34

CHAPTER II
COMMERCIAL BANKS IN KERALA- AN OVERVIEW
Contents Page – 34-68
1. Commercial Bank – An Overview

2. Banking Scenario in India-An Overview

3. Banking Development in Kerala

4. Bank Density –A global Perspective

5. Hi –Tech Banking

6. Nationalization of Banks.

7. Banking Sector Reforms.

8. Banking Ombudsman Scheme.

9. Management of Non- Performing Assets

10. Consolidation in banking industry: Mergers and Acquisitions.

11.Non-Banking Financial Institutions in Kerala. (NBFIs)

 35

CHAPTER II
COMMERCIAL BANKS IN KERALA- AN OVERVIEW
Banking in its most simple form, is as old as authentic history. As early as
2000.B.C, the Babylonians had developed a banking system, using their temples as
banks and the priests acted as early bankers. In ancient Greece and Rome the
practice of granting credit was widely prevalent. The books of the second century
Sanskrit lawgiver Manu1 are full of regulations governing credit. He speaks of
judicial proceedings in which credit instruments were called for, interest of loans
on bankers, usurers and even of the renewal of commercial papers.
As a public enterprise, banking made its first appearance in Italy in 1157,
when the Bank of Venice was founded 2
According to Crowther, modern banking has three ancestors- the Merchant,
the Goldsmith and the Moneylender 3.
Evolution of banking in India-
The origin of Indian banking dates back to the Vedic period. There is
repeated mention of “Rua” or debt in the Vedic literature. There is a reference in
Ramayana that among the people of Ayodya who went to the forest to bring back
Raman under the leadership of Bharathan included a “Vriddhipajvi”, ie, a member
of the money lending community. The books of the second century Sanskrit
lawgiver “Manu” are full of regulations governing credit.
Modern commercial banking in India began in 1770 with the establishment
of the first joint stock bank, the Bank of Hindostan, by an English agency house in
Calcutta. But this bank failed in 1832. In fact, the real beginning of the modern
commercial banking in the country was made with the establishment of the Bank
of Bengal in 1806. Later on, the Bank of Bombay and the Bank of Madras were
also set up in 1840 and 1843 respectively. All these banks were called the
presidency banks; they were partly financed by East India Company; and they
were given the right of note issue in their own regions.4
The first bank which was established with limited liability, Indian ownership
and management was ‘Oudh Commercial Bank’, set up in 1881, followed by
 36

Allahabad Bank in 1865, the Punjab National Bank in 1894, and the Nedungadi
Bank in 1899. The swadeshi movement of 1906 encouraged the growth of
commercial banks in India 5
The Imperial Bank of India.
The three Presidency banks of India- the Bank of Bengal, the Bank of
Bombay and the Bank of Madras- were subsequently amalgamated into the
Imperial Bank of India in 1921 by the Imperial Bank of India Act of 1920. This
Act did not give the power to the bank to issue notes, a function, which remained
with the government of India. However, the Imperial Bank of India was allowed to
hold government balances and to manage public debt and clearing houses, till the
establishment of the Reserve Bank of India in 1935, which apart from taking over
all the functions from the Imperial Bank of India, was given the privilege of acting
as an agent of the latter in places where it had no office.
The Reserve Bank of India.
The need for a central bank to control and coordinate currency and credit
was felt for a very long time. With this objective in view, the Reserve Bank of
India Act 1934, was passed as per the recommendations of the Hilton Young
Commission and the Reserve Bank of India started functioning as the Central Bank
of the country from 1’st April 1935, with its Head Office at Bombay. Originally,
the R.B.I. was established as a private sector bank with its capital contributed by
shareholders. Shortly after its establishment the R.B.I. took over the function of
currency issue from the Government of India and the power to control credit of the
country from the Imperial Bank of India. In 1948, in accordance with the Reserve
Bank (Transfer to Public Ownership) Act 1948, the Reserve Bank of India was
nationalized, and the Government of India purchased all its shares.

The Banking Regulation Act of 1949.

Till 1949, there was no common legislation for banking in India. The banks
in India were being controlled by the Indian Companies Act. The absence of a
 37

separate legislation resulted in the emergence of a number of banking institutions

with poor capital and defective management. This deplorable state of affairs
necessitated a separate and independent Act for the banking companies in India.
The Banking Companies Act 1949 was passed to consolidate the law
relating to banking companies. The provisions of the Act are “in addition to, and
not , save as expressly provided, in derogation of the Companies Act of 1956 and
any other law for the time being in force”. Since its enactment in1949, the Act was
suitably amended a number of times, new provisions were inserted and existing
ones amended to suit the needs of changing circumstances. The Amending Act
No.23, which came into force on 1 March 1956, changed the name of the Act from
the Banking Companies Act to the Banking Regulation Act and made it applicable
to certain co-operative societies as well, the principal business of which was
banking.
State Bank of India Act of 1955.
The State Bank of India, the biggest commercial bank of our country was
formed on 1st July 1955, with the passing of the State Bank of India Act 1955, by
taking over the entire assets and liabilities of the Imperial Bank of India.
Pursuant to the provisions of the State Bank of India (Subsidiary Banks) Act
1959, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State
Bank of Travancore, State Bank of Hydrabad, State Bank of Saurashtra and State
Bank of Bikaner and Jaipur are treated as the associate banks of the State Bank of
India.
 38

Banking Scenario in India-An Overview

Table 2 -1
Composition of Commercial Banks in India as on31 March 2005.
Name of Bank Number of Branches
State Bank of India and its Associates. 13896
Nationalized Banks. 35075
Foreign Banks. 245
Regional Rural Banks. 14762
Other Scheduled Commercial Banks. 6321
Non-Scheduled Commercial Banks. 25
Total 70324
Source: - Statistical Tables Relating to Banks in India 2004-05, RBI, p1.
Note: Number of Bank offices includes Administrative Offices.
As can be seen from Table 2 -1 out of 70324 bank offices 13896 are owned
by the state bank group, 35075 are nationalized, 14762 are regional rural banks
thus bringing the total number of government owned banks to 63733 whereas the
share of private sector commercial banks is 6321only.The presence of foreign
banks and non-scheduled commercial banks are negligent.
Table 2 -2
Geographical Composition of Commercial Banks in India as on
31 March 2005.

Percentage of total
Zone No. of offices
no. of offices
Rural 32115 45.67%
Semi-Urban 15651 22.26%

Urban 12368 17.59%

Metropolitan 10190 14.48%
Total 70324 100%
Source: - Statistical Tables Relating to Banks in India 2004-05, RBI: XII
Note: Number of Bank offices includes Administrative Offices.
 39
Table 2-3
Table showing Indian Banking since Nationalization.

