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Chapter III

Profile of Indian Banking Industry: SBI and ICICI Banks

This chapter presents the history of Indian Banking Industry. It also presents the general

banking scenario, structure of banks. It also discusses the history of SBI and ICICI and

how these banks try to motivate and satisfy their employees. The different motivational

practices adopted by the banks are presented and the first objective of the study is

ascertained.

3.1 Introduction

In any economy banking sector plays a vital role for overall development of agriculture,

small business and different industries. In the pre-nationalisation period bank had been

managed by few people who were serving their vested interest for their personal gains.

Indian banking is the lifeline of the nation and its people. Banking has helped in

developing the vital sectors of the economy and usher in a new dawn of progress on the

Indian horizon. The sector has translated the hopes and aspirations of millions of people

into reality. But to do so, it has had to control miles and miles of difficult terrain, suffer

the indignities of foreign rule and the pangs of partition. Today, Indian banks can

confidently compete with modern banks of the world. For the past three decades India’s

banking system has several outstanding achievements to its credit. The banks are the

main participants of the financial system in India.

The banking sector offers several facilities and opportunities to their customers. The bank

also offers investment and insurance products. As a variety of models for cooperation and

integration among financial industries have emerged, some of the traditional distinctions

between banks, insurance companies, and security firms have diminished. Before the

establishment of banks, the financial activities were handled by money lenders and

individuals. At that time the interest rates were very high. Again there were no security

for public savings and no uniformity regarding loans. So as to overcome such problems

the organized banking sector was established, which was fully regulated by the

government.

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3.2. Historical Background

Banking is an ancient business in India with some of oldest references in the writings of

Manu. Bankers played an important role during the Mogul period. During the early part

of the East India Company era, agency houses were involved in banking. Modern

banking (i.e. in the form of joint-stock companies) may be said to have had its beginnings

in India as far back as in 1786, with the establishment of the General Bank of India.

Bank of Hindustan was set up in 1870; it was the earliest Indian Bank. Later, three

presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of

Bombay and Bank of Madras were set up, which laid foundation for modern banking in

India. In 1921, all presidency banks were amalgamated to form the Imperial Bank of

India. Imperial bank carried out limited number of central banking functions prior to

establishment of RBI. It engaged in all types of commercial banking business except

dealing in foreign exchange.

Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was

constituted as an apex body without major government ownership. Banking Regulations

Act was passed in 1949. This regulation brought RBI under government control. Under

the act, RBI got wide ranging powers for supervision & control of banks. The Act also

vested licensing powers & the authority to conduct inspections in RBI. In 1955, RBI

acquired control of the Imperial Bank of India, which was renamed as State Bank of

India. In 1959, SBI took over control of eight private banks floated in the erstwhile

princely states, making them as its 100% subsidiaries.

It was 1960, when RBI was empowered to force compulsory merger of weak banks with

the strong ones. It significantly reduced the total number of banks from 566 in 1951 to 85

in 1969. In July 1969, government nationalised 14 banks having deposits of Rs. 50 crores

& above. In 1980, government acquired 6 more banks with deposits of more than Rs.200

crores. Nationalisation of banks was to make them play the role of catalytic agents for

economic growth. The Narasimha Committee report suggested wide ranging reforms for

the banking sector in 1992 to introduce internationally accepted banking practices. The

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amendment of Banking Regulation Act in 1993 saw the entry of new private sector

banks.

Banking industry is the back bone for growth of any economy. The journey of Indian

Banking Industry has faced many waves of economic crisis, such as the economic crisis

of US in 2008-09 and now the European crisis. The general scenario of the world

economy is very critical. It is the banking rules and regulation framework of India which

has prevented it from the world economic crisis. In order to understand the challenges

and opportunities of Indian Banking Industry, it is important to understand the general

scenario and structure of Indian Banking Industry.

3.3. General Banking Scenario in India

The general banking scenario in India has become very dynamic now-a-days. Before pre-

liberalization era, the picture of Indian Banking was completely different as the

Government of India initiated measures to play an active role in the economic life of the

nation, and the Industrial Policy Resolution adopted by the government in 1948

envisaged a mixed economy. This resulted into greater involvement of the state in

different segments of the economy including banking and finance.

The Reserve Bank of India was nationalized on January 1, 1949 under the terms of the

Reserve Bank of India (Transfer to Public Ownership) Act, 1948. 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 could be opened without a

license from the RBI, and no two banks could have common directors.

By the 1960s, the Indian banking industry had become an important tool to facilitate the

speed of development of the Indian economy. The Government of India issued an

ordinance and nationalised the 14 largest commercial banks with effect from the midnight

of July 19, 1969. A second dose of nationalization of 6 more commercial banks followed

in 1980. The stated reason for the nationalization was to give the government more

control of credit delivery. With the second dose of nationalization, the Government of

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India controlled around 91% of the banking business of India. Later on, in the year 1993,

the government merged New Bank of India with Punjab National Bank. It was the only

merger between nationalized banks and resulted in the reduction of the number of

nationalised banks from 20 to 19. After this, until the 1990s, the nationalized banks grew

at a pace of around 4%, closer to the average growth rate of the Indian economy.

Table 3.1. Banks Nationalized

S.No 1969 1980

1. Allahabad Bank Andhra Bank

2. Bank of Baroda Corporation Bank

New Bank

3. Bank of India Punjab & Sind Bank

4. Bank of Maharashtra Vijaya Bank

5. Canara Bank Oriental Bank of Commerce

6. Central Bank of India UTI Bank

7. Syndicate Bank

8. UCO Bank

9. United Bank of India

10. Union Bank

11. Punjab National Bank

12. Indian Overseas Bank

13. Indian Bank

14. Dena Bank

Source: Survey

In the early 1990s, the then Narasimha Rao government embarked on a policy of

liberalization, licensing a small number of private banks. The next stage for the Indian

banking has been set up with the proposed relaxation in the norms for Foreign Direct

Investment, where all Foreign Investors in banks may be given voting rights which could

exceed the present cap of 10%, at present it has gone up to 74% with some restrictions.

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.

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The new wave ushered in a modern outlook and tech-savvy methods of working for

traditional banks. All this led to the retail boom in India. People not just demanded more

from their banks but also received more.

3.4. Structure of Indian Banking Industry

Banking Industry in India functions under the sunshade of Reserve Bank of India - the

regulatory, central bank. Banking Industry mainly consists of:

• Commercial Banks

• Co-operative Banks

The commercial banking structure in India consists of: Scheduled Commercial Banks

Unscheduled Bank. Scheduled commercial Banks constitute those banks which have

been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934.

RBI in turn includes only those banks in this schedule which satisfy the criteria laid down

vide section 42 (60) of the Act. Some co-operative banks are scheduled commercial

banks although not all co-operative banks are. Being a part of the second schedule

confers some benefits to the bank in terms of access to accommodation by RBI during the

times of liquidity constraints. At the same time, however, this status also subjects the

bank certain conditions and obligation towards the reserve regulations of RBI.

For the purpose of assessment of performance of banks, the Reserve Bank of India

categorise them as public sector banks, old private sector banks, new private sector banks

and foreign banks.

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Table 3.2.

Profile of Scheduled Commercial Banks in India

Number Number

Total Total Net

Total

advances Deposits NPA

Category Number of

of banks of Offices

(crore) (crore) Ratio Employees

SBI &

6 18,772 994154 1245862 1.49 2,82,453

Associate

Nationalized

20 45,640 2311478 3127122 .92 4,75,082

Banks(IDBI)

Private Banks

21 11,968 797534 1002759 .56 2,18,679

Foreign Banks 33 316 195539 240689 .67 27,968

total 80 76,696 4298704 5616432 .97 10,04,182

Source- Profile of Banks 2010-2011,

RBI

As per the above table the profile of Scheduled Commercial Banks is depicted as on 2010

-2011. The total number of employees of SBI and Associates is 2,82,453 and that of

Private Banks is 2,18,679. The number of offices of SBI is 18,772 and that of Private

Banks is 11,968. This shows a steady increase in private sector banking at par with public

sector banking.

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Table 3.3.

Ten Largest Banks in India

Name of Bank Credit Market NIMs Tier I Return on Gross Portfolio Share (2010- Capital Net Worth NPA % as in March (%) 11) % as in (2010-11) as in

2011 March March

(Rs. billion) 2011 2011

State Bank of India 7,567 18% 2.9% 7.8% 13% 3.3%

Punjab National 2,421 6% 3.5% 8.4% 24% 1.8%

Bank

Bank of Baroda 2,287 5% 2.8% 10.0% 24% 1.4%

ICICI Bank 2,164 5% 2.3% 13.2% 10% 4.5%

Bank of India 2,131 5% 2.5% 8.3% 17% 2.2%

Canara Bank 2,125 5% 2.6% 10.9% 26% 1.5%

HDFC Bank 1,600 4% 4.2% 12.2% 17% 1.1%

IDBI Bank 1,571 4% 1.8% 8.1% 16% 1.8%

Axis Bank 1,424 3% 3.1% 9.4% 19% 1.1%

Central Bank of

India 1,297 3% 2.7% 6.4% 18% 2.2%

Total banking 42,874 100% 2.9% 9.7% 17% 2.3%

NIM: Net Interest Margin

Source: Annual Reports, Results of banks, ICRA Research 2011

As per the above table the top 10 largest banks, State Bank of India occupies the first

place and ICICI bank occupies fourth place. It may be considered as though it is in the

fourth position in top ten banks, ICICI occupies first place among private sector banks.

