06-09-2012, 12:28 PM
CREDIT APPRAISAL FOR WORKING CAPITAL FINANCE TO SMEs AT SBI
BELGAUM
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NEED FOR THE STUDY
Lending continues to be a primary function in banking. In the liberalized Indian economy, clientele have a wide choice. External Commercial Borrowings and the domestic capital markets compete with banks. In another dimension, retail lending- both personal advances and SME advances- competes with corporate lending for funds and for human resources. But lending by nature cannot be an aggressive selling activity, disregarding the risks involved. Bank has to be competitive without compromising on the basic integrity of lending. The quality of the Bank’s credit portfolio has a direct and deep impact on the Bank’s profitability.
INDUSTRY PROFILE
With the Indian economy clipping at 9 per cent, consumption levels soaring and investment riding high, the Indian banking sector is on an upswing.
According to the Annual Statement on Monetary Policy for the year 2007-08 released by the Reserve Bank of India (RBI), the Indian economy has witnessed robust growth during 2006-07 for the fourth year in succession. The Central Statistical Organization (CSO) estimates that the real Gross Domestic Product (GDP) growth has accelerated from 9.0 per cent in 2005-06 to 9.2 per cent in 2006-07. The CSO’s estimates for 2005-06 places gross domestic savings (GDS) above 32 per cent of GDP and gross domestic investment (GDI) close to 34 per cent.
India could become the third largest banking hub in the world by 2040, according to a PricewaterhouseCoopers (PwC) report.
The potential banking market waiting to be tapped in India is fairly huge. Out of the 203 million Indian households, three-fourths, or 147 million, are in rural areas and 89 million are farmer households. In this segment, 51.4 per cent have no access to formal or informal sources of credit, while 73 per cent have no access to formal sources of credit. Similar data is not available for non-farm and urban households.
Given the huge potential, corporate houses like the Tatas and Reliance - Anil Dhirubhai Ambani Group, besides several others, are said to be interested in having a slice of the banking pie.
Retail banking
Following the trend in other emerging economies, India is experiencing a boom in retail banking. Drawn by the promise of huge returns in this sector, a number of foreign banks are falling over each other to acquire a slice of the banking pie. A year and a half ago, Deutsche Bank launched its retail operations in India. Earlier, another German company BHW Holding AG positioned itself in this space by taking over Birla Home Finance Ltd. Now there are 29 foreign banks have a presence in India through their 268 branches. In May 2007, the 300-year old Barclays Plc followed suit. Besides credit cards, its retail foray will be in the personal loan segment. These late entrants join the ranks of Citibank India, HSBC, ICICI Bank and HDFC Bank Ltd that have aggressively begun tapping this business.
In May 2007, the retail portfolio of the Indian banking sector was US$ 111.7 billion or around 11 per cent of India’s gross domestic product of US$ 1 trillion. Such loans accounted for 26 per cent of total non-food gross bank credit in the country as on May 25, 2007 and increased by 23.9 per cent on a year-on-year basis over May 26, 2006 after growing at 30 per cent for three years in a row. Mortgages or housing loans account for more than half of the retail portfolio and grew at a sizzling pace of 40 per cent plus during the last three years.
Rural banking
In October 2007, ABN Amro Bank announced its micro finance division has succeeded in providing basic financial support to some 500,000 underprivileged households in India. The
Dutch bank’s micro finance portfolio is now US$ 50.8 million and the bank plans to double the coverage to a million households by 2009. It’s a profitable business that achieved break-even in the first year itself.
Bank of Baroda is working on similar lines and has adopted Dungarpur district in Rajasthan. Dungarpur, consisting of 800 villages, has a population of more than 1.1 million. The bank plans to set up more than 400 farmers’ clubs for expert advice on agricultural and financial issues and form 300 new self-help groups, organise health camps and train more than 4,000 rural youth for employment generation.
Last year, the Chennai-based Indian Bank adopted Puducherry for extending banking services. State Bank of India Ltd, the country’s largest commercial bank, is now drawing up plans to reach out to 100,000 villages.
Mergers and acquisitions
According to a PricewaterhouseCoopers (PwC) report, the banking sector in developing economies led by China and India is likely to overtake banks in the currently richest countries of the world by 2050. China and India show the greatest growth potential through organized growth and merger and acquisition (M&A) activities, PWC said.
M&As volume in India's banking space increased to US$ 10.5 billion between January and September 2007 with 38 deals. In comparison, the sector had witnessed 23 deals worth US$ 707 million last year, according to a report by global data provider Dealogic.
Investment banking
Investment banks operating in India have earned nearly as much in the first half of 2007 as they made throughout fiscal 2006-07 from underwriting stock offerings and advising on takeovers.
PROFILE OF STATE BANK OF INDIA
The origins of State Bank of India date back to 1806 when the Bank of Calcutta (later called the Bank of Bengal) was established. In 1921, the Bank of Bengal and two other Presidency banks (Bank of Madras and Bank of Bombay) were amalgamated to form the Imperial Bank of India. In 1955, the controlling interest in the Imperial Bank of India was acquired by the Reserve Bank of India and the State Bank of India (SBI) came into existence by an act of Parliament as successor to the Imperial Bank of India.
Today, State Bank of India (SBI) has spread its arms around the world and has a network of branches spanning all time zones. SBI's International Banking Group delivers the full range of cross-border finance solutions through its four wings - the Domestic division, the Foreign Offices division, the Foreign Department and the International Services division.
State Bank of India is the nation's largest bank. Tracing its roots back some 200 years to the British East India Company (and initially established as the Bank of Calcutta in 1806), the bank operates more than 14,000 branches within India, where it also owns majority stakes in seven associate banks. State Bank of India has more than 50 offices in nearly 35 other countries,
including multiple locations in the US, Canada, and Nigeria. The bank has other units devoted to capital markets, fund management, factoring and commercial services, and brokerage services. The Reserve Bank of India owns about 60% of State Bank of India
State Bank of India (SBI) is India's largest commercial bank. SBI has a vast domestic network of over 9000 branches (approximately 14% of all bank branches) and commands one-fifth of deposits and loans of all scheduled commercial banks in India.