INDIAN BANKING
SYSTEM
Prof. Nayan Vaghela

WHAT IS BANK?
• It derived from the “Italian” word “Banco” which means “bench” over
which transaction is happened in ancient time.
• It is the market place for the exchange of “money” & “bills”.
• Bank is a chain between the people who save money and people who
use these savings.

Definition of ‘Bank’
As per Sec.5 (b) of the Banking Regulations Act 1949 “Bank” means
accepting, for the purpose of lending or investment, of deposits of
money from the public repayable on demand or otherwise and
withdrawal by cheque, draft, order or otherwise.

Bank is one which
 Accepting of deposits
 Lending or investing(Purpose)
 From Public
 Payable on demand or otherwise
 Withdrawal of deposits by cheque, draft etc.

A deposit should be
• Deposits of money, not of goods or financial assets.
• Deposits from public at large, not only from the share holders of bank.
• Deposits repayable on demand and withdrawal by cheque.
• Deposits for lending not for bank’s own purpose.
Hence, to follow the status of bank, an institution has to perform both functions
simultaneously i.e. accepting deposits and lending to general public.

Bankers have three Ancestors:
• Goldsmith
• Money Lenders
• Merchants

BANKING TERMS
Banking Terms
Deposit Rate PLR Rate
Banking Terms
CRR Rate SLR Rate Bank Rate
Banking Terms
Repo Rate Reverse Repo Rate

Balance Sheet of a Bank
Liabilities
• Paid up Capital
• Cash Reserve
• Deposits
• Borrowings
• Other Liabilities
Assets
• Cash Balance
• Money at call and short notice
• Investments
• Loans and advances
• Fixed Assets
• Other Assets

Liabilities of all scheduled bank
2011-12 2012-13
Capital 8% 10.4%
Reserve & Surplus 20.8% 17.2%
Deposits(Demand,
saving and term
deposits)
14.9% 15.1%
Borrowings 24.9% 19.8%
Other liabilities &
Provisions
8.6% 2.2%

Assets of all scheduled banks
Items 2011-12 2012-13
Cash and Balances with
RBI
-18.5% 0.4%
Money at Call & Short
Notice
32.4% 37.5%
Investments 16.1% 17.0%
Loans & Advances 18.1% 15.9%
Fixed Assets 4.8% 11.3%
Other Assets 27.9% -9.5%

Portfolio management
• The art of selecting the right investment policy for
the individuals in terms of minimum risk and
maximum return is called as portfolio
management.
• An individual who understands the client’s
financial needs and designs a suitable investment
plan as per his income and risk taking abilities is
called a portfolio managers.

Portfolio Management in Banking Terms
• Prudent management of bank’s assets and liabilities to seek an
optimum combination of Liquidity, safety and profitability.
The objective of portfolio management is
• Liquidity
• Safety
• Profitability

Role of banking in Economic development
1. Mobilization of savings
2. Creation of Credit and increase in production
3. Promotion to export business
4. Social Banking
5. Reasonable price stability
6. Promotion of entrepreneurship
7. Development of Money Market and Capital Market
8. Increasing the facility of training and education

1. Mobilization of Savings: Commercial banks are agencies, who collects savings of
the community (from individuals, business houses, public trusts). To attract such
savings banks give certain offers like interest on deposits, free or cheap
remittance of funds, safe custody of valuable, etc. banks accept savings in
different ways like, saving deposits, fixed deposits, current account and
recurring account.
2. Creation of Credit and Increase in Production: collected savings of the people is
being converted into credit and banks adds to the money supply. Credit
expansion provides more funds to businessmen and agriculturists which can
help them in increasing production. Increased production will contribute to
economic development. Increased credit facilities will help industrialists to
develop their industry. It also helps poor in acquiring homes.
3. Promotion to Export Business: EXIM bank will help the producers to expand
their exports and they will earn higher foreign exchange. Bank also provide
finance for Export and Import business.

