A

LIVE PROJECT STUDY REPORT

On

Titled
‘‘COMPARISON OF SAVING ACCOUNTS OF
DIFFERENT BANKS IN JAIPUR”

Submitted in partial fulfillment for the

Award of degree of
Master of business administration

Submitted to: - Submitted by: -

Vaishali Jain TRILOK SINGH
Lecturer M.B.A – 4TH SEM

St. Wilfred’s Business School

(2008-2010)

1
 PREFACE

The MBA curriculum is designed in such a way that student can grasp

maximum knowledge and can get practical exposure to the corporate world in

minimum possible time. Business schools of today realize the importance of practical

knowledge over the theoretical base.

The research report is necessary for the partial fulfillment of MBA curriculum

and it provides an opportunity to the researcher in understanding the industry with

special emphasis on the development of skills in analyzing and interpreting practical

problems through the application of management theories and techniques. It is a new

platform of learning through practical experience, which incorporates survey and

comparative analysis. It gives the learner an opportunity to relate the theory with the

practice, to test the validity and applicability of his classroom learning against real

life business situations.

The researcher has conducted a research on “COMPARISON OF SAVING

ACCOUNTS OF DIFFERENT BANKS IN JAIPUR”.

ACKNOWLEDGEMENT
2
 I express my sincere thanks to my project guide, Ms Vaishali Jain,

Lecturer, Department of Management Studies, St. Wilfred’s Business

School, for guiding me right from the inception till the successful completion

of the project. I sincerely acknowledge them for extending their valuable

guidance, support for literature, critical reviews of project and the report and

above all the moral support they had provided to me with all stages of this

project.

( )

TRILOK SINGH

3
 INDEX

Serial Title Page Number

No.

1 Executive Summary 6

2 Introduction 10

3 Company Profile 21

4 Detailed Study of Company’s Saving Acc. 28

5 Project 35

6 Comparison of Savings Acc. 41

7 Recommendations 75

8 Limitations 77

9 Questionnaire 79

10 Conclusions 82

11 Bibliography 84

4
EXECUTIVE
SUMMARY

5
 1) Title : Comparative analysis of saving accounts of different
banks
2) Organisation : Kotak Mahindra Bank
3) Reporting officer : Mr. Mayank Priyadarshi
4) Faculty guide : Ms. Richa Mitra
5) Student’s name : Ms. Sarita Jangra

OBJECTIVES:
➢ To study the behaviour of customers towards savings accounts of
different banks.
➢ To identify market potential for different products of Kotak Mahindra
Bank.
➢ To know people perception of risk, rate of return, period of
investment, age, profession etc.
➢ To understand various factors or criteria of selection influencing the
prospect’s decision.
➢ To study about the awareness and interest of people in different types
of saving accounts of Kotak Mahindra Bank.
➢ To study about the target customer and future potential.

➢ To identify any particular service customers need which can increase

the market share of Kotak Mahindra Bank.

SCOPE OF STUDY:
Study on consumer behaviour was done in city of Jaipur. Different gender,
age groups and professions of the population are studied. Total of 100 people
were taken for study.

RESEARCH METHODOLOGY:

As a market analysist, the research undertaken comprised of following

objectives:
➢ Basic understanding of present and future market potential.

6
 ➢ Analysing the behaviour of different customer groups through
interviewing and getting the questionnaires filled.
➢ Determining the satisfaction level of existing customers of Kotak
Bank.
➢ Analysing the core services of the Bank and then combining it with
the allied services of the Bank in order to satisfy the augmented needs
of the customers.
RESEARCH DESIGN:
For study both primary data and secondary data were required:
➢ Primary data source: Survey, using a questionnaire and interview of
100 respondents was done from different regions of Jaipur.
➢ Secondary source: Internet

METHOD OF DATA COLLECTION

Primary data Secondary data

Questionnaires Company records

References Newspapers

Internet

MAJOR CONCLUSIONS:
➢ People invest in saving accounts mainly for savings purpose.
➢ There is wide range of services the bank provides in comparison to
other banks.
➢ People are not much aware of the existence of the Kotak Mahindra
Bank in their city.
➢ Age, gender and income level plays an important role in selection of
funds.
➢ Among the banks studied, the preference of Banks is as follows:

7
 HDFC > ICICI > KOTAK > STANDARD CHARTERED

RECOMMENDATIONS:
➢ There is a need of making people more knowledgeable about the
products of Kotak Mahindra Bank.
➢ Company should do promotional activities regarding its services and
schemes.

8
INTRODUCTION

9
LET US FIRST UNDERSTAND ABOUT BANKING:

"Banking business" means the business of receiving money on current or

deposit account, paying and collecting cheques drawn by or paid in by
customers, the making of advances to customers, and includes such other
business as the Authority may prescribe for the purposes of this Act.

LAWS OF BANKING:

Banking law is based on a contractual analysis of the relationship between the

bank and the customer. The definition of bank is given above, and the
definition of customer is any person for whom the bank agrees to conduct an
account.

The law implies rights and obligations into this relationship as follows:

The bank account balance is the financial position between the bank and the
customer, when the account is in credit, the bank owes the balance to the
customer, when the account is overdrawn, and the customer owes the balance
to the bank.

➢ The bank engages to pay the customer's cheques up to the amount

standing to the credit of the customer's account, plus any agreed
overdraft limit.

➢ The bank may not pay from the customer's account without a
mandate from the customer, e.g. a cheque drawn by the customer.

➢ The bank engages to promptly collect the cheques deposited to the

customer's account as the customer's agent, and to credit the proceeds
to the customer's account.

➢ The bank has a right to combine the customer's accounts, since each
account is just an aspect of the same credit relationship.

10
 ➢ The bank has a lien on cheques deposited to the customer's account,
to the extent that the customer is indebted to the bank.

➢ The bank must not disclose the details of the transactions going
through the customer's account unless the customer consents, there is
a public duty to disclose, the bank's interests require it, or under
compulsion of law.

These implied contractual terms may be modified by express agreement

between the customer and the bank. The statutes and regulations in force in
the jurisdiction may also modify the above terms and/or create new rights,
obligations or limitations relevant to the bank-customer relationship.

HISTORY OF BANKING:

The banking in India originated with the introduction of barter system:

Barter System:

Man was, in the dawn of history, simple & self-sufficient. He lived in

caves, killed animals when hungry and he had no other wants. As
time passed, men began living in villages and started to till the ground.
Often the produce of a farmer’s fields was more that he required.
Similarly, a fisherman often caught more than his family required. In the ideal
situation, the farmer would exchange his produce for fish with the fisherman.
This exchange is known as barter. And in the ideal world they would both be
content. However, a complication could and would arise if the farmer did not
require or want fish. If the farmer required a plough and the smith requires
steel there would be tremendous and horrendous difficulty in matching those
that individuals had with that which they needed. And it was on account
of this difficulty of meeting needs that the barter system surrendered to
money.

Money System:

Money was created or rather born to reduce the value of the items people
had to a common denominator to facilitate exchange of products to satisfy

11
 needs. The fisherman would sell his fish as would the farmer for money. The
farmer would then; armed with the money he has in hand purchase a plough. .
The fisherman with the money he has received would buy the food he needs
for his family.
The earliest form of money was bones on which marks were made to
distinguish between values. Metals then began to be used – the most
popular being gold, silver and bronze. Symbols, sizes and signs on these
differed from time to time and from country to country. As men began to
travel from country to country to exchange goods and to trade, banking was
born.
The term money is derived from the temple of “Juno Moneta” which was
used by the Romans as a mint for their coins.

Journey of banking:

Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it
should be able to meet new challenges posed by the technology and any other
external and internal factors. The government's regular policy for Indian bank
since 1969 has paid rich dividends.
The first bank in India, though conservative, was established in 1786. From
1786 till today, the journey of Indian Banking System can be segregated into
three distinct phases.

Phase 1:

The General Bank of India was set up in the year 1786. Next came Bank of
Hindustan and Bengal Bank. In 1865 Allahabad Bank was established and
first time exclusively by Indians, Punjab National Bank Ltd. was set up in
1894 with headquarters at Lahore. There were approximately 1100 banks,
mostly small. To streamline the functioning and activities of commercial
banks, the Government of India came up with The Banking Companies Act,
1949 which was later changed to Banking Regulation Act 1949 as per
amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was

12
 vested with extensive powers for the supervision of banking in India as the
Central Banking Authority.
During those days public has lesser confidence in the banks. Abreast of it the
savings bank facility provided by the Postal department was comparatively
safer.

Phase 2:

Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalized Imperial Bank of India with extensive
banking facilities on a large scale especially in rural and semi-urban areas. It
formed State Bank of India to act as the principal agent of RBI and to handle
banking transactions of the Union and State Governments all over the
country.
Second phase of nationalization Indian Banking Sector Reform was carried
out in 1980 with seven more banks. This step brought 80% of the banking
segment in India under Government ownership. 14 major commercial banks
in the country were nationalized.
After the nationalization of banks, the branches of the public sector bank India
rose to approximately 800% in deposits and advances took a huge jump by
11,000%.
Banking in the sunshine of Government ownership gave the public implicit
faith and immense confidence about the sustainability of these institutions.

Phase 3:

This phase has introduced many more products and facilities in the banking
sector in its reforms measure. In 1991, under the chairmanship of M
Narasimham, a committee was set up by his name which worked for the
liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are
being put to give a satisfactory service to customers. Phone banking and net
banking is introduced. The entire system became more convenient and swift.
Time is given more importance than money.

13
THE BANKING SYSTEM IN INDIA:

The Banking System in India consists of:

➢ Reserve Bank of India
➢ Development Banks
➢ Public Sector Bank.
➢ Foreign Banks
➢ Private Sector Banks
➢ Cooperative Banks
➢ Regional Rural Banks
Reserve bank of India:
The Reserve Bank of India is the Central Bank of the country whose function
is to regulate the issue of Bank Notes and keeping of reserves with a view to
securing monetary stability in India and generally to operate the currency and
credit system of the country to its advantage.

Development banking:
Financial institutions dedicated to fund new and upcoming businesses and
economic development projects by providing equity capital and/or loan
capital.

Public Sector Banking:

The public sector is the one whose working is in the hands of the
Government. The Government holds a majority stake in public sector. But due
to privatization of public sector, their number has been reduced to a
significant extent. It may be defined as an enterprise where there is no private
ownership but its activities are not mainly confined to the maximization of

14
 profits and private interests of the enterprise but it is influenced by social
interests.

Foreign Banks:
Foreign bank means a banking institution incorporated or organized under the
laws of another country, or a political subdivision of a country other than the
United States, that is:

➢ Regulated as such by that country's or subdivision's government or any

agency thereof;
➢ Engaged substantially in commercial banking activity; and
➢ Not operated for the purpose of evading the provisions of the Act.

Private Sector Banks:

Private Banks are banks that are not incorporated. A non-incorporated bank is
owned by
either an individual or a general partner(s) with limited partner(s).

Cooperative Banks:
Cooperative banks, also called mutual savings and loans, exist in most parts
of the world. They offer financial services on a cooperative basis. A mutual
savings bank is a financial institution chartered through a state or federal
government to provide a safe place for individuals to save and to invest those
savings in mortgages, loans, stocks, Bonds and other securities. Unlike
commercial banks, savings banks have no stockholders; the entirety of profits
beyond the upkeep of the bank belongs to the depositors of the mutual savings
bank.

