INDIAN BANKING SECTOR

BY Siddhant Jain
Siddhant_jain_ind@yahoo.co.in

9595637843
HISTORY OF BANKING SECTOR
Developed during the British era.
British East India Company established three
banks.
Bank of Bengal- 1809
Bank of Bombay- 1840
Bank of Madras 1843
These three banks were later amalgamated and
called Imperial Bank
Taken over by State Bank of India in 1955
 The Reserve Bank Of India was established in
1935
Followed by Punjab National Bank, Bank Of
India, Canara Bank and Indian Bank.
In 1969, 14 major banks were nationalized and
in 1980, 6 major private sector banks were
taken over by the government.
TYPES OF BANKS

Central Bank
The Reserve Bank of India
Public Sector Banks
State Bank of India and its associate banks called
the State Bank Group.
20 nationalized banks.

Regional rural banks mainly sponsored by public

sector banks.
 Private Sector Banks
Private Banks
Foreign banks operating in India.
Scheduled co-operative banks.
Non-scheduled banks

Co-operative Sector
The co-operative sector is very much useful for rural
people.
State co-operative Banks
Central co-operative banks
Primary Agriculture Credit Societies
 Development Banks/Financial Institutions
IFCI
IDBI
ICICI
IIBI
NABARD
Export Import Bank of India
National Housing Bank
LIST OF PRIVATE SECTOR BANKS
Bank of Punjab
Bank of Rajasthan
Catholic Syrian Bank
Centurion Bank
City Union Bank
Dhanalakshmi Bank
Development Credit Bank
Federal Bank
HDFC Bank
ICICI Bank
 IndusInd Bank
ING Vysya Bank
Jammu & Kashmir Bank
Karnataka Bank
Karur Vysya Bank
Laxmi Vilas Bank
South Indian Bank
United Western Bank
UTI Bank
LIST OF PUBLIC SECTOR BANKS
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
CO-OPERATIVE BANKS IN INDIA

Cooperative banks in India finance rural areas

under:
Farming

Cattle

Milk

Hatchery

Personal Finance
COOPERATIVE BANKS IN INDIA FINANCE URBAN
AREAS UNDER:
Self-employment
Industries

Small scale units

Home Finance

Consumer finance

Personal finance
FOREIGN BANKS IN INDIA
ABN-AMRO Bank
Abu Dhabi Commercial Bank
Bank of Ceylon
BNP Paribas Bank
Citi Bank
China Trust Commercial Bank
Deutsche Bank
HSBC
JPMorgan Chase Bank
Standard Chartered Bank
Scotia Bank
Taib Bank
UPCOMING FOREIGN BANKS IN INDIA

Royal Bank of Scotland

Switzerland's UBS

US-based GE Capital

Credit Suisse Group

Industrial and Commercial Bank of China

REGIONAL RURAL BANKS

Haryana State Cooperative Apex Bank Limited

NABARD
National Bank for Agriculture and Rural
Development.
Sindhanur Urban Souharda Co-operative Bank
United Bank of India
RBI

Central Bank of the Country

Established on April 1, 1934
Dr Duvuri Subbarao
(The current governor)
PREAMBLE

To regulate issue of Bank notes, to keep the

reserves with a view to securing monetary
stability in India and generally to operate the
currency and credit system of the country to its
advantage
ROLE OF RESERVE BANK

1. Issue of Notes
2. Banker, Agent and advisor to the government
3. Bankers Bank & Lender of Last Resort
4. Custodian of Foreign Exchange Reserves
5. Regulation of Banking System
6. Clearing House Functions
7. Credit control
 RE RECENT ACTIONS

Re- introduction of interest rates futures in Sep-

2009
License to S.A. First Rand Bank
Bank Rate, Repo Rate, Reverse Repo Rate, Cash
Reserve Ratio kept unchanged. Statutory Liquidity
Ratio restored to 25%
RBI to launch plastic Rs 10 currency shortly
IMPORTANCE OF RBI GUIDELINES

As per law, the RBI Guidelines are statutory

and mandatory.
The violations of same by banks constitute an
important defense for the borrowers and
guarantors.
BIRTHDAY PARTY
 PLATINUM JUBILEE
CELEBRATIONS

Outreach program in the country :

to create awareness among villagers about banking and
its benefits.
Khopi Village nr Pune
Hunder Village (18,380 fts) nr Siachen base camp
RBIS ROLE INCREASINGLY ACQUIRING AN
INTERNATIONAL DIMENSION

Important international institutions promoting

effective regulatory structures and financial
stability consult RBI
Member of International Committees
- Bank for International Settlements (BIS)
- Committee on Global Financial System, the Markets
Committee, and the International Liaison Group under the
aegis of the Basel Committee on Banking Supervision
(BCBS)
- Financial Stability Forum and the BCBS
 Global crisis insulation:

Dr Reddy did not succumb to pressures for

full convertibility and opening up banking
sector
Limited vulnerability to sub prime and
complex debt obligations
Confidence level high for inter-banking
lending market

THE GLOBAL BACKDROP HAS NOT AFFECTED INDIA MUCH, REGULATORS WERE QUICK IN
RESPONDING TO THE CRISIS.- CHIEF EXECUTIVE OF INDIAN BANKS ASSOCIATION
EVOLUTION OF INDIAN BANKING
HISTORY OF BANKING IN INDIA

The first bank in India was established in 1786.

