Performance and Efficiency of Indian Banking Sector
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Transcript of Performance and Efficiency of Indian Banking Sector
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Presented by-Pooja Gupta (090)Yogesh Mittal
(091)
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Banking means the accepting, for the purpose of
lending or investments, of deposits of money from
the public repayable on demand or otherwise, and
withdrawal by cheques, drafts, order or otherwise -Banking Companies Act, 1949
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Two essential feature of bank-
A. Acceptance of chequable deposits from the public
B. Lending
Thus,
A commercial bank is a financial institution which
performs the function of accepting deposits from thegeneral public and giving loans for investment with
the aim of earning profit.
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It accepts deposits
It gives loans and advances
Overdraft facility
Discounting bills of exchange and hundies Agency functions of the bank
Financing of foreign trade
Performing general utility functions
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Scheduled banks in India
Scheduledcommercial banks
Public Sector banks
Nationalizedbanks
State Bank ofIndia and itsAssociated
Private sector banks
Old Privatebanks
Newprivatebanks
Foreignbanks in
India
Regional ruralbanks
Scheduledcooperative banks
Scheduled urbancooperative
banks
Scheduled statecooperative
banks
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The Indian banking sector consists of 26 public sector banks,20 private sector banks and 43 foreign banks along with 61regional rural banks (RRBs) and more than 90,000 creditcooperatives.
The Indian Banking industry is currently worth Rs. 81 trillion(US $ 1.31 trillion) and banks are now utilizing the latesttechnologies like internet and mobile devices to carry outtransactions and communicate with the masses.
With the potential to become the fifth largest banking industryin the world by 2020 and third largest by 2025 according toKPMG-CII report, Indias banking and financial sector is
expanding rapidly.
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1770 The first bank in India Bank of Hindustan
1921 Bank of Bengal, Bank of Bombay and Bank of Madras were merged into Imperial Bank .
1926 Establishment of Hilton Young Commission to suggest central bank in India
1935 Establishment of Reserve Bank of India as central bank .
1955 Imperial Bank taken over by State Bank of India.
1969 Nationalization of 14 commercial banks.
1975 Establishment of Regional Rural Bank.
1980 Second round of nationalization of 6 commercial banks.
1991 First Phase of banking sector reform.
1998 Second phase of banking sector reform .
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Lowering SLR and CRR
Prudential Norms
Capital Adequacy Norms
Deregulation of Interest Rates Competition From New Private Sector Banks
Phasing Out Of Directed Credit
Access to Capital Market
Freedom of Operation
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New area
Strengthening technology
Increase in FDI Limit
Adoption Of Global Standards Information Technology
Management Of NPAs
Managerial Autonomy
Customer Service
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Competition
Profitability
Productivity
The need and scope for harmonization of globaloperational standards and adoption of best practices
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Automation
Core banking solutions
Business Extension
More and more branches Employee development
Marketing Initiatives
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Given that some Indian banks were completelygovernment-owned, a bank that has been allowed to tapcapital market to raise capital by diluting governmentequity has been considered as privatized
To evaluate the impact, financial performance andefficiency of the banks are analysed.
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Measures of financialperformance of banks
Returns on assets
Spread to working fundratio
Establishment expensesto total expenses ratio
Loan out ratio
non-performing assets tonet advances ratio
Efficiency of the banks was
measured usingaccounting
ratios such as
Deposits per employee(depo/staff),
Advances peremployee(loans/staff),and
Net profit per employee(NP/Staff).
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Financial performance of partially privatized banks andtheir efficiency were significantly higher than that of thefully public banks.
In the matter of quality of advances, significant differencewas not found in these two groups.
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The performance of the banking sector after the initiationof financial liberalization in India has improved verymuch. Consequent to nationalization in 1969 andeconomic liberalization in 1991, banks in India are on fast
track growth in size, technology and deliverables tocustomers.
Partially privatized banks have continued to show
improved performance and efficiency in the years afterprivatization.
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An IBA-FICCI-BCG report suggests that Indias grossdomestic product (GDP) growth will make the Indianbanking industry the third largest in the world by 2025.
The domestic banking industry is set for an exponentialgrowth in coming years with its assets size poised totouch USD 28,500 billion by the turn of the 2025.
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