Banking Sector ReformsTO PROF. AKSHA MEMON FROM TYBMS Name Roll no INDEX Insha ghaswala 13 Sr no Topics 1 Banking 2 Introduction 3 Highlights of Narasimham Committee Recommendations on Banking Reforms in India 4 Performance of commercial bank in India 5 The new technologies that are been use in banks 6 Bibliography . [9] Generally banking in India was fairly mature in terms of supply. is the State Bank of India. which upon India's independence. The scheduled banks are further classified into: nationalised banks. The Indian banking sector is broadly classified into scheduled banks and non-scheduled banks.[6] The term commercial banks refers to both scheduled and non-scheduled commercial banks which are regulated under the Banking Regulation Act. In 1980. 6 more private banks were nationalized. 1934. These nationalized banks are the majority of lenders in the Indian economy. 1959. . until the Reserve Bank of India was established in 1935. 1934. 1949. These are now called its associate banks. The government has developed initiatives to address this through the State Bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development with things likemicrofinance. which was established in 1770 and liquidated in 1829-32. Among the first banks were the Bank of Hindustan. In 1960. It originated as the Bank of Calcutta in June 1806. In 1969 the Indian government nationalised 14 major private banks. In 1809. Regional Rural Banks (RRBs). They dominate the banking sector because of their large size and widespread networks. The scheduled banks are those which are included under the 2nd Schedule of the Reserve Bank of India Act. and the General Bank of India. under the Reserve Bank of India Act. became the State Bank of India in 1955. This was one of the three banks funded by a presidency government. it was renamed as the Bank of Bengal. the State Banks of India was given control of eight state-associated banks under the State Bank of India (Subsidiary Banks) Act. and the oldest still in existence. For many years the presidency banks had acted as quasi-central banks. foreign banks. the other two were the Bank of Bombay and the Bank of Madras. as did their successors. established 1786 but failed in 1791 The largest bank. State Bank of India and its associates. product range and reacheven though reach in rural India and to the poor still remains a challenge. The three banks were merged in 1921 to form the Imperial Bank of India. and other Indian private sector banks.What is banking ???? Banking in India in the modern sense originated in the last decades of the 18th century. In the three decades following the first round of nationalization (the second round consisted of 6 commercial banks in April. While nationalization achieved the widening of the banking industry in India. The resultant „financial repression‟ led to the decline in productivity and efficiency and erosion of profitability of the banking sector in general. International Research Journal of Commerce Arts and Science http:www. while bank credit expanded at the rate of 16. . 2005). efficiency and profitability (Talwar. the task of deepening their services was still left unattended. It is against the background of these circumstances. While several committees have gone in to the problems of commercial banking in India. touching the lives of millions of people everyday. Highlights of Narasimham Committee Recommendations on Banking Reforms in India! The main recommendations of Narasimham Committee (1991) on the Financial (Banking) System are as follows.casirj.com Page 274 The financial sector reforms started in 1991 had provided the necessary platform for the banking sector to operate based on operational flexibility and functional autonomy enhancing productivity. Financial sector reforms were initiated in the country in 1992 with a view to improving the efficiency in the process of financial intermediation.000 of which 48. With branches of more than 67. By the beginning of 1990. the Indian banking sector constitutes the most significant segment of the financial system of India. Since then the banking system has formed the core of the Indian financial system.8 per cent during this period (1969 to1999). the two most important of them are: Narasimham Committee I (1991) Narasimham Committee II (1998) These committees proposed various reforms in order to improve the profitability and efficiency of the banking system. aggregate deposits of scheduled commercial banks have increased at a compound annual average growth rate of 17. that the development of a sound banking system was considered essential for the future growth of the financial system.3 per cent per annum. 