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CHANGIN_BANKING_STRUCTURE

CHANGIN_BANKING_STRUCTURE

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Published by Monika Dhaka

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Published by: Monika Dhaka on Mar 25, 2011
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05/31/2011

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• The Indian banking can be broadly categorized into nationalized (government owned),

private banks and specialized banking institutions. The Reserve Bank of India is the apex
institution in the Indian banking system & acts a regulator and a centralized body for
monitoring any discrepancies and shortcoming in the system.

• Before Nationalisation, banks in the beginning faced severs financial crisis. During and

after World War I, 87 banks were liquidated. Development of banks in India was characterized
by bank failures. After Independence, the Indian banking underwent a thorough and moral
change. The government of India announced Banking Regulations Act in 1949 to consolidate
and regulate the banking growth in India

• After Nationalisation, however, growth of banking during the first 3 plan periods

resembles that of capitalist growth. There was need for stimulating the savings and investment
to meet the growing demand for bank credit for economic development. Therefore government
focused on social banking than capitalistic banking. Hence, in February 1961, announcement of
14 banks was made for the purpose of nationalisation. Since then, the performance of banking
has been remarkable in the many aspects such as branch expansion, expansion of business,
priority sector advances, development and spread of banking.

• Currently, banking system has entered into the third phase of development which is

characterized by innovation & diversification in order to meet new challenges. New services
have been started such as merchant banking, investment banking, housing finance, investment
banking, internet banking, telebanking, branch banking, electronic money transfers, SMS
banking, mobile banking, proxy banking, plastic money such as credit cards, ATM cards, debit
cards, smart cards, etc.

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Banks have indulged in activities such as service area approach, mutual funds, housing
finance, factoring services, commercial papers, certificate of deposit, stock invest and other
money and capital market instruments.

• The unleashing of products and services through the net has galvanized players at all

levels of the banking and financial institutions market grid to look anew at their existing
portfolio offering. Banks have been benefited a lot with the internet and information
technology. As a result banks have become more efficient and cost-effective. Indian
nationalized banks continue to be the major lenders in the economy due to their sheer size and
penetrative networks which assures them high deposit mobilization. However there is a need to
create more awareness regarding social development. There is need for taking decisive actions .

• Industry estimates indicate that out of 274 commercial banks operating in India, 223

banks are in the public sector & 51 are in the private sector. The private sector bank grid also
includes 24 foreign banks.

• Indian banking market is growing at an astonishing rate, with assets expected to reach

US$1 trillion by 2010. The Indian banking industry is in the middle of an IT revolution,
focusing on the expansion of retail and rural banking. Players are becoming increasingly
customer-centric in their approach, which has resulted in innovative methods of offering new
banking products & services. Banks are now realizing the importance of being a big player &
are beginning to focus their attention on mergers & acquisitions to take advantage of economies
of scale.

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