PROJECT REPORT ON FEASIBILITY OF INDUSTRIAL

LOAN IN PUNJAB NATIONAL BANK

A Summer Training Project Report
Submitted in partial fulfillment of the requirement for the
Award of Degree of Master of Business Administration
2014 2016

Under the Guidance of:

PROF: MONA KWATRA

Submitted by:
AMIT MITTAL

DEPARTMENT OF MANAGEMENT
MAHARAJA AGRASEN INSTITUTE OF TECHNOLOGY
(Affiliated to G.G.S.I.P. University)
Sector 22, Rohini, Delhi -110086
An ISO 9001:2008 Certified Institute
AICTE NBA Accredited Institute

PROJECT REPORT
ON
INDUSTRIAL LOAN
OF PUNJAB NATIONAL BANK

INDEX

 GUIDE CERTIFICATE
ACKNOWLEDGEMENT
INTRODUCTION
COMPANY PROFILE
PRODUCTS
LITERATURE REVIEW
RESEARCH METHOLOGY
DATA ANLYSIS
CONCLUSION
REFERENCE

SELF ATTESTATION
I

hereby

declare

that

the

dissertation

called

___________________________ embodies the original work done by me

at ________________________________. This work in part or full has not
been submitted to any other university

CERTIFICATE

This is to certify that ___________________ semester has completed his

project work on during the year ______________.

PROJECT GUIDE

ACKNOWLEDGEMENT
I would like to thank all those who helped me through the project of
familiarization I would like to express my sincere appreciation to my guide
________________ for his enlightenment of my knowledge of feed back
and the hotel industry, valuable advice and kind support throughout the
process of dissertation completion
Most importantly, I would like to thank my parents and sister who were
always there to motivate me.

I would like to thank all the focus group

members for giving their valuable time and thoughts to my project.

I would like to thank all the customers and employees of hotel for sharing
their valuable thoughts which helped me shape this project

ABSTRACT

Nationalization gave a great swimpetus and also gave a new orientation to

the banking system. The importance of the banking system as an
intermediary for channelizing the savings of community and its pivotal role
in the economy made it necessary, particularly in the context of overall
usage of the resources in terms of money to the industrial sectors. The
explosive growth economy and the favorable demographic profile continue
to drive consumption pattern of the people and it automatically leads to a
market for a wide range of manufactured goods. And there by, we invite the
stepping up of the new industries to satisfy the growing needs. Already we
are in a position where industries are operating at near peak capacities and
sustained demand growth will require a rapid build up of production
capacities and infrastructure. But the industrial sectors are facing problems
in getting loans. This paper examines the process of sanctioning loans and
finding the criteria of financing the industrial sectors by the banking
sector .The purpose of the present paper is to provide a more comprehensive
statistical

PREFACE

Modern organizations are highly complex ad dynamics systems. They

operate under very turbulent social economic and political environment.
They are required to reconcile several incompatible goals. Conflicting roles
and divergent interest they are also fraught with the use risk and
uncertainties, hence tactful management of such organization to plan to
execute guide, coordination and control the performance of people to
achieve predetermined goals. Management has to keep the organization
vibrant moving and in equilibrium. It has to achieve goal which themselves
are changing it is therefore a problem highly complex and ticklish.
This information will be asset to marketing manager in making effective
decisions. The researches are used to acquire and analyze information and to
make suggestions to management as to how marketing problems should be
solved.
The marketing research is the process which links to manufacturer, dealers
and individuals through information in important part of curriculum of
M.B.A. programme is project taken by the students to institute under which
he or she is studying, after completion of third semester of the programme.
The objective of this project is to enable the students to understand the
application of the academics in the real business life. I am fully confident
that this project report will be extremely useful to the management.

GOOD THINGS IN LIFE BEGIN

SMALL

INTRODUCTION OF PUNJAB NATIONAL BANK

PNB was founded in the year 1894 at Lahore (presently in Pakistan) as an
off-shoot of the Swadeshi Movement. Among the inspired founders were
Sardar Dayal Singh Majithia, Lala HarKishen Lal, Lala Lalchand, Shri Kali
Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram,
Lala Dholan Dass.
With a common missionary zeal they set about establishing a national bank;
the first one with Indian capital owned, managed and operated by the
Indians for the benefit of the Indians. The Lion of Punjab, Lala Lajpat Rai,
was actively associated with the management of the Bank in its formative
years.
The Bank made steady progress right from its inception. It has shown
resilience to tide over many a crisis. It withstood the crisis in banking
industry of 1913 and the severe depression of the thirties.
It survived the most critical period in its history the Partlition of
1947 when it was uprooted from its major area of operations. It was the
farsightedness of the management that the registered office of the Bank was
shifted from Lahore to Delhi in June 1947 even before the announcement
of the Partition.

LALA LAJPAT RAI

With the passage of time the Bank grew to strength spreading its wings from
one corner of the country to another. Some smaller banks like, The Bhagwan
Dass Bank Limited, Universal Bank of India, The Bharat Bank Limited, The
Indo-Commercial Bank Limited, The Hindustan Commercial Bank Limited
and The Nedungadi Bank were brought within its fold.
PNB has the privilege of maintaining accounts of the illustrious national
leaders like Mahatma Gandhi, Shri Jawahar Lal Nehru, Shri Lal Bahadur
Shastri, Shrimati Indira Gandhi besides the account of the famous Jalianwala
Bagh Committee.
Nationalization of the fourteen major banks on 19th July, 1969 was a major
step for the banking industry. PNB was one amongst these. As a result,
banking was given a new direction and thrust.
The banks were expected to reach people in every nook and corner, meet
their needs, and work for their economic enlistment. Removal of poverty and
regional imbalances were accorded a high priority.
PNB has always responded enthusiastically to the nation's needs. It has been
earnestly engaged in the task of national development. In the process, the
bank has emerged as a major nationalized bank.
Punjab National Bank (herein referred to as PNB) is one of the leading
banks in India and offers a wide variety of banking services, which include
corporate and personal banking, industrial finance, agricultural finance,
financing of trade and international banking. Among the clients of the Bank
are Indian conglomerates, medium and small industrial units, exporters, nonresident Indians and multinational companies. Punjab National Bank was
incorporated in the year 1895. Since its humble beginning over hundred

years ago, the bank has grown in stature to become one of the leading
banking institutions in India. PNB is the second largest PSU bank in India
with a dominant presence in north India. Keeping in tune with changing
times and to provide its customers more efficient and speedy service, the
Bank has taken major initiative in the field of computerization. All the
Branches of the Bank have been computerized. The Bank has also launched
aggressively the concept of "Any Time, Any Where Banking" through the
introduction of Centralized Banking Solution (CBS) and over 2000 offices
have already been brought under its ambit.

COMPANY PROFILE

Punjab National Bank is a state-owned commercial bank located in New

Delhi. The Bank is one of the Big Four Banks of India. They offer banking
products, and also operate credit card and debit card business, bullion
business, life and non-life insurance business, and gold coins and asset
management business. They are recognized as the Bank offering highest
levels of customer satisfaction in Delhi and Chennai. The Bank has the
largest domestic network of 4997 offices, including 46 extension counters
among Nationalized Banks. All their branches offer Core/ Centralized
Banking Solution (CBS) along with a variety of financial products catering
to different market segments. They has international presence in 9 countries,
with a branch at Kabul, 2 branches in Hong Kong, representative offices at
Almaty, Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK (with
5 branches), and a joint venture with Everest Bank Ltd, Nepal. Punjab
National Bank was incorporated in the year 1895 at Lahore, undivided India.
The Bank has the distinction of being the first Indian bank to have been
started solely with Indian capital. In the year 1940, the Bank absorbed
Bhagwan Dass Bank, a scheduled bank located in Delhi circle. In the year
1951, they acquired the 39 branches of Bharat Bank and in the year 1961,
they acquired Universal Bank of India. Punjab National Bank was
nationalized in July 1969 along with 13 other banks. In the year 1986, they
acquired Hindustan Commercial, which added Hindustan's 142 branches to
the Bank's network. In the year 1993, they acquired New Bank of India
which the GOI. During the year 1996, they developed a packaged for
corporate customers for fast remittance of funds from different up-country

