Growth of Banking Industry in India A V Jose

Associate Professor, SCMS, Kalamasserry

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 9 - 1

Evolution of Banking in India Bank of Hindostan Bank of Bengal Bank of Bombay

1843 1840 1809

Bank of Madras
Slide 2007 by Christopher Lovelock and Jochen Wirtz

1770

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1921

Bank of Madras

Bank of Bengal

Bank of Bombay

Imperial Bank of India

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Milestones In the Indian Banking Industry

1921 1935 1947 1949 1955 1959 1969 1976 1980 CONSOLIDATION OF PRESIDENCY BANKS INTO IMPERIAL BANK OF INDIA

Formation of Reserve Bank of India in the private Sector India wins freedom Nationalisation of Reserve Bank of India Nationalisation of Imperial Bank of India and formation of State Bank of India SBI Subsidiaries Act passed associate banks were formed Nationalisation of 14 Banks Regional Rural banks were started Nationalisation of 6 more Banks

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Services Marketing 6/E

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Milestones In the Indian Banking Industry

1992-93 1994 1996 1998 1999 2001

Narsimhan Committee First report on financial sector reforms IRAC

Board for Financial supervision introduced so as to focus on regulation New private sector new generation Banks were allowed entry Narasimhan committee report II. PSBs permitted to tap capital markets ALM -Asset Liability Management concepts were introduced risk management mechanism Term Lending Institutions-Development Banks turned into universal banks to share the cake of PSBs. KYC-Know Your Customer norms strengthened to check money laundering

2002

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi Act) was passed for easy recovery.

2007

Basle II norms taken for implementation.

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Slide 2007 by Christopher Lovelock and Jochen Wirtz

Post-Independence Era
Banking sector playing significant role in the overall development of the Indian economy

Various social upliftment & self employment schemes successfully implemented

Implemented Basle norms and operating at par with global banks

Strengthened banking system through prudential norms

Introduced several legislations to help fast recovery of NPAs Priority sector lending still continuing for sectoral growth

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Retail banking

Universal Banking

Business Banking

Banking Activities
Investment Banking Corporate Banking Dealings

Private Banking

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

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2. Banking Statistics

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Services Marketing 6/E

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Statistics as on 1969 ( Rupees

Type of Bank

in Crore)

Branches

Deposits

Advances

State Bank of India

SBI Associates 14 Nationalised Banks

1569
893 4314

948
291 2627

966
219 1813

Total Public Sector banks

Private banks All Commercial Banks Share of PSB

6596
1666 8262 80%

3866
774 4640 83%

2998
574 3572 84%

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 9 - 9

Significant roles played by banks in National Development

Capital formation

Creation of credit
Focus on rural and semi-urban development

Development of SME sector

Helping Agri, SSI and weaker sections

Development of infrastructure through project financing

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 9 - 10

Milestones, Post-Nationalization
Focus shifted from trade & business to Agricultural farm credit and small scale industriesSocial Control over Banks was introduced- National Credit Council was set up to set lending targets for commercial banks Lead bank System was launched to provide thrust to rural and backward areas Deposit Insurance and Credit Guarantee Corporation was established IRDP Integrated Rural Development Programme was launched to benefit the rural populace Scheme for Self Employment for Educated Youth was introduced Introduction of Capital Adequacy norms under Basle committee Financial sector reforms introduced Securities Scam- shocked the banking system and capital markets
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1970

1972 1978 1979 1983 1988 1991 1992

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Roles
Promotion of export trade Financial inclusion and micro finance Payment & settlement system Foreign exchange transactions Reducing concentration of wealth

Encouraging students for higher education Effective use of technology for world standard banking Liberalised Housing Loans for better standard of living

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

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Banking system -Broad Classification

PSB
State Bank group: SBI and 5 associates; ( SB Saurashtra & SB Indore since merged) Nationalised banks-19

Others
Private Sector Banks: Old and New generation-26 Foreign Banks-21 Regional Rural Banks Co-operative Banks

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

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Technology Adoption
The growth new technologies over the past ten years has triggered a revolution in the banking sector in a big way Out of 27 PSBs 15 have been fully computerised ATMs all over the country Internet Banking Electronic Payment services Electronic fund Transfer-NEFT
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Technology..
RTGS MICR Clearing Technology Phone Banking Mobile Banking Cheque Truncation Data Warehousing & archiving Data Mining Effective MIS systems

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

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Technology & Innovation

Business Process Re-engineering

Bancassurance
Cross selling

Credit cards and Mutual funds

Sale of gold to retailers and metal gold loans

Gold deposit schemes

Correspondent banking financial inclusion
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Risk Management Tools

Adoption of Basle norms and thrust for risk management Systematic Credit risk assessment for loans Operations risk mgt. DRPM Rating agencies CRISIL, CARE,FITCH etc KYC norms and AML measures CIBIL data base DRT and Sarfaesi legislations
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Latest trends
Private banking & Wealth Management- Citi Bank episode has brought a stigma recently Mobile Banking - future in financial inclusion 70 crores mobile connections promises ample scope for banking for everyone in their handsets Consolidation in banking industry Scope for Mergers & amalgamations

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

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Opportunities and Challenges

1. Market is seeing discontinued growth driven by new products and services and so includes opportunities in
Credit cards Consumer Finance Wealth Management in the Retail Segment Investment Banking on whole sale banking side.

Banks will no longer enjoy wind fall Treasury Gains .

Competition from Foreign Banks. Increasing Consumer Demand for enhanced institutional

capabilities and service level from banks due to demographic shifts

Slide 2007 by Christopher Lovelock and Jochen Wirtz

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REGULATORY AND LEGAL ENVIRONMENT

Ensuring soundness of the system by fixing benchmarks standards for capital adequacy and prudential norms for key performance parameters. Adoption of best practices especially in areas like risk management, credit delivery etc.

Adoption of good corporate governance practices

Creation of institutional framework to protect the interest of depositors Regulating the entry and exit of banks including cross-border institutions

Slide 2007 by Christopher Lovelock and Jochen Wirtz

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Challenges Ahead
Successive drive the socio-economic agenda of the govt. Rethinking on branch expansion: now there is trend to go back to brick& mortar from click & mouse banking Unbanked areas still remains unattended Banks looking for only profitable avenues/centres Ensure continuity with change Equip youngsters to be good leaders in the next decade where massive retirement is taking place Value systems to be in place for social commitments and effective management of public money
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Conclusion

Change without continuity is chaos

Continuity without change would be sloth (Max De Pree)

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Questions?

Good day!

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