Impact of banking sector on economic growth of india with relation to china

7/29/2019 Impact of banking sector on economic growth of india with relation to china

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Comparative study of Indian and Chinese banking secto

and its role in their economic growth and development

Presented by:SHIVAM KUMAR (A1802011101)

&TARUNA GULATI (A1802011080)

AMITY INTERNATIONAL BUSINESSSCHOOL NOIDA


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OBJECTIVES

To Study the impact of Banking sector on Economy.

Comparison of India and China on the basis of banking

system and its role in economic growth and development.


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INTRODUCTION

The financial sector played an important role in the economic growth.

In financial Sector, Banking system may directly affect growth by improving

the access to financial services and indirectly by improving the efficiency of

financial intermediaries, both of which reduce the cost of financing, and in

turn, stimulate capital accumulation and economic growth.

Due to their influence within a financial system and an economy, banks are

generally highly regulated in most countries.

India has the Seventh largest geographic area of 32, 263 sq kms,whereasChina has Third Largest area of 9,596,961 sq. km.


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The two countries have similar labor endowments and development lags

due to government controls and protected nature of their economies.

The Chinese culture is more homogeneous and Indian culture is great

diversified.

India lags behind china in infrastructure.

Primary, secondary education, vocational education training in china

results in 99.1% literacy rate, where as in India it is 50 to 60 %


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INTRODUCTION


The Reserve Bank of India, the nations central bank, began operations on April

01, 1935. It was established with the objective of ensuring monetary stability andoperating the currency and credit system of the country to its advantage.

The scheduled bank are scheduled by Reserve Bank of India and they are fullyauthorised to do banking business in India. Reserve Bank of India directlycontrol over it.

Non-scheduled are not scheduled by Reserve Bank of India they do work underBanking Regulation Act of India.


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China Banking System


The People's Bank of China (PBOC) is Chinas central bank, which

formulates and implements monetary policy. The PBOC maintains the banking

sector's payment, clearing and settlement systems, and manages official foreign

exchange and gold reserves.

The banking sector in China primarily comprises of state-owned commercial

banks and policy banks, the banking segment is mostly controlled by 4 state-

owned banks namely the Industrial & Commercial Bank of China (ICBC)specialized in lending to industrial sector, China Construction Bank (CCB)

traditionally focused on infrastructure development, Bank of China (BOC)

conventionally responsible for foreign exchange and financing of imports &

exports and Agricultural Bank of China (ABC) primarily focused on lending to

agriculture and rural development contributing about 60-70% of the domestic

banking business.


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Relation between Savings and Economic Growth



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The Growth Drivers of Indian banking sectorHigh growth of Indian Economy: The growth of the banking industry is closely linked with

the growth of the overall economy

Rising per capita income: The rising per capita income will drive the growth of retail credit.

New channelMobile banking is expected to become the second largest channel for banking

after ATMs: New channels used to offer banking services will drive the growth of banking

industry exponentially in the future by increasing productivity and acquiring new customers.

Major concern of Indian banking sector:1) Intensifying competition: Due to homogenous kind of services offered by banks, large

number of players in the banking industry and other players such as NBFCs, competition is

already high.

2) Managing Human Resources and Development: Banks have to incur a substantial

employee training cost as the attrition rate is very high. Hence, banks find it difficult managethe human resources and development initiatives.

3) Increasing non-performing and restructured assets: Due to a slowdown in economic

activity in past couple of years and aggressive lending by banks many loans have turned non-

performing. Restructuring of assets means loans whose duration has been increased or the

interest rate has been decreased. This happens due to inability of the loan taking

company/individual to pay off the debt.


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PORTERS FIVE FORCES MODEL FOR BANKING SECTOR


Power of Buyers: Customers Bargaining Power is high

because banks provide homogeneous kind of services andcustomers can get all information very easily so the

switching cost is low for the customer.

Power of Suppliers :In the banking industry suppliers

bargaining power is low because banks have to meet many

regulatory criteria made by RBI.

Competitive Rivalry: Competition in the Banking Industry

is very High Because of large number of public, private,

foreign and co-operative banks.

Availability of Substitutes: There is a high threat fromsubstitutes such as mutual funds, T-bills, Government

securities and NBFCs.

Threat of new Entrants: Banking regulations require the

approval of the regulator RBI before setting up a new

bank,so the threat of new entrant is low.


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Research Methodology

Purpose of this research is to ascertain the impact of banking

sector on the financial development and economic growth in

India in context with China.

Data Collection can be done in the form of two types:

Primary Data and Secondary data. But with respect to the

research based on banking sector and economic growth, the

probability of getting secondary data is higher than the primary

data.


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Research Design


Descriptive cum comparative Research

It aims to implement statistical research which describes data

and characteristics about the population or phenomenon being

studied.

