Professional Documents
Culture Documents
The Indian banking has come a long way from being a sleepy business
institution to a highly proactive and dynamic entity. This transformation
has been largely brought about by the large dose of liberalization and
economic reforms that allowed banks to explore new business opportunities
rather than generating revenues from conventional streams (i.e. borrowing
and lending). The stalwarts of India's financial community nodded their
heads sagaciously when Prime Minister Manmohan Singh said in a speech:
"If there is one aspect in which we can confidentially assert that India is
ahead of China, it is in the robustness and soundness of our banking
system." Indian banks have been rated higher than Chinese banks by
international rating agency Standard & Poor's.
The competition heated up with the entry of private and foreign banks
deregulation and globalization resulted in increased competition that refined
the traditional way of doing business. They have realized the importance of a
customer centric approach, brand building and IT enabled solutions. In
the fierce battle for market share and mind share, the most potent weapon is
a strong, well recognized and trusted brand name. Brands attract and
convince people that they will get what is promised. Banking today has
transformed into a technology intensive and customer friendly model with a
focus on convenience. The companies have redoubled their efforts to woo
the customers and establish themselves firmly in the market. It is no longer
an option for a company to provide good customer service, it is expected.
Reforms are continuing as part of the overall structural reforms aimed at
improving the productivity and efficiency of the economy. The sector is set
to witness the emergence of financial supermarkets in the form of universal
banks providing a suite of services from retail to corporate banking and
industrial lending to investment banking. The financial services market has
become a battle ground with the marketers with the latest and the most
sophisticated weapons.
Early History
At the end of late-18th century, there were hardly any banks in India in the
modern sense of the term. At the time of the American Civil War, a void was
created as the supply of cotton to Lancashire stopped from the Americas.
Some banks were opened at that time which functioned as entities to finance
industry, including speculative trades in cotton. With large exposure to
speculative ventures, most of the banks opened in India during that period
could not survive and failed. The depositors lost money and lost interest in
keeping deposits with banks. Subsequently, banking in India remained the
exclusive domain of Europeans for next several decades until the beginning
of the 20th century.
At the beginning of the 20th century, Indian economy was passing through a
relative period of stability. Around five decades have elapsed since the
India's First war of Independence, and the social, industrial and other
infrastructure have developed. At that time there were very small banks
operated by Indians, and most of them were owned and operated by
particular communities. The banking in India was controlled and dominated
by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal,
and the Bank of Madras - which later on merged to form the Imperial Bank
of India, and Imperial Bank of India, upon India's independence, was
renamed the State Bank of India. There were also some exchange banks, as
also a number of Indian joint stock banks. All these banks operated in
different segments of the economy.
During Wars
The period 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 the Indian banking. The years of
the First World War were turbulent, and it took toll of many banks which
simply collapsed despite the Indian economy gaining indirect boost due to
war-related economic activities. At least 94 banks in India failed during the
years 1913 to 1918 as indicated in the following table:
1913 12 274 35
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
The Reserve Bank of India (RBI) is the central bank of India, and was
established on April 1, 1935 in accordance with the provisions of the
Reserve Bank of India Act, 1934. Since its inception, it has been
headquartered in Mumbai. Though originally privately owned, RBI has been
fully owned by the Government of India since nationalization in 1949.
Formation
The Preamble of the Reserve Bank of India describes the basic functions of
the Reserve Bank as:"...to regulate the issue of Bank Notes and keeping of
reserves with a view to securing monetary stability in India and generally to
operate the currency and credit system of the country to its advantage."
Central Board
The Reserve Bank's affairs are governed by a central board of directors. The
board is appointed by the Government of India in keeping with the Reserve
Bank of India Act.
Local Board
• One each for the four regions of the country in Mumbai, Calcutta,
Chennai and New Delhi
• Membership:
• consist of five members each
• appointed by the Central Government
• for a term of four years
Main Functions
Umbrella Acts
• Reserve Bank of India Act, 1934: governs the Reserve Bank functions
• Banking Regulation Act, 1949: governs the financial sector
This is the main turning point in the history of Indian banks. After
nationalization all banks were under the control of central government.
