A

GLOBAL / COUNTRY STUDY AND REPORT

On

BANKING INDUSTRY OF ISRAEL

Submitted to

(N. R. Institute of Business Management, Ahmedabad)IN PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE DEGREE OFMASTER OF BUSINESS ASMINISTRATION

InGujarat Technological University

UNDER THE GUIDANCE OF

Dr. Kavita KshatriyaProf. Rajsee JoshiProf. Amish Soni

Prof. Kevlesh Rathod

Submitted by

Kanchan Bachani 117350592157Himani Dosi 117350592142Roopraj Jadeja 117350592048Jenil Choksi 117350592070Dhruvin Shah 117350592046Roshni Nair 117350592026

[Batch: 2011-13]MBA SEMESTER IV

(N.R. Institute of Business Management)MBA PROGRAMME

Affiliated to Gujarat Technological University

Declaration

We, Kanchan Bachani, Himani Dosi, Roopraj Jadeja, Roshni Nair, Dhruvin

Shah & Jenil Choksi hereby declare that the report for Global/ Country Study

Report entitled “BANKING INDUSTRY OF ISRAEL” is a result of our own

work and our indebtedness to other work publications, references, if any, have

been duly acknowledged.

Place: Ahmedabad

Date:

NAME SIGNATURE

Roshni Nair 117350592026

Dhruvin Shah 117350592046

Roopraj Jadeja 117350592048

Jenil Choksi 117350592070

Himani Dosi 117350592142

Kanchan Bachani 117350592157

TABLE OF CONTENTS

Serial

No.

Title Page

No.

1 INDUSTRY OVERVIEW

1.1 General information about the performance of banking industry of

Israel

1

1.1.1 Introduction 1

1.1.2 Forces for change in the Israeli banking system 2

1.1.3 Current Performance Scenario 4

1.1.4 Main Developments in the Balance-sheet activity 6

1.1.5 Credit Quality 6

1.1.6 Borrower Concentration 8

1.1.7 Securities Portfolio 8

1.2 Major Players in the Banking Industry of Israel 9

1.3 Overall products/services offered by the Banking Industry of Israel 10

1.4 Present trade with quantity and amount of the banks in Israel 12

1.4.1 Volume of trade in Foreign Currency Market 12

1.5 Technological Advancement in Israel 16

1.6 Requirements of resources for the industrial operations of Israel 18

1.7 WTO-Israel 20

1.8 Legal aspects and barriers in Israeli banking industry 25

1.9 Overall products/services offered by the Banking Industry of India 32

1.10 Barriers to Indian Banking Sector 38

1.11 Present trade with quantity and amount of the banks in India 39

1.12 Technological Advancement in India 40

1.13 Requirements of Resources in India 49

1.14 Comparison of Banking Industry of Israel and India 50

2 COMPARISON OF BANKS 52

2.1 Bank Hapoalim 52

2.2 Mizrahi Tefahot Bank 60

2.3 Israel Discount Bank 65

2.4 Bank Leumi 69

2.5 State Bank of India 72

2.6 ICICI Bank 78

2.7 Bank of Baroda 88

2.8 HDFC Bank 90

3 FINDINGS 98

3.1 Overall 98

3.2 India’s opportunities and challenges in Israel banking industry 100

4 CONCLUSION 104

5 BIBLIOGRAPHY 105

CHAPTER-1

INDUSTRY OVERVIEW

1.1 GENERAL INFORMATION ABOUT THE PERFORMANCE OF THE

INDUSTRY OF ISRAEL

1.1.1 Introduction

In its sixty-first year of independence, Israel had a strong, stable, and profitable banking

system. The favorable macroeconomic fundamentals that have cushioned the banks’

operations in the recent years are clearly reflected in the banks’ performance, financial

results, and exposure to risks.

The combination of rapid growth of business-sector product and a buoyant domestic capital

market was reflected in the achievements of the banking system, which reported

improvements in its capital adequacy ratio, its quality of credit, and its profits.

The shocks experienced by the global and domestic financial markets in late 2007 did not

overlook Israel’s banking system, mainly due to the banks’ holdings of asset-backed

securities. Nevertheless, their effect was relatively subdued and did not undermine system

stability.

The banking sector risk assessment includes a top-down balance sheet stress test and single

factor tests carried out by the BSD and a contingent claims analysis

The five major banks are covered, with results projected to end-2014 in order to capture the

full effects of shocks. The bank solvency tests are based on three scenarios which reflect key

macroeconomic and financial risks, particularly a domestic slowdown and the potential

impact on the Israeli economy and banks of a European crisis and U.S. slowdown:

The Base scenario is based on BOI staff’s forecasted path of the economy, which

relies on the BOI macro-model; it is more conservative than the IMF WEO October

2011 forecast.

Adverse scenario 1 assumes a domestic recession, caused by geopolitical concerns

leading to economic disruption, declining demand (especially in real estate), an

increase in unemployment, and a rising risk premium.

Adverse scenario 2 reflects a global recession and difficulties in Europe, which affect

the Israeli economy sharply. Real GDP declines relative to the baseline by about 2½

standard deviations.

Non-banking financial institutions, the Israeli capital market and banks abroad serve as a

substitute source for local banking intermediation and therefore constitute a competitive

threat to the banking system in Israel.

1.1.2 Forces for change in Israeli Banking System

Deregulation and opening-up to foreign competition

Banking in the emerging economies was traditionally a highly protected industry,

living off good spreads achieved on regulated deposit and lending rates and pervasive

restrictions on domestic and foreign entry.

For many years, there was little pressure to disturb this cozy and wasteful world.

However, global market and technology developments, macroeconomic pressures and

banking crises in the 1990s have forced the banking industry and the regulators to

change the old way of doing business, and to deregulate the banking industry at the

national level and open up financial markets to foreign competition.

As a result, borders between financial products, banks and non-bank financial

institutions and the geographical locations of financial institutions have started to

break down. These changes have significantly increased competitive pressures on

banks in the emerging economies and have led to deep changes in the structure of the

banking industry.

One of the main catalysts for increased competition at the domestic level has been the

removal of ceilings on deposit rates and the lifting of prohibitions on interest

payments on current accounts.

These deregulation measures have reduced sources of cheap funding for many banks

and put pressure on their profits. Intensified competition has made it harder for banks

to cross-subsidize different activities and has forced them to price risks more

realistically and to charge explicitly for previously free services.

Technology

The major issue about new IT is its impact on the processing of information, which is

the very essence of the banking business. Perhaps the most significant innovation has

been the development of financial instruments such as derivatives that enable risk to

be reallocated to the parties most willing and able to bear that risk, thereby inducing

more investment in real assets and fostering the development of banking and financial

markets in general.

More fundamentally, banks are increasingly losing their privileged access to

information about investment opportunities, and are thus under pressure to merge or

build alliances with domestic or foreign-owned banks and technology companies in

order to share the costs and exploit the benefits of the development of new IT

applications.

One source of concern related to new banking technology is the emergence of a

‘digital divide’ in the access to banking services. According to this view, better

educated and more affluent customers will be able to obtain improved service from

banks through the internet over the medium term, while the services provided to

poorer and older customers will deteriorate as branches are closed, particularly in

remote areas.

Changes in Corporate Behavior

The spread of information technology has affected the banking industry both directly,

through IT applications in risk management and marketing of financial products, and

indirectly, through its impact on corporate behavior and the development of financial

markets, especially in the area of financing new capital investments.

Another implication of these developments is that commercial banks in bank-centered

financial systems can no longer maintain their traditional, close relationships with

corporate customers. Because of pressure from alternative funding sources and other

domestic and foreign banks, there is growing emphasis on shareholder value as the

sole commercial objective of banks.

Banking Crises

There were many banking crises during the 1990s, often occurring shortly after the

external and banking systems were deregulated. Despite all the attention given to the

complicated derivative products that have led to the high-profile collapses of some

individual banks, most systemic banking crises are still caused by poor lending.

1.1.3 Current Performance Scenario

During the first half of 2012, the banking system continued to maintain its resilience and

stability, against the background of uncertainty in the global and domestic economies,

regional geopolitical developments, and the low interest rate environment. Negative

developments in the capital markets and the slowdown in domestic activity also influenced

corporate risk, which remains high, although it is lower than it was during the height of the

crisis (2008–09).

Balance-sheet credit increased by 3 percent, similar to the GDP growth rate. Retail

credit continued to expand, particularly housing credit, the growth rate of which

accelerated beginning in the second quarter as a result of the resurgence in the

housing market. Credit to the business sector did not grow, particularly in light of the

reduction in credit to the financial services industry. During the reviewed period, there

was a decline in borrower concentration in the credit portfolio, but it remains high.

The core tier 1 capital ratio of the five banking groups increased from 7.9 percent to

8.3 percent as a result of the new capital targets, and as of June 2012, the core capital

ratio in all of the banking groups was not less than 8.0 percent. The increase in the

ratio is the result not only of the accumulation of profits and the non-distribution of

dividends, but also the halt in growth of business sector credit.

The profitability of the banking groups in the first half of 2012 was similar to the

long-term average, and was characterized by relatively high variance between the

groups.

PRINCIPAL BANKING SYSTEM INDICES (five major banking groups)

Year Ratio of

Market

Value to

Book

Value

(MV/BV)

Avg.

yield gap

between

bonds of

the

banks &

govt.

bonds

Ratio

of

credit

to

GDP

(%)

Loan

loss

provisio

n to

total

balance

sheet

credit to

the

public

(%)

Ratio of

liquid

assets to

liquid

liabilities

Ratio of

credit to

deposits

Total

capital

ratio

(%)

Core

tier 1

capital

ratio

(%)

ROE

(%)

2001 0.8 0.8 102.3 0.9 0.81 9.4 5.8

2002 0.6 0.8 107.5 1.3 0.83 9.9 2.8

2003 0.8 0.7 104.0 1.1 0.82 10.3 8.4

2004 1 0.8 100.0 0.9 0.80 10.7 13.2

2005 1.4 0.7 97.5 0.7 0.82 10.7 13.9

2006 1.3 0.6 94.8 0.5 0.80 10.8 17.3

2007 1.2 1.1 97.0 0.3 0.85 11.0 15.6

2008 0.6 1.9 101.6 0.7 0.90 11.2 0.3

2009 1.1 1.7 94.7 0.7 0.86 13.7 7.9 8.8

2010 1.1 1.7 95.1 0.4 0.34 0.91 14.0 8.0 9.8

2011 0.7 1.5 91.9 0.4 0.40 0.89 14.0 7.9 10.2

2012 0.7 1.6 90.3 0.4 0.40 0.89 14.4 8.3 9.0

Liquid assets include cash as well as deposits at the Bank of Israel and at other banks with up

to 1 month to maturity, and government bonds.

Liquid liabilities include total deposits with up to 1 month to maturity.

The ratio of market value to book value (MV/BV) and the average yield gap between bonds

of the banks and government bonds are as of October 18, 2012.

1.1.4 Main Development in balance-sheet activity

Assets

The total aggregate balance sheet of the five major banking groups increased slightly

in the first half of the year at a moderate annual rate of 1.9 percent (about NIS 11

billion), to a total of about NIS 1.2 trillion

Two main developments characterized the banks' asset portfolio during the reviewed

period: (1) a slight increase in total net credit to the public (2.7 percent), which was

driven mainly by demand for housing credit in light of a freeze in business credit, and

(2) a change in the composition of the balance sheet and a significant increase in the

securities portfolio (30 percent), mainly due to the purchase of government bonds,

mostly at the expense of cash and deposits at banks.

Liabilities

Deposits from the public increased in the first six months of 2012, by a slight rate of

1.5 percent (about NIS 16 billion). The most marked decline was in the households

segment (8.8 percent). Bonds and subordinated debt notes increased by about 7

percent (some NIS 3 billion).

1.1.5 Credit Quality

During the first half of 2012, the risk level of companies in the economy remained high

compared to the economic boom years, although it is lower than during the height of the

crisis in 2008–09. This development is also noticeable in the banks' internal ratings and in the

ratio of loan loss provisions to total credit which was 0.4 percent in June 2012.

The ratio of net write-offs to balance-sheet credit reached 0.48 percent in June 2012, and is

slightly higher than the ratio of loan loss provisions to balance-sheet credit. The ratio of the

allowance for credit losses to impaired debt to the public—which reflects the bank's

estimation of expected credit losses relative to the size of the credit portfolio that they have

classified as impaired, was 44 percent.

INDICES OF CREDIT PORTFOLIO QUALITY OF THE FIVE MAJOR BANKING

GROUPS (December 2006 to June 2012) (in percent)

Year Leumi Hapoalim Discount Mizrahi

Tefahot

First

International

Five

Groups

Ratio of total

risk weighted

assets to total

assets

2006 67.0 72.2 59.8 66.6 61.3 66.9

2007 69.0 72.8 61.9 68.2 58.8 68.0

2008 69.5 72.3 64.8 66.9 59.1 68.3

2009 64.2 67.9 60.6 67.1 54.4 64.1

2010 68.3 68.7 67.2 58.7 61.0 66.4

2011 67.7 67.3 60.4 58.3 60.0 64.6

2012 68.3 66.8 61.8 58.8 59.1 64.8

Loan loss

provision to

total balance

sheet credit to

the public

2006 0.51 0.53 0.63 0.44 0.42 0.52

2007 0.21 0.25 0.44 0.31 0.33 0.28

2008 1.01 0.68 0.67 0.44 0.39 0.72

2009 0.74 0.93 0.87 0.39 0.44 0.75

2010 0.25 0.44 0.66 0.43 0.17 0.39

2011 0.30 0.48 0.66 0.28 0.14 0.39

2012 0.46 0.51 0.40 0.18 0.15 0.40

Net write-offs to

total gross

balance sheet

credit to the

public

2011 0.84 0.84 0.72 0.44 0.15 0.71

2012 0.59 0.57 0.52 0.18 0.19 0.48

Allowance for

credit losses to

total balance

sheet credit to

the public

2010 2.3 2.1 1.7 1.6 1.3 2.0

2011 1.6 1.6 1.7 1.4 1.3 1.6

2012 1.6 1.6 1.6 1.3 1.3 1.5

Impaired loans

to total balance

sheet credit

2010 3.8 4.7 4.7 1.5 1.9 3.7

2011 2.8 3.4 4.7 1.3 1.6 3.0

2012 2.9 3.4 4.3 1.2 1.5 2.9

Allowance for 2010 53.5 41.7 31.2 52.1 62.6 44.8

credit losses to

impaired loans

to the public

2011 50.9 43.1 31.1 48.1 74.5 44.2

2012 47.7 42.2 32.6 53.7 75.1 43.9

Impaired loans

net of provision

to capital

2010 24.2 35.9 48.3 17.6 14.3 30.2

2011 21.4 29.0 46.6 17.5 11.4 26.4

2012 22.7 28.1 41.9 14.0 10.6 25.4

1.1.6 Borrower Concentration

During the first half of the year, there was a decline in borrower concentration. Total net

indebtedness of the largest borrower groups declined during this period at most banks, and

the net indebtedness of the largest group of borrowers decreased at all banks, and as of June

2012, its weight in the capital basis ranges from 16 percent to 23 percent.

An analysis of the credit portfolio of the entire banking system indicates that the largest

borrowers in the banking system who borrowed from the capital market as well comprise

about 15 percent of the banks' balance-sheet and off-balance-sheet business credit risk (NIS

98 billion), of which about NIS 7 billion is from borrowers whose bonds were traded in

September 2012 at yields above 12 percent.

1.1.7 Securities Portfolio

The securities portfolio of the five banking groups totaled NIS 168 billion in June 2012,

constituting 14 percent of total assets (Figure 10). During the first half of the year, there has

been an increase of NIS 22 billion in the securities portfolio, resulting from the purchase of

Israel government bonds (reflecting an annualized growth rate of 30 percent).

The increase encompassed four of the five banking groups, and in some of the groups, the

increase in the securities portfolio was accompanied by a decline in the cash and bank

deposits item.

