A PROJECT ON-

REFORM IN BANKING INDUSTRY: 2010-2011

(VIVEK KERKETTA )1 INTRODUCTION Golden rule for bankers: It lend to anyone who needs money.2 The banking system is central to a nations economy. Banks are special as they not only accept and deploy large amounts of uncollateralized public funds in a fiduciary capacity, but also leverage such funds through credit creation. Banking sector formulates a crucial field in the financial management of the country. In early societies functions of a bank were done by the corresponding institutions dealing with loans and advances. The modern western banking and its networking are the products of modern concept of banking in India. The Banking sector, in, as we know today, is the outcome of various phases throughout its history. The first phase in this regard is the phase of social control. Mismanagement of the banks coupled with the allegations that a large chunk of the bank loans were sanctioned to the large and medium scale industries and big and established business and industrial houses in which the management had vested interest compelled the government to affect these social control measures. But the imposition of social control failed due to which came the phase of nationalization came and 14 major banks were nationalized on 19th July, 1969. In 1980, six private banks were nationalized. But nationalization suffered from its own disadvantages. Also India suffered from the great crisis in 1991 due to which need was felt for bringing about financial reforms which is the third phase. The modern e- banking system and various other technologies in the present day banking system is the result of the banking reforms.
1

The author is a 4th year student of B.A.LLB (Hons.) in Hidayatullaha National Law University, Raipur. He can be approached at [email protected] Mihir Raksit, Banking under the Emerging Economic Environment, published in Icrabulletin Money & Finance, July- December 05
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HISTORY AND NEED OF BANKING REFORM

HISTORY OF REFORMS IN BANKING SECTOR In India, prior to nationalization, banking was restricted mainly to the urban areas and neglected in the rural and semi-urban areas. Large industries and big business houses enjoyed major portion of the credit facilities. Agriculture, small-scale industries and exports did not receive the deserved attention. Therefore, inspired by a larger social purpose, 14 major banks were nationalized in 1969 and six more in 1980. Since then the banking system in India has played a pivotal role in the Indian economy, acting as an instrument of social and economic change. The rationale behind bank nationalization has been succinctly put forth by eminent bankers. Post nationalization, the Indian banking system registered tremendous growth in volume. Despite the undeniable and multifold gains of bank nationalization, the important financial institutions were all state owned and were subject to central direction and control. Banks enjoyed little autonomy as both lending and deposit rates were controlled until the end of the 1980s. Although nationalization of banks helped in the spread of banking to the rural and hitherto uncovered areas, the monopoly granted to the public sector and lack of competition led to overall inefficiency and low productivity. 3 Many bank failures and crises over two centuries, and the damage they did under laissez faire conditions; the needs of planned growth and equitable distribution of credit, which in privately owned banks was concentrated mainly on the controlling industrial houses and influential borrowers; the needs of growing small scale industry and farming regarding finance, equipment and inputs; from all these there emerged an inexorable demand for banking legislation, some government control and a central banking authority, adding up, in the final analysis, to social control and nationalization.

A.S. Ramasastri and Achamma Samuel, Banking Sector Developments in India, 1980-2005: What the Annual Accounts Speak?, Reserve Bank of India Occasional Papers Vol. 27, No. 1 and 2, Summer and Monsoon 2006

THE GREAT INDIAN CRISIS By 1991, the countrys financial system was saddled with an inefficient and financially unsound banking sector. There was a steep fall in the countrys foreign exchange reserves. 4 Some of the reasons for this were (i) high reserve requirements, (ii) administered interest rates, (iii) directed credit and (iv) lack of competition (v) political interference and corruption.5 Indian banks are obliged to satisfy two reserve ratios the cash reserve ratio (CRR)6 and the statutory liquidity ratio (SLR)7. In early 1991, the CRR and SLR were increased leading to a staggering 63.5 per cent of bank deposits were compulsorily impounded by the RBI in 1991. While the reserves are meant to ensure safety and liquidity of the banks, i e, required for prudential purposes, in India these were used as a means to finance huge budget deficits and other credit needs of the public sector at subsidized interest rates. After the banks had satisfied the SLR and CRR requirements, they were obliged to lend funds to priority sectors comprising agriculture, small-scale industries and weaker sections of the society. The priority sector loans were given at concessional rates of interest. This, together with inadequate safeguards against default, created incentives to borrow under priority sector loan as far as possible. A significant proportion of the loans were usurped by those for whom it was not intended. Also in 1991, there were 50 lending categories with different interest rates. Differences in interest rates did not reflect factors like risk, maturity, demand and supply of funds, rate of inflation, etc. owing to such situations, need for financial reforms was felt.

