INTRODUCTIONAt the time of independence in 1947, India's capital market was relatively underdeveloped. Although there was significant demand for new capital, there was a dearth of providers. Merchant bankers and underwriting firms were almost non-existent. And commercial banks were not equipped to provide long-term industrial finance in any significantmanner. It is against this backdrop that the government established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as the first Development Financial Institution in the country to cater to the long-term finance needs of the industrial sector. The newly-established DFI was provided access to low-cost funds through the central bank's Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and advances to corporate borrowers at confessional rates. In financial economics, a financial institution acts as an agent that provides financial services for its clients or members. Financial institutions generally fall under financial regulation from a government authority. Common types of financial institutions include banks, building societies, credit unions, stock brokerages, asset management firms, and similar businesses.

MEANING OF FINACIAL INSTITUTION

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.

DEFINITION OF FINACIAL INSTITUTION

An institution that obtains capital from individuals, businesses, and other organizations and invests it in various financial assets. A generic term for banks, trust companies, credit unions, and perhaps other investment companies that deal with money, hold money, invest money ... Any organization in the business of moving, investing or lending money, dealing in financial instruments or providing financial services. Includes commercial banks, thrifts, federal and state savings banks, savings and loan associations and credit unions. ... Any bank, savings and loan, credit union or other institution organized under either national or state banking laws capable of both accepting deposits and making loans. Private (shareholder-owned) or public (government-owned) organizations that, broadly speaking, act as A channel between savers and borrowers of funds (suppliers and consumers of capital).

FUNCTION OF FINANCIAL INSTITUTIONFinancial institutions provide a service as intermediaries of the capital and debt markets. They are responsible for transferring funds from investors to companies, in need of those funds. The presence of financial institutions facilitates the flow of monies through the economy. To do so, savings are pooled to mitigate the risk brought vide funds for loans. Such is the primary means for depository institutions to develop revenue. Should the yield curve become inverse, firms in this arena will offer additional feegenerating services including securities underwriting, and prime brokerage.

Liberalization financial institutionBy the early 1990s, it was recognized that there was need for greater flexibility to respond to the changing financial system. It was also felt that IFCI should directly access the capital markets for its funds needs. It is with this objective that the constitution of IFCI was changed in 1993 from a statutory corporation to a company under the Indian Companies Act, 1956. Impact of Liberalisation on the Indian Financial Sector Until 1991, the financial sector in India was heavily controlled. Commercial banks and long term lending institutions, the two dominant financial intermediaries, had mutually exclusive roles and objectives and operated in a largely stable environment, with little or no competition. Long-term lending institutions were focused on achieving the Governments various socio-economic objectives, including balanced industrial growth and employment creation, especially in areas requiring development. Long-term lending institutions were given access to long-term funds at subsidised rates through loans and equity from the Government and from funds guaranteed by the Government and originating from commercial banks in India and foreign currency resources originating from multilateral and bilateral agencies. The focus of the commercial banks was primarily on mobilizing household savings through demand and time deposits and to use these deposits to meet the short-term financial needs of borrowers in industry, trade and agriculture. In addition, the commercial banks provided a range of banking services to individuals and business entities. However, since 1991, there have been comprehensive changes in the Indian financial system. Various financial sector reforms have transformed the operating environment of the banks and long-term lending institutions. In particular, the deregulation of interest rates, emergence of a liberalised domestic capital market, entry of new private sector banks and broadening of long-term lending institutions product portfolios have progressively intensified competition between banks and long-

term lending institutions. The RBI has permitted the transformation of long-term lending institutions into banks, subject to compliance with the prudential norms applicable to banks. The Future of State-Owned Financial Institutions There is increased evidence from official development institutions and private economists around the world documenting the linkage between more rapid and stable economic growth on the one hand, and sound financial systems on the other. Despite numerous privatizations over the past decade, publicly owned banks and other state-owned financial institutions still serve the majority of individuals in developing countries, according to presentations by James Hanson, George Clarke, and Robert Cull of the World Bank. State-owned financial enterprises are less prevalent in developed economies, with very few exceptions, such as Germany and, to a lesser extent, the United States, with its large government-sponsored entities supporting residential home ownership that have implicit government backing, according to David Marston of the International Monetary Fund. Public ownership of these financial institutions and others has been rationalized on several grounds: To counter the power of strong private sector banks or to promote the development of home-grown banks in the early stages of an economy's history the socalled infant industry rationale. Both arguments helped justify the formation of the First and Second National Banks of the United States in the early 1800s, for example. To ensure that economic growth is consistent with national objectives. This is a clear rationale for socialist economies, but even in private economies there is a view that governments have better knowledge of socially beneficial investment opportunities than private banks. To ensure that underserved groups or sectors, such as agriculture and small businesses, receive credit. To respond to financial crises, which have hit developed and developing countries alike. In some of these cases, government ownership is temporary, but in some cases it lasts for significant periods. Among government officials around the world there is support for some government ownership of financial institutions based on one or more of these rationales. Economists generally, however, are skeptical of all these rationales except for the last one.

COMMERCIAL BANKS

Commercial banks in India have traditionally focused only on meeting the shortterm financial needs of industry, trade and agriculture. As of September 30, 2007, there were 179 commercial banks (175 scheduled commercial banks and 4 non-scheduled commercial banks) in India with a network of 72,117 branches holding approximately Rs. 28,538.3 billion in deposits and Rs. 20,409.1 billion in loans. Scheduled commercial banks are banks listed in the schedule to the Reserve Bank of India Act, 1934, and are further categorized as public sector banks, private sector banks and foreign banks. Scheduled commercial banks have a presence throughout India, with approximately 65% of bank branches located in rural or semi-urban areas of the country. A large number of these branches belong to public sector banks. Public Sector Banks Public sector banks make up the largest category in the Indian banking system. They include the SBI and its seven associate banks, 19 nationalized banks (plus IDBI Bank) and 95 regional rural banks. Excluding the regional rural banks, the remaining public sector banks have 50,228 branches, and accounted for 70.0% of the outstanding gross bank credit and 70.6% of the aggregate deposits of the scheduled commercial banks of September 30, 2007. The public sector banks large network of branches enables them to fund themselves out of low cost deposits. The Bank is the largest public sector bank in India. As of September 30, 2007, the Bank and its associate banks had 14,150 branches.

They accounted for 22.6% of the aggregate deposits and 22.9% of the outstanding gross bank credit of all scheduled commercial banks. Private Sector Banks After the first phase of bank nationalisation was completed in 1969, public sector banks made up the largest portion of Indian banking. The focus on public sector banks was maintained throughout the 1970s and 1980s. Furthermore, existing private sector banks which showed signs of an eventual default were merged with state-owned banks. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the RBI permitted entry of the private sector into the banking system. This resulted in the introduction of nine private sector banks. These banks are collectively known as the new private sector banks. As of September 30, 2007, there were 24 private sector banks, of which eight were new private sector banks and 16 were private sector banks existing prior to July 1993. As on September 30, 2007, private sector banks accounted for approximately 20.3% of aggregate deposits and 20.6% of outstanding gross bank credit of the scheduled commercial banks. Their network of 7,177 branches accounted for 10.0% of the total branch network of scheduled commercial banks in the country. Foreign Banks As of September 30, 2007, there were 29 foreign banks with 257 branches operating in India, accounting for 6.1% of the aggregate deposits and 6.8% of the outstanding gross bank credit of scheduled commercial banks at of September 30, 2007. As part of the liberalisation process, the RBI has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. While the primary activity of most foreign banks in India has traditionally been in the corporate sector, some of the larger foreign banks have increasingly made consumer financing a larger part of their portfolios, offering an array of products such as automobile finance, home loans, credit cards and household consumer finance.