1.2 MAJOR PLAYERS IN THE BANKING INDUSTRY OF ISRAEL

The major players in the banking industry of Israel are as follows:

Banking

Group

Established Number

of

Branches

Total

Assets

(NIS

billion)

Share of

total

banking

system

assets

Share of

total

banking

system

credit

Share of

total

banking

system

deposits

Hapoalim

group

1921 320 273.3 30.0 31.3 29.1

Bank Leumi

group

1902 232 272.8 29.9 29.9 30.2

Discount

Bank group

1935 195 154.8 17.0 14.2 17.7

Mizrahi-

Tefahot

Bank group

1923 123 86.3 9.5 10.9 9.7

First

International

Bank group

1975 103 71.9 7.9 7.3 8.4

1.3 OVERALL PRODUCTS/SERVICES OFFERED BY THE BANKING

INDUSTRY OF ISRAEL

Most of the major banks have branches all over the country, but whereas city branches are

likely to offer extensive services, local branches may have restricted opening hours and offer

limited services.

Most banks in Israel offer both telephone and internet banking, and also internet-only

banking, with most of these services available in English. Most banks will provide bank

statements and other related paperwork in English. You are required by law to keep bank

statements for a period of seven years.

Many Israeli banks provide dedicated foreign currency exchange services, although you will

also find specialist local money exchange services throughout Israel, typically in the main

shopping areas of larger towns and cities. Israeli banks offer a wide variety of accounts,

including:

Current accounts - typically used for everyday banking, but offering low interest rates.

Savings accounts - more competitive interest rates (possibly a variable rate), with

higher rates of interest on longer-term accounts, with limited short-term access to

funds.

Fixed-term accounts - a defined rate of interest for a fixed term - typically ranging

from a month to several years. They may offer little or no access to funds until

account maturity.

Credit cards (Visa and MasterCard) are widely used and accepted in Israel, and credit cards

can be used to withdraw cash from ATMs. However, cash withdrawals are likely to incur a

fee. There are two main types of credit card in Israel:

Credit cards that can be used for transactions in Israel using local currency only.

Credit cards that can be used worldwide, in foreign currencies.

Cheques are widely used and accepted in Israel as a form of payment, and you can post-date

cheques for up to a year ahead, and even deposit post-dated cheques (which will be credited

to your account when the due date is reached).

Bouncing more than 10 cheques in a month will lead to suspension of the account and all

future banking privileges at any bank in Israel for a year. If this happens three times in a 12-

month period, the suspension extends to five years.

ATMs are widespread, with services available 24 hours a day. Using an ATM card is

typically cheaper than using a credit card to withdraw cash. ATMs are normally located

outside bank branches, and standard daily limits allow you to withdraw up to 01,000 ILS

(shekels) a day - approximately £170 GBP (pound sterling).

1.4 PRESENT TRADE WITH QUANTITY AND AMOUNT OF THE BANKS IN

ISRAEL

Israeli banks offer a wide variety of accounts, including current accounts, savings accounts

and fixed-term accounts.

Current accounts are typically used for everyday banking needs, but offering low

interest rates.

Savings accounts will offer more competitive interest rates, with higher rates of

interest being offered to longer-term accounts with restricted short-term access to

funds. Interest rates may be variable or fixed.

Fixed-term accounts offer a defined rate of interest for a fixed term – typically

ranging from a month to several years. Fixed-term accounts may offer little or no

access to funds until the account matures. When the account matures (i.e., the fixed

period expires), customers have the option to re-invest the capital and the interest

earned.

Most banks also provide these accounts in a range of major currencies, including £ GBP

(pounds sterling) and $ US (US dollars). It is worth assessing whether a foreign currency

account will be useful for meeting everyday banking needs, such as making regular

transactions in shekels for services such as utilities.

1.4.1 The Volume of Trade in the Foreign Currency Market

There was a decline in average daily trading volume, in contrast to an increase in

nonresidents' share of trading volume

The total volume of trade in foreign currency in January was about $102 billion,

compared with $100 billion in December. Average daily trading volume declined by

about 3 percent in January, and reached about $4.8 billion.

The volume of trade in spot and forward transactions (conversions) was about $40

billion in January, compared with $44 billion in December. The average daily trading

volume in those transactions declined in January by about 12 percent, compared with

December, to about $1.9 billion.

The volume of trade in over the counter foreign currency options (which are not

traded on the stock exchange) totaled about $13.3 billion in January, compared with

$8.8 billion in December. The average daily trading volume in those options in

January was $635 million, an increase of 44 percent from December.

The trading volume of swap transactions was about $48 billion in January, compared

with $47 billion in December. Average daily turnover declined by about 3 percent, to

$2.3 billion in January.

Nonresidents' share of total trade (spot and forward transactions, options and swaps)

increased in January to 44 percent, compared with 41 percent in December. The

increase derived primarily from an increase in nonresidents' volume of activity in spot

and forward transactions, and options.

Figure 4: International comparison of implied volatility of shekel/dollar options

4%

8%

12%

16%

20%

24%

28%

32%

01/0

8

03/0

8

05/0

8

07/0

8

09/0

8

11/0

8

01/0

9

03/0

9

05/0

9

07/0

9

09/0

9

11/0

9

01/1

0

03/1

0

05/1

0

07/1

0

09/1

0

11/1

0

01/1

1

03/1

1

05/1

1

07/1

1

09/1

1

11/1

1

01/1

2

03/1

2

05/1

2

07/1

2

09/1

2

11/1

2

01/1

3

Average of emergingmarketsAverage of advancedeconomiesIsrael

Emerging markets: Chile, Hungary, Mexico, the Philippines, Poland, Singapore, South Africa, South Korea, Thailand and Turkey.Advanced economies: Australia, Canada, the eurozone, Japan, UK, Switzerland.

0%

10%

20%

30%

40%

50%

60%

70%

01/1

002

/10

03/1

004

/10

05/1

006

/10

07/1

008

/10

09/1

010

/10

11/1

012

/10

01/1

102

/11

03/1

104

/11

05/1

106

/11

07/1

108

/11

09/1

110

/11

11/1

112

/11

01/1

202

/12

03/1

204

/12

05/1

206

/12

07/1

208

/12

09/1

210

/12

11/1

212

/12

01/1

3

Figure 5: Nonresidents' share of total trading volume Options & Conversions

Swap Transactions

Bank Hapoalim

Number of Branches: 320

Total Assets (NIS billion): 273.3

19

Share of total banking system assets: 30.0

Share of total banking system credit: 31.3

Share of total banking system deposits: 29.1

Mizrahi Tefahot Bank

Number of Branches: 123

Total Assets (NIS billion): 86.3

Share of total banking system assets: 9.5

Share of total banking system credit: 10.9

Share of total banking system deposits: 9.7

Discount Bank

Number of Branches: 195

Total Assets (NIS billion): 154.8

Share of total banking system assets: 17

Share of total banking system credit: 14.2

Share of total banking system deposits: 17.7

Bank Leumi

Number of Branches: 232

Total Assets (NIS billion): 272.8

Share of total banking system assets: 29.9

Share of total banking system credit: 29.9

Share of total banking system deposits: 30.2

20

1.5 TECHNOLOGICAL ADVANCEMENT IN ISRAEL

Technology has been a boon to many industries and especially to the banking industry. With

the help of technology banks are able to reach out to more customers and provide better

services to them. Also, it helps them function in an organized and secure way.

As for us (the customers) we have ATMs, Cash deposit machines, online banking, phone

banking etc which are all fruits of technological advances which have made our banking

experience much easier. Imagine having to run to the bank every time you wanted to check

your balance or make a deposit or withdrawal.

According to conventional wisdom, new information technology is not at present likely to

impinge much on the development of the banking industry in the emerging economies, which

remain technologically behind the industrial countries. For example, the low level of

penetration in most emerging economies means that the internet is not seen as a threat to

traditional banks. Given the signs of a possible bursting of the e-banking “bubble” in the

United States and Europe, some have also argued that the issue of electronic banking may go

away before the emerging markets need to worry about it.

21

This conventional view can be challenged on several grounds. As noted above, the major

issue about new IT is its impact on the processing of information, which is the very essence

of the banking business. Perhaps the most significant innovation has been the development of

financial instruments such as derivatives that enable risk to be reallocated to the parties most

willing and able to bear that risk, thereby inducing more investment in real assets and

fostering the development of banking and financial markets in general.

The use of such instruments is not the preserve of industrial countries: with their increasingly

sophisticated IT applications, banks in the emerging economies use new financial instruments

daily in their transactions. Their banking systems and financial markets are thus in a position

to advance much more rapidly from a rudimentary to a fairly advanced stage of development

of risk management and other commercial banking functions.

Such potential skipping of financial development stages would not have been possible in the

past, when information processing technology was not readily available, and when the

development of futures markets and other domestic financial institutions that enable

unbundling and shifting of risks on a large scale was much more time-consuming and costly.

Likewise, the potential for rapid development of commercial banking functions offered by

alternative delivery channels such as ATMs, debit cards, telephone, internet and electronic

banking should not be underestimated.

Despite the still low level of usage of such channels (with the exception of ATMs, which are

now very widespread), the vast majority of banks in the emerging economies see such

channels as a must for their industry. Banks fighting for some important part of the retail

market believe that they have to offer such services as an essential marketing tool, although

the true demand for them has so far been limited.

As in advanced economies, new technology is affecting the structure and performance of the

banking industry in the emerging markets mainly through its impact on the costs and the

determination of optimal scale. Branch-based transactions are much more expensive than

alternative delivery channels. This cost advantage would seem to favor smaller institutions, as

investments needed to attract deposits or provide banking services via the internet are in

principle lower than the costs of setting up a traditional branch network.

22

At the same time, investments needed to develop adequate back office and risk assessment

systems are very high, creating considerable cost advantages for larger institutions.

Moreover, branch networks are not expected to shrink as a result of the development of

alternative delivery channels, although branches are generally expected to become smaller.

1.6 REQUIREMENTS OF RESOURCES FOR THE INDUSTRIAL OPERATIONS

OF ISRAEL

Channels

Channels are the vehicles through which customers can interact with a bank. These channels

may be used for either sales or service interactions.

Customer Relationship Management

Customers tend to have products and services from multiple product areas across a Bank. It

is important to bridge these divisions both from the Bank's perspective - so that a group wide

view of customer risk can be assembled - and from a customer perspective - so that a single

customer isn't faced with myriad service personnel.

Given these requirements CRM is a vital part of Banking Operations. We have

disaggregated this operational area into three key units.

1. Customer Risk

2. Customer Static

3. Contact Management

23

Banking Product Engines

Banks offer a variety of products each of which requires a combination of back office staff

and complex computer systems to set up and maintain. It is these systems, staff and

processes that we refer to here as 'Engines'.

We have identified eight key banking engines that are referred:

1. Core Banking

2. Insurance

3. Asset Finance

4. Capital Markets

5. Fund Management

6. Cards

7. Mortgages

8. Stock Broking

Management Information

Management Information is all about deriving information from a Bank's other activities.

Financial Services companies are heavily regulated. In addition to the statutory reporting of

all companies, they have to provide regulatory information to:

Government Tax Authorities - Information on customer tax withheld and the country of

residence of customers.

Government Security Services - Information on Suspected Terrorists, Money Laundering

and Fraud.

Central Bank and Financial Services Regulators - Information on credit exposures,

capital adequacy and liquidity

Finally, since the raw material, work in progress and finished goods of financial services

groups is information, it lends itself to the production of management accounting

24

information. As a consequence, financial services groups have very large databases for

analyzing assets, liabilities, costs and income as well as non-financial data for a variety of

marketing and other management needs.

1.7 WTO-ISRAEL

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member

countries' trade and related policies are examined and evaluated at regular intervals.

Significant developments that may have an impact on the global trading system are also

monitored. All WTO members are subject to review, with the frequency of review depending

on the country's size.

1. Israel has not been spared the effects of the global economic crisis, but its financial system

has weathered the crisis comparatively well. Since its last TPR, in 2006, real GDP growth

has averaged around 5% per year, only interrupted by a sharp decline in growth in 2009.

Recently, there are again signs of slowing economic activity. The resilience and stability of

the financial system has been attributed, inter alia, to cautious lending and limited exposure to

"toxic" assets by Israeli banks, and a conservative supervisory approach by the Bank of

Israel. There was no need for any bank bailout or major stimulus programme, although the

Government has substantially increased its exposure to credit guarantees in order to stimulate

exports. Public debt as a percentage of GDP has been reduced (74% in 2011).

2. Israel is a high-income country with a GDP per capita of US$31,000 in 2011, up from

US$17,700 ten years earlier. Its GDP of about US$240 billion is roughly equal to the size of

Singapore's. Some of Israel's main economic challenges lie in the high burden of defence

spending, low labour-market participation among certain communities, and resulting income

25

inequality. Israel has been largely dependent on imports for its energy needs, but major

discoveries of offshore natural gas may change its economic prospects.

3. The Israeli economy is dominated by high-tech goods and services. The main high-tech

(non defence) activities are in the area of computer components manufacturing, software

engineering, medical technologies, and pharmaceuticals. Israeli businesses also play an

important role in the world's diamond industry.

4. One of the core strengths of the Israeli economy is its capacity for innovation, be it in

agriculture or the high-tech sector. Expenditure on civilian R&D amounted to about 4.4% of

GDP in 2010, the highest share in the world.

Israel's innovation policy encourages domestic R&D in generic and applied technologies,

including the development and acquisition of intellectual property rights, through a range of

incentive schemes. The availability of domestic and foreign venture capital further

encourages start-up companies.

5. A significant share of foreign direct investment is made in Israeli start-up companies.

Investments in the industrial sector benefit from export-contingent incentives. Israel

maintains foreign ownership restrictions in a few sectors, including air and maritime

transport, telecommunications and broadcasting, energy, and tourism, mainly for public

interest, (energy) security and cultural reasons. There is no special approval or screening

process for investments by foreigners.

6. Israel is a relatively export-oriented economy. Its trade continues to be affected by the

geopolitical situation that prevails in the Middle East, which seriously impedes trade between

Israel and its neighbours. The European Union and the United States remain Israel's main

trading partners, although Israel's trade with Asia continued to increase over the review

period. The current account has been in surplus since 2003.

7. Israel pursues trade liberalization through active participation in the DDA negotiations,

bilaterally through reciprocal preferential agreements, and unilaterally through autonomous

initiatives. Israel's network of FTAs covers some of its main trading partners (EU, United

States, EFTA, and Turkey), although none of its FTAs currently includes services provisions.

Since its last TPR, Israel has concluded a free-trade agreement with MERCOSUR, and Israel

26

and the European Union have further liberalized their bilateral trade in agricultural products.

FTA negotiations have been launched WT/TPR/S/272 Trade Policy Review Page viii with

India and Colombia. Nonetheless, the relative importance of trade via free-trade agreements

has steadily declined due to the rising importance of trade with Asian countries.

8. In the summer of 2011, Israel experienced unprecedented popular protests against the high

cost of living, triggered by consumer complaints about high prices of some dairy products

("cottage cheese uprising"). In response, and as part of a package of reforms, the

Government has unilaterally dismantled some import barriers. Applied MFN tariffs on a

range of non-food consumer goods were eliminated with immediate effect (400 tariff lines at

HS 8-digit level).

In July 2012, the Government announced a further unilateral initiative to eliminate or reduce

import duties on items such as electrical appliances, textiles and apparel, and food trade

policy measures.

9. Israel's average applied MFN tariff is 7% in 2012. Over half of the tariffs are duty-free

lines, and less than 5% of tariff lines exceed the 20% rate. The average applied MFN tariff

on non agricultural products is relatively low (4.2%), while tariffs on agricultural goods

(WTO definition), average 24.5%. For agricultural products, market-access opportunities are

provided, inter alia, by duty-free access (i.e. about one third of applied MFN tariffs are zero),

preferential tariffs, and over 100 agricultural tariff quotas (MFN and preferential). Numerous

mixed or compound MFN duties add complexity to the agricultural tariff regime. Israel has

not yet transposed its Schedule of concessions from HS 1996 nomenclature, which makes a

comparison with its applied MFN tariffs (HS 2012) difficult because of the difference in

nomenclatures.

