Chapter-IV DEPOSIT MOBILIZATION AND SOCIO-ECONOMIC IMPACT

u Chapter-IV DEPOSIT MOBILIZATION AND SOCIO-ECONOMIC IMPACT

CHAPTER - IV DEPOSIT MOBILIZATION AND SOCIO-ECONOMIC IMPACT Introduction: Mobilization of deposits is one of the important functions of banking business. It is an important source of working fund for the bank. Deposit mobilization is an indispensable factor to increase the sources of the banks to serve effectively. Mobilization of deposit plays an important role in providing satisfactory service to different sectors of the economy. The Commercial Banks must tap deposits from urban and rural areas. This helps the banks to provide large amount of funds to priority sectors for development. The success of the banking greatly lies on the deposit mobilization. Performances of the bank depend on deposits, as the deposits are normally considered as a cost effective source of working fund. Mobilization of rural savings is one of the important objectives of the Commercial Banks. It helps to expand banking operations. The RBI encourages the banks to mobilize deposits, by providing subsidy for branch expansion. The successful functioning of commercial banks depends on the extent of funds mobilized. Deposits are the life blood of banking companies. Deposits constitute a vital source of funds required for banking business. There are different types of deposits, with different maturity pattern carrying different rates of interests. Deposit mobilization is depending on the cost of deposits. Mobilization of deposits for a bank is as essential as oxygen for human being. In the post liberalization scenario, the number of players in banking industry has increased considerably which developed competition in bank marketing. The survival of the fittest has made applicable for the banks. To enhance profitability, banks take steps to minimize the expenditure and are forced to mobilize low cost deposits. In the present context bank s efficiency is measured based on the deposit mix and on the quantum of low cost deposits in the mix. In the present era of competition and with the emergence of private and multinational banks, an ideal mix of deposits is a must to survive. Since the interest paid on deposit forms a big burden on bank, the mobilization of low cost deposits, like current account and savings bank deposit is the urgent need for the bank. 156

Banks borrow and lend. They borrow money by accepting deposits from the public including members of the bank. Deposit mobilization is the chief source of funds to undertake lending operations. For profitable operation, the amount of deposits is very important. The banks should introduce various deposits schemes to attract the public to deposit. It is the size of the deposits that largely decides the lending potential of a bank. Need for Deposits: To meet the basic necessities and to improve their per capita income, saving / depositing the money becomes necessary. Deposits help in improving the economy of the people as well the economy of the country. The deposits will curtail the expenditure of the depositor to the extent of deposits. Policy on Bank Deposit: The important functions of the bank are to accept deposits from the public for the purpose of lending. Depositors are the major stakeholders of the banking system. With liberalization in the financial system and deregulation of interest rates, banks are now free to formulate deposit products within the broad guidelines issued by RBI. Deposit Mix: The bank has offered number of deposit schemes to the public which include term deposits, saving deposits, current deposits and the like. The mobilization of deposits helps the bank to meet the growing demands of various sectors namely, agriculture, small scale industry, weaker section of the community and the like. Current deposits are meant for government, corporate, institutions and business segments where as savings deposits are designed for individuals. Term deposits are targeted predominantly for the household segment and institutions. Though, there was considerable shift in the market share of Government / corporate during the last two decades, the deposit mix remained the same even in the liberalized environment which demonstrates the importance of term deposits. 1. Term Deposits: Term deposits are the deposits on which interest is paid, either on maturity or at stipulated intervals depending upon the deposit scheme under which the money is placed. Term deposits include the following: 157

Fixed deposits: on this a fixed rate of interest is paid at fixed and regular intervals; Re-investment deposits: the interest is compounded quarterly and paid on maturity along with the principal amount of the deposit. Recurring deposits: under which a fixed amount is deposited at regular intervals for a fixed term and the repayment of principal and interest is made at the end of the term. Term deposit is a deposit received by the bank for a fixed period, withdrawable normally after the expiry of the fixed period. This type of deposit includes Recurring deposit / Double Benefit Deposits / Short Deposits / Fixed Deposits / Monthly Income Certificate / Quarterly Income Certificate etc. Fixed deposits are interest-bearing deposits available for both short and long maturity periods. The rate of interest is depending on the maturity period and the principal amount of the deposit. The deposits under the scheme are liquid and the facility of a loan against these deposits is also available. Deposit products which fall under this category includes the following: Short deposits Fixed deposits. Deposit Re-investment Certificate. Cumulative deposit. Money Multiplier Scheme. Monthly Income Scheme. Fixed deposit is a deposit of definite sum of money for a fixed period at a fixed rate of interest. The depositor agrees to receive back the principal amount after the stipulated period. Interest may be received either periodically or on maturity. Fixed deposits constitute a major portion of the total deposits. Fixed deposits include cash certificates, recurring deposits, provident fund deposits, and security deposits from employees, family benefit fund, general provident fund, etc. Time period is relatively longer when compared with the period of other types of deposits. Cost is comparatively less. Fixed deposits represent investment to earn interest. The rate of interest is depending on the length of maturity. 158

