03-08-2012, 02:14 PM
INDIAN BANKING INDUSTRY
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INTRODUCTION :
Banking can be described as the business of running an establishment where money is deposited in accounts, withdrawn and borrowed also by the customers. Banks perform their function of attracting deposits and providing credit. However banks today function for customer satisfaction rather than being just a mere intermediary.
EVOLUTION :
IN THE OLDEN DAYS
Roots of banking system in India dates back to over 2000 years. Manu is his “Manu Smriti” devoted a section to Deposits and Advances and prescribes the rules pertaining to interest rates to be charged and paid.
Kautilya’s “Arthashatra” also bears testimony to the existence and working of a banking system in India.
The Moghul Period
Indigenous bankers played vital role-lending money, financing of foreign trade and commerce. People who performed banking functions were known as Sheths/Shah/Shroff/Chettiars, etc. according to the regions they represented. Besides money lending they were also instrumental in transfer of funds from place to place and performed collections business through Hundis ( a commonly accepted mode of funds transfer for commercial transactions vogue even today in a modified form relevant to the modern system of banking.
The British Period :
Western style of banking began in the 18th Century – year 1770 First Joint Stock Bank-Bank of Hindustan started in Calcutta. Later East India Company also established three banks-Bank of Bengal (1809), Bank of Bombay (1840), and Bank Of Madras (1843). In 1921, Imperial Bank of India was established to hold government balances and manage public debt.
Various prominent banks like Punjab National Bank, The Bank of India, The Canara Bank an The Bank Of Baroda were opened during this period.
The Post Independence Period (from 1947-1969) :
Post independence scenario in the banking sector saw that “Class Banking” was being followed wherein main stream banking was being controlled by few industrialists mostly serving the narrow interests of the industries to which they were connected and catering to the needs of a certain class of customers. A liberal credit policy was not followed in lending to the priority and neglected sectors, including Agriculture and Small-scale industry. Thus, a need was felt to literally overhaul the Indian Banking System to serve the needs of the economically weaker sections of the society across the length and breadth of the country. It had become very much necessary that “Mass Banking” replace “Class Banking”. Thus path breaking measures, like, passing of the Banking Laws (Amendment) Act in 1968, nationalization of 14 major commercial banks in 1969, etc., were taken to achieve the desired social and economic objectives.
Development in the Banking Sector in the Post Nationalization
Times, (1969-1999 : Phase 2)
The post nationalization period has witnessed a phenomenal growth in branch expansion of public sector banks from 8262 branches in 1969 to more than 45000 branches (inclusive of 14000 regional Rural Bank Branches). During the three decades the Business Mix of the PSBs also rose in geometrical progression. Aggregate Deposits, which were Rs. 4,623/- crores in 1969 increased to more than Rs. 5,00,000/- crores in 1999 and total credit rose from Rs. 3825/- crores to more than Rs. 2,00,000/- crores during the same period. Consequently, employment potential in the banking sector itself increased in leaps and bounds, giving rise to the commonly held view that there was over recruitment of staff and excessive operating expenses consuming most of the revenue thereby eroding the profits/net worth of the Banks. Recent introduction of Voluntary Retirement Schemes by almost all the PSBs proves this point.
Post Reforms, Period
In 1991 the Indian economy was facing a grave crisis in all fronts-Forex reserves touched an abysmal low, increased deficit in the oil pool account and a severe resource crunch had a strangle hold on the economy. It was at this juncture that a new parliament under the stewardship of Shri P.V. Narasimha Rao decided to go in for sweeping changes in the economic front and with Dr. Manmohan Singh as Finance Minister the government unveiled the Economic Reforms Package.
The post liberalization era loosened the noose resulting in growing financial disintermediation, emergence of new financial products and services, greater need for professional.
Acumen and wider use of technology – revolutionizing the concept of banking in India – leading towards that all important goal of a commercial establishment – PROFITS.
Banking Industry in India has always revolved around the traditional function of deposits and credit. Their role had been defined as to assist the overall economic growth with majority of share being controlled by the Government of India in most of the banks. But with the process of liberalization, the banking industry has also undergo tremendous change in the last 5 years. The market, which was largely controlled by the public sector banks, has now been facing stiff competition not only from foreign players but also from the new generation private sector banks. The rules of the game have been changing with the RBI introducing new norms to make banks more accountable and to adopt the practices followed worldwide.