Changing Face of Indian Banking

8/11/2019 Changing Face of Indian Banking

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CHANGING FACE OF

INDIAN BANKING

NAINA LAL KIDWAL

INTRODUCTION

This years A.D. Shroff Annual Lecture on Changing Face of Indian Banking

was delivered by Mrs. Naina Lal Kidwai, Deputy hief !"ecutive #fficer, $S%, &ndia.

The lecture was a fine e"pose on the repaid transition throu'h which &ndian %an(in' iscurrently passin' and the way forward. She has ri'htly placed stress in her treatise onthree critical facets ) Technolo'y, usto*er and consolidation.

+ith 'rowin' co*petition between ban(s, and which is 'oin' to be *ore intense in theco*in' year, adoption of new technolo'y has assu*ed added i*portance, especially forpublic sector ban(s. The (ey to success is adoptin' stateoftheart technolo'y and not-ust auto*atin' antiuated processes.

The choice before the custo*er today is far wider both in the selection of ban(s as wellas products. The future 'rowth is lar'ely in retail ban(in'. &nnovatin' products bac(ed bysuperior service are vital to provide the cuttin' ed'e. Microfinance will be the en'inethat will drive chan'e in the rural sector with the prospect of 'eneratin' e*ploy*ent forthe countless people who are yet to reap dividends fro* resur'ent &ndia.

The need for consolidation in the ban(in' sector has beco*e para*ount particularly forthe s*aller public sector ban(s and *ost of the relatively wea( private sector ban(s.

The lecture and the boo(let have been sponsored by Shrenu- / o. Ltd., and we areindeed 'rateful to the* for there support.

The %oard of Trustees have pleasure in pueasure in publishin' the te"t of the lecture forstudy and reflection.

Sd/01 st March 2334 !inoo R" Sh#off

5hair*an /Mana'in' Trustee6 The A.D. Shroff Me*orial Trust


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THE CHANGING FACE

OF INDIAN BANKING

Naina La$ Kid%ai

Ardeshir Darabsaaw Shroff, a*on' the earliest e"ponents of free enterprise in &ndia, wasa powerful spo(es*an for priva1e industry in an increasin'ly 'overn*ent re'ulatedecono*y and it is, possibly, his steadfast adherence to a vision of free enterprise in &ndiathat, in so*e part, has contributed to the econo*ic liberali7ation that be'an in the nineties. A liberali7ation that led to the entry of new private sector ban(s in &ndia andtri''ered the rapid chan'e in the &ndian ban(in' landscape over the last ten years.

8iven the hei'htened level of activity that the financial services sector has beenwitnessin' over the last few years, & thou'ht that the sub-ect of *y lecture, 9The han'in':ace of &ndian %an(in'9, would be the *ost appropriate.

+ithin the world of ban(in', custo*ers9 needs have chan'ed and so has the basic natureof ban(in' services that they reuire. The way ban(s *eet these needs and the fra*ewor(within which they are delivered have, as a result, chan'ed. %an(s have had to adopt to ahost of new pheno*ena ran'in' fro* re'ulatory issues, ris( *ana'e*ent and newtechnolo'y to 'lobalisation, consolidation and brandin'.

There is no denying the fact that the financial services industry has gone throughthe most change since the process of liberalisation began a little over a decadeago. And while indeed Regulation has played a key role in the transformation of

Indian banks, I would include three other broad factors that have beenresponsible for this change. These are Technology, the Customer andConsolidation.

I will, through the course of my lecture, touch upon these four areas and elaborateon their role in 'The Changing Face of Indian anking'

Technology

!istory has shown us that the development of new technology can have a

significant impact on any industry and banks are no different. It is largelytechnology and what follows from it that has, and will transform the face of thebanking industry.

"any of you here can well remember what banks in India were like only ten yearsago. Any banking business, however big or small, meant a trip to the bank branch.

And if your bank branch was at the other end of town, then it meant a good half#


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day gone. $obody complained # we had %ust got very comfortable with that way oflife.

Today, with the enormous strides that technology in banking has made, many of ushave not visited our banks for months. "ost of your banking transactions can, infact, be conducted from your desk over the internet. The reason why change in thebanking sector could be very substantial in the years to come is that technology ischanging very fast. Come to think of it, how many of us would have thought, onlyeight years ago, that a credit card &uery in altimore in the nited (tates, would behandled by a call center e)ecutive sitting in angalore in India.

Technolo'y acts as both a threat and an opportunity to ban(s. &t enables e"istin' servicesto be provided *ore efficiently, it enables new services to be offered, it lowers entrybarriers in some areas and it changes the economics of delivery. For instance, an

AT" transaction costs %ust a fraction of that of a teller transaction. A transactionover the telephone is still cheaper and an internet transaction the cheapest.

anks have also been able to significantly lower credit risk through the effectiveuse of technology. In the ( and some other *uropean countries, for instance,many banks have advanced credit analytics systems that help them assessconsumer behaviour. y tracking their spending pattern, a bank's systems areable to tell what the customer's favourite brand of clothing is, which his favouriterestaurant is, and more importantly, if and whether there is the likelihood of hisdefaulting on his credit card outstandings, his car loan or his mortgage.

