CHAPTER-2 : BANKING SECTOR REFORMS

CHAPTER-2 : BANKING SECTOR REFORMS

Q.1: Explain th !an"in# $t%&'t&% in In(ia $in' In( p n( n' . OR

)i$'&$$ th $'h (&l ( !an"in# $t%&'t&% in In(ia *ith % + % n' t, p&!li'- p%i.at an( +,% i#n !an". An$. A/ INTRO)0CTION :In India, commercial banks are the oldest, largest and fastest growing financial intermediaries. They have been playing a very important role in the process of development. In 1949 RBI was nationali ed followed by nationali ation of Imperal Bank !f India "#ew $tate Bank !f India% in 199&. In '(ly 19)9, 14 ma*or commercial banks were nationali ed and in +pril 19,-, ) more were nationali ed. Reforms in banking sector have led to the setting (p of new private sector banks as well as entry of more foreign banks. B/ STR0CT0RE OF BANKING IN IN)IA :Banking system in India is classified in to sched(led and #on.sched(led banks. $ched(led banks consist of $tate co.operative banks and /ommercial banks. #on.sched(led consist of /entral /o.operative Banks and primary credit society and /ommercial Banks. STR0CT0RE OF BANKING IN IN)IA

$ched(led

#on 0 $ched(led

$tate co.op bank /ommercial bank Banks /ommercial society. Bank

/entral /o.op and 1rimary credit

1. S'h (&l ( Ban"$ :2nder RBI +ct of 1934, banks were classified as sched(led and non.sched(led banks. The sched(led banks are those which are entered in second sched(le of RBI +ct of 1934. They are eligible for certain facilities. +ll commercial banks "India and foreign, regional r(ral banks% and state co.operatives are sched(led banks. + sched(led m(st have a paid (p capital and reserves of not less than Rs. & lakhs. It m(st also satisfy RBI that it affairs are not cond(cted in a manner detrimental to the interest of its depositors. 2. N,n-S'h (&l ( Ban"$ :#on.sched(led Banks are those which have not been incl(ded in the second $ched(le of RBI +ct. The n(mber of non.sched(led banks is declining as many of them are attaining the stat(s of sched(led banks in 4--,.

STR0CT0RE OF SCHE)01E) COMMERCIA1 BANKS

1(blic $ector Banks "46%

1rivate $ector Bank "44%

5oreign Banks "31%

. . .

$tate Bank 7ro(p "-,% . !ld 1rivate $ector Banks "1&% #ationalised banks "19% . #ew 1rivate $ector Banks "-6% Regional R(ral Banks ",)%

The sched(led commercial banks consist of p(blic sector banks, private sector Banks and 5oreign Banks. +s on march 4--9, there are 46 p(blic sector banks consisting of $BI and its , associated banks, 19 nationalised banks and I8BI 9td. There are 6 new private sector banks, 1& old private sector banks in India. Besides there are ,) RRBs in 4--,.-9. I. P&!li' S 't,% Ban"$ :1(blic sector Banks have a dominant position in terms of b(siness. They acco(nted for 61.9: of assets, 6).): of deposits, 6&.3: of advances and )9.9: of investments of all sched(led commercial banks as at end of ;arch 4--9. +mong the p(blic sector banks, the state Bank of India and associates had 1),494 branches and nationali ed banks had 39,6-3 branches as on '(ne 3-, 4--9. a/ Stat Ban" O+ In(ia An( It$ A$$,'iat Ban"$ :!n 1st '(ly, 19&&, on the recommendation of R(ral /redit $(rvey /ommittee, the Imperial Bank of India was converted in to $tate Bank of India. RBI ac<(ired its 94: shares, th(s $BI had the distinction of becoming the first state owned commercial bank in the co(ntry. The $tate Bank of India "+ssociate banks% +ct was passed in 19&9 and this paved the way for creating $tate Bank 7ro(p. Besides f(nctioning as a commercial bank, $BI (shered a new era of mi=ed banking system in the co(ntry. It proved that financing to agric(lt(re and other priority sectors co(ld be a viable commercial activity. !n 19th '(ly, 19)9, 14 ma*or commercial banks were nationali ed and ) more were nationali ed in 19,-. !ver the years $BI and its associates have e=panded their b(siness. !n '(ne 3-, 4--9, they acco(nted for 4-: of total branches of all commercial banks. The share of banking b(siness with them was ro(ghly 3-:. In 1993, $BI +ct was amended to enable it to have access to capital market. !/ Oth % Nati,nali$ ( Ban"$ :The second category of p(blic sector is 19 commercial banks, of which 14 were natioalised on '(ly 19, 19)9. This changed the banking str(ct(re. >ach one of these 14 banks had deposits of Rs. &- crore or more. The nationali ation was *(stified by government beca(se ma*or banks have a larger social p(rpose. In 8ecember 19)9, 9ead bank $cheme was form(lated which played an important role in transforming these profit ma=imi ing instit(tions in to catalysts of local development. !n +pril 1&, 19,- si= more private owned commercial were nationali ed. The p(rpose was to promote the welfare of the people in conformity with the policy of the state. ?ith natioalisation, The share of private sector in the entire banking declined to *(st 9:. In 1993 #ew Bank of India merged with 1(n*ab #ational Bank. +s a res(lt, the no. of p(blic sector banks

