sunandaC

New member
Banking Industry Overview


Although some form of banking, mainly of the money-lending type, has been in existence in India since ancient times, it was only over a century ago that proper banking began.

The earliest institutions which undertook banking business under the British regime were agency houses which carried on banking business, in addition to their trading activities.

With a view to bring commercial banks into the mainstream of economic development with definite social obligations and objectives, the Government issued ordinance on 19 July 1969 acquiring ownership and control of 14 major banks in the country, with deposits exceeding Rs 50 crores each. Six more commercial banks were nationalised from 15 April 1980. The objectives of public sector banking system were outlined on 21 July 1969.

The three decades after nationalization saw a phenomenal expansion in the geographical coverage and financial spread of the banking system in the country. As certain rigidities and weaknesses were found to have developed in the system, during the late eighties the Government of India felt that these had to be addressed to enable the financial system to play its role in ushering in a more efficient and competitive economy.

In the post-nationalization era, no new private sector banks were allowed to be set up. However, in 1993, in recognition of the need to introduce greater competition, which could lead to higher productivity and efficiency of the banking system, new private sector banks were allowed to be set up in the Indian banking system.


Commercial Banking System in India consisted of 302 scheduled banks (including foreign banks) and one non-scheduled bank at the end of March 1999. Over the period March 1998 to March 1999, the number of scheduled banks increased by three while that of non-scheduled banks remained unchanged at one. Of the scheduled banks, 223 are in public sector and these account for about 83 per cent of the deposits of all scheduled commercial banks. In the public sector banking system, there are 196 regional rural banks, specially set up to increase the flow of credit to small borrowers in the rural areas.

These banks have specified areas of operations usually limited to two to three districts. They also undertake some other commercial banking business. The remaining 27 banks in the public sector are regular commercial banks and transact all types of commercial banking business. Some important indicators in regard to progress of commercial banking in India during the recent past are given in table 13.4.

Amongst the public sector banks, as on March 1999, the State Bank of India (SBI) group (SBI and its seven associates) is the biggest unit with 13,290 offices and deposits exceeding 1,39,000 crore aggregating Rs 1,71,782.48 crore and advances of Rs 1,14,430.37 crore.

In the associate banks, SBI owns either the entire or the majority of share capital. The SBI and its associate banks as a group account for around 31.9 per cent of aggregate banking business (aggregate of deposits and advances) conducted by the public sector banks and around 26.2 per cent of the aggregate business of the entire banking system. The remaining 19 banks in the public sector are more nationalised in 1969 and 1980 respectively

Industry Characteristics

The banking industry has moved gradually from a regulated environment to a deregulated market economy. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation role of banks. The pace of transformation has been more significant in recent times with technology acting as a catalyst. While the banking system has done fairly well in adjusting to the new market dynamics, greater challenges lie ahead.

The financial system is the lifeline of the economy. The changes in the economy get mirrored in the performance of the financial system, more so of the banking industry. Liberalization and de-regulation process started in 1991-92 has made a sea change in the banking system. From a totally regulated environment, we have gradually moved into a market driven competitive system. Our move towards global benchmarks has been, by and large, calibrated and regulator driven. The pace of changes gained momentum in the last few years.

Structure and ownership pattern would undergo changes. There would be greater presence of international players in the Indian financial system. Similarly, some of the Indian banks would become global players. Government is taking steps to reduce its holdings in Public sector banks to 33%.

However the indications are that their PSB character may still be retained.
Technology as an enabler is separately discussed in the report. It would not be out of place, however, to state that most of the changes in the landscape of financial sector discussed above would be technology driven.

In the ultimate analysis, successful institutions will be those, which continue to leverage the advancements in technology in re-engineering processes and delivery modes and offering state-of-the-art products and services providing complete financial solutions for different types of customers.

Banks will take on competition in the front end and seek co-operation in the back end, as in the case of networking of ATMs. This type of competition will become the order of the day as Banks seek to enlarge their customer base and at the same time to realize cost reduction and greater efficiency.
 

jiten005

Banned
Banking Industry Overview


Although some form of banking, mainly of the money-lending type, has been in existence in India since ancient times, it was only over a century ago that proper banking began.

