INTRODUCTION

Plastic money is here, there & everywhere:

The concept of ‘Buy Now, Pay Later’ dates back the to late 1960s & 70s with the

introduction of plastic money in the western nations. It originated because the people

wanted a convenient and rapid means of accessing their bank accounts. Also, the

exorbitant price of money changing hands between the consumer, merchants and the

banks led to the diffusion of this concept in the banking system.

For spendthrifts and habitual borrowers plastic money induces spontaneous and on-the-

spur spending. But its advantages in terms of convenience, flexibility and safety far

outweigh its pitfalls. Provision for easy repayment gives the card the liquidity of cash

along with the accountability of credit card.

In the past 20 years these cards have proliferated the world market so successfully that

they have altered the face of retail banking. With the power of plastic ruling the world,

India cannot remain behind. With a slow and steady move towards scrip less trading the

country is moving towards cashless transactions.

The plastic money market is bubbling with activity with both Indian and foreign banks

vying to expand their market presence. While the foreign banks have been hogging the

limelight Indian banks are the slumbering giants. The latter have the advantage of a

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large customer base, branch network along with low service charges. These

advantages need to be tapped to realize the full potential of these banks.

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OBJECTIVE

The main purpose to serve on this topic under the Dissertation is to discover the

accurate dimensions of the Plastic Money.

As every project has its own specific purpose, my project is to: -

1) Find out that how the credit card may help in the development of an economy like

ours a developing economy.

2) Find out what is required to do for a credit card market and to establish credit card as

a special security tool.

3) Find out the reasons of fear in the mind of the customers during the acceptance of

the credit cards.

4) To understand the toughness of the credit card market due to emerging competition.

5) To know the credit cards procedure, documentation and the growth of credit cards in

Indian context.

6) To know the credit cards division of the Banking Industry very closely.

7) To understand the impact of credit cards in the purchasing power of consumers.

8) To determine whether consumers are aware of credit card and its advantages.

9) To determine the consumers acceptability and likeness towards credit card.

10) To find out the features, which attract consumers towards credit cards and the

parameters, they use to compare the credit cards.

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CREDIT CARD AND ITS FUNCTIONS.

For starter, a credit card is as good as bank behind it. A form of 'near money' these

cards are issued by commercial bank to people whose creditworthiness has been

ascertained. Instead of carrying unmanageable weds of cash, the card holder enjoy the

flexibility and safety of purchasing any thing from groceries, cosmetics, petrol to high

value items like refrigerators, television, and washing machines by using his credit card.

Banks ask for TDS certificate or income tax returns document before enrolling a

member.

Credit Card provides the card holder with authorized line of credit of some specified

amount. Such cards may be used for following purposes:-

Purchase of air, rail and road tickets for traveling

For the Settlement of hotel bills.

For Cash withdrawals.

For the Settlement of club bills.

For the Payment of purchase bills.

For the Payment of insurance premium.

Refilling the fuels in vehicles.

Payment of phone, water and electricity bills.

Payment of school/ education expenses.

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WHAT ARE CREDIT CARDS?

A Credit Card is referred to as 'plastic money'. Carrying a lot of cash on you can be

cumbersome, risky and sometimes, you run short of it, just when you most need it.

(Remember the SALE at your favorite ready-mades store?). A Credit card is the smart

solution to these problems. It is a convenient and safe alternative for cash.

Besides, it says things about you. Most people associate a credit card with a prestige,

which it most certainly bestows on you, but more importantly, it says that you have

taken the onus of being responsible - to be extended credit! So, when you get yourself a

card, remember that, because your bank does!

SALIENT FEATURES OF CREDIT CARDS

ANNUAL FEE

All credit card issuers charge an annual fee which is payable at the start of the year.

The start of the year, of course, is your membership year, and not the calendar year.

So, if you got yourself a card in March, you can expect to be billed the annual fee every

March until you cancel your card. As a privilege, this fee is sometimes waived the first

time. When the time comes for renewal of your card, you can even use the reward

points you have accumulated from using the credit card over the year to settle your

annual fee.

FORWARDING BALANCE (OR REVOLVING)

The most attractive feature of a credit card is that you need not pay off your dues in

whole. You can opt to pay 5% of the total amount on or before the due date, every

month, the rest is carried forward. But there's a price to pay for this extended credit -

interest! Normally, interest varies between 2.5% and 3% per month.

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APR OR ANNUAL PERCENTAGE RATE

The interest rate that reflects the yearly cost of the interest the outstanding on your card

is called the annual percentage rate. This rate is charged to the card holder on the

amounts carried forward beyond the due date for the payment of balances. Most card

issuers will tell you their monthly rate of interest. It might sound low at 3%, but when you

look at the interest rate over the year, it turns out to be as high as 43%.

CASH ADVANCE

An important feature - lets you withdraw cash from designated ATMs using your credit

card. Use discretion when withdrawing cash on your credit card because the charges

for this facility are high, around 2.5% to 3% per transaction.

THE NECESSITY OF CREDIT CARDS

If it is for the convenience of not carrying cash then a debit card can suffice. And, if it is

for the free credit that the companies claim they give, then last week we had highlighted

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the high cost of using such credit where the customer ends up paying more than 5 per

cent interest per month depending on the amount of credit due on the card.

For those who want to use the credit facility at a reasonable cost then we suggest that

they use facilities like overdraft against salary accounts or loan against fixed deposits or

shares. Rolling credit on the card is not feasible as the interest paid on credit cards is

phenomenally higher than what is charged on overdraft facilities.

Going a step further, in case you don't have the cash to pay off your credit card bill in

one month then it makes more sense to take an overdraft for that amount to repay the

bill because the interest on the overdraft works out far cheaper than what the card

company will levy on you if the payment is not made in time.

Almost all banks offer overdraft facilities at reasonable rates to customers who have

salary accounts with the said bank, as well as to the general public. Salary account

holders can avail of the overdraft without any collateral, which is called a clean

overdraft. For the general public, banks provide overdraft facilities against collateral like

NSCs, shares, fixed deposits, etc. For overdraft against salary accounts the rates being

quoted in the market are very competitive and are as low as 1% per month on a

reducing balance. Similarly, one can avail an overdraft facility against NSCs at 13% p.a.

and up to 65% of the face value or against fixed deposits at 9% p.a. up to 90% of the

value.

Then why should a customer pay 2.95% interest per month on an amount of Rs. 40,000

to a credit card company when he can pay 1% interest per month on the overdraft

against the salary account or 8.5% per annum for overdraft against fixed deposits?

ADVANTAGES OF HAVING A CREDIT CARD

1. If you pay by credit card there is implicit guarantee of satisfaction because as a

customer one can stop payment.

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2. If a airline ticket is booked on a credit card and especially if you are going overseas,

the travel insurance is covered, that could otherwise be a lot of money.

3. Free airfare mileage based on point system that can take you or your family to a

destination of your choice if you can accumulate points. This is quite easy as the

shopping can be done on credit card and the points are accumulated that can be

encased for gifts or travel.

4. The best part is that you can get statement of all expenses and you can keep a track

of your expenses at a glance.

5. It helps to establish a credit history and can help in getting loan if needed.

6. There are a number of innovative credit cards that help benefit the customer. There

are cards that help accumulating points towards reducing the cost of your new car.

7. On internet it is the preferred option and you can also participate in on line auctions if

you have good credit rating.

8. You can get cash advance anywhere at so many cash outlets.

9. Some cards have your picture on it that is as good as a identification paper.

REASONS OF FEAR DURING ACCEPTANCE OF

PLASTIC MONEY

1. There is a temptation to acquire more and more cards. Some have more than their

share of cards. They can loose track of payments and be in difficulty.

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2. Some credit cards have conditions that may put you in difficulty if you have not read

the fine print.

3. Then there is a danger of someone can get hold of your credit card number and

misuse it.

4. There are a number of cases of double dipping done at your expense when paying at

an outlet by credit card.

5. Static’s are available that the domestic violence increases after the festive season in

the credit card user societies when the credit card bills arrive.

6. Using credit card exposes one to the possibility of some companies profiling and

lobbying you based on your spending pattern. Some governments also take interest in

the spending patterns of individuals and credit card statements make their job easier.

There are always dangers when money matters are involved but one has to live with the

necessary evil. The happy are those credit card users that pay up and take advantage

of the free credit days that the credit card companies provide.

So being a good creation and instrument of financial market it is risky too, so there

are several things to be kept in mind and people should take in using it.

RISKS IN THE BUSINESS

TO THE BANKS:

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Banks excited at the projected 40% growth rate1 in the plastic money industry are

apprehensive about the potential corresponding increase in fraud cases. Some banks

register upto 7% fraudulent case in a year.

1. Default in payments - Currently banks have huge amounts of funds blocked with

willful defaulters. Lack of reliable data / infrastructure to check the credit worthiness of

individuals has led to the situation where people without sufficient resources have

become eligible for availing credit facilities. The marketers in India find it more cost

effective to just right-off the unpaid amount in their balance sheets, after trying to

recover it for six months, than to pursue it throughout the litigation labyrinths.

2. Multiple Imprints or Record of Charge (ROC) Pumping - It refers to the expedient

system by which merchants make multiple charge slips instead of the relevant number

when a cardholder gives in his plastic card.

3. Lost/Stolen Cards - These account for 60% of fraud in India. In case of loss all

multinational banks and some Indian banks limit the liability of the cardholder upto Rs. 0

(for Gold card) and Rs. 1000 (for Classic card) if card is used after lost / stolen card has

been reported. These banks transfer their risks to insurance companies and generally

replace the lost card within three days. Some banks carry the risk themselves and

investigate the loss before determining the liability of cardholders. These banks take

about a month to replace the missing card.

To combat this, banks have started the Photo card Option which provides the

photograph of the cardholder on the card. They are also providing information about the

lost/stolen cards .

Through the Hot Card Bulletin which is continuously upgraded and sent to merchant

establishments to provide them with the current status. But the success of this measure

is debatable.

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A majority of the credit card losses are skewed towards the issuer as the risk on the

cards is carried by the issuer. Visa and MasterCard have a formal set of guidelines

known as charge back rules. Once a card holder has informed the bank of the loss of

the card, he is subject only to a minimum liability, which most banks fix at Rs.1000

regardless of how much the card is used fraudulently. Before the hot card date, the

fraud loss is the issuer’s responsibility. However, if a merchant accepts a hot listed card,

the issuer is entitled to ‘charge back’ the transaction to the merchants, through the

acquirer. If a merchant is found guilty of willful fraud, his bank is liable.

Visa offers its members a national merchant alert service which acquiring banks can

refer to in order to check on the credentials of the merchants whose business they woo.

It also has its risk identification service which monitors every single transaction through

Visa Net. This enormous database helps zero in on cardholders and locations prone to

fraudulent activity.

Master Cards security and risk management team organizes regular training programs

for banks and member establishments on fraud prevention.

Delivering new cards to members by courier has drastically cut fraud arising from non-

receipt of cards.

TO CARD HOLDERS:

The main problem with credit card is that it is easy to get in over the head. A majority of

card users utilize their maximum limit. Credit cards charge higher interest than some of

the other forms of borrowing. While a credit card offers convenience, that convenience

can be expensive if the card holder is slow in paying off his outstanding dues. In terms

of the annual percentage rate that an individual is charged towards paying off his debt,

the figure ranges from anywhere between 22% to 34% p.a. depending upon the roll

over period ( 30 / 45 days ).Tocombatthese problems potential card owners decide

upon the mode of payment before selecting a card. In India, for the majority of people

who believe in paying off their balances in full, the prerequisites would include a card

with a low or no annual fee and long grace period

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PARTIES INVOLVED IN CREDIT CARD BUSINESS.

There are five parties involved in credit card business:

THE CARD ISSUER.

When one applies and is issues the card.

THE CARD HOLDER.

When the customer applies to the bank for a credit card, the bank checks the credit

worthiness of the customers and once the application is approved, the bank issues

credit card with a specified credit limit. The customers then becomes a card holder and

can use the credit card to purchase goods or services from a merchant. Each month the

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cardholder receives a bill from the card issuer for the amount the cardholder incurred

with the credit card, as well as finance charges if any.

THE MERCHANT.

When the cardholder uses the credit card to pay for goods and services at retail shops,

restaurants, hotels, airlines or any establishments that accept the credit card , the

establishment is a merchant. A merchant should be of good reputation and be

financially responsible.

THE ACQUIRER.

In order for an establishment to be a merchant, it must be accepted by a financial

institution who is a member of Master card/ or visa. There financials institutions is the

acquirer. When a merchant accepts visa or mastercard as a mean of payment, he is

bound by a written agreement with the acquirer.

THE ASSOCIATES.

Master card international and visa international are known as Associates. They are

owned or controlled by a group of member institutions. For financial institutions to be a

member of Master card or Visa, they have to meet the criteria set by the associates.

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AGE OF PLASTIC MONEY

Banking has evolved a long way from the days of the medieval moneylenders counting

coins on the bench to the present scenario, where it is hard to trace the trail of money

from the beginning to the end.

The trail starts right from the small saver leaving a few rupees in his local bank to the

billions of rupee loans raised by a syndicate banks and financial institutions, capable of

financing projects in any country in the world. Still, these banking majors are heavily

dependent upon their retail home base of savers and borrowers. Most of the bankers

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began focusing on this retail market segment as global competition intensified in late

seventies and early eighties.

Credit cards, one of the banking products that cater to the needs of retail segment has

seen its number grow in geometric progression in recent years. This growth has been

strongly supported by the development in the field of technology, without which this

could not have been possible.

The history of phenomenal growth in the credit card segment traces way back to in

1950, the time when ‘Diners Club’ was established. The card provided select members

with credit at 22 restaurants in New York and collected a commission for paying the bills

promptly. The credit card industry got a further boost with the arrival of American

Express in the arena in 1958. American Express began selling their card as a prestige

to hotels, restaurants, shops or airlines in America and slowly expanded the network

across the world.

The success of these two players attracted many other banks to join the credit card

business. The entire breed of new players saw a fresh opportunity of granting

unsecured loans at high interest rates to those credit cardholders who did not pay their

bills on time. These banks were not so concerned with collecting commissions from

shops but were thriving on high interest income from those who did not pay their bills on

time.

Starting from ‘Diners Club’, some 50 years ago, the card industry has been growing with

a rapid pace world over and so has been the growth in the domestic card industry. With

only two players in domestic card industry, HSBC and Citibank in the early 80s, the

number swelled to over 25 in the year 2001. Credit cards in India, made their debut in

1981, and are on the verge of an unprecedented boom. Between 1987 and 2001, the

market has virtually grown to over 4 million cards with over 25-30% of compounded

annual growth in new cardholder’s base.

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Its not that only the card numbers have increased, but even the types of cards on offer

have seen a surge. Today the domestic card industry is flooded with different types of

cards ranging from gold, silver, global, co-branded credit cards, smart to secure,.the list

is endless. Foreign banks have shouldered the major responsibility of increasing the

card base and adding value-added services to the card products in the past. This is also

evident from the fact that the market share of these foreign banks is estimated to be

well over 70%. But the scenario has changed dramatically in the last of couple of years

with the entry of State Bank of India (SBI), a domestic major in the banking sector. More

and more nationalized banks and private sector banks like ICICI and HDFC Bank are

aggressively launching credit card with value added features.