3.5. Industry scenario of Indian Banking Industry

The growth in the Indian Banking Industry has been more qualitative than quantitative

and it is expected to remain the same in the coming years. Based on the projections made

in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan,

the report forecasts that the pace of expansion in the balance-sheets of banks is likely to

decelerate. The total assets of all scheduled commercial banks by end-March 2010 are

estimated at Rs 40, 90,000 crores. That will comprise about 65 per cent of GDP at current

market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at

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an annual composite rate of 13.4 per cent during the rest of the decade as against the

growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that

there will be large additions to the capital base and reserves on the liability side. The

Indian Banking industry, which is governed by the Banking Regulation Act of India,

1949 can be broadly classified into two major categories, nonscheduled banks and

scheduled banks. Scheduled banks comprise commercial banks and the co-operative

banks. In terms of ownership, commercial banks can be further grouped into nationalized

banks, the State Bank of India and its group banks, regional rural banks and private sector

banks (the old/ new domestic and foreign). These banks have over 67,000 branches

spread across the country.

The Public Sector Banks (PSBs), which are the base of the Banking sector in India

account for more than 78 per cent of the total banking industry assets. Unfortunately they

are burdened with excessive Non Performing assets (NPAs), massive manpower and lack

of modern technology. On the other hand the Private Sector Banks are making

tremendous progress. They are leaders in Internet banking, mobile banking, phone

banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the

Indian Banking Industry.

In the Indian Banking Industry some of the Private Sector Banks operating are IDBI

Bank, ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan

Ltd. and banks from the Public Sector include Punjab National bank, Vijaya Bank, UCO

Bank, Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO

Bank, American Express Bank Ltd, Citibank are some of the foreign banks operating in

the Indian Banking Industry.

Banking Industry in India is going through a transitional phase. The first phase of

financial reforms resulted in the nationalization of 14 major banks in 1969 and resulted in

a shift from Class banking to Mass banking. This in turn resulted in a significant growth

in the geographical coverage of banks. Every bank had to earmark a minimum percentage

of their loan portfolio to sectors identified as “priority sectors”. The manufacturing sector

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also grew during the 1970s in protected environs and the banking sector was a critical

source. The next wave of reforms saw the nationalization of 6 more commercial banks in

1980. Since then the number of scheduled commercial banks increased four-fold and the

number of bank branches increased eight-fold. After the second phase of financial sector

reforms and liberalization of the sector in the early nineties, the Public Sector Banks

(PSB) s found it extremely difficult to compete with the new private sector banks and the

foreign banks. The new private sector banks first made their appearance after the

guidelines permitting them were issued in January 1993. Eight new private sector banks

are presently in operation. These banks due to their late start have access to state-of-the-

art technology, which in turn helps them to save on manpower costs and provide better

services.

During the year 2000, the State Bank Of India (SBI) and its 7 associates accounted for a

25 percent share in deposits and 28.1 percent share in credit. The 20 nationalized banks

accounted for 53.2 percent of the deposits and 47.5 percent of credit during the same

period. The share of foreign banks (numbering 42), regional rural banks and other

scheduled commercial banks accounted for 5.7 percent, 3.9 percent and 12.2 percent

respectively in deposits and 8.41percent, 3.14 percent and 12.85 percent respectively in

credit during the year 2000.

103

Fig 3.1.

Commercial Banking Structure in India

Reserve Bank of India

Bank Financial Institution

All India

State Level

Other

Scheduled

Co-operative

Commercial

credit

Financial

Institution

Institution

banks

institutions

Institution

Public Sector

Private

Foreign

Regional

Urban

banks Sector banks banks

Rural Banks

Cooperative

Source: SBI Manual

Rural

Cooperative Credit

Institutions

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3.6. Current Scenario

The industry is currently in a transition phase. On the one hand, the PSBs, which are the

mainstay of the Indian Banking system are in the process of shedding their flab in terms

of excessive manpower, excessive Non Performing Assets (NPAs) and excessive

governmental equity, while on the other hand the private sector banks are consolidating

themselves through mergers and acquisitions.

PSBs, which currently account for more than 78 percent of total banking industry assets

are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues from

traditional sources, lack of modern technology and a massive workforce while the new

private sector banks are forging ahead and rewriting the traditional banking business

model by way of their sheer innovation and service. The PSBs are of course currently

working out challenging strategies even as 20 percent of their massive employee strength

has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS)

schemes.

The private players however cannot match the PSB‟s great reach great size and access to

low cost deposits. Therefore one of the means for them to combat the PSBs has been

through the merger and acquisition (M & A) route. Over the last two years, the industry

has witnessed several such instances. For instance, HDFC Banks merger with Times

Bank, ICICI Banks acquisition of ITC Classic, Anagram Finance and Bank of Madura.

Centurion Bank, Indusind Bank, Bank of Punjab, Vysya Bank are said to be on the

lookout. The UTI bank- Global Trust Bank merger however opened a Pandora’s box and

brought about the realization that all was not well in the functioning of many of the

private sector banks.

Private sector Banks have pioneered internet banking, phone banking, anywhere banking,

and mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined

various other services and integrated them into the mainstream banking arena, while the

PSBs are still grappling with disgruntled employees in the aftermath of successful VRS

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schemes. Also, following India’s commitment to the W To agreement in respect of the

services sector, foreign banks, including both new and the existing ones, have been

permitted to open up to 12 branches a year with effect from 1998-99 as against the earlier

stipulation of 8 branches. A talk of government diluting their equity from 51 percent to

33 percent in November 2000 has also opened up a new opportunity for the takeover of

even the PSBs. The FDI rules being more rationalized in the financial year 2002 may also

pave the way for foreign banks taking the mergers and acquisitions route to acquire

willing Indian partners. Meanwhile the economic and corporate sector slowdown has led

to an increasing number of banks focusing on the retail segment. Many of them are also

entering the new vistas of Insurance. Banks with their phenomenal reach and a regular

interface with the retail investor are the best placed to enter into the insurance sector.

Banks in India have been allowed to provide fee-based insurance services without risk

participation invest in an insurance company for providing infrastructure and services

support and set up of a separate joint venture insurance company with risk participation.

Fig 3.2. Bankex – 10 Year Performance

Source:MoneyWorks4me.com

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According to an IBA-FICCI-BCG report titled ‘Being five star in productivity – road

map for excellence in Indian banking’, India’s gross domestic product (GDP) growth will

make the Indian banking industry the third largest in the world by 2025. According to the

report, the domestic banking industry is set for an exponential growth in coming years

with its assets size poised to touch USD 28,500 billion by the turn of the 2025 from the

current asset size of USD 1,350 billion (2010)”. The historical performance of the Banks

is depicted below.

Table 3.4 Historical Performance of Banks

The above table shows the 5 years historical performance of different types of players in

the banking industry, public sector bank has grown its deposits, advances and business

per employee by the highest rate – 21.7%, 23% and 21.1% respectively. As far as net

interest income is concerned, private banks are ahead in the race by reporting 24.2%

growth, followed by pubic banks (21.4%) and then by foreign banks (14.8%). Though the

growth in the business per employee and profit per employee has been the highest for

public sector banks, in absolute terms, foreign banks have the highest business per

employee as well as profit per employee.

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Fig 3.3. Historical Performance of Banks

In the last 5 years, foreign and private sector banks have earned significantly higher

return on total assets as compared to their pubic peers. The above fig depicts the trend,

foreign banks show an overall decreasing trend, private banks an increasing trend and

Public banks have been more or less stagnant. The net NPA of public sector bank was

also significantly higher than that of private and foreign banks at the end of Financial

Year 2011, which indicates the asset quality of public banks is comparatively poor. The

Capital Adequacy ratio was also very high for private and foreign bank as compared to

public banks. It can be concluded that the current position of ROA, Net NPA and CAR of

different kinds of players in the industry indicates that going ahead; public banks will

have to face relatively more problems as compared to private and foreign banks.

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Table 3.5 Five Year Performance of Banking Industry

The table above indicates that overall the top private banks have grown faster than that of

public banks. Axis Bank, one of the new private sector banks, has shown the highest

growth in all parameters i.e. net interest income, deposits, advances, total assets and book

value. Among public sector banks, Bank of Baroda has been the outperformer in the last

five years.

Kotak Mahindra Bank has reported the highest 5-year average net interest margin and

currently, it also has the highest CAR whereas HDFC Bank has the highest CASA, the

lowest net NPA to net advances ratio and the highest five-year-average ROA. On the

other hand, India’s largest bank, SBI reported the lowest five-year-average ROA.