4. Social Banking: Under this head, bank provides credits to certain important sectors
of the economy and to weaker section of the society and help in achieving the
goals of economic development with social justice. The advances are given to the
poorer with differential interest rate policy. Assistance to priority sectors like
agriculture, small scale industries and cottage industries, export sector, educated
unemployed and self employed is also given.
5. Reasonable Price Stability: In the situation of inflation, people use to create
artificial scarcity of the goods to avail the advantage in price rise. Bank can help in
controlling the prices by not providing credits to the traders under such situation.
Naturally the traders have to put the stock for sale, which will avoid the scarcity and
price rise.
6. Promotion of Entrepreneurship: Banks are providing long term credits to new
entrepreneurs at differential interest rates. This will help them in manufacturing
new product which can attract customers and may capture market. The merchant
banking services of some banks may also provide guidelines to the establishment of
new projects regarding the site-selection, project report, licensing activities,
provision of credits, marketing, technical and managerial services.

7. Development of Money Market and Capital Market: Monet market and
capital market also plays an important role in the economic development of
the country. Banks have significant contribution in the development of money
market and capital market recently. Banks also provide merchant services to
the constituents of the capital market as an agent. It also acts as an
intermediaries between the money market and the capital market and savers
and investors.
8. Increasing the facility of Training and Education: the problem of establishment
of Firm, Industry, company or any institution is not solved by the funds only but
it is necessary that the institution must have qualified managerial staff too. For
this purpose the staff should be made conversant with the affairs of the
institution. Training and education provision must also be made in advance. For
this purpose bank can provide services of merchant banking as well as loans.

Constituents of Banking System in India
A. Reserve Bank of India
B. State Bank of India and its seven associate Banks
C. Commercial Banks
1. Scheduled and Non-scheduled Banks
2. Public and Private Sector Banks
3. Indian Banks and Foreign Banks
D. Regional Rural Banks
E. Co-operative Banks
F. Development Banks
1. Industrial Development Banks
2. Agricultural Development Banks
G. Import Export Bank of India (EXIM)
H. National Housing Bank

A. RESERVE BANK OF INDIA
• RBI Act was resolved in 1934
• Bank started its functions on 1st April 1935
• In 1948, in accordance with Reserve Bank (Transfer to Public Ownership) Act, 1948, RBI was
nationalized and all shares were purchased by Government of India.
• RBI is managed by Central Board of Directors consisting of 20 Directors.
• Functions of RBI:
1. Issue of currency notes
2. Banker to the Government and Banks
3. Agent and advisor to Government and Banks
4. Credit controller
5. Managing Foreign Exchange
6. Promoting Agricultural and Industrial Development

B. STATE BANK OF INDIA AND ITS SEVEN ASSOCIATE BANKS
• SBI was established on 1st July 1955. (State bank of India Act, 1955) by
taking over the assets and liabilities of Imperial Bank of India,
(through amalgamation of three presidency banks of Madras,
Bombay and Bengal) which was established in 1921.
• In 1959, seven banks were taken over as subsidiaries to SBI known as
Associate banks now.
• SBI is the biggest Commercial bank in Public sector banks.
• Total number of branches of SBI and its associate banks are
17976which is 20% of all branches of commercial banks in India.

C. COMMERCIAL BANKS
1. Scheduled and Non-scheduled Banks:
• Scheduled banks are those which are entered in the second schedule of Reserve
Bank of India Act, 1934 and
• Having a paid up capital and reserves of an aggregate value of not less than 25 lakhs.
• Which satisfy the reserve bank that their affairs are carried out in the interest of
depositors.
• It must be a joint stock company registered under Indian Companies Act, 1956 or any
Act in force at the time of registration.
• Requires to maintain certain percentage of cash reserve with RBI.
• In return, Scheduled banks receive concessional remittance and borrowing facility
from RBI.
• On 21st May 2014 there were 90 Scheduled Banks in India.

