A SYNOPSIS ON

“THE CHANGING ROLE OF COMMERCIAL BANKS

IN INDIA”
AT
“AXIS BANK LTD”
BY
KUNDELLA MAHESH
(HALL TICKET NO: 212921672083)
Synopsis for project to be submitted for the award of the
degree of
MASTER OF BUSINESS ADMINISTRATION
OSMANIA UNIVERSITY
2021-2023

AURORA’PG COLLEGE, NAMPALLY

INTRODUCTION
The role of banks in India has changed a lot since economic reforms of 1991. These changes

came due to LPG, i.e. liberalization, privatization and globalization policy being followed by

GOI. Since then most traditional and outdated concepts, practices, procedures and methods of

banking have changed significantly. Today, banks in India have become more customer-

focused and service-oriented than they were before 1991. They now also give a lot of

importance to their rural customers. They are even willing ready to help them and serve

regularly the banking needs of country-side India.

Activities of the commercial banks in India are expanding at a rapid space during the period

after Independence. There is territorial as well as functional. Expansion of the activities of the

bank. Banks which are conservative and conventional in their approach have come out from

their shell and face the challenges of planned economic growth. In recent years non-

conventional sectors are receiving the attention of commercial banks in India. A better

understanding of the implications of financing nonconventional sector by commercial banks

is possible only if one looks back the position of commercial banks during the pre-

nationalization era. Banking in India before nationalization.

Commercial Banks are is the institutions that ordinarily accept deposits from the people and

advances loans. Commercial Banks also create in India; such banks alone are called

Commercial Banks which have been established in accordance with the provisions of the

Banking Regulation Act, 1949. Commercial Banks may be Scheduled Banks of

NonScheduled Banks. Banking Regulation Act, (BR Act), 1949. According to Section 5(c) of

the BR Act, 'a banking company is a company which transacts the business of banking in

India. According to Reserve Banks of India Act 1934, ‘A Scheduled Bank is that bank which

has been included in the second schedule of the Reserve Bank’.

Deposits are funds that commercial banks take in from those who have money and lend to

others who don’t. They serve as a conduit for money moving from one bank to another.
Interest is a term used by banks to describe both the interest they pay on deposits and the

interest they earn on their loans.

On-demand or with limits, deposits are available. To make up for this, banks in most

countries keep the difference between what they pay depositors and what they get from

borrowers.

Because these banks should not keep and lend out part of their deposits in cash or assets that

may be easily turned into money, they also generate money. Depending on the bank’s

evaluation of the needs of its depositors, the amount of cash they reserve is determined.

Federal Reserve, Bank of Japan, and European Central Bank (ECB) reserve requirements are

held in trust by banks. When banks lend the money depositors give them, they generate

money. A portion of the money that’s spent on products and services can be deposited into

another bank, which can subsequently lend the rest. The multiplier effect is a phenomenon in

which the practice of re-lending can be repeated a number of times.

In addition to facilitating trade between countries, loaning money facilitates international

transactions. This means that foreign exchange deals are also carried out using bank money.

Larger industrialisation projects employ banks as consultants, counsellors, and agents. They

have a positive impact on a country’s economic progress.

II. CLASSIFICATION OF COMMERCIAL BANKS

1. Scheduled banks: - Banks which have been included in the Second Schedule of RBI Act

1934. They are categorized as follows:

2. Public Sector Banks: - are those banks in which majority of stake are held by the

government. Eg. SBI, PNB, Syndicate Bank, Union Bank of India etc.

3. Private Sector Banks: - are those banks in which majority of stake are held by private

individuals. Eg. ICICI Bank, IDBI Bank, HDFC Bank, AXIS Bank etc.

4. Foreign Banks: - are the banks with Head office outside the country in which they are

located. Eg. Citi Bank, Standard Chartered Bank, Bank of Tokyo Ltd. etc.

5. None scheduled commercial banks: - Banks which are not included in the Second

Schedule of RBI Act 1934.

THEORETICAL REVIEW
The changing role of banks in India can be glanced in points depicted below.

The following points briefly highlight the changing role of banks in India.
1. Better customer service,
2. Mobile banking facility,
3. Bank on wheels scheme,
4. Portfolio management,
5. Issue of electro-magnetic cards,
6. Universal banking,
7. Automated teller machine (ATM),
8. Internet banking,
9. Encouragement to bank amalgamation,
10. Encouragement to personal loans,
11. Marketing of mutual funds,
12. Social banking, etc.
The above-mentioned points indicate the role of banks in India is changing. Now let's discuss
how banking in India is getting much better day after day.

