PROJECT REPORT

ON

“BUDGETING PROCESS IN CONSUMER BANKING OPERATIONS”

Submitted To: IIPM, DELHI

Submitted By:

ESHITA SETH

INDIAN INSTITUTE OF PLANNING & MANAGEMENT

ACKNOWLEDEMENT

Any accomplishment requires the efforts of many people and this is no exemption so I would like to thank
to those people who were the part of this project in numerous ways.

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I express my sincere thanks to Mrs. Aparna Mehra, Unit Head for allowing me to be part of her reputed
organization as a summer trainee.

I would like to thank her for initially exposing me to study and making available all material and
motivational help that was needed from time to time.

I also express my deep sense of gratitude and thanks to Mr.Himanshu Banka for being my project guide
and thank him for the valuable time he gave me and the immense patience he had in answering even the
seemingly trivial queries & also Mr.Gaurav Arorafor his valuable guidance and continuance support in
better understanding the study with his excellent ideas throughout the project.

Last but not the least I consider myself proud to be a part of INDIAN INSTITUTE OF PLANNING
AND MANAGEMENT, and specially would like to thank my faculty members for helping me with my
summer training placement and for their kind guidance and knowledge.

EXECUTIVE SUMMARY

I have done my summer internship in STANDARD CHARTERED BANK learning and analyzing the
work processes in operation unit in a bank and budgeting skills in consumer banking operations. My
project starts with an overview of the banking sector and the profile and history of STANDARD
CHARTERED and then I steadily learned the skills of various banking operations and how budgeting for
an organisation is done.

Budgets are an important tool of profit planning. Planning involves the specification of the of the basic
objectives that the organisation will persue and the fundamental policies that will guide it. In operational
terms, it involves four stages:
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 I. Objectives
II. Goals
III. Strategies
IV. Plans/budgets

As a tool, budget serve as a guide to the conduct of operations and a basis for evaluating actual results
.The main objectives of budgeting are (1) explicit statement of expectations, (2) communication, (3)
coordination, and(4) expectations as a framework for judging performance.

INTRODUCTION

STANTARD CHARTERED BANK

AN OVERVIEW

With global headquarters at London, The Standard Chartered is clearly the word’s leading emerging
markets bank with assets of over $90 billion, employing 30,000 people

in over 500 offices in more than 50 countries primarily in the Asia Pacific Region, South Asia , the
Middle East, Africa and the Americas.

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The New Millennium brought with it two of the largest acquisitions in the history of the Bank – the
purchase of Grind Lays Bank from the ANZ Group for the consideration of $ 1.34 billion and the
acquisition of the Chase Consumer Operation in Hong Kong for $1.32 billion. These acquisitions
demonstrate Standard Chartered firm commitment to the

emerging markets, where we have a strong and established presence and where we see our future growth.

THE EARLY YEARS

Standard Chartered is named after two banks which merged in 1969. They were originally known as the
Standard Bank of British South Africa and the Chartered Bank of India, Australia and China. Of the two
Banks, the Chartered Bank of India is older having been founded in 1853 following the grant of a Royal
Charter from Queen Victoria. The moving force behind the grant Chartered Bank was a Scot, James
Wilson, who made his fortune in making hats. James Wilson went on to the start “The Economic “still
one of the world’s pre-eminent publications. Nine years later, in 1862, the Standard Bank was

founded by a group of businessmen led by another Scot, John Paterson, who had immigrated to the Cape
Province in the South Africa and had become a successful merchant. Both banks were keen to capitalize
on the huge expansion of the trade between Europe, Asia and Africa and to reap the handsome profits to
be made from financing that trade. The Chartered Bank opened its first branches in 1858 in Calcutta and
Mumbai. A branch opened in Shanghai that summer beginning Standard Chartered’s unbroken presence
in China. The following year the Chartered Bank opened a branch in Hong Kong and an agency was
opened in Singapore. In 1861 the Singapore agency was upgraded an agency to a branch which helped
provide finance for the rapidly developing rubber and tin industries in Malaysia. In 1862 the Chartered
Bank was authorized to issue bank notes in Hong Kong. Subsequently it was also authorized to issue bank
notes in Singapore, a privilege it continued to exercise up until the end of the 19th century. Over

the following decades both the Standard bank and the Chartered bank printed bank notes in a variety of
countries including China, South Africa, Zimbabwe, Malaysia and even during the siege of Marketing in

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South Africa. Today the Standard Chartered is still one of the three banks which print Hong Kong’s bank
notes.

HISTORY

Standard Chartered derives its name after two banks –Standard Bank of British South Africa and the
Chartered Bank of India, Australia and China – that merged in 1969. The Chartered Bank was founded in
1853 following the grants of a Royal Charter from Queen Victoria, and opened its first overseas branch
ever in Calcutta, as it was then known. Over the following decades both the Standard Bank and the
Chartered Bank printed bank notes in a variety of countries including China, South Africa, Zimbabwe,
Malaysia and even during the siege of Marketing in South Africa. Today, the Standard Chartered is still
one of the three banks which print Hong Kong’s Bank notes.

Standard chartered has its headquarters at London. It is clearly the world’s leading emerging markets bank
assess of over $90 billion, employing 30,000 people in over 500 offices in more than 50 countries
primarily in the Asia Pacific Region, south Africa, the middle east, Africa and the Americas.

The new millennium brought with it two of the largest acquisitions in the history of the bank- the
purchase of Grind lays bank from the ANZ Group for a consideration of $1.34 billion and the acquisitions
of the Chase Consumer Banking operations in Honking for $1.32 billion. These acquisitions demonstrate
Standard chartered firm commitment to the emerging markets, where we have a strong and established
presence and where we see our future growth.

