CHANGING FACE OF

INDIAN BANKING
NAINA LAL KIDWAL
INTRODUCTION
This years A.D. Shroff Annual Lecture on Changing Face of Indian Banking
was delivered by Mrs. Naina Lal Kidwai, Deputy hief !"ecutive #fficer, $S%, &ndia.
The lecture was a fine e"pose on the repaid transition throu'h which &ndian %an(in' is
currently passin' and the way forward. She has ri'htly placed stress in her treatise on
three critical facets ) Technolo'y, usto*er and consolidation.
+ith 'rowin' co*petition between ban(s, and which is 'oin' to be *ore intense in the
co*in' year, adoption of new technolo'y has assu*ed added i*portance, especially for
public sector ban(s. The (ey to success is adoptin' state,of,the,art technolo'y and not
-ust auto*atin' anti.uated processes.
The choice before the custo*er today is far wider both in the selection of ban(s as well
as products. The future 'rowth is lar'ely in retail ban(in'. &nnovatin' products bac(ed by
superior service are vital to provide the cuttin' ed'e. Micro,finance will be the en'ine
that will drive chan'e in the rural sector with the prospect of 'eneratin' e*ploy*ent for
the countless people who are yet to reap dividends fro* resur'ent &ndia.
The need for consolidation in the ban(in' sector has beco*e para*ount particularly for
the s*aller public sector ban(s and *ost of the relatively wea( private sector ban(s.
The lecture and the boo(let have been sponsored by Shrenu- / o. Ltd., and we are
indeed 'rateful to the* for there support.
The %oard of Trustees have pleasure in pueasure in publishin' the te"t of the lecture for
study and reflection.


Sd/
01 st March 2334 !inoo R" Sh#off
5hair*an /Mana'in' Trustee6
The A.D. Shroff Me*orial Trust
THE CHANGING FACE
OF INDIAN BANKING
Naina La$ Kid%ai
Ardeshir Darabsaaw Shroff, a*on' the earliest e"ponents of free enterprise in &ndia, was
a powerful spo(es*an for priva1e industry in an increasin'ly 'overn*ent re'ulated
econo*y and it is, possibly, his steadfast adherence to a vision of free enterprise in &ndia
that, in so*e part, has contributed to the econo*ic liberali7ation that be'an in the nine,
ties. A liberali7ation that led to the entry of new private sector ban(s in &ndia and
tri''ered the rapid chan'e in the &ndian ban(in' landscape over the last ten years.
8iven the hei'htened level of activity that the financial services sector has been
witnessin' over the last few years, & thou'ht that the sub-ect of *y lecture, 9The han'in'
:ace of &ndian %an(in'9, would be the *ost appropriate.
+ithin the world of ban(in', custo*ers9 needs have chan'ed and so has the basic nature
of ban(in' services that they re.uire. The way ban(s *eet these needs and the fra*ewor(
within which they are delivered have, as a result, chan'ed. %an(s have had to adopt to a
host of new pheno*ena ran'in' fro* re'ulatory issues, ris( *ana'e*ent and new
technolo'y to 'lobalisation, consolidation and brandin'.
There is no denying the fact that the financial services industry has gone through
the most change since the process of liberalisation began a little over a decade
ago. And while indeed Regulation has played a key role in the transformation of
Indian banks, I would include three other broad factors that have been
responsible for this change. These are Technology, the Customer and
Consolidation.
I will, through the course of my lecture, touch upon these four areas and elaborate
on their role in 'The Changing Face of Indian anking'
Technology
!istory has shown us that the development of new technology can have a
significant impact on any industry and banks are no different. It is largely
technology and what follows from it that has, and will transform the face of the
banking industry.
"any of you here can well remember what banks in India were like only ten years
ago. Any banking business, however big or small, meant a trip to the bank branch.
And if your bank branch was at the other end of town, then it meant a good half#
day gone. $obody complained # we had %ust got very comfortable with that way of
life.
Today, with the enormous strides that technology in banking has made, many of us
have not visited our banks for months. "ost of your banking transactions can, in
fact, be conducted from your desk over the internet. The reason why change in the
banking sector could be very substantial in the years to come is that technology is
changing very fast. Come to think of it, how many of us would have thought, only
eight years ago, that a credit card &uery in altimore in the 'nited (tates, would be
handled by a call center e)ecutive sitting in angalore in India.
Technolo'y acts as both a threat and an opportunity to ban(s. &t enables e"istin' services
to be provided *ore efficiently, it enables new services to be offered, it lowers entry
barriers in some areas and it changes the economics of delivery. For instance, an
AT" transaction costs %ust a fraction of that of a teller transaction. A transaction
over the telephone is still cheaper and an internet transaction the cheapest.
anks have also been able to significantly lower credit risk through the effective
use of technology. In the '( and some other *uropean countries, for instance,
many banks have advanced credit analytics systems that help them assess
consumer behaviour. y tracking their spending pattern, a bank's systems are
able to tell what the customer's favourite brand of clothing is, which his favourite
restaurant is, and more importantly, if and whether there is the likelihood of his
defaulting on his credit card outstandings, his car loan or his mortgage.
Technology has the power to transform the fundamental economics of any
industry and in this respect, banking is no different from other industries which
have been transformed by technology.
Technology has the power to transform the fundamental economics of any
industry and in this respect, banking is no different from other industries which
have been transformed by technology.
Technology also has the potential to increase the availability and reduce the cost
of information. This is a potentially powerful force as it reinforces and at the same
time challenges one of the ma%or core competencies of banks # information.
(ince banks ultimately depend on 'information' to run their businesses, anything
that affects its availability, cost and management will always have a decisive
influence on their business. A combination of new technology, the increasing role
and power of third#party agencies such as the Credit Information ureau of India
+imited ,CII+- and more e)tensive disclosure laws will gradually erode some of
the traditional information advantages of banks.
"any corporate bankers still assume that the nature of their business will protect
them from the most destructive effects of the digital revolution. They say that the
client relationship is the most important thing, based on trust, and this cannot be
replaced by an electronic channel. .hile this is certainly true in the short to
medium term, the longer term future is far less certain. !istory has shown us that
whatever starts to work on a smaller scale, tends to have a later impact on larger
financial arrangements. For small to medium si/ed businesses, it is already clear
that online banking is going to alter the decisions they take.
"any corporates are looking at the movement of cash from supplier to factory to
retailer as a single chain and banks whose technology platforms enable this
integration will benefit greatly.
Today's systems enable the company to see e)actly how much is stored in
inventory and places almost automatic orders on suppliers. The bank's systems
need to align with this system so that the financing is automatically online.
In India, the challenges of technology are being felt more by public sector banks
and old private banks than foreign banks and new private banks. (everal of
these banks are currently implementing core banking software to link their
branches to a centrali/ed database. They need to avoid falling into the trap of
automating anti&uated and people centric processes. "erely applying IT to a
legacy process would mean automating the old process with little improvement in
operating efficiency # &uite similar to fitting an outboard motor to an old rowing
boat when what is really needed is a speedboat.
The C&'(o)e#
Fifteen years ago, a customer would have been content with %ust a fi)ed deposit
or a recurring deposit in addition to his savings account. Today, he wants to
spread his wealth around. !e wants to park his savings in e&uities, fi)ed de#
posits, mutual funds, pension products and insurance. The ban( has a choice ,
either offer the custo*er all these products or lose hi*. .
