BANKING SECTOR REFORMS IN INDIA AN...
Transcript of BANKING SECTOR REFORMS IN INDIA AN...
CHAPTER II
BANKING SECTOR REFORMS IN INDIA –
AN OVERVIEW
CONTENTS
1. Commercial Banking in India
2. Regulations in the Banking Sector
a) The Nationalisation Era
b) The Liberalisation Era
i) First Phase of Reforms
ii) Second Phase of Reforms
3. Implications of Reforms (Progress)
4. Other Developments: An Overview
a) Technology in Banks
b) Bancassurance in India
c) Consolidation in the Banking Sector
d) SARFAESI ACT, 2002
e) Corporate Governance in Banks
f) Banking Ombudsman Scheme
g) Financial Inclusion
h) Committee on Financial Sector Reform
headed by Dr. Raghuram Rajan
Conclusion
References
CHAPTER II
BANKING SECTOR REFORMS IN INDIA:
AN OVERVIEW
Commercial banks are considered as the financial intermediaries who help
the channelisation of liquidity along different economic activities in tune with the
overall development process in the different sectors of the domestic economy.
This financial intermediation is done through four transformation mechanisms:
1) liability-asset transformation
2) size transformation
3) maturity transformation and
4) risk transformation.
This intermediation process promotes accumulation of savings and
investment and as such fosters economic growth of a country. The development of
banking institutions in developing countries reduces the risk of potential savers and
provides required liquidity to potential entrepreneurs. This augments the growth
process. Thus the financial development has a dual effect on the economy:
a) it increases the efficiency of capital accumulation and
b) it raises the rate of savings and investment1
Thus banks are considered not merely as dealers of money but also the
leaders of development. Moreover, banks not only provide financial resources for
the growth of the economy, but also influence the direction in which these
resources are to be utilised. So they are considered as the storehouses of the
country’s wealth and the reservoirs of resources necessary for the development of
different sectors of the economy. 2
36
Commercial Banking in India
Commercial banking system constitutes the largest segment of the Indian
financial sector. It has been treated as the traditional provider not only of working
capital but – because of the absence of a vibrant debt market – of term loans too.
At the top of the Indian Banking system there are the commercial banks headed by
the Reserve Bank of India. Major commercial banks are under public sector
system. These public sector banks constitute about 75–80% of the monetary
activities and the rest is shared by other private and foreign banks and financial
institutions.
Contrary to the universal situation of competition of banks with other
participants in the financial system, in India banks were protected from
competition from other players in the system, especially after their nationalisation
in 1969. Both the Reserve Bank of India and Government of India framed rules,
guidelines and directives regarding mobilization of deposits and deployment of
mobilized funds. As the mode of deployment of banks’ resources was outside the
control of banks, they became passive in their lending activities. The whole
financial system, comprising mainly banks and financial institutions, functioned as
a sellers’ market with borrowers having hardly any choice about the sources of
their funds or terms on which such funds were made available to them. The whole
arrangement was thus an antithesis of a competitive financial system.3
From the 1980s onwards evidences were shown that in the Indian Banking
sector everything was not going well. The philosophy of development banking
also did not encourage professionalism in the financial sector and this resulted in
accumulation of banking assets, the quality of which was of dubious character.
And this is the total result of long standing neglect of financial professionalism and
deterioration of the economic health of the industrial corporate sectors where the
banks have had heavy exposure.4 All this had affected the profitability of majority
of the banks and the capital base of the banks. Consequently, the real sector of
the economy is affected by the sickness in the financial sector. Cross country
37
evidence suggests that though economic fraud and mismanagement are responsible
for the insolvency of many banks, macro economic factors such as trade cycles,
policy mistakes and inadequate risk management have created the conditions for
financial imbalances which have led to insolvency in a large number of banks.5
That is why the government intervenes from time to time whenever signs of
sickness appear in the banking sector.
Many big banks in the public sector suffered losses in the early years of
1990s. The main reason in almost all cases had been the existence of large amount
of non-performing assets. The latter is the accumulated result of long neglect of
the prudential functioning of banks and a chronic imbalance in the efficient
combination of different factors of production, particularly capital and labour. The
government has redefined the priorities in the banking sector and introduced strict
income recognition norms to improve the bottom line of their balance sheets. The
philosophy of development banking has been substituted by the neo-classical
concept of profitability. The introduction of income recognition has revealed the
accumulated huge amounts of nonperforming assets and provisioning against this
NPA has eroded the capital base of many banks, especially public sector banks.
Regulations in the Banking Sector
The regulations governing the Indian banking industry have brought about
revolutionary changes in that sector. Based on these regulations the Indian
banking history can be divided into two important eras:
Nationalisation Era
Liberalisation Era
Though the regulations that were introduced during these two eras were
distinct from each other, in both eras the banking industry had to re-engineer its
operational policies to meet the situations. During the nationalisation era, banks
were required to help economic-growth-oriented activities by increasing the
volume of credit given especially to the neglected sectors. As against this, during
38
the liberalisation era, though economic growth is the primary aim, the focus is
shifted to quality of assets and services. Keeping profitability in a highly
competitive environment is the challenge before the banks during this era.
THE NATIONALISATION ERA
In 1969, by the nationalization of country’s 14 major commercial banks, the
nationalisation era was started. Six more banks were nationalised in 1980.
The Banking Companies (Acquisition and Transfer of Undertakings) Act
1969 was enacted to nationalise 14 banks based on their size, resources, coverage
and organisation. The aim of nationalisation was to give priority to the credit
requirements of the neglected sectors like small scale sector, agricultural sector etc.
Before nationalisation these sectors were totally neglected in order to cater to the
needs of large corporate houses. After nationalisation the credit facility was
extended at subsidised rates to business units other than large business units.
Wholesale banking was replaced by retail banking. There has been an all-round
growth in the branch network, rural expansion, deposit mobilisation, credit
disbursals, and employment opportunity and in removing the regional imbalances
in the economy.
Subsequent to nationalisation the branch network of banks increased
tremendously. The number of branches increased from 8262 in June 1969 to more
than 60,570 in June 1992. Out of this, 57 percent were in rural areas. In 1969 it
was only 23 percent. The expansion in branch network and new techniques of
deposit mobilisation has raised the number of deposit accounts and the amount
mobilised. From a figure of Rs.4,669 crores during July 1969, the aggregate
deposits of Scheduled Commercial Banks reached Rs. 2,35,753 crores by the end
of March 1992. There was an overall growth in advances also. It increased from
mere Rs.3,599 crores to Rs.1,31,530 crores during this period.6
But nationalisation of banks was not without its drawbacks. The credit
facilities extended to the priority sector at concession rates became a burden for
39
commercial banks. Credit disbursals without proper supervision led to the
deterioration in the quality of loan assets of the banks. The quality of credit assets
falls as loan sanctioning became more a mechanical process rather than credit
assessment decision.7 The loan appraisal was very little during the ‘loan melas’.
