Ritesh Final Report

8/18/2019 Ritesh Final Report

1/92

A

PROJECT REPORT

ON

INDIAN BANKING

INDUSTRY

With context

STATE BANK OF INDIA

PROJECT GUIDE:TEJAS PAREKH (BAGJ!!"#$PAREPARED BY: %& RITESH JADHA'

BA " TH SE (FINANCE$

RO NO&)"!#!)!*+,

SIKKI ANIPA UNI'ERSITY

2014-2015

1


2/92

ERTIFI ATE

TO WHOM SO EVER IT MAY CONCERN

Thi- i- to ce%ti./ th0t %& RITESH JADHA' (Ro11 No&)"!#!)!*+,$ 0 -t23ent

o. M.B.A. (Finance) o. Sii! Mani"a# $ni%e&'i* Sii!* h0- 3one

hi- 4%o5ect 6o%7 on the -285ect n09e ANAYSIS OF INDIAN BANKING

INDUSTRY WITH CONTA;T OF STATE BANK OF INDIA<

He h0- 3one 4%o5ect 32%in= the 4e%io3 1-+-2015 to 2+-10-2015 2n3e%

the =2i30nce o. %& G&N& Gh0n3hi> in STATE BANK OF INDIA SE'ASI

BRANCH 'ADODARA(GUJARAT$&

D2%in= the 4e%io3 o. hi- 4%o5ect 6o%7 6ith 2- 6e h0?e .o2n3 hi- con32ct

0n3 ch0%0cte% 0%e =oo3&

We 6i-h hi9 =oo3 12c7 .o% 0n3 011 the 8e-t in hi- c0%ee%&

F,& STATE BAN OF INIA.

(/.N. /ani)

e&',na# Bane&

2


3/92

EC3ARATION

I e&e ec#a&e a e "&,ec eni#e 6ANA3YSIS OF INIAN BANIN/

IN$STRY WITH CONTA7T OF STATE BAN OF INIA8 S9!ie in

"a&ia# :9#;##!en ,: e &e* a?#iae , Sii! Man9"a#

$ni%e&'i* Sii!* i' an a9enic =,& an a' n, een '9!ie ,

an ,e& $ni%e&'i@In'i9e :,& a=a& ,: an e>&ee@i"#,!a.

M&. RITESH AHAV

(1402010+)

MBA* BIT

Sii! Mani"a# $ni%e&'i

VAOARA* /$ARAT

3


4/92

ACNOW3E/EMENT

Fi%-t1/> I 6o213 1i7e to ex4%e-- o2% i99en-e =%0tit23e to60%3- o2%

in-tit2tion BARODA In-tit2te o. Techno1o=/> 6hich c%e0te3 0 =%e0t 410t.o%9 to

0tt0in 4%o.o2n3 technic01 0n3 90n0=e9ent -7i11- in the @e13 o. BA> the%e8/

.21@11in= o2% 9o-t che%i-he3 =o01&

I 6o213 th0n7 011 the @n0nce 3e40%t9ent o. STATE BANK OF INDIA>

SE'ASI BRANCH> 0n3 the e941o/ee- .o% =2i3in= 9e 0n3 he14in= 9e in

-2cce--.21 co941etion o. the 4%o5ect&

I 09 ?e%/ 92ch th0n7.21 to o2% F0c21t/ %& Te50- P0%e7h (Inte%n01 G2i3e$

.o% exten3in= hi- coo4e%0tion in 3oin= thi- 4%o5ect&

I 09 01-o th0n7.21 to o2% 4%o5ect coo%3in0to% %& '0i8h0? 4%03h0n 0n3

%-& Ki%ti P%03h0n .o% exten3in= hi- coo4e%0tion in co941etion o. P%o5ect&

I con?e/ 9/ th0n7- to 9/ 8e1o?e3 .09i1/ 0n3 9/ .0c21t/ 6ho he14e3

9e 3i%ect1/ o% in3i%ect1/ in 8%in=in= thi- 4%o5ect -2cce--.211/&

RITESH AHAV

(1402010+)

4


5/92

INE7

5


6/92

OVERVIEW TO

BANKING

INDUSTRY

6


7/92

INTRODUCTION

1.1 Financial Sector Reforms set in motion in !! "a#e $reatl% c"an$e& t"e face

of In&ian Ban'in$. T"e (an'in$ in&)str% "as mo#e& $ra&)all% from a

re$)late& en#ironment to a &ere$)late& mar'et econom%* T"e mar'et

&e#elo+ments 'in&le& (% li(erali,ation an& $lo(ali,ation "a#e res)lte& in

c"an$es in t"e interme&iation role of (an's* T"e +ace of transformation "as

(een more si$nificant in recent times -it" tec"nolo$% actin$ as a catal%st*

W"ile t"e (an'in$ s%stem "as &one fairl% -ell in a&.)stin$ to t"e ne- mar'et&%namics/ $reater c"allen$es lie a"ea&* Financial sector -o)l& (e o+ene& )+

for $reater international com+etition )n&er WTO* Ban's -ill "a#e to $ear )+ to

meet strin$ent +r)&ential ca+ital a&e0)ac% norms )n&er Basel II* In a&&ition

to WTO an& Basel II/ t"e Free Tra&e A$reements 1FTAs2 s)c" as -it"

Sin$a+ore/ ma% "a#e an im+act on t"e s"a+e of t"e (an'in$ in&)str%* Ban's

-ill also "a#e to co+e -it" c"allen$es +ose& (% tec"nolo$ical inno#ations in

(an'in$* Ban's nee& to +re+are for t"e c"an$es* In t"is conte3t t"e nee& for

&ra-in$ )+ a Roa& 4a+ to t"e f)t)re ass)mes rele#ance* T"e i&ea of settin$

)+ a Committee to +re+are a Vision for t"e In&ian Ban'in$ in&)str% came )+

in IBA/ in t"is (ac'$ro)n&*

1.2 4ana$in$ Committee of In&ian Ban's5 Association constit)te& a Committee

)n&er t"e C"airmans"i+ of S"ri S C G)+ta/ C"airman 6 4ana$in$ Director/

In&ian O#erseas Ban' to +re+are a Vision Re+ort for t"e In&ian Ban'in$In&)str%* T"e com+osition of t"e Committee is $i#en at t"e en& of t"e re+ort*

1.3 T"e Committee "el& its first meetin$ on 78 r& 9)ne 7::8 at 4)m(ai* ;rior to

t"e meetin$ t"e mem(ers -ere re0)este& to $i#e t"eir t"o)$"ts on t"e f)t)re

lan&sca+e of t"e (an'in$ in&)str%* A &isc)ssion +a+er (ase& on t"e

res+onses recei#e& from mem(ers -as circ)late& alon$ -it" a 0)estionnaire

elicitin$ #ie-s of mem(ers on some of t"e s+ecific iss)es concernin$

antici+ate& c"an$es in t"e (an'in$ en#ironment* In t"e meetin$/ -"ic"

7


8/92


9/92

1.4 T"e Vision Statement +re+are& (% t"e Committee is (ase& on common t"in'in$

t"at cr%stalli,e& at t"e meetin$s* In t"e C"ennai meetin$ it -as &eci&e& to form a

smaller $ro)+ from amon$ t"e mem(ers to &raft t"e re+ort of t"e Committee* T"e

$ro)+ met t"rice to finali,e t"e &raft re+ort* T"e re+ort -as a&o+te& in t"e final

meetin$ of t"e Committee "el& at 4)m(ai*

1.5 W"en -e tal' a(o)t t"e f)t)re/ it is necessar% to "a#e a time "ori,on in min&*

T"e Committee felt/ it -o)l& (e rat"er &iffic)lt to #is)ali,e t"e lan&sca+e of

(an'in$ in&)str% sa%/ 7: %ears "ence &)e to t"e &%namic en#ironment* W"ile

Go#ernment of In&ia (ro)$"t o)t In&ia Vision 7:7:/ t"e Committee is of t"e #ie-

t"at t"e +ace of c"an$es ta'in$ +lace in t"e (an'in$ in&)str% an& in t"e fiel& of

Information Tec"nolo$% -o)l& ren&er an% attem+t to #is)ali,e t"e (an'in$

scenario in 7:7:/ inconcei#a(le* T"e entire financial ser#ices sector ma%

)n&er$o a &ramatic transformation* It -as/ t"erefore/ felt t"at -e s"o)l& set o)r

$oals for t"e near f)t)re sa%/ for =>: %ears "ence an& a++ro+riatel% call t"is

e3ercise ?Banking Industry – Vision 2020@*


10/92

CHAPTER 2

E!ER"I#" EC$#$!IC %CE#E

2.1 T"e financial s%stem is t"e lifeline of t"e econom%* T"e c"an$es in t"e econom% $et

mirrore& in t"e +erformance of t"e financial s%stem/ more so of t"e (an'in$ in&)str%*

T"e Committee/ t"erefore felt/ it -o)l& (e &esira(le to loo' at t"e &irection of $ro-t" of

t"e econom% -"ile &ra-in$ t"e emer$in$ conto)rs of t"e financial s%stem* T"e ? In&ia

Vision 7:7: +re+are& (% t"e ;lannin$ Commission/ Go#ernment of In&ia/ is an

im+ortant &oc)ment/ -"ic" is li'el% to $)i&e t"e +olic% ma'ers/ in t"e %ears to come*

T"e Committee "as ta'en into consi&eration t"e economic +rofile &ra-n in In&ia Vision

7:7: &oc)ment -"ile attem+tin$ to #is)alise t"e f)t)re lan&sca+e of (an'in$ In&)str%*

2.2 In&ia Vision 7:7: en#isa$es im+ro#in$ t"e ran'in$ of In&ia from t"e +resent t" to

t" amon$ 7:< co)ntries $i#en in t"e Worl& De#elo+ment Re+ort in terms of t"e Gross

Domestic ;ro&)ct 1GD;2* It also en#isa$es mo#in$ t"e co)ntr% from a lo->income

nation to an )++er mi&&le>income co)ntr%* To ac"ie#e t"is o(.ecti#e/ t"e In&ia Vision

aims to "a#e an ann)al $ro-t" in t"e GD; of *= +er cent to ! +er cent o#er t"e ne3t 7:

%ears* Economic &e#elo+ment of t"is ma$nit)&e -o)l& see 0)a&r)+lin$ of real +er

ca+ita income* W"en com+are& -it" t"e a#era$e $ro-t" in GD; of > in t"e recent

+ast/ t"is is an am(itio)s tar$et* T"is -o)l& call for consi&era(le in#estments in t"e

infrastr)ct)re an& meetin$ t"e f)n&in$ re0)irements of a "i$" ma$nit)&e -o)l& (e a

c"allen$e to t"e (an'in$ an& financial s%stem*

2.3 In&ia Vision 7:7: sees a nation of *8 (illion +eo+le -"o are (etter e&)cate&/

"ealt"ier/ an& more +ros+ero)s* Ur(an In&ia -o)l& encom+ass : of t"e +o+)lation

as a$ainst 7 no-* Wit" more )r(an con$lomerations comin$ )+/ onl% : of

+o+)lation -o)l& (e en$a$e& in a$ric)lt)ral sector as a$ainst nearl% t-o t"ir&s of

+eo+le &e+en&in$ on t"is sector for li#eli"oo&* S"are of a$ric)lt)re in t"e GD; -ill come

&o-n to 1&o-n from 72* Ser#ices sector -o)l& ass)me $reater +rominence in o)r

econom%* T"e s"ift in &emo$ra+"ic +rofile an& com+osition of GD; are si$nificant for


11/92

strate$% +lanners in t"e (an'in$ sector*

2.4 Small an& 4e&i)m Enter+rises 1S4E2 sector -o)l& emer$e as a ma.or contri()tor

to em+lo%ment $eneration in t"e co)ntr%* Small Scale sector "a& recei#e& +olic%

s)++ort from t"e Go#ernment in t"e +ast consi&erin$ t"e em+lo%ment $eneration an&

fa#o)ra(le ca+ital>o)t+)t ratio* T"is se$ment "a&/ "o-e#er/ remaine& #)lnera(le in

man% -a%s* Glo(ali,ation an& o+enin$ )+ of t"e econom% to international com+etition

"as a&&e& to t"e -oes of t"is sector ma'in$ (an'ers -ar% of s)++ortin$ t"e sector* It is

e3+ecte& t"at t"e S4E sector -ill emer$e as a #i(rant sector/ contri()tin$ si$nificantl%

to t"e GD; $ro-t" an& e3+orts*

2.5 In&ia5s s"are in International tra&e "as remaine& -ell (elo- * Bein$ not an e3+ort

le& econom% 1e3+orts remainin$ (elo- = of t"e GD;2/ -e "a#e remaine& rat"er

ins)late& from $lo(al economic s"oc's* T"is +rofile -ill )n&er$o a c"an$e/ as -e +lan

for >! $ro-t" in GD;* ;lannin$ Commission re+ort #is)ali,es a more $lo(alise&

econom%* O)r international tra&e is e3+ecte& to constit)te 8= of t"e GD;*

2.& In s"ort/ t"e Vision of In&ia in 7:7: is of a nation ()stlin$ -it" ener$%/entre+rene)rs"i+ an& inno#ation* In ot"er -or&s/ -e "o+e to see a mar'et>&ri#en/

+ro&)cti#e an& "i$"l% com+etiti#e econom%* To reali,e t"e a(o#e o(.ecti#e/ -e nee& a

financial s%stem/ -"ic" is in"erentl% stron$/ f)nctionall% &i#erse an& &is+la%s efficienc%

an& fle3i(ilit%* T"e (an'in$ s%stem is/ (% far/ t"e most &ominant se$ment of t"e financial

sector/ acco)ntin$ for as it &oes/ o#er : of t"e f)n&s flo-in$ t"ro)$" t"e financial

sector* It s"o)l&/ t"erefore/ (e o)r en&ea#or to &e#elo+ a more resilient/ com+etiti#e

an& &%namic financial s%stem -it" (est +ractices t"at s)++orts an& contri()tes

+ositi#el% to t"e $ro-t" of t"e econom%*

2.' T"e a(ilit% of t"e financial s%stem in its +resent str)ct)re to ma'e a#aila(le

in#esti(le reso)rces to t"e +otential in#estors in t"e forms an& tenors t"at -ill (e

re0)ire& (% t"em in t"e comin$ %ears/ t"at is/ as e0)it%/ lon$ term &e(t an& me&i)m an&


12/92

s"ort>term &e(t -o)l& (e critical to t"e ac"ie#ement of +lan o(.ecti#es* T"e $a+ in

&eman& an& s)++l% of reso)rces in &ifferent se$ments of t"e financial mar'ets "as to

(e met an& for t"is/ smoot" flo- of f)n&s (et-een #ario)s t%+es of financial instit)tions

an& instr)ments -o)l& nee& to (e facilitate&*

2.( Go#ernment5s +olic% &oc)ments list in#estment in infrastr)ct)re as a ma.or area

-"ic" nee&s to (e foc)se&* Financin$ of infrastr)ct)re +ro.ects is a s+eciali,e& acti#it%

an& -o)l& contin)e to (e of critical im+ortance in t"e f)t)re* After all/ a so)n& an&

efficient infrastr)ct)re is a sine 0)a non for s)staina(le economic &e#elo+ment*

Infrastr)ct)re ser#ices "a#e $enerall% (een +ro#i&e& (% t"e +)(lic sector all o#er t"e

-orl& in t"e +ast as t"ese ser#ices "a#e an element of +)(lic $oo& in t"em* In t"e

recent +ast/ t"is +ict)re "as c"an$e& an& +ri#ate financin$ of infrastr)ct)re "as ma&e

s)(stantial +ro$ress* T"is s"ift to-ar&s $reater role of commercial f)n&in$ in

infrastr)ct)re +ro.ects is e3+ecte& to (ecome more +rominent in comin$ %ears* T"e role

of t"e Go#ernment -o)l& (ecome more an& more of t"at of a facilitator an& t"e

&e#elo+ment of infrastr)ct)re -o)l& reall% (ecome an e3ercise in +)(lic>+ri#ate

+artners"i+* In&ia Infrastr)ct)re Re+ort5 1Ra'es" 4o"an Committee > !!2 +lace&financin$ of infrastr)ct)re as a ma.or res+onsi(ilit% of (an's an& financial instit)tions in

t"e %ears to come* T"e re+ort estimate& t"e f)n&in$ re0)irements of #ario)s sectors in

t"e infrastr)ct)re area at Rs 7/::/::: crore (% t"e %ear 7::=>:* Since t"e estimate&

a#aila(ilit% of financin$ from In&ian financial instit)tions an& (an's -as e3+ecte& at onl%

Rs /7:/::: crore/ a lar$e $a+ is left -"ic" nee&s to (e fille& t"ro)$"

(ilateralm)ltilateral$o#ernment f)n&in$*

2.) It "as (een o(ser#e& $lo(all% t"at +ro.ect finance to &e#elo+in$ economies flo-s in

-"ere t"ere is relati#el% sta(le macro>economic en#ironment* T"ese incl)&e re$)lator%

reforms an& o+enin$ of mar'et to com+etition an& +ri#ate in#estment* Hi(erali,e&

financial mar'ets/ +romotin$ an& &ee+enin$ of &omestic mar'ets/ -i&er )se of ris'

mana$ement tools an& ot"er financial &eri#ati#e +ro&)cts/ im+ro#e& le$al frame-or'/


13/92

acco)ntin$ an& &isclos)re stan&ar&s etc are some of t"e ot"er as+ects -"ic" -o)l&

im+act commercial f)n&in$ of infrastr)ct)re +ro.ects*

2.10 T"e In&ia Vision &oc)ment of ;lannin$ Commission en#isa$es Forei$n Direct

In#estments 1FDI2 to contri()te 8= 17 no-2 to $ross ca+ital formation of t"e co)ntr%

(% 7:7:* Go#ernment "as anno)nce& a +olic% to enco)ra$e $reater flo- of FDI into t"e

(an'in$ sector* T"e recent amen&ment (ill intro&)ce& in ;arliament to remo#e t"e :

ceilin$ on t"e #otin$ ri$"ts of s"are"ol&ers of (an'in$ com+anies is a mo#e in t"is

&irection* T"e -or'in$ $ro)+ e3+ects t"is to "a#e an im+act on t"e ca+ital str)ct)re of

t"e (an's in In&ia in t"e comin$ %ears*

2.11 Conse0)ent to o+enin$ )+ of t"e econom% for $reater tra&e an& in#estment

relations -it" t"e o)tsi&e -orl&/ -"ic" is im+erati#e if t"e $ro-t" +ro.ections of In&ia

Vision 7:7: -ere to materiali,e/ -e e3+ect t"e (an'in$ In&)str%5s ()siness also to (e

&ri#en (% forces of $lo(ali,ation* T"is ma% (e f)rt"er accent)ate& -it" t"e realisation of

f)ll con#erti(ilit% of t"e r)+ee on ca+ital acco)nt an& conse0)ent free flo- of ca+ital

across t"e (or&ers* An increase in t"e income le#els of t"e +eo+le -o)l& nat)rall% lea&

to c"an$es in t"e s+en&in$ +attern also* T"is co)l& res)lt in lar$er in#estments in t"e

areas li'e entertainment an& leis)re/ e&)cation/ "ealt"care etc an& nat)rall%/ t"ese

-o)l& attract $reater +artici+ation of t"e (an'in$ s%stem*

2.12 On t"e (asis of t"e +ro.ection ma&e (% t"e Draft :t" Fi#e Year ;lan on rele#ant

macro in&icators s)c" as GD; an& e3ten&in$ t"e tren& for a f)rt"er +erio& of t"ree

%ears/ it is estimate& t"at GD; at c)rrent mar'et +rices &)rin$ 7::!>: -o)l& (e

Rs*/:/::: crore* Ta'in$ into acco)nt t"e on>$oin$ reform meas)res/ e3+ecte&Basel II nee&s/ an& financial &is>interme&iation/ t"e +ace of e3+ansion in t"e (alance

s"eets of (an's is li'el% to &ecelerate* T")s total assets of all sc"e&)le& commercial

(an's (% en& 4arc" 7:: ma% (e ta'en as Rs*:/!:/::: crore as a -or'in$ estimate*

At t"at le#el/ t"e ann)al com+osite rate of $ro-t" in total assets of Sc"e&)le&

Commercial Ban's -o)l& (e a(o)t 8* +er cent to (e o#er 7::7>:8 as com+are& to


14/92

*< +er cent (et-een !!>!= an& 7::7>:8* It -ill form a(o)t = +er cent of GD; at

c)rrent mar'et +rices as com+are& to < +er cent in 7::7>:8*

On t"e lia(ilit% si&e/ t"ere ma% (e lar$e a)$mentation to ca+ital (ase* Reser#es are

li'el% to increase s)(stantiall%* Ban's -ill rela% more on (orro-e& f)n&s* ence/ t"e

+ace of accretion to &e+osits ma% slo- &o-n*

On t"e asset si&e/ t"e +ace of $ro-t" in (ot" aances an& in#estment ma% slac'en*

o-e#er/ )n&er aances/ t"e s"are of (ills ma% increase* Similarl%/ )n&er in#estment/

t"e s"are of ot"ers5 ma% increase* T"e 4acro>ma$nit)&e of In&ian (an'in$ sector

#is)ali,e& for t"e %ear 7:: is $i#en in Ann*+ur* – I.