"other than state Bank and its associates% declined to 19. +s on '(ne 3-, 4--9, the total n(mber of branches of 19 nationalised banks was 39,))1. c% R #i,nal R&%al Ban"$ 2RRB$/ :The RRBs came to be set (p (nder the act of 196). They were set (p to save the poor r(ral people from the grip of money lenders and traders. The ?orking 7ro(p on R(ral Banks recommended the setting (p of RRBs as part of m(lti.agency approach to r(ral credit. + RRB is sponsored by a p(blic sector bank which also s(bscribes to its share capital. +s on '(ne 3-, 4--), there were 19) RRBs with a network of 14,&-- branches. The RRBs meet the credit re<(irements of weaker sections, small and marginal farmers , landless labo(rers, artisians and small entreprene(rs. RRBs have been e=cellent in meeting the credit needs of r(ral poor. RRBs 9&: of total direct advances goes to weaker sections. RRBs are facting organi ational and management problems. In 199&.9) they inc(rred losses of Rs. 44) crore. +s a res(lt of +malgamation the n(mber of RRBs have come down to ,) and their branches were 1&,144 as on '(ne 3-, 4--9. In 4--9.1- their n(mber still declined to ,4. II. P%i.at S 't,% Ban"$ :In 1rivate sector small sched(led commercial banks and seven newly established banks with a network of ,,9)& branches are operating. To enco(rage competitive efficiency, the setting (p of new private bank is now enco(raged. 1resently, the total n(mber of banks in private sector is 44 "1& old and 6 new%. In 4--,.-9 new private sector banks acco(nted for 19.): of total banking assets. III. F,% i#n Ban"$ :5or a long time a ma*ority of foreign banks have been operating in India. !n 3- th '(ne 4--9, the co(ntry had 34 foreign banks with 49& branches located mainly in big cities. +part from financing of foreign trade, these banks have performed all f(nctions of commercial banks and they have an advantage over Indian banks beca(se of their vast reso(rces and s(perior management. In 4--,.-9, foreign banks acco(nted for ,.&: of total banking assets. +t the end of $eptember, 4-1-, 34 foreign banks were operating in India. In India, foreign banks practices have been held in s(spicion. The (nfair competition with Indian banks, their practice of drawing f(nds from 9ondon ;oney ;arket for financing India@s foreign trade and their gross irreg(larities in sec(rities scam have been a ca(se of concern. ?ith growing strength of Indian banks have improved their practices and have stopped discriminatory policies. Q.2: Explain th 3 a$&% $ ta" n (&%in# th +i%$t pha$ ,+ !an"in# $ 't,% % +,%3$ in In(ia. OR Explain th % ',33 n(ati,n$ ,+ Na%a$i3ha3 C,33itt % p,%t ,+ 1441 an( th 3 a$&% $ a(,pt ( !5 G,. %n3 nt t, i3pl 3 nt th 3. OR 6%it n,t ,n +i%$t pha$ ,+ !an"in# $ 't,% % +,%3$. An$. A/ BANKING SECTOR REFORMS :$ince nationalisation of banks in 19)9, the banking sector had been dominated by the p(blic sector. There was financial repression, role of technology was limited, no risk management etc. This res(lted in low profitability and poor asset <(ality. The co(ntry was ca(ght in deep economic crises. The 7overnment decided to introd(ce comprehensive economic reforms. Banking sector reforms were part of this package. In a(g(st 1991, the 7overnment appointed a committee on financial system (nder the chairmanship of ;. #arasimhan. B/ FIRST PHASE OF BANKING SECTOR REFORMS 7 NARASIMHAN COMMITTEE REPORT 8 1441 :To promote healthy development of financial sector, the #arasimhan committee made recommendations.

