Banking Sector in India Introduction Existence of an efficient banking system is paramount for achieving economic growth as banks are

the mechanisms that channel the savings to investments. They have the capacity to promote economic growth as they allocate savings to those investments which have potential to yield higher returns. With 86 scheduled commercial banks, 82 regional rural banks, 1,645 urban cooperative banks (53 scheduled cooperative banks) and 95,765 rural cooperative banks, India's banking system is a robust one and has proved its mettle by standing unaffected during the recent global financial turmoil. Size of Indian Banking Industry

According to the Reserve Bank of India (RBI)'s 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks', March 2012, Nationalised Banks accounted for 53.0 per cent of the aggregate deposits, while the State Bank of India (SBI) and its Associates accounted for 21.8 per cent. The share of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was 13.0 per cent, 4.8 per cent, 4.4 per cent and 3.0 per cent, respectively Nationalised Banks accounted for the highest share of 52.0 per cent in gross bank credit followed by State Bank of India and its Associates (22.5 per cent) and New Private Sector Banks (13.5 per cent). Foreign Banks, Old Private Sector Banks and Regional Rural Banks had shares of around 4.8 per cent, 4.8 per cent and 2.4 per cent, respectively Another statement issued by the RBI revealed that foreign exchange reserves stood at, US$ 294.99 billion for the week ended January 4, 2013 wherein the value of gold reserves was recorded at US$ 27.21 billion and that of foreign currency assets (FCAs) was at US$ 261.06 billion The value of special drawing rights (SDRs) was US$ 4.40 billion and the country's reserve position with the IMF was at US$ 2.30 billion The number of mobile banking transactions in India has also increased by 6.39 per cent to 47, 20, 871 during November 2012, up from 44, 37, 205 recorded in October 2012, according to the RBI, wherein the total amount transacted showed a boost of 8.3 per cent

Growth in Indian Banking Industry

In order to curb the risk of exchange rate volatility and ensure compatible relations among the banking systems of two countries, the Government of India (GoI) has directed state-run banks to encourage local currency payments for bilateral trade transactions. Under the proposed mechanism, Indian exporters will be allowed to issue invoices and receive payments in Indian rupees while payments for imports will be made by the partner country's bank in its local currency The Small Industries Development Bank of India (SIDBI) has partnered with eight regional rural banks (RRBs) and urban co-operative banks in West Bengal. The scope of

agreements includes training the staff of RRBs and co-operative banks in project appraisal, monitoring and collection as also providing free access to software on a downscaling methodology developed for lending to micro enterprises Indian Overseas Bank (IOB) has signed a memorandum of understanding (MoU) with Deutsche Bank for using its cross-currency payment solution namely FX4Cash to offer cash management services across 125 local currencies in more than 160 countries. The move would facilitate streamlined automated process for forex dealing and payments to the bank In a bid to double its business turnover in the next three years and thereby clock an annual growth rate of 25 per cent to 30 per cent, the Karnataka Bank Ltd has signed an MoU with management consultant KPMG for its business process re-engineering initiative, named as Project Tejas Meanwhile, the Export-Import Bank of India (EXIM) has decided to open a representative office in Myanmar in order to increase the bilateral trade between the Northeast India and Myanmar. The opening of the trade link with Myanmar and transit facility with Bangladesh is expected to offer new opportunities for the organic agriculture produce of Northeast India

Government Initiatives The Indian Government keeps initiating various steps to ensure safe and hassle-free banking in the country. Recently, the RBI has relaxed the mandatory know your customer (KYC) norms for banks in order to make the process of opening a bank account simpler and faster.

Moreover, both the Houses of the Parliament have passed The Banking Laws (Amendment) Bill 2011. The Bill would strengthen the regulatory powers of the RBI Reserve Bank of India (RBI) and would further develop the banking sector in India. It will also help the nationalised banks to raise capital by issue of preference shares or rights issue or issue of bonus shares while enabling them to increase or decrease the authorised capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crore (US$ 558.84 million) Furhermore, the Bill would offer possibilities for new bank licenses by RBI resulting in opening of new banks and branches. This would not only help in achieving the goal of financial inclusion by providing more banking facilities, but would also provide additional employment opportunities to the people at large in the banking sector The GoI has also approved the establishment of a Credit Risk Guarantee Fund Trust (CRGFT) for low income housing, with an initial outlay of Rs.1000 crore (US$ 186.28 million). The CRGFT, registered on May 1, 2012 and launched on October 31, 2012 would administer and operate the Scheme, which is demand-driven, as stated by Ajay Maken, Union Minister of Housing & Urban Poverty Alleviation (HUPA) The Minister stated that under the Scheme, the Trust will provide guarantee to lending agencies for housing loans extended by them to persons belonging to the Economically Weaker Sections / Low Income Groups (upto Rs. 5 lakh [US$ 9,313.67]), without any third party guarantee or collateral security

Trends & Issues in Indian Banking Industry Headwinds from international and domestic economic developments posed challenges to the banking sector during the year 2011-12. While banks maintained their profitability, their asset quality was impaired. As things stand, several initiatives are under way to strengthen the regulatory and accounting frameworks aimed at increasing the resilience of the institutions. However, higher capital standards, stricter liquidity and leverage ratios and a more cautious approach to risk is likely to raise the funding costs of banks. Compliance with Basel III stipulations along with the credit needs of a growing economy will require banks to tap various avenues to raise capital. Broad estimates suggest that for public sector banks, the incremental equity requirement due to implementation of Basel III norms by March 2018 is expected to be approximately ` 750-800 billion. Meeting these capital requirements will entail the use of innovative and attractive market based funding channels by the banks. The convergence with the International Financial Reporting Standards (IFRS) may also place additional demands on the banks technical as well as human resources. Considering the granularity of data required for effective supervisory review, efforts should be to automate data flow from reporting entities through the adoption of straight-through processing systems. With regard to financial inclusion, quantitative coverage has improved, but meaningful financial inclusion through the evolution of sustainable business and delivery models needs to be achieved. Notwithstanding the multitude of challenges, the regulatory responses and the inherent strengths underlying the Indian economy should ensure that the banking system continues to play a positive role in supporting the financing needs of our growing economy.

Opportunities in Indian Banking Industry With the Parliament passing the much awaited Banking Laws Amendment Bill recently, the face of the Indian banking industry is set to get a lift in the coming years as the passage of the bill has paved the way for more banks. This will not only create a healthy competition among the players in the industry, but will also escalate the style of operation and technology.
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