Current scenario of Indian Banking Sector

PROJECT REPORT ON (NAME OF YO R PROJECT!

BAC"E#OR OF COMMERCE BAN$IN% AN& INS RANCE SEMESTER ' (()**+()*(!

S BMITTE& BY (NAME! RO## NO, SEAT NO,

% R NANA$ CO##E%E OF ARTS- SCIENCE AN& COMMERCE % R TE%" BA"A& R NA%AR- M MBAI+.)))/0
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector PROJECT REPORT ON (C RRENT SCENARIO OF IN&IAN BAN$IN% SECTOR! BAC"E#OR OF COMMERCE BAN$IN% AN& INS RANCE SEMESTER ' (()**+()*(! S BMITTE& In Partia1 Fu1fi112ent of t3e re4uire2ents For t3e a5ard of t3e degree of Bac3e1or of 2anage2ent S BMITTE& BY (MAN&EEP $A R SAINI! RO## NO,*6 SEAT NO % R NANA$ CO##E%E OF ARTS- SCIENCE AN& COMMERCE % R TE%" BA"A& R NA%AR- M MBAI+.)))/0
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

&EC#ARATION I MAN&EEP $A R SAINI T"E ST &ENT OF B7COM BAN$IN% AN& INS RANCE SEMESTER ' (()**+()*(! "EREBY &EC#ARE T"AT I "A'E COMP#ETE& T"E PROJECT ON C RRENT SCENARIO OF IN&IAN BAN$IN% SECTOR7

T"E INFORMATION S BMITTE& IS TR E AN& ORI%INA# TO T"E BEST OF MY $NO8#E&%E7

SI%NAT RE OF ST &ENT (MAN&EEP $A R SAINI! RO## NO,*6 SEAT NO, % R NANA$ CO##E%E OF ARTS- SCIENCE 9 COMMERCE % R TE%" BA"A& R NA%AR- M MBAI : .)))/0
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector C E R T F I C A T E T"IS IS TO CERTIFY T"AT MISS MAN&EEP $A R SAINI OF B7COM BAN$IN% AN& INS RANCE SEMESTER ' (()**+()*(! "AS S CCESSF ##Y COMP#ETE& T"E PROJECT ON C RRENT SCENARIO OF IN&IAN BAN$IN% SECTOR7 N&ER T"E % I&ENCE OF Prof7 #ATA #O$"AN&E PRINCIPA# &R7BINA P NJABI

CO RSE CO+OR&INATOR $ETAN 'IRA

PROJECT % I&E ; INTERNA# E<AMINE #ATA #O$"AN&E

E<TERNA# E<AMINER

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector AC$NO8#E&EMENT,

T3is is to e=>ress 2? earnest gratitude and e=tre2e @o? at Aeing Aesto5ed 5it3 an o>>ortunit? to get an interesting and infor2atiBe >ro@ect on CC RRENT SCENARIO OF IN&IAN BAN$IN% SECTORD I 5ou1d 1ike to t3ank a11 t3e >eo>1e 53o 3aBe 3e1>ed 2e in co2>1etion of >ro@ect- I 5ou1d aBai1 t3is o>>ortunit? to e=>ress 2? >rofound gratitude and in deAtness to a11 t3ose >eo>1e7

I 5ou1d 1ike to s>ecia11? t3ank Prof7 #ATA #O$"AN&E - for introducing 2e to suc3 a 5onderfu1 and c3a11enging to>ic and for Aeing 2e guide in t3e true sence of t3e 5ord and for guiding - correcting and 2otiBating 2e at eac3 and eBer? 2o2ent during 2? >ro@ect 7 #ast1? 5it3out fai1 I 5ou1d t3ank a11 2? facu1ties for >roBiding a11 e=>1icit and i2>1icit su>>ort to 2e during t3e course of 2? >ro@ect7

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Current scenario of Indian Banking Sector

S.NO

TOPIC

PAGE NO.

1.

CHAPTER 1 1.1 1.2 1.3 Introduction. History. Reserve b n! o" Indi .

CHAPTER 2 2.1 Indi n b n!in# sector. 2.2 T$e "in nci % syste&. CHAPTER 3 3.1 ' (or re"or&s initi tive. 3.2 In"or& tion tec$no%o#y us #e. 3.3 Services )rovided. 3.* ' in co&)etitor "or b n!in# sector. CHAPTER* *.1 Econo&ic deve%o)&ent o" Indi . *.2 Gro+t$ o" Indi n b n!in#.
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector *.3 ' (or deve%o)&ent.

CHAPTER , ,.1 Re"or&s in b n!in# sector. ,.2 Reviv % o" +ee! b n!ers. ,.3 N r si&$ & co&&ittee re)ort-1..1. CHAPTER / /.1 Recession in b n!in# sector. /.2 Present b n!in#. /.3 Future trends. CHAPTER 0 0.1 Conc%usion. 0.2 1ib%io#r )$y.

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Current scenario of Indian Banking Sector

INTRO23CTION OF IN2IAN 1AN4ING SECTOR

Banking in India originated in t3e 1ast decades of t3e *6t3 centur?7 T3e first Aanks 5ere T3e %enera1 Bank of India 53ic3 started in *06E- and t3e Bank of "industan- Aot3 of 53ic3 are no5 defunct7 T3e o1dest Aank in e=istence in India is t3e State Bank of India- 53ic3 originated in t3e Bank of Ca1cutta in June *6)E- 53ic3 a12ost i22ediate1? Aeca2e t3e Bank of Benga17 T3is 5as one of t3e t3ree >residenc? Aanks- t3e ot3er t5o Aeing t3e Bank of Bo2Aa? and t3e Bank of Madras- a11 t3ree of 53ic3 5ere estaA1is3ed under c3arters fro2 t3e Britis3 East India Co2>an?7 For 2an? ?ears t3e Presidenc? Aanks acted as 4uasi+ centra1 Aanks- as did t3eir successors7 T3e t3ree Aanks 2erged in *F(* to for2 t3e I2>eria1 Bank of India- 53ic3- u>on IndiaGs inde>endence- Aeca2e t3e State Bank of India7

Indian 2erc3ants in Ca1cutta estaA1is3ed t3e

nion Bank in *6/F-

Aut it fai1ed in *6.6 as a conse4uence of t3e econo2ic crisis of *6.6+.F7 T3e A11a3aAad Bank- estaA1is3ed in *6EH and sti11 functioning toda?- is t3e o1dest Joint Stock Aank in India7(Joint Stock Bank, A co2>an? t3at issues stock and re4uires s3are3o1ders to Ae 3e1d 1iaA1e for t3e co2>an?Gs deAt! It 5as not t3e first t3oug37 T3at 3onor Ae1ongs to t3e Bank of >>er India- 53ic3 5as estaA1is3ed in *6E/- and 53ic3 surBiBed unti1 *F*/- 53en it fai1ed- 5it3 so2e of its assets and 1iaAi1ities Aeing transferred to t3e A11iance Bank of Si21a.

83en t3e A2erican CiBi1 8ar sto>>ed t3e su>>1? of cotton to #ancas3ire fro2 t3e Confederate States- >ro2oters o>ened Aanks to finance trading in Indian cotton7 8it3 1arge e=>osure to s>ecu1atiBe Bentures- 2ost of t3e
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Current scenario of Indian Banking Sector

Aanks o>ened in India during t3at >eriod fai1ed7 T3e de>ositors 1ost 2one? and 1ost interest in kee>ing de>osits 5it3 Aanks7 SuAse4uent1?- Aanking in India re2ained t3e e=c1usiBe do2ain of Euro>eans for ne=t seBera1 decades unti1 t3e Aeginning of t3e ()t3 centur?7

Foreign Aanks too started to arriBe- >articu1ar1? in Ca1cutta- in t3e *6E)s7 T3e Co2>toire dGEsco2>te de Paris o>ened a Aranc3 in Ca1cutta in *6E)and anot3er in Bo2Aa? in *6E(I Aranc3es in Madras and Puduc3err?- t3en a Frenc3 co1on?- fo11o5ed7 "SBC estaA1is3ed itse1f in Benga1 in *6EF7 Ca1cutta 5as t3e 2ost actiBe trading >ort in India- 2ain1? due to t3e trade of t3e Britis3 E2>ire- and so Aeca2e a Aanking center7

T3e first entire1? Indian @oint stock Aank 5as t3e Oud3 Co22ercia1 Bank- estaA1is3ed in *66* in FaiJaAad7 It fai1ed in *FH67 T3e ne=t 5as t3e Pun@aA Nationa1 Bank- estaA1is3ed in #a3ore in *6FH- 53ic3 3as surBiBed to t3e >resent and is no5 one of t3e 1argest Aanks in India7

Around t3e turn of t3e ()t3 Centur?- t3e Indian econo2? 5as >assing t3roug3 a re1atiBe >eriod of staAi1it?7 Around fiBe decades 3ad e1a>sed since t3e Indian Mutin?- and t3e socia1- industria1 and ot3er infrastructure 3ad i2>roBed7 Indians 3ad estaA1is3ed s2a11 Aanks- 2ost of 53ic3 serBed >articu1ar et3nic and re1igious co22unities7

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Current scenario of Indian Banking Sector

T3e >residenc? Aanks do2inated Aanking in India Aut t3ere 5ere a1so so2e e=c3ange Aanks and a nu2Aer of Indian @oint stock Aanks7 A11 t3ese Aanks o>erated in different seg2ents of t3e econo2?7 T3e e=c3ange Aanks2ost1? o5ned A? Euro>eans- concentrated on financing foreign trade7 Indian @oint stock Aanks 5ere genera11? under ca>ita1iJed and 1acked t3e e=>erience and 2aturit? to co2>ete 5it3 t3e >residenc? and e=c3ange Aanks7 T3is seg2entation 1et #ord CurJon to oAserBe- KIn res>ect of Aanking it see2s 5e are Ae3ind t3e ti2es7 8e are 1ike so2e o1d fas3ioned sai1ing s3i>- diBided A? so1id 5ooden Au1k3eads into se>arate and cu2Aerso2e co2>art2ents7K

T3e >eriod Aet5een *F)E and *F**- sa5 t3e estaA1is32ent of Aanks ins>ired A? t3e S5ades3i 2oBe2ent7 T3e S5ades3i 2oBe2ent ins>ired 1oca1 Ausiness2en and >o1itica1 figures to found Aanks of and for t3e Indian co22unit?7 A nu2Aer of Aanks estaA1is3ed t3en 3aBe surBiBed to t3e >resent suc3 as Bank of India- Cor>oration Bank- Indian Bank- Bank of Baroda- Canara Bank and Centra1 Bank of India7

HISTOR5 OF IN2IAN 1AN4ING S5STE'

For t3e >ast t3ree decades IndiaGs Aanking s?ste2 3as seBera1 outstanding ac3ieBe2ents to its credit7 T3e 2ost striking is its e=tensiBe reac37 It is no 1onger confined to on1? 2etro>o1itans or cos2o>o1itans in India7 In fact- Indian Aanking s?ste2 3as reac3ed eBen to t3e re2ote corners of t3e countr?7 T3is is one of t3e 2ain reasons of IndiaGs gro5t3 >rocess7

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Current scenario of Indian Banking Sector

T3e goBern2entGs regu1ar >o1ic? for Indian Aank since *FEF 3as >aid ric3 diBidends 5it3 t3e nationa1iJation of *. 2a@or >riBate Aanks of India7 T3e first Aank in India- t3oug3 conserBatiBe- 5as estaA1is3ed in*06E7 Fro2 *06E ti11 toda?t3e @ourne? of Indian Banking S?ste2 can Ae segregated into t3ree distinct >3ases7 T3ose are,+ a! Ear1? >3ase fro2 *06E to *FEF of Indian Banks A! Nationa1iJations of Indian Banks and u> to *FF* >rior to Indian Aanking sector refor2s7 c! Ne5 >3ase of Indian Banking S?ste2 5it3 t3e adBent of Indian Financia1 9 Banking Sector Refor2s after *FF*7 T3e ste>s taken A? t3e %oBern2ent of India to Regu1ate Banking Institutions in t3e Countr?, *F.F, Enact2ent of Banking Regu1ation Act7 *FHH, Nationa1iJation of State Bank of India7 *FHF, Nationa1iJation of SBI suAsidiaries7 *FE*, Insurance coBer e=tended to de>osits7 *FEF, Nationa1iJation of *. 2a@or Aanks7 *F0*, Creation of credit guarantee cor>oration7 *F0H, Creation of regiona1 rura1 Aanks7 *F6), Nationa1iJation of seBen Aanks 5it3 de>osits oBer ())crore7

Reserve 1 n! o" Indi

RBI is t3e Aanker to AanksL53et3er co22ercia1- coo>eratiBe- or rura17 T3e re1ations3i> is estaA1is3ed once t3e na2e of a Aank is inc1uded in t3e Second
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Sc3edu1e to t3e ReserBe Bank of India Act-*F/.7 Suc3 Aank- ca11ed a sc3edu1ed Aank- is entit1ed to faci1ities of refinance fro2 RBI- suA@ect to fu1fi112ent of t3e fo11o5ing conditions1aid do5n in Section .( (E! of t3e Act- as fo11o5s, It 2ust 3aBe >aid+u> ca>ita1 and reserBes of an aggregate Ba1ue of not #ess t3an an a2ount s>ecified fro2 ti2e to ti2eI and It 2ust satisf? RBI t3at its affairs are not Aeing conducted in 2anner detri2enta1 to t3e interests of its de>ositors

