1
2
3
CONTENTS
HISTORY EVOLUTION IN BANKING SECTOR CAUSES OF BANKING SECTOR REFORMS MAJOR AREAS MAIN FEATURES OF BANKING SECTOR REFORMS IN INDIA FIRST PHASE REFORMS IN INDIA IMPACT OF REFORMS OF FIRST GENERATION SECOND GENERATION REFORMS PROPOSED POINTS IN NARASIMAHAM COMMETTEE BANKING SECTOR AFTER REFORMS BANKING SCENARIO IN FUTURE
4
Prime Minister Manmohan Singh said in a speech: "If there is one aspect in which we can confidentially assert that India is ahead of China, it is in the robustness and soundness of our banking system."
5
HISTORY
General Bank of India Bank of Hindustan 1809 Bank of Bengal 1840 Bank of Bombay 1843 Bank of Madras 1865 Allahabad bank was established 1894 Panjab national bank Ltd 1906 and 1913 Bank of India, Central Bank of India, Bank of Baroda, the Canada Bank, the Indian bank and the Bank of Mysore 1943 Commercial Bank 1935 Reserve Bank of India 1786
6
RESERVE BANK OF INDIA SCHEDULED BANKS
COMMERCIAL BANKS PRIVATE SECTOR BANKS(30) OLD(22) NEW(8)
CO-OPERATIVE BANK URBAN(52) STATE(16)
PUBLIC SECTOR BANKS(27) SBI & ASSOCIATE(8) OTHER NATIONALISED BANNKS(19)
7
EVOLUTION IN INDIAN BANKING SECTOR
Foundation Phase from 1950-1969 Expansion Phase from 1969-1984 Consolidation Phase from 1985-1990 Reform Phase from 1991 onwards
8
CAUSES OF BANKING SECTOR REFORMS
Weak Technology Increase Transaction Cost Inadequate accounting Lack in government guarantees Inadequate prudential supervision and regulation
MAJOR AREAS
The Policy Framework The Financial Health The Institutional Infrastructure
9
Interest Rate & Inflation
20 18 16 14 12 10 8 6 4 2 0 1980 1990 1995 Years 2000 2005
10
Values
aighted Average Interest Rates onCentral Govt. Securities Inflation Rate as Measured By PI
MAIN FEATURES OF BANKING SECTOR REFORMS IN INDIA
Interest rate deregulation Stimulating competition among financial institution Fostering capital market Relaxation of foreign exchange controls Contraction of informal finance Improved supervision and regulation of financial institution
11
Need of Reforms in Banking Sector
1.Improving profitability 2.Reinforcing technology 3.Risk management 4.Sharpening skills 5.Greater customer orientation 6.Corporate governance 7.International standards
12
FIRST PHASE OF BANKING SECTOR REFORMS
Deregulation of entry of new private banks in 1992-93 Liberalization of branch licensing policy Phase wise deregulation of interest rates of deposits and advances Introduction of capital adequacy norm of 8% Institution of transparent prudential and income recognition norms Allowing public sector banks to access the capital market Gradual reduction of CRR and SLR
13
IMPACT OF REFORMS OF FIRST GENERATION
Create more competition Non interest income of private banks NPA decline from 9.2% to 8.2%. Deposits and advances decline a little in non banks Capital adequacy ratio of 8% has not been achieved Profitability of public sector banks has not increased
14
Monetary situation calls for softening interest rates Review labour law, SSI reservation for export sector Allow entry of Insurance Pension funds for infrastructure Use NBFCs to channel funds to productive sectors Remove quantitative curbs and Agri-Exports-Imports Use Taxes and Prices to further environmental goals
15
Non-Interest Income Ratio
2.5 2 Values in % 1.5 1 0.5 0 1986 1987 1991 Years 1996 1997
16
Foreign Banks omestic Banks
70000
60000
50000
40000 Number Of Bank Branches
30000
Population Per office
20000
10000
0 1969 1980 1991 2005
NUMBER OF BANK BRANCHES AND POPULATION
17
PROPOSED POINTS IN NARASIHAM COMMITTEE Improving the financial viability of the banks Increasing their autonomy from Government direction Restructuring unviable banks Allowing a greater entry to the private sector in banking Furthering operational flexibility and competition among the financial institutions Liberalizing the capital market and Setting up of proper supervisory system
18
Banking Sector After Reforms
Reduction in SLR-25% and CRR-3.5% Transparent guidelines or norms for entry and exit The nationalized banks have been allowed direct access to capital market Interest rates reduced 6% to 3% for all advances above rupees 2lakhs Interest of government securities towards market related rates allowed Branch licensing policy has been liberalized Accounting and prudential norms implemented since 1992-93 Recovery of debts due to banks and financial Acts, 1993 was enacted Board for financial bank supervision has been establish
19
CHANGE IN MONETARY CONTROL Year Bank Rate CRR SLR
1950
3
3
20
1970
5
3
26
1980
9
4
33
1990
10
15
38
1997-98
12
10.5-8
25
20
Growth Of Commercial Banks In India
350 300 250 Number of Commercial Banks 200 150 100 50 0 1969 1980 Year 1991 2005
21
Share in Assets
100.0
82.5 78.4
80.0
Per cent
74.5
60.0 40.0
18.5
20.0 0.0
9.4 8.2
9.1 12.6
7.0
1995-96 Foreign Banks
2000-01
2002-03 Public Sector Banks
22
Private Sector Banks
CURRENT SCENARIO
India contains««« 8888-scheduled commercial banks 2828-public sector banks 2929-private banks 3131-foreign banks 60,00060,000-branches 17,000-ATMs. 17,00023
NEW TRENDS IN BANKING
1. The deregulation of bank interest rates is used as the observable policy change indicating liberalization. 2.Financial liberalization further increase the risk bearing capabilities of business man vis-à-vis visthe bankers and intermediaries. 3.The retail banking is the outcome of recent financial liberalization school of approach. 4.To improve its customers service banks try to play game of drawing on everything from psychopsycho-demographics to branch design to attract the public. 5. Loyalty schemes are being designed to create credibility among the customers.