The earliest institutions which undertook banking business under the British regime were agency houses which carried on banking business, in addition to their trading activities.

With a view to bring commercial banks into the mainstream of economic development with definite social obligations and objectives, the Government issued ordinance on 19 July 1969 acquiring ownership and control of 14 major banks in the country, with deposits exceeding Rs 50 crores each. Six more commercial banks were nationalised from 15 April 1980. The objectives of public sector banking system were outlined on 21 July 1969.

The three decades after nationalization saw a phenomenal expansion in the geographical coverage and financial spread of the banking system in the country. As certain rigidities and weaknesses were found to have developed in the system, during the late eighties the Government of India felt that these had to be addressed to enable the financial system to play its role in ushering in a more efficient and competitive economy.

In the post-nationalization era, no new private sector banks were allowed to be set up. However, in 1993, in recognition of the need to introduce greater competition, which could lead to higher productivity and efficiency of the banking system, new private sector banks were allowed to be set up in the Indian banking system.


Commercial Banking System in India consisted of 302 scheduled banks (including foreign banks) and one non-scheduled bank at the end of March 1999. Over the period March 1998 to March 1999, the number of scheduled banks increased by three while that of non-scheduled banks remained unchanged at one. Of the scheduled banks, 223 are in public sector and these account for about 83 per cent of the deposits of all scheduled commercial banks. In the public sector banking system, there are 196 regional rural banks, specially set up to increase the flow of credit to small borrowers in the rural areas.

These banks have specified areas of operations usually limited to two to three districts. They also undertake some other commercial banking business. The remaining 27 banks in the public sector are regular commercial banks and transact all types of commercial banking business. Some important indicators in regard to progress of commercial banking in India during the recent past are given in table 13.4.

Amongst the public sector banks, as on March 1999, the State Bank of India (SBI) group (SBI and its seven associates) is the biggest unit with 13,290 offices and deposits exceeding 1,39,000 crore aggregating Rs 1,71,782.48 crore and advances of Rs 1,14,430.37 crore.

In the associate banks, SBI owns either the entire or the majority of share capital. The SBI and its associate banks as a group account for around 31.9 per cent of aggregate banking business (aggregate of deposits and advances) conducted by the public sector banks and around 26.2 per cent of the aggregate business of the entire banking system. The remaining 19 banks in the public sector are more nationalised in 1969 and 1980 respectively

Industry Characteristics

The banking industry has moved gradually from a regulated environment to a deregulated market economy. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation role of banks. The pace of transformation has been more significant in recent times with technology acting as a catalyst. While the banking system has done fairly well in adjusting to the new market dynamics, greater challenges lie ahead.

The financial system is the lifeline of the economy. The changes in the economy get mirrored in the performance of the financial system, more so of the banking industry. Liberalization and de-regulation process started in 1991-92 has made a sea change in the banking system. From a totally regulated environment, we have gradually moved into a market driven competitive system. Our move towards global benchmarks has been, by and large, calibrated and regulator driven. The pace of changes gained momentum in the last few years.

Structure and ownership pattern would undergo changes. There would be greater presence of international players in the Indian financial system. Similarly, some of the Indian banks would become global players. Government is taking steps to reduce its holdings in Public sector banks to 33%.

However the indications are that their PSB character may still be retained.
Technology as an enabler is separately discussed in the report. It would not be out of place, however, to state that most of the changes in the landscape of financial sector discussed above would be technology driven.

In the ultimate analysis, successful institutions will be those, which continue to leverage the advancements in technology in re-engineering processes and delivery modes and offering state-of-the-art products and services providing complete financial solutions for different types of customers.

Banks will take on competition in the front end and seek co-operation in the back end, as in the case of networking of ATMs. This type of competition will become the order of the day as Banks seek to enlarge their customer base and at the same time to realize cost reduction and greater efficiency.

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