SPECIALIZED BANKS

After the origin of commercial bank Indian government introduce specialized bank with the view to provide financial support to cater the specific need of different sector, basically this sector include agriculture sector, industrial sector and the small scale business entity there are various type of specialized banks such as national bank for rural and agriculture development, co-operative credit and co-operative land development bank

National Bank for Agricultural and Rural Development (NABARD) NABARD is a specilised financial institution in the field agriculture and rural development, it act as a mini reserve bank of india for the agriculture sector it is the apex financial institute focusing purely on agriculture credit and rural development NABARD come in to existent 12th June 1982 following recommendation of the committee to review management for institutional credit for the agricultural and rural development NABARD was set up by central government under the direct control and supervision of RBI.RBI has contributed 50% of NABARD capital and other 50% has contributed by cental government like RBI, NABARD does not deal directly with farmer or disburesd loan directly to the farmer, however being a apex institution plays a very important an critical in agriculture credit. Regional rural bank The regional rural banks are specialized bank, the basic aim to introduced the banking formalities to the rural area where there is no banks and because of which particular area is unaware of the banking formality and to introduce the loan facilities to that area for agriculture and other operational purpose the regional rural banks are formed, this banks are specially tribal regions The group recommendat that there should be one regional bank for one district. The regional rural bank is sponsored by commercial bank. The government expected this and asks commercial bank to sponsored one regional rural bank per district. Each regional rural bank have authorised capital rupees 1 corers and paid up capital 25 lake. The paid up capital raised by 50% government , 35% sponsoring commercial bank, 50% from the own deposits. Urban cooperative banks The duty of these urban banks should be to try to do for the small trader, the small merchant and the middle class population what the commercial banks are doing for the big trader and the big merchant. It will be pertinent to mention in context of the above recommendations of the Central Banking Enquiry Committee that the need for Urban Co-operative Banks.By providing credit on reasonable terms to the middle classes, they can rescue them from the exploitation of money lenders and other unscrupulous agencies which is particularly important in the context of rising prices and cost of living. These as consequent effects also on non-

cooperative landings. By financing individual small industrialists and artisans working in urban areas , they can make significant contribution to industrial development. The present achievements of the Urban Banks in financing production oriented loan proposals; in meeting the financial needs of the priority sectors ( such small scale industries , self employed persons, transport operators etc ) in diversifying their loan portfolios paying more attention to the needs of industry trade , and commerce and assigns less and less importance to consumption loans, and in ameliorating the condition of the backward and economically weaker section of the community are all mainly due to the policies framed and vigorously pursued by the R.B.I. AGRICULTURE FINANCIAL BANK The Bank has played and continues to play an important role in the development of Indian agriculture. The Bank had 424 agricultural development branches as of September 30, 2007. These are specialised branches located throughout India used exclusively for the development of the agriculture sector and its related industries. The Banks agricultural development branches offer products such as crop financing, farm equipment financing, and agricultural value chain financing and serve customers involved in a wide range of agricultural activities such as crop production, horticulture, plantation crops, floriculture, farm mechanization, land development and reclamation, digging of wells, tube wells and irrigation projects, as well as activities linked to agriculture such as storage, trading and processing. The Bank also finances activities such as dairy production, fisheries, livestock management and silk worm farming. The Banks focus has been on cultivating direct relationships with the farmers, thereby allowing them to offer more customized products to their clients. Initiatives aimed at strengthening ties with the farming community include attending farmers meetings and Farmers Club events as well as a village adoption program whereby each region, encompassing 40 to 45 branches, adopts a village in order to build banking relationships there as well as to support integrated development of the village. PACS 1. The primary agriculture credit society (PACs) may be started with ten more persons , normally belonging to a village. 2. The value of each share is generally nominal so as to enable even the poorest farmer to become a member. 3. The liability of each member is unlimited i.e. each member is fully responsible for the entire loss of the society in the event of failure.

4. The management of the society is under an elected body consisting of president, secretary and Treasure. The management is honorary, the only paid member being the accountant. 5. Short terms loan are provided normally for a year , for carrying out agriculture operations. The rate of interest is low. 6. Profits are not distributed as dividend to the shareholders but they are used for the welfare of the small and managerial farmers.

LDCB The primary co- op , credit societies and other co-op, institution who provided finance for agriculture development could not provide long term finance for agriculture development. There was a need for long-term finance for agriculture development co-op. bank , which were formerly known as land montage co-op. banks are suppose provide credit at low rate of interest and also without delay so as to enable them to bring about agriculture development rapidly and help the process of India. Land development co-op. banks are of two kinds :Central land development co-op. bank which operate state level. Primary land development co-op..bank which operate at district level.

FINANCIAL INSTITUTESpecialised Financial Institutions In addition to the long-term leading institutions, there are various specialised financial institutions which cater to the specific needs of different sectors. They include the National Bank for Agricultural and Rural Development, the Export-Import Bank of India, the Small Industries Development Bank of India, Risk Capital and Technology Finance Corporation Limited, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited, the Infrastructure Development Finance Corporation Ltd. and India Infrastructure Financing Company Ltd. State Financial Institutions State financial corporations operate at the state level and form an integral part of the institutionalfinancing system. State financial corporations were set up to finance and promote small and medium-sized enterprises. The state financial institutions are expected

to achieve balanced regional socio-economic growth by generating employment opportunities and widening the ownership base of industry. At the state level, there are also state industrial development corporations, which provide finance primarily to medium-sized and large. Insurance Companies Currently, there are 32 insurance companies in India, of which 16 are life insurance companies, 15 are general insurance companies and one is a re-insurance company. Of the 16 life insurance companies, 15 are in the private sector and one is in the public sector (Life Insurance Corporation of India). Of the 15 general insurance companies, nine are in the private sector and six are in the public sector (four government-owned general insurance companies, Export Credit Guarantee Corporation of India Limited and the Agriculture Insurance Company of India). The sole reinsurance company, GIC, is in the public sector. LIC, GIC and public sector general insurance companies also provide long-term financial assistance to the industrial sector. Gross premiums underwritten of all general insurance companies increased by 22.4% in fiscal year 2007 to Rs. 250.0 billion, compared to an increase of 16.5% in fiscal year 2006. First year premiums underwritten in the life insurance sector recorded a growth of 100.6% to reach Rs. 754.1 billion in fiscal year 2007 compared to a 40.6% growth in fiscal year 2006. The insurance sector in India is regulated by the Insurance Regulatory and Development Authority. In December 1999, the Indian Parliament passed the Insurance Regulatory and Development Authority Act Act), which opened the Indian insurance sector to foreign and private investors. The Act allows foreign equity participation in new insurance companies of up to 26.0%. The new company should have a minimum paid-up equity capital of Rs. 1.0 billion to carry out the business of life insurance or general insurance or Rs. 2.0 billion to carry out exclusively the business of reinsurance. In its monetary and credit policy for fiscal year 2001, the RBI issued guidelines governing the entry of banks and financial institutions into the insurance business. The guidelines permit banks and financial institutions to enter the business of insurance underwriting through joint ventures, provided that they meet certain criteria relating to their net worth, capital adequacy ratio, profitability track record, level of impaired loans and the performance of their existing subsidiary companies. The Government, while presenting its budget for fiscal year 2005, proposed an increase in the limit on foreign equity participation in private sector insurance companies from 26.0% to 49.0%. However, this would require an amendment to the Insurance Regulatory and Development Authority Act, 1999 and has not yet been implemented. Non-Banking Financial Institutions in India Non Companies Institutions. Equipment Companies, Banking Financial Institutions in India comprise of Non Banking Financial (NBFCs), Mutual Funds, Insurance Companies and Developmental According to the nature of their business, NBFCs are further classified as Leasing (EL), Hire Purchase (HP), Merchant Banking, Investment and Mutual Benefits Companies etc. Developmental institutions are mainly