Technology has the power to transform the fundamental economics of anyindustry and in this respect, banking is no different from other industries whichhave been transformed by technology.

Technology has the power to transform the fundamental economics of anyindustry and in this respect, banking is no different from other industries whichhave been transformed by technology.

Technology also has the potential to increase the availability and reduce the costof information. This is a potentially powerful force as it reinforces and at the sametime challenges one of the ma%or core competencies of banks # information.(ince banks ultimately depend on 'information' to run their businesses, anything

that affects its availability, cost and management will always have a decisiveinfluence on their business. A combination of new technology, the increasing roleand power of third#party agencies such as the Credit Information ureau of India+imited CII+- and more e)tensive disclosure laws will gradually erode some ofthe traditional information advantages of banks.

"any corporate bankers still assume that the nature of their business will protectthem from the most destructive effects of the digital revolution. They say that the


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client relationship is the most important thing, based on trust, and this cannot bereplaced by an electronic channel. hile this is certainly true in the short tomedium term, the longer term future is far less certain. !istory has shown us thatwhatever starts to work on a smaller scale, tends to have a later impact on largerfinancial arrangements. For small to medium si/ed businesses, it is already clearthat online banking is going to alter the decisions they take.

"any corporates are looking at the movement of cash from supplier to factory toretailer as a single chain and banks whose technology platforms enable thisintegration will benefit greatly.

Today's systems enable the company to see e)actly how much is stored ininventory and places almost automatic orders on suppliers. The bank's systemsneed to align with this system so that the financing is automatically online.

In India, the challenges of technology are being felt more by public sector banksand old private banks than foreign banks and new private banks. (everal ofthese banks are currently implementing core banking software to link theirbranches to a centrali/ed database. They need to avoid falling into the trap ofautomating anti&uated and people centric processes. "erely applying IT to alegacy process would mean automating the old process with little improvement inoperating efficiency # &uite similar to fitting an outboard motor to an old rowingboat when what is really needed is a speedboat.

The &'(o)e#

Fifteen years ago, a customer would have been content with %ust a fi)ed depositor a recurring deposit in addition to his savings account. Today, he wants tospread his wealth around. !e wants to park his savings in e&uities, fi)ed de#posits, mutual funds, pension products and insurance. The ban( has a choice either offer the custo*er all these products or lose hi*. .

+hile there has been a lot of debate on which is a *ore successful *odel nicheban(in' or universal ban(in' in &ndia, at least for now, it is uite clear that it is thelatter and ban(s will necessarily have to offer every i*a'inable financial product to thecusto*er to avoid losing him to competition.

The desire, or rather, the co*pulsion to be a onestop shop for the custo*er9sinvest*ent and borrowin' needs, has 'iven birth to what is bein' ter*ed 0the financialcon'lo*erate9 a *odel that we are ';in' to see an increasin' nu*ber of ban(s adopt.

%an(in', until a few years a'o, was what & would call a des( -ob. You sat at your deskeveryday, accepted deposits, assessed loan applications and disbursed funds. The


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custo*er ca*e to you and you dictated ter*s to hi*. &f your ter*s were not acceptableto hi* and he went away, it never bothered you. The ne"t person was already at the doorbefore the disappointed custo*er even left. %an(in' was a seller9s *ar(et.

That is all now a thing of the past. The customer now decides which bank he

wants to deal with. !e shops around to get the best price and if your prices arenot competitive enough or acceptable to him, he simply goes to another bank.ankers today need to be out there in the field, talking to the customer, findingout and understanding his needs and, more importantly, making sure that theyare able to offer him a better deal than the competition.

%ut while the corporate custo*er is already chan'in' the ter*s on which ban(s deal withhi*, & believe that it is 'oin' to be the retail custo*er that is 'oin' to chan'e the veryface of ban(s in &ndia in the years to co*e.

No one, not even the *ost farsi'hted of ban(ers, could have ever foreseen what ban(in'*i'ht have loo(ed li(e at the turn of the 21 st century. >? and you 'et a clear sense of thepotential that &ndia, with its bur'eonin' *iddle class, has.

The &ndian custo*er of today has beco*e *ore de*andin' as a result of which *ostban(s in &ndia now offer a full 'a*ut of products to their retail clients. &n addition to the

plain vanilla deposits, ban(s are strivin' to 'et a lar'er share of their custo*ers9 walletsby underta(in' *utual funds and insurance sales.

The focus of ban(s on thirdparty products has coincided with the rapid 'rowth inde*and for these products. Mutual fund sales in the country have en-oyed a @@?co*pounded annual 'rowth rate 5A8


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these businesses has 'rown even faster bancassurance pre*iu*s -u*ped to about fro* -ust about .0? in 1CC1 to >4.>? in 2331 as they focused on such new business strea*s. =rofits of


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Australian ban(s e*anatin' fro* insurance and funds *ana'e*ent rose fro* around 2>? to B13?.