1980).INTRODUCTION The financial development was given impetus with the adoption of social control over banks in 1967 and subsequently nationalsation of 14 major scheduled banks in July 1969. enhancing the effectiveness in the conduct of monetary policy and creating conducive environment for the integration of domestic financial sector with the global system.7 percent being rural. Despite this commendable progress serious problems have emerged due to the reasons beyond the control of banking sector. the social banking goals set for the banking industry made most of the public sector banks unprofitable. Also the priority sector should be redefined.. (v) Banks whose operations have been profitable is given permission to raise fresh capital from the public through the capital market. (ix) Greater emphasis is laid on internal audit and internal inspection in the banks. should be phased out. (iv) Interest rates to be deregulated to reflect emerging market conditions. not by commercial judgement of banks under a free market competitive system. (vii) Set up special tribunals to help banks recover their debt speedily.e. The priority sector should be scaled down from present high level of 40 percent of aggregate credit to 10 percent. (ii) The RBI should reduce Cash Reserve Ratio (CRR) from its present high level. (vi) Balance sheets of banks and financial institutions are made more transparent.10 national banks with branches throughout the country. (x) Government should indicate that there would be no further nationalisation of banks. local banks confined to specific region of the country. the new banks in the private sector should be welcome subject to normal requirements of the .(i) Statutory Liquidity Ratio (SLR) is brought down in a phased manner to 25 percent (the minimum prescribed under the law) over a period of about five years to give banks more funds to carry business and to curtail easy and captive finance. (viii) Changes be introduced in the bank structure 3-4 large banks with international character. rural banks confined to rural areas. 8. credit allocation under government direction. (iii) Directed Credit Programme i. RBI. Follow-up Action: (i) Statutory Liquidity Ratio (SLR) on incremental Net Domestic and Time Liabilities (NDTL) reduced from 38. branch licensing should be abolished and policy towards foreign banks should be more liberal. Under this banks will have to achieve a Capital to Risk Weighted Asset ratio (CRAR) of 8 percent. (xii) A new financial institution called the Assets Reconstruction Fund (ARF). classification of assets and provisioning of bad debts introduced in 1992. Should be established which would take over from banks and financial institutions a portion of their bad and doubtful debts at a discount (based on realisable value of assets). and subsequently follow up on the recovery of the dues owed to them from the primary borrowers. (ii) Effective Cash Reserve Ratio (CRR) on the NDTL reduced from 14 percent to 10 percent in January 1997. . all of them have already attained these norms.5 percent in 1991-92 to 28 percent by December 1996. (iii) In April. (xi) Quality of control over the banking system by the RBI and the Banking Division or the Ministry of Finance should be ended and the RBI should be made primary agency for regulation of banking system. By March. 1996 out of 27 public sector banks 19 banks (including SBI and all its subsidiaries) have attained 8 percent CRAR norm. (iv) New prudential norms for income recognition. In case of foreign banks. 1992 the RBI introduced a risk assets ratio system for banks (including foreign banks) in India as a capital adequacy measure. (vi) The SBI and some other nationalised banks have been allowed to seek capital market access. 15000 crore till 1994-95. (x) Banks given freedom to open new branches and upgrade extension counters on attaining capital adequacy norms and prudential accounting standards. (vii) Less strong nationalised banks are being recapitalised by government through budget provisions of Rs. (xi) Rapid computerization of banks being undertaken. (viii) Existing private sector banks given signal for expansion. . (ii) regulated deposit late has been replaced by single prescription of not exceeding 13 (revised to 11 percent) per annum for all deposit maturities of 46 days and above. more private sector banks allowed to set up branches provided they confirms to the RBI guidelines. (xii) Agreement signed between the public sector bank and RBI to improve their managerial and quality of performance. They are permitted to close nonviable branches other than in rural areas.(v) In regard to regulated interest ratio structure: (i) considerable rationalisation has been effected in banks lending rates with the number of concessive slabs reduced and some of the ratio have been raised thereby reducing the element of subsidy. (ix) Supervision system of the RBI is being strengthened with establishment of new board for Financial Bank Supervision within the RBI. Introduction 4.1 The Indian financial landscape is dominated by the banking sector with banking flows accounting for over half of the total financial flows in the economy1. as financial inclusion plans completed three years. including public sector banks. capital positions of Indian banks.(xiii) Recovery of debts due to banks and the Financial Institution Act 1993 recently passed to facilitate quicker recovery of loans and arrears. sustained improvements in efficiency and inclusiveness remain key areas of concern. it has been impacted by the global and domestic economic slowdown over the last two years. (xiv) Under the Banking Ombudsmen Scheme 1995. The performance of the banking sector in 2012-13 too was conditioned by a further slowdown of . the growth of the Indian banking sector slowed down for the second consecutive year in 2012-13. There was also a significant expansion in the outreach of banking in unbanked rural centres. Accordingly 6 special Debt Recovery Tribunals were set up along with an Appellate Tribunal at Mumbai to expedite the recovery of bank loan arrears. There was also a decline in the growth of profits of scheduled commercial banks (SCBs) as credit off-take slowed down and interest rates softened. Performance of commercial Banks in India Against the backdrop of a slowdown in the domestic economy and tepid global recovery. 