Banking

The burst of the United States housing market bubble initiated the worldwide financial crisis. Amongst all housing regulations, the community reinvestment act (CRA) may be the most significant. The act passed in 1977 to improve low-income households’ housing opportunities. As such, the act raised the incentives for banks to provide mortgages to low-income households (FFIEC, n. d.). Over time, several political administrations, like the George H.

W. Bush-, Clinton- and George W. Bush-administration, changed the original act, adapting to new challenges in the housing market (Braunstein, 2008). However, as time passed, the act became less important for banks, as the products, mortgages, became more profitable. As a result, more and more financial institutions started offering mortgages to low-income classes. These so called subprime mortgages are often associated with high risks (Aalbers, 2009). This point of view can be concluded with the hypothesis that the CRA will be seen as a cause of the financial crisis.

Firstly, the different opinions and their respective arguments with regard to the hypothesis are illustrated. Secondly, an explanation is given on how these examples fit in the empirical cycle. Thirdly, three other concepts of Babbie, Gravetter and Forzano are applied to the examples. Finally, a conclusion is drawn with respect to the examples. Real-life examples As a result of the CRA, banks were rated, based on the number of loans given out to low-income households. A bad rating could have had severe consequences for a bank.

The fact that the FED did not allow a Hartford, Connecticut bank to acquire a New Hampshire bank on CRA grounds demonstrates this. In order to keep their CRA ratings high, banks had to provide low-income classes with loans. In essence it can be said that the CRA ratings raised the banks’ incentives to provide low-income households with loans (Carney, 2009a). It can clearly be seen that the enforcement of the CRA over time led to a relaxation of lending standards and consequentially to more risk-taking in the banking sector in the form of mortgages. These high-risk mortgages are now seen as part of the problem.

Thus, Carney (2009b) concludes, the CRA is part of the cause of the financial crisis. Carney agrees with the hypothesis. Defendants of the CRA simply claim that an act passed in 1977 cannot lead to the creation of a housing bubble in the early 21st century. Nevertheless, the CRA was not a static piece of legislation. The act evolved over the years, as it was mentioned earlier in the introduction. To be more specific, it was more and more enforced over the years. As a conclusion it can be said that the enforcement of the CRA might have been crucial in creating the housing bubble.

Therefore the act could have created a housing bubble in the early 21st century (Carney, 2009a). However, Aalbers (2009) also argues in favor of the CRA and tries to falsify the hypothesis. He states that the majority of subprime loans in 2006 were provided by non-bank lenders. These non-bank lenders, however, were not subject to CRA regulations and thus were not obliged to provide affordable loans to low-income classes. The only logical conclusion that can be drawn from this information is that these loans to low-income classes were an attractive investment.

Thus, Aalbers says, the CRA was not the cause of the high-risk mortgages providence to low-income households by banks. By clearly, Aalbers would reject the hypothesis that the CRA was a cause of the financial bubble. Nonetheless, his argumentation has to be questioned. In 1977 most of the loans and mortgages were provided by banks as well as savings and loan associations. The extra mortgages that were provided as a result of the CRA probably increased the demand for houses, which in turn resulted in an inflation of housing prices.

Several years later, due to rising housing prices, subprime mortgages became a more attractive investment for financial institutions. Consequently, the majority of loans issued since the inception of the CRA came from nonbanks that deemed mortgages a good investment. In other words, the CRA created major lending opportunities for financial institutions (Kroszner, 2009). Since the CRA initiated the inflation of housing prices to some extent, it can be argued that the CRA can be hold partly responsible for the creation of the housing bubble. This theory should verify the hypothesis. This argumentation has to be investigated further.

As Foote et al. ’s (2008) research concludes, housing price data in Massachusetts reveals that around 70% of all homes lost to foreclosure were actually purchased with prime mortgages. From that information Aalbers (2009) derives that most loans were not used for directly financing new homes, but rather refinancing existing loans. Hence, Aalbers insinuates that the extra mortgage lending as a result of the CRA did not cause a rise in housing prices. That information implies that the CRA was not a cause of the creation or inflation of the United States housing bubble. Clearly, this would reject the hypothesis.

Nonetheless, Aalbers’ argumentation contains two pitfalls. First, his argumentation solely rests on inductive reasoning. Massachusetts is just one small part of the United States of America. Without any supportive data to back up the thesis that the Massachusetts housing market is representative of the whole nation’s housing market, it has to be concluded that Aalbers overgeneralizes the statistical data provided by Foote et al. As Babbie (2005) mentions, overgeneralization can lead to misdirection or rendering of inquiry. Due to this fact Aalbers’ argumentation is questionable. Second, even if the study of Foote et al. 2008) were representative, Aalbers failed to acknowledge the other side of the medal: The supply side, as it is not in favor of his opinion. If the CRA-related loans were used to refinance homes only, it would strongly affect the supply side of the housing market in the way that supply was artificially lowered. Homes were occupied that otherwise would not have been, driving up the prices of real estate. Aalbers falls victim to the fallacy of selective observation. He only looks at the effects of the CRA on the demand-side. Looking at the supply-side would not support his theory and point of view on the topic.

That makes this observation a selective one. Empirical cycle This debate fits in the empirical cycle in the way that it started with an observation: The burst of the housing bubble. Consequentially different hypotheses and theories where formulated and tested by reasoning and correlation. As markets nowadays are very complex phenomena, it is difficult to establish a causal relationship between several factors of this system. In spite of that it is possible to use logical reasoning and correlation between these factors to hint at the correctness of a thesis. For example, it can be investigated how many subprime loans were CRA-related.

A different question that can be posed is how these CRA-related subprime loans performed against other loans (Kroszner, 2009). The answers to these questions could give an idea of the causal relation between the CRA and the financial crisis. After testing the hypothesis, a new hypothesis and theory might be formulated until a conclusive theory is found. Nevertheless, Kroszner himself admitted the existence of a lack of data to get conclusive answers to the previously mentioned questions. For the empirical cycle, this lack of data means it is very hard to reject or not reject theses, obstructing the formulation of new theses and theories.

Other concepts of Babbie, Gravetter and Forzano applied The empirical cycle is not the only concept of Babbie (2005), Gravetter and Forzano (2009) which can be applied to the examples. Another concept that can be applied apart from the empirical cycle is the concept of authority. Carney (2009), who was mentioned earlier in this paper, started out as a strong defendant of the CRA. He did change his mind though, relying on, among others, the FED Governor Meyer. Since Carney used a quotation of Meyer, it can be concluded that Meyer is a person with authority and strong references in the field of economics.

Babbie, Gravetter and Forzano define authority as a person with strong references in certain fields. Authority is used as a source for knowledge and can be referred to. Gravetter and Forzano (2009, p. 11) define rationalism as the search for “answers by the use of logical reasoning”. This is exactly what Carney (2009b) does to come to the conclusion that the CRA was a cause of the financial crisis. He reasons that the CRA raised the banks’ incentives to provide low-income households with mortgages. These financial products are now seen as a cause of the housing bubble, which caused the financial crisis.

Therefore, Carney concludes, the CRA is a cause of the financial crisis. Theory is described by Babbie (2005, p. 12) “as a systematic explanation for the observations that relates to a particular aspect of life”. This implies that the argumentations used by Carney (2009a, b), Aalbers (2009) and Kroszner (2009) are parts of different theories as they explain how the CRA caused or did not cause a housing bubble. Conclusion As shown in this paper, there is a huge debate about whether the CRA was a cause of the financial crisis. As Carney (2009b) pointed out, the CRA raised the banks’ incentives to issue risky loans.