Standard Chartered derives its name from the two other banks- Standard Bank of British South Africa and
the Chartered bank of India, Australia and china – that merged in 1969. The chartered bank of India was
founded in 1853 following the grant of a royal charter from Queen Victoria and opened its first overseas
branch ever in Calcutta, as it was then known.
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STANDARD CHARTERED IN INDIA

The chartered bank opened its first overseas branch in India at Calcutta on the 12 April 1858. Eight years
later the Calcutta agent described the bank’s credit locally as splendid and its business as flourishing
particularly the substantial turnover in rice bills with the leading Arab firms. When the chartered bank
first established itself in India Calcutta was the most important commercial city and was the center of the
jute and the indigo trades. With the growth of the cotton trade and the opening Suez canal in 1869.
Bombay took over from Calcutta remaining an important trading and banking center.

Now standard chartered is the largest international banking group in India combined balance sheet (as at
march 31 2001) Rs 24515.9 cr. having a combined customer base of 2.4 million in retail banking and over
1200 corporate customers. Key business include consumer banking – primarily credit card mortgages
personal loans and wealth management trade finance treasury and the custody services.

Today, in its 150th year we continue with its passion and commitment in bringing innovative banking
solutions for the corporate and the retail customer. The group in India is credited with several industries
‘first’ and the product innovations. These include issuance of the first global credit card in India, the first
photo card. The first picture card and where the first credit card issuer to be awarded the ISO 9002
certification. Standard Chartered group has 75 branched in India.

STANDARD CHARTERED –THEIR VALUES

At the heart of their identity are the values that drive each and every one of them. They believe these are
the values you desire of your financial partner.

The bank’s values guide the way they work with colleagues, customers, suppliers and other stakeholders.
The values –responsive, trustworthy, creative, international and

courageous- show them how they can build the culture, which will help them to achieve their business
goals, and make Standard chartered a great place to work.

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The values reflect extensive internal, customer and market research and show how they can all be lead by
example to be the right partner.

• RESPONSIVE
They are good on their word. They are accessible whenever and whenever you need them. Not only do
they strive to deliver solutions, they also aim to exceed your expectations.

• TRUSTWORTHY
They respect you and the life you life. By understanding your needs and tailoring the right financial
solutions for you they earn your trust.

• CREATIVE
Creative thinkers are not limited by convention. They allow their minds to soar beyond predictable
solutions. That’s how they approach each challenge posed to them, which is why they base their products
and services on ideas that are innovative, perspective and instinctive.

• INTERNATIONAL
They understand the balance between global and the local. You trust them to be established and
internationally- networked, while at the same time sensitive to your individual needs. There strong
network across cultures helps them build stronger relationships based on ideas not formulate.

• COURAGEOUS
A commitment to be there for you in good times and bad times. They help you achieve your aspirations
by guiding you towards the right choice not just the easy one.

STANDARD CHARTERED AND ITS CUSTOMERS

How they treat customers, where they choose to operate, who they provide financial support to and how
they respond to customers financial needs all have an impact on their reputation and ultimately their
financial success.

Understanding and responding to our customer’s needs is fundamental to the way they do business. As
social, ethical and environmental issues gain prominence, it is increasingly important that they understand
how their customers meet these challenges is to uphold consistent standards of conduct across the world,
while still respecting the cultures , local requirements and varying business customs of the individual
countries where they operate.

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CODE OF CONDUCT

The principles that govern the behavior of their businesses and employees are reflected in a GROUP
CODE OF CONDUCT. The Group code of conduct is a practical working document that guides
employees through the many difficult issues they may run up against in their daily working lives.
Complying with each element of the code will not always be easy. But they recognize that they will be
judged both on their own Code and on how it is reflected in the day- to -day behavior of everyone who
works within the bank.

Below you can see some examples of how our Code of Conduct affects the way they deal with their
customers. The Code of Conduct also affects the way our employees behave and you can find out more
about the standards SC expect them to meet.

Their employees must adhere to the following to the key principles:

• CUSTOMER IDENTIFICATION: - The identity of every customer must be established from

reliable identifying documents.
• KNOW YOUR CUSTOMER: - Their staff must know enough about details about their customers
that can be identified at the time of the transactions are made and documents are submitted so that
no inconsistency of the details while verifying is made.
• REPORTING OF SUSPICIONS: - Suspicions transactions must be reported immediately.

FAIR TREATMENT OF CUSTOMERS

Financial products and services are increasing sophisticated tools. Selling them calls for knowledge, skills
and judgment.

For their employees the basic rules are:

• Do not sell an unsuitable product to a customer –that is, a product that does not meet his or her
needs.
• Know enough about the standard chartered products and about the customer (risk, appetite,
objectives, finances and personal circumstances) to judge the effect, which the products will have,
and whether they will meet his or her needs.

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 • Make every effort to ensure that the customer understands more complex products and their risks,
properly.
• Explain product features clearly both face to face and in any marketing literature and software.

QUALITY OF SERVICE

Their business will only succeed if they offer the highest standards of services to their customers,
retaining the loyalty and confidence of existing customers and winning the support of new ones. They
have set themselves the task of improving all aspects of customers services through our Out serve
programmed which was introduced in key markets in 2004 and will be extended to all other markets in
2005. They want excellent customer service to be something they are renowned for.

The Out serve programmed includes a range of systems that will allow measuring their performance and
target areas for improvement. It will also allow them to respond in a systematic way to independent
benchmarking information they used to measure us against their competitors.

STANDARD CHARTERED AND THEIR CORPORATE RESPONSIBILITY

At the standard chartered they recognize that they have an impact on the economies, communities and on
the environment in which we operate and a responsibility to address

this impact. They also recognize that through our business activities we can contribute to substantial
development.

THEIR APPROACH

They want to be THE WORLD’S BEST INTERNATIONAL BANK – leading the way in Asia, Africa
and the Middle East.

They see the corporate responsibility as an opportunity to make our brands stand out. It is about making
sure that in pursuing our business goals, we identify and address the impacts we have on our stakeholders,
look after the people we work with and help the communities we operate in.

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Ultimately, we want to be known for having a serious commitment to the enlivenment, economists and
the communities where we operate. This won’t happen overnight and we’ve worked hard to set ourselves
realistic and effective goals.

