Banking Project

INTRODUCTION & HISTORY OF BANKING BANKING [pic] Introduction India cannot have a healthy economy without a sound and effective banking system. The banking system should be hassle free and able to meet the new challenges posed by technology and other factors, both internal and external. In the past three decades, India's banking system has earned several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to metropolises or cities in India.In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main aspects of India's growth story. The government's regulation policy for banks has paid rich dividends with the nationalization of 14 major private banks in 1969. Banking today has become convenient and instant, with the account holder not having to wait for hours at the bank counter for getting a draft or for withdrawing money from his account. Banking in India  in the modern sense ori ginated in the last decades of the 18th century.The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1770; both are now defunct. The oldest bank still in existence in India is the  State Bank of India, which originated in the  Bank of Calcutta  in June 1806, which almost immediately became the  Bank of Bengal. This was one of the three presidency banks, the other two being the  Bank of Bombay  and the  Bank of Madras, all three of which were established under charters from the  British East India Company. For many years the presidency banks acted as quasi-central banks, as did their successors.The three banks merged in 1921 to form the  Imperial Bank of India, which, upon India's independence, became the  State Bank of India  in 1955. 1. History of Banking in India The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segr egated into three distinct phases: †¢ Early phase of Indian banks, from 1786 to 1969 †¢ Nationalization of banks and the banking sector reforms, from 1969 to 1991 †¢ New phase of Indian banking system, with the reforms after 1991 Phase1The first bank in India, the General Bank of India, was set up in 1786. Bank of Hindustan and Bengal Bank followed. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840), and Bank of Madras (1843) as independent units and called them Presidency banks. These three banks were amalgamated in 1920 and the Imperial Bank of India, a bank of private shareholders, mostly Europeans, was established. Allahabad Bank was established, exclusively by Indians, in 1865. Punjab National Bank was set up in 1894 with headquarters in Lahore.Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. The Reserve Bank of India came in 1935. During the first p hase, the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1,100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with the Banking Companies Act, 1949, which was later changed to the Banking Regulation Act, 1949 as per amending Act of 1965 (Act No. 3 of 1965). The Reserve Bank of India (RBI) was vested with extensive powers for the supervision of banking in India as the Central banking authority. During those days, the general public had lesser confidence in banks. As an aftermath, deposit mobilization was slow. Moreover, the savings bank facility provided by the Postal department was comparatively safer, and funds were largely given to traders. Phase2 The government took major initiatives in banking sector reforms after Independence.In 1955, it nationalized the Imperial Bank of India and started offering extensive banking facilities, especially in r ural and semi-urban areas. The government constituted the State Bank of India to act as the principal agent of the RBI and to handle banking transactions of the Union government and state governments all over the country. Seven banks owned by the Princely states were nationalized in 1959 and they became subsidiaries of the State Bank of India. In 1969, 14 commercial banks in the country were nationalized. In the second phase of banking sector reforms, seven more banks were nationalized in 1980.With this, 80 percent of the banking sector in India came under the government ownership. Phase3 This phase has introduced many more products and facilities in the banking sector as part of the reforms process. In 1991, under the chairmanship of M Narasimham, a committee was set up, which worked for the liberalization of banking practices. Now, the country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking are introduced. The entire system became more convenient and swift.Time is given importance in all money transactions. The financial system of India has shown a great deal of resilience. It is sheltered from crises triggered by external macroeconomic shocks, which other East Asian countries often suffered. This is all due to a flexible exchange rate regime, the high foreign exchange reserve, the not-yet fully convertible capital account, and the limited foreign exchange exposure of banks and their customers. In ancient India there is evidence of loans from the  Vedic period  (beginning 1750 BC).Later during the  Maurya dynasty  (321 to 185 BC), an instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today. During the Buddhist period, there was considerable use of these instruments. Merchants in large towns gave letters of credit to one another. Colonial era During the colonial era merchants in  Calcutta  established the Union Bank in 1839, but it failed in 1840 as a consequence of the economic crisis of 1848-49.The  Allahabad Bank, established in 1865 and still functioning today, is the oldest  Joint Stock bank  in India, it was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the  Alliance Bank of Shimla. Foreign banks too started to appear, particularly in  Calcutta, in the 1860s. The  Comptoir d'Escompte de Paris  opened a branch in Calcutta in 1860, and another in  Bombay  in 1862; branches in  Madras  and  Pondicherry, then a French possession, followed. HSBCestablished itself in  Bengal  in 1869.Calcutta was the most active trading port in India, mainly due to the trade of the  British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in  Faizabad. It failed in 1958. The next was the  Punjab National Bank, established in  Lahore  in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the  Indian Mutiny, and the social, industrial and other infrastructure had improved.Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian  joint stock  banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitaliz ed and lacked the experience and maturity to compete with the presidency and exchange banks.This segmentation let Lord Curzon to observe,  Ã¢â‚¬Å"In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments. † The period between 1906 and 1911, saw the establishment of banks inspired by the  Swadeshi  movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as  Bank of India,  Corporation Bank,  Indian Bank,  Bank of Baroda,  Canara Bank  and  Central Bank of India.The fervour of Swadeshi movement lead to establishing of many private banks in  Dakshina Kannada  and  Udupi district  which were unified earlier and known by the name  South Canara  ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as â€Å"Cradle of Indian Banking†. During the  First World War  (1914–1918) through the end of the  Second World War  (1939–1945), and two years thereafter until the independence  of India were challenging for Indian banking.The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the  Indian economy  gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table: |Years |Number of banks |Authorised capital |Paid-up Capital | | |that failed |(Rs. Lakhs) |(Rs.Lakhs) | |1913 |12 |274 |35 | |1914 |42 |710 |109 | |1915 |11 |56 |5 | |1916 |13 |231 |4 | |1917 |9 |76 |25 | |1918 |7 |209 |1 | Post-Independence The  partition of India  in 1947 adversely impacted the economies of  Punjab  and  West Bengal, paralyzing banking activities for months. India's  independence  marked the end of a regime of the  Laissez-faire  for the Indian banking. The  Government of India  initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a  mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance.The major steps to regulate banking included: ? The  Reserve Bank of India, India's central banking authority, was established in April 1935, but was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b). ? In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) â€Å"to regulate, control, and inspect the banks in India†. ? The Banking Regulation Act also provided that no new ban k or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors. Nationalization in the 1960sDespite the provisions, control and regulations of  Reserve Bank of India, banks in India except the  State Bank of India  or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the  Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indra Gandhi, then  Prime Minister of India, expressed the intention of the  Government of India  in the annual conference of the All India Congress Meeting in a paper entitled  Ã¢â‚¬Å"Stray thoughts on Bank Nationalization. †Ã‚  The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden.The Government of India issued an ordinance (‘Banking C ompanies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalized  the 14 largest commercial banks with effect from the midnight of July 19, 1969. These banks contained 85 percent of bank deposits in the country. [5]  Jayaprakash Narayan, a national leader of India, described the step as a  Ã¢â‚¬Å"masterstroke of political sagacity. †Ã‚  Within two weeks of the issue of the ordinance, the Parliament  passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the  presidential  approval on 9 August 1969. A second dose of nationalization of 6 more commercial banks followed in 1980.The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged  New Bank of India  with  Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalized banks from 20 to 19. After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. Liberalization in the 1990s In the early 1990s, the then  Narasimha Rao  government embarked on a policy of  liberalization, licensing a small number of private banks.These came to be known as  New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce,  UTI Bank  (since renamed  Axis Bank),  ICICI Bank  and  HDFC Bank. This move, along with the rapid growth in the  economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the I ndian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions. The new policy shook the Banking sector in  India  completely.Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more. Current period By 2010, banking in India was generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sh eets relative to other banks in comparable economies in its region.The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the  Indian Rupee  is to manage volatility but without any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially  retail banking, mortgages and investment services are expected to be strong. One may also expect M, takeovers, and asset sales. In March 2006, the Reserve Bank of India allowed  Warburg Pincus  to increase its stake in  Kotak Mahindra Bank  (a private sector bank) to 10%.This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them. In recent years critics h ave charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide. State Bank of India & Its Subordinates [pic] 1. Introduction State Bank of India  (SBI) is a  banking  and  financial services  company based in India.It is a  state-owned  corporation with its headquarters in  Mumbai, Maharashtra. As of March 2012, it had assets of  US$360 billion and 14,119 branches, including 157 foreign offices in 32 countries across the globe making it the largest banking and financial services company in India. The bank traces its ancestry to  British India, through the  Imperial Bank of India, to the founding in 1806 of the  Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two presidencies banks—Bank of Calcutta and Bank of Bombay—to form the Imperial Bank of India, which in turn became the State Bank of India.The  Government of India  nationalized the Imperial Bank of India in 1955, with the  Reserve Bank of India  taking a 60% stake, and renamed it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI has been ranked 285th in the  Fortune Global 500  rankings of the world's biggest corporations for the year 2012. SBI provides a range of banking products through its network of branches in India and overseas, including products aimed at  non-resident Indians  (NRIs). SBI has 14 regional hubs and 57 Zonal Offices that are located at important cities throughout the country. SBI is a regional banking behemoth and has 20% market share in deposits and loans among Indian commercial banks.The State Bank of India was named the 29th most reputed company in the world according to  Forbes  2009 rankings and was the only bank featured in the â€Å"top 10 brands of India† list in an annual survey conducted by  Brand Finance  and  The Economic Times  in 2010. History The roots of the State Bank of India lie in the first decade of 19th century, when the  Bank of Calcutta, later renamed the  Bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the  Bank of Bombay (incorporated on 15 April 1840) and the  Bank of Madras  (incorporated on 1 July 1843). All three Presidency banks were incorporated as  joint stock companies  and were the result of the  royal charters. These three banks received the exclusive right to issue paper currency till 1861 when with the Paper Currency Act; the right was taken over by the Government of India.The Presidency banks amalgamated on 27 January 1921, and the re-organized banking entity took as its name  Imperial Bank of India. The Imperial Bank of India remained a j oint stock company but without Government participation. Pursuant to the provisions of the State Bank of India Act of 1955, the  Reserve Bank of India, which is  India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955, the Imperial Bank of India became the State Bank of India. The  government of India  recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority.In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI. A process of consolidation began on 13 September 2008, when the  State Bank of Saurashtra  merged with SBI. SBI has acquired local banks in rescues. The first was the Bank of Behar (est. 1911), which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired National Bank of Lahore (est. 1942), which had 24 branches. Five y ears later, in 1975, SBI acquired Krishnaram Baldeo Bank, which had been established in 1916 in  Gwalior State, under the patronage of Maharaja  Madho Rao Scindia. The bank had been the Dukan Pichadi, a small moneylender, owned by the Maharaja. The new banks first manager was Jall N. Broacha, a Parsi.In 1985, SBI acquired the Bank of Cochin in  Kerala, which had 120 branches. SBI was the acquirer as its affiliate, theState Bank of Travancore, already had an extensive network in Kerala. 2. Associate banks SBI has five associate banks; all use the State Bank of India logo, which is a blue circle, and all use the â€Å"State Bank of† name, followed by the regional headquarters' name: ? State Bank of Bikaner & Jaipur ? State Bank of Hyderabad ? State Bank of Mysore ? State Bank of Patiala ? State Bank of Travancore Earlier SBI had seven associate banks, all of which had belonged to  princely states  until the government nationalised them between October 1959 and May 196 0.In tune with the first Five Year Plan, which prioritized the development of rural India, the government integrated these banks into State Bank of India system to expand its rural outreach. There has been a proposal to merge all the associate banks into SBI to create a â€Å"mega bank† and streamline the group's operations. The first step towards unification occurred on 13 August 2008 when  State Bank of Saurashtra  merged with SBI, reducing the number of associate state banks from seven to six. Then on 19 June 2009 the SBI board approved the absorption of  State Bank of Indore. SBI holds 98. 3% in State Bank of Indore. (Individuals who held the shares prior to its takeover by the government hold the balance of 1. 77%. ) The acquisition of State Bank of Indore added 470 branches to SBI's existing network of branches.Also, following the acquisition, SBI's total assets will inch very close to the  [pic]10 trillion marks. The total assets of SBI and the  State Bank of Indore  stood at  [pic]9,981,190 million as of March 2009. The process of merging of State Bank of Indore was completed by April 2010, and the SBI Indore branches started functioning as SBI branches on 26 August 2010. Non-banking subsidiaries Apart from its five associate banks, SBI also has the following non-banking subsidiaries: ? SBI Capital Markets  Ltd ? SBI Funds Management Pvt Ltd ? SBI Factors & Commercial Services Pvt Ltd ? SBI Cards  & Payments Services Pvt. Ltd. (SBICPSL) ? SBI DFHI Ltd ? SBI Life Insurance Co. Ltd. ? SBI General InsuranceIn March 2001, SBI (with 74% of the total capital), joined with  BNP Paribas  (with 26% of the remaining capital), to form a joint venture life insurance company named SBI Life Insurance company Ltd. Nowadays, SBI Life Insurance Co. Ltd ranks among the top and most trusted Life Insurance Companies in India and also abroad. In 2004, SBI DFHI Ltd. (DISCOUNT AND FINANCE HOUSE OF INDIA) was founded with its headquarters in MUMBA I, MAHARASHTRA. SBIDFHI Ltd. is a primary dealer that trades in Fixed income securities (treasury bills, state development loans, government securities, non SLR bonds, corporate bonds) and Short Term Money Market instruments (certificates of deposit, commercial papers, inter-corporate deposits, call and money notice deposits).It is an institution formed by RBI to support the book building process in primary auctions of Government securities and to provide necessary depth and liquidity to the secondary market in Government securities. Reserve Bank of India [pic] The  Reserve Bank of India  (RBI) is India's  central banking  institution, which controls the  monetary policy  of the  Indian rupee. It was established on 1 April 1935 during the  British Raj  in accordance with the provisions of the Reserve Bank of India Act, 1934. The share capital was divided into shares of ? 100 each fully paid which was entirely owned by private shareholders in the beginning. Followin g India's independence in 1947, the RBI was nationalised in the year 1949. The RBI plays an important part in the development strategy of theGovernment of India. It is a member bank of the  Asian Clearing Union.The general superintendence and direction of the RBI is entrusted with the 21-member-strong Central Board of Directors—the  Governor  (currently  Duvvuri Subbarao), four Deputy Governors, two  Finance Ministry  representative, ten Government-nominated Directors to represent important elements from India's economy, and four Directors to represent Local Boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. Each of these Local Boards consist of five members who represent regional interests, as well as the interests of co-operative and indigenous banks. 1. Structure Central Board of Directors The Central Board of Directors is the main committee of the central bank. The  Government of India  appoints the directors for a four-year term. The Board co nsists of a governor, four deputy governors, fifteen directors to represent the regional boards, one from the Ministry of Finance and ten other directors from various fields. Governors The current Governor of RBI is  Duvvuri Subbarao.The RBI extended the period of the present governor up to 2013. There are four deputy governors. Supportive bodies The Reserve Bank of India has ten regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and serve—beside the advice of the Central Board of Directors—as a forum for regional banks and to deal with delegated tasks from the central board. The institution has 22 regional offices. The  Board of Financial Supervision  (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions.It has four members, appointed for two years, and takes measures to str ength the role of statutory auditors in the financial sector, external monitoring and internal controlling systems. Offices and branches The Reserve Bank of India has 4 zonal offices. It has 19 regional offices at most state capitals and at a few major cities in India. Few of them are located in  Ahmedabad, Bangalore,  Bhopal,  Bhubaneswar,  Chandigarh,  Chennai,  Delhi,  Guwahati, Hyderabad Jaipur,Jammu,  Kanpur,  Kolkata,  Lucknow,  Mumbai,  Nagpur,  Patna,and  Thiruvananthapuram. Besides it has 09 sub-offices. 2. History 1935–1950 The Reserve Bank of India was founded on 1 April 1935 to respond to economic troubles after the  First World War. It came into picture according to the guidelines laid down by  Dr. Ambedkar.RBI was conceptualized as per the guidelines, working style and outlook presented by Dr Ambedkar in front of the Hilton Young Commission. When this commission came to India under the name of â€Å"Royal Commission on Indian Cur rency & Finance†, each and every member of this commission were holding Dr Ambedkar’s book named â€Å"The Problem of the Rupee – It’s origin and it’s solution. †Ã‚  The Bank was set up based on the recommendations of the 1926 Royal Commission on Indian Currency and Finance, also known as the Hilton–Young Commission. The original choice for the seal of RBI was The East India Company  Double Mohur, with the sketch of the Lion and Palm Tree. However it was decided to replace the lion with the tiger, the national animal of India.The Preamble of the RBI describes its basic functions to regulate the issue of bank notes, keep reserves to secure monetary stability in India, and generally to operate the currency and credit system in the best interests of the country. The Central Office of the RBI was initially established in Calcutta (now Kolkata), but was permanently moved to Bombay (now Mumbai) in 1937. The RBI also acted as Burma's centra l bank, except during the years of the  Japanese occupation of Burma  (1942–45), until April 1947, even though Burma seceded from the Indian Union in 1937. After the  Partition of India  in 1947, the Bank served as the central bank for  Pakistan  until June 1948 when the  State Bank of Pakistan  commenced operations.Though originally set up as a shareholders’ bank, the RBI has been fully owned by the  Government of India  since its nationalization in 1949. 1950–1960 In the 1950s, the Indian government, under its first Prime Minister  Jawaharlal Nehru, developed a centrally planned economic policy that focused on the agricultural sector. The administration nationalized commercial banks and established, based on the Banking Companies Act of 1949 (later called the Banking Regulation Act), a central bank regulation as part of the RBI. Furthermore, the central bank was ordered to support the economic plan with loans. 