Prabal-Growth and Development of Indian Banking Sector PDF

Growth and Development of Indian banking sector
UNIVERSITY OF MUMBAI
PROJECT REPORT ON
“GROWTH AND DEVELOPMENT OF INDIAN BANKING SECTOR”
T.Y.B.M.S (SEMESTER VI)

ACADEMIC YEAR :2019-2020
SUBMITTED By
PRABAL JOTWANI
THIRD YEAR BACHELOR OF MANAGEMENT STUDIES
ROLL NO-43
Under the Guidance of
MISS. POONAM JAIN
H.R. COLLEGE OF COMMERCE AND ECONOMICS

VIDYASAGAR PRINICIPAL K.M.KUNDNANI CHOWK
123 DINSHAW WACCHA ROAD
CHURCHGATE, MUMBAI -400020
2019-2020
1 H.R. College of Commerce and Economics

PROJECT REPORT ON
“GROWTH AND DEVELOPMENT OF INDIAN BANKING SECTOR”
SUBMITTED
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE THIRD
YEAR BACHELOR OF MANAGEMENT STUDIES
By
NAME:PRABAL JOTWANI
ROLL NO:43
T.Y.B.M.S (SEMESTER VI)
H.R. COLLEGE OF COMMERCE AND ECONOMICS

VIDYASAGAR PRINCIPAL K.M.KUNDNANI CHOWK
123,DINSHAW WACCHA ROAD,
CHURCHGATE, MUMBAI -400020

CERTIFICATE
This is to certify that Mr. PRABAL JOTWANI has Worked and duly completed his project
work for the degree of Bachelor of Management Studies under the faculty of commerce in the
subject of MISS. POONAM JAIN and his project is entitled, “GROWTH AND
DEVELOPMENT OF INDIAN BANKING SECTOR under my supervision .
I further certify that the entire work has been done by the learner under my guidance in that no
part of it has been submitted previously for any degree or diploma of any university
It is his own work and facts reported by his personal findings investigations.
___________________ ___________________
(Signature Of Project Guide) (Signature Of Principal)
___________________ ___________________
(Signature Of Internal Examiner) (Signature Of External Examiner)

ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions in the
completion of this project.
I take this opportunity to thank the University of Mumbai for giving me a chance to do this
project.
I would like to thank my Principal PROF. PARAG THAKKAR, for providing the necessary
facilities required for completion of this project.
I take this opportunity to thank our Coordinator MISS.POOJA LALWANI anfor their moral
support and guidance.
I would also like to express my sincere gratitude towards my project guide, MISS. POONAM
JAIN whose guidance and care made the project successful.
Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project especially my parents and peers who supported me throughout my
project.

DECLARATION
I the undersigned Mr. PRABAL JOTWANI here by, declare that the work
embodied in this project titled “GROWTH AND DEVELOPMENT OF
INDIAN BANKING SECTOR” forms my own contribution to the research
carried out under the guidance of MISS. POONAM JAIN is a result of my own
research and has been not been previously submitted by any other university for any
other degree /diploma to this or any other university Whenever reference has been
made to previous works of others, it has been clearly indicated as such and included
in the bibliography
I, hereby further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct
Date:April 2020
Place: H.R. College,Mumbai
NAME:- Prabal Jotwani
(ROLL NO:-43)

TABLE OF CONTENTS
SR. No. PARTICULARS Pg..

I Chapter I: INTRODUCTION 8-32
1.1. History 9
1.1.1 Ancient era 9
1.1.3 Medival era 10
1.1.4 Post independence 13
1.1.5 Nationalization in 1969 13
1.1.6 Nationalization in 1980 14
1.1.7 Liberalization in 1990 15
1.2 Modern era 16
1..3 Structure of Indian banking sector 19
1.4 Recent trends in Indian banking sector 22
1.5 Reserve bank of India 26
11 Chapter II: RESEARCH METHODOLOGY 33
2.1 Definitions 33
2.1.2 Types of research 33

2.2 Research Design 37
2.3 Sampling Techniques 41
2.4 Sources of Data Collection 42
2.5 Sampling Unit 43

2.6 Objective of Study 44
2.7 Significance of Study 44
2.8 Scope and Limitations 44
111 CHAPTER III: LITREATURE REVIEW 45

IV CHAPTER IV: ANALYSIS AND INTERPRETATION 52
V CHAPTER V: CONCLUSION 74
VI CHAPTER VI: RECOMMENDATION 76
ANNEXURE 79
Questionnaire 79
List of Tables 84
List of Charts 84
Bibliography 86

EXECUTIVE SUMMARY
Banking in India, in the modern sense, originated in the last decade of the 18th century. Among
the first banks were the Bank of Hindustan, which was established in 1770 and liquidated in 1829–
32; and the General Bank of India, established in 1786 but failed in 1791.
The largest bank, and the oldest still in existence, is the State Bank of India (S.B.I). It originated
and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was renamed as the Bank
of Bengal. This was one of the three banks founded by a presidency government, the other two were
the Bank of Bombay in 1840 and the Bank of Madras in 1843. The three banks were merged in
1921 to form the Imperial Bank of India, which upon India's independence, became the State Bank
of India in 1955. For many years the presidency banks had acted as quasi-central banks, as did their
successors, until the Reserve Bank of India was established in 1935, under the Reserve Bank of
India Act, 1934.
In 1960, the State Banks of India was given control of eight state-associated banks under the State
Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In 1969
the Indian government nationalised 14 major private banks, one of the big bank was Bank of India.
In 1980, 6 more private banks were nationalised. These nationalised banks are the majority of
lenders in the Indian economy. They dominate the banking sector because of their large size and
widespread networks.
The Indian banking sector is broadly classified into scheduled and non-scheduled banks. The
scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934.
The scheduled banks are further classified into: nationalised banks; State Bank of India and its
associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector
banks. The term commercial banks refers to both scheduled and non-scheduled commercial banks
regulated under the Banking Regulation Act, 1949.
Generally the supply, product range and reach of banking in India is fairly mature-even though
reach in rural India and to the poor +-still remains a challenge.

Chapter 1
Introduction
Banking in India, in the modern sense, originated in the last decade of the 18th century.
Among the first banks were the Bank of Hindustan, which was established in 1770 and
liquidated in 1829–32; and the General Bank of India, established in 1786 but failed in
1791.
The largest bank, and the oldest still in existence, is the State Bank of India (S.B.I). It
originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was
renamed as the Bank of Bengal. This was one of the three banks founded by a presidency
government, the other two were the Bank of Bombay in 1840 and the Bank of Madras in
1843. The three banks were merged in 1921 to form the Imperial Bank of India, which
upon India's independence, became the State Bank of India in 1955. For many years the
presidency banks had acted as quasi-central banks, as did their successors, until the Reserve
Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.
In 1960, the State Banks of India was given control of eight state-associated banks under
the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate
banks. In 1969 the Indian government nationalised 14 major private banks, one of the big
bank was Bank of India. In 1980, 6 more private banks were nationalised. These
nationalised banks are the majority of lenders in the Indian economy. They dominate the
banking sector because of their large size and widespread networks.
The Indian banking sector is broadly classified into scheduled and non-scheduled banks.
The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of
India Act, 1934. The scheduled banks are further classified into: nationalised banks; State
Bank of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other
Indian private sector banks. The term commercial banks refers to both scheduled and non-
scheduled commercial banks regulated under the Banking Regulation Act, 1949.

Generally the supply, product range and reach of banking in India is fairly mature-even
though reach in rural India and to the poor still remains a challenge. The government has
developed initiatives to address this through the State Bank of India expanding its branch
network and through the National Bank for Agriculture and Rural Development
(NABARD) with facilities like microfinance.
1.1) HISTORY
1.1.1) Ancient India
The Vedas (2000–1400 BCE) are earliest Indian texts to mention the concept of usury. The
word kusidin is translated as usurer. The Sutras (700–100 BCE) and the Jatakas
(600–400 BCE) also mention usury. Also, during this period, texts began to condemn
usury. Vasishtha forbade Brahmin and Kshatriya varnas from participating in usury. By
the 2nd century CE, usury seems to have become more acceptable. The Manusmriti
considers usury an acceptable means of acquiring wealth or leading a livelihood. It also
considers money lending above a certain rate, different ceiling rates for different caste, a
grave sin.
The Jatakas also mention the existence of loan deeds. These were called
rnapatra or rnapanna. The Dharmashastras also supported the use of loan deeds.
Kautilya has also mentioned the usage of loan deeds. Loans deeds were also called
rnalekhaya.
Later during the Mauryan period (321–185 BCE), an instrument called adesha was in use,
which was an order on a banker directing him to pay the sum on the note to a third person,
which corresponds to the definition of a modern bill of exchange. The considerable use of
these instruments has been recorded. In large towns, merchants also gave letters of credit
to one another.

1.1.2) Medieval era
The use of loan deeds continued into the Mughal era and were called dastawez. Two types
of loans deeds have been recorded. The dastawez-e-indultalab was payable on demand and
dastawez-e-miadi was payable after a stipulated time. The use of payment orders by royal
treasuries, called barattes, have been also recorded. There are also records of Indian
bankers using issuing bills of exchange on foreign countries. The evolution of hundis, a
type of credit instrument, also occurred during this period and remain in use.
1.1.3) Colonial era
During the period of British rule merchants established the Union Bank of Calcutta in 1829,
first as a private joint stock association, then partnership. Its proprietors were the owners of
the earlier Commercial Bank and the Calcutta Bank, who by mutual consent created Union
Bank to replace these two banks. In 1840 it established an agency at Singapore, and closed
the one at Mirzapore that it had opened in the previous year. Also in 1840 the Bank revealed
that it had been the subject of a fraud by the bank's accountant. Union Bank was
incorporated in 1845 but failed in 1848, having been insolvent for some time and having
used new money from depositors to pay its dividends.
The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint
Stock bank in India, it was not the first though. That honour belongs to the Bank of Upper
India, which was established in 1863 and survived until 1913, when it failed, with some of
its assets and liabilities being transferred to the Alliance Bank of Simla.
Foreign banks too started to appear, particularly in Calcutta, in the 1860s. Grindlays Bank
opened its first branch in Calcutta in 1864. The Comptoir d'Escompte de Parisopened a
branch in Calcutta in 1860, and another in Bombay in 1862; branches followed in Madras
and Pondicherry, then a French possession. HSBC established itself in Bengalin 1869.
Calcutta was the most active trading port in India, mainly due to the trade of the British
Empire, and so became a banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in
1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in
Lahore in 1894, which has survived to the present and is now one of the largest banks in
India.
Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian rebellion, and the
social, industrial and other infrastructure had improved. Indians had established small
banks, most of which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange banks
and a number of Indian joint stock banks. All these banks operated in different segments
of the economy. The exchange banks, mostly owned by Europeans, concentrated on
financing foreign trade. Indian joint stock banks were generally under capitalised and
lacked the experience and maturity to compete with the presidency and exchange banks.
This segmentation let Lord Curzon to observe, "In respect of banking it seems we are
behind the times. We are like some old fashioned sailing ship, divided by solid wooden
bulkheads into separate and cumbersome compartments.
The period between 1906 and 1911 saw the establishment of banks inspired by the
Swadeshi movement. The Swadeshi movement inspired local businessmen and political
figures to found banks of and for the Indian community. A number of banks established
then have survived to the present such as Catholic Syrian Bank, The South Indian Bank,
Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central
Bank of India.
The fervour of Swadeshi movement led to the establishment of many private banks in
Dakshina Kannada and Udupi district, which were unified earlier and known by the name
South Canara (South Kanara) district. Four nationalised banks started in this district and
also a leading private sector bank. Hence undivided Dakshina Kannada district is known
as "Cradle of Indian Banking".
The inaugural officeholder was the Britisher Sir Osborne Smith(1 April 1935), while C.
D. Deshmukh(11 August 1943) was the first Indian governor.On December 12,