10. Since its last TPR, Israel has launched trade facilitation initiatives for authorized

economic operators and couriers (pre-clearance of air shipments). On the other hand, Israel

maintains non automatic import licensing procedures on a vast range of products for various

reasons, such as health, safety, security, and tariff-quota administration. Up-to-date

notifications would help improve the transparency of these import procedures. In general,

Israel's notification record has been mixed. There is room for improvement in a number of

areas where Israel has outstanding notification obligations, such as agriculture, regional trade

agreements, and import licensing.

27

11. Israel maintains export licensing and approval (permit) schemes but there are no export

taxes or levies. Israel has not used export subsidies on agricultural products since 2010. One

export state trading enterprises is active in the groundnut sector.

12. Israel has made considerable progress in aligning its technical regulations and food

standards with mandatory standards of international, regional or foreign origin. The

Government aims to accomplish full harmonization of Israeli technical regulations with

overseas mandatory standards by end-2012 (end-2013 for food standards). Israel has notified

three new or revised SPS measures since its last TPR in 2006. The SPS notifications concern

alignment of Israel's phyto sanitary import requirements with international standards, and an

amendment of BSE-related import requirements.

13. Israel remains a significant user of anti-dumping measures, but overall the incidence of

new measures remains within the long-term trend. During the review period, Israel

introduced safeguard legislation to implement the WTO Agreement on Safeguards and

initiated two safeguard investigations.

14. Israel applies value-added tax on imported and domestic goods and services currently at

the rate of 16%. A number of items, including fruit and vegetables, are zero-rated. Certain

luxury and consumer goods, as well as alcoholic beverages are subject to purchase tax. For

the assessment of purchase tax on imported products, Israel uses a type of surcharge, called

TAMA, which approximates domestic wholesale prices. A tax reform for alcoholic

beverages is to be implemented whereby TAMA will be cancelled and replaced by a specific

tax on domestic and imported alcoholic beverages alike.

15. Israel is party to the Agreement on Government Procurement (GPA) and has participated

in the negotiations of the revised GPA. Israel has made a number of market-access

commitments that enhance the opportunities for foreign companies to compete in its

government procurement market. It has also undertaken to phase out its offset regime with

respect to procurement covered by GPA. It will progressively reduce the current 20% offset

level and eliminate offsets entirely after 15 years from the entry into force of the revised

GPA for Israel. The Israeli tender legislation has been reformed since 2006.

16. Israel has a well developed intellectual property system, which underpins the country's

status as one of the most innovative economies. A significant development in Israeli

28

intellectual property law is the introduction of the Copyright Act 2007, which, inter alia,

replaced the doctrine of fair dealing with that of fair use, thus providing a more flexible

approach to copyright exceptions - an exceptional step that few jurisdictions have taken so

explicitly. Israel has reached an agreement with the United States to amend certain

pharmaceutical IPR provisions relating to patent-term extension, patent-application

publication, and data exclusivity.

17. Israel continues to face competition-related challenges for reasons such as high tariff

protection (agriculture), the small size of the economy, a certain degree of geographic

isolation with little regional trade and language barriers, contributing to market-entry barriers.

One of the Government's key policy objectives has been to enhance competition in the

domestic market.

Since its last TPR in 2006, it has made a series of structural reforms in various sectors to

strengthen competition in the economy, including in financial services, telecommunications,

and transport services. Moreover, a reform of the competition law in the area of oligopolies

has been enacted.

29

1.8 LEGAL ASPECTS AND BARRIERS IN ISRAELI BANKING

INDUSTRY

Banking, which remains the largest sector in Israel’s financial markets, is characterized by

significant entry barriers, a high concentration of assets among a relatively small number of

banks, limited credit allocation, and relatively narrow choice of financial products. For these

reasons, it can be reasonably inferred that there is not a significant level of competition

among incumbent banks over households and SMEs. 

Although the level of competition in retail banking cannot be directly observed, our analysis

suggests that such entry barriers confer on Israel’s five large banks a considerable ability to

exploit market power and extract monopoly rents. The combination of barriers to entry with

the banks’ market positions can be particularly harmful for SMEs and households because it

results in considerable rationing of credit.

Market concentration, which measures how much output is controlled by a single bank or

group of banks, is sometimes incorrectly used as an indicator of whether a certain market is

competitive. A common presumption is that fewer firms and more concentrated markets

diminish incentives to compete. But when the concentration is caused by barriers that prevent

additional firms from entering the market, either because of government policy or a lack of

30

the necessary production assets, the entry barriers—not market concentration—are the

underlying cause of limited competition, as is the case in the Israeli credit markets.

Accordingly, measures of market concentration should not be confused with market power,

which pertains to the ability of firms to extract monopoly rents. First, market concentration

does not necessarily result from excluding competitors or creating entry barriers. Economies

of scale—the cost savings obtained by supplying or buying larger quantities through a single

firm—could also give rise to concentration. Second, even in the most concentrated markets, a

firm (e.g., a monopoly) does not necessarily benefit from an ability to extract monopoly rents.

If a firm’s activities are undermined by the potential entry of rivals, it would not be able to

extract monopoly rents, regardless of its size or market share. Therefore, market

concentration alone does not indicate a market’s competitiveness.

In retail banking, this implies that a concentrated market is not necessarily an uncompetitive

one. Small banking segments, in particular, may become considerably concentrated because

of the cost advantages of economies of scale.

Regardless of the specific causes for the banking concentration in Israel, three empirical

regularities clearly arise from our analysis: Considerable concentration is characteristic of

small economies, the retail banking market in Israel is exceedingly concentrated relative to

developed markets, and this high concentration has not declined in recent years. Israel’s three

leading banks controlled 88 percent of all bank assets in 2006, compared with an average 72

percent for OECD nations. While such concentration may be on par with certain small

economies, the combination of the five banks’ large market shares and the entry barriers

detailed in this section severely limits credit competitiveness and capital access.

Entry Barrier 1: Limited Access to Credit Scoring and History

In contrast to traditional market settings where consumers are valued based on their

willingness to pay for a given product, retail banking typically requires extensive information

to assess a consumer’s ability to repay debt. Information about a borrower’s assets, credit

worthiness, payment commitments, and history is essential for any bank in assessing the risk

of extending credit to a potential customer. Therefore a bank’s viability depends on private

information held exclusively by its rivals

.

31

For this reason, disclosure of consumer credit history has been regulated in most developed

nations for nearly four decades. The 1970 U.S. Fair Credit Reporting Act (FCRA), which was

amended in 1996, is considered by many to be an effective framework for disseminating

credit information. Israel passed a credit scoring law in 2002 and specific credit scoring

regulations in 2004.

2. Limited Access to Payment Card Networks:

One important feature of banking competition that has evolved over the past two decades is

competition between credit card networks. Credit card networks serve both banks and

cardholders by enabling a cardholder to make purchases against either credit or funds the

cardholder holds at the card-issuing institution.

More importantly, with respect to lending competition, credit card networks can presumably

facilitate credit provision by enabling rival banks to issue credit lines to different individuals

even if they do not manage their demand deposit bank accounts.

In the past decade, the Antitrust Authority has made numerous attempts to improve both

payment card membership rules and fees. However, our analysis suggests that the four

leading banks’ control of the three card networks in Israel—Visa, MasterCard and American

express - largely eliminates any provision of household credit by rival card networks. This

conclusion is based on three important observations: (a) limited intra-brand competition

among card issuers (b) limited credit allocation through payment cards and (c) limited access

to payment card networks.

If there are both significant entry barriers to retail banking that prevent competition in the

provision of credit, as well as the potential for undermining such barriers through credit

cards, then incumbent banks may find it profitable to sacrifice revenue in their credit card

network to collectively foreclose the retail banking segment.

Although there are clear benefits, even in the scenario above, for banks to enable an

additional issuer to join their card network, conflicts may arise when incumbent banks find it

privately profitable to block access to their networks altogether. Such conflicts could be

harmful if there is very little inter-brand competition (between American Express and

MasterCard, for instance) and incumbent banks prevent non-bank members from issuing

credit through payment card networks.

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The alleged conflict between private interests of incumbent banks and competitive access to

issuers does not justify a divestiture of payment cards from banks. While the economic basis

for such divestiture is questionable, the potential competitive outcome of such market share

redistribution is even less clear. It is, however, imperative to maintain inter-brand

competition between card networks. In this respect, control of two payment card brands by a

single large bank could be anticompetitive if it transforms the credit card industry from a

three player to a two-player market structure.

3. Prohibitive Regulatory Oversight:

Because the financial well-being of banking institutions contributes considerably to a

country’s financial stability, banks require oversight. Such oversight affects the strategies,

effectiveness, and level of competition among banks subject to regulation. Considerable

research in the past decade has come to question the effectiveness of supervisory oversight of

banks while demonstrating that such oversight has significant implications for competition.

The regulatory situation in Israel exemplifies the complexities of evaluating the effectiveness

of strict banking oversight. Israel has not witnessed a severe banking crisis since 1983 and

has so far withstood the current financial crisis. But is this perceived stability occurring

because of or in spite of the current regulatory regime? Is Israel’s regulatory oversight

harmful to competition, and if so, in what way? Both questions are complex and should be

thoroughly addressed beyond this brief discussion. We will, however, attempt to highlight

specific policies that could harm competition, independent of their potential impact on

financial stability.

Bank of Israel Proper Conduct Code

The Proper Conduct of Banking Business Regulations affords the Bank of Israel significant

regulatory discretion over banking. In addition to risk management or prudential standards,

the conduct code also regulates such things as dividends, corporate governance, standards for

handling telephone transactions, and requirements for days of operations.

33

Although certain requirements in the conduct regulation may have an impact on banks’

financial stability, the totality of such standards could also cause significant compliance costs,

which would ultimately prohibit potential entrants from accepting deposits or issuing credit.

In this context, there are two groups of competitors that may be affected by the conduct

regulation provisions: foreign banks and non-depository financial firms. To the extent that

foreign banks or non-depository firms in Israel (such as insurance or fund managers) face

fewer restrictions in their respective markets, offering credit and complying with the conduct

regulation could be prohibitively costly for such firms. This may be particularly true when

there is significant variation in regulatory requirements between banks and other financial

institutions.

Despite the Bank of Israel’s stated non-discriminatory policy, foreign banks have not made

significant investments in large-scale branching or operations in Israel. According to a recent

comparison of regulatory practices, Israel fares poorly with respect to entry barriers imposed

on foreign banks.

Regulation of Commissions and Fees

Another concern is the regulation of banks’ commissions and fees. Although the Bank of

Israel recently revised certain aspects of fee setting to attain better coherence, it left the

regulation of fees fundamentally unchanged by continuing to review, authorize, and

ultimately determine fee changes as stipulated in the Banking (Customer Service) Law, 5741-

1981.

This practice is troubling for a number of reasons. Given recent allegations that bank fees

have been subject to illegal price fixing as well as the tendency of price regulation to provide

“convenient” focal points for coordination between competitors, it is unclear whether fee

regulation is altogether effective. Also, it is possible that regulation, even if effective at

reducing fees, can be offset by other banking revenue, such as interest rates.

Licensing Requirements for Accepting Deposits

The Banking (Licensing) Law, 5741-1981 requires any financial institution that accepts cash

deposits to obtain a banking license and comply with the Supervisor of Banks’ prudential and

34

conduct oversight. Accordingly, non depository institutions such as provident or mutual

funds, which pose the most immediate competitive threat to retail banks in Israel, are

prohibited from investing funds from their investors directly in credit to households and

SMEs.

Although a licensing requirement is common in most, if not all, developed financial markets,

in Israel this requirement limits the ability of non-depository institutions to offer competitive

credit to households and SMEs.

4. Limits on Non-bank Consumer Loans

The Regulation of Non-Bank Loans Law, 5753-1993, which was revised in 2007 to cover

loans of up to NIS 1 million, was initiated to protect consumers from exploitation by non-

bank lenders.

The law was intended to address certain “black market” lenders that reportedly offered loans

at annual interest rates exceeding 100 percent. It requires minimal disclosure of the name of

the lender, annual interest rate, repayment schedule, and other relevant information.

It also caps the legal interest rates for all non-bank loans at the average un-indexed interest

rate reported by the Bank of Israel multiplied by 2.25. In August 2009, the average un-

indexed rate was 4.01 percent, making 9 percent the legal maximum for non-bank lending.

This legal limit on interest rates, from which banks and their subsidiaries are exempt, has a

severe anticompetitive impact for two reasons. It prevents non-bank institutions from offering

credit to the one group that needs it most: risky customers who cannot obtain a bank loan. In

this respect, it places financial distress on customers who have faced difficulties obtaining

credit from banks. It also restricts non-banks to levels of interest rates that may not be

profitable.

For these two reasons, such limitations serve as an entry barrier. In summary, based on the

analysis of entry barriers above, we find that the absence of credit unions, community

35

development financial institutions, foreign banks, and other alternatives largely results from a

failure to accommodate the economics of non-depository institutions through proper

legislation and regulation.

It should be further noted that, in contrast to the insurance industry, where two of Israel’s

leading insurance firms are controlled by foreign companies, none of Israel’s leading banks

has been acquired by foreign banks despite the fact that foreign banks play a vital role in

international markets and the domestic financial markets of many small economies.

Recent Banking Reforms

It has been suggested by many that the divestiture of provident and mutual funds stipulated

by the 2005 Bachar reforms has brought non-financial firms closer to retail banking

competition by providing a toehold in household financial services. These reforms have

reduced the level of banking assets in Israel However, it is imperative to recognize that

divesting complimentary products (long-term savings, for example) from retail banking

services (such as management of checking accounts) does not necessarily reduce the ability

of retail banks to extract monopoly rents.

Reviewing the interest rate margins of the leading five banks since the reforms suggests that

the reforms to date have not produced a significant decline in interest rate margins For this

reason, and as was initially stated in the Bachar Committee report, it is critical to resolve any

regulatory barriers to retail banking so additional financial firms can provide meaningful

competition. As we argue below, it is critical to address all three entry barriers for meaningful

competition in the banking segment to take place.

New Accounting Standards:

The impending implementation of IFRS in 2011 will have a significant impact for the

banking sector particularly in the area of treatment of taxes. The core group of the ministry of

corporate affairs extended the deadline for banks and NBFCs to April 2013 at a recent

meeting held on March 29, 2010. The top five accounting challenges to be faced by banks are

36

loan impairment, use of fair value, derivatives and hedge accounting, de-recognition of

financial assets and consolidation of entities.

Risk Management:

Banks in India are also moving from the individual silo system to an enterprise wide risk

management system. Banks would be required to allocate significant resources towards this

objective over the next few years.

1.9 OVERALL PRODUCTS/SERVICES OFFERED BY THE BANKING

INDUSTRY OF INDIA

Some of common available banking products of Indian banks are explained below:

Credit Card

Credit Card is “post paid” or “pay later” card that draws from a credit line-money

made available by the card issuer (bank) and gives one a grace period to pay. If the

amount is not paid full by the end of the period, one is charged interest. A credit card

is nothing but a very small card containing a means of identification, such as a

signature and a small photo. It authorizes the holder to change goods or services to his

account, on which he is billed.

The bank receives the bills from the merchants and pays on behalf of the card holder.

These bills are assembled in the bank and the amount is paid to the bank by the card

holder totally or by installments. The bank charges the customer a small amount for

these services. The card holder need not have to carry money/cash with him when he

travels or goes for purchasing. Credit cards have found wide spread acceptance in the

‘metros’ and big cities. Credit cards are joining popularity for online payments.

37

The major players in the Credit Card market are the foreign banks and some big

public sector banks like SBI and Bank of Baroda. India at present has about 3 million

credit cards in circulation.

Debit Cards

Debit Card is a “prepaid” or “pay now” card with some stored value. Debit Cards

quickly debit or subtract money from one’s savings account, or if one were taking out

cash.

Every time a person uses the card, the merchant who in turn can get the money

transferred to his account from the bank of the buyers, by debiting an exact amount of

purchase from the card.

When he makes a purchase, he enters this number on the shop’s PIN pad. When the

card is swiped through the electronic terminal, it dials the acquiring bank system –

either Master Card or Visa that validates the PIN and finds out from the issuing bank

whether to accept or decline the transaction. The customer never overspread because

the amount spent is debited immediately from the customer’s account.

