Indian Banking Sector

1. INDIAN BANKING SECTOR  BY Siddhant Jain  Siddhant_jain_ind@yahoo.co.in  9595637843

2. HISTORY OF BANKING SECTOR  Developed during the British era.  British East India Company established three banks.  Bank of Bengal- 1809  Bank of Bombay- 1840  Bank of Madras – 1843  These three banks were later amalgamated and called Imperial Bank  Taken over by State Bank of India in 1955

3.  The Reserve Bank Of India was established in 1935  Followed by Punjab National Bank, Bank Of India, Canara Bank and Indian Bank.  In 1969, 14 major banks were nationalized and in 1980, 6 major private sector banks were taken over by the government.

4. TYPES OF BANKS  Central Bank  The Reserve Bank of India  Public Sector Banks  State Bank of India and its associate banks called the State Bank Group.  20 nationalized banks.  Regional rural banks mainly sponsored by public sector banks.

5.  Private Sector Banks  Private Banks  Foreign banks operating in India.  Scheduled co-operative banks.  Non-scheduled banks  Co-operative Sector The co-operative sector is very much useful for rural people.  State co-operative Banks  Central co-operative banks  Primary Agriculture Credit Societies

6.  Development Banks/Financial Institutions  IFCI  IDBI  ICICI  IIBI  NABARD  Export Import Bank of India  National Housing Bank

7. LIST OF PRIVATE SECTOR BANKS  Bank of Punjab  Bank of Rajasthan  Catholic Syrian Bank  Centurion Bank  City Union Bank  Dhanalakshmi Bank  Development Credit Bank  Federal Bank  HDFC Bank  ICICI Bank

8.  IndusInd Bank  ING Vysya Bank  Jammu & Kashmir Bank  Karnataka Bank  Karur Vysya Bank  Laxmi Vilas Bank  South Indian Bank  United Western Bank  UTI Bank

9. LIST OF PUBLIC SECTOR BANKS  Allahabad Bank  Andhra Bank  Bank of Baroda  Bank of India  Bank of Maharastra  Canara Bank  Central Bank of India  Corporation Bank  Dena Bank  IDBI Bank  Indian Bank  Indian Overseas Bank  Oriental Bank of Commerce  Punjab & Sind Bank  Punjab National Bank  Syndicate Bank  UCO Bank  Union Bank of India  United Bank of India  Vijaya Bank

10. CO-OPERATIVE BANKS IN INDIA  Cooperative banks in India finance rural areas under:  Farming  Cattle  Milk  Hatchery  Personal Finance

11. COOPERATIVE BANKS IN INDIA FINANCE URBAN AREAS UNDER:  Self-employment  Industries  Small scale units  Home Finance  Consumer finance  Personal finance

12. FOREIGN BANKS IN INDIA  ABN-AMRO Bank  Abu Dhabi Commercial Bank  Bank of Ceylon  BNP Paribas Bank  Citi Bank  China Trust Commercial Bank  Deutsche Bank  HSBC  JPMorgan Chase Bank  Standard Chartered Bank  Scotia Bank  Taib Bank

13. UPCOMING FOREIGN BANKS IN INDIA  Royal Bank of Scotland  Switzerland's UBS  US-based GE Capital  Credit Suisse Group  Industrial and Commercial Bank of China

14. REGIONAL RURAL BANKS  Haryana State Cooperative Apex Bank Limited  NABARD  National Bank for Agriculture and Rural Development.  Sindhanur Urban Souharda Co-operative Bank  United Bank of India

15. RBI Central Bank of the Country Established on April 1, 1934 Dr Duvuri Subbarao (The current governor)

16. PREAMBLE “To regulate issue of Bank notes, to keep the reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage”

17. ROLE OF RESERVE BANK 1. Issue of Notes 2. Banker, Agent and advisor to the government 3. Banker’s Bank & Lender of Last Resort 4. Custodian of Foreign Exchange Reserves 5. Regulation of Banking System 6. Clearing House Functions 7. Credit control