There is immense growth potential in the domestic card industry. A glance at the Indian

population reveals that India’s middle/upper middle class (target segment) represents a

population of over 10 m. There are only 2 to 3 m cardholders, each possessing an

average of 2 cards. This is a very low figure given India’s huge middle to upper class

population. There is no doubt that the domestic card industry has to yet to mature and

offers significant long-term growth potential.

Given the lack of maturity of the domestic card industry, its growth will depend upon

building core retail business, with more sophisticated products. In the expansion of

domestic credit card market, the existing foreign players, SBI, other nationalized banks

and the new domestic private sector banks are expected to play important role with

complementary strategies.

Foreign banks with the advantage of technology and industry experience are expected

to concentrate on increasing card spending and customer loyalty in the major cities.

SBI, on the other hand is expected to capitalize its superior distribution network to

expand card acceptance in the smaller towns. The new private sector banks would have

the opportunity to capture significant market share by combining the strengths of foreign

banks and nationalized bank like SBI.

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Although at present the card market is mainly limited to India’s relatively bigger cities

and tourist locations only, there is also a potential in smaller cities. Domestic banks,

owing to their vast network and reach to smaller cities, can easily tap this potential.

They would be better off, penetrating into smaller cities and bringing credit card to the

masses rather than cannibalizing other foreign banks’ existing cardholder base.

The efforts of these banks to increase the card base is going to be wholeheartedly

supported by the residents of these smaller cities with their higher disposable income,

changing lifestyle, increasing travel and the growth in the entertainment sector.

The age of plastic money seems to be here to stay. A recent American Express `Share

of Wallet' study among cardholders across the six cities of Delhi, Mumbai, Kolkata,

Chennai, Bangalore and Hyderabad reveals that card usage is highest for dining and

shopping, while it is also popular for travel-related expenses such as air tickets, hotels

and car rentals.

The result of the Indian survey is in line with the other markets in the Asia Pacific region

that were surveyed. Cardholders in countries such as Singapore, New Zealand,

Thailand, Malaysia, Hong Kong and Australia spend 10-30 per cent more on the same

services.

While travel and entertainment-related expenses continue to be "big ticket" expenditure

items, Indian consumers are increasingly using the plastic alternative for everyday

spends such as petrol, hospitals, telephone services, home furnishing and good old

eating.

The survey indicates that consumers in the country are increasingly looking to use

credit cards to pay school dues for their kids. In fact, this has spurred American Express

to tie up with the Delhi Public group of schools to facilitate parents to pay by card. Right

now, India is at a low 11 per cent in comparison to other countries in the Asia-Pacific

region when it comes to using plastic money for recurring bills such as utilities,

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subscriptions and insurance. In this category, Malaysia tops at 42 per cent, Taiwan at

31 per cent, both even higher than Hong Kong and Australia.

According to the wallet study, the frequency of card usage is expected to go up in the

forthcoming months. About 32 per cent of the consumers surveyed anticipate using the

card more frequently in the next six months, while 18 per cent said that they would add

more credit cards to their wallets.

Interestingly, 39 per cent consumers in Thailand also anticipated increased card spends

while about 19 per cent expected to acquire more credit cards in the next six months.

However, in the developed markets of Australia, Singapore, Hong Kong and New

Zealand, the number of credit cards are expected to remain the same, obviously due to

saturation.

But corporate cards continue to have good potential. According to American Express,

there are about 30,000 mid-market companies in India, with sales revenues from Rs 5

crore to Rs 500 crore incurring a total travel and entertainment expenditure is $2.7

billion. This expense in India is expected to grow at the rate of 8 per cent and is

estimated to exceed $5 billion by year 2006. The use of corporate cards can bring

savings up to 40 per cent for the middle market companies through process savings

and purchase savings.

The credit card market in India, according to American Express, is growing at 20-25 per

cent per annum. From the half-a-million cardholders in 1992, the population is at a

whopping nine million today. Also, the total billings on cards are estimated at over Rs

10,000 crore, growing at 20 per cent per annum.

Australia began printing plastic notes in 1988. Since then Securency has spread its

ambit to 23 countries—Bangladesh to Vietnam, Nepal to Mexico, and now Singapore.

‘‘A 24th country has just signed on,’’ said a Securency official, ‘‘but the name is

confidential.”

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Securency prints its notes on a polymer substrate called Guardian, which it has

patented. ‘‘While polymer notes cost 1.5 to two times more than paper notes,’’ said

Curtis, ‘‘they are more durable and difficult to counterfeit. Against a counterfeit rate of 68

per million for notes in Europe and 100 per million in the US, Australia has only nine

counterfeit notes per million.’’

In India, where the velocity of money—the number of times it changes hands—is high, it

is longevity that is emphasised. Low-denomination paper currency, such as the Rs 10

note, usually survives six months. Securency’s experience with polymer suggests a life

of almost four years. As for higher denominations, Aus $50 notes issued in 1995 are still

going strong.

Securency first spoke to RBI in 1999. Sample Rs 10 and Rs 100 polymer notes were

produced but the idea was perhaps still too novel. About nine months ago, Securency

presented its case afresh, pointing out that polymer notes did not get dirty, tear or

crumple, were never rejected by teller machines—and were a huge cost saver.

The Australian firm quoted the example of Brazil’s 10 reais polymer notes, issued in

April 2000 and roughly analogous to India’s Rs 10 note. ‘‘There are 250 million 10 reais

polymer notes in circulation,’’ said a Securency official, ‘‘a Brazilian government study in

2003 calculated that in three years they had saved the central bank $17 million.’’ India

issues seven billion Rs 10 notes a year. Just do the calculation.

Securency’s tentative offer to India includes a joint venture ‘‘with an Indian entity of the

government’s choice’’ to produce the polymer substrate locally. Asked what sort of an

investment by Securency this would entail, Curtis was evasive. ‘‘May be between $25-

50 million.’’

On their part, Indian officials said: ‘‘the polymer technology is good but no final decision

has been taken. These things take time.’’

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Delay would appear perfectly explicable. The banknote industry has conservatism and

secrecy written all over it. Change is unusual.

In the US—seen by some as ‘‘the final frontier for polymer notes’’—the dollar is printed

on special paper, 75 per cent cotton and 25 per cent linen, supplied to the Federal

Reserve by a family-run firm for the past 125 years.

Based in Dalton, Massachussetts, Crane and Company patented this paper in 1879. In

2003, it signed a four-year contract with the Treasury, agreeing to supply paper worth

$336 million. The company’s chairman, Lansing E Crane, is one of America’s wealthiest

men, even if few have heard of him.

For 50 years, free India printed its rupees on machines bought from De La Rue Giori,

run by the Swiss family Giori and till recently said to control 90 per cent of the banknote

printing business.

The Giori saga has an unfortunate Indian subtext. In December 1999, M Roberto Giori,

eldest of the Giori brothers and company chairman, was among those hijacked to

Kandahar. If the Taliban had figured out who this economy class passenger was, he

would have been the uber hostage.

Giori never recovered, insiders say. In 2001, he sold his business to Koenig & Bauer, a

German firm.

In the 1990s, India diversified. Turning away from De La Rue Giori, it bought machines

from Japan’s Komori for the RBI’s new presses. That decision was taken when

Manmohan Singh was finance minister. As PM, will he take the next leap to plastic? At

Securency, they’re betting their polymer on it

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ORIGIN OF CREDIT CARDS

The credit card has its beginning in an embarrassing incident that took place in the early

1950’s in America. The story goes that Mr. McNamara; a New York businessman took

his friends out to dinner. The end of meal he discovered that he had forgotten his wallet

at home; the proprietor was kind enough to allow him a later settlement of bill. As

McNamara stepped out of the restaurant he had the brainwave for the introduction of

credit cards - system of availing instant credit upon confirming the identity of card

holder. Thus was born the Diners Club Cards, the pioneer of today’s multibillion dollar

plastic money business. Diners club adopted a promising approach by recruiting various

Hotels and restaurants to act as member establishment for accepting the cards. Not

only did these establishments pay a commission on member’s purchases but the

members also paid an annual subscription fee. Diners Club vetted its members for

credit worthiness and guaranteed payment to participating establishment. Thus was

born the first ‘Travel and Entertainment Card’. It was followed by American Express

which is now a dominant force in the Travel and Entertainment cards industry, and by

1959 by Carte Blanche, after many vicissitudes is now a part of Citi Bank Empire

Together With Diners Club. In the present time American Express leads the travel and

entertainment (T&E) card industry.The next great leap-forward came from Bank of

America, which in other banks. Such card holders could use their card 1966 offered to

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license its successful blue, white and gold Bank America card to at any accepting

merchant establishments around the globe. Later in 1977 all the national and

international Bank America licenses were pulled together under the single name of Visa.

Not to be outdone, a rival group of American Banks came together in 1966 under the

name of Interbank, later renamed Master Charge and later still Master Card. Ever since

Master Card and Visa and their affiliates have carved the world credit card market.

In the 1980s credit card concept was launched in India through the Diners Club card,

and soon, within a couple of months both Visa and Master card entered into the Indian

market.

HISTORY OF CREDIT CARDS

Since the beginning of history man has been involved with trade and commerce. As this

area has expanded and become more important, different medium of exchange has

been developed. Barter gave way to the advance of money, and money in turn has

faced the advance of checks.

Now both are feeling the advance of credit card. In this age of rapid technological

advances it is only natural that man should seek out a new and more efficient system of

carrying on trade and commerce. This system seems to be credit card.

Again, credit cards are not new. They, or some equivalent, have existed since the early

part of this century. Some time before1920 some large department stores began to

issue "credit coins". These coins were a small piece of metal which displayed the name

of the merchant and the series of merchant identifying the customers account. These

coins were issued to good customers and allowed them to purchase merchandise on

credit in the store.

In 1950, the Diners club, introduced the first independent credit card plan. This plan

involved a agreement between the club and the merchants. The members agreed to

pay the club to obtain the card and then agreed to pay each monthly billing as it came in

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. The merchant agreed to honor the card and then forward his credit voucher to Diners

club for payment once a month. The member there by were able to get service from

many type of establishments by carrying only one card and were able to pay for it at the

end of the month.

The merchant on the other hand, were relieved of having to have his own plan and was

also likely to increase the volume of his business since card holding members would

find it more convenient to deal with him then with a merchant who wouldn't honor is

card. The success of Diners club pan was such that the American Express company

entered the field in 1958, while Hilton Credit Corporation initiated the "carte blanche"

plan the following year.

In 1951, the first National bank of long island became the first bank to offer its

customers a credit card plan. This area was not very important, however, until the late

1950s when the bank of America and the Chase Manhattan bank issued there cards. In

1966, the Midwest bank card system was started.

By at least the beginnings of the 1970s the personal credit card had become a fixture in

the nation’s economy. Today more than 60 million credit card accounts exist in the

United States, and seven out of ten households possess at least one credit card. By

1986 out standings balance on credit card account total more than $80 billion

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SOME TERMINOLOGY USED IN CONCERN WITH

CREDIT CARDS

Before we go any further, why not become familiar with the various terms and jargons

used by the credit card industry.

Credit Card – A credit card is a financial instrument, which can be used more than once

to borrow money or buy products and services on credit. Banks, retail stores and other

businesses generally issue these.

Credit limit – The maximum amount of charges a cardholder may apply to the account.

Annual fee – A bank charge for use of a credit card levied each year, which ranges

depending upon the type of card one possesses. Banks usually take an initial fixed

amount in the first year and then a lower amount as yearly renewal fees.

Revolving Line Of Credit - An agreement to lend a specific amount to a borrower and to

allow that amount to be borrowed again once it has been repaid. Most credit cards offer

revolving credit.

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Personal Identification Number (PIN) - As a security measure, some cards require a

number to be punched into a keypad before a transaction can be completed. The

number can usually be changed by the cardholder.

Teaser Rate - Often called the introductory rate, it is the below-market interest rate

offered to entice customers to switch credit cards.

Joint Credit - Issued to a couple based on both of their assets, incomes and credit

reports. It generally results in a higher credit limit, but makes both parties responsible

for repaying the debt.

TYPES OF CARDS

MasterCard – MasterCard is a product of MasterCard International and along with

VISA are distributed by financial institutions around the world. Cardholders borrow

money against a line of credit and pay it back with interest if the balance is carried over

from month to month. Its products are issued by 23,000 financial institutions in 220

countries and territories. In 1998, it had almost 700 million cards in circulation, whose

users spent $650 billion in more than 16.2 million locations.

VISA Card – VISA cards is a product of VISA USA and along with MasterCard is

distributed by financial institutions around the world. A VISA cardholder borrows money

against a credit line and repays the money with interest if the balance is carried over

from month to month in a revolving line of credit. Nearly 600 million cards carry one of

the VISA brands and more than 14 million locations accept VISA cards.

25

Affinity Cards - A card offered by two organizations, one a lending institution, the

other a non-financial group. Schools, non-profit groups, pro wrestlers, popular singers

and airlines are among those featured on affinity cards. Usually, use of the card entitles

holders to special discounts or deals from the non-financial group.

Standard Card– It is the most basic card (sans all frills) offered by issuers.

Classic Card– Brand name for the standard card issued by VISA.

Gold Card/Executive Card– A credit card that offers a higher line of credit

than a standard card. Income eligibility is also higher. In addition, issuers provide extra

perks or incentives to cardholders.

Platinum Card – A credit card with a higher limit and additional perks than a gold

card.

Titanium Card – A card with an even higher limit than a platinum card.

Secured Card – A credit card that a cardholder secures with a savings deposit to

ensure payment of the outstanding balance if the cardholder defaults on payments. It is

used by people new to credit, or people trying to rebuild their poor credit ratings.

Smart Card – Smart cards, sometimes called chip cards, contain a computer chip

embedded in the plastic. Where a typical credit card's magnetic stripe can hold only a

few dozen characters, smart cards are now available with 16K of memory. When read

by a special terminals, the cards can perform a number of functions or access data

stored in the chip. These cards can be used as cash cards or as credit cards with a

preset credit limit, or used as ID cards with stored-in passwords.

26

Charge Card – Falls between a debit and credit card. Works like the latter and you

don't have to be an accountholder. Just pay up in full when the bill arrives with the mail.

No outstanding are allowed, in other words, no revolving credit facility either. American

Express and Diners are providers.

Rebate Card – This is a card that allows the customer to accumulate cash,

merchandise or services based on card usage.

Co-Branded Card – This is a marriage of convenience between two service

providers who want a trade-off with the other's strengths. Specific facilities are made to

members through these tie-ups. So, Times Bank and Citibank have a co-branded card

that allows concessional rates for add-on cards or telephone banking. Stan chart and

Hindustan Lever Limited have a co-branded card to sell Aviance beauty products. SBI-

GE Capital has a co-branded card for retail loans.

Cash Card – Cash cards, similar to pre-paid phone cards, contain a set amount of

value, which can be read by a special cash card reader. Participating retailers will use

the reader to debit the card in increments until the value is gone. The cards are like

cash -- they have no built-in security, so if lost or stolen, they can be used by anyone.

Travel Card – These work mostly as debit cards for the limited purpose of travel.

Citibank Dollar Card, American Express, Bobcard Global and Hongbank Bank Thomas

Cook International Card are among the players in this section.

cardS

27

METHODOLOGY IN CREDIT CARDS BUSINESS

Following methodology is used for credit card business:

Credit Card bank advertises or approaches the prospective cardholder.

