Introduction The banking section will navigate through all the aspects of the Banking System in India. It will discuss upon the matters with the birth of the banking concept in the country to new players adding their names in the industry in coming few years. The banker of all banks, Reserve Bank of India (RBI), the Indian Banks Association (IBA) and top 20 banks like IDBI, HSBC, ICICI, ABN AMRO, etc. has been well defined under three separate heads with one page dedicated to each bank. However, in the introduction part of the entire banking cosmos, the past has been well explained under three different heads namely: History of Banking in India Nationalisation of Banks in India Scheduled Commercial Banks in India The first deals with the history part since the dawn of banking system in India. Government took major step in the 1969 to put the banking sector into systems and it nationalised 14 private banks in the mentioned year. This has been elaborated in Nationalisationof Banks in India. The last but not the least explains about the scheduled and unscheduled banks in India. Section 42 (6) (a) of RBI Act 1934 lays down the condition of scheduled commercial banks. The description along with a list of scheduled commercial banks are given on this page. Public Sector Banks In India Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks which were nationalised on July 19, 1969. Its predecessor, in the Public Sector Banks, the United Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932). Oriental Bank of Commerce (OBC), a Governmet of India Undertaking offers Domestic, NRI and Commercial banking services. OBC is implementing a GRAMEEN PROJECT in Dehradun District (UP) and Hanumangarh District (Raiasthan) disbursing small loans. This Public Secotor Bank India has implemented 14 point action plan for strengthening of credit delivery to women and has designated 5
Transcript
IntroductionThe banking section will navigate through all the aspects of the Banking System in India. It will discuss upon the matters with the birth of the banking concept in the country to new players adding their names in the industry in coming few years.
The banker of all banks, Reserve Bank of India (RBI), the Indian Banks Association (IBA) and top 20 banks like IDBI, HSBC, ICICI, ABN AMRO, etc. has been well defined under three separate heads with one page dedicated to each bank.
However, in the introduction part of the entire banking cosmos, the past has been well explained under three different heads namely:
History of Banking in India Nationalisation of Banks in India Scheduled Commercial Banks in India
The first deals with the history part since the dawn of banking system in India. Government took major step in the 1969 to put the banking sector into systems and it nationalised 14 private banks in the mentioned year. This has been elaborated in Nationalisationof Banks in India. The last but not the least explains about the scheduled and unscheduled banks in India. Section 42 (6) (a) of RBI Act 1934 lays down the condition of scheduled commercial banks. The description along with a list of scheduled commercial banks are given on this page.
Public Sector Banks In IndiaAmong the Public Sector Banks in India, United Bank of India is one of the 14 major banks which were nationalised on July 19, 1969. Its predecessor, in the Public Sector Banks, the United Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932).
Oriental Bank of Commerce (OBC), a Governmet of India Undertaking offers Domestic, NRI and Commercial banking services. OBC is implementing a GRAMEEN PROJECT in Dehradun District (UP) and Hanumangarh District (Raiasthan) disbursing small loans. This Public Secotor Bank India has implemented 14 point action plan for strengthening of credit delivery to women and has designated 5 branches as specialized branches for women entrepreneurs.
The following are the list of Public Sector Banks in India
Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharastra Canara Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank Indian Bank
Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank
List of State Bank of India and its subsidiary, a Public Sector Banks
State Bank of India o State Bank of Bikaner & Jaipur o State Bank of Hyderabad o State Bank of Indore o State Bank of Mysore o State Bank of Saurastra o State Bank of Travancore
Banking services in India With years, banks are also adding services to their customers. The Indian banking
industry is passing through a phase of customers market. The customers have more choices in choosing their banks. A competition has been established within the banks operating in India.
With stiff competition and advancement of technology, the services provided by banks has become more easy and convenient. The past days are witness to an hour wait before withdrawing cash from accounts or a cheque from north of the country being cleared in one month in the south.
This section of banking deals with the latest discovery in the banking instruments along with the polished version of their old systems.
Financial and Banking Sector ReformsThe last decade witnessed the maturity of India's financial markets. Since 1991, every governments of India took major steps in reforming the financial sector of the country. The important achievements in the following fields is discussed under serparate heads:
Financial markets Regulators The banking system Non-banking finance companies The capital market Mutual funds Overall approach to reforms Deregulation of banking system
Capital market developments Consolidation imperative
Now let us discuss each segment seperately.
Financial Markets
In the last decade, Private Sector Institutions played an important role. They grew rapidly in commercial banking and asset management business. With the openings in the insurance sector for these institutions, they started making debt in the market.
Competition among financial intermediaries gradually helped the interest rates to decline. Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high price while depositors had incentives to save. It was something between the nominal rate of interest and the expected rate of inflation.
Regulators
The Finance Ministry continuously formulated major policies in the field of financial sector of the country. The Government accepted the important role of regulators. The Reserve Bank of India (RBI) has become more independant. Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) became important institutions. Opinions are also there that there should be a super-regulator for the financial services sector instead of multiplicity of regulators.
The banking system
Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges.
The RBI has given licences to new private sector banks as part of the liberalisation process. The RBI has also been granting licences to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance.
The PSBs will play an important role in the industry due to its number of branches and foreign banks facing the constrait of limited number of branches. Hence, in order to achieve an efficient banking system, the onus is on the Government to encourage the PSBs to be run on professional lines.
Development finance institutions
FIs's access to SLR funds reduced. Now they have to approach the capital market for debt and equity funds.
Convertibility clause no longer obligatory for assistance to corporates sanctioned by term-lending institutions.
Capital adequacy norms extended to financial institutions.
DFIs such as IDBI and ICICI have entered other segments of financial services such as commercial banking, asset management and insurance through separate ventures. The move to universal banking has started.
Non-banking finance companies
In the case of new NBFCs seeking registration with the RBI, the requirement of minimum net owned funds, has been raised to Rs.2 crores.
Until recently, the money market in India was narrow and circumscribed by tight regulations over interest rates and participants. The secondary market was underdeveloped and lacked liquidity. Several measures have been initiated and include new money market instruments, strengthening of existing instruments and setting up of the Discount and Finance House of India (DFHI).
The RBI conducts its sales of dated securities and treasury bills through its open market operations (OMO) window. Primary dealers bid for these securities and also trade in them. The DFHI is the principal agency for developing a secondary market for money market instruments and Government of India treasury bills. The RBI has introduced a liquidity adjustment facility (LAF) in which liquidity is injected through reverse repo auctions and liquidity is sucked out through repo auctions.
On account of the substantial issue of government debt, the gilt- edged market occupies an important position in the financial set- up. The Securities Trading Corporation of India (STCI), which started operations in June 1994 has a mandate to develop the secondary market in government securities.
Long-term debt market: The development of a long-term debt market is crucial to the financing of infrastructure. After bringing some order to the equity market, the SEBI has now decided to concentrate on the development of the debt market. Stamp duty is being withdrawn at the time of dematerialisation of debt instruments in order to encourage paperless trading.
The capital market
The number of shareholders in India is estimated at 25 million. However, only an estimated two lakh persons actively trade in stocks. There has been a dramatic improvement in the country's stock market trading infrastructure during the last few years. Expectations are that India will be an attractive emerging market with tremendous potential. Unfortunately, during recent times the stock markets have been constrained by some unsavoury developments, which has led to retail investors deserting the stock markets.
Mutual funds
The mutual funds industry is now regulated under the SEBI (Mutual Funds) Regulations, 1996 and amendments thereto. With the issuance of SEBI guidelines, the industry had a framework for the establishment of many more players, both Indian and foreign players.
The Unit Trust of India remains easily the biggest mutual fund controlling a corpus of nearly Rs.70,000 crores, but its share is going down. The biggest shock to the mutual fund industry
during recent times was the insecurity generated in the minds of investors regarding the US 64 scheme. With the growth in the securities markets and tax advantages granted for investment in mutual fund units, mutual funds started becoming popular.
The foreign owned AMCs are the ones which are now setting the pace for the industry. They are introducing new products, setting new standards of customer service, improving disclosure standards and experimenting with new types of distribution.
The insurance industry is the latest to be thrown open to competition from the private sector including foreign players. Foreign companies can only enter joint ventures with Indian companies, with participation restricted to 26 per cent of equity. It is too early to conclude whether the erstwhile public sector monopolies will successfully be able to face up to the competition posed by the new players, but it can be expected that the customer will gain from improved service.
The new players will need to bring in innovative products as well as fresh ideas on marketing and distribution, in order to improve the low per capita insurance coverage. Good regulation will, of course, be essential.
Overall approach to reforms
The last ten years have seen major improvements in the working of various financial market participants. The government and the regulatory authorities have followed a step-by-step approach, not a big bang one. The entry of foreign players has assisted in the introduction of international practices and systems. Technology developments have improved customer service. Some gaps however remain (for example: lack of an inter-bank interest rate benchmark, an active corporate debt market and a developed derivatives market). On the whole, the cumulative effect of the developments since 1991 has been quite encouraging. An indication of the strength of the reformed Indian financial system can be seen from the way India was not affected by the Southeast Asian crisis.
However, financial liberalisation alone will not ensure stable economic growth. Some tough decisions still need to be taken. Without fiscal control, financial stability cannot be ensured. The fate of the Fiscal Responsibility Bill remains unknown and high fiscal deficits continue. In the case of financial institutions, the political and legal structures hve to ensure that borrowers repay on time the loans they have taken. The phenomenon of rich industrialists and bankrupt companies continues. Further, frauds cannot be totally prevented, even with the best of regulation. However, punishment has to follow crime, which is often not the case in India.
Deregulation of banking system
Prudential norms were introduced for income recognition, asset classification, provisioning for delinquent loans and for capital adequacy. In order to reach the stipulated capital adequacy norms, substantial capital were provided by the Government to PSBs.
Government pre-emption of banks' resources through statutory liquidity ratio (SLR) and cash reserve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides almost entirely were deregulated.
New private sector banks allowed to promote and encourage competition. PSBs were
encouraged to approach the public for raising resources. Recovery of debts due to banks and the Financial Institutions Act, 1993 was passed, and special recovery tribunals set up to facilitate quicker recovery of loan arrears.
Bank lending norms liberalised and a loan system to ensure better control over credit introduced. Banks asked to set up asset liability management (ALM) systems. RBI guidelines issued for risk management systems in banks encompassing credit, market and operational risks.
A credit information bureau being established to identify bad risks. Derivative products such as forward rate agreements (FRAs) and interest rate swaps (IRSs) introduced.
Capital market developments
The Capital Issues (Control) Act, 1947, repealed, office of the Controller of Capital Issues were abolished and the initial share pricing were decontrolled. SEBI, the capital market regulator was established in 1992.
Foreign institutional investors (FIIs) were allowed to invest in Indian capital markets after registration with the SEBI. Indian companies were permitted to access international capital markets through euro issues.
The National Stock Exchange (NSE), with nationwide stock trading and electronic display, clearing and settlement facilities was established. Several local stock exchanges changed over from floor based trading to screen based trading.
Private mutual funds permitted
The Depositories Act had given a legal framework for the establishment of depositories to record ownership deals in book entry form. Dematerialisation of stocks encouraged paperless trading. Companies were required to disclose all material facts and specific risk factors associated with their projects while making public issues.
To reduce the cost of issue, underwriting by the issuer were made optional, subject to conditions. The practice of making preferential allotment of shares at prices unrelated to the prevailing market prices stopped and fresh guidelines were issued by SEBI.
SEBI reconstituted governing boards of the stock exchanges, introduced capital adequacy norms for brokers, and made rules for making client or broker relationship more transparent which included separation of client and broker accounts.
Buy back of shares allowed
The SEBI started insisting on greater corporate disclosures. Steps were taken to improve corporate governance based on the report of a committee.
SEBI issued detailed employee stock option scheme and employee stock purchase scheme for listed companies.
Standard denomination for equity shares of Rs. 10 and Rs. 100 were abolished. Companies
given the freedom to issue dematerialised shares in any denomination.
Derivatives trading starts with index options and futures. A system of rolling settlements introduced. SEBI empowered to register and regulate venture capital funds.
