Banking Industry In India
Presented by: Group 6_Sec B
Banking as a Whole
Types and Functions
Functions of Bank
• Accepting deposits from Public
• Lending money to public
• Remittances/Collection Business
• Keeping valuables in safe custody
• Government business
• Acting as trustee
• Treasury services
• Capital Market activity
The reminisce of banking in India can be traced back to the 4th century
BC in the 'Kautilya Arthashastra‘.
However the real roots of commercial banking in India can be traced
back to the early eighteenth century.
Bank of Hindustan was set up in 1870,it was the earliest Indian Bank.
Later, three presidency banks under Presidency Bank's act 1876 i.e.
Bank of Calcutta, Bank of Bombay and Bank of Madras were set up,
which laid foundation for modern banking in India
In 1921, all presidency banks were amalgamated to form the Imperial
Bank of India.
The first bank which was exclusively set up by Indians was Allahabad Bank, followed by Punjab
National Bank Ltd. set up in 1895 with headquarters at Lahore
The Reserve Bank of India was established on April 1, 1935 to control & regulate these banks
in accordance with the provisions of the Reserve Bank of India Act, 1934.
In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State
Bank of India. In 1959, SBI took over control of eight private banks floated in the erstwhile
princely states, making them as its 100% subsidiaries.
The plan for nationalization was passed in1968. Thus forming the third turning point in the
history of Indian Banking in India.
The Narasimha 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. private sector banks.
Who Regulates the Financial Sector in India?
Ministry of Finance
• Controls and assists the financial sector
• Every year the finance minister announces the budget
• Also acts as the policy maker and regulates the financial sector
Reserve Bank of India
• Apex Financial Institution of India, established in April 1935
• Advises the central board on various matters
• Acts as the investment banker to the Government
Securities and Exchange Board of India
• Regulator of securities market in India
• Protects the interest of investors in securities
• Also regulates the development of securities market
Insurance Regulatory and Development Authority
• An agency of the Government, based in Hyderabad
• It works on the guidelines of IRDA Act, 1999
• Safeguards the interest of the common man
Indian Financial System –Share by Asset Size
Indian Banking System – Share by Asset Size
Market Share of
Financial Assets (%)
Market Share of
Public Sector Banks
Private Sector Banks
Provident and Pension
Regional Rural Bank
Local Area Banks
Banks dominate the Indian Financial System
The Banking System is dominated by Commercial Banks
Share in the Banking Space
Type of Banks
%age Share of Number of
Market Share of
Public sector banks have more presence relative to their share of assets.
Analysis of the previous Data
• Within the banking system, public sector banks (PSB) continue to dominate with 73% of
market share of assets and 83% of branches.
• Rural and urban co-operatives banks have a relatively small share in the banking system.
However, given their geographic and demographic outreach, they play a key role in providing
access to financial services to low and middle income households in both rural and urban
• Similarly, RRBs play a key role in promoting financial inclusion. The Government is pursuing
branch expansion and capital infusion plans for the RRBs.
Types of Banks
Central Bank (RBI)
Non Banking Finance
Term Financial Institutions
State Finance Corporations
• Loans to individuals
(Auto loan, housing
loan, Education Loan
and other personal
loan) or small
• Loans to Mid and
finance, Term loans,
• Investment in
Mutual funds, Bonds,
Trading and Forex
• Merchant Banking,
• Auto Loan
• Gold Loan
• House Loan
• Credit cards
• Education Loan
• Loan against Securities
• Retail Banking Business
• Saving Accounts
• Current Accounts
• Fixed / Recurring
• Corporate Salary A/C
• Cash Management
• Custodian Services
• Clearing Bank Services
• Tax Collections
• Banker to Public Issues
• Capital Market
• Debt Securities
• Foreign Exchange
• Term Loan
• Bill Collection
• Letter of Credit
• Working Capital
• Forex & Derivatives
• Wholesale Deposits
• Cash Management
• Statutory Reserve
• Financial Decisions
• Asset Liability Management
• NRI services
• POS Terminals
• Private Banking
• Demat Services
• Mutual Fund Sales
• Foreign Exchange Services
• Large Corporate
• Emerging Corporate
• Financial Institutions
• Agriculture Commodities
Expansion of banks since Nationalization
No of Commercial Banks (Incl.
