C H A P T E R 4 PROFILE OF IRAQI AND INDIAN BANKING SECTOR WITH REFERENCE TO SELECTED COMMERCIAL BANKS

4.1 Profile of Iraqi Banking Sector with Reference to Selected Commercial Banl^^s

4.1.1 Historical Background

4.1.2 Profile o f the Iraqi Banking System

4.1.3 The Regulators Bodies o f Disclosure in Iraq

4.1.4 Profile o f the Selected Iraqi Commercial Banks

4.2 Profile of Indian Banking Sector with Reference to Selected Commercial Banks

4.2.1 Historical Background

4.2.2 The Structure o f Indian Banking System

4.2.3 The Profile o f Commercial Banks in India

4.2.4 The Regulators Bodies o f Disclosure in India

4.2.5 Profile of the Selected Indian Commercial Banks

4.3 Summary CHAPTER 4 PROFILE OF IRAQI AND INDIAN BANKING SECTOR WITH REFERENCE TO SELECTED COMMERCIAL BANKS

4.1 Profile of the Iraqi Banking Sector with Reference to Selected Commercial Banks

4.1.1 Historical Background

The banking sector in Iraq plays an important role in the Iraq economy. It is an effective tool to achieve economic development in addition to providing the public with the services and the financial intermediation between different economic sectors in the country. The banking sector has witnessed profound changes due to the changes in the political, economical and social levels the country has undergone. Therefore, Iraq has had different types of banks and financial institutions so far. The first banking activities in Iraq dates back to 3775 B.C. Archeological excavations; it can be shown that there have been developed credit and banking activities during the Babylonian era during which the "Red Temple" represented the most ancient banking institution known in history. Babylonians were the first to invent and use the credit and exchange checks .They were the first people in history who invented the concept of "Document" in business or economic dealings. The codes of Ashnona and Hammurabi have played a big role in the expansion and distribution of the laws that was in relevant to the credit dealings like loan and deposit. The most common banking activities during the Babylonian era were: (Al-Kubaisee ,1979 p. 160)

Deposition. Offering loans against mortgage. - Money transfer between cities. Funds investment.

Temples of priests were not merely places of gods worshipping, they were, in addition, centers to organize credit deals, trades, speculations and other activities in relation to financial operations. The temple of Annu and the Red Temple acted as banks via accepting deposits and granting loans. They had been having wide perennial financial resources in addition to being sacred authorities to organize such financial activities (Georg 1979 p. 149).

Iraq, during the Abbasid era (1000 A.D.), when Baghdad was built to be the capital city of the Islamic empire, has also witnessed various banking and financial activities. Exchange offices were allocated all over the cities offering several services like accepting deposits, giving loans, in addition to dealing with bonds (Al-Kubaisee ,1979 p. 169). The

80 exchange offices continued their activities even after the establishment of mo d e m banks as organizations. Nowadays, the Iraqi banking sector is one of the effective sectors in the stability of the Iraqi financial system, in applying financial and monetary policies of the state. Banks composes the backbone of the Iraqi financial system.

4.1.2 Profile of the Iraqi Banking System

The banking system in Iraq comprises of the central bank, commercial banks, specialized banks and Islamic banks.

4.1.2.ICentral Bank of Iraq (CBI)

In 1947 the national bank was established to fiinction as the central bank of Iraq in issuing currency, management of currency and securing its stability, accomplishing international deals and international transfers in addition to supervising other banks working in the country. In 1950 act No. 34 was issued to regulate and monitor banks activities and to determine the interest rates. In 1956 the name "national bank" was replaced with the CBI to be officially recognized.

The CBI is an independent institution on both financial and management levels. It was established with an amount of a paid up capital of 15 million Dinars. The headquarter was in Baghdad and two regional branches were established in the north (Mosul) and in the south (Basrah). (CBI, 2002, P.21)

In 1976, when Iraq adopted the socialist system in managing the country's economy, the law of the CBI No. 64, was issued to state the management and the financial policies and the monitoring protocols of other working banks. At that time CBI started issuing annual reports that contain economic, financial and monetary data and indicators on integral bases in relevance to all economic sectors including banking sector. These reports were very useful and important sources of information to investors and financial analysts. However, the CBI stopped issuing these reports since 1978 till 2003 due to government tendency to keep this information secret during war times. After 2003 the CBI resumed issuing annual reports of the previous years starting with the year 1991 up to now.(CBI,2004,P.15)

In 2004, the law of the CBI was revised by the coalition provisional authority (CPA) after the invasion of Iraq by the American military troops. This revision was an attempt to regularize some management and monitoring policies to widen the authorities of the central bank in Iraq and to cope with the open-up policy that facilitated the fijnctionality of the foreign banks and the incorporation of the Iraqi-foreign banks. In 2007 another revision was 81 made to the law of the central bank according to law No. 63 which is relevant to activities of the director board. The most important goals achieved by the CBI, in the light of the public policy of the state, are: (CBI, 2008, P.6)

Securing the stability of the domestic currency. - Taking part in solving economic and financial crises and accelerating the economic growth. Providing financial and monetary resources for development projects according to present capacities. - Advising the government with economic, financial matters.

The CBI duties also can be briefed in the following way: (CBI, 2008, P.7)

Issuing and management of Iraqi currency. Management of the state reserves gold and foreign currency. Collecting and publishing the reports relevant to all the economic sectors. Issuing licenses for establishing banks according to banking rules and regulations. Stating and applying the financial policy including the exchange policy of the Iraqi Dinar. Opening accounts in foreign central banks and international financial organizations and vice versa. - Making plans to develop the payment system and to improve its efficiency by executing and revising these plans.

In the light of the regularization and the monitoring developments, witnessed by the CBI, it is possible to define the fields of developments by: (CBI, 2009, P. 16)

Encouraging the foreign investments in the country by facilitating the establishment licenses of the foreign banks. Adopting the international standards of the banking sector like standards of "Basel committee" of "capital adequacy" and C A M E L system of assessment of banks performances. - Guaranteeing the fulfillment of the national and international accounting standards in preparing financial statements and reports by other banks. - Permitting ministries and state institutions to deal with private banks. These dealings were previously limited to public banks. Therefore, motivating a new competition between private and public banks.

82 Increasing the minimum capital of banks to the amount of 50 bilHon dinar instead of 10 billion dinar in an attempt to consolidate banks financial abilities and widen their banking services. Committing other banks to release their audited financial statements in at least two newspapers to support banking disclosure. Adopting auction system in determining the price of the foreign currency and according to supply and demand.

4.1.2.2 Commercial Banks;

Commercial banks in Iraq have witnessed many changes during the previous eras to date; some changes have had negative influences on banks due to the political, economic and social changes in the country. It is possible to describe the development of the commercial banks in Iraq according to the following chronological stages:

A. The period 1890 to 1940:

Establishment of commercial banks in Iraq, as legally managed organizations, dates back to 1890. Before this date, Iraq was part of the Ottoman Empire and only individuals offer some of the banking services like giving loans, accepting deposits and exchange currencies. During that time the currency in use was the Ottoman dinar coined in gold, silver and copper. In 1890 a branch of the Ottomans bank was established in Baghdad to be the first bank in all Arab countries. This bank was a British commercial bank established originally in Turkey and used to provide exchange services like open saving accounts, offering loans, foreign exchange, etc. It also established branches in few Iraqi provinces. In 1963, the British bank became an Iraqi bank after 60% of its capital was acquired by Iraqi bodies. The name was changed to Iraqi credit bank and the bank worked as a Joint Stock Company. In 1912 a branch of the Eastern Bank (Al-Sharqi Bank) was established in Baghdad. It was also a British commercial bank established originally in London with branches in Iraqi provinces. ( Awath Aldlemey,1990,P.173)

In 1917 Iraq was colonized by Britain and the Indian Rupee was used as the official currency. In 1918 a branch of the Iranian Shahinshahi bank was established in Iraq. It was also as British commercial bank that was known later by British Bank of Middle East. In 1932, when Iraq got independent from the British colonization and established Iraqi kingdom, the Iraqi dinar was released to replace the Indian rupee. In 1938, a branch of the Arabic Bank was established in Baghdad to be the first Arabic commercial bank. The bank

83 headquarter was located in Jordan. It is obvious that only foreign bank were working in Iraq during this period of time mainly because Iraq was under the British colonization. The occupation main goal was to achieve the highest possible profit on economic levels ignoring building up an Iraqi banking base which could participate in economic development. The foreign banks were providing all banking facilities in favor of the British companies not supporting any investment projects in Iraq. This situation was backed up with ignorance, poverty and political instability in the country during the British occupation. (Al-Kubaisee ,1979, 201)

B. The period 1941 to 1990

The first Iraqi public commercial bank was established in Baghdad in the year 1941 carrying the name Al-Rafidain Bank. It has many branches in all Iraqi provinces. In 1952, a Lebanese commercial bank established its branch, known as the United Lebanese bank, in Baghdad.

In 1954, the first commercial bank was established in the country as a joint stock company having the name "Iraqi Commercial Bank". In the same year the National Bank for Commerce and Industry was established. It was a French commercial bank which worked for a short period and was shut down in 1959.( Awath Aldlemey, 1990,174)

In 1956, a second Iraqi public commercial bank was established, known as Baghdad bank. In 1957, National Pakistan Bank was established in Baghdad; it was a commercial Pakistani bank. In 1958, the Iraqi kingdom collapsed and Iraq was ruled by a republic regime. The establishment of the Republic of Iraq assigned a turning point from capitalism to socialism that led to profound changes in the banking and accounting system of the country. In 1960, a branch of the Batra Commercial Bank (Lebanese) was established. It worked until 1962 when Iraqis shareholders acquired 68% of its total capital to become an Iraqi bank with new name, "Iraqi United Bank". In 1963, a third Iraqi private commercial bank was established in the name Al-Rasheed Bank. (Amar H, 2009, p.46)

In 1964, the socialism philosophy was adopted by the banking sector and a total number of 10 commercial banks, working at that time in the country, were nationalized. Among these Arabic, Foreign and private banks can be mentioned. These banks were possessed by the government. A state organization, known as the Public Institution for banks, was established to include and supervise all the nationalized banks in addition to Al-Rafidain Bank. The new Institution included four major groups of banks, these are: (Awath Aldlemey, 1990,, 184)

84 ■ Baghdad Bank Group: Encompasses Baghdad Bank and Arabian Bank. ■ Credit Bank Group: Encompasses Credit Iraqi bank and the Lebanese united bank. ■ Iraqi Commercial Bank Group: Encompasses Iraqi commercial bank, British bank and the National Pakistani bank. ■ Al-Rasheed Bank Group: Encompasses Al-Rasheed bank, Eastern Bank and the Iraqi United Bank. ■ Al-Rafidain Bank.

