CHAPTER 1
INTRODUCTION
TO THE INDUSTRY
I
1
INTRODUCTION TO INDUSTRY
WHAT IS BANKING-
Banking in a traditional sense is the business of accepting deposits of money from public for
the purpose of lending and investments. These deposits can have a distinct feature of being
withdrawal by cheques, which no other financial institution can offer.
In addition, banks also offer various other financial services, which includes:-
Issuing Demand Draft and Travelers Cheques
Credit Card
Collection of cheques, Bills of Exchange
Safe Deposit Lockers
Issuing Letters of Credit and Letters of Guarantee
Sale and Purchases of Foreign Exchange
Custodial Services
Investment and Insurance service
The business of banking is highly regulated since banks deal with money offered to them by
the public and ensuring the safety of this public money is one of the prime responsibilities of
any bank. That is why banks are expected to be prudent in their lending and investment
activities. Every bank has Compliance department, which is responsible to ensure that all the
services offered by the banks and the processes followed are in compliance with the local
regulation and the bank’s corporate policies:
Banking Regulation Act, 1949
Foreign Exchange Management Act, 1999
Indian Contract Act, 1872
Negotiable Instrument Act, 1881
Banks lend money either for productive purposes to individuals, firm corporate etc. or for
buying house property, cars and other durable and for investment purposes to individuals and
others.
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However banks do not finance any speculative activity. Lending is risk taking; having prudent
norms for lending should cover the risk. The depositors of banks are also assured of their
money by deploying some percentage of deposits in statutory reserve like SLR and CRR.
BANKING INDUSTRY IN INDIA
Banking in India has its origin as early as the Vedic period. It is believed that the transition from
money lending to banking must have occurred even before Manu. The great Hindu Jurist, who
devoted a section of his work to deposits and advances and lay down rules relating to rate of
interest. During the Mogul period, the indigenous banker played a very important role in
lending money and financing foreign trade and commerce. During the days of the East India
Company it was the turn of the agency houses to carry on the banking business.
The General Bank of India was the first joint Stock Bank to be established in the year 1786.
The others, which followed, were the Bank of Hindustan and Bengal Bank. The bank of
Hindustan is reported to have continued till 1906 while the other two failed in the meantime. In
Bank of Bengal in 1809, the Bank of Bombay in 1840 and the bank of madras in 1843. These
three banks also known as presidency Bank were independent units and functioned well.
These three banks were amalgam
Acted on 27th January 1921. With the passing of the State Bank of India Act in 1955 the
Reserve Bank of India Act 1934. In the wake of the Swedes Movement, a number of bank with
Indian management were establish in the country namely, Punjab National Bank Ltd., Bank of
India Ltd., the Central Bank of India Ltd., Indian Bank Ltd., the Bank of Baroda Ltd., and the
Central Bank of India Ltd. On July 19, 1969 fourteen major banks of the Country were
nationalized & in 15th April 1980 six more commercial private sector banks were also taken
over by the Government.
Today the commercial banking system in India may be distinguished into:
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PUBLIC SECTOR BANKS
State Bank of India & its associate bank called the State Bank Group, 20 nationalized banks,
Regional Rural Banks mainly sponsored by public sector banks Old generation private bank,
New generation private bank, foreign banks in India, Scheduled co-operative bank, non-
scheduled banks
CO-OPERATIVE SECTOR BANKS
The co-operative sector has been developed in the country to the supplement the Village
moneylender. The co-operative banking sector in India is divided into four components State
Co-operative Banks, Central Co-operative Banks, Primary Agriculture Credit Societies, Land
Development Banks, Urban Co-operative banks, Primary Agriculture Development Banks,
Primary Land Development Banks, and State Land Development Banks.
DEVELOPMENT BANKS
Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI),
Industrial Credit and Investment Corporation of India (ICICI), Industrial Investment Bank of
India (IIBI), Small Industrial Development Bank of India(SIDBI), SCICI Ltd., National Bank for
Agriculture and Rural Development(NABARD0, Export Import Bank of India.
NATIONAL HOUSING BANK
The Indian banking can be broadly categorized into Nationalized, Private Banks & Specialized
Banking Institution. The RBI Act as a centralized body monitoring and discrepancies and short
coming in the system. Since the Nationalization of Banks in 1969, the public sector banks have
accrued a place of prominence and have since then seen tremendous progress. Conservative
banking practices allowed India Banks to be insulated partially form the Asia currency crises,
India banks are now quoting all higher valuation when compared to Bank to other Asian
countries that have major problems linked to huge NPA’s and payment defaults. Co-operative
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banks are nimble footed in approach and armed with efficient branch network focus primarily
on the high revenue niche retail segments. The India banking was finally worked up to the
competitive dynamic of the new India market and is addressing the relevant issues to take on
the multifarious challenges of globalization.
Private Banks has been fast on the uptake and is reorienting their strategies using the interest
as a medium. The Interest has emerged as the new challenging frontier of marketing. The
large does of liberalization have largely brought this transformation and economic reforms that
allowed banks to explore new business opportunities rather generating revenues from
conventional streams i.e. borrowing and lending.
The banking in India is highly fragmented with banking unit contributing to almost 55 of
deposits and 60% of advances. Indian nationalized banks continue to be the major lender in
the economy duet to their sheer size and penetrative networks which assures them high
deposit mobilization. The India banking can be broadly categorized into nationalized, private
banks and specialized banking institutions. The RBI acts as a centralized body monitoring any
discrepancies and shortcoming in the system. It is foremost monitoring body in the Indian
financial sector. The nationalized banks continue that out of commercial banks operating in
India, banks are in the public sector and 5 are in the private sector. The private sector bank
grids also include foreign banks that have started their operation here.
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CHAPTER 2
INTRODUCTION TO
THE ORGANISATION
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INTODUCTION TO THE AXIS BANK
Commercial banking services which includes merchant banking, direct finance infrastructure
finance, venture capital fund, advisory, trusteeship, forex, treasury and other related financial
services. As on 31-Mar-2009, the Group has 827 branches, extension counters and 3,595
automated teller machines (ATMs).
Axis Bank was the first of the new private banks to have begun operations in 1994, after the
Government of India allowed new private banks to be established. The Bank was promoted
jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life
Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and
other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India
Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance
Company Ltd. The Bank today is capitalized to the extent of Rs. 359.76 cores with the public
holding (other than promoters) at 57.79%.The Bank's Registered Office is at Ahmadabad and
its Central Office is located at Mumbai. The Bank has a very wide network of more than 853
branches and Extension Counters (as on 30th June 2009). The Bank has a network of over
3723 ATMs (as on 30th June 2009) providing 24 hrs a day banking convenience to its
customers. This is one of the largest ATM networks in the country. The Bank has strengths in
both retail and corporate banking and is committed to adopting the best industry practices
internationally in order to achieve excellence.
History of Axis bank-
1993: The Bank was incorporated on 3rd December and Certificate of business on 14th
December. The Bank transacts banking business of all description. UTI Bank Ltd. was
promoted by Unit Trust of India, Life Insurance Corporation of India, General Insurance
Corporation of India and its four subsidiaries. The bank was the first private sector bank to get
a license under the new guidelines issued by the RBI.
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1997: The Bank obtained license to act as Depository Participant with NSDL and applied for
registration with SEBI to act as `Trustee to Debenture Holders'. Rupees 100 crores was
contributed by UTI, the rest from LIC Rs 7.5 crores, GIC and its four subsidiaries Rs 1.5 crores
each.
1998: The Bank has 28 branches in urban and semi urban areas as on 31 st July. All the
branches are fully computerized and networked through VSAT. ATM services are available in
27 branches. The Bank came out with a public issue of 1,50,00,000 No. of equity shares of Rs
10 each at a premium of Rs 11 per share aggregating to Rs 31.50 crores and Offer for sale of
2,00,00,000 No. of equity shares for cash at a price of Rs 21 per share. Out of the public issue
2, 20,000 shares were reserved for allotment on preferential basis to employees of UTI Bank.
Balance of 3, 47, 80,000 shares were offered to the public. The company offers ATM cards,
using which account-holders can withdraw money from any of the bank's ATMs across the
country which is inter-connected by VSAT. UTI Bank has launched a new retail product with
operational flexibility for its customers. UTI Bank will sign a co-brand agreement with the
market, leader, Citibank NA for entering into the highly promising credit card business.
2000: The Bank has announced the launch of Tele-Depository Services for Its depository
clients. UTI Bank has launch of `connect', its Internet banking Product. UTI Bank has signed a
memorandum of understanding with equitymaster.com for e-broking activities of the site.
Infinity.com financial Securities Ltd., an e-broking outfit is Typing up with UTI Bank for a
banking interface. Geojit Securities Ltd, the first company to start online trading services, has
signed a Moue with UTI Bank to enable investors to buy\sell Demat stocks through the
company's website. India bulls have signed a memorandum of understanding with UTI Bank.
UTI Bank has entered into an agreement with Stock Holding Corporation of India for providing
loans against shares to SCHCIL's customers and funding investors in public and rights issues.
ICRA has upgraded the rating UTI Bank's Rs 500 crore certificate of deposit programmed to
A1+.