Subsidised lending to priority sectors and investment in low yielding securities
adversely affected the profitability of the banks. Due to rapid branch expansion
there was an increase in fixed costs. There was strain on the managerial resources
also. In most of the cases, the branches added more costs than returns. The quality
of service and productivity and efficiency of the banks showed a downward trend.
Inefficiency in banking sector means inefficiency in economic growth.
The root causes for the lackluster performance of banks, formed the
elements of the banking sector reforms. Some of the factors that led to the dismal
performance of banks were:
greater emphasis on directed credit;
regulated interest rate structure;
lack of focus on profitability;
lack of transparency in the banks’ balance sheet;
lack of competition;
lack of grasp of the risks involved;
excessive regulations on organisation structure and managerial resource and
excessive support from government.8
By the beginning of 90s, most of the public sector banks were unprofitable.
Nobody was bothered about the fundamental financial strength of these banks.
Many of these banks remained undercapitalised. All these factors necessitated a
review of our policy.
40
THE LIBERALISATION ERA
The need for restructuring the real economy was felt in the beginning of
1990s. The negative balance of payment position in 1991 compelled the
government to introduce the liberalisation policies in external sectors, as per the
recommendations of Dr. Rangarajan Committee on economic affairs. The basic
objectives of this policy change were that, the economic activity be determined
increasingly by market forces of demand and supply, the integration of the Indian
economy with the global economy, and the gradual elimination of the elaborate
system of governmental control and regulation of different sectors of the economy.
As a result, effort to restructure banking industry was also initiated.
Further, in response to the growing and persistent inefficiencies of the banking and
financial system, the Government of India set up a nine member Committee on
Financial System headed by Shri. M. Narasimham, the former Governor of RBI,
on August 14, 1991, which was later known as Narasimham Committee I. The
terms of reference of the Committee were to examine all aspects relating to the
structure, organisation and functioning of the Indian Banking system and the
capital markets.
First Phase of Reforms
The committee submitted its report in November 1991 and it was placed
before the Parliament in December 17, 1991. Its recommendations constitute a
landmark in the evolution of banking policy in the country. It centred around
transforming Indian banking from a highly regulated to a more market-oriented
system, albeit in a phased manner. Many of the recommendations of CFS are in
line with banking policy reforms implemented by a number of developing
countries since the seventies. Its recommendations were aimed at improving the
productivity, efficiency and profitability of the banking system by providing it with
greater operational flexibility and functional autonomy in decision making and by
41
infusing competitiveness and higher degree of professionalism in to banking
operations in order to achieve efficiency and effectiveness of the financial system.
Since a healthy and sound banking and financial system is a pre-requisite for a
healthy economy, many of the recommendations made by the Committee were
accepted and implemented. Really the banking sector reforms conform to the
global initiatives of the Bank for International Settlements9 in terms of micro and
macro prudential norms.
The following are the important recommendations made by the
Narasimham Committee I for making necessary reforms in the banking system as
well as in the financial system:
1. Establishment of a four tier hierarchy for the banking structure consisting of 3
or 4 large banks including the State Bank of India at the top which should be
international in character, 8 to 10 national banks with a network of country
wide branches, local banks for regional operations and rural banks at the
bottom, mainly engaged in financing agriculture and related activities.
2. The Government should announce that there would be no further
nationalisation of private commercial banks in future and private banks
should be treated at par with public sector banks. There should not be any
ban on setting up new banks in the private sector.
3. Branch licensing should be abolished and the freedom to open and close
branches be given to individual banks.
4. The Government should be more liberal in allowing foreign banks to open
more offices in India keeping in line with the foreign investment policy.
Joint ventures between foreign banks and Indian banks could also be
permitted particularly in regard to merchant and investment banks.
5. Foreign operation of Indian banks should be rationalised.
6. The statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) should
be progressively reduced to 25% and 10% respectively over a time period.
The SLR instrument should be deployed in conformity with the original
42
intention of regarding it as a prudential requirement and not be viewed as a
major instrument for financing the public sector.
7. The directed credit programme should be re-examined at least in case of
those who were able to stand on their own feet. The priority sector should be
redefined to comprise the small and marginal farmers, the tiny sector of
industry, small business and transport operators, village and cottage
industries, rural artisans and other weaker sections. The target for this
redefined sector should be fixed at 10% of aggregate credit.
8. Interest rate should be further deregulated so as to reflect emerging market
conditions. Similarly, the interest rate on Government borrowing may also be
gradually brought in line with market determined rates.
9. Banks and financial institutions should achieve a minimum of 4 percent
capital adequacy ratio in relation to risk weighted assets by March 1993, of
which Tier I Capital should not be less than 50 percent. The BIS standard of
8 per cent capital ratio should be achieved by March 1996.
10. Profitable Public Sector Banks should be permitted to approach the capital
market for enhancement of their capital through issue of fresh capital to the
public. In respect of other banks, the Government could meet the shortfall in
their capital requirements by direct subscription to their capital by providing a
loan.
11. Banks and financial institutions should adopt uniform account practices
particularly in regard to income recognition and providing against doubtful
debts. In respect of doubtful debts, provisions should be created to the extent
of 100 percent of the security shortfall and loss assets.
12. With regard to income recognition, no income should be recognised in the
accounts in respect of non-performing assets.
13. An Asset Reconstruction Fund (ARF) may be established to take over from
the banks and financial institutions a portion of the bad and doubtful debts at
discounts so that they could recycle the funds realised through this process
into more productive assets.
43
14. The balance sheets of the banks and financial institutions should be made
transparent and full disclosure be made in the balance sheets as recommended
by the International Accounting Standards Committee.
15. Debt Recovery Tribunals should be constituted so as to provide institutional
legal support to speed up the process of recovery of NPAs.
16. Government guidelines relating to matters of internal administration of banks
should be withdrawn so as to ensure the independence and autonomy of the
banks. Also common recruitment system for bank officers should be
abolished.
17. Greater use of computerised systems is needed to improve customer service
and control systems and for the betterment of work environment for the
employees.
So the major recommendations of the Committee are: Deregulation of
entry of new banks, Indian and foreign, deregulation of interest rates, gradual
reduction in reserve pre-emption levels, lesser emphasis on priority sector lending,
introduction of capital adequacy and prudential norms, improving accounting
practices, allowing public sector banks to access the capital market, liberalised
branch expansion policy, setting up of Asset Reconstruction Funds, greater
autonomy to public sector banks, granting autonomy in the recruitment of staff, et
al.
Second Phase of Reforms
After seven years of liberalisation, a Committee on Banking Sector
Reforms was constituted by then Finance Minister Shri. P. Chidambaram under the
Chairmanship of Sri. M. Narasimham in January 1998. The committee, known as
Narasimham Committee II, submitted its report on April 23, 1998 to the then
Finance Minister Shri. Yaswant Sinha. The Committee, which proposed to review
the Indian banking sector reforms, has reiterated many of its previous
recommendations. In the light of post-reform experience, it has also given some
new suggestions for the second phase of reforms. The suggestions in brief:
44
1. The Committee suggested that pending the emergence of markets in India
where market risks can be covered, it would be desirable that capital adequacy
requirements take into account market risks in addition to the credit risks
2. In the next three years, the entire portfolio of the Government Securities should
be marked to market and there should be 5% weight for market risk for
Government and other approved securities.
