1. CHAPTER-3
3.1 INTRODUCTION
A banking company is defined as a company which transacts the business of banking in
India. The banking regulation act defines the business of banking by stating by the essential
functions of a banker. It also states the various other businesses a banking company may be
engaged in and prohibits certain businesses to be performed by it.
The term “Banking” is defined as “accepting, for the purpose lending or investment, of
deposits of money from the public, repayable on demand or otherwise, and withdrawals by
cheque, draft, order or otherwise” [sec 5 (b)]
3.2 HISTORICAL BACKGROUND OF INDIAN BANKING INDUSTRY
Bank of Hindustan was set up in 1870; it was the earliest Indian Bank. Later, three
presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and
Bank of Madras were set up, which laid foundation for modern banking in India. In 1921, all
presidency banks were amalgamated to form the Imperial Bank of India. Imperial bank carried
out limited number of central banking functions prior to establishment of RBI. It engaged in all
types of commercial banking business except dealing in foreign exchange. Reserve Bank of India
Act was passed in 1934 & Reserve Bank of India (RBI) was constituted as an apex body without
major government ownership. Banking Regulations Act was passed in 1949. This regulation
brought RBI under government control. Under the act, RBI got wide ranging powers for
supervision & control of banks.
The Act also vested licensing powers & the authority to conduct inspections in RBI. In
1955, RBI acquired control of the Imperial Bank of India, which was renamed as State Bank of
India. In 1959, SBI took over control of eight private banks floated in the erstwhile princely
states, making them as its 100% subsidiaries. It was 1960, when RBI was empowered to force
compulsory merger of weak banks with the strong ones. It significantly reduced the total number
of banks from 566 in 1951 to 85 in 1969. In July 1969, government nationalized 14 banks having
deposits of Rs. 50 crores & above. In 1980, government acquired 6 more banks with deposits of
more than Rs.200 crores. Nationalization of banks was to make them play the role of catalytic
agents for economic growth.

2. The Narasimha Committee report suggested wide ranging reforms for the banking sector
in 1992 to introduce internationally accepted banking practices. The amendment of Banking
Regulation Act in 1993 saw the entry of new private sector banks. Banking industry is the back
bone for growth of any economy.
The journey of Indian Banking Industry has faced many waves of economic crisis.
Recently, we have seen the economic crisis of US in 2008-09 and now the European crisis. The
general scenario of the world economy is very critical. It is the banking rules and regulation
framework of India which has prevented it from the world economic crisis. In order to
understand the challenges and opportunities of Indian Banking Industry, first of all, we need to
understand the general scenario and structure of Indian Banking Industry.
3.3 STRUCTURE OF INDIAN BANKING INDUSTRY
Banking Industry in India functions under the sunshade of Reserve Bank of India - the
regulatory, central bank. Banking Industry mainly consists of:
 Commercial Banks
 Co-operative Banks
The commercial banking structure in India consists of: Scheduled Commercial Banks
Unscheduled Bank. Scheduled commercial Banks constitute those banks which have been
included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn
includes only those banks in this schedule which satisfy the criteria laid down vide section 42
(60) of the Act. Some co-operative banks are scheduled commercial banks although not all co-
operative banks are. Being a part of the second schedule confers some benefits to the bank in
terms of access to accommodation by RBI during the times of liquidity constraints. At the same
time, however, this status also subjects the bank certain conditions and obligation towards the
reserve regulations of RBI. For the purpose of assessment of performance of banks, the Reserve
Bank of India categorize them as public sector banks, old private sector banks, new private
sector banks and foreign banks .