Critics, however, state that an act passed in 1977 cannot create a housing bubble in the early 21st century. Nevertheless, the act was enforced several times, which implies that an enforcement of the CRA might have a causal relation with the financial crisis. Aalbers (2009) argues also in favor of the CRA: he points out that most subprime mortgages were provided by non-CRA-related institutions. Despite that fact, Kroszner (2009) says there is no reason to believe CRA is not to be blamed. He mentions that the inception of the act increased the demand for mortgages and consequentially, houses.

According to Kroszner, this was the start of the housing bubbles. Aalbers on his turn argues that the vast majority of houses bought in Massachusetts was financed with prime mortgages. He concludes that this provides evidence in order for the CRA not be labeled a cause of the crisis. Nonetheless, Aalbers argumentation contains two fallacies. First, he uses inductive reasoning which results in overgeneralization without supportive data. Second, he uses selective observation by ignoring the supply-side of the market. This whole debate fits in the empirical cycle in a way that it started with an observation which was followed by many theses.

After the formulation of these theses they were tested by logical reasoning and correlation. As a final step, new theses theories will be formulated. However, this step is obstructed heavily by a lack of data. Other concepts of Babbie (2005), Gravetter and Forzano (2009) can also be applied to the examples. Meyer has authority in Carney’s argumentation, logical reasoning is used by Carney to come to the conclusion that the CRA was a cause of the crisis and the argumentations used by Carney, Aalbers and Kroszner are all parts of theories, described by Babbie, Gravetter and Forzano.

References

1. Aalbers, M. (2009). Why the Community Reinvestment Act cannot be blamed for the subprime crisis. City & Community, 8 (3): 346-350. Babbie, E. (2005). The Basics of Social Research (3rd ed. ). Belmont: Thomson Wads worth. Braunstein, S. (2008). The Community Reinvestment Act, 13 February 2008. Retrieved 20 January 2010 from: http://www. federalreserve. gov/newsevents/testimony/braunstein20080213a. htm
2. Carney, J. (2009a). Here’s how the Community Reinvestment Act led to the housing bubble’s lax lending, June 27, 2009. Retrieved 15 January, 2010 from ttp://www. businessinsider. com/the-cra-debate-a-users-guide-2009-6
3. Carney, J. (2009b). Sorry, folks, the CRA really did require crap lending standards, June 23, 2009. Retrieved 15 January, 2010 from http://www. businessinsider. com/sorry-folks-the-cra-really-did-require-crap-lending-standards-2009-6 FFIEC, (n. d. ). Community Reinvestment Act. Retrieved 20 January 2010 from: http://www. ffiec. gov/CRA/
4. Foote, C. , Gerardi, K. , Goette, L. & Willen, P. , (2008). Journal of Housing Economics, 17: 291-305. Retrieved 19 January 2010 from: http://www. sciencedirect. om/science? _ob=MImg&_imagekey=B6WJR-4TN0KW9-1-N&_cdi=6885&_user=499911&_orig=search&_coverDate=12%2F31%2F2008&_sk=999829995&view=c&wchp=dGLbVtb-zSkzk&md5=f93e4616adcb03662bac8ef89298dcdc&ie=/sdarticle. pdf Gravetter, F. &
5. Forzano, L. (2009). Research Methods for the Behavioral Sciences (3rd ed. ). Belmont: Wadsworth Cengage Learning. Kroszner, R. (2009). The Community Reinvestment Act and the recent mortgage crisis. Retrieved 15 January, 2010 from http://www. frbsf. org/publications/community/cra/cra_recent_mortgage_crisis. pdf

Halifax Bank of Scotland plc (HBOS) was formed on the 10th of September 2001 as a result of the merger of Halifax Bank and the Bank of Scotland. The Bank of Scotland had a reputation for possessing specialist skills in business banking and was seen as a company with the credentials to compliment the Halifax who had a traditional role dominating the mortgage market The merger placed HBOS in the strong position as the 5th largest bank in Britain. HBOS is the UK’s leading mortgage and savings provider and has assets of more than  320 billion, 20 million customers and 60,000 associates. The amalgamation forced the company to redefine its structure, organisational goals and objectives. The purpose of this paper is to provide an extensive overview of HBOS plc, focussing on its formal structure, organisational goals and objectives set by the management. An analysis of the extent to which these were achieved in the 2002 financial year is also discussed.

The report examines the scope of the bank’s activities, the services it provides and the companies that form the HBOS group. Also, with reference to the HBOS financial report for 2002 and the resources available on the corporate website, the goals and objectives of the organisation are examined. Financial ratio analysis, applied to the 2002 financial accounts, and specific statistics gathered to provide the base of discussion from which the degree to which the company achieved its outlined goals and objectives in 2002.

Organisational Formal Structure When becoming familiar with an organisation, one of the most important aspects in describing a company is to outline its structure . The Halifax Bank of Scotland is no different from any other organisation in that it has a carefully designed corporate structure. Most published papers define the organisational formal structure as the way in which the work of a company is divided amongst the participants in the organisation.

Mullins (2002, p530) states that the formal structure is the method by which management controls, monitors and coordinates the operations of an organisation to ensure that the goals and objectives are met in an efficient and effective manner. This definition is reiterated in, defining the structure as “the established pattern of relationships between the component parts of an organisation, outlining both communication, control and authority patterns.

Structure distinguishes the parts of an organisation and delineates the relationship between them! “. HBOS Formal Structure and Services HBOS is a large organisation which delivers its services through 5 divisions, incorporating 29 subsidiary companies which form the HBOS plc group. The HBOS group decided that the most effective and efficient way to format and present its services was to divide the labour under the departmental titles of Insurance and Investments, Retail Banking, The Treasury, Business Banking and corporate Banking.

• Public sector Banks
• Private sector Banks
• Foreign Banks in India Regional Rural Bank
• Nationalized Bank
• Other Public Sector Banks (IDBI)
• SBI and its Associates
• Old Private Banks
• New Private Banks
• Scheduled Cooperative Banks
• Scheduled Urban Cooperative Banks
• Scheduled State Cooperative Banks

Here we more concerned about private sector banks and competition among them. Today, there are 27 private sector banks in the banking sector: 19 old private sector banks and 8 new private sector banks. These new banks have brought in state-of-the-art technology and Aggressively marketed their products.

The Public sector banks are Facing a stiff competition from the new private sector banks. The banks which have been setup in the 1990s under the guidelines of the Narasimham Committee are referred to as new Private sector Banks. The Indian banking market is growing at an astonishing rate, with Assets expected to reach US$1 trillion by 2010. An expanding economy, middle class, and technological innovations are all ontributing to this growth. The country’s middle class accounts for over 320 million people. In correlation with the growth of the economy, rising income levels, increased standard of living, and affordability of banking products are promising factors for continued expansion. 9 The Indian banking Industry is in the middle of an IT revolution, Focusing on the expansion of retail and rural banking. Players are becoming increasingly customer – centric in their approach, which has resulted in innovative methods of offering new banking products and services. Banks are now realizing the mportance of being a big player and are beginning to focus their attention on mergers and acquisitions to take advantage of economies of scale and/or comply with Basel II regulation. “Indian banking industry assets are expected to reach US$1 trillion by 2010 and are poised to receive a greater infusion of foreign capital,” says Prathima Rajan, analyst in Celent’s banking group and author of the report. “The banking industry should focus on having a small number of large players that can compete globally rather than having a large number of fragmented players.