I/

RECOMMEN)ATIONS OF NARASIMHAN COMMITTEE :. 1. >stablishment of 4 tier hierarchy for banking str(ct(re with 3 to 4 large banks "incl(ding $BI% at top and at bottom r(ral banks engaged in agric(lt(ral activities. 4. The s(pervisory f(nctions over banks and financial instit(tions can be assigned to a <(asi. a(tonomo(s body sponsored by RBI. 3. 1hased red(ction in stat(tory li<(idity ratio. 4. 1hased achievement of ,: capital ade<(acy ratio. &. +bolition of branch licensing policy. ). 1roper classification of assets and f(ll disclos(re of acco(nts of banks and financial instit(tions. 6. 8ereg(lation of Interest rates. ,. 8elegation of direct lending activity of I8BI to a separate corporate body. 9. /ompetition among financial instit(tions on participating approach. 1-. $etting (p asset Reconstr(ction f(nd to take over a portion of loan portfolio of banks whose recovery has become diffic(lt. II/ Ban"in# R +,%3 M a$&% $ O+ G,. %n3 nt :!n the recommendations of #arasimhan /ommittee, following meas(res were (ndertaken by government since 1991 A. 1. 1,* %in# S1R An( CRR The high $9R and /RR red(ced the profits of the banks. The $9R has been red(ced from 3,.&: in 1991 to 4&: in 1996. This has left more f(nds with banks for allocation to agric(lt(re, ind(stry, trade etc. The /ash Reserve Ratio "/RR% is the cash ratio of a banks total deposits to be maintained with RBI. The /RR has been bro(ght down from 1&: in 1991 to 4.1: in '(ne 4--3. The p(rpose is to release the f(nds locked (p with RBI. 2. P%&( ntial N,%3$ :1r(dential norms have been started by RBI in order to impart professionalism in commercial banks. The p(rpose of pr(dential norms incl(de proper disclos(re of income, classification of assets and provision for Bad debts so as to ens(re hat the books of commercial banks reflect the acc(rate and correct pict(re of financial position. 1r(dential norms re<(ired banks to make 1--: provision for all #on.performing +ssets "#1+s%. 5(nding for this p(rpose was placed at Rs. 1-,--- crores phased over 4 years. 9. Capital A( :&a'5 N,%3$ 2CAN/ :/apital +de<(acy ratio is the ratio of minim(m capital to risk asset ratio. In +pril 1994 RBI fi=ed /+# at ,:. By ;arch 199), all p(blic sector banks had attained the ratio of ,:. It was also attained by foreign banks. ;. ) % #&lati,n O+ Int % $t Rat $ :The #arasimhan /ommittee advocated that interest rates sho(ld be allowed to be determined by market forces. $ince 1994, interest rates has become m(ch simpler and freer. a% $ched(led /ommercial banks have now the freedom to set interest rates on their deposits s(b*ect to minim(m floor rates and ma=im(m ceiling rates. b% Interest rate on domestic term deposits has been decontrolled. c% The prime lending rate of $BI and other banks on general advances of over Rs. 4 lakhs has been red(ced. d% Rate of Interest on bank loans above Rs. 4 lakhs has been f(lly decontrolled. e% The interest rates on deposits and advances of all /o.operative banks have been dereg(lated s(b*ect to a minim(m lending rate of 13:. <. R ',. %5 O+ ) !t$ :The 7overnment of India passed the BRecovery of debts d(e to Banks and 5inancial Instit(tions +ct 1993C in order to facilitate and speed (p the recovery of debts d(e to banks and