So, for the debit card to work, one must already have the money in the account to

cover the transaction. There is no grace period for a debit card purchase. Some debit

cards have monthly or per transaction fees.

Debit Card holder need not carry a bulky checkbook or large sums of cash when

he/she goes at for shopping. This is a fast and easy way of payment one can get debit

card facility as debit cards use one’s own money at the time of sale, so they are often

easier than credit cards to obtain.

The major limitation of Debit Card is that currently only some 8000-10000 shops

country wide accepts it. Also, a person can’t operate it in case the telephone lines are

down.

Automatic Teller Machine

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The introduction of ATM’s has given the customers the facility of round the clock

banking. The ATM’s are used by banks for making the customers dealing easier.

ATM card is a device that allows customer who has an ATM card to perform routine

banking transaction at any time without interacting with human teller. It provides

exchange services.

This service helps the customer to withdraw money even when the banks are closed.

This can be done by inserting the card in the ATM and entering the Personal

Identification Number and secret Password. ATM’s are currently becoming popular in

India that enables the customer to withdraw their money 24 hours a day and 365 days.

It provides the customers with the ability to withdraw or deposit funds, check account

balances, transfer funds and check statement information. The advantages of ATM’s

are many. It increases existing business and generates new business. It allows the

customers to transfer money to and from accounts, to view account information, to

order cash, and to receive cash.

E-Cheques

The e-cheques consists five primary facts. They are the consumers, the merchant,

consumer’s bank the merchant’s bank and the e-mint and the clearing process. This

cheque system uses the network services to issue and process payment that emulates

real world cheque. The payer issues a digital cheque to the payee ant the entire

transactions are done through internet.

Electronic version of cheques are issued, received and processed. A typical electronic

cheque transaction takes place in the following manner:

1. The customer accesses the merchant server and the merchant server presents its goods

to the customer.

2. The consumer selects the goods and purchases them by sending an e-cheque to the

merchant.

39

3. The merchant validates the e-cheque with its bank for payment authorisation.

4. The merchant electronically forwards the e-cheque to its bank.

5. The merchant’s bank forwards the e-cheque to the clearing house for cashing.

6. The clearing house jointly works with the consumer’s bank clears the cheque and

transfers the money to the merchant’s banks.

7. The merchant’s bank updates the merchant’s account.

8. The consumer’s bank updates the consumer’s account with the withdrawal

information.

9. The e-cheque is a great boon to big corporate as well as small retailers. Most major

banks accept e-cheques. Thus this system offers secure means of collecting payments,

transferring value and managing cash flows.

Electronic Funds Transfer (EFT)

Many modern banks have computerized their cheque handling process with computer

networks and other electronic equipments. These banks are dispensing with the use of

paper cheques. The system called electronic fund transfer (EFT) automatically

transfers money from one account to another.

This system facilitates speedier transfer of funds electronically from any branch to

any other branch. In this system the sender and the receiver of funds may be located

in different cities and may even bank with different banks. Funds transfer within the

same city is also permitted. The scheme has been in operation since February 7, 1996,

in India.

The other important type of facility in the EFT system is automated clearing houses.

These are the computer centers that handle the bills meant for deposits and the bills

meant for payment. In big companies pay is not disbursed by issued cheques or

issuing cash. The payment office directs the computer to credit an employee’s account

with the person’s pay.

Tele-banking

40

Tele-banking refers to banking on phone services; a customer can access information

about his/her account through a telephone call and by giving the coded Personal

Identification Number (PIN) to the bank. Tele-banking is extensively user friendly

and effective in nature.

Mobile Banking

A new revolution in the realm of e-banking is the emergence of mobile banking. On-

line banking is now moving to the mobile world, giving everybody with a mobile

phone access to real-time banking services, regardless of their location. But there is

much more to mobile banking from just online banking.

It provides a new way to pick up information and interact with the banks to carry out

the relevant banking business. The potential of mobile banking is limitless and is

expected to be a big success. Booking and paying for travel and even tickets is also

expected to be a growth area.

According to this system, customer can access account details on mobile using the

Short Messaging System (SMS) technology where select data is pushed to the mobile

device, the wireless application protocol (WAP) technology, which will allow user to

surf the net on their mobiles to access anything and everything. This is a very flexible

way of transacting banking business.

Already ICICI and HDFC banks have tied up cellular service provides such as Airtel,

Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobile banking services to

their customers.

Internet Banking

Internet banking involves use of internet for delivery of banking products and

services. With internet banking is now no longer confirmed to the branches where one

has to approach the branch in person, to withdraw cash or deposits a cheque or

requests a statement of accounts.

41

In internet banking, any inquiry or transaction is processed online without any

reference to the branch (anywhere banking) at any time. The Internet Banking now is

more of a normal rather than an exception due to the fact that it is the cheapest way of

providing banking services.

As indicated by McKinsey Quarterly research, presently traditional banking costs the

banks, more than a dollar per person, ATM banking costs 27 cents and internet

banking costs below 4 cents approximately. ICICI bank was the first one to offer

Internet Banking in India.

Demat

Demat is short for de-materialization of shares. In short, Demat is a process where at

the customer’s request the physical stock is converted into electronic entries in the

depository system. In January 1998 SEBI (Securities and Exchange Board of India)

initiated DEMAT ACCOUNTANCY System to regulate and to improve stock

investing. As on date, to trade on shares it has become compulsory to have a share

demat account and all trades take place through demat.

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1.10 BARRIERS TO INDIAN BANKING SECTOR

Enhanced Customer Experience:

Banks are facing challenges as customers have become demanding and the loyalties are

diffused with low switching costs. High service user charges are also concern.

Asset Quality:

Asset quality in the banking sector is set to be a key issue as Crisil projects net NPA as a

percentage of net Advances to touch 2.3% in FY11, as fallout of the downturn and

consequent restructuring of advances.

Transparency and Supervision:

The disclosure requirements have become stringent over the years and covers Capital

adequacy, Asset quality, Asset liability management, Profitability, Country risk exposure,

Risk exposures in derivatives, Segment reporting and Related Party disclosures.

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1.11 PRESENT TRADE WITH QUANTITY AND AMOUNT OF THE

BANKKS IN INDIA

State Bank of India

Number of Branches: 14,119 branches, including 157 foreign offices in 32 countries

Total Assets (NIS billion): US$360 billion

Share of total banking system deposits: 20

ICICI Bank

Number of Branches: 2883

Total Assets (NIS billion):  US$ 98.99 billion

HDFC Bank

Number of Branches: 2776

44

Total Assets (NIS billion):  US$ 70.17 billion

Bank of Baroda

Number of Branches: 4007

Total Assets (NIS billion): US$ 83.25 billion

1.12 TECHNOLOGICAL ADVANCEMENT IN INDIA

Information technology is one of the most important facilitators for the transformation of the

Indian banking industry in terms of its transactions processing as well as for various other

internal systems and processes. The various technological platforms used by banks for the

conduct of their day to day operations, their manner of reporting and the way in which

interbank transactions and clearing is affected has evolved substantially over the years.

The technological evolution of the Indian banking industry has been largely directed by the

various committees set up by the RBI and the government of India to review the

implementation of technological change. No major breakthrough in technology

implementation was achieved by the industry till the early 80s, though some working groups

and committees made stray references to the need for mechanization of some banking

processes.

This was largely due to the stiff resistance by the very strong bank employees unions. The

early 1980s were instrumental in the introduction of mechanization and computerization in

Indian banks. This was the period when banks as well as the RBI went very slow on

mechanization, carefully avoiding the use of ‘computers’ to avoid resistance from employee

45

unions. However, this was the critical period acting as the icebreaker, which led to the slow

and steady move towards large scale technology adoption.

Computerization

The process of computerization marked the beginning of all technological initiatives in the

banking industry. Computerization of bank branches had started with installation of simple

computers to automate the functioning of branches, especially at high traffic branches.

Thereafter, Total Branch Automation was in use, which did not involve bank level branch

networking, and did not mean much to the customer.

Networking of branches are now undertaken to ensure better customer service. Core

Banking Solutions (CBS) is the networking of the branches of a bank, so as to enable the

customers to operate their accounts from any bank branch, regardless of which branch he

opened the account with.

The networking of branches under CBS enables centralized data management and aids in the

implementation of internet and mobile banking. Besides, CBS helps in bringing the

complete operations of banks under a single technological platform.

Satellite Banking

Satellite banking is also an upcoming technological innovation in the Indian banking

industry, which is expected to help in solving the problem of weak terrestrial communication

links in many parts of the country. The use of satellites for establishing connectivity between

branches will help banks to reach rural and hilly areas in a better way, and offer better

facilities, particularly in relation to electronic funds transfers. However, this involves very

high costs to the banks. Hence, under the proposal made by RBI, it would be bearing a part

of the leased rentals for satellite connectivity, if the banks use it for connecting the north

eastern states and the under banked districts.

Development of Distribution Channels

The major and upcoming channels of distribution in the banking industry, besides branches

are ATMs, internet banking, mobile and telephone banking and card based delivery systems.

46

Automatic Teller Machines

ATMs were introduced to the Indian banking industry in the early 1990s initiated by foreign

banks. Most foreign banks and some private sector players suffered from a serious handicap

at that time- lack of a strong branch network. ATM technology was used as a means to

partially overcome this handicap by reaching out to the customers at a lower initial and

transaction costs and offering hassle free services. Since then, innovations in ATM

technology have come a long way and customer receptiveness has also increased manifold.

Public sector banks have also now entered the race for expansion of ATM networks.

Development of ATM networks is not only leveraged for lowering the transaction costs, but

also as an effective marketing channel resource.

Introduction of Biometrics

Banks across the country have started the process of setting up ATMs enabled with

biometric technology to tap the potential of rural markets. A large proportion of the

population in such centers does not adopt technology as fast as the urban centers due to the

large scale illiteracy.

Development of biometric technology has made the use of self service channels like ATMs

viable with respect to the illiterate population. Though expensive to install, the scope of

biometrics is expanding rapidly. It provides for better security system, by linking credentials

verification to recognition of the face, fingerprints, eyes or voice.

Some large banks of the country have taken their first steps towards large scale introduction

of biometric ATMs, especially for rural banking. At the industry level, however, this

technology is yet to be adopted; the high costs involved largely accounting for the delay in

adoption.

Multifunctional ATMs

47

Multifunctional ATMs are yet to be introduced by most banks in India, but have already

been recognized as a very effective means to access other banking services. Multifunctional

ATMs are equipped to perform other functions, besides dispensing cash and providing

account information. Mobile recharges, ticketing, bill payment, and advertising are relatively

new areas that are being explored via multifunctional ATMs, which have the potential to

become revenue generators for the banks by effecting sales, besides acting as delivery

channels. Most of the service additions to the ATM route require specific approval from the

regulator.

ATM Network Switches

ATM switches are used to connect the ATMs to the accounting platforms of the respective

banks. In order to connect the ATM networks of different banks, apex level switches are

required that connect the various switches of individual banks. Through this technology,

ATM cards of one bank can be used at the ATMs of other banks, facilitating better customer

convenience. Under the current mechanism, banks owning the ATM charge a fee for

allowing the customers of some other bank to access its ATM.

Internet Banking

Internet banking in India began taking roots only from the early 2000s. Internet banking

services are offered in three levels. The first level is of a bank’s informational website,

wherein only queries are handled; the second level includes Simple Transactional Websites,

which enables customers to give instructions, online applications and balance enquiries.

Under Simple Transactional Websites, no fund based transactions are allowed to be

conducted. Internet banking in India has reached level three, offering Fully Transactional

Websites, which allow for fund transfers and various value added services.

Internet banking poses high operational, security and legal risks. This has restrained the

development of internet banking in India. The guidelines governing internet banking

operations in India covers a number of technological, security related and legal issues to be

addressed in relation to internet banking. According to the earlier guidelines, all internet

banking services had to be denominated in local currency, but now, even foreign exchange

services, for the permitted underlying transactions, can be offered through internet banking.

48

Phone Banking and Mobile Banking

Phone and mobile banking are a fairly recent phenomenon for the Indian banking industry.

There exist operative guidelines and restrictions on the type and quantum of transactions that

can be undertaken via this route. Phone banking channels function through an Interactive

Voice Response System (IVRS) or tele-banking executives of the banks.

The transactions are limited to balance enquiries, transaction enquiries, stop payment

instructions on cheques and funds transfers of small amounts (per transaction limit of Rs

2500, overall cap of Rs 5000 per day per customer). According to the draft guidelines on

mobile banking, only banks which are licensed and supervised in India and have a physical

presence in India are allowed to offer mobile banking services.

Besides, only rupee based services can be offered. Mobile banking services are to be

restricted to bank account and credit card account holders which are KYC and AMC

compliant.

Card Based Delivery Systems

Among the card based delivery mechanisms for various banking services, are credit cards,

debit cards, smart cards etc. These have been immensely successful in India since their

launch. Penetration of these card based systems have increased manifold over the past

decade. Aided by expanding ATM networks and Point of Sale (POS) terminals, banks have

been able to increase the transition of customers towards these channels, thereby reducing

their costs too.

Payment and Settlement Systems

The innovations in technology and communication infrastructure in recent years have

impacted banks in a large way through the development of payment and settlement systems,

which are central to the major portion of the businesses of banks.

In order to strengthen the institutional framework for the payment and settlement systems in

the country, the RBI constituted, in 2005, a Board for Regulation and Supervision of

49

Payment and Settlement Systems (BPSS) as a Committee of its Central Board.

The BPSS now lays down policies relating to the regulation and supervision of all types of

payment and settlement systems, sets standards for existing and future systems, approves

criteria for authorization of payment and settlement systems, and determines criteria for

membership to these systems, including continuation, termination and rejection of

membership.

Thereafter, the government and the RBI felt the need for a legal framework dedicated to the

efficient functioning of the payment and settlement systems. The Payment and Settlement

Systems Act was passed in December 2007, which empowered the RBI to regulate and

supervise the payment and settlement systems and provided a legal basis for multilateral

netting and settlement.

Paper Based Clearing Systems

Among the most important improvement in paper based clearing systems was the

introduction of MICR technology in the mid 1980s. Though improvements continued to be

made in MICR enabled instruments, the major transition is expected now, with the

implementation of the Cheque Truncation System for the processing of cheques.

Cheque Truncation System (CTS)

Truncation is the process of stopping the movement of the physical cheque which is to be

truncated at some point en-route to the drawee branch and an electronic image of the cheque

would be sent to the drawee branch along with the relevant information like the MICR

fields, date of presentation, presenting banks etc. Thus, the CTS reduce the probability of

frauds, reconciliation problems, logistics problems and the cost of collection.

The cheque truncation system was launched on a pilot basis in the National Capital Region

of New Delhi on February 1, 2008, with the participation of 10 banks. The main advantage

50

of the cheque truncation system is that it obviates the physical presentation of the cheque to

the clearing house. Instead, the electronic image of the cheque would be required to be sent

to the clearing house.

This would provide a more cost-effective mode of settlement than manual and MICR

clearing, enabling realization of cheques on the same day. Amendments have already been

made in the NI Act to give legal recognition to the electronic image of the truncated cheque,

providing for a sound legal framework for the introduction of CTS.

Electronic Clearing Service

The Electronic Clearing Service (ECS) introduced by the RBI in 1995, is akin to the

Automated Clearing House system that is operational in certain other countries like the US.

ECS has two variants- ECS debit clearing and ECS credit clearing service. ECS credit

clearing operates on the principle of ‘single debit multiple credits’ and is used for

transactions like payment of salary, dividend, pension, interest etc.

ECS debit clearing service operates on the principle of ‘single credit multiple debits’ and is

used by utility service providers for collection of electricity bills, telephone bills and other

charges and also by banks for collections of principal and interest repayments. Settlement

under ECS is undertaken on T+1 basis. Any ECS user can undertake the transactions by

registering themselves with an approved clearing house.