3. The risk weight for Government guaranteed advance should be same as for
other advances.
4. The minimum capital to risk assets ratio (Capital to Risk Weighted Assets
Ratio – CRAR) should be increased to 10% from its current level of 8%. An
intermediate minimum target of 9% be achieved by the year 2000 and the ratio
of 10% by 2002.
5. The banks which are in a position to access the capital market at home or
abroad should be encouraged to do so.
Asset Quality, NPA and Directed Credit
6. An asset should be classified as doubtful, if it is in the substandard category for
18 months in the first instance, and subsequently for 12 months, and as loss, if
it has been so identified, but not written off.
7. The committee has noted the NPA figures do not include advances covered by
Govt. guarantees which have turned sticky and which in the absence of such
guarantees would have been classified as NPAs. The committee is of the view
that for the purposes of evaluating the quality of asset portfolio such advances
should be treated as NPAs.
8. Banks and financial institutions should avoid the practice of “ever greening” by
making fresh advances to their troubled constituents only with a view to
settling interest dues and avoiding classification of the loans in question as
NPAs.
9. No further recapitalisation of banks should be from the Government budget.
10. The banks should reduce the average level of Net NPAs for all banks to below
5% by the year 2000 and 3% by 2002. For those banks with an international
45
presence, the minimum objective should be to reduce gross NPAs to 5% and
3% by the year 2000 and 2002 respectively and net NPAs to 3% and 0% by
these dates.
11. The committee has stated that cleaning up the balance sheet of banks would
make sure, only if, simultaneously, steps were taken to prevent or limit the
reemergence of new NPAs which would only come about through a strict
application of prudential norms and managerial improvement.
12. Directed credit has a proportionately higher share in NPA portfolio of banks
and has been one of the factors in erosion in the quality of bank assets. There
is continuing need for banks to extend credit to agriculture and small scale
sector. In this process, there is scope for correcting the distortions arising out
of directed credit and its impact on banks’ asset quality.
13. Within the priority sector, 10% of net bank credit is earmarked for lending to
weaker sections. A major portion of this lending is on account of Government
sponsored poverty alleviation and employment generation schemes. Given the
special needs of this sector, the current practice may continue. The Committee
recommends that the interest rates on loans under Rs. 2 lakhs should be
deregulated for scheduled commercial banks as have been done in the case of
RRBs and co–operative credit institutions.
Prudential Norms and Disclosure Requirements
14. Indian Banks should move towards international practices in regard to income
recognition by introduction of norm of 90 days in a phased manner by the year
2002.
15. RBI should consider introduction of a general provision on standard assets, say
of 1%, in a phased manner.
16. In the case of all future loans, the income recognition and asset classification
and provisioning norms should apply even to government guaranteed advances
in the same manner as for any other advances.
46
17. There is need for disclosure, in a phased manner, of the maturity pattern of
assets and liabilities, foreign currency assets and liabilities, movements in
provision account and non-performing assets.
18. Banks should also pay greater attention to asset liability management to avoid
mismatches and to cover, among others, liquidity and interest rate risks.
Structural Issues
A weak bank should be one whose accumulated losses and net NPAs
exceed its net worth or one whose operating profits less its income on
recapitalisation bonds is negative for three consecutive years. A case by case
examination of the weak banks should be undertaken to identify those which are
potentially revivable with a programme of financial and operational restructuring.
Such banks could be nurtured into healthy units by slowing down on expansion,
eschewing high cost funds/borrowings, judicious man power deployment, recovery
initiatives, containment of expenditure etc.
The policy of licensing new private banks may continue and foreign banks
may be allowed to set up subsidiaries or joint ventures in India with the same
capacity of other private banks and subject to the same conditions with regard to
branches and directed credit as in these banks.
Functional autonomy with accountability within the framework of
purposive, rule bound, non-discretionary prudential regulation and supervision, is a
prerequisite for operational flexibility and for critical decision making. Capital
enhancement also becomes a necessity for public sector banks. So public sector
banks should be encouraged to go to the capital market to raise capital.
Simultaneously, the minimum shareholding by Government/Reserve Bank in the
equity of the nationalised banks and the State Bank should be brought down to 33
percent. This will raise their functional autonomy and enhance the effectiveness
and efficiency of the system.
47
Regulation and Supervision
To improve the soundness and stability of the Indian Banking system the
regulatory authorities should make it obligatory for banks to take into account risk
weights for market risks. The regulatory concerns should ensure transparency and
credibility particularly as we move into a more market driven system where the
market should be enabled to form its judgement about the soundness of an
institution.
An integrated system of regulation and supervision should be put in place to
regulate and supervise the activities of banks, financial institutions and non-bank
finance companies under Board for Financial Regulation and Supervision (BFRS)
to make this combination of functions explicit. The BFRS should be given
autonomy and statutory powers and it should be separated from RBI. However,
the Governor, RBI should be head of the BFRS.
IMPLICATIONS OF REFORMS (PROGRESS)
Reforms began with the implementation of many of the recommendations
made by the Narasimham Committee I and II. Some of them were implemented in
a phased manner.
Removal of Entry Barriers /Deregulation of Entry of New Banks
To promote competitiveness in the banking sector, the industry was opened
for private banks and foreign banks. Indian banks were allowed to enter into joint
ventures with foreign banks and foreign banks were also permitted to set up either
branches or subsidiaries in India. In January 1993, RBI had issued guidelines for
issuing licenses to new banks in the private sector. Private banks such as UTI
Bank, Global Trust Bank, ICICI Bank, IDBI Bank, HDFC Bank, Centurion Bank,
Times Bank and Indus Ind Bank came into operation with minimum equity capital
of Rs. 100 crores and also made public issues for raising additional capital .
48
Based on the experience gained on the functioning of new private sector
banks, revised guidelines were issued in January 2000. Following are the major
revised provisions:
a. Initial minimum paid up capital shall be Rs.200 crores which will be raised to
Rs.300 crores within three years of commencement of business.
b. Contribution of promoters shall be a minimum of 40 percent of the paid up
capital of the banks at any point of time. This contribution of 40 percent shall
be locked in for five years from the date of licensing of the bank.
c. While augmenting capital to Rs.300 crores with in three years, promoters
shall bring in at least 40 percent of the fresh capital which will also be locked
in for five years.
d. NRI participation in the primary equity of a new bank shall be to the
maximum extent of 40 percent.10
Deregulation of Interest Rates
The interest rate regime prior to 1992 was closely administered by the
Reserve Bank. As against this, the banking sector now operates in a deregulated
environment. Now there is total deregulation of the rates on deposits and almost
total deregulation of the lending rates. With this deregulation of interest rates,
banks now have more freedom in their operations. The concessional rates of
interest on the priority sector lending have been allowed on loans upto Rs. 2 lakh
and export credit loans. The general rates of interest based on prime lending rates
will be applicable for higher credit amounts. Interest rate slabs have been reduced
from twenty to three. Prime Lending Rate (PLR)11 of banks for commercial credit
is now decided by the banks themselves and is not set by the Reserve Bank of
India. In order to keep transparency, banks are required to announce their prime
lending rates and also their range of effective lending rates. Selective Credit
Controls have also been abolished during this period. Now the country has a
liberalised credit allocation mechanism and reduced direct control over interest
rates by the monetary authorities.