1 n!in# in Indi
Banking in India 3as its origin as ear1? as t3e 'edic >eriod7 It is Ae1ieBed t3at t3e transition fro2 2one? 1ending to Aanking 2ust 3aBe occurred eBen Aefore Manu- t3e great "indu Jurist- 53o 3as deBoted a section of 3is 5ork to de>osits and adBances and 1aid do5n ru1es re1ating to rates of interest7 &uring t3e Mogu1 >eriod- t3e indigenous Aankers >1a?ed a Ber? i2>ortant ro1e in 1ending 2one? and financing foreign trade and co22erce7 &uring t3e da?s of t3e East India Co2>an?- it 5as t3e turn of t3e agenc? 3ouses to carr? on t3e Aanking Ausiness7 T3e %enera1 Bank of India 5as t3e first Joint Stock Bank to Ae estaA1is3ed in t3e ?ear *06E7 T3e ot3ers 53ic3 fo11o5ed 5ere t3e Bank of "industan and t3e Benga1 Bank7 T3e Bank of "industan is re>orted to 3aBe continued ti11 *F)E 53i1e t3e ot3er t5o fai1ed in t3e 2eanti2e7 In t3e first 3a1f of t3e *Ft3 centur? t3e East India Co2>an? estaA1is3ed t3ree AanksI t3e Bank of Benga1 in *6)F- t3e Bank of Bo2Aa? in *6.) and t3e Bank of Madras in *6./7 T3ese t3ree Aanks a1so kno5n as Presidenc? Banks 5ere inde>endent units and functioned 5e117 T3ese t3ree Aanks
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

5ere a2a1ga2ated in *F() and a ne5 Aank- t3e I2>eria1 Bank of India 5as estaA1is3ed on (0t3 Januar? *F(*7 8it3 t3e >assing of t3e State Bank of India Act in *FHH t3e undertaking of t3e I2>eria1 Bank of India 5as taken oBer A? t3e ne51? constituted State Bank of India7 T3e ReserBe Bank 53ic3 is t3e Centra1 Bank 5as created in *F/H A? >assing ReserBe Bank of India Act *F/.7 In t3e 5ake of t3e S5ades3i MoBe2ent- a nu2Aer of Aanks 5it3 Indian 2anage2ent 5ere estaA1is3ed in t3e countr? na2e1?- Pun@aA Nationa1 Bank #td- Bank of India #td- Canara Bank #td- Indian Bank #td- t3e Bank of Baroda #td- t3e Centra1 Bank of India #td7

Indi n 1 n!in# Sector

T3e Indian Banking Sector is 4uite different fro2 t3e Aanking s?ste2 in t3e rest of Asia- Aecause of t3e distinctiBe geogra>3ic- socia1 and econo2ic c3aracteristics of t3e countr?7 India is t3e second 2ost >o>u1ated nation in t3e 5or1dI it 3as 2arked econo2ic dis>arities and 3ig3 1eBe1s of i11iterac?7 T3e countr? fo11o5ed a socia1ist a>>roac3 for 5e11 oBer . decades after inde>endence ti11 t3e goBern2ent initiated t3e econo2ic refor2s t3roug3 t3e >o1ic? of 1iAera1iJation7 T3e Aanking structure in India is t3erefore a ref1ection of t3e countries socia1istic set u>7 It 3ad to 2eet t3e goa1s set A? t3e fiBe ?ear >1anses>ecia11? 5it3 regard to e4uitaA1e distriAution of 5ea1t3- Aa1anced regiona1 econo2ic gro5t3 and re2oBing >riBate sector 2ono>o1ies in trade and industr?7

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

T3e goBern2ent nationa1iJed t3e Aanks in ( different >3ases (*FEF and *F6)!7 On Ju1? *F- *FEF- *. 2a@or Aanks of t3e countr? 5ere nationa1iJed and on *Ht3 A>ri1 *F6)- si= 2ore co22ercia1 >riBate sector Aanks 5ere taken oBer A? t3e goBern2ent7 As a conse4uence t3e Aanking s?ste2 in India concentrated on t3e do2estic sectorI Ber? fe5 Aanks in India 3ad a >resence internationa11?7 T3e nationa1iJed Aanks 3ad a socia1 oA1igation of taking t3e Aanking sector to t3e >eo>1e A? e=>anding t3e Aranc3es and A? getting 2ore >eo>1e to o>en an account7 It a1so 3ad to >1a? a su>>ortiBe ro1e to ot3er sectors of t3e econo2? 1ike agricu1ture- s2a11 sca1e industries and e=>orts7 T$e Indi n Fin nci % syste& consists o"6 1 Co&&erci % 1 n!s

PuA1ic Sector PriBate sector Foreign Aanks Coo>eratiBe Banks &eBe1o>2ent Banks

Pub%ic Sector 1 n!s

State Bank of India and its associate Aanks ca11ed t3e State Bank grou>7 () nationa1iJed Aanks7 Regiona1 Rura1 Banks 2ain1? s>onsored A? PuA1ic Sector Banks7

Priv te sector
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

O1d generation >riBate Aanks Ne5 generation >riBate Aanks Foreign Aanks in India Sc3edu1ed Co+o>eratiBe Banks Non+sc3edu1ed Banks

Coo)er tive 1 n!s

State Co+o>eratiBe Banks Centra1 Co+o>eratiBe Banks Pri2ar? Agricu1ture Credit Societies #and &eBe1o>2ent Banks rAan Co+o>eratiBe Banks Pri2ar? Agricu1tura1 &eBe1o>2ent Banks Pri2ar? #and &eBe1o>2ent Banks State #and &eBe1o>2ent Banks

2eve%o)&ent 1 n!s

Industria1 Finance Cor>oration of India (IFCI!7 Industria1 &eBe1o>2ent Bank of India (I&BI!7 Industria1 Credit and InBest2ent Cor>oration of India (ICICI!7 Industria1 InBest2ent Bank of India (IIBI!7 S2a11 Industries &eBe1o>2ent Bank of India (SI&BI!7
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

SCICI #td7 Nationa1 Bank for Agricu1ture and Rura1 &eBe1o>2ent (NABAR&!7 E=>ort I2>ort Bank of India7 Nationa1 "ousing Bank7

E""ect o" G%ob % Crisis On Indi n 1 n!in# Syste&

T3e g1oAa1 econo2ic 2e1tdo5n 3as not 3ad a dee> i2>act on t3e Aanking s?ste2 in India7 T3e Aanks in India 3aBe a strong funda2enta1 structure and are 5e11 >rotected fro2 t3e econo2ic crisis7 T3e roAust econo2ic gro5t3 in India- 1o5 defau1ter ratio- non e=istence of co2>1e= financia1 >roducts- constant 2onitoring A? t3e centra1 Aankefficient 2onetar? >o1ic? and t3e non aggressiBe c1ose Aanking cu1ture 3as s3ie1ded t3e Indian Aanking sector7

1 n!in# Sector Forec st

Toda? in India t3ere are tota11? HE-E.) Aranc3es- 6F/-/HE e2>1o?ees and (0-)66 ATMs7 PuA1ic sector Aanks account for 6070 >er cent of t3e offices6( >er cent of staff and E)7/ >er cent of ATMs7 As of Januar? (- ())F- Aank de>osits 5ere (*7( >er cent7 Bank credit 5as (. >er cent against (*7. >er cent on Januar? . ())67

T3e tota1 f1o5 of ca>ita1 to t3e co22ercia1 sector fro2 t3e Aanks as on Januar? (- ())F stood at E7* >er cent7 India 3as a 5e11 deBe1o>ed Aanking s?ste27 Most of t3e Aanks in

India 5ere founded A? Indian entre>reneurs and Bisionaries in t3e >re+ inde>endence era to >roBide financia1 assistance to traders- agricu1turists and
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Audding Indian industria1ists7 T3e origin of Aanking in India can Ae traced Aack to t3e 1ast decades of t3e *6t3 centur?7 T3e %enera1 Bank of India and t3e Bank of "industan- 53ic3 started in *06E 5ere t3e first Aanks in India7 Bot3 t3e Aanks are no5 defunct7 T3e o1dest Aank in e=istence in India at t3e 2o2ent is t3e State Bank of India7 T3e State Bank of India ca2e into e=istence in *6)E7 At t3at ti2e it 5as kno5n as t3e Bank of Ca1cutta7 SBI is >resent1? t3e 1argest co22ercia1 Aank in t3e countr?7 T3e ro1e of centra1 Aanking in India is 1ooked A? t3e ReserBe Bank of India- 53ic3 in *F/H for2a11? took oBer t3ese res>onsiAi1ities fro2 t3e t3en I2>eria1 Bank of India7 ReserBe Bank 5as nationa1iJed in *F.0 and 5as giBen Aroader >o5ers7 In *FEF- *. 1argest co22ercia1 Aanks 5ere nationa1iJed fo11o5ed A? si= ne=t 1argest in *F6)7 But 5it3 ado>tion of econo2ic 1iAera1iJation in *FF*- >riBate Aanking 5as again a11o5ed7 T3e co22ercia1 Aanking structure in India consists of, Sc3edu1ed Co22ercia1 Banks and nsc3edu1ed Banks7 Sc3edu1ed co22ercia1 Banks constitute t3ose Aanks- 53ic3 3aBe Aeen inc1uded in t3e Second Sc3edu1e of ReserBe Bank of India (RBI! Act- *F/.7 RBI inc1udes on1? t3ose Aanks in t3is sc3edu1e- 53ic3 satisf? t3e criteria 1aid do5n Bide section .( (E! (a! of t3e Act7 Indian Aanks can Ae Aroad1? c1assified into >uA1ic sector Aanks (t3ose Aanks in 53ic3 t3e %oBern2ent of India 3o1ds a stake!- >riBate Aanks (goBern2ent doe not 3aBe a stake in t3ese AanksI t3e? 2a? Ae >uA1ic1? 1isted and traded on stock e=c3anges! and foreign Aanks7 1 n! Fi7ed 2e)osits

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Bank Fi=ed &e>osits are a1so kno5n as Ter2 &e>osits7 In a Fi=ed &e>osit Account- a certain su2 of 2one? is de>osited in t3e Aank for a s>ecified ti2e >eriod 5it3 a fi=ed rate of interest7 T3e rate of interest for Bank Fi=ed &e>osits de>ends on t3e 2aturit? >eriod7 It is 3ig3er in case of 1onger 2aturit? >eriod7 T3ere is great f1e=iAi1it? in 2aturit? >eriod and it ranges fro2 *Hda?s to H ?ears7 Current Account Current Account is >ri2ari1? 2eant for Ausiness2en- fir2sco2>anies>uA1ic enter>rises etc7 t3at 3aBe nu2erous dai1? Aanking transactions7 Current Accounts are c3e4ue o>erated accounts 2eant neit3er for t3e >ur>ose of earning interest nor for t3e >ur>ose of saBings Aut on1? for conBenience of Ausiness 3ence t3e? are non+interest Aearing accounts7

2e& t Account &e2at refers to a de2ateria1ised account7 &e2at account is @ust 1ike a Aank account 53ere actua1 2one? is re>1aced A? s3ares7 Just as a Aank account is re4uired if 5e 5ant to saBe 2one? or 2ake c3e4ue >a?2ents- 5e need to o>en a de2at account in order to Au? or se11 s3ares7 Recurrin# 1 n! 2e)osits nder a Recurring &e>osit account (R& account!- a s>ecific a2ount is inBested in Aank on 2ont31? Aasis for a fi=ed rate of return7 T3e de>osit 3as a fi=ed tenure- at t3e end of 53ic3 t3e >rinci>a1 su2 as 5e11 as t3e interest earned during t3at >eriod is returned to t3e inBestor7
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Reserve 1 n! o" Indi T3e ReserBe Bank of India 5as estaA1is3ed on A>ri1 *- *F/H in accordance 5it3 t3e >roBisions of t3e ReserBe Bank of India Act- *F/.7 T3oug3 initia11? RBI 5as >riBate1? o5ned- it 5as nationa1iJed in *F.F7 Its centra1 office is in Mu2Aai 53ere t3e %oBernor of RBI sits7 S vin#s 1 n! Account SaBings Bank Accounts are 2eant to >ro2ote t3e 3aAit of saBing a2ong t3e citiJens 53i1e a11o5ing t3e2 to use t3eir funds 53en re4uired7 T3e 2ain adBantage of SaBings Bank Account is its 3ig3 1i4uidit? and safet?7

Senior Citi8en S vin# Sc$e&e 299* T3e Senior CitiJen SaBing Sc3e2e ()). 3ad Aeen introduced A? t3e %oBern2ent of India for t3e Aenefit of senior citiJens 53o 3aBe crossed t3e age of E) ?ears7 "o5eBer- under so2e circu2stances t3e >eo>1e aAoBe HH ?ears of age are a1so e1igiA1e to en@o? t3e Aenefits of t3is sc3e2e7 Forei#n 1 n!s in Indi Foreign Aanks 3aBe Aroug3t 1atest tec3no1og? and 1atest Aanking >ractices in India7 T3e? 3aBe 3e1>ed 2ade Indian Banking s?ste2 2ore co2>etitiBe and efficient7 %oBern2ent 3as co2e u> 5it3 a road 2a> for e=>ansion of foreign Aanks in India7
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