In 1970, restructuring of the above mentioned groups was accomplished and groups were merged with two banks, those are Al-Rafidain Bank and The Iraqi Commercial Bank. In addition to, that the Public Institution for Banks was canceled and the Ministry of Finance took over all authorities. Banks, since then, have been under the supervision of the Ministry of Finance.

In 1974, the two Iraqi commercial bank and Al-Rafidain bank were merged so that Al- Rafidain became the only commercial bank in the country. Al-Rafidain Bank has had many branches all over Iraq since then in addition to branches in Jordan, Lebanon, UAE, Yemen, Bahrain and Egypt. It is worth mentioning that Al-Rafidain Bank has had a branch in London since 1954. It also acquired share-holds in the capitals of the "Arab - French Banks Union" and the "Arabic - Afiican Bank". Al-Rafidain bank was rated among the biggest Arabic and international banks. It was the biggest Arabic bank and was rated 120 among the 500 biggest international banks during 1978. CBI,2002,P.8)

Due to the administrative burden of Al-Rafidain bank and the government willing to widen the base of the public banking services Al-Rasheed bank was established in 1988 after the division of the administrative staff, the financial resources and the assets of the Al- Rafidain Bank. All branches were divided between the two banks except the abroad branches that remained under the Al-Rafidain bank. It was until 1991 that Iraq had two commercial banks only. One of the major reasons beyond the retreat of the banking performance in Iraq could be the absence of competition due to the limited numbers of the existing banks and the monopoly of the banking sector by the state.

C. The period 1991 to 2003:

The year 1991 has witnessed a radical shift in the financial and banking policies of the government. The government permitted the establishment of private banks after 27 years of monopolizing the banking sector. The Iraqi central bank issued law No. 12 which permitted

85 the establishment of Iraqi private banks to provide all types of banking services. One of the main justifications of this shift was the economic blockade imposed on Iraq by the United Nations after Kuwait was invaded by the Iraqi troops. This shift could be understood or interpreted as the state need to consolidate the capacities of the banking sector and to reduce the burden due to blockade on public banks.

In 1992 the first private commercial bank was established in the name of Baghdad Bank after which establishment of several private banks followed. In 1997 the law of public companies No. 22 was issued which transformed_Al-Rafidain and Al-Rasheed banks as public companies with wide authorities despite keeping their dependency on the Ministry of Finance.

In 2003 the number of the private banks reached seventeen including one Islamic bank with a total of 175 branches while the two state commercial banks possessed 323 branches distributed all over the country. It is obvious that the public banks dominated the private banks in number and in distribution. During that time the ratio of branches of commercial banks to the population was 1/48000 which was still a fair ratio especially during the economic blockade. (CBI, 2004, P.9)

The most important feature, of this period of time, is the dominance of the private commercial banks on the public banks. The amount of loans, given by private banks, indicates the fact and tells that in 2001 loans of private sector banks amounted IDIIO billion. This amount of loans is more than half the loans offered by the public banks. During that period, the exchange rate of dinar declined to very low level due to the economic blockade. This has negatively affected the performance of the commercial banks and damaged their financial capacities. On the other side the investors and the financial analysts did not pay attention to the financial statements through which banks disclosed their financial performances. These financial statements have adopted the principle of the historical cost in measuring the financial activities which was not compatible with the high inflation rates. The accounting disclosure suffered limitations in relevance to commercial banks and depended mainly on balance sheets, profits and losses account only.

In April 2003, the coalition forces headed by the American military troops invaded Iraq and the political regime was perished with the fall of Baghdad in the face of the American forces. The Iraqi banks were looted and have lost 400 million dollars in addition to other assets of gold ingots and infi-astructures. (Omar El-Quqa, 2008, p.2)

86 The year 2003 is marked as a turning point in the economic and financial policy of Iraq and its subordination to American policy. The invasion has established what is known as the coalition forces and assigned a civil governor, as the chief of these forces in Iraq.

A counselor, in each and every ministry has also been assigned to implement the plan of the invasion. A new currency was issued instead of the ancient cvirrency.

D. The period 2004 to 2008.

The year 2004 has witnessed drastic changes in the banking sector by placing new tasks on its shoulders to cope with the new economic situation which depended on market principles and policies. Making up international banking connections, to consolidate the capacities of the Iraqi banking sector, was one such task. The most important step, taken by the state to open-up to the international market, was to permit the establishment of branches of foreign banks inside the country to invest in the Iraqi banks. A n Iraqi banking law. Number 94, was activated to organize banks activities and their relations with international economy. The most important terms of the law included the following:

i. The legal requirements to establish Iraqi and foreign banks. ii. The minimum capital necessary for bank establishment. It was fixed to 10 billion ID with 12% of capital adequacy. iii. Rules and regulations of banks management like the structure of the Director Board, members’ employment and demission, shareholding and disclosure of common interest, merging in addition to audition committees. iv. Defining the bases of the banking performance like, banks policies, banks practices, payment system, forbidden activities, constraints on investments and banks assets, and preventative measures of banks functionality.

V. Financial statements; their preparation, international and Iraqi standards, channels and periodicity of disclosure. vi. Auditor qualification, auditor assignments, fiilfillment of international and domestic audit standards in disclosure of financial and accounting systems of banks, disclosure of unrevealed critical information and others. vii. Confidentiality of data and information: like clients private data, exceptions and judicial and audition requirements of data. viii. Banks shutdown; requirements and procedures.

In 2005, several investors showed interest to have deals with Iraqi commercial banks, these were as follows: (CBI, 2008, PI9)

87 Figure No.4.1 The structure of Iraqi banking system in 2009 Central Bank of Iraa

Public bank Private bank Foreien bank

Specialized Commercial Commercial Islamic bank bank bank bank

Agricultural Rafidain Sumer Basra Bank of Regional Arab Cooperative Bank Commercial International Cooperation Banking bank Bank Bank For Islamic for Corporation Investment Development and (Bahrain) Raslieed Investment Real Estate Bank Investment Bank Bank Of Iraq Bank Turkish Economic Kurdistan Agricultural Investment International Bank (Zrat) United Bank and funding Bank for Industrial for investment Investment and Bank Development Bank Milli Dar El- (Iran) Mosul Bank for Salam Trade Bank Development Investment The Tigris and Of Iraq and Investment Euphrates Bank Bank Byblos for Development (Lebanese) Bank and Investment Iraq Bank Union Bank of Economic Iraq Investment RnH fiinHina Iraqi Islamic Bank for Credit Bank of Investment and Iraq Bank of the Middle East Iraqi Albilad Islamic Mansur Bank investment Bank for for Investment Investment and Bank Al- funding Trans Iraq Warkaa for bank investment National Bank and funding Islamic Commercial bank Of Iraq Ashur llaf Islamic Bank International Bank for National Bank Investment ofIraa Gulf P’merald Bank Commercial Bank Al Huda bank < Bank of Baghdad Babylon Bank

’'Source: Prepare hy researcher according to CBI (www.Chi.coin)

90 4.1.3 Regulating Bodies of Disclosure in Iraq:

There are several regulating bodies for the accounting disclosure in Iraq that are responsible for issuing the requirements of the mandatory disclosures by banks and companies. The most significant bodies are as follow:

4.1.3.1 The Board of Supreme Audit:

It has been established according to the law NO. 17 in 1971. It was then known as office of auditing general accounts before it was renamed to be “Board of Accounts Auditor General”. In 1986 this body was renamed to its current title; The Board of Supreme Audit. It is an independent organization associated with the council of ministers. It has six branches in the largest cities of Iraq. TTie board of the supreme audit aims to audit the accounts of the governmental sector, public and mixed sector companies, societies and consultant offices. In addition, its mission entails achieving performance assessment of these sectors and providing accounting and regulatory consults. One of the prominent tasks achieved by the Board of Supreme Audit is to establish the Board of Iraqi Accounting Standards in 1988 aiming to form and issue appropriate accounting standards for the economic, social and accounting systems in Iraq taking into account their relevance to the IAS/IFRS. The board comprised members fi-om all ministries in the government including the central bank of Iraq (CBI), Iraq Stock Exchange (ISE) and the Iraqi Accountants Association (I A A), (http ://www.bsairaq .net/page/e home.htm)

It is worth mentioning that, unlike the situation with India, Iraqi government did not order the lAA to construct a national accounting standard. The reason might be that the government tendency is to give these standards a greater deal of consideration by associating the board of supreme audit with the highest auditing authority in the country and widening the participation in creating these standards. The first accounting standard was then released in 1989 after which 14 other standards were created until the year 2002.(appendix No.l shows these standards).

Since 2003 and due to the American invasion, the board has stopped issuing new standards. The Iraqi accounting standards have participated in drawing and determining the accounting policies and the requirements of the mandatory disclosures that have to be achieved by the banks and companies. This has therefore, consolidated the disclosure both quantitatively and qualitatively. The accounting standards No. 10 (Disclosures of the Financial Statements of Banks and the Similar Institutions) is known as the most important standard due to its direct association with the banking sector in Iraq. It is nevertheless in

91 good compatibility with the international accounting standard No.30, (which has been canceled). The Iraqi accounting standard No. 10 include the following items; Scope and Subjective, the idioms, the Principles and the main rules, the disclosure about policies and accounting methods, relative bodies, the Information that must be disclosed in the director report, other judgments and applications. The standard comprised 32 requirements of disclosure deal with accounting policies and methods that have to be disclosed in the financial statements and director report.(http://www.bsairaq.net/page/e home.htm)

4.1.3.2 Ministry of Finance:

Ministry of finance has greatly participated in unifying the accounting systems of the Iraqi banks by issuing the Unified Accounting System for Banks and Insurance Companies in 1988 and by urging all banks to abide by its rules and regulations. It is an accounting system, constructed in the light of the socialist countries experiences. The aim of the constructed system is to find a unified database for all the economic sectors that help with the central planning of the national economy of the country. The unified accounting system is a set of rules and regulations that are associated with the recordation of the accounting database and preparation of budgets in a certain fi'amework of unified rules. The unified accounting system is composed of three main parts: (Ministry of Finance, 1988, pp4-6)

• Chart of Accounts; the chart of accounts is a listing of all the accounts in the general ledger with an explicit explanation for the cases at which every account is to be used. Every account has been given a certain number to simplify the gathering of data and to feed these data easily to the computers. The Chart of Accounts has been divided into two groups, first is account of balance sheet and the second is the account of profits and losses and distributions. • Accounting Treatments: This part of the system includes an exploration and explanation of the regulatory treatments for each account in the Chart of Accounts and the method used in making the entries for each associated banking events and circumstances. The accounting principles, concepts and policies, that are to be implemented while making entries, have also been defined in this part of the Chart in an attempt to achieve compatibility of accounting methods among banks. • Financial statements: The unified accounting system involves prototypes of the financial statements and budgets that have to be prepared by banks so that a unified procedure of presentation and disclosure is implemented in the banking sector. The system has therefore required the preparation of the following:

92 - Balance sheet Account of profits and losses and distributions - Budgets - Cash flow statement

The accounting system has helped unifying the methods of measurements and accounting disclosure in the Iraqi banking sector, hi addition it helped reports users in holding comparisons and analyses to gain appropriate deal of accounting information. The ministry of finance has also named, through the tax law No. 43 in 1995, the financial statements and items that have to be disclosed by banks and companies.