The RBI has recently launched the National Electronic Clearing Service (NECS), in

September 2008, which is an improvement over the ECS currently operational. Under

NECS, all transactions shall be processed at a centralized location called the National

Clearing Cell, located in Mumbai, as against the ECS, where processing is currently done at

74 different locations.

Electronic Funds Transfer Systems

The launch of the electronic funds transfer mechanisms began with the Electronic Funds

Transfer (EFT) System. The EFT System was operationalised in 1995 covering 15 centers

where the Reserve Bank managed the clearing houses.

51

Special EFT (SEFT) scheme, a variant of the EFT system, was introduced with effect from

April 1, 2003, in order to increase the coverage of the scheme and to provide for quicker

funds transfers. SEFT was made available across branches of banks that were computerized

and connected via a network enabling transfer of electronic messages to the receiving branch

in a straight through manner (STP processing). In the case of EFT, all branches of banks in

the 15 locations were part of the scheme, whether they are networked or not.

A new variant of the EFT called the National EFT (NEFT) was decided to implemented

(November 2005) so as to broad base the facilities of EFT. This was a nationwide retail

electronic funds transfer mechanism between the networked branches of banks.

NEFT provided for integration with the Structured Financial Messaging Solution (SFMS) of

the Indian Financial Network (INFINET). The NEFT uses SFMS for EFT message creation

and transmission from the branch to the bank’s gateway and to the NEFT Centre, thereby

considerably enhancing the security in the transfer of funds.

While RTGS is a real time gross settlement funds transfer product, NEFT is a deferred net

settlement funds transfer product. As the NEFT system stabilized over time, the number of

settlements in NEFT was increased from the initial two to six. NEFT now provides six

settlement cycles a day and enables funds transfer to the beneficiaries account on T+0 basis,

bringing it closer to real time settlement.

RTGS

The other payment and settlement systems deployed were mostly aimed at small value

repetitive transactions, largely for the retail transactions. The introduction of RTGS in 2004

was instrumental in the development of infrastructure for Systemically Important Payment

Systems (SIPS).

The payment system in India largely followed a deferred net settlement regime, which meant

that the net amount was settled between banks on a deferred basis. This posed significant

settlement risks. RTGS was launched by RBI, which enabled a real time settlement on a

gross basis. To ensure that RTGS system is used only for large value transactions and retail

52

transactions take an alternate channel of electronic funds transfer, a minimum threshold of

one lakh rupees was prescribed for customer transactions under RTGS on January 1, 2007.

RTGS minimizes systemic risks too, in addition to settlement risks, as paper based funds

settlement through the Interbank clearing are replaced by the electronic, credit transfer based

RTGS system. High systemic risks are posed by high value interbank transfers, so, it is

considered desirable that all major interbank transfers among commercial banks having

accounts with RBI be routed only through the RTGS system.

The RTGS system had a membership of 107 participants (96 banks, 8 primary dealers, the

Reserve Bank and the Deposit Insurance, Credit Guarantee Corporation and Clearing

Corporation of India Ltd.) as at end-August 2009. The reach and utilization of the RTGS has

witnessed a sustained increase since its introduction in 2004. The bank/branch network

coverage of the RTGS system increased to 58,720 branches at more than 10,000 centers

facilitating the increased usage of this mode of funds transfer.

Technology Vendors

Many Indian banks handled technological issues in house till the late 1990s. Thereafter, the

complications of the business necessitated the engagement of specialized vendors to handle

complex issues. Due to the complexities involved, most banks now prefer to engage IT

vendors to introduce specialized software to help in their risk management systems, retail

and corporate banking, card management systems, complete back office support including

data management systems.

53

1.13 REQUIREMENTS OF RESOURCES IN INDIA

DEMAND DRIVERS FOR BANKING SEGMENT

Market dynamics

Increasing reach of banks into rural areas and Tier2/Tier3 cities. Banks aim to achieve

a penetration level of 74% and 81.5% in 2013 and 2018.

Micro finance emerging as a major thrust area

Increasing Mergers and acquisitions to reap the benefits of consolidation.

Improving competitiveness in terms of lower interest rates, increased productivity,

better working capital management, deleveraging.

Growth in Indian exports and imports.

Technology

54

Technology in banking is drawing more and more customers for banking related

products and services as they become more cost effective and customer friendly.

Banks renders various technology based services such as mobile banking, net

banking, tele banking, atm/credit cards, etc.

Banking sector spend about 46% of its technology budget in business continuity, 32%

for adding product functionality/new products/new features and the remaining 22% in

new technology which can change the business process.

Household savings

Bank deposits have been the mainstay of the saving process in the Indian economy

and banks have played an increasingly important role in stepping up the financial

savings rate, physical savings, nevertheless, have tended to grow in tandem with the

financial savings. With the shrinking share of household sector deposits in total

deposits, banks need to explore ways of broadening the depositor base, especially in

rural and semi-urban areas by offering customized products and features suitable to

individual risk-return requirements.

1.14 COMPARISON OF BANKING INDUSTRY OF ISRAEL AND INDIA

ISRAEL INDIA

Forces of Changes Deregulation, Technology

and Banking Crises are the

major drivers of changes in

Israel.

Technology and Privatization

are the most important

drivers of changes in the

Indian banking industry.

Major Players Bank Leumi, Mizrahi

Tefahot Bank, Discount

Bank, and Bank Hapoalim

are the major players.

State Bank of India, HDFC

Bank, ICICI Bank, Bank of

Baroda, HSBC Bank, and

Axis Bank, etc. are some of

the major players.

Services Offered by the

Banks

Different types of accounts

like savings, current and

Different types of accounts

like savings, current, Demat

55

fixed term accounts; ATM

facilities, Credit card

facilities, Tele-Banking,

Cheques, etc.

accounts; ATM as well as

credit card facilities,

Cheques, E-Banking, etc.

Present Trade Volume (in

mode of total assets) (In NIS

million for Israel and in US$

billion for India)

Bank Hapoalim-273.3

Bank Mizrahi-86.3

Discount Bank-154.8

Bank Leumi-272.8

SBI Bank-360

ICICI Bank-98.99

HDFC Bank-70.17

BOB-83.25

Technological Advancement In case of Israel due to

technology various services

like ATM, mobile banking,

etc. have emerged but still

the people are not much

convenient with the new

technology usage except for

the ATM facilities.

In case of India, larger

proportion of growth of

banking industry can be

attributed to the

technological advancement.

All the facilities via

technology like ATM, credit

card; E-banking, etc. have

been widely accepted in

India.

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Barriers Some of the barriers in

banking industry of Israel

are:

Licensing

requirements for

accepting deposits

Limited credit

allocation

Narrow choice of

financial products

Lack of necessary

production assets

Limited access to

credit card networks

Some of the barriers in

Indian banking industry are:

Asset Quality - is the

most important in

order to excel in the

industry

Enhanced customer

experience –

customers require

more better services

in order to be loyal as

the switching costs

are low

Transparency &

Supervision –

stringent measures

are taken to ensure it

Requirements of Resources Resources in case of Israeli

banking system is obtained

from different channels,

Customer relationship model,

Management Information

system, Govt. tax authorities,

regulatory bodies, etc.

Demand drivers in Indian

banking sector are the

Technology, Household

savings and market

dynamics.

57

CHAPTER-2

COMPARISON OF BANKS

58

2.1 BANK HAPOALIM

Bank Hapoalim BM is an Israel-based financial institution. Bank Hapoalim is Israel’s leading

bank. Overseas, the bank operates through 44 branches, subsidiaries, and representative

offices. The Company’s operations are divided into seven segments of activity.

The Households Segment provides a range of banking services and financial products to

households.

The Private Banking Segment provides a range of banking services and financial products,

including investment advisory services, to private customers of medium to high net worth in

Israel and abroad.

The Small Business Segment provides products and services to small businesses.

The Commercial Segment provides products and services to medium-sized business clients.

The Corporate Segment provides products and services to large business clients.

The Financial Management Segment is responsible for the management of the Company’s

assets and liabilities. It also includes the activity of the Company’s dealing rooms. Others and

Adjustments includes all other activities of Bank Hapoalim BM.

In Israel, the Bank Hapoalim Group has 288 full-service branches, eight regional business

centers, and dedicated Customer Relationship Managers for major corporate customers,

including financial institutions. The bank is recognized for its expertise in helping customers

choose the products and services that are best suited to their business requirements.

59

PRODUCT OFFERINGS

Bank Hapoalim offers its services in the various following categories:

Investment Services

Bank Hapoalim offers a broad and deep array of financial instruments for access to the

world’s investment markets. Investment services are offered through Hapoalim Securities

USA, Inc. (Hapoalim Securities), a wholly-owned non-bank subsidiary of Bank Hapoalim.

Hapoalim Securities is a registered broker/dealer providing a vast range of investment

products and service with established international capabilities.

Various services offered are:

Foreign Currency Trading - Bank Hapoalim New York offers expert execution in

multiple currencies utilizing the safety, security, and expertise of our real-time trading

systems. Each of these products is designed to help you take advantage of positive

interest rate movement and hedge against adverse fluctuations. Foreign currency

trades include Spot Transactions, Forwards Contracts, Non-Deliverable Forward

Currency Contracts and Call and Put Options.

Financial Derivatives – There are two types of derivatives offered Interest rate

derivatives and Foreign exchange derivatives.

Money Market Sweep Accounts - A Money Market Sweep Account allows the

investor to invest automatically. A daily target balance is set in the checking account

to cover all the expected distributions. At the end of each day, any amount above the

target is automatically transferred into a highly rated Money Market Investment Fund

of the investor’s choice. The sweep account allows earning a competitive return on

money that would otherwise sit idle in a non-interest bearing account.

Mutual Funds - Hapoalim Securities offers the ability to invest in many top

performing mutual funds.

60

Cash Management

Bank Accounts - There are three main types of accounts:

Checking Account - Designed for businesses, business owners, executives, private

banking customers and philanthropic organizations with sophisticated requirements.

Savings Account - This account allows the cash to grow with a competitive interest

rate while providing immediate access to funds.

Money Market Deposit Account – It is an alternative savings account that provides a

relatively higher interest rate, but requires a higher minimum balance and a limited

number of withdrawal and check-writing privileges per month.

Credit/Debit Cards

Credit Cards – The Bank Hapoalim New York Branches’ MasterCard® is available to

U.S. and qualifying international clients. For non-U.S. residents who travel

frequently, consider the American Express® Charge Card to handle Foreign

Exchange charges. Your monthly bill may be debited from your Bank Hapoalim

checking account. American Express offers Green, Gold, or Platinum cards and, by

exclusive invitation, the Centurion card.

Debit Card - The Bank Hapoalim Debit Card provides safe payment convenience

anywhere MasterCard is accepted. Time-consuming check approvals can be avoided,

tracking of spending using monthly account statements can be done, and cash

withdrawals possible at any ATM. All transactions will appear on the regular monthly

account statement and will be automatically debited from the account.

Loan Sweep Accounts - A Loan Sweep Account with Bank Hapoalim allows paying

off the business loan faster and reduces the amount of interest to be paid. A daily

target balance is set in the business checking account to cover all the expected

distributions. At the end of each day, any amount above the target is automatically

applied to the outstanding business loan payment.

61

Check Collections - Bank Hapoalim facilitates the international collection process by

negotiating checks in a range of foreign currencies and U.S. Dollars. When funds are

received from the correspondent bank, they may be converted to U.S. Dollars or

credited to the account in the same currency as the check.

Money Transfer - Money Transfer service provides secure and timely execution

throughout the global network. Benefit is obtained from both intra-day liquidity and

settlement at a competitive price. Wire transfers are one of the fastest and safest ways

to transfer money overseas.

Time Deposits - A Time Deposit allows money to grow at a guaranteed interest rate

when held over a specified term period. Terms for Time Deposit accounts range from

one week to 10 years.

Credit and Lending

Term Loans - Bank Hapoalim offers competitive fixed- and adjustable-rate term

loans. All loans are subject to credit approval. Automatic payments may be scheduled

from the Bank Hapoalim Checking Account.

Private Real Estate Financing - Bank Hapoalim offers a portfolio of financing

solutions for real estate investors, developers, and owner occupants.

Bridge Loans - A Bridge Loan from Bank Hapoalim can help to meet the current

obligations until the investors are able to obtain long-term financing.

VARIOUS OTHER INNOVATIVE SERVICES OFFERED BY BANK HAPOALIM

ARE:

62

Poalim Mobile Banking

Bank Hapoalim leads in mobile banking and offers a range of possibilities that

facilitate management of financial transactions and that includes exclusive national

and international applications while taking advantage of the unique capabilities of

smart phones and their advanced graphics; application for capital market trading;

mobile wallet to carry out transfers and payments; capital market information

application open to customers of all banks; implementation of fast payment of bills by

photocopying the voucher without having to enter any details; money transfer through

“bumps” without having to enter the account particulars to which the money is being

transferred; smart graphs that enable a comparison between share and index

performances.

Poalim Connect

Realizing that customers, who are characterized by heavy use of direct channels,

prefer available personalized solutions without having to give up the option of

receiving branch service, the bank launched a comprehensive total solution that

includes personal service in direct channels without relinquishing the relationship

with the branch.

In this manner, customers operating through Poalim Connect are connected to their

account: through advanced interface that displays all of the important data on one

main screen and in a design adapted to tablet computers.

The new interface includes real time alerts, including the option of receiving

customized SMSs, contact initiated by the banker for important, personal events in the

customer’s life, receiving reminders to carry out transactions and options for phone

calls or meetings in the branch with specialist consultants.

Dan Haschan

63

In 2010, activities were also launched to promote the importance of savings among

children and their parents. Coin deposit machines were positioned in public places

that allow children to deposit coins they collected into their account. Today, children

can view transactions carried out in their account, and they are awarded a designated

ATM card that allows them to print out bank statements just like their parents.

Poalim in Hi-Tech

Designated service for hi-tech companies in which bankers specializing in providing

service to hi-tech companies are trained and positioned in 22 designated branches in

geographical areas with high concentrations of Hi-tech companies like (Ramat

Hahayal, Herzliya Pituah, Har Hotzvim in Jerusalem, etc.). The service is provided to

companies in various stages of their operational lifecycle, from start-up to mature.

Poalim for the Community

As part of its community activities, the bank operated Dan Haschan summer camps,

which integrated the learning of money-saving habits into entertainment and

recreational activities.

OVERALL OPERATIONS

64

During its 89 years of operation, the bank has developed a network of branches and

widespread commercial activity in all banking sectors, enabling it to offer customers a wide

range of banking and financial services. The bank serves the majority of its clients through its

two main divisions: a Corporate Division that serves most of its business clients, and a Retail

Division, operating via an affiliate system, that serves household customers, private banking,

and small businesses, and also spearheads the bank's consumer credit and mortgage activity.

This division is comprised of 270 branches and business representatives, providing complete

and comprehensive banking services.

Bank Hapoalim has extensive overseas activities, operating via banking subsidiaries,

financial companies, the bank's overseas branches and representative offices, and through

relationships with over 2,400 banks worldwide. The bank strives to expand its operations

overseas, with the aim of increasing profitability and diversifying risk in all the bank's

international activities. The bank's international operations currently include activities in

Europe, the US, Canada, Latin America, Australia, Hong Kong and Singapore. Its

international activities are focused on private banking, activity in emerging markets, and the

corporate sector.

As part of its operations in emerging markets, Bank Hapoalim has recently acquired banks in

Turkey and Kazakhstan. In addition to its business achievements, the bank also generates,

through its activities and operations, a multitude of added value benefits essential to its

clients, including imparting a sense of responsibility and accountability for their financial

activities after they have received the proper guidance and knowledge from bank personnel.

CODE OF CONDUCT

65

Bank Hapoalim is a leading financial institution in Israel and is in the business of providing

banking services and products to customers in Israel and abroad. Maintaining this position

requires meticulous attention to innovation and initiative and a constant striving for success,

while adhering to professional and behavioral ethics.

The Code of Ethical Conduct endeavors to express its organizational vision and values and to

establish Bank Hapoalim as a reliable leading brand, trusted by customers and employees.

Because of the importance the Bank attaches to the Code of Ethical Conduct, it has appointed

a Management Team member, the Head of Human Resources, Logistics and Procurement

Division, as the Head of Ethics in the Bank.