branches. In the year, they set up a representative office in Almaty,

Kazakhstan. In the year 2000, the Bank has introduced a scheme for
providing finance against mortgage of immovable property. In September
2000, they commenced their gold business in the form of Gold Import
Scheme. In November 2000, they launched an International Co-branded
Credit Card of Punjab National Bank and Hongkong & Shanghai Banking
Corporation (HPNBC) in New Delhi. In March 2002, the Bank came out
with their first Initial public offer (IPO) for 5,30,60,700 equity shares of Rs
10 each which resulted in the reduction of the government's shareholding in
the Bank. During the year 2002, they started their branch in M.G. Road,
Bangalore named as Mid-Corporate Branch (MCD) to provide their
corporate clients with a credit limit of Rs 3.5 crore and above. They made
joint venture with Infosys for the implementation of a Centralized Banking
Solution for them. Also, they made a tie up with Cisco Systems for
networking 3,870 branches as part of their Rs 150 crore plan. In the year
2003, the Bank took over Kozhikode-based Nedungadi Bank Ltd (NBL).
The Bank entered into an alliance with New India Assurance for selling their
general insurance products. Also, they opened a representative office in
London. During the year, PNB Capital Service Ltd was amalgamated with
the Bank. In June 2003, the Bank entered into an MoU with Principal
Financial Services Inc (USA) and Vijaya Bank for joint venture partnership
in Life Insurance, Pensions and Asset Managements (MF) business. Also,
they formed a strategic alliance with Infrastructure Leasing and Financial
Services Ltd (IL&FS) for setting up a private equity fund for investing in

domestic companies. In the year 2004, the Bank acquired the assets of
Hindustan Transmission Product Ltd. They signed a corporate agency
agreement with Export Credit Guarantee Corporation of India Ltd (ECGC)
for marketing ECGC's export credit insurance products through the network
of the bank's branches. Also, an MoU was signed with Intel for the
deployment of various IT-related solutions. During the year, the Bank signed
an MoU with ICICI Bank for ATM network sharing. They awarded a project
to Tata Consultancy Services (TCS) for implement human capital
management and payroll solution. They established a branch office in Kabul,
Afghanistan. Also, they opened a representative office in Shanghai. The
bank established an alliance with Everest Bank in Nepal that permits
migrants to transfer funds easily between India and Everest Bank's 12
branches in Nepal. In the year 2005, the Bank unveiled ATM at Edappal.
Also, they opened a representative office in Dubai. In the year 2006, the
Bank made a tie up with MasterCard International to launch a signaturebased debit card. Also, they made a tie up with Indian Airlines for online
booking of air tickets. They opened a new branch in Uttarakhand. In October
2007, the Bank entered into MoU with India Infrastructure Finance
Company with an aim to extend their cooperation and support to IIFC in
areas of creating a deal flow of infrastructure projects. In January 2008, the
Bank commenced commercial banking operations in Hong Kong. During the
year 2008-09, the Bank opened 168 branches, out of which 90 are new
branches and 78 branches was added through upgradation of Extension
Counters. They made collaboration with LIC for selling insurance policies

and also made a toe up with Oriental Insurance for selling non-life policies
on a referral basis. In June 2008, they entered into an MoU with ILFS
Cluster Development Initiative Ltd for providing finance for various
industrial infrastructure projects in the country. In September 2008, they
signed an MoU with SMC Global Securities Ltd and Networth Stock
Broking Ltd for providing online trading facility to Company's customers.
They offered a unique '3 in 1 account' comprising of Saving, Demat and
Trading account. In February 2009, they commercially launched their credit
cards with 2 types of consumer credit cards, namely Gold and Classic. Also,
they entered into an agreement with Oriental Insurance Company to market
insurance products, a practice also known as bancassurance. In March 2009,
the Bank entered into an understanding with Tata Motors for financing entire
range of passenger cars. Also, they executed an agreement with The Life
Insurance Corporation of India for banc assurance, life insurance under the
provisions of IRDA's Referral Arrangement. During the year 2009-10, the
Bank opened 524 domestic branches, out of which 347 are at new locations
while 177 branches was added through up gradation of existing Extension
Counters. They deployed 1400 ATMs taking the the total count of ATMs to
more than 3500 Nos. They opened two overseas branches 1 in Hong Kong
and another at DIFC Dubai and started a JV banking subsidiary 'DRUK PNB
Bank Ltd' in Bhutan. Also, they opened a representative office in Oslo,
Norway. During the year, the Bank sold 6.5% of their stake in UTI Assets
Management Co Ltd and UTI Trustee Pvt Ltd, thus bringing down their
stake in both these companies to 18.5%. They launched Corporate Credit

Card with Individual liability. Also they launched Merchant Acquiring

Business through installation of Point of Sale (PoS) Terminals at Merchant
Establishments and Internet Payment Gateway by integrating through
Merchant Website, with Brand Name PNB Biz. In May 2009, the Bank
incorporated a subsidiary company namely PNB Investment Services Ltd. In
November 2009, they entered into an agreement with FIM Bank (Malta),
Banca IFIS, Italy and Blend Financial Services Ltd, Mumbai for setting up a
joint venture company for providing factoring, forfeiting and trade finance
related business. During the year 2010-11, the Bank introduced new set of
products and services such as PNB Uphaar, PNB Suvidha and World Travel
Card. In December 13, 2010, they acquired 63.64% stake in JSC Dana Bank
of Kazakhstan. In January 12, 2011, the Bank's joint venture India factoring
and Finance Solutions Pvt Ltd started its commercial operations from Delhi,
Mumbai & Chennai. The total number of branches at the end of March 2011
rose to 5189. The branch network comprises 2047 Rural, 1154 Semi Urban,
1111 Urban and 877 Metropolitan branches. During the review period 210
domestic branches were opened. With 5189 branches, including 28
Extension Counters, the Bank has the largest network amongst the
nationalized banks. As part of customer segmentation, Bank has opened
specialized Branches that include 6 Micro Finance branches, 59 SME
branches, 11 International Banking Branches, 17 Asset Recovery
Management Branches, 13 Mid Corporate Branches, 11 Large Corporate
Branches, 73 Retail Asset Branches, 11 Agriculture Finance Branches, 3
high-tech agriculture branches, 1 Capital Market Services Branch and 1

International Service Branch. Besides, 41 Back Offices, 2 Special Foreign

Exchange Offices, 17 Special MICR Centers, 41 Service (Regional Clearing
Centre) centers, 4 Financial Inclusion Service Centers, 3 Centralized Draft
Payable Centers, 1 Central Clearing Service Centre and 1 Depository Back
Office are established to reduce delivery time and improve response time.
The Bank received permission from RBI for setting up a representative
office in Sydney, Australia. Also, they are in the process of entering into
Canada. The company is having an aim to increase the customer base to 150
million by the year 2013

INTRODUCTION OF INDUSTRIAL LOAN

One of the major areas of the economy that has received focus in recent
times is the financial sector. And within the broad domain of the financial
sector, it is the banking sector that has been the policymakers. Therefore, the
banking sector in most emerging economies is passing through the
challenges and India is not exception to this rule. When we consider
financial matters, we think of banks as the primary financial entity.
However, the continuing wave of bank mergers and acquisitions has raised
concern about the availability of debt capital, especially to business firms.
Now this issue is more hotly debated in Indian banking sector, where small
firms dominate the business sector. In the light of the importance of financial
intermediation and the difficulties that several countries have encountered in
restructuring their fragile banking systems, it would be useful to examine the
performance of the banking sector with respect to the procedure of giving
loan in India during the twenties. A loan is a legal contract between the
lender and the debtors. The major business of banking company is to grant
loans and advances to traders as well as commercial and industrial institutes.
The most important use of banks money is lending. There are also some
risks in lending. While lending loans the banks usually keep securities and
assets as a supports so that lending may be safe and secured.

SCOPE OF THE STUDY

The scope of the study is confined to the Punjab National Bank in terms of
customer satisfaction. The study has been undertaken on the basis of sample
survey.