4.1.3.3 Central Bank of Iraq (CBI):

The CBI is the most important body in deciding the disclosure requirements that have to be fiilfilled by the Iraqi banks. Through the banks law No. 94 of 2004, the CBI selected the mandatory items of disclosure, these are (http://www.cbi.iq)

- Annual and Interim Financial Reports - The maximum limit for the publication of the armual and interim reports. - Obliging banks to publish the financial reports in two selected public newspaper. - Obliging banks to subject the annual financial statements for external auditing before publishing them in newspapers. - Obliging banks to fulfill the Iraqi accounting standards.

In addition to that, the CBI has instructed banks regarding the mandatory disclosures and its preparations by stating the law No. 12 of 2007. The following items have to be included in the financial statements and director report:

- Total advances against shares. - Interest income as a percentage of working funds. Operating profit as a percentage of working funds. - Percentage of net NPAs to net advances. - Capital adequacy ratio. - Details pertaining to interest rate swaps. - Movement of NPAs. Return on assets.

93 4.1.3.4 Iraq Stock Exchange:(ISE)

The first stock exchange has been estabhshed in Baghdad according to the law No.24 of 1991 and is known as Baghdad Stock Exchange (BSE). In 2004 it was replaced by the ISE according to the law No. 74, issued by The Coalition Provisional Authority. The ISE has participated in the development and consolidation of the accounting disclosure by banks and companies by constructing and issuing some of the mandatory requirements of disclosure and the lists of banks and companies that acquire stocks in the market. The most important requirements of disclosure in the Iraq stock exchange are (www.isx-iq.net):

- Publication of the annual financial statements; (balance sheet, Income sheets, cash flow statement, statement of changes stockholders). All these statements have to be subjected for auditing. The auditor report and the director report have to also be submitted, too. - Quarterly and comparative financial statements. Limitation of the publication duration of the annual and quarter reports by three months. Obliging banks and companies to accomplish immediate disclosures for contingencies events that may affect the financial position of the bank or the company. - Obliging the banks and companies, listed in the stock exchange, to fijlfill the Iraqi accounting standards.

In addition to that, the ISE urges the banks and the companies to include the following ratios in the disclosure: Income on Assets (%). - Income on Shareholders Equity (%). Earning per share. Ownership rate (%). - Interest repetition. Shareholders Equity to Deposits (%). - Cash to Deposits (%). - Investments to Deposits (%). - Credit to Assets (%). - Currents liabilities/Shareholders Equity (%). - Working Capital/Shareholders Equity (%).

94 4.1.4 Profile of the Selected Iraqi Commercial Banks

4.1.4.1 Rafidain Bank

Rafidain bank was established according to Law No. 33 in 1941. It started providing banking services on 19*'’ may 1941 in Baghdad city with a paid up capital amounted to ID 50000. It was the first national commercial banks owned by the government. At that time foreign banks were working alongside. The Rafidain bank passed through different levels of development and expansion inside/outside Iraq by establishing branches in provinces as well as abroad.(www.rafidain-bank.org/historvE.htm~)

According to the law of Iraqi government No. 100 in 1964, all the private and foreign banks were nationalized, these banks merged with Rafidain Bank and other public Banks. The merging process has strengthened the financial abilities and broadened the banking services of the Rafidain bank as well as the capital of bank amounted to ID 15 million. There was a second merging process in 1974 to include all Iraqi Commercial Banks in a single bank, the Rafidain bank. In the same year had 128 branches (50 of which are in Baghdad, 63 in other provinces and 6 international branches). The capital of the Rafidain Bank during 1974 amounted to ID 25.7 millions. (Amar H. 2009,P.49)

Rafidain bank belongs to the ministry of finance; it is monitored by the CBI. The Rasheed bank accounts are audited by the Board of Supreme Audit. The most important banking services provided by the Rafidain bank are as follow (Rafidain bank, 2008, p.5)

- Open deposit accounts such as saving and current accounts. - Opening documentary letter of credits - . Brokerage Services for purchasing and selling stocks and bonds - The purchase and sales of foreign currencies Exceptional loan and credit services. - Foreign and domestic transfers of money. - Issuing the travels checks. - Issuing and incoming of banking guarantees.

Rafidain bank continued with the spreading its policy by establishing branches and subsidiaries inside and outside the country. In 1983 it had 236 branches including 12 international branches (in U K and other Arab countries). It was until 1988 that Rafidain bank was the only commercial bank in Iraq. In the same year Al-Rasheed bank was established as the second state-owned commercial bank. It began its banking businesses

95 with 110 branches. These branches were transferred to it from the Rafidain Bank. The Rafidain capital amounted IDIOO million in 1988. ( Rafidain bank,1989,p.8).

In 1998, the bank was transferred to public company with a paid up capital amounted to ID 2 billion according to the law of companies No. 22 in 1997. This transference was an attempt to back up the national economy in the field of commercial exchange, capital investments and fund providing to different sectors. Rafidain bank participated effectively in supporting and backing up other public banks and private banks in the field of banking and investment coordination. In 2002 the capital was increased to ID 4 billion..( Rafidain bank,2002,p.l3).

In 2003, Rafidain bank suffered a huge loss amounted to ID 200 million due to looting of its assets after the US A invading Iraq. Despite the fact that the Rafidain Bank continued its services, in 2005 it raised its capital to ID 10 billion. The raise of the amount of the capital was in according to the clause No. 1 of article 14 of the Banking Law No 94 in 2004 which affixed the minimum amount of the capital to ID 10 billions. In 2008, capital of Rafidaien bank was raised to ID 25 billion. It had 147 branches including 8 international branches in Egypt, Jordan, Lebanon, Bahrain, UA E and Yemen in 2008. In the same year, the bank had 7150 employees.( Rafidain bank,2009,p.2).

4.1.4.2 Rasheed Bank

Rasheed bank is the second state-owned bank established according to the Law No. 52 of 1988, through splitting the Rafidain bank’s branches (except the international branches). The bank was established with a capital of ID 100 million and 110 branches all of which were national. It started providing services towards the end of 1988. It is the second biggest commercial bank and its establishment has lead to decrease the administrative and service burden of the grown Rafidain bank in addition to strengthening the competitive spirit between the two state-owned commercial banks. (www.uruklink.net/rasheedbank)

Rasheed bank is belong to ministry of finance and it is monitoring by the CBI. The Rasheed bank accounts is auditing by the Board of Supreme Audit. The services provided by the Rasheed bank are similar to what the Rafidain Bank provides except the issue of travel check.

Rasheed bank belongs to the ministry of finance and it is monitored by the CBI. The Rasheed bank accounts are audited by the Board of Supreme Audit. The services provided by the Rasheed bank are similar to that of the Rafidain Bank except issuing of travel check.

96 Rasheed bank acquired profound developments through increasing the number of working branches. In 1996, Rasheed bank had 133 branches, 57 of which were in Baghdad in addition to 22 bureaus, 17 of which were in Baghdad city. The capital amounted to ID 200 million. In 1998, Rasheed bank became a public company according to the Law of public companies No. 22 in 1997. This has widened the authoritative power of the director board in planning the banking policy and investment coordination of the Rasheed bank. In 1999, the capital was raised to ID 1 billion due to the inflation circumstances of the period. In 2001 the capital amounted to ID 2 billion while the branches and bureaus were 162 (52 branches and 21 bureaus in Baghdad, 84 branches and 6 bureaus in other provinces.).(Rasheed bank, 2003, p.3)

Despite the fair operation of the bank and the wide extension of its branches allover the Iraqi cities and villages, the banking services provided by the Rasheed bank was badly affected by the economic sanctions of 1990s and the U S A invasion in 2003. The bank therefore has witnessed no major development in the provided services; the associated technicalities. The Bank was looted in 2003 and losses amounted to ID 180 million knocked its assets and infrastructures. However, the bank continued providing services and in 2005 the capital was raised to ID 10 billion according to Banking Law No. 94 in 2004. (Amar H 2009, P.51)

In 2008, the capital amounted to ID 21 billion with 141 working branches (54 of which were in Baghdad) and 2435 employees. (Rasheed bank,2009,p.l 1)

4.1.4.3 Bank of Baghdad

Bank of Baghdad is the first private commercial bank in Iraq after the CBI Law No. 12 in 1991 which sets the rules and regulations of the establishment of private banks. Bank of Baghdad was established in Baghdad on 18*'’ February 1992 with a capital of ID 100 million. The services provided by the Baghdad bank are similar to what the Rafidain Bank provides except the issue of travel check..(www.bankofbaehdad.org')

Overtime, Bank of Baghdad’s branches expanded over the time to 18 branches in 2004, the capital amounted to ID 5.28 billion. In 15*'' June 2004 the bank was listed in the Iraqi Stock Exchange. ( Bank of Baghdad,2005, p.2 )

During the last few years, the bank expanded its banking operations to international level by making contracting with Kuwait Projects Holding Company in 2004 which has improved the services provided by the bank in addition to acquiring mo d e m banking technicalities. The bank’s capital has been raised several times to amount to ID 32 billion in 97 2005 and ID 52.973 billion in 2007 consequently. In 2008 the capital amounted to ID 70 billion with 23 network branches including 11 branches in Baghdad city and the others in the different province. In the same year the bank had 560 employees. (Bank of Baghdad, 2009, p.3)

4.1.4.4 Commercial Bank of Iraq

Commercial bank of Iraq was established in 2"** November 1992 with a paid up capital ID 150 million and three branches in Baghdad. The bank aims to provide many of the banking services and facilities.(http://kubba-group.net/commercialbank/index.htm)

