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Standard Chartered Bank in India Analysis

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Executive Summary

The competition in the banking sector is increasing at a tremendous rate.

MNC banks in India are doing well in India and Standard Chartered Bank being one of them wants to increase the consumer base. Therefore, it is trying to do this through retail banking. At this point of time the bank is expanding and is coming up with new branches all over India. It has recently opened a new branch there and if yes then how it can acquire new Customers.

In two month's time I was supposed to promote and sell their products (especially deposits) and to do a market study to know customers needs and requirements so that bank can improvise on them if possible. This time period was not enough to do an intense study. Therefore, I could collect limited data and kept my study limited to small a sample

INTRODUCTION

An overview of SCB

Standard Chartered is the world's leading emerging markets bank. It employs 29,000 people in over 500 offices in more than 50 countries in the Asia Pacific Region, South Asia, the Middle East, Africa, United Kingdom and the Americas.

The Bank serves both Consumer and Wholesale banking customers. The Consumer Bank provides credit cards, personal loans, mortgages, deposit taking activity and wealth management services to individuals and medium sized businesses. The Wholesale Bank provides services to multinational, regional and domestic corporate and institutional clients in trade finance, cash management, custody, lending, foreign exchange, interest rate management and debt capital markets.

With 150 years in the emerging markets the Bank has unmatched knowledge and understanding of its customers in its markets.

Standard Chartered recognizes its responsibilities to its staff and to the communities in which it operates

A brief history of Standard Chartered

Standard Chartered is the world's leading emerging markets bank headquartered in London. Its businesses however, have always been overwhelmingly international. This is summary of the main events in the history of Standard Chartered and some of the organizations with which it merged.

The early years

Standard Chartered is named after two banks, which merged in 1969. They were originally known as the Standard Bank of British South Africa and the Chartered Bank of India, Australia and China. Of the two banks, the Chartered Bank is the older having been founded in 1853 following the grant of a Royal Charter from Queen Victoria. The moving force behind the Chartered Bank was a Scot, James Wilson, who made his fortune in London making hats. James Wilson went on to start The Economist, still one of the world's pre-eminent publications. Nine years later, in 1862, the Standard Bank was founded by a group of businessmen led by another Scot, John Paterson, who had immigrated to the Cape Province in South Africa and had become a successful merchant. Both banks were keen to capitalize on the huge expansion of trade between Europe, Asia and Africa and to reap the handsome profits to be made from financing that trade. The Chartered Bank opened its first branches in 1858 in Chennai and Mumbai. A branch opened in Shanghai that summer beginning Standard Chartered unbroken presence in China. The following year the Chartered Bank opened a branch in Hong Kong and an agency was opened in Singapore. In 1861 the Singapore agency was upgraded to a branch, which helped provide finance for the rapidly developing rubber and tin industries in Malaysia. In 1862 the Chartered Bank was authorized to issue bank notes in Hong Kong. Subsequently it was also authorized to issue bank notes in Singapore, a privilege it continued to exercise up until the end of the 19th Century. Over the following decades both the Standard Bank and the Chartered Bank printed bank notes in a variety of countries including China, South Africa, Zimbabwe, Malaysia and even during the siege of Marketing in South Africa. Today Standard Chartered is still one of the three banks, which prints Hong Kong's bank notes.

Expansion in Africa and Asia

The Standard Bank opened for business in Port Elizabeth, South Africa, in 1863. It pursued a policy of expansion and soon amalgamated with several other banks including the Commercial Bank of Port Elizabeth, the Colesberg Bank, the British Kaffarian Bank and the Fauresmith Bank. The Standard Bank was prominent in the financing and development of the diamond fields of Kimberly in 1867 and later extended its network further north to the new town of Johannesburg when gold was discovered there in 1885. Over time, half the output of the second largest goldfield in the world passed through the Standard Bank on its way to London. In 1892 the Standard Bank opened for business in Zimbabwe, and expanded into Mozambique in 1894, Botswana in 1897, Malawi in 1901, Zambia in 1906, Kenya, Zanzibar and the Democratic Republic of Congo (D.R.C.), in 1911 and Uganda in 1912. Of these new businesses, Botswana, Zanzibar and the D.R.C. proved the most difficult and the branches soon closed. A branch in Botswana opened again in 1934 but lasted for only a year and it was not until 1950 that the Bank re-opened for business in Botswana. In Asia the Chartered Bank expanded opening offices in, Myanmar in 1862, what is now Pakistan and Indonesia in 1863, the Philippines in 1872, Malaysia in 1875, Japan in 1880 and Thailand in 1894. Some 34 years after the Chartered Bank appointed an agent in Sri Lanka it opened a branch in 1892 to take advantage of business from the tea and rubber industries. During 1904 a branch opened in Vietnam. Both the Chartered and the Standard Bank opened offices in New York and Hamburg in the early 1900s. The Chartered Bank gaining the first branch licence to be issued to a foreign bank in New York.

The impact of war

Even the First World War offered opportunities for expansion when the Standard Bank set up a branch in Tanzania shortly after British troops occupied the formerly German administered Dar es Salaam in September 1916. Both banks survived the inter-war years but the world trade slump led to the closure of operations in the Canary Islands, Liberia, the Netherlands, and Equatorial Guinea. Disaster struck the Chartered Bank's office in Yokohama, Japan, when an earthquake in 1923 killing a number of staff destroyed it. The Second World War particularly affected the Chartered Bank when numerous Asian countries were occupied by Japan.

Standard Chartered in India

The Chartered Bank opened its first overseas branch in India, at Calcutta, on 12 April 1858 Eight years later the Calcutta agent described the Bank's credit locally as splendid and its business as flourishing particularly the substantial turnover in rice bills with the leading Arab firms. When the Chartered Bank first established itself in India, Calcutta was the most important Commercial city and was the centre of the jute and indigo trades. With the growth of cotton trade and the opening of the Suez Canal in 1869, Bombay took over from Calcutta as India's main trade centre. Today the Bank's branches and sub-branches in India are directed and administered from Mumbai (Bombay) with Calcutta remaining an important trading and banking centre.