1960–1969 As a result of bank crashes, the RBI was requested to establish and monitor a deposit insurance system.It should restore the trust in the national bank system and was initialized on 7 December 1961. The Indian government founded funds to promote the economy and used the slogan Developing Banking. The Government of India restructured the national bank market and nationalized a lot of institutes. As a result, the RBI had to play the central part of control and support of this public banking sector. 1969–1985 In 1969, the  Indira Gandhi-headed government nationalized 14 major commercial banks. Upon Gandhi's return to power in 1980, a further six banks were nationalized. The regulation of the economy and especially the financial sector was reinforced by the Government of India in the 1970s and 1980s.The central bank became the central player and increased its policies for a lot of tasks like interests, reserve ratio and visible deposits. These measures aimed at better economic development and had a huge effect on the company policy of the institutes. The banks lent money in selected sectors, like agri-business and small trade companies. The branch was forced to establish two new offices in the country for every newly established office in a town. The  oil crises  in 1973 resulted in increasing  inflation, and the RBI restricted monetary policy to reduce the effects. 1985–1991 A lot of committees analysed the Indian economy between 1985 and 1991. Their results had an effect on the RBI. The  Board for Industrial and FinancialReconstruction, the  Indira Gandhi Institute of Development Research  and the  Security & Exchange Board of India  investigated the national economy as a whole, and the security and exchange board proposed better methods for more effective markets and the protection of investor interests. The Indian financial market was a leading example for so-called â€Å"financial repression† (Mackinnon and Shaw). The  Discount a nd Finance House of India  began its operations on the monetary market in April 1988; theNational Housing Bank, founded in July 1988, was forced to invest in the property market and a new financial law improved the versatility of direct deposit by more security measures and liberalisation. 1991–2000 The national economy came down in July 1991 and the Indian rupee was devalued.The currency lost 18% relative to the  US dollar, and the  Narsimahmam Committee  advised restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point should reinforce the market and was often called  neo-liberal. The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets. This first phase was a success and the central government forced a diversity liberalisation to diversify owner struct ures in 1998. The  National Stock Exchange of India  took the trade on in June 1994 and the RBI allowed nationalized banks in July to interact with the capital market to reinforce their capital base.The central bank founded a subsidiary company—the  Bharatiya Reserve Bank Note Mudran Limited—in February 1995 to produce banknotes. Since 2000 The  Foreign Exchange Management Act  from 1999 came into force in June 2000. It should improve the foreign exchange market, international investments in India and transactions. The RBI promoted the development of the financial market in the last years, allowedonline banking  in 2001 and established a new payment system in 2004–2005 (National Electronic Fund Transfer). The  Security Printing & Minting Corporation of India Ltd. , a merger of nine institutions, was founded in 2006 and produces banknotes and coins.The national economy's growth rate came down to 5. 8% in the last quarter of 2008–2009  and t he central bank promotes the economic development. Main functions Bank of Issue Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Monetary authorityThe Reserve Bank of India is the main monetary authority of the country and beside that the central bank acts as the bank of the national and state governments. It formulates implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors. Regulator and supervisor of the financial system The institution is also the regulator and supervisor of the financial system a nd prescribes broad parameters of banking operations within which the country's banking and financial system functions. Its objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.The  Banking Ombudsman Scheme  has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the  product and has to decide the design of the rupee banknotes as well as coins. Managerial of exchange control The central bank manages to reach the goals of the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. Issuer of currency The bank issues and exchanges or destroys currency notes and coins that are not fit for circulation.The objectives are giving the public adequat e supply of currency of good quality and to provide loans to  commercial banks  to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the country so that it can achieve the objective of price stability as well as economic development, because both objectives are diverse in themselves. Banker of Banks RBI also works as a central bank where commercial banks are account holders and can deposit money. RBI maintains banking accounts of all scheduled banks. Commercial banks create credit.It is the duty of the RBI to control the credit through the CRR, bank rate and open market operations. As banker's bank, the RBI facilitates the clearing of cheques between the commercial banks and helps inter-bank transfer of funds. It can grant financial accommodation to schedule banks. It acts as the lende r of the last resort by providing emergency advances to the banks. It supervises the functioning of the commercial banks and take action against it if need arises. Detection of Fake currency In order to curb the fake currency menace, RBI has launched a website to raise awareness among masses about fake notes in the market. [pic] [pic] Policy rates and reserve ratiosBank Rate RBI lends to the commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements for long term. The Interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if RBI wants to reduce the liquidity and money supply in the system, it will increase the bank rate. As of 25 June 2012 the bank rate was 8. 0%. latest bank rate is 7. 75% as on 29/01/2013. Reserve requirement cash reserve ratio (CRR) Every commercial bank has to keep certai n minimum cash reserves with RBI.Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate, [Before the enactment of this amendment, in terms of  Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 5% and 20% of total of their demand and time liabilities]. RBI uses this tool to increase or decrease the reserve requirement depending on whether it wants to effect a decrease or an increase in the money supply. An increase in Cash Reserve Ratio (CRR) will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits and they will lend less. This will in turn decrease the money supply. The current rate is 4. 75%. ( As a Reduction in CRR by 0. 25% as on Date- 17 September 2012). -25 basis points cut in Cash ReserveRatio(CRR) on 17 September 2012, It will release Rs 17,000 crore into the system/Market. The RBI lowered the CRR by 25 basis points to 4. 25% on 30 October 2012, a move it said would inject about 175 billion rupees into the banking system in order to pre-empt potentially tightening liquidity. The latest CRR as on 29/01/13 is 4% Statutory Liquidity ratio (SLR) Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact.A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities. IN OTHER WORDS ITS A TOOL SIMILAR TO CRR BUT AT HIGHER RATIO In well-developed economies, central banks use open market operations—buying and selling of eligible securities by central bank in the money market—to influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the commercial and industrial sectors. In the open money market, government securities are traded at market related rates of interest. The RBI is resorting more to open market operations in the more recent years.Generally RBI uses three kinds of selective credit controls: 1. Minimum margins for lending against specific securities. 2. Ceiling on the amounts of credit for certain purposes. 3. Discriminatory rate of interest charged on certain types of advances. Direct credit controls in India are of three types: 1. Part of the interest rate structure i. e. on small savings and provident funds, are administratively set. 2. Banks are mandatory required to keep 23% of their deposits in the form of government securities. 3. Banks are required to lend to the priority sectors to the extent of 40% of their advances. Punjab State Co-Operative Bank [pic] 1. Introduction [pic]Welcome to  The Punjab State Cooperative Bank Ltd. (PSCB) Experience a whole new Era of Banking Technology. Where banking is made easier and convenient for our customers. The Punjab State Cooperative Bank provides you with the New Generation banking architecture to progress in the future in an evolutionary manner. Punjab State Cooperative Bank (PSCB) is customer centric. 2. History The Punjab State Cooperative Bank was established on 31st August, 1949 at Shimla vide registration No. 720 has a principle financing institution of the cooperative movement in Punjab. In 1951 its Head Office was shifted to Jalandhar from where it moved in 1963 to its present building at Chandigarh.In the cooperative Banking structure, the position of the Punjab State Cooperative Bank is extremely important as the whole credit system revolves around it. It has 19 branches and 1 extension co unters in Chandigarh. There are 20 District Central Cooperative Banks having 804 branches all over Punjab, mostly in rural areas of the State. 3. Profile |THE PUNJAB STATE COOPERATIVE BANK LTD. CHANDIGARH | |ORGANISATION | |  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  The Punjab State Cooperative Bank Chandigarh  was established on 31 August 1949 at shimla vides Registration No. 720 as a | |principal financing institution of the cooperative movement in the state.It has 19 branches and 1 extension counters in the | |city of Chandigarh. 