Prabir C. Bhattacharya, M.N. Sivasubramanyam., Aspects of Banking Sector Reforms in India, published in Economic and Political Weekly, October 27, 2001
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Supra, f.n.2

The CRR requires the banks to hold part of their deposits in the form of cash balances with the central bank, the Reserve Bank of India (RBI) (defined in s. 18 of the Banking Regulation Act, 1949). The SLR stipulates the proportion of deposits that banks must hold in the form of government and other approved securities.
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OBJECTIVES OF BANKING REFORMS y Reform measures were initiated and sequenced to create an enabling environment for banks to overcome the external constraints. y As regards the policy environment of public ownership, it must be recognized that the lions share of financial intermediation was accounted for by the public sector during the pre-reform period. As part of the reforms programme, initially, there was infusion of capital by the Government in public sector banks, which was followed by expanding the capital base with equity participation by the private investors. y One of the major objectives of banking sector reforms has been to enhance efficiency and productivity through competition. Guidelines have been laid down for establishment of new banks in the private sector and the foreign banks have been allowed more liberal entry. y Consolidation in the banking sector has been another feature of the reform process. This also encompassed the Development Financial Institutions (DFIs), which have been providers of long-term finance y There have been a number of measures for enhancing the transparency and disclosures standards.

PHASE OF REFORM
FIRST PHASE OF REFORM Banking sector reforms in India were an integral part of the liberalization8 process of the economy initiated in 1992. 9 To initiate reforms in the financial sector, the government of India appointed an expert committee Committee on Financial System10 Narasimhan Committee in November, 1991 and it is the recommendations of this committee which formed the basis of the liberalisation of the financial sector. India adopted reforms involving macroeconomic stabilisation and structural adjustment programmes. The period 1992-97 laid the foundations for reform in the banking system. This phase is termed as the first phase of financial sector reforms commenced in 1991-92.11 The major components of the reforms related toy A shift of banking sector supervision from intrusive micro-level intervention over

credit decisions toward prudential regulations and supervision.12 y Interest rates on deposits and lending have been deregulated with banks enjoying

greater freedom to determine their rates. y Reduction in pre-emptions lowering of reserve requirements (SLR and CRR), thus releasing more lendable resources which banks can deploy profitably. 13
Theories of financial liberalization postulate that financial liberalisation, by raising interest rates on deposits; will lead to an increase in the rate of savings. This, in turn, will lead to an increase in the supply of credit and raise the quantity and quality of investment. [McKinnon (1973) and Shaw (1973)].
9 8

Supra, f.n. 3

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This Report had made a number of recommendations aimed at improving the productivity, efficiency and profitability of the banking system on the one hand and providing it greater operational flexibility and functional autonomy in decision making on the other. It covered policy aspects, accounting practices institutional and structural issues and matters relating to organisational development. The report itself was conceived as a holistic exercise and its recommendations were accordingly symbolically related to each other.
11 Valedictory Address by Dr. Y.V.Reddy Deputy Governor Reserve Bank of India on "Indian Banking Second Phase of Reforms Agenda and Issues" at 20th Bank Economists' Conference at The President Hotel, Mumbai on October 8, 1997 12

Sayuri Shirai, Assessment of Indias Banking Sector Reforms from the Perspective of the Governance of the Banking System

