PROJECT REPORT ON THE ROLE AND IMPACT OF

THE BANKING SECTOR OVER THE INDIAN

EONOMY

Bachelor of Commerce (Banking & Insurance)

Semester (V)
(2019-2020)

Submitted By
CELESTE KATE CABRAL 03

Project Guide
PROF. BAIJUL MEHTA

Mithibai College of Arts, Chauhan Institute of Science &

Amruthben Jivanlal College of Commerce and
Economics

Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna

Nagar, Vile Parle (W), Mumbai, Maharashtra 400056
 “THE ROLE AND IMPACT OF THE BANKING
SECTOR OVER THE INDIAN EONOMY”

Bachelor of Commerce (Banking & Insurance)

Semester (V)

Submitted
In Partial Fulfillment of the requirements
For the Award of Degree of
Bachelor of Commerce (Banking & Insurance)

By:
CELESTE KATE CABRAL
Roll No.: 03

Mithibai College of Arts, Chauhan Institute of Science &

Amruthben Jivanlal College of Commerce and
Economics

Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna

Nagar, Vile Parle (W), Mumbai, Maharashtra 400056
 ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so
numerous, and the depth is so enormous.

I would like to acknowledge the following as being idealistic channels

and fresh dimensions in the completion of this project.

I take this opportunity to thank Mithibai College for giving me chance

to do this project.

I would like to thank my Principal, Dr. Rajpal Shripat Hande for

providing the necessary facilities required for completion of this
project.

I take this opportunity to thank our Head of Department Mr.Vinay

Jadav, for his moral support and guidance.

I would also like to express my sincere gratitude towards my project

guide Asst. Prof. Mrs. Baijul Mehta whose guidance and care made
the project successful

Lastly, I would like to thank every person who directly or indirectly

helped me in the completion of the project especially my Parents and
Peers who supported me throughout my project.
 DECLARATION

I, Celeste Kate Cabral the student of T.Y.B.B.I. Semester V (2019-

2020) hereby declare that I have completed the project on “The Role
and Impact of the Banking Sector over the Indian
Economy”.

The information submitted is true and original to the best of my

knowledge.

_____________________
Celeste Kate Cabral
Roll No.: 03

Mithibai College of Arts, Chauhan Institute of Science & Amruthben

Jivanlal College of Commerce and Economics

Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna Nagar, Vile

Parle (W), Mumbai, Maharashtra 400056
 CERTIFICATE

This is to certify that Ms. Celeste Kate Cabral, Roll No: 03 of Third
Year B.B.I., Semester V (2019-2020) has successfully completed the
project on

THE ROLE AND IMPACT OF THE BANKING

SECTOR OVER THE INDIAN EONOMY
under the guidance of Asst. Prof. Mrs. Baijul Mehta.

Project Guide/ Internal Examiner Principal

(Asst. Prof. Mrs. Baijul Mehta)

External Examiner
Abstract:
Without a sound and effective banking system, no country can ever have a healthy economy.
In the modern economic system, banks play a very important role in economic development
of country. They collect the surplus savings of the people and make them available for
investment. They also create new demand deposits in the process of granting loans and
purchasing investment securities. They facilitate trade both inside and outside the country.
Commercial banks are an important part of the financial system of the country. As per the
Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalized and well-
regulated. The financial and economic conditions in the country are far superior to any other
country in the world. Indian banking industry has recently witnessed the roll out of
innovative banking models like payments and small finance banks. RBI’s new measures may
go a long way in helping the restructuring of the domestic banking industry. This research
paper is related to the study of the role and impact of the banking sector over the Indian
economy as India’s Banking System is no longer confined to the metropolitans; it has reached
the backward and rural corners of the country as well. To identify the impact of the banking
sector over the economic development of the country and the penetration of banking services
and products into the masses and corporates, I have tried to survey people from all walks of
life.
 INDEX

SR.NO. CONTENTS PAGE NO.

1 INTRODUCTION

2 REVIEW OF LITERATURE

3 NEED OF THE STUDY

4 OBJECTIVES OF THE STUDY

5 FORMULATION OF HYPOTHESIS

6 SCOPE OF THE STUDY

7 RESEARCH DESIGN/ METHODOLOGY

8 FINDINGS AND DATA ANALYSIS

9 LIMTATIONS OF THE STUDY

10 CONCLUSION

11 SUGGESTIONS AND RECOMMENDATIONS

BIBLIOGRAPHY

ANNEXURE 1.1 - QUESTIONNAIRE

 1. INTRODUCTION

1.1 Introduction to the Indian Economy:

The journey of Indian economy has been promising as the economic growth trajectory
increased from steady during 1960s to 1990s to strong in 2000s and fastest in the 2010s. The
advent of economic reforms has not only enhanced the economic growth, but also provided a
conducive and promising business environment to the citizens of India.
The economy of India is a developing mixed economy. It is the world's sixth largest economy
by nominal GDP and the third-largest by purchasing power parity. The country is poised to
become US$ 5 trillion economy by 2025 as envisioned by Indian Prime Minister Narendra
Modi that requires securing 9 percent average annual economic growth rate till then.

GDP Growth Rate ( in percentage)

9
8
7
6
5
4 GDP Growth Rate ( in
3 percentage)
2
1
0
1960s 1970s 1980s 1990s 2000s 2010-2019 Last Five
Years

During the last five years, a broad based strength in the economic indicators have been
observed as the growth rate of real GDP has increased from 6.4% in FY2014 to 7.2% in
FY2019.At present, India ranks 139th in per capita GDP (nominal) and 119th in per capita
GDP (PPP) as of 2018. After the 1991 economic liberalisation, India achieved 6%-7%
average GDP growth annually. Since 2014, India's economy has been the world's fastest
growing major economy, surpassing China.
The long-term growth perspective of the Indian economy is positive due to its young
population, English proficiency, corresponding low dependency ratio, healthy savings and
investment rates, and increasing integration into the global economy.
1.2 Introduction to the Meaning of Banks:

What is a Bank?
A bank is a financial institution which deals with deposits and advances and other related
services. It receives money from those who want to save in the form of deposits and it lends
money to those who need it. It is a financial institution which performs the deposit and
lending function. A bank allows a person with excess money (saver) to deposit his money in
the bank and earn an interest rate. Similarly, the bank lends to a person who needs money
(investor/borrower) at an interest rate. Thus, banks act as intermediaries between the saver
and the borrower. The bank usually takes a deposit from the public at a much lower rate
called deposit rate and lends the money to the borrower at a higher interest rate called lending
rate.

Definition of a Bank
Oxford Dictionary defines a bank as "an establishment for custody of money, which it pays
out on customer's order."
As per Section 5(b) of the 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, order or otherwise.

Types of Banks
Some of the most common banks are listed below. Some banks work in multiple areas (for
example, a bank might offer personal accounts, business accounts, and even help large
enterprises raise money in the financial markets).

 Commercial banks: These banks play the most important role in modern economic
organisation. Their business mainly consists of receiving deposits, giving loans and
financing the trade of a country. They provide short-term credit, i.e., lend money for short
periods. This is their special feature. They focus on business customers. Businesses need
checking and savings accounts just like individuals do, but they also need more complex
services. They might need to accept payments from customers, rely heavily onlines of
credit to manage cash flow, and they might use letters of credit to do business overseas.

 Central bank: is an institution that manages the currency, money supply, and interest
rates of a state or formal monetary union, and oversees their commercial banking system.
In contrast to a commercial bank, a central bank possesses a monopoly on increasing
the monetary base in the state, and also generally controls the printing/coining of the
national currency, which serves as the state's legal tender. A central bank also acts as
a lender of last resort to the banking sector during times of financial crisis. Most central
banks also have supervisory and regulatory powers to ensure the solvency of member
institutions, to prevent bank runs, and to discourage reckless or fraudulent behaviour by
member banks. Central banks in most developed nations are institutionally independent
 from political interference. For example, the Federal Reserve Bank is the US central bank
responsible for managing economic activity and supervising banks.

 Investment banks: help businesses work in financial markets. If a company wants to go

public, borrow a significant amount, or sell debt to investors, they often use an investment
bank.

 Online banks operate entirely online – there are no physical branch locations to talk with
a teller or personal banker. Many brick-and-mortar banks also offer online services, such
as the ability to view accounts and pay bills online, but internet-only banks are different:
they often offer competitive rates on savings accounts and they’re likely to offer free
checking.

 Industrial Banks: There are a few industrial banks in India. But in some other countries,
notably Germany and Japan, these banks perform the function of advancing loans to
industrial undertakings. Industries require capital for a long period for buying machinery
and equipment. Industrial banks provide this type of Mock capital. Industrial banks have
a large capital of their own. They also receive deposits for longer periods. They are thus
in a position to advance long-term loans. In India, the Central Government set up an
Industrial Finance Corporation of India (IFC1) in 1948. Its activities have since then been
greatly enlarged. Further the States have also set up State Financial Corporations. The
Central Government has also established the Industrial Credit and Investment Corporation
of India (ICICI) and the National Industrial Development Corporation for the financing
and promotion of industrial enterprises. In 1964 the Industrial Development Bank of India
(1DBI) was established as the apex or top term-lending institution. These new institutions
fill important gaps in our system of industrial finance.

 Agricultural or Co-operative Banks: The main business of agricultural banks is to

provide funds to farmers. They are worked on the co-operative principle. Long-term
capital is provided by land mortgage banks, nowadays called land-development banks,
while short-term loans are given by co-operative societies and co-operative banks. Long-
term loans are needed by the farmers for purchasing land or for permanent improvements
on land, while short-period loans help them in purchasing implements, fertilizers and
seeds. Such banks and societies are doing useful work in India.

 Savings and loans are less prevalent than they used to be, but they are still important.
This type of bank was important in making home ownership mainstream, using deposits
from customers to fund home loans. These banks perform the useful service of collecting
small savings. Commercial banks too run “savings departments” to mobilize the savings
of men of small means. The idea is to encourage thrift and discourage hoarding. Post
Office Saving Banks in India are doing this useful work.

 Retail banks: are probably the banks you’re most familiar with. Your checking and
savings accounts typically come from a retail bank or credit union, which focuses on
consumers (or the general public) as customers. These banks provide credit cards, they
offer loans, and they’re the ones with numerous branch locations in populated areas.
1.3 HDFC Bank

HDFC Bank Limited is the largest Indian private sector banking and financial services
company headquartered in Mumbai. It was incorporated in 1994. Its first corporate office was
inaugurated by the then Union Finance Minister, Manmohan Singh. HDFC Bank provides a
large variety of financial services and products: wholesale banking, retail banking, treasury,
auto loans, personal loans, credit cards etc. It has 5,103 branches across 2,748 cities and
98,061 employees as on March 2019 and it has an overseas presence in locations like Dubai,
Bahrain, Abu Dhabi, Kenya and Hong Kong.

1.3.1 Milestones in the History of HDFC Bank

1995

 HDFC Bank receives banking license

In 1994, Housing Development Finance Corporation (HDFC) received an ‘in principle’
approval from the RBI to set up a private sector bank. Incorporated in August 1994 as
‘HDFC Bank Limited’, we received our banking license in January 1995.

 Listed on BSE, NSE

After a long and arduous listing process, HDFC Bank was listed on the Bombay Stock
Exchange in May 1995 at Rs. 39.95. We were listed on the National Stock Exchange in
November.

 IPO 55 times oversubscribed

In March 1995, HDFC Bank launched its first IPO of Rs. 500 million (50,000,000 equity
shares at Rs. 10 each at par). Despite much skepticism, the market lapped up the issue and
we recorded 55 times oversubscription. Within two months of this IPO issue, the Bank’s
shares were quoted at 300 per cent premium.

1999

 Times Bank Merger

In a landmark deal, Times Bank was merged with HDFC Bank – it was the first friendly
merger in the banking industry and the first done through a share swap deal.