N tion %i8ed 1 n!s Nationa1ised Aanks do2inate t3e Aanking s?ste2 in India7 T3e 3istor? of nationa1iJed Aanks in India dates Aack to 2id+()t3 centur?- 53en I2>eria1 Bank of India 5as nationa1iJed (under t3e SBI Act of *FHH! and re+ c3ristened as State Bank of India (SBI! in Ju1? *FHH7 Priv te 1 n!s in Indi Initia11? a11 t3e Aanks in India 5ere >riBate Aanks- 53ic3 5ere founded in t3e >re+inde>endence era to cater to t3e Aanking needs of t3e >eo>1e7 In *F(*- t3ree 2a@or Aanks i7e7 Banks of Benga1- Bank of Bo2Aa?- and Bank of Madras- 2erged to for2 I2>eria1 Bank of India7

'A:OR REFOR'S INITIATI;ES

So2e of t3e 2a@or refor2 initiatiBes in t3e 1ast decade t3at 3aBe c3anged t3e face of t3e Indian Aanking are,+ Interest Rate &eregu1ation+Interest rates on de>osits and 1ending 3aBe Aeen deregu1ated 5it3 Aanks en@o?ing greater freedo2 to deter2ine rates7 %oBern2ent e4uit? in Aanks 3as Aeen reduced and strong Aanks 3aBe Aeen a11o5ed to access t3e ca>ita1 2arket for raising additiona1 ca>ita17 Ne5 >riBate sector Aanks 3aBe Aeen set u> and foreign Aanks >er2itted to e=>and t3eir o>erations in India inc1uding t3roug3 suAsidiaries7 t3eir

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Ne5 areas 3aBe Aeen o>ened u> for Aank financing 1ike+ insurance- credit cards- infrastructure financing- 1easing- go1d Aanking- Aesides of course inBest2ent Aanking- asset 2anage2ent- factoring- etc7 Banks 3aBe s>ecia1iJed co22ittees to 2easure and 2onitor Barious risks and 3aBe Aeen u>grading t3eir risk 2anage2ent ski11s and s?ste2s7 Ado>tion of >rudentia1 nor2s in ter2s of ca>ita1 ade4uac?- asset c1assificationinco2e recognition>roBisioninge=>osure 1i2itsinBest2ent f1uctuation reserBe- etc7

INFOR'ATION TECHNO<OG5 3SAGE 15 1AN4S

IT usage A? Aanks in India 3as co2e of age7 T3e financia1 sector of t3e countr? 3as Aeco2e 2ore IT saBB? and t3e Banking sector in >articu1ar is one of t3e 1argest users of IT and IT enaA1ed serBices7 T3e ReserBe Bank too 3as en3anced t3e usage of IT as a too1 for Aetter >erfor2ance and oBera11 s?ste2ic efficienc?7 Infor2ation Tec3no1og? (IT! continues to Ae t3e sing1e 1argest faci1itating force Ae3ind t3e successfu1 transfor2ation of transactions and ana1?tica1 >rocessing of Aanking Ausiness in t3e countr?7 &eBe1o>2ents 53ic3 3aBe taken >1ace during t3e 1ast fe5 ?ears a11 3aBe IT as t3e >iBota1 centre+>oint7 Since t3e >uA1ication of t3e Financia1 Sector Tec3no1og? (FST! 'ision in Ju1?())H- t3ere 3aBe Aeen significant c3anges in t3e Aanking sector of t3e countr?- as far as IT i2>1e2entation is concerned7 So2e of t3e 2a@or deBe1o>2ents 53ic3 3aBe taken >1ace since t3en are as fo11o5s,+ Core Banking S?ste2s (CBS!
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Internet Banking MoAi1e Banking MoAi1e Auto2ated Te11er Mac3ines (ATMs! Mu1tifunctiona1 ATMs s3ared ATM serBices #arge sca1e usage of Rea1 Ti2e %ross Sett1e2ent (RT%S!

Tec$no%o#ic % 2eve%o)&ents in 1 n!in#

In India- Aanks as 5e11 as ot3er financia1 entities 3aBe entered t3e do2ain of infor2ation tec3no1og? and co2>uter net5orking7 A sate11ite+Aased 8ide Area Net5ork (8AN! 5ou1d >roBide a re1iaA1e co22unication fra2e5ork for t3e financia1 sector7 T3e Indian Financia1 Net5ork (INFINET! 5as inaugurated in June *FFF7 It is Aased on sate11ite co22unication using 'SAT tec3no1og? and 5ou1d enaA1e faster connectiBit? 5it3in t3e financia1 sector7 T3e INFINET 5ou1d serBe as t3e co22unication AackAone of t3e >ro>osed Integrated Pa?2ent and Sett1e2ent S?ste2 (IPSS!7 T3e ReserBe Bank constituted a Nationa1 Pa?2ents Counci1 (C3air2an, S3ri S7 P7 Ta15ar! in *FFF+())) to focus on t3e >o1ic? >ara2eters for deBe1o>ing an IPSS 5it3 a rea1 ti2e gross sett1e2ent (RT%S! s?ste2 as t3e core7

SER;ICES PRO;I2E2 15 1AN4

&e2at Account #ockers Cas3 Manage2ent Insurance Product
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Mutua1 Fund Product #oans ECS(E1ectronic c1earance s?ste2! Ta=es

'AIN CO'PETITORS FOR 1AN4ING SECTOR

Post offices Mutua1 fund S3are 2arket Insurance Mone? 1enders Fa2i1? and Friends

CHA<<ENGES AHEA2
I2>roBing >rofitaAi1it? Reinforcing tec3no1og? Risk 2anage2ent

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

S3ar>ening ski11s %reater custo2er orientation Cor>orate goBernance Internationa1 standard

Econo&ic deve%o)&ent o" Indi

T3e econo2ic deBe1o>2ent of India 5as do2inated A? socia1ist+ inf1uenced >o1icies- state+o5ned sectors- and red ta>e 9 e=tensiBe regu1ationsco11ectiBe1? kno5n as K#icense Ra@K7 It 1ed t3e countr? and its econo2? iso1ated fro2 t3e 5or1d econo2?7 "o5eBer t3e scenario started c3anging fro2 t3e 2id+ *F6)s- 53en India Aegan o>ening u> its 2arket s1o51? t3roug3 econo2ic 1iAera1iJation7 T3e >o1ic? >1a?ed a 3uge i2>act on t3e econo2ic deBe1o>2ent of India7 T3e Indian econo2ic deBe1o>2ent got a Aoost t3roug3 its econo2ic refor2 in *FF* and again t3roug3 its rene5a1 in t3e ()))s7 Since t3en- t3e face of econo2ic deBe1o>2ent of India 3as c3anged co2>1ete1?7 T3e econo2ic refor2 of *FF* >1a?ed a >iBota1 ro1e in t3e econo2ic deBe1o>2ent of India7 Rea>ing its Aenefit- t3e gro5t3 of t3e countr? reac3ed around 07HM in t3e 1ate ()))s7 It is a1so e=>ected to douA1e t3e aBerage inco2e 5it3in a decade7 According to t3e ana1?sts- if India can >us3 2ore funda2enta1 2arket refor2s- it 5i11 Ae aA1e to sustain t3e rate and can eBen ac3ieBe t3e goBern2entGs target of *)M A? ()**7

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector Indi =s Econo&ic 2eve%o)&ent6 Ro%e o" St tes
India is 5or1dGs *(t3 1argest econo2? and a1so t3e .t3 1argest in ter2s of >urc3asing >o5er >arit? ad@usted e=c3ange rates (PPP!7 It is t3e *(6t3 1argest in t3e 5or1d on >er ca>ita Aasis and **6t3 A? PPP7 "o5eBer- states 3aBe a 2a@or ro1e to >1a? in t3e econo2ic deBe1o>2ent of India7 T3ere are fe5 states 53ic3 3aBe 3ig3er annua1iJed *FFF+())6 gro5t3 rates co2>aring to ot3ers7 T3e gro5t3 rates for t3e states 1ike %u@arat (676M!- "ar?ana (670M! and &e13i (07.M! are consideraA1? 3ig3er t3an ot3er states 1ike Bi3ar (H7*M!- ttar Prades3 (.7.M! and Mad3?a Prades3 (/7HM!7

Econo&ic 2eve%o)&ent t$e 2ecisive F ctors

T3e econo2ic deBe1o>2ent of India 1arge1? de>ends u>on a fe5 factors- 53ic3 >roBe to Ae decisiBe7 According to t3e 8or1d Bank- for a Aetter econo2ic deBe1o>2ent- India needs to giBe due >riorities in Barious issues 1ike infrastructure- >uA1ic sector refor2- agricu1tura1 and rura1 deBe1o>2ent- refor2s in 1agging states- re2oBa1 of 1aAor regu1ations and "I';AI&S7

A#ricu%ture
Agricu1ture- a1ong 5it3 ot3er a11ied sectors 1ike fis3ing- forestr?- and 1ogging >1a? a 2a@or ro1e in t3e econo2ic deBe1o>2ent in India7 In ())H- t3ese sectors accounted for a12ost *67EM of t3e %&P7 India 3o1ds t3e second >osition 5or1d5ide in ter2s of far2 out>ut7 It a1so generated 5orks for E)M of t3e tota1 5orkforce7 T3oug3- current1? seeing a stead? dec1ine of its s3are in t3e %&P- it is sti11 t3e 1argest econo2ic sector of t3e countr?7

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

In India- a stead? gro5t3 3as Aeen oAserBed in t3e ?ie1ds >er unit area of a11 t3e cro>s since *FH)7 And t3e reason Ae3ind t3is is t3e fact t3ats>ecia1 e2>3asis 5as giBen on agricu1ture in t3e fiBe+?ear >1ans7 In *FEH- t3e countr? sa5 green reBo1ution7 I2>roBe2ents ca2e in t3e Barious areas 1ike irrigation- tec3no1og?- >roBision of agricu1tura1 credit- a>>1ication of 2odern agricu1tura1 >ractices and suAsidies7 India 3as done consideraA1? 5e11 in agricu1ture and a11ied sectors7 T3e countr? is t3e 5or1ds 1argest >roducer of tea- coconut- cas3e5 nuts- A1ack >e>>er- tur2eric- ginger and 2i1k7 India a1so 3as t3e 1argest catt1e >o>u1ation in t3e 5or1d7 It is 5or1ds second 1argest >roducer of sugar- rice- 53eat and in1and fis37 It is in t3e t3ird >osition in t3e 1ist of toAacco >roducers in t3e 5or1d7 India a1so >roduces *)M of t3e oBera11 fruit >roduction in t3e 5or1d- 3o1ding t3e first >osition in Aanana and sa>ota >roduction7

Gro+t$ o" Indi n 1 n!in# sector

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

T3e Indian Aanking s?ste2 is financia11? staA1e and resi1ient to t3e s3ocks t3at 2a? arise due to 3ig3er non+>erfor2ing assets (NPAs! and t3e g1oAa1 econo2ic crisis- according to a stress test done A? t3e ReserBe Bank of India7 Significant1?- t3e RBI 3as t3e tent3 1argest go1d reserBes in t3e 5or1d after s>ending SN E70 Ai11ion to5ards t3e >urc3ase of ()) 2etric tonnes of go1d fro2 t3e Internationa1 Monetar? Fund (IMF! in NoBe2Aer ())F7 T3e >urc3ase 3as increased t3e countr?Gs s3are of go1d 3o1dings in its foreign e=c3ange reserBes fro2 a>>ro=i2ate1? . >er cent to aAout E >er cent7 In t3e annua1 internationa1 ranking conducted A? $+Aased Brand

Finance P1c- () Indian Aanks 3aBe Aeen inc1uded in t3e Brand FinanceO %1oAa1 Banking H))7 In fact- t3e State Bank of India (SBI! 3as Aeco2e t3e first Indian Aank to Ae ranked a2ong t3e To> H) Aanks in t3e 5or1d- ca>turing t3e /Et3 rankas >er t3e Brand Finance stud?7 T3e Arand Ba1ue of SBI increased fro2 Ai11ion in ())F to *)) 1ist 5it3 a Arand Ba1ue of SN *7H SN .7E Ai11ion in ()*)7 ICICI Bank a1so 2ade it to t3e To> SN (7( Ai11ion7 T3e tota1 Arand Ba1ue of t3e ()