Despite the constraining rules applied by the CBI on some of the banking activities (i.e. foreign exchange and transfers) to limit the leak of the foreign currency due to the economic embargo, the commercial bank of Iraq could perform progressively. The capital was raised several times amounting to ID 800 million in 1999 and ID 3.427 billion at the end of 2003. In 25‘’’ July 2004 the bank was listed in the Iraqi stock exchange. By the end of 2004, the capital was ID 4 billion. Iraqi commercial banks operated with 9 branches, 8 of which were in Baghdad and one branch was in Basra. It also employed 250 employees. (Commercial Bank of Iraq, 2005, p.7)

After the American invasion in 2003, the bank achieved profound developments in the banking services it provided especially on the international level through the international contracts with other Arabic as well as western banks. It also adopted mo d e m technicalities like A T M cards etc. By end of 2005, the capital amounted to ID 19 billion whereas by the 2008, the capital amounted to ID 60 billion. It also possessed 17 branches and 390 employees.(Commercial Bank of Iraq, 2009, p.5)

4.1.4.5 Iraqi Middle East Investment Bank (IMEI)

It was established on 7.7.1993 with a capital of ID 400 million and started providing services on 8.5.1994.( http://iraqinet.net/com/3/mdlestbank.htm)

The bank was listed in the list of Iraqi stock exchange on 7.8.2004. The banking services provide by this bank is similar to what the Iraqi Banks provide already mentioned (see p.96). (IMEI, 2006, P.4)

The IMEIB witnessed improvements that included raise in its capital several times. The first raise was on 1999 to amount ID 1.3 billion, in 2001 to amount a capital of ID 3.5 billion with 9 branches. By the end of 2003, the capital amounted to ID 7.5 billions. In 2007, ID 31 billion and in 2008, ID 42 billion with 15 branches, 7 of which were in

98 Baghdad. The number of employees of Iraqi Middle East Investment Bank was 564 in 2008. (IMEI, 2009, P.7)

4.1.4.6 Bank Al-Warka for Investment and Funding(BWIF)

Bank Al-Warka for Investment and Funding was established on 20.11.1999 with capital of ID 500 million and 3 branches in Baghdad city only. (www.iraqinet.net/com/10/warka/warka.htm)

The bank policy was to increase the rmmber of the branches, at the same time raising the bank capital to consolidate the competing power in the banking sector. During the period 1999 - 2003, BWIF had 25 branches, 13 of which were in Baghdad with a capital of ID 2.5 billion. The bank was Usted in the Iraq stock exchange on 15.6.2004.( BWIF, 2005, p.9)

By the end of 2005, the capital amounted to ID 24 billion with 37 branches, 14 of which were in Baghdad city. In 2007, the capital amounted to ID 51 billion. In 2008, BW I F had 48 branches (15 in Baghdad) and 720 employees. The banking services include: the banking services provided by this bank are similar to what the Rafidain Bank provides already mentioned (see p.96)in addition to AT M services through Midrar purchase and debit cards. Online banking services, S M S and mobile banking services and Issuing International Visa Card.( BWIF, 2009, p.4).

4.1.4.7 Dar Al-Salam Investment Bank (DSI)

Dar Al-Salam Investment Bank was established on 12.7.1998 and provided facilities and services on April 1999 starting with a capital of ID 200 million. Its headquarter was located in Baghdad. ( www.desiraq.com/ar/personal.html~)

The bank was listed in the Iraqi Stock Exchange on 15.6.2004. The banking services provided by this bank are similar to what the Iraqi Banks provide which already mentioned earlier (see p.96) (DSI, 2005, P.2)

The bank raised its capital and increased the number of branches. By the end of 2001, the capital was ID 900 million with 3 branches in Baghdad and 4 in other provinces. In 2003 the capital amounted to ID 2.4 billion with 10 branches. In 2005 the DSI joined the HS B C bank which was considered as a prominent step towards development and improvement of banking services and facilities DSI provides. Due to this joint, DSI possessed new technologies like AT M Card and AT M network connected to that of the HS B C bank. By the end of 2005 the capital amounted to ID 30 billion and the number of branches was 14, seven 99 which were in Baghdad city. In 2008, the capital of bank amounted to ID 50 billion and it had 18 branches and 310 employees. (DSI, 2009, PP.6-8)

4.1.4.8 Babylon Bank

Babylon Bank was established on 4.6.1999 with a capital of ID 500 million. It started providing services on 1.8.1999. The bank headquarter was located in Baghdad. (www.babvlonbank-iq.com/pages/e-patik.htm)

The bank aim was to participate in the growing activities of the Iraqi economy within the general policy of the state by providing investment activities and different interior and international commercial services and by cooperating with other banks and investment institutions. The banking services provided by this bank are similar to what the Rafidain Bank provides already mentioned earlier (see p.96). (Babylon Bank, 2002, P.2)

The Babylon Bank attempted a continuous development and improvement of its services through the raise of the capital amount and the increase of the branches number. In 2001 the capital was doubled to amount to ID 1 billion. In 2002 it amounted to ID 1.8 billion. In 2004 and 2005, the capital was ID 6.3 billion and ID 10 bilhon respectively. In 2008, the bank had a capital of ID 10 billion, 9 branches (4 of which were in Baghdad) with 215 employees. (Babylon Bank, 2009, P.4)

'TV\ \'2-o 3 1 4.1.4.9 Credit Bank of Iraq (CBOI)

Credit Bank of Iraq was established on 25.7.1998 in Baghdad with a capital of ID 200 million, (http://kubba-group.net/creditbank/index ar.htm)

The bank was listed in the Iraqi stock exchange on 7.8.2004. The facilities and services provided by the bank are similar to what the Iraqi Bank provides which was already mentioned. (CBOI, 2005, p.2)

The capital of the bank was raised several times, in an attempt to strengthen the competing power of the bank. During the period 1998 - 2003 the capital was raised five times to amount ID 1.6 billion. During the period 2004 - 2008 the capital was raised four times to amount ID 70 billion. The bank has 30 branches, 16 of which were in Baghdad with 490 employees. The bank made cooperation contracts with international Finance Corporation (IFC) and National Bank of Kuwait (NBK) in 2004. The bank adopted new technologies like A T M cards. Online banking services, S M S and mobile banking services since 2004.(CBOI, 2009, p.5)

100 4.1.4.10 Investment Bank of Iraq (IBI)

Investment Bank of Iraq was established on 13.7.1993 in Baghdad with a capital of ID 100 million, www.ibi-bankiraq.com)

It was listed in the Iraq stock exchange on 15.6.2004, The IBI provides many of the banking services and facilities already mentioned. (IBI, 2006, p.8)

The bank increased its capital and the number of branches since its establishment. During the period 1993 - 2002, the capital amounted to ID 1.2 billion and the braches were 10, 6 of which were in Baghdad and 264 employees. During the period 2003 - 2008, the bank achieved prominent success in improving its services as the capital amounted to ID 5.76 billion in 2003, ID 22 biUion in 2005, ID 29.75 bilhon in 2007 and ID 37.5 billion in 2008. The IBI had 18 branches in 2008, 12 of which were in Baghdad with 470 employees. (IBI, 2009, p.3)

Table No.4.1 shows the important indictors of the selected commercial banks in Iraq in 2009

Table No. 4.1: Selected Indicators of sample Iraqi Commercial Banks as in 2009 No Bank Date of Capital ID Deposits Advances Total Asset Branches ATM Name Establishment million ID million ID million ID million 1 Rafidain 1941 25000 20198790 23160,14 459271 147+8* Bank 2 RB 1988 21000 68610,413 14170,044 308900 141 3 BoB 1992 70000 255474,272 52663,889 363724,586 23 4 IBI 1993 37500 76236,508 22868,636 131112,403 18

5 Col 199'i^- ’ . 60000 78863,915 25170,337 164594,171 17 7 6 IMEI • 42000 333057,283 16905,177 406782,969 15 7 BWIF 1999 ■ ■ ■51000 337625,99 6756,069 698822,827 48 9 8 DSI 1^8 50000 207954,046 18143,024 265210,623 18 6 9 Babylon 1999 ■ 30000 44967,322 17596,613 82455,759 9 Bank 10 CBOI 1998 70000 252885,473 18701,780 359329,224 30 8 * Branches in abroad Source: concluded by the researcher based on the above information.

4.2 Profile of Th e Indian Banking Sector with Reference to Selected Commercial Banks

4.2.1 Historical Background

The Banking sector in India came into being during the last decades of the 18th century. The State Bank of India was the oldest government-owned bank existing in the country at that time. This bank traces its origins back to June 1806; furthermore it is the largest commercial bank in India. It is worth noting that central banking is the responsibility of the Reserve Bank of India, formally took over these responsibilities from the then Imperial

101 Bank of India in 1935, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks, and subsequently, the government nationalized some more six next largest banks in 1980. (R.K.Uppal, 2008, p. 183)

The objects and reasons for the nationalization were in a way that the banking system touches the lives of millions and were inspired by a larger social purpose and hence there was need to achieve national priorities and objectives such as rapid growth of agriculture, small industries, exports, raising employment levels, employment levels, and encouragement of new entrepreneurs and development of backward areas.

By the year 2006, the banking sector had grown in lips and bounds in a way that there were 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have govenmient stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They had a combined network of over 53,000 branches and 17,000 AT M s (Desai, 2006). According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6 . 5 % respectively. (www.en.wikipedia.org/wiki/Bankingy

4.2.2 The Structure of Indian Banking System

The banking sector in India comprises of banks, big and small, public and private, old and new, viable and non-viable. There are wide diversities in their sizes, organizational patterns, geographical presences and functional specialization. The structure of banking system in India comprises of the Reserve Bank of India which is the apex financial institution in the country. Below this there are commercial banks, cooperative banks and real estate banks forming the entire structure. Besides RBI, there are different kinds of banks in each of the categories mentioned above.Fig.4.2 gives the structure of Indian banking system.

102 Figure 4.2: The structure of Indian banking system in 2009

*Source: Prepare by researcher according to RBI (www.rbi.conO

It is important to note that within the banking system there are large and small banks in each category but the institutions coexist harmoniously in business operations. In the one extreme, there is the State Bank of India, which is the omnipresent big bank with more than 9000 branches. On the other extreme, the Ganesh Bank of Kurundwad is the smallest private sector bank, and is located in little known town in Maharashtra having only 30 branches.

The Indian banks are classified mainly under two groups namely, scheduled and non­ scheduled banks. The conditions for eligibility of any bank to qualify as a scheduled bank are outlined in Section 42 (6) (a) of the RBI Act 1934. First, the bank must have a paid capital and reserves of not less than half a million rupees. Second, it must satisfy the RBI that its affairs are not being conducted in a manner detrimental to the interests of depositors. Thirdly, the bank must be a company as defined by the companies act 1956 or a coiporation established by an act of parliament. It should be noted that a foreign bank incoi^porated under any law in force in any place outside India can also become scheduled bank.