Standard Chartered is the largest international banking Group in India. Key businesses include Consumer Banking-Primarily credit cards, mortgages, personal loans and wealth management and wholesale Banking, where the Bank specializes in the provision of cash management trade, finance, treasury and custody services.

It is the largest international banking group in India with an employee base of nearly 3500 people across the country. It also boast the largest branch network amongst all international banks in India-with 61 branches in 15 cities. With over 2.3 million retail customers, and a Credit Card base in excess of 1.3 million, it is the leaders in the consumer banking business. The wholesale bank has over 1200 corporate customers with a 33% market share in value with over 270 top transnational companies in India.

INDUSTRY PROFILE

What is Banking:

Banking, in a traditional sense is the business of accepting deposits of money from public for the purpose of lending and investment. These deposits can have a distinct feature of being withdrawable by cheques, which no other financial institution can offer.

In addition, banks also offer various other financial services which include.

Issuing Demand Drafts & Travellers Cheques

Credit Cards

Collection of Cheques, Bills of exchange

Safe Deposit Lockers

Issuing Letters of Credit & Letters of Guarantee

Sale and Purchase of Foreign Exchange

Custodial Services

Investment & Insurance services

The business of banking is highly regulated since banks deal with money offered to them by the public and ensuring the safety of this public money is one of the prime responsibilities of any bank. That is why banks are expected to be prudent in their lending and investment activities. Every bank has a Compliance Department, which is responsible to ensure that all the services offered by the bank, and the processes followed are in compliance with the local regulations and the Bank's corporate policy.

The major regulations and acts that govern the banking business are

  • Banking Regulations act, 1949
  • Foreign Exchange Management Act, 1999
  • Indian Contract Act
  • Negotiable Instruments Act, 1881

Banks lend money either for productive purposes to individuals, firms, corporates etc, or for buying house property, cars and other consumer durable and for investment purposes to individuals and others. However, banks do not finance any speculative activity. Lending is risk taking.

Banking in the New Millennium

We're living in a world dominated by the new idea economy, ticking to the beat of Internet time, where customers are quality conscious, time conscious and price conscious. Technology is creating new agile players making the existing ones obsolete. In this scenario, the role of internet and its impact on banking still appears to be a puzzle. Banks around the world are subject to the same radical changes -new competition, technology, deregulation, and globalization. But, eventually, the classic rules of business will reassert themselves in this virtual environment and the winners will be the first and best movers.

The challenges in this millennium for the banking industry are enormous. The technology and Banking sector reforms, together are lifting the competitive intensity of the Banking business. In Banking, embedding knowledge into products can enhance value, and connecting different knowledge sources can create innovative products. The banks that are first to market with the right mix of technologies, strategies and partnerships would be the sure winners.

The banking environment worldwide is undergoing massive transformation. Despite the, not so favorable, market sentiments and an apparent backlash against dotcoms, serious players in established industries like banking, remain convinced that the Internet will have a profound impact on the banking sector.

Mergers and acquisitions are changing the financial landscape, and cross-border linkages are drastically altering the business characters, in general and banking operations, in particular. But drawing firm conclusions can be dangerous, as mergers and consolidation take many different forms and the impact can give mixed results. But, there is growing concern as to whether mergers deliver the expected benefits and whether cross-border deals are feasible, particularly in Europe, where cultural considerations are seen as barriers to success. In Europe, players are beginning to assert themselves, as the Nat West battle is resolved. Nat west, one of the UK's biggest banks, was forced to accept a hostile takeover bid from a smaller rival, Royal Bank of Scotland in December 2000. Earlier in November 1999, Nat west rejected a similar bid by another small bank, Bank of Scotland. This move left the scene set for Royal Bank of Scotland to submit its long anticipated bid for Nat West. It was followed by a flurry of bid and counter bid by the two Scottish banks as Nat west fought to keep its independence. The Royal Bank of Scotland finally won by convincing the Nat West shareholders to accept its £25 bn offer. This outcome has set the tone for a long overdue round of consolidation in the European financial sector.

Coming home, Indian banking sector has come a long way from being a sleepy business institution to a highly proactive and dynamic entity. Indian banking system is in the midst of a technological revolution. It is impacting the Indian industry in three ways - firstly, by providing efficient and effective delivery

Channels, secondly, it is dramatically influencing the client profile, which in turn leads to the third change i.e. the Human Resources Management. As a service sector, it calls for a change in the attitude of the personnel that would have a salutary effect on customers.

Indian Banking that was operating in a highly comfortable and protected environment till the beginning of 1990s has been pushed into the choppy waters of intense competition. Mergers and acquisitions, have been heating up in the new private banking sector since the HDFC-Times Bank merger came through in November 1999. The deal shook an otherwise placid Indian banking world and generated a kind of pressure on banks to shake hands with their peers to cope up with the competition.

Going forward, the premium valuations of private banks compared to public sector banks depend on their ability to maintain high earnings growth and quality of assets. The current downturn in the economic activity could result in the increase of non-performing assets for most of the banks. The winner in the market would be the one who can sustain the high growth in business without compromising the asset quality.

In this millennium, banks should strive to achieve significant increases in their productivity, efficiency, and profitability. The areas of challenges that lie ahead for the Indian banking sector would be: Restructuring and Reorganizing banks' setup, leaner offices, merging and forging of strategic alliances to take advantage of the geographic spread of branch network of banks, develop new products and services that would meet the emerging needs of customers and professional

Management structures that would be responsive to the changes in the business environment.

The book ``Banking In The New Millennium" examines this changing landscape for the banking services. The purpose of this book is to present the current trends, the emerging scenario and the building blocks in banking sector. A brief section is also dedicated to retail banking that is growing in a big way. The book is divided into four sections analyzing the various aspects of the banking scenario. Packed with the right mix of articles on e-banking, retail banking, and mergers and acquisitions, this book is intended to serve as an executive reference book on Banking.