+hile there has been a lot of debate on which is a *ore successful *odel , niche
ban(in' or universal ban(in' , in &ndia, at least for now, it is .uite clear that it is the
latter and ban(s will necessarily have to offer every i*a'inable financial product to the
custo*er to avoid losing him to competition.
The desire, or rather, the co*pulsion to be a one,stop shop for the custo*er9s
invest*ent and borrowin' needs, has 'iven birth to what is bein' ter*ed 0the financial
con'lo*erate9 , a *odel that we are ';in' to see an increasin' nu*ber of ban(s adopt.
%an(in', until a few years a'o, was what & would call a des( -ob. You sat at your desk
everyday, accepted deposits, assessed loan applications and disbursed funds. The
custo*er ca*e to you and you dictated ter*s to hi*. &f your ter*s were not acceptable
to hi* and he went away, it never bothered you. The ne"t person was already at the door
before the disappointed custo*er even left. %an(in' was a seller9s *ar(et.
That is all now a thing of the past. The customer now decides which bank he
wants to deal with. !e shops around to get the best price and if your prices are
not competitive enough or acceptable to him, he simply goes to another bank.
ankers today need to be out there in the field, talking to the customer, finding
out and understanding his needs and, more importantly, making sure that they
are able to offer him a better deal than the competition.
%ut while the corporate custo*er is already chan'in' the ter*s on which ban(s deal with
hi*, & believe that it is 'oin' to be the retail custo*er that is 'oin' to chan'e the very
face of ban(s in &ndia in the years to co*e.
No one, not even the *ost far,si'hted of ban(ers, could have ever foreseen what ban(in'
*i'ht have loo(ed li(e at the turn of the 21 st century. <etail ban(in' had a 'ood bu77
about it, there was *oney to be *ade fro* it but no one ever i*a'ined that this business
would drive the 'rowth of the ban(in' industry on a scale that we are now be'innin' to
see.
The &ndian financial syste* is typified by low financial product penetration. The
do*estic loan to 8ross Do*estic =roduct 58D=6 ratio in &ndia is at only ;2.>? co*pared
to hina which is 1;;.0? and even Malaysia which is 13>.4?. onsu*er credit in &ndia
is still only @? of 8D= co*pared to &ndonesia which is 22? or the AS where it is as hi'h
as @3?. #nly B? of the population in &ndia is currently insured co*pared to 02? in
Malaysia. #nly one in every 20 of &ndia9s ban( account holders owns a credit card
co*pared to Thailand where one in every four Thais own a credit card. Life insurance
pre*iu*s account for -ust 2? of 8D= and the *utual funds industry *a(es up under 2?
of household savin's. &ndia la's behind *ost other e*er'in' *ar(ets in retail lendin'.
:or instance, ho*e loans as a percenta'e of 8D= is at less then 0?. o*pare this to
.Malaysia, where it is at 20? and Australia at >>? and you 'et a clear sense of the
potential that &ndia, with its bur'eonin' *iddle class, has.
The &ndian custo*er of today has beco*e *ore de*andin' as a result of which *ost
ban(s in &ndia now offer a full 'a*ut of products to their retail clients. &n addition to the
plain vanilla deposits, ban(s are strivin' to 'et a lar'er share of their custo*ers9 wallets
by underta(in' *utual funds and insurance sales.
The focus of ban(s on third,party products has coincided with the rapid 'rowth in
de*and for these products. Mutual fund sales in the country have en-oyed a @@?
co*pounded annual 'rowth rate 5A8<6 over the past four years and insurance
pre*iu*s have also re'istered a 20? A8< over the sa*e period. <evenue for ban(s in
these businesses has 'rown even faster , bancassurance pre*iu*s -u*ped to about <s
@33 crore in financial year 2330,3> fro* -ust about <s 233 crore in 2332,30 and are
li(ely to 'row further to over <s 1,233 crore in the current financial year. The absence of
a social security syste* in &ndia will ensure a hu'e shift in household savin's towards
*utual fund, pension and insurance products.
+ith risin' inco*es, 'rowin' urban affluence and favourable de*o'raphics, the rapid
'rowth of these financial products is not surprisin'. The de*o'raphics of our country
will also be a (ey driver in creatin' a lar'e retail custo*er base that ban(s -ust cannot
afford to i'nore with 4>? of the &ndian population under 24 years of a'e. As this
population enters the 9wa'e earner9 cate'ory by the year 2311, the propensity to use
*ultiple financial products will be hi'h. #ver ;3? of this a'e 'roup will be under >3
years of a'e and a pri*e custo*er se'*ent for insurance, *utual funds, credit cards etc.
Already, *any ban(s en-oy a hi'her cross,sell ratio with custo*ers in the 24,04 a'e
'roup than they do with older custo*ers.
The &ndian econo*y is e"pected to witness the sharpest drop in its dependency ratio fro*
;> in the year 2333 to 44 in 2313, the econo*ic benefit of which will be hu'e. As the
dependency ratio in the econo*y falls, &ndia9s already hi'h household savin's rate of
2B? of 8D= is li(ely to rise further. Moreover, within the dependents, the share of youn'
dependents is li(ely to fall, while the share of old dependents is e"pected to rise. This will
reflect in a shift in household invest*ent patterns towards an increasin' share of savin's
in *utual funds, life insurance and pension sche*es.
#ne of the (ey reasons for low penetration rates for *ost financial products has been low
affordability. This, however, is e"pected to chan'e with the &ndian econo*y e"pected to
continue to 'row at its current pace with so*e econo*ists even esti*atin' that &ndia will
be a trilliondollar econo*y by the year 2313. The resultant increase in household inco*e
as a result, is 'rowin' to throw up that *uch *ore opportunity for ban(s.
+ith ban(s 'ainin' pro*inence as distributors of financial products, the shift in
household savin's to assets li(e *utual funds and insurance will increase custo*er prof,
itability. =rofitability of these products is esti*ated to be nearly five ti*es that of a plain
vanilla fi"ed deposit product of a ban(. +e are, as a result, increasin'ly 'oin' to see
ban(s in &ndia *a(in' si'nificant 'ains in their fee inco*e. +hile only three years a'o,
*ost ban(s *ade the *a-ority of their fee inco*e fro* corporate ban(in', *any private
ban(s today earn as *uch as ;4? of their fee inco*e fro* retail ban(in'.
&ndian ban(s can potentially replicate the success of Australian ban(s in the 1CC3s. Non,
interest inco*e as a percenta'e of total operatin' inco*e for these ban(s rose fro*
0>.0? in 1CC1 to >4.>? in 2331 as they focused on such new business strea*s. =rofits of
Australian ban(s e*anatin' fro* insurance and funds *ana'e*ent rose fro* around 2,
>? to B,13?.
%etween 1CB3 and 2331, non,interest inco*e in the AS co**ercial ban(in' syste*
increased fro* 3.@@? to 2.0C? of a''re'ate ban(in' industry assets and increased fro*
23.01 ? to >2.23? of a''re'ate ban(in' industry operatin' inco*e.
+hile the urban custo*er is *ost certainly 'oin' to account for a substantial part of the
retail ban(in' business of ban(s in &ndia, we cannot in any way overloo( the contribution
that the rural sector is 'oin' to *a(e to the ban(in' syste*. &t would be pertinent to point
out that what public sector ban(s set out to do in the years followin' the nationali7ation
of the ban(in' industry in &ndia and failed at, ban(s in the private sector have now 'ot
into and with a fair de'ree of success.