 Online Real-Time Net banking

In 1999, HDFC Bank began its digital journey by launching its online, real-time Net
Banking and within 15 days of the launch over 1,000 customers had registered for the
service.
 2000

 First bank in India to launch mobile banking

All that a customer needed to do is send a text to know the account balance, get a mini
statement, request a cheque book, or get a detailed account statement. It was the first bank
to SMS-based mobile banking

2001

 Listed on NYSE
On July 20, 2001, HDFC Bank listed on the New York Stock Exchange after an initial
public offer of its American Depositary Shares (ADS) of US $172.5 million. Each ADS,
representing three underlying shares, was priced at $13.83. On the day of the ADS listing,
the Bank’s shares closed at Rs. 225 on the Bombay Stock Exchange.

 First private bank to be authorised to collect income tax

HDFC Bank became the first private sector bank to be authorised to collect Income Tax
for Central Government. It is today the second largest collector of Income Tax in India.

2002

 Depository Services and Custodial Services

In 2002, HDFC Bank got ISO 9001 certification for its Depository and Custodial
operations and for its backend processing of retail operations and direct banking
operations.

2003 – 2004

 Credit card launched in over 100 cities, touching 1 million users

By July 2004, HDFC Bank became the first bank in the country to offer credit cards in
over 100 cities. It initially launched its offering in over 40 cities. These were cards in three
categories – the HDFC Bank international Silver credit card, international Gold credit card
and the Health Plus international credit card. The last one being India’s first credit card
with free in-built cashless mediclaim.

2008

 Centurion Bank of Punjab merged

HDFC Bank approved the acquisition of Centurion Bank of Punjab for Rs. 9,510 crore
($ billion), in one of the largest mergers in the financial sector in India. The combined
entity had a nation-wide network of 1,148 branches, the largest inthe private sector.
 2013 – 2014

 Became the market leader in issuing credit cards

We became the largest issuer of credit cards in the country – over 5.5 million outstanding
credit cards at the end of October 2014, according to Reserve Bank of India data.

2015

 Largest number of mobile banking transactions

With about 55 percent of all transactions being conducted via digital channels, our Bank
logged Rs. 3,540 crore worth of transactions or a total Rs. 8,40 worth of digital banking
transactions.

2016

 Launched loans at ATMs

Introduced Loans at ATMs as the country’s first innovation to turn ATMs into Loan
Dispensing Machines (LDMs), further extending the functionality of the Bank’s ATMs.
Customers can get the loan amount credited directly into their account within seconds by
completing four simple steps.

2017

 IRA launched
The first-of-its-kind interactive humanoid IRA was launched by our Bank under the
‘Project AI’. IRA, which stands for Intelligence Robotic Assistant, combines robotics and
AI to provide enhanced customer assistance.

 EVA Chatbot introduced

India’s first AI-based chatbot for customer service, EVA, can handle millions of customer
queries across multiple channels in real time. It removes the need to search, browse or call
and becomes smarter as it learns through cutomer transactions. EVA has also been
integrated with Google Assistant, making it available on millions of Android devices, as
well as on Google Home.

 MOU with government to financially empower rural india

In a landmark initiative, HDFC Bank will offer its world-class financial experience
(products and services) in close to 2 lakh villages with the help of CSC’s 3 lakh village-
level entrepreneurs. CSC e-Governance Services India is a Special Purpose Vehicle (CSC
SPV) incorporated under the Companies Act, 1956. It provides a centralised a
collaborative framework for delivery of services to citizens through Common Services
Centres.
1.3.2 Products and Services offered by HDFC Bank

Wholesale Banking

 Commercial Banking:

• Working Capital: Range of customized working capital loans for smooth business
operations.
• Letters of Credit: Import financing through Letters of Credit, which are well accepted
globally and supported by a strong trade finance set-up.
• Guarantees: Issues various types of guarantees - performance, financial, bid bond, tenders
etc.
• Term Loans

 Transactional Banking:

• Cash Management: Eliminates idle cash balances, reduces risks, ensures the timely deposit
of collections.
• Correspondent Banking: Rupee accounts, collection and realization of bills, inward and
outward remittances in major international currencies and INR.
• Tax Collections: Online payment

 Investment Banking:

• Debt Capital Markets: has lead managing, underwriting and placement of listed/unlisted
Non-Convertible Debentures and Structured Bonds and providing capital solutions to
clients.
• Equity Capital Markets: structure and execute equity financings for private and public
corporates through a variety of offerings like IPOs, FPOs, Rights Issues, Private
Placements, Buybacks.
• Project Finance: project level advisory, assessment, financing and capital raising through
Term loans and/or bonds in sectors like Power and renewable Energy, Telecom,
Transportation
• M&A and advisory
 Retail Banking

 Deposit Products:

• Savings Accounts
• Current Accounts
• Fixed/ Recurring Deposits
• Corporate Salary Accounts
• Demat Account

 Loan Products:

• Personal Loans
• Home Loans
• Credit Cards
• Car Loans
• Two and Three Wheeler Loans
• Agri and Tractor Loans
• Construction Equipment Finance
• Loans Against Assets
• Education Loans
• Kisan Gold Card

 Other Products:

• Depository Services
• Mutual Funds
• Private Banking
• Insurance (Life, General)
• Debit Cards
• Bill Payment Services
• Foreign Exchange Services

1.3.3 Financial Health of HDFC Bank ( 5 Year Analysis )

A few key indicators that determine a banks financial health are:

1. Profit After Tax: It is the earnings of a business after all income taxes have been
deducted. This amount is the final, residual amount of profit generated by an
organization or a company. The profit after-tax figure is considered the best measure
of the ability of an entity to generate a return, since it incorporates both operating
income and income from other sources, such as interest income.

The graph given below shows the banks PAT over a period of 5 years. HDFC Bank’s net
profit for the year ended March 31, 2019 was Rs. 21,078.1 crore, up 20.5% over the year
ended March 31, 2018. It is observed that there is a consistent growth in the PAT over the
last 5 years, around 20%.
 Profit After Tax (Crores)
25000

20000

15000

10000

5000

0
FY15 FY16 FY17 FY18 FY19

2. CASA Ratio: stands for current and savings account ratio. CASA ratio of a bank is the
ratio of deposits in current and saving accounts to total deposits. A higher CASA ratio
indicates a lower cost of funds, because banks do not usually give any interests on current
account deposits and the interest on saving accounts is usually very low 3-4%.

If a large part of a bank's deposits comes from these funds, it means that the bank is
getting those funds at a relative lower cost. It is generally understood that a higher CASA
ratio leads to higher net interest margin. In India, it is used as one of the metrics to assess
the profitability of a bank.

In FY19 the savings account deposits in HDFC Bank amounted to Rs. 248,700 crore. The
current account deposits amounted to Rs. 142,498 crore. Therefore, the CASA deposits
comprised 42.4% of total deposits as of March 31, 2019.

CASA %
50
48
46
44
42
40
38
FY15 FY16 FY17 FY18 FY19
3. Non Performing Assets: A non performing asset (NPA) refers to a classification for loans
or advances that are in default or are in arrears on scheduled payments of principal or
interest. In most cases, debt is classified as nonperforming when loan payments have not
been made for a period of 90 days.

The gross non-performing assets in HDFC Bank were at 1.36% of gross advances as on
March 31, 2019, as against 1.30% as on March 31, 2018. The net non-performing assets
were at 0.39% of net advances as on March 31, 2019. It is observed that there has been a
marginal growth in the gross non performing assets of HDFC Bank in the last 5 years.

NON-PERFORMING ASSETS
Gross NPA% Net NPA%

1.36
1.3
1.05
0.94
0.93

0.39
0.33

0.4
0.28
0.25

FY15 FY16 FY17 FY18 FY19

4. Net Interest Income (NIM): is a measure of the difference between the interest income
generated by banks or other financial institutions and the amount of interest paid out to
their lenders, relative to the amount of their (interest-earning) assets. It is usually
expressed as a percentage of what the financial institution earns on loans in a time period
and other assets minus the interest paid on borrowed funds divided by the average amount
of the assets on which it earned income in that time period. The core net interest margin
for the year ended March 31, 2019 was 4.3%. The NIM has been consistent for 4 years.
 NIM %
4.7
4.6
4.5
4.4
4.3
4.2
4.1
FY15 FY16 FY17 FY18 FY19

5. Net Interest Income (NII): It is the financial performance measure that reflects the
difference between the revenue generated from a bank's interest-bearing assets and
expenses associated with paying on its interest-bearing liabilities. A typical bank's
assets consist of all forms of personal and commercial loans, mortgages,
and securities. The liabilities are interest-bearing customer deposits. The excess
revenue that is generated from the interest earned on assets over the interest paid out
on deposits is the net interest income.

For the year ended March 31, 2019, the bank earned a total income of Rs.116,597.9
crore. The net revenue (net interest income plus other income) for the year ended
March 31, 2019 was Rs. 65,869.1 crore, up by 19.1% over Rs. 55,315.2 crore for the
year ended March 31, 2018. Growth in NII has been consistent over the last 5 years
around 20%

NII (Crores)
60000
50000
40000
30000
20000
10000
0
FY15 FY16 FY17 FY18 FY19
6. Market Capitalization: Market capitalization refers to the total dollar market value of a
company's outstanding shares. Commonly referred to as "market cap," it is calculated by
multiplying a company's shares outstanding by the current market price of one share.
HDFC Bank is the largest bank in India by market capitalization. The market
capitalization on March 31, 2019 was Rs. 6,30,853.98 crore which was up by 28.52% over
Rs. 490848.39 crore as on March 3018.

Market Cap (Crores)

700000
600000
500000
400000
300000
200000
100000
0
FY14 FY15 FY16 FY17 FY18 FY19

7. P/B Ratio: Companies use the price-to-book ratio to compare a firm's market to book
value by dividing the price per share by book value per share (BVPS). A lower P/B ratio
could mean the stock is undervalued. However, it could also mean something is
fundamentally wrong with the company. As with most ratios, this varies by industry. The
P/B ratio also indicates whether you're paying too much for what would remain if the
company went bankrupt immediately.

P/B Ratio
5
4
3
2
1
0
FY14 FY15 FY16 FY17 FY18
8. Return on Asset (ROA) and Return on Equity(ROE): ROA for the year ended n
March 31, 2017 was 1.8%. It remained consistent till the end on FY18. ROE for the year
ended on March 31, 2018 was 18%. The ROE has remained consistent since FY16.

Return On Asset %
2
1.9
1.8
1.7
1.6
1.5
FY14 FY15 FY16 FY17 FY18

Return On Equity %
23
21
19
17
15
FY14 FY15 FY16 FY17 FY18
1.4 Overview of the Banking Sector in the Indian Economy:

The banking industry handles finances in a country including cash and credit. Banks are the
institutional bodies that accept deposits and grant credit to the entities and play a major role
in maintaining the economic stature of a country. Given their importance in the economy,
banks are kept under strict regulation in most of the countries. In India, the Reserve Bank of
India (RBI) is the apex banking institution that regulates the monetary policy in the country.
The Indian banking system consists of 27 public sector banks, 21 private sector banks, 49
foreign banks, 56 regional rural banks, 1,562 urban cooperative banks and 94,384 rural
cooperative banks, in addition to cooperative credit institutions (FY17 data).

As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised and
well-regulated. The financial and economic conditions in the country are far superior to any
other country in the world. Credit, market and liquidity risk studies suggest that Indian banks
are generally resilient and have withstood the global downturn well.

Indian banking industry has recently witnessed the roll out of innovative banking models like
payments and small finance banks. RBI’s new measures may go a long way in helping the
restructuring of the domestic banking industry. The digital payments system in India has
evolved the most among 25 countries with India’s Immediate Payment Service (IMPS) being
the only system at level 5 in the Faster Payments Innovation Index (FPII).

