A STUDY ON THE PROBLEMS FACED BY

NATIONALISED BANKS AND HOW TO RESOLVE

IT

BACHELOR OF COMMERCE

BANKING AND INSURANCE

SEMESTER- V

ACADEMIC YEAR 2017-18

SUBMITTED

IN PARTIAL FULFILLMENT OF THE

REQUIREMENTS FOR THE AWARD OF DEGREE

OF BACHELOR OF COMMERCE- BANKING AND

INSURANCE

BY HUNNEY MASAND

ROLL NO 35

UNDER THE GUIDANCE OF

PROF. RUSHIKA CHAVDA

JAI HIND COLLEGE

'A' ROAD, CHURCHGATE, MUMBAI 400020

ACKNOWLEDGEMENT

It is really a matter of pleasure for me to get an opportunity to thank

all the persons who contributed directly or indirectly for the
successful completion of the project report, FINANCIAL ASPECTS
OF PAYTM POST DEMONETIZATION

The successful completion of project involved the contribution of time

and efforts The project would never have been completed without the
valuable help extended to us by the subject teacher and project guide
Prof. RUSHIKA CHAVDA

Secondly would like to thank to my college JAI HIND COLLEGE

for providing me with this opportunity and for all its cooperation and
contribution.

I would also like to thank all my friends to help me in this project

work and giving their precious time to me.I am also grateful to all my
faculty members for their valuable guidance and suggestions for my
entire study. Last but not the least I would like to thank our parents for
making us capable in doing this project and giving their continuous
support and guidance
DECLARATION

I HUNNEY MASAND Student of JAI HIND COLLEGE hereby

declare that the project for the “PROBLEMS FACED BY

NATIONALISED BANKS AND HOW TO RESOLVE IT” titled

is my original work and has not been published or submitted for any

degree, diploma or other similar titles elsewhere.

Submitted by me for Semester-V during the academic year 2017-18,

is based on actual work carried out by me under the supervision of

Prof. RUSHIKA CHAVDA

Signature of student
 EVALUATION CERTIFICATE

This is to certify that the undersigned have assessed and evaluated the
project on,

“PROBLEMS FACED BY NATIONALISED BANKS AND

HOW TO RESOLVE IT”

Submitted by HUNNEY MASAND student of TYBBI. This project is

original to the best of our knowledge and has been accepted for
Internal & External Assessment

Internal Examiner: External Examiner

Prof. Rushika chavda Prof.

Course Co-ordinator: Principal:

Prof.YasminSingaporewala Dr. Ashok Wadia

COLLEGE SEAL
INTRODUCTION

The banking sector is one of the biggest service sector in India and nowdays is in

a way to attract the biggest market of Asia in investment. The banking sector

today is focusing on how to provide efficient services to its customers. The Indian

Banking System consisting of various public and private sector financial

institutions whose objective is serving the people for their financial and economic

needs

The RBI has given licenses to new private sector banks as a part of the

liberalization process. Many banks are successfully running in retail and

consumer segment but are yet to deliver services to industrial finance, retail trade,

small business and agricultural finance. Today the banking industry, which was

tightly protected by regulations is now experiencing a rapid change. Now it is no

more confined to nationalized and cooperative banks but has emerged with

multinational banks who have spread their branches across the length and breadth

of the country. The entry of private players in the industry has altogether

transformed the banking arena. Now the consumers have a choice of transacting

either in traditional way or the new multi channel banking i.e. A.T.M., Net

banking, Tele banking etc. Banks today are thus providing large number of

quantitative services along with qualitative dimensions. According to K.P.

Padamakumar, Chairman, Federal Bank, “Banks are increasingly facing sliding

margins and fierce competitions. It is imperative to increasing volumes and

reduce operational cost.” Thus due to tough competition in the banking sector and

due to the entry of private players, the quantity of services of the banks are
increasing day by day but as far as quality is concerned, it is continuously

deteriorating. Today the customer customers first “because “Customer is the

king“for the proper functioning of the Indian Banks today.

HISTORY

The history of nationalization of Indian banks dates back to the year 1955 when

the Imperial Bank of India was nationalized and re-christened as State Bank of

India (under the SBI Act, 1955). Later on July 19, 1960, the 7 subsidiaries of SBI

viz. State Bank of Hyderabad (SBH), State Bank of Indore, State Bank of

Saurashtra (SBS), State Bank of Mysore (SBM), State Bank of Bikaner and Jaipur

(SBBJ), State Bank of Patiala (SBP), and State Bank of Travancore (SBT) were

also nationalized with deposits more than 200 crores.

In the Indian banking scenario, most public sector banks are referred to as

Nationalised Banks. This classification is, however, inaccurate. According to the

IMF (International Monetary Fund), “Nationalisation” is defined

as “government taking control over assets and over a corporation, usually by

acquiring the majority or the whole stake in the corporation”.

 In 1949, during the early years of the country’s independence, India’s central

bank, the RBI (Reserve Bank of India) became the first bank to be nationalised.

This was an important move since the RBI would soon become the regulatory

authority for banking in India. Most Indian banks at that time were privately

owned. Thus, the Indian government then recognized the need to bring them

under some form of government control to be able to finance India’s

growing financial needs.

FUNCTIONS OF NATIONALISED BANKS

FUNCTION OF NATIONALIZED BANKS IN INDIA

The bank perform several crucial functions, which may be classified into two

category

(a ) Traditional function / Core function

(b) Modern function

TRADITIONAL FUNCTION / CORE FUNCTION : Basic or Traditional

functions of a bank are very important in nature. These functions provide base of

the whole operation of the bank. The basic functions of a bank are as under:
Accepting the Deposit: A bank accepts deposit from the public. People can

deposit their cash balance either of the following accounts as per their

convenience. The deposit can be accepted in the following manner

Fixed deposit: Cash is deposited in the account for the fixed period. The

depositor gets receipts for the amount deposited. it is called fixed deposit receipt.

Fixed deposits refer to those deposits, in which the amount is deposited with the

bank for a fixed period of time.

Current Deposit: A depositor can deposit his funds any times and withdraw the

same amount at any time he wishes. The business man mostly preferred to open

this type of account.The depositor can get the benefit of overdraft facility.

Saving Deposit: The main objective Of saving deposit is to mobilize small

savings in the form of deposits. This account encourages and motivates to small

businessmen and small saving person like tea stall etc. This account is suitable for

salary and wage earners. In this type of account charges of interest is very low.

This account can be opened in single name or in joint names.

Other deposit: There may be other deposit to saving their fruits of money like

deposit in Home Safe Saving Account, Recurring Deposit Account etc.

Advancing Loan: Another primary function of the commercial bank is to

advancing the loans. A certain part of the cash received by the bank as deposits is

kept in the reserved and rest is given as loan.

Banks generally give following types of loans and advances:

Cash Credit: The word cash credit means to give cash on credit. It can be given to

current account holders as well as to others who do not have an account with

bank. In this type of credit scheme, banks advance loans to its customers on the

basis of bonds, inventories and other approved securities. Under this scheme,

banks enter into an agreement with its customers to which money can be

withdrawn many times during a year. Under this set up banks open accounts of

their customers and deposit the loan money. With this type of loan, credit is

created.

Overdraft : Overdraft is a short-term loan granted by commercial banks to their

account holders. Under this type of loan, the customers are allowed to draw more

than what they have in their current account up to a certain limit. The excess

amount overdrawn is called overdraft.

Loans : Loan is a basic need for all businessman and organization. Business

cannot set or start without taking loan. So Commercial banks grant loans for

short and medium-term to individuals and traders against the security of movable

and immovable property. The amount of loan is credited to the borrower’s

account. Interest is charged on the entire loan sanctioned. Loans are normally

secured against tangible assets ( which can be seen and touch like land & building

of the company.