Without a sound and effective banking system in India it cannot have a
healthy economy. The banking system of India should not only be hassle
free but it should be able to meet new challenges posed by the technology
and any other external and internal factors.
For the past three decades India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no
longer confined to only metropolitans or cosmopolitans in India. In fact,
Indian banking system has reached even to the remote corners of the
country. This is one of the main reason of India's growth process.
The government's regular policy for Indian bank since 1969 has paid rich
dividends with the nationalisation of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters
for getting a draft or for withdrawing his own money. Today, he has a
choice. Gone are days when the most efficient bank transferred money from
one branch to other in two days. Now it is simple as instant messaging or
dial a pizza. Money has become the order of the day.
The first bank in India, though conservative, was established in 1786. From
1786 till today, the journey of Indian Banking System can be segregated into
three distinct phases. They are as mentioned below:
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of
Hindustan and Bengal Bank. The East India Company established Bank of
Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as
independent units and called it Presidency Banks. These three banks were
amalgamated in 1920 and Imperial Bank of India was established which
started as private shareholders banks, mostly Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by
Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at
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.
Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948. There were approximately 1100
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 Banking Regulation Act
1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of
India was vested with extensive powers for the supervision of banking in
India as the Central Banking Authority. During those days public has lesser
confidence in the banks. As an aftermath deposit mobilization was slow.
Abreast of it the savings bank facility provided by the Postal department was
comparatively safer. Moreover, funds were largely given to traders.
Phase II
Gvernment took major steps in this Indian Banking Sector Reform after
independence. In 1955, it 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 of the Union and State Governments
Seven banks forming subsidiary of State Bank of India was nationalised in
1960 on 19th July, 1969, major process of nationalisation was carried out. It
was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14
major commercial banks in the country were nationalised.
Second phase of nationalisation Indian Banking Sector Reform was carried
out in 1980 with seven more banks. This step brought 80% of the banking
segment in India under Government ownership.
The following are the steps taken by the Government of India to Regulate
Banking Institutions in the Country:
After the nationalisation of banks, the branches of the public sector bank
India rose to approximately 800% in deposits and advances took a huge
jump by 11,000%.
Banking in the sunshine of Government ownership gave the public
implicit faith and immense confidence about the sustainability of these
institutions.
Phase III
This phase has introduced many more products and facilities in the
banking sector in its reforms measure. In 1991, under the chairmanship
of M Narasimham, a committee was set up by his name which worked
for the liberalisation of banking practices.
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 is introduced. The entire system became more
convenient and swift. Time is given more importance than money. The
financial system of India has shown a great deal of resilience. It is
sheltered from any crisis triggered by any external macroeconomics
shock as other East Asian Countries suffered. This is all due to a flexible
exchange rate regime, the foreign reserves are high, the capital account is
not yet fully convertible, and banks and their customers have limited
foreign exchange exposure.
Banks Which Were Nationalised
• Allahabad Bank
• Andhra Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• Indian Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab and Sind Bank
• Punjab National Bank
• State Bank of Bikaner & Jaipur
• State Bank of Hyderabad
• State Bank of India (SBI)
• State Bank of Indore
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Saurashtra
• State Bank of Travancore
• Syndicate Bank
• UCO Bank
• Union Bank of India
• United Bank of India
• Vijaya Bank
Bank nationalization was a political act and as such the motives for it will
have to be found on its sphere. But the policy was founded on economic
principles the most influential part of it was RAJ(1974).
RAJ (1974:308)
Merits of Nationalization
The total number of loan accounts shows a rapid increase from about
4 million in 1970 to 60 million in 1990.
In terms of agriculture accounts the increase was about 1 million in
1970 to 10 million in early 1980.
Transport and trade also show significant increase.