2001: UTI Bank launched a private placement of non-convertible debentures to rise up to Rs
75 crores. UTI Bank has opened two offsite ATMs and one extension counter with an ATM in
Mangalore, taking its total number of ATMs across the country to 355. UTI Bank has recorded
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a 62 per cent rise in net profit for the quarter ended September 30, 2001, at Rs 30.95 crore.
For the second quarter ended September 30, 2000, the net profit was Rs 19.08 crore. The total
income of the bank during the quarter was up 53 per cent at Rs 366.25 crore.
2002: UTI Bank Ltd has informed BSE that Shri B R Barwale has resigned as a Director of the
Bank w.e.f. January 02, 2002. A C Shah, former chairman of Bank of Baroda, also retired from
the bank’s board in the third quarter of last year. His place continues to be vacant. M
Damodaran took over as the director of the board after taking in the reins of UTI. B S Pandit
has also joined the bank’s board subsequent to the retirement of K G Vassal. UTI Bank Ltd
has informed that Shri Paul Fletcher has been appointed as an Additional Director Nominee of
CDC Financial Service (Mauritius) Ltd of the Bank. And Shri Donald Peck has been appointed
as an Additional Director (nominee of South Asia Regional Fund) of the Bank. UTI Bank Ltd
has informed that on laying down the office of Chairman of LIC on being appointed as
Chairman of SEBI, Shri G N Bajpai, Nominee Director of LIC has resigned as a Director of the
Bank.
2003: UTI Bank Ltd has informed BSE that at the meeting of the Board of Directors of the
company held on January 16, 2003, Shri R N Bharadwaj, Managing Director of LIC has been
appointed as an Additional Director of the Bank with immediate effect on UTI Bank; the private
sector bank has opened a branch at Nellore. The bank's Chairman and Managing Director, Dr
P.J. Nayak, inaugurating the bank branch at GT Road on May 26. Speaking on the occasion,
Dr Nayak said. This marks another step towards the extensive customer banking focus that we
are providing across the country and reinforces our commitment to bring superior banking
services, marked by convenience and closeness to customers. -UTI Bank Ltd. has informed
the Exchange that at its meeting held on June 25, 2003 the BOD have decided the following:
1) To appoint Mr. A T Pannier Selvam, former CMD of Union Bank of India and Prof. Jayanth
Varma of the Indian Institute of Management, Ahmadabad as additional directors of the Bank
with immediate effect. Further, Mr. Pannir Selvam will be the nominee director of the
Administrator of the specified undertaking of the Unit Trust of India (UTI-I) and Mr. Jayanth
Varma will be an Independent Director. 2) To issue Non-Convertible Unsecured Redeemable
Debentures up to Rs.100 crores, in one or more tranches as the Bank's Tier - II capital. -UTI
has been authorized to launch 16 ATMs on the Western Railway Stations of Mumbai Division.
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-UTI filed suit against financial institutions IFCI Ltd in the debt recovery tribunal at Mumbai to
recover Rs.85cr in dues. -UTI bank made an entry to the Food Credit Programmed; it has
made an entry into the 59 cluster which includes private sector, public sector, old private sector
and co-operative banks. -Shri Ajeet Prasad, Nominee of UTI has resigned as the director of
the bank. -Banks Chairman and MD Dr. P. J. Nayak inaugurated a new branch at Nellore.-UTI
bank allots shares under Employee Stock Option Scheme to its employees.
2004: Comes out with Rs. 500 mn Unsecured Redeemable Non-Convertible Debenture
Issue, issue fully subscribed -UTI Bank Ltd has informed that Shri Ajeet Prasad, Nominee of
the Administrator of the Specified Undertaking of the Unit Trust of India (UTI - I) has been
appointed as an Additional Director of the Bank w. e. f. January 20, 2004.-UTI Bank opens
new branch in Udupi-UTI Bank, Geojit in pact for trading platform in Qatar -UTI Bank ties up
with Shriram Group Cos -Unveils premium payment facility through ATMs applicable to LIC
UTI Bank customers –Metal junction (MJ)- the online trading and procurement joint venture of
Tata Steel and Steel Authority of India (SAIL)- has roped in UTI Bank to start off own
equipment for Tata Steel. -DIEBOLD Systems Private Ltd, a wholly owned subsidiary of
Diebold Incorporated, has secured a major contract for the supply of ATMs and services to UTI
Bank -HSBC completes acquisition of 14.6% stake in UTI Bank for .6 m -UTI Bank installs
ATM in Thiruvananthapuram -Launches Remittance Card' in association with Remit2India, a
Web site offering money transfer services
2005: - UTI Bank enters into a banc assurance partnership with Bajaj Allianz General for
selling general insurance products through its branch network. -UTI Bank launches its first
Satellite Retail Assets Centre (SRAC) in Karnataka at Mangalore.
2006: -UBL sets up branch in Jaipur -UTI Bank unveils priority banking lounge.
Management of Axis bankPromoters: Axis Bank Ltd. has been promoted by the largest and the best Financial Institution
of the country, UTI. The Bank was set up with a capital of Rs. 115 crore, with UTI contributing
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Rs. 100 Crore, LIC - Rs. 7.5 Crore and GIC and its four subsidiaries contributing Rs. 1.5 Crore
each SUUTI - Shareholding 27.02%Erstwhile Unit Trust of India was set up as a body
corporate under the UTI Act, 1963, with a view to encourage savings and investment. In
December 2002, the UTI Act, 1963 was repealed with the passage of Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 2002 by the Parliament, paving the way for the
bifurcation of UTI into 2 entities, UTI-I and UTI-II with effect from 1st February 2003. In
accordance with the Act, the Undertaking specified as UTI I has been transferred and vested in
the Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI), who
manages assured return schemes along with 6.75% US-64 Bonds, 6.60% ARS Bonds with a
Unit Capital of over Rs. 14167.59 crores. The Government of India has currently appointed
Shri K. N. Prithviraj as the Administrator of the Specified undertaking of UTI, to look after and
administer the schemes under UTI where Government has continuing obligations and
Mar-08 Axis Bank launches Platinum Credit Card, India's first EMV chip based card
Dec-07 Axis Bank gets AAA National Long-Term Rating from Fitch Ratings
Sept-07 Axis Bank ties up with Banque Privée Edmond de Rothschild Europe for Wealth Management
July-07 UTI Bank re-brands itself as Axis Bank
July-07 UTI Bank successfully raises USD 1050 million
July-07 UTI Bank ties up with Tata Motors Ltd. for Car Loans
June-07 UTI Bank's expansion into Asia supported by FRS
May-07 UTI Bank launches 'Spice Rewards' on the bankcards - India's first-ever merchant-supported rewards program
April-07 UTI Bank opens a Financial Services Category I Branch in the DIFC in Dubai
Mar-07 UTI Bank ties up with Hyundai Motor India Ltd. for Car Loans
Mar-07 UTI Bank ties up with IIFCL to provide finance for infrastructural projects in the country
Mar-07 UTI Bank launches Car Loans in association with Maruti Udyog Ltd
Mar-07 UTI Bank opens a Full License Bank Branch in Hong Kong
Feb-07 Finance Minister Shri P. Chidambaram Launches Shriram - UTI Bank Co - Branded Credit Card Exclusively For Small Road Transport Operators (SRTOS)
Feb-07 UTI Bank announces the launch of its Meal Card
Feb-07 UTI Bank announces the launch of its Gift Card
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Feb-07 LIC Premium payment now through UTI Bank Branches
Jan-07 UTI bank opens Priority Banking branch in Mumbai and Kolkata
Nov-06 UTI Bank opens Priority Banking Lounge in Pune
Sep-06 UTI Bank launches operations of UBL Sales, its Sales Subsidiary - Inaugurates its first office in Bangalore
Aug-06 UTI Bank announces the launch of its Credit Card Business
Aug-06 UTI Bank becomes the first Indian Bank to successfully issue Foreign Currency Hybrid Capital in the International Market
Aug-06 UTI Bank Business Gold Debit Card MasterCard Launched - Designed for business related spending by SMEs and self employed professionals
Aug-06 UTI Bank announces the scheme of issuance of "Senior Citizen ID Card" in association with Dignity Foundation
Aug-06 UTI Bank rolls out its 2000th ATM
July-06 UTI Bank opens Representative Office in Shanghai
May-06 UTI Bank and LIC join hands to launch an Annuity Card for group pensioners of LIC
May-06 UTI Bank ties up with Geojit Financial Services to offer Online Trading service to its customers
Apr-06 UTI Bank opens its first international branch in Singapore
Jan-06 UTI Bank and UTI Mutual Fund to launch a new service for sale and redemption of mutual fund schemes through the Bank's ATMs across the country
Dec-05 UTI Bank wins International Financing Review (IFR) Asia 'India Bond House' award for the year 2005
Oct-05 UTI Bank extends banking services to the rural milk producers in Anand and Kheda districts in Gujarat
July-05 UTI Bank and Visa International launch Mobile Refill facility - Anytime, Anywhere Pre-Paid Mobile Refill for all Visa Cardholders in India
May-05 UTI Bank and Bajaj Allianz join hands to distribute general insurance products
Apr-05 UTI Bank launches Smart Privilege - a special bank account designed for women
Mar-05 MTNL ties up with UTI Bank for payment of telephone bills through the Bank's ATM network
Mar-05 UTI Bank gets listed on the London Stock Exchange, raises US$ 239.30 million through Global
Mar-05 Depositary Receipts (GDRs)
Feb-05 UTI Bank appointed by Government of Karnataka as the sole banker for the
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Bangalore One (B1) project
Feb-05 UTI Bank launches a powerful version of Kisan Credit Card
Jan-05 UTI Bank ties up with Remit2India to launch the Remittance Card
Mar-04 UTI Bank enables premium payment of LIC policies through its ATMs.
