UNIVERSITY OF MUMBAI

PROJECT REPORT

ON

“BANK”

First Year M. Com. (Advance accounting)

2013-2014

Submitted By

RAJESH KUMAR SITARAM

Roll No.52

PROJECT GUIDE

PROF. SURESH PUJARI

People’s Education Society’s

DR. AMBEDKAR COLLEGE OF COMMERCE AND ECONOMICS

Wadala, Mumbai – 400 031.

1

People’s Education Society’s

DR. AMBEDKAR COLLEGE OF COMMERCE AND ECONOMICS

WADALA , MUMBAI- 4000 31.

NAAC ACCREDITED

CERTIFICATE

This is to certify that, Mr RAJESH KUMAR SITARAM of ADVANCE ACCOUNTING, (2013-2014) has successfully completed the project on “ADVANCE FINANCIAL ACCOUNTING” under the guidance of Prof. SURESH PUJARI It is fit to be submitted for evaluation.

(Signature of Co-ordinator) (Signature of Principal)

(Signature of Project Guide) (Signature of External Examiner)

2

DECLARATION

I Mr. RAJESH KUMAR SITARAM the student of Dr. Ambedkar College of Commerce & Economics, studying in First Year M.Com ADANVCE ACCOUNTING hereby declare that I have completed the project report on “BANK” in the academic year 2013- 14.

The information submitted is true and original to the best of my knowledge.

___________________

Date: _________ Signature of student

(RAJESH KUMAR SITARAM) (Roll No.52)

Place: _________

3

ACKNOWLEDGEMENT

I express my sincere gratitude to the Principal Dr. SIDDHARTH R. KAMBLE &

ADANVCE ACCOUNTING co-ordinator Prof. SANJAY KHAIRE for their continuous

support & guidance.

I also sincerely thank Prof. SURESH PUJARI for guiding to me through project work.

I also thanks to my parents, relatives and colleagues for their encouragement and

support.

Last but not least, I would like to thank all these people, who helped me in completion

Of the project directly or indirectly.

Place : MUMBAI RAJESH KUMAR SITARAM

DATE : (SIGNATURE)

4

INDEXSr. No.

Topic Page No.

1 Introduction to Banks 6

2 Role of Banks 11

3 Functions of bank 14

4 Statues Governing Banks 18

5 NPA’s in Banks 24

6An Analysis of ‘Banks’ Financial

Statement29

7 HDFC BANKHOME LOAN 38

8 Conclusion 42

9 Bibliography 43

5

INDIAN BANKING SECTOR REVIEW

Introduction

For the past three decades India's banking system has

several outstanding achievements to its credit. The most striking is its extensive reach. It is

no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking

system has reached even to the remote corners of the country. This is one of the main

reasons of India's growth process. The government's regular policy for Indian bank since

1969 has paid rich dividends with the nationalization of 14 major private banks of India.

The first bank in India, though conservative, was established in 1786. From 1786 till today,

the journey of Indian Banking System can be segregated into three distinct phases. Those

are:-

Early phase from 1786 to 1969 of Indian Banks

Nationalizations of Indian Banks and up to 1991 prior to

Indian banking sector Reforms

New phase of Indian Banking System with the advent of

Indian Financial & Banking Sector Reforms after 1991

The steps taken by the Government of India to Regulate Banking

Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.

1959: Nationalization of HDFC BANKsubsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalization of seven banks with deposits over 200crore.

6

Without a sound and effective banking system in India it cannot have a healthy economy.

The banking system of India should not only be hassle free but it should be able to meet

new challenges posed by the technology and any other external and internal factors.

For the past three decades India's banking system has several outstanding achievements to

its credit. It is no longer confined to only metropolitans or cosmopolitans in India; in fact,

Indian banking system has reached even to the remote corners of the country. This is one

of the main reasons of India's growth process. The government's regular policy for Indian

bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks

of India. Not long ago, an account holder had to wait for hours at the bank counters for

getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days

when the most efficient bank transferred money from one branch to other in two days.

Now it is simple as instant messaging or dial a pizza. Money has become the order of the

day.

Post independence

In 1948, the Reserve Bank of India, India's central banking authority, was nationalized,

and it became an institution owned by the Government of India.

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank

of India (RBI) "to regulate, control, and inspect the banks in India."

The Banking Regulation Act also provided that no new bank or branch of an existing

bank may be opened without a license from the RBI, and no two banks could have

common directors.

Current situation

7

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that

is with the Government of India holding a stake), 29 private banks (these do not have

government stake; they may be publicly listed and traded on stock exchanges) and 31

foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs.

According to a report by ICRA Limited, a rating agency, the public sector banks hold over

75 percent of total assets of the banking industry, with the private and foreign banks

holding 18.2% and 6.5% respectively.

Over the last four years, India’s economy has been on a high growth trajectory, creating

unprecedented opportunities for its banking sector. Most banks have enjoyed high growth

and their valuations have appreciated significantly during this period. Looking ahead, the

most pertinent issue is how well the banking sector is positioned to cater to continued

growth. A holistic assessment of the banking sector is possible only by looking at the roles

and actions of banks, their core capabilities and their ability to meet systemic objectives,

which include increasing shareholder value, fostering financial inclusion, contributing

to GDP growth, efficiently managing intermediation cost, and effectively allocating

capital and maintaining system stability.

LIBERALIZATION

PRIVATIZATION

8

GLOBALIZATION

Liberalization

The new policy shook the Banking

sector in India completely. Bankers, till this time, were used to the

4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. In the early 1990s

the then Narasimham Rao government embarked on a policy of liberalization and gave

licenses to a small number of private banks, which came to be known as New Generation

tech-savvy banks, which included banks such as Global Trust Bank (the first of such new

generation banks to be set up)which later amalgamated with Oriental Bank of Commerce,

UTI Bank(now re-named as Axis Bank), ICICI Bank and HDFC Bank.

Privatization

In January 1993. RBI has issued guidelines for licensing of new banks in the private sector.