Currently, it has the highest net NPA to net advances ratio and the lowest CAR. Looking

at all of the above, it is expected that Private Banks are better placed to garner growth in

the Indian Banking Industry.

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3.7. Factors contributing for growth of Banking Sector

3.7.1. High growth of Indian Economy: The growth of the banking industry is closely

linked with the growth of the overall economy. India is one of the fastest growing

economies in the world and is set to remain on that path for many years to come. This

will be backed by the stellar growth in infrastructure, industry, services and agriculture.

This is expected to boost the corporate credit growth in the economy and provide

opportunities to banks to lend to fulfill these requirements in the future.

3.7.2. Rising per capita income: The rising per capita income will drive the growth of

retail credit. Indians have a conservative outlook towards credit except for housing and

other necessities. However, with an increase in disposable income and increased

exposure to a range of products, consumers have shown a higher willingness to take

credit, particularly, young customers. A study of the customer profiles of different types

of banks reveals that foreign and private banks' share of younger customers is over 60%

whereas public banks have only 32% customers under the age of 40. Private Banks also

have a much higher share of the more profitable mass affluent segment.

3.7.3. Mobile banking: New channels used to offer banking services will drive the

growth of banking industry exponentially in the future by increasing productivity and

acquiring new customers. During the last decade, banking through ATMs and internet has

shown a tremendous growth, which is still in the growth phase. After ATMs, mobile

banking is expected to give another push to this industry growth in a big way; with the

help of new 3G and smart phone technology (mobile usage has grown tremendously over

the years). This can be looked at as branchless banking and so will also reduce costs as

there is no need for physical infrastructure and human resources. This will help in

acquiring new customers, who mainly live in rural areas (though this will take time due to

technology and infrastructure issues). The IBA-FICCI-BCG report predicts that mobile

banking would become the second largest channel of banking after ATMs.

3.7.4. Financial Inclusion Program: Currently, in India, 41% of the adult population

doesn’t have bank accounts, which indicates a large untapped market for banking players.

Under the Financial Inclusion Program, RBI is trying to tap this untapped market and the

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growth potential in rural markets by volume growth for banks. Financial inclusion is the

delivery of banking services at an affordable cost to the vast sections of disadvantaged

and low income groups. The RBI has also taken many initiatives such as Financial

Literacy Program, promoting effective use of development communication and using

Information and Communication Technology (ICT) to spread general banking concepts

to people in the under-banked areas. All these initiatives by promoting rural banking are

taken with the help of mobile banking, self help groups, microfinance institutions, etc.

Financial Inclusion, on the one side, helps corporate in fulfilling their social

responsibilities and on the other side it is fueling growth in other industries and so as a

whole economy.

3.7.5. Increasing non-performing and restructured assets: Due to a slowdown in

economic activity in the past couple of years and aggressive lending by banks many loans

have turned non-performing. Restructuring of assets means loans whose duration has

been increased or the interest rate has been decreased. This happens due to the inability of

the loan taking the company / individual to pay off the debt. Both of these have impacted

the profitability of banks as they are required to have a higher provisioning amount which

directly eats into the profitability. The key challenge going forward for banks is to

increase loans and effectively manage NPAs while maintaining profitability.

3.7.6. Intensifying competition: Due to the homogenous kind of services offered by

banks, a large number of players in the banking industry and other players such as

NBFCs, competition were already high. Recently, the RBI released the new Banking

License Guidelines for NBFCs. So, the number of players in the Indian banking industry

is going to increase in the coming years. This will intensify the competition in the

industry, which will decrease the market share of existing banks.

3.7.7. Managing Human Resources and Development: Banks have to incur a

substantial employee training cost as the attrition rate is very high. Hence, banks find it

difficult to manage the human resources and development initiatives. Currently, there are

many challenges before Indian Banks such as improving capital adequacy requirement,

managing non-performing assets, enhancing branch sales & services, improving

organization design; using innovative technology through new channels and working on

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lean operations. Apart from this, frequent changes in policy rates to maintain economic

stability, various regulatory requirements, etc. are additional key concerns. Despite these

concerns, we expect that the Indian banking industry will grow through leaps and bounds

looking at the huge growth potential of the Indian economy. High population base of

India, mobile banking – offering banking operations through mobile phones, financial

inclusion, rising disposable income, etc. will drive the growth Indian banking industry in

the long-term. The Indian economy will require additional banks and expansion of

existing banks to meet its credit needs.

Table No 3.6. Progress of Commercial Banking

June March March March March March March March March March

IMPORTANT

INDICATORS

1969 2003 2004 2005 2006 2007 2008 2009 2010 2011

1 2 3 4 5 6 7 8 9 10

No. of Commercial

Banks 89 294 291 288 222 183 175 170 169 169

(a) Scheduled

Commercial Banks 73 289 286 284 218 179 171 166 165 165

Of

which:

Regional

Rural

Banks - 196 196 196 133 96 91 86 82 82

(b) Non-

Scheduled

Commercial Banks 16 5 5 4 4 4 4 4 4 4

Number of Offices

of Scheduled

Commercial Banks

in India ^ 8262 66535 67188 68355 69471 71839 76050 80547 85393 90263

(a)

Rural 1833 32303 32121 32082 30579 30551 31076 31667 32624 33683

(b) Semi-Urban 3342 14859 15091 15403 15556 16361 17675 18969 20740 22843

(c)

Urban 1584 10693 11000 11500 12032 12970 14391 15733 17003 17490

112

(d) Metropolitan 1503 8680 8976 9370 11304 11957 12908 14178 15026 16247

Population per

office (in

thousands) 64 16 16 16 16 15 15 14.5 13.8 13.4

Deposits of

Scheduled

Commercial

46.46 13117.61# 15422.84& 17328.58& 21090.49 26119.33 31969.39 38341.1 44928.26 52079.69

Banks in India (`

Billion)

of which: (a)

Demand 21.04 1878.37 2459.43 2650.33 3646.4 4297.31 5243.1 5230.85 6456.1 6417.05

(b)

Time 25.42 11239.24 12963.42 14678.24 17444.09 21822.03 26726.3 33110.3 38472.16 45662.64

Credit of Scheduled

Commercial

35.99 7464.32 8655.94 11243 15070.77 19311.89 23619.14 27755.5 32447.88 39420.82

Banks in India (`

Billion)

Deposits of

Scheduled

Commercial

5.6 197.2 229.5 253.5 303.6 363.1 420.4 476 526.1 577

Banks per office (`

Million)

Credit of Scheduled

Commercial Bank

4.4 112.2 128.8 164.5 216.9 268.5 310.6 344.6 380 436.7 per office (` Million)

Per Capita Deposits

of Scheduled

88 12554 14550 16091 19276 23468 28327 33471 38062 43034

Commercial Banks

(`)

Per Capita Credit of

Scheduled

68 7143 8166 10440 13774 17355 20928 24230 27489 32574

Commercial Banks

(`)

Deposits of

Scheduled

Commercial Banks

as percentage of

National Income

(at current prices) 15.5 65.3 68.5 68.5 73.8 79.1 84.4 88.1 86.6 82.3

Scheduled

Commercial Banks'

5.04 2509.89 3113.35 4007.75 5467.74 7037.56 8247.73 9674.14 11384.06 13373.33

Advances to Priority

Sector (` Billion)

Share of Priority

Sector Advances in

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Total Credit of

Scheduled

Commercial Banks

(per cent) 14 34.6 37.1 36.7 37.2 36.5 34.9 34.8 35.1 33.9

Share of Priority

Sector Advances in

Total Non-Food

Credit of Scheduled

Commercial Banks

(per cent) 15 37.1 38.8 38.1 38.2 37.4 35.6 35.4 35.6 34.5

Credit Deposit Ratio 77.5 56.9 56.1 64.9 71.5 73.9 73.9 72.4 72.2 75.7

Investment Deposit

Ratio 29.3 41.3 43.8 41.6 35.5 30.3 30.4 30.4 30.8 28.8

Cash Deposit Ratio 8.2 6.3 5.6 6.9 6.6 7.5 8.6 6.7 6.8 6.7

# Includes Resurgent India Bonds (RIB) (` 179.45 Billion) and also India Millennium

Deposits (IMD) (` 256.62 Billion) & Includes India Millennium Deposits (IMD) (`

256.62 Billion) ^ Excludes Administrative Offices .

The above table depicts the progress of commercial banks from June 1969 to March

2011. Classification of bank offices according to population groups for the year 1969 is

based on 1961census. For the years 2003 to 2005, it is based on 1991 census. From the

year 2006 onwards, it is based on 2001 census. As such, the population group-wise

classification of bank offices is not strictly comparable for all the years. The number of

bank offices of scheduled commercial banks excludes the administrative offices.

Population per office, per capita deposits and per capita credit are based on provisional

population figures as on 1st March 2011 obtained from Census of India Website.

