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CHAPTER NO.1

INTRODUCTION OF BANKING

A bank is a financial intermediary that accepts deposits and channels

those deposits into lending activities, either directly by loaning or indirectly

through capital markets. A bank links together customers that have capital

deficits and customers with capital surpluses.

Due to their importance in the financial system and influence on national

economies, banks are highly regulated in most countries. Most nations have

institutionalised a system known as fractional reserve banking, under which

banks hold liquid assets equal to only a portion of their current liabilities. In

addition to other regulations intended to ensure liquidity, banks are generally

subject to minimum capital requirements based on an international set of

capital standards, known as the Basel Accords.

Banking in its modern sense evolved in the 14th century in the rich cities of

Renaissance Italy but in many ways was a continuation of ideas and

concepts of credit and lending that had its roots in the ancient world. In the

history of banking, a number of banking dynasties—notably the Medicis, the

Fuggers, the Welsers, the Berenbergs, and the Rothschilds—have played a

central role over many centuries. The oldest existing retail bank is Monte dei

Paschi di Siena, while the oldest existing merchant bank is Berenberg Bank.

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Global banking

History

The origins of modern banking can be traced to medieval and early

RenaissanceItaly, to the rich cities in the north like Florence, Lucca, Siena,

Venice and Genoa. The Bardi and Peruzzi families dominated banking in

14th century Florence, establishing branches in many other parts of Europe.

One of the most famous Italian banks was the Medici Bank, set up by

Giovanni di Bicci de' Medici in 1397.The earliest known state deposit bank,

Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa,

Italy.

Modern banking practice, including fractional reserve banking and the issue

of banknotes, emerged in the 17th and 18th centuries. Merchants started to

store their gold with the goldsmiths of London, who possessed private

vaults, and charged a fee for that service. In exchange for each deposit of

precious metal, the goldsmiths issued receipts certifying the quantity and

purity of the metal they held as a bailee; these receipts could not be assigned,

only the original depositor could collect the stored goods.

Gradually the goldsmiths began to lend the money out on behalf of the

depositor, which led to the development of modern banking practices;

promissory notes (which evolved into banknotes) were issued for money

deposited as a loan to the goldsmith. The goldsmith paid interest on these

deposits. Since the promissory notes were payable on demand, and the

advances (loans) to the goldsmith's customers were repayable over a longer

time period, this was an early form of fractional reserve banking. The

promissory notes developed into an assignable instrument which could

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circulate as a safe and convenient form of money backed by the goldsmith's

promise to pay, allowing goldsmiths to advance loans with little risk of

default. Thus, the goldsmiths of London became the forerunners of banking

by creating new money based on credit.

The Bank of England was the first to begin the permanent issue of

banknotes, in 1695.The Royal Bank of Scotland established the first

overdraft facility in 1728. By the beginning of the 19th century a bankers'

clearing house was established in London to allow multiple banks to clear

transactions. The Rothschild's pioneered international finance on a large

scale, financing the purchase of the Suez canal for the British government.

The oldest bank still in existence is Monte dei Paschi di Siena,

headquartered in Siena, Italy, which has been operating continuously since

1472. It is followed by Berenberg Bank of Hamburg (1590) and Sveriges

Riksbank of Sweden (1668).

Origin of the word

The word bank was borrowed in Middle English from Middle French

banque, from Old Italian banca, from Old High German banc, bank "bench,

counter". Benches were used as desks or exchange counters during the

Renaissance by Florentine bankers, who used to make their transactions

atop desks covered by green tablecloths.One of the oldest items found

showing money-changing activity is a silver Greek drachm coin from ancient

Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350–325 BC,

presented in the British Museum in London.

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Indian banking

Banking in India in the modern sense originated in the last decades of the

18th century. The first banks were Bank of Hindustan (1770-1829) and The

General Bank of India, established 1786 and since defunct.

The largest bank, and the oldest still in existence, is the State Bank of India,

which originated in the Bank of Calcutta in June 1806, which almost

immediately became the Bank of Bengal. This was one of the three

presidency banks, the other two being the Bank of Bombay and the Bank of

Madras, all three of which were established under charters from the British

East India Company. The three banks merged in 1921 to form the Imperial

Bank of India, which, upon India's independence, became the State Bank of

India in 1955. For many years the presidency banks acted as quasi-central

banks, as did their successors, until the Reserve Bank of India was

established in 1935.

In 1969 the Indian government nationalised all the major banks that it did

not already own and these have remained under government ownership.

They are run under a structure know as 'profit-making public sector

undertaking' (PSU) and are allowed to compete and operate as commercial

banks. The Indian banking sector is made up of four types of banks, as well

as the PSUs and the state banks, they have been joined since the 1990s by

new private commercial banks and a number of foreign banks.

Banking in India was generally fairly mature in terms of supply, product

range and reach-even though reach in rural India and to the poor still

remains a challenge. The government has developed initiatives to address

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this through the State Bank of India expanding its branch network and

through the National Bank for Agriculture and Rural Development with

things like microfinance.

Indian Banking Industry currently employes 1,175,149 employees and has a

total of 109,811 branches in India and 171 branches abroad and manages an

aggregate deposit of 67504.54 billion (US$1.1 trillion or €840 billion) and

bank credit of 52604.59 billion (US$880 billion or €650 billion). The net

profit of the banks operating in India was 1027.51 billion (US$17 billion or

€13 billion) against a turnover of 9148.59 billion (US$150 billion or

€110 billion) for the fiscal year 2012-13.

History

In ancient India there is evidence of loans from the Vedic period

(beginning 1750 BC). Later during the Maurya dynasty (321 to 185 BC), an

instrument called adesha was in use, which was an order on a banker

desiring him to pay the money of the note to a third person, which

corresponds to the definition of a bill of exchange as we understand it today.

During the Buddhist period, there was considerable use of these instruments.

Merchants in large towns gave letters of credit to one another.

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Colonial era

During the period of British rule merchants established the Union Bank

of Calcutta in 1829, first as a private joint stock association, then

partnership. Its proprietors were the owners of the earlier Commercial Bank

and the Calcutta Bank, who by mutual consent created Union Bank to

replace these two banks. In 1840 it established an agency at Singapore, and

closed the one at Mirzapore that it had opened in the previous year. Also in

1840 the Bank revealed that it had been the subject of a fraud by the bank's

accountant. Union Bank was incorporated in 1845 but failed in 1848, having

been insolvent for some time and having used new money from depositors to

pay its dividends.

The Allahabad Bank, established in 1865 and still functioning today, is the

oldest Joint Stock bank in India, it was not the first though. That honour

belongs to the Bank of Upper India, which was established in 1863, and

which survived until 1913, when it failed, with some of its assets and

liabilities being transferred to the Alliance Bank of Simla.

Foreign banks too started to appear, particularly in Calcutta, in the 1860s.

The Comptoir d'Escompte de Paris opened a branch in Calcutta in 1860, and

another in Bombay in 1862; branches in Madras and Pondicherry, then a

French possession, followed. HSBC established itself in Bengal in 1869.

Calcutta was the most active trading port in India, mainly due to the trade of

the British Empire, and so became a banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial Bank,

established in 1881 in Faizabad. It failed in 1958. The next was the Punjab

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National Bank, established in Lahore in 1895, which has survived to the

present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing

through a relative period of stability. Around five decades had elapsed since

the Indian Mutiny, and the social, industrial and other infrastructure had

improved. Indians had established small banks, most of which served

particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some

exchange banks and a number of Indian joint stock banks. All these banks

operated in different segments of the economy. The exchange banks, mostly

owned by Europeans, concentrated on financing foreign trade. Indian joint

stock banks were generally under capitalised and lacked the experience and

maturity to compete with the presidency and exchange banks. This

segmentation let Lord Curzon to observe, "In respect of banking it seems we

are behind the times. We are like some old fashioned sailing ship, divided by

solid wooden bulkheads into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired

by the Swadeshi movement. The Swadeshi movement inspired local

businessmen and political figures to found banks of and for the Indian

community. A number of banks established then have survived to the

present such as Bank of India, Corporation Bank, Indian Bank, Bank of

Baroda, Canara Bank and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private

banks in Dakshina Kannada and Udupi district which were unified earlier

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and known by the name South Canara ( South Kanara ) district. Four

nationalised banks started in this district and also a leading private sector

bank. Hence undivided Dakshina Kannada district is known as "Cradle of

Indian Banking".