24
Continue«««.
Customer value management and / or Customer centric management based on retail banking or personal banking becomes inevitable. 7. Data ware housing and data mining are the additional banking sector endeavours rendering their services for retail and personal banking. 8. The R&D in banking industries now-a-days is nowbecoming more effective unlike industrial sector. 9. Cross Selling of the bank services is one of the out comes of financial liberalization. 10. Call centers and internet delivery for meeting customer expectations will further support for quality banking. 11. The Information Technology is playing a pivotal role for successful operation of financial liberalization.
6.
25
BANKING SCENARIO IN FUTURE
1.Competition from global measures The power of financial muscle Competition among equals Mergers and acquisition-route 2. Competition from new banks 3. Qualitative changes in the banking paradigm Product pricing and management of their profits Competencies required from a banker would be sharper 4. Challenges inbuilt into the structure and size of the Indian economy 5. Self-regulation by the banks
26
QUESTIONS
27
28
doc_662183796.ppt
2
3
CONTENTS
HISTORY EVOLUTION IN BANKING SECTOR CAUSES OF BANKING SECTOR REFORMS MAJOR AREAS MAIN FEATURES OF BANKING SECTOR REFORMS IN INDIA FIRST PHASE REFORMS IN INDIA IMPACT OF REFORMS OF FIRST GENERATION SECOND GENERATION REFORMS PROPOSED POINTS IN NARASIMAHAM COMMETTEE BANKING SECTOR AFTER REFORMS BANKING SCENARIO IN FUTURE
4
Prime Minister Manmohan Singh said in a speech: "If there is one aspect in which we can confidentially assert that India is ahead of China, it is in the robustness and soundness of our banking system."
5
HISTORY
General Bank of India Bank of Hindustan 1809 Bank of Bengal 1840 Bank of Bombay 1843 Bank of Madras 1865 Allahabad bank was established 1894 Panjab national bank Ltd 1906 and 1913 Bank of India, Central Bank of India, Bank of Baroda, the Canada Bank, the Indian bank and the Bank of Mysore 1943 Commercial Bank 1935 Reserve Bank of India 1786
6
RESERVE BANK OF INDIA SCHEDULED BANKS
COMMERCIAL BANKS PRIVATE SECTOR BANKS(30) OLD(22) NEW(8)
CO-OPERATIVE BANK URBAN(52) STATE(16)
PUBLIC SECTOR BANKS(27) SBI & ASSOCIATE(8) OTHER NATIONALISED BANNKS(19)
7
EVOLUTION IN INDIAN BANKING SECTOR
Foundation Phase from 1950-1969 Expansion Phase from 1969-1984 Consolidation Phase from 1985-1990 Reform Phase from 1991 onwards
8
CAUSES OF BANKING SECTOR REFORMS
Weak Technology Increase Transaction Cost Inadequate accounting Lack in government guarantees Inadequate prudential supervision and regulation
MAJOR AREAS
The Policy Framework The Financial Health The Institutional Infrastructure
9
Interest Rate & Inflation
20 18 16 14 12 10 8 6 4 2 0 1980 1990 1995 Years 2000 2005
10
Values
aighted Average Interest Rates onCentral Govt. Securities Inflation Rate as Measured By PI
MAIN FEATURES OF BANKING SECTOR REFORMS IN INDIA
Interest rate deregulation Stimulating competition among financial institution Fostering capital market Relaxation of foreign exchange controls Contraction of informal finance Improved supervision and regulation of financial institution
11
Need of Reforms in Banking Sector
1.Improving profitability 2.Reinforcing technology 3.Risk management 4.Sharpening skills 5.Greater customer orientation 6.Corporate governance 7.International standards
12
FIRST PHASE OF BANKING SECTOR REFORMS
Deregulation of entry of new private banks in 1992-93 Liberalization of branch licensing policy Phase wise deregulation of interest rates of deposits and advances Introduction of capital adequacy norm of 8% Institution of transparent prudential and income recognition norms Allowing public sector banks to access the capital market Gradual reduction of CRR and SLR
13
IMPACT OF REFORMS OF FIRST GENERATION
Create more competition Non interest income of private banks NPA decline from 9.2% to 8.2%. Deposits and advances decline a little in non banks Capital adequacy ratio of 8% has not been achieved Profitability of public sector banks has not increased
