INDIAN BANKING SECTOR

Banking in India has its origin as early as the Vedic period. It is believed that the
transaction from money lending to banking must have occurred even before menu, the
great Hindu jurist, who has devoted a section of his work to deposit his advances and laid
down rules relating to rest of interest. During the Mogul period, the indigenous bankers
played a very important role in lending money and financing foreign trend commerce.
During the day of east India Company, it was the turn of the agency houses to carry on
banking business. The general bank of India was the first joint stock bank to t be
established in the year 1786.the other which followed where the bank of Hindustan and
Bengal bank. The bank of Hindustan is reported to have continued till 1906 while the
other two failed in mean time. In the first half of the 19 century the east India company
established three bank, the bank of Bengal in 1809, the bank of Bombay in 1840,the bank
of madras in 1843. This three banks also known as residency bank, where independent
units and functioned well. this tree banks where amalgamated in 1920 and new bank, the
imperial bank of India was established on 27th jan,1921.with passing of the state bank of
India act in 1955the undertaking of the imperial bank of India was taken by the newly
constituted state bank of India. The reserve bank which is the central bank was creatsd in
1935 by passing reserve bank of India act 1934.in the wakw of the Swadeshi movement,
a numbers of banks with Indian management were established in the country namely,
Punjab national bank ltd, bank of India ltd.canara bank ltd, Indian bank ltd,the bank of
Baroda ltd, central bank of India ltd. On July 19,1969,14 major banks of the country were
nationalized and 15th April 1980 six more commercial private sector banks were also
taken over by the government.
Today the commercial banking system in India may be distinguished into:

Public sector bank

a. state bank of India and its associated banks called the state bank group
b. 20 nationalized bank
c. regional rural banks mainly sponsored by public sector banks
Private sector banks
a. old generation private bank
b. new generation private banks
c. foreign banks in India
d. scheduled co-operation banks
e. non scheduled banks
Co operative sector
The co-operative banking sector has been developed in the country to the supplement the
village money lender. the co operative banking sector in India is devided into 4
components:
1. State co-operative bank
2. Central co-operative bank
3. Primary agriculture credit societies

4. Land development banks

5. Urban co-operative banks
6. Primary Agriculture development banks
7. Primary land development banks
8. State land development banks
Development banks
1. Industrial finance corporation (IFCI)
2. Industrial development bank of India (IDBI)
3. Industrial investment bank of India (IIBI)
4. Industrial credit and investment corporation of India (ICICI)
5. Small industries development bank of India (SIDBI)
6. SCICI LTD.
7. National bank for agriculture and rural development (NABARD)
9. National housing bank

STATUS OF INDIAN BANKING INDUSTRY

It is useful to note some telling facts about the Indian banking industry juxtaposed
with other countries, recognizing the differences between the developed and the emerging
economies.
First, the structure of the industry: In the worlds top 1000 banks, the there are
many more large and medium-sized domestic banks from the developed countries than
from the emerging economies. Illustratively, according to The Banker 2004, out of the top
1000 banks globally, over 200 are located in USA, just above 100 in Japan, over 80 in
Germany, over 40 in Spain and around 40 in the UK. Even China has as many as 16
banks within the top 1000, out of which, as many as 14 are in the 500, India, on the other
hand, had 20 banks within the top 500 banks. This is perhaps reflective of differences in
size of economies and of financial sectors.
Second, the share of bank assets in the aggregate financial sector assets: In most
emerging markets, banking sector assets comprise well over 80 per cents of total financial
sector assets, whereas these figures are much lower in the developed economies.
Furthermore, deposits as a share of total bank liabilities have declined since 1990 in
many developed countries, while in developing countries public deposits continue to be
dominant in banks. In India, the share of banking assets is around 75 per cent, as of endMarch 2004. There is, no doubt, merit in recognizing the importance of diversification in
the institutional and instrument specific aspects of financial intermediation in the interest
of wider choice, competition and stability.
However, the dominant role of banks in financial intermediation in emergence economies
and particularly in India will continue in the medium term and the banks will continue to
be special for a long time. In this regard, it is useful t emphasis the dominance of the
banks in the developing countries in promoting non-bank financial intermediaries and
service including in development of debt market. Even where role of banks is apparently
diminishing in the emerging markets, substantively, they continue to play a leading role
in non-banking financial activities, including the development of finance markets.