Feb-04 Bilateral arrangement between State Bank of India (and its 7 associate member banks) and UTI Bank. comes into force with the commencement of operations (as on 3rd February '04) of the combined network of over 4000 ATMs
Feb-04 UTI Bank (by pursuing a proactive strategy of forging bilateral agreements and being a progressive player in the multi-lateral consortiums for shared ATM network) offers its customers access to over 7000 ATMs across the country - the largest to be offered by any bank in India so far.
Dec-03 Bank inaugurated its ATM at Thegu near the Nathula Pass in Sikkim. This ATM is at the highest altitude in India.
Sep-03 The Bank's ATMs across the country crosses the thousand mark
Sep-03 Bank launches the Travel Currency Card.
Aug-03 The Bank's Debit Card crosses the one million mark.
Aug-03 Total Advances cross Rs 7,000 Crore.
May-03 Bank declares a net profit of Rs 192.18 crores for FY03, a growth of 43% over the previous year
Mar-03 Bank signs Agreement with Employees Provident Fund Organization (EPFO) for disbursement of Pension
Mar-03 Bank crosses the 800 ATM mark
Mar-03 The Bank issues 3,83,62,834 fully paid up equity shares totaling to Rs. 164.00 crores, through a
Mar-03 Preferential offer to Life Insurance Corporation of India (now constituting 13.54% of
Mar-03 the Bank's expanded equity), Citicorp Banking Corporation, Bahrain (holding 3.84%), Chris Capital I,
Mar-03 LLC, Mauritius (holding 3.84%) and Karur Vysya Bank Ltd.(constituting 1.00%) The Bank also
Mar-03 Increases the authorized share capital of the Bank from Rs. 230 crores to Rs. 300 crores.
Feb-03 Bank, in a pioneering move, launches the AT PAR Cheque facility, free of cost, for all its Savings Bank customers.
Feb-03 Bank wins mandate to set up 14 ATMs at the Western Railway stations along the Mumbai division.
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Oct-02 Bank launches Corporate iConnect? - the Internet Banking facility for Corporate
Aug-02 Bank signs MoU with BSNL regarding bill collection services across the country through both online and offline channels.
Apr-02 Bank opens its 500th ATM
Mar-02 Deposits Cross Rs.12, 000 Crore
Jan-02 The Bank's 100th branch opens at Tuticorin, Tamilnadu
Jan-02 The Bank opens an ATM at the Gol Dak-Khana, i.e. the New Delhi GPO, making it the first instance of a commercial bank setting up an ATM at any post-office in the country.
Dec-01 Total Advances cross Rs 5,000 Crore
Nov-01 The deposit base for the Bank crosses Rs. 10,000 Crore
Sep-01 Private placement of 26% stake in the Bank to CDC Capital Partners. UTI holding reduces to 44.88%
Aug-01 Bank signs MoU with India Post for introducing value added financial products and services to customers of both organizations, including setting up of UTI Bank ATMs in post offices.
July-01 Bank ties up with Govt of Andhra Pradesh for collection of commercial tax
Dec-00 Bank opens its 200th ATM. It becomes the 2nd largest ATM network in the country, a position held even today.
Oct-00 Bank becomes fully networked
July-00 E-commerce initiatives announced
July-00 Financial Advisory Services offered beginning with marketing of US 64
Apr-00 UTI Bank calls off its proposed merger with Global Trust Bank and surges ahead on its own.
Apr-00 Bank launches its Internet banking module, iConnect Retail loans introduced for the first time by the Bank
Mar-00 Profits cross Rs 50 crore mark for the first time.
Feb-00 Bank adopts Financial software from Infosys for core banking
Jan-00 Dr.P.J Nayak takes over as Chairman and Managing Director from Shri Supriya Gupta.
Sep-99 Cash management services (CMS) launched, Co branded credit card launched
Mar-99 Deposits cross Rs.3000 crores
Sep-98 UTI Bank goes public with a Rs. 71 crore public issue; Issue over-subscribed 1.2 times, over 1 lakh retail investors. UTI holding reduces to 60.85%
Jun-96 Crosses Rs.1000 crore deposit mark
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Mar-95 Completes first profitable year in operation
Apr-94 First branch of UTI Bank inaugurated at Ahmadabad by P.CHITAMBERM SINGH, Hon'ble Finance Minister, Government of India.
Dec-93 UTI Bank comes into being
Dec-93 Registered office at Ahmadabad; Head office at Mumbai
MILESTONE
PRODUCTS OF AXIS BANK
Easy Access Saving Account
Saving Account for Women
Prime Saving Account
Senior Citizens Saving Account
Priority Banking
Corporate Salary Account
Trust /NGOs Saving Account
Resident Foreign Currency Account
Online Trading Account
Current Account
Term Deposits
Locker Facilities
NRI Services
Depository Services
Financial Advisory Services
Wealth Management Services
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Insurance Solutions – Life and General
Retail Loans
Credit Loans
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ORGANIZATION STRUCTURE OF AXIS BANK
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CHAPTER 3
RESEARCH METHOLODIGY
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RESEARCH METHODOLOGY
TITLE OF THE STUDY
“SCOPE OF HOUSING FINANCE AND RETAIL FINANCE”
DURATION OF THE STUDY
45 DAYS TRAINING From 20 May 2013 to 5 July 2013
OBJECTIVES OF RESEARCH
The main objective of this project is concerned with getting the opinion of people regarding
of whole sale banking operations and what they feel about availing the services of financial
advisors.
To understand the banking relationship of organizations with their existing banker.
To generate the business by generating leads.
This title refers to find the need of customer and on that basis identify the customer in
various finance services and promotional tool among the existing customer as well as
prospecting customer.
DATA SOURCES
Data was gathered through primary and secondary data.
Primary data- It consists of original information gathered for the specific purpose the data is
generally collected by survey. Primary sources were preferred because of its relevance to the
issue to have a focused approach due emphasis was given to obtain accurate information from
the respondent.
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Secondary data - It consists of information that already exists having been collected for
another purpose. With the help of secondary data collected from various magazines
newspapers and trade journals market patterns websites of co. & through net surfing.
Survey method was used to collect the primary data on various parameters by way of personal
interview supported by a well-structured questionnaire. Questionnaire is enclosed in last
SAMPLE SIZE AND METHODS OF SELECTING SAMPLE-
Sample Characteristics by Loan Term
Less than/equal to 5 Years
Average loan size of Rs. 3,19,699, with 73.6% of loans sanctioned since July 01
Proportion of fixed rate loans at 34.2%
Lowest average property area (119.15 sqm) and income (Rs. 27,867),
Share of up gradation loans at 28.6%
Presence of co-obligants at 37.6% and self-employed borrowers at 6.4%
IIR at 22.29% and LCR at 64.1%
From 10 to 15 Years
Average loan size of Rs. 2,70,080, with 50.56% of loans sanctioned since July 01
Proportion of fixed rate loans at 19.0%
Property area at 88.79 sqm and income at Rs. 14,075
Up gradation loans at 8.2%
Self-employed borrowers at 6.0% and the presence of co-obligants at 36.6%
IIR at 28.90% and LCR at 67.83%
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From 5 to 10 Years
Average loan size of Rs. 3,49,983, with 63.76% of loans sanctioned since July 01
Proportion of fixed rate contract at 20.7%
Average property area (101.27 sqm) and income at (Rs. 18,925),
Up gradation loans at 20.1% and the presence of co-obligants at 39.7%
Self-employed borrowers at 7.7%
IIR at 24.81% and LCR at 63.99%
Above 15 Years
Average loan size of Rs. 3,26,840, with 80.75% of loans sanctioned since July 01
Proportion of fixed rate contract at 13.5%
Average property area at 93.19 sqm and monthly income at Rs. 15,183
Up gradation loans at 2.1%
Self-employed borrowers at 15.4% and the presence of co-obligants at 41.2%
IIR at 31.84% and LCR at 71.03%
Sample Characteristics by Sanction Amount
Less than Rs. 100,000
High proportion of fixed rate contracts at 44.0%, with proportion of loans with term
below 5 years at 25.67% and above 15 Years at 6.76%
Lowest average property area (85.2 sqm) and income (Rs. 9,682) and high share of up
gradation loans (38.5%),
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Presence of co-obligants at 29.9% and self-employed borrowers at 4.4%
LCR at 58.64% and IIR at 16.65%
Between Rs. 100,001 to Rs. 200,000
Proportion of fixed rate contract at 25.2%, with proportion of loans with term below 5 years at 10.38% and above 15 Years at 5.94%
Average property area (81.08 sqm) and income at (Rs. 10,590) and presence of co obligants at 31.3%.