The SEBI (Credit Rating Agencies) Regulations, 1999 issued for regulating new credit rating agencies as well as introducing a code of conduct for all credit rating agencies operating in India.
Consolidation imperative
Another aspect of the financial sector reforms in India is the consolidation of existing institutions which is especially applicable to the commercial banks. In India the banks are in huge quantity. First, there is no need for 27 PSBs with branches all over India. A number of them can be merged. The merger of Punjab National Bank and New Bank of India was a difficult one, but the situation is different now. No one expected so many employees to take voluntary retirement from PSBs, which at one time were much sought after jobs. Private sector banks will be self consolidated while co-operative and rural banks will be encouraged for consolidation, and anyway play only a niche role.
In the case of insurance, the Life Insurance Corporation of India is a behemoth, while the four public sector general insurance companies will probably move towards consolidation with a bit of nudging. The UTI is yet again a big institution, even though facing difficult times, and most other public sector players are already exiting the mutual fund business. There are a number of small mutual fund players in the private sector, but the business being comparatively new for the private players, it will take some time.
We finally come to convergence in the financial sector, the new buzzword internationally. Hi-tech and the need to meet increasing consumer needs is encouraging convergence, even though it has not always been a success till date. In India organisations such as IDBI, ICICI, HDFC and SBI are already trying to offer various services to the customer under one umbrella. This phenomenon is expected to grow rapidly in the coming years. Where mergers may not be possible, alliances between organisations may be effective. Various forms of bancassurance are being introduced, with the RBI having already come out with detailed guidelines for entry of banks into insurance. The LIC has bought into Corporation Bank in order to spread its insurance distribution network. Both banks and insurance companies have started entering the asset management business, as there is a great deal of synergy among these businesses. The pensions market is expected to open up fresh opportunities for insurance companies and mutual funds.
It is not possible to play the role of the Oracle of Delphi when a vast nation like India is involved. However, a few trends are evident, and the coming decade should be as interesting as the last one.
Reserve Bank of India (RBI)Kindly Take Note : Reserve Bank of India (RBI) is the central bank of the country and is different from Central Bank of India.
RBI Governor announces Mid-term Review of Annual Policy for 2006-07
The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which was entirely owned by private shareholders in the begining. The Government held shares of nominal value of Rs. 2,20,000.
Reserve Bank of India was nationalised in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks.
The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.
The Bank was constituted for the need of following:
To regulate the issue of banknotes To maintain reserves with a view to securing monetary stability and To operate the credit and currency system of the country to its advantage.
Functions of Reserve Bank of India
The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the Reserve Bank of India.
Bank of Issue
Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-was period,
these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system.
Banker to Government
The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters.
Bankers' Bank and Lender of the Last Resort
The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilites and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India.
The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort.
Controller of Credit
The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank.
The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a licence from the Reserve Bank of India to do banking business within India, the licence can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power
to inspect the accounts of any commercial bank.
As supereme banking authority in the country, the Reserve Bank of India, therefore, has the following powers:(a) It holds the cash reserves of all the scheduled banks.
(b) It controls the credit operations of banks through quantitative and qualitative controls.
(c) It controls the banking system through the system of licensing, inspection and calling for information.
(d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.
Custodian of Foreign Reserves
The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. though there were periods of extreme pressure in favour of or against
the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F.
Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country.
Supervisory functions
In addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorised to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realisation of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.
Promotional functions
With economic growth assuming a new urgency since Independence, the range of the Reserve Bank's functions has steadily widened. The Bank now performs a varietyof developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central
banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialised financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field has become extremely important. The Bank has developed the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers.
Classification of RBIs functions
The monetary functions also known as the central banking functions of the RBI are related to control and regulation of money and credit, i.e., issue of currency, control of bank credit, control of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significant as they control and regulate the volume of money and credit in the country.
Equally important, however, are the non-monetary functions of the RBI in the context of India's economic backwardness. The supervisory function of the RBI may be regarded as a non-monetary function (though many consider this a monetary function). The promotion of sound banking in India is an important goal of the RBI, the RBI has been given wide and drastic powers, under the Banking Regulation Act of 1949 - these powers relate to licencing of banks, branch expansion, liquidity of their assets, management and methods of working, inspection, amalgamation, reconstruction and liquidation. Under the RBI's supervision and inspection, the working of banks has greatly improved. Commercial banks have developed into financially and operationally sound and viable units. The RBI's powers of supervision have now been extended to non-banking financial intermediaries. Since independence, particularly after its nationalisation 1949, the RBI has followed the promotional functions vigorously and has been responsible for strong financial support to industrial and agricultural development in the country.
RESERVE BANK OF INDIA ADDRESSReserve Bank of India,Central Office,Shaheed Bhagat Singh Road,Mumbai - 400 001.
History of Banking in IndiaWithout a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors.
For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reason of India's growth process.
The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money have become the order of the day.
The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:
Early phase from 1786 to 1969 of Indian Banks Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in india as the Central Banking Authority.
During those days public has lesser confidence in the banks. As an aftermath deposit
mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.
Phase II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas. It formed State Bank of india to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalised.
Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.
The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:
1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1961 : Insurance cover extended to deposits. 1969 : Nationalisation of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of regional rural banks. 1980 : Nationalisation of seven banks with deposits over 200 crore.
After the nationalisation of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.
Phase III
This phase has introduced many more products and facilities in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalisation of banking practices.
The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money.
The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered. This
is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure.
List of banks in IndiaFrom Wikipedia, the free encyclopedia
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This is a list of corporations engaged in banking business within the territory of India.
The following banks are subsidiaries of State Bank of India:
State Bank Bikaner & Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore State Bank of Indore (merged with SBI in 2010) State Bank of Saurashtra (merged with SBI in 2008)
[edit] Private Banks
Axis Bank (Formerly UTI Bank) HDFC Bank ICICI Bank (Siddhashila) Kotak Mahindra Bank Karnataka Bank Yes Bank IndusInd Bank The Nainital Bank Ltd. ING Vysya Bank South Indian Bank
[edit] Co-operative Banks
[edit] Scheduled Urban Co-operative Banks
List of Scheduled Urban Co-operative Bank as on 31-3-2009 as per Reserve Bank of India [1] :
SBI (California) Ltd.Los Angeles, Artesia,San Jose (Silicon Valley)
SBI Finance Inc. Delaware U.S.A.
SBI International (Mauritius) (Off-shore Bank)Mauritius
Bank of Baroda Uganda) Ltd. Uganda
Bank of Baroda(Kenya) Ltd. Kenya
Bank of Baroda (U.K.) Nominee Ltd. London, UK
BOB (Hong Kong)Ltd.(Converted into Restricted Licensed Bank) Hongkong
Bank of India Finance(Kenya) Ltd. Kenya
IOB Properties Pte Ltd. Singapore
Bank of Baroda(Botswana) Ltd. Gaborone Botswana
Bank of Baroda(Guyana)Inc. Georgetown Guyana (South America)
ICICI Bank UK Ltd London (UK)
ICICI Bank Canada Ltd Toronto (Canada)
Bank of Baroda (Tanzania) Tanzania
Bank of Baroda (Dubai, Abu Dhabi, Ras Al Khaimah, Deira,Dammam, Salalah, Al Ain)
United Arab Emirates
Bank of Baroda Sultanate of Oman, Muscat,
Bank of Baroda Belgium, Brussels
ICICI Bank Eurasia LLC Russia
PT Bank Indomonex Indonesia
Indian Ocean International Bank Ltd. (IOIB) Mauritius, Port Louis
Punjab National Bank International Limited (PNBIL) United Kingdom, London
Bank of Baroda (Trinidad and Tobago) Limited Trinidad & Tobago
PT Bank Swadesi Tbk Indonesia
Bank of Baroda (Trinidad and Tobago) Limited Trinidad & Tobago
[edit] Foreign banks with business in India
Banks with branches in India.[4]
ABN AMRO Bank N.V. - Royal Bank of Scotland Abu Dhabi Commercial Bank Ltd American Express Bank Antwerp Diamond Bank Arab Bangladesh Bank Bank International Indonesia Bank of America Bank of Bahrain & Kuwait Bank of Ceylon Bank of Nova Scotia Bank of Tokyo Mitsubishi UFJ Barclays Bank BNP Paribas Calyon Bank ChinaTrust Commercial Bank Citibank DBS Bank Deutsche Bank HSBC (Hongkong & Shanghai Banking Corporation) JPMorgan Chase Bank Krung Thai Bank Mashreq Bank Mizuho Corporate Bank Oman International Bank Shinhan Bank Société Générale Sonali Bank Standard Chartered Bank State Bank of Mauritius UBS VTB [1]
[edit] Foreign Banks with Representative Offices in India
1.RBI as of 31 Mar 2008 www.rbi.org.in/commonman/Upload/English/Content/PDFs/71207.pdf
HISTORY OF RESERVE BANK OF INDIA
Date Event
1926Royal Commission on Indian Currency (Hilton Young Commission) recommends the establishment of a central bank to be called the 'Reserve Bank of India'.
1931 Indian Central Banking Enquiry Committee revives the issue of the establishment of the Reserve Bank of India as the Central Bank for India.
5-Mar-34 Reserve Bank of India Act, 1934, (II of 1934) constitutes the statutory basis on which the Bank is established.
1-Apr-35 Reserve Bank of India commences operations. Sir Osborne Smith the first Governor of the Bank. The Bank was constituted as a shareholders' bank.
5-Jul-35Scheduled banks required to maintain the Cash Reserve Ratio, i.e., hold cash balances with the RBI equivalent to 5% of their Demand Liabilities and 2% of their Time Liabilities.
Oct-35 London Office of the Reserve Bank set up. This was closed on September 30, 1963.
1-Nov-36 Resignation of the first Governor, Sir Osborne Smith, wef July 1, 1937.
15-Jan-37 Indian Companies (Amendment) Act, 1936 devotes a separate chapter exclusively to Banks.
1-Jul-37 Sir James Braid Taylor assumes office as Governor.
1937 RBI acts as banker to the Government of Burma and also responsible for note issue in Burma.
Jan-38 First Reserve Bank notes issued.
21-Jun-38The Failure of the Travancore National and Quilon Bank, the largest bank in the Travancore region, underlined the need for comprehensive banking reform and legislation.
3-Sep-39 Introduction of Exchange Controls in India under Defence of India Rules.
11-Mar-40 RBI Accounting Year changed from Jan-Dec to July-June.
1940The silver rupee replaced by the quarternary alloy rupee. One Rupee note reintroduced. This note had the status of a rupee coin and represented the introduction of official fiat money in India.
11-Aug-43 Sir C. D. Deshmukh assumes office of Governor.
1944 The security thread on notes introduced for the first time in India as a security feature.
1944Laws relating to Government securities and to the management of Public Debt by the Reserve Bank of India consolidated on the basis of the Public Debt Act, 1944.
26-May-45Speculative activity in the financial and bullion markets. Defence of India Rules invoked to authorise the Reserve Bank to collect information from banks in respect of advances. This was to check advances against bullion for speculation.
9-Jun-45 Reserve Bank of India entrusted with the Currency & Coinage of the British Military Administration of Burma as well as Banker to BMA.
12-Jan-46 High Denomination Bank Notes of Rs 500, Rs 1000 and Rs 10,000 Demonetised to curb unaccounted money.
1946Interim arrangements for Bank Supervision were put in place by ordinances which were later replaced by the Banking Companies Act, 1949. These Ordinances empowered the Reserve Bank to inspect banks, as well as authorise the licensing of bank branches.
30-Jun-48 RBI ceased to function as the Central Bank of Pakistan. State Bank of Pakistan commenced operations wef July 1, 1949.
1-Jan-49 Reserve Bank of India nationalised.
16-Mar-49
Coming into force of the Banking Companies Act, 1949. This formed the statutory basis of bank supervision and regulation in India. The Statutory Liquidity Ratio (SLR) requiring banks to maintain liquid assets was introduced for the first time. The Banking Companies Act was later renamed the Banking Regulation Act.