14
Monetary situation calls for softening interest rates Review labour law, SSI reservation for export sector Allow entry of Insurance Pension funds for infrastructure Use NBFCs to channel funds to productive sectors Remove quantitative curbs and Agri-Exports-Imports Use Taxes and Prices to further environmental goals
15
Non-Interest Income Ratio
2.5 2 Values in % 1.5 1 0.5 0 1986 1987 1991 Years 1996 1997
16
Foreign Banks omestic Banks
70000
60000
50000
40000 Number Of Bank Branches
30000
Population Per office
20000
10000
0 1969 1980 1991 2005
NUMBER OF BANK BRANCHES AND POPULATION
17
PROPOSED POINTS IN NARASIHAM COMMITTEE Improving the financial viability of the banks Increasing their autonomy from Government direction Restructuring unviable banks Allowing a greater entry to the private sector in banking Furthering operational flexibility and competition among the financial institutions Liberalizing the capital market and Setting up of proper supervisory system
18
Banking Sector After Reforms
Reduction in SLR-25% and CRR-3.5% Transparent guidelines or norms for entry and exit The nationalized banks have been allowed direct access to capital market Interest rates reduced 6% to 3% for all advances above rupees 2lakhs Interest of government securities towards market related rates allowed Branch licensing policy has been liberalized Accounting and prudential norms implemented since 1992-93 Recovery of debts due to banks and financial Acts, 1993 was enacted Board for financial bank supervision has been establish
19
CHANGE IN MONETARY CONTROL Year Bank Rate CRR SLR
1950
3
3
20
1970
5
3
26
1980
9
4
33
1990
10
15
38
1997-98
12
10.5-8
25
20
Growth Of Commercial Banks In India
350 300 250 Number of Commercial Banks 200 150 100 50 0 1969 1980 Year 1991 2005
21
Share in Assets
100.0
82.5 78.4
80.0
Per cent
74.5
60.0 40.0
18.5
20.0 0.0
9.4 8.2
9.1 12.6
7.0
1995-96 Foreign Banks
2000-01
2002-03 Public Sector Banks
22
Private Sector Banks
CURRENT SCENARIO
India contains««« 8888-scheduled commercial banks 2828-public sector banks 2929-private banks 3131-foreign banks 60,00060,000-branches 17,000-ATMs. 17,00023
NEW TRENDS IN BANKING
1. The deregulation of bank interest rates is used as the observable policy change indicating liberalization. 2.Financial liberalization further increase the risk bearing capabilities of business man vis-à-vis visthe bankers and intermediaries. 3.The retail banking is the outcome of recent financial liberalization school of approach. 4.To improve its customers service banks try to play game of drawing on everything from psychopsycho-demographics to branch design to attract the public. 5. Loyalty schemes are being designed to create credibility among the customers.
24
Continue«««.
Customer value management and / or Customer centric management based on retail banking or personal banking becomes inevitable. 7. Data ware housing and data mining are the additional banking sector endeavours rendering their services for retail and personal banking. 8. The R&D in banking industries now-a-days is nowbecoming more effective unlike industrial sector. 9. Cross Selling of the bank services is one of the out comes of financial liberalization. 10. Call centers and internet delivery for meeting customer expectations will further support for quality banking. 11. The Information Technology is playing a pivotal role for successful operation of financial liberalization.
6.
25
BANKING SCENARIO IN FUTURE
1.Competition from global measures The power of financial muscle Competition among equals Mergers and acquisition-route 2. Competition from new banks 3. Qualitative changes in the banking paradigm Product pricing and management of their profits Competencies required from a banker would be sharper 4. Challenges inbuilt into the structure and size of the Indian economy 5. Self-regulation by the banks
26
QUESTIONS
27
28
doc_662183796.ppt