NATURE OF BANKING IN INDIA:

A banking company in India has been defined in the banking companies act,1949.as one “which
transacts the business of banking which means the accepting, for the purpose of lending or
investment of deposits of money from the public, repayable on demand or otherwise and
withdraw able by cheque, draft, order or otherwise.”
Most of the activities a Bank performs are derived from the above definition. In addition, Banks
are allowed to perform certain activities which are ancillary to this business of accepting deposits
and lending. A bank's relationship with the public, therefore, revolves around accepting deposits
and lending money. Another activity which is assuming increasing importance is transfer of
money - both domestic and foreign - from one place to another. This activity is generally known
as "remittance business" in banking parlance. The so called forex (foreign exchange) business is
largely a part of remittance albeit it involves buying and selling of foreign currencies.

FUNCTIONING OF A BANK:

Functioning of a Bank is among the more complicated of corporate operations. Since Banking
involves dealing directly with money, governments in most countries regulate this sector rather
stringently. In India, the regulation traditionally has been very strict and in the opinion of certain
quarters, responsible for the present condition of banks, where NPAs are of a very high order.
The process of financial reforms, which started in 1991, has cleared the cobwebs somewhat but a
lot remains to be done. The multiplicity of policy and regulations that a Bank has to work with
makes its operations even more complicated, sometimes bordering on illogical. This section,
which is also intended for banking professional, attempts to give an overview of the functions in
as simple manner as possible. Banking Regulation Act of India, 1949 defines Banking as
"Accepting, for the purpose of lending or investment of deposits of money from the public,
repayable on demand or otherwise and withdraw able by cheques, draft, and order or otherwise."
KINDS OF BANKS:

Financial requirements in a modern economy are of a diverse nature, distinctive variety and large
magnitude. Hence, different types of banks have been instituted to cater to the varying needs of
the community. Banks in the organized sector may, however, be classified in to the following
Major forms:
1. Commercial banks
2. Co-operative banks
3. Specialized banks
4. Central bank

COMMERCIAL BANKS:
Commercial banks are joint stock companies dealing in money and credit. In India, however
there is a mixed banking system, prior to July 1969, all the commercial banks-73 scheduled and
26 non-scheduled banks, except the state bank of India and its subsidiaries-were under the
control of private sector. On July 19, 1969, however, 14mejor commercial banks with deposits of
over 50 Corers were nationalized. In April 1980, another six commercial banks of high standing
were taken over by the government. At present, there are 20 nationalized banks plus the state
bank of India and its 7 subsidiaries constituting public sector banking which controls over 90 per
cent of the banking business in the country.

CO-OPERATIVE BANKS:
Co-operative banks are a group of financial institutions organized under the provisions of the Co-
operative societies Act of the states. The main objective of co-operative banks is to provide
cheap credits to their members. They are based on the principle of self-reliance and mutual co-
operation. Co-operative banking system in India has the shape of a pyramid a three tier structure,
constituted by:
Primary credit societies [APEX]
Central co-operative banks [District level]
State co-operative banks [Villages, Towns, Cities]
SPECIALIZED BANKS:

There are specialized forms of banks catering to some special needs with this
Unique nature of activities. There are thus,
1. Foreign exchange banks,
2. Industrial banks,
3. Development banks,
4. Land development banks,
5. Exim bank.

CENTRAL BANK:
A central bank is the apex financial institution in the banking and financial system of a country.
It is regarded as the highest monetary authority in the country. It acts as the leader of the money
market. It supervises, control and regulates the activities of the commercial banks. It is a service
oriented financial institution. India’s central bank is the reserve bank of India established in
1935.a central bank is usually state owned but it may also be a private organization. For instance,
the reserve bank of India (RBI), was started as a shareholders’ organization in 1935, however, it
was nationalized after independence, in 1949.it is free from parliamentary control.

ROLE OF BANKS IN A DEVELOPING ECONOMY:

Banks play a very useful and dynamic role in the economic life of every modern state. A study of
the economic history of western country shows that without the evolution of commercial banks
in the 18th and 19th centuries, the industrial revolution would not have taken place in Europe.
The economic importance of commercial banks to the developing countries may be viewed thus:
1. Promoting capital formation
2. Encouraging innovation
3. Molestation
4. Influence economic activity
5. Facilitator of monetary policy
Above all view we can see in briefly, which are given below:

• PROMOTING CAPITAL FORMATION:

A developing economy needs a high rate of capital formation to accelerate the tempo of
economic development, but the rate of capital formation depends upon the rate of saving.
Unfortunately, in underdeveloped countries, saving is very low. Banks afford facilities for saving
and, thus encourage the habits of thrift and industry in the community. They mobilize the ideal
and dormant capital of the country and make it available for productive purposes.

• ENCOURAGING INNOVATION:
Innovation is another factor responsible for economic development. The entrepreneur in
innovation is largely dependent on the manner in which bank credit is allocated and utilized in
the process of economic growth. Bank credit enables entrepreneurs to innovate and invest, and
thus uplift economic activity and progress.

