-70 1970-1975 1975-1980 1980-85 1985-90 1990-95 1995-2000 2009-2010 Cumulative upto end march 2010
Sanctions 304.80 738.60 3364.30 10251.70 26555.5 52264.10 109230.90 39573.5(23178.2+1 3505.20+2889.1) 242263.4
Disbursement 278.80 559.5 2346.20 7568.50 19433.5 35772.50 69483.20 32548.8(17473.6+1 1151.0+3924.2) 167991
% of disbursements to sanctions 90.3 70.1 71.10 74.2 72.2 68.50 64.0 82.4 69.34
IDBI INSTITUTIONS
Subsidiaries institution IDBI Bank ltd. IDBI Capital Market Services (ICMS) IDBI Investment Mgt. IDBI Investment Mgt. IDBI Investment Mgt. Company (I/MCO)
3.
ICICI principal business was to provide medium & long term project financing / leasing and other type of financial & advisory services to private industry in India. With the liberalization of Indian economy in 1990s. It had become necessary for ICICI to be able top provide a wide range of financial services. In order to accomplish this, ICICI needed to enter new areas of business such as commercial banking & assets mgt & to expand its investment banking business. ICICI ltd merged with ICICI Bank ltd on March 30, 2002.
Objectives of ICICI: To assist in formation, expansion and modernization of industrial unit in private sector. To stimulate and promote the participation of private capital (both Indian & foreign) in such industrial units. To incourage expansion of investment market in India.
Management of ICICI The BOD consist of 16 members, including the chairman of 15 members, 2 are foreigners and director. If nominated by Govt. of India in term of agreement between ICICI & the government. Function of ICICI:1. 2. 3. 4. 5. 6. Project Finance. Subscription of shares. Guarantee of loans. Sponsors & underwrites share and debenture. Technical & Managerial assistance. Financial Services- Advisory, Consultancy, Debenture, Trusteeship.
Sanctions 8491.40 14527.9 15214.5 14313.8 25530.5 34220.0 43548.0 55815.2 36229.2 283510.9
Disbursement 4413.30 6879.3 7120.40 11180.9 15810.0 19225.0 25128.0 31664.5 25381.0 171698.3
% of disbursements to sanctions 51.90 47.4 46.8 78.6 64.0 53.0 57.4 56.73 70.00 60.0
Note: Following the merger of ICICI ltd. Along with its two subsidiaries with ICICI bank ltd., Effective may 3,2002,ICICI ltd.(the erstwhile DFI ceased to exist. Consequently, the statistical appendices on ICICI Ltd. do not provide operational data for the year 2009-2010.
ICICI Group:1. ICICI Bank ltd. 2. ICICI Securities & finance Company ltd. 3. ICICI Brokerage service ltd. 4. ICICI Personal financial services ltd. 5. ICICI Capital Service ltd. 6. ICICI InfoTech services ltd. 7. ICICI International ltd. 8. ICICI Realty ltd. 9. ICICI Real estate co ltd.
10. ICICI Venture fund Mgt co. ltd. 11. ICICI Properties ltd. 12. ICICI Kinfra ltd. 13. ICICI Prudential ltd. 14. ICICI Personal financial service ltd.
4.
fledged all-purpose development bank on March 27, 1997 under the companies act.
Establishment: This was established in April 1971 on the recommendation of industrial bank. Its paid up capital is of Rs. 20 crore. In August 1984, it was converted term industrial reconstruction corporation in to industrial reconstruction bank of India and On 27 march 1997; it was converted into industrial investment bank of India Ltd (IIBI). Its max capital is fixed 200 cr. And paid up capital 50 crore.
Objectives:-
It principal objective is to give financial assistance for the reconstruction of sick or closed industrial units. It offers technical & managerial facilities also.
