TERM PAPER

OF
FINANCIAL INSTITUTION AND SERVICE

TOPIC: STUDY ON PRIVATE AND

PUBLIC SECTOR BANK

SUBMITTED TO, SUBMITTED BY,

MR. BHAVDEEP S KOCHAR NEHA TYAGI
LECT. OF LIM RT-1902 A01
10906036

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 INTRODUCTION

The Indian financial system comprises of four segments or components.

These are financial institutions, financial markets, financial instruments and
financial services. Banks come under the financial institutions segment. Financial
institutions are intermediaries that mobilize savings and facilitate allocation of
funds in an efficient manner.The Indian financial system was quite well developed
even prior to India’s political independence in August 1947. Both foreign and
domestic banks were present and so was a well-developed stock market. Until the
1990s, the Indian financial system was tightly regulated. Following the balance of
payments crisis in 1991-92, a stabilization program was initiated with the help of
International Monetary Fund, which specifically included a reform of the financial
system. The foundation for the financial sector reforms was laid by
recommendations of the Committee on Financial System 1991 (Narasimham
Committee). The Committee again reviewed the financial system in 1998 and
made further recommendations. The objectives of the financial sector reforms were
to bring about greater efficiency and competitiveness in all the spheres of the
economic activity.

Banking in India has its origin in Vedic times, i.e. 2000 to 1400 BC.
Indigenous bankers and moneylenders have played a vital role for centuries.
Modern banking in India emerged between the 18th and beginning of 19th
centuries. In 1683, the officers of East India Company set up the first bank in
Madras. Between 1770 and 1850 banks such as Bank of Hindustan, Commercial
Bank, Calcutta Bank, Bank of Calcutta and Bank of Bombay. Later, Commercial
Bank and Calcutta Bank merged to form Union Bank. Three Presidency Banks i.e.
Bank of Bombay, Bank of Madras and Bank of Bengal which were set up between
1809 and 1843 were amalgamated to form the Imperial Bank of India in 1921.The
Imperial Bank of India later became the State Bank of India.

The sudden boom of investment in the 1900’s led to the emergence of

leading joint stock banks such as the Punjab National (1895), Bank of India (1906),
Indian Bank (1907), Bank of Baroda (1909), Central bank of India (1911) and
Union Bank of India (1919). The major functions of these banks were to finance
foreign trade while domestic trade was largely handled by the Multani Shroffs and
moneylenders. Between 1941 and 1945, the number of banks increased from 473
to 737 but these banks suffered from certain limitations such as inadequate capital

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structure and unsound methods of operations and management. Thus, the
government in consultation with Reserve Bank of India enacted the Banking
Companies Act in 1949. Between 1947 and 1969 banks were under private
ownership of maharaja’s, or king s of the princely states of India and these banks
served the rich families and industrial houses which narrowed the industrial growth
of the banking system.

The Reserve Bank of India thus made it compulsory for reconstruction and /
or merger of the weak units with the sound one’s as per the Banking Companies
Act of 1960 and the number of banks declined from 548 in 1947 to 89 in 1969.
Fourteen private banks were nationalized on July 19, 1969 and another six in 1980.
One of the objectives of nationalization was to extend the reach of organized
banking to rural areas and neglected sections of the society.

Between 1969 and 1992, there was rapid expansion of bank network. The
number of bank branches increased from 8262 to 60570. The banking system
spread to rural areas. Small Scale, tiny and cottage industries benefited from the
spread of banking system. The share priority sector in total banking grew up
from14 percentage in 1969 to 43% in 1990 and banking density improved from
64000 people per branch in 1969 to 14000 people per branch in 1991.

The world of banking has assumed a new dimension at dawn of the 21st century
with the advent of tech banking, thereby lending the industry a stamp of
universality. In general, banking may be classified as retail and corporate banking.
Retail banking, which is designed to meet the requirement of individual customers
and encourage their savings, includes payment of utility bills, consumer loans,
credit cards, checking account and the like.
Corporate banking, on the other hand, caters to the need of corporate customers
like bills discounting, opening letters of credit, managing cash, etc. Metamorphic
changes took place in the Indian financial system during the eighties and nineties
consequent upon deregulation and liberalization of economic policies of the
government. India began shaping up its economy and earmarked ambitious plan
for economic growth. Consequently, a sea change in money and capital markets
took place. Application of marketing concept in the banking sector was introduced
to enhance the customer satisfaction the policy of privatization of banking services
aims at encouraging the competition in banking sector and introduction of financial
services. Consequently, services such as Demat, Internet banking, Portfolio
Management, Venture capital, etc, came into existence to cater to the needs of
public. An important agenda for every banker today is greater operational

