INDIAN BANKING SECTOR

 BY Siddhant Jain
 Siddhant_jain_ind@yahoo.co.in

 9595637843
HISTORY OF BANKING SECTOR
 Developed during the British era.
 British East India Company established three
banks.
 Bank of Bengal- 1809
 Bank of Bombay- 1840
 Bank of Madras – 1843
 These three banks were later amalgamated and
called Imperial Bank
 Taken over by State Bank of India in 1955
 The Reserve Bank Of India was established in
1935
 Followed by Punjab National Bank, Bank Of
India, Canara Bank and Indian Bank.
 In 1969, 14 major banks were nationalized and
in 1980, 6 major private sector banks were
taken over by the government.
TYPES OF BANKS

 Central Bank
 The Reserve Bank of India
 Public Sector Banks
 State Bank of India and its associate banks called
the State Bank Group.
 20 nationalized banks.

 Regional rural banks mainly sponsored by public

sector banks.
 Private Sector Banks
 Private Banks
 Foreign banks operating in India.
 Scheduled co-operative banks.
 Non-scheduled banks

 Co-operative Sector
The co-operative sector is very much useful for rural
people.
 State co-operative Banks
 Central co-operative banks
 Primary Agriculture Credit Societies
 Development Banks/Financial Institutions
 IFCI
 IDBI
 ICICI
 IIBI
 NABARD
 Export Import Bank of India
 National Housing Bank
LIST OF PRIVATE SECTOR BANKS
 Bank of Punjab
 Bank of Rajasthan
 Catholic Syrian Bank
 Centurion Bank
 City Union Bank
 Dhanalakshmi Bank
 Development Credit Bank
 Federal Bank
 HDFC Bank
 ICICI Bank
 IndusInd Bank
 ING Vysya Bank
 Jammu & Kashmir Bank
 Karnataka Bank
 Karur Vysya Bank
 Laxmi Vilas Bank
 South Indian Bank
 United Western Bank
 UTI Bank
LIST OF PUBLIC SECTOR BANKS
 Allahabad Bank
 Andhra Bank
 Bank of Baroda
 Bank of India
 Bank of Maharastra
 Canara Bank
 Central Bank of India
 Corporation Bank
 Dena Bank
 IDBI Bank
 Indian Bank
 Indian Overseas Bank
 Oriental Bank of Commerce
 Punjab & Sind Bank
 Punjab National Bank
 Syndicate Bank
 UCO Bank
 Union Bank of India
 United Bank of India
 Vijaya Bank
CO-OPERATIVE BANKS IN INDIA

 Cooperative banks in India finance rural areas

under:
 Farming

 Cattle

 Milk

 Hatchery

 Personal Finance
COOPERATIVE BANKS IN INDIA FINANCE URBAN
AREAS UNDER:
 Self-employment
 Industries

 Small scale units

 Home Finance

 Consumer finance

 Personal finance
FOREIGN BANKS IN INDIA
 ABN-AMRO Bank
 Abu Dhabi Commercial Bank
 Bank of Ceylon
 BNP Paribas Bank
 Citi Bank
 China Trust Commercial Bank
 Deutsche Bank
 HSBC
 JPMorgan Chase Bank
 Standard Chartered Bank
 Scotia Bank
 Taib Bank
UPCOMING FOREIGN BANKS IN INDIA

 Royal Bank of Scotland

 Switzerland's UBS

 US-based GE Capital

 Credit Suisse Group

 Industrial and Commercial Bank of China

REGIONAL RURAL BANKS

 Haryana State Cooperative Apex Bank Limited

 NABARD
 National Bank for Agriculture and Rural
Development.
 Sindhanur Urban Souharda Co-operative Bank
 United Bank of India
RBI

Central Bank of the Country

Established on April 1, 1934
Dr Duvuri Subbarao
(The current governor)
PREAMBLE

“To regulate issue of Bank notes, to keep the

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”
ROLE OF RESERVE BANK

1. Issue of Notes
2. Banker, Agent and advisor to the government
3. Banker’s Bank & Lender of Last Resort
4. Custodian of Foreign Exchange Reserves
5. Regulation of Banking System
6. Clearing House Functions
7. Credit control
 RE RECENT ACTIONS