Regional Rural Banks:

Rural banking in India started since the establishment of banking sector in
India. Rural Banks in those days mainly focussed upon the agro sector.

15
 Regional rural banks in India penetrated every corner of the country and
extended a helping hand in the growth process of the country. National Bank
for Agriculture and Rural Development (NABARD) is a development bank in
the sector of Regional Rural Banks in India. It provides and regulates credit
and gives service for the promotion and development of rural sectors mainly
agriculture, small scale industries, cottage and village industries, handicrafts.
It helps in securing rural prosperity and its connected matters.

SECTOR BANKS:
➢ Central Bank:
Reserve Bank Of India
➢ Private Banks:
Axis Bank , Bank of Rajasthan · Bharat Overseas Bank ·
Catholic Syrian Bank · Centurion Bank of Punjab ·City Union
Bank .Development Credit Bank · Dhanalakshmi Bank ·Federal
Bank · Ganesh Bank of Kurundwad · HDFC Bank ·ICICI Bank ·
IndusInd Bank ·ING Vysya Bank ·Jammu & Kashmir
Bank ·Karnataka Bank Limited · Karur Vysya Bank ·Kotak
Mahindra Bank · Lakshmi Vilas Bank ·Nainital Bank ·Ratnakar
Bank · SBI Commercial and International Bank · South Indian
Bank · Tamilnad Mercantile Bank Ltd.
➢ Foreign Banks:
Citibank · HSBC · Standard Chartered
➢ Regional Rural Banks:
South Malabar Gramin Bank
➢ Cooperative Banks:
The Andaman and Nicobar State Co-operative Bank Ltd. The
Arunachal Pradesh State co-operative Apex Bank Ltd. The
Assam Co-operative Apex Bank Ltd The Bihar State Co-
operative Bank Ltd. The Chandigarh State Co-operative Bank
Ltd. The Delhi State Co-operative Bank Ltd. The Goa State Co-
operative Bank Ltd. The Gujarat State Co-operative Bank Ltd.

16
 The Haryana State Co-opertive Apex Bank Ltd. The Haryana
State Co-opertive Apex Bank Ltd.

INDIAN BANKING TODAY AND TOMORROW:

The future of Indian Banking represents a unique mixture of unlimited

opportunities amidst insurmountable challenges. On the one hand we see the
scenario represented by the rapid process of globalization presently taking
shape bringing the community of nations in the world together, transcending
geographical boundaries, in the sphere of trade and commerce, and even
employment opportunities of individuals. All these indicate newly emerging
opportunities for Indian Banking. But on the darker side we see the
accumulated morass, brought out by three decades of controlled and
regimented management of the banks in the past. It has siphoned profitability
of the Government owned banks, accumulated bloated NPA and threatens
Capital Adequacy of the Banks and their continued stability. Nationalized
banks are heavily over-staffed. The recruitment, training, placement and
promotion policies of the banks leave much to be desired. In the nutshell the
problem is how to shed the legacies of the past and adapt to the demands of
the new age.

On the brighter side are the opportunities on account of -

➢ The advent of economic reforms, the deregulation and opening of the

Indian economy to the global market, brings opportunities over a vast
and unlimited market to business and industry in our country, which
directly brings added opportunities to the banks.

➢ The advent of Reforms in the Financial & Banking Sectors (the first
phase in the year 1992 to 1995) and the second phase in 1998 heralds
a new welcome development to reshape and reorganize banking

17
 institutions to look forward to the future with competence and
confidence. The complete freeing of Nationalized Banks (the major
segment) from administered policies and Government regulation in
matters of day to day functioning heralds a new era of self-
governance and a scope for exercise of self initiative for these banks.
There will be no more directed lending, pre-ordered interest rates, or
investment guidelines as per dictates of the Government or RBI.
Banks are to be managed by themselves, as independent corporate
organizations, and not as extensions of government departments.

➢ Acceptance of prudential norms with regards to Capital Adequacy,

Income Recognition and Provisioning are welcome measures of self
regulation intended to fine-tune growth and development of the
banks. It introduces a new transparency, and the balance sheets of
banks now convey both their strength and weakness. Capital
Adequacy and provisioning norms are intended to provide stability to
the Banks and protect them in times of crisis. These equally induce a
measure of corporate accountability and responsibility for good
management on the part of the banks

➢ Large scale switching to hi-tech banking by Indian Scheduled

Commercial Banks (SCBs) through the application of Information
Technology and computerization of banking operations, will
revolutionalise customer service. The age-old methods of ‘pen and
ink’ systems are over. Banks now will have more employees
available for business development and customer service freed from
the needs of book-keeping and for casting or tallying balances, as it
was earlier.

All these welcome changes towards competitive and constructive banking

could not however, deliver quick benefits on account insurmountable carried
over problems of the past three decades.

The future of Indian Banking is dependent on the success of its efforts as to

how it shakes off these accumulated past legacies and carried forward

18
 ailments and how it regenerates itself to avail the new vistas of opportunities
to be able to turn Indian Banking to International Standards.

CURRENT POSITION OF BANKING IN INDIA:

Currently, banking in India is generally fairly mature in terms of supply,

product range and reach-even though reach in rural India still remains a
challenge for the private sector and foreign banks. In terms of quality of assets
and capital adequacy, Indian banks are considered to have clean, strong and
transparent balance sheets relative to other banks in comparable economies in
its region. The Reserve Bank of India is an autonomous body, with minimal
pressure from the government. The stated policy of the Bank on the Indian
Rupee is to manage volatility but without any fixed exchange rate-and this has
mostly been true.

With the growth in the Indian economy expected to be strong for quite some
time-especially in its services sector-the demand for banking services,
especially retail banking, mortgages and investment services are expected to
be strong. One may also expect M&as, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to

increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%.
This is the first time an investor has been allowed to hold more than 5% in a
private sector bank since the RBI announced norms in 2005 that any stake
exceeding 5% in the private sector banks would need to be vetted by them.

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public

sector banks (that is with the Government of India holding a stake)after
merger of New Bank of India in Punjab National Bank in 1993, 29 private
banks (these do not have government stake; they may be publicly listed and
traded on stock exchanges) and 31 foreign banks. They have a combined
network of over 53,000 branches and 17,000 ATMs. According to a report by
ICRA Limited, a rating agency, the public sector banks hold over 75 percent
of total assets of the banking industry, with the private and foreign banks
holding 18.2% and 6.5% respectively.

19
20
COMPANY
PROFILE

21
ABOUT THE BANK:

Kotak Mahindra is one of India's leading financial conglomerates, offering

complete financial solutions that encompass every sphere of life. From
commercial banking, to stock broking, to mutual funds, to life insurance, to
investment banking, the group caters to the financial needs of individuals and
corporate.

HISTORY:
The Kotak Mahindra Group was born in 1985 as Kotak Capital Management
Finance Limited. This company was promoted by Uday Kotak, Sidney A. A.
Pinto and Kotak & Company. Industrialists Harish Mahindra and Anand
Mahindra took a stake in 1986, and that's when the company changed its
name to Kotak Mahindra Finance Limited.

Since then it's been a steady and confident journey to growth and success.
1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting
1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market
1990 The Auto Finance division is started
The Investment Banking Division is started. Takes over FICOM, one of
1991
India's largest financial retail marketing networks
1992 Enters the Funds Syndication sector
Brokerage and Distribution businesses incorporated into a separate company
1995 - Kotak Securities. Investment Banking division incorporated into a separate
company - Kotak Mahindra Capital Company
1996 The Auto Finance Business is hived off into a separate company - Kotak
Mahindra Prime Limited (formerly known as Kotak Mahindra Primus
Limited). Kotak Mahindra takes a significant stake in Ford Credit Kotak
Mahindra Limited, for financing Ford vehicles. The launch of Matrix

22
 Information Services Limited marks the Group's entry into information
distribution.
Enters the mutual fund market with the launch of Kotak Mahindra Asset
1998
Management Company.
Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance business.
Kotak Securities launches its on-line broking site (now
2000
www.kotaksecurities.com). Commencement of private equity activity
through setting up of Kotak Mahindra Venture Capital Fund.
Matrix sold to Friday Corporation
2001
Launches Insurance Services
Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian
2003
company to do so.
2004 Launches India Growth Fund, a private equity fund.
Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra
Prime (formerly known as Kotak Mahindra Primus Limited) and sells Ford
2005
credit Kotak Mahindra.
Launches a real estate fund
Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital
2006 Company and Kotak Securities.

PRESENT:
The group has a net worth of over Rs. 5,824 crore, employs around 20,000
people in its various businesses and has a distribution network of branches,
franchisees, representative offices and satellite offices across 370 cities and
towns in India and offices in New York, London, San Francisco, Dubai,
Mauritius and Singapore. The Group services around 4.4 million customer
accounts.

THE CORPORATE IDENTITY:

23
BOARD OF DIRECTORS:

Dr. Shankar Acharya

Non-Executive Part-time Chairman
Mr. Uday Kotak
Executive Vice-Chairman and Managing Director

Mr. K.M. Gherda

Board of the Bank as a Non- Executive Director.

24
 Mr. Anand Mahindra
Co-Promoter of the Bank

Mr. Cyril Shroff

Solicitor, High Court, Mumbai and Advocate on record,
Supreme Court of India

Mr. Pradeep N. Kotak

Chairman and Managing Director of Kotak Agri International
Private Limited

Mr. Shivaji Dam

Led the Kotak Group into the life insurance business and
Managing Director of Kotak Mahindra Old Mutual Life
Insurance Limited

25
 Mr. Dipak Gupta
Executive Director,

Mr. C. Jayaram
Executive Director, in charge of
the Wealth Management
Business

Mr. Asim Ghosh

Additional Director of the
Bank

KEY GROUP COMPANIES AND THEIR BUSINESSES:

Kotak Mahindra Bank:

The Kotak Mahindra Group's flagship company, Kotak Mahindra Finance Ltd
which was established in 1985, was converted into a bank- Kotak Mahindra
Bank Ltd in March 2003 becoming the first Indian company to convert into a
Bank. Its banking operations offer a central platform for customer
relationships across the group's various businesses. The bank has presence in
Commercial Vehicles, Retail Finance, Corporate Banking, Treasury and
Housing Finance.

Kotak Mahindra Capital Company:

26
 Kotak Mahindra Capital Company Limited (KMCC) is India's premier
Investment Bank. KMCC's core business areas include Equity Issuances,
Mergers & Acquisitions, Structured Finance and Advisory Services.

Kotak Securities:

Kotak Securities Ltd. is one of India's largest brokerage and securities

distribution houses. Over the years, Kotak Securities has been one of the
leading investment broking houses catering to the needs of both institutional
and non-institutional investor categories with presence all over the country
through franchisees and coordinators. Kotak Securities Ltd. offers online
(through www.kotaksecurities.com) and offline services based on well-
researched expertise and financial products to non-institutional investors.

Kotak Mahindra Prime:

Kotak Mahindra Prime Limited (KMP) (formerly known as Kotak Mahindra

Primus Limited) has been formed with the objective of financing the retail
and wholesale trade of passenger and multi utility vehicles in India. KMP
offers customers retail finance for both new as well as used cars and
wholesale finance to dealers in the automobile trade. KMP continues to be
among the leading car finance companies in India.

