Banking Systems in India

The banking sector in India is passing through a period of structural change under the combined impact
of financial sector reforms, internal competition, changes in regulations, new technology, global
competitive pressure and fast evolving strategic objectives of banks and their existing and potential
competitors.

Until the last decade, banks were regarded largely as institutions rather akin to public utilities. The
market for banking services were oligopolies and Centralized while the market place was regulated and
banks were expected to receive assured spreads over their cost of funds. This phenomenon, which was
caricatured as 3-6-3 banking in the United States, meaning that banks accepted deposits at 3%, lent at
6%, and went home at 3 p.m. to play golf, was the result of the sheltered markets and administrated
prices for banking products. Existence of entry barriers for new banks meant that competition was
restricted to existing players, who often operated as a cartel, even in areas where the freedom to price
their products existed.

The market place began to change for banks in India as a result of reforms of the financial sectors
initiated in the current decade. On account of policy measures introduce to infuse greater competitive
vitality in the system, the banking has entered in to a competitive phase. Competition has emerged not
only from within the banking system but also from non-banking institutions. Lowering of entry barriers,
deregulation of interest rates and growing sophistication of customers have made banking far less
oligopolistic today. Introduction of capital adequacy and other prudential norms, freedom granted to
enter into new turf's and greater overlap of functions between banks and non-banks have forced banks
to get out of their cozy little world and think of the future of the banking.
To meet the credit requirements of small business units, industrial unit, retail trader, artisan, Small Scale
Industry (SSI) and tiny units

Functions of Commercial Banks

 To change cash for bank deposits and bank deposits for cash.
 To transfer bank deposits between individuals and or companies.
 To exchange deposits for bills of exchange, govt. bonds, the secured and unsecured promises of
trade and industrial units.
 To underwrite capital issues. They are also allowed to invest 5% of their incremental deposit
liabilities in shares and debentures in the primary and secondary markets.
 The lending or advancing of money either upon securities or without securities.
 The borrowing, raising or taking of money.
 The collecting and transmitting of money and securities.
 The buying and selling of foreign exchange including foreign bank notes.
 Growing Privatization and Commercialization Infrastructure Sector
Today, Banks customers are better informed, more sophisticated and discerning. They also have a wide
choice to choose from various banks and non-bank intermediaries. Their expectations are soaring. This is
particularly true for banks corporate clientele but also applies to customers from personal segment.
This is changing profile of customer's call for a shift from product-based approach to customers-based
approach. A bank aiming at maximizing customer value must, of necessity, plan for customized
products. A combination of marketing skills and state-of-the-art technology should enable to bank in
maximizing its profits through customer satisfaction.
In the next millennium banks will have to be more and more cautions about customer service,
profitability, increased productivity, to keep face with changing banking scenario. As banks in India
prepare themselves for the millenium these are the shifts in the paradigm they are likely to experience.
The 21st century may see the dawn of "DARWINIAN BANKING". Only the banks could fulfill the demands
of markets and changing items would survive and prosper.
Small business units, retail traders, artisans, village industries, small-scale industrial units and tiny units,
professionals and self employed persons etc., contribute significantly to the growth of our economy. The
entrepreneur himself manages many of the units. Very often, these entrepreneurs complain of
procedural delay in sanctions and renewal of limits. They also find it difficult to cope with the demands
for audited balance sheet and other statements sought by the bank from time to time for availing credit
facilities. With a view to providing hassle free financial supports to the above categories of
entrepreneurs who have shown commitment to run the unit successfully and who are dealing with the
banks for last two years satisfactorily, new and friendly credit product namely small business credit card
scheme is designed. Under the scheme, cumbersome procedural aspects relating to reviews and
renewals, submission of balance sheet, stock statements and other statements are done with credit
delivery made simple and easy.