49
Through its monetary policy for the first half of 2001–2002, Reserve Bank
has allowed banks to lend below their PLRs to credit worthy borrowers, including
public enterprises, for loans above Rs. 2 lakhs. The Reserve Bank has also given
flexibility to banks to attract fixed deposit from senior citizens at higher rates. But
the Reserve Bank continues to fix interest on saving accounts (3% at present) and
issues guidelines on non-resident deposits from time to time.
Reduction in Pre-emptive Reserves
In the pre-reforms period banks were required to maintain high levels of
cash and liquid reserves. This helped the government in financing its fiscal
deficits. But banks had to maintain huge funds in the form of CRR and SLR. The
RBI reduced SLR and CRR substantially to increase the lendable resources at the
disposal of banks, thereby enhancing their profitability. SLR has been reduced to
the 25 percent statutory limit in October 1997. CRR is also being reduced in a
phased manner to finally reach its statutory limit of 3 percent. With reduced SLR
and CRR, banks got sizeable resources for more remunerative deployment.
Prudential Norms
A milestone measure in the financial sector reforms is the introduction of
prudential norms to strengthen the banks balance sheet and enhance transparency.
The prudential norms are in the areas of income recognition, asset classification,
provisioning for bad and doubtful debts and capital adequacy. The income
recognition norms are intended to depict a true picture of the income and
expenditure of the bank. The asset classification and provisioning norms are
intended to assess the quality of the asset portfolio of the banks. The capital
adequacy (which is based on the classification of assets) is intended to check
whether the banks are in a viable position to meet any contingencies due to a
decline in the quality of asset.
50
According to new norms of income recognition, commercial banks could
take into account interest income only when it is actually received, and not when it
is accrued. Earlier banks had the freedom to account accrued interest as income in
the profit and loss account.
Likewise as per the new norms of provisioning, it is to be made on the basis
of classification of assets into four different categories, viz., standard assets, sub–
standard assets, doubtful assets and loss assets. The provisioning requirement
ranges from 10 percent to 100 per cent, depending on the category of the asset.
Banks have now been given a clear definition of what constitutes a non-
performing asset, and it is also tightened over time. Banks are classifying a loan as
NPA after 90 days of loan non-performance from fiscal 2004 – 2005 (for details
refer Chapter IV).
Capital Adequacy
Based on the risk weighted assets of the banks, the prudential norms
prescribe the minimum capital to be maintained. It is the ratio of capital to risk
weighted assets. In April 1992, The RBI introduced the Capital to Risk Assets
Ratio (CRAR) system for banks, including foreign banks, in India. Under the new
system, risk weights were assigned to balance sheet assets, non-funded items and
other off-balance sheet exposures according to the prescribed percentages.
Initially in April 1992, the BIS (Bank of International Settlements) standard of 8
percent capital adequacy laid by Basel Committee I was accepted. Later in tune
with recommendations of Narasimham Committee II the RBI has revised the
CRAR norm from 8 percent to 9 percent with effect from 31st March 2000 and
from 9 percent to 10 percent with effect form 31st March 2004. Achievement of
capital adequacy is expected to strengthen the financial soundness and stability of
banking system, while keeping them in line with International Standards.
By amending Banking Companies Act in 1994, permission has been given
to public sector banks to mobilise capital from the market up to 49 percent of their
51
capital, a policy change of gradual privatisation of PSBs. Many public sector banks
have already accessed the capital market for their Tier I Capital. Though State
Bank of India went to public in 1993, Oriental Bank of Commerce was the first
nationalised bank to enter the capital market with this policy change. Private sector
banks also approached the capital market for their Tier I and Tier II Capital during
this period.
Phasing Out of Directed Credit Programme
Committee recommended that the priority sector should be redefined and
the target for this sector should be fixed at 10% of aggregate credit, subject to
taking a review after three years. The redefined priority sector comprises the small
and marginal farmer, the tiny sector of industry, small business and transport
operators, village and cottage industries, rural artisan and other weaker sections.
But the Government has decided not to reduce the level of priority sector lending
from 40%. But the priority sector definition has been enlarged to include certain
categories of advances which were hitherto not part of priority sector, such as
housing finance and tourism, software and venture capital. Moreover, banks which
are not able to attain the priority sector lending targets are allowed to place the
money under the Rural Infrastructure Development Fund (RIDF)
Transparency of Accounts
To provide a realistic picture of the financial position of the banks,
transparency of accounts is required. For that the committee recommended that the
format of bank balance sheet and profit and loss account should be modified in
such a manner that the bank balance sheets should disclose more information. RBI
and Government have modified the formats with effect from March 1992 and
banks are preparing their balance sheets as per the new formats. Later additions
such as break up of capital adequacy ratio, provisions made for the year, NPA
percentage etc were introduced. Now banks have to disclose 7 critical ratios
relating to productivity and profitability through annual reports.
52
Relaxation in Branch Licensing Policies
Banks were given greater freedom to rationalise their existing branch
network by relocating branches and opening of new branches. Non-profitable
branches can be closed as per this rule. It is necessary to remain in a viable size as
in the post-reform era, banks are facing severe competition from other financial
institutions and non–banking finance companies. Banks are now expanding their
network into potential areas where low cost deposits are available. The potentiality
of other fee based services is also taken into consideration.
Recapitalisation
The experience of bank recapitalisation in several parts of the world has
demonstrated that the exercise of recapitalisation does not necessarily prevent
banks from getting into trouble again........ Recapitalisation of weak banks using
public money is also a costly and unsustainable option, in view of the increasing
strains on the government exchequer.12 Even then the government has
recapitalised nationalised banks using public money.
Up to 1992–93 an amount of Rs.4000 was utilised for recapitalising 19
nationalised banks. The budget for 1993–94 made a provision of Rs.5700 crores
for recapitalisation of nationalised banks, subjecting the banks to ‘time–bound’
performance obligations. The government contribution was intended to be invested
in special 10 percent Recapitalisation Bonds, 2006. In 1994–95 the budget
provision towards recapitalisation of nationalised banks was Rs.5287.12 crores.
Out of this a sum of Rs. 4362.54 crores was allocated to 13 nationalised banks as
Tier I capital and Rs. 924.58 crores as Tier II capital to 6 nationalised banks.
