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COURSE :- PGPBF
13
Banking sectorreport from 1969 to2013PREPARED BY:- ALI RAZA
COUDHARY
ROLL NO :- 1
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BANKING SECTOR REPORT FROM 1969 TO 2013
INTRODUCTION
A Bank is a financial institution that provides banking and other financial
services to their customers. A bank is generally understood as an institution
which provides fundamental banking services such as accepting deposits
and providing loans.Banking is one of the most heavily regulated
businesses since it is a highly leveraged (high debt equity ratio or low
capital-assets ratio) industry. In fact, it is satirical that banks, which
invariably appraise their borrowers based on debt-equity ratio, themselves
have a debt-equity ratio far too contrary to that of their borrowers! In simpleterms, banks earn by undertaking risk on their creditors money rather than
on that of their shareholders. For decades, banks in India have played an
important role in shaping the financial system and thereby contributing for
economic development. This vital role of the banks in India continues even
today albeit the trends in banking delivery has undergone a sea change
with the advancement in usage of information technology as well as design
and delivery of customer service oriented products. There are also non-
banking institutions that provide certain banking services without meeting
the legal definition of a bank. Banks are a subset of the financial services
industry. A banking system is also referred as a system provided by the
bank which offers Cash Management services for customers, reporting the
transactions of their accounts and portfolios, throughout the day. The
banking system in India should not only be hassle free but it should be able
to meet the new challenges posed by the technology and any other
external and internal factors. For the past three decades, Indias banking
system has several outstanding achievements to its credit. The Banks are
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the main participants of the financial system in India. The Banking sector
offers several facilities and opportunities to their customers. All the banks
safeguards the money and valuables and provide loans, credit and
payment services such as checking accounts, money orders, and cashiers
cheques. The Reserve Bank of India is the main monetary authority of thecountry and beside that the central bank acts as the bank of the national
and state governments. It formulates implements and monitors the
monetary policy as well as it has to ensure an adequate flow of credit to
productive sectors. The banks also offer investment and insurance
products. As a variety of models for cooperation and integration among
finance industries have emerged, some of the traditional distinctions
between banks, insurance companies, and securities firms have
diminished. In spite of these changes, banks continue to maintain and
perform their primary roleaccepting deposits and lending funds from
these deposits
NATIONALISATION IN 1960s
By the 1960s, the Indian banking industry had become an important tool to
facilitate the development of the Indian economy. At the same time, it had
emerged as a large employer, and a debate had ensued about the
nationalisation of the banking industry. Indira Gandhi, then Prime Ministerof India, expressed the intention of the Government of India in the annual
conference of the All India Congress Meeting in a paper entitled
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"Stray thou ghts on Bank Nat ionalisation. The meeting received the
paper with enthusiasm.
The Government of India issued an ordinance ('Banking Companies
(Acquisition and Transfer of Undertakings) Ordinance, 1969')) and
nationalised the 14 largest commercial banks with effect from the midnight
of19thJuly 1969. These banks contained 85 % of bank deposits in the
country. Jayaprakash Narayan, a national leader of India, described the
step as a "masterstroke of pol i t ical sagaci ty."Within two weeks of the
issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of Undertaking) Bill, and it received the
presidential approval on 9 August 1969.The central bank became the
central player and increased its policies for a lot of tasks like interests,
reserve ratio and visible deposits. These measures aimed at better
economic development and had a huge effect on the company policy of the
institutes. The banks lent money in selected sectors, like agri-business and
small trade companies. The branch was forced to establish two new offices
in the country for every newly established office in a town. The oil crises in1973 resulted in increasing inflation, and the RBI restricted monetary policy
to reduce the effects. In 1975, the state bank group and nationalized banks
were required to sponsor and set up RRBs in partnership with individual
states to provide low-cost financing and credit facilities to the rural masses.
A second dose of nationalisation of 6 more commercial banks followed in
1980. The stated reason for the nationalisation was to give the government
more control of credit delivery. With the second dose of nationalisation, the
Government of India controlled around 91% of the banking business of
India. Later on, in the year 1993, the government merged New Bank of
India with Punjab National Bank. It was the only merger between
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nationalised banks and resulted in the reduction of the number of
nationalised banks from 20 to 19.Nationalized banks are wholly owned by
the Government, although some of them have made public issues.The
state bank group and nationalized banks are together referred to as the
public sector banks (PSBs).