Indicators June March March March March March March March March
1969 1998 1999 2000 2001 2002 2003 2004 2005
No of Commercial Banks 89 300 301 298 300 297 292 290 284
a) Scheduled Commercial
73 299 301 297 296 293 288 286 284
Banks
Of which Regional Rural
- 196 196 196 196 196 196 196 196
Banks
b) Non- Scheduled
16 1 - 2 5 4 4 5 4
Commercial Banks
No of Bank offices
8262 66408 67157 67868 67937 68195 68500 69170 70324
in India
a) Rural 1833 32864 32859 32852 32585 32503 32283 32227 32115
b) Semi-urban 3342 14266 14462 14841 14843 14962 15135 15288 15651
c) Urban 1584 10593 10841 10994 11193 11328 11566 11806 12368
d) Metropolitan 1503 8685 8995 9181 9316 9402 9516 9750 10190
Population per office
64 15 15 15 15 15 16 16 16
(in thousands)
Aggregate Deposits of Scheduled
Commercial Banks in India 4646 605410 722203 851593 989141 1131188 1311761 1504416 1700198
(Rs.crore)
a) Demand Deposits 2104 102513 117423 145283 159407 169103 187837 225022 248028
b) Time Deposits 2542 502897 604780 706310 829734 962085 1123924 1279394 1452171
Credit of Scheduled Commercial
3599 324079 368837 454069 529271 609053 746432 840785 1100428
Banks s in India(Rs.crore)
Investments of Scheduled
Commercial Banks in India 1361 218705 254594 311697 367184 437482 541750 677588 739154
(Rs.crore)
 40

Deposits of Scheduled Commercial

56 912 1075 1255 1456 1659 1925 2265 2574
Banks per office (Rs.lac)
Credit of Scheduled Commercial
44 488 549 669 779 893 1143 1330 1700
Banks per office (Rs.lac)
Per capita Deposit of Scheduled
88 6270 7359 8542 9770 11008 12253 14089 16281
Commercial Banks (Rs.)
Per capita credit of Scheduled
68 3356 3759 4555 5228 5927 7275 8273 10752
Commercial Banks (Rs.)
Deposits of Scheduled Commercial
Banks as percentage to Gross National 15.5 49.4 50.3 53.5 56.0 54.4 58.8 60.0 60.4
Product(at current prices)
Scheduled Commercial Banks
504 108905 126309 155779 182255 205606 254648 263834 345627
advances to Priority Sectors(Rs. crore)
Share of priority sector advances in
total credit of Scheduled Commercial 14.0 34.6 35.3 35.4 31.0 34.8 35.1 34.5 35.5
Banks (per cent)
Credit-Deposit Ratio(per cent) 77.5 53.5 51.1 53.3 53.5 53.8 56.9 55.9 64.7
Investment-Deposit Ratio(per cent) 29.3 36.1 35.3 36.6 37.1 38.7 41.3 45.0 43.5
Cash-Deposit Ratio(per cent) 8.2 10.1 9.4 9.8 8.4 7.1 6.3 7.2 6.4
Source:-Statistical Tables Relating to Banks in India 2004-05, RBI: XII.
Note: Number of Branches data includes Administrative Offices.
From table 2 -3 it is clear that after nationalization in June 1969 Indian banks made rapid progress in all fields. The
number of banks increased from 89 in 1969 to 284 in 2005.Similarly the number of bank offices also increased from 8262
in 1969 to 70324 in 2005. The aggregate deposits of CBs increased from Rs 4646 crores in 1969 to Rs 1700198 crores in
2005 as against credit from Rs 3599 crores in 1969 to Rs 1100428 crores in 2005.At the same time the credit deposit ratio of
CBs decreased during the period from 77.5% in 1969 to 64.7% in 2005.
 41

Table 2 -4
State- wise Distribution of Scheduled Commercial Bank Branches as on
31 March 2006.
Average
Percentage to
population per
States No. of Banks total number of
bank branch
offices
(in’000s)
1.Andra Pradesh 5437 7.9 14
2.Assam 1234 1.8 21
3.Bihar 3582 5.2 23
4.Gujarat 3730 5.4 14
5.Haryana 1726 2.5 12
6.Karnataka 5002 7.3 11
7.Kerala 3553 5.2 9
8.Madhya Pradesh 3475 5.1 17
9.Maharashtra 6489 9.4 15
10.Orissa 2282 3.3 16
11.Punjab 2749 4.0 9
12.Rajastan 3427 5.0 16
13.Tamilnadu 4880 7.1 13
14.Uttar Pradesh 8347 12.2 20
15.west Bengal 4558 6.6 18
Total 60471 88.0 15
All India Total 68681 100 15
Source: Quarterly Statistics by RBI, March 2006
Note: Percentage is to All India Total.
From table 2 -4 it is clear that the six states, Uttar Pradesh, Maharashtra,
Andra Pradesh, Karnataka, Tamil Nadu and West Bengal together account for
50.54% of the total bank offices in India. Kerala and Punjab have one bank for
every 9000 persons as against 23000 persons in Bihar 21000 in Assam, and 20000
 42

in Uttar Pradesh whereas the all India average is one-office for15000 persons.
Thus there is serious imbalance in the distribution of bank offices in India.
Banking Development in Kerala.
According to the Travancore Banking Enquiry Committee Report 1930,
there were two types of indigenous bankers in Kerala, one the “Hundi Merchants”
who accepted deposits and lent money and the other, the ”Money Lenders” who
lent money only. The bulk of the banking business was done as family concerns,
the eldest member being in the management. They received deposits in a system
called “Pattuvaravu” or Current Account in which the interest was calculated on
the daily balance. They issued letters of credit or “Melezhuthu” and also dealt in
Hundies. A passbook was generally given in which the receipts were entered.
“Chits” were used for withdrawals instead of cheques.
As back as 1835, the Travancore state had two laws viz, Regulation I and IV
of 1010 Kollam Era (1835 AD) restricting the rate of interest and the amount of
interest which could be decreed or realized through court of law. In the Cochin
Usurious Loan Regulation, June 1936, the interest above 12% was defined as
excessive. The provisions of the Madras Agricultural Relief Act stipulating interest
at 5.5% was made applicable in Malabar Region also.
Long before independence itself, the banking in kerala was unique in several
respects. The early banking had communal relationships. Most of these banks were
started by Christians. The banking activities were concentrated in certain specific
centers, especially in Thiruvalla in Travancore and Trichur in Cochin. The early
bankers were of unit type.6 Another characteristic of early bankers were that they
also conducted “chitties/kuries”. The pseudo banking institutions were engaged in
all manners of fanciful enterprises and did naturally serve any useful purpose .
Many of these banks were wound up, while some were reorganized into banking
companies.7 The first bank started in Kerala was said to be the “Nedungadi Bank”
started by Shri Appu Nedungadi in 1899 at Calicut, followed by the “Travancore
National Bank in 1900 at Thiruvalla. At the time of passing the Companies
Regulation Act in 1917, there were 6 banks.8
 43

