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Banking in India

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

History
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Puducherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. 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 1895, 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 Mutiny, 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 capitalized 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 Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

Nationalization
Nationalization, also spelled nationalisation, is the process of taking an industry or assets into government ownership by a national government or state.[1] Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being transferred to the public sector to be operated by or owned by the state. The opposite of nationalization is usually privatization or de-nationalization, but may also be municipalization. A renationalization occurs when state-owned assets are privatized and later nationalized again, often when a different political party or faction is in power. A renationalization process may also be called reverse privatization. Nationalization has been used to refer to either direct stateownership and management of an enterprise or to a government acquiring a large controlling share of a nominally private, publicly listed corporation.[citation needed] The motives for nationalization are political as well as economic. It is a central theme of certain fascist and/or 'state socialist' policies that the means of production, distribution and exchange, should be owned by the state on behalf of the citizenry to allow for centrally planned allocation of output, consolidation of resources, and central planning or control of the economy. Many socialists believe that public ownership enables people to exercise full democratic control over the means whereby they earn their living and provides an effective means of distributing output to benefit the public at large, and a means for providing public finance. Nationalized industries, charged with operating in the public interest, may be under strong political and social pressures to give much more attention to externalities. They may be obliged to operate some loss making activities where social benefits are clearly greater than social costs for example, rural postal and transport services. As an instance, the United States Postal

Service is guaranteed its nationalised status by the Constitution. The government has recognized these social obligations and, in some cases, provides subsidies for such non-commercial operations. Since the nationalised industries are state owned, the government is responsible for meeting any debts incurred by these industries. The nationalized industries do not normally borrow from the domestic market other than for short-term borrowing. However, if they are profitable, the profit is often used as a means to finance other state services, such as social programs and government research which can help lower the tax burden. Nationalization may occur with or without compensation to the former owners. If it takes place without compensation it is a case of expropriation. Nationalization is distinguished from property redistribution in that the government retains control of nationalized property. Some nationalizations take place when a government seizes property acquired illegally. For example, the French government seized the car-makers Renault because its owners had collaborated with the Nazi occupiers of France.

Compensation
A key issue in nationalization is payment of compensation to the former owner. The most controversial nationalizations, known as expropriations, are those where no compensation, or an amount far below the likely market value of the nationalized assets, is paid. Many nationalizations through expropriation have come after revolutions, in particular marxist revolutions. The traditional Western stance on compensation was expressed by United States Secretary of State Cordell Hull, during the 1938 Mexican nationalization of the petroleum industry, that compensation should be "prompt, effective and adequate." According to this view, the nationalizing state is obligated under international law to pay the deprived party the full value of the property taken. The opposing position has been taken mainly by developing countries, claiming that the question of compensation should be left entirely up to the sovereign state, in line with the Calvo Doctrine. Communist states have held that no compensation is due, based on socialist disregard for the notion of property rights. In 1962, the United Nations General Assembly adopted Resolution 1803, "Permanent Sovereignty over National Resources", which states that in the event of nationalization, the owner "shall be paid appropriate compensation in accordance with international law." In doing so, the UN rejected both the traditional Calvo-doctrinist view and the Communist view. The term "appropriate compensation" represents a compromise between the traditional views, taking into account the need of developing countries to pursue reform even without the ability to pay full compensation, and the Western concern for protection of private property. When nationalizing a large business, the cost of compensation is so great that many legal nationalizations have happened when firms of national importance run close to bankruptcy and can be acquired by the government for little or no money. A classic example is the UK nationalization of the British Leyland Motor Corporation. At other times, governments have

considered it important to gain control of institutions of strategic economic importance, such as banks or railways, or of important industries struggling economically. The case of Rolls-Royce plc, nationalized in 1971, is an interesting blend of these two arguments. This policy was sometimes known as ensuring government control of the "commanding heights" of the economy, to enable it to manage the economy better in terms of long-term development and medium-term stability. The extent of this policy declined in the 1980s and 1990s as governments increasingly privatized industries that had been nationalized, replacing their strategic economic influence with use of the tax system and of interest rates. Nonetheless, national and local governments have seen the advantage of keeping key strategic assets in institutions that are not strongly profit-driven and can raise funds outside the publicsector constraints, but still retain some public accountability. Examples from the last five years in the United Kingdom include the vesting of the British railway infrastructure firm Railtrack in the not-for-profit company Network Rail, and the divestment of much council housing stock to "arms-length management companies", often with mutual status.