3
efficiency and customer satisfaction. The mew watchword for the bank is pretty
ambitious: customer delight.
The introduction to the marketing concept to banking sectors can be traced back to
American Banking Association Conference of 1958. Banks marketing can be
defined as the part of management activity, which seems to direct the flow of
banking services profitability to the customers. The marketing concept basically
requires that there should be thorough understanding of customer need and to learn
about market it operates in. Further the market is segmented so as to understand the
requirement of the customer at a profit to the banks.

DEFINITION OF BANK:

o The Oxford dictionary defines the Bank as

An establishment for the custody of money, which it pays out, on a customer
Order.

o According to Whitehead :
A Bank is defined as an institution which collects surplus funds from the public,
safeguards them, and makes them available to the true owner when required and
also lends sums be their true owners to those who are in need of funds and can
provide security.

o Banking Company in India has been defined in the Banking Companies

act 1949,
One which transacts the business of banking which means the accepting, for the
purpose of lending or investment of the deposits of money from the public,
repayable on demand, or otherwise and withdraw able be cheque, draft, order or
otherwise.
The banking system is an integral subsystem of the financial system. It represents
an important channel of collecting small savings from the households and lending
it to the corporate sector. The Indian banking system has Reserve Bank of India
(RBI) as the apex body for all matters relating to the banking system. It is the
central Bank of India. It is also known as the Banker To All Other Banks.

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  Public Sector Banks
Public sector banks are the ones in which the government has a major
holding. They are divided into two groups i.e. Nationalized Banks and State Bank
of India and its associates. Among them, there are 19 nationalized banks and 8
State Bank of India associates. Public Sector Banks dominate 75% of deposits and
71% of advances in the banking industry (Indian financial system, by Bharti
Pathak, 2003)

 Private Sector Banks

Private sector banks came into existence to supplement the performance of
Public sector banks and serve the needs of the economy better. As the public sector
banks were merely in the hands of the government, banks had no incentive to make
profits and improve the financial health. Nationalized killed competition and stifled
competition in banking. Banks operated in regulatory environment with
administered rate of interest structure, quantitative restrictions on credit flows, high
reserve requirements and significant proportion of lend able resources going to the
priority and government sectors. This resulted in low levels of investment and
growth, decline in productivity and erosion of profitability of banking sector. Thus,
Narasimham Committee I (1991) which recommended the free entry of new banks
in the financial market provided they confirm the minimum start up capital and
other requirements by the permission of Reserve Bank of India. Currently there are
31 Private Sector Banks, which includes 23 old, and 8 new banks. (Indian financial
system, by Bharti Pathak, 2003)

 EVOLUTION OF INDIAN BANKING :

Ancient banking system of India constituted of indigenous bankers. They have

been carrying on their age-old banking operations in different parts of the country
under different names.

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The modern age of banking constitutes the fundamental basis of economic growth.
The term Bank is being used since long time but there is no clear conception
regarding its beginning.
According to the viewpoint, in good old days. Italian money leaders were known
as Banchi´ because they kept a special type of table to transact their business.

 IMPORTANCE OF BANKS

Today banks have become a part and parcel of Kotak Bank's life. There was a time
when dwellers of the city alone could enjoy their services. Now banks offer access
to even a common man and their activities extend to areas hitherto untouched.
Banks cater to the needs of agriculturalists, industrialists, traders and to all the
other sections of the society.
In modern age, the banking constitutes the fundamental basis of economic growth.
Thus, they accelerate the economic growth of a country and steer the wheels of the
economy towards its goals of self reliance in all fields´. It naturally arouses Kotak
Bank's interest in knowing more about the µBank and the various men and the
activities connected with it.

 INDIAN BANKING SYSTEM:

"The success of the economic reforms is therefore all to see and the driving force
of these reforms is the banking sector".
P. Chidam Baram
Union Finance Minister P. Chidambaram strongly believes that the country's
banking sector has been one of the driving forces in the process of economic
reforms.
Banking system occupies an important place a nation's economy. A banking
institution is indispensable in a modern society. In plays a pivotal role in the
economic development of a country.
Thus, economic development of a country depends upon success of banking
industry and success of banking Industry is determined to a large extent by now
well then needs of its customers have been understood and satisfied.