Challenges And Future In Banking Sector

Mergers in the Banking, NPA, New Technology, Electronic Cash Transfer

After the nationalization of Banks, increasing adoption of technology, continuous mergers in the banking, modernizing backroom operation in the banks and competition pave the path of growth of Indian banking. By the mid-1990, the near monopoly of public sector banks faced the competition by the more customer-focused private sector entrants. This competition forced older and nationalized banks to revitalize their operations.

Year 1992 was the golden period of Indian Banking system due to the scam-tainted stock market. Large proportion of household saving moved into the banking system, which recorded an annual growth of 20 percent in deposit.

But along with the continuous growth and modernization, there are several challenges confronting the banking sector. The main challenges facing the banking sector are the deployment of funds in quality assets and the management of revenues and costs. The problem of NPA (non- performing assets), overall credit recovery systems still exist. There is a continuous reforms and modernization is in process. A number of recon mediations of two Narasimham committees have been implemented.

Foreign Banks focusing on corporate and on the middle class consumer and providing then better service. Nationalized Banks are also attempting to get on the path of automation. Strong Banks will acquire the weaker banks. The member of foreign banks operating in India has increased significantly and their share of total assets has also increased. In the year 2001 estimated foreign bank account for 14.7 percent of the total net profit of commercial banking sector in India.

In spite tangible progress and the contribution of Narasimham I and Narasimham committee reports the banking sector in India suffering from systemic and structural problem.

OBJECTIVES

  • The main objective of this project report is to make an analytical study of Standard Chartered Bank
  • It includes History of the Bank Product Analysis Service
  • Bank's Accounts Comparison of the saving accounts with other leading Bank's of India

REASEARCH METHODOLOGY

Data collection has been done from both sources primary as well as secondary.

Primary data : by meeting various managers of the Standard Chartered Bank, Citibank, ABN-AMRO Bank, ICICI, HDFC, HSBC, GTB, UTI and IDBI.

Secondary data: From newspaper, magazines, Libraries.

CONCEPTUAL FRAMEWORK

Investment in India - Banking - Banking System

Introduction

The Reserve Bank of India (RBI) is India's central bank. Though public sector banks currently dominate the banking industry, numerous private and foreign banks exist. India's government-owned banks dominate the market. Their performance has been mixed, with a few being consistently profitable. Several public sector banks are being restructured, and in some the government either already has or will reduce its ownership.

Private and foreign banks

The RBI has granted operating approval to a few privately owned domestic banks; of these many commenced banking business. Foreign banks operate more than 150 branches in India. The entry of foreign banks is based on reciprocity, economic and political bilateral relations. An inter-departmental committee approves applications for entry and expansion.

Capital adequacy norm

Foreign banks were required to achieve an 8 percent capital adequacy norm by March 1993, while Indian banks with overseas branches had until March 1995 to meet that target. All other banks had to do so by March 1996. The banking sector is to be used as a model for opening up of India's insurance sector to private domestic and foreign participants, while keeping the national insurance companies in operation.

Banking


India has an extensive banking network, in both urban and rural areas. All large Indian banks are nationalized, and all Indian financial institutions are in the public sector.

RBI banking


The Reserve Bank of India is the central banking institution. It is the sole authority for issuing bank notes and the supervisory body for banking operations in India. It supervises and administers exchange control and banking regulations, and administers the government's monetary policy. It is also responsible for granting licenses for new bank branches. 25 foreign banks operate in India with full banking licenses. Several licenses for private banks have been approved. Despite fairly broad banking coverage nationwide, the financial system remains inaccessible to the poorest people in India.

Indian banking system


The banking system has three tiers. These are the scheduled commercial banks; the regional rural banks that operate in rural areas not covered by the scheduled banks; and the cooperative and special purpose rural banks.

Scheduled and non-scheduled banks


There are approximately 80 scheduled commercial banks, Indian and foreign; almost 200 regional rural banks; more than 350 central cooperative banks, 20 land development banks; and a number of primary agricultural credit societies. In terms of business, the public sector banks, namely the State Bank of India and the nationalized banks, dominate the banking sector.

Local financing


All sources of local financing are available to foreign-participation companies incorporated in India, regardless of the extent of foreign participation. Under foreign exchange regulations, foreigners and non-residents, including foreign companies, require the permission of the Reserve Bank of India to borrow from a person or company resident in India .

Regulations on foreign banks


Foreign banks in India are subject to the same regulations as scheduled banks. They are permitted to accept deposits and provide credit in accordance with the banking laws and RBI regulations. Currently about 25 foreign banks are licensed to operate in India. Foreign bank branches in India finance trade through their global networks.

RBI restrictions


The Reserve Bank of India lays down restrictions on bank lending and other activities with large companies. These restrictions, popularly known as "consortium guidelines" seem to have outlived their usefulness, because they hinder the availability of credit to the non-food sector and at the same time do not foster competition between banks.

Indian vs foreign banks


Most Indian banks are well behind foreign banks in the areas of customer funds transfer and clearing systems. They are hugely over-staffed and are unlikely to be able to compete with the new private banks that are now entering the market. While these new banks and foreign banks still face restrictions in their activities, they are well-capitalized, use modern equipment and attract high-caliber employees.

Government and RBI regulations

All commercial banks face stiff restrictions on the use of both their assets and liabilities. Forty percent of loans must be directed to "priority sectors" and the high liquidity ratio and cash reserve requirements severely limit the availability of deposits for lending.The RBI requires that domestic Indian banks make 40 percent of their loans at concessional rates to priority sectors' selected by the government. These sectors consist largely of agriculture, exporters, and small businesses. Since July 1993, foreign banks have been required to make 32 percent of their loans to these priority sector. Within the target of 32 percent, two sub-targets for loans to the small scale sector (minimum of 10 percent) and exports (minimum of 12 percent) have been fixed.

Foreign banks, however, are not required to open branches in rural areas, or to make loans to the agricultural sector. Commercial banks lent dols 8 billion in the Indian financial year (IFY, April-March) 1997/98, up sharply from dols 4.4 billion in the previous year.

