Introduction of Banking:Banking operations started in India as early as 1870 with the establishment of the Bank of

Hindustan, considered as the first bank in India.

The second development in the banking sector happened with the incorporation of the Bank of
Calcutta, the Bank of Bombay and the Bank of Bombay in accordance with the Presidency Bank's Act,
1876. All these banks joined hands to form the Imperial Bank of India. The reserve Bank of India was
engaged in the performance of central banking activities before the establishment of the Reserve Bank of
India.

Definition of Commercial Banks:An institution which accepts deposits, makes business loans, and offers related services. Commercial
banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions
are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve
System. While commercial banks offer services to individuals, they are primarily concerned with receiving
deposits and lending to businesses.
This sub sector can broadly be classified into:
1. Public sector
2. Private sector
3. Foreign banks
Public sector is the part of economic and administrative life that deals with the delivery of goods
and services by and for the government, whether national, regional or local/municipal.
Private banks are banks that are not incorporated. A non-incorporated bank is owned by either
an individual or a general partner(s) with limited partner(s). In any such case, the creditors can look to
both the "entirety of the bank's assets" as well as the entirety of the sole-proprietor's/general-partners'
assets.
Foreign banks organised under foreign laws and located outside the United States.

STRUCTURE OF COMERCIAL BANKS:The commercial banking structure in India consists of:

Scheduled Commercial Banks in India

Unscheduled Banks in India

Scheduled Banks in India constitute those banks which have been included in the Second Schedule of
Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the
criteria laid down vide section 42 (6) (a) of the Act.
As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918
branches. The scheduled commercial banks in India comprise of State bank of India and its associates (8),
nationalized banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural
banks.
"Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act,
1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of
1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the
Reserve Bank of India Act, 1934 (2 of 1934), but does not include a co-operative bank".

"Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the
Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".

Activities of Commercial Banks:The modern Commercial Banks in India cater to the financial needs of different sectors. The main
functions of the commercial banks comprise of transfer of funds, acceptance of deposits and then offering
those deposits as loans for the establishment of industries, purchase of houses, equipments, capital
investment purposes etc. The banks are allowed to act as trustees. On account of the knowledge of the
financial market of India the financial companies are attracted towards them to act as trustees to take the
responsibility of the security for the financial instrument like a debenture. The Indian Government
presently hires the commercial banks for various purposes like tax collection and refunds, payment of
pensions etc.

Modern Banking Techniques:The immense growth of the IT sector is reflected in the banking operation of the Commercial
Banks in India. Presently, the IT companies are engaged in the creating software packages to facilitate,
accelerate, and organize the banking operations. The Rangarajan Committee and the Reserve Bank of
India has played a major role in the popularizing the concept of computer application in banking activities.
The computerization process has reached its peak in the present scenario with the use of Total Branch
Automation Packages.

Products and Services offered by Commercial Banks in India:The Commercial Banks in India offer variety of products and services like Investment Advisory
Services, Tax Advisory services, Cash Management services, debit cards, ATM cards, credit cards,
personal loans, education loans, housing loans, car loans, Investment Advisory Services, and consumer
durable loans.

Functions of Commercial Banks:The functions of a commercial banks are divided into two categories:
i) Primary functions, and
ii) Secondary functions including agency functions.
i) Primary functions:
The primary functions of a commercial bank include:
a) accepting deposits; and
b) granting loans and advances;
a) Accepting deposits-The most important activity of a commercial bank is to mobilize deposits from the
public. People who have surplus income and savings find it convenient to deposit the amounts with banks.
Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus, deposits with the
bank grow along with the interest earned. If the rate of interest is higher, public are motivated to deposit more
funds with the bank. There is also safety of funds deposited with the bank.
b) Grant of loans and advances-The second important function of a commercial bank is to grant loans
and advances. Such loans and advances are given to members of the public and to the business community at a
higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans
and advances varies depending upon the purpose, period and the mode of repayment. The difference between
the rate of interest allowed on deposits and the rate charged on the Loans is the main source of a banks income.