%etween 1CB3 and 2331, noninterest inco*e in the S co**ercial ban(in' syste*

increased fro* 3.@@? to 2.0C? of a''re'ate ban(in' industry assets and increased fro*23.01 ? to >2.23? of a''re'ate ban(in' industry operatin' inco*e.

+hile the urban custo*er is *ost certainly 'oin' to account for a substantial part of theretail ban(in' business of ban(s in &ndia, we cannot in any way overloo( the contributionthat the rural sector is 'oin' to *a(e to the ban(in' syste*. &t would be pertinent to pointout that what public sector ban(s set out to do in the years followin' the nationali7ationof the ban(in' industry in &ndia and failed at, ban(s in the private sector have now 'otinto and with a fair de'ree of success.

Microfinance, & believe, is the en'ine that will drive chan'e in the rural sector,'eneratin' livelihoods for the countless people who have not yet be'un reapin' thedividends of &ncredible &ndia.

The Self $elp 8roup %an( Lin(a'e pro'ra**e, a supple*entary credit pro'ra**e forthe rural poor, reaches nearly 1@ *illion households and the cu*ulative credit disbursedhas been to the tune of ,333 crore as of March, 233>. $owever, the co*binedoutreach of this pro'ra**e and *icrofinance institutions is only about 4? of &ndia9spoor.

A considerable 'ap e"ists between de*and and supply for all financial services @3? ofthe rural poor 5*ar'inallandless far*ers6 do not have a deposit account, B@? do nothave access to credit and less than 14? of these households have any (ind of insurance.Ne'li'ible nu*bers have access to health insurance 53.>?6 and crop insurance 53.2?6.&*portantly, 4;.1 ? of the poor still borrow fro* infor*al sources, includin'*oneylenders, friends and relatives and other sources.

+hile *any ban(s have stayed away fro* lendin' to this se'*ent, citin' reasons such ashi'h transaction costs and unfavourable policies such as caps on interest rates whicheffectively li*its the viability of servin' the poor, the nu*bers see* to su''est

otherwise. Nonperfor*in' loans in this sector are way below what they are co**onlyperceived to be, at about 12? and the avera'e interest rates char'ed by ban(s to *icrofinance institutions is B12?.

+hile the National %an( for A'ricultural and


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#ver the ne"t few years, we are 'oin' to see *ore ban(s enter into *icrofinance whichwill, hopefully, narrow the 'ap between ban(in' services provided in urban and rural&ndia.

on'o$ida(ion

The entry of new private sector ban(s in the *idC3s tri''ered the hu'e chan'e in &ndianban(in' that we are now seein'. +hile these ban(s forced all other ban(s to place thecusto*er above all else, they also acted as a warnin' to the *ore co*placent publicsector ban(s that they would have to ta(e a reloo( at the *anner in which they didbusiness.

:ierce co*petition in the ban(in' industry has not only resulted in i*proved servicestandards, it has also sent out a clear si'nal to the wea(er ban(s 9if you can9t fi'ht 9e*,-oin 9e*.9

There is a wide a'ree*ent on the need for consolidation in the &ndian ban(in' sector. &t isalso evident that pro'ress has been patchy with only a few of the deals of the past decadebein' driven by *ar(et forces. %roadly, there are five reasons that drive *er'ers econo*ies of scale, econo*ies of scope, potential for ris( diversification, personalincentives of *ana'e*ent and public policy. Any *ar(et driven *er'er would involve adetailed study of the structure of the prospective partner and the e"tend to which it holdspotential to reali7e one or *ore of these ob-ectives. There is a dual relationship betweenthe structure of a ban( and consolidation activity. Mer'er does alter the structure ) thead-ust*ent followin' leaves its i*pact on the structure of one or both of the entities. %utthe pre*er'er structure of the two entities is itself a critical input leadin' to the decisionto *er'e. 9

!cono*ies of scale are particularly relevant for the 2@ public sector ban(s in &ndia.onsolidation *ay help restore a level playin' field between ban(s and lar'e corates, fore', lead to *ore sensible pricin' of credit that reflects the underlyin' ris(s on theportfolio and the necessary costs incurred by a lender. !cono*ies of scope could be beste"e*plified by crosssellin' in the retail *ar(et. Loans to the consu*er se'*ent nowco*prise between a uarter to half of the loan boo( of &ndian ban(s. $owever, *uch ofthe effort *ade to *ar(et products to the retail custo*er is far fro* efficient. There islar'e scope to cut superfluous e"penses and yet conduct profitable business on a lar'erscale.


