Recent

Trends in
Banking
History of Banking sector
The first bank in India, called The General Bank of
India was established in the year 1786. The East India
Company established The Bank of Bengal/Calcutta
(1809), Bank of Bombay (1840) and Bank of Madras
(1843). The next bank was Bank of Hindustan which
was established in 1870. These three individual units
(Bank of Calcutta, Bank of Bombay, and Bank of
Madras) were called as Presidency Banks. Allahabad
Bank which was established in 1865, was for the first
time completely run by Indians. Punjab National Bank
Ltd. was set up in 1894 with head quarters at Lahore.
Between 1906 and 1913, Bank of India, Central Bank
of India, Bank of Baroda, Canara Bank, Indian Bank,
and Bank of Mysore were set up. In 1921, all
presidency banks were amalgamated to 22 form the
Imperial Bank of India which was run by European
Shareholders. After that the Reserve Bank of India
was established in April 1935. At the time of first
phase the growth of banking sector was very slow.
Between 1913 and 1948 there were approximately
1100 small banks in India.
The growth in the Indian Banking Industry has been
more qualitative than quantitative and it is expected
to remain the same in the coming years. Based on the
projections made in the "India Vision 2020" prepared
by the Planning Commission and the Draft 10th Plan.
Introduction
As per the Reserve Bank of India (RBI), India’s banking
sector is sufficiently capitalised and well-regulated. The
financial and economic conditions in the country are
far superior to any other country in the world. Credit,
market and liquidity risk studies suggest that Indian
banks are generally resilient and have withstood the
global downturn well.
Indian banking industry has recently witnessed the roll
out of innovative banking models like payments and
small finance banks. RBI’s new measures may go a long
way in helping the restructuring of the domestic
banking industry.
The digital payments system in India has evolved the
most among 25 countries with India’s Immediate
Payment Service (IMPS) being the only system at level
5 in the Faster Payments Innovation Index (FPII).
In August 2017, Global rating agency Moody's
announced that its outlook for the Indian banking
system was stable. In November 2017, Global rating
agency Moody's upgraded four Indian banks from Baa3
to Baa2.
Growth in Banking Sector Deposits
• During FY06–17, deposits grew at a CAGR
(Compound Annual Growth Rate) of 12.03 per cent and
reached 1.54 trillion by FY171.
• Strong growth in savings along with rising disposable
income levels are the major factors influencing deposit
growth.
• Access to banking system has also improved over the
years due to persistent government efforts to promote
banking-technology and promote expansion in
unbanked and non-metropolitan regions.
• At the same time India’s banking sector has remained
stable despite global upheavals, thereby retaining
public confidence over the years.
• Deposits under Pradhan Mantri Jan Dhan Yojana
(PMJDY), have also increased. As on November 9, 2016,
US$ 6,971.68 million were deposited, while 255.1
million accounts were opened
Market Size
 The Indian banking system consists of 27 public
sector banks, 26 private sector banks, 46 foreign
banks, 56 regional rural banks, 1,574 urban
cooperative banks and 93,913 rural cooperative
banks, in addition to cooperative credit
institutions. Public-sector banks control more
than 70 per cent of the banking system assets,
thereby leaving a comparatively smaller share for
its private peers. Banks are also encouraging their
customers to manage their finances using mobile
phones.
  As the Reserve Bank of India (RBI) allows more
features such as unlimited fund transfers between
wallets and bank accounts, mobile wallets are
expected to become strong players in the
financial ecosystem.
 The unorganised retail sector in India has huge
untapped potential for adopting digital mode of
payments, as 63 per cent of the retailers are
interested in using digital payments like mobile
and card payments, as per a report by Centre for
Digital Financial Inclusion (CDFI).
ICRA estimates that credit growth in India’s banking
sector would be at 7-8 per cent in FY 2018
Investments/developments
Key investments and developments in India’s banking
industry include:
 The bank recapitalisation plan by Government of
India is expected to push credit growth in the
country to 15 per cent and as a result help the
GDP grow by 7 per cent in FY19.
  Public sector banks are lining up to raise funds via
qualified institutional placements (QIP), backed by
better investor sentiment after the Government
of India's bank recapitalisation plan and an
upgrade in India's sovereign rating by Moody's
Investor Service.