Names of Nat ional ised b anks
* Al lahabad Bank
* Andhra Bank
* Bank of Baroda
* Bank of India
* Bank of Maharashtra
* Canara Bank
* Central Bank of India
* Corpo rat ion Bank
* Dena Bank
* Ind ian Bank
* Ind ian Overseas Bank
* Oriental Bank of Commerce (OBC)
* Pun jab and Sind Bank
* Punjab Nat ional Bank (PNB)
* Synd icate Bank
* UCO Bank
* Union Bank o f India* United B ank o f Ind ia (UBI)
* Vijaya Bank
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After this, until the 1990s, the nationalised banks grew at a pace of around
4%, closer to the average growth rate of the Indian economy. A lot of
committees analysed the Indian economy between 1985 and 1991. Their
results had an effect on the RBI. TheBoard for Industr ial and Financial
Reconst ruct ion, the Indira Gandhi Institute of Development Research andthe Security & Exchange Board of India (SEBI) investigated the national
economy as a whole, and the security and exchange board proposed better
methods for more effective markets and the protection of investor interests.
The Indian financial market was a leading example for so-called "financial
repression" (Mackinnon and Shaw). The Discount and Finance House of
India began its operations on the monetary market in April 1988; the
National Housing Bank, founded in July 1988, was forced to invest in the
property market and a new financial law improved the versatility of direct
deposit by more security measures and liberalisation.PSBs are owned by
the Government, therefore, they have implicit guarantees from the
Government, resulting in the lack of capital adequacy ratio (CAR) norm.
Given the recommendation of the Narsimham Committee (I) in 1991 on the
BIS standard of capital adequacy, a CAR of 8 percent was to be achieved
by March 1996. Twenty-six out of 27 PSBs had complied with this
requirement as of March 1998. Narsimham Committee (II) recommended
CAR targets of 9 percent by 2000 and 10 percent by 2002. As many PSBs
have already high CARs (some indicated an average CAR of about 9.6
percent as of (March 1998), such targets could be attained.
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LIBERALISATION IN 1990s
The economic liberalisation in India refers to ongoing economic
reforms in India that started on 24 July 1991.The national economy camedown in July 1991 and the Indian rupee was devalued. The currency lost
18% relative to the US dollar, and the Narsimahmam Committee advised
restructuring the financial sector by a temporal reduced reserve ratio as
well as the statutory liquidity ratio. New guidelines were published in 1993
to establish a private banking sector. This turning point reinforced the
market and was often called neo-liberal. The central bank deregulated bank
interests and some sectors of the financial market like the trust and
property markets. This first phase was a success and the central
government forced a diversity liberalisation to diversify owner structures in
1998.
The National Stock Exchange of India took the trade on in June 1994 and
the RBI allowed nationalized banks in July to interact with the capital
market to reinforce their capital base. The central bank founded a
subsidiary companythe Bharatiya Reserve Bank Note Mudran Limited
in February 1995 to produce banknotes. More than 40,000 NBFCs exist,
10,000 of which had deposits totaling Rs1,539 billion as of March 1996.
After public frauds and failure of some NBFCs, RBIs supervisory power
over these high-growth and high-risk companies was vastly strengthened in
January 1997. RBI has imposed compulsory registration and maintenance
of a specified percentage of liquid reserves on all NBFCs. Licensing a small
number of private banks 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
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Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank and HDFC
Bank. This move, along with the rapid growth in the economy of India,
revitalized the banking sector in India, which has seen rapid growth with
strong contribution from all the three sectors of banks, namely, government
banks, private banks and foreign banks.
The next stage for the Indian banking has been set up with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign
Investors in banks may be given voting rights which could exceed the
present cap of 10%, at present it has gone up to 74% with some
restrictions.
The new policy shook the Banking sector in India completely. Bankers, till
this time, were used to the 464 method (Borrow at 4%;Lend at 6%;Go
home at 4) of functioning. The new wave ushered in a modern outlook and
tech-savvy methods of working for traditional banks. All this led to the retail
boom in India. People not just demanded more from their banks but also
received more.
The Foreign Exchange Management Act (FEMA) from 1999 came into
force in June 2000. It would improve the foreign exchange market,
international investments in India and transactions. The RBI promoted the
development of the financial market in the last years, allowed online
banking in 2001 and established a new payment system in 20042005
(Nat ional Electronic Fund Transfer).