1-Jul-49 Sir Benegal Rama Rau assumes office as Governor
19-Sep-49 Rupee devalued by 30.5 % as a defensive measure consequent to the devaluation by other 'sterling area' countries.
Oct-50 Department of Banking Development created together with the new post of Executive Director.
1951 Reserve Bank of India (Amendment) Act, 1951 enabled the Bank to become Banker to Part B states after executing agreements with them.
First Five Year Plan launched.
1-Jan-52Bill Market Scheme introduced to enable banks to obtain advances from the Reserve Bank against self liquidating bills. It was aimed at allowing currency to expand to meet seasonal requirements.
1-Aug-52State Financial Corporations Act, 1951 came into effect. It Enabled state governments to establish Financial corporations for meeting the credit needs of medium and small scale industries. Bank’s Holdings of the capital of SFCs taken over by the IDBI in 1976.
Aug-54All-India Rural Credit Survey Committee Report submitted. Its recommendations led to bringing rural credit onto the centre stage of central bank activism. Led to the formation of the State Bank of India.
14-Sep-54 Bankers’ Training College to provide training to banking personnel established at Bombay (Mumbai) inaugurated.
1-Apr-55Hali Sicca Rupees which had a circulation of about OS 48 crores ceased to be legal tender in the erstwhile Hyderabad State. These were replaced by Indian Rupees.
1-Jul-55
Imperial Bank of India converted to a state owned institution, State Bank of India on July 1, 1955. One of the immediate objectives was to establish additional branches particularly at district headquarters. It was also expected to provide remittance and other facilities to co-operative and other banks and attempt to mobilise rural savings.
Second Five Year Plan commences
17-May-56 Selective Credit Controls were deployed for first time.
6-Oct-56System of Note Issue changed from Proportional Reserve System requiring the Reserve Bank to maintain 40% gold and forex reserves against note issue to a minimum reserve system. This was to enable the expanding currency requirements of the economy to be met.
14-Jan-57 Resignation of Governor, Sir Benegal Rama Rau.
14-Jan-57 K.G. Ambegaonkar appointed governor till February 28th.
1-Mar-57 HVR Iengar appointed governor
31-Oct-57 Minimum reserves against note issue relaxed further.
1959State Bank of India (Subsidiary Banks) Act, 1959 made the banks of the erstwhile Princely Sates of India the subsidiaries of the State Bank of India. These were The Bank of Bikaner, The Bank of Jaipur, The Bank of Indore. The Bank of Mysore, The Bank of Patiala, The Bank of Hyderabad, The Bank of Saurashtra and The Bank of Travancore were made subsidiaries of The State Bank of India. The Bank of Bikaner and The Bank of Jaipur
were amalgamated in 1963 to form the State Bank of Bikaner and Jaipur.
May-60 The failure of Laxmi Bank and the subsequent failure of the Palai Central Bank catalyzed the introduction of deposit insurance in India.
1960
Policy of reconstruction / compulsory amalgamation of banks introduced to consolidate the Banking sector. Powers to do so acquired by RBI Act amendment.
Between 1960 to 1982 over 200 banks were merged or liquidated.
1961 Third Five Year Plan commences.
7-Dec-61Deposit Insurance introduced in India as a depositor protection measure. It was intended to increase the confidence of the depositors in the banking system, to facilitate the mobilisiation of deposits and promote greater stability and growth of the banking system.
15-May-62The Reserve Bank of India Act, 1934, the Indian Coinage Act, 1906 and the Currency Ordinance, 1940 extended to Goa, Daman and Diu consequent to their liberation.
1-Mar-62 P.C. Bhattacharyya appointed Governor.
May-62 New Bank Branch Licensing policy laid stress on opening of offices in ‘unbanked’ and ‘underdeveloped’ areas.
16-Sep-62 Cash Reserve Ratio of banks was fixed uniformly at 3 % of their Demand and Time Liabilities with the flexibility to vary it between 3 and 15%.
1962
Chapter IIIA incorporated in RBI Act empowered the Bank to collect information in regard to credit facilities granted by individual banks and notified financial institutions to their constituents. 1974 the scope of the term credit information was enlarged to cover the means antecedents, history of financial transactions and the creditworthiness of any borrower or class of borrowers.
1962The Banking Regulation Act amended. Scheduled Banks to maintain minimum liquid assets (SLR) of not less than 25% of the Demand and Time Liabilities.
1-Jul-62Agricultural Refinance Corporation (ARC) set up to provide Refinance to central land mortgage banks, state coop banks, scheduled commercial banks who were shareholders.
26-Aug-63 Staff Training College established at Madras started a pilot course representing one of the early HRD endeavours in the services sector.
1-Feb-64 RBI empowered to regulate the deposit acceptance activities of non banking institutions. New chapter IIIB inserted in RBI Act.
Feb-64
Unit Trust of India established to extend facilities for an equity type investment to small investors and also mobilize resources and channel them into investments so as to facilitate the growth of the economy.
Commenced operations in July 1964.
1-Jul-64IDBI established as a subsidiary of the Reserve Bank of India with the purpose of providing long term industrial finance. Took over business of Refinance Corporation for Industry in September, 1964.
20-Nov-65 Credit Regulation introduced to align the growth of bank credit with Plan requirements. Later evolved into the Credit Authorisation Scheme (CAS).
1-Mar-66 Operations of co-operative banking system brought under the regulatory ambit of the RBI. Banking Laws.
Mar-66 A new Department of Non Banking Companies established at RBI Calcutta.
6-Jun-66
Rupee devalued by 36.5 %
The US Dollar which earlier was equivalent to Rs 4.75 now rose to Rs 7.50.
2-Jul-66 12 State Cooperative Banks included in Second Schedule of RBI Act.
17-Apr-67 Size of Bank notes reduced.
Dec-67 Introduction of Social Controls over banks with a view to securing a better alignment of the banking system to the needs of economic policy.
22-Dec-67National Credit Council set up to provide a forum to discuss and assess credit priorities on an all India basis. Council was to assist RBI and government to allocate credit.
Gold (Control) Act passed to bring the administration of the control on a permanent statutory footing.
(see: 1966 Gold Control Rules)
1968Export Credit (Interest Subsidy) Scheme, 1968 introduced to promote exports. Pre-shipment Credit Scheme introduced wef Jan 1969 as an export promotion measure. This allowed banks to get refinance from the Reserve Bank.
29-Jan-69Setting up of the Banking Commission by GOI to report on (i) Banking costs; ( ii) legislations affecting banking; (iii) indigenous banking; (iv) bank procedures; (v) non banking financial intermediaries.
1-Feb-69Gold Holdings of RBI revalued at the current official IMF rate of 0.118489 grammes of fine gold per rupee (to take into account the devaluation of the Rupee by 36.5 % in June 1966) The profit on revaluation transferred to the reserve fund.
19-Jul-69
14 major Indian Scheduled Commercial Banks with deposits of over Rs 50 crores nationalised ' to serve better the needs of development of the economy in conformity with national policy objectives'.
On February 10, 1970 the Supreme Court held the Act void mainly on the grounds that it was discriminatory against the 14 banks and that the compensation proposed to be paid by Govt was not fair compensation.
A fresh Ordinance was issued on February 14 which was later replaced by the Banking Companies (Acquisition and Transfer of Undertakings ) Act, 1970.
(5 of 1970).
24-Sep-69 National Institute of Bank Management (NIBM) established at Bombay (Mumbai). Shifted to its Pune campus in the mid 1980s.
29-Sep-69Cooperative Bankers Training College (CBTC) established at Poona (Pune) to provide training to the cooperative sector. Later renamed College of Agricultural Banking (CAB) in 1974.
Dec-69 Lead Bank Scheme introduced which envisaged an area approach to banking to meet the credit gaps in the economy.
1-Jan-70 Special Drawing Rights (SDR) created by the IMF to enhance international liquidity.
Jan-70 RBI prescribed for the first time the minimum interest rate to be charged by banks on advances against sensitive commodities.
Feb-70 The Agricultural Credit Board set up with Governor as Chairman to formulate and review policies in the sphere of rural credit.
3-Apr-70 The Managing Agency system abolished by the Companies Amendment Act, 1969.
4-May-70 B.N. Adarkar appointed Governor till June 15
16-Jun-70 S. Jagannathan appointed Governor.
Between Feb & Aug 1970 Inflationary trends led to concern and strong measures including increasing bank rate and raising SLR from 25 to 28%.
1-Nov-70New Bills Rediscounting Scheme introduced was expected to impart flexibility to the Money Market, even out liquidity within the banking system and enable the Reserve Bank to exercise more effective control over the money market.
14-Jan-71Credit Guarantee Corporation of India Ltd. established. To facilitate bank lendings to the priority sectors. It guaranteed credit extended by scheduled commercial banks to small borrowers and for other priorty purposes.
12-Apr-71 Concerns related to Industrial sickness led to the establishment of the Industrial Reconstruction Corporation of India Ltd.
1-Jul-71 Deposit Insurance cover extended to cooperative banks.
15-Aug-71Convertibility of USD suspended. This brought to an end the system of fixed exchange rates embodied in the Bretton Woods System. After an interim arrangement which lasted up to 1973, the world shifted to a floating exchange rate regime.
Oct-71 State Level Bankers’ Committees set up to consider problems requiring inter-bank coordination.
Hindi Version of RBI Annual Report and Trend and Progress of Banking in India for the year ended 30 June, 1971.
25-Mar-72Differential Interest Rate Scheme Introduced which envisaged concessional interest rates on advances made by Public Sector Banks to selected low income groups.
3-Apr-72 Import Policy for 72-73 stressed the importance of achieving self reliance reflecting the views of the times.
3-Nov-72Special payment arrangements with the erstwhile COMECON group of countries where payments were settled in rupees through bilateral trade which was a type of barter arrangement.
1973
"Oil Shock" when oil prices quadrupled. This led to double digit inflation as well as global recession.
As a response the Bank deployed a series of restricted measures to contain / moderate the expansion of bank credit.
Call money rate rose to an all time high of 30% prompting the Indian Banks' Association to intervene and fix a ceiling of 15%.
1-Sep-73Miscellaneous Non Banking Companies (Reserve Bank) Direction, 1973 sought to regulate the acceptance of deposits by companies conducting prize chits, lucky draws savings schemes, etc.
8-Sep-73 Quantitative credit ceiling on non food bank credit prescribed for the first time for the busy season of 1973-74.
Nov-73 Restrictions on SBI and its subsidiaries removed to bring them on par with other commercial banks.
1-Jan-74 Foreign Exchange Regulation Act, 1973 came into force to conserve foreign exchange. Its administration was entrusted to the Reserve Bank.
9-Dec-74Asian Clearing Union (ACU) established to facilitate payments for current international transactions on a multilateral basis. Clearing operations were to be denominated in member’s currency or AMU which would be equivalent to 1 SDR. Clearing operations commenced November, 1975.
13-Dec-74 Reserve Bank of India (Amendment) Act, 1974 widened the powers of the Bank.
19-May-75 N. C. Sengupta appointed governor up to August 19.
9-Aug-75
Tandon Committee Report emphasized need to correlate bank credit to the business/ production plans and own resources of borrowers. Entailed a shift from ‘security based’ to ‘need based’ approach to bank credit.
The new norms formed the basis of bank lending for working capital requirements.
20-Aug-75 K.R. Puri appointed governor
25-Sep-75 Exchange value of Rupee linked to movements in a basket of selected foreign currencies (major trading partners)
26-Sep-75Regional Rural Banks were set up as alternative agencies to provide credit to rural people in the context of the 20 Point Programme.These were expected to "combine the rural touch and local feel, ……with the modern business organisation…”.
1-Nov-75 Foreign Currency (Non Resident) Account Scheme introduced in USD and GBP To encourage private remittance from abroad.
16-Nov-75 Agricultural Refinance Corporation (ARC) renamed Agricultural Refinance and Development Corporation (ARDC) and its activities widened.
1975 20 point economic programme introduced.
1-Feb-76 Duty Draw back credit scheme introduced as an export promotion measure.
