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Recent Changing Scenario In Indian Banking Sector

Article · January 2020

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Dr .S. Chandrasekaran M. Narayanan

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Our Heritage
Our ISSN: 0474-9030
Vol-68-Issue-1-January-2020
Heritage
Recent Changing Scenario In Indian Banking Sector
Dr. S. Chandrasekaran1, Sri. M. Narayanan2
1
Assistant Professor in Commerce,
Post Graduate & Research Department of Commerce,
Vivekananda College,
Tiruvedakam West, Madurai - 625 234.
E – Mail: [email protected]
2
Research Scholar,
Post Graduate & Research Department of commerce,
Vivekananda College,
Tiruvedakam west, Madurai – 625234.
E – Mail: [email protected]

ABSTRACT

The Banking system of India should not only hassle free but it should able to meet new technology and any
other external and internal factors. Without sound and effective banking system in India it cannot have healthy
economy. The reserve bank of India also imposed some restrictions on new banks with respect to opening
branches, with a view to maintain the economy growth of nations. The enhanced regulatory oversight would
help the system by elimination of excesses, create a cleaner framework for asset quality recognition,
substantially improve corporate governance standards and inculcate financial discipline in borrowers. The
Indian government has carried out important market-oriented reforms. We’ve just released our annual Doing
Business report, which measures ease of doing business. For the third year in a row, India is in the top ten in
terms of improvements. During that period, it has jumped from 142nd in the Doing Business rankings to 63rd.
Percent the new report, it’s easier than it was a year ago to a new business, get a construction permit and trade
goods across the border. India’s economy is facing challenges, with consumption softening and investment
slowing. Globally, bond yields have fallen into low or negative territory for several top bond issuers, benefiting
an increasingly narrow group but leaving the productive investments needed for broad-based growth under-
funded, including in India.

KEY WORDS: Digitalization of new economic growth of Indian banking sector, Economic development of
Indian banking sector, Future analysis of industry growth of Indian banking sector, Indian banking analysis,
etc.,

1. INTRODUCTION

The recent data on deposits and credit of scheduled commercial banks published by the Reserve Bank of India
provide valuable insights into the distribution of banking business across the country. The concentration of
bank branches in a few urban and metro centers is by no means a new development. With considerations of
profitability dictating the strategic plans, branch expansion, especially to rural areas, was no longer a priority.
Instead, banks tended to converge on centres that had business potential. According to the RBI, the top hundred
centres, arranged according to the size of deposits, accounted for 69.2 per cent of the total deposits, while the
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top hundred ranked according to the size of credit accounted for 78.5 per cent of total bank credit as on March
31 this year. Technology has been harnessed in a variety of ways to take on competition and, more importantly,
to reduce transaction costs. It has enabled the opening of new delivery channels such as internet banking and
mobile banking. But its role in extending financial services across the country has not been fully appreciated.
Quite obviously the goal of inclusive banking has to be achieved in a context where the traditional model of
branch banking cannot be entirely relied upon. Technological applications are already enabling business
correspondents and others to deliver many types of services now offered by a bank. These bank branches might
be called upon to undertake newer services, including those having a development dimension such as delivery
of subsidies and conditional cash transfers.
Economic Growth, Regulatory Relief, and Consumer Protection Act, amending certain provisions in the Dodd-
Frank Act was signed into law. Notably, the statutory systemically important financial institutions (SIFIs) asset
thresholds for enhanced prudential regulations, such as stress tests and capital and liquidity ratios, were
increased, giving the most relief to banks with assets between $50 billion and $100 billion.

2. REVIEW OF LITERATURE

Javier A. Sánchez-Torres, Francisco-Javier Arroyo Canada et. all (2018),this study is to examine the
adoption of e-banking in Colombia, including a comprehensive analysis of consumer trust in this type of
transaction and of the impact of the current government policy to promote e-commerce. The proposed
model was validated in that the factors hypothesized to build trust in the use of electronic banking were
shown to be significant: trust, performance expectancy and effort expectancy had a positive impact on the
use of financial websites in Colombia, while government support did not have a significant impact. This
study is one of the first to present empirical findings on the acceptance of e-banking in Latin America; it
further presents a model that integrates the most important variables needed for an analysis of the
acceptance of e-banking.