Sometime ago we began a programmed to formalize our activity and establish a corporate responsibility
programmed across the whole company. A range of policies and processes have been implemented that
cover a variety of the social, ethical and environmental issues that we face.

Over the past year, we have revisited these key issues and continued to develop systems and structures to
manage them. We have strong commitment from the bored and in December 2004 established a corporate
responsibility committee, drawing on external advisors, executives and the non-executives leaderships to
ensure that progress is made towards our Corporate Responsibility aspirations. Talking with our
stakeholders has helped us shape our thinking and check thinking and check that we are on the right track.
in 2005 it was aimed to have published their first Corporate Responsibility Report.

And by the end of the 2005 its aim ere as follows:

• An established governance structure for corporate responsibility.

• Raised awareness, internally and externally of our priorities and intentions.
• Corporate Responsibility aspirations that are aligned with our business goals.
• Established clear goals for all areas overseen by the Corporate Responsibility Committee.
• Actively engaged all our employees in our Corporate Responsibility programmed to spread
understanding and the best practice and by the end of 2007 they aim at being establishing it.
• A reputation for innovative thinking in the areas that matter to the bank and to our stakeholders.
• Monitoring programmers to identify and tackle potential risks to the banks, its shareholders and
customers.
• Embedded processes for talking with our stakeholders and communicating performance.
PEOPLE
The people are committed to creating a healthy, safe and fulfilling work environment in which people can
grow, individuals can make a difference and teams can win. They aim to attract recruit and develop
talented people, providing the skills and resources to succeed across our markets. The employees are
rewarded with the competitive incentive to encourage them to achieve their potential within the bank.

STANDARD CHARTERED TODAY

Today Standard Chartered is the world’s leading emerging markets bank employing 30,000 people in over
500 offices in more than 50 countries primarily in countries in the Asia Pacific Region, South Asia, the
Middle East, Africa and the America.
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The new millennium has brought with it two of the largest acquisitions in the history of the bank with the
purchase of Grind lays Bank from the ANZ Group and the acquisitions of the Chase Consumer Banking
operations in the Hong Kong in 2000.

These acquisitions demonstrate Standard Chartered firm committed to the emerging markets, where we
have a strong and established presence and where we see our future growth.

sToday Standard Chartered deals the following areas:-

• Personal Banking
• Consumer banking
• Wholesale banking
• Global market

PERSONAL BANKING

To cater to your diverse financial needs, Standard chartered offers a wide range of premium banking
products and services through its network of 66 branches in 24 cities across the country.

As privileged customer, you can always be assured of a banking service that is flexible enough to tailor-
make a product suite to take care of your specific banking needs.

CONSUMER BANKING

Consumer banking offers a wide range of premium banking products and services through its network of
56 branches in 16 cities across the country to cater to customer’s diverse financial needs.

• Wealth Management offers a complete and comprehensive range of products to fulfill a gamut of
customer investment and financial needs. These include domestic and NRI transaction account
( with several value- add products and services like ATM and globally valid Debit Card , phone
banking , extended banking, 24 hour banking, any branch banking, door step banking and
investment advisory services), distribution of capital market and insurance products,
dematerialization services and finances against the shares. Standard Chartered also offers-Priority
banking that is “personalized banking for the privileged few”.

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 • Standard Chartered Group is the leading credit card issuer in India and has several firsts to its
credit. These include issuance of the first Global Credit card in India, the first photo card, the first
Picture card. Our Card division is also the first in South Asia to be accorded ISO 9002
certification. The credit cards and personal loans offer include co-branded cards with unique
value propositions and cards
• like “Sap nay” for the middle-market segment. The division offers a range of personal loan
products and also personal line of credit through products.
• Our Secured Loan division offers mortgage, auto loans and also unique overdraft products like
‘Mileage” that offer revolving credit facility against the security of a used or new car.
• Standard Chartered Finance, a NBFC is our product distribution arm. It is amongst the top five
auto financiers in the country. Products include loans\lazes for new passenger’s cars, used cars,
commercial vehicles and medical equipment. Standard Chartered Finance has an extensive
network of branches in India.
• Standard Chartered Mutual Funds is one of the largest and the fastest growing debt funds in the
market. Standard Chartered Mutual Funds is the only fund house that focuses only on the debt
segment and prides itself on having developed one of the finest interest rate tracking models.

WHOLESALE BANKING
CORPORATE AND INSTITUTIONAL BANKING

Standard Chartered is particularly strong in institutional relationships and is the preferred correspondent
banks for over 300 domestic and international banks, the largest such private sector network in India. The
Bank focuses on the services quality and all its

Operational units in trade management, cash management, treasury and custody are ISO certified.

• Standard Chartered is India’s largest foreign trade finance bank and offers a full complement of
trade finance products, including export credit in foreign currency, export letters of credit
confirmations, me chanting trade and buyer credits. It is one of the few banks in India to offer
services like channel finances, forfeiting, without recourse export finance, project export and
services export approvals and sponsorships.
• As a leading cash management supplier across emerging markets, Standard Chartered offers
complete end to end cash management solutions for corporate and institutions. The Greenwich
survey for 2001 nominated Standard Chartered the “Best Cash Management Service Quality
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 Bank” in India. Range of products includes visitor accounts, draft drawing, telegraphic transfers
and an international payments facility that allows foreign currency payments without separate
account
• Standard Chartered custody and clearing service unit has several Foreign institutional investor’s
in India with superior client servicing, supported by sophisticated and flexible computerized and
flexible computerized systems.
• It is the only custodian in India to earn the ISO 9001: 2000 standards certification. Standard
Chartered has received top ratings in 9ndustry’s benchmark surveys: the Global Custodian Survey
2000 and the Global Investor Survey 2000.
• Standard Chartered Bank serves both Consumer and Wholesale Banking customers. Consumer
Banking provides credit cards, personal loans, mortgages, deposit taking and wealth management
services to individuals and small to medium sized enterprises. Wholesale Banking provides
corporate and institutional clients with services in trade finance, cash management, lending,
custody, foreign exchange, debt capital markets and corporate finance.