INDUSTRIAL LOAN
In the present changing scenario of banking industry it is the aim of all
financial institutions and banks to provide all shorts of financial problems
and needs to its clients. Therefore in the recent developments in the financial
sector we have been witnessing the term lending institutions. The lending
institutions are earlier aiming at providing long term credit requirement for
industry but now they are providing working capital finance and also inland
as well as foreign letter of credit. Banks have also started financing long
term credit needs of the industry. With the advent of financial sector reforms
ushered by govt. of India and RBI to provide liberalized environment in
banking industry, it has become imperative to create environment to meet
financial needs of a client, inland as well overseas by one institution only. In
a nutshell Universal Banking is the need of the hour to survive. As a step
in this direction some financial institue tion/banks have introduced the
scheme of providing corporate loan.

THE LENDING DECISION

A banks credit department will analyze a borrower and provide a credit

rating used in the lending decision. Creditworthiness of borrowers
determined by (5 Cs) is listed below.
1. CHARACTER Bankers should continually emphasize the importance of
the applicants credit history. Character is the Prime determinant of a
borrowers willingness to repay a loan. It is nothing but the honesty and the
integrity of the person requiring loan.

2. CAPACITY It is the firms ability to generate liquidity in the loan

repayment process. Generating the cash flow and changing the capital
structure are the primary source of capital repayment.
3. CAPITAL This category refers to the loan applicants ability to create
income/cash flow. The real net worth of the firm is a good signal for
repayment likelihood.
4. COLLATERAL Bank lenders always run with the risk of repayment of
the loan by the borrowers. Collateral provides security to loans made. As a
part of repayment, accounts receivable, equipment, inventory, real estate and
buildings are all potential sources of collateral.
5. CONDITIONS This refers to the economic conditions, market conditions
and the environment faced by the applicant.
The lender should consider competitive conditions, supply/cost factors,
changing technology and the business cycle comprising of booms,
depression, recession and the recovery period. The purpose of the present
paper is to provide a more comprehensive statistical analysis with respect to

the factors which influence the approval or denial of a business firms loan
application.

OBJECTIVES
1. To know the criteria for granting bank loans to the industrial sectors
2. To identify the variable that the bank emphasizes before giving loans.
3. To find out the type of the business availing the loan most.
4. To find out the type of the preferable product to avail the loan most.
5. To find out which group (minority or majority) get the loan easily.
6. To access the association in between the government approval of the firm
and sanctioning the loan.
7. To know the legal structure of the firm helps in getting the loan.
8. Analysis of the relationship of the size of the company, Financial System,
Business Experience with the chance of getting loan

Products

PNB has a wide variety of products and services that meet diverse
requirements of its vast customer base. In the light of growing importance of
financial inclusion, the bank has introduced PNB Mitra - a no-frills savings
bank account that can be opened either by an individual, or jointly. A number
of deposit and loan schemes are available to customers such as housing
loans, car finance, customer finance, personal and several types of
educational loans. It has an international credit card, issued in collaboration
with Hong Kong and Shanghai Banking Corporation. HPNBC is the issuer
bank for the co branded credit card and it undertakes all front-end and backend operations relating to the co-branded credit card. Punjab National Bank
has formulated the Gold Card Scheme for its exporter clients based on the
scheme drawn up by Reserve Bank of India. The scheme ensures easy
availability of export credit on best terms to credit worthy exporters with a
good track record. The card offered by PNB is known as PNB Expo Gold
Card. The bank offers 12-hour banking services in 77 branches across India.

REVIEW OF LITERATURE

The first part deals with the flow of credit from organized institutions to
various sectors like manufacturing industry, private corporate sector and
various other industrial concerns. Studies on the institutional flow of credit
in Delhi are also discussed. The unorganized sector consisting of indigenous
financial agencies is enumerated in the next part. Understanding the
operation of and the potential for housing finance is important, since in
many developing countries 'housing' policy is about establishing new and
more innovative finance policies.
The banking system in India comprises of the Reserve Bank of India,
Commercial banks and cooperative banks and credit societies. The
commercial banks are the premier institutional structure of the banking
system. The principal function of these institutions is to satisfy
simultaneously the portfolio preferences of the borrowers on one side and
the lenders on the other. They mobilize resources from the savers in the form
of deposits and extend credit facilities to borrowers in the form of loans,
advances and securities. Loans and advances provided by these institutions
can be categorized into short-term funds and long-term funds. The latter are
advanced for purchase of plant and machinery while the former are provided
for purchase of raw materials, stores, spare parts and the like. However
following the traditional British banking practice, commercial banks provide
more short term funds to the investors in industry and trade than long term

loans. The pattern of credit disbursement has undergone substantial changes

since 1950.

Commercial banks extended credit to commerce and trade to a larger extend

than to manufacturing industry until 1958. Since the commencement of the
second five Year Plan, which laid emphasis on rapid industrialization, the
pattern of credit flow took a new turn in favour of medium and large
industry. As a result, the share of industry, in public and private sectors in
total bank credit increased from 34.8% to 67.5% during the period 1954 to
1968. Since nationalization of 14 major commercial banks in July 1969, the
Government of India assigned new priorities to commercial banks with
regard to the flow of credit to hitherto neglected sectors, called "priority
sectors." The emphasis thus shifted from industry to the priority sectors.
Further the supply of credit was controlled through statutory regulations and
monetary regulations.
On the other hand the demand for bank credit has also undergone substantial
increase. Factors such as, large growth in the number of industrial units,
diversification of existing units, increase in industrial and agricultural
production, increasing needs of short and long-term funds to maintain the
increased levels of production, pushed up the demand for bank credit.
Observed that the use of funds from banks by the private corporate sector
had exceeded its inventory formation. Gupta, has argued that a small portion
of such finance should have gone to meet fixed investment. Further, he
found the growth rate of physical assets to be more directly and closely
related to security issues than bank credit. Hence, he argued that the fast

growing firms relied heavily on security issues than the use of bank credit.
Arnbegeokar found that the rate of rise in bank credit exceeded that of
inventory, sales and output.
Further he observed Shetty assessed the dimensional changes in credit
deployment during the first five years of nationalization in relation to
changes in output and prices. The rationale for his analysis was the fact that,
in any accepted model of demand for money, one common variable is the
gross national product or some other variant of it in real terms.
Consequently, he hypothesized that credit for any sector or industry over a
period has to have some relationship with its performance in real terms,
particularly output. He observed a declining trend in the credit extended by
banks to industries since nationalization, though it was higher than other
sectors. On finding that the share of manufacturing sector in bank credit is
higher than its share in Net Domestic Product (NDP) he concludes that
increase in bank credit has occurred far in excess of increase in output
during the years
In his other paper, shetty4 observed that the share of medium and large
industry in total bank credit had declined due to priority sector lending.
Another observation in line with his earlier finding was that growth in bank
credit had always been disproportionate to growth of their physical output,
especially in industries like cotton textiles. His observation particularly for
the years 1975-76 and 1976-77 revealed:
(a) Increase in average bank credit had been higher than the growth of NDP
originating in registered manufacturing sector even at current prices

(b) An appreciable increase in the rate of short-term bank credit to

inventories; and
(c) Relatively higher reliance on trade credit. In line with these observations,
he suggested policies to scrutinize credit claims vigorously and relate credit
to the genuine production requirements so that funds are not tied up with
these large borrowers.
K.S.R. carried out an econometric exercise on the determinants of demand
for bank credit of some selected industries for the period between 1970-71
and 1984-85. He observed that output of these industries was the most
important factor in determining its demand for bank credit whereas, interest
rate of banks and relative rate of interest of other sources of borrowing
played only a secondary role. Price of output was also found to have affected
the demand for credit significantly. The relative interest rate variable was
significant with respect to industries like textiles, engineering and total
manufacturing, while it was not significant for industries like sugar and
other food products and chemicals.
Divatia and shankar6 in their paper discussed the role of internal and
external sources of funds and their components in financing capital
formation of the private corporate sector. The study was based on the RBI
company finance studies relating to medium and large public and private
limited companies and covered the period 1961-76. They also discussed the
trends and patterns of financing for four individual industries, viz, cotton
textiles, jute, sugar and cement.