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ADOPTION OF TECHNOLOGY IN BANKS
The IT revolution had a great impact in the Indian banking system. The use
of computers had led to introduction of online banking in India. The use of
the modern innovation and computerisation of the banking sector of India
has increased many folds after the economic liberalisation of 1991 as the
country's banking sector has been exposed to the world's market. The
Indian banks were finding it difficult to compete with the international banks
in terms of the customer service without the use of the information
technology and computers. With the advent of the process of liberalisation
in the early nineties, the demands on banks resources and capabilities
increased as banks had to match the challenges of being financial service
providers in a globalised, competitive environment. This posed a dual
challenge for the banking industry. The first challenge was to manage the
growing needs of their existing customer segments and business locations
for better and more efficient services, and the second was, how to expand
the reach of their services and business beyond the traditional services and
locations, which had large socio-economic implications because large parts
of the population did not have access to even basic banking services. At
this juncture, banks in India were looking at huge potential in business
growth as well as several constraints, such as inadequacy of infrastructure
and human resources, geographical, topographical and distance
limitations, communication inefficiencies, cost implications and delivery, as
well as the processing capability to manage more business information and
larger accounts.
Increased use of information technology emerged as the key to meeting
these challenges. Several measures were mooted at the level of the
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Government, the Reserve Bank and industry, which provided an impetus to
adoption of technology in the banking sector. Core Banking Solutions
(CBS) implementation has made customer account maintenance seamless
and enhanced data storage and retrieval capabilities tremendously. It has
also enhanced the banks capacity to develop and market new products, astechnology has increased information availability and the capacity for
analysis and communication manifold. Such capabilities and efficiencies
are poised to rise further with the advent and adoption of evolving
technologies like cloud computing and virtualisation, which have the
potential to significantly bring down financial and management costs.
Economic theory supported by empirical evidence suggests that, in
general, increases in technology investment will raise productivity, lower
costs, and allow firms to operate more efficiently. Information technologies
and the innovations they enable are strategic tools, since they reduce the
costs of financial transactions, improve the allocation of financial resources
and increase the competitiveness and efficiency of financial institutions.
Technological innovation not only enables a broader reach for consumerbanking and financial services, but also enhances its capacity for continued
and inclusive growth (Subbarao, 2009).
Globally, the effect of IT on the banking industry has been positive. In
general, studies have concluded two positive effects regarding the relation
between IT and banks performance. First, IT can reduce banks
operational costs (the cost advantage). Second, IT can facilitate
transactions among customers within the same network (the network
effect). Eyadat and Kozak (2005) examined the impact of the progress in IT
on the profit and cost efficiencies of the US banking sector during the
period 1992-2003. The research showed a positive correlation between the
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levels of implemented IT and both profitability and cost savings. Berger
(2003) also showed improvements in bank performance and consolidation
of the banking industry in the US during the deployment of new
technologies.
In the Indian context, technological innovation and investment in IT during
the period 2005-06 to 2009-10 led to efficiency gains for the scheduled
commercial banks (Rajput and Gupta, 2011). Technology is encompassing
the entire set of business processes in the banking industry and
technological innovations are enabling banks to cope with burgeoning
customer requirements, social and developmental expectations, strategic
and competitive business needs, internal control and risk management
needs, governance and regulatory reporting requirements.
However, going forward, banks need to innovate appropriately in terms of
products, services and strategies and will also need to align their IT and
business perspectives to fully leverage the benefits of technology.
Predictive analytics can bring in competitive advantage in banking and help
banks move from product-centric to customer-centric operations.
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ONLINE BANKING
Online banking (orInternet banking orE-banking) allows customers of a
financial institution to conduct financial transactions on a secure website
operated by the institution, which can be a retail or virtual bank, credit unionor building society. Advent of Internet banking happened in early 1990.
This beginning of Internet Banking created a phenomenal system,
Internet banking. The Government of India enacted the IT Act, 2000
(Information Technology Act). This act came into effect from the 17th of
October 2000. The purpose of this act, in context of banking, was to
provide legal recognition to electronic transactions and other means ofElectronic Commerce
To access a financial institution's online banking facility, a customer having
personal Internet access must register with the institution for the service,
and set up some password (under various names) for customer verification.