It had granted licenses of new banks in the private sector. It has granted licenses to 10

banks which are presently in business: based on a review of experience gained on the

functioning of new private sector banks, revised guidelines were issued in January 2000.

Following are the major revised provisions:

Initial minimum paid up capital shall be Rs 200 crore which will be raised to Rs 300

crore within three years of commencement of business.

Contribution of promoters shall be minimum of 40 per cent of the paid up capital of

the bank at any point of time. This contribution of 40 percent shall be locked in for

5 years from the date of licensing of the bank.

While augmenting capital to Rs 300 crore within three 7yeaRs promoters shall

bring in at least 40 percent of the fresh capital which will also be locked in for 5

years.

9

NRI participation in the primary equity of a new bank shall be to the maximum

extent of 40 per cent.

GLOBALISATION

Introduction

Globalization refers to widening and Deeping of international flow of trade, capital,

labour,

Technology, information and services. Globalization has led to an overall economic,

political and

Technological integration of the world. In our country, first economic reforms (1991) gave

birth to globalization and second phase of banking sector reforms strengthened the

globalization. Various reform measures introduced in India have indeed strengthened the

Indian banking system in preparation for the global challenges ahead. The major impact

of banking sector reforms can be viewed from the following chart:

Globalization, which is outcome of economic reforms, is both a challenge and an

opportunity for Indian banks to gain strength in the domestic market and increase

presence in the global market. The present paper analyzes the impact of globalization on

Indian banking from the point view of penetration of Indian banks in foreign countries

and compares the performance of Indian banks particularly the performance of branches

operating in foreign countries with that of foreign banks operating in India and at the end

suggests some strategies for the globalization of Indian banks.

10

ROLE OF BANKING

Money lending in one form or the other has evolved along with the history of the mankind.

Even in the ancient times there are references to the moneylenders. Shakespeare also

referred to ‘Shylocks’ who made unreasonable demands in case the loans were not repaid

in time along with interest. Indian history is also replete with the instances referring to

indigenous money lenders, Sahukars and Zamindars involved in the business of money

lending by mortgaging the landed property of the borrowers.

 

Towards the beginning of the twentieth century, with the onset of modern industry in the

country, the need for government regulated banking system was felt.  The British

government began to pay attention towards the need for an organised banking sector in the

country and Reserve Bank of India was set up to regulate the formal banking sector in the

country. But the growth of modern banking remained slow mainly due to lack of surplus

capital in the Indian economic system at that point of time. Modern banking institutions

came up only in big cities and industrial centers. The rural areas, representing vast

majority of Indian society, remained dependent on the indigenous money lenders for their

credit needs.

 

Independence of the country heralded a new era in the growth of modern banking. Many

new commercial banks came up in various parts of the country. As the modern banking

network grew, the government began to realize that the banking sector was catering only

to the needs of the well-to-do and the capitalists. The interests of the poorer sections as well

as those of the common man were being ignored.

 

11

In 1969, Indian government took a historic decision to nationalize 14 biggest private

commercial banks. A few more were nationalized after a couple of years. This resulted in

transferring the ownership of these banks to the State and the Reserve Bank of India could

then issue directions to these banks to fund the national programmers, the rural sector, the

plan priorities and the priority sector at differential rate of interest.  This resulted in

providing fillip the banking facilities to the rural areas, to the under-privileged and the

downtrodden. It also resulted in financial inclusion of all categories of people in almost all

the regions of the country.

 

However, after almost two decades of bank nationalization some new issues became

contextual. The service standards of the public sector banks began to decline. Their

profitability came down and the efficiency of the staff became suspect. Non-performing

assets of these banks began to rise. The wheel of time had turned a full circle by early

nineties and the government after the introduction of structural and economic reforms in

the financial sector, allowed the setting up of new banks in the private sector.

 

The new generation private banks have now established themselves in the system and have

set new standards of service and efficiency. These banks have also given tough but healthy

competition to the public sector banks.

 

Modern Day Role 

Banking system and the Financial Institutions play very significant role in the economy.

First and foremost is in the form of catering to the need of credit for all the sections of

society. The modern economies in the world have developed primarily by making best use

of the credit availability in their systems. An efficient banking system must cater to the

needs of high end investors by making available high amounts of capital for big projects in

the industrial, infrastructure and service sectors. At the same time, the medium and small

ventures must also have credit available to them for new investment and expansion of the

existing units. Rural sector in a country like India can grow only if cheaper credit is

available to the farmers for their short and medium term needs.

 

Credit availability for infrastructure sector is also extremely important. The success of any

financial system can be fathomed by finding out the availability of reliable and adequate

12

credit for infrastructure projects. Fortunately, during the past about one decade there has

been increased participation of the private sector in infrastructure projects.

 

The banks and the financial institutions also cater to another important need of the society

i.e. mopping up small savings at reasonable rates with several options. The common man

has the option to park his savings under a few alternatives, including the small savings

schemes introduced by the government from time to time and in bank deposits in the form

of savings accounts, recurring deposits and time deposits. Another option is to invest in the

stocks or mutual funds.

 

In addition to the above traditional role, the banks and the financial institutions also

perform certain new-age functions which could not be thought of a couple of decades ago.

The facility of internet banking enables a consumer to access and operate his bank account

without actually visiting the bank premises. The facility of ATMs and the credit/debit

cards has revolutionized the choices available with the customers. The banks also serve as

alternative gateways for making payments on account of income tax and online payment of

various bills like the telephone, electricity and tax. The bank customers can also invest

their funds in various stocks or mutual funds straight from their bank accounts. In the

modern day economy, where people have no time to make these payments by standing in

queue, the service provided by the banks is commendable.

While the commercial banks cater to the banking needs of the people in the cities and

towns, there is another category of banks that looks after the credit and banking needs of

the people living in the rural areas, particularly the farmers. Regional Rural Banks (RRBs)

have been sponsored by many commercial banks in several States. These banks, along with

the cooperative banks, take care of the farmer-specific needs of credit and other banking

facilities.