Totally neglected areas like small artisans, small scale industry also
gets a significant place.
By early 1980’s the share of agriculture in credit has risen to 17%,
transport operators about 5% and small scale sector about 12%.
The regional distribution of branches was also shifted away from
Maharashtra, south India and Gujarat to rest of the country.
The sharp increase in cash reserve ratio from about 8.3% to 16.8%
during the period of 1977 to 1990’s.
It is much evident that initial result of taking credit to rural areas was
taking money out of banks but much later with the development of
deposit habit that cash outflow tend to decrease. Therefore the
nationalization of banks had and still has a great effect on industry
banking industry.
Liberalization
Privatization
The average growth rate in the ten year period from 1992-93 to
2001-02 was around 6.0 percent, as shown in Table 1, which
puts India among the fastest growing developing countries in
the 1990s.
India remained among the fastest growing developing countries
in the second sub-period because other developing countries
also slowed down after the east Asian crisis, but the annual
growth of 5.4 percent was much below the target of 7.5 percent
which the government had set for the period
Savings, Investment And Fiscal Discipline
Fiscal profligacy was seen to have caused the balance of payments crisis in
1991 and a reduction in the fiscal deficit was therefore an urgent priority at
the start of the reforms. The combined fiscal deficit of the central and state
governments was successfully reduced from 9.4 percent of GDP in 1990-91
to 7 percent in both 1991-92 and 1992-93 and the balance of payments crisis
was over by 1993.
Industrial Policy
Industrial policy has seen the greatest change, with most central government
industrial controls being dismantled. The list of industries reserved solely for
the public sector -- which used to cover 18 industries, including iron and
steel, heavy plant and machinery, telecommunications and telecom
equipment, minerals, oil, mining, air transport services and electricity
generation and distribution -- has been drastically reduced to three: defense
aircrafts and warships, atomic energy generation, and railway transport.
Industrial licensing by the central government has been almost abolished
except for a few hazardous and environmentally sensitive industries. The
requirement that investments by large industrial houses needed a separate
clearance under the Monopolies and Restrictive Trade Practices Act to
discourage the concentration of economic power was abolished and the act
itself is to be replaced by a new competition law which will attempt to
regulate anticompetitive behavior in other ways.
Foreign Direct Investment
(c) Measures for increasing competition like more liberal licensing of private
banks and freer expansion by foreign banks. These steps have produced
some positive outcomes. There has been a sharp reduction in the share of
non-performing assets in the portfolio and more than 90 percent of the banks
now meet the new capital adequacy standards. However, these figures may
overstate the improvement because domestic standards for classifying assets
as non-performing are less stringent than international standards.
This removes a major distortion in the capital market, in which one of the
investment schemes was seen as having a preferred position.The insurance
sector (including pension schemes), was a public sector monopoly at the
start of the reforms. The need to open the sector to private insurance
companies was recommended by an expert committee (the Malhotra
Committee) in 1994, but there was strong political resistance. It was only in
2000 that the law was finally amended to allow private sector insurance
companies, with foreign equity allowed up to 26 percent, to enter the field.
An independent Insurance
Development and Regulatory Authority have now been established and ten
new life insurance companies and six general insurance companies, many
with well-known international insurance companies as partners, have started
operations. The development of an active insurance and pensions industry
offering attractive products tailored to different types of requirements could
stimulate long term savings and add depth to the capital markets. However,
these benefits will only become evident over time.
Recommendations of Narasimham Committee on Commercial
Banking System (1991)
The narasimham committee (1991) assumed that the financial resources of
the commercial banks from the general public and were by the banks in trust
and that the bank funds were to be deployed for maximum benefit of the
depositors. This assumption automatically implied that even the government
had no business to endanger the solvency, health and efficiency of the
nationalized banks under the pretext of using banks funds for social banking,
poverty eradication, etc. Accordingly, the narasimham committee aimed at
achieving three major changes in the banking sector in India-;
Foreign banks and Indian banks are allowed to set-up joint ventures in
regard to merchant and investment banking.