20 Central Cooperative Banks having 786 branches and 18 Extension Counters in the State of Punjab are | |affiliated with the bank. In the Cooperative banking structure the position of the Punjab State Coop Bank is extremely | |important as a the whole short term credit system revolves around it. This bank ensures that its member central cooperative | |banks follow sound banking practices and observe strict financial discipline. The Central Cooperative Banks are financin g the | |farmers through PACS at the village Level. There is no arena of life where this premier institution has not played its part. |From a farmer, artisan to traders/businessman, everybody has been covered in the fold of this institution. The green, white | |and sweet revolutions in the state of Punjab are some of the major achievement in which this institution has plays a vital | |role. | |The Punjab State Cooperative Bank has already been awarded   â€Å"BEST PERFORMANCE AWARD† from NABARD and NAFSCOB. For the year | |2003-04, Punjab Cooperative Bank has been selected for NABARD’s â€Å"Best Performance Award â€Å" which is based on performance of all| |the SCBs in the country. Similarly our Jalandhar DCCB has also been selected for NABARD’s â€Å"Best Performance Award† out of all | |the DCCBs in the country for the year 2003-04. |OBJECTIVES | |To serve as a Balancing Centre for Cooperative Societies in the State for Cooperative Societies in t he State of Punjab | |registered under the Punjab Cooperative Societies Ac, 1961 for the time being in force. | |To promote the economic interest of the member banks and cooperative societies in the state in accordance with cooperative | |principles and to facilitate the development and funding of any cooperative society registered under the said act. | |To carry on banking and credit business. | |MANAGEMENT | |The present Board of Directors was constituted in May 2005. Now the management of the bank is being looking after by the | |elected BOD. | 4.Organization [pic] 5. Board of Directors |SNO |Name |Designation |Contact No. |Address | |1. |Sh. Avtar Singh Zira |Chairman |0172-5067035 |Makhu Road,  VPO: Zira, | | |S/o Sh. Hari Singh | | |  Distt :Ferozepure | | |Zira | | | | |2. |Sh. Milap Singh S/o |Director |98147-83077 |Khajanewala house,Gobind Nagar,SW Road | | |Sh.Jasbir Singh | | |Amritsar | |3. |Sh. Gurpreet Singh |Director |94172-3778 |95, Model Town ,Phase   3 ,Bhati nda | | |Maluka   S/o   Sh. | | | | | |Sikander Singh Maluka | | | | |4. |Sh. Baljit Singh |Director |97803-00916 |VPO Salempur   P. O Bras, | | |Bhutta   S/o Sh Baldev | | |  Distt.Fathegarh Sahib | | |Singh | | | | |5. |Sh. Ravikiran Singh |Director |97804-00002 |H. No 649, Basant Avenue, | | |Kahlon  Ã‚   S/o Sh. | |97819-00001 |Amritsar | | |Nirmal Singh Kahlon | | | | |6. |Sh. Satwinderpal Singh|Director |98761-08332 |Village Ramdaspur,   | | |Dhat  Ã‚   S/o Sh. Mohan | | |  The.Dasuha  , | | |Singh | | |  Distt. Hoshiarpur | |7. |Sh. Harjit Singh |Director |98140-57531 |Khothran Road , | | |Parmar S/o Sh. | | |  Near J. C. T MillPhagwara ,   | | |Gurbachan Singh Parmar| | |  Kapurthala | |8. |Sh. Tajinder Singh |Director |97806-00019 |VPO Mithukhera   , | | |Mithukhera   S/o Sh. | |   Malot, | | |Gurnam Singh | | |  Distt. Muktsar | |9. |Sh. Dildar Singh S/o |Director |95925-83101 |Vill. Majra Kalan,   P. O. Jadlan ,   | | |Sh. Ranjit Si ngh | | |Distt. Nawanshahr | |10. |Sh. Jarnail Singh S/o |Director |97800-32206 |VPO Kartarpur, Charaso, Distt. Patiala | | |Sh. Hajara Singh | | | | |11. |Sh.Baldev Singh S/o |Director |94631-47642 |VPO Chakla, Chamakaur Sahib, Distt. Ropar | | |Sh. Gurnam Singh | | | | |12. |Sh. Baljit Singh |Director |99889-10417 |H. NO. 621,   WardNo. 11    , DerraBassi, Distt. | | |Karkaur S/o Sh. Gurdev| | |Mohali | | |Singh | | | | |13. |Sh. Kanwaljeet Singh |Director |97799-15100 |H.No 7/250, Shastri Nagar , Batala , Distt. | | |S/o Sh. Raghbir Singh | | |Gurdaspur | |14. |Sh. Sukhdarshan Singh |Director |98765-61261 |The Punjab State cooperztive Agriculture | | |Marar, S/o Sh. Narayan| | |Development Bank Ltd. ,   Sec 17 B , | | |Singh | | |Chandigarh | |15. | |CGM, NABARD |5071431,2604608 |Plot No. 3  Ã‚  , | | | | |  Sector-34 A ,   | | | | | |  Candigarh. | |16. | |Financial |2742771 |Cooperation Dept. | | | |Commissioner | |  Civil Sectt ,   | | | |Cooperation, Punjab | |  Punjab Chandigarh | |17. | |Principal Sectary | | | | | |Finance | | | |18. |Registrar, |5046814 |RCS , Punjab , | | | |Cooperative | |  Sector-17 Bays Building , | | | |Societies, Punjab | |  Chandigarh | |19. |Sh. Kamaljeet Singh |Managing Director |5061404 |Punjab State Coop. Bank Ltd. | | |Sangha |PSCB Chandigarh | |  SCO: 175-187,   | | | | | |  Sector-34A, | | | | | |  Chandigarh. | 6. AWARDS & ACHIEVEMENTS AWARDS   | |The Punjab State Cooperative Bank has already been awarded â€Å"BEST PERFORMANCE AWARD† from NABARD and NAFSCOB. For the year | |2003-04, Punjab Cooperative Bank has been selected for NABARD's   â€Å"Best Performance Award † which is based on performance of | |all the SCBs in the country. Similarly our Jalandhar DCCB has also been selected for NABARD’s â€Å"Best Performance Award† out of| |all the DCCBs in the country for the year 2003-04. | |   | |ACHIEVEMENTS   | | | |S. T. AGRI.LOAN | |The Cooperativ e Banks in the State have advanced Rs. 7536. 33 Crores as ST Agri. Loan during the year 2009-10 as compared to | |Rs. 5894. 28 crore during 2008-09. Similarly during 2010-11, Rs 8497. 15 crores stand disbursed. Against the target of | |Rs. 8300. 00 Crores. | | | |R. C. C. LIMIT | |During 2009-10 the Central Coop. Banks in Punjab have sanctioned R. C. C limits worth Rs. 2296. 62 crores  as compared to | |Rs. 2091. 75 crore of 2008-09.During the year 2010-11 the bank has sanctioned RCC limits worth Rs. 2460. 79 crore. | | | |TWO WHEELER LOANS TO AGRICULTURISTS | |Under Two Wheeler Loan Scheme the farmers can take loan up to 75% of two-wheeler’s cost or Rs. 50,000/- whichever is lower | |from the Central Cooperative Banks. During the year 2009-10, the Bank has advanced a sum of Rs. 32. 67 crore. Similarly, during| |2010-11, Rs. 29. 70 crore has been advanced against the target of Rs. 40. 00 crore. | | |HOUSING LOANS | |During the year 2008-09 Central Cooperative Banks in th e State have advanced Rs. 90. 66 Crores against the target of Rs. 80. 00 | |crores. | |During 2009-10, Rs. 86. 64 crores has been disbursed against the target of Rs. 110. 00 crore. During 2010-11 Rs. 84. 56 crore has | |been disbursed . | | | |NON FARM SECTOR LOANS | |During 2008-09 Rs 47. 72 crores were advanced under the scheme by DCCBs in the State of Punjab. | |During the year 2009-10, Rs. 48. 84 crores has been advanced. | |Similarly during 2010-11, Rs. 41. 93 crore has been advanced against the target of Rs. 55. 00 crore. | | |LOAN FOR CONSUMER DURABLES | |Under  Consumer  Durables Loan Scheme, Rs. 79. 62 crores  has been advanced during 2009-10. Similarly, during 2010-11, Rs. 78. 25 | |crore has been advanced against the target of  Ã‚  Ã‚  Ã‚   Rs. 80. 00 Crores . | | | |PERSONAL LOAN SCHEME | |Under Personal Loan Scheme, the Bank has advanced Rs. 143. 58 crore during the year 2009-10 against the target of Rs. 125. 00 | |crore. During 2010-11, Rs. 62. 41 crore has been disbursed  against the target of Rs. 150. 00 crore. | | | |DEPOSIT MOBILIZATION | |The deposit of Punjab State Coop. Bank and Central Cooperative Banks were Rs. 9819. 09 crores during the year 2009-10. During | |the year 2010-11 the deposits are Rs. 10684. 54 crore. | | | |PROFITS | |During 2010-11, there was a profit Rs. 65. 17 crore whereas 2 DCCB, namely; Faridkot and Mansa were in loss. | | |REDUCTION IN THE RATE OF INTEREST | |Rate of Interest on Crop Loan has been reduced to 7. 00% w. e. f. 01-04-2006. | 7. Future Planning and Vision |  Future Perspective | |Cooperatives are not unaffected by structural adjustments and globalization of commodity market. As a result, Cooperative Banks| |are required to redesign their strategies for sustainability and growth. The economic reforms initiated by the government of | |India in 1991 have affected the Financial Institutions ncluding the Cooperative Financial Institutions. These reforms aim at | |liberalization and deregulati on of Indian economy. | |The Cooperative Banks of Punjab have accepted the reforms in Indian economy, especially, the financial reforms in right spirit. | |Since these Banks have mainly been providing credit to agriculture sector, changes in agricultural economy affect them more | |closely. The Banks envisage following scenario as a result of liberalized agricultural policy : | |Liberalization of agricultural policy would result in greater capital intensity and borrowed capital requirements of | |agriculturists.In order to induce diversification and produce quality products for international market. For this purpose, | |Punjab farmers would need greater credit support for improved technology, seeds and agro-inputs. | |Liberalized agricultural policy would reverse the process of fragmentation of land holdings and would result in exodus of | |employment opportunities from agricultural sector to other sectors of economy. Such as small business enterprises, services and | |industrial se ctor. | |Liberalization of agriculture would professionalize and modernize agriculture, thereby earning a status of industry attracting | |high skilled professionals in agriculture sector. |Liberalized agricultural economy would lead to a greater role of private research and development institutions in improving the | |productivity and quality of agricultural operations. | |The liberalized agricultural policy would result in greater thrust on value addition in agriculture. Therefore, a great deal of | |thrust would be on agro-processing units. | |The liberalized agricultural policy would bring greater thrust on export of raw and value added agro-products. | |The liberalized agricultural economy would lead to sowing/planting of new crops. Leading to a great deal of crop | |diversification. | |With this perspective, the Cooperative Credit Policy, both for short-term and long term requirements of the farmers, needs to | |be restructured.Accordingly, the Cooperative Banks in the State r esolve to pursue credit policy in keeping with the | |following. | Vision ? We will force the future challenges with grit and take every possible step for the development of our institution. ? More steps will be taken to provide efficient services. ? Present customers will be retained and other customers will be attracted to increase market share. ? Bank will attract maximum deposit (especially low cost deposit) to strengthen its financial resources so as to reduce its dependency upon NABARD. ? Bank while diversifying its loan portfolio will provide medium term and long term loans to the maximum extent. Every effort will be made to open account of all the farmers of the State. Bank will receive deposits from Farmers and meet all their credit needs. ? Bank, for the sake of development of State, will strive hard to provide maximum and better services to customers especially farmers and for this wherever necessary, every effort will be made to modify the schemes. ? Bank will prepare it s business plan every year and by implementing it, goals set will be achieved. ? Bank will professionalize and modernize the business. 