During the First World War (1914–1918) through the end of the Second

World War (1939–1945), and two years thereafter until the independence of

India were challenging for Indian banking. The years of the First World War

were turbulent, and it took its toll with banks simply collapsing despite the

Indian economy gaining indirect boost due to war-related economic

activities. At least 94 banks in India failed between 1913 and 1918 as

indicated in the following table:

Years Number of banks

that failed

Authorised Capital

( Lakhs)

Paid-up Capital

( Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

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Reserve Bank of India (RBI)

origin

The 'Reserve Bank of India is India's Central Banking Institution, which

controls the Monetary Policy of the Indian Rupee. on 1 April 1935 during

the British Rule in accordance with the provisions of the Reserve Bank of

India Act, 1934. The original share capital was divided into shares of 100

each fully paid, which were initially owned entirely by private shareholders.

Following India's independence on 15 - August - 1947, the RBI was

nationalised in the year of 1949.

The RBI plays an important part in the Development Strategy of the

Government of India. It is a member bank of the Asian Clearing Union. The

general superintendence and direction of the RBI is entrusted with the 21-

member Central Board of Directors: the Governor (currently Dr. Raghuram

Rajan), 4 Deputy Governors, 2 Finance Ministry representatives, 10

government-nominated directors to represent important elements from

India's economy, and 4 directors to represent local boards headquartered at

Mumbai, Kolkata, Chennai and New Delhi. Each of these local boards

consists of 5 members who represent regional interests, as well as the

interests of co-operative and indigenous banks.

The bank is also active in promoting financial inclusion policy and is a

leading member of the Alliance for Financial Inclusion (AFI).

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History

The Reserve Bank of India is the central bank of the country. Central

banks are a relatively recent innovation and most central banks, as we know

them today, were established around the early twentieth century.

The Reserve Bank of India was set up on the basis of the recommendations

of the Hilton Young Commission. The Reserve Bank of India Act, 1934 (II

of 1934) provides the statutory basis of the functioning of the Bank, which

commenced operations on April 1, 1935.

The Bank was constituted to

Regulate the issue of banknotes

Maintain reserves with a view to securing monetary stability and

To operate the credit and currency system of the country to its

advantage.

The Bank began its operations by taking over from the Government the

functions so far being performed by the Controller of Currency and from the

Imperial Bank of India, the management of Government accounts and public

debt. The existing currency offices at Calcutta, Bombay, Madras, Rangoon,

Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue

Department. Offices of the Banking Department were established in

Calcutta, Bombay, Madras, Delhi and Rangoon.

Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve

Bank continued to act as the Central Bank for Burma till Japanese

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Occupation of Burma and later upto April, 1947. After the partition of India,

the Reserve Bank served as the central bank of Pakistan upto June 1948

when the State Bank of Pakistan commenced operations. The Bank, which

was originally set up as a shareholder's bank, was nationalised in 1949.

An interesting feature of the Reserve Bank of India was that at its very

inception, the Bank was seen as playing a special role in the context of

development, especially Agriculture. When India commenced its plan

endeavours, the development role of the Bank came into focus, especially in

the sixties when the Reserve Bank, in many ways, pioneered the concept and

practise of using finance to catalyse development. The Bank was also

instrumental in institutional development and helped set up insitutions like

the Deposit Insurance and Credit Guarantee Corporation of India, the Unit

Trust of India, the Industrial Development Bank of India, the National Bank

of Agriculture and Rural Development, the Discount and Finance House of

India etc. to build the financial infrastructure of the country.

With liberalisation, the Bank's focus has shifted back to core central banking

functions like Monetary Policy, Bank Supervision and Regulation, and

Overseeing the Payments System and onto developing the financial markets.

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CHAPTER NO.2

BANKING ACTIVITIES

Standard activities

Banks act as payment agents by conducting checking or current

accounts for customers, paying cheques drawn by customers on the bank,

and collecting cheques deposited to customers' current accounts. Banks also

enable customer payments via other payment methods such as Automated

Clearing House (ACH), Wire transfers or telegraphic transfer, EFTPOS, and

automated teller machine (ATM).

Banks borrow money by accepting funds deposited on current accounts, by

accepting term deposits, and by issuing debt securities such as banknotes

and bonds. Banks lend money by making advances to customers on current

accounts, by making installment loans, and by investing in marketable debt

securities and other forms of money lending.

Banks provide different payment services, and a bank account is considered

indispensable by most businesses and individuals. Non-banks that provide

payment services such as remittance companies are normally not considered

as an adequate substitute for a bank account.

Banks can create new money when they make a loan. New loans throughout

the banking system generate new deposits elsewhere in the system. The

money supply is usually increased by the act of lending, and reduced when

loans are repaid faster than new ones are generated. In the United Kingdom

between 1997 and 2007, there was a big increase in the money supply,

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largely caused by much more bank lending, which served to push up

property prices and increase private debt. The amount of money in the

economy as measured by M4 in the UK went from £750 billion to £1700

billion between 1997 and 2007, much of the increase caused by bank

lending.If all the banks increase their lending together, then they can expect

new deposits to return to them and the amount of money in the economy will

increase. Excessive or risky lending can cause borrowers to default, the

banks then become more cautious, so there is less lending and therefore less

money so that the economy can go from boom to bust as happened in the

UK and many other Western economies after 2007.

Range of activities

Activities undertaken by large banks include investment banking, corporate

banking, private banking, insurance, consumer finance, foreign exchange

trading, commodity trading, trading in equities, futures and options trading

and money market trading.

Channels

Banks offer many different channels to access their banking and other

services:

Automated Teller Machines: An automated teller machine or also known

as an automated banking machine , cash machine is an electronic

telecommunications device that enables the customers of a financial

institution to perform financial transactions without the need for a human

cashier, clerk or bank teller.

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A branch : is a retail location

Call center

Mail: most banks accept cheque deposits via mail and use mail to

communicate to their customers, e.g. by sending out statements

Mobile banking : is a method of using one's mobile phone to conduct

banking transactions

Online banking : is a term used for performing multiple transactions,

payments etc. over the Internet

Relationship Managers : mostly for private banking or business banking,

often visiting customers at their homes or businesses

Telephone banking : is a service which allows its customers to conduct

transactions over the telephone with automated attendant or when

requested with telephone operator

Video banking : is a term used for performing banking transactions or

professional banking consultations via a remote video and audio

connection. Video banking can be performed via purpose built banking

transaction machines (similar to an Automated teller machine), or via a

video conference enabled bank branch clarification.

DSA : is a Direct Selling Agent, who works for the bank based on a

contract. Its main job is to increase the customer base for the bank.

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Business model

A bank can generate revenue in a variety of different ways including

interest, transaction fees and financial advice. The main method is via

charging interest on the capital it lends out to customers.[citation needed]

The bank profits from the difference between the level of interest it pays for

deposits and other sources of funds, and the level of interest it charges in its

lending activities.

This difference is referred to as the spread between the cost of funds and the

loan interest rate. Historically, profitability from lending activities has been

cyclical and dependent on the needs and strengths of loan customers and the

stage of the economic cycle. Fees and financial advice constitute a more

stable revenue stream and banks have therefore placed more emphasis on

these revenue lines to smooth their financial performance.

In the past 20 years American banks have taken many measures to ensure

that they remain profitable while responding to increasingly changing

market conditions.

To merge with investment and insurance houses. Merging banking,

investment, and insurance functions allows traditional banks to respond

to increasing consumer First, this includes the Gramm-Leach-Bliley Act,

which allows banks again demands for "one-stop shopping" by enabling

cross-selling of products (which, the banks hope, will also increase

profitability).

