PROJECT REPORT

On

Current issues in commercial banks

Submitted in partial fulfillment of requirements for

the award of the degree of Bachelor of Commerce

Session : 2016-2017

Under Supervision of: Submitted by:

Mrs. Shuchi Goel Kanika
Lecturer Roll No. : 5516
Exam Roll No. :
VMM

Vaish Mahila Mahavidhyalya, Rohtak

MAHARSHI DAYANAND UNIVERSITY, ROHTAK
 DECLARATION

I, Kanika Roll No. 5516 of B.Com of VMM (MDU) Rohtak, hereby declare that the project entitled
Training & Effectiveness an original work and the same has not been submitted to any other institute for
award of any other degree. The interim report was presented to the supervisor on .and the
pre-submission presentation was made on.. The feasible suggestions have been duly
incorporated in consultation with the supervisor.

Signature of the Candidate

 ACKNOWLEDGEMENT

Gratitude is not a thing of expression; it is more a matter of feeling.

There is always a sense of gratitude which one express for others for their help and supervision
in achieving the goals. We too express my deep gratitude to each and everyone who has been
helpful to us in completing the project report successfully.

We would like to thank almighty God for blessing showered on us during the completion of
Dissertation Report.

We give our regards and sincere thanks to Mrs. Shuchi Goel (VMM) who has devoted her
precious time in guiding us & helping us complete it within time.

We feel self-short of words to thanks our parents and friends who had directly or indirectly
instrumental in the completion of the project. We are indebted to all respondents for their time
passion during the long conversations.

Kanika
 COMMERCIAL BANK

A commercial bank is a type of financial institution that provides services such as accepting
deposits, making business loans, and offering basic investment products. Commercial bank can
also refer to a bank, or a division of a large bank, which more specifically deals with deposit and
loan services provided to corporations or large/middle-sized business - as opposed to individual
members of the public/small business - retail banking, or merchant banks.

Origin of the term

See also: History of banking

The name bank derives from the Italian word banco "desk/bench", used during the Renaissance
era by Florentine bankers, who used to carry out their transactions on a desk covered by a green
tablecloth.[1] However, traces of banking activity can be found even in ancient times.

Role

The general role of commercial banks is to provide financial services to general public and
business and companies, ensuring economic and social stability and sustainable growth of the
economy.

In this respect, "credit creation" is the most significant function of commercial banks. While
sanctioning a loan to a customer, they do not provide cash to the borrower. Instead, they open a
deposit account from which the borrower can withdraw. In other words, while sanctioning a
loan, they automatically create deposits, known as a "credit creation from commercial banks".
Primary functions

Commercial banks accept various types of deposits from public especially from its clients,
including saving account deposits, recurring account deposits, and fixed deposits.
Commercial banks provide loans and advances of various forms, including an overdraft facility,
cash credit, bill discounting, money at call etc.
Banking in India, in the modern sense, originated in the last decades of the 18th century.
Among the first banks were the Bank of Hindustan, which was established in 1770 and
liquidated in 182932; and the General Bank of India, established in 1786 but failed in
1791.[1][2][3][4]

The largest bank, and the oldest still in existence, is the State Bank of India (S.B.I). It originated
as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was
one of the three banks funded by a presidency government, the other two were the Bank of
Bombay in 1840 and the Bank of Madras in 1843. The three banks were merged in 1921 to form
the Imperial Bank of India, which upon India's independence, became the State Bank of India in
1955. For many years the presidency banks had acted as quasi-central banks, as did their
successors, until the Reserve Bank of India[5] was established in 1935, under the Reserve Bank of
India Act, 1934.[6][7]

In 1960, the State Banks of India was given control of eight state-associated banks under the
State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks.[6] In
1969 the Indian government nationalised 14 major private banks, one of the big bank was Bank
of India. In 1980, 6 more private banks were nationalised.[8] These nationalised banks are the
majority of lenders in the Indian economy. They dominate the banking sector because of their
large size and widespread networks.[9]

The Indian banking sector is broadly classified into scheduled banks and non-scheduled banks.
The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India
Act, 1934. The scheduled banks are further classified into: nationalised banks; State Bank of
India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private
sector banks.[7] The term commercial banks refers to both scheduled and non-scheduled
commercial banks regulated under the Banking Regulation Act, 1949.[10]
 Generally banking in India is fairly mature in terms of supply, product range and reach-even
though reach in rural India and to the poor still remains a challenge. 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 (NABARD) with
facilities like microfinance.