UPCOMING FOREIGN BANKS IN INDIA

By 2009 few more names is going to be added in the list of foreign banks in India. This is as an aftermath of the sudden interest shown 10 by Reserve Bank of India paving roadmap for foreign banks in India greater freedom in India. Among them is the world’s best private bank by EuroMoney magazine, Switzerland’s UBS. The following are the list of foreign banks going to set up business in India :

1. Royal Bank of Scotland
2. Switzerland’s UBS
3. US-based GE Capital
4. Credit Suisse Group
5. Industrial and Commercial Bank of China

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an ‘in principle’ approval from the 11 Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI’s liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of ‘HDFC Bank Limited’, with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC is India’s premier housing finance company and enjoys an impeccable track record in India as well as in international markets.

Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian nvironment. HDFC Bank began operations in 1995 with a simple mission : to be a 12 “ World Class Indian Bank. ” We realized that only a single minded focus on product quality and service excellence would help us get there. Today, we are proud to say that we are well on our way towards that goal. As of March 31, 2008, the Bank’s distribution network was at 761 Branches and 1977 ATMs in 327 cities as against 684 branches March 2006 March 2007 March 2008 Citied 228 316 327 Branches 535 684 761 ATMs 1323 1605 1977 14 nd 1,605 ATMs in 320 cities as of March 31, 2007. Against the regulatory approvals for new branches in hand, the Bank expects to further expand the branch network by around 150 branches by June 30, 2008. During the year, the Bank stepped up retail customer acquisition with deposit accounts increasing from 6. 2 million to 8. 7 million and total cards issued (debit and credit cards) increasing from 7 million to 9. 2 million. Whilst credit growth in the banking system slowed down to about 22% for the year ended 2007-08, the Bank’s net advances grew by 35. 1% with retail advances growing by 38. % and wholesale advances growing by 30%, implying a higher market share in both segments. The transactional banking business also registered healthy growth With cash management volumes increased by around 80% and trade services volumes by around 40% over the previous year. Portfolio quality as of March 31, 2008 remained healthy with gross nonperforming assets at 1. 3% and net non-performing assets at 15 0. 4% of total customer assets. The Bank’s provisioning policies for specific loan loss provisions remained higher than regulatory requirements.

In the era of globalization each and every sector faced the stiff competition from their rivals. And world also converted into the flat from the globe. After the policy of liberalization and RBI initiatives to take the step for the private sector banks, more and more changes 16 are taking the part into it. And there are create competition between the private sector banks and public sector bank. Private sector banks are today used the latest technology for the different transaction of day to day banking life. As we know that Information Technology plays the vital role in the each and every ndustries and gives the optimum return from the limited resources. Banks are service industries and today IT gives the innovative Technology application to Banking industries. HDFC BANK is the leader in the industries and today IT and HDFC BANK together combined they reached the sky. New technology changed the mind of the customers and changed the queue concept from the history banking transaction. Today there are different channels are available for the banking transactions. We can see that the how technology gives the best results in the below diagram. There are drastically changes seen in the use of

Internet banking, in a year 2001 (2%) and in the year 2008 ( 25%). These type of technology gives the freedom to retail customers. 17 Centralized Processing Units Derived Economies of Scale Electronic Straight Through Processing Reduced Transaction Cost Data Warehousing , CRM Improve cost efficiency, Cross sell Innovative Technology Application Provide new or superior products HDFC BANK is the very consistent player in the New private sector banks. New private sector banks to withstand the competition from public sector banks came up with innovative products and superior service.

Business Stretegy HDFC Bank mission is to be “a World Class Indian Bank”, benchmarking themselves against international standards and best ractices in terms of product offerings, technology, service levels, risk management and audit & compliance. The objective is to build sound customer franchises across distinct businesses so as to be a preferred provider of banking services for target retail and wholesale customer segments, and to achieve a healthy growth in profitability, consistent with the Bank’s risk appetite. Bank is committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance. Continue to develop new product and technology is the main business strategy f the bank. Maintain good relation with the customers is the main and prime objective of the bank. HDFC bank business strategy emphasizes the following :

• Increase market share in India’s expanding banking and financial services industry by following a disciplined growth strategy focusing on quality and not on quantity and delivering high quality customer service.
• Leverage our technology platform and open scaleable systems to deliver more products to more customers and to control operating costs.
• Maintain current high standards for asset quality through disciplined credit risk management. Develop innovative products and services that attract the targeted customers and address inefficiencies in the Indian financial sector.
• Continue to develop products and services that reduce bank’s cost of funds.
• Focus on high earnings growth with low volatility.

Focus on effective work place organization Believe in “ Small changes lead to large improvement ” Every successful organization have their own strategy to win the race in the competitive market. They use some technique and methodology for smooth running of business.

HDFC Bank also aquired the Japanese technique for smooth running of work and effective work place organization. Five ‘S’ Part of Kaizen is the technique which is used in the bank For easy and systematic work place and eliminating unnecessary things from the work place.

Benefit of Five “S”

1. It can be started immediately.
2. Every one has to participate.
3. Five “ S” is an entirely people driven initiatives.
4. Brings in concept of ownership.
5. All wastage are made visible.

FIVE ‘S’ Means :

1. Sort Seiri
2. Systematize Seiton
3. Spic-N-Span Seiro
4. Standardize Seiketsu
5. Sustain Shitsuke

(1) Sort:

It focus on eliminating unnecessary items from the work place. It is excellent way to free up valuable floor space. It segregate items as per “require and wanted”.

(2) Systematize: Systematize is focus on efficient and effective Storage method. Frequently Requir ed Less Frequently Requir ed Remove everything from workplace Junk Wanted but not Required Junk 28 That means it identify, organize and arrange retrieval. It largely focus on good labeling and identification practices. Objective :- “A place for everything and everything in its place”.

(3) Spic- n – Span: Spic-n-Span focuses on regular clearing and self nspection. It brings in the sense of ownership.

(4) Standardize: It focus on simplification and standardization. It involve standard rules and policies. It establish checklist to facilitates autonomous maintenance of workplace. It assign responsibility for doing various jobs and decide on Five S frequency.

(5) Sustain: It focuses on defining a new status and standard of organized work place. Sustain means regular training to maintain standards developed under S-4. It brings in self- discipline and commitment towards workplace organization.

Human Resourses

The Bank’s staffing needs continued to increase during the year particularly in the retail banking businesses in line with the business growth. Total number of employees increased from 14878 as of March31,2006 to 21477 as of March 31, 2007. The Bank continues to focus on training its employees on a continuing basis, both on the job and through training programs conducted by internal and external faculty. The Bank has consistently believed that broader employee ownership of its shares has a positive impact on its performance and employee motivation. The Bank’s employee stock option scheme so far covers round 9000 employees.

It is more important for every organization to know about from where and where to spent money. And balanced between these two things rupee earned and rupee spent are required for smooth running of business and financial soundness. This type of watch can control and eliminate the unnecessary spending of business. In this diagram it include both things from where Bank earned Rupee and where to spent. HDFC BANK earned from the ‘Interest from Advances’ 51. 14 % , ‘Interest from Investment’ 27. 12 %, bank earned commission exchange and brokerage of 15. 25 %.

These are the major earning sources of the bank. Bank also earned from the Forex and Derivatives and some other Interest Income. Bank spent 39. 75 % on Interest Expense, 30. 27 % on Operating Expense and 14. 58 % on Provision. Bank also spent Dividend and Tax on dividend, Loss on Investment , Tax. As we discuss above that balancing is must between these two for every organization especially in the era of globalization where there are stiff competition among various market players.