Kotak Mahindra Asset Management Company:

Kotak Mahindra Asset Management Company Kotak Mahindra Asset

Management Company (KMAMC), a subsidiary of Kotak Mahindra Bank, is
the asset manager for Kotak Mahindra Mutual Fund (KMMF). KMMF
manages funds in excess of Rs 16,100 crore and offers schemes catering to en

27
DETAILED STUDY
OF COMPANY’S
SAVINGS
ACCOUNTS

28
KOTAK’S SAVINGS ACCOUNT:

Kotak’s Savings Accounts are designed to ensure that the customers receive
the benefits of quick & convenient banking transactions along with options
for their money to earn high returns. The savings account goes beyond the
traditional role of savings, to provide them a range of services from funds
transfer options to online payments of bills to attractive returns earned
through a comprehensive suite of investment options. They have a number of
variants of savings accounts customized to suit individual needs so that they
can pick the one that matches their requirements & sit back to enjoy the Kotak
experience!

Variants of Saving Account:

➢ Ace Savings Account

➢ Pro Savings Account

➢ Edge Savings Account

➢ Classic Savings Account - available only in select locations

➢ Easy Savings Account

29
ACE SAVINGS ACCOUNTS:

Key Features:
➢ Free access at all domestic and international VISA ATMs
•
➢ Free investment account
➢ Dedicated relationship manager

➢ Online trading account

➢ At-Home services
Kotak Mahindra Bank's Ace Savings Account has been designed as a gateway to a
world of financial benefits and privileged banking transactions. The account carries
benefits ranging from personal investment advisory services to concierge services to
free banking transactions.

Pro Saving Accounts:

30
 Key Features:

➢ Free ATM access all domestic VISA ATM network •

➢ Free investment account
➢ Quick and easy funds transfer
➢ Dedicated relationship manager
Kotak Mahindra Bank´s Pro Savings Account is an account packed with powerful
features to provide customers with a superior banking experience at a very
comfortable balance requirement. Bank provides relationship manager who will
specifically take care of customers banking and investment needs.

Edge Saving Accounts:

31
 Key Features:

➢ Wide ATM access

➢ Financial payments facilitated through the savings account
➢ Quick and easy funds transfer
➢ Greater ATM access through the Kotak Mahindra Bank Debit
Card
➢ Financial payments facilitated through the savings account
➢ Quick and easy funds transfer
Kotak Mahindra Bank´s Edge Savings Account is a complete financial package
customized to suit your individual banking needs. Our constant Endeavour is to
enable regular financial transactions through our online platform so that most of your
payments can be made directly through your account or card.

Classic Saving Accounts:

Key Features:

➢ Free ATM access all domestic VISA ATM network

➢ Free investment account
➢ Quick and easy funds transfer
➢ Attractive returns
➢ Dedicated relationship manager

32
Kotak Mahindra Bank´s Classic Savings Account is an account packed with powerful
features to provide you a superior banking experience at a very comfortable balance
requirement. We provide you a relationship manager who will specifically take care
of your banking and investment needs.

Try the benefits of this account and you will never want to bank elsewhere!

Easy Saving Accounts:

Key Features:

➢ Easy to maintain, hassle-free savings avenue

You need an easy to maintain, hassle-free savings avenue for your hard-earned
money. We offer you the Kotak Easy Savings Account, armed with 'user-
friendly' Convenience Banking facilities. The Kotak Easy Savings Account is a
convenient way to make your money work harder.

33
PROJECT

34
PROJECT TITLE:
Comparative analysis of savings accounts of different banks

OBJECTIVE OF THE PROJECT:

Learning in the classroom is partial unless it is added with practical

experience and training. Training is the most important part of learning in any

technical and professional education. Exposing the young prospective

executive to the actual business industrial environment not only broaden their

horizon but also helps them to effectively grasp the various angels of

business. That will beneficial for them when they actually come to occupy the

execrative position. It is an aim that practical training of small duration

obviously had been made valuable and indispensable of the PGDM degree.

Hence the objective of the project is:

➢ To get the practical knowledge about the market research.
➢ To find prospective customer for the Kotak Mahindra Bank and to
find the product potential in the market.
➢ To make customer informative about the technology offered.
➢ Study how new distribution channels such as Internet Banking, ATM
facility, Phone Banking have changed the face of the Banking
industry.
➢ To make recommendation and suggestion about the scope and
Feasibility for Kotak Mahindra Bank’s products.

35
OBJECTIVE OF STUDY:

Primary:
➢ Analysis and evaluation of customer s satisfaction with respect to

product performance.

➢ To determine the main characteristic which customers look upon while

purchasing and selecting the product?

➢ To determine the other brand those are competing with the same

product rang.

Secondary:

➢ Service level and channel associate approach.

➢ To find the level of brand awareness.

➢ To find out the company market share.

Firstly learned about the different types of savings accounts the Bank had and
their feature.Then was motivated to introduce the product to the prospects
through telle calling and appointments.
Then was asked to prepare a questionnaire and conduct a market research for
the Bank’s products ans services.

METHODOLOGY OF THE STUDY:

Research Methodology:

Research as a mean of getting knowledge can be carried out either arbitrarily or in a

systematic fashion. It is a purposive investigation.

36
 Research may be a mean to know the small change and time forced upon us as

individual or as a society. Research as process involves defining the problem,

formulating the hypothesis, organizing and evaluating the data, deriving inference

and conclusion after careful testing.

DATA COLLECTION:
As data is required for any research activity, it is collected by using
Both the Primary and Secondary as follows:

Primary Data:
I have collected this data through discussion with officers

Secondary Data:
This data is collected from different sources available consolidated
From book publication reports, websites where used as a source of secondary data in
order to do this project and to collect necessary data. I have used the manuals and
leaflets of the bank

SCOPE OF THE STUDY:

➢ Special area to be focused for increasing the sales and for sales
promotion activities to be adopted.
➢ To make product more innovative and easy to understand
➢ For providing maximum satisfaction to the customer by knowing their
needs and requirement about product and services.
➢ Steps to be taken at present for survival and facing the competition
with other equivalent product.
➢ Continues improvement and for better management.
➢ Maintaining good relation between manager and customers

37
38
:

DEFINITION OF SAVINGS ACCOUNTS:

An account at a bank or other savings institution in which individuals can keep money
that is readily accessible, but on which a relatively small interest rate is paid. Banks,
credit unions, and savings and loan institutions offer savings accounts. The interest
earned on the accounts is taxable.

Interest Paid:
Interest on the is determined in accordance with directives of the Reserve Bank
of India.
Interest is calculated on the minimum credit balance between the close of the
business on the 10th. & the last day of each calendar month.
Interest is paid on quarterly rests.

Eligibility:
Individuals Trusts / Societies / Charitable Organization
HUF’s ( for individuals for the sole purpose of savings & not for the purpose of
business )
Resident Indians & Foreign Nationals.

DOCUMENTATION:
Documentation for establishing Proof of Address:
➢ Passport (not expired).
➢ Permanent driving License (not expired).
➢ Telephone bill/ Electricity bill of public and private operators in the state (not
older than 3 months from the date of a/c opening).
➢ Ration card.

39
:

➢ Election card/ voters ID (if it has address).

➢ Bank A/c statement of a PSU/Private sector/ foreign bank (not older than 3
months from the date of a/c opening).
➢ Letter/Monthly outgoings bill (only from registered societies).
➢ Copy of original title deed.
➢ Lease/Leave & License agreement / Rent agreement copy duly stamped
accompanied by CPV done by branch staff.
➢ Latest property tax bill/ property tax paid receipt.
➢ Senior Citizen Card issued by the state/ central Govt. of India(if it has address).
➢ Mobile Post-paid bill of public/private operators in India.
➢ Consumer gas connection card/book.
➢ Domicile certificate with communication address issued by Municipal
Corporation.
➢ Arms License issued by the state/central Govt. of India authority which contains
photograph of the applicant.
➢ Photo ID card with photograph (issued by J&K & Goat state govt.).
➢ Photo Social Security Card issued by the Central/state govt. /Union territories.
➢ Pension payment card issued by the state/ central Govt. of India with photograph
of the applicant. (Issued by Andhra Pradesh govt.).

40
:

COMPARISON OF
SAVINGS ACCOUNTS
OF DIFFERENT BANKS

41
:

42
:

KOTAK HDFC ICICI STANDARD

MAHINDRA CHARTED

Saving A/C Types of Account‐ Average Axcess plus a/c

Quarterly
1)Edge* 1)Savings Max Account Balance Parivaar a/c
Requirement ‐
2)pro* 2) Savings Plus Account An Average Aasaan a/c
Quarterly Balance of
3)Ace* 3) Savings Regular Account Rs.10, 000/‐ Super value a/c

No frills a/c

Demat a/c

2 in 1 a/c

Corporate
salary a/c

Charges p.a Average Quarterly Balance Average 1) Min a) If AQB in the

Requirement – . Quarterly Savings Account > =
1) Rs 750/‐ Rs10000(AQB) Rs.10, 000/‐
1) Savings Max Account ‐ Balance, Non No Charges
2) Rs 750/‐ 25,000 Maintenance
Charges b) If AQB in the
3) Rs 1200/‐ 2) Savings Plus Account ‐ Savings Account < =
10,000 Rs.10, 000
750/‐per quarter
3) Savings Regular Accoun
t‐ c) Debit Card
5,000 Charges‐
Rs. 99/‐yearly

d) If the amount is
transfer from other
state like we open
our account in Dehli

43
:

Branch and someo

ne
is transfer money
from M.P. or other
state –

Per transaction
charges 1,000 –
Rs.5

a) Savings Max Accou

nt

Debit card free Rs. 99/‐ p.a Debit cards

Rs 200

Average Quarterly Balanc CHEQUE BOOK :‐ Stop payment

e
Requirement ‐ Single
FREE OF COST cheque:‐
An Average Quarterly Rs 100
Balance of Rs.25, 000/‐ Multiple
FREE O
F COST
or
A Fixed Deposit for Rs.
1, 00,000/‐ linked to a Zero
Balance Savings Account

44
:

b) Savings Plus Account

Check book Average Quarterly

Balance Requirement ‐
Rs.2/- leaf An Average Quarterly
Balance of Rs.10, 000/‐
Or
A Fixed Deposit for Rs.50,000/-
linked to a Zero Balance Savings
Account

Average Quarterly Balance

Non maintenance Charges –
a) If AQB in the Savings
Account>=Rs.10, 000/‐

Or

FD balance>=Rs. 50,000/‐

No charges

b) If the FD balance<Rs.
50,000/‐and

The AQB in the savings

Account:

c) If the balance is between Rs.

5,000/‐ and Rs. 10,000 /‐

Rs. 750/‐ per quarter

d) If the balance is <Rs.

5,000/‐

Rs. 1,000/‐ per quarter

Features

a) Free transactions on
SBI/Andhra Bank ATMs per
month.

b) 3 free transactions on any

other bank ATMs per month.

45
:

c) Free payable‐at‐ per

cheque book without any
usage charge up to a limit month.

d) Free international debit

card for all account holders ,
for life

e) Free demand draft on HDFC

Bank locations, up to a
limit of Rs.25, 000/‐ per
day.

f) Free bill pay and insta Alert.

g) 25% off on the locker rental

for the 1st year.