 Re- introduction of interest rates futures in Sep-

2009
 License to S.A. “First Rand Bank”
 Bank Rate, Repo Rate, Reverse Repo Rate, Cash
Reserve Ratio kept unchanged. Statutory Liquidity
Ratio restored to 25%
 RBI to launch plastic Rs 10 currency shortly
IMPORTANCE OF RBI GUIDELINES

As per law, the RBI Guidelines are statutory

and mandatory.
The violations of same by banks constitute an
important defense for the borrowers and
guarantors.
BIRTHDAY PARTY
 PLATINUM JUBILEE
CELEBRATIONS

Outreach program in the country :

“to create awareness among villagers about banking and
its benefits.”
 Khopi Village nr Pune
 Hunder Village (18,380 fts) nr Siachen base camp
RBI’S ROLE INCREASINGLY ACQUIRING AN
INTERNATIONAL DIMENSION

 Important international institutions promoting

effective regulatory structures and financial
stability consult RBI
 Member of International Committees
- Bank for International Settlements (BIS)
- Committee on Global Financial System, the Markets
Committee, and the International Liaison Group under the
aegis of the Basel Committee on Banking Supervision
(BCBS)
- Financial Stability Forum and the BCBS
 Global crisis insulation:

 Dr Reddy did not succumb to pressures for

full convertibility and opening up banking
sector
 Limited vulnerability to sub prime and
complex debt obligations
 Confidence level high for inter-banking
lending market

“THE GLOBAL BACKDROP HAS NOT AFFECTED INDIA MUCH, REGULATORS WERE QUICK IN
RESPONDING TO THE CRISIS.”- CHIEF EXECUTIVE OF INDIAN BANKS ASSOCIATION
EVOLUTION OF INDIAN BANKING
HISTORY OF BANKING IN INDIA

 The first bank in India was established in 1786.

From 1786 till today it has gone through three
distinct phases
 Phase1: Early phase from 1786 to 1969
 Phase2: Nationalization of Indian Banks and up
to 1991prior to Indian banking reforms
 Phase3: New phase of Indian Banking system
with the advent of the Indian Financial Banking
sector reforms after 1991
PHASE 1

 The General Bank of India was established in

1786. Then came the Bank of Hindustan and
Bengal Bank. The East India company established
Bank of Bengal (1809), Bank of Bombay (1840),
Bank of Madras (1843) and these banks called as
Presidency Bank. These three banks were
amalgamated in 1920 and named as the Imperial
Bank of India, which was started as the as the
private shareholder bank mostly European
shareholder .
PHASE1 (CONT……)
 In 1865 Allahabad Bank was established and first time
exclusively by Indians, Punjab National Bank Ltd was
setup in 1894 with headquarter in Lahore. Between
1906 to 1913 many banks were established namely
Canara bank, Central bank, Bank of India, Bank of
Baroda, Indian Bank, Bank of Mysore were established.
There were approximately 1100 banks mostly small was
established.
 To streamline the banks and to gain control over the
banks Govt. of India came up with The Banking
Companies Act in 1949 which was later changed to
Banking Regulation Act 1949.
PHASE2

 Govt. took some major steps to bring reforms in

the Indian banking sector after independence.
In 1955, it nationalized The Imperial Bank of
India with extensive banking facilities on a large
scale especially in rural and Semi-urban areas.
It form SBI to act as the principal agent of RBI.
 In 1969 late Prime Minister Mrs. Indira Gandhi
nationalized 14 commercial banks.
PHASE2 (CONT……)
 In 1980 seven more banks were nationalized which brings
around 80% banks under the control of Govt. Govt. took the
following steps:-
 1949: Enactment of Banking Regulation Act
 1955: Nationalization of SBI
 1959: Nationalization of SBI Subsidiaries
 1961: Insurance cover extended to deposits
 1969:Nationalization of 14 commercial banks
 1971:Creation of credit guarantee corporation
 1975:Creation of Regional Rural Banks (RRB)
 1980:Nationalization of banks with deposits over 200 crore
PHASE3