i) Loans-A loan is granted for a specific time period. Generally, commercial banks grant short-term loans.
But term loans, that is, loan for more than a year, may also be granted.The borrower may withdraw the entire
amount in lumpsum or in instalments. However, interest is charged on the full amount of loan. Loans are generally
granted against the security of certain assets. A loan may be repaid either in lumpsum or in instalments.
ii) Advances-An advance is a credit facility provided by the bank to its customers. It differs from loan in
the sense that loans may be granted for longer period, but advances are normally granted for a short period of
time. Further the purpose of granting advances is to meet the day to day requirements of business. The rate of
interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and not
on the sanctioned amount.
c) Discounting of Bills-Banks provide short-term finance by discounting bills, that is,making payment of
the amount before the due date of the bills after deducting a certain rate of discount. The party gets the funds
without waiting for the date of maturity of the bills. In case any bill is dishonoured on the due date, the bank can
recover the amount from the customer.
ii) Secondary functions:-Besides the primary functions of accepting deposits and lending money,banks
perform a number of other functions which are called secondary functions. These are as follows
a) Issuing letters of credit, travellers cheques, circular notes etc.
b) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit
vaults or lockers;
c) Providing customers with facilities of foreign exchange.
d) Transferring money from one place to another; and from one branch to another branch of the bank.
e) Standing guarantee on behalf of its customers, for making payments for purchase of goods, Machinery,
vehicles etc.
f) Collecting and supplying business information;
g) Issuing demand drafts and pay orders; and,
h) Providing reports on the credit worthiness of customers.

Public Sector Banks

Indian Bank
Bank of India
Union Bank
Syndicate Bank
Sate Bank of Saurashtra
State Bank of Travancore
Bank of Maharashtra
Vijaya Bank
UCO Bank

Indian Overseas Bank

Punjab National Bank
Dena Bank
State Bank of Hyderabad
State Bank of Bikaner &
Jaipur
State Bank of India
State Bank of Mysore
State Bank of Indore
Corporation Bank

Allahabad Bank
Andhra Bank
Canara Bank
Bank of Baroda
Oriental Bank
Punjab & Sind Bank
IDBI Bank
ICICI Bank
UTI Bank
United Bank

Centurian Bank
City Union Bank
Federal Bank
Catholic Syrian Bank
Saraswat Bank
DhanLakshmi Bank
Kotak Bank

Cosmos Bank
Lakshmi Vilas Bank
Bank of Rajasthan
Bank of Punjab
ING-Vysya Bank
Kalyan Bank
Karur Vysya Bank
United Western Bank

Private Sector Banks

South Indian Bank
IndusInd Bank
HDFC Bank
Jammu & Kashmir Bank
Nedungadi Bank
Development Credit Bank
Ratnakar Bank
Mandavi Bank

Internet Banking

ICICI Bank
Federal Bank
State Bank of India
IDBI Bank
Bank of Baroda

HSBC
Punjab National Bank

IndusInd Bank
UTI Bank
Bank of Punjab
Canara Bank
Corporation Bank
ING-Vysya

Citi Bank
ABN Amro Bank
Asian Developmant Bank

Abu Dhabi C.Bank

ANG Bank
HSBC

Bank of Baroda
HDFC Bank
State Bank of Travancore

Foreign Banks in India

Standard Chartered Bank
American Express Bank
Banque Nationale De Paris

Analysis of DataTABLE1: FINANCIAL POSITION OF COMMERCIAL BANKS

YEAR

2004

2005

2006

2007

2008

TOTAL BRANCHES

69,248

70,498

71,898

74,346

77,773

TOTAL DEPOSITS

15,42,284

17,32,858

21,09,049

26,08,309

6,32,828

TOTAL CREDIT

1,288

1,645

2,169

2,685

3,96,599

TABLE 2: DISTRIBUTION OF OUTSTANDING CREDIT OF COMMERCIAL BANKS

CATEGORY
AGRICULTURE

2004
34,300

2005
42,619

2006
37,867

2007
43,919

2008
33619,29

INDUSTRY

57,747

94,133

81,666

1,18,481

253511,67

TRANSPORTATION/
TRANSPORT
OPERATIONS
PERSONAL LOANS/
PROFESSIONAL
SERVICES
TRADE

9,149

5,335

9,673

8259,02

11,741

10,641

5,978

42410,94

29,104

90,855

25,593

55076,07

ALL OTHERS

65,599

3,58,080

87,873

16026,30

TABLE 3:DISTRIBUTUION OF COMMERCIAL BANKS

YEARS &
GROUPS
2004
Regional
Rural Banks
Nationalized
Banks
FOREIGN
BANKS
SCHEDULED
BANKS
2005
Regional
Rural Banks
Nationalized
Banks
Foreign
BANKS
SCHEDULED
BANKS
2006
Regional
Rural Banks
Nationalized
Banks
Foreign
BANKS
SCHEDULED
BANKS
2007
Regional
Rural Banks
Nationalized
Banks
Foreign
BANKS
SCHEDULED
BANKS
2008
Regional
Rural Banks
Nationalized
Banks
Foreign
BANKS
SCHEDULED
BANKS