created to serve special purposes like agriculture development, investments and export promotion etc. They are mainly promoted and run by the Government and its maintained institutions. On the other hand the insurance sector, which has recently been opened for the private sector, is still beyond the reach of small capital holders. Entry norms and regulatory framework makes it further difficult for the small capital owners to think entering this field. Mutual funds are open to the private players. But they too are beyond the reach of small capital holders. Besides the initial requirements of large capital and some other stringent requirements are well beyond the reach of Islamic financial institutions.In short anybody going for Islamic alternatives in finance has the option of choosing only the Non Banking Financial Companies format for its easy entry norms, low capital requirements, lower regulations and flexibility in registration and functioning. Non-Banking Financial Companies (NBFCs) The Non Banking Financial Corporations or Companies (interchangeably used in this paper) are defined by the RBI Amendment Act, 1997 as financial institutions which are registered as companies and which have as their principal business the receiving of deposits under any scheme or arrangement or in any other manner and lending in any manner In India, the Non Banking Financial Corporations (NBFCs) play an important role in the mobilization and the deployment of financial resources. NBFCs are popular because of their added advantage over banking institutions in terms of high customer orientation, lower transaction costs, quick decision-making, easy registrations, lesser regulations and higher flexibility. Flexibility in their structure also allows NBFCs to unbundle services provided by banks and market the components on a competitive basis. These distinctive features armed with economic liberalization contributed to great proliferation of NBFCs activities in India. The significant increase in the domain of activities of NBFCs is evident by the fact that the share of non-bank deposits (in gross financial assets of household sector) increased from a low of 2.2 percent in 1990-91 to 13.6 percent by 1996-97. Table 1 shows the growth of NBFCs during 1981 to 2003. The total number of NBFCs in 1981 was merely 7063, which increased to 15358 in 1985 and by the year 1995 it jumped to over 55000 NBFCs. However, after the new regulations came into force in 1998 the number of NBFCs drastically reduced to 7855 in 1999. Even after five years of the new regulations the number NBFCs could only rose to 13849 in 2003 with only about 700 companies allowed to accept deposits from the public.

BANK AS FINANCIAL INSTITUTE

BANKING SECTORA banker or bank is a financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money.

HistoryBanks have influenced economies and politics for centuries. Historically, the primary purpose of a bank was to provide loans to trading companies. Banks provided funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold. For centuries, the banking industry only dealt with businesses, not consumers. Banking services have expanded to include services directed at individuals, and risk in these much smaller transactions are pooled. NATURE AND SCOPE OF BANKING

Pre IndependenceBanking is the most important constituents of the money market in India modern banking became effective in India only after 1910. Banking system in India consists of Reserve bank of India, commercial banks, and co-operative banks. Commercial banks are scheduled and non- scheduled, Indian, Foreign, Public sector and private sector and Regional rural bank. Commercial bank created money in certain multiple of deposits. The major principles, which banks strive to incorporate in their working, are profitability, liquidity, safety and social welfare. Indian Banking System is of Branch banking type and it is characterized by excessive concentration of business in a smaller number of big public sector banks. Banks have developed innovative approaches such as consortium, single window and participatory lending. Banking business is based on seasonal variances. The commercial banking in India is not a competitive system. However, there has been an increase in banks competition over the years. The profitability of banks is low. Some banks are more efficient. The major problem of banks low efficiency and productivity, over due and bad debts and defaults and frauds. Indian banks have diversified into many related areas such as merchant banking mutual funds, venture capital, credit cards, leasing and housing finance. The massive and speedy constitutive growth and unprecedentedly growth in social banking have created a number of problems in banking sector. Banks have made considerably progress in India. The size of the population and the support to the government for industrialization has made tremendous scope for banking activities in India. The banking system touches the lives of millions and has to be inspired by large social purpose and has to sub- served national priorities and objectives. Development of agriculture, export, small-scale industries and rising of employment levels and encouragement of new entrepreneurs as well as development of backward areas are some of special objective. For this purpose it is necessary to take direct responsibility by the government for extension and diversification of banking services in the country. Mobilization of deposits through a massive programme of branch expansion particularly in unbanked rural areas and ensuring educate financial assistance to the priority sector of the economy. Commercial bank plays an important role in the process of industrialization and overall development of an economy. Till the nationalization of commercial banks, only a few big industries were enjoying the facilities given by the commercial banks. In order to mobiles resources of banking system for large social purpose, the fourteen Indian scheduled banks were nationalized on 19 July 1969. Corporative banks are a part of vast and powerful super structure of co- operative institution in India. The beginning of co- operative banking dates back to about 1904 when official efforts were initiated to create a new type of institution based on principle of co- operative organization and management. Co- operative banks work on no profit no loss basis and they perform all the main banking function. They have federal structure of three tier linkages and vertical integration. The deposits and credits of these banks are about 15% and 35% respectively of those of commercial banks. There is a vast scope for further improvement of deposit mobilization. The government and RBI have initiated a number of steps to strengthen the co- operative baking in India.

Post-independence The partition of India in 1947 had adversely impacted the economies of Punjab and West Bengal, and banking activities had remained paralyzed for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. 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 major steps to regulate banking included: 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. However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalization of major banks in India on 19th July, 1969. Nationalisation of Banks By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969. A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the GOI controlled around 91% of the banking business of India. 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. Liberalization Period

In the early 1990s the then Narsimha Rao government embarked on a policy of liberalisation and gave licences 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. This move, along with the rapid growth in the economy of India, kick started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been setup 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 49% 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. 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. The economic reforms initiated by the Government of India in early 90s have brought a sea change in operational environment of financial sector, its functioning and outlook of Indian banks. The Indian Banking Industry has been undergoing a metamorphosis since the commencing of liberalisation in 1991 following the recommendation of the Narashimham Committee on the financial system. Measures like: Reduction in Reserve requirements Deregulation of interest rate Introduction of prudential norms relating to capital adequacy, income recognition, assets classification and provisioning Liberalisation of banks' licensing policy etc. Forced the Banks to re-look at their business strategies. Opening up of doors to private sector banks and foreign banks have added to the competition. The financial markets will be continually characterised by four, significant trends, viz., financial liberalisation, disintermediation, internationalisation and technological advancement. Financial liberalisation leads to the rise of nonbanks like finance companies, mutual funds, investment banks, insurance companies and even non-financial firms as purveyors of liquidity and risk management services. Disintermediation erodes banks' share and role because banks evolved within a culture of very cautions credit risk-taking. This culture has been encouraged or even demanded by regulators for which banks have erected expensive credit, audit and risk management departments. The rise of secondary markets for bank loans not only helps to satisfy the liquidity needs of non-traditional investors but also conscripts banks' role. Internationalisation is a result of liberalisation and disintermediation. It encourages consolidation and concentration within the industry.