8. Training Center [pic] Introduction Agriculture  cooperative Staff Training Institute in the State of Punjab was established in 1986 by the Punjab State Cooperative Bank Ltd.With the Financial assistance from National Cooperative Development Corporation Under World Bank –NCDC Project. The main aim of setting up this institute was to provide training to the staff and committee members as well as education to the ordinary members of the Primary Agricultural Services Societies (PACS) during the project period of 5 years. After successfully completion of the Project the institute started catering to the training needs of the whole short term credit cooperative in Punjab [particularly cooperative banks from 2001. The institute is running various training programmed for different categories of staff of cooperative bank.The Punjab State Cooperati ve Bank is giving high priority for the training of its staff as well as staff of its member banks. The institute is getting full support from the bank in the field of training. The institute is acting for the development of a cadre of professional bankers to meet the challenges of changing banking scenario. Since 1991, there has been tremendous change in banking sector which had affected cooperative bank to a great extent. The Tara pore Committee, Narsimham Committee and Vaidyanathan Committee recommendations have put profound challenges to cooperative banks. The technological changes in the banking sector are also affecting these banks.This institute is aware of these transformations and has geared up its training plans. The training institute of Cooperative banks cannot remain passive but must play an active role in providing consultancy, latest knowledge and skills to cooperative banks. Acting as a catalyst in the change process, this institute has decided to diversify its activ ities to face the challenge of time. Objective ? Sensitizing the   banks of the challenges ahead and to prep[are the employees to meet these challenges ? Improving the operational efficiency of cooperative bank. ? Building up the managerial and leadership abilities among the officers for organizational effectiveness. TRAINING NEEDS ASSESSMENTThis institute assesses the training needs of the staff in the following ways. 1. Anticipation of the latest Development –  Latest developments in economic and banking sectors (Capital Adequacy Norms, Asset Liability Management, Prudential Norms, and Recommendation of various Committees) are considered as Training requirement. 2. Demand from Central Cooperative Banks –  Various central cooperative banks at different occasions approach the institute to provide training to their staff in specific area. On the request of those banks the institute conducts field programmers as per the convenience of the client banks. 3. Policy ma tters of Management  Ã¢â‚¬â€œ The institute keeps in touch with the olicy decision of the Reserve Bank of India, NABARD central Government RCS and Apex Bank Management, Institute develops and organizes training programmed for effectives implementation of these decisions. 4. Faculty Members Visit  Ã¢â‚¬â€œ Faculty member of this institute frequently visit cooperative banks at different intervals to study operational problems of the banks and to identify the training needs of the staff. 5. Audit Reports and Inspection Reports  Ã¢â‚¬â€œ These reports do provide useful indication for the training needs in banks. We continuously study these reports to find out procedural gaps and problems of the banks. COURSE DESIGN The training programmers are designed by conducting a critical analysis of training needs of Bank Staff.Each member of faculty is advised to design at least two training programmers in a year. The training programmed along with detailed course contents prepared by them is then discussed in a faculty meeting. In this meeting the members of faculty meeting. In this meeting the members of faculty share thei

Chapter 4 : Account Titles and Preparation of Financial Statements

Chapter 4 : Account Titles and Preparation of Financial Statements| Article 14 : The balance sheet items shallbe categorized as follows: 1. Assets. (1) Current assets. (2) Funds and long-term investments. (3) Property, plant and equipment. (4) Depletable assets. (5) Intangible assets. (6) Other assets. 2.Liabilities. Article 15 : Current assets mean unrestricted cash and cash equivalent, short-term investments, and other assets that are convertible to cash or expended within one year. Categorization and evaluation of current asset titles along with required explanatory notes are as follows: 1.Cash and Cash equivalent: cash on hand, deposits with banks, cash for revolving use, petty cash, and short-term and highly liquid investment that can be converted into a fixed amount of cash with interest fluctuation having small impact thereon, excluding those already set aside for use or restricted by law or contract; the account nature and required notes are as follows: (1) Non-demand-deposit s with maturity over a year shall be specified. 2) Time deposits (including negotiable certificates of deposit) shall be reclassified as other assets if provided as lien for a long-term liability or as other current liabilities if provided as lien for a current liability, and shall be specified in the notes for the fact of collateralization.Refundable deposit shallbe classified as a current or other asset by the long- or short-term nature, and shall be specified in the notes. (3) Compensating balances shall be classified as current assets if arising from short-term loans, or reclassified as other assets or long-term investments if arising from long-term liabilities. 2.Short-term investment: defined as investment that is short-term; the nature of titles and evaluation thereof and the required explanatory notes are as follows: (1) Financial asset with change in fair value being recorded as gains or losses and financial asset available for sale shall be valued using the fair value on t he balance sheet date; the fair value of listed or OTC stock and depository receipts indicate the closing price on the balance sheet date. 2) Financial assets which need to be sold within a short period of time, thus changing in fair value and incurring a gain or loss, must be reflected in the financial assets records or when determining how to measure the gains or losses, you decided on using fair value to reflect these changes in fair value, these figures must also be reflected in your financial asset records. 3) Financial asset available for sale shall mean the non-derivative financial assets other than the financial assets with change in fair value being recorded into gains or losses, which financial assets are to be held until the date of expiry. 4) Short-term investments provided as a lien, collateral or refundable deposit shall be recorded as a short-term investment if the liability for such an investment is provided as a guarantee; if a short-term investment is provided as a guarantee for a long-term liability, such investments shallbe recorded as long-term investments. Facts regarding the guaranteeshall be specified in either case. 3.Hedging financial assets: defined as the financial assets set up in hedging accounting, which are used as effective hedging tools, shall be measured by fair value and divided into current and non-current according to the liquidity of the items to be hedged; non-current hedging financial liabilities shall be recorded as hedging financial liabilities under other assets. 4. Notes Receivable: defined as various notes which are collected by the business entity.The accounting nature, valuation and required notes are as follows: (1) Shall be valued at the present value, or may be valued at the face value if maturing within one year. (2) Notes receivable that were discounted or transferred to others shall be deducted and specified. (3) Notes receivable arising from operations shall be presented separately from those not arising f rom operations. 4) Large-sum notes receivable from related persons shall be presented individually. (5) Notes receivable that are provided as collateral shall be specified in the notes. (6) Notes receivable determined to be uncollectible shall be written off. (7) Notes receivable shall be valued at closing for the uncollectible amount, and any allowance for the uncollectible amount shall be properly provided and presented as the contra account of the notes receivable. 5.Accounts Receivable: defined as the claim of the business entity arising from selling goods or services; the accounting nature, valuation and required notes are as follows: (1) Shall be valued at the present value or may be valued at the book value if maturing within one year. (2) Large-sum accounts receivable from related persons shall be presented individually. (3) Unrealized interest revenues from installment sales shall be presented as the contra account of the accounts receivable. 4) Accounts receivable to be co llected over one year, shall be specified in the notes for the amount of expected collection of each year. (5) â€Å"Designated Collateralized Accounts Receivable† shall be disclosed in the notes. (6) Accounts receivable that includes receivables from a long-term construction contract shall be presented and specified in the notes for the reserved portion that has been billed as it pertains to the construction account.Where the expected collection of the reserved amount runs past one year, the expected amount of collection for each year shall be specified in the notes. (7) Accounts receivable determined as uncollectible shall be written off. (8) Accounts receivable shall be valued at closing for the uncollected amount, and an allowance for the uncollectible amount shall be properly provided and presented as the contra account of the accounts receivable. . Other Receivables: defined as the receivables that do not belong to the categories of receivables in the preceding paragrap h; the account nature, valuation and required notes are as follows: (1) Other receivables exceeding five percent of the sum of current assets shall be presented separately by nature or object. 2) Other receivables shall be valued at closing for the uncollected amount, and an allowance for the uncollected amount shall be properly provided and presented as the contra account of the receivables. Where the receivables are classified greater detail, , the allowance account shall also be presented accordingly. 7.Inventories: defined as merchandise or goods, either finished goods or by-products for sale in normal operations along with goods that are work-in-process to be sold upon completion, or raw materials or supplies used directly or indirectly in the production of goods (or services) for sale; the account nature, valuation and required notes are as follows: (1) Inventories shall be valued using the lower of cost or market price method. 2) Inventories with defect, damage or obsolescenc e causing an obvious decline in value shall be valued based on the net realizable value. (3) Inventories that are provided as lien or guarantee, whose usage is supervised by creditors, etc. shall be specified. 8. Prepayments: defined as various costs and expenses prepaid.With exception for funds required by contract for the purchase of fixed assets and construction funds for unfinished construction funds, which should both be categorized as fixed assets. 9. Other Current Assets: defined as current assets that do not belong to the previous seven categories of current assets. However, any of the previous categories of current assets, with the exception of cash, not exceeding five percent of the sum of current assets may be merged into other current assets. Article 16 : Funds and long-term investments are defined as the various funds set aside for operational purposes and long-term investments used by the business for special purposes; the account categories, valuation and required not es are as follows: 1. Funds: defined as assets provided for special purposes, including sinking funds, improvement and expansion funds, contingency loss funds and other related mutual funds. The resolution and implementation method on which appropriation of the funds is based shall be specified. 