Payam Hanafizadeh, Ahad Zare Ravasan, (2017),The researchers aims to provide an in-depth analysis
toward understanding the critical factors in affecting information technology outsourcing (ITO) decision
in the context of e-banking.The results of this study derived from the theoretical discussion of hypotheses
illustrated that 9 of 11 assumed factors (i.e. perceived tangible benefits, perceived intangible benefits,
perceived risks, perceived information security/privacy, complete contract establishment capability,
making strong trustworthy relationship capability, uncertainty in business requirements.

3. OBJECTIVES OF THE STUDY

 To study growing influence of FinTech and non- banks seems an acceptance of economic growth
 To know economic reality across that trading life for digitalisation of public sector banks.

4. RESEARCH METHODOLOGY

The study is based on the Primary and secondary data. The primary data collected by 100 respondents in
interview schedule method. The secondary data collected from recently published different journals,
magazines, sites, research articles, periodicals, websites and published data from various issues of RBI and
different Public/Private sector banks. Various studies on this subject available have also been referred in this
study. The focus is to know more about the concept of economy growth strategies, its application, its effect and
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the impact on economy via other parameters. Therefore, qualitative and quantitative both data has been used to
see the impact of digitalisation on the life of India people.

DIGITIZATION ANDA NEW CREDIT DISCIPLINE OF ECONOMY GROWTH

Global corporate lending is on an upward trajectory, with the Americas region leading growth.56 Revenue from
corporate lending grew by 19.5 percent in the Americas from 2015 to 2017. In contrast, corporate lending in the
EMEA region declined by 0.8 percent. With American firms increasing their market share, EMEA corporate
lending has stagnated as the pace of economic recovery remains uneven. The APAC region, meanwhile, saw
corporate lending increase by 5.8 percent in revenues. As Asian markets expand, the competitive dynamics and
opportunities within APAC’s corporate banking landscape have significantly increased it.
Competition for corporate loans is expected to intensify in 2019, along with further easing in credit
underwriting standards in the first half of 2019. But given the higher likelihood of a downturn in the next
several years, banks should adjust their risk appetite accordingly in 2019. To alleviate this risk, banks should
strengthen their specialized lending expertise, which, if executed well, can result in a superior ability to screen,
value collateral, structure loans to minimize potential losses, and manage the workout of problem loans.
Smaller regional banks, especially, could stand to benefit from this focus.

5. ECONOMIC DEVELOPMENT IN THE INDIAN BANKING SECTOR

1. REMOVING THE DEFICIENCY OF CAPITAL FORMATION

In any economy, economic development is not possible unless there is an adequate amount of capital formation.
The serious capital deficiency in developing Countries is removed by banks.A sound banking system mobilizes
small savings of the community and makes them available for investment in productive enterprises. Banks
mobilise deposits by offering attractive rates of interest and thus convert savings into active capital. Otherwise
that amount would have remained idle. Banks distribute these savings through loans among productive
enterprises which are helpful in nation building. It facilitates the optimum utilization of the financial resources
of the community.

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2. HELPS IN GENERATING EMPLOYMENT OPPORTUNITY

Banks helps in providing financial resources to industries and that helps in automatically generate employment
opportunity. Especially employment generated by banking sector every year runs in millions. Equally revenue
generation through tax and dividend collection by the government invested every year. While revenue and
employment generation are two very important contributions, successfully maintaining healthy credit line to
industrial sector as well as to overall economy is another important contribution of financial sector.

3. FINANCIAL ASSISTANCE TO INDUSTRIES

The commercial banks finance the industrial sector in a number of ways. They provide short-term, medium-
term and long-term loans to industry .The Industrial Development Bank of India is the main institution in India
providing financial assistance to the industrial sector. It provides direct financial assistance to the industrial
enterprises in the form of granting loans and advances, and purchasing or underwriting the issues of stocks,
bonds or debentures. The creation of the Development Assistance Fund is the special of the IDBI. The Fund is
used to provide assistance to those industries which are not able to obtain funds mainly because of heavy
investment involved or low expected rate of returns. IDBI gives guidance to start a business. To facilitate an
easy access to finance by Micro and Small Enterprises, the Government/RBI has launched Credit Guarantee
Fund Scheme to provide guarantee cover for collateral free credit facilities extended to MSEs upto Rs 1 Crore .
Moreover, Micro Units Development & Refinance Agency (MUDRA) Ltd. was also established to refinance all
Micro-finance Institutions (MFIs), which are in the business of lending to micro / small business entities
engaged in manufacturing, trading and services activities up to Rs 10 lakh.