1. (xv) Ten new private banks have started functioning out of the thirteen “in principle” approvals given for setting up new banks in private sector. while remaining vigilant about asset quality. Although the Indian banking sector exhibited considerable resilience in the immediate aftermath of the global financial crisis. more perceptibly for public sector banks. In the shortterm. The asset quality also deteriorated. Eleven Ombudsmen already functioning out of a total of 15 to expedite inexpensive resolution of customers’ complaints. witnessed a slowdown in the overall growth of the banking sector coupled with a deterioration in asset quality and lower profitability2. The year 2011-12. In the medium to long-term. the Indian banking sector needs to lend support to productive sectors facilitating economic recovery. Banks play a major role in not just purveying credit to the productive sectors of the economy but also as facilitators of financial inclusion. On the positive side. against the backdrop of a muted domestic growth. remained strong and above the stipulated minimum to face any unforeseen losses. this chapter discusses developments in the Indian banking sector in 2012-13 in a comparative perspective with the earlier year/s to bring out trends in balance sheets.the domestic economy.either from their bank accounts or by payment of cash. Settlement or clearance of funds takes place in batches as specified by the guidelines by the RBI. technological developments. although there was some respite from inflationary pressures leading to an environment of lower interest rates. customer services. making it usually the best method for retail remittances. is also allowed subject to limits. Transfer of funds to Nepal using NEFT. The chapter also spells out key issues relating to other aspects of operations of SCBs.2 Against this backdrop. viz. and financial soundness of the sector taking data on 89 scheduled commercial banks (SCBs). The transfer of money from the customer remitting it to the beneficiary account usually takes place on the same day. Customers with Internet banking accounts can use the NEFT facility to transfer funds nationwide on their own. The New technologies that are being used in banks are National Electronic Funds Transfer (NEFT) National Electronic Funds Transfer (NEFT) is an Indian system of electronic transfer of money from one bank or bank branch to another. namely regional rural banks (RRBs) and local area banks (LABs). and their overseas operations apart from separately analysis the trends in two segments closely related to the SCB sector. In order to make a remittance via NEFT. the customer initiating the transfer needs to have the IFSC (Indian Financial System Code) of the bank branch where the beneficiary account is . An updated list of banks and branches that are NEFT-enabled can be found on theReserve Bank of India (RBI) website. sectoral distribution of credit. Funds can also be transferred via NEFT by customers by walking into any bank branch (which is NEFTenabled) and leaving relevant instructions for such transfer . financial inclusion.. Any amount of money can be transferred using NEFT. The banks or their branches that support such transactions have to participate in the NEFT network. profitability. 4. credit cards allow the consumers a continuing balance of debt.located. It allows the cardholder to pay for goods and services based on the holder's promise to pay for them. IFSC is an alphanumeric 11-digit code that functions as a unique address for a particular branch. The size of most credit cards is 3 3⁄8 × 2 1⁄8 in (85. A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer. A credit card also differs from a cash card. Credit Card A credit card is a payment card issued to users as a system of payment. subject to interest being charged. The issuer of the card creates a revolving account and grants a line of credit to the cardholder.98 mm). from which the user can borrow money for payment to a merchant or as a cash advance. In contrast. Credit cards have a printed[4] or embossed bank card . Customers will also need to input the beneficiary account number and name as well as the name of the bank being transferred to. A credit card is different from a charge card: a charge card requires the balance to be paid in full each month. conforming to the ISO/IEC 7810 ID-1 standard.60 × 53. which can be used like currency by the owner of the card. whereas a charge card simply defers payment by the buyer until a later date. number complying with the ISO/IEC 7812 numbering standard. which were often incompatible. In many countries. plastic credit cards issued by many department stores were produced on stock ("Princess" or "CR-50") slightly longer and narrower than 7810. unlike credit cards and charge cards. can be used instead of cash when making purchases. Debit card A debit card (also known