Introduction
Banking industry creates a chain of economic activity in the country. When a bank leads, it is followed b a number of activities. They are: Landing or Bank loan leads to – investment – production – employment – Income – Demand – Increase in prices – Increase in profit – more Divided – Demand for shares – expansion of capital market. With more banking activity, economic growth in the country will speed up leading to more economic development.
The economic implications of banking can be summed up as follows
a. removal of poverty
b. promotion of employment opportunities
c. Encourage savings
d. Promoting investments
e. Expanding money market by providing more short term loans and
f. Improving capital market
In India the private sector banks consist of the following categories:
i. Private scheduled banks.
ii Private non-scheduled banks
iii. Foreign banks
This apart in the early stages of banking activity in India, native bankers called indigenous bankers in the unorganized sector. They are not permitted to undertake banking business presently. They also do not come under the provisions of Banking Regulations Act. Of these types, private scheduled banks are functioning on par with the other public sector banks in various respects. Since, they have been induced in the second scheduled of Restore Bank of India Act; they are enjoying the privileges as that of any other scheduled banks. These privileges importantly include refinance facility from RBI and participation in money market activities.
The commercial banks not included in the second schedule Banks. They are not entitled to get facilities like refinance and rediscounting of bills, etc. from RBI. They do not get the prestige like scheduled banks. RBI currently does not like scheduled banks. RBI currently does not encourage the opening of non scheduled banks.
The Foreign banks though not allowed liberally earlier, are now being welcomed, with the adoption of economic liberalization policy is our country. Prior to 1990, we had only limited foreign banks operating is our country, but now we have more number of foreign banks, thanks to the policy of economic liberalization.
Various banks are analyzed below
Industrial Credit and Investment Corporation of India (ICICI):
a. Origin :
The only developed bank which has participation by American and English investors is ICICI. This bank has been set up mainly to promote private sector undertakings in India. Initially, the industrially policy of the government was not in favour of the private sector. But subsequently the government started assisting the private sector through ICICI.
b. Capital :
It was started in 1955. Its authorized capital is Rs. 25 crores of which Rs. 5 crores in ordinary shares of Rs. 100 each was originally issued and paid up. Of these Rs.5 crores, Rs. 3.5 crores by general was taken up in India. Rs. 2 crores by banks, insurance companies and Rs. 1.5 Crores by general public. Subscribers in the U.K. took up RS. 1 crore and in U.S.A. Rs. 50 lakhs. At present, we have shareholders from U.K., U.S.A., Germany, France, and Japan. LIC is one of the largest shareholders.
c. Object:
i. Assisting in the creation, expansion and modernization of private sector.
ii. Encouraging and promoting private capital participation
iii. Encouraging and promoting private industrial investment
d. Management:
The management of ICICI is the board of directories representing government, RBI, Foreign shareholders, and IDBI.
e. Functions:
The main functions of ICICI can be classified into primary and secondary functions.
i. Direct loans i. Providing long term finance by deferred credit
ii. Loans in foreign currency ii. Leasing
iii. Guaranteeing for the loan iii.Venture Capital
iv. Underwriting for securities iv. Asset credit
v. Contributing to the share v. Merchant banking
capital and debentures vi. Research and development
Primary functions
I. Direct loans : ICICI has granted Rs.310 crores in 1981 which has gone up to Rs. 25,000 crores in 1998.
II. Loans in foreign currency : Foreign currency loans have also been granted to the tune of Rs. 63,900 crores as there are shareholders from U.K., U.S.A., Germany, and Japan as a result of which, the bank was able to raise more resources in foreign exchange.
III. Contributing for the share capital and debentures: Where ICICI cannot contribution direct loan, it has stood as a guarantor especially in obtaining foreign loan by private sector companies.
IV. Underwriting for securities: It has also contributed to shares and debentures of companies directly.
V. Guaranteeing for the loan: The bank has helped in the promotion of companies by underwriting their shares and debentures.
Secondary Functions
I. Providing long term by deferred credit: In secondary functions, the bank has given loan for purchase of capital equipment. The sellers of these capital both within country and outside are assisted in the form suppliers credit.
II. Leasing: Many private sector concerns are helped to purchase huge capital-oriented machinery due to the finance provided by ICICI.
III. Venture capital: Promoting risky industry ventures which are based on sophisticated technology are financed under venture capital. The borrowers who are interested in buying assets on installment basis are provided loan facility under the guarantee given by the ICICI. The title of the goods will be transferred on the last installment paid by the borrower.
IV. Asset credit: It helps in procuring assets through self liquidating loans.
V. Merchant banking: As a part of promoting more industrial concerns, merchant banking is also undertaken by ICICI and it was started in 1973. ICICI has also promoted housing loan by starting Housing Development Finance Corporation (HDFC).
f. Special Assistance:
I. It provided more loans in foreign currency and it is the only institution which is given maximum foreign currency loan.
II. It provides technical assistance in collaboration with foreign concerns.
III. It has undertaken commercial banking activity by starting ICICI Bank.
IV. It also has its own mutual funds.
g. Institutions promoted by ICICI
(i) Credit Rating Information System of India Limited (CRISIL): It is a credit rating agency set up by ICICI for rating the services of corporate sector.
(ii) Technology Development and Information Company of Limited (TDICI) : For financing the transfer and up gradation of technology of the borrowing concerns.
(iii) Industrials Financial Marketing Research (IFMR): To undertake research activity in financial management.
(iv) ICICI Securities and Finance Company Limited: This was incorporated in New York and it plays an important role in corporate finance.
(v) ICICI Brokerage Service Limited: This is for undertaking securities broking activities.
(vi) ICICI Investors Service Limited: Its more a mutual fund.
Thus ICICI has been playing an important role towards industrial growth of the country.
Industrial Development Bank of India (IDBI)
a) Origin
For all the development banks in India, the Apex institution to guide and promote in the field of industrial is the Industrial Development Bank of India. This was started initially as a subsidiary as a subsidiary bank of RBI in July 1964. But subsequently, by 1976 it became an independent and autonomous bank.
b) Capital
The bank was started with initial capital of Rs. 100 crores which was subsequently raised.
c) Object
The main object of IDBI are:
i. To promote rapid and balanced industrial growth in the country
ii. Guiding in the field of industrial refinance by coordinating with other development banks.
iii. Providing technical guidance and administrative assistance in the promotion of industries.
iv. Undertaking market and investment research for development of industries.
d) Management
The board consists of 14 directors, headed by a chairman. They are represented from different field of industry.
Housing Developing Finance Corporation (HDFC):
Introduction:
With the increasing population, the Ninth Five Plan (1997-2002) of the government of India adopted a national housing policy and allocated a sum of Rs. 150 crores for providing housing facilities to the people. According to National Building Organization, the demand for housing was estimated to be 20 lakhs houses per year. At present, there is a shortfall of 2 crores houses, of which 1.3 crore houses are in rural areas and .07 crore are in urban areas.
It is only in the housing industry we can generate maximum employment. By constructing 20 lakhs houses per year, we could generate one crore employment directly and 1.5 crores employment indirectly. In view of such significance, it is no wonder that the Ninth Five Year Plan attached so much importance to housing schemes.