Recent Development

The Reserve Bank of India has approved the scheme of amalgamation of Centurion Bank of Punjab Ltd. ith HDFC Bank Ltd. with effect from May 23, 2008. All the branches of Centurion Bank of Punjab will function as branches of HDFC Bank with effect from May 23, 2008. With RBI’s approval, all requisite statutory and regulatory approvals for the merger have been obtained. 35 The combined entity would have a nationwide network of 1167 branches; a strong deposit base of around Rs. 1,22,000 crores and net advances of around Rs. 89,000 crores. The balance sheet size of the combined entity would be over Rs. 1,63,000 crores. Merger with Centurion Bank of Punjab Limited

On March 27, 2008, the shareholders of the Bank accorded their consent to a scheme of amalgamation of Centurion Bank of Punjab Limited with HDFC Bank Limited. The shareholders of the Bank approved the issuance of one equity share of Rs. 10/- each of HDFC Bank Limited for every 29 equity shares of Re. 1/- each held in Centurion Bank of Punjab Limited. This is subject to receipt of Approvals from the Reserve Bank of India, stock exchanges and Other requisite statutory and regulatory authorities. The shareholders Also accorded their consent to issue equity shares and/or warrants onvertible into equity shares at the rate of Rs. 1,530. 13 each to HDFC Limited and/or other promoter group companies on preferential basis, subject to final regulatory approvals in this regard. The Shareholders of the Bank have also approved an increase in the authorized capital from Rs. 450 crores to Rs. 550 crores. 36 Promoted in 1995 by Housing Development Finance Corporation (HDFC), India’s leading housing finance company, HDFC Bank is one of India’s premier banks providing a wide range of financial products and services to its over 11 million customers across hundreds of Indian cities using multiple distribution channels including a pan-India network of branches, ATMs, phone banking, net banking and mobile banking. Within a relatively short p of time, the bank has emerged as a leading player in retail banking, wholesale banking, and treasury operations, its three principal business segments. The bank’s competitive strength clearly lies in the use of technology and the ability to deliver world-class service with rapid response time. Over the last 13 years, the bank has successfully gained market share in its target customer franchises while maintaining healthy rofitability and asset quality. 37 As on March 31, 2008, the Bank had a network of 761 branches and 1,977 ATMs in 327 cities. For the year ended March 31, 2008, the Bank reported a net profit of INR 15. 90 billion (Rs. 1590. 2crore), up 39. 3%, over the corresponding year ended March 31, 2007. As of March 31, 2008 total deposits were INR 1007. 69 billion, (Rs. 100,769 crore) up 47. 5% over the corresponding year ended March 31, 2007. Total balance sheet size too grew by 46. 0% to INR 1,331. 77 billion (133177 crore).

Leading Indian and international publications have recognized the bank for its performance and quality. Centurion Bank of Punjab is one of the leading new generation private sector banks in India. The bank serves individual consumers, small and medium businesses and large corporations with a full range of financial products and services for investing, lending and 38 advice on financial planning. The bank offers its customers an array of wealth management products such as mutual funds, life and general insurance and has established a leadership ‘position’. The bank is also a strong player in foreign exchange services, ersonal loans, mortgages and agricultural loans. Additionally the bank offers a full suite of NRI banking products to Overseas Indians. On 29th August 2007, Centurion Bank of Punjab merged with Lord Krishna Bank (LKB), post obtaining all requisite statutory and regulatory approvals. This merger has further strengthened the geographical reach of the Bank in major towns and cities across the country, especially in the State of Kerala, in addition to its existing dominance in the northern part of the country. Centurion Bank of Punjab now operates on a strong nationwide ranchise of 404 branches and 452 ATMs in 190 locations across the country, supported by employee base of over 7,500 employees. In addition to being listed on the major Indian stock exchanges, the Bank’s shares are also listed on the Luxembourg Stock Exchange.

Achievement in 2007 Business Today- Monitor Group survey One of India’s “Most Innovative Companies” Financial Express- Ernst & Young Award Best Bank Award in the Private Sector category 40 Global HR Excellence Awards – Asia Pacific HRM Congress: ‘Employer Brand of the Year 2007 -2008’

Award – First Runner up, & many more Business Today ‘Best Bank’ Award Dun & Bradstreet – American Express Corporate Best Bank Award 2007 ‘Corporate Best Bank’ Award The Bombay Stock Exchange and Nasscom Foundation’s Business for Social Responsibility Awards 2007 ‘ Best Corporate Social Responsibility Practice’ Award Outlook Money & NDTV Profit Best Bank Award in the Private sector category. The Asian Banker Excellence in Retail Financial Services Awards Best Retail Bank in India Asian Banker HDFC BANK Managing Director Aditya Puri wins the Leadership Achievement Award for India 41 SWOT ANALYSIS

Strength

• Right strategy for the right products.
• Superior customer service vs. competitors.

Weaknesses

• Some gaps in range for certain sectors.
• Customer service staff need training.
• Great Brand Image
• Products have required accreditations.
• High degree of customer satisfaction.
• Good place to work
• Lower response time with efficient and effective service.
• Dedicated workforce aiming at making a long-term career in the field.
• Processes and systems, etc
• Management cover insufficient.
• Sectoral growth is constrained by low unemployment levels and competition for staff 3 Opportunities •Profit margins will be good. •Could extend to overseas broadly.
• New specialist applications.
• Could seek better customer deals.
• Fast-track career development opportunities on an industry-wide basis.
• An applied research centre to create opportunities for developing techniques to provide added-value services.

Threats

• Legislation could impact.
• Great risk involved
• Very high competition prevailing in the industry
• Vulnerable to reactive attack by major competitors
• Lack of infrastructure in rural areas could constrain investment.
• High volume/low cost market is intensely ompetitive.

Competitive Swot Analysis With Icici Bank Strengths Weaknesses

• Strategies Strength: Large Capital base.
• Opportunity: Market Expansion.
• Strategy: Deep Penetration into Rural Market.

W – O Strategies

• Weakness: Workforce Responsiveness.
• Opportunity: Outsourcing of Non – Core Business.
• Strategy: Outsource Customer Care & other E-Helps.

1. Threat: Entry of many Foreign Banks.
2. Strategy: Consider additional benefits
3. Detailed Analysis:  Strength – Opportunity Analysis.
4. Strength: It is well know that ICICI Bank has the largest Authorised Capital Base in the Banking System in India i. e. having a total capacity to raise Rs. 19,000,000,000 (Non – Premium Value).
5. Opportunity: Seeing the present financial & economic development of Indian Economy and also the tremendous growth of the Indian Companies including the acquisition spree followed by them, it clearly states the expanding market for finance requirements nd also the growth in surplus disposal income of Indian citizens has given a huge rise in savings deposits – from the above point it is clear that there is a huge market expansion possible in banking sector in India.
6. Strategy: From the analysis of Strength & Opportunity the simple and 46 straight possible strategy for ICICI Bank could be – to penetrate into the rural sector of India for expanding its market share as well as leading all other Pvt. Banks from a great gap.
7. Strength – Threat Analysis. Strength: ICICI Bank is not only known for large capital but also for having a ow operations cost though having huge number of branches and services provided.
8. Threat: After showing a significant growth overall, India is able to attract many international financial & banking institutes, which are known for their state of art working and keeping low operation costs.
9. Strategy: To ensure that ICICI Bank keeps going on with low operation cost & have continuous business it should simply promote itself well & provide quality service so as to ensure customer loyalty, therefore guaranteeing continuous business.
10. Weakness – Opportunity Analysis.
11. Weakness: It is well known that workforce responsiveness in banking sector is Very low in Indian banking sector, though ICICI Bank has better responsible staff but it still lacks behind its counterparts like HSBC, HDFC BANK, CITI BANK, YES BANK etc.
12. Opportunity: In the present world, India is preferred one of the best places for out – sourcing of business process works and many more.
13. Strategy: As international companies are reaping huge benefits after out- sourcing there customer care & BPO’s, this same strategy should be implemented by ICICI Bank so as to have proper customer ervice without hindering customer expectations.
14. Weakness – Threat Analysis.
15. Weakness: Though having a international presence, ICICI Bank has not been able to keep up the international standards in providing customer service as well as banking works.
16. Threat: In recent times, India has witnessed entry of many international banks like CITI Bank, YES Bank etc which posses an external entrant threat to ICICI Bank – as this Banks are known for their art of working and maintain high standards of customer service.
17. Strategy: After having new entrants threat, ICICI Bank should come up with

Of this project are two parties one is Wholesaler and second is Retailer. Due to this idea bank also sell their swipe machine to wholesaler and create brand image in the market. The idea behind this, bank give the credit card swipe machine to wholesalers and retailers use the credit card of the bank. Bank gives the 50 days credit to their credit card holders. So here retailers can get benefit of long credit period and on the other side wholesalers can get the benefit of same day payment. As a result bank got the wide list of customers of wholesalers and retailers.