 This phase brought many more facilities in the

banking sector. In 1991, under the
chairmanship of Mr. M Narasimham, a
committee was set up which work for the
liberalization of banks in India
 During this country is flooded with the Foreign
banks and ATMs. Phone Baking and Net
banking was introduced
BEGINNING OF MODERN BANKING IN INDIA

 In 1786, English Agency House had established

The General Bank of India. This was the
beginning of the modern banking in India.
PRE- INDEPENDENCE

 On the eve of independence in 1947 there

were 648 commercial banks comprising of 97
scheduled and 551 non-scheduled banks.
 The number of banks office stood at 2,987,
total deposit at Rs 100,800 million and
advances Rs 4750 million.
RBI

 RBI (Reserve Bank of India) came into

existence in 1935 as the central banking
authority of India with a share capital of Rs 5
crores on the basis of recommendation of
Hilton Young Commission. RBI was nationalized
in 1949.
BANKING DEVELOPMENT: PRE-NATIONALIZATION

 Credit was excessively skewed in favor of large

borrowers
 Agriculture Sector got only 2% of total bank
credit
 Features with the goal of achieving the
equitable allocation of credit and relative
priorities set out in the five years plan
NATIONALIZATION OF BANKS

 In July 1969 Govt. of India nationalized 14

major scheduled commercial banks, each
having the minimum deposit of Rs 500 million.
RATIONAL FOR NATIONALIZATION

 Removal of control of few large Industrial and

Business houses
 Provision for adequate credit for Agriculture,
Small Industries, exports etc
 Giving Professional bent to management

 Encouraging a new class of entrepreneurs

 Change over from class banking to mass

banking
IMPACT OF NATIONALIZATION

 Unprecedented growth in the branch network of

the commercial banks
 Rapid growth in deposit mobilization and
expansion of credit
 However commercial banks faces decline in
profitability
Directed lending and less flexibility
Increase cost of operations
FORMATION OF REGIONAL RURAL BANKS

 Formation of Regional Rural Banks under the

act of RRB 1976
 These are state sponsored, Region based,
Rural based, Rural oriented, commercial banks
 Under this approach 196 RRBs were setup
BANKING PRODUCTS
 Net banking
 Loans
 Certificate of deposits
 Commercial papers
 Non convertible debentures
 Interest rates swaps
 Forward rate agreements
 Option contract
 Currency swap
 ICICI Bank has launched `Global Indian Credit Card' for NRIs.
 Bank of Rajasthan (BoR) has launched international credit card
operations in December 2005.
 Investment Advisory Service
 SGL accounts
 Cash management services
BANKING REFORMS
NEED OF REFORMS
 Greater inclusion
 To protect the public sector banking system
 To meet the international standards
 To enhance efficiency and productivity through
competition
 Lack of technological levels in operation
 To maintain high transparency
 High NPA’s
PROCESSES OF REFORMS

 On all important issues, workings group are

constituted or technical reports are prepared
 Resource Management Discussions meetings
are held by the RBI with select commercial
banks, prior to the policy announcements
 To form a Technical Advisory Committee on
Money, Foreign Exchange and Government
Securities Markets (TAC)
CONT…

 High Level Co-ordination Committee on

Financial and Capital Markets
 Placing draft versions of important guidelines
for comments of the public at large before
finalisation of the guidelines
 To align the regulatory framework with
international best practices
BASEL REFORMS

 Basel I reforms:
- Focus on credit risk

 Basel II reforms:
- Minimum capital requirements
- Supervisory review process
- Market discipline
NARSIMHAM COMMITTEE I (1991)

 Reduction of SLR and CRR

 Minimum Capital Adequacy Ratio

 Prudential norms

 Disclosure norms

 Rationalization of foreign operations in India

 Special tribunals and Asset Reconstruction

fund
CONT…

 Reduction of government stake in PSB’s

 Deregulation of interest rates
NARSIMHAM COMMITTEE II

 Focus on technological upgradation in Banking

sector
 Mergers of banks need to be encouraged

 Reorganizing of banks into global, national and

regional banks
 Autonomy of banks

 Capital Adequacy requirement

HOW HAS THE REFORMS HELPED??