Capital and Management
In the year 1977, housing Development Finance Corporation (HDFC) was incorporated with the main object of promoting home ownership by providing long-term loans. It was promoted as a company with an initial share capital of Rs. 10 crores. As the operating income of the steadily, its profits have also gone up. As on 2001-02,its profit after tax is 580 crores. As on 31.3.2002, its share capital is Rs. 121.7 crores and Reserve and Surplus stand at Rs 2581.14 crores. The present book value per share is Rs. 222 as against a face value of Rs.10. The divided declared is around 76 per cent.
HDFC is managed by board of directors, consisting of 15 persons, representing government, financial institutions, constructing industry and other representatives of the public.
HDFC as a Housing Finance Institution
The performance of HDFC is evident from the fact that the World Bank has considered HDFC as a model private sector housing finance company in developing countries. It is also regarding HDFC as a model institution for providing technical assistance for new and existing institution both in India and abroad. The executives of HDFC have undertaken consultancy assignments relating to housing and urban development on behalf of multinational agencies allover the world.
Main Objects of HDFC
1. To increase the number of residential houses in the country by providing housing finance in a systematic and professional manner.
2. To promote home-ownership.
3. To increase the flow of funds housing sector.
4. Strengthening housing finance by improving domestic financial market and financial services.
5. Developing close relationship with individual households, i.e., providing direct housing loans to individuals.
6. To maintain its position its position as the premier housing finance institution in the country.
7. To transform various ideas into viable and creative solutions. That is, building houses on the basis of costs, utility and modernization.
8. To provide consistently high returns to shareholders.
9. Diversifying activities to client-base by entering into mutual funds, leasing, commercial banking, insurance, etc.
10. To align with the national priorities and adopt flexible housing finance policy by providing more house weaker sections of the society.
Various activities promoted by HDFC (Various types of Loan offered by HDFC)
In order to provide housing finance, HDFC is giving the following types of loans to individuals:
- For Dwelling houses: Loans are given to individuals, based on their income. Loans are repayable for a maximum period of 20 years.
- Extension of existing houses: Existing small houses could be extended, either by constructing vertically or by extending horizontally.
- Purchase of Land: Purchase of land or plots for constructing houses.
- Repair / Renovation: For undertaking repairs in an existing house or for modernization.
- Large scale construction: For constructing large scale housing, under Group housing or for employees of a particular organization on the basis of collective responsibility.
- Providing housing facility to people belonging to the weaker sections of the society through low-cost hunting, by using hollow-blocks for construction.
Social responsibilities of HDFC
- One of the key activities of HDFC is promoting Shelter Assistance Reserve. It is a multi-purpose development fund with object of promoting projects undertaken by non-government organizations (NGOs), community groups and local bodies.
- Through a geographical coverage, the above fund is utilized for developing assistance in rural, urban and semi-urban areas.
- Community development activity such as health and medical activities, education, women empowerment, child welfare, improving the economic condition of the physically handicapped and mentally disabled persons.
- Undertaking research in infrastructure development, assisting institutional development.
- Helping in the event of natural calamities.
- Environmental issues, issues relating to senior citizens, heritage, sports event for the above mentioned people and animal welfare.
Help for Natural calamities
HDFC has provided housing and infrastructural support to the victims of natural calamities. Through various innovative financial mechanisms, assistance is being given and the loan recovery has been as high as 98% . These loans are utilized as a revolving fund for financing similar housing projects and interest earnings are used for supporting NGOs involved in developmental activities, benefiting households or economically weaker sections.
Subsidiaries promoted by HDFC
The following are the subsidiaries promoted by HDFC –
1. HDFC Bank
2. HDFC Mutual Fund
3. HDFC Standard Life Insurance Company Ltd.
4. HDFC Securities
5. Internet Global Services Ltd.
6. Credit Information Bureau (India) Ltd.
Special Features of HDFC
1. Loans are granted for individuals up to a maximum of Rs. 1 crore repayable within 20 years. This will come under Home extension loan.
2. Home improvement loan can be obtained either individually or jointly. Here also loan is sanctioned upto Rs. 1 crore.
3. Short-term building loan can also be applied for a maximum period of 24 months.
4. HDFC home equity loan is available for the owners of current property. Here, loan is available to a maximum of 50 lakhs and minimum of Rs. 1 lakh. But the market value of the dwelling unit should be at least Rs.10 lakhs.
5. Land purchase loan: Under this, finance is provided for acquiring land with comfortable repayment option.
Conclusion:
HDFC the leading private sector housing finance institution in India has not only gone a long way in providing finance for constructing individual houses but has also helped in creating more employment opportunities.
Unit Trust of India (UTI)
Introduction
On the lines of Investment Trust started in UK, the Indian Government also wanted to promote an investment trust which can attract the savings of middle and lower income group people. In fact, the government wanted to provide the benefits of profits earned by joint stock companies to middle and lower income group people who cannot directly invest in these companies. So in 1964, Unit Trust of India Act was introduced in parliament by the then Finance Minister Sri T.T. Krishnamachari and thus UTI came into existence. It commenced its operations in July 1964. It is the first mutual fund of the country.
Structure and Management of UTI
The Initial capital of UTI was Rs. 5 crores and this was contributed by 5 institutions, namely, RBI, SBI, LIC, Scheduled banks and foreign banks.
The management was entrusted to an independent Board of Trustees which February 1976. All the institutions mentioned were provided representation on the Board of Trustees by UTI. As per the United Trust of India Act, the Chairman of the Board will be appointed by government of India. The board of trustees oversees the general direction and management of the investment trust. The main object will be to invest the funds on commercial principle, keeping in mind the interests of the investors. Since UTI has no share capital, it operates on the basic principle of ‘no profit-no loss’ basis. A nominal amount from the operating profits towards operating expenses.
Investment polices of UTI
1. Prudential Exposure Norms: As per the Act, the investment decisions of UTI are guided by the interest of the investors. Its investments are subjected to prudential exposure norms, i.e., it cannot invest more than 10% of a particular scheme corpus in the equity of any one company.
2. Investment decisions: Investment decisions are backed by inputs from independent groups set up for equity research and investment appraisal.
3. Confidence of inventors : confidence is kept high by periodical publication of the value of units and their purchase price.
4. Liquidly schemes: Liquidly Schemes such as the open-ended funds provide opportunities to the investors to sell their units to UTI and encash them so that they can meet their immediate cash requirements.
5. Reasonable Returns: For the units invested by the public, a reasonable return is assured. UTI has been providing a reasonable return for a long time. It us only in 2002, it could not uphold this principle.
6. Category of investors: The investments opportunities are open to individual investors, trusts, societies, firms, public sector undertakings (PSUs), financial institutional, corporate bodies, Defence Services Fund, banks and NRI investors.
7. Tax Benefits: Certain schemes are meant for people who come under higher income brackets and who can claim tax benefits for the income received from UTI.