Some interesting findings in his article "Financial Practices in Indian

Corporate Sector," based on the RBI company finance data. He underlined
the rising dependence on borrowed capital in relation to the total capital
employed in the Indian corporate sector. Trade credit was pointed out to be
important sources of capital when the bank credit was squeezed. Making an
industry-wise analysis, the author came to the conclusion that the industries
with large profit margins and those with large depreciation and development
rebate reserves had a relatively lower order of overall indebtedness and
many of them also had a lower order of bank borrowings in relation to
overall indebtedness. Industries with high profit margin such as silk and
rayon textiles, aluminum, basic industrial chemicals and medicine and
pharmaceutical preparations had lower proportion of borrowed funds as
compared to the average of the medium and large public Ltd. companies.
The extensive study viewed that the growth of institutional finance
emerged in India due to structural change for industrial financing system
with wide change of socio-political situations in India. He attempted to
measure overall impact of financial institutions on capital formation in the
organized private sector as also the locative efficiency of financial system.
He observed that during the first plan? financial assistance rendered by
special institutions represented only 4.1 per cent of gross fixed investment in
private industry, which rose to 7.9 per cent in the second plan and further to
18.1% in the third plan period. He also found that commercial banks
remained the most important single agency for financing the private
corporate industry and LIC was the single largest purchaser of industrial

securities and the underwriter of new issues of large and established

companies.

RESEARCH METHODOLOGY
SAMPLE AND DATA COLLECTION
This survey was conducted in the context of banking services. The data were
collected in face-to face interviews of customers coming to banks. The study
provides a representative sample of various branches of Punjab National
Banks customers in Delhi only.
. RESEARCH DESIGN
The research design is relating to the collection and analysis of data. There is
Qualitative and Quantitative Research design.
DATA COLLECTION
In qualitative research design, for the collection of data Depth Interviews,
Focus groups and Projective techniques have been used. In quantitative
research design the data have been collected from primary source through
observations, experimentation and questionnaires.
SAMPLE SIZE:
The samples have been selected on random basis. A sample of 100
respondents was be used in the research.
DATA SOURCES:
Both secondary and primary sources of data have been used. The major type
of information used is primary data. This is done through primary survey.

The literature review contains a secondary data type. The sources include
books, periodicals websites, printed literature etc.

TOOLS AND TECHNIQUES TO BE USED TABLES

Bar diagram and structures are used in explanations to bring out the point
more clearly. Tabulation of the primary data was done. On the basis of these
tables, trends came out more visibly. Other statistical techniques those are to
be used are,
CHI-SQUARE it is used to test the independence of the attributes.
RANKING METHOD-its basic property is to arrange a number of
attributes in a particular order.
KOLMOGOROV- Smirnov test it is used to test the relationship
between the rank and the factors.
LARGE SAMPLE TEST (Z-TEST) it is used to test the equality of two
population proportion.
ANOVA - it is used to test the significance of difference of the variability
MULTIPLE REGRESSION- It is used to find out the relation of a
variable with a group of variables.
COLLECTION OF DATA
The wide variety of bank regulations along with the existing environmental
condition suggests a number of factors that would influence to accept/reject
commercial bank lending decision. Specifically, the database includes such
information on banks who supplied the information about the strategy of

getting loan from a local commercial bank such as PNB, UCO, AXIS,
ANDHRA, SBI, HDFC and their different branches. In order to achieve the
identified objective pertaining to priorities and preferences and views, a
sample of 100 bankers (Managers) have been selected in the city Mumbai,
Maharashtra from the different branches of PNB, UCO, AXIS, ANDHRA,
SBI, HDFC during December, 2010.A pre-tested questionnaire was
administered to them, personal interviews with the help of the pre-tested
interview schedule, designed for this purpose was taken. Besides, personal
observation was done wherever necessarily applicable. A pilot survey was
conducted in the cities and the questionnaire was improved in that light. A
structured questionnaire was used as a data collection tool, and the statistical
judgment sampling was resorted for the purpose of the study.

DATA ANALYSIS
Table-: Statement showing different level of customer satisfaction in
Punjab National Bank
ANALYSIS AND INTERPRETATION
1. Structure wise analysis It is important for the bankers to note down the
legal structure of a firm; that is, whether it is a sole proprietorship,
partnership or corporation.
A one way ANOVA is performed to test whether there is any differences in
the structures while availing the loan.

NULL HYPOTHESIS: H0:

There are no differences in the structure of the firm in getting the loan.
ANOVA
Table-1
Sources of variation
Column (type of the
Error
Total

d.f.

Sum of
86.79
73

Mean Sum of
43.395
6.08

2
12
14
----------F0.05 (2, 12) =3.88 < Cal. F ------ H0 is rejected

F
F1=12.07

--------------

INTERPRETATION: There exist differences in the structures of the firm

in getting loan
The following table shows the percentages of the responses obtained
against to each category.
TABLE-2
Type of the structure
Sole Proprietorship
Partnership
Big Corporation

Percentage
14%
0%
86%

INTERPRETATION: Hence, it is interpreted that all most all the bankers

favor to the big corporation while giving the loan.
OWNERSHIP WISE ANALYSIS
Considering the ownership of this firm, it is important to note down the
nature of business such as minority business (that is, fifty percent or more
minority owned) or majority business. For this purpose, we have performed
the large sample test (Z) in order to know whether the proportion of minority
business owner is more important than that of majority or not.

Null hypothesis: H0: P = 0.50

Test statistic
Z = p - P / {PQ (1/ n)}
P = Population Proportion of the bankers favoring to majority group
n = sample size = 100 Calculation:
ZCAL = p - P / {PQ (1/ n)} Where,
P = 0.50, Q = 1- P p= Sample proportion of the bankers favoring to majority
group = (73 /100) = 0.73 ZCAL = 0.73 0.50/{0.50* 0.50 (1/100)} = 4.6
ZTAB =1.645 at 5% level of significance.
As, ZCAL > ZTAB ,H0 is rejected and H1 is accepted.
INTERPRETATION:
Hence we can conclude that bank emphasizes the majority group while
sanctioning the loan.
3. Analysis of the relationship of the size of the company, Financial System,
Business Experience with the chance of getting loan The chance of getting
the loan is correlated with the size of the company, Financial System and
Business Experience. Here the basic interest is to find out the weightage of
the independent variables (Size of the company, Financial System and
Business Experience) on the predictor, the chance of getting the loan by
using the Multiple Regression technique.
Let Y be the dependent variable = the chances of getting Loan B = the
coefficient of determinant (a constant value) X1 = Size of the company,
X2 = Financial System, X3 = Business Experience
Y = B0 + B1 X1+ B2 X2+ B3 X3

Step-by-Step Multiple Regression

Table- 3: Model Summary
Model
1

R
.987

R Square
.974

Adjusted R Square
.968

Std. Error of the Estimate

2.65705

a Predictors: (Constant), X3, X1, X2

Adjusted R Square value tells us that our model accounts for 96.8% of
variance and it signifies the model as good one.
TABLE-4: CORRELATIONS
Y
X1
X2
X3

Y
1.000
.980
.977
.542

X1
.980
1.000
.966
.516

X2
.977
.966
1.000
.541

X3
.542
.516
.541
1.000

** Correlation is significant at 0.01 level (2-tailed)

This table gives details of the correlation between each pair of variables.
There is a very good correlation between the criterion and the predictor
variables. The values here are acceptable.
Table-5: Coefficients

(Constant)
X1
X2
X3

Unstandardized

Standardized t

Coefficients
B
-24.118
0.806
0.899
0.28003

Coefficients
Beta

Std. Error
11.318
.250
.345
.077

.539
.443
.025

-2.131
3.225
2.602
.478

Sig.