Micro,finance, & believe, is the en'ine that will drive chan'e in the rural sector,
'eneratin' livelihoods for the countless people who have not yet be'un reapin' the
dividends of &ncredible &ndia.
The Self $elp 8roup , %an( Lin(a'e pro'ra**e, a supple*entary credit pro'ra**e for
the rural poor, reaches nearly 1@ *illion households and the cu*ulative credit disbursed
has been to the tune of <s >,333 crore as of March, 233>. $owever, the co*bined
outreach of this pro'ra**e and *icrofinance institutions is only about 4? of &ndia9s
poor.
A considerable 'ap e"ists between de*and and supply for all financial services , @3? of
the rural poor 5*ar'inalDlandless far*ers6 do not have a deposit account, B@? do not
have access to credit and less than 14? of these households have any (ind of insurance.
Ne'li'ible nu*bers have access to health insurance 53.>?6 and crop insurance 53.2?6.
&*portantly, 4;.1 ? of the poor still borrow fro* infor*al sources, includin'
*oneylenders, friends and relatives and other sources.
+hile *any ban(s have stayed away fro* lendin' to this se'*ent, citin' reasons such as
hi'h transaction costs and unfavourable policies such as caps on interest rates which
effectively li*its the viability of servin' the poor, the nu*bers see* to su''est
otherwise. Non,perfor*in' loans in this sector are way below what they are co**only
perceived to be, at about 1,2? and the avera'e interest rates char'ed by ban(s to *icro,
finance institutions is B,12?.
+hile the National %an( for A'ricultural and <ural Develop*ent 5Nabard6 has been at
the forefront in *icro,lendin' to the rural sector, *any other ban(s have -u*ped into the
fray not -ust to *eet their priority sector lendin' re.uire*ents, but because of the
enor*ous business sense that it *a(es.
#ver the ne"t few years, we are 'oin' to see *ore ban(s enter into *icro,finance which
will, hopefully, narrow the 'ap between ban(in' services provided in urban and rural
&ndia.
Con'o$ida(ion
The entry of new private sector ban(s in the *id,C3s tri''ered the hu'e chan'e in &ndian
ban(in' that we are now seein'. +hile these ban(s forced all other ban(s to place the
custo*er above all else, they also acted as a warnin' to the *ore co*placent public
sector ban(s that they would have to ta(e a reloo( at the *anner in which they did
business.
:ierce co*petition in the ban(in' industry has not only resulted in i*proved service
standards, it has also sent out a clear si'nal to the wea(er ban(s , 9if you can9t fi'ht 9e*,
-oin 9e*.9
There is a wide a'ree*ent on the need for consolidation in the &ndian ban(in' sector. &t is
also evident that pro'ress has been patchy with only a few of the deals of the past decade
bein' driven by *ar(et forces. %roadly, there are five reasons that drive *er'ers ,
econo*ies of scale, econo*ies of scope, potential for ris( diversification, personal
incentives of *ana'e*ent and public policy. Any *ar(et driven *er'er would involve a
detailed study of the structure of the prospective partner and the e"tend to which it holds
potential to reali7e one or *ore of these ob-ectives. There is a dual relationship between
the structure of a ban( and consolidation activity. Mer'er does alter the structure ) the
ad-ust*ent followin' leaves its i*pact on the structure of one or both of the entities. %ut
the pre,*er'er structure of the two entities is itself a critical input leadin' to the decision
to *er'e. 9
!cono*ies of scale are particularly relevant for the 2@ public sector ban(s in &ndia.
onsolidation *ay help restore a level playin' field between ban(s and lar'e corates, for
e', lead to *ore sensible pricin' of credit that reflects the underlyin' ris(s on the
portfolio and the necessary costs incurred by a lender. !cono*ies of scope could be best
e"e*plified by cross,sellin' in the retail *ar(et. Loans to the consu*er se'*ent now
co*prise between a .uarter to half of the loan boo( of &ndian ban(s. $owever, *uch of
the effort *ade to *ar(et products to the retail custo*er is far fro* efficient. There is
lar'e scope to cut superfluous e"penses and yet conduct profitable business on a lar'er
scale.
<is( *ana'e*ent syste*s have i*proved and *any ban(s now follow a structured
*ethod that reduces the scope of sub-ective assess*ent. %ut several ban(s have lar'er
than ideal e"posures to certain se'*ents arisin' fro* the le'acy of conductin' business
in certain se'*ents that *ay be defined by 'eo'raphy, product or de*o'raphics. A
consolidated ban( that blends these influences into a sin'le balance sheet *ay be less
vulnerable to the downside in a business cycle. :inally, *ana'e*ent is stron'ly focused
on the e"pectations of investors and consolidation is often seen as a route to steppin' up
'rowth and e"pandin' *ar(et share
onsolidation is only an enablin' step towards realisation of these syner'ies. The
tan'ible benefits of a *er'er ta(e lon'er and *ay re.uire chan'es in the9 structure of the
*er'ed entity. #ne of the *ost stri(in' features of the &ndian ban(in' sector is the
se'*entation defined by ownership and 'eo'raphy. These differences have influenced the
internal structures of ban(s as well as their business policies, e' lendin' to the plantation
sector in a re'ion with two seasonal spells of rain is very different fro* lendin' to a
*anufacturin' business located in a se*i,arid district with stron' lin(a'es to co**odity
prices. There are visible si*ilarities across ban(s within a particular se'*ent as well as
differences across se'*ents. $owever, there are lesser (nown differences that lur(
between ban(s that *ay appear to belon' to the sa*e se'*ent. onsolidation would tear
down the walls that preserve distinct sub,cultures and co*pel the evolution of a co**on
culture.
&t is clear that there is si'nificant chan'e underway in the internal structures of *any
&ndian ban(s even without any consolidation activity. The pace of this chan'e varies
across ban(s and i*ple*entation would necessarily be sta''ered over a fairly lon'
period. A *er'er durin' this sta'e would only add to the natural stress because of the
varyin' de'ree of pro'ress in i*ple*entation and the differences in the plan between the
two ban(s. These uncertainties need not hold bac( consolidation. There are other benefits
that could be reali7ed if the participatin' ban(s succeed in chan'in' their internal
structures in areas that are not restricted by the environ*ent. :or instance, for any *er'er
to be *eanin'ful, the two ban(s will have to loo( at ways of *ovin' their operations
onto a sin'le technolo'y platfor* rather than continuin' to operate fro* two platfor*s.
+hile a bi',ban' for* of consolidation is unli(ely, it is possible that a steady strea* of
activity *ay unfold if the environ*ent is supportive. !ven apparently si*ilar ban(s *ay
face challen'es when confronted with the tas( of *er'in' into a sin'le balance sheet and
evolvin' a consistent business *odel. &ndian ban(s have de*onstrated their ability to
chan'e slowly but steadily. onsolidation *ay re.uire the* to hasten the process. &n fact,
so*e of the s*aller old private ban(s *ay be forced to consolidate to *eet the *ini*u*
capital nor*s stipulated
Regulation
:or *any years, ban(s have had the intrinsic advanta'e of protective re'ulation ,
re'ulation which li*its co*petition, deposit insurance, i*plicit lender of last resort
facilities and so on. <e'ulation *ay accentuate whatever econo*ic advanta'es ban(s
*ay possess and *ay create econo*ic rents for the*. <e'ulation fre.uently has the
effect of li*itin' co*petitive pressures and sustainin' restrictive practices and cartels.