1. Better Customer Service

Before 1991, the overall service of banks in India was very poor. There were very long
queues (lines) to receive payment for cheques and to deposit money. In those days, some
bank staffs were very rude to their customers. However, all this changed remarkably after
Indian economic reforms of 1991.
Banks in India have now become very customer and service focus. Their service has become
quick, efficient and customer-friendly. This positive change is mostly due to rising
competition from new private banks and initiation of Ombudsman Scheme by RBI.

2. Mobile Banking

Under mobile banking service, customers can easily carry out major banking transactions by
simply using their cell phones or mobiles.
Here, first a customer needs to activate this service by contacting his bank. Generally, bank
officer asks the customer to fill a simple form to register (authorize) his mobile number. After
registration, this service is activated, and the customer is provided with a username and
password. Using secret credentials and registered phone, customer can now comfortably and
securely, find his bank balance, transfer money from his account to another, ask for a cheque
book, stop payment of a cheque, etc.
Today, almost all banks in India provide a mobile-banking service.
3. Bank on Wheels

The 'Bank on Wheels' scheme was introduced in the North-East Region of India. Under this
scheme, banking services are made accessible to people staying in the far-flung (remote)
areas of India. This scheme is a generous attempt to serve banking needs of rural India.

4. Portfolio Management

In portfolio management, banks do all the investments work of their clients.

Banks invest their clients' money in shares, debentures, fixed deposits, etc. They first enter a
contract with their clients and charge them a fee for this service. Then they have the full
power to invest or disinvest their clients' money. However, they have to give safety and profit
to their clients.

5. Issue of Electro-Magnetic Cards

Banks in India have already started issuing Electro-Magnetic Cards to their customers. These
cards help to carry out cash-less transactions, make an online purchase, avail ATM facility,
book a railway ticket, etc.
Banks issue many types of electro-magnetic cards, which are as follows:
1. Credit cards help customers to spend money (loaned up to a certain limit as previously
settled by the bank) which they don't have in hand. They get a monthly statement of their
purchases and withdrawals. Along with the transacted amount, this statement also
includes the interest and service fee. The entire amount (as reflected in the statement of
credit card) must be paid back to the bank either fully or in installments, but before due
date.
2. Debit cards help customers to spend that money which they have saved (credited) in
their individual bank accounts. They need not carry cash but instead can use a debit card
to make a purchase (for shopping) and/or withdraw money (get cash) from an ATM. No
interest is charged on the usage of debit cards.
3. Charge cards are used to spend money up to a certain limit for a month. At the end of
the month, customer gets a statement. If he has a sufficient balance, then he only had to
pay a small fee. However, if he doesn't have a necessary balance, he is given a grace
period (which is generally of 25 to 50 days) to repay the money.
4. Smart cards are currently being used as an alternative to avail public transport services.
In India, this covers Railways, State Transport and City (Local) Buses. Smart card has an
integrated circuit (IC) embedded in its plastic body. It is made as per norms specified by
ISO.
5. Kisan credit cards are used for the benefit of the rural population of India. The Indian
farmers (kisans) can use this card to buy agricultural inputs and goods for self-
consumption. These cards are issued by both Commercial and Co-operative banks.

6. Universal Banking

In India, the concept of universal banking has gained recognition after year 2000. The
customers can get all banking and non-banking services under one roof. Universal bank is
like a super store. It offers a wide range of services, including banking and other financial
services like insurance, merchant banking, etc.

7. Automated Teller Machine (ATM)

There are many advantages of ATM. As a result, many banks have opened up ATM centres
to offer convenience to their customers. Now banks are operating ATM centres not only in
their branches but also at public places like airports, railway stations, hotels, etc. Some banks
have joined together and agreed upon to set up common ATM centres all over India.

8. Internet Banking

Internet banking is also called as an E-banking or net banking. Here, the customer can do
banking transactions through the medium of the internet or world wide web (WWW). The
customer need not visit the bank's branch. Through this facility, the customer can easily
inquiry about bank balance, transfer funds, request for a cheque book, etc. Most large banks
offer this service to their tech-savvy customers.
9. Encouragement to Bank Amalgamation

Failure of banks is well-protected with the facility of amalgamation. So depositors need not
worry about their deposits. When weaker banks are absorbed by stronger banks, it is called
amalgamation of banks.

