Project Union Bank of India

INDUSTRY INTRODUCTION

What is Banking?

The Banking Regulation Act 1949 defines banking as “Accepting, for the purpose of lending or investment, of deposits of money from the public repayable on demand or otherwise and withdrawal by cheque draft, order or otherwise”. In addition, banks also offer financial services, which include:

Issuing demand draft & traveler’s cheque. Credit cards Collection of cheques, bill of exchange. Safe deposit lockers Custodian services. Investment and Insurance Services.

The business of banking is highly regulated since banks deal with money offered to them by the public and ensuring the safety of this public money is one of the prime responsibilities of any bank. That is why banks are expected to be prudent in their leading and investment activities.

Every bank has a compliance department, which is responsible to ensure that all the services offered by the bank, and the processes followed are in compliance with the local regulations and the Bank’s corporate police

The major regulations and act governing the banking business are:-

Banking Regulation Act, 1949 Foreign Exchange Management Act,1999 Indian Contract Act Negotiable Instruments Act, 1881

Bank lend money either for productive purposes to individual, firms, Corporate etc. of for buying house property, cars and other consumer durables and for investment purposes to individuals and the others. However, banks do mot finance

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Annual Report 2009-2010

any speculative activity. Lending is risk taking. The Depositor of banks is also assured of safety of their money by deploying some percentage of deposit in statutory reserves like SLR & CLR.

BANKING INDUSTRY

Banking System

Banking system is an integral sub-system of the financial system. It represent an important channel of collecting small saving from the households and ending it to the corporate sector.

The Indian Banking system has the Reserve Bank of India (RBI) as the apex body for all matters relating to the banking system. It is the comucopia of Banks of India and bankers to all others banks as well.

Classification of Banks

1. Non-Schedule Banks These are banks, which are not included in the second schedule of the

Banking Regulations Act, 1965. It means they do not satisfy the conditions laid down by that schedule. They are further classified as back:

Central co-operative banks and primary credit societies Commercial Banks

2. Schedule Banks Must have paid-up capital and reserve of mot less than Rs. 50,00,000. The must satisfy the RBI than its affairs are mot conducted in a manner detrimental to the interests of its depositors. These are further classified as follow:

State co-operative Banks Commercial Banks

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COMPANY PROFILE

Union Bank of India (UBI) is one of India's largest state-owned banks (the government owns 55.43% of its share capital), is listed on the Forbes 2000. It has assets of USD 13.45 billion and all the bank's branches have been networked with its 1135 ATMs. Its online Telebanking facility is available to all its Core Banking Customers - individual as well as corporate. It has representative offices in Abu Dhabi, United Arab Emirates, and Shanghai, Peoples Republic of China, and a branch in Hong Kong

The Union Bank of India was built up in twentieth century and declared open by the Father of the Nation, Mahatma Gandhi. The bank with its efficient value-added services, sustained growth, consistent profitability and development of new technologies bank has ensured complete customer delight, living up to its image of, “GOOD PEOPLE TO BANK WITH”. Bank is offering credit cards, home loan, union demat, Kisan ATM, International debit card, online tax payment facility, Railway e-ticketing kiosk, etc., services to its customers through core banking solution.

The Union Bank of India has 2261 branches out which 1031 branches are under CBS. All the ATMs are inter-connected through the Bank’s ATM Switch, thus facilitating on-line operations in case of CBS customers. The Bank is a member of Cash Tree consortium and also has bilateral arrangement with State Bank of India, enabling the Bank’s ATM cardholder access to over 20000 ATMs across the country. UBI Net connects 65 Offices and 984 branches located in 323 centers, facilitating speedier transmission of MIS data (Network Map). The network also facilitates the implementation of Core Banking Solution, apart from DEMAT services, Cash Management services, fund transfers, messaging system, etc. The Bank is using VSAT network for connecting branches and ATMs

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wherever leased line connectivity is not feasible. We have 590 VSATs operational, connecting 194 branches/extension counters and 316 ATMs.