Investments/developments:

 As of September 2018, the Government of India launched India Post Payments Bank (IPPB)
and has opened branches across 650 districts to achieve the objective of financial inclusion.
 The total value of mergers and acquisition during 2017 in NBFC diversified financial
services and banking was US$ 2,564 billion, US$ 103 million and US$ 79 million
respectively.
 The biggest merger deal of FY17 was in the microfinance segment of IndusInd Bank
Limited and Bharat Financial Inclusion Limited of US$ 2.4 billion @.
 In May 2018, total equity funding's of microfinance sector grew at the rate of 39.88 to Rs
96.31 billion (Rs 4.49 billion) in 2017-18 from Rs 68.85 billion (US$ 1.03 billion) #.

Government Initiatives:

 As of September 2018, the Government of India has made the Pradhan Mantri Jan Dhan
Yojana (PMJDY) scheme an open ended scheme and has also added more incentives.
 The Government of India is planning to inject Rs 42,000 crore (US$ 5.99 billion) in the
public sector banks by March 2019 and will infuse the next tranche of recapitalisation by
mid-December 2018.

Achievements:

 To improve infrastructure in villages, 204,000 Point of Sale (PoS) terminals have been
sanctioned from the Financial Inclusion Fund by National Bank for Agriculture & Rural
Development (NABARD).
 Between December 2016 and March 2017, a major drive was undertaken to boost use of
debit cards, resulting in an increase in the number of Point of Sale (PoS) terminals by an
additional 1.25 million by 2017 end from 1.52 million as on November 30, 2016.
 The number
of total bank accounts opened under Pradhan Mantri Jan Dhan Yojana
(PMJDY) reached 333.8 million as on November 28, 2018.
 2. REVIEW OF LITERATURE

A review of the past research studies, give an insight into the background and helps
researchers in identifying the conceptual and methodological issues relevant to the study. The
review of past studies gives direction for framing objectives, developing research design,
choosing appropriate research tools, collection of relevant data and its analysis and variable
design for interpretation of results to draw sound reasoning and meaningful conclusion. With
a view to evaluate the objectives of the study, it was considered desirable to have an idea of
the findings of some earlier researches and the methods adopted for arriving at the same.
Such a review of literature connected with the main objectives of the study, is hoped to
provide a basis either for confirming the earlier findings or for contradicting the same. Such
reviews would also help the researchers to organize the research on proper lines and bring
about refinement in the study. In this chapter, an attempt is made to critically review the past
literature relevant to the research work and it is presented under the following headings:

1. Prof. Jagdeep Kumari (2017) studied the role of banks in the development of the rural
areas in India from which it was concluded that banks should invest more in infrastructure
facilities like irrigation facilities, processing, storage and marketing activities and that
agricultural infrastructure can be improved by banks, as there are abundance prospects for
banks to invest in these activities.

2. Malyadri P, Sirisha S (2015) conducted an analytical study on the trends and progress of
the Indian banking industry and concluded that private sector banks have very good
Return on Assets ( ROA) as compared to other bank groups, foreign banks have the
highest business per employee as well as profit per employee, the NPA of public sector
banks were also significantly higher than that of private and foreign banks, which
indicates that the asset quality of public banks is comparatively poor and that the new
private sector banks have shown the highest annual expansion in terms of number of
branches vis-à-vis old private sector banks.

3. Obaid-Ur-Rehman (2016) studied the impact of the Indian banking sector on the
economic growth rate and the social development of rural areas of India. It was found that
various problems faced by the rural sector such as: illiteracy, lack of access to basic
services of electricity, sanitation, drinking water etc. can be overcome if adequate credit
facilities are provided. In the study, the role of RRBs in the rural credits structure has
been deeply analyzed.

4. Satyasai and Badatya (2000) conducted a study regarding restructuring Rural Credit Co-
operative Institutions. They analyzed performance of rural co-operative credit institutions
on the basis of borrowings and lending operations, cost structure, financial viability, etc.
and found that co-operative system, in general, had failed to perform its functions
properly. They advised the co-operative banks to diversify their business and also to
overcome internal (rising transaction cost, declining business level, mismanagement of
overdues) and external (excessive bureaucratization, politicization) weaknesses.
5. Nair (2004) in his paper titled, “Village Co-operatives − A Century of Service to the
Nation” observed that by 2004, the formal institutionalized co-operative sector completed
a century of its service to the nation. Analysing the progress of Primary Agricultural Co-
operative Societies, he observed that during the half century spread over 1951-2001, the
PACs made rapid strides in membership, owned funds, deposits, and channelising
production credit for farmers. They were versatile in the sense; they can take up any type
of rural financing and rural service activity at short notice and at lowest transaction cost.

6. Murthy (2008) in his paper focused on the role of financial services as key to enhancing
economic development and reducing poverty in rural areas. Rural finance has often led
the way in addressing social, gender and ethnic equity issues which hold families in
poverty. He, however, observed that the access was limited for poor households and for
micro, 41 small and medium enterprises. He recommended that the major constraint of
such important rural finance agencies, i.e., lack of resources should be removed, by
facilitating them to mobilize resources from capital market and other newer sources.

7. Alamelu and Devamohan (2010), in their study titled, “Efficiency of Commercial Banks
in India” calculated the business ratios, such as interest income to average working funds,
operating profit to average working funds, return on assets, business per employee and
profit per employee for public sector banks, private sector banks and foreign banks. It
was observed that the foreign banks and new generation private banks have superior
business ratios. They effectively leverage technology, outsourcing and workforce
professionalism which helped them to protect their bottom line. On the other hand, the
public sector banks are yet to exploit fully the advantages of vast branch network and
large workforce. That’s why they have unimpressive business ratios. Old generation
private banks do not have impressive business ratios, as they are constrained by small size
and conservatism.

8. Fase and Abma (2003) examined the empirical relationship between financial
development and economic growth in South- East Asia using data for twenty five years.
They found that financial development matters for economic growth and that causality
runs from financial structure to economic development. The results suggested that in
developing countries a policy of financial reforms could improve economic growth.

9. K.S. Krishnaswamy (1980) Chairman of the Working Group appointed by Reserve

Bank of India in his report on the 'Role of Banks in Priority Sector Lending and the 20-
Point Economic Program' has suggested modifications in the definition of priority sector
lending. It also recommended that the private 11 Chapter 1 Introduction sector
commercial banks should actively participate in extending assistance under the priority
sector and the 20-Point Economic Program..

10. King and Levine (1993) established that the banking sector’s development is not only
correlated with economic growth but is also a cause of long-term growth. Subsequent
work has refined King and Levine and established that financial markets are a source of
economic growth.
11. Smith (1998) focuses on how monopoly in banking affects both income levels and the
likelihood of dramatic swings in the business cycle. Smith shows that a competitive
banking system will result in a higher level of income and output and in a reduction in the
severity of the business cycle.

12. Mark G Guzman (2000) studied the economic impact of bank structure. He says that
the banking industry is one of the most important and vital sectors needed for an efficient
market economy and it is important to understand how the various aspects of the banking
system in general and the underlying structure of the banking sector in particular affect
economic growth and development. One result drawn from this studies was that a
monopoly bank can help overcome, or at least mitigate, some of the problems inherent in
the bank–borrower relationship.

13. Zunaidah Sulong (2018) conducted a theoretical and empirical analysis on the role of
financial inclusion over the economic growth. According to him financial inclusion is an
engine toward growth economy. He concludes his study with optimistic views for
financial inclusion on growth, based on the accessibility of financial services includes;
expansion of bank branches, minimizing a barrier in access to finance and contribution of
banking sector.

14. Boyd and Smith (1996) studied the co-evolution of the real and financial sectors of the
economy as it develops. They argued that financial innovation is a dynamic process that
both influences and is influenced by the real sector. They found that the development of
equity markets occur relatively late in the economic development process because of the
frictions in the financial market. As these frictions become less severe overtime, the
economy gets the benefits of a more efficiently functioning set of capital markets.

15. Beacon (2012) the study conducted proved that banks play a vital role in California’s
economy and within the communities they serve. Through their role was an intermediary
between depositors and borrows, banks protected customer deposits and extended credit
to corporate and retail borrowers. This core function helped their economy run smoothly
and efficiently. California banks were able to generate approximately $60.6 billion in
annual revenues directly through their operations, which support more than 352,800 jobs
and, through a multiplier effect, create an additional $42.4 billion of economy activity in
the state.

16. Sanderson Abel (2013) concluded from his research that banks are needed for
credit provision, liquidity provision, risk management services, remittance of
money, promotion of entrepreneurship and rapid economic development
 3. NEED FOR THE STUDY

 The problem of NPAs in the Indian banking system is one of the foremost and the most
formidable problems that had impact the entire banking system which in turn impacts the
Indian economy.

 Asset quality continues to be the core function and also biggest challenge for the banks in
the present dynamic environment. Though, management of asset quality is a balance sheet
issue of individual banks, it has wider macro economic implications.

 This study includes a five year analysis of the financial health of HDFC Bank. It was
needed to be done to get a better understanding of how many people avail services from
this bank and how this bank has managed to become India’s largest private sector bank.
HDFC Bank is in the list of 'too big to fail' lenders, referred to as D-SIB or domestic
systemically important bank. A SWOT analysis needs to be conducted to understand the
importance and role of a major bank like HDFC Bank in India.

 There are various segments of the Indian economy that require funding frequently. Trade,
commerce, industries, small businesses, multinational companies, common ordinary
people, agriculturists, foreign exchange markets etc all depend on the banking sector for
finance for various activities. Hence a detailed study needs to be done.

 Many banking schemes developed and initiated by the government have not reached the
masses. A lot of people have not even heard of schemes like the ‘Mudra Scheme’ or the
‘Atal Pension Yojana Scheme’ and many more. This study needs to be taken to educate
people and spread awareness about these schemes made available by the government to
the public.

 The above related published literature on the banking industry of India is found to be
insufficient and hence this study on the role and impact of the banking sector over the
Indian economy needs to be done.

 Banking is the backbone of the Indian economy hence it is important to know how
banking helps the primary, secondary and tertiary sectors.
 4. OBJECTIVES OF THE STUDY

The banking sector is one of the biggest service sectors in India. The Indian banking system
consists of 27 public sector banks, 21 private sector banks, 49 foreign banks, 56 regional rural
banks, 1,562 urban cooperative banks and 94,384 rural cooperative banks, in addition to
cooperative credit institutions. These banks play a major role in the development of the
Indian economy. Agriculture is very important for a country like India and trade is the most
important economic activity. Both, domestic and international trade is supported by the
financial system. This study will help determine the impact of the banking sector over various
aspects of the economy on India. Customers prefer banks for their reliability and quality of
their services. Rising incomes are expected to enhance the need for banking services in rural
areas and therefore drive the growth of the sector. Finance plays a key role in the
development of any economy and no economy can run successfully without a sound financial
system Therefore the study on the role and impact of the banking sector over the Indian
economy was taken up with the following objectives:
1. To analyze the influence of the banking sector over agricultural development

2. To study the impact of banking over trade activities

3. To study how banking helps Indian Industries

4. To understand the role of banks in foreign exchange and foreign trade

5. To understand how banks finance the Government

6. To conclude why the common man relies on banks and financial institutions

7. To find out the most preferred banks in India in terms of size, local and overseas
presence and services offered.

8. To know the scope of HDFC bank in India in terms of digitalization, effiency and
variety of services offered and to conduct a SWOT analysis on HDFC Bank

9. To understand the effect of NPAs over the economy

10. To check the frequency of banking transactions made by an individual

11. To analyze the different age groups and profiles of Indian banking customers

This study will help to offer suggestions for the improvement of banking services and will
determine the scope for improvement of the Indian banking sector. It will bring out the need,
importance and impact of a stable, efficient and financially sound banking system in the
country. Banking is the backbone of the Indian economy and has a major contribution in the
development of any country’s economy.
 5. HYPOTHESIS OF THE STUDY
With an objective to develop a sound theoretical framework for the research, a review of
literature on consumer preference towards the role and impact of the banking sector over the
Indian economy has been done. However, the related published literature on the area of study
in India is slightly insufficient. Hence, the following hypothesises are framed:

HYPOTHESIS 1

Null Hypothesis (H0): Banking has an insignificant impact over the Indian Agricultural
industry.

