1oo Marks Project

8/8/2019 1oo Marks Project

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1.INDIAN BANK AS PARADIGMS

INTRODUCTION

Commercial banks are institution , which deal with money and creditprimarily for earning profit . These banks occupy a dominant place in the

modern banking structure . They are financial intermediaries , which

perform the dual function of mobilization of deposits and deployment of

surplus funds to the various sectors of the economy . A well developed

commercial banking system is a precondition for the economic development

of the nations.

Commercial banks play a vital role in giving a direction to early the

economys development over time by financing the requirements ofagriculture , business and industry . The operations of commercial banks

record the monetary pulse of the economy .

Commercial banks in India consist of 28 state owned banks, 28 private

banks and 29 foreign banks totaling of 85 banks. Apart from these, there are

133 regional banks also. The size, niches and vintages vary from one

another.

The banking business in its oldest form originated in Italy where the early

bankers were called Moneychangers. They used to conduct their moneychanging business in streets seated on benches. The word bank originated

from the Italian word banca banca means bench. The origin of modern

banker can be traced back to the merchant bankers, moneylenders and

London goldsmith.

The merchants accepted deposits from their clients to carry on their trade;

the moneylenders lend their surplus money to goldsmith , who accepted the

money and other valuables for safe custody. They possessed special facilities

to keep under safe lock and key valuables of many kinds .

A modern commercial banker performs these three functions namely accept

deposits, lend money and safe custody of valuables of customers .


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HISTORY OF COMMERCIAL BANKING IN INDIA

The history of commercial banking in India dates back to the establishment

of Bank of Hindoostan, in 1770, which was a mere appendage of the

former, and it was under the directions of the Europeans. However, this

bank could not survive for long because the failure of the parent firm in

1832. The sholapur bank ltd, started by trading houses also went into the

liquidation in 1818 due to the unwise combinations of banking business with

trading operations by them . Faulty speculations and greedy profit motive by

ignoring the principles of safety of banking operations was the reason for the

failure of the agency houses that also led to collapse of their banking

department .

PRESIDENCY BANKS

THE BANK OF CALCUTTA began its banking business in the year

June 1806. The Government of India did not realize the need for banks till

1809 and in that year , a royal charter re-designated the The bank of

Calcutta as the The bank of Bengal . It was the first joint stock bank of

british India sponsored by the government of Bengal . It was established

with a capital of Rs. 50 lakh, one-fifth of which was contributed by the

government, which shared the privilege of voting and directions. However,

the power to issue currency notes was not given to the bank till 1823. In

1939, the bank was given the power to open branches and to deal in inland

exchange .

GROWTH OF JOINT STOCK COMMERCIAL BANKS

During 1922-48 while the number of joint stock banks increased further and

on there was a simultaneous failure of many banks. Andhra bank ltd (1923) ,

Karnataka bank ltd (1924) , Syndicate bank ltd (1925) , The Federal bank ltd

(1930) , Vijaya bank ltd (1931) , Dhan lakshmi bank ltd (1935) , Bank of

Maharashtra ltd (1936) , Indian overseas bank ltd (1937) , Dena bank ltd

(1938) , Lord Krishna bank ltd (1940) , Oriental bank of commerce ltd(1943) etc, were established during this period .


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FIRST PHASE OF BANKING REFORMS

The primary objective of financial sector reforms was to ensure financial

stability and maintain confidence in the financial system by enhancing its

soundness and efficiency. First phase of financial sector reforms commenced

in the early 1990s, was aimed at creating efficient , productive and profitable

service industries especially the banking sector. Prudential norms and

supervisory strengthening were introduced in the first phase of reform cycle,

followed by interest rate deregulation and gradually lowering of statutory

preemptions .

The prudential norms relating to income recognition, asset classification and

100 % provisioning for all NPAS was a turning point in the reform process.

The prudential norms introduced during 1992-93 were continuously

monitored and refined to bring them on par with international best standards.The major objective of banking sector reforms was to enhance efficiency and

productivity through increased competition. Consolidation of banking sector

was another important development of reform process.

Narashimhan committee recommended new private sector banks in order to

enhance the efficiency, productivity and competition in the banking sector .

RBI decided to set up new banks in the private sector in order to enhance the

efficiency, productivity and competition in the banking sector. RBI decided to

set up new banks in the private sector and necessary guidelines were issued in

this connection on January 1993.since 1993,11 new private sector banks and

one public sector banks were set up.

A significant development in the process of banking sector reforms was the

setting up of board for financial supervision in 1994 it consisted of select

members of the RBI board with variety of professional experts to give

direction on a continuing basis on regulatory polices and supervisory

practices.


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SECOND PHASE OF BANKING FIRMS

The second phase of reforms, beginning from the second half of 1990s, was

aimed at strengthening of the financial system and introduction of structural

improvements . an important milestone in the process of banking sector

reforms in India was the deregulation of interest rates. The interest on

deposits and advances was deregulated barring certain specific classes such

as saving deposits account, non-resident Indian deposits. Commercial banks

have now the commercial banks have now the freedom to set interest rates

on their deposits subject to minimum floor rates and maximum ceiling rates .

The reforms process also envisaged major changes in the banking sector by

way of reduction in cash reserve ratio and statutory liquidity ratio

requirements, abolition of mass recruitment by banking service recruitment

board (BSRB) and implementation of voluntary retirement scheme (VRS).

The second phase include SLR/ CRR, INTEREST INCOME & EXPENSES,

PRIVATE SECTOR ADVANCES,CAPTAL ADEQUACY various changes

in the banking industry.

CAPITAL ADEQUACY

The concept of capital adequacy acquired further importance in the

light of the massive defaults faced by the US, French and Italianbankers from their borrowers. Thus in 1988, the committee decided

to introduce a capital measurement system known as the BASEL

Capital accord. Minimum capital adequacy standard gained wide

acceptance internationally and the countries are now moving

towards the adoption of the new capital accord.

SLR (Statutory liquidity ratio ) :

The SLR has been maintained by the banks to impose secondaryreserve requirements. The objective of statutory reserve is to

restrict the expansion of bank credit, to encourage the banks to

invest in government securities and to ensure solvency of banks.


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CRR (Cash reserve ratio ) :

The banks have to keep a fraction of their deposit liabilities in the

form of liquid cash. The authorities used to change this fractionmainly for the purpose of ensuring the safety and liquidity of

deposits .

AGENDA FOR THIRD PHASE REFORMS

The reforms measures had a profound impact on the financial landscape in

,recent years. The changes staring in the face of bankers relate to the

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