Banking in India in the modern sense originated in the last decades of the 18th century.

The first banks were Bank of Hindustan (1770-1829) and The General Bank of India, established 1786 and since defunct. The largest bank, and the oldest still in existence, is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. The three banks 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 acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935. In 1969 the Indian government nationalised all the major banks that it did not already own and these have remained under government ownership. They are run under a structure know as 'profit-making public sector undertaking' (PSU) and are allowed to compete and operate as commercial banks. The Indian banking sector is made up of four types of banks, as well as the PSUs and the state banks, they have been joined since 1990s by new private commercial banks and a number of foreign banks. Banking in India was generally 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 with things likemicrofinance.

A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank is the connection between customers that have capital deficits and customers with capital surpluses. Due to their influence within a financial system and the economy, banks are highly regulated in most countries. Most banks operate under a system known as fractional reserve banking where they hold only a small reserve of the funds deposited and lend out the rest for profit. They are generally subject to minimum capital requirements which are based on an international set of capital standards, known as the Basel Accords. Banking in its modern sense evolved in the 14th century in the rich cities of Renaissance Italy but in many ways was a continuation of ideas and concepts of credit and lending that had its roots in the ancient world. In the history of banking, a number of banking dynasties have played a central role over many [1] centuries. The oldest existing bank was founded in 1472.

Banking Sector Reforms 1999-2000

In line with the recommendations of the second Narasimham Committee, the Mid-Term Review of the Monetary and Credit Policy of October 1999 announced a gamut of measures to strengthen the banking system. Important measures on strengthening the health of banks included: (i) assigning of risk weight of 2.5 per cent to cover market risk in respect of investments in securities outside

the SLR by March 31, 2001 (over and above the existing 100 per cent risk weight) in addition to a similar prescription for Government and other approved securities by March 31, 2000, and (ii) lowering of the exposure ceiling in respect of an individual borrower from 25 per cent of the bank's capital fund to 20 per cent, effective April 1, 2000. Capital Adequacy and Recapitalisation of Banks Out of the 27 public sector banks (PSBs), 26 PSBs achieved the minimum capital to risk assets ratio (CRAR) of 9 per cent by March 2000. Of this, 22 PSBs had CRAR exceeding 10 per cent. To enable the PSBs to operate in a more competitive manner, the Government adopted a policy of providing autonomous status to these banks, subject to certain benchmarks. As at end-March 1999, 17 PSBs became eligible for autonomous status. Prudential Accounting Norms for Banks The Reserve Bank persevered with the on-going process of strengthening prudential accounting norms with the objective of improving the financial soundness of banks and to bring them at par with international standards. The Reserve Bank advised PSBs to set up Settlement Advisory Committees (SACs) for timely and speedier settlement of NPAs in the small scale sector, viz., small scale industries, small business including trading and personal segment and the agricultural sector. The guidelines on SACs were aimed at reducing the stock of NPAs by encouraging the banks to go in for compromise settlements in a transparent manner. Since the progress in the recovery of NPAs has not been encouraging, a review of the scheme was undertaken and revised guidelines were issued to PSBs in July 2000 to provide a simplified, non-discriminatory and nondiscretionary mechanism for the recovery of the stock of NPAs in all sectors. The guidelines will remain operative till March 2001. Recognising that the high level of NPAs in the PSBs can endanger financial system stability, the Union Budget 2000-01 announced the setting up of seven more Debt Recovery Tribunals (DRTs) for speedy recovery of bad loans. An amendment in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, was effected to expedite the recovery process. Asset Liability Management (ALM) System The Reserve Bank advised banks in February 1999 to put in place an ALM system, effective April 1, 1999 and set up internal asset liability management committees (ALCOs) at the top management level to oversee its implementation. Banks were expected to cover at least 60 per cent of their liabilities and assets in the interim and 100 per cent of their business by April 1, 2000. The Reserve Bank also released ALM system guidelines in January 2000 for allIndia term-lending and refinancing institutions, effective April 1, 2000. As per the guidelines, banks and such institutions were required to prepare statements on liquidity gaps and interest rate sensitivity at specified periodic intervals. Risk Management Guidelines