Third, internationalization of banking operations: The foreign controlled banking

assets, as a proportion of total domestic banking assets, increased significantly in several
European countries (Austria, Ireland, Spain, Germany and Nordic countries), but
increases have been fairly small in some others (UK and Switzerland). Amongst the
emerging economies, while there was marked increase of foreign controlled ownership in
several Latin American economies, the increase has, at best, been modest in the Asian
economies. Available evidence seems to indicate some correlation between the extent of
liberalization of capital account in the emerging markets and the share of assets
controlled by foreign banks.as per the evidence available, the form of branches,seem to
enjoy on par with domestic banks, as compared with most of the other developing
countries. Furthermore,the profitability of their opration in India is considerably higher
than the foreign banks operation in most other developing countries. India continues to
grant branch licenses more liberally than the commitments made to the W.T.O
Fourth, the Share of state owned banks in total banking sector assets: Emerging
economies with predominantly government owned banks, tend to have much higher state
ownership of banks compared to their developed counterparts. while many emerging
countries choose to privatized their public sector banking industries after a process of
absorption of the overhang problems by the government, we have encouraged state run
banks to diversify ownership by inducting private share capital through public offerings
rather than by strategic sales and still absorb the overhang problems. the process has
helped reduced the burden on the govt, enhance transparency, encourage market displined
and improved efficiency as reflected in stock market valuation promote efficient new
private sector banks, while drastically reducing the share of the wholly government
owned public sector banks is a good example of a dynamic mix of public and privet
ownership in banks.
A noteworthy feature of banking reforms in India is the growth of newly licensed
privet sector basnks, some of which have attained globally best standards in terms of
technology, services and sophistically promoted banks have surpassed branches of
foreign banks in India. And could be a role model for other banks.

BANK SYSTEM
Introduction
The reserve bank of India(RBI) is Indias central bank. Through the banking industry is
currently dominated by public sector banks, numerous privet and foreign banks exist.
Indias govt owned banks dominate the market. Their performance has been mixed with a
few being consistently profitable. Several public sector banks are being restructured, and
in some the govt either already has or will reduce its ownership.
Private and foreign banks
The RBI has granted operating approval to a few privately owned domestic banks; of
these many commenced banking business. Foreign banks operate more than 150 branches
in India. The entry of foreign banks is based on reciprocity, economic and political
bilateral relations. An inter-departmental committee approves applications for entry and
expansion.
Capital adequacy norm
Foreign banks were required to achieve an 8% capital adequacy norm by march 1993,
while Indian banks with overseas branches had until march 1995 to meet that target. All
other banks had to do so by march 1996. the banking sector is to be use as a model for
opening up of indias insurance sector to privet domesticand foreign participants, while
keeping the insurance companies in oppration.
Banking
India has an extention banking network, in both urban and rural areas. All larg Indian
banks are nationalized, and all Indian financial institutes are in the public sector.
RBI Bank
The reserve bank of India is the central banking institutions. It is the sole authority for
issuing bank notes and the supervisory for banking operations in India.
It supervises and administers exchange control and banking regulations, and administers
the govts monitory policy. It is also responsible granting licenses for new bank branches.

25 foreign banks operate in India with full banking licenses. Several licenses for private
bank have been approved. Despite fairly broad banking coverage nation wide, the
financial system remains inaccessible to the poorest people in India.
Indian banking system
The banking system has three tiers. These are then scheduled commercial banks: the
regional rural banks which operate in rural areas not covered by the scheduled banks;
And the cooperative and special rural banks.
Scheduled and scheduled banks
There are approximately 80 scheduled commercial banks, Indian and forign; almost 200
regional rural banks; more than 350 central cooperatives banks,20 land development
banks; and a number of primary agricultural credit societies .in terms of business , the
public sector banks, namely the state bank of India and the nationalized banks, dominate
the banking sector.
Logical financing
All sources of local financving are available to forign-participation companies in
corporated in India, regardless of the extent of foreign participation. Under foreign
exchange regulations, foreigners and non-residents, including foreign companies,
Require the permission of the rerse bank of India to borrow from a person or company
resident in india