Discounting Bill: Discounting the bills of exchange means that facility is given to

hold who can get the bill discounted with bank before the maturity. Bill

discounted is also considered as a highly earning liquid assets and is included

among the “money market Assets” Banks provide short term lean to the

businessmen by discounting bills of exchange. The payment made by the bank to

the holder of bill of exchange before its maturity is the amount of loan.

The discount charged is the earning of the bank.

• HOUSING FINANCE

• EDUCATIONAL LOAN

• LOANS AGAINT SHARES

• LOANS AGAINST SAVING CERTIFICATE

• CONSUMER LOANS

B. MORDEN FUNCTION It is also important function of the bank and this

function consists two parts like Agency function & other service utilization

function Agency function: The bank is in unknown name as a agent for its

customers. The bank performs number of agency functions which includes.

1. Money Transfer from one branch to another from one place to another.

2. Bank also collects money of the bills of exchange.

3. Giving clearly instructions of the client for periodic payments

4. Purchase and sell the shares and debentures.

5. Receiving periodic collection of salary, pension & dividend.

6. Trustee and executor

7. Letter of references 8. Collection of cheque ,dividends, interest

9. Payment of rant, insurance, premiums

10. Dealing in foreign exchange

11. Act as correspondent

12. Preparation of income –tax return.

Other services / functions: In the other services its included general utility

function and development function

1. It provides safety not only for money but also for wealth.

2. It also mains arrangement for the traveler for cheque and letter of credit.

3. Information relating to economic position

4. Consultant service also provided like Financial Advisor

5. Correct and right information given to Public

6. Accepting of Bills
7. Security of Loans

8. Personal Credit

9. Management of Public Debt

10. Share Market Function

11. Management of foreign exchange.

12. Creating money

IMPORTANCE OF NATIONALISED BANK

In her broadcast to the nation on the eve of nationalisation of the fourteen leading

Indian banks, she summed up the objectives of the nationalisation as, "The

present decision to nationalise major banks is to accelerate the achievements of

our objectives.

The purpose is to expand bank credit to priority areas which have hitherto been

somewhat neglected. It also includes,

(i) The removal of control by a few

(ii) Provision of adequate credit facilities to agriculture, small industry and

exports

(iii) The giving of professional bent to bank management

(iv) The encouragement of new classes of entrepreneurs, and

(v) The provision of adequate training as well as reasonable terms of service for

bank staff ".

B. Prof. Sayers

Prof. Sayers supports the nationalisation and gives his views under the following

four issues.

1. Efficiency issue:

According to Sayers, nationalisation will increase the efficiency of commercial

banks as given below.

(i) Deposits will increase because of increasing confidence in public sector bank.

Increase in bank resources will lead to economics of scale.

(ii) The government can appoint experienced personnel to run and manage the

banks.

(iii) Govt, has the countrywide administrative network. Hence, it can make

suitable changes in the banking policies according to the prevailing trends in the

economy.

(iv) Nationalised banks can have the main motive of public service.
(v) Public sector banks can give preference to priority sectors in advancing loans.

Thus, nationalisation promotes efficiency.

2. Monetisation issue:

Commercial banks accumulate deposits from the public. Therefore, they are in a

position to bring changes in the supply of money. Such an important power

should not be in the private sector. It is the public sector that should have the

control over money supply.

3. Integration issue:

Central Banks are established by the Govt, for overall monetary control in the

economy and is not aiming at profit. But commercial banks are started mainly to

earn profit. Thus, there are contradicting objectives between Central Bank and

commercial banks.

In this situation, the Central Bank may find it difficult to implement its policies

when the commercial banks oppose them. Therefore, in the interest of co-

ordination and cooperation between them, commercial banks should be

nationalised.

4. Socialisation issue:

When a country aims at socialistic pattern of society, then the rol^ of public sector

undertaking should be extended in all spheres of the economy. To start and run

the public sector undertaking Govt, requires enormous financial requirements.

Private commercial banks may obstruct such policies and may not finance public

sector undertakings and above all they may discriminate against them. Therefore,

the nationalisation of commercial banks will be necessary if the government

wants to establish socialism.

C. Views given by others

1. Preventing concentration of economic power:

Initially, a few leading industrial and "business houses had close association with

commercial banks. The directors of these banks happened to be the same

industrialists who established monopoly control on the bank finance.

They exploited the bank resources in such a way that the new business units

cannot enter in any line of business in competition with these business houses.

Nationalisation of banks, thus, prevents the spread of the monopoly enterprise.

2. Social control was not adequate:

The 'social control' measures of the government did not work well. Some banks

did not follow the regulations given under social control. Thus, the nationalisation

was necessitated by the failure of social control.

3. Channel the bank finance to plan - priority sctors:

Banks collect savings from the general public. If it is in the hand of private sector,

the national interests may be neglected, besides, in Five-Year Plans, the

government gives priority to some specified sectors like agriculture, small-

industries etc. Thus, nationalisation of banks ensures the availability of resources

to the plan-priority sectors.

4. Greater mobilisation of deposits:

The public sector banks open branches in rural areas where the private sector has

failed. Because of such rapid branch expansion there is possibility to mobilise

rural savings.

5. Help to agriculture:

If banks fail to assist the agriculture in many ways, agriculture cannot prosper,

that too, a country like India where more than 70% of the population depends

upon agriculture. Thus, for providing increased finance to agriculture banks have

to be nationalised.

6. Balanced Regional development:

In a country, certain areas remained backward for lack of financial resource and

credit facilities. Private Banks neglected the backward areas because of poor

business potential and profit opportunities. Nationalisation helps to provide bank

finance in such a way as to achieve balanced inter-regional development and

remove regional disparities.

7. Greater control by the Reserve Bank:

In a developing country like India there is need for exercising strict control over

credit created by banks. If banks are under the control of the Govt., it becomes

easy for the Central Bank to bring about co-ordinated credit control. This

necessitated the nationalisation of banks.

8. Small stake of shareholders:

The nationalised banks had deposits totalling Rs. 2742 crore at the end of

December 1968. But the capital contributed by their shareholders was only Rs.

28.5 crore, which was just 1% of deposits. Even if we include the reserves, the

amount comes to only 2.4% of the banks deposits with such a small and

insignificant stake, it is unjustifiable to allow the private shareholders to exercise

control over such vital credit machinery with large resources.

9. Greater Stability of banking structure:

Nationalised banks are sure to command more confidence with the customers

about the safety of their deposits. Besides this, the planned development of

nationalised banks will impart greater stability for the banking structure.

10. March Forward towards Socialism:

India aims at socialism. This requires the financial institutions to run under the

government's control and only through nationalisation, this objective can be

effectively achieved.

11. Better service conditions to staff:

Nationalisation ensures the staff of banks to enjoy greater job security and higher

emoluments. It can provide other benefits as well. In this way the banks can

motivate their staff and thereby the operational efficiency of banks will be

increased.

12. New schemes:

Through nationalised banks, new schemes like village adoption scheme, Lead

Bank Scheme can be formulated and implemented. Besides, different types of

financial facilities can be extended to persons like Doctors, Engineers, Self-

employed persons like artisans etc.

ROLE OF TECHNOLOGY & ISSUES RELATED TO IT IN

NATIONALISED BANKS

Nationalisation of banks creates great interest among various sections of the

public. Many hopes were raised in the middle class and poor people with regard

to the financial assistance. The nationalised banks drew up a number of schemes

to assist new types of customers and are plans to make each of these banks to

adopt a few select districts and concentrate on their intensive development.