 

Future

Till a few years ago, the government largely patronized the small savings schemes in which

not only the interest rates were higher, but the income tax rebates and incentives were also

in plenty. The bank deposits, on the other hand, did not entail such benefits. As a result,

the small savings were the first choice of the investors. But for the last few years the trend

has been reversed. The small savings, the bank deposits and the mutual funds have been

13

brought at par for the purpose of incentives under the income tax. Moreover, the interest

rates in the small savings schemes are no longer higher than those offered by the banks.

 Banks today are free to determine their interest rates within the given limits prescribed by

the RBI. It is now easier for the banks to open new branches. But the banking sector

reforms are still not complete. The option of allowing foreign direct investment beyond 50

per cent in the Indian banking sector has also been under consideration.

 Banks and financial intuitions have played major role in the economic development of the

country and most of the credit- related schemes of the government to uplift the poorer and

the under-privileged sections have been implemented through the banking sector. The role

of the banks has been important, but it is going to be even more important in the future.

FUNCTIONS

The functions of HDFC BANKcan be grouped under two categories, viz., the Central

Banking functions and ordinary banking functions.

A. Central Banking Functions:

The HDFC BANKacts as agent of the RBI at the places where the RBI has no branch.

Accordingly, it renders the following functions:

A. Central Banking Functions:

The HDFC BANKacts as agent of the RBI at the places where the RBI has no branch.

Accordingly, it renders the following functions:

(a) Banker to the government

(b) Banker to banks in a limited way

(c) Maintenance of currency chest

(d) Acts as clearing house

(e) Renders promotional functions

(1) Banker to the Government:

14

The HDFC BANKfunctions as the banker to the central and state governments. It receives

and pays money on behalf of the governments. Especially it renders the following functions

as directed by the RBI in this regard.

(a) Collection of charges on behalf of the government e.g. collection of tax and other

payments

(b) Grants loans and advances to the governments

(c) provides advises to the government regarding economic conditions, etc.,

(2) Banker's Bank:

Commercial Banks have accounts with CENTARL BANK. When the banks face financial

shortage, the HDFC BANKprovides assistance to them as it is considered a big brother in

the banking industry. It discounts the bills of the other commercial banks. Due to the

functions on this line the HDFC BANKis considered in a limited sense as the banker's

bank.

(3) Currency Chest:

The RBI maintains currency chests at its own offices. But RBI Offices are situated only in

big cities. CENTARL BANK, buy its wide network of branches operate in urban as well as

rural areas. RBI therefore, in such places keeps money at currency chests with CENTARL

BANK.

Whenever needs arise, the currency is withdrawn from these chests under proper

accounting and reporting to RBI. Presently RBI entrust currency chest to other Public

Sector Banks and a few Private Sector Banks also.

(4) Acts as Clearing House:

In all the places, where RBI has no branch, the HDFC BANKrenders the functions of

clearing house. Thus, it facilitates the inter bank settlements. Since, all the banks in such

places have accounts with CENTARL BANK; it is easy for the CENTARL BANK, to act as

clearing house.

(5) Renders Promotional Functions:

15

State Bank of India also renders various promotional functions. It provides various

facilities to the following priority sectors:

(I) Agriculture

(ii) Small - Scale Industries

(iii) Weaker sections of the society

(iv)  Co-operative sectors

(v) Small - traders

(vi)  Unemployed Youth

(vii) Others.

In this respect HDFC BANKis like any other commercial bank.

B. General Banking Functions

Besides the above specialized functions, the HDFC BANKrenders the following functions

under Section 33 of the Act.

1. Accepting deposits from the public under current, savings, fixed and recurring deposit

accounts.

2. Advancing and lending money and opening cash credits upon the security of stocks,

securities, etc.

3. Drawing, accepting, discounting, buying and selling of bills of exchange and other

negotiable instruments.

4. Investing funds, in specified kinds of securities.

5. Advancing and lending money to court of wards with the previous approval of State

Government.

6. Issuing and circulating letters of credit.

7. Offering remittance facilities such as, demand drafts, mail transfers telegraphic

transfers, etc.

8. Acting as administrator, executor, trustee or otherwise.

16

9. Selling and realizing the movable or immovable properties that come into the banks in

satisfaction of claims.

10. Transacting pecuniary agency business on commission stocks.

11. Underwriting of the issue of authorized shares debentures, and other securities. (This

function is done through subsidiaries now)

12. Buying and selling of gold and silver.

13. It operates Public Provident Fund Accounts for the general public.

14. It operates Non-Resident External Accounts and Foreign Currency Accounts.

15. Providing Factoring service (through subsidiaries).

16. Provides shipping finance.

17. Promotes Export through Export Credit. Provides Project Export Finance.

18. Provides Merchant Banking Facilities.

19. Provides specialized services like "Global Link Services ".

20. Promotes housing finance through "HDFC BANKHome Finance Ltd ".

21. Offers community services Banking. It provides grants to many socially relevant

research projects undertaken by various universities and academic institutions in the

country.

22. Provides Leasing Finance and Project Finance Facilities.

23. Participates in Lead Bank Scheme.

24. The State Bank may with the sanction of the Central Government, enter into ne-

gotiations for acquiring the business of any other Banking Institutions.

25. Other Services

Agriculture/Rural Banking

17

NRI Services

ATM Services

Demit Services

Corporate Banking

Internet Banking

Mobile Banking

International Banking

Safe Deposit Locker

RBIEFT

E-Pay

E-Rail

HDFC BANKVishwa Yatra Foreign Travel Card

Broking Services

STATUES GOVERNING BANKS

Bank regulations are a form of government regulation which subject banks to certain

requirements, restrictions and guidelines. This regulatory structure creates transparency

between banking institutions and the individuals and corporations with whom they

conduct business, among other things. Given the interconnectedness of the banking

industry and the reliance that the national (and global) economy hold on banks, it is

important for regulatory agencies to maintain control over the standardized practices of

these institutions. Supporters of such regulation often hinge their arguments on the "too

big to fail" notion. This holds that many financial institutions (particularly investment

banks with a commercial arm) hold too much control over the economy to fail without

enormous consequences. This is the premise for government bailouts, in which federal

financial assistance is provided to banks or other financial institutions who appear to be on

the brink of collapse. The belief is that without this aid, the crippled banks would not only

become bankrupt, but would create rippling effects throughout the economy. Others

advocate deregulation, or free banking, whereby banks are given extended liberties as to

how they operate the institution.