Prospective card holders apply for credit card membership by filling the prescribed form

which normally contains personal and financial particulars.

Issuer of credit card evaluates the form and issues the credit card and fixes the money

limit for use of such credit card.

Cardholder puts the signature on the prescribed place on the card before putting it to

use and starts using it.

Member establishment prepares a charge slip (for cost to be recovered) gets it signed

by the card holder, tallies the signature, and return, on the copy of charge slip of charge

slip to the credit card holder. The second copy is sent to the issuer for recovery of

money and he retains third copy.

Card issuer receives the bill and charge slip and makes payment to the member

establishment.

28

Card issuer prepares an account statement and sends it to card holder for payment to

bank directly or through its authorized collection centers.

OVERVIEW OF VARIOUS CARD ISSUES

ISSUER BANK CLASSIFICATION OF CARDS

1 ANZ GRINDLAYS SILVER - MASTERCARD

GOLD- MASTERCARD

VISA INTERNATIONAL

2 AMERICAN EXPRESS AMERICAN EXPRESS CARD CHARGE

CARD

CORPORATE CARD

3 CITI BANK CLASSIC - VISA / MASTER

CARD

PREFERRED - VISA /

MASTERCARD

DINERS CLUB CARD CHARGE

CARD

US $ VISA CARD

4 STANDARD CHARTERED

BANK

CLASSIC - VISA / MASTER

CARD

29

EXECUTIVE - VISA / MASTER

CARD

GOLD - VISA / MASTER CARD

5 HONGKONG & SHANGHAI

BANK

CLASSIC VISA / MASTER CARD

GOLD VISA / MASTER CARD

US $ MASTER CARD

6 BANK OF BARODA BOB CARD CHARGE

CARD

BOB SILVER

BOB EXCLUSIVE

BHARAT BOB CARD PREMIUM

BOB CARD GLOBAL

7 CENTRAL BANK OF INDIA CENTRAL MASTER CARD

8 BANK OF INDIA INDIA MASTER CARD

TAJ CARD CHARGE

CARD

9 CANARA BANK CANCARD VISA / MASTER CHARGE

CARD

CANCARD PROPRIETOR CHARGE

CARD

10 VIJAYA BANK VIJAYA GOLD CHARGE

CARD

VIJAYA CLASSIC CHARGE

30

CARD

11 ANDHRA BANK ANDHRA GOLD CHARGE

CARD

ANDHRA CLASSIC CHARGE

CARD

12 ICICI BANK CLASSIC - VISA / MASTER

CARD

EXECUTIVE - VISA / MASTER

CARD

GOLD - VISA / MASTER CARD

13 STATE BANK OF INDIA CLASSIC - VISA / MASTER

CARD

EXECUTIVE - VISA / MASTER

CARD

31

HOW TO CHOOSE A CREDIT CARD

With the credit card truly becoming an international citizen, issuers have begun

highlighting the value added features offered along with the basic product. While some

of them are offering attractive interest rates, others are luring customers by their reward

schemes. With a plethora of choices on offer it is not easy to come to a decide on any

particular card. However,  a comparison on the basis of a few basic parameters is will

help us make an informed choice.

First, there's the credit limit. All banks have different limits set for customers depending

upon the type of card in their possession. Even within a particular type of card, limits

may vary depending upon the credit worthiness of the individual. This depends, among

other things, on the gross income of the individual and the period for which he/she is

using the card. However, some banks like Citibank and American Express have cards

which have no set credit limit. Amex, for e.g., has a charge card which has no upper

limit and allows one to spend as much as one likes (provided the holder repays the

amount at one go).

A second criteria could be the lost card liability. If one is travelling and has lost his/her

credit card then reporting the loss will not be much of a problem. HSBC, Citibank,

Stanchart and Amex can be reached from any corner of the world for information on

one's card as well as for reporting the loss. However, except for Amex, all others will

mail a replacement card to the holder's mailing address. Amex will replace the card

within 48 hours free of cost. Liability for a lost card is nil for Citibank, HSBC, Amex

(once the bank is informed about the loss) and the Stanchart photo card. However, the

non-photo card carries a liability of Rs1,000.   

32

Nowadays, almost all cards come with various goodies attached. These include airline

ticket booking and insurance benefits on lost luggage and accidental deaths. HSBC, for

e.g., offers discounts of 3.5% on domestic air fares and 6.5% on international ones if

tickets are charged

to their cards. The latest in line of value added features are the rewards programs. Here

a card holder earns a certain number of points by spending a particular sum of money.

Stanchart, for e.g., uses a conversion of Rs125 (spent in India) or Rs80 (spent abroad)

for one point. HSBC, on the other hand, only allows points collected to be squared

against a discount on the annual fees. A minimum of 350 points is needed to get a

discount on the

annual fee. Citibank awards one point on spending Rs100.The table below gives an

indication  of the various value added services on offer from various banks.

Value Added Features Citibank Stanchart HSBC Amex

Hotel discounts - - - Yes

Travel fare discounts Yes Yes Yes Yes

Free global calling card Yes (G) - Yes Yes

Lost baggage insurance Yes Yes Yes -

Accident insurance Yes Yes Yes -

Insurance on goods purchased Yes Yes Yes -

Waiver of payment in case of accidental

death- - Yes* -

An innovative scheme offered by American Express, called Balance Transfer Service,

helps the cardholder to pay off out standings on other credit cards. Amex will pay the

card issuer and transfer the amount due to the Amex card. And for the first six months

the Amex card holder gets the benefit of a lower interest rate of 1.99% per month as

compared to 2.95% for most other banks. For frequent users,

Amex has a scheme for waiving the annual fees if the cardholder spends more than Rs45,000 in

the preceding 12 months.         

33

Another new thing on the horizon are the so-called co-branded cards.  Several of them have been

have been launched recently. Companies like Indian Oil Corporation have tied up with Citi bank

to launch Indian Oil Citibank card.  With this card one does not require to pay a transaction fee

for purchasing petrol at any Indian Oil outlet. The card holder gets a 5% discount on all AMCO

and Exide make batteries from authorized dealers and Rs1,000 off at select outlets for MRF auto

coat car painting charges.

There is also the Times card and Bharat Petroleum BOB card. These cards give you discounts at

several outlets. For example the Mahindra Stan chart card gives you priority check-in and check-

out facilities at Guest line hotels (run by Mahindras).

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DIFFERENT TYPES OF CREDIT CARDS BY DIFFERENT BANKS

As the undisputed leader in the Cards business, Citibank has more than 70 million card

member accounts worldwide. Growth has continued through the acquisition of the AT&T

Universal Card Services business, introduction of the Driver's Edge and Sony Citibank

cards, and expansion of the Citibank-American Airlines partnership. The merger adds

more than one million credit card accounts, principally with members of professional

associations and other affinity groups, including Salomon Smith Barney clients.

The Citibank Advantage card, now in 25 countries, is the most successful co-branded

card in the industry.

Citibank has 25 million cards, including affiliates, in force in Latin America, Asia,

Central and Eastern Europe, and the Middle East. In most of these markets we have

double-digit share: 43 percent in Puerto Rico, 11 percent in Argentina and Chile, and

more than 20 percent in Hong Kong and Taiwan. In Poland, where Citibank launched a

card in late 1997, we have 20,0000 card holders today.

In the United States, Citibank is strongly committed to maintaining Cards as one of the

great success stories of the bank. Acquisition of the AT&T Universal Card increased our

market share of total U.S. card receivables from 11 percent to 15 percent.

35

CITIBANK CREDIT CARDS

DINERS CLUB CREDIT CARD

Diners Club was the first card in the Indian market. Launched in 1960, just after 10

years it was launched in the market of United States. It was the firs charge card in the

world. The early eighties saw the launch of credit cards in India by some Indian banks,

viz. Central bank, Andhra bank et. , with Visa and Master Card affiliations. The size of

the credit card market was around 300,000 in 1990. Credit Card was a status symbol for

upscale individuals who had high travel and entertainment needs. More than 40,000-

business establishments in the country now accept credit cards. The total credit they

provided in 2004- 05 was Rs. 80000 crore.

FEATURES OF THE CARD

Your lifestyle demands complete financial flexibility and convenience. Unlike other Card,

the Diners Club Card does not restrict you with a pre-set spending limit. At Diners Club,

you’re spending and payment patters and personal resources determine how much you

can charge. So, over time, you set your own limit.

Club Assurance

As a Diners Club Member, you are insured against loss of life in an air accident for

Rs.30 laky, or Rs.2 laky in any other accident. This insurance is available to you,

wherever you are in the world.

Club Protection

Household Insurance this cover protects household articles (excluding jeweler and

valuables) for a value of upto Rs. 1,00,and 000/- per annum. This insurance is on first

loss basis that insures articles for the entire sum insured.

Baggage Insurance

Baggage Insurance protects your baggage against theft or loss for upto Rs. 40,000/- in

India and upto Rs. 60,000/- while traveling abroad.

36

Delayed Baggage

If your baggage is not delivered within 12 hours of arrival of a flight, you will be

reimbursed for purchase of essential clothing of upto Rs.5,000/- in India and Rs.

10,000/- when abroad.

Delayed Flight

If you miss an onward flight due to late arrival of an incoming flight, and if there is no

alternative flight within 6 hours (of actual arrival time) or the airline do not provide

accommodation, you will be entitled to Rs.15,000 reimbursement for hotel

accommodation.

Loss of Passport/Ticket

If you lose your passport in a foreign country, you can claim upto Rs.25,000/- towards

the cost of obtaining a fresh Passport. If you lose your air tickets you will be reimbursed

for it upto Rs.5,000/-

Purchase Protection

Under International Purchase Protection, purchases on your card are insured against

loss or damage due to fire or theft, for a period of 180 days, from the time of purchase

up to a value of Rs. 50,000/-

Club Rewards - with Fast Track option

With Diners Club Card, you also get the most powerful rewards program in the country.

For every Rs.100 spent on the Diners Club Card, you earn one Club

Rewards Point. You can redeem the Rewards Points you have earned for fabulous

travel packages and delightful gifts. Moreover, these Points are 'evergreen', which

means you can encash them whenever you want.

Besides Diners Club has tied up with Flying Returns, India's No.1 frequent flyer program

from Indian Airlines and Air India. Which means you can now redeem your Points for

free miles!

37

Finally, your Club Rewards Points can also be converted to Oberoi Top Points and

Welcome Award Stars - the rewards programs of the Oberoi Group and Welcome group

respectively.

Club Perks

Club Perks is a unique promotional offer exclusively for Diners Club Members. Club

Perks gives you special discounts at your favorite restaurants, hotels, car rentals and

retails across the country. It also gives you complimentary into some of the most

prestigious discotheques in the country. All you have to do is charge your bill to your

Diners Club Card every time you visit any of these places.

Club Lounges

Relax between flights.

You can now relax in plush airport lounges, designed exclusively for Diners Club

Members. There are more than 74 such lounges located at various international

airports. In India, you have complimentary access to airport lounges located at the

domestic departure areas in Mumbai, New Delhi, Chennai and Bangalore.

Club Cash

The Diners Club Card gives you the convenience of drawing cash in an emergency, 24

hours a day, 7 days a week! You can access up to Rs.20,000 through Club Cash

through our extensive network of Automated Teller Machines.

Club Privileges-Phone Home, Global One Calling Card

Finally, Diners Club offers you an exclusive range of international privileges.

The GlobalOne Calling Card, the international calling card which enables you to call

from 60 countries to over 300 countries whenever you travel overseas, and pay later in

Indian Rupees through your Diners Club Card. This facility is available absolutely free.

Citibank international gold card

High Credit Limit

38

For someone as powerful as you, only the most powerful Card in the world will do - the

Citibank International Gold Card. A true reflection of your power, this Card gives you the

ultimate financial freedom in India and everywhere in the world. The best part is this

Card is yours at no additional cost, and comes with the advantage of spending in

International currencies and paying back in Indian Rupees!

Comprehensive Insurance Benefits *

PersonalAccidentInsuranceuptoRs.20lakh

Whether you are traveling in India or overseas, your Card comes with FREE Personal

Accident Insurance (uptoRs.20lakh)

Free House hold Insurance

This cover protects household articles (excluding jewelry and valuables) for a value of

up to Rs.75,000/- per year. This is valid for primary Card members only.

Free Baggage Insurance

This unique insurance protects your baggage against theft or loss for up to Rs. 40,000/-

in India and up to Rs. 60,000/- while traveling abroad.

Free Delayed Flight Insurance

If you miss an onward flight due to late arrival of an incoming flight, and if there is no

Alternative flight within 6 hours (of actual arrival time) or the Airlines does not provide

accommodation, you will be entitled to Rs.15,000/- as reimbursement for hotel

accommodation.

FreePassportLossInsurance

If you lose your passport in a foreign country, you can claim up to Rs.25,000/- towards

cost of obtaining a fresh passport. On loss of an air ticket, you will be reimbursed for up

toRs.5000/-.

FreeGlobalPurchaseProtection

Under International Purchase Protection, purchases on the Card are insured against

39

loss or damage due to fire or theft for a period of 180 days from the time of purchase for

a value of upto Rs. 40,000/-.

Unique reward program.

Every time you use your Card you earn Citibank Rewards Points that can be exchanged

for many exclusive privileges like Free Air Miles, free Hotel Nights, leather accessories

and much more. You can exchange your Citibank Rewards Points for miles on airline

frequent flyer programs and fly free to your dream destination and stay free at hotel

properties

participating in our Rewards Program. You can also choose to pay your Card Renewal

Fee (in part or full) using your Rewards Points as well. What's more, your Citibank

Rewards Points are evergreen and never lapse.

Revolving Credit Facility

With Citibank's powerful Revolving Credit Facility you can choose to buy high-value

items now and pay later in parts. And pay as little as 5% of your total outstanding every

month.

Free GlobalOne Calling Card

The next time you make an international call from overseas, you do not need to use

precious foreign exchange or hunt for loose change. The Global One Calling Card

makes international calling absolutely easy. The Global one Calling Card charges will

be conveniently billed later to your Citibank International Gold Card and itemized call

details will appear on your monthly statement.

Special Discounts on Travel

India's leading travel management company Travel House (a member of the ITC Group)

brings you 3.5% off on basic domestic air fares and 7% off on basic International air

fares

when you buy tickets on your Citibank International Gold Card. In fact your tickets will

be delivered to you at no extra cost.

40

Free Phone Home facility

In case of an emergency or for any urgent clarification on your Card, while you are

overseas, you can use FREE Phone Home Facility.

24- hour ATMs

While travelling overseas you can access cash (up to 60%**** of your Credit Limit) at

over 12,50,000 Visa/MasterCard ATMs across the globe. There are 24-Hour ATMs in

Ahmedabad, Bangalore, Calcutta, Chennai, Delhi, Hyderabad, Mumbai and Pune too.

You can also draw cash from any Citibank branch.

24- hour CitiPhone

CitiPhone, the revolutionary phone banking service ensures that Citibank is just a phone

call away from you. From the minute you dial in, the world-class Interactive Voice

Response (IVR) Service will guide you right through. Call our courteous CitiPhone

Officers standing by to assist you. 24 hours a day, and 7 days a week.

Worldwide Assistance

The Visa/MasterCard Global Assistance Services can be used for reporting lost or

stolen Cards, requesting for an emergency Card replacement or for emergency Cash

Advances. A wide range of miscellaneous information is also available for your benefit.