financial instit(tions. $i= $pecial Recovery Trib(nals have been set (p. +n +ppellate Trib(nal has also been set (p in ;(mbai. =. C,3p titi,n F%,3 N * P%i.at S 't,% Ban"$ :#ow banking is open to private sector. #ew private sector banks have already started f(nctioning. These new private sector banks are allowed to raise capital contrib(tion from foreign instit(tional investors (p to 4-: and from #RIs (p to 4-:. This has led to increased competition. >. Pha$in# O&t O+ )i% 't ( C% (it :The committee s(ggested phasing o(t of the directed credit programme. It s(ggested that credit target for priority sector sho(ld be red(ced to 1-: from 4-:. It wo(ld not be easy for government as farmers, small ind(strialists and transporters have powerf(l lobbies. ?. A'' $$ T, Capital Ma%" t :The Banking /ompanies "+c<(isation and Transfer of 2ndertakings% +ct was amended to enable the banks to raise capital thro(gh p(blic iss(es. This is s(b*ect to provision that the holding of /entral 7overnment wo(ld not fall below &1: of paid.(p.capital. $BI has already raised s(bstantial amo(nt of f(nds thro(gh e<(ity and bonds. 4. F% (,3 O+ Op %ati,n :$ched(led /ommercial Banks are given freedom to open new branches and (pgrade e=tension co(nters, after attaining capital ade<(acy ratio and pr(dental acco(nting norms. The banks are also permitted to close non.viable branches other than in r(ral areas. 1@. 1,'al A% a !an"$ 21AB$/ :In 199), RBI iss(ed g(idelines for setting (p of 9ocal +rea Banks and it gave Its approval for setting (p of 6 9+Bs in private sector. 9+Bs will help in mobili ing r(ral savings and in channeling them in to investment in local areas. 11. S&p %.i$i,n O+ C,33 %'ial Ban"$ :The RBI has set (p a Board of financial $(pervision with an advisory /o(ncil to strengthen the s(pervision of banks and financial instit(tions. In 1993, RBI established a new department known as 8epartment of $(pervision as an independent (nit for s(pervision of commercial banks. Q.9 : )i$'&$$ th % ',33 n(ati,n$ ,+ Na%a$i3han C,33itt R p,%t ,+ 14?? ,n !an"in# $ 't,% % +,%3$. OR 6%it n,t ,n Na%a$i3han C,33itt R p,%t ,+ 144?. OR )i$'&$$ th 3 a$&% $ ta" n (&%in# th $ ',n( pha$ ,+ !an"in# $ 't,% % +,%3$ in In(ia. Ans. A) SECON) PHASE OF REFORMS OF BANKING SECTOR 2144?/ 7 NARASIMHAN COMMITTEE REPORT 14?? :To make banking sector stronger the government appointed /ommittee on banking sector Reforms (nder the /hairmanship of ;. #arasimhan. It s(bmitted its report in +pril 199,. The /ommittee placed greater importance on str(ct(ral meas(res and improvement in standards of disclos(re and levels of transparency. 5ollowing are the recommendations of #arasimhan /ommittee A. /ommittee s(ggested a strong banking system especially in the conte=t of capital +cco(nt /onvertibility "/+/%. The committee ca(tioned the merger of strong banks with weak ones as this may have negative effect on stronger banks. It s(ggested that 4 or 3 large banks sho(ld be given international orientation and global character. There sho(ld be , to1- national banks and large n(mber of local banks. It s(ggested new and higher norms for capital ade<(acy. To take over the baddebts of banks committee s(ggested setting (p of +sset Reconstr(ction 5(nd.