The Reserve Bank issued detailed guidelines for risk management systems in banks in October 1999, encompassing credit, market and operational risks. Banks would put in place loan policies, approved by their boards of directors, covering the methodologies for measurement, monitoring and control of credit risk. The guidelines also require banks to evaluate their portfolios on an on-going basis, rather than at a time close to the balance sheet date. As regards off-balance sheet exposures, the current and potential credit exposures may be measured on a daily basis. Banks were also asked to fix a definite time-frame for moving over to the Value-atRisk (VaR) and duration approaches for the measurement of interest rate risk. The banks were also advised to evolve detailed policy and operative framework for operational risk management. These guidelines together with ALM guidelines would serve as a benchmark for banks which are yet to establish an integrated risk management system. Disclosure Norms As a move towards greater transparency, banks were directed to disclose the following additional information in the 'Notes to Accounts' in the balance sheets from the accounting year ended March 31, 2000: (i) maturity pattern of loans and advances, investment securities, deposits and borrowings, (ii) foreign currency assets and liabilities, (iii) movements in NPAs and (iv) lending to sensitive sectors as defined by the Reserve Bank from time to time. Technological Developments in Banking In India, banks as well as other financial entities have entered the domain of information technology and computer networking. A satellite-based Wide Area Network (WAN) would provide a reliable communication framework for the financial sector. The Indian Financial Network (INFINET) was inaugurated in June 1999. It is based on satellite communication using VSAT technology and would enable faster connectivity within the financial sector. The INFINET would serve as the communication backbone of the proposed Integrated Payment and Settlement System (IPSS). The Reserve Bank constituted a National Payments Council (Chairman: Shri S. P. Talwar) in 1999-2000 to focus on the policy parameters for developing an IPSS with a real time gross settlement (RTGS) system as the core. Revival of Weak Banks The Reserve Bank had set up a Working Group (Chairman: Shri M. S. Verma) to suggest measures for the revival of weak PSBs in February 1999. The Working Group, in its report submitted in October 1999, suggested that an analysis of the performance based on a combination of seven parameters covering three major areas of i) solvency (capital adequacy ratio and coverage ratio), ii) earnings capacity (return on assets and net interest margin) and iii) profitability (operating profit to average working funds, cost to income and staff cost to net interest income plus all other income) could serve as the framework for identifying the weakness of banks. PSBs were, accordingly, classified into three categories depending

on whether none, all or some of the seven parameters were met. The Group primarily focussed on restructuring of three banks, viz., Indian Bank, UCO Bank and United Bank of India, identified as weak as they did not satisfy any (or most) of the seven parameters. The Group also suggested a two-stage restructuring process, whereby focus would be on restoring competitive efficiency in stage one, with the options of privatisation and/or merger assuming relevance only in stage two. Deposit Insurance Reforms Reforming the deposit insurance system, as observed by the Narasimham Committee (1998), is a crucial component of the present phase of financial sector reforms in India. The Reserve Bank constituted a Working Group (Chairman: Shri Jagdish Capoor) to examine the issue of deposit insurance which submitted its report in October 1999. Some of the major recommendations of the Group are : (i) fixing the capital of the Deposit Insurance and Credit Guarantee Corporation (DICGC) at Rs.500 crore, contributed fully by the Reserve Bank, (ii) withdrawing the function of credit guarantee on loans from DICGC and (iii) risk-based pricing of the deposit insurance premium in lieu of the present flat rate system. A new law, in supercession of the existing enactment, is required to be passed in order to implement the recommendations. The task of preparing the new draft law has been taken up. The relevant proposals in this respect would be forwarded to the Government for consideration. Also :

1. 2.