4. PROMOTE SAVING HABITS OF THE PEOPLE

Bank attracts depositors by introducing attractive deposit schemes and providing higher rates of interest. Banks
providing different kinds of deposit schemes to its customers. It enables to create saving habits among people.
Bank open different accounts to attract customer. These accounts are opened as per the requirements of
customers such as current account, fixed deposit account, saving account and recurring account etc.

5. FINANCIAL ASSISTANCE TO CONSUMER ACTIVITIES

People in underdeveloped countries being poor and having low incomes do not have sufficient financial
resources to buy durable consumer goods. The commercial banks advance loans to consumers for the purchase
of such items as houses, furniture, refrigerators, etc. In this way, they also help in raising the standard of living
of the people in developing countries by providing loans for consumption activities.

6. HELPS IN IMPLEMENTING MONETARY POLICY

The commercial banks help the economic development of a country by implementing the monetary policy of
the RBI. RBI depends upon the commercial banks for the success of its policy of monetary management in
keeping with requirements of a developing economy. Thus the commercial banks contribute much to the
growth of a developing economy by granting loans to agriculture, trade and industry, by helping in capital
formation and by following the monetary policy of the country

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7. FINANCIAL FACILITIES FOR TRADE

The commercial banks help in financing both internal and external trade. The banks provide loans to retailers
and wholesalers to purchase goods in which they deal. They also help in the movement of goods from one place
to another. Banks provide all types of facilities such as discounting and accepting bills of exchange, providing
overdraft facilities, issuing drafts, etc. for promoting the trade. Moreover, they finance both exports and imports
of developing countries by providing foreign exchange facilities to importers and exporters of goods. Exim
Bank of India and the Government of Andhra Pradesh has signed a Memorandum of Understanding (MoU) to
promote exports in the state.

8. FOREIGN CURRENCY LOANS

Foreign currency loans are meant for setting up of new industrial projects. Banks also helps in providing loans
for expansion, diversification, modernization or renovation of existing units. Banks also helps in financing
import of equipment from abroad and/or technical knowhow.

9. PROMOTION OF NEW ENTREPRENEURS

Development banks in India have also achieved a success in creating a new class of entrepreneurs and
spreading the industrial culture. Special capital and seed Capital schemes have been introduced to provide
equity type of assistance to new and technically skilled entrepreneurs who lack financial resources of their own.
Development banks have been actively involved in the entrepreneurship development programmes. Innovations
are an essential prerequisite for economic development. These innovations are mostly financed by bank credit
in the developed countries. But in underdeveloped countries, entrepreneurs hesitate to invest in new ventures
and undertake innovations largely due to lack of funds and high chances of risk. Facilities of bank loans enable
the entrepreneurs to step up their investment on innovational activities, adopt new methods of production and
increase productive capacity of the economy.

10. BALANCED DEVELOPMENT

Modern banks spreading its operations throughout the world. We can see number of big banks like citi bank,
SBI, PNB, Baroda bank etc. It helps a country to spread banking activities in rural and semi urban areas. With
the spreading of banking operations all over the country, helps to attain balanced regional development by
promoting rural areas. The Reserve Bank of India (RBI) has granted in-principle licenses to 10 applicants to
open small finance banks, which will help expanding access to financial services in rural and semi-urban areas.
IDFC Bank has become the latest new bank to start operations with 23 branches, including 15 branches in rural
areas of Madhya Pradesh. Modern bank plays important role in the economic development of the country. A
developed banking system enables the country to attain balanced development without any special
consideration of rich and poor, cities and rural areas etc. They transfer surplus capital from the developed
regions to the less developed regions, where it is scarce and most needed. This reallocation of funds between
different regions will promote economic.

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FUTURE ANALYSIS INDUSTRY GROWTH OF INDIAN BANKING SECTOR

The Indian banking system consists of 20 public sector banks, 22 private sector banks, 44 foreign banks, 56
regional rural banks, 1,542 urban cooperative banks and 94,384 rural cooperative banks, in addition to
cooperative credit institutions. As on March 31, 2019, the total number of ATMs in India increased to 2,21,703
and is further expected to increase to 407,000 by 2021.