COMPUTERIZATION
Earlier banking industry had two main functions primary and secondary. Primary

functions included granting of loans and advances and accepting deposits.

Secondary functions were providing customers with facilities of foreign

exchange, issuing demand draft and pay orders, undertaking safe custody of

valuables, important documents, securities, by providing safe deposit vaults or

lockers. While performing these activities banks as well as customers had to face

many problems like large no of queues, large no of files were there to record data

manually and due to which there was a huge wastage of time. In spite of these

problems Indian banks also faced also faced difficulty in competing with the

international banks in terms of customer service without the use of technology.

AFTER COMPUTERIZATION

Computerization in Indian banking sector and the use of modern innovation has

increased many folds after the economic liberalization as the country‟s banking

sector has been exposed to the worlds market. In 1984 a committee was formed

by RBI on mechanization in the banking industry whose chairman was Dr. C

Rangarajan, Deputy Governor of RBI. Under mechanization an electronic ledger

posting machine was installed which included a type writer keyboard, a printer,

two floppy disc drives and a video screen. The machine was used to prepare

statement on accounts for customers, maintaining primary ledgers and post

transaction entries in them. The reports were submitted by the committee in 1989

and computerization began from 1993 with the settlement between bank

administration and bank employees association. In 1994 for issues related to

payment system, security settlement and check clearing a committee on

technology was set up in the banking industry which emphasized on Electronic

Funds Transfer system.

TABLE: Changes In Banking Technology Transformation Banking Modern

Banking Sell product Meet customer needs Product research Customer research

Product sale & profitability target sale Customer segment sale & profitability

Introduce new offering every few months/years Introduce customer specific new

offering every week/day Banking hours only Any time banking Personal contacts

Personnel and electronic contacts Focus-Customer acquisition Focus-deepen

existing customer Relationship

III. Milestones In Indian Banks And It Transformation

MICR ( MAGNETIC INK CHARACTER RECOGNITION )

During the years 1986-88 MICR was introduced. MICR technology was used

principally by the banking industry to smooth the progress of the processing of

cheques and develops the routing number and account number at the bottom of a

cheque. This allowed computers to translate information ( like account numbers)

off printed certificates. From the late nineties all branches started handling

government business to perform their functions using technology for facilitating

computerization of government business.

IDRBT (Institute for Development & Research in Banking Technology ) In

1996 a committee was formed by RBI in Hyderabad to upgrade technology in

payment system. IDRBT was thus established as a result of recommendation of

committee. Under the Information Technology Act, 2000;IDRBT ensured that e-

banking transactions will get requisite legal protection with the commencement

of Certification Authority(CA) functions.

IS AUDIT (information systems audit ) Its purpose is to determine systems

internal control design and effectiveness which included security protocols.

Guidelines related to it were made and circulated to ensure IS audit in banks.

ATM‟s ( AUTOMATED TELLER MACHINES ) Enabling IT channels which

enhances customer service at banks in areas such as cash delivery through card

based transaction settlements, Automated Teller Machines (ATMs).etc.

E-BANKING ( INTERNET BANKING ) E-Banking allows financial

institution customers to conduct a secure financial transaction on website to have

personal access to internet a customer must register for the service to the

institution and some password will be set-up for verification of customer.

RTGS ( REAL TIME GROSS SETTLEMENT ) Computerization In Banks -

Some Issues www.iosrjournals.org 3 | Page It is a transfer system for funds where

money is being transferred from one bank to another bank on gross and real time

basis. When there is no waiting period for payment transaction the settlement is in

“real time”. One to one basis settlement of transaction without clustering or mesh

with other transaction is “gross” settlement.

IV. Transformation Stages In Indian Banks

STAGE OF TRANSFORMATION STRUCTURE OF BANKS

OBJECTIVES OF THE BANKS NATURE OF TECHNOLOGY USED

Pre-Nationalized banks(before 1969) Post-Nationalized Banks(1969-90)

Economic Reforms (1991- 2000) Current Stage Private control of banks Control

of Govt. Entry of foreign and NPSBs-Social Banking to IT based Banks

Implementation of various committees report Higher profitability Social Banking

Higher profitabilityFierce Competition New products and services Manual work

Limited Computerization E-banks Maximum use of IT- Mobile ATMs

PARAMETERS OF TRANSFORMATION PROCESS IMPLICATIONS

Structure Business re-engineering Human resources development Work culture

Information Technology System, Process and Procedure Ethos/Philosophy IT as

the catalyst of information Improved and efficient structure Improved vision for

business Productivity, Profitability and Efficiency has increased. Innovation are

taking place. International Outlook Inspire employees -More ethical work culture

-Vision for global economy

V. Technology Used: Automated clearing House (ACH): To handle cheques in

clearing house computers are used. It is difficult to clean up, substitute and

establish transactions within many banks. To increase the process and wiping the

operations immediately an deficiently computers are used in cleaning house. ACH

allows huge number of credit and debit transactions in batches. Computerization

In Banks -Some Issues www.iosrjournals.org 4 | Page

National Automated clearing house Association (NACHA): It helps to transfer

debit for point-of-purchase conversation check. ACH payment is being

implemented by both commercial sector and government. Business is also

improving by using ACH to accumulate online payment from customers than

accepting debit or credit cards. NACHA and Federal Reserve established rules

and regulations to govern ACH network.

Electronic Clearing Services (ECS

ECS uses services of cleaning house to transfer funds from one to another bank

account. This is used for large transfers from one to many accounts or vice-versa.

Types of ECS:- Two types of ECS are ECS (credit) and ECS (debit).

1. ECS (credit)-it is used to allow credit to huge number of receivers by raising

only one debit to an account like interest, salary payment, pension

2. ECS (Debit)-it is used to inflate debits to a huge number of accounts of

customers or account holders for honoring a particular institution e.g. utility

companies payments like telephone, house tax charges, water tax charges.
5.2 ELECTRONIC FUNDS TRANSFER (EFT): It is electronic transfer or

exchange of money from one to another account. This exchange of money takes

place across multiple financial institutions through computer systems to help

banks offering money transfer service to their customers from any bank branch

account to other branch bank.

5. CARDS TRANSACTION: Debit card is an alternative method of payment of

cash when transactions are being made. While using it cardholder can see

available balance in account. Debit cards are widely used to withdraw cash from

ATM, to purchase online on internet, making bill payments, transferring funds,

etc. during opening of account banks provide free of cost debit cards. From Jan

1st 2011, RBI announced that user has to enter password on ATM for every

transaction with debit card.

5.4CORE BANKING: To adopt core banking solutions (CBS), computerization

in branches of banks is closely related with the technological development.

Computerization In Banks -Some Issues www.iosrjournals.org 5 | Page TABLE:

Branches Under Core Banking (In %) Name of the bank Branches under core

banking solutions Public Sector Banks 90% Nationalised Banks 85.9% State

Bank group 100 Source: Details on Trend and Growth of Banking in India 2009-

10, P-
5.8 AUTOMATED TELLER MACHINE (ATM): ATM is used for many

functions of banks like to withdraw cash, to print bank statements, to transfer

funds, reservation of train tickets, to pay premiums. TABLE: Growth In ATM

Installation (2005 To 2009)

Year Number of ATMS

2005-06 21110

2006-07 25247

2007-08 34547

2008-09 43651

Source: Cyber Media DQ Estimates Research Graph: Details On Trend And

Growth Of Banking In India 2008-09 At the end of march 2009 ATM‟s were

installed in the country , largest share in off-site ATM‟s were eighth private

sector banks while largest share in on-site ATM‟s was with nationalized banks.
PROBLEMS AND SOLUTION TO MANPOWER IN NATIONALISED

BANKS

Factors leading to Manpower planning in PUBLIC SECTOR BANKS::

Manpower planning in banking gained importanc after nationalisation of major 14

commercial Banks in the year 1969. Banks were asked to involve themselves in

the overall planning process of the National financial resources as well as

development and certain targets were thirsted on them to fulfill National

commitments. Immediately after declaration of first phase of Bank

Nationalisation, the Government introduced District Lead Bank Scheme for credit

planning and effective credit delivery as well as monetory systems. As an effect

of this scheme all the districts in India, were allotted to various Banks, on the

strength of the spread of branches and the resources available in a particular area.