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onsolidation is only an enablin' step towards realisation of these syner'ies. Thetan'ible benefits of a *er'er ta(e lon'er and *ay reuire chan'es in the9 structure of the*er'ed entity. #ne of the *ost stri(in' features of the &ndian ban(in' sector is these'*entation defined by ownership and 'eo'raphy. These differences have influenced theinternal structures of ban(s as well as their business policies, e' lendin' to the plantation

sector in a re'ion with two seasonal spells of rain is very different fro* lendin' to a*anufacturin' business located in a se*iarid district with stron' lin(a'es to co**odityprices. There are visible si*ilarities across ban(s within a particular se'*ent as well asdifferences across se'*ents. $owever, there are lesser (nown differences that lur(between ban(s that *ay appear to belon' to the sa*e se'*ent. onsolidation would teardown the walls that preserve distinct subcultures and co*pel the evolution of a co**onculture.

&t is clear that there is si'nificant chan'e underway in the internal structures of *any&ndian ban(s even without any consolidation activity. The pace of this chan'e variesacross ban(s and i*ple*entation would necessarily be sta''ered over a fairly lon'

period. A *er'er durin' this sta'e would only add to the natural stress because of thevaryin' de'ree of pro'ress in i*ple*entation and the differences in the plan between thetwo ban(s. These uncertainties need not hold bac( consolidation. There are other benefitsthat could be reali7ed if the participatin' ban(s succeed in chan'in' their internalstructures in areas that are not restricted by the environ*ent. :or instance, for any *er'erto be *eanin'ful, the two ban(s will have to loo( at ways of *ovin' their operationsonto a sin'le technolo'y platfor* rather than continuin' to operate fro* two platfor*s.

+hile a bi'ban' for* of consolidation is unli(ely, it is possible that a steady strea* ofactivity *ay unfold if the environ*ent is supportive. !ven apparently si*ilar ban(s *ayface challen'es when confronted with the tas( of *er'in' into a sin'le balance sheet andevolvin' a consistent business *odel. &ndian ban(s have de*onstrated their ability tochan'e slowly but steadily. onsolidation *ay reuire the* to hasten the process. &n fact,so*e of the s*aller old private ban(s *ay be forced to consolidate to *eet the *ini*u*capital nor*s stipulated

Regulation

:or *any years, ban(s have had the intrinsic advanta'e of protective re'ulation re'ulation which li*its co*petition, deposit insurance, i*plicit lender of last resortfacilities and so on.


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The &ndian ban(in' syste* has been witnessin' stron' 'rowth in credit de*and with loan'rowth at nearly 03?. %ut while the creditdeposit ratio of &ndian ban(s has been runnin'at 133? for so*e *onths now, the capital adeuacy ratio of *any ban(s is fallin'.

+hile there has been so*e a*ount of debate on whether or not %asel && should applyonly to 9internationally active9 ban(s or to all co**ercial ban(s in the country, the

ban(s representin' &ndian public andprivate ban(s as well as forei'n ban(s.

Most &ndian ban(s are initially e"pected to adopt the Standardised approach, 'iven theadditional preparations ban(s still need to *a(e in developin' credit ris( 'radin' syste*sand loss histories that *eet the &nternal


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This *ay reuire a dilution of part of the 'overn*ent9s sta(e and acceptance of broaderbased shareholdin'. The establish*ent needs to reach a consensus on the a*ount ofspace that *ay be allowed to private investors, especially in the private sector, includin':D& and the corporate sectors, reco'ni7in' that :D& proved far *ore resilient in the 1CC@crisis than forei'n held debt

+e will also see i*provin' standards of corporate 'overnance as the country bettere*braces the spirit of 'ood corporate 'overnance, and *inority shareholders beco*e*ore active.

&n short, while the &ndian ban(in' sector is in reasonable fettle 5certainly versus a nu*berof Asian econo*ies6 it needs to further stren'then to support hi'her econo*ic 'rowth andthe new invest*ent cycle &ndian co*panies are enterin' into.

The ne"t five years will set the sta'e for this with a new wave of technolo'y,consolidation and *ore capital.

8'''''''''''''''''''''''''''''''''''''''''''''''''''''''''

Banking in India

:ro* +i(ipedia, the free encyclopedia

Structure of the or'anised ban(in' sector in &ndia. Nu*ber of ban(s are in brac(ets.
http://en.wikipedia.org/wiki/File:Scheduled_banking_structure_in_India.pnghttp://en.wikipedia.org/wiki/File:Scheduled_banking_structure_in_India.png


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Banking in Indiain the *odern sense ori'inated in the last decades of the 1Bth century.The first ban(s were %an( of $industan 51@@31B2C6 and The 8eneral %an( of &ndia,established 1@B; and since defunct.