3. RESERVE BANK OF INDIA
Scheduled Commercial bank Cooperative All India State level
Credit bank Financial Financial
Institution Institution
Public private sector foreign banks
Sector banks Regional rural urban cooperatives
3.4 PRIVATE BANKS IN INDIA
Private Banks are non incorporated banks. Private Banks are owned by either an
individual or a general partner. The Indian private banks may be listed publicly. Those can be
traded on stock exchanges as well. Private sector banks in India hold 18.2% of the total assets of
Indian banking industry.
Private Banks in India started way back and has a history due to the fact that in the past
years they were originally working in private during those days they were supposed to handle the
more able and Indians with their banking services and other banking needs that they would
require all this activities happened around 1921. During that time their was the Bank of Bengal,
Banks of Bombay, and Bank of Madras all this formed the Imperial Bank of India.
Presently, Private Banks in India includes leading banks like ICICI Banks, ING Vysya
Bank, Jammu & Kashmir Bank, Karnataka Bank, Kodak Mahindra Bank, SBI Commercial and
International Bank, etc. Certainly, being tech-savvy and full of expertise, private banks have
played a major role in the development of Indian banking industry. They have made banking
more competent and customer friendly. In the procedure they have jolted public sector banks out
of satisfaction and forced them to become more competitive.
Banks Financial Institution

4. 3.5 HISTORY OF ICICI BANK
ICICI Bank (Industrial Credit Investment Corporation of India) was originally promoted
in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary.
ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in
India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000,
ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001,
and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002.
ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and
representatives of Indian industry. The principal objective was to create a development financial
institution for providing medium-term and long-term project financing to Indian business.
In the 1990s, ICICI transformed its business from a development financial institution
offering only project finance to a diversified financial services group offering a wide variety of
products and services, both directly and through a number of subsidiaries and affiliates like
ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial
institution from non-Japan Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the context of the
emerging competitive scenario in the Indian banking industry, and the move towards universal
banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI
with ICICI Bank would be the optimal strategic alternative for both entities, and would create the
optimal legal structure for the ICICI group's universal banking strategy. The merger would
enhance value for ICICI shareholders through the merged entity's access to low-cost deposits,
greater opportunities for earning fee-based income and the ability to participate in the payments
system and provide transaction-banking services. The merger would enhance value for ICICI
Bank shareholders through a large capital base and scale of operations, seamless access to
ICICI's strong corporate relationships built up over five decades, entry into new business
segments, higher market share in various business segments, particularly fee-based services, and
access to the vast talent pool of ICICI and its subsidiaries

5. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger
of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial
Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was
approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of
Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the
Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and
banking operations, both wholesale and retail, have been integrated in a single entity.
ICICI Bank started as a wholly owned subsidiary of ICICI Limited, an Indian financial
institution, in 1994. Four years later, when the company offered ICICI Bank's shares to the
public, ICICI's shareholding was reduced to 46%. In the year 2000, ICICI Bank offered made an
equity offering in the form of ADRs on the New York Stock Exchange (NYSE), thereby
becoming the first Indian company and the first bank or financial institution from non-Japan Asia
to be listed on the NYSE. In the next year, it acquired the Bank of Madura Limited in an all-
stock amalgamation. Later in the year and the next fiscal year, the bank made secondary market
sales to institutional investor.
With a change in the corporate structure and the budding competition in the Indian
Banking industry, the management of both ICICI and ICICI Bank were of the opinion that a
merger between the two entities would prove to be an essential step. It was in 2001 that the
Boards of Directors of ICICI and ICICI Bank sanctioned the amalgamation of ICICI and two of
its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and
ICICI Capital Services Limited, with ICICI Bank. In the following year, the merger was
approved by its shareholders, the High Court of Gujarat at Ahmedabad as well as the High Court
of Judicature at Mumbai and the reserve bank of India.

6. 3.6 RECENT GROWTH IN ICICI BANK
Over the last couple of years, ICICI Bank has taken time off to sort some of its issues. It
is back on the growth track. The bank has managed to beat market expectations by a long shot on
almost all key parameters. Net profit is up 31 per cent to Rs 1,900 crore, compared to market
estimates of Rs 1,700 crore. The market was building in a 19 per cent growth but net profit has
jumped substantially due to a 30 basis points (bps) rise in net interest margin (NIM) to three per
cent. Over the last few years, ICICI Bank’s NIM has lagged other private banks, but in this
quarter the bank has shown substantial improvement, which has shored up its bottom line, too.
That costs have remained stable has also helped.
After a hiatus, the bank is back to focusing on the retail segment — only securitised
loans like auto and home. On the corporate side, ICICI Bank is only looking at meeting working
capital needs of companies and funding projects will all the requisite clearances. Compared to
the previous year’s corresponding quarter, the loan portfolio has grown 17 per cent, while
sequentially it has expanded three per cent. While in FY12 the bank has grown in line with
industry, this year it is expecting to grow at 20 per cent. According to Emkay Global, “A large
part of the sequential loan growth would be retail in nature (it has added 200 branches in Q4).
Both HDFC Bank and YES Bank have reported material improvement in their retail book during
Q4 FY12.” Non-interest income also jumped 35 per cent but fee income has remained flat. This
is a cause of concern, as the bank has grown its network.
While profitability has jumped substantially on higher yields and higher trading income
(Rs 160 crore), deposit growth has been muted at 13 per cent, down two per cent from the
corresponding year previous quarter. This has also helped the bank improve its margins as the
cost of funds has remained stable but advances have grown faster. The Casa (current account and
savings account) ratio continues to remain healthy at 43 per cent. The bank’s bad assets have
also shown substantial improvement over several quarters.

