This document provides a comparative analysis of five commercial banks in India over six years by analyzing changes in their cash reserve ratio (CRR) and statutory liquidity ratio (SLR). It begins with an acknowledgement and introduction to banking and what CRR and SLR are. It then provides quantitative and qualitative measures used in the analysis, including profiles of State Bank of India, Punjab National Bank, ICICI Bank, Canara Bank, and Bank of Baroda. The document concludes with a comparative analysis of these five banks' lending performances with changes in CRR and SLR over the six-year period.
This document provides a comparative analysis of five commercial banks in India over six years by analyzing changes in their cash reserve ratio (CRR) and statutory liquidity ratio (SLR). It begins with an acknowledgement and introduction to banking and what CRR and SLR are. It then provides quantitative and qualitative measures used in the analysis, including profiles of State Bank of India, Punjab National Bank, ICICI Bank, Canara Bank, and Bank of Baroda. The document concludes with a comparative analysis of these five banks' lending performances with changes in CRR and SLR over the six-year period.
This document provides a comparative analysis of five commercial banks in India over six years by analyzing changes in their cash reserve ratio (CRR) and statutory liquidity ratio (SLR). It begins with an acknowledgement and introduction to banking and what CRR and SLR are. It then provides quantitative and qualitative measures used in the analysis, including profiles of State Bank of India, Punjab National Bank, ICICI Bank, Canara Bank, and Bank of Baroda. The document concludes with a comparative analysis of these five banks' lending performances with changes in CRR and SLR over the six-year period.
I would like to express my thanks of gratitude to my teacher
Ms. Sarika aggarwal and our principal Ms. Sangeeta sekhon for giving me this golden opportunity to make this wonderful project about the lending performances of five commercial banks based on the changes in CRR and SLR in six years, this project helped me learn more about the banks we deal with in our day to day life. Secondly, I would like to thank my family and friends who helped me finish this project within the limited time period, I would not have been able to complete this project without their support. CONTENTS •INTRODUCTION 1. BANKING 2. CRR AND SLR •TYPES OF BANKS •QUANTITATIVE AND QUALITATIVE MEASURES •STATE BANK OF INDIA •PUNJAB NATIONAL BANK •ICICI BANK •CANARA BANK •BANK OF BARODA •CONCLUSION •BIBLIOGRAPHY INTRODUCTION BANKING: Banking is an industry that handles cash, credit, and other financial transactions. Banks provide a safe place to store extra cash and credit. They offer savings accounts, certificates of deposit and checking accounts. Banks use these deposits to make loans. These loans include home mortgages, business loans, and car loans. Banks are a safe place to deposit excess cash. The Federal Deposit Insurance Corporation insures them. Banks also pay a small percent, the interest rate, on the deposit. Banks can turn every one of those saved dollars into $10. They are only required to keep 10 percent of each deposit on hand. That regulation is called the reserve requirement. Banks lend the other 90 percent out. They make money by charging higher interest rates on their loans than they pay for deposits. In recent years, banking has become very complicated. Banks have ventured into sophisticated investment and insurance products. This level of sophistication led to the banking credit crisis of 2007. CRR AND SLR: CRR and SLR are the two ratios. CRR is a cash reserve ratio and SLR is statutory liquidity ratio. Under CRR a certain percentage of the total bank deposits has to be kept in the current account with RBI which means banks do not have access to that much amount for any economic activity or commercial activity. Banks can’t lend the money to corporates or individual borrowers, banks can’t use that money for investment purposes. So, that CRR remains in current account and banks don’t earn anything on that. Let us look at this combination of CRR and SLR. That is the amount of money which remains blocked for statutory reasons and is not available for investment in various other high earning avenues like loans are securities markets or other bonds. That means it puts a certain amount of pressure on the banks balance sheets. However, at the same time that money remains safe and with that mechanism RBI also offers safety to the depositors who have invested money in the banks. TYPES OF BANKS Commercial Banks Commercial banks are the banks that accept money in the form of deposits from the public and give loans and advances