In 1995–96 the Government provided a sum of Rs.850 crores and in
1996–97 Rs.1509 crores towards recapitalisation of nationalised banks. In
1997–98 a sum of Rs.2700.00 crores and in 1998–99 a sum of Rs. 400.00 crores
were released by the government with this purpose. Thus the total contribution of
53
Government of India towards recapitalisation of public sector banks in the six
years, 1993–94 to 1998–99, amounted to Rs. 20446.2 crores.
In addition to recapitalisation of weak banks, the government has provided
an amount of Rs. 6334.44 crores towards writing down the capital base of eleven
banks for adjustment of their losses. Even after this many banks remained under-
capitalised. In this context, Government has allowed PSBs to raise fresh capital
from the market by amending Banking Companies Act to reduce the minimum
shareholding of Government to 51 percent.
OTHER DEVELOPMENTS: AN OVERVIEW
Technology in Banks
Technology has become the rule of the day the world over. Across the
world, sophisticated software applications and advances in telecommunications
have interacted with rapidly improving hardware technology to profoundly alter
management process and the manner in which products and services are
manufactured and distributed. This process has also resulted in a dramatic increase
in productivity, which is necessary to achieve a sustained increase in real income
and standard of living .13 Indian Banking Sector has also been one sector which
has undergone fundamental changes due to the application of information
technology. The new technology has rapidly altered the traditional ways of doing
banking business.14
Information and Communication Technology has become integral part of
banking in India. By taking advantage of technology, banks are able to develop
required management information systems (MIS) that would help in taking
scientific decisions. In banking, where customer service is most important, the
quickest way of servicing them is through computers and technology. Banking
technology is evolving rapidly in five key areas of convenience – in product
delivery and access, managing productivity and performance, product design,
adapting to market and customer needs, and reducing throughput time.15
54
Quick investment decisions are possible speedily and accurately by
collecting and transmitting meaningful information. This will result in more
spreads to the banks. For this, on line inter-connectivity is necessary. According to
bankers, technology can substantially bring down the menace of non-performing
assets plaguing the banking system.
The availability of information and communication technology has
radically altered the traditional way of banking. IT is used now, not only to
automate back-offices and handle voluminous work, but it is also used for fast
delivery of services as per a customer’s convenience.16 Banking has now shaped
into electronic banking or virtual banking or E-banking. E-banking means delivery
of banking services through electronically equipped channels. It is the use of
electronic channels to communicate and do business transactions with both domestic
and international customers primarily using the Internet and the World Wide Web.
Technology savy banks, private and public, are one step forward in
introducing different technology based products to sustain existing customers and
attracting new customers. It enables bankers’ cross-selling of products like
insurance, money market and other financial products. Decision support systems
like data warehousing, MIS and business intelligence and online trading and
settlement are common features of this upgradation. Moreover, this enables Indian
banker to go beyond boundaries – across the globe – with confidence.
The beneficial impact of modern day technology in services to customers is
manifold. Possibility of transacting from any branch (anywhere banking), easy
collection, remittances and fund transfers, 24 hours/7 days banking through ATMs
and Internet banking, automated standing instructions, browsing of bank web sites
for different information, fund transfer to other banks through EFT and RTGS
facility, submission of different statements to and from banks, utility bill payments
etc. are some of the benefits available to customers now. Biometric ATMs and
mobile ATMs are new developments in this area. Biometric ATMs will do away
with the need for PIN number by using thumb impression for identification and are
55
particularly easy to use for the rural and uneducated masses. These technology
intensive delivery channels have improved the quality of service to customers.
Now there is ‘convenient banking’ with speed and perfection.
Centralised Online Real-time Electronic Banking (CORE Banking)
Under the computerised branch system the database of the branch remains
with the branch itself. Processing of transactions and generation of reports are also
done at the branch level. There is no centralized database linkage between
branches. This stand-alone-architecture hinders offering of advanced tech-based
banking services to customers. This drawback can be overcome by a new
centralized system called “CORE Banking Solution” (CBS), in which the database
of all branches are centralised at one place. Processing of transactions and report
preparation are centralised at one place.
The introduction of CBS in many banks has enhanced banking services in a
visible manner. The customers of a bank branch now become the customers of the
whole bank and avail the facility of “anywhere, anytime” banking. With the speed
and accuracy of the transaction processing, money transfers, remittances, and local
and national clearing, banks are able to do more transactions with reduced costs.
Thus, CBS coupled with ATM network and Internet Banking and RTGS gives the
customer the facility of doing business with the bank round the clock without
visiting the bank’s branch.17 The CBS, which is operating on a centralised data
and information reservoir, has the ability to convert a branch customer into a bank
customer and thereby make it possible to process many hitherto distributed
banking activity into centralized activity. Banks are coming up with outlet,
Centralised Processing Centres, where all loan processing, renewal and
documentation for all branches are done, leaving branches free for marketing and
business of cross-selling.18 Now cheque clearing becomes easy as in all service
branches information regarding an account like balance, copy of signature etc., are
available on the screen itself, and cheques need not travel to the branches for
payment.
56
Cheque Truncation System
Banks worldwide spend millions of dollars each year for processing and
clearing cheques. Cheque truncation system and the use of E-cheques are the easy
solution to this high-cost cheque processing. Cheque truncation system is an online
image-based cheque clearing system where the cheque images and the Magnetic
Ink Character Recognition (MICR) data are captured at the collecting/presenting
bank and transmitted to a central server/service bureau. Electronic image, as
inward data, available from service bureau, will be used for payment processing by
the paying banks instead of having to collect the physical cheques from the
clearing house. This inward data can then be used for verification of information
including signature. The payment is also done through online.
Real Time Gross Settlement System (RTGS)
A payment system which operates a gross settlement system in which both
processing and final settlement of fund-transfer instructions can take place
continuously (i.e., in real time) is known as Real Time Gross Settlement System.19
It is
a systematically arranged centralised system in which inter-bank payment instructions
are settled instantly. This system facilitates finance settlement of inter bank fund
transfers on a continuous, transaction-by-transaction basis throughout the processing
day. The Reserve Bank of India introduced this system in India during the year 2004.
