BANKING

INDUSTRY

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 India's 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 creditor's or debtor's
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

MARKET SIZE

Leading Indian Banks by Assets and Market

Capitalization
Bank

Market
Majority
Asset Size
Capitalizatio
Shareholdin
(in $
n (in $
g
Billions)
Billions)

Stock
Listing

State Bank of
India

Government

314

36.6

Mumbai,
London

ICICI Bank

Private

81

25.6

Mumbai,
New York

Government

66

7.6

Mumbai

Government
Government
Government
Government
Private

62
61
59
52
49

7.3
5.1
5.5
2.9
22.2

Mumbai
Mumbai
Mumbai
Mumbai
Mumbai

Government

43

3.7

Mumbai

Private

40

11.6

Mumbai,
London

Punjab National
Bank
Bank of Baroda
Bank of India
Canara Bank
IDBI Bank
HDFC Bank
Union Bank of
India
Axis Bank

NATURE

Nature of the Industry

Banks safeguard money and provide loans, credit,
and payment services such as checking accounts,
debit cards, and cashier's 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
roleaccepting 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 Nation's monetary policy by controlling the money
supplythe 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 banks 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