Impact of banking sector on economic growth of india with relation to china
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Transcript of Impact of banking sector on economic growth of india with relation to china
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Comparative study of Indian and Chinese banking secto
and its role in their economic growth and development
Presented by:SHIVAM KUMAR (A1802011101)
&TARUNA GULATI (A1802011080)
AMITY INTERNATIONAL BUSINESSSCHOOL NOIDA
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OBJECTIVES
To Study the impact of Banking sector on Economy.
Comparison of India and China on the basis of banking
system and its role in economic growth and development.
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INTRODUCTION
The financial sector played an important role in the economic growth.
In financial Sector, Banking system may directly affect growth by improving
the access to financial services and indirectly by improving the efficiency of
financial intermediaries, both of which reduce the cost of financing, and in
turn, stimulate capital accumulation and economic growth.
Due to their influence within a financial system and an economy, banks are
generally highly regulated in most countries.
India has the Seventh largest geographic area of 32, 263 sq kms,whereasChina has Third Largest area of 9,596,961 sq. km.
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The two countries have similar labor endowments and development lags
due to government controls and protected nature of their economies.
The Chinese culture is more homogeneous and Indian culture is great
diversified.
India lags behind china in infrastructure.
Primary, secondary education, vocational education training in china
results in 99.1% literacy rate, where as in India it is 50 to 60 %
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INTRODUCTION
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The Reserve Bank of India, the nations central bank, began operations on April
01, 1935. It was established with the objective of ensuring monetary stability andoperating the currency and credit system of the country to its advantage.
The scheduled bank are scheduled by Reserve Bank of India and they are fullyauthorised to do banking business in India. Reserve Bank of India directlycontrol over it.
Non-scheduled are not scheduled by Reserve Bank of India they do work underBanking Regulation Act of India.
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China Banking System
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The People's Bank of China (PBOC) is Chinas central bank, which
formulates and implements monetary policy. The PBOC maintains the banking
sector's payment, clearing and settlement systems, and manages official foreign
exchange and gold reserves.
The banking sector in China primarily comprises of state-owned commercial
banks and policy banks, the banking segment is mostly controlled by 4 state-
owned banks namely the Industrial & Commercial Bank of China (ICBC)specialized in lending to industrial sector, China Construction Bank (CCB)
traditionally focused on infrastructure development, Bank of China (BOC)
conventionally responsible for foreign exchange and financing of imports &
exports and Agricultural Bank of China (ABC) primarily focused on lending to
agriculture and rural development contributing about 60-70% of the domestic
banking business.
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Relation between Savings and Economic Growth
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The Growth Drivers of Indian banking sectorHigh growth of Indian Economy: The growth of the banking industry is closely linked with
the growth of the overall economy
Rising per capita income: The rising per capita income will drive the growth of retail credit.
New channelMobile banking is expected to become the second largest channel for banking
after ATMs: New channels used to offer banking services will drive the growth of banking
industry exponentially in the future by increasing productivity and acquiring new customers.
Major concern of Indian banking sector:1) Intensifying competition: Due to homogenous kind of services offered by banks, large
number of players in the banking industry and other players such as NBFCs, competition is
already high.
2) Managing Human Resources and Development: Banks have to incur a substantial
employee training cost as the attrition rate is very high. Hence, banks find it difficult managethe human resources and development initiatives.
3) Increasing non-performing and restructured assets: Due to a slowdown in economic
activity in past couple of years and aggressive lending by banks many loans have turned non-
performing. Restructuring of assets means loans whose duration has been increased or the
interest rate has been decreased. This happens due to inability of the loan taking
company/individual to pay off the debt.
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PORTERS FIVE FORCES MODEL FOR BANKING SECTOR
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Power of Buyers: Customers Bargaining Power is high
because banks provide homogeneous kind of services andcustomers can get all information very easily so the
switching cost is low for the customer.
Power of Suppliers :In the banking industry suppliers
bargaining power is low because banks have to meet many
regulatory criteria made by RBI.
Competitive Rivalry: Competition in the Banking Industry
is very High Because of large number of public, private,
foreign and co-operative banks.
Availability of Substitutes: There is a high threat fromsubstitutes such as mutual funds, T-bills, Government
securities and NBFCs.
Threat of new Entrants: Banking regulations require the
approval of the regulator RBI before setting up a new
bank,so the threat of new entrant is low.
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Research Methodology
Purpose of this research is to ascertain the impact of banking
sector on the financial development and economic growth in
India in context with China.
Data Collection can be done in the form of two types:
Primary Data and Secondary data. But with respect to the
research based on banking sector and economic growth, the
probability of getting secondary data is higher than the primary
data.
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Research Design
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Descriptive cum comparative Research
It aims to implement statistical research which describes data
and characteristics about the population or phenomenon being
studied.