It has been intended to provide instant payment to the customers wishing to pay in
different centres. As a result of operation of the RTGS, clearing of funds of different
transactions are cleared and settled on a minute-to-minute basis, unlike at the end of
the day or next day. With the extension of RTGS throughout the banking system,
Reserve Bank intends to put in place an integrated payment system for the Indian
financial system. Eventually, it will serve as an effective risk control strategy. The
long term objective of RTGS is to dispense with instruments like demand drafts and
pay orders and make available the system for retail fund transfers between individuals
and banks.20
57
Kerala based Federal Bank is the first bank in the country to implement
RTGS facility in its all branches. But, according to a report in March 2007, the real
situation in Indian banks is not up to the level of expectation. While the RTGS
platform created by RBI has enough capacity to handle upto one lakh transactions
daily, the actual use is 15,000. Of this 13,000 related to inter-bank deals. It is only
the foreign and private banks which account for bulk of the 2000 non-bank
transactions. PSU banks have simply not created awareness about this platform
despite the fact that the RTGS brings not just a technologically advanced product,
but is available across 28,000 branches covering as many as 3,200 Indian cities and
towns.21
Bancassurance in India
Bancassurance, a French term, in its simplest form means the distribution of
insurance products through a bank’s established branch network. In concrete terms
bancassurance describes package of financial services that can fulfill both banking
and insurance needs at the same time.22 The convergence of banking and insurance
is occurred in Bancassurance i.e., it is an arrangement where banks and insurance
companies combine together for mutual benefit. Commercial banks can use their
wide branch network to sell all types of insurance products and services to their
traditional customers, whose database is available with the bank. Insurance
companies, on the other hand, design complex financial products which are
attractive to customers such as retirement funds or single premium insurance
policies. Bancassurance, also known as 'Allfinanz' or 'one-stop financial shop’,
takes different forms in various countries depending upon the demography and
economic and legislative climate of the concerned country.
The motives behind bancassurance vary. For banks it is a means of product
diversification and a source of additional fee income. Insurance companies see
bancassurance as a tool for increasing their market penetration and premium
turnover. The customer sees bancassurance as a bonanza in terms of reduced price,
high quality product and delivery at doorsteps.
58
In India, banks have been permitted to enter into insurance business after
the enactment of the Insurance Regulatory and Development Authority (IRDA)
Act in 1999. This Act opened up the Insurance Sector for private participation
with foreign insurance companies with a maximum of 26% capital investment.
Simultaneously, Reserve Bank of India prescribed certain norms for entry of banks
in to the insurance business, including obtaining its prior approval. Certain
modifications were made in these norms through the Monetary and Credit Policy
for the year 2000-2001. The norms prescribe banks having minimum net worth of
Rs.50 crores and satisfying capital adequacy, profitability, NPA level and the track
record of the performance of the subsidiaries can undertake insurance business
through joint venture with risk participation. Others which are not eligible can
participate up to 10% of their net worth or Rs. 50 crores in an insurance company.
But insurance products can be distributed as authorised agents by any scheduled
commercial bank or its subsidiary by a simple marketing tie up with Insurance
Company.
Initially, many banks entered it as a defensive strategy assuming that entry
of insurance companies would erode their market share. However, later they
realised that they can increase their non-interest income by allowing insurance
companies to use their resources as customer databases, retail network, etc.23 The
major bancassurance partnerships in India are shown in Table 2.1
Table 2.1
Bancassurance Partnerships
Insurance Company Banks
New India State Bank of India, United Western Bank, Corporation
Bank.
United India Punjab National Bank, Andhra Bank, Indian Bank, State
Bank of Patiala, Federal Bank, South Indian Bank,
Dhanalaxmi Bank, State of Indore State Bank of
Travancore, State of Hyderabad, Syndicate Bank.
Royal Sun Alliance Citibank, ABN Amro, Standard Charted.
Bajaj Allianz American Express, Repco Bank, Karur Vysya Bank
59
National Insurance J & K Bank, Bank of Rajasthan, Bank of Punjab etc.
TATA AIG HSBC, IDBI, Development Credit Bank, Orissa State Co-
operative Bank
ICICI Lombard ICICI Bank, Federal Bank
HDFC Standard Union Bank of India, Indian Bank, HDFC Bank
ICICI Prudential Federal Bank, ICICI Bank, Bank of India, Punjab and
Maharashtra Cooperative Bank, Allahabad Bank, South
Indian Bank, Citibank.
Birla SunLife Citibank, Deutsche Bank, IDBI Bank, Development Credit
Bank, Bank of Rajasthan, HSBC.
Tata AIG HSBC, Citibank, IDBI bank
SBI Life SBI, BNP Paribas
ING Vysya Vysya Bank
Allianz Bajaj Slandered Chartered Bank, Syndicate Bank, Centurion
Bank.
MetLife Dhanalakshmi Bank, J & K Bank, Karnataka Bank.
Aviva ABN Amro, American Express, Canara Bank, Lakshmi
Vilas Bank
LIC Corporation bank, Oriental Bank of Commerce, Nedungadi
Bank, Central Bank of India, Indian Overseas Bank and
Bank of Punjab.
Oriental Insurance Oriental Bank Of Commerce, Dena Bank
Kotak Mahindra Ins.co. Dena Bank.
Source: Different sources
Consolidation in the Banking Sector
Consolidation means “unite” or “combine” to strengthen the business. It is
a form of business organisation established by the outright purchase of the
properties of all the constituent or member organisations and the merging or
amalgamating of such properties into a single business unit.24 The New single
business unit is surely more powerful than the members organisations in every
respect. This is a globally accepted concept, and banking industry is not an
exception to this.
60
The first Narasimham Committee Report, in view of the global trend for
consolidation, recommended mergers and acquisitions to create a four tier banking
structure in India, subject to synergies and locational business complementarities.
(3–4 large banks with global presence, 8–10 national banks and finally local banks
and rural banks). Khan Committee in 1997 recommended mergers of banks and
DFIs, subject to voluntary decisions of management and shareholders. The second
Narasimham Committee reiterated its earlier recommendation. The consolidation
among strong banks will raise their strength and improve the value to the
stakeholders including shareholders, employees, depositors and borrowers.
Although, the merger of two banking cultures involves time and patience, the
benefits of greater reach, economies of scale and lower intermediation costs are
competitive advantages worth pursuing.25
Table 2.2
Bank Mergers since Reforms in 1992
Banks Merged Merged/Amalgamated with Year
New Bank of India Punjab National Bank 1993
Bank of Karad Ltd. Bank of India 1994
KashiNath seth Bank Ltd. State Bank of India 1996
Bari Daob Bank Ltd. Oriental Bank of Commerce 1997
Punjab Co–op. Bank Ltd. Oriental Bank of Commerce 1997
20th century Finance Ltd. Centurion Bank Ltd. 1998
Barcilly Corporation Bank Ltd. Bank of Baroda 1999
Sikkim Bank Ltd. Union Bank of India 1999
Times Bank Ltd. HDFC Bank Ltd. 2000
Bank of Madura Ltd. ICICI Bank Ltd. 2001
Banaras State Bank Ltd. Bank of Baroda 2002
Nedungadi Bank Ltd. Punjab National Bank 2003
South Gujarat Local Area Bank Ltd. Bank of Baroda 2004
Global Trust Bank Ltd. Oriental Bank of Commerce 2004
IDBI Bank Ltd. IDBI Ltd. 2005
Bank of Punjab Ltd. Centurion Bank of Punjab Ltd. 2005
Lord Krishna Bank Ltd. Centurion Bank of Punjab Ltd. 2007
Centurion Bank of Punjab Ltd. HDFC Bank 2008
Source: Different Sources
61
The Securitisation and Reconstruction of Financial Assets and Enforce-
ment of Security Interest Act, 2002 (SARFAESI Act, 2002)
Filing cases against the borrower in the Civil Courts or in the Debt
Recovery Tribunals (DRTs) which were set up under the Recovery of Debts Due to
Banks and Financial Institution Act, 1993, was the only step followed by banks
and financial institutions to recover their dues or non-performing assets. But, as
the judicial process was a lengthy one, DRTs were not in a position to dispose of
most NPA cases. For helping banks and financial institutions in the speedy
recovery of NPAs, the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, came into existence. This Act has
gone a step in the direction of enforcing lender rights.26
As per the Act banks and financial institutions have the power to directly
enforce the security interest on pledged assets without going through the judicial
process of the Civil Courts or the DRTs. Along with that they have the option to
approach the DRT simultaneously for the recovery of the NPAs. But the Act is not
applicable against agriculture land as security or where dues are less than 20% of
principal amount and interest thereon.