Cash delivery Account

closure
Free 1 per day (within 6 mont
hs
from the date
of
opening) Rs 50
c) Savings Regular Account‐ 0

46
:

Average Quarterly Balance Duplicate

Monthly free Requirement ‐ account
An Average Quarterly Balance statements:‐
of Rs.5, 000/‐at urban bank
branches and Rs.2, 500/‐ at rural Up to 3
bank branches. months old Rs
Or 100
A Fixed Deposit for Rs. 50,000/‐
linked to a Zero Balance Savings More than 3
Account. months Rs 150

Average Quarterly Balance

Non maintenance
Charges –
Rs.750/‐ per quarter

If the AQB is below Rs.

5000/‐ at urban bank bran
ches

47
:

48
 :

Special charges Demand draft

cancellation Rs
Cheques:‐ 250
Need for Basel
Deposit II
&returned
local Rs 300.

DepositThe Basel I & II recommendations of the Bank of International Settlements (BIS) have
&returned
been
‐outframed with the objective of ensuring adequate capitalization of banks assets and to
reduce the credit and operational risks faced by the banks.
Rs 300.
With second highest growth rate and huge scientific and general work force, India is
nowStop
wellpayment
known for‐Rs
as one of the fast emerging nations of the world. Goldman Sachs and many
100.
other research reports have predicted a robust growth of Indian economy. A sound and evolved
banking
Demand system would be a prime requirement to support the hectic and enhanced levels of
draft:‐
domestic and international
Cancellation Rs economic activities in the country. Though India is credited with a
very strong
100. banking system, in comparison to many peer group countries, still some better risk
practices by Indian banks are required. The majority of Indian banks are either nascent or at a
veryTODlow level of competence in Credit, Market and Operational risk measurement and
chargesRps.250/‐
management system. They are lagging behind in the use of modern risk methodologies and
tools in comparison to their western counterparts. Economic reforms, higher market dynamics
and large-scale globalization demands a robust Risk Management System in Indian banks. The
current level of Risk Based Supervision and Market disclosures are also not very satisfactory in
theATM
Indian Banking system. This is more evident from the recent problems in Payment
charges:‐ one well-known
order
private sector bank and in some co-operative banks. Basel II gives an opportunity issue Rs 75and a
Partner free
framework for streamlining of Indian banks. The country rating of India will surely improve, and
VISA ATM domestic
consequently assist a higher capital inflow in the country. This will tremendously help India to
move Rs.on
50the higher growth flight in the coming decades.

Basel II to India is going to be in the area of services – predominantly IT and

VISA ATM cash
manpower.
withdrawThe banks all over the world shall have to make huge investments in order to be the
international
Basel Rs.90
II compliant. These investments will be mainly in the areas IT systems (software tools,
database management, Business Intelligence, hardware) training etc. to create risk
infrastructure to address the three compliance pillars of the Basel II.
OTHERS:‐ Payment order
cancellation
At home charges
Compliance with Basel will involve a huge sum of funds to be invested by respective
banks. A study of Forrester suggests a spending of around EUR 115 millionRsover 250 next five
Registration fee Rs
years, by large European banks, in order to be the Basel II compliant. Similar level or sometime
200 p.a
higher levels of investments are required in the rest of the world too. Indian IT companies with
an Certificate
establishedissuance
reputation of system implementation andOTHER service Features‐
support can and must use this
opportunity to enhance their business from the financial a) Freedomservices
accountdomain. A broad
understanding among
current year bal &
WTO countries on GATS (General Agreement on Trade and Services)
should help in the
int. free previous ymovement of cheaper Indian service
b) personnel
Debit card across
which the globe. IT/ITES
industry
ear in Banking and Financial Services sector can enhance
can be used the
any present
ware level of revenue
from bothint.
bal.& onRsand
100.off site services related to Basel II compliance. Some of the Indian IT majors
like I – flex, Infosys and Wipro are believed to be, in thec)advanced
Phone Banking
stage of preparation in terms
TDS issuance
of product free.
and services, to embark upon the business opportunities provided by Basel II.
d) Internet Banking
DuplicateThe principal solecism in the Basel I proposal was that it dealt with credit risk only.
issuance
Rps.100.
49
:

Other types of risks faced by banks are interest rate risk, foreign exchange risk and operational
risks which were not dealt with at all. Hence there was an inadequate estimation of the overall
risks faced by a bank under Basel I. This could result in under-capitalization of the banking
sector as a whole and could give rise to systemic risk and bank crises in the long run. One
cannot possibly imagine the effects on the world financial system due to the collapse of banks
like Citigroup or J.P. Morgan Chase. Basel II tries to address exactly this (systemic risk) and
other forms of risks like credit risk, operational risk, systematic and market risk.

Capital Adequacy Ratio (CAR)

This ratio is used to protect depositors and promote the stability and efficiency of financial
systems around the world. Two types of capital are measured: tier one capital, which can
absorb losses without a bank being required to cease trading, and tier two capital, which can
absorb losses in the event of a winding-up and so provides a lesser degree of protection to
depositors.
A measure of a bank's capital. It is expressed as a percentage of a bank's risk weighted credit
exposures.

Also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

BASEL 1 Accord

50
:

Basel I, that is, the 1988 Basel Accord, primarily focused on credit risk. Assets of banks
were classified and grouped in five categories according to credit risk, carrying risk weights of
zero (for example home country sovereign debt), ten, twenty, fifty, and up to one hundred
percent (this category has, as an example, most corporate debt). Banks with international
presence are required to hold capital equal to 8 % of the risk-weighted assets.
Since 1988, this framework has been progressively introduced in member countries of
G-10, currently comprising 13 countries, namely, Belgium, Canada, France, Germany, Italy,
Japan, Luxemburg, Netherlands, Spain, Sweden, Switzerland, United Kingdom and the United
States of America.
Most other countries, currently numbering over 100, have also adopted, at least in
name, the principles prescribed under Basel I. The efficiency with which they are enforced
varies, even within nations of the Group of Ten.
However, there were drawbacks in the BASEL 1 as it did not did not discriminate
between different level of risk. As a result a loan to Reliance was deemed as risky to Haldirams
to use an example. Also it assigned lower weight age to loans to banks as a result banks were
often keen to lend to other banks for example if European banks were keen to lend to THAI
financial institutions they were able to do so without allocating too much capital and depressing
their capital adequacy ration’s. It is one of the reasons why European banks suffered larges
losses in the 1996-97 South East Asian crises.

BASEL II ACCORD
The Committee circulated the revised version during June 2004 (called Accord II), for
adoption by the Central Banks in different parts of the world according to priorities of the
respective central banks. The fundamental objective behind this revision is to further strengthen
the soundness and stability of the international banking system. The committee expects its
implementation, in stages, to commence from end 2006.
The New Basel Capital Accord, often referred to as the Basel II Accord or simply Basel
II, was approved by the Basel Committee on Banking Supervision of Bank for International
Settlements in June 2004 and suggests that banks and supervisors implement it by beginning
2007,providing a transition time of 30 months. It is estimated that the Accord would be
implemented in over 100 countries, including India. Basel II takes a three-pillar approach to
regulatory capital measurement and capital standards.

Pillar 1 (minimum capital requirements)

It specifies new standards for minimum capital requirements, along with the
methodology for assigning risk weights on the basis of credit risk and market risk. It also spells
out the capital requirement of a bank in relation to the credit risk in its portfolio, which is a
significant change from the “one size fits all” approach of Basel I. Pillar 1 allows flexibility to
banks and supervisors to choose from among the Standardized Approach, Internal Ratings
Based Approach, and Securitization Framework methods to calculate the capital requirement
for credit risk exposures. Besides, Pillar 1 sets out the allocation of capital for operational risk
and market risk in the trading books of banks. The new framework maintains minimum capital
requirement of 8% of risk assets.

51
:

Under the new accord capital adequacy ratio will be measured as under—

Total capital (unchanged) = (TierI+Tier II+Tier III)

Risk Weighed Assets = Credit risk + Market risk + Operational risk.

Pillar 2 (supervisory oversight)

Enlarges the role of banking supervisors and gives them power to them to review the
banks’ risk management systems.
It provides a tool to supervisors to keep checks on the adequacy of capitalization levels
of banks and also distinguish among banks on the basis of their risk management systems and
profile of capital. Pillar 2 allows discretion to supervisors to
(a) Link capital to the risk profile of a bank;
(b) Take appropriate remedial measures if required;
(c) Ask banks to maintain capital at a level higher than the regulatory minimum.

Pillar 3 (market discipline and disclosures)

Defines the standards and requirements for higher disclosure by banks on capital
adequacy, asset quality and other risk management processes.
It provides a framework for the improvement of banks’ disclosure standards for financial
reporting, risk management, asset quality, regulatory sanctions, and the like. The pillar also
indicates the remedial measures that regulators can take to keep a check on erring banks and
maintain the integrity of the banking system. Further, Pillar 3 allows banks to maintain
confidentiality over certain information, disclosure of which could impact competitiveness or
breach legal contracts.

BASEL 2 proposals have sought to rectify the defects of the old accord. To accomplish
this BASEL 2 proposes getting rid of the old risk weighted categories that treated all corporate
borrowers the same replacing them with limited number of categories into which borrowers
would be assigned based on assigned credit system. While some banks have been permitted
to use the internal credit system, most banks would have to rely on external credit rating
agencies such as Moody’s and Standard & Poor’s. However, greater use of internal credit
system has been allowed in standardized and advanced schemes, while the use of external
rating. The new proposals avoid sole reliance on the capital adequacy benchmarks and
explicitly recognize the importance of supervisory review and market discipline in maintaining
sound financial systems.

Strength from these three pillars

PILLAR I of Basel II norms provide banks with guidelines to measure the various types
of risks they face — credit, market and operational risks — and the capital required to cover
these risks. Now we will discuss these risk in detail one by one.

52
:

Credit risk
A bank always faces the risk that some of its borrowers may renege on their promises
for timely repayments of loan, interest on loan or meet the other terms of contract. This risk is
called credit risk, which varies from borrower to borrower depending on their credit quality.
Basel II requires banks to accurately measure credit risk to hold sufficient capital to cover it.

Standard & Poor's Credit Ratings

AAA Best credit quality—Extremely reliable with regard to financial obligations.

AA Very good credit quality—Very reliable.
A More susceptible to economic conditions—still good credit quality.
BBB Lowest rating in investment grade.
BB Caution is necessary—Best sub-investment credit quality.
B Vulnerable to changes in economic conditions—Currently showing the ability to
meet its financial obligations.
CCC Currently vulnerable to nonpayment—Dependent on favorable economic conditions.
CC Highly vulnerable to a payment default.
C Close to or already bankrupt—payment on the obligation currently continued.
D Payment default on some financial obligation has actually occurred.

In assessing credit risk from a single counterparty, an institution must consider three issues:
1. Default probability:- What is the likelihood that the counterparty will default on its
obligation either over the life of the obligation or over some specified horizon, such as a year?
Calculated for a one-year horizon, this may be called the expected default frequency.
2. Credit exposure:- In the event of a default, how large will the outstanding obligation be
when the default occurs?
3. Recovery rate:- In the event of a default, what fraction of the exposure may be recovered
through bankruptcy proceedings or some other form of settlement?
To place credit exposure and credit quality in perspective, recall that every risk comprise
two elements: exposure and uncertainty. For credit risk, credit exposure represents the former,
and credit quality represents the latter.