Banking Development since Independence

At the time of independence there were 32 banks in Kerala. They had gone
up to 130 by the end of 1955. The process of amalgamation, mergers, absorptions
and liquidation brought down the total number of banks to 28 at the time of
nationalization in 1969.9
Table 2 -5
Composition of Commercial Banks in Kerala as on 31 March 2006
No of Branches
Sl. Rural Semi- Urban Total
No Bank Urban
A State Bank Group
1 State Bank of India 28 148 68 244
2 State Bank of Bik&Ja 1 1
3 State Bank of Hydbd 2 4 6
4 State Bank of Mysore 2 8 10
5 State Bank of Sartra 2 2
6 State Bank of Trvcre 63 417 82 562
Total-State Bank Group 91 569 165 825
B Nationalized Banks
1 Allahabad Bank 2 4 6
2 Andhra Bank 13 7 20
3 Bank of Baroda 2 29 14 45
4 Bank of India 6 46 21 73
5 Bank of Maharashtra 2 4 6
6 Canara Bank 20 189 39 248
7 Central Bank of India 3 53 18 74
8 Corporation Bank 41 16 57
9 Dena Bank 3 6 9
10 IDBI Bank 2 4 6
11 Indian Bank 3 56 18 77
12 Indian Overseas Bank 6 93 19 118
13 Oriental Bank of Commerce 1 4 8 13
14 Punjab & Sind Bank 3 3
15 Punjab National Bank 7 93 30 130
16 Syndicate Bank 8 94 33 135
17 UCO Bank - 10 10 20
18 Union Bank of India 13 88 23 124
19 United Bank of India 3 3
20 Vijaya Bank 5 49 17 71
Total Nationalised Banks 74 867 297 1238
C Regional Rural Banks
1 North Malabar Gramin Bank 46 110 3 159
2 South Malabar Gramin Bank 2 202 12 216
Total-RRBs 48 312 15 375
Total Public Sector Banks 213 1748 477 2438
 44

D Private Sector Banks

1 Bank of Rajastan 1 1
2 Bharat Overseas Bank 5 5
3 Catholic Syrian Bank 86 105 39 230
4 Centurion Bank of Punjab 2 4 6
5 City Union Bank 4 3 7
6 Dhanalakshmi Bank 62 34 24 120
7 Federal Bank 122 178 38 338
8 HDFC Bank 1 14 8 23
9 ICICI Bank 11 14 25
10 Indus Ind Bank 1 5 6 12
11 ING Vysya Bank 2 11 9 22
12 Jammu & Kashmir Bank 2 2
13 Karnataka Bank 1 5 5 11
14 Karur Vysya Bank 5 3 8
15 Laxmivilas Bank 1 4 5
16 Lord Krishna Bank 29 29 11 69
17 South Indian Bank 47 182 35 264
18 T.N. Mercantile Bank 2 4 2 8
19 UTI Bank 5 6 11
Total-Private Sector Banks 353 595 219 1167
E Foreign Banks
1 HSBC 2 2
2 Oman Intl. Bank 1 1
3 Stan Chart Grindlays 2 2
Total-Foreign Banks 0 0 5 5
Total-Commercial Bank 566 2343 701 3610
F Co-Operatives
1 KSCARDB (Incl.PCARDBs) 72 26 5 103
2 KSCB - - 20 20
Total -Cooperative Banks 72 26 25 123
Total -Banking Sector 638 2369 726 3733
Source: SLBC Cell, Trivandrum

Table 2 –5 clearly exhibits the composition of commercial banks in Kerala.

As on 31 March 2006, Kerala had a total of 3733 commercial bank branches
consisting of 825 branches of the State Bank Group, 1238 Nationalized Banks, 375
Regional Rural Banks, 1167 Private Sector Banks, 5 Foreign Banks, and 123
branches of the Kerala State Co-operative bank.
 45

Table 2 -6
Banking Statistics of kerala - Deposits, NR Deposits, Advances and
CD Ratio as on 31 March 2006.
Amount in Rs. Lakhs.
Sl No Name of Bank Deposits NR Deposits Advances CD Ratio
A State Bank Group
1 State Bank of India 833987 400147 560349 67.19
2 State Bank of Bik&Ja 4860 128 1747 35. 95
3 State Bank of Hydbd 7174 1093 7558 105. 35
4 State Bank of Mysore 11340 1705 6458 56. 95
5 State Bank of Sarta 2159 148 2833 131.22
6 State Bank of Trvcre 1691087 748162 1060966 62. 74
Total-State Bank Group 2550607 1151383 1639911 64. 29
B Nationalized Banks
1 Allahabad Bank 833987 439 9821 228. 21
2 Andhra Bank 4860 1349 22192 98. 74
3 Bank of Baroda 7174 82948 54661 42. 64
4 Bank of India 11340 25234 82187 96. 64
5 Bank Maharastra 2159 118 1560 37. 08
6 Canara Bank 1691087 344536 493227 67. 32
7 Central Bank of India 127370 38652 85278 66. 95
8 Corporation Bank 86602 27331 51336 59. 28
9 Dena Bank 9635 972 7632 79. 21
10 IDBI Bank 23382 3334 13063 55. 87
11 Indian Bank 181393 73391 79217 43. 67
12 Indian Overseas Bank 265980 135810 114580 43.08
13 Orntl Bank of Comm 20536 1422 11470 55. 85
14 Punjab&sind Bank 1582 79 1898 119.95
15 Punjab National Bank 151108 22095 99024 65. 53
16 Syndicate Bank 195891 54466 137658 70. 27
17 Uco Bank 31090 4054 38822 124. 87
18 Union Bank of India 294361 85169 267270 90. 80
19 United Bank of India 2919 74 7848 268. 86
20 Vijaya Bank 92436 21517 55543 60. 09
Total-Nationalised banks 2461170 922990 1634286 66. 40

C RRBs
1 NMGB 89045 9236 91857 103. 16
2 SMGB 121009 10680 137732 113. 82
Total-RRBs 210054 19916 229589 109. 30
Total public sector 5221831 2094289 3503786
67. 10
banks
Source:-SLBC Cell, Trivandrum.