15/92

CHAPTER – 3

,-T-RE A#/%CAPE $, I#/IA# BA#I#"

3.1 Hi(erali,ation an& &e>re$)lation +rocess starte& in !!>!7 "as ma&e a sea c"an$e

in t"e (an'in$ s%stem* From a totall% re$)late& en#ironment/ -e "a#e $ra&)all% mo#e&

into a mar'et &ri#en com+etiti#e s%stem* O)r mo#e to-ar&s $lo(al (enc"mar's "as

(een/ (% an& lar$e/ cali(rate& an& re$)lator &ri#en* T"e +ace of c"an$es $aine&

moment)m in t"e last fe- %ears* Glo(ali,ation -o)l& $ain $reater s+ee& in t"e comin$

%ears +artic)larl% on acco)nt of e3+ecte& o+enin$ )+ of financial ser#ices )n&er WTO*

Fo)r tren&s c"an$e t"e (an'in$ in&)str% -orl& o#er/ #i,* 2 Consoli&ation of +la%ers

t"ro)$" mer$ers an& ac0)isitions/ 72 Glo(alisation of o+erations/ 82 De#elo+ment of ne- tec"nolo$% an& 2 Uni#ersalisation of (an'in$* Wit" tec"nolo$% actin$ as a

catal%st/ -e e3+ect to see $reat c"an$es in t"e (an'in$ scene in t"e comin$ %ears* T"e

Committee "as attem+te& to #is)ali,e t"e financial -orl& =>: %ears from no-* T"e

+ict)re t"at emer$e& is some-"at as &isc)sse& (elo-* It entails emer$ence of an

inte$rate& an& &i#ersifie& financial s%stem* T"e mo#e to-ar&s )ni#ersal (an'in$ "as

alrea&% (e$)n* T"is -ill $at"er f)rt"er moment)m (rin$in$ non>(an'in$ financial

instit)tions also/ into an inte$rate& financial s%stem*

3.2 T"e tra&itional (an'in$ f)nctions -o)l& $i#e -a% to a s%stem $eare& to meet all t"e

financial nee&s of t"e c)stomer* We co)l& see emer$ence of "i$"l% #arie& financial

+ro&)cts/ -"ic" are tailore& to meet s+ecific nee&s of t"e c)stomers in t"e retail as -ell

as cor+orate se$ments* T"e aent of ne- tec"nolo$ies co)l& see t"e emer$ence of

ne- financial +la%ers &oin$ financial interme&iation* For e3am+le/ -e co)l& see )tilit%

ser#ice +ro#i&ers offerin$ sa%/ (ill +a%ment ser#ices or s)+ermar'ets or retailers &oin$

(asic len&in$ o+erations* T"e con#entional &efinition of (an'in$ mi$"t )n&er$o

c"an$es*


16/92

3.3 T"e com+etiti#e en#ironment in t"e (an'in$ sector is li'el% to res)lt in in&i#i&)al

+la%ers -or'in$ o)t &ifferentiate& strate$ies (ase& on t"eir stren$t"s an& mar'et

nic"es* For e3am+le/ some +la%ers mi$"t emer$e as s+ecialists in mort$a$e +ro&)cts/

cre&it car&s etc* -"ereas some co)l& c"oose to concentrate on +artic)lar se$ments of

()siness s%stem/ -"ile o)tso)rcin$ all ot"er f)nctions* Some ot"er (an's ma%

concentrate on S4E se$ments or "i$" net -ort" in&i#i&)als (% +ro#i&in$ s+eciall%

tailore& ser#ices (e%on& tra&itional (an'in$ offerin$s to satisf% t"e nee&s of c)stomers

t"e% )n&erstan& (etter t"an a more $eneralist com+etitor*

3.4 International tra&e is an area -"ere In&ia5s +resence is e3+ecte& to s"o-

a++recia(le increase* ;resentl%/ In&ian s"are in t"e $lo(al tra&e is .)st a(o)t :**

T"e lon$ term +ro.ections for $ro-t" in international tra&e is +lace& at an a#era$e of

+er ann)m* Wit" t"e $ro-t" in IT sector an& ot"er IT Ena(le& Ser#ices/ t"ere is

tremen&o)s +otential for ()siness o++ort)nities* Kee+in$ in #ie- t"e GD; $ro-t"

forecast )n&er In&ia Vision 7:7:/ In&ian e3+orts can (e e3+ecte& to $ro- at a

s)staina(le rate of = +er ann)m in t"e +erio& en&in$ -it" 7::* T"is a$ain -ill offer

enormo)s sco+e to Ban's in In&ia to increase t"eir fore3 ()siness an& international

+resence* Glo(ali,ation -o)l& +ro#i&e o++ort)nities for In&ian cor+orate entities to

e3+an& t"eir ()siness in ot"er co)ntries* Ban's in In&ia -antin$ to increase t"eir

international +resence co)l& nat)rall% (e e3+ecte& to follo- t"ese cor+orates an& ot"er

tra&e flo-s in an& o)t of In&ia*

3.5 Retail len&in$ -ill recei#e $reater foc)s* Ban's -o)l& com+ete -it" one anot"er to

+ro#i&e f)ll ran$e of financial ser#ices to t"is se$ment* Ban's -o)l& )se m)lti+le

&eli#er% c"annels to s)it t"e re0)irements an& tastes of c)stomers* W"ile some

c)stomers mi$"t #al)e relations"i+ (an'in$ 1con#entional (ranc" (an'in$2/ ot"ers mi$"t

+refer con#enience (an'in$ 1e>(an'in$2*


17/92

3.& One of t"e concerns is 0)alit% of (an' len&in$* 4ost si$nificant c"allen$e (efore

(an's is t"e maintenance of ri$oro)s cre&it stan&ar&s/ es+eciall% in an en#ironment of

increase& com+etition for ne- an& e3istin$ clients* E+*ri*n* as son us tat t*

orst oans ar* o6t*n 7ad* in t* 8*st o6 ti7*s. Com+ensation t"ro)$" tra&in$

$ains is not $oin$ to s)++ort t"e (an's fore#er* Har$e>scale efforts are nee&e& to

)+$ra&e s'ills in cre&it ris' meas)rin$/ controllin$ an& monitorin$ as also re#am+

o+eratin$ +roce&)res* Cre&it e#al)ation ma% "a#e to s"ift from cas" flo- (ase&

anal%sis to ?(orro-er acco)nt (e"a#io)r@/ so t"at t"e state of rea&iness of In&ian (an's

for Basle II re$ime im+ro#es* Cor+orate len&in$ is alrea&% )n&er$oin$ c"an$es* T"e

em+"asis in f)t)re -o)l& (e to-ar&s more of fee (ase& ser#ices rat"er t"an len&in$

o+erations* Ban's -ill com+ete -it" eac" ot"er to +ro#i&e #al)e a&&e& ser#ices to t"eir

c)stomers*

3.' Str)ct)re an& o-ners"i+ +attern -o)l& )n&er$o c"an$es* T"ere -o)l& (e $reater

+resence of international +la%ers in t"e In&ian financial s%stem* Similarl%/ some of t"e

In&ian (an's -o)l& (ecome $lo(al +la%ers* Go#ernment is ta'in$ ste+s to re&)ce its

"ol&in$s in ;)(lic sector (an's to 88* o-e#er t"e in&ications are t"at t"eir ;SB

c"aracter ma% still (e retaine&*

3.( 4er$ers an& ac0)isitions -o)l& $at"er moment)m as mana$ements -ill stri#e to

meet t"e e3+ectations of sta'e"ol&ers* T"is co)l& see t"e emer$ence of >= -orl& class

In&ian Ban's* As Ban's see' nic"e areas/ -e co)l& see emer$ence of some national

(an's of $lo(al scale an& a n)m(er of re$ional +la%ers*

3.) Cor+orate $o#ernance in (an's an& financial instit)tions -o)l& ass)me $reater

im+ortance in t"e comin$ %ears an& t"is -ill (e reflecte& in t"e com+osition of t"e

Boar&s of Ban's*


18/92

3.10 Conce+t of social len&in$ -o)l& )n&er$o a c"an$e* Rat"er t"an (ein$ seen as

&irecte& len&in$ s)c" len&in$ -o)l& (e ()siness &ri#en* Wit" S4E sector e3+ecte& to

+la% a $reater role in t"e econom%/ Ban's -ill $i#e $reater o#erall foc)s in t"is area*

C"an$es co)l& (e e3+ecte& in t"e &eli#er% c"annels )se& for len&in$ to small (orro-ers

an& a$ric)lt)ralists an& )nor$ani,e& sectors 1micro cre&it2* Use of interme&iaries or

franc"ise a$ents co)l& emer$e as means to re&)ce transaction costs*

3.11 Tec"nolo$% as an ena(ler is se+aratel% &isc)sse& in t"e re+ort* It -o)l& not (e o)t

of +lace/ "o-e#er/ to state t"at most of t"e c"an$es in t"e lan&sca+e of financial sector

&isc)sse& a(o#e -o)l& (e tec"nolo$% &ri#en* In t"e )ltimate anal%sis/ s)ccessf)l

instit)tions -ill (e t"ose -"ic" contin)e to le#era$e t"e aancements in tec"nolo$% in

re>en$ineerin$ +rocesses an& &eli#er% mo&es an& offerin$ state>of>t"e>art +ro&)cts an&

ser#ices +ro#i&in$ com+lete financial sol)tions for &ifferent t%+es of c)stomers*