10. Encouragement to Personal Loans

Today, the purchasing power of Indian consumers has increased dramatically because banks
give them easy personal loans. Generally, interest charged by the banks on such loans is very
high. Interest is calculated on reducing balance. Large banks offer loans up to a huge amount
like one crore. Some banks even organise Loan Mela (Fair) where a loan is sanctioned on the
spot to deserving candidates after they submit proper documents.

11. Marketing of Mutual Funds

A mutual fund collects money from many investors and invests the money in shares, bonds,
short-term money market instruments, gold assets; etc. Mutual funds earn income by interest
and dividend or both from its investments. It pays a dividend to subscribers. The rate of
dividend fluctuates with the income on mutual fund investments. Now banks have started
selling these funds in their own names. These funds are not insured like other bank deposits.
There are different types of funds such as open-ended funds, closed-ended funds, growth
funds, balanced funds, income funds, etc.

12. Social Banking

The government uses the banking system to alleviate poverty and unemployment. Many
social development programmes are initiated by the banks from time to time. The success of
these programmes depends on financial support provided by the banks. Banks supply a lot of
finance to farmers, artisans, scheduled castes (SC) and scheduled tribe (ST) families,
unemployed youth and people living below the poverty line (BPL).
STATEMENT OF THE PROBLEM

Commercial banks are vital to a nation’s economy. They offer essential banking services to

end users and help create market capital and liquidity by taking consumers’ funds and lending

them to others.

Commercial banks play a role in credit creation, which increases production, employment,

and consumer spending, thereby boosting the economy. These banks are heavily regulated by

the central bank of that country, the RBI, in India. For example, central banks impose reserve

requirements on commercial banks, which means that the commercial banks would need to

hold a certain percentage of their consumer deposits at the central bank in case of a rush to

withdraw funds from the general public. These entities help markets thrive and, if their

influence is used well, can positively foster development so that more people can access

essential services and consumer goods.

NATURE OF THE STUDY

Banks play an important role in capital formation, which is essential for the economic

development of a country. They mobilize the small savings of the people scattered over a

wide area through their network of branches all over the country and make it available for

productive purposes. Now-a-days, banks offer very attractive schemes to attract the people to

save their money with them and bring the savings mobilized to the organized money market.

If the banks do not perform this function, savings either remains idle or used in creating

assets, which are low in scale of plan priorities.

NEED OF THE STUDY

Banks are one of the most important parts of any country. In this modern time money and its

necessity is very important. A developed financial system of the country ensures to attain

development. A modern bank provides valuable services to a country. To attain development

there should be a good developed financial system to support not only the economic but also

the society. So, a modern bank plays a vital role in the socio economic matters of the country.

Some of the important role of banks in the development of a country is briefly showing

below.

SCOPE OF THE STUDY

 Commercial Banks safely accommodate the savings of individuals and lend them out
to people or manufacturers.
 Banks safely accommodate the savings of individuals and lend them out to people or
manufacturers.
 When necessary, manufacturers take out loans from banks. In order to finance the
acquisition of raw materials and other necessities, loans are required. The safest
method of obtaining funds is through a bank. As a result, interest can be accrued. New
capital assets can be created by utilising the deposits in banks.
 Shares and debentures can also be sold through banks, as well as other financial
instruments. Industrial banks provide long-term loans to manufacturers and aid in the
development of new companies and industrial firms.
 More money is required for exchange transactions as a result of the company’s
growth. There is typically a limit to how much a country’s currency may grow. When
additional funds are required, they may be immediately withdrawn from a bank
account. Banks play a vital role in a developing economy since they are the primary
providers of money.
OBJECTIVES OF THE STUDY

 The central objective of the study is to empirically investigate the role of Indian banks
in Capital formation and economic growth.
 To analyze the impact of banks’ deposit mobilization on capital formation and
economic growth in India

 To determine the association existing between capital formation and economic growth
in India.