Notable nationalizations by country


India

The nationalised banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007-2009.[5][6]

1949 (1 January) Reserve Bank of India nationalised (Ref.- Reserve Bank of India chronology of events). The Reserve Bank of India was state-owned at the time of Indian independence. 1953 Air India under the Air Corporations Act 1953. 1955 Imperial Bank of India and its subsidiaries (State Bank of India and its subsidiaries) 1969 Nationalization of 14 Indian banks. 1973 Coal industry and Oil companies 1980 Another six banks nationalized

Argentina

1918 University Revolution and university nationalization 2009 Aerolneas Argentinas renationalization

Australia

1948 The Australian government attempted to nationalize the banks, but the act was declared unconstitutional by the High Court of Australia in the case Bank of New South Wales v Commonwealth.[2]

Canada

1918 Canadian National Railways, created from several systems nationwide following their bankruptcy during and after World War I, and since privatized. (Air Canada, Canadian Broadcasting Corporation, Marine Atlantic and Via Rail were all subsidiaries of the company at one time) 1944 Hydro-Qubec, first created through partial nationalization of electricity concerns around Montreal in Quebec by the Liberal government of Adlard Godbout. During the Quiet Revolution of the early 1960s, the remaining 11 privately owned electricity companies in Quebec were nationalized by the Liberal government of Jean Lesage. 1975 Potash Corporation of Saskatchewan, Province of Saskatchewan nationalized part of the potash industry. Many potash producers agreed to sell to the government instead of being nationalized. 1975 Pierre Trudeau's Liberal government passes Petro-Canada Act, establishing a Crownowned corporation to develop and protect Canada's presence in the oil industry.

Chile

1972 Chilean nationalization of copper mining industry by the government of Salvador Allende.

France

Nationalization in France dates back to the 'regies' or state monopolies first organized under the Ancien Rgime, for example, the monopoly on tobacco sales. Communications companies France Telecom and La Poste are relics of the state postal and telecommunications monopolies. There was a major expansion of the nationalised sector following World War II.[4] A second wave followed in 1982.

1938 Societe Nationale des Chemins de Fer Francais (SNCF) (originally a 51% State holding, increased to 100% in 1982)[4] 1945 Several nationalizations in France, including most important banks and Renault.[4] The firm was seized for Louis Renault's alleged collaboration with Nazi Germany, although this condemnation was without judgement and after his death, making this case remarkable and rare. A later judgement (1949) admitted that Renault's plant never collaborated. Renault was successful but unprofitable whilst nationalised and remains successful today, after having been privatized in 1996. 1946 Charbonnages de France, Electricite de France (EdF), Gaz de France (GdF) 1982 A large part of the banking sector and industries of strategic importance to the state, especially in electronics and communications, were nationalized under the new president Franois Mitterrand and the PS-led government. Many of those companies were privatized again after 1986.

The Paris regional transport operator, Regie Autonome des Transports Parisiens (RATP), can also be counted as a nationalised industry.

Germany

The German railways were nationalised after World War I. Partial privatisation of Deutsche Bahn is currently underway, as of 2008. Most enterprises in East Germany were nationalised following World War II. After reunification, an agency, Treuhand, was established to return them to private ownership. However, due to structural and economic problems inherent in the previous regime, many of these had to be liquidated.

2008 Renationalization of the "Bundesdruckerei" (Federal Print Office), which had been privatized in 2001.

Italy

1905 The Italian railways were nationalised as Ferrovie dello Stato.

The regime of Benito Mussolini extended nationalisation, creating the Istituto per la Ricostruzione Industriale (IRI) as a State holding company for struggling firms, including the car maker Alfa Romeo. A parallel body, Ente Nazionale Idrocarburi (Eni) was set up to manage State oil and gas interests.
Japan

1906 Railway Nationalization Act of Japan nationalized 17 railway companies to form the nationwide railway network that was later called Japanese National Railways.

New Zealand

2001 Central government purchased the Auckland railway network from Tranz Rail. 2003 The Labour Government of New Zealand took an 80% stake in near-bankrupt national air carrier Air New Zealand in exchange for a large financial infusion. 2004 The rest of the country's rail network is purchased from Toll New Zealand, formerly known as Tranz Rail. A new state owned enterprise, ONTRACK, was established to maintain the rail infrastructure. 2008 The rolling stock of Toll New Zealand was purchased by central government, bringing the rail system under total state ownership and renamed KiwiRail.