The password for online banking is normally not the same as for telephone
banking. Financial institutions now routinely allocate customer numbers
(also under various names), whether or not customers intend to access
their online banking facility. Customer numbers are normally not the same
as account numbers, because a number of accounts can be linked to the
one customer number. The customer will link to the customer number any
of those accounts which the customer controls, which may be cheque,
savings, loan, credit card and other accounts. Customer numbers will also
not be the same as any debit or credit card issued by the financial
institution to the customer.
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To access online banking, the customer would go to the financial
institution's website, and enter the online banking facility using the
customer number and password. Some financial institutions have set up
additional security steps for access, but there is no consistency to the
approach adopted.
Online banking facilities offered by various financial institutions have many
features and capabilities in common, but also have some that are
application specific.
The common features fall broadly into several categories
A bank customer can perform some non-transactional tasks through
online banking, including -
o viewing account balances
o viewing recent transactions
o downloading bank statements, for example in PDF format
o viewing images of paid cheques
o ordering cheque bookso download periodic account statements
o Downloading applications for M-banking, E-banking etc.
Bank customers can transact banking tasks through online banking,
including -
o Funds transfers between the customer's linked accounts
o Paying third parties, including bill payments (see, e.g., BPAY)
and telegraphic/wire transfers
o Investment purchase or sale
o Loan applications and transactions, such as repayments of
enrollments
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o Register utility billers and make bill payments
Financial institution administration
Management of multiple users having varying levels of authority
Transaction approval process
Some financial institutions offer unique Internet banking services, for
example
Personal financial management support, such as importing data into
personal accounting software. Some online banking platformssupport account aggregation to allow the customers to monitor all of
their accounts in one place whether they are with their main bank or
with other institutions.
PERIOD SINCE 2000 TO 2013
Basel II, issued by the Basel Committee on Banking Supervision (BCBS),
published in June 2004, was intended to create an international standard
for banking regulators to control how much capital banks need to put
aside to guard against the types of financial and operational risks banks
(and the whole economy) face. One focus was to maintain sufficient
consistency of regulations so that this does not become a source of
competitive inequality amongst internationally active banks
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Basel III is a new challenge that banks in India and overseas will have to
surmount. It will be a challenge to deploy the same safely and profitably in
the event of persistence of economic slowdown. The government was
able to re-capitalize a few PSU banks in FY12, including the much
needed infusion for State Bank of India. According to RBI estimates,Indian banks would require additional capital of Rs 5 trillion to meet Basel-
III norms by March 31, 2018.
In 2011-12, agriculture loan target was Rs 4.5 trillion, and Rs 4.8 trillion
was disbursed. For 2012-13, the target has been set at Rs 5.8 trillion.
Financial inclusion initiatives also need to be taken care of as India fares
very poorly on this regard as half the population does not have access to
banking services.
New banking licenses are expected to be issued by the RBI to private
sector players. However, these licenses will only be awarded to certain
players meeting strict requirements on the capital, exposures, and
corporate governance front. Lots of players including NBFCs, industrial
houses, microfinance companies etc are all vying for this coveted license.
There has so far been no progress on this issue since the RBI issued
draft guidelines in August 2011.
However, growth is still a concern for the banking sector in FY12 on
account of a sustained slowdown in the economy as well as reduced
demand for credit on account of the current high interest rate
environment. The central bank expects credit growth to come in at 17%,
with deposit growth at 16% for FY13. Asset quality concerns are also an
issue especially in the power, textile, and mining space.
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In the year 2012-13 so far, there has been a easing of liquidity and
monetary conditions. The policy rate was cut by 0.5% in April. In addition
there has been liquidity infusions through open market operations export
credit refinance. The 1% Statutory Liquidity Ratio (SLR) reduction in
August and the further 25 bps cut in the CRR is expected to further easeliquidity and encourage banks to increase loans and advances. The SLR
and CRR stand at 23% and 4.25% respectively currently.
Pol icy rates and reserv e ratios
Policy rates, Reserve ratios, lending, and deposit rates as of 19,
March, 2013
Bank Rate 8.50%(19/3/2013)
Repo Rate 7.50%
Reverse Repo Rate 6.50%
Cash Reserve Ratio (CRR) 4%
Statutory Liquidity Ratio (SLR) 23.0%
Base Rate 9.75%10.50%
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Bank Rate
RBI lends to the commercial banks through its discount window to help the
banks meet depositors demands and reserve requirements for long term.
