A SUMMER TRAINING PROJECT REPORT ON
ALTERNATIVE REVENUE SOURCES FOR IDBI BANK
CONDUCTED AT
IDBI BANK UDAIPUR
Submitted in partial fulfillment for the award of degree of “Master of Business Administration”
(Session 2011-2013) In
Faculty of Management Studies MohanlalSukhadiaUniversity Udaipur
Under Guidance of: Dr. Anil Kothari
Submitted By: Divya Narayan MBA- FSM III Sem.
DECLARATION
I, undersigned DIVYA NARAYAN hereby declare that the project report entitled “Alternative Revenue Sources For IDBI Bank”under the guidance of Mr.Aniket submitted in partial fulfillment of the requirements for the award of the degree of Master of Business Administration, at Faculty of management studies, Udaipur (Rajasthan) is my original work. This study was carried out during summer training period and not submitted for the award of any other degree/diploma/fellowship or other similar titles or prizes to any other Institution/Organization or university by any other person.
Place: Udaipur
Divya Narayan MBA-FSM III Sem
PREFACE
There are 4 steps to Accomplishment & Success – Plan, Purposefully, Prepare thoroughly, Proceed Positively & Pursue Persistently.
In this development and changing world, I feel proud for being a student of M.B.A program me at FMS UDAIPUR. The summer training project in the MBA (FSM) course is the major event that gives you an insight into the expectations that a company has from the MBAs. It provides a „pre working? experience for a student and gives enough exposure so that one can give his/her best in the organization which he/she joins in the future. Due to ever increasing competitiveness in the market today the specific skills of management are always called for.
For this project my training place was IDBI Bank, Saheli Nagar Branch,Udaipur. During my study I got enough information. This report is purely based on what I worked and analyzed during my training.
In preparing this report I have drawn a vast amount of literature Naturally, I owe an intellectual debt to numerous lectures that enrich the stream of my study.
This project is a summary of the information gathered by me during my study. I don?t claim 100 % perfection in my report, errors may exist but at the same time I am confident that my sincere effort and special attention will justify the subjects in the report.
ACKNOWLEDGEMENT
Before we get into the thick of the thing, I would like to say that it was a great pleasure and privilege for me to have the opportunity of undertaking the training at IDBI Bank Saheli Nagar Branch,Udaipur for a period of 2months as my MBA training. I would like to thank the bank for providing me such an opportunity. To test the student?s academic knowledge in practical conditions of life, four months training has been included in the MBA(FSM) course. I express my sincere thanks to the management of the bank for providing me the opportunity to pursue my training in their organization. I would like to
thankMr.Aniketsharma for giving me every sort of help and guidance.
I thank once again all the staff members of the bank with the active support of whom I was able to complete my project report successfully.
At last I am thankful to faculty of college, to all known and unknown individuals who have given me their constructive advice, educative suggestion, encouragement, co-operation and motivation to prepare this report. I am sure that the knowledge and information that I have gained during this period would be of immense value for my growth in business world.
Executive summary
Alternate revenue sources from a vital part of income for banks and banks are therefore looking forward towards increasing their profitability through these sources. Some sources of fee income have been available to institutions for many years, but have recently taken a more dominant position in the overall financial management strategies of banks. These includes deposit service charges , credit cards fees, fees associated with electronic fund transfer, demat etc. although banks have made significant headway in generating traditional fee income, for banks to remain competitive with other financial institution , they need to expand their product breadth and to improve sales, relationship, servicing and investment know-how. The essential function of a bank is to provide service related to the storing of value and the extending credit because bank is a financial institution that provides banking and other financial services. Bank can differ markedly in their sources of income. Some focus on business lending, Some on household lending, and some on fee-earning activities. Increasingly, however most banks are diversifying into fee-earning activities. Traditionally fee income hac been very stable; but, also traditionally, it has been a small part of the earning stream of most banks. Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include: ? Directly take deposits from the general public and issue saving accounts and current accounts. ? Earning specials like the fixed deposits, recurring deposits. ? Lend out money to companies and individual issue credit cards, ATM, and debit cards. ? Online banking and internet banking. ? Storage of valuable, particularly in a safe deposit box granting loans. But in current scenario with immense competition the banks have to look far beyond the traditional practices. Customer look for one stop financial solution left with the bank is it diversify. The interest rates are decreasing so banks have to look for alternate sources to generate revenue. Also the lending and borrowing rates are reducing day after day.Therefore the banks are going in for investment and advisory services, portfolio management depository services, debit/ credit cards etc. The alternate revenue generating sources of IDBI BANK, which will be dealt in detail are: ? Banc assurance ? Mutual funds ? Locker facility ? RBI bonds
? Forex ? Demand drafts/ bankers cheque ? Demat services
TABLE OF CONTENT
S. No. 1 2 3 4 Topic Introduction Of Banking Industry Company Profile Research Methodology Findings, Suggestion, Conclusions Page No. 1-5 6 – 16 17 – 28 29 – 32
INTRODUCTION OF BANKING INDUSTRY
BANKING INDUSTRY
Banking is an industry that is built on trust. Customers deposit their money with a bank only if they trust the bank and the bank gives loans to its customer only when it trust them. Banks do business with customer?s money by accepting deposits from them and by giving loans on interest. For any bank to conduct business, initially it is “trust” that matters, not the capital it owns. The history of banking in India dates back to the early half of the 18th century. 3 president banks that were established in the country namely the bank of
Hindustan, bank of madras and bank of Bombay can also be referred to as some of the oldest banking institutions in the country. The state bank of India that was earlier known as the bank of Bengal is also one of the oldest in the genre. All types of bank in India are regulated and the activities monitored by a standard bank called the reserve bank of India that stands at the apex of the banking structure. It is also called the central banks, as major banking decision are taken at this level.
OVERVIEW OF DEVELOPMENT BANKING IN INDIA
The concept of development banking rose only after Second World War, after the great depression in 1930s. The demand for reconstruction fund for the affected nations compelled in setting up a worldwide institution for reconstruction. As a result the IBRD was setup in 1945 as a worldwide institution for development and reconstruction. This concept has been widened all over the world and resulted in setting up a large number of banks around the world which coordinating the development activities of different nations with different objectives the world. The narashiman committee had recommended to give up its direct financing functions and to perform only the promotional and refinancing role. However, the S.H.Khan committee, appointed by the RBI recommended its transformation into a universal bank. The course of development of financial institution and markets during the postindependence period was largely guided by the process of planned development pursued in India with emphasis on mobilisation of saving and channelling investment to meet plan priorities. At the time of independence in 1947, India had a fairly well developed banking system. The adoption of bank dominated financial development strategy was aimed at meeting the sectorial credit needs, particularly of agriculture and industry. Towards this end, the reserve bank
concentrated on regulating and developing mechanisms for institution building. The commercial banking network was expanded to cater to the
requirement of general banking and for meeting the short term working capital requirements of industry and agriculture. Specialised development financial institution (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the reserve bank were set up to meet the long-term financing requirements of industry and agriculture. To facilitate the growth of these institutions, a mechanism to provide concessional finance to these institutions was also put in place by the reserve bank. The first development bank in India incorporated immediately after independence in 1948 under the Industrial Finance Corporation Act as a statutory corporation to pioneer institution credit to medium and large-scale. Then after in regular intervals the government started new and different
development financial institutions to attain the different objectives and helpful to five-year plans. The early history of Indian banking and finance was marked by strong governmental regulation and control. The roots of the national system were in the state bank of India Act of 1955, which nationalized the former Imperial bank of India and its seven associate banks. In the early days, this national system operated alongside of a large private banking system. Banks were limited in their operational flexibility by the governments desire to maintain employment in the banking system and were often drawn into trouble loans in order to further the government?s social goals. The financial institutions in India were set up under the strong control of both central and state governments, and the government utilized these institutions for the achievements in planning and development of the nation as a whole. Thus India financial institutions can be classified under five heads according to their economic importance: 1. All-India Development Banks 2. Specialized Financial Institutions 3. Investment Institutions 4. State-Level Institutions 5. Other Institutions
THE MAJOR TYPES OF BANKS ARE AS FOLLOWS:
Public sector banks of India –All government owned banks fall in this variety besides the Reserve Bank of India, the state bank of india and its associate banks and about 20 nationalized banks, all banks can scan also be clubbed in this genre. Private Sector banks in India– A new wave in the banking industry came about with the private sector banks in India. With policies on liberalization being generously taken up, these private banks were established in the country that also contributed heavily towards the growth of the economy and also offering numerous services to its customers. Some of the most popular banks in this genre are: ? Axis Bank ? ING Bank ? Kotak Mahindra bank ? SBI Commercial and International Bank The foreign Banks in India like HSBC, Citibank and Standard Chartered bank etc. can also be clubbed here.