2.Long-term Investments: defined as investments of a long-term nature, such as investment in other enterprises, purchases of long-term bonds or investments in real estate or other related investments; the account nature, valuation and required notes are as follows: (1) Long-term investments shall be specified for the valuation basis and shall be presented separately by nature. (2) The accounting handling of long-term equity investments valued by equity method shall follow the provisions of the Statement of Financial Accounting Standards No. announced by the Accounting Research and Development Foundation of the Republic of China (hereinafter referred to as the â€Å"Statement of Financial Ac counting Standards†). (3) The accounting handling of long-term equity investments not valued by the equity method shall follow the provisions outlined in the Statement of Financial Accounting Standards No. 34. (4) Long-term investments that are provided as lien or subject to restrictions, limitations, etc. hall be specified. (5) Long-term equity investments measured by cost means those who possess the following securities without material impact or the derivative products moving along with such securities and deliver through such securities: 1. Equity securities that are not traded at the stock exchange or not traded over the OTC. 2. Emerging stock. (6) Financial assets in held-to-maturity: defined as non-derivative financial asset with fixed or determined collection amounts and date of expiry, which business have aggressive intent and capability to hold until the date of expiry. Bond investments which are held until the date of expiry shall be measured by amortized cost; inve stments held until the date of expiry that expire within one year shall be recorded as a current asset. (7) Bond investments measured by amortized cost: defined as bond investment without the open quote of active market with fixed or determined collectable amount that meet the following conditions: 1.Not destined to be measured by fair value and the change of fair value being recorded as gains and losses. 2. Not destined to be available for sale. | Article 17 : Fixed assets defined as tangible assets which are provided for use in operations, not intended for sale, and used for more than one year; the account categories, valuation and required notes are as follows: 1.Land: defined as land or permanent land improvements used in operations; its valuation includes acquisition costs, land improvements of a permanent nature and increases in value from revaluation, etc. The estimated reserve provided for land value increment tax on the increase in value from revaluation shall be classified as a long-term liability.Land that is temporarily registered under the name of others, rather than that of the business entity itself, due to legal restrictions shall be disclosed in the notes and all safeguarding measures shall be specified. 2. Buildings: defined as self-owned building and structures and other accessory facilities; the valuation includes acquisition costs of the building and structures, capitalized expenditures after acquisition that extend the useful life or ervice potential of the asset, and increases in value from revaluation. 3. Machinery and Equipment: defined as self-owned machinery or shall be valued at cost and may be classified as fixed assets or intangible assets. Leasehold improvements must be depreciated or amortized reasonably and systematically without interruption based on its durable lifespan or lease term, depending which one comes first, then they can be transferred as a compensation in a rational and systemic method or share its cost. . Miscella neous Fixed Assets: defined as the assets that do not belong to the previous five categories; the valuation includes acquisition costs and capitalized expenditures prior to acquisition which extend the useful life or service potential of the asset, thus increasing in value from revaluation. 7.Construction in Progress and Prepayment for Equipment: defined as construction operations that are in process or installations that are unfinished along with prepayments for purchases of fixed assets to be used in operations The valuation includes the costs incurred during the process of construction and installation. Fixed assets should be specified for the valuation basis and, if revalued, the date of revaluation and the amount of increase or decrease must also be specified.With the exception of land, other fixed assets, upon reaching an useable condition, shall be depreciated reasonably and systematically during each period without interruption with the depreciation method specified, and the depreciation shall be transferred by nature to expenses or indirect manufacturing costs of each period; the accumulated depreciation shall be presented as the contra account of the fixed asset. Fixed assets with no operation value shall e regarded as other assets below the net realizable value or book value. The cost and accumulated depreciation of the assets that have no net realizable value must be written off and the difference shall be recognized as a loss. A fixed asset that is still in use after its service life shall be depreciated based on the salvage value. Fixed assets that are provided as guarantee, mortgage, collateral, etc. shall be specified. Article 18 : Depletable assets are defined as natural resources whose value decreases after extraction, cutting or other means of alteration; the account valuation and required notes are as follows: 1. Depletable assets shall be recorded according to the exact cost of acquisition, exploration and development. 2. Depletable assets should be specified for the valuation basis and, if revalued, the date of revaluation and the amount of increase should be specified. . Depletable assets shall be depleted reasonably and systematically each period without interruption within the estimated extraction or useful life with the depletion method specified. The depletion shall be transferred to inventories or cost of goods sold. The accumulated depletion shall be presented as the contra account of the depletable asset. 4. Depletable assets that are provided as guarantee, mortgage, collateral, etc. shall be specified. Article 19 : Intangible assets are defined as assets of economic value but without physical existence; the account categories, valuation and required notes are as follows: 1. Trademarks: defined as trademarks that are legally acquired or purchased; the valuation thereof shall use the unamortized cost. 2. Patents: defined as patents that are legally acquired or purchased; the valuation thereof shall use the un amortized cost. 3. Copyright: defined as the rights to publish, sell or perform the original or translated work of literature, art, academe, music, movie, etc. the valuation thereof shall use the unamortized cost. 4. Computer Software: defined as computer software purchased or developed for sale, rented or marketed by other means; the valuation thereof shall use the unamortized portion of costs of purchase or costs incurred from the establishment of technological feasibility to the production of product masters. The costs incurred prior to the establishment of technological feasibility shall be expensed as research and development costs. . Goodwill: defined as the goodwill acquired at a given price; the depreciation test shall be conducted annually. Recognized goodwill impairmen cannot be reversed. 6. Organization Costs: defined as the necessary costs incurred for organizing a business entity during its startup period. Organization costs shall be valued at the unamortized cost. Self -developed intangible assets that cannot be clearly identified, as goodwill, shall not be recognized as assets.Research expenditures and development expenditures, with the exception of commissioned research where the costs can be totally recovered according to contract, must be regarded as an incurred expense. However, development expenditure meeting the following requirement can be capitalized; the amount of capitalization cannot exceed the estimated present net income value on future recovery, the present value for estimated future income post subtraction of recurring research, development expenditure, production cost and marketing expenses: 1.Technical viability has been made possible to complete such intangible asset. 2. Business entities intend complete such intangible asset and put it out for use or sale. 3. Business entities are capable of using or selling such intangible asset. 4. There exists a specific market encompassing intangible assets or its products; such intangible asset for internal use shall possess useful qualities. 5.Business entities have sufficient technology, finance and other resources to complete such development project and use or sell such intangible asset. 6. Expenditures that are regarded as such intangible asset during the development period can be reliably measured. Intangible assets shall be specified for the valuation basis; those whose duration of economic benefit can be reasonably estimated shall be reasonably and systemically amortized over the years of useful life. The length of amortization and method of calculation shall be specified.Intangible assets without clear economic benefit cannot be amortized. | Article 20 : Other assets are defined as assets that do not belong to the previous five categories of assets and whose collection or liquidation extends over one year; the account categories, valuation and required notes are as follows: 1. Assets Leased to Others: defined as the self-owned assets that are leased to other s by a business entity whose main business is not investment or leasing. . Idle Assets: defined as assets that are currently not being used in operations. Idle assets shall be valued at the net realizable value. 3. Refundable Deposit: defined as the cash or other assets provided to others for the purpose of guarantee. 4. Long-term Notes, Accounts and Overdue Receivables: defined as the notes, accounts and overdue receivables whose date of collection has ran over one year.Long-term notes and account receivables shall be valued at the present value and overdue receivables shall be valued at the net realizable value. 5. Deferred Assets: defined as the incurred expenses whose benefits last for more than one year, which must be borne by future periods. Deferred assets shall be valued at the unamortized cost. 6. Miscellaneous Assets: defined as other assets that do not belong to the previous five categories of other assets.Overdue receivables of a material amount shall be presented indivi dually, overdue occurrences must be stated specifically including reason and amount of uncollectible allowance provided. Other assets exceeding five percent of the sum of total assets shallbe separately presented by nature. | Article 21 : Current liabilities are regarded as liabilities that are to be settled by use of current assets or other current liabilities within one year. The account categories, valuation and required notes for current liabilities are as follows: 1.Short-term Borrowings: defined as the sum of money that is borrowed or is an overdraft from a financial institution or another party and is to be repaid within one year or one operating cycle; the valuation and required notes are as follows: (1) Shall be valued at the present value. (2) Shall be specified by type or nature, guarantee situation and interest rate range of the borrowings, and, if collateral is provided, the name and book value of the collateral. 3) Borrowings from financial institutions, owners, employ ees, related persons, and other persons or institutions shall be separately specified. 