18

The objectives of bank regulation, and the emphasis, vary between jurisdictions. The most

common objectives are:

1. Prudential—to reduce the level of risk to which bank creditors are exposed (i.e. to

protect depositors)

2. Systemic risk  reduction—to reduce the risk of disruption resulting from adverse

trading conditions for banks causing multiple or major bank failures

3. Avoid misuse of banks—to reduce the risk of banks being used for criminal

purposes, e.g. laundering the proceeds of crime

4. To protect banking confidentiality

5. Credit allocation—to direct credit to favoured sectors

Banking regulations can vary widely across nations and jurisdictions. This section of the

article describes general principles of bank regulation throughout the world.

Minimum requirements

Requirements are imposed on banks in order to promote the objectives of the regulator.

Often, these requirements are closely tied to the level of risk exposure for a certain sector

of the bank. The most important minimum requirement in banking regulation is

maintaining minimum capital ratios.

Supervisory review

Banks are required to be issued with a bank license by the regulator in order to carry on

business as a bank, and the regulator supervises licensed banks for compliance with the

requirements and responds to breaches of the requirements through obtaining

undertakings, giving directions, imposing penalties or revoking the bank's license.

Market discipline

The regulator requires banks to publicly disclose financial and other information, and

depositors and other creditors are able to use this information to assess the level of risk and

to make investment decisions. As a result of this, the bank is subject to market discipline

and the regulator can also use market pricing information as an indicator of the bank's

financial health.

19

Instruments and requirements of bank regulation

Capital requirement

The capital requirement sets a framework on how banks must handle their capital in

relation to their assets. Internationally, the Bank for International Settlements' Basel

Committee on Banking Supervision influences each country's capital requirements. In

1988, the Committee decided to introduce a capital measurement system commonly

referred to as the Basel Capital Accords. The latest capital adequacy framework is

commonly known as Basel III. This updated framework is intended to be more risk

sensitive than the original one, but is also a lot more complex.

Reserve requirement

The reserve requirement sets the minimum reserves each bank must hold to demand

deposits and banknotes. This type of regulation has lost the role it once had, as the

emphasis has moved toward capital adequacy, and in many countries there is no minimum

reserve ratio. The purpose of minimum reserve ratios is liquidity rather than safety. An

example of a country with a contemporary minimum reserve ratio is Hong Kong, where

banks are required to maintain 25% of their liabilities that are due on demand or within 1

month as qualifying liquefiable assets.

Reserve requirements have also been used in the past to control the stock

of banknotes and/or bank deposits. Required reserves have at times been gold coin, central

bank banknotes or deposits, and foreign currency.

Corporate governance

Corporate governance requirements are intended to encourage the bank to be well

managed, and is an indirect way of achieving other objectives. As many banks are

relatively large, with many divisions, it is important for management to maintain a close

watch on all operations. Investors and clients will often hold higher management

accountable for missteps, as these individuals are expected to be aware of all activities of

the institution. Some of these requirements may include:

1. To be a body corporate (i.e. not an individual, a partnership, trust or other

unincorporated entity)

2. To be incorporated locally, and/or to be incorporated under as a particular type of

body corporate, rather than being incorporated in a foreign jurisdiction.

20

3. To have a minimum number of directors

4. To have an organisational structure that includes various offices and officers, e.g.

corporate secretary, treasurer/CFO, auditor, Asset Liability Management

Committee, Privacy Officer etc. Also the officers for those offices may need to be

approved persons, or from an approved class of persons.

5. To have a constitution or articles of association that is approved, or contains or does

not contain particular clauses, e.g. clauses that enable directors to act other than in

the best interests of the company (e.g. in the interests of a parent company) may not

be allowed.

Financial reporting and disclosure requirements

Among the most important regulations that are placed on banking institutions is the

requirement for disclosure of the bank's finances. Particularly for banks that trade on the

public market, the Securities requires management to prepare annual financial statements

according to a financial reporting standard, have them audited, and to register or publish

them. Often, these banks are even required to prepare more frequent financial disclosures,

such as Quarterly Disclosure Statements. The Sarbanes-Oxley Act of 2002 outlines in detail

the exact structure of the reports that the SEC requires.

In addition to preparing these statements, the SEC also stipulates that directors of the

bank must attest to the accuracy of such financial disclosures. Thus, included in their

annual reports must be a report of management on the company's internal control over

financial reporting. The internal control report must include: a statement of management's

responsibility for establishing and maintaining adequate internal control over financial

reporting for the company; management's assessment of the effectiveness of the company's

internal control over financial reporting as of the end of the company's most recent fiscal

year; a statement identifying the framework used by management to evaluate the

effectiveness of the company's internal control over financial reporting; and a statement

that the registered public accounting firm that audited the company's financial statements

included in the annual report has issued an attestation report on management's assessment

of the company's internal control over financial reporting. Under the new rules, a company

is required to file the registered public accounting firm's attestation report as part of the

annual report. Furthermore, the SEC added a requirement that management evaluate any

change in the company's internal control over financial reporting that occurred during

21

a fiscal quarter that has materially affected, or is reasonably likely to materially affect, the

company's internal control over financial reporting.

Credit rating requirement

Banks may be required to obtain and maintain a current credit rating from an

approved credit rating agency, and to disclose it to investors and prospective investors.

Also, banks may be required to maintain a minimum credit rating. These ratings are

designed to provide color for prospective clients or investors regarding the relative risk

that one assumes when engaging in business with the bank. The ratings reflect the

tendencies of the bank to take on high risk endeavors, in addition to the likelihood of

succeeding in such deals or initiatives. The rating agencies that banks are most strictly

governed by, referred to as the "Big Three" are the Fitch Group, Standard and

Poor's and Moody's. These agencies hold the most influence over how banks (and all public

companies) are viewed by those engaged in the public market. In recent years, following

the Great Recession, many economists have argued that these agencies face a serious

conflict of interest in their core business model. Clients pay these agencies to rate their

company based on their relative riskiness in the market. The question then is, to whom is

the agency providing its service: the company or the market?