Cooperative banks in India- with the aim to specifically cater to the rural population, the cooperative banks in India were set up through the Country. Issues like agriculture credit and the likes are taken care by these banks Banking has a wider commercial role other than banking which includes: ? Issue of banknotes ( promissory notes issued by a banker and payable tp bearer on demand) ? Processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means ? Issuing bank drafts and bank cheques ? Lending money by way of drafts, instalments loan or otherwise providing documentary and standby ? Letters of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposure ? Safekeeping of documents and other items in safe deposit boxes ? Currency exchange ? Sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a „financial supermarket?
MARKET SEGMENTATION IN BANKING INDUSTRY
In the banking industry, based on customer profiles, the market can be segmented into: ? Retail banking ? Commercial banking ? Corporate banking ? NRI banking ? Investment banking Similarly, based on customer needs, the loans market can be divided into: ? Consumer finance ? trade finance ? Corporate finance ? Project finance ? Venture capital For the banker to derive maximum returns and enhance his market position the marketing mix has to be effectively managed.
COMPANY PROFILE
COMPANY PROFILE
Vision statement id IDBI Bank envisions being trust worthy efficient and strong bank committed to increasing its market share by generating innovation customer centric service and products igniting the passion and creative elements in human resource leveraging technology to expand the client and deliver quality and value leading to customer delight. Mission statement of IDBI Amplify the frontline capabilities to serve customer, leveraging technology, dynamically locate and empower people fast, cycle knowledge into innovative products, create possibilities to reach the business goal and position the bank as a rising in the financial horizon. The bank uses information technology in all sphere of its functioning by connection all its branches, service centre and extension counters through its WAN and implemented financial universal banking solution with 100% coverage. Industrial Development Bank of India (IDBI) The Industrial Development Bank of India (IDBI) was established on 1st July 1964 under an act of parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16th February 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing and developing industry in the Country. Although Government shareholding in the Bank came down below 100% following IDBI?s public issue in July 1995, the former continues to be the major shareholder (current shareholding: 65.14%) IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernization and diversification purpose. In the wake of financial sector reforms unveiled by the government since 1992, IDBI also provides indirect financial assistance by way of refinancing of loans extended by State- level financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms. IDBI has played a pioneering role, particularly in the pre-reform era (1964-91) in catalysing broad industrial development in the country in keeping with its government- ordained “development banking” charter In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of Tata Finance Ltd., signalling IDBI?s foray into the retail finance sector. The fully owned housing finance subsidiary has since been renamed „IDBI Home finance Limited?. In view of the signal changes in the operating environment environment, following initiation of reforms since the early nineties, Government of India has decided to transform IDBI into a commercial bank without eschewing its secular development finance obligation.
The migration to the new business model of commercial banking, with its gateway to low-cost current, saving bank deposited, would help overcome most of the limitation of the current business model of development finance while simultaneous enabling it to diversify its client/ asset base. Towards this end, the IDBI (transfer of undertaking and repeal) act 2003 was passed by parliament in December 2003. The act provides for repeal of IDBI act, corporation of IDBI (with majority Government holding; current share: 58.47%) and transformation into a commercial bank. The provision of the act have come into force from 2nd July 2004 in terms of a Government Notification to this effect. The Notification facilitated formation, incorporation and registration of industrial development bank of India Ltd. As a company under the companies Act, 1956 and a deemed banking Company under the banking regulation act,1956 and a deemed banking company under the banking regulation act 1949 and helped in obtaining requisite regulatory and statutory clearances, including those from RBI> IDBI would commence banking business in accordance with the provision of the new act in addition to the business in accordance with the provision of the new act in addition to the business being transacted under IDBI act,1964 from 1st October 2004, the „appointed date? notified by the central government. IDBI bank, with which the parent IDBI was merged, was a new generation bank. The private bank was the fastest growing banking company in India. The bank was pioneer bank was the fastest growing banking company in India. The bank was pioneer in adapting to policy of first mover in tier 2 cities. The bank has one of the highest productivity per employee in Indian banking industry. On 29 July 2004, the Board of Director of IDBI and IDBI Bank accorded in principle approved to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. To be formed incorporated under the companies Act, 1956 pursuant to the IDBI (transfer of underlying and repeal) Act, 2003 (53of 2003), subject to the approval of shareholders and other regulatory and statutory approvals. A mutually gainful proposition with positive implications of all stakeholders and clients, the merger process is expected to be completed during the current financial year ending 31 March 2005. The immediate fall out of the merger of IDBI and IDBI Bank was the exit of employees of IDBI Bank. The cultures in the two organizations have taken its toll. The IDBI Bank now is in a growing fold. With its retail banking arm expanding further after the merger of united western Bank. IDBI would continue to provide the extant products and services as part of its development finance role even after its conversion into a banking company. In addition, the new entity would also provide an array of wholesale and retail banking products, designed to suit the specific needs cash flow requirements of corporates and individuals. in particular, IDBI would leverage the strong corporate relationships built up over the years to offer customized and total
financial solution for all corporate business needs, single-window appraisal for terms loans and working capital finance, strategic advisory and “hand-holding” support at the implementation phase of projects, among others. Recent Developments of IDBI The Industrial Development Bank of India Limited (IDBI) (BSE: 500116) is one of India?s leading public sector banks and 4th largest bank in overall rating. RBI categorized IDBI as an “other public sector bank”. It was established in 1964 by an act of parliament to provide credit and other facilities for the development of the fledgling Indian industry. It is currently 10th largest development bank in the world in terms of reach with 1455 ATM?s 883 branches including one overseas branch at DIFC, Dubai and 598 centres including two overseas at Singapore and Beijing. Some of the institutions built by IDBI are the National Stock Exchange of India (NSE), the national securities depository services ltd (NSDL), the Stock Holding Corporation of India (SHCIL), the credit Analysis and Research Ltd. The export-import bank of India (Exim Bank), the Small Industries Development Bank of India (SIDBI), the Entrepreneurship Development Institute of India, and IDBI Bank, which is owned by the Indian Government. IDBI Bank is on a par with nationalized banks and the SBI Group as far as government ownership is concerned. It is one among the 26commercial banks owned by the Government of India. The bank has an aggregate balance sheet size of Rs 253378 as on March 31, 2011 To meet emerging challenges and to keep up with reforms in financial sector, IDBI has taken steps to reshape its role from a development finance institutions to a commercial institution. With the Industrial Development Bank (transfer of undertaking and repeal) Act, 2003, IDBI attained the status of a limited company. Subsequently, the Reserve Bank of India (RBI) issued the requisite notification on 30 September 2004 incorporating IDBI as a „scheduled bank? under the RBI Act, 1934. Consequently, IDBI, formally entered the portals of banking business as IDBIL from 1st October 004. The commercial banking arm, IDBI Bank, was merged into IDBI. In March 2008, IDBI Bank entered into a joint venture with Federal Bank and Fortis Insurance International to form IDBI Fortis Life Insurance, of which IDBI Bank owns 48 %. The company ended the year with over 300 Cr in premiums as on 31st March 2009. The name of IDBI Fortis Life Insurance is now changed to IDBI Federal Life Insurance Co Ltd. Government of India now owns 65%stake in IDBI Bank. Hence IDBI Bank is also referred as „The New Age Government Owned Bank? A breakthrough initiative in customer service was taken by IDBI Bank branded as „customer delight campaign? when it removed many of the charges from its retail banking services. This step has created a wave in banking industry and put
the bank on a developmental pedestal never seen before. Some of the charges waived are- ATM -cum-debit card annual charges. Transaction charges on other banks ATM?s Demand Draft/pay orders, RTGS/NEFT charges, cheque book issuance and utilization charges and many more other charges. It was the winner in two categories in Dum and Bradstreet?s Polaris Software Banking Awards 2011 It has recently inaugurated its 899th branch at Derawal Nagar, near to north campus of Delhi University, Delhi. It has now a network of 899 branches, 616 centres and 1494 ATM?s as on September 10, 2012.