1976 Village Adoption Scheme for banks introduced.
Apr-77
A new series of Money supply introduced the concepts of M1, M2, M3 etc. Money supply with the public consisted of
(a) currency with the public,
(b) demand deposits of all commercial banks, of state, central and urban cooperative banks and of salary earners societies, and
(c) ‘Other deposits with Reserve Bank of India’.
2-May-77 M. Narasimham appointed Governor up to November 30.
1977 Integrated Rural Development Programme (IRDP) initiated as a poverty alleviation measure.
1-Dec-77 I.G. Patel appointed Governor.
16-Jan-78Notes of Rs 1,000/-, Rs 5,000/- and Rs 10,000/- denominations demonetised to curb ‘the illicit transfer of money for financing transactions which are harmful to the national economy…’.
3-May-78 RBI commenced gold auctions on behalf of Government of India out of government stock at fortnightly intervals.
27-May-78 The Deposit Insurance Corporation (DIC) took over the undertaking of the Credit Guarantee Corporation of India Ltd. (CGCI) to form the Deposit
Insurance and Credit Guarantee Corporation (DICGC) wef July 15, 1978.
3-Jun-78 RBI Act amended. The amendments were made mainly to enable the more effective utilization of foreign exchange reserves.
12-Dec-78 Prize Chit and Money Circulation Schemes (Banning) Act, 1978 came into force wef 12 December, 1978.
1978
Annual Appraisal of Banks introduced in the nature of management audit introduced. Emphasis mainly on the examination of the organizational set-up, manpower planning , machinery for supervision and control over branches, systems & procedures in key areas, funds management and management of credit.
30-Mar-79 Penalty for non-compliance of CRR & SLR introduced to give the Reserve Bank teeth to implement Monetary Policy measures more effectively.
1979Rural Planning and Credit Cell set up in the Reserve Bank of India to ensure proper implementation of the multi-agency approach to credit in rural areas.
Aug-79Credit Information Review started being published every month To disseminate in simple language and without delay the credit and banking policy decisions of the Reserve Bank.
17-Jan-80 International gold prices soar to all time highs.
Mar-80 Banks required to provide financial support to implementation of 20 point programme to improve lot of weaker sections.
Sixth Five Year Plan.
15-Apr-80Six private sector banks nationalised “…in order further control the heights of the economy, to meet progressively, and serve better, the needs of the development of the economy and to promote the welfare of the people in conformity with the policy of the State…”
Dec-80Recommendations of Chore Committee related to the cash credit system, adopted. Emphasis on increasing contribution for working capital requirements by borrowers out of internal resources.
15-Jan-81 GOI announced special bearer bond To mop up unaccounted money and channelise it to productive purposes.
Apr-81 Major Organisational internal restructuring in the Reserve Bank. New Departments set up.
1981Build up of inflationary pressures and adverse movement in foreign trade following the hike in oil prices. Bank rate raised to 10%, CRR raised to 7.5%, SLR to 35%.
11 Juy 1981Ordinance prohibiting companies (including Banking Companies) cooperative societies, firms, to repay any person any deposit otherwise than by an account payee cheque / bank draft when such repayment amounted to Rs. 10,000 or more.
1-Jan-82Export Import Bank of India established with the objective of providing comprehensive package of financial and allied services to exporters and importers.
1-Jan-82 New 20 point programme announced by the PM.
12-Jul-82
National Bank for Agriculture and Rural Development (NABARD) established on the basis of the National Bank for Agriculture and Rural Development Act, 1981. ‘…For providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts, and other rural crafts for promoting integrated rural development and securing rural prosperity…’.
16-Sep-82 Manmohan Singh appointed Governor.
1983 C D Deshmukh Memorial Lecture introduced as an annual event in Governor Deshmukh's honour
Nov-83 National Clearing Cell (NCC) set up by the bank to introduce mechanised cheque processing and the national clearing of cheques.
12-Jan-84
Banking Laws (Amendment) Act, 1983 widened the activities that banks could undertake (such as leasing), provided nomination facilities to account holders, strengthened the powers of the Reserve Bank, streamlined returns and prohibited unincorporated bodies from accepting deposits from the public except to a specified extent amongst others.
1-Feb-84 Urban Banks Department formed to supervise the affairs of Urban Cooperative Banks.
1-May-84 Authorised capital of the Deposit Insurance and Credit Guarantee Corporation raised to Rs 50 crores
15-Jan-85 A Ghosh appointed Governor up to February 4
4-Feb-85 RN Malhotra appointed
10-Apr-85 S. Chakravarty Committee was set up to review the working of monetary system. Its recommendations had far reaching consequences.
1985By mid-1985, the statutory preemption on banks' resources in the form of the Statutory Liquidity Ratio (SLR) and the Cash Reserve Ratio (CRR) exceeded 45%.
Nov-86 182 day TB introduced.
Jan-87 Board for Industrial and Financial Reconstruction set up and became operational wef May 1987 reflecting concerns related to Industrial Sickness.
Mar-87 Magnetic Ink Character Recognition (MICR) technology introduced for cheque clearing. Efforts at mechanising cheque clearing operations.
28-Dec-87Indira Gandhi Institute of Development Research (IGIDR) was established by Reserve Bank as an advanced studies institute to promote research on Development issues from a multi-disciplinary point of view.
Apr-88Security & Exchange Board of India (SEBI) established to deal with the development and regulation of the securities market and investor protection.
Apr-88 The Discount and Finance House of India, set up as a money market institution, commenced operations.
Jul-88 The National Housing Bank established as an apex body of housing finance and to promote activities in housing development.
Aug-88 Stock Holding Corporation of India Ltd. (SHCIL) a depository institution commenced operations.
Oct-88 Maximum lending rate abolished. Banks free to charge customers according to their credit record.
Mar-89Certificates of Deposit (CDs) and Commercial Paper (CPs) introduced in India to widen the monetary instruments and give investors greater flexibility.
Apr-89Banking, Public Financial Institution and Negotiable Instruments Laws (Amendment) Act, 1988 enacted to encourage the culture of use of cheques in India. It introduced penalties for the dishonour of cheques.
Apr-89 Service Area Approach for rural lending became operational.
1-Jul-89CRR raised to 15 per cent taking statutory preemptions of banks' resources in the form of the Statutory Liquidity Ratio (SLR) and the Cash Reserve Ratio (CRR) to over 53%.
15-May-90Agriculture and Rural Debt Relief Scheme, 1990 providing debt relief upto Rs 10,000 to small borrowers from Public Sector Banks and Regional Rural Banks announced.
22-Dec-90 S. Venkitaramanan Governor.
1 & 3 Jul 1991 External Payments Crisis. Rupee Devalued in two stages. Cumulative devaluation about 18 percent in USD terms.
Nov-91The Narsimahmam Committee Report suggested far reaching reforms in the Indian Banking sector. These included a phased reduction in the SLR and CRR as well as accounting standards, income recognition norms and capital adequacy norms.
Mar-92A dual exchange rate system called Liberalised Exchange Rate Management System (LERMS) introduced. This was the initial step to enable a transition to a market determined exchange rate system.
Apr-92Income recognition and asset classification norms introduced. Provisioning and Capital adequacy standards specified. Indian Banks required to fulfill these norms by 1994 and 1996.
22-Dec-92 C. Rangarajan appointed Governor.
1992 SEBI formulated ‘Insider Trading Regulations’.
1993 Unified Exchange rate.
1993 Guidelines for the establishment of private sector banks issued. This heralds a new policy approach aimed at fostering greater competition.
15-Jul-94 Nationalised Banks allowed to tap the capital market to strengthen their capital base.
Jun-94 National Stock Exchange commenced operations
1994 ‘Committee on Reform of the Insurance Sector’, RN Malhotra.
Aug-94 Rupee made convertible on the Current Account. Acceptance of Article VIII of the Articles of Agreement of the IMF.
Oct-94 Lending rates of commercial banks deregulated. Banks required to declare their Prime Lending Rates (PLR).
3-Feb-95Bharatiya Reserve Bank Note Mudran Limited established as a fully owned subsidiary of the Reserve bank. Commenced printing of Notes at Mysore on June 1 and at Salboni on December 11.
Jun-95 The Office of the Banking Ombudsman established for expeditious & inexpensive resolution of customer complaints related to Banking services.
Oct-95 Banks are allowed to fix their own interest rates on domestic term deposits with maturity of two years.
17-Sep-96 RBI Web site made operational.
1-Apr-97 RBI & Government of India agree to replace the system of ad hoc Treasury Bills with Ways and Means Advances ending automatic monetisation of
fiscal deficits.
6-Jun-97 RBI Conducts first auction of 14 day Treasury Bills. In October, auction of 28 day Treasury Bills was introduced.
10-Jul-97 Foreign Institutional Investors (debt funds) permitted to invest in dated Government Securities.
22-Nov-97 Bimal Jalan appointed Governor.
28-Nov-97 A series of measures introduced in response to the Asian Currency Crisis.
28-Nov-97Fixed rate repos in G-Secs introduced to give maneuverability in liquidity management; and to bring orderly conditions in money and forex markets.
19-Dec-97 Capital Index Bonds introduced for first time. Inflation hedged instrument linked to Wholesale Price Index.
Apr-98Recommendations on the harmonisation of the Role and Operations of Development Financial Institutions and Banks paved the way for universal banking in India.
Jul-99 Interest Rate Swaps (IRS) and Forward Rate Agreements (FRAs) introduced as OTC derivatives.
Nov-99 RBI issued guidelines to banks for the issuance of debit cards and smart cards to ease pressure on physical cash.
1999
Foreign Exchange Management Act, 1999 replaces FERA, 1973 with the objective of ‘facilitating external trade and payments’ and ‘promoting the orderly development and maintenance of foreign exchange market in India’. The new act became operative from June 2000 along with a sunset clause.
Jun-00 Stock Index Futures introduced by as an exchange traded derivative.
Mar-01 Kissan Credit Cards introduced.
19-Apr-01 Effective week commencing August 11, inter-bank term liabilities greater than 15 days maturity exempt from CRR.
19-Apr-01 Banks allowed to formulate special Fixed Deposit Schemes for senior citizen offering higher rates of interest.
30-Apr-01Clearing Corporation of India established to address the need for an integrated clearing and settlement system across different markets, viz., government securities, forex and money markets. Commenced operations wef February 2002.
Jun-01 RBI issues guidelines for internet banking heralding in a new era in banking.
21-Nov-01 Floating Rate Bonds auctioned for the first time.
1-Jan-02RBI commenced announcing the reference rate for Euro, which replaced the currencies of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain and The Netherlands.
21-Jun-02The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance came into force, paving the way for setting up asset reconstruction companies and for faster recovery of money by banks and financial institutions.
7-Sep-02Schemes to open Offshore Banking Units in Special Economic Zones by banks introduced. These units would be virtually foreign branches of Indian Banks but located in India.
11-Dec-02 Auction format of 91 day Treasury Bills changed from uniform price auction to the multiple price auction method
Jan-03 Select stock exchanges commence retail trading in Government securities.
Apr-03 Risk based supervision of Banks introduced.
3-Jun-03 Guidelines for exchange traded interest rate derivatives issued.
7-Aug-03 Clearing Corporation of India launches its forex clearing system FX CLEAR
6-Sep-03 Y V Reddy assumes office as Governor
(Source RBI website)
. HISTORY OF BANKING IN INDIA
There are three different phases in the history of banking in India. 1) Pre-Nationalization Era. 2) Nationalization Stage. 3) Post Liberalization Era.
1) Pre-Nationalization Era:
In India the business of banking and credit was practices even in very early times. The
remittance of money through Hundies, an indigenous credit instrument, was very popular. The hundies
were issued by bankers known as Shroffs, Sahukars, Shahus or Mahajans in different parts of the
country.
The modern type of banking, however, was developed by the Agency Houses of
Calcutta and Bombay after the establishment of Rule by the East India Company in 18th and 19th
centuries.
During the early part of the 19th Century, ht volume of foreign trade was relatively small.