Deposits and credit of scheduled commercial banks in India are as per return under

Section 42(2) of the Reserve Bank of India Act, 1934 and relate to the last Friday of the

reference period. Deposits are net of inter-bank deposits and credit is exclusive of dues

from banks and bills rediscounted under the Bill Market Scheme. Aggregate deposits for

the year 2003 include the proceeds of Resurgent India Bonds amounting to ` 179.45

billion. For the years 2003 to 2005, the proceeds of India Millennium Deposits

amounting to 256.62 billion are included in aggregate deposits. The ratio of bank deposits

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to National Income for the years 2003 to 2008 is based on the series of National Income

with 1993-94 as the base year; from 2009 onwards it is based on the new series with

2004-05 as base year. For the year 1969, the base year is 1970-71.

Due to change in the definition of the Priority Sectors from time to time, the data are not

strictly comparable for the entire time span. Investments for the purpose of calculation of

Investment- Deposit ratio pertain to investments in Government and Other Approved

Securities. For working out Cash-Deposit ratio, Cash includes cash in hand and balances

with Reserve Bank of India.

3.8. Profile of SBI and ICICI Banks

Indian banking is the lifeline of the nation and its people. Banking has helped in

developing the vital sectors of the economy and usher in a new dawn of progress on the

Indian horizon. The sector has translated the hopes and aspirations of millions of people

into reality. But to do so, it has had to control miles and miles of difficult terrain, suffer

the indignities of foreign rule and the pangs of partition. Today, Indian banks can

confidently compete with modern banks of the world.

3.8.1 State Bank of India (SBI), with a 200 year history, is the largest commercial bank

in India in terms of assets, deposits, profits, branches, customers and employees. The

Government of India is the single largest shareholder of this Fortune 500 entity with

61.58% ownership. SBI is ranked 60th in the list of Top 1000 Banks in the world by "The

Banker" in July 2012. State Bank of India is a multinational banking and financial

services company based in India. It is a government-owned corporation with its

headquarters in Mumbai, Maharashtra. As of December 2012, it had assets of US$501

billion and 15,003 branches, including 157 foreign offices, making it the largest banking

and financial services company in India by assets.

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3.8.2. Origin of State Bank of India

The bank traces its ancestry to British India, 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. Bank of Madras merged into the other two presidency banks—

Bank of Calcutta and Bank of Bombay—to form the Imperial Bank of India, which in

turn became the State Bank of India. The Government of India nationalised the Imperial

Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed

it the State Bank of India. In 2008, the government took over the stake held by the

Reserve Bank of India. SBI was ranked 285th in the Fortune Global 500 rankings of the

world's biggest corporations for the year 2012.

SBI provides a range of banking products through its network of branches in India and

overseas, including products aimed at non-resident Indians (NRIs). SBI has 14 regional

hubs and 57 Zonal Offices that are located at important cities throughout the country. SBI

is a regional banking behemoth and has 20% market share in deposits and loans among

Indian commercial banks. The State Bank of India was named the 29th most reputed

company in the world according to Forbes 2009 rankings and was the only bank featured

in the "top 10 brands of India" list in an annual survey conducted by Brand

Finance and The Economic Times in 2010.

3.8.3. 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 till 1861 when with the Paper Currency Act, the right was taken over by

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

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

Bank of India remained a joint stock company but without Government participation.

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 SBI so 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 SBI. A process of consolidation began on 13

September 2008, when the State Bank of Saurashtra merged with SBI. SBI has acquired

local banks in rescues. The first was the Bank of Behar (est. 1911), which SBI acquired

in 1969, together with its 28 branches. The next year SBI acquired National Bank of

Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI acquired

Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior State, under the

patronage of Maharaja Madhav Rao Scindia. In 1985, SBI acquired the Bank of Cochin

in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of

Travancore, already had an extensive network in Kerala.

3.8.4. State Bank of India and its Associates

SBI has five associate banks; all use the State Bank of India logo, which is a blue circle,

and all use the "State Bank of" name, followed by the regional headquarters' name:

State Bank of Bikaner & Jaipur

State Bank of Hyderabad

State Bank of Mysore

State Bank of Patiala

State Bank of Travancore

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Earlier SBI had seven associate banks, all of which had belonged to princely states until

the government nationalised them between October 1959 and May 1960. In tune with the

first Five Year Plan, which prioritized the development of rural India, the government

integrated these banks into State Bank of India system to expand its rural outreach. There

has been a proposal to merge all the associate banks into SBI to create a "mega bank" and

streamline the group's operations.

The first step towards unification occurred on 13 August 2008 when State Bank of

Saurashtra merged with SBI, reducing the number of associate state banks from seven to

six. Then on 19 June 2009 the SBI board approved the absorption of State Bank of

Indore. SBI holds 98.3% in State Bank of Indore. (Individuals who held the shares prior

to its takeover by the government hold the balance of 1.77%).The acquisition of State

Bank of Indore added 470 branches to SBI's existing network of branches. Also,

following the acquisition, SBI's total assets will inch very close to the 10 trillion marks.

The total assets of SBI and the State Bank of Indore stood at 9,981,190 million as of

March 2009. The process of merging of State Bank of Indore was completed by April

2010, and the SBI Indore branches started functioning as SBI branches on 26 August

2010.

3.8.5. Non-banking subsidiaries

Apart from its five associate banks, SBI also has the following non-banking subsidiaries:

SBI Capital Markets Ltd

SBI Funds Management Pvt Ltd

SBI Factors & Commercial Services Pvt Ltd

SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)

SBI DFHI Ltd

SBI Life Insurance Company Limited

SBI General Insurance

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In March 2001, SBI (with 74% of the total capital), joined with BNP Paribas (with 26%

of the remaining capital), to form a joint venture life insurance company named SBI Life

Insurance company Ltd. In 2004, SBI DFHI (Discount and Finance House of India) was

founded with its headquarters in Mumbai.

3.8.6. Overseas Branches

As of 31 March 2012, the bank had 173 overseas offices spread over 34 countries. It has

branches of the parent in Moscow, Colombo, Dhaka, Frankfurt, Hong

Kong, Tehran, Johannesburg, London, Los Angeles, Male in the Maldives, Muscat,

Dubai, New York, Osaka, Sydney, and Tokyo. It has offshore banking units in

the Bahamas, Bahrain, and Singapore, and representative offices in Bhutan and Cape

Town. It also has an ADB in Boston, USA.

The Canadian subsidiary, State Bank of India (Canada) also dates to 1982. It has seven

branches, four in the Toronto area and three in the Vancouverarea.

SBI operates several foreign subsidiaries or affiliates. In 1990, it established an offshore

bank: State Bank of India (Mauritius).

In 1982, the bank established a subsidiary, State Bank of India (California), which now

has ten branches – nine branches in the state of California and one in Washington, D.C.

The 10th branch was opened in Fremont, California on 28 March 2011. The other eight

branches in California are located in Los Angeles, Artesia, San Jose, Canoga Park,

Fresno, San Diego, Tustin and Bakersfield.

In Nigeria, SBI operates as INMB Bank. This bank began in 1981 as the Indo-Nigerian

Merchant Bank and received permission in 2002 to commence retail banking. It now has

five branches in Nigeria.

In Nepal, SBI owns 55% of Nepal SBI Bank, which has branches throughout the country.

In Moscow, SBI owns 60% of Commercial Bank of India, with Canara Bank owning the

rest. In Indonesia, it owns 76% of PT Bank Indo Monex.

The State Bank of India already has a branch in Shanghai and plans to open one

in Tianjin.

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In Kenya, State Bank of India owns 76% of Giro Commercial Bank, which it acquired

for US$8 million in October 2005.

3.8.7. The Mission

Keeping in view the changing environment the mission of the bank has been reframed as

under:

“To retain the Bank’s position a the premier Indian services group, with world class

standards and significant global business, committed to excellence in customer, shareholder

and employee satisfaction, and to play a leading role in the expanding and diversifying

financial services sector, while continuing emphasis on its development banking role”.

3.8.8. The Vision

Taking into account the various environmental changes the emergence of the new

stakeholders, the de-regulated environment threats and opportunities are associated with it,

the senior management of the Bank have formulated the broad vision of the Bank a under

Premier Indian Financial Service Group with global perspective, World Class Standards

of Efficiency and Professionalism and Core Institutional Values.

Retain its position in the country as a pioneer in Development are Banking. Maximize

shareholder value through high sustained earnings per share.

An institution with a culture of mutual care and commitment, a satisfying and exciting

work environment and continuous learning opportunities.

3.8.9. Values

1. Excellence in customer service

2. Profit orientation

3. Belonging and commitment to the bank

4. Fairness in all dealings and relations

5. Risk taking and innovation

6. Team playing

7. Learning and renewal

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8. Integrity

9. Transparency and discipline in policies and systems

3.8.10. Organization Structure –Overview

The apex management structure is as follows:

1. Chairman – the Chief Executive Officer

2. Four staff fuctioneers under the corporate center,viz:

i) Dy. Managing Director & Corporate Development Officer

ii) Dy. Managing Director & Chief Financial Officer

iii) Dy. Managing Director & Chief Credit Officer

iv) Dy. Managing Director ( inspection & audit)

3. The four business groups which will oversee the corporations of the bank would be

headed by

i) Managing Director & Group Executive – Corporate Banking Group

ii) Managing Director & Group Executive – National Banking Group

iii) Dy.Managing Director – Associates & Subordinates

iv) Dy. Managing Director – International Banking.

