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Indian Banking Sector

Indian Banking Sector . Presented By –Kishore Kumar (Research Scholar ). Table of Contents . Introduction Evolution of Indian Banking Sector Structure of Banking Sector in India Banking Business Segmentation Product and services

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Indian Banking Sector

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  1. Indian Banking Sector

    Presented By –Kishore Kumar (Research Scholar )
  2. Table of Contents Introduction Evolution of Indian Banking Sector Structure of Banking Sector in India Banking Business Segmentation Product and services Strength & Weaknesses of Banking Sector Reforms Global financial crisis impact on Banking Sector Union budget 2013 about Banking Sector Issues & challenges Conclusion
  3. Introduction
  4. Evolution of Indian banking sector The Indian banking industry has its foundations in the 18th century, and has had a varied evolutionary experience . The first bank which was exclusively set up by Indians was Allahabad Bank, followed by Punjab National Bank Ltd. set up in 1895 with headquarters at Lahore. Other private banks established during this period were Bank of India & Central Bank of India established in 1911, Bank of Baroda (1908); Canara Bank (1906), Indian Bank (1907) and Bank of Mysore (1913).
  5. Establishment of RBI The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The establishment of this central bank of the country ended the quasi-central banking role of the Imperial Bank. In order to streamline the functioning and activities of the 1100 commercial banks present then, the Government of India came up in March 1949, with a special legislation, called the Banking Companies Act, 1949.
  6. The Banking Regulation Act The Banking Act 1949 was a special legislation, applicable exclusively to the banking companies. This Act was later renamed as the Banking Regulation Act from March 1966. The Act vested in the Reserve Bank of India the responsibility relating to licensing of banks, branch expansion, and liquidity of their assets, management and methods of working, amalgamation, reconstruction and liquidation. Thus giving RBI authority along with responsibility & igniting the first part of banking transformation in India
  7. Formation of "The State Bank of India" In 1951, when the First Five Year Plan was launched, the development of rural India was given the highest priority To serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state-sponsored bank by taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks. An act was accordingly passed in Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955.
  8. Nationalization The need for nationalization was felt because government believed that private commercial banks were lacking in fulfilling the social & developmental goals of banking. This was evident from the fact that the industries' share in loans almost doubled between 1951 and 1968, from 34% to 68%. On the other hand, agriculture which was a major occupation (and still is) received less than 2% of total credit Thus with a view to serve the mass Government of India Nationalized. 14 banks in 1969 bringing the total number of branches under government control to 84 percent .Once again in April of 1980, the Government of India undertook a second round of nationalization, placing under government control the six private banks whose nationwide deposits were above Rs. 2 billion, leaving approximately 10 percent of bank branches
  9. Nationalization
  10. Growth of the Banking Sector since the First Nationalization
  11. Indian Banking Sector The growth of Indian banking sector is phenomenal is last decade, The revenues of Indian banks grew almost four-fold from US$ 11.8 billion to US$ 46.9 billion over the decade spanning 2001-10 . According to FICCI-BCG report being five star in productivity- road map for excellence in Indian banking’ Indian GDP growth will make the Indian banking industry third largest in the world by 2025. Domestic banking industry is set to have an exponential growth in coming years with its assets size poised to touch USD 28,500 by the turn of 2025 from the current size of 15,640 USD in 2013.
  12. Ranking of Indian Banks in the Global League
  13. Banking business Segmentation Retail banking: on the liability side includes all types of deposit accounts and mortgages and loans (personal, housing, educational etc) on the assets side of banks, ancillary products and services like credit cards, demat accounts etc. The retail portfolio of banks accounted for around 29.3% of the total loans and advances of SCBs as at end-March 2013 Wholesale banking: Wholesale banking includes high ticket exposures primarily to corporate. Internal processes of most banks classify wholesale banking into mid corporate and large corporate according to the size of exposure to the clients Treasury Operations: it include investments in debt market (sovereign and corporate), equity market, mutual funds, derivatives, and trading and forex operations. Other Banking Businesses: . This category includes para banking activities like hire purchase activities, leasing business, merchant banking, factoring activities etc.
