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A Research Project on Credit Risk and Liquidity Risk

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CHAPTER I - INTRODUCTION “Journey Of Indian Banking Industry- From Closed To Liberalized System” The face of Indian banking industry has been changing through the process of change is not yet complete. The phenomenal growth of Indian banking , in terms of business volume, network, staff, client-base can largely be attributed to the nationalization of major Indian banks in 1969 and the resulting socialistic banking policies. While the growth since then may appear impressive, it is necessary to r
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  CHAPTER I - INTRODUCTION “Journey Of Indian Banking Industry- From Closed To Liberalized System” The face of Indian banking industry has been changing through the process of change is not yetcomplete. The phenomenal growth of Indian banking , in terms of business volume, network, staff,client-base can largely be attributed to the nationalization of major Indian banks in 1969 and theresulting socialistic banking policies. While the growth since then may appear impressive, it isnecessary to remember that the banking industry grew for more than two decade mostly in a protected environment. The role of bank manager, irrespective if the hierarchy, was largelyconfined to ensuring compliance with the guidelines of reserve bank of India in managing bankingoperations. Actually, even such compliance remained more often true to the letter than to spirit of RBI’s guidelines. The enormous growth achieved in a protected environment led to manymanagers quickly ascending the hierarchy with skills which were relevant to government-controlled , RBI-directed, socialist banking scenario.By the mid-1980’s, it was becoming clear to the intelligent observer that Indian banking wasgetting into troubled waters. However the game went on as if nothing alarming was going tohappen, until the balance of payment crisis in 1991. Along with the emergency funding from IMF,a series of economic reforms was announced. Enter NARASIMHAN part I and II , and the scenechanged altogether. While the signals were evident much earlier when the VAGHULCOMMITTEE recommendations were accepted for developing the money market, financial sector reforms truly set in for the Indian banking industry from 1992.The deregulations of interest rates and exchange rates changed the way Indian bankers have long been used to thinking and acting. Because of these reforms banks are forced to take new servicelines, designing innovative products and expanding business horizon into new areas hithertounknown to traditional bankers. In the process banks are now exposes to more risks.The vulnerability to risks- both internal and external- has increased. In such an environment, pregnant with uncertainties, the only way is to counter business risk is to improve the requisiteskills for operating in such a volatility. New products and financial instruments have made inroads 1  into the banking business vocabulary and made it imperative for banks to acquire new skills andimprove their knowledge-base, particularly in new areas such as derivatives, futures, risk management, asset liability management etc.A lot of importance is being attached by the RESERVE BANK OF INDIA to the area of risk management. Banks have been directed to focus on the area of risk management because in today’senvironment, there is a strong need for the bankers to be aware of the risks which they areexposed , and the tolls available for managing such risks, assumes significance.  State Bank of India 2  State Bank of India (SBI), Mumbai Main Branch.  INTRODUCTION: State Bank of India ( SBI ) is the largeststate-ownedbankingandfinancial servicescompany in India, by almost every parameter - revenues, profits, assets,market capitalization, etc. The bank  traces its ancestry toBritish India, through theImperial Bank of India, to the founding in 1806 of  theBank of Calcutta, making it the oldest commercial bank in theIndian Subcontinent. The Government of Indianationalized the Imperial Bank of India in 1955, with theReserve Bank of Indiataking a 60% stake, and renamed it the State Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India.SBI provides a range of banking products through its vast network of branches in India andoverseas, including products aimed atNRIs. The State Bank Group, with over 16,000 branches,has the largest banking branch network in India. With an asset base of $260 billion and $195 billion in deposits, it is a regional banking behemoth. It has a market share among Indiancommercial banks of about 20% in deposits and advances, and SBI accounts for almost one-fifth of the nation's loans.SBI has tried to reduce over-staffing by computerizing operations and golden handshake schemes that led to a flight of its best and brightest managers. These managers took the retirementallowances and then went on to become senior managers in new private sector banks. 3  The State bank of India is the 29th most reputed company in the world according toForbes.State Bank of India is the largest of the   Big Four Banks of India, along withICICI Bank ,Axis Bank andHDFC Bank — its main competitors. 4 State Bank of India Type PublicSector Bank Industry BankingFinancial services Founded  July 1, 1955 Headquarters Mumbai,Maharashtra,India Key people O. P. Bhatt (Chairman ) Products Investment BankingConsumer BankingCommercial BankingRetail BankingPrivate BankingAsset ManagementPensionsMortgagesCredit Cards Revenue ▲ $29.242 billion (2011) Profit ▲ $3.573 billion (2011) Total assets ▲ $345.043 billion (2011) Total equity ▲ $18.712 billion (2011) Owner(s) Government of India Employees 205,997 (2011)
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