• Non-scheduled Banks are those which are not included in the second schedule of
Reserve Bank of India Act 1934 and have paid up capital of less than 25 lakhs.
• It is subject to statutory cash reserve requirement which is to be kept by bank
itself and not with the RBI.
• Non-scheduled banks are not entitled to get any kind of loans, Advances of
remittance facility from Reserve Bank of India.
• At present there are 9 Non-scheduled banks in Indi.

2. Public and Private Sector Banks:
• Public Banks:
• These banks are government undertaking banks.
• Public banks came into existence with the Nationalization of banks in India in
1st July 1955.
• On 19th July 1969 14 banks were Nationalized.
• On 15th April 1980 six more banks were Nationalized.
• Regional Rural banks are also sponsored by Nationalized banks.
• At present there are 27 nationalized banks.
• Total number of public sector banks are 196.
• Public banks occupy a large portion of public deposits (75%) and Loans (71%).
• After nationalization in 1969 and 1980, no banks were allowed to be
established in private sector. But afterwards, Narsimha Committed
recommended the requirement of Private banks to increase the level of
competition.

Continue….
• In 1993, government allowed establishment of Private banks provided they
confirm to minimum start-up capital and other requirements.
• At present there are 22 private sector banks.
• Foreign investment up to 74% of paid up capital is also permitted now.
• As the result of foreign participation there has been a remarkable
improvement in corporate governance, risk management and administrative
efficiency of these banks.
• They have introduced innovative products and have provided superior
services.
• Due to declining profits of the public banks affected by private banks, Banking
companies (Acquisition and Transfer of Undertakings) Amendment Act 1994
was passed to allow public banks to increase capital by selling shares to public
and NRIs up to 49%.

3. Indian Banks and Foreign Banks:
• The Indian banks are those which have been incorporated in Indian and so have their
head offices in India.
• Foreign banks are those which have been incorporated in foreign countries and have
their head offices outside India.
• The bulk of Indian banking business is in the lands of the Indian commercial banks,
both public sector and private sector banks.
• On 31st march 2011, there were 39 foreign banks from 19 countries operating in
India with 280 branches. (the standard chartered bank with highest branches-81)
• Foreign banks can operate in any one of the three channels; branches, wholly owned
subsidiary and subsidiary with aggregate foreign investment up to a maximum 74%
in a private bank.
• Foreign banks compete mainly with the Indian Private banks, not with the public
sector banks, though their growth rate is not as high as that of the Indian Private
banks.
• As against 228 branches of foreign banks in India, Indian banks have only 112
branches overseas.

D. Regional Rural Banks:
• In 1972, Saraiya commission recommended the need for the establishment of
Regional Rural banks.
• Narsimha committee also stressed the need for such banks.
• In 1975, government decided to set up such 50 banks in different parts of the
country amongst which 5 banks were started October 2 1975.
• The main objective of these bank is to provide productive credit to the weaker
section of the rural area so as to enable them to increase their productivity and
income and thereby make them self sufficient.
• The idea is to provide credit facilities to this class so as to develop agriculture,
small scale and cottage industries, trade commerce and other productive
activities in the rural area.
• These banks are working as complementary to the co-operative banks with 357
RRBs in March 2011.

Continue….
• The area of operation of Regional Rural Bank is limited to a specific region
comprising of one or two district of a state.
• These banks grants direct loans and advances only to small and marginal farmers,
rural artisans and farm labourers and other weaker section with limited resources
for productive purposes.
• The lending rate of these banks should not be higher than those of co-operative
societies.
• In June 2001, there were 196 such banks with 14456 branches. In recent years it
has been observed that only 44 RRBs are earning profits and the rest 152 banks
had shown losses.

E. Co-operative Banks:
• Co-operative banks came into existence with the enactment of Co-operative
Societies Act 1904, which allowed the formation of co-operative credit
institutions.
• It acts in the manner to commercial banks but to mobilize the savings of the local
population.
• The co-operative activities are being observed by RBI in urban areas and NABARD
in the rural areas.
• In co-operative banking structure in India, there are
1. State Co-operative Banks (Apex institution)
2. Central co-operative Banks
3. Primary Agricultural.