GLOBAL MARKET

Standard Chartered provides complete 24-hour coverage of the world’s foreign exchange markets. It
provides a broad range of products like Exotic currencies, Derivatives, Debit capital markets, Currency
Options and Electronic trading. Standard Chartered was the first bank in India to introduce its On-Line
Treasury; a browser- based dealing system that enables real time transactions. Standard Chartered is also
recognized as a leading market maker for Indian Rupees.

Standard Chartered is the largest international banking Group in India Combined Balance Sheet (as at
March 31,2001): Rs 24515.9 cr.having a combined customer base of 2.4 million in retail banking and
over 1200 corporate customers.

Key business includes:

Consumer banking- primarily credits cards, mortgages, personal loans and wealth management and
wholesale banking where the bank specializes in the provision of cash management, trade, finance, and
treasury and custody services.

Today, in there 150th year, they continue with their passion and commitment in bringing innovative
banking solutions for the corporate and the retail customer. The Group in India is credited with several
industry “firsts” and products innovations. This include issuance of the first global credit issuer to be

13
awarded the ISO 9002 certification. Some of our products free access to over 1500 Visa ATM’s, a first in
the banking industry, mileage, an overdraft facility against the security of a car and Smart Credit, a
personal line of credit for salaried customers.

Standard Chartered Bank serves both Consumer and Wholesale Banking customers. Consumer Banking
provides credit cards, personal loans, mortgages, deposit taking and wealth management services to
individuals and small to medium sized enterprises. Wholesale Banking provides corporate and
institutional clients with services in trade finance, cash management, lending, custody, foreign exchange,
debt capital markets and corporate finance.

The consumer banking business is divided into three parts

• Wealth
Dealing with the liabilities accounts, and other related products.

• Secured
Dealing with various loan products, i.e. Home Loan, Auto Loan, Mileage etc.

• Unsecured
Dealing with Personal Loans, Credit Cards, Smart Credit,

There are various units involved in Consumer Banking, which support the entire banking business in
India.

• BIU
Business Intelligence Unit does the processing of the raw data for the customer base, and giving feedback
to the various SCB Businesses for further analysis.

• CAU
Credit Acceptance Unit does the analysis and verification of the credit worthiness of the customer that
this particular customer is good enough to repay his debt or not and also make analysis for the customer
that how much the loan amount can be given to him. Service is responsible for servicing the Consumer
Banking Customer. Is primarily handled by the various Phone banking units in all the cities. They also

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have walk in desks for assets customers, Asset Service Desks. The various SCB branches service the
liability walks in customers.

SERVICE QUALITY

SQ refers to Service Quality & they are the POLICE-MEN of the bank , who make it certain that
the bank adheres to its fixed set standard in the services that it provides , such that the customer
has no reason to lodge complaints.

Shared Distribution

Consists of all the SCB branches. They are responsible for servicing the entire liabilities walk in
customers. Besides, they also target towards increasing the customer base and tapping out more business
from the market.

Consists of the sales team. Separate products have separate sales team. They are primarily involved in
getting the business to the bank, and focused on expanding the customer base for SCB.

SERVICE DELIVERY

Consists of the bank end operations of the bank. The operations of Standard Chartered bank processed by
SCOPE INTERNATIONAL, which is the part of standard chartered and is the subsidiary company of the
bank. The 100 % undertaking of standard chartered bank, which provides the back end support.

They are involved in processing the various customer instructions and processing of the new applications
received from the Sales and Shared Distribution channels. The operations of Service Delivery are handled
on a local level at various cities, while some activities are centralized and are operated from Chennai.
Metro Operations team is further segregated into the Assets and Liabilities team. The liabilities team
handles the various activities like account opening, creating the fixed deposits, processing of the
insurance and mutual funds applications, processing of customers requests etc.

The Assets team further handles two activities, Disbursement of loan and Safe Custody Team, handling
the custody of the title
Service Delivery Unit further has three parts:
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• Account Services
• Item Processing Centre
• Internal Services
The Account Services Department has two parts: -
• Assets Department
• Liabilities Department

Assets Department
Assets Departments has two parts:
• Products
• Operations

Products Of Assets Department In Accout Services

• Mortgages,
• Mileage,
• Personal Loan
• Auto Loan
• Credit Card

Operations Of Assets Department

• Disbursement of loans
• Safe Custody

Disbursement Of Loans
• Disbursement of Mortgages
• Disbursement of Mileage
• Disbursement of Auto Loans
• Disbursement of Personal Loans

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Liabilities Department Deals With

• Opening up of accounts
• Requisition of customers
• Additional Services
• Processing of mutual funds
• Processing of insurance

ITEM PROCESSING CENTER

Item processing center is divided in two parts:

• CLEARING OF CHEQUES
• CENTRAL CASH (CURRENCY CHEST)

ITEM PROCESSING CENTRE operates the Clearing of all types of cheques. It means inflow and
outflow of money from one bank to another bank. There are six types of clearings. They are as follows:

• Inward Clearing
• Outward Clearing
• High Value Clearing
• Inter Bank Clearing
• Electronic Clearing System
• MICR Clearing.

CLEARING OF CHEQUES

Inward Clearing

This section deals with those cheques, which are issued by SCB and customer, deposited in other banks.
The customer issues cheque of our bank to another bank.

Outward Clearing
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Outward clearing is processing of cheques deposited by SCB customers who would have received these
from their parties.

High Value Clearing

These include clearing of high value cheques. Cheques above one lakh can only be considered for this
clearing. This type of clearing can further be classified as Inward and Outward. Values claimed by other
banks are to be checked for correctness.

Inter bank Clearing

In this type of clearing only bank to bank transactions are acceptable. Large values are involved in this.
Final window to fund the bank’s current account is RBI. This type of clearing also includes inward and
outward clearing of cheques.

Electronic clearing system. (ECS)

This is very efficient way of clearing. This is paper less clearing. Faster credit and debit is given to
customer’s account. Funds can also be settled simultaneously. The problems of reconciliation of clearing
differences are also minimized. There is improved control over timings of payments and receipts and
better customer service. There is inflow and outflow of cheques in this type of clearing.