If the banks apply the Act they have the right either sell off/ auction off the
financial assets or directly sell the financial assets usually at discounted prices, to
Securitisation Companies or Asset Reconstruction Companies (ARCs) in exchange
of bonds or debentures as payment. Now it is the turn of the ARCs to recover the
assets from the borrower and dispose it off. In India, banks are very enthusiastic in
enforcing this Act for the recovery of bad loans. It will lead to the reconstruction
of hitherto decaying financial assets, a large number of which are sick industrial
units, which will give a great boost to the overall health of the economy.27
Corporate Governance in Banks
In the context of liberalisation and globalisation financial stability can be
assured only through a strong regulation and supervision mechanism, competent
62
leadership and market discipline. In this background, Basel Committee and
Narasimham Committee mentioned that it is the responsibility of the banking
supervisors to ensure effective corporate governance in the banking industry.
Corporate governance brings in accountability in terms of performance,
transparency in operations and aims at retaining the confidence of share holders,
customers, employees and other stakeholders. By definition, corporate governance
is a “system by which companies are directed and controlled”, thus placing the
Board of Directors of a company in the centre of the governance system.28 The
basic elements of corporate governance comprise capable and experienced
directors, efficient management, clear corporate objectives, business plan and
clearly defined responsibility and accountability.
From the perspective of banking industry, corporate governance also
includes in its ambit the manner in which their boards of directors govern the
business and affairs of individual institutions and their functional relationship with
senior management.29 In the Indian context the Board of directors is expected to
initiate efficient working by following sound practices, taking strategic decisions
and avoiding conflicts among different stake holders. The objective of good
corporate governance in Indian banking is to make them socially and economically
responsible for the health of the nation.30 So, Corporate Social Responsibility
(CSR) also come as part of this aspect.
SEBI has instructed the companies listed in the stock exchanges to practice
certain corporate governance principles. As per SEBI guidelines, companies should
publish mandatory information regarding composition of board of directors, Audit
committees, annual/half yearly/ quarterly results etc. Reserve Bank of India on its part
directed the banks to appoint experts and independent directors in the Board, bring
about more transparency in balance sheets, appoint more meaningful and constructive
audit committees, and introduced a self-evaluation system for the Board. In the case
of public sector banks, higher operational flexibility has been given to Board of
Directors. Empirical research studies found improvement in the efficiency of Indian
Banks due to this.31
63
Banking Ombudsman Scheme
Deficiency in banking services has been a major complaint against commercial
banks in India. For the redressal of grievances of customers, a system known as
Banking Ombudsman scheme was notified by the Reserve Bank of India in 1995. The
scheme has been initiated to establish a system of expeditious and inexpensive redress
of customer complaints. Under the scheme, an ombudsman, appointed by Reserve
Bank, takes steps to solve the complaints of a customer according to the provisions in
the scheme. The scheme covers all commercial banks and scheduled primary co-
operative banks. The scheme was revised later, first in 2002 and then in 2006. At
present there are 15 Banking Ombudsmen at 15 centres covering the entire country.
The latest amendment of the scheme has widened the scope of authority and functions
to cover various banking services like loans and advances, credit cards, delays in
issuing cheques and DDs, and also ATM operations. The Banking Ombudsman
would act as the arbitrator for all disputes not exceeding Rs.10 lakh.32
Financial Inclusion
There are complaints against commercial banks that they exclude rather
than attract vast sections of population, in particular low income people. Such
excluded groups include women, small and marginal farmers, artisans and small
entrepreneurs, those employed in the unorganised sector, the self-employed and the
pensioners. As privileged organisations commercial banks have the duty to provide
banking services to all segments of the population on equitable basis. Considering
this view, the Governor, Reserve Bank of India in the Annual Policy statement
2005–06 announced initiatives to encourage greater degree of financial inclusion in
the country. 33 Financial Inclusion means extending the reach of the financial
sector to sections of the society as well as to geographical regions that were
neglected in the past.34 With this purpose, since November 2005 all banks need to
make available no-frills account either with ‘zero’ balance or very low minimum
balance to vast sections of population. The charges also would be very low or nil
64
in those accounts. The future would focus on financial inclusion of all sections of
the society into banking stream through no-frills banking or mass banking.
On an all India basis almost all banks have come out with no-frills accounts
for financial inclusion of the masses. In this connection many relaxations are
allowed in know your customer (KYC) norms. All individuals who are eligible to
open normal savings accounts can now open no-frills accounts with a minimum
balance of Rs.5. Pass book and cheque book will be provided to account holders.
In Kerala, Palakkad District became the first district in the country to achieve
cent percent financial inclusion in September 2006. Every household in Palakkad
district has a savings account and access to credit through General purpose Credit
Cards (GCCs).35
In continuation of this, in September 2007 Kerala attained the first
‘Total Banking State’ status with the attainment of at least one bank account in every
household. This coveted goal was achieved through a massive campaign by all the
banks – including those in the co-operative sector – with the total involvement of
people’s representatives and other agencies.
The Result: 36
Total No. of SB Accounts opened : 12,70,331
Of which ‘No frills’ accounts opened : 8,70,463
No. of GCCs issued during the campaign : 48,885
No. of households covered under the campaign: 11,82,476
Coverage of households : 100%
Committee on Financial Sector Reforms headed by Dr. Raghuram Rajan
The Planning Commission has set up a Committee on Financial Sector
Reforms, chaired by Dr. Raghuram Rajan, Professor, University of Chicago
(former IMF Chief Economist). The Committee in its draft committee report
published on 7th April 2008 suggested a set of measures to improve financing to
poorer sections of the population and to big business, to strengthen financial
stability and foster growth. It suggested a number of steps to reform public sector
banks also. It proposed creation of stronger boards for public sector banks. It
65
recommended performance bonuses and greater pay for directors, and delinking of
banks from government.
Another proposal of the committee was that large PSBs should create
financial holding companies with the bank and other financial firms as subsidiaries
to realise economies of scope from providing multiple financial services. The
holding company should sell more shares to the public to raise capital for growth.