3.12 )man Reso)rces De#elo+ment -o)l& (e anot"er 'e% factor &efinin$ t"e

c"aracteristics of a s)ccessf)l (an'in$ instit)tion* Em+lo%in$ an& retainin$ s'ille&

-or'ers an& s+ecialists/ re>trainin$ t"e e3istin$ -or'force an& +romotin$ a c)lt)re of

contin)o)s learnin$ -o)l& (e a c"allen$e for t"e (an'in$ instit)tions*


19/92

CHAPTER 4

CHA#"E% I# THE %TR-CT-RE $, BA#%

4.1 T"e financial sector reforms )s"ere& in t"e %ear !! "a#e (een -ell cali(rate& an&

time& to ens)re a smoot" transition of t"e s%stem from a "i$"l% re$)late& re$ime to a

mar'et econom%* T"e first +"ase of reforms foc)se& on mo&ification in t"e +olic%

frame-or'/ im+ro#ement in financial "ealt" t"ro)$" intro&)ction of #ario)s +r)&ential

norms an& creation of a com+etiti#e en#ironment* T"e secon& +"ase of reforms starte&

in t"e latter "alf of !:s/ tar$ete& stren$t"enin$ t"e fo)n&ation of (an'in$ s%stem/

streamlinin$ +roce&)res/ )+$ra&in$ tec"nolo$% an& ")man reso)rces &e#elo+ment an&

f)rt"er str)ct)ral c"an$es* T"e financial sector reforms carrie& o)t so far "a#e ma&e

t"e (alance s"eets of (an's loo' "ealt"ier an& "el+e& t"em mo#e to-ar&s ac"ie#in$

$lo(al (enc"mar's in terms of +r)&ential norms an& (est +ractices*

4.2 Un&er t"e e3istin$ Basel Ca+ital Accor&/ allocation of ca+ital follo-s a

one>si,e>fit>all a++roac"* T"is -o)l& (e re+lace& (% a ris' (ase& a++roac" to ca+ital

allocation* W"ile re$)lator% minim)m ca+ital re0)irements -o)l& still contin)e to (e

rele#ant an& an inte$ral +art of t"e t"ree +illar a++roac" )n&er Basel II/ t"e em+"asis ison ris' (ase& a++roac" rel%in$ on e3ternal ratin$s as -ell as internal ratin$ of eac"

asset an& ca+ital c"ar$e accor&in$l%* T"e internal ris' (ase& a++roac" -o)l& nee&

s)(stantial in#estments in tec"nolo$% an& &e#elo+ment of 4IS tools* For a ratin$ tool

for internal assessment to (e effecti#e/ +ast &ata for 8 to = %ears -o)l& (e re0)ire& an&

as s)c"/ In&ian (an'in$ s%stem -ill "a#e to ()il& )+ t"e ca+a(ilities for a smoot"

mi$ration to t"e ne- met"o&*

Anot"er as+ect -"ic" is incl)&e& in Basel II accor& is a +ro#ision for ca+ital allocation

for o+erational ris'* T"is is a ne- +arameter an& e#en internationall% e#al)ation tools

are not %et f)ll% &e#elo+e&* T"is -o)l& (e anot"er area -"ere (an'in$ s%stem -ill

"a#e to rec'on a&&itional ca+ital nee&s an& f)nctionin$ of its +rocesses*


20/92

4.3 T"e financial sector reforms "a#e (ro)$"t in t"e m)c" nee&e& com+etition in t"e

mar'et +lace* T"e com+etition to t"e e3istin$ (an's came mainl% from t"e tec"no>

sa##% +ri#ate sector (an's* In t"e comin$ %ears/ -e e3+ect to see $reater flo- of

forei$n ca+ital to come into t"e In&ian (an'in$ sector* O+enin$ )+ of (an'in$ sector to

$lo(al +la%ers -o)l& see (an's facin$ $lo(al com+etition*

4.4 Tec"nolo$% is e3+ecte& to (e t"e main facilitator of c"an$e in t"e financial sector*

Im+lementation of tec"nolo$% sol)tions in#ol#es ")$e ca+ital o)tla%* Besi&es t"e

"ea#% in#estment costs/ tec"nolo$% a++lications also "a#e a "i$" &e$ree of

o(solescence* Ban's -ill nee& to loo' for -a%s to o+timi,e reso)rces for tec"nolo$%

a++lications* In t"is re$ar&/ $lo(al +artners"i+s on tec"nolo$% an& s'ills s"arin$ ma%

"el+*

4.5 T"e +ress)re on ca+ital str)ct)re is e3+ecte& to tri$$er a +"ase of consoli&ation in

t"e (an'in$ in&)str%* Ban's co)l& ac"ie#e consoli&ation t"ro)$" &ifferent -a%s*

4er$ers an& ac0)isitions co)l& (e one -a% to ac"ie#e t"is* In t"e +ast/ mer$ers -ere

initiate& (% re$)lators to +rotect t"e interests of &e+ositors of -ea' (an's* In recent

%ears/ mar'et le& mer$ers (et-een +ri#ate (an's "a#e ta'en +lace* It is e3+ecte& t"at

t"is +rocess -o)l& $ain moment)m in t"e comin$ %ears* 4er$ers (et-een +)(lic

sector (an's or +)(lic sector (an's an& +ri#ate (an's co)l& (e t"e ne3t lo$ical t"in$

&e#elo+ment to "a++en as mar'et +la%ers ten& to consoli&ate t"eir +osition to remain

in com+etition*

4.& Consoli&ation co)l& ta'e +lace t"ro)$" strate$ic alliances +artners"i+s* Besi&es

"el+in$ (an's to ac"ie#e econom% of scale in o+erations an& a)$ment ca+ital (ase/

consoli&ation co)l& "el+ mar'et +la%ers in ot"er -a%s also to stren$t"en t"eir

com+etiti#eness* T"e aanta$e co)l& (e in ac"ie#in$ (etter se$mentation in t"e

mar'et* Strate$ic alliances an& colla(orati#e a++roac"/ as an alternati#e to mer$ers


21/92

an& ac0)isitions/ co)l& (e attem+te& to re&)ce transaction costs t"ro)$" o)tso)rcin$/

le#era$e s%ner$ies in o+erations an& a#oi& +ro(lems relate& to c)lt)ral inte$ration* If

consoli&ation is ta'en too far/ it co)l& lea& to mis)se of &ominant mar'et +ositions*

Ra+i& e3+ansion in forei$n mar'ets -it"o)t s)fficient 'no-le&$e of local economic

con&itions co)l& increase #)lnera(ilit% of in&i#i&)al (an's*

4.' ;)(lic Sector Ban's "a&/ in t"e +ast/ relie& on Go#ernment s)++ort for ca+ital

a)$mentation* o-e#er/ -it" t"e Go#ernment ma'in$ a conscio)s &ecision to re&)ce

its "ol&in$ in Ban's/ most Ban's "a#e a++roac"e& t"e ca+ital mar'et for raisin$

reso)rces* T"is +rocess co)l& $ain f)rt"er moment)m -"en t"e $o#ernment "ol&in$

$ets re&)ce& to 88 or (elo-* It is e3+ecte& t"at +ress)res of mar'et forces -o)l& (e

t"e &eterminin$ factor for t"e consoli&ation in t"e str)ct)re of t"ese (an's* If t"e

+rocess of consoli&ation t"ro)$" mer$ers an& ac0)isitions $ains moment)m/ -e co)l&

see t"e emer$ence of a fe- lar$e In&ian (an's -it" international c"aracter* T"ere

co)l& (e some lar$e national (an's an& se#eral local le#el (an's*

4.( O+enin$ )+ of t"e financial sector from 7::=/ )n&er WTO/ -o)l& see a n)m(er of

Glo(al (an's ta'in$ lar$e sta'es an& control o#er (an'in$ entities in t"e co)ntr%* T"e%

-o)l& (rin$ -it" t"em ca+ital/ tec"nolo$% an& mana$ement s'ills* T"is -ill increase t"e

com+etiti#e s+irit in t"e s%stem lea&in$ to $reater efficiencies* Go#ernment +olic% to

allo- $reater FDI in (an'in$ an& t"e mo#e to amen& Ban'in$ Re$)lation Act to remo#e

t"e e3istin$ : ca+ on #otin$ ri$"ts of s"are"ol&ers are +ointers to t"ese

&e#elo+ments*

4.) T"e coo+erati#e (an's "a#e +la%e& a cr)cial +art in t"e &e#elo+ment of t"e

econom%* T"e +rimar% a$ric)lt)ral societies -"ic" concentrate on s"ort>term cre&it an&

r)ral in#estment cre&it instit)tions s)++orte& (% District State le#el coo+erati#e (an's

"a#e +la%e& a cr)cial role in t"e cre&it &eli#er% in r)ral areas* T"e Ur(an Coo+erati#e


22/92

Ban's "a#e fo)n& t"eir o-n nic"e in )r(an centres* T"ese instit)tions in t"e

coo+erati#e sector nee& )r$ent ca+ital inf)sion to remain as so)n& financial entities*

Coo+erati#e sector comes )n&er State .)ris&iction -"ile commercial (an'in$ o+erations

are re$)late& (% t"e Reser#e Ban' of In&ia* T"e &)alit% in control "a& -ea'ene& t"e

s)+er#isor% set )+ for t"ese instit)tions* It is e3+ecte& t"at certain amen&ments to t"e

Ban'in$ Re$)lation Act intro&)ce& recentl% in t"e ;arliament -it" t"e o(.ecti#e of

stren$t"enin$ t"e re$)lator% +o-ers of t"e Reser#e Ban' of In&ia -o)l& +a#e t"e -a%

for stren$t"enin$ of coo+erati#e financial instit)tions* It is e3+ecte& t"at t"ese (an's

-o)l& )+$ra&e s'ills of t"eir staff an& im+ro#e t"e s%stems an& +roce&)res to com+ete