It should be noticed that any bank which is not included in the second schedule of RBI Act is a non-scheduled bank, (non-scheduled banks have a paid up capital and reserves of an aggregate value of less than Rs.5 lacks). ( B.L.Mathur,2008,p.63)

103 4.2.2.1 The Reserve B an k of India (R BI)

The R B I was established on April 1, 1935 under the Reserve bank of India Act 1934. T h e R B I is the top-most financial institution o f the India’s financial system and is entrusted with the tasks of planning, supervision, control, development and, promotion of all monetary and banking activities in the country. Initially, the Reserve B ank of India w as constituted as a private shareholders’ bank with a fully paid-up share capital of R s 50 million, before being nationalized on January 1, 1949. The Bank has a central board of directors, supplem ented by four other boards at Delhi, B om bay, Calcutta and M adras.

The R B I performs all the m ajor functions o f a central bank and has its head office at B om bay. M oreover, the bank carries out the promotional functions attuned to the course of econom ic planning as desired (Desai, 2006, p.91).

Am ong the key functions of R BI include: Issuing currency notes; banker to the goverrmient; acting as bankers’ bank and supervisor; m onetary regulation and m anagem ent; exchange m anagem ent and control; collection of data and their publication, m iscellaneous developmental and promotional functions and activities. Other functions relate to the provision o f finances for the prom otion o f agriculture, industries, and exports am o n g others.

4.2.2.2 Com m ercial Banking in India

Com m ercial banking has grown in multi-directional w ays as well as multi-dimensional m anner. The banking sector has been playing a catalytic role in the developm ent of the country by w ay of promoting various key sectors of the econom y such as agriculture, industry and international trade in a significant m anner. This w ay, com m ercial banks have em erged as the key financial agencies for rapid econom ic developm ent.

4.2.3 T h e Profile of Com m ercial Banks in India

4.2.3.1 Historical Background

There is an interesting profile about the origin and growth of commercial banking in India spreading from the early days to present times. The growth of com m ercial banking in India began in 1770 with the establishment o f the first joint stock bank, nam ely the B an k of

Hindustan, by an English agency in Calcutta, but the bank failed in 1832. In fact, the real beginning o f the m odem commercial banking m ay be traced back to the establishment of the Bank of Begal in 1806. Later on, the Bank of Bom bay and Bank of M adras were set up in 1840 and 1843 respectively..( O.P.Agarw al,2008,p.2) These three banks were called the

104 Presidency Banks and were partly financed by the East India Com pany. In addition, the Presidency B anks w ere given the right o f note issue in their region.

In 1881 the O udh Com m ercial Bank w as started and becam e the first indigenous bank in the coimtry. ITiis w as followed by setting up of the Punjab National Bank in 1894, and the Peoples Bank in 1901. Under the stimulus of the Swedish M ovem ent som e other banks got established in 1906 and 1913 and are am ong the leading commercial banks in the country even today. These include the B ank of India, the Central B ank of India, the B an k of Baroda, the Canara Bank, the Indian Bank, and the B ank of M ysore (Gupta, 2000,p.9S).

Th e Indian commercial banks have had a history o f uneven growth from their inception till about the m iddle of the twentieth century. Notably, the banking growth pattern w as m arked by the long periods of slow growth interspersed with short periods of rapid growth of bank formation, followed by crises which saw the failure of banks in large num bers. Thus, during the pre-independence period the commercial banking sector in India experienced a chequered growth caused by inadequate capital base am ong m any banks. W ith growing competition, m any of these banks could not survive and consequently, their mortality rates were quite high, until the Banking Regulation Act of 1949 w as passed. It w eeded out a large num ber of unviable banking companies. The R B I acquired a supervisory and developm ent role, with the establishment o f the department o f banking operations and development (D B O D ).

For instance, during the period 1913-36, about 480 banks failed followed by another batch of 620 banks which failed over a shorter period of 1937-48. Thus recurrent bank failures w as the m ain feature o f the growth o f banking in India over this period, and this w as a com m on scenario in other similar countries in the early stage o f banking developm ent at the time (Gupta, 2006,p.97).

R B I w as instrumental in preventing the liquidation o f m any small banks by formulating schemes of amalgamation. Small banks were m erged with bigger and stronger banks, the period of two decades 1947 to 1969 was the period of consolidation. The number of banking institutions declined drastically from 648 in 1949 to 89 in 1969.

Another m ajor development in the history of Indian banking w as the establishment of State B an k o f India in July 1955, by nationalizing the Imperial B an k o f India as a part o f the integrated schem e o f rural credit w hich intended to provide institutional credit in rural areas, ( B.L.M athur,2008,p.62)

105 The period of multidimensional expansion of the banking sector began with the nationalization o f the m ajor banks in 1969. Procedural and institutional innovations were introduced to accelerate the flow o f bank credit to certain sectors identified as priority areas for national developm ent. The Regional Rural Banks (R R B s) appeared on the banking scene in 1975, specially designed to cater for the credit needs o f the rural sector and consequently, their num ber swelled to 196 by 1987. (K.Bhattacharya&O.Agarw al,2006,p.7)

The financial sector reforms in 1990 opened up the banking sector to private banks in 1993. Following this m ove, nine new private sector banks were started, and as a result, som e of the term lending institutions (IC IC I and ID B I) w hich had sponsored the banks has since becom e universal banks. (R .K .U ppal, 2008, p. 177)

W ith a view to provide credit in rural and semi-urban areas, domestic area banks (L A B s ) were permitted to be established and the related guidelines were announced by the R B I in 1997. A s a result of this m ove, operating licenses were issued to five L A B s in the country. (O.P.Agarw al, 2008, p. 18)

These developments have resulted in a rapid increase in the total num ber of banks during the three decades and consequently, the supervisory m achinery does not appear to have geared up adequately to handle the task.

At present (2"^* M ay, 2009) there are 187 commercial banks in India. O f these 27 are public sector banks, 106 are regional rural banks, 31 foreign banks and 23 private sector

banks (http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/ATIV201009.pdf)

4.2.3.2 Structure of Com m ercial Banks in India

The com m ercial banks in India comprise o f the Public banks (State B an k o f India and its associate banks, the Nationalised Banks), Private sector banks (old and n ew banks), and foreign banks.

4.2.3.3 Functions of Indian Com m ercial Banks

The basic functions of commercial banks in India are similar to those of commercial banks in other countries. The main functions of commercial banks in India include the f o l l o w i n g :

■ Accepting deposits of various kinds such as fixed deposits, current deposits savings deposit etc.

106 ■ Granting of loans and advances, cash credits and overdrafts to key sectors o f the econom y such as industry, trade, com m erce and agriculture. ■ Rendering agency services and general utility services.

It is important to note that the traditional banking business like the pledging o f gold ornaments prevails in rural branches. H ow ever, online selling o f shares in dematerialized form is handled in metropolitan. Moreover, public sector banks are participating in rural developm ent and poverty alleviation program s through out the country.

4 .1 .2 A Com m ercial Banking Innovations in India

M o re recently, the banking activities covered 576 districts in the country in an attempt to increase the num ber of innovations and diversifications in their operations in order to im prove the perform ance. These innovations include:

(a) adopting participatory approach (b) adopting consortium approach in lending; (c) provision of single w indow lending (d) introducing credit card facility (e) entering into related activities, such as m erchant banking, m utual funds, and hire-purchases am ong others (h) paying m ore attention to consolidation, sophistications, better consum er services, and greater profitability.

4.2.4 The Regulators Bodies of Disclosure in India:

4.2.4.1 Reserve B an k of India

T h e regulator and supervisor o f the financial system in India the disclosure norm s were introduced by Reserve Bank of India (R B I) for the banks with a view to bringing about uniformity in the disclosure practices adopted by them and improving the degree of transparency in their affairs.

The R B I issued guidelines on disclosure of capital adequacy in annual report. It also introduced, in a phased manner, prudential norms for income recognition, asset classification, provisioning for the advances portfolio o f the banks and risk weighted assets, w hich to a large extent has helped the banks to im prove their capital adequacy ratios. Banks have also been advised to disclose key information on shareholding o f governm ent, certain

critical financial ratios on profitability and efficiency, total advances against shares, maturity pattern o f N P A ’s and lending to sensitive sectors.

After 2001- 2002, R B I issued further guidelines on the disclosure o f subordinated debt for inclusion in Tier II capital and guidelines on com pliance with accounting standards by

107 banks. All these disclosures are required to be m ade as part o f the “Notes on Accounts” to enable the auditors to authenticate the information, notwithstanding the fact that the sam e inform ation m ight be contained elsewhere in the published annual report.

In the year 2004- 2005, R B I issued further guidelines on the disclosure of prudential credit exposure limits b y banks and guidelines on disclosure o f risk exposure in derivatives. In January 2006, the Reserve Bank o f India issued a master circular on “disclosure in Balance Sheet” incorporating all operative instructions issued by R B I up to 30*** June 2005.fhttp://www.rbi.org.in/scripts/BS ViewMasterCiiculardetails.aspx)

M ain objective of these initiatives is to bring all commercial banks to a greater consistency and transparency in their published accounts, in addition to im proving level o f the accounting and disclosure practices in these banks.

The R B I in its efforts to m ake the balance sheet and profit and loss account o f banks m ore reflective o f their true financial health requires them to m ak e the following additional disclosures in the notes on accounts:

• Return on assets

• Interest incom e as a percentage o f working funds

• Operating profit as a percentage o f working funds

• Foreign currency assets and liabilities.

• Percentage of share holding o f the governm ent of India(public sector banks)

• Business(deposits plus advances) per employee.

• Profit per employee.

• Details o f provision and contingencies debited in the profit and loss account.

• Details pertaining to interest rate swaps.

• Aggregate advances against shares.

• Percentage of net N P A s to net advances.

• Am ount of provisions m ade towards N PA s.

• Movement of NPAs.

• M ovem ent of provisions held towards N PA s.

• M ovem ent of provisions held towards depreciation of investment.

• Total advances against shares.

• Total investments m ade in equity shares, convertible bonds and debentures and units o f equity oriented m utual funds.

108 • Total amount of loan assets subjected to restructuring under Corporate Debt Restructuring (C D R ) and am ount of standard and sub standard assets subjected to CDR. • Lending to sensitive sectors such as capital m arket etc.

• Maturity pattern of loans and advances.

• Maturity pattern of investments in securities.

• Maturity pattern of deposits.

• Maturity pattern of borrowings.