$owever, the 'eneral trend of dere'ulation *eans that these protections have 'radually
eroded. To the e"tent that re'ulation previously sustained e"cess capacity, the process of
dere'ulation is li(ely to reveal the e"tent of such overcapacity. An industrial structure
built up in a protected and unco*petitive environ*ent is li(ely to be unsustainable in
*ore co*petitive *ar(et conditions. &n 'eneral, re'ulation has beco*e less protective of
the ban(in' industry as public policy priorities have increasin'ly been 'iven to enhancin'
co*petition and efficiency in the financial syste*.
The &ndian ban(in' syste* has been witnessin' stron' 'rowth in credit de*and with loan
'rowth at nearly 03?. %ut while the credit,deposit ratio of &ndian ban(s has been runnin'
at 133? for so*e *onths now, the capital ade.uacy ratio of *any ban(s is fallin'.
+hile there has been so*e a*ount of debate on whether or not %asel && should apply
only to 9internationally active9 ban(s or to all co**ercial ban(s in the country, the
<eserve %an( of &ndia, has opted for the latter. The central ban( has already circulated
the draft 'uidelines for i*ple*entation of %asel && in &ndia and has sou'ht feedbac( fro*
ban(s before finali7ind the*. The draft 'uidelines are ai*ed at ensurin' *i'ration to
%asel l l in a non,disruptive *anner and have been drawn by the <%& throu'h
consultation with a representative sa*ple of 1> ban(s representin' &ndian public and
private ban(s as well as forei'n ban(s.
Most &ndian ban(s are initially e"pected to adopt the Standardised approach, 'iven the
additional preparations ban(s still need to *a(e in developin' credit ris( 'radin' syste*s
and loss histories that *eet the &nternal <atin's %ased standards. A few ban(s are in the
early sta'es of developin' such syste*s and buildin' data histories
Discussions with several &ndian ban(s and the <%& su''est that *ost ban(s will 'et so*e
capital benefit under the Standardised approach relative to %asel & 3n their credit ris(
e"posure, althou'h the vast *a-ority of corporate credits in &ndia are unrated and hence
would continue to receive an B? char'e. &t is anticipated that any capital relief on the
credit ris( side will be offset once the new operational ris( char'es are ta(en into
account.
Since *ost ban(s would initially adopt the Standardised approach for operational ris(,
the resultin' capital re.uire*ent would be substantial, particularly for ban(s with hi'h
reported 'ross inco*e, which is the indicator used to calculate the char'e
%ac( of the envelope esti*ates su''est that the typical public sector ban( would need
between 23? to 03? *ore capital *erely to preserve its current capital ade.uacy ratio.
Accordin' to so*e esti*ates, the &ndian ban(in' syste* will need a capital infusion of
rou'hly <s C,33312,333 crore to be %asel && co*pliant.
+hile so*e of the stron'er ban(s *ay succeed in tappin' the e.uity *ar(ets to raise
capital, so*e other *ay be forced to loo( at other sources of fundin', includin' forei'n
direct invest*ent.
The e"pansion of the capital base of ban(s in even *ore critical to fund the enor*ous
infrastructure needs of &ndia and the 'rowin' re.uire*ents of the successful corporate
sector, which is e"pected to double capital invest*ent over the ne"t three years.
This *ay re.uire a dilution of part of the 'overn*ent9s sta(e and acceptance of broader,
based shareholdin'. The establish*ent needs to reach a consensus on the a*ount of
space that *ay be allowed to private investors, especially in the private sector, includin'
:D& and the corporate sectors, reco'ni7in' that :D& proved far *ore resilient in the 1CC@
crisis than forei'n held debt
+e will also see i*provin' standards of corporate 'overnance as the country better
e*braces the spirit of 'ood corporate 'overnance, and *inority shareholders beco*e
*ore active.
&n short, while the &ndian ban(in' sector is in reasonable fettle 5certainly versus a nu*ber
of Asian econo*ies6 it needs to further stren'then to support hi'her econo*ic 'rowth and
the new invest*ent cycle &ndian co*panies are enterin' into.
The ne"t five years will set the sta'e for this with a new wave of technolo'y,
consolidation and *ore capital.
8'''''''''''''''''''''''''''''''''''''''''''''''''''''''''
Banking in India
:ro* +i(ipedia, the free encyclopedia
Structure of the or'anised ban(in' sector in &ndia. Nu*ber of ban(s are in brac(ets.
Banking in India in the *odern sense ori'inated in the last decades of the 1Bth century.
The first ban(s were %an( of $industan 51@@3,1B2C6 and The 8eneral %an( of &ndia,
established 1@B; and since defunct.
The lar'est ban(, and the oldest still in e"istence, is the State %an( of &ndia, which
ori'inated in the %an( of alcutta in Eune 1B3;, which al*ost i**ediately beca*e the
%an( of %en'al. This was one of the three presidency ban(s, the other two bein' the
%an( of %o*bay and the %an( of Madras, all three of which were established under
charters fro* the %ritish !ast &ndia o*pany. The three ban(s *er'ed in 1C21 to for*
the &*perial %an( of &ndia, which, upon &ndia9s independence, beca*e the State %an( of
&ndia in 1C44. :or *any years the presidency ban(s acted as .uasi,central ban(s, as did
their successors, until the <eserve %an( of &ndia was established in 1C04.
&n 1C;C the &ndian 'overn*ent nationalised all the *a-or ban(s that it did not already
own and these have re*ained under 'overn*ent ownership. They are run under a
structure (now as 9profit,*a(in' public sector underta(in'9 5=SA6 and are allowed to
co*pete and operate as co**ercial ban(s. The &ndian ban(in' sector is *ade up of four
types of ban(s, as well as the =SAs and the state ban(s, they have been -oined since the
1CC3s by new private co**ercial ban(s and a nu*ber of forei'n ban(s.
8enerally ban(in' in &ndia was fairly *ature in ter*s of supply, product ran'e and reach,
even thou'h reach in rural &ndia and to the poor still re*ains a challen'e. The
'overn*ent has developed initiatives to address this throu'h the State %an( of &ndia
e"pandin' its branch networ( and throu'h the National %an( for A'riculture and <ural
Develop*ent with thin's li(e *icrofinance.
&ndian %an(in' &ndustry currently e*ployes 1,1@4,1>C e*ployees and has a total of
13C,B11 branches in &ndia and 1@1 branches abroad and *ana'es an a''re'ate deposit of
;@43>.4> billion 5ASF1.1 trillion or GB>3 billion6 and ban( credit of 42;3>.4C billion
5ASFB@3 billion or G;43 billion6. The net profit of the ban(s operatin' in &ndia was
132@.41 billion 5ASF1@ billion or G10 billion6 a'ainst a turnover of C1>B.4C billion
5ASF143 billion or G113 billion6 for the financial year 2312,10.
H1I
Con(en('
1 $istory
o 1.1 olonial era
o 1.2 =ost,&ndependence
o 1.0 Nationali7ation in the 1C;3s
o 1.> Liberali7ation in the 1CC3s
2 urrent period
0 Adoption of ban(in' technolo'y
o 0.1 !"pansion of ban(in' infrastructure
> :urther readin'
4 See also
; <eferences
@ !"ternal lin(s
Hi'(o#*
&n ancient &ndia there is evidence of loans fro* the Jedic period 5be'innin' 1@43 %6.