2018,Shaktikanta Das begins his journey as the new RBI Governor, taking charge from
Urjit R Patel.
During the First World War (1914–1918) through the end of the Second World War
(1939–1945), and two years thereafter until the independence of India were challenging
for Indian banking. The years of the First World War were turbulent, and it took its toll
with banks simply collapsing despite the Indian economy gaining indirect boost due to
war-related economic activities. At least 94 banks in India failed between 1913 and 1918
as indicated in the following table:
Number of banks Authorised Capital Paid-up Capital

Years
that failed (₹ Lakhs) (₹ Lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1

1.1.4) Post-Independence
During 1938-46, bank branch offices trebled to 3,469 and deposits quadrupled to ₹962
crore. Nevertheless, the partition of India in 1947 adversely impacted the economies of
Punjab and West Bengal, paralysing banking activities for months.
India's independence marked the end of a regime of the Laissez-faire for the Indian
banking. The Government of India initiated measures to play an active role in the
economic life of the nation, and the Industrial Policy Resolution adopted by the
government in 1948 envisaged a mixed economy. This resulted in greater involvement of
the state in different segments of the economy including banking and finance. The major
steps to regulate banking included:
• The Reserve Bank of India, India's central banking authority, was established in April
1935, but was nationalized on 1 January 1949 under the terms of the Reserve Bank of
India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
• In 1949, the Banking Regulation Act was enacted, which empowered the Reserve Bank
of India (RBI) to regulate, control, and inspect the banks in India.
• The Banking Regulation Act also provided that no new bank or branch of an existing
bank could be opened without a license from the RBI, and no two banks could have
common directors.
1.1.5) Nationalisation in the 1969
Despite the provisions, control and regulations of the Reserve Bank of India, banks in India
except the State Bank of India (SBI), remain owned and operated by private persons. By
the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer,
and a debate had ensued about the nationalisation of the banking industry. Indira Gandhi,
the then Prime Minister of India, expressed the intention of the Government of India in
the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts
on Bank Nationalization." The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance
('Banking Companies Acquisition and Transfer of Undertakings) Ordinance, 1969') and
nationalised the 14 largest commercial banks with effect from the midnight of
19 July 1969. These banks contained 85 percent of bank deposits in the country.
Jayaprakash Narayan, a national leader of India, described the step as a
"masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill,
and it received the presidential approval on 9 August 1969.
List of Banks Nationalised in 1969
• Allahabad bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Central bank of India
• Canara bank
• Dena bank
• Indian bank
• Indian overseas bank
• Punjab national bank
• Syndicate bank
• UCO bank
• Union bank
• United bank of India
1.1.6) Nationalisation in the 1980
A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated
reason for the nationalisation was to give the government more control of credit delivery.
With the second dose of nationalisation, the Government of India controlled around 91%
of the banking business of India. Later on, in the year 1993, the government

merged New Bank of India with Punjab National Bank. It was the only merger between
nationalised banks and resulted in the reduction of the number of nationalised banks from
20 to 19. Until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.
List of Banks nationalised in 1980
• Punjab and Sind bank

• Vijaya bank
• Oriental bank of India
• Corporate bank
• Andhra bank
• New bank of India - (merged with PNB)
1.1.7) Liberalisation in the 1990s
In the early 1990s, the then government embarked on a policy of liberalisation, licensing a
small number of private banks. These came to be known as New Generation tech-savvy
banks, and included Global Trust Bank (the first of such new generation banks to be set
up), which later amalgamated with Oriental Bank of Commerce, UTI Bank (since
renamedAxis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth
in the economy of India, revitalised the banking sector in India, which has seen rapid
growth with strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks.
The next stage for the Indian banking has been set up, with proposed relaxation of norms
for foreign direct investment. All foreign investors in banks may be given voting rights that
could exceed the present cap of 10% at present. It has gone up to 74% with some
restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time, were
used to the 4–6–4 method (borrow at 4%; lend at 6%; go home at 4) of functioning. The
new wave ushered in a modern outlook and tech-savvy methods of working for

traditional banks. All this led to the retail boom in India. People demanded more from
their banks and received more.
1.2.0)Current period
The Indian banking sector is broadly classified into scheduled banks and non-scheduled
banks.All banks included in the Second Schedule to the Reserve Bank of India Act, 1934
are Scheduled Banks. These banks comprise Scheduled Commercial Banks and Scheduled
Co-operative Banks. Scheduled Co-operative Banks consist of Scheduled State Co-
operative Banks and Scheduled Urban Cooperative Banks.
In the bank group-wise classification, IDBI Bank Ltd. is included in the category of other
public sector bank.
By 2010, the supply, product range and reach of banking in India was generally fairly
mature-even though reach in rural India still remains a challenge for the private sector and
foreign banks. In quality of assets and capital adequacy, Indian banks are considered to
have clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve Bank of India is an autonomous body, with minimal
pressure from the government.
With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail banking,
mortgages and investment services are expected to be strong. One may also expect M&As,
takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in
Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has
been allowed to hold more than 5% in a private sector bank since the RBI announced norms
in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by
them.
In recent years critics have charged that the non-government owned banks are too
aggressive in their loan recovery efforts in connexion with housing, vehicle and personal

loans. There are press reports that the banks' loan recovery efforts have driven defaulting
borrowers to suicide.
By 2013 the Indian Banking Industry employed 1,175,149 employees and had a total of
109,811 branches in India and 171 branches abroad and manages an aggregate deposit of
₹67,504.54 billion (US$940 billion or €820 billion) and bank credit of₹52,604.59 billion
(US$730 billion or €640 billion). The net profit of the banks operating in India was
₹1,027.51 billion(US$14 billion or €13 billion) against a turnover of ₹9,148.59 billion
(US$130 billion or €110 billion) for the financial year 2012–13.
Pradhan Mantri Jan Dhan Yojana is a scheme for comprehensive financial

inclusionlaunched by the Prime Minister of India, Narendra Modi, in 2014. Run by
Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore
(15 million) bank accounts were opened under this scheme. By 15 July 2015,
16.92 crore accounts were opened, with around ₹20,288.37 crore(US$2.8 billion) were
deposited under the scheme, which also has an option for opening new bank accounts with
zero balance.
Payments Bank
Payments bank is a new model of banks conceptualised by the Reserve Bank of India
(RBI). These banks can accept a restricted deposit, which is currently limited to ₹1 lakh
per customer. These banks may not issue loans or credit cards, but may offer both current
and savings accounts. Payments banks may issue ATM and debit cards, and offer net-
banking and mobile-banking. The banks will be licensed as payments banks under Section
22 of the Banking Regulation Act, 1949, and will be registered as public limited company
under the Companies Act, 2013.
There are six payments banks
1. Aditya Birla Idea Payments Bank Ltd.

2. Airtel Payments Banks Ltd.
3. Fino Payments Bank Ltd.
4. India Post Payments Bank Ltd.

5. Jio Payments Bank Ltd.

6. PayTm Payments Bank Ltd.
Small finance banks
To further the objective of financial inclusion, the RBI granted approval in 2016 to ten
entities to set up small finance banks. Since then, all ten have received the necessary
licenses. A small finance bank is a niche type of bank to cater to the needs of people who
traditionally have not used scheduled banks. Each of these banks is to open at least 25% of
its branches in areas that do not have any other bank branches (unbanked regions). A small
finance bank should hold 75% of its net credits in loans to firms in priority sector lending,
and 50% of the loans in its portfolio must be less than ₹25 lakh (US$38,000).
There are ten small finance banks
1. AU Small Finance Bank Ltd.

2. Capital Small Finance Bank Ltd.
3. Equitas Small Finance Bank Ltd.
4. ESAF Small Finance Bank Ltd.
5. Fincare Small Finance Bank Ltd.
6. Jana Small Finance Bank Ltd.
7. North East Small Finance Bank Ltd.
8. Suryoday Small Finance Bank Ltd.
9. Ujjivan Small Finance Bank Ltd.
10.Utkarsh Small Finance Bank Ltd.

1.3.0) STRUCTURE OF INDIAN BANKING
Reserve Bank of India (RBI)
The country had no central bank prior to the establishment of the RBI. The RBI is the
supreme monetary and banking authority in the country and controls the banking system
in India. It is called the Reserve Bank’ as it keeps the reserves of all commercial banks.
Scheduled & Non –scheduled Banks
A scheduled bank is a bank that is listed under the second schedule of the RBI Act, 1934.
In order to be included under this schedule of the RBI Act, banks have to fulfill certain
conditions such as having a paid up capital and reserves of at least 0.5 million and satisfying
the Reserve Bank that its affairs are not being conducted in a manner prejudicial to the
interests of its depositors. Scheduled banks are further classified into commercial and
cooperative banks. Non- scheduled banks are those which are not included in the second
schedule of the RBI Act, 1934. At present these are only three such banks in the country.
Commercial Banks
Commercial banks may be defined as, any banking organization that deals with the deposits
and loans of business organizations.Commercial banks issue bank checks and drafts, as
well as accept money on term deposits. Commercial banks also act as moneylenders, by
way of installment loans and overdrafts.Commercial banks also allow for a variety of
deposit accounts, such as checking, savings, and time deposit. These institutions are run to
make a profit and owned by a group of individuals.
Scheduled Commercial Banks (SCBs):
Scheduled commercial banks (SCBs) account for a major proportion of the business of the
scheduled banks. SCBs in India are categorized into the five groups based on their
ownership and/or their nature of operations. State Bank of India and its six associates

(excluding State Bank of Saurashtra, which has been merged with the SBI with effect from
August 13, 2008) are recognised as a separate category of SCBs, because of the distinct
statutes (SBI Act, 1955 and SBI Subsidiary Banks Act, 1959) that govern them.
Nationalised banks and SBI and associates together form the public sector banks group
IDBI ltd. has been included in the nationalised banks group since December 2004. Private
sector banks include the old private sector banks and the new generation private sector
banks- which were incorporated according to the revised guidelines issued by the RBI
regarding the entry of private sector banks in 1993.
Foreign banks are present in the country either through complete branch/subsidiary route
presence or through their representative offices.
Types of Scheduled Commercial Banks
Public Sector Banks
These are banks where majority stake is held by the Government of India.
Examples of public sector banks are: SBI, Bank of India, Canara Bank, etc.
Private Sector Banks
These are banks majority of share capital of the bank is held by private individuals. These
banks are registered as companies with limited liability. Examples of private sector banks
are: ICICI Bank, Axis bank, HDFC, etc.
Foreign Banks
These banks are registered and have their headquarters in a foreign country but operate
their branches in our country. Examples of foreign banks in India are: HSBC, Citibank,
Standard Chartered Bank, etc
Regional Rural Banks

Regional Rural Banks were established under the provisions of an Ordinance promulgated
on the 26th September 1975 and the RRB Act, 1976 with an objective to ensure sufficient
institutional credit for agriculture and other rural sectors. The area of operation of RRBs is
limited to the area as notified by GoI covering one or more districts in the State.
RRBs are jointly owned by GoI, the concerned State Government and Sponsor Banks (27
scheduled commercial banks and one State Cooperative Bank); the issued capital of a RRB
is shared by the owners in the proportion of 50%, 15% and 35% respectively.
Prathama bank is the first Regional Rural Bank in India located in the city Moradabad in
Uttar Pradesh.
Type of Major Shareholders Major Players

Commercial
Banks
Public Sector Government of India SBI, PNB, Canara Bank, Bank of

Banks Baroda, Bank of India, etc
Private Sector Private Individuals ICICI Bank, HDFC Bank, Axis

Banks Bank, Kotak Mahindra Bank, Yes
Bank etc.
Foreign Banks Foreign Entity Standard Chartered Bank, Citi

Bank, HSBC, Deutsche Bank, BNP
Paribas, etc.
Regional Rural Central Govt, Andhra Pradesh Grameena Vikas

Banks Concerned State Govt and Bank, Uttranchal Gramin Bank,
Sponsor Bank in the ratio of 50 Prathama Bank, etc.
: 15 : 35