 The RBI amends statutes thereby allowing lenders

to invest in real estate investment trusts (REITs)
and infrastructure investment trusts (InvITs) not
exceeding 10 per cent of the unit capital of such
instruments.
Government Initiatives
 The Government of India is planning to introduce a
two percentage point discount in the Goods and
Services Tax (GST) on business-to-consumer (B2C)
transactions made via digital payments.
 A new portal named 'Udyami Mitra' has been
launched by the Small Industries Development
Bank of India (SIDBI) with the aim of improving
credit availability to Micro, Small and Medium
Enterprises' (MSMEs) in the country.
  Mr Arun Jaitley, Minister of Finance, Government
of India, introduced 'The Banking Regulation
(Amendment) Bill,2017', which will replace the
Banking Regulation (Amendment) Ordinance,
2017, to allow the Reserve Bank of India (RBI) to
guide banks for resolving the problems of
stressed assets.

The government and the regulator have undertaken

several measures to strengthen the Indian banking
sector.
 A two-year plan to strengthen the public sector
banks through reforms and capital infusion of Rs
2.11 lakh crore (US$ 32.5 billion), has been
unveiled by the Government of India that will
enable these banks to play a much larger role in
the financial system and give a boost to the
MSME sector. In this regard, the Lok Sabha has
approved recapitalisation bonds worth Rs 80,000
crore (US$ 12.62 billion) for public sector banks,
which will be accompanied by a series of reforms,
according to Mr Arun Jaitley, Minister of Finance,
Government of India.
 The Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2017 Bill has been
passed by Rajya Sabha and is expected to
strengthen the banking sector.
The present banking scenario provides a lot of
opportunities as well as facing lot of challenges
also. India is being fundamentally strong
supported by concrete economic policies,
decisions and implementations by the Indian
Government
Today in India, the service sector is contributing
half of the Indian GDP and the banking is most
popular service sector in India. The significant role
of banking industry is essential to speed up the
social economic development. To improve major
areas of banking sector, Government of India, RBI
and Ministry of finance have made several
notable efforts. Many of leading banks operating
in market have made use of the changed rules
and regulations such as CRR, interest rate, special
offers to the customers such as to open account
in Zero balance.
 In addition to this, now a day’s banks are entered
in nonbanking products such as insurance in
which area there are tremendous opportunities.

Challenges faced by the banking sector

1)Customer satisfaction Today

in banking sector customers are more value oriented
in their services because they have alternative choices
in it. So that each and every bank have to take care
about fulfilling customers satisfaction.To provide
several personnel services Today, it is demanded that
banks are to provide several services for which they
have to expand their service, social banking with
financial possibilities, computerization and innovative
mechanization, better customer services, internal
supervision and control, adequate profitability, strong
organisation culture etc. Therefore banks must be able
to provide complete personal service to the customers
who comes with expectations.
Competition

The nationalized banks and commercial banks have the

competition from foreign and new private sector
banks. Competition in banking sector brings various
challenges before the banks such as product
positioning, innovative ideas and channels and new
market trends. Banks are restricting their
administrative folio by converting manpower into
machine power.ie; banks are decreasing manual
powers and getting maximum work done through
machine power. Skilled and specialized manpower is to
be utilized and result oriented targeted staff will be
appointed.

Growth of Banking

The Indian Banking Industry experienced sustained

productivity growth, which was driven mainly by
technological progress. Foreign banks appear to have
acted as technological innovators when competition
increased, which added to the competitive pressure in
the banking market Banks are successful in making
their presence in rural India.
 It strengthens their network across geographical
boundary improves customer base and market share.
Managing Technology Developing or acquiring the right
technology, deploying it optimally and then
Leveraging it to the maximum extent is essential to
achieve and maintain high service and efficiency
standards while remaining cost effective and delivering
sustainable return to shareholders. Early adopters of
technology acquire significant competitive advantages.
Managing technology is therefore, a key challenge for
the Indian Banking Sector.

