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 URBANAREAS 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 Switzerlands 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 BANK1. Issue of Notes2. Banker, Agent and advisor to the government3. Banker’s Bank & Lender of Last Resort4. Custodian of Foreign Exchange Reserves5. Regulation of Banking System6. Clearing House Functions7. 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.
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
RBI’S ROLE INCREASINGLY ACQUIRING ANINTERNATIONAL 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 INRESPONDING TO THE CRISIS.”- CHIEF EXECUTIVE OF INDIAN BANKS ASSOCIATION
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
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
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 NPA’s
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 PSB’s 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
PERSONAL BANKING NRI BANKING BUSINESS BANKINGDEPOSITS MONEY TRANSFER CORPORATE NET BANKINGLOANS REMITTANCES CASH MANAGEMENTCARDS INVESTMENTS TRADE SERVICESCAR/HEALTH INSURANCE PROPERTY SOLUTIONS SME SERVICESWEALTH MANAGEMENT INSURANCE ONLINE TAXESDEMAT 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
INDIA’S 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
INDIA’S 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
INDIA’S BEST BANKSThe Small Wonders(Balance Sheet size 3000 crore or less and 10 or less branches)1. DBS Bank2. JPMorgan Chase Bank3. Scotia Bank4. Barclays Bank5. Bank of America6. Deutsche Bank7. Calyon Bank8. BNP Paribus
INITIATIVES TAKEN BY GOVERNMENT National Electronic Clearing Service (NECS) : the core banking solutions Reduction in the Reserve Banks 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