Banking industry

download Banking industry

of 12

Embed Size (px)

description

The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be broadly classified into two major categories, non-scheduled banks and scheduled banks. Scheduled banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial banks can be further grouped into nationalized banks, the State Bank of India and its group banks, regional rural banks and private sector banks (the old/ new domestic and foreign). These banks have over 84,000 branches spread across the country

Transcript of Banking industry

  • Banking Industry: A case of India

    2011

    S. Kushwaha

    1/3/2011

  • Banking Industry: A case of India

    2

    CONTENTS

    S. No Topic Page No

    1 Introduction 3

    2 Financial Structure 3

    3 Structure of the Indian banking system 3

    4 Reserve Bank of India and Banking System 3

    5 Magnitude of Bank 4

    6 Employment in Banks 5

    7 Saving with Banks 5

    8 Market share of Bank 6

    9 Rural and Social Banking 6

    10 Policy Regarding FDI in Banking Sector 7

    11 Performance of the Banking Industry 8

    12 Regulations governing the sector 8

    13 Technology in Banking 9

    14 Sub Prime crises and Indian Bank 9

    15 Opportunity in Indian Banking Sector 10

    16 Conclusion 10

    17 Reference 11

    18 Annexure 12

    List of Table

    S. No Table Page No

    1 Population group wise number of branch of schedule Bank 4 2 Bank Group-Wise Distribution of Employees of Schedule Banks 5 3 Saving Deposits with Commercial Bank 5 4 Share in Assets of Scheduled Commercial Banks 6 5 The Outstanding Credit to the MSE Sector 6 6 Self-Help Group- Bank Linkage Programme 7 7 Non-Performing Assets as percentage of Commercial Advances 8

  • Banking Industry: A case of India

    3

    1. Introduction The Indian Banking industry, which is governed by the Banking Regulation Act of India, 1949 can be

    broadly classified into two major categories, non-scheduled banks and scheduled banks. Scheduled

    banks comprise commercial banks and the co-operative banks. In terms of ownership, commercial

    banks can be further grouped into nationalized banks, the State Bank of India and its group banks,

    regional rural banks and private sector banks (the old/ new domestic and foreign). These banks have

    over 84,000 branches spread across the country.

    2. Financial Structure The Indian financial system comprises the following institutions:

    1. Commercial banks

    a. Public sector

    b. Private sector

    c. Foreign banks

    d. Cooperative institutions

    (i) Urban cooperative banks

    (ii) State cooperative banks

    (iii) Central cooperative banks

    2. Financial institutions

    a. All-India financial institutions (AIFIs)

    b. State financial corporations (SFCs)

    c. State industrial development corporations

    (SIDCs)

    3. Nonbanking financial companies (NBFCs)

    4. Capital market intermediaries

    3. Structure of the Indian banking system

    4. Reserve Bank of India and Banking System RBI is the banker to bankswhether commercial, cooperative, or rural. The relationship is

    established once the name of a bank is included in the Second Schedule to the Reserve Bank of India

    Act, 1934. Such bank, called a scheduled bank, is entitled to facilities of refinance from RBI, subject

    to fulfilment of the following conditions laid down in Section 42 (6) of the Act, as follows:

    RBI

    Banks

    Scheduled Commercial Banks (SCBs)

    Public sector banks

    Private sector banks Foreign banks

    Regional rural banks (RRB)

    Urban cooperative

    banks

    Rural co-operative credit

    institutions

    Co-operative credit

    institutions

    Financial Institutions

    All-India financial institutions

    State-level institutions

    Other institutions

  • Banking Industry: A case of India

    4

    It must have paid-up capital and reserves of an aggregate value of not less than an amount specified from time to time; and

    It must satisfy RBI that its affairs are not being conducted in a manner detrimental to the interests of its depositors.

    The classification of commercial banks into scheduled and non-scheduled categories that was

    introduced at the time of establishment of RBI in 1935 has been extended during the last two or three

    decades to include state cooperative banks, primary urban cooperative banks, and RRBs. RBI is

    authorized to exclude the name of any bank from the Second Schedule if the bank, having been given

    suitable opportunity to increase the value of paid-up capital and improve deficiencies, goes into

    liquidation or ceases to carry on banking activities.