NO.OF
REPRTIN
G BANKS

RURAL
BANKS

SEMIURBAN
BANKS

URBAN/
METRO
BANKS

TOTAL

65

68900

48900

7891

49010

52

76120

65100

6500

76098

43

65533

2134

765

56720

74

43678

57879

543

65532

65

41568

65431

324

32789

43

10983

5609

543

76541

65

25435

3156

654

65987

76

26311

2145

876

54377

62

15767

2087

765

32765

65

14533

3054

456

24586

76

12678

4709

435

21345

78

10354

5609

324

24310

82

11453

2603

677

14802

20

13014

7707

8231

37227

44

272

29
25

988

2099

2238

7401

20

11489

2670

727

14957

23

13164

8101

8823

38726

51

280

2392

2533

8265

28
23

1030

TABLE 4:DISTRIBUTION BY TYPE BROAD BANKS GROUP WISE & CATEGORY

WISE (DISTRIBUTION OF DEPOSITS)
GROUP
REGIONAL
RURAL
BANKS

NATIONALIZE
D BANKS

FOREIGN
BANKS

SCHEDULED
BANKS

TYPE OF
DEPOSIT
S
CURREN
T
ACCOUN
T
TERM
DEPOSIT

2004

2005

2006

2007

2008

3621,43

3719,10

3908,12

4070,34

4185,45

25987,10

29687,20

30987,60

34203,45

32430,87

TOTAL

60789,10

68568,20

75843,27

80324,30

81630,50

CURREN
T ASSET
TERM
DEPOSIT
TOTAL

119356,65

120943,78

125723,90

128164,68

131722,72

507665,29

548891,30

692654,48

702761,54

779994,46

9542895,80

981245,10

1034584,98

1198752,21

1258302,24

CURREN
T ASSET
TERM
DEPOSIT
TOTAL

37024,97

38954,87

39765,49

40775,50

43399,68

72981,10

76542,20

79345,10

80195,24

80992,36

126789,26

136754,10

143678,18

142675,34

145881,46

CURREN
T ASSET
TERM
DEPOSIT
TOTAL

69454,15

70156,24

72435,58

75793,67

77892,80

258907,29

306651,31

324489,23

359723,98

369607,02

462476,36

498674,38

500124,43

501682,45

535769,63

TABLE 5:MATURITY PERIOD OF TERM DEPOSITS

PERIOD
OF
MATURIT
Y
UPTO 90
DAYS
91DAYS6MONTHS
6MONTHS
-1YEAR
1 YEAR-

NATIONALISED BANKS

2004

2005

2006

2007

2008

106276

103588

112860

119907

76339,52

189757

199834

203213

211541

120482,97

190736

234897

354654

395231

268362,19

2YEARS
2YEARS3YEARS
3YEARS5YEARS
5 YEARS&
ABOVE

PERIOD OF
MATURITY
UPTO 90
DAYS
91DAYS6MONTHS
6MONTHS
-1YEAR
1 YEAR2YEARS
2YEARS3YEARS
3YEARS5YEARS
5 YEARS&
ABOVE

198464

300572

325654

395231

59428,74

201987

213976

103432

104273

134874,32

216799

223969

204357

244270

58627,95

FOREIGN BANKS
2004

2005

2006

2007

2008

135889

138678

140876

14407

24439,36

131700

137397

139775

14610

16789,96

398767

401756

435869

53649

24408,59

438288

449357

456799

53649

59428,74

498675

502690

523

534

2392,20

20

21

23

32

58627,95

PERIOD OF
REGIONAL RURAL BANKS
MATURITY
UPTO 90 DAYS 2004
2005
2006
91DAYS354869
367969
37804
6MONTHS
6MONTHS1YEAR
1 YEAR2YEARS
2YEARS3YEARS
3YEARS5YEARS
5 YEARS&
ABOVE
PERIOD OF
MATURITY