For loans to individuals or small businesses, credit quality is typically assessed through
a process of credit scoring. Prior to extending credit, a bank or other lender will obtain
information about the party requesting a loan. In the case of a bank issuing credit cards, this
might include the party's annual income, existing debts, whether they rent or own a home, etc.
A standard formula is applied to the information to produce a number, which is called a credit
score. Based upon the credit score, the lending institution will decide whether or not to extend
credit. The process is formulaic and highly standardized.
Many forms of credit risk—especially those associated with larger institutional
counterparties—are complicated, unique or are of such a nature that that it is worth assessing
them in a less formulaic manner. The term credit analysis is used to describe any process for
assessing the credit quality of a counterparty. While the term can encompass credit scoring, it
is more commonly used to refer to processes that entail human judgment. One or more people,

53
:

called credit analysts, will review information about the counterparty. This might include its
balance sheet, income statement, recent trends in its industry, the current economic
environment, etc. They may also assess the exact nature of an obligation. For example, senior
debt generally has higher credit quality than does subordinated debt of the same issuer. Based
upon this analysis, the credit analysts assign the counterparty (or the specific obligation) a
credit rating, which can be used for making credit decisions.
Many banks, investment managers and insurance companies hire their own credit
analysts who prepare credit ratings for internal use. Other firms—including Standard & Poor's,
Moody's and Fitch—are in the business of developing credit ratings for use by investors or
other third parties. Institutions that have publicly traded debt hire one or more of them to
prepare credit ratings for their debt. Those credit ratings are then distributed for little or no
charge to investors. Some regulators also develop credit ratings. In the United States, the
National Association of Insurance Commissioners publishes credit ratings that are used for
calculating capital charges for bond portfolios held by insurance companies.

The bank can also suffer losses in excess of expected losses, say, during economic
downturns. These losses are called unexpected losses. Ideally, a bank should recover
expected loss on a loan from its customer through loan pricing. The capital base is required to
absorb the unexpected losses, as and when they arise.
The manner in which credit exposure is assessed is highly dependent on the nature of
the obligation. If a bank has loaned money to a firm, the bank might calculate its credit
exposure as the outstanding balance on the loan. Another approach would be to calculate the
credit exposure as being some fraction of the total line of credit, with the fraction determined
based upon an analysis of prior experience with similar credits.

Market risk
Market risk is exposure to the uncertain market value of a portfolio. A trader holds a
portfolio of commodity forwards. She knows what its market value is today, but she is uncertain
as to its market value a week from today. She faces market risk. Business risk is exposure to
uncertainty in economic value that cannot be marked-to-market. The distinction between
market risk and business risk parallels the distinction between mark-to-market accounting and
book-value accounting. Suppose a New England electricity wholesaler is long a forward
contract for on-peak electricity delivered over the next 3 months. There is an active forward
market for such electricity, so the contract can be marked to market daily. Daily profits and
losses on the contract reflect market risk. Suppose the firm also owns a power plant with an
expected useful life of 30 years. Power plants change hands infrequently, and electricity
forward curves don’t exist out to 30 years. The plant cannot be marked to market on a regular
basis. In the absence of market values, market risk is not a meaningful notion. Uncertainty in
the economic value of the power plant represents business risk.
The distinction between market risk and business risk is ambiguous because there is a
vast "gray zone" between the two. There are many instruments for which markets exist, but the
markets are illiquid. Mark-to-market values are not usually available, but mark-to-model values
provide a more-or-less accurate reflection of fair value. Do these instruments pose business
risk or market risk? The decision is important because firms employ fundamentally different
techniques for managing the two risks.

54
:

Business risk is managed with a long-term focus. Techniques include the careful
development of business plans and appropriate management oversight. book-value accounting
is generally used, so the issue of day-to-day performance is not material. The focus is on
achieving a good return on investment over an extended horizon.
Market risk is managed with a short-term focus. Long-term losses are avoided by
avoiding losses from one day to the next. On a tactical level, traders and portfolio managers
employ a variety of risk metrics —duration and convexity, the Greeks, beta, etc.—to assess
their exposures. These allow them to identify and reduce any exposures they might consider
excessive. On a more strategic level, organizations manage market risk by applying risk limits
to traders' or portfolio managers' activities. Increasingly, value-at-risk is being used to define
and monitor these limits. Some organizations also apply stress testing to their portfolios

Operational risk
The Basel Committee (2004) defines operational risk as the risk of loss resulting from
inadequate or failed internal processes, people and systems, or from external events. The
committee indicates that this definition includes legal risk but excludes systemic risk and
reputational risk.
During the 1990s, financial firms and other corporations focused increasing attention on
the emerging field of financial risk management. This was motivated by concerns about the
risks posed by the rapidly growing OTC derivatives markets; publicized financial losses,
including those of Barings Bank, Orange County and Metallgesellschaft; regulatory initiatives,
especially the Basel Accords.
During the early part of the decade, much of the focus was on techniques for measuring
and managing market risk. As the decade progressed, this shifted to techniques of measuring
and managing credit risk. By the end of the decade, firms and regulators were increasingly
focusing on risks "other than market and credit risk." These came to be collectively called
operational risks. This catch-all category of risks was understood to include,
• employee errors,
• systems failures,
• fire, floods or other losses to physical assets,
• fraud or other criminal activity.
Firms had always managed these risks. The new goal was to do so in a more systematic
manner. The approach would parallel—and be integrated with—those that were proving
effective with market risk and credit risk.
Another problem was that operational contingencies don't always fall into neat categories.
Losses can result from a complex confluence of events, which makes it difficult to predict or
model contingencies. In 1996, the Crédit Lyonnais trading floor was destroyed by fire. This
might be categorized as a loss due to fire. It might also be categorized as a loss due to fraud—
investigators suspect employees deliberately set the fire in order to destroy evidence of fraud.
The Basel Committee outlined basic practices in a (February 2003) paper Sound Practices for
the Management and Supervision of Operational Risk. That paper, together with efforts by
researchers and risk managers at major banks have helped to shape emerging risk
management practices for operational risk.
Most operational risks are best managed within the departments in which they arise.
Information technology professionals are best suited for addressing systems-related risks. Back

55
:

office staff are best suited to address settlement risks, etc. However, overall planning,
coordination, and monitoring should be provided by a centralized operational risk management
department. This should closely coordinate with market risk and credit risk management
departments within an overall enterprise risk management framework.
Contingencies broadly fall into two categories:
• those that occur frequently and entail modest losses;
• those that occur infrequently but may entail substantial losses.
Accordingly, operational risk management should combine both qualitative and quantitative
techniques for assessing risks. For example, settlement errors in a trading operation's back
office happen with sufficient regularity that they can be modeled statistically. Other
contingencies affect financial institutions infrequently and are of a non-uniform nature, which
makes modeling difficult. Examples include acts of terrorism, natural disasters, and trader
fraud.

Qualitative techniques include:

• loss event reports,
• management oversight,
• employee questionnaires,
• exit interviews,
• management self assessment, and
• Internal audit.

Quantitative techniques have been developed primarily for the purpose of assigning capital
charges for banks' operational risks. Much work in this field was performed by regulators
developing the Basel II accord on bank capital adequacy. Early results were reported in a
(January 2001) consultative document, which was included in a package of documents
outlining the proposed Basel II accord. Extensive industry feedback on that document leads the
committee to issue a follow-up (September 2001) working paper on operational risk. A
subsequent (April 2003) consultative document made further modifications to Basel II. The final
Basel II accord was released in 2004.
Basel II allows large banks to base operational risk capital requirements on their own
internal models. This has spawned considerable independent research into methods for
measuring operational risk. Techniques have been borrowed from fields such as actuarial
science and engineering reliability analysis.
Contingencies of an infrequent but potentially catastrophic nature can, to some extent, be
modeled using techniques developed for property & casualty insurance. Contingencies that
arise more frequently are more amendable to statistical analysis. Statistical modeling requires
data.

For operational contingencies, two forms of data are useful:

• data on historical loss events, and
• data on risk indicators.

Loss events run the gamut—settlement errors, systems failures, petty fraud, customer
lawsuits, etc. Losses may be direct (as in the case of theft) or indirect (as in the case of

56
:

damage to the institution's reputation). There are three ways data on loss events can be
categorized:
• event
• cause
• consequence

For example, an event might be a mis-entered trade. the cause might be inadequate
training, a systems problem or employee fatigue. Consequences might include a market loss,
fees paid to a counterparty, a lawsuit or damage to the firm's reputation. Any event may have
multiple causes or consequences. Tracking all three dimensions of loss events facilitates the
construction of event matrices, identifying the frequency with which certain causes are
associated with specific events and consequences. Even with no further analysis, such
matrices can identify for management areas for improvement in procedures, training, staffing,
etc.
Once operational risks have been—qualitatively or quantitatively—assessed, the next step
is to somehow manage them. Solutions may attempt to avoid certain risks, accept others, but
attempt to mitigate their consequences, or simply accept some risks as a part of doing
business.
Specific techniques might include: employee training, close management oversight,
segregation of duties, purchase of insurance, employee background checks, exiting certain
businesses, and the capitalization of risks. Choice of techniques will depend upon a cost-
benefit analysis.

Retail Lending and Basel-II

The major cause for growth in retail banking is globalization, advancement in IT and booming
economies. These factors relate to fiscal incentives from the governments, low credit off-take
from the commercial and corporate sector, lowering of cost of housing, consumer durables and
automobiles due to competition and technological innovations leading to increasing use of
credit/debit cards, ATMs, etc.
Retail lending has become more attractive under Basel II in view of the lower charges assigned
to residential mortgage and credit card lending, which may accelerate the existing shift of EMEs
– particularly Asian banks towards retail banking. Under Basel-II’s standardized approach, the
risk weighting for retail exposures is 25% less than under Basel-I. Under the IRB approach, the
capital required is not fixed irrespective of risk but varies with the riskiness of the portfolio.
Under Basel-II’s standardized approach, risk-weightings for retail exposures remain specified
by the framework on a more sophisticated basis than under Basel- I. However, residential
mortgages apart, retail lending continues to be treated on an undifferentiated basis. Under the
standardized Basel-II approach, retail lending such as credit cards qualifies, subject to certain
conditions, for a lower 75% risk-weighting compared to the 100% risk-weighting at present.
Thus, less capital should be required to support credit card portfolios than under the present
framework.
There is separate treatment to retail credit in Basel-II. For retail credit there is only one
approach namely advanced internal rating approach. Under the IRB approach, the risk
weighting of credit card balances vary with both the Loss Given Default (LGD) and Probability
of Default (PD), thus for a riskier Qualifying Revolving Retail Exposures (QRRE) portfolio, more
capital is required.

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The retail credit risk models typically follow a scoring algorithm using data classification
techniques like decision trees, cluster analysis, regression analysis, neural networks, genetic
algorithms, judgmental experts, etc. In other words, retail risk analysis continues to be based on
statistical analysis of past performance, while corporate risk assessment relies on theories
about corporate borrower behavior. With the introduction of Basel-II, some convergence
between retail and corporate approach to credit risk assessment is expected.