The Bank strictly observes the law and government regulations, which are anchored in its

procedures. The Code of Ethical Conduct is intended to provide guidance and orientation in

cases where rules of conduct are not adequately defined by the law or Bank procedures. The

Code sets standards that can ensure that Bank employees behave appropriately when they

encounter such ethical problems, in all units and at all levels.

The Bank has also appointed an Ethics Officer from HR division, Leadership and

Development Unit, whose job will be to ensure that employees’ enquiries and complaints

relating to ethical conduct issues will be forwarded to and dealt with by the authorized

functions and to assist the Head of Ethics to implement the Code of Ethical Conduct in the

Bank.

2.2 MIZRAHI TEFAHOT BANK

66

Mizrahi Tefahot Bank Ltd (Mizrahi Tefahot), formerly United Mizrahi Bank Ltd., is an

Israel-based bank offering international, commercial, mortgage, domestic and personal

financial services. It also provides fund and portfolio management. The Bank offers a variety

of short-term investment programs for periods ranging from one to five years, with fixed and

varying interest rates. Mizrahi Tefahot operates through 166 branches in Israel, and affiliates

in Israel and abroad, with branches or representation internationally, Los Angeles, Cayman

Islands, Mexico, Switzerland, Netherland and London. The Bank has interests in

telecommunications and industrial companies, such as Mofet Israel Technology Fund Ltd.,

Pesagot Jerusalem Ltd. and Plenus Technology.

PRODUCT OFFERINGS

Mizrahi Tefahot offers Various Banking Services:

Special accounts for young persons, soldiers, students, employees, the self-employed

and retirees

Private banking - Investments in deposits, savings accounts, provident and mutual

funds, Loans readily available for different purposes, advanced products and services

in foreign currency sectors and a diverse range of advanced capital market activities.

Commercial banking - Individually tailored mortgage programs, Expertise in real

estate communication and information processing technologies, etc.

Private Banking

67

Mizrahi Tefahot Bank offers professional Private Banking services specifically tailored to fit

the needs of domestic clients as well as foreign residents from all over the world.

In case of Domestic Private Banking, Mizrahi-Tefahot Bank has created a system of

professional and personalized Private Banking services for the high net-worth clients,

bringing the full range of banking needs to customer’s door. Personal attention combined

with high skills and a tailor-made portfolio is the hallmark of Mizrahi-Tefahot Private

Banking, which is made available to customers through Private Banking advisor.

In case of International Private Banking (IPB), foreign residents can take advantage of

numerous opportunities provided in Israel and around the world by Mizrahi-Tefahot

International Private Banking Units.

The various services are:

- Global money markets and securities exchanges

- International trade and commerce

- Real-estate and mortgages

- Trust services

- Incomparable investment and economical advice

- Deposits - High Interest Yield, Liquidity and Convertibility

Mizrahi-Tefahot Bank (UMTB) operates a computerized system for securities transactions

used by brokers on the Tel-Aviv Stock Exchange (TASE). Complemented by online

international communications with major banks and with UMTB-affiliated dealing rooms, the

professional brokerage services include: Stocks, Commodities, Mutual funds, Foreign-

currency trading, Bonds, Options and futures, Precious metals, etc.

Retail Dominance

68

Mizrahi Tefahot provides "comprehensive service" at the highest level to the household and

private customer sector, offering a range of unique products and services, enabling them to

manage their financial affairs simply and cost-effectively. These services include advanced

account management services with attractive commission rates, credit facilities at

advantageous interest rates, various mortgages and loans for any purpose and a variety of

rewarding investment options. The Bank provides high net worth individuals with personal

and professional services, which are tailored to meet their own particular requirements.

Mizrahi Tefahot "Live"

Mizrahi Tefahot is characterized by its unique products and services that provide added value

to clients. Mizrahi Tefahot is the only bank in Israel that operates "LIVE" virtual branches

that offer full banking services provided by a personal banker who is easily available via

advanced and sophisticated virtual channels. Currently the Bank operates four "LIVE"

branches.

Mortgage Leader

Mizrahi-Tefahot is the No. 1 mortgage leader in Israel, through "Tefahot" the largest and

leading mortgage brand in Israel, with a market share encompassing one third of the domestic

market. The combination between commercial-retail activities and mortgage activities creates

a "positive link" between checking accounts and mortgage loans, enabling clients of the Bank

to utilize unique products and services that are a direct result of the link between these two

activities. The mortgage activities of the Bank include Bank Adanim, a subsidiary of

Mizrahi-Tefahot that was merged into the Bank at the beginning of 2009.

Control of Bank Yahav

69

The Mizrahi-Tefahot Group includes Bank Yahav, in which the Bank has a 50% holding.

Bank Yahav was for many years a niche bank serving government and public sector

employees. The Bank now offers banking services to all retails clients. As part of the

cooperation within the group, we have opened mortgage representatives of "Tefahot" in the

main branches of Bank Yahav.

Corporate Banking and Trading Rooms

Mizrahi-Tefahot provides a wide range of products and services to the corporate sector. The

Corporate Division and the Regional Business Centers throughout the country, offer

corporate and business customers personal and professional services, tailored to each

corporation or business needs according to size and nature. Mizrahi Tefahot operates a

sophisticated and advanced trading room and offers the private and business customers a

wide range of foreign currency, financial instruments and capital markets operations,

activities where the bank has a market share much larger than its relative size.

International Presence

The Bank has subsidiaries in Switzerland and the Netherlands and branches and

representative offices in UK, USA, Germany, Mexico, Uruguay, Panama and the Cayman

Islands. Mizrahi-Tefahot is the first Israeli bank to link its Israeli and global foreign trading

rooms into one synchronized floor.

Investment and Pension Advisory Services

The professional investment advisors of Mizrahi-Tefahot provide personal advisory services

to suit the customer’s specific needs. In addition, the Bank provides objective advanced

pension advisory services to both self-employed and salaried employees.

Labor Agreement Ensuring Industrial Quiet until 2015

70

Mizrahi-Tefahot enjoys good labor relations and internal work environment, thus enabling

full focus on the business plan of the Bank. Management and the employees’ representatives

have signed a labor agreement ensuring industrial quiet until the end of 2015. The agreement

also includes a voluntary retirement plan for 200 employees, enabling the Bank to continue to

improve efficiencies regarding the size and quality of the work force.

Community Involvement

As a community orientated business, Mizrahi-Tefahot is deeply committed to the community.

The Bank has taken a strategic decision to shift from a policy of donations to active social

involvement. Currently, the majority of the Bank's branches and head office units actively

cooperate with associations and organizations that work with children having special needs.

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2.3 ISRAEL DISCOUNT BANK LTD

Israel Discount Bank is the third largest bank and a leading financial group in Israel. With

nation-wide coverage and a strong and growing domestic franchise, Discount Bank provides

a full spectrum of corporate and retail financial products and services to its clients, both in

Israel and in key financial centers around the world. 

Domestically, the Group is comprised of commercial banks and financial services companies

active in credit cards, investment banking, portfolio management, trustee services and

leasing. Discount bank also holds a 26.45% equity stake in First International bank of Israel,

the 5th largest bank in the country.

In addition to its traditional branch system, Discount Bank is leading the retail market with

new and innovative concept branches, internet and call-center based banking, and offers

extended evening branch hours.

As part of its long-term strategy, Discount Bank intends to lead the domestic retail sector in

terms of improved service standards and client satisfaction, while strengthening the bank's

franchise in both the corporate and middle-market sectors.

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Abroad, the bank operates through a network of subsidiaries, branches and representative

offices in North America, Europe and Latin America, with a focus primarily on commercial

and private banking. Israel Discount Bank New York (IDBNY) is the largest Israeli-owned

bank operating outside of Israel.

In terms of corporate social responsibility, Discount is recognized for its particularly active

community involvement – bank employees volunteer extensively within the communities in

which the bank operates. The bank is a member of the Tel-Aviv Stock Exchange.

HISTORY

Israel Discount Bank’s story parallels the history of the State of Israel; it combines pioneering

idealism with the dedication and pragmatism needed to build a nation. The Bank was founded

by Leon Recanati, a leader of the Zionist movement in Greece, who immigrated with his

family to the small pre-State Jewish settlement in the Land of Israel. Recanati, who wanted to

play an active part in the formation of this new society, quickly understood that the fledgling

economy needed financing in order to grow and prosper. An experienced merchant, he chose

to embark on a new path and in 1935 established Israel Discount Bank’s first office in Tel

Aviv.

The Bank’s first branch was opened in 1943 – in Jerusalem, with a branch in Tel Aviv

established five years later. This was a period of rapid development of the Israeli economy,

and Israel Discount Bank was a key player in this growth. As business grew, the Bank

expanded its domestic network, acquiring controlling interest in Palestine Mercantile Bank,

and later the Israel branches of Ottoman Bank.

From the beginning, the Bank combined the highest professional standards with an

international orientation. In 1949, the Bank opened its first branch in Haifa, as its first

representative office abroad – in New York. It also extended its services into Latin America,

opening an office in Montevideo, Uruguay in 1958.

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In Israel, the Bank was the preferred financial institution of small and medium-sized

businesses and professionals. As such it enjoyed an extremely high level of customer

confidence, as shown by its rapid growth in deposits and loans, which often exceeded the

average rate for all banks in Israel. To finance its rapid growth, the Bank early on turned to

the capital markets, making its first public offering in Israel in 1963 and in the United States

in 1964.

The Bank’s New York operations grew substantially, and the representative office became a

full service branch in 1962. In 1967, after acquiring a U.S. bank, it became Israel Discount

Bank of New York. Insured by the Federal Deposit Insurance Corporation (FDIC), Israel

Discount Bank of New York took over the major portion of the Bank’s Southern Hemisphere

banking operations in1980, and has grown to become one of the largest banks in New York

State and the United States.

During the next two decades the Bank continued its international expansion, opening a

branch in Los Angeles, three branches in Florida, a branch in London, and representative

offices in Paris, Berlin, Buenos Aires, Santiago and Sao Paulo. In addition, a subsidiary of

Israel Discount Bank of New York -- Discount Bank Latin America -- was opened in

Montevideo and Punta del Este, with representative offices in Buenos Aires, Lima, Mexico

City, Porto Alegre and Rio de Janeiro.

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PRODUCT SPECIFIC DIMENSIONS

1. Corporate and trade finance

General corporate loans and overdrafts 

Invoice Financing and Factoring

Syndicated Loans

Documentary Credits

Guarantees, including HM Customs and Excise Duty Deferment

Receivable Discounting

Standby L/Cs

Import/Export Finance

Produce Loans and Commodity Finance

2. Property finance

Residential and investment finance (excluding owner occupation)

Commercial, including Industrial

Hotel finance : specializing in financing hotels in distressed condition, assisting

with their purchase and refurbishment

3. Treasury service

Deposits in all major currencies 

Structured products 

Foreign Exchange

Interest rate and FX Risk Management

Bonds

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2.4 LEUMI BANK

Type : Public company (TASE: LUMI)

Industry : Banking

Founded : 27 February 1902

Headquarters : Tel Aviv, Israel

Area served : Israel and 21 other countries

Key people : Rakefet Russak-Aminoach (President and CEO) Eitan Raff, Chairman

Products : Credit cards, consumer banking, corporate banking, finance and

insurance, investment banking, mortgage loans, private

banking, private equity, savings, Securities, asset management,  wealth

management.

Services : Financial Services

Revenue : NIS 7,750 million (2011)

Net income : NIS 1,891 million (2011)

Total assets : NIS 365,854 million (2011)

Total equity : NIS 23,628 million (2011)

Employees : 13,490 (2011)

Subsidiaries : Arab Israel Bank

Website : www.leumi.co.il

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  SERVICES

Investment Services: For those with over £250,000 (or currency equivalent) to

invest, they offer both Advisory and Execution only services accessed directly

through our experienced team of Relationship Managers.

Advisory Service: They offer investment advice on fund choice and asset allocation,

providing you with comprehensive portfolio valuations in all the major currencies.

They also structure one-off deposit solutions for our clients using a range of

parameters and in close cooperation with our Dealing Room. They do not advise on

individual equities and on their derivatives.

Execution Only Service: They are able to execute the purchase and sale of a

comprehensive range of securities products.

Wealth Planning Solutions and Fiduciary Services: They structure, establish and

administer trusts, private investment companies registered in various locations, and

foundations; all through our subsidiary in Jersey.

Treasury and Dealing Services: Our Relationship Managers, in conjunction with our

Dealing Room, are able to offer a full dealing service and provide you with the latest

market information. They offer immediate competitive pricing in all major currencies,

covering spot and forward periods and swaps trades. For sophisticated investors they

offer access to a range of derivative instruments as investments, or for protection

against interest, exchange, and equity risk.

Banking Services: They offer a full range of banking services in all major currencies,

a comprehensive selection of deposit products and provide payment services, debit

and charge cards and a wide-ranging internet banking offering – Leumi online.

Lending: They offer lending facilities against portfolios of securities, bank

guarantees, cash deposits, and on a back-to-back basis.

77

Executive Residential Mortgages: They offer a flexible five-year interest only

mortgage for a minimum amount of £1m. These mortgages feature a multi currency

option and are intended for UK and expatriate high net worth individuals for the

purchase of their main residential property in the UK.

78

2.5 STATE BANK OF INDIA

PRODUCT SPECIFIC DIMENSIONS

Corporate banking

Corporate Banking application provides features to administer and manage non personal

accounts online.

Features

User management at your fingertips

Easy synchronization with Corporate ERP System

Bulk file upload facility for payments

Pay Direct, Indirect, State Govt. Taxes & EPF Payments online

Provision for highly customized MIS

Personal banking

Our internet banking portal provides personal banking services that gives you complete

control over all your banking demands online.

Features

International Funds Transfer

Online SBI launched for Mobile!

State Bank Virtual Card

Online Term Deposits

Convenient Utility Bill Payments

ASBA facility

Tax payments

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SBI express remit

On our website, you provide prior information of intended wire transfer and generate

unique tracking number for the same and then wire transfer money to our account

with complete information along with tracking number.

Most Competitive Exchange Rates.

Send up to a maximum of USD 100,000 (minimum of USD 50) per transaction.

A unique transaction reference number helps to track your transaction online 24X7

through every stage of money transfer.

Online SBI global

Online shopping

Foreign travel card

PRODUCT OFFERINGS

Home Loan : "THE MOST PREFERRED HOME LOAN PROVIDER" voted

in AWAAZ Consumer Awards along with the MOST PREFERRED BANK

AWARD in a survey conducted by...

Education Loan : A term loan granted to Indian Nationals for pursuing higher

education in India or abroad where admission has been secured. All courses

having...

Loan against Property : A dream comes true! An all purpose loan for

anything that life throws up at you!! Do you need funds for a marriage

ceremony, want to take your.

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Business Loan : Traders Easy Loan scheme is launched by SBI to provide

hassle free loan to Traders. Any businessman/ entrepreneur/ professional and

self employed...

Personal Loan : SBI Saral - Personal Loan makes funds readily available to

you whenever you desire or need. Access this facility from over 3000

branches across the...

Car Loan : Move ahead in life with SBI Car Loans with more than 6000

Branches offering Car Loans. If you have been putting off purchasing that Car,

SBI...

VARIANTS AVAILABLE IN THE PRODUCT OFFERINGS

Account view / Statement

Online SBI can generate an account statement for a date range for any of your

accounts. The statement includes transaction details, opening, and closing and

accumulated balance in the account.

Funds Transfer

You can now avail a bouquet of funds transfer services through Internet

banking

Transfer funds within your own accounts

Transfer funds to third party account held in the same bank

Make an Inter bank funds transfer to any account held in any bank

including State Bank Group

Pay any VISA credit card bill

Transfer funds to religious and Charitable institutions

Record standing instructions to transfer a fixed amount at a scheduled

frequency for a period not exceeding one year

Transfer funds to NRE PIS accounts to facilitate online trading

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Third party funds transfer (RTGS/NEFT)

RTGS- Real Time Gross Settlement- This is a system where the

processing of funds transfer instructions takes place at the time they

are received (real time). Also the settlement of funds transfer

instructions occurs individually on an instruction by instruction basis

(gross settlement). RTGS is the fastest possible interbank money

transfer facility available through secure banking channels in India.

