EVALUATION AND STRUCTURE OF COMMERCIAL BANKS IN INDIA

Vinod Raina, ACS, Company Secretary Anjani Technolast Limited, Noida

Introduction
In the earlier societies functions of a bank were done by the corresponding institutions
dealing with loans and advances. Britishers brought into India the modern concept of
banking by the start of Bank of England in 1694. In 1708, the bank of England was given
the monopoly for the issue of currency notes by an Act. In nineteenth century various
banks started operations, which primarily were receiving money on deposits, lending
money, transferring money from one place to another and bill discounting.

History of Banking in India:

Banking in India has a very old origin. It started in the Vedic period where literature
shows the giving of loans to others on interest. The interest rates ranged from two to five
percent per month. The payment of debt was made pious obligation on the heir of the
dead person.

Modern banking in India began with the rise of power of the British. To raise the
resources for the attaining the power the East India Company on 2nd June 1806 promoted
the Bank of Calcutta. In the mean while two other banks Bank of Bombay and Bank of
Madras were started on 15th April 1840 and 1st July, 1843 respectively. In 1862 the right
to issue the notes was taken away from the presidency banks. The government also
withdrew the nominee directors from these banks. The bank of Bombay collapsed in
1867 and was put under the voluntary liquidation in 1868 and was finally wound up in
1872. The bank was however able to meet the liability of public in full. A new bank
called new Bank of Bombay was started in 1867.
CENTRAL BANK
On 27th January 1921 all the three presidency banks were merged together to form the
Imperial Bank by passing the Imperial Bank of India Act, 1920. The bank did not have
the right to issue the notes but had the permission to manage the clearing house and hold
CommercialGovernment balances. In 1934, Reserve Bank of India
Specialized came into being whichNon
Institutional wasBanking
made
Banks the Central Bank and
banks had power to issue the notes
banks and was also the banker
Financialthe
to Institutions
Government. The Imperial Bank was given right to act as the agent of the Reserve Bank
of India and represent the bank where it had no braches.

In 1955 by passing the State Bank of India 1955, the Imperial Bank was taken over and
Nationalised SBI and
banks (20)
assets were vested in a new bank, the State Bank of India.
Associate
Banks
Bank Nationalization:
After the independence the major historical event in banking sector was the
nationalization of 14 major banks on 19th July 1969. The nationalization was deemed as a
major step in achieving the socialistic pattern of society. In 1980 six more banks were
nationalized taking the total nationalized banks to twenty.
Private Sectors
Foreign Banks
Banks Various Types of banking services:
The flow chart below shows the various types of banking services:

Old private New private

sector banks sector banks
 Land Mortgage IFCI
Rural Credit SFCs
Mutual Funds
Industrial Dev. IRBI
Housing Finance NABARD
EXIM Bank HDFC
SIDBI
Private Sector
NBFC

Structure of schedule commercial banks:

The composition of the board of directors of a scheduled commercial bank shall consist
of whole time chairman. Section 10A of the Banking Regulation Act, 1949 provides that
not less than fifty-one per cent, of the total number of members of the Board of directors
of a banking company shall consist of persons, who shall have special knowledge or
practical experience in respect of one or more of the matters including accountancy,
agriculture and rural economy, banking, co-operation, economics, finance, law, small-
scale industry, or any other matter the special knowledge of, and practical experience in,
which would, in the opinion of the Reserve Bank, be useful to the banking company. Out
of the aforesaid number of directors, not less than two shall be persons having special
knowledge or practical experience in respect of agriculture and rural economy, co-
operation or small-scale industry.

Besides the above the board of the scheduled bank shall consist of the directors
representing workmen and officer employees. The Reserve Bank of India and the Central
Government also has right to appoint their nominees into the board of the banks.
 Present scenario of the banks in India:
Banks are extremely useful and indispensable in the modern community. The banks
create the purchasing power in the form of bank notes, cheques bills, drafts etc, transfers
funds bring borrows and lenders together, encourage the habit of saving among people.
The banks have played substantial role in the growth of Indian economy. From the
meager start in 1860 the banks have come to long way. At present in India there are 20
nationalized banks, State bank of India and its seven Associate banks, 21 old private
sector banks and 8 new private sector banks. Besides them there are more than 30 foreign
banks either operating themselves or having their branches in India. The statistical table
hereunder shows the financial position of the banks as on 31.03.2005.
Statistical table for banks in India (Year 2004-05)
(Rs. In Crores)
State bank of India and its associates
Name of bank Year of No. of Networth Deposits Advances Interest Net NPA
incorporation Offices income ratio
State Bank of Bikaner & 1966 833 1298 19038 12009 1741 1.61
Jaipur
State Bank of Hyderabad 1941 943 1765 28930 15600 2325 0.61
State Bank of India 1955*. 9161 24072 367048 202374 32428 2.65
State Bank of Indore 1960 456 904 13807 9041 1110 1.00
State Bank of Mysore 1913 639 756 13585 8781 168 0.92
State Bank of Patiala 1917 754 2045 26496 15359 2133 1.23
State Bank of Saurashtra 1902 429 794 12613 6714 1132 1.40
State Bank of Travancore 1945 681 1130 24133 14848 2008 1.81
* From 27th January 1921 to 30th June 1955 it was Imperial Bank of India, which came about by
merger of Bank of Bengal (2nd June 1806), Bank of Bombay (15th April 1840) and Bank of
Madras (1st July, 1843).