Market Discipline and Transparency

Transparency and disclosure norms as part of

internationally accepted corporate governance
practices are assuming greater importance in the
emerging environment. Banks are expected to be more
responsive and accountable to the investors. Banks
have to disclose in their Balance sheets a excess of
information on the maturity profiles of assets and
liabilities, movements in NPAs, capital, shareholdings
of the government, value of investment in India and
abroad, the total investment made in the equity share,
bonds, debentures, aggregate advances against shares
and so on
Other Challenges
 Development of skill of bank personnel
 Customer awareness and satisfaction
 Changing needs of customers
 Lack of common technology standards for mobile
banking
 Manpower planning etc.

SWOT ANALYSIS OF BANKING SECTOR

1. Strength of Indian banks

• High standard regulatory environment. The policy

makers, which comprise the Reserve Bank of India (RBI),
Ministry of Finance and related Government financial sector
regulatory entities, have made several notable efforts to
improve regulation in the sector

• Bank lending has been a significant driver of GDP growth

and employment.

• Long tradition of establishment of bank in India before pre

independence era
• Large manpower with relevant banking skill to manage the
operations
2. Weakness of Indian banks

• Inadequate deposit mobilization efforts

• high level of nonperforming assets
• credit to non-productive sectors like commercial estate
• The success of financial inclusion depends upon strong
technology in terms of network, more number of towers etc
all this needs to be improved as this is a weak area where the
country needs to do improvement.

• Lack of awareness about banking facilities and

availability of different financial products and services among
rural population is a big weakness of the economy.

3.Opportunity for Indian banks

• Existing institutions such as grameen banks can be used

effectively to expand access to financial services to the Poor.
• Increased use of E-banking
• Product extension e.g. insurance, mutual fund
• New Government schemes for opening of bank account.

4. Threats / Challenges

• Proportion of NPA. This also may lead to Mergers

&acquisitions, which itself would be loss of capital to entire
system.
• The huge population falling under the category who are
to banked belongs to the rural areas. (teaching, educating
them and making them aware of the banking facilities’)
• The approach of banks especially the private sector
banks for opening their branches in rural areas is very
indifferent, they are realizing it just as a compulsion for them
not a step to be taken willingly.
• Increasing number of Cyber crime & bank frauds
• Competition from unorganized player like Money
lenders, NBFCs etc.(Non-Banking finance corporation)

Road Ahead

Indian banks are trust worthy brands in Indian

market, therefore these banks must utilise their
brand equity as it is a valuable asset for them
Enhanced spending on infrastructure, speedy
implementation of projects and continuation of
reforms are expected to provide further movement to
growth. All these factors suggest that India’s banking
sector is also poised for robust growth as the rapidly
growing business would turn to banks for their credit
needs.Also, the advancements in technology have
brought the mobile and internet banking services to
the fore.
The banking sector is laying greater emphasis on
providing improved services to their clients and also
upgrading their technology infrastructure, in order to
enhance the customer’s overall experience as well as
give banks a competitive edge.
Many banks, including HDFC, ICICI and AXIS are
exploring the option to launch contact-less credit and
debit cards in the market shortly. The cards, which use
near field communication (NFC) mechanism, will allow
customers to transact without having to insert or
swipe.
Mr Bill Gates, Co-founder of Microsoft Corp, has stated
that India will move quite rapidly to a digital payments
economy in as little as seven years, based on the
introduction of digital payment banks combined with
other things like direct benefit transfers, universal
payments interface .
References: Media Reports, Press releases, Reserve
Bank of India, Press Information
Bureau, www.pmjdy.gov.in, Union Budget 2017-18