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Banking Scenario

Banking Scenario

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Published by Ankita Modi

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Published by: Ankita Modi on Aug 14, 2011
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BANKING SCENARIO
 The Indian Banking industry, which is governed by the BankingRegulationAct of India, 1949 can be broadly classified into two majorcategories, nonscheduledbanks and scheduled banks. Scheduled banks comprisecommercial banks and the co-operative banks. In terms of ownership,commercial banks can be further grouped into nationalized banks,the StateBank of India and its group banks, regional rural banks andprivate sectorbanks (the old/ new domestic and foreign). These banks haveover 67,000branches spread across the country. The first phase of financial reforms resulted in the nationalizationof 14major banks in 1969 and resulted in a shift from Class banking toMassbanking. This in turn resulted in a significant growth in thegeographicalcoverage of banks. Every bank had to earmark a minimumpercentage of their loan portfolio to sectors identified as “priority sectors”. Themanufacturing sector also grew during the 1970s in protectedenvirons andthe banking sector was a critical source. The next wave of reformssaw thenationalization of 6 more commercial banks in 1980. Since thenthe numberof scheduled commercial banks increased four-fold and thenumber of bankbranches increased eight-fold.After the second phase of financial sector reforms andliberalization of thesector in the early nineties, the Public Sector Banks (PSB) s founditextremely difficult to compete with the new private sector banksand the
 
foreign banks. The new private sector banks first made theirappearanceafter the guidelines permitting them were issued in January 1993.Eight newprivate sector banks are presently in operation. These banks dueto their late
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start have access to state-of-the-art technology, which in turnhelps them tosave on manpower costs and provide better services.During the year 2000, the State Bank Of India (SBI) and its 7associatesaccounted for a 25 percent share in deposits and 28.1 percentshare in credit. The 20 nationalized banks accounted for 53.2 percent of thedeposits and47.5 percent of credit during the same period. The share of foreign banks(numbering 42), regional rural banks and other scheduledcommercial banksaccounted for 5.7 percent, 3.9 percent and 12.2 percentrespectively indeposits and 8.41 percent, 3.14 percent and 12.85 percentrespectively incredit during the year 2000.
Current Scenario
 The industry is currently in a transition phase. On the one hand,the PSBs,which are the mainstay of the Indian Banking system are in theprocess of shedding their flab in terms of excessive manpower, excessivenonPerforming Assets (Npas) and excessive governmental equity,while on theother hand the private sector banks are consolidating themselvesthroughmergers and acquisitions.PSBs, which currently account for more than 78 percent of totalbanking
 
industry assets are saddled with NPAs (a mind-boggling Rs 830billion in2000), falling revenues from traditional sources, lack of moderntechnologyand a massive workforce while the new private sector banks areforgingahead and rewriting the traditional banking business model byway of theirsheer innovation and service. The PSBs are of course currentlyworking out
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challenging strategies even as 20 percent of their massiveemployee strengthhas dwindled in the wake of the successful Voluntary RetirementSchemes(VRS) schemes. The private players however cannot match the PSB’s great reach,great sizeand access to low cost deposits. Therefore one of the means forthem tocombat the PSBs has been through the merger and acquisition(M& A)route. Over the last two years, the industry has witnessed severalsuchinstances. For instance, Hdfc Bank’s merger with Times Bank
IciciBank’s acquisition of ITC Classic,
Anagram Finance andBank of Madura. Centurion Bank, Indusind Bank, Bank of Punjab, VysyaBank aresaid to be on the lookout. The UTI bank- Global Trust Bank mergerhoweveropened a pandora’s box and brought about the realization that allwas notwell in the functioning of many of the private sector banks.Private sector Banks have pioneered internet banking, phonebanking,anywhere banking, mobile banking, debit cards, Automatic TellerMachines

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