PRODUCTS AND SERVICES

UNION BANK OF INDIA provides various types of product and services .The wide range of product and services consists of

BANKING

Accounts & Deposits – cumulative deposit scheme, deposit reinvestment certificate, monthly income scheme, union flexi-deposit, senior citizens scheme, multi gain savings account, no frills saving account, union super salary account, union classic current account

Retail Loans – union cash, union home, union health, union miles, union education, union top up, EMI calculator, union smile.

Cards - Classic / Silver / Gold, Corporate Credit Cards, Add-On Cards Insurance & Investment – mutual fund, union healthcare Demit – demit accounts, online share trade Payment

NRI Banking

Remittance - Union E-Remit, Details for Remittance Savings & Deposits - NRO Non Resident Ordinary A/c Scheme, NRE Non

Resident External Rupee, RFC, FCNR(B), Union Unfixed, Foreign Currency Deposit

Loan & Services – house loans, foreign currency loans, loans against deposit, immovable property, and shares or debenture

Payments - Union Bill Pay

Corporate Banking

CMS - Union Speed, Union Centralized Debits/Credits, Union Prompt

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E-Tax - Customs and Direct taxes, DGFT, Central Excise and Service Tax Trade Finance – trade finance for exporters, trade finance for importers,

foreign currency loans, correspondent banking Insurance - Non life Insurance – Corporate Agency, Insurance- Corporate

Agency Syndication of Loans MSME Banking Loans & Policies

Internet Banking

Account Information Transfer of Funds Bills Requests Mails Trade Limits Currency Uploads Customization Financial enquiries Non Financial enquiries

Vision & Mission

VISIONTo be the premier financial institution in the emerging marketsTechnologically StrongFinancially SoundAll India presencePersonalized Services

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Value MaximizationEmployee SatisfactionSkill Maximization

MISSIONTo be premiere bank, responsive to the needs of our target market customers, recognized for consistently superior service quality innovative products, thereby delivering superior value to our shareholders

FINANCIAL PERFORMANCE HIGHLIGHT of 2009-2010

Total Business size of Rs. 2, 91,289 crore as on March 31, 2010 – an increase of 22.9% over previous year.

Total Deposits of Rs. 1, 70,040 crore, an increase of 22.6%. CASA deposits grew at 29.4%, its share increased by 166 basis points to 31.73%.

Total Advances of Rs. 1, 21,249 crore, an increase of 23.4%. Retail advances grew at 33.8%

Net Profits of Rs. 2,075 crore, an increase of 20.2% over the previous year. Core Fee Income of Rs. 896 crore, an increase of 32.74% over the previous

year. Capital Adequacy Ratio (Basel II CAR) stood at 12.51% as on March 31,

2010 as against regulatory minimum of 9.0%. Tier I ratio at 7.91%. Return on average assets 1.25%. Return on equity recorded at 23.69%. Book Value per share of Rs. 173.38, an increase of 25.6% over the previous

year. Earnings per share increased to Rs. 41.08, compared to Rs. 34.18 of

previous year. Cost to Income ratio of 40.66%, reduced by 115 basis points over the

previous year.

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Proposed Dividend up from 50% to 55%. Pan India reach - Network of 2,805 branches and 2327 ATMs as on March

31, 2010. Global Expansion: Opened representative offices in Sydney (Australia) and

Beijing (China). Representative office in London opened on April 1, 2010.

1. As on March 31, 2010, Total Business of the bank stood at Rs. 2.91 lakh crore as against Rs. 2.37 lakh crore as on March 31, 2009, an increase of 22.9%. The

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business growth was broad-based with contribution from retail and corporate customers, both on assets and liabilities side.

2. The Bank posted a total income and net profit of Rs. 15,277 crore and Rs. 2,075 crore respectively for the financial year ended March 31, 2010 as against Rs. 13372 crore and Rs. 1727 crore respectively in the previous year. The Earning per share (EPS) ratio showed improvement to Rs. 41.08 as against Rs. 34.18 in the previous year, while cost to income ratio declined to 40.66% as against 41.81% in the previous year.

Objective of the study

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The objective of the study was to know the financial performance (i.e. the profitability and financial position) of Union Bank of India for the financial year 2009-2010.

Some other objectives were as follows:

To study the evaluation and performance of the bank. To study the financial statement. To study the source of finance of the bank.