F. Development Banks:
• It is a multipurpose bank with the objective of;
 It provides long term and medium term credits to industrial undertakings
 Discovers investment projects
 Undertakes the preparation of project reports
 Provides technical advice and managerial services and
 Assists the management of the industrial units.
• There is a network of development banks in India at all India and State levels.
• Besides development banks for financing industrial undertakings, development
banks for providing finance for agriculture, export and housing have been
established in India.

F.1: Industrial Development Banks: Under which there are;
1. Industrial Finance Corporation (IFC)
2. State Financial Corporations (SFCs)
3. Industrial Development Bank of India (IDBI)
4. Industrial Credit and Investment Corporation of India (ICICI)
5. Industrial Reconstruction Corporation of India (IRBI)
6. Small Industries Development Bank of India (SIDBI)
F.2: Agricultural Development Banks:
• Short term, medium term and long term credits for agricultural purpose are being
rooted trough co-operative banks and Land development banks.
• In 1963, RBI set up the Agricultural Refinance and Development Corporation to provide
refinance support to banks for financing land development, horticulture, dairy
development, etc.
• The RBI felt the need for an agency at the national level that will provide all types of
credit to various sectors in rural economy for the integrated way of rural development.

G. Export-Import Bank of India (EXIM):
• The Export and Import Bank of India was established on 1st January 1982 to take
over the operations of International finance wing of IDBI.
• This EXIM bank provides financial assistance to exporters and importers and it
provides refinance facilities to the commercial banks and other financial
institutions against their export-import finance activities.

H. National Housing Bank:
• National Housing Bank was set up on 9th July 1988 as an apex institution to
mobilize resources for housing sector and to promote housing finance institution,
both on regional and local levels.
• The NHB was set up with an initial share of Rs. 100 crore, entirely subscribed by
RBI. It was raised to 150 crore on 7th sept1989 and 250 crore in march 1992.
• The bank is authorized to raise funds by:
i. Issue of bonds and debentures,
ii. Borrowing from central government and other approved institutions of the
central government,
iii. Acceptance of long term deposits,
iv. Short term accommodation from RBI,
v. Borrowings in foreign currencies from banks of financial institutions in India
and abroad.

Functional Classification of Banks
1. Commercial banks
2. Industrial Banks
3. Exchange Banks
4. Agricultural Banks
5. Saving Banks
6. Central Bank

1. Commercial Banks:
• Commercial banks are sometimes also referred to as ‘deposit banks’ as their main
function is to accept deposits from the public and to lend them to those who
requires it.
• These banks finance the internal trade and commerce of the country by providing
short term loans.
• they also advance in same cases medium term loans to industries. Discounting of
bills of exchange is also done by these banks.

• Functions of Commercial Banks:
1. To receive deposits from the public:
• Commercial banks do not just protects the savings of the people but also
provides a cheap and convenient method of transferring funds from one place
to another through the use of cheques, bank drafts, etc. it performs an
important function of mobilizing the scattered savings of the people by
accepting these savings as deposits.
• These deposits can be; Demand deposits – can be withdrawn by the depositor
at any time, and depositors receive little or no interest on it; Fixed deposits –
also known as time deposits, can be withdrawn after the expiry of certain
time period only, depositors receives fairly higher amount of interest on such
deposits; Saving deposits – to encourage people to save and to cultivate a
habit of thrift, can be withdrawn any time and depositors get 4 to 6% of
interest from banks on such deposits.

2. To make Loans and Advances:
• Commercial banks grants advances to traders, businessmen and industrialists.
• As all the amount of deposits received by the bank will be withdrawn at any
point of time but only a part of it needed to be kept in hand. Therefore, the
remaining deposits are being used by the bank so as to earn profits and
mobilize the savings in the economy.
• Loans and advances could be granted through;
• Loans against tangible securities (gold, stock and shares, immovable
properties, etc.)
• Facilities of discounting bills of exchange and other commercial papers.
• Facility of overdraft to current account holders.