Cooperative Banks
A co-operative bank is a financial entity which belongs to its members, who are at the same
time the owners and the customers of their bank. Co-operative banks are often created by
persons belonging to the same local or professional community or sharing a common
interest. Co-operative banks generally provide their members with a wide range of banking
and financial services (loans, deposits, banking accounts, etc).
They provide limited banking products and are specialists in agriculture-related products.
Cooperative banks are the primary financiers of agricultural activities, some small-scale
industries and self-employed workers.
Co-operative banks function on the basis of “no-profit no-loss”.
Anyonya Co-operative Bank Limited (ACBL) is the first co-operative bank in India located
in the city of Vadodara in Gujarat.
1.4.0) RECENT TRENDS IN BANKING SECTOR
1.4.1) ATM
The automated teller machine or ATM, is such a complicated piece of technology that it
does not have a single inventor. Today we use ATM are an amalgam of several different
inventions. Automatic Teller Machine enables the customers to withdraw their money 24
hours a day 7 days a week. ATMs can be used for cash withdrawal, payment of utility bills,
funds transfer between accounts, deposit of cheques and cash into accounts, balance
enquiry etc.
4.2) Electronic Payement services
An e-payment system is a way of making transactions or paying for goods andservices

through an electronic medium, without the use of checks or cash. It's also

called an electronic payment system or online payment system. It is mainly based on the
e-governance, e-mail, e-commerce, e-tail etc.
1.4.3) Real time gross settlement
Real-time gross settlement (RTGS) systems are specialist funds transfer systems where the
transfer of money or securities takes place from one bank to any other bank on a "real time"
and on a "gross" basis. Settlement in "real time" means a payment transaction is not
subjected to any waiting period, with transactions being settled as soon as they are
processed. "Gross settlement" means the transaction is settled on one-to-one basis without
bundling or netting with any other transaction. "Settlement" means that once processed,
payments are final and irrevocable.
RTGS systems are typically used for high-value transactions that require and receive
immediate clearing. In some countries the RTGS systems may be the only way to get same
day cleared funds and so may be used when payments need to be settled urgently. However,
most regular payments would not use a RTGS system, but instead would use a national
payment system or automated clearing house that allows participants to batch and net
payments. RTGS payments typically incur higher transaction costs and usually operated by
a country's central bank.
1.4.4) National electronic fund transfer
National Electronic Funds Transfer (NEFT) is an electronic funds transfer system

maintained by the Reserve Bank of India (RBI). Started in November 2005, the setup was
established and maintained by Institute for Development and Research in Banking
Technology (IDRBT). NEFT is a facility enabling bank customers in India to transfer funds
between any two NEFT-enabled bank accounts on a one-to-one basis. It is done via
electronic messages. Unlike Real-time gross settlement (RTGS), fund transfers through the
NEFT system do not occur in real-time basis. NEFT settles fund transfers in half- hourly
batches with 23 settlements occurring between 8:00 AM and 7:00 PM on week days and
the 1st, 3rd and 5th Saturday of the calendar month. Transfers initiated outside this time
period are settled at the next available window. No settlements are made on the second and
fourth Saturday of the month, or on Sundays, or on public holidays.

NEFT facilities are available at 74,680 branches offices of 101 banks across the country
(out of around 82,400 bank branches) as of January 2011, and well as online through the
website of NEFT-enabled banks and work on a batch mode. NEFT has gained popularity
due to its saving on time and the ease with which the transactions can be concluded, This
reflects from the fact that 42% of all electronic transactions in the 2008 financial year were
NEFT transactions.
1.4.5) Electronic fund transfer
Electronic funds transfer (EFT) are electronic transfer of money from one bank account
to another, either within a single financial institution or across multiple institutions, via
computer-based systems, without the direct intervention of bank staff.
According to the United States Electronic Fund Transfer Act of 1978 it is a funds transfer
initiated through an electronic terminal, telephone, computer (including on-line banking)
or magnetic tape for the purpose of ordering, instructing, or authorizing a financial
institution to debit or credit a consumer’s account.
EFT transactions are known by a number of names across countries and different payment
systems. For example, in the United States, they may be referred to as "electronic checks"
or "e-checks". In the United Kingdom, the term "bank transfer" and "bank payment" are
used, while in several other European countries "giro transfer" is the common term.
1.4.6) Tele banking
Telephone banking is a service provided by a bank or other financial institution, that

enables customers to perform over the telephone a range of financial transactions which do
not involve cash or documents (such as cheques), without the need to visit a bank branch
or ATM. Telephone banking times are usually longer than branch opening times, and some
financial institutions offer the service on a 24-hour basis. However, some banks impose
restrictions on which accounts may be accessed through telephone banking and usually
limit the amounts that can be transacted.

The types of financial transactions which customers may transact through telephone
banking include obtaining account balances and list of latest transactions, electronic bill
payments, and funds transfers between a customer's or to another's accounts.
From the bank's point of view, telephone banking reduces the cost of handling transactions
by reducing visits by customers to a bank branch for non-cash withdrawals and deposit
transactions. However, the use of telephone banking services has been declining in favor
of internet banking since internet banking became available in the early 2000s, and further
eroded with the advent of mobile banking in the 2010s.
1.4.7) Electronic data interchange
Electronic data interchange (EDI) is the concept of businesses electronically

communicating information that was traditionally communicated on paper, such as
purchase orders and invoices. Technical standards for EDI exist to facilitate parties
transacting such instruments without having to make special arrangements.
EDI has existed at least since the early 70s, and there are many EDI standards (including
X12, EDIFACT, ODETTE, etc.), some of which address the needs of specific industries or
regions. It also refers specifically to a family of standards. In 1996, the National
Institute of Standards and Technology defined electronic data interchange as "the
computer-to-computer interchange of strictly formatted messages that represent documents
other than monetary instruments. EDI implies a sequence of messages between two parties,
either of whom may serve as originator or recipient. The formatted data representing the
documents may be transmitted from originator to recipient via telecommunications or
physically transported on electronic storage media." It distinguished mere electronic
communication or data exchange, specifying that "in EDI, the usual processing of received
messages is by computer only. Human intervention in the processing of a received message
is typically intended only for error conditions, for quality review, and for special situations.
For example, the transmission of binary or textual data is not EDI as defined here unless
the data are treated as one or more data elements of an EDI message and are not normally
intended for human interpretation as part of online data processing."[1] In short, EDI can be
defined as the transfer of

structured data, by agreed message standards, from one computer system to another
without human intervention.
1.4.8) INTERNET BANKING

Internet banking, also known as online banking, e-banking or virtual banking, is an
electronic payment system that enables customers of a bank or other financial institution
to conduct a range of financial transactions through the financial institution's website.
1.5.0 RESERVE BANK OF INDIA
The Reserve Bank of India (RBI) is India's central banking institution, which controls the
issuance and supply of the Indian rupee. Until the Monetary Policy Committee was
established in 2016, it also controlled monetary policy in India.[6] It commenced its
operations on 1 April 1935 in accordance with the Reserve Bank of India Act, 1934.The
original share capital was divided into shares of 100 each fully paid, which were initially
owned entirely by private shareholders. Following India's independence on 15 August
1947, the RBI was nationalised on 1 January 1949. The RBI plays an important part in
the Development Strategy of the Government of India. It ishe a member bank of
the Asian Clearing Union. The general superintendence and direction of the RBI is
entrusted with the 21-member central board of directors: thegovernor; four deputy
governors; two finance ministry representatives (usually the Economic Affairs
Secretary and the Financial Services Secretary); ten government-nominated directors to
represent important elements of India's economy; and four directors to represent local
boards headquartered at Mumbai, Kolkata, Chennai and the capital New Delhi. Each of
these local boards consists of five members who represent regional interests, the interests
of co-operative and indigenous banks.
The central bank was an independent apex monetary authority which regulates banks and
provides important financial services like storing of foreign exchange reserves, control of

inflation, monetary policy report till August 2016. A central bank is known by different
names in different countries. The functions of a central bank vary from country to
country and are autonomous or quasi-autonomous body and perform or through another
agency vital monetary functions in the country. A central bank is a vital financial apex
institution of an economy and the key objects of central banks may differ from country to
country still they perform activities and functions with the goal of maintaining economic
stability and growth of an economy.
The bank is also active in promoting financial inclusion policy and is a leading member
of the Alliance for Financial Inclusion (AFI). The bank is often referred to by the
name Mint Street. RBI is also known as banker's bank.
RBI as Monetary Authority of India: Role, Credit control tools; how it impacts Indian
economy
Role of RBI
Reserve Bank of India (RBI) is India's Central bank. It plays multi-facet role by
executing multiple functions such as overseeing monetary policy, issuing currency,
managing foreign exchange, working as a bank of government and as banker of
scheduled commercial banks, among others. It also works for overall economic growth of
the country.
Key functions of RBI
The preamble of the Reserve Bank of India describes its main functions as ‘to regulate
the issue of Bank Notes and keeping of reserves with a view to securing monetary
stability in India and generally to operate the currency and credit system of the country to
its advantage’.
Currency Issue
Reserve bank of India is the only authority who is authorized to issue currency in India.
While coins are minted by Government of India (GoI), the RBI works as an agent of GoI
for distributing and handling of coins. Upto Re.1 coins are minted by GoI although RBI
ensures their distribution in the country.

RBI also works to prevent counterfeiting of currency by regularly upgrading security

features of currency. RBI prints currency at its 4 currency printing facilities at Dewas,
Nasik, Mysore and Hyderabad. The RBI is authorized to issue notes up to the value of
Rupees 10,000 (Ten thousand).
Banker to Government
Like individuals, firms and companies who need a bank to carry out their financial
transactions effectively & efficiently, Governments also need a bank to carry out their
financial transactions. RBI serves this purpose for the Government of India (GoI). As a
banker to the GoI, RBI maintains its accounts, receive in and make payments out of these
accounts. RBI also helps GoI to raise money from public via issuing bonds and
government approved securities.
Supervisor of Banks: Bankers’ Bank
RBI also works as banker to all the scheduled commercial banks. All the banks in India
maintain accounts with RBI which help them in clearing & settling inter-bank
transactions and customer transactions smoothly & swiftly. Maintaining accounts with
RBI help banks to maintain statutory reserve requirements. RBI also acts as lender of last
resort for all the banks.
RBI has the responsibility of regulating the nation's financial system. As a regulator and
supervisor of the Indian banking system it ensures financial stability & public confidence
in the banking system. RBI uses methods like On-site inspections, off-site surveillance,
scrutiny & periodic meetings to supervise new bank licenses, setting capital requirements
and regulating interest rates in specific areas. RBI is currently focused on
implementing Basel-III norms to regulate the hidden Non Performing Assets (NPAs) in
Banking system.
RBI as Country’s Foreign Exchange Manager
RBI has an important role to play in regulating & managing Foreign Exchange of the
country. It manages forex and gold reserves of the nation.
On a given day, the foreign exchange rate reflects the demand for and supply of foreign
exchange arising from trade and capital transactions. The RBI’s Financial Markets

Department (FMD) participates in the foreign exchange market by undertaking sales /

purchases of foreign currency to ease volatility in periods of excess demand for/supply of
foreign currency.
RBI as Controller of Credit: Regulator of Money supply
RBI formulates and implements the Monetary Policy of India to keep the economy on
growth path. Monetary Policy refers to the process employed by RBI to control
availability & cost of currency and thus keeping Inflationary & deflationary trends low
and stable. RBI adopts various measures to regulate the flow of credit in the country. The
measures adopted by RBI can broadly be categorized as Quantitative & Qualitative tools.
1. Quantitative Tools
Quantitative measures of credit control are applicable to entire money and banking
system without discriminations. They broadly refer to reserve ratios, bank rate policy etc.
Reserve ratios are the share of net demand & time liabilities (NDTL) which banks have
to keep aside to ensure that they have sufficient cash to cover customer withdrawals.
A. Cash Reserve Ratio (CRR)
CRR is one of the most commonly used by RBI as quantitative tool of credit control. The
ratio specifies minimum fraction of the total deposits of customers, which commercial
banks have to hold as reserves either in cash or as deposits with the central bank. CRR is
set according to the guidelines of the central bank of a country. RBI is empowered to
vary CRR between 3 percent and 15 percent.
Present situation
Current CRR is 4% in India. Cash Reserve Ratio was quoted at 4 percent in its recently
announced Sixth bi-monthly Monetary Policy Statement 2018-19 in February 2019.
Earlier, the Cash Reserve Ratio in India averaged 5.67 percent from 1999 until 2016,
reaching an all time high of 10.50 percent in March of 1999 and a record low of 4 percent
in February of 2013.
CRR: Impact of Increase & decrease
CRR is the share of Net Demand and Time Liabilities (NDTL) that banks must maintain
as cash with RBI. The RBI has set CRR at 4%. So if a bank has 200 Crore of NDTL then
it has to keep Rs. 8 Crore in cash with RBI. RBI pays no interest on CRR.