Indian Banking is on major technological upgradation drive after having successfully absorbed the international standard in their operating norms. It is commonly perceived that technology is important to enhance the quality of customer service and to make it customer-friendly; it will also improve the operational efficiency and productivity. Banks are expected to use all new technological developments in the field of computerisation and communication.

Universal BankingSince the early 1990s, banking systems worldwide have been going through a rapid transformation. Mergers, amalgamations and acquisitions have been undertaken on a large scale in order to gain size and to focus more sharply on competitive strengths. This consolidation has produced financial conglomerates that are expected to maximise economies of scale and scope by bundling the production of financial services. The general trend has been towards Downstream linkages: Universal banking where banks have undertaken traditionally non-banking activities such as investment banking, insurance, mortgage financing, securitisation, and particularly, insurance. Upstream linkages: Where non-banks undertake banking business, are also on the increase. The global experience can be segregated into broadly three models. There is the Swedish or Hong Kong type model in which the banking corporate engages in in-house activities associated with banking. In Germany and the UK, certain types of activities are required to be carried out by separate subsidiaries. In the US type model, there is a holding company structure and separately capitalised subsidiaries. In India, the first impulses for a more diversified financial intermediation were witnessed in the 1980s and 1990s when banks were allowed to undertake leasing, investment banking, mutual funds, factoring, hire-purchase activities through separate subsidiaries. By the mid-1990s, all restrictions on project financing were removed and banks were allowed to undertake several activities in-house. In the recent period, the focus is on Development Financial Institutions (DFIs), which have been allowed to set up banking subsidiaries and to enter the insurance business along with banks. DFIs were also allowed to undertake working capital financing and to raise short-term funds within limits. It was the Narasimham Committee II Report (1998) which suggested that the DFIs should convert themselves into banks or non-bank financial companies, and this conversion was endorsed by the Khan Working Group (1998). The Reserve Banks Discussion Paper (1999) and the feedback thereon indicated the desirability of universal banking from the point of view of efficiency of resource use, but it also emphasised the need to take into account factors such as the status of reforms, the state of preparedness of the institutions, and a viable transition path while moving in

the desired direction. Accordingly, the mid-term review of monetary and credit policy, October 1999 and the annual policy statements of April 2000 and April 2001 enunciated the broad approach to universal banking and the Reserve Banks circular of April 2001 set out the operational and regulatory aspects of conversion of DFIs into universal banks. The need to proceed with planning and foresight is necessary for several reasons. The move towards universal banking would not provide a panacea for the endemic weaknesses of a DFI or its liquidity and solvency problems and/or operational difficulties arising from undercapitalisation, non-performing assets, and asset liability mismatches, etc. The overriding consideration should be the objectives and strategic interests of the financial institution concerned in the context of meeting the varied needs of customers, subject to normal prudential norms applicable to banks. From the point of view of the regulatory framework, the movement towards universal banking should entrench stability of the financial system, preserve the safety of public deposits, improve efficiency in financial intermediation, ensure healthy competition, and impart transparent and equitable regulation.

Current situation Currently (2008), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales. The nationalised banks in particular have to go long way towards professionalization in their operations to build up public confidence in banking system. The Banking Industry has to play active role to its Assets Liabilities Management to reduce risk and simultaneously to improve its profitability. In the quest of providing better and efficient customer service a technological revolution is a must in the Indian Banking Sector.

Origin of the word The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Florentines bankers, who used to make their transactions above a desk covered by a green tablecloth. However, there are traces of banking activity even in ancient times In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words bank and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Romethat of the Imperial Mint. Definition as per Banking Regulation Act, 1949 As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company" means any companywhich transacts the business of banking in India. Explanation: Any company which is engaged in the manufacture of goods or carries on any trade and which accepts the deposits of money from public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause." .

Wider commercial role

issue of banknotes (promissory notes issued by a banker and payable to bearer on demand) processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means issuing bank drafts and bank cheques accepting money on term deposit lending money by way of overdraft, installment loan or otherwise providing documentary and standby letters of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures safekeeping of documents and other items in safe deposit boxes currency exchange sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a 'financial supermarket'

Economic functionsThe economic functions of banks include: 1. issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par and effectively transferable by mere delivery in the case of banknotes, or by drawing a cheque, delivering it to the payee to bank or cash.

2. netting and settlement of payments -- banks act both as collection agent and paying agents for customers, and participate in inter-bank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economies on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables payment flows

between geographical areas to offset, reducing the cost of settling payments between geographical areas.

3. credit intermediation -- banks borrow and lend back-to-back on their own account as middle men

4. credit quality improvement -- banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and the bank's own capital which provides a buffer to absorb losses without defaulting on its own obligations. However, since banknotes and deposits are generally unsecured, if the bank gets into difficulty and pledges assets as security to try to get the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.

5. maturity transformation -- banks borrow more on demand debt and short term debt, but provide more long term loans. Bank can do this because they can aggregate issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintain reserves of cash, invest in marketable securities that can be readily converted to cash if needed, and raise replacement funding as needed from various sources because they have a high and more well known credit quality than most other borrowers.

Powers of RBIAs supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers: 1. It holds the cash reserves of all the scheduled banks. 2. It controls the credit operations of banks through quantitative and qualitative controls. 3. It controls the banking system through the system of licensing, inspection and calling for information.

4. It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. Banker to Government The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters.

Net Banking income

The major Indian Banks fall into three categories: Public sector (State Bank of India, Bank of Baroda, Bank of India, Punjab National Bank, Canara Bank), Private sector (ICICI Bank, HDFC Bank) and Foreign Banks (Citibank, Standard Chartered Bank)

Non-interest income

RBIs shareholding in State Bank of India (SBI) transferred to Government of India in accordance with Narasimhan Committee IIs report that RBI should not own the institutions it regulates. Banks in India earn a significant portion (75%-85%) of their income from interest

Products Improved Asset Quality: Gross and Net NPAs declined to 2.7% and 1.1% respectively in India Strong Growth: 41.4% growth on loans and advances

Housing Credit: Housing comprises 52% of all retail credit and it grew at 44.35% Due to strong credit growth, there was marginal rise in Interest Income but significant rise in expense hence lower profit (as %) before tax & provisions. But with lower provisions, profit after tax & provisions was higher.

CONTROLLER OF CREDIT The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a license from the Reserve Bank of India to do banking business within India, the license can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank.