RRBs and LABs)
No of Bank Offices
Population per office
Per capita Deposit of Scheduled
Per capita Credit of SCBs
(of which Rural and
Semi-urban bank office)
Analysis of Previous Data
• Since nationalization of 14 major commercial banks in 1969, followed by nationalization of
another 6 banks in 1980, Indian banking system has expanded rapidly.
• The number of bank offices increased from about 8,000 in 1969 to over 100,000 by 2013.
• The average population per branch office has sharply declined from 64,000 in 1969 to 13,000
• Both per capita deposit and per capita credit have expanded about 600 times. Even
accounting for inflation, this is significant expansion.
Operation and Performance of
Commercial Banks (KPIs)
BSE Bankex Performance
Value of Index
Bank Credit Growth Compared with Economic and
Legal frame work
Reserve Bank of India
Banking Regulations and Laws
• Banking in India is governed by
• Banking Regulation Act,1949 and
• RBI Act,1934
• Banking in India is controlled/monitored by RBI and Govt.
• The controls for different banks are different based on whether
the bank is
a) statutory corporation
b) a banking company
c) a cooperative society
The Reserve Bank of India Act, 1934
• The Reserve Bank of India Act, 1934 provides the statutory basis of the
functioning of the Bank, which commenced operations on April 1, 1935.
• The Bank was constituted to
• Regulate the issue of banknotes
• Maintain reserves with a view to securing monetary stability
• To operate the credit and currency system of the country to its advantage
• Amendments have been made from time to time to include the latest
provision was inserted by the Information Technology Act,2000 to enable RBI to
make regulations for regulating payment systems of banks and financial institutions)
Reserve Bank of India Act,1934(RBI Act)-2
RBI Act deals with:
• Incorporation, capital management and business of banks
• Central banking functions
• Financial supervision of banks and financial institutions
• Management of forex/reserves
• Control functions : bank rate, audit accounts,penalities for violation
Banking Regulation Act,1949 (BR Act)
• The Central Banking Enquiry Committee recommended the need of a separate legislation to
control banks due to mushroom growth of banks with inadequate capital, dishonest management,
speculative business etc..
• A bill was Passed in parliament in February 1949 and The Banking Regulation Act 1949 came
to exist from 16th March 1949.
• BR Act covers banking companies and cooperative banks, with certain modifications.
• BR Act is not applicable to
a) primary agricultural credit societies
b) land development banks
• BR Act allows RBI (Sec 22) to issue license for banks
Important Provisions of Act
Definition of Banking.
Provision Regarding Loans and Advances.
Form of Business.
Inspection of Banks.
Provision of Capital
Powers of the Reserve Bank of India.
Returns to Be Submitted.
Maintenance of Liquid Assets.
Acquisition of Business.
Licensing of Banks.
Opening of New Banks.
Winding up of Banking Companies.
Laws related to Banking Sector
Different stages of developments
• From 1786 till today, the journey of Indian Banking System can be segregated into three distinct
phases. They are as mentioned below:
• Early phase from 1786 to 1969 of Indian Banks.
• Nationalization of Indian Banks and up to 1991
prior to Indian banking sector Reforms.
• New phase of Indian Banking System with the
arrival of Indian Financial & Banking Sector
Reforms after 1991.
• During the first phase the growth was very slow and banks also experienced
periodic failures between 1913 and 1948.
• There were approximately 1100 banks, mostly small.
• To streamline the functioning and activities of commercial banks, the
Government of India came up with
• The Banking Companies Act, 1949 Banking Regulation Act 1949 as
per amending Act of 1965 (Act No. 23 of 1965).
• Reserve Bank of India was vested with extensive powers for the supervision of banking in
India as the Central Banking Authority.
• There were major reforms in the Indian Banking Sector after independence.
• In 1955, the Govt. nationalized Imperial Bank of India with extensive banking
facilities on a large scale specially in rural and semi-urban areas
• 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 : Nationalization of State Bank of India.
1959 : Nationalization of SBI subsidiaries.
1961 : Insurance cover extended to deposits.
1969 : Nationalization of 14 major banks.
1971 : Creation of credit guarantee corporation.
1975 : Creation of regional rural banks.
1980 : Nationalization of seven banks with deposits over 200 crore.
• 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
setup(Narasimham Committee on Banking Sector Reforms) which worked for
the liberalization of banking practices
Classification of Banks
One classification divides banks into the following types :
• Saving Banks
• Commercial Banks
• Industrial Banks
• Land mortgage Banks
• Indigenous Banks
• Central, federal, national bank
• Co-operative Banks
• Exchange Banks
• Cooperative Banks
For the ease of understanding, we’ve decided to focus on India’s top most banks which have
been classified into Private Banks, Public Banks and Foreign Banks.
