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Executive Summary
The growing needs of individuals and business enterprises over the years
saw an immense change in economies across the globe. This increase led
to globalization - where business entities were open to take risks not only in
their country, but foreign nations as well. This, in turn, led to the
liberalization of economies and deregulation of certain guidelines set by
regulatory and supervisory authorities.
The Indian Banking system has The Reserve Bank of India (RBI) as the
apex body for all matters relating to the banking system. It is the ‘Central
bank’ of India and known as the banker to all other banks.
A business plan synthesizes all the essential aspects and information about
a company, whether it is being developed or already in operation. The
business plan is a substantial, detailed document containing the principal
data about the structure of the company. This includes the object of activity,
a market analysis, the specific approach to strategic marketing of the
company, management structure and personnel and all relevant financial
information.
A business plan is a valuable tool, required both for small- and medium-
sized companies as well as for major corporations, whether they wish to
start a business or to help it grow. When managers put down on paper the
data necessary to create a business plan, they are forced to organize and
Synthesizing all the data needed and structuring them into a specific
business plan is not a task to be undertaken lightly. A guesstimate analysis
is required, to take existing data into account and keep within reasonable
bounds. While it may take up to several months to formulate a viable plan,
once accomplished, it will bring about real, important benefits.
The art of writing a business plan, lies not only in the content but in the way
it is presented so as to result in a professional, convincing material.
The first requirement is a general one that should be used in the case of
any written (or spoken) statement: in order to transmit information in a
coherent, appealing manner, the business plan writer should observe the
main principles of discourse. These are: clarity, brevity/conciseness, logic
and truthfulness. In order to gain consistency and credibility, the presented
information should be backed up with figures whenever possible.
The second main requirement when writing business plans is that you
always have to keep in mind the target readers of your work and thus
putting emphasis on their particular points of interest. But this stage is a
customizable one that will be grafted on a basic common structure. Usually,
business plans have the following components:
a) Executive Summary
b) The Product/Service
c) The Market
d) The Marketing Plan
e) The Competition
f) Operations
g) The Management Team
h) Personnel
The first page of your business plan should be a persuasive summary that
will entice a reader to take the plan seriously and read on. The Executive
Summary should follow the cover page, and not exceed two pages in
length.
not burden the reader with technical explanations or industry jargon that he
or she will not be familiar with.
Discuss any barriers that you face in bringing the product to market, such
as government regulations, competing products, high product development
costs, the need for manufacturing materials, etc.
c) The Market
Once you have identified who your market is, you'll need to explain your
strategy for reaching the market and distributing your product or service.
Potential investors will look at this section carefully to make sure there is a
viable method to reach the target market identified at a price point that
makes sense.
Analyze your competitors' marketing strategies to learn how they reach the
market. If their strategy is working, consider adopting a similar plan. If there
is room for improvement -- work on creating an innovative plan that will
position your product or service in the minds of your potential customers.
The most effective marketing strategies typically integrate multiple
mediums or promotional strategies to reach the market. The following are
some promotional options to consider.
TV / Radio / Print
Web (internet) / Direct mail
Public relations
Promotional materials
Telephone sales
One-on-one sales
Once you have identified how you will reach the market, discuss in detail
your strategy for distributing the product or service to your customers. Will
you mail order, personally deliver, hire sales reps, contract with distributors
or resellers, etc.?
e) The Competition
f) Operations
Now that you have had an opportunity to really sell your idea and attract
potential investors, the next question on their mind is how you will
implement the idea. What resources and processes are necessary to get
the product to market. This section of the plan should describe the
manufacturing, R&D, purchasing, staffing, equipment and facilities required
for your business.
In addition, describe the vendors you will need to build the business. Do
you have current relationships or do you need to establish new ones? Who
will you choose and why.
For most investors the experience and quality of the management team is
the most important aspect they evaluate when investing in a company.
Investors must feel confident that the management team knows its market,
product and has the ability to implement the plan. In essence, your plan
must communicate management's capabilities in obtaining the objectives
outlined in the plan. If this area is lacking, your chances for obtaining
financing are bleak.
If your team lacks in a critical area, identify how you plan on compensating
for the void. Whether it is additional training required or additional
management staff needed, show that you know the problem exists, and
provide your options for solutions.