The lar'est ban(, and the oldest still in e"istence, is the State %an( of &ndia, which

ori'inated in the %an( of alcuttain Eune 1B3;, which al*ost i**ediately beca*e the%an( of %en'al.This was one of the three presidency ban(s, the other two bein' the%an( of %o*bayand the %an( of Madras,all three of which were established undercharters fro* the %ritish !ast &ndia o*pany. The three ban(s *er'ed in 1C21 to for*the &*perial %an( of &ndia,which, upon &ndia9s independence, beca*e the State %an( of&ndiain 1C44. :or *any years the presidency ban(s acted as uasicentral ban(s, as didtheir successors, until the


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Hi'(o#*

&n ancient &ndia there is evidence of loans fro* the Jedic period5be'innin' 1@43 %6.H2IH0ILater durin' the Maurya dynasty5021 to 1B4 %6, an instru*ent called adeshawas inuse, which was an order on a ban(er desirin' hi* to pay the *oney of the note to a third

person, which corresponds to the definition of a bill of e"chan'e as we understand ittoday. Durin' the %uddhist period, there was considerable use of these instru*ents.Merchants in lar'e towns 'ave letters of credit to one another.H>I

Colonial era

Durin' theperiod of %ritish rule*erchants established the nion %an( of alcuttain1B2C, first as a private -oint stoc( association, then partnership. &ts proprietors were theowners of the earlier o**ercial %an( and the alcutta %an(, who by *utual consentcreated nion %an( to replace these two ban(s. &n 1B>3 it established an a'ency atSin'apore, and closed the one at Mir7apore that it had opened in the previous year. Also

in 1B>3 the %an( revealed that it had been the sub-ect of a fraud by the ban(9s accountant.nion %an( was incorporated in 1B>4 but failed in 1B>B, havin' been insolvent for so*eti*e and havin' used new *oney fro* depositors to pay its dividends.H4I

The Allahabad %an(,established in 1B;4 and still functionin' today, is the oldest EointStoc( ban(in &ndia, it was not the first thou'h. That honour belon's to the %an( ofpper &ndia, which was established in 1B;0, and which survived until 1C10, when itfailed, with so*e of its assets and liabilities bein' transferred to the Alliance %an( ofSi*la.

:orei'n ban(s too started to appear, particularly in alcutta, in the 1B;3s. The o*ptoir

d9!sco*pte de =arisopened a branch in alcutta in 1B;3, and another in %o*bayin1B;2 branches in Madrasand =ondicherry,then a :rench possession, followed.$S%established itself in %en'alin 1B;C. alcutta was the *ost active tradin' port in &ndia,*ainly due to the trade of the %ritish !*pire,and so beca*e a ban(in' centre.

The first entirely &ndian -oint stoc( ban( was the #udh o**ercial %an(, established in1BB1 in :ai7abad. &t failed in 1C4B. The ne"t was the =un-ab National %an(, establishedin Lahorein 1BC4, which has survived to the present and is now one of the lar'est ban(sin &ndia.

Around the turn of the 23th entury, the &ndian econo*y was passin' throu'h a relative

period of stability. Around five decades had elapsed since the &ndian Mutiny, and thesocial, industrial and other infrastructure had i*proved. &ndians had established s*allban(s, *ost of which served particular ethnic and reli'ious co**unities.

The presidency ban(s do*inated ban(in' in &ndia but there were also so*e e"chan'eban(s and a nu*ber of &ndian-oint stoc(ban(s. All these ban(s operated in differentse'*ents of the econo*y. The e"chan'e ban(s, *ostly owned by !uropeans,concentrated on financin' forei'n trade. &ndian -oint stoc( ban(s were 'enerally under
http://en.wikipedia.org/wiki/Vedic_periodhttp://en.wikipedia.org/wiki/Vedic_periodhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-2http://en.wikipedia.org/wiki/Banking_in_India#cite_note-3http://en.wikipedia.org/wiki/Maurya_dynastyhttp://en.wikipedia.org/wiki/Adeshahttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-rbi.org.in-4http://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Calcuttahttp://en.wikipedia.org/wiki/Calcuttahttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-5http://en.wikipedia.org/wiki/Allahabad_Bankhttp://en.wikipedia.org/wiki/Allahabad_Bankhttp://en.wikipedia.org/wiki/Joint-stock_companyhttp://en.wikipedia.org/wiki/Joint-stock_companyhttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Comptoir_d'Escompte_de_Parishttp://en.wikipedia.org/wiki/Comptoir_d'Escompte_de_Parishttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Pondicherry_(city)http://en.wikipedia.org/wiki/Pondicherry_(city)http://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Oudh_Commercial_Bankhttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Indian_rebellion_of_1857http://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/Joint_stock_companyhttp://en.wikipedia.org/wiki/Vedic_periodhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-2http://en.wikipedia.org/wiki/Banking_in_India#cite_note-3http://en.wikipedia.org/wiki/Maurya_dynastyhttp://en.wikipedia.org/wiki/Adeshahttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-rbi.org.in-4http://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Calcuttahttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-5http://en.wikipedia.org/wiki/Allahabad_Bankhttp://en.wikipedia.org/wiki/Joint-stock_companyhttp://en.wikipedia.org/wiki/Joint-stock_companyhttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Comptoir_d'Escompte_de_Parishttp://en.wikipedia.org/wiki/Comptoir_d'Escompte_de_Parishttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Pondicherry_(city)http://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Oudh_Commercial_Bankhttp://en.wikipedia.org/wiki/Faizabadhttp://en.wikipedia.org/wiki/Punjab_National_Bankhttp://en.wikipedia.org/wiki/Lahorehttp://en.wikipedia.org/wiki/Indian_rebellion_of_1857http://en.wikipedia.org/wiki/Joint_stock_company