Pakistan

1972 On January 2, 1972, Zulfiqar Ali Bhutto, after the fall of East Pakistan, announced the nationalisation of all major industries, including iron and steel, heavy engineering, heavy electricals, petrochemicals, cement and public utilities.[11] .

Sri Lanka

1958 The Government nationalised Bus transport (creating the Ceylon Transport Board). The Colombo Port was also nationalised the same year. 1961 The local subsidiaries of the foreign owned petroleum companies, Caltex, Esso and Shell had formed a cartel, to break which they were nationalised. The Insurance companies and the Bank of Ceylon were also nationalised in the same year. 1971 Graphite mines nationalised. 1972 Locally owned Tea and Rubber plantations were nationalised under the Land Reform law. 1975 Sterling plantation companies (owned by British plantation companies) were nationalised. 2009 Seylan Bank nationalised to prevent its collapse.

United Kingdom

The following companies/industries were the subject of nationalisation in the given year:

1868 Nationalisation of inland telegraphs under the GPO[16] 1875 Suez Canal Company - The Egyptian share in the company was bought out by the British Government. 1912 Nationalisation of inland telephone services under the GPO, apart from Portsmouth, Hull, Guernsey, and Jersey. The Portsmouth telephone service was nationalised the following year. 1916 Liquor Trade - The nationalisation of pubs and breweries in Carlisle, Gretna, Cromarty and Enfield under the State Management Scheme; mainly an attempt to restricting alcohol consumption by armaments factory workers. The scheme was privatised by asset transfer in 1973.[17] 1926 Central Electricity Board introduced under The Electricity (Supply) Act 1926 established the National Grid and set up a national standard for electricity supply in the UK. 1927 British Broadcasting Company (a privately owned company) became British Broadcasting Corporation (BBC), a public corporation operating under a Royal Charter. 1933 London Transport 1938 Nationalisation of UK Coal Royalties under the Coal Commission[18] 1939 British Overseas Airways Corporation (BOAC) later to become British Airways (BA) combining the private British Airways Ltd. and the state owned Imperial Airways 1939 At the outset of World War II, much of British industry was subjected to State regulation or control, although not nationalised as such. 1943 North of Scotland Hydro-Electricity Board 1946 Coal industry under the National Coal Board (later British Coal); Bank of England - the latter had had private shareholders who were bought out by the state. 1947 Central Electricity Generating Board and area electricity boards, Cable & Wireless Ltd - the latter had had private shareholders who were bought out by the state. 1948 National rail, inland (not marine) water transport, some road haulage, some road passenger transport and Thomas Cook & Son under the British Transport Commission. Separate elements operated as British Railways, British Road Services, and British Waterways, also national health services created (as England and Wales, for Scotland and for Northern Ireland) taking over a mixture of previously local authority, private commercial and charitable organisations. 1949 Local authority gas supply undertakings in England, Scotland and Wales