The deployment of gross loans was as follows:

1997-98 (April-January)

percent

Gross Bank Loans

100

Food Procurement

15.5

Priority Sector

31.6

Industrial Loans

29.4

Loans to Trade

0.07

Other Loans

23.43

FINDINGS AND ANALYSIS

BUSINESS

Consumer Bank

Consumer Banking Offers a wide range of premium banking products and services through the network of 90 branches in 19 cities across the country to cater to customer's diverse financial needs.

Wealth management offers a complete and comprehensive range of products to fulfill a gamut of customer investment and financial needs. These include domestic and NRI transaction accounts (with several value-add products and services like ATM and globally valid Debit Card, phone banking, extended banking, any branch banking, door step banking and investment advisory services), distribution of capital market and insurance products and dematerialization services and finances against shares. Standard Chartered also offers Priority Banking that is 'personalized banking for the privileged few.

Standard Chartered Group is a leading credit card issuer in India and has several firsts to its credit. These include issuance of the first Global Credit Card in India, the

first Photo card, the first Picture Card. Our card division under Unsecured Payments is also the first in South Asia to be accorded an ISO 9002 certification. The credit Cards and Personal Loans Offer include co-branded cards with unique value propositions and cards like 'Sapnay' for the middle-market segment. The division offers a range of personal loan products and also a personal line of credit through products such as "Smart Credit".

Our Secured Loan Division offers mortgage auto loans and also unique overdraft products like ‘Mileage' that offer revolving credit facility against the security of a used or new car.

Standard Chartered Finance (SCF), an NBFC is our Centre for Excellence in Service and product distribution arm. Products include loans/leases for new passenger cars, used cars commercial vehicles and medical equipment. Standard Chartered Finance has an extensive network of branches in India.

Wholesale Bank

Corporate and Institutional Bank

Standard Chartered is particularly strong in Institutional relationships and is the preferred correspondent bank for over 300 domestic and international bank, the largest such private sector network in India. The Bank focuses on service quality and all its operational units in trade, cash management, treasury and custody are ISO certified.

Standard Chartered is India's largest foreign trade finance bank and offers a full complement of trade finance products, including export credit in foreign currency, export letters of credit confirmations, merchanting trade and buyer credits. It is one of the few banks in India to offer services like channel financing forfeiting, without recourse export finance, project export and service export approvals and sponsorships.

As a leading cash management supplier across emerging markets, Standard Chartered Offers Complete end to end cash management solutions for corporate and institutions. The Greenwich survey for 2001 nominated Standard Chartered the "Best Cash Management Service Quality Bank in India Range of Products include vostro accounts, draft drawing, telegraphic transfers and an international payments facility that allows foreign currency payments without a separate account.

Standard Chartered's custody and clearing service unit has served Foreign Institutional Investor's in India with Superior client servicing, supported by

Sophisticated and flexible computerized systems. It is the only custodian in India to earn the ISO 9001:2000 standards certification. Standard Chartered has received top ratings in Industry's benchmark surveys the Global custodian survey 2000 and the Global Investor Survey 2000.

 

 

Global Markets

Standard Charted provides a complete 24 hour coverage of the world's foreign exchange markets.

It provides a broad range of products like Exotic currencies, Derivatives, Debt Capital markets, Currency Options and Electronic trading.

Standard Chartered was the first bank in India to introduce its on-Line Treasury, a browser enabled dealing system that enables real-time transactions. Standard Chartered is also recognized as a leading market for the Indian Rupee.

The Bank's Treasury-the No.1 Treasury in India-is amongst the most active treasuries in the country, being a market maker in local currency and money markets. While we seek to provide advice, treasury products and services to our global clients in the Indian market, we also have active relationships with some of the biggest and most diversified Indian companies and many medium sized companies.

With a large specialized sales force, we cater to all foreign exchange, money market and risk management needs of our corporate clients.

Treasury has an active inter bank desk which, apart from being a market maker in the Indian Rupee spot and the forwards market, actively quotes for other currencies.

The money Market Desk is a leading player in the Rupee markets and in Government and corporate debt trading.

The derivative Desk is a market maker in the Rupee Interest rate swap market. We also run one of India's largest derivative books and offer products up to 7 years tenor.

The corporate desk is amongst the largest among the foreign banks in India. With a presence in 5 major cities with state of the art dealing rooms and a corporate sales force of over 20 dealers, we have an unmatched reach and service capability across India. In addition to servicing currency market and investment needs of corporate clients, our corporate desk is active in advisory services pertaining to structuring and risk management.

Standard Chartered Mutual Fund is one of the largest and fastest growing debt funds in the market. Standard Chartered Mutual Fund is the only fund that focuses only on the debt segment and prides itself on having developed one of the finest interest rate tracking models.

Consumer Bank-Products

Liabilites ProductsAsset ProductsServices

Asset Products

Services

aXcess Plus Savings Account € Gold

€ Executive

€ Classic

€ Diva

€ Instabuy

Credit Card ° ATM

€ Gold € Executive € Classic

€ Diva € Instabuy

ATM

Super value Savings Account

Smart Credit

Me Banking

Corporate Executive Account

Personal Loan

Phone Banking

2-in-1 aXcess Plus account

Auto Finance

Room Service

A/c Opening

Cash Drop

Cash/Cheque pick up

Debit Card

Mileage

Branch Banking-

Ø 62 Branches

Ø 365 days

Ø 24 Hours

Business Plus 365 days s

24 Hours

Mortgage

Remittances

Ø Demand drafts/ pay orders

Ø Telegraphic transfers

Value Add

Home Saver

Collection

Enhanced Business Plus

 

Lockers

Super Value Business Plus

   

2 in 1 Current Account

   

NR Current Account

   

Term Deposits

   

Types of Deposits

Bank Deposits

Bank basically offer two types of deposits:

Demand Deposits.

Term Deposits.

Demand Deposits

, by its nature, are payable as and when the depositor makes the demand to pay. There are two types of accounts which are demand deposits in nature. These are:

Savings Account

Current Account

Any amount can be deposited in these accounts at any time. The amount deposited or a part of it can be withdrawn any time by using a cheque. However, banks normally stipulate a minimum balance to be maintained in these accounts.

