BANKING SECTOR

• Group 1&2
 INTRODUCTION
 According to the Reserve Bank of India (RBI), the
banking sector in India is sound, adequately capitalised
and well-regulated.
 Indian financial and economic conditions are much

better than in many other countries of the world.

 Credit, market and liquidity risk studies show that

Indian banks are generally resilient and have withstood

the global downturn well.
 HISTORY PHASE-1
 The General Bank of India was set up in the
year 1786.
 Next came Bank of Hindustan and Bengal

Bank.
 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.
 PHASE-2
 Nationalisation of Imperial Bank of India with extensive banking facilities on a
large scale specially in rural and semi-urban areas.

 Itformed State Bank of India to act as the principal agent of RBI and to handle
banking transactions of the Union and State Governments all over the country.

 Seven banks forming subsidiary of State Bank of India was nationalised in 1960
on 19th July, 1969, major process of nationalisation was carried out. 14 major
commercial banks in the country was nationalised.

 The second phase of nationalisation of Indian banks took place in the year
1980. Seven more banks were nationalised with deposits over 200 crores. Till
this year, approximately 80% of the banking segment in India were under
Government ownership.
NATIONALISATION OF BANKING SECTOR

 Thenationalisation of banks in India took place in 1969 by Mrs. Indira Gandhi

the then prime minister. It nationalised 14 banks then. These banks were
mostly owned by businessmen and even managed by them.

 Central Bank of India Bank of Maharashtra Dena Bank

 Punjab National Bank Syndicate Bank Canara Bank
 Indian Bank Indian Overseas Bank Bank of Baroda
 Union Bank Allahabad Bank United Bank of India
 UCO Bank
 PHASE-3
 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 set up by his name which worked for
the liberalisation of banking practices.

 The country is flooded with foreign banks and their ATM stations. Efforts
are being put to give a satisfactory service to customers. Phone banking
and Net banking is introduced. The entire system became more
convenient and swift. Time is given more importance than money.
 BANKING SYSTEM IN INDIA

 In India the banks are being segregated in different groups. Each group
has their own benefits and limitations in operating in India. Each has their
own dedicated target market.

 Few work in rural sector while others in both rural as well as urban. Many
even are only catering in cities.

 Some are of Indian origin and some are foreign players

 Present Scenario
 Economic Survey 2008-09 says:
The Indian economy has shock absorbers that will facilitate early revival of
growth. First, the banks are financially sound and well capitalized.
Secondly, the foreign exchange reserves position remains comfortable and
the external debt position has been within the comfort zone.
 Banking stocks have witnessed a meteoric rise since the low of March 9, 2009
with the BSE Bankex rising 171 per cent till date
 As far as the present scenario is concerned the banking industry is in a
transition phase. The Public Sector Banks (PSBs), which are the foundation of
the Indian Banking system account for more than 78 per cent of total banking
industry assets. Unfortunately they are burdened with excessive Non
Performing assets (NPAs), massive manpower and lack of modern technology.

On the other hand the Private Sector Banks in India are witnessing immense
progress. They are leaders in Internet banking, mobile banking, phone
banking, ATMs. On the other hand the Public Sector Banks are still facing the
problem of unhappy employees. There has been a decrease of 20 percent in
the employee strength of the private sector in the wake of the Voluntary
Retirement Schemes (VRS). As far as foreign banks are concerned they are
likely to succeed in India.

Indusland Bank was the first private bank to be set up in India

 MARKET CAPITALISATION
 Ranked 1 after Nov6, 2008 pushing oil & gas to 2nd and
IT to 3rd
 The 43 listed banks collectively added Rs 356,723 crore

in m-cap compared to Rs 262,334 crore by the oil and

gas sector and Rs 292,070 crore by the information
technologies sector.
MARKET SHARE
On the basis of Market Capitalization

40%
35%
30% SBI
25% ICICI
HDFC
20%
BOB
15% UTI
10% PNB
5%
0%
 MAIN COMPETITORS

• Post offices.
• Mutual fund
• Share market
• Insurance.
• Money lenders
• Family and friends
 Major Players
• Global • Indian
– JP Morgan Chase – SBI
– Bank of America – ICICI
– HSBC – PNB
– Citigroup – HDFC
– Deutsche Bank – Bank of Baroda
– BNP Paribas – Corporation Bank
– IDBI
– AXIS
 Major Reform Initiatives
 Interest rate deregulation
 Lowering of reserve requirements
 Government equity reduced
 Greater operational freedom
 Private & Foreign Bank allowed
 New areas opened up
 New instruments have been introduced
 New institutions have been set up
 Limit for investment in overseas increased
 Technology Infrastructure strengthened
 Global Standards Adopted
 Reforms in Capital Market
Structure of Banking in
India RBI
Commercial Co-operative Credit
Banks Institutions
Scheduled Non-scheduled
Commercial Banks Commercial Banks-Local
Area Banks(4)

Private Sector
Public Sector Banks
Banks

SBI & Its Nationalized Regional Rural Indian Private Foreign

Associates(8) Banks(20) Banks(133) Banks(27) Banks(29)