Impact of Basel II Accord

Impact on Indian Banks

While there is no second opinion regarding the purpose, necessity and usefulness of the
proposed new accord - the techniques and methods suggested in the consultative document
would pose considerable implementational challenges for the banks especially in a developing
country like India.
1. Capital Requirement:- The new norms will almost invariably increase capital requirement in
all banks across the board. Although capital requirement for credit risk may go down due to
adoption of more risk sensitive models - such advantage will be more than offset by additional
capital charge for operational risk and increased capital requirement for market risk. This partly
explains the current trend of consolidation in the banking industry.
2. Profitability:- Competition among banks for highly rated corporates needing lower amount of
capital may exert pressure on already thinning interest spread. Further, huge implementation
cost may also impact profitability for smaller banks.
3. Risk Management Architecture:- The new standards are an amalgam of international best
practices and call for introduction of advanced risk management system with wider application
throughout the organization. It would be a daunting task to create the required level of
technological architecture and human skill across the institution.
4. Rating Requirement:- Although there are a few credit rating agencies in India, the level of
rating penetration is very low. A study revealed that in 1999, out of 9640 borrowers enjoying
fund-based working capital facilities from banks, only 300 were rated by major agencies.
Further, rating is a lagging indicator of the credit risk and the agencies have poor track record in
this respect. There is a possibility of rating blackmail through unsolicited rating. Moreover rating
in India is restricted to issues and not issuers. Encouraging rating of issuers would be a
challenge.
5. Choice of Alternative Approaches:- The new framework provides for alternative
approaches for computation of capital requirement of various risks. However, competitive
advantage of IRB approach may lead to domination of this approach among big banks. Banks
adopting IRB approach will be more sensitive than those adopting standardized approach. This
may result in high-risk assets flowing to banks on standardized approach, as they would require
lesser capital for these assets than banks on IRB approach. Hence, the system as a whole may
maintain lower capital than warranted and become more vulnerable.

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6. Incentive to Remain Unrated:- In case of unrated sovereigns, banks and corporate, the
prescribed risk weight is 100%, whereas in case of those entities with lowest ratting, the risk
weight is 150%. This may create incentive for the category of counterparties, which anticipate
lower rating to remain unrated.
7. Supervisory Framework:- Implementation of Basel II norms will prove a challenging task for
the bank supervisors as well. Given the paucity of supervisory resources, there is a need to
reorient the resource deployment strategy. Supervisory cadre has to be properly trained for
understanding of critical issues for risk profiling of supervised entities and validating and guiding
development of complex IRB models.
8. National Discretion:- Basel II norms set out a number of areas where national supervisor
will need to determine the specific definitions, approaches or thresholds that they wish to adopt
in implementing the proposals. The criteria used by supervisors in making these determinations
should draw upon domestic market practice and experience and be consistent with the
objectives of Basel II norms.
9. Disadvantage for Smaller Banks:- The new framework is very complex and difficult to
understand. It calls for revamping the entire management information system and allocation of
substantial resources. Therefore, it may be out of reach for many smaller banks.
10. Discriminatory against Developing Countries:- Developing countries have high
concentration of lower rated borrowers. The calibration of IRB has lesser incentives to lend to
such borrowers. This, along with withdrawal of uniform risk weight of 0% on sovereign claims
may result in overall reduction in lending by internationally active banks in developing countries
and increase their cost of borrowing.
11. External and Internal Auditors:- The working Group set up by the Basel Committee to
look into implementation issues observed that supervisors may wish to involve third parties,
such a external auditors, internal auditors and consultants to assist them in carrying out some
of the duties under Basel II. The precondition is that there should be a suitably developed
national accounting and auditing standards and framework, which are in line with the best
international practices. Minimum qualifying criteria for firms should be those that have a
dedicated financial services or banking division that is properly researched and have proven
ability to respond to training and upgrades required of its own staff to complete the tasks
adequately.
With the implementation of the new framework, internal auditors may become
increasingly involved in various processes, including validation and of the accuracy of the data
inputs, review of activities performed by credit functions and assessment of a bank's capital
assessment process.

Impact on Business Model

The impact on the business models of the banks will be as follows: -

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Fig 2: Effect on Business Model

With the advent of Basel II, banks with a risk appetite, i.e. high risk - high return
lending strategy or lending without proper appraisal merely to generate additional business will
find the going tough. We believe that such business models, which take unduly high risks, will
not survive. The business models, which should survive, will be where risks are within
acceptance levels for the banks backed by adequate returns.

Impact on Borrowers

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Exhibit 3: Borrower wise Impact of Basel II

The more efficient borrowers will have easier and larger access to funds while the more risky
borrowers will find it tough to acquire funds at favorable rates. In the extreme case, some
borrowers will find no banks that are willing to lend to them. One can imagine the effect it will
have on the companies. Imagine two companies from the same sector - one with a high credit
rating say AAA and other with a lower rating say BBB. Even a 2% interest rate degree of
difference here can transform into a huge competitive edge for the AAA rated borrower. This
will force the inefficient players to get more disciplined in order to be competitive in the market
place. This will promote greater efficiency and led to a more efficient and stronger banking,
financial and the corporate sector.
Further under Basel II, with the sense of competitiveness introduced within the banking as well
as the corporate sector, the competition will become more service focused rather than cost
based. Banks will need to differentiate based on the services provided rather than the customer
segment catered to (low risk/high risk). It’s because we do not expect business models that are
based on risk appetite to survive under Basel II.
In addition, the inefficient players will be weeded out or will have to fall in line. All this should
lead to improved quality of services for the consumer. Further the improved solvency of the
banks will also benefits the customers, as the quality of their investments will improve.

Cross-border implementation of the New Accord

1. The Basel Committee recognizes that the New Accord will require more cooperation and
coordination between home country and host country supervisors, especially for complex
banking groups. The New Accord will accentuate the need for cooperation because the new
rules will be applied at each level of the banking group, so that there is a technical requirement
on the part of both home country and host country supervisors to provide a Pillar1 and Pillar 2
assessment. In addition, there may need to be some coordination regarding Pillar 3
requirements. Consequently, the Basel Committee encourages supervisors to elaborate further

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on the practical implications of the Basel Concordat (see below) for the
implementation of the New Accord.

2. Where a banking group has operations in at least one country other than the home country,
the implementation of the New Accord may require it to obtain approval for its use of certain
approaches from relevant host country supervisors on an individual or sub-consolidated basis,
as well as from its home country supervisor in respect of consolidated supervision. The need
for approval of more than one supervisor is not a precedent; the 1996 Market Risk Amendment
entailed similar requirements. However, the New Accord could significantly extend the scope of
such multiple approvals and is therefore likely to create some new implementation challenges.

3. Closer cooperation between supervisors can assist the implementation efforts of

both supervisors and banking groups. There are a variety of supervisory responsibilities under
the New Accord, including: (1) initial approval and validation of “advanced” approaches (eg IRB,
AMA) under Pillar 1; (2) the supervisory review process under Pillar 2; and (3) ongoing
assessments to verify that banking groups are applying the New Accord properly and that the
conditions for “advanced” approaches continue to be met. The degree and nature of
cooperation between supervisors may differ across these different supervisory
responsibilities. Whatever arrangements are employed, banks have an important role to play in
assisting the effective and efficient cross-border implementation efforts of supervisors.

4. While arrangements for cooperation among supervisors must be practical, the Basel
Committee has a clear interest in implementing the New Accord in a way that strengthens the
quality of bank supervision across countries. The Committee should also promote the ability of
all host supervisors, and especially of those from emerging market economies, to exercise
effective host banking supervision over foreign institutions operating in their jurisdictions.

5. The Basel Committee believes that fostering closer practical cooperation between
supervisors is essential to implement the New Accord as effectively and efficiently as possible.
In particular, the following six principles apply:

Principle 1: The New Accord will not change the legal responsibilities of national
supervisors for the regulation of their domestic institutions or the arrangements for
consolidated supervision already put in place by the Basel Committee on Banking
Supervision
Principle 2: The home country supervisor is responsible for the oversight of the
implementation of the New Accord for a banking group on a consolidated basis.

Principle 3: Host country supervisors, particularly where banks operate in subsidiary form,
have requirements that need to be understood and recognized.

Principle 4: There will need to be enhanced and pragmatic cooperation among

supervisors with legitimate interests. The home country supervisor should lead this
coordination effort.

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Principle 5: Wherever possible, supervisors should avoid performing redundant and

uncoordinated approval and validation work in order to reduce the implementation burden on
the banks, and conserve supervisory resources.
Principle 6: In implementing the New Accord, supervisors should communicate the respective
roles of home country and host country supervisors as clearly as possible to banking groups
with significant cross-border operations in multiple jurisdictions. The home country supervisor
would lead this coordination effort in cooperation with the host country supervisors

6. Cross-border responsibilities of supervisors, as set out in ‘The Basel Concordat and

Minimum Standards’1 (the Basel Concordat) will continue to apply with the implementation of
the New Accord. In essence, home country supervisors are responsible for consolidated
supervision and host country supervisors are responsible for supervision on an individual or
sub-consolidated basis for entities operating in their country.

7. The implementation of the New Accord should build on the existing framework of the Basel
Concordat to achieve effective implementation across jurisdictions without imposing an undue
burden on banking groups. The degree of closer practical cooperation between supervisors will
be facilitated by certain preconditions for effective exchange of information and practical mutual
recognition (e.g. the degree of equivalence of regulatory and supervisory
systems, and acceptable approaches to information sharing and confidentiality).

8. For situations where the home country and host country supervisors adopt different
approaches, the home country supervisor will have the final determination on such matters as
they relate to the group on a consolidated basis. This does not mean that the home country
supervisor will necessarily perform all of the assessment and analysis. In exercising its
responsibilities, the home country supervisor may seek input from host country supervisors,
particularly where a subsidiary in the host country is material to the group or the subsidiary’s
business differs significantly from that of the parent bank.
9. Given the nature of Pillar 2, the responsibility for Pillar 2 assessments of a consolidated
banking group must rest with the home country supervisor. However, depending on the
Organization of the banking group and the importance of activities within the host country, host
Country supervisors may provide important input into the home country assessment of Pillar 2
for the consolidated banking group. Home country supervisors should seek host country input,
where appropriate.

10. In each country, banks operating in subsidiary form must satisfy the supervisory and legal
requirements of the host jurisdiction. Certain jurisdictions may also have relevant requirements
in the case of foreign bank branches.

11. Host country supervisors have an interest in accepting the methods and approval
processes that the bank uses at the consolidated level, in order to reduce the compliance
burden and avoid regulatory arbitrage. However, host country supervisors have other legitimate
interests which may prevent them from recognizing for use at the sub consolidation level an
approach approved at the group level.
12. The sharing of supervisory results is an evolving practice. Supervisors should look for ways
to continue to enhance cooperation and the exchange of information (e.g. sharing of

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examination results). Requests by host country supervisors for information on banking groups
with operations in the host country should be reasonable in relation to the responsibilities and
interests of both the home country and host country supervisors. Whatever arrangements are
employed, the emphasis should be on those practical tools and procedures for fostering
effective cross-border cooperation.