The quality of control over the banking system between RBI and the
banking division of ministry and finance should end forthwith and
RBI should be the primary agency for regulation.
1991 1998
Recommendation interference
Indian federal government has opened up the banking sector for foreign
investors raising the ceiling of foreign direct investment in the Indian private
sector banks to 49 percent. However, the ceiling of FDI in the country's
public sector banks remains unchanged at 20 percent. Foreign banks having
branches in India are also entitled to acquire stakes up to 49% through
"automatic routes". It is to be noted that under "automatic route" fresh
shares would not be issued to foreign investors who already have financial
or technical collaboration in banking or allied sector. They would require
FIPB approval. However, some statutory approvals of the Reserve Bank of
India (RBI), country's central banking authority, would be required.
Statutory Limits
Private
Not more then 10 percent of the total voting rights of
Sector :
all the shareholders
Banks
Nationalized Not more than 1 percent of the total voting rights of
:
Banks all the shareholders of the nationalized bank.
Not more than 10 percent of the issued capital. This
State Bank does not apply to Reserve Bank of India (RBI) as a
:
of India shareholder. However, government in consultation
with RBI, ceiling for foreign investors can be raised.
Not more than 1 percent. This ceiling will not be
SBI applied to State Bank of India. If any person holds
:
Associates more than 200 shares, he/she will not be registered as
a shareholder.
RBI Approval
• Transfer of shares of 5 percent and more of the paid-up capital of a
private sector bank requires prior acknowledgement of RBI.
• For FDI of 5 percent and more of the paid-up capital, the private
sector bank has to apply in the prescribed form to RBI.
• Under the provision of Foreign Exchange Management Act (FEMA),
1999, any fresh issue of shares of a bank, either through the automatic
route or with the specific approval of FIPB, does not require further
approval of Exchange Control department (ECD) RBI from the
exchange control angle.
• The Indian banking company is only required to undertake two-stage
reporting to the ECD of RBI as follows: (1) the Indian company has to
submit a report within 30 days of the date of receipt of amount of
consideration indicating the name and address of foreign investors,
date of receipt of funds and their rupee equivalent, name of bank
through whom funds were received and details of govt. approval, if
any. (2) Indian banking company is required to file within 30 days
from the date of issue of shares, a report in form FC-GPR (Annexure
II) together with a certificate from the company secretary of the
concerned company certifying that various regulations have been
complied with.
There are various private sector banks in India after the historical changes in
policies announced by the government of India. After the introduction of
liberalization privatization and globalization reforms in India many private
investors and multinational banks and companies shows their interest in
financial an banking sector of India. Not only multinational groups but also
some private investors from India shoe their interest in this field. Some of
them are as follows-;
Private Banks
Indusland bank
HDFC
Jammu & Kashmir bank
Centurion bank
City union bank
Federal bank
Saraswat bank
Dhanlaksmi bank
Kotak bank
Cosmos bank
Bank of Rajasthan
Bank of Punjab
ING VYSYA bank
South Indian bank
FOREIGN BANKS
ICICI Bank
Introduction
ICICI Bank is India's second-largest bank with total assets of Rs. 3,767.00
billion (US$ 96 billion) at December 31, 2007 and profit after tax of Rs.
30.08 billion for the nine months ended December 31, 2007. ICICI Bank is
second amongst all the companies listed on the Indian stock exchanges in
terms of free float market capitalisation*. The Bank has a network of about
955 branches and 3,687 ATMs in India and presence in 17 countries
Board Members
SAVINGS ACCOUNT
LIFE PLUS SENIOR CITIZENS SAVINGS ACCOUNT
YOUNG STARS SAVING ACCOUNTS
FIXED DEPOSITS
RECURRING DEPOSITS
EASY RECEIVE SAVING ACCOUNT
CREDIT CARDS
DEBIT CARD
TRAVEL CARD
PRE PAID CARDS
Kotak Bank
Introduction
The group has a net worth of over Rs. 5,609 crore, employs around 17,100
people in its various businesses and has a distribution network of branches,
franchisees, representative offices and satellite offices across 344 cities and
towns in India and offices in New York, London, Dubai, Mauritius and
Singapore. The Group services around 3.6 million customer accounts.