Performance budgeting exercise as a tool for deposit manipulation

Performance budgeting can be defined as budgeting for the performance of an individual or an organization. In the context of an organization what is required is to set some broad objectives for the organization at the top management level and motivate the employees in such a manner that they also feel like setting some individual goals, which are nevertheless complementary to the goals for the organization. Performance budgeting exercise is elucidated in the below steps:

1. Defining the Commanding Area

The concept of command areas is a highly dynamic one, having relevance only to a particular budget year. This means that the command areas of branch need not be the same for all years on the other hand, it should be changed as and when the branch has tapped the full potential of the area. Again there is another wrong concept about the command areas that it should be geographically contiguous areas around the branch. Actually the command areas of a branch should be the possible main areas, which the ranch can effectively serve during the particular years, as felt by the branch manager and the staff. Thus branch can have as its command area, a whole village, as war, as street of a town, a big building housing several offices, etc. Of course this does not mean business from other areas is not welcome but only that our main thrust will in this area.

2. Environmental Scanning and Market Segmentation

Environmental scanning really means scanning the branch environment, both inside and outside. Often we tend to ignore the internal factors as we understand it today, this involves identification of the market and its attention, the evaluation and selection of this market after it is segmented. But let us try to look at it from a different angel.

A. The Internal Factors

There are three important factors to be considered under this head they are:

• Employees of the branch – human resources
• Non human resource – infrastructure
• Top management – the controlling offices

It is a fact the branch management can realize its goals only through the active co-operation of the staff working in the branch and the administrative offices. There a fair knowledge of the nature of staffs their aspirations and robbers will help branch manager to take them along with his as team to achieve the goals. Naturally, he should interact with them as frequently as possible. The manager should also try to create good rapport with higher authorities. For this is should properly communicate with them regarding this action plan and feed them with sufficient data at the appropriate time. He must work in close liaison with them so that he can strengthen his hand and try to avoid origination conflicts and help himself to take quick and sound decisions consistent with the policies of the bank.

Then comes the assessment of the infrastructural facilities available in the branch. The goals set for the branch should be possible to be achieved with the available infrastructure thus we can very well see that non achievement of budgetary goals cannot be ascribes to staff shortage, if the spirit of the performance budget is properly understood.

B. The External Factors

Four important factors under this head

• National plan objectives and government policies
• Aspirations and expectations in the command area
• Customer satisfaction
• Handling competition from rivals

The national plan objectives are normally given in the policy guidelines book published by the central office, planning department. These should be through at length. The prime function of bank is to accept deposits from those with surplus money and lend it to those who need it for productive investment. This necessitates the identification of pockets of potential deposit on the one hand and identification of person who need advance for productive purposes, on the other. Collection of these data is very important and it has to be done methodically. These data can be used to:

1. Segment the market according to various parameters.
2. Prepare bankable schemes for various segments and.

It is better that these data are collected and kept updated frequently. Regarding customer satisfaction, we have to ensure that the primary motto in formulating any scheme is the satisfaction of the customer. We have to worry about the competition from other financial institution and fellow bankers. For this we have to know the terms, nature and cost of services rendered by our competition and also their marketing strategies.

Apart from all these, the branch manager should try to:

• Develop personal inclination to take safe risks.
• Create a climate of confidence and trust within the branch
• Establish personal rapport with the higher authorities and
• Take quick an sound decisions

3. Studying the past trend in business growth

A study of the past trend in the business growth of the branch helps the manger to take as stock of the inherent strength and weakness of the branch, the staff members and its location, etc. This must be done to mark the budget realistic. There is no point in setting a budget, which IS very ambitious for a branch with limited resources.

4. Preparation of Tentative Budget

After doing all the above exercise, the branch manager should attempt to rooter the incremental growth in business for the next year. It is at this stage that he should seek the reviews of all his staff members in agreement and frank atmosphere. Preferably a meeting of all the staff members should be called in which he can present all the details. It should then be left to the group to decide how much should be the incremental growth in business for their branch. In such a meeting, the leadership qualities of the manger should be made use of, so as to elicit the view of each and every staff member.

Apart from this the manager should patiently listen to the view so everybody. It all the certain views and suggestions are not acceptable to the group, the members should be convinced of the reason why they are not acceptable. Once sufficient deliberations have been gone through in the meeting in regard to the incremental growth in the business in each sector like deposits, advances, profit etc. There is important advantage in formulating the budget in this way. Because the goals have been set jointly, every member for the staff will be totally committed to the goals and will be striving hard to achieve them. As a result, he budge of the branch will not be treated as the branch managers budget but will recognized as a branch budget.

5. Participating in the Budget Meeting of the Region

The branch manager present this draft budget to eh regional manager in the budget meeting convened by the latter for the entire region. In this meeting, the regional manager present the macro level scenario of the region and invites suggestion and views of the individual branch manages regarding their contribution to the achievement of the incremental business growth for the regions for the next year. The draft budgets brought by the individual branch angers are the discussed and the total business for the entire regions is arrived at. The figures furnished by the individual branches are not simply accepted by the regional manager. The branch managers will have to us passionate their projected business figures to the satisfaction of the regional manager.

6. The Final Budget Meeting at the Branch

After the regional manager has finalize the regional budgets in the above meeting, the branch manager has to convene another staff meeting in his own branch to inform the staff member s about the details of the final budget room the draft budget, the branch manager should explain the position to all the staff members to their satisfaction. In this way all the staff members are very well aware of the task. In this meeting some notion plans can also be chalked out.

7. Review Meeting at Branch Level and Regional Level

Once the budget year starts, the real action begins. Success of any planned project depends on large extent on the periodic review of the progress made. The entire yearly budget can be divided into quarterly or half yearly budgets. In the review meetings half of the regional level, the performance of each ranch will be reviewed visit – visit the targets; For making the regional review meetings more meaningful, it is advisable to attempt such review meetings at the individual branches by conducting staff meetings.

This should be preferably done before the regional review meetings so that the branch manager is ready with all the necessary details when comes for the regional meeting specifically in regard to the reasons for variances, if any from the budgetary goals.

The factors the branch manager has to take into account at the time of preparation of the budget.

At the time of preparation of the budge, the branch manager has to take into account the following four factors:

1. Bank’s corporate goals
2. Rib’s ground rules
3. Government of Indian’s Directives
4. Expectations of the people in the command area

1. Bank’s corporate goals

The corporate goal of the bank, as decided by the top management, forms the basis of the performance budget. As such it is necessary that these are clearly spelt out and advised to the branches well in time. In some banks these are given in the booklet, “Policy Guidelines”, brought Out by the central office every year. This provides the branches the broad guidelines, covering the economic scenario for the country and the bank’s expectations of the incremental growth in the business during the coming year.

