Literature Review

Paper 1: Banking Sector Of India – A Review

In this paper, we are overviewing how the structure of banking in India has
changed, the challenges it has faced, how rapidly it has changed sinced 1990s
and its strength to fight with various financial crisis faced by it over the years.
The Indian Banking Sector is slowly moving towards accepting as well as
adopting the best practices in accounting, widely accepted norms, with more
disclosures and transparency, new methods of risk management, focusing
towards inflation and interest rates, etc. We see many different objectives in this
paper and find that the indian banking system will grow a lot in its size and
complexity. And this growth not only depends on the internal dynamics of the
country but also on global trends in the financial sector.

Paper 2: Information Technology In Indian Banking Sector Some

Recent Developments

In this paper, we look at how technology supports the backbone of the Indian
economy, the banking sector. Its amazing to see how fast the technology has
dissovled in this sector through RTGS, Digital Wallets, Cloud Banking, Mobile
Banking, Wearable Technology, UPI, Omnichannel Banking, etc. In the last 10
years, the banking sector has invested a ton of money for information technology
to bring improvements in the fast processing of banking operation and quality of
customer services. The following paper is very descriptive and also uses
published annual reports of various banks that help us in achieving various
objectives like development of the financial business and economy.

Paper 3: The State Of The Indian Banking Sector And Its Role In
India’s High Growth

In this paper, we observe the condition of the indian banking sector just after
1990 along with its growth in the 2000s. We see the comparision of the Indian
Banking Sector with banks in the developed countries and how it was affected by
the global financial crisis. New private sector banks and foreign banks have
entered the market because of the new reforms and regulations in the 1990s.
This helped in easing many rules that further helped in slowly removing the
barrier for restricted market. India rapidly grew after 2000 due to increase in the
rise of savings and investment rates. Even after all this things accomplished,
there were many problems still faced. Factors that affect the banking sector like
savings still account for a very small percentage of household savings.

Paper 4: Banking Sector Developments In India, 1980 – 2005: What

The Annual Accounts Speak?

In this paper, we look at various graphs and data that tell us many things like the
rapid increase in the number of banks during 1980s and decline in this increase
percentage during the late 1990s. The public sector banks play an important role
in credit disbursal as well as deposit mobilisation after 1991 and also contribute
75% of total deposits mobilised and total credit advanced by all commercial
banks. The main objective of analysis here was to study various trends in
banking during this previous 25 years(also have covered pre-reforms period).
We have looked at the comparative analysis of various bank groups with respect
to different variables which also helped in identifying certain specific problem
areas of the respective groups.

Paper 5: How Far The Indian Banking Sectors Are Efficient? : An

Empirical Investigation

In this paper, we examine the efficiency of three bank groups in India in the last
decade. Banks are the backbone of every industry. So, they are to be operated
efficiently, if not, all the sectors are going to face a survival problem. The PSBs,
PVBs, FRBs are annalysed in this researched paper and there are some sample
banks taken to annalyse their data and it is found that out of the 43 banks taken
as sample only 9 aer working efficiently. The rest 34 are technically inefficient,
out of the 34 inefficient banks, 8 are marginally inefficient which means they are
almost on the edge of achieving a good efficiency, 18 are average and 8 are below
average.

Objectives Of The Study :

To study banking sector expansion and appropriate distribution of funds – a

challenge faced by banks in recent decades.
Analysis:

Banks achieved a huge growth since 2000, because of the rise in savings and
investment rates. Along with this growth, businesses were becoming very
dependent on external financial resources like venture capital, preferred stock,
etc. and also with addition in sudden strong movement in bank credit, there was
an increase in financing also through overseas borrowing and domestic and
overseas stock markets. This is particularly significant for the vast need for
infrastructural development funds. So, the increasings savings rate in india were
to be properly linked with investments. The role of the banking sector here is
very important as it has to provide efficient financial intermediation while
ensuring that financial resources are distributed efficiently into productive
sectors.

India’s ratio of domestic credit to GdP is low and so it has to necessary to expand
the banking sector. Other issues such as small size of individual banks are also to
be considered. To maintain economic stability, rapid credit expansion is not
desirable and also maintaining the soundness is a priority through the
improvement of bank’s risk management capabilitites.
In 1990’s, the financial reforms were effected and they brought in increased
competetion in the banking sector and helped in improvements in earning
performance, efficiency and soundness. This improvements helped a lot and
played a major role in expansion of credits since 2000.
Even after the reforms and other improvements made, their was still a scope for
improvement in efficiency. This included proper action to be taken to remedy the
downside rigidity of loan interests rates. Even during the monetary easing phase that
followed the onset of the global financial crisis, loan interest rates fell by only 1-2%,
despite a 4.25% reduction in the repo rate, which is India’s policy interest rate.

Number of
Average banks that
Deposit reduction cut their
Rate BPLR of BPLR BPLR
Public Sector
Banks 175 - 350 125 - 275 193.5 27/27
Private Sector
Banks 100 - 375 100 - 125 98.9 20/22
Foreign Banks 125 - 300 125 64.3 14/22

Reduction of deposits and loan interest rates.

This issues could be expected to stimulate credit expansion. If the indian banking
sector is to be expanded, a number of structural problems will be needed to be
tackled.
These will require further improvements in the efficiency of the banking sector, and
the setting of loan and deposit interest rates at levels that reflect market realities.
Other essential steps include a review of the statutary liquidity ratio(SLR) system and
priority sector lending and the promotion of financial inclusion. By further
developing its banking sector and building a strong financial system, India should be
able to look forward to sustained high growth over many years.

Findings And Recommendations:

This study particularly describes the growth of the banking sector in terms of various
factors like technological advancements, efficiency check between the three bank
groups, profitability status of the banks and challenges faced by it. After looking at
many different angles of these objectives, we observe that the banking sector can
improve in India significantly than what and how it is today. Banking efficiency is very
important to note because, banks are like the backbone of the industry. Efficiency
measurement is a basic part of evaluation process of any business organization.
Results of Friedman test reveals that there is no significant difference in efficiency
scores amongst Private Sector Banks, Public Sector Banks and Foreign Banks and also
that public sector banks are leading in efficiency but by a small margin. Even after
achieving growth after 1990s reforms there were many challenges faced by the
banking sector in terms of expansion of credit which would further destabilize the
economic stability of the country. To overcome this problem many things were
known like the increase in savings to be linked appropriately with investments,
which would help in banks risk management capabilities. We also see how
technological advancements have helped the banking sector ease and increase their
efficiency. Introduction of ATM’s in 1990, RTGS in 2004, NEFT in 2005, plastic money
(credit and debit cards), UPI, etc. have helped thoroughly in expansion, development
of payment systems, soundness, easy exchange of funds, etc. Unlike any other
sector, the banking sector is also a service industry and thus, profitability is very
important for its survival. Examination of profitability is done via many parameters
like ROA, ROF, ROI, COF, COD, COB, etc.