For example – if we assume that economy is showing inflationary trends & RBI wants to
control this situation by adjusting SLR & CRR. If RBI increases SLR to 50% and CRR to
20% then bank will be left only with Rs. 60 crore for operations. Now it will be very
difficult for bank to maintain profitability with such small capital. Bank will be left with
no choice but to raise interest rate which will make borrowing costly. This will in turn
reduce the overall demand & hence price will come down eventually.
B. Statutory Liquidity Ratio (SLR)
The current SLR announced by RBI is 19.25% of NDTL as announced by RBI on
February 7, 2019. The share of net demand and time liabilities that banks must maintain
in safe and liquid assets, such as government securities, cash and gold is SLR.
C. Bank Rate
Current Bank rate is 6.5% w e f from February 7, 2019. When banks want to borrow long
term funds from RBI, it is the interest rate which RBI charges from them. The bank rate
is not used to control money supply these days although it provides the basis of arriving
at lending and deposit rates. However, if a bank fails to keep SLR or CRR, RBI will then
impose penalty & it will be 300 basis points above bank rate.
D. Repo Rate
Present Repo rate is 6.25% with effect from February 7, 2019. If banks want to borrow
money (for short term, usually overnight) from RBI, the banks have to pay this interest
rate. Banks have to pledge government securities as collateral. This kind of deal happens
through a repurchase agreement. If a bank wants to borrow Rs. 100 crores, it has to
provide government securities at least worth Rs. 100 crore (could be more because of
margin requirement which is 5%-10% of loan amount) and agree to repurchase them at
Rs. 106.50 crore at the end of borrowing period. So the bank has paid Rs. 6.50 crore as
interest. This is the reason it is called repo rate. The government securities which are
provided by banks as collateral cannot come from SLR quota (otherwise the SLR will go
below 21.5% of NDTL and attract penalty). Banks have to provide these securities
additionally.
To curb inflation, RBI increases Repo rate which will make borrowing costly for banks.
Banks will pass this increased cost to their customers which make borrowing costly in

whole economy. Fewer people will apply for loan and aggregate demand will get
reduced. This will result in inflation coming down. RBI does the opposite to fight
deflation. Although when RBI reduce Repo rate, banks are not legally required to reduce
their base rate.
E. Reverse Repo Rate
At present,reverse repo rate is 6% with effect from February 7, 2019. Reverse repo rate is
just the opposite of repo rate. If a bank has surplus money, they can park this excess
liquidity with RBI and central bank will pay interest on this. This interest rate is called
reverse repo rate.
F. Open Market Operation (OMO)
Open market operation is the activity of buying and selling of government securities in
open market to control the supply of money in banking system. When there is excess
supply of money, RBI sells government securities thereby taking away excess liquidity.
Similarly, when economy needs more liquidity, RBI buys government securities and
infuses more money supply into the economy.
G. Marginal Standing Facility (MSF)
This scheme was introduced in May, 2011 and all the scheduled commercial banks can
participate in this scheme. Banks can borrow up to 2.5% of their respective Net Demand
and Time Liabilities. RBI receives application under this facility for a minimum amount
of Rs. 1 crore and in multiples of Rs. 1 crore thereafter. The important difference with
repo rate is that bank can pledge government securities from SLR quota (up to 1%).
Current MSF rate is 7% with effect from June 2016.
Qualitative Tools of Money Control
Qualitative measures of credit control are discriminatory in nature and are applied for
specific purpose or to specific financial organization, bank or others which RBI thinks are
violating the monetary policy norms.
A. Loan to Value LTV or Margin Requirements
Loan to Value is the ratio of loan amount to the actual value of asset purchased. RBI
regulates this ratio so as to control the amount bank can lend to its customers. For
example, if an individual wants to buy a car from borrowed money and the car value is

Rs. 10 Lac, he can only avail a loan amount of Rs. 7 Lac if the LTV is set to 70%. RBI
can decrease or increase to curb inflation or deflation respectively.
B. Selective credit control
RBI can specifically instruct banks not to give loans to traders of certain commodities.
This prevents speculations/ hoarding of commodities using money borrowed from banks.
C. Moral Suasion
RBI persuades bank through meetings, conferences, media statements to do specific
things under certain economic trends. An example of this measure is to ask banks to
reduce their Non-performing assets (NPAs).
Regulates and Supervises the Payment and Settlement Systems
The Payment and Settlement Systems Act of 2007 (PSS Act) gives the Reserve Bank
oversight authority, including regulation and supervision, for the payment and settlement
systems in the country. In this role, the RBI focuses on the development and functioning
of safe, secure and efficient payment and settlement mechanisms. Two payment systems
National Electronic Fund Transfer (NEFT) and Real Time Gross Settlement (RTGS)
allow individuals, companies and firms to transfer funds from one bank to another. These
facilities can only be used for transferring money within the country

Chapter 2
Research Methodology
2.1 Definition
A system of models, procedures and techniques used to find the results of a research
problem is called a research methodology. It is the specific procedures or techniques used
to identify, select, process and analyse information about a topic.
In research paper, the methodology selection allows the reader to critically evaluate a
study’s overall validity and reliability.
2.1.2. Types of Research
A research can be classified in to exploratory research, conclusive research, modelling

research and algorithm research.
a) Exploratory research
Exploratory research is an initial research which analyses the data and explores the
possibility of obtaining as many relationships’ as possible between different variables
without knowing their end-applications. This means that a general study will be conducted
without having any specific end-objective except to establish as many relationships as
possible between the variables of the study. The research provides the basis for general
findings. Researchers and practitioners can explore the possibility of

using such general findings in future. This type of research lay the foundation for the
formulation of different hypotheses of research problems.
Different types of explanatory researches are literature survey, experience survey and
study of problems to have an insight.
Literature survey
It may also be known as a literature review.This segment the existing and established
theory and research in report range. This area can be used to indicate where the are filling
an apparent hole in the current hypothesis or learning, or one is proposing something that
conflicts with or is questionable to existing ideas.
Some example of such researches is review of wholesale price index, demographic

analysis, periodic stock exchange index reports, cross comparison of census details of
different countries, etc.
Experience survey
Experience survey is a survey of experiences of experts/specialists in a particular field

which will act as a database for future research. This survey gathers the experiences of
specialists in terms of their skills and knowledge which have been developed over a period
of time, or through other studies. The outcome of this study is to generate ideas which will
help carry out future research with minimal data collection. The decision making in each
of the functional areas of management under probabilistic situation is a complex process.
b) Conclusive research
As stated earlier, the exploratory research lays the foundation for the formulation of
hypothesis. Conclusive research is the hypothesis of a research problem formulated by
exploratory research and draws definite conclusions for implementation. After validating
the hypothesis, a decision-making framework can be formulated.

The conclusive research is classified in to descriptive research and experimental research.

They are explained in the following text.
Descriptive research
It includes surveys and fact-finding enquiries of different kinds. The major purpose of
descriptive research is description of the state of affairs as it exists at present. In social
science and business research we quite often use the term Ex post facto research for
descriptive research studies. The main characteristic of this method is that the researcher
has no control over the variables; he can only report what has happened or what is
happening. Most ex post facto research projects are used for descriptive studies in which
the researcher seeks to measure such items as, for example, frequency of shopping,
preferences of people, or similar data. Ex post facto studies also include attempts by
researchers to discover causes even when they cannot control the variables. The methods
of research utilized in descriptive research are survey methods of all kinds, including
comparative and correlational methods. In analytical research, on the other hand, the
researcher has to use facts or information already available, and analyse these to make a
critical evaluation of the material.
Experimental research
An experimental research is used to study the effect of a set of factors on the response
variable of a system of study.
Some of the examples of experience survey are:
• bidding of tenders
• technology forecasting
• materials planning
• manpower planning
• production scheduling

• union/state government budget exercise
• investment decisions
• portfolio management
• company annual budget exercise
• monsoon prediction
• product pricing
c) Some Other Types of Research
All other types of research are variations of one or more of the above stated approaches,
based on either the purpose of research, or the time required to accomplish research, on the
environment in which research is done, or on the basis of some other similar factor. From
the point of view of time, we can think of research either as one-time research or
longitudinal research. In the former case the research is confined to a single time-period,
whereas in the latter case the research is carried on over several time-periods.
Research can be field-setting research or laboratory research or simulation research,

depending upon the environment in which it is to be carried out. Research can as well be
understood as clinical or diagnostic research. Such research follows case-study methods or
in-depth approaches to reach the basic causal relations. Such studies usually go deep into
the causes of things or events that interest us, using very small samples and very deep
probing data gathering devices.
The research may be exploratory or it may be formalized. The objective of exploratory

research is the development of hypotheses rather than their testing, whereas formalized
research studies are those with substantial structure and with specific hypotheses to be
tested.

Historical research is that which utilizes historical sources like documents, remains, etc.
to study events or ideas of the past, including the philosophy of persons and groups at any
remote point of time. Research can also be classified as conclusion-oriented and decision
oriented. While doing conclusion-oriented research, a researcher is free to pick up a
problem, redesign the enquiry as he proceeds and is prepared to conceptualize as he wishes.
Decision-oriented research is always for the need of a decision maker and the researcher
in this case is not free to embark upon research according to his own inclination. Operations
research is an example of decision-oriented research since it is a scientific method of
providing executive departments with a quantitative basis for decisions regarding
operations under their control.
2.2 Research Design
Research Designis the set of methods and procedures used in collecting and analysing
measures of the variables specified in the research problem research.
The design of a study defines the study type (descriptive, correlation, semi-experimental,
experimental, review, meta-analytic) and sub-type (e.g., descriptive-longitudinal case
study), research problem, hypotheses, independent and dependent variables, experimental
design, and, if applicable, data collection methods and a statistical analysis plan.
A research design is a framework that has been created to find answers to research
questions. There are many ways to classify research designs. Nonetheless, the list below
offers a number of useful distinctions between possible research designs. A research design
is an arrangement of conditions or collections.
• Descriptive (e.g., case-study, naturalistic observation, survey)

• Correlational (e.g., case-control study, observational study)
• Semi-experimental (e.g., field experiment, quasi-experiment)

• Experimental (experiment with random assignment)

• Review (literature review, systematic review)
• Meta-analytic (meta-analysis)
Sometimes a distinction is made between "fixed" and "flexible" designs. In some cases,
these types coincide with quantitative and qualitative research designs respectively, though
this need not be the case. In fixed designs, the design of the study is fixed before the main
stage of data collection takes place.
Fixed designs are normally theory-driven; otherwise, it is impossible to know in advance

which variables need to be controlled and measured. Often, these variables are measured
quantitatively.
Flexible designs allow for more freedom during the data collection process. One reason for
using a flexible research design can be that the variable of interest is not quantitatively
measurable, such as culture. In other cases, the theory might not be available before one
starts the research.
a) Research Instrument
Instrument is the general term that researchers use for a measurement device (survey, test,
questionnaire, etc.). To help distinguish between instrument and instrumentation, consider
that the instrument is the device and instrumentation is the course of action (the process of
developing, testing, and using the device).
There are four main types of research instruments available to market researchers
(1) questionnaires or surveys
(2) psychological tools
(3) mechanical devices

(4) qualitative measurements.
b) Research Techniques
There are two different types of research techniques. The purpose of techniques are to use
a logical approach to obtain information about a specific subject. Research techniques can
be applied to a broad range of issues or areas of research.
Some of research techniques include:
• Interviews.
• Tests.
• Surveys.
• Desk research.
• Focus groups.
• Observation.
Selection of the right research technique(s) is one of the key factors deciding the
methodological rationale of the research and subsequent analysis. Each of the individual
techniques used to obtain data is linked to specific analysis and interpretation processes.
Not every technique can be used to transpose the results obtained directly onto the pool of
research subjects. A research technique and, subsequently, the research sample, should be
defined with the research objectives firmly in mind.
It is increasingly common for researchers and academics to combine multiple techniques

within a single research project (Mixed-Mode Data Collection). This approach helps to
reduce mistakes and inconsistencies that can arise due to the sample’s structure, population
coverage and absence of responses.
Each data collection technique has its strengths and weaknesses. Devoting sufficient time
to selecting the right techniques during the research preparation phase will help eliminate
mistakes during the measurement and analysis stages.