Nationalized Banks
Name of bank Year of No. of Networth Deposits Advances Interest Net NPA
incorporation Offices income ratio
Allahabad Bank 1865 2027 2328 40762 21151 3186 1.28
Andhra Bank 1923 1159 1837 27551 17517 2273 0.28
Bank of Baroda 1908 2772 5628 81333 43400 6431 1.45
Bank of India 1906 2668 4465 78821 56013 6032 2.77
Bank of Maharashtra 1935 1330 1543 28844 13062 2368 2.15
Canara Bank 1906 2627 6109 96908 60421 7572 1.88
Central Bank of India 1911 3239 3265 60752 27277 5205 2.98
Corporation Bank 1906 799 3054 27233 18546 2250 1.12
Dena Bank 1938 1072 1104 20096 11309 1725 5.23
Indian Bank 1907 1417 5936 34809 18360 2871 1.35
Indian Overseas Bank 1937 1583 2575 44241 25205 3951 1.27
Oriental Bank of Commerce 1943 1166 3327 47850 25299 3572 1.29
Punjab & Sind Bank 1908 787 440 14171 6322 1249 8.11
Punjab National Bank 1895 4117 8161 103167 60413 8460 0.20
Syndicate Bank 1925 1905 2199 46295 26729 3758 1.59
UCO Bank 1943 1801 2049 49470 27656 3547 2.93
Union Bank of India 1919 2140 3614 61831 40105 4970 2.64
United Bank of India 1950 1343 1957 25348 11390 2133 2.43
Vijaya Bank 1931 966 1590 25618 14336 2094 0.59
 Old private Sector Banks
Name of bank Year of No. of Networth Deposits Advances Interest Net NPA
incorporation Offices income ratio
Bank of Rajasthan 1943 388 351 8120 2896 522 2.50
Bharat Overseas Bank 1973 91 199 2749 1651 219 1.56
Catholic Syrian Bank 1920 314 210 4021 2289 368 3.80
City Union Bank 1904 137 241 3095 2013 291 3.37
Development Credit Bank 1995** 88 200 3895 2001 303 6.83
Dhanalakshmi Bank 1927 180 114 2339 1410 192 3.92
Federal Bank 1931 471 724 15193 8823 1191 2.21
Ganesh Bank of Kurundwad -- 31 11 217 95 18 8.32
ING Vysya Bank 1930 381 710 12569 9081 991 2.13
Jammu & Kashmir Bank 1938 439 1665 21645 11517 1549 1.41
Karnataka Bank 1924 398 978 10837 6287 840 2.29
Karur Vysya Bank 1926 249 761 6672 4620 591 1.66
Lakshmi Vilas Bank 1926 239 230 3496 2318 298 4.98
Lord Krishna Bank 1940 118 181 2176 1387 195 4.22
Nainital Bank 1922 69 76 933 363 74 0.00
Ratnakar Bank 1943 75 45 784 424 66 5.54
Sangli Bank 1948 192 85 1985 812 137 4.30
SBI Comm. & Intl. Bank 1993 3 88 331 231 26 7.65
South Indian Bank 1929 438 456 8492 5365 709 3.81
Tamilnad Mercantile Bank 1921 183 559 4827 2626 513 2.95
United Western Bank 1936 237 244 6453 3976 487 5.97
** Converted to a private sector commercial bank on 31st May, 1995. Started as a Credit
Society set up by the followers of His Highness the Aga Khan in the 1930s and later
converted into Co-operative Bank.