2. Rib’s Ground Rules

There are certain ground rules prescribed by the RIB, which should govern all the activities of the bank. They are summarized below:

A No bank shall pay interest on current account.

B. No bank shall pay countervailing interest on any current accounts maintained with it by its borrowers.

C. No bank shall discriminate in the matter of rate of interest paid on deposits, between one deposit and another, accepted on the same date and the same maturity, whether such deposits are accepted at the same office or at the different offices of the bank.

D. No bank shall pay brokerage on deposits in any form to any individual, firm, company, association, institution or any other person, except

1. Commission paid to agents, employed to collect door to door deposits under special schemes.
2. Inexpensive gifts costing not more than the amount prescribed by the RIB in this regard from time to time.
3. Incentive granted to staff members as approved by RIB from time to time.

E. No bank shall violate the other instructions issued by RIB from time to time, on payment of interest and related aspects in accepting of deposits and granting advances.

3. Government of India Directives

The government of India issues directives from time to time to banks in the matter Of providing credit to the priority sector and other specified groups, and implementation for various poverty alleviation programs. These are kept in mind at the time of drawing the credit plan for the ensuring year.

4. Expectation of People of the Command Area

Over all above all these, the branch manager at the time of drawing up the actual budget has to take into account the expectation of the people inhabiting the command area in regard to their credit needs and also other types of services, especially now that we are going to adopt the set-vice areas approach in all our activities.

Answer:

Fractional-reserve banking is the practice whereby a bank holds reserves (to satisfy demands for withdrawals) that are less than the amount of its customers’ deposits. Reserves are held at the bank as currency, or as deposits in the bank’s accounts at the central bank. Because bank deposits are usually considered money in their own right, fractional-reserve banking permits the none supply to grow beyond the amount of the underlying reserves of base money originally created by the central bank Fractional-reserve banking is the current form of banking practiced in most countries worldwide.

Fractional reserve banking has been said to violate Islamic principles of ownership. Working of Fractional Reserve Banking In most legal systems, a bank deposit is not a bailsmen. In other words, the funds deposited are no longer the property of the customer. The funds become the property of the bank, and the customer in turn receives an asset called a deposit account (a checking or savings account). That deposit account is a liability on the balance sheet of the bank.

Each bank is legally authorized to issue credit up to a specified multiple of its reserves, so reserves available to satisfy payment of deposit liabilities are less than the total amount which the bank is obligated to pay in satisfaction of demand deposits. Fractional-reserve banking ordinarily functions smoothly. Relatively few depositors demand payment at any given time, and banks maintain a buffer of reserves to cover depositors’ cash withdrawals and other demands for funds.

However, during a bank run or a generalized financial crisis, demands or withdrawal can exceed the bank’s funding buffer, and the bank will be forced to raise additional reserves to avoid defaulting on its obligations. A bank can raise funds from additional borrowings (e. G. , by borrowing in the interbrain lending market or from the central bank), by selling assets, or by calling in short-term loans. If creditors are afraid that the bank is running out of reserves or is insolvent, they have an incentive to redeem their deposits as soon as possible before other depositors access the remaining reserves.

Thus the fear of a bank run can actually precipitate the crisis. Many of the practices of contemporary bank regulation and central banking, including centralized clearing of payments, central bank lending to member banks, regulatory auditing, and government-administered deposit insurance, are designed to prevent the occurrence of such bank runs.

Economic Function of Fractional Reserve Banking

Fractional-reserve banking allows banks to create credit in the form of bank deposits, which represent immediate liquidity to depositors. The banks also provide longer-term loans to borrowers, and act as financial intermediaries for those funds. Less liquid forms of deposit (such as time deposits) or riskier lasses of financial assets (such as equities or long-term bonds) may lock up a depositor’s wealth for a period of time, making it unavailable for use on demand. This “borrowing short, lending long,” or maturity transformation function of fractional-reserve banking is a role that many economists consider to be an important function of the banking system.

Additionally, according to macroeconomic theory, a well-regulated fractional-reserve bank System also benefits the economy by providing regulators with powerful tools for influencing the money supply and interest rates. Many economists believe hat these should be adjusted by the government to promote macroeconomic stability. The process of fractional-reserve banking expands the money supply of the economy but also increases the risk that a bank cannot meet its depositor withdrawals. Modern central banking allows banks to practice fractional-reserve banking with inter-bank business transactions with a reduced risk of bankruptcy.

Money Creation Process

There are two types of money in a fractional-reserve banking system operating with a central bank: Central Bank Money: money created or adopted by the central bank regardless of its form

• precious metals,
• moodily certificates,
• banknotes,
• coins,
• electronic money loaned to banks,
• or anything else

the central bank chooses as its form of money Commercial Bank Money: demand deposits in the banking system; sometimes referred to as “checkbook money” When a deposit of central bank money is made at a bank, the central bank money is removed from circulation and added to the commercial banks’ reserves (it is no longer counted as part of MI money supply). Simultaneously, an equal amount of new commercial bank money is created in the form of bank deposits. When a loan is made by the commercial ann. (which keeps only a fraction of the central bank money as reserves), using the central bank money from the commercial bank’s reserves, the ml money supply expands by the size of the loan. This process is called “deposit multiplication”.

Regulatory Requirements

Government controls and bank regulations related to fractional-reserve banking have generally been used to impose restrictive requirements on note issue and deposit taking on the one hand, and to provide relief from bankruptcy and creditor claims, and/or protect creditors with government funds, when banks defaulted on the other hand. Such measures have included for examples such as: Minimum required reserve ratios (Errs) Minimum capital ratios Government bond deposit requirements for note issue 100% Marginal Reserve requirements for note issue and Sanction on bank defaults and protection from creditors for many months or even years The Banking Sector has for centuries now formed one of the pillars of economic prosperity. Indeed history provides us with some starting information regarding how banks provided finance for imperialist ventures in newly acquired colonies.

Over time banks have formed an important part in providing an avenue for both savings and investments. Land, Labor, capital and entrepreneurs are the basic economic resources available to business. However, to make the use of these resources, a business requires finance to purchase of the land, hire labor, pay for capital goods and pay for individuals with specialized skills. Detail role of functions of banks in economic development is given below:

Trade Development

The banks provide capital, technical assistance and other facilities to businessmen according to their need, which leads to development in trade. Agriculture Development Banks finance the most important sector Of the developing economics I. Agriculture, short, medium and long-term loans are provided for the purchase of seeds and fertilizer, installation of tube wells, construction of warehouses, purchase of tractor and thresher etc. Industrial Development The countries, which concentrated on industrial sector made rapid economic development. South Korea, Malaysia, Taiwan, Hong Kong and Indonesia have recently developed their industrial sector with the help of banks.

Capital Formation Banks help in increasing the rate of capital formation in a country. Capital formation means increase in number of production units, technology, plant ND machinery. They finance the projects responsible for increasing the rate of capital formation. Development of Foreign Trade Banks help the traders of two different countries to undertake business. Letter of credit is issued by the importer’s bank to the exporters to ensure the payment. The banks also arrange foreign exchange. Transfer of Money Banks provide the facility of transferring funds from one place to another which leads to the growth of trade. More Production A good banking system ensures more production in all sectors of the economy. It increases the prod auction capabilities of the economy by threatening capital structure and division of labor.

Development of Transport

The banks financed the transport sector. It has reduced unemployment on one hand and increased the transport facility on the other hand. Remote areas are linked to main markets through developed transport system.

Safe Custody

The business concerns and individuals can make themselves tension free by depositing their surplus money in banks. The banks also provide them the facility of lockers to keep their precious articles and necessary documents safe. Increase in Saving Banks persuade the people to save more. Different saving schemes with attractive interest rates are introduced for this purpose. Number of bank branches is opened in urban and rural areas.