The introduction of prudential norms 14 and standards in terms of capital adequacy,

asset classification, income recognition, provisioning, exposure limits, investment fluctuation reserve, etc. broadly along the lines recommended by the Basel Committee on Banking Supervision. Internationally accepted prudential norms relating to income recognition, asset classification, provisioning and capital adequacy have been introduced. As per the Basel Committee norms, the commercial banks should maintain a capital to risky asset ratio (CRAR) of not less than 8 per cent. Very few banks in India had a capital adequacy ratio of 8 per cent prior to 1991. By March 1998, only one of the 28 public sector banks fell short of this level and many were significantly above that level. The statistics show an increase in the rate of growth of investments and the decrease in the rate of growth of credit in the post-reform period in the first phase of financial reforms. SECOND PHASE OF REFORM The second phase of financial reforms commenced with the announcement of the monetary and credit policy announcement of April 1997, described by some as a big bang. 15 The second Narasimham Committee Report on Banking Reforms (1998) focused on issues like strengthening of the banking system, upgrading of technology and human resource development. The report laid emphasis on two aspects of banking regulation, viz., capital adequacy and asset classification and resolution of NPA-related problems. The second phase of financial reforms brought about following changes: y This policy changed the relationship between the RBI and banks from micro

regulation to micromanagement. y It changed the relationship between banks and borrowers by giving greater choice to

borrowers among banks and among the modes of financing their requirements.

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A K. Purwar, Banking Sector, Section 2: Industry Review. p. 73

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In 1998, the Narashimham Committee II has recommended a convergence of developing financing institutions to with commercial banks or non-bank financial institutions and an adoption of the integrated system of regulation and supervision etc.
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Supra,, f.n. 12

To the extent the process of integration has started, it changed the relationship

between different market participants. y The relationship between the RBI and market participants changed through the expansion and reinforcement of the consultative processes. 16 Further, Verma Committee for revival of sick banks. The Reserve Bank of India set up the Working Group under the chairmanship of M. S. Verma, the former State Bank of India Chairman, to suggest measures for the revival of weak public sector banks. The terms of reference for the committee were: y y y Criteria for identification of weak public sector banks; To study and examine the problems of weak banks; To undertake a case-by-case examination of weak banks and to identify those which

are potentially revival-worthy; and y To suggest a strategic plan of financial, organizational and operational restructuring for weak public sector banks.17 Securitization Companies/Reconstruction Companies set up under the SARFAESI Act, 2002: Changes in Regulations The guidelines and instructions issued to the Securitizations Companies/ Reconstruction Companies (SCs/RCs) have been reviewed by the Reserve Bank in consultation with these companies. Accordingly, it is proposed to make the following modifications to the guidelines:
y

SCs/RCs can acquire the assets either in their own books or directly in the books of

the trusts set up by them.

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The period for realization of assets acquired by SCs/RCs can be extended from five

years to eight years by their Boards of Directors, subject to certain conditions. Asset/Security Receipts (SRs), which remain unresolved/not redeemed as at the end of five years or eight years, as the case may be, will henceforth be treated as loss assets.
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Supra, f.n.15

An article Inadequacy of ratios in Verma Committee Report by V. Prasanna Bhat published in Business Line on Thursday, March 23, 2000 available online.

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It will be mandatory for SCs/RCs to invest an amount not less than 5 per cent of each

class of SRs issued under a particular scheme and continue to hold the investments till the time all the SRs issued under that class are redeemed completely.
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With a view to bringing transparency and market discipline in the functioning of