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Second, they have expanded the use of risk-based pricing from business

lending to consumer lending, which means charging higher interest rates

to those customers that are considered to be a higher credit risk and thus

increased chance of default on loans. This helps to offset the losses from

bad loans, lowers the price of loans to those who have better credit

histories, and offers credit products to high risk customers who would

otherwise be denied credit.

Third, they have sought to increase the methods of payment processing

available to the general public and business clients. These products

include debit cards, prepaid cards, smart cards, and credit cards. They

make it easier for consumers to conveniently make transactions and

smooth their consumption over time (in some countries with

underdeveloped financial systems, it is still common to deal strictly in

cash, including carrying suitcases filled with cash to purchase a home).

However, with convenience of easy credit, there is also increased risk

that consumers will mismanage their financial resources and accumulate

excessive debt. Banks make money from card products through interest

charges and fees charged to cardholders, and transaction fees to retailers

who accept the bank's credit and/or debit cards for payments.

This helps in making profit and facilitates economic development as a

whole.

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Retail banking

Checking account

A transactional account, known as a current account (British English) or

checking account (American English), is a deposit account held at a bank or

other financial institution, for the purpose of securely and quickly providing

frequent access to funds on demand, through a variety of different channels.

Transactional accounts are meant neither for the purpose of earning interest

nor for the purpose of savings, but for convenience of the business or

personal client; hence they tend not to bear interest. Instead, a customer can

deposit or withdraw any amount of money any number of times, subject to

availability of funds.

Savings account

Saving accounts are accounts maintained by retail financial institutions

that pay interest but cannot be used directly as money in the narrow sense of

a medium of exchange. These accounts let customers set aside a portion of

their liquid assets while earning a monetary return. For the bank, money in a

savings account may not be callable immediately and in some jurisdictions,

does not incur a reserve requirement, freeing up cash from the bank's vault

to be lent out with interest.The other major types of deposit account are

transactional account,money market account, and time deposit.

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Money market account

A money market account (MMA) or money market deposit account

(MMDA) is a financial account that pays interest based on current interest

rates in the money markets.Money market accounts typically have a

relatively high rate of interest and require a higher minimum balance

(anywhere from $1,000 to $10,000 to $25,000) to earn interest or avoid

monthly fees. The resulting investment strategy is therefore similar to, and

meant to compete with, a money market fund offered by a brokerage. The

two account types are otherwise unrelated.

Certificate of deposit (CD)

A certificate of deposit (CD) is a time deposit, a financial product

commonly sold in the United States by banks, thrift institutions, and credit

unions.CDs are similar to savings accounts in that they are insured and thus

virtually risk free; they are "money in the bank." In the USA, CDs are

insured by the Federal Deposit Insurance Corporation (FDIC) for banks and

by the National Credit Union Administration (NCUA) for credit unions.

They are different from savings accounts in that the CD has a specific, fixed

term (often monthly, three months, six months, or one to five years) and,

usually, a fixed interest rate. It is intended that the CD be held until maturity,

at which time the money may be withdrawn together with the accrued

interest.

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Individual retirement account (IRA)

An Individual Retirement Accountis a form of "individual retirement

plan", provided by many financial institutions, that provides tax advantages

for retirement savings in the United States. An individual retirement account

is a type of "individual retirement arrangement" as described in IRS

Publication 590, Individual Retirement Arrangements (IRAs). The term IRA,

used to describe both individual retirement accounts and the broader

category of individual retirement arrangements, encompasses an individual

retirement account; a trust or custodial account set up for the exclusive

benefit of taxpayers or their beneficiaries; and an individual retirement

annuity,by which the taxpayers purchase an annuity contract or an

endowment contract from a life insurance company.

Credit card

A credit card is a payment card issued to users as a system of payment. It

allows the cardholder to pay for goods and services based on the holder's

promise to pay for them. The issuer of the card creates a revolving account

and grants a line of credit to the consumerfrom which the user can borrow

money for payment to a merchant or as a cash advance to the user.

In contrast, credit cards allow the consumers a continuing balance of debt,

subject to interest being charged. A credit card also differs from a cash card,

which can be used like currency by the owner of the card. A credit card

differs from a charge card also in that a credit card typically involves a third-

party entity that pays the seller and is reimbursed by the buyer, whereas a

charge card simply defers payment by the buyer until a later date.

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Debit card

A debit card also known as a bank card or check card. Is a plasticpayment

card that provides the cardholder electronic access to his or her bank

account(s) at a financial institution. Some cards may bear a stored value with

which a payment is made, while most relay a message to the cardholder's

bank to withdraw funds from a payer's designated bank account. The card,

where accepted, can be used instead of cash when making purchases. In

some cases, the primary account number is assigned exclusively for use on

the Internet and there is no physical card.

Debit cards usually also allow for instant withdrawal of cash, acting as the

ATM card for withdrawing cash.

Mortgage

A mortgage loan, also referred to as a mortgage, is used by purchasers of

real property to raise money to buy the property to be purchased or by

existing property owners to raise funds for any purpose. The loan is

"secured" on the borrower's property. This means that a legal mechanism is

put in place which allows the lender to take possession and sell the secured

property to pay off the loan in the event that the borrower defaults on the

loan or otherwise fails to abide by its terms. The word mortgage is derived

from a "law French" term used by English lawyers in the middle ages

meaning "death pledge", and refers to the pledge ending (dying) when either

the obligation is fulfilled or the property is taken through foreclosure.

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Mutual fund

A mutual fund is a type of professionally managed collective investment

scheme that pools money from many investors to purchase securities.It is

most commonly applied only to those collective investment vehicles that are

regulated and sold to the general public. They are sometimes referred to as

"registered investment companies". Most mutual funds are open-ended,

meaning stockholders can buy or sell shares of the fund at any time by

redeeming them from the fund itself, rather than on an exchange. Mutual

funds have both advantages and disadvantages compared to direct investing

in individual securities.

Personal loan

In finance, unsecured debt refers to any type of debt or general

obligation that is not collateralized by a lien on specific assets of the

borrower in the case of a bankruptcy or liquidation or failure to meet the

terms for repayment.

In the event of the bankruptcy of the borrower, the unsecured creditors will

have a general claim on the assets of the borrower after the specific pledged

assets have been assigned to the secured creditors. The unsecured creditors

will usually realize a smaller proportion of their claims than the secured

creditors.

In some legal systems, unsecured creditors who are also indebted to the

insolvent debtor are able (and in some jurisdictions, required) to set-off the

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debts, which actually puts the unsecured creditor with a matured liability to

the debtor in a pre-preferential position.

Time deposits

A time deposit is a money deposit at a banking institution that cannot be

withdrawn for a certain "term" or period of time. When the term is over it

can be withdrawn or it can be held for another term. The longer the term the

better the yield on the money. Time deposits must be kept until maturity.

However, the return on a time deposit is generally lower than the long-term

average of that of investments in riskier products like stocks or bonds.

ATM card

An ATM card also known as a bank card, client card, key card, or cash

card, is any payment card issued by a financial institution to its customers

which enables a customer to access an Automated Teller Machine (ATM)

for transactions such as deposits, cash withdrawals, obtaining account

information, and other types of banking transactions. The payment card may

be any card which has that feature enabled, and may be a debit, credit, a

limited-use ATM or other card. Interbank networks allow the use of ATM

cards at ATMs of financial institutions other than those of the issuing

institution.

ATM cards can also be used on improvised ATMs, such as merchants' card

terminals that deliver ATM features without any cash drawer .These

terminals can also be used as Cashless scrip ATMs by cashing the fund

transfer receipt at the merchant's Cashier.

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Current Accounts

Current Accounts are basically meant for businessmen and are never used

for the purpose of investment or savings. These deposits are the most liquid

deposits and there are no limits for number of transactions or the amount of

transactions in a day. Most of the current account are opened in the names

of firm / company accounts. Cheque book facility is provided and the

account holder can deposit all types of the cheques and drafts in their name

or endorsed in their favour by third parties. No interest is paid by banks on

these accounts. On the other hand, banks charges certain service charges,

on such accounts.