Up gradation loans at 14.6%
Self-employed borrowers at 4.67%
IIR at 26.57% and LCR at 63.69%
Between Rs. 200,001 to Rs. 500,000
Proportion of fixed rate contracts at 16.2%, with proportion of loans with term below 5
years at 6.02% and above 15 Years at 15.4%
Property area at 95.77 sqm and income at Rs. 15,949 and up gradation loans at 6.53%
Self-employed borrowers at 6.97% and the presence of co-obligants (42.2%)
IIR at 31.18% and LCR at 69.75%
Between Rs. 500,001 to Rs. 1,000,000
Proportion of fixed rate contract at 11.5%, proportion of loans with term below 5 years at
7.19% and above 15 Years at 24.49%
Average property area at 131.06 sqm and monthly income at Rs. 34,686 and up
gradation loans at 2.52%
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Self-employed borrowers at 12.32%, with the presence of co-obligants (55.0%),
IIR at 32.62% and LCR at 73.08%
Self-employed borrowers at 6.63% and the presence of co-obligants (41.4%),
IIR at 25.26% and LCR at 67.95%
Above Rs. 1,000,000
Average loan size of Rs. 255,316, with median loan size of Rs. 200,000, with high
proportion of fixed rate contracts (11.5%),
Proportion of loans with term below 5 years at 9.20% and above 15 Years at 29.69%
Lowest average property area (197.32 sqm) and income (Rs. 86,254),
Proportion of up gradation loans at 0.95% only
Presence of co-obligants at 62.6% and self-employed borrowers at 18.02%
LCR at 76.18% and IIR at 32.95%
Sample Characteristics: Delay/Default Study by Region
Southern Region
1. Small value loans (53% below Rs. 2, 00,000), with fixed interest rate contracts of over
30%,
2. Over 43.58% are of 10-15 year maturity and 44.77% below 10 years
3. Relatively large average property area (2nd highest) and the highest income
(Rs. 20,061),
4. High share of up gradation loans (20%),
23
5. Second largest co-obligates (40%) and the relatively low self-employed borrowers
(6.06%).
6. Second highest IIR (26.3%) and Lowest LCR (62.4%)
Western Region
1. Medium size loans (40% between Rs. 2, 00,000 to 5, 00,000), with floating rate contracts at
80%,
2. 51.94% are of 10-15 year maturity and 35.48% below 10 years
3. Smallest average property area (75.8 sqm), low (2nd lowest) monthly income (Rs. 15,816),
4. Lowest proportion of up gradation loans (10%),
5. Relatively higher proportion of self-employed borrowers (6.75%) and the lowest presence of
co-obligate(33%).
6. Highest IIR (28.6%) and LCR (69.6%).
Northern Region
1. Large value loans (16% of Above Rs. 500,000), with floating rate interest contract at 82.5%,
2. Over 42.98% are of 10-15 year maturity and 46.62% below 10 years
3. Highest average property area (127.9 sqm), relatively higher income (Rs. 19,214),
4. Relatively higher share of up gradation (17%)
5. Highest presence of co-obligates (49%) and highest proportion of self-employed (8.73%)
6. Lowest IIR among regions at 25.2% and low LCR (64.1%)
Eastern Region
24
1. Small value loans (53% below Rs. 200,000), with proportion of fixed rate contract at 25.7%,
2. Over 40.91% are of 10-15 year maturity and 46.97% below 10 years
3. Second lowest average property area (84.4 sqm), lowest monthly income (Rs. 15,712),
4. High proportion of up gradation loans (17%).
5. Lowest proportion of self-employed borrowers (3.46%) and relatively higher presence of co-
obligates (39%),
6. Relatively low IIR (26.3%), but high LCR (67.9%).
Sampling procedure
The sample is selected in a random way, irrespective of them being investor or not or
availing the services or not. It was collected through mails and personal visits to the known
persons, by formal and informal talks and through filling up the questionnaire prepared. The
data has been analyzed by using the measures of central tendencies like mean, median,
mode. The group has been selected and the analysis has been done on the basis statistical
tools available.
Sample design
Data has been presented with the help of bar graph, pie charts, line graphs etc.
Sampling plan
Sampling unit - Who are to be surveyed.
Sampling size - How many are to be surveyed.
Going by the sampling objectives of the study there was all those sales team manager,
C.A. , tax consultant, ICC, Businessmen, Govt. servant and also general public, means
almost all the people, which are considered to be a sample unit and together constitute
25
universe. Respondents were incorporated in the study on the basis of simple random
sampling technique.
FIELD WORK
Mainly the Field work was done in the various areas and localities of Jaipur city, and big
task was to go for the different age group persons (less than 35 years and More than 35
years) to differentiate the Investment behaviors of the Youth and the Middle aged persons.
• RESEARCH APPROACHES: Observations and Survey.
• RESEARCH INSTRUMENT: Structured Questionnaires.
• SAMPLE SIZE: 200 (100+100) Respondents of Jaipur city (100 respondents of more
than 35 years and 100 respondents of less than 35 years age).
• SAMPLING PROCEDURE: Convenient Sampling
LIMITATION OF RESEARCH
Due to time constraint, the research was confined to Jaipur only.
Sample size is very small.
Some of the respondents shows biasness and gave wrong information
Some of the respondents do not cooperate and are not interested in answering.
Some of the persons were not so responsive.
Possibility of error in data collection.
Possibility of error in analysis of data due to small sample size.
26
CHAPTER 4
FACTS & FINDINGS
27
FACTS & FINDINGS
(a) Delay Risk
The following variables were found to determine the level of delay risk for a loan:
Geography: Loans originating in the Southern and the Western Region have a marginally
higher risk than the loans in the North, at the end of five years into loan age. The East has a
lower risk compared to all other regions.
Origination Period: Recent loans carry higher risk as compared to loans disbursed in prior
periods of study. This may be a result of high level of competition leading to a certain amount
of slackening of controls.
Loan Amount: Higher value loans carry higher risk during the later years of the study period,
whereas the smaller loans carry a relatively higher risk during the first two years of the loan
term.
Loan Term: Longer term loans carry relatively lower risk, except for the loans with 10-15 year
tenure. Almost three fourths of the long term loans have been disbursed for the purpose of
purchasing new dwellings.
Co-obligate: The presence of a co-obligate helps mitigate risk under most circumstances, as
the default risk is lower for loans backed by co-obligates.
Loan Purpose: Loans disbursed for up gradation of property have a higher risk, followed by
loans disbursed for purchase of new dwellings and for purchase of old dwellings respectively.
Borrower Occupation: Self-employed borrowers carry a higher risk than employed borrowers,
but small-loan employed borrowers carry the maximum risk.
28
This analysis gives a fair view of the determinants of delay risk in terms of the above-
mentioned variables. However, the credit analysis process would need to consider the
variations in credit risk arising out of segment, borrower and loan profile.
(b) Default Risk
As mentioned earlier, the definition of delay risk in this study is relatively stricter than the
definition of default risk. Default event has been defined as a situation where a borrower has 3
or more outstanding installments at the end of one year from the date of first delay. Based on
this analysis, in summary, the following variables have been observed to determine the level of
default risk for a loan:
Geography: Loans originating in the Western region have the highest default risk, followed by
the Southern, Northern and the Eastern Regions.
Origination Period: While default risk for earlier period loans is observed to rise only during
the later years of loan age, the loans during the recent period show an increase in probability
of default during the earlier years of loan age.
Loan Amount: Smaller loans have a higher risk of default during the later years of loan age.
Loan term: Loans with term between 5 to 15 years carry a higher risk as compared to the
Below 5 years and the Above 15 year loans.
Co-obligate: The presence of a co-obligate mitigates the risk of default except in the Northern
region.
29
Borrower profession: Self employed borrowers carry higher risk, except in recent loans
As evident from the graph above, the share of default in the category of self employed
borrowers have been higher than the overall (combined for all borrowers) default rate in each
Loan to Cost Ratio LCR category.
Loan Purpose: Loans for new dwelling units are observed to have higher risk compared to the
loans for old dwellings. Relationship between Default Rate and Loan to Cost Ratio1
The study revealed that there is a significant change in the default rate as the LCR changes.
While there was a steady increase in the default rate as the LCR increases, the trend was
reversed in the highest LCR category when the rate actually shows a southern trend.
Relationship between default rate and loan to cost ratio
30
Loan to Cost Ratio may be interpreted as Loan to Value Ratio as the data has been based on
the value of properties.
A fair degree of consistency was observed in the credit risk behavior of the different LCR
categories across regions and time periods. Though the proportion of self employed borrowers
in the higher LCR was lower, the average Installment Income Ration (IIR) was observed to
increase with LCR. From the observations, it was fair to infer that higher default with increase
in LCR could be resulting from increased pressure on borrower due to higher IIR.
Origination Period: Recent period loans carry a higher prepayment risk as compared to loans
issued in earlier periods of the study.
(c) Prepayment Risk
The study revealed that the level of prepayment risk for a loan is determined by the following
variables:
Geography: Loans originated in the Southern region have the highest prepayment risk,
followed by the Northern, Western and the Eastern region.
Loan Amount: Smaller loans have a lower initial prepayment risk compared to larger loans
On a realistic note, PLIs have been using their experience to address various risk elements in
their lending for housing finance. HFCs/ Banks use the presence of a co-obligate as a credit
31
risk mitigation mechanism, as it is perceived that co-obligant backed loans carry lower risk.