Savings Account

is offered only to individuals and non-trading entities. Banks also pay interest on Savings Accounts. The interest is paid on the minimum balance held in the account between the 10th and the last day of a month. The interest is paid every half year. The rate of interest on savings Accounts is determined by RBI.

Current accounts can be opened in the name of individuals or any firm or a company. No interest is paid on the balances held in this account.

Term Deposits are the deposits where a fixed sum of money is kept for a specific period and the money is repaid only on expiry of this period. The interest offered on these deposits depends on the period of the deposit. Banks accept term deposits for periods ranging from 15 days to 10 years. However, our bank accepts deposits. The interest is normally paid out every quarter. But at the request of a customer, the interest can be paid every month but at a discounted rate of interest. Three most common forms of term deposits are:

Fixed Deposits

Reinvestment Deposits

Recurring Deposits

Fixed Deposits

Are those where the customer deposits a fixed amount for a certain period and the bank pays interest on it every quarter? On the expiry of the term, the principal amount is paid back to the customer or the deposit is renewed at the request of the customer.

Reinvestment deposit is similar to a fixed deposit with the difference that the interest payable every quarter is compounded with the principal amount. In effect, the interest on a Reinvestment deposit is paid along with the principal on maturity only.

Recurring Deposit

is the deposit where certain amounts say Rs.1000- is deposited every month as a monthly installment for a certain period ranging from 6 months to 5 years. The total amount deposited over the period is paid with accrued interest on maturity only.

Payment of a Deposit before maturity

In case a Term deposit is to be paid before its due date, a penal interest is charged. As per RBI guidelines, banks are now free to determine the penal rate. However, the penal rate is advised to the customer at the time of opening of account.

As per the Income Tax Act, if the total amount of all deposit of a customer, including the interest on it, with a bank branch exceeds Rs. 20,000/- no deposit or any interest should be paid in cash. It can be credited in the account of the depositor.

TDS on Interest

Interest earned on Term Deposit(other than Recurring Deposit) are subject to tax deduction at source if the total interest earned during a Financial year (April-March) by the customer on his/her deposits at a branch exceeds Rs. 5000.

The New Age Banking:-

E-banking :

Technology innovation and fierce competition among existing banks have enabled a wide array of banking products and services, being made available to retail and wholesale customers through an electronic distribution channel, collectively referred to as e-banking. The integration of e-banking applications with legacy systems implies an integrated risk management approach for all banking activities of a banking institution. Latest recommendations of Basle committee recognise that each bank's risk profile is different and requires a tailored risk mitigation approach appropriate for the scale of e-banking operations, the materiality of the risks present and the willingness and ability of the institution to manage their risks. This implies that a "one size fits all" approach to e-banking risk management issues may not be appropriate.

Banks have traditionally been in the forefront of harnessing technology to improve products and efficiency. Technology is altering the relationships between banks and its internal and external customers. Technology has also eroded the entry barriers faced by many industries. With one time investment, technology has brought about superior products and channel management with a special focus on customer relationship. The incremental costs incurred for expansion and diversification are also more beneficial.

The major driving force behind the rapid spread of e-banking is its acceptance as an extremely cost effective delivery channel. But on the flip side, it is associated with risks such as reputation risk, security risk, cross-border risk and strategic risk, which are unique to e-banking. Banks need to have an effective disaster recovery plan along with comprehensive risk management system in place to tackle the problems. An effective risk management tool is significant not only to the bank but also to the banking system as a whole. All these issues underscore the importance of sound supervisory policies and a high level of international co-operation among the bank regulators. The Basle Committee on Banking Supervision has taken the lead in this area through the creation of its Electronic Banking Group - a group comprising 17 central banks and bank supervisory agencies in the late 1999. The main focus of this group has been to develop sound risk management practices.

Internet has created plenty of opportunities for players in the banking sector. While the new entrants have the advantage of latest technology, the good-will of the established banks give them a special opportunity to lead the online world. By merely putting existing services online won't help the banks in holding their

customers close. Instead, banks must learn to capitalize their customers' different online financial-services relationships. The article "Will Banks Control Online Banking?" focuses on how banks have to reinvent their role to remain as their customers' preferred bank.

Coming home, India is on the threshold of a major banking revolution with the invasion of net banking. With the concept of payment gateway coming in, banks are vying with one another for the lion's share in the market. Highlighting the benefits of payment gateway over the open-loop payment mechanism, the article "Banking in the Cyberworld" gives a brief report of the tug of war between the two major Indian e-banking players.

The case "Internet Banking in Malaysia" is about how developments in the area of Telecommunications and Information Technology are revolutionizing the Malaysian banking sector. Today, Malaysian commercial banks have the privilege of advanced and efficient delivery channels for their products and services. This includes automated teller machines (ATMs), automated self-banking channels such as the BSN Commercial Bank's Electronic Banking Center (EBC) and Phileo Allied Bank's virtual kiosks and PC-banking. One unique feature that differentiates Malaysia from other countries is the responsible role played by the government. In order to encourage consumers to embrace information technology, the Malaysian government is allowing a deduction of RM500 (US $ 130) from taxable incomes on every computer purchased, thereby setting a trend for others to follow.

Retail Banking : The Stars

Retail banking is undergoing dramatic changes. The old relationship between banks and customers is changing. Changing business models, cost relations, customer relations, deregulation, convergence of economic and monetary policies, globalization of financial markets and systems, incessant introduction of new products and services, more discerning, more demanding and less loyal customers are a few of the important change drivers.

As the players in the market adapt themselves to tougher competition ahead, they have to alter their product mix, delivery channels and corporate structure to serve their functional role. Some of the banking activities that are deemed very appropriate today were considered inappropriate, difficult and `out of policy pronouncement of central banks' in the past. To quote one example, housing finance and consumer durable loans that are very personal in nature,were considered `inflationary' and were discouraged by banks some 15 years back.