2007
39718

2008
2426,57

678657

739767

74087

75197

2613,79

167842

173969

176007

180548

6152,35

155868

167356

170753

180548

4431,05

98434

10656

108647

118196

8815,92

95377

97657

100328

103835

6227,09

SCHEDULE COMMERCAIL BANKS

UPTO 90
DAYS
91DAYS6MONTHS

2004

2005

2006

2007

2008

132876

147979

168248

167042

34565,56

6MONTHS1YEAR
1 YEAR2YEARS
2YEARS3YEARS
3YEARS5YEARS
5 YEARS&
ABOVE

143699

159124

206329

283035

89791,96

224291

249091

330376

522672

130272,80

108652

113742

118283

114853

17371,44

1786076

192613

201227

245393

27325,20

78533

89709

103963

115794

15886,63

TABLE 6: BANK GROUP WISE COMPOSITION OF NON-RESIDENT DEPOSITS

BANKS

NRI DEPOSITS

NATIONALIZED

66702

OTHER BANKS

9021

FOREIGN BANKS

SCHEDULED BANKS

8442

TABLE 7: PATTERN OF INVESTMENT BY GROUP WISE

BANK GROUP
& YEARS
2004
NATIONALISE
D BANKS
OTHER
BANKS
FOREIGN
BANKS
SCHEDULED

INDIAN GOVT.
SECURITIES

OTHER
TRUSTIES
SECURITIES

SHARES &
DEBENTURES OF
JOINT STOCK
INVESTMENTS

OTHER
SECURI
TIES

TOTAL

198436

2876

4547

178676

5175647

137547

287

2549

185645

386889

51970

68

5176

8468

985345

645809

183246

103531

18865

851,554

BANKS
2005
NATIONALISE
D BANKS
OTHER
BANKS
FOREIGN
BANKS
SCHEDULED
BANKS
2006
NATIONALISE
D BANKS
OTHER
BANKS
FOREIGN
BANKS
SCHEDULED
BANKS
2007
NATIONALISE
D BANKS
OTHER
BANKS
FOREIGN
BANKS
SCHEDULED
BANKS
2008
NATIONALISE
D BANKS
OTHER
BANKS
FOREIGN
BANKS
SCHEDULED
BANKS