Scope of the study

Each and every project study along with its certain objectives also has scope for future. And this scope in future gives to new researches a new need to research a new project with a new scope. Scope of the study not only consist one or two future business plan but sometime it also gives idea about a new business which becomes much more profitable for the researches then the older one.

Scope of the study could give the projected scenario for a new successful strategy with a proper implementation plan. Whatever scope I observed in my project are not exactly having all the features of the scope which I described above but also not lacking all the features –

Research study could give an idea of network expansion for capturing more market and customer with better services and lower cost, without compromising with quality.

In future customer requirements could be added with the product and services for getting an edge over competitors.

Different parameter could also be used for the purpose of launching a new product with extra benefits which are required by customers.

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Factors which are responsible for the performance for bank can also be used for the modification of the strategy and product for being more profitable.

These all could also be interchanged with each other for each other in banks strategies for making a final business plan to affect the market with a positive way without disturbing a lot to market, customers and competitors with disturbance in market shares.

Role of Banks

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A proper financial sector is of special importance for the economic growth of developing and underdeveloped countries. The commercial banking sector which forms one of the backbones of the financial sector should be well organized and efficient for the growth dynamics of a growing economy. No underdeveloped country can progress without first setting up a sound system of commercial banking. The importance of a sound system of commercial banking for a developing country may be depicted as follows:

Capital Formation: The rate of saving is generally low in an underdeveloped economy due to the existence of deep-rooted poverty among the people. Even the potential savings of the country cannot be realized due to lack of adequate banking facilities in the country. To mobilize dormant savings and to make them available to the entrepreneurs for productive purposes, the development of a sound system of commercial banking is essential for a developing economy.

Monetization: An underdeveloped economy is characterized by the existence of a large non monetized sector, particularly; in the backward and inaccessible areas of the country. The existence of this non monetized sector is a hindrance in the economic development of the country. The banks, by opening branches in rural and backward areas, can promote the process of monetization in the economy.

Innovations: Innovations are an essential prerequisite for economic progress. These innovations are mostly financed by bank credit in the developed countries. But the entrepreneurs in under developed countries cannot bring about these innovations for lack of bank credit in an adequate measure. The banks should, therefore, pay special attention to the financing of business innovations by providing adequate and cheap credit to entrepreneurs.

Finance for Priority Sectors: The commercial banks in underdeveloped countries generally hesitate in extending financial accommodation to such sectors as agriculture and small scale industries, on account of the risks involved there in. They mostly extend credit to trade and commerce where the risk involved is far

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less .But for the development of these countries it is essential that the banks take risk in extending credit facilities to the priority sectors, such as agriculture and small scale industries.

Provision for Medium and Long term Finance: The commercial banks in underdeveloped countries invariably give loans and advances for a short period of time. They generally hesitate to extend medium and long term loans to businessmen. As is well known, the new business need medium and long term loans for their proper establishment. The commercial banks should, therefore, change their policies in favor of granting medium and long term accommodation to business and industry.

Cheap Money Policy: The commercial banks in an underdeveloped economy should follow cheap money policy to stimulate economic activity or to meet the threat of business recession. In fact, cheap money policy is the only policy which can help promote the economic growth of an underdeveloped country. It is heartening to note that recently the commercial banks have reduced their lending interest rates considerably.

Need for a Sound Banking System: A sound system of commercial banking is an essential prerequisite for the economic development of a backward country.

Role of Banks in Indian Economy

In India, as in many developing countries, the commercial banking sector has been the dominant element in the country’s financial system. The sector has performed the key functions of providing liquidity and payment services to the real sector and hasaccountedfortheBulkofthefinancialintermediationprocess.Besidesinstitutionalizingsavings, the banking sector has contributed to the process of economic development by serving as a major source of credit to households, government, and business and to weaker sectors of the economy like village and small scale

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industries and agriculture. Over the years, over 30-40% of gross household savings have been in the form of bank deposits and around 60% of the assets of all financial institutions accounted for by commercial banks.