2. Savings Bank Deposit: Savings deposit is the most common type of deposit, which caters to the needs of almost all type of customers. The surplus earned is deposited in the form of savings deposits. This type of deposit is meant for individuals, professional people, small traders, artisans and co-operative societies. Here withdrawals are subject to certain conditions. These deposits are relatively less interest cost oriented. Under this type of deposit interest accrues at a fixed rate set by the RBI (currently 3.5%) and upon which cheques can be drawn. Savings deposits are the form of demand deposits. Savings deposits are subject to restrictions on die number of withdrawals as well as on the amounts of withdrawals during any specified period. Further, minimum balances may be prescribed in order to offset the cost of maintaining and servicing such deposits. Savings bank accounts are used by a large segment of small depositors as they can put their regular incomes into these accounts. Under this, customer can withdraw the money on demand and also earn interest on the balance left in the account. Savings accounts are generally opened by households. 3. Current Deposits: Current deposit products are designed to cater the banking requirements of businessmen, traders, companies and other entities. This type of deposit is also for the individuals who are involved in commercial or business activities. In addition to conventional current deposit accounts, bank offer variations of the current deposit with value-added services for eligible current account customers. Bank also offers the variety of special value-added products and services. Current deposits cater to the needs of business people who make use of cheque facilities extensively and also receive cheques in their favor from others. This is just to facilitate the business men dealing frequently with the account in the course of business which may necessitate withdrawing their funds at short notice and also frequently depositing their surplus funds. However, there is no restriction that only business people should open current accounts. The bank accepts current deposits from individuals, co-operative societies, government institutions, local bodies etc. 159

Operational cost is comparatively very high. A current account is a form of demand-deposit, as the banker is required to repay these liabilities on demand of the customers. Withdrawals from current accounts are allowed for any number of times depending upon the balance in the account or up to a particular agreed amount. Current deposits are non-interest bearing. The primary objective of a current account is to provide convenient operation facility to the customer through continuous liquidity. On account of the high cost of maintaining such accounts, banks do not pay any interest on such deposits. In addition, many banks insist on customers maintaining minimum balances to offset the transaction costs involved. If minimum balances are not maintained, the banks charge on the customers a certain amount. Current accounts can be opened by rich individuals / partnership firms / private and limited companies/ Hindu Undivided Families (HUFs) / societies / trusts, etc. Most flexible of the entire deposit scheme is current deposit. No interest is payable. OD facility is available. Different Scheme for Senior Citizens: Union Bank offers an additional interest rate component to senior citizen on any size of deposit in all of its domestic term deposit schemes. This additional rate is applicable to domestic term deposits of one year and above is 0.50% over the normal rate. Deposit Mobilization of UBI: The volume of deposits and the return on advances are closely related to the deployment of funds. If the deposits are increased, it increases the advances of the bank. For the performance of the banks, growth rate analyses are an important parameter. An increasing trend in growth rate of deposits shows better performance of the UBI in deposit mobilization. The size of deposits determines the funds available for lending. The growth rate in total deposits of UBI shows an increasing trend over the period. The higher the growth rates over the period, the higher the level of market orientation of the bank and vice versa. The information relating to the deposit mobilization scenario of UBI is shown in table 4.1 160

Table 4.1: Trends in of Total Deposits (? in crore) Year Total Deposits ('?) Absolute Growth (?) Growth Rate 1999-2000 31105.36 - - 2000-2001 34888.06 3782.70 12.16 2001-2002 39793.86 4905.80 14.06 2002-2003 44748.62 4954.76 12.45 2003-2004 50558.93 5810.31 12.98 2004-2005 61830.59 11271.66 22.29 2005-2006 74094.30 12263.71 19.83 2006-2007 85180.22 11085.92 14.96 2007-2008 103858.64 18678.42 21.93 2008-2009 138702.83 34844.19 33.55 2009-2010 170039.74 31336.91 22.59 Source: UBI Annual Reports Table 4.1 reflects the deposit mobilization of UBI over the period of 11 years is 446.66 % growth rate and is in increasing trend from 12.16% to 22.59 % though it is fluctuating. The total deposit increased from? 31,105.36 crores in 1999-2000 to 1,70,039.74 crore in 2009-10. Thus, there was an absolute growth of 1,38,934.38 crores over the period. However, the percentage growth rate was not even but marked with regular ups and downs from year to year. Increase in deposits every year reflects the UBIs effeetivness in mobilization of funds for deployment. UBI is successful in attracting the deposits from the public and thereby it is successful in developing the habit of savings among people. It lead to capital formation and credit creation. As of March 2010, the total deposits stood at? 170039.74 crore compared to? 138702.83 crore as on 31st March 2009 resulting in an absolute growth of? 31336.91 crore. 161

Figure 4.1: Annual s in Total Deposits of UBI Deposits Mobilization of UBI 180000.00 160000.00 140000.00 120000.00 100000.00 80000.00 60000.00 40000.00 20000.00 0.00 ^ o' $0 (V nv T $ rcv' & r v $y./ Jr & 'V "f of G8 Deposits Growth Analysis of Deposit-Mix of UBI: Union Bank of India mobilizes mainly three types of deposits i.e. demand deposits, savings deposits and time (or term) deposits. In order to increase the volume of deposits, the commercial banks are required to tap the different types of investors. If the portfolio of banks deposit is widely diffused, the bank is said to be sensitive to the requirements of the different savers and vice- versa. The information relating to the break up of total deposits mobilized by the bank under study is shown in Table 4.2. 162