1951 Iron and Steel Industry (denationalised by the following Conservative Government)[19] 1967 British Steel 1969 National Bus Company, combining former interests of the British Transport Commission with others acquired from the British Electric Traction group. 1969 Post Office Corporation created 1971 Rolls-Royce (1971) Ltd - The strategically important aero-engine part of the recently bankrupt Rolls Royce Limited. 1973 Local authority water supply undertakings in England and Wales 1973 British Gas plc Corporation created, replacing regional gas boards. 1974 British Petroleum - the combination of a 50% stake bought by Winston Churchill as First Lord of the Admiralty after World War I with around a 25% stake acquired by the Bank of England from Burmah Oil made the UK Government directly or indirectly BP's majority shareholder, though commercial independence was maintained. The shares were all sold during the 1980s. 1975 National Enterprise Board - a State holding company for full or partial ownership of industrial undertakings 1976 British Leyland Motor Corporation - became British Leyland upon nationalization. Privatized in 1986 to British Aerospace. 1977 British Aerospace - combining the major aircraft companies British Aircraft Corporation, Hawker Siddeley and others. British Shipbuilders - combining the major shipbuilding companies including Cammell Laird, Govan Shipbuilders, Swan Hunter, Yarrow Shipbuilders 1981 British Telecom created, taking control of telecommunications services from the Post Office 1984 Johnson Matthey - purchased for a nominal sum of 1 by the Thatcher government [20] 1997 Docklands Light Railway - John Prescott announced to the 1997 Labour Party Conference that he had nationalised this, although it was already in public hands anyway.[20] 2001 Railtrack - The owner and operator of the railway infrastructure, Railtrack, was not nationalised as such. However, its replacement Network Rail, whilst not a state-owned company, has no shareholders (company limited by guarantee) and is underwritten by the state. In addition prior to this the government began to make use of a residual shareholding of 0.2% (including voting rights) in Railtrack Group Plc leftover from the original sale.[21] 2008 Northern Rock - announced by Alistair Darling, Chancellor of the Exchequer on 17 February 2008 as 'a temporary measure'. The bank will be run at 'arms length' as a commercial business and sold to a private buyer in the future.[22] 2008 Bradford & Bingley (mortgage book only) - announced by Alistair Darling, Chancellor of the Exchequer on 29 September 2008. The loans part of the company was nationalised, while the commercial bank was sold off.[23] 2008 In October, the Royal Bank of Scotland, and the newly merged HBOS-Lloyds TSB was partly nationalised. The Government took over approximately 60% of RBS (later increased to 70%, then 80%) and 40% of HBOS-Lloyds TSB. This is part of the 500bn bank rescue package. 2009 On 13 November, Directly Operated Railways, a government company, took over the East Coast Main Line railway franchise that National Express had bought in 2007 for 1.4 billion, a sum originally to be paid over 7 years. The nationalised service operates as East Coast and includes services from London to York and Edinburgh. It has been stated by the government that their control is a temporary measure, initially to last 2 years.

State Bank of India


State Bank of India (SBI) (NSE: SBIN, BSE: 500112, LSE: SBID) is the largest Indian banking and financial services company (by turnover and total assets) with its headquarters in Mumbai, India. It is state-owned. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two presidency banks, Bank of Calcutta and Bank of Bombay to form Imperial Bank of India, which in turn became State Bank of India. The government of India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI provides a range of banking products through its vast network of branches in India and overseas, including products aimed at non-resident Indians (NRIs). The State Bank Group, with over 16,000 branches, has the largest banking branch network in India. SBI has 14 Local Head Offices and 57 Zonal Offices that are located at important cities throughout the country. It also has around 130 branches overseas. With an asset base of $352 billion and $285 billion in deposits, SBI is a regional banking behemoth and is one of the largest financial institution in the world. It has a market share among Indian commercial banks of about 20% in deposits and loans.[2] The State Bank of India is the 29th most reputed company in the world according to Forbes.[3] Also SBI is the only bank featured in the coveted "top 10 brands of India" list in an annual survey conducted by Brand Finance and The Economic Times in 2010.[4] The State Bank of India is the largest of the Big Four banks of India, along with ICICI Bank, Punjab National Bank and HDFC Bankits main competitors.[5] The roots of the State Bank of India rest in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies and were the result of the royal charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and the reorganised banking entity took as its name: Imperial Bank of India. The Imperial Bank of India remained a joint stock company Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955, the Imperial Bank of India became the State Bank of India. The government of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority.

In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, enabling the State Bank of India to take over eight former state-associated banks as its subsidiaries. On 13 September 2008, the State Bank of Saurashtra, one of its associate banks, merged with the State Bank of India. SBI has acquired local banks in rescues. For instance, in 1985, it acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already had an extensive network in Kerala

International presence

The Israeli branch of the State Bank of India located in Ramat Gan.

As of 31 December 2009, the bank had 157 overseas offices spread over 32 countries. It has branches of the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Tehran, Johannesburg, London, Los Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo. It has offshore banking units in the Bahamas, Bahrain, and Singapore, and representative offices in Bhutan and Cape Town. It also has an ADB in Boston, USA. SBI operates several foreign subsidiaries or affiliates. In 1990, it established an offshore bank: State Bank of India (Mauritius). In 1982, the bank established a subsidiary, State Bank of India (California), which now has ten branches nine branches in the state of California and one in Washington, D.C. The 10th branch was opened in Fremont, California on 28 March 2011. The other eight branches in California are located in Los Angeles, Artesia, San Jose, Canoga Park, Fresno, San Diego, Tustin and Bakersfield. The Canadian subsidiary, State Bank of India (Canada) also dates to 1982. It has seven branches, four in the Toronto area and three in British Columbia. In Nigeria, SBI operates as INMB Bank. This bank began in 1981 as the Indo-Nigerian Merchant Bank and received permission in 2002 to commence retail banking. It now has five branches in Nigeria. In Nepal, SBI owns 55% of Nepal SBI Bank, which has branches throughout the country. In Moscow, SBI owns 60% of Commercial Bank of India, with Canara Bank owning the rest. In Indonesia, it owns 76% of PT Bank Indo Monex.