18. RE RECENT ACTIONS  Re- introduction of interest rates futures in Sep- 2009  License to S.A. “First Rand Bank”  Bank Rate, Repo Rate, Reverse Repo Rate, Cash Reserve Ratio kept unchanged. Statutory Liquidity Ratio restored to 25%  RBI to launch plastic Rs 10 currency shortly

19. IMPORTANCE OF RBI GUIDELINES As per law, the RBI Guidelines are statutory and mandatory. The violations of same by banks constitute an important defense for the borrowers and guarantors.

20. BIRTHDAY PARTY

21. PLATINUM JUBILEE CELEBRATIONS Outreach program in the country : “to create awareness among villagers about banking and its benefits.”  Khopi Village nr Pune  Hunder Village (18,380 fts) nr Siachen base camp

22. RBI’S ROLE INCREASINGLY ACQUIRING AN INTERNATIONAL DIMENSION  Important international institutions promoting effective regulatory structures and financial stability consult RBI  Member of International Committees - Bank for International Settlements (BIS) - Committee on Global Financial System, the Markets Committee, and the International Liaison Group under the aegis of the Basel Committee on Banking Supervision (BCBS) - Financial Stability Forum and the BCBS

23. Global crisis insulation:  Dr Reddy did not succumb to pressures for full convertibility and opening up banking sector  Limited vulnerability to sub prime and complex debt obligations  Confidence level high for inter-banking lending market “THE GLOBAL BACKDROP HAS NOT AFFECTED INDIA MUCH, REGULATORS WERE QUICK IN RESPONDING TO THE CRISIS.”- CHIEF EXECUTIVE OF INDIAN BANKS ASSOCIATION

24. EVOLUTION OF INDIAN BANKING

25. HISTORY OF BANKING IN INDIA  The first bank in India was established in 1786. From 1786 till today it has gone through three distinct phases  Phase1: Early phase from 1786 to 1969  Phase2: Nationalization of Indian Banks and up to 1991prior to Indian banking reforms  Phase3: New phase of Indian Banking system with the advent of the Indian Financial Banking sector reforms after 1991

26. PHASE 1  The General Bank of India was established in 1786. Then came the Bank of Hindustan and Bengal Bank. The East India company established Bank of Bengal (1809), Bank of Bombay (1840), Bank of Madras (1843) and these banks called as Presidency Bank. These three banks were amalgamated in 1920 and named as the Imperial Bank of India, which was started as the as the private shareholder bank mostly European shareholder .

27. PHASE1 (CONT……)  In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd was setup in 1894 with headquarter in Lahore. Between 1906 to 1913 many banks were established namely Canara bank, Central bank, Bank of India, Bank of Baroda, Indian Bank, Bank of Mysore were established. There were approximately 1100 banks mostly small was established.  To streamline the banks and to gain control over the banks Govt. of India came up with The Banking Companies Act in 1949 which was later changed to Banking Regulation Act 1949.

28. PHASE2  Govt. took some major steps to bring reforms in the Indian banking sector after independence. In 1955, it nationalized The Imperial Bank of India with extensive banking facilities on a large scale especially in rural and Semi-urban areas. It form SBI to act as the principal agent of RBI.  In 1969 late Prime Minister Mrs. Indira Gandhi nationalized 14 commercial banks.

29. PHASE2 (CONT……)  In 1980 seven more banks were nationalized which brings around 80% banks under the control of Govt. Govt. took the following steps:-  1949: Enactment of Banking Regulation Act  1955: Nationalization of SBI  1959: Nationalization of SBI Subsidiaries  1961: Insurance cover extended to deposits  1969:Nationalization of 14 commercial banks  1971:Creation of credit guarantee corporation  1975:Creation of Regional Rural Banks (RRB)  1980:Nationalization of banks with deposits over 200 crore

30. PHASE3  This phase brought many more facilities in the banking sector. In 1991, under the chairmanship of Mr. M Narasimham, a committee was set up which work for the liberalization of banks in India  During this country is flooded with the Foreign banks and ATMs. Phone Baking and Net banking was introduced

31. BEGINNING OF MODERN BANKING IN INDIA  In 1786, English Agency House had established The General Bank of India. This was the beginning of the modern banking in India.