-it" commercial (an' entities*

4.10 Consoli&ation -o)l& ta'e +lace not onl% in t"e str)ct)re of t"e (an's/ ()t also in

t"e case of ser#ices* For instance/ some (an's -o)l& li'e to s"e& t"eir non>core

()siness +ortfolios to ot"ers* T"is co)l& see t"e emer$ence of nic"e +la%ers in &ifferent

f)nctional areas an& ()siness se$ments s)c" as "o)sin$/ car&s/ m)t)al f)n&s/

ins)rance/ s"arin$ of t"eir infrastr)ct)re incl)&in$ AT4 Net-or'/ etc*

4.11 Rationali,ation of a #er% lar$e net-or' of (ranc"es/ -"ic" at +resent "as ren&ere&

t"e s%stem cost ineffecti#e an& &eficient in ser#ice -o)l& ta'e +lace* 4ost of t"e (an's

-o)l& "a#e a&o+te& core>(an'in$ sol)tions in a f)ll% net-or'e& en#ironment* Bac'

office f)nctions -o)l& (e ta'en a-a% from (ranc"es to a centrali,e& +lace* W"ile (ric'

an& mortar (ranc"es -o)l& contin)e to (e rele#ant in t"e In&ian scenario/ t"e real

$ro-t" &ri#er for cost c)ttin$ -o)l& (e #irt)al (ranc"es #i,*/ AT4s/ Internet Ban'in$/

mo(ile (an'in$/ 'ios's etc*/ -"ic" can (e manne& (% a fe- +ersons an& r)n on 7 3 <

(asis to "arness t"e real +otential of t"ese tec"nolo$ical )tilities/ t"ere -ill (e strate$icalliances +artners"i+ amon$st (an's an& t"is +"enomenon "as alrea&% set in*

4.12 As -e mo#e alon$/ t"e conce+t of (ranc" (an'in$ -ill )n&er$o c"an$es* Ban's

-ill fin& t"at man% of t"e f)nctions co)l& (e o)tso)rce& more +rofita(l% -it"o)t

com+romisin$ on t"e 0)alit% of ser#ice* S+eciali,e& a$encies co)l& come for-ar& to


23/92

)n&erta'e 4ar'etin$ an& &eli#er% f)nctions on (e"alf of (an's* T"is co)l& see (an'in$

+ro&)cts (ein$ sol& o)tsi&e t"e fo)r -alls of a (ranc"* Ban's -o)l& t"en concentrate on

&e#elo+in$ ne- +ro&)cts an& earnin$ fee (ase& income*

4.13 T"e com+osition of (an' staff -ill c"an$e* As total com+)teri,ation -ill ren&er a

+art of t"e -or'force s)r+l)s/ (an's -ill $o for a ri$"tsi,in$ e3ercise* Some ma% resort

to anot"er ro)n& of VRS to s"e& e3cess fla( -"ile some ot"er ma% $o for re>

&e+lo%ment to stren$t"en mar'etin$ arms* Wit" $reater )se of tec"nolo$% an&

o)tso)rcin$ of ser#ices in &ifferent areas/ t"e man+o-er recr)itment -ill mostl% (e in

s+eciali,e& areas an& tec"nolo$% a++lications* Wit" commitment s"iftin$ from t"e

or$ani,ation to t"e +rofession/ -e co)l& see $reater lateral mo#ement of (an'in$

+ersonnel* Trainin$ an& s'ill &e#elo+ment -ill/ "o-e#er/ contin)e to (e 'e% R

f)nctions* Wit" t"e a$e +rofile of staff )n&er$oin$ c"an$es/ (an's -ill "a#e to foc)s on

lea&ers"i+ &e#elo+ment an& s)ccession +lannin$* Kno-le&$e mana$ement -ill

(ecome a critical iss)e*

4.14 4ana$ement str)ct)re of (an's -ill also )n&er$o &rastic c"an$es in t"e comin$

%ears* Instea& of t"e +resent +%rami& str)ct)re/ t"e (an's -ill mo#e to-ar&s re&)ction

in tiers to )ltimatel% settle for a flat str)ct)re* ;ro&)ct>-ise se$mentation -ill facilitate

s+ee&ier &ecision>ma'in$*

1T"e e3istin$ str)ct)re of (an's in In&ia/ t"eir (alance s"eet com+osition an& -or'in$

res)lts as on 8st 4arc"/ 7::8 are $i#en in Anne3)res II/ III an& IV*2


24/92

CHAPTER 5

PR$/-CT I##$VATI$# A#/ PR$CE%% REE#"I#EERI#"

5.1 Wit" increase& com+etition in t"e (an'in$ In&)str%/ t"e net interest mar$in of (an's

"as come &o-n o#er t"e last one &eca&e* Hi(erali,ation -it" Glo(ali,ation -ill see t"e

s+rea&s narro-in$ f)rt"er to >*= as in t"e case of (an's o+eratin$ in &e#elo+e&

co)ntries* Ban's -ill loo' for fee>(ase& income to fill t"e $a+ in interest income* ;ro&)ct

inno#ations an& +rocess re>en$ineerin$ -ill (e t"e or&er of t"e &a%* T"e c"an$es -ill (e

moti#ate& (% t"e &esire to meet t"e c)stomer re0)irements an& to re&)ce t"e cost an&

im+ro#e t"e efficienc% of ser#ice* All (an's -ill t"erefore $o for re.)#enatin$ t"eir costin$an& +ricin$ to se$re$ate +rofita(le an& non>+rofita(le ()siness* Ser#ice c"ar$es -ill (e

&eci&e& ta'in$ into acco)nt t"e costin$ an& -"at t"e traffic can (ear* From t"e earlier

r*9*nu* : ost ; ro6it e0)ation i*e*/ c)stomers are c"ar$e& to co#er t"e costs

inc)rre& an& t"e +rofits e3+ecte&/ most (an's "a#e alrea&% mo#e& into t"e ro6it

:r*9*nu* ost e0)ation* T"is "as (een reflecte& in t"e fact t"at -it" cost of ser#ices

sta%in$ nearl% e0)al across (an's/ t"e (an's -it" (etter cost control are a(le to ac"ie#e

"i$"er +rofits -"ereas t"e (an's -it" "i$" o#er"ea&s &)e to )n&er>)tilisation of

reso)rces/ )n>rem)nerati#e (ranc" net-or' etc*/ eit"er inc)rre& losses or ma&e +rofits

not commens)rate -it" t"e ca+ital em+lo%e&* T"e ne- +ara&i$m in t"e comin$ %ears

-ill (e ost : r*9*nu* ro6it*

5.2 As (an's stri#e to +ro#i&e #al)e a&&e& ser#ices to c)stomers/ t"e mar'et -ill see

t"e emer$ence of stron$ in#estment an& merc"ant (an'in$ entities* ;ro&)ct inno#ation

an& creatin$ (ran& e0)it% for s+eciali,e& +ro&)cts -ill &eci&e t"e mar'et s"are an&

#ol)mes* Ne- +ro&)cts on t"e lia(ilities si&e s)c" as fore3 lin'e& &e+osits/ in#estment>

lin'e& &e+osits/ etc* are li'el% to (e intro&)ce&/ as in#estors -it" #arie& ris' +rofiles -ill

loo' for (etter %iel&s* T"ere -ill (e more an& more of tie>)+s (et-een (an's/ cor+orate


25/92

clients an& t"eir retail o)tlets to s"are a common +latform to s"ore )+ re#en)e t"ro)$"

increase& #ol)mes*


26/92

5.3 Ban's -ill increasin$l% act as ris' mana$ers to cor+orate an& ot"er entities (%

offerin$ a #ariet% of ris' mana$ement +ro&)cts li'e o+tions/ s-a+s an& ot"er as+ects of

financial mana$ement in a m)lti c)rrenc% scenario* Ban's -ill +la% an acti#e role in t"e

&e#elo+ment of &eri#ati#e +ro&)cts an& -ill offer a #ariet% of "e&$e +ro&)cts to t"e

cor+orate sector an& ot"er in#estors* For e3am+le/ Deri#ati#es in emer$in$ f)t)res

mar'et for commo&ities -o)l& (e an area offerin$ o++ort)nities for (an's* As t"e

inte$ration of mar'ets ta'es +lace internationall%/ so+"istication in tra&in$ an&

s+eciali,e& e3c"an$es for commo&ities -ill e3+an&* As t"ese c"an$es ta'e +lace/

(an'in$ -ill +la% a ma.or role in +ro#i&in$ financial s)++ort to s)c" e3c"an$es/

facilitatin$ settlement s%stems an& ena(lin$ -i&er +artici+ation*

5.4 Bancass)rance is catc"in$ )+ an& Ban's Financial Instit)tions "a#e starte&

enterin$ ins)rance ()siness* From mere offerin$ of ins)rance +ro&)cts t"ro)$"

net-or' of (an' (ranc"es/ t"e ()siness is li'el% to e3+an& t"ro)$" self>&esi$ne&

ins)rance +ro&)cts after necessar% le$islati#e c"an$es* T"is co)l& lea& to a s+)rt in

fee>(ase& income of t"e (an's*

5.5 Similarl%/ Ban's -ill loo' anal%ticall% into #ario)s +rocesses an& +ractices as t"ese

e3ist to&a% an& ma% ma'e a++ro+riate c"an$es t"erein to c)t costs an& &ela%s*O)tso)rcin$ an& a&o+tion of B;Os -ill (ecome more an& more rele#ant/ es+eciall%

-"en Ban's $o in for lar$er #ol)mes of retail ()siness* o-e#er/ (% increasin$

o)tso)rcin$ of o+erations t"ro)$" ser#ice +ro#i&ers/ (an's are ma'in$ t"emsel#es

#)lnera(le to +ro(lems face& (% t"ese +ro#i&ers* Ban's s"o)l& t"erefore o)tso)rce

onl% t"ose f)nctions t"at are not strate$ic to (an's5 ()siness* For instance/ in t"e -a'e

of im+lementation of !: &a%s5 &elin0)enc% norms for classification of assets/ some

(an's ma% t"in' of en$a$in$ e3ternal a$encies for reco#er% of t"eir &)es an& in N;A

mana$ement*

5.& Ban's -ill ta'e on com+etition in t"e front en& an& see' co>o+eration in t"e (ac'

en&/ as in t"e case of net-or'in$ of AT4s* T"is t%+e of oo*tition -ill (ecome t"e

or&er of t"e &a% as Ban's see' to enlar$e t"eir c)stomer (ase an& at t"e same time to