For that, the committee recommended government holding below 50 percent.
The committee recommended abolition of branch and ATM licensing
policy immediately so as to give complete freedom to banks regarding the decision
as to where to open branches and how many. Encouragement of consolidation
among banks and entry of new banks also came as recommendations of the
committee. The committee observed that creation of small finance banks would
increase financial inclusion by reaching out to poorer households and local, small
and medium enterprises. In a pragmatic way, it quips that “instead of forcing credit
to household that could thereby become heavily indebted, the focus should be on
making them creditworthy so that when opportunities arise, they have access”. 37
Conclusion
The reforms in the banking sector have opened the window of opportunities
for the Indian banks. In the post-reform period banks have greater autonomy in
delivering their services. However, in the era of competition there are three crucial
driving forces which will determine banks’ profitability and viability. These are –
a) Product differentiation;
b) Deregulated interest rates and
c) Internationalisation of banking services.38
In the micro level for their profitability and long run sustainability the aspects to be
considered are quality of assets, effective asset/liability management and quality of
service to their customers. Taking into account these factors, most of the Indian banks
have adopted suitable organization structures, increased the role of information
technology and redesigned their product portfolios.
66
REFERENCES
1. Nair, Manju S., Changing Role of Services Sector: A Study on Policy Impact
on Banking Sector, unpublished Ph.D. Thesis, Kerala University, 2001
2. In India as well as in other emerging economies the banking system is better
equipped to protect the saving class because of its superior database about the
borrowers. Perhaps the most important reason for its dominance is that the
household sector which contributes the most to gross domestic savings has
been showing a marked preference for bank deposits. According to the RBI,
between 2001 and 2006, out of every Rs.100 saved by this sector, bank
deposits accounted for almost Rs.41. while barely Rs.3.2 went into shares,
debentures and mutual fund instruments – The Hindu, Editorial, Monday,
June25, 2007.
3. Patil, R.H., “Contemporary Banking: Competition and Markets”, in Jadhav
Narendar, (ed), Challenges to Indian Banking: Competition, Globalisation
and Financial Markets, Delhi, Mac Millan (I) Ltd, 1996, P.103.
4. Nandi, Sukumar, Growth, Financial Cycles and Bank Efficiency – A Study of
the Indian Money Market, Mumbai, Business Publications Inc. 1998, P.35
5. Ibid
6. Statistical Tables Relating to Banks in India, RBI, Bombay.
7. Ravikumar, T., (Ed.) Indian Banking – An overview: Indian Banking in
Transition – Issues and Challenges, New Delhi, Vision Books, 2000.
8. Ibid.
9. The Bank of International Settlements (BIS) which was setup in 1930 and
located in Basel, Switzerland was the principal centre for international
cooperation among the Central Banks in Europe. Later it became the secretariat
for the BASEL Committee on Banking Supervision (BCBS), which came into
operation in 1974. The committee has recommended many minimum standards
for banking regulation and supervision. These standards as best International
Practices have been accepted by member countries and more than 120 other
countries.
67
10. Sury, M M, INDIA: A Decade of Economic Reforms, 1991–2001, Delhi,
New Century Publications, 2001, P. 138.
11. Prime Lending Rate (PLR) means the rate of interest which a bank charges on
advances given to its prime/best borrowers. Other borrowers depending on
their creditworthiness or the purpose of advance are charged prime lending
rates plus a certain percentage of interest.
12. Report on Trend and Progress of Banking in India, 2000–01, RBI.
13. Kumar, Narendar and Kumar, Mohan, “Bank Computerisation in India – A
Backdrop”, Banking Finance, Vol. XVIII No. 2, Feb. 2005, P. 5.
14. Kapila, Raj and Kapila, Uma, “Ongoing Developments in Banking and
Financial Sector”, Banking Finance, Vol.4, March 2000, P.8.
15. Kumar, R. Deepak, Technological Developments in Banking – in Ravi
Kumar T.(ed), Indian Banking in Transition –Issues and Challenges, Vision
Books, New Delhi, 2000.
16. Rawani, A.M. and Gupta, M.P., “Information Technology Initiatives in
Indian Banking Sector”, Paradigm, Vol. 4 No.1, Jan-June 2000, P. 129.
17. Bhattacharya, Ashok, “Technology in Banks: A Strategic Resource”,
Chartered Financial Analyst, October 2006. p. 42.
18. Ibid.
19. Shetty, K. Shanker, Indian Banks Towards 2020, Bangalore, K. Shanker Shetty,
2006, P. 46.
20. Ibid.
21. Leeladhar, V., quoted in “Dull RTGS Irks RBI”, The Economic Times,
Thursday 22nd March, 2007
22. Kulshrestha, Laxmi Rani and Kulshrestha, Anuja, Reformation of Marketing
Strategy :Insurance Sector, SAJOSPS, Vol.4 No.1, July-Dec.2003, P.61.
23. Jutur, Sharath, “Bancassurance: Indian Scenario”, Chartered Financial Analyst,
August 2004, p.42.
24. Sivaloganathan, K., “New Dimensions of Indian Banking Industry, Banking
Finance”, March 2005, Vol XVII No.3, p.17.
25. Ibid.
68
26. Singh, TMN, “Efficiency of the Securitisation Act in NPA Management”,
Urban Credit, September 2003, Vol.XXV, No.3, p. 29.
27. Kumar, Narendra, “The Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002”, IBA Bulletin, May 2003,
Vol.XXV, No.5, p.10
28. Subramanian, N., Corporate Governance Imperatives in Banks, IBA Bulletin,
Sept. 2004, vol.XXVI, No.9, p.31
29. Lakshminarayanan, P., Corporate Governance in Banks, IBA Bulletin, July
2004, Vol.XXVI No.7, p. 16.
30. Rao, Prabhakara, Indian Banking in 2010, IBA Bulletin Special Issue, Vol.
XXVI No.1, January, 2004, p.172.
31. Lakshminarayanan, P., loc. Cit.
32. Satish, D., “Indian Banking: Towards Fair Practices”, Professional Banker,
August 2006, vol. VI, No.8, p. 60.
33. As per RBI statistics, on an all India basis, only 59 per cent of adult
population has bank accounts. Only 39 per cent of rural adults have access to
accounts while it is 60 per cent in urban areas. Further, only 14 per cent have
loan accounts on an all India basis while it is just 9.5 per cent in rural areas.
34. Challenges of Financial Inclusion, The Hindu, Monday, July 2, 2007
35. The Economic Times, Wednesday, 17 June, 2007.
36. Report of SLBC, Trivandrum, 24th December, 2007.
37. Srinivasan, G., “Taking ‘a hundred small steps’ to ensure financial
inclusion”, The Hindu-Business Line, Thursday, April 20, 2008.
38. Indian Banking – an Overview: Ravikumar,T. (Ed.) Indian Banking in
Transition: Issues and Challenges, New Delhi, Vision Books, 2000.