2. Short-term Notes and Bills Payable: defined as the short-term notes and bills issued through a commissioned financial institution for the purpose of obtaining funds from the money market, including commercial paper payable and bank acceptances, etc. the valuation and required notes are as follows: (1) Shall be valued at the present value; discounts on short-term notes and bills payable shall be presented as the contra account on the short-term notes and bills payable. (2) Shall be specified for the guarantee, institution of acceptance and interest rate, and if collateral is provided, the name and book value of the collateral. 3.Other Financial Liabilities: defined as liabilities meeting one of the following conditions: (1) financial liabilities at fair value according to the income statement should be recorded as gains and losses indicating the financial liabilities to be bought back within a s hort period of time or financial liabilities assigned to be measured by fair value at original recording with change in fair value being recorded as profit and loss. 2) Hedging Financial Liabilities: defined as the financial liabilities destined by hedge accounting which are effective hedging tools, and shall be measured by fair value and divided into current and non-current according to the liquidity of the items to be hedged; non-current hedging financial liabilities shall be recorded as hedging financial liabilities under other liabilities. 4.Notes Payables: defined as the various notes payable by the business entity; the valuation and required notes are as follows: (1) Notes payables shall be valued at the present value, or may be valued at the face value if due within one year. (2) Notes payables arising from operations shall be separately presented from those not arising from operations. (3) Notes payable of a material amount to related parties shall be presented individually. 4) Notes payable with collateral provided shall be specified for the name and book value of the collateral. (5) Notes payable that are used as security and can be recovered for cancellation at the termination of guarantee responsibility may not be presented as current liabilities, but shall be specified in the notes to financial statements for the nature and amount of the guarantee. 5.Accounts Payable: defined as the various accounts payable by the business entity; the valuation and required notes are as follows: (1) Shall be valued at the present value, or may be valued at the book value if due within one year. (2) Accounts payable arising from operations shall be separately presented from those not arising from operations. (3) Accounts payable of a material amount to related parties shall be presented individually. 4) Accounts payable with collateral provided shall be specified for the name and book value of the collateral. 6. Income Tax Payables: defined as the estimated income tax to be paid based on the taxable income. 7. Other Payables: defined as any of the payables that do not belong to the previous categories of payables, such as other tax payables, salary payables, etc. ; the valuation and required notes are as follows: (1) Shall be valued at the present value, or may be valued at the book value if due within one year. 2) Dividend and bonus payables whose appropriation method and expected payment date are determined must be disclosed. (3) If paid amount exceeds 5% of total current liabilities, records must indict the nature of the transaction or the parties involved in the transaction. 8. Advance Receipts: defined as various sums of money received in advance. Advance receipts shall be presented separately by major category with special contract items specified. 9.Other Current Liabilities: defined as current liabilities that do not belong to the previous eight categories. However, any of the previous eight categories of current liabilities not excee ding five percent of the sum of total current liabilities may be merged into other current liabilities. | Article 22 : Long-term liabilities mean liabilities whose payment deadline exceeds one year or one operating cycle, whichever is the longer; the account categories, valuation and required notes are as follows: 1.Corporate Bonds Payable: defined as debentures issued by an issuer; the valuation and required notes are as follows: (1) Company bonds shall be valued at the face value adjusted for the unamortized premium and discount; the premium and discount shall be reasonably and systematically amortized as the adjustment of interest expense over the periods where the bonds are outstanding. 2) The approved total amount, interest rate, maturity date, name of the collateral, book value, place of issue and other covenants of bonds issued shall be specified in the note. (3) Where the bonds issued are convertible bonds, the conversion method and the amount already converted shall be spec ified. 2. Long-term Loans Payable: defined as the loans payable whose repayment deadlines is xceeds one year; the valuation and required notes are as follows: (1) shall be valued at the present value. (2) The content, maturity date, interest rate, name of the collateral, book value and other covenants of shall be specified. Where the repayment of long-term loans payable is denominated at a foreign currency or is based on a foreign currency exchange rate, the name and amount of the foreign currency shall be specified. 3) Long-term borrowings from owners, employees or related persons shall be separately specified. 3. Long-term notes and accounts payable: Mean the notes payables, accounts payables, etc. whose payment deadline exceeds one year. Long-term notes payable and other long-term accounts payables shall be valued at the present value. 4. Preferred stock liability: defined as the issuance of preferred stock of the nature of financial liability in compliance with No. 6 Bulletin of the Financial Accounting Standard. | Article 23 : Other liabilities are liabilities that cannot be classified as current or long-term liabilities; the account categories are as follows: 1. Deferred Liabilities: defined as deferred revenues, deferred income tax liabilities, etc. 2. Deposits Received: defined as the cash or other assets received from customers for the purpose of assurance. 3.Miscellaneous Liabilities: defined as other liabilities that do not belong to the previous two categories. Other liabilities exceeding five percent of the sum of total liabilities shall be presented separately by nature. | Article 24 : Capital defined as the capital brought into the business entity by the o wner and registered with a competent authority; however it does not include preferred stock of liability nature; the items that shall be specified in the notes are as follows: 1.The kinds of capital, face value per share, number of shares authorized, number of shares issued and special conditi ons shall be specified. 2. Convertible preferred stock and global depository receipts shall be specified for the place of issue, method of issue and conversion, amount already converted and special conditions. | Article 26 : Retained earnings or deficit meaning the equity resulting from business operations; the account categories are as follows: 1.Legal Reserve: defined as the reserve appropriated from earnings according to Company Law or other related regulations. 2. Special Reserve: defined as the reserve appropriated from earnings according to regulations or the resolution of earnings distribution for the purpose of restricting the distribution of earnings as dividends or bonus. 3. Retained Earnings-Unappropriated or Accumulated Deficit: defined as the earnings that have not been appropriated or the deficit has not been offset.The appropriation of retained earnings or the offsetting of deficit shall only be recorded in the book with the consent of the business owner or a mutual r esolution among the stockholders. Proposals for the appropriation of earnings or the offsetting of deficit shall be specified in the notes to the current period financial statements. | Article 28 : The categories of items in the income statement are as follows: 1. Operating Revenue. 2. Operating Costs. 3. Operating Expenses. 4.Non-operating Revenues and Expenses, Other Income (Expense). 5. Income Tax 6. Gains and Losses of continuing operating department. 7. Gains and Losses of discontinuing department 8. Extraordinary Gains and Losses. 9. Cumulative effect of changes in accounting principles 10. Current period net income (or net losses)| Article 29 : Operating revenue refers to the revenue earned in the normal operation of selling goods or services provided in the current period; the account categories, valuation and required notes are as follows: 1.Sales Revenue: defined as the revenue earned from selling goods. Sales returns and allowances shall be presented as a contra account o f sales revenues. 2. Service Revenue: defined as the revenue earned from providing services. 3. Agency Revenue: defined as the revenue earned from compensation for an intermediary, agency or commissioned work. 4. Other Operating Revenue: defined as other revenue that does not belong to the previous three categories. Article 30 : Operating costs refers to the costs that are borne for selling goods or providing services in the current period; the account categories, valuation and required notes are as follows: 1. Cost of Goods Sold: defined as the original cost of goods sold or the manufacturing costs of products sold. Purchases returns and allowances shall be presented as a contra account of purchases costs. 2. Services Costs: defined as the costs that are borne from providing services. 3.Agency Costs: defined as the costs that are borne from an intermediary, agency or commissioned work. 4. Other Operating Costs: defined as the costs that are borne from other operating revenues. | Ar ticle 31 : Operating Expenses refers to the expenses that are borne from selling goods or providing services in the current period; operating costs and expenses that cannot be separately presented may be merged into operating expenses. | either non-operating or expense indicating extraordinary losses. Article 33 : The income or losses from continuing operations refer to both operating and non-operating revenue. Net operating expenses and non-operating expenses, of which shall be presented separately according to the pre-tax amount, including income tax expenses or benefits, and post-tax amount. | Article 34 : The gains or losses from discontinued operations refers the income gained or monies lost due to business operations, along with disposition gains or losses and the gains and losses measured by the net fair value.For discontinued operations completing the disposition within the current year, records shall be made using the net after-tax amount indicating a gain or loss in dispos able income;; for discontinued operations that do not complete disposition within the current year, the net asset thereof must be valued using the face value or net fair value which ever is lower; if the net fair value is lower than the face value, net fair value shall be recorded to indicate such a loss so as to off-set the face value of the net asset from the discontinued operations; if the net fair value recovers, recovered gains can be recognized within the scope of losses originally measured by net fair value. The gain or loss from discontinued operations shall be presented as net income, following the item of the post-tax income or loss from continuing operations. Article 35 : Extraordinary gains and losses refer to any unusual or infrequent occurrence which shall be presented net form, , following the item of the gain and loss from discontinued operations. | Article 36 : The cumulative effect of changes in accounting principles shall be presented as a net change, following th e item of the extraordinary gain and loss. | 3. Retained earnings or deficit should include the following content: (1) The beginning balance. (2) The prior period net income or loss adjustment. (3) The current period net income or loss. (4) The appropriation of legal reserves and special reserves, distribution of dividends, etc. (5) The ending balance. 