Under the new credit policy enunciated by the Government through the Reserve

Bank, to strengthen credit to financially neglected sectors, which were termed as

Priority Sectors; physical and figural/amount targets were insistted upon. Branch

expansion programme of newly nationalised Banks was directed to be chalked out

in accordance with the development plans given under various priority sectors and

more stress was given to open banking outlets i.e branches in Rural and Semi-

urban areas. Reserve Bank fixed a ratio of 1:4, while issuing licences to open new

branchesin non-rural areas. J.IU 106 As various banking activities ar e carried out

through the Manpower at various levels, while determining various physical and

monetory targets, Banks were compelled to give th ught to priliminary aspect^' of

available manpower, development of the same in view of the forthcoming

business challanges to trace out the gaps and\ to plan to fill them, in due time and

therefore, ' Manpower planning in Banking started.

At the initial stage, the process was at the root level of functioning i.e. the

Branch, when the branches were asked to undertake additional business

challanges in view of the changed situation in banking due to nationalisation .

While reporting the reasons for non-fulfillment of the given targets, or while

stating the reasons for the lapses created/occured in the day-to-day working,

pointed out through periodical Inspection reports and/or audit reports, branches

started to justify their positions as 'Inadequate manpower".

While comparing the previous position of workload and the then prevailing

workload,even the masso level offcers also concured with the views of the

branches and pleaded with the respective head offices of the Banks to provide

additional manpower before thirsting any new business challanges.

3.11 This was the high time for the corporate level offices to give due weightage

to the development of manpower planing. To start with Banks decided to impart

suitable training to the existing manpower to mould them mentally to accept the

new business challanges. New motivational processes were brought in. Direct and

indirect motivational processes were introduced in banking. Result achieving

functionaries were rewarded and the defaults in any areas started to be punished.

Salaries and perks were restructured and simultineously Banks introduced Service

Regulations for various classes of employees.

In addition to nationalisation of Banks, Government introduced several measures

to change the face of the economy. MCst of these measures aimed at Rural

development and upliftment of economically backward classes.

Nationalised Banks were assigned a major role in implementation of

schemes like 20 point programme, I.R.D.P. ect. Twenty point socio-economic

development programme was announced by the Government in the year 1975.

Differential rate of interest scheme to extend financial assistance to the poors was

launched in the year 1972. Employment promotion programme was also launched

in the same year. 30fT

3.12 New 20 point programme was launched in the year 1980, wherein more

stress was given on Rural development. This programme was followed by

introduction of Integrated Rural Development plan in all the blocks throughout

the country. New schemes to develop young enterprenuership was launched in the

year 1983. Another new scheme to extend financial assistance to the urban-poor

was launched in the 1986. This was an outcome of declaration of revised 20 point

socio-economic development programme. \

Concept of service area approach was launched by the Reserve Bank of India to

change the village adoption scheme.

District level credit planning was shifted to the village level credit plans and

Block level development Plans. All these things mounted pressure on the

manpower to extend economic socio-Banking services, which brought higher

workload with comparatively limited manpower, so as to keep the services cost in

control; but simultaneously to give effective results for achievement thereof.

These factors forced Management of Public Sector Banks to bring more and more

improvement in the available manpower

In sum, Nationalisation assigned new role and responsibilities to Public sector

Banks, which required manpower of different qualities committed to social

development through banking. In view of existing challanges and challanges in

future, manpower planning was accepted as necessity by the Public Sector Banks.

As such Public Sector Banks were required to:-

1. Redefine jobs in view of new banking business concepts.

2. To provide suitable Manpower for undertaking branch expansion programme

in Rural areas.

3. To recruit manpower of different categories and for this to redefine categories.

4. To adopt a suitable selection process inrespect of manpower to be brought- -in

. 5. To make suitable positions in accordance with the –

(a) Business needs,

(b) categories of employees,

(c) type of job,

(d) experience & skill of a person.

(e) educational background i.e. proficiency

6. To provide induction training before placing an employee on the job.

7. To place an employee on a particular job

. 8. To evaluate job & performance.

9. To appraise performance of an employee.

10. To draw a suitable policy of change of job.

11. to devise a transfer policy;

12. to award promotions to the deserving manpower in view of :-

(a) fulfilling the gaps in higher position

(b) to motivate employees to rise;

(c) to create a sense of responsible position.

13. To draw a suitable system of enrichment of job.

14. To draw a compensation plan for work done; in the form of

salaries,allowances; perks and non-monetary facilities.

15. To encourage the manpower in promoting informal motivational processes

such as employees study clubs; quality circles; sports and cultural activities,

library, social activities, unions etc.

Each of these aspects are discussed here and in the forthcoming chapter, in the

light of 1. year-wise positions of PSBs inrespect

(a) number of total branches;

(b) categories of manpower with positions.

(c) Organisational structure.

J.lb ]) 3.6;; ORGANISATIONAL LEVELS:; Manpower planning in Public

Sector Banks is an organisational concept to run and administter the overall

banking business. Manpower is categorised in two stages:

1. Management or supervisory part;

2. Functioning/assisting or Award staff Supervisory part of Management includes,

Top manageent, senior Management, Middle Management, Junior Management,

routine supervisors i.e. special assistants. Award staff or assisting part includes

clerks of all levels, subordinate staff of all levvels. In Banking organisations, the

levels of organisations and Administration of business determined as per the

organisational needs of respective organisation. In.,general, as per the directives

of Indian Banks' Association. There are various levels constituted in Banking for

effective Administration of business as well as Manpower at the business.

These levels are:-

1. Head office / Central office;

2. Zonal office;

3. Regional office; and

4. Branch office.

1. Central office level:: All the subjects handled at the branches, the Regional and

Zonal level offices as well as centrally managfjd and ccjiitr.jlled through the

Central office, which is the top mostt level in the organisation.

2. Zonal level comes under the Central office ill the hierarcchical order; which

contains more than two upto six Regional offices .a\ongwith the branches of the

Regional level status. Regional bo.nK Rural Banks sponsored by a particular )>

wi':h Its Zone; are also monitored through this level office

3- Regional level: offices are functioning uider Zonal level office. Each Region

situated of 30 to 80 branches, depending upon the area and the business.

4. Branch level: For the purpoe of" efffective results, manpower planning

process at various branches is categoriesed as per different areas, size of business,

and the age of the branches

AREAS :: Populationwise areas are classified as per the Government pattern. As

such four areas have been classified as

(i) Metropolitan;

(ii) urban;

(iii) semi-urban and

(iv) Rural; as per thearea, rate of deployent of manpower differs.

SIZE OF THE BRANCH: Branches are classified interms of size . The rate of

manpower deployment differs. Branches according to sizes are classified as:-

a) Small branch having retained business X upto Rs.1.5 crores ,

b) Medium branch having retained business from Rs.1.5 crores upto Rs.7.5 crores.

c) Large branch having retained business from Rs.7.5 crores Exceptionally large

branch having retained business from Rs.l5 crores upto Rs.lOO crores. e) Very

Exceptionally large branch, having retained business from Rs.lOO crores upto

Rs.250 crores. f) Super Large Branch having retained business position over

Rs.250 crores. Here business means average position of deposits and advances as

per weekly balance.