Table 4.2: Deposit-Mix of Union Bank of India (? in Crore) Year Current Deposit/Demand Deposits (CD/DD) Savings Bank Deposit (SBD) Term Deposit (TD) Total Deposits 4829 7430 18846 31105 1999-2000 (15.52) (23.89) (60.59) (100) 6496 7592 20800 34888 2000-2001 (18.62) (21.76) (59.62) (100) 6654 9701 23438 39793 2001-2002 (16.72) (24.38) (58.90) (100) 5036 11171 28541 44748 2002-2003 (11.25) (24.96) (63.78) (100) 5004 13084 32470 50558 2003-2004 (9.90) (25.88) (64.22) (100) 5010 15197 41623 61830 2004-2005 (8.10) (24.58) (67.32) (100) 5978 17997 50119 74094 2005-2006 (8.07) (24.29) (67.64) (100) 8623 20763 55794 85180 2006-2007 (10.12) (24.38) (65.50) (100) 11836 24368 67654 103858 2007-2008 (11.40) (23.46) (65.14) (100) 13166 28545 96992 138703 2008-2009 (9.49) (20.58) (69.93) (100) 16229 37728 116083 170040 2009-2010 (9.54) (22.19) (68.27) (100) Source: UBI Annual Reports Note: Figures within parentheses denotes the percentages of the respective figure to the respective row totals. 163

Table 4.2 indicates that, the bank under study like any other commercial banks has been able to mobilize only three types of deposits i.e. current deposit, savings deposit, and term deposits. Therefore, it may be said that the deposit mix of UBI is conventional in nature. It also indicates that the term deposits share is comparatively high out of the total deposit. Growth of the term deposit is also in an increasing trend over the period. This shows that UBI has been term deposit centered rather than current and savings deposit. The share of current deposits has been relatively less indicating that the UBI has not been able to attract more and more deposits from the business units. Growth over the study period is fluctuating. From 2000 to 2006 negative growth percentage and from 2006 to 2009 positive growth percentage in case of deposit mix. Figure 4.2: Deposit Mix of Union Bank of India 180000 170000 160000 150000 140000 130000 120000 110000 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 S1 'V 7?.77 77 $ <3 77s$ sv77 $ 77 &77$ 7^ 77 $ 7? 77 xy 7T 77 7' 'V 'V* *CD ^SBD «TD * Total Deposits 77 77".7? in Fixed Deposits of UBI: Fixed deposits constitute the most important long-term source of financing the banks. Hence the Commercial Banks are expected to mobilize more and more fixed deposits from not only the existing depositors but also from the new deposit holders. Successive increases in the volume of fixed deposits over the period indicate the Union Bank of India ability to introduce new fixed deposits scheme and vice versa. The information relating to the growth rate in the volume of the fixed deposits over the study period is shown in the following table: 164

Table 4.3: in Term Deposits of Union Bank of India Year Term Deposit Absolute grow th (? in erore) Growth Rate 1999-2000 18846 - - 2000-2001 20800 1954 10.37 2001-2002 23438 2638 12.68 2002-2003 28541 5103 21.77 2003-2004 32470 3929 13.77 2004-2005 41623 9153 28.19 2005-2006 50119 8496 20.41 2006-2007 55794 5675 11.32 2007-2008 67654 11860 21.26 2008-2009 96992 29338 43.36 2009-2010 116083 19091 19.68 Source: UBI Annual Reports Table 4.3 indicates that growth rate of term deposit is positive all the time for the study period. Over the study period, the growth is about 6 times. These funds can be deployed to a great extent as it is a contractual deposit. These deposits are of high costs when compared to savings deposit. However, the growth rate has significantly high i.e. 43.36% during the year 2008-2009. The increase in term deposits results in prospectus of deposit mobilization and leads to expansion of business. Figure 4.3 Grow th Rate in Term Deposits of UBI Term Deposit Absolute Growth - 165

in Savings Bank Deposits of UBI: The primary function of any bank is to increase the savings habit among the public. The information relating to the growth rate in the volume of the savings bank deposits over the study period is shown in the following table: Table 4.4: in Savings Bank Deposits of UBI (? in crore) Year Savings Bank Deposit Absolute Growth Growth percentage 1999-2000 7430 - - 2000-2001 7592 162 2.18 2001-2002 9701 2109 27.78 2002-2003 11171 1470 15.15 2003-2004 13084 1913 17.12 2004-2005 15197 2113 16.15 2005-2006 17997 2800 18.42 2006-2007 20763 2766 15.37 2007-2008 24368 3605 17.36 2008-2009 28545 4177 17.14 2009-2010 37728 9183 32.17 Source: UBI Annual Reports Table 4.4 reflects that the growth rate of savings bank deposit and registerd increasing growth rate from 2000 to 2010. The percentage growth in the year 2001-2002 and 2009-2010 is considerably high when compared to other years. This yeilds major profits due to the lowest cost of deposits and Bank can invest in the short term money market or provide short term loans. This helps in the improvement of short term returns of Savings Bank deposit holders. Its role is reflected in capital formation through increase capital stock and the impact it makes on the capacity to generate more and higher income. 166