From 1786 till today it has gone through three
distinct phases
Phase1: Early phase from 1786 to 1969
Phase2: Nationalization of Indian Banks and up
to 1991prior to Indian banking reforms
Phase3: New phase of Indian Banking system
with the advent of the Indian Financial Banking
sector reforms after 1991
PHASE 1

The General Bank of India was established in

1786. Then came the Bank of Hindustan and
Bengal Bank. The East India company established
Bank of Bengal (1809), Bank of Bombay (1840),
Bank of Madras (1843) and these banks called as
Presidency Bank. These three banks were
amalgamated in 1920 and named as the Imperial
Bank of India, which was started as the as the
private shareholder bank mostly European
shareholder .
PHASE1 (CONT)
In 1865 Allahabad Bank was established and first time
exclusively by Indians, Punjab National Bank Ltd was
setup in 1894 with headquarter in Lahore. Between
1906 to 1913 many banks were established namely
Canara bank, Central bank, Bank of India, Bank of
Baroda, Indian Bank, Bank of Mysore were established.
There were approximately 1100 banks mostly small was
established.
To streamline the banks and to gain control over the
banks Govt. of India came up with The Banking
Companies Act in 1949 which was later changed to
Banking Regulation Act 1949.
PHASE2

Govt. took some major steps to bring reforms in

the Indian banking sector after independence.
In 1955, it nationalized The Imperial Bank of
India with extensive banking facilities on a large
scale especially in rural and Semi-urban areas.
It form SBI to act as the principal agent of RBI.
In 1969 late Prime Minister Mrs. Indira Gandhi
nationalized 14 commercial banks.
PHASE2 (CONT)
In 1980 seven more banks were nationalized which brings
around 80% banks under the control of Govt. Govt. took the
following steps:-
1949: Enactment of Banking Regulation Act
1955: Nationalization of SBI
1959: Nationalization of SBI Subsidiaries
1961: Insurance cover extended to deposits
1969:Nationalization of 14 commercial banks
1971:Creation of credit guarantee corporation
1975:Creation of Regional Rural Banks (RRB)
1980:Nationalization of banks with deposits over 200 crore
PHASE3

This phase brought many more facilities in the

banking sector. In 1991, under the
chairmanship of Mr. M Narasimham, a
committee was set up which work for the
liberalization of banks in India
During this country is flooded with the Foreign
banks and ATMs. Phone Baking and Net
banking was introduced
BEGINNING OF MODERN BANKING IN INDIA

In 1786, English Agency House had established

The General Bank of India. This was the
beginning of the modern banking in India.
PRE- INDEPENDENCE

On the eve of independence in 1947 there

were 648 commercial banks comprising of 97
scheduled and 551 non-scheduled banks.
The number of banks office stood at 2,987,
total deposit at Rs 100,800 million and
advances Rs 4750 million.
RBI

RBI (Reserve Bank of India) came into

existence in 1935 as the central banking
authority of India with a share capital of Rs 5
crores on the basis of recommendation of
Hilton Young Commission. RBI was nationalized
in 1949.
BANKING DEVELOPMENT: PRE-NATIONALIZATION

Credit was excessively skewed in favor of large

borrowers
Agriculture Sector got only 2% of total bank
credit
Features with the goal of achieving the
equitable allocation of credit and relative
priorities set out in the five years plan
NATIONALIZATION OF BANKS

In July 1969 Govt. of India nationalized 14

major scheduled commercial banks, each
having the minimum deposit of Rs 500 million.
RATIONAL FOR NATIONALIZATION

Removal of control of few large Industrial and

Business houses
Provision for adequate credit for Agriculture,
Small Industries, exports etc
Giving Professional bent to management

Encouraging a new class of entrepreneurs

Change over from class banking to mass

banking
IMPACT OF NATIONALIZATION

Unprecedented growth in the branch network of

the commercial banks
Rapid growth in deposit mobilization and
expansion of credit
However commercial banks faces decline in
profitability
Directed lending and less flexibility
Increase cost of operations
FORMATION OF REGIONAL RURAL BANKS

Formation of Regional Rural Banks under the

act of RRB 1976
These are state sponsored, Region based,
Rural based, Rural oriented, commercial banks
Under this approach 196 RRBs were setup
BANKING PRODUCTS
 Net banking
Loans
Certificate of deposits
Commercial papers
Non convertible debentures
Interest rates swaps
Forward rate agreements
Option contract
Currency swap
 ICICI Bank has launched `Global Indian Credit Card' for NRIs.
Bank of Rajasthan (BoR) has launched international credit card
operations in December 2005.
Investment Advisory Service
SGL accounts
Cash management services
BANKING REFORMS
NEED OF REFORMS
Greater inclusion
To protect the public sector banking system
To meet the international standards
To enhance efficiency and productivity through
competition
Lack of technological levels in operation
To maintain high transparency
High NPAs
PROCESSES OF REFORMS