200432

2956

4974

187544

536789

14068

329

2698

19867

399654

52688

75

5267

8956

102467

653496

183246

103531

18865

851,554

203578

3096

5087

190756

584269

14286

332

2764

20865

400754

55844

81

5498

9368

113668

661518

176157

91093

14994

854657

208370

3260

5162

19534

593723

159549

341

2953

21845

414751

56220

85

5604

9526

126339

750722

12764

80555

62315

1981235

435060

7014

39477

2788

1203782

193885

281

23870

43578

518402

82927

33

2560

13296

161133

920241

10587

85440

102481

2477037

TABLE 8: EARNINGS OF SCHEDULED COMM. BANKS

YEARS

INTEREST & DISCOUNT

SBI
NATIONALIZE
D

FOREIGN
BANKS

SCHEDULED BANKS

2004

33753

67434

100674

125667

2005

34545

68907

10154

136678

2006

35978

72446

10676

146686

2007

36148

74396

10945

156249

2008

51354

37173

15712

221151

TABLE 9: INCOME OF SCHEDULED COMMERCIAL BANKS

YEARS

Income on investment
SBI

NATIONALIZED

FOREIGN
BANKS

SCHEDULED BANKS

2004

14065

29676

4967

51960

2005

14267

30465

5077

53256

2006

14579

31675

5239

62445

2007

14858

32259

5334

65294

2008

16916

37173

7017

79050

TABLE 10: EXPENSES OF SCHEDULED COMM. BANKS

YEARS

INTEREST PAID
SBI

NATIONALIZED

FOREIGN
BANKS

SCHEDULED BANKS

2004

20677

46780

4097

94545

2005

21678

54798

4134

102589

2006

22544

59767

4233

106765

2007

28260

60536

4747

119862

2008

41588

91130

7279

179661

TABLE
YEARS

11: OPERATING EXPENSES OF SCHEDULED COMMERCIAL BANKS

Operating expenses
SBI

NATIONALIZED

FOREIGN BANKS

SCHEDULED BANKS

2004

12456

23567

7244

54789

2005

13678

24789

7435

62466

2006

14789

25783

7655

63566

2007

15986

27269

7746

66315

2008

16992

29605

10356

77213

TABLE 12: PROFIT BY BANKING

YEARS

PUBLIC BANKS

PVT.BANKS

FOREIGN
BANKS

SCHEDULED
BANKS

2004

2.67

2.27

3.68

2.66

2005

2.18

1.80

2.98

2.17

2006

1.88

1.71

3.34

1.95

2007

1.75

1.84

3.51

1.91

2008

1.67

2.05

3.84

1.93

Suggestions The government could aid private sector participation in PPPs through expeditious awarding of
contracts, facilitating land acquisition and ensuring better coordination between the centre and states. In
particular, large size PPP projects may be put out for bidding after obtaining mandatory clearances and approvals
say, through a Shell Company/Special Purpose Vehicle (SPV) as was recently done in the case of the Ultra
Mega Power Projects;
Information on the development of PPPs, prior to their being bid out, would be appreciated by the
private sector, perhaps as part of a national database;
The tax regime applicable to dividends paid out by SPVs needs to be rationalized; currently, in cases
where a holding company is implementing multiple projects through SPVs, dividends are being taxed twice, first at
the level of project-specific SPVs and then at the holding company level;
The entry of financial investors will introduce a longer-term perspective than construction-oriented
concessionaires, and this can be encouraged by allowing concessions to be more tradeable;
The government should take measures to deepen debt markets and encourage insurance funds to
invest in infrastructure projects.

FindingsThe present study examines the link between the revenue portfolio and risk- adjusted
performance of banks in Indian context. The comprehensive results are presented both at aggregate level
and at the bank level using the data of the year 2004 through 2008. Traditionally, it is believed that
earnings from non-interest generating revenues are more stable than loan based earnings and the
increase focus on these activities overall revenue and profitability volatility is reduced via diversification
effects. Our results don't support the traditional thinking. On an average it is found that non-interest
income is more volatile than interest income. The greater reliance on non-interest income lowers riskadjusted performance of a typical bank. Further, the comparison of domestic and foreign banks reveals
that domestic banks have relatively lower revenue and profitability volatility.
Financially repressive monetary regulations affect the portfolio management of the scheduled
commercial banks adversely;
The scheduled commercial banks in India act as a channel for transmission of monetary policy, which
impinge on aggregate macroeconomic activity and
Efficient monetary policy is a prime mover in stabilizing the economy and the banking system.
Significant policy implications emerge from the study.
The group of New Private Sector banks, (refer to annexure) dominated the league tables of growth, as
against the average of other bank groups, with an average y-o-y growth in Assets at 38.7%, for Deposits at
38.8%, Advances at 39.9% and Operating Profit at 46.7%.
The group of Old Private Sector banks (refer to annexure) showed relatively lower growth in business.
The annual growth rate for this group for FY07 stood at 7.1% in Assets, 6% in Deposits and 12% in Advances.
However, this group fared better in Net profit, which grew by 30%. All bank groups reported a capital adequacy
ratio of more than 12%.

 The ratio of standard assets was highest in the case of Foreign Banks and New Private Sector banks at
98.1% each, followed by 97.3% in Public Sector banks and 96.9% in Old Private Sector banks. The ratio of Net
NPAs to Total Assets was 0.6% in public sector and Old Private Sector banks, 0.5% in New Private Sector banks
and 0.3% in Foreign banks.
Public sector banks accounted for 74% of the total deposits, 73% of total advances and 64% of the
aggregate net profits, amongst SCBs. The share of the New Private Sector banks in these three areas was in the
range of 15-17%. Credit Deposit Ratio of these bank groups was between 67-84%.
There has been a sizeable increase in the banking infrastructure. Banks in India together have 56,640
branches/offices, 893,356 employees and 27,088 ATMs. Public sector banks accounted for a large part of the
infrastructure, with 87.7% of all offices, 82% of the staff and 60.3% of all ATMs.