Figure 4.4: in Savings Bank Deposits of UBI 40000 35000 30000 25000 20000 15000 10000 5000 0 (V y Jy jy,. y S y V y,'s' w y <4^ c# ^ ^ a? ON y Savings Bank Deposit Absolute Growth - Growth in Current Deposits of UBI: The primary objective of a Current Account is to provide convenient operation facility to the customer through continuous liquidity. And also offers the variety of special value added products and services for the eligible current account holders or customers. Table 4.5: Grow th Rate in Current Deposits of UBI (? in crore) Year Current Deposits Absolute Growth Growth Rate 1999-2000 4829 - - 2000-2001 6496 1667 34.52 2001-2002 6654 158 2.43 2002-2003 5036-1618 -24.31 2003-2004 5004-32 -0.63 2004-2005 5010 6 0.12 2005-2006 5978 968 19.32 2006-2007 8623 2645 44.24 2007-2008 11836 3213 37.26 2008-2009 13166 1330 11.24 2009-2010 16229 3063 23.26 Source: UBI Annual Reports 167

Table 4.5 indicates that the growth rate of current deposit registered a positve indication except from 2002-03 to 2003-04. The growth is not very effective. Hence the deployment of the funds also can not be effective, as the liquidity is high. The expectation of the yeild of profit can not be considerable. Because the unwise expansion of branch especially in rural areas simply with a view to spreading the banking facilities has an unfavourable impact on current deposit scheme. The objective that need for certain refinement in measuring profitability of UB1. So that current profits are not earned at future cost. Figure 4.5: in Current Deposits of UBI Socio-Economic Impact of Deposit Mobilization: These different kinds of deposits have direct social and economic impact on the society. This clearly shows that the Union bank of India played a vital role in uplifting the social and economic position of the Nation by deposit mobilization. Towards resources mobilization, Union bank on india focused on current and savings account and a retail term deposits. The bank registered a growth of 446.66 % growth rate in total deposits during the yer under review. As of march 2010, the total deposits stood at? 1,70,039.74 crore, compared to? 31.105.36 crores in march 2000 resulting in an absolute increase of 1,38,934.38 crores. 168

Union Bank has a team of customer relationship managers, resource marketing officers and relationship offficers focused on building and nurturing customer relationships. As a result, bank added 33 lakh new savings bank accounts and 86,000 new current accounts mobilizaed during the year. The household sector continued to show preferance for bank deposits, due to the traditional considerations of safety, security and liquidity. Bank kept itself abreast of the market opportunities and continued to focus on retail deposits and tapping of long-term household savings. Union Bank launched specific term deposit scheme like 555 days. Thus, consistant and focused strategy on current and savings account and retail deposits resulted in yielding excellent growt, in a cost effective manner. The banking sector will be the key facilitator and beneficiary of India s growth. Union Bank of India is geared to continue with the grow momentum, well supported by the efficient resource mobilization and its gainful development. The Nav Nirman initiatives are expected to further enhance the customers experience through best in class products and services offering value for money, commited turn- around time, accessibility and transparency. Other Deposit Products of UBI: To attract the customers for mobilizing more deposit, the UBI provide the following other types of deposit products. 1. Union Flexi-Deposit Scheme: This scheme was launched in the year 2002. Union flexi deposit is a combination of a fixed deposit and savings bank account. Here, the customer fixes the limitations of the SB account balance over and above the limitations whatever the deposits comes in will be transferred automatically to a fixed deposit and earns the fixed deposit interest. When there is a necessity to draw an amount over the limitation, to that extent the amount will be transferred from the fixed deposit to SB account. This is an automatic process. Under this scheme, customer funds in excess of a preset limit of? 5,000 are automatically transferred from their savings account to their fixed deposit account in multiples of? 1,000 with a minimum of? 5,000. The depositor earns interest on the savings component of the scheme as well as a higher interest on the surplus funds transferred to the fixed deposit. Interest is paid under the 169

scheme on a quarterly basis. This scheme can be opened by an individual singly or jointly. Period of Deposit: The fixed deposit vary between 46 days to 5 years. In case of NRI deposit, minimum period is one year. Rate of Interest: As applicable to SB deposit and fixed deposit in force from time to time. Interest is paid on a quarterly basis on the fixed deposit flexi account. Deposit Receipt: No separate deposit receipt shall be issued for the union flexi deposit scheme, only a detail pass book will be issued. Features of Flexi Deposit are as follows: An international Debit Card is issued free of cost to all deposit holders. Free credit card to depositors who maintain a minimum balance of? 1 Lkhs. Roll over of deposit on maturity is permitted. In case of non-maintenance of minimum balance of? 10,000 in case of SB Flexi deposit account and in the linked with FD flexi deposit account of? 5,000, a penalty of? 25 per month is levied. Facility of providing nominee. TDS is applicable on the deposits in die linked FD flexi account. No loan, lien or overdraft will be permitted against the linked FD Flexi account. Table 4.6: Union Flexi Deposit Scheme of UBI (? in crore) Year Number of Accounts Amount of Deposit 2005-2006 216-7.56-2006-2007 1458 575.00 8.01 5.95 2007-2008 2961 103.09 14.4 79.77 2008-2009 3564 20.36 18.9 31.25 2009-2010 7938 122.73 28.62 51.43 Source: UBI Annual Reports 170