The Interest rate the RBI charges the banks for this purpose is called bank
rate. If the RBI wants to increase the liquidity and money supply in the
market, it will decrease the bank rate and if RBI wants to reduce the
liquidity and money supply in the system, it will increase the bank rate. As
of 1 January, 2013, the bank rate was 8.75%.
Reserve requirement cash reserve ratio (CRR)
Every commercial bank has to keep certain minimum cash reserves with
RBI. Consequent upon amendment to sub-Section 42(1), the Reserve
Bank, having regard to the needs of securing the monetary stability in the
country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks
without any floor rate or ceiling rate, [Before the enactment of this
amendment, in terms ofSection 42(1) of the RBI Act, the Reserve Bank
could prescribe CRR for scheduled banks between 5% and 20% of total oftheir demand and time liabilities]. RBI uses this tool to increase or decrease
the reserve requirement depending on whether it wants to effect a
decrease or an increase in the money supply. An increase in Cash Reserve
Ratio (CRR) will make it mandatory on the part of the banks to hold a large
proportion of their deposits in the form of deposits with the RBI. This will
reduce the size of their deposits and they will lend less. This will in turn
decrease the money supply. The current rate is 4.75%. ( As a Reduction in
CRR by 0.25% as on Date- 17 September 2012). -25 basis points cut in
Cash Reserve Ratio(CRR) on 17 September 2012, It will release Rs 17,000
crore into the system/Market. The RBI lowered the CRR by 25 basis points
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to 4.25% on 30 October 2012, a move it said would inject about 175 billion
rupees into the banking system in order to pre-empt potentially tightening
liquidity. The latest CRR as on 29/01/13 is 4%
Statutory Liquidity ratio (SLR)
Apart from the CRR, banks are required to maintain liquid assets in the
form of gold, cash and approved securities. Higher liquidity ratio forces
commercial banks to maintain a larger proportion of their resources in liquid
form and thus reduces their capacity to grant loans and advances, thus it is
an anti-inflationary impact. A higher liquidity ratio diverts the bank funds
from loans and advances to investment in government and approved
securities.
In well-developed economies, central banks use open market operations
buying and selling of eligible securities by central bank in the money
marketto influence the volume of cash reserves with commercial banks
and thus influence the volume of loans and advances they can make to the
commercial and industrial sectors. In the open money market, government
securities are traded at market related rates of interest. The RBI is resorting
more to open market operations in the more recent years.
Generally RBI uses three kinds of selective credit controls:
1. Minimum margins for lending against specific securities.
2. Ceiling on the amounts of credit for certain purposes.
3. Discriminatory rate of interest charged on certain types of advances.
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By 2010, banking in India was 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 incomparable economies in its region. The Reserve Bank of India is an
autonomous body, with minimal pressure from the government. The stated
policy of the Bank on the Indian Rupee is to manage volatility but without
any fixed exchange rate-and this has mostly been true.
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. One may also expect M&As, takeovers, and asset
sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to
increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%.
This is the first time an investor has been allowed to hold more than 5% in
a private sector bank since the RBI announced norms in 2005 that any
stake exceeding 5% in the private sector banks would need to be vetted by
them.
In recent years critics have charged that the non-government owned banks
are too aggressive in their loan recovery efforts in connection with housing,
vehicle and personal loans. There are press reports that the banks' loan
recovery efforts have driven defaulting borrowers to suicide.
Growth is good. Sustained high growth is better and Sustained high growth
with inclusiveness is best of all. Inclusive growth in the economy can only
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be achieved when all the weaker sections of the society including
agriculture and small-scale industries are nurtured and brought on par with
other sections of the society in terms of economic development
(Swamy,2010). Bank accounts are relatively widespread, but even in that
most basic of services, the gap is quite large. Though there has beenrepetitive emphasis on expanding the access to the banking system, very
little distance has been covered to reach the last mile. The broad stated
objective is to ensure access to all households in villages with a population
over 2000 (as per the 2001 Census) by 2012.
Greater transparency in banks balance sheets and penal action by RBI,
including against bank auditors, require highly focused action. Internal
audits in banks, now supervised by audit committees of respective boards,
have been more a formality than reflecting managements reporting
responsibility to the stockholders of the banks. High standards of
preventive and detective (internal) controls are required. Risk management
with respect to off-balance sheet items requires considerable attention as
evidenced by instances of losses on letters of credits and guaranteesbusiness. This applies also to auditing off-balance sheet items. At the
macro level, the size of NPAs as a percentage of GDP provides a good
measure to assess the soundness of the system.