Indian Aanks featured in t3e 1ist stood at SN */ Ai11ion7 Mean53i1e- 1oan disAurse2ent fro2 sc3edu1ed co22ercia1 Aanks 53ic3 inc1uded regiona1 rura1 Aanks as 5e11 >osted a gro5t3 of *E7). >er cent A? Marc3 *(- ()*)- on a ?ear+on+?ear Aasis- as >er t3e 1atest data re1eased A? RBI7 T3e RBI 3ad ear1ier >redicted t3at t3e credit gro5t3 during ())F+*) 5ou1d Ae around *E >er cent7 Fo11o5ing t3e financia1 crisis- ne5 de>osits 3aBe graBitated to5ards >uA1ic sector Aanks7 According to RBIGs GPuarter1? Statistics on &e>osits and Credit of Sc3edu1ed Co22ercia1 Banks, Se>te2Aer ())FG- nationa1ised Aanks- as
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

a grou>- accounted for H)7H >er cent of t3e aggregate de>osits- 53i1e State Bank of India (SBI! and its associates accounted for (/76 >er cent7 T3e s3are of ot3er sc3edu1ed co22ercia1 Aanks- foreign Aanks and regiona1 rura1 Aanks in aggregate de>osits 5ere *076 >er cent- H7E >er cent and /7) >er cent- res>ectiBe1?7 8it3 res>ect to gross Aank credit a1so- nationa1ised Aanks 3o1d t3e 3ig3est s3are of H)7H >er cent in t3e tota1 Aank credit- 5it3 SBI and its associates at (/70 >er cent and ot3er sc3edu1ed co22ercia1 Aanks at *076 >er cent7 Foreign Aanks and regiona1 rura1 Aanks 3ad a s3are of H7H >er cent and (7H >er cent res>ectiBe1? in t3e tota1 Aank credit7 T3e re>ort a1so found t3at sc3edu1ed co22ercia1 Aanks serBed /.-0)F Aanked centres7 Of t3ese centres- (6-)FH 5ere sing1e office centres and E. centres 3ad *)) or 2ore Aank offices7 T3e confidence of non+resident Indians (NRIs! in t3e Indian econo2? is reBiBing again7 NRI fund inf1o5s increased since A>ri1 ())F and touc3ed SN .076 Ai11ion on Marc3 ()*)- as >er t3e RBIGs June ()*) Au11etin7 Most of t3is 3as co2e t3roug3 Foreign Currenc? Non+resident (FCNR! accounts and Non+resident E=terna1 Ru>ee Accounts7 Foreign e=c3ange reserBes 5ere u> A? June (*- ()*)7 SN *7EF Ai11ion to SN

(0(706/ Ai11ion- for t3e 5eek ending June **- on account of reBa1uation gains7

' (or 2eve%o)&ents

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

T3e Monetar? Aut3orit? of Singa>ore (MAS! 3as >roBided 4ua1ified fu11 Aanking (PFB! >riBi1eges to ICICI Bank for its Aranc3 o>erations in Singa>ore7 Current1?- on1? SBI 3ad PFB >riBi1eges in countr?7 T3e Indian o>erations of Standard C3artered re>orted a >rofit of aAoBe ())67 Pun@aA Nationa1 Bank (PNB! >1ans to e=>and its internationa1 o>erations A? fora?ing into Indonesia and Sout3 Africa7 T3e Aank is a1so >1anning to increase its s3are in t3e internationa1 Ausiness o>erations to 0 >er cent in t3e ne=t t3ree ?ears7 T3e State Bank of India (SBI! 3as >osted a net >rofit of *0H7. 2i11ion >osted in t3e nine 2ont3s ended &ece2Aer ())67 SN *7HE SN SN * Ai11ion for t3e first ti2e7 T3e Aank >osted a >rofit Aefore ta= (PAT! of SN *7)E Ai11ion in t3e ca1endar ?ear ())F- as co2>ared to SN 6F* 2i11ion in

Ai11ion for t3e nine 2ont3s ended &ece2Aer ())F- u> *.7./ >er cent fro2

Re"or&s in b n!in# sector in Indi

In 1ine 5it3 t3e reco22endations of t3e second Narasi23a2 Co22ittee- t3e Mid+Ter2 ReBie5 of t3e Monetar? and Credit Po1ic? of OctoAer *FFF announced a ga2ut of 2easures to strengt3en t3e Aanking s?ste27 I2>ortant 2easures on strengt3ening t3e 3ea1t3 of Aanks inc1uded, (i! assigning of risk 5eig3t of (7H >er cent to coBer 2arket risk in res>ect of inBest2ents in securities outside t3e S#R A? Marc3 /*- ())* (oBer and aAoBe t3e e=isting *)) >er cent risk 5eig3t! in addition to a si2i1ar >rescri>tion for %oBern2ent and ot3er a>>roBed securities A? Marc3 /*Page 30

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

()))- and (ii! 1o5ering of t3e e=>osure cei1ing in res>ect of an indiBidua1 Aorro5er fro2 (H >er cent of t3e AankGs ca>ita1 fund to () >er centeffectiBe A>ri1 *- ()))7

C )it % Ade>u cy nd Rec )it %i8 tion o" 1 n!s

Out of t3e (0 >uA1ic sector Aanks (PSBs!- (E PSBs ac3ieBed t3e 2ini2u2 ca>ita1 to risk assets ratio (CRAR! of F >er cent A? Marc3 ()))7 Of t3is- (( PSBs 3ad CRAR e=ceeding *) >er cent7 To enaA1e t3e PSBs to o>erate in a 2ore co2>etitiBe 2anner- t3e %oBern2ent ado>ted a >o1ic? of >roBiding autono2ous status to t3ese Aanks- suA@ect to certain Aenc32arks7 As at end+Marc3 *FFF- *0 PSBs Aeca2e e1igiA1e for autono2ous status7

Prudenti % Accountin# Nor&s "or 1 n!s

T3e ReserBe Bank >erseBered 5it3 t3e on+going >rocess of strengt3ening >rudentia1 accounting nor2s 5it3 t3e oA@ectiBe of i2>roBing t3e financia1 soundness of Aanks and to Aring t3e2 at >ar 5it3 internationa1 standards7 T3e ReserBe Bank adBised PSBs to set u> Sett1e2ent AdBisor? Co22ittees (SACs! for ti2e1? and s>eedier sett1e2ent of NPAs in t3e s2a11 sca1e sector- BiJ7- s2a11 sca1e industries- s2a11 Ausiness inc1uding trading and >ersona1 seg2ent and t3e agricu1tura1 sector7 T3e guide1ines on SACs 5ere ai2ed at reducing t3e stock of NPAs A? encouraging t3e Aanks to go in for co2>ro2ise sett1e2ents in a trans>arent 2anner7 Since t3e >rogress in t3e recoBer? of NPAs 3as not Aeen encouraging- a reBie5 of t3e sc3e2e 5as undertaken and reBised
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

guide1ines 5ere issued to PSBs in Ju1? ())) to >roBide a si2>1ified- non+ discri2inator? and non+discretionar? 2ec3anis2 for t3e recoBer? of t3e stock of NPAs in a11 sectors7 T3e guide1ines 5i11 re2ain o>eratiBe ti11 Marc3 ())*7 Recognising t3at t3e 3ig3 1eBe1 of NPAs in t3e PSBs can endanger financia1 s?ste2 staAi1it?- t3e nion Budget ()))+)* announced t3e setting u> of seBen 2ore &eAt RecoBer? TriAuna1s (&RTs! for s>eed? recoBer? of Aad 1oans7 An a2end2ent in t3e RecoBer? of &eAts &ue to Banks and Financia1 Institutions Act- *FF/- 5as effected to e=>edite t3e recoBer? >rocess7

Asset <i bi%ity ' n #e&ent ?A<'@ Syste&

T3e ReserBe Bank adBised Aanks in FeAruar? *FFF to >ut in >1ace an A#M s?ste2- effectiBe A>ri1 *- *FFF and set u> interna1 asset 1iaAi1it? 2anage2ent co22ittees (A#COs! at t3e to> 2anage2ent 1eBe1 to oBersee its i2>1e2entation7 Banks 5ere e=>ected to coBer at 1east E) >er cent of t3eir 1iaAi1ities and assets in t3e interi2 and *)) >er cent of t3eir Ausiness A? A>ri1 *- ()))7 T3e ReserBe Bank a1so re1eased A#M s?ste2 guide1ines in Januar? ())) for a11+India ter2+1ending and refinancing institutions- effectiBe A>ri1 *- ()))7 As >er t3e guide1ines- Aanks and suc3 institutions 5ere re4uired to >re>are state2ents on 1i4uidit? ga>s and interest rate sensitiBit? at s>ecified >eriodic interBa1s7 Ris! ' n #e&ent Guide%ines T3e ReserBe Bank issued detai1ed guide1ines for risk 2anage2ent s?ste2s in Aanks in OctoAer *FFF- enco2>assing credit2arket and o>erationa1 risks7 Banks 5ou1d >ut in >1ace 1oan >o1iciesPage 32

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

a>>roBed A? t3eir Aoards of directors- coBering t3e 2et3odo1ogies for 2easure2ent- 2onitoring and contro1 of credit risk7 T3e guide1ines a1so re4uire Aanks to eBa1uate t3eir >ortfo1ios on an on+going Aasis- rat3er t3an at a ti2e c1ose to t3e Aa1ance s3eet date7 As regards off+Aa1ance s3eet e=>osures- t3e current and >otentia1 credit e=>osures 2a? Ae 2easured on a dai1? Aasis7 Banks 5ere a1so asked to fi= a definite ti2e+fra2e for 2oBing oBer to t3e 'a1ue+at+Risk ('aR! and duration a>>roac3es for t3e 2easure2ent of interest rate risk7 T3e Aanks 5ere a1so adBised to eBo1Be detai1ed >o1ic? and o>eratiBe fra2e5ork for o>erationa1 risk 2anage2ent7 T3ese guide1ines toget3er 5it3 A#M guide1ines 5ou1d serBe as a Aenc32ark for Aanks 53ic3 are ?et to estaA1is3 an integrated risk 2anage2ent s?ste27 2isc%osure Nor&s As a 2oBe to5ards greater trans>arenc?- Aanks 5ere directed to disc1ose t3e fo11o5ing additiona1 infor2ation in t3e GNotes to AccountsG in t3e Aa1ance s3eets fro2 t3e accounting ?ear ended Marc3 /*- ())), (i! 2aturit? >attern of 1oans and adBances- inBest2ent securities- de>osits and Aorro5ings(ii! foreign currenc? assets and 1iaAi1ities(iii! 2oBe2ents in NPAs and (iB! 1ending to sensitiBe sectors as defined A? t3e ReserBe Bank fro2 ti2e to ti2e7

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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Page 34

%uru Nanak Co11ege

Current scenario of Indian Banking Sector Reviv % o" Ae ! 1 n!s

T3e ReserBe Bank 3ad set u> a 8orking %rou> (C3air2an, S3ri M7 S7 'er2a! to suggest 2easures for t3e reBiBa1 of 5eak PSBs in FeAruar? *FFF7 T3e 8orking %rou>- in its re>ort suA2itted in OctoAer *FFF- suggested t3at an ana1?sis of t3e >erfor2ance Aased on a co2Aination of seBen >ara2eters coBering t3ree 2a@or areas of i! so1Benc? (ca>ita1 ade4uac? ratio and coBerage ratio!- ii! earnings ca>acit? (return on assets and net interest 2argin! and iii! >rofitaAi1it? (o>erating >rofit to aBerage 5orking funds- cost to inco2e and staff cost to net interest inco2e >1us a11 ot3er inco2e! cou1d serBe as t3e fra2e5ork for identif?ing t3e 5eakness of Aanks7 PSBs 5ere- according1?- c1assified into t3ree categories de>ending on 53et3er none- a11 or so2e of t3e seBen >ara2eters 5ere 2et7 T3e %rou> >ri2ari1? focussed on restructuring of t3ree Aanks- BiJ7- Indian BankBank and an? (or 2ost! of t3e seBen >ara2eters7 T3e %rou> a1so suggested a t5o+stage restructuring >rocessI 53ereA? focus 5ou1d Ae on restoring co2>etitiBe efficienc? in stage one5it3 t3e o>tions of >riBatiJation and;or 2erger assu2ing re1eBance on1? in stage t5o7 &e>osit Insurance Refor2s Refor2ing t3e de>osit insurance s?ste2- as oAserBed A? t3e Narasi23a2 Co22ittee (*FF6!- is a crucia1 co2>onent of t3e >resent >3ase of financia1 sector refor2s in India7 T3e ReserBe Bank constituted a 8orking %rou> (C3air2an, S3ri Jagdis3 Ca>oor! to e=a2ine t3e issue of de>osit insurance 53ic3 suA2itted its re>ort in OctoAer *FFF7 So2e of t3e
Page 35

CO

nited Bank of India- identified as 5eak as t3e? did not satisf?

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

2a@or reco22endations of t3e %rou> are , (i! fi=ing t3e ca>ita1 of t3e &e>osit Insurance and Credit %uarantee Cor>oration (&IC%C! at Rs7H)) crore- contriAuted fu11? A? t3e ReserBe Bank- (ii! 5it3dra5ing t3e function of credit guarantee on 1oans fro2 &IC%C and (iii! risk+Aased >ricing of t3e de>osit insurance >re2iu2 in 1ieu of t3e >resent f1at rate s?ste27 A ne5 1a5- in su>ercession of t3e e=isting enact2ent- is re4uired to Ae >assed in order to i2>1e2ent t3e reco22endations7 T3e task of >re>aring t3e ne5 draft 1a5 3as Aeen taken u>7 T3e re1eBant >ro>osa1s in t3is res>ect 5ou1d Ae for5arded to t3e %oBern2ent for consideration7 A1so , *7 (7 Non+Banking Financia1 Co2>anies (NBFCs! Refor2s

Financia1 Institutions Refor2s7

N r si&$ & Co&&ittee Re)ort

Page 36

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

1.