Above all, the Head office or Central office functions as a supreme Authority

inrespect of policy decisions, plans and programmes. This office is headed by the

Chairman & Managing Director. At various controlling offices, jobs are divided

as per the ranks and the Departments vizAS PER RANKS:

1. Chairman .

2. Managing Director;

3. Executive Director;

4. General Manager;

5. Deputy General Manager;

6. Assistant General Manager;

7. Regional / Chief Manager;

8. Deputy Chief Manager;

9. Deputy Manager;

10. Assistant Manager.

AS PER DEPARTMENT;

(1) Planning

(2) Personnel

(3) Human Resource Development

(4) Credit Administration

(5) Organisation and Methods

(6) Inspection

(7) General Administration;

(8) Security

(9) legal

(8) Agricultural finance;

(11) Rural Development

(12) Industrial Finance;

(13) Priority sectors

(14) Accounts

(15) Foreigh Exchange & Foreigh Trade

(16) Marketing

(17) Merchant Banking

(18) Computerisation & Mechanisation

(19) Hindi-Kaksha/Official language.

(20) Vigilance.

PROBLEM OF NPA

Will the king of good times turn into a pauper, now that he has left his throne?

Vijay Mallya, the ex-chairman of United Spirits, the world’s second-largest spirits

company, finds himself in deep trouble over unpaid debts which include over Rs

7,000 crore owed by the now-defunct Kingfisher Airlines to 17 banks.

These banks can reportedly recover only a paltry Rs 6 crore from the airline, and

the State Bank of India has dragged the “wilful defaulter” Mallya to the Debt

Recovery Tribunal in an attempt to recover more money by seizing his assets.

Will the bid be successful?

SBI has about Rs 1,600 crore of exposure out of the Rs 7,000 crore lent to

Kingfisher by a consortium of banks, and the public sector bank is now trying

every trick in the book to recover any of that money – hopes of which seem to

be fading fast.

On Monday, the Tribunal froze Rs 515 crore severance pay package that Mallya

was to get from Diageo, the company which bought Mallya’s UB Spirits last

month.
How Mallya ended up here is an intriguing story of fortunes made and lost, but

how a business entity which was doing well at one point subsequently ran into

losses and ended up defaulting on thousands of crores of loans to the largest

public sector bank in the country along with 16 other banks, is something of a

mystery – unless you look at the numbers.

Not the only one

On Sunday, Vijay Mallya wrote an open letter where he said that he wasn’t the

only one to be blamed for the unfolding mess which seeks to threaten the very

premise of a strong banking system in the country.

Mallya argued that even SBI was culpable because the bank knew about his

company’s financial position all along and yet lent to it. Moreover, Mallya

pointed to the rising bad debts and stressed loans provided to businesses by banks

across the industry and said that he was only being made the “poster boy” of bank

defaults.

“In fact, banks have NPAs [non-performing assets] of Rs 11 trillion and have

borrowers who owe much more than the amount allegedly owed by Kingfisher

Airlines to the banks,” he wrote. “None of these large borrowers (whose debt is

significantly more than the Kingfisher Airlines debt) have been declared wilful

defaulters.”
What needs to be stressed is that SBI is only one of the 17 banks which lent to

Kingfisher. In 2010, SBI was given ownership of all Kingfisher trademarks and

goodwill to be sold off in case it ended up in a default. Now, however, the bank is

unable to find any buyer for the same.

The company, according to reports, is now valued at a meagre Rs 6 crore as

compared to a valuation of Rs 4,111 crore, according to a report by DNA.

Similar is the case with IDBI which reportedly lent money to Kingfisher while

being fully aware of its financial condition and after being warned by some board

members against the move. It has now resulted in bad debts amounting to Rs 700

crores from Kingfisher alone.

Breaking bad

While this might seem to be a curious one-off event of the banking sector failing

to recover funds from what seemed like a financially well-to-do business at some

point, it’s hardly rare.

As Mallya pointed out, most banks in the country are heavily debt-ridden and a

substantial portion of this credit is unlikely to be recovered in the foreseeable

future.

According to a report in the Indian Express in early February, banking bad debts

(or loans recognised as unrecoverable through regular measures) stood at Rs

52,542 crore by March, 2015 – more than thrice the corresponding figure for

March, 2012 (Rs 15,551 crore).

Consider how quickly the unrecoverable lending by public sector banks rose in

the last few years. Between 2004-2012, bad debts rose by about 4% while they

rose by a staggering 60% between 2013-2015.

To clear their financial statements of this rising debt burden, banks often follow a

write-off process which shifts these debts off their balance sheets even though

many of these loans continue to be reflected in respective statements of bank

branches – and some of them might even manage to recover some of these debts.

The problem is so severe that the Reserve Bank of India Governor Raghuram

Rajan has also been emphasising on the need to clean up balance sheets and

performing a “deep surgery” on the balance sheets which will need an

“anaesthetic” in the form of recognising NPAs on the financial books.

Between 2013-2015, twenty-nine public sector banks wrote off as much as Rs

1.14 lakh crore of bad debts. For instance, SBI alone declared loans worth Rs

21,313 crore as unrecoverable in 2015 compared to Rs 5,594 crore in 2014.

Deep surgery

Last month, a standing committee formed to look into the problem of bad loans

and stressed assets in the banking sector submitted its report to Parliament. The

report not only highlighted the speed at which bad loans seem to be growing, it
also managed to make a larger point about the efficiency of public sector banks

which seem to have lent much more loosely than their private sector counterparts.

The chart above shows how quickly non-performing assets in public sector banks

rose more than five times to Rs 3.6 lakh crore in 2015 from just Rs 71,000 crore

in 2011. A non-performing asset is one which stops generating income from a

bank – such as loan instalments which aren’t being received or interest payments

defaults for more than 90 days of due date.

As the NPAs in the banks rose, their quality of lending also seems to have

worsened. The numbers show that more than 5% of all lending done by public

sector banks was classified as NPAs by 2015 while the ratio was a mere 2.3% in

2011. It is also important to note here that this ratio has been falling since 2001

when it was 13.11% before it started rising in 2011.

The contention that public sector banks could have been more diligent while

disbursing huge loans also becomes clearer from the above chart which shows

how private sector banks have kept their net NPA ratio much lower than all other

banks in the country. While nationalised banks had 3.45% NPAs out of their net

lending in 2015, private banks kept the ratio to less than 1% even though it has

risen over the years.

Applying band-aids

Reiterating that casually treating a structural problem of lending by the banks

won’t be a long-term solution, Raghuram Rajan also said last month that the

banks need to stop brushing the NPA issue under the carpet.

“If the bank wants to pretend that everything is alright with the loan, it can only

apply band-aids – for any more drastic action would require NPA classification,”

he said.

Last August, Finance Minister Arun Jaitley called the levels of NPAs in public

sector banks “unacceptable” when he announced a Rs 70,000 crore compensation

plan for these banks, spread over four years. In this budget too, Jaitley announced

a package and stressed that the banks will have clean balance sheets by 2017 –

which seems to be a case of wishful thinking.

 This is so because recovery of loans is a major component of clearing NPAs

which doesn’t have much to do with the budget as much as it has to do with

individual banks taking all available legal recourse against the defaulters. While

the SBI chief recently said that she will go all the way in bringing back the owed

money, the record of public sector banks in recovering money or restructuring

loans has been less than remarkable.

‘Stolen funds’

Deposing before the committee constituted to look into the matter, Rajan said that

somewhere banks failed to fully predict the profitability and viability of

infrastructure projects before providing them loans.