SOME OF THE VITAL CHALLENGES IN STATE BANK OF INDIA

Competition from foreign banks and now private sector banks The competition in the State Bank Of India have intensified with the entry of more and more foreign banks and now private sector banks with better technology , market orientation and cost effective measures. The State Banks Of India the share of business of public sector banks has considerable declined. Technological advancement In State Bank of India have a advance technology both in terms of computers and communication. With the help of technology it is own possible to have 24 hours a data banking and all seven days in a week. Innovation Innovation is another important force of change in the State Bank Of India. They play a dynamic role not as a finance provider but also as a departmental store of finance. Due to this new instruments and new product like factoring, leasing , merchant banking , forfeiting venture capital, corporate advisory services are emerging. Diversified Activities In State Bank Of India diversification normally through insurance depository participation services, investment etc. All this diversified activities have made the banks to develop and offer counseling and customer designed packers for efficient management of funds. Customer awareness and satisfaction In urban area State Bank Of India customers demand more facilities than offered since they are more knowledgeable. They look for services that are cheaper, faster, and better in quality. Development of skills of banks personnel The new challenges in State Bank Of India have develop novel ways of meeting the customers demand. To get sufficient knowledge and exposure to technonology, suitable packages relating to hardware and software application are to be provided. For meeting the challenges the human resource departments in banks have to prepare proper manpower plans and strategies.

Profitability Nature

Profit are need to meet the expectation of the share holders, benefit of employees and also for building capital. State Bank Of India also take attention to product development and management skill, modern credit management skills, new risk management practices, new focus on customer and his needs, audit skills, etc.

Types of Retail Banks :Commercial Banks: The term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses. Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partnersCommunity development banks: regulated banks that provide financial services and credit to under-served markets or populations. Postal savings banks: savings banks associated with national postal systems. Private banks: manage the assets of high net worth individuals. Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks. Savings bank: Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative, while in others socially committed individuals created foundations to put in place the necessary infrastructure. Building societies and Landesbanks: Conduct retail banking. Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.

PEST ANALYSIS

POLITICAL/ LEGAL ENVIROMENT Government and RBI policies affect the banking sector. Sometimes looking into the political advantage of a particular party, the Government declares some measures to their benefits like waiver of short-term agricultural loans, to attract the farmers votes. By doing so the profits of the bank get affected. Various banks in the cooperative sector are open and run by the politicians. They exploit these banks for their benefits. Sometimes the government appoints various chairmen of the banks. Various policies are framed by the RBI looking at the present situation of the country for better control over the banks. ECONOMICAL ENVIROMENT Banking is as old as authentic history and the modern commercial banking are traceable to ancient times. In India, banking has existed in one form or the other from time to time. The present era in banking may be taken to have commenced with establishment of bank of Bengal in 1809 under the government charter and with government participation in share capital. Allahabad bank was started in the year 1865 and Punjab national bank in 1895, and thus, others followed Every year RBI declares its 6 monthly policy and accordingly the various measures and rates are implemented which has an impact on the banking sector. Also the Union budget affects the banking sector to boost the economy by giving certain concessions or facilities. If in the Budget savings are encouraged, then more deposits will be attracted towards the banks and in turn they can lend more money to the agricultural sector and industrial sector, therefore, booming the economy. If the FDI limits are relaxed, then more FDI are brought in India through banking channels.

SOCIAL ENVIROMENT

Before nationalization of the banks, their control was in the hands of the private parties and only big business houses and the effluent sections of the society were getting benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the social development in the banking sector it was necessary for speedy economic progress, consistent with social justice, in democratic political system, which is free from domination of law, and in which opportunities are open to all. Accordingly, keeping in mind both the national and social objectives, bankers were given direction to help economically weaker section of the society and also provide need-based finance to all the sectors of the economy with flexible and liberal attitude. Now the banks provide various types of loans to farmers, working women, professionals, and traders. They also provide education loan to the students and housing loans, consumer loans, etc. Banks having big clients or big companies have to provide services like personalized banking to their clients because these customers do not believe in running about and waiting in queues for getting their work done. The bankers also have to provide these customers with special provisions and at times with benefits like food and parties. But the banks do not mind incurring these costs because of the kind of business these clients bring for the bank. Banks have changed the culture of human life in India and have made life much easier for the people.

TECHNOLOGICAL ENVIROMENT

Technology plays a very important role in banks internal control mechanisms as well as services offered by them. It has in fact given new dimensions to the banks as well as services that they cater to and the banks are enthusiastically adopting new technological innovations for devising new products and services. The latest developments in terms of technology in computer and

telecommunication have encouraged the bankers to change the concept of branch banking to anywhere banking. The use of ATM and Internet banking has allowed anytime, anywhere banking facilities. Automatic voice recorders now answer simple queries, currency accounting machines makes the job easier and self-service counters are now encouraged. Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa card are the two most popular cards used world over. The banks have now started issuing smartcards or debit cards to be used for making payments. These are also called as electronic purse. Some of the banks have also started home banking through telecommunication facilities and computer technology by using terminals installed at customers home and they can make the balance inquiry, get the statement of accounts, give instructions for fund transfers, etc. Through ECS we can receive the dividends and interest directly to our account avoiding the delay or chance of loosing the post. Today banks are also using SMS and Internet as major tool of promotions and giving great utility to its customers. For example SMS functions through simple text messages sent from your mobile. The messages are then recognized by the bank to provide you with the required information.

7 PS of BANKING SECTOR

It is very important for any bank to identify the 7 Ps of services so was understands their customers better and provide them with best of service. The 7 Ps are: 1. PRODUCT MIX 2. PRICE MIX 3. PLACE 4. PROMOTION 5. PEOPLE 6. PROCESS 7. PHYSICAL EVIDENCE

PRODUCT MIX The product mix of a company includes all different product lines a company offers to its customers. The product line of a bank might easily include more than 100 different services. In todays competitive scenario it has become very necessary for a bank to provide its customers with a wide variety of services and the best technology in order to attract them. In State Bank Of India Savings Account is just the right product for everyone, salaried, employees or businessmen, high net worth individuals and NRI's. Bank Savings Bank account given below brings the benefits of better, efficient and hassle free banking.

CURRENT ACCOUNT

In State Bank Of India ATM Debit Card and have access to the widest network of ATMs across the country to withdraw cash, enquire about your balance, etc. Moreover, your card enables you to shop at a large number of Merchant Establishments in India. You can also avail yourself of our International ATM-cum-Debit Card which can be used within as well as outside India, at a nominal fee. PREMIUM SAVINGS ACCOUNT State Bank of India Premium Savings Account provides an enriched version of Savings Bank account consisting of various concessions and add-ons. It is suitable for our High Net worth Individual/ Mass Affluent customers. SAVINGS BANK ACCOUNT In State Bank of India Savings Bank Account helps you to plan and save for your future financial requirements. Your savings remain liquid, safe and earn moderate interest. The bank can understand that everyone wants to save for something in the future. We also realize that everyone wants their savings to be safe and accessible anytime, anyplace to help meet their needs. So we bring to you the SBI Savings Account, which helps you plan and save for your future financial requirements. Your savings are completely liquid, and earn competitive interest in our safety.

7-Day Banking At select branches spread over the country, you can bank on all the 7 days of the week (except for public holidays), over extended working hours. Telebanking Telebanking service provides you instant access to your account. It offers you a wide range of services over the phone such as account information, Balance Enquiry, Transaction Details, Statement of Account, Status of your Cheque, etc.