Alternative Hypothesis (H1): Banking has a significant impact over the Indian Agricultural
industry.

HYPOTHESIS 2

Null Hypothesis (H0): Banking has an insignificant impact over commerce and trade
activities.

Alternative Hypothesis (H1): Banking has a significant impact over commerce and trade
activities.

HYPOTHESIS 3

Null Hypothesis (H0): Banking has an insignificant impact over the industries in India.

Alternative Hypothesis (H1): Banking has a significant impact over the industries in India.

HYPOTHESIS 4

Null Hypothesis (H0): Banking does not have a major role in foreign exchange and
international business.

Alternative Hypothesis (H1): Banking has a major role in foreign exchange and international
business.

HYPOTHESIS 5

Null Hypothesis (H0): Banking does not help the Government of India.

Alternative Hypothesis (H1): Banking helps the Government of India.

HYPOTHESIS 6

Null Hypothesis (H0): Banking does not have a major role in the common mans life.

Alternative Hypothesis (H1): Banking has a major role in the common mans life.

HYPOTHESIS 7

Null Hypothesis (H0): HDFC Bank is not the most preferred bank in India in terms of size and
location.

Alternative Hypothesis (H1): HDFC Bank is the most preferred bank in India in terms of size
and location.

HYPOTHESIS 8

Null Hypothesis (H0): HDFC Bank is not known for its variety of products, its efficiency and
the automation of its banking activities.

Alternative Hypothesis (H1): HDFC Bank is known for its variety of products, its efficiency
and the automation of its banking activities.

HYPOTHESIS 9

Null Hypothesis (H0): Non Performing Assets do not have a significant impact over the
performance of a bank and the economy as a whole.

Alternative Hypothesis (H1): Non Performing Assets have a significant impact over the
performance of a bank and the economy as a whole.

HYPOTHESIS 10

Null Hypothesis (H0): Banking takes time, so people barely use banking services and make
transactions.

Alternative Hypothesis (H1): Banking is quick and does not take time, so people use banking
services and make transactions on a daily basis.

HYPOTHESIS 11

Null Hypothesis (H0): Only the urban working classes use banking products and services

Alternative Hypothesis (H1): All classes of people from various walks of life use banking
products and services.
 6. SCOPE OF THE STUDY

In the present scenario major economical and technical changes are being undergone in
industrial and financial revolution through the new information-processing technology.
Especially in finance sector it has a significant role for overall development.

 After identifying the subject (research area) and referring the relevant literatures, it has
been found that in most of the literature, the information technologies have a wide
application area. In the finance sector major changes have been made. Most of the
products offered by banks are now online and digitized. Based on the literature the
following mobile banking prospects and challenges were discussed with existing bank
customers:

1. Mobile compatibility
2. Mindset on acceptance of online banking and willingness to adopt e banking services in
the future
3. Security issues and hacking
4. Telecom service quality and so on.

 Bank jobs are often considered amongst the most monotonous jobs in India. The quotidian
9-5 routine, the mundane job profile and constant nature of work involved drives many
people away from bank jobs in India. However, the advent of new fields such as investment
banking and business consultancy has made the banking one of India's most coveted job
sectors. Last year alone, nearly 60,000 people were recruited for positions at government-
funded banks from banking exams held by certain authorities. This increase in recruitment
can be attributed to explosive growth in the number of branches each bank is opening.

 The problem of NPAs in the Indian banking system is one of the foremost and the most
formidable problems that had impact the entire banking system which in turn impacts the
Indian economy.

 Many banking schemes developed and initiated by the government have not reached the
masses. A lot of people have not even heard of schemes like the ‘Mudra Scheme’ or the
‘Atal Pension Yojana Scheme’ and many more. This study needs to be taken to educate
people and spread awareness about these schemes made available by the government to
the public.

 The current scenario on the banking industry in the stock markets and the future trends are
a cause of concern.
 7. RESEARCH DESIGN

This chapter includes the procedures which have been applied in the study. Moreover, it also
includes the approach of the study, research type, research method and sample size.

7.1 Data Collection and Methodology

Data Collection Procedure and Survey Details-

The study was conducted in India by selecting 100 respondents at random, from the cities of
Mumbai, Goa, Delhi and Jaipur. The researcher asked random people living in India to
provide their opinions on how the banking sector impacts the economy of India and details
about their most preferred banks operating in India along with the reasons for choosing that
particular bank. The researcher also wants to prepare a SWOT analysis on HDFC bank and
collects information accordingly. The survey was designed to get a better understanding of
the variables taken into consideration while customers and investors choose a particular bank.
It was designed to conduct a detailed analysis of HDFC bank and to find out the various
aspects that are affected by the banking sector in the the findings are supported by the
responses and insights from the sample surveyed.

7.2 Research Type

Exploratory research is research conducted for a problem that has not been studied more
clearly, intended to establish priorities, develop operational definitions and improve the final
research design. Exploratory research helps determine the best research design, data-
collection method and selection of subjects. Therefore, exploratory research was conducted
using the primary data collected from the respondents. As this study is based on the impact of
banks over the India Economy, the customers banking habits and their preferences, a
questionnaire was distributed among them and it was collected through a survey on the role
of banks in various segments impacting the economy of India.

7.3 Research Method

In this study, a questionnaire is used for collecting the data from the respondents. The
questionnaire had been prepared in such a way that the respondents were able to answer in
useful manner.

7.4 Research Sample Size

There are a number of banks in India with many branches operating in different cities all
across India. Some have international branches as well . Thousands of customers use the
services and products offered by these banks. In this research 100 respondents were chosen at
random, from the cities of Mumbai, Delhi, Jaipur and Goa. The data was collected from the
age group of 5 to 85 years. The findings are based on the responses and data collected from
the 100 respondents who have submitted the complete survey questionnaire.
 8. FINDINGS AND DATA ANALYSIS

8.1 Data Analysis

Out of the sample of 110 respondents, 100 respondents have submitted the complete survey
questionnaire. The analysis of these 100 responses with respect to the respondents banking
habits and their preference towards the major banks in India and their opinions on the
banking system in India is as follows:

Graph 8.1.1

Ratio of males, females and other genders who took this survey and make use of
banking services and products.

GENDER

Male

Female

Others

Source: Compiled by researcher from questionnaires.

Findings:

 Out of the 100 respondents who filled the questionnaire, 43% were males and 56% were
females and 1% belonged to the other category.
Graph 8.1.2

Ratio of respondents of different age groups

Below 15 years

15 - 25 years

25 - 55 years

55 - 70 years

Above 70 years

Source: Compiled by researcher from questionnaires.

Findings:

 Out of the 100 respondents 6% (6) are below the age of 15 years.
 67% (67) of the respondents are in between the ages of 15 to 25 years.
 19% (19) of the respondents are in between the ages of 25 to 55 years.
 Out the sample size of 100 respondents 5% (5) are between the ages of 55 to 70 years.
 3% (3) of the respondents were above the age of 70 years.
Graph 8.1.3

Ratio of respondents with different occupational statuses.

OCCUPATIONAL STATUS

Student

Employed

Unemployed

Entreprenuer

Homemaker

Retired

Source: Compiled by researcher from questionnaires.

Findings:

 Out of the 100 respondents 58% (58) are students.

 23% (23) of the respondents are employed and 2% (2) are unemployed.
 7% (7) of the respondents are entrepreneurs and 7% (7) are homemakers.
 3% (3) of the respondents are retired.
 Graph 8.1.4

Number of respondents using various banking services and products.

BANKING PRODUCTS AND SERVICES

None

Forex and Depository services

Life/ General Insurance

Mutual funds

Home/ Personal/Other loans

Deposit products

Business loan/Letters of credit

Investment banking services

Credit/ Debit cards

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95

Source: Compiled by researcher from questionnaires.

Findings:

From the following data collected we observe the following:

 Maximum respondents use credit cards, debit cards and other smart cards and very few
respondents do not avail of any banking service or product.
 88 respondents use credit cards, debit cards and smArt cards.
 65 respondents use deposit products like savings account, current account, fixed deposit
account, demat account etc.
 39 respondents have taken life and general insurance serveices.
 34 respondents have invested in mutual funds.
 14 respondents have taken loans for personal needs, home, medical purposes etc.
 13 respondents use investment banking activities.
 5 respondents use banks for business loans, working capital management and letters of
credit etc.
 4 respondents use forex and depository services.
 Lastly, 4 respondents do not avail of any banking service or product.
 It can also be observed that each respondent uses at least two banking products.
Graph 8.1.5

Frequency of banking services and products used

FREQUENCY

Never

Not so often (once in 6 months)

Somewhat often (once in a month)

Very often (once in a week)

Extremely often (almost everyday)

Source: Compiled by researcher from questionnaires.

Findings:

 38 out of 100 respondents use some form of banking products almost every day.
 20 respondents use banking services once in a week at least.
 25 respondents make use of bank products somewhat often, once in a month at least.
 13 respondents avail of banking services once in 6 months at least.
 4 respondents don’t use banking services at all.
 It is observed that people prefer going cashless these days and hence make use of cards etc
on a daily basis almost. Majority, 58 out of 100 respondents use banking services once in a
week at least.
Graph 8.1.6

Names of the banks which people prefer the most and those that provide the maximum
number of people with banking solutions.

PREFERENCE

HDFC Bank

Kotak Mahindra Bank

ICICI Bank

Axis Bank

Yes Bank

State Bank of India

Union Bank of India

Others

Source: Compiled by researcher from questionnaires.

Findings:

 From the pie chart above it can be observed that the maximum number of respondents
prefer HDFC Bank. HDFC Bank Limited is the largest Indian private sector banking and
financial services company headquartered in Mumbai. 50 respondents avail banking
services from HDFC Bank.
 12 respondents prefer Kotak Mahindra Bank.
 14 respondents currently use the services and products of ICICI Bank
 5 respondents prefer Axis Bank and 3 respondents use the services of Yes Bank currently.
 5 respondents prefer State Bank of India and 5 respondents prefer Union Bank of India.
 6 respondents use the services and products of other banks like IDBI, OBC etc.
Graph 8.1.7

HDFC Bank’s strengths based on the opinions of the respondents.

STRENGTHS
Large domestic and international
presence
Automation and digitization of
banking services
Variety of products and services
offered
Brand ,prestige ,trustworthiness,high
security
Efficiency, reliability of the banking
services, customer satisfaction
Work towards rural penetration

Achievements, awards and

recognition
Attractive rates of interest, schemes
and policies

Source: Compiled by researcher from questionnaires.

Findings:

 21 respondents think that HDFC Bank is known for its progress digitization and
automation of banking services that canbe accessed from anywhere, even on the go.
 19 respondents believe HDFC Bank is best known for its large and wide presence of
branches in India as well as abroad.
 18 respondents think that HDFC Bank’s strength lies in the wide range and variety of
banking products and services it offers.
 15 respondents agree that HDFC Bank is the most trustworthy and prestigious bank.
 17 respondents think that HDFC Bank is known for its efficiency, reliability and degree of
customer satisfaction.
 2 respondents believe that HDFC Bank is known for its work towards penetration in rural
areas.
 1 respondent is of the opinion that HDFC Bank is the best because of the recognition and
number of awards it has received.
 7 respondents think that HDFC Bank is known for its attractive rates of interest and its
schemes and policies.
Graph 8.1.8

Best description of a Non - Performing Asset

NON - PERFORMING ASSET

When an asset ceases to

generate income for the bank

When the customer does not

pay the principle amount and
interest for a certain period of
time (90 days), it may be
called an NPA

If periodical income is not

generated for lender of
money, it is called an NPA

Source: Compiled by researcher from questionnaires.