Table 4.6 indicates the number of accounts and amount of flexi deposit of the Bank. It also shows that, the main impact of this scheme is that, the bank can attract the deposits of customers. The number of accounts and amount of flexi deposit is increasing year after year. The relative increase in this proportion can be attributed to the expansionary policy of the UBI. The Bank can identify the excess amount of its regular customers. 2. Honey Bee Deposit Scheme: The Union honey bee deposit scheme is a hybrid of a savings account and a cumulative term deposit account. This type of deposit differs from a cumulative or recurring deposit. This is a link between the SB account and a recurring or cumulative deposit account. In cumulative or recurring deposit a fixed sum is to be deposited under fixed intervals for a fixed period are fixed on opening of the account itself, where as in honey bee deposit, the deposit amount can be changed and it is not determined on opening of the account. As a part of the bank s drive to rope in and serve small savers of the society the bank has introduced the honey bee deposit scheme in the year 2002. The highlights of this scheme are liquidity coupled with automatic conversion of small savings into recurring deposits so as to mature into a sizeable sum. Under this scheme, customers in rural and semi-urban branches may make variable deposits in their savings account. Each month, funds in excess of? 100 are transferred to a cumulative account for a fixed period. From this scheme, the impact is so much on the small savers. They can minimize their spending and sets their mind to save more and get maximum benefit after a length of period. 3. Multi Gains Deposit Schemes: This is a combination of current account and savings account. It differs from current account, as such the current account does not earns any interest, where as in this scheme the over and above 1 Lakhs rupee in the current account will be transferred to the SB account which will attract SB deposit interest. Under the multi gains current account and savings account schemes, customers are offered valueadded services subject to certain conditions. Here, the condition is that maintaining an average quarterly balance of? 100,000 in respect of current accounts, and maintaining 171

a minimum balance of? 25,000 in respect of savings accounts. Interest on this type of deposit is paid quarterly. Following are the Free Services of Multi Gains Deposit Schemes: A credit card is issued free for the first year with a limit of? 25,000 to the individual or any one joint account. * An ATM card is issued free to the sole or any one joint account holder. A maximum of two free remittances to anywhere in India aggregating to? 25,000 will be allowed per month. Local or outstation cheques up to? 15,000 is collected free of cost. Providing of Cheque books facility. Inters is paid for any delay in collection of instruments. This type of account can be transferred to any if the branches in India free of cost. In this scheme the impact is that the customer gets the benefit whenever his balance in current account over and above a Lakh rupee average quarterly balance. Table 4.7: Union Multi Gain Deposit of UBI (? in crore) Year Number of Accounts Growth percentage Amount of Deposit Growth percentage 1999-2000 216-2.16-2000-2001 216 0 2.16 0 2001-2002 216 0 2.16 0 2002-2003 216 0 2.16 0 2003-2004 216 0 2.16 0 2004-2005 270 25.00 2.16 0 2005-2006 324 20.00 7.56 250.00 2006-2007 648 100.00 8.64 14.28 2007-2008 784 20.99 8.64 0 2008-2009 784 0 8.64 0 2009-2010 784 0 8.64 0 Source: UBI Annual Reports 172

The above table indicates that, the number of account holders and amount of deposit made under Union Multi Gains Deposit Scheme. It also shows that, 2000 to 2004 it remains fixed but from 2005 onwards, the number of account holders and amount of deposit made under this scheme are increasing. The essence of analyzing the trends in multi gain deposit of savings and investment in current deposit is to find out whether saving promoting policies lead to more investment activities and consequently banking business. 4. Union Insured Recurring Deposit Scheme: The Union Insured Recurring Deposit Scheme is a term deposit facility to the customers. This scheme covers the life insurance to the extent of the maturity value of the deposit, subject to a maximum of? 1 million. Premiums in respect of the insurance facility are paid from interest payable on the deposit. 5. Capital Gains Exemption Deposit Scheme: This scheme has come into force from 22nd June, 1988. The amount deposited is utilized by the assesses within the specified period, for acquisition of new assets under the Income tax act 1961. Here the tax payers can avail the benefit of exemption from capital gains, if the same amount of capital gain is deposited in the bank on or before the due date of filling the return. Customers of metropolitan, urban and semiurban may take the advantage of this scheme. Under this scheme, customers may deposit capital gains earnings in a term deposit or a savings deposit. The scheme provides a place to deposit capital gains until such gains are invested in the appropriate channel under income tax rules. Accounts under this scheme can be opened only at Semi-Urban, Urban or Metropolitan branches. Under this scheme two types of deposit accounts can be opened. Following are the different classifications of Capital Gain Exemption Deposit Scheme: 1) Deposit Account A: Is in the form of savings bank deposits. Withdrawals can be made from time to time by the depositor. 2) Deposit Account B: This is in the form of term deposit, with an option to the depositor to keep the deposit either as cumulative (DRC deposit) or non cumulative (fixed deposit). Here, the deposits may be made in one lump sum or in installment at 173