NEFT- National Electronic Fund Transfer- This system of fund

transfer operates on a Deferred Net Settlement basis. Fund transfer

transactions are settled in batches as opposed to the continuous,

individual settlement in RTGS. Presently, NEFT operates in hourly

batches from 8 am to 7 pm on week days and 8 am to 1 pm on

Saturdays.

Demand Draft request

Online SBI enables customers to issue demand drafts online. Customer has the

option to collect the draft from branch or give his mandate to dispatch the draft

by courier to the beneficiary.

Demat view facility

Corporate Internet Banking enables you to view your Corporate Demat

account online. You can view the account details, and generate the following

statements online.

Statement of holding

Statement of transactions

Statement of billing

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OVERALL OPERATIONS

State Bank of India (SBI) on Saturday announced it will get Rs. 3,004 Crore as part of

the government’s capital infusion plan for the current fiscal.

The fund infusion will enable the bank to support national and international banking

operations undertaken through its subsidiaries and associates, SBI said in a BSE

filing. “The central board of the bank in its meeting today has approved infusion of

capital funds in the bank by the Government of India to the tune of Rs 3,004 Crore

during 2012-13,” it said.

The capital will be infused by way of preferential allotment of equity shares to the

government. The proposal is subject to necessary regulatory approvals, it said.

Last fiscal, the government had infused Rs. 7, 900 Crore in SBI to increase the Tier-I

capital of the country’s largest bank.

Following the capital infusion in March 2012, the government holding in SBI rose to

61.58 per cent from 59.4 per cent. The government approved infusion of Rs. 12,517

Crore in around 10 state-owned banks by March.

MARKET SHARE

India's second-largest private sector lender HDFC Bank overtook largest bank SBI in

terms of market capitalization on Tuesday. At Rs 471.80 a share, HDFC Bank's

market cap works out to 1.10 lakh Crore - almost a percent higher than SBI's Rs 1.09-

lakh Crore.

HDFC Bank's total assets is almost one-sixth of SBI's total assets which stand at over

12 lakh Crore. According to analysts tracking banks, the decline in SBI's share price

helped HDFC Bank gain higher m-cap. Also, SBI has been battling with negative

sentiments and headwinds in the form of declining net interest margins, fears of

higher NPAs and exposure to sectors like power, aviation and infrastructure. SBI has

the largest exposure to Kingfisher.

83

Financial highlights of company's performance

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

Balance sheet 12 months 12 months 12 months 12 months 12 months

Capital and Liabilities:

Total Share Capital 671.04 635.00 634.88 634.88 631.47

Equity Share Capital 671.04 635.00 634.88 634.88 631.47

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 83,280.16 64,351.04 65,314.32 57,312.82 48,401.19

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Net Worth 83,951.20 64,986.04 65,949.20 57,947.70 49,032.66

Deposits 1,043,647.36 933,932.81 804,116.23 742,073.13 537,403.94

Borrowings 127,005.57 119,568.96 103,011.60 53,713.68 51,727.41

Total Debt 1,170,652.93 1,053,501.77 907,127.83 795,786.81 589,131.35

Other Liabilities &

Provisions

80,915.09 105,248.39 80,336.70 110,697.57 83,362.30

Total Liabilities 1,335,519.22 1,223,736.20 1,053,413.7

3

964,432.08 721,526.31

Assets:

Cash & Balances with RBI 54,075.94 94,395.50 61,290.87 55,546.17 51,534.62

Balance with Banks, Money

at Call

43,087.23 28,478.65 34,892.98 48,857.63 15,931.72

Advances 867,578.89 756,719.45 631,914.15 542,503.20 416,768.20

Investments 312,197.61 295,600.57 285,790.07 275,953.96 189,501.27

Gross Block 14,792.33 13,189.28 11,831.63 10,403.06 8,988.35

Accumulated Depreciation 9,658.46 8,757.33 7,713.90 6,828.65 5,849.13

Net Block 5,133.87 4,431.95 4,117.73 3,574.41 3,139.22

Capital Work In Progress 332.68 332.23 295.18 263.44 234.26

Other Assets 53,113.02 43,777.85 35,112.76 37,733.27 44,417.03

Total Assets 1,335,519.24 1,223,736.20 1,053,413.7

4

964,432.08 721,526.32

Contingent Liabilities 698,064.74 585,294.50 429,917.37 614,603.47 736,087.59

Bills for collection 201,500.44 205,092.29 166,449.04 152,964.06 93,652.89

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Book Value (Rs) 1,251.05 1,023.40 1,038.76 912.73 776.48

2.6 ICICI BANK

PRODUCT SPECIFIC DIMENSIONS

Privilege banking

Privilege Banking customers enjoy relationship privileges across ICICI Bank Products and

services including deposits, loans, cards, Forex and locker facilities.

Relationship Privileges

Pre-qualification for loan eligibility

Preferential interest rates and/or processing fees on Loan products

Discounts on Locker facility and preferential allotment

Preferential pricing on purchase of gold, sale/purchase of Forex

Wealth management

Over the course of your lifetime, wealth will play different roles from starting

a new business, to preserving and protecting it, providing for your children,

planning your retirement or leaving a legacy behind. We understand your

financial needs at different life stages and offer you a comprehensive suite of

Wealth Management services to cater these changing financial needs.

Private banking

At ICICI Bank Private Banking our offerings are centered on you and your

vision for life. Our panel of expert analysts develops incisive solutions based

on in-depth methodical research. This assures you of solutions, specifically

conceived for your unique needs. We believe in going that extra mile to offer

you solutions that work for you and suit your lifestyle.

85

NRI banking

With a view to attract the savings and other remittance into India through

banking channels from the person of Indian Nationality / Origin who are

residing abroad and bolster the balance of payment position, the Government

of India introduced in 1970 Non-Resident(External) Account Rules which are

governed by the Exchange Control Regulations. The funds held in Non-

Resident (External) Accounts (NRE Accounts) qualify for certain benefits like

exemptions from taxes in India, free repatriation facilities, etc.

Corporate banking

Personal banking

PRODUCT OFFERINGS

Credit cards

A credit card is a payment card issued to users as a system of payment. It allows the

cardholder to pay for goods and services based on the holder's promise to pay for

them.[1] The issuer of the card creates a revolving account and grants a line of credit to

the consumer (or the user) from which the user can borrow money for payment to a

merchant or as a cash advance to the user.

Finance and insurance

Financial services are the economic services provided by the finance industry, which

encompasses a broad range of organizations that manage money, including credit

unions, banks, credit card companies, insurance companies, consumer finance

companies, stock brokerages, investment funds and some government sponsored

enterprises. As of 2004, the financial services industry represented 20% of the market

capitalization of the S&P 500 in the United States

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Investment banking

An investment bank is a financial institution that assists individuals, corporations, and

governments in raising capital by underwriting and/or acting as the client's agent in

the issuance of securities. An investment bank may also assist companies involved in

mergers and acquisitions, and provide ancillary services such as market making,

trading of derivatives, fixed income instruments, foreign exchange, commodities, and

equity securities.

Mortgage loans

A mortgage loan is a loan secured by real property through the use of a mortgage note

which evidences the existence of the loan and the encumbrance of that realty through

the granting of a mortgage which secures the loan. However, the word mortgage

alone, in everyday usage, is most often used to mean mortgage loan.

Retail banking

Retail banking is banking in which banking institutions execute transactions directly

with consumers, rather than corporations or other banks. Services offered include

savings and transactional accounts, mortgages, personal loans, debit cards, and credit

cards.

o Commercial bank is the term used for a normal bank to distinguish it from an

investment bank. (After the great depression, the U.S. Congress required that

banks only engage in banking activities, whereas investment banks were

limited to capital markets activities. This separation is no longer mandatory.)

o Commercial bank can also refer to a bank or a division of a bank that mostly

deals with deposits and loans from corporations or large businesses, as

opposed to normal individual members of the public (retail banking). It is the

most successful department of banking.

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VARIANTS AVAILABLE IN THE PRODUCT OFFERINGS

A) Secured Loans

FEATURES

Lending Exposure:

Upto Rs 50.0 million for working capital and capital expenditure needs

Acceptable collaterals:

Residential/Commercial/Industrial property, liquid securities

Eligible entities:

Sole Proprietorship Firm, Partnership Firms, Private limited Companies,

Public limited Companies

Pre-requisites :

Minimum one year business operation & audited financial.

(*and such other pre-requisites as may be desired by the bank)

BENEFITS

Low collateral requirement-

Lending available upto 3 times of the value of the collateral

Fast processing -

De-centralized operations for fast processing and quick availability of

loans

Convenient Documentation -

Convenient documentation process to offer ease and flexibility

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Attractive Pricing -

Low interest rates and commission charges

Priority sector clients -

Attractive pricing offered for customers under priority sector lending.

Fast and Easy renewals -

Hassle free renewals with less documentation

Dedicated and exclusive relationship managers -

Dedicated relationship managers to provide complete financial solutions

Easy Accessibility -

Leverage on our anywhere banking services through 2500 plus branch network

B) Business Loans Backed by CGTMSE

This is a facility specially designed under the Credit Guarantee Fund Trust for Micro and

Small Enterprises (CGTMSE) scheme of SIDBI and Ministry of Small and Medium

Enterprises.

FEATURES

Facilities offered:

Cash Credit for meeting working capital finance requirement

Letter of Credit to facilitate trade

Bank Guarantees for performance and financial obligations

Term Loan for purchase of commercial assets & business expansion needs

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Lending Exposure:

Up to Rs 10 million for meeting working capital and capital expenditure needs

Eligible entities:

Sole Proprietorship Firms, Partnership Firms, Private limited Companies, Public limited

Companies

Eligible business segment:

Manufacturers

Pre- requisites*:

Audited financial statements of past two years

Existing Track record of loans

Investment in Plant & Machinery to be less than Rs. 50 million

(*and such other pre-requisites as may be desired by the bank)

BENEFITS

1. Collateral free loan -

No collateral is taken providing ease to customers.

2. Fast processing -

De-centralized operations and simple documentation enabling fast

turnaround time.

3. Convenient Documentation -

Convenient documentation process to offer ease and flexibility

90

4. Hassle -free loan -

No third party guarantee required

5. Attractive Pricing -

Low interest rates and commission charges

6. Wide reach -

Loan can be availed at any of our 2500 plus branch network

7. Multiple banking possible -

Multiple banking facilities can be availed by offering Pari passu charge on

current assets

OVERALL PROCESS OF CONDUCT

Selection Process

At ICICI Bank, the selection process aims at getting applicants who are likely to succeed at

various roles in the Bank. The endeavor is to select people who have a high service

orientation, are passionate about their career goals, and who display integrity and ethics in all

engagements.

Depending on the level of recruitment, the selection process consists of following

combinations:

Aptitude Tests

Group Discussion (This method is primarily used for campus selection process)

Psychometric Profiling

Personal Interview

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Aptitude Tests:

Designed for entry level jobs in the Bank, the aptitude test aims to assess basic aptitude of

applicants including Numerical, Verbal comprehension, logical reasoning and basic checking

abilities.

Group Discussion:

Based on case studies, the group discussions are mainly conducted to judge applicants on

their analytical thinking, approach to hypothetical building around business situations and the

ability to break down complex problems to arrive at simple solutions.

Psychometric Profiling:

A questionnaire - based psychometric tool that assesses the typical or preferred behavior of

individuals in work settings. Applicants are required to complete the questionnaire before

they appear for the interview. This tool gives us a better understanding of the applicant and is

not used for elimination of applicants.

Personal Interview:

All applicants are expected to go through the interview round, which is the final step in the

selection process.

OVERALL OPERATIONS

ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion (US$ 93

billion) at March 31, 2012 and profit after tax Rs. 64.65 billion (US$ 1,271 million) for the

year ended March 31, 2012. The Bank has a network of 2,900 branches and 10,021 ATMs in

India, and has a presence in 19 countries, including India.

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ICICI Bank offers a wide range of banking products and financial services to corporate and

retail customers through a variety of delivery channels and through its specialized

subsidiaries in the areas of investment banking, life and non-life insurance, venture capital

and asset management.

The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in

United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International

Finance Centre and representative offices in United Arab Emirates, China, South Africa,

Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches

in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock

Exchange and the National Stock Exchange of India Limited and its American Depositary

Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

MARKET SHARE

Primary Markets

We are the leading collecting bankers (market leader) to Public/ Rights/ Private

Placement/ Mutual Funds/ Capital Gains Bonds issues. ICICI Bank is the only Bank to

cross Rs. 1 trillion Collections. We are the market leader in IPO Collection with a 34%

share and 65% market share in Retail and HNI Segment.

Escrow and Paying Bankers We act as escrow and paying bankers to Mergers and

Acquisitions.

Secondary Markets

As mentioned above, ICICI Bank acts as a 'clearing and settlement' banker for members

of NSE, BSE, NCDEX, MCX and Spot Exchange. ICICI Bank also offers following

products/services:

Cash Management Services

NRI accounts

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Payment gateway

Portfolio management services accounts

Supply Chain Management Account

Corporate Internet Banking

Financial highlights of company's performance

94

2.7 BANK OF BARODA

INTRODUCTION:

Bank of Baroda is the third largest bank in India, after the State Bank of India and the Punjab

National Bank and ahead of ICICI Bank. BOB has total assets in excess of Rs.

2.27 lakh Crore, or Rs. 2,274 billion, a network of over 3,000 branches and offices, and about

1,100 ATMs. IT plans to open 400 new branches in the coming year. It offers a wide range of

banking products and financial services to corporate and retail customers through a variety of

delivery channels and through its specialized subsidiaries and affiliates in the areas of

investment banking, credit cards and asset management. Its total business was Rs. 4,402

billion as of 30 June 2010.

PRODUCTS DIMENSIONS:

Net banking

Lockers

NRI services

Accounts

PRODUCT OFFERINGS:

Wholesale Banking

Rural/Agri Banking

Wealth Management

CPPC - Pension

Baroda Health

Pre-paid Cards

Interest Rates Deposit Products

Loan Products

Internet Banking

Mobile Banking

ATM / Debit Cards

Demat

95

Variants available in product offering of Bank of Baroda

Banc assurance -

Under banc assurance, the customers can obtain the general insurance products of NIC Ltd

through the bank’s branch network.

Baroda Health -

It is a Mediclaim insurance policy available for the account holder’s w.e.f. 23-02-2006 at all

our branches across the country. (Details can be found on the bank’s website

www.bankofbaroda.com)

Mutual Fund -

Bank facilitates in selling the products of UTI Mutual Fund and Birla Mutual Fund to its

customers through its designated branches

Information given in this booklet is subject to change / revision. This booklet should not be

considered as a legal document creating rights and obligations. It is for promoting better

understanding between Customer and Banker. Only key information on various services /

facilities is given in this booklet. Each service has its own detailed terms and conditions

which can be made available on request.

96

2.8 HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC)

INTRODUCTION:

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to

receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the

private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The

bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its

registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled

Commercial Bank in January 1995.

PRODUCT SPECIFIC DIMENSIONS :

PRODUCT OFFERINGS:

Products of HDFC bank are as follows:

Accounts & deposits Loans Cards Investments Insurance Forex Premium banking Private banking

97

Product DimensionsService Quality

Safe deposit Lockers

Fast tech friendly

bank

Best Managed

Boards

Finest Online Bank

1. Accounts & deposits: Savings account Salary account Current account Deposit Demat account Safe deposit Rural account

2. Loans Personal loan Business loan Car loan Home loan Two wheeler loan Loan against assets Education loan Government Sponsored Programs Rural loan

3. Cards Debit Credit Prepaid Credit Cards Reward Program

4. Investments Wealth service Investments Products

5. Insurance Life Health Travel Motor Home

98

6. Forex Travel solutions Remittance Products Other Forex Services

7. Premium Banking Imperia Banking Preferred Banking Classic Banking

VARIANTS AVAILABLE IN THE PRODUCTS OFFERINGS:

HDFC Bank to launch Times Card:

This unique credit card has been specifically designed to cater to the lifestyle and

entertainment needs of young professionals between the ages of 24 and 38 years and offers

exceptional value-for-money in the movies and dining space.