European financial economics experts- notably the World Pensions Council (WPC) have

argued that European powers such as France and Germany pushed dogmatically and

naively for the adoption of the “Basel II recommendations”, adopted in 2005, transposed in

European Union law through the Capital Requirements Directive (CRD). In essence, they

forced European banks, and, more importantly, the European Central Bank itself, to rely

more than ever on the standardized assessments of “credit risk” marketed aggressively by

two US credit rating agencies- Moody’s and S&P, thus using public policy and ultimately

taxpayers’ money to strengthen anti-competitive duopolistic practices akin to exclusive

dealing. Ironically, European governments have abdicated most of their regulatory

authority in favor of a non-European, highly deregulated, private cartel.

Large exposures restrictions

Banks may be restricted from having imprudently large exposures to

individual counterparties or groups of connected counterparties. Such limitation may be

expressed as a proportion of the bank's assets or equity, and different limits may apply

based on the security held and/or the credit rating of the counterparty. Restricting

22

disproportionate exposure to high-risk investment prevents financial institutions from

placing equity holders' (as well as the firm's) capital at an unnecessary risk.

Activity and affiliation restrictions

In 1933, during the first 100 days of President Franklin D. Roosevelt’s New Deal,

the Securities Act of 1933 and the Glass-Seagull Act (GSA) were enacted, setting up a

pervasive regulatory scheme for the public offering of securities and generally prohibiting

commercial banks from underwriting and dealing in those securities. GSA prohibited

affiliations between banks (which means bank-chartered depository institutions, that is,

financial institutions that hold federally insured consumer deposits) and securities firms

(which are commonly referred to as “investment banks” even though they are not

technically banks and do not hold federally insured consumer deposits); further

restrictions on bank affiliations with non- banking firms were enacted in Bank Holding

Company Act of 1956 (BHCA) and its subsequent amendments, eliminating the possibility

that companies owning banks would be permitted to take ownership or controlling interest

in insurance companies, manufacturing companies, real estate companies, securities firms,

or any other non-banking company. As a result, distinct regulatory systems developed in

the United States for regulating banks, on the one hand, and securities firms on the other.

Public sector banks

A Public Sector bank is one in which, the Government of India holds a majority stake. It is

as good as the government running the bank. 

Since the public decide on who runs the government, these banks that are fully/partially

owned by the government are called public sector banks.

The term public sector banks is used commonly in India. This refers to banks that have

their shares listed in the stock exchanges NSE and BSE. It is also known as nationalised

banks.

In order to understand it better we will take the example of STATE BANK OF INDIA in

this project which is also a nationalised bank.

23

NON PERFORMING ASSET

A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest

and/or installment of principal has remained ‘past due’ for a specified period of time.

NPA is a classification used by financial institutions that refer to loans that are in jeopardy

of default. Once the borrower has failed to make interest or principal payments for 90 days

the loan is considered to be a non-performing asset. Non-performing assets are

problematic for financial institutions since they depend on interest payments for income.

Troublesome pressure from the economy can lead to a sharp increase in non-performing

loans and often results in massive write-downs.

With a view to moving towards international best practices and to ensure greater

transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for identification of

NPA, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004,

a non-performing asset (NPA) shall be a loan or an advance where;

Interest and/or instalment of principal remain overdue for a period of more than 90

days in respect of a term loan,

The account remains ‘out of order’ for a period of more than 90 days, in respect of

an Overdraft/Cash Credit (OD/CC),

24

The bill remains overdue for a period of more than 90 days in the case of bills

purchased and discounted,

Interest and/or instalment of principal remains overdue for two harvest seasons but for

a period not exceeding two half years in the case of an advance granted for agricultural

purposes, and

Any amount to be received remains overdue for a period of more than 90 days in

respect of other accounts.

Non Performing Assets (npa) in CENTARL BANK

With a steep rise in the ratio of the nonperforming assets all over the country, it has been

really tough for the RBI to control and manage in the given time frame. No doubt, public

sector banks including HDFC BANKhave been in the list of banks that have been

implementing the procedures to control the default line of the borrowers. On the other

hand, it should also be noted that non performing assets (npa) in HDFC BANKis ought to

plague the whole banking structure. To know the latest report and status on CENTARL

BANK’s NPA, you can also call or fill up the enquiry form with your queries.

Update on NPA for HDFC BANK

The recent report on the statistics of non performing assets (npa) in HDFC BANKstates

that it witnessed an unexpected rise in the percentage of NPA. Other public sector banks

excluding HDFC BANKexperienced a rise of 10.5% till March 2012. On the other hand,

some of the banks of the country such as Punjab National Bank, Punjab and Sind Bank,

Central Bank of India and Indian Bank reported a massive increase in the nonperforming

assets that were above 35% in gross magnitude in the same fiscal.

Cause for the steep rise in NPA percentage

With a quick rise in the disbursal of restructured loans in the standard category, NPA has

really risen over the limit although the limiting ratio is not so much alarming. With the net

NPA rate standing steady at the 1.5% for public sector banks, restructured loans is a

matter of primary concern. Moreover, the contribution of such loans in the aggregate

advances for these banks are supposed to be critical at 5.4%. And, amazingly 12% of those

structured loans got converted into non performing assets (npa) in CENTARL BANK.

HDFC BANKis at a war against the sticky loans and nonperforming assets now.

25

STATE BANK OF INDIA (Nationalised Bank)

HISTORY

The roots of the State Bank of India lie in the first decade of 19th century, when the Bank

of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank

of Bengal was one of three Presidency banks, the other two being the Bank of

Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July

1843). All three Presidency banks were incorporated as joint stock companies and were the

result of the royal charters. These three banks received the exclusive right to issue paper

currency in 1861 with the Paper Currency Act, a right they retained until the formation of

26

the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and

the re-organized banking entity took as its name Imperial Bank of India. The Imperial

Bank of India remained a joint stock company.

Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of

India, which is India's central bank, acquired a controlling interest in the Imperial Bank of

India. On 30 April 1955, the Imperial Bank of India became the State Bank of India.

The government of India recently acquired the Reserve Bank of India's stake in HDFC

BANKso as to remove any conflict of interest because the RBI is the country's banking

regulatory authority.

In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which

made eight state banks associates of CENTARL BANK. A process of consolidation began

on 13 September 2008, when the State Bank of Saurashtra merged with CENTARL

BANK.

HDFC BANKhas acquired local banks in rescues. The first was the Bank of Behar (est.

1911), which HDFC BANKacquired in 1969, together with its 28 branches. The next year

HDFC BANKacquired National Bank of Lahore (est. 1942), which had 24 branches. Five

years later, in 1975, HDFC BANKacquired Krishna ram Baldeo Bank, which had been

established in 1916 in Gwalior State, under the patronage of Maharaja Madho Rao

Scindia. The bank had been the Dukan Pichadi, a small moneylender, owned by the

Maharaja. The new banks first manager was Jall N. Broacha, a Parsi. In 1985, HDFC

BANKacquired the Bank of Cochin in Kerala, which had 120 branches. HDFC BANKwas

the acquirer as its affiliate, theState Bank of Travancore, already had an extensive network

in Kerala.

CURRENT BOARD OF DIRECTORS

After the end of O. P. Bhatt's reign as HDFC BANKchairman on 31 March 2011, the post

was taken over by Pratip Chaudhuri, who is the former deputy managing director of the

international division of CENTARL BANK. As of 4 August 2011, there are twelve

members in the HDFC BANKboard of directors, including Subir Gokarn, who is also one

of the four deputy governors of the Reserve Bank of India. The complete list of the Board

members is:

27

1. Pratip Chaudhuri (Chairman)

2. Hemant G. Contractor (Managing Director)

3. Diwakar Gupta (Managing Director)

4. A Krishna Kumar (Managing Director)

5. Dileep C Choksi (Director)

6. S. Venkatachalam (Director)

7. D. Sundaram (Director)

8. Parthasarathy Iyengar (Director)

9. G. D. Nadaf (Officer Employee Director)

10.Rashpal Malhotra (Director)

11.D. K. Mittal (Director)

12.Subir V. Gokarn (Director)

The eight banking subsidiaries are:

State Bank of Bikaner and Jaipur (SBBJ)

State Bank of Hyderabad (SBH)

State Bank of India (CENTARL BANK)

State Bank of Indore (CENTARL BANKR)

State Bank of Mysore (SBM)

State Bank of Patiala (SBP)

State Bank of Saurashtra (SBS)

State Bank of Travancore (SBT)

28

FINANCIAL ANALYSIS OF

STATE BANK OF INDIA

29

BALANCE SHEET OF CENTARL BANK

Balance Sheet --------In crs-------

Mar '11 Mar '12

Capital and Liabilities:

Total Share Capital 635.00 671.04

Equity Share Capital 635.00 671.04

Share Application Money 0.00 0.00

Preference Share Capital 0.00 0.00

Reserves 64,351.04 83,280.16

Revaluation Reserves 0.00 0.00

Net Worth 64,986.04 83,951.20

Deposits 933,932.81 1,043,647.52

Borrowings 119,568.96 127,005.57

Total Debt 1,053,501.77 1,170,652.93

Other Liabilities & Provisions 105,248.39 80,915.09

Total Liabilities 1,223,752.20 1,335,519.22

Assets

Cash & Balances with RBI 94,395.50 54,525.94

Balance with Banks, Money at Call 28,478.65 43,087.23

Advances 756,719.45 867,578.89

Investments 295,600.57 312,197.61

Gross Block 13,189.28 14,792.33

Accumulated Depreciation 8,757.33 9,658.46

Net Block 4,431.95 5,133.87

Capital Work In Progress 332.23 332.68

Other Assets 43,777.85 53,113.02

Total Assets 1,223,752.20 1,335,519.24

Contingent Liabilities 585,294.50 698,064.74

Bills for collection 205,092.29 201,500.44

Book Value (Rs) 1,023.40 1,251.05

30

PROFIT AND LOSS OF CENTARL BANK

Profit & Loss account -- in Rs. Cr. --

Mar '11 Mar '12

Income

Interest Earned 81,394.52 106,521.45

Other Income 14,935.09 14,351.45

Total Income 96,329.45 120,872.90

Expenditure

Interest expended 48,867.96 63,230.37

Employee Cost 14,480.17 16,974.04

Selling and Admin Expenses 12,141.19 15,625.18

Depreciation 990.50 1,052.17

Miscellaneous Expenses 12,479.30 12,350.13

Preoperative Exp Capitalised 0.00 0.00

Operating Expenses 31,430.88 37,563.09

Provisions & Contingencies 8,660.28 8,393.43

Total Expenses 88,959.12 109,186.89

Net Profit for the Year 7,370.35 11,686.01

Extraordinary Items 0.00 21.28

Profit brought forward 0.34 6.05

Total 7,370.69 11,713.34

Preference Dividend 0.00 0.00

Equity Dividend 1,905.00 2,348.66

Corporate Dividend Tax 246.52 296.49

Per share data (annualised)

Earning Per Share (Rs) 116.52 174.15

Equity Dividend (%) 300.00 350.00

Book Value (Rs) 1,023.40 1,251.05

Appropriations

Transfer to Statutory Reserves 2,488.96 3,531.35

Transfer to Other Reserves 2,729.87 5,552.50

Proposed Dividend/Transfer to Govt 2,151.52 2,645.15

Balance c/f to Balance Sheet 0.34 0.34

Total 7,370.69 11,713.34

31

FINANCIAL RATIOS OF CENTARL BANK

RATIOS 2011 2012

Total Debt/Equity Ratio 0.10 0.05

Total Asset Turnover Ratio 0.08 0.09

Asset Turnover Ratio 7.24 8.06

Return On Equity (%) 12.62 15.72

Return On Asset (%) 0.73 0.91

Return On Capital Employed (%) 5.61 6.39

Current Ratio 0.32 0.30

Quick Ratio 8.50 12.05

Earning Per Share 116.52 174.15

Dividend Pay Out Ratio 26.03 22.59

32

Analysis

1. Total debt/ equity ratio

Total debt/ equity ratio = debt \ equity

Total debt equity ratio tests the long term stability of a company. A low debt- equity ratio also indicates stability and flexibility in arranging finance for future.