.051
.006
.021
.640

a Dependent Variable: Y
The Standardized Beta Coefficients give a measure of the contribution of
each variable to the model. A large value indicates that a unit change in this
predictor variable has a large effect on the criterion variable. The t and Sig
(p) values give a rough indication of the impact of each predictor variable
a big absolute t value and small p value suggests that a predictor variables

having a large impact on the criterion variable. Financial System has the
highest beta value (0.899), Size of the company and the Business Experience
have the values of (0.899) and (0.28003).Error variance is explained by
constant (11.318), followed by Financial System (0.345), Size of the
company (0.250), Business Experience (0.077). Sample t-test correlates
positively for Size of the company (3.225), Financial System (2.602) and
Business Experience (0.478) with the chance of availing the loan.
Y = -24.118 + 0.806X1+ 0.899X2 +0.28003X3
It is evident that the bankers are giving more importance on the financial
system, size of the firm and less importance on business experience while
giving the loan.
4. Analysis of the most important financial system of the firm to get the loan
Firms employing a year-end compilation accounting method for tax
purposes can provide little financial information to a prospective lender.
Here the basic purpose is to find out the type of the financial record
favorable to get the loan.

Table-6
Financial System
Percentag e
a) Keep documents which are compiled at the end of the year for 2%
tax purposes.
b) Maintain records which can provide information about the 3%
balance sheet along with tax information at the end of the year
c) Have a system which generates quarterly along with year-end 10%
financial statements and tax information
d) Utilize a system which provides monthly, quarterly and year 85%

end financial statements and the tax information from the year

INTERPRETATION:
A majority i.e. 85% of the bankers are in favor of the fact that the firm
should utilize a system which provides monthly, quarterly and year end
financial statements and the tax information from the year.
Analysis of the factors influencing for sanctioning the loan. It is necessary to
assess the important factors influencing to sanction the loan. There are so
many factors, but we have included the following factors only. The data
have been collected on 5-point likert type scale in all eight attributes. The
statements were measurable on a likert scale of 1-5; where 5 indicates
strongly agree and 1 indicates strongly disagree.

Table 7: The summarized rank order

Features
Taxes
Poor Sales
Financing and Interest Rates
Operating and Production Cost
Government Regulations
Availability and Quality of Labor
Cost of Insurance
Personal recommendation

1
6
2
2
0
7
15
20
17

2
19
20
10
4
19
15
15
20

3
20
21
12
20
20
20
25
25

4
26
26
35
23
28
25
20
18

Rank

Rank

29
31
41
53
28
25
20
20

Sum
353
364
403
425
349
330
305
304

4
3
2
1
5
6
7
8

INTERPRETATION:
From the above analysis we conclude that the Operating and Production
Costs, Financing and Interest Rates, Poor Sales are the more influencing
factors for the bankers to sanction the loan.
PRODUCT WISE ANALYSIS
The type of the product such as FMCG, Petroleum and gasoline products,
Steel product, and Textile product to be produced by the company is of
prime consideration of getting loan.
The differences among the different products are analyzed statistically using
one-way ANOVA.
Null Hypothesis: H0: There is no difference in the products of getting the
loan.

ANOVA Table-8
Sources of variation
Column (type of
Error
Total

d.f

Sum of
81.267
77.2128

Mean Sum of
27.089
6.4344

4
12
16
-------F0.05 (4, 12) =3.26 < Cal. F ------ H0 is rejected.

F
F1=

--------

Interpretation: There exist differences in the products of getting the

loan. Let us proceed further to know that which product has the
maximum weight age to get the loan.
Table-9
Type of the Product
FMCG
Petroleum and gasoline products
Steel Product

Percentage
18%
55%
12%

Textile Product
Others

15%
10%

Interpretation: Majority bankers (55%) favored to Petroleum and gasoline

products while sanctioning loan.
Analysis of having the government approval In order to access whether the
government approval is important for getting the loan or not we have
performed chi-square test as follows. Null hypothesis H0: There is no
significant association between the government approval of the firm and
availing loan Statistical test: Chi square test is the most appropriate test for
this purpose.
TEST STATISTIC:
x 2 (Chi-square) = [(O- E)2 /E]= 16.766 Tab. Val of x 2 (0.05) at 3 d.f is
5.99
As, x 2 cal > x 2 tab , H0 is rejected and H1 is accepted
Interpretation: So, H0 is rejected and H1 is accepted. In other words, there
is an association between the government approval of the firm and availing
loan
BUSINESS WISE ANALYSIS
The nature of a firms business, such as retail, manufacturing or construction
could influence the probability of loan approval. The effect could be positive
or negative. The differences among the different products are analyzed
statistically using one way
ANOVA. Null Hypothesis:

H0: There is no difference in the type of the business of getting the loan.
ANOVA Table-10
Sources of variation
Column (type of product)
Error
Total

d.f.

Sum of squares
81.267
77.2128

Mean Sum of squares

27.089
6.4344

4
12
15
-------------F0.05 (4, 12) =3.26 < Cal. F ------ H01 is rejected.

F
F1=4.21

------

Let us proceed further to know that which type of the business has the
maximum weight age to get the loan.
Table-11
Type of the Product
Retail
Manufacturing
Construction

Percentage
20%
65%
15%

Interpretation: Maximum bankers (65%) favored to manufacturing unit

business while sanctioning loan.
MEASURING CUSTOMER SATISFACTION IN THE BANKING
INDUSTRY
Banking operations are becoming increasingly customer oriented. The
demand for 'banking supermalls' offering one-stop integrated financial
services is well on the rise. The ability of banks to offer clients access to
several markets for different classes of financial instruments has become a
valuable competitive edge. Convergence in the industry to cater to the
changing demographic expectations is now more than evident. Bank

assurance and other forms of cross selling and strategic alliances will soon
alter the business dynamics of banks and fuel the process of consolidation
for increased scope of business and revenue. The thrust on farm sector,
health sector and services offers several investment linkages. In short, the
domestic economy is an increasing pie which offers extensive economies of
scale that only large banks will be in a position to tap.
With the phenomenal increase in the country's population and the increased
demand for banking services; speed, service quality and customer
satisfaction are going to be key differentiators for each bank's future success.
Thus, it is imperative for banks to get useful feedback on their actual
response time and customer service quality aspects of retail banking, which
in turn will help them take positive steps to maintain a competitive edge.
THE NEED TO MEASURE CUSTOMER SATISFACTION
Satisfied customers are central to optimal performance and financial returns.
In many places of the world, business organizations have been elevating the
role of the customer to that of a key stakeholder over the past twenty years.
Customers are viewed as a group whose satisfaction with the enterprise must
be incorporated in strategic planning efforts. Forward-looking companies are
finding value in directly measuring and tracking customer satisfaction as an
important strategic success indicator. Evidence is mounting that placing a
high priority on customer satisfaction is critical to improved organizational
performance in a global market place. With better understanding of
customers' perceptions, companies can determine the actions required to
meet the customers' needs. They can identify their own strengths and

weaknesses, where they stand in comparison to their competitors, chart out

the path of future progress and improvement. Customer satisfaction
measurement helps to promote an increased focus on customer outcomes
and stimulate improvements in the work practices and processes used within
the company. When buyers are powerful, the health and strength of the
company's relationship with its customers its most critical economic asset
is its best predictor of the future.
ASSETS ON THE BALANCE SHEET BASICALLY ASSETS OF
PRODUCTION are good predictors only when buyers are weak. So it is
no wonder that the relationship between those assets and future income is
becoming more and more tenuous. As buyers become empowered, sellers
have no choice but to adapt. Focusing on competition has its place, but with
buyer power on the rise, it is more important to pay attention to the
customer. Customer satisfaction is quite a complex issue and there is a lot of
debate and confusion about what exactly is required and how to go about it.
This article is an attempt to review the necessary requirements, and discuss
the steps that need to be taken in order to measure and track customer
satisfaction.
WHAT CONSTITUTES SATISFACTION?
THE MEANING OF SATISFACTION:
"Satisfied" has a range of meanings to individuals, but it generally seems to
be a positive assessment of the services. The word "satisfied" itself had a
number of different meanings for respondents, which can be split into the
broad themes of contentment/happiness, relief, achieving aims and happy
with outcome and the fact that they did not encounter any hassle:

HAPPY CONTENT
Happy, pretty happy, quite happy
Pleased
Walked out of there feeling good
Walk out of there chuffed
Grateful the service has been OK
SERVICE QUALITY AND CUSTOMER SATISFACTION
There is a great deal of discussion and disagreement in the literature
about the distinction between service quality and satisfaction. The service
quality school view satisfaction as an antecedent of service quality
satisfaction with a number of individual transactions decay into an
overall attitude towards service quality. The satisfaction school holds the
opposite view that assessments of service quality lead to an overall
attitude towards the service they call satisfaction and customer retention
customers perception of Service and Quality of product will determine
the success of the product or service in the market. If experience of the
client from the previous services, greatly exceeds the expectations then
satisfaction will be high, and vice versa. In the service quality literature,
perceptions of the service delivery are measured separately from
customer expectations, and the gap between the two provides a measure
of service quality.
EXPECTATIONS AND CUSTOMER SATISFACTION
Expectations have a central role in influencing satisfaction with services,
and these in turn are determined by a very wide range of factors lower
expectations will result in higher satisfaction ratings for any given level

of service quality. This would seen sensible; e.g., poor previous

experience with the service or other similar service is likely to result in it
being easier to pleasantly surprise customers. However, there are clearly
circumstance where negative preconceptions of a service provider will
lead to lower expectations, but will also make it harder to achieve high
satisfaction ratings and where positive preconception and high
expectations make positive rating more likely. The expectations theory in
much of the literature, therefore, seems to be an over simplification. 5.
BANKING INDUSTRY: AN OVERVIEW
For centuries banks have played an important role in financial system of
the country. The vital role continues even today although the form of
banking has changed today with changing need of the economy and
individuals. With expansion of trade and commerce, the concept of
banking gained importance. The banking transcended from individuals to
groups and later to companies. During the Mughal period the indigenous
bankers played a very important role in lending money and financing
foreign trade in India. During British rule the agency houses carried on
the banking business. The Banking system in India has three tiers. There
are scheduled commercial banks, the regional rural banks; and the
cooperative banks. The scheduled commercial banks constitute those
banks which are included in the second schedule of RBI Act, 1934. In the
organized segment, banking system occupies an important place in
nations economy. It plays a pivotal role in the economic development of
a country and forms the core of the money market in developed country.
The commercial banks in India comprise of both Public sector as well as

private sector banks. There are total 28 Public sector and 27 private
sector banks functioning in the country presently. Banks have to deal
with many customers everyday and render various types of services to its
customer. It's a well known fact that no business can exist without
customers.
PUNJAB NATIONAL BANK
Since its humble beginning in 1895 with the distinction of being the first
Indian Bank to have been started with Indian capital, PNB has achieved
significant growth in business which at the end of March 2011 amounted
to 5,55,005 crore. PNB is ranked as the 2nd largest bank in the country
after SBI in terms of branch network, business and many other
parameters. With over 60 million satisfied customers and more than 5100
offices including 5 overseas branches, PNB has continued to retain its
leadership position amongst the nationalized banks. The bank enjoys
strong fundamentals, large franchise value and good brand image. Apart
from offering banking products, the bank has also entered the credit card,
debit card; bullion business; life and non-life insurance; Gold coins &
asset management business, etc. PNB has earned many awards and
accolades during the year in appreciation of excellence in services,
Corporate Social Responsibility (CSR) practices, transparent governance
structure, best use of technology and good human resource management.

CASE ON SUCCESSFUL SME FINANCING

Worldwide, the wind has been changing in the finance sector in general
and banking-investment sector in particular. Such a panorama teaches us
that now, is the time of cooperation rather than a competition, now its a
time of convergence rather than cutting each others neck over customers
and markets, now its a time of consolidation rather than antagonism.
Curing the fatal disease requires the doses of small pills; impressive
thoughts come out from the small brain, similarly, India requires
prominence of small and medium enterprises for curing its problem of
low economic growth vis--vis developed nations. To cure the overall
disease of lack of appropriate growth of Indian SMEs Small and
Medium Enterprises, India needs several small pills such as adequate
credit delivery to SMEs, better risk management, technological
upgradation of Banks esp. Public Sector Banks, attitudinal change in
Bankers and so on. Among them, the major problem of inadequate
financing to SMEs needs an urgent attention. Having said this, it is
pertinent to mention that Small Industrial Development Bank of India has
achieved landmark results in the domain of small and medium enterprise

financing and fulfilling their credit requirements time to time in various

forms such as long term project finance, working capital finance, bill
discounting etc. However considering the level of appetite for credit
facilities of Indian small and medium enterprises, private and public
sector banks in India need to work out an unique and innovative model of
financing to this vital sector (SME) of Indian Economy. In todays
changing world, retail trading, SME financing, rural credit and overseas
operations are the major growth drivers for Indian banking industry. The
scene has changed since the adoption of financial sector restructuring
programme in 1991. The reform in the financial sector in India along
with the overall second generation economic reforms in Indian economy
has transformed the landscape of banking industry and financial
institutions. GDP growth in the 10 years after reforms averaged around 6
%. With the introduction of the reforms especially in financial sector and
successful implementation of them resulted into the marked improvement
in the financial health of the commercial banks measured in terms of
capital adequacy, profitability, asset quality and provisioning for the
doubtful losses.
Now, the rules of the game have completely changed. Consolidation has
become the new mantra for survival. Due to the growing influence of
globalization on the Indian banking industry, the author is of the opinion
that the financial sector would be opened up for greater international
competition under WTO. Opening up of the financial sector from 2005,
under WTO, would see a number of global banks taking large stakes and
control over banking entities in the country. They are expected to bring

with them capital, technology, and management skills which would

increase the competitive spirit in the system leading to greater efficiency.
Government policies to allow greater FDI in banking industry and the
move to amend Banking regulations Act to remove the existing 10 per
cent cap on voting rights of shareholders are pointer to these
developments. The pressure on banks to gear up to meet stringent
prudential capital adequacy norms under Basel II and the various Free
Trade Agreements (FTAs) that India is entering into with other countries,
such as Singapore, will also impact on globalization of Indian banking.
However, the flow need not be one way. Some of the Indian banks may
also emerge as global players. As globalization opens up opportunities for
Indian corporate entities to expand their overseas operations, banks in
India wanting to increase their international presence could naturally be
expected to follow these corporate entities and other trade flows out of
India. Alongside, the growing pressure on capital structure of banks is
expected to trigger a phase of consolidation in the banking industry. In
the past mergers were initiated by regulators to protect the interest of
depositors of weak banks. In recent years, there have been a number of
market-led mergers between private banks. This process is expected to
gain momentum in the coming years. A merger between two public sector
banks or between a public sector bank and a private bank could be the
next logical development. Consolidation could also take place through
strategic alliances or partnerships covering specific areas of business
such as credit cards, insurance, SMEs financing etc. Secondly, risk
management has become the key to success in which adoption of the

state-of-the-art technology and latest rating and management skills turn

out to be the significant aid for better risk management. The ability to
gauge the risks and take appropriate position will be the key to successful
financing in the emerging Indian banking scenario. Risk-takers will
survive, effective risk mangers will prosper and risk-averse are likely to
perish.
IN THIS CONTEXT, INDIAN BANKS HAVE TO ENSURE
1. Risk management has to trickle down from the corporate office to
branches. They should be made more accountable and responsible
towards their duties. 2. As audit and supervision shifts to a risk-based
approach rather than transaction oriented, the risk awareness levels of
line functionaries also will have to increase. 3. There is a growing need
for banks to deal with issues relating to `reputational risk' to maintain a
high degree of public confidence for raising capital and other resources.
In this process, the technological advancement of Indian banks would
create a soothing climate to manage their risk in a better way. In the years
to come, technological developments would render flow of information
and data faster, leading to prompt appraisal and decision-making. This
would enable banks to make credit management more effective, besides
leading to an appreciable reduction in transaction cost. In order to reduce
investment costs in technology, banks are likely to resort sharing of
facilities such as ATM networks. Banks and financial institutions will
join together to share facilities in the areas of payment and settlement,

