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Impact of Recession on
Indian Banking Sector
Dr. Tushar Chaudhari,
Assistant professor,
Seth Kesarimal Porwal College, Kamptee
Overview
Indian Banking Scenario
Recession
Impact of recession on Indian Economy
Impact of recession on Indian Banking
Sector
Early phase (1786 to 1969)
General bank was established in
1786.
In 1865 Allahabad bank was
established by Indians only.
The Government of India came up
with The Banking Companies Act,
1949
Nationalization
1955 : Nationalisation of State Bank of
India.
1959 : Nationalisation of SBI
subsidiaries.
1961 : Insurance cover extended to
deposits.
1969 : Nationalisation of 14 major banks.
1971 : Creation of credit guarantee
corporation.
1975 : Creation of regional rural banks.
1980 : Nationalisation of seven banks
After Liberalization 1991
A committee was set up under the chairmanship of M Narasimham, which worked for the liberalisation of banking practices.
Phone banking and net banking is introduced
Specialized loans (like horticulture, aquaculture, animal husbandry, floriculture and sericulture businesses) to meet specific needs of the farmers were offered by the banks.
Structure of Indian Banking
Sector
Percentage of contribution of
banking sector to GDP
2006-07 2007-08 2008-09 2009-10 2010-11
5.5 5.5
5.6
5.4
5.8
Market Share of banks
67.2
18.7
6.5
2.73.4
1.5
Public sector Banks
Private sector Banks
Foreign Banks
Regional Rural Banks
Rural and urbancooperative banks
Local Area Banks
Source :- RBI
Banking Sector and Economy
Banking Sector
Employment
Income
Saving
Investment
Production
consumption
Industrial Development
Indian banking Sector will be the
third highest in the world by 2025
Source: BANCON 2012
Future of Indian Banking
sector Mortgages to cross Rs 40 trillion by 2020
Wealth management will be big business with 10X
growth
The number of branches to grow 2X; ATMs to
grow 5X
Mobile banking to see huge growth
Customer Relationship Management (CRM)
Banking margins will come under pressure
New models to serve the Small and Medium
Enterprises
Infrastructure financing to hit over Rs 20
Major before Challenges indian
banking sector
Modified new rules
Efficiency
Diffused customer loyalty
Competency Gap
Recession in the world
Recession in the world
Effect of recession on Indian
economy
Indian Economy
Financial Sector
ExportsExchange
Rate
Effect of recession on India’s
GDP
Year GDP-Real
Growth
Rate
Percentage
change
2003 4.30% --
2004 8.30% 93.02%
2005 6.20% -25.30%
2006 8.40% 35.48%
2007 9.20% 9.52%
2008 9.00% -2.17%
2009 7.40% -17.78%
2010 7.40% 0.0%
Source :- RBI
GDP Growth Rate
Source :- RBI
Effect of recession on Indian
banks
Bank have suffered losses including some
public sector banks namely Punjab National
Bank, Bank of India, State Bank of India and
Bank of Baroda as they have exposure to
instruments issued by Lehman and Merrill
Lynch.
Reason for non failure of Indian
banking system during recession
Traditional working of banks
Strong base of nationalized banks
Effective control of RBI
Role of finance Ministry
Recession will be back
The overwhelming majority of mainstream economists predict that the world’s biggest economy should have at least another two years before it runs into six months of negative growth (the official definition of recession). After 2015, however, the date for the next recession could be any time between the end of 2015 to 2018, according to economists’ forecasts.
Recession will be back
These predictions are based on the
assumption that the U.S. manages to
avoid the possibility of defaulting on its
debt repayments for the first time in its
history — the prospect of which looms
nearer every day as the government
shutdown continues.
Recession will be back
Consumer spending, usually a big
driver of growth in the U.S., has not
picked up in the way many economists
forecast. In September, banks
including JP Morgan and Barclays
downgraded their forecasts for U.S.
gross domestic product growth in the
third quarter, after a worse-than-
expected retail sales rise of 0.2
percent in August.
Recession will be back
Historical data show a recession in the
U.S. on average every 6-7 years since
1947, and double-dips within eight
years of big recessions like the Great
Depression.
Lessons to be learned from
recession
Just because you can qualify to
borrow money doesn't mean you
should
A house is primarily a place to live
Stock prices can keep falling a very
long time
Your job is your greatest asset