When preparing this section of the business plan you should address the
following five areas:
h) Personnel
prompt and courteous service. You must consider the following questions
in completing this section of the business plan:
What are your current personnel needs (full or part-time)? How many
employees do you envision in the near future and then in the next
three to five years?
What skills must your employees have? What will their job
descriptions be?
Are the people you need readily available and how will you attract
them?
The business plan implementation puts theory into practice. If theory and
practice do not come together, the plan will remain on the drawing board.
The business plan must be implemented with due regard to deadlines set.
The responsibility of each individual involved in the plan must be clearly
delineated.
The implementation plan must form an integral part of the business plan.
The manager must have a clear idea of the practical impact of his business
ideas.
Steps
b) Defining and assigning the tasks needed to attain the objectives set
Objectives
The objectives must be clearly and concisely set out, with the planning of
key stages. They must at the same time be realistic, demanding but
achievable.
Tasks
The tasks must be listed with the individuals responsible for completing
each task. They must be simply and clearly stated, and need not be
oppressive. The results envisaged should outweigh the time and effort
devoted to the tasks.
Timescale
Each task, and its duration, must be framed within a clear timescale. The
result clearly displays all the activities necessary with their deadlines.
Within a business plan, several implementation plans will be needed for the
particular aspects of the business: product planning, marketing, financial
problems and human resource management.
Thus, the business plan can be reevaluated, say, every month. This
squashes any potential problems at an early stage. Recovery is more
straightforward and there are no unpleasant consequences.
Keeping your business plan under close observation may also reveal,
and help you anticipate, new tendencies on the market.
Another advantage of updating the business plan frequently lies in
the detailed written record of the development of your business. For
many investors or bankers this will constitute proof that your business
management plan is clear-eyed, calculated and responsible.
Most of the activities a Bank performs are derived from the above
definition. In addition, Banks are allowed to perform certain activities which
are ancillary to this business of accepting deposits and lending. A bank's
relationship with the public, therefore, revolves around ‘accepting deposits’
and ‘lending money’. Other activities which are assuming increasing
importance are as follows:
I. Accepting Deposits:
Accepting deposits is one of the two major activities of a Bank. Banks are
called custodians of public money. Basically, the money is accepted as
deposit for safe keeping. But since the Banks use this money to earn
interest from people who need money, Banks share a part of this interest
with the depositors. The quantum of interest depends upon the tenor -
length of time for which the depositor wishes to keep the money with the
Bank - and the ease of withdrawal. The thumb rule is, longer the tenor,
higher the rate of interest and lesser the restrictions on withdrawal, lesser
the interest. Deposits are accepted from both, resident (domestic) and Non-
Resident Indian customers.
Lending money is one of the two major activities of any Bank. Banks accept
deposit from public for safe-keeping and pay interest to them. They then
lend this money to earn interest on this money. In a way, the Banks act as
intermediaries between the people who have the money to lend and those
who have the need for money to carry out business transactions. The
difference between the rate at which the interest is paid on deposits and is
charged on loans, is called the "spread". Banks lend money in various
forms and they lend for practically every activity. The types of loans
available through the banks in India are as follows:
a. Commercial Lending
This is the mainstay of Indian Banking - its bread and butter activity.
Although historically, this activity had been relegated to a secondary
position as banks were driven by the desire to excel themselves in what is
known as "priority sector banking" yet it is this part of their loan portfolio
which has kept them afloat and help meet the costs. This activity survived
despite a number of restrictions imposed on it in the past. Today fresh and
innovative products are being launched to facilitate the corporate customer
who forms the core of this business. There is big competition among banks
to secure bigger share of this business.
ii. Retail Loans: This type of lending is meant for very small
entrepreneurs as well as individuals who are engaged in gainful
commercial activity and have the capacity to repay the loan. This
in turn, depends upon the monthly income.
