Main Schemes Formulated by Commercial Banks in India

The following points highlight the nine main schemes formulated by commercial banks in India. The schemes are: 1. Venture Capital Funds (VCF) 2. Factoring 3. Merchant Banking and Underwriting 4. ATMs 5. Core or Anywhere Banking 6. Internet Banking in India 7. Mutual Funds 8. Insurance Activities 9. Other Schemes

Scheme # 1. Venture Capital Funds (VCF):

Under the scheme of Venture Capital Funds (VCF), one public sector bank subsidiary and one foreign bank have launched VCF with the objective to provide equity capital for pilot projects attempting for commercial application of indigenous technology and adaptation of imported technology brought previously to domestic conditions.

VCF can be an important instrument for promotion and growth of new terms and technologies which often involve high risk.

The Government of India has already issued detail guidelines, rules and procedures for establishing such VCF, its management structure, size and investment of the fund etc. In 1995-96 budget, the Government made provisions for exemption from tax, on income by way dividend and long term capital gains from equity investments made by approved VCF or Venture Capital Companies.

Scheme # 2. Factoring:

Recently banks are being permitted to start factoring by floating subsidiaries. Factoring is a kind of new service provided by banks. With such device, book debts are quickly realised through outright sale accounts receivable to a financial intermediary or to a bank subsidiary known as ‘factor’. Meanwhile, SBI and Canara Bank have already set up separate subsidiaries for undertaking factoring services exclusively.

Scheme # 3. Merchant Banking and Underwriting:

In recent times, commercial banks have set up their merchant banking divisions and have started underwriting the issues and more particularly preference shares and debentures and also have gone for deferred payment agreements between Indian industrial houses and foreign firms. About eight commercial banks have already set up their merchant banking subsidiaries.

Retail Banking:

Retail banking in gradually becoming popular among the commercial banks of India which provide adequate opportunities for growth and profit. Retail banking includes areas like housing loans, automobile loans, consumption loans for purchasing consumer durables like TVs, refrigerators, air conditioners, educational loans, credit cards etc.

The value of such loan ranges between Rs 20,000 to Rs 10 crore and is made available for a period of 5 to 7 years. However, housing loans are granted for a maximum period of 15 years. The advancement in banking technology along with automation has paved the way for faster growth of retail banking.

Scheme # 4. ATMs:

Automated Teller Machines (ATMs) have paved the way for introducing an alternative banking channel which facilitates low cost banking transactions. In order to avoid the huge crowed at the bank branches, ATMs provide easy and faster facility for withdrawing cash and deposit of cheques through the use of ATM cards provided by the banks to its customers.

ATM cards are also gradually becoming popular as credit cards and debit cards which are mostly used for purchase of goods and services. In recent times, public sector banks in India are also opening their ATM chains following the foot-steps of private bankers.

In 2010- 11, the number of ATMs witnessed a growth of 24 per cent over the previous year. More than 65 per cent of the total ATMs belonged to public sector banks at end-March, 2011. As the end March 2011, there were around 75,000 ATMs across the country.

Scheme # 5. Core or Anywhere Banking:

Another new concept of banking is anywhere banking which has been made popular by foreign banks. Public sector banks in India are also gradually adopting this concept. This is a customer friendly technology based concept of banking. Under this concept of banking bank customer who have an account with any select branch can easily operate his account from different designated branches of the bank spread throughout the country.

Under this system, a customer can avail cash withdrawal, cash deposit, transfer of funds, intra-city and inter-city transactions, collection of cheques, draft etc. facilities from any of such designated branches conveniently, irrespective of their locations. Such type of anywhere baking popularly known as core banking has been improving the standard of the banking services with the help of modern technology.

A number of public sector banks have already adapted this concept and have started extending facilities to its customer gradually by including more and more branches under this category.

Scheme # 6. Internet Banking in India:

In recent years, with the growth of internet, wireless communication technologies and telecommunications etc. the structure and nature of banking and financial services have gone for a sea change. Under this system, on-line banking is possible where every bank customer is provided with a personal identification number (PIN) for making on-line transaction with the bank through internet connections.

In India, a beginning has already been made in internet banking in many cities now. However a number of cases related to fraud and cheating of banks and customers by unscrupulous persons have already come up in India due to such banking facilities.

Nevertheless, attempts have been made by the RBI and the banking authorities for promoting safety and soundness of on-line and e-banking transactions in the country by issuing necessary guidelines.

Scheme # 7. Mutual Funds:

Launching of mutual funds is another important diversified character of banking in India. At present 7 commercial banks in India have been permitted to set up mutual funds of different nature which are being invested in different diversified portfolio in the equity market. Some of the mutual funds set up by SBI, PNB, ICICI Bank etc. have become very much successful and popular with its various schemes of mutual fund.

Scheme # 8. Insurance Activities:

Diversification of banking also includes introduction of insurance activities in banks. Some banks have already started both life and non-life insurance activities either by launching its own insurance subsidiary such as SBI Life or by outsourcing such activities by establishing a tie-up with insurance companies.

As insurance is now made mandatory for every loan thus promoting insurance activities in banks is now becoming much profitable.

Scheme # 9. Other Schemes:

Stock-invest scheme has already been introduced by banks in India. Many banks have been permitted to introduce stock invest scheme and now the total number of such banks has increased to 51. Again a number of banks have submitted proposals for setting up Asset Management Companies (AMCs). SBI and Canara Bank got the approval to set up AMCs to manage this mutual funds, in 1993.

In this way, Banks are diversifying these activities and banks are expected to float many such subsidiaries to initiate their new lines of action. This will diversify the functions and activities of banks into a multitude of financial services.