4.2.4.1 T h e Institute of Chartered Accountants of India:

The Institute of Chartered Accountants of India (IC A I) is a statutory body established under the Chartered Accountants act, 1949 for the regulation o f the profession o f chartered accountancy in India. The institute has achieved recognition as a premier accounting body for its contribution in the fields of education, professional developm ent, m aintenance of high accounting, auditing and ethical standards.

The institute of Chartered Accountants is a founder m em ber of various international professional bodies such as the International Federation of Accountants (IFAC), Confederation of Asian and pacific accountants (C A P A ), South Asian federation of accountants (S A F A ), besides the International Accounting Standards Board (lA SB /IF R B ) .It also is a founder m em ber of the International Innovation N etw ork (IIN ).

T h e institute has issued a series of accounting standards in the recent years to im prove the accounting and disclosures m ade b y the enterprises. These standards are applicable to all b a n k s .

The accountings’ standards are prepared by the accounting standards board (A S B ) of (ICAI) issued by the institute. These accounting standards are primarily based on international accounting standard comm ittee. Necessary m odifications are carried out to suit and adjust the trade, usage, customs, business and econom ic conditions and laws prevailing i n I n d i a .

The institute of Chartered Accountants of India has so far issued 31 accounting standards. But 32 are also included in 31st accounting standard (Financial Instrument:

Presentation). (Appendix N o. shows these standards).The role of the accounting standards in banking sector has assum ed considerable significance, (http://www.icai.org/index.htm l)

109 4 .2 . 4 3 Stocks Exchange in India

At present. There are 23 stock exchanges in the country recognized by the governm ent under the Securities Contract ( Regulation) Act. 1956. 21 o f them are regional ones and are located in M um bai, Kolkata, Chennai, Delhi, Ahm edabad, Ludhiana, Kanpur, Jaipur Indore, Pune, Hyderabad, Bangalore, Patna, Rajkot, Cochin, Guwahati, Mangalore, Baroda, Bhubaneshwar, Coimbatore, and Meerut. T w o other exchanges are set up in the reforms era .They are National Stock Exchange (NSE) and Over the Counter Exchange of India(OTCEI). Both N S E and O T C E I (a) have nationwide trading;(b) have adopted screen - based trading system and (c) have started nationwide S B T S , which provides completely transparent trading m echanism . This system has also been followed by the Regional stock exchanges. A s on 31®* M arch 1997,9890 com panies were listed in stock exchanges. (http://www.surfindia.com /finance/stock-exchanges-india.htm n.

Am ong all the stock exchanges, Bom bay stock exchange is the country’s leading exchange in terms o f the num ber of securities listed there, the im portance o f the com panies w hose stocks are traded there, the average volum e of daily business and its capacity to absorb still bigger business.(http://w ww .bseindia.com )

4.2.4.4 M inistry of Finance

Ministry o f finance is one of the leading organizations in determ ining the requirements of disclosure in India. Through out the incom e tax act for 1961 and wealth tax for 1957 etc, the required financial statements including their contents have been prepared in addition to other requirements.

4.2.5 T h e ProfOe of the Selected Com m ercial B anks in India

This section deals with the profile of ten selected commercial banks in India out of which there are five private banks and an equal number of public banks. Am ong the selected private commercial banks Induslnd Bank, ICICI Bank, H D F C Bank, A X IS Bank and Development Credit Bank can be mentioned. The five selected public commercial

banks include Union Bank of India, State bank of India, Central Bank of India, Bank of Baroda and Bank of India.

4.2.5.1 Industrial Credit and Investment Corporation of India (IC IC I) B an k

IC IC I B an k is India's second-largest bank with total assets o f R s. 3,744.10 billion (U S $ 77 billion) at Decem ber 31, 2008 and profit after tax Rs. 30.14 billion for the nine m onths

110 ended Decem ber 31, 2008. The Bank has a network of 1,420 branches and about 4,644 A T M s in India and presence in 18 countries.

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and w as its wholly-owned subsidiary. ICICI's shareholding in IC IC I B ank w as reduced to 4 6 % through a public offering of shares in India in fiscal 1998, an equity offering in the form of A D R s listed on the N Y S E in fiscal 2000, IC IC I Bank's acquisition of Bank o f M adura Lim ited in an all-stock am algam ation in fiscal 2001, and secondary market sales by IC IC I to institutional investors in fiscal 2001 and fiscal 2002. IC IC I w as form ed in 1955 at the initiative of the W orld Bank, the Governm ent of India and representatives of Indian industry. T h e principal objective w as to create a developm ent financial institution for providing medium -term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a w ide variety o f products and services, both directly and through a num ber o f subsidiaries and affiliates like IC IC I Bank. In 1999, ICICI became the first Indian com pany and the first bank or financial institution fi-om non-Japan A sia to be listed on the N Y S E .

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the m erging of IC IC I and two of its wholly-owned retail finance subsidiaries, IC IC I Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merging was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahm edabad in M arch 2002, and by the High Court of Judicature in M um bai and the Reserve Bank of India in April 2002. Consequently to the merging, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity.

The Bank currently has subsidiaries in the United Kingdom , Russia and Canada, branches in United States, Singapore, Bahrain, H ong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Afiica, Bangladesh, Thailand, Malaysia and Indonesia. The U K subsidiary has established branches in Belgium and Germ any.

ICICI Bank's equity shares are listed in India on Bom bay Stock Exchange and the National Stock Exchange of India Limited and its Am erican Depositary Receipts (A D R s) are listed on the N e w York Stock Exchange (N Y S E ), (www.icicibank.com )

111 4.2.S.2 Axis Bank

This w as previously called Unit Trust of India (U T I) Bank, and is the first of the new private banks to have begun operations in 1994, after the Governm ent of India allowed n ew private banks to be established. The B ank w as prom oted jointly by the Administrator o f the Specified Undertaking of the Unit Trust of India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance Corporation Ltd., National Insurance Com pany Ltd., The N e w India Assurance Com pany, The Oriental Insurance Corporation and United Insurance C o m p any Ltd. UTI- I holds a special position in the Indian capital markets and has prom oted m an y leading financial institutions in the country.

The Axis Bank has m ore than 574 branch offices and Extension Counters in the country with over 2428 Axis Bank A T M proving to be one of the largest A T M networks in the country. By the end of June 2008, Axis Bank had over 6 Million debit cards. More important, it is the first bank in India to offer the A T P A R Cheque facility, without any c h a r g e s .

The latest offerings of the bank are the Australian Dollar and Canadian Dollar variants of the international Travel Currency Card along with the U S Dollar, Euro and Pound Sterling variants. A long with this, the bank has also launched the credit cards in silver and gold variants w hich can be accessed in 60 cities across the country. T h e bank has also raised its reach to 341 cities, towns and villages. The bank has the outstanding deposit base of m ore than Rs. 61,000 Crores with over 6.5 million accounts.

O f late Axis Bank has m ade significant milestones in its operations and developm ent, especially between year 2005 and 2007. During the year 2005, Axis Bank was counted on the London Stock Exchange and raised U S $ 239.30 million through Global initiative. In July of the sam e year, the bank, jointly with Visa International, launched M obile Refill facility - Anytim e, A nyw here Pre-Paid M obile Refill - for all Visa Cardholders in India. In addition, the bank w as included in the International Financing Review (IFR ) Asia, and w o n the 'India B o n d H ouse' award for the year 200 5 in its appreciation record.

In August 2006, Axis Bank launched the beneficial scheme of issuance of "Senior Citizen ID Card" in collaboration with Dignity Foundation and, at the sam e time, becam e the first Indian Bank to issue Foreign Currency Hybrid Capital successfully in the

International M arket.

In February 2007, the Finance minister by then - Shri P. Chidam baram - introduced Shriram - A X IS Bank Co - Branded Credit Card, especially for Small Road Transport

112 Operators (S R T O S ). The bank cam e up with full license bank branch in H ong Kong. During March of the same year, Axis Bank joined hands with IIFCL to provide leverage for infrastructural projects in the country.(w w w .axisban k.co m )

4.2.5.3 Union B an k of India (U BI)

This is one o f India's largest state-run banks and is also listed on the Forbes 2 0 0 0 . It has assets of U S D 13.45 billion. D u e to its acronym U B I, the bank is often confused by public with United B ank of India. The historical profile of U B I Bank starts in 1919 w hen the bank was registered on Novem ber 11, 1919 as a limited company in M um bai and was inaugurated by M ahatm a Gandhi. B y 1947 U B I had only four branches - three in M um bai and one in Saurashtra, all concentrated in key trade centers. In 1975 The Governm ent nationalized U B I and there after the U B I m erged with Belgaum Bank, a private sector bank that was established in 1 9 3 0 .

B y 1985, U B I merged with Miraj State Bank, which was established in 1929, before acquiring U B I Sikkim Bank as of 1999, in a rescue at the request of the Reserve Bank of India after the discovery of extensive irregularities at the non-scheduled bank. Sikkim B an k had eight branches located in the North-East, w hich w as attractive to U B I as well.

The U B I Bank formally opened its full fledged overseas branch at H ong K o n g on 1®‘ August, 2008, and was inaugurated by the Minister of State for Finance, M r Paw an Kum ar B ansal.(w w w .unionbankofindia .co.in)

4.2.5.4 Induslnd B ank Ltd

This is a M um bai based Indian new generation bank, and was established in 1994. Induslnd Bank derives its nam e and inspiration from the Indus Valley civilization - a culture described by National Geographic as 'one of the greatest of the ancient world' combining a spirit of innovation with sound business and trade practices. Primarily centered along the Indus river, the civilization encom passed m ost o f Pakistan, including its Sindh, Punjab and Balochistan provinces, and extended into m odem day Indian states of

Gujarat, Haryana, Punjab and Rajasthan.

T h e vision o f Induslnd Bank, as the first o f the new-generation private banks in India, w as conceived by M r. Srichand P. Hinduja, a leading Non-Resident Indian businessman and head of the Hinduja Group. Nevertheless, the collective contributions from the N R I com m unity towards India's econom ic and social developm ent brought the B ank into being.

113 The Bank was formally inaugurated in April 1994 by Dr. M anm ohan Singh, Prime Minister o f India w ho w as then the country’s Finance Minister, and started with a capital base of Rs. 1,000 million of which R s.600 million w as raised through private placement from Indian Residents while the balance R s.400 million w as contributed by Non-Resident I n d i a n s .

During the new era Induslnd Bank m ade efforts to grow in lips and bounds. In June 2004, the bank m erged with the Ashok Leyland Finance Ltd., which is one of the largest leasing finance and hire purchase companies in India. This m ove triggered a process of consolidation through the com bined customer base of the m erged entity and its increased geographical penetration.