to its customers by charging interest. They mobilize small savings and promote the growth of trade and commerce. Generally, commercial banks lend money for a short period only. They only provide working capital to the organizations. But in recent times commercial banks are providing long-term capital also to the organizations. There are several types of deposits which are accepted by the commercial banks like ⦿ Savings Deposits ⦿ Current Deposits ⦿ Fixed Deposits ⦿ Seasonal Deposits ⦿ Recurring Deposits, etc The Commercial banks give different types of loans and advances to the businessmen like ⦿ Cash Credits ⦿ Overdrafts ⦿ Loans ⦿ Discounting Bills Co-operative Banks Co-operative Banks are the banks that usually provide short term, medium term, long term credit to agricultural purposes. Co-operative Banks also provides loans to small-scale artisans. Co-operative Banks usually provide credit facilities to farmers, small-scale industries, etc at a cheaper rate of interest. Co-operative Banks are mainly situated in rural areas and can also be seen in urban areas. Central Bank Every country has its own Central Bank. The Central bank aims at non-profit functioning. It regulates the monetary and credit system of the country. Central Bank acts as controller, supervisor, and regulator of the activities of commercial banks and other financial institutions in the country. The Central bank is considered as the apex institution of the country’s money market. Functions of Central Bank ⦿ Note issue ⦿ Credit control ⦿ It acts as a banker to the banks ⦿ It acts as a banker to the government ⦿ It maintains the foreign exchange reserves of the country ⦿ It maintains the Gold reserves of the country Industrial Banks Industrial banks are also called as Investment Banks. Industrial banks provide long-term loans to the industries. Industries require long-term capital for buying machinery, construction of buildings, expansion of operations, etc. Agricultural Banks Agricultural Banks are the banks which provide agricultural credit to the farmers. The Agricultural Development Banks provide medium term and long term credit. Some examples of Agricultural Banks in India are Agricultural Finance Corporation, Agricultural Refinance and Development Corporation, National Bank for Agricultural and Rural Development (NABARD).Agricultural Banks are established by the government to promote agricultural credit in the country. Savings Bank Savings Banks mainly concentrates on the mobilization of savings of the people. In India Post offices run by Postal department act as savings banks. Since Commercial banks are providing these facilities of savings banks to the public, the need for separate savings bank is fading. Foreign Exchange Banks Foreign Exchange Banks are the banks which provide finance for foreign trade. These banks accept deposits from the public. Foreign Exchange Banks are specialized banks in providing credit for the foreign trade. These banks usually have their branches in foreign countries for uninterrupted functioning of their services. But in recent times commercial banks are also financing foreign trade. Exchange Banks Exchange Banks are the banks which operate by financing the imports and exports of the country. These banks are mainly concerned with providing foreign exchange to their customers and help to promote international trade. They also offer to discount of foreign bills of exchange to their customers. Private Bankers Private Bankers are the individuals who do banking business individually or as a partnership. It is purely an unorganized sector. Most of the private bankers do not receive or accept any deposits from the public, they do banking business with their own capital. They lend money to the people for high-interest rates. Chit Funds There are chit funds in India. They provide finance to trade and commerce. However, they cannot be called as banks in the regular sense. The Chit fund business is very large in a country like India. it is also an unorganized sector in India. QUANTITATIVE AND QUALITATIVE MEASURES (A) Quantitative Instruments or General Tools The Quantitative Instruments are also known as the General Tools of monetary policy. These tools are related to the Quantity or Volume of the money. The Quantitative Tools of credit control are also called as General Tools for credit control. They are designed to regulate or control the total volume of bank credit in the economy. These tools are indirect in nature and are employed for influencing the quantity of credit in the country. The general tool of credit control comprises of following instruments. 