5 key challenges faced by India's banks

Banks are the backbone of every economy. It is very important that banks remain healthy
financially. Otherwise, a financial crisis can hit a country leading to recession like the US
in 2008.

This is especially true for developing countries like India. "The banks are the lifelines of
the economy and play a catalytic role in activating and sustaining economic growth,
 especially, in developing countries and India is no exception," S S Mundra, deputy
governor of the Reserve Bank of India said in a speech recently.

However, India's banks face different kinds of problems, which have affected their
profitability and financial stability, as per S S Mundra's speech.

Here is a look:

Asset quality:

The biggest risk to India's banks is the rise in bad loans. The slowdown in the economy in
the last few years led to a rise in bad loans or non-performing assets (NPAs). These are
loans which are not repaid back by the borrower. They are, thus, a loss for the bank. Net
NPAs amount to only 2.36% of the total loans in the banking system. This may not seem
like an alarming figure. However, it does not take into restructured assets - when a
borrower is unable to pay back and the bank makes the loan more flexible to be paid back
over a longer period of time. Restructured assets too put pressure on a bank's
profitability. Together, such stressed assets account for 10.9% of the total loans in the
system. And these are just loans which are identified as stressed assets. 36.9% of the total
debt in India is at risk, according to an IMF report. Yet, banks have capacity to absorb
only 7.9% loss. So, if these debts turn bad too, banks will face major losses.
 Capital adequacy:

One way a bank tries to ensure it is protected from bad loans is by setting aside money as
a 'provision'. This money cannot be used for any other purposes including lending. As a
result, banks have lower capital available to use for its various operations. The Capital
Adequacy Ratio measures how much capital a bank has. When this falls, the bank has to
borrow money or use depositors' money to lend. This money, however, is riskier and
costlier than the bank's own capital. For example, a depositor can withdraw his/her
money any time they want. So, a fall in CAR (often called as CRAR or Capital to Risk
Assets Ratio) is worrisome. In the last few years, CRAR has declined steadily for Indian
banks, especially for public-sector banks. Moreover, banks are not able to raise money
easily, especially public-sector banks which have higher number of bad loans. If banks do
 not shore up their capital soon, some could fail to meet the minimum capital requirement
set by the RBI. In such a case, they could face severe issues.

Unhedged forex exposure:

"The wild gyrations in the forex market have the potential to inflict significant stress in
the books of Indian companies who have heavily borrowed abroad," Mundra said in his
speech. This stress can affect their ability to pay back debt to Indian banks. As a result,
the RBI wants banks to ensure companies they lend to do not expose themselves to
unnecessary debt in dollars.

Employee and technology:

Public-sector banks are seeing more employees retire these days. So, younger employees
are replacing the elder, more-experienced employees. This, however, happens at junior
levels. As a result, there would be a virtual vacuum at the middle and senior level. "The
absence of middle management could lead to adverse impact on banks' decision making
process as this segment of officers played a critical role in translating the top
management's strategy into workable action plans," the deputy governor said. Moreover,
banks - especially government-owned banks - need to embrace technology to offer better
products. This will also help make banks more efficient.

