The Banking Sector In India

There have been several significant structural reforms in Indian banking sector since 1990s. It has now been open to more competitions by the entry of new private banks and gradual liberalization of the banking sector. The sector is currently valued at Rs 81 trillion (US$ 1.31 trillion). It is believed that there is potential for India to be the 5th largest banking industry in the world by 2020 and the 3rd largest by 2025, according to an industry report. (IBEF, 2014)

India is an emerging market with high economic growth. It is one of the largest economies in the world in terms of nominal GDP. It also ranks 3rd when it comes to purchasing power parity. Upon liberalization, more favourable policies adopted by Indian government, India has become a preferable banking destination in the world.

This report is commissioned to review the development of the banking sector in India. It will cover the history, followed by the structural framework of the industry and the operation of the Central Bank of India, Commercial Banks, Co-operative Banks and other Specialized Banks in India. Banking service and performance of Indian Banks will be discussed. Current situations and prospects of the sector will also be analyzed at the end of the report.

2. History of Indian Banking Sector

India’s banking industry started in the 18th Century. The first bank – the General Bank of India was established in 1786. The journey of development was then segregated into three distinctive phases,

• Early Phase of Indian Banks (1786 – 1969)

• Nationalization of banks and reforms (1969 – 1991)

• New phase of Indian banking system and reforms (1991 – now)

2.1 Phase 1

The General Bank of India was first established in 1786, followed...

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However, the industry should take key challenges into serious account to prepare themselves against the treats. Introduction of Basel III Norms made Indians banks to bring in additional capital of Rs. 5 Lakhs Crores and the government to inject 90,000 Crores into the state-owned banks maintain majority shareholding to meet this new requirement. Intensified competition and increasing non-performing loans due to economic slowdown and aggressive lending pose challenges, especially in profitability of the banks.

If the banks can differentiate themselves by offering more products and make use of growth drivers in India, they can possibly be under spotlight in the near future, with the opening up of Indian financial market. It is optimistic that banking sector in the country will become more and more mature and robust through consolidations and reforms all along.