Since independence development bank in the country have significantly contributes to the progress of industrialization. Dr. Lok Nayak states As a result of establishment of specialized financial institutes, many shortcoming of industrial finance organization of country have been removed. In absence of these institutions, rapid industrialization would never have been possible
One of important factor leading to failure of development banking has been the leading in NPAs. only. IDBI have consistently high level of NPAs IIBI, TFCI and Exim Bank are facing almost similar problem. In fact the fundamental problem of IFCIs insolvency originates from a high level of NPAs
Internal Deficiencies in project praisel Lack of supervision of credit No proper follow up action Under/ over financing
External Sickness of unit financed owing to change in macro policy environment Technology and delays in resolution in sickness Recoveries due to legal process Competition in marketing Of product
As of now, it would appears, there is no need of any immediate action on part of government or the regulator having erected a new law relating to enforcement of security interest in December 2002.
Percent Of Net Loans. 14.8 5.2 20.8 22.9 20.5 8.2 11.6
IMPACT OF LIBERALIZATION
IFCI : ANATOMY OF A DISASTER
According to D Basu expert committee, which was appointed by IFCIs governing board of examine the cause of large NPAs accumulated by institution and A) Suggest a restricting, immediately following its corporatisation and initial public offering in 1993, IFCI embarked upon a programme of rapid expansion of business. This resulted in IFCI taking relatively large exposure in several Greenfield projects which suffered from cost and time overseas. Such were often not commensurate with IFCIs net owned founds. B) In many cases, financing plans for project included raising equity team capital market. However, due to prolonged depressed conditions in capital market and South East Crises of 1997, promoters were unable to such resources as planned, resulting in loans becoming nonperforming.
C)
IFCI loan portfolio was heavily weighted toward traditional commodity such as iron and steel, textiles, cement, sugar etc. these sectors were more exposed to demand recession and price fluctuations that attracted vitality.
D)
Unlike other FIs IFCI has not diversified in to other type of business. Project finance still accounts for 94% of IFCIs business assets. As a result impact of NPAs rising from delayed completion of projects.
E)
The sharp rise in NPA level of IFCI result of falling in line with Mandatory RBI guideline for classifying NPA.
F)
In the year immediately following corporatisation, when IFCI was rapidly expending their business, it increasingly raised resources from debt markets, that was time when interest rate were relatively high. In order to cover the high cost borrowings, the institution also went in for high yielding loan assets. It proved unviable for concerned customers and relatively high level of NPAs for IFCI.
G)
Credit hated agencies started taking note of IFCIs deteriorating loan book quality they lowered credit ratings. This affected IFCIs standing in debt market, making resource-raising difficulty.
H)
Constraints in raising resources in turn led to cutback in disbursement and new business with an inevitable impact on earnings, thus completing the cycle of downward spiral.
USA :
Post depression The Glass Setagall Act (GS act) passed in 1933 in U.S.A. created a commercial banking and investment banking. The underlying reason which resulted in promulgated was the thinking that the risky business of investing in stocks is definitely not the area meant for ban rather stick to conservative commercial lending. By this act U.S. banned all the form of universal banking. In 1999 Gramm-Leach-Bliley Act (GLBA 1999) was passed. GLBA repeated that restricting affiliating with securities firms and banks in U.S. can now declare themselves as a financial holding co engaged in a broader spectrum of activities including operation in insurance and securities market.
Its Impact :
Customers stand to gain the more as it get all the services under single root The bank can leverage the branch network to cross sell different product thus saving Advantage of economies of scale and scope. transaction. transaction cost.
SALIENT OPERATIONAL AND REGULATORY ISSUES TO BE ADDRESSED BY THE FIS FOR CONVERSION INTO A UNIVERSAL BANK (RBI CIRCULAR) a) Reserve requirement
Compliance with the cash reserve ratio and statutory liquidity ratio requirements (under Section 42 of RBI Act, 1934, and Section 24 of the Banking Regulation Act, 1949, respectively) would be mandatory for an FIs after its conversation into a universal bank.
b) Permissible activities
Any activity of an FIs currently undertaken but not permissible for a bank under Section 6(1) of the B.R. Act, 1949, may have to be stopped or divested after its conversion into a universal bank.