13. Supervisors should coordinate their respective work plans as far as possible, taking into
account legal and other constraints. Over time, greater cooperation between home country and
host country supervisors will increase efficiencies for both banks and supervisors.
14. As needed, the home country supervisor would be responsible for measures to
organize practical cooperation between supervisors responsible for the material operations of
the banking group. This would include holding discussions with the senior management of the
group about their implementation plans, communicating these plans as necessary to relevant
host country supervisors and agreeing with them the work to be undertaken by each supervisor.
The home country supervisor would also develop an appropriate communication strategy with
the relevant host country supervisors, supplementing existing cooperative agreements where
necessary. As a practical matter, the frequency and scope of communication between
supervisors would vary depending on the materiality of operations
within the host country.

15. Agreements on cooperation and exchange of information should be recorded on whatever

basis best suits individual supervisors. Some supervisors may opt for formal arrangements (like
Memoranda of Understanding (MOUs) or other bilateral agreements), while others may prefer
less formal communication strategies.

16. For initial and on-going validation and approval there is likely to be a particular need for
cooperation between home country and host country supervisors because the nature of
complex banking group structures increases the likelihood that different techniques will be used
in different jurisdictions.

17. The Pillar 1 approval of a credit risk rating system for an IRB capital calculation or an
Advanced Measurement Approach for operational risk involves many bank functions. In any
given banking group, some of these functions will be carried out at the group level, while others
will be performed at the level of the individual entity. It will be highly desirable for supervisors to
coordinate their activities, as far as possible, to reflect the organisation and management
structure of a banking group, in order to improve efficiency and thereby reduce the
implementation burden on both banks and supervisors.

18. The degree of integration in a banking group’s risk management, the extent to which a
banking group uses a common approach, the availability of data and other factors (such as
legal responsibilities), are likely to condition the nature of desirable cross-border arrangements.
Where ‘mind and management’ are centralized in the banking group or where techniques are
consistently applied across the group, the home country supervisor will probably be better
placed to lead approval work. In such circumstances, the host country supervisor may choose
to rely entirely on approval work conducted by the home country supervisor. Conversely, where

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there is limited integration or where one or more operating

companies within the group are using different techniques from the rest of the group, or where,
for example, an entity located in the host country manages a global business line, the host
country supervisor may be better placed to take the lead for approval work regarding those
techniques or those operations. But in this case the home country supervisor will need to
maintain a sufficient level of information about the banking group and its operations in the host
country, in order to allow it to meet its responsibilities under the New Accord.

19. It is desirable for home country supervisors, in cooperation with the host country
supervisors, to develop a plan well in advance of the implementation date, detailing, as far as
possible, the practical arrangements between the home country supervisor and relevant host
country supervisors to be followed in implementing the New Accord. This will be particularly
desirable for those “advanced” complex banking structures with significant cross-border
operations because the practical supervisory arrangements will depend on how the banking
group operates. This plan should be communicated to the affected banking group. In
communicating the supervisory plan, supervisors will take care to clarify that existing
supervisory legal responsibilities remain unchanged.

20. The home country supervisor would lead the development and communication of a
supervisory plan. The level of detail contained within such a plan should be flexible and tailored
to the individual circumstances of a banking group.

Are the Indian banks ready for Basel II ?

The Indian banks are not prepared to implement the stringent Basel-II norms including
that of capital adequacy and non-performing assets in total by 2006, according to the
Federation of Indian Chambers of Commerce and Industry survey.
More than half the respondents felt banks would require two years beyond 2006 to meet
the Basel norms and an overwhelming 87 per cent of respondents maintained that the provision
for capital changes to address operational risks would put pressure on capital adequacy
requirements.
The survey covered 216 key decision makers from foreign, private, public sector banks
and corporate. The internal rating based on recommendations of Basel II norms would make
Indian banks more resilient to risk and help them face competition better, the survey said.
On access to foreign players to Indian banking market, the survey said the banking
industry would need 2-3 years to gear up to meet challenges of full market access to overseas
entities.
The FICCI survey said about 56 per cent of respondents favored lifting restrictions on
branch expansion, while 52 per cent sought removal of discriminatory limitations on foreign
equity.
However, 82 per cent have welcomed the government's move to hike foreign direct
investment limit in private sector banks, helping to consolidate the industry, it said some of the
important findings of the survey are enumerated as below:

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I. GENERAL STATE OF PREPAREDNESS

➢ 87 percent of the respondents were confident of meeting the deadline of
implementing the Basel II norms by 31st March 2007.
These banks have already prepared the detailed Implementation Roadmap as
been instructed by Reserve Bank of India. 80 per cent of these banks faced
Data Collection as the biggest challenge in preparing the Basel II roadmap.
They also expressed that they require an ongoing support from the regulatory
authorities in this regard.
➢ 77 percent of respondent banks are still in the process of putting in place a
robust Management Information System (MIS) in order to comply with the
requirements of Pillar III – Market Discipline of the new norms.

II. CAPITAL REQUIREMENT

➢ 54 percent of the banks are technologically equipped to face the future
challenges being posed by the Basel II norms. These banks have already put in
place the core banking solutions. Also enough attention has been focused upon
networking the banks.
➢ All the respondent banks already have 70-90 % level of computerization in their
bank. However 60 percent of these banks are of an opinion that lower level of
computerization would not hinder their progress in implementing these norms.
Perhaps this is because banks feel that lower level of the computerization in the
rural areas is not likely to effect the implementation of Basel II norms because
the bulk of banks operations are in urban areas, which already have 100%
computerization.
➢ 87 percent of respondent banks have already estimated the incremental capital
required for this purpose in their organization. 27 per cent banks expect their
capital requirements to increase by 1-2 % while 20 per cent banks expect their
capital requirements to increase by more than 3 % during the implementation
stage of Basel II norms.

III. IMPACT ON CREDIT

➢ 87 percent of the respondent banks quoted that increased capital requirements imposed
by the Basel accord will not make their banks more risk averse towards credit
dispensation. Merely 13% felt that implementation of Basel II could have an adverse
impact on banks’ lending to commercial sector. Small and Medium enterprises and
Farm and rural sectors are likely to be the most affected sectors.

The very aspect of capital adequacy has always been regarded as a feature of
strength in the Indian financial system. A capital to risk-weighted assets system was introduced
for bands in India since April 1992, in conformity with the international standards, which called

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for the banks to achieve an 8 percent capital to risk-weighted assets ratio. This capital was
supposed to be made up of Tier 1 and Tier 2 capital. In a survey that was meant to see the
position of Indian banks to implement the Basel 2 norms, it was found that in the year 1999,
only 26 of the Indian banks were able to achieve the target level of CRAR, and in the year
2001, 25 out of 27 public sector banks complied with the minimum level of CRAR.
Moreover, The Basic Indicator approach specifies that banks should hold capital charge for
operational risk equal to the average of the 15% of annual positive gross income over the past
three years, excluding any year when the gross income was negative. In ICRA’s estimates,
Indian banks would need additional capital to the extent of Rs. 120 billion to meet the capital
charge requirement for operational risk under Basel II. Most of this capital would be required by
the public sector banks (Rs. 90 billion), followed by the new generation private sector banks
(Rs. 11 billion), and the old generation private sector bank (Rs. 7.5 billion). In ICRA’s view,
given the asset growth witnessed in the past and the expected growth trends, the capital
charge requirement for operational risk would grow 15-20% annually over the next three years,
which implies that the banks would need to raise Rs. 180-200 billion over the medium term.
Thus as far as the Indian banks are concerned, they need to consider the integration of its
Basel 2 solution with its existing technical infrastructure and any other major systems of
implementation that are already planned. However, over the long term, they would derive
benefits from improved operational and credit risk management practices.

CONCLUSION
For the overall Indian Banking Industry, it will bestow a number of benefits. It will give
the Reserve Bank of India (RBI) a greater say in the world forum. Imagine how difficult it will be
for the RBI to represent the Indian Banking case if we do not follow the global best practices. In
addition, it will also help to resolve the inherent principal-agent conflict in the banking industry.
The agents (individual bank management) are more concerned about increasing profitability i.e.
Return on Equity (ROE) in order to deliver greater returns to the Principal (shareholders). This

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could be achieved by taking on additional risks and not properly accounting for the risks
involved. For example, the bank may raise ROE by lending to risky customer while at the same
time not creating sufficient provisions against these loans. This may hamper the solvency of the
bank in the long run. This is where the regulator (RBI) steps in. The regulator is concerned
more with the solvency and stability of the banks as the collapse of even a single bank can
affect other associated banks and may even trigger a banking crisis. Basel II will help in this
respect, as it will lead to a more rigorous analysis of the risks of transaction undertaken by each
individual bank, which will lead to better risk management.
The Indian banking system is now better prepared to face the rigor and adopt the revised
version (Basel II) than it was in 1992. Most of the PSBs are capital market fit mobilizing capital
from the market and less dependent on government. Profitability levels are improved and
somewhat stabilized, if not reached international standards. Return on assets is almost
stabilized around 1% with net interest margins, in a deregulated interest rate scenario, around
2.75% mark. Operational efficiency is also improving, thanks to the increasing adoption of
information technology and HRD interventions, with the operational expenditure to working
funds ratio coming down substantially from more than 3% to 2.25% now. NPA proportions—
both gross and net—came down substantially with coverage ratio more than 50% thus bringing
down net NPA levels to around 4% of net advances. Risk management systems, though a long
way to go, made a substantial progress both in credit as well as market risk, mainly triggered by
several initiatives taken by the RBI.
In the above backdrop, with experience and on the basis of some assumptions, an attempt is
made in this paper to gauge the magnitude of additional capital required, if any, to achieve the
Basel II standards in India by March 2007, touching along with the related policy and strategic
issues involved therewith. While the proportion of risk weighted assets to total funded assets is
around 50% for the Indian banking system under Basel I, under Basel II the same is assumed
to go up by 15-30%. Half of such expected increase is due to the operational risk element while
the other half of increment is likely to be due to more rigorous credit risk measurement
framework and adoption of the full-fledged amended frame (1996) of Basel I for market risk.
If growth trends of the net worth and assets during 1997-2003 is any indication for future, banks
in India will not have any problem in maintaining the present trend of the comfortable Basel I-
based capital adequacy ratio, which is likely to be around 11.8% by March 2007. In fact, the
CRAR was 12.3% in March 2003. Only nationalized banks will be a little hard-pressed at 10.5%
in 2007 under the Basel I mode. However, under Basel II, the scenario in March 2007 becomes
vulnerable, especially the nationalized banks and private sector groups, which are likely to be
below 10% mark envisaged under the Narasimham Committee-II. Foreign banks are likely to
be comfortable even under Basel II, while the SBI group is also likely to be above the regulatory
minimum, but without the existing comfort of cushion over the regulatory minimum.
In order to maintain the status quo CRAR, i.e., 12%, under Basel II (wherein 15-30% increase
in risk weighted assets is assumed), the amount of Capital Adequacy Gap for all scheduled
commercial banks (excluding RRBs) is likely to be in the range of Rs. 30,000 cr. to Rs. 57,000
cr.—a shortfall of 17-32% from the trend-based projected net worth by March 2007. Among
various groups of banks the situation for PSBs is likely to be critical especially when the market
developments force them to increase their credit-deposit ratio on account of low level of
preemptions like CRR and SLR, besides the projected improvement in the fiscal deficit
position, leading to less scope for government borrowing.