Balance Sheet management:

In the past few years, many banks have tried to delay setting aside money as provisions
(for future bad loans). One reason for this is that a bank's chief executives have a short
tenure, during which time they want to post higher net profits and cheer investors. "It
must be appreciated that CEOs/ CMDs would come and go but the institutions are
perpetual entities. The only thing which can perpetuate their existence is a stronger and
healthier balance sheet," Mundra said. Deferring provisioning is harmful in the long term.
It reduces the bank's ability to withstand financial pressures. This is even more
problematic considering the poor capital adequacy in Indian banks. In fact, investors
would be more happy if the management addresses and sorts out problems rather than
 posting high net profits that cannot be sustained in the long term, the deputy governor
said.

Banks are facing challenges in several areas, but there are four that stand out in todays market.

The top 4 challenges facing banks and financial institutions

1. Not making enough money. Despite all of the headlines about banking profitability, banks and
financial institutions still are not making enough return on investment, or the return on equity,
that shareholders require.

2. Consumer expectations. These days its all about the customer experience, and many banks are
feeling pressure because they are not delivering the level of service that consumers are
demanding, especially in regards to technology.

3. Increasing competition from financial technology companies. Financial technology (FinTech)

companies are usually start-up companies based on using software to provide financial services.
The increasing popularity of FinTech companies is disrupting the way traditional banking has
been done. This creates a big challenge for traditional banks because they are not able to adjust
quickly to the changes not just in technology, but also in operations, culture, and other facets
of the industry.

4. Regulatory pressure. Regulatory requirements continue to increase, and banks need to spend a
large part of their discretionary budget on being compliant, and on building systems and
processes to keep up with the escalating requirements.

These challenges continue to escalate, so traditional banks need to constantly evaluate and
improve their operations in order to keep up with the fast pace of change in the banking and
financial industry today.

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overcome them at the upcoming SAP Financial Services Forum 2017 on July 45, 2017. An
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2015.

ndias central bank has some big concerns about the sustainability of the countrys banking
system.

In its bi-annual Financial Stability Report (FSR) (pdf), released on June 30, the Reserve Bank of
India (RBI) warned that the sector is under severe stress, with mounting bad loans and an
increase in bank fraud, among other issues. All this, the RBI says, could drag down Indias
economy.

Weak investment demand, partly emanating from the twin balance sheet problem (a leveraged
corporate sector alongside a stressed banking sector) is a major challenge, the report said.

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bad loans
At nearly Rs10 lakh crore, Indias pile of bad loans is bigger than the gross domestic
products of at least 137 countries. But so far, the RBIs attempts to reduce Non-Performing
Assets (NPAs) in the banking sector have yielded little result.

The share of gross NPAs in India could inch up to 10.2% by March 2018, from 9.6% in
March 2017, according to the FSR. In September 2016, gross NPAs were at 9.2%.

9 Major Problems Faced by Indias Nationalized Banks

The following points highlight the nine major problems faced by Indias nationalized
banks.

Problem # 1. Losses in Rural Branches:

Most of the rural branches are running at a loss because of high overheads and prevalence of the
barter system in most parts of rural India.

Problem # 2. Large Over-Dues:

The small branches of commercial banks are now faced with a new problema large amount of
overdue advances to farmers. The decision of the former National Front Government to waive all
loans to farmers up to the value of Rs. 10,000 crores has added to the plight of such banks.

Problem # 3. Non-Performing Assets:

The commercial banks at present do not have any machinery to ensure that their loans and
advances are, in fact, going into productive use in the larger public interest. Due to a high
proportion of non-performing assets or outstanding due to banks from borrowers they are
incurring huge losses. Most of them are also unable to maintain capital adequacy ratio.

Problem # 4. Advance to Priority Sector:

As far as advances to the priority sectors are concerned, the progress has been slow. This is
partly attributable to the fact that the bank officials from top to bottom could not accept
nationalisation gracefully, viz., diversion of a certain portion of resources to the top priority and
hitherto neglected sectors. This is also attributable to the poor and unsatisfactory loan recovery
rates from the agricultural and small sectors.