any time before furnishing the return of income. Withdrawals can be made after the expiry of the period. Table 4.8: Union Capital Gains Exemption Deposit of UBI (? in crore) Year Number of Accounts Amount of Deposit 2005-2006 48-1.08-2006-2007 48 0 1.08 0 2007-2008 48 0 1.08 0 2008-2009 162 237.5 6.48 5.40 2009-2010 324 100.00 9.72 50.00 Source: UBI Annual Reports Table number 4.8 indicates that, the information regarding the number of accounts and amount of deposit under Union Capital Gain Exemption Deposit Scheme. The table also shows that, up to 2008 there it is fixed but from 2009 onwards the number of accounts and amount of deposit under this scheme are increasing. 6. Money Multiplier Deposit Scheme: Money multiplier deposit scheme is an insurance linked deposit scheme. This is for the benefit of both individuals and minors. Here, the principal sum increased to 1.5 times in case of individuals and 2 times in case of minors. Under this scheme, insurance cover is available to the depositor / guardian on payment of a nominal premium. The impact of this scheme is that, depositor or guardian giving security to their wards (children). 174

Table 4.9: Union Money Multiplier Deposit of UBI (? in crore) Year Number of Accounts Amount of deposit (in Crore) 2005-2006 3186-1.08-2006-2007 24786 677.97 4.32 300.00 2007-2008 24786 0 4.32 0 2008-2009 24786 0 4.32 0 2009-2010 24786 0 4.32 0 Source: UBI Annual Reports Table no. 4.9 indicates that, the information regarding the number of accounts and the amount of deposit made under Union Money Deposit and their relative growth rate. In he year 2006-2007 relative growth rate was 300 and the remaining years it was constant. 7. Deposit Reinvestment Certificate (DRC): Deposit reinvestment certificate is an ideal scheme for investing a lump sum amount. Here, interest is compounded quarterly and paid along with the principal amount invested. Deposits can be made for any period of time from 6 months to 120 months. Deposits can be accepted even for odd periods of time like 37 months, 65 months and 6 days etc. Minimum amount of deposit is? 100/- in Rural / Semi-urban centers and? 500/- in Urban / Metro centers and in multiples thereof. Interest at applicable rate for the period on deposit is automatically reinvested at quarterly intervals. Interest being compounded, the amount invested multiplies and matures into an attractive lump sum, thus doubling over a period of time. It pays compound interest, compounded on every quarterly. Hence, it gives a high return at the end of the period. Here, the impact is when a lump sum amount is required after a length of period. This scheme is useful to the depositor. 175

8. Union Monthly Income Deposit Scheme: Under the monthly income scheme, interest is payable at the contracted rate every month on the fixed deposit. This deposit is accepted for any period i.e. from one year to ten years. Under this scheme, interest is paid monthly. Interest is paid / credited to the Savings / Current / Cumulative account of the depositor during the last week of every month. First such interest is paid in the month, following the month in which the deposit is kept. On 31st October, 2008, the bank launched an attractive scheme for monthly savings with flexible installments for systematic investment and secured return under the name union monthly plus, within five months, the bank mobilized 28.81 lakh accounts with? 147.65 crore of deposits as of March, 2009. The Individuals, Proprietorship, Institutions, Corporate, Partnership, Trusts, HUF, NRIs for investing domestic funds are eligible to open this type of deposit account. Period of Deposit: Period for this type of deposit is 6 months to 60 months. Following are the Features of Monthly Income Scheme: At the time of opening this type of account, the depositor have to select the core amount. Minimum core amount is? 100 and maximum is? 1,00,000, Interest rate is as per the Term deposit rate applicable for the period. Offers flexibility of depositing monthly installment amount, by way of step up and step down option. Step up option: During any month the depositor can increase the installment amount up to 10 times the core amount. The installment amount can also be deposited for one or more than one times during a month. Step down option: During any month the depositor can reduce the installment amount not less than the core amount. There is no penalty on delayed installment. There is no pre mature closure penalty. Loan can be given to the depositors on this type of deposit up to 75 percentage of face value. Transferring of account from one branch to another branch at free of cost. 176

The main impact of this type of deposit is that, the bank mobilizes large scale relationship from upper, middle, salaried class and youth. This enhances the business of bank i.e. cross-selling opportunity in advances like Home loan, Education loan, Car loan etc. This is a source of long term fund for term loans to banks. This scheme also helps the depositors who are very much interested in getting a regular monthly income from their funds to meet their monthly expenditure. Table 4.10: Union Monthly Income Deposit Scheme of UBI (? in crore) Year Number of Accounts Amount of Deposit Growth Rate 2000-2001 1682-6.48-2001-2002 2430 44.47 24.84 283.33 2002-2003 3563 44.62 25.38 2.17 2003-2004 4536 27.31 26.42 4.10 2004-2005 6048 32.54 35.64 34.90 2005-2006 7155 18.30 43.74 22.73 2006-2007 13338 86.41 79.92 82.72 2007-2008 22652 69.83 175.74 119.89 2008-2009 35694 57.57 319.76 81.95 2009-2010 49574 38.89 461.70 44.39 Source: UBI Annual Reports Table no. 4.10 indicates that, the information regarding the number of accounts and the amount of deposit made under Union Monthly Income Deposit Scheme and their relative growth rate. The relative growth rate is fluctuating year after year. The remarkable growth rate was in the year 2006-2007 is 86.41, subsequently it goes on decreasing. 9. Union Cumulative Deposit Scheme: Cumulative deposit scheme is primarily a household saving plan. The union cumulative deposit scheme encourages small investors to save in easy monthly installments over a fixed period. Monthly installments can be for any amount starting from as low as?50/- and onwards. Account can be opened for any period ranging 177