1. Bank Rate Policy (BRP) The Bank Rate Policy (BRP) is a very important technique used in the monetary policy for influencing the volume or the quantity of the credit in a country. The bank rate refers to rate at which the central bank (i.e. RBI) rediscounts bills and prepares of commercial banks or provides advance to commercial banks against approved securities. It is "the standard rate at which the bank is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under the RBI Act". The Bank Rate affects the actual availability and the cost of the credit. Any change in the bank rate necessarily brings out a resultant change in the cost of credit available to commercial banks. If the RBI increases the bank rate than it reduce the volume of commercial banks borrowing from the RBI. It deters banks from further credit expansion as it becomes a more costly affair. Even with increased bank rate the actual interest rates for a short term lending go up checking the credit expansion. On the other hand, if the RBI reduces the bank rate, borrowing for commercial banks will be easy and cheaper. This will boost the credit creation. Thus any change in the bank rate is normally associated with the resulting changes in the lending rate and in the market rate of interest. However, the efficiency of the bank rate as a tool of monetary policy depends on existing banking network, interest elasticity of investment demand, size and strength of the money market, international flow of funds, etc. 2. Open Market Operation (OMO) The open market operation refers to the purchase and/or sale of short term and long term securities by the RBI in the open market. This is very effective and popular instrument of the monetary policy. The OMO is used to wipe out shortage of money in the money market, to influence the term and structure of the interest rate and to stabilize the market for government securities, etc. It is important to understand the working of the OMO. If the RBI sells securities in an open market, commercial banks and private individuals buy it. This reduces the existing money supply as money gets transferred from commercial banks to the RBI. Contrary to this when the RBI buys the securities from commercial banks in the open market, commercial banks sell it and get back the money they had invested in them. Obviously the stock of money in the economy increases. This way when the RBI enters in the OMO transactions, the actual stock of money gets changed. Normally during the inflation period in order to reduce the purchasing power, the RBI sells securities and during the recession or depression phase she buys securities and makes more money available in the economy through the banking system. Thus under OMO there is continuous buying and selling of securities taking place leading to changes in the availability of credit in an economy. However there are certain limitations that affect OMO viz; underdeveloped securities market, excess reserves with commercial banks, indebtedness of commercial banks, etc. 3. Cash in the Reserve Ratios (CRR) The Commercial Banks have to keep a certain proportion of their total assets in the form of Cash Reserves. Some part of these cash reserves are their total assets in the form of cash. Apart of these cash reserves are also to be kept with the RBI for the purpose of maintaining liquidity and controlling credit in an economy. This reserve ratio is named as Cash Reserve Ratio (CRR). The CRR refers to some percentage of commercial bank's net demand and time liabilities which commercial banks have to maintain with the central bank. In India the CRR by law remains in between 3-15 percent. Qualitative Instruments or Selective Tools ↓ The Qualitative Instruments are also known as the Selective Tools of monetary policy. These tools are not directed towards the quality of credit or the use of the credit. They are used for discriminating between different uses of credit. It can be discrimination favouring export over import or essential over non-essential credit supply. This method can have influence over the lender and borrower of the credit. The Selective Tools of credit control comprises of following instruments. 1. Fixing Margin Requirements The margin refers to the "proportion of the loan amount which is not financed by the bank". Or in other words, it is that part of a loan which a borrower has to raise in order to get finance for his purpose. A change in a margin implies a change in the loan size. This method is used to encourage credit supply for the needy sector and discourage it for other non-necessary sectors. This can be done by increasing margin for the non-necessary sectors and by reducing it for other needy sectors. Example:- If the RBI feels that more credit supply should be allocated to agriculture sector, then it will reduce the margin and even 85-90 percent loan can be given. 