Table 2-6 clearly exhibits the relationship between Deposits, NR Deposits,

Advances and CD ratio of public sector banks as on 31 March 2006.Whereas State
Bank Group showed a CD ratio of 64.29%, Nationalized Banks showed 66.40%
and the overall state average for public sector Banks was 67.10%
 46

Table 2 -7
Banking Statistics of Kerala - Deposits, NR Deposits, Advances and
CD Ratio as on 31 March 2006.
Amount in Rs.Lakhs
Sl No Name of Bank Deposits NR Deposits Advances CD Ratio
D PRIVATE SECTOR
BANKS
1 Bank Of Rajastan 368 3 383 104. 12
2 Bharat Overseas Bank 5460 398 7533 137. 97
3 Catholic Syrian Bank 295732 94583 127230 43. 02
4 Centurion Bank Of Punjab 44656 7322 30811 69. 00
5 City Union Bank 11729 1391 5255 44. 80
6 Dhanalakshmi Bank 180822 26802 82570 45. 66
7 Federal Bank 946361 447603 558219 58. 99
8 HDFC Bank 74955 25823 65514 87. 40
9 ICICI Bank 145928 31968 379298 259. 92
10 Indus Ind Bank 27806 2180 29591 106. 42
11 Ing Vysya Bank 41079 15129 38504 93. 73
12 Jammu&Kashmir Bank 505 2 1207 239.01
13 Karnataka Bank 16572 1649 11578 69. 86
14 Karur Vysya Bank 9981 2101 8523 85. 39
15 Laxmivilas Bank 3556 245 1021 28. 71
16 Lord Krishna Bank 73129 15012 27232 37. 24
17 South Indian Bank 558719 262880 257436 46. 08
18 T.N.Mercantile Bank 16050 671 5479 34. 14
19 UTI Bank 47837 11995 26791 56. 01
TOTAL-Pvt. Sector Banks 2501245 947757 1664175 66. 53
D Foreign Banks
1 HSBC 27426 20078 14664 53.47
2 Oman Intl. Bank 5466 5024 54 0.99
3 Stan Chart Grindlays 11739 0 9172 78.13
Total-Foreign Banks 44631 25102 23890 53. 53
Total-Commercial Bank 7767706 3067148 5191852 66. 84
F Co-Operatives
1 KSCARDB (Incl.Pcardbs) - 0 174606
2 KSCB 283822 117 164952 58. 12
Total-Cooperative Banks 283822 117 339558 119.64
Total-Banking Sector 8051528 3067265 5531409 68. 70
Source:-SLBC Cell, Trivandrum.

Table 2-7 clearly exhibits the relationship between Deposits, NR Deposits,

Advances and CD ratio of banks as on 31 March 2006.Whereas Private Sector
Banks showed an average CD ratio of 66.53%, Foreign Banks showed 53.53% and
the overall state average of the banking sector was 68.70%
 47

Table 2 -8

Banking Statistics of Kerala – Deposits, NR Deposits, Advances and CD Ratio

from 1997- 2006
` Rs in crore
Ending March Total Deposits Of which NRE Total Advances CD Ratio
Deposits
1997 23028.39 9956.68 10481.82 45.52
1998 27163.79 12459.81 12274.37 45.19
1999 31064.87 12995.74 13473.51 43.37
2000 38244.94 18412.47 15841.79 41.42
2001 44484.06 21188.13 19085.72 42.90
2002 51278.07 24306.15 21968.75 42.84
2003 59019.63 28437.76 26862.34 45.51
2004 65589.25 29888.57 31698.67 48.33
2005 69001.88 28924.90 40724.62 59.02
2006 77230.76 30420.46 51679.61 66.92

Source: Economic Review, 2005 and SLBC, Trivandrum.

Note.-Data excludes co-operative banks and foreign banks

The above table is depicted in the following diagrams-

Figure 2-1
Banking Statistics of Kerala -Growth of Deposits and NRE Deposits
From 1997-2006

80000
70000
60000
50000
40000 Deposits
30000 NR Deposits

20000
10000
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

From figure 2-1 it is evident that both Deposits and NRE Deposits showed an

upward trend from 1997-2006.Whereas deposits increased from Rs 23028.39crores in

1997 to Rs 77230.76 crores in 2006 that of NRE Deposits was from Rs 9956.68 crores

to Rs 30420.46 crores during te same period.

 48

Figure 2-2

Banking Statistics of Kerala –Growth of Deposits and Advances

from 1997-2006

80000
70000
60000
50000
40000 Deposits
30000 Advances

20000
10000
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

From figure 2-2 it is evident that both Deposits and Advances showed an upward trend

from 1997-2006.Whereas deposits increased from Rs 23028.39crores in 1997 to Rs

77230.76 crores in 2006 that of Advances was from Rs 10481.82 crores to Rs 51679.61

crores during the same period.

Figure 2-3
Banking Statistics of Kerala – Growth of CD Ratio
from 1997-2006

80

70

60

50

40
CD Ratio in
Percentage
30

20

10

0
31-3- 31-3- 31-3- 31-3- 31-3- 31-3- 31-3- 31-3- 31-3- 31-3-
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Table 2-8. Economic Review, 2005 and SLBC, Trivandrum.

Note.-Data excludes co-operative banks and foreign banks
 49

Bank Density –A global Perspective

According to a study by the World Bank, Singapore has 636 branches for
every 1000 square kilometers. Russia and Peru have less than one. On an
alternative measure of bank access, United States has 31 branches for every
100,000 people, while China has only one per 100,000.
Branches per 100,000 populations.
Singapore. 9
South Korea. 13
Israel. 15
Japan. 10
Hungary. 28
India 6
Philippines. 8
Czech Republic 11
Poland. 8
Indonesia. 8
United States 31
Pakistan. 5
Thailand. 7
Malaysia. 10
Mexico. 8
Columbia. 9
Brazil. 15
Egypt. 4
South Africa. 6
Chile. 9
China. 1
Argentina. 10
Peru. 4
Russia. 2

Source: IBA Bulletin. The Indian Banker. January 2006-Vol.1 No.1 P.40.
Hi –Tech Banking.
Financial sector reforms, globalization and integration of the world’s
financial markets have increased the level of competition in Indian banking
industry also. All these reforms have opened up new avenues for Indian banks,
particularly public sector banks to integrate into the world’s financial services.
This has resulted in a quantum jump in the expectations of customers for newer
products. Consequently, bankers are under increasing pressure “to offer today,
 50

what customers would be expecting tomorrow” Thus, banks are turning into
‘conscious customer centric institution from the traditional profit hunting’
institutions. As a result of innovations and spread of technology, banks today offer
the customers a choice to conduct his banking service across the counter, over
phone or via a computer. Let us now see some of the recent hi –tech-banking
devices introduced in this sector –
1. Computerization.
In October 1993 an agreement was signed between the Indian Bank’s
Association and employees unions regarding computerization in banks. As per the
agreement, 4523 branches of public sector banks were eligible for partial/full
computerization as on 30’th June 1996. Now almost all the commercial banks and
financial institutions in the country are partially or fully computerized. To cope up
with modern technology banks are switching over to Personal Computers, (pc’s)
Advanced Ledger Posting Machines (ALPM’s) Local Area Network (LAN) Wide
Area Network (WAN) systems etc.
2. Electronic Banking and Clearing Services /Internet Banking.
With electronic banking, clients are able to deal into banks and get a host of
requests serviced through their desktop computers. For the client, it means direct
and immediate access to his account in the bank, without having to physically visit
the branch. In April 1995 the banks launched Electronic-clearing services (credit
clearing) for effecting bulk payment transactions such as interest, dividend etc.
Electronic banking brings in lesser administrative costs, more profitability and
productivity to the banks.
3. Electronic fund transfer system. (EFT)
With a view to enable the remittance of funds to their retail customers, the
RBI started an electronic fund transfer system in February 1996. The system
facilitates transfer of funds from one centre to another across banks. This system
assures availability of funds on the day next to day of transfer.
 51