Although the data description is factual, accurate and
systematic, the research cannot describe what caused a situation.
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ANALYSIS
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ANALYSIS CONTD
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According to the analysis ,GDP AND GDS of India and China has
high degree of correlation as their values are .991 and .999.which
means that if India and China increases their GDS by 100% there
will be a 99.1% of change in GDP of India and 99.9% change in
GDP of China.
In Regression Analysis, analysis GDP has been taken as
dependent variable and GDS has been taken as independent
variable and it is noticed that there is a significant correlationbetween GDP and GDS.Further when ANOVA Test was applied,
the sum of squares in Regression model was having very less
residual value.So we can interpret that India & China has to make
balance between GDP and GDS.
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ANALYSIS CONTD
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On the basis of the data, we can conclude that there is a
high degree of positive correlation, which means that if
there will be a certain percentage of change in deposits,
there will be same percentage change in GDP of India and
China.
In the Regression analysis, GDP has been taken as dependent
variable and GDS has been taken as independent variable and it is
noticed that there is a significant correlation between GDP and GDS.
Further when ANOVA Test was applied, the sum of squares in
Regression model was having very less residual value. So we can
interpret that India & China has to make balance between GDP and
GDS.
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FINDINGS
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GDP AND GDS of China has high degree of correlation as
its value is .999,which means that if China increases its GDS
by 100% there will be a 99.9% of change in GDP ,in same
direction.
There is a high degree of positive correlation between the
bank deposits and GDP of China which means that if there
will be a certain percentage of change in deposits, there will
be same percentage change in GDP, in same direction.
GDP AND GDS of India has high degree of correlation as its
value is .991,which means that if India increases its GDS by
100% there will be a 99.1% of change in GDP, in same
direction.
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FINDINGS CONTD
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The Bank deposits and GDP of India has high degree of correlation as itsvalue is 1, which means that if there will be a certain percentage ofchange in deposits, there will be same percentage change in GDP ,insame direction.
When ANOVA Test was applied to the GDP and Bank Deposits of India,the sum of squares in Regression model was having very less residualvalue.
The Regression analysis of the GDP and Bank Deposits with the help ofANOVA test, the sum of squares in Regression model was having veryless residual value.
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RECOMMENDATIONS
On the basis of the data presented in the
interpretation, regarding correlation between GDP
and GDS, we can recommend that to strengthen the
economy and GDP of India, they should increase their
savings.
According to the data analyzed regarding correlation
between GDP and GDS, we can recommend that tostrengthen the economy and GDP of China, they
should increase their investments and savings.
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RECOMMENDATIONS CONTD
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While comparing India and China, we find that china has
more GDP and GDS as compared to India and also bank
deposits of China are more as compared to India.
On the basis of the data given in the interpretation, regarding
correlation between the GDP and deposits, we can recommend
that India and China both have to increase their portion of
deposits so that further GDP for both the countries can be onhigher side and both the countries should focus more on GDS
so that Economy can grow and develop.
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Comparative Study of India-China
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Parameter India China
Population(2012) 1.22 Billion 1.34 Billion
Geographic Area 3.2 Million Sq Km 9.6 Million Sq Km
Inflation Rate (2013) 6.84 % 3.20 %
GDP(PPP) (2012) 4.7 trillion $ 12.38 trillion $
Literacy Rate 83.04 %(2012) 92.2%(2007)
Year 2008 2009 2010 2011 2012
GDP(India) 1.24 1.21 1.38 1.72 1.84
GDP(China) 3.49 4.52 4.99 5.87 7.29
GDS %GDP(India) 30 31 32 31
GDS%GDP(China) 52 53 52 53
Deposits(India) 0.65 1.8
Deposits(China) 1.13 4.1
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LIMITATIONS OF THE PROJECT
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The main focus in this research would be to pursue a cross-
sectional study bearing in mind the time constraint and also
subject to the fact that the banking industry will not reveal
the data for security purpose to undergone a longitudinalstudy.
This research would be carried out using secondary data
which is already available through various sources and would
be dealt in detail in further sections. Reliability of the
findings could be guaranteed by the mere fact that the
participant error or biased views did not take place as
secondary data is used.
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CONCLUSION
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China is having a definite edge over India if the present position of these two
countries in global economy is concerned.
The government machinery of the country, to a great extent, is found to be
responsible for the same. India looks a struggler yet, the fundamentals of its
economy and future growth projection makes it a dark horse in the globalscenario.
Indian in order to ensure that it is not lagging behind its counterparts, will
have to reverse the trend by investing more in R&D.
Improving education rate and standards in the country; curtailing adversebalance of trade; making our laws especially labour laws simple and straight
forward, making our financial markets more efficient and so on.
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