MANAGEMENT AND ORGANIZATION:IDBI Bank is a Broad- managed organization. The responsibility for the day-today management of operations of the Bank is vested with the chairman and managing director and deputy managing director, who draw upon the support and expertise of a cross- disciplinary Top management team. IDBI Bank Ltd.?s employee base includes professionals from the field of accountancy, management, engineering, law, computer technology, banking and economics. BOARD OF DIRECTOS (as on 30th September, 2012) MR.R.M.MALLA (Chairman and Managing director) MR.B.K.BATRA (Deputy Managing Director) MR SUMIL SONI (Director) MR PRADEEP KUMAR CHOUDHERY (Director) MR SHUBHASH TULLI (Director) MR S RAVI (Director) MR NINAD KAPRE (Director)
AWARDS AND ACCOLADES OF IDBI 1. Public sector IDBI Bank was the winner in two categories in dun and Bradstreet?s Polaris Software Banking Awards. It won awards in two categories the overall best bank in India and the best public sector bank in India. 2. IDBI Bank has received the best public sector bank (PSB) award in „SME financing? from global business information provider Dun and Bradstreet (D&B). The award was presented to IDBI Bank at the Dun and Bradstreet- Polaris Software Banking Awards 2010 in Mumbai. 3. IDBI Bank?s corporate brand campaign „haathi soccer? has been adjudged the best in electronic medium by public relations council of India (PRCI). It bagged the Gold award, which was presented at a glittering function in Bengaluru on April4, 2009. IDBI Bank also won „Bronze? awards for its Annual Report FY 2007-2008 in the annual reports category. 4. IDBI Bank was conferred the “CNBC TV 18 Special Jury Award” in Mumbai.
PRODUCTS OF IDBI
IDBI Bank offers a wide array of products and services to its customers. For different customer group and needs, there are different types of products and services including personal banking, Corporate Banking, SME Finance etc. Following products and services are offered under Personal Banking: DEPOSITS: ? Saving Account ? Current Account ? Fixed Account ? Suvidha Tax Saving Account ? Pension Account ? Sabka Account ? Super Shakti Account for Women ? Jubilee Plus Account LOANS: ? ? ? ? ? ? ? Home Loans Loans Against Property Educational Loan Personal Loan Loan Against Securities Reverse Mortgage Loan Auto Loan
PAYMENTS: ? ? ? ? ? ? ? Tax Payments Stamp Duty Payments Easy Fill Bill Payment Card to Card Money Transfer Online Payments Pay Mate
INVESTMENTS ADVISORY
? Smart Financial Planning ? Mutual Fund ? Insurance ? Fixed Income Securities
CARDS: ? Gold Debit Card ? International Debit cum ATM Card ? Gift Card ? World Currency Card ? Cash Card ? KIDS Debit Card ? Foundation day Cash Back Scheme 2009 ? Platinum Card INSTITUTIONAL BANKING: ? Institutional Saving Account ? Corporate Payroll Account
24 HOURS BANKING: ? ? ? ? Phone Banking SMS Banking Account Alerts Internet Banking
OTHER PRODUCTS: ? Lockers ? India Post
FOLLOWING PRODUCTS AND SERVICIES ARE OFFERED BY IDBI BANK FOR THE CORPORATE:
? ? ? ? ? ? ? ? ? ? ? ? ? Project Finance Infrastructure Finance Syndication, Underwriting and Advisory services Carbon Credit Business Working Capital Cash Management Services Trade Finance Tax Payments Derivatives Technology Up gradation Fund Scheme (TUFS) Film Financing Scheme Direct Discounting Bills Rehabilitation Finance
FOLLOWING SME FINANCE PRODUCTS ARE OFFERED BY THE IDBI BANK: ? ? ? ? ? ? ? ? ? ? Sulabh vyapan loan Dealer finance Funding under CGFMSE Direct credit scheme- SIDBI Preferred customer scheme- IDBI Bank/ SIDBI Vendor financing (pre-sale/ post-sale) Lending against the securities of future credit card receivables Working capital financing- software development entities Finance to medical practitioners SME hosiery special current account
LOANS AT IDBI BANK:
IDBI Bank offer a wide range of loan products to suit all your needs ranging from home to education, a holiday to buying a laptop. The various loan offering by IDBI bank are as follows: ? Home loan ? Loan against property ? Personal loan ? Loan against securities ? Reverse mortgage loan ? Auto loans
RESEARCH METHODOLOGY
ALTERNATE SOURCE OF REVENUE FOR THE BANK
Broadly speaking the revenue sources of the bank can be divided into two the one, which it renders directly, and the other through the distribution of third party product of other companies. Revenue that is generated through the sale of third party products would be through
MUTUAL FUNDS A mutual fund is a trust that pools the saving of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures equity, debt instruments, money market instrument?s etc., or a mix of these securities, depending on the scheme objectives. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of unit owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offer an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Why IDBI Bank should sell Mutual Fund In today?s economic scenario wherein the interest rate of saving going down the customers are looking at other sources of investment through which they can get a good rate of return with a nominal risk. Instead of looking the customer to someone else the banks itself are offering this product at their branches and Mutual Fund is one instrument, which is catching the fancy of the investor. Mutual Funds are considered as the investment avenue. People always look for a high return. The banks are no longer giving the returns they once used to give and there is hardly any chance of the interest rates going up. So if one wants higher returns one has to invest in shares. But one does not have the expertise to invest. If one wants to minimize the risk one has to diversify the portfolio. But for diversification one need huge amount of money that one may not have. At this point one can turn to Mutual Fund for they provide expertise to invest in the stock market and also debt instruments. The fund manager decides where to invest and why. The investor can select a scheme according to his investment needs and risk appetite. Most of the funds give an indicate rate before investing and the returns eventually get close to the return indicated. IDBI Bank helps one to plan their investment and build a healthy mutual fund portfolio, which would be an optimal solution for all needs. Cultivating an investment culture will not only help the customer but also their family. And IDBI Bank gives highest priority to all customer needs.
Besides sale of mutual funds can serve all one of the best revenue generating income for the bank. Presently the bank earns 1-2% on mutual fund schemes. IDBI Bank offers a wide range of mutual fund products of various companies like HDFC, ICICI, UTI, HSBC, Reliance mutual funds etc. Advantages of Mutual Funds: ? Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. ? Diversification Mutual Funds invest in a number of companies across a broad cross – section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. ? Affordability A mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon the investment objective of the scheme. An investor can buy into a portfolio of equities, which would otherwise be extremely expensive. ? Tax Benefits Any income distributed after March 31, 2002 will be subject to tax in the assessment of all unit-holders. However, as a measure of concession to Unit holders of open – ended and equity – oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a concessional rate of 10%. ? Return Potential
Over a medium to long – term, mutual funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. ? Low Costs Investing in the capital markets because the benefits of scale in brokerage, mutual funds are a relatively less expensive way to invest compared to directly custodial and other fees translate into lower costs for investors. Liquidity prices from the mutual fund. In closed – ended schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the mutual fund. ? Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager?s investment strategy and outlook. ? Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.
? Well Regulated All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.
? Tax breaks Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor. They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index (which is calculated to account for rising inflation), thereby reducing the gap between your actual purchase cost and selling price. This reduces your tax liability. What?s more, tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. You can avail of a 20 per cent tax exemption on an investment of up to Rs 10,000 in the scheme in a year. ? No assured returns and no protection of capital If you are planning to go with a mutual fund, this must be your mantra: mutual funds do not offer assured returns and carry risk. For instance, unlike bank deposits, your investment in a mutual fund can fall in value. In addition, mutual funds are not insured or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve Bank of India). There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. This is because most closed-end funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch, resulting in losses to investors. Restrictive gains Diversification helps, if risk minimization is your objective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security. In our earlier example, say, Reliance appreciated 50 per cent. A direct investment in the stock would appreciate by 50
per cent. But your investment in the mutual fund, which had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation.
Risk factors: All the investments in the securities market are subject to market risks and the NAV of schemes/ plans may go up or down depending upon the factor and forces affecting securities market. Past performance is not necessarily indicative of the future. Performance of IDBI Bank in Mutual Funds Sale: IDBI Bank was one of the first banks, which caught the pulse of its customers in the town for investment in Mutual Funds and today is a strong force to reckon with when it comes to investment in Mutual Funds. In the normal course of business the bank is able to generate a collection of around 5-10 lacks and during the time of NFO?s from various fund houses it is able to generate additional 10-15 lacks on an average. The Bank generate maximum revenue from the sale of Mutual Funds in the Bank and has got some dedicated customers who invest only through IDBI Bank. For this the bank has got its staff trained so as to understand the needs of the customer and offer them the products accordingly.
SALE OF RBI BONDS
IDBI Bank offers RBI bonds (GOI bonds). These bonds are fully taxable. The bonds were issued in cumulative and non-cumulative form, at the option of the investor.