Problem # 5. Competition from Non-Banking Financial Institution:

As far as deposit mobilisation is concerned, commercial banks have been facing stiff challenges
from non-banking financial intermediaries such as mutual funds, housing finance corporations,
leasing and investment companies. All these institutions compete closely with commercial banks
in attracting public deposits and offer higher rates of interest than are paid by commercial banks.

Problem # 6. Competition with Foreign Banks:

Foreign banks and the smaller private sector banks have registered higher increase in deposits.
One reason seems to be that non-nationalised banks offer betters customer service. This creates
the impression that a diversion of deposits from the nationalised banks to other banks has
probably taken place.

Problem # 7. Gap between Promise and Performance:

One major weakness of the nationalised banking system in India is its failure to sustain the
desired credit pattern and fill in credit gaps in different sectors. Even though there has been a
reorientation of bank objectives, the bank staff has remained virtually static and the bank
procedures and practices have continued to remain old and outmoded.

The post-nationalisation period has seen a widening gap between promise and performance. The
main reason seems to be the failure of the bank staff to appreciate the new work philosophy and
new social objectives.

As Asha Kant has commented:

Area approach, agricultural development branches, village adoption plans, etc., will be of little
avail, if the grass-root level staff are not imbued with the motive and the vision of bringing about
a silent revolution in the countryside.
Problem # 8. Bureaucratisation:

Another problem faced by the commercial banks is bureaucratisation of the banking system. This
is indeed the result of nationalisation. The smooth functioning of banks has been hampered by
red-tapism, long delays, lack of initiative and failure to take quick decisions.

Problem # 9. Political Pressures:

The smooth working of nationalised banks has also been hampered by growing political
pressures from the Centre and the States. Nationalised banks often face lots of difficulties due to
various political pressures. Such pressures are created in the selection of personnel and grant of
loans to particular parties without considering their creditworthiness.

Services by product

Commercial banks generally provide a number of services to its clients, these can be split into
core banking services such as deposits and loans and other services which are related to payment
systems etc.

Core products and services

Accepting money on various types of Deposit accounts

Lending money in the form of Cash: by overdraft, instalment loan etc.
Lending money in Documentary form: Letters of credit, Guarantees, Performance bonds,
securities, underwriting commitments, issuing Bank drafts and Bank cheques, and other forms
of off-balance sheet exposure
Inter- Financial institutions relationship
Cash management
Treasury management
Private equity financing
 Processing payments via telegraphic transfer, EFTPOS, Internet banking, or other payment
methods.

Other functions

Along with core products and services, commercial banks perform several secondary functions.
The secondary functions of commercial banks can be divided into agency functions and utility
functions.

Agency functions include:

To collect and clear cheques, dividends and interest warrant

To make payments of rent, insurance premium, etc.
To deal in foreign exchange transactions
To purchase and sell securities
To act as trustee, attorney, correspondent and executor
To accept tax proceeds and tax returns.

Utility functions include:

To provide safety locker facility to customers

To provide money transfer facility
To issue traveller's cheque
To accept various bills for payment: phone bills, gas bills, water bills, etc.
To provide various cards: credit cards, debit cards, smart cards, etc.
Commercial loans by security

All the loans in the Commercial banking, irrespective of the particular type of bank product, are
subject to be "secured" or "unsecured".

Secured loans

A secured loan is a loan in which the borrower pledges some asset (e.g., a car or property) as
collateral for the loan, which then becomes a secured debt owed to the creditor who gives the
loan. The debt is thus secured against the collateral in the event that the borrower defaults, the
creditor takes possession of the asset used as collateral and may sell it to regain some or all of the
amount originally lent to the borrower, for example, foreclosed a portion of the bundle of rights
to specified property. If the sale of the collateral does not raise enough money to pay off the debt,
the creditor can often obtain a deficiency judgment against the borrower for the remaining
amount. The opposite of secured debt/loan is unsecured debt, which is not connected to any
specific piece of property and instead the creditor may only satisfy the debt against the borrower
rather than the borrower's collateral and the borrower.
Unsecured loan

Unsecured loans are monetary loans that are not secured against the borrower's assets (no
collateral is involved). There are small business unsecured loans such as credit cards and credit
lines to large corporate credit line . These may be available from financial institutions under
many different guises or marketing packages such as:

Bank overdrafts
Corporate bonds
Credit card debt
Credit facilities or lines of credit

Regulations

In most countries central banks are responsible for the oversight of the commercial banking
system of their respective countries. They will impose a number of conditions on the banks that
they regulate such as keeping bank reserves and to maintain minimum capital requirements.