The total debt-equity ratio of HDFC BANKhas decreased from 0.10 in 2011 to 0.05 in 2012. This indicates that the bank is stable and flexible in arranging finance for future.

2. Total Assets Turnover Ratio

Total Asset Turnover Ratio=sales/Avg. Total asset

This ratio shows how much sales the firm is generating for every dollar of investment in

asset .The higher the ratio ,the better the firms is performing.

The total asset turnover ratio of HDFC BANKis increased from

0.08 in 2011 to 0.09 in 2012.

3. Asset Turnover ratio

Asset Turnover Ratio=Sales/Total assets

It is a measure of how well a firm is putting its asset to work. If the asset turnover ratio is low, it may indicate that the firm has too many unproductive asset.

33

The asset turnover ratio of HDFC BANKhas increased from 7.24 in 2011 to 8.06 in 2012. It indicates that HDFC BANKhas reduced its no. of unproductive asset and the bank is using its assets effectively.

4. Return On Equity (%)

Return On Equity = Net Income/Average Shareholders Equity *100

The return on equity ratio means how much the shareholders earned for their investment in the company. The higher the rato the percentage ,the better return is for the investors to invest

The return On Equity Ratio has increased from 12.62 in 2011 to 15.72

in 2012 . it has shown a great increase in return on equity. This would help the bank to

attract more investors.

5.Return On Assets (%)

Return On Assets= Net Income/Avg Total Asset

The return On Asset Percentage shoes how profitable a company s asset are in generating revenue . The number tells you what the company tells you what the company can do with what it has

The return on asset % has increased from 0.73 in 2011 to 0.91 in 2012 .This indicates that HDFC BANKis utilizing its assets efficiently.

6.Return On Capital Employed

Return On capital Employed %=NPAT/Capital Employed *100

ROCE compares earnings with capital invested in the company. ROCE is used to prove the value that the bussines gains from its asset and liabilities. The higher the ratio the better is the return on capital employed.

ROCE of HDFC BANKhas increased from 5.61 in 2011 to 6.39 in2012. This indicates that the HDFC BANKhas

34

7.Current Ratio

Current Ratio=Current Assets/Current Liability

Current ratio tests the short term financial strength of the company. it tests the company’s ability to pay its current liability. Acceptable current ratio vary from industry to industry and are generally between 1.5 to 3 for healthy bussines. If a company’s current ratio is below 1 then the company may have problem in meeting its short-term obligations.

In case of HDFC BANKthe current ratio has been 0.32 in 2011 and 0.30 in 2012. This shows that the current ratio is less than 1 and HDFC BANKmay face problems in meeting its short term obligation as it is below 1.

8.Quick Ratio

Quick Ratio=Quick Assets/Quick Liability

Quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liability immediately. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book value

The ratio of HDFC BANKhas increased from 8.50 in 2011 to 12.05 in 2012 .HDFC BANKhas a good quick ratio.

9.Earning Per Share

Earnings per share=net profit for equity share/number of equity share

Earnings per share is a test of profitability from equity shareholders point of view. the more the eps the more people will invest in the share of this company.

The eps of HDFC BANKwas 116.52 in 2011 which has increase to 174.15 in 2012.HDFC BANKhas shown a growing trend in eps. This would help them to attract more investors

35

10 .Dividend payout ratio

Dividend Payout Ratio=Dividends/Earnings

Dividend payout ratio is the ratio of cash dividend paid through earning for a period.

The dividend payout ratio of HDFC BANK has reduced from 26-03 in 2011 to 22-59 in 2012

State Bank of India

BSE: 500112 | NSE: CENTARL BANKN | ISIN: INE062A01012 Market Cap: [Rs.Cr.] 111,719 | Face Value: [Rs.] 10Industry: Banks - Public Sector

BOARD MEETING12-Aug-13 

State Bank of India has informed BSE that a Meeting of the Bank's Central Board will be held on August 12, 2013, to take on record the Reviewed Working Results of the Bank for the quarter ended June 30, 2013 (Q1). 

23-May-13 

14-Feb-13 

19-Jan-13 

09-Nov-12 

ANNUAL GENERAL MEETING 21-Jun-13

State Bank of India has informed BSE that the 58th Annual General Meeting (AGM) of the Company will be held on June 21, 2013. With reference to earlier announcement dated May 17, 2013 regarding AGM on June 21, 2013, State Bank of India has now submitted to BSE a copy of the Notice dated May 29, 2013 being issued in the news papers, informing Shareholders of the availability of Proxy Forms and Attendance Slips for the captioned AGM. (As Per BSE Announcement Dated On 04.06.2013) State Bank of India has informed BSE that the 58th Annual General Meeting (AGM) of the

36

Bank was held on June 21, 2013, under Clause 35A. (As Per BSE Announcement Dated On 24.06.2013)  

22-Jun-12

20-Jun-11

16-Jun-10

19-Jun-09

EXTRA ORDINARY GENERAL MEETING18-Feb-13

State Bank of India has informed BSE that a General Meeting of the Shareholders of the Bank will be held on March 18, 2013. State Bank of India has submitted to BSE a copy of the Special Resolution passed by the Shareholders of the Bank in the General Meeting held on March 18, 2013. State Bank of India has informed BSE regarding the details of Voting result at the General Meeting of the Bank, pursuant to clause 35A and Extracts of the Minutes of the proceedings of the General Meeting of the Shareholders of the Bank was held on March 18, 2013. (As per BSE Announcement Dated on 18.03.2013) 

30-Jan-13

19-Mar-12

24-Jun-11

12-Jan-09

INDIA INFOLINE RESEARCH 

State Bank of India (Q1 FY14)

State Bank of India (Q3 FY13)

State Bank of India (Q2 FY13)

Mr. Pratip Chaudhuri, Chairman, State Bank of India

State Bank of India (Q1 FY13)

37

HDFC BANKHOME LOAN 

TOP-UP LOAN

Loan for any purpose other than speculative. Repayment period co-terminus with the underlying Home Loan account. Upto two Home Equity Loans allowed to exist together. No prepayment/ pre closure penalty.