SCs/RCs, additional disclosures relating to assets realized during the year, value of financial assets unresolved as at the end of the year, value of SRs pending redemption, among others, are being prescribed. Urban Co-operative Banks Establishment of New Urban Co-operative Banks: Taking into account the systemic financial health of urban co-operative banks (UCBs), it was decided in 2004 not to set up any new UCBs. With a view to improving the financial soundness of the UCB sector, memoranda of understanding (MoU) were signed with all State Governments. Following the consolidation, the financial condition of the UCB sector has improved considerably and UCBs have also been allowed to enter into new areas of business. With a view to increasing the coverage of banking services amongst local communities, it is proposed:
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to set up a Committee comprising all stakeholders for studying the advisability of

granting new urban co-operative banking licenses under Section 22 of the Banking Regulation Act, 1949 [as applicable to co-operative societies (AACS)]. Liberalization of Off-site ATMs by UCBs: Under the extant policy of branch authorization, UCBs, which are well-managed and meet the regulatory criteria, are required to submit annual business plans, based on which centers are allotted to them according to their choice for opening of branches. Centers where UCBs desire to open off-site ATMs are also required to be included in their annual business plan. In order to further improve the banking infrastructure, it has been decided to liberalize the approach to setting up of off-site ATMs by UCBs. Accordingly, it is proposed:
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To allow well-managed UCBs to set up off-site ATMs without seeking approval

through the annual business plans.

BANKING REFORMS 2010-11 The monetary policy response in India since October 2009 has been calibrated to Indias specific macroeconomic conditions. Accordingly, policy stance for 2010-11 has been guided by the following three major considerations: First, recovery is consolidating. The quick rebound of growth during 2009-10 despite failure of monsoon rainfall suggests that the Indian economy has become resilient. Growth in 201011 is projected to be higher and more broad-based than in 2009-10. In its Third Quarter Review in January 2010, the Reserve Bank had indicated that our main monetary policy instruments are at levels that are more consistent with a crisis situation than with a fast recovering economy. In the emerging scenario, lower policy rates can complicate the inflation outlook and impair inflationary expectations, particularly given the recent escalation in the prices of non-food manufactured items. Despite the increase of 25 basis points each in the repo rate and the reverse repo rate, our real policy rates are still negative. With the recovery now firmly in place, we need to move in a calibrated manner in the direction of normalizing our policy instruments. Second, inflationary pressures have accentuated in the recent period. More importantly, inflation, which was earlier driven entirely by supply side factors, is now getting increasingly generalized. There is already some evidence that the pricing power of corporate has returned. With the growth expected to accelerate further in the next year, capacity constraints will reemerge, which are expected to exert further pressure on prices. Inflation expectations also remain at an elevated level. There is, therefore, a need to ensure that demand side inflation does not become entrenched. Third, notwithstanding lower budgeted government borrowings in 2010-11 than in the year before, fresh issuance of securities will be 36.3 per cent higher than in the previous year. This presents a dilemma for the Reserve Bank. While monetary policy considerations demand that surplus liquidity should be absorbed, debt management considerations warrant supportive liquidity conditions. The Reserve Bank, therefore, has to do a fine balancing act and ensure that while absorbing excess liquidity, the government borrowing programmed is not hampered.

The process was carried forward by the second phase of exit when the Reserve Bank announced a 75 basis points increase in the CRR in the Third Quarter Review of January 2010. As inflation continued to increase, driven significantly by the prices of non-food manufactured goods, and exceeded the Reserve Banks baseline projection of 8.5 per cent for March 2010 (made in the Third Quarter Review), the Reserve Bank responded expeditiously with a mid-cycle increase of 25 basis points each in the policy repo rate and the reverse repo rate under the LAF on March 19, 2010. Monetary Measures On the basis of the current assessment and in line with the policy stance as outlined in Section III, the Reserve Bank announces the following policy measures: Bank Rate: The Bank Rate has been retained at 6.0 per cent. Repo Rate: It has been decided to: y Increase the repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis

points from 5.0 per cent to 5.25 per cent with immediate effect. Reverse Repo Rate: It has been decided to:
y

Increase the reverse repo rate under the LAF by 25 basis points from 3.5 per cent to