4. All the above eight functionaries report directly to the Chairman and are

independently responsible for matters relating to their group or staff area.

5. In addition to the above, the Chief Vigilance Officer will also report directly to the

Chairman.

3.8.11. Revised Structure at Circles

The salient features of the Circle level restructuring could be summarized as under;

1. The Circle structure will consist of a) Local Head Office b) Network

Headquarters c) Zonal Offices & Regions offices and d) Branches.

2. The Circle network will be divided into two focused networks a) Commercial and

b) Development and Personal Banking.

3. Integration of operational planning activities with operations. Planning support

will be provided by a) Business Planners, for network General Executives and b)

Sales Planners for Assistant General Manager (Region).

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4. Special emphasis on loan recoveries and Non Performing Assets management by

providing support at the various levels in the Local Head Office structure.

3.8.12. Local Head Office (LHO) and Network Headquarters

The LHO will be headed by a Chief General Manager and supported by three staff

functionaries of the rank of Deputy General Executives, to oversee policy and strategy

formulation and policy implementation in the areas of Financial Management, Credit

management and Personnel & Services. Thee functionaries are designated a Circle

Financial Officer, Circle Credit Officer, and Circle Development Officer, respectively.

Two Network Headquarters each under a General Manager have been created to manage

the Commercial Banking and Development and Personal Banking network branches.

3.8.13. Module and Regional Office Structure

At the modular level, sale planning support will be provided to the Assistant General

Manager (region), while some planning support will also be available to Deputy General

Manager (module).

3.8.14. Branch Structure

The structure at the branches would be reviewed after the network configuration

stabilizes.

3.8.15. Career Path in SBI

The bank has laid down certain norms for placement and promotion of officers as given

below:

3.8.16. Placement Norms

The following placement norms are mandatory for movement from one scale to the next

higher scale.

A) Junior Management Grade to Middle Management Grade II

i) 2 years rural service

ii) 2 years branch service out of which 1 year should be an operational assignment.

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(Operational assignment means assignment as Field Officer/Accountant/Cash Officer

and / or any other specifically notified operational assignment at a branch).

B) Middle Management Grade II to Middle Management Grade III

i) 3 years service in rural and / or semi urban area i.e. An Officer who has got

his promotion to MMGS II should have completed 2 year rural service which

is mandatory, to be eligible for promotion to MMGS II. It is therefore

sufficient for him to complete 1 year service in a semi-urban area. In case the

officer has completed 3 years of service in rural area, there is no need for him

to spend one more year in a semi-urban area.

ii) Satisfactory completion of Line Assignment for a minimum period of 2 years

(Line assignment means assignments with budgetary responsibilities. They

include assignments of Branch Executives of the Divisions and any other

specifically notified operational assignment).

Middle Management Grade III to Senior Management Grade IV

2 years independent assignment as Branch Manager, or assignment on Mobile Inspection

duty / Management Audit for a period of 3 years.

C) Management Grade IV to Management Grade V

No specific pre-condition of an assignment.

3.8.17. Promotion Policy

Promotion from Scale – I to Scale – II

There are two channels for promotions from Scale I to Scale II. One is the Normal

Channel and the other is the Examination Channel.

While 65% vacancies are to be filled up by normal channel, 35% vacancies through

examination channel. Before the promotion process starts every year the total number of

vacancies are calculated on the basis of various norms laid down and circulars issued for

information to all notifying the number of promotions to be made. All officers who fulfill

the criteria as above irrespective of gender and who have not been declared unfit for

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promotions are listed in the Zone of Consideration, and arranged in the descending order

of seniority.

Promotion from Scale – II to Scale – III

Officers in Middle Management- II who have completed both parts of CAIIB are eligible

for promotion to Middle Management –III after they have put in a minimum of 3 years

service as Middle Management –II. Those who have passed only part I of CAIIB would

be eligible after 4 years service as Middle Management –II where as those Middle

Management –II officers who have not completed any part of CAIIB will become eligible

for promotion after 5 years as Middle Management –II.

All Middle Management –II officer willing to be considered for promotion to Middle

Management –III must have completed a minimum of 2 years operational assignment of

a branch as its Branch Manager or Manager of a Division (where budgets are allotted) or

any other assignment specifically approved by central office in this regard.

Table 3.7. Career Progression in SBI

The following table shows the career progression for employees.

Managing Director’s

Deputy Managing Director’s TEGSS-II (26 Yrs +)

Chief General Manager’s (**TEGS-I) 1 Year*(25 Yrs +)

General Manager’s (TEGS-VII) 2 Year* (23 Yrs +)

Deputy General Manager’s (TEGS-VI) 3 Years* (20 Yrs + )

Assistant General Manager’s (**SMGS-V) 3 Years* ( 17 Yrs +)

Chief Manager’s (SMGS-IV) 4 Years* (13 Yrs +)

(**MMGS-III) 4 Years (9 Yrs +)

(MMGS-II) 3 Years* ( with both parts of CAIIB)

4 Yrs* ( with part of CAIIB)

5 Yrs* ( without any part of CAIIB) (6 Yr +)

(JMGS-I) 6 Years* ( Examination Channel)

10 Years* ( Normal Channel )

Source: SBI records

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*Minimum number of years of service required to become eligible for next promotion

+Minimum number of years of service required to reach to the particular grade

** TEGS-Top Executive Grade Scale; SMGS- Senior Management Grade Scale; MMGS-

Middle Management Grade Scale

From the above guidelines it is observed that the organization has laid down uniform

policies for the officers, to be considered either for placement or for promotion.

Table 3.8. Balance Sheet of State Bank of India (SBI)

Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths

Capital and Liabilities:

Total Share Capital 671.04 635.00 634.88 634.88

Equity Share Capital 671.04 635.00 634.88 634.88

Share Application Money 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 83,280.16 64,351.04 65,314.32 57,312.82

Revaluation Reserves 0.00 0.00 0.00 0.00

Net Worth 83,951.20 64,986.04 65,949.20 57,947.70

Deposits 1,043,647.36 933,932.81 804,116.23 742,073.13

Borrowings 127,005.57 119,568.96 103,011.60 53,713.68

Total Debt 1,170,652.93 1,053,501.77 907,127.83 795,786.81

Other Liabilities & Provisions 80,915.09 105,248.39 80,336.70 110,697.57

Total Liabilities 1,335,519.22 1,223,736.20 1,053,413.73

964,432.08

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Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths

Assets

Cash & Balances with RBI 54,075.94 94,395.50 61,290.87 55,546.17

Balance with Banks, Money at Call 43,087.23 28,478.65 34,892.98 48,857.63

Advances 867,578.89 756,719.45 631,914.15 542,503.20

Investments 312,197.61 295,600.57 285,790.07 275,953.96

Gross Block 14,792.33 13,189.28 11,831.63 10,403.06

Accumulated Depreciation 9,658.46 8,757.33 7,713.90 6,828.65

Net Block 5,133.87 4,431.95 4,117.73 3,574.41

Capital Work In Progress 332.68 332.23 295.18 263.44

Other Assets 53,113.02 43,777.85 35,112.76 37,733.27

Total Assets 1,335,519.24 1,223,736.20 1,053,413.74 964,432.08

Contingent Liabilities 698,064.74 585,294.50 429,917.37 614,603.47

Bills for collection 201,500.44 205,092.29 166,449.04 152,964.06

Book Value (Rs) 1,251.05 1,023.40 1,038.76 912.73

Source: Dion Global Solutions Limited

3.8.18. Current Board of Directors

As on 14 January 2013, there are fifteen members in the SBI board of directors:

Pratip Chaudhuri (Chairman)

Hemant G. Contractor (Managing Director)

Diwakar Gupta (Managing Director)

A. Krishna Kumar (Managing Director)

S. Visvanathan (Managing Director)

S. Venkatachalam (Director)

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D. Sundaram (Director)

Parthasarathy Iyengar (Director)

Thomas Mathew (Director)

S.K. Mukherjee (Officer Employee Director)

Rajiv Kumar (Director)

Jyoti Bhushan Mohapatra (Workmen Employee Director)

Deepak Amin (Director)

Harichandra Bahadur Singh (Director)

D. K. Mittal (Director)

3.8.19. Major Competitors

Some of the major competitors for SBI in the banking sector are ICICI Bank, HDFC

Bank, Axis Bank, Punjab National Bank and Bank of Baroda. However in terms of

average market share, SBI is by far the largest player in the market.

3.8.20. SWOT Analysis of SBI

Strengths

SBI is the largest bank in India in terms of market share, revenue and assets.