f) Nature of subsidiaries
If any of the existing subsidiaries of an FIs is engaged in an activity not permitted under Section 6(1) of the B.R. Act, then on conversion of the F1 into a universal bank, delinking of such subsidiary/activity from the operations of the universal bank would become necessary since Section 19 of the Act permits a bank to have subsidiaries only for one or more of the activities permitted under Section 6(1) of B.R. Act.
g) Restriction on investments
An FIs with equity investment in companies in excess of 30 per cent of the paid up share capital of that company or 30 per cent of its own paid up share capital and reserves, whichever is less, on its conversion into a universal bank, would need to divest such excess holdings to secured compliance with the provisions of Section 19(2) of the B.R. Act which prohibits a bank from holding shares in a company in excess of these limits.
h) Connected lending
Section 20 of the B.R. Act prohibits grant of loans and advances by a bank on security of its own shares or grant of loans or advances on behalf of any of its directors or to any firm in which its director/manager or employee or guarantor is interested. The compliance with these provisions would be mandatory after conversion of an FIs to a universal bank.
i) Licensing
An FIs converting into a universal bank would be required to obtain a banking liance from RBI under section 22 of the B.R. Act for carrying on banking business in India, after complying with the applicable conditions.
j) Branch Network
An FIs, after its conversion into a bank, would also be required to comply with extant branch licensing policy of RBI under which the new banks are required to allot at east 25 percent of their total number of branches in semi-urban and rural areas.
k) Assets in India
An FIs after its conversion into a universal bank, will be required to ensure that at the close of business on the last Friday of every quarter, its total assets held in India are not less than 75 per cent of its total demand and time liabilities in India, as required of a bank under Section 25 of the B.R. Act.
n) Deposit insurance
An FIs on conversation into a universal bank, would also be required to comply with the requirement of compulsory deposit insurance from DICGC up to a maxium of Rs. 1 lakh per account, as applicable to the banks.
On conversation into a universal bank. the new bank would normally be eligible for fulfledged authorized dealer license and would also attract the full rigour of the Exchange Control Regulations applicable to the banks at present including prohibition on raising resources through external commercial borrowings.
q) Prudential norms
After conversation of an FIs to a bank, the extent prudential norms of RBI for the all India financial institutions would no longer be applicable but the norms as applicable to banks would be attracted and will need to be fully complied.
A bank possesses information on the risk characteristics to its clients, which it can use to pursue other activities with same client. Many financial services are interlinked activities e.g. insurance and lending. A bank can use its instruments in one activity to exploit the others. E.g. in the case of project lending to the same firm which has purchased insurance from banks. By this way big bank can reach the remotest client without having to take recourse to an agent.
Benefits to Customers :
Save a lot of transaction cost. Increase the spread of economic activity. It is a bank holding stakes in a firm. A bank equity holding in a borrower firm acts as a signal for other investor on the health of the firm since the lending bank is in a better position to monitor the firm activities. This is useful for investor point of view. The long run prospects, however, are very encouraging. At present only an 'arms-length relationship between a bank and an insurance entity has been allowed by the regulatory authority i.e. insurance regulatory and development authority. This means that commercial banks can enter investment business either by acting as agent or by joint venture with insurance companies. RBI allows bank to only marginally invest in equity (5% of their outstanding credit)
For Example:
HDFC (commercial banking and insurance joint venture with standard assurance) ICICI (commercial banking), SBI (investment banking) Corporation bank itself has been planning to set up an insurance subsidiary since a long time. Even a specialized DFI, like IIBI is now talking of turning in to a universal bank. As this can be seen as steps towards as ultimate culmination of financial intermediation in India into universal banking.
MERGERS
ICICI LTD WITH ICICI BANK :
A move towards universal banking ICICI bank ltd., which was granted approved by RBI on 31 October, 2002 for merger of ICICI ltd with it will have to lend an additional 10% to priority sector over and above the mandatory 40% of total advances applicable to other banks.
ICICI prudential life insurance. ICICI Lombard general insurance. ICICI venture found mgt. ICICI securities and finance. ICICI home finance. ICICI trusteeship service.