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capitalised and lac(ed the e"perience and *aturity to co*pete with the presidency ande"chan'e ban(s. This se'*entation let Lord ur7on to observe, "In respect of banking itseems we are behind the times. We are like some old fashioned sailing ship, divided bysolid wooden bulkheads into separate and cumbersome compartments."

The period between 1C3; and 1C11, saw the establish*ent of ban(s inspired by theSwadeshi*ove*ent. The Swadeshi *ove*ent inspired local business*en and politicalfi'ures to found ban(s of and for the &ndian co**unity. A nu*ber of ban(s establishedthen have survived to the present such as %an( of &ndia,orporation %an(,&ndian %an(,%an( of %aroda, anara %an(and entral %an( of &ndia.

The fervour of Swadeshi *ove*ent lead to establishin' of *any private ban(s inDa(shina Kannadaand dupi districtwhich were unified earlier and (nown by the na*eSouth Canara5 South Kanara 6 district. :our nationalised ban(s started in this districtand also a leadin' private sector ban(. $ence undivided Da(shina Kannada district is(nown as radle of &ndian %an(in'.

Durin' the :irst +orld +ar51C1>)1C1B6 throu'h the end of theSecond +orld +ar51C0C)1C>46, and two years thereafter until the independenceof &ndia were challen'in'for &ndian ban(in'. The years of the :irst +orld +ar were turbulent, and it too( its tollwith ban(s si*ply collapsin' despite the &ndian econo*y'ainin' indirect boost due towarrelated econo*ic activities. At least C> ban(s in &ndia failed between 1C10 and 1C1Bas indicated in the followin' table

YearsNumber of banks

that failed

Authorised Capital

( Lakhs)

Paidup Capital

( Lakhs)

1C10 12 2@> 04

1C1> >2 @13 13C1C14 11 4; 4

1C1; 10 201 >

1C1@ C @; 24

1C1B @ 23C 1

Post-Independence

Thepartition of &ndiain 1C>@ adversely i*pacted the econo*ies of =un-aband +est%en'al, paralysin' ban(in' activities for *onths. &ndia9s independence*ar(ed the end ofa re'i*e of the Laisse7fairefor the &ndian ban(in'. The 8overn*ent of &ndiainitiated

*easures to play an active role in the econo*ic life of the nation, and the &ndustrial=olicy


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&n 1C>C, the %an(in'


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The ne"t sta'e for the &ndian ban(in' has been set up with the proposed rela"ation in thenor*s for forei'n direct invest*ent, where all forei'n investors in ban(s *ay be 'ivenvotin' ri'hts which could e"ceed the present cap of 13? at present. &t has 'one up to@>? with so*e restrictions.

The new policy shoo( the %an(in' sector in &ndia co*pletely. %an(ers, till this ti*e,were used to the >);)> *ethod 5borrow at >? lend at ;? 'o ho*e at >6 of functionin'.The new wave ushered in a *odern outloo( and techsavvy *ethods of wor(in' fortraditional ban(s. All this led to the retail boo* in &ndia. =eople de*anded *ore fro*their ban(s and received *ore.

#en( +e#iod

All ban(s which are included in the Second Schedule to the are Scheduled %an(s. These ban(s co*prise Scheduled o**ercial %an(s andScheduled ooperative %an(s. Scheduled o**ercial %an(s in &ndia are cate'orised

into five different 'roups accordin' to their ownership andor nature of operation. Theseban( 'roups are

State %an( of &ndia and its Associates

Nationalised %an(s

=rivate Sector %an(s

:orei'n %an(s

21B 1@B 1;C 1;;

Nu*ber of%ranches

@3,0@0 @2,3@2 @>,;40 @B,@B@ B2,BC@

=opulationper %an(s5in thousands6

1; 1; 14 14 14

A''re'ateDeposits

1@332 billion5SF2B3 billion6

213C3 billion5SF043 billion6

2;11C billion5SF>03 billion6

01C;C billion5SF403 billion6

0B0>1 billion5SF;>3 billion6

%an( redit1133> billion

5SF1B3 billion6143@1 billion

5SF243 billion61C012 billion

5SF023 billion620;1C billion

5SF0C3 billion62@@44 billion

5SF>;3 billion6
http://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupee


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8rowth of %an(in' in &ndia of Scheduled o*

Indi!ators"# $ar!h of

%&&' %&& %&& %&&* %&&+

Deposit aspercenta'e

to 8N=5atfactor cost6

;2? ;>? ;C? @0? @@?