Although the data description is factual, accurate and

systematic, the research cannot describe what caused a situation.


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ANALYSIS



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ANALYSIS CONTD


According to the analysis ,GDP AND GDS of India and China has

high degree of correlation as their values are .991 and .999.which

means that if India and China increases their GDS by 100% there

will be a 99.1% of change in GDP of India and 99.9% change in

GDP of China.

In Regression Analysis, analysis GDP has been taken as

dependent variable and GDS has been taken as independent

variable and it is noticed that there is a significant correlationbetween GDP and GDS.Further when ANOVA Test was applied,

the sum of squares in Regression model was having very less

residual value.So we can interpret that India & China has to make

balance between GDP and GDS.


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ANALYSIS CONTD


On the basis of the data, we can conclude that there is a

high degree of positive correlation, which means that if

there will be a certain percentage of change in deposits,

there will be same percentage change in GDP of India and

China.

In the Regression analysis, GDP has been taken as dependent

variable and GDS has been taken as independent variable and it is

noticed that there is a significant correlation between GDP and GDS.

Further when ANOVA Test was applied, the sum of squares in

Regression model was having very less residual value. So we can

interpret that India & China has to make balance between GDP and

GDS.


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FINDINGS


GDP AND GDS of China has high degree of correlation as

its value is .999,which means that if China increases its GDS

by 100% there will be a 99.9% of change in GDP ,in same

direction.

There is a high degree of positive correlation between the

bank deposits and GDP of China which means that if there

will be a certain percentage of change in deposits, there will

be same percentage change in GDP, in same direction.

GDP AND GDS of India has high degree of correlation as its

value is .991,which means that if India increases its GDS by

100% there will be a 99.1% of change in GDP, in same

direction.


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FINDINGS CONTD


The Bank deposits and GDP of India has high degree of correlation as itsvalue is 1, which means that if there will be a certain percentage ofchange in deposits, there will be same percentage change in GDP ,insame direction.

When ANOVA Test was applied to the GDP and Bank Deposits of India,the sum of squares in Regression model was having very less residualvalue.

The Regression analysis of the GDP and Bank Deposits with the help ofANOVA test, the sum of squares in Regression model was having veryless residual value.


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RECOMMENDATIONS

On the basis of the data presented in the

interpretation, regarding correlation between GDP

and GDS, we can recommend that to strengthen the

economy and GDP of India, they should increase their

savings.

According to the data analyzed regarding correlation

between GDP and GDS, we can recommend that tostrengthen the economy and GDP of China, they

should increase their investments and savings.



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RECOMMENDATIONS CONTD


While comparing India and China, we find that china has

more GDP and GDS as compared to India and also bank

deposits of China are more as compared to India.

On the basis of the data given in the interpretation, regarding

correlation between the GDP and deposits, we can recommend

that India and China both have to increase their portion of

deposits so that further GDP for both the countries can be onhigher side and both the countries should focus more on GDS

so that Economy can grow and develop.


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Comparative Study of India-China


Parameter India China

Population(2012) 1.22 Billion 1.34 Billion

Geographic Area 3.2 Million Sq Km 9.6 Million Sq Km

Inflation Rate (2013) 6.84 % 3.20 %

GDP(PPP) (2012) 4.7 trillion $ 12.38 trillion $

Literacy Rate 83.04 %(2012) 92.2%(2007)

Year 2008 2009 2010 2011 2012

GDP(India) 1.24 1.21 1.38 1.72 1.84

GDP(China) 3.49 4.52 4.99 5.87 7.29

GDS %GDP(India) 30 31 32 31

GDS%GDP(China) 52 53 52 53

Deposits(India) 0.65 1.8

Deposits(China) 1.13 4.1


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LIMITATIONS OF THE PROJECT


The main focus in this research would be to pursue a cross-

sectional study bearing in mind the time constraint and also

subject to the fact that the banking industry will not reveal

the data for security purpose to undergone a longitudinalstudy.

This research would be carried out using secondary data

which is already available through various sources and would

be dealt in detail in further sections. Reliability of the

findings could be guaranteed by the mere fact that the

participant error or biased views did not take place as

secondary data is used.


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CONCLUSION


China is having a definite edge over India if the present position of these two

countries in global economy is concerned.

The government machinery of the country, to a great extent, is found to be

responsible for the same. India looks a struggler yet, the fundamentals of its

economy and future growth projection makes it a dark horse in the globalscenario.

Indian in order to ensure that it is not lagging behind its counterparts, will

have to reverse the trend by investing more in R&D.

Improving education rate and standards in the country; curtailing adversebalance of trade; making our laws especially labour laws simple and straight

forward, making our financial markets more efficient and so on.


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Impact of banking sector on economic growth of india with relation to china