Additional Card

You can share the power of your Citibank International Gold Card with your family. Your

Citibank International Gold Card Membership entitles you to Additional Cards for two

members of your family, over 18 years of age, at a special price of Rs.1000/- p.a. per

Card.

Citibank silver card.

Exciting gifts with Citibank Rewards

Every time you use your Card, you earn valuable Citibank Rewards Points that can be

exchanged for fabulous gifts. Choose from a wide range of gifts - cosmetics to cameras,

41

CDs to wallets. You can also exchange your Citibank Rewards Points to pay your Card

Renewal Fee (in part or full). What's more your Citibank Rewards Points are evergreen

and never lapse.

COMPETITION IN CREDIT CARD BUSINESS

With the emergence of plastic money (credit cards) as a social security tool and the

modest way to come under transactions with time saving the customers are widely

looking and accepting credit cards for their transactions. No doubt due to several

advantages of it, is gaining its market and competency. Due to wide acceptance in the

market every institution in financial market whether it public sector or private sector

42

institution are engaged in this discipline with better customer focused strategy to

capture the untapped market soon.

Banks like ICICI, HDFC, CITI BANK, SBI, PNBwith the multinational banks like HSBC,

IDBI and STANDARD CHARTERED are engaged and competing for the market

capitalization. Every banking company is ready to serve with better schemes, rates,

terms and conditions which can suit the customers’ requirements.

To be an active player of the financial market every institution is issuing

several types of cards like the life time free cards with extended date to pay the amount

back to the banks. They have good strategies and workforce with many reputed direct

sales associates and direct sales teams to fetch good sales and to win the consumers

faith. The government of India is also taking initiative to protect the consumer rights in

this credit cards division.

So this market is now a days a global market which is gaining its growth like anything.

INTRODUCTION OF ICICI BANK

1995: The Industrial Credit and

Investment Corporation of India

Limited (ICICI) incorporated at the

initiative of the World Bank, the Government of India and representatives of Indian

industry, with the objective of creating a development financial institution for providing

43

medium-term and long-term project financing to Indian businesses. Mr. A. Ramaswami

Mudaliar elected as the first Chairman of ICICI Limited. ICICI emerges as the major

source of foreign currency loans to Indian industry. Besides funding from the World

Bank and other multi-lateral agencies, ICICI also among the first Indian companies to

raise funds from International markets. 1956: ICICI declared its first Dividend at 3.5%.

1958: Mr. G. L. Mehta was appointed the 2nd Chairman of ICICI Ltd. 1960: ICICI

building at 163, Backbay Reclamation was inaugurated. 1961: The first West German

loan of DM 5 million from Kredianstalt was obtained by ICICI. 1967 : ICICI made its first

debenture issue for Rs.6 crore, which was oversubscribed. 1969 : First two regional

offices in Calcutta and Madras were opened. 1972 : Second entity in India to set-up

merchant banking services. : Mr. H. T. Parekh appointed as the third Chairman of ICICI.

1977: ICICI sponsors the formation of Housing Development Finance Corporation.

Managed its first equity public issue 1978: Mr. James Raj appointed as the fourth

Chairman of ICICI. 1979: Mr. Siddharth Mehta appointed as the fifth Chairman of ICICI.

1982: Becomes the first ever Indian borrower to raise European Currency Units. : ICICI

commences leasing business. 1984 : Mr. S. Nadkarni appointed as the sixth Chairman

of ICICI. 1985 : Mr.N.Vaghul appointed as the seventh Chairman and Managing

Director of ICICI. 1986 : ICICI first Indian Institution to receive ADB Loans. First public

issue by an Indian entity in the Swiss Capital Markets. : ICICI along with UTI sets up

Credit Rating Information Services of India Limited, (CRISIL) India's first professional

credit rating agency. : ICICI promotes Shipping Credit and Investment Company of India

Limited. (SCICI) : The Corporation made a public issue of Swiss Franc 75 million in

Switzerland, the first public issue by any Indian equity in the Swiss Capital Market. 1987

: ICICI signed a loan agreement for Sterling Pound 10 million with Commonwealth

Development Corporation (CDC), the first loan by CDC for financing projects in India.

1988 : ICICI promotes TDICI - India's first venture capital company. 1993 : ICICI sets-up

ICICI Securities and Finance Company Limited in joint venture with J. P. Morgan. :

ICICI sets up ICICI Asset Management Company. 1994 : ICICI sets up ICICI Bank.

1996 : ICICI becomes the first company in the Indian financial sector to raise GDR. :

ICICI announces merger with SCICI. 1997 : ICICI was the first intermediary to move

away from single prime rate to three-tier prime rates structure and introduced yield-

44

curve based pricing. : The name "The Industrial Credit and Investment Corporation of

India Limited " was changed to "ICICI Limited". : ICICI announces takeover of ITC

Classic Finance. 1998+ : Introduced the new logo symbolizing a common corporate

identity for the ICICI Group. : ICICI announces takeover of Anagram Finance. 1999 :

ICICI launches retail finance - car loans, house loans and loans for consumer durables.

: ICICI becomes the first Indian Company to list on the NYSE through an issue of

American Depositary Shares. 2000: ICICI Bank becomes the first commercial bank

from India to list its stock on NYSE. : ICICI Bank announces merger with Bank of

Madura. 2001: The Boards of ICICI Ltd and ICICI Bank approved the merger of ICICI

with ICICI Bank. 2002 : Moodys' assign higher than sovereign rating to ICICI. : Merger

of ICICI Limited, ICICI Capital Services Ltd and ICICI Personal Financial Services

Limited with ICICI Bank.

OVERVIEW

ICICI Bank is India's second-largest bank with total assets of about Rs.146,214 crore at

December 31, 2004 and profit after tax of Rs. 1,391 crore in the nine months ended

December 31, 2004 (Rs. 1,637 crore in fiscal 2004). ICICI Bank has a network of about

505 branches and extension counters and about 1,850 ATMs. 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 specialised subsidiaries and

affiliates in the areas of investment banking, life and non-life insurance, venture capital

and asset management. ICICI Bank set up its international banking group in fiscal 2002

to cater to the cross-border needs of clients and leverage on its domestic banking

strengths to offer products internationally. ICICI Bank currently has subsidiaries in the

United Kingdom and Canada, branches in Singapore and Bahrain and representative

offices in the United States, China, United Arab Emirates and Bangladesh.

ICICI Bank's equity shares are listed in India on the Stock Exchange, Mumbai and the

National Stock Exchange of India Limited and its American Depositary Receipts (ADRs)

are listed on the New York Stock Exchange (NYSE).

As required by the stock exchanges, ICICI Bank has formulated a Code of Business

Conduct and Ethics for its directors and employees.

45

At October 31, 2004, ICICI Bank, with free float market capitalization* of about Rs.

220.00 billion (US$ 5.00 billion) ranked third amongst all the companies listed on

the Indian stock exchanges.

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial

institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was

reduced to 46% through a public offering of shares in India in fiscal 1998, an equity

offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition

of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary

market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was

formed in 1955 at the initiative of the World Bank, the Government of India and

representatives of Indian industry. The principal objective was to create a development

financial institution for providing medium-term and long-term project financing to Indian

businesses. In the 1990s, ICICI transformed its business from a development financial

institution offering only project finance to a diversified financial services group offering a

wide variety of products and services, both directly and through a number of

subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian

company and the first bank or financial institution from non-Japan Asia to be listed on

the NYSE.

After consideration of various corporate structuring alternatives in the context of the

emerging competitive scenario in the Indian banking industry, and the move towards

universal banking, the managements of ICICI and ICICI Bank formed the view that the

merger of ICICI with ICICI Bank would be the optimal strategic alternative for both

entities, and would create the optimal legal structure for the ICICI group's universal

banking strategy. The merger would enhance value for ICICI shareholders through the

merged entity's access to low-cost deposits, greater opportunities for earning fee-based

income and the ability to participate in the payments system and provide transaction-

banking services. The merger would enhance value for ICICI Bank shareholders

through a large capital base and scale of operations, seamless access to ICICI's strong

corporate relationships built up over five decades, entry into new business segments,

higher market share in various business segments, particularly fee-based services, and

access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards

46

of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-

owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI

Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of

ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in

March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of

India in April 2002. Consequent to the merger, the ICICI group's financing and banking

operations, both wholesale and retail, have been integrated in a single entity.

*Free float holding excludes all promoter holdings, strategic investments and cross

holdings among public sector entities.

SOCIAL INITIATIVES

Bring together participants in the development process to widen and deepen the

discourse informing development practice. Interactive features include discussion

boards and facilities to post papers, articles or other resources.

Publish research related to innovations and significant problems within the identified

thematic areas.

Enable online application for funding.

Address for Correspondence:

Social Initiatives Group

ICICI Bank Towers

ICICI Bank Ltd

Bandra Kurla Complex

Mumbai 400 051

Phone no:+91 22 2653 1414

Fax no:+91 22 2653 1164

47

Major area of social initlatives Mission Statement

Strategy

Focus Areas

Related Interests

ICICI Bank and the Social Sector

Publications

1. Aneesa Arur and Shilpa Deshpande (2002), Infant Health at Birth, Working Paper

Series, ICICIsocialinitiatives.org.

2. Tara Beteille (2002), Elementary Education in India, Working Paper Series,

ICICIsocialinitiatives.org.

http://203.199.32.111/icicisig/Microfinance/upload/MFS DI2(2).doc 3. Bikram Duggal,

Bindu Ananth and Kartikeya Saboo (2002), Micro Finance: Building the Capacities of

the Poor to Participate in the Larger Economy, icicisocialinitiatives.org

Abstract: This paper traces the relationships between the provision of financial services

to the poor and their ability to participate in the larger economy. Poor households

progress from a stage of securing themselves from the day-to-day risks they face to

establishing and enhancing their livelihoods. The paper outlines the role of micro-

financial services in enabling mobility along this continuum.

4. Amit Singhal and Bikram Duggal (2002), Extending Banking to the Poor in India,

icicisocialinitiatives.org

Abstract: The paper articulates the key issues in extending banking to the rural and

poor populations in the country and provides recommendations for the Reserve Bank of

India and the Government of India in order to resolve some of the issues.In the paper,

banking has been viewed as consisting of two elements: cash management and

48

management of databases. Given this perspective, the paper highlights some of the

regulatory issues that impede the progress of banking along the lines suggested.

5. Bindu Ananth and Soju Annie George (2003), Scaling up Micro Financial Services:

An Overview of Challenges and Opportunities, icicisocialinitiatives.org

Abstract:This paper attempts to examine specific issues in the delivery of micro

financial services and outlines some new approaches towards scaling up. Section I

reiterates the crucial role of micro finance in reducing vulnerability and enhancing the

prospects of growth for poor households. Section II examines the broad challenges in

micro finance; Section III provides an overview of the various micro financial services

(insurance, savings and investment, credit and other risk management instruments).

Section IV examines the issues specific to Micro Finance Institutions (MFI) in India and

Section V concludes the paper by identifying the key areas for further research and

debate.

6. Bindu Ananth (2002), Emerging Perspectives in Corporate Social Responsibility,

ICICIsocialinitiatives.org.

Mission Statement

The mission statement of the SIG is "to identify and support initiatives designed to

improve the capacities of the poorest of the poor to participate in the larger economy".

The SIG believes that the three fundamental capacities any individual should possess to

be able to participate in the larger economy are in the areas of health, education and

access to basic financial services. Within these broad areas, infant health at birth,

elementary education and micro financial services define the areas in which the SIG’s

work focuses.

Strategy

At a very basic level, the programmes and projects supported by the SIG are required to

cater to the poorest. They should enable them to become active and informed

49

participants in socio-economic processes as opposed to passive observers. These

initiatives must be output oriented, with a focus on producing measurable outcomes that

meet a minimum quality requirement. The initiatives also need to be cost-effective. This

is in recognition of the fact that resources are limited and their efficient use is imperative

if the maximum number is to benefit. Cost-effectiveness also facilitates the adoption of

the initiative in other contexts.

The initiative must be scalable. Scalability implies the ability to draw upon important

elements of a programme and adapt them to suit the needs of a specific situation. It

should be possible to do so at a national level. Even if the programme itself is not

directly scaleable, it should be possible to take away significant lessons from it in order

to enrich work in other settings.

All supported initiatives should have the potential for both near and long-term impact.

Consequentially, it is important that the impact of these programmes, in the near and

long term, be carefully understood and analyzed in a rigorous manner and not through

anecdotes. It is critical to clearly understand how an initiative is performing in terms of

its predetermined goals and in comparison to alternatives. There is little doubt that a

complex of factors, very often beyond the control of the programme/ organization, will

influence the outcome. Yet, serious and regular impact analysis can only make the

programme richer and is essential. The SIG assigns greater value to programmes/

organizations that carefully examine the short-term and long-term implications of their

actions.

In pursuit of its goals in the three focus areas, the SIG tends to support reasonably

large-sized initiatives so that issues such as cost-effectiveness, scalability and impact

assessment can be dealt with more directly. These initiatives not only have the potential

to provide key research inputs to other programmes, but also tend to have a large

impact that benefits the communities they work with. The approach of the SIG may thus

be characterized more broadly as ‘action research’, to distinguish it from pure academic

research. However, in its research work and impact assessment, the SIG seeks to

adhere to the highest standards of academic rigour. It often works in partnership with

academic institutions such as Institute of Rural Management Anand, KEM,

50

Massachusetts Institute of Technology, Tata Institute of Social Sciences, University of

California, Berkeley and the University of Southampton.

It is crucial that the programmes supported by SIG be time-bound. This lends clarity to

the aim of the programme and prevents its intent from getting diluted over time.

The SIG works by identifying gaps in knowledge and practice in its focus areas and

locating initiatives that address these gaps in a manner consistent with the SIG’s

mission. The identification of research needs is followed by an in-depth analysis of the

short-term and long-term implications of various forms of action. Among other things,

this requires taking a comprehensive overview of work already done in the country and

outside. The SIG, thus, seeks to answer certain fundamental questions in its focus

areas through the projects it supports and, thereby, contribute to findings that help the

sector. It should be pointed out that the SIG does not function as a rollout agency.

An important feature of the SIG’s strategy is the belief in strengthening or

supplementing existing systems, rather than investing in parallel structures. Another key

element of its strategy is the building of long-term relationships with suitable partners.

As part of this effort, the SIG works actively to improve the efficacy of these partners

and ensure sustained impact.

In pursuit of its goals, the SIG seeks to work actively with research agencies, Non-

Governmental Organisations (NGOs), Corporates, Government departments, local

stakeholders and international organisations. It should also be noted that the group

believes modern technologies, particularly Information and Communication

Technologies (ICT) can prove to be important facilitators if used appropriately.

The SIG also seeks to disseminate its findings and that of others in the field to a broad

spectrum of participants using a variety of media, such as print and the Internet. It also

encourages its team members to develop independent points of view in their own focus

areas, and supports the publication of this work. The most recently published papers by

the team members are listed below.

1. Aneesa Arur and Shilpa Desphande (2002), Infant Health at Birth, Working Paper

Series, ICICIsocialinitiatives.org.

51

2. Tara Beteille (2002), Elementary Education in India, Working Paper Series,

ICICIsocialinitiatives.org.

3. Bikram Duggal, Bindu Ananth and Kartikeya Saboo (2002), Micro-Finance: Building

the Capacities of the Poor to Participate in the Larger Economy,

ICICIsocialinitiatives.org.