3. To make Investments:
• Commercial banks invest their funds by purchasing shares and debentures of
the industrial concerns and also investing and government securities.
• They help the new industrial companies in raising the necessary share capital
by subscribing for themselves a part of the share capital and also stand as a
guarantee for the same to inspire public confidence.
• Through investments, commercial banks adds to the process of capital
formation.
4. To provide a cheap and Convenient medium of exchange:
• Though convenient remittance facilities like cheques and bank drafts
commercial banks greatly facilitates the transfer of funds from one place to
another place.

5. To Finance foreign trade:
• Along with financing the internal trade business of the country, banks also
undertake to finance the foreign trade by accepting or collecting foreign bill of
exchange drawn by the customer and by transacting other foreign business.
6. To provide Agency services:
• Paying cheques, bills, dividends, subscription and insurance premium.
• Sell and purchase of shares and securities for their customers through the
stock broker.
• They provide safety vaults to the customers to keep theirs valuables safe.
• Acting as trustees or executors of wills or an administrator of family trusts.
• They supply information and advice to their customer as regards investment.
7. To provide Miscellaneous Services:
• Acts as an custodian of valuables of customers in lockers.
• Now a days providing the facilities of Debit card, credit card and other
modern services.

• Progress of Commercial banks in India:
1. Increase in the number of scheduled banks
2. Increase in number of bank branches
3. Growth of the bank deposits
4. Expansion of bank credit
5. Change in the structure of bank credit

2. Industrial Banks:
• Industrial banks are those banks which specialize in financing the long term
requirements of the industries.
• These banks accept the long term deposits from the public and grants loans to
industries.
• They also buy and sell the shares and debentures of the industrial enterprises.
• It is bridge between capital user and capital saver.
• The Industrial Development Bank of India is working if India since 1964.
• Its aim is to provide long term finance to industries.
• Some of the commercial banks have also shown interest in Industrial financing
activities in India recently.

3. Exchange Banks:
• The main function of the Exchange bank is to finance the foreign trade for the
country.
• For this purpose they buy or sell foreign currencies, rather title to foreign
currencies in the form of bill of exchange, drafts, telegraphic transfers, etc.
• India has no separate Exchange banks of its own.
• All the exchange banks in India were owned by foreigners in pre-independence
period.
• Now some of our commercial banks, besides their normal functions, also
undertake foreign exchange business.

D. Agricultural Banks:
• Agricultural banks provide both short term and long term finance to agricultural
sector. Short term advances are to meet the current expenditures like purchase of
seeds, fertilizers, tools and equipment, payment of wages to farm workers.
• Long term loans and advances are for such purposes like purchase and
improvement of land, purchase of heavy machinery, constructing a tube well, etc.
• Short term advances to agricultural sector are being provided by cooperative
banks while long term advances are being granted mortgage banks and
cooperative land development banks.

E. Saving Banks:
• These banks provides facilities to the people of middle and low income groups to
save money.
• Its main aim is to encourage the people to cultivate the habit of saving.
• In some of the countries these saving banks are special institutions established
for this purpose.
• In India we do not have such special saving banks, but commercial banks
encourages the individuals to save by helping them to open saving accounts, fixed
deposits, cumulative deposits, etc.
• Of course, post offices also undertakes to open saving accounts but they can not
be regarded as Saving Banks.

G. Central Bank:
• In almost every country there is a central bank which does the task of issuing
currency notes, and controls and supervises the activities of the commercial
banks.
• It is a bankers bank and acts as a lender of last report to all the commercial banks
of the country.
• It is also a banker to the government and acts as an agent and advisor to it.
• In most of the countries central bank is a nationalized institution.
• The Reserve Bank of India is the central bank, which acts as the apex institution in
Indian Money market.