As of FY19 (between April–September 2018) total credit extended by commercial banks surged to Rs 90.81
lakh crore (US$ 1,299.39 billion) and deposits grew to Rs 120 lakh crore (US$ 1,866.22 billion). Assets of
public sector banks stood at Rs 108.82 crore (US$ 1,557.04 billion) in FY18. As per Union Budget 2019-2020,
Provision coverage ratio of banks reached highest in 7 years.

Indian banks are increasingly focusing on adopting integrated approach to risk management. The NPAs (Non-
Performing Assets) of commercial banks has recorded a recovery of Rs 400,000 crore (US$ 57.23 billion) in
FY2019, which is highest in last four years. Banks have already embraced the international banking supervision
accord of Basel II, and majority of the banks already meet capital requirements of Basel III, which has a
deadline of March 31, 2019.As per Union Budget 2019-20, investment-driven growth requires access to low
cost capital which an requires investments of Rs 20 lakh crore (US$ 286.16 billion) every year.

Reserve Bank of India (RBI) has decided to set up Public Credit Registry (PCR) an extensive database of credit
information which is accessible to all stakeholders. The Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2017 Bill has been passed and is expected to strengthen the banking sector. In June 2019, RBI sets
average base rate of 9.18 per cent for non-banking financial companies and micro finance institutions
borrowers for quarter beginning of July.

Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) increased to Rs 98,320 crore (US$ 14.07 billion)
and 355.4 million accounts were opened in India (as of May 29, 2019). In May 2018, the Government of India
provided Rs 6 lakh crore (US$ 93.1 billion) loans to 120 million beneficiaries under Mudra scheme. Under
Pradhan Mantri Jan Dhan Yojana (PMJDY), more than Rs 1 lakh crore (US$ 14.30 billion) have been
deposited till July 2019. In May 2018, the total number of subscribers was 11 million, under Atal Pension
Yojna.

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Rising incomes are expected to enhance the need for banking services in rural areas and therefore drive the
growth of the sector. As of September 2018, Department of Financial Services (DFS), Ministry of Finance and
National Informatics Centre (NIC) launched Jan Dhan Darshak as a part of financial inclusion initiative. It is a
mobile app to help people locate financial services in India.

6. DATA ANALYSIS AND INTERPRETATION

GROWTH INFLUENCES OF INDIAN BANKING SERVICES IN RELATION TO GENDER OF THE

RESPONDENTS

Customers of different gender group are using the E-banking services. In order to find out the significant
difference betweenGrowth influence of indianbanking services among the different gender group ‘t’ test is
attempted with the null hypothesis as, “There is no significant difference between in the Growth influence
of indian banking services among the customers in relation to their gender”. The result of ‘t’ test is
presented in table 1.1

TABLE 1
GROWTH INFLUENCES OF INDIAN BANKING SERVICES IN RELATION TO GENDER OF THE
RESPONDENTS

FACTORS
GEN N MEAN STD. DEVI „T‟ P VALUE

M 71 4.7324 .50590
Debit card .872 .385*
F 29 4.8276 .46820
M 71 4.1127 .96435
Credit card 1.425 .157*
F 29 4.4138 .94556
M 71 4.5493 .73268
ATM 1.138 .258*
F 29 4.6897 .47082
M 71 3.6197 1.1509
Smart card 1.284 .202*
F 29 3.9310 .96106
M 71 3.7042 1.0197
Deposit machine 1.212 .228*
F 29 3.9655 .86531
M 71 3.3239 1.1310
E-cheque 1.257 .212*
F 29 3.6207 .90292
M 71 3.5211 1.1693
Recharging phone/T.V .428 .669*
F 29 3.4138 1.0527
M 71 3.4930 1.1572
Fund transfer 1.067 .289*
F 29 3.7586 1.0574

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M 71 3.4648 1.0932
Bill payment .067 .946*
F 29 3.4483 1.1522
M 71 3.5634 1.1178
Tax payment .049 .961*
F 29 3.5517 .98511
M 71 3.0000 1.1084
E-fixed deposit 1.037 .302*
F 29 3.2414 .91242
M 71 3.4225 1.1422
E-ticketing .826 .411*
F 29 3.6207 .94165
M 71 3.0423 1.3140
Payment of loan .967 .336*
F 29 3.3103 1.1052
Source: Primary data
*-Significant at five per cent level