1% 4% 3% 4% &%

)% + board for 5inancial Reg(lation and s(pervision "B5R$% can be set (p to s(pervise the activities of banks and financial instit(tions. 6% There is (rgent need to review and amend the provisions of RBI +ct, Banking Reg(lation +ct, etc. to bring them in line with c(rrent needs of ind(stry. ,% #et #on.performing +ssets for all banks was to be bro(ght down to 3: by 4--4. 9% Rationali ation of bank branches and staff was emphasi ed. 9icensing policy for new private banks can be contin(ed. 1-% 5oreign banks may be allowed to set (p s(bsidiaries and *oint vent(res. !n the recommendations of committee following reforms have been taken A. 1/ N * A% a$ :#ew areas for bank financing have been opened (p, s(ch as A. Ins(rance, credit cards, asset management, leasing, gold banking, investment banking etc. 2/ N * In$t%&3 nt$ :5or greater fle=ibility and better risk management new instr(ments have been introd(ced s(ch as A. Interest rate swaps, cross c(rrency forward contracts, forward rate agreements, li<(idity ad*(stment facility for meeting day.to.day li<(idity mismatch. 9/ Ri$" Mana# 3 nt :Banks have started speciali ed committees to meas(re and monitor vario(s risks. They are reg(larly (pgrading their skills and systems. ;/ St% n#th nin# T 'hn,l,#5 :5or payment and settlement system technology infrastr(ct(re has been strengthened with electronic f(nds transfer, centrali ed f(nd management system, etc. </ In'% a$ In+l,* O+ C% (it :;eas(res are taken to increase the flow of credit to priority sector thro(gh foc(s on ;icro /redit and $elf Delp 7ro(ps. =/ In'% a$ in F)I 1i3it :In private banks the limit for 58I has been increased from 49: to 64:. >/ 0ni. %$al !an"in# :2niversal banking refers to combination of commercial banking and investment banking. 5or evol(tion of (niversal banking g(idelines have been given. ?/ A(,pti,n O+ Gl,!al Stan(a%($ :RBI has introd(ced Risk Based $(pervision of banks. Best international practices in acco(nting systems, corporate governance, payment and settlement systems etc. are being adopted. 4/ In+,%3ati,n T 'hn,l,#5 :Banks have introd(ced online banking, >.banking, internet banking, telephone banking etc. ;eas(res have been taken facilitate delivery of banking services thro(gh electronic channels.

1@/ Mana# 3 nt O+ NPA$:RBI and central government have taken meas(res for management of non.performing assets "#1+s%, s(ch as corporate 8ebt Restr(ct(ring "/8R%, 8ebt Recovery Trib(nals "8RTs% and 9ok +dalts. 11/ M %# %$ An( A3al#a3ati,n :In ;ay 4--&, RBI has iss(ed g(idelines for merger and +malgamation of private sector banks. 12/ G&i( lin $ F,% Anti-M,n 5 1a&n( %in# :In recent times, prevention of money la(ndering has been given importance in international financial relationships. In 4--4, RBI revised the g(idelines on know yo(r c(stomer "EF/% principles. 19/ Mana# %ial A&t,n,35 :-