ICICI investment mgt. ICICI international. ICICI securities. ICICI brokerage services. ICICI securities holding.
IV)
Other issue was case of ICICI Infotech, where ICICI head a 92% stake. According to Morparia, ICICI stake in the company was lowered to 30% recently with remaining 62% being transferred to a venture fund from ICICI venture fund mgt. Company.
V)
One critical issue, however, is still being addressed :That of priority sector lending norms. While the norms specify that 40% of net bank credit will have to be aimed at the priority sector, ICICI is as short of that level. Bank ramp up lending to the housing sector, small and medium enterprises and the firm sector housing loan exposure in 2004-05 is expected to stand at about Rs. 2300 crore. Taking these three sector together the priority sector lending for the merged entity stands at only 10%.
VI) On the capital adequacy ratio the situation is well under control. In the event of merge with ICICI bank ICICI was have to set aside about 18000 crore as reserve. The combined entity was having balance sheet size of Rs.95000 crore making it the second largest bank in India. Now ICICI bank act as a universal bank and providing various services under one roof.
The most likely candidate would be 'Union Bank, Canara Bank, Punjab National Bank and Syndicate Bank amongst other. According to a senior IDBI official. To become a universal bank, IDBI need to attain a certain critical mass in term of reach and network of branches apart from an ideal deposit base of around as 5000 crore. For this we need to look at reasonably sized banks, the official said.
II)
record at handling new employees and have instead desired to opt for a voluntary retirement scheme. IFCI employees have also approached to govt. seeking a merger of financial institution with IDBI, which is to be converted in a bank shortly.
OBJECTIVE OF STUDY
OBJECTIVE OF STUDY
up. To access effectiveness of development banks in various area. To access reason of increasing NPA in these banks. To access how gradual changes in the operations of development banks. To access reason of ending of development banking. To access why universal banking a road ahead from development banking. To access effectiveness of universal banking on various area. To access new age of universal banking in India. To access various challenges before universal banking. To access the role of development bank in our economy. To access whether development banks working according to the objective for which those set
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
1.
Statement of Problem :
The researches has undertaken the study Ending of Development Banking with special references of development financial Institute of India
2.
Methodology :
The Term Research Methodology here comprises of all research activities carried on in connection with detailed of study of development banks and universal banks. The Basic purpose of research Methodology to describe research procedure. It helps the researchers to adopt the right way to move for carrying the study. This study exploratory in nature.
Research Procedure : Defining and Analyzing The problem Determining sources of information Preparing data collection format Collection of data Analysis of data Interpretation of data
Data Collection :
To make research Complete it is very necessary to have useful and automatic data Some time data can be readily available in one form on the other hand sometimes they have to be collected. The was collected through Magazines Journals Newspaper-Business, financial Experts RBI Bulletin IBA Bulletin Hypothesis in this study is that the Indian banking sectors universal banking in new millennium are very challenging.
9000 Net Profit (Rs. in Crore) 8000 7000 6000 5000 4000 3000 2000 1000 0
s s
8301
1004
775
Banks
Ba nk Pv s t. Se ct or N Ba ew nk Pv s t. Se ct or Ba nk s Ol d
Ba nk
s Ba nk
ec to rB an k
SB IG ro u
Na tio n
Pu b
lic S
Fo re ig n
lis ed
It was found that in Cumulative sanctions and disbursement Up to 2009-2010 the least sanctions and disbursement by IIBI.
From the various discussion or table in this report it found: One reason of ending of development banking is more sanctions to non-backward areas.
It was found that component wise assistance by DFIs Rupee loans 63.7% Foreign currency loans 11.5% Guarantee 5.9% Underwriting / direct Subscription 19.2%
19% 6%
11%
64%
Rupees Loan
Guarantee
It was found that development banks offer assistance to private sector to promote efficient use of resources and to help accelerate economic development.