• MONETSATION:
Banks are the manufactures of money and they allow many to play its role freely in the economy.
Banks monetize debts and also assist the backward subsistence sector of the rural economy by
extending their branches in to the rural areas. They must be replaced by the modern commercial
bank’s branches.

• INFLUENCE ECONOMIC ACTIVITY:

Banks are in a position to influence economic activity in a country by their influence on the rate
interest. They can influence the rate of interest in the money market through its supply of funds.
Banks may follow a cheap money policy with low interest rates which will tend to stimulate
economic activity.

• FACILITATOR OF MONETARY POLICY:

Thus monetary policy of a country should be conductive to economic development. But a well-
developed banking system is on essential pre-condition to the effective implementation of
monetary policy. Under-developed countries cannot afford to ignore this fact. A fine, an efficient
and comprehensive banking system is a crucial factor of the developmental process.

PRINCIPLES OF BANK LENDING POLICIES:

The main business of banking company is to grant loans and advances to traders as well as
commercial and industrial institutes. The most important use of banks money is lending. Yet,
there are risks in lending. So the banks follow certain principles to minimize the risk:
1. Safety
2. Liquidity
3. Profitability
4. Purpose of loan
5. Principle of diversification of risks

• SAFETY:
Normally the banker uses the money of depositors in granting loans and advances. So first of all
initially the banker while granting loans should think first of the safety of depositor’s money.
The purpose behind the safety is to see the financial position of the borrower whether he can pay
the debt as well as interest easily.

• LIQUIDITY:
It is a legal duty of a banker to pay on demand the total deposited money to the depositor. So the
banker has to keep certain percent cash of the total deposits on hand. Moreover the bank grants
loan. It is also for the addition of short term or productive capital. Such type of lending is
recovered on demand.

• PROFITABILITY:
Commercial banking is profit earning institutes. Nationalized banks are also not an exception.
They should have planning of deposits in a profitability way pay more interest to the depositors
and more salary to the employees. Moreover the banker can also incur business cost and can give
more benefits to customer.
• PURPOSE OF LOAN:
Banks never lend or advance for any type of purpose. The banks grant loans and advances for the
safety of its wealth, and certainty of recovery of loan and the bank lends only for productive
purposes. For example, the bank gives such loan for the requirement for unproductive purposes.

• PRINCIPLE OF DIVERSIFICATION OF RISKS:

While lending loans or advances the banks normally keep such securities and assets as a supports
so that lending may be safe and secured. Suppose, any particular state is hit by disasters but the
bank shall get benefits from the lending to another states units. Thus, he effect on the entire
business of banking is reduced. There are proverbs that do not keep all the eggs in one basket.
A principle of considerations of sound lending is:
1. Safety
2. Liquidity
3. Shift ability

4. Profitability.

ABOUT THE COMPANY:

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered
office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank
in January 1995.

HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of 1,986
branches spread in 996 cities across India. All branches are linked on an online real-time basis.
Customers in over 500 locations are also serviced through Telephone Banking. The Bank's
expansion plans take into account the need to have a presence in all major industrial and
commercial centers where its corporate customers are located as well as the need to build a
strong retail customer base for both deposits and loan products. Being a clearing/settlement bank
to various leading stock exchanges, the Bank has branches in the centers where the NSE/BSE has
a strong and active member base.

The Bank also has 5,471 networked ATMs across these cities. Moreover, HDFC Bank's ATM
network can be accessed by all domestic and international Visa/MasterCard, Visa
Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

MISSION:

HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound
customer franchises across distinct businesses so as to be the preferred provider of banking
services for target retail and wholesale customer segments, and to achieve healthy growth in
profitability, consistent with the bank's risk appetite. The bank is committed to maintain the
highest level of ethical standards, professional integrity, corporate governance and regulatory
compliance. HDFC Bank's business philosophy is based on four core values - Operational
Excellence, Customer Focus, Product Leadership and People.

CAPITAL SRUCTURE:

As on 30th June, 2010 the authorized share capital of the Bank is Rs. 550 crore. The paid-up
capital as on said date is Rs. 459, 69, 07,030/- (45, 96, 90,703 equity shares of Rs. 10/- each).
The HDFC Group holds 23.63 % of the Bank's equity and about 17.05 % of the equity is held by
the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). 27.45%
of the equity is held by Foreign Institutional Investors (FIIs) and the Bank has about 4, 33,078
shareholders.

The shares are listed on the Bombay Stock Exchange Limited and the National Stock Exchange
of India Limited. The Bank's American Depository Shares (ADS) are listed on the New York
Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts
(GDRs) are listed on Luxembourg Stock Exchange under ISIN No US40415F2002.
RATINGS:

Credit Rating:
The Bank has its deposit programs rated by two rating agencies - Credit Analysis & Research
Limited (CARE) and Fitch Ratings India Private Limited. The Bank's Fixed Deposit program has
been rated 'CARE AAA (FD)' [Triple A] by CARE, which represents instruments considered to
be "of the best quality, carrying negligible investment risk". CARE has also rated the bank's
Certificate of Deposit (CD) program "PR 1+" which represents "superior capacity for repayment
of short term promissory obligations". Fitch Ratings India Pvt. Ltd. (100% subsidiary of Fitch
Inc.) has assigned the "AAA ( ind )" rating to the Bank's deposit program, with the outlook on
the rating as "stable". This rating indicates