As per recent data the bank has more than 13,000 outlets and 25,000 ATM

centers

The bank has its presence in 32 countries engaging currency trade all over the

world

The bank has a merged with State Bank of Saurashtra, State bank of Indore

and the bank is planning to go further acquisition in the current financial year

2012.

SBI has the first mover advantage in commercial banking service

SBI has recently changed its vision and mission statements showing a sign of

inclination towards new age banking services

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Weakness

Lack of proper technology driven services when compared to private banks

Employees show reluctance to solve issues quickly due to higher job security

and customers’ waiting period is long when compared to private banks

The banks spends a huge amount on its rented buildings

SBI has the largest number of employees in banking sector, hence the bank

spends a considerable amount of its income in employee’s salary

compensation

In spite of modernization, the bank still carries the perception of traditional

bank to new age customers

SBI fails to attract salary accounts of corporate and many government sector

employees salary accounts are also shifted to private bank for ease of

operations unlike before

Opportunities

SBI’s merger with five more banks namely State Bank of Hyderebad, State

bank of Patiala, State bank of Bikaber and Jaipur, State of bank of Travancore

and State bank of Mysore are in approval stage

Mergers will result in expansion of market share to defend its number one

position

SBI is planning to expand and invest in international operations due to good

inflow of money from Asian Market

Since the bank is yet to modernize few of its banking operations, there is a

better scope of using advanced technologies and software to improve

customer relations

Young and talented pool of graduates and B schools are in rise to open new

horizon to so called “old government bank”

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Threats

Net profit of the year has decline from 9166.05 in the year FY 2010 to

7,370.35 in the year FY2011

This shows the reduce in market share to its close competitor ICICI

Other private banks like HDFC, AXIS bank etc

FDIs allowed in banking sector is increased to 49% , this is a major threat to

SBI as people tend to switch to foreign banks for better facilities and

technologies in banking service

Other government banks like PNB, Andhra, Allahabad bank and Indian bank

are showing

Customer prefer to switch to private banks and financial service providers for

loans and mortgages, as SBI involves stringent verification procedures and

take long time for processing.

3.8.21. Number of branches

The centuries old bank now has 10,000 own branches and 5,100 branches of its

associates. At present it has 173 foreign offices in 33 countries across the globe.

3.9. The Industrial Credit & Investment Corporation of India (ICICI)

The Industrial Credit & Investment Corporation of India Limited was incorporated on 5th

January as a Public Limited Company under the Indian Companies Act, 1913, &

subsequently re named ICICI Limited with effect from September 11, 1998. ICICI Bank

Ltd., a subsidiary of ICICI Limited, was constituted in 1994 headquartered in Mumbai. In

the year 2002, ICICI and two of its wholly-owned retail finance subsidiaries, ICICI

Personal Financial Services Limited and ICICI Capital Services Limited, merged with

ICICI Bank. The Bank provides a broad spectrum of services to its wholesale and retail

customers through its well manned outlets and subsidiaries.

Industrial Credit and Investment Corporation of India (ICICI) is one of the premier

development finance institutions assisting the country's industrial growth. The

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Government of India & the World Bank took an active interest in the formation &

development of ICICI. Also in 1996 SCICI was merged with ICICI due to overlap of

business & clientele.

3.9.1. ICICI Bank Limited is an Indian financial services company headquartered

in Mumbai, Maharashtra. It is the second largest bank in India by assets and third largest

by market capitalization. It offers a wide range of banking products and financial services

to corporate and retail customers through a variety of delivery channels and through its

specialized subsidiaries in the areas of investment banking, life and non-life insurance,

venture capital and asset management. The Bank has a network of 2,883 branches and

10021 ATM's in India, and has a presence in 19 countries, including India.

The bank has subsidiaries in the United Kingdom, Russia, and Canada; branches in

United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International

Finance Centre; and representative offices in United Arab Emirates, China, South Africa,

Bangladesh, Thailand, Malaysia and Indonesia. The company's UK subsidiary has

established branches in Belgium and Germany.

ICICI Bank is one of the Big Four banks of India, along with State Bank of India, Punjab

National Bank and Canara Bank. ICICI has changed its lending focus from traditional

manufacturing sectors to knowledge-based industries & the service sector. It is the only

financial service company, which has positioned itself as a full service universal bank.

Corporate financial services include project finance, infrastructure finance, working

capital finance, structured finance, equity research & advisory services. Among retail

financial service it has banking services, IT related services, demat services, home loans,

car loans, mutual funds & retail bonds.

ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and

employees. The Bank of Rajasthan (BOR) was acquired by the ICICI Bank in 2010

for 3,000 crores. RBI was critical of BOR's promoters not reducing their holdings in the

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company. BOR has since been merged with ICICI Bank. Each 118 shares of BOR will be

converted into 25 shares of ICICI Bank.

ICICI Bank started as a wholly owned subsidiary of ICICI Limited, an Indian financial

institution, in 1994. Four years later, when the company offered ICICI Bank's shares to

the public, ICICI's shareholding was reduced to 46%. In the year 2000, ICICI Bank

offered made an equity offering in the form of ADRs on the New York Stock Exchange

(NYSE), thereby becoming the first Indian company and the first bank or financial

institution from non-Japan Asia to be listed on the NYSE. In the next year, it acquired the

Bank of Madura Limited in an all-stock amalgamation. Later in the year and the next

fiscal year, the bank made secondary market by sales to investors. With a change in the

corporate structure and the budding competition in the Indian Banking industry, the

management of both ICICI and ICICI Bank were of the opinion that a merger between

the two entities would prove to be an essential step. In 2001 that the Boards of Directors

of ICICI and ICICI Bank sanctioned the amalgamation of ICICI and two of its wholly-

owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI

Capital Services Limited, with ICICI Bank.

3.9.2. The Mission

Emphasis of the organization changed from development bank mode to that of a market

driven financial conglomerate

3.9.3. The Vision

ICICI has a clear vision that it is a ‘one- top financial power house’.

3.9.4. Employees strength at ICICI

The total number of employees of ICICI group bank Ltd is 56,969 as in the year 2012.

The nature of work is a tech-savvy, non-hierarchical, work environment where early

responsibility and independent decision to reach his/her potential. Coupled with this is a

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strong performance management system that has built a meritocracy where high

performing and high potential individuals are duly rewarded.

3.9.5. Organization Structure

Universal Bank

-Greater foray into banking activities

-Developing retail business base

-Insurance business

Global Orientation

-Increasing retail base abroad

-Developing global image

Diverse Product Range

-Short-term loans to long term loans

-Client specific products

Customer-centric

Segmented Work Groups

-Client specific work groups

-Greater understanding of customer requirements

Specialized Lending Practices

-Product based lending terms

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-Customer based lending terms

Cost Effectiveness

-Emphasis on cost reduction by focused attention on customers

-Removing repetition of work

Focused Departmentation

-To increase customer service ability

Generation of greater business

-Customer specific approach

-Job specific approach

Emphasis on learning new banking skills

Sense of alienation among employees combated with new format group creation

Group performances related rewards and remuneration instead of individual performance

Inter group transition

A culture of enhanced feedback mechanism

Professional approach towards cultural integration in the post ICICI Bank- Bank of

Madura merger by appointing Hewitt Associates.

Developing a culture of technology driven banking service.

3.9.6. Career Progress

ICICI believes solely in the merit and the capability of its employees. The bank maintains a

performance based work culture. Deserving employees are entrusted with responsibility

based on capability and skill. Employees are assured of

Conducive work environment

Attractive packages and compensation

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Best professional expertise in banking.

Academic Competence - For the post of probationary officer’s candidates who has

completed their graduation are preferred. However fresher’s are also considered in some

cases.

Selection Criteria - ICICI follows its own procedure for recruitments. There are no

reservations and selection is purely based on the merit. Based on qualification and

competence the selected employees are required to undergo certain tests such as on-line

aptitude test and psychometric test. Then the candidates are called for group discussion and

personal interview.

Job Profiles - ICICI Bank annually conducts recruitments for the posts of probationary

officers. Probationary Officers who join ICICI are required to successfully complete a

Probationary Officer Training Program after which they are placed as Band I Assistant

Managers. PO is placed in the following departments of

Trade Finances

Cash Management Service

Branch and Relationship Management

Private Banking and Wealth Management

Rural on completion of training.

any other Profile as decided by ICICI Bank

The Probationary Officers will be on probation for a period of one year. Unlike other

probationary programs for banks ICICI probation program is one year residential course

at ICICI’s Manipal Academy Campus, Bangalore. This program is solely aimed at

preparing employees for various banking functions. It is designed to develop specialists

with banking knowledge and skills to fulfill the future need of trained bankers. The gross

salary of a Probationary Officer on joining the Bank after training will be more than Rs 4

lakh per annum. Based on the performance of the employees the future career is planned

by ICICI.