7. Sustainability of the NIM at current levels will determine the quality of profits. Also, if
the bank has to continue to grow advances, it will need to improve deposit mobilization. This
may lead to some cannibalization of the Casa segment, which will mean the cost of funds will
increase. While growth of 20 per cent does seem possible, the key levers will be margins and
cost of funds.
3.7 BRANCHES & ATMS
ICICI Bank has a wide network both in Indian and abroad. In India alone, the bank has
1,420 branches and about 4,644 ATMs. Talking about foreign countries, ICICI Bank has made
its presence felt in 18 countries - United States, Singapore, Bahrain, Hong Kong, Sri Lanka,
Qatar and Dubai International Finance Centre and representative offices in United Arab
Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The Bank
proudly holds its subsidiaries in the United Kingdom, Russia and Canada out of which, the UK
subsidiary has established branches in Belgium and Germany.
3.8 PRODUCTS & SERVICES
a) Personal Banking
 Deposits
 Loans
 Cards
 Investments
 Insurance
 Demat services
 Wealth management
b) NRI Banking
 Money Transfer
 Bank accounts
 Investments
 Property solution
 Insurance
 loans

8. c) Business Banking
 Corporate Net Banking
 Cash management
 Trade services
 FX online
 Sms services
 Online tax
 Custodial services
3.8 SERVICE QUALITY DIMENSIONS
The SERVQUAL scale is the principal instrument widely utilized to assess service quality
for a variety of services. Parasuraman et al., (1988) have conceptualized a five dimensional
model of service quality such as: reliability, responsiveness, empathy, assurance and tangibility.
Their measurement instrument is known as SERVQUAL, which has become almost the standard
way of measuring service quality. Further, each item of SERVQUAL has been used twice: to
measure expectations and perceptions of service quality.
The central idea in this model is that service quality is a function of difference scores or gap
between expectations and perceptions. The five dimensions of SERVQUAL Includes
1. Tangibility
The tangible Service Quality Dimension refers to the appearance of the physical
surroundings and facilities, equipment, personnel and the way of communication. In other
words, the tangible dimension is about creating first hand impressions. A company
should want all their customers to get a unique positive and never forgetting first hand
impression, this would make them more likely to return in the future.

9. 2. Reliability
The reliability Service Quality Dimension refers to how the company are
performing and completing their promised service, quality and accuracy within the given
set requirements between the company and the customer. Reliability is just as important
as a goof first hand impression, because every customer want to know if their supplier is
reliable and fulfill the set requirements with satisfaction.
3. Responsiveness
The responsiveness Service Quality Dimension refers to the willingness of the
company to help its customers in providing them with a good, quality and fast service.
This is also a very important dimension, because every customer feels more valued if
they get the best possible quality in the service.
4. Assurance
The assurance Service Quality Dimension refers to the company's employees. Are
the employees skilled workers which are able to gain the trust and confidence of the
customers? If the customers are not comfortable with the employees, there are a rather
large chance that the customers will not return to do further business with the company.
5. Empathy
The empathy Service Quality Dimension refers to how the company cares and
gives individualized attention to their customers, to make the customers feeling extra
valued and special. The fifth dimension are actually combining the second, third and
fourth dimension to a higher level, even though the really cannot be compared as
individuals. If the customers feel they get individualized and quality attention there is a
very big chance that they will return to the company and do business there again.