A) Observation technique
Observation technique is used mostly in qualitative research. It involves overt or

covert observation of individual or group behaviour in a specific situation.
Observation is particularly useful in those cases where information collected using survey
methods is not sufficient or falls short of reflecting the full nature of a given trend. A
researcher (observer) uses a standardised list of relevant information (behaviour), which
should be described and explained by means of observation.
B) Survey Technique
Unlike questionnaire interviews, surveys involve respondents answering questions and

recording answers on a paper or electronic questionnaire. The interviewer’s role in research
conducted using questionnaires is limited to recruiting interviewees and distributing
questionnaires.
Questionnaires fall into the following categories: paper-based, online and auditorium
questionnaires. The latter involve respondents being gathered in a single room and
completing their questionnaires, following which the completed questionnaires are pooled.
Three types of questions can be asked in questionnaires: open-ended, semi-open- ended
and closed-ended questions.

Convenience sampling
It is a non-probabilitysampling technique where subjects are selected because of their

convenient accessibility and proximity to the researcher.
Data collection
Data Collection is the process of gathering and measuring information on variables of

interest, in an established systematic fashion that enables one to answer stated research
questions, test hypotheses, and evaluate outcomes.
Data collection is a standout amongst the most essential stages in carrying on a research.
Data collection is an extremely challenging work which needs exhaustive planning,
diligent work, understanding, determination and more to have the capacity to complete the
assignment effectively.
Data collection begins with figuring out what sort of data is needed, followed by the
collection of a sample from a certain section of the population.
Data Collection Methods
Quantitative and Qualitative Data collection methods. The Quantitative data collection
methods, rely on random sampling and structured data collection instruments that fit
diverse experiences into predetermined response categories. They produce results that are
easy to summarize, compare, and generalize
Qualitative data collection methods play an important role in impact evaluation by

providing information useful to understand the processes behind observed results and
assess changes in people’s perceptions of their well-being.Furthermore qualitative methods
can beused to improve the quality of survey-based quantitative evaluations by helping
generate evaluation hypothesis; strengthening the design of survey questionnaires and
expanding or clarifying quantitative evaluation findings. These methods are characterized
by the following attributes:

• they tend to be open-ended and have less structured protocols (i.e., researchers may
change the data collection strategy by adding, refining, or dropping techniques or
informants)
• they rely more heavily on interactive interviews; respondents may be interviewed
several times to follow up on a particular issue, clarify concepts or check the
reliability of data
• they use triangulation to increase the credibility of their findings (i.e., researchers
rely on multiple data collection methods to check the authenticity of their results)
• generally, their findings are not generalizable to any specific population, rather
each case study produces a single piece of evidence that can be used to seek
general patterns among different studies of the same issue
The qualitative methods most commonly used in evaluation can be classified in three
broad categories:
• in-depth interview
• observation methods
• document review
Sources Of Data
The two main sources of data collected in the research are Primary and Secondary Data
Primary Data
Primary data is mainly Survey and observational data collected by the researcher this is
the raw data from which most of the final observations are derived from.
The observation data was mainly used to formulate and design the survey.
Primary Data Collection Primary data will be the data that you gather particularly with
the end goal of your research venture. Leverage of Primary data is that it is particularly
customized to your analysis needs. A drawback is that it is costly to get hold of. Primary

data is otherwise called raw information; the information gathered from the first source in
a controlled or an uncontrolled situation. Cases of a controlled domain are experimental
studies where certain variables are being controlled by the analyst.
The source of primary data is the populace test from which you gather the information.
The initial phase in the process is deciding the target populace.
Secondary data
When the data are collected by someone else for a purpose other than the researcher’s
current project and has already undergone the statistical analysis is called as SecondaryData.
The secondary data are readily available from the other sources and as such, there are no
specific collection methods. The researcher can obtain data from the sources both internal
and external to the organization. The internal sources of secondary data are:
▪ Sales Report
▪ Financial Statements
▪ Customer details, like name, age, contact details, etc.
▪ Company information
▪ Reports and feedback from a dealer, retailer, and distributor
▪ Management information system
There are several external sources from where the secondary data can be collected. These are:
▪ Government censuses, like the population census, agriculture census, etc.
▪ Information from other government departments, like social security, tax records, etc.
▪ Business journals
▪ Social Books
▪ Business magazines

▪ Libraries
▪ Internet, where wide knowledge about different areas is easily available.
The secondary data can be both qualitative and quantitative. The qualitative data can be
obtained through newspapers, diaries, interviews, transcripts, etc., while the quantitative data
can be obtained through a survey, financial statements and statistics.
One of the advantages of the secondary data is that it is easily available and hence less time is
required to gather all the relevant information. Also, it is less expensive than the primary
data. But however, the data might not be specific to the researcher’s needs and at the same
time is incomplete to reach a conclusion. Also, the authenticity of the research results might
be sceptical.
Sample size
The sample size varies from 30-50 respondents.
OBJECTIVES
• To study the development of Indian banking sector post independence

• To study the reforms brought in Indian banking sector
• To study the regulations in Indian banking sector
• To study the role of RBI in growth of Indian banking sector
• To study the challenges faced by Indian banking sector
• To study the increase in number of banks both national and international
• To study the development of technology in banking industry
• To study the impact of nationalization and liberalization of Indian banking
industry.

Chapter 3 LITERATURE REVIEW
Article by Mckinsey and company(2018) 1
India’s banking sector is a study in contrasts: it supports the world’s fastest-growing large
economy but is grappling with challenges that test its strength and resilience
Primary among them is the burden of distressed loans. According to Reserve Bank of India
(RBI) data, the value of banks’ gross nonperforming assets (GNPA) and restructured assets
reached $150 billion in April 2016 and has been growing by almost 25 percent year on year
since 2013. State-owned banks account for more than three-fourths of the stressed-asset
load, which is now far higher than their net worth. Provision levels are inadequate because
these banks hold only 28 percent of GNPAs and restructured assets as provisions. There is
a gap of close to $110 billion between the system’s stressed assets and the provisions made.
These problems are considerably less severe for private banks.
Yet headline numbers do not tell the entire story, and there are many layers to the changing
face of banking and finance in the world’s second most populous country. Even as legacy
banks continue to be under pressure from stressed assets and stagnant loan growth, the
sector as a whole represents one of the world’s biggest opportunities to create value in
banking. Macroeconomic fundamentals continue to be strong, the country is in the midst
of a digital revolution, and the ongoing disruptive changes (including momentum on the
regulatory front) point to possibilities for both new entrants and incumbent banks.
1
This article was published online at mckinsey.com . The name of the article is Banking in India is at
crossroads .

Article by ibeg organization2
As per the Reserve Bank of India (RBI), India’s banking sector is sufficiently capitalised
and well-regulated. The financial and economic conditions in the country are far superior
to any other country in the world. Credit, market and liquidity risk studies suggest that
Indian banks are generally resilient and have withstood the global downturn well.
Indian banking industry has recently witnessed the roll out of innovative banking models
like payments and small finance banks. RBI’s new measures may go a long way in helping
the restructuring of the domestic banking industry.
The digital payments system in India has evolved the most among 25 countries with India’s
Immediate Payment Service (IMPS) being the only system at level 5 in the Faster Payments
Innovation Index (FPII).*
Article by tejas @iimb an iimb inititative3
The history of Indian banking can be divided into three main phases 1 :
Phase I (1786- 1969) - Initial phase of banking in India when many small banks were set
up
Phase II (1969- 1991) - Nationalisation, regularisation and growth
Phase III (1991 onwards) - Liberalisation and its aftermath
With the reforms in Phase III the Indian banking sector, as it stands today, is mature in
supply, product range and reach, with banks having clean, strong and transparent balance
sheets. The major growth drivers are increase in retail credit demand, proliferation of
ATMs and debit-cards, decreasing NPAs due to Securitisation, improved macroeconomic
conditions, diversification, interest rate spreads, and regulatory and policy changes (e.g.
amendments to the Banking Regulation Act).
2
This article was published online at ibeg.org by the name Banking-India
3
This article was published online at tejas.iimb.ac.in by the name History of Indian banking

Certain trends like growing competition, product innovation and branding, focus on
strengthening risk management systems, emphasis on technology have emerged in the
recent past. In addition, the impact of the Basel II norms is going to be expensive for Indian
banks, with the need for additional capital requirement and costly database creation and
maintenance processes. Larger banks would have a relative advantage with the
incorporation of the norms
Article by forbes magazine (2018)4
The Indian government has privatised very few public sector enterprises over the years.
However, some of the sectors it has opened up for private participation have been taken
over by private companies. Airlines and telecom are the two best examples. Air India now
has around 12.3 percent of the domestic market share. And the best days of BSNL and
MTNL, both government-owned telecom companies, are behind them.
The larger point is that even though the government did not privatise the public sector
companies in these sectors, the sectors themselves have more or less been privatised.
Something similar is now happening in banking. While the government refuses to

privatise any of the 21 public sector banks (PSBs), the sector is gradually being taken
over by private banks. Table 1 shows the total outstanding loans of PSBs and private
banks, and tells us the following:
Outstanding PSB loans have barely grown in the last four years, indicating that they are
not resorting to too much new lending.
In contrast, outstanding loans of private banks have grown at a good pace in the last four
years.The ratio of outstanding loans of private banks to that of PSBs was 28.9 percent in
2014-2015, and 46.7 percent by 2017-2018. This means private banks are cornering a
bigger chunk of the overall market, every year. The table, however, does not bring out the
4
The author is a writer at easy money trilogy and the article was published in forbes magazine

gravity of change that is taking place.

