Banking Sector In India

INTRODUCTION
y Banking in India originated in the last decades of the 18th century.The

first bank was The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790. y 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. y 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

y For many years the Presidency banks acted as quasi-central banks, as did

their successors. y 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
y 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. y 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). y The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. y 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.

y The period between 1906 and 1911, saw the establishment of banks

inspired by the Swadeshi movement. y During the FirstWorldWar (1914-1918) through the end of the Second WorldWar (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking y The years of the FirstWorldWar were turbulent, 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 that failed 12 42 11 13 9 7

Authorized capital (Rs. Lakhs) 274 710 56 231 76 209

Paid-up Capital (Rs. Lakhs) 35 109 5 4 25 1

1913 1914 1915 1916 1917 1918

Banks Nationalization In India

y 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. y By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. y At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry.

Bank Liberalization In India

y In the early 1990s, the government embarked on a policy of

liberalization, licensing a small number of private banks. y The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment. y In March 2006, the Reserve Bank of India allowedWarburg Pincus to increase its stake in Kodak Mahindra Bank (a private sector bank) to 10%. y 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.

What is commercial bank?

The term "commercial bank" has come to refer mostly to large banks that deal with primarily corporate clients. y Commercial banks, the name given to normal banks to differentiate them from investment banks, have a significant role in the economy. y After 1999 the Gramm-Leach-Bliley Act, investment banks and commercial banks were no longer required to be legally separated, and mergers began to occur.

y y

y y

Role of commercial bank The role of commercial banks is to aggregate deposits, and to lend out money. By aggregating the savings of multiple parties in the economy and lending out this aggregated capital to someone else, banks promote economic activity. Significance By aggregating capital and lending it out again, banks are performing an economically useful service. This takes the savings from multiple people and allows the economy to use these savings for new production.

Effects y In their role as lenders, commercial banks strongly affect the financial system. y Commercial banks lower costs by enabling multiple buyers and sellers to interact without direction interaction. Warning on Brokered Deposits y One risk of commercial banks especially is the problem with brokered deposits. y Since commercial banks offer themselves especially to wealthy clients, they are likely to try to offer higher interest rates for the clients willing to deposit the most amount of money.

Banking industry in India

y The banking industry in India is sufficiently capitalized and regulated. y The economic and financial conditions here are better than in any other y

y y y y

country. The Reserve Bank of India (RBI) is the topmost body monitoring the Banking Industry. Any shortcomings or discrepancies are dealt with by the RBI. Internet banking is also gaining prominence. The phone banking sector is also gaining in popularity. FDI in this sector has been raised. 74% FDI via the automatic route is allowed in the private sector banks. Overall, the Indian banking industry has immense potential for further growth and expansion.

What is the importance of banking?

y Banks play very important role in the economic life of the nation. y The health of the economy is closely related to the soundness of its banking y

y y y y

system. Although banks create no new wealth but their borrowing, lending and related activities facilitate the process of production, distribution, exchange and consumption of wealth. Today, modern banks are very useful for the utilization of the resources of the country. The banks are mobilizing the savings of the people for the investment purposes. The savings are encouraged and saving rate increases. If there would be no banks then a great portion of a capital of the country would remain idle.

Commercial Banking for the Rural Sector

y The GDP growth rate has been much higher than the neo-Hindu rate

growth and it has averaged over eight per cent during the past three years. y The commercialization of agriculture, as also technology intensification has resulted in creation of substantial surplus labor in the agriculture sector. y As a result, as per the results of the Economic Census 2005, employment growth in the non-farm sector is much lower and average employment itself has declined during the 1990s as compared to the 1980s.

Historical perspective
y ADOPTION of a policy of social control over banks in 1967 and the

nationalization of 14 major scheduled commercial banks in 1969 have proved to be two major turning-points in the history of commercial banks in India. y The setting up of Regional Rural Banks in 1975 and nationalization of another five banks in 1980 further revealed the concern of the government towards meeting the credit requirements of agriculturists. y Reserve Bank of India had advised the public sector banks to prepare Special Agricultural Credit Plans (SACP) in 1994-95.

Banking on growth binge

With the economy firmly on a growth path, the banking sector is showing robust growth, with several banks, both in the public and private sector, posting substantial growth in profit figures. Among public sector banks, Oriental Bank of Commerce registered one of the highest percentage increase year-over-year in net profits for the quarter ended June 30, 2010, with 41 per cent growth to Rs 363 crore, against Rs 257 crore in the same quarter in the previous year. The private sector banks, including HDFC Bank, Kodak Mahindra Bank andYes Bank, which have announced results have also shown decent increase in net profit.