Cheque books

A cheque is a document that orders a bank to pay money from an

account. The person writing the cheque, the drawer, has a transaction

banking account where their money is held. The drawer writes the various

details including the monetary amount, date, and a payee on the cheque, and

signs it, ordering their bank, known as the drawee, to pay that person or

company the amount of money stated.

Cheques are a type of bill of exchange and were developed as a way to make

payments without the need to carry large amounts of money. Technically, a

cheque is a negotiable instrument instructing a financial institution to pay a

specific amount of a specific currency from a specified transactional account

held in the drawer's name with that institution.

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Business (or commercial/investment) banking

Business loan

In finance, a loan is a debt provided by one entity (organization or

individual) to another entity at an interest rate, and evidenced by a note

which specifies, among other things, the principal amount, interest rate, and

date of repayment. A loan entails the reallocation of the subject asset(s) for a

period of time, between the lender and the borrower.

In a loan, the borrower initially receives or borrows an amount of money,

called the principal, from the lender, and is obligated to pay back or repay an

equal amount of money to the lender at a later time.

Capital raising (Equity / Debt / Hybrids)

A stock exchange provides companies with the facility to raise capital for

expansion through selling shares to the investing public

Besides the borrowing capacity provided to an individual or firm by the

banking system, in the form of credit or a loan, there are four common forms

of capital raising used by companies and entrepreneurs. Most of these

available options might be achieved, directly or indirectly, through a stock

exchange. A third usual source of capital for startup companies has been

venture capital. A fourth alternative source of cash for a private company is

a corporate partner, usually an established multinational company, which

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provides capital for the smaller company in return for marketing rights,

patent rights, or equity.

Mezzanine finance

Mezzanine capital, in finance, refers to a subordinated debt or preferred

equity instrument that represents a claim on a company's assets which is

senior only to that of the common shares. Mezzanine financings can be

structured either as debt or preferred stock.

Mezzanine capital is often a more expensive financing source for a company

than secured debt or senior debt. The higher cost of capital associated with

mezzanine financings is the result of it being an unsecured, subordinated (or

junior) obligation in a company's capital structure . In compensation for the

increased risk, mezzanine debt holders require a higher return for their

investment than secured or more senior lenders.

Project finance

Project finance is the long-term financing of infrastructure and industrial

projects based upon the projected cash flows of the project rather than the

balance sheets of its sponsors. Usually, a project financing structure involves

a number of equity investors, known as 'sponsors', as well as a 'syndicate' of

banks or other lending institutions that provide loans to the operation. They

are most commonly non-recourse loans, which are secured by the project

assets and paid entirely from project cash flow, rather than from the general

assets or creditworthiness of the project sponsors, a decision in part

26

supported by financial modeling.The financing is typically secured by all of

the project assets, including the revenue-producing contracts. Project lenders

are given a lien on all of these assets and are able to assume control of a

project if the project company has difficulties complying with the loan

terms.

Risk identification and allocation is a key component of project finance. A

project may be subject to a number of technical, environmental, economic

and political risks, particularly in developing countries and emerging

markets.

Revolving credit

Revolving credit is a type of credit that does not have a fixed number of

payments, in contrast to installment credit. Credit cards are an example of

revolving credit used by consumers. Corporate revolving credit facilities are

typically used to provide liquidity for a company's day-to-day operations.

They were first introduced by the Strawbridge and Clothier Department

Store.

It is basically an arrangement which allows for the loan amount to be

withdrawn, repaid, and redrawn again in any manner and any number of

times, until the arrangement expires. Credit card loans and overdrafts are

revolving loans. Also called evergreen loan.

27

Risk management (FX, interest rates, commodities, derivatives)

Risk management is the identification, assessment, and prioritization of

risks followed by coordinated and economical application of resources to

minimize, monitor, and control the probability and/or impact of unfortunate

eventsor to maximize the realization of opportunities. Risks can come from

uncertainty in financial markets, threats from project failures (at any phase

in design, development, production, or sustainment life-cycles), legal

liabilities, credit risk, accidents, natural causes and disasters as well as

deliberate attack from an adversary, or events of uncertain or unpredictable

root-cause.

Term loan

A term loan is a monetary loan that is repaid in regular payments over a

set period of time. Term loans usually last between one and ten years, but

may last as long as 30 years in some cases. A term loan usually involves an

unfixed interest rate that will add additional balance to be repaid.

Term loans can be given on an individual basis but are often used for small

business loans. The ability to repay over a long period of time is attractive

for new or expanding enterprises, as the assumption is that they will increase

their profit over time. Term loans are a good way of quickly increasing

capital in order to raise a business‘ supply capabilities or range. For instance,

some new companies may use a term loan to buy company vehicles or rent

more space for their operations.

28

Cash Management Services

In banking, cash management, or treasury management, is a marketing

term for certain services related to cash flow offered primarily to larger

business customers. It may be used to describe all bank accounts (such as

checking accounts) provided to businesses of a certain size, but it is more

often used to describe specific services such as cash concentration, zero

balance accounting, and automated clearing house facilities. Sometimes,

private banking customers are given cash management services.

credit services

We have assembled a highly experienced team of lending professionals

that can assist you with a wide range of loan products. You will find we

provide a full line of credit solutions that can be customized to meet your

exact needs and allow you to provide creative loan structures to your

customers.

29

CHAPTER NO.3

TYPES OF BANK LOANS IN INDIA

Due to the unequal distribution of wealth, India has arrived at a

situation where the affluent class gets richer and richer and the

underprivileged becomes poorer. To bridge this financial gap and to satisfy

their day to day requirements, Bank plays a vital role by offering various

loans to the finance seekers. Hence every borrower should have prior

knowledge on the various Bank Loans in India, which are eligible for

meeting their financial objectives. Types of Bank Loans Offered by Banks in

India

Personal Loan:-

Personal Bank Loans are the credits which a bank offers to its customer

to meet his instant personal requirements ranging from home renovation to

purchasing of new laptop, a getaway with family or for reimbursing the

credit card liabilities, for buying a new car or for child's education, etc.

Personal loan simplifies the cash flow of the customer besides handling its

immediate needs.

HomeLoans:-

To buy a dream home is the dream of every person. Home Loan has

helped in changing every Indian's dream into reality. However, the every

increasing property rates and escalating rates of interest sometimes act as an

30

obstacle. Therefore, before opting for a home loan it is advisable to check

every prospect of the product.

Bank Loans against Property:-

Property Loan or Loan against property is a kind of loan which is

allowed by the bank on the condition of keeping the customer's current

assets as a security with them. These loans are very useful when other

resources of financing get exhausted.

It is significant to recognize that a loan against property is not similar to

mortgage. While loan against property is obtained from the bank by

allocating customer's current assets as a security against the credit, a

mortgage is an instrument for purchasing an asset. On the basis of the

current market situations, the paid up cost of the asset and other aspects, the

cost of the credit against asset can range anywhere from 40% to 60% of the

asset costs.

BusinessLoans:-

Before starting a business, the entrepreneur should be mentally and

financially prepared to encounter the fiscal setbacks during the process. To

bail the companies out from the fiscal crunch, several banks in India offers

business Loans both for meeting urgent official growth and expenses.

31

Car Loans:-

Every individual want to own a car. Hence, the need for car loans

emerges at some point or the other. While selecting a car loan it is always

wise to scrutinize the various options accessible in the market besides

analyzing its fiscal suitability.

Education Loans:-

Education Loans offered by various banks in India provide much

required assistance to fund your child's education when all other resources of

finance get exhausted. Education Loans are offered by almost every Indian

bank thus providing ample opportunity to students to undergo higher

education both in India and abroad.

32

CHAPTER NO.4

INTRODUCTION

The IBA Model Educational Loan Scheme for pursuing higher

studies in India & Abroad was formulated initially in the year 2001 and

modified subsequently from time to time with the objective of facilitating

pursuit of higher studies by meritorious students. The focus was mainly on

technical and professional courses in recognised Colleges and

Universities. The vocational courses offered by ITIs, ITCs, Polytechnics

and other technical institutions / bodies were not covered in the Model

Educational Loan Scheme (some banks do provide loans for pursuing 3 year

diploma courses offered by Polytechnic Institutes). However, in view of the

initiatives being taken by the Govt. of India in skill development in recent

years, a need was felt for providing institutional funding for the students

undergoing specialized skill development programs in recognized

institutions. The Government has estimated that the country would require

10 to 15 million skilled workers every year to support the development

process. The initiatives being taken by the Govt. are for setting up new

33

training facilities, modernization of existing centres and intensive faculty

development. The ―Model Educational Loan Scheme for Vocational

Courses‖ has been developed as an extension of the existing Model

Educational Loan Scheme for pursuing higher education in India & Abroad,

to support the national initiatives for skill development.