Later on as the trade expanded, the need for banks of the European type was felt and the government of
the East India Company took interest in having its own bank. The government of Bengal took the initiative
and the first presidency bank, the Bank of Calcutta (Bank of Bengal) was established in 180. In 1840, the
Bank of Bombay and IN 1843, the Bank of Madras was also set up.
These three banks also known as “Presidency Bank”. The Presidency Banks had their
branches in important trading centers but mostly lacked in uniformity in their operational policies. In 1899,
the Government proposed to amalgamate these three banks in to one so that it could also function as a
Central Bank, but the Presidency Banks did not favor the idea. However, the conditions obtaining during
world war period (1914-1918) emphasized the need for a unified banking institution, as a result of which
the Imperial Bank was set up in1921. The Imperial Bank of India acted like a Central bank and as a
banker for other banks.
The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of the
Country. In 1949, the Banking Regulation act was passed and the RBI was nationalized and acquired
extensive regulatory powers over the commercial banks. In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of India, Cooperative banks, Exchange banks and Indian Joint Stock banks. 2) Nationalization Stages:
After Independence, in 1951, the All India Rural Credit survey,
committee of Direction with Shri. A. D. Gorwala as Chairman recommended
amalgamation of the Imperial Bank of India and ten others banks into a newly
established bank called the State Bank of India (SBI). The Government of India
accepted the recommendations of the committee and introduced the State Bank of India
bill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got the
president’s assent on 8th May 1955. The Act came into force on 1st July 1955, and the
Imperial Bank of India was nationalized in 1955 as the State Bank of India.
The main objective of establishing SBI by nationalizing the Imperial Bank of India was
“to extend banking facilities on a large scale more particularly in the rural and semi-
urban areas and to diverse other public purposes.”In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight state-associated banks were taken over by the SBI as its subsidiaries. Name of the Bank Subsidiary with effect from
1. State Bank of Hyderabad 1st October 1959 2. State Bank of Bikaner 1st January 1960 3. State Bank of Jaipur 1st January 1960 4. State Bank of Saurashtra 1st May 1960 5. State Bank of Patiala 1st April 1960 6. State Bank of Mysore 1st March 1960 7. State Bank of Indore 1st January 1968 8. State Bank of Travancore 1st January 1960
With effect from 1st January 1963, the State Bank of Bikaner and State
Bank of Jaipur with head office located at Jaipur. Thus, seven subsidiary banks State
Bank of India formed the SBI Group.
The SBI Group under statutory obligations was required to open new
offices in rural and semi-urban areas and modern banking was taken to these unbanked
remote areas.3
BANKING SERVICES IN INDIA
On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the
nationalization of 14 major scheduled Commercial Banks each having deposits worth Rs. 50 crore and
above. This was a turning point in the history of commercial banking in India.
Later the Government Nationalized six more commercial private
sector banks with deposit liability of not less than Rs. 200 crores on 15th April
1980, viz.i) Andhra Bank. ii) Corporation Bank. iii) New Bank if India. iv) Oriental Bank of Commerce. v) Punjab and Sind Bank. vi) Vijaya Bank.
In 1969, the Lead Bank Scheme was introduced to extend banking facilities to every
corner of the country. Later in 1975, Regional Rural Banks were set up to supplement the activities of the
commercial banks and to especially meet the credit needs of the weaker sections of the rural society.
Nationalization of banks paved way for retail banking and as a result there has been an
alt round growth in the branch network, the deposit mobilization, credit disposals and of course
employment.
The first year after nationalization witnessed the total growth in the
agricultural loans and the loans made to SSI by 87% and 48% respectively. The overall
growth in the deposits and the advances indicates the improvement that has taken place
in the banking habits of the people in the rural and semi-urban areas where the branch
network has spread. Such credit expansion enabled the banks to achieve the goals of
nationalization, it was however, achieved at the coast of profitability of the banks.
Consequences of Nationalization:
The quality of credit assets fell because of liberal credit extension policy.
Political interference has been as additional malady.
Poor appraisal involved during the loan meals conducted for credit disbursals.
The credit facilities extended to the priority sector at concessional rates.
The high level of low yielding SLR investments adversely affected the
profitability of the banks.
The rapid branch expansion has been the squeeze on profitability of banks
emanating primarily due to the increase in the fixed costs.
There was downward trend in the quality of services and efficiency of the banks.
BANKING SERVICES IN INDIA
The RBI prescribed a minimum paid up capital of Rs. 100 crores for the new
bank and
the shares are to be listed at stock exchange. Also the new bank after being
granted
license under the Banking Regulation Act shall be registered as a public limited
company under the companies Act, 1956.
Subsequently 9 new commercial banks have been granted license to start
banking operations. The new private sector banks have been very aggressive
in
business expansion and is also reporting higher profile levels taking the
advantage of
technology and skilled manpower. In certain areas, these banks have even our
crossed
the other group of banks including foreign banks. Private Sector Banks Old Pvt. Sector Banks (25) New Pvt. Sector Banks (9)
Current scenario
Currently (2007), overall, banking in India is considered as 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. Even in terms of
quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets-as compared 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-without any
stated 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. M&As,
takeovers, asset sales and much more action (as it is unraveling in China) will
happen on this front in India.
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. Currently, India has
88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with
the Government of India holding a stake), 29 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges)
and 31 foreign banks.
BANKING SERVICES IN INDIA
They have a combined network of over 53,000 branches and 17,000 ATMs.
According to a report by ICRA Limited, a rating agency, the public sector banks
hold over 75 percent of total assets of the banking industry, with the private and
foreign banks holding 18.2% and 6.5% respectively.
Broad Classification of Banks in India:
1) The RBI: The RBI is the supreme monetary and banking authority in the
country and has the responsibility to control the banking system in the country.
It keeps the reserves of all scheduled banks and hence is known as the
“Reserve Bank”. 2) Public Sector Banks: •
State Bank of India and its Associates (8) •
Nationalized Banks (19) •
Regional Rural Banks Sponsored by Public Sector Banks (196) (3) Private Sector Banks: • Old Generation Private Banks (22) •
Foreign New Generation Private Banks (8) • Banks in India (40)
(4) Co-operative Sector Banks: •
State Co-operative Banks •
Central Co-operative Banks •
Primary Agricultural Credit Societies •
Land Development Banks •
State Land Development Banks
(5) Development Banks: Development Banks mostly provide long term finance for
setting up industries. They also provide short-term finance (for export and import
activities) •
Industrial Finance Co-operation of India (IFCI) •
Industrial Development of India (IDBI) •
Industrial Investment Bank of India (IIBI) •
Small Industries Development Bank of India (SIDBI) •
National Bank for Agriculture and Rural Development (NABARD) •
Export-Import Bank of India Role of Banks:Banks play a positive role in economic development of
a country as
repositories of community’s savings and as purveyors of credit. Indian Banking
has aided the economic development during the last fifty years in an effective
way. The banking sector has shown a remarkable responsiveness to the needs
of planned economy. It has brought about a considerable progress in its efforts
at deposit mobilization and has taken a number of measures in the recent past
for accelerating the rate of growth of deposits. As recourse to this, the
commercial banks opened branches in urban, semi-urban and rural areas and
have introduced a number of attractive schemes to foster economic
development.
The activities of commercial banking have growth in multi-directional ways as
well as multi-dimensional manner. Banks have been playing a catalytic role in
area development, backward area development, extended assistance to rural
development all along helping agriculture, industry, international trade in a
significant manner. In a way, commercial banks have emerged as key financial
agencies for rapid economic development. 14
BANKING SERVICES IN INDIA
By pooling the savings together, banks can make available funds to specialized
institutions which finance different sectors of the economy, needing capital for
various purposes, risks and durations. By contributing to government securities,
bonds and debentures of term-lending institutions in the fields of agriculture,
industries and now housing, banks are also providing these institutions with an
access to the common pool of savings mobilized by them, to that extent
relieving them of the responsibility of directly approaching the saver. This
intermediation role of banks is particularly important in the early stages of
economic development and financial specification. A country like India, with
different regions at different stages of development, presents an interesting
spectrum of the evolving role of banks, in the matter of inter-mediation and
beyond.
Mobilization of resources forms an integral part of the development process in
India. In this process of mobilization, banks are at a great advantage, chiefly
because of their network of branches in the country. And banks have to place
considerable reliance on the mobilization of deposits from the public to finance
development programmes. Further, deposit mobalization by banks in India
acquired greater significance in their new role in economic development.
Commercial banks provide short-term and medium-term financial assistance.
The short-term credit facilities are granted for working capital requirements. The
medium-term loans are for the acquisition of land, construction of factory
premises and purchase of machinery and equipment. These loans are
generally granted for periods ranging from five to seven years. They also
establish letters of credit on behalf of their clients favouring suppliers of raw
materials/machinery (both Indian and foreign) which extend the banker’s
assurance for payment and thus help their delivery. Certain transaction,
particularly those in contracts of sale of Government Departments, may require
guarantees being issued in lieu of security earnest money deposits for
release of advance money, supply of raw materials for processing, full payment of bills
on the assurance of the performance etc. Commercial banks issue such guarantees also.
The Role of Reserve Bank of India (RBI) – Banker’s Bank:
The Reserve Bank of India (RBI) is the central bank of India, and was
established on April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934. Since its inception, it has been headquartered in
Mumbai. Though originally privately owned, RBI has been fully owned by the
Government of India since nationalization in 1949.
RBI is governed by a central board (headed by a Governor) appointed by the
Central Government. The current governor of RBI is Dr.Y.Venugopal
Reddy (who succeeded Dr. Bimal Jalan on September 6,2003
). RBI has 22 regional offices across India.The Reserve Bank of India was set
up on the recommendations of the Hilton Young Commission. The commission
submitted its report in the year1926, though the bank was not set up for nine
years
Formulates, implements and monitors the monetary policy. •
Objective: maintaining price stability and ensuring adequate flow of credit to
productive sectors. Regulator and supervisor of the financial system •
Prescribes broad parameters of banking operations within which the country’s
banking and financial system functions. •
Objective: maintain public confidence in the system, protect depositors’ interest
and provide cost-effective banking services to the public. The Banking
Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI)
for effective redressal of complaints by bank customers Manager of Exchange Control •
Manages the Foreign Exchange Management Act, 1999. •
Objective: to facilitate external trade and payment and promote orderly
development and maintenance of foreign exchange market in India. Issuer of currency •
Issues and exchanges or destroys currency and coins not fit for circulation
Objective: to give the public adequate quantity of supplies of currency notes and
coins and in good quality. Developmental role •
Performs a wide range of promotional functions to support national
objectives
BANKING SERVICES IN INDIA Related Functions •
Banker to the Government: performs merchant banking function for the central
and the state governments; also acts as their banker. •
Banker to banks: maintains banking accounts of all scheduled banks. •
Owner and operator of the depository (SGL) and exchange (NDS) for government bonds.
There is now an international consensus about the need to focus the tasks of a
central bank upon central banking. RBI is far out of touch with such a principle,
owing to the sprawling mandate described above. Supervisory Functions:
In addition to its traditional central functions, the Reserve bank has certain non-
monetary functions of the nature of supervision of banks and promotion of
sound banking in India. The Reserve Bank Act, 1934, and the Banking
Regulation Act, 1949 have given the RBI wide powers of supervision and
control over commercial and cooperative banks, relating to licensing and
establishments, branch expansion, liquidity of their assets, management and
methods of working, amalgamation, reconstruction and liquidation. The RBI is
authorized to carry out periodical inspections of the banks and to call for returns
and necessary information from them. The nationalization of 14 major Indian
scheduled banks in July 1969 has imposed new responsibilities on the RBI for
directing the growth of banking and credit policies towards more rapid
development of the economy and realization of certain desired social
objectives. The supervisory functions of the RBI have helped a great deal in
improving the standard of banking in India to develop on sound lines and to
improve the methods of their operation. 18
BANKING SERVICES IN INDIA Promotional Functions:
With economic growth assuming a new urgency since Independence, the range
of the Reserve Bank’s functions have steadily widened. The Bank now
performs a variety of developmental and promotional functions, which, at one
time, were regarded as outside the normal scope of central banking. The
Reserve Bank was asked to promote banking habit, extend banking facilities to
rural and semi-urban areas, and establish and promote new specialized
financing agencies. Accordingly, the Reserve bank has helped in the setting up
of the IFCI and the SFC: it set up the Deposit Insurance Corporation of India in
1963 and the Industrial Reconstruction Corporation of India in 1972. These
institutions were set up directly or indirectly by the Reserve Bank to promote
saving habit and to mobilize savings, and to provide industrial finance as well
as agricultural finance. As far back as 1935, the RBI set up the Agricultural
Credit Department to provide agricultural credit. But only since 1951 the Bank’s
role in this field has become extremely important. The Bank has developed the
co-operative credit movement to encourage saving, to eliminate money-lenders
from the villages and to route its short term credit to agriculture. The RBI has
set up the Agricultural Refinance and Development Corporation to provide long-
There are two main categories of the co-operative banks.