8. Government policy of investment: Since UTI is the brain child of the government; it promotes essential industries by investing in their shares and debentures. Transport, electricity and petroleum companies are some of the industries in which UTI has invested the unit funds.
9. Promotion of new companies: By way of promoting new companies, UTI has not only ear-marked certain percentage of its corpus funds, but has also been the underwriter of these companies.
Details of various product varieties open to investors
By way of operating for different categories of investors, UTI offers an ever expanding product range. The range includes the following-
1. Unit Scheme 64: The first product introduced by UTI was ‘United Scheme 64’.
2. Monthly income plan: This scheme is meant for the benefit of regular income needs of retired persons and women.
3. Education: To meet the cost of higher education and career plans for children, ’Children’s college and Career Fund’ was established.
4. Girhalakshmi unit plan: This is mainly meant for future wealth and income needs of women.
5. Retirement benefit plan: This plan is meant for wealth accumulation to meet post retirement income needs.
6. For high net worth investors and liquid funds – Unit Scheme 1995, UTI Bond Fund and UTI Money Market Fund were started.
Investor Mobilization
The main objective of UTI lies in attracting individual investors. Individual household investors account for 99% of UTI inventors’ account and 65% of unit capital of UTI schemes. In order to attract investors, UTI has 67,000 commission-based canvassing agents. These agents are trained to explain the products an provide related service support to investors.
Other developments in mobilizing investors
1. Technology up gradation programme: This involves networking of online computer system in all UTI offices. By this, the quantity of the service will improve.
2. Touch screen kiosk: A touch screen kiosk was inaugurated in October 2001. The kiosk is a small air-conditional room with a computer, wherein by a finger touch, the investors can know more information about UTI schemes, such as NAV, sale, repurchase price, product details and portfolios.
3. Online investor query: Details on the investment made with UTI, interfacing with investor database on various schemes are given, based on browser-based queries.
4. Generic system database: Here, integration with the completed data migration of all the schemes will be made for enabling the investing public to do online financial transactions such as sale, transfer, repurchase etc., of units through the use of personalized smart cards, debited cards and credit cards.
5. Public information through print media: UTI publishes weekly and daily NAV for all its listed schemes offers a prospectus for every scheme. It also publishes half yearly results for all schemes and releases information on portfolio. It is also adhering to the ‘Disclosure’ requirements, specified by SEBI.
Subsidiary Companies of UTI
Along with Investment Trust, UTI has started a number of other companies by way of strengthening the financial services including underwriting. These companies are
1) UTI Bank Ltd, established in 1994 –the first private sector bank under RBI guidelines.
2) UTI Securities Exchanger Ltd, 1994 – the first institutionally sponsored corporate stock broking firm.
3) UTI Investors Services Ltd, 1993 – the first institutionally sponsored Registrar and Transfer agency.
4) UTI Institute of capital Markets, 1989 – the first teaching institute in Asia.
5) UTI Investment Advisory Services Ltd 1988 – the first Indian investment Advisor registered with SEC, USA.
UTI (Transfer of Undertaking and Repeal)bill 2002
The Unit Trust of India (Transfer of Undertaking and Repeal) act replaces the ordinance promulgated earlier to provide for transfer and vest the undertaking, excluding the specified undertaking of the UTI, to the specified company to be formed and registered under the Companies Act, 1956.
This Act also seeks to transfer and vest the specified undertaking of the UTI in the Administrator besides repealing the Unit Trust of India Act, 1963 in order to corporatise the UTI and let it compete in the free market economy.
Conclusion
As stated already, the government has come out with a scheme to bail out Rs.60,000 crores investment funds of UTI by dividing UTI into parts, consisting of
a) Assured Fund ; and b) NAV based.
It is a pity that the first mutual fund of the country has to face such a situation of restructure, owing to its poor financial condition. The main reason for such a situation is the wrong investment policy of the UTI. While private mutual funds are able to function successfully within a short period, UTI with a vast experience has no reason to face such a critical situation. It is time the government took up some serious steps as it involves the savings of middle of middle and lower income group people. In a developing economy, the promotion of a savings and investment for productive purpose is an important role of the government and the government should bear this in mind and act accordingly.
Industrial Development Bank of India (IDBI)
a) Origin
For all the development banks in India, the Apex institution to guide and promote in the field of industrial finance is the Industrial Development Bank of India. This was started initially as a subsidiary bank of RBI in July 1964. But subsequently, by 1976 it became an independent and autonomous bank
b) Capital
The bank was started with initial capital of Rs. 100 crores which was subsequently raised
c) Object
The main objects of IDBI are:
i. To promote rapid and balanced industrial growth in the country
ii. Guiding in the field of industrial refinance by co-ordinating with other promotion of industries.
iii. Providing technical guidance and administrative assistance in the promotion of industries
iv. Undertaking market and investment research for development of industries.
d) Management
The board consists of 14 directories, headed by a chairman. They are represented from different fields of industry.
e) Special Assistance
a) Direct finance
i. Project loan: For any new projects, IDBI grants loan according to the economic, technical, financial and managerial viability of the project.
ii. Underwriting of securities: Banking or any other financial securities will be contributed by IDBI. In addition, the securities of newly promoted companies will also be preferred for underwriting.
iii. Soft loan: Long term loan for the purchase of capital equipment at concessional rate of interest with easy terms of repayment are provided.
iv. Technical development fund loan: For the purpose of modernization, a technical development has been set up which will be used for modeling industrial concerns
v. Equipment finance: For the promotion of power generation and distribution in the country, loans will be given to electrical power generating units. Of late, there is more privatization of electrical power generation companies and the will receive more assistance from IDBI.
b) Indirect finance
(a) Refinancing: Most of the state finance corporations and other financial institutions will receive refinancing facilities from IDBI.
(b) Rediscounting of bills: Bills discounted by commercial banks belonging to industrial houses or industrial concerns will be rediscounted by IDBI.
(c) Providing seed capital to new entrepreneurs: For the benefit of newly started companies, seed capital is provided so that their initial requirements can be me.
f) Institutions promoted by IDBI
IDMI has also promoted
a) Venture capital fund
b) Merchant banking
c) Debenture trusteeship
d) Equipment finance scheme
It has also promoted a separate board for the promotion if small scale industries. Of late, it is concentrating more on sick industrial units as there has been upsurge in sick units the country.
The functioning of IDBI is to be highly appreciated. It is not only responsible for the promotion of industrial units. But it is also responsible for their modernization. IDBI has played a sterling role in improving the condition of sick units and in the promotion of backward areas. If there has been development in the field of infrastructure, ii is mainly due to IDBI. In this way, the industrial growth of the country has been large contributed by IDBI. It has also helped in the promotion of exports.
IndusInd Bank
IndusInd Bank derives its name and inspiration from the Indus Valley civilisation - a culture described by National Geographic as 'one of the greatest of the ancient world' combining a spirit of innovation with sound business and trade practices.
Mr. Srichand P. Hinduja, a leading Non-Resident Indian businessman and head of the Hinduja Group, conceived the vision of IndusInd Bank - the first of the new-generation private banks in India - and through collective contributions from the NRI community towards India's economic and social development, brought our Bank into being.