Definition

―A loan offered to a student which is used to pay off education-related

expenses, such as college tuition, room and board at the university, or

textbooks. Many of these loans are offered to students at a lower interest

rate, such as the Perkins loan or Stafford loan. In general, students are not

required to pay back these loans until the end of a grace period, which

usually begins after they have completed their education‖

34

Importance of Student Loans

Only because of student loans, most of the students are able to achieve

their higher education goals. The students need not ask for monetary help

from others while they continue their education. Student loans come to their

rescue in meeting with the essential college fees and other educational

expenses. The student may be able to repay the loan borrowed after he gets

a job after completion of his studies. His pride also is improved when he is

able to repay his loan properly. His credit rating also improves.

There are two types of student loans which the students can avail.

Those are:

1. Private student loans

2. Federal student loans

Private student loans are given by private lenders or by the educational

institutions where the student undergoes education. The rate of interest will

be higher than the federal student loan. Federal student loans are provided

by the federal government and the rate of interest may be low or free. So,

the federal Government student loans are more beneficial to the students

looking for a student loan than the private student loan which has high

interest rate.

Student loans play a vital role in helping the students come out of financial

crisis in pursuing their educational dreams. In this economic situation, the

parents of the students find it very difficult to fund their children‘s

35

education. Due to the finance problem, many of the meritorious students

have to quit their education. So, taking student loan can help them in

coming out of this crisis. So, without worrying for their educational

expenses, students can fulfil their educational dreams

36

OVERVIEW OF EDUCATION LOAN

Ever fancy your son attending the Harvard business school? Or, you,

young lady, want to fly an aircraft? Perhaps, you have the admission letter

from your dream university across seven seas; you now only need the

dough...

If the obstacle is cash, an education loan is the answer. The icing on this

cake is that such education loans not only cover the cost of the tuition fee but

also almost all the expenses involved in the pursuit of academics. You just

need a set of eminently gettable documents and a guarantor to set yourself

on the road to academia.

37

QUALIFICATION

Most college students in the United States qualify for federal student

loans. Students can borrow the same amount of money, at the same price,

regardless of their own income or their parents' income, regardless of their

expected future income, and regardless of their credit history. Only students

who have defaulted on federal student loans or have been convicted of drug

offenses are excluded.

The amount students can borrow each year depends on their education level

(undergraduate or graduate), and their status as dependent or independent.

Undergraduates may receive lower interest rates than graduate students, but

graduate students can typically borrow more per year.

Private lenders may use different underwriting criteria, including income

level, parents' income level, and other financial considerations. Students will

generally only borrow from private lenders when they exhaust the maximum

borrowing limit under federal loans. Several scholars have advocated

eliminating the borrowing limit on federal loans and enabling students to

borrow according to their needs (tuition plus living expenses) and thereby

eliminating high-cost private loans

38

REPAYMENT

Federal student loan interest rates are established by Congress and

listed in $ 20 U.S.C. $ 1087E (b). Because the interest rates are established

by Congress, interest rates are a political decision. The federal student loan

program currently runs a multibillion dollar "negative subsidy", or profit, for

the federal government. Some scholars have suggested that federal student

loan interest rates should be tailored to particular courses of study and reflect

the riskiness of those different courses of study. They have also suggested

that the program should be run at cost, or below cost, because of the benefits

an educated workforce provides to society-lower burdens on public services,

lower health costs, higher wages and tax revenues and lower unemployment.

Repayment typically begins anywhere from six to twelve months after a

student leaves school, regardless of whether or not they complete their

degree program. In some cases, repayment begins if course load drops to

39

half time or less, so it is important to check the exact terms and conditions of

any student loan.

The student may have multiple options for extending the repayment period,

although an extension of the loan term will likely reduce the monthly

payment, it will also increase the amount of total interest paid on the

principle balance during the life of the loan. Extension options include

extended payment periods offered by the original lender and federal loan

consolidation. There are also other extension options including income

sensitive repayment plans and hardship deferments. Extensions and

consolidation will also add to the principal, many times unpaid interest and

penalties become capitalized.

The Master Promissory Note is an agreement between the lender and the

borrower that promises to repay the loan. It is a binding legal contract.

40

CRITICISM

Since 2001, India has seen a sharp rise in the number of banks providing

loans to students. There is no longer any need to shelve your plans for

studying in India or abroad if you are a deserving student. You need to be

enrolled in a university of repute or one that is sanctioned by the UGC/All

India Council of Technical Education or any government institute. Loans

usually depend on the chosen course, reputation of the institute, family

assets and past academic record.

A Comprehensive Educational Loan Scheme has been framed by the

University Grants Commission in association with the Reserve Bank of

India. Under this scheme, a deserving candidate

May get up to Rs. 7.5 lakhs as loan for studying in India and Rs. 15

lakhs for studying abroad.

Will not have to pay interests exceeding Prime Lending Rate for loans

up to Rs. 4 lakhs. For loans beyond Rs. 4 lakhs, the student will have

to pay PLR plus one percent. Banks will not ask for collateral or

guarantee either for loans up to 4 lakhs.

Can repay the loan over a span of 5 to 7 years with a grace period of

one year after the completion of studies.

Once you decide to apply for bank loans in India, here are a few points you

should note:

Make sure to choose a bank near your campus

Documents to be submitted

41

1. Attested mark sheet of last qualifying examination for school and

graduate studies in India. Proof of admission to the course.

2. Schedule of expenses for the course.

3. Copies of letter confirming scholarship, etc.

4. Copies of foreign exchange permit, if applicable.

5. 2 passport size photographs.

6. Statement of Bank account of the last six months.

7. Income Tax Assessment order not more than 2 years old.

8. Brief statement of assets and liabilities of borrower.

9. If you are not an existing bank customer, you would also need to

establish your identity and give proof of residence.

10. Copies of passport, air tickets, in case of admission to foreign

university.

42

EDUCATION LOAN IN INDIA

Now, Education Loans are easily available from various banks in

India. Many Nationalized banks are coming up with various Educational

Loan schemes and more students can take up higher education despite of

their financial problem.

Students Loan:

Because of Students Loan the student can follow higher education will get

the good degree for better job in their future. This is very encouraging step

for the students who want to learn and their brighter future.

The list of banks provides education loan in Indian banks are:

1) Bank of India

2) State Bank of India

3) Bank of Baroda

4) Dena Bank

5) HDFC Bank

6) Union Bank of India

7) UCO Bank and so many more banks are giving Educational Loans.

The list of bank provides education loan in abroad banks are:

1) Axis Bank

2) IDBI Bank

43

CHAPTER NO.5

BASIC INTRODUCTION

STATE BANK OF INDIA

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 the re-organised 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 1 July 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.

44

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 Madho Rao Scindia. The bank had been the Dukan Pichadi, a

small moneylender, owned by the Maharaja. The new banks first manager

was Jall N. Broacha, a Parsi. In 1985, 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.

The State Bank of India and all its associate banks are identified by the same

blue keyhole logo. The State Bank of India wordmark usually has one

standard typeface, but also utilises other typefaces.

On October 7, 2013, Arundhati Bhattacharya became the first woman to be

appointed Chairperson of the bank.