4. Cheque Processing –MICR cheques.

The RBI introduced the Magnetic Ink Character Recognition (MICR)
technology with a view to speed up the clearing of cheques. Both local and inter–
city cheques can be cleared by this technique.
Under this system, the cheques are processed at high speed on machines.
Banks issue cheques, drafts and other payment instruments in MICR format using
the special quality paper and specifications. On MICR instruments, there is a code
line at the bottom containing information printed in ‘magnetic ink’ to enable
mechanical processing. When the magnetized portion is placed under MICR
equipment, it allows instant readability and identification.
5. Automated Teller Machine –ATM.
ATM is a modern technology introduced to enable the customers to have
access to money round the clock in all 24 hours in a day and also through out the
year. The services of ATMs are made available at convenient locations in suitable
public places in the cities.
6. Credit Cards.
The introduction of credit cards is one of the recent innovations in the field
of banking. Credit cards enable cardholders to avail credit facilities for a specified
period of time with out giving any security to the issuing bank. The cardholders
can purchase goods and services by using credit cards without paying money from
those business establishments, which have agreed to accept them. Credit cards are
also called “plastic money”. Banks issue credit cards to selected customers
depending on their monthly income, credit worthiness, reputation etc. credit cards
issued by leading banks are accepted all over the world. No interest is levied on the
credit sanctioned provided the cardholder pays the sum with in a specified time.
The cardholder is required to settle his account with the bank only once in a month.
 52

Nationalization of Banks.
Formerly banks in India were set up by big industrial and business houses,
which continued to have traditional connections with them. At that time Board of
Directors consisting of industrialists and businessmen controlled the management
of most of the banks. These banks used to provide a good portion of their advances
to concerns in which the directors had personal interests. The agricultural and
small-scale industrial sectors were completely deprived of the benefits of banking
services. Similarly, rural, semi-urban and other underdeveloped areas were
purposely kept out of the reach of banking services. As a result of this, the banks in
existence were not able either to mobilize the idle savings of the people living in
those areas, or to channelise those savings for productive purposes. So, the
planning experts and the government started thinking of the urgent need of
nationalizing the commercial banks of India.
Nationalization of banks implies bringing the control and ownership of
banks under the Government, and it was done in India in a phased manner. After
independence it was felt that the RBI should be made free from the clutches of the
private shareholders in order to ensure greater coordination of the monetary,
economic and fiscal policies so as to achieve economic development in the
country. As a result, on 1st January 1949, RBI was nationalized with the passing of
Reserve Bank of India (transfer of public ownership) Act 1948.
In the second phase of nationalization, State Bank of India was set up on 1st
July 1955, by nationalizing the Imperial Bank of India. In the third phase, in 1959,
seven State Associated Banks were nationalized as subsidiaries of the State Bank
of India. They are – State Bank of Hyderabad, State Bank of Bikaner, State Bank
of Travancore, State Bank of Mysore, State Bank of Patialia, State Bank of Indore,
and State Bank of Saurastra.
th
In the fourth phase, on 19 July 1969, 14 major commercial banks were
nationalized. They are – Central Bank of India, Bank of India, Punjab National
Bank, Bank of Baroda, United Commercial Bank, Canara Bank, United Bank of
India, Dena Bank, Syndicate Bank, Union Bank of India, Allahabad Bank, Indian
 53

Bank, Bank of Maharashtra and Indian Overseas Bank.

th
In the last phase, on 15 April 1980, six more commercial banks were
nationalized. They are – Andhra Bank, Corporation Bank, New Bank of India,
Oriental Bank of Commerce, Punjab and Sind Bank and Vijaya Bank.
Later in 1993, New Bank of India was merged with the Punjab National
Bank, making the number of nationalized banks in India to 19.
Objectives of Bank Nationalization.
The then Prime Minister, Mrs. Indira Gandhi, outlined the objectives of bank
nationalization in her statement in the parliament on July 21, 1969.They are-
1. To mobilize the scattered savings of the people of India, for the purpose of
utilizing them for productive purposes in accordance with the plan priorities.
2. To meet all the genuine credit requirements of private sector industries and
trade.
3. To run the banking system in the country for social purpose and bring them
under public regulation.
4. To meet the credit needs of priority sectors of the economy, especially small
scale industries, self employed groups and farmers.
5. To foster growth of new entrepreneurs in the neglected and backward areas in
the country to accelerate economic development.
6. To check the misuse of bank credit for speculative and unproductive purposes.
7. To bring in professionalism in management and modern managerial techniques
and practices in the field of banking.
8. To make provision for training and reasonable terms of services to employees
of banks.
9. To establish a wide net work of bank branches on all parts of the country.
10.To cut down regional imbalances in banking.
Achievements of Nationalization.
Since the nationalization of banks in 1969, the banking system in India has
made appreciable improvement and progress. The major achievements of
nationalized banks are –
 54

1. Expansion of Branches.
Branch expansion has gathered momentum after the nationalization of
commercial banks in 1969.The trend of branch expansion was visible during the
last eighteen years prior to nationalization. During that period the total number of
bank branches rose from 4151 in June1951 to 8262 in June1969. But in the initial
18 years of the post nationalization period, the total number of bank branches
increased stupendously from 8262 to 53840, i.e., 522% increase from 1969 to
1987; and to 67868 in March 2000 and to 70324 in March 2005.When taken on a
whole country basis, the banking coverage in India improved considerably from
one office for 87000 people in 1951 to one office for 64000 people in 1969 to one
office for 16000 people in 2005.10
2. Growth of Deposits.
Considerable spurt in the amount of deposits is also seen from the available
statistics. At the time of nationalization, the aggregate deposits of the banks stood
at Rs. 4646 crores. It has flourished to Rs. 851593 crores in March 2000and to Rs.
1700198 crores in March 2005.11
3. Expansion of credit.
The availability of bank credit in the country has been fully revamped after
nationalization. Credit was made available in every nook and corner of the country.
At the time of nationalization the disbursal of credit by banks stood at Rs. 3599
crores, but the same stood at an attractive figure of Rs.454069 crores in March
2000 and to Rs. 1100428 crores in March 2005.12
4. Diversification of activities.
After nationalization, banks have diversified their activities by introducing a
number of new programmes and innovative schemes. They are engaged in
financial services like Merchant Banking, Lease Financing, Mutual Funds, Venture
Capital, and Factoring etc
5. Developmental Role of Banks.
After nationalization, commercial Banks have parted with their profit
oriented approach and started playing an inevitable role for the economic
 55