• The private-sector banks in India represent part of the Banking sector that is made up of
both private and public sector banks.
The "private-sector banks" are banks where greater parts of stake or equity are held by the private
shareholders and not by government.
The private sector banks are split into two groups by financial regulators in India, old and new.
The old private sector banks existed prior to the nationalization in 1969 and kept their
independence because they were either too small or specialist to be included in nationalization.
The new private sector banks are those that have gained their banking license since the
liberalization in the 1990s.
• Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held
by a government. The shares of these banks are listed on stock exchanges. There are a total
of 29 PSBs in India
• Foreign Banks are banks who entered
• YES BANK was founded by Ashok Kapur and Rana Kapoor, with the duo holding a collective
financial stake of 27.16%.
• YES BANK is the only Greenfield license awarded by the RBI in the last 17 years, associated
with the finest pedigree investors.
• Since its inception in 2004, YES BANK has fructified into a ‘“Full Service Commercial Bank”
that has steadily built Corporate and Institutional Banking, Financial Markets, Investment
Banking, Corporate Finance, Branch Banking, Business and Transaction Banking, and Wealth
Management business lines across the country.
• Today, YES BANK has a widespread branch network of over 500 branches across 350 cities,
with 1050+ ATMs and 2 National Operating Centers in Mumbai and Gurgaon.
• The second largest bank in India in terms of assets, ICICI was founded in the year 1955 as
Industrial Credit and Investment Corporation of India, a wholly owned subsidiary.
• The bank has subsidiaries in the United Kingdom, Russia, and Canada; branches in Bahrain,
United States, Singapore, Hong Kong, Sri Lanka, Qatar and Dubai International Finance
Centre; and representative offices in United Arab Emirates, China, South Africa, Bangladesh,
Thailand, Malaysia and Indonesia. The company's UK subsidiary has established branches in
Belgium and Germany.
• The current CEO of ICICI is Chanda Kochhar. She’s been credited to have transformed the
bank after she took over as CEO.
• HDFC Bank began operations in 1995 with a simple mission: to be a"World-class Indian
• HDFC Bank is the fifth largest bank in India by assets. It is also the largest bank by market
capitalization as of 1 November 2012. As on Jan 2 2014, the market cap value of HDFC was
around USD 26.88B, as compared to Credit Suisse Group with USD 47.63B.
The bank provides the following services
• Personal banking
• NRI banking
• SME banking
• Wholesale banking
• Axis Bank Limited is the third largest private sector bank in India. It offers financial services
to customer segments covering Large and Mid-Corporates, MSME, Agriculture and Retail
Businesses. Axis Bank has its headquarters in Mumbai, Maharashtra.
• Shikha Sharma is the bank’s current CEO.
• The Most Trusted Brands Survey 2013 rated Axis Bank as the Most Trusted Private Sector
Bank in India.
State Bank of India
• SBI is a government-owned corporation with its headquarters in Mumbai, Maharashtra. As of
December 2013, it had assets of US$388 billion and 16,000 branches, including 190 foreign
offices, making it the largest banking and financial services company in India by assets.
• The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of
Calcutta was established on 2 June 1806. The Bank of Bengal was one of three Presidency
banks, the other two being the Bank of Bombay and the Bank of Madras . All three Presidency
banks were incorporated as joint stock companies.
• The Presidency banks amalgamated on 27 January 1921, and the re-organised banking entity
took as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock
company but without Government participation.
• Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India,
acquired a controlling interest in the Imperial Bank of India. On 1 July 1955, the Imperial
Bank of India became the State Bank of India.
Punjab National Bank
• Punjab National Bank is based in New Delhi, India and was founded by Lala Lajpat Rai.
• The Bank was founded on April 12, 1895 in Lahore (Pakistan)
Bank of Baroda
• Known as India’s International Bank, Bank of Baroda started its
journey in the year 1908.
• Bank of Baroda prides its self in keeping a mission of becoming
a top ranking National Bank of International Standards
committed to augmenting stakeholders value through concern,
care and competence.
• Bank of Baroda started a new brand identity, one that is more
than just cosmetic change. It adopted a new logo that stands
for the Baroda Sun – simple yet powerful.
• It is one of the oldest and major commercial banks founded by TMA Pai in the city of Udupi.
• It was known as Canara Industrial and Banking Syndicate Limited.