2. Consumer Credit Regulation Under this method, consumer credit supply is regulated through hire-purchase and instalment sale of consumer goods. Under this method the down payment, instalment amount, loan duration, etc is fixed in advance. This can help in checking the credit use and then inflation in a country. 3. Publicity This is yet another method of selective credit control. Through it Central Bank (RBI) publishes various reports stating what is good and what is bad in the system. This published information can help commercial banks to direct credit supply in the desired sectors. Through its weekly and monthly bulletins, the information is made public and banks can use it for attaining goals of monetary policy. 4. Credit Rationing Central Bank fixes credit amount to be granted. Credit is rationed by limiting the amount available for each commercial bank. This method controls even bill rediscounting. For certain purpose, upper limit of credit can be fixed and banks are told to stick to this limit. This can help in lowering banks credit expoursure to unwanted sectors. 5. Moral Suasion It implies to pressure exerted by the RBI on the Indian banking system without any strict action for compliance of the rules. It is a suggestion to banks. It helps in restraining credit during inflationary periods. Commercial banks are informed about the expectations of the central bank through a monetary policy. Under moral suasion central banks can issue directives, guidelines and suggestions for commercial banks regarding reducing credit supply for speculative purposes. STATE BANK OF INDIA State Bank of India (SBI) is an Indian multinational, public sector banking and financial services company. It is a government-owned corporation headquartered in Mumbai, Maharashtra. The company is ranked 216th on the Fortune Global 500 list of the world's biggest corporations as of 2017. It is the largest bank in India with a 23% market share in assets, besides a share of one-fourth of the total loan and deposits market. The bank descends from the Bank of Calcutta, founded in 1806, via the Imperial Bank of India, making it the oldest commercial bank in the Indian subcontinent. The Bank of Madras merged into the other two "presidency banks" in British India, the Bank of Calcutta and the Bank of Bombay, to form the Imperial Bank of India, which in turn became the State Bank of India in 1955. The Government of India took control of the Imperial Bank of India in 1955, with Reserve Bank of India (India's central bank) taking a 60% stake, renaming it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. PUNJAB NATIONAL BANK Punjab National Bank, India’s first Swadeshi Bank, commenced its operations on April 12, 1895 from Lahore, with an authorised capital of Rs 2 lac and working capital of Rs 20,000. Far-sighted visionaries and patriots Lala Lajpat Rai, Mr. E.C. Jessawala, Babu Kali Prasono Roy, Lala Harkishan Lal and Sardar Dyal Singh Majithia displayed courage in giving expression to the spirit of nationalism by establishing the first bank purely managed by Indians with Indian Capital. During the long history of the Bank, 7 banks have merged with PNB. The Bank’s brand image and trust reposed by its customers have been reflected in the growing customer base and rising business graph of the Bank. Domestic Business of the Bank has crossed the milestone of Rs.10 lakh crore and the Bank continues to maintain its forte in low cost CASA deposits. The Bank has been able to reach out to its customers across the nation with nearly 7000 branches, of which nearly 62% branches are in Rural and Semi Urban Areas (RU-SU). MISSION PARIVARTAN, a transformational exercise for Business Excellence is currently underway to enhance Efficiency, Productivity and Profitability for long term sustenance and giving the Bank an edge over its competitors. An independent ‘THINK TANK’ named ‘Mission Parivartan Division’ has been formed to initiate, implement and drive change through improvement inPeople, Products and Processes.This will enable Bank to continue to serve the customers with the enhanced vigour and zeal to live upto its tagline “the name you can Bank upon”. ICICI BANK ICICI Bank Limited (Industrial Credit and Investment Corporation of India) is an Indian multinational banking and financial services company headquartered in Mumbai, Maharashtra. In 2014, it was the second largest bank in India in terms of assets and third in term of market capitalisation. It offers a wide range of banking products and financial services for corporate and retail customers through a variety of delivery channels and specialised subsidiaries in the areas of investment banking, life, non-life insurance, venture capital and asset management. The bank currently has a network of 4867 branches and 14417 