BANKING INDUSTRYNITISHAHARSHULANNIE Chitkara Business SchoolMONIKAJASMEET
EVOLUTION• The history of banking is closely related to the history of money but banking transactions probably predate the invention of money.• Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates.• Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves.
Cont..Banking in India originated in the last decades of the 18th century.• The first banks were The General Bank of India, which started in 1786• Bank of Hindustan, which started in 1790; both are now defunct• The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras.• The three banks merged in 1921 to form the Imperial Bank of India, which, upon Indias independence, became the State Bank of India in 1955.
• The First Bank The Romans, great builders and administrators in their own right, took banking out of the temples and formalized it within distinct buildings. During this time moneylenders still profited, as loan sharks do today, but most legitimate commerce, and almost all governmental spending, involved the use of an institutional bank. Julius Caesar, in one of the edicts changing Roman law after his takeover, gives the first example of allowing bankers to confiscate land in lieu of loan payments. This was a monumental shift of power in the relationship of creditor and debtor, as landed noblemen were untouchable through most of history, passing debts off to descendants until either the creditors or debtors lineage died out.
• Emergence of merchant banks• The original banks were "merchant banks" which were first invented in the Middle Ages by Italian grain merchants. As the merchants and bankers grew in stature based on the strength of the Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution were attracted to the trade. They brought with them ancient practices from the Middle and Far East silk routes.• Originally intended for the finance of long trading journeys, these methods were applied to finance the production and trading of grain
Leading Indian Banks by Assets and Market Capitalization Market Majority Asset Size Stock Bank Capitalization Shareholding (in $ Billions) Listing (in $ Billions) Mumbai,State Bank of India Government 314 36.6 London Mumbai,ICICI Bank Private 81 25.6 New YorkPunjab National Government 66 7.6 MumbaiBankBank of Baroda Government 62 7.3 MumbaiBank of India Government 61 5.1 MumbaiCanara Bank Government 59 5.5 MumbaiIDBI Bank Government 52 2.9 MumbaiHDFC Bank Private 49 22.2 MumbaiUnion Bank of Government 43 3.7 MumbaiIndia Mumbai,Axis Bank Private 40 11.6 London
NATURE• Nature of the Industry• Banks safeguard money and provide loans, credit, and payment services such as checking accounts, debit cards, and cashiers checks. Banks also may offer investment and insurance products. As a variety of models for cooperation and integration among finance industries have emerged, some of the traditional distinctions between banks, insurance companies, and securities firms have diminished. In spite of these changes, banks continue to maintain and perform their primary role—accepting deposits and lending money.
FEDERAL BANKS• Federal Reserve banks are Federal Government agencies that perform many financial services. Their chief responsibilities are to regulate the banking industry and to create and implement the Nations monetary policy by controlling the money supply—the total quantity of dollars in the country, including cash and bank deposits. The Federal Reserve uses monetary policy to promote economic growth while limiting inflation. During periods of slower economic activity, the Federal Reserve may increase the money supply by purchasing government securities and other assets. The Federal Reserve also promotes economic growth by lowering the interest rate it charges banks for loans.• Increasing the money supply and lowering the interest rate charged to banks that borrow money gives banks more money to lend and, hopefully, grows the economy.• The Federal Reserve may attempt to fight inflation by selling its government securities or raising the interest rate it charges banks, thus reducing the amount of money banks can lend. Federal Reserve banks also perform a variety of services for other banks, including processing checks that are drawn and paid out by different banks.
GROWTH• Recent developments. Declining home prices were one cause of the recent financial crisis. As home values declined, many borrowers stopped paying on their home loans (mortgages.) With prices of houses declining and increasing rates of default, banks suffered large losses.• Some banks suffered larger losses than other banks because they made riskier mortgage loans or owned mortgages concentrated in areas of the country with the largest housing price declines.• Many banks with large losses were bought by other, stronger banks, or were taken over by the FDIC.
TRENDS• 1. The financial crisis has caused banks to re-assess their business fundamentals like profitability and client relationship management to improve client retention and cross selling capabilities• 2. Banks are renewing their focus on the fundamental assets of customer, staff and capital rather than product innovation for long-term growth to become well managed• 3. Banks are increasing risk transparency to help reduce operational risk and comply with corporate governance regulations and standards• 4. Banks are focusing on staff efficiency to make them more aligned with the bank’s risk and profit strategy by enhancing their IT solutions• 5. Banks are moving from a product-centric approach to a client-centric approach with a 360-degree understanding of their clients to better manage and maintain client relationships
TRENDS• Banks are deploying client profitability analytics to enhance performance by analyzing profitability at multiple levels Banks are seeking data reporting technology and proactive approaches to better manage clients and client portfolios• Banks are trying to better leverage the best of existing infrastructures while adding new platforms for operational and cost efficiencies• Banks are accelerating the use of algorithmic approaches to complex back-office tasks for increased automation and efficiency• Banks are looking to do more with less by balancing cost reduction with process improvements using business process management and business activity monitoring