Bank reserves
Bank reserves or "central bank reserves" are banks' holdings of deposits in accounts with their central
bank (for instance the European Central Bank or the Federal Reserve, in the latter case including federal
funds), plus currency that is physically held in the bank's vault ("vault cash"). Some central banks set
minimum reserve requirements, which require banks to hold deposits at the central bank equivalent to
at least a specified percentage of their liabilities such as customer deposits. Even when there are no
reserve requirements, banks often opt to hold some reserves called desired reserves against
unexpected events such as unusually large net withdrawals by customers or bank runs.
Banking in India

Ancient India

The Vedas (20001400 BCE) are earliest Indian texts to mention the concept of usury. The word
kusidin is translated as usurer. The Sutras (700100 BCE) and the Jatakas (600400 BCE) also
mention usury. Also, during this period, texts began to condemn usury. Vasishtha forbade
Brahmin and Kshatriya varnas from participating in usury. By the 2nd century CE, usury seems
to have become more acceptable.[11] The Manusmriti considers usury an acceptable means of
acquiring wealth or leading a livelihood.[12] It also considers money lending above a certain rate,
different ceiling rates for different caste, a grave sin.[13]
The Jatakas also mention the existence of loan deeds. These were called rnapatra or rnapanna.
The Dharmashastras also supported the use of loan deeds. Kautilya has also mentioned the usage
of loan deeds.[14] Loans deeds were also called rnalekhaya.[15]

Later during the Mauryan period (321185 BCE), an instrument called adesha was in use, which
was an order on a banker directing him to pay the sum on the note to a third person, which
corresponds to the definition of a modern bill of exchange. The considerable use of these
instruments has been recorded[citation needed]. In large towns, merchants also gave letters of credit to
one another.[15]

Medieval era

The use of loan deeds continued into the Mughal era and were called dastawez. Two types of
loans deeds have been recorded. The dastawez-e-indultalab was payable on demand and
dastawez-e-miadi was payable after a stipulated time. The use of payment orders by royal
treasuries, called barattes, have been also recorded. There are also records of Indian bankers
using issuing bills of exchange on foreign countries. The evolution of hundis, a type of credit
instrument, also occurred during this period and remain in use.[15]

Colonial era

During the period of British rule merchants established the Union Bank of Calcutta in 1829,[16]
first as a private joint stock association, then partnership. Its proprietors were the owners of the
earlier Commercial Bank and the Calcutta Bank, who by mutual consent created Union Bank to
replace these two banks. In 1840 it established an agency at Singapore, and closed the one at
Mirzapore that it had opened in the previous year. Also in 1840 the Bank revealed that it had
been the subject of a fraud by the bank's accountant. Union Bank was incorporated in 1845 but
failed in 1848, having been insolvent for some time and having used new money from depositors
to pay its dividends.[17]

The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock
bank in India, it was not the first though. That honour belongs to the Bank of Upper India, which
was established in 1863 and survived until 1913, when it failed, with some of its assets and
liabilities being transferred to the Alliance Bank of Simla.