Findings:

 34 respondents described an NPA as ‘When an asset ceases to generate income for the
bank it is called an NPA.’
 51 respondents agreed that when the customer does not pay the principle amount and
interest for a certain period of time (90 days), it may be called an NPA
 9 respondents define an NPA as follows ‘If periodical income is not generated for lender
of money, it is called an NPA.’
Graph 8.1.9

Effect of Non-Performing Assets over the Indian Economy

NON - PERFORMING ASSETS

Favourable Effect

Adverse Effect

Neutral Effect

Source: Compiled by researcher from questionnaires.

Findings:

 10 respondents believe that an increase in the number of non-performing assets of the

banking sector will have a favourable effect over the Indian economy.
 78 respondents believe that an increase in the number of non-performing assets of the
banking sector will have an adverse effect over the Indian economy.
 12 respondents believe that an increase in the number of non-performing assets of the
banking sector will have no effect over the Indian economy.
Graph 8.1.10

Opinions of the respondents over the impact of banking in India over a few aspects.

100
90
80
70
60
50
40 Disagree
30 Neutral
20 Agree
10
0
Banking has a Domestic and Banks provide direct
significant impact over international trade are financial assistance to
commerce and trade supported by the the industrial
activities financial system enterprises in many
forms like granting
loans and advances

Source: Compiled by researcher from questionnaires.

Findings:

‘Banking has a significant impact over commerce and trade activities’

 2 respondents disagreed with the above statement.
 12 respondents didn’t have an opinion regarding this statement.
 86 respondents agreed with the statement mentioned above.

‘Domestic and international trade are supported by the financial system’

 2 respondents disagreed with the above statement.
 21 respondents didn’t have an opinion regarding this statement.
 77 respondents agreed with the statement mentioned above.

‘Banks provide direct financial assistance to the industrial enterprises in many forms
like granting loans and advances’

 4 respondents disagreed with the above statement.

 14 respondents didn’t have an opinion regarding this statement.
 82 respondents agreed with the statement mentioned above.
 Graph 8.1.11

Role of Banking in a common man’s life according to the respondents.

ROLEOF BANKS

Provides locker facility for the safekeeping of precious items,

land papers, gold etc

Provides insurance policies

Provides various avenues for investment like mutual funds,

SIP’s and FD’s

Reallocates funds between different regions, which promotes

economic development in underdeveloped areas of the
country

Helps to provide equity type of assistance to new and

technically skilled entrepreneurs who lack financial resources
of their own

Helps in raising the standard of living of the people in

developing countries by providing loans for consumption
activities

Helps in generating employment opportunities

It mobilizes small savings of the community and makes them

available for investment in productive enterprises

Promotes the habit of savings among people through

attractive interest rates on various deposit products
0 20 40 60

Source: Compiled by researcher from questionnaires.

Findings:

 Maximum number, 56 respondents believe that banking helps common people by

promoting the habit of saving through various deposit products.

 47 respondents agree that banks play a major role in the lives of ordinary people because
they mobilize small savings of the community and make them available for investment in
productive enterprises.

 37 respondents believe that banks help in raising the standard of living of the people in
developing countries by providing loans.

 29 respondents think that banks are important for creating employment opportunities.

 18 respondents believe that banks help to provide equity type of assistance to new and
technically skilled entrepreneurs who lack financial resources of their own.

 26 respondents agree that banks are imp for ordinary people because they provide various
avenues for investment like mutual funds, SIP’s and FD’s

 13 respondents think that banks are important in the life of a common man because they
provide insurance policies.

 13 respondents believe that banks are very important for the reallocation of funds between
different regions, which promote economic development in underdeveloped areas of the
country.

 24 respondents think that banks are most important for the common man because they
provide locker facility for the safekeeping of precious items, land papers, gold etc.
Graph 8.1.12

Opinion on whether banking helps the government of India

BANKING HELPS THE GOVERNMENT OF

INDIA

Agree

Neutral

Source: Compiled by researcher from questionnaires.

Findings;

 Out of 100, 79 respondents agree that banking helps the government of India.
 21 respondents out of 100 choose to remain neutral to this statement.
 No one disagrees with this statement which indicates that banking is the backbone of the
Indian economy.
Question 8.1.13

How does banking help agriculture and agriculturists?

Mostly, positive answers were received from the respondents which are given below:

 Banking in the agriculture sector will help the farmers develop a habit of savings. Also
loans could be taken where interest rates would b comparatively lower.
 Provides good schemes supporting the farmers.
 Banking can help the farmers by clearing their previous loans. This was also proposed in
the year 2019 when the public sector banks asked the government to excuse the previous
loans of the farmers. This proposal on farm loans would help farmers de-stress and gain
access to funds even during natural calamities.
 Provides funds and loans at minimal interest rates.
 To encourage our farmers, banks in India offer loans to farmers to help them cultivate
their land so they may earn a living out of it.
 By providing appropriate loans required for capital acquirement.
 Various banks, especially NABARD Bank helps the farmers and agriculturists by
providing those loans at lenient interest rates.
 By providing some schemes of loan and deposits to farmers.
 By providing agriculturists with various loan schemes and thus helping them out
financially.
 Banks provide the finance for modernization and mechanization of farms, new irrigation
facilities and loans better hybrid seeds.
 Provides finance to buy fertilizers and hybrid seeds. it also helps to market the produce.
 Banks provide the necessary finance at reasonable interest rates and save them from the
clutches of the sahukars and moneylenders.
 Loans to farmers to buy tractors, cattle, employ more hands to help in the farms.
 Loans and waivers from repayment of interest.
 It helps them save up as well as helps them make the right decisions.
 Gives them access to banking services.
 Finances poultry farming, animal husbandry, horticulture etc.
 Helps to provide farmers with the funds they need for a variety of farming activities to buy
the required tools and hybrid seeds and machinery etc.
 Mainly as a source of providing financial aid through plethora of schemes and facilities.
 Incentives and offers for agriculturalists. Easy transactions directly in their accounts.
 It helps them procure loans for land, grains etc.
 Helps get short term loans for purchase of agricultural equipment, favorable schemes for
providing loans and credit terms made available.
 Finance to produce better crop and to buy and take care of livestock.
Some negative answers were received:

 It' s not about the financing as much as a grass root change in the environmental landscape
for farmers.
 I don’t really think it does as much as it should be doing.
 Banks can either make them or break them. Make them by providing them with loans and
various schemes. Break them by charging high rate of interest. That varies from bank to
bank.
 They don’t help much, as agriculturists don’t have credibility.
 Banks do not help farmers and other agriculturists because most of the times the farmers
are clueless about the schemes made available to them.
 Usually, farmers tend to borrow and take loans from moneylenders and not banks.
 Banks cannot provide funds to agriculturists sometimes as there is no guarantee or
collateral or individuals credibility.

Source: Compiled by researcher from questionnaires.

Findings:

Most of the respondents believe that banks help the agricultural sector by providing loans at
low interest rates, by providing funds for modernization and mechanisation of farms, funds
for buying fertilizers and hybrid seeds, funds for animal husbandry, poultry farming,
horticulture etc.

However some respondents believe that banks are not very helpful to agriculturists.
 Graph 8.1.14

General public awareness about government bank schemes

70

60

50 Yes ( heard of it
and know what it
40 is)

30 No (never heard of
it and dont know
20 what it is)

10 Maybe (heard of it
but dont know
0 what it is)
Sukanya Samridhi Mudra Scheme Atal Pension Pradhan Mantri
Account Yojana Jan Dhan Yojana

Source: Compiled by researcher from questionnaires.

Findings:

 Sukanya Samridhi Account;

42 respondents know what this scheme is all about, 37 respondents have never heard of it
and 17 respondents have heard of it but don’t recall its details.

 Mudra Scheme:

26 respondents know what this scheme is all about, 49 respondents have never heard of it
and 21 respondents have heard of it but don’t recall its details.

 Atal Pension Yojana:

37 respondents know what this scheme is all about, 30 respondents have never heard of it
and 29 respondents have heard of it but don’t recall its details.

 Pradhan Mantri Jan Dhan Yojana:

61 respondents know what this scheme is all about, 16 respondents have never heard of it
and 20 respondents have heard of it but don’t recall its details.
 Graph 8.1.15

Opinions of the respondents over the impact of banking in India over a few aspects

80
Disagree
70
Neutral
60
Agree

50

40

30

20

10

0
Banking effects foreign exchange Businesses can receive/transmit Banks do not help in the
and international business funds to other countries through expansion, diversification and
foreign exchange markets modernization of units abroad

Source: Compiled by researcher from questionnaires.

Findings:

‘Banking effects foreign exchange and international business.’

 6 respondents disagreed with the above statement.
 19 respondents didn’t have an opinion regarding this statement.
 75 respondents agreed with the statement mentioned above.

‘There are foreign exchange markets whereby businesses can receive and transmit funds
to other countries and in other currencies.’
 4 respondents disagreed with the above statement.
 23 respondents didn’t have an opinion regarding this statement.
 73 respondents agreed with the statement mentioned above.

‘Banks do not help in the expansion, diversification, modernization or renovation of

existing units abroad.’
 55 respondents disagreed with the above statement.
 35 respondents didn’t have an opinion regarding this statement.
 10 respondents agreed with the statement mentioned above.
8.2 FINDINGS

In this research 100 respondents were chosen at random, from the cities of Mumbai, Delhi,
Jaipur and Goa. The data was collected from the age group of 5 to 85 years.

 Out of the 100 respondents who filled the questionnaire, 43% were males and 56% were
females and 1% belonged to the other category.

 67% of the respondents are in between the ages of 15 to 25 years and 19% are in between
the ages of 25 to 55 years. This shows that the younger generation and the working
population are more open to using banking services on an almost daily basis and on the go
in the form of credit cards or through simple cash transfers online. The old generation
don’t require the services of a bank as much as the youth and working population do.

 Out of the 100 respondents 58% are students, 23% are employed and 7% are
entrepreneurs. The remaining respondents were unemployed, retired or homemakers. This
indicates that people who have jobs or those who own their own businesses are likely to
use more banking services for their daily needs. Almost everyone has a credit or debit
card, a deposit account and an insurance policy. The students use the previously
mentioned services, but parents these days also have mutual funds and SIPs in their
children’s name. Homemakers and retired parents or unemployed persons use less
banking services as they are dependent on someone to support them financially usually.

 Maximum respondents use credit cards, debit cards and other smart cards and very few
respondents do not avail of any banking service or product. 88 respondents use credit
cards, debit cards and smart cards because they believe in going cashless. They prefer to
carry a secure instrument that allows them to spend money without having to carry a
bunch of notes and coins with them everywhere.

 39 respondents have taken life and general insurance services. This shows that people are
becoming increasingly cautious and want to secure their loved ones by drawing insurance
policies. 34 respondents have invested in mutual funds which show that people don’t
want to just save and accumulate their money. They want to find ways in which they can
make their money grow into a bigger sum with time. Hence they invest in various
productive avenues.

 It can also be observed that each respondent uses at least two banking products. People
are increasingly becoming more dependent on banking services and products.

 58 % respondents use some form of banking products almost every day or atleast once in
a week. It is observed that people prefer going cashless these days and hence make use of
cards and wire cash to each other etc on a daily basis almost.
 It can be observed that the maximum number of respondents prefer HDFC Bank. HDFC
Bank Limited is the largest Indian private sector banking and financial services company
headquartered in Mumbai. 50 respondents avail banking services from HDFC Bank.
Since it has the largest customer base due to the several number of branches it can be said
that HDFC Bank is too big a bank to fail without having an adverse effect on the Indian
economy.