Reserve Bank of India

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The Banking system is an integral sub-system of the financial system. It represents
an important channel of collecting small savings from the households and lending
it to the corporate sector.
The Indian banking system has The Reserve Bank of India (RBI) as the apex body
from all matters relating to the banking system. It is the³Central Bank´ of India and
act as the banker to all other banks

 Functions of RBI:

a. Currency issuing authority

b. Banker to the government.
c. Banker to other Bank.
d. Framing of monetary policy.
e. Exchange control.
f. Custodian to foreign exchange and gold reserves.
g. Development activities.
h. Research and development in the banking sector.

 CLASSIFICATION OF BANKS:

On the basis of Ownership:

1. PUBLIC SECTOR BANKS

Nationalized banks or public banks dominate banking System in India. The

nationalization of banks in India took place in 1969 by Mrs. India Gandhi the then
prime minister. The major objective behind nationalization was to spread banking
infrastructure in rural areas and make available cheap finance to Indian farmers.
Before 1969, State Bank of India (SBI) was the only public sector bank in India.
Despite the entry of many new domestic and foreign private banks since
liberalization, public sector banks continue to dominate the commercial banking
Industry.

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 2. PRIVATE SECTOR BANKS

Private sector banking in India received a flip in 1994 when Reserve Bank of India
Encouraged setting up of private banks as part of its policy of liberalization of the
Indian Banking Industry. Housing Development Finance Corporation Limited
(HDFC) was amongst the first to receive an 'in principle' approval from the
Reserve Bank of India (RBI) to set up a bank in the private sector. Private Banks
have played a major role in the development of Indian banking industry. They have
made banking more efficient and customer friendly. In the process they have jolted
public sector banks out of complacency and forced them to become more
competitive. India has a better banking system in place of other developing
Countries.

3. CO-OPERATIVE BANKS

These are those banks that are jointly run by a group of individuals. Each
individual has an equal share in these banks. Its shareholders manage the affairs of
the bank.

4. COMMERCIAL BANKS

These are the banks that do banking business to earn profit. These banks make
loans for short to business and in the process create money. Credit creation is the
main function of these banks.

5. FOREIGN BANKS

These are those banks that are incorporated by foreign company. They have set up
their branches in India. These banks have their head offices in foreign countries.
Their principle function is to make credit arrangement or the export and the import
of the country and these banks deals in foreign exchange.

6. INDUSTRIAL BANKS

Industrial banks are those banks that offer long term and medium term loan to the
industries and also work for their development. These banks help industries in sale
of their shares, debentures and bonds. They give loan to the industries for the
purchase of land and machinery.

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 7. AGRICULTURAL BANKS

Agricultural banks are those banks that give credit to agricultural sector of the
economy.

8. SAVING BANKS

The principle function of these banks is to collect small savings across the country
and put them to the productive use. In India department of post office functions a
savings banks.

9. CENTRAL BANK

Central Bank is the apex bank of the banking system of the country. It issues
currency notes and acts a banker's bank. Economic stability is the principle
function of this bank. In short, it regulates and controls the banking system of the
country. RBI is the Central Bank of India.

 STRUCTURE OF BANKING SYSTEM

Different countries of the world have different types of banking systems. However,
Commercial banking had grown under all these banking systems. To understand
the structure of banking system, let us take up various types of banking systems
one by one. These types are:

(1) UNIT BANKING:

Unit Banking originated in the United State of America. It grew in the United
States of America. An independent unit bank is a corporation that operates one
office and that is not related to other banks through either ownership or control.

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(2) BRANCH BANKING:

This the most popular and important banking system. In branch banking, a bank
has a large network of branches scattered all over the country. Branch banking
developed in England.
Subsequently most of the countries of the world adopted the system. In terms of
branches, the State Bank of India has emerged as one of the largest banks in the
world. Under the system branches can operate without keeping large idle cash
reserves. Branch Banking tends to bring homogeneity in the prevailing Interest
Rates. The choice of securities and investments is larger.
With the growth of large scale business it is no wonder that the trend is almost
every country towards the branch banking i.e. big banks with a network of
branches all over the country. The Bank of America has now more than 500
branches in the state of California itself.

(3) CHAIN BANKING:

Under the system there is pooling of resources. Chain banking overcomes certain
limitations of unit banking. But the system suffers from certain limitations of its
own. There may be a lack of co-ordination, proper control etc. The system is
inflexible.