27/92

reali,e cost re&)ction an& $reater efficienc%*

CHAPTER &

TECH#$$"< I# BA#I#"

&.1 Tec"nolo$% -ill (rin$ f)n&amental s"ift in t"e f)nctionin$ of (an's* It -o)l& not onl%

"el+ t"em (rin$ im+ro#ements in t"eir internal f)nctionin$ ()t also ena(le t"em to

+ro#i&e (etter c)stomer ser#ice* Tec"nolo$% -ill (rea' all (o)n&aries an& enco)ra$e

cross (or&er (an'in$ ()siness* Ban's -o)l& "a#e to )n&erta'e e3tensi#e B)siness

;rocess Re>En$ineerin$ an& tac'le iss)es li'e a2 "o- (est to &eli#er +ro&)cts an&

ser#ices to c)stomers (2 &esi$nin$ an a++ro+riate or$ani,ational mo&el to f)ll% ca+t)re

t"e (enefits of tec"nolo$% an& ()siness +rocess c"an$es (ro)$"t a(o)t* c2 "o- to

e3+loit tec"nolo$% for &eri#in$ economies of scale an& "o- to create cost efficiencies/

an& &2 "o- to create a c)stomer > centric o+eration mo&el*

6.2 Entr% of AT4s "as c"an$e& t"e +rofile of front offices in (an' (ranc"es* C)stomers

no lon$er nee& to #isit (ranc"es for t"eir &a% to &a% (an'in$ transactions li'e cas"

&e+osits/ -it"&ra-als/ c"e0)e collection/ (alance en0)ir% etc* E>(an'in$ an& Internet

(an'in$ "a#e o+ene& ne- a#en)es in ?con#enience (an'in$@* Internet (an'in$ "as

also le& to re&)ction in transaction costs for (an's to a(o)t a tent" of (ranc" (an'in$*

&.3 Tec"nolo$% sol)tions -o)l& ma'e flo- of information m)c" faster/ more acc)rate

an& ena(le 0)ic'er anal%sis of &ata recei#e&* T"is -o)l& ma'e t"e &ecision ma'in$

+rocess faster an& more efficient* For t"e Ban's/ t"is -o)l& also ena(le &e#elo+ment of

a++raisal an& monitorin$ tools -"ic" -o)l& ma'e cre&it mana$ement m)c" more

effecti#e* T"e res)lt -o)l& (e a &efinite re&)ction in transaction costs/ t"e (enefits of -"ic" -o)l& (e s"are& (et-een (an's an& c)stomers*

&.4 W"ile a++lication of tec"nolo$% -o)l& "el+ (an's re&)ce t"eir o+eratin$ costs in t"e

lon$ r)n/ t"e initial in#estments -o)l& (e si,ea(le* IT s+ent (% (an'in$ an& financial


28/92

ser#ices in&)str% in USA is a++ro3imatel% t)nin$ to meet international stan&ar&s* Nee&less to a&&/ necessar% sec)rit%

c"ec's an& controls -ill "a#e to (e in +lace* In t"is re$ar&/ Instit)tions s)c" as IDRBT

-ill "a#e a $reater role to +la%*


29/92

CHAPTER '

RI% !A#A"E!E#T

'.1 Ris' is in"erent in an% commercial acti#it% an& (an'in$ is no e3ce+tion to t"is r)le*

Risin$ $lo(al com+etition/ increasin$ &ere$)lation/ intro&)ction of inno#ati#e +ro&)cts

an& &eli#er% c"annels "a#e +)s"e& ris' mana$ement to t"e forefront of to&a%5s financial

lan&sca+e* A8iity to gaug* t* risks and tak* aroriat* osition i 8* t* k*y

to su*ss. It an 8* said tat risk takers will survive, effective risk managers

will prosper and risk averse are likely to perish. In t"e re$)late& (an'in$

en#ironment/ (an's "a& to +rimaril% &eal -it" cre&it or &efa)lt ris'* As -e mo#e into a

+erfect mar'et econom%/ -e "a#e to &eal -it" a -"ole ran$e of mar'et relate& ris's li'e

e3c"an$e ris's/ interest rate ris'/ etc* O+erational ris'/ -"ic" "a& al-a%s e3iste& in t"e

s%stem/ -o)l& (ecome more +rono)nce& in t"e comin$ &a%s as -e "a#e tec"nolo$% as

a ne- factor in to&a%5s (an'in$* Tra&itional ris' mana$ement tec"ni0)es (ecome

o(solete -it" t"e $ro-t" of &eri#ati#es an& off>(alance s"eet o+erations/ co)+le& -it"

&i#ersifications* T"e e3+ansion in E>(an'in$ -ill lea& to contin)o)s #i$ilance an&

re#isions of re$)lations*

'.2 B)il&in$ )+ a +ro+er ris' mana$ement str)ct)re -o)l& (e cr)cial for t"e (an's in t"e

f)t)re* Ban's -o)l& fin& t"e nee& to &e#elo+ tec"nolo$% (ase& ris' mana$ement tools*

T"e com+le3 mat"ematical mo&els +ro$ramme& into ris' en$ines -o)l& +ro#i&e t"e

fo)n&ation of limit mana$ement/ ris' anal%sis/ com+)tation of ris'>a&.)ste& ret)rn on

ca+ital an& acti#e mana$ement of (an's5 ris' +ortfolio* 4eas)rement of ris' e3+os)re

is essential for im+lementin$ "e&$in$ strate$ies*

'.3 Un&er Basel II accor&/ ca+ital allocation -ill (e (ase& on t"e ris' in"erent in t"e

asset* T"e im+lementation of Basel II accor& -ill also stren$t"en t"e re$)lator% re#ie-

+rocess an&/ -it" +assa$e of time/ t"e re#ie- +rocess -ill (e more an& more


30/92

so+"isticate&* Besi&es re$)lator% re0)irements/ ca+ital allocation -o)l& also (e

&etermine& (% t"e mar'et forces* E3ternal )sers of financial information -ill &eman&

(etter in+)ts to ma'e in#estment &ecisions* 4ore &etaile& an& more fre0)ent re+ortin$

of ris' +ositions to (an's5 s"are"ol&ers -ill (e t"e or&er of t"e &a%* T"ere -ill (e an

increase in t"e $ro-t" of cons)ltin$ ser#ices s)c" as &ata +ro#i&ers/ ris' aisor%

()rea)s an& ris' re#ie-ers* T"ese re#ie-s -ill (e inten&e& to +ro#i&e comfort to t"e

(an' mana$ements an& re$)lators as to t"e so)n&ness of internal ris' mana$ement

s%stems*

'.4 Ris' mana$ement f)nctions -ill (e f)ll% centrali,e& an& in&e+en&ent from t"e

()siness +rofit centres* T"e ris' mana$ement +rocess -ill (e f)ll% inte$rate& into t"e

()siness +rocess* Ris' ret)rn -ill (e assesse& for ne- ()siness o++ort)nities an&

incor+orate& into t"e &esi$ns of t"e ne- +ro&)cts* All ris's J cre&it/ mar'et an&

o+erational an& so on -ill (e com(ine&/ re+orte& an& mana$e& on an inte$rate& (asis*

T"e &eman& for Ris' A&.)ste& Ret)rns on Ca+ital 1RAROC2 (ase& +erformance

meas)res -ill increase* RAROC -ill (e )se& to &ri#e +ricin$/ +erformance

meas)rement/ +ortfolio mana$ement an& ca+ital mana$ement*

'.5 Ris' mana$ement "as to tric'le &o-n from t"e Cor+orate Office to (ranc"es or

o+eratin$ )nits* As t"e a)&it an& s)+er#ision s"ifts to a ris' (ase& a++roac" rat"er t"an

transaction orientation/ t"e ris' a-areness le#els of line f)nctionaries also -ill "a#e to

increase* Tec"nolo$% relate& ris's -ill (e anot"er area -"ere t"e o+eratin$ staff -ill

"a#e to (e more #i$ilant in t"e comin$ &a%s*

'.& Ban's -ill also "a#e to &eal -it" iss)es relatin$ to Re+)tational Ris' as t"e% -ill

nee& to maintain a "i$" &e$ree of +)(lic confi&ence for raisin$ ca+ital an& ot"er

reso)rces* Ris's to re+)tation co)l& arise on acco)nt of o+erational la+ses/


31/92

o+a0)eness in o+erations an& s"ortcomin$s in ser#ices* S%stems an& internal controls

-o)l& (e cr)cial to ens)re t"at t"is ris' is mana$e& -ell*

'.' T"e le$al en#ironment is li'el% to (e more com+le3 in t"e %ears to come* Inno#ati#e

financial +ro&)cts im+lemente& on com+)ters/ ne- ris' mana$ement soft-are/ )ser

interfaces etc*/ ma% (ecome +atenta(le* For some (an's/ t"is co)l& offer t"e +otential

for reali,in$ commercial $ains t"ro)$" licensin$*


32/92

'.( Aances in ris' mana$ement 1ris' meas)rement2 -ill lea& to transformation in

ca+ital an& (alance s"eet mana$ement* D%namic economic ca+ital mana$ement -ill

(e a +o-erf)l com+etiti#e -ea+on* T"e c"allen$e -ill (e to +)t all t"ese ca+a(ilities

to$et"er to create/ s)stain an& ma3imise s"are"ol&ers5 -ealt"* T"e (an' of t"e f)t)re

"as to (e a total>ris'>ena(le& enter+rise/ -"ic" a&&resses t"e concerns of #ario)s

sta'e"ol&ers5 effecti#el%*

'.) Ris' mana$ement is an area t"e (an's can $ain (% coo+eration an& s"arin$ of

e3+erience amon$ t"emsel#es* Common facilities co)l& (e consi&ere& for &e#elo+ment

of ris' meas)rement an& miti$ation tools an& also for trainin$ of staff at #ario)s le#els*

Nee&less to a&&/ -it" t"e esta(lis"ment of (est ris' mana$ement s%stems an&

im+lementation of +r)&ential norms of acco)ntin$ an& asset classification/ t"e 0)alit% of

assets in commercial (an's -ill im+ro#e on t"e one "an& an& at t"e same time/ t"ere