MICR Clearing

Magnetic Ink Character Reading Clearing. This includes receipt of cheques, drafts, pay orders drawn on
SCB from various banks through RBI which runs the clearing house at the location. This type of clearing
includes encoding of cheques through encoding machine.

CENTRAL CASH (CURRENCY CHEST)

Main objective of central cash is to look after the requirements of different branches of the bank. As per
RBI guidelines, each and every branch of SCB has a limited balance, which it can hold overnight. The
regional head of shared distribution is fixing the limit.

Central Cash plays a very important role in the Whole Banking System. The Main objective of Central
Cash is to look after the cash requirements of different branches of the bank. Central Cash is an important
and responsible department of Internal services.

In SCB Central Cash looks after the cash requirement of different SCB branches. As per RBI (Reserve
Bank of India) guidelines, each and every branch of SCB has a limited balance which it can hold
overnight. For e.g.: - In 10, Sansad Marg the branch of SCB is authorized to hold a balance of RS.2 Crore
overnight. The regional head of shared distribution is fixing the limit. Whenever the branches require
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Cash, they send their request to the centeral cash. Centeral cash of SCB has outsourced their work to
vendors who carry on the job of delivery of cash to the branches and collection of excess cash from the
branches to be deposited in the centeral cash department. Whenever there is a request from the branches
regarding delivery cash to them, the cash supervisor collects the money from centeral cash and dispatches
them to respective branches of SCB. Again when branches require to deposit the excess cash, the cash
supervisor collects the excess cash from the branches and deposits them in the centeral cash. The
branches give an acknowledgement to the centeral cash confirming that they have given or received the
cash. Centeral cash keeps a record of the balances of different SCB branches (date wise) and sends the
record to Regional Manager Service Delivery.

INTERNAL SERVICES

• Output Control
• Cheque Book Issue
• Depository Services
• Logistics.
• Door Step Banking:
• DEMAT
• Investigations & Query Handling
• Finance Against Securities

Output Control

Output control is the group of activities carried out to check the correctness and authenticity of the
transactions processed at branches and other units of Service Delivery.

Broadly we can segregate the output control in two parts:

• Financial Transaction checking

• Static Data amendments checking

Financial Transactions Checking

Checking of those transactions which involve the flow of money by way of Account to Account transfer
and Cash paid or received affecting either customers’ or bank’s internal accounts
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Static Data Amendments Checking

Static Data amendments checking do not involve any financial transactions checking but these are
checking of amendments made to customer’s records – Stop Payment of Cheques, ATM/Debit Card
Hotlisting, Change of Address, Status of Account and any other amendments.

Cheque Book Issue

All the transaction accounts have cheque book facility issued only against properly made request by the
account holder. At branch, ATM, Phone banking, Internet Banking is used for ordering cheque books. At
the end of the day all manual orders input on CBO’s are checked against day’s order status query report
for accuracy.

Depository Services

Central depository service unit is at Mumbai. Internal services acts as the local window for depository
customers. Depository is the intermediary between the National

Depository Services Ltd. (NSDL) and bank’s customers. Depository holds the securities of the
instructions of the customers in electronic form and acts on the instructions of the customers to transfer
from to the account.

Logistics

It is one of the important departments of internal services. It deals with:

• Door Step Banking

• Investigation & Query Handling
• DEMAT

Door Step Banking

Door step banking or Consumer Banking, with an enhance customer convenience and provide more
effective means to reach customers has introduced logistics services. It would help reduce customer traffic
at branch and create an opportunity to generate fee income.

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The Door-Steps Banking include Cash pick ups/ Cash delivery/Cheque pick-ups /Draft
delivery/Document pick up/Bulk cash services.

cheques picks up, draft delivery, document picks up, bulk cash pick up. To avail this service accounts may
be in the name of persons and bodies like adult individuals, sole proprietorship, partnership firms,
associations, clubs, societies, corporate bodies

Demat

Shares of companies, which are actively traded in the market, can be sold only in electronic mode. The
shares are similar to bank balances maintained with any bank. Only difference being, balances of various
customers are kept separately.

According to SEBI regulations, demat trading of all shares of most of the companies is mandatory. To
make this possible, the depository ordinance was passed and NSDL (a

Depository set up by UTI, NSE and various other banks) was formed in 1996. Various entities (Banks,
custodians, clearing members) have signed up with NSDL as agents of the latter for offering depository
services to investors.

To convert the equity holding into electronic mode or purchase equity shares directly in demat mode, an
account is to be opened with a depository participant (DP), who on

clients behalf holds all shares in demat form in the DP account of the client. DP also keeps a track of the
holding of share by the client on a daily basis.

Investigations & Query Handling

Handling of Customer Complaints and Information to Regulatory Authorities:

Customer Complaints through Branches and Phone banking:

Internal services do the activity of investigation and resolution of customer’s complaints received from
various branches and phone banking. We here at SCB have a unique Command package for logging
customer’s queries which has inbuilt chain of escalation if a query remains unresponded within the time
specified in the query.

Business Financial Services

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 • Over Draft
Suppose a person is opting for an O/D of 2500000 by pledging his FD, then the O/D will be equal to 90%
of the FD (limit). Now say the interest is 10% p.a. then interest of 10% will be charged on the amount,
which the customer has used up. Better interest rate is applicable on assured securities but higher interest
rate is applicable on unassured collaterals.

• Term Loans
Term loans are basically taken for Business Expansion Purpose (e.g. infrastructure). The maximum time
period for loan is 5 years. They are repaid in EMI’s. The minimum time period for term loan is 3 months.
In this case, the customer is supposed to make one shot payment (say after 6 months).

• Letter Of Credit (LCS)

There are two types of letter of credit:

Inland letter of credit

Overseas letter of credit

• Bank Guarantees
Bank Guarantees are generally issues when transaction takes place between two parties residing at the
same place. The purpose of issuing bank guarantees is more or less same as that of letter of credit.