Construction of Houses

Banks provide credit facilities to their customers for the purchase or construction of houses. Assistance to Government By providing funds to government for development programs, the banks share the government for economic stability.

The essay tries to identify the potential problems with financial sector and does a gap analysis that leads to potential opportunities in the sector.

It also takes a look at the challenges faced by the different financial institutions, the goals achieved, the targets to be achieved and how the partnership between the different formal and semi formal institutions can create a synergy for serving the underserved of the country. Introduction: The reach and availability of finances determine the growth and development of any enterprise. Then how could the development of a nation be any different from it?

It must be duly noted that majority of the country’s populace is out of the purview of the financial services which means more than half of our nation lacks access to savings and credit facilities among other financial securities and services such as investment options and insurance policies. Where we the urban literati state ourselves to be heavily hassled by the innumerable calls and emails trying to sell us a loan or investment options, these very same options are visibly amiss in the large rural pockets, places where they might be actually be needed. The fact is, there is a gap between the financial services needed and what is available.

Problem with financial services in India

Current scenario India’s Economy Growth rate has been around 8. 5% – 9% (last 5 years). Our growth primarily has been in the industry & services sector which has grown by about 16. 8 percent. Even though agriculture is the principal means of livelihood for over 58. 4% of India’s population, the growth in this sector is limited to around 2. 8%.

Of the many factors that attribute to poor growth in agriculture, a major reason is lack of access to proper finance. Limited access to savings, loans, remittance; insurance in rural/ unorganized sector are major constraints to agricultural and SME growth. Financial access enlarges livelihood opportunity; empowers the poor. And empowerment in turn aids socio-political stability. Financial inclusion provides formal identity, access to payments system; deposit insurance.

Types of Financial Exclusion

• exclusion from payment system: not having access to bank accounts
• exclusion from formal credit markets leading to approaching informal/ exploitative markets

The marginal farmers, the landless labour, the self employed, the unorganized sector, urban slum dwellers, migrants, ethnic minorities, socially excluded groups, senior citizens and women are often not covered under the financial services. The North Eastern Region and the eastern; central regions are most excluded.

Financial Inclusion and RBI’s role

For the past few years one of the important new objectives of the Reserve Bank of India has been financial inclusion. Financial inclusion is the delivery of financial services at affordable costs to vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. It is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy.

The movement towards financial inclusion rose to a crescendo in the current year, partly because of the Platinum Jubilee Celebration of RBI and partly because the demand for financial inclusion has become a national and a governmental imperative. According to Annual Policy Statement of RBI, 2004-05 “…banks should be obliged to provide banking services to all segments of population on equitable basis. ” In 2005 RBI advised banks to provide basic bank “no frills” accounts with low or minimum balance/ charges so as to expand anking outreach to larger sections of society. KYC principles were simplified to open accounts for customers in rural ;amp; urban areas for people intending to open accounts with annual deposits of less than Rs. 50,000. General purpose Credit Card (GCC) facility was available up to Rs. 25000 at rural; urban branches. Revolving credit was encouraged and withdrawal up to limit sanctioned was based on household cash flows. No security or collateral was needed for the same. Interest rates were deregulated.

In January 2006 banks were allowed to use services of NGOs, SHGs, micro finance institutions, civil society organizations as business facilitators/ correspondents (BC) for extending banking services. BCs were allowed to do “cash in-cash out” transactions at BC locations ;amp; branchless banking. Pilots were set up to provide credit counseling and financial education. In June 2007, RBI launched multilingual website in 13 Indian languages providing information on banking services.

For the financial inclusion drive, in identified districts, survey was conducted based on electoral rolls, public distribution system etc to identify households with no bank accounts. Banks were required to open at least one account per house. Mass media was deployed for awareness/ publicity. Bank staff/ NGOs/ volunteers took ration cards/ Electoral ID/ photos for fulfilling KYC norms ;amp; opening accounts. The different financial institutions and their roles:

The government institutions fuelling the growth in the financial sector for the purpose of extending the banking services to the underserved in India are Regional Rural Banks, Primary Agricultural Credit Societies, LAMPs, Commercial Credit Co-operative Societies, State Cooperative banks and Commercial banks. But then the entire system of lending must be self-sustaining. Most of the above agencies are loss making units and need to be supported by the government with seed funds. The wide availability of such units extends the outreach of governments financial benefits to the large rural population.

The commercial banks try and keep themselves distant from extending their financial services of credit, savings etc to the villages owing largely to the heavy cost of operation and servicing in the deep pockets and would rather cough up the penalty imposed on them by the Reserve bank of India for not meeting credit targets set for Priority sector lending. The cost of reaching the customer unto itself is too high and added to that is the high cost of transaction and servicing of small ticket loans and to top it all there is a high default rate on such loans issued.

On the contrary the Non banking financial service companies operate on a much lean structure. The models on which the financial service extension is operating these days is constantly evolving into more and more innovative structures. Unlike the banks, the MFIs may furnish loans without collaterals or security deposits as they have exercise a social obligation on the loan applicant to repay the loans on time. As the loans are issued only through SHGs or JLGs, the liability of each loan rests entirely on the shoulders of the entire group and not just the individual.

Thus the ticket size of the loans increase in size and cost of servicing the loans also gets appropriated. The NBFCs and MFI also sell out their loans to the Commercial banks who finance them thus ensuring that the commercial banks also end up meeting their target of priority sector loans that too at a profitable scale. The role played by the NGOs is also worth mentioning when we talk about the financial services in the rural pockets. There has been a rise in the number of SHGs owing to the capacity building and awareness activities taken up by the NGOs.

The SHGs are informal bodies formed by the coming together of a homogenous group of people (preferably women) such groups actively promote mandatory savings among their members. From the funds collected loans are issued at nominal rates to its group members while loans can be sought for livelihood purposes largely, loans may also be sought for consumption needs. The SHGs are also trained for developing enterprises and businesses to fuel their growths. The other tangential benefits of women’s SHGs are the increase of social status and say a woman has in the community

Partnership of banks with organisations like “A Little World” and “FINO” has been a groundbreaking innovation where the above organisations in partnership with the banks extend no frills bank accounts to the rural areas and their people. The benefit is two pronged. It must be noted that the cost per transaction incurred per transaction on a bank teller amounts to roughly $1. 07 USD, while the cost of transaction per ATM transaction costs the bank around $0. 27 USD. The costs are prohibitively high for a commercial bank to operate on lower ticket size transactions and hence can’t enter the rural market directly.

The partnership models that FINO and ALW have adopted ensure that the underserved get access to the banking services by means of innovative rural ATMs that are all but hand held devices operated by either a village person or their own employee. The costs of such operations are low due to the absence of infrastructure needs. The above organisations take a cut from the account opening fee and a certain fee for operations costs. Goals achieved by the financial drive: No frills accounts: 6 million new “no frills” accounts were added between March 2006 ;amp; 2007.

About 45000 rural; semi-urban branches of Regional rural banks (RRBs) ;amp; Public Sector Banks (PSBs) showed highest performance after the drive. SHG-Bank linkage: Access to banking system was provided through SHGs (groups pooling savings ;amp; providing loans to members). National Bank for Agricultural and Rural Development (NABARD) extended support in group formation, linking with banks, and promoting best practices. As a result, the recovery was excellent – 2. 6 million SHGs were linked to banks touching 40 million households. SHGs were given loans by banks against group guarantees (Joint liabilities).

With smaller loan sizes and reasonable rates of interest, SHGs were encouraged to take loans for consumption and to set up smaller business initiatives.

