Banking in India : Banking in India Dr. Joseph Anbarasu, Visiting Faculty, Appalachian State University Objectives : Objectives To make an account of evolution of present day banking in India
To evaluate the interventions of state in banking sector over years and
To appraise the entry of foreign banks They said : They said "More and more these days I find myself pondering how to reconcile my net income with my gross habits." John Nelson.
"If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." JP Getty.
"We didn't actually overspend our budget. The allocation simply fell short of our expenditure." Keith Davis.
"Anyone who lives within their means suffers from a lack of imagination." Oscar Wilde. Evolutionary Phases : Evolutionary Phases Indigenous Reign
Direct Intervention of the State
Entry of Foreign Banks Phase I: Indigenous banks : Phase I: Indigenous banks Vedas and the Manusmriti:
Kautalya’s Arthashastra: Suggested Maximum and Minimum Interest rate
Kautalya, Yajnyavalkya and Manu recommended 15 per cent interest per annum on capital.
British rule almost wiped out these tribes by bringing European Banks from urban
They moved to villages. They survive even today. How did Sahukar lend? : How did Sahukar lend? Borrower is known
Very little documentation
Sahukar usually a bad guy
Exorbitant rates of interests
Compounded Shorter Intervals
Mostly Mortgaged lending on Land, Properties, Jewels etc
Most cases poor borrowers surrendered their properties. Phase II: Direct Intervention : Phase II: Direct Intervention Government Interventions began in 1930s
The Reserve Bank which is the Central Bank was created in 1935 by passing RBI Act 1934.
The RBI is the sole authority for
issuing bank notes and
the supervisory body for banking operations in India .
Supervising exchange control and banking regulations, and
administers the government's monetary policy.
granting licenses for new bank branches. Intervention: Nationalization : Intervention: Nationalization In the wake of the Swadeshi Movement, a number of banks with Indian management were established in the country namely,
Punjab National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the Central Bank of India Ltd.
In 1955, Govt. nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas.
It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions Intervention: Nationalization : Intervention: Nationalization On July 19, 1969, 14 major banks nationalized and
in 15th April 1980 six more commercial
80% of the banking segment in India under Government ownership in 1990.
the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Effect of Nationalization : Effect of Nationalization the focus of lending
priority sectors were agriculture, small-scale industry, retail trade, small business and small transport operators
poverty alleviation and employment generation programs.
the success of green revolution and the increase of aggregate food grain production Other sides of Nationalization : Other sides of Nationalization Borrowings and lending restricted, not on business line
Deterioration of Banker-customers relationship
No Healthy competition among banks
Mounting hidden NPAs Phase III - Liberalization : Phase III - Liberalization Constitution of Narasimham committee and its report on Banking reforms in 1991.
It covered the areas of interest rate deregulation & directed credit rules,
Statutory preemptions and entry deregulation for both domestic and foreign banks.
Lowering of the CRR and SLR
Interest rate liberalization
Do away with Entry barriers. By March 2004, the new private sector banks and the foreign banks share shared almost 20% of total assets
Prudential Norms act against NPAs Phase IV: Transition : Phase IV: Transition Most Indian banks lagging behind the areas of customer funds transfer and clearing systems.
Over-staffed and not able to compete with new generation private banks
While these new banks and foreign banks still face restrictions in their activities.
New banks are well-capitalized,
Use modern equipment and
Attract high-caliber employees. Indian banks were given time to
Indian Banks to strengthen their balance sheets, consolidate and overall become more robust, so that they could compete. Phase V: Entry of Foreign Banks : Phase V: Entry of Foreign Banks Two of domestic banks in India have turned like Foreign Banks. About 74 per cent of holdings of ICICI and HDFC bank are in the hands of foreigners.
Phase II of roadmap foreign banks may be permitted to have overall investment of 74 per cent in the private banks of India in April 2009
New banks to be in India
Royal Bank of Scotland
US-based GE Capital
Credit Suisse Group
Industrial and Commercial Bank of China
Areas of Concentration are Risk Management, customizing the products and Value creation. Thank you : Thank you