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Table 3.9. Balance Sheet of Industrial Credit &Investment Corporation of India

Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths

Capital and Liabilities:

Total Share Capital 1,152.77 1,151.82 1,114.89 1,463.29

Equity Share Capital 1,152.77 1,151.82 1,114.89 1,113.29

Share Application Money 2.39 0.29 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 350.00

Reserves 59,250.09 53,938.82 50,503.48 48,419.73

Revaluation Reserves 0.00 0.00 0.00 0.00

Net Worth 60,405.25 55,090.93 51,618.37 49,883.02

Deposits 255,499.96 225,602.11 202,016.60 218,347.82

Borrowings 140,164.91 109,554.28 94,263.57 67,323.69

Total Debt 395,664.87 335,156.39 296,280.17 285,671.51

Other Liabilities & Provisions 17,576.98 15,986.35 15,501.18 43,746.43

Total Liabilities 473,647.10 406,233.67 363,399.72 379,300.96

Mar '12 Mar '11 Mar '10 Mar '09

12 mths 12 mths 12 mths 12 mths

Assets

Cash & Balances with RBI 20,461.29 20,906.97 27,514.29 17,536.33

Balance with Banks, Money at Call 15,768.02 13,183.11 11,359.40 12,430.23

Advances 253,727.66 216,365.90 181,205.60 218,310.85

Investments 159,560.04 134,685.96 120,892.80 103,058.31

Gross Block 9,424.39 9,107.47 7,114.12 7,443.71

Accumulated Depreciation 4,809.70 4,363.21 3,901.43 3,642.09

Net Block 4,614.69 4,744.26 3,212.69 3,801.62

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Capital Work In Progress 0.00 0.00 0.00 0.00

Other Assets 19,515.39 16,347.47 19,214.93 24,163.62

Total Assets 473,647.09 406,233.67 363,399.71 379,300.96

Contingent Liabilities 858,566.64 883,774.77 694,948.84 803,991.92

Bills for collection 64,457.72 47,864.06 38,597.36 36,678.71

Book Value (Rs) 524.01 478.31 463.01 444.94

Source: Dion Global Solutions Limited

3.9.7. Board of Directors and Management of ICICI Bank

Mr. K.V. Kamath is the Chairman of ICICI Bank

Ms. Chanda D. Kochhar is the MD & CEO.

The other board members are:

Sridar Iyengar

Homi R Khusrokhan

Anup K Pujari

M S Ramchandra

Tushaar shah

M K Sharma

V Sridhar

Prem Watsa

N S Kannan

K Ramkumar

Rajiv Sabharwal

3.9.8. SWOT Analysis

Strengths

ICICI is the second largest bank in terms of total assets and market share

Total assets of ICICI is Rs. 4062.34 Billion and recorded a maximum profit after tax

of Rs. 51.51 billion and located in 19 countries

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One of the major strength of ICICI bank according to financial analysts is its strong

and transparent balance sheet

ICICI bank has first mover advantage in many of the banking and financial services.

ICICI bank is the first bank in India to introduce complete mobile banking solutions

and jewelry card

The bank has PAN India presence of around 2,567 branches and 8003 ATM’s

ICICI bank is the first bank in India to attach life style benefits to banking services for

exclusive purchases and tie-ups with best brands in the industry such as Nakshatra,

Asmi, D’damas etc

ICICI bank has the longest working hours and additional services offering at ATM’s

which attracts customers

Marketing and advertising strategies of ICICI have good reach compared to other

banks in India

Weaknesses

Customer support of ICICI section is not performing well in terms of resolving

complaints

There are lot of consumer complaints filed against ICICI

The ICICI bank has the most stringent policies in terms of recovering the debts and

loans, and credit payments. They employ third party agency to handle recovery

management

There are also complaints of customer assault and abuse while recovering and the

credit payment reminders are sent even before the deadlines which annoys the

customers

The bank service charges are comparatively higher

The employees of ICICI are bank in maximum stress because of the aggressive

policies of the management to win ahead in the race. This may result in less

productivity in future years

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Opportunities

Banking sector is expected to grow at a rate of 17% in the next three years

The concept of saving in banks and investing in financial products is increasing in

rural areas as more than 62% percentage of India’s population is still in rural areas.

As per 2010 data in TOI, the total number b-schools in India are more than 1500. This

can ensure regular supply of trained human power in financial products and banking

services

Within next four years ICICI bank is planning to open 1500 new branches

Small and non performing banks can be acquired by ICICI because of its financial

strength

ICICI bank is expected to have 20% credit growth in the coming years.

ICICI bank has the minimum amount of non-performing assets

Threats

RBI allowed foreign banks to invest up to 74% in Indian banking

Government sector banks are in urge of modernizing the capacities to ensure the

customers switching to new age banks are minimized

HDFC is the major competitor for ICICI, and other upcoming banks like AXIS,

HSBC impose a major threat

In rural areas the micro financing groups hold a major share

Though customer acquisition is high on one side, the unsatisfied customers are

increasing and make them to switch to other banks.

3.9.9. Present Scenario

ICICI Bank Limited (NYSE:IBN) is India's largest private sector bank and the second

largest bank in the country, with consolidated total assets of US $ 122 billion at

December 31, 2012. ICICI Bank has its equity shares listed in India on Bombay Stock

Exchange and the National Stock Exchange of India Limited. Overseas, its American

Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). ICICI

Bank's subsidiaries include India's leading private sector insurance companies and among

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its largest securities brokerage firms, mutual funds and private equity firms. ICICI Bank's

presence currently spans 19 countries, including India. Today ICICI Bank Ltd. is the

second-largest bank in India by its assets. The Bank has a network of 2,758 branches and

9,363 ATMs across the country and has a presence in 19 countries, including India.

3.10. Motivational Practices at Banks

3.9.1. Performance linked incentive schemes at SBI

The basic purpose of this type of system is to motivate the employees to work more

effectively and efficiently in order to attain the organizational goals. As it is known that

success of any service organization depends upon how strong that bank is in managing

its employees and retaining them over the period of time to have much better

customer and employee relationship. From the figure depicted below it’s clear that for

attaining high profitability the banks should try to have customer satisfaction which can

only be attained if the employees are satisfied and they work wholly and solely for the

banks. The scheme aims at rewarding the performers. The following officers are eligible

under this scheme:

Branch Managers.

Managers of division at branches.

Assistant General Managers of regions.

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Fig 3.4. Motivational Practices

The incentives will be given annually based on business performance and other specified

criteria. The schemes operates on the principal of achieving certain benchmarks of

performance and at the present juncture achievement of business and profitability budgets

for the branch are considered as the most non-controversial and acceptable bench marks.

The inclusion of profit as of the criteria is to ensure that an official will not be eligible

merely on the achievement of budgetary goals in deposits and advances alone. Profit is a

derivative of proper mix of the interest rate that is paid on deposits and received on

advances. Moreover, profitability also reflects the concern of the branch manager/

assistant general manager in controlling costs and improving other income by increasing

non fund based business.

All AGM who are controllers of regions, branch managers and managers of divisions

who achieve at least 100% of their budgeted growth in aggregate deposit, advances and

net profit (not applicable to Managers of Divisions) during the year ending 31st March for

consideration. Budget a n d achievement for this purpose will be defined as quarterly

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average of deposits and advances and net profit for the year. Further, for Branch

Managers and AGMs of regions, there must be at least75% budget achievement in

deposits and advances in all market segments taken together after excluding the

C&I segment. For Branch Managers and Managers of Divisions the audit rating of their

branch should be A or A (+). Separate criteria regarding audit ratings are stipulated for

AGMs of regions. In addition, there should be at least 50% achievement under the

budget for NPA recovery. The detailed criteria for each category are set out in the

following paragraph. These parameters for evaluation may undergo changes in future so

as to keep an element of challenge therein. The respective amounts of incentive are also

set out.

The incentive will be in cash and it is proposed to be given to those who meet the

requirements detailed in Annexure I. The format in which the detail of performance of

Branch Managers, Manager of Divisions and Assistant General Managers of Regions is

to be submitted to the Sanctioning Authority to claim the incentive.

The Deputy General Manager of the Zone will be the Recommending Authority for

granting of incentives to Managers of Divisions, Branch Managers and Assistant General

Managers of regions under their control. The Deputy General Manager (Credit

Department) will recommend for grant of incentives to Branch Managers, Managers of

Divisions of branches under his control. The General Manager (Operations) will be the

Sanctioning Authority. For operational convenience and to ensure the motivational

aspect, all the recommendations from a Zone must be put up to the General Manager

(Operations) in a single lot as early as possible and in any case, not later than 31st May.

3.10.2. The incentives are proposed to be given on the following scales:

For Branch Managers, the incentives will be subject to the following conditions

For achievement in deposits and advances, budgeted growth and actual calculated a

quarterly average for the entire year are to be reckoned. Year-end budget achievement in

deposits and advances in segments other than C&I, taken together, must be at least

75%. For profit, year-end achievement of the budget is to be taken.

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Segments other than C&I, The audit rating of the branch should have been maintained at

or upgraded to A o r A + . If the branch has been downgraded from A+ the incumbent

will not be eligible.