The bond bears interest at the rate of 8% per annum. Interest on non-cumulative bonds will be payable at half-yearly intervals. Interest on cumulative bonds will be compounded with half-yearly rets and will be payable on maturity along with the principal. These investments are for long term period and therefore have no liquidity. Subscription to the bonds can be in the form of cash/drafts/cheque. The money is locked for 6 years but ne is guaranteed of the safety and returns. The bonds shall be repayable on the expiry of 6 tears from the date of issue. No interest would accrue after the maturity of the bonds. There will be no maximum limit for investment in the bonds.
Revenue from sale of RBI Bonds: IDBI Bank is one of the main distributors for RBI Bonds in India. They earn revenue of 2% on the amount collected. As it is one of the main distributors it has sub agents who distributors for the sale of bonds in such scenario they have part with a part of the revenue to them. But since the time the returns on the bonds have become taxable they have lost the sight of the investors, who now look at other for investment where they can get a tax-free return. As such the contribution of RBI Bonds in the revenue basket has come down.
BANC ASSURANCE
Banc assurance plays in major role in the alternate source of revenue for the banks in today?s day. The bank has got a tie up with Birla Sun Life Insurance for the distribution of life Insurance products and Bajaj Allianz General Insurance for the distribution of General Insurance Products.
Banc assurance – A SWOT analysis on IDBI Bank
STRENGTHS IDBI Bank greatest strength lies in a huge pool of skilled professional. There is a huge potential for insurance and the bank is making the best use of its interpersonal relationship with its loyal customer, as there is a vast untapped potential waiting to be mined particularly for life insurance products. Since both banks and Life Insurance Company approach the same segments of population, the same contact can be used to arrange for both bank deposited and life insurance. It creates a competitive advantage through cross selling synergy. This is not only help in saving of infrastructure costs and generate income for the bank but also helps in retaining customers for a longer time. It is also possible to develop a composite product that combines the elements of bank deposited and insurance.
WEAKNESSES Internet connection and other infrastructure facilities are not available to some of the managers of operating offices. People entrusted with banc assurance are reluctant to work beyond office hours, or on holidays like an individual agent, which may result in hardship to the ban and insurance company. At times due to transfer of offices to other branches there are instances when the customer has to either interact with untrained personnel or on personnel in the absence of proper succession planning. Another drawback is the inflexibility of the products i.e. it cannot be tailor made to the requirement of the customer. For Banc assurance venture to succeed it is extremely essential to have in-built flexibility so as to make the product attractive to the customer. OPPRTUNITIES: Bank?s data base is enormous. This database has to be dissected variously and various homogeneous group are to be churned out in order to position the Banc assurance products. One important opportunity is health insurance especially financing the medical needs of the aged. THREATS:
The main threat of Bank assurance is the immense competition prevailing today. For instance LIC, Prudential ICICI, etc. are doing far better than Birla sun life insurance. The most common obstacles to success are lack of a sales culture within the bank, insufficient product promotions, failure to integrate marketing plans, poor sales channel linkages, inadequate incentives, resistance to change, negative attitude towards insurance and unwieldy marketing strategy.
Commonly sold Life Insurance Individual Life Plans in IDBI Bank:
1. Term Plan:
A plan, which provides the customer with a pure risk cover at a nominal cost. It is like general insurance only in case of death during the tenure of the policy does the nominee get the Sum Assured or else if the policy holder survives during the entire term he does not get anything. 2. Classic Life Premier:
A product, which serves the investment savvy client who likes to have insurance as well, a decent amount of return on the premiums paid by him. This product gives the client the flexibility to choose the premium he would like to pay, the number of years he would like to pay, the sum assured he would like to have on this policy. This product gives the client to choose where he would like the insurance company to invest his money. He has an option to choose from funds, which have a varying equity exposure ranging from 0% to 90%, this would determine the return that he is going to get on his investment.
3. Flexi Save Plus:
This is an endowment plan wherein the client gets the money on maturity and in case of death during the policy period he gets the Sum Assured and the value of his investment. This also is an investment linked plan. 4. Flexi Cash Flow: A money back plan which cater to the client needs in case he would like to get some money on regular intervals. Again also on Investment Linked Plan.
GENERAL INSURANCE IDBI has got a strategic tie up with Bajaj Allianz General Insurance for sale of the latest products at the branches. With the tie up with Bajaj, IDBI is in a position to satisfy all the insurance needs of the client at the branch level . Some common products offered by IDBI:
1.FAMILY CARE
Is a med claim policy special tailor made for the account holders of IDBI Bank. In this policy the entire family can be covered under one policy. Bajaj
Allianz has given special rates to the customers of IDBI bank and only the customers having an account with IDBI bank can take this policy.
2.VEHICLE INSURANCE/ HOUSE INSURANCE etc
The account holders can also get their vehicle insurance done from IDBI bank as well as house and other insurable products insured through IDBI bank.
Revenue from sale of General Insurance: Sale of general insurance generates revenue of around 10-12% for the bank IDBI Udaipur was one of the late entrants in the sale of general insurance and has made a good start by bringing in good number of medicalaim policy and a couple of new vehicle insurance on a month-to-month basis.
DEPOSITORY SERVICES A depository can be compared to a bank. Holding a Demat account is a paperless, painless and convenient for buying and selling of shares in electronic form with total security and without any delays. A depository holds securities (like shares, debentures, bonds, government securities, units etc.) of investors in electronic form. Besides holding securities, a depository also provides services related to transactions in securities. In India at present we have two depositories NSDL and CDSL. IDBI Bank is a depository participant with both NSDL and CDSL.
Facilities provided by IDBI Bank on it’s demat account:
? Opening of demat account. ? Dematerialization i.e., converting physical certificate to electronic form. ? Dematerialization i.e., conversion of securities of securities in demat form into physical certificate. ? Pledging/ hypothecation of dematerialization securities against bank loan. ? Electronic credit of securities allotted in public issues, right issue. ? Receipt of non-cash corporate benefits such as bonus in electronic form. ? Freezing of demat account, so that the debits from the account are not permitted. ? Nomination facility for demat accounts. ? Services related to change of address. ? Effecting transmission of securities.
FINDINGS, CONCLUSION
AND SUGGESTIONS
FINDINGS:
? The average non-interest income ratio of the entire banking sector has risen over the past 4 years. Environmental factors such as risk, productivity, globalization, regulation and technology are found to play a significant part in explaining trends in non-interest income of banks. ? Fees earned by IDBI bank for most of the past decade were below the national peer group, but now growth in IDBI bank non-interest income reflects increase in revenue from wealth management and financial market operations rather than retail banking fees.
? From the analysis conducted in this report we can see that major part of the income comes from sale of Mutual Funds followed by banc assurance.
CONCLUSION: IDBI bank income for most of the past decades was below the national peer group before catching up at the end of the period, thus bringing them broadly into alignment with other banks. The growth in the banks income reflects the increases in revenue from wealth management. The overall profit margin has risen during the past 1 year due to the introduction of Banc assurance, mutual funds, RBI bonds etc. From the analysis we can conclude that most of the revenue for the bank is collected from mutual funds followed by banc assurance. As insurance has just been started it will pick up and going ahead it should become a major source of income to the bank.
Demat account have also not contributed much to the income of the bank. However income from Demat account will increase in the near future because IDBI Bank is likely to start with online trading. The locker facility is also a major source of income. The bank has gone in for expansion of lockers by getting in 1 more new cabinet. Risk, productivity, globalization, regulation and technological change are all significant forces shaping the non-interest income of banks. Noninterest income has increased its importance relative to net interest income. To conclude we can say that IDBI Bank has earned a decent income from ALTERNATE REVENUE SOURCES.
SUGGESTIONS: ? The bank must have more products in its menu like, online trading, credit cards etc. also proper positioning of these products should be done. ? The bank has got just 2 branches, they should start more number of branches so that they can reach out to more people. ? The bank should set up more ATM machines in the state. Also the bank should make provision to set up ATM?s at some of the key locations.
? There has to be well motivated, well guided sales team so as to increase sales.
? There should be more marketing and branding of products like putting up banners or giving sponsorship etc. in other words there has to be more visibility. ? More stress has to be given on the sale of Mutual Funds. The bank employees should put in more efforts in making the investors aware of the advantages of Mutual Funds. ? The bank should send monthly updates of the bank?s performance, introduction of new products and services etc. to the customers so as to make them aware of the prevailing products and services. ? The staff has to be rewarded with decent incentives so as to boost sale of products.