back-office processing, data warehousing, and so on majorly for cost

effectiveness and secondary motto would be to provide everything under
one head. The advent of new technologies could see the emergence of
new players doing financial intermediation. For example, we could see
utility service providers offering, say, bill payment services or
supermarkets or retailers doing basic lending operations. So for better
profit margin, with the help of technological innovation, consolidation
and innovation in corporate lending, the conventional definition of
banking might undergo changes. Considering such developments in the
banking industry of India, it seems that the next decade will be an era of
consolidation and integration. In such a scenario, the expected integration
of various intermediaries in the financial system would require a strong
regulatory framework. It would also require a number of legislative
changes to enable the banking system to remain contemporary and
competitive. There would be an increased need for selfregulation among
Indian banks since development of best international standard practices
could evolve better through this rather than based on mandatory
regulatory prescriptions. For instance, to enlist the confidence of the
global investors and international market players, the banks will have to
initiate adopting the best global practices of financial accounting and
reporting. It is expected that banks should migrate to global accounting
standards smoothly rather than waiting for the regulatory circulars and
guidelines, although it would mean greater disclosure and tighter norms.
Last and the most important development in the Indian banking industry
is its change of focus in corporate lending on account of above mentioned

changes and challenges. In the sheltered days of corporate lending by

banks, when customers could be freely charged, banks concerned
themselves with only `revenue' which was equal to cost plus profit. Postreforms- after 1991, when the cost of services became nearly equal across
banks and cost-control was a key to higher profits, the focus of financial
institutions especially banks shifted to `profit', which was equal to
revenue minus cost. This was an alternative measure of revenue stream
which every bank thought of due to effects of external environment on
their workings. And in the future, as domestic and international
competition hots up, financial institutions including banks may have to
shift their focus to `cost' which will be determined by revenue minus
profit. In other words, cost-control in tandem with efficient use of
resources and increase in productivity will determine the winners and
laggards in the future. The economic theory of survival of the fittest
works everywhere it seems through this example. The ray of hope is
Small and Medium Enterprises (SMEs)
1 which is an emerging, inevitable and profitable target market for the
financers i.e. financial institutions and banks. However, that need not
mean banks and financial institutions will back-up the social banking.
Rather than being seen as directed and philanthropic-like financing, such
lending should have been now more business driven. On the contrary, the
authors believe that all the sources or market of revenues have not been
vanished yet. The SMEs sector is considered to be an untapped market
for financial institutions in India. We just need to combat certain
obstacles. The hurdles which need to be removed are:-

1. Minimization of probabilities of skewed returns from SMEs by better

risk management
2. Eradicate inconsistency in the knowledge of SMEs business. For
example, entrepreneurs may possess more information about the nature
and characteristics of their products and processes than potential
financiers.
3. Absence of managerial and technical expertise of intermediaries whose
role is to evaluate and monitor companies
4. Lack of international infrastructure and expertise in SME financing
SMES FINANCING THE RISING India The only way out of the
mire is that the Indian manufacturing sector could be strengthened by the
existing rural systems and making them self-sufficient. This could take
place only by helping Small and Medium Enterprises and the rural
artisans (people with innate skills and talents) in becoming effective and
competitive enough to face the future. A number of issues and business
practices of global players and markets can be observed, learnt and
adapted for ensuring competitiveness of Indian SMEs. Let us take an
anecdote, which is a part of the school days about the meaning of
domestic and global competition. It is about two friends who while
walking through a dense forest suddenly hear the roar of a bear. One of
them immediately changes his shoes that he is wearing in, to the one, he
uses for running. His friend asked him: If you change your shoes, do
you think you can out beat the bear? The other one replied: The idea is
not to beat the bear, but you. The moral of the story is that the Indian
SME sector should be strong enough to out beat the other players in the

economy and not the competition itself. SMALL and MEDIUM

enterprises (SMEs) play a catalytic role in the development of any
country. They are the engines of growth in developing and transition
economies. In India they account for a significant proportion in
manufacturing, exports and employment, and are major contributors to
GDP.
2 Considering the growth potential of Indian SMEs, the Government of
India has asked public sector banks to achieve a minimum 20 per cent
year-on-year growth in the funding of SMEs that will lead to double the
flow of credit to the sector from Rs 67,000 crore in 2004-2005 to Rs 1,
35,000 crore by 2009-2010.
3 A small-scale unit is defined as one having original investment in plant
and machinery not exceeding Rs 1 crore. While recognizing the needs for
larger investment in some of the more important segments of small scale
industries (SSIs), the Government has enhanced this to Rs 5 crore for
specified industries. The Government felt that a separate category of
medium enterprises (MEs) needs to be recognised and, accordingly, the
new policy package clearly defined the medium enterprises as those units
having investment in plant and machinery above the small-scale industry
limit and up to Rs 10 crore, as recommended by the Working Group on
Flow of Credit to the SSI sector, headed by Mr A. S. Ganguly
The Importance of Small and Medium Enterprises (SMEs) in any
economy cannot be overlooked as they form a major chunk in the

economic activity of nations. They play a key role in industrialization of

a developing country like India. They have unique advantages due to: Their size
Their comparatively high labor-capital ratio
Need a shorter gestation period
Focus on relatively smaller markets
Need lower investments
Ensure a more equitable distribution of national income
Facilitate an effective mobilization of resources of capital and
skills which might otherwise remain unutilized and
Stimulate the growth of industrial entrepreneurship.
INDIAN SME AT A GLANCE In India, SME sector accounts for around
95% of the industrial units, 40% of the value added in the manufacturing
sector output, 34% of exports and provides direct employment to 20 million
persons in around 3.6 million registered SME units. The SME sector in India
contributes to about 7% of Indias GDP during 2002-03. Now, the question
is, Can it overtake the invasion of foreign companies through their
innovative, quality, affordable/reasonable and readily available products?
In developing countries like India, making the SMEs more competitive is
particularly pressing as trade liberalization and deregulation increase the
competitive pressures and reduce the direct subsidies and protection that
Governments offer to SMEs. If our SMEs are to be competitive enough to
withstand and fight back the foreign

MNC products, they have to be nurtured. According to Porter, the only

meaningful concept of competitiveness at the national level is Productivity,
which is the value of output produced by a unit of labor or capital.
Productivity in turn depends on both the quality and features of products
(which determines the prices that they can command) and the efficiency with
which they can be produced. Productivity is the prime determinant of a
nations long-run standard of living; it is the root cause of national per capita
income. Further, to find answers, we must focus not on the economy as a
whole but on specific industries and industry segments. We must understand
how and why commercially viable skills and technology are created, which
can only be fully understood at the level of particular industry. International
trade and foreign investment can both improve a nations productivity as
well as threaten it. They expose the nations industries to the test of
international standards of productivity. An industry will lose out if its
productivity is not sufficiently higher than its rivals to offset any advantage
in the local wage rates. As wage rates in India are sufficiently less to attract
multi-nationals, the only way is to increase the productivity of local small
industries. This means, the increase in the productivity of labor i.e. human
resources, the productivity of capital and that of the process, which in turn
relates to the use of technology that yields quality and innovative products.
According to Ex-Commerce and Industry Minister and President of the
National Productivity Council, Mr. Arun Jaitley at the 47th meeting of NPC,
It has become so competitive these days that bulk of the labor, for reasons
of higher productivity, has now shifted to female labor. If we look at other
Asian economies, Bangladesh or Srilanka, Cambodia or Myanmar, we find

that in manufacturing, it is female labor, which is being encouraged because

they have been found more disciplined and hence with higher Productivity.
As every coin has two sides, similarly, even SME financing has a share in
the overall financing.
The following are the issues of SME financing:
They are unable to capture market opportunities, which require large
production facilities and thus could not achieve economies of scale,
homogenous standards and regular supply.
They are experiencing difficulties in purchase of inputs such as raw
materials, machinery and equipments, finance, consulting services,
new technology, highly skilled labor etc.
Small size hinders the internalization of functions such as market
research, market intelligence, supply chain, technology innovation,
training, and division of labor that impedes productivity.
Emphasis to preserve narrow profit margins makes the SMEs myopic
about the innovative improvements to their product and processes and
to capture new markets.
They are unable to compete with big players in terms of product
quality, range of products, marketing abilities and cost.
And most importantly, absence of a wide range of Financing and
other services those are available to raise money and sustain the
business.
Absence of Infrastructure, quality labor, Business acumen and limited
options / opportunities to widen the business.
Poor IT and Knowledge infrastructure.