“There was inadequate project evaluation of assessment of promoter or

management capacity or even financial capacity,” he said about projects which

got shelved or stopped generating funds and hence their promoters defaulted. “We

did not do a good job. Therefore, some of these projects have got into trouble.”

To help banks recover loans or a part thereof, there are legal measures available

too. These include:

 Debt Recovery Tribunals which help banks resolve cases of seizure of property

and assets for defaulters above Rs 10 lakhs expeditiously

 The Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interest Act which allows banks to realise money from a lender’s assets

without going through courts.

 For milder cases, there are Lok Adalats which help with arbitration and

settlement.

The chart above shows that even though Lok Adalats and Debt Recovery

Tribunals were able to realise as much as 30% of the amount on cases filed by

banks in 2011, the ratio came down to a mere 18% in just four years. A time-

series analysis shows that it was largely the efficiency of DRTs that came down

from 21.5% in 2011 to 9.83% in 2014.

 While the ministry claims that in absolute numbers, DRTs are disposing off many

more cases than before and it is only because the number of cases has fallen that

the ratio of realisation is dipping, it is evident that some ways are proving to be

more effective than others in recovering lost money for the banks.

While the government tries to force banks into disclosing and recovering their bad

loans, what Raghuram Rajan told the committee on the possibility of corruption

and lax norms in lending seems to sum up the situation where funds are not only

being “diverted” but “stolen” in public eye.

“We have to go after corrupt bank managements as well as corrupt promoters,”

Rajan said. “There is no doubt that we need to do it. We do not have enough teeth.

There are these promoters who have diverted funds. "Diverted fund" is a

euphemism. I would say plainly that they have stolen the funds, and we cannot go

after them. It takes too long.”

 The post-nationalisation period has seen a widening gap between promise and

performance

 9 Major Problems Faced by India’s Nationalized Banks

 The following points highlight the nine major problems faced by India’s

nationalized banks.
Problem # 1. Losses in Rural Branches:

Most of the rural branches are running at a loss because of high overheads and

prevalence of the barter system in most parts of rural India.

Problem # 2. Large Over-Dues:

The small branches of commercial banks are now faced with a new problem—a

large amount of overdue advances to farmers. The decision of the former National

Front Government to waive all loans to farmers up to the value of Rs. 10,000

crores has added to the plight of such banks.

Problem # 3. Non-Performing Assets:

The commercial banks at present do not have any machinery to ensure that their

loans and advances are, in fact, going into productive use in the larger public in-

terest. Due to a high proportion of non-performing assets or outstanding due to

banks from borrowers they are incurring huge losses. Most of them are also

unable to maintain capital adequacy ratio.

Problem # 4. Advance to Priority Sector:

As far as advances to the priority sectors are concerned, the progress has been

slow. This is partly attributable to the fact that the bank officials from top to bot-

tom could not accept nationalisation gracefully, viz., diversion of a certain portion

of resources to the top priority and hitherto neglected sectors. This is also

attributable to the poor and unsatisfactory loan recovery rates from the

agricultural and small sectors.

Problem # 5. Competition from Non-Banking Financial Institution:

As far as deposit mobilisation is concerned, commercial banks have been facing

stiff challenges from non-banking financial intermediaries such as mutual funds,

housing finance corporations, leasing and investment companies. All these

institutions compete closely with commercial banks in attracting public deposits

and offer higher rates of interest than are paid by commercial banks.

Problem # 6. Competition with Foreign Banks:

Foreign banks and the smaller private sector banks have registered higher increase

in deposits. One reason seems to be that non-nationalised banks offer betters

customer service. This creates the impression that a diversion of deposits from the

nationalised banks to other banks has probably taken place.

Problem # 7. Gap between Promise and Performance:

One major weakness of the nationalised banking system in India is its failure to

sustain the desired credit pattern and fill in credit gaps in different sectors. Even

though there has been a reorientation of bank objectives, the bank staff has

remained virtually static and the bank procedures

reason seems to be the failure of the bank staff to appreciate the new work

philosophy and new social objectives.

Problem # 9. Political Pressures:

The smooth working of nationalised banks has also been hampered by growing

political pressures from the Centre and the States. Nationalised banks often face
lots of difficulties due to various political pressures. Such pressures are created in

the selection of personnel and grant of loans to particular parties without

considering their creditworthiness.

CASE STUDY 2

Public sector banks, excluding behemoth State Bank of India (SBI), seem to have

vanished from the lending scene. The latest data from the Reserve Bank of India

(RBI) shows public sector banks didn’t see their loan book grow at all in 2016-17.

SBI, too, had it rough, with its loan book growing just about 4.4%. This is the

worst performance by government-owned banks that were otherwise the oil to the

engines of growth since India’s massive bank nationalization drive in 1969. It is

clear that as bad loans began to pile up around 2012-13, public sector banks

applied the brakes on lending.

Lenders like IDBI Bank, UCO Bank and Dena Bank are placed under the prompt

corrective action framework which would put curbs on their lending in the current

fiscal (FY18) by RBI because of unmanageable bad loans and deteriorating

capital. Indian Overseas Bank was under similar restrictions in 2015-16.

But a key reason for this dismal loan growth is that as their corporate loan book

decayed, public sector lenders were not able to leverage on their retail franchise

despite having a large branch network and maintaining their high market share on

deposits. Part of this is due to inefficiencies, the inability to lower interest rates

due to high credit costs and late entry into digital channels.

In the current fiscal as well as the next, public sector banks are likely to see their

market share of loans erode. Another worrying trend is that these banks have not

been able to hold on to deposit growth either.

Before demonetization resulted in a deluge of deposits, the growth in deposits at

public sector banks was 6.6%. That of SBI’s was 14.10% while private banks

mopped up a massive 25% growth. If we leave out demonetization, deposit

growth in nationalized banks would be in low single digits.

While market and even investors may have lost faith in public sector banks, it is

pertinent to ask whether depositors have also started to doubt the survival ability

of these lenders. What stands out is the consistency with which private banks have

upped their game.

A new wave mirroring that of the 1969 nationalization could be seen now. The

difference is that this one is in the opposite direction, towards privatization.

Click here for enlarge

Lenders like IDBI Bank, UCO Bank and Dena Bank are placed under the prompt

corrective action framework which would put curbs on their lending in the current

fiscal (FY18) by RBI because of unmanageable bad loans and deteriorating

capital. Indian Overseas Bank was under similar restrictions in 2015-16.

But a key reason for this dismal loan growth is that as their corporate loan book

decayed, public sector lenders were not able to leverage on their retail franchise

despite having a large branch network and maintaining their high market share on

deposits. Part of this is due to inefficiencies, the inability to lower interest rates

due to high credit costs and late entry into digital channels.

In the current fiscal as well as the next, public sector banks are likely to see their

market share of loans erode. Another worrying trend is that these banks have not

been able to hold on to deposit growth either.

Before demonetization resulted in a deluge of deposits, the growth in deposits at

public sector banks was 6.6%. That of SBI’s was 14.10% while private banks

mopped up a massive 25% growth. If we leave out demonetization, deposit

growth in nationalized banks would be in low single digits.

While market and even investors may have lost faith in public sector banks, it is

pertinent to ask whether depositors have also started to doubt the survival ability

of these lenders. What stands out is the consistency with which private banks have

upped their game. The customer

The State Bank of India (SBI) is an Indian multinational providing public

sector banking and financial services. Headquartered in Mumbai, it is a

government-owned corporation with assets of US$388 billion and 17,000

branches, including 190 foreign offices, making it the largest banking and

financial services company in India by assets. The bank traces its ancestry

through the Imperial Bank of India to the founding, in 1806, of the Bank of

Calcutta, making it the oldest commercial bank in the Indian Subcontinent.