In 5ebr(ary. 4--&, the 7overnment of India has iss(ed a managerial a(tonomy package for p(blic sector banks to provide them a level playing field with private sector banks in India. 1;/ C&$t,3 % S %.i' :In recent years, to improve c(stomer service, RBI has taken many steps s(ch as A. /redit /ard 5acilities, banking omb(dsman, settlement off claims of deceased depositors etc. 1</ Ba$ Rat S5$t 3 O+ Int % $t Rat $:In 4--3 the system of Benchmark 1rime 9ending Rate "B19R% was introd(ced to serve as a benchmark rate for banks pricing of their loan prod(cts so as to ens(re that it tr(ly reflected the act(al cost. Dowever the B19R system tell short of its ob*ective. RBi introd(ced the system of Base Rate since 1st '(ly, 4-1-. The base rate is the minim(m rate for all loans. 5or banking system as a whole, the base rates were in the range of &.&-: . 9.--: as on 13th !ctober, 4-1-. B/ CONC10SION :To satisfy the growing demands from c(stomers for high <(ality service, commercial banks will have to find o(t new ways and method to face new challenges. Q.; : Explain th ',3pa%ati. p %+,%3an' ,+ p&!li' $ 't,% !an"$- n * p%i.at $ 't,% !an"$ an( +,% i#n !an"$ in In(ia a+t % Int%,(&'ti,n ,+ % +,%3$. OR 6%it n,t ,n p %+,%3an' ,+ ',33 %'ial !an"$ in In(ia. An$. A/ PERFORMANCE OF P0B1IC SECTOR BANKS- NE6 PRIAATE SECTOR BANKS AN) FOREIGN BANKS IN IN)IA :+fter the introd(ction of reforms the performance of all banks in India have improved. The comparative performance of p(blic sector banks, new private sector banks and foreign banks is given below A. 1/ P%,(&'ti.it5 O+ ',33 %'ial Ban"$ :1rod(ctivity is related to profitability. 1rod(ctivity is analysed in terms of b(siness per employee, profit per employee and b(siness per branch. 9et (s >=plain A. A. B&$in $$ P % E3pl,5 :In p(blic sector banks the b(siness per >mployee has increased from Rs. 344.1 lakh in 4--&. -). The b(siness per employee in the new private sector banks was Rs. 64,.9 lakhs in 4--&.-) and it was Rs. 1-14., lakh in foreign banks in 4--&.-). B0SINESS PER EMP1OBEE 2C IN 1AKH% BEAR 1996.9, 4--&.-) P0B1IC SECTOR NE6 PRIAATE BANKS SECTOR BANKS ,,.& 6,&.9 344.1 64,.9 S,&%' :- N * C nt&%5 P&!li'ati,n$- 2@@? FOREIGN BANKS &49.4 1-14.,

5rom above we can see that as compared to new private sector banks and foreign banks the performance of p(blic sector banks is very low. B. P%,+it P % E3pl,5 :In p(blic sector banks the b(siness per employee has increased from Rs. ,,.& lakh in 1996.9, to 4.9 lakh in 4--&.-). In new private sector banks it was rs. ).3 lakhs and in foreign banks profit was rs. 4).& lakh in 4--&.-). The profits per employee is the highest in foreign banks followed by new private sector banks. PROFITS PER EMP1OBEE 2RS. IN 1AKH/ B a% P&!li' $ 't,% !an"$ N * P%i.at S 't,% F,% i#n Ban"$

1996.9, -.6 4--&.-) 4.9 S,&%' :- N * C nt&%5 P&!li'ati,n$ - 2@@?