32. PRE- INDEPENDENCE  On the eve of independence in 1947 there were 648 commercial banks comprising of 97 scheduled and 551 non-scheduled banks.  The number of banks office stood at 2,987, total deposit at Rs 100,800 million and advances Rs 4750 million.

33. RBI  RBI (Reserve Bank of India) came into existence in 1935 as the central banking authority of India with a share capital of Rs 5 crores on the basis of recommendation of Hilton Young Commission. RBI was nationalized in 1949.

34. BANKING DEVELOPMENT: PRE-NATIONALIZATION  Credit was excessively skewed in favor of large borrowers  Agriculture Sector got only 2% of total bank credit  Features with the goal of achieving the equitable allocation of credit and relative priorities set out in the five years plan

35. NATIONALIZATION OF BANKS  In July 1969 Govt. of India nationalized 14 major scheduled commercial banks, each having the minimum deposit of Rs 500 million.

36. RATIONAL FOR NATIONALIZATION  Removal of control of few large Industrial and Business houses  Provision for adequate credit for Agriculture, Small Industries, exports etc  Giving Professional bent to management  Encouraging a new class of entrepreneurs  Change over from class banking to mass banking

37. IMPACT OF NATIONALIZATION  Unprecedented growth in the branch network of the commercial banks  Rapid growth in deposit mobilization and expansion of credit  However commercial banks faces decline in profitability Directed lending and less flexibility Increase cost of operations

38. FORMATION OF REGIONAL RURAL BANKS  Formation of Regional Rural Banks under the act of RRB 1976  These are state sponsored, Region based, Rural based, Rural oriented, commercial banks  Under this approach 196 RRBs were setup

39. BANKING PRODUCTS

40.  Net banking  Loans  Certificate of deposits  Commercial papers  Non convertible debentures  Interest rates swaps  Forward rate agreements  Option contract  Currency swap

41.  ICICI Bank has launched `Global Indian Credit Card' for NRIs.  Bank of Rajasthan (BoR) has launched international credit card operations in December 2005.  Investment Advisory Service  SGL accounts  Cash management services

42. BANKING REFORMS

43. NEED OF REFORMS  Greater inclusion  To protect the public sector banking system  To meet the international standards  To enhance efficiency and productivity through competition  Lack of technological levels in operation  To maintain high transparency  High NPA’s

44. PROCESSES OF REFORMS  On all important issues, workings group are constituted or technical reports are prepared  Resource Management Discussions meetings are held by the RBI with select commercial banks, prior to the policy announcements  To form a Technical Advisory Committee on Money, Foreign Exchange and Government Securities Markets (TAC)

45. CONT…  High Level Co-ordination Committee on Financial and Capital Markets  Placing draft versions of important guidelines for comments of the public at large before finalisation of the guidelines  To align the regulatory framework with international best practices

46. BASEL REFORMS  Basel I reforms: - Focus on credit risk  Basel II reforms: - Minimum capital requirements - Supervisory review process - Market discipline

47. NARSIMHAM COMMITTEE I (1991)  Reduction of SLR and CRR  Minimum Capital Adequacy Ratio  Prudential norms  Disclosure norms  Rationalization of foreign operations in India  Special tribunals and Asset Reconstruction fund

48. CONT…  Reduction of government stake in PSB’s  Deregulation of interest rates

49. NARSIMHAM COMMITTEE II  Focus on technological upgradation in Banking sector  Mergers of banks need to be encouraged  Reorganizing of banks into global, national and regional banks  Autonomy of banks  Capital Adequacy requirement