But today the situation is different. Similarly in future, banks may have to serve customers by bundling certain financial services that are not currently combined or they may merge banking services with non-banking services such as tickets to concerts, sporting events, vacation planning and the like. Thus the market will

Redefine the roles and banks have to gear themselves up for a fierce competition. This section highlights the importance of retail banking and explains why banks are changing their strategies and shifting their focus to retail banking.

Retail banking is gaining importance with the changing customer preferences. Customers are seeking products and services that help them simplify and take control of their lives. The greatest challenge for the retail banks will be to provide `Anytime, Anywhere, banking' to retain their customers. Unless they penetrate deep into the retail market today, their survival will be jeopardized. Distribution channel, human resources, technology, operation, etc., are the key areas, where transformation is needed for banks to become a leader in retailing business. "Tomorrow's Leading Retail Bank", developed by Price water house Coopers, is a blue print that defines the attributes of a bank that will enable sustainable success.

Retail banking in India is experiencing a fierce competition as the foreign, private and public sector banks are competing with one another to expand their respective market share. Leading banks are now adopting product-centric and channel-centric models to penetrate the market. With the increasing competition, customer service is becoming the key factor for differentiation.

This section also provides a glimpse of the impact of Internet on retail banking. Credit card issuers have greeted the Internet revolution with a sense of profound feeling of opportunity and a vague feeling of dread as well. The competition is heating up between the on-line start-ups and the traditional credit card issuers. While the start-ups have the advantage of state- of-the art technology, the conventional issuers have their brand names, good customer base and economies of scale to their advantage. But to survive in the virtual world, banks have no choice but to establish an on-line presence quickly and decisively. The article "Credit Cards-Plastic Explosives" highlights some valuable insights on how Internet can be used to cut costs and add value to credit card services.

Banking Sector: Current Trends

The Banking industry is currently undergoing dramatic global change at a rapid pace. This section gives a picture of the current scenario of the banking sector.

Financial stability has always been an integral concern of central banks. The importance of this has been reminded by the events of the recent years. The South-East Asian crisis and the collapse of the high profile Barrings bank calls for an effective risk management system. The New Basle Accord is one such attempt. The New Basle Accord with its three pillar-minimum capital requirement, supervisory review processes and market discipline is aimed at developing risk sensitive standards in the banking industry. But this Accord seems to have run into controversy right from the day one. The new framework if accepted would provide incentives for banks to enhance the risk measurement and management

Capabilities. The article "The New Basle Accord- More Questions than Answers" speaks about the New Accord and its feasibility.

In recent years, credit derivatives have evolved as major risk management tools. It was the new international rules of the Basle Accord, 1988 that brought credit derivatives into existence. Banks seeking to reduce their exposure and related risk-based capital requirement to corporate credit have found derivatives to be more efficient than securitization. The future of credit derivatives seems to be very rosy. With the improvement in technology, brilliant research work in various financial institutions and the accumulation of significant knowledge on credit experience and analysis, credit derivatives are positioned as powerful product.

With the evolution of interconnected financial services, banks are converting themselves into "one stop financial supermarkets". This has promoted two big classes of financial institutions, banks and insurance companies, to combine and deliver an innovative product-Bancassurance, which is a one-stop financial place, where a customer can avail both banking and insurance services. The article "Bancassurance -Big Forces Together" elucidates how the new concept is going to reshape the entire landscape of financial services. This new phenomenon is steadily increasing joint ventures between the two sectors. But the cultural differences between these two sectors often give rise to many problems.

Coming home, the Indian banking industry has come a long way from being a sleepy business institution to a highly proactive and dynamic entity. The liberalization and economic reforms have largely brought about this transformation. The entry of private banks has revamped the services and product portfolio of nationalized banks. With efficiency being the major focus, the private banks are leveraging on their strengths. To compete with the private banks, the public sector banks are now going in for major image changes and customer friendly schemes. "The Banking Sector- Coming Challenges" is a commentary on the Indian banking sector, which is facing tremendous internal and external challenges in this transitory phase.

Over the years, the Co-operative Banks have played an important and useful role in the financial and social upliftment of the non-creamy segments of the society. They have expanded by leaps and bounds over the past decade. Co-operative banks are under the dual control of RBI and the respective state's Registrar of Co-operative Societies. This dual control has been a source of great criticism. An investigation by RBI has brought to light the fact that Madhavpura Mercantile Co-operative Bank (MMCB), abused the system in three ways: diversion of funds, massive exposure to one particular broker and the pay order scam. RBI has unearthed a string of co-operative banks, exposed to the stock market through the pay order route. Unfortunately, RBI has demonstrated its ability better as an investigator than as a 'policeman'. The multi-crore MMCB scam, which rocked the faith of thousands of trusted investors shows how regulators, negligence can affect the whole system. If not checked and controlled, this weak link between the regulators and banks would bring down the whole system. The paper "Co-operative Banks-Colluding for a Crisis", highlighting the MMCB episode, narrates the plight of the co-operative banks.

This section also has an article on `Universal Banking', which is changing the way banking business is conducted in India. This process reduces the distinction between the DFIs and the banks, wherein each can take up the role of the other, thus broad-basing the market segments. Banks are aggressively trying to become a one stop financial supermarket providing all types of finance related services to their customers. The article "Universal Banking: The New Imperative" enumerates the utility, feasibility and achievability of "Universal Banking" concept.

Private banks:

Among the stocks of new banks, HDFC Bank, ICICI Bank and UTI Bank appear promising. Of the lot, the stock of HDFC Bank is trading at a premium compared to the other two stocks. The stock of ICICI Bank appears to be the relatively undervalued stock.

The valuation of UTI Bank's stock is also attractive considering the dividend yield of nearly 5 per cent. If ICICI Bank and UTI Bank continue to deliver on their promises then the probability of their stocks relatively outperforming the HDFC Bank stock is high.

In terms of volatility, banking sector stocks have generally had a lower volatility relative to that of indices such as Nifty or S&P CNX 500. This scenario is likely to continue in the medium term.