NPA recovery must be at least 50% of the budget of the branch.

The Branch Manager must have remained in that position on 31st

March for 9 months or

more.

For Managers of Division, the incentives will be subject to the following conditions:

The incentive scheme applies to divisions that have budgets for deposits, advances and

NPA recovery.

In respect of Managers of Divisions (P&SB, NRE, SIB, C&I and Agriculture) for

achievement in deposits and advances, budgeted growth and actual calculated as

quarterly average for the entire year are to be reckoned. Since divisional budgets are not

settled for profit this parameter will not apply.

Table 3.10. Incentives

Source: SBI Manual

142

The audit rating of the branch where the division functions should have been maintained

at or upgraded to A or A+. +. If the branch has been downgraded from A+ the incumbent

will not be eligible.

NPA recovery must be at least 50% of the budget of the division.

The Managers of the Division must have remained in that position on 31st March for 9

months or more.

For Assistant General Managers of regions, the incentives will be subject to the following

conditions

For achievement in deposits and advances, budgeted growth and actual calculated as

quarterly average for the entire year are to be reckoned. Year-end budget achievement

in deposits and advances in segments other than C&I, taken together, must be at

least 75%. For profit, year-end achievement of the budget is to be taken.

If 10% or more of the branches in their region are having ‘B’ or ‘B (-)’ ratings in the

Audit Report Formats as on 31st March or if 25% or more of the branches of the region

audited during the year had slippage in audit rating or if 25% branches have registered

negative growth in P segment deposits as on 31st March the AGM will not be eligible.

Year-end budget achievement of the region in deposits and advances in segments other

than C&I, taken together, must be at least 75%.

NPA recovery must be at least 50% of the budget for the region.

The Assistant General Manager must have remained in that position on 31st March for 9

months or more.

3.10.3. ICICI BANK

At year end fiscal 2003, the total employees were 15,179 employees who were professionally

qualified, holding degrees in management accountancy, engineering, law, computer science,

economics or banking. Management of ICICI believes that it has good relationships with its

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employees. ICICI bank has a staff center, which serves as a forum for grievances, pay and

benefit negotiations and other industrial relation matters. ICICI Bank had inducted 2,725

employees of Bank of Madura consequent to its acquisition in March 2001. The employees

inducted from Bank of Madura in the grade of clerks and sub-staffs are unionized. They have

a cordial relationship with this union. The bank has realigned the service conditions and

compensation structure of the officers who joined ICICI from Bank of Madura, which is now

comparable with the one existing for ICICI Bank’s officers.

The financial services industry in India is undergoing unprecedented change as deregulation

gains momentum. Moreover, changing customer needs and rapid advances in technology are

continually redefining the lines of innovation and competition, thereby providing with new

challenges and opportunities. To meet these challenges they have relied extensively on

human capital, which comprises some of the best talent in the industry. They continue to

attract the best graduates from premier business schools of the country. They dedicate

significant amount of senior management time to ensure that employees remain highly

motivated and perceive the organization as a place where opportunities abound, innovation is

fuelled, teamwork is valued and success is rewarded. Employee compensation is clearly tied

to performance and it encourages involvement of all employees in overall performance and

profitability through profit sharing incentive schemes based on the financial results. A

revised performance appraisal system has been implemented to assist management in career

development and succession planning.

ICICI Bank has an employee stock option scheme to encourage and retain high performing

employees. Pursuant to the employee stock option scheme as amended by the Scheme of

Amalgamation, up to 5.0%of the aggregate of ICICI Bank’s issued equity shares

after the amalgamation, can be allocated under the employee stock option scheme. The stock

option will entitle eligible employees to apply for equity shares. The grant of stock options is

approved by ICICI Bank’s board of directors on the recommendation of the Board

Governance and Remuneration Committee. The eligibility of each employee is determined

based on an evolution of the employee including employee’s work performance, technical

knowledge and leadership qualities. Moreover, ICICI Bank places considerable emphasis and

144

value on its policy of encouraging internal communication and consultation between

employees and management, management compensation and Benefits to Directors and

Officers, Employee Stock Option Schemes. ICICI Bank has training centers at Khandala in

the state of Maharashtra, which conduct various training programs designed to meet the

changing skill requirements of its employees. These training programs include orientation

sessions for new employees and management development programs for mid-level and

senior executives.

The training center regularly offers courses conducted by faculty, both national and

international, drawn from industry, academia and ICICI Bank’s own organization. 95

training programs are also conducted for developing functional as well as managerial skills.

Products and operations training is also conducted through web- based training modules. In

addition to basic compensation, employees of ICICI Bank are eligible to receive loans from

ICICI Bank at subsidized rates and to participate in its provident fund and other employee

benefit plans. The provident fund, to which both ICICI Bank and it employees contribute a

defined amount, is a savings scheme, required by government regulation, under which ICICI

Bank at present is required to pay to employees a minimum 9.0% ( 9.5% until fiscal 2003)

annual return. If such return is not generated internally by the fund, ICICI Bank is liable for

the difference. ICICI Bank’s provident fund has generated sufficient funds internally to meet

the minimum annual return requirement since inception of the funds.

ICICI Bank has also set up a superannuation fund to which it contributes defines amounts. In

addition, ICICI Bank contributes specified amounts to a gratuity fund set up pursuant to

Indian statutory requirements. ICICI Bank offered an Early Retirement Option to its

employees, all employees who had completed 40 years of age and seven years of service with

ICICI Bank (including period of service with Madura, ICICI, ICICI Personal Financial

Services and ICICI Capital Services which were amalgamated with and into ICICI Bank)

were eligible for the Early Retirement Option. Out of approximately 2,350 eligible

employees, approximately 1,495 employees exercised the Option. The amount payable

to these employees was the lesser of the amount equal to 3 months’ salary for every

completed year of service, and 1 month’s salary for the number of months of service left. The

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above payment was subject to an overall limit of Rs. 2.0 million for employees at the level of

Joint General Manager and below, and Rs. 2.5 million for employees at the level of General

Manager and senior General Manager. For the purpose of this computation, salary included

basic pay and dearness allowance but excluded all other allowances. .The total cost of the

Early Retirement Option is estimated to be approximately Rs.1.7 billion (US$ 36 million). In

addition, provisions were made for leave encashment and retirement benefits based on

actuarial valuation in accordance with relevant accounting guidelines, the early retirement of

employees will result in additional payouts over and above the provisions made in respect of

those employees. The total retirement benefits in excess of provisions made are estimated to

be approximately Rs. 300 million (US$ 6 million). These costs will be accounted for in their

financial statements.

Summary

In any economy banking sector plays a vital role for overall development of agriculture,

small business and different industries. In the pre-nationalisation period bank had been

managed by few people who were serving their vested interest for their personal gains.

Indian banking is the lifeline of the nation and its people. Banking has helped in developing

the vital sectors of the economy and usher in a new dawn of progress on the Indian horizon.

The sector has translated the hopes and aspirations of millions of people into reality. But to

do so, it has had to control miles and miles of difficult terrain, suffer the indignities of

foreign rule and the pangs of partition. Today, Indian banks can confidently compete with

modern banks of the world.

State Bank of India has a 200 year history. It is the largest commercial bank in India in terms

of assets, deposits, profits, branches, customers and employees. SBI has five associate banks

they are State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore,

State Bank of Patiala, State Bank of Travancore. As of December 2012, it has assets

of US$501 billion and 15,003 branches, including 157 foreign offices, making it the largest

banking and financial services company in India by assets.

ICICI Bank Limited is an Indian financial services company headquartered in Mumbai,

Maharashtra. It is the second largest bank in India by assets and third largest by market

146

capitalization. It offers a wide range of banking products and financial services to corporate

and retail customers through a variety of delivery channels and through its specialized

subsidiaries in the areas of investment banking, life and non-life insurance, venture capital

and asset management. The Bank has a network of 2,883 branches and 10021 ATM's in

India, and has a presence in 19 countries, including India.

Motivational Practices at Banks – SBI follows a performance linked incentive scheme as

motivators. The basic purpose of this type of system is to motivate the employees to work

more effectively and efficiently in order to attain the organizational goals. As it is known that

success of any service organization depends upon how strong that bank is in managing its

employees and retaining them over the period of time to have much better customer

and employee relationship. To attain high profitability, the banks should try to satisfy

customers which can only be attained if the employees are satisfied and they work wholly

and solely for the banks. The scheme aims at rewarding the performers.

ICICI bank employee compensation is clearly tied to performance and it encourages

involvement of all employees in overall performance and profitability through profit sharing

incentive schemes based on the financial results. A revised performance appraisal system has

been implemented to assist management in career development and succession planning.

ICICI Bank has an employee stock option scheme to encourage and retain high performing

employees. Pursuant to the employee stock option scheme as amended by the Scheme of

Amalgamation, up to 5.0%of the aggregate of ICICI Bank’s issued equity shares

after the amalgamation, can be allocated under the employee stock option scheme. The stock

option will entitle eligible employees to apply for equity shares.

147

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