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Even if such investment scope exists, it may not be commercially attractive to go beyond the
statutory minimum levels. Private sector players, already having higher CD ratio and
consequently higher proportion of risk weighted assets, are equally vulnerable in the transition
from Basel I to Basel II. In this context, the viability of small local banks including cooperative
banks, poses a bigger challenge for regulators as the size of these banks and their risk bearing
capacity may become a constraint, while their need and utility in the Indian context may not be
in doubt.
As a part of the preparation process towards a smooth transition from Basel I to Basel II,
consolidation of the banking system may be necessary through an orderly merger and
acquisition process, through both in-market and cross-market mergers including holding
company route, etc., guided purely by the expected synergies. The minimum market share of
business in such a scenario for an all India or international bank should preferably be not less
than 15%.

Reliable database, of minimum 5 years period, on risk management, especially about credit
risk, is a sine qua non for switching over to IRB, which is in fact, the essence of Basel II,
besides economic capital and disclosure standards. A technology-driven collaborative effort of
credit risk database among banks at state level as well as the national level is a must in this
context, to reflect the diversity of our country in the geographical, sectorial, economic and
cultural terms. RBI, Rating Agencies, Indian Banks Association and Bank Management
Institutes, etc., shall play useful role in this endeavor.

Banks need a strong credit culture to remain sound as well as competitive in the Basel II era as
credit and credit alone will give the banks a cutting edge. Marketing, appraisal and delivery
systems need a thorough overhaul with proper backup in the form of sound policies, strategies,
structures and evaluation systems, which encourage growth of healthy credit portfolios. Audit
and vigilance systems, notwithstanding many attempts to improve them, still possess a
predominantly governmentalized element, not conducive to promote professional, accountable
and business like culture.

The most important transition need is bringing in true corporate governance of international
standards for which government ownership need not be a weakness but a strength leaving the
management of banks, especially PSBs, to the professionally chosen boards. Creating a
market orientation, level playing field between private and PSBs, input side reforms in structure
and people management policies, etc. will be right steps for a smooth transition to Basel II. A
recent announcement by the Government of India about the requisite managerial autonomy to
these banks is a positive step in this direction.

Relatively speaking, the Indian banking system is less volatile in its risk exposures, especially
with liquidity and operational risks. Risk management and control systems in market risk are yet
to get stabilized. Long-term database for credit risk is the need of the hour. Draft guidelines
issued by RBI in February 2005 on Basel II implementation clearly indicate a phased approach,
without putting undue pressure on the banking system, while at the same time aiming to reach
international standards. Basel II transition should further strengthen the banks to play a crucial
role in ensuring that the fruits of economic reforms, more so the financial sector reforms, are in
the reach of vast and vulnerable sections of the society.

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DATA ANALYSIS:
Introduction:

Data analysis and interpretation plays an important role in turning quantity of paper into
defensible, actionable sets of conclusions and reports. It is actually a set of method and
technique that can be used to obtain information and insights from data.
It can lead the researcher to information and insights that would not be available. It can
help to avoid erroneous judgments and conclusion. It can provide a background to help
interpret and understand analysis conducted by others. Knowledge of power of data
analysis techniques can constructively influence research objectives and research design.

DATA TABLE NO 1:

MARKET COVERAGE OF THE COMPETITIVE BANKS INCLUDING KOTAK MAHINDRA

BANK LTD:

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BANK NAME NO OF RESPONDENTS PERCENTAGE OF

RESPONDENTS
HDFC 22 22%
ICICI 25 25%
Kotak Mahindra bank 14 14%
CO-OPERATIVES 9 9%
OTHERS 8 8%
POTENTIAL MARKET 22 22%
TOTAL 100 100%
ICICI Bank Ltd scores top position in market coverage of Saving account in Kota Region.
HDFC Bank gets a second position.
KOTAK MAHINDRA BANK takes the third position.The amount of potential market is as high
as 22%

GRAPH NO 1

MARKET COVERAGE OF THE COMPETITIVE BANKS

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TABLE NO 2

MARKET POTENTIAL FOR VARIOUS SAVING ACCOUNT

Types of accounts No of Companies Percentage of companies

42 42%
Pro Savings Accounts

Edge Savings Account 20 20%

13 13%
Ace Savings Account

25 25%
Nova Savings Account &

Easy Savings Account

Total 100 100%

c
5
0
1
2
3
4
EDGE
ACE
NOVA
N
P
2
3
0
5
R
SAVING
+SAVING
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%
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fi
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s

INTERPRETATION:

Out of the all type of saving accounts market potential of saving Regular Account is 42% which
is highest .Second highest market potential is for Kids Advantage Account is 25%.

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TABLE NO 3:

CUSTOMERS SELECTION PARAMETERS OF HDFC BANK LTD

PARAMETERS OF BANK PERCENTAGE OF

SELECTION CUSTOMER CHOICE

BRAND NAME 23.60%
PERVIOUS EXPERIENCE 22.40%
RELIABILITY 22.10%
EASY ACCESS 19.80%
BANKING HOURS 14.10%

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E
9
5
7
3
2
0
4
6
8
1
IH
KOTA
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5
9
7
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IS
F
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S
A
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F
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A
T
C
O
T
R
I
Y
O
R
Y

INTERPRETATION:

ATM Network of ICICI Bank is rated excellent (80%). Followed by HDFC Bank (75%).
UTI Bank gets third position. (70%)
KOTAK MAHINDRA Banks are rated as fair by 30% of the respondents and satisfactory
by 31% of the respondents.
Other Banks are rated as excellent by 33% of the respondents and fair by 27% of the
respondents.

TABLE NO 4:

Strengthens and weakness of KOTAK MAHINDRA BANK Score Card

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Parameters Score
Regulatory System 5
Technology Advancements 6
Credit Quality 5
Diversification of market beyond big 4

cities
Size of Bank 5
Banking Infrastructure 4
Labor Inflexibilities 3

INTERPRETATION:

The Indian banking sector has scored over its counterparts not only in developing but also even
in developed world such as Japan, Singapore and Australia on significant parameters.

Technology has given birth to a new era in banking. Technology can be the key differentiator
between two banks and a major factor to attain competitive edge. Though slow in the beginning,
KOTAK MAHINDRA Bank seem to have paced up in adoption of advanced technology.

While enhancement of credit is an important function of the Banks, it is equally imperative to

keep a check on the quality of credit to ensure good health of the banking system and
effective functioning of market for distressed assets.

➢ One of the key fundamentals of banking sector – Credit Quality too has been
rated fairly well in comparison with other Banks.
➢ Even though KOTAK MAHINDRA Bank is a big player in Indian Banking
sector still it is not yet penetrated in the rural areas of India to a very great extend.
➢ KOTAK MAHINDRA Bank as earlier said is a large player in the Indian
Banking
Sector, however when it comes to banking infrastructure it is one of its weak.

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And so labour inflexibilities.

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RECOMMENDATIONS

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➢ Since ATM is the most popular point of interaction with the Bank it is imperative
that the Bank increases the number of ATM machines.
➢ KOTAK MAHINDRA BANK must enter into alliances with other Banks. So
that its customers can use those Bank’s ATM facility free of any charge.
➢ The Bank should take advantage of its world wide network of ATM machines,
as more and more Indians are travelling abroad. The advantages of being able to
access one’s account anywhere in the world must be highlight.
➢ The Bank should reduce the transaction cost of non- Kotak Mahindra bank
ATM machine.
➢ Account holders feel that it would be good if the Bank offered incentives,
freebies to it’s existing customers , this would keep the customers happy and
satisfied with the Bank.
➢ Happy hours should be introduced.
➢ Bank timing should be increase.
➢ Animated movies should be make for promoting various products of Bank in
local language and according to culture.
➢ Touch screen facility can helpful to provide detail knowledge of various
products and it can save manual time.
➢ More branches should be open at nearby towns so that customer fell
convenience.
➢ Account opening processing time should be decrease and cash account opening
facility should introduce so that customer would not feel any problem.

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LIMITATIONS

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➢ Bank timing is short (9:30 am to 3:30pm).

➢ No. of ATMs less according to population.
➢ Customer have threat that bank have hidden charges.
➢ Low income class people face difficulty to maintain AQB.
➢ Customers not use frequently Net banking, Mobile banking.
➢ The study was limited only JAIPUR city Hence findings may be differ from
other part of country.
➢ Many times respondents were so busy that they didn’t give reply. There were
biased replies also.

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QUESTIONAIRE

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1. Person Name: ____________________________________________

2.Types of business or Working area

A) Electric and Electronics

B) Information Technology

C) Automobile

D) Pharmaceutical

E) Infrastructure

F) Telecommunication

g) Others: please specify __________________________________

3. No.of Person in family: _____________________________________________

4. Designation: ________ _______________________________________

5. Contact Number: ____________________________________________

6. e- Mail id: _________________________________________________

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7. No. of Depended and their age: __________________________________________

8. Current Banker: _____________________________________________

9. Total annual income of person:

_________________________________________________________

10. Special offer provided from existing bank:

a) P.L. Rate: __________________________________________

b) H.L Rate: __________________________________________

c) Vehicle loan Rate: ___________________________________

d) Others: ____________________________________________

11. Are you satisfied with existing Banker?

a) Yes b) No

12. Do you expect better products and services from your banker?

a) Yes b) No

13. How is the Relationship between you & your Bank?

a) Excellent

b) Good

c) Satisfactory

d) Unsatisfactory

14. Did you change your banker recently?

A) Yes b) No

15. If yes: From - ____________________________________________

To - ____________________________________________

16. How is Customer Responsiveness of your Bank?

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a) Good

b) Satisfactory

C) Unsatisfactory

17. Would you like to shift to other Bank, if provided better product &Services?

a) Yes b) No

18. Given options, which Bank, you would like to shift?

Please mention: ___________________________________________

Date -

Place –

Thank you Signature

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CONCLUSIONS

➢ KOTAK MAHINDRA BANK is Leading Bank in the country, it provides a

variety of products and services to different segments of customers.
➢ The Bank aims to serve customers from teenagers to senior citizens, hence
different products designed to suit specific requirements of the above.
➢ Aims to serve all classes of the society from the salaried middle class to the high
income business class.

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➢ Customers are categorized and segmented according to their requirements and

needs.
➢ For Example , the Saving Regular and Plus Account aims to serve middle class
customers so minimum balance required to be maintained is RS.5,000/- or RS.
10000. While the Saving Max Account is targeted at high income customers, the
minimum balance requirement is RS.25,000.
➢ Customers who are more profitable to the Bank (High Value Customers) are
provided special facilities. Priority Banking is meant to serve these high value
customers.
➢ The Bank prides itself with the ability to provide differentiate products in the
crowed market of saving accounts. Bank offers free insurance, special co-branded
debit cards which makes it’s product unique.
➢ The Credit/Debit Cards provided by the Bank are Internationally Accepted
around the world, Hence giving the customers the convenience to transact
anytime , anywhere.
➢ The Bank has tied up with other Banks so that it’s customers can use other
Bank’s ATM facility for free (four free transactions)
➢ The Bank also provides DEMAT account and also sells Mutual Funds, this
provides the Bank and Government additional revenue.
➢ The Bank has been very successful in enlarging its customer base during the last
couple of years.
➢ The Bank wants it’s customers to transact more trough Internet Banking and
ATMs, rather than the customers using the branch.

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BIBLIOGRAPHY

www.hdfcbank.com

www.axisbank.com

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www.icicibank.com

www.kotak.com

www.wikipedia.com

www.google.com

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