4. Bindu Ananth (2002), Emerging Perspectives in Corporate Social Responsibility,

ICICIsocialinitiatives.org.

5. Amit Singhal and Bikram Duggal (2002), Extending Banking to the Poor in India,

ICICIsocialinitiatives.org.

Focus Areas

The SIG has three focus areas:

Early Child Health

Elementary Education

Micro Financial Services

Health: Early Child Health

(Maximising the proportion of healthy three year olds)

This focus seems to have the potential for maximum long and short-term impact and

appears achievable in the most cost-effective and therefore scaleable manner.

ICICI Bank aims to improve individual capacity by impacting two important indicators

of chronic undernutrition in the first three years at the national level:

Proportion of babies born with a birth weight of less than 2.5 kg at or beyond 37

weeks of gestation (Intra-Uterine Growth retardation, IUGR)

Proportion of children under three years who are stunted.

52

53

ICICI BANK CREDIT CARDS

BANDHAN

A major first for India, the Pre-set Limits facility allows you to empower your family with

the flexibility and convenience of a credit card with the option of controlling the spend

levels.

You can pre-set their monthly spending limits and any transactions over this specified

Spend Limit will be declined.

That's not all. You can change this limit whenever you need to increase or decrease the

limit. Simply call the ICICI 24-hour Customer Call Center and place your request with

the Call Center Executive. This monthly spending limit can be reset every billing cycle..

Now you can freely present* your wife, your sister, your brother , your parents or

children above 18 years of age, with "Bandhan", the unique Add-on Card from ICICI

Bank.

BALANCE TRANSFER FACILITY

If you own credit cards issued by other banks and wish to apply for a Sterling

Silver/Solid Gold ICICI Bank Credit Card, becoming a part of the ICICI family is not just

easy but also very attractive.

You can transfer the outstanding on your other card(s) on to the ICICI Bank Credit Card

and this transferred outstanding will attract an interest rate of just 1.75% for the Sterling

Silver Card and 1.50% in case of a Solid Gold Card. And what’s more, this beneficial

rate of interest is applicable for a full 6 months of your becoming a part of the ICICI

Bank family.

This special interest rate will not be applicable for new purchases. You can transfer any

amount from a minimum of Rs.2, 000 to a maximum 75% of the available credit limit on

your ICICI Bank Credit Card.

54

INSURANCE BENEFITS ON AN ICICI BANK CREDIT CARD

Life is unpredictable and we at ICICI Bank understand your concern for your family.

Insurance is by far the best way to safeguard the interests of your family. And therefore

in addition to any insurance cover you already have, ICICI Bank offers you the most

comprehensive insurance related benefits.

Of course, we offer you accident insurance, but in addition we offer you medical

insurance, credit shield, purchase protection, baggage insurance and household

insurance.

EARN WHILE YOU SPEND- ICICI Plus - REWARDS PROGRAM

A special bonus plan that allows you to earn points every time you use your Card. Every

Rs. 100 that you spend earns you a reward point. In effect a spend of Rs 2500 on your

card will amount to 25 reward points which is equivalent to a value of Rs. 25 given back

to you.

First time usage Bonus

As a very special offer, for the first time that you use your ICICI Bank Credit Card, we

will credit your rewards account with 25 bonus points.

Accelerator points

When your spends in any billing cycle exceed Rs.5000, you earn an additional 10%

points over and above the normal reward points.

Redemption

To begin redeeming your reward points, you need to have a minimum of 150 points.

The redemption of reward points will be done annually, first against your renewal fees.

Thus for example, an annual spend of Rs. 30,000 on a True Blue Card ensures that the

renewal fee for the next year is less by Rs 300.

Unused points will be credited to your card account in blocks of 25 points.

55

Reward points are awarded for all types of transactions, except fee, (joining, annual,

renewal) balance transfers and service charge transactions.

SELF SET LIMIT

The ICICI Bank Card ensures that you are in charge at all times. This is the only card

that allows you to pre-define your own credit limits

You can actually request for a limit lower than what your are eligible for and your Card

gives you the choice of deciding the limit that you wish to enjoy.

Simply call our Call Center Executive and make your request. Your credit limit can be

changed on-line and will come in to force from the next billing cycle.

This incredibly powerful feature has been developed keeping your needs in mind, and it

helps you manage your finances prudently, without compromising on your needs.

WIDE ACCEPTANCE

Your ICICI Bank Credit Card is affiliated to VISA and is welcomed at all Visa Merchant

Establishments (Look for the VISA logo 1,10,000 establishments across India and

Nepal). The Sterling Silver and Solid Gold Card are accepted globally by over 18 million

VISA card - accepting establishments worldwide.

You now have the flexibility of using your Card to pay for everyday purchases on one

hand and large value purchases on the other.

24- HOUR CUSTOMER CARE

We understand your needs and appreciate that you may need assistance around the

clock. For your convenience, we have set-up the ICICI 24-hour Customer Call Center

This is equipped with a state-of-the-art system that ensures that your queries get

handled efficiently and promptly

56

CASH ADVANCE FACILITY

With An ICICI Bank Card in your wallet, you will never be strapped for cash. You can

withdraw cash on your Card, 24-hours a day, from any Visa participating member bank

ATM.

During banking hours you can also withdraw cash, over-the-counter, from any ICICI

Bank branch across the country.

For your protection we have limited the maximum withdrawal to Rs.15,000 in a single

day. Transaction charges as applicable will be charged.

DIAL-A-DRAFT

It is now possible to order a draft from the convenience of your home. Simply call the

ICICI 24-hour Customer Call Center and ask for a draft, payable anywhere in India and

favouring any company or individual (you can order a draft up to the available limit cash

limit on your account). The draft will be delivered to your mailing address.

For each draft request, a transaction fee of 1.0% of the amount withdrawn, subject to a

minimum of Rs.50, will be levied. However, for the Gold Credit Card-Members, no

transaction fee will be levied. In addition to the transaction fee, a service charge will also

be levied from the date of transaction to the date of repayment. The amount of the draft

will be billed in your monthly credit Card statement. And with the revolving credit facility

you can choose to pay as little as 5% of the billing amount

57

TRUE BLUE

-India's first value for money card.

-Web based access to get details about your statements, payment status and requests.

-24 Hour Customer Call Center and access to all VISA approved ATMs.

- Fees for the credit card is free for Whole life

-Dial-A-Draft at 1% fee. Accepted across 1,10,000 merchant establishments in India

and Nepal.

-Accident Insurance of upto Rs 10 Lakhs. Purchase Protection of Rs. 10,000 Credit

Shield of Rs. 10,000.

-Earn while you spend - ICICI Plus - Reward Program.

-Airlines and Railway Bookings.

-Accepted at selected petrol stations.

STERLING SILVER CARD

-Free add-on Card Web based access to get details about your statements, payment

status and requests.

-24 Hour Customer Call Center and access to all VISA approved ATMs.

-Comprehensive Insurance for both Primary and add-on cards Dial-A-Draft at 1% fee.

58

-Balance Transfer at 1.75% Comprehensive Travel Benefits Purchase protection of Rs.

40,000 ---Credit Shield of Rs. 35,000 Earn while you spend - ICICI Plus - Reward

Program.

-Bandhan, Add on Card with self set limits.

-India's first value for money card. Accepted across 1,10,000 merchant establishments

in India and Nepal. Accident Insurance of upto Rs 6 Lakhs.

-Airlines and Railway Bookings. Accepted at selected petrol stations.

SOLID GOLD CARD

-International validity at over 18 million merchant establishments globally.

-Lowest annual fee of Rs. 1200 Web based access to get details about your statements,

payment status and requests.

-24 Hour Customer Call Center and access to all VISA approved ATMs.

-Dial-A-Draft free. Balance Transfer facility at 1.5% Zero lost card liability.

-Complimentary Global One Calling Card. Access to Global Customer Assistance

Services.

-Purchase Protection of Rs. 40,000.

-Credit Shield of Rs.50,000. Comprehensive Travel benefits.

-Bandhan, Add on Card with self set limits. Comprehensive Insurance for both Primary

and add-on cards.

-Airlines and Railway Bookings. Accepted at selected petrol stations. Household and

baggage -Insurance. Earn while you spend - ICICI Plus - Reward Program.

-Personal accident, household and baggage insurance.

59

EMERGENCY ASSISTANCE SERVICES

The multilingual VISA Emergency Assistance Services program offers worldwide

emergency referral assistance to VISA Gold Cardholders. These include a wide range

of legal, medical and other services. VISA Emergency Assistance Services are

available to you placing a call to the Emergency assistance Centres in Singapore : 1-

800-345-1345, UK : 0800-89-1725, USA : 1-800-336-8472 and Australia : 1-800-

805341.

Emergency Message Service

You can call toll free or collect on the 24-hour telephone service and leave messages

that will be forwarded in the shortest possible time.

Medical Assistance

In medical emergencies, you get assistance and referral services, emergency

transportation assistance to a hospital, repatriation to your country of residence and

assistance in case you need a prescription filled or a lost prescription replaced.

Legal Assistance

For legal emergencies, VISA will refer you to local legal advisors.

Travel Assistance

The Visa Emergency assistance Centre can arrange for booking emergency tickets and

also assist you with lost ticket reimbursement procedures. In case your luggage is lost

while travelling, the VISA Emergency Assistance Centre can arrange for the shipment of

replacement items and obtain any applicable insurance.

60

Translation Service

You get foreign language assistance services in all major foreign languages over the

telephone, and assistance in locating local interpreters.

Payment for Visa Emergency Services

All expenses for services rendered under the VISA Emergency Assistance programmes

if applicable will have to be borne by the Cardholder.

All services provided are subject to Terms & Conditions of the VISA Emergency

Assistance Services program.

61

PROFILE OF H.D.F.C

H.D.F.C was set up on 17th October, 1977 by I.C.I.C.I. out of the consideration that a

specialised institution was needed to channel household savings as well as funds from

the capital market into the housing sector. H.D.F.C. has emerged as the largest

mortgage finance institution in the country. The primary objective of H.D.F.C is to

enhance residential housing stock and promote home ownership. One of its major

objectives is to increase flow of resources for housing through the integration of housing

financial institutions with the domestic market.

Marketing effort

Marketing efforts and initiatives at HDFC LTD have always revolved around the

customer. The objective is to reach out to the customer and provide him/her with all

housing related solutions. Thus HDFC LTD has right since inception positioned it self

not just as a company providing finance to customers, but a company that also provides

loan counselling, technical and legal assistance and other property related solutions.

Credit appraisal skill and legal and technical expertise has been built over the years.

These set of skills, supplemented with the vast database and trained personnel is today

proving to be one of HDFC LTD’ strongest assets.

Approvals and Disbursements

Total approvals during the year stood at Rs.9, 041.25 crores as against Rs.6879.77

crores in the previous year, representing a growth of 31%. Loan disbursements during

the year were Rs.7, 616.56 crores against Rs.5, 803.01 crores in the previous year

representing a growth of 31%.

62

Subsidiaries and Associates

Housing is the core business of HDFC LTD. while the main focus is to grow the housing

portfolio, organically and inorganically, in order to capitalise on HDFC strong brand

value and maximise returns for shareholders, HDFC LTD has made investments in

various group companies. These group companies have strong synergies with HDFC

LTD and such diversification will enable HDFC LTD to offer a wide gamut of financial

services and products to customers. Investments made in the group companies are

from borrowed funds, where there is an interest charge debited to the profit and loss

account, with out a corresponding revenue flow in the initial years. While these

investments are long-term in nature, the businesses have tremendous potential, thereby

enhancing the valuations of HDFC. The shareholding of HDFC in its subsidiary and

associate companies as at March 31, 2003: are given:- HDFC Developers Limited,

HDFC Investments Limited, HDFC Holdings Limited, HDFC Trustee Company Limited,

HDFC Chubb General Insurance Company Limited, HDFC Realty Limited, HDFC Asset

Management Company Limited, GRUH Finance Limited, Intelenet Global Services

Limited, Credit Information Bureau(India) Limited, HDFC Securities Limited, HDFC Bank

Limited.

Risk Management

HDFC manages various risks associated with the mortgage business. These risks

include credit risk, liquidity risk and interest rate risk. HDFC manages credit risk through

stringent credit norms. Liquidity risk and interest rate risks arising out of maturity

mismatch of assets and liabilities are managed through regular monitoring of the

maturity profiles.

PRUDENTIAL NORMS FOR HOUSING FINANCE COMPANIES(HFC's)

The NHB has issued guidelines to HFC's on prudential norms for income recognition

provisioning, asset classification, provision for Bad and Doubtful, Capital adequacy and

63

concentration of credit / investment. HDFC's position with respect to the guidelines is as

follows:-

HDFC's capital for the purpose of determine the capital adequacy companies

entirely of Tier 1 Capital. The Tier was Rs. 2,066.71 Crores. In accordance with

the norms prescribed by NHB, HDFC's capital adequacy is at 14.05% of risk

weighted assets.

Assets are classified as standard, Sub-Standard, doubtful and loss assets. Any

asset which is not standard asset is a non-performing asset. The principal loans

outstanding(along with Preference Shares and Debentures for financial real

estate projects) , where payments were in arrears for over six months as of

march 31,2000,amounted to Rs. 98.71crores and constituted 0.90% of the

portfolio.

HDFC is in compliance with the limits prescribed by NHB in respect of

concentration of credit/investment.

64

HDFC CREDIT CARDS

INTERNATIONAL GOLD CARDS

Introducing the HDFC Bank International Gold Credit Card,customized to suit your

conveniences and make your lifestyle a truly cherishable golden experience.

Find out all the features that are offered by this card:

Recognised the world over

- Cash Advance

- Revolving credit facility

- Interest Free Credit Period

- Comprehensive Insurance

- Travel Made Easy

- Global Travel Related Insurance

- International Business Travellers' Club (IBTC) Membership

- Exclusive Airport Lounge Facilities

- Lost Card Liability

- 24-Hour Customer Call Center

- Rewards Program

- Financial Tracker

- Utility Bill Payments Made Easy

- Balance transfer option

- Privilege Pricing

- Cards for your entire family

- Global Emergency Assistance services from VISA

65

INTERNATIONAL SILVER CARDS

The HDFC Bank International Silver Credit Card offers you the best features a card can

provide along with the conveniences offered by a bank. Be it low interest balance

transfer facility or comprehensive insurance cover, each of its features will help you

manage your finances better and leave you free to live a better life.

Choose which of these features* you would benefit from the most...

- Balance Transfer at a lower interest rate

- Hassle-free travel

- Utility bill payments made easy

- Repaying loyalty with interest

- Wide acceptance

- Cash at your fingertips

- Add-on Cards

- Save while you spend (Reward Points)

- Privileged Pricing on Loans

- Repayments made easy

- No liability on lost card

- Protecting you through insurance

The HDFC Bank Health Plus Credit Card is a feature rich credit with unique features

like:

1. Cashless Mediclaim

The card offers free mediclaim cover for Rs.50,000/- plus a critical illness cover of

Rs.1.5 lakhs. The critical illness cover includes open heart surgery & CABG, Cancer,

Kidney Failure and Vascular Stroke. With this cover you can avail cashless

66

mediclaim facility at any of the networked hospitals of the Third Party Administrator

(TPA) in any city.