Urban Co-op Rural Co-op Credit

Banks(1,853) Institutions(1,09,924)

Scheduled Non-scheduled Short-

Long-Term(747)
UCB(55) UCB(1,798) Term(1,09,177)

District Central Primary Agricultural

State Co-op Credit
Banks(31) Co-op Banks(367)
Societies(1,08,779)
Banking Regulations ACT. 1934
 RBI was established on April 1st ,1935 under
RBI Act 1934.
 Imperial Bank of India was taken over by RBI

for Functions.
 Financial Performs of country
 Making the policy for the economy
 Acting as Regulator for bank
 Controls the liquidity in economy
Functions of RBI
 Issuance of Currency
 Banker to Government
 Banker to Banks
 Controller of Banks
 Controller of Credit
 Statutory Reserves
 Collection of Information
 Maintenance of external value
Provisions of RBI Act 1934
 Schedule Bank
 Type of Business
 Emergency Loan to Bank
 Business that not be Transact
 Banker to government
 Right to issue bank notes
 Denomination of notes
 Cash Reserve Ratio
Bank Regulation ACT 1949
 Passed as the Banking Companies Act 1949
 Came into force w.e.f 16.3.1949
 Changed into Bank Regulation Act 1949

w.e.f 1.03.1966
 It was made applicable to J&K in 1956
 It not applicable to Primary agriculture

societies, co-operative land mortgage bank

and non-agricultural primary credit societies
Bank Regulation ACT 1949
 Definition As Per Act:-

 “ Banking means accepting for the purpose

of Lending or Investment of Deposit of money
from public Repayable on Demand or
Otherwise and withdrawable by cheque,drafts
order or otherwise”
Provision of Bank Regulations Act
 Banking
 Demand Liabilities
 Secured Loan or Advances
 Banking Business
 Restrictions on Business
 Use of word ‘Banking’
 Restrictions on Business of Trading of goods
 Commission/Brokerage
 Cash Reserves
Know Your Customer (KYC)
 KYC issued by RBI Act and Bank Regulation
Act in August 2002
 It is used for identification of depositor
 It help to prevent bank form misused
 It help to identifies criminal elements for

money laundering activities

 It is applicable to all accounts including

foreign currency accounts/transaction

Negotiable Instrument Act 1881
 It was passed in year 1881 and came to
enforcement March 01,1882.
 This Act applicable to entire India
 It includes following:-
 Promissory note
 Bill of exchange
 Cheque payable
 Bill of lading
 Railway receipts
Negotiable Instrument Act 1881
 Definition of Cheque as per Act:-

 “A “cheque” is a bill of exchange drawn on a

specified banker and not expressed to be
payable otherwise than on demand. ”
 It includes electronic image of a truncated

cheque and a cheque in electronic form.

 The cheque is one form of Bill of Exchange.
FEMA Act 1999
 Foreign Exchange Management Act 1999 has
replaced Foreign Exchange Regulation Act
(FERA) 1973
 It came into effect from June 1,2000
 An authorized person may be dealer or a full

fledged money changer

 It may be offshore unit of a bank
 RBI provides licenses to authorized person
Classification of Authorized Persons
 Commercial,State,Urban Coop Banks
 Authorized Dealers (Financials and other

institutes)
 Full Fledged Money Changer
RBI Power under FEMA
 Issue of foreign security
 Borrowing lending foreign exchange
 Deposit between resident in India and out side
 Export ,import or holding of currency/notes
 Giving guarantee
 Current Account Transactions
 Capital Account Transactions
 CHALLENGING AHEAD
 Improving profitability
 Reinforcing technology
 Risk management
 Sharpening Skills
 Greater Customer Orientation
 Corporate Governance
 International Standards
 Financial
Products-
•Banking
•Insurance
•Loans
•Remittances
•Investments
•Derivatives
 Non-Financial products-
• E-Governance
• Education
• Health
• Agri-Extension
• Communication
• Entertainment
 Banking and Finance -
Overview
Financial
Services

Commercial Investment Advisory

Insurance
Bank Services Services

• Private banking • Asset Management • Insurance • Stock brokers

• Investment Banks • Hedge Fund Brokerage (private client
Managers • Insurance services) and
• Bank cards discount brokers
• Custody services Underwriting
• Credit card machine
• Reinsurance
services and
networks
 CAPITAL
ADEQUAC
Asset Managem
ent Earnin Liquidit
y
Camel Quali
Y Analysis
Quality gs Parame
PARAMET Paramete
ERS ty rs
Quality ters
Liquid
Net
Capital
●
Market value ●
Operating ●
●
● profit by
to Equity
Adequacy Ratio
Capital Average Assets to
NPA
Debt Equity
Total
●

Total working funds

Ratio
●

Net Profit to
Advances to
Assets
●

Advances to
to Net
●

Average Assets
Total Asset Total
Interest Income
Liquid
●

Ratio Deposits
●
to Total
Govt. Securities
Advan Business per Assets to
●

Income
●

to Total Employee(cr.) Non Interest

Total
●

ces(%)
Investment Profit per
●
Income to
Ratio
Employee(cr.) Total Income Deposits
CONCLUSION