SBI Credit Card

SBI Credit Card or State Bank of India Credit Card offers you exclusive deals and convenience of cashless shopping with complete online payments and balance transfer solutions and all this come with redeemable reward points system. The benefits and features of State Bank of India credit cards do not end here. The available SBI Credit Cards are: SBI Silver, Gold & Platinum Card and SBI partnership cards that include Go Air, Hero Honda, LG, SBI Advantage Card, SBI Card For Doctors, Employee Card, Lifestyle Card, Railway Card, Vishal Mega Mart Card, Social Card, UBI Cards, Spice Jet SBI Card and more. SBI Credit Card Payment has been made a lot easier with the introduction of newer payment channels by the bank. State Bank of India now offers you a mix of payment modes to make it more convenient for the customers. State Bank of India or SBI offers the credit card holders to make their credit card payments through cash by just mentioning their credit card number, the amount to be paid and a contact number. An instant electronic receipt is provided to the customer at all 3500 Easy Bill merchant outlets. This is an online bill payment facility for SBI cards. All you have to do is enter your SBI Credit Card and payment details and you will be directed to your bank's net banking option where after authenticating your login and reconfirming the details, the amount would be debited to your account online. A transaction confirmation and reference number is provided and an e-mail acknowledging the transaction is sent to you on the mail id provided.

24-Hour ATMs State bank of India provides a 24 x 7 SBI ATM Card Help line that direct you to the customer care centres of SBI where in you can enquire about the nearest State Bank of India ATM locations, address and contact number. You can also register and report the card loss to this help line and avail the zero card loss liability facility provided by SBI India. For application for a new ATM card, you can directly login to sbicard website and read all the terms and conditions and the ATM rules to be followed, get the ATM form online and register for State Bank of India's ATM service.

State Bank of India spans the country with over 7200 ATM network to ensure maximum reach. Certain cities like Bangalore, Chennai, Delhi, Gurgaon, Noida, Mumbai, Navi Mumbai, Pune and more have multiple SBI ATM branch network. Free ATM Card The State Bank Of India Credit Card offers you a free ATM Card, which can be used at over 7200 SBI Bank ATM centers all over India. All you have to do is open a saving bank/current Account with SBI Bank.

PRODUCT LEVELS

Core Benefit: It is the main or core reason why the customer will buy the service of the bank. More like the basic purpose or necessity. Basic Product: The core benefit is converted into a basic product. That is the service can used by the customer in order to fulfill his/her needs. Expected Product: It refers to the set of attributes and conditions expected by the customers when they purchase the service. Augmented Product: It is the additional feature that the banks provide which exceeds the customers expectations. Potential Product: Innovations and product differential is the bases of a Potential Product. If the banks alter its services according to the requirements of the individual customers it reaches this level.

Core Product

Basic Product

Expected Product

Augmented Product

Potential Product

The basic necessity to use banking services in order to handle finance more efficiently

Safety of deposits Loanable funds etc.

Timely service Long banking hours Low interest rates

Goods waiting rooms Extensive ATM network Promotional Discounts

Mobile and internet Banking New Schemes tailored for specific customers

Thus it can be seen how a particular product passes through different levels. In todays competitive scenario most banks try offering services at the Augmented and Potential level.

PRICE MIX

The price mix in the banking sector is nothing but the interest rates charged by the different banks. In todays competitive scenario where customer is the king, the banks have to charge them interest at a rate in accordance with the RBI directives. Banks also compete in terms of annual fees for services like credit cards, DMAT etc. Another important aspect of the banks pricing policy today is the interest charged on the Home Loans and Car Loans. With Indias economy progressing, there are more and more buyers seeking these loans but at a very competitive interest rate. Thus, inspite of the constraints in the pricing policy due to the RBI directives there are mainly three types of pricing methods adopted by banks. They are: Value pricing: Banks having unique or different products or schemes mainly do this type of pricing. They usually charge a combination of high and low prices depending on the customer loyalty as well as the products. This type of pricing strategy is usually coupled with promotion programmes. Going Rate pricing: The most commonly used pricing technique is the going rate pricing. In going rate pricing, the bank bases its price largely depending on the competitors prices. The banks however have to stay within the RBI directives and compete. The banks may charge higher or lower than their competitors. After 1991 when the foreign banks entered the Indian market this method of pricing has gained increasing importance. Mark up pricing: This is a pricing technique wherein the cost of the service is determined and a small margin is added to it and then the final price is offered to the customers. This type of pricing is the not very popular since in the banking sector it is not very easy to arrive at the cost of the service. Thus most banks use a combination of mark up pricing and going rate pricing. PLACE MIX

Place mix is the location analysis for banks branches. There are number a factors affecting the determination of the location of the branch of bank. It is very necessary a bank to situated at a location where most of its target population is located. Some of the important factors affecting the location analysis of a bank are: The trade area Population characteristics Commercial structure Industrial structure Banking structure Proximity to other convenient outlets Real estate rates Proximity to public transportation Drawing time Location of competition Visibility Access

It is not necessary that all the above conditions have to be satisfied while selecting the location but it should be tried to satisfy as many of them as possible. 1. The Trade Area: The trade area is a very important factor determining the place where a bank branch should be set up. For e.g. a particular location maybe a huge trading place for textiles, diamonds or for that case even the stock market. Such locations are ideal for setting up of bank branches. 2. Population Characteristics: The demography of a place is a very important factor. This includes: The income level of the population The average age The average male female population The caste, religion, culture and customs The average spending and saving habit of the people.

These factors are very important for a bank as the help them decide the kind of business the branch will get.

3. Commercial Structure: The commercial structure refers to the level of commerce i.e. business activities taking place at a particular location. The higher the level of business activities taking place in a particular location the more preferable it is for setting up a bank branch. 4. Industrial Structure: This is nothing but a combination of the trade area analysis and the commercial structure. However the industrial structure focuses more on the kind of industries operating in a particular location. For example, an area like SEEPZ is marked with a lot of electronic manufacturing units. Thus the industrial stricture determines the kind of financial transactions that could take place in a particular location. 5. Banking Structure: The Banking structure refers to the existence of other banks in the area. Whether there is already an efficient network of other bank branches operating at that particular area. Thus the overall infrastructure needed for the working of a bank. 6. Proximity of other convenient outlets: This refers to the other branches of the same bank as well other commercial, entertainment and industrial outlets. 7. Real Estate Rates: This is mainly dealing with the cost factor involved in opening up a bank branch at a particular location. The real estate rate is a very strong factor influencing the location decision for a bank branch. 8. Proximity to public transportation: The location should be proximate to public transportation facilities. This means it should have bus stops close by as well as it should be proximate to railway stations so as to make it convenient for the common man. 9. Drawing Time: Drawing time refers to the time period during which a customer can draw money from the banks. It should be convenient to the customer and somewhat flexible to accommodate the customers needs. No bank has more than a certain amount with them and in case a customer wants to withdraw an amount more than that available with the

bank, the bank needs to draw that amount from other banks. Hence, a location must be such that it facilitates minimum drawing time.

10. Location of Competition:The existence of other banks also means competition. If the level of competition is very high in a particular location, it is necessary that a bank does a lot of market research before opening a branch so as to estimate the kind of business it would get.