? Good service should be provided to existing customers.
doc_838297434.docx
ALTERNATIVE REVENUE SOURCES FOR IDBI BANK
CONDUCTED AT
IDBI BANK UDAIPUR
Submitted in partial fulfillment for the award of degree of “Master of Business Administration”
(Session 2011-2013) In
Faculty of Management Studies MohanlalSukhadiaUniversity Udaipur
Under Guidance of: Dr. Anil Kothari
Submitted By: Divya Narayan MBA- FSM III Sem.
DECLARATION
I, undersigned DIVYA NARAYAN hereby declare that the project report entitled “Alternative Revenue Sources For IDBI Bank”under the guidance of Mr.Aniket submitted in partial fulfillment of the requirements for the award of the degree of Master of Business Administration, at Faculty of management studies, Udaipur (Rajasthan) is my original work. This study was carried out during summer training period and not submitted for the award of any other degree/diploma/fellowship or other similar titles or prizes to any other Institution/Organization or university by any other person.
Place: Udaipur
Divya Narayan MBA-FSM III Sem
PREFACE
There are 4 steps to Accomplishment & Success – Plan, Purposefully, Prepare thoroughly, Proceed Positively & Pursue Persistently.
In this development and changing world, I feel proud for being a student of M.B.A program me at FMS UDAIPUR. The summer training project in the MBA (FSM) course is the major event that gives you an insight into the expectations that a company has from the MBAs. It provides a „pre working? experience for a student and gives enough exposure so that one can give his/her best in the organization which he/she joins in the future. Due to ever increasing competitiveness in the market today the specific skills of management are always called for.
For this project my training place was IDBI Bank, Saheli Nagar Branch,Udaipur. During my study I got enough information. This report is purely based on what I worked and analyzed during my training.
In preparing this report I have drawn a vast amount of literature Naturally, I owe an intellectual debt to numerous lectures that enrich the stream of my study.
This project is a summary of the information gathered by me during my study. I don?t claim 100 % perfection in my report, errors may exist but at the same time I am confident that my sincere effort and special attention will justify the subjects in the report.
ACKNOWLEDGEMENT
Before we get into the thick of the thing, I would like to say that it was a great pleasure and privilege for me to have the opportunity of undertaking the training at IDBI Bank Saheli Nagar Branch,Udaipur for a period of 2months as my MBA training. I would like to thank the bank for providing me such an opportunity. To test the student?s academic knowledge in practical conditions of life, four months training has been included in the MBA(FSM) course. I express my sincere thanks to the management of the bank for providing me the opportunity to pursue my training in their organization. I would like to
thankMr.Aniketsharma for giving me every sort of help and guidance.
I thank once again all the staff members of the bank with the active support of whom I was able to complete my project report successfully.
At last I am thankful to faculty of college, to all known and unknown individuals who have given me their constructive advice, educative suggestion, encouragement, co-operation and motivation to prepare this report. I am sure that the knowledge and information that I have gained during this period would be of immense value for my growth in business world.
Executive summary
Alternate revenue sources from a vital part of income for banks and banks are therefore looking forward towards increasing their profitability through these sources. Some sources of fee income have been available to institutions for many years, but have recently taken a more dominant position in the overall financial management strategies of banks. These includes deposit service charges , credit cards fees, fees associated with electronic fund transfer, demat etc. although banks have made significant headway in generating traditional fee income, for banks to remain competitive with other financial institution , they need to expand their product breadth and to improve sales, relationship, servicing and investment know-how. The essential function of a bank is to provide service related to the storing of value and the extending credit because bank is a financial institution that provides banking and other financial services. Bank can differ markedly in their sources of income. Some focus on business lending, Some on household lending, and some on fee-earning activities. Increasingly, however most banks are diversifying into fee-earning activities. Traditionally fee income hac been very stable; but, also traditionally, it has been a small part of the earning stream of most banks. Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include: ? Directly take deposits from the general public and issue saving accounts and current accounts. ? Earning specials like the fixed deposits, recurring deposits. ? Lend out money to companies and individual issue credit cards, ATM, and debit cards. ? Online banking and internet banking. ? Storage of valuable, particularly in a safe deposit box granting loans. But in current scenario with immense competition the banks have to look far beyond the traditional practices. Customer look for one stop financial solution left with the bank is it diversify. The interest rates are decreasing so banks have to look for alternate sources to generate revenue. Also the lending and borrowing rates are reducing day after day.Therefore the banks are going in for investment and advisory services, portfolio management depository services, debit/ credit cards etc. The alternate revenue generating sources of IDBI BANK, which will be dealt in detail are: ? Banc assurance ? Mutual funds ? Locker facility ? RBI bonds
? Forex ? Demand drafts/ bankers cheque ? Demat services
TABLE OF CONTENT
S. No. 1 2 3 4 Topic Introduction Of Banking Industry Company Profile Research Methodology Findings, Suggestion, Conclusions Page No. 1-5 6 – 16 17 – 28 29 – 32
INTRODUCTION OF BANKING INDUSTRY
BANKING INDUSTRY
Banking is an industry that is built on trust. Customers deposit their money with a bank only if they trust the bank and the bank gives loans to its customer only when it trust them. Banks do business with customer?s money by accepting deposits from them and by giving loans on interest. For any bank to conduct business, initially it is “trust” that matters, not the capital it owns. The history of banking in India dates back to the early half of the 18th century. 3 president banks that were established in the country namely the bank of
Hindustan, bank of madras and bank of Bombay can also be referred to as some of the oldest banking institutions in the country. The state bank of India that was earlier known as the bank of Bengal is also one of the oldest in the genre. All types of bank in India are regulated and the activities monitored by a standard bank called the reserve bank of India that stands at the apex of the banking structure. It is also called the central banks, as major banking decision are taken at this level.
OVERVIEW OF DEVELOPMENT BANKING IN INDIA
The concept of development banking rose only after Second World War, after the great depression in 1930s. The demand for reconstruction fund for the affected nations compelled in setting up a worldwide institution for reconstruction. As a result the IBRD was setup in 1945 as a worldwide institution for development and reconstruction. This concept has been widened all over the world and resulted in setting up a large number of banks around the world which coordinating the development activities of different nations with different objectives the world. The narashiman committee had recommended to give up its direct financing functions and to perform only the promotional and refinancing role. However, the S.H.Khan committee, appointed by the RBI recommended its transformation into a universal bank. The course of development of financial institution and markets during the postindependence period was largely guided by the process of planned development pursued in India with emphasis on mobilisation of saving and channelling investment to meet plan priorities. At the time of independence in 1947, India had a fairly well developed banking system. The adoption of bank dominated financial development strategy was aimed at meeting the sectorial credit needs, particularly of agriculture and industry. Towards this end, the reserve bank
concentrated on regulating and developing mechanisms for institution building. The commercial banking network was expanded to cater to the
requirement of general banking and for meeting the short term working capital requirements of industry and agriculture. Specialised development financial institution (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the reserve bank were set up to meet the long-term financing requirements of industry and agriculture. To facilitate the growth of these institutions, a mechanism to provide concessional finance to these institutions was also put in place by the reserve bank. The first development bank in India incorporated immediately after independence in 1948 under the Industrial Finance Corporation Act as a statutory corporation to pioneer institution credit to medium and large-scale. Then after in regular intervals the government started new and different
development financial institutions to attain the different objectives and helpful to five-year plans. The early history of Indian banking and finance was marked by strong governmental regulation and control. The roots of the national system were in the state bank of India Act of 1955, which nationalized the former Imperial bank of India and its seven associate banks. In the early days, this national system operated alongside of a large private banking system. Banks were limited in their operational flexibility by the governments desire to maintain employment in the banking system and were often drawn into trouble loans in order to further the government?s social goals. The financial institutions in India were set up under the strong control of both central and state governments, and the government utilized these institutions for the achievements in planning and development of the nation as a whole. Thus India financial institutions can be classified under five heads according to their economic importance: 1. All-India Development Banks 2. Specialized Financial Institutions 3. Investment Institutions 4. State-Level Institutions 5. Other Institutions
THE MAJOR TYPES OF BANKS ARE AS FOLLOWS:
Public sector banks of India –All government owned banks fall in this variety besides the Reserve Bank of India, the state bank of india and its associate banks and about 20 nationalized banks, all banks can scan also be clubbed in this genre. Private Sector banks in India– A new wave in the banking industry came about with the private sector banks in India. With policies on liberalization being generously taken up, these private banks were established in the country that also contributed heavily towards the growth of the economy and also offering numerous services to its customers. Some of the most popular banks in this genre are: ? Axis Bank ? ING Bank ? Kotak Mahindra bank ? SBI Commercial and International Bank The foreign Banks in India like HSBC, Citibank and Standard Chartered bank etc. can also be clubbed here.