The Bank, formally inaugurated in April 1994 by Dr. Manmohan Singh, Honourable Prime Minister of India who was then the country’s Finance Minister, started with a capital base of Rs.1,000 million (USD 32 million at the prevailing exchange rate), of which Rs.600 million was raised through private placement from Indian Residents while the balance Rs.400 million (USD 13 million) was contributed by Non-Resident Indians.
A NEW ERA
The merger with the Bank in June 2004 of Ashok Leyland Finance Ltd., among the largest leasing finance and hire purchase companies in India, set in motion a process of consolidation through the combined customer base of the merged entity and its increased geographical penetration. IndusInd Bank has become one of the fastest-growing banks in the Indian banking sector today with its branch network expanding from 61 as on March 31, 2004 to 137 as on March 31, 2006 – reflecting an increase in excess of 125% in 24 months. The Bank has approximately 150 ATMs of its own, and has concluded multilateral arrangements with other banks with a total network of 15,000 ATM outlets. All the outlets of the Bank, including its branches and ATMs, are connected via satellite to its central database that operates on the latest version of IBM’s AS400-720 series hardware and Midas Kapiti (now, Misys) software.
IndusInd Bank’s broad lines of business include Corporate Banking, Retail Banking, Treasury and Foreign Exchange, Investment Banking, Capital Markets, Non-Resident Indian (NRI) / High Net worth Individual (HNI) Banking, and (through a subsidiary) Information Technology.
IndusInd Bank provides multi-channel facilities including ATMs, Net Banking, Mobile Banking, Phone Banking, Multi-city Banking and International Debit Cards. It was one of the first banks to become a part of RBI’s Real Time Gross Settlement (RTGS) system. It has implemented an enterprise-wide risk management system encompassing global best practices in the area of Risk Management, with help from KPMG. This has enabled the Bank to remain in the forefront in complying with the requirements of Basel II. It is the first bank in India to receive ISO 9001:2000 certification for its Corporate Office and its entire network of branches.
With its roots in Indian tradition and emphasis on customer care, IndusInd Bank’s service philosophy is well reflected in the communication tagline “We Care… Dil Se”.
Mission
To emerge as an international bank with traditional roots
To acquire global capabilities
To provide world-class services
To maintain the highest standards of professionalism and integrity
Milestones
Year Business Achievements
2006-07
- Net worth crossed a milestone figure of Rs. 1000 crores at Rs. 1056 crores
- Successful completion of GDR issue of Rs. 145.96 crores
- Business Trunover touched a fugure of Rs 28.700 crores registering a growth of 18.14% over the previous year.
- Network of Branches increased to 170 along with 99 off-site ATMS, thus having presence in over 141 geographical locations spread over 27 States including Union Territories.
- Highest A1+ rating for its Certificates of Deposits by ICRA and Highest P1+ rating for its FDs by CRISIL.
- Bestowed with the prestigious IBA Award for technology implementation (STP).
- Added a number of new business and product lines, viz the launch of Indus GOLD and Indus Gift Card, E-Remittance facility, tie-up with number of Banks for ATM usage, tie-up with Religare Securities to extend Portfolio Management services and Bancassurance tie-up with Aviva Life Insurance
2005-06
- Ranked among the top ten banks in the country in the ET500 list of leading companies in India.
- Rated as “The best among the top 10 private-sector banks” in a survey covering 79 banks conducted by Business Standard in its November 2005 issue. Ranked sixth in the overall list, the Bank was also identified he “Most Efficient Bank” among all banks in India.
- Bestowed “India’s Most Productive Bank” status by a Business Today- KPMG Survey
- Presented “Outstanding Achiever of the Year 2005- Corporate” (Runner up- Banking Technology Award) by IBA, Finance (from Infosys) and TFCI (Trade Fair and Conference International).
- Honoured with the "Award for Corporate social Responsibility (CSR)" at the India Brand summit 2005, Mumbai
2004-05
- Business Turnover crossed Rs. 22000 crores
- Network grew to 115 branches, 9 extension counters and 195 ATMs, spread over 95 geographical locations
- Bestowed with highest ratings for deposits from reputed rating agencies
- Highest rating “P1+” - on Fixed Deposits from CRISIL
- Highest rating “P1+” - on Certificate of Deposits from CRISIL
- Highest rating “F1+” - on Certificate of Deposits from Fitch Ratings India Pvt. Ltd.
- Bank's second International Representative office opened in London.
- 100th Branch opened at Dadar, Mumbai.
- Signed an Agreement with NCDEX as clearing banker.
- Launched International Mahila Card.
2003-04
- Total business volume touches Rs. 19,000 crores.
- Completes 10 years of banking excellence.
- Ashok Leyland Finance merges with the Bank.
- The first Indian Commercial Bank to achieve certification for its “Entire Network of Branches” under the ISO 9001:2000 Quality Management System.
- Launch of Debit Card- International Power Card.
- Bank’s first International Representative Office in Dubai.
- One of the first banks to go live on RTGS platform.
2002-03
- One of th efirst banks to implement the RBI- Electronic Funds Transfer scheme.
2001-02
- Total business volume touches Rs. 14,000 crores. Highest productivity in the Indian banking sector with Rs. 16 crores of business per employee.
2000-01
- Total business volume crosses Rs. 10,000 crores
Bank of Punjab
Established in 1989, in pursuance of The Bank of Punjab Act 1989 and was given the status of scheduled bank in 1994. The Bank of Punjab is working as a scheduled commercial bank with its network of 266 branches at all major business centres in the country. The Bank provides all types of banking services such as Deposit in Local Currency, Client Deposit in Foreign Currency, Remittances, Advances to Business, Trade, Industry and Agriculture. The Bank of Punjab has indeed entered a new era of science to the nation under experience and professional hands of its management. The Bank of Punjab plays a vital role in the national economy through mobilization of hitherto untapped local resources, promoting savings and providing funds for investments. Attractive rates of profit on all types of deposits, opening of Foreign Currency Accounts and handling of Foreign Exchange business such as Imports, Exports and Remittances, Financing, Trade and Industry for working capital requirements and money market operations are some facilities being provided by the Bank. The lending policy of Bank is not only cautious and constructive but also based on principles of prudent lending with maximum emphasis on security. As agriculture is considered as backbone of our economy the Bank of Punjab has introduced "Kissan Dost Agriculture Finance Scheme" to small farmers.
Centurion Bank
1994The company was incorporated on 30th June,1994 and the certificate of Commencement of Business on July 20th. It is promoted as a joint venture between 20th Century Finance Corporation Ltd, and its associates and Keppel Group of Singapore. It has got a network of ten branches. The main equity of the Bank was provided by the promoters, 20th Century Finance Corporation Ltd. & its associates and Keppel Bank of Singapore (now Keppel TatLee Bank Ltd.) through Kephinance Investment (Mauritius) Pte. Ltd.
1995 20th Century Finance Corporation Limited, has been amalgamated with Centurion Bank Limited. The Bank, set up in a fully computerized environment with ATM facility at every branch and Computer networking between branches can indeed claim to be a `Bank with a difference'.
