Evolution of Banking

Evolution of Banking
Indigenous banks : Barter System, Kautalyas Arthashastra: Indigenous banks .
Sahukars: Sahukars lend to illiterate Borrowers on exorbitant rates of interests against mortgage of Land, Properties, Jewels etc. Tampers records. Most cases poor borrowers surrendered their properties.

Evolution of Banking
Phase I (Evolution Phase)
The General Bank of India was set up in the year 1786. Bank of Calcutta in1806. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1921 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. Reserve Bank of India came in 1935. High level of deprivation in economy Banks experienced periodic failures between 1913 and 1948..

Evolution of Banking
Phase II(Foundation Phase)- 1948-1969 To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949

Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority.
Government adopted the planned system Complex Interest rates State Bank of India was formed in 1955 to act as the principal agent of RBI and to handle banking transactions

Evolution of Banking
Phase III(Expansion Phase)-(1969-1984) 14 banks in 1969 and 6 banks in 1980 were nationalized termed as First Banking Revolution Rapid branch expansion Retail lending to risk prone areas at concessional interest rates Regional Rural Banks came in to existence in 1976

Evolution of Banking
Phase IV. (Consolidation Phase)- 1985-1991 Lack of professionalism and transparency in the functioning of public sector Series of policy initiatives taken Objectives of consolidation of banks

Evolution of Banking
Phase V( Liberalisation, Privatisation and Globalisation) (Banking Sector Reforms) The Narsimham Committee report suggested wide ranging reforms for the banking sector in 1992 to introduce internationally accepted banking practices. The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks.

Evolution of Banking
Banking Sector Reforms i. Deregulation of Interest rates: Base Rate introduced. ii. Statutory Reserve : Lowered to increase liquidity. iii. Banking supervision: BFS established by RBI. iv. Regulatory &Prudential Norms: Norms for capital adequacy, income recognition, asset classification& provisioning. v. Risk Management system: Credit Risk, Market Risk, Operational Risk.

Evolution of Banking
Banking Sector Reforms(cont) vi. New Private Banks: 12 new pvt banks set up with max74% FFI holding. vii. Foreign Banks: Foreign Banks were permitted. viii. Credit Information: CRISIL was set up. ix. Disclosure & Transparency: 49 disclosures made compulsory. x. Customer grievances redressal: Banking Ombudsman Scheme introduced.

Evolution of Banking
Banking Sector Reforms(cont) xi. Payment Mechanism: BPSS introduced by RBI. xii. Basel II implementation: refinement of risk management & improvement of capital efficiency.

Evolution of Banking
Transition : Most Indian banks were lagging behind in the areas of customer funds transfer and clearing systems. Over-staffed and not able to compete with new generation private banks .New banks are well-capitalized, Use modern equipment and Attract high-caliber employees. Indian banks were given time to strengthen their balance sheets, consolidate and overall become more robust, so that they could compete.

Evolution of Banking
Entry of Foreign Banks : Two of domestic banks in India have turned like Foreign Banks. About 74 per cent of holdings of ICICI and HDFC bank are in the hands of foreigners. New Royal Bank of Scotland, Switzerland's UBS, US-based GE Capital, Credit Suisse Group, Industrial and Commercial Bank of China branches set up in India Areas of Concentration are Risk Management, customizing the products and Value creation.

Evolution of Banking
Cooperative Banks in india The Co operative banks in India started functioning almost 100 years ago(1904). The cooperative banks in India plays an important role even today in rural financing because of their local reach and ability to catch the nerve of the local clientele. Co operative Banks in India are registered under the Cooperative Societies Act and regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Evolution of Banking
Rural Banking Regional Rural Banks formed in 1976 National Bank for Agriculture and Rural Development (NABARD) formed in 1982. It is a development bank in the sector of Regional Rural Banks in India. It provides and regulates credit and gives service for the promotion and development of rural sectors mainly agriculture, small scale industries, cottage and village industries, handicrafts

Evolution of Banking
The Banking Sector Today : In-depth Countrywide coverage Large number of players Increasingly sophisticated financial markets Technology based operations Emergence of integrated players Diversifying capital deployment Leveraging synergies Robust regulatory system Aligned to international standards Efficient monetary management

Evolution of Banking
The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: 1949 : Enactment of Banking Regulation Act. 1955 : Nationalisation 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. 1975 : Creation of regional rural banks. 1980 : Nationalisation of 6 banks with deposits over 200 crore. 1991 : Banking Sector Reforms 2011 : Banking Law Amendment

Evolution of Banking
Sector Today Snapshot :

Total assets of more than Rs 100 lac crore Total deposits of more than Rs 75 lac crore Number of banks Over 250 (Sc Com Banks-168 and Sc Coop Banks-82) Scheduled Banks Public sector: 26 Private sector: new 7 Private sector: old 13 Foreign Banks: 40 Regional Rural Banks -82 Coop Banks- 82 Branch network Over 86,000 Public sector: 66,000 Private sector: 5,500 Foreign: 200 Regional Rural: 14,400

Evolution of Banking
Customer Focus over the decades Decades Focus on Customers 1950-60 Serving the customer 1960-80 Satisfying the customer 1980-90 Pleasing the customer 1990-00 Delighting the customer 2000 and beyond Retaining the customer

Evolution of Banking
Paradigm Shift in Banking in India Before 1991 After1991 Sellers Market Buyers Market Protected Market Open Market Limited choice Multiple choice Monologue Dialogue Transactional Banking Relationship Banking Quantity Based Quality Based Friendly competition Cut-throat competition Focus on Product Focus on Customer Patient & unaware Cus Demanding & aware Cus