from 6 months to 120 months, in intervals of 3 months. The installment amount selected is payable every month. The number of installments once selected, cannot be altered. However, in the monthly installment is to be discontinued for a valid reason, the account holder can convert the amount of installments already paid, into fixed or reinvestment deposit for a period longer than the remaining period of the cumulative account. For the period the cumulative account has run, compound interest at the applicable rate is payable. Interest at the permissible rate is compounded every quarter. The maturity amount is paid one month after the deposit of the last installment. Pass book is provided to the depositor. The major impact of this type of deposit is that, a saving can be made every month out of their earnings to each large sum of return. Table 4.11: Union Cumulative Deposit Scheme (? in crore) Year Number of Accounts Amount of Deposit 2000-2001 14924-4.86-2001-2002 16038 7.46 6.48 33.33 2002-2003 18592 15.92 7.02 8.33 2003-2004 17064-8.22 7.02 0 2004-2005 18576 8.86 7.56 7.69 2005-2006 19264 3.70 7.84 3.70 2006-2007 24246 25.39 43.20 451.02 2007-2008 30402 14.92 43.74 1.25 2008-2009 34938 27.36 51.30 17.28 2009-2010 44496 27.36 41.58-18.94 Source: UBI Annual Reports Table no. 4.11 indicates that, the information regarding the number of accounts and the amount of deposit made under Cumulative Deposit Scheme and their respective relative growth rate. The relative growth rate of deposit in the year 2006-07 was 451.02. This is the highest relative growth rate over the study period. Hence, it indicates sufficient expansion of its business activities on the other hand in 178

the year 2003-04 it was constant but the note worthy relative growth rate of -18.94 in the year 2009-10. 10. Union Classic Current Account (UCCA) Deposit Scheme: UCCA product was introduced in 2006 for generating trade segment current account. Modified version was subsequently rolled out with effect from 1.6.2007 vide dated 24.5.2007, which was further improved dated 14.3.2008 with the turn of competition. This scheme has been further power packed to make it all the more customer friendly. The improved power packed scheme was applicable from 26.6.2008. Union classic current account is the premium current account product suited for traders and Business class. Individuals, Proprietary concerns, Partnership firms, Joint account holders, HUF, Limited companies, Trusts, Associations, Cooperative societies etc. are eligible to open this type of deposit. Under this scheme, facilities like free cash deposit and withdrawals up to a specified limit are provided. The main impact of this scheme to the customer is that, saving huge amount of service charges, on the other hand the bank mobilizes huge amount of deposits. Following are the Features of Union Classic Current Account Scheme : Free cash deposit or withdrawal up to specified limit. Cash deposit facility in non-base branches subject to specified limit. Different fund transfer includes PO, DD, Intersol Multicity cheque, RTGS, NEFT, Standing instructions, Auto swap and collection of outstation cheques clubbed together for the facility. Based on the previous month s average monthly balance (AMB) maintained free facilities are allowed under this scheme. Recognized AMB for this type of deposit is 50,000,1,00,000, 5,00,000 and 25,00,000. This type of deposit extends the benefit to the account holder. Concession through any account like SB, CD, CC, OD, and in ant UBI branch. Auto roaming facilities. One multicity cheque book of 100 leaves per month is allowed free of charge. 179

Table 4.12: Union Classic Current Account Deposit scheme (? in crore) Year Number of Accounts Amount of Deposit 2000-2001 270-4.32-2001-2002 270 0 4.32 0 2002-2003 270 0 4.32 0 2003-2004 270 0 4.32 0 2004-2005 896 231.85 12.96 200.00 2005-2006 896 0 12.96 0 2006-2007 1080 20.53 23.22 79.17 2007-2008 3136 190.37 95.76 312.40 2008-2009 16740 433.80 613.20 540.35 2009-2010 20952 25.16 743.58 21.26 Source: UBI Annual Reports Table 4.12 indicates that, the number of accounts and the amount of deposit made under union classic current account deposit scheme. It also shows that, up to 2004 it remains fixed but from 2005 onwards the number of accounts and the amount of deposit are increasing. The highest relative growth rate in number of accounts and amount of deposits are 433.80 and 540.35 in the year 2008-09 respectively. 11. Union Super Salary Account (USSA) Deposit Scheme: Union Bank of India offers salary savings account to the employees. USSA is a unique product package for salaried class. Employees of any Corporate, Business Organization, Institution, and Government department etc. with employee strength of minimum 15 and minimum net salary not less than? 1.50 lakh per month can open this type of deposit. Here, Comprehensive welcome kit, containing international debit card, internet banking (Union e-banking) PIN, Phone banking (Union dial) multicity cheque book is provided to the USSA holder at the time of opening. USSA holder can avail SMS banking services for his account and RTGS / NEFT / Intersol transfers 180