Table 2 lists the total loans given by banks during the course of a year, over the last three
financial years. It shows that in each of the years, private banks have lent much more
money—3.2 times more in 2017-18—than their public sector counterparts. The Reserve
Bank of India has placed 11 of the 21 PSBs under the preventive corrective action
framework, thus affecting their lending operations. Besides, private banks, in particular
the nine new generation ones, have seen the weak state of PSBs and taken advantage of
it. In 2017-2018, PSBs lent ₹1,40,118 crore. In comparison, new generation private banks
lent ₹3,75,445 crore, more than double the amount.
What is happening with loans is also happening with deposits, because banks cannot lend
without raising deposits. Table 3 lists the total deposits raised by public and private banks
in the last three fiscals. In two of the last three fiscals, private banks raised more fixed
deposits than PSBs; 2016-2017 was an anomaly, as demonetisation saw much more
money come into PSBs than usual. Higher deposits at private banks also show that
depositors have started to recognise that PSBs are precariously placed.
As of March 31, 2018, bad loans of PSBs amounted to ₹8,95,601 crore, or 86.5 percent of
the total bad loans of banks; 15.6 percent of PSBs loans have been defaulted upon.
Who loses out in all this? The government, which means you and me. An estimate by
Care Ratings suggests that between April 2013 and March 2018, the government invested
₹1,70,659 crore in PSBs to keep them going, and has budgeted ₹65,000 crore for this
fiscal.
As private banks gain market share, the stock prices of PSBs will be hit in the long-term
(not that they haven’t been already), causing further losses to the government.
This article appeared in the Business section of the print edition under the headline
"India’s shadow-banking crisis" (2018) When narendra modi was elected prime minister
of India in 2014, his plan was to revive its gdp growth rate back to the near- double-digit
figures seen in the mid-2000s. Few would have guessed that the biggest threat to that goal
was the financial industry. For several years state-run banks have failed

to get to grips with a $100bn mountain of dud loans. Now panic has seized parts of the
privately run system. One bank boss says the situation is as bad as the Asian crisis of 1998
or the global crash of 2008.
In September il&fs, a financial firm that owns and finances roads and power plants,
defaulted on some of its $13bn of debt. The contagion has struck India’s shadow banks,
which rely on $250bn-300bn of borrowing to fund themselves. Their market value has
collapsed by a median of 40% this year. A bitter row about how to respond has erupted
between the government and the Reserve Bank of India (rbi), the largely independent
central bank. Over a billion people depend on an emergency being avoided.
India’s financial system has both Chinese and American characteristics; it faces a blend of
a slow-motion banking crisis at government-run lenders, plus a high-speed liquidity run of
the kind that hit Wall Street in 2008. That the industry has taken on a hybrid character over
time reflects the conflicting aims of the forces that shaped it. The state wants pliant banks,
ready to lend to the rural poor and to infrastructure projects, and that will buy government
bonds. The rbi emphasises stability, so is paranoid about wheeler- dealers taking risks or
ripping off the vulnerable. Entrepreneurs want capital and to start financial-services firms
themselves. And consumers want loans and whizzy new banking technologies.
About half the system, measured by loans, consists of state-run banks. They are usually
listed but the government appoints their top brass and often influences them to disastrous
effect. Another 25% comes from private banks; some of which are among Asia’s best-run
lenders—hdfcBank and Kotak trade on about four times their book value, compared with
below one times for the zombie state banks. The other quarter is from a motley crew of 50-
odd shadow banks that have expanded quickly. They are less heavily regulated and lend in
particular areas such as housing. They are usually prohibited from taking deposits so fund
themselves with debt. Last, there are innovative digital firms, such as Paytm, a mobile-
payments firm. Overall, the system straddles the 19th and 21st centuries, featuring
subsiding bank branches protected from the monsoon by tarpaulins, but also virtual mobile
chatbots.

The present troubles have their roots in 2005-12, when state banks went on a lending
bender, extending credit to dubious tycoons and to infrastructure projects. Net bad debts
are 9% of state banks’ loan books. The government has not properly recapitalised these
zombies and the flow of credit from them has slowed. Accidents keep happening. In
February pnb, the second-biggest state lender, disclosed a $2bn fraud involving diamond
merchants.
A second phase began after 2012. Between 2012 and 2017 more capital flowed into India
than flowed out. In 2015 interest rates began to fall and in November 2016 the government
replaced the stock of bank notes overnight, leading savers to switch from physical money
into deposits with banks, and into debt mutual funds. Flush with cash, and with rates low,
they looked for ways to lend the money out again and part of the answer was to fund the
shadow banks, which went on a binge—the top 50 have doubled their debts and assets in
the past five years. Perhaps as much as $50bn-100bn of their debts comes due within 12
months.
Borrowing short and lending long is a high-stakes game. After the il&fscollapse,
confidence has evaporated. The group has 348 opaque subsidiaries, including India’s
longest tunnel. It has now been taken over by the government, which indirectly owned 40%
of it. Mutual funds and banks are reluctant to lend to other shadow banks—most report
solid capital ratios, but can anyone be sure they do not have time-bombs buried in their
balance-sheets? For weeks the shadow banks have faced a liquidity crunch.
They are big enough to damage India’s entire financial system. Mutual funds, which are
sold to the public, have $55bn of exposure to them, or 11% of total assets under
management. Conventional banks have loaned $70bn to shadow banks, the equivalent of
two-fifths of the former’s core capital. Among private lenders the mood is already jittery:
icici’s boss has just departed after claims of conflicts of interest (which she denies). Yes
Bank is replacing its boss after the rbi refused to approve an extension of his term. Even if
a full crisis does not erupt shadow banks may be forced to shrink. When combined with the
rotten state banks, that would mean that 75% of India’s financial system is on crutches.

Bazooka time
A sell-off in global markets could easily trigger a new wave of panic. The government,
facing a general election next year, wants the central bank to lend more freely to the shadow
banks. But the rbi does not want to reward failure and has so far injected liquidity only
indirectly, by buying government bonds and allowing banks to guarantee some new bonds
issued by shadow banks. It blames the government for its endless meddling in state-run
lenders and for its failure to recapitalise them, despite years of warning signs.
In the short term the government is right—unless the liquidity squeeze abates soon, the
central bank will need to set aside its natural reluctance and act boldly. In the long term the
rbi is right. A “big bang” reform is needed to privatise the state banks and extract them
from the government’s tight grip. India also must end the regulatory arbitrage that allows
shadow banks to raise most of their funds from retail investors and deposit-taking banks.
Either shadow lenders should come out of the dark and be turned into banks, or a firewall
will have to be erected around them to protect the rest of banking. And if India does not get
its financial system back on its feet, the economy will not grow fast. It is that simple.
This article appeared in the Business section of the print edition under the headline
"India’s shadow-banking crisis"

Article by David Bergeron (2017)5
The Chinese and Indian economies have grown rapidly over the past decade. In China, this
growth has been fueled by a dramatic expansion of credit, up from 140 percent of GDP in
2008 to 260 percent today. Credit has also expanded in India during the past decade, but it
started from such a low base that private-sector debt is now only 86 percent of GDP – less
than half the average of advanced economies.
Given this difference, you might expect Chinese banks to be struggling with bad debt while
Indian banks enjoy the stability that comes with slow credit expansion. In fact, things are
the other way around. Many commentators suspect that the official non- performing loan
ratio of 1.7 percent understates the true extent of bad debt in China. A serious credit crisis
may be looming in China.
9.6% — India’s official non-performing loan ratio
But a credit crisis has already emerged in India, where the official non-performing loan ratio
is 9.6 percent and the ratio of “stressed assets,” which also includes restructured loans, is 14
percent. Even at the height of the global financial crisis, non-performing loan ratios in
Greece, Portugal, and Italy did not reach this level.
Article by kpmg(2012)
The Indian banking sector has seen unprecedented growth along with remarkable
improvement in its quality of assets and efficiency since economic liberalisation began in
the early 1990s.
5
David Bergeron is a Mumbai-based partner and Amit Deshpande is a Mumbai-based principal in Oliver
Wyman’s Financial Services practice. Wolfram Hedrich is the Singapore-based executive director of Marsh
& McLennan Companies’ Asia Pacific Risk Center. This article was published online at olieweryman.com

From providing plain vanilla banking services, banks have gradually transformed
themselves into universal banks. ATMs, Internet banking, mobile banking and social
banking have made "anytime anywhere banking" the norm now.
In 2011/12, non-cash payments comprised 91 per cent of total transactions in terms of

value and 48 per cent in terms of volume. Within noncash payments, too, the share of
payments through cheques has come down from 85 per cent to nine per cent in value, and
83 per cent to 52 per cent in volume between 2005/06 and 2011/12.
non-cash payments comprised 91 per cent of value and 48 per cent of volume of total
transactions
Banks have taken other measures to improve their functioning, too. As a result, there
were 20 Indian banks in the UK-based Brand Finance's annual international ranking of
top 500 in 2010, as compared to only six in 2007, according to a report in a leading
financial daily.
The growth is not restricted to the metropolitan or urban areas. Financial inclusion has
been at the forefront of regulators and policy makers in India, a country where
approximately half of the population still does not have access to banking services. There
have been occasions when banks have acted beyond their role of finance providers.
For example, a financial daily reported that Aryavart Gramin Bank, a regional rural bank
sponsored by Bank of India, tied up with Tata BP Solar to finance "Solar Home Lighting
System" for village homes in Uttar Pradesh. It extended finance of around Rs 10,000 with
Rs 3,000 as margin money to be contributed by the beneficiary.
The equated monthly installment towards the repayment of the loan amount was less than
the amount the villagers had to spend on kerosene requirements per month. The bank's
initiative resulted in 20,000 houses getting solar power. It also meant an annual saving of
about 192 tanker loads of kerosene.

India's banking system was probably one of the few large banking systems which
remained unscathed by the 2008 global financial crisis. However, there is a lot more to be
done to make it a truly worldclass sector.
Some of the key developments which could shape the future are:
Basel III:
India figures among the very few countries which have issued final guidelines on Basel
III implementation so far. The Reserve Bank of India has given five years for the gradual
achievement of Basel III global banking standard. But it seems a tall order for many
banks. The challenges of implementing Basel III are further accentuated by the fact that
the law mandates the Central government to hold a majority share in public sector banks
(PSBs), which control more than 70 per cent of the banking business in India. Further, the
high fiscal deficit is likely to limit the government's ability to infuse capital in the PSBs
to meet Basel III guidelines, which will require approximately Rs 4.05 trillion to Rs 4.25
trillion over the next five to six years. (One trillion equals to Rs 100,000 crore.) The high
capital requirement will also add pressure on return of equity of banks.
New banks:
banks of the future will need to understand the tech-savvy gen-y customers and design
products accordingly
Although there has been little progress on the draft norms for issuing new banking
licences, the entry of new banks could have a significant impact on the Indian banking
system. Given the huge unbanked population, there is surely a scope for more banks .
Foreign banks:
RBI has been keen on allowing foreign banks a larger role in the Indian banking system

since February 2005, when it first issued the road map for presence of foreign banks in
India. In May 2012, the government also facilitated the process by proposing to exempt
foreign banks from the 30 per cent tax on capital gains and stamp duty while converting
branches into a new entity. RBI has also mandated foreign banks with 20 and more
branches to achieve priority sector targets and sub-targets at par with their domestic
counterparts.
Developing corporate bond markets:

Developing corporate bond markets is an important link in a well developed financial
market. Although the government has taken some steps in this direction, a lot more needs
to be done.
Unique Identification (UID) project:

Among the many initiatives, the government's UID project is likely to have significant
impact. Given the numbers out of the reach of organised banking, it can prove to be
transformational by giving banks an access to a large untapped customer base. The whole
range of government payments - under subsidies and benefits of various welfare schemes
- will be routed through banks.
Given the significant overlap between various sub-sectors, the Financial Sector
Legislative Reforms Commission, headed by former Justice B.N. Srikrishna, in its
approach paper, had suggested large scale consolidation. This is expected to lead to
reduced intermediation cost, benefit from the economies of scale and consistent treatment
across sub-sectors.
"The future belongs to those who prepare for it today," goes a famous quote. The changes
in the banking landscape will require banks to also adapt to their new environment.
Banks of the future will have to be nimble and lean organisations with technology

integrated to support a sustainable and scalable business.
They will need to have a flexible organisational structure with decentralised decision
making to reduce turnaround time for various processes. This will be especially true
when a number of new entities including non-banking finance companies (NBFCs), large
corporate houses and microfinance institutions (MFIs) get banking licences.
In order to serve potential customers in unbanked areas, banks should be willing to

experiment with various business models to build a scalable and profitable business.
Technology resources will have to be shared to reduce cost.
At the same time, banks of the future will need to understand the technology-savvy Gen-
Y customers and design products accordingly. Banks will have to deploy the majority of
their employees in sales and marketing roles to cross-sell services to existing customers.
There will be an increased demand for skilled personnel from other disciplines. Banks
will have to use data analytics tools to gain insights from their existing customers' data to
increase their business and customer loyalty. One of the prominent ingredients for the
success of a bank will be its ability to partner with multiple agencies to increase its
business .
The Indian banking landscape is expected to evolve to have regional as well as national
players. Except for a few large banks having pan-India presence, many of the mid and
small banks will specialise in certain functions/regions in diverse markets.
Rather than every bank trying to carry out all the banking functions throughout the
country, banks are likely to identify their core competencies and build on those. A bank
that avoids "one-size-fits-all products", acts as a knowledge banker, provides all financial
needs at a click, is fundamentally strong, manages risk and adheres to global regulations,

harness iOS and Android platforms to the fullest, design better, faster and convenient
delivery channels will no doubt be called a successful bank.
Kailash M (2012)- 6
The paper compares public and private sector banks in Vijayawada city using
SERVQUAL model. The findings revealed that private sector banks have good services to
customers and they retained customers by providing better facilities. The study finds out
importance of new products andservices for banks for retaining customers.
Kumbhar, Vijay (2011)-7
It examined the relationship between the demographics and customers’
satisfaction in internet banking,. It also found out relationship between service quality and
customers’satisfaction as well as satisfaction in internet banking service provided by the
public sector bank andprivate sector banks. The study found out that overall satisfaction of
employees, businessmen andprofessionals are higher in internet banking service. Also it
was found that there is significant difference in the customers’ perception in internet
banking services provided by the public and privates sector banks.
Padhy P K and B N Swar(2009)-8
the paper investigated role of technology in banking and its impact on perceived service
quality in public, private and foreign banks in Orissa using a s ample size of
6
This article was published in a magazine named shodganga
7
This article was published in a magazine named shodganga
8 This article was published in a magazine named shodganga