2. Discounts at participating hospitals

With this card, the best of medical care would cost you less. Get fabulous discounts

on annual health check-ups, outpatient and inpatient investigations in the

participating hospitals in each city.

Top of Form

Bottom of Form

3. Preferred partners for a healthy life

HDFC Bank Health Plus Credit card offers unique discounts and offers from leading

health and fitness related brands

.

4. Give your family the extra protection

a) Add-on Float Cover

You have the option of extending the Rs.50,000 mediclaim plus a critical illness

cover Rs.1.5 lakhs cover to the add-on cardholders, be it your spouse, children,

brothers or sisters.Whats more, the add-on cardholders can avail the discounts at

participating hospitals as well as with preferred partners.

b) Purchase additional mediclaim

Provide extra cover for your family which includes your spouse, children, parents,

brothers or sisters by purchasing additional mediclaim at fabulous discounts of more

than 50%. Whats more, you can get tax break under Section 80 D of the Income Tax

Act.

c) Life Insurance Cover

67

To overcome the uncertainties of life you need to plan ahead and create a circle of

protection for your family. With the HDFC Bank Health Plus Credit card you can get

your life insurance cover from Birla Sun Life Insurance at exclusive premium rates.

1. Save while you spend (Reward Points)

Use your credit card and earn reward points. For every Rs.100 spent using your

credit card earn 1 reward point. You can redeem the reward points for house-

holder's insurance which includes, fire insurance, burglary insurance and breakdown

insurance or for exciting gifts. What's more - you can save the reward points upto 18

months.

2. Protecting through insurance

The HDFC Bank Health Plus Credit Card offers you the most comprehensive

insurance package at no additional cost. In case of death in an accident. If the

cardholder loses his life in an air accident, the nominated kin will receive a

compensation of Rs.10 lakhs. In the case of a rail or road accident the nominated kin

will receive a compensation of Rs.2 lakhs.

3. Balance Transfer at Lowest interest rates

Most cards charge interest at the rate of 2.95% per month. Transfer the same

balance to HDFC Bank's credit card and you will pay interest at the rate of only

1.65% per month. For existing customers of HDFC Bank, we offer a special rate of

1.45% per month for 6 months.

4. Utility Bill payments made easy

Pay your insurance premium, electricity / telephone / mobile bills using this service.

5. Hassle Free Travel**

Dreams of a quiet family vacation are often ruined by hassles of travel bookings.

Now with the HDFC Bank International Health Plus Credit Card, book your train and

air tickets from the comfort of your home or office.

68

a) Airline & train ticket bookings

Avail a 3.5% discount on domestic and 5.5% discount on international travel

as

also free home delivery on all your bookings as a valued HDFC Bank card

holder. Our tie-up with SITA Travels for booking of train tickets.

Add-on Cards

Get up to 2 supplementary cards for your spouse, parents, siblings (own brother/sister),

son and/or daughter (over 18 years) and allow them to enjoy the many benefits of a

HDFC Bank International Health Plus Credit Card.

10. Privilege Pricing on Loans

As a HDFC Bank International Health Plus Credit Card holder you get loans from the

bank at special rates.

The rate discount offered is as follows:

Loan Discount Offered

Auto Loans 0.5%

Personal Loans 1%

Car Loans 1%

Used Car Loans 1%

69

STANDARD CHARTERED BANK

A BRIEF HISTORY OF STANDARD CHARTERED

Standard Chartered is the world's

leading emerging markets bank

headquartered in London. Its

businesses however, have always been overwhelmingly international. This is summary

of the main events in the history of Standard Chartered and some of the organizations

with which it merged.

The early years

Standard Chartered is named after two banks which merged in 1969. They were

originally known as the Standard Bank of British South Africa and the Chartered Bank of

India, Australia and China. Of the two banks, the Chartered Bank is the older having

been founded in 1853 following the grant of a Royal Charter from Queen Victoria. The

moving force behind the Chartered Bank was a Scot, James Wilson, who made his

fortune in London making hats. James Wilson went on to start The Economist, still one

of the world's pre-eminent publications. Nine years later, in 1862, the Standard Bank

was founded by a group of businessmen led by another Scot, John Paterson, who had

emigrated to the Cape Province in South Africa and had become a successful

merchant. Both banks were keen to capitalize on the huge expansion of trade between

Europe, Asia and Africa and to reap the handsome profits to be made from financing

that trade. The Chartered Bank opened its first branches in 1858 in Chennai and

Mumbai. A branch opened in Shanghai that summer beginning Standard Chartered's

unbroken presence in China. The following year the Chartered Bank opened a branch in

Hong Kong and an agency was opened in Singapore. In 1861 the Singapore agency

was upgraded to a branch which helped provide finance for the rapidly developing

rubber and tin industries in Malaysia. In 1862 the Chartered Bank was authorized to

issue bank notes in Hong Kong. Subsequently it was also authorized to issue bank

notes in Singapore, a privilege it continued to exercise up until the end of the 19th

70

Century. Over the following decades both the Standard Bank and the Chartered Bank

printed bank notes in a variety of countries including China, South Africa, Zimbabwe,

Malaysia and even during the siege of Makeking in South Africa. Today Standard

Chartered is still one of the three banks which prints Hong Kong's bank notes

Expansion in Africa and Asia

The Standard Bank opened for business in Port Elizabeth, South Africa, in 1863. It

pursued a policy of expansion and soon amalgamated with several other banks

including the Commercial Bank of Port Elizabeth, the Colesberg Bank, the British

Kaffarian Bank and the Fauresmith Bank. The Standard Bank was prominent in the

financing and development of the diamond fields of Kimberly in 1867 and later extended

its network further north to the new town of Johannesburg when gold was discovered

there in 1885. Over time, half the output of the second largest goldfield in the world

passed through the Standard Bank on its way to London. In 1892 the Standard Bank

opened for business in Zimbabwe, and expanded into Mozambique in 1894, Botswana

in 1897, Malawi in 1901, Zambia in 1906, Kenya, Zanzibar and the Democratic Republic

of Congo (D.R.C.), in 1911 and Uganda in 1912. Of these new businesses, Botswana,

Zanzibar and the D.R.C. proved the most difficult and the branches soon closed. A

branch in Botswana opened again in 1934 but lasted for only a year and it was not until

1950 that the Bank re-opened for business in Botswana. In Asia the Chartered Bank

expanded opening offices including Myanmar in 1862, Pakistan and Indonesia in 1863,

the Philippines in 1872, Malaysia in 1875, Japan in 1880 and Thailand in 1894. Some

34 years after the Chartered Bank appointed an agent in Sri Lanka it opened a branch

in 1892 to take advantage of business from the tea and rubber industries. During 1904 a

branch opened in Vietnam. Both the Chartered and the Standard Bank opened offices

in New York and Hamburg in the early 1900s. The Chartered Bank gaining the first

branch licence to be issued to a foreign bank in New York.

Standard Chartered in the 1990s

Even within this period of apparent retrenchment Standard Chartered expanded its

network, re-opening in Vietnam in 1990, Cambodia and Iran in 1992, Tanzania in 1993

71

and Myanmar in 1995. With the opening of branches in Macau and Taiwan in 1983 and

1985 plus a representative office in Laos (1996), Standard Chartered now has an office

in every country in the Asia Pacific Region with the exception of North Korea. In 1998

Standard Chartered concluded the purchase of a controlling interest in Banco Exterior

de Los Andes (Extebandes), an Andean Region bank involved primarily in trade

finance. With this purchase Standard Chartered now offers full banking services in

Colombia, Peru and Venezuela. In 1999, Standard Chartered acquired the global trade

finance business of Union Bank of Switzerland. This acquisition makes Standard

Chartered one of the leading clearers of dollar payments in the USA. Standard

Chartered also opened a new subsidiary, Standard Chartered Nigeria Limited in Lagos,

acquired 75 per cent of the equity of Nakornthon Bank, Thailand; and agreed terms to

acquire 89 per cent of the share capital of Metropolitan Bank of the Lebanon.

Standard Chartered today

Today Standard Chartered is the world's leading emerging markets bank employing

30,000 people in over 500 offices in more than 50 countries primarily in countries in the

Asia Pacific Region, South Asia, the Middle East, Africa and the Americas.

The new millennium has brought with it two of the largest acquisitions in the history of

the bank with the purchase of Grindlays Bank from the ANZ Group and the acquisition

of the Chase Consumer Banking operations in Hong Kong in 2000.

These acquisitions demonstrate Standard Chartered firm committed to the emerging

markets, where we have a strong and established presence and where we see our

future growth.

72

STANDARD CHARTERED CREDIT CARDS.

THE NEW STANDARD CHARTERED VISA MINI

The Standard Chartered VISA Mini Cardholder may terminate the card service if he/she

does not accept any amendment to the Standard Chartered VISA Mini Cardholder

Agreement proposed / made by the Bank. The Standard Chartered VISA Mini Card will

be automatically terminated if the Standard Chartered VISA Mini Cardholder terminates

the card service in respect of his Card or the Principal Cardholder terminates the Credit

Card account with the Bank.

The Standard Chartered VISA Mini Cardholder shall strictly follow the operating

instructions issued by the bank from time to time regarding the use of Terminals and the

System. In particular, Standard Chartered VISA Mini Cardholders should note the

following :

Standard Chartered VISA Mini Cards cannot be used at ATM facilities and their

Terminals which require the Card to be inserted rather than swiped;

Standard Chartered VISA Mini Cards cannot be used at merchants requiring a manual

imprint of a card to complete a transaction.

CARD FEE DETAILS

  Primary Supplementary Multiple

Entrance fee NIL NIL NIL

Annual fee (Yr.

1)Rs.349 Rs.199 Rs.349

Renewal fee

(Yr. 2 onwards)Rs.499 Rs.199 Rs.349

73

CARD FEATURES:

• Balance Transfer Option

Transfer your outstanding balance from your other credit cards to the global Standard

Chartered credit card at only 1.75% p.m. instead of the 2.95% p.m. that you are

currently paying.

• Global Acceptance

The most widely accepted and respected credit card in over 19 million VISA and

MasterCard establishments worldwide over 1.1 lakh establishments in India and Nepal.

• Revolver Facility

Flexible payment option using revolving credit allowing you to pay just 5%of the

outstanding amount every month.

• Cash Advance Facility

Up to 30% of the credit limit. Withdraw cash from 6 lakh MasterCard ATMs worldwide

and 580 ATMs across 46 cities in India.

• Teledraft

Facilities with doorstep delivery.

• Picture Card

Put a picture that is close to your heart and make your card as unique as you want it to

be.

• Photo Card

Safest credit card

• Zero Lost Card Liability

Post reporting of the loss of the card to the Bank

• Credit Free Period - up to 52 days

• 24 hour Help lines at Mumbai, Chennai, Bangalore, New Delhi, Kolkata and

Hyderabad

• Conveniently placed cheque collection boxes for repayment across centers

74

• Supplementary Card for family.

• Multiple Card to segregate your personal and business expenses

Eligibility:

• For individuals, Minimum age limit: 21 years, Maximum is 60 years (salaried) and 65

years (self-employed)

• Issued to Indian Residents only

Income Criteria

Product (Salaried) Gross Income (Per

Annum) INR Rs.

(Self-employed) Gross Income (Per

Annum) INR Rs.

Gold 1,50,000 1,50,000

Executive 1,00,000 1,00,000

Classic 60,000 72,000

Sapnay 60,000 72,000

CARD FEES

The membership fees for the global card is

  Gold Executive Classic Sapnay

Entrance Fee 1000 300 100 Nil

Annual Fee (Yr1) 2000 1200 700 400

Renewal Fee (From Yr

2) 2000 1200 750 400

Annual Fee for each

supplementary card (no

entrance)

1000 500 350 250

Annual Fee for each

Add-on card (no

entrance)

1000 575 400 250

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*An additional fee of Rs. 100 will be charged for the picture card

76

INTRODUCTION OF STATE BANK OF INDIA

The Bank is actively involved since 1973 in non-profit activity called Community

Services Banking. All our branches and administrative offices throughout the country

sponsor and participate in large number of welfare activities and social causes. Our

business is more than banking because we touch the lives of people anywhere in many

ways.

Our commitment to nation-building is complete & comprehensive.

Banking Facility Of SBI Bank Personal Banking

DEPOSIT SCHEMES

Current Account Savings Bank Account Savings Account Savings Plus Account

TERM DEPOSITS

Term Deposits Reinvestment Plan SBI MODS Recurring Deposit Maturity Value Calculator

PERSONAL FINANCE

Housing Loan Car Loan Educational Loan Personal Loan Property Loan Loan to Pensioners

77

SBI CardMake life simple

Loan against Shares / Debentures Loan against RBI Relief Bonds Festival Loans Medi-Plus Scheme Teachers-Plus Scheme Sainik-Plus Scheme Tribal-Plus Scheme Justice-Plus Scheme EMI Calculator Credit Khazana

SERVICES Locker Gift Cheques Public Provident Fund (PPF) 9% relief bonds PSU Retiring Employees Scheme Loan On Demat Accounts GOLD BANKING

Gold Deposit Metal (Gold) Loan To Domestic Jewellery Industry Metal (Gold) Loan To Jewellery Exporters

NRI BANKING

Who is NRI Opening Of NRI Account India Millennium Deposit (IMD) Foreign Currency (Non-Resident) Bank Accounts (FCNB) Non-Resident (External) Rupee Accounts (NRE) Resident Foreign Currency Accounts (RFC) Ordinary Non-Resident Rupee Accounts (NRO) Housing Finance Scheme for Non-Resident Indians Other Investment Schemes Facilities to Returning Indians Money Remittance from USA to India Tax Benefits Letter Of Authority To Operate On Non-Resident (External) Rupee (NRE)

Accounts Maturity Value Calculator

78

INTERNATIONAL BANKING

Profile Trade Finance Correspondent Banking Merchant Banking Shipping Finance Project Export Finance Exporters Gold Card Treasury OBU

CORPORATE BANKING

Corporate Accounts Group(CAG) Core Credit Products Other Structured Products Trade Finances Fee Based Products Cash Management Product

OTHER PRODUCTS

Project Finance Lease Finance Corporate Liquid Term Deposit

SMALL SCALE INDUSTRIES

SSI Loans

Liberalised Scheme Entrepreneur Scheme Stree Shakti Package Equity Fund Scheme

SMALL BUSINESS FINANCE

Retail Trade Professionals & Self-Employed Persons Business Enterprises

79

Transport Operators Small Business Credit Card Doctors Plus Paryatan Plus SBI Shoppe

RURAL BANKING

Agricultural Banking Crop Loan(ACC) Produce Marketing Scheme (ACC (PML)) Kisan Credit Card Scheme(KCC) Agricultural Term Loans (ATL) Land Development Schemes Minor Irrigation Schemes Farm Mechanisation Schemes

LEAD BANK SCHEME & MICRO CREDIT

Lead Bank Scheme Micro Credit ( Self Help Group )

REGIONAL RURAL BANKS

Regional Rural Banks GOVERNMENT BUSINESS

Government Accounts Public Provident Fund

SERVICES

e-rail S.T.E.P.S Demat Services ATM Services Internet Banking Safe Deposit Locker Rupee Travellers cheques Information on deceased accounts Gift Cheques RBIEFT e-Pay Telebanking

80

Cash Management Product

JOINT VENTURES

SBI Life Insurance CompanyLtd (SBILIFE)

SBI LIFE undertakes the business of life insurance and annuity in relation

to all or any kinds of assurance.