H2I
H0I
Later durin' the Maurya dynasty 5021 to 1B4 %6, an instru*ent called adesha was in
use, which was an order on a ban(er desirin' hi* to pay the *oney of the note to a third
person, which corresponds to the definition of a bill of e"chan'e as we understand it
today. Durin' the %uddhist period, there was considerable use of these instru*ents.
Merchants in lar'e towns 'ave letters of credit to one another.
H>I
Colonial era
Durin' the period of %ritish rule *erchants established the Anion %an( of alcutta in
1B2C, first as a private -oint stoc( association, then partnership. &ts proprietors were the
owners of the earlier o**ercial %an( and the alcutta %an(, who by *utual consent
created Anion %an( to replace these two ban(s. &n 1B>3 it established an a'ency at
Sin'apore, and closed the one at Mir7apore that it had opened in the previous year. Also
in 1B>3 the %an( revealed that it had been the sub-ect of a fraud by the ban(9s accountant.
Anion %an( was incorporated in 1B>4 but failed in 1B>B, havin' been insolvent for so*e
ti*e and havin' used new *oney fro* depositors to pay its dividends.
H4I
The Allahabad %an(, established in 1B;4 and still functionin' today, is the oldest Eoint
Stoc( ban( in &ndia, it was not the first thou'h. That honour belon's to the %an( of
Apper &ndia, which was established in 1B;0, and which survived until 1C10, when it
failed, with so*e of its assets and liabilities bein' transferred to the Alliance %an( of
Si*la.
:orei'n ban(s too started to appear, particularly in alcutta, in the 1B;3s. The o*ptoir
d9!sco*pte de =aris opened a branch in alcutta in 1B;3, and another in %o*bay in
1B;2K branches in Madras and =ondicherry, then a :rench possession, followed. $S%
established itself in %en'al in 1B;C. alcutta was the *ost active tradin' port in &ndia,
*ainly due to the trade of the %ritish !*pire, and so beca*e a ban(in' centre.
The first entirely &ndian -oint stoc( ban( was the #udh o**ercial %an(, established in
1BB1 in :ai7abad. &t failed in 1C4B. The ne"t was the =un-ab National %an(, established
in Lahore in 1BC4, which has survived to the present and is now one of the lar'est ban(s
in &ndia.
Around the turn of the 23th entury, the &ndian econo*y was passin' throu'h a relative
period of stability. Around five decades had elapsed since the &ndian Mutiny, and the
social, industrial and other infrastructure had i*proved. &ndians had established s*all
ban(s, *ost of which served particular ethnic and reli'ious co**unities.
The presidency ban(s do*inated ban(in' in &ndia but there were also so*e e"chan'e
ban(s and a nu*ber of &ndian -oint stoc( ban(s. All these ban(s operated in different
se'*ents of the econo*y. The e"chan'e ban(s, *ostly owned by !uropeans,
concentrated on financin' forei'n trade. &ndian -oint stoc( ban(s were 'enerally under
capitalised and lac(ed the e"perience and *aturity to co*pete with the presidency and
e"chan'e ban(s. This se'*entation let Lord ur7on to observe, "In respect of banking it
seems we are behind the times. We are like some old fashioned sailing ship, divided by
solid wooden bulkheads into separate and cumbersome compartments."
The period between 1C3; and 1C11, saw the establish*ent of ban(s inspired by the
Swadeshi *ove*ent. The Swadeshi *ove*ent inspired local business*en and political
fi'ures to found ban(s of and for the &ndian co**unity. A nu*ber of ban(s established
then have survived to the present such as %an( of &ndia, orporation %an(, &ndian %an(,
%an( of %aroda, anara %an( and entral %an( of &ndia.
The fervour of Swadeshi *ove*ent lead to establishin' of *any private ban(s in
Da(shina Kannada and Adupi district which were unified earlier and (nown by the na*e
South Canara 5 South Kanara 6 district. :our nationalised ban(s started in this district
and also a leadin' private sector ban(. $ence undivided Da(shina Kannada district is
(nown as Lradle of &ndian %an(in'L.
Durin' the :irst +orld +ar 51C1>)1C1B6 throu'h the end of the Second +orld +ar
51C0C)1C>46, and two years thereafter until the independence of &ndia were challen'in'
for &ndian ban(in'. The years of the :irst +orld +ar were turbulent, and it too( its toll
with ban(s si*ply collapsin' despite the &ndian econo*y 'ainin' indirect boost due to
war,related econo*ic activities. At least C> ban(s in &ndia failed between 1C10 and 1C1B
as indicated in the followin' tableM
Years
Number of banks
that failed
Authorised Capital
( Lakhs)
Paidup Capital
( Lakhs)
1C10 12 2@> 04
1C1> >2 @13 13C
1C14 11 4; 4
1C1; 10 201 >
1C1@ C @; 24
1C1B @ 23C 1
Post-Independence
The partition of &ndia in 1C>@ adversely i*pacted the econo*ies of =un-ab and +est
%en'al, paralysin' ban(in' activities for *onths. &ndia9s independence *ar(ed the end of
a re'i*e of the Laisse7,faire for the &ndian ban(in'. The 8overn*ent of &ndia initiated
*easures to play an active role in the econo*ic life of the nation, and the &ndustrial
=olicy <esolution adopted by the 'overn*ent in 1C>B envisa'ed a *i"ed econo*y. This
resulted into 'reater involve*ent of the state in different se'*ents of the econo*y
includin' ban(in' and finance. The *a-or steps to re'ulate ban(in' includedM

The <eserve %an( of &ndia, &ndia9s central ban(in' authority, was established in
April 1C04, but was nationalised on 1 Eanuary 1C>C under the ter*s of the
<eserve %an( of &ndia 5Transfer to =ublic #wnership6 Act, 1C>B 5<%&, 2334b6.
H;I

&n 1C>C, the %an(in' <e'ulation Act was enacted which e*powered the <eserve
%an( of &ndia 5<%&6 Lto re'ulate, control, and inspect the ban(s in &ndiaL.

The %an(in' <e'ulation Act also provided that no new ban( or branch of an
e"istin' ban( could be opened without a license fro* the <%&, and no two ban(s
could have co**on directors.
Nationalization in the 1960s
Despite the provisions, control and re'ulations of the <eserve %an( of &ndia, ban(s in
&ndia e"cept the State %an( of &ndia 5S%&6, continued to be owned and operated by
private persons. %y the 1C;3s, the &ndian ban(in' industry had beco*e an i*portant tool
to facilitate the develop*ent of the &ndian econo*y. At the sa*e ti*e, it had e*er'ed as
a lar'e e*ployer, and a debate had ensued about the nationali7ation of the ban(in'
industry. &ndira 8andhi, the then =ri*e Minister of &ndia, e"pressed the intention of the
8overn*ent of &ndia in the annual conference of the All &ndia on'ress Meetin' in a
paper entitled "Stray thoughts on ank !ationali"ation."
H@I
The *eetin' received the
paper with enthusias*.