300customers. Foreign bank was found to be very close to expectations of customers

followed by ICICI and AXIS. Service quality in public sector banks was found to be very
low
Rod et al(2009)-9
The study focused on relationship between service quality, overall internet banking service
quality and customer satisfaction. The study found out that online customer
service quality and online information systems were significantly and positively related to
overall customer internet banking service quality. Overall internet banking service quality
and customer satisfaction were positively correlated
Sureshchandar et al(2002).- The study examined relationship between service quality and
customer satisfaction in Indian banking sector. These were found to be independent but
closely related. Both constructs vary significantly in core services ,human element,
systematization of service delivery, tangibles and social responsibility.
9 This article was published in a magazine named shodganga

Chapter 4
Analysis and Interpretation
1)Age
Category Numbers
Below 20 12
20-30 34
Middle age 3
Senior citizen 1
4.1 Age group
40
35
30
25
20
15
10
0
below 20 20-30 middle age senior citizen

The sample includes people mainly from the age group between 20 to 30. The sample
also includes decent amount of people from age group below 20
There were 12 people who were of the age group below 20
34 people belong to age group between 20 to 30
The sample also contained 3 people of middle age and one senior citizen
2)Qualifications
Category Numbers
Post Graduate 3
Graduate 22
Under Graduate 24
Other 1
4.2 Qualification

30
25
20
15
10
0
Post graduate graduate undergraduate other
The sample contains mainly people from graduate and undergraduate criteria .The sample
also include people who holds post graduation degree .
3) Do you have bank account?
Category Numbers
Yes 50
No 0
4.3 Bank account

yes
no
0 10 20 30 40 50 60
The moto of this question was to ensure that the sample have banking knowledge and they
have a bank account. In return was 100 percent for people holding bank account. This
clearly shows that all 50 people in the sample have bank account and are a part of Indian
banking system
4) Account in which bank?
Category Numbers
SBI 9
UNION 6
HDFC 7

AXIS 7
OTHER 21
4.4 Account in which bank
25
20
15
10
0
SBI HDFC Union Axis others
This question was just to know the preference of sample people for bank . In response we
got that people are diversified in terms of banks they use . Clearly no bank had dominated
the survey response and we got mixed responses .
In general we have 9 people with SBI account , 6 people have account in hdfc, 7 people
had union bank account and similarly 7 people had Axis bank accounts . Rest 21 people in
sample had different bank accounts. Clearly no bank had dominated in people’s choice.
5) According to you which bank is the oldest and still existing bank of India?

Category Numbers
SBI 31
Bank of Baroda 7
Bank of India 10
HDFC 1
Other 1
4.5 Oldest and existing bank
35
30
25
20
15
10
0
Sbi Bank of Bank of India hdfc others
baroda
The main aim of this question was to know whether people have knowledge about the
history of Indian banking sector. The oldest and still existing bank is SBI and majority of
the sample were correct with the response. More than 50 percent people opted for SBI. In
total 31 people gave the response to be SBI.

6) Do you believe nationalization and privatization helped Indian banking sector to grow
and develop?
Category Numbers
Strongly Disagree 1
Disagree 4
Neutral 18
Agree 18
Strongly Agree 9
4.6 Impact of Nationalization and Privatization

20
18
16
14
12
10
8
6
4
2
Strongly Disagree Neutral Agree Strongly agree

disagree
Nationalization is the process of transforming private assets into public assets by bringing
them under the public ownership a national government or state. Privatization can mean
different things including moving something from the public sector into the private sector.
The aim of the question was to find out people’s responses over the nationalization and
privatization of Indian banking sector . Most people were neutral on this opinion and as
same were just agreed to the point. We didn’t had strong responses for agreeing or
disagreeing on the point. 18 people were neutral with the point and also 18 people just
agreed to the point.
7) Scale According to which sector is more preferable in terms of loans and risk associated
Where 5 being most favoured and 1 being least favoured
4.7 Risk and security associated

Category 1 2 3 4 5
Private 3 12 22 10 3
sector
bank
Public 9 4 12 16 9
sector
bank
Private 12 10 16 8 4
Lenders
Co- 5 16 20 6 2
operative
Bank
Foreign 10 9 14 13 4
Bank
25
20
1
15
2
3
10
4
5 5
0
Private sector Public sector Private Co-operative Foreign banks
bank bank Lenders bank
This question aims to know people’s response for the favour of the bank preference sector
when it comes to taking up loan and risk associated with it . We scaled the responses from
1 to5 where 5 being the most favoured and 1 being the least favoured . The sample had to
rate each sector on the basis of their preference.

For private sector bank we got maximum rating of 3 from the sample. 22 people gave 3
rating to Private sector bank
For private sector we got 4 as maximum rating from the sample .16 people gave 4 rating
to public sector bank.
For private lenders we got maximum rating of 3 from the sample. 16 people gave 3 rating
to private lenders
For Co-operative bank we got maximum rating of 3. 20 people gave 3 rating to Co-
operative bank.
For Foreign bank we got maximum rating of 3 and 14 people gave 3 rating to Foreign
banks
So In general public sector had better ratings then other .
8) Do you believe Rbi plays important role in development of Indian banking sector?
Category Numbers
Strongly Disagree 3
Disagree 0
Neutral 4

Agree 24
Strongly Agree 18
4.8 Role of RBI
30
25
20
15
10
0
Strongly Disagree Neutral Agree Strongly agree
disgaree
This question was to know people’s view of RBI’s involvement with the banking system.
As we know Rbi is like the controller of the Indian banking system and is very vital element
of Indian banking system. To the responses 25 people strongly agreed to the point that Rbi
involves in growth and development of Indian banking system and 18 people strongly
agreed to the point . To the conclusion we agreed to the point that RBI involves in the
growth and development of Indian banking sector.
9) Are you aware of rtgs facility provided by bank?
Category Numbers
Yes 36

No 14
4.9 Aware of RTGS
yes
no
0 5 10 15 20 25 30 35 40
The moto of this question was to know whether the sample people know about the facilities
provided by the bank . One of this facility is rtgs. Real Time Gross Settlement (RTGS)
is an electronic form of funds transfer where the transmission takes place on a real time
basis. In India, transfer of funds with RTGS is done for high value transactions, the
minimum amount being Rs 2 lakh. The beneficiary account receives the funds transferred,
on a real time basis. In response we got that majority of the sample people knowing about
the rtgs facility. In total 36 people opted yes that they know about the rtgs facility provided
by the bank and 14 people gave negative response.
10) Have you ever used rtgs facility?
Category Numbers

Yes 26
No 24
4.10 Use of Rtgs
yes
no
23 23.5 24 24.5 25 25.5 26 26.5
Knowing about a facility and using it as actually two different things. In response we got
that only 56% sample people use rtgs facility. This clearly states that majority of people
know about the facility but all of them don’t use the rtgs facility. 26 out of 50 people uses
rtgs facility provided by bank
11) Have you heard of neft facility provided by bank?
Category Numbers
Yes 44

No 6
4.11 Aware of Neft
no
yes
0 10 20 30 40 50
This is also one of the facilities provided by bank. National Electronic Fund Transfer is an
Indian system of electronic transfer of money from one bank or bank branch to another.
The banks or their branches that support such transactions have to participate in neft
network. In response we got that majority of sample people knows about the neft facility.
46 out of 50 people knows about the neft facility.
12) Have you used neft facility?
Category Numbers
Yes 38

No 12
4.12 Use of Neft
40
35
30
25
20
15
10
0
yes no
In rtgs we got the response that majority of sample people knows about the rtgs facility but
don’t use it but in case of neft majority people knows about the neft facility and also uses
it .Thus neft is more common to the sample people when compared with the rtgs facility.
In response we got that 38 people out of 50 uses neft facility .
13) How often you use neft amd rtgs facility?
Category RTGS NEFT
Rarely 11 10
Often 12 16
Very often 7 12

Nil 20 12
4.13 How often use of Neft and rtgs
25
20
15 rarely
often
10 very often
nil
rtgs neft
After this the sample was asked about the frequency of using rtgs and neft facilities .
So In response we got that rtgs facility is rarely used by the sample public. We even had
samples which never used the rtgs facility
In case of neft we found out that the sample public often use neft facility. Majority of the
sample people responded that they often use neft facility
When compared rtgs facility with neft we found that the sample people use more of neft
facility then the rtgs facility.
14) Do you use online banking facility?

Category Numbers
Yes 48
No 2
4.14 Use of Internet facility
50
40
30
20
10
yes
no
This question was asked to know wheter the sample people have used the recent
developments of Indian banking sector that is of online banking. In response we got that
majority of people have used online facilities provided by the bank. 48 out of 50 people
are known to use online facilities from the sample people. This shows that majority of
sample people uses online facilities.
15) How satisfied are you while using online facility?

Category Numbers
Very Satisfied 20
22
Satisfied
Neutral 6
Dissatisfied 0
Very Dissatified 2
4.15 Satisfaction on using Internet facility

25
20
15
10
0
Very satisfied Satisfied Neutral Dissatisfied Very
dissatisfied
The aim of this question was to know the sample response over the use of internet facilities.
In response we found out that most of the sample were satisfied with the use of internet
facilities. Out of 50,22 people were satisfied with the use of internet services and 20 people
were very satisfied with the services.
16) Do you believe online banking is risky?
Category Numbers
Yes 9
No 19
Maybe 22
4.16 Risk in Online facility

25
20
15
10
0
yes no maybe
17) Do you believe online facility has reduced your travel to banks?
Category Numbers
Strongly Disagree 1
Disagree 1
Neutral 10
Agree 18
Strongly Agree 20
4.17 Online facility has reduced travel to bank

20
18
16
14
12
10
8
6
2
0
Strongly Disagree Neutral Agree Strongly
disagree agree
This question was put up with the aim to find out whether the facilities have actually eased
the banking sector to which we found out that majority of sample people strongly agree
that online facilities have reduced their travel to bank .
18) Do you believe Indian banking system were effective during demonetization period?
Category Numbers
Yes 18
No 10
Maybe 22
4.18 Capability of Indian banks during demonitization

25
20
15
10
0
Yes
No
Maybe
The aim of this question was to find out whether the people believe that our Indian banking
sector is strong enough to deal with changes and adapt to situation to which we found out
a mixed review . The sample public is not sure about their choice and can’t take decision
on this question.