The challenge

SBI had been operating a distributed independent architecture comprising

20 distinct IT siloes across its vast geographical range – one for each local

head office. This was both inefficient and reaching peak performance.

The bank wanted to streamline and centralise its cheque truncation

system in order to more quickly process cheques and thereby deliver

better customer service.

“Managing and collecting data from multiple siloes was difficult and time-

consuming and the infrastructure could no longer cope with the rising

volume,” explains Mr. LM Mishra, Assistant General Manager, Information

Technology Services Department, SBI. “We needed a new approach to the

underlying technology but this was unchartered territory for us so a partner

that could provide the requisite expertise and experience was crucial to the

project’s success.”

SBI was looking for an IT specialist that could demonstrate tangible

experience in similar projects as well as the local presence to deliver in the

region. Following a tender process, it selected a number of tier one vendors

to handle various parts of this comprehensive upgrade. Fujitsu was qualified

through the bank’s process to streamline the core clearing system in

conjunction with NCR, which provided the application layer.

“Fujitsu had the necessary feet on the ground as well as demonstrable

success in leading comparable programmes,” adds Mishra. “This made

it the ideal partner to provide the core clearing system, which is the

backbone of cheque processing.”

The solution

Fujitsu consolidated the 20 disparate siloes into one centralised data centre,

which automates the collection and processing of data. The data centre

runs on a combination of clustered Fujitsu ETERNUS storage and Fujitsu

PRIMERGY servers in tandem with Symantec backup and Brocade switches

Case Study

State Bank of India

We are currently handling 150,000 cheque instruments per day at approximately

double the previous

capacity. This has resulted in a significant enhancement in customer satisfaction

and better retention.

Case Study

State Bank of India

The customer

Country: India

Industry: Banking and Financial Services

Founded: 1922

Employees: 222,000

Website: www.sbi.co.in

The challenge

SBI’s earlier installed base was operating in a distributed

architecture spread across multiple locations which used

to take days to clear each cheque instrument while information

was not readily available centrally.

The solution

The bank engaged Fujitsu, along with application vendor NCR,

to centralise this system into one data centre that provides

near instant cheque clearing combined with total data visibility

of its inventory

Products and services

■
Fujitsu high-end PRIMERGY Servers & ETERNUS Storage

solutions along with backup, integration services and 24x7

onsite support for three years

The benefit

Over 100,000 cheque instruments per day are now processed

50 per cent more quickly, boosting customer satisfaction and

reducing the number of complaints

Data can be scrutinised and analysed in real-time, allowing

SBI to react more quickly to market changes and make smarter

business decisions

Internal users have become more productive, courtesy of the added

efficiency introduced by the solution

Thanks to Fujitsu systems, SBI has total reliability with no downtime

yet recorded

The centralised data centre has contributed to the improvement

of the management of the cheque truncation system and

enhanced productivity

“We spent one month designing the data centre and two months
installing and configuring it,” says Mishra. “At the same time, NCR

handled the data and process migration so we were ready to go

live within a relatively short period.”

Now cheques are scanned and synchronised at each branch and all

data is managed centrally. This removes the need for the instrument

to physically be sent to local head offices for processing, thus reducing

the time involved dramatically. In addition to the data centre, Fujitsu has

deployed 1,600 PRIMERGY servers in key local branches for local cashing.

This entire infrastructure is underpinned by authentication access software

for optimal security.

“Fujitsu arrived on-site to install the hardware and train the internal team in

terms of how it works,” continues Mishra. “It engaged with us from HQ-level

down to the data centre floor which helped make the transition seamless.”

The benefit

Whereas previously, processing individual cheques could take several days

due to the postage required, now it happens near instantly. This builds

customer satisfaction and retention levels while attracting new customers.

In addition, the management of data is much simpler, freeing up internal

resources and enabling higher volumes to be processed daily.

“We are currently handling over 100,000 cheque instruments per day

at approximately double the previous capacity. This means customer

complaints have declined significantly while our customers have

become happier,” says Mishra. “It has also led to improved user
productivity and more profitability.”

The new system also allows for enhanced data analysis, real-time reporting

and total visibility. This enables SBI to make smarter business decisions and

react to market changes more responsively.

“We can manipulate the data in three or even four dimensions which

we simply couldn’t do before because all the information was scattered

across the business,” comments Mishra. “So we know exactly where we

stand and our precise market share in a one billion dollar sector at the

touch of a button.”

SBI has also been impressed by the performance of the hardware, which to

date has not experienced any downtime. This reliability provides peace of

mind for the IT team and reinforces the best possible customer service.

Conclusion

SBI now has a robust, flexible and high-performing core cheque clearing

system that has introduced efficiency and boosted customer satisfaction

while, in turn, attracting new customers. With this infrastructure in place,

the bank is well placed to continue its modernisation programme and hold

its place at the forefront of Indian financial services.

“Fujitsu’s contribution to the new data centre has made our processes

faster and more accurate while enabling us to analyse huge volumes

of data in order to become more agile as a business.”

Mr. LM Mishra, Assistant General Manager, Information Technology Services

Department
The customer

The State Bank of India (SBI) is an Indian multinational providing public

sector banking and financial services. Headquartered in Mumbai, it is a

government-owned corporation with assets of US$388 billion and 17,000

branches, including 190 foreign offices, making it the largest banking and

financial services company in India by assets. The bank traces its ancestry

through the Imperial Bank of India to the founding, in 1806, of the Bank of

Calcutta, making it the oldest commercial bank in the Indian Subcontinent.

The challenge

SBI had been operating a distributed independent architecture comprising

20 distinct IT siloes across its vast geographical range – one for each local

head office. This was both inefficient and reaching peak performance.

The bank wanted to streamline and centralise its cheque truncation

system in order to more quickly process cheques and thereby deliver

better customer service.

“Managing and collecting data from multiple siloes was difficult and time-

consuming and the infrastructure could no longer cope with the rising

volume,” explains Mr. LM Mishra, Assistant General Manager, Information

Technology Services Department, SBI. “We needed a new approach to the

underlying technology but this was unchartered territory for us so a partner

that could provide the requisite expertise and experience was crucial to the

project’s success.”

SBI was looking for an IT specialist that could demonstrate tangible

experience in similar projects as well as the local presence to deliver in the

region. Following a tender process, it selected a number of tier one vendors

to handle various parts of this comprehensive upgrade. Fujitsu was qualified

through the bank’s process to streamline the core clearing system in

conjunction with NCR, which provided the application layer.

“Fujitsu had the necessary feet on the ground as well as demonstrable

success in leading comparable programmes,” adds Mishra. “This made

it the ideal partner to provide the core clearing system, which is the

backbone of cheque processing.”

COMPETION FACED BY NATIONALISED BANKS

The major competition is faced by Nationalised banks is from Foreign banks and

Private sector banks.

There are many banks entering into Indian banking industry after globalization.

The details about Foreign banks and private sector are shared as follows which

states how its competitive to nationalized banks

Comparison Chart

PUBLIC PRIVATE
BASIS FOR
SECTOR SECTOR
COMPARISON
BANK BANK

Meaning Public Private Sector

Sector Banks refers

Banks are to the banks

the banks whose

whose majority of

complete or stake is held

maximum by the

ownership individuals

lies with the and

government. corporations.

No. of banks 27 22

Share in banking 72.9% 19.7%

industry

Customer Base Large Relatively

 PUBLIC PRIVATE
BASIS FOR
SECTOR SECTOR
COMPARISON
BANK BANK

small

Interest rate on High Marginally

deposits lower

Promotion Based on Based on

seniority merit

Growth Low Comparatively

opportunities high

Job security Always Purely based

present on

performance.