The State Bank of India already has a branch in Shanghai and plans to open one in Tianjin.[6] In Kenya, State Bank of India owns 76% of Giro Commercial Bank, which it acquired for US$8 million in October 2005.[7]

[edit] Associate banks

Main Branch of SBI at Mumbai.

SBI has five associate banks; all use the same logo of a blue circle and all the associates use the "State Bank of" name, followed by the regional headquarters' name;

State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore

Earlier SBI had only seven associate banks that constituted the State Bank Group. Originally, the then seven banks that became the associate banks belonged to princely states until the government nationalised them between October 1959 and May 1960. In tune with the first Five Year Plan, emphasising the development of rural India, the government integrated these banks into the State Bank of India system to expand its rural outreach. There has been a proposal to merge all the associate banks into SBI to create a "mega bank" and streamline operations.[8] The first step towards unification occurred on 13 August 2008 when State Bank of Saurashtra merged with SBI, reducing the number of state banks from seven to six. Then on 19 June 2009 the SBI board approved the merger of its subsidiary, State Bank of Indore, with itself. SBI holds 98.3% in State Bank of Indore. (Individuals who held the shares prior to its takeover by the government hold the balance of 1.77%.)[9]

The acquisition of State Bank of Indore added 470 branches to SBI's existing network of 12,448 and over 21,000 ATMs. Also, following the acquisition, SBI's total assets will inch very close to the Rs 10-lakh crore mark. Total assets of SBI and the State Bank of Indore stood at Rs 998,119 crore as on March 2009. The process of merging of State Bank of Indore was completed by April 2010, and the SBI Indore Branches started functioning as SBI branches on 26 August 2010.[10]

State Bank of India Mumbai LHO.

[edit] Branches of SBI


State Bank of India has 137 foreign offices in 32 countries across the globe. SBI has about 25,000 ATMs (25,000th ATM was inaugurated by the then Chairman of State Bank Shri O.P. Bhatt on 31 March 2011, the day of his retirement); and SBI group(including associate banks) has about 45,000 ATMs. SBI has 21,500 branches, including branches that belong to its associate banks. SBI includes 99345 offices in India. India's number one ADB is in bellary i e State bank of India bellary ADB

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Nationalisation
Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be 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 nationalization of the banking industry. Indira Gandhi, 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 Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969.

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. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, 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 nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Non-banking financial company


Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license. These institutions are not allowed to take deposits from the public. Nonetheless, all operations of these institutions are still exercised under bank regulation.[1] However this depends on the jurisdiction, as in some jurisdictions, such as New Zealand, any company can do the business of banking, and there are no banking licenses issued

Services provided
NBFCs offer all sorts of banking services, such as loans and credit facilities, private education funding, retirement planning, trading in money markets, underwriting stocks and shares, TFCs and other obligations. These institutions also provide wealth management such as managing portfolios of stocks and shares, discounting services e.g. discounting of instruments and advice on merger and acquisition activities. The number of non-banking financial companies has expanded greatly in the last several years as venture capital companies, retail and industrial companies have entered the lending business. Non-bank institutions also frequently support investments in property and prepare feasibility, market or industry studies for companies. However they are typically not allowed to take deposits from the general public and have to find other means of funding their operations such as issuing debt instruments

Regulation
For European NCs the Payment Services Directive (PSD) is a regulatory initiative from the European Commission to regulate payment services and payment service providers throughout the European Union (EU) and European Economic Area (EEA). The PSD describes which type of organisations can provide payment services in Europe (credit institutions (i.e. banks) and certain authorities (e.g. Central Banks, government bodies), Electronic Money Institutions (EMI), and also creates the new category of Payment Institutions). Organisations that are not credit institutions or EMI, can apply for an authorisation as Payment Institution in any EU country of their URL choice (where they are established) and then passport their payment services into other Member States across the EU.nbfc is basically for those people who want better service in short period of time

Classification
Depending upon their nature of activities, non- banking finance companies can be classified into the following categories:
1. 2. 3. 4. 5. 6. 7. 8. Development finance institutions Leasing companies Investment companies Modaraba companies House finance companies Venture capital companies Discount & guarantee houses Corporate development companies

Banking in India
From Wikipedia, the free encyclopedia Jump to: navigation, search

Structure of the organised banking sector in India. Number of banks are in brackets.