The year 2003-04 was the 2nd full year of operations for the Company.

As at end-March 2004, SBI LIFE covered nearly 14 lakh lives. It emerged

as the top private insurer in terms of number of lives covered with a market share of

about 14%. It received a premium income of Rs.225 crore for the year 2003-04 as

against the premium receipt of Rs.73 crore during the last financial year, recording a

200% premium growth.

SBI LIFE leveraged the strength of its parent bank and its group. SBI and its Associate

Banks became the Corporate Agents of SBI LIFE. SBI LIFE is now selling its insurance

products through 2,400 branches of SBI Group. SBI LIFE has also been slowly and

steadily strengthening alternate channels including Agency channel.

The Bank holds equity of Rs.129.50 crore in SBI LIFE, being 74% of their share capital.

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INTRODUCTION OF SBI CREDIT CARD

THE POWER OF SBI CARD

Accepted at 30 million VISA outlets across the world.

Cash access at 810,000 VISA ATMs around the globe and from 5500 VISA

ATMs, over 1575 SBI ATMs & 251 SBI card Cash Points in India.

VISA emergency services in 75 countries

GLOBAL CONVENIENCES

Flexibility

Protection Plus

No Transaction Fee for the purchase at IOC/IBP pumps.

SBI Card Online, e-statement, SBI card Alerts.

3%-5% off on air tickets

Balance transfer facility @1.75%.

BALANCE TRANSFER FACILITY

If you own credit cards issued by other banks and wish to apply for a Sterling

Silver/Solid Gold SBI Credit Card, becoming a part of the SBI family is not just easy but

also very attractive. You can transfer the outstanding on your other card(s) on to the SBI

Credit Card and this transferred outstanding will attract an interest rate of just 1.75% for

the Sterling Silver Card and 1.50% in case of a Solid Gold Card. And what’s more, this

beneficial rate of interest is applicable for a full 6 months of your becoming a part of the

SBI family.

This special interest rate will not be applicable for new purchases. You can transfer any

amount from a minimum of Rs.2, 000 to a maximum 75% of the available credit limit on

your SBI Credit Card.

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INSURANCE BENEFITS ON AN SBI CREDIT CARD

Life is unpredictable and we at SBI Bank understand your concern for your family.

Insurance is by far the best way to safeguard the interests of your family. And therefore

in addition to any insurance cover you already have, SBI offers you the most

comprehensive insurance related benefits.

Of course, we offer you accident insurance, but in addition we offer you medical

insurance, credit shield, purchase protection, baggage insurance and household

insurance.

EARN WHILE YOU SPEND- SBI Plus - REWARDS PROGRAM

A special bonus plan that allows you to earn points every time you use your Card. Every

Rs. 100 that you spend earns you a reward point. In effect a spend of Rs 2500 on your

card will amount to 25 reward points which is equivalent to a value of Rs. 25 given back

to you.

First time usage Bonus

As a very special offer, for the first time that you use your SBI Credit Card, we will credit

your rewards account with 25 bonus points.

Accelerator points

When your spends in any billing cycle exceed Rs.5000, you earn an additional 10%

points over and above the normal reward points.

Redemption

To begin redeeming your reward points, you need to have a minimum of 150 points.

The redemption of reward points will be done annually, first against your renewal fees.

83

Thus for example, an annual spend of Rs. 30,000 on a True Blue Card ensures that the

renewal fee for the next year is less by Rs 300.

Unused points will be credited to your card account in blocks of 25 points.

Reward points are awarded for all types of transactions, except fee, (joining, annual,

renewal) balance transfers and service charge transactions.

SELF SET LIMIT

The SBI Card ensures that you are in charge at all times. This is the only card that

allows you to pre-define your own credit limits

You can actually request for a limit lower than what your are eligible for and your Card

gives you the choice of deciding the limit that you wish to enjoy.

Simply call our Call Center Executive and make your request. Your credit limit can be

changed on-line and will come in to force from the next billing cycle.

This incredibly powerful feature has been developed keeping your needs in mind, and it

helps you manage your finances prudently, without compromising on your needs.

WIDE ACCEPTANCE

Your SBI Credit Card is affiliated to VISA and is welcomed at all Visa Merchant

Establishments. The Sterling Silver and Solid Gold Card are accepted globally by over

18 million VISA card - accepting establishments worldwide. You now have the flexibility

of using your Card to pay for everyday purchases on one hand and large value

purchases on the other.

84

24- HOUR CUSTOMER CARE

We understand your needs and appreciate that you may need assistance around the

clock. For your convenience, we have set-up the SBI 24-hour Customer Call Center

This is equipped with a state-of-the-art system that ensures that your queries get

handled efficiently and promptly

CASH ADVANCE FACILITY

With An SBI Card in your wallet, you will never be strapped for cash. You can withdraw

cash on your Card, 24-hours a day, from any Visa participating member bank ATM.

During banking hours you can also withdraw cash, over-the-counter, from any SBI Bank

branch across the country.

For your protection we have limited the maximum withdrawal to Rs.15,000 in a single

day. Transaction charges as applicable will be charged.

DIAL-A-DRAFT

It is now possible to order a draft from the convenience of your home. Simply call the

SBI 24-hour Customer Call Center and ask for a draft, payable anywhere in India and

favouring any company or individual. The draft will be delivered to your mailing address.

For each draft request, a transaction fee of 1.0% of the amount withdrawn, subject to a

minimum of Rs.50, will be levied. However, for the Gold Credit Card-Members, no

transaction fee will be levied. In addition to the transaction fee, a service charge will also

be levied from the date of transaction to the date of repayment. The amount of the draft

will be billed in your monthly credit Card statement. And with the revolving credit facility

you can choose to pay as little as 5% of the billing amount

85

DEBITCARD

Introduction

Which physically resembles a credit card, and, like a credit card, is used as an

alternative to cash when making purchases. However, when purchases are made with a

debit card, the funds are withdrawn directly from the purchaser's check or savings

account at a bank.

Two different types of debit cards are in use today: online and offline. Online debit cards

use the same underlying technology as ATMs (bank machines) that dispense cash;

authentication may consist of the use of a numeric PIN (personal identification number)

known only to the cardholder. PINs can be used only where the POS (point of sale)

terminal is properly equipped; in particular, a separate keypad is needed to allow the

customer to enter his or her PIN and select the account from which funds should be

drawn. This is the only method used in some countries, particularly Canada.

Offline debit cards carry the logotypes of, and can be used in a manner nearly identical

to, major credit cards (e.g. Visa or MasterCard). The use of a debit card in this manner

may have a daily limit, with the maximum limit being the amount of money on deposit. A

debit card used in this manner is similar to a secured credit card.

Some POS terminals allow the user of a Visa or MasterCard debit card to choose

whether the purchase is a "credit" or "debit" purchase. In a "credit" purchase, the user

signs a charge slip (as in a traditional credit card purchase); in a "debit" purchase, the

user enters a PIN. In either case, the user's bank account is debited.

In some countries - with some merchant service organisations, (as of this writing) a

"credit" transaction is without cost to the purchaser while a small fee may be charged for

"debit" transactions. Other differences are that "debit" purchasers may opt to withdraw

cash in addition to the amount of the debit purchase; also, from the merchant's

86

standpoint, the merchant pays lower fees on a "debit" transaction as compared to

"credit" transactions.

The fees charged to merchants on "credit" debit card purchases -- and the lack of fees

charged merchants for processing "debit" debit card purchases and paper checks --

have prompted some major merchants to file lawsuits against debit-card transaction

processors such as Visa and MasterCard. Visa and MasterCard recently agreed to

settle the largest of these lawsuits and agreed to settlements of billions of dollars.

Many consumers prefer "credit" transactions because of the lack of a fee charged to the

consumer/purchaser -- and many POS terminals at PIN-accepting merchant locations

now make the "credit" function more difficult to access.

In many countries, the use of PIN validated transactions with smart-card chip readers is

being strongly encouraged by the banks as a method of reducing cloned-card fraud; to

the extent that cardholder-present transactions will soon not be possible in these

countries without knowledge of a PIN, and the POS terminal reading the smart-card

chip on the card.

Debit cards, and secured credit cards, are popular among college students who have

not yet established a credit history. There are also forms of debit cards (e.g. Visa Buxx)

that are purchased by parents for teens as young as 13. The parent retains a great deal

of control over the teen's use of the cards.

Debit cards are also similar to stored-value cards in that they represent a finite amount

of money owed by the card issuer to the holder. They are different in that stored-value

cards are generally anonymous, while debit cards are generally associated with an

individual's bank account. Debit cards usually offer some protection against loss, theft,

or unauthorized use while stored value cards usually do not.

Not sure how much you keep spending through your credit card? Well this product then,

is the answer to all your problems. It combines the benefit of cash and cheque with out

you having to carry either of the two.

87

A debit card is basically a better way of carrying cash or a chequebook. It is an

electronic card that one can use as a convenient payment mechanism. The card is

generally issued by your bank and is connected through the ATM. Debit cards allow you

to spend only what is in your account and purchases should be kept track of just as if

you're writing a cheque.

TYPES OF DEBIT CARDS

There are two types of debit cards and two types of debit card transactions:

Direct Debit Cards allow only "on-line" transactions, also called point-of-sale. An on-line

transaction works like a straight ATM transaction. It is an immediate electronic transfer

of money from your bank account to the merchant’s account. This requires you to enter

your Personal Identification Number (PIN) at the store’s terminal. The system checks

your account to see if there is enough money to cover the purchase.

A Deferred Debit Card looks similar to a credit card, bearing a Visa or MasterCard logo,

and can be used wherever your card’s brand name is displayed. It is NOT a credit card.

Rather, this card allows "off-line" transactions, as well as on-line. Off-line purchases

resemble a credit card transaction. The merchant’s terminal reads your card and

creates a debit against your account. However, instead of debiting your account

immediately, the transaction is stored for processing later -- usually within two to three

days. Instead of using a PIN, the customer signs a receipt as they would with a credit

card. Most off-line transactions are verified immediately to see whether there is enough

money in the account.

Regardless of the type of debit card you have, when you use it, the money is subtracted

from your bank account.

BENEFITS OF DEBIT CARDS

88

Obtaining a debit card is often very easy. If you qualify to open a bank account, you can

usually get a debit card (provided your bank is offering the service)

When using a debit card, one does not have to show identification papers or give out

personal information at the time of the transaction.

It frees you from carrying cash or a cheque book.

In case of international travelers, it can save you from having to stock up on traveler’s

cheques or cash when you travel.

Debit cards may be more readily accepted than checks, especially in other states or

countries as one need not verify the authenticity of the payment and the merchant is

assured of immediate payment.

If you return merchandise or cancel services paid for with a debit card, the transaction

will be, generally, treated as if it were made with cash or a check. Customers usually get

cash back for on-line purchases; for off-line transactions, the amount is credited to your

account.

The bother of making payments at the receipt of the credit card statement is eliminated.

In case of credit cards, delayed payments are penalized at 30% p.a. rates. This penalty

situation never arises in debit cards.

Most importantly, debit cards can be used to make smaller value payments, avoiding

the need to withdraw cash from the bank for such petty expenses. If a credit card was

used for making cash withdrawals a charge is levied and concomitantly interest is

charged on the amount such withdrawn from the day of withdrawal.

The debit card base in India in March 2000 was already at 3,00,000. Moreover the

usage figures are even more impressive. Seven out of 10 card holders use their card on

a regular basis with the average monthly spend on a debit card was Rs 1,400, which

puts total annual spends at over Rs5bn. Bare in mind that only two banks namely HDFC

Bank and Citibank,  in India currently offer their customers debit cards.

Both MasterCard and Visa International have already witnessed a huge rise in their

debit card bases in the Asia-Pacific region. After 25 years in the region, MasterCard has

built up a credit card base of 80mn, whereas its debit card base, in just four years, has

touched 37mn. Visa too, in less than 18 months, built up a base of 48mn debit cards.

89

Drawbacks Of Debit Cards:

Unlike a credit card, debit card transactions give you no grace period. They are an

immediate, pay-now deal.

They can make balancing your account tricky if you are not fastidious about keeping

receipts and recording transactions in a timely fashion. It is easy to forget, for example,

when you pay at the gas pump with a debit card and drive off without your receipt.

Using a debit card may mean you have less protection than you would with a credit card

for goods that are never delivered, are defective or were misrepresented. But, as with

credit cards, you can dispute unauthorized charges or other mistakes within 60 days.

Fees -- the debit card could be a costly affair to have, especially when using an ATM

that is not affiliated with your bank.

INDIAN DEBIT CARDS

HDFC BANK

90

The HDFC Bank International Debit Card is available to their customers in Mumbai,

Delhi, Calcutta, Chennai, Bangalore, Hyderabad, Pune and Ahmedabad. It can be used

at over 235 ATMs in India and over 530,000 ATMs across the globe.

The charges for the use of this service are as follows:

There are no charges for using the Debit Card at an HDFC Bank ATM. For transactions

at

Visa/PLUS ATMs the following charges apply:

Domestic Visa/PLUS ATM locations : Cash Withdrawals: Rs55/- and Balance Inquiries:

Rs10/-

International Visa/PLUS ATM locations : Cash Withdrawals: Rs110/- and Balance

Inquiries: Rs10/-

CITIBANK:

The Citibank Debit Card is accepted at more than 3,000 establishments in India

including 1,500 establishments in Bangalore alone. The Debit Card is absolutely FREE

(no sign-up fee and no annual fee) and there are no transaction fees. The Card can also

be used as an ATM Card at more than 463,000 ATMs worldwide.

Tips For Responsible Use Of Debit Cards

Do not leave your debit card lying around the house or on your desk at work.

If your card is lost or stolen, or you suspect it is being used fraudulently, report it

immediately to your bank.

If your card is lost or stolen, close your account and ask your bank for a new account

number and PIN.

Hold on to receipts from your debit transactions. Don’t throw them in public trashcans or

even in your own trash without first shredding them. Crooks are known to "dumpster-

dive" for documents that have account numbers and other personal information.

Memorize your PIN and do not write it on your card.

Don’t choose a PIN a smart thief could figure out, such as letters corresponding to your

birth date or your phone number.

Never give your PIN to anyone, keep it private.

91

Always know how much money you have in your account and review bank statements

carefully. Don’t forget that your debit card may allow you to access money that you have

set aside to cover a check that has not yet cleared your bank.

Keep your receipts in one place for easy retrieval and better oversight of your account.

Never give your debit card number over the phone unless you initiated the call and are

certain that the recipient is legitimate.

Flourishing economy and rising consumer acceptance bode well for financial

cards

2004 was a bountiful year for financial cards in India. As a result of the thriving

economy, there was an increase in disposable income and consequently a rise in

consumer expenditure. In line with growing affluence levels and consumer

sophistication, which are the usual developments accompanying a booming economy,

financial cards witnessed robust growth. Specifically, in 2004, the number of financial

cards in circulation increased by nearly 49% on 2003. In terms of transaction value,

92

growth in current terms was 95% on the previous year. Consumers in India were not

only more open to the possibility of owning a financial card but were also not averse to

using their cards as a payment mode. The fact that financial cards are still perceived as

a status symbol in India also serve as a contributing factor to the healthy performance

registered by financial cards.

Debit cards immensely popular as they empower cardholders

While all sectors of financial cards demonstrated growth over the review period, debit

cards were pivotal in spearheading the dynamic performance of financial cards in 2004.

