Organisation Study-Sib free essay sample

The South Indian Bank is one of the earliest banks in South India. It has become a major player in banking. It has its operations all over the country and promises to deliver the experience of next generation banking. The business of SIB is growing at higher rate both in respect of deposits and advances. SIB offers a variety of loans for different categories of people. It extends two types of credit facilities to their corporate customers. The first type known as Working capital finance is extended to meet the day to day short term operational requirements of the borrower. The second type of finance in the form of short term and medium term loans is provided to customers to meet the long term capital requirements for setting up the new project, expansion and diversification of the existing project and so on. It is the funds of depositor? s i. e. , the general public that are mobilized by means of advances. Thus it is extremely important for the bank to assess the risk associated with the credit. The process of credit rating begins when the customer approaches the bank and applies for credit. The SIB has a special department called the Integrated Risk Management Department (IRMD). The branch forwards the application to the Regional Office which initially conduct a rating and sent for evaluation to IRMD. Based on the parameters set by the Board of SIB, the IRMD analyses the details and rates the prospective customer. If the bank finds the customer eligible, the loan is sanctioned. The South Indian Bank has a comprehensive credit management policy which was tailored to fall in line with the banking guidelines issued by the Reserve Bank of India. The study is based on the credit rating process of loans in South Indian Bank. Finance today, holds the key to all human activity. It consists of raising, providing and managing of all money, capital or fund of any type to be used in connection with the business. Banks being money transacting enterprises require finance as „raw material? for manufacturing the finished goods i. e. , Credit. The upswing in the Indian economy, the younger population, the low penetration of banking services in the country and the host of other factors, the Indian banking sector today stands on the threshold of exponential growth. Without a sound and effective banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India? s banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitan in India. In fact, Indian banking system has reached even to the remote corner of the country. This is one of the main reasons of India? s growth process. According to PricewaterhouseCoopers (PwC) report, India could become the third largest banking hub in the world by 2040. 3 Banking in India Banking in India originated in the last decades of 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origin back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After Indias independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969, the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Origin The word „bank? is derived from the Greek word Banque or Italian word Banco. Both means a bench at which money lenders and money changers used to display their coins and transacts their business in market lace. As per Section 5(b) of Banking Regulation Act, 1949, banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, and order or otherwise. Currently, India has 96 scheduled commercial banks, 27 public sector banks, 31 private banks and 38 foreign banks. They have a combined network of over 55. 000 branches and 44,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 70% of total assets of the banking Industry, with the private and foreign banks holding 20. % and 9. 8% respectively. Early History At the end of late 18th century, there were hardly any banks in India in the modern sense of the term. With large exposure to speculative ventures, most of the banks opened in India during that period could not survive and failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. At the beginning of the 20th century, Indian economy was passing through a relative period of stability. Around five decades have elapsed since the Indias First war of Independence, and the social, industrial and other infrastructure have developed. At that time there were very small banks operated by Indians, and most of them were owned and operated by particular communities. The banking in India was controlled and dominated by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank of Madras which later on merged to form the Imperial Bank of India, and Imperial Bank of India, upon Indias independence, was renamed as the State Bank of India. There were also some Exchange banks, as also a number of Indian joint stock banks. All these banks operated in different segments of the economy. 4 The Presidency banks were like the central banks and discharged most of the functions of central banks. They were established under charters from the British East India Company. The exchange banks, mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the Presidency banks, and the Exchange banks. There was potential for many new banks as the economy was growing. Lord Curzon had observed then in the context of Indian banking: In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments. Under these circumstances, many Indians came forward to set up banks, and many banks were set up at that time, a number of which have survived to the present such as Bank of India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank. Post-Independence The partition of India in 1947 had adversely impacted the economies of Punjab and West Bengal, and banking activities had remained paralyzed for months. Indias independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included: ? In 1948, the Reserve Bank of India, India? s central banking authority was nationalized, and it became an institution owned by the Government of India. ? In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) to regulate, control, and inspect the banks in India. ? The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a licence from the RBI, and no two banks could have common directors. Nationalization By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Mrs. Indira Gandhi, the-then Prime Minister of India expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled Stray thoughts on Bank Nationalization. † The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the Government of India issued an ordinance and nationalized the largest commercial banks with effect from the midnight of July 19, 1969. Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of 5 Undertaking) Bill, and it received the presidential approval on 9th August, 1969. After the nationalization of banks in India, the branches of the public sector banks rose approximately to 800% in deposits and advances took a huge jump by 11,000%. †¢ 1955: Nationalization of State Bank of India. †¢ 1959: Nationalization of SBI subsidiaries. †¢ 1969: Nationalization of 14 major banks. †¢ 1980: Nationalization of 7 banks with deposits over 200crore. Liberalization In the early 1990s, the then government headed by Mr P V Narasimha Rao embarked on a policy of liberalization and gave licenses to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as Global Trust Bank which later amalgamated with Oriental Bank of Commerce, Axis Bank (earlier as UTI Bank), ICICI Bank, HDFC Bank etc. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.