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

Contents
[hide]

1 History 2 Post-Independence 3 Nationalisation 4 Liberalisation 5 Further reading 6 References 7 External links

[edit] History
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Puducherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. 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 1895, 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 Mutiny, 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 capitalized 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 Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing 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". 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:
Years Number of banks Authorised capital Paid-up Capital that failed (Rs. Lakhs) (Rs. Lakhs) 274 710 56 231 76 209 35 109 5 4 25 1

1913 12 1914 42 1915 11 1916 13 1917 9 1918 7

[edit] Post-Independence
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing 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 into 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 nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in] 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.

[edit] Nationalisation

Banks Nationalisation in India: Newspaper Clipping, Times of India, July, 20, 1969

Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be 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 nationalization of the banking industry. Indira Gandhi, 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 Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. 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. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, 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 nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

[edit] Liberalisation
In the early 1990s, the then Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation techsavvy 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, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized 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 the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which 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 not just demanded more from their banks but also received more. Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of 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. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true. 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 connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.[1][2][3]dsggiph indian

Central Board of Directors

The Central Board of Directors is the main committee of the central bank. The Government of India appoints the directors for a four-year term. The Board consists of a governor, four deputy governors, four directors to represent the regional boards, and ten other directors from various fields.
[edit] Governors

The central bank till now was governed by 21 governors. The 22nd, Current Governor of Reserve Bank of India is Dr Subbarao
[edit] Supportive bodies

The Reserve Bank of India has four regional representations: North in New Delhi, South in Chennai, East in Kolkata and West in Mumbai. The representations are formed by five members, appointed for four years by the central government and serve - beside the advice of the Central Board of Directors - as a forum for regional banks and to deal with delegated tasks from the central board.[23] The institution has 22 regional offices. The Board of Financial Supervision (BFS), formed in November 1994, serves as a CCBD committee to control the financial institutions. It has four members, appointed for two years, and takes measures to strength the role of statutory auditors in the financial sector, external monitoring and internal controlling systems. The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S S Tarapore to "lay the road map" to capital account convertibility. The five-member committee recommended a three-year time frame for complete convertibility by 1999-2000. On 1 July 2006, in an attempt to enhance the quality of customer service and strengthen the grievance redressal mechanism, the Reserve Bank of India constituted a new department Customer Service Department (CSD).
[edit] Offices and branches

The Reserve Bank of India has 4 regional offices,15 branches and 5 sub-offices.[24] It has 22 branch offices at most state capitals and at a few major cities in India. Few of them are located in Ahmedabad, Bangalore, Bhopal, Bhubaneswar, Chandigarh, Chennai, Delhi, Guwahati, Hyderabad, Jaipur, Jammu, Kanpur, Kolkata, Lucknow, Mumbai, Nagpur, Patna, and Thiruvananthapuram. Besides it has sub-offices at Agartala, Dehradun, Gangtok, Kochi, Panaji, Raipur, Ranchi, Shimla and Srinagar. The bank has also two training colleges for its officers, viz. Reserve Bank Staff College at Chennai and College of Agricultural Banking at Pune. There are also four Zonal Training Centres at Belapur, Chennai, Kolkata and New Delhi.

Private banks in India score over public sector banks

New Delhi: The private sector banks have made tremendous strides in the last few years. It was in mid 1990's when Indian banking scenario witnessed the entry of some new private sector banks and in the period between 2002 -2007 these banks have grown by leaps and bounds. They have increased their incomes, asset sizes and outperformed their public sector counterparts in many areas.