Chapter 5
Conclusion
Indian banking sector has a long history. The oldest and still existing bank is the State
Bank of India. Banking systems have been with us for as long as people have been using
money. Banks and other financial institutions provide security for individuals, businesses
and governments, alike. In general, what banks do is pretty easy to figure out. For the
average person banks accept deposits, make loans, provide a safe place for money and
valuables, and act as payment agents between merchants and banks.
Banks are quite important to the economy and are involved in such economic activities as
issuing money, settling payments, credit intermediation, maturity transformation and
money creation in the form of fractional reserve banking.
To make money, banks use deposits and whole sale deposits, share equity and fees and
interest from debt, loans and consumer lending, such as credit cards and bank fees.
In addition to fees and loans, banks are also involved in various other types of lending
and operations including, buy/hold securities, non-interest income, insurance and leasing
and payment treasury services.
History has proven banks to be vulnerable to many risks, however, including credit,
liquidity, market, operating, interesting rate and legal risks. Many global crises have been
the result of such vulnerabilities and this has led to the strict regulation of state and
national banks. The history of Indian banking sector is back till the Mughal and the
Colonial era .
The first steps in growth of Indian banking sector lies in nationalization and
liberalization of the Indian banking sector . Nationalizing of Indian banking sector lead

Government of more credit delivery and moreover increased investment in the Indian
banks. Liberalization lead to more foreign investment in the Indian banking sector.
Later on many other development also arised in the Indian banking sector such as use of
internet facilities , theft protection and use of UPI which eased the use of banking facility.
However, other financial institutions exist that are not restricted by such regulations.
Such institutions include: savings and loans, credit unions, investment and merchant
banks, shadow banks, Islamic banks and industrial banks.

Chapter 6
Recommendation
Today, banks play an important role in the payment and settlement system of financial
transactions. The introduction of liberalisation measures in the banking sector and the
emergence of new private sector and foreign banks equipped with latest technology, led to
an increase in competition in the banking sector. Technology up gradation is taking place
in public sector banks PSBs in a phased manner. Computerisation is increasingly being
applied in day to day deposits and loan operations, but the pace at which it has moved so
far, has been somewhat limited. Moreover, there is a need for computerisation in a large
number of areas of operations of banks, with customer service as the main focus.
To further upgrade the existing technology in the banking sector and also to suggest
measures for implementation, the Reserve Bank appointed a Committee on Technology
Up gradation in the Banking Sector. The Committee in its report, submitted in July 1999,
recommended a new legislation on electronic-funds- transfer system to facilitate multiple
payment systems to be set up by banks and financial institutions.
The major recommendation are
1. Communication infrastructure and usage of INFINET:

The approach that could be considered for improving the effectiveness of VSAT network
aim at enhancing the transponder capacity to the extent feasible and the number of out
routes as the demand grows. For both inter-bank and intra-bank applications, it is necessary
to have an application architecture keeping in mind that the INFINET backbone network
will be VSAT based.

2. Standardisation and Security:

i. There should be an appropriate institutional arrangement for key management and
authentication by way of a certification agency. RBI may consider appointing IDRBT as
the certification agency for security management.
ii. Banks should adopt widely used standard of cryptography procedures to prevent data
tamper during transmission.
iii. The technology should be allowed to evolve into standard-based solutions for multi-
vendor heterogeneous environment working co-operatively and collectively for EFTPOS,
including the debit, credit and smart cards based operations.
3. Computerisation of Government Transactions:

i. There is a need to computerise all branches of banks dealing with government
transactions.
ii. The computerisation of government departments should be synchronised with the

computerisation of bank branches dealing with government transactions.
iii. All PAOs/Circle offices should be computerised not later than March 31, 2001 and
DDO/Treasury offices before March 31, 2002 in alignment with the computerisation of
FPBs and dealing branches.
4. Data Warehousing, Data Mining and Management Information System:

i. A robust MIS founded on data warehousing and data mining at individual bank level is
essential for implementing various regulatory guidelines including the latest one on ALM.
ii. A Task Force may be set up by IBA to explore feasible methodology for working out a
unique identification system for individual customer data bases at banks.

5. Legal Framework for Electronic Banking:

i. The Reserve Bank may promote amendment to the Reserve Bank of India Act, 1934 and
assume the regulatory and supervisory powers on payment and settlement systems.
Simultaneously, the RBI may promote a new legislation on Electronic Funds Transfer
System to facilitate multiple payment system, to be set up for banks and financial
institutions.
ii. The RBI and IBA should pursue with the Department of Telecommunications (DoT)/
other competent authorities to permit encryption of data files/messages transmitted through
communication channels for facilitating easier access to remotely located branches to the
INFINET network.
6. Other
Banks may choose the branches and areas of operation where they have already introduced
a certain degree of automation and computerisation and review the systems and procedures
in these branches/areas to adapt them to the technology that is newly introduced.
ii. The newly established private banks which have the advantage of starting with the latest
technology from the very beginning, should take up the process of re-engineering in right
earnest.
iii. Each bank should chalk out a time-bound programme, synchronising with the level of
computerisation being planned by it, stemming from the directions of the top management.
7. Issues Relating to Human Resource Development:

Education of staff on IT should be given due importance. The training establishments of
the banks should be strengthened with adequate personnel and other infrastructure
facilities, to impart necessary IT training to all levels о staff.

8. Sharing of Experiences on Technology Implementation:

The meetings of CPPD Chiefs should be sufficiently frequent enough to be effective.
Meetings by the IBA for this purpose, once in two months would be useful.
Chapter 6
Annexure
Questionnaire
Questionnaire
1) Age
a) below 20
b) 20-30
c) Middle age
d) Senior citizen
2)Qualification
a) Post graduate
b) Graduate
c) Undergraduate
d) Other
3) Do you have bank account?
a) yes

b) no
4) Account in which bank?
a)SBI
b) HDFC
c) Union
D)Axis
E)other
5) According to you which bank is the oldest and still existing bank of India?
a) SBI
b) Bank of Baroda
c)Bank of India
d)HDFC
e)other
6) Do you believe nationalization and privatization helped Indian banking sector to grow
and develop?
a) Strongly Disagree
b) Disagree
c) Neutral
d) Agree
e) Strongly agree

7) Scale According to which sector is more preferable in terms of loans and risk
associated
Where 5 being most favoured and 1 being least favoured
a) Private sector bank

b) Public sector bank
c) Private lenders
d) Co-operative bank
e) Foreign bank
8)Do you believe Rbi plays important role in development of Indian banking sector?
b) Disagree
c) Neutral
d) Agree
e) Strongly agree
9)Are you aware of rtgs facility provided by bank?
a) yes
b) no
10) Have you ever used rtgs facility?
a) yes
b) no
11) Have you heard of neft facility provided by bank?
a) yes

b) no
12) Have you used neft facility?
a) yes
b) no
13) How often you use neft amd rtgs facility?
a) Rarely
b) often
c) Very often
d) Nil
14) Do you use online banking facility?
a) yes
b) no
15) How satisfied are you while using online facility?
a) Very satisfied
b) Satisfied
c) Neutral
d) Disatisfied
e) Very dissatisfied
16) Do you believe online banking is risky?
a) yes
b) no

c) maybe
17) Do you believe online facility has reduced your travel to banks?
b) Disagree
c) Neutral
d) Agree
e) Strongly agree
18) Do you believe Indian banking system were effective during demonetization period?
a) yes
b) no
c) maybe

List of tables
Table no. Table Page no.

4.1 Age group 51
4.2 Qualification 53
4.3 Account exist 54
4.4 Account in which bank 55
4.5 Oldest and existing bank 56
4.6 Impact of Nationalization and Privatization 57
4.7 Risk and securities 59
4.8 Role of RBI 61
4.9 Aware of RTGS 62
4.10 Use of RTGS 63
4.11 Aware of NEFT 64
4.12 Use of NEFT 65
4.13 How often use of RTGS and NEFT 66
4.14 Use of online banking facility 67
4.15 Satisfaction in using online facility 69
4.16 Risk in online banking 70
4.17 Online facility decrease bank travel 71
4.18 Where banks effective during demonetization 72
Chart no. Chart Page no.

4.1 Age group 52
4.2 Qualification 53
4.3 Account exist 54

4.4 Account in which bank 55

4.5 Oldest and existing bank 57
4.6 Impact of Nationalization and Privatization 58
4.7 Risk and securities 60
4.8 Role of RBI 62
4.9 Aware of RTGS 63
4.10 Use of RTGS 64
4.11 Aware of NEFT 65
4.12 Use of NEFT 66
4.13 How often use of RTGS and NEFT 67
4.14 Use of online banking facility 68
4.15 Satisfaction in using online facility 69
4.16 Risk in online banking 70
4.17 Online facility decrease bank travel 71
4.18 Where banks effective during demonetization 72

BIBLIOGRAPHY
http://www.icmrindia.org
http://www.cxotoday.com
http://www.ey.com
https://link.springer.com
http://shodh.inflibnet.ac.in:8080/jspui/bitstream/123456789/304/3/03_literature%20revie
w.pdf
https://www.mckinsey.com/featured-insights/india/mastering-the-new-realities-of-indias-
banking-sector
https://www.ibef.org/industry/banking-india.aspx
http://tejas.iimb.ac.in/articles/01.php
https://www.businesstoday.in/magazine/special/best-banks-2012-indian-banking-
challenges/story/189858.html
http://www.forbesindia.com/article/column/banking-sector-a-private-affair/51021/1
https://www.economist.com/business/2018/11/08/indias-banking-system-is-flirting-with-
a-lehman-moment 8 th november 2018

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Growth and Development of Indian banking sector

T.Y.B.M.S (SEMESTER VI)

H.R. COLLEGE OF COMMERCE AND ECONOMICS

1 H.R. College of Commerce and Economics

“GROWTH AND DEVELOPMENT OF INDIAN BANKING SECTOR”

H.R. COLLEGE OF COMMERCE AND ECONOMICS

2 H.R. College of Commerce and Economics

3 H.R. College of Commerce and Economics

4 H.R. College of Commerce and Economics

Place: H.R. College,Mumbai

NAME:- Prabal Jotwani

5 H.R. College of Commerce and Economics

SR. No. PARTICULARS Pg..

2.1.2 Types of research 33

2.5 Sampling Unit 43

2.7 Significance of Study 44

2.8 Scope and Limitations 44

111 CHAPTER III: LITREATURE REVIEW 45

6 H.R. College of Commerce and Economics

7 H.R. College of Commerce and Economics

8 H.R. College of Commerce and Economics

1.1.1) Ancient India

9 H.R. College of Commerce and Economics

1.1.2) Medieval era

1.1.3) Colonial era

10 H.R. College of Commerce and Economics

11 H.R. College of Commerce and Economics

Number of banks Authorised Capital Paid-up Capital

1914 42 710 109

12 H.R. College of Commerce and Economics

1.1.5) Nationalisation in the 1969

13 H.R. College of Commerce and Economics

List of Banks Nationalised in 1969

1.1.6) Nationalisation in the 1980

14 H.R. College of Commerce and Economics

List of Banks nationalised in 1980

• Punjab and Sind bank

1.1.7) Liberalisation in the 1990s

15 H.R. College of Commerce and Economics

16 H.R. College of Commerce and Economics

Pradhan Mantri Jan Dhan Yojana is a scheme for comprehensive financial

There are six payments banks

1. Aditya Birla Idea Payments Bank Ltd.

17 H.R. College of Commerce and Economics

5. Jio Payments Bank Ltd.

Small finance banks

There are ten small finance banks

1. AU Small Finance Bank Ltd.

18 H.R. College of Commerce and Economics

1.3.0) STRUCTURE OF INDIAN BANKING

Reserve Bank of India (RBI)

Scheduled & Non –scheduled Banks

Scheduled Commercial Banks (SCBs):

19 H.R. College of Commerce and Economics

Types of Scheduled Commercial Banks

Public Sector Banks

Private Sector Banks

Regional Rural Banks

20 H.R. College of Commerce and Economics

Type of Major Shareholders Major Players

Public Sector Government of India SBI, PNB, Canara Bank, Bank of

Private Sector Private Individuals ICICI Bank, HDFC Bank, Axis