An important landmark in the development of banking sector in recent years has been the initiation if reforms following the recommendations of the first Narasimham Committee on Financial System. In reviewing the strengths and weaknesses of these banks, the Committee suggested several measures to transform the Indian banking sector from a highly regulated to a more market oriented system and to enable it to compete effectively in an increasingly globalised environment. Many of the recommendations of the Committee especially those pertaining to Interest rate, an institution of prudential regulation and transparent accounting norms were in line with banking policy reforms implemented by a host of developing countries since 1970‟s.

Role of Central Bank (RBI)

The main objectives for the establishment of the Central Bank were as follows:

To manage the monetary and credit system of the country. To stabilize internal and external value of rupee For balanced and systematic development of banking in the country For the development of organized in the money market in the country. For proper arrangement of agriculture finance. For proper arrangement of Industrial Finance. To establish monetary relations with other countries of the world &

international financial institutions. For proper management of public debts. For centralization of cash reserves of commercial bank.

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Market Price, Volume of shares traded in Stock Exchanges

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Total Capital Adequacy ratio (CAR), calculated in line with Basel II framework, and stood at 12.51%, well above the regulatory benchmark of 9%. Bank s Tier-I CAR was 7.91%.

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The operating expenses stood at Rs. 2508 crore compared to Rs. 2214 crore, relatively a lower growth of 13.28% compared to 38.98% growth in previous year.

The operating profit of the Bank registered a growth of 18.72% to Rs. 3659 crore from Rs. 3082 crore in the previous year.

Profit after tax net profit increased to Rs. 2075 crore compared to Rs. 1727 crore achieved during last year. Buoyancy in the core business operations supported by a healthy growth in Non-Interest Income helped Bank achieve a 20.15% growth in net profit. Bank s operating profit and net profit CAGR during the financial year 2006- 07 to 2009-10 is at 22.3% and 34.9% respectively.

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Net-worth improved by 25.76% to Rs. 8758 crore from Rs. 6964 crore as reported during last year. The book value per share increased to Rs. 173.38 from Rs. 137.87. The return on equity stood at 23.69% and earnings per share increased to Rs. 41.08 from Rs. 34.18 reported during last year. The earnings per share grew at CAGR of 34.9% during FY07 to FY10.

Efficient utilization of assets is reflected through higher than industry average and stable Return on Average Assets and reduction in cost to income ratios. The return on average assets is maintained at a healthy rate of 1.25% as on March 31, 2010. Cost to Income ratio has decreased by 115bps to 40.66% as compared to 41.81% reported during last year, even though Bank continued to invest in capacity building for future earnings including investment in delivery channels and human resources. Operating Expenses to Average Working Fund has also reduced to 1.52% from 1.63% recorded during last year.

The following ratios reflect the productivity per employee and branch each ratio shows significant improvement over a period of three years.

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Findings

Total Capital Adequacy ratio (CAR), stood at 12.51%, well above the regulatory benchmark of 9%.

Profit after tax net profit increased to Rs. 2075 crore compared to Rs. 1727 crore achieved during last year.

The operating expenses registered a lower growth of 13.28% compared to 38.98% growth in previous year. The operating profit of the Bank registered a growth of 18.72%.

Net-worth improved by 25.76%.

The return on equity stood at 23.69% and earnings per share increased to Rs. 41.08 from Rs. 34.18.

. Cost to Income ratio has decreased by 115bps to 40.66% as compared to 41.81% reported during last year.

The return on average assets is maintained at a healthy rate of 1.25% as on March 31, 2010.

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Conclusion

The economy of the country is booming and with the investment favorable policies

and their smooth implementation, the role of banks in today’s economy has

become an important one.

The banking industry is also reaping the fruits of this economic boom by growing

rapidly over the past few years. There are a number of mergers happening in the

economy with foreign investment coming into the banking sectors.

The services that union bank provides have a great market penetration not only

because of their features but also the profit and markup rates that they charge.

Furthermore, as the bank is growing, the number of employees at union bank are

also increasing, which shows that union bank is being considered as an employer,

that provides its employees with a challenging environment to work in, where they

can harness their full potential and shows confidence as an employer by the

employees of the bank.

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Project Union Bank of India

Documents

Transcript of Project Union Bank of India