The Bank has introduced, for the first time in the country, the concept of `anywhere banking' which enables to operate the account from any other branch of the Bank.
2005 Boards of Directors of Centurion Bank and Bank of Punjab Ltd on June 29, 2005 approves merger of two banks. The combined bank is now called Centurion Bank of Punjab.
Centurion Bank of Punjab is one of the leading new generation private sector banks in India. The bank serves individual consumers, small and medium businesses and large corporations with a full range of financial products and services for investing, lending and advice on financial planning. It holds leadership positions in the two-wheeler loan and commercial vehicle loan segments, is a strong player in foreign exchange services, personal loans, mortgages, education loans and agricultural loans, and credit cards. Additionally the bank offers a full suite of NRI banking products to overseas Indians. The bank also offers its customers an array of wealth management products such as mutual funds and life and general insurance.
Centurion Bank of Punjab operates on a strong nationwide franchise of 279 branches and 408 ATMs across 143locations and is supported by over 5,000 employees. In addition to being listed on the major Indian stock exchanges, the Bank’s shares are also listed on the Luxembourg Stock Exchange.
Recently Centurion Bank of Punjab has announced a merger with Kochi based Lord Krishna Bank. The banks are awaiting regulatory approval from RBI.
Centurion Bank of Punjab is a new generation private sector bank offering a wide spectrum of retail, SME and corporate banking products and services. It has been among the earliest banks to offer a technology-enabled customer interface that provides easy access and superior customer service.
Centurion Bank of Punjab has a nationwide reach through its network of 393 branches/ECs, 452 ATMs 180 Locations. The bank aims to serve all the banking and financial needs of its customers through multiple delivery channels, each of which is supported by state-of-the-art technology architecture.
Centurion Bank of Punjab was formed by the merger of Centurion Bank and Bank of Punjab, both of which had strong retail franchises in their respective markets. Centurion Bank had a well-managed and growing retail assets business, including leadership positions in two-wheeler loans and commercial vehicle loans, and a strong capital base. Bank of Punjab brings with it a strong retail deposit customer base in North India in addition to a sizable SME and agricultural portfolio.
The shares of the bank are listed on the major stock exchanges in India and also on the Luxembourg Stock Exchange. Among Centurion Bank of Punjab's greatest strengths is the fact that it is a professionally managed bank with a globally experienced and capable management team. The day-to-day operations of the bank are looked after by Mr. Shailendra Bhandari, Managing Director & CEO, assisted by a senior management team, under the overall supervision and control of the Board of Directors. Mr. Rana Talwar is the Chairman of the Board. Some of our major shareholders viz. Sabre Capital, Bank Muscat and Keppel Corporation, Singapore are represented on the Board.
Recent trends in global business
Exports of India are broadly classified into four categories: i) Agriculture and allied products which include coffee, tea, oil, cakes, tobacco, cashew kernels, spices, sugar, raw cotton, rice, fish and fish preparations, meat and meat preparations, vegetable oils, fruits, vegetables and pulses; ii) Ores and minerals include manganese ore, mica and iron ore; iii) Manufactured goods include textiles and ready-made garments, jute manufactures, leather and footwear, handicrafts including pearls and precious stones, chemicals, engineering goods and iron steel; and iv) mineral fuels and lubricants.
There were many reasons why our export effort did match our import requirements:
- The major export items of India were till recently agriculture based and the prices of primary goods generally remained low in the international commodity markets, mainly because the demand of developed countries for these goods was inelastic and partly due to the failure primary goods producing countries acting together.
- The ever-increasing domestic consumption and inadequate export surplus in certain commodities, e.g., sugar, vegetables, meat, etc. The demand for which has been rising;
- Export promotion measures, such as tax and other incentives were found inadequate, particularly in the context of larger incentives provided even by advanced countries like Germany and Japan;
- The policy of protectionism adopted by advanced countries such as U.S.A preventing the full flow of exports from developing countries,
- Long period of business recession in recent years in most developed countries, resulting in sluggish international demand; and
- The unit value of exports has risen much more that the quantum index of exports, shoeing that the increase in the value of exports was partly monetary. But then, the rise in the unit value of imports was much grater then the unit value of exports.
The structure of Indian exports is typical of a developing economy. India has traditionally been an exporter of agricultural raw materials ad allied products. One reason for the relative decline of food, beverages and tobacco in the total exports is the increase in population and consequent increase in domestic consumption of these goods. Accordingly, the export surplus in many traditional commodities like tea has not been increasing as much as the Government would have wished. In this connection, the growing importance of certain products in this category should be noted, i.e., fish and fish products, cashew kernels, coffee and rice. Vegetables and fruits are also growing in importance.
Since 1960, under the impact of industrialization, exports of non-traditional items are gaining in importance. These items consist of engineering goods, handicrafts, which include pearls, precious and semi precious stones and jewellery, iron and steel, iron-ore, chemicals, readymade garments, fish and fish preparations. These goods constitute more than 6 percent of India’s exports now. The fact that some of these non-traditional items – such as engineering goods, handicrafts, ready-mades, etc.-have established themselves in the markets of even the most advanced countries show tat they would continue to be part of India’s exports in the year to come.
The sharp increase in the export of electronic goods and software is really welcome development. The trend needs to be strengthened further.
However, the export of some items is quite disturbing for the country – for instance the export of iron ore and specially iron and steel show the inability of the economy to use basic development goods. On the other hand, the import of iron and steel is much more significant, showing the under utilization of steel capacity created in the country. Thus, the increasing contribution of non traditional items in India’s export has been commendable bit not consistent enough.
We should not however, conclude that only non-traditional items are to the fore and the traditional items have suffered a retreat. Exports of traditional items are also expanding, though probably not to the extent desired. Examples are the respectable growth in cotton fabrics, tea, leather and leather manufactures etc.
Thus the pattern of India’s exports indicates that (a) the Indian economy is being diversified and (b) non-traditional items of exports are growing in importance.
b) The large expansion of engineering goods is partly the result of pick-up in demand in industrial countries and also from the Middle East countries which have undertaken infra-structural projects like roads, ports and rail construction, telecommunication and civil construction.
c) India is now in position to take advantage of both favourable demand situation and attractive price situation in international markets.
d) While some commodities have tremendous exports potential (e.g. handicrafts, engineering goods and ready-mades), others (like sugar, jute, yarn and manufactures, iron and steel) have fluctuated widely.
e) With the announcement of the new agricultural policy, emphasis is being given to boosting the export of agricultural produce. Rice export is gaining importance. Besides this, fruits and vegetables and processed foods are also becoming significant in our exports.
Functions of commercial Banks and global business.
The following are the modern functions of commercial banks.
Global business is developed with the help of modern functions of commercial banks.