45

PUNJAB NATIONAL BANK

Punjab National Bank was registered on 19 May 1894 under the

Indian Companies Act , with its office in Anarkali Bazaar, Lahore. The

founding board was drawn from different parts of India professing different

faiths and a varied back-ground with, however, the common objective of

providing country with a truly national bank which would further the

economic interest of the country. PNB's founders included several leaders of

the Swadeshi movement such as Dyal Singh Majithia and Lala Harkishan

Lal, Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri

Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat

Rai was actively associated with the management of the Bank in its early

years. The board first met on 23 May 1894. Ironically, the PNB Website

now claims Lala Lajpat Rai to be the founding father, surpassing Rai Mul

Raj and Dyal Singh Majithia.The bank opened for business on 12 April 1895

in Lahore.

PNB has the distinction of being the first Indian bank to have been started

solely with Indian capital that has survived to the present. (The first entirely

Indian bank, Commercial Bank, was established in 1881 in Faizabad, but

failed in 1958.)

PNB has had the privilege of maintaining accounts of national leaders such

as Mahatma Gandhi, Shri Jawahar Lal Nehru, Shri Lal Bahadur Shastri,

Shrimati Indira Gandhi, as well as the account of the famous Jalianwala

Bagh Committee.

46

ICICI Bank

ICICI Bank is an Indian multinational banking and financial services

company headquartered in Vadodara. As of 2014 it is the second largest

bank in India in terms of assets and market capitalization. It offers a wide

range of banking products and financial services for corporate and retail

customers through a variety of delivery channels and specialized subsidiaries

in the areas of investment banking, life, non-life insurance, venture capital

and asset management. The Bank has a network of 3,800 branches and

11,162 ATMs in India, and has a presence in 19 countries.

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

India, Punjab National Bank and Bank of Baroda. 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 also established branches in Belgium and

Germany.

In March 2013, Operation Red Spider showed high-ranking officials and

some employees of ICICI Bank involved in money laundering. After a

government inquiry, ICICI Bank suspended 18 employees and faced

penalties from the Reserve Bank of India in relation to the activity

47

HDFC Bank

The Housing Development Finance Corporation Limited (HDFC) was

amongst the first to receive an ‗in principle‘ approval from the Reserve Bank

of India (RBI) to set up a bank in the private sector, as part of RBI‘s

liberalisation of the Indian Banking Industry in 1994. The bank was

incorporated in August 1994 in the name of ‗HDFC Bank Limited‘, with its

registered office in Mumbai, India. HDFC Bank commenced operations as a

Scheduled Commercial Bank in January 1995.

HDFC Bank Limited is an Indian banking and financial services company

based in Mumbai, Maharashtra. It was incorporated in 1994. HDFC Bank is

the fifth largest bank in India by assets. It is the largest bank in India by

market capitalization as of 24 February 2014. As on Jan 2 2014, the market

cap value of HDFC was around USD 26.88B, as compared to Credit Suisse

Group with USD 47.63B. The bank was promoted by the Housing

Development Finance Corporation, a premier housing finance company (set

up in 1977) of India.

As of 31 March 2013, the bank had assets of INR 4.08 trillion.For the fiscal

year 2012-13, the bank has reported net profit of INR 69 billion, up 31%

from the previous fiscal year. Its customer base stood at 28.7 million

customers on 31 March 2013.

48

CHAPTER NO.6

COMPARATIVE ANALYSIS

SBI PNB

Studies in India

Graduation, Post-graduation

including regular technical and

professional Degree/Diploma

courses conducted by

colleges/universities approved

by UGC/ AICTE/IMC/Govt. etc

Regular Degree/ Diploma

Courses conducted by

Autonomous Institutions like

IIT, IIM etc

Teacher Training/ Nursing

Courses approved by Central

Government or the State

Government

Regular Degree/Diploma Courses

like Aeronautical, Pilot Training,

Shipping etc. approved by

Director General of Civil

Aviation/Shipping

Vocational Training and Skill

Development Study Courses will

Approved courses leading to

Graduate/ Post Graduate

degree and PG Diplomas

conducted by recognized

colleges/ universities

recognized by UGC/ Govt./

AICTE/ AIBMS/ ICMR etc.

Courses like ICWA, CA, CFA

etc.

Courses conducted by IIMs,

IITs, IISc, XLRI. NIFT, NID

etc.

Regular Degree/Diploma

courses like Aeronautical, pilot

training, shipping, nursing etc.,

approved by Director General

of Civil Aviation/Shipping, if

the course is pursued in India.

Approved courses offered in

India by reputed foreign

universities.

49

not be covered under the regular

Education Loan Schemes. A

separate scheme for ‗Loans for

Vocational Education and

Training‘ has been launched

which covers financing for such

Vocational courses

Admission under Management

Quota may also be considered.

for studying part-time job

oriented courses (evening

classes or otherwise), which

are approved/recognized by

the regulatory body/ authority.

Job oriented specialized

programmes like maritime

courses which are offered in

collaboration with foreign

institutions and may not be

having recognition in India.

Studies abroad

Job oriented professional/

Technical Graduation Degree

courses/ Post Graduation

Degree and Diploma courses

like MCA, MBA, MS, etc

offered by reputed

universities

Graduation: For job oriented

professional/technical courses

offered by reputed universities.

Post graduation: MCA, MBA,

MS, etc.

Courses conducted by CIMA-

London, CPA in USA etc.

Degree/Diploma courses* like

aeronautical, pilot training,

shipping etc. provided these

are recognized by competent

50

regulatory bodies in

India/abroad for the purpose of

employment in India/abroad.

*Diploma Course and certificate

courses shall not be covered under

the eligible courses for study abroad

except as mentioned above.

Margin

For loans up to Rs.4.0 lacs : No Margin

For loans above Rs.4.0 lacs:

Studies in India: 5%

Studies Abroad: 15%

Upto Rs.4.00 lacs-Nil.

Above Rs.4.00 lacs:

Studies in India: 5%

Studies Abroad: 15%

Expenses considered for loan

Fees payable to

College/School/Hostel

Examination/Library/Laboratory

fees

Purchase of

Books/Equipment/Instruments/U

niforms, Purchase of computers-

essential for completion of the

course (maximum 20% of the

total tuition fees payable for

Fee payable to College / School

/ Hostel

Examination / Library /

Laboratory fee.

Purchase of books / equipments

/ instruments / uniforms.

Caution Deposit / Building Fund

/ Refundable Deposit supported

by Institution Bills / Receipts

Travel Expenses / Passage

51

completion of the course)

Caution Deposit/Building

Fund/Refundable Deposit

(maximum 10% tuition fees for

the entire course)

Travel Expenses/Passage money

for studies abroad

Cost of a Two-wheeler up to Rs.

50,000/-

Any other expenses required to

complete the course like study tours,

project work etc.

money for studies abroad.

Purchase of computers at

reasonable cost, if required for

completion of the course.

Insurance premium for student

borrower, if applicable

Any other expense required to

complete the course - like

study tours, project work,

thesis etc.

Amount of Loan

For studies in India, maximum

Rs. 10 lac.

Studies abroad, maximum Rs. 30

lacs

For studies in India: Maximum

Rs.10.00 lacs.

For studies abroad: Maximum

Rs.20.00 lacs.

Rate of Interest

For loans up to Rs.4 lacs -

13.50% p.a.

Above Rs.4 lacs and up to

Rs.7.50 lacs - 13.75% p.a.

Loans upto Rs 4 lac - 13.25%

Loans over Rs 4 lac & upto Rs

7.50 lac - 14.25%

52

Above Rs.7.50 lacs - 11.75% p.a. Loans over Rs 7.50 lac -

12.25%

Loans up to Rs 20 lac -

11.25%

Repayment

Up to Rs. 4 Lacs - 5-7 years

Above Rs. 4 Lacs and up to Rs.

7.5 Lacs - 5-7 years

Above Rs. 7.5 Lacs - Up to 12

years

For loans up to Rs.7.50 lakh-

up to 10 years

For loans above Rs.7.50

lac - upto 15 years

Security

Up to Rs. 4 lacs loan amount -

Only Parent/ Guardian as co-

borrower

Above Rs. 4 lacs to Rs. 7.50 lacs

loan amount - Parent/ Guardian as

co-borrower and Collateral

security in the form of suitable

third party guarantee.

Third Party Guarantee can be replaced

with Parent/Guardian as co-borrower

provided the Gross Annual Income of

Parent/Guardian (co-borrower) as given

in latest Income Tax Return is 3 times

of the loan amount.