 Based on the data collected through the survey it is observed that 21 respondents think
that HDFC Bank is known for its progress in digitization and automation of banking
services that can be accessed from anywhere, even on the go.19 respondents believe the
bank is best known for its large and wide presence of branches in India as well as abroad.

 HDFC Bank’s strength lies in the wide range and variety of banking products and services
it offers, its trustworthiness and prestige and its efficiency, reliability and degree of
customer satisfaction. However it needs to work towards rural penetration and providing
banking services to backward and rural population.

 Majority of the respondents know what non-performing assets are. 78% believe that an
increase in the number of non-performing assets of the banking sector will have an
adverse effect over the Indian economy and 12% believe that an increase in the number of
non-performing assets of the banking sector will have no effect over the Indian economy.

 81% of the respondents believe that banks play a major role in helping trade and
commercial activities, as well as the industries financially.

 47 respondents agree that banks play a major role in the lives of ordinary people because
they mobilize small savings of the community and make them available for investment in
productive enterprises and 37 respondents believe that banks help in raising the standard
of living of the people in developing countries by providing loans. Respondents also
believe that banking generates employment opportunities and gives the common man
various facilities like safe deposit lockers etc and investment avenues. Hence banking
plays a major role and impacts an ordinary person to a great extent.

 Out of 100, 79 respondents agree that banking helps the government of India. 74% of the
respondents believe that banking is needed for international business and foreign
exchange.

 From the four government initiated finance schemes, the Pradhan Mantri Jan Dhan Yojana
is the most popular. 61 respondents know what this scheme is all about, 16 respondents
have never heard of it and 20 respondents have heard of it but don’t recall its details.
 The Mudra Scheme is the least known and needs to be advertised more. 26 respondents
know what this scheme is all about, 49 respondents have never heard of it and 21
respondents have heard of it but don’t recall its details.

 The Sukanya Samridhi Account scheme is fairly popular. 42 respondents know what this
scheme is all about, 37 respondents have never heard of it and 17 respondents have heard
of it but don’t recall its details.

 Most of the respondents believe that banks help the agricultural sector by providing loans
at low interest rates, by providing funds for modernization and mechanisation of farms,
funds for buying fertilizers and hybrid seeds, funds for animal husbandry, poultry farming,
horticulture etc.

 A few respondents believe that banks are not useful for agriculture because banks can
either make them or break them; make them by providing them with loans and various
schemes and break them by charging high rate of interest. That varies from bank to bank.
Banks do not help farmers and other agriculturists because most of the times the farmers
are clueless about the schemes made available to them.

 Banks cannot provide funds to agriculturists sometimes as there is no guarantee or

collateral or individuals credibility. There is nothing to provide a loan against.

 Most of the time the farmers are already knee deep and they default payments to the bank
so they go and borrow and take loans from moneylenders and not banks.
8.3 TESTING OF HYPOTHESIS

1) The first null hypothesis was ‘Banking has an insignificant impact over the Indian
Agricultural industry.’

According to the survey, it was observed that most of the respondents feel that banking
provides financial assistance to agriculture. Agriculture is the backbone of economy of any
country like India. The commercial banks help the large agricultural sector in developing
countries. They provide loans to traders in agricultural commodities. They open many
branches in rural areas to provide agricultural credit. They provide finance directly to
agriculturists for the marketing of their produce, for the modernization and mechanization of
their farms, for providing irrigation facilities, for developing land, purchasing of hybrid seeds
and taking care of livestock etc. Most of the credit related schemes of the government to
uplift the poorer and the under-privileged sections have been implemented through the
banking sector. They also provide financial resources for animal husbandry, dairy farming,
sheep breeding, poultry farming, and horticulture. The small and marginal farmers and
landless agricultural workers, artisans and petty shopkeepers in rural areas are provided
financial assistance through the regional rural banks in India. Banking in the agriculture
sector helps the farmers develop a habit of savings. It gives them Incentives and offers. Banks
ease transactions directly in the agriculturist’s accounts. It helps them procure loans for land,
grains and purchasing of farming equipment etc. Banking can help the farmers by clearing
their previous loans. This was also proposed in the year 2019 when the public sector banks
asked the government to excuse the previous loans of the farmers. This proposal on farm
loans would help farmers de-stress and gain access to funds even during natural calamities.
Various banks, especially NABARD Bank helps the farmers and agriculturists by providing
those loans at lenient interest rates. Lower rates of interest on repayment of loans help the
farmers escape from the clutches of the money lenders and sahukars who usually exploit the
poor and marginal farmers by asking for payment of interest on loans at exorbitant rates.
National Bank for Agriculture and Rural Development (NABARD) is an apex development
financial institution in India. It is an institution fully owned by Government of India, which is
focused on Promoting sustainable and equitable agriculture and rural development through
participative financial and non-financial interventions, innovations, technology and
institutional development for securing prosperity.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘Banking has a
significant impact over the Indian Agricultural industry’ has been accepted.
2) The second null hypothesis was ‘Banking has an insignificant impact over commerce
and trade activities.’

According to the survey, it was observed that most of the respondents feel that banking
provides financial assistance to trade and commerce to run smoothly in any country. Trade is
the most important economic activity. Both, domestic and international trade is supported by
the financial system. Traders need finance which is provided by the financial institutions.
Financial markets on the other hand help discount financial instruments such as promissory
notes and bills. Commercial banks finance international trade through pre-and post-shipment
funding. Letters of credit are issued for importers, thereby helping the country to earn
important foreign exchange. The commercial banks help in financing both internal and
external trade. The banks provide loans to retailers and wholesalers to purchase goods in
which they deal. They also help in the movement of goods from one place to another. Banks
provide all types of facilities such as discounting and accepting bills of exchange, providing
overdraft facilities, issuing drafts, etc. for promoting the trade.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘Banking has a
significant impact over commerce and trade activities’ has been accepted.

3) The third null hypothesis was ‘Banking has an insignificant impact over the
industries in India.’

According to the survey, it was observed that most of the respondents feel that banking
provides financial assistance to Industries in the primary, secondary and tertiary sector. The
commercial banks finance the industrial sector in many ways. They provide short-term,
medium-term and long-term loans to industry. The Industrial Development Bank of India is
the main institution in India providing financial assistance to the industrial sector. It provides
direct financial assistance to the industrial enterprises in the form of granting loans and
advances, and purchasing or underwriting the issues of stocks, bonds or debentures. To
facilitate an easy access to finance by Micro and Small Enterprises, the Government/RBI has
launched Credit Guarantee Fund Scheme to provide guarantee cover for collateral free credit
facilities extended to MSEs up to Rs 1 Crore. Moreover, Micro Units Development &
Refinance Agency (MUDRA) Ltd. was also established to refinance all Micro-Finance
Institutions (MFIs), which are in the business of lending to micro / small business entities
engaged in manufacturing, trading and services activities up to Rs 10 lakh.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘Banking has a
significant impact over the industries in India’ has been accepted.
4) The fourth null hypothesis was ‘Banking does not have a major role in foreign
exchange and international business.’

According to the survey, it was observed that most of the respondents feel that banking helps
in running and expanding internal business and helps in maintaining foreign exchange and
foreign currency loans. Foreign currency loans are meant for the setting up of new industrial
projects abroad. Banks also help in providing loans for expansion, diversification,
modernization or renovation of existing units. Banks also helps in financing import of
equipment from abroad and technical knowhow. To support the export and import
businessmen, there are foreign exchange markets whereby businesses can receive and transmit
funds to other countries and in other currencies. These foreign exchange markets also enable
banks and other financial institutions to borrow or lend sums in other currencies. Moreover,
financial institutions can invest and reap profits from their short term idle money by investing
in foreign exchange markets. Governments also meet their foreign exchange requirements
through these markets. Hence, foreign exchange markets impact the growth and goodwill of
an economy in the international markets. RBI has an important role to play in regulating &
managing Foreign Exchange of the country. It manages forex and gold reserves of the nation. On
a given day, the foreign exchange rate reflects the demand for and supply of foreign exchange
arising from trade and capital transactions. The RBI’s Financial Markets Department (FMD)
participates in the foreign exchange market by undertaking sales / purchases of foreign currency
to ease volatility in periods of excess demand for/supply of foreign currency.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘Banking has a
major role in foreign exchange and international business’ has been accepted.

5) The fifth null hypothesis was ‘Banking does not help the government of India.’

According to the survey, it was observed that most of the respondents feel that banking helps
the government in many ways. Commercial banks help fund government spending by
purchasing bonds issued by the Department of the Treasury. Both long and short-term
Treasury bonds help finance government operations, programs and support deficit spending.
Over past few years government has taken many steps to make banking sector even more
robust. These reforms will open new stream of revenue and employment generation for the
economy. Some of these reforms are:

 Pradhan Mantri Jan Dhan Yojana is financial inclusion program of Government of

India which is applicable to 20 to 65 years age group that aims to expand and make
affordable access to financial services such as bank accounts, remittances, credit,
insurance and pensions.

 Sukanya Samriddhi Account is a Government of India backed saving scheme targeted at

the parents of girl children. The scheme encourages parents to build a fund for the future
education and marriage expenses for their female child.
 Indian government started Mudra Scheme, under which Indian banks will be providing
cheap and affordable credit to new & small entrepreneurs.

 Atal Pension Yojana (previously known as Swavalamban Yojana) is a government-backed

pension scheme in India targeted at the unorganized. With Atal Pension Yojana, all
subscribing workers below the age of 40 are eligible for pension of up to ₹5,000 (US$72)
per month on attainment of 60 years of age.

The Reserve Bank of India is the apex central bank of India. It has many roles which are:

 Currency Issue: Reserve bank of India is the only authority who is authorized to issue
currency in India. RBI also works to prevent counterfeiting of currency by regularly
upgrading security features of currency.

 Banker to Government: Like individuals, firms and companies who need a bank to carry
out their financial transactions effectively & efficiently, Governments also need a bank to
carry out their financial transactions. RBI serves this purpose for the Government of India
(GoI). As a banker to the GoI, RBI maintains its accounts, receive in and make payments
out of these accounts. RBI also helps GoI to raise money from public via issuing bonds
and government approved securities.

 Controller of Credit: RBI formulates and implements the Monetary Policy of India to keep
the economy on growth path. Monetary Policy refers to the process employed by RBI to
control availability & cost of currency and thus keeping Inflationary & deflationary
trends low and stable. RBI adopts various measures to regulate the flow of credit in the
country. The measures adopted by RBI can broadly be categorized as Quantitative &
Qualitative tools.

1. Quantitative Tools

a. Cash Reserve Ratio (CRR):

CRR is one of the most commonly used by RBI as quantitative tool of credit control. The
ratio specifies minimum fraction of the total deposits of customers, which commercial
banks have to hold as reserves either in cash or as deposits with the central bank. CRR is
set according to the guidelines of the central bank of a country. RBI is empowered to
vary CRR between 3 percent and 15 percent.

b. Statutory Liquidity Ratio (SLR):

The share of net demand and time liabilities that banks must maintain in safe and liquid
assets, such as government securities, cash and gold is SLR.
c. Bank Rate:
When banks want to borrow long term funds from RBI, it is the interest rate which RBI
charges from them. The bank rate is not used to control money supply these days although
it provides the basis of arriving at lending and deposit rates. However, if a bank fails to
keep SLR or CRR, RBI will then impose penalty & it will be 300 basis points above bank
rate.

d. Reverse Repo Rate:

Reverse repo rate is just the opposite of repo rate. If a bank has surplus money, they can
park this excess liquidity with RBI and central bank will pay interest on this. This interest
rate is called reverse repo rate.

e. Open Market Operation (OMO):

Open market operation is the activity of buying and selling of government securities in
open market to control the supply of money in banking system. When there is excess
supply of money, RBI sells government securities thereby taking away excess liquidity.
Similarly, when economy needs more liquidity, RBI buys government securities and
infuses more money supply into the economy.