1. Teller system
2. ATM system
3. Home banking
4. Green card
5. Factoring
6. Mutual funds
7. Electronic clearing system
8. Gold or platinum card
9. Gold banking
10. e-Banking
1. Teller system: Under this system, when a customer presents a cheque, a counter clerk will make payment immediately. In big metropolitan cities, the bank provides this facility to the customers, so that they need not wait for a long time for withdrawal of money. The counter clerk will have the specimen signature of the customer and updated account card by hid side. As soon as a customer presents a cheque, the banker will be able to make payment immediately. This kind of system is called teller system.
2. ATM – Automatic Teller Machine: Under this system, a customer can withdraw money by using his credit card. The customer who wants to avail ATM facility will be given a code number, which will be kept secret by the customer. On the basis of credit limit, a customer is allowed to draw money from the ATM upto 40% of his credit. When a customer, wants to withdraw money through the ATM, first he has to insert the credit card into the machine. On the computer will have to give the PIN (Personal intelligent number), by pressing the key board of the computer. Then on the screen the amount to be withdrawn will be asked. The customer again uses the machine for informing the amount required. Immediately, currency notes according to his requirements will flow through the machine. Along with this a small chit containing his account number, the amount withdrawn and his balance credit amount available will come out in the form of a print out. Thus, a customer without entering the bank premises can withdraw money even during non-banking hours. As this system does not involve the signature of the customer, it is important for the customer to keep his credit card and the PIN safely. Or else anybody who comes to know of the PIN and who gets hold of the credit card can withdraw money without the knowledge of the customer.
The ATM facility is available in all Metropolitan cities and a customer can withdraw money in any ATM anywhere in the country.
3. Home Banking: Instead of going to the bank for withdrawal of money or for depositing of cheques, a customer can do his banking business by sitting at home. For this purpose, the personal computer of the customer will be connected with the bank’s computer through a network. The customer will have a secret code for operating his account from home. He will instruct the bank for different payments. Similarly, he will also receive credit from his debtors. Thus, in course of time home banking will minimize the use of documents. In fact, even the negotiable instruments’ usage will be minimized. With the development of LAPTOP computer, the customer can even operate his bank account even while traveling by air.
4. Green card: In India, credit card facility is given to the farmers by issue of Green card to them. This will enable them to buy all their inputs by using the Green card. They can buy seeds, fertilizers and pesticides through this card. Thus, the bank is providing credit to the farmers by this Green card.
5. Factoring: Commercial banks in India are undertaking factoring business. Under this, the bills drawn by customers on the buyer will be handed over to the bank for collection. The bank will pay 80% of the value of the bill to the customer and the balance 20% will be paid after realizing the bill from the buyer. For this purpose, the bank will be paid factoring commission. SBI and Canara Bank were two banks which initially started factoring business. Other banks are now undertaking factoring business.
6. Mutual funds: To enable the customers to avail the benefit of investments, banks in India have started mutual funds. The savings of the customers are invested in mutual funds by purchase of units. The bank, after mobilizing the funds, invest the same in various company securities. Every day, the bank will give the value of the units in the form of Net Present Value, which is calculated by the total value of investments divided by the total number of units. This NPV may change according to the fluctuations in the market value. It is the endeavor of every bank to maintain a higher NPV.
7. Electronic Clearing System (ECS): The telephone charges are being paid through this system. The banks are connected to the telephone department through a network by which, the telephone charges of the customers are paid. The customers will present their telephone bills to the bank which intimates electronically to the telephone department and the bills are paid by the bank. The use of computers in the payment of telephone bills is called ECS.
8. Gold or Platinum Card: Generally, customers are given credit card facility through the banks according to their credit worthiness. The purchase of the customers are restricted upto the available credit and once this limit is exhausted, the purchases through credit card will not be ratified and hence the customers will be denied the facility of purchase. But in the case of Gold or Platinum card, this credit limit restriction will not be there. Customers who are very rich, and who have a very high social status will be provided Gold or Platinum card. For this, purpose, the bank will have a detailed investigation of the person for whom the Gold or Platinum card is to be issued. A Gold or Platinum card holder can go to any part of the world for the purchase of valuable items through this card.
9. Gold Banking: It is a scheme introduced in 2000 – 2001 budget year by the Union finance minister and State Bank of India is the first bank in India to introduce Gold Deposit Scheme.
Around 13,0000 tons of gold are estimated to be available in India. Out of 13,000 tons, SBI has initially received 4.54 tons from 3051 individuals. This gold deposit will be used for giving loan to Jewellery industry under Metal (Gold) Loan Scheme by which export of gold jewels will pick up. State Bank of India is setting up a separate subsidiary unit for the purpose of gold banking.
10. e-Banking: e-Banking refers to electronic banking, wherein the entire operations are done by the customer through his computer system by using a code, which maintains secrecy of transactions.
E-Banking
A. Meaning of e-banking:
e-Banks is the electronic bank that provides the financial service for the individual client by means of Internet.
B. Functions of e-bank
At present the personal e-bank system provides the following services:
1. Inquiry about the information of account: The client inquires about the details of his own account information such as the card’s/account’s balance and the detailed historical records of the account and download the report list.
2. Card accounts’ transfer: The client can achieve the fund transfer between his own cards and transfer the fund to another person’s Credit Card in the same city.
3. Bank-securities accounts transfer: The client can achieve the fund transfer between his own bank savings accounts or his own Credit Card account and his own capital account in the securities company. Moreover, the client can inquire about the present balance at real time.
4. The transaction of foreign exchange: The client can trade the foreign exchange, cancel orders and inquire about the information of the transaction of foreign exchange according to the exchange rate given by our bank on net.
5. The B2C disbursement on net: The client can do the real-time transfer and get the feedback information about payment from our bank when the client does shopping in the appointed web-site.
6. Client service: The client can modify the login password, information of the Credit Card and the client information in e-bank on net.
7. Account management: The client can modify his own limits of right and state of the registered account in the personal e-bank, such as modifying his own login password, freezing or deleting some cards and so on.
8. Reporting the loss of the account: The client can report the loss in the local area (not nationwide) when the client’s Credit Card or password is missing or stolen.
C. Types of e-banking
1. Deposits, withdrawals, inter-account transfers and payment of linked accounts at an ATM;
2. Buying and paying for goods and services using debit cards or smart cards without having to carry cash or a cheque book;
3. Using a telephone to perform direct banking – make a balance enquiry, inter-account transfers and pay linked accounts;
4. Using a computer to perform direct banking – make a balance enquiry, inter-account transfers and pay linked accounts.
D. Advantages of e-banking
The following are the important benefits of e-banking
1. Account Information: Real time balance information and summary of day’s transaction.
2. Fund Transfers: Manage your Supply-Chain network, effectively by using our online fund transfer mechanism. We can effect fund transfer on a real time basis across the bank locations.
3. Request: Make a banking request online.
4. Account Information: The complete database that the bank has about out company is available to us at our terminal. It provides us:
(i) Current balance in our account on real-time basis.
(ii) Day’s transactions in the account.
(iii) Details of cash credit limit, drawing power, amount utilized, etc.
5. Downloading of account statements as an excel or text file. The statements can be integrated with your ERP system for auto-reconciliation.