=er apitaDeposit

1;2B15SF2@36

1C1035SF0236

200B25SF0C36

2B;135SF>@36

00C1C5SF4;36

=er apitaredit

13@425SF1B36

10B;C5SF2036

1@4>15SF2C36

2121B5SF0436

2>;1@5SF>136

reditDeposit? @4? @>?

%y 2313, ban(in' in &ndia was 'enerally fairly *ature in ter*s of supply, product ran'e

and reacheven thou'h reach in rural &ndia still re*ains a challen'e for the private sectorand forei'n ban(s. &n ter*s of uality of assets and capital adeuacy, &ndian ban(s areconsidered to have clean, stron' and transparent balance sheets relative to other ban(s inco*parable econo*ies in its re'ion. The


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*ar(et. &ndian ban(s were findin' it difficult to co*pete with the international ban(s inter*s of custo*er service, without the use of infor*ation technolo'y.

The was for*ed the o**ittee on Mechanisation in the %an(in' &ndustry

51CB>6H11Iwhose chair*an was Dr. I

&n 1CC>, the o**ittee on Technolo'y &ssues relatin' to=ay*ent syste*s,

heue learin'and Securities Settle*entin the %an(in' &ndustry 51CC>6H14Iwasset up under hair*an + S Saraf. &t e*phasi7ed !lectronic :unds Transfer5!:T6syste*, with the %ANKN!T co**unications networ( as its carrier. &t also saidthat M&< clearin' should be set up in all branches of all those ban(s with *orethan 133 branches.

&n 1CC4, the o**ittee for proposin' Le'islation on !lectronic :unds Transferand other !lectronic =ay*ents 51CC46H1;Ia'ain e*phasi7ed !:T syste*.H1>I

The total nu*ber of auto*ated teller *achines5ATMs6 installed in &ndia by variousban(s as of end Eune 2312 is CC,21B.H1@IThe new private sector ban(s in &ndia have the*ost ATMs, followed by offsite ATMs belon'in' to S%& and its subsidiaries and then bynationalised ban(s and forei'n ban(s, while onsite is hi'hest for the nationalised ban(sof &ndia.H1>I

%ranches and ATMs of Scheduled o**ercial %an(s as of end March 2334 H1>I

Bank t,peNumber of

bran!hes

-nsite

A.$s

-ffsite

A.$s

.otal A.$s

Nationalised ban(s 00,;2@ 0B,;3; 22,2;4 ;3,B@1

State %an( of &ndia 10,;;1 2B,C2; 22,B2@ 41,@40

#ld private sector ban(s >,411 >,@;1 >,;2> C,0B4

New private sectorban(s

1,;B4 12,4>; 2;,B0C 0C,0B4

:orei'n ban(s 2>2 2C4 B4> 1,1>C
http://en.wikipedia.org/wiki/Banking_in_India#cite_note-11http://en.wikipedia.org/wiki/Banking_in_India#cite_note-11http://en.wikipedia.org/wiki/MICRhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-12http://en.wikipedia.org/wiki/Banking_in_India#cite_note-12http://en.wikipedia.org/wiki/Banking_in_India#cite_note-12http://en.wikipedia.org/wiki/Banking_in_India#cite_note-13http://en.wikipedia.org/wiki/Clearing_house_(finance)http://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Guwahatihttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Patnahttp://en.wikipedia.org/wiki/Thiruvananthapuramhttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-14http://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Clearing_(finance)http://en.wikipedia.org/wiki/Settlement_(finance)http://en.wikipedia.org/wiki/Banking_in_India#cite_note-15http://en.wikipedia.org/wiki/Banking_in_India#cite_note-15http://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-16http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-14http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-14http://en.wikipedia.org/wiki/Automated_teller_machinehttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-17http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-14http://en.wikipedia.org/wiki/Banking_in_India#cite_note-11http://en.wikipedia.org/wiki/MICRhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-12http://en.wikipedia.org/wiki/Banking_in_India#cite_note-13http://en.wikipedia.org/wiki/Clearing_house_(finance)http://en.wikipedia.org/wiki/Bhubaneshwarhttp://en.wikipedia.org/wiki/Guwahatihttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Patnahttp://en.wikipedia.org/wiki/Thiruvananthapuramhttp://en.wikipedia.org/wiki/Chequehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-14http://en.wikipedia.org/wiki/Payment_systemhttp://en.wikipedia.org/wiki/Clearing_(finance)http://en.wikipedia.org/wiki/Settlement_(finance)http://en.wikipedia.org/wiki/Banking_in_India#cite_note-15http://en.wikipedia.org/wiki/Electronic_Funds_Transferhttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-16http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-14http://en.wikipedia.org/wiki/Automated_teller_machinehttp://en.wikipedia.org/wiki/Banking_in_India#cite_note-17http://en.wikipedia.org/wiki/Banking_in_India#cite_note-autogenerated1-14