IndusIndBank has becom e one of the fastest-growing banks in the Indian banking sector with its branch network expanding from 61 as on March 31, 2004 to 137 as on M arch 31, 2006 - reflecting an increase in excess of 1 25 % in 24 months. The Bank has approximately 150 A T M s of its own, and has concluded multilateral arrangements with other banks with a total network of 15,000 A T M outlets. All the outlets of the Bank, including its branches and A T M s , are connected via satellite to its central database that operates on the latest version o f hardw are and software facilities.

Induslnd B ank’s broad lines of business include Corporate Banking, Retail Banking, Treasury and Foreign Exchange, Investment Banking, Capital Markets, Non-Resident Indian (N RI) / High Networth Individual (H N I) Banking, and (through a subsidiary) Information Technology.

Currently, the bank provides multi-channel facilities including A T M s , Net Banking, M obile Banking, Phone Banking, Multi-city Banking and International Debit Cards. It w as one of the first banks to become a part of R B I’s Real Tim e Gross Settlement (R T G S ) system. It has implemented an enterprise-wide risk m anagem ent system encompassing global best practices in the area of Risk Managem ent, with help from K P M G . This has enabled the B ank to remain in the forefront in com plying with the requirements of Basel II. It is the first bank in India to receive IS O 9001:2000 certification for its Corporate Office and its entire network o f branches, (w w w .indusind.com )

4.2.5.S B an k of Baroda

The Bank of Baroda was founded by Maharajah of Baroda-Sir Sayajirao Gaekw ad III on July 20, 1908 in the princely state of Baroda, in Gujarat. The bank, along with 13 other

114 major commercial banks of India, was subsequently nationalised by the Governm ent of India on 19 July 1969.

T h e B an k o f Baroda is the sixth largest bank in India. It has total assets in excess o f R s. 1,780 Billion., a network of over 2800 branches and offices, and m ore than 1000 A T M s . The Bank of Baroda offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery chaimels and through its specialised subsidiaries and affiliates in the areas o f investment banking, credit cards and asset m anagem ent.( www.bankoffaaroda.com')

4.2.S.6 State B an k of India (SBI)

S B I is the largest bank in India and is listed in the London Stock Exchange (L S E ). It is also the second largest bank in the world as m easured by the num ber o f branch offices and employees. The bank traces its ancestry back through the Imperial Bank of India to the founding of the Bank of Calcutta in 1806, m aking it the oldest commercial bank in the Indian Subcontinent.

The roots o f the State Bank of India rest in the first decade of 19th century, w h en the B ank o f Calcutta, later renam ed the B ank o f Bengal, w as established on 2"‘* o f June 1806. In addition to the Bank of Bengal, two other Presidency banks, nam ely, the Bank of B om bay (incorporated on 15 April 1840) and the B ank o f M adras (incorporated on 1 July 1843) were established as Presidency banks. All the three Presidency banks w ere incorporated as joint stock com panies, and were the result o f the Royal Charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks am algam ated on 27 January 1921, and were jointly know n as the Imperial B ank o f India.

Pursuant to the provisions of the State Bank of India Act (1955), the Reserve B ank of India, w hich is India's central bank, acquired a controlling interest in the Imperial B an k o f

India. The Governm ent of India nationalised the Imperial B ank o f India on 30‘*’ April 1955, with the Reserve B ank of India taking a 6 0 % stake, and renam ed it the State B ank of India. In 1959 the Governm ent passed the State Bank of India (Subsidiary Banks) Act, enabling the bank to acquire eight former State-associated banks as its subsidiaries. O n 13*'’

September, 2008, the State Bank of Saurashtra, one of its associate banks, m erged with State B an k o f India.

115 The State Bank Group, with over 16000 branches, the largest branch network in India. It has a market share among Indian commercial banks of about 2 0 % in deposits and advances, and S B I accounts for almost one-fifth o f the nation’s loans.

The bank has 52 branches, agencies or offices in 32 covintries. M ore importantly the bank has established foreign branches in Colombo, Dhakka, Frankfurt, Hong Kong, Johannesburg, London and environs, Los Angeles, M ale in the Maldives, Muscat, N ew York, Osaka, Sydney, and Tokyo. In addition it has offshore banking units in the Baham as, Bahrain, and Singapore, and representative offices in Bhutan and Cape To w n .

S B I operates several foreign subsidiaries or affiliates. In 1990 it established an offshore bank. State B an k o f India (Mauritius). It has two subsidiaries in North Am erica, State B an k of India (California), and State Bank o f India (Canada). In 1982, the bank established its California subsidiary, which now has seven branches. The Canadian subsidiary w as also established in 1982 with seven branches, four in the greater Toronto area, and three in British Colum bia. In Nigeria, it operates as IN M B Bank. In Nepal SB I owns 5 0 % of Nepal SBI Bank, which has branches throughout the country. In M oscow SBI owns 6 0 % of Com m ercial Bank of India, with Canara B ank owning the rest. In Indonesia it ow ns 7 6 % of PT Bank Indo Monex.

In the year 2008 the bank established a branch in Shanghai and plans to open one m ore in in Tianjin. There has been a proposal to m erge all the associate banks into S B I to create a "m ega bank" and streamline operations. The first step along these lines occurred in September 2008 w hen State Bank of Saurashtra m erged with State Bank of India. Other targeted associate banks include State B an k of Bikaner & Jaipur, State B ank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore. ( www.statebankofindia.com)

4.2.S.7 B a n k of India (Bol)

The Bank of India was founded on 7*'^ September, 1906 by a group of eminent businessm en fi*om M um bai. The Bank remained under private ownership and control till July 1969 w hen it was nationalized along with 13 other banks. The bank started with one office in M u m bai, with a paid-up capital of Rs.5 million and 50 em ployees. Since then, the

bank has m ade a rapid growth over the years blossom ing into a m ighty institution with a strong national presence and sizable international operations. In terms o f business volum e, the B an k occupies a premier position am ong the nationalized banks.

116 The Bank has 3021 branches in India spread over all states and union territories including 136 specialized branches which are controlled through 48 Zonal Offices. M ore importantly, the bank has 28 branches/ offices altogether, including three representative offices abroad.

The Bank m ade its first public issue in 1997, followed by Qualified Institutions Placement in February 2008. The total num ber of shareholders at the m om ent (as on 31^* March 2009) stands at 235,589, with over 2884 branches in the country. W hile firmly adhering to a policy of prudence and caution, the Bank has been in the forefi^ont of introducing various innovative services and systems. The B ank has been the A in 1989 and is also a Founder Member of SW IFT in India. Moreover, the bank pioneered the introduction o f the Health C o d e System in 1982, for evaluating/ rating its credit portfolio. Th e Bank's association with the capital m arket dates back to 1921, w hen it entered into an agreement with the Bom bay Stock Exchange (B SE ) to m anage the B S E Clearing House. This association has blossom ed into a joint venture with B S E , called the B O I Shareholding Ltd., and aim s at extending depository services to the stock broking com m unity.

The B ank of India was the first Indian B ank to open a branch outside the country, also the first to open a branch in Europe (at London in 1946, and at Paris in 1974). T h e B an k has sizable presence abroad, with a network of 28 branches (including five representative offices) at key banking and financial centers viz. London, N e w York, Paris, Tokyo, Hong- Kong and Singapore. A s a result the bank’s international business accounts for around 17.8 2% of its total business, (w w w.bankofindia.com /hom e.aspx)

4.2.5.S Central B an k of India (C B I)

This is one of the oldest and largest comm ercial banks in India. It w as established in 1911 by Sir Sorabji Pochkhanawala (The Hindu, 2007) and w as the first commercial Indian bank completely owned by Indians. The bank was nationalized by the Indian Governm ent on 19 July 1969 together with 13 other banks.

B y 31®‘ M arch 2006, the bank's reserves and surplus stood at Rs. 1,810.19 Crore. Its

total business at the end o f the last fiscal am ounted to Rs. 1, 05,677 Crore. The bank had staff strength of 37,241 as on N ov 2006. For financial year 2008- 2009, Central Bank of India's standalone net profit went up at R s 353.26 Crore fi-om Rs 201.01 Crore (Y o Y ). The bank's standalone net interest income. Nil was up at Rs 671.94 Crore versus Rs 544.85 Crore (Y o Y ). During the same time, the bank achieved a landmark by crossing a business m ix of Rs. 1, 05,000.00 Crores. In addition the bank’s management adopted the '3R'

117 principles in dealing with customers - Recognition, Respect and Response with an objective o f transform ing the customers experience into 'Custom er Delight'.

The Central B ank of India partnered with Tata Consultancy Services (T C S ) for its Core Banking Solution which includes B @ N C S from Sydney-based Financial Network Solutions (FN S), Exim Bills Trade Finance software from China Systems and eTreasury from T C S . Based on this plan, coupled with its net w ork of m ore than 703 banks in the core banking system (C B S), a total of 1,000 branches were brought under the C B S by the end of 2008 (W ikipedia, org/wiki).

The Central Bank of India has m ade several key achievements in its operations and m anagem ent endeavourer to improve its services and presence in the country during the recent times. The Bank was conferred with the 1st Award under National Awards for Excellence in M S E Lending based on its outstanding performance in lending to M icro and Small Enterprises during the year 2007-08. O n Decem ber 29, 2008, Kotak M ahindra Asset Management Company, one of India's leading mutual fund houses, entered into a distribution tie-up with Central Bank o f India. U nder the agreement Central B ank of India will offer the entire bouquet of Kotak M utual Fund products from the Bank's branches.

The B ank has been in the forefront in business growth also. The total business of the Bank sharply increased by 124% touching the level of Rs. 1,97,162 as of 3 0 * September, 2008 from Rs. 87,857 crore as of 30*** June, 2005. In addition the Bank introduced IT Enabled Financial Inclusion (lEFI) at Hoshangabad w hich is aim ed at bringing the financial services to the door steps o f those w ho are living in remotest parts o f the country. T h e B an k will deliver deposit, loan and other financial services by engaging Business Correspondent, w h o will use hand-held m obile devices and issue Sm art Cards to the customers.

In order to develop rural entrepreneurship, the B an k launched a Rural Developm ent and Self Employment Training Institute (Rudseti) at Hoshangabad to provide intensive entrepreneurship training to the rural youth, to enable them undertakes vocational activities. The B ank has already set Rudsetis at Kota and Muzaffarpur. M o re still, a Financial Literacy and Credit Counselling Centre - Centsahyog w as launched at V adkun in Thane District. The m ain purpose o f this facility is to provide free counselling to the villagers on the various banking products, both deposits and loans and also counselling to distressed borrowers, irrespective o f w hether they are bank's clients or not.