2. Qualitative Tools

a. Loan to Value LTV or Margin Requirements:

Loan to Value is the ratio of loan amount to the actual value of asset purchased. RBI
regulates this ratio so as to control the amount bank can lend to its customers. For
example, if an individual wants to buy a car from borrowed money and the car value is Rs.
10 Lac, he can only avail a loan amount of Rs. 7 Lac if the LTV is set to 70%. RBI can
decrease or increase to curb inflation or deflation respectively.

b. Selective credit control:

RBI can specifically instruct banks not to give loans to traders of certain commodities.
This prevents speculations/ hoarding of commodities using money borrowed from banks.

c. Moral Suasion:
RBI persuades bank through meetings, conferences, media statements to do specific things
under certain economic trends. An example of this measure is to ask banks to reduce their
Non-performing assets (NPAs).

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘Banking helps the
government of India’ has been accepted.
6) The sixth null hypothesis was ‘Banking does not have a major role in the common
mans life.’

According to the survey, it was observed that most of the respondents feel that banking
provides financial assistance to the common man in the following ways:

 Generating employment opportunities:

Banks help in providing financial resources to industries and that helps in generating
employment opportunities. Employment generated by the banking sector every year runs
in millions and revenue generated through tax and dividend collected by the government
is invested every year. While revenue and employment generation are two very important
contributions, successfully maintaining healthy credit line to industrial sector as well as to
overall economy is another important contribution of financial sector. Businesses and
industries are financed by the financial system which leads to increase in employment and
in turn increases economic activity and domestic trade. Increase in trade leads to increase
in competition which leads to activities such as sales and marketing which further
increases employment in these sectors.

 Promotes Savings Habit:

Banks attract depositors by introducing attractive deposit schemes and providing higher
rates of interest. Banks open different accounts to attract customers. These accounts are
opened as per the requirements of customers such as current account, fixed deposit
account, saving account and recurring account etc. when there are sufficient savings only
then can there be sizeable investment and production activity. The savings facility is
provided by financial institutions through attractive interest rates. The money saved by
the public is used by financial institutions for lending to businesses at substantial interest
rates. These funds allow businessmen to increase their production and distribution
activities.

 Financial assistance to Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not have
sufficient financial resources to buy durable consumer goods. The commercial banks
advance loans to consumers for the purchase of items such as houses, furniture,
refrigerators, etc. In this way, they also help in raising the standard of living of the people
in developing countries by providing loans for consumption activities

 Promotion of New Entrepreneurs:

Development banks in India have also achieved a success in creating a new class of
entrepreneurs and spreading the industrial culture. Special capital and seed capital
schemes have been introduced to provide equity type of assistance to new and technically
skilled entrepreneurs who lack financial resources of their own. Development banks have
been actively involved in the entrepreneurship development programs. Innovations are an
essential prerequisite for economic development. These innovations are mostly financed
by bank credit in the developed countries. But in underdeveloped countries, entrepreneurs
hesitate to invest in new ventures and undertake innovations largely due to lack of funds
and high chances of risk. Facilities of bank loans enable the entrepreneurs to step up their
investment on innovational activities, adopt new methods of production and increase
productive capacity of the economy.
 Removing the deficiency of capital formation:
In any economy, economic development is not possible unless there is an adequate
amount of capital formation. The serious capital deficiency in developing Countries is
removed by banks. A sound banking system mobilizes small savings of the community
and makes them available for investment in productive enterprises. Banks mobilise
deposits by offering attractive rates of interest and thus convert savings into active capital.
Otherwise that amount would have remained idle. Banks distribute these savings through
loans among productive enterprises which are helpful in nation building. It facilitates the
optimum utilization of the financial resources of the community.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘Banking has a
major role in a common mans life’ has been accepted.

7) The seventh null hypothesis was ‘HDFC Bank is not the most preferred bank in
India in terms of size and location.’

HDFC Bank Limited is the largest Indian private sector banking and financial services
company headquartered in Mumbai. According to the survey conducted it was found that the
second best reason that HDFC is preferred over other banks is the fact that this bank has
numerous branches all over India and provides banking services all across India. It has 5,103
branches across 2,748 cities and 98,061 employees as on March 2019 and it has an overseas
presence in locations like Dubai, Bahrain, Abu Dhabi, Kenya and Hong Kong.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘HDFC Bank is the
most preferred bank in India in terms of size and location’ has been accepted.

8) The eighth null hypothesis was ‘HDFC Bank is not known for its variety of products,
its efficiency and the automation of its banking activities.’

According to the survey conducted it was found that HDFC Bank is best known for its
progress digitization and automation of banking services that can be accessed from anywhere,
even on the go. It is also a more preferred bank as compared to the other banks because of its
efficiency, reliability and degree of customer satisfaction. HDFC Bank’s strength lies in the
wide range and variety of banking products and services it offers. HDFC Bank provides a
large variety of financial services and products: wholesale banking, retail banking, treasury,
auto loans, personal loans, credit cards etc.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘HDFC Bank is
known for its variety of products, its efficiency and the automation of its banking activities’
has been accepted.
SWOT ANALYSIS OF HDFC BANK

STRENGTHS:

 HDFC Bank is the largest bank in India by market capitalization.

 The bank has 5,103 branches across 2,748 cities as on March 2019 and it has been able to
reach almost every corner of the country. It has an overseas presence in locations like
Dubai, Bahrain, Abu Dhabi, Kenya and Hong Kong.
 Its provides a large variety of financial services and products: wholesale banking, retail
banking, treasury, auto loans, personal loans, credit cards, insurance policies, mutual
funds etc.
 Superb Performance in New Markets- HDFC Bank Limited has built expertise at entering
new markets and making success of them. The expansion has helped the organisation to
build new revenue stream and diversify the economic cycle risk in the markets it operates
in.
 Strong Free Cash Flow- HDFC Bank Limited has strong free cash flows that provide
resources in the hands of the company to expand into new projects.
 Automation of Activities brought consistency of quality to HDFC Bank Limited products
and has enabled the company to scale up and scale down based on the demand conditions
in the market.

WEAKNESSES:

 HDFC bank does not have a very strong presence in rural areas as compared to its
competitors.
 Share prices of HDFC are often fluctuating causing uncertainty for the investors.

OPPORTUNITIES:

 HDFC has scope to grow and reach many people in the rural areas.
 It has a greater scope for acquisitions and strategic alliances due to its strong financial
position.
 New customers from online channels- over the past few years the company has invested
vast sums of money into the online platform. This investment has opened new sales
channels for HDFC Bank Limited. In the next few years the company can leverage this
opportunity by knowing its customers better and serving their needs using big data
analytics.

THREATS:
 There is an increasing percentage of non-performing assets of the company.
 The number of NBFC’s are increasing
9) The ninth hypothesis was ‘Non Performing Assets do not have a significant impact
over the performance of a bank and the economy as a whole.’

According to the survey, it was observed that most of the respondents feel that an increase in
the number of Non Performing Assets of banks have an adverse effect over the Indian
economy. The problem of NPAs in the Indian banking system is one of the foremost and the
most formidable problems that had impact the entire banking system. Higher NPA ratio
trembles the confidence of investors, depositors, lenders etc. It also causes poor recycling of
funds, which in turn will have deleterious effect on the deployment of credit. The non-
recovery of loans effects not only further availability of credit but also financial soundness of
the banks.

 Profitability:
NPAs put detrimental impact on the profitability as banks stop to earn income on one hand
and attract higher provisioning compared to standard assets on the other hand. On an
average, banks are providing around 25% to 30% additional provision on incremental
NPAs which has direct bearing on the profitability of the banks.

 Asset (Credit) contraction:

The increased NPAs put pressure on recycling of funds and reduces the ability of banks
for lending more and thus results in lesser interest income. It contracts the money stock
which may lead to economic slowdown.

 Liability Management:
In the light of high NPAs, Banks tend to lower the interest rates on deposits on one hand
and likely to levy higher interest rates on advances to sustain NIM. This may become
hurdle in smooth financial intermediation process and hampers banks’ business as well as
economic growth.

 Capital Adequacy:
As per Basel norms, banks are required to maintain adequate capital on risk-weighted
assets on an ongoing basis. Every increase in NPA level adds to risk weighted assets
which warrant the banks to shore up their capital base further. Capital has a price tag
ranging from 12% to 18% since it is a scarce resource.

 Shareholders’ confidence:
Normally, shareholders are interested to enhance value of their investments through higher
dividends and market capitalization which is possible only when the bank posts significant
profits through improved business. The increased NPA level is likely to have adverse
impact on the bank business as well as profitability thereby the shareholders do not receive
a market return on their capital and sometimes it may erode their value of investments. As
per extant guidelines, banks whose Net NPA level is 5% & above are required to take
prior permission from RBI to declare dividend and also stipulate cap on dividend payout.
 Public confidence:
Credibility of banking system is also affected greatly due to higher level NPAs because it
shakes the confidence of general public in the soundness of the banking system. The
increased NPAs may pose liquidity issues which is likely to lead run on bank by
depositors. Thus, the increased incidence of NPAs not only affects the performance of the
banks but also affect the economy as a whole.

In a nutshell, the high incidence of NPA has cascading impact on all important financial
ratios of the banks viz., Net Interest Margin, Return on Assets, Profitability, Dividend
Payout, Provision coverage ratio, Credit contraction etc., which may likely to erode the value
of all stakeholders including Shareholders, Depositors, Borrowers, Employees and public at
large.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘Non Performing
Assets have a significant impact over the performance of a bank and the economy as a whole’
has been accepted.

10) The tenth null hypothesis was ‘Banking takes time, so people barely use banking
services and make transactions.

Previously banking involved physically going to the banks branch. Now a days, when every
day is a race against time in our busy lives, we are looking at saving time everywhere
possible. When it comes to daily errands, online banking has made the visits to bank a rare
occurrence. While easy access is one of the many benefits of online banking, it also makes
banking highly convenient. The need of waiting in long queues at the bank is completely
eliminated. Moreover, with the option of mobile banking available for most banks, transfers
and payments have become easier. Transactions can be completed on the go, whether you are
stuck in a traffic jam or in the midst of work. This makes it even easier to check your balance
before making cashless purchases to avoid embarrassment if your account doesn’t have the
balance to purchase everything on your shopping list. According to the surbey more than half
the sample size use banking services more than once a week. This shows that banking is
efficient and is not time consuming.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘Banking is quick
and does not take time, so people use banking services and make transactions on a daily
basis’ has been accepted.
11) The eleventh null hypothesis was ‘Only the urban working classes use banking
products and services.’

According to the survey most of the respondents are in between the ages of 15 to 55 years.
This shows that the younger generation and the working population use banking services on
an almost daily basis and on the go in the form of credit cards or through simple cash transfers
online. The old generation don’t require the services of a bank as much as the youth and
working population do but still perform banking transactions from time to time. Most of the
were students. Some of the respondents were employees some were entrepreneurs. The
remaining respondents were unemployed, retired or homemakers. This indicates that people
who have jobs or those who own their own businesses are likely to use more banking services
for their daily needs. Almost everyone has a credit or debit card, a deposit account and an
insurance policy. The students use the previously mentioned services, but parents these days
also have mutual funds and SIPs in their children’s name. Homemakers and retired parents or
unemployed persons use less banking services as they are dependent on someone to support
them financially usually but they would definitely have bank accounts and insurance policies.
This shows that banking services and products are used by people from all occupational
statuses and all professions, be it a sweeper, a farmer, a policeman, a maid who helps with
house keeping, an employee of a company or a CEO of a multinational company. Banking is
used by all walks of life as well the government of a country.

Hence the null hypothesis is rejected and hence the alternative hypothesis ‘All classes of
people from various walks of life use banking products and services’ has been accepted.
 9. LIMITATIONS OF THE STUDY

 The questionnaires were filled by 100 people at random from only four cities Mumbai,
Delhi, Jaipur and Goa. So the scope of sample findings was less.