This has also been corroborated by the study. Again, as the smaller loans are observed to
carry a relatively higher risk during the earlier years of a loan, a firm with a larger share of
smaller loans in its portfolio may need to invest more resources in the monitoring and
collection process. We observe a similar trend in loans sanctioned during the recent years,
compared to loans sanctioned earlier, irrespective of the loan amount.
The findings of the study also indicate that as the industry gains greater maturity in terms of
harvesting existing opportunities arising from different demographics/ socio economic
conditions, there may be a reason to determine the risk-adjusted return that the PLI is able to
achieve in different segments and allocate capital to different regions or sub-portfolios
(mapped to different market segments) depending on the risk.
32
CHAPTER 5
ANALYSIS &
INTERPRETATION
ANALYSIS & INTERPRETATION
RETAIL FIANCE-
Indian Retail finance continues to redefine the credit growth in the country. It grew by a
whopping 44.4% in 2005-06 to touch Rs3, 538 billion. This leap was despite the increase in
risk weight by RBI for housing and real estate loans during August, 2005. Housing, which
constitutes more than 52% of all retail loans, grew at a robust rate of 44.35% during 2005-06.
In order to help banks in India to understand the market and competition and plan future
strategies, we have just come out with an Industry Insight on Indian Retail finance – 2006
33
edition. This report analyses the Retail finance market and its segments in India and presents
the key trends, along with issues and challenges.
The annual growth in bank credit to the commercial sector is at 25.4% as on March 31, 2007
and was lower than 27.2% against the previous year. Until 2010, Retail finance is expected to
grow at a CAGR of 28% to touch a figure of INR9, 700 billion. This requires expansion and
diversification of retail product portfolio, better penetration and faster service mechanism. The
report on Retail finance Industry in India covers industry segments like housing loan, auto loan,
personal loan, education loan, consumer durable loan, credit card and regulatory frame work
for retail banks is also discussed. The report gives Retail finance industry's current
performance and future outlook. A total of 22 major retail banks in India are covered in terms of
their performance, strategy and outlook.
Retail finance in India has fast emerged as one of the major drivers of the overall banking
industry and has witnessed enormous growth in the recent past. The Retail Finance Report
encompasses extensive study & analysis of this rapidly growing sector. It primarily covers
analysis of the present status, current trends, major issues & challenges in the growth of the
retail finance sector.
Retail lending across the globe has been a showcase of innovation in the commercial banking
sector. Countries like China and India have emerged as potential markets with huge
investment opportunities. The higher growth of retail lending in emerging economies is
attributable to fast growth of personal wealth, favorable demographic profile, rapid
development in information technology, the conducive macro-economic environment, financial
market reforms, and several micro-level supply side factors. . The retail finance strategies of
banks are undergoing major transformation, as banks adopt a mix of strategies like organic
growth, acquisitions and alliances. This has resulted in a paradigm shift in the marketing
strategies of the banks. Public Sector Banks players are adopting aggressive strategies,
leveraging their branch network and their customer vase to earn a larger share of the retail pie.
Banks are also going in for innovative strategies like cross selling and packaged selling of
retail products. At the same time, new foreign players are also entering this high growth sector.
GROWING RETAIL MARKET
34
A. T. Kearney recently identified India as the "second most attractive retail destination" of 30
emergent markets. Similarly, Associated Chambers of Commerce and Industry of India's
(Assoc ham’s) study, projected the overall retail market to grow from Rs 5,88,000 crore now
(unorganized market Rs 5,83,000 core, organized Rs 5,000 crore) to Rs 8,00,000 crore by
2009. The success of the organized retail market — encompassing the department store
format, hyper-market cash-and-carry store, supermarket format and specialty retailing — rests
on the right assessment of demographic customer profiles.
Exploitation of the latent "globalizations" (think global, act local) potential requires robust
growth in retail loans. The Basel-II credit risk framework is based on a Merton-type model,
calibrated to fit three retail exposure types relating to qualified revolving exposures, residential
mortgage exposures and other retail exposures.
The steadily burgeoning retail banking portfolio, the constant refinements to the nature and
pricing of retail products and the renewed emphasis on the customer-centric system, or what
Prof C. K. Prahlad calls the "bottom of the pyramid", make retail lending the core competence
of banks.
Acquisition of an agile, broad-based business model generating economies of scale requires
synchronized action through direct communication with the end-user, product differentiation,
product management, customer's credit history, proper borrower identification and skilful risk
management. In the shift from bricks to clicks, multi-channel delivery strategies — ATMs, the
Internet and telebanking — need to be increasingly used.
DRIVERS OF RETAIL BUSINESS IN INDIA
What has contributed to this retail growth? Let me briefly highlight some of the basic reasons.
First, economic prosperity and the consequent increase in purchasing power have given a fillip
to a consumer boom. Note that during the 10 years after 1992, India's economy grew at an
average rate of 6.8 percent and continues to grow at the almost the same rate – not many
countries in the world match this performance.
35
Second, changing consumer demographics indicate vast potential for growth in consumption
both qualitatively and quantitatively. India is one of the countries having highest proportion
(70%) of the population below 35 years of age (young population). The BRIC report of the
Goldman-Sachs, which predicted a bright future for Brazil, Russia, India and China, mentioned
Indian demographic advantage as an important positive factor for India.
Third, technological factors played a major role. Convenience banking in the form of debit
cards, internet and phone-banking, anywhere and anytime banking has attracted many new
customers into the banking field. Technological innovations relating to increasing use of credit /
debit cards, ATMs, direct debits and phone banking has contributed to the growth of retail
banking in India.
Fourth, the Treasury income of the banks, which had strengthened the bottom lines of banks
for the past few years, has been on the decline during the last two years. In such a scenario,
retail business provides a good vehicle of profit maximization. Considering the fact that retail’s
share in impaired assets is far lower than the overall bank loans and advances, retail loans
have put comparatively less provisioning burden on banks apart from diversifying their income
streams.
Fifth, decline in interest rates have also contributed to the growth of retail credit by generating
the demand for such credit.
RETAIL BANKING PRODUCTS AND SERVICES
Wide range of retail banking products and services are offered by the banks, which cover both
Depository and Advances to suit various segments of customer like salaried persons,
businessmen, traders, professionals, pensioners etc. are as follows:-
· Housing loan.
· Personal loan.
· Vehicle or automobile loan.
· Loan for consumer goods.
· Credit and Debit cards-Global and international.
36
· Loan for holidays.
· Insurance products.
· Gold loans.
· Event loans.
· Overdraft.
· Mutual funds etc.
· Leasing, hire purchase and factoring services
Retail banking depositories in various segments like children, housewives, salaried class,
professionals etc. include the following: -
· Flexi deposit accounts.
· Savings bank accounts.
· Recurring deposit account.
· Fixed deposit
· Lockers.
· Other short-term deposits.
Banks are coming out with more features to add value to retail banking products and services.
These are called VALUE ADDED PRODUCTS AND SERVICES. These include the following: -
· Free collection of specified number of outstation instruments per month.
· Instant credit of outstation cheque.
37
· Concession in commission, exchange for issuance of pay orders and demand drafts.
· Issuance of free chequebooks.
· Issuance of free ATM cards.
· Interest rate options (fixed or floating)
· Waiver of credit card issuance fees.
· Free issuance of Add On cards to the members of the cardholders.
· Accident insurance cover.
· Arranging for insurance cover on the lockers in the bank.
· Reducing the fees charged on locker facilities.
· Free execution of standing instructions of customers.
· Free investment advisory services.
· Legal services for documentation
· Services to senior citizens
Other services include -
· Payment of bills like electricity bills, telephone bills and water bills etc. on due date.
· Payment of monthly or quarterly education fee for children.
· Payment of insurance premium on or before due dates.
· Demating of shares, debentures and bonds.
· Telephone banking.
· Internet banking.
· Making payments at doorsteps.
38
STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS
A. Constant product innovation to match the requirements of the customer segments: The
customer database available with the banks is the best source of their demographic and
financial information and can be used by the banks for targeting certain customer segments for
new or modified product. The banks should come out with new products in the area of
securities, mutual funds and insurance
B. Quality service and quickness in delivery: As most of the banks are offering retail products
of similar nature, the customers can easily switchover to the one, which offers better service at
comparatively lower costs. The quality of service that banks offer and the experience that
clients have, matter the most. Hence, to retain the customers, banks have to come out with
competitive products satisfying the desires of the customers at the click of a button.
C. Introduction of new delivery channels: Retail customers like to interface with their bank
through multiple channels. Therefore, banks should try to give high quality service across all
service channels like branches, Internet, ATMs, etc.
D. Tapping of unexploited potential and increasing the volume of business. This will
compensate for the thin margins: The Indian retail banking market still remains largely
untapped giving a scope for growth to the banks and financial institutions. With changing
psyche of Indian consumers, who are now comfortable with the idea of availing loans for their
personal needs, banks have tremendous potential lying in this segment. Marketing
departments of the banks be geared up and special training be imparted to them so that banks
are successful in grabbing more and more of retail business in the market.
E. Infrastructure outsourcing: This will help in lowering the cost of service channels combined
with quality and quickness.