Non-Banking Financial Companies (NBFCs) Reforms Financial Institutions Reforms

3. 1. INNOVATION IN INDIANBANKING SECTOR 4. Types of Products Types of Innovative Banking Innovation in Banking Sector Indian Banking Sector Introduction2. CONTENTS & Conclusion Innovative Schemes of ING VYSYA BANK Types of Electronic SystemsServices 5. 3. INTRODUCTIONThe term Innovation means tomake something newBanks no longer restricted themselvesto traditional banking activities, butexplored newer avenues to increasebusiness and capture new market. 6. New concept like personal banking, retailbanking, total branch automation, etc wereintroducedIn the 1990s, greater emphasis being placedon technology and innovation With 1935 regulation,

the RBI was proclaimedthe central bank of IndiaFrom the time bank of bengal(1806),qualitative and quantitative changes takenplace4. INDIAN BANKING SECTOR 7. 5. INNOVATIONS IN INDIAN BANKING SECTORCategory I: Types Of Innovative BankingCategory II: Types Of Product & ServicesCategory III: Electronic Systems 8. Faster6. Types of Innovative Banking1.E-BANKING Enables people to carry out most of their banking transaction using a safe website which is operated by their respected bank Advantage & Opening of account simple No longer required to wait in long queuesmore convenient transaction & Fund transfer become faster Cost effective for banker side Apply for bank loaneasy & Stock trading, exchanging bondsconvenient & other investment 9. Knowing customers needs3. CORPORATE BANKING Financial services to large corporateCore banking solutionDepositing and lending of money7. 2. CORE BANKING & Working capital facility for domestic Letters of guarantee Channel financing Funding Domestic and international payments Overdraft facilityMNCsServices: & internationaltrade 10. Fund creating in two ways : Corporate Finance M Creating funds and wealth of clients8. 4. INVESTMENT BANKING & Professional sales person providing advice on stock trading5. RURAL BANKINGIt providesAs & regulates credit services for the promotion &KIOSK BANKINGExamples Of Regional Rural Banks are NABARD, HARYANASTATE COPERATIVE APEX BANK LIMITED, SYNDICATE BANK, UNITEDBANK OF INDIAdevelopment of rural sector mainly agriculture, SSI, cottageand village industries, handicrafts and many more. 11. FCNR (Foreign Currency Non Resident Account) NRO (Non Resident Ordinary Account) NRE (Non Resident External

Account)9. 6. NRI BANKINGThis facility is designed for diverse banking requirementsof the vast nri population spread across the globe. 12. Credit Cards Educational Loans Personal Loans Consumer Durable Loans Auto Finance Housing Finance Mortgage Saving and checking accounts10. 7.RETAIL BANKINGIt refers to banking in which banks execute transactiondirectly with individual , rather than corporate banks.It is also known as One stop shop.Services: 13. 11. TYPES OF PRODUCTS & Cash withdrawal Towards paperless transactions 2. ANY BRANCH BANKING It is a facility for customers to operate their account from any of the same banks network branch Facilities available: More customer friendly and flexible Speed up bank transactions and less error SERVICES 1.TOTAL BRANCH AUTOMATION & Repayment of loan account Purchase of demand drafts pay order Balance enquiry Fund transfer Facility to issue multi- city cheques Account statement Cash deposits 14. It provide facility of online trading4. MICROFINANCEIt refers to a movement that envisions a world in whichlow income households have permanent access to a rangeof high quality financial service to finance their incomeproducing activities, build assets, stabilize consumptionand protect against risks. It offers secure and convenient way to keep track yoursecurities and investment over a period of time withoutthe hassle of handling physical documents12. 3. DEMAT SERVICES 15. Facility one can bank from anywhere,at any time,The account that can travel with you. Generic term for all types of bank cards, debit cads,credit cards, smart cards6. MOBILE BANKING Convenient to carry Plastic money are the alternative to the cash or