Foreign banks too started to appear, particularly in Calcutta, in the 1860s. Grindlays Bank
opened its first branch in Calcutta in 1864.[18] The Comptoir d'Escompte de Paris opened a
branch in Calcutta in 1860, and another in Bombay in 1862; branches followed in Madras and
Pondicherry, then a French possession. HSBC established itself in Bengal in 1869. Calcutta was
the most active trading port in India, mainly due to the trade of the British Empire, and so
became a banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in
Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in
1894, which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative period
of stability. Around five decades had elapsed since the Indian rebellion, and the social, industrial
and other infrastructure had improved. Indians had established small banks, most of which
served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and
a number of Indian joint stock banks. All these banks operated in different segments of the
economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign
trade. Indian joint stock banks were generally under capitalised and lacked the experience and
maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon
to observe, "In respect of banking it seems we are behind the times. We are like some old
fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome
compartments."[citation needed]

The period between 1906 and 1911 saw the establishment of banks inspired by the Swadeshi
movement. The Swadeshi movement inspired local businessmen and political figures to found
banks of and for the Indian community. A number of banks established then have survived to the
present such as Catholic Syrian Bank, The South Indian Bank, Bank of India, Corporation Bank,
Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement led to the establishment of many private banks in Dakshina
Kannada and Udupi district, which were unified earlier and known by the name South Canara
(South Kanara) district. Four nationalised banks started in this district and also a leading private
sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian
Banking".[citation needed]

The inaugural officeholder was the Britisher Sir Osborne Smith(1 April 1935), while C. D.
Deshmukh(11 August 1943) was the first Indian governor.On September 4, 2016, Urjit R Patel
begins his journey as the new RBI Governor, taking charge from Raghuram Rajan.[19]

During the First World War (19141918) through the end of the Second World War (1939
1945), and two years thereafter until the independence of India were challenging for Indian
banking. The years of the First World War were turbulent, and it took its toll with banks simply
collapsing despite the Indian economy gaining indirect boost due to war-related economic
activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following
table:

During 1938-46, bank branch offices trebled to 3,469[20] and deposits quadrupled to 962 crore.
Nevertheless, the partition of India in 1947 adversely impacted the economies of Punjab and
West Bengal, paralysing banking activities for months. India's independence marked the end of a
regime of the Laissez-faire for the Indian banking. The Government of India initiated measures
to play an active role in the economic life of the nation, and the Industrial Policy Resolution
adopted by the government in 1948 envisaged a mixed economy. This resulted in greater
involvement of the state in different segments of the economy including banking and finance.
The major steps to regulate banking included:

The Reserve Bank of India, India's central banking authority, was established in April 1935, but
was nationalized on 1 January 1949 under the terms of the Reserve Bank of India (Transfer to
Public Ownership) Act, 1948 (RBI, 2005b).[21]
In 1949, the Banking Regulation Act was enacted, which empowered the Reserve Bank of India
(RBI) "...to regulate, control, and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or branch of an existing bank could
be opened without a license from the RBI, and no two banks could have common directors.
Nationalisation in the 1960s

Despite the provisions, control and regulations of the Reserve Bank of India, banks in India
except the State Bank of India (SBI), remain owned and operated by private persons. By the
1960s, the Indian banking industry had become an important tool to facilitate the development of
the Indian economy. At the same time, it had emerged as a large employer, and a debate had
ensued about the nationalisation of the banking industry. Indira Gandhi, the then Prime Minister
of India, expressed the intention of the Government of India in the annual conference of the All
India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization."[22] The
meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance
('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969') and
nationalised the 14 largest commercial banks with effect from the midnight of 19 July 1969.
These banks contained 85 percent of bank deposits in the country.[22] Jayaprakash Narayan, a
national leader of India, described the step as a "masterstroke of political sagacity." Within two
weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition
and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.

A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated
reason for the nationalisation was to give the government more control of credit delivery. With
the second dose of nationalisation, the Government of India controlled around 91% of the
banking business of India. Later on, in the year 1993, the government merged New Bank of India
with Punjab National Bank.[23] It was the only merger between nationalised banks and resulted in
the reduction of the number of nationalised banks from 20 to 19. Until the 1990s, the
nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian
economy.