The Times Card comes with a specially crafted rewards program and year-long discounts.

This includes 25% off on movie tickets, 20% discount on dining, and best-in-segment deals.

Users also have the exclusive option to redeem accumulated points against air miles in

addition to the usual catalogue based redemption options. Another first in the credit card

space is the presence of the QR code on the Times Card plastic. The QR code can be scanned

using any Smart phone to reach www.hdfcbank.timescard.com, where customers can view

the latest offers and also apply for the Card.

The collaboration brings together Times Group’s understanding of the youth lifestyle

segment and the entertainment space, coupled with HDFC Bank's understanding of the end-

users, as the leading player in the credit card segment. 

Times Card will be launched in eight cities, namely Mumbai, Chennai, Delhi, Kolkata,

Hyderabad, Bangalore, Pune, and Chandigarh. It will be available in two variants, Platinum

and Titanium, which will be offered exclusively on the MasterCard platform, allowing

customers to transact at millions of global merchant establishments and giving them access to

benefits across the world. The Platinum Times Card is the premium variant and entitles

cardholders to higher reward points on their spends as well as exclusive privileges on their

card in addition to the wide range of benefits available on the Titanium Times Card. 

99

“As a leader in the digital and print media space we have always carefully chosen our

strategic partnerships. The association with HDFC Bank helps us create a unique product in

the entertainment space that is in line with our goal to consistently deliver unique products

and services to our customers. Aimed at young working professionals, the card provides a

slew of benefits and privileges that provide value-for-money. We are sure the co-branded

credit card will provide superior customer experience enabling us to deepen our relationship

with our wide customer base,” said Ms. Archana Vohra, Vice President and Business Head,

Times Internet Limited.

 “As the country's leading credit card issuer, we are constantly offering our customers world

class products that are customized to suit their ever-evolving needs. We have always believed

in offering every Indian a product designed specifically for him or her. Keeping this goal in

mind we have launched credit cards for women, doctors, teachers, and most recently for

farmers. We now have a premium product of the highest quality and great customer value for

the discerning youth of India and young at heart as they enjoy exclusivity. HDFC Bank's

partnership with Times Internet will further enhance our product offering and provide young

Indians with an unrivalled entertainment experience,” said Mr. Parag Rao, Senior Executive

Vice-president and Business Head, Credit Cards & Merchant Acquiring Services, HDFC

Bank

Financial Performance :

Mar '12 Mar '11 Mar '10 Mar '09

INVESTMENT VALUATION RATIOS

Face Value 2.00 10.00 10.00 10.00

Dividend Per Share 4.30 16.50 12.00 10.00

Operating Profit Per Share (Rs) 37.71 160.36 106.25 92.36

Net Operating Profit Per Share

(Rs)

138.66 524.34 436.03 464.77

Free Reserves Per Share (Rs) 97.01 419.10 363.55 252.37

Bonus in Equity Capital -- -- -- --

100

PROFITABILITY RATIOS

Interest Spread 5.80 5.95 5.89 6.98

Adjusted Cash Margin (%) 17.59 18.13 16.71 13.15

Net Profit Margin 15.93 16.09 14.76 11.35

Return on Long Term Fund (%) 76.06 59.91 56.08 83.31

Return on Net Worth (%) 17.26 15.47 13.70 15.32

Adjusted Return on Net Worth (%) 17.26 15.47 13.68 15.29

Return on Assets Excluding

Revaluations

127.52 545.53 470.19 344.44

Return on Assets Including

Revaluations

127.52 545.53 470.19 344.44

MANAGEMENT EFFICIENCY RATIOS

Interest Income / Total Funds 10.58 9.76 9.84 12.50

Net Interest Income / Total Funds 5.70 6.01 6.00 6.86

Non Interest Income / Total Funds -0.03 -- 0.01 --

Interest Expended / Total Funds 4.87 3.76 3.84 5.63

Operating Expense / Total Funds 2.83 3.02 3.60 4.38

Profit Before Provisions / Total

Funds

2.67 2.79 2.21 2.26

Net Profit / Total Funds 1.68 1.57 1.45 1.42

Loans Turnover 0.18 0.17 0.18 0.24

Total Income / Capital Employed

(%)

10.54 9.76 9.85 12.50

Interest Expended / Capital

Employed (%)

4.87 3.76 3.84 5.63

Total Assets Turnover Ratios 0.11 0.10 0.10 0.13

Asset Turnover Ratio 0.12 0.11 0.11 0.14

PROFIT AND LOSS ACCOUNT RATIOS

Interest Expended / Interest

Earned

54.93 47.09 48.14 54.56

Other Income / Total Income -0.32 -- 0.09 --

Operating Expense / Total Income 26.82 30.94 36.59 35.06

Selling Distribution Cost 0.46 0.65 0.41 0.54

101

Composition

BALANCE SHEET RATIOS

Capital Adequacy Ratio 16.52 16.22 17.44 15.69

Advances / Loans Funds (%) 79.19 79.34 77.24 78.87

DEBT COVERAGE RATIOS

Credit Deposit Ratio 78.06 76.02 72.44 66.64

Investment Deposit Ratio 36.99 34.45 37.85 44.43

Cash Deposit Ratio 8.81 10.79 9.35 10.71

Total Debt to Owners Fund 8.24 8.22 7.78 9.75

Financial Charges Coverage Ratio 0.58 0.79 0.63 0.44

Financial Charges Coverage Ratio

Post Tax

1.38 1.47 1.43 1.29

LEVERAGE RATIOS

Current Ratio 0.08 0.06 0.03 0.04

Quick Ratio 6.20 6.89 7.14 5.23

CASH FLOW INDICATOR RATIOS

Dividend Payout Ratio Net Profit 22.69 22.72 21.72 22.16

Dividend Payout Ratio Cash Profit 20.54 20.16 19.15 19.10

Earning Retention Ratio 77.30 77.29 78.25 77.79

Cash Earning Retention Ratio 79.46 79.84 80.82 80.87

Adjusted Cash Flow Times 43.22 47.14 50.14 54.91

Earnings Per Share 22.02 84.40 64.42 52.77

Book Value 127.52 545.53 470.19 344.44

MARKET SHARE:-

The Bank’s target market is primarily large, blue-chip manufacturing companies in the Indian

corporate sector and to a lesser extent, small & mid-sized corporate and agri-based

businesses. It carries Market Cap of 156,510.44 Cr.

In each of its businesses, the Bank has succeeded in leveraging its market position, expertise

and technology to create a competitive advantage and build market share.

102

OVERALL OPERATIONS OF HDFC :-

There are various operations that HDFC performs and some of them which can be listed

down here are as follows:-

HDFC Bank caters to a wide range of banking services covering commercial and investment

banking on the wholesale side and transactional / branch banking on the retail side. The bank

has three key business segments:

Wholesale Banking 

103

The Bank's target market is primarily large, blue-chip manufacturing companies in the Indian

corporate sector and to a lesser extent, small & mid-sized corporate and agri-based

businesses.

Retail Banking 

The objective of the Retail Bank is to provide its target market customers a full range of

financial products and banking services, giving the customer a one-stop window for all

his/her banking requirements.

Treasury

Within this business, the bank has three main product areas - Foreign Exchange and

Derivatives, Local Currency Money Market & Debt Securities, and Equities. 

The bank is committed to maintain the highest level of ethical standards, professional

integrity, corporate governance and regulatory compliance. HDFC Bank’s business

philosophy is based on four core values: Operational Excellence, Customer Focus, Product

Leadership and People.

104

CHAPTER-3

FINDINGS

105

3.1 OVERALL

The Israeli banking sector is relatively deep and well developed, but it remains highly

concentrated. The total assets of the banks account for 138 percent of GDP in 2010.

There are five major banking groups in Israel, which hold 93 percent of the total

assets of the banking system (Leumi – 28.7 percent, Hapoalim – 28 percent, Discount

– 16.2 percent, Mizrahi-Tefahot– 11.7 percent and First International – 8.8 percent).

In addition, there are three independent banks – Union Bank (3 percent of total

assets), Bank of Jerusalem and Dexia Israel Bank, each with less than one percent of

total banking sector assets.

Five branches of foreign banks (Barclays Bank, Citibank, HSBC, BNP Paribas and

the State Bank of India) constitute about two percent of the banking system.

The high concentration in the banking system is directly linked to the concentrated

structure of the Israeli economy, where a number of conglomerates (often family-

owned) control leading positions in several industries. In recent years, the greatest

impact on the competitive environment has come from the rapid development of the

domestic (corporate) bond market, while banks retain more competitive power in their

household lending business.

The banking system’s balance sheet reflects that of a conservative banking system

which is mainly based on the classic banking activities of extending credit and raising

deposits. Credit accounts for around 69 percent of total assets, with credit to the

government being negligible.

Israeli banks have the largest credit exposure towards private individuals (34.2

percent of total credit, with almost half of this being housing loans). Construction and

real estate is the second largest recipient of bank credit with 16.2 percent, followed by

borrowers’ activity abroad with 13 percent, and manufacturing with 10 percent.

After credit, the second largest item on the asset side of the balance sheet are

securities, which represent 13.8 percent of total assets, with 66 percent of them being

106

government bonds. Israeli banks mainly fund their activities with a broad and stable

deposit base, which represents 77.2 percent of total liabilities and equity. At the same

time, they exhibit low reliance on wholesale debt, given the loan-to deposit ratio of

less than 100 percent (90 percent).Bonds and subordinated loans account for 7.9

percent of total liabilities and equity.

Banks are supervised by the Bank of Israel. The regulation and supervision of Israeli

banks is relatively good and has contributed significantly to the resilience of the

banking sector during the financial crisis. The banking system adopted Basel II on 31

December 2009 and is preparing to gradually introduce the system of international

standards as required by Basel III. Nevertheless, areas for improvement exist and the

Bank of Israel continues to enhance its regulatory and supervisory framework.

Performance and soundness indicators of Israeli banks do not point to immediate risks

to the banking sector’s stability. The banks enjoy stable funding profiles and healthy

liquidity, while the economy’s strong performance has supported asset quality. Israeli

banks’ presence in most customer segments and a broad product range further support

their earnings. Furthermore, the banks benefit from a very high likelihood and

capability of systemic support, while the supervisory approach of the Bank of Israel is

conservative and proactive.

3.2 INDIA OPPORTUNITIES AND CHALLENGES IN ISRAEL BANKING

INDUSTRY

107

Management of Risks

The growing competition increases the competitiveness among banks. But, existing

global banking scenario is seriously posing threats for Indian banking industry.

According to Shrieves (1992), there is a positive association between changes in risk

and capital. Research studied the large sample of banks and results reveal that

regulation was partially effective during the period covered. Moreover, it was

concluded that changes in bank capital over the period studied was risk-based.

Wolgast, (2001) studied the Merger and acquisition activity among financial firms.

The author focused bank supervisors in context with success of mergers, risk

management, financial system stability and market liquidity. The study concluded that

large institutions are able to maintain a superior level of risk management. Al-Tamimi

and Al-Mazrooei (2007) examined the risk management practices and techniques in

dealing with different types of risk. Moreover, they compared risk management

practices between the two sets of banks. The study found the three most important

types of risk i.e. commercial banks foreign exchange risk, followed by credit risk, and

operating risk

Sensarma and Jayadev (2009) used selected accounting ratios as risk management

variables and attempted to gauge the overall risk management capability of banks.

They used multivariate statistical techniques to summarize these accounting ratios.

Moreover, the paper also analyzed the impact of these risk management scores on

stock returns through regression analysis. Researchers found that Indian banks' risk

management capabilities have been improving overtime. Returns on the banks' stocks

appeared to be sensitive to risk management capability of banks. The study suggest

that banks want to enhance shareholder wealth will have to focus on successfully

managing various risks.

Growth of Banking

Zhao, Casu and Ferrari (2008) used a balanced panel data set covering the period of

1992-2004 and employing a Data Envelopment Analysis (DEA)-based Malmquist

Total Factor Productivity (TFP) index. The empirical study indicated that, after an

108

initial adjustment phase, the Indian banking industry experienced sustained

productivity growth, which was driven mainly by technological progress.

Banks' ownership structure does not seem to matter as much as increased competition

in TFP growth. Foreign banks appear to have acted as technological innovators when

competition increased, which added to the competitive pressure in the banking

market. Finally, our results also indicate an increase in risk-taking behavior, along

with the whole deregulation process .

It was found in the study of Goyal and Joshi (2011a) that small and local banks face

difficulty in bearing the impact of global economy therefore, they need support and it

is one of the reasons for merger. Some private banks used mergers as a strategic tool

for expanding their horizons. There is huge potential in rural markets of India, which

is not yet explored by the major banks.

Human Resource Management

Gelade and Ivery (2003) examined relationships between human resource

management (HRM), work climate, and organizational performance in the branch

network of a retail bank. Significant correlations were found between work climate,

human resource practices, and business performance.

The results showed that the correlations between climate and performance cannot be

explained by their common dependence on HRM factors, and that the data are

consistent with a mediation model in which the effects of HRM practices on business

performance are partially mediated by work climate Bartel (2004) studied the

relationship between human resource management and establishment performance of

employees on the manufacturing sector.

Using a unique longitudinal dataset collected through site visits to branch operations

of a large bank, the author extends his research to the service sector. Because branch

managers had considerable discretion in managing their operations and employees,

the HRM environment could vary across branches. Site visits provided specific

examples of managerial practices that affected branch performance.

109

An analysis of responses to the bank’s employee attitude survey that controls for

unobserved branch and manager characteristics shows a positive relationship between

branch performance and employees’ satisfaction with the quality of performance

evaluation, feedback, and recognition at the branch—the “incentives” dimension of a

high-performance work system. In some fixed effects specifications, satisfaction with

the quality of communications at the branch was also important.

Global Banking

It is practically and fundamentally impossible for any nation to exclude itself from

world economy. Therefore, for sustainable development, one has to adopt integration

process in the form of liberalization and globalization as India spread the red carpet

for foreign firms in 1991. The impact of globalization becomes challenges for the

domestic enterprises as they are bound to compete with global players. If we look at

the Indian Banking Industry, then we find that there are 36 foreign banks operating in

India, which becomes a major challenge for Nationalized and private sector banks.

These foreign banks are large in size, technically advanced and having presence in

global market, which gives more and better options and services to Indian traders.

Financial Inclusion

Financial inclusion has become a necessity in today’s business environment.

Whatever is produced by business houses, that has to be under the check from various

perspectives like environmental concerns, corporate governance, social and ethical

issues. Apart from it to bridge the gap between rich and poor, the poor people of the

country should be given proper attention to improve their economic condition.

Dev (2006) stated that financial inclusion is significant from the point of view of

living conditions of poor people, farmers, rural non-farm enterprises and other

vulnerable groups, financial inclusion, in terms of access to credit from formal

institutions to various social groups. Apart from formal banking institutions, which

should look at inclusion both as a business opportunity and social responsibility, the

author conclude that role of the self-help group movement and microfinance

institutions is important to improve financial inclusion.

110

CHAPTER-4

111

CONCLUSION

The major banks that we have discussed here like Hapoalim Bank, Leumi Bank. Discount

Bank, Mizrahi-Tefahot Bank has various new and valuable services that they provide to the

people of Israel. The trade taking places in these banks are also noticeable and profitable to

112

the economy of the country. The legal aspects and barriers in banking industry are also easy

to understand and manageable.

Also we can see that when compared to the banking industry of India the results are

somewhat satisfactory. The working of the banking industry in both the countries is different

and from the findings it is clear that the Israeli banking sector remains highly concentrated.

Also some of the rules differ from that of the Indian banking Rules.

There are opportunities to enter the banking industry in Israel but with the help of deep

research and required resources only. With the challenges like management of risks, growth

of banking, human resource management, global banking and financial inclusion it is

necessary to understand in deep the banking industry of the country.

CHAPTER-5

113

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