11. Visibility:The location of a branch should be such that it is visible and easily noticed by the customers as well other people.

12. Access:The bank branch should be very easily accessible to the customers. If this is not the case, the customer might switch to some other bank, which is more convenient to him and very easily accessible. The location should be such that it is very convenient for the customer to reach.

Promotion Mix

Promotion is nothing but making the customer more and more aware of the services and benefits provided by the bank. The banks today can use a lot of new technology to communicate to their customers. Different Ways of Promotion Public Relations: In todays competitive scenario developing strong public relations is very important for any bank to be successful. Most banks today have a separate Public Relations department. However primarily it is considered as a responsibility of the

various bank managers to develop a steady and strong relationship with their present customers as well as potential customers. This can be done by a constant follow up, small programmes etc. Personal Selling: Personal selling is found to be one of the most effective and popular forms of promoting bank business. The main reason for this is that banking is a service in which trust plays a very important role. In personal selling, a bank representative goes to the customers and explains the scheme to the customers. Also he gives the customers any kind consultation he might need. He provides the customers all the information sought by him. The representative tries to persuade the customers to go for the scheme provided by the bank by telling him all the benefits. Here are some of the important features of personal selling It is a direct relation between the buyers and the seller It is oral presentation in conversation It is personal and social behavior It is found to be more effective in service oriented organizations It is based on the professional excellence or expertise of an individual Sales Promotion: Sales promotions are basically giving the customers some additional benefits, maybe at times just some small gifts, in order to promote the schemes. The more innovative the sales promotions the more positive are the results. Some of the most popular sales promotions techniques are gifts, contests, fairs and shows, discounts and commission, entertainment and traveling plans for bankers, additional allowance, low interest financing etc. It is very important that the sales promotions benefits are designed in such a manner that they are better than those of the competitors.

Word of mouth Promotion: This form of promotions is not only very effective in banking services but in any kind of service. However it is more important in banking for the only reason that this is a service where trust plays a very important role. If a particular banks services are recommended by friends, relatives, or other well wishers the person is more influenced and inclined towards that bank. It is very important to note that the internal employees of the bank play a very important role in word of mouth promotion technique. This is because they can start the process by recommending the bank to their friends and relatives and after that it is like a chain, which spreads like a wild fire. Telemarketing: In recent times telemarketing has gained increasing importance as an effective tool for promotion. The telemarketing is a process of making use of sophisticated communication network for promoting the banks. This includes promoting through television, telephone, and radio. Nowadays, cell phones are used extensively for the same. This is the most popular form of promotion. Banks today have started using SMS and many other services supported by cell phones to provide benefits to their customers and thus have tried to increase their sales. In todays competitive and modern scenario it very important that banks makes use of telemarketing techniques very efficiently to have desirable results. Internet: The use of Internet as a promotional tool is increasing. More and more banks are using Internet to promote their services. The online banking has made it even easier for the customers to avail the banks services. No longer do people have to go to their bank branches for small petty matters like checking their balance etc. All this can be done with the help of a few clicks. Thus, these were the numerous ways in which a bank can promote its services and create more awareness amongst the people.

People People are the employees that are the service providers. In a banking sector, the service provider plays a very important and determinant role in rendering the customers a satisfactory and a good service. It is extremely essential that the service provider understand what his customers expect from him. In the banking sector, the customer needs to be guided in a lot of matters, which is possible only with the help of the service provider. The position in the eyes of the customer will be perceived by appearance, attitude and behavior of the customer contact employees. Not only does the customer contact employee influence the customers perception but also the customer base of the organization does so.

Process Mix The process mix constitutes the overall procedure involved in using the services offered by the bank. It is very necessary that the process is very customer friendly. In other words a process should be such that the customer is easily able to understand and easy to follow. Today if particular banks formalities are long and the procedure very complicated the overall process fails and the customer may not be inclined towards using that banks services. Lets take for example the process for application for a car loan. Now this mainly involves 3 things. 1. Producing of proper documents 2. Filling up of application form 3. Paying for the initial down payment.

Here the process may fail in the following cases: 1. If the customer is asked to produce a number of forms out of which some may not be necessary at all. Thus it is very necessary that the customer be asked for the minimum but most necessary document and not the other unnecessary documents. 2. In case of application form, the application form must be in a language best understood by the customers and it should not be very lengthy one or demanding a lot of unnecessary information. 3. Finally the payment of initial amount. The customer should be given options as to how he would like to pay by cheques or by credit card. Once again the amount should be very competitive not very high above the regular rates prevailing in the markets. 4. The smaller and simpler the procedure, the better the process, and the customer will be more satisfied.

PHYSICAL EVIDENCE Physical evidence is the overall layout of the place i.e. how the entire bank has been designed. Physical evidence refers to all those factors that help make the process much easier and smoother. For example, in case of a bank, the physical evidence would be the placement of the customer service executives desk, or the location of the place for depositing cheques. It is very necessary that the place be designed in such a manner so as to ensure maximum convenience to the customer and cause no confusion to him. Thus, these are the 7 Ps of services. Each of them plays a very important and a pivotal role in determining the quality of the service provided to the customer.

RATER Analysis For State Bank Of IndiaThere are many reasons why a customer should be given quality services. The most of them are: 1. Industry being so competitive that a customer should be given the best services as they have many competitors (the company) and if even a single customer is lost in todays JLT world then it very difficult to win back the customer. 2. Most of the customers do not complain as they just opt out and do get satisfied with better services elsewhere. When it comes to services, there are 10 quality dimensions. Each of the dimensions is of ultmost importance since human element is involved and it relates to services. But Zeithaml, Bitner and Parsuraman have developed a new and concise model by clubbing some points. This model consists of the following dimensions:

Reliability Assurance Tangibility Empathy Responsiveness

RELIABILITY

RESPONSIVENESS

ASSURANCE

EMPATHY

TANGIBILITY

RELIABILITY It is defined as the ability to perform the promised service dependably and accurately. In its broadest sense, reliability means that the company delivers on its promisespromises about delivery, service provision, problem resolution, and pricing. It is also known as the No Excuses service delivery. State Bank Of India faces stiff competition from many other banks within its vicinity and some of these banks are foreign banks. But the existing customers have faith, loyalty and trust in this bank. The customers are well aware that the bank will provide them back the best and reliable services. For e.g. ,No person likes to wait to withdraw his/her money. In order to correct this problem, Indian Overseas Bank has ensured that

whoever comes in for cash withdrawal will receive his/her cash within five to ten minutes.

ASSURANCE Assurance is defined as employees knowledge and courtesy and the ability of the firm and its employees to inspire trust and confidence. It includes the ability, knowledge, genuineness, and honesty to provide the best services to the customer from the frontline staff. In this dimension the front line staff is more important rather than the owner. At State Bank Of India every customer who comes is treated with utmost care and any problem that takes place is solved with great enthusiasm. It assures the customers coming up to the bank that the money they invest is secure; the interest rate that is being provided to them is at par or sometimes even higher as compared to other banks. Also, it assures the customers that the money they have invested will be returned to them as and when required with proper interest. It tries to empower their customer contact people and regularly train them in skills to build trust and loyalty between employees and the customers. They have assigned some of their staff members to build relationships with the customers by getting to know them personally.

