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BANKING AND INSURANCE BANKING Banking in india has grown over the years.

It comprises of 26 sectors including commercial as well as cooperative sector players. This was reflected through profitability, annual credit growth and decline in nonperforming assets. The Indian banking originated in late 18th century. The first banks were General Bank of India in 1786, bank of Hindustan in 1790 and State bank of India in 1805. The State Bank of India ,Bank of Bombay and Bank of Madras were the three presidency banks established under the charter of British East India Company. These presidency bank were merged and became imperial banking of India in 1921. After independence it became state bank of India. In 1839, union bank was established by Indian merchants. However it failed due to economic crisis in 1848. The Allahabad bank is the oldest joint stock bank. It was though not the first initiative. Oudh commercial bank was the first joint stock bank. The swadeshi movement between 1906 to 1911 inspired the establishment of banks by local bankers. . A number of banks established at that period has survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. Many private banks were established in south Karnataka and Udupi district. It was earlier unified and known as south canara bank. The banking activities were paralyzed during partition of Punjab and West Bengal. The Government of India initiated measures that resulted into greater involvement of the state in banking and finance. It took following major steps:

The Reserve Bank of India became India's central banking authority. It was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. . The Government of India issued an ordinance. It nationalized the 14

largest commercial banks in July 19, 1969. It nationalized 6 more commercial banks in 1980. The government of india controlled 91 % of the banking business of india. In the early 1990s, Narasimha Rao emphasized on a policy of liberalization. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India. The next step taken by the government was to relax the norms for foreign direct investment. The foreign investors in banks were given voting rights that exceeded the present capital of 10%. This policy shook the banking sector in India. It ushered a new wave in a modern outlook and tech savvy methods of working of traditional banks. Currently, the banking in India offers a wide variety of banking services in terms of supply, product ranges. Indian banks are considered to have clean, strong and transparent balance sheets compared to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank. In recent years critics felt that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans.

INSURANCE Indias insurance sector is one of nineteen largest market. It has gone through two radical transformations. Insurance had less government intervention before 1956. Life insurance was nationalized and a monopoly was created during 1956. Later in 1972, general insurance was nationalized. The Government appointed committee recommended that private companies should be allowed to operate in order to open up the economy. It took six years to implement the recommendation. Private sector was allowed into insurance business in 2000. However, foreign ownership was restricted. The first Life insurance company in India was Oriental Life Insurance Company in 1818, Bombay Assurance Company in 1823 and the Madras Equitable Life Insurance Society in 1829. All of these companies were set up in India but did not insure the lives of Indians. They were insuring the lives of Europeans living in India. The first general insurance company was Triton Insurance Company Ltd established in 1850.

The first indigenous general insurance company was the Indian Mercantile Insurance Company Limited set up in Bombay in 1907. The two sets of legislation were passed in 1912: the Indian Life Assurance Companies Act and the Provident Insurance Societies Act. In 1937, the Government of India set up a consultative committee. Mr. Sushil C. Sen, a well known solicitor of Calcutta, was appointed the chair of the committee. Finally, in 1938, the Insurance Act was passed. This piece of legislation was the first comprehensive one in India. It covered both life and general insurance companies. Life insurance was nationalized in 1956 and general insurance in 1972 respectively. With the privatization in the late twentieth Century, it has returned as the backbone of the current legislation of insurance companies. Retaining the maximum possible premium within India and preserving foreign currency became a priority for reinsurance business. India did not have a floating exchange rate until the 1990s. Therefore, hard currencies (like the US dollar) were considered valuable resources. Thus, the policy was to pay minimum possible premiums in hard currencies. To achieve this goal, the insurance companies in India formed the India Reinsurance Corporation in 1956. The General Insurance Corporation was incorporated as a holding company in November 1972 and it commenced business on January 1, 1973. It had four subsidiaries were: The National Insurance Company, (2) The New India Assurance Company, (3) The Oriental Insurance Company, and (4) The United India Insurance Company. In 1958, Section 27A of the Insurance Act was modified to stipulate the following investment regime: (a) Central Government market securities of not less than 20% (b) Loans to National Housing Bank including (a) above should be no less than 25% (c) In State Government securities including (b) above should be no less than 50% (d) In socially oriented sectors including public sector, cooperative sector, house Building by policyholders, own-your-own-home schemes including (c) above should be No less than 75%. For General Insurance, Section 27B of the Insurance Act of 1938 was amended in 1976. The guideline for investment was set as follows. (a) Central Government Securities 25%

(b) State Government and public sector bonds 10% (c) Loans to State Governments, various housing schemes 35%. The remaining 30% investment could be in market sector in the form of equity, long term loans, debentures and other forms of private sector investment. Indian life insurance was nationalized in 1956. All life companies were merged together to form one single company: the Life Insurance Corporation. By 2000, Life Insurance Corporation had 100 divisional offices in seven zones with 2048 branches. The Insurance Regulatory and Development Authority started granting charters to private life and general insurance companies. India is among the important emerging insurance markets in the world. The fundamental regulatory changes in the insurance sector in 1999 have become critical for future growth. Despite the restriction of 26% on foreign ownership, large foreign insurers have entered the Indian market. State-owned insurance companies still have dominant market positions. But, this would probably change over the next decade. In the life sector, new private insurers are bringing in new products to the market. They also have used innovative distribution channels to reach a broader range of the population. The Indian general insurance segment is still heavily regulated.