as a bank card or check card) is a plastic payment card that provides the cardholder electronic access to their bank account(s) at a financial institution. Some modern credit cards have a computer chip embedded in them for security reasons. a number of initiatives have allowed debit cards issued in one country to be used in other countries and allowed their use for internet and phone purchases. . Some cards may bear a stored value with which a payment is made. The card. in some instances. instead of them paying the money back at a later date. Both of these standards are maintained and further developed by ISO/IEC JTC 1/SC 17/WG 1. The development of debit cards. payments using a debit card are immediately transferred from the cardholder's designated bank account. the primary account number is assigned exclusively for use on the Internet and there is no physical card. has generally been country specific resulting in a number of different systems around the world. cash transactions. where accepted. Unlike credit and charge cards. while most relay a message to the cardholder's bank to withdraw funds from a payer's designated bank account. the use of debit cards has become so widespread that their volume has overtaken or entirely replaced chequesand. Before magnetic stripe readers came into widespread use. Since the mid-2000s. In some cases. without the need to visit a bank branch or automated teller machine. telephone banking minimises the cost of handling transactions by reducing the need for customers to visit a bank branch for non-cash withdrawal and deposit transactions.Debit cards usually also allow for instant withdrawal of cash. Telephone banking times are usually longer than branch opening times. where a customer can withdraw cash along with their purchase Telephone banking Telephone banking is a service provided by a bank or other financial institution. From the bank's point of view. Internet Banking . that enables customers to perform a range of financial transactions over the telephone. Merchants may also offercashback facilities to customers. acting as the ATM card for withdrawing cash. and some financial institutions offer the service on a 24hour basis. which may be cheque. To access online banking. Online banking is also referred as Internet banking. Customers' numbers are normally not the same as account numbers. loan. such as a retail bank. Customer numbers will also not be the same as any debit or credit card issued by the financial institution to the customer. but there is no consistency to the approach adopted. and set up some password (under various names) for customer verification. To access a financial institution's online banking facility.Online banking (OLB) is an electronic payment system that enables customers of a financial institution to conduct financial transactions on a website operated by the institution. credit union or building society. a customer would go to the financial institution's secured website. Financial institutions now routinely allocate customers numbers (also under various names). Mobile banking . The password for online banking is normally not the same as for telephone banking. The customer can link to the customer number any account which the customer controls. credit card and other accounts. savings. because a number of customer accounts can be linked to the one customer number. virtual banking and by other terms. a customer with Internet access would need to register with the institution for the service. virtual bank. and enter the online banking facility using the customer number and password previously setup. whether or not customers have indicated an intention to access their online banking facility. Some financial institutions have set up additional security steps for access to online banking. e-banking. Mobile banking differs from mobile payments. which involve the use of a mobile device to pay for goods or services either at thepoint of sale or remotely. A number of things can happen on mobile detection such as redirecting to an app store. Doorstep Banking Salient Features of Doorstep Banking Services (safe & secure) . CSS3 andJavaScript have seen more banks launching mobile web based services to complement native applications. a service known as SMS banking. With the introduction of smart phones with WAP support enabling the use of the mobile web in 1999.[1] analogously to the use of a debit or credit card to effect an EFTPOS payment. Mobile banking has until recently (2010) most often been performed via SMS or the mobile web. the first European banks started to offer mobile banking on this platform to their customers. called apps. A recent study (May 2012) by Mapa Research suggests that over a third of banks have mobile device detection upon visiting the banks' main website. The earliest mobile banking services were offered over SMS. With that said. redirection to a mobile banking specific website or providing a menu of mobile banking options for the user to choose from. downloaded to the mobile device.Mobile banking is a term used to refer to systems that allow customers of a financial institution to conduct a number of financial transactions through a mobile device such as a mobile phone or tablet. Apple's initial success with iPhoneand the rapid growth of phones based