2irected Invest&ent Pro#r &&e , T3e co22ittee oA@ected to t3e s?ste2 of 2aintaining 3ig3 1i4uid assets A? co22ercia1 Aanks in t3e for2 of cas3- go1d and unencu2Aered goBern2ent securities7 It is a1so kno5n as t3e statutor? 1i4uidit? Ratio (S#R!7 In t3ose da?s- in India- t3e S#R 5as as 3ig3 as /67H >ercent7 According to t3e M7 Narasi23a2Gs Co22ittee it 5as one of t3e reasons for t3e >oor >rofitaAi1it? of Aanks7 Si2i1ar1?- t3e Cas3 ReserBe Ratio+ (CRR! 5as as 3ig3 as *H >ercent7 Taken toget3er- Aanks needed to 2aintain H/7H >ercent of t3eir resources id1e 5it3 t3e RBI7 2irected Credit Pro#r &&e , Since nationa1iJation t3e goBern2ent 3as encouraged t3e 1ending to agricu1ture and s2a11+sca1e industries at a confessiona1 rate of interest7 It is kno5n as t3e directed credit >rogra22e7 T3e co22ittee o>ined t3at t3ese sectors 3aBe 2atured and t3us do not need suc3 financia1 su>>ort7 T3is directed credit >rogra22e 5as successfu1 fro2 t3e goBern2entGs >oint of Bie5 Aut it affected co22ercia1 Aanks in a Aad 2anner7 Basica11? it deteriorated t3e 4ua1it? of 1oan- resu1ted in a s3ift fro2 t3e securit? oriented 1oan to >ur>ose oriented7 Banks 5ere giBen a 3uge target of >riorit? sector 1ending- etc7 u1ti2ate1? 1eading to >rofit erosion of Aanks7 Interest R te Structure , T3e co22ittee found t3at t3e interest rate structure and rate of interest in India are 3ig31? regu1ated and contro11ed A? t3e goBern2ent7 T3e? a1so found t3at goBern2ent used Aank funds at a c3ea> rate under t3e S#R7 At t3e sa2e ti2e t3e goBern2ent adBocated t3e >3i1oso>3? of suAsidiJed 1ending to certain sectors7 T3e co22ittee fe1t t3at t3ere 5as no need

2.

3.

Page 37

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

for interest suAsid?7 It 2ade Aanks 3andica>>ed in ter2s of Aui1ding 2ain strengt3 and e=>anding credit su>>1?7 Addition % Su##estions, Co22ittee a1so suggested t3at t3e deter2ination

4.

of interest rate s3ou1d Ae on grounds of 2arket forces7 It furt3er suggested 2ini2iJing t3e s1aAs of interest7 A1ong 5it3 t3ese 2a@or >roA1e2 areas M7 Narasi23a2Gs Co22ittee a1so found Barious inconsistencies regarding t3e Aanking s?ste2 in India7 In order to re2oBe t3e2 and 2ake it 2ore BiArant and efficient- it 3as giBen t3e fo11o5ing reco22endations7

N r si&$ & Co&&ittee Re)ort - 1..1

T3e Narsi23a2 Co22ittee 5as set u> in order to stud? t3e >roA1e2s of t3e Indian financia1 s?ste2 and to suggest so2e reco22endations for i2>roBe2ent in t3e efficienc? and >roductiBit? of t3e financia1 institution7 T3e co22ittee 3as giBen t3e fo11o5ing 2a@or reco22endations:-

1.

Reduction in t$e S<R

nd CRR, T3e co22ittee reco22ended t3e

reduction of t3e 3ig3er >ro>ortion of t3e Statutor? #i4uidit? Ratio GS#RG and t3e Cas3 ReserBe Ratio GCRRG7 Bot3 of t3ese ratios 5ere Ber? 3ig3 at t3at ti2e7 T3e S#R t3en 5as /67HM and CRR 5as *HM7 T3is 3ig3 a2ount of S#R and CRR 2eant 1ocking t3e Aank resources for goBern2ent uses7 It 5as 3indrance in t3e >roductiBit? of t3e Aank t3us t3e co22ittee reco22ended t3eir gradua1

Page 38

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

reduction7 S#R 5as reco22ended to reduce fro2 /67HM to (HM and CRR fro2 *HM to / to HM7 P$ sin# out 2irected Credit Pro#r &&e , In India- since nationa1iJationdirected credit >rogra22es 5ere ado>ted A? t3e goBern2ent7 T3e co22ittee reco22ended >3asing out of t3is >rogra22e7 T3is >rogra22e co2>e11ed Aanks to ear2ark t3en financia1 resources for t3e need? and >oor sectors at confessiona1 rates of interest7 It 5as reducing t3e >rofitaAi1it? of Aanks and t3us t3e co22ittee reco22ended t3e sto>>ing of t3is >rogra22e7 Interest R te 2eter&in tion, T3e co22ittee fe1t t3at t3e interest rates in India are regu1ated and contro11ed A? t3e aut3orities7 T3e deter2ination of t3e interest rate s3ou1d Ae on t3e grounds of 2arket forces suc3 as t3e de2and for and t3e su>>1? of fund7 "ence t3e co22ittee reco22ended e1i2inating goBern2ent contro1s on interest rate and >3asing out t3e concessiona1 interest rates for t3e >riorit? sector7 Structur % Reor# ni8 tions o" t$e 1 n!in# sector , T3e co22ittee reco22ended t3at t3e actua1 nu2Aers of >uA1ic sector Aanks need to Ae reduced7 T3ree to four Aig Aanks inc1uding SBI s3ou1d Ae deBe1o>ed as internationa1 Aanks7 Eig3t to Ten Banks 3aBing nation5ide >resence s3ou1d concentrate on t3e nationa1 and uniBersa1 Aanking serBices7 #oca1 Aanks s3ou1d concentrate on region s>ecific Aanking7 Regarding t3e RRBs (Regiona1 Rura1 Banks!- it reco22ended t3at t3e? s3ou1d focus on agricu1ture and rura1 financing7 T3e? reco22ended t3at t3e goBern2ent s3ou1d assure t3at

2.

3.

4.

Page 39

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

3encefort3 t3ere 5onGt Ae an? nationa1iJation and >riBate and foreign Aanks s3ou1d Ae a11o5ed 1iAera1 entr? in India7 Est b%is$&ent o" t$e ARF Tribun %, T3e >ro>ortion of Aad deAts and Non+>erfor2ing asset (NPA! of t3e >uA1ic sector Banks and &eBe1o>2ent Financia1 Institute 5as Ber? a1ar2ing in t3ose da?s7 T3e co22ittee reco22ended t3e estaA1is32ent of an Asset Reconstruction Fund (ARF!7 T3is fund 5i11 take oBer t3e >ro>ortion of t3e Aad and douAtfu1 deAts fro2 t3e Aanks and financia1 institutes7 It 5ou1d 3e1> Aanks to get rid of Aad deAts7 Re&ov % o" 2u % contro%, T3ose da?s Aanks 5ere under t3e dua1 contro1 of t3e ReserBe Bank of India (RBI! and t3e Banking &iBision of t3e Ministr? of Finance (%oBern2ent of India!7 T3e co22ittee reco22ended t3e ste>>ing of t3is s?ste27 It considered and reco22ended t3at t3e RBI s3ou1d Ae t3e on1? 2ain agenc? to regu1ate Aanking in India7 1 n!in# Autono&y, T3e co22ittee reco22ended t3at t3e >uA1ic sector Aanks s3ou1d Ae free and autono2ous7 In order to >ursue co2>etitiBeness and efficienc?- Aanks 2ust en@o? autono2? so t3at t3e? can refor2 t3e 5ork cu1ture and Aanking tec3no1og? u>gradation 5i11 t3us Ae eas?7 So2e of t3ese reco22endations 5ere 1ater acce>ted A? t3e %oBern2ent of India and Aeca2e Aanking refor2s7

5.

6.

7.

Page 40

%uru Nanak Co11ege

Current scenario of Indian Banking Sector N r si&$ & Co&&ittee Re)ort - 1..B
In *FF6 t3e goBern2ent a>>ointed ?et anot3er co22ittee under t3e c3air2ans3i> of Mr7 Narsi23a27 It is Aetter kno5n as t3e Banking Sector Co22ittee7 It 5as to1d to reBie5 t3e Aanking refor2 >rogress and design a >rogra22e for furt3er strengt3ening t3e financia1 s?ste2 of India7 T3e co22ittee focused on Barious areas suc3 as ca>ita1 ade4uac?- Aank 2ergersAank 1egis1ation- etc7 It suA2itted its re>ort to t3e %oBern2ent in A>ri1 *FF6 5it3 t3e fo11o5ing reco22endations7 Stren#t$enin# 1 n!s in Indi , T3e co22ittee considered t3e stronger Aanking s?ste2 in t3e conte=t of t3e Current Account ConBertiAi1it? GCACG7 It t3oug3t t3at Indian Aanks 2ust Ae ca>aA1e of 3and1ing >roA1e2s regarding do2estic 1i4uidit? and e=c3ange rate 2anage2ent in t3e 1ig3t of CAC7 T3us- it reco22ended t3e 2erger of strong Aanks 53ic3 5i11 3aBe G2u1ti>1ier effectG on t3e industr?7 N rro+ 1 n!in#, T3ose da?s 2an? >uA1ic sector Aanks 5ere facing a >roA1e2 of t3e Non+>erfor2ing assets (NPAs!7 So2e of t3e2 3ad NPAs 5ere as 3ig3 as () >ercent of t3eir assets7 T3us for successfu1 re3aAi1itation of t3ese Aanks it reco22ended GNarro5 Banking Conce>tG 53ere 5eak Aanks 5i11 Ae a11o5ed to >1ace t3eir funds on1? in s3ort ter2 and risk free asset7

1.

2.

Page 41

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

/7 C )it % Ade>u cy R tio, In order to i2>roBe t3e in3erent strengt3 of t3e Indian Aanking s?ste2 t3e co22ittee reco22ended t3at t3e %oBern2ent s3ou1d raise t3e >rescriAed ca>ita1 ade4uac? nor2s7 T3is 5i11 furt3er i2>roBe t3eir aAsor>tion ca>acit? a1so7 Current1? t3e ca>ita1 ade4uac? ration for Indian Aanks is at F >ercent7 1 n! o+ners$i), As it 3ad ear1ier 2entioned t3e freedo2 for Aanks in its 5orking and Aank autono2?- it fe1t t3at t3e goBern2ent contro1 oBer t3e Aanks in t3e for2 of 2anage2ent and o5ners3i> and Aank autono2? does not go 3and in 3and and t3us it reco22ended a reBie5 of functions of Aoards and enaA1ed t3e2 to ado>t >rofessiona1 cor>orate strateg?7 Revie+ o" b n!in# % +s, T3e co22ittee considered t3at t3ere 5as an urgent need for reBie5ing and a2ending 2ain 1a5s goBerning Indian Banking Industr? 1ike RBI Act- Banking Regu1ation Act- State Bank of India Act- Bank Nationa1isation Act- etc7 T3is u>gradation 5i11 Aring t3e2 in 1ine 5it3 t3e >resent needs of t3e Aanking sector in India7 A>art fro2 t3ese 2a@or reco22endations- t3e co22ittee 3as a1so reco22ended faster co2>uteriJation- tec3no1og? u>gradation- training of staffde>o1iticiJing of Aanks- >rofessiona1is2 in Aanking- reBie5ing Aank recruit2entetc7

4.

5.

Page 42

%uru Nanak Co11ege

Current scenario of Indian Banking Sector Ev %u tion o" N rsi&$ & Co&&ittee Re)ort
T3e Co22ittee 5as first set u> in *FF* under t3e c3air2ans3i> of Mr7 M7 Narasi23a2 53o 5as */t3 goBernor of RBI7 On1? a fe5 of its reco22endations Aeca2e Aanking refor2s of India and ot3ers 5ere not at a11 considered7 Because of t3is a second co22ittee 5as again set u> in *FF67 As far as reco22endations regarding Aank restructuring-

2anage2ent freedo2- strengt3ening t3e regu1ation are concerned- t3e RBI 3as to >1a? a 2a@or ro1e7 If t3e 2a@or reco22endations of t3is co22ittee are acce>tedit 5i11 >roBe to Ae fruitfu1 in 2aking Indian Aanks 2ore >rofitaA1e and efficient7