A t present, the bank has m ore than 3,168 branches and 270 extension counters across 27 Indian states, and is planning to expand its foreign presence. In this regard, C B I has approached the Reserve Bank of India for perm ission to open representative offices in five 118 locations - Singapore, Dubai, Doha, London and H o n g K ong. This is the first time the bank is venturing an independent overseas foray after the Sethia scam forced the bank to close do w n its London office in the 1970s (Wikipedia.org/wiki).

In view o f its large network of branches as also num ber o f savings and other innovative services offered, the total customer base o f the B an k at over 25 million account holders is one o f the largest in the banking industry.( www.centralbankofindia.co.in)

4.2.S.9 The Housing Finance Development Corporation (H D F C )

The Housing Development Finance Corporation Limited (H D F C ) was amongst the first to receive an 'in principle' approval from the Reserve B ank o f India to set up a bank in the private sector. This was part of the R BI's directive on the liberalization of the Indian banking industry in 1994. The bank was incorporated in August 1994in the nam e o f'H D F C Bank Limited', with its registered office in Mum bai. Subsequently, H D F C Bank com m enced operations as a Scheduled Com m ercial Bank in January 1995.

The H D F C Group holds 19.4% of the bank's equity and about 17.6% of the equity is held by the A D S Depository (in respect of the bank's Am erican Depository Shares (A D S ) Issue). Roughly 2 8 % of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 570,000 shareholders. The shares are listed on the Stock Exchange, M u m bai and the National Stock exchange.

The bank's Am erican Depository Shares are listed on the N e w York Stock Exchange (N Y S E ) under the symbol 'H D B '. Currently, H D F C Bank has an enviable network of over 1412 branches spread over 528 cities across India. M ore importantly, all its branches are linked on an online real-time basis. T h e customers in over 120 locations are also serviced through Telephone Banking. The Bank's expansion plans take into account the need to have a presence in all m ajor industrial and com m ercial centers w here its corporate custom ers are located as well as the need to build a strong retail custom er base for both deposits and loan

p r o d u c t s .

The Bank also has a network of m ore than 3275 networked A T M s across these cities. Moreover, H D F C Bank's A T M network can be accessed by all domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and Am erican Express Credit/Charge

cardholders. ( www.hdfcbank.com )

119 4.2.5.10 Development Credit Bank (DCB)

Development Credit Bank profile covers over 77 years of trust, tradition and togetherness, which have seen the bank grow to its present status. The D C B w as converted into a Scheduled Commercial Bank on 31*‘ M ay 1995, in the wake of India’s economic liberalization. It was the only co-operative bank, which successfully crossed over and thrived in the face o f change.

D C B is one o f the em erging private sector banks in India and provides to its customers, access to over 30,000 A T M s and 80 state-of-the-art branches spread over ten states and two union territories. These branches are conveniently located across the states o f Maharashtra, Gujarat, Andhra Pradesh, Karnataka, N ew Delhi, Rajasthan, Goa, Tamil Nadu, Haryana, W est Bengal, Union Territories of Dam an & Diu and Dadra & Nagar Haveli.

The Bank has recently launched several value added initiatives and intends to becom e one of the country’s preferred and profitable retail banks. D C B aims to provide a comprehensive suite of best-in-class products for specific market segments in chosen locations. It has initiated a liability and select asset product led strategy, through a m ix of owned and outsourced products and multi-channel capability. Recently, the bank has initiated comprehensive reforms to cope with the current rigors of in financial business m anagem ent and the results of this m ove are being realized m ore rapidly as time goes by. ( www.dcbl.com)

Table 4.2 gives the current financial status o f the selected com m ercial banks in India for the financial year 2007/2008; Table 4.3 gives the current network establishment of selected com m ercial banks as well as their foreign presence.

120 Table 4.2: The Current Financial Status of Indian Selected Commercial Banks in the

C a p - A d q c y C a p i t a l Reserves Deposits B o r r o w i n g s A d v a n c e s E q u i t y A s s e t s B a n k N a m e Ratio (in % ) C e n t r a l 5 1 8 2 . 8 2 26656.84 827762.77 7820.11 517954.67 11.63 4041.4 9 3 0 0 8 0 . 8 B a n k B a n k o f 52591.46 1006348 15001198 717244.9 865490 1 2 . 5 3 1 3 5 9 8 1 1 7 8 2 9 9 7 8 I n d i a State B ank 6 3 1 4 . 7 49033 5374040 5 1 7 2 7 4 . 1 1 2 6 1 8 0 0 1 3 . 4 7 5 2 6 2 9 . 9 0 5 6 6 5 6 5 2 . 3 o f I n d i a U n i o n B a n k 6 2 0 3 3 5 2 5 1 . 0 6 1159890. 758780.00 291240 12.53 2940 2024880 B a n k o f 3655.28 106784 1520341.3 39270.49 1067013.24 12.91 3655.28 17959951 B a r o d a I n d u s l a n d 3 2 0 0 . 0 10292.07 190374.23 9 3 2 8 5 . 2 9 1 2 7 9 5 3 . 1 11.91 3200 232618.82 B a n k ICICI Bank 566810 453580 2444310.5 80639.90 2256160.8 13.97 11130 3997950.8 HDFC 1 1 4 9 7 . 2 3 111428 100768.6 447886 675920.4 13.60 1 1 4 9 7 . 2 3 1 0 0 6 8 2 0 B a n k A X I S B a n k 3 5 7 7 . 1 84107.94 876262.21 5 6 2 4 0 . 4 1 5 9 6 6 7 7 . 4 5 1 3 . 9 9 3 5 8 9 . 7 1 0 9 5 7 7 8 . 4 D v. Credit 1 7 4 3 4600.45 60748.51 4268.04 40687.97 1 3 . 3 8 1743 75744.82 B a n k Source: Respective Banks Websites, Reserve B ank of India Note: ^Figures in asterisk include shared network with V IS A Card facility.

Table 4.3: The Current Network of Selected Indian Commercial Banks (Year 2007/08) Intemational N u m b e r o f B a n k N a m e Number of A TM s Representation B r a n c h e s (Countries) Central Bank 3413 3 9 7 2 5 B a n k o f I n d i a 3 0 2 3 1 3 0 0 0 * 1 5 S t a t e B a n k o f I n d i a 1 5 1 0 0 8 5 0 0 3 2 Union Bank 600 351 2 5 Bank of Baroda 2 8 5 3 4 4 8 5 2 8 Indusland Bank 1 8 0 1 5 0 0 0 * 0 2 I C I C I B a n k 5 3 0 1 8 8 0 1 8 HDFC Bank 1412 3275 09 AXIS Bank 574 3171 05

Dv. Credit Bank 80 3 0 0 0 0 * — Source; Respective Banks Websites, Reserve B ank of India Note: *Figures in asterisk include shared network with V IS A Card facility

121 4.3 Summary

Iraqi banking sector is one o f the m ajor sectors in the country playing a significant role in its econom y and economic development and growth in addition to providing banking services to other sectors. The banking sector in Iraq has witnessed profound and radical changes due to the political, economic and social circumstances the country has gone through. H ow ever, the origin o f the banking activities in this region o f the w orld dates back to 3775 B C during the Babylonian era. During that time temples used to m anage and organize financial and banking activities like providing loans and accepting deposits. The

establishment o f the commercial banks in Iraq as independent administrative organizations dates back to 1890 with the establishment of a branch of the Outm an bank which is of Turkish origin. In 1941 the first Iraqi commercial bank, know n as Al-Rafidain bank, w as established in B aghdad w hich is fianctioning until no w . In 1947, the central bank o f Iraq w as established.

Th e banking sector has witnessed drastic changes during the last and present centuries to significant transitions and evolvements like nationalization, m erging and expulsions of banks. In 1991 Baghdad stock exchange w as established after which it w as know n as Iraq stock exchange. B y 31st of Decem ber 2008 the banking sector in Iraq comprised o f central bank, 29 comm ercial banks, 5 specialized banks and 7 Islamic banks. Com m ercial banks are divided into two public banks and 23 private banks am ong w hich 4 are foreign banks.

W h at distinguishes Iraqi commercial banks is the limited developm ents in the banking services these banks have been provided in addition to poor capitals with w hich they deal due to war circumstances and awkward political changes that have affected the banking sector and its perform ance negatively. The Iraqi com m ercial banks are abide, as it is with other banks, by the Unified Accounting System for Banks and Insurance Com panies which is issued by the ministry of finance in 1988. In addition, commercial banks are im plem enting the accounting standards issued by the Board of Iraqi Accounting Standards

(B IA S ) w hich is affiliated to the Board o f Suprem e Audit. T h e first accounting standard w as issued in 1989 and by the year 2002 there were 14 standards issued by the B IA S . D u e to the invasion of Iraq by the Am erican troops after Decem ber 2002 the B IA S has stopped o f issue n e w accounting standards till now . H ow ever, Iraqi com m ercial banks are still fiilfilling all

the requirements o f disclosure stated in the law o f banks and insurance com panies and abide b y the instructions o f the central bank o f Iraq.

This chapter also has dealt with the profile o f the Indian banking sector as well as the analysis o f the ten selected commercial banks in the country. The growth and developm ent

122 o f banking sector in India started in the last decades o f the 18th century. During this period, the State Bank of India w as the oldest governm ent-owned bank existing in the country at t h a t t i m e .

Th e structure o f banking system in India comprises o f the Reserve B ank of India as the apex financial institution in the country, with com m ercial banks, cooperative banks and real estate banks b elo w it in the structural hierarchy.

Currently, there are 233 commercial banks in India, out of which 28 are public sector banks, 106 are regional rural banks, 68 foreign banks, and 31 are private sector banks. It has been realised that comm ercial banks play a vital role in the developm ent o f Indian econom y by promoting various key sectors of the econom y such as agriculture, industry and international trade in a significant manner. This w ay, commercial banks have em erged as the key financial agencies for rapid econom ic developm ent.

Commercial banks in India perform a number of functions, and key am ong them includes: Accepting deposits of various kinds such as fixed deposits, current deposits savings deposit; granting of loans and advances, cash credits and overdrafts to key sectors of the econom y such as industry, trade, com m erce and agriculture; and rendering agency services and general utility services.

T en comm ercial banks in India have been selected for analysis, out of w hich there are five private banks and an equal number of public banks. Am ong the selected private commercial banks include Induslnd Bank, ICICI Bank, H D F C Bank, A X IS Bank and Developm ent Credit Bank. The five selected public commercial banks include U nion Bank of India, State bank of India, Central Bank of India, Bank of Baroda and Bank of India. These banks have been analysed in terms of their capital strength, network establishment and foreign presence.

123