Debit cards are highly popular in India as the eligibility criteria are easily met. In most

cases, the basic requirement is for debit card applicants to have a bank account with

the issuing bank. Additionally, the control that debit cards provide cardholders with, in

terms of their expenses, is very appealing as it prevents consumers from overspending.

This sense of empowerment, coupled with the above factors, as well as aggressive

promotions on the part of industry players, all served to fuel debit cards' robust

performance in 2003.

CREDIT CARDS YET TO REACH FULL POTENTIAL IN INDIA

Credit cards form one of the most established sectors of financial cards in India. These

tend to be used like charge cards in the sense that the majority of cardholders tend to

pay off their monthly balances in full. Charge cards are not as popular with consumers

in India due to the lack of flexibility and their often less-attractive rewards and benefits.

Consumers have been observed to prefer to have the option of using the revolving

credit line rather than not having it at all .

As at 2003, credit card penetration in the developing nation remained low, compared to

other Asia-Pacific countries. One key barrier to growth was the burgeoning state of the

distribution network of terminals accepting credit cards. It is, however, expected that this

constraint will be partially overcome in the future as the advent of technology drives the

costs of these terminals down. Credit cards are often used for bigger ticket purchases in

93

India. For instance, when consumers dine out in smart restaurants or when they

purchase air tickets for travelling. Industry sources believe that the key to future growth

will be to encourage increased usage of credit cards through expanding the scope of

acceptance of these cards. For example, credit cards are likely to be used for the

payment of school fees and hospitalisation fees in future.

CO-BRANDED CARDS WELL RECEIVED

Similar to other countries in the Asia-Pacific region, it is interesting to note that co-

branded cards have received a warm reception in India. Co-branded cards are popular

as they are perceived to provide greater benefits and more attractive rewards.

Additionally, as a result of the tie-up with either a mobile phone company (eg the

Orange-StandardChartered Visa Card involving Hutchison Max Telecom Pvt Ltd), a

petroleum company (eg the Indian Oil Citibank Card involving Indian Oil Corp) or a

retailer (eg the First Citizen Citibank Card involving Shoppers' Stop), among others,

regular patrons of these third parties would enjoy discounts and other priorities that they

would not get with other cards. Industry sources are confident that co-branded cards will

emerge strongly in the future in India.

SMART CARDS EXPECTED IN THE FUTURE

Euromonitor predicts that there remains great potential in India's financial cards in the

2005-2010 forecast period. Indeed, it is projected that the number of financial cards in

circulation will register a compound annual growth rate (CAGR) of nearly 51% over the

forecast period. This is slightly slower than the 65% CAGR clocked in the review period

for several reasons. First, e-purse cards only had a significant presence from 2001,

which resulted in inflated growth rates as is typical for a newly emerging sector. Second,

as the consumer base for the different financial cards sectors grows bigger over the

review and forecast periods, growth will naturally become more gradual. In the forecast

period, debit cards is anticipated to continue to spearhead financial cards in terms of

absolute card numbers. One key trend to watch out for would be the rise in smart cards.

94

By the end of 2005, there was an appearance of credit cards incorporated with smart

chips (eg Citibank's Taj Epicure Diners Club card). The smart chip not only enables

point accumulation to be tracked but also allows for greater security against card fraud.

SMART CARD INDUSTRY: CHANGING A WAY OF LIFE

By Mehmood-ul-Hassan Khan

Combining credit cards, debit cards, smart cards, microchip gadgets and computers are

rapidly pushing paper money out and replacing the same with plastic money. Now,

wallets and handbags are carrying plastic cards for no matter what the need in terms of

cash and finances. As governments throughout the world build techno-fortresses,

computer chip-driven bits of plastic flap as wonder cards driving the next sunrise

industry. Smart cards usually have multi-purpose lives from being national ID cards to

tools for buying bus tickets or paying petrol pump bills. Essentially, computer chip-

embedded plastic cards that store and transact data known as smart cards are

expected to be a US$ 6.8 billion global business in 2004-05. In this scenario, Asia-

Pacific region alone accounts for about 34 per cent of the volume.

With Malaysia's MyKad, Hong Kong's Smart Identity Card System (SMARTICS),

Taiwan's Health Card, the Indian government's plan to have a multi-purpose national ID

card and South Korea aiming for public official ID cards by 2005, companies such as

Sony, Infineon and Hitachi are gearing up for the big kill. The rest of South Asia is an

active emerging market for smart cards, which can generate revenues for respective

governments and enhance traditions of good governance.

There is great scope for smart cards in Pakistan too. In the next five years, the Indian

smart card population is expected to increase eight-fold. Such happy times for smart

card makers are feeding the growing banking and retailing industry. The cellular phone

boom in India estimated to be exploding at over 70 per cent annually; smart cards are

used in SIM cards of GSM mobile phones and big projects such as national ID card

schemes. "Thailand, the Philippines, Indonesia, Vietnam, India and China are at the

planning or pilot stage of launching a national smart ID card scheme.

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CREDIT CARDS: THE NAME OF CONVENIENCE

The Standard Chartered, CITI Bank, MCB, UBL, HBL, Union, Bank Alflah, and many

others are doing great service to people in shape of credit cards. Now SBP has

enhanced the credit card limit up to Rs2 million. Britons currently owe a total of £52.92

billion on their credit cards, which is on the rise. Common shoppers spent a record

£11.56 billion ($20.6 billion) in November 2004. Visa spending has risen to US$ 275

billion in Asia/Pacific till 13 April 2004. Among other major Asia Pacific markets, the

credit card spending rose 12 per cent in Australia to US$ 61 billion, 12 per cent in

Taiwan to US$ 18 billion, 6 per cent in Hong Kong to US$ 14 billion and 25 per cent in

New Zealand to US$ 6 billion. The number of Visa-branded cards on issue rose in every

Asia Pacific market except Korea. The fastest percentage growth was in India where the

number of cards on issue increased by 83 per cent to 16 million. Impressive growth was

also achieved in the Philippines, where card numbers rose 42 per cent to four million;

and Thailand, where card numbers rose 38 per cent to 10 million. Among the biggest

markets in terms of cards issued, Japan saw a 5 per cent growth in the number of cards

to 75 million, Taiwan's card numbers grew 19 per cent to 22 million, Australia's rose one

per cent to 11 million, and Hong Kong's increased five per cent to seven million. China

has issued 700 million bankcards, ranking first in the world in the growth of its bankcard

business. India is currently witnessing large-scale adoption of credit cards, albeit more

amongst the urban populace, and a host of utility providers are coming up with various

kinds of plastic cards. As a result, while most in the card industry bemoan the lack of a

smart card culture in India.

In US the average general-purpose credit card outstanding per household, excluding

store/gas credit cards, grew a mere 2.5 per cent last year to $6,429. Among the five

most populous states, Texas was the only one to come in below the national average.

The states with the lowest average bank credit card outstanding per household in the

$3,400 range were Mississippi, Kentucky, and North Dakota. Idaho and Nevada posted

the strongest gains in bank credit card outstanding in 2003, rising 4 per cent and 6 per

cent, respectively. The state-by-state breakdown was based on total bank credit card

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VISA, MasterCard, Discover, and American Express outstanding of $677 billion and

105.3 million households at year-end 2003.

DEBIT GROWTH OUTPACES CREDIT

Growth in spending on debit cards once again outpaced that of credit cards. While

spending on debit cards in Asia Pacific currently remains a fraction of that on credit

cards, globally the two segments are approximately equal and significant growth is

expected in debit volume in the coming years. Access to a choice of debit or credit

cards is of particular significance in a region where many consumers remain outside the

banking system, and are prey to the extremely high costs associated with informal and

unregulated lending sources.

RISE TO SMART CARDS

A smart card has a microchip, which enables it to store more information and perform

more functions than the magnetic-stripe card. In six years, the worldwide volume of

smart cards has increased five-fold to 1.9 billion cards.

China: On Hainan Island, test cards are equipped to record social service benefits.

Being developed in Beijing are electricity meters activated by prepaid cards. China is

slated for high growth with about 750 to 800 million smart card users, especially after

the country's decision to issue smart cards to every citizen. Pay phone users, who

account for almost 75 per cent of the total smart card user base, compliment the high

user base.

Hong Kong: The new ComPass Card rewards bonus dollars immediately upon every

purchase. In Hong Kong, all citizens availing bus and metro services are provided with

smart cards

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Japan: More than 11 million cards are in use. At NTT, they work both as credit cards

and keys to the company gym and other facilities.

Philippines: Top local credit-card issuer Bankard has launched an installment card for

low-income users.

Thailand: Thai Farmers Bank ATM cards can also be used to obtain health and

emergency services, and purchase-incentive points.

Pakistan: Medicards, Perineum cards, ARY cards, Loyalty Cards, Phone card and many

more are in practice in the country

India: There is influx of a variety of smart cards. The smart card industry in India is

currently pegged at around Rs 50 crore, and with an approximate year-on-year growth

of 45 per cent, and is likely to reach Rs 37,000 crore by the year 2010. At present, India

has close to 8 million smart card users, a number expected to reach 5 million users by

the end of the current fiscal and close to 22 million by the end of 2005. India's numbers

pale in comparison to other markets in Asia Pacific (the region contributes almost 40

per cent of worldwide smart card sales, second only to Europe like China, Hong Kong

and Japan.

Usage of smart cards in major states/cities of India

Bangalore: Even churches are advocating to their members to store their genealogical

data onto smart cards.

Bhopal: About 2,00,000 victims of the 1984 Bhopal gas tragedy have been issued smart

cards, which contain their medical history. Doctors can thus access their health data at

the touch of a button

Rajasthan: In Nayla, a village in members of the women's co-operative society has been

using smart cards to maintain their milk delivery and payment records. Sugarcane

farmers too use similar cards

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Gujarat: In, the government issued smart identity cards to fishermen and their

dependents to get rid of pretenders posing as a fisherman's kin to claim compensation.

The cards are also used to identify real fishermen from cross border infiltrators who

pose as fishermen.

ADVANTAGES OF SMART CARDS

According to statistics from the Bank of International Settlement, (BIS) smart card

transactions in France have almost caught up with the value of cheque transactions at

13 billion francs.

* Smart cards offer enhanced security, convenience and economic benefits.

* Smart card-based systems are highly configurable to suit individual needs.

* Multi-functionality as a payment, application and networking device renders the smart

card as the perfect user interface in a mobile, networked economy.

* Smart cards incorporate encryption and authentication technologies that can

implement the issuer and user's requirements for the highest degree of security.

* Smart cards are used in distributing a government's welfare payments in order to

reduce frauds and abuse. The country like Pakistan the rise and commonness of smart

cards can reduce forgery of public funds.

* Health care cards allow doctors to access and manage a patient's medical records

and insurance information without compromising privacy."

* Smart cards are cost-effective in the long run as they cut down the cost of keeping

paper records.

* They also reduce the time spent on updating paper records, and at many places they

could replace human intervention.

* Contact and contact less toll payment cards streamline toll collection procedures,

reducing labour costs as well as delays caused by manual systems.

* Maintenance costs for vending machines, petroleum dispensers, parking meters and

public phones are lowered.

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POTENTIAL USERS

The first potential users for smart cards will be car owners, because they have to make

regular fuel purchases. In our country loyalty cards are being used to have petroleum

and diesel. The second largest base would be the user of mass transportation where

the average purchase size is between Rs5 to Rs200.

Pakistan Railways, public transport companies can introduce variety of smart cards.

REVIEWS OF PEOPLE ABOUT CREDIT CARDS

(PLASTIC MONEY)

Its plastic money you just know when you use it and being easy to carry and use, you

do not think twice before spending. Wow! Wonderful again to find that you have to make

the payment after almost 20 days after the arrival of the same and if you spend in the

beginning of the month, you end up making payments after almost 50 days.

Great:::::isn't it? I would say it would rather be cruel to take money through credit cards

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from the person who does not even earn the amount, which he is now spending. If he

goes bankrupt or does not get a monthly salary, imagine the level of mental disorder the

person could go through especially when he has the entire family to handle too. It’s

difficult to change a habit and using a card would then be a habit for the one who starts

using it regularly. Again in a habit you always raise the level of wrong consumption,

which is the same when you start using a card. Using a credit card could be as

dangerous as probably commencing to smoke or falling for one single female who does

not even want to know you. As compared to a credit card, the better option would be to

go for a Debit Card, where you just need to take care of the fact that you have enough

amounts in your bank account to use it. Whenever you use it.

Credit isn’t your worst enemy. You are. Just like anything else in moderation is good, so

is credit. Use your discretion before you decide to pull out the plastic. If you decide to

splurge, do it within your means. All credit does is give you the leverage over your

current financial situation to spend more than you can with your own money. But the

buck (literally) stops there. Unless you have a compelling reason to buy whatever it is

you need, I would recommend going easy on your extra capital.

Ah the temptations of a credit card. The more you have the richer you are?? The glory

is oh so painfully short lived. One careless extravagant moment and you could spend

the rest of your life paying for it. So keep those urges down. Limit yourself to ONE credit

card that you use in case of emergencies or in cases where the only payment method is

your credit card.

LIMITATION

As this project of mine is based on the financial product i.e. credit cards through I have

my full efforts to know the basic requirements of the segment but during my study I

found several things which are unanswered yet and I too think that to tap the untapped

market or segment we people will have to give the answers to that questions like

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1 The customers having very less idea about the plastic money, what it is, how it works,

how it is beneficial to them so finally we can say the less awareness of this product in

between the customers.

2 Even who are using this facility most of them are afraid about the services that are

being provided by the facilitators.

3 Several has been found in recent past about the mishappening and forgery of the

cards.

4 The changing services and the interest rates are also the cause, which are

participating in customer dissatisfaction.

CONCLUSION

With respect to the secondary data collected I have reached to the following

conclusions in my project. My secondary data that helps me to practically

analysis the data which I collected through internet and magazines especially the

reviews and critics comments about the use of plastic money specially( credit

cards and debit cards ) :

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Looking at the current scenario we can well identify that the plastic money is

taking a upper trend in India due to which more and more customers getting

attracted towards it.

The study of credit card does not lead to any concrete conclusion because

people that credit cards increase their purchasing power while the other half

were of the view that it doesn’t because people have understood and realized the

fact that although they have to pay later but they have to pay from their pocket.

Thus as per the study made through the analysis it was found out that credit

cards do increase the purchasing power of the consumers but to a certain extent

because it gives them the liberty to pay later but the consumers are becoming

smarter and have understood the scenario quite well so we cannot say that it

altogether affects the buying habits because they have realized that will have to

face the financial burden later on .Since many customers are increasing and so

the number of defaulters also. Due to the increase in tendency of non

repayments the bad debts of bank keep on increasing.

To add the popularity of the card and to increase the numbers of users the banks

are more liberalized in attracting new consumers.

The media plays a very important role in attracting the customers to choose a

particular bank and its services and it can also help to retain the acquired

customers also.

Debit cards may be more readily accepted than checks, especially in other

states or countries as one need not verify the authenticity of the payment and the

merchant is assured of immediate payment.

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Finely I can say that plastic money has an importance in present scenario and

most of the people want to keep money in plastic form.

**BIBLIOGRAPHY**

Websites :

Google. com

Indiainfoline.com

Timesofmoney.com

Creditreporting.com

Magazines:

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Business world

India Today

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