HDFC Bank:-

The stock of HDFC Bank has always enjoyed a premium compared to the other banking sector stocks. The premium has been justified because of the quality of financial performance notched by the company over the years. The expansion — organic and inorganic — has come with a negligible increase in the proportion of non-performing assets. The net non-performing assets to the loan assets ratio of 0.3 per cent for HDFC Bank is far lower than the ratio in excess of 2 per cent for all the other banks. Another factor that has contributed to the premium valuation is the rate of growth in earnings over the years.

Going forward, the earnings guidance is for a rate of growth of 25 per cent over the next two years. Considering the efforts put in by the company in the past 12 months, its probability of growing at that rate is high. In such a scenario, the stock price performance of HDFC Bank will be better than that of indices such as Nifty and S&P CNX 500 over the next two years.

Considering HDFC Bank's performance record and the valuation of its stock, investors can consider investing in HDFC Bank stock.

ICICI Bank:-

The singular attractive feature in ICICI Bank's case is its valuation. The stock is trading at less than half its book value. However, the valuation is depressed and not without reason. The net non-performing assets of ICICI Bank are at 4.73 per cent of the advances. In addition, restructured assets are a sizeable 8 per cent of the advances.

On the other hand, the investment portfolio of ICICI Bank contains undervalued assets. For example, the sale of the 40 per cent stake in ICICI Bank held by the erstwhile ICICI could boost book value and profitability significantly. The investments in IT and IT-related businesses are also undervalued.

In terms of expected growth in earnings, the rate of growth will not be as high as that of HDFC Bank over the medium term. This is primarily because of the ICICI Bank's size. The growth in the year ended March 2003 could, however, be significant given that it is the first year after the merger and the merger's synergistic benefits flow to the company.

Overall, the potential for significantly large return from an investment in ICICI Bank remains. This will be especially so if the efforts at recovering non-performing assets (given a fillip through a new ordinance) succeed. The risks too are higher. The aggressive expansion strategy followed by the Bank could lead to a higher incidence of non-performing assets, which would in turn constrain growth and profitability. On balance, investments can be made now in ICICI Bank stock.

UTI Bank: -

Small exposures can be considered in UTI Bank stock. UTI Bank's financial performance has been impressive in the last few quarters. The Bank has consistently been able to reduce the proportion of non-performing assets. Its performance in the area of increased relationship based lending in 2001-02 is impressive. This is also reflected in the higher fee income generated in the first quarter of 2002-03. Its retail foray is also meeting with success. That can lead to lower costs and improved profitability.

In addition, the dividend yield of 5 per cent is also attractive. Importantly, if UTI Bank manages to scale up operations faster, then its share price performance could prove superior to that of HDFC Bank. On the other hand, the ability of the bank to deal with competition when the going gets tough is lower. The risks involved can also be considered to be higher. Overall, the valuation is attractive, although HDFC Bank and ICICI Bank appear more compelling.

Capturing market

When they were set up, the agenda for the new private sector banks was to capture as much market share as possible. They have achieved it in most respects. New banks accounted for 6.5 per cent of the demand deposits and nearly 3 per cent of the savings deposits in the banking system in March 2001. It is likely to be higher at the end of March 2002. In March 1996, the proportions were 1.6 and 0.3 per cent respectively.

The inflows into the savings accounts of new banks grew at 122 per cent annually between March 1996 and 2001. The rate of growth in demand deposits was more modest at 53 per cent. Clearly, the retail foray has spelt success for new banks.

Continued success in their attempts to increase the inflow of demand and savings deposits is important to rein in costs. That new banks continue to account for a smaller share of the total pie suggests that the prospect for growth in the next two-three years continues to be bright.

On the asset side, the share of new banks in loans and advances (including investments) has increased from around 1.7 per cent at the end of March 1996 to 6.7 per cent March-end 2001. On an average, the rate of growth has been 55 per cent each year. Investments in government securities have increased at a higher rate of 71 per cent.

On a relative basis, new banks have been less successful in capturing share on the asset side than on the liability side.

Interestingly, new banks have had greater success in lending against bills purchased or discounted than in areas such as cash credit or working capital advances.

This suggests that the going for the banks in terms of building relationships (which will get reflected in cash credit or working capital advances growth) has been difficult. On the contrary, banks are likely to downplay their achievements thus far.

Predictably, the profitability of new banks has been superior to the industry average. Shareholder funds have risen on an average at around 34 per cent for new banks compared to the industry's 11 per cent. The steady and significant increase in shareholder funds place the new banks at an advantage. This is the one of the pillars of the foundation on which the strategy to capture market share from established public sector majors is being built.

Banking successfully

IN 1996-2001, the growth rate of private sector banks was significantly higher than that of the banking industry. In every aspect, the private sector stole a

march over the others. This was only to be expected given their small size and the ills plaguing the public sector banks.

Notwithstanding the rapid growth in the last five years, the new banks continue to remain small on a relative basis.

Size certainly matters

A COMMON refrain among the heads of most new private banks has been that `the market is large enough for all'. To a large extent, this view may have been influenced by the consistent success of these banks in capturing sizeable market shares in the past six years. In addition, the consistently large growth in the industry (as measured by the growth in demand and savings deposits) over the past six years has made the task easier for the new banks than had the rate of growth in inflows been lower.

The new banks have been able to build a low-cost base with which they have been able to capture market share in lending activities. If the rate of growth in inflows into demand and savings deposits remains high, then the new banks are likely to expand their share of the market still further. However, if the rate of growth declines then competition is likely to intensify and the strengths of the various players would be put to the test.

Even then, the new private banks may emerge victorious. However, it will have an impact on profitability and spreads.

At present, the easy liquidity scenario favors the new banks. It does appear that the scenario will not change in the next two-three years. That should continue to place the new banks in an advantageous position.

Competitive forces

From segmentation in the form of private sector banks and public sector banks, the industry is getting polarized based on their sizes. Large banks such as the State Bank of India, Bank of Baroda and ICICI Bank are crafting strategies that will leverage their balance-sheet size.