Most banks nowadays have a product for financing the purchase
of automobiles and other consumer durable items.
b. Priority Sector Lending
In a recent notification issued on 19th May 2008, the RBI said that the
recently issued guidelines on the priority sector have been modified to
include loans granted to persons who belong to the weaker sections and
are from minority communities. Banks have to lend up to 40 per cent of
their adjusted net bank credit to the priority sector, which include farmers,
borrowers of home loans up to Rs 20 lakh, and education loans up to Rs 10
lakh for domestic education and Rs 20 lakh for overseas education.
Home loan is the latest craze in the banking sector with the development of
the infrastructure. The RBI has also liberalized the interest rates of home
loan in order to match the repayment capability of even middle class
people. Almost all banks are dealing in home loan. SBI, ICICI, HDFC,
HSBC are the leading banks. Home Loans, Home extension loans, home
improvement loans, Non Resident Indian (NRI) loans and home equity
loans fall under the category of housing loans. In May 2008, the limit of
bank loans for housing was enhanced to Rs.30 lakh from Rs.20 lakh by the
Reserve Bank of India
The word overdraft means the act of overdrawing from a Bank account. In
other words, the account holder withdraws more money from a Bank
Account than has been deposited in it. This Facility is available to current
account holders and prime lenders
Bill discounting is a major activity with some of the smaller Banks. Under
this type of lending, the bank, takes the bill drawn by borrower on the
customer and pays him immediately deducting some amount as
discount/commission. The Bank then presents the Bill to the borrower's
customer on the due date of the Bill and collect the total amount. If the bill
In the days ahead, merchant bankers have very significant role to play
tuning their activities to the requirements of the growth pattern of corporate
sector, the industry and the economy as a whole, which is, in it, a
challenging task and to meet these challenges merchant bankers will have
to be more vigorous and strategic in playing their role. They will have also
to adopt new ways and means in discharging their role.
a. Underwriting:
b. Syndication of Loans:
One of the greatest advantage to a lender (bank) and the main reason to
arrange for a loan syndicate, is to diversify the risk of loans with high value.
This results in mitigation of credit risk and exposure to a single borrower.
Loan syndication also gives smaller banks an opportunity to invest in larger
and more profitable ventures.
A credit card is a system of payment named after the small plastic card
issued to users of the system. In the case of credit cards, the issuer lends
money to the consumer (or the user) at a fixed rate of interest. A user is
issued credit after an account has been approved by the credit provider,
and is given a credit card, with which the user will be able to make
purchases from merchants accepting that credit card up to a pre-
established credit limit. Each month, the credit card user is sent a
statement indicating the purchases undertaken with the card, any
outstanding fees, and the total amount owed. The cardholder must pay a
defined minimum proportion of the bill by a due date, or may choose to pay
a higher amount up to the entire amount owed. The credit provider charges
interest on the amount owed. Credit card issuers waive interest charges if
the balance is paid in full each month.
A debit card is very similar to a cash card, but it allows you to do a lot more
than use an ATM machine. A debit card is like an electronic cheque that
you can use to pay for goods and services. When you use a debit card to
pay for something, the money will normally be taken from your account
within three working days. As the money is automatically taken from your
account, it means that you can only spend the amount that’s available in
your account at the time. A debit card can be used at an ATM machine.
The card holder will be issued with a Personal Identification Number (PIN
number) which needs to be keyed in each time the card is used.
b. ATM Services
c. Online Banking
i. The Basic Level Service is the banks’ web sites which disseminate
information on different products and services offered to customers
and members of public in general. It may receive and reply to
customer’s queries through e-mail.
ii. In the next level are Simple Transactional Web sites which allows
customers to submit their instructions, applications for different
d. Mobile Banking
Only banks which are licensed and supervised in India and have a
physical presence in India will be permitted to offer mobile banking
services.
The services shall be restricted only to customers of banks and
holders of debit/credit cards issued as per the extant Reserve Bank of
India guidelines.
Only Indian Rupee based domestic services shall be provided. Use of
mobile banking services for cross border transfers is strictly
prohibited.
Banks may also use the services of Business Correspondent
appointed in compliance with RBI guidelines, for extending this facility
to their customers.
Only banks who have implemented core banking solutions would be
permitted to provide mobile banking services.
Banks shall put in place a system of document based registration with
mandatory physical presence of their customers, before commencing
mobile banking service.
On registration of the customer, the full details of the Terms and
Conditions of the service offered shall be communicated to the
customer.