39
F. Detail market research: Banks may go for detail market research, which will help them in
knowing what their competitors are offering to their clients. This will enable them to have an
edge over their competitors and increase their share in retail banking pie by offering better
products and services.
G. Cross-selling of products: PSBs have an added advantage of having a wide network of
branches, which gives them an opportunity to sell third-party products through these branches.
H. Business process outsourcing: Outsourcing of requirements would not only save cost and
time but would help the banks in concentrating on the core business area. Banks can devote
more time for marketing, customer service and brand building. For example, Management of
ATMs can be outsourced. This will save the banks from dealing with the intricacies of
technology.
I. Tie-up arrangements: PSBs with regional concentration can reap the benefit of reaching
customers across the country by entering into strategic alliance with other such banks with
intensive presence in other regions. In the present regime of falling interest and stiff
competition, banks are aware that it is finally the retail banking which will enable them to hold
the head above water. Hence, banks should make all out efforts to boost the retail banking by
recognizing the needs of the customers. It is the innovative and competitive products coupled
with high quality care for clients will only hold the key to success in this area. In short, bankers
have to run very fast even to stay where they are now. It is the survival of the fastest now and
not only survival of the fittest.
HOUSING FINANCE-
Housing is a significant engine for growth and development of the economy. The growth in
housing and housing finance activities in recent years reflect the floating state of housing
40
market in the country. The multiplier effect of investment on housing has grown over the past
few years as the proportion of outstanding housing loan as percentage of GDP increased from
3.4% in 2001 to 9.4% by 2007 this is quit indicative of that potential exists if the proportion of
investment in housing in the other developed and emerging economies considered. A quick
look on the statistics shows that the housing loans exposure in India is much lower compared
to other countries. The ratio in India is merely 4% of GDP as against 54% in USA, 57% in UK,
14% in Thailand, 17% in China. Also, the net NPA in Housing is less than 2%, which is much
lower than other segments. The construction boom is limited only to the metros and big cities
and this cannot be the parameter for the Central Bank to make the loan price dearer.
Housing finance expanded rapidly because of investment demand and acute housing
shortage. As housing became a key contributor to banks' profitability, certain facilities began to
be routinely extended. These included processing fee waiver, pre-closure charges and
guarantees, simplified loan procedure and provision of different services such as house
insurance, repayment protection, credit/debit cards/ATM cards, and personal accident
insurance.
With a growing number of players and increased competition, the housing sector becoming
increasingly market driven. The sector efforts safe and secure residential assets good
business opportunities for the lending agencies and for the borrowers. Overall the affordability
of housing loan clearly appears to have improved with fast growing number of borrowers. This
has also partly resulted from higher levels of disposable income seen among the earners.
While the market has also witnessed change in lending practices in certain segments to
accommodate customer needs, as an offshoot of increased competition and an buyers’
market. There is a felt need for standardization and uniformity in practices in order to improve
transparency in the market and bring greater efficiency. The impact of these positive growth
indicators and sentiments has not been uniform in the rural and urban areas. The reasons are
infrastructural limitations and legal inadequacies coupled with geographical divergences. There
has been a growing concern about reaching credit for rural housing on market terms and
conditions. The concerns have been articulated in various policy pronouncements and the
sector has to gear up to find market related solutions for them. Investment in housing in the
rural areas on a large scale, besides ameliorating living conditions, also impacts the economic
profile or the region and can result in all-round development. There is a strong case for
41
supportive and an enabling policy framework for bringing in large investments in rural housing,
this can well change the economic landscape of rural India.
TYPES OF HOUSING LOAN
Home loan products are offered by almost all banks; from loans for purchasing real estate to
buying a flat, from home improvement to home extension loans. The EMI and rate of interest is
decided, taking into account a number of factors such as, the loan amount, market value of the
land or building, tenure of loans etc. The following types of home loans are generally available
in the market;
Home Equity Loans: A form of finance to the customer by way of mortgage of existing
property to the financier for taking a loan for some other purpose. The current market value of
the property is the basis for providing home equity loans.
Home Extension Loans: The purpose of this loan is the extension of existing houses like
addition of rooms, toilet facilities etc. Such loans fall under category of home loans.
Home Improvement Loans: These loans are provided mainly for repairs and maintenance of
existing houses. These could include internal and external repairing, waterproofing and
roofing; compete interior renovation, tiling and flooring etc.
Home Purchase Loans: Finance provided for the purchase of ready-made houses.
Land Purchase Loans: These loans are being provided for the purchase of land for the
purpose of construction of residential houses.
HOUSING LOAN DISBURSEMENT
42
Over the past few years, the steady growth registered in housing finance disbursements
indicates continued buoyancy in the industry. Table reveals that a significant increase during
the year 2011-12.the total disbursements of housing finance stood at Rs. 76819.00 crore
registering an overall growth of 41.47 percent. The five year compounded Annual Growth Rate
as on 2011-2012 stood at 32.15%.
(Rs. In Crore)
HOME LOAN DISBURSEMENT BY PUBLIC SECTOR BANK 2010-2012
Home loan DisbursementBank of India
Bank ofmaharastra
Central Bank ofIndia
Dena Bank
United Bank ofIndia
Housing loan disbursement
0100002000030000400005000060000
2008-09 2009-10 2010-11 2011-12
Years
Rs.
HFCSCB
43
The housing loan party may not quite be over for the nation's public sector banks. But there is
concrete evidence that the tempo may at least be slowing down. The loan disbursements
which grew by over 40 per cent in the two years prior to the fiscal 2012-14 have seen these
banks posting a growth rate of just 21 per cent in the year just gone by (2012-14). The portfolio
grew from Rs 1, 11,639 crore to Rs 1, 35,052 crore, according to information available from
sources in the Finance Ministry. Contrast this with a more than 100 per cent rise over a two-
year period between 2012 and 2014 that saw the home loan portfolio move up from Rs 53,737
crore to Rs 1,11,639 crore. Of course, it would have been an even more depressing tale of
sluggish growth, but for a few banks continuing to register smart rise in their portfolios. Banking
industry sources have for some time been cautioning that a combination of rising interest rates,
high cost of real estate (which however has shown some signs of coming down from the year-
high perch) and higher margins in bank loans would slow down growth in home loan portfolios.
The Government has on its part been keen that the impact of high interest rates should
somehow be softened on the small and medium borrowers. The Finance Minister, Mr. P.
Chidambaram had recently asked the chief executives of public sector banks to protect the
interests of borrowers in the Rs 8-10 lakh category to the extent possible.
HOME LOAN INTEREST RATES
Interest rates largely remained kind, including those on housing loans, and are expected to
remain competitively affordable in the coming years also. Banks follows their policy for
calculating interest rates but most banks follow the yearly reducing-balance method, which
accounts for your principal repayments only at the end of their financial year. As a result, you
pay interest on the principal that you have already returned to the bank. The effective interest
rate is therefore higher than the quoted interest rate by around 0.7%. Some banks may also
follow the daily or monthly reducing-balance method, which results in a lower interest burden.
There are two types of interest rates.
44
Fixed Rate of Interest: Fixed Rate of Interest means that the interest rates remain FIXED for
the entire duration the loan. This basically means that you do not benefit, even if the rates of
interest drop in the market.
Floating Rate of interest: This is the rate of interest that fluctuates according to the market
lending rate.
In recent times, the interest rate started to move up as can be witnessed for the fact that during
the last one-year period in, interest rates on housing loans have been increased twice by about
50bps. Home Loans Rates have seen a drastic mount over the last 3 years. We have reached
to the matching situate to that of in the year 2009, where most of the bank provided home
loans in India at the rate of 10.5%, Nevertheless there was a decline in the year 2010-2012
where interest rates even touched as low as 9.75%, this might have attracted many of us to
take home loans and invest in the prime properties. That was year 2012 and as of today the
home loan rates are at 12.5% which is nothing but a back-stab for the ones who took home
loan at half of the interest rates.
Housing budgets, already stretched by spiraling prices, will get further strained due to higher
outgo on home loans. Home loan market leader HDFC announced a 50basis point’s hike in
interest rate for all existing borrowers with floating rate loans. This means that the EMI for new
customers will be Rs. 1033, for every one lakh on a 20-year loan. For existing floating rate
customer, the EMI will be Rs.34 for every Rs 1lakh loan with an outstanding tenure of 20years.
The largest bank ICICI also announced a 75 basis points hike in the fixed as well as floating
home loan interest rate. The fixed rate of interest for ICICI home loans will now be 14.75%. -
Possibly costliest in the sector. State Bank of India also decided to raise interest rates on
home loans by 50bps on all credit linked to prime lending rates (PLR). Meanwhile two
government banks Bank Of India and Canra Bank decided to spare home loan borrowers from
the rate hike, even as they increased interest rates for other categories of borrowers. Bank of
India have raised their by 50bps to 13.25%, but left home loan rates untouched. On a floating
rate basis, Bank of India offers home loans in the band of 9.25%-10%.
45
The Union Bank of India and the State Bank of India has increased their benchmark prime
lending rates by 0.50 per cent each. This hike will result in change in SBI benchmark rate to
12.75 per cent immediately and to 13.25 per cent in case of UBI from July 1, 2012.