• The bank, along with 13 major commercial banks of India, was nationalised on 19 July 1969,
by the Government of India.
• By 1937, it had secured its membership as a clearing house at Mumbai. The primary objective
of the business was to extend the financial assistance to local weavers. Initially, the bank
collected as low as two annas from the door steps of the depositors daily through its agents.
This type of system wherein the agents of the bank come doorsteps to collect deposit is still
prevailing in India and is referred to as the Pigmy Deposit Scheme
• The industrial development Bank of India was established on 1st July 1964, under an Act of
the Parliament as a wholly owned subsidiary of the RBI. On 16th February 1976, the
ownership of IDBI was transferred to the government of India and it was made the principle
financial institution for coordinating the activities of institutions engaged in financing,
promoting and developing industry in the country.
• Its Headquartered in India and its current CMD is M.S Raghavan.
• Standard Chartered PLC is a British multinational banking and financial services company.
It is headquartered in London.
• It operates a network of over 1,700 branches and outlets (including subsidiaries, associates
and joint ventures) across more than 70 countries and employs around 87,000 people.
• SC is India's largest international bank with 99 branches in 42 cities.
• It started its operation in the year 1858.
• Standard Chartered PLC, SC’s UK based parent, became the first foreign company to list in
India through the issuance of Indian Depository Receipts in June 2010
• Headed by Pramit Jhaveri, Citi bank is a subsidiary of Citigroup, a multinational financial
services corporation headquartered in New York City, United States. It is headquartered in
• It started its operations in 1902 in Kolkata and today is the largest direct investor in financial
services in India.
• As of 2012, Citibank India has been recognized as the 'Best Consumer Internet Bank in India'
by Global Finance four years in a row, and has received the ‘Best Corporate/Institutional
Internet Bank’ Award for two years in a row.
JP MORGAN CHASE
• The firm's roots in India date back to 1922, when J.P. Morgan & Co. in New York and Morgan
Grenfell, its affiliated partnership in London, took an ownership interest in the Calcutta
merchant banking firm of Andrew Yule & Co. Ltd. J.P. Morgan had ambitions to start a banking
business in India as early as 1902, and Morgan Grenfell had begun extending credit to Yule &
Co. in 1911.
• Chase National Bank opened its first representative office in Mumbai in 1945. Mumbai is one
of J.P. Morgan's largest locations outside of the U.S. and serves as a regional hub.
• JP Morgan considers India as one of its most important hubs. . The lines of business include
the Investment Bank, the Global Corporate Bank, Private Equity, Asset Management and
Treasury and Securities Services.
• HSBC's origins in India date back to 1853, when the Mercantile Bank of India was established in
Mumbai. The Bank has since, steadily grown in reach and service offerings, keeping pace with the
evolving banking and financial needs of its customers.
• In India, the Bank offers a comprehensive suite of world-class products and services to its corporate
and commercial banking clients as also to a fast growing personal banking customer base.
• The following are some of the entities of HSBC in India
• HSBC Securities and Capital Markets (India) Private Limited
• HSBC Software Development (India) Private Limited
• The Hongkong and Shanghai Banking Corporation Limited
• HSBC Asset Management (India) Private Limited
• HSBC Global Resourcing / HSBC Electronic Data Processing (India) Private Limited
Deutsche Bank in India is a fully integrated financial services provider to Indian corporate,
institutional and individual clients. DB’s services include on-shore investment banking, institutional
equities broking, asset and private wealth management, retail banking and business processes
Deutsche Bank established its first branch in India in 1980. It has operating branches in 15 cities.
DB has been recognized with the following awards
Best Sub-Custodian India
Best Bank in India
Best Equity House in India
Best Cash Management Specialist
Best Private Bank in India
Financial Express Award for Growth
Technological developments in
Indian Banking Industry
• Information technology is one of the most important facilitators for the transformation of the
Indian banking industry in terms of its transactions processing as well as for various other
internal systems and processes.
• The technological evolution of the Indian banking industry has been largely directed by the
various committees set up by the RBI and the government of India to review the implementation
of technological change. No major breakthrough in technology implementation was achieved by
the industry till the early 80s.
• The early 1980s were instrumental in the introduction of mechanization and computerization in
Indian banks. This was the period when banks as well as the RBI went very slow on
mechanization, carefully avoiding the use of ‘computers’ to avoid resistance from employee
unions. However, this was the critical period acting as the icebreaker, which led to the slow and
steady move towards large scale technology adoption.