standardmoney13. 5. PLASTIC MONEY & in any condition or any howFacilities are: Balance enquiry Fund transfer Chequebook request,etc 16. The time taken for effecting funds transfer from one account to another is normally 2 hours It is primarily for large volume transaction It is different from EFT and NEFT This is the fastest possible money transfer system through the banking channel. It is a fund transfer mechanism where transfer of money takes place from one bank to another on a real time and on gross basis. It stands for Real time gross settlement system Value added services like recharge their mobile, pay the utilty bills, mutual fund transactions, etc2. RTGS In simple words, it is simple to use self service solution It stands for Automatic teller machine14. Type of Electronic Systems1.ATM 17. CRM requirements, etc Wealth management Mobile banking solution E-banking solution Core banking solution15. 3. FINACLEThis system provides the holistic and integratedtransformation approach, complete with solutions andservicesFinacle solutions addresses the requirements of retail,corporate and universal banking worldwide like 18. ING vysya credit and debit cards Vysunit deposits SMARTSERV16. The ING group originated in 1990s and stands for INTERNATIONALE NEDERLANDEN GROUP INGs mission is to be a leading, global, client focused, innovative and low-cost provider of financial services through the distribution channels of the clients preference in markets where ING can create value. Innovative schemes if ING Vyasya Banks are: 19. 17. CONCLUSIONThe BANKING sector in India has become stronger in termsof capital and the number of customers. It has becomeglobally competitive and diverse aiming, at

higherproductivity and efficiency.Exposure to worldwide competition and deregulation inIndian financial sector has led to the emergence of betterquality products and services. Reforms have changed theface of Indian banking and finance. The banking sector hasimproved manifolds in terms of Technology, Deregulation,Product & Services, Information Systems, EtcWith new opportunities unfolding Banking Sector, Indiais emerging as a global power in banking services in thenext two decade." 20. 18. THANK YOU

When the new generation private sector banks started operations in 1993, they had to compete against established players, some of whom had been in business for over a century. The market was dominated by the state-owned banks, which had strong branding as well as a widespread branch network. There were also foreign banks operating in India. While the foreign banks were not big in terms of the branch network, they had innovative products and a very customer focused approach to the business. The new generation private sector banks had to carve out a niche for themselves within this framework. Thus the first decade was spent focusing on the corporate banking model. The second decade - post 2000 - saw them scaling up the retail banking and consumer lending businesses.

The differentiator will be a bank's efficiency and innovation. How well it manages risk - and, therefore, profitability - will also be a key factor.
What impact have the new banks had? Today, they have a market share of 20 per cent in deposits and advances. This has been achieved in a growing market, indicating that private sector banks have successfully capitalised on the growth of the Indian economy. But more than acquiring market share, the real contribution of private sector banks has been to transform the way banking is done in India. In the late 1990s, there would have been maybe a few hundred ATMs. But we at ICICI Bank decided to set up 2,000 ATMs in two years. In those days it seemed like a big innovation, but today, every bank has a large network of ATMs. The expansion of ATM networks has transformed customer experience. We went on to encompass Internet

banking, phone banking and mobile banking. The new banks developed the concept of direct selling agents who reached out to customers with credit products, taking loans to the customer's doorstep. Not only did the private sector banks expand in this manner, their example forced public sector banks to also adopt similar strategies.

It can also be said that the new private sector banks in general, and ICICI Bank in particular, catalysed India's economic growth. In the post-2000 period, India's growth was driven by the growth in consumption. It was not the industrial sector but the new services-led economy, the age demographics and rising incomes that fuelled growth. It was banks like ours which made sure that housing loans and other kinds of loans were made available in hundreds of cities and towns in India. It is one thing to say that the demand existed, but what was also required was products and the distribution network to reach those products to the people. This was a major contribution of the new generation private sector banks. The Indian market is a growing market and to keep succeeding one has to explore the existing opportunities well. The banking sector is expected to grow at 2.5 to three times the country's GDP growth rate. For individual banks, a lot will depend on their underlying business strategy. The differentiator will be a bank's efficiency and innovation. How well it manages risk - and, therefore, profitability - will also be a key factor. Eg:

Axis bank Bank Of Baroda Banking Finance HDFC Home Loan ICICI IndusInd Bank ING Vysya Bank Insurance Kotak Mahindra Bank Punjab National Bank