Page 43

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

Recession in Indi n 1 n!in# Sector

T3e Pri2e Minister- &r7 Man2o3an Sing3 addressed t3e P1atinu2 JuAi1ee ce1eArations of t3e ReserBe Bank of India in Mu2Aai7 Fo11o5ing is t3e te=t of t3e Pri2e MinisterQs address on t3e occasion, It is indeed a great >1easure to Ae 3ere in Mu2Aai for t3e P1atinu2 JuAi1ee ce1eArations of t3e ReserBe Bank of India7 For 2e- t3is is a1so a Ber? s>ecia1 2o2ent of nosta1gia7 I s>ent so2e Ber? 2e2oraA1e ?ears in t3is institution as its %oBernor7 M? 5ife and I c3eris3 t3e 2e2ories of 2an? ne5 enduring friends3i>s t3at 5e 2ade during t3ose 2e2oraA1e da?s7 I a1so reca11 5it3 dee> a>>reciation t3e ro1e >1a?ed A? t3e ReserBe Bank in 3e1>ing t3e %oBern2ent of India in t3e i2>1e2entation of t3e agenda for econo2ic refor2s 53en I 5as t3e Finance Minister of India at a Ber? difficu1t ti2e in our countr?Qs econo2ic 3istor?7 To return as Pri2e Minister for t3e P1atinu2 JuAi1ee of t3is great institution is indeed an e2otiona11? 2oBing e=>erience for 2e7 83en I took oBer as Finance Minister in *FF*- I 5as conBinced t3at t3e econo2ic 1iAera1iJation and refor2s cou1d on1? succeed if co2>1e2ented A? Aroad Aased refor2 in t3e Aanking and financia1 sectors7 I turned to 2? o1d friend and for2er RBI %oBernor S3ri M Narasi23a2 to C3air a Co22ittee to 2ake reco22endations on t3is Ber? i2>ortant issue7 T3e Re>ort of t3e Narasi23a2 Co22ittee out1ined a co2>re3ensiBe agenda of refor2 53ic3 serBed as a A1ue >rint of 53at 5e needed to do in suAse4uent ?ears7 It 5ou1d 3aBe Aeen difficu1t to i2>1e2ent t3ose refor2s 3ad t3e? not receiBed ent3usiastic su>>ort- as t3e? did- fro2 t3e %oBernor of t3e da?- S3ri S7 'enkitara2anan and &r7 Rangra@an7 SuAse4uent1? as 'enitra2ananQs success or
Page 44

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

&r C7 Rangara@an took t3e financia1 refor2 agenda furt3er for5ard in 2an? critica1 areas-inc1uding es>ecia11? t3e ending of auto2atic 2onetiJation of t3e goBern2entQs deficit7 As 5it3 econo2ic refor2s in genera1- financia1 sector refor2s in India 5ere i2>1e2ented at a gradua1 >ace7 8e 5ere often criticiJed for our incre2enta1 a>>roac3 53ic3 critics often co2>1ained 5as far too s1o57 But fe5 5ou1d den? t3at 5e 3aBe acco2>1is3ed a great dea1 oBer t3e ?ears and ReserBe Bank 3as 2ade i2>ortant contriAution to5ards t3is7 8e 3aBe successfu11? e1i2inated stif1ing contro1s on industr? and inBest2ent7 8e 3aBe o>ened t3e econo2? to foreign trade- 1o5ered tariffs and s5itc3ed oBer to a 2arket deter2ined e=c3ange rate7 8e 3aBe 1iAera1iJed ca>ita1 contro1s enaA1ing t3e econo2? to aAsorA suAstantia1 inf1o5s of ca>ita1 in t3e for2 of Aot3 F&I and FII f1o5s into t3e stock 2arket7 In recent ?ears- foreign inBest2ent 3as a1so Aeco2e a t5o 5a? f1o5 as 2an? Indian co2>anies 3aBe estaA1is3ed a >resence aAroad t3roug3 inBest2ent or ac4uisition7 A11 of t3is 3as Aeen ac3ieBed 5it3out e=>eriencing a serious 2acro econo2ic crisis or seBere inf1ation oBer an e=tended >eriod7 Most i2>ortant1?t3e rea1 econo2? 3as c1ear1? >ros>ered7 T3e rate of gro5t3 of %&P 3as increased steadi1? oBer t3e >ast t5o decades- cu12inating in an un>recedented F >ercent gro5t3 >er ?ear in t3e four ?ear >eriod @ust Aefore t3e g1oAa1 financia1 crisis7 PoBert? too- 3as dec1ined steadi1?- t3oug3 t3is is an area 53ere 2uc3 2ore re2ains to Ae done7 T3e ReserBe Bank of India 3as >1a?ed a 2a@or ro1e in t3is transfor2ation7 It 3as Aeen a 1ead >1a?er in Aanking and financia1 sector refor2s and 3as acted as a confidentia1 adBiser to t3e %oBern2ent on 2an? ot3er issues
Page 45

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

re1eBant to t3e co2>1e= task of 2acro econo2ic 2anage2ent in an increasing1? o>en and 1iAera1iJed econo2ic enBiron2ent7 Indeed- it is one of our great institutions of 53ic3 5e can a11 Ae tru1? >roud7 T3e >ast t5o ?ears 3aBe Aeen difficu1t ?ears for goBern2ents and centra1 Aanks a11 oBer t3e 5or1d7 E=cessiBe credit e=>ansion and asset >rice inf1ation Aot3 fue11ed A? so+ca11ed Cfinancia1 innoBationsD of duAious Ba1ue- and a 1a= regu1ator? enBiron2ent 1ed to an accu2u1ation of risk t3at 5as not ade4uate1? understood and u1ti2ate1? >roduced a seBere crisis7 India 5as re1atiBe1? insu1ated fro2 t3ese deBe1o>2ents Aecause our financia1 s?ste2 5as 2uc3 1ess integrated 5it3 t3e g1oAa1 s?ste27 "o5eBer- t3e RBI deserBes credit for 3aBing Aeen >rescient aAout t3e dangers >osed A? >ro>ert? AuAA1es7 T3e action taken A? %oBernor Redd?- 53o is >resent 3ere5e11 Aefore t3e crisis to tig3ten Aank credit against rea1 estate- 1i2ited Aank e=>osure on t3is account7 83en t3e crisis e=>1oded in Se>te2Aer ())6- t3e RBI ra>id1? reBersed its ear1ier tig3tening of credit to 2eet t3e ne5 and c3anged circu2stances7 T3e CRR and t3e re>o and reBerse re>o rates 5ere ra>id1? 1o5ered in a series of 4uick ste>s7 So2e initiatiBes 5ere a1so taken to en3ance access to Aank credit A? Non Banking Finance Co2>anies7 Signs of >anic 5it3dra5a1s fro2 so2e >riBate sector Aanks in t3e initia1 5eeks of t3e crisis 5ere 2et 5it3 strong reassurances A? Aot3 t3e %oBern2ent and t3e RBI t3at our Aanks 5ere sound and 5ou1d Ae fu11? su>>orted7 Ensuring t3at t3e Indian financia1 s?ste2 re2ained staA1e in t3ese Ber? difficu1t ti2es 5as a 2a@or ac3ieBe2ent in financia1 and econo2ic
Page 46

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

2anage2ent7 I 5ou1d 1ike to co2>1i2ent %oBernor SuAAarao and 3is tea2 at t3e RBI for t3e ro1e t3e? >1a?ed in t3is >eriod7 8it3 t3e crisis no5 near1? oBer- 5e need to ref1ect on t3e c3a11enges t3at confront us in t3e ?ears t3at 1ie a3ead7 T3e industria1iJed countries are a12ost certain1? entering a >eriod of s1o5er gro5t37 India on t3e ot3er 3and is e2erging stronger- 5it3 a good >ros>ect of Aetter >erfor2ance in future7 Our do2estic saBings rate 3as increased to around /H >ercent and our do2estic inBest2ent rates are around /0 >ercent of our %&P7 8e 3aBe a 3ig31? entre>reneuria1 >riBate sector 53ic3 3as de2onstrated t3at it can co2>ete in g1oAa1 2arkets- not @ust in soft5are Aut in areas of traditiona1 2anufacturing a1so7 8e 3aBe a critica1 2ass of 3u2an resources 5it3 good 4ua1it? 3ig3er education- 53ic3 definite1? >1aces us at an adBantage in toda?Qs 5or1d7 8e are geogra>3ica11? 1ocated in a continent 53ic3 is gaining in econo2ic i2>ortance and 1ooks 1ike Aeing a 2a@or driBer of t3e 5or1d econo2? in t3e ?ears t3at 1ie a3ead7 8e 2ust Aui1d on t3ese strengt3s and return as 4uick1? as >ossiA1e to a 3ig3 gro5t3 >at37 I Ae1ieBe 5e can get Aack to F >ercent gro5t3 >at3 A? t3e end of t3e E1eBent3 P1an and do eBen Aetter t3ereafter7 I 3aBe t3erefore asked t3e P1anning Co22ission to e=>1ore t3e feasiAi1it? of ac3ieBing *) >ercent inc1usiBe gro5t3s in t3e T5e1ft3 FiBe Year P1an7 Ac3ieBing t3is outco2e 5i11 re4uire 2an? >o1ic? c3anges7 #et 2e co22ent Arief1? on t3ose t3at concern t3e ReserBe Bank7 As 5e >ursue our oA@ectiBe of ac3ieBing ra>id and inc1usiBe gro5t3our 2onetar? and financia1 >o1icies 2ust Ae guided A? t3ree i2>ortant oA@ectiBes7
Page 47

%uru Nanak Co11ege

Current scenario of Indian Banking Sector

First- t3e? 2ust ensure t3at inf1ation is ke>t under contro1 since it 3urts t3e co22on 2an t3e 2ost and a1so distorts econo2ic signa1s7 Second- t3e? 2ust ensure staAi1it? of t3e Aanking and financia1 s?ste2 since ot3er5ise 5e run t3e risk of e=>eriencing financia1 crises 53ic3 a15a?s i2>ose 3ig3 costs on t3e rea1 econo2? as 5e117 T3ird- t3e? 2ust 2eet t3e financia1 inter2ediation needs of ra>id and inc1usiBe gro5t37 Monetar? and financia1 >o1icies can ac3ieBe t3ese oA@ectiBes efficient1? on1? if t3e 2acro econo2ic enBiron2ent is sound7 T3e siJe of t3e fisca1 deficit is a ke? >ara2eter in t3is conte=t7 8e a11o5ed a 1arge increase in t3e fisca1 deficit in t3e >ast t5o ?ears as 5e res>onded to t3e g1oAa1 econo2ic crisis7 I co2>1i2ent 2? co11eague and friend PranaA Muk3er@ee for t3is7 T3is 2ust no5 Ae reBersed7 8e are t3erefore- fir21? co22itted to Aring t3e econo2? Aack to a fisca11? sustainaA1e >at37 T3is inBo1Bes a reduction in t3e fisca1 deficit fro2 E76 >ercent of %&P in ())F+*) to H7H >ercent in ()*)+** 5it3 a furt3er reduction in t3e ne=t t5o ?ears reac3ing .7* >ercent in ()*(+*/7 It 5i11 Ae 2uc3 easier for 2onetar? >o1ic? to contro1 inf1ation if t3e fisca1 targets are 2et7 T3is is not to sa? t3at 2onetar? >o1ic? 3as no ro1e to >1a? in t3e face of fisca1 i2Aa1ance7 "o5eBer- its ro1e in t3at situation is essentia11? defensiBe- of aBoiding 2onetar? e=>ansion to acco22odate t3e deficit since suc3 acco22odation 5i11 on1? stoke inf1ation7 T3e >roA1e2 is t3at 2onetar? disci>1ine in suc3 a situation 2a? 3e1> contain inf1ation Aut it 5i11 not offset t3e negatiBe i2>act of 1arge fisca1 deficits on t3e aBai1aAi1it? of resources for >riBate inBest2ent- or on t3e 1ong ter2 interest rate- Aot3 of 53ic3 are critica1 for gro5t37

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Current scenario of Indian Banking Sector

In fact- in an econo2? o>en to ca>ita1 f1o5s- 2onetar? disci>1ine in t3e face of fisca1 i2Aa1ances can 1ead to a rise in interest rates triggering e=cessiBe ca>ita1 inf1o5s- 53ic3 in turn >ut >ressure on t3e e=c3ange rate2aking t3e task of 2acro+2anage2ent t3at 2uc3 2ore difficu1t7 T3is is t3e 5e11 kno5n >roA1e2 of t3e i2>ossiA1e trinit? or tri1e22a7 In an econo2? 5it3 ca>ita1 2oAi1it? ?ou cannot si2u1taneous1? 3aBe e=c3ange rate staAi1it? and an inde>endent 2onetar? >o1ic?7 T3e res>onsiAi1it? for 3and1ing t3is de1icate Aa1ancing act fa11s on t3e ReserBe Bank of India7 Its task is 2ade easier A? t3e fact t3at t3e ca>ita1 account is not entire1? o>en and t3ere are restrictions on inf1o5s of deAtes>ecia11? s3ort ter2 deAt7 Caution in t3e >ace of o>ening t3e ca>ita1 account 3as Aeen a conscious feature of our >o1ic?- and t3ere are good reasons to continue 5it3 t3is a>>roac37 T3e second oA@ectiBe I 2entioned is t3e need to ensure financia1 staAi1it?7 T3ere are i2>ortant 1essons to Ae 1earnt fro2 t3e recent crisis in t3is res>ect7 Financia1 regu1ation 2ust Ae designed to aBoid e=cessiBe risk taking kee>ing in 2ind t3at Aanks 2ust >rotect t3eir Aa1ance s3eets fro2 c?c1ica1 Bariations7 8e 2ust Ae >articu1ar1? 5atc3fu1 of regu1ator? 1oo>3o1es 53ic3 can create s?ste2ic risk7 Micro >rudentia1 regu1ation 53ic3 focuses on t3e staAi1it? of indiBidua1 institutions 3as to Ae su>>1e2ented A? 2acro >rudentia1 considerations- 53ic3 re1ate to t3e staAi1it? of t3e s?ste2 as a 53o1e7 A11 t3ese issues are Aeing e=a2ined in t3e Financia1 StaAi1it? Board 53ic3 is t3e ke? 2u1ti1atera1 foru2 for eBo1Bing an agreed arc3itecture of financia1 regu1ation7 As 2e2Aers of t3e %()- 5e are no5 fu11 2e2Aers of t3is Board and are re>resented in t3at Aod? A? t3e ReserBe Bank of India7 T3e Bank
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2ust ensure t3at our concerns- ref1ecting our constraints and s>ecia1 circu2stances- are fu11? ref1ected in t3e ne5 internationa1 consensus t3at e2erges out of t3e de1iAerations of t3e Financia1 StaAi1it? Board7 T3is Arings 2e to t3e t3ird oA@ectiBe of ensuring t3at t3e financia1 s?ste2 2eets t3e inter2ediation re4uire2ent of ra>id and inc1usiBe gro5t37 T3is is in so2e 5a?s t3e 2ost c3a11enging task Aefore us7 Our financia1 s?ste2 3as >roBed to Ae staA1e- Aut t3at does not 2ean t3at it does not need furt3er deBe1o>2ent and refine2ent7 I so2eti2es 3ear it said t3at our insu1ation 3as serBed us 5e11 and 5e s3ou1d t3erefore aBoid e=>eri2entation and furt3er 1iAera1iJation in t3is sector7 T3is I fear 5ou1d Ae t3e 5rong 1esson to 1earn fro2 t3e crisis7 8e 2ust not dra5 t3e conc1usion t3at financia1 innoBation is not i2>ortant in our situation7 Our Aanking and financia1 s?ste2 is sti11 re1atiBe1? s2a11 co2>ared to t3e siJe of t3e econo2? and t3ere are 2an? di2ensions in 53ic3 it 2ust deBe1o> to enaA1e it to su>>ort t3e 3ig3er rates of econo2ic gro5t3 5e are no5 ai2ing at7 T3ese 3ig3er rates of gro5t3 5i11 occur in an econo2ic enBiron2ent in 53ic3 India 5i11 re2ain o>en to t3e 5or1d and Indian co2>anies 5i11 o>erate g1oAa11?7 Manage2ent of foreign currenc? risk 5i11 Ae an increasing1? i2>ortant concern in future and t3e financia1 s?ste2 2ust >roBide our co2>anies 5it3 t3e instru2ents t3e? need to 2anage t3ese risks at reasonaA1e cost7 Si2i1ar1?ra>id gro5t3 re4uires 2assiBe inBest2ents in