(a) Short term lending oriented co-operative Banks – within this category
there are three sub categories of banks viz state co-operative banks, District
co-operative banks and Primary Agricultural co-operative societies.
(b) Long term lending oriented co-operative Banks – within the second
category there are land development banks at three levels state level, district
level and village level. Features of Cooperative Banks
Co-operative Banks are organized and managed on the principal of co-
operation, self- help, and mutual help. They function with the rule of “one
member, one vote”. Function on “no profit, no loss” basis. Co-operative banks,
as a principle, do not pursue the goal of profit maximization. Co-operative bank
performs all the main banking functions of deposit mobilization, supply of credit
and provision of remittance facilities. Co-operative Banks provide limited
banking products and are functionally specialists in agriculture related products.
However, co-operative banks now provide housing loans also. UCBs
provide
working
capital
loans
and
term
loan
as
well. The State Co-operative Banks (SCBs), Central Co-operative Banks
(CCBs) and Urban Co-operative Banks (UCBs) can normally extend housing
loans upto Rs 1 lakh to an individual. The scheduled UCBs, however, can lend
upto Rs 3 lakh for housing purposes. BANKING SERVICES IN INDIA
The UCBs can provide advances against shares and debentures also. Co-
operative bank do banking business mainly in the agriculture and rural sector.
However, UCBs, SCBs, and CCBs operate in semi urban, urban, and
metropolitan areas also.
The urban and non-agricultural business of these banks has grown over the
years. The co-operative banks demonstrate a shift from rural to urban, while the
commercial banks, from urban to rural. Co-operative banks are perhaps the first
government sponsored, government-supported, and government-subsidized
financial agency in India. They get financial and other help from the Reserve
Bank of India NABARD, central government and state governments. They
constitute the “most favoured” banking sector with risk of nationalization. For
commercial banks, the Reserve Bank of India is lender of last resort, but co-
operative banks it is the lender of first resort which provides financial resources
in the form of contribution to the initial capital (through state government),
working capital, refinance.
Co-operative Banks belong to the money market as well as to the capital
market. Primary agricultural credit societies provide short term and medium
term loans. Land Development Banks (LDBs) provide long-term loans. SCBs
and CCBs also provide both short term and term loans. Co-operative banks are
financial intermediaries only partially. The sources of their funds (resources) are
(a) central and state government, (b) the Reserve Bank of India and NABARD,
(c) other co-operative institutions, (d) ownership funds and, (e) deposits or
debenture issues. It is interesting to note that intra-sectoral flows of funds are
much greater in co-operative banking than in commercial banking. Inter-bank
deposits, borrowings, and credit from a significant part of assets and liabilities
of co-operative banks. This means that intra-sectoral competition is absent and
intra-sectoral integration is high for co-operative bank. 22
BANKING SERVICES IN INDIA
Some co-operative banks are scheduled banks, while others are non-
scheduled banks. For instance, SCBs and some UCBs are scheduled banks
but other co- operative bank are non-scheduled banks. At present, 28 SCBs
and 11 UCBs with Demand and Time Liabilities over Rs 50 crore each included
in the Second Schedule of the Reserve Bank of India Act.
Co-operative Banks are subject to CRR and liquidity requirements as other
scheduled and non-scheduled banks are. However, their requirements are less
than commercial banks. Since 1966 the lending and deposit rate of commercial
banks have been directly regulated by the Reserve Bank of India. Although the
Reserve Bank of India had power to regulate the rate co-operative bank but this
have been exercised only after 1979 in respect of non-agricultural advances
they were free to charge any rates at their discretion. Although the main aim of
the co-operative bank is to provide cheaper credit to their members and not to
maximize profits, they may access the money market to improve their income
so as to remain viable.
BANKING SERVICES IN INDIA Treasury Operations: •
Buying and selling of bullion. Foreign exchange •
Acquiring, holding, underwriting and dealing in shares, debentures, etc. •
Purchasing and selling of bonds and securities on behalf of constituents.
The banks can also act as an agent of the Government or local authority. They insure,
guarantee, underwrite, participate in managing and carrying out issue of shares, debentures, etc.
Apart from the above-mentioned functions of the bank, the bank provides a whole lot of
other services like investment counseling for individuals, short- term funds management and portfolio
management for individuals and companies. It undertakes the inward and outward remittances with
reference to foreign exchange and collection of varied types for the Government. Common Banking Products Available: Some of common available banking products are explained below: 1) Credit Card: Credit Card is “post paid” or “pay later” card that draws from a
credit line-money made available by the card issuer (bank) and gives one a grace period to pay. If the
amount is not paid full by the end of the period, one is charged interest.
A credit card is nothing but a very small card containing a means of identification, such
as a signature and a small photo. It authorizes the holder to change goods or services to his account, on
which he is billed. The bank receives the bills from the merchants and pays on behalf of the card holder. 25
BANKING SERVICES IN INDIA
These bills are assembled in the bank and the amount is paid to the bank by the card holder totally or by
installments. The bank charges the customer a small amount for these services. The card holder need not
have to carry money/cash with him when he travels or goes for purchasing.
Credit cards have found wide spread acceptance in the ‘metros’ and big cities. Credit
cards are joining popularity for online payments. The major players in the Credit Card market are the
foreign banks and some big public sector banks like SBI and Bank of Baroda. India at present has about
3 million credit cards in circulation. 2) Debit Cards: Debit Card is a “prepaid” or “pay now” card with some stored value. Debit Cards quickly debit or subtract money from one’s savings account, or if one were taking out cash.
Every time a person uses the card, the merchant who in turn can get the money
transferred to his account from the bank of the buyers, by debiting an exact amount of purchase from the
card. To get a debit card along with a Personal Identification Number (PIN).
When he makes a purchase, he enters this number on the shop’s PIN pad. When the
card is swiped through the electronic terminal, it dials the acquiring bank system – either Master Card or
Visa that validates the PIN and finds out from the issuing bank whether to accept or decline the
transaction. The customer never overspread because the amount spent is debited immediately from the
customers account. So, for the debit card to work, one must already have the money in the account to
cover the transaction. There is no grace period for a debit card purchase. Some debit cards have monthly
or per transaction fees. 26
BANKING SERVICES IN INDIA
Debit Card holder need not carry a bulky checkbook or large sums of cash when he/she
goes at for shopping. This is a fast and easy way of payment one can get debit card facility as debit cards
use one’s own money at the time of sale, so they are often easier than credit cards to obtain.
The major limitation of Debit Card is that currently only some 3000- 4000 shops
country wide accepts it. Also, a person can’t operate it in case the telephone lines are down.
3) Automatic Teller Machine:The introduction of ATM’s has given the
customers the facility of round the clock banking. The ATM’s are used by banks for making the customers
dealing easier. ATM card is a device that allows customer who has an ATM card to perform routine
banking transaction at any time without interacting with human teller. It provides exchange services. This
service helps the customer to withdraw money even when the banks ate closed. This can be done by
inserting the card in the ATM and entering the Personal Identification Number and secret Password.
ATM’s are currently becoming popular in India that enables the customer to withdraw
their money 24 hours a day and 365 days. It provides the customers with the ability to withdraw or deposit
funds, check account balances, transfer funds and check statement information. The advantages of
ATM’s are many. It increases existing business and generates new business. It allows the
BANKING SERVICES IN INDIA Advantages of ATM’s: To the Customers •
ATM’s provide 24 hrs., 7 days and 365 days a year service. •
Service is quick and efficient •
Privacy in transaction •
Wider flexibility in place and time of withdrawals. •
The transaction is completely secure – you need to key in Personal Identification Number (Unique number for every customer). To Banks •
Alternative to extend banking hours. •
Crowding at bank counters considerably reduced. •
Alternative to new branches and to reduce operating expenses. •
Relieves bank employees to focus an more analytical and innovative work. •
Increased market penetration.
ATM’s can be installed anywhere like Airports, Railway Stations, Petrol Pumps, Big
Business arcades, markets, etc. Hence, it gives easy access to the customers, for obtaining cash.
The ATM services provided first by the foreign banks like Citibank, Grind lays bank and
now by many private and public sector banks in India like ICICI Bank, HDFC Bank, SBI, UTI Bank etc.
The ICICI has launched ATM Services to its customers in all the Metropolitan Cities in India. By the end of
1990 Indian Private Banks and public sector banks have come up with their own ATM Network in the form
of “SWADHAN”. Over the past year upto 44 banks in Mumbai, Vashi and Thane, have became a part of
“SWADHAN” a system of shared payments networks, introduced by the Indian Bank Association (IBA). 28
BANKING SERVICES IN INDIA 4) E-Cheaques: The e-cheaques consists five primary facts. They are the
consumers, the merchant, consumer’s bank the merchant’s bank and the e-mint and the clearing process.
This cheaquring system uses the network services to issue and process payment that emulates real world
chaquing. The payer issue a digital cheaques to the payee ant the entire transactions are done through
internet. Electronic version of cheaques are issued, received and processed. A typical electronic cheque
transaction takes place in the following manner: •
The customer accesses the merchant server and the merchant server presents its goods to the customer. •
The consumer selects the goods and purchases them by sending an e-cheque to the merchant. •
The merchant validates the e-cheque with its bank for payment authorisation. •
The merchant electronically forwards the e-cheque to its bank. •
The merchant’s bank forwards the e-cheque to the clearing house for cashing. •
The clearing house jointly works with the consumer’s bank clears the cheque and transfers the money to the merchant’s banks. •
The merchant’s bank updates the merchant’s account. •
The consumer’s bank updates the consumer’s account with the withdrawal information.
The e-chequing is a great boon to big corporate as well as small retailers. Most major
banks accept e-cheques. Thus this system offers secure means of collecting payments, transferring value
and managing cash flows. 29
BANKING SERVICES IN INDIA 5) Electronic Funds Transfer (EFT): Many modern banks have
computerised their cheque handling process with computer networks and other electronic equipments.
These banks are dispensing with the use of paper cheques. The system called electronic fund transfer
(EFT) automatically transfers money from one account to another. This system facilitates speedier
transfer of funds electronically from any branch to any other branch. In this system the sender and the
receiver of funds may be located in different cities and may even bank with different banks. Funds
transfer within the same city is also permitted. The scheme has been in operation since February 7, 1996,
in India.
The other important type of facility in the EFT system is automated clearing houses.
These are the computer centers that handle the bills meant for deposits and the bills meant for payment.
In big companies pay is not disbursed by issued cheques or issuing cash. The payment office directs the
computer to credit an employee’s account with the person’s pay. 6) Telebanking: Telebanking refers to banking on phone services.. a customer
can access information about his/her account through a telephone call and by giving the coded Personal
Identification
Point of Sale transactions: Acceptance of ATM/Cheque at retail stores and restaurants for payment of goods and services. This system has made functioning of the stock Market very smooth and efficient. BANKING SERVICES IN INDIA Cyber Banking: It refers to banking through online services. Banks with web site “Cyber” branches allowed customers to check balances, pay bills, transfer funds, and apply for loans on the Internet. 9) Demat: Demat is short for de-materialisation of shares. In short, Demat is a process where at the customer’s request the physical stock is converted into electronic entries in the depository system.