-ill (e a&e0)ate co#er t"ro)$" +ro#isionin$ for im+aire& loans* As a res)lt/ t"e N;A

le#els are e3+ecte& to come &o-n si$nificantl%*


33/92

CHAPTER (

RE"-AT$R< A#/ E"A E#VIR$#!E#T

(.1 T"e aent of li(erali,ation an& $lo(ali,ation "as seen a lot of c"an$es in t"e foc)s

of Reser#e Ban' of In&ia as a re$)lator of t"e (an'in$ in&)str%* De>re$)lation of interest rates an& mo#in$ a-a% from iss)in$ o+erational +rescri+tions "a#e (een

im+ortant c"an$es* T"e foc)s "as clearl% s"ifte& from micro monitorin$ to macro

mana$ement* S)+er#isor% role is also s"iftin$ more to-ar&s off>site s)r#eillance rat"er

t"an on>site ins+ections* T"e foc)s of ins+ection is also s"iftin$ from transaction>(ase&

e3ercise to ris'>(ase& s)+er#ision* In a totall% &e>re$)late& an& $lo(alise& (an'in$

scenario/ a stron$ re$)lator% frame-or' -o)l& (e nee&e&* T"e role of re$)lator -o)l&

(e critical for

a2 ens)rin$ so)n&ness of t"e s%stem (% fi3in$ (enc"mar' stan&ar&s for ca+ital

a&e0)ac% an& +r)&ential norms for 'e% +erformance +arameters*

(2 a&o+tion of (est +ractices es+eciall% in areas li'e ris'>mana$ement/

+ro#isionin$/ &isclos)res/ cre&it &eli#er%/ etc*

c2 a&o+tion of $oo& cor+orate $o#ernance +ractices*

&2 creation of an instit)tional frame-or' to +rotect t"e interest of &e+ositors*

e2 re$)latin$ t"e entr% an& e3it of (an's incl)&in$ cross>(or&er instit)tions*

F)rt"er/ t"e e3+ecte& inte$ration of #ario)s interme&iaries in t"e financial s%stem -o)l&

a&& a ne- &imension to t"e role of re$)lators* Also as t"e co>o+erati#e (an's are

e3+ecte& to come )n&er t"e &irect re$)lator% control of RBI as a$ainst t"e &)al control

s%stem in #o$)e/ re$)lation an& s)+er#ision of t"ese instit)tions -ill $et a ne- &irection*

Some of t"ese iss)es are a&&resse& in t"e recent amen&ment Bill to t"e Ban'in$

Re$)lation Act intro&)ce& in t"e ;arliament*

(.2 T"e inte$ration of #ario)s financial ser#ices -o)l& nee& a n)m(er of le$islati#e

c"an$es to (e (ro)$"t a(o)t for t"e s%stem to remain contem+orar% an& com+etiti#e*


34/92

T"e nee& for c"an$es in t"e le$islati#e frame-or' "as (een felt in se#eral areas an&

ste+s "a#e (een ta'en in res+ect of man% of t"ese iss)es/ s)c" as/

i2 a(olition of SICA BIFR set)+ an& formation of a National Com+an% Ha-

Tri()nal to ta'e )+ in&)strial re>constr)ction*

Ii2 ena(lin$ le$islation for s"arin$ of cre&it information a(o)t (orro-ers amon$

len&in$ instit)tions*

Inte$ration of t"e financial s%stem -o)l& c"an$e t"e -a% -e loo' at (an'in$

f)nctions* T"e +resent &efinition of (an'in$ )n&er Ban'in$ Re$)lation Act -o)l&

re0)ire c"an$es/ if (an'in$ instit)tions an& non>(an'in$ entities are to mer$e into a

)nifie& financial s%stem

(.3 W"ile t"e recent enactments li'e amen&ments to De(t Reco#er% Tri()nal 1DRT2

+roce&)res an& +assa$e of Sec)ritisation an& Reconstr)ction of Financial Assets

an& Enforcement of Sec)rit% Interest Act/ 7::7 1SARFAESI Act2 "a#e "el+e& to

im+ro#e t"e climate for reco#er% of (an' &)es/ t"eir im+act is %et to (e felt at t"e

$ro)n& le#el* It -o)l& (e necessar% to $i#e f)rt"er teet" to t"e le$islations/ to

ens)re t"at reco#er% of &)es (% cre&itors is +ossi(le -it"in a reasona(le time* T"e

+roce&)re for -in&in$ )+ of com+anies an& sale of assets -ill also "a#e to (e

streamline&*

(.4 In t"e recent +ast/ Cor+orate De(t Restr)ct)rin$ "as e#ol#e& as an effecti#e

#ol)ntar% mec"anism* T"is "as "el+e& t"e (an'in$ s%stem to ta'e timel% correcti#e

actions -"en (orro-in$ cor+orates face &iffic)lties* Wit" t"e (orro-ers $ainin$

confi&ence in t"e mec"anism/ it is e3+ecte& t"at CDR set)+ -o)l& $ain more

+rominence ma'in$ N;A mana$ement some-"at easier* It is e3+ecte& t"at t"e


35/92

iss)e of $i#in$ stat)tor% (ac'in$ for CDR s%stem -ill (e &e(ate& in times to come*

(.5 In t"e emer$in$ (an'in$ an& financial en#ironment t"ere -o)l& (e an increase&

nee& for self>re$)lation* T"is is all t"e more rele#ant in t"e conte3t of t"e state&

+olic% of RBI to mo#e a-a% from micro>mana$ement iss)es* De#elo+ment of (est

+ractices in #ario)s areas of (an's5 -or'in$ -o)l& e#ol#e t"ro)$" self>re$)lation

rat"er t"an (ase& on re$)lator% +rescri+tions*

(.& Role of In&ian Ban's5 Association -o)l& (ecome more +rono)nce& as a self

re$)lator% (o&%* De#elo+ment of (enc"mar's on ris' mana$ement/ cor+orate

$o#ernance/ &isclos)res/ acco)ntin$ +ractices/ #al)ation of assets/ c)stomer

c"arter/ Hen&ers5 Hia(ilit%/ etc* -o)l& (e areas -"ere IBA -o)l& (e re0)ire& to +la% a

more +roacti#e role* T"e Association -o)l& also (e re0)ire& to act as a lo((%ist for

$ettin$ necessar% le$islati#e enactments an& c"an$es in re$)lator% $)i&elines*

(.' R +ractices an& trainin$ nee&s of t"e (an'in$ +ersonnel -o)l& ass)me $reater

im+ortance in t"e comin$ &a%s* ere a$ain/ common (enc"mar's co)l& (e e#ol#e&*

Tal'in$ a(o)t s"are& ser#ices/ creation of common &ata(ase an& con&)ctin$

researc" on contem+orar% iss)es to assess antici+ate& c"an$es in t"e ()siness

+rofile an& mar'et con&itions -o)l& (e areas -"ere or$ani,ations li'e In&ian Ban's5

Association are e3+ecte& to +la% a $reater role*

(.( E#ol)tion of Cor+orate Go#ernance (ein$ a&o+te& (% (an's/ +artic)larl% t"ose

-"o "a#e $one +)(lic/ -ill "a#e to meet $lo(al stan&ar&s o#er a +erio& of time* In

f)t)re/ Cor+orate Go#ernance -ill $)i&e t"e -a% Ban's are to (e r)n* Goo&

Cor+orate Go#ernance is not a strai$"t .ac'ete& form)la or +rocessL t"ere are man%


36/92

-a%s of ac"ie#in$ it as international com+arisons &emonstrate/ +ro#i&e& t"e

follo-in$ t"ree (asic +rinci+les are follo-e&>

0$ 4ana$ement s"o)l& (e free to &ri#e t"e enter+rise for-ar& -it" t"e minim)m

interference an& ma3im)m moti#ation*

8$ 4ana$ement s"o)l& (e acco)nta(le for t"e effecti#e an& efficient )se of t"is

free&om* T"ere are t-o le#els of acco)nta(ilit% J of mana$ement to t"e Boar&

an& of t"e Boar& to t"e S"are"ol&ers* T"e main tas' is to ens)re t"e contin)e&

com+etence of mana$ement/ for -it"o)t a&e0)ate an& effecti#e &ri#e/ an%

()siness is &oome& to &ecline* As state& (% 9*Wolfenso"n/ ;resi&ent/ Worl&

Ban' J =Cororat* go9*rnan* is a8out ro7oting ororat* 6airn*ss>

transar*ny and aounta8iity?.

c$ In or&er to enlist t"e confi&ence of t"e $lo(al in#estors an& international mar'et

+la%ers/ t"e (an's -ill "a#e to a&o+t t"e (est $lo(al +ractices of financial

acco)ntin$ an& re+ortin$* T"is -o)l& essentiall% in#ol#e a&o+tion of .)&$mental

factors in t"e classification of assets/ (ase& on Ban's5 estimation of t"e f)t)re

cas" flo-s an& e3istin$ en#ironmental factors/ (esi&es stren$t"enin$ t"e ca+ital

(ase accor&in$l%*

(.) W"en -e tal' a(o)t a&o+tion of International acco)ntin$ +ractices an& re+ortin$

formats it is rele#ant to loo' at -"ere -e stan& an& t"e -a% a"ea&* Acco)ntin$

+ractices (ein$ follo-e& in In&ia are as +er Acco)ntin$ Stan&ar&s set (% t"e Instit)te of

C"artere& Acco)ntants of In&ia 1ICAI2* Com+anies are re0)ire& to follo- &isclos)re

norms set )n&er t"e Com+anies Act an& SEBI $)i&elines relatin$ to liste& entities* Bot"

in res+ect of Acco)ntin$ ;ractices an& &isclos)res/ (an's in In&ia are $)i&e& (% t"e

Reser#e (an' of In&ia $)i&elines iss)e& from time to time* No- t"ese are/ (% an& lar$e/

in line -it" t"e Acco)ntin$ Stan&ar&s of ICAI an& ot"er re$)lator% (o&ies* It is +ertinent

to note t"at Acco)ntin$ Stan&ar&s of ICAI are (ase& on International Acco)ntin$


37/92

Stan&ar&s 1IAS2 (ein$ follo-e& in a lar$e n)m(er of co)ntries* Consi&erin$ t"at US

forms : of t"e financial mar'ets in t"e -orl& com+liance -it" USGAA; "as ass)me&

$reater im+ortance in recent times* 4an% In&ian (an's &esiro)s of raisin$ reso)rces in

t"e US mar'et "a#e a&o+te& acco)ntin$ +ractices )n&er USGAA; an& -e e3+ect more

an& more In&ian Financial entities to mo#e in t"is &irection in t"e comin$ %ears*