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%ranches and ATMs of Scheduled o**ercial %an(s as of end March 2334 H1>I

Bank t,peNumber of

bran!hes

-nsite

A.$s

-ffsite

A.$s.otal A.$s

TOTAL 53,726 85,134 77,409 1,62,543

Expansion of banking infrastrctre

As per the census of 2311, 4B.@? of households are availin' ban(in' services in thecountry. There are 132,0>0 branches of Scheduled o**ercial %an(s 5S%s6 in thecountry, out of which 0@,C40 50@?6 ban( branches are in the rural areas and 2@,21C52;?6 in se*iurban areas, constitutin' ;0? of the total nu*bers of branches in se*iurban and rural areas of the country. $owever, a si'nificant proportion of the households,especially in rural areas, are still outside the for*al fold of the ban(in' syste*. To e"tendthe reach of ban(in' to those outside the for*al ban(in' syste*, 8overn*entand32 villa'eshabitations5includin' 2,121 ltra S*all %ranches6 by end of April, 2310.

!ach household to have at least one ban( account %an(s have been advised to

ensure service area ban( in rural areas and ban(s assi'ned the responsibility inspecific wards in urban area to ensure that every household has at least one ban(account.

%usiness orrespondent *odel +ith the ob-ective of ensurin' 'reater financialinclusion and increasin' the outreach of the ban(in' sector, ban(s were per*ittedby


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there were over 142,333 %s deployed by %an(s. Durin' 231210, over1B0.B *illion transactions valued at 1;4 billion 5SF2.@ billion6 had beenunderta(en by %s till Dece*ber 2312.

Swabhi*aan a*pai'n nder Swabhi*aan the :inancial &nclusion

a*pai'n launched in :ebruary 2311, ban(s had provided ban(in' facilities by

March, 2312 to over @>,333 habitations havin' population in e"cess of 2333 usin'various *odels and technolo'ies includin' branchless ban(in' throu'h %usinessorrespondents A'ents 5%As6. :urther, in ter*s of :inance Minister9s %ud'etSpeech 231210, the Swabhi*aan ca*pai'n has been e"tended to habitationswith population of *ore than 1,333 inNorth !astern and $illy Statesand tohabitations which have crossed population of 1,;33 as per census 2331. About>3,333 such habitations have been identified to be covered under the e"tendedSwabhi*aan ca*pai'n.

Settin' up of ultras*all branches 5S%s6 onsiderin' the need for close

supervision and *entorin' of the %usiness orrespondent A'ents 5%As6 by therespective ban(s and to ensure that a ran'e of ban(in' services are available to the

residents of such villa'es, ltra S*all %ranches 5S%s6 are bein' set up in allvilla'es covered throu'h %As under :inancial &nclusion. A S% wouldco*prise a s*all area of 133 s ft 5C.0 *26 233 s ft 51C *26 where the officerdesi'nated by the ban( would be available with a laptop on predeter*ined days.+hile the cash services would be offered by the %As, the ban( officer wouldoffer other services, underta(e field verification and follow up on the ban(in'transactions. The periodicity and duration of visits can be pro'ressively enhanceddependin' upon business potential in the area. A total of over 43,333 S%s havebeen set up in the country by March 2310.

%an(in' facilities in nban(ed %loc(s All the 12C unban(ed bloc(s 5C1 in North

!ast States and 0B in other States6 identified in the country in Euly 233C, had been

provided with ban(in' facilities by March 2312, either throu'h %ric( Mortar%ranch or %usiness orrespondents or Mobile van. As a ne"t step it has beenadvised to cover all those bloc(s with %A and ltra S*all %ranch which have sofar been covered by *obile van only.

SSD%ased Mobile %an(in'National =ay*ents orporation of &ndia5N=&6

wor(ed upon a o**on SSD =latfor* for all ban(s and telcoswho wish tooffer the facility of Mobile %an(in' usin' nstructured Supple*entary ServiceData 5SSD6 based Mobile %an(in'. The Depart*ent helped N=& to 'et aco**on SSD ode CCO for all telcos. More than 23 ban(s have -oined theNational nifor* SSD =latfor* 5N=6 of N=& and the product has beenlaunched by N=& with %SNL and MTNL. #ther telcos are li(ely to -oin in the

near future. SSD based Mobile %an(in' offers basic %an(in' facilities li(eMoney Transfer, %ill =ay*ents, %alance !nuiries, Merchant =ay*ents etc. on asi*ple 8SM based Mobile phone, without the need to download application on aphone as reuired at present in the &M=S based Mobile %an(in'.

Steps ta(en by


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23316 without the need to ta(e per*ission fro*


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4. oo(e, harles Northcote 51B;06 The rise, progress, and presentcondition of banking in India. 5=rinted by =.M. ranenbur'h, %en'al =rint. o.6,pp.1@@233.

;.

Changing Face of Indian Banking

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