6. Fund Transfers: Manage our Supply-Chain network, effectively by using our online fund transfer mechanism. We can effect fund transfer on a real time basis across the bank locations. The product facilitates:
(a) One-to-one fund transfer between two linked account.
(b) Bulk fund transfers: In bulk fund transfers, we upload a flat file containing payment/collection information. Our systems take care of processing the entire file and once the file is processes we can integrate the processed file to our ERP for auto reconciliation.
7. The real life situation of user-wise limits and multilevel signatories can be mapped in the net-based fund transfer module too. We can specify user-wise cap for funds transfer and the number of approvals needed for each fund transfer. The fund transfer will not take place unless the required number of signatories has approved it.
8. With a Power of Attorney from our dealers, we can link the dealer’s accounts to our account in order to have an online fund transfer, saving us time and money involved with cheque collection systems. Alternatively, the dealer can credit our account through this channel. Similarly, we could also effect vendor and other payments online.
9. Customers can also submit the following requests online: Registration for account statements by e-mail either daily / weekly/ fortnightly/ monthly basis.
(i) Stop payment of cheque
(ii) Cheque book replenishment
(iii) Demand Draft/ Pay-order
(iv) Opening of fixed deposit account
(v) Opening of Letter of credit
10. The company does not have to spend anything extra to avail such facilities. All it requires is an Internet connectivity. The product enables the company to pro-actively manage its cash flows, ease reconciliation efforts as well as the MIS is available at the click of the mouse.
11. Customer can Integrate the System with his Own ERP: The customer can download the account statements either as a text file or as an excel file. The bank can help him in integrating the account statements and bulk payment files with hid ERP system. The Bank may charge a nominal fee depending upon the nature of work involve.
12. Bill Payment through Electronic Banking: Internet has thus ushered the concept of any time any anywhere banking. To the individual the onerous task of visiting several places to settle his service bills like telephone, water, electricity etc., can be overcome through the electronic Bill Pay service provided by the bank. He can pay his regular monthly bills (telephone, electricity, mobile phone, insurance, etc.) right from his desktop. No more missed deadlines, no more loss of interest. He can schedule his bills in advance, and thus avoid missing the bill deadlines as well as earn extra interest on his money.
13. The Electronic Shopping Mall: The customer can also make his shopping payment through the Bank’s secure website-so that he can shop online any security worries, as the bank can provide online real time shopping mail services through partner shopping sites.
14. Effecting Personal Investments through Electronic Banking: The bank’s website can also the customer to invest in shares, mutual funds and other financial products.
15. Trading in Shares:
(i) Cash Trading. This is a delivery based trading system, which is generally done with the intention of taking delivery of shares or monies.
(ii) Margin Trading. Customers can also do an intra-settlement trading normally up to 4 times his available funds, wherein he can take long buy/ short sell positions in stocks with the intention of squaring off the position within the same settlement cycle.
(iii) Spot Trading. When looking at an immediate liquidity option, ‘Cash on Spot’ may work the best for him. On selling shares through “cash on spot”, money is credited to his bank a/c the same evening and not on the exchange payout data. This money can then be withdrawn form any of the Bank’s ATMs.
(iv) The customer can also trade directly at the recognized stock exchanges of the country through his bank.
16. Investing in Mutual funds: Electronic banking also brings the customer the same convenience while investing in Mutual funds – Hassle free and Paperless Investing. He can invest in mutual funds without the hassles of filling application forms or any other paperwork. He needs to provide no signatures or proof of identify for investing. Once he places a request for investing in a particular fund, there are no manual processes involved. His bank funds are automatically debited or credited while simultaneously crediting or debiting his unit holdings.
17. Trade in Derivations: Trade in derivatives includes the following:
(i) Futures. Through electronic banking the customer can also trade in index and stock futures on the approved stock exchange. In futures trading, he takes buy / sell positions in index or stock(s) contracts having a longer contract period of up to 3 months.
(ii) Options. An option is a contract, which gives the buyer the right to buy or sell shares at a specific price, on or before a specific date. For this, the buyer has to pay to the seller some money, which is called premium. There is no obligation on the buyer to complete the transaction if the price is not favorable to him. To take the buy / sell position on index / stock options, he has to place certain percentage of order value as margin. With options trading, he can leverage on his trading limit by taking buy / sell positions much more than what he could have taken in cash segment.
18. Initial Public Offers Online: The customer could also invest in initial public offers online without going through the hassles of filling ANY application form / paperwork. Get in-depth analyses of new initial public offer issues, which are about to hit the market and analysis on these. Initial public offer calendar, recent initial public offer listings, prospectus / offer documents, and initial public offer analysis are few of the features, which help a customer to keep on the initial public offers markets.
There can be no end to the variety of services that can be provided through the electronic channel by banks and financial institutions. Every Institution is trying constantly to innovate and offer new products to woo the customer. The benefit to the customer on account of the Internet is that he is able to know at a time the types of facilities being provided by different Institutions and he is able to make the best choice suited for his needs.
The benefit to the employee is equally amazing. From being earlier a dumb worker filling up forms and copy from books, he is now a regular service provider and one who directly cares for the customer. Earlier he was dealing with particular process, but today he handles customer’s demands, which are functions for the bank / financial institution. In turn the knowledge resources required of him has grown and he is able to secure the same through better training and other organizational development programms like organizing work groups and functional teams, where persons with different skills and qualifications pool their knowledge and carry out high-tech services and operations.
19. Other benefits: The e-banking provides some other benefits also. They are:
(i) Convenience.
(ii) Speed of concluding transactions.
(iii) Speed – banking form own home.
(iv) Economy – banking without visiting your bank.
(v) Cheaper service fees.
(vi) Seamless Integration with existing environment (IDM – Intelligent Data Module).
(vii) Highly Scaleable.
(viii) Easy Customization
(ix) Lower Costs of both Installation and Maintenance.
(x) Platform Independence.
(xi) Round – the – Clock and Cross – Border Availability.
(xii) Remote Authorization.
E. Limitation of e-banking
1. Safely situations around ATMs.
2. Abuse of bank cards by fraudsters at ATMs.
3. Danger of giving your card number when buying on-line.
The modern technology has influenced the financial sector to a large extent. It increases the competitive efficiency of the firms and provides sophistication to the end users. It makes everyone fittest to survive.
Computerization of Bank Branches
The reforms in the 1990s, which led to expansion, consolidation and liberalization of the banking and financial sector in India, brought in many changes and challenges. A number of private and foreign players entered the Indian market with superior technologies that helped them service their customers efficiently through multiple channels such as ATMs and online banking. Indian banks on the other hand have been using IT more out of compulsion and primarily for transaction processing. They now need to adopt IT to reposition banks into the integrated financial services market.
The need for providing improved customer service, reducing transaction costs and increasing productivity, shall be the main drivers for Banking sector to adopt IT. These considerations are particularly important for public sector banks in India, who are facing immense competition form private and foreign banks. IT can help them move from the present scenario where they are working as isolated islands to providing a centralized banking experience. There is a need today for IT and the financial community to come together and develop customized IT solution to make the Indian Banking sector globally competitive.
