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Evolution of BANKING IN ‘INDIA’

Krutika Rathod Shreeja Nair Dhanashree Garde

Sona Sarvaiya

either directly or through capital markets A bank connects customers that have capital deficits to customers with capital surpluses .WHAT IS BANK? A financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities.

EVOLUTIONARY PHASES Indigenous Reign Direct intervention of the state Liberalization Transition Entry of foreign banks .

INDIGENOUS REIGN Ancient Hindu scriptures refer to the money lending activities in the Vedic period Vedas and the Manu Smriti period Kautalyas arthashastra suggested maximum and minimum interest rate British rule almost wiped out these tribes by bringing European banks from urban They moved to villages .

HOW DID SAHUKAR LEND? Borrower is known Very little documentation Sahukar usually a bad guy Exorbitant rates of interest Compounded shorter intervals Records tampered Mostly mortgaged lending on land. properties. jewels Most cases poor borrowers surrender properties .

Two important functions:  Accepting deposits  Lending monies and/or investment of funds .WHAT IS BANKING? Banking.different from money lending but two terms have in practice been taken to convey the same meaning.

PHASE I English traders.Establishment of the General Bank of India. as a joint stock company . who came to India in the 17th century established some contacts with the indigenous bankers by borrowing funds from them English Agency House established the Bank of Bengal at Calcutta Had no capital of their own and depended mainly on deposits from the public for finance Agency houses failed as they combined banking with trading 1786.

Bank Of Madras 1920.Three banks were amalgamated to form the New Imperial Bank of India .Bank Of Bengal 1840.Later the bank of Hindustan and Bengal Bank came into existence The East India company established three banks.The Bank Of Bombay 1843. 1809.

PHASE II: Nationalization Major aim.To give priority to meet the credit requirement of the neglected sectors Credit facility to be extended at subsidized rates As a result profitability and competition took a back seat .

the Central Bank of the country The RBI is the sole authority for • Issuing bank notes • Exercises the power to control the Indian Banking Industry • Supervising exchange control and banking regulations • Administers the governments monetary policy • Granting licenses for new bank branches .PHASE II-Direct Intervention Government intervention begin in 1930’s 1935.The Reserve Bank of India was constituted as shareholder’s bank.

The Imperial bank was nationalized and renamed as ‘State Bank of India’ • to act as the principle agent of RBI • to handle banking transactions. with extensive banking facilities on a large scale especially in rural and semi urban areas .1955.

INTERVENTION: NATIONALIZATION 1973-74 1974-75 1982-83 Setting targets for priority sector lending Prescription of norms for lending and working capital limits Establishment of National Bank of Agriculture and Rural Development (NABARD) 1985-86 Introduction of MICR technology Introduction of Health Code system for bank loans Permission to banks to float mutual funds Adoption of Service Area Approach Establishment of the Small Industries Development Bank of India (SIDBI) 1985-86 1988-89 1989-90 .

retail trade. small business and small transport operators Poverty alleviation and employment generation programs The success of green revolution and the increase of aggregate food grain production . Small Scale Industries.EFFECT OF NATIONALISATION The focus of lending Priority sectors were agriculture.

not on business line Deterioration of banker-customer relationship Poor services Employees strike No healthy competition among banks .OTHER SIDES OF NATIONALISATION Borrowing and lending restricted.

PHASE III – LIBERALIZATION Constitution of Narasimham committee and its report on banking reforms in 1991 It covered the areas of interest rate deregulation and directed credit rules Statutory preemptions and entry de-regulation for both domestic and foreign banks Lowering of the CRR and SLR .

Interest rate liberalization Do away with entry barriers By march 2004 the new private sector banks and the foreign banks share almost 20% of total assets Prudential norms act against NPA’s .

PHASE IV TRANSITION Most Indian banks lagging behind the areas of customer funds transfer and clearing systems Over-staffed and not able to compete with new generation private banks New banks and foreign banks still face restrictions in their activities New banks are well capitalized .

Use modern equipment Attract high caliber employees Time to strengthen their balance sheet. consolidate and over all become more robust so that they could compete .

ERA OF ECONOMIC REFORMS (1992-2002) Main plank of economic reforms : Stabilize economy Deregulation of the real and financial sectors Integration with world economy .

VARIOUS MEASURES (NARASIMHAM COMMITTE) Lowering CRR and SLR Dismantling administered interest Improving financial health of banks Amendment to the bank branch licensing policy Deregulation of interest rates on loans over Rs 2 lakh .

VARIOUS MEASURES TAKEN BY RBI AND GOVERNMENT Freedom to banks to decide their PLR Introduction of the concept of Local Area Banks Deregulation of interest rates on term deposits Introduction of VRS .

Indus Ind.PRIVATE SECTOR BANKS UTI bank Ltd. Times Bank Ltd. Bank Ltd. ICICI Banking Corporation Ltd. IDBI Bank Ltd. Kotak Mahindra Bank Ltd. Bank of Punjab Ltd. HDFC Bank Ltd. Global Trust Bank Ltd. .

BEYOND 2002 To Date : Challenges of Indian Banking system Technology used Two models introduced : i) Universal Banking ii) CRM .

Changing for better: Striking transformation Playing the role of a financial intermediary with a degree of efficiency and sophistication Banks acting as a catalyst Indian banks have grown in size. scale and scope of operations Deposit mobilization is proceeding briskly apace .

of customers served.Lending is also in terms of diversification of portfolio. efficiency in delivery and at competitive rates of interest Banking system has become financially healthy SBI now fully owned by govt.. among rural. RBI is geared to exercise its regulatory and supervisory functions An era of greater competition and consolidation No. of branches. no. semi-urban and urban centers .

has taken recourse to the latest in information technology Automation and Computerization has made world easy for customers as well .Other sectors are able to tap banks for funds Stiffer norms by RBI Quick and hassle free service Simplified systems and procedures.

NEW BANKS TO BE IN INDIA Royal bank of Scotland Switzerland UBS Us based GE capital Credit Suisse group Industrial and Commercial bank of China .