Pre-shipment / Post-shipment Credit

Pre-shipment credit

Loan taken before the goods are dispatched. The loan is taken when the contract is signed & the loan is
taken for carrying out dispatch.

Post-shipment credit

Loans taken after the goods are dispatched to the respective place. Thevarious types of credits are given
on the basis of certain collaterals or securities like FD’s etc.

BUDGETING -

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An itemized forecast of an individual's or company's income and expenses expected for some period in
the future. It is actually an organizational plan stated in monetary terms. They serve as a plan of action for
managers as well as a point of comparison at the period's end.

It is an estimation of the revenue and expenses over a specified future period of time. A budget can be
made for a person, family, group of people, business, government, country, multinational organization or
just about anything else that makes and spends money. A budget is a microeconomic concept that shows
the tradeoff made when one good is exchanged for another. In summary, the purpose of budgeting is to:

1. Provide a forecast of revenues and expenditures i.e. construct a model of how a business might
perform financially speaking if certain strategies, events and plans are carried out.
2. Enable the actual financial operation of the business to be measured against the forecast.
3. Makes easier to monitor the businesses progress.
A surplus budget means profits are anticipated, while a balanced budget means that revenues are expected
to equal expenses. A deficit budget means expenses will exceed revenues. Budgets are usually compiled
and re-evaluated on a periodic basis. Adjustments are made to budgets based on the goals of the
budgeting organization. In some cases, budget makers are happy to operate at a deficit, while in other
cases, operating at a deficit is seen as financially irresponsible.

The budget process and its objectives-

Managers have a responsibility for achieving the objectives of the operation. Operational objectives are
usually derived from the strategic plans, or more often in larger organisations the business plan.
The strategic plan of an organisation will set out the overall direction and goals of the business. Such a
plan helps the organisation to define the type of business, or businesses, it is in and states the long term
goals of the organisation. Long term goals are usually no more than 3 years in the constantly changing
modern business environment. Once long term objectives are decided upon they are broken down into
one-year elements in order to provide a short-term, tactical framework for the organisation's overall or
operational budget(s).
The management team is usually responsible for the preparation of budgets and the responsibility for
specialist areas is delegated to the appropriate manager or specialist in that operational area or team.
These areas may include sales, marketing, human resources, production and purchasing. In other words,
any operational area that is seen as essential to achieving the organisational objectives will have a specific
budget. The number of budgets prepared within an organisation will depend on the type of industry, size
of the business and the specific needs of management.
The accounting system of the operation provides information on what has happened in the past and helps
mangers to keep track of whether or not they are meeting their current budgets. Managers require
information not only from the past , however, they also need to use financial information to provide
expectations for the future. Budgets are therefore an expectation of what a manager agrees is achievable
within the immediate future and are mostly expressed in financial terms.
The absence of a strategic plan or targets set by senior management often leads to more informal goal
setting by business owners or managers. These types of plans usually rely on the use of business history
and past performances to predict the future in a more ad hoc manner. The disadvantage of this method for
financial planning is that other people do not have a clear direction of where the organisation is heading
and what they are expected to do to meet the organisations objectives. This method also uses information
that is based more on intuition than hard data and may not lead to an accurate understanding of the
financial position of the organisation.
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 What to include in a annual plan-

The main aim of your annual business plan is to set out the strategy and action plan for your business.
This should include a clear financial picture of where you stand - and expect to stand - over the coming
year.

An annual business plan should include:

• an outline of changes that are required for a business
• potential changes to market, customers and competition
• objectives and goals for the year
• key performance indicators
• any issues or problems
• any operational changes
• information about management and people
• financial performance and forecasts
• details of investment in the business

A typical business planning cycle-s

1. Review current performance against last year/current year targets.
2. Work out opportunities and threats.
3. Analyse successes and failures during the previous year.
4. Look at key objectives for the coming year and change or re-establish longer-term planning.
5. Identify and refine the resource implications of your review and build a budget.
6. Define the new financial year's profit-and-loss and balance-sheet targets.
7. Conclude the plan.
Review it regularly - for example, on a monthly basis - by monitoring performance, reviewing progress
and achieving objectives.

TYPES OF BUDGET

1. CAPITAL BUDGET

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Capital budgeting (or investment appraisal) is the planning process used to determine whether a firm's
long term investments such as new machinery, replacement machinery, new plants, new products, and
research and development projects are worth pursuing. It is a plan to finance long-term outlays, such as
for fixed assets like facilities and equipment.
Many formal methods are used in capital budgeting, including the techniques such as
• Net present value
• Profitability index
• Internal rate of return
• Modified Internal Rate of Return, and
• Equivalent annuity.

➢ Net present value

Each potential project's value should be estimated using a discounted cash flow (DCF) valuation, to find
its net present value (NPV). This valuation requires estimating the size and timing of all of the
incremental cash flows from the project. These future cash flows are then discounted to determine their
present value. These present values are then summed, to get the NPV. The NPV decision rule is to accept
all positive NPV projects in an unconstrained environment, or if projects are mutually exclusive, accept
the one with the highest NPV. The NPV is greatly affected by the discount rate, so selecting the proper
rate - sometimes called the hurdle rate - is critical to making the right decision. The hurdle rate is the
minimum acceptable return on an investment. It should reflect the riskiness of the investment, typically
measured by the volatility of cash flows, and must take into account the financing mix. Managers may use
models such as the CAPM or the APT to estimate a discount rate appropriate for each particular project,
and use the weighted average cost of capital (WACC) to reflect the financing mix selected. A common
practice in choosing a discount rate for a project is to apply a WACC that applies to the entire firm, but a
higher discount rate may be more appropriate when a project's risk is higher than the risk of the firm as a
whole.
➢ INTERNAL RATE OF RETURN

The internal rate of return (IRR) is defined as the discount rate that gives a net present value (NPV) of
zero. It is a commonly used measure of investment efficiency.
The IRR method will result in the same decision as the NPV method for independent (non-mutually
exclusive) projects in an unconstrained environment, in the usual cases where a negative cash flow occurs
at the start of the project, followed by all positive cash flows. In most realistic cases, all independent
projects that have an IRR higher than the hurdle rate should be accepted. Nevertheless, for mutually
exclusive projects, the decision rule of taking the project with the highest IRR - which is often used - may
select a project with a lower NPV.
In some cases, several zero NPV discount rates may exist, so there is no unique IRR. The IRR exists and
is unique if one or more years of net investment (negative cash flow) are followed by years of net
revenues. But if the signs of the cash flows change more than once, there may be several IRRs. The IRR
equation generally cannot be solved analytically but only via iterations.
One shortcoming of the IRR method is that it is commonly misunderstood to convey the actual annual
profitability of an investment. However, this is not the case because intermediate cash flows are almost
never reinvested at the project's IRR; and, therefore, the actual rate of return is almost certainly going to
be lower. Accordingly, a measure called Modified Internal Rate of Return (MIRR) is often used.