Cooperative banks in India- with the aim to specifically cater to the rural population, the cooperative banks in India were set up through the Country. Issues like agriculture credit and the likes are taken care by these banks Banking has a wider commercial role other than banking which includes: ? Issue of banknotes ( promissory notes issued by a banker and payable tp bearer on demand) ? Processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means ? Issuing bank drafts and bank cheques ? Lending money by way of drafts, instalments loan or otherwise providing documentary and standby ? Letters of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposure ? Safekeeping of documents and other items in safe deposit boxes ? Currency exchange ? Sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a „financial supermarket?
MARKET SEGMENTATION IN BANKING INDUSTRY
In the banking industry, based on customer profiles, the market can be segmented into: ? Retail banking ? Commercial banking ? Corporate banking ? NRI banking ? Investment banking Similarly, based on customer needs, the loans market can be divided into: ? Consumer finance ? trade finance ? Corporate finance ? Project finance ? Venture capital For the banker to derive maximum returns and enhance his market position the marketing mix has to be effectively managed.
COMPANY PROFILE
COMPANY PROFILE
Vision statement id IDBI Bank envisions being trust worthy efficient and strong bank committed to increasing its market share by generating innovation customer centric service and products igniting the passion and creative elements in human resource leveraging technology to expand the client and deliver quality and value leading to customer delight. Mission statement of IDBI Amplify the frontline capabilities to serve customer, leveraging technology, dynamically locate and empower people fast, cycle knowledge into innovative products, create possibilities to reach the business goal and position the bank as a rising in the financial horizon. The bank uses information technology in all sphere of its functioning by connection all its branches, service centre and extension counters through its WAN and implemented financial universal banking solution with 100% coverage. Industrial Development Bank of India (IDBI) The Industrial Development Bank of India (IDBI) was established on 1st July 1964 under an act of parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16th February 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing and developing industry in the Country. Although Government shareholding in the Bank came down below 100% following IDBI?s public issue in July 1995, the former continues to be the major shareholder (current shareholding: 65.14%) IDBI provides financial assistance, both in rupee and foreign currencies, for green-field projects as also for expansion, modernization and diversification purpose. In the wake of financial sector reforms unveiled by the government since 1992, IDBI also provides indirect financial assistance by way of refinancing of loans extended by State- level financial assistance by way of refinancing of loans extended by State-level financial institutions and banks and by way of rediscounting of bills of exchange arising out of sale of indigenous machinery on deferred payment terms. IDBI has played a pioneering role, particularly in the pre-reform era (1964-91) in catalysing broad industrial development in the country in keeping with its government- ordained “development banking” charter In September 2003, IDBI diversified its business domain further by acquiring the entire shareholding of Tata Finance Ltd., signalling IDBI?s foray into the retail finance sector. The fully owned housing finance subsidiary has since been renamed „IDBI Home finance Limited?. In view of the signal changes in the operating environment environment, following initiation of reforms since the early nineties, Government of India has decided to transform IDBI into a commercial bank without eschewing its secular development finance obligation.
The migration to the new business model of commercial banking, with its gateway to low-cost current, saving bank deposited, would help overcome most of the limitation of the current business model of development finance while simultaneous enabling it to diversify its client/ asset base. Towards this end, the IDBI (transfer of undertaking and repeal) act 2003 was passed by parliament in December 2003. The act provides for repeal of IDBI act, corporation of IDBI (with majority Government holding; current share: 58.47%) and transformation into a commercial bank. The provision of the act have come into force from 2nd July 2004 in terms of a Government Notification to this effect. The Notification facilitated formation, incorporation and registration of industrial development bank of India Ltd. As a company under the companies Act, 1956 and a deemed banking Company under the banking regulation act,1956 and a deemed banking company under the banking regulation act 1949 and helped in obtaining requisite regulatory and statutory clearances, including those from RBI> IDBI would commence banking business in accordance with the provision of the new act in addition to the business in accordance with the provision of the new act in addition to the business being transacted under IDBI act,1964 from 1st October 2004, the „appointed date? notified by the central government. IDBI bank, with which the parent IDBI was merged, was a new generation bank. The private bank was the fastest growing banking company in India. The bank was pioneer bank was the fastest growing banking company in India. The bank was pioneer in adapting to policy of first mover in tier 2 cities. The bank has one of the highest productivity per employee in Indian banking industry. On 29 July 2004, the Board of Director of IDBI and IDBI Bank accorded in principle approved to the merger of IDBI Bank with the Industrial Development Bank of India Ltd. To be formed incorporated under the companies Act, 1956 pursuant to the IDBI (transfer of underlying and repeal) Act, 2003 (53of 2003), subject to the approval of shareholders and other regulatory and statutory approvals. A mutually gainful proposition with positive implications of all stakeholders and clients, the merger process is expected to be completed during the current financial year ending 31 March 2005. The immediate fall out of the merger of IDBI and IDBI Bank was the exit of employees of IDBI Bank. The cultures in the two organizations have taken its toll. The IDBI Bank now is in a growing fold. With its retail banking arm expanding further after the merger of united western Bank. IDBI would continue to provide the extant products and services as part of its development finance role even after its conversion into a banking company. In addition, the new entity would also provide an array of wholesale and retail banking products, designed to suit the specific needs cash flow requirements of corporates and individuals. in particular, IDBI would leverage the strong corporate relationships built up over the years to offer customized and total
financial solution for all corporate business needs, single-window appraisal for terms loans and working capital finance, strategic advisory and “hand-holding” support at the implementation phase of projects, among others. Recent Developments of IDBI The Industrial Development Bank of India Limited (IDBI) (BSE: 500116) is one of India?s leading public sector banks and 4th largest bank in overall rating. RBI categorized IDBI as an “other public sector bank”. It was established in 1964 by an act of parliament to provide credit and other facilities for the development of the fledgling Indian industry. It is currently 10th largest development bank in the world in terms of reach with 1455 ATM?s 883 branches including one overseas branch at DIFC, Dubai and 598 centres including two overseas at Singapore and Beijing. Some of the institutions built by IDBI are the National Stock Exchange of India (NSE), the national securities depository services ltd (NSDL), the Stock Holding Corporation of India (SHCIL), the credit Analysis and Research Ltd. The export-import bank of India (Exim Bank), the Small Industries Development Bank of India (SIDBI), the Entrepreneurship Development Institute of India, and IDBI Bank, which is owned by the Indian Government. IDBI Bank is on a par with nationalized banks and the SBI Group as far as government ownership is concerned. It is one among the 26commercial banks owned by the Government of India. The bank has an aggregate balance sheet size of Rs 253378 as on March 31, 2011 To meet emerging challenges and to keep up with reforms in financial sector, IDBI has taken steps to reshape its role from a development finance institutions to a commercial institution. With the Industrial Development Bank (transfer of undertaking and repeal) Act, 2003, IDBI attained the status of a limited company. Subsequently, the Reserve Bank of India (RBI) issued the requisite notification on 30 September 2004 incorporating IDBI as a „scheduled bank? under the RBI Act, 1934. Consequently, IDBI, formally entered the portals of banking business as IDBIL from 1st October 004. The commercial banking arm, IDBI Bank, was merged into IDBI. In March 2008, IDBI Bank entered into a joint venture with Federal Bank and Fortis Insurance International to form IDBI Fortis Life Insurance, of which IDBI Bank owns 48 %. The company ended the year with over 300 Cr in premiums as on 31st March 2009. The name of IDBI Fortis Life Insurance is now changed to IDBI Federal Life Insurance Co Ltd. Government of India now owns 65%stake in IDBI Bank. Hence IDBI Bank is also referred as „The New Age Government Owned Bank? A breakthrough initiative in customer service was taken by IDBI Bank branded as „customer delight campaign? when it removed many of the charges from its retail banking services. This step has created a wave in banking industry and put
the bank on a developmental pedestal never seen before. Some of the charges waived are- ATM -cum-debit card annual charges. Transaction charges on other banks ATM?s Demand Draft/pay orders, RTGS/NEFT charges, cheque book issuance and utilization charges and many more other charges. It was the winner in two categories in Dum and Bradstreet?s Polaris Software Banking Awards 2011 It has recently inaugurated its 899th branch at Derawal Nagar, near to north campus of Delhi University, Delhi. It has now a network of 899 branches, 616 centres and 1494 ATM?s as on September 10, 2012.