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CURRENT ISSUES REGARDING GOLD IMPORTS
Gold imp orts and external stabi l i ty
In India, it is believed that most of the gold is held by people in rural areas
and in many cases this is the only asset they have in their possession
though in small quantity. All the while, rural Indians know that if his crop
fails or his family is sick, he can raise cash in a moment from the goldsmith
or may be pawnbrokers and moneylenders, because the rural India lags in
availing banking facilities. Therefore, even the pattern of saving in India
differs for various income groups. While richer sections diversify theirportfolio according to risk-return equation, the poor rely more on
commodities like gold as well as silver. The jewellery bought in times of
prosperity has been pawned or sold for cash in periods of distress or need.
Over the years, some portion of this is being used as collateral for
borrowing in the informal market, though estimates is not available. It is a
common practice in India that gold is pawned, bought back and re-pawned
to manage day-to-day needs of the poor and middle class.
A study of recent trends in gold imports by India and their impact on
external sector brings to the fore the fact that gold imports are contributing
to the large current account deficit. Gold imports contributed to nearly 30
per cent of trade deficit during 2009-10 to 2011-12, which is significantly
higher than 20 per cent during 2006-07 to 2008-09. Due to falling gold re-exports in a value added form, Indias trade deficit as well as CAD as ratio
to GDP worsened by 0.3 percentage points in 2011-12. The situation is not
different during 2012-13. While capital flows into the economy are volatile
and uncertain, large payments to gold imports inflict a drag on our foreign
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exchange reserves and would impact the volume of external debt.
Divergent factors have contributed to the spike in gold imports by India in
more recent years. Large gold imports, if unchecked, can potentially
threaten the external stability and, therefore, there is an unambiguous need
to moderate them.
Move towards Basel III to entail capital infusion
As per Reserve Bank Of India (RBI) Effective implementation of Basel III is
needed for developing the resilience of the banking sector to future shocks.
The challenges in implementing Basel III should not be underestimated. In
general, Basel III will increase the capital requirements on Indian banks.
The current capital adequacy levels for the Indian banking system are
comfortable. However, the capital requirements, including equity, would be
substantial to support the high GDP growth; further the credit to GDP ratio,
which is currently quite modest at about 55 per cent, is bound to increase
substantially due to structural changes in the economy.
Broad estimates suggest that in order to achieve full Basel III
implementation by end-March 2018, public sector banks (PSBs) would
require common equity of `1.4-1.5 trillion on top of internal accruals, in
addition to `2.65-2.75 trillion in the form of non-equity capital. Banks would
have continued to require additional capital to meet Basel II capital ratios
had Basel III capital ratios not been implemented. Therefore, in case of
PSBs, the incremental equity requirement due to enhanced Basel III capital
ratios is expected to be `750-800 billion. Similarly, major private sector
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banks would require common equity of `200-250 billion on top of internal
accruals, in addition to `500-600 billion in the form of nonequity capital.
These projections are based on the conservative assumption of uniform
growth in Risk-Weighted Assets of 20 per cent per annum individually for
all banks and individual banks assessment of internal accruals (in therange of 1.0-1.2 per cent of Risk-Weighted Assets).
For every bank, it is critical to work out the most cost-effective model for
implementing Basel III. Banks will have to issue fresh capital particularly
towards the later years of implementation. Although Indian banks have the
advantage of a strong starting base in the form of a higher capital to risk-
weighted assets ratio (CRAR) with a larger component of core equity
capital, the large equity needs, though over an extended time-frame, could
put downward pressure on the banks Return on Equity (RoE). In the long
term, the higher capital requirements would bring down risks in the banking
sector inducing investors to accept a lower RoE. In the short term, though,
the only solution is to raise productivity. The Government of India being the
owner of public sector banks will have to play a proactive role in thisprocess.
CONCLUSION
As per the report of banking sector from 1969 to 2012, it is concluded that
after Nationalisation of banks in 1960s and 1980s, PSBs played a very vital
role in bringing up the economy of India. At the times of 1990s economy of
India declined and the rupee value was devalued by 18% relative to US
Dollar. As the year 2000 arrived, banks adopted the IT system which made
them to serve their customers more effectively and invent new products to
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earn profits as well. It is instructed by the RBI to banks to meet the BASEL
III norms till 2018-2019 to improve banks efficiency to perform well
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