development of the national economy. They have implemented plans like, Lead
Bank Schemes, village adoption Schemes, service area Approach etc. all aiming
towards the development of the country.
6. Importance to Priority Sectors.
Priority sectors of the economy are the agricultural sector, small- scale
industry sector, road and water transport sector, retail trade sector and small
business sector. The main objective of bank nationalization was to provide credit
facilities to these sectors, which were hither to neglected by banks. Scheduled
commercial banks advances to priority sectors increased from Rs. 504 crores in
June 1969 to Rs. 155779 crores in March 2000 and to Rs, 345627 crores in March
2005. Again, the share of priority sector advances in the total credit of Scheduled
Commercial Banks increased from 14% in June 1969 to 35.4% in March 2000 and
to 35.5 % in March 2005.13
7. Funds for Plans.
After nationalization, commercial banks started investing their funds in
Govt. and other approved securities to meet their liquidity requirements. Through
this, the banks made their funds available to the Govt. for meeting the plan
requirements.
8. Credit to weaker sections.
After nationalization, banks started extending credit facilities to the weaker
sections of the society by implementing special schemes. The weaker sections
comprising of marginal farmers, land less labourers, artisans, village and cottage
industries, SC and ST etc, improved their economic conditions with the financial
support of banks.
9. Banking in rural Areas.
Credit needs of rural areas were totally neglected by banks during the pre
nationalization period. But after the nationalization of banks in 1969 there had
been a significant increase in the number of bank branches in rural, semi-urban and
backward areas of the country. The number of rural branches increased from 1833
in June 1969 to 32852 in March 2005 and to 32115 in March 2005. Similarly, the
 56

number of semi-urban branches increased from 3342 in June 1969 to 14841 in

March 2000 and to 15651 in March 2005. The percentage of branches in rural
areas to the total branches has in increased from 22.2% in June 1969 to 45.67 in
March 2005.14
10. Regional Imbalances were reduced.
By extending banking facilities to under develop and unbanked areas,
nationalization helped to reduce regional Imbalances.

Banking Sector Reforms.

The post nationalization era of banking system witnessed tremendous
progress in terms of deposit mobilization and branch expansion by the Indian
banks. Banks have gone beyond the traditional system of banking of accepting
deposits and lending of money to innovative systems of banking.
Despite all these, there was a huge decline in the productivity and
profitability of banks, especially public sector banks. Mounting NPAs in banks was
the major problem. To cure all the evils of the Indian banking system, a committee
known as ‘Narasimham Committee’ was appointed to suggest measures15 . The
committee submitted its report in November 1991 and their recommendations are
implemented from 1991-92 onwards. Important among them are –
1. Prudential Accounting Standards.
Prudential accounting standards of Income Recognition, Asset Classification
(IRAC) and Provisioning for bad debts was introduced in the financial year 1992-
93.These standards are introduced with a view to provide transparency in
accounting and reporting procedures of banks so that the annual reports of banks
exhibit a true and fair view of the financial position of banks.
a) Income Recognition.
Banks are directed to classify their assets into performing and non-
performing assets for the purpose of recognizing income. Performing assets
generate income to the bank whereas non –performing assets do not generate
income. RBI advised the banks that they should identify the non-performing assets
 57

and ensure that interest on such assets is not recognized and carried to profit and
loss account. It means that banks should recognize their income on accrual basis in
respect of income from performing assets and on cash basis in respect of income
from non-performing assets.
b) Asset classification.
Banks are required to classify their assets into four categories as standard
assets, sub-standard assets, doubtful assets and loss assets.
c) Provisioning requirements.
Banks are asked to keep adequate provision for each category of assets. In
the case of sub-standard assets a provision of 10% of total outstanding is required.
In the case of doubtful assets, to the extent the debt is not covered by realizable
value of the security, 100% provision should be made. In addition to this, for the
secured portion provision should be made on the basis of the period for which it
remained doubtful.
Accordingly the following provision is required:
Loans up to 1 year – 20%
Up to 1 year to 3 years – 30%
More than 3 years – 50%
In the case of loss assets provision should be made of 100% of the total
amount outstanding.
2. Capital adequacy norms.
To strengthen the capital base of banks RBI laid down the capital adequacy
norms in April 1992 to be complied by banks by March 1996.All banks in India
were required to achieve a capital adequacy ratio of 4% by March 1993, 8% by
March 1996, 9% from March 2000.Capital Adequacy Ratio (CAR) is the ratio of
share capital of the bank to the risk adjusted value of assets.
Capital adequacy ratio = Share capital *100
Risk adjusted value of assets.
 58

3. Privatization of public sector banks.

To comply with Capital Adequacy Norms, public sector banks were allowed
to raise capital from the public. RBI has reduced its shareholdings in SBI to 67%
by making amendment in the State Bank of India Act. Later by passing Banking
Companies (Acquisition and transfer of undertakings) Amendment Act 1994, Govt
of India had reduced its shareholdings in public sector banks to 51% and later in
the year 2000 to 33%.
4. Establishment of Debt Recovery Tribunals.
To recover the NPAs of banks Debt Recovery Tribunals (DRT) have been
set up at major places by passing an Act called Recovery of Debt due to Banks and
Financial Institutions Act, 1993.The Debt Recovery Tribunals were meant for
expeditious adjudication and recovery of debts due to banks and financial
institutions.
5. Entry of private sector banks.
To improve efficiency in banking services and to foster competition among
banks, RBI has issued guidelines for setting up of private sector banks. They are
allowed to raise capital from private parties, financial institutions, NRIs etc.
Foreign banks have also been given permission to set up their branches in India.
6. Branch Rationalization.
Banks in India are given freedom to open new branches in places where they
have growth potentials and to close unremunerative branches.
7. Consortium Advances.
To satisfy the financial requirements of large borrowers banks are permitted
to lend through a consortium of scheduled commercial banks headed by a lead
bank. Banks have also been permitted to leave the consortium after 2 years of
joining it.
8. Board for Financial Supervision.
As part of overall strategies for strengthening the supervision of the different
sections of the financial sector, a Board for Financial supervision (BFS) was set up
 59

and came in to operation with effect from July 1994. The BFS would exercise
supervision over banks and Financial Institutions to ensure that they work as per
the rules and regulations.

9. Internal Control.
External control by BFS alone is not found enough and therefore RBI has
asked the banks to strengthen the internal control system to keep vigil on their
working. RBI has also directed the individual banks to set up a committee under
the chairmanship of a senior executive to look in to the various issues.
10. Disclosure on Defaulting Borrowers.
In April 1994, RBI has announced a scheme where all the banks and
financial institutions are asked to disclose information regarding defaulting
borrowers with an aggregate outstanding of Rs1crore or above. This is
implemented to improve the recovery climate and enforce payment discipline
among the borrowers.
11. Department of Supervision.
In 1993, RBI has set up a separate department known as department of
supervision to supervise the working of all Commercial Banks. The department
undertakes investigations including frauds and other malpractices committed by
banks.
12. Entry of Banks in to Insurance Sector.
Banks are permitted to enter into insurance sector provided they have a
minimum net worth of 5 crores, sufficient capital adequacy ratio and profitability
etc.
 60

Banking Ombudsman Scheme.