    5. Magnitude of Bank In the year 2010 total bank branches are 84,604 in compare to 10131 in the year 1970. Rural branches

    were 3063 in 1970 which is increased by 32494 in the year 2010. Rural area branches increased by 10

    fold and metropolitan branches increase by more than 14 fold. Indian Banks spreading their branches

    speedily after liberalization of Indian economy. (See table 1)

    Table 1: Population group wise number of branch of schedule Bank

    Source: www.rbi.org.in

  • Banking Industry: A case of India

    5

    6. Employment in Banks In 2008-09 All schedule bank have total employ of 8, 69,412 in which 3, 51,841 employ are in officer

    rank and 3, 42,930 employ are at clear level and remain are subordinates. State bank of India and its

    associates is leading bank in providing employment in India banking. (See Table 2)

    Table 2: Bank Group-Wise Distribution of Employees of Schedule Banks

    Source: www.rbi.org.in

    7. Saving with Banks Indian bank had 98.1 percent of total saving with bank while foreign bank have only 1.9 percent of

    saving in the year 1990-91. In the year 2009-10 saving with foreign bank reached only by 3.2 percent

    of total saving with bank. (See Table 3)

    Table 3: Saving Deposits with Commercial Bank

    Source: www.rbi.org.in

  • Banking Industry: A case of India

    6

    8. Market share of Bank In the year 1990-91 share of public bank was 90.05 percent which is come down by 70.5 percent in

    the year 2006-07. At the same time market share of private bank increased to 29.5 percent in the year

    2006-07 from 9.95 in 1990-91.

    Table 4: Share in Assets of Scheduled Commercial Banks (at the end of the Financial Year)

    9. Rural and Social Banking The banking system is expected to reorient its approach to rural lending. Going Rural could be the

    new market mantra. Rural market comprises 74% of the population, 41% of Middle class and 58% of

    disposable income. Consumer growth is taking place at a fast pace in 17113 villages with a

    population of more than 5000. Of these, 9989 villages are in 7 States, namely Andhra Pradesh,

    Bihar, Kerala, Maharashtra, Tamilnadu, Uttar Pradesh and West Bengal. Banks approach to the

    rural lending will be guided mainly by commercial considerations in future.

    Table: 5 The Outstanding Credit to the MSE Sector

  • Banking Industry: A case of India

    7

    Table: 6 Self-Help Group- Bank Linkage Programme

    Source: www.rbi.org.in

    After liberalization banks started to finance the SHG through bank linkage programme. Bank lent Rs

    2620 cr.

    10. Policy Regarding FDI in Banking Sector The RBI is the sole regulator for the industry while the Ministry of Finance (MoF) is responsible for

    forming the enabling legislative framework. Up to 74 per cent of the total aggregate foreign

    investment is allowed in private banks from all sources (FDI, FII and NRI), subject to the following

    conditions:

    There is a limit of 10 per cent for individual FII investment with the aggregate limit for all FIIs restricted to 24 per cent, which can be raised to 49 per cent with the approval of the

    board or general body.

    There is a limit of 5 per cent for individual NRI portfolio investment with the aggregate limit for all NRIs restricted to 10 per cent, which can be raised to 24 per cent with the approval of

    the board or general body.

    Banking Regulation Act, 1949, states that no person holding shares in private banks is entitled to

    exercise voting rights in excess of 10 per cent of the total voting rights of all the shareholders of the

    bank. All entities investing in private sector banks through FDI will be mandatorily required to have a

    credit rating. The FDI norms are not applicable to public sector banks where the FDI ceiling is still

    capped at 20 per cent.

  • Banking Industry: A case of India

    8

    11. Performance of the Banking Industry Public sector Net NPA reduces to 1.05 in the year 2006-07 from 9.18 in the year 1996-97. At the

    same time Net NPA of foreign banks reduces to 0.73 in the year 2006-07 to 1.82 in the year 1996-97.

    Table: 7 Non-Performing Assets as percentage of Commercial Advances (Position at the end of March)

    Scheduled Commercial Banks

    Source: www.rbi.org.in

    12. Regulations governing the sector 1. Reserve Bank of India Act, 1934, governs the RBI functions.

    2. Banking Regulation Act, 1949, governs the financial sector.

    3. Acts governing specific functions

    a. Public Debt Act, 1944/Government Securities Act (proposed) governs government debt

    market.

    b. Securities Contract (Regulation) Act,1956, regulates government securities market.

    c. Indian Coinage Act, 1906, governs currency and coins.

    d. Foreign Exchange Management Act, 1999, governs trade and foreign exchange market.

    4. Acts governing banking operations Companies Act, 1956, governs banks as companies.

    a. Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980, refers to

    nationalization of banks

    b. Bankers' Books Evidence Act

    c. Banking Secrecy Act

    d. Negotiable Instruments Act, 1881

  • Banking Industry: A case of India

    9

    13. Technology in Banking Technologies has