ConclusionThe main theme of this is to present a systematic analysis of the impact of Banking Sector Reforms in the
areas of efficiency and profitability of commercial banks, both in public and private sector over a period of 11
years since the initiation of reforms measures in 1992-93. It starts with a historical review of the development of
Indian Commercial Banking in the pre-reform period and the circumstances and conditions necessitated initiation
of reforms. It also reviews the main recommendations of the 'Committee on the Financial System' (1991) and the
'Committee on the Banking Sector Reforms' (1998), both presided over by Shri M. Narasimham and their
implications for the banking sector. The focus of the analysis is on the evaluation of response of banks in public
and private sector individually and as a group to reform measures in the areas of efficiency and profitability during
the study period. It also makes a study of comparative performance of public and private sector banks as a group
in each area of indicators selected relating to the areas of efficiency and profitability. The implementation of
Prudential Norms relating to Asset Classification and Capital Adequacy by banks is assessed. In addition to
quantitative analysis, the study examines the customers' perceptions regarding Service Quality of Public and
Private Sector Banks. The performance of banks groups are analyzed in two ways: (i) Time-Series, and (ii)
Period-wise using principal component analysis.This topic thus provides a comprehensive review of banking
reforms and shifts that have taken place in the perceptions, policies and practices of commercial banks. It
concludes with major findings of the study and the suggestions that emanate to improve operational and financial
performance of commercial banks.

ARTICLES RELATED TO COMMERCIAL BANKS IN INDIAProfits of commercial banks increase 40%, says study
New Delhi, Aug 9: Commercial banks have witnessed 40% growth in net profits during the first quarter of
the current fiscal. This is primarily due to a surge in commercial credit and about 300 basis points increase in
interest rates, an Assocham Eco Pulse study stated. Interestingly, this is despite the State Bank of India's (SBI)
bottomline plunging by 35%. According to the industry body, the drop was more than made up by other peers
whose profitability chart showed an increase between 16% and 163%.The banks whose performance was
measured in the study included Vijaya Bank, which registered the highest net profit growth of 163%, Centurion
Bank of Punjab, recording a growth of 160%, and ING Vysysa with a growth of 62%.
In addition, Yes Bank recorded 50% growth, Andhra Bank 37%, HDFC 30%, UTI Bank 30%, J&K Bank
29%, Bank of India 21%, and ICICI Bank and Corporation Bank both registering 17% growth.
www.financialexpress.com/news/profits-of-commercial-banks-increase-40-says-study/173712/

State Bank of India: Competitive Strategies of a Market Leader

State Bank of India (SBI) is the largest nationalized commercial bank in India in terms of assets, number
of branches, deposits, profits and workforce. With the liberalization of the Indian banking industry in the mid1990s, SBI faced stiff competition from the private sector and foreign banks which resulted in significant loss of its
market share. The case describes the efforts of SBI to regain its lost market share by undergoing a major
restructuring exercise which involved redesigning its branch network, providing alternate banking channels,
emphasis on lean structure and technology up gradation. The case also discusses how SBI is building its image
as a customer friendly bank by launching innovative products & services and promoting its brand.
Finally, it discusses the challenges faced by SBI in 2004 and its plans in the future. The case includes a
note on the recent trends in the Indian banking industry. http://www.icmrindia.org/casestudies/catalogue/Business
%20Strategy2/BSTR132.htm

The Indian Economy: Dealing with Inflation

In early 2007, in India, the inflation rate, as measured by the wholesale price index (WPI) 5, hovered
around 6-6.8%, well above the level of 5-5.5% that would have been acceptable to the Reserve Bank of India
(RBI), the country's central bank.6 On February 15, 2007, the inflation rate reached a two-year high of 6.73%. In
the past7, the main cause of high inflation in India used to be rises in global oil prices. However, in early 2007, the
chief component of the inflation was the increase in the prices of food articles - caused by increased demand as
well as supply constraints. According to analysts, the increased demand was due to high economic growth and
increased money supply, while stagnant agricultural productivity was behind the supply constraints.
Apart from the rise in prices of food articles, fuel and cement prices too recorded high increases. The
Government of India (GoI), together with the RBI, took several measures to contain inflation. For example, the
RBI increased the Cash Reserve Ratio (CRR)8 and repo rates9 in an effort to check money supply; the GoI
reduced import duties on several food products and cut the price of diesel and petrol.
http://www.icmrindia.org/casestudies/catalogue/Economics/The%20Indian%20Economy-Dealing%20with
%20Inflation-Case%20Study.html