infrastructure and 2uc3 of t3is 5i11 3aBe to Ae funded t3roug3 1ong ter2 deAt7 Banks are not idea11? suited to >roBide 1ong ter2 deAt and t3is underscores t3e need to deBe1o> a do2estic cor>orate deAt 2arket7 T3is too re4uires a conscious >1an of action7
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Current scenario of Indian Banking Sector

Fina11?- for gro5t3 to Ae tru1? inc1usiBe- Aanking 2ust reac3 out to 2an? 2ore >eo>1e t3an it reac3es no57 Tec3no1ogica1 c3anges in t3e for2 of Infor2ation Tec3no1og? and 2oAi1e Aanking great1? e=>and t3e >otentia1 reac3 of t3e Aanking s?ste27 T3e ReserBe Bank 3as a1read? s3o5n co22endaA1e f1e=iAi1it? in a11o5ing t3e s?ste2 of Aanking agents to deBe1o>7 It 2ust re2ain co22itted to furt3er e=>ansion of Aanking serBices so t3at Aanks can touc3 t3e 1iBes of 2ore and 2ore of our ordinar? >eo>1e7 Our Aanking s?ste2 2ust neBer 1ose sig3t of credit needs of our far2ers- t3e s2a11 and 2ediu2 industr? and ot3er >riorit? sectors7 8e 3aBe a 1ong 5a? to go Aefore t3e Aenefits of financia1 inc1usion reac3 t3e 5ort3ier co22on 2an7 T3e ReserBe Bank 3as serBed our countr? 5it3 great distinction in its seBent? fiBe ?ears of e=istence7 I conc1ude 5it3 t3e >ra?er t3at t3e Aest is ?et to co2e and t3at its ne=t seBent? fiBe ?ears 5i11 Ae sti11 2ore >roductiBe and sti11 Ae 2ore creatiBe for our great countr?7 I 5is3 t3e ReserBe Bank of India and its staff a11 t3e Ber? Aest for t3e future7D In t3e age of g1oAa1iJation- no countr? can re2ains iso1ated fro2 t3e f1uctuations of 5or1d econo2?7 "eaB? 1osses suffered A? 2a@or Internationa1 Banks is going to affect a11 countries of t3e 5or1d as t3ese financia1 institutes 3aBe t3eir inBest2ent interest in a12ost a11 countries7 As of no5 India is facing 3eat on t3ree grounds, (*! Our S3are Markets are fa11ing eBer?da?- ((! Ru>ee is 5eakening against do11ars and (/! Our Aanks are facing seBere cras3 crunc3 resu1ting in s3ortage of 1i4uidit? in t3e 2arket7

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Current scenario of Indian Banking Sector

Actua11? a11 t3e aAoBe t3ree >roA1e2s are interconnected and 3aBe t3eir roots in t3e aAoBe+2entioned g1oAa1 crisis7 For t3e 1ast t5o ?ears- our stock 2arket 5as touc3ing ne5 3eig3ts t3anks to 3eaB? inBest2ents A? Foreign Institutiona1 InBestors (FIIs!7 "o5eBer53en t3e >arent co2>anies of t3ese inBestors (Aased 2ain1? in S and Euro>e! found t3e2se1Bes in a seBere credit crunc3 as a resu1t of suA+>ri2e 2ess- t3e on1? o>tion 1eft 5it3 t3ese inBestors 5as to 5it3dra5 t3eir 2one? fro2 Indian Stock Markets to 2eet 1iaAi1ities at 3o2e7 FIIs 5ere t3e 2ain Au?ers of Indian Stocks and t3eir e=it fro2 t3e 2arket is certain to 5reak 3aBoc in t3e 2arket7 FIIs t3at 5ere on a Au?ing s>ree 1ast ?ear- are no5 in t3e 2ood of se11ing t3eir stocks in India7 As a resu1t our S3are Markets are touc3ing ne5 1o5s eBer?da?7 Since- t3e 2one?- 53ic3 FIIs get after se11ing t3eir stocks- needs to Ae conBerted into do11ars Aefore t3e? can sent it 3o2e- t3e de2ands for do11ars 3as sudden1? increased7 As 2ore and 2ore FIIs are Au?ing do11ars- t3e ru>ee is 1oosing its strengt3 against do11ar7 As 1ong as de2ands for do11ars re2ain 3ig3t3e ru>ee 5i11 kee> 1oosing its strengt3 against do11ar7 T3e current financia1 crisis 3as a1so started direct1? affecting Indian Industries7 For t3e >ast fe5 ?ears- t3e t5o 2ost >referred 2et3od of raising 2one? A? t3e co2>anies 5ere Stock Markets and e=terna1 Aorro5ings on 1o5 interest rates7 Stock Markets are A1eeding eBer?da? and it is not >ossiA1e to raise 2one? t3ere7 Regarding e=terna1 Aorro5ing fro2 5or1d 2arkets- t3is o>tion 3as a1so Aeco2e difficu1t7

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Current scenario of Indian Banking Sector

In t3e 1ast fisca1 ?ear a1one- India Aorro5ed N(F Ai11ion fro2 foreign 1enders and got N/. Ai11ion of foreign direct inBest2ent7 A g1oAa1 recession 3as 3urt e=terna1 de2and7 Internationa1 1enders 53o 3aBe Aeco2e e=tre2e1? risk aBersiBe can 1i2it access to internationa1 ca>ita17 If t3at 3a>>ens- Aot3 IndiaQs financia1 2arkets and t3e rea1 econo2? 5i11 Ae 3urt in t3e >rocess7 Sudden1?- t3e FM gro5t3 target does not see2 t3at RdoaA1eQ an? 2oreI 5e s3ou1d Ae 3a>>? to c1ock 0M t3is fisca1 ?ear and t3e ne=t7 "o5eBer- one >ositiBe >oint in faBor of India is t3e fact t3at Indian Banks are 2ore or 1ess secured fro2 t3e i11+effects of suA+>ri2e 2ess7 A g1ance at Indian AanksQ Aa1ance s3eets 5ou1d s3o5 t3at t3eir e=>osure to co2>1e= instru2ents 1ike C&Os is a12ost ni17 In India- sti11 t3e 2a@or Aanking o>erations are in t3e 3ands of PuA1ic Sector Banks 53o e=ercise e=tre2e cautions in disAursing 1oans to need? >eo>1e;co2>anies7 As a resu1t- 5e are not 1ike1? to see a re>eat of suA+>ri2e crisis in India7 T3oug3 t3ere 3aBe Aeen a >resence of Aig S;Euro>ean Banks in India and eBen so2e Indian Aanks (1ike ICICI! 3aBe so2e foreign suAsidiar? 5it3 stake in t3e suA+>ri2e 1osses- t3ere >resence is 2iniscu1e as co2>are to t3e oBera11 siJe of Indian Aanking industr?7 So at 1east on t3is 2a@or front 5e need not 5orr? 2uc37 "o5eBer- a g1oAa1 de>ression is 1ike1? to resu1t in a fa11 in de2and of a11 t?>es of consu2er goods7 In ())0+)6- India so1d */7HM of its goods to foreign Au?ers7 A fa11 in de2and is 1ike1? to affect t3e gro5t3 rate t3is ?ear7 Our e=>ort 2a? get affected Aad1?7 A negatiBe at2os>3ere- s3ortage of cas3- fa11 in de2ands- reducing gro5t3 rate and uncertainties in t3e 2arket are so2e of t3e 2ost BisiA1e as>ects
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of an econo2ic de>ression7 83at started as a s2a11 2atter of suA+>ri2e 1oan defau1ters 3as no5 Aeco2e a suA@ect of g1oAa1 discussion and 3as engu1fed t3e g1oAa1 econo2? scenario7

Indi n )resent b n!in# sti%% convers tion

In India &eBe1o>2ent financia1 institutions (&FIs! and refinancing institutions (RFIs! 5ere 2eeting s>ecific sect ora1 needs and a1so >roBiding 1ong+ ter2 resources at concessiona1 ter2s- 53i1e t3e co22ercia1 Aanks in genera1- A? and 1arge- confined t3e2se1Bes to t3e core Aanking functions of acce>ting de>osits and >roBiding 5orking ca>ita1 finance to industr?- trade and agricu1ture7 Conse4uent to t3e 1iAera1isation and deregu1ation of financia1 sector- t3ere 3as Aeen A1urring of distinction Aet5een t3e co22ercia1 Aanking and inBest2ent Aanking7 ReserBe Bank of India constituted on &ece2Aer 6- *FF0- a 8orking %rou> under t3e C3air2ans3i> of S3ri S7"7 $3an to Aring aAout greater c1arit? in t3e res>ectiBe ro1es of Aanks and financia1 institutions for greater 3ar2oniJation of faci1ities and oA1igations7 A1so re>ort of t3e Co22ittee on Banking Sector Refor2s or Narasi23a2 Co22ittee (NC! 3as 2a@or Aearing on t3e issues considered A? t3e $3an 8orking %rou>7
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%uru Nanak Co11ege

Current scenario of Indian Banking Sector

T3e issue of uniBersa1 Aanking resurfaced in Year ()))- 53en ICICI gaBe a >resentation to RBI to discuss t3e ti2e fra2e and >ossiA1e o>tions for transfor2ing itse1f into a uniBersa1 Aank7 ReserBe Bank of India a1so s>e1t out to Par1ia2entar? Standing Co22ittee on Finance- its >ro>osed >o1ic? for uniBersa1 Aanking- inc1uding a case+A?+case a>>roac3 to5ards a11o5ing do2estic financia1 institutions to Aeco2e uniBersa1 Aanks7 No5 RBI 3as asked FIs- 53ic3 are interested to conBert itse1f into a uniBersa1 Aank- to suA2it t3eir >1ans for transition to a uniBersa1 Aank for consideration and furt3er discussions7 FIs need to for2u1ate a road 2a> for t3e transition >at3 and strateg? for s2oot3 conBersion into a uniBersa1 Aank oBer a s>ecified ti2e fra2e7 T3e >1an s3ou1d s>ecifica11? >roBide for fu11 co2>1iance 5it3 >rudentia1 nor2s as a>>1icaA1e to Aanks oBer t3e >ro>osed >eriod7 SA<IENT OPERATIONA< AN2 REG3<ATOR5 ISS3ES OF R1I TO 1E A22RESSE2 15 THE FIs FOR CON;ERSION INTO A 3NI;ERSA< 1AN4 a! Reserve re>uire&ents7 Co2>1iance 5it3 t3e cas3 reserBe ratio and statutor? 1i4uidit? ratio re4uire2ents (under Section .( of RBI Act- *F/.- and Section (. of t3e Banking Regu1ation Act- *F.F- res>ectiBe1?! 5ou1d Ae 2andator? for an FI after its conBersion into a uniBersa1 Aank7 A! Per&issib%e ctivities. An? actiBit? of an FI current1? undertaken Aut not

>er2issiA1e for a Aank under Section E(*! of t3e B7 R7 Act- *F.F- 2a? 3aBe to Ae sto>>ed or diBested after its conBersion into a uniBersa1 Aank77