Weaknesses of the Banking System
1. Inadequate Banking Facilities:
• India is still one of the Under Banked Country of the world. The development of
banking facilities is still too inadequate in relation to the size and population of the
country.
• The average population per bank office in India at the end of June 2011 was 14000 as
against 4000 in England and Canada, 7000 in USA and 5000 in Germany.
2. Regional Imbalances:
• A study reveals that the commercial banks have remained confined mainly to the
relatively developed and industrialized states of Western and Southern India while
the poor and backward states have derived less benefits.
• Even in the Eastern region , West Bengal alone accounted for more than 50% of the
new branches opened.
• Thus there are severe regional disparities in banking development which need to be
corrected.

3. Slow Deposit Mobilization in Rural Areas:
• It has been found that a substantial increase in bank deposits has come mainly
from the urban areas.
• According to one estimate rural deposits account for hardly 25% of the total bank
deposits.
4. Diversion of Rural Deposits to Urban Centers:
• Another matter of serious concern is the diversion of rural deposits to urban areas.
• One reason for this, perhaps is lack of adequate bankable and creditworthy
development projects in the rural areas.
5. Defects of Rural Credit:
a) In the rural areas, major beneficiaries of the expansion of bank credit have been
the large and affluent farmers. Small and marginal farmers have derived relatively
less benefit of bank credit.
b) Lack of up to date records, competition from private lending agencies, small and
fragmented holdings, small size of marketable surplus, etc are the specific
difficulties in providing credit to the poor farmers.

c) There is lack of efficient and effective system to supervise the end use of credit.
d) There has been a high proportion of overdue because of poor recovery of loans.
6. Low Efficiency:
• It has been the general experience that the quality of customer service of the
public sector banks has deteriorated in the post-nationalization period.
• Staff indiscipline and lack of devotion, to duty are rather a common phenomenon.
• Red tapism, inordinate delays, corruption, malpractices, neglect of duty, impolite
and discourteous behavior towards customers, lack of initiative and failure to take
quick decisions have all impaired the smooth working of public sector banks.
7. Low Profitability:
• The profitability of public sector banks, by and large, has been found to be low as
compared to private sector banks and foreign banks.
• 27 public sector banks had shown a net profit of about 44901 crores in 2011. Old
Indian private banks, new private banks and foreign banks had shown a net profit
of 25432 crores, which is comparatively good.

8. Political Interference:
• Political interference in the banking operations particularly in case of public sector
banks has been held responsible for wide spread default.
• The Agricultural Credit Review Committee had observed in 1989 that commercial
banks in India are over controlled, overregulated and over managed by the central
government as the co-operative banks are by the state government.
• The committee had noted that in respect of rural loans, a large number of
beneficiaries are identified not by banks or even by government agencies but by
the functionaries of the political parties.

Banking Sector Reforms
• During deep Economic Crises in 1991, India decided to introduce economic
reforms and banking sector reforms were the part of this package. In November
1991 a committee on Financial System under the Chairmanship of M. Narshimha,
Submitted its report.
• A committee on Banking Sector Reforms in April 1998 also submitted a report
favouring Banking Reforms for India.
• Following are the Banking Sector Reforms in India:

1. Prudential Regulation and Supervision:
• Prudential norms have been started by RBI in order to impart professionalism in
commercial banks. The purpose of prudential norms include proper disclosure of
income, classification of assets and provision for Bad debts so as to ensure hat the
books of commercial banks reflect the accurate and correct picture of financial
position.
• Prudential norms required banks to make 100% provision for all Non-performing
Assets (NPAs). Funding for this purpose was placed at Rs. 10,000 crores phased over 2
years.
2. Reduction in SLR and CRR:
• The high SLR and CRR reduced the profits of the banks. The SLR has been reduced from
38.5% in 1991 to 25% in 1997. This has left more funds with banks for allocation to
agriculture, industry, trade etc.
• The Cash Reserve Ratio (CRR) is the cash ratio of a banks total deposits to be
maintained with RBI. The CRR has been brought down from 15% in 1991 to 4.1% in
June 2003. The purpose is to release the funds locked up with RBI.