In keeping with importance of : Private sector 85.4% Joint sector 5..4% Co-operative sector 2.2%. Public 7.0%
Public Sector Private Sector
5%
2%
7%
86%
Share of major industries in cumulative sanctions. The bank assistance may be considered for projects to establish, expand, diversify and
modernize productive facilities in various sectors, including: Infrastructure 13.5% Chemical technical product 13.1% Services 11% Textiles 10.0% Basic metal 8.3% Electronic and elec. Equipment 5.1% Machinery 4.0% Food product 3.9% Metal product 3.9% Cement 3.8%
Infrastructure
Chem.&Chem.Prod
Services
Textile
Basic metal
Elect.&Elect.equip.
Machinery
Food Prod.
Metal Prod.
Cement
It was found after downing of the universal banking the problem of NPAs still remains. If the commodity sector are the baggage of past, the growing problems in power sector loans may compound the NPA problem.
Doubtful assets 2009 2010 5356 3865 2097 @ 2963 2996 424 424
Net Loan outstanding 2009 2010 56478 47302 57506 @ 18715 17246 2733 2239
Net NPA % 2009 2010 14.8 13.4 5.2 @ 20.8 22.5 22.9 24.1
Source (Respective DFIs) @ = ICICI Ltd. merged with ICICI Bank Ltd. This move towards universal banking may not solve the NPA problem. It may mitigate the problem of competing in market that has players with a significantly lower cost of funds. IFCI is the worst hit among DFIs , over 90%f its loans are the project finance and to compound matters the disbursal of loans has declined over last three years. Mounting NPAs in the back drop of a shrinking balance sheet led to gross NPA of about 21% of IFCIs march 2010 balance sheet. High Rate of Interest: Now the development bank provide loans at very high rate of interest in comparison to Market interest rate. IDBI 11.5 12.5 12.0 ICICI 12.5 12.5 12.5 IFCI 12.5 12.5
Development banks in India have a good assets base which is extreme need for any institution but instead of these, these banks give more concentration to profit rather then development of country. Figures in crores Institution Standard 2009 IDBI 48107 ICICI 54525 IFCI 14818 IIBI 2108 Source (Respective DFIs) 2010 40947 @ 13373 1700 Sub-Standard 2009 3014 885 934 201 2010 2490 @ 877 115
@ = ICICI Ltd. merge with ICICI Bank Ltd. On one side universal banking help in reducing transaction cost but we can not say about the progress of universal banking it is still a big question?
SUGGESTION :
1)
Various step should be taken for reducing NPAs can be summerised in following charts :-
Study the problem of NPAs branch wise, amount wise, age wise
Take corrective steps wherever found necessary while monitoring the action plan and make changes in the original
2)
Reduce the requirement of SLR and CRR : RBI should reduce the SLR and CRR requirement for being universal banks.
3)
Need of remodeling the structure : For effective working of development banks; there is a need for remodeling the entire institutional structure of capital market to bring about financial speculation;
4)
Providing definite guidelines : The planning commission and the concerned ministries of govt. should provide clear out guidelines, which may be serve as the basis of their assistance to type of industries, area of operation, purpose of assistance, the distribution of assistance as between different regions of the country etc.
5)
Introduction of new deposit scheme : Development banks may attract the savings of the people by evolving new deposit scheme, which suits to basic motives to save. They may introduce deposit scheme, such as deposits linked to lending, deposit linked to old age provision, deposit linked to maintenance.
6)
Others Suggestions : i) ii) iii) Only competent person should be approved as the chief executive of development banks. They should be selected on the recommendation of a parcel of eminent persons. A co-ordination of functions and working of FIs was, therefore considered necessary so that they might play a more useful role in the industrial development of the country. Efficiency can be two kinds : Technical, Economic The former arises when a firm minimize its inputs, given outputs, while in letter case, banking firm maximize its outputs, given inputs. Technical efficiency Input saving. Economic efficiency Output augmented efficiency. Where efficiency is estimated it in term of economic efficiency. So that economic efficiency of development bank should be increased.