• The process of computerization marked the beginning of all technological initiatives in the
banking industry. Computerization of bank branches had started with installation of simple
computers to automate the functioning of branches, especially at high traffic branches. Thereafter,
Total Branch Automation was in use, which did not involve bank level branch networking, and did
not mean much to the customer.
• Networking of branches are now undertaken to ensure better customer service. Core Banking
Solutions (CBS) is the networking of the branches of a bank, so as to enable the customers to
operate their accounts from any bank branch, regardless of which branch he opened the account
with. The networking of branches under CBS enables centralized data management and aids in
the implementation of internet and mobile banking. Besides, CBS helps in bringing the complete
operations of banks under a single technological platform.
• CBS implementation in the Indian banking industry is still underway. The vast geographical
spread of the branches in the country is the primary reason for the inability of banks to attain
complete CBS implementation.
• Satellite banking is an upcoming technological innovation in the Indian banking industry,
which is expected to help in solving the problem of weak terrestrial communication links in
many parts of the country.
• The use of satellites for establishing connectivity between branches will help banks to reach
rural and hilly areas in a better way, and offer better facilities, particularly in relation to
electronic funds transfers. However, this involves very high costs to the banks
Automatic Teller Machines
• ATMs were introduced to the Indian banking industry in the early 1990s initiated by foreign
banks. Most foreign banks and some private sector players suffered from a serious handicap
at that time- lack of a strong branch network.
• ATM technology was used as a means to partially overcome this handicap by reaching out to
the customers at a lower initial and transaction costs and offering hassle free services. Since
then, innovations in ATM technology have come a long way and customer receptiveness has
also increased manifold.
• Internet banking in India began taking roots only from the early 2000s. Internet banking
services are offered in three levels. The first level is of a bank’s informational website,
wherein only queries are handled; the second level includes Simple Transactional Websites,
which enables customers to give instructions, online applications and balance enquiries.
Under Simple Transactional Websites, no fund based transactions are allowed to be
conducted. Internet banking in India has reached level three, offering Fully Transactional
Websites, which allow for fund transfers and various value added services.
• Internet banking poses high operational, security and legal risks. This has restrained the
development of internet banking in India. The guidelines governing internet banking
operations in India covers a number of technological, security related and legal issues to be
addressed in relation to internet banking
Phone Banking and Mobile Banking
• Phone and mobile banking are a fairly recent phenomenon for the Indian banking industry.
Phone banking channels function through an Interactive Voice Response System (IVRS) or
tele banking executives of the banks.
• The transactions are limited to balance enquiries, transaction enquiries, stop payment
instructions on cheques and funds transfers of small amounts (per transaction limit of Rs
2500, overall cap of Rs 5000 per day per customer).
• With the rapidly growing mobile penetration in the country, mobile banking has the potential
to become a mass banking channel, with very minimum investment required by the banks.
However, more security issues need to be addressed before banking can be conducted more
freely via this channel.
Electronic Funds Transfer Systems
• The EFT System was operationalised in 1995 covering 15 centers where the Reserve Bank managed the
• Special EFT (SEFT) scheme was introduced with effect from April 1, 2003, in order to increase the coverage
of the scheme and to provide for quicker funds transfers.
• A new variant of the EFT called the National EFT (NEFT) was a nation wide retail electronic funds transfer
mechanism between the networked branches of banks. NEFT provided for integration with the Structured
Financial Messaging Solution (SFMS) of the Indian Financial Network (INFINET). As the NEFT system
stabilized over time, the number of settlements in NEFT was increased from the initial two to six. NEFT now
provides six settlement cycles a day and enables funds transfer to the beneficiaries account on T+0 basis,
bringing it closer to real time settlement.
• The commencement of NEFT led to discontinuation of SEFT, and EFT is now available only for government
payments. Using the NEFT infrastructure, a one-way remittance facility from India to Nepal has also been
implemented by the RBI since 15th May 2008.
• In order to increase the coverage of NEFT to a wider section of bank customers in semi-urban and rural
areas, an enhancement of the NEFT called the NEFT-X [National EFT (Extended)] is also proposed for phase
wise implementation. This would facilitate non-networked branches of banks to transfer funds electronically
by accessing NEFT-enabled branches for transfer of funds. NEFT (Extended) would work on a T+1 basis and
would ensure wide rural coverage of the electronic funds transfer system.
