Banking sector profile Banking in India originated in the first decade of 18th century.

The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, both of which are n o w d e f u n c t . T h e o l d e s t b a n k i n e x i s t e n c e i n I n d i a i s t h e S t a t e B a n k o f I n d i a , w h i c h originated in the "The Bank of Bengal" in Calcutta in June 1806. This was one of the three presidency banks, the other two being the Bank of Bombayand theBank of Madras. The presidency banks were established under charters from the British East India Company.T h e y m e r g e d i n 1 9 2 5 t o f o r m t h e I m p e r i a l B a n k o f I n d i a , w h i c h , u p o n I n d i a ' s independence, b e c a m e t h e S t a t e B a n k o f I n d i a . F o r m a n y y e a r s t h e P r e s i d e n c y b a n k s acted as quasi-central banks, as did their successors. TheReserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. A couple of decades later, foreign ban ks such as Credit Lyonnais started thei r Calcutta operations in the 1850s. At that point of time, Calcutta was the most active trading port ,m a i n l y d u e t o t h e t r a d e o f t h e British Empire, a n d d u e t o w h i c h b a n k i n g a c t i v i t y t o o k roots there and prospered.

EARLY HISTORY The first fully Indian owned bank was the Allahabad Bank , established in 1865. However ,at the end of late-18th century, there were hardly any banks in India in the modern sense of the term. At the time of the American Civil War, a void was created as the supply of cotton to Lancashire stopped from the Americas. Some banks were opened at that time to f i n a n c e industry, including speculative trading in cotton. With large e x p o s u r e t o speculative ventures, most of the banks opened in India during that period failed. The d e p o s i t o r s l o s t m o n e y a n d l o s t i n t e r e s t i n k e e p i n g d e p o s i t s w i t h b a n k s . S u b s e q u e n t l y, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Structure of the organized banking sector in India. Numbers of banks are in brackets. At

this time, the Indian economy was passing through a relative period of s t a b i l i t y. Around five decades have elapsed since the India's First war of

Independence, and thesocial, industrial and other infrastructure have developed. At that time there were very s m a l l b a n k s o p e r a t e d b y I n d i a n s , a n d m o s t o f t h e m w e r e o w n e d a n d o p e r a t e d b y particular communities. The presidency banks dominated banking in India. There were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments o f t h e e c o n o m y. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks . This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some o l d f a s h i o n e d s a i l i n g s h i p , d i v i d e d b y s o l i d w o o d e n bulk heads into separate and cumbersome compartments." By the 1900s, the market expanded with the establishment of banks such a s Punjab National Bank , in 1895 in Lahore and Bank of India, in 1906, in Mumbaiboth of which were founded under private ownership. Punjab National Bank is the first Swadeshi Bank founded by the leaders like Lala Lajpat Rai, Sardar Dyal Singh Majithia. The Swadeshi movement in particular inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to thepresent such as Bank of India,Corporation Bank , Indian Bank ,Bank of Baroda, Canara Bank and Central Bank of India.

FROM WORLD WAR I TO INDEPENDENCE The period during the First World War(1914-1918) through the end of the Second World War( 1 9 3 9 - 1 9 4 5 ) , a n d t w o y e a r s t h e r e a f t e r u n t i l t h e independence o f I n d i a w e r e challenging for Indian banking. The years of the First World War were turbulent, and it t o o k i t s t o l l w i t h b a n k s s i m p l y c o l l a p s i n g d e s p i t e t h e Indian economy gaining indirectboost due to war -related economic activities. At least 94 banks in India failed between1913 and 1918 as indicated in the following table

POST-INDEPENDENCE The partition of Indiain 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-fairefor the Indian banking. TheGovernment of India initiated measures to play an active role in the economic life of the nation, and the Industrial PolicyResolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy include in g banking and finance. The major steps to regulate banking included In 1948, theReserve Bank of India, India's central banking authority, wasnationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the ReserveBank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of anexisting bank may be opened without a license from the RBI, and no two bankscould have common directors. However, despite these provisions, control a nd regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed withthe nationalization of major banks in India on 19th July, 1969.

NATIONALISATION By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOIin the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation."The paper was received with positive enthusiasm. Thereafter,

her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19,1969.Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity. "Within t wo weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquition and Transfer of Undertaking) Bill, and it received the presidential approval on9th August, 1969.A second dose of nationalisation of 6 more commercial banks followed in 1980. The state dreason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the GOI controlled around 91% of the bankingbusiness of India. Later on, in the year 1993, one of the nationalised banks, namely,New Bank of Indiawas merged with Punjab National Bank. It was the first and only merger of a Nationalised Bank into a Nationalised Bank, resulting in the reducing the number of Nationalised Banks from 20 to 19.After this, un til the 1990s, the nationalised banks grew at a pace of around 4%, closer tothe average growth rate of the Indian economy.

LIBERALISATION In the early 1990s the thenNarsimha Raogovernment embarked on a policy of liberalisationand gave licences to a small number of private banks, which came to beknown as New Generation tech -savvy banks, which included banks such as Global TrustBank (the first of such new generation banks to be set up)which later amalgamated withOriental Bank of Commerce,UTI Bank (now re -named asAxis Bank ),ICICI Bank and HDFC Bank . This move, along with the rapid growth in theeconomy of India, kickstarted the banking sector in India, which has seen rapid growth with strong contribution from allthe three sectors of banks, namely, government banks, private banks and foreign banks.The next stage for the Indian banking has been setup with the proposed relaxation in thenorms for Foreign Direct Investment, where all Foreign Investors in banks may be givenvoting rights which could exceed the presen t cap of 10%,at present it has gone up to 49%with some restrictions.The new policy shook the Banking

sector inIndiacompletely. Bankers, till this time, wereused to the 4 -6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. Thenew wave ushered in a modern outlook and tech-savvy methods of working for traditionalbanks.All this led to the retail boom in India. People not just demanded more from theirbanks but also received more.

CURRENT SITUATION Currently (2007), banking in India is generally 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. In terms of quality of assets and capital adequacy, Indian bank sare considered to have clean, strong and transparent balance sheets relative to other bank s 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 but without any fixed exchange rate -and this has mostly beentrue. 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. One may also expect M&As, takeovers, and asset sales. 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 bevetted by them. Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (thatis with the Government of Indiaholding a stake)after merger of New Bank of India inPunjab National Bank in 1993, 29 private banks (these do not have government stake; be publicly listed and traded on stock exchanges) and 31 foreign banks. They have acombined network of over 53,000 branches and 17,000ATMs. 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%respectivelyIntroduction of 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 liberalization of banking practices.The country is flooded with foreign banks and their ATM stations. Efforts are being put togive a satisfactory service to customers. Phone banking and net banking is introduced. Theentire system became more convenient and swift. Time is given more importance than money.

TYPES OF DEPOSITS OFFERED BY HDFC BANK While various deposit products offered by the bank are assigned different names, the deposit products can be categorised broadly into the following types. Definition of major deposit schemes are as under : "Demand Deposits " means a deposit received by the bank which is withdrawable on demand; "Savings Deposits" means a form of Demand Deposit which is subject to restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by the bank during any specified period; "Term Deposit" means a deposit received by the bank for a fixed period withdrawable only after the expiry of the fixed period and includes deposits such as Recurring / Double Benefit Deposits / Short Deposits / Fixed Deposits / Monthly Income Certificate / Quarterly Income Certificate etc. ''Notice Deposit'' means Term Deposit for a specific period but withdrawable on giving at least one complete banking day's notice; "Current Account" means a form of Demand Deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and will also include other deposit accounts which are neither Savings Deposit nor Term Deposit;