Medium-sized banks such as HDFC Bank, Corporation Bank, Bank of India, Punjab National Bank are attempting to ramp up operations faster as size will become the arbiter of fortunes sooner or later.

Swift moves by slightly smaller banks such as IDBI Bank, UTI Bank and Vysya Bank only make competition that much more intense. When IDBI's entry as a

universal bank occurs, it can only queer the pitch even more. The relatively smaller banks will not find the going easy two-three years hence when the spotlight shifts to the sharp increase in lending. Then, the competition for low cost funds would increase. Thus, strong brands and extensive reach will become crucial factors.

Reach is something that has exclusively been the privilege of the public sector banks. Indeed, new banks are steadily expanding their reach. The network of branches set up by the banks are on the rise. However, it is imperative that these branches start breaking-even before competition intensifies. Most new banks have proven strategies when it comes to ramping up operations at new branches. Still, when industry factors change, strategies that worked in the past may falter. So, smaller size banks have to strengthen themselves before the increase in demand for credit from the industry happens. Of course, if the Reserve Bank of India continues to maintain a regime of easy liquidity, even when demand for credit expands, then it may still prove advantageous for new banks.

Standard Chartered Today

Today Standard Chartered is the world's leading emerging markets bank employing 30,000 people in over 500 offices in more than 50 countries primarily in countries in the Asia Pacific Region, South Asia, the Middle East, Africa and the Americas.

The new millennium has brought with it two of the largest acquisitions in the history of the bank with the purchase of Grind lays Bank from the ANZ Group and the acquisition of the Chase Consumer Banking operations in Hong Kong in 2000.

These acquisitions demonstrate Standard Chartered firm committed to the emerging markets, where we have a strong and established presence and where we see our future growth.

Standard Chartered introduces aXcessPlus - a revolutionary savings account that provides you with unparalleled aXcess to your money.

With the aXcessPlus account you can now aXcess cash at over 1800 ATMs in India for FREE* and at over 650,000 ATMs worldwide through the Visa network. Besides, you can use your account to shop for goods and services at over 25,000 outlets in India and at 10 million outlets worldwide, without ever having to carry cash!

The aXcessPlus account provides you with a globally valid debit card that provides you these and a host of other exciting benefits:

Unique Features

There are several unique features about the Standard Chartered Bank's aXcessPlus account, each designed to provide you the most convenient banking experience you can ever get!

  • Free aXcess to cash at over 1800 ATMs in 35 cities in India
  • Globally valid debit card
  • The debit can be used to make purchases at over 25,000 merchant outlets in India and at over 10 million outlets worldwide.
  • Phone banking, Internet banking, Multi-city banking, 365 days branches, extended banking hours,lockers facility and doorstep banking.
  • Unique free insurance benefits - lost card insurance, purchase protection and personal accident** cover.
  • Exciting usage benefits such as Travel Cash Back - discounts on airfare, Rasoi - ongoing privileges in restaurants, Fab Deals - special privileges for shopping at select merchant outlets, discounts at all BPCL IN & Out stores and special rates on BPL electronic items plus a host of other discounts vouchers.
  • You can allow a family member to avail these benefits through the add-on card available with the joint account facility.
  • Choice of photo, non-photo and picture cards.
  • Free cash withdrawals include up to four free cash withdrawal transactions per account per month at other banks' ATMs in India through the Visa ATM network. An unlimited free transaction at all Standard Chartered and Standard Chartered Grind lays ATMs.

** Personal accident insurance is available for aXcessPlus savings accounts with average quarterly balance above Rs. 50,000/- in the previous quarter.

Parivaar Account

One-stop solution for your entire family's banking needs

A unique Wealth Management Solution that offers your family flexibility and tools for wealth accumulation and preservation.

Unique Features

  • A family can maintain individual savings accounts with the benefit of clubbing balances in grouped accounts
  • Attractively priced health insurance options to protect against unforeseen events
  • Free accident hospitalization cover of Rs. 50,000 for the primary account holder (for the first year)
  • FREE* access to accounts through 5500 ATMs in the country, at all branches of the Bank and through Phone banking and Internet Banking
  • Option of Systematic Investment Plan (SIP), the best known long term wealth building tool, that allows customers to invest a fixed amount of money every month in specific mutual funds. This comes with a direct debit facility and avoids the need to remember dates and write cheques every month
  • Globally valid ATM-cum-debit card can be used at 55,000 merchant outlets in India and 12 million outlets worldwide

Savings and Current Accounts

The dual benefits of flexibility and convenience


You can carry out virtually every kind of regular transaction with Standard Chartered's savings and current accounts. Open your account to discover how easy and convenient it is.

Unique Features

  • You can rest assured of smooth cheque pick-up, and draft / pay order delivery.
  • Cheque deposit boxes are placed conveniently
  • Flexi-time ensures immediate access.
  • Added features are phone banking
  • Access your account from 8 cities for all your transactions.
  • With your multi-city chequebooks, your cheques can be encashed at par at any of the above cities.
  • Special Rates on Loans and Demat Accounts

Business Plus Account

Everything you wanted in a Current account



An account that affirms to every need of a businessperson. Standard Chartered brings you a value packed current account offering you convenience and value. A tailor made product to take care of your business needs as it equips you with a range of conveniences unheard of in a current account.

Unique Features

  • Multi-city chequebooks to save valuable time and money.
  • Avail of free drafts and pay orders.
  • Express Cheque Collection & National Clearing Speed Service
  • Flexible banking hours for your convenience.
  • Cheque pick-up or DD/PO delivery to arrive as per you room service timings.
  • Choose to avail of the enhanced Room Service timings according to a fixed schedule, daily or weekly.
  • Avail of special rates on advances and depository services.
  • Get your consolidated account statement for free every quarter.
  • Express Cheque Collection & National Clearing Speed Service.
  • Maintain and operate your account in any our branches for free.

2-in-1 Account

The best of both worlds



A unique account that offers you double advantage, letting you earn the High interest rate of a fixed deposit while you enjoy the flexibility of a savings & current account.

Unique Features

  • Earn fixed deposit interest rates
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