Liberalisation in the 1990s

In the early 1990s, the then government embarked on a policy of liberalisation, licensing a small
number of private banks. These came to be known as New Generation tech-savvy banks, and
included Global Trust Bank (the first of such new generation banks to be set up), which later
amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI
Bank and HDFC Bank. This move, along with the rapid growth in the economy of India,
revitalised the banking sector in India, which has seen rapid growth with strong contribution
from all the three sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up, with proposed relaxation of norms for
foreign direct investment. All foreign investors in banks may be given voting rights that could
exceed the present cap of 10% at present. It has gone up to 74% with some restrictions.[citation
needed]

The new policy shook the Banking sector in India completely. Bankers, till this time, were used
to the 464 method (borrow at 4%; lend at 6%; go home at 4) of functioning. The new wave
ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this
led to the retail boom in India. People demanded more from their banks and received more.

Current period
Main article: List of Banks in India

The Indian banking sector is broadly classified into scheduled banks and non-scheduled
banks.All banks included in the Second Schedule to the Reserve Bank of India Act, 1934 are
Scheduled Banks. These banks comprise Scheduled Commercial Banks and Scheduled Co-
operative Banks. Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks
and Scheduled Urban Cooperative Banks.Scheduled Commercial Banks in India are categorised
into five different groups according to their ownership and/or nature of operation:

State Bank of India and its Associates

Nationalised Banks
Private Sector Banks
Foreign Banks
Regional Rural Banks.
In the bank group-wise classification, IDBI Bank Ltd. is included in Nationalised Banks.

Growth of Banking in India of Scheduled Commercial Banks[24]

By 2010, banking in India was generally fairly mature in terms of supply, product range and
reach-even though reach in rural India still remains a challenge for the private sector and foreign
banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets relative to other banks in comparable economies in
its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the
government.

With the growth in the Indian economy expected to be strong for quite some time-especially in
its services sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong. One may also expect M&As, takeovers, and asset
sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak
Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed
to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any
stake exceeding 5% in the private sector banks would need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too aggressive in
their loan recovery efforts in connexion with housing, vehicle and personal loans. There are press
reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.[25][26][27]

By 2013 the Indian Banking Industry employed 1,175,149 employees and had a total of 109,811
branches in India and 171 branches abroad and manages an aggregate deposit of 67,504.54
billion (US$1.1 trillion or 890 billion) and bank credit of 52,604.59 billion (US$820 billion or
690 billion). The net profit of the banks operating in India was 1,027.51 billion (US$16 billion
or 14 billion) against a turnover of 9,148.59 billion (US$140 billion or 120 billion) for the
financial year 201216.
Pradhan Mantri Jan Dhan Yojana (Hindi: , English: Prime Minister's
People Money Scheme) is a scheme for comprehensive financial inclusion launched by the
Prime Minister of India, Narendra Modi, in 2014.[28] Run by Department of Financial Services,
Ministry of Finance, on the inauguration day, 1.5 Crore (15 million) bank accounts were opened
under this scheme.[29][30] By 15 July 2015, 16.92 crore accounts were opened, with around
20,288.37 crore (US$3.2 billion) were deposited under the scheme,[31] which also has an option
for opening new bank accounts with zero balance.

Payments Bank

Payments bank is a new model of banks conceptualised by the Reserve Bank of India (RBI).
These banks can accept a restricted deposit, which is currently limited to 1 lakh per customer
and may be increased further. These banks cannot issue loans and credit cards. Both current
account and savings accounts can be operated by such banks. Payments banks can issue services
like ATM cards, debit cards, net-banking and mobile-banking. The banks will be licensed as
payments banks under Section 22 of the Banking Regulation Act, 1949, and will be registered as
public limited company under the Companies Act, 2013.[32]

Banking codes and standards

Main article: The Banking codes and standards Board of India

The Banking Codes and standards Board of India is an independent and autonomous banking
industry body that monitors banks in India.To improve the quality of banking services in India S
S Tarapore (former deputy governor of RBI) had the idea to form this committee.