Thereafter, her *ove was swift and sudden. The 8overn*ent of &ndia issued an
ordinance 59%an(in' o*panies 5Ac.uisition and Transfer of Anderta(in's6 #rdinance,
1C;C96 and nationalised the 1> lar'est co**ercial ban(s with effect fro* the *idni'ht of
1C Euly 1C;C. These ban(s contained B4 percent of ban( deposits in the country.
H@I

Eayapra(ash Narayan, a national leader of &ndia, described the step as a "masterstroke of
political sagacity." +ithin two wee(s of the issue of the ordinance, the =arlia*ent passed
the %an(in' o*panies 5Ac.uisition and Transfer of Anderta(in'6 %ill, and it received
the presidential approval on C Au'ust 1C;C.
A second dose of nationalisation of ; *ore co**ercial ban(s followed in 1CB3. The
stated reason for the nationalisation was to 'ive the 'overn*ent *ore control of credit
delivery. +ith the second dose of nationalisation, the 8overn*ent of &ndia controlled
around C1? of the ban(in' business of &ndia. Later on, in the year 1CC0, the 'overn*ent
*er'ed New %an( of &ndia with =un-ab National %an(. &t was the only *er'er between
nationalised ban(s and resulted in the reduction of the nu*ber of nationalised ban(s fro*
23 to 1C. After this, until the 1CC3s, the nationalised ban(s 'rew at a pace of around >?,
closer to the avera'e 'rowth rate of the &ndian econo*y
Liberalization in the 1990s
&n the early 1CC3s, the then 'overn*ent e*bar(ed on a policy of liberali7ation, licensin'
a s*all nu*ber of private ban(s. These ca*e to be (nown as !ew #eneration tech$savvy
banks, and included 8lobal Trust %an( 5the first of such new 'eneration ban(s to be set
up6, which later a*al'a*ated with #riental %an( of o**erce, AT& %an( 5since
rena*ed A"is %an(6, &&& %an( and $D: %an(. This *ove, alon' with the rapid
'rowth in the econo*y of &ndia, revitalised the ban(in' sector in &ndia, which has seen
rapid 'rowth with stron' contribution fro* all the three sectors of ban(s, na*ely,
'overn*ent ban(s, private ban(s and forei'n ban(s.
The ne"t sta'e for the &ndian ban(in' has been set up with the proposed rela"ation in the
nor*s for forei'n direct invest*ent, where all forei'n investors in ban(s *ay be 'iven
votin' ri'hts which could e"ceed the present cap of 13? at present. &t has 'one up to
@>? with so*e restrictions.
The new policy shoo( the %an(in' sector in &ndia co*pletely. %an(ers, till this ti*e,
were used to the >);)> *ethod 5borrow at >?K lend at ;?K 'o ho*e at >6 of functionin'.
The new wave ushered in a *odern outloo( and tech,savvy *ethods of wor(in' for
traditional ban(s. All this led to the retail boo* in &ndia. =eople de*anded *ore fro*
their ban(s and received *ore.
C&##en( +e#iod
All ban(s which are included in the Second Schedule to the <eserve %an( of &ndia Act,
1C0> are Scheduled %an(s. These ban(s co*prise Scheduled o**ercial %an(s and
Scheduled o,operative %an(s. Scheduled o**ercial %an(s in &ndia are cate'orised
into five different 'roups accordin' to their ownership andDor nature of operation. These
ban( 'roups areM
State %an( of &ndia and its Associates
Nationalised %an(s
=rivate Sector %an(s
:orei'n %an(s
<e'ional <ural %an(s.
&n the ban( 'roup,wise classification, &D%& %an( Ltd. is included in Nationalised %an(s.
Scheduled o,operative %an(s consist of Scheduled State o,operative %an(s and
Scheduled Arban ooperative %an(s.
8rowth of %an(in' in &ndia of Scheduled o**ercial %an(s
Indi!ators
"# $ar!h of
%&&' %&&( %&&) %&&* %&&+ %&#&
Nu*ber of
o**ercial
%an(s
2B> 21B 1@B 1;C 1;;
Nu*ber of
%ranches
@3,0@0 @2,3@2 @>,;40 @B,@B@ B2,BC@
=opulation
per %an(s
5in thousands6
1; 1; 14 14 14
A''re'ate
Deposits
1@332 billion
5ASF2B3 billion6
213C3 billion
5ASF043 billion6
2;11C billion
5ASF>03 billion6
01C;C billion
5ASF403 billion6
0B0>1 billion
5ASF;>3 billion6
>>C2B billion
5ASF@43
%an( redit
1133> billion
5ASF1B3 billion6
143@1 billion
5ASF243 billion6
1C012 billion
5ASF023 billion6
20;1C billion
5ASF0C3 billion6
2@@44 billion
5ASF>;3 billion6
02>>B billion
5ASF4>3
8rowth of %an(in' in &ndia of Scheduled o**ercial %an(s
Indi!ators
"# $ar!h of
%&&' %&&( %&&) %&&* %&&+ %&#&
Deposit as
percenta'e
to 8N= 5at
factor cost6
;2? ;>? ;C? @0? @@?
=er apita
Deposit
1;2B1
5ASF2@36
1C103
5ASF0236
200B2
5ASF0C36
2B;13
5ASF>@36
00C1C
5ASF4;36 5ASF;436
=er apita
redit
13@42
5ASF1B36
10B;C
5ASF2036
1@4>1
5ASF2C36
2121B
5ASF0436
2>;1@
5ASF>136 5ASF>@36
redit
Deposit
<atio
;0? @3? @>? @4? @>?
%y 2313, ban(in' in &ndia was 'enerally fairly *ature in ter*s of supply, product ran'e
and reach,even thou'h reach in rural &ndia still re*ains a challen'e for the private sector
and forei'n ban(s. &n ter*s of .uality of assets and capital ade.uacy, &ndian ban(s are
considered to have clean, stron' and transparent balance sheets relative to other ban(s in
co*parable econo*ies in its re'ion. The <eserve %an( of &ndia is an autono*ous body,
with *ini*al pressure fro* the 'overn*ent.
+ith the 'rowth in the &ndian econo*y e"pected to be stron' for .uite so*e ti*e,
especially in its services sector,the de*and for ban(in' services, especially retail
ban(in', *ort'a'es and invest*ent services are e"pected to be stron'. #ne *ay also
e"pect M/As, ta(eovers, and asset sales.
&n March 233;, the <eserve %an( of &ndia allowed +arbur' =incus to increase its sta(e in
Kota( Mahindra %an( 5a private sector ban(6 to 13?. This is the first ti*e an investor
has been allowed to hold *ore than 4? in a private sector ban( since the <%& announced
nor*s in 2334 that any sta(e e"ceedin' 4? in the private sector ban(s would need to be
vetted by the*.
&n recent years critics have char'ed that the non,'overn*ent owned ban(s are too
a''ressive in their loan recovery efforts in conne"ion with housin', vehicle and personal
loans. There are press reports that the ban(s9 loan recovery efforts have driven defaultin'
borrowers to suicide.
HBIHCIH13I
Ado+(ion of ,anking
(echno$og*
The &T
Hclarification neededI
revolution has had a 'reat i*pact on the &ndian ban(in' syste*. The
use of co*puters has led to the introduction of online ban(in' in &ndia. The use of
co*puters in the ban(in' sector in &ndia has increased *any fold after the econo*ic
liberalisation of 1CC1 as the country9s ban(in' sector has been e"posed to the world9s
*ar(et. &ndian ban(s were findin' it difficult to co*pete with the international ban(s in
ter*s of custo*er service, without the use of infor*ation technolo'y.