MANAGEMENT AND ORGANIZATION:IDBI Bank is a Broad- managed organization. The responsibility for the day-today management of operations of the Bank is vested with the chairman and managing director and deputy managing director, who draw upon the support and expertise of a cross- disciplinary Top management team. IDBI Bank Ltd.?s employee base includes professionals from the field of accountancy, management, engineering, law, computer technology, banking and economics. BOARD OF DIRECTOS (as on 30th September, 2012) MR.R.M.MALLA (Chairman and Managing director) MR.B.K.BATRA (Deputy Managing Director) MR SUMIL SONI (Director) MR PRADEEP KUMAR CHOUDHERY (Director) MR SHUBHASH TULLI (Director) MR S RAVI (Director) MR NINAD KAPRE (Director)
AWARDS AND ACCOLADES OF IDBI 1. Public sector IDBI Bank was the winner in two categories in dun and Bradstreet?s Polaris Software Banking Awards. It won awards in two categories the overall best bank in India and the best public sector bank in India. 2. IDBI Bank has received the best public sector bank (PSB) award in „SME financing? from global business information provider Dun and Bradstreet (D&B). The award was presented to IDBI Bank at the Dun and Bradstreet- Polaris Software Banking Awards 2010 in Mumbai. 3. IDBI Bank?s corporate brand campaign „haathi soccer? has been adjudged the best in electronic medium by public relations council of India (PRCI). It bagged the Gold award, which was presented at a glittering function in Bengaluru on April4, 2009. IDBI Bank also won „Bronze? awards for its Annual Report FY 2007-2008 in the annual reports category. 4. IDBI Bank was conferred the “CNBC TV 18 Special Jury Award” in Mumbai.
PRODUCTS OF IDBI
IDBI Bank offers a wide array of products and services to its customers. For different customer group and needs, there are different types of products and services including personal banking, Corporate Banking, SME Finance etc. Following products and services are offered under Personal Banking: DEPOSITS: ? Saving Account ? Current Account ? Fixed Account ? Suvidha Tax Saving Account ? Pension Account ? Sabka Account ? Super Shakti Account for Women ? Jubilee Plus Account LOANS: ? ? ? ? ? ? ? Home Loans Loans Against Property Educational Loan Personal Loan Loan Against Securities Reverse Mortgage Loan Auto Loan
PAYMENTS: ? ? ? ? ? ? ? Tax Payments Stamp Duty Payments Easy Fill Bill Payment Card to Card Money Transfer Online Payments Pay Mate
INVESTMENTS ADVISORY
? Smart Financial Planning ? Mutual Fund ? Insurance ? Fixed Income Securities
CARDS: ? Gold Debit Card ? International Debit cum ATM Card ? Gift Card ? World Currency Card ? Cash Card ? KIDS Debit Card ? Foundation day Cash Back Scheme 2009 ? Platinum Card INSTITUTIONAL BANKING: ? Institutional Saving Account ? Corporate Payroll Account
24 HOURS BANKING: ? ? ? ? Phone Banking SMS Banking Account Alerts Internet Banking
OTHER PRODUCTS: ? Lockers ? India Post
FOLLOWING PRODUCTS AND SERVICIES ARE OFFERED BY IDBI BANK FOR THE CORPORATE:
? ? ? ? ? ? ? ? ? ? ? ? ? Project Finance Infrastructure Finance Syndication, Underwriting and Advisory services Carbon Credit Business Working Capital Cash Management Services Trade Finance Tax Payments Derivatives Technology Up gradation Fund Scheme (TUFS) Film Financing Scheme Direct Discounting Bills Rehabilitation Finance
FOLLOWING SME FINANCE PRODUCTS ARE OFFERED BY THE IDBI BANK: ? ? ? ? ? ? ? ? ? ? Sulabh vyapan loan Dealer finance Funding under CGFMSE Direct credit scheme- SIDBI Preferred customer scheme- IDBI Bank/ SIDBI Vendor financing (pre-sale/ post-sale) Lending against the securities of future credit card receivables Working capital financing- software development entities Finance to medical practitioners SME hosiery special current account
LOANS AT IDBI BANK:
IDBI Bank offer a wide range of loan products to suit all your needs ranging from home to education, a holiday to buying a laptop. The various loan offering by IDBI bank are as follows: ? Home loan ? Loan against property ? Personal loan ? Loan against securities ? Reverse mortgage loan ? Auto loans
RESEARCH METHODOLOGY
ALTERNATE SOURCE OF REVENUE FOR THE BANK
Broadly speaking the revenue sources of the bank can be divided into two the one, which it renders directly, and the other through the distribution of third party product of other companies. Revenue that is generated through the sale of third party products would be through
MUTUAL FUNDS A mutual fund is a trust that pools the saving of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures equity, debt instruments, money market instrument?s etc., or a mix of these securities, depending on the scheme objectives. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of unit owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offer an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Why IDBI Bank should sell Mutual Fund In today?s economic scenario wherein the interest rate of saving going down the customers are looking at other sources of investment through which they can get a good rate of return with a nominal risk. Instead of looking the customer to someone else the banks itself are offering this product at their branches and Mutual Fund is one instrument, which is catching the fancy of the investor. Mutual Funds are considered as the investment avenue. People always look for a high return. The banks are no longer giving the returns they once used to give and there is hardly any chance of the interest rates going up. So if one wants higher returns one has to invest in shares. But one does not have the expertise to invest. If one wants to minimize the risk one has to diversify the portfolio. But for diversification one need huge amount of money that one may not have. At this point one can turn to Mutual Fund for they provide expertise to invest in the stock market and also debt instruments. The fund manager decides where to invest and why. The investor can select a scheme according to his investment needs and risk appetite. Most of the funds give an indicate rate before investing and the returns eventually get close to the return indicated. IDBI Bank helps one to plan their investment and build a healthy mutual fund portfolio, which would be an optimal solution for all needs. Cultivating an investment culture will not only help the customer but also their family. And IDBI Bank gives highest priority to all customer needs.
Besides sale of mutual funds can serve all one of the best revenue generating income for the bank. Presently the bank earns 1-2% on mutual fund schemes. IDBI Bank offers a wide range of mutual fund products of various companies like HDFC, ICICI, UTI, HSBC, Reliance mutual funds etc. Advantages of Mutual Funds: ? Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. ? Diversification Mutual Funds invest in a number of companies across a broad cross – section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. ? Affordability A mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon the investment objective of the scheme. An investor can buy into a portfolio of equities, which would otherwise be extremely expensive. ? Tax Benefits Any income distributed after March 31, 2002 will be subject to tax in the assessment of all unit-holders. However, as a measure of concession to Unit holders of open – ended and equity – oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a concessional rate of 10%. ? Return Potential
Over a medium to long – term, mutual funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. ? Low Costs Investing in the capital markets because the benefits of scale in brokerage, mutual funds are a relatively less expensive way to invest compared to directly custodial and other fees translate into lower costs for investors. Liquidity prices from the mutual fund. In closed – ended schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the mutual fund. ? Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager?s investment strategy and outlook. ? Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.
? Well Regulated All mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.
? Tax breaks Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor. They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index (which is calculated to account for rising inflation), thereby reducing the gap between your actual purchase cost and selling price. This reduces your tax liability. What?s more, tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. You can avail of a 20 per cent tax exemption on an investment of up to Rs 10,000 in the scheme in a year. ? No assured returns and no protection of capital If you are planning to go with a mutual fund, this must be your mantra: mutual funds do not offer assured returns and carry risk. For instance, unlike bank deposits, your investment in a mutual fund can fall in value. In addition, mutual funds are not insured or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve Bank of India). There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. This is because most closed-end funds that assured returns in the early-nineties failed to stick to their assurances made at the time of launch, resulting in losses to investors. Restrictive gains Diversification helps, if risk minimization is your objective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security. In our earlier example, say, Reliance appreciated 50 per cent. A direct investment in the stock would appreciate by 50
per cent. But your investment in the mutual fund, which had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation.
Risk factors: All the investments in the securities market are subject to market risks and the NAV of schemes/ plans may go up or down depending upon the factor and forces affecting securities market. Past performance is not necessarily indicative of the future. Performance of IDBI Bank in Mutual Funds Sale: IDBI Bank was one of the first banks, which caught the pulse of its customers in the town for investment in Mutual Funds and today is a strong force to reckon with when it comes to investment in Mutual Funds. In the normal course of business the bank is able to generate a collection of around 5-10 lacks and during the time of NFO?s from various fund houses it is able to generate additional 10-15 lacks on an average. The Bank generate maximum revenue from the sale of Mutual Funds in the Bank and has got some dedicated customers who invest only through IDBI Bank. For this the bank has got its staff trained so as to understand the needs of the customer and offer them the products accordingly.
SALE OF RBI BONDS
IDBI Bank offers RBI bonds (GOI bonds). These bonds are fully taxable. The bonds were issued in cumulative and non-cumulative form, at the option of the investor.
