What You Must Learn…..2 Meaning Definition of Bank History of Commercial Banks in India Evolution Stages - Indian Banking Sector Reform Phases – Indian Banking Sector Structure of Indian Banking Sector Key Trends – Indian Banking Sector Growth Drivers – Indian banking Sector Key Opportunities
Meaning of Bank3 A Commercial Bank is a profit-seeking businessfirm, dealing in money and credit. It is a financial institution dealing in money in thesense that it accepts deposits of money from thepublic to keep them in its custody for safety. So also, it deals in credit, i.e., it creates credit bymaking advances out of the funds received asdeposits to needy people
Contd….4 It thus, functions as a mobiliser of saving in theeconomy. A bank is, therefore like a reservoir into whichflow the savings, the idle surplus money ofhouseholds and from which loans are given oninterest to businessmen and others who need themfor investment or productive uses.
Definition of Bank5 Walter Leaf “A bank is a person or corporationwhich holds itself out to receive from the public,deposits payable on demand by cheque.” Horace White defined a bank, “As a manufacture ofcredit and a machine for facilitating exchange.” According to Prof. Kinley, “A bank is anestablishment which makes to individuals suchadvances of money as may be required and safelymade, and to which individuals entrust money whennot required by them for use.”
Contd….6 The Banking Companies Act of India defines Bank as“A Bank is a financial institution which accepts moneyfrom the public for the purpose of lending or investmentrepayable on demand or otherwise withdrawal bycheques, drafts or order or otherwise” Hence bank is a financial institution which –- Deals in debts and credits- Accepts deposits and lends money and alsocreates money- Bridges the gap between borrowers and savers
History of Commercial Banks inIndia7 At the time of independence, there were 645 bankswith more than 4,800 branches in India But, with the nationalisation, in July 1969, 14 majorbanks were nationalised in first round In second round, in 1980, another 6 banks werenationalised
Contd….8 The commercial banking industry in India startedin 1786 with the establishment of the Bank ofBengal in Calcutta. The Indian Government at thattime established three Presidency banks, viz., theBank of Bengal (established in 1809), the Bank ofBombay (established in 1840) and the Bank ofMadras (established in 1843).
Contd….9 In 1921, the three Presidency banks wereamalgamated to form the Imperial Bank of India,which took up the role of a commercial bank, abankers bank and a banker to the Government.The Imperial Bank of India was established withmainly European shareholders. It was only withthe establishment of Reserve Bank of India (RBI)as the central bank of the country in 1935, that thequasi-central banking role of the Imperial Bank ofIndia came to an end.
Contd….10 In 1860, the concept of limited liability wasintroduced in Indian banking, resulting in theestablishment of joint-stock banks. In 1865, theAllahabad Bank was established with purely Indianshareholders. Punjab National Bank came intobeing in 1895. Between 1906 and 1913, otherbanks like Bank of India, Central Bank of India,Bank of Baroda, Canara Bank, Indian Bank, andBank of Mysore were set up.
Contd….11 After independence, the Government of India startedtaking steps to encourage the spread of banking inIndia. In order to serve the economy in general andthe rural sector in particular, the All India RuralCredit Survey Committee recommended the creationof a state-partnered and state-sponsored bank takingover the Imperial Bank of India and integrating withit, the former state-owned and state-associate banks.
Contd….12 Accordingly, State Bank of India (SBI) wasconstituted in 1955. Subsequently in 1959, the StateBank of India (subsidiary bank) Act was passed,enabling the SBI to take over eight former state-associate banks as its subsidiaries. To better align the banking system to the needs ofplanning and economic policy, it was considerednecessary to have social control over banks.
Contd….13 Important question arise –- Reasons & Objectives for Nationalisation- Does progressed achieved???Causes for Nationalisation Private ownership of commercial banks andconcentration of economic power Urban-bias Negligence of agriculture sector Violation of norms & Speculative activities Negligence for priority sector lending
Contd….14Objectives of Nationalisation Removal of control by a few Provision of adequate credit to agriculture andsmall scale industry Giving a professional bent to management Encouragement to New Class of Entrepreneurs Provision of adequate training and services tobank staff
Contd….15Progress Made through Nationalisation Expansion of branch- Branch offices had increased from 8262 in1969 to 68,500 in 2005- Population per bank reduced from 55,000 in1969 to 16,000 in 2005 Branch opening in Rural and Unbanked area- From 22% branch office in 1969 in rural areaincreased to 47% in 2005
Contd….16 Deposit Mobilisation- Increased from 4,665 crore in 1969 to17,57,846 crore in 2005, a 67% increase Bank Lending- In 1969, bank lend 3,399 crore whichincreased to 11,69,090 crore in 2005 Promotion of new entrepreneurs in banking area
Reform Phases – Indian BankingSector18 The Government of India appointed a committeeunder the Chairmanship of Mr. M. Narasimham(the former Governor of RBI) in July 1991 toexamine Indias financial system and to recommendimprovements in the working of the financialsystem. This is known as the Committee on FinancialSector Reforms.
Contd….19 This was followed by another committee under himin 1998. The second committee was asked to lookin to the progress of reforms till 1998 and to lay acourse for further reforms. This committee is known as Committee on BankingSector Reforms, 1998. The Reports of these two committees form thebasis for reforms in the Indian banking sector
Contd….20Refer Material – Reforms in Indian Banking Sectorprovided to you
Structure of Indian BankingSector21
Key Trends – Indian BankingSector22
Growth Drivers – Indian BankingSector24
Key Opportunities25 Rising rural income pushing up demand forbanking
Contd….26 Mobile banking to provide a cost effective solution