The Banking Ombudsman Scheme was introduced by the RBI for the first
time in June 1995 under section 35 A of the Banking Regulation Act 1949. The
scheme has been introduced for the simple, speedy and inexpensive redressal of
complaints from the customers of the banks against deficiency in the banking
services. All the Commercial Banks other than RRBs and Scheduled Primary Co-
operative Banks are brought under this scheme.
Ombudsman is an officer appointed by RBI to perform the functions
entrusted to him under the scheme. He must be a person who has outstanding
knowledge in the field of law, banking, financial services and public
administration.
He will be appointed for a period not exceeding 3 years but is eligible for
extension for a period of 2 years subject to the attainment of 65 years.
Settlement of complaints by Ombudsman.
Banking Ombudsman is not constituted under any legal statute and therefore
it has no legal authority to compel a person to obey its judgment. The complaints
received by the banking ombudsman can be redressed in three ways as follows:
a) Settlement by agreement.
On receipt of a complaint the banking ombudsman shall send a copy of the
complaint to the bank concerned. Under this method, the ombudsman acts as a
mediator between the complainant and branch office of the bank against which
complaint is given. The role of ombudsman is that of a facilitator in setting the
complaints amicably between the parties concerned.
b) Settlement by recommendation.
If the complaint is not settled with in a period of one month from the date of
receipt of complaint, the Ombudsman can make a fair and impartial
recommendation and it is communicated to the complainant. The complainant may
or may not accept the recommendations. Whether he accept the recommendation
or not, the matter has to be informed to the ombudsman with in two weeks of
receipt of recommendation. If it is accepted by the complainant, the ombudsman
 61

shall send a copy of the acceptance to the bank concerned. The banker may or may
not accept the recommendation and in both cases, the matter has to be
communicated to the ombudsman with in two weeks. If it is accepted by the bank,
the complaint is dismissed.
c) Settlement by award.
If a complaint is not settled by agreement or recommendation with in a
period of 2 months from the date of receipt of complaint, the ombudsman shall
inform the parties concerned of his intension to pass an award. It will pass an
award only after giving an opportunity of being heard to the parties concerned. A
copy of the award will be sent to the complainant and the bank. If the award is not
accepted by the complainant, the bank need not have to comply with the award
prescribed by the Ombudsman. On the other hand, if the award is accepted by the
complainant, the bank has to comply with the award of the Ombudsman, failing to
which the matter will be reported to RBI by the banking Ombudsman.
Management of Non- Performing Assets
A non-performing asset (NPA) can be defined as a credit facility in respect
of which the interest and/ or installment of principal has remained past due for a
specified period of time. RBI has reduced the specified period of time in a phased
manner. An asset becomes NPA if the borrower does not pay the dues for a period
of 180 days. However, with effect from 31 March 2004, an asset becomes NPA if
the dues are not paid for 90 days. Further, if any advance granted to a borrower
becomes NPA, the bank will have to treat all other advances given to the same
borrower as NPA if they have performing status.
Classification of Bank Advances.
On the basis of the recommendations of the Narasimhan Committee on
Banking Sector Reforms, RBI has issued directions to banks to classify their assets
(advances) in to the following four categories: 16
1. Standard assets
2. Sub-standard assets
3. Doubtful assets
 62

4. Loss assets
Standard assets.
Standard assets are those assets, which do not cause any problem to the
bank. Standard assets fetch a regular income to the bank and therefore they are
treated as performing assets. Standard assets carry only the normal risk attached to
the business.
Sub-standard assets.
Sub- standard assets are those assets, which have been classified as NPA for
a period not exceeding 18 months. In the case of sub- standard assets, the current
net worth of the borrower, guarantor or the market value of the security is not
enough to recover the asset in full. Sub-standard assets have credit weakness that
prevents the recovery of the debt and if the weakness is not cured, there is every
possibility of incurring loss to the bank.
Doubtful assets.
Doubtful asset are those assets which have remained as NPAs for a period
exceeding 18 months. A loan classified as doubtful debts has all the weakness of
sub-standard assets plus some more additional risk problems.
Loss assets.
Loss assets are those NPA accounts where the bank or internal auditor or
RBI has identified loss but that amount has not been written off wholly or partly. A
loss asset is considered irrecoverable and it has no realizable value of security.
Standard assets are treated as performing assets and the remaining three, ie,
sub-standard assets, doubtful assets and loss assets are considered as Non-
Performing Assets.
Impact of NPAs.
The existence of a sound and healthy banking system is an essential pre-
condition for attaining economic growth. Mounting NPAs in banks weaken their
financial base. The major impact of NPAs is as follows:
 63

1. Paralyses economic growth.

Finance being the lifeblood of every business, it should flow uninterruptedly
to the business in order to ensure economic growth. Accumulation of NPAs stand
as a major hindrance in the flow of money to various sections of the economy.
2. High cost of funds.
If NPAs of banks grow, genuine borrowers find it difficult to get loans from
banks whenever they require. This is because banks may impose stringent
conditions on borrowers or even charge high cost to compensate for the chances of
default.
3. Low profitability.
Mounting NPAs eat major part of the profits of commercial banks. They
have to keep adequate provision from their profits in order to meet any
contingencies in future.
4. Bank’s reluctance to lend.
Banks shy away from lending to corporate and business establishments for
fear of default. This leads to shortage of funds to carry out economic activities that
cause serious repercussions in the economy. Because of poor employment
opportunities the standard of living of the people in the country deteriorates.

Consolidation in banking industry: Mergers and Acquisitions.

It has been of late realized globally that consolidation through Mergers and
Acquisitions is the only way to gain critical mass domestically and internationally
and as such the whole range of industries are looking to strategic acquisitions with
in India and abroad. Banking is no exception to this global phenomenon, the Indian
banking sector is also steadily gearing up towards a healthy consolidation through
mergers and acquisitions under aegis of structural reforms as banking sector has
employed large capital and is equally fragmented co-existing with multiple players,
thus requires a well-defined restructuring process. Today, there are too many banks
to handle the size of the business we are having in the system. In order to attain the
 64

economies of scale and also to combat the unhealthy competition with in the sector
besides emerging as a competitive force to reckon with in the international
economy; the consolidation of Indian banking sector through mergers and
acquisitions on commercial considerations and business strategies is the essential
pre-requisite. The concentration of economic power occurs, inter alia, through
mergers and acquisitions.
Merger or Amalgamation.
Merger is defined as ‘combination of two or more companies into a single
company where one survives and the others lose their corporate existence’. The
survivor acquires the assets as well as liabilities of the merged company or
companies.
Acquisition or Take over.
Acquisition in general is acquiring the ownership in the property. In the
context of business combinations, an acquisition is the purchase by one company
of a controlling interest in the share capital of another existing company. A take
over is acquisition and both the terms are used interchangeably.
Objectives of Mergers
Mergers are well- recognized commercial practices for growth and
diversification of manufacturing, business and service activities. The factors that
motivate mergers are , to-
1. Diversify the areas of activities; achieve optimum size of business
2. Remove certain key factors and other bottlenecks of input supplies
3. Improve the profitability
4. Serve the customer better
5. Achieve economies of scale and size, internal and external
6. Acquire assets at lower than the market price
7. Bring separate enterprises under single control
8. Grow with out gestation period; and nurse a sick unit and get tax advantage
by acquiring a running concern.
 65