This growth was accompanied by a rapid branch expansion. The network of private sector bank grew at almost three times of all scheduled commercial banks and more than four times that of public sector banks (refer to the table below). The star performers among these banks were the Centurion Bank of Punjab (CBoP), HDFC Bank, ICICI Bank, and the Axis Bank (formerly UTI Bank). These big four expanded their branch network at a rapid rate of 14-16 percent per annum in terms of compound growth rates. Another trend in the banking sector during this period was the increase in staff strength by private sector banks, while the public sector banks witnessed a decline in the number of employees. The private sector banks recorded a compounded growth of 24% in their staff strength. The decline in public sector bank staff can be attributed to restructuring and adoption of IT infrastructure. Private sector recorded a growth ranging from 30% to 68% in terms of capital, reserves and surplus. The deposits increased in the range of 32% to 51%, while the advances showed a growth trend between 39% to 71%. The net profits by private sector banks recorded a compound annual growth of 27% to 36%. The table below shows the progress of private sector banks:
Operations of Private Sector Banks: Progress Item 1 2002-03 2 2003-04 3 2004-05 4 2005-06 5 2006-07 6 Compound growth (%) 7

No. of branches Centurion Bank of Punjab HDFC Bank ICICI Bank UTI Bank/Axis Bank All Private Sector Banks All Public Sector Banks All Scheduled Commercial Banks

62 215 392 137 5,592 47,963 53,768

63 295 419 185 5,950 48,299 54,474

77 446 515 250 6,453 48,970 55,669

242 515 569 352 6,813 49,817 56,893

279 638 713 501 7,363 51,392 59,031

45.6 31.2 16.1 38.3 7.1 1.7 2.4

No. of employees Centurion Bank of Punjab HDFC Bank ICICI Bank UTI Bank/Axis Bank All Private Sector Banks All Public Sector Banks All Scheduled Commercial Banks

945 4,791 11,544 2,338 59,374 757,251 828,328

1112 5673 13,609 3,447 81,120 752,627 847,945

1,374 9,030 18,029 4,761 90,530 738,110 856,671

4,471 14,878 25,384 6,553 110,505 744,333 876,955

14,458 21,477 33,321 9,980 139,285 729,172 896,307

97.8 45.5 30.3 43.7 23.8 -0.9 2.0

Net profits (Rupees billion) Centurion Bank of Punjab HDFC Bank ICICI Bank UTI Bank/Axis Bank All Private Sector Banks All Public Sector Banks All Scheduled Commercial Banks Deposits (Rupees billion) Centurion Bank of Punjab HDFC Bank ICICI Bank UTI Bank/Axis Bank All Private Sector Banks All Public Sector Banks All Scheduled Commercial Banks

-0 4 12 2 29 123 170

-1 5 16 3 35 16 223

0 7 20 3 35 154 210

1 9 25 5 50 165 246

1 11 31 7 65 201 312

-31.0 26.7 36.1 22.1 13.1 16.4

28 224 482 170 2069 10,794 14,045

30 304 681 210 2,686 12,268 15,755

35 434 998 317 3,146 14,365 18,376

94 558 1,651 401 4,285 16,225 21,647

149 683 2,305 588 5,520 19,942 26,970

51.3 32.2 47.9 36.4 27.8 16.6 17.7

Advances (Rupees billion) Centurion Bank of Punjab 13 16 22 65 1,122 70.9 HDFC Bank 118 178 256 351 470 41.4 ICICI Bank 533 627 914 1,462 1,959 38.5 UTI Bank/Axis Bank 72 94 156 223 369 50.5 All Private Sector Banks 1,377 1,704 2,213 3,130 4,148 31.7 All Public Sector Banks 5,493 6,327 8,542 11,063 14,401 27.2 All Scheduled 7,600 8,636 11,508 15,168 19,812 27.1 Commercial Banks Note: Centurion Bank of Punjab was formed in October 2005 as a result of the merger of Centurion Bank with Bank of Punjab. Data for Centurion Bank of Punjab for 2005-06 and 2006-07 reflect the data of the combined entity, while that for the prior period pertain only to the Centurion Bank. Sources: 1. Annual Accounts of Scheduled Commercial Banks, 1979-2004, Reserve Bank of India. 2. A Profile of Banks, 2006-07, Reserve Bank of India.

The mandate is pretty clear, Private Sector Banks have clearly outgrown their public sector counterparts in all these parameters and it looks like that the trend will continue in the near future.

http://www.rupeetimes.com/news/personal_loan/private_banks_in_india_score_over_public_sector_b anks_1249.html