The hike follows the CRR and the repo rate hike by the Reserve Bank of India (RBI). This will
lead to increase in interest rates for all loans linked to the benchmark rates.
In the Reserve Bank of India annual credit policy meeting on April 29, 2008, the provisioning
requirement has been lowered for home loans up to Rs. 30 lakh. Following the move, RBI
expects the banks to pass on the benefits of reduced rates to loans consumers. According to
media reports, currently 85 per cent customers are in up to Rs. 30 lakh category. In the total
home loan portfolio, 40 per cent are on fixed rate.
Based on the revision of the provisioning requirement, home loans of Rs. 20-30 lakh will be
charged at par with those below Rs. 20 lakh, but there will be no change in interest rates for
loans below the threshold.
The move might give the banks? Lending business a much needed boost.
Due to frequent revision of interest rates since 2010, there is a slowdown in the growth of
loans. The home loan portfolio of banks grew just 12 per cent between April 2010 and
February 15, 20011 (Rs. 26,930 crore) compared to 25.8 per cent growth (Rs. 46,019 crore)
between April 2008 and February 15, 2007.
Loans to individuals for housing grew 16.44 per cent to touch Rs. 1, 48,489 crore in March
2010 against Rs. 1, 27,522 crore in March 2011.
Home Loan Interest Rate (Below 20 lakh)
Banks Floating
Allahabad Bank 10.25-11
Bank of Maharashtra 10.25-10.75
Canara Bank 10.5-10.75
46
HDFC 11
ICICI 11.25 - 11.75
Dena Bank 10.75
Bank of India 9.75 – 10.25
PNB Housing Finance
Ltd. 10.75
State Bank Of India 11.25
UCO Bank 10.5 – 10.75
MAXIMUM IIR TO UNABLE INCREASE IN EMI
As the interest rate head north, panic-stricken home loan borrowers are flocking to home loan
counters to restructure their debt, this is not surprising as since late 2011, home loan interest
rates have raised whopping 400-450 basis points.
Ideally, borrowers who have taken loans for more than 15 years neither should not go for
extension of the loan tenure. If the income installment ratio (IIR) is less than 30-35 %, there is
scope for increase in EMI to cover the hike in interest rate. Otherwise, borrowers should make
upfront payment to reduce the principal burden.
Technically, borrowers have three options when the interest rates shoot up. They can either
liquidate their investment or saving or shell out lump sum to reduce the principal loan amount
or agree to a higher EMI if disposable income permits or extend the tenure of the loan.
However, experts in the housing finance segment believe that the last option should be
avoided as it often leads to a situation where repayment of loans does not cover the amount of
interest due for what the particular loan period.
SBI, which was the first to react to RBI’s dual dose of repo rate and CRR hike, said it would not
levy any prepayment charge if borrowers pay op fully or partly from their own resources. The
prepayment fee is charged when borrowers transfer loans to other lenders.
47
INSTITUTIONAL PERFORMANCE
The need for long term finance for housing in the country is met by the following types of
institution:
1 SCHEDULED COMMERCIAL BANKS
2 SCHEDULED CO-OPERATIVE BANKS
(SCHEDULED STATE CO-OPERATIVE BANKS,
SCHEDULED DISTRICT CO-OPERATIVE BANKS AND
SCHEDULED URBAN CO-OPERATIVE BANKS)
3 REGIONAL RURAL BANKS,
4 AGRICULTURE AND RURAL DEVELOPMENT BANKS
5 HOUSING FINANCE COMPANIES.
The housing demands of various economic and demographic sections of the population are
met by these institutions by way of their housing loan schemes. The banks have the largest
network of branches and are also the largest mobilizer of savings in the country. Since housing
finance becomes a part of the 40 per cent priority sector lending, it makes business sense for
banks to undertake this activity. Moreover, a favorable tax and regulatory regime, act as
catalyst for doing business in this sector. Further the earmarking of 3 percent of incremental
deposits of Banks to finance housing activities has ensured availability of adequate funds for
housing activities. Securities by way of mortgage of property and robust demand have been
major considerations for banks to lend this sector.
The prominent players in this industry continue to be commercial banks. Cooperative banks
and other own niche and have been catering to their markets extensively. The institutional
performance of these institutions has been influenced by more than just customer demand.
48
Stricter NPA norms, rising interest rates and stiff competition in mobilizing low cost deposits,
have all affected the supply side factors, which in turn has influenced the performance of these
institutions in terms of volume and competitiveness.
HOUSING FINANCE DISBURSEMENTS BY VARIOUS INSTITUTIONS
[Rs. Crore]
PRIMARY LENDING INSTITUTIONS
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
SCHEDULED COMMERCIAL
BANKS
8566 23553 32816 50398 58623 60398
HOUSING FINACE
COMPANIES
14614 17832 20862 26042 27411 30458
CO-OPERATIVE
INSTITUTIONS
678 642 623 **421 10247 *
TOTAL 23858 42027 54301 76819 76398 90856
*Source: RBI, NHB
** Distribution by Apex Co-operative Housing Finance Societies only
HOUSING LOAN AS PERCENTAGE OF GDP
The accelerated growth of housing finance has resulted in an increase in its share in the GDP.
Outstanding housing loans as a percentage of GDP has risen from 3.4 per cent in 2006 to 7.25
percent in 2010 and 8.50 per cent in 2012. The figure has been pegged at about 12 per cent
by the end 2010. In view of the increased investment in the services sector, which contributes
49
about 50 per cent to the nation's GDP, and growth in urbanization, it is expected that the share
of housing in GDP would go up substantially in the coming years.
The last year has witnessed significant developments in the global economy. Following the
deterioration in the US sub-prime housing loan market, the US economy is expected to
experience a sharp slowdown in growth. During fiscal 2010, the Indian economy continued on
its high growth path, despite some moderation due to difficult conditions in global markets and
increasing inflationary pressures and monetary tightening. The Central Statistical Organization
(CSO) put GDP growth at 9.0% during fiscal 2010 following the 9.6% GDP growth in fiscal
2009, reflecting a slight moderation in growth of the economy. Growth in fiscal 2010 was driven
mainly by double-digit growth in the services sector and growth in the industrial sector. The
Index of Industrial Production (IIP) recorded an annual average growth rate of 8.1% in fiscal
2010, moderating from 11.5% in fiscal 2009. This was mainly due to moderation of growth in
the manufacturing sector from 12.5% in fiscal 2009 to 8.6% in fiscal 2010. The momentum of
growth in the services sector (including construction) continued with 10.7% growth during fiscal
2010 following the 11.2% growth in fiscal 2009.
Global oil prices increased sharply during fiscal 2010, increasing inflationary pressures
experienced on this account. International crude oil prices increased from US$ 65.87 per barrel
at March 30, 2007 to US$ 101.58 per barrel at March 31, 2010 and further increased to US$
135.90 per barrel at June 13, 2010. In view of rising inflation, Reserve Bank of India (RBI)
increased the Cash Reserve Ratio (CRR) from 6.00% to 7.50% during fiscal 2010 and further
to 8.25% effective May 2010.
CREDIT AND PREPAYMENT RISK PROFILE IN HOUSING FINANCE MARKET
The Indian housing finance market has grown fairly significantly during the last few years.
Fiscal incentives for investment in housing for households and treatment of housing finance as
Priority Sector lending for banks have been two of the main factors contributing to growth in
this market. However, a large part of the industry portfolio has been acquired in the present
50
low-interest rate scenario and during the period when economic conditions have been
relatively stable.
The key to further growth in the Indian housing finance market, as elsewhere in the world, is
the ability of housing finance firms (including banks) to trade their portfolio. Securitization has
been one of the most important risk-sharing arrangements in the housing finance market, the
world over. It has been proved that securitization can help lower the cost of credit, broaden the
pool of investors and borrowers and lessen the variability in availability of capital for the
housing finance firms.
Success in the development of the securitization market depends on the ability to understand
the behavior of underlying mortgage assets under varied economic conditions for different
market segments. The knowledge of borrower, property and loan characteristics is critical to
understanding the nature of risk associated with packages of securitized assets. Towards this
end, as per study of the credit and prepayment characteristics for a sample of housing loan
portfolios across different geographical markets. The objective was to identify relevant tools in
respect of pricing of securitized assets and determine factors, which would contribute in the
choice of credit enhancement instruments. In addition, the study was expected to facilitate
product design, credit analysis processes and pricing decisions by the housing finance
institutions. Borrower Characteristics
A closer look at the borrower characteristics suggests that there is a large variation across
regions, sanction amount, and sanction period and loan terms. Following are the data on
borrower characteristics for each of the segments for the delay/default risk sample.
The study covered the following aspects of the housing finance market:
1. Borrower characteristics- (Occupation, Borrower Age, Installment to Income Ratio, Monthly
Household Income and Presence of Co-obligate)
2. Loan characteristics- (Sanction Amount, EMI, Loan to Cost (or Value – our data is in terms
of value) Ratio, Borrowing Purpose – Refinancing and New purchase, Interest Rate and
Nature of Interest Rate Contract, Mode of Payment, Mode of Origination and Loan Term), and,
3. Property characteristics- (Property Area and Nature of Dwelling Unit- Old, New or up
gradation)
51
The key objective was to understand the credit and prepayment risk associated with each of
the segments that emerged based on these characteristics. The segments that were
considered for the study were:
_ Region
_ Loan Term
_ Sanction Amount
The Credit Risk has been defined using two events - Delay and Default event. Delay event is
the situation where the borrower has an overdue amount or pending installments (irrespective
of the amount due) at the end of 3 months from date of first delay in repayment. This is a
relatively stricter definition of credit risk (Delay Risk).
