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Indian Banking

Past and Present

For the past three decades India's banking system has several outstanding achievements toits credit. The most striking is its extensive reach. It is no longer confined to onlymetropolitans or cosmopolitans in India. In fact, Indian banking system has reached even tothe remote corners of the country. This is one of the main reason of India's growth process.The first bank in India, though conservative, was established in 1786. From 1786 till today,the journey of Indian Banking System can be segregated into three distinct phases. They areas mentioned below: Early phase from 1786 to 1969 of Indian Banks Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms. New phase of Indian Banking System with the advent of Indian Financial & Banking SectorReforms after 1991.

Phase-IThe phase one is banking beginning with respect to customers. The Indian banks have alsogone from beginning in short to long changes with advancements in polices and rules tomake banks strong.During the first phase the growth was very slow and banks also experienced periodic failuresbetween 1913 and 1948. There were approximately 1100 banks, mostly small. To streamlinethe functioning and activities of commercial banks, the Government of India came up with TheBanking Companies Act. Reserve Bank of India was vested with extensive powers for thesupervision of banking in India as the Central Banking Authority.During those days public had lesser confidence in the banks. As an aftermath depositmobilization was slow. Abreast of it the savings bank facility provided by the Postaldepartment was comparatively safer. Moreover, funds were largely given to traders.

Phase-IIGovernment took major steps in this Indian Banking Sector Reform after independence. In1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scalespecially in rural and semi-urban areas. It formed State Bank of india to act as the principalagent of RBI and to handle banking transactions of the Union and State Governments all overthe country.

The following are the steps taken by the Government of India to Regulate Banking Institutionsin the Country: 1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation of State Bank of India. 1959 : Nationalisation of SBI subsidiaries. 1961 : Insurance cover extended to deposits. 1969 : Nationalisation of 14 major banks. 1971 : Creation of credit guarantee corporation. 1975 : Creation of regional rural banks. 1980 : Nationalisation of seven banks with deposits over 200 crore.

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Phase-III

The Phase is recent which involves following points, this phase has introduced many moreproducts and facilities in the banking sector in its reforms measure. In 1991, under thechairmanship of M Narasimham, a committee was set up by his name which worked for theliberalization of banking practices. The country is flooded with foreign banks and their ATM

stations. Efforts are being put to give a satisfactory service to customers. Phone banking andnet banking is introduced. The entire system became more convenient and swift. Time isgiven more importance than money.

Competitive landscape and leading banks in India

Banking in India is moderately consolidated, with the top 10 players accounting forapproximately 60 per cent of the total industry. The Indian banking sector is majorlydominated by public sector banks.

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Other regulatory developments that impact the Indian banking sector

1. Deregulation of savings rates for banks in India

In a move that enables banks to decide the interest rates they offer on savings accounts, theRBI has deregulated the savings bank deposit interest rates from an earlier norm of 4 percent per annum to aid product and price innovation in the long run.

2. Provision Coverage Ratio (PCR) of 70 per cent mandatory for banks

The mandatory directive to maintain a PCR of 70 per cent benefits all commercial banks. Thecurrent PCR can be used to minimise NPAs during economic downturn.

3. Basel III guidelines

The RBI has planned the implementation of the Basel III norms, which would require a capitalinfusion of approximately US$ 60 billion over the next five years. These norms would requirethe systemically important banks to maintain a higher level of capital, at a time when thecredit demand in the economy is rising.

4. Relaxation of branch authorisation policy for tier II cities

The policy will spread the organised banking to the remote areas of the country, and aidfinancial inclusion.

5. Growth in the Indian economy