 Lendable efficiency of banks have increased

 Have met international standards

 Return on Assets of the banks rose from 0.4

per cent in the year 1991-92 to 1.2 per cent in
2003-04
 The business per employee for public sector
banks more than doubled
 MANAGEMENT
PERSPECTIVES

CORPORATE MERGERS & SERVICE

GOVERNANCE ACQUISTIONS INNOVATIONS
PERSONAL BANKING NRI BANKING BUSINESS BANKING

DEPOSITS MONEY TRANSFER CORPORATE NET BANKING

LOANS REMITTANCES CASH MANAGEMENT

CARDS INVESTMENTS TRADE SERVICES

CAR/HEALTH INSURANCE PROPERTY SOLUTIONS SME SERVICES

WEALTH MANAGEMENT INSURANCE ONLINE TAXES

DEMAT A/C CUSTODIAL SERVICES

LATEST TRENDS OF ICICI

 MOBILE BANKING
 INTERNET BANKING

 ICICI I-ZONE

 TV BANKING
MERGERS & ACQUISITIONS

 JP MORGAN MERGER WITH CHASE

MANHATTAN
 HDFC ACQUIRING CENTURION BANK OF
PUNJAB
 PRIOR TO THIS MERGER CENTURION BANK
HAD MERGED WITH BANK OF PUNJAB
 ICICI BANK ACQUIRING BANK OF MADURA
 PREMIER BANKS PROVIDING CUSTOMISED
SOLUTIONS

 HSBC PREMIER
 AXIS PRIORITY

 ICICI PERSONAL

 HDFC PRIVATE

 BANK OF BARODA PERSONAL

BT –KPMG BANK RANKINGS 2009

Based on 26 parameters consisting of three

broad categories

 Growth
 Size

 Strength
INDIA’S BEST BANKS
1. Axis Bank
2. Bank of India
3. Punjab National Bank
4. Bank of Baroda
5. HDFC Bank
6. Indian Bank
7. Federal Bank
8. Corporation Bank
9. Union Bank of India
10. Citibank
INDIA’S BEST BANKS
The Mid-Size Chartbusters
(Balance Sheet size less than 24000 crore and more than 10 branches)
1. YES Bank
2. Karur Vysya Bank
3. Dhanalakshmi Bank
4. City Union Bank
5. The Nanital Bank
6. Karnataka Bank
7. Ratnakar Bank
8. South Indian Bank
9. Lakshmi Vilas Bank
10. Bank of Rajasthan
INDIA’S BEST BANKS
The Small Wonders
(Balance Sheet size 3000 crore or less and 10 or less branches)
1. DBS Bank
2. JPMorgan Chase Bank
3. Scotia Bank
4. Barclays Bank
5. Bank of America
6. Deutsche Bank
7. Calyon Bank
8. BNP Paribus
INITIATIVES TAKEN BY GOVERNMENT

 National Electronic Clearing Service (NECS) :

the core banking solutions
 Reduction in the Reserve Bank's policy rates
and easy liquidity conditions
 Cutting down of repo and reverse repo rates

 Tax free cash withdrawals from banks

 Inter-ATM usage transaction

CHALLENGES
 Globalisation
 Enhancement of customer service: demand for new products,
particularly derivatives
 Application of technology

 Implementation of Basel II

 Implementation of new accounting standards

 Compliance with KYC aspects

 Interest rate risk

 Interest rates and non-performing assets

 Competition in retail banking
 The urge to merge
TRENDS
 Banks funding innovation
 Proxy banking: Tapping the rural market
 New banking correspondents
 Regional banks going national
 Consolidation of banks and financial players
 Outsourcing business to cut costs
 Credit Card business growing in spite of downturn
 Retail banks to change models from credit base to
deposit base
 Financial deepening and financial inclusion
THE FUTURE

 Linking of mobile, Uid and payments without

the need of a bank account
Thank you!!