Default event is the situation where a borrower has 3 or more outstanding installments at the
end of one year from the date of first delay (Default Risk). Prepayment risk event is the case
where the borrower has prepaid his or her loan in part or full. A descriptive analysis of the
sample data was carried out to map the profile of various segments and to confirm that the
choice of segments and variables is reasonable and appropriate.
COMPETITORS
1. ICICI Bank Ltd.
2. HDFC Bank Ltd.
3. State Bank of India
4. HSBC Bank
5. RBS (Royal Bank of Scotland)
6. Maharashtra Bank of India
7. Canara Bank
8. Andhra Bank
9. IDBI bank
10. Bank of India
11. Punjab National Bank
12. Central Bank
52
13. Allahabad Bank
14. ING Vysya
53
CHAPTER 6
SWOT ANALYSIS
SWOT ANALYSIS-
StrengthsStrength captures the positive aspects internal to your object that add value or offer you a competitive advantage. This is your opportunity to remind yourself of the value existing your object.
Excellent Market Coverage.
54
Quality – Conscious Organization; the Company is always able to compete on Quality.
Experienced work force.
The employees are satisfied with their present job profile.
WeaknessesWeaknesses capture the negative aspects internal to your object that detract from the value you offer or place you at a competitive disadvantage. These are areas you need to enhance in order to compete with your best competitor.
The Price of Company Product is high than the Competitors.
Employees turnover.
Narrow product range.
Unorganised labour contractors
Lack of HR development
OpportunitiesOpportunities reflect the potential you can realize through implementing things. Opportunities may be the result of growth, lifestyles changes, and resolution of problems associated with current situations.
There so many opportunities to make better utilization of the work force if the management gives better cash reward to the employee’s than worker will work hardly.
Benchmarking HR practices
Sharing HR practices with other locations.
ThreatsThreats include factors beyond your control that could place your things at risk. These are also external –you have no control over them, but you may benefit by having contingency plans to address them if they should occur.
Problem of labour turnover.
55
There is need of development in technology change and to change the present market
policy.
56
CHAPTER 7
CONCLUSION
CONCLUSION
ISO 9001 certification for its depository & custody operations & for its backend
processing of retail operation & housing finance operations.
The bank has a near competitive edge in area of operations.
57
The bank has a market leader in cash settlement service for the major stock exchanges
in its country.
AXIS Bank is one of the largest private sector banks working in India.
The bank has started facing competition from players like SBI, PNB Bank in the finance
market itself. This reduces the profit margins in the future.
Some Pvt. Banks have 7 days banking.
Since profit is the overall objective of a business enterprise, this ratio is a barometer of
the overall performance of the enterprise. It measures how efficiently the capital
employed in the business is being used.
58
CHAPTER 8
RECOMMENDATIONS
& SUGGESTIONS
RECOMMENDATIONS & SUGGESSTIONS
A. Building an inclusive housing finance system- The housing finance market has been consistently exhibiting rapid growth in the past few years
with an estimated CAGR of 38%. Growth has been largely in urban areas and in the middle to
high income groups, in particular the salaried class. This growth was partly fuelled by the entry
59
of commercial banks seeking asset growth in a sluggish business environment coupled with
the tax incentives on housing loans. The banks, with their lower cost of funds, extensive
branch network, capability to provide a range of personal banking services and aided by the
average low default rates in housing finance, could expand the market considerably. They
however, continued to focus on middle to higher income groups with the lower income groups,
self employed, rural population by and large excluded. Thus, notwithstanding the phenomenal
growth of housing finance, outstanding housing loans constitute a mere estimated 4% of the
country’s GDP, much lower than other comparable countries such as Korea, China, Thailand,
Malaysia, Brazil. In the context of the apparent potential for housing finance in the country, the
issues of affordability, new and customized products, delivery channels, policy interventions
and their sequencing assume relevance.
While the expanding middle and higher income groups may continue to access conventional
housing finance, increasing attention will need to be paid to the needs of the unnerved and
underserved. How can housing be made an instrument of financial inclusion? That housing is
the largest component of an individual in the middle and low income groups is well recognized.
The challenge is to leverage housing for equitable economic growth and poverty reduction. At
the same time, the housing finance market is an integral part of the financial market and would
need to be deepened, widened and made more sophisticated by participation in the
liberalization of the financial sector.
B. Innovation and Product Development
With the expansion of the market and entry of new classes of borrowers, the need for
innovation through development of new products, adaptation of existing products, developing
new delivery mechanisms and channels cannot be over emphasized. Innovative
Lenders would see new business opportunities which offer them market expansion as well as
higher margins in a manner that fits into their corporate strategies. Commercial banks, in
particular, might be able to identify opportunities for cross selling a range of financial products
60
with the growing convergence of Indian financial markets and offer innovative personal
financial solutions to individuals to address their home loan, insurance, savings and investment
needs. In order that innovation is facilitated and scale of economies is exploited,
standardization of business, underwriting processes, documentation would be called for. This
would not only be of value to the individual businesses but also spur higher levels of
specialization and expertise in the industry. Further, it would also address regulatory concerns.
C. Market Infrastructure
The rapid growth of the housing sector has left the market infrastructure lagging behind. In
developed economies, housing stocks and mortgages are leading indicators of economic
activity and are widely tracked. In India, housing data is scattered resulting in insufficient
analytical work which is a constraint in public policy formulation. Building a detailed data base
covering housing and housing finance at a disaggregated level is both urgent and important.
Such a database could include housing stocks, sales of existing houses, the nature of house
construction, house prices at different centers, profiles of homeowner classes including
affordable mortgages, information on construction, loans to developers, construction finance,
information on defaults, frauds.
D. Consumer Awareness and Protection
In the ultimate analysis, the borrower i.e., the home buyer is and should be the focus of
attention as far as the housing finance industry is concerned. In the absence of adequate
regulations, the average home buyer is often at the receiving end due to one-sided
documentation, little awareness of rights, inadequate education on the legal and financial
aspects of home purchase as well as home loans. With the RBI emphasizing the need for
codes and standards for the banking industry in the interest of greater transparency and
fairness to the consumer, similar effort is called for in the housing and housing finance
industry. NHB has advised housing finance companies that they should consider financing only
those residential projects which conform to the prescribed regulation standards. NHB has also
initiated a dialogue with the builders and real estate developers where a system of rating of
61
projects and developers can be exploited by the industry so that the consumer can make a fair
choice. It is also necessary to educate first-time home buyers on the processes and the
regulations involved in purchasing a house and the various major loan terms and covenants
when they borrow to finance the projects. Of late, with increase in interest rates, borrowers
who had taken floating rate loans in the past, obviously attracted by the lower interest rates,
have been making submissions that they have not been adequately informed about the
implications of increase in floating rate loans. Thus, the need for greater transparency in
housing finance transactions to enable borrowers to make enough choice about products and
profiles of lenders is the primary requisite of a well informed market... Amongst other activities,
the banks should ensure that its members embrace best consumer oriented practices. And
should develop a system of independent home loan counselors who will act in the best interest
of the consumer. In some, the development of a sustainable housing finance system could in
due course emerge as a cornerstone of the financial systems.
62
CHAPTER 9
APPENDIX
APPENDIX
63
DIFFERENT RATES & CHARGES
IN AXIS BANK YEAR 2011-2012
Rate of Interest 15.00% to 24.00%
Cheque Bounce Charges Rs. 500 per cheque bounce + Service Tax as applicable
Cheque/ Instrument Swap charges Rs.500 per instance + Service Tax as applicable
Prepayment/ Forclosure Charges NilDefault Interest Rate @24.00% per annum i.e
2% per month on the overdue installment
Duplicate Statement Issuance Charges
Duplicate Amortization Schedule Charges
Duplicate Interest Certificate(Provisional/ Actual) issuance Charges
Rs 250 per instance + Service Tax as applicable
Rs 250 per instance + Service Tax as applicable
Rs 250 per instance + Service Tax as applicable
Cibil Report Issuance Charges
Stamp Duty Charges
Rs. 50/- per instance per set+ service tax as applicable
As per State Stamp ActIssuance Charges for Photocopy of Loan Agreement/ Documents
Rs 250 per instance + Service Tax as applicable
64
CHAPTER 9
BIBLIOGRAPHY
BIBLIOGRAPHY
65
WEBSITES-
WWW.GOOGLE.COM
WWW.MONEYCONTROL.COM
WWW.AXISBANK.COM
WWW.WIKIPIDIA.COM
BOOKS –
I M Pandey, “Financial Management”
Kothari, C.R., “Research Methodology Methods & Techniques”, 2006,
New Age International (p), Publishers
Prassan Chandra, Financial Management
Gupta, S.L., “ Marketing & Finance”,2004, Excel Books
TOPICS-
A new beginning: the turnaround story of Indian bank.
Banking and financed
Banking developments in India
Basics of banking
66
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