LIMITATIONS OF STUDY
LIMITATIONS OF STUDY
Due diligence has been taken in this desertion report there are some limitations which are : In some cases, needed data could not found. Study is limited to development bank, other foreign bank, public sector bank are not covered. Lack of experience Lack of time for through study. Result are indicated not conclusive. Internal matter are not discussed only performance is analyzed
CONCLUSION
CONCLUSION
The present study drives us to draw the following conclusion : With the adoption of planning for economic development, the building up to an appropriate structure of development finance institution has been of crucial importance and development banking business is after all people business and this is competitive environment, which development bank has in future. Creating such environment would be biggest challenge of the millennium. So a need has arisen for a more effective co-ordination of activities of the different institutions and for industrial sector. At present industrial development bank of India is acting as the apex institution for coordinating their diverse financing and promotional activities, but due to structural infirmities, unsustainability high level of NPA and lack of visionary approach leads towards ending of development banking and dawning of universal banking. ICICI ltd has merged with ICICI bank ltd and has now become universal bank. IDBI, IFCI is also on the way. Therefore strategies, policies and industrial promotional efforts of these institutions subserve the larger national objective of rapid industrial growth, balanced regional development, self reliance, employment generation and equitable distribution of income and means of production.
BIBLIOGRAPHY
BIBLIOGRAPHY
BOOKS :
Varshney RN Indian financial system Development banking page no 267 to 290 Srivastva Introduction of Development banking policies and practices of Indian financial institution p.g 68 to 90 Mathur KBL Development financial institutions at the cross roads Bhole L.M Financial institutions and markets tata McGraw hill third edition Sundaram I satya industrial development Himalaya publishing house first edition desai vasant the Indian financial system
SITES :
www. Google.com www. ICICI.com www. IDBI.com www. IFCI.com www.association,org http://www.rbi.org.in http://www.moneycontrol.com
ANNEXURE
ANNEXURES
KHAN COMMITTEES RECOMMENDATIONS INDIA-BLURRING OF LINES Khan panel on harmonizing the role and operations of development financial institutions(DFI) has set the agenda for Universal banking: Khan panel suggested the establishment of a super regulator to supervise and coordinate the multiple regulator in the financial system. The panel called for revamp of the 1993 act on recovery of debts, legal reforms, a reduction in the ratio(CRR) to international level and abduction of statutory liquidity ratio and the statutory advance to certain sector. It has called for modifications in definition of priority sector by infrastructure loan term the net bank credit for the priority sector. It has suggested the creation of mechanism to finance the priority sector. Till the time the DFI are given full banking licenses, there should be permitted to have wholly owned subsidiaries. Recommending the development of risk based supervisory framework, in tune with international panel said banks and institutions should be supervised on a consolidated bases.
RECOMMENDATION OF NARASIMHAM COMMITTEE ON DEVELOPMENT BANKS The major recommendation of narashutiam committee on development banks can be summarized as follows:1. 2. 3. 4. 5. 6. 7. 8. 9. The ownership pattern of development banks should be board based. The development bank should be allowed more autonomy in their working. Only competent professional persons should be appointed as the chief executive of development banks. Representative of industrial sector should be included in boards of development bank. State level financial institutions should be made autonomous. The development bank should borrow term capital market at market related rates. They should also mobilize the saving of household sectors. Development banks should supervise their own loan implementation. IDBI should undertake only its apex refinancing role. Its direct lending should be transferred to s separate institution. In case of corporate take over, development banks should generally lend support to existing mgt with proven record beneficial to all concerned.
9000 Net Profit (Rs. in Crore) 8000 7000 6000 5000 4000 3000 2000 1000 0
s
8301
1004
775
300000 250000 200000 150000 100000 50000 0 IDBI IFCI ICICI IIBI
Sanction Disbursement
Ba Pu nk bl s ic Se ct or Ba nk s Fo re ig n Ba Ol nk d Pv s t. Se ct or N Ba ew nk Pv s t. Se ct or Ba nk s
SB IG ro up
Ba nk Na tio n
lis ed
Banks
19% 6%
11%
64%
Rupees Loan
Guarantee
Private Sector
Public Sector
Coop. Sector
Joint Sector
Cement
86%
7%
2%
Services
5%
Chem.&Chem.Prod Infrastructure