Pension Yes No
Definition of Public Sector Bank

Public Sector Banks are the banks whose more than 50% shareholding lies with

the central or state government. These banks are listed on stock exchange. In the

Indian Banking System, PSB’s are the largest category of banks and emanated

before independence.

Over 70% of the market share in the Indian Banking sector is dominated by the

public sector banks. These banks are broadly classified into two groups, i.e.

Nationalised Bank and State Bank and its associates. There are 27 public sector

banks in India, which differ in their size. Of these, there are total 19 nationalised

banks in India, while 8 State Bank of India Associates.

Almost all PSB’s share same business model, organisational structure and human

resource policies. Hence, competition can be seen among these banks, in the

market segment they cater.

Definition of Private Sector Bank

Banks whose greater part of the equity is held by private shareholders and entities

rather than government is known as private sector banks. After most of the banks

had got nationalised in the two tranches, but those non-nationalised banks carried

on their operations, known as Old Generation Private Sector Banks. Further, when

the liberalisation policy was coined in India, the banks which got a license like

HDFC bank, ICICI bank, Axis bank, etc. are considered as New Generation

Private Sector Banks.

 Post liberalisation, the banking sector in India has taken a drastic change due to

the emergence of private sector banks, as their presence have constantly been

increasing, offering a diverse range of products and services to their customers.

They posed a stiff competition in the economy.

Key Differences Between Public Sector and Private Sector Bank

The points given below explain the differences between public sector and private

sector banks:

1. Public Sector Banks are the banks, whose maximum shareholding is with the

government. On the other hand, Private Sector Banks are the one whose

maximum shareholding is with individuals and institutions.

2. At present, there are 27 public sector banks in India, whereas there are 22 private

sector banks and four local area private banks.

3. Public Sector banks dominate the Indian banking system, by the total market

share of 72.9%, which is followed by Private sector banks, by 19.7%.

4. Public sector banks are established since long, while private sector banks emerged

a few decades ago, and so the customer base of public sector banks is greater than

the private ones.

5. Transparency in terms of interest rate policies can be seen in the public sector.

The interest rate on deposits offered by the public sector banks to its customers is

slightly higher than the private sector banks.

6. When it comes to promotion of employees, public sector banks consider seniority

as a base. Conversely, merit is the basis of private sector banks, to promote

employees.

7. If we talk about growth opportunities in a public sector banks is quite slow in

comparison to a private sector bank.

8. Job security is always present in a public sector bank, but private sector bank job

is secure only when the performance is good because performance is everything

in a private sector.

9. Along with job security, one more pro, of a public sector bank is the after

retirement benefit, i.e. pension. On the contrary, pension scheme is not provided

by private sector banks to its employees. However, other retirement benefits like

gratuity, etc. are offered by the bank.

Conclusion

Whether, you want to invest your money or you want to make a career in banking

sector, due to the ruthless competition, people have to think more than 100 times,

before coming down to any one of the two. However, every individual has certain

priorities, and one can easily choose between the two, by scheduling down their

preferences and going for the one, that suits best.

 BANKING OMBUDSMAN

Banking Ombudsman [1] is a quasi judicial authority functioning under India’s

Banking Ombudsman Scheme 2006, and the authority was created pursuant to a

decision made by the Government of India to enable resolution of complaints of

customers of banks relating to certain services rendered by the banks. The

Banking Ombudsman Scheme was first introduced in India in 1995, and was

revised in 2002. The current scheme became operative from 1 January 2006, and

replaced and superseded the banking Ombudsman Scheme 2002. From 2002 until

2006, around 36,000 complaints have been dealt by the Banking Ombudsmen.

There are 20 regional offices of Banking Ombudsmen in India. The latest offices

are opened Jammu & Raipur.

Type of complaints resolved by banking ombudsman[edit]

 The type and scope of the complaints which may be considered by a Banking

Ombudsman is very comprehensive, and it has been empowered to receive and

consider complaints pertaining to the following:

 Non-payment or inordinate delay in the payment or collection of cheques, drafts,

bills, etc.;

 Non-acceptance, without sufficient cause, of small denomination notes tendered

for any purpose, and for charging of commission for this service;
 Non-acceptance, without sufficient cause, of coins tendered and for charging of

commission for this service;

 Non-payment or delay in payment of inward remittances ;

 Failure to issue or delay in issue, of drafts, pay orders or bankers’ cheques;

 Non-adherence to prescribed working hours;

 Failure to honour guarantee or letter of credit commitments;

 Failure to provide or delay in providing a banking facility (other

than loans and advances) promised in writing by a bank or its direct selling

agents;

 Delays, non-credit of proceeds to parties' accounts, non-payment of deposit or

non-observance of the Reserve Bank directives, if any, applicable to rate of

interest on deposits in any savings, current or other account maintained with a

bank ;

 Delays in receipt of export proceeds, handling of export bills, collection of bills

etc., for exporters provided the said complaints pertain to the bank's operations in

India;

 Refusal to open deposit accounts without any valid reason for refusal;

 Levying of charges without adequate prior notice to the customer;

 Non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank

on ATM/debit card operations or credit card operations;

 Non-disbursement or delay in disbursement of pension to the extent the grievance

can be attributed to the action on the part of the bank concerned, (but not with

regard to its employees);

 Refusal to accept or delay in accepting payment towards taxes, as required by

Reserve Bank/Government;

 Refusal to issue or delay in issuing, or failure to service or delay in servicing or

redemption of Government securities;

 Forced closure of deposit accounts without due notice or without sufficient

reason;

 Closure of account without customer concern.

 Refusal to close or delay in closing the accounts;

 Non-adherence to the fair practices code as adopted by the bank; and

 Financial loss incurred to customer due to wrong information given by bank

official.

 Any other matter relating to the violation of the directives issued by the Reserve

Bank in relation to banking or other services.

 complaints from Non-Resident Indians having accounts in India in relation to

their remittances from abroad, deposits and other bank-related matters;[2]

STRATEGIC OPTIONS TO COPE WITH THE CHALLENGES:

Dominant players in the industry have embarked on a series of strategic and

tactical initiatives to sustain leadership. The major initiatives incorporate:

a) Focus on ensuring reliable service delivery through Investing on and

implementing right technology..

b) Leveraging the branch networks and sales structure to mobilize low cost

current and savings deposits.

c) Making aggressive forays in the retail advances segments of home and personal

loans.

d) Implementing initiatives involving people, process and technology to reduce

the fixed costs and the cost per transaction.

e) Focusing on fee based income to compensate foe squeezed spread.

f) Innovating products to capture customer 'mind share' to begin with and later the

wallet share.
g) Improving the asset quality as Basel II norms.

CONCLUSION:

The banking environment of today is rapidly changing and the rules of yesterday

no longer applicable. The corporate and the legal barriers that separate the various

banking, investment and insurance sectors are less well defined and the cross-over

are increasing. As a consequence the marketing function is also changing to better

support the bank in this dynamic market environment. The key marketing

challenge today is to support and advice on the focus positioning and marketing

resources needed to deliver performance on the banking products and services.

Marketing, as an investment advisor, is about defining 4Ps and implementing key

strategic initiatives to Market segments, increasingly redefined, relevant micro-

segments to survive and flourish in the highly competitive market.

BIBLOGRAPHY

Read more: http://keydifferences.com/difference-between-public-and-private-

sector-banks.html#ixzz4u9UqBK23

1Colin Clark: 1940, The Conditions of Economic Progress, pp 182

● 2AGP Fisher:1945, Economic Progress and Social Security, pp 5-6

● Dutt Ruddar, Sundaram KPM:2006, Indian Economy

● Aacharya Shanker: 2007, India’s Economy Some Issues and Answers

● www.retaileducation.com