In January 1998 SEBI (Securities and Exchange Board of India) initiated DEMAT
ACCOUNTANCY System to regulate and to improve stock investing. As on date, to trade on shares it has
become compulsory to have a share demat account and all trades take place through demat.
How to Operate DEMAT ACCOUNT?
One needs to open a Demat Account with any of the branches of the bank. After
opening an account with any bank, by filling the demat request form one can handover the securities. The
rest will be taken care by the bank and the customer will receive credit of shares as soon as it is
confirmed by the Company/Register and Transfer Agent. There is no physical movement of share
certification any more. Any buying or selling of shares is done via electronic transfers. 33
1) If the investor wants to sell his shares, he has to place an order with his broker and give a “Delivery
Instruction” to his DP (Depository Participant). The DP will debit hi s account with the number of shares
sold by him. 2) If one wants to buy shares, he has to inform his broker about his Depository Account Number so that the shares bought by him are credited in to his account. 3) Payment for the electronic shares bought or sold is to be made in the same way as in the case of physical securities. BANKING SERVICES IN INDIA IV. BANKING SERVICES
Banking covers so many services that it is difficult to define it. However, these basic
services have always been recognized as the hallmark of the genuine banker. These are… •
The receipt of the customer’s deposits •
The collection of his cheques drawn on other banks •
The payment of the customer’s cheques drawn on himself There are other various types of banking services like:
1) Advances – Overdraft, Cash Credit, etc.
2) Deposits – Saving Account, Current Account, etc.
3) Financial Services – Bill discounting etc.
4) Foreign Services – Providing foreign currency, travelers cheques, etc.
5) Money Transmission – Funds transfer etc.
6) Savings – Fixed deposits, etc.
7) Services of place or time – ATM Services.
8) Status – Debit Cards, Credit Cards, etc.34
BANKING SERVICES IN INDIA Customer Services in Commercial Banks:
Customer service is the service provided in support of a bank’s core products.
Customer service often includes answering questions; handling complaints. Customer service can occur
on site (as when an onstage employee helps a customer or answers a question) or it can occur over the
phone or the Internet. Quality customer service is essential to building cordial customer relationship.
Banking being a service industry, a lot depends on efficient and prompt customer
service. Customer service is the most important duty of the banking operations. Prompt and efficient
service with smile will develop good public relations reduce complaints and increase business. Why is Customer Service Important? Changing customer expectations: Today the customer is more demanding and more sophisticated than he or she was thirty years ago. The increased importance of customer service: With changing customer expectations, competitors are seeing customer service as a competitive weapon with which they differentiate their products and services. The need for a relationship strategy: To ensure that a customer service
strategy that will create a value preposition for customers should be formulated implemented and
controlled. It is necessary to give it a central role and not one that is subsumed in the various elements of
the marketing mix. 35
The customer is the kingpim in growth organizations like commercial banks. Only those
institutions which work according to his dictates will flourish. Quality, Consistency and Durability at low
price are the final expectations of a customer. Quality will have to be unambiguous, of world class quality.
Quality cannot be of minimum acceptable standards. Customer responsiveness must be quick and also
competent. Speed, performance and cost will be the new values “mantra” for success. BANKING SERVICES IN INDIA The ten key areas of customer’s services to be attended timely and regularly are: i. Submission of statement of A/Cs to customers ii. Updating of savings pass books. iii. Teller system efficiency. iv.
Cleanliness and Upkeep of premises. v. Intermediate Credit for institution cheques/land bills. vi. Advance intimation to customers for rewards of Term Deposits Receipts on maturity. vii. Advance for Debit/credit to accounts. viii. Punctuality of staff. ix. Handling of complaint register. x. Maintain a complaint register.
Customer’s dissatisfaction in the banking industry is neither recent nor unknown. This is
mainly due to delays in handling transactions across the counter in collections, update of passbooks
supply of statements of accounts, etc.
Failure to provide prompt and efficient customer service is likely to lead to reduction in
the number of customers and they may have to face closure. To event such situation the following
improvements in the customer services may be carried out:
1) Personal relations of the bank employee with customers will improve will improve customer
satisfaction. 1 service with smile should be the motto of every bank employee.
2) Rapid customer services should be provided through automation of work and
simplification of procedures.
3) ATM’s may be introduced in all the branches of the banks, based upon the
volume of transactions. This shall facilitate non-stop banking.
BANKING SERVICES IN INDIA
4) Credit Cards Services, Debit Card Services, which should be provided to the customers, must a link service with all the banks and branches if possible to facilitate the customer and the business organizations.
5) E-mail service made freely available at all banking centers.
6) Foreign Exchange transactions are to be extended to all the branches to facilitate
trade and industries.
7) All the customers are not homogenous in their needs. Hence need based
schemes may be introduced.
8) Totally deregulated interest rate structure should be there.
9) The banking staff must be trained to understand the customer’s psychology, so
they may provide customer service in a qualified manner.
10) Educating the customers will increases better utilisation of banking services.
V. BANK MARKETING:
The banking business is essentially other people’s money and banker’s brain. The
secret of its success lies in satisfying customer needs for which the banks have to rediscover the
marketing concept.
It is right to mention that bank marketing is a managerial process by which services are
matched with markets. The matching of services with market is meant formulation of overall marketing
strategies which suit the taste, temperament, needs and requirements of customers.
In view of the above, marketing of banking services is concerned with product,
promotion, pricing, and place. In addition, it is also concerned with people, process and physical
appearance. Objectives of Bank Marketing:
Profitability
Providing high return on investment
Achieving certain market share/growth
Development of an image
Developing new products to meet emerging customer requirements.
Increase in deposits and loans
Directing customers to certain products
Increasing awareness
Increasing customer base through greater customer satisfaction.
VI. ROLE OF INFORMATION TECHNOLOGY (IT) IN THE BANKING SECTOR
Banking environment has become highly competitive today. To be able to survive and
grow in the changing market environment banks are going for the latest technologies, which is being
perceived as an ‘enabling resource’ that can help in developing learner and more flexible structure that
can respond quickly to the dynamics of a fast changing market scenario. It is also viewed as an
instrument of cost reduction and effective communication eith people and institutions associated with the
banking business.
The Software Packages for Banking Applications in India had their beginnings in the
middle of 80s, when the Banks started computerising the branches in a limited manner. The early 90s
saw the plummeting hardware prices and advent of cheap and inexpensive but high powered PC’s and
Services and banks went in for what was called Total Branch Automation (TBA) packages. The middle
and late 90s witnessed the tornado of financial reforms, deregulation globalisation etc. coupled eith rapid
revolution in communication technologies and evolution of novel concept of convergence of
communication technologies, like internet, mobile/cell phones etc. Technology has continuously played on
important role in the working of banking
institutions and the services provided by them. Safekeeping of public money, transfer of money, issuing
drafts, exploring investment opportunities and lending drafts, exploring investment being provided.
Information Technology enables sophisticated product development, better market
infrastructure, implementation of reliable techniques for control of risks and helps the financial
intermediaries to reach geographically distant and diversified markets. Internet has significantly influenced
delivery channels of the banks. Internet has emerged as an important medium for delivery of banking
products and services.
The customers can view the accounts; get account statements, transfer funds and
purchase drafts by just punching on few keys. The smart card’s i.e., cards with micro processor chip have
added new dimension to the scenario. An introduction of ‘Cyber Cash’ the exchange of cash takes place
entirely through ‘Cyber-books’. Collection of Electricity bills and telephone bills has become easy. The
upgradeability and flexibility of internet technology after unprecedented opportunities for the banks to
reach out to its customers. No doubt banking services have undergone drastic changes and so also the
expectation of customers from the banks has increased greater.
IT is increasingly moving from a back office function to a prime assistant in increasing
the value of a bank over time. IT does so by maximizing banks of pro-active measures such as
strengthening and standardising banks infrastructure in respect of security, communication and
networking, achieving inter branch connectivity, moving towards Real Time gross settlement (RTGS)
environment the 40
forecasting of liquidity by building real time databases, use of Magnetic Ink Character Recognition and
Imaging technology for cheque clearing to name a few. Indian banks are going for the retail banking in a
big way
The key driver to charge has largely been the increasing sophistication in technology
and the growing popularity of the Internet. The shift from traditional banking to e-banking is changing
customer’s expectations.\ BANKING SERVICES IN INDIA E-Banking:
E-banking made its debut in UK and USA 1920s. It becomes prominently popular
during 1960, through electronic funds transfer and credit cards. The concept of web-based baking came
into existence in Eutope and USA in the beginning of 1980.
In India e-banking is of recent origin. The traditional model for growth has been through
branch banking. Only in the early 1990s has there been a start in the non-branch banking services. The
new pribate sector banks and the foreign banks are handicapped by the lack of a strong branch network
in comparison with the public sector banks. In the absence of such networks, the market place has been
the emergence of a lot of innovative services by these players through direct distribution strategies of
non-branch delivery. All these banks are using home banking as a key “pull’ factor to remove customers
away from the well entered public sector banks.
Many banks have modernized their services with the facilities of computer and
electronic equipments. The electronics revolution has made it possible to provide ease and flexibility in
banking operations to the benefit of the customer. The e-banking has made the customer say good-bye to
huge account registers and large
paper bank accounts. The e-banks, which may call as easy bank offers the following services to its customers:
Credit Cards – Debit Cards
ATM
E-Cheques
EFT (Electronic Funds Transfer)
D-MAT AccountsBANKING SERVICES IN INDIA
Mobile Banking
Telephone Banking
Internet Banking
EDI (Electronic Data Interchange)Benefits of E-banking: To the Customer:
Anywhere Banking no matter wherever the customer is in the world. Balance enquiry, request for
services, issuing instructions etc., from anywhere in the world is possible.
Anytime Banking – Managing funds in real time and most importantly, 24 hours a day, 7days a week.
Convenience acts as a tremendous psychological benefit all the time.
Brings down “Cost of Banking” to the customer over a period a period of time. 42
Cash withdrawal from any branch / ATM
On-line purchase of goods and services including online payment for the same.
To the Bank:
Innovative, scheme, addresses competition and present the bank as technology driven in the banking sector market
Reduces customer visits to the branch and thereby human intervention
Inter-branch reconciliation is immediate thereby reducing chances of fraud and misappropriation
On-line banking is an effective medium of promotion of various schemes of the bank, a marketing tool indeed.
Integrated customer data paves way for individualised and customised services. BANKING SERVICES IN INDIA Impact of IT on the Service Quality:
The most visible impact of technology is reflected in the way the banks respond
strategically for making its effective use for efficient service delivery. This impact on service quality can be
summed up as below: With automation, service no longer remains a marketing edge with the large
banks only. Small and relatively new banks with limited network of branches become better placed to
compete with the established banks, by integrating IT in their operations. The technology has commoditising some of the financial services. Therefore the
banks cannot take a lifetime relationship with the customers as granted and they have to work
continuously to foster this relationship and retain customer loyalty. The technology on one hand serves as a powerful tool for customer servicing, on the other hand, it itself results in depersonalising of the banking services. 43
This has an adverse effect on relationship banking. A decade of computerization can probably never substitute a simple or a warm handshake. In order to reduce service delivery cost, banks need to automate routine
customer inquiries through self-service channels. To do this they need to invest in call centers, kiosks,
ATM’s and Internet Banking today require IT infrastructure integrated with their business strategy to be
customer centric. BANKING SERVICES IN INDIA Impact of IT on Banking System:
The banking system is slowly shifting from the Traditional Banking towards relationship
banking. Traditionally the relationship between the bank and its customers has been on a one-to-one
level via the branch network. This was put into operation with clearing and decision making
responsibilities concentrated at the individual branch level. The head office had responsibility for the
overall clearing network, the size of the branch network and the training of staff in the branch network.
The bank monitored the organisation’s performance and set the decision making parameters, but the
information available to both branch staff and their customers was limited to one geographical location.
Traditional Banking Sector
DIAGRAM 2
Traditional Banking Sector 44
BANKING SERVICES IN INDIA
The modern bank cannot rely on its branch network alone. Customers are now
demanding new, more convenient, delivery systems, and services such as Internet banking have a dual
role to the customer. They provide traditional banking services, but additionally offer much greater access
to information on their account status and on the bank’s many other services. To do this banks have to
create account information layers, which can be accessed both by the bank staff as well as by th
customers themselves.