 Since the survey was limited to a few cities only, data from all over India was not
concluded and hence findings vary according to the opinions of people residing in these
four cities only.

 Rural population was not surveyed extensively. The respondents were mostly from the
middle class families in urban cities.

 The questionnaire was filled by 100 people through Google forms with different
occupational statuses and age groups. So the point of view of the responses differs.

 Out of 150 people, only 100 responses were received. Sometimes people don’t want to
waste time filling out questionnaires, hence problems may arise.

 Many a times the people may not be really conscious or may not be bothered about the
questionnaires. This may create a problem in the research.

 Also, many a times the people may not have knowledge about questions asked in the
survey. This questionnaire was based on banking. A person from a science or arts
background may have found it difficult to answer certain questions and may have chosen
any option just to finish the survey.

 People generally don’t like to fill out short answer questions and tend to leave it blank.
This may result in not getting answers for that particular question.

 The responses of the people may not be accurate as the problem understanding and
interpretation arises. (These problems are not in all cases)

 One of the other problems of questionnaire is time consumed in preparing them and
sending them to hundreds of people.
 10. CONCLUSION
Today, the banking sector is one of the biggest service sectors in India. The focus of banks
has shifted from customer acquisition to customer retention by providing various products
like internet banking, ATM services, telebanking and electronic payment etc. The facility of
internet banking enables a consumer to access and operate his bank account without actually
visiting the bank premises. The facility of ATMs and credit/debit cards has also helps a lot.

Modern banks are spreading its operations throughout the world. It helps a country to spread
banking activities in rural and semi urban areas. With the spreading of banking operations all
over the country, helps to attain balanced regional development by promoting rural areas. A
developed banking system enables the country to attain balanced development without any
special consideration of rich and poor, cities and rural areas etc. They transfer surplus capital
from the developed regions to the less developed regions, where it is scarce and most needed.
This reallocation of funds between different regions will promote economic development in
underdeveloped areas of the country.

The growth of different sectors of an economy is balanced through the financial system.
There are primary secondary and tertiary sector industries and all need sufficient funds for
growth. The financial system of the country funds these sectors and provides sufficient funds
for each sector- industrial, agricultural and services. Thus, finance plays a key role in the
development of any economy and no economy can run successfully without a sound financial
system.

From the above study we conclude that Banks should invest more in infrastructure facilities
like irrigation facilities, processing, storage and marketing activities. Such agricultural
infrastructure can be improved by banks, as there are abundance prospects for banks to
invest in the above activities. Thus, the banks have come to play a useful role in promoting
economic development by- mobilising the financial resources of the community and by
making them flow into the productive channels. The Indian banks are now playing a very
active role in fostering economic development of the country. The above study reveals that
how commercial banks are helpful in development of country. If we make the
comparison between rural area and urban area then it is clear that urban areas are more
developed. This is because of low credit flow and less contribution of agriculture sector in
GDP of India. If the agricultural sector grows then only economic development is possible
in India. To conclude, we can say that the modern economies of the world have
developed primarily by making the best use of the credit available in their systems. The
role of banks has been important, but it is going to be even more important in the future. In
spite of all these bright projection, there is a growing concern about increasing NPAs in
banking sector. Many analysts, however, feel that some tough steps by RBI coupled
with ‘special financial stimulus’ to banks is necessary to overcome the incremental issue
of NPAs.
 Emerging Trends In The Banking Sector

Enhanced spending on infrastructure, speedy implementation of projects and continuation of

reforms are expected to provide further impetus to growth. All these factors suggest that
India’s banking sector is also poised for robust growth as the rapidly growing business would
turn to banks for their credit needs.

Also, the advancements in technology have brought the mobile and internet banking services
to the fore. The banking sector is laying greater emphasis on providing improved services to
their clients and also upgrading their technology infrastructure, in order to enhance the
customer’s overall experience as well as give banks a competitive edge.
India’s digital lending stood at US$ 75 billion in FY18 and is estimated to reach US$ 1
trillion by FY2023 driven by the five-fold increase in the digital disbursements.
11. SUGGESTION AND RECOMMENDATIONS
Today, the banking industry has been reeling under increased incidence of NPAs while the
expectations of the stakeholders are on the rise, which is a cause of serious concern. There is
an imminent need to address this issue focusing attention on demand and supply side.

 Prevention is better than cure. Proper evaluation of credit proposals definitely helps the
banks in detecting the unviable projects at the first instance. Full information about unit,
industry, its financial stake, management etc., should be collected.

 Lending being a focused segment, there is an urgent need to develop specialized skills in
the area of appraisal, monitoring and recovery to ensure the quality of credit portfolio. The
decentralized model that is being vogue in many banks need to shift towards adoption of
centralized model for sanction and recovery of Retail / Corporate loans. Separate cell
should be established at the bank level, which would have complete information about the
industry and its prospects in future.

 Managing credit risk plays an important role and its effectiveness lies in an efficient
recovery and exit strategy. Banks should be equipped with latest credit risk management
techniques to protect the bank funds and minimize insolvency risks. Banks should explore
the possibilities to develop credit derivatives markets to avoid these risks.

 Timely follow up is the key to keep the quality of assets intact and enables the banks to
recover the interest/installments in time. To have better control on the assets created out of
borrowings, banks need to watch the functioning of the units by paying frequent visits and
this is to be done to all the units irrespective whether the account is performing or non-
performing one.

 Selection of right borrowers, viable economic activity, adequate finance and timely
disbursement, end use of funds and timely recovery of loans should be the focus areas for
preventing or minimizing the incidence of fresh NPAs.

OTHER SUGGESTIONS:

 A developed banking system enables the country to attain balanced development without
any special consideration of rich and poor, cities and rural areas etc. This reallocation of
funds between different regions will promote economic development in underdeveloped
areas of the country

 Banks should invest more in infrastructure facilities like irrigation facilities, processing,
storage and marketing activities

 HDFC Bank needs to grow and penetrate into rural areas and provide better banking
services to the rural and backward population.

 The government initiated banking schemes like the MUDRA Scheme and the Sukanya
Samridhi Account needs to be marketed more so that people become more aware.
 BIBLIOGRAPHY AND REFERENCES

Books and Journals:

Banking In India; Past, Present and Future by Ujjwala Shahi

Banking Sector Reforms in India by Sultan Singh

Village Co-operatives − A Century of Service to the Nation by Nair

Efficiency of Commercial Banks in India by Alamelu and Devamohan

Banking and Financial Systems by V. Nityananda Sarma

Role of Banks in Priority Sector Lending and the 20-Point Economic Program by K.S.
Krishnaswamy

Websites:

http://www.businessdictionary.com/definition/bank.html

https://www.ibef.org/industry/banking-presentation

https://www.hdfcbank.com

https://www.businessinsider.in/The-digital-trends-disrupting-the-banking-industry-in-
2019/articleshow/70596044.cms

https://www.kotaksecurities.com/TSTerminal/Platform/Account/LogIn

https://economictimes.indiatimes.com/industry/banking/finance/banking/gross-npas-of-
public-sector-banks-have-declined-by-over-rs-89000-cr-till-march-
govt/articleshow/70379980.cms?from=mdr

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5587102/

www.wikipedia.org

https://www.ibef.org/industry/banking-india.aspx

https://www.researchgate.net/publication/260869341_A_STUDY_OF_BANKING_SECTOR
_IN_INDIA_AND_OVERVIEW_OF_PERFORMANCE_OF_INDIAN_BANKS_WITH_R
EFERENCE_TO_NET_INTEREST_MARGIN_AND_MARKET_CAPITALIZATION_OF_
BANKS
 ANNEXURE 1.1 QUESTIONNAIRE

QUESTIONNAIRE :

This questionnaire is intended towards academic research work. Please answer all the
questions sincerely. Respondents are requested to put a tick for the right option and may write
N.A. wherever questions are not applicable. All the responses will be kept confidential.
Identity of the respondent will not be disclosed.

1) Gender
a. Male
b. Female
c. Others

2) Age
a. Below 15 years
b. 15 – 25 years
c. 25 – 55 years
d. 55 – 70 years
e. Above 70 years

3) Occupational Status
a. Student
b. Unemployed
c. Employed
d. Homemaker
e. Entreprenuer
f. Retired

4) Mark as many banking services and products you currently use.

b. Credit/ Debit cards and other cards
c. Investment banking services
d. Business loans/ Letters of credit/ Working capital management
e. Deposit products (Savings/ Current/ Demat Account)
f. Home/ Personal / Car/ Other loans
g. Mutual funds
h. Life/ General Insurance
i. Forex and Depository services
j. None
5) How often do you use banking services and products?
a. Never
b. Not so often (once in 6 months)
c. Somewhat often (once in amonth)
d. Very often (once in a week)
e. Extremely often (almost everyday)

6) Which bank do you prefer the most?

a. HDFC Bank
b. Kotak Mahindra Bank
c. ICICI Bank
d. Axis Bank
e. Yes Bank
f. Induslnd Bank
g. State Bank of India
h. Others ________

7) HDFC bank is best known for its

a. Large domestic and international presence
b. Automation and digitization of banking services and products
c. Variety of products and services offered
d. Brand , prestige , trustworthiness and high security
e. Efficiency and reliability of the banking services, customer satisfaction
f. Work towards rural penetration
g. Achievements, awards and recognition
h. Attractive rates of interest, schemes and policies

8) What are Non Performing Assets according to you?

a. When an asset ceases to generate income for the bank
b. When the customer does not pay the principle amount and interest for a certain period of
time (90 days), it may be called an NPA
c. If periodical income is not generated for lender of money, it is called an NPA

9) What effect will an increase in the NPA’s of the banking sector have on the Indian
economy?
a. Favorable effect
b. Adverse effect
c. Neutral, no effect

10) According to you how does banking help the agriculture and agriculturists in India?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
11) Indicate what you feel about the following statements. Put a tick mark in the
appropriate box. (D= Disagree, N= Neutral, A= Agree)

SR STATEMENT D N A
NO.
a. Banking has a significant impact over
commerce and trade activities.

b. Domestic and international trade are

supported by the financial system.

c. Banks provide direct financial assistance

to the industrial enterprises in many
forms like granting loans and advances.

12) How does banking play a major role in a common mans life?( choose the two most
important options)
a. Promotes the habit of savings among people through attractive interest rates on various
deposit products.
b. It mobilizes small savings of the community and makes them available for investment in
productive enterprises.
c. Helps in generating employment opportunities.
d. Helps in raising the standard of living of the people in developing countries by providing
loans for consumption activities.
e. Helps to provide equity type of assistance to new and technically skilled entrepreneurs
who lack financial resources of their own.
f. Reallocates funds between different regions, which promotes economic development in
underdeveloped areas of the country.
g. Provides various avenues for investment like mutual funds, SIP’s and FD’s.
h. Provides insurance policies.
i. Provides locker facility for the safekeeping of precious items, land papers, gold etc.

13) Banking helps the Government of India

a. Agree
b. Neutral
c. Disagree
14) Put a tick mark in the appropriate box if you have heard of the below schemes.
(YES = heard about it and know what it is, NO = never heard about it and dont
know what it is, MAYBE = heard about it but dont know what it is)

SR STATEMENT YES NO MAYBE

NO.
d. Sukanya Samridhi Account
e. Pradhan Mantri Jan Dhan Yojana
f. Mudra Scheme
g. Atal Pension Yojana

15) Indicate what you feel about the following statements. Put a tick mark in the
appropriate box. (D= Disagree, N= Neutral, A= Agree)

SR STATEMENT D N A
NO.
a. Banking effects foreign exchange and
international business.

b. There are foreign exchange markets

whereby businesses can receive and
transmit funds to other countries and in
other currencies.
c. Banks do not help in the expansion,
diversification, modernization or
renovation of existing units abroad.