On all important issues, workings group are

constituted or technical reports are prepared
Resource Management Discussions meetings
are held by the RBI with select commercial
banks, prior to the policy announcements
To form a Technical Advisory Committee on
Money, Foreign Exchange and Government
Securities Markets (TAC)
CONT

High Level Co-ordination Committee on

Financial and Capital Markets
Placing draft versions of important guidelines
for comments of the public at large before
finalisation of the guidelines
To align the regulatory framework with
international best practices
BASEL REFORMS

Basel I reforms:
- Focus on credit risk

Basel II reforms:
- Minimum capital requirements
- Supervisory review process
- Market discipline
NARSIMHAM COMMITTEE I (1991)

Reduction of SLR and CRR

Minimum Capital Adequacy Ratio

Prudential norms

Disclosure norms

Rationalization of foreign operations in India

Special tribunals and Asset Reconstruction

fund
CONT

Reduction of government stake in PSBs

Deregulation of interest rates
NARSIMHAM COMMITTEE II

Focus on technological upgradation in Banking

sector
Mergers of banks need to be encouraged

Reorganizing of banks into global, national and

regional banks
Autonomy of banks

Capital Adequacy requirement

HOW HAS THE REFORMS HELPED??

Lendable efficiency of banks have increased

Have met international standards

Return on Assets of the banks rose from 0.4

per cent in the year 1991-92 to 1.2 per cent in
2003-04
The business per employee for public sector
banks more than doubled
 MANAGEMENT
PERSPECTIVES

CORPORATE MERGERS & SERVICE

GOVERNANCE ACQUISTIONS INNOVATIONS
PERSONAL BANKING NRI BANKING BUSINESS BANKING

DEPOSITS MONEY TRANSFER CORPORATE NET BANKING

LOANS REMITTANCES CASH MANAGEMENT

CARDS INVESTMENTS TRADE SERVICES

CAR/HEALTH INSURANCE PROPERTY SOLUTIONS SME SERVICES

WEALTH MANAGEMENT INSURANCE ONLINE TAXES

DEMAT A/C CUSTODIAL SERVICES

LATEST TRENDS OF ICICI

MOBILE BANKING
INTERNET BANKING

ICICI I-ZONE

TV BANKING
MERGERS & ACQUISITIONS

JP MORGAN MERGER WITH CHASE

MANHATTAN
HDFC ACQUIRING CENTURION BANK OF
PUNJAB
PRIOR TO THIS MERGER CENTURION BANK
HAD MERGED WITH BANK OF PUNJAB
ICICI BANK ACQUIRING BANK OF MADURA
 PREMIER BANKS PROVIDING CUSTOMISED
SOLUTIONS

HSBC PREMIER
AXIS PRIORITY

ICICI PERSONAL

HDFC PRIVATE

BANK OF BARODA PERSONAL

BT KPMG BANK RANKINGS 2009

Based on 26 parameters consisting of three

broad categories

Growth
Size

Strength
INDIAS BEST BANKS
1. Axis Bank
2. Bank of India
3. Punjab National Bank
4. Bank of Baroda
5. HDFC Bank
6. Indian Bank
7. Federal Bank
8. Corporation Bank
9. Union Bank of India
10. Citibank
INDIAS BEST BANKS
The Mid-Size Chartbusters
(Balance Sheet size less than 24000 crore and more than 10 branches)
1. YES Bank
2. Karur Vysya Bank
3. Dhanalakshmi Bank
4. City Union Bank
5. The Nanital Bank
6. Karnataka Bank
7. Ratnakar Bank
8. South Indian Bank
9. Lakshmi Vilas Bank
10. Bank of Rajasthan
INDIAS BEST BANKS
The Small Wonders
(Balance Sheet size 3000 crore or less and 10 or less branches)
1. DBS Bank
2. JPMorgan Chase Bank
3. Scotia Bank
4. Barclays Bank
5. Bank of America
6. Deutsche Bank
7. Calyon Bank
8. BNP Paribus
INITIATIVES TAKEN BY GOVERNMENT

National Electronic Clearing Service (NECS) :

the core banking solutions
Reduction in the Reserve Bank's policy rates
and easy liquidity conditions
Cutting down of repo and reverse repo rates

Tax free cash withdrawals from banks

Inter-ATM usage transaction

CHALLENGES
Globalisation
Enhancement of customer service: demand for new products,
particularly derivatives
Application of technology

Implementation of Basel II

Implementation of new accounting standards

Compliance with KYC aspects

Interest rate risk

Interest rates and non-performing assets

Competition in retail banking
The urge to merge
TRENDS
Banks funding innovation
Proxy banking: Tapping the rural market
New banking correspondents
Regional banks going national
Consolidation of banks and financial players
Outsourcing business to cut costs
Credit Card business growing in spite of downturn
Retail banks to change models from credit base to
deposit base
Financial deepening and financial inclusion
THE FUTURE

Linking of mobile, Uid and payments without

the need of a bank account
Thank you!!