The <%& set up a nu*ber of co**ittees to define and co,ordinate ban(in' technolo'y.
These have includedM

&n 1CB> was for*ed the o**ittee on Mechanisation in the %an(in' &ndustry
51CB>6
H11I
whose chair*an was Dr. <an'ara-an, Deputy 8overnor, <eserve %an(
of &ndia. The *a-or reco**endations of this co**ittee were introducin' M&<
technolo'y in all the ban(s in the *etropolises in &ndia.
H12I
This provided for the
use of standardi7ed che.ue for*s and encoders.

&n 1CBB, the <%& set up the o**ittee on o*puterisation in %an(s 51CBB6
H10I

headed by Dr. <an'ara-an. &t e*phasi7ed that settle*ent operation *ust be
co*puteri7ed in the clearin' houses of <%& in %hubaneshwar, 8uwahati, Eaipur,
=atna and Thiruvananthapura*. &t further stated that there should be National
learin' of inter,city che.ues at Kol(ata, Mu*bai, Delhi, hennai and M&<
should be *ade operational. &t also focused on co*puterisation of branches and
increasin' connectivity a*on' branches throu'h co*puters. &t also su''ested
*odalities for i*ple*entin' on,line ban(in'. The co**ittee sub*itted its reports
in 1CBC and co*puterisation be'an fro* 1CC0 with the settle*ent between &%A
and ban( e*ployees9 associations.
H1>I

&n 1CC>, the o**ittee on Technolo'y &ssues relatin' to =ay*ent syste*s,

he.ue learin' and Securities Settle*ent in the %an(in' &ndustry 51CC>6
H14I
was
set up under hair*an + S Saraf. &t e*phasi7ed !lectronic :unds Transfer 5!:T6
syste*, with the %ANKN!T co**unications networ( as its carrier. &t also said
that M&< clearin' should be set up in all branches of all those ban(s with *ore
than 133 branches.

&n 1CC4, the o**ittee for proposin' Le'islation on !lectronic :unds Transfer
and other !lectronic =ay*ents 51CC46
H1;I
a'ain e*phasi7ed !:T syste*.
H1>I
The total nu*ber of auto*ated teller *achines 5ATMs6 installed in &ndia by various
ban(s as of end Eune 2312 is CC,21B.
H1@I
The new private sector ban(s in &ndia have the
*ost ATMs, followed by off,site ATMs belon'in' to S%& and its subsidiaries and then by
nationalised ban(s and forei'n ban(s, while on,site is hi'hest for the nationalised ban(s
of &ndia.
H1>I
%ranches and ATMs of Scheduled o**ercial %an(s as of end March 2334
H1>I
Bank t,pe
Number of
bran!hes
-nsite
A.$s
-ffsite
A.$s
.otal A.$s
Nationalised ban(s 00,;2@ 0B,;3; 22,2;4 ;3,B@1
State %an( of &ndia 10,;;1 2B,C2; 22,B2@ 41,@40
#ld private sector ban(s >,411 >,@;1 >,;2> C,0B4
New private sector
ban(s
1,;B4 12,4>; 2;,B0C 0C,0B4
:orei'n ban(s 2>2 2C4 B4> 1,1>C
%ranches and ATMs of Scheduled o**ercial %an(s as of end March 2334
H1>I
Bank t,pe
Number of
bran!hes
-nsite
A.$s
-ffsite
A.$s
.otal A.$s
TOTAL 53,726 85,134 77,409 1,62,543
Expansion of banking infrastrctre
As per the census of 2311, 4B.@? of households are availin' ban(in' services in the
country. There are 132,0>0 branches of Scheduled o**ercial %an(s 5S%s6 in the
country, out of which 0@,C40 50@?6 ban( branches are in the rural areas and 2@,21C
52;?6 in se*i,urban areas, constitutin' ;0? of the total nu*bers of branches in se*i,
urban and rural areas of the country. $owever, a si'nificant proportion of the households,
especially in rural areas, are still outside the for*al fold of the ban(in' syste*. To e"tend
the reach of ban(in' to those outside the for*al ban(in' syste*, 8overn*ent and
<eserve %an( of &ndia 5<%&6 are ta(in' various initiatives fro* ti*e to ti*e so*e of
which are enu*erated belowM
#penin' of ban( branchesM 8overn*ent had issued detailed strate'y and
'uidelines on :inancial &nclusion in #ctober 2311, advisin' ban(s to open
branches in all habitations of 4,333 or *ore population in under,ban(ed districts
and 13,333 or *ore population in other districts. #ut of 0,C24 such identified
villa'esDhabitations, branches have been opened in 0,>32 villa'esDhabitations
5includin' 2,121 Altra S*all %ranches6 by end of April, 2310.
!ach household to have at least one ban( accountM %an(s have been advised to
ensure service area ban( in rural areas and ban(s assi'ned the responsibility in
specific wards in urban area to ensure that every household has at least one ban(
account.
%usiness orrespondent *odelM +ith the ob-ective of ensurin' 'reater financial
inclusion and increasin' the outreach of the ban(in' sector, ban(s were per*itted
by <%& in 233; to use the services of inter*ediaries in providin' financial and
ban(in' services throu'h the use of %usiness :acilitators 5%:s6 and %usiness
orrespondents 5%s6. %usiness correspondents are retail a'ents en'a'ed by
ban(s for providin' ban(in' services at locations other than a ban( branchDATM.
%s and the % a'ents 5%As6 represent the ban( concerned and enable a ban(
to e"pand its outreach and offer li*ited ran'e of ban(in' services at low cost,
particularly where settin' up a bric( and *ortar branch is not viable. %s as
a'ents of the ban(s, thus, are an inte'ral part of the business strate'y for
achievin' 'reater financial inclusion. %an(s had been per*itted to en'a'e
individualsDentities as % li(e retired ban( e*ployees, retired teachers, retired
'overn*ent e*ployees, e",service*en, individual owners of (iranaD*edicalDfair
price shops, individual =ublic all #ffice 5=#6 operators, a'ents of S*all
Savin's Sche*es of 8overn*ent of &ndia, insurance co*panies, etc. :urther,
since Septe*ber 2313, <%& had per*itted ban(s to en'a'e Lfor profitL co*panies
re'istered under the &ndian o*panies Act, 1C4;, e"cludin' Non,%an(in'
:inancial o*panies 5N%:s6, as %s in addition to individualsDentities
per*itted earlier. Accordin' to the data *aintained by <%&, as in Dece*ber, 2312,
there were over 142,333 %s deployed by %an(s. Durin' 2312,10, over
1B0.B *illion transactions valued at 1;4 billion 5ASF2.@ billion6 had been
underta(en by %s till Dece*ber 2312.
Swabhi*aan a*pai'nM Ander LSwabhi*aanL , the :inancial &nclusion
a*pai'n launched in :ebruary 2311, ban(s had provided ban(in' facilities by
March, 2312 to over @>,333 habitations havin' population in e"cess of 2333 usin'
various *odels and technolo'ies includin' branchless ban(in' throu'h %usiness
orrespondents A'ents 5%As6. :urther, in ter*s of :inance Minister9s %ud'et
Speech 2312,10, the LSwabhi*aanL ca*pai'n has been e"tended to habitations
with population of *ore than 1,333 in North !astern and $illy States and to
habitations which have crossed population of 1,;33 as per census 2331. About
>3,333 such habitations have been identified to be covered under the e"tended
LSwabhi*aanL ca*pai'n.