The bond bears interest at the rate of 8% per annum. Interest on non-cumulative bonds will be payable at half-yearly intervals. Interest on cumulative bonds will be compounded with half-yearly rets and will be payable on maturity along with the principal. These investments are for long term period and therefore have no liquidity. Subscription to the bonds can be in the form of cash/drafts/cheque. The money is locked for 6 years but ne is guaranteed of the safety and returns. The bonds shall be repayable on the expiry of 6 tears from the date of issue. No interest would accrue after the maturity of the bonds. There will be no maximum limit for investment in the bonds.
Revenue from sale of RBI Bonds: IDBI Bank is one of the main distributors for RBI Bonds in India. They earn revenue of 2% on the amount collected. As it is one of the main distributors it has sub agents who distributors for the sale of bonds in such scenario they have part with a part of the revenue to them. But since the time the returns on the bonds have become taxable they have lost the sight of the investors, who now look at other for investment where they can get a tax-free return. As such the contribution of RBI Bonds in the revenue basket has come down.
BANC ASSURANCE
Banc assurance plays in major role in the alternate source of revenue for the banks in today?s day. The bank has got a tie up with Birla Sun Life Insurance for the distribution of life Insurance products and Bajaj Allianz General Insurance for the distribution of General Insurance Products.
Banc assurance – A SWOT analysis on IDBI Bank
STRENGTHS IDBI Bank greatest strength lies in a huge pool of skilled professional. There is a huge potential for insurance and the bank is making the best use of its interpersonal relationship with its loyal customer, as there is a vast untapped potential waiting to be mined particularly for life insurance products. Since both banks and Life Insurance Company approach the same segments of population, the same contact can be used to arrange for both bank deposited and life insurance. It creates a competitive advantage through cross selling synergy. This is not only help in saving of infrastructure costs and generate income for the bank but also helps in retaining customers for a longer time. It is also possible to develop a composite product that combines the elements of bank deposited and insurance.
WEAKNESSES Internet connection and other infrastructure facilities are not available to some of the managers of operating offices. People entrusted with banc assurance are reluctant to work beyond office hours, or on holidays like an individual agent, which may result in hardship to the ban and insurance company. At times due to transfer of offices to other branches there are instances when the customer has to either interact with untrained personnel or on personnel in the absence of proper succession planning. Another drawback is the inflexibility of the products i.e. it cannot be tailor made to the requirement of the customer. For Banc assurance venture to succeed it is extremely essential to have in-built flexibility so as to make the product attractive to the customer. OPPRTUNITIES: Bank?s data base is enormous. This database has to be dissected variously and various homogeneous group are to be churned out in order to position the Banc assurance products. One important opportunity is health insurance especially financing the medical needs of the aged. THREATS:
The main threat of Bank assurance is the immense competition prevailing today. For instance LIC, Prudential ICICI, etc. are doing far better than Birla sun life insurance. The most common obstacles to success are lack of a sales culture within the bank, insufficient product promotions, failure to integrate marketing plans, poor sales channel linkages, inadequate incentives, resistance to change, negative attitude towards insurance and unwieldy marketing strategy.
Commonly sold Life Insurance Individual Life Plans in IDBI Bank:
1. Term Plan:
A plan, which provides the customer with a pure risk cover at a nominal cost. It is like general insurance only in case of death during the tenure of the policy does the nominee get the Sum Assured or else if the policy holder survives during the entire term he does not get anything. 2. Classic Life Premier:
A product, which serves the investment savvy client who likes to have insurance as well, a decent amount of return on the premiums paid by him. This product gives the client the flexibility to choose the premium he would like to pay, the number of years he would like to pay, the sum assured he would like to have on this policy. This product gives the client to choose where he would like the insurance company to invest his money. He has an option to choose from funds, which have a varying equity exposure ranging from 0% to 90%, this would determine the return that he is going to get on his investment.
3. Flexi Save Plus:
This is an endowment plan wherein the client gets the money on maturity and in case of death during the policy period he gets the Sum Assured and the value of his investment. This also is an investment linked plan. 4. Flexi Cash Flow: A money back plan which cater to the client needs in case he would like to get some money on regular intervals. Again also on Investment Linked Plan.
GENERAL INSURANCE IDBI has got a strategic tie up with Bajaj Allianz General Insurance for sale of the latest products at the branches. With the tie up with Bajaj, IDBI is in a position to satisfy all the insurance needs of the client at the branch level . Some common products offered by IDBI:
1.FAMILY CARE
Is a med claim policy special tailor made for the account holders of IDBI Bank. In this policy the entire family can be covered under one policy. Bajaj
Allianz has given special rates to the customers of IDBI bank and only the customers having an account with IDBI bank can take this policy.
2.VEHICLE INSURANCE/ HOUSE INSURANCE etc
The account holders can also get their vehicle insurance done from IDBI bank as well as house and other insurable products insured through IDBI bank.
Revenue from sale of General Insurance: Sale of general insurance generates revenue of around 10-12% for the bank IDBI Udaipur was one of the late entrants in the sale of general insurance and has made a good start by bringing in good number of medicalaim policy and a couple of new vehicle insurance on a month-to-month basis.
DEPOSITORY SERVICES A depository can be compared to a bank. Holding a Demat account is a paperless, painless and convenient for buying and selling of shares in electronic form with total security and without any delays. A depository holds securities (like shares, debentures, bonds, government securities, units etc.) of investors in electronic form. Besides holding securities, a depository also provides services related to transactions in securities. In India at present we have two depositories NSDL and CDSL. IDBI Bank is a depository participant with both NSDL and CDSL.
Facilities provided by IDBI Bank on it’s demat account:
? Opening of demat account. ? Dematerialization i.e., converting physical certificate to electronic form. ? Dematerialization i.e., conversion of securities of securities in demat form into physical certificate. ? Pledging/ hypothecation of dematerialization securities against bank loan. ? Electronic credit of securities allotted in public issues, right issue. ? Receipt of non-cash corporate benefits such as bonus in electronic form. ? Freezing of demat account, so that the debits from the account are not permitted. ? Nomination facility for demat accounts. ? Services related to change of address. ? Effecting transmission of securities.
FINDINGS, CONCLUSION
AND SUGGESTIONS
FINDINGS:
? The average non-interest income ratio of the entire banking sector has risen over the past 4 years. Environmental factors such as risk, productivity, globalization, regulation and technology are found to play a significant part in explaining trends in non-interest income of banks. ? Fees earned by IDBI bank for most of the past decade were below the national peer group, but now growth in IDBI bank non-interest income reflects increase in revenue from wealth management and financial market operations rather than retail banking fees.
? From the analysis conducted in this report we can see that major part of the income comes from sale of Mutual Funds followed by banc assurance.
CONCLUSION: IDBI bank income for most of the past decades was below the national peer group before catching up at the end of the period, thus bringing them broadly into alignment with other banks. The growth in the banks income reflects the increases in revenue from wealth management. The overall profit margin has risen during the past 1 year due to the introduction of Banc assurance, mutual funds, RBI bonds etc. From the analysis we can conclude that most of the revenue for the bank is collected from mutual funds followed by banc assurance. As insurance has just been started it will pick up and going ahead it should become a major source of income to the bank.
Demat account have also not contributed much to the income of the bank. However income from Demat account will increase in the near future because IDBI Bank is likely to start with online trading. The locker facility is also a major source of income. The bank has gone in for expansion of lockers by getting in 1 more new cabinet. Risk, productivity, globalization, regulation and technological change are all significant forces shaping the non-interest income of banks. Noninterest income has increased its importance relative to net interest income. To conclude we can say that IDBI Bank has earned a decent income from ALTERNATE REVENUE SOURCES.
SUGGESTIONS: ? The bank must have more products in its menu like, online trading, credit cards etc. also proper positioning of these products should be done. ? The bank has got just 2 branches, they should start more number of branches so that they can reach out to more people. ? The bank should set up more ATM machines in the state. Also the bank should make provision to set up ATM?s at some of the key locations.
? There has to be well motivated, well guided sales team so as to increase sales.
? There should be more marketing and branding of products like putting up banners or giving sponsorship etc. in other words there has to be more visibility. ? More stress has to be given on the sale of Mutual Funds. The bank employees should put in more efforts in making the investors aware of the advantages of Mutual Funds. ? The bank should send monthly updates of the bank?s performance, introduction of new products and services etc. to the customers so as to make them aware of the prevailing products and services. ? The staff has to be rewarded with decent incentives so as to boost sale of products.
? Good service should be provided to existing customers.
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