(4) GROUP BANKING:

It is similar to Chain Banking, the difference being that under Group Banking two
or more banks are brought under the control of the same management through a
Holding Company. Both the systems aim at gaining the advantages of large scale
operations. The banks are able to pool their resources in case of emergency or
when large amount of cash is required to meet the loan requirements of the
customer.

(5) CORRESPONDENT BANKING:

Under Correspondent banking, small banks serving local communities hold

deposits with joint banks serving in big cities. This kind of banking is prevalent in
U.S.A. The correspondent banks perform two important services of outstation
cheque clearing and loan participation for the respondent banks while they benefit
for the deposit funds of respondent banks.

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PRIMARY FUNCTIONS:

1) Accepting of Deposits: A bank accepts deposits from the public. People can
deposit their cash balances in either of the following accounts to their
convenience:-

(a) Fixed or Time Deposit Account: Cash is deposited in this account for a fixed
period. The depositor gets receipts for the amount deposited. It is called Fixed
Deposit Receipt. The receipt indicates the name of the depositor, amount of
deposit, rate of interest and the period of deposit. This receipt is not transferable. If
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the depositor stands in need of the amount before the expiry of fixed period, he can
withdraw the same after paying the discount to the bank.

(b) Savings Account: This type of deposit suits to those who just want to keep
their small savings in a bank and might need to withdraw them occasionally. Banks
provide a certain rate of interest on the minimum balance kept by the depositor
during the month.

(c) Current Account: This type of account is kept by the businessmen who are
required to withdraw money every new and then. Banks do not pay any interest on
this account. Any sum or any number of withdrawals can be presented by such an
account holder

2) Advancing of Loans: The bank advances money in any one of the following
ways.

(a) Overdraft Facilities: Customers of good trading are allowed to overdraw from
their current account. But they have to pay interest on extra amount they have
withdrawn.
Overdrafts are allowed to provide temporary accommodation since the extra
amount withdrawn is payable within a short period.

(b) MoneyatCall: It is the money lent for a very short period varying from 1 to 14
days. Such advances are usually made to other banks and financial institutions
only. Money at call ensures liquidity. In the Interbank market it enables bank to
make adjustment according to their liquidity requirements.

(c) Loans: Loans are granted by the banks on securities which can be easily
disposed off in the market. When the bank has satisfied itself regarding the
soundness of the party, a loan is advanced.

(d) Cash Credit: The Debtor is allowed to withdraw a certain amount on a given
Security. The debtor withdraws the amount within this limit, interest is charged by
the bank on the amount actually withdrawn.

(e) Discounting Bill of Exchange: It is another method of making advances by the

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banks. Under this method, banks give advance to their clients on the basis of their
bills of exchange before the maturity of such bills.

(f) Investment in Government Securities : Purchasing of government securities by

the banks tantamount to advancing loans by them to the Government. Banks prefer
to buy government securities as these are considered to be the safest investment.
For example: Indira Vikas Patra: It enables the banks to meet requirement of
statutory liquidity ratio (SLR)

(3) Credit Creation: One of the main functions of banks these days is to create
credit. Banks create credit by giving more loans than their cash reserves. Banks are
able to create credit because the demand deposits i.e. a claim against the bank is
accepted by the public in settlement of their debts. In this process the bank creates
money. For this reason Prof. Sayers has called bank³the manufactures of money.

(4) Cheque system of Payment of Funds: A cheque, a negotiable instrument, which

in fact is a bill of exchange, drawn upon a banker, is the most popular credit
instrument used by the client to make payments. Cheque system is the main credit
instrument in the banking world.
Although a cheque is not legal tender money, they serve as a medium of exchange
in a limited way as it is a negotiable instrument

SECONDARY FUNCTIONS:

Besides the above primary functions, banks also perform many secondary
functions such as agency functions, general utility and social functions.

(1) Agency Functions Banks act as agents to their customers in different ways:-

(a) Collection and Payment of Credit and Other instruments: The Commercial
banks collect and pay cheques, bills of exchange, promissory notes, hundies, rent,
and interest etc.On behalf of their customers and also make payments of income
tax, fees, insurance premium etc. on behalf of the customers.

(b) Purchase and Sale of Securities : T h e modern commercial banks also

undertake the purchase and sale of various securities like shares, stocks, bonds
units and debentures etc.On behalf of the customers, banks do not give any advice

13
regarding the suitability or otherwise of a security but simply perform the functions
of a broker.