Up to Rs.4.00 lacs -

Parent(s)/guardian be made

joint borrower (s). No Security

Above Rs 4.00 lacs and Up to

Rs 7.5 lacs - Besides the

parent(s)/guardian executing

the documents as joint

borrower(s), collateral security

in the form of suitable third

party guarantee will be taken.

53

Above Rs. 7.50 lacs loan amount

- Parent/ Guardian as co-borrower

and tangible collateral security

In case of married person, co-obligator

can be either spouse or the parent(s)/

parents-in-law

Above Rs 7.5 lacs -

Parent(s)/guardian be joint

borrower(s).Tangible collateral

security of suitable value

acceptable to bank along with

the assignment of future

income of the student for

payment of installments

The security can be in the form of

land / building / Govt. Securities /

Public Sector Bonds, NSC, LIC

Policy, Gold, Shares/ Mutual Funds/

Debentures, Bank Deposit in the

name of the student parent / guardian

or any other third party or any other

tangible security acceptable to the

bank with suitable Margin.

Documentation Required

Completed Education Loan

Application Form.

Mark sheets of last qualifying

examination

Proof of admission scholarship,

studentship etc

Schedule of expenses for the

Loan application on Bank's

format.

Passport size photograph

Proof of Address

Proof of Age.

Proof of having cleared last

qualifying examination.

54

specified course

2 passport size photographs

PAN Card of the student and the

Parent/ Guardian

Borrower's Bank account

statement for the last six months

Income tax Returns/ IT

assessment order, of last 2 yrs (If

IT Payee)

Brief statement of assets and

liabilities, of the Co-borrower

Proof of Income (i.e. Salary slips/

Form 16 etc. if applicable)

Letter of admission in

professional, technical or

vocational courses.

Prospectus of the course

wherein charges like

Admission Fee, Examination

Fee, Hostel Charges etc. are

mentioned.

Photocopy of Passport & Visa, in

case of study abroad.

Copy of PAN of student

Borrower (If PAN is not

available at the time of

sanction, the same be obtained

within one year of

disbursement of loan).

55

ICICI HDFC

Studies in India

Courses leading to graduate/ post

graduate degree and PG

diplomas conducted by colleges/

universities recognized by UGC/

Govt./ AICTE/ AIBMS/ ICMR

et shall be approved. A list of

such courses is provided as blow:

Professional Courses like ICWA,

CA, CFA etc.

Regular degree/diploma courses

like aeronautical, pilot training,

shipping.approved by Director

General of Civil

Aviation/Shipping.

Approved courses offered in

India by reputed foreign

universities.

Teacher Training/Nursing/B.Ed.

courses (provided the training

institutions are approved either

by the Central Government or by

State Government and such

courses should be a degree or

diploma course and not a

certification courses).

Management Courses (Full-

Time) – Graduation + Post

Graduation

Engineering Courses

( Government + Private ) -

Graduation

Medicine - Graduation + Post

Graduation

Masters in Computer

Application ( MCA / MCM )

Architecture - Graduation +

Post Graduation

Hotel and Hospitality -

Graduation + Post Graduation

Agriculture - Graduation +

Post Graduation

Pure Science - Graduation +

Post Graduation

56

Studies abroad

Undergraduate Courses: Valid

for job oriented professional/

technical courses offered by

reputed universities.

Post Graduate Courses: Courses

such as MCA, MBA, MS, etc and

courses conducted by CIMA-

London, CPA in USA etc.

Degree/Diploma courses:

Courses such as aeronautical,

pilot training, shipping etc are

also valid (provided these are

recognized by competent

regulatory bodies in

India/abroad for the purpose of

employment in India/abroad).

Management Courses (Full-

Time)

Engineering Courses

Medicine - Graduation + Post

Graduation

Masters in Computer

Application ( MCA / MCM )

Architecture

Hotel and Hospitality

Agriculture

Pure Science

Margin

Upto Rs 4 lacs : Nil.

Above Rs 4 lacs : Studies in

India 5% Studies Abroad 15%.

Upto Rs 4 lacs : Nil.

Above Rs 4 lacs : Studies in

India 5% Studies Abroad 15%.

Expenses considered for loan

Fee payable to college/ school/ Exam/Library/Lab fees

57

hostel.

Examination/ Library/

Laboratory fee.

Travel expenses/ passage money

for studies abroad.

Insurance premium for student

borrower, if applicable.

Caution deposit, Building

fund/refundable deposit

supported by Institution

bills/receipts.

Purchase of books/ equipments/

instruments/ uniforms.

Purchase of computers –

essential for completion of the

course.

Any other expense required to

complete the course – like study

tours, project work, thesis, etc.

Caution deposit / Refundable

deposit asked by the institution

/ Building fund - supported by

Institution bills / receipts

Purchase of Books /

equipments / instrument /

uniforms

Travel expenses / passage

money for studies abroad

Purchase of computers -

essential for completion of the

course

Insurance

Miscellaneous expenses related

to the course - like study tours,

project work, thesis, etc.

Amount of Loan

Studies in India – Maximum

Rs.10.00 lacs.

Studies abroad – Maximum

Rs.20.00 lacs.

Studies in India – Maximum

Rs.10.00 lacs.

Studies abroad – Maximum

Rs.20.00 lacs.

58

Rate of Interest

4 Lakhs- 14% p.a

4 lakhs to 7.5 lakhs- 18% p.a

Above 7.5 lakh – up to 18% p.a

4 lakh-14%

4 lakhs to 7.5 lakhs -18%

Above 7.5 lakh – upto 24%

Repayment

The repayment holiday shall be a

year more than the period of the

course or 6 months after the

borrower gets a job, whichever is

earlier.

The loan shall be repaid in 5 – 7

years after commencement of

repayment

Prepayment permitted without

any charges.

Students, who will get HDFC

Education loan, have to re pay

the loan amount after 1 year

completing the course or 6

months after getting the job.

Payment starts after 1year

completion of course or 6

months after getting the job.

Security

Loans Upto Rs 4 lacs – Co

obligation of parents.

Further wherever parents are not there

banks could consider grandparent as co

obligator to the loans taking into

account their net worth.

Above Rs 4 lacs and upto Rs. 7.5

Student/Applicant must be an

Indian citizen

Student must have at least 16

years and the maximum age

limit is 35 years

For more than 7.5 lakhs of

Education loan, third party

59

lacs.

Co obligation of parents along with

Collateral in the form of a suitable third

party guarantee for 100% of the loan

amount to be taken.

For cases above Rs 7.5 lacs.

Co obligation of parents along with

Collateral security of 100% value of

loan.

Assignment of future income of the

student for payment of the loan

instalments for all loans.

The co-obligator should be

parent(s)/guardian of the student

borrower. In case of married person,

co-obligator can be either spouse or the

parent(s)/parents-in-law.

guarantee required

Loan will be sanction based on

Income of Student‘s

Parent/Spouse/Siblings

Documentation Required

Students have to submit the

following documents to get

ICICI Bank Education loan.

Candidates have to fill the ICICI

To get approval have to show

the Residential Property,

HDFC Fixed Deposits, LIC,

NSC and other possible

documents.

Bank Education loan application Academic- Institute Admission

60

form and must include relevant

necessary documents of latest

last 2 months salary slip of

parent and income tax

assessment sheet. Student have

to attach one set of Education

qualification certificates of

his/her last studies like 10th class

and Intermediate etc. you can

have the complete details on

ICICI Bank Education loan

documents need to submit to

approve/get loan.

Income Proof-Any either salary

slip/other, Residency proof

Education Certificates of SSC,

Intermediate and other

necessary, if required.

Income tax assessment of last 2

years

Last 6 months of Bank account

balance sheet

Latest 2 passport Photo graphs

Admissions proof in college

Passport/Visa

Letter with fee break-up: USA

Applicant: I-20 Form and UK

Applicant: CAS Letter

SSC, HSC, Graduation mark

sheets and also mark sheet of

any entrance exam like

GRE/GMAT/TOFEL/IELTS

Age Proof,Signature Proof,

Identity Proof,Residence Proof

Signature verification-

Student/Co-Applicant like:

PAN Card, Passport, Credila‘s

completed signature

Authentication form

Authenticate by Bank or

10th/12th or equivalent mark

sheet with signature for student

below 21 years.