Retail push
y Among the private sector banks, HDFC Banks retail loan grew by 24.4

per cent over June 30, 2009 to Rs 76,068 crore and accounted for 51.5 per cent of gross advances, while Kodak Mahindra Banks retail loan book has grown to Rs 1,350 crore during the June quarter of 2010-11. y Yes Bank, which has been slow to take off on the retail front, is now looking at increasing its retail loan book to around 10 per cent during this financial year. y Retail lending is gaining greater importance in the banking industry. y Indian Bank is planning to provide a major push to its retail loans portfolio,

Banking and Insurance Concerns for the Indian Real Estate Sector
y Banking, insurance and real estate are considered the three siblings

intervened with one another with more than one strings. y All developing and developed nations have long realized their importance and hence these are closely monitored and regulated by respective Governments and independent regulatory authorities, with of course one exception, the real estate markets of India.

y To start with Earthquake Resistant is now classified into three separate

categories : y Earthquake Resistant Life Safety minimum level of earthquake protection, aims at preventing total building collapse, however there will be structural damage and the building may warrant demolition and reconstruction. y Earthquake Resistant Immediate Occupancy next higher level of earthquake protection y Earthquake Resistant Fully Operational highest level of earthquake protection ensures safety and operation ability of non-structural components in addition to the Immediate Occupancy standard of the building structure.

Employment of women in India's banking sector

y Indias banking sector has witnessed explosive growth and expansion ever

since the era of economic reforms was launched nearly two decades ago. y In fact, the nationalization of the Indian banking sector in 1969 served as the first major step to reduce gender discrimination against women in banking jobs y The Hong Kong and Shanghai Banking Corporation (HSBC) India, also encourages a high recruitment rate for women. y Sources say that the bank believes women tend to put in greater effort in their work, and many times, are better qualified to perform the job than their men counterparts.

y Women are more diligent towards their duty, and have a much smaller

incidence of being involved in corrupt and fraudulent activities against the interests of the bank. y Women who are looking to strike a better balance between work and familial responsibilities tend to prefer jobs in the banking sector. y Shining examples for holding top management banking position like Naina Lal Kidwai of the HSBC, Manisha Girotra of the Swiss Bank UBS in India, and Chanda Kochhar of the ICICI Bank, who have made it to the very top in Indian banking.

Banking sector growth to remain high

y Mumbai: Despite intense competition and high inflationary pressures,

India's banking sector will continue to show high growth owing to the country's strong economic expansion, credit rating agency Standard & Poor's (S&P) said today. y "Growth in India's banking sector will remain high, bolstered by sound economic growth prospects...We expect credit growth of about 20 per cent in the next fiscal year," S&P said. y The growth in banking would happen despite high domestic inflation and intense competition in the sector, it added.

BANKING ON THE FUTURE

y The challenge for banks is to facilitate transactions among people who

are part of the informal and cash-oriented economy. y The most important of these, as it appeared in the discussion, was the issue of consolidation. y There appeared to be strong agreement amongst the panelists that the banking sector in India was way too fragmented. y The challenge for the banking system is to facilitate transactions among people who are currently part of the informal and, consequently, cashoriented economy.

y One is the fact that services of all kinds will play a very large role in the y y y y

growth process. Banks have traditionally found it difficult to lend to most service businesses because of the lack of tangible collateral. The other is the high cash intensity of transactions in the economy, even among people who use banking services. A third theme that received attention during the round table was technology. Anybody who has been using banking services in India over the last couple of decades will acknowledge the enormous progress it has made in using technology to lower costs and increase customer convenience.

CONCLUSION
y Banking Sector in India is likely to undergo a major change. y This change will be in the form of mergers and acquisitions y y y y

and takeovers. The State Bank of India may merge all its associate banks with itself to make a one bank. The banks based in South India may look for a bank in North India to have presence in North. Similarly banks in North may look for banks in South to increase its area of operations. Consolidation will be the key to the banking sector in future.

ROLL NO.
y 12 KRISHNA DESAI y 14 DHARINI GIRI y 20 URVASHI JAIN y 41 RUSHABH MEHTA y 46- URVI SADHANI y 48- ADITI SHAH