3. Deregulation of Interest Rates:
• The Narasimhan Committee advocated that interest rates should be allowed to be
determined by market forces. Since 1992, interest rates has become much simpler and
freer.
a) Scheduled Commercial banks have now the freedom to set interest rates on their
deposits subject to minimum floor rates and maximum ceiling rates.
b) Interest rate on domestic term deposits has been decontrolled.
c) The prime lending rate of SBI and other banks on general advances of over Rs. 2 lakhs
has been reduced.
d) Rate of Interest on bank loans above Rs. 2 lakhs has been fully decontrolled.
e) The interest rates on deposits and advances of all Co-operative banks have been
deregulated subject to a minimum lending rate of 13%.
4. Freedom to raise Equity Capital from the Market Amendments:
• The Banking Companies (Acquisation and Transfer of Undertakings) Act was
amended to enable the banks to raise capital through public issues. This is subject to
provision that the holding of Central Government would not fall below 51% of paid-
up-capital. SBI has already raised substantial amount of funds through equity and
bonds.

5. Changes in Branch Licensing Policy:
• Scheduled Commercial Banks are given freedom to open new branches and
upgrade extension counters, after attaining capital adequacy ratio and prudential
accounting norms. The banks are also permitted to close non-viable branches
other than in rural areas.
6. Entry of Private Sector Banks:
• Now banking is open to private sector. New private sector banks have already
started functioning. These new private sector banks are allowed to raise capital
contribution from foreign institutional investors up to 20% and from NRIs up to
40%. This has led to increased competition.
7. Merger of Loss-making Banks with Profit Making banks and Amalgamation of
Banks:

Problems and challenges for Banking System
in India:
• Challenges faced by Indian Banks: The banking sector in India has made quick
strides in restructuring & aligning itself to the new gung ho business
environment. One of the major challenges that Indian banks are facing today is
how to cope with competitive forces in order to strengthen their balance sheet.
Nowadays, banks are whimpering with the burden of Non Performing Assets. It is
truly felt that these debts, if not recovered, will eat into the very vitals of banks.
1. High transaction costs: High transaction cost of carrying non- performing assets
in the books is the major concern of the Indian bank. The development led to
strains in the operational efficiency & the accumulation of non-performing
assets in loan portfolios.

2. Revolution of Information Technology: Banks in India are subject to great
pressures to perform or else their very survival would be in jeopardy. The
application of Information Technology & e-banking is becoming the order of
the day with the banking system directing towards virtual banking.
3. Timely technological upgradation: In order to face competition, it is
indispensable for Indian banks to soak up the technology & upgrade their
services.
4. Intense Competition: The Reserve Bank of India & Indian Government kept
banking industry unbolted for the participants of foreign banks and private
sector banks. The foreign banks were also allowed to set up shop in India.
Many new players have entered the market such as foreign banks, private
banks, non - banking finance companies, etc. For growth and survival in the
environment of cut throat competition banks have to follow the prompt and
resourceful customer service, which calls for suitable customer centric policies
& customer friendly procedures.

• The areas which might imperil security in e-banking can be:
a) Credit risk
b) Liquidity, market risks, interest rate risk
c) Legal risk
• Opportunities of Banking industry:
a) A growing economy
b) Banking deregulation
c) Increased client borrowing
d) An increase in the number of banks
e) An increase in the money supply
f) Low government-set credit rates
g) Larger customer checking account balances

Bank Statistics in India:
Sr
No.
Type of Bank No. of
Branches
1. State bank and its Associate Banks 19194
2. Nationalized Banks 48822
3. New Private Sector Banks 8103
4. Old private Sector Banks 5448
5. Foreign Banks 321
6. Regional Rural Banks 16719
7. Total 98607
Number of Bank Branches in India as on 31st march 2012