Income Documents

Completed Application Form

Latest Photograph (Signed

Across Any document for

establishing relationship between

student and the co-applicant viz.

61

CHAPTER NO.7

COMPARITIVE STUDY

7.1COMPARITIVE STUDY OF EDUCATION LOAN

SANCTIONED PANJAB NATIONAL BANK & STATE

BANK OF INDIA IN 2013-14

BANK INTREST RATE UP TO 4 LACS

SATE BANK OF INDIA 13.50% PUNJAB NATIONAL BANK 13.25%

In the above table we can see the intrest rate of education loan PUNJAB

NATIONAL BANK & STATE BANK OF INDIA. Punjab national bank is

13.25 & SBI is 13.50% p.a...The intrest rate of loan amount up to 4 lacs

there is no security required. The actual interst rates at which an individual

will be able to get a education loan depend on individual financial profile &

negotiating ability.

SBI13.10%

13.15%

13.20%

13.25%

13.30%

13.35%

13.40%

13.45%

13.50%

INTEREST RATE UPTO 4LACS

SBI

PNB

I

62

COMPARITIVE STUDY OF EDUCATION LOAN

SANCTIONED PANJAB NATIONAL BANK & STATE

BANK OF INDIA IN 2013-14

BANK INTREST RATE UP TO 4 LACS

TO 7.5 LACS

SATE BANK OF INDIA 13.75% PUNJAB NATIONAL BANK 14.25%

In the above table we can see the intrest rate of education loan PUNJAB

NATIONAL BANK & STATE BANK OF INDIA. Punjab national bank is

14.25% & SBI is 13.75% p.a...The intrest rate of loan amount above

Rs.4lacs & up to Rs.7.5 lacs there is no security required. The actual interst

rates at which an individual will be able to get an education loan depend on

individual financial profile & negotiating ability.

SBI

PNB

13.50%

13.60%

13.70%

13.80%

13.90%

14.00%

14.10%

14.20%

14.30%

INTEREST RATE UP TO 4LACS TO 7.5 LACS

SBI

PNB

63

COMPARITIVE STUDY OF EDUCATION LOAN

SANCTIONED PANJAB NATIONAL BANK & STATE

BANK OF INDIA IN 2013-14.

BANK INTREST RATE ABOVE 7.5

LACS

SATE BANK OF INDIA 11.75% PUNJAB NATIONAL BANK 12.25%

In the above table we can see the intrest rate of education loan PUNJAB

NATIONAL BANK & STATE BANK OF INDIA. Punjab national bank is

12.25% & SBI is 11.75% p.a...The intrest rate of loan amount above

Rs.7.5lacs there is security required. The actual interst rates at which an

individual will be able to get an education loan depend on individual

financial profile & negotiating ability.

11.50%

11.60%

11.70%

11.80%

11.90%

12.00%

12.10%

12.20%

12.30%

INTREST RATEABOVE 7.5 LACS

SBI

PNB

64

7.2 COMPARITIVE STUDY OF EDUCATION LOAN

SANCTIONED ICICI BANK & HDFC BANK OF INDIA IN

2013-14

BANK INTREST RATE UP TO 4 LACS

ICICI 14% HDFC 14%

In the above table we can see the intrest rate of education loan ICICI BANK

& HDFC BANK. ICICI is 14% & HDFC is 14% p.a. The intrest rate of

loan amount up to 4 lacs there is no security required. The actual interst rates

at which an individual will be able to get a education loan depend on

individual financial profile & negotiating ability.

ICICI0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

INTEREST RATE UPTO 4LACS

ICICI

HDFC

I

65

COMPARITIVE STUDY OF EDUCATION LOAN

SANCTIONED ICICI BANK & HDFC BANK OF INDIA IN

2013-14

BANK INTREST RATE UP TO 4 LACS

TO 7.5 LACS

ICICI 18.% HDFC 18.50%

In the above table we can see the intrest rate of education loan ICICI BANK

& HDFC BANK. ICICI is 18% & HDFC is 18.50% p.a. The intrest rate of

loan amount above Rs.4lacs & up to Rs.7.5 lacs there is no security required.

The actual interst rates at which an individual will be able to get an

education loan depend on individual financial profile & negotiating ability.

ICICI

HDFC

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

INTEREST RATE UP TO 4LACS TO 7.5 LACS

ICICI

HDFC

66

COMPARITIVE STUDY OF EDUCATION LOAN

SANCTIONED ICICI BANK & HDFC BANK OF INDIA IN

2013-14

BANK INTREST RATE ABOVE 7.5

LACS

ICICI 18% HDFC 24%

In the above table we can see the intrest rate of education loan ICICI BANK

& HDFC BANK. ICICI Bank is 18% & HDFC is 24% p.a. The intrest rate

of loan amount above Rs.7.5lacs there is security required. The actual interst

rates at which an individual will be able to get an education loan depend on

individual financial profile & negotiating ability.

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

INTREST RATEABOVE 7.5 LACS

ICICI

HDFC

67

CHAPTER NO.8

FINDINGS BANK STRATEGY OF EDUCATION LOAN

1. Frequent changes in regulation made by central bank affect the banks to a

larger extent because banks has to follow according to the directions given

by the central bank which reduces the profit of the bank.

2. Now a days banks cannot charge their own management interest rates

they are force to look the market and follow according to the RBI rules and

regulations, this has unable them to balance both the income and expenses

,for eg., now the fixed deposit interest rate is 10.5% and is housing loan

interest rate is 8.5%, they have the bear the loss of -2% which the banks

have to pay themselves.

3. Middle class people cannot afford to the current interest rate, it is too

expensive for them. 4. Procedures for applying the loan is very time

consuming , lengthy and very complicated.

5. Inflation has also affected the banks indirectly.

6. Political pressures.

7. Sanctioning of loan is not easy, it takes longer time.

8. Misappropriation in the bank.

68

CHAPTER NO.9

SUGGESTION AND RECOMMENDATION

Suggestion and recommendation Banks should go for advertisement

Campaign from Scratch. Banks should try to cash its brand image. Strong

branch network should be made and staff personnel‘s incentives should be

increased. Banks should increase its product line in education loans. Special

scheme for non-professional students as well as for professional students

should be increased. Banks should introduce some new model keeping in

mind the loan suitable for medium income group customer. Presence of

some famous personality in Advertisement or in Pamphlet‘s insuring better

retention in the mind of customers. In this age of information, the customer

before taking loans collects all the information about various brands. The

banks should provide a combined booklet of the product range in order to

upgrade the knowledge of future takings of loans.

69

CHAPTER NO.10

CONCLUSION

Conclusion On the basis of above findings and comparison among PNB

& SBI And ICICI & HDFC it is clearly observe that public banks have

more reach, variety and flexibility in their education loan schemes than

private banks. Maximum loan for studies in India is ranging from Rs. 7.50

lacs to 10.00 lacs and for studies in Abroad it is Rs. 15-20 lacs by public and

private banks. Interest rates are vary from 10.25% to 15% p.a in public and

14%-24% in private bank. All banks have same repayment facility i.e. one

year after completion of course or 6 months after securing a job, whichever

is earlier. Repayment period is also vary from 5-7 year after commencement

of repayment. Margin is same in both private and public bank i.e. Upto Rs.

4.00 lacs : Nil Above Rs. 4.00 lacs : Studies in India 5% Studies in Abroad

15% .

70

CHAPTER NO.11

BIBILIOGRAPHY

Books referred:-

E.Dharmaraj ―Financial Services‖, 1st edition.

K.D. Basava ―Elements of Indian economics‖ page no 10.5 12th edition of

loan compendium- retail banking schemes.

Websites:-

www.pnb .com

www.statebankofIndia.com

www.icicibank.com

www.hdfcbank.com

www.apnaloan.com

www.deals4loan.com