A per transaction limit of Rs. 2500/- shall be imposed on all Mobile
Banking transactions. Subject to an overall cap of Rs. 5000/- per day,
per customer.
a. Bancassurance
operating expenses, and one way to build fee income is through the sale of
insurance products. Banks that effectively cross-sell financial products, can
leverage their distribution to earn higher from this avenue.
RBI guideline for banks entering into insurance sector provides three
options for banks. They are:
Each bank that sells insurance must have a chief insurance executive
to handle all the insurance activities.
b. Mutual Funds
Mutual fund is a kind of trust that manages the pool of money collected
from various investors and it is managed by a team of professional fund
managers (usually called an Asset Management Company) for a fee. The
investments by the Mutual Funds are made in equities, bonds, debentures,
call money etc., depending on the terms of each scheme floated by the
Fund. The current value of such investments is now-a-days calculated
almost on daily basis and the same is reflected in the Net Asset Value
(NAV) declared by the funds from time to time. This NAV keeps on
changing with the changes in the equity and bond market. Therefore, the
investments in Mutual Funds is not risk free, but a good managed Fund can
give you regular and higher returns than when you can get from fixed
deposits of a bank etc.
The origin of mutual fund industry in India is with the introduction of the
concept by UTI in the year 1963. Though the growth was slow, but it
accelerated from the year 1987 when non-UTI players entered the industry.
In India today, most banks offer Mutual Fund Schemes for investment in
the Indian as well as foreign market. The provisions for overseas
investments by Mutual Funds registered with Securities and Exchange
Board of India (SEBI) have been further liberalized and enhanced from
USD 4 billion to USD 5 billion.
The State Bank of India, UTI, Canara Bank, Punjab National Bank,
CitiBank, HDFC and HSBC are among the large players. The Bank of India
and The Union Bank have recently entered the Mutual Fund market.
As a business avenue, Mutual Funds are gaining more and more pace and
banks are putting their best efforts to draw potential customers in order to
increase their fee-based income.
c. Factoring Services
The three parties directly involved are: the seller, debtor, and the factor.
The seller is owed money (usually for work performed or goods sold) by the
second party, the debtor. The seller then sells one or more of its invoices at
a discount to the third party, the Bank (factor) to obtain cash. The debtor
then directly pays the factor the full value of the invoice.
Reserve Bank of India in its notification dated 12th February 2008, has
permitted banks to extend financial assistance to support the factoring
business of Factoring Companies which comply with the following criteria:
internet etc. It allows the user (customers) to operate accounts from any
branch if it has installed core banking solutions.
The Four standard software tools used are Intellect Suite from POLARIS,
Flexcube from iFlex Solutions, Finacle from Infosys, and B@ncs from
TATA Consultancy Services.
Most of the nationalized banks in India for example: State Bank of India,
Punjab National Bank, Canara Bank, Allahabad Bank, HDFC and ICICI
Bank today supports core banking.
Case Study
As of 2008, the bank has a network of 2641 branches, spread across India
and other countries. Its head office is located in Bangalore, India. The bank
also has international presence in several centers, including London, Hong
Kong, Moscow, Shanghai, Doha, and Dubai. In terms of business it is one
Subsidiary Companies
Canara Bank's Net profit for the first half year of FY08 recorded a 16.18%
growth to reach Rs.642 crore, after making a total provision of Rs.620
crore, compared to a net profit level of Rs.553 crore for the corresponding
period of last year. Net profit for the second quarter of the FY08 reached
Rs.402 crore as compared to Rs.362 crore in the corresponding quarter a
year ago, recording a y-o-y growth of 11%. Sequentially, net profit for Q2
registered a 67% growth over Q1 in the current financial. Operating profit
for Q2 stood at Rs.650 crore, recording a growth of 8.41% as against
Rs.600 crore for the same period last year.
With a strong 39% growth in the interest income from core lending
operations, the Bank's total income registered a 36% growth to touch
Rs.7815 crore as against Rs.5733 crore for the same period of the previous
year. Non-interest income for the half year amounted to Rs.952 crore,
registering a 76% growth. Total expenditure for the half year under review
stood at Rs.6552 crore. Aggregate business of the Bank reached a level of
Rs.2,40,537 crore as at September 2007, registering a 18% growth
compared to Rs.2,04,692 crore for September 2006.