(c) Trustee and Executor: Banks also acts as trustees and executors of the property
of their customers on their advice. Sometimes banks also undertake income tax
services on behalf of the customers.

(d) Remittance of Funds : The Commercial banks remit funds on behalf of clients
from one place to another through cheques, drafts, mail transfers etc.

(e) Representation and Correspondence: Sometimes commercial banks acts as

representatives or correspondents of the clients especially in handling various
applications.
For instance, passports and travel tickets, booking of vehicles, plots etc.

(f) Billion Trading: In many countries, the commercial banks trade is billions like
gold and silver. In Oct 1997, 8 banks including SBI, IOB, Canada Bank and
Allahabad Bank have been allowed import of gold which has been put under open
general licensed category.

(g) Purchase and Sale of Foreign Exchange: Banks buy and sell foreign exchange,
promoting international trade. This function is mainly discharged by foreign
Exchange Banks.

(h) Letter of References: Banks also give information about economic position of
their customers to domestic and foreign traders and vice versa.

(2) GENERAL UTILITY SERVICES:-

In addition to agency services, banks render many more utility services to the
Public. These services are:-

(a) Locker Facilities : Banks provide locker facilities to their customers. People
can keep their valuables or important documents in these lockers. Their annual rent
is very nominal.

(b) Issuing letters of credit: Bankers in a way by issuing letters of credit certify the
credit worthiness of the customers. Letters of credit are very popular in foreign
trade.

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(c) Acting as Underwriters: Banks also underwrite the securities issued by the
Government and Corporate bodies for a commission. The name of bank as an
underwriter encouraged investors to have faith in the security.

(d) Help inter aspiration of Goods: Big businessmen or industrialists after

consigning goods to their retailers send the Railway Receipt (Consignment Note)
to the bank.

(e) Issuing of gift c heques: Certain banks issue gift cheques of various
denominations, e.g. Some Indian banks issue gift cheques f the denominations of
Rs. 21, 31, 51 and 101 etc. They are generally issued free of charge.

(f) Dealing in Foreign Exchange: Major branches of commercial banks also

transact business of foreign exchange. Commercial banks are the main authorized
dealers of foreign exchange in India.

(g) Merchant banking Services: Commercial banks also render merchant banking
services to the customers. They help in availing loans from non-banking financial
institutions.

Public Sector Banks

 Reserve Bank of India - Central Bank
 Bank of India
 Dena Bank
 IDBI Bank
 Indian Bank
 Oriental Bank of Commerce
 Punjab National Bank
 United Bank of India
 Allahabad bank
 Andhra Bank
 Bank of Baroda
 Bank of Maharashtra
 Canada Bank
 Central Bank of India
 Corporation Bank
 Indian Overseas Bank
 Syndicate Bank
 Union Bank of India
 Vijay Bank
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 Punjab & Sind Bank

Private Banks
 Axis Bank
 Bank of Rajasthan
 Catholic Syrian Bank
 City Union Bank
 Dhanalakshmi Bank
 Federal Bank
 Jammu & Kashmir Bank
 Tamil Nadu Mercantile Bank
 Yes Bank
 ICICI Bank
 HDFC Bank
 PB BANK
 HSBC BANK
 ABN AMRO
 DEUTSCHE BANK

PRODUCTS/SERVICES OFFERED BY BANK:

Some of common available banking products are explained below:

(a) Credit Card: Credit Card is³post paid´ or³pay later´ card that draws from a credit
Line-money made available by the card issuer (bank) and gives one a grace period
to pay. If the amount is not paid full by the end of the period, one is charged
interest. These bills are assembled in the bank and the amount is paid to the bank
by the card holder totally or by installments. The card holder need not have to
carry money/cash with him when he travels or goes for purchasing.
Credit cards have found wide spread acceptance in the µmetros and big cities.
Credit cards are joining popularity for online payments. The major players in the
Credit Card market are the foreign banks and some big public sector banks like
SBI and Bank of Baroda.
India at present has about 3 million credit cards in circulation.