50. HOW HAS THE REFORMS HELPED??  Lendable efficiency of banks have increased  Have met international standards  Return on Assets of the banks rose from 0.4 per cent in the year 1991-92 to 1.2 per cent in 2003-04  The business per employee for public sector banks more than doubled

51. MANAGEMENT PERSPECTIVES CORPORATE MERGERS & SERVICE GOVERNANCE ACQUISTIONS INNOVATIONS

52. PERSONAL BANKING NRI BANKING BUSINESS BANKING DEPOSITS MONEY TRANSFER CORPORATE NET BANKING LOANS REMITTANCES CASH MANAGEMENT CARDS INVESTMENTS TRADE SERVICES CAR/HEALTH INSURANCE PROPERTY SOLUTIONS SME SERVICES WEALTH MANAGEMENT INSURANCE ONLINE TAXES DEMAT A/C CUSTODIAL SERVICES

53. LATEST TRENDS OF ICICI  MOBILE BANKING  INTERNET BANKING  ICICI I-ZONE  TV BANKING

54. MERGERS & ACQUISITIONS  JP MORGAN MERGER WITH CHASE MANHATTAN  HDFC ACQUIRING CENTURION BANK OF PUNJAB  PRIOR TO THIS MERGER CENTURION BANK HAD MERGED WITH BANK OF PUNJAB  ICICI BANK ACQUIRING BANK OF MADURA

55. PREMIER BANKS PROVIDING CUSTOMISED SOLUTIONS  HSBC PREMIER  AXIS PRIORITY  ICICI PERSONAL  HDFC PRIVATE  BANK OF BARODA PERSONAL

56. BT –KPMG BANK RANKINGS 2009 Based on 26 parameters consisting of three broad categories  Growth  Size  Strength

57. INDIA’S BEST BANKS 1. Axis Bank 2. Bank of India 3. Punjab National Bank 4. Bank of Baroda 5. HDFC Bank 6. Indian Bank 7. Federal Bank 8. Corporation Bank 9. Union Bank of India 10. Citibank

58. INDIA’S BEST BANKS The Mid-Size Chartbusters (Balance Sheet size less than 24000 crore and more than 10 branches) 1. YES Bank 2. Karur Vysya Bank 3. Dhanalakshmi Bank 4. City Union Bank 5. The Nanital Bank 6. Karnataka Bank 7. Ratnakar Bank 8. South Indian Bank 9. Lakshmi Vilas Bank 10. Bank of Rajasthan

59. INDIA’S BEST BANKS The Small Wonders (Balance Sheet size 3000 crore or less and 10 or less branches) 1. DBS Bank 2. JPMorgan Chase Bank 3. Scotia Bank 4. Barclays Bank 5. Bank of America 6. Deutsche Bank 7. Calyon Bank 8. BNP Paribus

60. INITIATIVES TAKEN BY GOVERNMENT  National Electronic Clearing Service (NECS) : the core banking solutions  Reduction in the Reserve Bank's policy rates and easy liquidity conditions  Cutting down of repo and reverse repo rates  Tax free cash withdrawals from banks  Inter-ATM usage transaction

61. CHALLENGES  Globalisation  Enhancement of customer service: demand for new products, particularly derivatives  Application of technology  Implementation of Basel II  Implementation of new accounting standards  Compliance with KYC aspects  Interest rate risk  Interest rates and non-performing assets  Competition in retail banking  The urge to merge

62. TRENDS  Banks funding innovation  Proxy banking: Tapping the rural market  New banking correspondents  Regional banks going national  Consolidation of banks and financial players  Outsourcing business to cut costs  Credit Card business growing in spite of downturn  Retail banks to change models from credit base to deposit base  Financial deepening and financial inclusion

63. THE FUTURE  Linking of mobile, Uid and payments without the need of a bank account

64. Thank you!!

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