Adoption of banking technology

The IT[clarification needed] revolution has had a great impact on the Indian banking system. The use of
computers has led to the introduction of online banking in India. The use of computers in the
banking sector in India has increased many fold after the economic liberalisation of 1991 as the
country's banking sector has been exposed to the world's market. Indian banks were finding it
difficult to compete with the international banks in terms of customer service, without the use of
information technology.

The RBI set up a number of committees to define and co-ordinate banking technology. These
have included:

In 1984 was formed the Committee on Mechanisation in the Banking Industry (1984) [33] whose
chairman was Dr. C Rangarajan, Deputy Governor, Reserve Bank of India. The major
recommendations of this committee were introducing MICR technology in all the banks in the
metropolises in India.[34] This provided for the use of standardised cheque forms and encoders.
In 1988, the RBI set up the Committee on Computerisation in Banks (1988)[35] headed by Dr. C
Rangarajan. It emphasised that settlement operation must be computerised in the clearing
houses of RBI in Bhubaneshwar, Guwahati, Jaipur, Patna and Thiruvananthapuram. It further
stated that there should be National Clearing of inter-city cheques at Kolkata, Mumbai, Delhi,
Chennai and MICR should be made operational. It also focused on computerisation of branches
and increasing connectivity among branches through computers. It also suggested modalities for
implementing on-line banking. The committee submitted its reports in 1989 and
computerisation began from 1993 with the settlement between IBA and bank employees'
associations.[36]
In 1994, the Committee on Technology Issues relating to Payment systems, Cheque Clearing and
Securities Settlement in the Banking Industry (1994)[37] was set up under Chairman W S Saraf. It
emphasised Electronic Funds Transfer (EFT) system, with the BANKNET communications
network as its carrier. It also said that MICR clearing should be set up in all branches of all those
banks with more than 100 branches.
In 1995, the Committee for proposing Legislation on Electronic Funds Transfer and other
Electronic Payments (1995)[38] again emphasised EFT system.[36]
In July 2016, Deputy Governor Rama Gandhi of the Central Bank of India "urged banks to work
to develop applications for digital currencies and distributed ledgers."[39]

Automated teller machine growth

The total number of automated teller machines (ATMs) installed in India by various banks as of
end June 2012 was 99,218.[40] The new private sector banks in India have the most ATMs,
followed by off-site ATMs belonging to SBI and its subsidiaries and then by nationalised banks
and foreign banks, while on-site is highest for the nationalised banks of India.[36]

Branches and ATMs of Scheduled Commercial Banks as of end December 2016

Bank type Number of branches On-site ATMs Off-site ATMs Total ATMs

Nationalised banks 33,627 38,606 22,265 60,871

State Bank of India 13,661 28,926 22,827 51,753

Old private sector banks 4,511 4,761 4,624 9,385

New private sector banks 1,685 12,546 26,839 39,385

Foreign banks 242 295 854 1,149

TOTAL 53,726 85,000 77,409 1,62,543

Cheque truncation initiative

In 2008 the Reserve Bank of India introduced a system to allow cheque truncationthe
conversion of checks from physical form to electronic form when sending to the paying bank
in India, the cheque truncation system as it was known was first rolled out in the National Capital
Region and then rolled out nationally.

Expansion of banking infrastructure

Physical as well as virtual expansion of banking through mobile banking, internet banking, tele
[41]
banking, bio-metric and mobile ATMs is taking place since last decade and has gained
momentum in last few years.

Data Breaches
2016 Indian Banks data breach
Main article: 2016 Indian Banks data breach

A huge data breach of data of debit cards issued by various Indian banks was reported in October
2016. It was estimated 3.2 million debit cards were compromised. Major Indian banks- SBI,
HDFC Bank, ICICI, YES Bank and Axis Bank were among the worst hit.[42] Many users
reported unauthorised use of their cards in locations in China. This resulted in one of the India's
biggest card replacement drive in banking history. The biggest Indian bank State Bank of India
announced the blocking and replacement of almost 600,000 debit cards.[43]