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Despite a strong academic preference for NPV, surveys indicate that executives prefer IRR over NPV,
although they should be used in concert. In a budget-constrained environment, efficiency measures should
be used to maximize the overall NPV of the firm. Some managers find it intuitively more appealing to
evaluate investments in terms of percentage rates of return than dollars of NPV.

➢ Equivalent annuity method

The equivalent annuity method expresses the NPV as an annualized cash flow by dividing it by the
present value of the annuity factor. It is often used when assessing only the costs of specific projects that
have the same cash inflows. In this form it is known as the equivalent annual cost (EAC) method and is
the cost per year of owning and operating an asset over its entire lifespan.
It is often used when comparing investment projects of unequal lifespans. For example if project A has an
expected lifetime of 7 years, and project B has an expected lifetime of 11 years it would be improper to
simply compare the net present values (NPVs) of the two projects, unless the projects could not be
repeated.
The use of the EAC method implies that the project will be replaced by an identical project.
Alternatively the chain method can be used with the NPV method under the assumption that the projects
will be replaced with the same cash flows each time. To compare projects of unequal length, say 3 years
and 4 years, the projects are chained together, i.e. four repetitions of the 3 year project are compare to
three repetitions of the 4 year project. The chain method and the EAC method give mathematically
equivalent answers.
The assumption of the same cash flows for each link in the chain is essentially an assumption of zero
inflation, so a real interest rate rather than a nominal interest rate is commonly used in the calculations.

➢ Real options

Real options analysis has become important since the 1970s as option pricing models have gotten more
sophisticated. The discounted cash flow methods essentially value projects as if they were risky bonds,
with the promised cash flows known. But managers will have many choices of how to increase future
cash inflows, or to decrease future cash outflows. In other words, managers get to manage the projects -
not simply accept or reject them. Real options analysis try to value the choices - the option value - that the
managers will have in the future and adds these values to the NPV.

2. CASH BUDGET

A forecast of estimated cash receipts and disbursements for a specified period of time.

An estimation of the cash inflows and outflows for a business or individual for a specific period of time.
Cash budgets are often used to assess whether the entity has sufficient cash to fulfill regular operations
and/or whether too much cash is being left in unproductive capacities.

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A cash budget is extremely important, especially for small businesses, because it allows a company to
determine how much credit it can extend to customers before it begins to have liquidity problems.

For individuals, creating a cash budget is a good method for determining where their cash is regularly
being spent. This awareness can be beneficial because knowing the value of certain expenditures can
yield opportunities for additional savings by cutting unnecessary costs.

For example, without setting a cash budget, spending a dollar a day on a cup of coffee seems fairly
unimpressive. However, upon setting a cash budget to account for regular annual cash expenditures, this
seemingly small daily expenditure comes out to an annual total of $365, which may be better spent on
other things. If you frequently visit specialty coffee shops, your annual expenditure will be substantially
more.

3. OPERATING BUDGET
Operating budgets relate to the physical activities/operations of a firm such as sales , production
,purchasing, debtors collection and creditors payment schedules.In specific terms, an operating budget has
the following components:
1. Sales budget
2. Production budget
3. Purchase budget
4. Direct labour budget
5. Manufacturing expenses budget, and
6. Administrative and selling expenses budget, and so on.

4. FIXED BUDGET

Budget which is made without regard to potential variations in business activity. Such budgeting might
be effective for companies with low variable costs, but otherwise is likely to be inaccurate.

5. ZERO BASED BUDGET

Budgeting method for a corporation or government in which all expenditures must be justified each year,
not just amounts in excess of the previous year.

6.FINANCIAL BUDGETS

Financial budgets are concerned with expected cash receipts/ disbursements, financial position and results
of operations. In other words ,a financial budget has the following components:

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 1. Budgeted income statement,
2. Budgeted statement of retained earnings
3. Cash budget, and
4. Budgeted balance sheet.

Flow Chart

1.Review last year’s cost

Use last year's figures - as a guide

Collect historical information on volumes and costs if they are available - these could give a good
indication of likely volumes and costs. But it's also essential to consider what future plans are & how
resources will be used and any changes in the competitive environment. Last year figures gives a general
and a rough idea about volumes and cost projections.
1. Volume trend forecast:
What are the projected volumes for the budget period. This includes:
• an outline of changes that you want to make to your business
• potential changes to your market, customers and competition
• your objectives and goals for the year
• your key performance indicators
• any issues or problems
• any operational changes
• information about your management and people
• your financial performance and forecasts
• details of investment in the business.

For eg. In the figure shown below a graph has been drawn on the basis of current year volume
trend and then a forecast for the next year on the basis of same has been made which gives a
rough idea about what could be the volume trend next year and accordingly the budget is
prepared.