IT adoption in the banking sector will provide real time availability of transaction processing through multiple channels. It would enhance a bank’s ability to cross sell products, ensure better management and security and safety of funds and increase efficiency through integration of systems across various locations. It would also ensure efficient management of Non Performing Assets (NPAs), minimize transaction costs, enhance ability to conduct in-depth financial analysis and gather business intelligence. Enhanced use of IT would also encourage the use of Internet to provide access for online bill payments, funds transfers and e-statements in addition to encouraging wireless mobile banking and e-commerce.
With growing competition faced by foreign banks and financial institutions, the public sector banks in co-operation with the Indian IT industry would need to equip themselves for the next phase of introducing the benefits of IT to their customers by providing a centralized banking solution.
Opportunity for Indian Banking sector in branch computerization
1. IT Networking
2. System Integration and Management
3. Customer Relationship Management (CRM) Applications
4. Back Office Processing and Call Centres
5. Data warehousing / Data mining
6. Mobile and e-banking.
Computerization of Banks In India
E-commerce and e-banking are the buzz words in the global commercial activities today. E-banking or Electronic banking refers to conducting activities with the help of information technology (IT) and computers.
Computerization of banking functions in India was resisted by labour unions for fear of loss of job opportunities. Secondly, computerization needs IT savvy personnel which require intensive technical training. Thirdly, computerization needs heavy capital outlay for purchases of machines. Fourthly, to have effective computerization of banks a large number of bank branches situated in rural areas need to be connected. Telecommunication facility at rural areas is slow to reach. For the reasons mentioned above, computerization made a slow entry in Indian banks.
Credit card
Credit card originated in the Unite States during 1920s when individual companies such as hotel chains and oil companies began issuing them to customers for purchase made at their business unit. The use increased after Second World War. Diners Club introduced the first universal credit card that can be used at a variety of stores businesses. In 1958 , the American Express company established another universal card called ‘Don’t leave home without it’. It is only after such developments, bank credit came into existence
What is credit card?
A credit card is given by the banker to the customer in which the name of the customer is embossed in block letters. The name of the bank and the date of issue and expiry are also mentioned on the face of the card. The reverse side of the card will bear the specimen signature of the customer. A list of vendors or sellers will be given by the banker to the customers.
A credit card is a thin plastic card, usually 3 1/8inches × 2 1/8 inches in size that contains identification information such as signature or picture or both and authorize the person named on it to charge for purchase or services to his account. In addition to this, the card can be used in automated teller machines (ATM) for withdrawing cash an the machine stores the information and also transactions through electronic date processing system.
Working of credit Card System
The customers can use the credit card for purchasing goods and availing services from the various shopkeepers. When the customer makes a purchase in a shop, instead of making payment, he/she produces the card at the cash counter. The seller examines validity of the card through a machine, which ratifies the sale. The bill is made in there copies. The customer is given the bill in which his/her signature is obtained. The sale becomes complete. A copy of the bill on which is given to the third copy is retained by the seller. The bank, on receiving various such bills of the customers, will prepare consolidated bill and send it to the customer at the end of the month. The customer will make a single payment to the bank or allow the bank to debit his/her account. In every bill, the due date of payment will be given. If a customer fails to pay within the due date, interests will be added on the purchase. It is also not necessary that the customer should pay full payment of the bill as he/she can make part payment and settle the bill in due course. However, the customer will have to pay interest for the balance amount outstanding. If payment is made for all the purchases, the customer is allowed to avail fresh credit.
Credit limit: A credit limit is fixed based upon the income of the customer. The customer can make purchase only upto credit limit fixed by the card issuer. Once payment is made by the customer, the credit limit will once again revolve to the original amount.
The sellers can avail the facility of sale through credit card by paying to the credit card establishment, a fixed amount. The sellers agree to this, as the use of credit cards by customers enhances their sale. On receipt of payment from customers the sellers account will be credited.
Types of Cards:
There are different types of cards available.
- Change card
- Debit card
- Deferred Debit card
- Affinity card
- Standard card
- Classic card
- Gold card
- Platinum card
- Best platinum card
- Fleet platinum credit card
- Next card platinum card
- Titanium card
- Secured card
- Smart card
Change card: In this card, the cardholder has to make full payment of the charge by the due date. Unlike other credit cards, here dues are not allowed to carry forward. It is meant for people who spend responsibly.
Debit card: A debit card is different from credit card. Debit card is issued by a bank.
The following are the differences between credit and debit cards.
1. A credit card is issued by an agency such as Master or Visa.
|
1. A debit card is issued by a bank in which the card opener has his account
|
2. A credit card allows certain period for making payment for the purchase made which may vary from 30 to 45
|
2. The bank account in a debit is debited immediately the moment the card is used. So, there is no credit period.
|
3. The credit worthiness of the customer is based on income eligibility criteria on the basis of which the credit card is issued
|
3. There is no such income criteria but the credit balance, maintained in the account is the criterion.
|
4 A credit card holder has a ceiling limit for his purchases and also for his cash withdrawals through ATM
|
4. A debit card holder has his purchases restricted to his credit balance.
|
5. Credit card can be used for withdrawing money only from ATMS
|
5. A debit car can be used even for with drawing money form the bank mobile ATM
|
6. When the purchase are made by using the credit card, the retail seller swipes the card, the retail seller swipes the card over an electronic terminal at his outlet, and enters the personal identification number (PIN) and the transactions are recorded by the card issuing
|
6. Any use of debit card by a similar method will be immediately recorded by the bank and the account of the customer is debited. Thus, it is an online transaction.
|
7.Loss of credit card should be reported to the issuing agency
|
7. Loss of debit card should be reported to the issuing bank
|
Deferred debit card: When a debit card carries the benefit of the credit card, allowing the payment after certain period, it is called deferred debit card.
Affinity card: A card offered by two organizations of which one is a lending institution and the other a non financial group. Here, schools, non profit groups, airlines, petroleum companies issue affinity cards. These cards carry special discounts.
Standard card: It is a normal credit card which carries limit on transactions, according to the credit worthiness of the card holder.
Classic card: A credit card issued by Visa, carrying the logo of Visa.
Gold card: A higher line of credit is given than a standard card. The income eligibility for getting this card is higher. Gold card is given to very rich customers or persons with high social status.
Platinum card: In order to distinguish credit cards belonging to certain companies, platinum credit cards are issued. Some companies use these to denote their best premium credit card.
Best Platinum credit card: Companies which set highest standard in customer service issue these cards. There is lowest interest rate for the out standings, and the cards will have no annual fee or application fee and can be applied online in seconds.
Fleet Platinum credit card: It is zero liability guarantee for purchases. It protect the credit card holder from any unauthorized use.
Next card platinum credit card: This is given to those with a good credit and it offers a low introductory rate.
Titanium card: A card which has a higher credit limit than a platinum card.
Secured card: A credit card is given to a card holder who has saving deposit which will take care of his outstanding balance, in case of his default on payment.
Smart card: The revolution in information technology is responsible for the invention of smart card.
No comments:
Post a Comment