Innovation in the Banking Industry
• These ATMs use the finger print of the card holder or eye retina scan as a PIN for verification purpose
• Banks are more focused to put these ATMs in rural areas because biometrics makes it possible for the low
literacy population to use banks
• M-pesa is a mobile-phone based money transfer and micro financing service, which allows users with a
national ID to use their money easily with a mobile
• Vodafone is expected to launch M-pesa in India, in association with ICICI & HDFC bank
• Plastic money, cash cards, credit/debit cards and polymer notes will boom as the e-commerce space boom in
India and people get used to the idea of carrying less cash
• Many cards have a micro chip embedded in them which makes it a transit card also
• This technology will have a deep impact on the lives of professionals who believe in the life-on-the-go approach
• A user can have access to his/her bank accounts at a nominal cost and at a fast speed from anywhere in the
PEST Analysis on Banking Industry
Factors Affecting the Industry
• Monetary Policy
• Budget & Budget
• Change in interest
• More savings
• More Capital
• Increase in GDP
• Banking Channels
• Increase in population
• Changes in lifestyle
• Easy way of lending
• Exploring banking
facilities in rural areas
• Internet Banking
• IT Services & Mobile
• Credit Cards
• Improvement in
Growth Drivers of the Banking Industry
High growth of
• Growth of infrastructure, industry, services and agriculture is expected to grow corporate credit of the
• Nearly 35% of the Indian population has a median age of 25.5 years which signifies that India will
gain its demographic dividend
• Given that 40% of Indians lack access even to the simplest kind of formal financial services, the RBI on
July 2011, mandated banks to allocate at least 25% of the total number of branches proposed to be
opened in unbanked rural sector
• Banks considering FI as a banking opportunity rather than a Regulatory obligation are likely to see
long term profitable growth and a cushion against market volatility
Private Banking &
• India not only enjoys a favorable demographic dividend but also has a strong population of High Net
worth Individuals (HNWI)
• Given the improved performance of the equity markets in 2013 & increasing affluence beyond urban
and metro areas the number of HNWIs is expected to rise further, HNWIS will continue to demand
better or more sophisticated service
• New channels in banking services such as internet banking, mobile banking have increased
productivity and help in acquiring new customers
• As per a survey conducted by PwC, today banks spend 15% of the total expenditure on technology
Opportunities in the Banking Sector
• Mortgage to cross Rs 40 lakh crores by 2020
• Wealth Management to be a big business
• Rapid growth of branches & ATMs
• Mobile banking to see huge growth
• Infrastructure financing to reach over Rs 20 trillion on commercial banks book by 2020
• New Models to serve the small & Medium Enterprises (SME)
Re-orientation recommendations for Global Standards
• On tap licensing as compared to a block licensing approach to enhance competition and
bring in new ideas and variety into the system and Allowing banks for niche segments to take
care of specialized banking needs through differentiated licensing.
• Creating three or four global sized banks to have a global presence through consolidation
among large public and private sector banks (on a voluntary basis), keeping in view the need
for competition within the domestic banking sector and avoiding complex structures.
• Encouraging investment banks/investment banking activities.
• Encouraging inclusion to reach out to the excluded and under-banked regions. Small banks at
the bottom of the tiered structure may be the preferred vehicle for these objectives to
facilitate financial inclusion.
• Enhancing the regulatory and supervisory regimes with increased intensity of supervision for
the systemically important banks.
• Converting urban co-operative banks which meet the necessary criteria into commercial
banks or local area banks/small banks.
• Enhancing the presence of foreign banks to stimulate competition and their subsidiarisation
from the perspective of financial stability.
Challenges Faced by Indian Banking Industry
• Management of Risks
• Increasing NPAs
• Introduction of Basel III Norms in April 2013
• Licensing Requirements
• Market Discipline and Transparency
• Human Resource Management
• Financial Inclusion
• Employees’ Retention
• Customer Retention
• Intensifying Competition
• Social and Ethical Concerns
The Banking Outlook In 2014
With the Banking laws (Amendment) Bill cleared on 20th December 2012 in RajyaSabha, it is
likely that the RBI may issue 3-4 licenses within the next 12 months
NBFCs like PFC, L&T finance, Shriram group as well as some corporate group (Reliance, Tata etc.)
have applied for the banking licenses
New Entrants in the space may result in price based competition on deposits, loans and human
resources and some M&A among the small private banks
In order to scale up operations rapidly, smaller private banks with larger distribution networks
might be the possible targets of the new banks for e.g. Federal Bank, Karur Bank, Dhanalaxmi