absolutely free. These holders can apply for an overdraft facility to the extent of 90% of the net salary credited in the previous month, subject to a ceiling limit of? 50,000. This type of deposit attracts the depositors in savings huge amount of service charges, meet temporary loan facility immediately. In the way of bank they get a standard class of customers where regular deposits can be mobilized as well as cross selling is easier. It gives the bank a fully seemed advances. Table 4.13: Union Super Salary Account Deposit Scheme (? in crore) Year Number of Accounts Amount of Deposits 2007-2008 4752-2.8-2008-2009 14472 204.54 24.3 767.86 2009-2010 22302 54.10 32.4 33.33 Source: UBI Annual Reports Table 4.13 indicated that, the information regarding the number of accounts and amount of deposits made under the union super salary account deposit scheme. Table also indicates that, the account holder and the amount of deposit are increasing year after year. 12. Union Tax Saver Scheme: All individuals and HUF having PAN are eligible to invest in union tax saver scheme. The amount to be invested in the term deposit of the bank shall be a minimum of? 5,000 and a maximum of? 1, 00,000 in a financial year. Time period for deposit is minimum of 5 years and maximum of 10 years. The deposit is accepted in the form of fixed deposit or monthly income scheme. 181

Table 4.14: Union Tax Saver Deposit (? in crore) Year Number of Accounts Amount of Deposit 2006-2007 162-0.54-2007-2008 2970 1733.33 14.58 2600.00 2008-2009 6210 109.09 35.1 140.70 2009-2010 9342 50.43 52.38 49.23 Source: UBI Annual Reports Table 4.14 indicated that, the number of accounts and amount of deposits made under the Union tax saver deposit scheme. It also reveals that, the number of accounts and amount of deposits are increasing. In the year 2007-08, relative growth rate was highest in both number of accounts and amount of deposits. 13. No-Frills Savings Account Deposit: All resident individuals eligible to open a no frills savings account. Condition for this type of account is that only one member of the family can open such account in single / joint name. Minimum balance required in the account is? 25. No penalty for non-maintenance of the minimum balance. No cheque book facility. One ATM / International debit card is issued to the account holder. Withdrawals is available only through ATM wherever online ATM facility is available. At other branches, withdrawals is through withdrawal slip only. The main impact of this type of deposit scheme is that, every family comes into the fold of banking, in turn it educate them in banking. This helps in spreading the awareness of the services and the facility available through banking. In due course of time the bank can expect in developing their business. 182

Table 4.15: SB No Frill Account Deposit (? in crore) Year Number of Accounts Amount of Deposit 2000-2001 1728-0.54-2001-2002 1728 0 0.54 0 2002-2003 2214 28.12 0.54 0 2003-2004 2214 0 0.54 0 2004-2005 2642 19.33 0.54 0 2005-2006 4698 77.82 0.94 0 2006-2007 4698 0 0.94 0 2007-2008 915948 19396.55 17.28 3100.00 2008-2009 1190592 29.98 88.02 409.00 2009-2010 1588032 33.38 127.98 45.40 Source: UBI Annual Reports Table 4.15 indicates that, the year wise number of accounts and the amount of deposits under the SB no frill account deposits scheme. Since from the year 2000-01 to 2006-07 the relative growth rate was constant in amount of deposit, in case of numbers, relative growth rate was fluctuating. The absolute and noteworthy relative growth in both the cases was in the year 2007-2008. Other Deposit Schemes: 1. Suraj Jama Yojana: Is a flexible short term deposit of 15 days in units of? 1000/- automatically kept renewed for 7 times. This deposit scheme was introduced during 1992-93. To meet the requirements of depositors having fluctuating needs for funds, Suraj Jama Yojana was introduced, which provide multiple facilities like automatic renewal up to seven times and easy withdrawal in specified units of rupees, along with accrued interest in case of need. 183

2. Sahaj Jama Yojana: This type of deposit keeps fixed deposit interest intact, with a standby overdraft against deposit, which can be drawn conveniently through cheque. 3. Anukul Jama Yojana: Deposits in units of? 1,000/- provides maximum liquidity and flexibility for premature partial withdrawal of term deposits. This scheme was introduced during the year 1997. 4. UBI Stock Invest Scheme: This scheme was introduced during the year 1992-93. This scheme was introduced for facilitating investors of shares, debentures, bonds, etc. to earn interest awaiting allotment. The bank introduced a new scheme called Union Double. Under, this scheme the bank mobilizes? 1500 crore in term deposits. From the success of this Union Double, the bank introduced another scheme called Union Bank Cash Certificate on 1st September 2006. This scheme helps the depositors in getting high returns on the other hand the bank deposits were increased by 50 to 54 percentages. Union Bank of India has a team of Customer Relationship Managers (CRM), Resource Marketing Officers and Relationship Officers focused on building customer relationships. As a result, bank added 33 lakh new Savings Bank accounts and 86,000 new Current accounts, mobilizing over? 8,500 crore during the year through these new Current and Savings Account (CASA). The share of retail deposits as a percentage to Term deposits, increased from 50% to 54%, an increase of 4% during the year. Bank launched specific term deposit schemes like 555 days. Thus, consistent and focused strategy on CASA and retail deposits resulted in yielding excellent growth, in a cost- effective manner. 184