!an"$ 11.4 ).3

4.& 4).&

C. B&$in $$ p % B%an'h :In India, b(siness per branch has been increasing. In 4--4.-& per branch b(siness was Rs. 4,444 lakh in nationali ed banks, Rs. 6,4&4 lakh in $BI and its associates, Rs. 41,)&) lakh in new private sector banks and Rs.1,14,6), lakh in foreign banks. B0SINESS PER BRANCH 2RS. IN 1AKH/ Nati,naliD ( SBI an( it$ N * S 't,% P.t. F,% i#n Ban"$ !an"$ A$$,'iat $ Ban"$ 1999.4--4,1&4 4,,)14,9,9 &4,,-4--4.-& 4,444 6,4&4 41,)&) 1,14,6), S,&%' :- N * C nt&%5 P&!li'ati,n$- 2@@? The per branch b(siness is lower in p(blic sector banks as compared to new private sector banks and foreign banks. +fter the introd(ction of reforms the prod(ctivity of p(blic sector Banks have started to rise. 2/ P%,+ita!ilit5 O+ C,33 %'ial Ban"$ :1rofitability of commercial Banks has been shown by following indicatorsA. a/ Int % $t In',3 Rati, :Interest Income Ratio "as percentage of total assets% of p(blic sector banks has fallen from ,.,: in 4---.-1 to ).9-: in 4--9.1- and of foreign banks from 9.3:, in 4---.-1 to ).-9: in 4--9.1-. #ew private banks has fallen marginally from ,.4: in 4---.-1 to 6.-6: in 4--9.1-. !/ Int % $t Expan( ( Rati, :Interest e=panded Ratio "as percentage of total assets% has fallen for all gro(ps. It has fallen for foreign banks from &.): in 4---.-1 to 4.-): in 4--9.1-. 5or 1(blic sector banks it has fallen from ): to 4.66: and new private sector banks from ): to 4.41: d(ring same period. '/ Int %3 (iati,n C,$t T, A$$ t Rati, 2ICAR/ :The I/+R of p(blic sector banks hs fallen from 4.6: in 4---.-1 to 1.49: in 4--9.1-. 5or new private sector banks it has risen from 1.6:to 4.-4: and for foreign banks again it has fallen from 3: to 4.&): for same period. (/ R t&%n On A$$ t$ :It is rate of net profit to total assets. The R!+ of all banks has risen. 5or p(blic sector banks it has risen from -.4: in 4---.-1 to -.,, in 4--9.1-. 5or new private sector banks it has risen from -.,: to 1.44:, and foreign banks from -.9: to 1.-9: for the same period. / N t 7 Sp% a( int % $t Ma%#in :$pread is an Important indicator of efficiency. In 4---.-1 the spread interest margin of p(blic sector banks was 4.9:, #ew private sector Banks was 4.1: and foreign banks was 3.):. In the year 4--9.1-the p(blic sector banks spread is of 4.13:, new private sector banks is 4.,): and the highest spread is of foreign banks 4.-3&. 9/ A$$ t Q&alit5 :+sset <(ality of banks is shown by the level of non.performing assets "#1+s%. GROSS AN) NET NPAS OF COMMERCAI1 BANKS 2A$ at n( ,+ Ma%'h/ B a%

Ban"$

T,tal NPA$ a$ E t, t,tal a(.an' $ 2@@4 2@1@

N t NPA$ a$ E t, N t A(.an' $

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1.4> 2.14 .4; 1.1@ 9.@< 2.?> 1.;@ 1.@4 9.?@ ;.24 1.?1 1.?2 S,&%' : - RBI 6 !$it The gross #1+s as percent of total advances and net #1+s as percent of net advances of p(blic sector banks have declined marginally in 4-1- and that of new private banks and foreign banks have increased. In case of p(blic sector banks the gross #1+ ratio was 4.19: and net #1+ ratio was 1.1-: in 4-1-. 5or new private sector banks the gross #1+ ratio decreased from 3.-&: to 4.,6: and net #1+ ratio decreased from 1.4-: to 1.-9: d(ring 4--9 and 4-1-. The gross #1+ ratio of foreign banks rose to 4.49: in 4-1- and net #1+s rose to 1.,4: in 4-1-. ;/ Finan'ial S,&n(n $$ :The /apital +de<(acy ratio "/+R% is the most important indicator of financial so(ndness of banks. +s on 31st ;arch, 4--9, all commercial banks in India have become Basel II complaint. 2nder Basel II Indian Banks have to maintain a stip(lated minim(m capital to Risk ?eighted +ssets Ratio "/R+R% of 9:. The /R+R of Indian banks has risen from 14: at end ;arch 4--9 to 14.&: at end ;arch 4-1-. </ C&$t,3 % $ %.i' $ :Indian banks have began to offer many financial services to clients G c(stomers. /ore banking $ol(tions "/B$% is increasing very fast. 2nder /B$, a n(mber of services are provided like A. anywhere banking, Heverywhere access@ and <(ick transfer of f(nds in an efficient manner and at reasonable cost. The no. of branches of 1$Bs that have implemented /B$ increased from 69.4: in march 4--9 to 9-: at the end of ;arch 4-1-. Q.<: Explain th i3p,%tant n * t 'hn,l,#i $ int%,(&' ( in !an"in# in In(ia. !R 6%it n,t ,n: - p %+,%3an' ,+ ',33 %'ial Ban"$ in In(ia. 2Ma%.F11/ An$. A/ NE6 TECHNO1OGB IN BANKING :The IT "Information Technology% has changed the Indian str(ct(re of Indian Banking. Technology has been identified by banks as an important element in their strategy to improve prod(ctivity and render s(fficient c(stomer service. In banking comp(teri ation has taken place all over the world. The p(rpose is to bring technology to the co(nter and to enable >mployees to have information at their fingertips. The #ew technologies that are being (sed in banks are A. 1. El 't%,ni' F&n( T%an$+ % 2EFT/ :It is easy transfer of f(nds from one place to another. It enables the beneficiary to receive money on same day or ne=t day. The c(stomer can transfer money instantly from one bank to another, from one bank acco(nt to another or from one branch to other or a different bank not only within the co(ntry b(t also anywhere else in t&hre world thro(gh electronic message. 2. C% (it Ca%( :/redit /ard "post /ard% is a convenient medi(m of e=change. ?ith the help of credit card a c(stomer can p(rchase goods and services from a(thori ed o(tlets witho(t making immediate cash payments b(t, within the prescribed limit.