2. Cost trend forecast:

Costs - typically, a business will have three kinds of costs:
1. Fixed costs - items such as rent, rates, salaries and financing costs
2. Variable costs - including raw materials and overtime
3. One-off capital costs - purchases of computer equipment or premises
First step is to break down the fixed costs and overheads by type, eg:
• cost of premises, including rent, business rates and service charges
• staff costs - e.g. wages, benefits, National Insurance
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• utilities - e.g. heating, lighting, telephone
• printing, postage and stationery
• vehicle expenses
• equipment costs
• advertising and promotion
• travel and subsistence expenses
• legal and professional costs, including insurance

“ How costs behave”

Different kinds of costs are said to 'behave' in different ways. Fixed costs are, as the name suggests, fixed
and will remain at the same level regardless of the number of units of output. For example, rent of a
building doesn't change with a change in the number of units produced, but variable costs relate directly
to the units of output and are expressed as dollars per unit. Variable costs, such as the cost of raw
materials, increase as the number of units of output increases and vice versa.
While there is a tendency for fixed costs to be indirect and variable costs to be direct this is not always
true. The concepts of direct/indirect and fixed/variable are very different and many operations have
variable overheads (an indirect cost) or direct labour as a fixed cost, particularly over a short period of
time.
Adding together fixed costs and the variable costs gives the total cost. Also adding together direct costs
and the indirect costs also gives the total cost. With a single product/service organisation simply add the
fixed and variable costs and allocate the total across all units of output, but with a multi product/service
organisation allocation of the direct costs to the units of output and apportion the indirect costs 'fairly'
across the units of output should be done.

“Allocating Overheads”
By looking at overhead costs (or indirect costs) as being incurred while providing a service to the process
that produces the output. In a business with a single line product or service all the overheads are incurred
in providing a service to the output process. In a business with multi-product or service lines we must
decide how much of the service provided by the overheads is used by each line of product or service
output .After working out a split of the services provided by the overheads, apportion the cost.
So the problem is to find a basis or measure by which the amount of services provided by the overheads is
used by each kind of output. This basis must be observable and in some way measurable. One way to do
this is to share out the overheads equally over the units of output, and this can be done if the outputs get
the identical benefit from the overheads.
In practice, a commonly used method is based on direct labour hours (DLH). The logic is that a product
or service output that requires more direct labour hours is using more of the services from the overheads.
Also many overheads relate to time. For example, the expenses related to rent, lighting, heating,
manager's salaries and other overheads for a week will be close to half the amount for two weeks and so
on. Direct labour hours are easily measured and can be related directly to each job. This information is
already collected to calculate the direct labour cost for each job.
There isn't a single 'correct' way to allocate overheads. By definition overheads don't relate directly to a
job, so the best can be done is find a basis that seems logical or fair. As we want to give useful
information to decision makers any method that gives 'acceptable' results is an acceptable method.
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4.Macro level assumptions on future initiatives ,changes & business road map-
Identify and think through all the critical assumptions. Prepare outline projections to confirm their overall
direction, examine the critical elements in detail and consider strategic issues relating to volumes,
profitability, funding etc.

- Some assumption variables used to produce projected P&Ls, cashflows and balance sheets
for a business.
Tax rates Accumulated depreciation
Interest rates Prepayments/accruals
Management & administration Material/WIP stocks
General overheads Capital expenditure
Changes in loans/debt Share issues
Bad debt provisions Direct manpower levels
General overheads Capital & revenue grants
Operating leases & HP Dividends
Target finished stocks Wage rates
Fixed asset values Fixed asset disposals
Intangible assets Material costs

It also includes defining the key objectives for the coming year and change or re-establishment of longer-
term planning.
5.Discussion & approval from higher management on macro level-

Budgeting process starts initially at macro level. Initially it is allocated for organisation as a whole & then
divided accordingly for regions, units and sub units (eg. First it will be allocated for a organisation then
can be divided for regions which can be further subdivided area wise then comes into picture different
units and then different departments).This is done keeping in view the above mentioned guidelines i.e.
volume& cost trend analysis and other market regulatory trends. Once higher management approves the
macro level budget then middle management and regional managers allocate their budget accordingly.

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6.Feedback & inputs from middle management-

After approval at macro level budget is allocated by middle management and smaller units and sub units.
It is then combined and compared with macro level budget and differences are analyzed. Any increases or
dips in the budget should be explained fairly.

It's best to ask staff with to provide with estimates of figures for budgeting purpose. It’s a very important
step as by balancing their estimates against own, helps in achieving a more realistic budget. . This
involvement will also give them greater commitment to meeting the budget.

7.Micro level distribution of budget on basis of business volumes &business area-

On the basis of projected volumes and cost trends the budget allocated is reviewed and valued
accordingly.
8.Review & discussion between higher management & middle management-
Now higher management and middle management budgets i.e. budget at organizational level and budget
at unit level are compared. If it matches then the process is continued and actual allocation of budget is
done otherwise the whole process is reanalyzed.
9.Allocation of budget-
Based on above mentioned steps the final budget is allocated.
10 Monthly review of cost over budget by management-
Review it regularly - for example, on a monthly basis - by monitoring performance, reviewing progress
and achieving objectives and compare budgeted with actual performance.

ANNUAL CYCLE FOR BUDGETING

CONCLUSION:

To conclude budgeting is an essential process for an organization. It is an itemized forecast of an

individual's or company's income and expenses expected for some period in the future. It is actually an
organizational plan stated in monetary terms. They serve as a plan of action for managers as well as a
point of comparison at the period's end. are various assumptions made like market trends etc. The
strategic plan of an organisation will set out the overall direction and goals of the business. Such a plan
helps the organisation to define the type of business, or businesses, it is in and states the long term goals
of the organisation. Long term goals are usually no more than 3 years in the constantly changing modern
business environment. Once long term objectives are decided upon they are broken down into one-year
elements in order to provide a short-term, tactical framework for the organisation's overall or operational
budget(s).

It is a stepwise cyclic process and is viewed and reviewed periodically and involves various process like
forecasting for volumes and cost and involves middle as well as higher management for forecasting
process and their views. Although this process is not that accurate but attempt should be to make the
process as accurate and absolute as possible .The assumptions made should be proper and should be
reasonable.

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BIBLIOGRAPHY

Accountancy by khan&jain

www.standard chartered.com

www.icici.com

www.google.com

www.hdfc.com

www.citibank.com

Standard Chartered Bank

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