Settin' up of ultra,s*all branches 5AS%s6M onsiderin' the need for close
supervision and *entorin' of the %usiness orrespondent A'ents 5%As6 by the
respective ban(s and to ensure that a ran'e of ban(in' services are available to the
residents of such villa'es, Altra S*all %ranches 5AS%s6 are bein' set up in all
villa'es covered throu'h %As under :inancial &nclusion. A AS% would
co*prise a s*all area of 133 s. ft 5C.0 *
2
6 , 233 s. ft 51C *
2
6 where the officer
desi'nated by the ban( would be available with a laptop on pre,deter*ined days.
+hile the cash services would be offered by the %As, the ban( officer would
offer other services, underta(e field verification and follow up on the ban(in'
transactions. The periodicity and duration of visits can be pro'ressively enhanced
dependin' upon business potential in the area. A total of over 43,333 AS%s have
been set up in the country by March 2310.
%an(in' facilities in Anban(ed %loc(sM All the 12C unban(ed bloc(s 5C1 in North
!ast States and 0B in other States6 identified in the country in Euly 233C, had been
provided with ban(in' facilities by March 2312, either throu'h %ric( Mortar
%ranch or %usiness orrespondents or Mobile van. As a ne"t step it has been
advised to cover all those bloc(s with %A and Altra S*all %ranch which have so
far been covered by *obile van only.
ASSD %ased Mobile %an(in'M National =ay*ents orporation of &ndia 5N=&6
wor(ed upon a Lo**on ASSD =latfor*L for all ban(s and telcos who wish to
offer the facility of Mobile %an(in' usin' Anstructured Supple*entary Service
Data 5ASSD6 based Mobile %an(in'. The Depart*ent helped N=& to 'et a
co**on ASSD ode NCCO for all telcos. More than 23 ban(s have -oined the
National Anifor* ASSD =latfor* 5NAA=6 of N=& and the product has been
launched by N=& with %SNL and MTNL. #ther telcos are li(ely to -oin in the
near future. ASSD based Mobile %an(in' offers basic %an(in' facilities li(e
Money Transfer, %ill =ay*ents, %alance !n.uiries, Merchant =ay*ents etc. on a
si*ple 8SM based Mobile phone, without the need to download application on a
phone as re.uired at present in the &M=S based Mobile %an(in'.
Steps ta(en by <eserve %an( of &ndia 5<%&6 to stren'then the ban(in' infrastructure
<%& has per*itted do*estic Scheduled o**ercial %an(s 5e"cludin' <<%s6 to
open branches in tier 2 to tier ; cities 5with population up to CC,CCC as per census
23316 without the need to ta(e per*ission fro* <%& in each case, sub-ect to
reportin'.
<%& has also per*itted S%s 5e"cludin' <<%s6 to open branches in rural, se*i,
urban and urban centres in North !astern States and Si((i* without havin' the
need to ta(e per*ission fro* <%& in each case, sub-ect to reportin'.
<e'ional <ural %an(s 5<<%s6 are also allowed to open branches in Tier 2 to Tier
; centres 5with population up to CC,CCC as per ensus 23316 without the need to
ta(e per*ission fro* <%& in each case, sub-ect to reportin', provided they fulfill
the followin' conditions, as per the latest inspection reportM
o <A< of at least C?K
o Net N=A less than 4?K
o No default in << D SL< for the last yearK
o Net profit in the last financial yearK
o %S co*pliant.
Do*estic S%s have been advised that while preparin' their Annual %ranch
!"pansion =lan 5A%!=6, they should allocate at least 24? of the total nu*ber of
branches proposed to be opened durin' the year in unban(ed Tier 4 and Tier ;
centres i.e. 5population up to C,CCC6 centres which do not have a bric( and *ortar
structure of any S% for custo*er based ban(in' transactions.
<<%s have also been advised to allocate at least 24? of the total nu*ber of
branches proposed to be opened durin' a year in unban(ed rural 5Tier 4 and Tier
;6 entres6.
New private sector ban(s are re.uired to ensure that at least 24? of their total
branches are in se*i,urban and rural centres on an on'oin' basis.
F&#(he# #eading
The %volution of the State ank of India &The %ra of the Imperial ank of India,
'()'*'(++, 5Jolu*e &&&6
anking -rontiers ) a *onthly *a'a7ine, published by Mu*bai based 8local
&nfo*art. !ditor
See a$'o
List of ban(s in &ndia
$istory of ban(in'
o**on <ecruit*ent to &ndian %an(s throu'h &%=S
Refe#ence'
1.
LStatistical Tables <elated to %an(s in &ndia , <eserve %an( of &ndiaL.
2.
8o*e7 ) :inancial Mar(ets &nstitutions And :inancial Services
=rentice,$all 233B <etrieved 11 Euly 2312 &S%N B1230040@;
0.
A have7 &rapta, !t Al ) &ntroduction to AsiaM $istory, ulture, and
ivili7ation <e" %oo(store, &nc., 2334 <etrieved 11 Euly 2312
>.
L!volution of =ay*ent Syste*s in &ndia P<eserve %an( of &ndiaL.
4.
oo(e, harles Northcote 51B;06 The rise, progress, and present
condition of banking in India. 5=rinted by =.M. ranenbur'h, %en'al =rint. o.6,
pp.1@@,233.
;.
<eference www.rbi.or'.in
@.
Austin, 8ranville 51CCC6. Working a .emocratic /onstitution * 0 1istory
of the Indian %2perience. New DelhiM #"ford Aniversity =ress. p. 214. &S%N 3,
1C,4;4;13,4.
B.
L&&& personal loan custo*er co**its suicide after alle'ed harass*ent
by recovery a'entsL. =arinda.co*. <etrieved 2B Euly 2313.
C.
LKarnata(a D Mysore NewsM &&& %an( returns tractor to far*ers
*otherL. The 1indu 5hennai, &ndia6. 03 Eune 233B. <etrieved 2B Euly 2313.
13.
L&&&s third eyeM &ts &ndiati*eL. &ndiati*e.co*. <etrieved 2B Euly 2313.
Hdead linkI
11.
Lo*puterisation of ban(in' sectorL.
12.
LM&< technolo'yL.
10.
Lo**ittee on o*puterisation in %an(s 51CBB6L.
1>.
I!.I0! 0!3I!# SYST%4. &.K &NT!<NAT&#NAL =A%L&S$&N8
$#AS! =JT. LTD. 233;. &S%N B1,BB20@,BB,>.
14.
L<efor*s in ban(in' syste*L.
1;.
L<efor*s of ban(in' sectorL.
1@.
Indian banking system. &.K. &nternational. 233;. &S%N B1,BB20@,BB,>.
E-(e#na$ $ink'
<eserve %an( of &ndia
%an(in' Sector in &ndia
%an(er9s Trust, A co**entary colu*n on the %an(in' sector in &ndia published in
The Mint financial newspaper
&:S ode / M&< ode of all ban(s in &ndia
financialservices.'ov.inDban(in'D#verviewofefforts.pdfQ
/sho01
2
t
e
3!onom, of India