on Google's Android (operating system) have led to increasing use of special client programs. advancements in web technologies such as HTML5. scanners. touch screens and a variety of other hardware and software available. such as inventory management. a grocery or candy store may use a scale at the point of sale. the merchant would prepare an invoice for the customer (which may be a cash register printout) or otherwise calculate the amount owed by the customer and provide options for the customer to make payment. the merchant will also normally issue a receipt for the transaction. CRM. Point Of Sale (POS) The point of sale (POS) is the time and place where a retail transaction is completed. financials.: Bank is offering the DSBS to its customers (Individual /Non Individual/Corporate) who are interested to avail the said services. EFTPOS terminals. At the point of sale. etc. Retailers may utilize weighing scales. . today POS software may include additional features to cater for different functionality. For example. electronic and manual cash registers. but it is increasingly being dispensed electronically. The service should be offered either at the residence or at the office of the customer. Usually the receipt is printed. warehousing.[1][2][3] The POS in various retail situations would use customized hardware and software tailored to their particular requirements. Additionally. After receiving payment. for pick up of cash and delivery of cash from the door step of customer: The services are to be offered only to those customers in whose case proper KYC procedures have been followed. The point of sale is often referred to as the point of service because it is not just a point of sale but also a point of return or customer order. It is the point at which a customer makes a payment to the merchant in exchange for goods or after provision of a service. while a bar and restaurant may use software to customize the item or service sold when a customer has a meal or drink request. you will usually need to be a member of the bank that operates the machine. which allows customers to complete basic transactions without the aid of a branch representative or teller. mail and mobile. To access the advanced features of the complex units. The basic units allow the customer to only withdraw cash and receive a report of the account's balance. directbanks can make significant savings which they may pass on to clients via higher intere st rates or lowerservice charges. AUTOMATED TELLER MACHINE . .ATM An electronic banking outlet. There are two primary types of automated teller machines. or ATMs. facilitate credit card payments and report account information. By eliminating the costs associated with bank branches . Virtual Banking A direct bank is a bank without any branch network that offers its services remotely via online banking and telephone banking and may also provides access via ATMs (often through interbank network alliances). The more complex machines will accept deposits. efficient. both Gross as well as Net settlement systems . India supports a variety of electronic payments and settlement system. India has multiple payments and settlement systems. RBI Still continues to evolve new payment methods and slowly revamping the payments and settlement capability in India. although many were owned by traditionalbanks. Payments raise the GDP of a country thus it is mandatory that the payment systems of the country are “safe. The Reserve Bank of India continually strives towards ensuring the smooth progress of the payments system. Electronic Clearing Services (ECS) Payments are an indispensable part of our daily transactions. a business to a consumer or a business to a business. sound. Since mid-2000s online and telephone bank ing has become a mainstay of retail banking andmost banks have incorporated these into their core services and transforming or r educing their branchnetwork to mirror the advantages that direct banks have. A number of direct banks offer only online savings account and these banks typically offerhigher interest rates that their traditional competitors a s these banks can be very cost efficient tooperate. In India it is the BPSS (Board for Regulation of Payment and Settlement Systems) which is in charge of regulating these systems. accessible and authorize.The concept of a direct bank gained prominence with the advent of online banking technolog y in the early1990s which led to a number of direct banks being created.” as stated by the mission statement of the Reserve Bank of India’s publication on Payment Systems in India (2009–12). be it a consumer to a business. secure. com/banking/highlights-of-narasimham-committeerecommendations-on-banking-reforms-in-india/23497/ http://searchcio.org/wiki/Online_banking https://en.BIBLIOGRAPHY http://www.wikipedia.in/definition/National-Electronic-Funds-Transfer-NEFT https://en.techtarget.org/wiki/Credit_card https://en.yourarticlelibrary.wikipedia.wikipedia.wikipedia.org/wiki/Mobile_banking .org/wiki/Debit_card https://en.org/wiki/Telephone_banking https://en.wikipedia. com/terms/a/atm.org/wiki/Point_of_sale http://www.thefreedictionary.https://en.com/Virtual+Bank https://en.wikipedia.wikipedia.investopedia.org/wiki/Payment_and_settlement_systems_in_India .asp http://encyclopedia.