The table 4.12 shows the E-banking services among the different gender group of customers along with its
respective‘t’ statistics. As regards the ‘Debit card’ the p value (.385) is more than 0.05 so the null hypothesis is
accepted at 5 per cent significance level, It is concluded that there is no significant difference in the E Banking
services regarding Debit card and gender group of customers. As regards the ‘Credit card’ the p value (.157) is
more than 0.05 so the null hypothesis is accepted at 5 per cent significance level, It is concluded that there is no
significant difference in the E-Banking services regarding ‘Credit card’ and gender group of customers. As
regards the ‘ATM’ the p value (.258) is more than 0.05 so the null hypothesis is accepted at 5 per cent
significance level, It is concluded that there is no significant difference in the E-Banking services regarding
‘ATM’ and gender group of customers. As regards the ‘Smart card’ the p value (.202) is more than 0.05 so the
null hypothesis is accepted at 5 per cent significance level, It is concluded that there is no significant difference
in the E-Banking services regarding ‘Smart card’ and gender group of customers. As regards the ‘Deposit
machine’ the p value (.228) is more than 0.05 so the null hypothesis is accepted at 5 per cent significance level,
It is concluded that there is no significant difference in the E-Banking services regarding ‘Deposit machine’ and
gender group of customers. As regards the ‘E-cheque’ the p value (.212) is more than 0.05 so the null
hypothesis is accepted at 5 per cent significance level, It is concluded that there is no significant difference in
the E-Banking services regarding ‘E-cheque’ and gender group of customers. As regards the ‘Recharging
phone/T.V’ the p value (.669) is more than 0.05 so the null hypothesis is accepted at 5 per cent significance
level, It is concluded that there is no significant difference in the E-Banking services regarding ‘Recharging
phone/T.V’ and gender group of customers. As regards the ‘Fund transfer’ the p value (.289) is more than 0.05
so the null hypothesis is accepted at 5 per cent significance level, It is concluded that there is no significant
difference in the E-Banking services regarding ‘Fund transfer’ and gender group of customers. As regards the
‘Bill payment’ the p value (.946) is more than 0.05 so the null hypothesis is accepted at 5 per cent significance
level, It is concluded that there is no significant difference in the E-Banking services regarding ‘Bill payment’
and gender group of customers. As regards the ‘Tax payment’ the p value (.961) is more than 0.05 so the null
hypothesis is accepted at 5 per cent significance level, It is concluded that there is no significant difference in
the E-Banking services regarding ‘Tax payment’ and gender group of customers. As regards the ‘E-fixed
deposit’ the p value (.302) is more than 0.05 so the null hypothesis is accepted at 5 per cent significance level,
It is concluded that there is no significant difference in the E-Banking services regarding ‘E-fixed deposit’ and

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gender group of customers. As regards the ‘E-ticketing’ the p value (.411) is more than 0.05 so the null
hypothesis is accepted at 5 per cent significance level, It is concluded that there is no significant difference in
the E-Banking services regarding ‘E-ticketing’ and gender group of customers. As regards the ‘Payment of
loan’ the p value (.336) is more than 0.05 so the null hypothesis is accepted at 5 per cent significance level, It is
concluded that there is no significant difference in the E-Banking services regarding ‘Payment of loan’ and
gender group of customers.

7. CONCLUSION

Banking system in India has undergone significant changes during last 10 years. The Indian banking sector play
a vital role in its economic development. The Statistics helps us to understand the Indian banking sector in
India. Banks in India has a got a great response in terms of service and quality banking services and economic
growth of country. Banking sector reform has been unique in the world in that it combines a comprehensive
reorientation of competition, regulation and ownership in a non-disruptive and cost-effective manner.
Globalization has encouraged multinationals and foreign banks to set up their business unit in a developing
country like India. The role of these institutions in the growth of trajectories of behind industrializing,
developing countries. Growth of all the sectors is directly related to the economic development of the country.

8. REFERENCES

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[2] Role of Banks in the Development of Indian Economy, Prof. Jagdeep Kumari, Asstt. Prof. in Commerce
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[5] http://www.ehow.com/about_6607026_role-commercial-banks-economic-development.html
[6] https://en.wikipedia.org/wiki/Commercial_bank
[7] www.preservearticles.com/201012291875/indigenous-bankers.html
[8] www.banknetindia.com/banking/boverview.htm
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