4.The beginning balance, the changes of the items and the amount during the current period, and the ending balance of the unrealized loss on market value decline of financial products. 5. The beginning balance, the changes of the items and the amount during the current period, and the ending balance of the unrealized revaluation increments. 6. The beginning balance, the changes of the items and the amount during the current period, and the ending balance of the cumulative translation adjustment. 7. The beginning balance, the changes of the items and the amount during the current period, and the ending balance of the treasury stock.The respective income tax expense or benefit shall reflect the itemsArticle 39 : The statement of cash flows must present a summary of information specifying all cash receipts and expenditures incurred by the business entity during a specific period; preparation and presentation of the statement of cash flows shall follow the Statement of Financial Accounting Standards No. 17. | Article 40 : The following subsequent events that occur after the balance sheet date but before the issuance of financial statements shall be specified in the notes to the financial statements: 1. Changes in capital structure. 2. Significant long- or short-term borrowings. 3. Additions, expansion, construction, leasing, abandonment, idleness, sale, collateralization, transfer or long-term renting of major assets. 4. Significant changes in productive capacity. 5.Significant changes in production and sales policies. 6. Major investments in other businesses. 7. Losses on catastrophic disasters. 8. The proceeding o r settlement of important lawsuits. 9. The signing, fulfillment, cancellation or voiding of important contracts. 10. Important organizational adjustments and significant reforms in management systems. 11. Significant effects resulting from changes in government regulations. 12. All other important events and measures that will affect the financial position, results of operations and cash flows in the future. | Direct materials used| | | Beginning raw materials inventory| $ 6,200| |Add: Cost of raw materials purchased| 49,400| | Total raw materials available| 55,600| | Less: Ending raw materials inventory| (5,800)| | Total raw materials used| | $ 49,800| Direct labor| | 125,600| Manufacturing overhead| | | Indirect materials| 4,100| | Indirect labor| 43,700| | Depreciation—factory building| 9,500| | Depreciation—factory equipment| 5,400| | Insurance—factory| 12,000| | Property taxes—factory| 4,500| | Total manufacturing overhead| | 79,200| Total manufactur ing costs| | 254,600| Add: Beginning work-in-process inventory| | 10,20| | | 264,800| Less: Ending work-in-process inventory| | (9,800)| Cost of goods manufactured| | $255,000|

Product Differentiation Essay

Definition: Development or incorporation of attributes (such as benefits, price, quality, styling, service, etc.) that a product’s intended customers perceive to be different and desirable. Advertising and promotion of a product is based on its differentiating characteristics. Source: http://www.businessdictionary.com/definition/product-differentiation.html Today, the market is crowded with similar brands, clamoring for the attention of customers. In order for their brands to stand out, companies strive hard to make them appear different from competing brands. This is product differentiation. Product differentiation is an objective that a business may try to achieve through its marketing. Any business, must try to differentiate products from those of competitors, so as to gain a ‘competitive edge’ over them, thereby attracting more customers. This difference can be achieved by altering the product- making it better than that of the competitor’s or it can be ‘perceived’- such as a strong brand identity developed in the promotional campaign. Need for product differentiation:  usually customers cannot tell the difference between competing products- hence the need to differentiate developing a competitive advantage Focus and differentiation A product may have a lot of attributes, but it is essential to focus on only few of the attributes. Eg: Volvo-safety, BMW-performance : but it doesn’t mean that Volvo does not perform or BMW is not safe. They have just focused on those aspects of their products. Therefore their products will be differentiated on that particular attribute. If a product claims to be good at everything, you run the risk of consumers not believing what you say, even though you may have all those attributes. If a product is focused: 1) more credible 2) customers will think that they are as strong in other areas. What to differentiate: Easiest way to differentiate is on price, but it is least effective as competitors can always copy it easily.Example: Indian computer market included companies such as HCL and IBM. Then came Siva from sterling computers which sold it’s computers at a cheaper price. Therefore others followed suit, and then Siva had to further differentiate it’s product in order to attract customers as competing products were similarly priced. Hence, it is better to differentiate on other attributes such as- features, performance, reliability, reparability, design, style, performance and so on. Examples: 1) Blackberry- Differentiated by addition of BBM in their smart phones. Although other smart phones with IM platforms existed, Blackberry was the one of the first to offer this service to customers as a standard on it’s devices. Their competition did not have any such service at the time. This attracted customers. 2) Promise- People thought promise was different from other toothpastes as it had clove oil however even some other toothpastes had clove oil, but only Promise focused on this attribute and hence it was perceived as a differentiating characteristic. 3) Hero Honda motorcycles- differentiated in terms of fuel efficiency- â€Å"fill it shut it, forget it† Branding and Product differentiation Branding is one way of differentiating products and services. Industries like the garments and tobacco industries, for example, use branding very effectively as the products within these segments are often very similar and have little to distinguish themselves from each other. Branding helps to retain customer loyalty. Example: Smokers, are very particular about their brand and believe that no other brand can satisfy them. In an experiment, 300 smokers who were loyal to 3 major brands were given an unidentifiable sample of each brand to smoke and were asked to identify their own brand. The result: only 35% were able to identify the brands; and under the law of averages, pure guesses accounted for a third of correct identifications. The reason for this was that brands of cigarettes within the same category (menthol for example) differ very marginally in terms of strength, flavour  and taste, and it is difficult for a smoker to truly distinguish between them. The reason why a smoker is loyal to a particular brand is the advertisment. Eg: Charminar: â€Å"it takes charminar to satisfy a man like you† – reinforces that only Charminar can satisfy the man who smokes them! Product differentiation vs USP USP is not the same as Product differentiation. USP refers to advertising to communicate a product’s differentiation while Product differentiation is the process of describing the differences between products or services. Types of differentiation: Horizontal Differentiation: is by the customer’s preference/taste of certain characteristics of the product. (Same qualities/price, different style/taste/colour) Perceived value remains the same. (eg: different colours of lipsticks) Vertical: Products differ in some characteristic which all consumers agree is best. Based on quality. Prices differ as perceived value differs (eg: Different brands of lipstick: Mac, Lakme, Lipice) Horizontal differentiation is about consumers’ wants and preferences, while vertical differentiation focuses on the consumers’ willingness to pay for the quality. Remember: DO NOT offer wildly exaggerated differentiation that the market does not want. (eg: High priced men’s toilet soap â€Å"Aramusk† was unsuccessful due to price) DO NOT negate useful and expansive differentiation by under attending to other parts of the product- service package. The difference should be OVER AND ABOVE the MINIMUM expectations.†¨Example: Fancy hotels with poor service The product is not differentiated until the CUSTOMER understands the difference . The consumer perception is what matters.

Homeostasis in humans Essay Example | Topics and Well Written Essays - 1750 words

Homeostasis in humans - Essay Example Homeostasis includes control of blood water balance, sugar level, temperature and urea in the blood. Cells combine to form tissues which form organs. Fluids contained in the cells are referred to as intracellular fluid while the fluid surrounding the cells are extracellular fluids. Nutrients such as glucose, oxygen and water are supplied through the extracellular fluid. (Chiras, 2003) The main body organs that are used to maintain homeostasis include the brain which has different parts responsible for various body functions, the liver and the kidneys and the skin. To achieve coordination, sensors in the various body organs send signals to the brain. Looking superficially at the functions of these organs as pertains to homeostasis, the brain has three main roles in homeostasis which are executed by the hypothalamus, the autonomous nervous system and the endocrine system which has the pituitary gland as the master gland which controls and oversees the working of all other hormone producing parts of the body. The negative feedback works to maintain an optimum value which represents a set point in homeostasis. When a condition deviates, this corrective mechanism returns it to norm. In order for it to be functional the receptors detect the change while the effectors carry out the corrective measures. The brain is the control centre that coordinates this response. If the deviations are not corrected, further deviation occurs and this is referred to as positive feedback. For instance, glucose is transported to the blood. In case of rise in the blood sugar, for example after a meal, regulation would involve both the pancreas and the liver. In the pancreas, there are Islets of Langerhans which are groups of a special cells that secrete more insulin and less glucagon. For a system to attain a sustainable system, both the negative and positive feedbacks should be present. The lungs homeostatic functions involve regulation of pH and gaseous exchange