(b) Debit Cards: Debit Card is a³prepaid´ or³pay now´ card with some stored value.
Debit Cards quickly debit or subtract money from ones savings account, or if one
were taking out cash.
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When A CUSTOMER makes a purchase, he enters this number on the shops
PIN pad. When the card is swiped through the electronic terminal, it dials the
acquiring bank system either Master Card or Visa that validates the PIN and finds
out from the issuing bank whether to accept or decline the transaction. The
customer never overspread because the amount spent is debited immediately from
the customer’s account. So, for the debit card to work, one must already have the
money in the account to cover the transaction. There is no grace period for a debit
card purchase.
The major limitation of Debit Card is that currently only some 3000-
4000 shops country wide accepts it.

(c) Automatic Teller Machine: The introduction of ATMs has given the customers
the facility of round the clock banking. ATM card is a device that allows customer
who has an ATM card to perform routine banking transaction at any time without
interacting with human teller. This can be done by inserting the card in the ATM
and entering the Personal Identification Number and secret Password.
ATMs are currently becoming popular in India that enables the customer to
Withdraw their money 24 hours a day and 365 days. It provides the customers with
the ability to withdraw or deposit funds, check account balances, transfer funds and
check statement information.

(d) E-Cheques: The e-cheques consists five primary facts. They are the consumers,
the merchant, consumers bank the merchants bank and the e-mint and the clearing
process. This chequring system uses the network services to issue and process
payment that emulates rewords chequing. The payer issues digital cheques to the
payee ant the entire transactions are done through internet. Electronic version of
cheques are issued, received and processed.
The e-chequing is a great boon to big corporate as well as small retailers. Most
major banks accept e-cheques. Thus this system offers secure means of collecting
payments, transferring value and managing cash flows.

(e)Electronic Funds Transfer (EFT): Many modern banks have computerized their
cheque handling process with computer networks and other electronic equipments.
These banks are dispensing with the use of paper cheques. The system called
electronic fund transfer (EFT) automatically transfers money from one account to
another. This system facilitates speedier transfer of funds electronically from any
branch to any other branch. In this system the sender and the receiver of funds may
be located in different cities and may even bank with different banks. Funds
transfer within the same city is also permitted. The scheme has been in operation
since February 7, 1996, in India.

17
(f) Telebanking: Telebanking refers to banking on phone services. A customer can
access information about his/her account through a telephone call and by giving
the coded Personal Identification Number (PIN) to the bank. Telebanking is
extensively user friendly and effective in nature.

(g)Mobile Banking: A new revolution in the realm of e-banking is the emergence

of mobile banking. On-line banking is now moving to the mobile world, giving
everybody with a mobile phone access to real-time banking services, regardless of
their location. The potential of mobile banking is limitless and is expected to be a
big success.
According to this system, customer can access account details on mobile using
the Short Messaging System (SMS) technology where select data is pushed to the
mobile device. The wireless application protocol (WAP) technology, which will
allow user to surf the net on their mobiles to access anything and everything. This
is a very flexible way of transacting banking business.
Already ICICI and HDFC banks have tied up cellular service provides such as
Airtel, Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobile banking
services to their customers

(h) Internet Banking: Internet banking involves use of internet for delivery of
banking products and services. With internet banking is now no longer confirmed
To the branches where one has to approach the branch in person, to withdraw cash
Or deposits a cheque or request a statement of accounts. In internet banking, any
inquiry or transaction is processed online without any reference to the branch
(Anywhere banking) at any time.
ICICI bank was the first one to offer Internet Banking in India. Financial
Transaction on the Internet: Electronic Cash: Companies are developing electronic
replicas of all existing payment system: cash, cheque, credit cards and coins.
Automatic Payments: Utility companies, loans payments, and other businesses use
on automatic payment system with bills paid through direct withdrawal from a
bank account.
Direct Deposits: Earnings (or Government payments) automatically deposited into
bank accounts, saving time, effort and money. Stored Value Cards: Prepaid cards

18
for telephone service, transit fares, highway tolls, laundry service, library fees and
school lunches.
Point of Sale transactions: Acceptance of ATM/Cheque at retail stores and
restaurants for payment of goods and services. This system has made functioning
of the stock Market very smooth and efficient.

(i) Cyber Banking: It refers to banking through online services. Banks with web
site Cyber branches allowed customers to check balances, pay bills, transfer funds,
and apply for loans on the Internet.