Benefits of Mergers
1. Cost savings – Cost savings constitute an important outcome as well as the
reason of mergers and acquisitions. It emerges that economies of scale is a
very important motivating factor for consolidation.
2. Revenue enhancement – The revenue enhancement due to increased size is a
moderately important factor motivating domestic within-segment mergers
3. Deregulation –Easing of legal and regulatory barriers has opened the way for
increased mergers and acquisitions, both within and across boundaries and
both within and across financial industry segments.
4. Shareholders pressure –Shareholders have gained power relative to other
stakeholders in recent years. This development has put increased pressure on
financial institutions to improve profitability. Consolidation has in many
cases seemed an attractive way o accomplish this objective.
Disadvantages
1. Customer service –Merger of two companies may result in dilution of
competition in the market, adversely affecting consumer’s interests. In
banking industry, the same may lead to monopoly affecting the customer
service, in rendering banking services.
2. Elimination of competition –In a merger/amalgamation, an individual
undertaking, be it an actual or a potential competitor, may get eliminated.
3. Depositors interest –In most cases, though mergers of banks are objected
towards safeguarding or protecting the interests of the depositors, in most
cases, depositors have suffered in the amalgamation process.
 66

Banks Amalgamated since Nationalization of Banks in India

Sl.No Name of the transferor Name of the transferee Date of
bank bank amalgamation

1 Bank of Bihar Ltd State Bank of India November 8,1969

2 National Bank of Lahore Ltd State Bank of India February 20,1970
3 Miraj State Bank Ltd Union Bank of India July 29,1985
4 Lakshmi Commercial Bank Ltd Canara Bank August 24,1985
5 Bank of Cochin Ltd State Bank of India August 26,1985
6 Hindustan Commercial Bank Ltd Punjab National Bank December 19,1986
7 Traders Bank Ltd Bank of Baroda May 13,1988
8 United Industrial Bank Ltd Allahabad Bank October 31, 1989
9 Bank of Tamilnadu Ltd Indian Overseas Bank February 20,1990
10 Bank of Thanjavur Ltd Indian Bank February 20,1990
11 Parur Central Bank Ltd Bank of India February 20,1990
12 Purbanchal Bank td Central Bank of India August 29,1990
13 New Bank of India Punjab National Bank September 4,1993
14 Kashi Nath Seth Bank Ltd State Bank of India January 1,1996

15 Bari Doab Bank Ltd Oriental Bank of Commerce April 8,1997

16 Punjab Co-operative Bank Ltd Oriental Bank of Commerce April 8,1997

17 Bareilly Corporation Bank Ltd Bank of Baroda June 3,1999

18 Sikkim Bank Ltd Union Bank of India December 22,1999
19 Times Bank Ltd HDFC Bank Ltd February 26,2000
20 Bank of Madura Ltd ICICI Bank Ltd March 10,2001
21 Benares State Bank Ltd Bank of Baroda June 20,2002
22 Nedungadi bank Ltd Punjab National Bank February 1,2003
23 South Gujrat Local Area Bank Ltd Bank of Baroda June 25,2004
24 Global Trust Bank Ltd Oriental Bank of Commerce August 14,2004
25 IDBI Bank Ltd IDBI Ltd April 2,2005
26 Bank of Punjab Ltd Centurion Bank Ltd October 1,2005
Source: Report on Trend and Progress of Banking in India, 2004-05,p 177
 67

Non-Banking Financial Institutions in Kerala. (NBFIs)

Non-Banking financial institutions have become an integral part of
economic life by virtue of variety of services offered by them. Some of them are:
1. Leasing and Hire Purchase Financing
2. Consumer Finance and Investment Banking.
3. Issue Management and Underwriting.
4. Bill Discounting / Rediscounting.
5. Inter-Corporate Deposit and Venture Capital Finance.
6. Short term Bridge Loans/Promoter Funding.
7. Project Finance, Project Counseling, and Pre-investment studies.
8. Mergers and Amalgamations including Takeovers.
9. Housing Finance and Credit Card issuance.
The main NBFIs functioning in the state include Kerala State Industrial
Development Corporation (KSIDC), Kerala Finance Corporation (KFC), Kerala
Transport Development Finance Corporation KTDCF), Kerala State Financial
Enterprises (KSFE), other deposit taking NBFIs registered with RBI, Chit
Companies, Money Lending Institutions, Institutions unregistered and registered in
other states but operating in Kerala.
It is against this background that the State Planning Board constituted a
Working Group under the chairmanship of a member, to study the functioning of
NBFIs in the State. The Working Group submitted its report in March 2006. The
study revealed that between 1997-98 to 2002-03; nearly 45000 chit funds were
registered in the formal sector in Kerala with a total capital turnover of 36000
crores. Similarly, there are 5696 money lending institutions in the organized sector
in Kerala as on March 2004. At the same time there are only 3376 commercial
bank branches in the State. In a sense, the money lending institutions are
overtaking the organized banking sector. Further, there is a vast informal sector
with numerous unregistered institutions operating in each and every nook and
corner of the State. Population covered per money lending institution in the State is
5590 as against 9431 per branch in the banking sector 17.
 68

References:
1.
Macleod; Theory of credit.
2.
S.N Maheswari and R.R Paul, Banking Theory Law and Practice, Kalyani
Publishers, New Delhi, 2001: p 3
3.
Crowther G, An Outline Money, 1958,pp 22-23.
4.
S .N Maheswari and R.R Paul, Banking Theory Law and Practice, Kalyani
Publishers, New Delhi, 2001: p 109
5.
IBA Bulletin, Special issue, Vol. XXVII No.1 Jan 2005: 104-105
6.
Oommen, M. A. “Rise and Growth of Banking in Kerala”, Social Scientist, Vol.5
No.3,October 1976.
7.
Travavcore Banking Enquiry Committee Report 1930.
8.
Travavcore Banking Enquiry Committee Report 1930.
9.
Travavcore Banking Enquiry Committee Report 1956.
10.
Statistical Tables Relating to Banks in India 2004-05, RBI: XII
11.
Statistical Tables Relating to Banks in India 2004-05, RBI: XII
12.
Statistical Tables Relating to Banks in India 2004-05, RBI: XII
13.
Statistical Tables Relating to Banks in India 2004-05, RBI: XII
14.
Statistical Tables Relating to Banks in India 2004-05, RBI: XII
15.
Narasimham Committee Report on Banking Sector Reforms, RBI, Mumbai, 1988
16.
Narasimham Committee Report on Banking Sector Reforms, RBI, Mumbai, 1988
17
. Economic Review, 2005, P 477.