The use of interactive electronic links via the Internet could go a ling way in providing
the customers with greater level of information about both their own financial situation and about the
services offered by the bank.
The New Relationship Oriented Bank
DIAGRAM 3
BANKING SERVICES IN INDIA Impact of IT on Privacy and Confidentiality of Data:
Data being stored in the computers, is now being displayed when required on through
internet banking mobile banking, ATM’s etc. all this has given rise to the issues of privacy and
confidentially of data are: The data processing capabilities of the computer, particularly the rapid
throughput, integration, and retrieval capabilities, give rise to doubts in the minds of individuals as to
whether the privacy of the individuals is being eroded. So long as the individual data items are available only to those directly concerned, everything seems to be in proper place, but the incidence of data
being cross referenced to create detailed individual dossiers gives rise to privacy problems. Customers feel threatened about the inadequacy of privacy being maintained by the banks with regard to their transactions and link at computerised systems with suspicion.
Aside from any constitutional aspect, many nations deem privacy to be a subject of
human right and consider it to be the responsibility of those who concerned with computer data
processing for ensuring that the computer use does not revolve to the stage where different data about
people can be collected, integrated and retrieved quickly. Another important responsibility is to ensure the
data is used only for the purpose intended. BANKING SERVICES IN INDIA VII. RECENT TRENDS IN BANKING
Today, we are having a fairly well developed banking system with different classes of
banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional
rural banks and co-operative banks with the Reserve Bank of India as the fountain Head of the system.
In the banking field, there has been an unprecedented growth and diversification of
banking industry has been so stupendous that it has no parallel in the annals of banking anywhere in the
world.
During the last 39 years since 1969, tremendous changes have taken place in the
banking industry. The banks have shed their traditional functions and have been innovating, improving
and coming out with new types of the services to cater to the emerging needs of their customers.
Massive branch expansion in the rural and underdeveloped areas, mobilisation of
savings and diversification of credit facilities to the either to neglected areas like small scale industrial
sector, agricultural and other preferred areas like export sector etc. have resulted in the widening and
deepening of the financial infrastructure and transferred the fundamental character of class banking into
mass banking.
There has been considerable innovation and diversification in the business of major
commercial banks. Some of them have engaged in the areas of consumer credit, credit cards, merchant
banking, leasing, mutual funds etc. A few banks have already set up subsidiaries for merchant banking,
leasing and mutual funds and many more are in the process of doing so. Some banks have commenced
factoring business. BANKING SERVICES IN INDIA
The major challenges faced by banks today are as to how to cope with competitive
forces and strengthen their balance sheet. Today, banks are groaning with burden of NPA’s. It is rightly
felt that these contaminated debts, if not recovered, will eat into the very vitals of the banks. Another
major anxiety before the banking industry is the high transaction cost of carrying Non Performing Assets
in their books. The resolution of the NPA problem requires greater accountability on the part of the
corporate, greater disclosure in the case of defaults, an efficient credit information sharing system and an
appropriate legal framework pertaining to the banking system so that court procedures can be
streamlined and actual recoveries made within an 48
acceptable time frame. The banking industry cannot afford to sustain itself with such high levels of NPA’s
thus, “lend, but lent for a purpose and with a purpose ought to be the slogan for salvation.”
The Indian banks are subject to tremendous pressures to perform as otherwise their
very survival would be at stake. IT plays an important role in the banking sector as it would not only
ensure smooth passage of interrelated transactions over the electric medium but will also facilitate
complex financial product innovation and product development. The application of IT and e-banking is
becoming the order of the day with the banking system heading towards virtual banking.
As an extreme case of e-banking World Wide Banking (WWB) on the pattern of World
Wide Web (WWW) can be visualised. That means all banks would be interlinked and individual bank
identity, as far as the customer is concerned, does not exist. There is no need to have large number of
physical bank branches, extension counters. There is no need of person-to-person physical interaction or
dealings. Customers would be able to do all their banking operations sitting in their offices or homes and
operating through internet. This would be the case of banking reaching the customers. BANKING SERVICES IN INDIA
Banking landscape is changing very fast. Many new players with different muscle
powers will enter the market. The Reserve Bank in its bid to move towards the best international banking
practices will further sharpen the prudential norms and strengthen its supervisor mechanism. There will
be more transparency and disclosures.
In the days to come, banks are expected to play a very useful role in the economic
development and the emerging market will provide ample business opportunities to harness. Human
Resources Management is assuming to be of greater 49
importance. As banking in India will become more and more knowledge supported, human capital will
emerge as the finest assets of the banking system. Ultimately banking is people and not just figures.
Indian Banks, functionally diverse and geographically widespread, have played a crucial
role in the socio-economic progress of the country after independence. However, the growth led to strains
in the operational efficiency of banks and the accumulation of non-performing assets (NPA’s) in their loan
portfolios.
Banks face increasing pressure to stand out from the crowd. On the Internet, this
means offering your target customers an increasingly broader range of services than your competitors
and that too in unique way.
All this has resulted in a challenge to managers of banks to develop the right mix of
acquired and internally grown IT applications which suits customer’s expectations.
Banking sector reforms and liberalisation process raised many challenges before Indian
Banks and for sustainable development it has become necessary to face these challenges effectively: Intense Competition: The RBI and Government of India kept banking industry
open for the participants of private sector banks and foreign banks. The foreign banks were also
permitted to set up shop on India either as branches or as subsidiaries. Due to this lowered entry barriers
many new players have entered the market such as private banks, foreign banks, non-banking finance
companies, etc. The foreign banks and new private sector banks have spearheaded the hi-tech
revolution. Heavy weight foreign banks with huge BANKING SERVICES IN INDIA
base, latest technology innovative and globally tested products are spreading their wings and wooing
away customers form other banks. For survival and growth in highly competitive environment banks have
to follow the new “Guru Mantra” of prompt and efficient customer service, which calls for appropriate
customer centric policies and customer friendly procedures. 51
Technological Up gradation: Already electronic transfers, clearings, settlements have reduced translation times. To face competition it is necessary for banks to absorb the technology and upgrade their services.
However use of High-Tech sophisticated technology leaves the predominantly rural, poor and even
illiterate mans in the lurch to which the level of automation and efficiency of services are immaterial. Privacy and Safety: Among the most important aspects, of savings, i.e., safety
liquidity and profitability, safety has to be accorded top most priority. The safety aspect assumes more
significance in the emerging scenario as the economic loss caused internationally by these types of
crimes might risk area and any lacunae is safety would result in erosion of confidence and the same
might possibly paralyse the entire network. The areas among other things, which might endanger security
in e-banking can be: Changes in input data such as changing the amount in ledges, increasing
the limits in accounts or face value of cheaques. Though these trends could be detected consequently,
prevention is a major problem with these types of crimes. Use of stolen or falsified cards in ATM machines. BANKING SERVICES IN INDIA
Computer forgery could be committed by way of gaining access to other account, deliberate
damage through viruses on data stored in computers. In this case, same criminals might gain entry into
the computers and cause damage to the system. This apart, another through 52
which security and privacy are maintained. If a hacker has found out the password, he can cause havoc
to the entire network. Also, if the password is stolen money could be transferred from one account to
another.
Software privacy is another area of potential danger faced by the banking industry. In this the
entire software could be stolen. If this is done, the hackers could operate a parallel network.
Human Resources Management: In the recent past the
human resource Policies in banks were mainly guided by the comcept of permanent employment and its
necessary concomitants of creating career paths, terminal benfits, etc. for the employees. In today’s fast-
changing world of employee mobility both horizontally and vertically and value systems, the public sector
banks need to hire the right talent at market related compensation and to shed surplus manpower/staff.
Thus many banks are going for URS schemes to reduce the burden of excessive staff. Schemes like VRS
are going to change the nature of workforce with many senior and experienced persons opting for it.
The key elements that shall provide a competitive edge to banking sector will not be physical assets but
knowledge assets and information. Therefore, banks must understand how to retain knowledge based
employees and prevent them to migrating to some other organisation. Banks must believe in people,
customer orientation, and continuous improvement of excellence. Therefore it becomes necessary for
banks to encourage all employees to take risks and work towards continuous improvements and
breakthroughs. BANKING SERVICES IN INDIA
Successful banks overcoming the challenges will be those that harness technology in a customer friendly
yet cost effective way. This requires enormous internal and external management and the crux of the
solution lies in blending human resources with information technology.
Pune Banks
Pune Banks engaged in commercial activities add up to almost 300 branches. State Bank of India with its associate banks, Bank of India, Bank of Maharashtra, Union Bank of India, Oriental Bank of Commerce, Bank of Baroda, and Vijaya Bank operate through multiple branches. In addition to the nationalized commercial banks, Pune also has branches of Multinational banks, and private Indian banks.
Pune Nationalized Banks
Pune has multiple branches of nationalized commercial banks. Some of the important banks in Pune along with their branches are:
State Bank of India, Senapati Bapat Branch, Senapati Bapat Marg, Pune - 411 004
State Bank of India, Treasury Branch, Collector Office Compound, Sasoon Road, Pune - 1
State Bank of India, University Branch, University Road, Pune - 411 007
Bank of Maharashtra, Karve Road Branch, Karve Road Deccan, Pune - 411 004
Bank of Maharashtra, Sadashiv Peth Branch, S P College Compound, Pune - 411 030
Oriental Bank of Commerce, Viman Nagar Branch, 199 Lunkad Tower, Near Ganesh Temple, Viman Nagar, Ganapati Chowk, Pune - 411 014
Bank of Baroda, Aundh Gen Next Branch, Adams Court, Aundh Baner Road, Baner, Pune - 45
Bank of India, Bhavani Peth Branch, 224 Kalpataru Plaza, Bhavani Peth, Pune - 411 042
Vijaya Bank, Khadki Branch, Khadki, Pune - 411 003
Pune Multinational Banks
Pune being an important cultural and commercial city has a number of multinational commercial bank branches. These include:
ABN Amro Bank, KPCT Mall, Wing A, 3rd floor, Fatima Nagar, Pune - 411 040
Citibank in 2413 Kumar Capital, East Street, Camp, Pune - 1
HSBC Bank in Pradeep Chambers, Bhandarkar Road, Pune - 411 004
Pune Private Banks
In addition to nationalized and multinational banks, Indian private banks also do substantial business in Pune. Some of the notable branches are:
IDBI Bank, Erandwane Branch, 27/1 Yogeshwari Apartment, Ganeshnagar, Pune - 411 004.
Syndicate Bank, Khare Wada 2nd fl., 712 Laxmi Road, Narayan Peth, Pune - 411 030
Indus India Bank Limited, 2401 East Street, Camp, Pune - 411 001
HDFC Bank, Laxmi Road Branch, 344/1 Aditi Apartments, Narayan Peth, Pune - 411 030
ICICI Bank Limited, 46 Somshank Chambers, 1, Pune Satara Road, Pune - 411 009
Federal Bank, 1276 Jangali Maharaj Road, Jangali, Pune - 411 004
Pune Banks also have set up ATMs in different strategic locations for the convenience of theie customers, and travelers.
PREFACE Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors.
For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dials a pizza. Money has become the order of the day.
Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980
10- Summery of the project…………………………… 11- Bibliography……………………………………………….. RBI RBI does the currency managementthat's not only the talent,it also regulate and supervise the monetary systemwhich is done by banks and other institution.On the establishment of RBI was the main objectcredit control and currency management,RBI issue the notes on the basis of Minimum reserve systemthere is Gandhiji's portrait on the note as an emblem.Notes are printed by RBIand coins are minted by GOI,but distribution is done by RBI of bothso why the monetary system growth.Notes are printed at its pressesand then sent to RBI offices,RBI gives it direct to the public and by currency chest(cc)and the cc also gives it to other bank branches.The consignment of notes is recd.by two joint custodians from press representative,and then kept in vault after weightingwhere security with cc camera is performing.Notes and coins on counters are exchanged by the public and bank claim