Eligibility

All Home Loans with a satisfactory repayment track of at least one year. Valid mortgage should have been created in favour of the Bank. 

Loan Amount

Minimum: Rs. 0.50 lacs Maximum: Rs. 2 crores.

Permissible Loan amount is calculated at 75% of present market value of the house property less present outstanding in the Home Loan account.

Interest Rate Term Loan: 1.25% over Base Rate, present effective rate:11% p.a. Overdraft: 1.50% over Base Rate, present effective rate:11.25% p.a.

Loan Tenure The tenure of the loan will be co-terminus with the original residual maturity of the

Home Loan or the option exercised by customer, whichever is earlier. The loan has to be liquidated before the borrower attains the age of 70 years. 

EARNEST MONEY DEPOSIT (EMD) SCHEME LOAN FOR EARNEST MONEY FOR ALLOTMENT OF A HOUSE/PLOT 

Many Government agencies, viz. Urban Development Authorities and Housing Boards, periodically come out with schemes for allotment of plots/houses, wherein

38

applicants have to deposit 10-20% of the total cost of plot/house as Earnest Money Deposit (EMD).

HDFC BANKEarnest Money Deposit Scheme provides finance for Earnest Money deposit to all individuals above 21 years of age.

Applicant should have regular source of income. No minimum income criteria. Margin waived. Finance upto 100% of application money, subject to a maximum

loan amount of Rs.10 Lacs. No security, irrespective of the loan amount.

Above mentioned features of the scheme are applicable subject to the following conditions:

 Allotment letters/refund orders should be routed through CENTARL BANK.

Lump sum amount equal to 6 months interest to be paid upfront. Two PDCs, one for the principle amount of EMD and another towards interest for

the next 6 months should be taken to meet the eventuality of refund getting delayed.

HDFC BANKREVERSE MORTGAGE LOANLOAN FOR THE WELFARE OF SENIOR CITIZENS IN INDIA

House-owning Senior Citizens having inadequate income can avail this loan  to meet their financial needs for renovation/repairs to house, medical & other personal uses. 

No compulsion for the borrower to repay the loan amount during his or her lifetime or till such time he or she continues to stay in the house.

Borrowers have the options to prepay the loan at any time  without any pre-payment penalty.

Interest Rate 

2.75% above the Base Rate, present effective rate being 12.50% p.a. (Fixed) subject to reset every 5 years. 

Disbursement 

Either in Monthly/Quarterly payments or 50% of the sanctioned limit in lump-sum and the remaining in periodic payments.

39

Scheduled Banks in India (Public Sector)

The following are the Scheduled Banks in India (Public Sector):

Allahabad Bank Andhra Bank [[Bank of baroda ] Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank  (Industrial Development Bank of India) Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab and Sindh Bank Punjab National Bank State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of India State Bank of Mysore State Bank of Patiala State Bank of Travancore Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank

Scheduled Banks in India (Private Sector)

The following are the Scheduled Banks in India (Private Sector)

Abhyudaya Bank  [4]

Axis Bank Ltd

40

Bank of Punjab Ltd Bank of Rajasthan Catholic Syrian Bank Centurion Bank Ltd City Union Bank Development Credit Bank Dhanlaxmi Bank Federal Bank Ltd HDFC Bank Ltd ICICI Banking Corporation Bank Ltd IndusInd Bank ING Vysya Bank Jammu & Kashmir Bank Nainital Bank , estb. 1954 Karur Vysya Bank Karnataka Bank Kotak Mahindra Bank Lakshmi Vilas Bank South Indian Bank Ltd Tamilnad Mercantile Bank Limited Yes Bank The Ratnakar Bank Ltd

Scheduled Foreign Banks in India

The following are the Scheduled Foreign Banks in India:

American Express Bank Ltd. ANZ Bank Bank of America NT & SA Bank of Tokyo Ltd. Banque Nationale de Paris Barclays Bank Plc Citibank Deutsche Bank AG Hongkong and Shanghai Banking Corporation The Royal Bank of Scotland The Chase Manhattan Bank Ltd. Dresdner Bank AG Standard Chartered Bank

41

CONCLUSION

The Indian banks are hopeful of becoming a global brand as they are the major source of

financial sector revenue and profit growth. The financial services penetration in India

continues to be healthy, thus the banking industry is also not far behind. As a result of this,

the profit for the Indian banking industry will surely surge ahead.

The profit pool of the Indian banking industry is probable to augment from US$ 4.8 billion

in 2005 to US$ 20 billion in 2010 and further to US$ 40 billion by 2015. This growth and

expansion pace would be driven by the chunk of middle class population.

The increase in the number of private banks, the domestic credit market of India is

estimated to grow from US$ 0.4 trillion in 2004 to US$ 23 trillion by 2050.

Fundamental analysis can be valuable, but it should be approached with caution. If

you are reading research written by a sell-side analyst, it is important to be familiar

with the analyst behind the report.

We all have personal biases, and every analyst has some sort of bias. There is

nothing wrong with this, and the research can still be of great value.

Learn what the ratings mean and the track record of an analyst before jumping off

the deep end.

Corporate statements and press releases offer good information, but they should be

read with a healthy degree of scepticism to separate the facts from the spin.

Press releases don't happen by accident; they are an important Personal Research

tool for companies.

Investors should become skilled readers to weed out the important information and

ignore the hype.

42

BIBLIOGRAPHY

Money.livemint.com

Competitionmonstor.com

Preserveaticles.com

Wikipedia

Nonperforming assets. in

43