CASE STUDY PUNJAB NATIONAL BANK

About Punjab National Bank Punjab National Bank (herein referred to as
PNB) is one of the leading banks in India and offers a wide variety of
banking services, which include corporate and personal banking, industrial
finance, agricultural finance, financing of trade and international banking.
Among the clients of the Bank are Indian conglomerates, medium and small
industrial

units,

exporters,

non-resident

Indians

and

multinational

companies. Punjab National Bank was incorporated in the year 1895. Since
its humble beginning over hundred years ago, the bank has grown in stature
to become one of the leading banking institutions in India. PNB is the
second largest PSU bank in India with a dominant presence in north India.
Keeping in tune with changing times and to provide its customers more
efficient and speedy service, the Bank has taken major initiative in the field
of computerization. All the Branches of the Bank have been computerized.

The Bank has also launched aggressively the concept of "Any Time, Any
Where Banking" through the introduction of Centralized Banking Solution
(CBS) and over 2000 offices have already been brought under its ambit.
System Prior to the Introduction of FineDocs Document Management
System Punjab National Bank (herein referred to as PNB) is one of the
leading banks in India and offers a wide variety of banking services. Punjab
National Bank is serving over 3.5 crore customers through 4062 branches
and 447 extension counters PNB generates enormous amount of customerrelated documents and reports. For any new banking services requested by
the customer a new application form is created with all his details. This
application form is the key document that contains all information regarding
the customer, for the purpose of customer service and settlement of legal
disputes. To access any vital information related to the client, the company
had to retrieve the original hard copy of the application. The regular
procedure included taking out a page from the entire set of documents of
original application forms. This page was either photocopied or used and
then kept back with the original form. This led to papers being misplaced or
left them in a dilapidated state, due to constant wear and tear. Many a times
the original was missing and at times, the photocopy also got stapled to a
wrong application form.
PROBLEMS FACED BY PUNJAB NATIONAL BANK
Punjab National Bank generates a lot of physical documents for their
existing clients. Managing these documents (Sorting, Indexing and
Filing etc) was a very hectic process for them.

 The regular procedure included taking out a page from the entire set
of documents of original application forms and then working on it.
This leads to papers being misplaced or left them in a dilapidated
state, due to constant wear and tear.
For searching or locating any document / file was a hassle for the
staff involved in this process.
Since paper based files/documents were accessible to each and every
person, they were liable to be tampered, and resulted sharing of any
internal information with any unauthorized person.

Physical documents were prone to damage with time, moisture,

rodents etc.

Also there was a problem of disaster recovery

PYRAMIDS SOLUTION PYRAMID IT Consulting proposed Punjab
National Bank to automate manual Record / Document keeping process by
providing its Document Management Solution FineDocs & Scanning
Services FineScan. After the implementation of the DMS, the application
form and other related documents got scanned and indexed with the user
defined indexed values. After this whenever there was a need to refer to the
original document, a search feature of the DMS helped to retrieve the
scanned copy of the document to the user. Search in Document Management
Solution has been carried out on the basis of title, as well as, keywords. We
proposed a multi user web based Document Management Solution i.e.
FineDocs that encompass strong searching & distribution modules. All the
documents would be stored in a server and thus this application shall act as a

central repository of storage of Data & Documents Document Retrieval

Whenever the document is required to be referred by the branch, the user
logs in to our DMS and where able see the scanned copy of the original
document very easily. The request for retrieval of the document is routed to
the Central FineDocs Database and Image Server client while requesting for
a connection, specifies a preferred site, to which it wants to get connected.
For document retrieval, the user specifies the Index of the document he
wants to retrieve. Whenever a request for document retrieval is made, the
Image server checks whether the document resides on the clients preferred
site. If the document resides on the preferred site then it is fetched from there
else it is fetched from the Home site of the repository
BENEFITS TO PUNJAB NATIONAL
BANK DOCUMENTS SECURITY: FineDocs system facilitated role
based access on all the records / documents through a user name and a
password.
EASY SHARING AND COLLABORATION: All documents were stored
in FineDocs with proper access control. This way authorized users were able
to view /refer / share and modify the documents.
AUDIT TRAIL: FineDocs has the functionality by which each and every
operation, event performed by the user like, user logins into the system,
action done etc were recorded with the time, thus increasing the
accountability.
SAVED COURIER COST FineDocs System provided an option to email
documents both within office and outside cutting down on courier cost. As

the documents were in non-editable TIFF format, users were in relief that
they will not be tampered and were as safe as any printed document.
SAVES

DUPLICATION AND

PHOTOCOPYING

COST:

Since

electronic documents could be shared among several users at the same time,
there was no need to photocopy the documents for sharing, thus resulting in
a huge saving on the duplication of documents.
DISASTER MANAGEMENT: FineDocs provided an all-in-one solution
for Punjab National Banks document protection from disasters like Natural
& accidental calamities etc. There is a full fledged backup and restore
facility provided.

RECOMMENDATIONS AND SUGGESTIONS

After analyzing the facts and figures it can be recommended

The lending procedure of the selected public banks are improper, as
The banks are not having proper norms for recovery of loans.
There unavailability of safety norms.
The banks should undertake certain measures to retrieve the
information of the customer, and for this the services of certain
agencies can also be obtained.
Banks should also make the is weaker sections of the society aware
about various policies, subsidies available to them

CONCLUSION
In the last ten years the share of agriculture credit in net bank credit has also
increased which shows that banks are now more willing to lend credit to
agriculture. Another significant point is that, the share of direct credit higher.
This implies that non-public sector Scheduled Commercial banks have been
giving a lesser percentage in terms of direct credit to agriculture and more to
indirect credit. For agriculture advances the share of PSBs in NBC is higher
as compared to SCBs, it means that the share of non public sector Scheduled
Commercial banks in NBC is lesser for agriculture advances. The
performance of Public Sector Banks (PSBs) and Private Sector Banks over
the years in extending Agriculture credit, including direct agriculture, has
improved. The rate of lending to Agriculture was quite rapid soon after
nationalization but later progress was more modest. The growth rate of
lending to small Scale industries by public sector banks was higher before
nationalization but later the growth was modest. As compared to SCBs as a
whole, the share of PSBs in credit to SSI has been higher. This implies that
non-public sector Scheduled Commercial banks have been giving a lesser
percentage of credit to SSI. The growth rate of lending to SSI continuously

increased from 2004 to 2007, and out of that the highest growth rate was in
2007 i.e. 25 percent. Several favourable policy initiatives undertaken by the
Central Government and the Reserve Bank including, inter alia, the policy
package for stepping up of credit to Small and medium enterprises (SMEs)
announced on August 10, 2005, have had a positive impact, that is why
growth rate of lending to SSI was highest in 2006 and 2007. An analysis
between SCBs and PSBs shows that the share of PSBs in MSE has been
higher; this implies that non public Sector Scheduled Commercial banks had
given lesser credit to MSE as compared to PSBs.

REFERENCES
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The Journal of Indian Institute of Bankers, XLIII (1):27-34
2. Working Group on the Modalities of Implementation of the Priority Sector
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Krishnaswamy), (1980)
3. Working Group on the Role of Banks in Implementation of New 20-Point
Programme (Chairman: Shri A. Ghosh), (1982)
4. V.B. Angadi (1983), Banks Advances to Priority Sectors: an Enquiry in
to the Causes of Concentration, Economic & Political Weekly, and XVIII
(13):503-510, March 26.
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National Bank Monthly Review, (October) II (II).
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Economic Impact, 63:27-31.

8. A.S. Chawala, K.K. Uppal, Keshav Malhotra (1988), Emerging issues in

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