ATMs across India and has a presence in 19 countries including India. ICICI Bank is one of the Big Four banks of India which is also considered in the industry as Too big to fail. The bank has subsidiaries in the United Kingdom and Canada; branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar, Oman, Dubai International Finance Centre, China and South Africa; and representative offices in United Arab Emirates, Bangladesh, Malaysia and Indonesia. The company's UK subsidiary has also established branches in Belgium and Germany. ICICI Bank launched internet banking operations in 1998. In 2008, following the 2008 financial crisis, customers rushed to ICICI ATMs and branches in some locations due to rumours of an adverse financial position of ICICI Bank. The Reserve Bank of India issued a clarification on the financial strength of ICICI Bank to dispel the rumours CANARA BANK Canara Bank is one of the largest public sector banks owned by the Government of India. It is headquartered in Bengaluru. It was established at Mangalore in 1906 by Ammembal Subba Rao Pai. It is one of the oldest public sector banks in the country. The government nationalized the bank in 1969. As of 30 October 2017, the bank had a network of 6639 branches and more than 10600 ATMs spread across all over India. The bank also has offices abroad in London, Hong Kong, Moscow, Shanghai, Doha, Bahrain, South Africa, Dubai, Tanzania and New York. Ammembal Subba Rao Pai, a philanthropist, established the Canara Hindu Permanent Fund in Mangalore, India, on 1 July 1906.The bank changed its name to Canara Bank Limited in 1910 when it incorporated. Canara Bank's first acquisition took place in 1961 when it acquired Bank of Kerala. This had been founded in September 1944 and at the time of its acquisition on 20 May 1961 had three branches. The second bank that Canara Bank acquired was Seasia Midland Bank (Alleppey), which had been established on 26 July 1930 and had seven branches at the time of its takeover. The Government of India nationalised Canara Bank, along with 13 other major commercial banks of India, on 19 July 1969. In 1976, Canara Bank inaugurated its 1000th branch. In 1985, Canara Bank acquired Lakshmi Commercial Bank in a rescue. This brought Canara Bank some 230 branches in northern India. BANK OF BARODA Bank of Baroda (BoB) is an Indian state-owned International banking and financial services company headquartered in Vadodara (earlier known as Baroda) in Gujarat, India. It has a corporate office in Mumbai. Based on 2017 data, it is ranked 1145 on Forbes Global 2000 list. BoB has total assets in excess of ₹ 3.58 trillion (making it India’s 2nd biggest bank by assets), a network of 5538 branches in India and abroad, and 10441 ATMs as of July, 2017.The government of India announced the merger of Bank of Baroda, Vijaya Bank and Dena Bank on September 17, 2018 to create the country's third largest lender. The envisaged amalgamation will be the first-ever three-way consolidation of banks in the country, with a combined business of Rs 14.82 lakh crore, making it the third largest bank after State Bank of India (SBI) and ICICI Bank. The bank was founded by the Maharaja of Baroda, Maharaja Sayajirao Gaekwad III on 20 July 1908 in the Princely State of Baroda, in Gujarat. The bank, along with 13 other major commercial banks of India, was nationalised on 19 July 1969, by the Government of India and has been designated as a profit-making public sector undertaking (PSU). As many as 10 banks have been merged with Bank of Baroda during its journey so far. CONCLUSION Wednesday, 18 November 2015 Impact of Changes in the Cash Reserve Ratio and Statutory Liquidity Ratio on the volume of loans and advances made by commercial Banks: The data provided below in table 1 indicates the changes in the CRR and SLR during the last few years and that in table 2 indicates the advances made by the commercial banks. Table 1: As on CRR As on SLR 8-12-2006 5.5% 25-10-1997 25% 10-11-2007 7.5% 8-11-2008 24% 30-08-2008 9% 7-11-2009 25% 17-01-2009 5% 19-12-2010 24% 24-04-2010 6% 11-08-2012 23% 10-03-2012 5.5% 31-10-2013 22.5% 22-09-2012 4.75%
31-10-2012 4.25% Advances made by commercial banks(Rs in crore) Table 2:
Bank 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
State 4,16,768 5,42,503 6,31,914 7,56,719 8,67,579 10,45,61
Bank of 6 India Punjab 1,19,502 1,54,703 1,86,600 2,42,107 2,93,775 3,08,725 National Bank ICICI 2,25,616 2,18,219 1,81,206 2,16,366 2,53,728 2,90,249 Bank Canara 1,07,238 1,38,219 1,69,335 2,11,268 2,32,490 2,42,177 Bank Bank of 1,06,701 1,43,251 1,75,251 2,28,676 2,87,377 3,28,186 Baroda BIBLIOGRAPHY •www.wikipedia.com •www.sbi.in •www.pnb.in •sunilgurung79.blogspot.com •www.managementparadise.com •www.thehindubusinessline.com