3.75 per cent with immediate effect. Cash Reserve Ratio: It has been decided to:
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Increase the cash reserve ratio (CRR) of scheduled banks by 25 basis points from 5.75

per cent to 6.0 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning April 24, 2010. As a result of the increase in the CRR, about Rs. 12,500 crore of excess liquidity will be absorbed from the system. The Reserve Bank will continue to monitor macroeconomic conditions, particularly the price situation, closely and take further action as warranted. Expected Outcomes: The expected outcomes of the actions are:

y y y y

Inflation will be contained and inflationary expectations will be anchored. The recovery process will be sustained. Government borrowing requirements and the private credit demand will be met. Policy instrument will be further aligned in manner consistent with the evolving state

of economy. First Quarter Review of Monetary Policy 2010-11 The First Quarter Review of Monetary Policy for 2010-11 will be announced on July 27, 2010. Development and Regulatory Policies Financial Market Products Interest Rate Futures: The Interest Rate Futures contract on 10-year notional coupon bearing Government of India security was introduced on August 31, 2009. Based on the market feedback and the recommendations of the Technical Advisory Committee (TAC) on the Money, Foreign Exchange and Government Securities Markets, it is proposed:
y

to introduce Interest Rate Futures on 5-year and 2-year notional coupon bearing

securities and 91-day Treasury Bills. The RBI-SEBI Standing Technical Committee will finalize the product design and operational modalities for introduction of these products on the exchanges. Regulation of Non-Convertible Debentures (NCDs) of Maturity of Less than One Year In the Second Quarter Review of October 2009, the draft guidelines on the regulation of nonconvertible debentures (NCDs) of maturity of less than one year were placed on the Reserve Banks website on November 3, 2009 for comments/feedback. The comments/feedback received were examined and also deliberated by the TAC on the Money, Foreign Exchange and Government Securities Markets. Accordingly, it is proposed:
y

to issue the final guidelines on the issuance of NCDs of maturity less than one year by

end-June 2010.

Introduction of Exchange-Traded Currency Option Contracts Currently, residents in India are permitted to trade in futures contracts in four currency pairs on two recognized stock exchanges. In order to expand the menu of tools for hedging currency risk, it has been decided:
y

to permit the recognized stock exchanges to introduce plain vanilla currency options

on spot US Dollar/Rupee exchange rate for residents. Corporate Bond Market The risk management and operational guidelines will be finalized by the RBI-SEBI Standing Technical Committee. In the recent period, the Reserve Bank initiated several measures to develop the corporate bond market as detailed below: (i) To facilitate settlement of secondary market trades in corporate bonds on a delivery

versus payment-1 (DVP-1) basis on the Real Time Gross Settlement (RTGS) system, the National Securities Clearing Corporation Limited (NSCCL) and the Indian Clearing Corporation Limited (ICCL) have been permitted to maintain transitory pooling accounts with the Reserve Bank. Further, guidelines have been issued to all Reserve Bank regulated entities to mandatorily clear and settle all OTC trades in corporate bonds using the above arrangement with effect from December 1, 2009. (ii) To facilitate the development of an active repo market in corporate bonds, the

guidelines for repo transactions in corporate debt securities were issued on January 8, 2010. The guidelines, which came into force with effect from March 1, 2010, will enable repo in listed corporate debt securities rated AA or above. Fixed Income Money Market and Derivatives Association of India (FIMMDA) is working on the development of reporting platform and also on the Global Master Repo Agreement to operationalise the repo in corporate bonds.

Financial Market Infrastructure Revision of Repo Accounting: Status As indicated in the Annual Policy Statement of April 2009, the revised guidelines for accounting of repo/reverse repo transactions were issued by the Reserve Bank on March 23, 2010. The revised accounting guidelines capture the economic essence of repo as a collateralized lending and borrowing instrument and not as outright sale and purchase. The revised accounting guidelines have been made applicable to market repo transactions with effect from April 1, 2010. These accounting norms will, however, not apply to repo/reverse repo transactions conducted under the Liquidity Adjustment Facility (LAF) with the Reserve Bank. Credit Delivery and Financial Inclusion Rural Co-operative Banks Revival of Rural Co-operative Credit Structure: Based on the recommendations of the Task Force on Revival of Rural Co-operative Credit Institutions (Chairman: Prof.A.Vaidyanathan) and in consultation with the state governments, the Government of India had approved a package for revival of the short-term rural co-operative credit structure. As envisaged in the package, so far 25 States have entered into Memoranda of Understanding (MoU) with the Government of India and the National Bank for Agriculture and Rural Development (NABARD). Fourteen States have made necessary amendments to their respective Cooperative Societies Acts. As on December 31, 2009, an aggregate amount of about Rs.7,000 crore was released by the NABARD as Government of Indias share under the package to primary agricultural credit societies (PACS) in 11 States. Licensing of New Banks The Finance Minister, in his budget speech on February 26, 2010 announced that the Reserve Bank was considering giving some additional banking licenses to private sector players. NBFCs could also be considered, if they meet the Reserve Banks eligibility criteria. In line with the above announcement, it is proposed:

to prepare a discussion paper marshalling the international practices, the Indian

experience as also the extant ownership and governance (O&G) guidelines and place it on the Reserve Banks website by end-July 2010 for wider comments and feedback. Thereafter, detailed discussions will be held with all stakeholders on the discussion paper and guidelines will be finalized based on the feedback. All applications received in this regard would be referred to an external expert group for examination and recommendations to the Reserve Bank for granting licenses. Introduction of Bank Holding Company (BHC)/Financial Holding Company (FHC) in India. The need for introduction of bank holding companies (BHCs)/financial holding companies (FHCs) in India to ensure an orderly growth of financial conglomerates and better insulation of a bank from the reputational and other risks of the subsidiaries/affiliates within the group. The Committee on Financial Sector Assessment (CFSA), in its report issued in March 2009, observed that given the lack of clarity in the existing statutes relating to the regulation and supervision of financial holding companies, the holding company structure as prevalent in the US for financial conglomerates is not currently in use in India. The Committee noted that the absence of the holding company structure in financial conglomerates exposes investors, depositors and the parent company to risks, strains the parent companys ability to fund its own core business and could restrict the growth of the subsidiary business. Considering the complexity of the issues involved and implications of the BHC/FHC model for the financial system in general and banking system in particular, it is proposed:
y

to constitute a Working Group with the representatives from the Government, the

Reserve Bank, the SEBI, the IRDA and the IBA to recommend a roadmap for the introduction of a holding company structure together with the required legislative amendment/framework

Compensation Practices It was indicated in the Second Quarter Review of October 2009 that in line with the steps taken by global community, particularly the initiatives taken by G-20 nations, the Reserve Bank would issue guidelines to private sector banks and foreign banks with regard to sound compensation policy. Accordingly, it is proposed:
y

to issue comprehensive guidelines based on Financial Stability Board (FSB)

principles on sound compensation practices by end-June 2010. Implementation of Pillar 2 of Basel II All commercial banks, including foreign banks in India, migrated to the Basel II framework by March 31, 2009. The Reserve Bank has developed a framework to conduct the Supervisory Review and Evaluation Process (SREP) in banks under Pillar 2 of Basel II. One of the major objectives of SREP is to evaluate whether the capital maintained by the bank is adequate keeping in view its risk profile and to determine the supervisory capital ratio (SCR). The SCR would be determined for each bank separately. Under this framework, the adequacy of the risk management and internal control framework of banks would be subjected to indepth assessment. In order to strengthen the supervisory process, it is proposed:
y

To implement the SREP framework for banks from the inspection cycle 2010-11 as

an integral part of the Annual Financial Inspection (AFI) of banks. Payment and Settlement Systems Operationalisation of National Payments Corporation of India The National Payments Corporation of India (NPCI), set up in December 2008 as an umbrella organization for operating and managing retail payment systems, has the envisioned role to look at future innovations in the retail payment space in the country. Effective December 14, 2009, NPCI has taken over operations of the National Financial Switch (NFS) from Institute for Development and Research in Banking Technology (IDRBT). NPCI is also expected to take the lead role in rolling out the proposed CTS project at Chennai.