TANGIBLITY Tangibles are defined as the appearances of physical facilities, equipments, personnel and communication materials. All of these provide physical representations or images of the service that customers, particularly new customers, will use to evaluate quality. At State Bank Of India the entire premise is air-conditioned. They have computerized systems in place and therefore quick, accurate and efficient service can be provided to the customers. The tables and chairs are conveniently located for the customers. The personnel always have a cheerful and helping veneer and are always

ready to help out the customers. The entire place is done up in bright colours and thus the customer can immediately feel the warmth and the radiance of the place. EMPATHY Empathy is defined as the caring, individualized attention the firm provides its customers. The essence of empathy is conveying, through personalized or customized service, the customers are unique and unique special. The empathy shown by the employees of the State Bank Of India is good as they are always polite humble and helpful. There was a case where once a customer misplaced Rs. 1,00,000 within the premises of the bank. He panicked but the bank personnel put him at rest and assured him that they would locate the same for him. Since he was a regular customer, they knew him very well and took the situation under control. They quickly located the cash and thus, the customer was placated. The bank personnel went out of their way to help this customer and thus understood his predicament. This bank regularly holds seminars and training workshops so that they can understand the consumer better and thus serve him better.

RESPONSIVENESS Responsiveness is the willingness to help the customer and provide him with immediate and fast service.

The State Bank Of India is prompt at providing its customers with the information and services that they seek. It is extremely prompt when it comes to resolving the complaints of the customers. The customers, in their feedback form, mentioned this as one of the most important factor that has prompted them to continue with this bank.

All the five dimensions basically aim at serving the customers to the best of their ability, giving them quality services and if things are followed as they are demanded,

(i.e., according to the customers demand) then there would be no problems in facing any type of people. The successful service organizations set up speeds for service standards.

MARKET SEGMENTATIONAn organization is supposed to cater to the changing needs of customers; it is only natural that all customers have their own likes and dislikes. They have some uniqueness, which throws a big imprint on their lifestyles. This makes the task of understanding a bit difficult. It has the context that we go through the problem of market segmentation in the banking service. The study of the needs of customers invites a plethora of problems since in addition to other aspects; the regional considerations also influence the hierarchy of needs. To be more specific in the banking services, the banking organizations are supposed to satisfy different types of customers living in different segments. The segmentation of market makes the task of bank professionals easier. If the market segmentation is done in a right fashion, the task of satisfying the customers is simplified considerably. The modern marketing theories advocate the formulation of marketing policies and strategies for each segment, which an organization plans to solicit. The marketing segmentation is based in the principle of divide and rule. If we divide the market into different segments, the size of market is made small and the process of study is found convenient. We find market segmentation division and subdivision of a market based on considerations. The bank professionals have to segment the market in such a way that the expectations of all potential customers are studied in a right perspective and the marketing resources are developed to fulfill the same. The marketing efforts can be made more proactive if the process and bases of segmentation are right.

It is essential that the bank professionals assign due weightage to the difference that we find in the market behavior due to geographical, age, sex, nationality, educational background, income classes, occupation, social and other considerations. If they overlook or underestimate key bases while segmenting, the study results cant be proactive to the formulation of creative marketing decisions. This makes it essential that the bank professionals are well aware of the criteria for market segmentation. The agriculture sector, industrial sector, services sector, household sector are found important in the very context. The gender segment is found important no doubt but we cant underestimate institutional and professional segments. Since the banking organizations serve different sectors and segments, the segmentation should be done carefully.

In State Bank Of India other banking services

Personal Banking NRI Banking Online Banking Online Money Transfer Demat Services Online Trading Pension Plan Personal Loan Home Loans Life Insurance

Loan

S SBI Personal Banking

State Bank of India Personal Banking is rendered through the countrywide SBI branch network and also through SBI Internet Banking service. SBI personal banking includes deposit schemes, personal loans and other specialized services. The transparency in all banking services by state bank of India has helped the bank earn a reputation ossf trust with the customers. SBI personal banking products are customized to the individual demands of each customer and available 24-hour through SBI Online banking . SBI personal deposit schemes include SBI savings accounts, term deposits, current accounts, multi option deposit schemes, fixed and recurring deposits and special SBI tax saving deposit schemes. The personal finance schemes by State Bank of India include all the personal loans like housing loans, car loans, education and career loans, loans against securities and more. The other specialized personal banking services include eZ-trade for online trading by SBI, demat services through SBI Demat Accounts , special SBI Vishwa Yatra Card,

gift cards, eZ-pay card, internet banking, Anytime Banking (through SBI ATMs), inward remittances, PPF, .

SBI NRI Banking SBI NRI Banking Services are a specially designed customized set of banking products and services to cater to the global banking needs of the NRI's. India's largest bank - State Bank of India offers various NRI deposit schemes, NRI loans, remittance and other services. The Internet banking facility at SBI called SBI Online has enabled the globally scattered NRIs to access banking services of India's most trusted bank. SBI NRI accounts include NRE Rupee Accounts, Usual Savings Accounts, Current Account, Fixed Deposits (in foreign currencies like Pound, Sterling, US$, Euro, Canadian Dollar & Australian Dollar), Term Deposits (interest compounded quarterly and paid out quarterly),NRO Accounts, and Foreign Currency NRI (FCNR) Accounts. Besides the usual savings and finance products by SBI, NRI banking services also include investment and tax benefit schemes customized for the NRIs. Special banking facilities are also provided for the returning Indians. Freedom to maintain the assets acquired or inherited abroad, maintaining and operating foreign currency accounts with foreign banks.

SBI Online

SBI Online has been an initiative of the State Bank of India to offer the Banking Services online. SBI Online is a form of Internet Banking Service that enables us to avail our accounts via the internet and even transact and invest in SBI Mutual Funds. The State Bank of India, the largest Bank in India, in terms of Branches and Infrastructure, introduced the SBI Online method in order to facilitate the personal as well corporate Banking Services in a quicker as well as convenient manner.SBI Online offers information regarding the member's profile and details like the Account Summary, Account Balance, etc. In fact, it is almost like a virtual trip to your SBI Branch. With a secured login system, you can avail the Bank statement and then take a print out, at the same time, transferring Funds to any other SBI Account or an Account with any other Branch in India or Abroad is very easy and convenient.

The SBI Internet Banking is one of its kind is many regards. The login and transaction on the website is so easy that even first-time users can access their account and perform the transaction functions with ease. The value added services enable us to make the payments of our Telephone Bills, Electricity Bills etc online and this reflects the reach of The State Bank of India.

SBI Money Transfer to India SBI Online Money Transfer to India is offered through SBI Online GLS or Global Link Service handling SBI Express Remit for instant online money transfer to India from US. With a vast network of over 10, 000 branches, State Bank of India online money transfer services are most economical and secure way to transfer funds to India. SBI express remit service enables the remitter to track the entire remittance process online. State Bank of India offers lowest interest rates and service charges with the most favorable exchange rates to provide you more value for each Dollar sent by you. The funds are transferred directly to the beneficiary account in over 1,000 select SBI branches and drafts on all State Bank of India branches can be couriered to the beneficiary or his banker . The facility of SBI Express Remit is handled by SBI Online G