New Private Sector banks

Name of bank Year of No. of Networth Deposits Advances Interest Net NPA
incorporation Offices income ratio
Bank of Punjab* 1995 120 241 4307 2417 329 4.64
Centurion Bank 1994 77 590 3530 2194 346 2.51
HDFC Bank 1994 446 4520 36354 25566 3093 0.24
ICICI Bank 1994 519 12900 99819 91405 9410 1.65
IDBI Bank Ltd. 1994 157 5929 15103 45414 2656 1.74
IndusInd Bank 1995 127 830 13114 9000 1134 2.71
Kotak Mahindra Bank 1985 54 757 4300 4017 420 1.56
UTI Bank 1994 249 2422 31712 15603 1924 1.39
Yes Bank 2003 3 217 663 761 30 0.00
* now merged with Centurion Bank

Foreign Banks
Name of bank No. of Offices Networth Deposits Advances Interest income Net NPA ratio
ABM Amro Bank 19 1347 7077 9831 907 0.35
Abu Dhabi Commercial 2 71 1663 90 150 12.73
Bank
American Express Bank 8 301 2264 1483 270 0.99
Antwerp Diamond Bank 1 128 50 434 26 0.00
Arab Bangladesh Bank 1 45 23 22 3 0.28
Bank International 1 74 11 20 1.81 10.49
Indonesia
Bank of America 5 1437 1993 3219 257 0.00
Bank of Bahrain & 2 67 394 264 34 5.53
Kuwait
Bank of Ceylon 1 54 104 59 8 13.76
Bank of Nova Scotia 5 257 1602 2053 159 3.08
Bank of Tokyo Mitsubishi 3 369 532 559 57 0.01
Barclays Bank 1 698 75 2 31 0.00
BNP Paribas 9 333 1674 1719 176 0.00
Calyon Bank 4 328 1306 674 117 0.30
Chinatrust Commercial 1 45 48 59 9 6.02
Bank
Cho Hung Bank 1 72 97 69 0.99 0.00
Citibank 35 3310 21484 18111 2203 1.00
DBS Bank 1 556 611 560 30 0.00
Deutsche Bank 5 1232 3625 2541 390 0.00
Hongkong & Shanghai 39 3578 17013 12621 1627 0.50
Banking Corpn.
JP Morgan Chase Bank 1 266 930 150 40 0.00
Krung Thai Bank 1 40 34 16 4 0.00
Mashreq Bank 2 58 269 19 29 0.00
Mizuho Corporate Bank 1 164 110 267 17 0.00
Oman International Bank 2 161 225 13 18 55.05
Societe Generale 2 321 527 159 37 0.00
Sonali Bank 1 6 22 6 1 1.90
Standard Chartered Bank 85 3234 22522 19970 2493 1.12
State Bank of Mauritius 3 126 148 222 36 4.08
UFJ Bank 1 228 71 102 16 0.00
(Source: A profile on banks 2004-05, RBI))

The banks in India are operating through 55530 branches. All the banks together had the
net worth of Rs. 149385 crores as on 31st March, 2005. The banks also had the deposit
base of Rs. 1836985 crores and the advances of Rs. 1151113 crores taking the total
business to Rs. 2988098 crores. During the year 2004-05 the banks had earned the
interest income of Rs. 154761 crores. The average net NPA ratio of the banks was also
less 3.84% in year 2005.

Future is bright:
The Information Technology (IT) is becoming an important component of the banking
sector. The customers have become more demanding and they need value added services
from the banks. The foreign banks have raised the expectations of the customers causing
the bank to invest strongly on IT. The Indian banks have started to meet the expectations
of the people by opening both onsite and offsite ATMs. Banks have also started
telebanking, anytime/anywhere banking, mobile banking and Internet banking to give the
facilities to the customers. Banks have also following the RBI sponsored technology
programmes like mail messaging, Electronic fund transfers (EFT), Structured Financial
Messaging System (SFMS), (Real Time Gross Settlement (RTGS), Centralized Fund
Management System (CFMS) and Negotiated Dealing System / Public Debt Office
(NDS/PDO).

Banks have been given more teeth to tackle the Non performing assets by passing the
Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002. Under this Act, the banks can take over the assets of the defaulters
either by themselves or with the help of Court. The power is in addition to the power to
recover through the Debt Recovery Tribunal. The Asset Reconstruction Companies have
been formed which also take over the distress assets from the banks.

Conclusive Remarks
Banking Sector in India is likely to undergo a major change. This change will be in the
form of mergers and acquisitions and takeovers. The State Bank of India may merge all
its associate banks with itself to make a one bank. The banks based in South India may
look for a bank in North India to have presence in North. Similarly banks in North may
look for banks in South to increase its area of operations. Consolidation will be the key to
the banking sector in future.