  14. Products & Services
  15. Strengths and Weakness of Indian Banking Sector: STRENGTHS Liquidity Sound Banking System
  16. Cont.… WEAKNESS Competition from foreign banks Lack of product differentiation Low penetration No competition at international level
  17. Reforms By 1991, India's financial system was loaded with an inefficient and financially unsound banking sector. The Government of India headed by Narasimha Rao decided to usher in several reforms that are collectively termed as liberalization in the Indian media with Manmohan Singh whom he appointed Finance Minister. Dr. Manmohan Singh, an acclaimed economist, played a central role in implementing these reforms.
  18. Cont.. Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank),ICICI Bank and HDFC Bank.
  19. Narasimham Committee The Narasimham Committee Report (1991) recommended several reform measures such as reduction of reserve requirements, de-regulation of interest rates, introduction of prudential norms, strengthening of bank supervision and improving the competitiveness of the system. The second Narasimham Committee Report (1998) too focused on issues like strengthening of the banking system, upgrading of technology and human resource development
  20. The Reforms of the Banking Sector of India (last decade)
  21. Initiatives of RBI Deregulation of savings rates for banks in India Basel III guidelines Relaxation of branch authorization policy for tier II cities Relaxation of mobile payment guidelines Issue of financial guidelines for new bank licenses Subsidiary route for foreign banks Expansion into rural markets Increased Non Performing Assets
  22. Global Financial Crisis (2007-08)- Impact on Banking Sector The Indian banking sector looked to be relatively insulated from global financial crisis that started in august 2007when the sub-prime mortgage crisis first surfaced in the U.S. in fact RBI was raising interest rates until august 2008with the explicit objective of bringing down the GDP growth rate which had visibly moved above the rate of potential output growth and was contributing to build-up of inflationary pressure
  23. Cont.… Fortunately unlike most of other economy India was lucky to avoid the first round of adverse affect . Only one of the large private sector bank ICICI was partly expose but it also managed to avoid the crisis because of its strong balance sheet and timely action by the government. However the second round of impact of crisis affected India. The liquidity squeeze in global market following the collapse of Lehman brothers had serious implications. it not only led to the massive outflow of FII but also compelled India to shift their credit demand from external sources to the domestic banking sector.
  24. Union budget 2012-2013 about Banking Sector First, the government suggested a proposed investment of Rs 15,888 crore (US$ 3 billion) for the capitalization of public sector banks, regional and rural banks (RRBs), and other financial institutions, including the National Bank for Agriculture and Rural Development (NABARD).
  25. Cont.. Second, agricultural credit was increased from Rs 4,75,000 crore (US$ 89.6 billion) to Rs 5,75,000 crore (US$ 108.4 billion) over FY12 to FY13. The budget also proposed modifications in the Kisan Credit Card (KCC) scheme to make it a smart card that can be used at ATMs. Third, the Swabhimaan scheme promoting financial inclusion was extended to North-East and hilly regions with a population of over 1,000, It has also sanctioned the development of a central “Know Your Customer” (KYC) depository, to bring the structure of banking payments at par with the global standards
  26. The New Banking License Guidelines, 2013 The Reserve Bank of India (RBI), on February 22, 2013, released the guidelines for “Licensing of New Banks in the Private Sector. The business plan will have to address how the bank proposes to achieve financial inclusion The bank shall open at least 25 per cent of its branches in unbanked rural centres (population up to 9,999 as per Census 2011)
  27. New Banks Entry
  28. Challenges and Issues Financial Inclusion Capital Adequacy Norms Product Innovation Application of Information Technology in Service Delivery Process Risk-based Business Segmentation and Use of Technology Development of Knowledge and Skills of its Human Resources Enhancing Corporate Governance
  29. Cont.… Need for Branch Rationalization Asset Liability Management Customer Relationship Management High NPA’s Rate etc…….
  30. NPAs of public, private and foreign banks as on March 2013 (in Rs crore)
  31. Conclusion Currently 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 banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. 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
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