1(blic $ector #ew private $ector 5oreign Banks

9. ) !it Ca%( :8ebit /ard is a prepaid card and it allows c(stomers anytime anywhere access to his saving or c(rrent acco(nt. 5or (sing debit card a 1I# "1ersonal Identification #(mber% is iss(ed to c(stomers. +ny transaction taking place is directly debited to the c(stomers bank acco(nt.

;. Ph,n !an"in# :In phone banking a c(stomer can do entire non.cash related banking services on telephone, anywhere at any time. De can talk to a phone banking officer for transacting a banking b(siness. <. T l !an"in# :Telebanking is a 44 ho(r banking facility based on the voice processing facility available on bank comp(ters. Dere banking services or prod(cts are rendered thro(gh telephone to its c(stomers. =. Int %n t Ban"in# :Internet banking is on.line banking. It is a prod(ct of >0commerce. Internet banking enables c(stomers to open acco(nts, paybills, know acco(nt balances, view and print copies of che<(es, stop payments etc. >. M,!il Ban"in# :>verybody with a mobile phone can access banking services, irrespective of their location. It is an e=tension of Internet banking. It provides services like acco(nt balance, mobile alerts abo(t credit card or debit card transactions, mini acco(nt statement etc. ?. ),,% St p Ban"in# :Dere, there is no need for c(stomer to visit the branch for getting services or prod(cts from the bank. This means banking services and prod(cts are made available to a c(stomer at his place of residence or work. 4. P,int O+ Sal 2POS/ :In an online environment the 1!$ terminal is a machine that facilities transactions thro(gh swipe of a card. 1@. ATM$:+T;s are emerging as the most (sef(l tool to ens(re Hany time banking@ and Hanywhere banking@ or Hanytime money@. +T;s are self service vendor machines that help the banks to provide ro(nd the clock banking services to their c(stomers at convenient places witho(t visiting bank premises. The c(stomers are provided with +T; card. 11. Ai%t&al Ban"in#:It means rendering banking and its related services thro(gh (se of IT. $ome of the most important types of virt(al banking are A.+T;s, electronic f(nd transfer phone 0 banking, credit card, debit card, internet banking etc. 12. El 't%,ni' Cl a%in# S %.i' $ 2ECS/ :It is non 0 paper based movement of f(nds. It consists of >lectronic /redit /learing and >lectronic 8ebit /learing. B/ CONC10SION :-

+s banks are e=panding in to virt(al banking, s(pervision and a(dit will have to be strengthened. Banks will have to pay greater attention to fool proof sec(rity arrangements and systems to safeg(ard against fra(ds.