COMMERCIAL BANKS HISTORY AND

NPA PROBLEM

Submitted by:-
Anoop Kain
Kapil Vidhani
Nakul Jain
Raveesh Goswami
Sourabh Soni
Surbhit Bansal
Vijay Chakule
Amit Kumar
 Introduction

 Without a sound and effective banking system a

country cannot develop same goes with the
country like India.

 For the past three decades India's banking

system has several outstanding achievements to
its credit. The most striking is its extensive
reach. It is no longer confined to only
metropolitans or cosmopolitans in India.
 Contd..
 General Bank of India was set up in the year 1786

 Foreign Banks like Credit Lyonnais started their

operations in the 1950’s

 The commercial banking structure in India consists of:

 Scheduled Commercial Banks in India

 Unscheduled Banks in India

 Scheduled Banks - Those banks which have been

included in the Second Schedule of Reserve Bank of
India(RBI) Act, 1934
 Important Events

 Nationalisation -June 1969 - 14 largest commercial banks – 7

more banks in 1980- more government control of the credit
delivery - banks grew at the same pace as economy

 Liberalisation -In 1990’s - licences to a small number of private

banks UTI Bank, ICICI, HDFC - ushered in a modern outlook and
tech-savvy methods of working - led to the retail boom in India

 Foreign Direct Investment -relaxation in the norms -Foreign

Investors in banks may be given voting rights which could exceed
the cap of 10%
 History

 The first bank in India The General Bank of India,

though conservative, was established in 1786.
 From 1786 till today, the journey of Indian Banking
System can be divided into 3 distinct phases.
 Phase I, from 1786 to 1969 of Indian Banks
 Phase II, up to 1991 prior to Indian banking sector
Reforms.
 Phase III, Indian Financial & Banking Sector Reforms
after 1991.
 Phase I

 To streamline the functioning and activities of

commercial banks, the Government of India
came up with The Banking Companies Act, 1949.

 It was later changed to Banking Regulation Act

1949 as per amending Act of 1965 (Act No. 23 of
1965).
contd…
 Reserve Bank of India was vested with extensive
powers for the supervision of banking in India as
the Central Banking Authority.

 During the first phase the growth was very slow

and banks also experienced periodic failures
between 1913 and 1948.

 During those days public had lesser confidence

in the banks
contd…
 The General Bank of India 1786.

 Bank of Bengal (1809), Bank of Bombay (1840) and

Bank of Madras (1843) by The East India Company.

 These banks were called Presidency banks and later

formed the Imperial bank in 1920.

 In 1865 Allahabad Bank, Punjab National Bank Ltd. in

1894 was established exclusively by Indians.
 Reserve Bank of India came in 1935.
 Phase II
 Government took major steps in this Indian Banking
Sector Reform after independence.

 In 1955, it nationalized Imperial Bank of India with

extensive banking facilities on a large scale specially in
rural and semi-urban areas.

 It formed State Bank of India to act as the principal

agent of RBI and to handle banking transactions of the
Union and State Governments all over the country.
contd…
 Second phase of nationalizations was carried out in 1980 with
seven more banks.
 Banking in the sunshine of Government ownership gave the
public implicit faith and confidence.
 1949 : Enactment of Banking Regulation Act.
 1955 : Nationalization of State Bank of India.
 1959 : Nationalisation of SBI subsidiaries.
 1961 : Insurance cover extended to deposits.
 1969 : Nationalisation of 14 major banks.
 1971 : Creation of credit guarantee corporation.
 1980 : Nationalisation of seven banks with deposits over 200
crore.
 Nationalization of banks

 The nationalization of banks in India took place

in 1969 by Mrs. Indira Gandhi the then prime
minister. It nationalized 14 banks.

 These banks were mostly owned by

businessmen and even managed by them.
 Nationalized Banks

 Central Bank of India Dena Bank

 Punjab National Bank UCO Bank
 United Bank of India Canara Bank
 Indian Overseas Bank Indian Bank
 Bank of Maharashtra Union Bank
 Syndicate Bank Bank of India
 Bank of Baroda Allahabad Bank
 Phase III
 This phase has introduced many more products
and facilities in the banking sector in its reforms
measure.

 In 1991, under the chairmanship of M

Narasimham, a committee was set up by his name
which worked for the liberalization of banking
practices.

 The exchange rate regime, the high foreign

reserves , not fully convertible capital account and
limited exposure to banks and their customers to
foreign exchange makes Indian banking system
safe.
contd…

The country is flooded with foreign banks

and their ATM stations. Efforts are being
put to give a satisfactory service to
customers. Phone banking and net banking
is introduced. The entire system became
more convenient and swift. Time is given
more importance than money.
 NON PERFORMING ASSETS
 The Indian banking industry has always been plagued with
the problem of high levels of non performing assets, which
can be attributed to factors like:-

 1.Archaic policies.

 2.Industrial inefficiency.

 3.Lack of adequate legal recourse to the lenders.

 4.Willful defaulters.
 TYPES OF NPA
 Gross NPA and NET NPA

 Gross NPA-An improvement in the gross NPA generally indicates an

improvement in the bank's systems and procedures.

 NET NPA- Improvement in the net NPA indicates that the bank's
balance sheet has the strength to sustain higher provisions.

 The gross NPA has come down to 5.82 per cent as against as 8.84
per cent as of March 2006, while net NPA will drop to 2.54 per cent
from 4.42 per cent during the same period.
 PARAMETERS TO CONTROL NPA
 Credit administration - Improved credit
management

 Risk management -On the improving risk management

 Improving corporate performance - Improve the risk

profile of loans given to the industrial sector

 Legal remedies- Recourse to legal remedies such as

DRT and SARFEASI
contd..
 Higher provisions- Increase their provisioning / write off of
bad loans

 Regulatory measures -One Time Settlement Scheme (OTS),

Corporate Debt Restructuring (CDR)

 Legal reforms- Pressurize the defaulters to clear the over

dues, and thus clean their balance sheet.

 Best practices- Building strong credit risk management.

THANK YOU..