"highest credit quality" where "protection factors are very high"

The Bank also has its long term unsecured, subordinated (Tier II) Bonds rated by CARE and
Fitch Ratings India Private Limited and its Tier I perpetual Bonds and Upper Tier II Bonds rated
by CARE and CRISIL Ltd. CARE has assigned the rating of "CARE AAA" for the subordinated
Tier II Bonds while Fitch Ratings India Pvt. Ltd. has assigned the rating "AAA (ind)" with the
outlook on the rating as "stable". CARE has also assigned "CARE AAA [Triple A]" for the
Banks Perpetual bond and Upper Tier II bond issues. CRISIL has assigned the rating "AAA /
Stable" for the Bank's Perpetual Debt program and Upper Tier II Bond issue. In each of the cases
referred to above, the ratings awarded were the highest assigned by the rating agency for those
instruments. FPRIVATE "TYPE=PICT;ALT="

Corporate Governance Rating:

The bank was one of the first four companies, which subjected itself to a Corporate Governance
and Value Creation (GVC) rating by the rating agency, The Credit Rating Information Services
of India Limited (CRISIL). The rating provides an independent assessment of an entity's current
performance and an expectation on its "balanced value creation and corporate governance
practices" in future. The bank has been assigned a 'CRISIL GVC Level 1' rating which indicates
that the bank's capability with respect to wealth creation for all its stakeholders while adopting
sound corporate governance practices is the highest.
The bank provides three types of banking services mainly:
1. Personal banking
2. NRI banking
3. Wholesale banking

• Personal banking:

At HDFC Bank their are huge range of savings accounts Regular Savings Account, savings plus
account, savings max, senior citizens, no frill, limited KYC No frills Account, institutional
Accounts, salary account - payroll, classic, regular, premium, defense, no frills, reimbursement
current account, kids advantage account, pension savings account, family saving group, kissan
no frills savings account, kissan club savings account. When we come to the type of current
accounts available. Plus, Trade Premium, Regular, RFC, Flexi, Apex, Max, Merchant advantage,
Merchant advantage Plus current accounts. Fixed Deposits are Regular FD, 5 years Tax Saving
FD, Super Saver Facility, Sweep In facility. Other facilities include Recurring deposits, Demat
Account, Safe Deposit lockers.

Their are various types of loan facilities available namely, Personal loans, home loans, Two -
wheeler loans, Car loans (New & Used), Loans against Property, Loan Against Gold, Loan
Against Securities, Educational Loan, Working Capital Finance, Retail Agri Loans etc.

The bank provides different types of card under Credit and Debit card.

The Investment and insurance options available are Wealth advisory services, Mutual funds, Tax
planning, Insurance - Tradition and Unit Linked, General Insurance, Health Insurance, Bonds,
Knowledge Centre, Equities and Derivatives, Mudra Gold and Silver Bars. The bank also
provides with Foreign and Trade Services.

It also provides with other services like ng pay, Billpay, paynow, Phone Banking, Mobile
banking, Internet Banking. The customers and the banking facilities are classified as imperia,
Preferred and classic banking this classification is done basing on the balances maintained by the
customer.

NRI BANKING

At HDFC bank they offer two types of savings accounts NRE (Non Resident External Savings
Account), NRO (Non Resident Ordinary Savings Account). Current accounts are also of two
types NRE, NRO. When we come to the Fixed Deposit there are of four kinds - NRE Fixed
Deposits, NRO Fixed Deposits, Super Saver Account, and Sweep-In Account. Foreign Currency
deposits are of two types Foreign Currency Non Resident deposits, RupeeMax. Returning
Indians have a facility also to maintain account namely RFC Savings Account, FRC Fixed
Deposit.

The bank also provides services like money transfer using Quick remit, Cheque LockBox,
Telegraphic/ Wire Transfer, Funds Transfer through DD's Cheques, Travellers Cheques.

The bank also provides various investment opportunities like investment in Mutual Funds,
portfolio Investment Schemes, private banking. The bank also provides loan facilities like home
loan - attractive interest rates, loan against securities (LAS) - Mutual Funds, shares, NSC. The
bank provides a dedicated Relationship Manager to help in each and every step for financial and
banking needs.

Wholesale BANKING
Wholesale banking is provided to Corporates, Small & Medium Enterprises, Financial
Institutions and Trusts, Government Sector, Investment Banking.

CORPORATE:

HDFC offers blue chip companies in India, a full range of client-focused corporate banking
services like Funded Service. Non - Funded Service, Value added services, Internet Banking.
Supply chain Partners, Agri lending is also done.

Small & Medium Enterprises:

HDFC offers Funded Service. Non - Funded Service, Value added services, Specialized Services
and Internet Banking.

Financial Institutions and Trusts:

HDFC bank provides financial services to Banks, Financial Institutions, Mutual Funds, Insurance
Company, stock Brokers, commodity Businesses and Trusts.

Government Sector:

HDFC Bank acts as an active medium between the government and the customers by means of
various services. These services include