IT Solutions

IT solutions were essential for doorstep banking. Pilot projects were started by SBI using smart cards for opening a/c with bio-metric identification. The smart cards were linked to mobile/ hand held connectivity devices to ensure transactions were recorded in banks’ books on real time basis. State governments started making pension ;amp; other payments under NREGS through smart cards. Other financial services (low cost remittances, insurance) were also provided through cards.

IT solutions enabled large transactions like processing, credit scoring, credit record; follow up etc. Role of Government: Some state governments played a proactive role by issuing identity cards for a/c opening, through awareness campaigns by district/ block level officials. Financial literacy drives were conducted and India Post was roped in as BCs. FM’s Budget Speech 2007-08 allocated a budget of $125 mn each to 2 funds

• Financial Inclusion – Fund for developmental/promotional work
• Financial Inclusion – Technology Fund for technology adoption/innovation

Challenges Faced

With the rates of interest being high the customer is sometimes still apprehensive in approaching for credit, as the poor do not have collateral to offer and are hence not always eligible to loans from govt. banks. The stronghold of the money lenders too is very strong as the loan servicing time of a money lender is very low and can be furnished at any hour of the day. Imposition of rate restrictions by the government may also render MFI businesses inefficient owing to high operations cost and defaults, the govt. Promotes defaulting each time there is a loan waiver issued by it.

Such actions promote defaulting nature amongst the farmers. There is a disinterest of the rural population in taking insurance policies as there is no understanding of the same in the large rural pockets. The seasonality of the crops and harvest too impose a challenge to the lending and repayments to the financial institutions. Way forward: There’s a need to link the impact of the financial institution to the 8 Millennium Development Goals (MDGs). The impact analysis can be done by evaluating how far the financial institutions have been effective in contributing, directly and indirectly, to all the eight MDGs.

Microfinance contributes to improving income and reducing hunger (MDG 1), providing children school education and training (MDG 2), and paying for health services (MDG 4 – 6). The main beneficiaries of microfinance services are women, so financial institutions contribution to women’s empowerment and gender equality (MDG 3) can be studied. As for the environment (MDG 7), financial institutions are increasingly combining environmental programs with their financial services, although the contribution may be indirect.

For MDG 8, since Target 12 calls for the development of open, rule-based, non-discriminatory financial systems, the expansion of financial programs themselves is the achievement of MDG 8. Hence the future of financial outreach lies on the synergy of formal and semiformal institutions to bring about a positive change.

References

1. http://timesofindia. indiatimes. com/business/india-business/Highest-industrial-growth-recorded-in-20-yrs-at-168/articleshow/5566436. cms
2. India. gov. in/sectors/agriculture/index. php
3. http://www. tradingeconomics. com/Economics/GDP-Growth. aspx? Symbol=INR
4. Financial Inclusion :Perspective of Reserve Bank of India,MK Samantray, RBI Guwahati
5. http://banking. senate. gov/97_07hrg/072997/charts/chart01. pdf
6. http://www. nabard. org/
7. Finance Minister’s Budget Speech, http://www. rediff. com/money/2008/feb/29budget38. htm
8. Montgomery, H. 2005. Meeting the Double Bottom Line – The Impact of Khushhali Bank’s 9. Microfinance Program in Pakistan. Tokyo: ADBI.
9. http://timesofindia. indiatimes. com/business/india-business/Highest-industrial-growth-recorded-in-20-yrs-at-168/articleshow/5566436. ms.
10. India. gov. in/sectors/agriculture/index. php.
11. http://www. tradingeconomics. com/Economics/GDP-Growth. aspx? Symbol=INR.
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15. http://www. nabard. org/.
16. Finance Minister’s Budget Speech, http://www. rediff. com/money/2008/feb/29budget38. htm.

The effect of the global financial crisis on Australia has been considerably less, compared to the other affected countries. The Australian economy has revealed better outcomes than most other developed economies, which experienced recessions and rises in unemployment. Also the Australia banks have managed to be profitable without requiring any capital injection from the Government.

The noticeable collision of the financial crisis on most Australian households was the large decline in equity prices, “which reduced the wealth of Australian households by nearly 10% by March 2009. However, since the trough In equity markets In March 2009, the local market had recovered half of Its decline by the end of November 2009. ” The Australian dollar also depreciated rapidly and sizeably as the crisis intensified, declining by over 30 per cent from its July 2008 peak.

Around the time of the Lehman ankruptcy, conditions in the foreign exchange market were particularly illiquid, prompting the Reserve Bank of Australia (RBA) to Intervene In the market to enhance liquidity. Since March 2009, as fears abated, the Australian dollar largely recovered, reflecting the relative strength of the Australian economy. The credit and money markets in Australia have also proven to be more resilient than in many other countries, necessitating considerably less intervention by the RBA than occurred in many other countries.

In large part this reflected the health of the Australian banking system. The Australian banks had almost no holdings of the “toxic” securities that severely affected other global banks. The health of the Australian banking system facilitated the effectiveness of the monetary and fiscal response, particularly by allowing much of the large easing in monetary policy to be passed through to interest rates on loans to households and businesses, in stark contrast to the outcome in other developed economies.

Four dollars was the amount. Yunus found 41 other villagers in Jobra and lent them a total of $27. Khatun’s income immediately jumped from $0. 02 per day to $2. 00 per day Yunus simply told those borrowers to pay him back when they could, and was a little surprised to find that all of them repaid him In full. So, he began lending more money with the same result. He petitioned local banks to start making similar loans, an idea they rejected. When he asked them their reasoning, they replied that the poor are not credit worthy.

Yunus replied, “How can you say that they are not credit worthy. I give them money, and they pay me back. ” It was at that time that I decided to become a sponsor for all loans, the total being close to 10. 000 taka (around $300 LJSD)”, said M. yunus. to find that all of them repaid him In full Yunus tried to convince the banks to adopt his methods and begin employing them in providing loans to the rural poor, but the bankers were skeptical that Yunus’ successes could be repeated in other communities regions for Grameen Project to develop.

It was obvious that Yunus could not be in all five istricts at once, so this ought to reduce their final concern over the viability of the lending model. He even persuaded the banks to have their own staff manage the lending process so that the banks could not say that their employees could not successfully accomplish that which Grameen was successful in doing. As Yunus suspected, the experiment was successful in all five districts, but the banks were still unmoved in their decision. At that point, Yunus became discouraged.

The success of the operation resides mainly in this concept of groups; it keeps members united to achieve the goals, encourages teams to ompete and favours an environment of mutual support. “A candidate for a loan has to form a group of 5 persons, and the membersof that group should have similar social and economic status and cannot be family. After the recognition of the group, the members should attend weekly meetings for approximately one month. Usually the first loan of 12 to 15 USD is only given to two of the women in the group. If in a period of six weeks, both regularly repay the money, we In 1989 the Grameen Trust was created.

It is a foundation responsible for the replication f the Grameen model across the world It allows participants to obtain a deep knowledge of the functioning, philosophy and methods of Grameen and provides them with the knowledge of particular problems. “. As a general rule, the programme should focus on the poorest 25% of the population, as well as consider women At present more than 100 countries, developed and underdeveloped, have programmes inspired by Grameen CONCLUSIONS Grameen Bank has inspired microfinance movements in many other countries and its model has been replicated across the globe

Grameen Bank was successful in improving the financial position and standard of living of the rural poor Grameen Banks sixteen decisions improved the social status of women in Bangladesh Grameen Bank ushered in a new revolution of microfinance worldwide, providing a ray of hope to millions of poverty-stricken people all over the world, and particularly in the developing countries “My message is always the same, poverty can be eliminated. Credit is not only an instrument for profits; it is a powerful weapon for social change, a way to give new life to people. “