Mobile Banking in India The use of mobile phone channels for initiation and execution of banking transactions has been gaining significance the world over. The significance of this channel has been recognized by the Reserve Bank. Accordingly, regulatory guidelines for enabling mobile banking were notified in October 2008. The transaction limits were further relaxed in December 2009. Banks were also permitted to enable small value transactions up to Rs.1,000 without end-to-end encryption. Currently, this channel is used to settle on an average 1.9 lakh transactions of average value 12 crore in a month. To further encourage the development of other mobile-based products, non-bank entities were also permitted in August 2009 to issue mobile-based, semi-closed prepaid payment instruments, up to Rs.5,000. Non-bank entities can issue such instruments for facilitating payment for goods/services and m-commerce transactions. RTGS Upgradation: The current RTGS system has been in operation for nearly six years and there is a need to initiate steps for replacing it with a new system having improved functionalities in view of advancement in technology. Accordingly, a Working Group comprising representatives from the Reserve Bank and major commercial banks has been constituted for preparing the basic approach towards a next generation RTGS system, both from the business and IT perspective.

LEGAL REFORMS IN BANKING SECTOR IN 2010-2011: According to Banking Regulation Amendment Act, 2003, introduction of sub clause (2) of section 12 has been inserted in it. This says that- no person shares in a banking company shall on respect of any shares held by him, exercise voting rights of all the shares of the banking company. It also seeks to enable the banking companies to issue preference shares subject to regulatory guidelines of RBI and increase penalties and fines for violations. It empowers the RBI to levy penal interest in case banks fail to maintain the minimum stipulated cash reserve ratio. New bank licenses after amendment of Banking Act: The apex bank had brought out a discussion paper in August, 2010, on giving out new banking licenses to business houses and non-banking finance companies, besides regulations for the same to foster competition. The RBI also sought to know "whether industrial and business houses could be allowed to promote banks. Various entities like Reliance capital, Indian Bulls, IFCI and Adtiya Birla Finance Services are said to be mulling an entry into the banking space.18 Amendment to Banking Ombudsman Scheme 2006: The Banking Ombudsman Scheme 2006 has been introduced by Reserve Bank of India with the object of enabling resolution of complaints relating to certain services rendered by banks and to facilitate the satisfaction or settlement of such complaints.19 The Banking Ombudsman Scheme was launched in the year 1995 to address consumer grievances against the banks in India. Since then it has been modified from time to time to improve its efficiency. The Banking Ombudsman is a quasi judicial authority20 DDA Scheme 2010 Earnest Money 100 % Bank Finance by SBI, Bank of India and Central Bank: For finance of Earnest Money of Delhi Development Authority (DDA) mega Hosing Scheme 2010 government banks SBI, Bank of India and Central Bank came forward. Private banks Axis, ICICI, HDFC, IDBI are in wait and watch position, these are thinking on
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www.rediff.com/business/report/new-bank-licenses-after-amendment-of-banking-act/20110321.htm www.statebankoftravancore.com/ombudsman-2006.doc www.expressindia.com/latest-news/All-about-the-Banking-Ombudsman/688494/

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interest rate. Banks are financing 100 % DDA earnest money on easy terms and low interest rate.21 Conclusion: The development of e- banking, insurance, credit cards, infrastructure financing, leasing, gold banking, besides of course investment banking, asset management, factoring, etc. have been the result of banking reforms. Moreover, banking reforms have lead the banks to engage in non-traditional activities which has contributed to improved profitability and cost and earnings efficiency of the whole banking sector, including public-sector banks. Major drawback lies with the farmers and people engaged in priority sector who suffer from grossly inadequate supply of loans. The biggest disadvantage of banking reform is the demise of development financial institutions. These institutions mainly concentrated on providing loans to the unorganized sector and small farmers but owing to their commercialization they are no longer involved in development process. There is need for some alternative in this regard as the part of banking reform for the sake of uniform development. The extent to which Indian policy makers and bank managements develop and execute such a clear and complementary agenda to tackle emerging discontinuities will lay the foundations for a high-performing sector in 2010-2011.

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