Continuing the focus on SME financing and its growing importance in the
Indian economy, credit to SME segments recorded a 35.49% y-o-y growth
to reach Rs.16385 crore as at September 2007 compared to a level of
Rs.12093 crore a year ago. Canara Bank was awarded the "First National
Award", instituted by the Ministry of Micro, Small & Medium Enterprises,
Govt. of India for excellence in "Micro & Small Enterprises (MSE) Lending"
for 2006-07. Shri M B N Rao, C&MD received the prestigious award from
the Honorable Prime Minister of India, Dr. Manmohan Singh on 30th
August 2007.
In the InfoTech arena, the Bank continued to make consistent progress for
enhancing tech-enabled service delivery channels in tune with the growing
customer demands and fast and effective delivery of products/services.
The Bank has so far brought in 331 branches under Core Banking Solution.
The ATM strength of the Bank has further moved to 1485, covering 566
centres. With the ATM sharing arrangement under National Financial
Switch (NFS) and alliance with SBI group, the Bank's customers have now
wider access to more than 23,000 ATMs across the country. As at
September 2007, the Debit-cum-ATM card base of the Bank stood at over
27 lakh. With 1157 branches providing Internet and Mobile Banking (IMB)
services, Anywhere Banking (AWB) services were further expanded to
cover 1717 branches of the Bank.
In pursuit of the global aspirations, the Bank has moved a step closer in its
overseas expansion drive, with permission by the RBI for commissioning of
five branches obtained out of the 21 international centres identified for
expansion in the medium term. Its Representative Office at Shanghai is
being converted into a full fledged branch shortly.
The Bank targets a global business level of Rs.2,90,000 crore for 2007-08,
with a growth rate of over 20%, comprising Rs.1,70,000 crore under
deposits and Rs.1,20,000 crore under advances. Advances growth will be
significantly driven by agriculture, SME, infrastructure and other productive
segments, including services sector.
Besides the individual capital contribution, HSBC would take charge of the
management services including providing senior level executives to the
company. The nascent Life insurance market in India has shown great
growth potentials that is being capitalized by the private insurers entering
the market. In this scenario, Canara HSBC Oriental Life Insurance has a
promising future.
''With the support of Canara Bank and Oriental Bank of Commerce and
HSBC's insurance expertise, we have made significant progress in getting
the company ready to operate. All three shareholders are committed to
ensuring that the new company is operated to world-class standards and is
competitive in India's fast-growing insurance market,'' David L Fried,
Chairman and Chief Executive of HSBC Insurance (Asia-Pacific) Holdings
Limited.
Conclusion
The merchant banker plays a vital role in channelising the financial surplus
of the society into productive investment avenues. The use of technological
facilities by banks makes payment mechanism speedy and hassle free.
ATMs and Credit Cards are the need of the hour. People today own credit
cards with an intention to earn status, and some, since it is much easier
than to carry bundles of currency notes. Banks today, are absorbing
maximum advantage of these situations to earn fee based income. This is
possible when card holders make interbank transactions or exceed credit
limits. Banks also induce customers to deposit upto a certain amount in
order to get additional facilities on the credit card.
Consumer Loans and corporate loans today, are available for practically
any commodity. Rates are being sacked by the RBI in order to meet the
needs of the market. This in one way may prove negative, because
reduction of interest rates would induce customers to borrow more and this
can put the bank at a risk of non-repayment of principal and interest. The
most interesting fact about business planning by banks is that, banks
cannot work under rules set by them. They must function under a
framework of regulations, be it in the sector of providing advances or
making technological changes. Even new business avenues that are being
entered into must gain prior approval of various regulatory authorities.
BIBLIOGRAPHY
http://www.rbi.org.in
http://www.sebi.gov.in
http://www.irdaindia.org
http://va-interactive.com
http://www.businessplanning.ws
http://www.indiahousing.com
http://www.banknetindia.com
http://money.rediff.com
http://finance.indiamart.com
http://economictimes.indiatimes.com
http://www.financialexpress.com