Board of Directors
2. Current Account
3. Term Deposits
Home Loans
Investment Services
Demat
Mutual Fund
Insurance
Gold
Both companies were keen to capitalize on the huge expansion of trade and
to earn the handsome profits to be made from financing the movement of
goods from Europe to the East and to Africa.
Personal banking includes products and services that support the customer at
every stage. These includes-;
Online Banking
With assets over US $504 billion and an AA credit rating, ABN AMRO
Bank ranks among the top 10 banks in the world in size and strength. Our
international network comprises 3,568 branches and offices in over 320
cities and 76 countries and territories, with over 100,000 highly qualified
staff. As a global bank, we can handle the most complicated cross-border
transactions, yet we also understand the subtleties of local markets.
ABN AMRO in India
Private Banking Services in India offers our select and premium clients a
comprehensive range of quality Portfolio Advisory Services along with a
sophisticated execution platform. We aid in enhancing their wealth with
premium services including investment advisory, non-discretionary portfolio
management, investment funds, international estate planning and trust.
The Microfinance program of ABN AMRO, the largest amongst its peer
foreign banks in India, is aimed at delivering credit to our target community
of rural poor woman through intermediaries called microfinance institutions.
Today service 26 MFIs across 16 states in India with over 390,000
customers receiving micro financing small loans of USD 200 or less. Aim is
to reach a million customers by 2009. During the annual Sustainable
Banking Awards ceremony held by Financial Times of London, ABN
AMRO India was named the Sustainable Bank of the Year in the Emerging
Markets category - both in the Asia region as well as globally.
Investment Services
Online banking
Swift
Fund Transfer
Hardware Used
An ATM is typically made up of the following devices:
Debit Card
Depending on the store or merchant, the customer may swipe or insert their
card into the terminal, or they may hand it to the merchant who will do so.
The transaction is authorized and processed and the customer verifies the
transaction either by entering a PIN or, occasionally, by signing a sales
receipt.In some countries the debit card is multipurpose, acting as the ATM
card for withdrawing cash and as a check guarantee card. Merchants can also
offer "cashback"/"cashout" facilities to customers, where a customer can
withdraw cash along with their purchase.
Credit Cards
A credit card is a system of payment named after the small plastic card
issued to users of the system. A credit card is different from a debit card in
that it does not remove money from the user's account after every
transaction. In the case of credit cards, the issuer lends money to the
consumer (or the user) to be paid to the merchant. It is also different from a
charge card (though this name is sometimes used by the public to describe
credit cards), which requires the balance to be paid in full each month. In
contrast, a credit card allows the consumer to 'revolve' their balance, at the
cost of having interest charged. Most credit cards are the same shape and
size, as specified by the ISO 7810 standard. The most common credit card
size, known as ID-1, is 85.60 × 53.98 mm.
All these reflects that the Indian banking sector has bloomed little due the
entrance of foreign investors in Indian banking sector but that ignores one of
the main aspects of the Indian economy that is agriculture sector. The private
and foreign sector banks ignore this sector because of the chances of default
in this sector. This implies that although the Indian economy has grown a lot
after the policies and private sector entrance in India but that did not include
wholesome development.
This is one aspect of the problem but if we see overall performance of Indian
economy and the quality of banking sector that is outstanding during all
these years.
Bibliography
BOOKS
1. Shekhar K.C (2005), Banking Theory and Practice, Vikas Publishing
House.
2. Malhotra T.D (2002), Electronic Banking and Information
WEBSITES
5. www.thehindufdiinbankingsector.com,accessed in feburary2008