Banking sector

History of Banking in India

Without a sound and effective banking industry in India it cannot have a healthy economy. The banking industry of India shouldn’t solely be problem free however it ought to be ready to meet new challenges display by the technology and the other external and internal factors.

For the past 3 decades India’s banking industry has many outstanding achievements to its credit. The foremost hanging is its intensive reach. It’s not confined to solely metropolitans or cosmopolitans in India. In fact, Indian banking industry has reached even to the remote corners of the country. This is often one in all the most reasons of India’s growth method. Shortly a gone, Associate in Nursing account holder had to attend for hours at the bank counters for obtaining a draft or for retreating his own cash. Today, he includes a selection, gone square measure days once the foremost economical bank transferred cash from one branch to different in 2 days. Currently it’s straightforward as instant electronic messaging or dials a dish. Cash became the order of the day.

In Ancient India, The Vedas (2000-1400 BCE) are earliest Indian texts to mention the concept of usury. The DHARMASHASTRAS also supported the use of loan deeds. Kautilya has also mentioned the usage of loan deeds. Loans deeds were also called RNALEKHAYA. In Medieval India, the use of loan deeds continued into the Mughal Era and were called DASTAWEZ. The evolution of HUNDIS, a type of credit instrument, also occurred during this period

Now we look modern India the first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:

1- Early phase from 1786 to 1969 of Indian Banks

2- Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

3-New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991.

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. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.

Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed 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 nationalized in 1960 on 19th July, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalised. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.

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 liberalization 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. Rule & Regulation

Acts, Rules and Regulations in Banking in India

The banking system in India is regulated by the Reserve Bank of India (RBI) through the provisions of the Banking Regulation Act, 1949.

: The Act provides a framework using which commercial banking in India is supervised and regulated. The Act supplements the Companies Act, 1956. Primary Agricultural Credit Society and cooperative land mortgage banks are excluded from the Act.

The Act gives the Reserve Bank of India (RBI) to power to license banks, have regulation over shareholding and voting rights of shareholders; supervise the appointment of the boards and management; regulate the operations of banks; lay down instructions for audits; control moratorium, mergers and liquidation; issue directives in the interests of public good and on banking policy, and impose penalties.

In 1965, the Act was amended to include cooperative banks under its purview by adding the Section 56. Cooperative banks, which operate only in one state, are formed and run by the state government. But, RBI controls the licensing and regulates the business operations

 Some important aspects of the regulations which govern banking in this country, as well as RBI circulars that relate to banking in India, will be dealt with in this article

1-CASH RESERVE RATIO (CRR) AND STATUTORY LIQUIDITY RATIO (SLR)

Banks in India are required to keep a minimum of 4% of their net demand and time liabilities (NDTL) in the form of cash with the RBI. These currently earn no interest. Over and above the CRR, a minimum of 22% and maximum of 40% of NDTL, which is known as the SLR, needs to be maintained in the form of gold, cash or certain approved securities

2-PROVISIONING

Non-performing assets (NPA) are classified under 3 categories: Substandard, Doubtful and Loss. An asset becomes non-performing if there have been no interest or principal payments for more than 90 days in the case of a term loan. Substandard assets are those assets with NPA status for less than 12 months, at the end of which they are categorized as doubtful assets. A loss asset is one for which the bank or auditor expects no repayment or recovery and is generally written off the books.

3-PRIORITY SECTOR LENDING

The priority sector broadly consists of micro and small enterprises, and initiatives related to agriculture, education, housing and lending to low-earning or less privileged groups (classified as “weaker sections”)

4-NEW BANK LICENSE NORMS

The new guidelines state that the groups applying for a license should have a successful track record of at least 10 years and the bank should be operated through a non-operative financial holding company (NOFHC) wholly owned by the promoters. The new regulations also stipulate that 25% of the branches should be opened in previously unbanked rural areas.

5-WILLFUL DEFAULTERS

A willful default takes place when a loan isn’t repaid even though resources are available, or if the money lent is used for purposes other than the designated purpose, or if a property secured for a loan is sold off without the bank’s knowledge or approval. In case a company within a group defaults and the other group companies that have given guarantees fail to honour their guarantees, the entire group can be termed as a willful defaulter

EXPOSURE LIMITS

Lending to a single borrower is limited to 15% of the bank’s capital funds (tier 1 and tier 2 capital), which may be extended to 20% in the case of infrastructure projects. For group borrowers, lending is limited to 30% of the bank’s capital funds, with an option to extend it to 40% for infrastructure projects. The lending limits can be extended by a further 5% with the approval of the bank’s board of directors. Lending includes both fund-based and non-fund-based exposure.

BANKING INSTITUTION

Public Sector Banks

There are currently 27 public sector banks in India out of which nineteen are nationalised banks and six are SBI and its associate banks, and rest two are IDBI Bank and Bharatiya Mahila Bank. There are total 93 commercial banks in India:

  1. State Bank and its associate
  2. State Bank of India
  3. State Bank of Bikaner & Jaipur
  4. State Bank of Hyderabad
  5. State Bank of Patiala
  6. State Bank of Mysore
  7. State Bank of Travancore
  8. Nationalised banks
  9. Allahabad Bank
  10. Andhra Bank
  11. Bank of Baroda
  12. Bank of India
  13. Bank of Maharashtra
  14. Canara Bank
  15. Central Bank of India
  16. Corporation Bank
  17. Dena Bank
  18. Indian Bank
  19. Indian Overseas Bank
  20. Oriental Bank of Commerce
  21. Punjab & Sind Bank
  22. Punjab National Bank
  23. Syndicate Bank
  24. UCO Bank
  25. Union Bank of India
  26. United Bank of India
  27. Vijaya Bank

Private Sector Banks

  1. Axis Bank
  2. Bandhan Bank
  3. Catholic Syrian Bank
  4. City Union Bank
  5. Development Credit Bank
  6. Dhanlaxmi Bank
  7. Federal Bank
  8. HDFC Bank
  9. ICICI Bank
  10. IDFC Bank
  11. IndusInd Bank
  12. ING Vysya Bank (merged with Kotak Mahindra Bank in April 2015)
  13. Jammu and Kashmir Bank
  14. Karnataka Bank
  15. Karur Vysya Bank
  16. Kotak Mahindra Bank
  17. Lakshmi Vilas Bank
  18. Nainital Bank
  19. RBL Bank
  20. South Indian Bank
  21. Tamilnadu Mercantile Bank
  22. Yes Bank