RESEARCH METHODOLOGY

The commercial banks serve as the king pin of the financial system of the country.
They render many valuable services. Commercial banks provide banking services to
businesses and consumers through a network of branches. These banks are in business
to make a profit for their owners and they are usually public limited companies
managed by shareholders. In India, however, most of the top commercial banks are
owned by the government. But many private commercial banks have been established
in the recent years. Commercial banks are all-purpose banks that perform a wider
range of functions such as accepting demand deposits, issuing cheques against saving
and fixed deposits, making short-term business and consumer loans, providing
brokerage services, buying and selling foreign exchange and so on. The functions of
commercial banks are explained below:
Primary functions Collection of deposits.
Making loans and advances.
 INDUSTRY PROFILE

A bank is a financial institution that accepts deposits and channels those deposits into

lending activities. Banks primarily provide financial services to customers while enriching

investors. Government restrictions on financial activities by banks vary over time and

location. Banks are important players in financial markets and offer services such as

investment funds and loans. In some countries such as Germany, banks have historically

owned major stakes in industrial corporations while in other countries such as the United

States banks are prohibited from owning non-financial companies. In Japan, banks are

usually the nexus of a cross-shareholding entity known as the keiretsu. In France,

bancassurance is prevalent, as most banks offer insurance services (and now real estate

services) to their clients.

Introduction

India’s banking sector is constantly growing. Since the turn of the century, there has been a

noticeable upsurge in transactions through ATMs, and also internet and mobile banking.

Following the passing of the Banking Laws (Amendment) Bill by the Indian Parliament in

2018, the landscape of the banking industry began to change. The bill allows the Reserve

Bank of India (RBI) to make final guidelines on issuing new licenses, which could lead to a

bigger number of banks in the country. Some banks have already received licenses from the

government, and the RBI's new norms will provide incentives to banks to spot bad loans and

take requisite action to keep rogue borrowers in check.

Over the next decade, the banking sector is projected to create up to two million new jobs,

driven by the efforts of the RBI and the Government of India to integrate financial services

into rural areas. Also, the traditional way of operations will slowly give way to modern

technology.
 COMPANY PROFILE

AXIS BANK

Axis Bank India, the first bank to begin operations as new private banks in 1994 after the

Government of India allowed new private banks to be established. Axis Bank was jointly

promoted by the Administrator of the specified undertaking of the

 Unit Trust of India (UTI-I)

 Life Insurance Corporation of India (LIC)

 General Insurance Corporation Ltd.

Also with associates viz. National Insurance Company Ltd., the New India Assurance

Company, The Oriental Insurance Corporation and United Insurance Company Ltd.

EVOLUTION:

UTI was established in 1964 by an Act of Parliament; neither did the Government of India

own it nor contributes any capital. The RBI was asked to contribute one-half of its initial

capital of Rs 5 crore, and given the mandate of running the UTI in the interest of the unit-

holders. The State Bank of India and the Life Insurance Corporation contributed 15 per cent

of the capital each, and the rest was contributed by scheduled commercial banks which were

not nationalized then. This kind of structure for a unit trust is not found anywhere else in the

world. Again, unlike other unit trusts and mutual funds, the UTI was not created to earn

profits.

In the course of nearly four decades of its existence, it (the UTI) has succeeded phenomenally

in achieving its objective and has the largest share anywhere in the world of the domestic

mutual fund industry. '' The emergence of a "foreign expert" during the setting up of the UTI

makes an interesting story. The announcement by the then Finance Minister that the

Government of India was contemplating the establishment of a unit trust caught the eye of
Mr. George Woods, the then President of the World Bank. Mr. Woods took a great deal of

interest in the Indian financial system, as he was one of the principal architects of the AXIS,

in which his bank, First Boston Corporation Bank, had a sizeable shareholding. Mr. Woods

offered, through Mr. B.K. Nehru, who was India's Executive Director on the World Bank, the

services of an expert. The Centre jumped at the offer, and asked the RBI to hold up the

finalization of the unit trust .Proposals till the expert visited India. The only point Mr.

Sullivan made was that the provision to limit the ownership of units to individuals might

result in unnecessarily restricting the market for units. While making this point, he had in

mind the practice in the US, where small pension funds are an important class of customers

for the unit trusts. The Centre accepted the foreign expert's suggestion, and the necessary

amendments were made in the draft Bill. Thus, began corporate investment in the UTI, which

received a boost from the tax concession given by the government in the 1990-91 Budget.

According to this concession, the dividends received by a company from investments in other

companies, including the UTI, were completely exempt from corporate income tax, and

provided the dividends declared by the investing company were higher than the dividends

received.