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Current scenario of Indian Banking Sector

c! 2is)os % o" non-b n!in# ssets. An? i22oBaA1e >ro>ert?- 3o5soeBer

ac4uired A? an FI- 5ou1d- after its conBersion into a uniBersa1 Aank- Ae re4uired to Ae dis>osed of 5it3in t3e 2a=i2u2 >eriod of 0 ?ears fro2 t3e date of ac4uisition- in ter2s of Section F of t3e B7 R7 Act7 d! Co&)osition o" t$e 1o rd. C3anging t3e co2>osition of t3e Board of &irectors 2ig3t Aeco2e necessar? for so2e of t3e FIs after t3eir conBersion into a uniBersa1 Aank- to ensure co2>1iance 5it3 t3e >roBisions of Section *)(A! of t3e B7 R7 Act- 53ic3 re4uires at 1east H*M of t3e tota1 nu2Aer of directors to 3aBe s>ecia1 kno51edge and e=>erience7 e! Pro$ibition on "%o tin# c$ r#e o" ssets. T3e f1oating c3arge- if created A? an FI- oBer its assets- 5ou1d re4uire- after its conBersion into a uniBersa1 Aankratification A? t3e ReserBe Bank of India under Section *.(A! of t3e B7 R7 Actsince a Aanking co2>an? is not a11o5ed to create a f1oating c3arge on t3e undertaking or an? >ro>ert? of t3e co2>an? un1ess du1? certified A? RBI as re4uired under t3e Section7 f! N ture o" subsidi ries7 If an? of t3e e=isting suAsidiaries of an FI is engaged in an actiBit? not >er2itted under Section E(*! of t3e B R Act- t3en on conBersion of t3e FI into a uniBersa1 Aank- de1inking of suc3 suAsidiar? ; actiBit? fro2 t3e o>erations of t3e uniBersa1 Aank 5ou1d Aeco2e necessar? since Section *F of t3e Act >er2its a Aank to 3aBe suAsidiaries on1? for one or 2ore of t3e actiBities >er2itted under Section E(*! of B7 R7 Act7 g! Restriction on invest&ents7 An FI 5it3 e4uit? inBest2ent in co2>anies in e=cess of /) >er cent of t3e >aid u> s3are ca>ita1 of t3at co2>an? or /) >er cent of its o5n >aid+u> s3are ca>ita1 and reserBes- 53ic3eBer is 1ess- on its conBersion
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Current scenario of Indian Banking Sector

into a uniBersa1 Aank- 5ou1d need to diBest suc3 e=cess 3o1dings to secure co2>1iance 5it3 t3e >roBisions of Section *F((! of t3e B7 R7 Act- 53ic3 >ro3iAits a Aank fro2 3o1ding s3ares in a co2>an? in e=cess of t3ese 1i2its7 3! Connected %endin# 7 Section () of t3e B7 R7 Act >ro3iAits grant of 1oans and adBances A? a Aank on securit? of its o5n s3ares or grant of 1oans or adBances on Ae3a1f of an? of its directors or to an? fir2 in 53ic3 its director;2anager or e2>1o?ee or guarantor is interested7 T3e co2>1iance 5it3 t3ese >roBisions 5ou1d Ae 2andator? after conBersion of an FI to a uniBersa1 Aank7 i! <icensin#. An FI conBerting into a uniBersa1 Aank 5ou1d Ae re4uired to oAtain a Aanking 1icence fro2 RBI under Section (( of t3e B7 R7 Act- for carr?ing on Aanking Ausiness in India- after co2>1?ing 5it3 t3e a>>1icaA1e conditions7 @! 1r nc$ net+or! An FI- after its conBersion into a Aank- 5ou1d a1so Ae re4uired to co2>1? 5it3 e=tant Aranc3 1icensing >o1ic? of RBI under 53ic3 t3e ne5 Aanks are re4uired to a11ot at 1east (H >er cent of t3eir tota1 nu2Aer of Aranc3es in se2i+urAan and rura1 areas7 k! Assets in Indi 7 An FI after its conBersion into a uniBersa1 Aank- 5i11 Ae re4uired to ensure t3at at t3e c1ose of Ausiness on t3e 1ast Frida? of eBer? 4uarterits tota1 assets 3e1d in India are not 1ess t3an 0H >er cent of its tota1 de2and and ti2e 1iaAi1ities in India- as re4uired of a Aank under Section (H of t3e B R Act7 1! For& t o" nnu % re)orts7 After conBerting into a uniBersa1 Aank- an FI 5i11 Ae re4uired to >uA1is3 its annua1 Aa1ance s3eet and >rofit and 1oss account in t3e for2s set out in t3e T3ird Sc3edu1e to t3e B R Act- as >rescriAed for a Aanking co2>an? under Section (F and Section /) of t3e B7 R7 Act7
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Current scenario of Indian Banking Sector

2! ' n #eri % re&uner tion o" t$e C$ie" E7ecutive O""icers7 On conBersion into a uniBersa1 Aank- t3e a>>oint2ent and re2uneration of t3e e=isting C3ief E=ecutiBe Officers 2a? 3aBe to Ae reBie5ed 5it3 t3e a>>roBa1 of RBI in ter2s of t3e >roBisions of Section /H B of t3e B7 R7 Act7 T3e Section sti>u1ates fi=ation of re2uneration of t3e C3air2an and Managing &irector of a Aank A? ReserBe Bank of India taking into account t3e >rofitaAi1it?- net NPAs and ot3er financia1 >ara2eters7 nder t3e Section- >rior a>>roBa1 of RBI 5ou1d a1so Ae re4uired for a>>oint2ent of C3air2an and Managing &irector7 n! 2e)osit insur nce 7 An FI- on conBersion into a uniBersa1 Aank- 5ou1d a1so Ae re4uired to co2>1? 5it3 t3e re4uire2ent of co2>u1sor? de>osit insurance fro2 &IC%C u> to a 2a=i2u2 of Rs7* 1ak3 >er account- as a>>1icaA1e to t3e Aanks7 o! Aut$ori8ed 2e %er=s <icense. So2e of t3e FIs at >resent 3o1d restricted A& 1icence fro2 RBI- E=c3ange Contro1 &e>art2ent to enaA1e t3e2 to undertake transactions necessar? for or incidenta1 to t3eir >rescriAed functions7 On conBersion into a uniBersa1 Aank- t3e ne5 Aank 5ou1d nor2a11? Ae e1igiA1e for fu11+f1edged aut3oriJed dea1er 1icence and 5ou1d a1so attract t3e fu11 rigour of t3e E=c3ange Contro1 Regu1ations a>>1icaA1e to t3e Aanks at >resent- inc1uding >ro3iAition on raising resources t3roug3 e=terna1 co22ercia1 Aorro5ings7 >! Priority sector %endin#7 On conBersion of an FI to a uniBersa1 Aank- t3e oA1igation for 1ending to K>riorit? sectorK u> to a >rescriAed >ercentage of t3eir Gnet Aank creditG 5ou1d a1so Aeco2e a>>1icaA1e to it7 4! Prudenti % nor&s. After conBersion of an FI in to a Aank- t3e e=tant >rudentia1 nor2s of RBI for t3e a11+India financia1 institutions 5ou1d no 1onger Ae

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a>>1icaA1e Aut t3e nor2s as a>>1icaA1e to Aanks 5ou1d Ae attracted and 5i11 need to Ae fu11? co2>1ied 5it37

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Current scenario of Indian Banking Sector

THE F3T3RE TREN2 OF 3NI;ERSA< 1AN4ING IN 2IFFERENT CO3NTRIES

niBersa1 Aanks 3aBe 1ong >1a?ed a 1eading ro1e in %er2an?S5itJer1and- and ot3er Continenta1 Euro>ean countries7 T3e >rinci>a1 financia1 institutions in t3ese countries t?>ica11? are uniBersa1 Aanks offering t3e entire arra? of Aanking serBices7 Continenta1 Euro>ean Aanks are engaged in de>ositrea1 estate and ot3er for2s of 1ending- foreign e=c3ange trading- as 5e11 as under5riting- securities trading- and >ortfo1io 2anage2ent7 In t3e Ang1o+Sa=on countries and in Ja>an- A? contrast- co22ercia1 and inBest2ent Aanking tend to Ae se>arated7 In recent ?ears- t3oug3- 2ost of t3ese countries 3aBe 1o5ered t3e Aarriers Aet5een co22ercia1 and inBest2ent Aanking- Aut t3e? 3aBe refrained fro2 ado>ting t3e Continenta1 Euro>ean s?ste2 of uniBersa1 Aanking7 In t3e nited States- in >articu1ar- t3e resistance to softening t3e se>aration of Aanking actiBities- as ens3rined in t3e %1ass+Steaga11 Act- continues to Ae stiff7 In %er2an? and S5itJer1and t3e i2>ortance of uniBersa1 Aanking 3as gro5n since t3e end of 8or1d 8ar II7 8i11 t3is trend continue so t3at uniBersa1 Aanks cou1d co2>1ete1? oBer53e12 t3e s>ecia1iJed institutions in t3e futureS Are t3e s>ecia1iJed Aanks doo2ed to disa>>earS T3is 4uestion cannot Ae ans5ered 5it3 a si2>1e K?esK or KnoK7 T3e %er2an and S5iss e=>eriences suggest t3at t3ree factors 5i11 deter2ine future gro5t3 of uniBersa1 Aanking7 First, uniBersa1 Aanks no douAt 5i11 continue to >1a? an i2>ortant ro1e7 T3e? >ossess a nu2Aer of adBantages oBer s>ecia1iJed institutions7 In >articu1ar- t3e? are aA1e to e=>1oit econo2ies of sca1e and sco>e in Aanking7
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T3ese econo2ies are es>ecia11? i2>ortant for Aanks o>erating on a g1oAa1 sca1e and catering to custo2ers 5it3 a need for 3ig31? so>3isticated financia1 serBices7 As 5e sa5 in t3e >receding section- uniBersa1 Aanks 2a? a1so suffer fro2 Barious s3ortco2ings7 "o5eBer- in an increasing1? co2>etitiBe enBiron2ent- t3ese defects 5i11 1ike1? carr? far 1ess 5eig3t t3an in t3e >ast7 Second, a1t3oug3 uniBersa1 Aanks 3aBe e=>anded t3eir s>3ere of inf1uence- t3e s2a11er s>ecia1iJed institutions 3aBe not disa>>eared7 In Aot3 %er2an? and S5itJer1and- t3e? are successfu11? coe=isting and co2>eting 5it3 t3e Aig Aanks7 In S5itJer1and- for e=a2>1e- t3e s>ecia1iJed institutions are fir21? entrenc3ed in suc3 areas as rea1 estate 1ending- securities trading- and >ortfo1io 2anage2ent7 T3e continued strong >erfor2ance of 2an? s>ecia1iJed institutions suggests t3at uniBersa1 Aanks do not en@o? a co2>aratiBe adBantage in a11 areas of Aanking7 Third, uniBersa1it? of Aanking 2a? Ae ac3ieBed in Barious 5a?s7 No sing1e t?>e of uniBersa1 Aanking s?ste2 e=ists7 T3e %er2an and S5iss uniBersa1 Aanking s?ste2s differ suAstantia11? in t3is regard7 In %er2an?- uniBersa1it? 3as Aeen strengt3ened 5it3out significant1? increasing t3e 2arket s3ares of t3e Aig Aanks7 Instead- t3e s2a11er institutions 3aBe ac4uired uniBersa1it? t3roug3 coo>eration7 It re2ains to Ae seen 53et3er t3e coo>eratiBe a>>roac3 5i11 surBiBe in an enBiron2ent of 3ig31? co2>etitiBe and g1oAa1iJed Aanking7

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Conc%usion
T3e face of Aanking is c3anging ra>id1?7 Co2>etition is going to Ae toug3 and 5it3 financia1 1iAera1iJation under t3e 8TO- Aanks in India 5i11 3aBe to Aenc32ark t3e2se1Bes against t3e Aest in t3e 5or1d7 For a strong and resi1ient Aanking and financia1 s?ste2- t3erefore- Aanks need to go Ae?ond >eri>3era1 issues and tack1e significant issues 1ike i2>roBe2ents in >rofitaAi1it?- efficienc? and tec3no1og?- 53i1e ac3ieBing econo2ies of sca1e t3roug3 conso1idation and e=>1oring aBai1aA1e cost+effectiBe so1utions7 T3ese are so2e of t3e issues t3at need to Ae addressed if Aanks are to succeed- not @ust surBiBe- in t3e c3anging 2i1ieu7 T3e Aanking s?ste2 in India is significant1? different fro2 t3at of ot3er Asian nations Aecause of t3e countr?Qs uni4ue geogra>3ic- socia1- and econo2ic c3aracteristics7 India 3as a 1arge >o>u1ation and 1and siJe- a diBerse cu1ture- and e=tre2e dis>arities in inco2e- 53ic3 are 2arked a2ong its regions7 T3e countr?Qs econo2ic >o1ic? fra2e5ork co2Aines socia1istic and ca>ita1istic features 5it3 a 3eaB? Aias to5ards >uA1ic sector inBest2ent7 India 3as fo11o5ed t3e >at3 of gro5t3+1ed e=>orts rat3er t3an t3e Ce=>orted gro5t3D of ot3er Asian econo2ies- 5it3 e2>3asis on se1f+re1iance t3roug3 i2>ort suAstitution7

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1ib%io#r )$y
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