(j) Demat: Demat is short for de-materialisation of shares. In short, Demat is a

process where at the customer’s request the physical stock is converted into
electronic entries in the depository system

 OBJECTIVES OF THE STUDY

This study has been conducted with a variety of important objectives in mind. The
following provides us with the chief objectives that have tried to achieve through
the study. The extent to which these objectives have been met could judge from the
conclusions and suggestions, which appear in the later of this study.
The Chief Objectives of this study are:
1. To find the bank sector that is largely availed by the customer.
2. To study the factors the factors influencing the choice of a bank for availing
services.
3. To find and compare the satisfaction level of customers in public sector as well
as in private sectors bank.
4. To study the problem faced by customer.
5. To get suggestions for improvement or change in the services of public and
private sector banks.
6. To study what do people expect in the new era of banking.
7. To study whether the customers are satisfied with their service
8. To know about the Customer preferences
9. To give Suggestions to improve the service

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  Performance of Public and Private Sector Banks: A
Comparison
The performance and the roles of private and public sector banks are
undergoing changes. The banks, both private as well as public have to now operate
in an increasingly competitive environment. The competition for public sector
banks is coming from the private sector banks. Despite having the advantage of a
substantial presence and penetration in the rural areas, the public sector banks are
under tremendous pressure to maintain their margins and to survive the
competition. The customer-centric approach of private sector banks have thrown
open many more challenges for the public sector banks especially in retaining
customers and expanding customer base.

We have compared Public and Private sector banks based on 11 parameters, which
are critical while evaluating their performance. These criteria are as follows:

1. Assets and Liabilities

2. Share in Aggregate Deposits
3. Priority Sector Lending
4. Sensitive Sector Lending
5. Credit Deposit Ratio
6. Cost of Funds and Return on Funds
7. Operating Profit and Net Profit
8. Net Profitability of Banks
9. Gross and Net NPAs
10. Capital Adequacy Ratio
11. ATM’s

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At present, there are 20 old private sector banks and 9 new private sector banks.
The private sector banks, which have been formed after the banking sector reforms
in 1991 are called as the new private sector banks. Below are the names of old and
new private sector banks.

Old Private Sector Banks:

1. Bank of Rajasthan Ltd.

2. Bharat Overseas Bank Ltd.
3. Catholic Syrian Bank Ltd.
4. City Union Bank Ltd.
5. Dhanalakshmi Bank Ltd.
6. Federal Bank Ltd.
7. Ganesh Bank of Kurundwad Ltd
8. ING Vysya Bank Ltd.
9. Jammu and Kashmir Bank Ltd.
10. Karnataka Bank Ltd.
11. Karur Vysya Bank Ltd.
12. Lakshmi Vilas Bank Ltd.
13. Lord Krishna Bank Ltd.
14. Nainital Bank Ltd.
15. Ratnakar Bank Ltd.
16. Sangli Bank Ltd.
17. SBI Commercial and International Bank Ltd
18. South Indian Bank Ltd.
19. Tamilnad Mercantile Bank Ltd.
20. United Western Bank Ltd.

New Private Sector Banks:

1. Bank of Punjab Ltd.

2. Centurion Bank Ltd.
3. Development Credit Bank Ltd.

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4. HDFC Bank Ltd.
5. ICICI Bank Ltd.
6. IndusInd Bank Ltd.
7. Kotak Mahindra Bank Ltd.
8. UTI Bank Ltd.
9. Yes Bank Ltd.

CONCLUSION

In any banking system, no bank -- public or private -- can survive unless it

continuously strives to transform its organization into a self-governing, self-
correcting and self-adjusting entity.

For banks to grapple with these problems and manage the future, structural and
institutional rigidities need to be eased in two critical areas: comprehensive legal
support for recovery of bad debts and a fundamental change in the pattern of
governance for the PSBs.

While public sector banks are in the process of restructuring, private

sector banks are busy consolidating through mergers and acquisitions (the sector
has been recently opened up for foreign investments). PSB’s need to improve in
the services like ATM’s, Credit and Debit cards. They lack behind in providing
facilities like loans and other accounts. These branches are not interlinked with
each other and working hours are less.

In case of Private sector banks customers are not aware of the facts and hidden
costs in view, as there are various products and facilities provided by the banks.
The charges that are been taken are also too high.
Challenges and Opportunities exist for both the public sector as well as the private
sector banks, their nature however differs.

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 REFERENCES

1. Publications; Trends and Progress in India- Operations and Performance of

Commercial Banks:

2. www.rbi.org.in

3. RBI’s New Initiatives, the ICFAI University Press, May 2006

4. Bharati V. Pathak, Indian Financial System, Pearson Education Pvt. Ltd.,

2003

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