T"ere are certain areas of &ifferences in t"e a++roac" )n&er t"e t-o main international

acco)ntin$ stan&ar&s (ein$ follo-e& $lo(all%* Of late/ t"ere "a#e (een mo#es for

con#er$ence of acco)ntin$ stan&ar&s )n&er IAS an& USGAA; an& t"is re0)ires t"e

stan&ar& setters to a$ree on a sin$le/ "i$">0)alit% ans-er* Disc)ssions in t"e

acco)ntin$ circles in&icate t"at con#er$ence of #ario)s international acco)ntin$stan&ar&s into a sin$le $lo(al stan&ar& -o)l& ta'e +lace (% 7::


38/92


39/92

).4 Barrin$ commercial (an's/ t"e ot"er r)ral financial instit)tions "a#e a -ea'

str)ct)ral (ase an& t"e iss)e of t"eir stren$t"enin$ re0)ires to (e ta'en )+ on +riorit%*

Co>o+erati#es -ill "a#e to (e ma&e #ia(le (% inf)sion of ca+ital* Brin$in$ all coo+erati#e

instit)tions )n&er t"e re$)lator% control of RBI -o)l& "el+ in (etter control an&

s)+er#ision o#er t"e f)nctionin$ of t"ese instit)tions* Similarl% Re$ional R)ral (an's

1RRBs2 as a $ro)+ nee& to (e ma&e str)ct)rall% stron$er* It -o)l& (e &esira(le if

NABARD ta'es t"e initiati#e to consoli&ate all t"e RRBs into a stron$ r)ral &e#elo+ment

entit%*

).5 Small Scale In&)stries "a#e/ o#er t"e last fi#e &eca&es/ emer$e& as a ma.or

contri()tor to t"e econom%/ (ot" in terms of em+lo%ment $eneration an& s"are in

man)fact)re& o)t+)t an& e3+orts* SSIs acco)nt for != of t"e in&)strial )nits an&

contri()te a(o)t : of t"e #al)e a&&ition in t"e man)fact)rin$ sector* T"ere are more

t"an 87 lac )nits s+rea& all o#er t"e co)ntr% +ro&)cin$ o#er o)t+)t ratio -o)l& ma'e small scale sector remain im+ortant for

+olic% +lanners*

).& Remo#al of 0)antitati#e restrictions on a lar$e n)m(er of items )n&er t"e WTO an&

o+enin$ )+ of In&ian mar'et to $reater international com+etition "a#e t"ro-n (ot"

c"allen$es an& o++ort)nities for t"e SSI sector* Ho- ca+ital (ase an& -ea'

mana$ement str)ct)re ma'e t"ese )nits #)lnera(le to e3ternal s"oc's/ more easil%*

o-e#er t"e )nits -"ic" can a&o+t to t"e c"an$in$ en#ironment an& s"o- ima$ination

in t"eir ()siness strate$% -ill t"ri#e in t"e ne- en#ironment*

).' Instea& of follo-in$ t"e narro- &efinition of SSI/ (ase& on t"e in#estment in fi3e&

assets/ t"ere is a mo#e to loo' at Small an& 4e&i)m Enter+rises 1S4E2 as a $ro)+ for

+olic% t"r)st an& enco)ra$ement* For S4Es/ (an's s"o)l& e3+lore t"e o+tion of E>

(an'in$ c"annels to &e#elo+ -e(>(ase& relations"i+ (an'in$ mo&els/ -"ic" are

c)stomer>&ri#en an& more cost>effecti#e* Go#ernment is alrea&% consi&erin$ a

le$islation for t"e &e#elo+ment of S4E sector to facilitate its or&erl% $ro-t"*


40/92

).( In t"e ne3t ten %ears/ S4E sector -ill emer$e more com+etiti#e an& efficient an&

'no-le&$e>(ase& in&)stries are li'el% to ac0)ire $reater +rominence* S4Es -ill (e

&ominatin$ in in&)str% se$ments s)c" as ;"armace)ticals/ Information Tec"nolo$% an&

Biotec"nolo$%* Wit" S4E sector emer$in$ as a #i(rant sector of t"e In&ian econom%/

flo- of cre&it to t"is sector -o)l& $o )+ si$nificantl%* Ban's -ill "a#e to s"ar+en t"eir

s'ills for meetin$ t"e financial nee&s of t"is se$ment* Some of t"e Ban's ma% emer$e

as nic"e +la%ers in "an&lin$ S4E finance* Flo- of cre&it to t"is Sector -ill (e $)i&e&

+)rel% (% commercial consi&erations as Ban's -ill fin& S4Es as an attracti#e ()siness

+ro+osition*


41/92

CHAPTER – 10

H-!A# RE%$-RCE% !A#A"E!E#T

:* T"e 'e% to t"e s)ccess of an% or$ani,ation lies in "o- efficientl% t"e or$ani,ation

mana$es its5 ")man reso)rces* T"e +rinci+le a++lies e0)all% an& +er"a+s more

a+tl% to ser#ice instit)tions li'e (an's* T"e iss)e is all t"e more rele#ant to t"e

+)(lic sector (an's -"o are stri#in$ "ar& to 'ee+ +ace -it" t"e tec"nolo$ical

c"an$es an& meet t"e c"allen$es of $lo(ali,ation*

:*7 In or&er to meet t"e $lo(al stan&ar&s an& to remain com+etiti#e/ (an's -ill "a#e

to recr)it s+ecialists in #ario)s fiel&s s)c" as Treas)r% 4ana$ement/ Cre&it/ Ris'4ana$ement/ IT relate& ser#ices/ R4/ etc* in 'ee+in$ -it" t"e se$mentation

an& +ro&)ct inno#ation* As a com+lementar% meas)re/ fast trac' merit an&

+erformance (ase& +romotion from -it"in -o)l& "a#e to (e instit)tionali,e& to

in.ect &%namism an& %o)t"f)lness in t"e -or'force*

:*8 To instit)tionali,e talent mana$ement/ t"e first +riorit% for t"e (an'in$ in&)str%

-o)l& (e to s+ot/ reco$ni,e an& n)rt)re t"e talent from -it"in* Secon&l%/ t"e

in&)str% "as to attract t"e (est talent from t"e mar'et to maintain t"e re0)ire&

com+etiti#e e&$e #is>a>#is $lo(al +la%ers* o-e#er/ t"e iss)e of critical

im+ortance is "o- talent is inte$rate& an& s)staine& in t"e (an's* T"erefore/ a

+ro+er s%stem of talent mana$ement "as to (e +)t in +lace (% all t"e (an's*

:* As t"e entire In&ian (an'in$ in&)str% is -itnessin$ a +ara&i$m s"ift in s%stems/

+rocesses/ strate$ies/ it -o)l& -arrant creation of ne- com+etencies an&

ca+a(ilities on an on>$oin$ (asis for -"ic" an en#ironment of contin)o)s

learnin$ -o)l& "a#e to (e create& so as to en"ance 'no-le&$e an& s'ills*

:*= Anot"er im+ortant in$re&ient of R mana$ement is re-ar& an& com+ensation

-"ic" at +resent &o not "a#e an% lin'a$e to s'ills an& +erformance* A s%stem of


42/92

re-ar& an& com+ensation t"at attracts/ reco$ni,es an& retains t"e talent/ an&

-"ic" is commens)rate -it" +erformance is an )r$ent nee& of t"e in&)str%*

:* An e0)all% im+ortant iss)e rele#ant to R4 is to create a con&)ci#e -or'in$

en#ironment in -"ic" t"e (an'ers can ta'e commercial &ecisions .)&icio)sl% an&/

at t"e same time/ -it"o)t fear* T"is calls for a re>loo' into t"e #i$ilance s%stem

as it e3ists to&a%/ an& +er"a+s t"ere is a nee& to 'ee+ t"e (an'in$ in&)str% o)t of

t"e CVC* T"e Ban's5 Boar&s ma% (e allo-e& to "a#e t"eir o-n s%stem of

a++ro+riate c"ec's an& (alances as -ell as acco)nta(ilit%*


43/92

HISTORY OF

INDIAN BANKINGINDUSTRY


44/92

AN O'ER'IEW OF THE BANKING SECTOR

SECTION I: BANKING SYSTE IN INDIA

A 80n7 i- 0 @n0nci01 in-tit2tion th0t 4%o?i3e- 80n7in= 0n3 othe% @n0nci01 -e%?ice- to

thei% c2-to9e%-& A 80n7 i- =ene%011/ 2n3e%-too3 0- 0n in-tit2tion 6hich 4%o?i3e-

.2n309ent01 80n7in= -e%?ice- -2ch 0- 0cce4tin= 3e4o-it- 0n3 4%o?i3in= 1o0n-&

The%e 0%e 01-o non80n7in= in-tit2tion- th0t 4%o?i3e ce%t0in 80n7in= -e%?ice- 6itho2t

9eetin= the 1e=01 3e@nition o. 0 80n7& B0n7- 0%e 0 -28-et o. the @n0nci01 -e%?ice-

in32-t%/& A 80n7in= -/-te9 01-o %e.e%%e3 0- 0 -/-te9 4%o?i3e3 8/ the 80n7 6hich

oe%- c0-h 90n0=e9ent -e%?ice- .o% c2-to9e%-> %e4o%tin= the t%0n-0ction- o. thei%

0cco2nt- 0n3 4o%t.o1io-> th%o2=h o2t the 30/& The 80n7in= -/-te9 in In3i0> -ho213

not on1/ 8e h0--1e.%ee 82t it -ho213 8e 081e to 9eet the ne6 ch011en=e- 4o-e3 8/

the techno1o=/ 0n3 0n/ othe% exte%n01 0n3 inte%n01 .0cto%-& Fo% the 40-t th%ee

3ec03e-> In3i0- 80n7in= -/-te9 h0- -e?e%01 o2t-t0n3in= 0chie?e9ent- to it- c%e3it&

The B0n7- 0%e the 90in 40%tici40nt- o. the @n0nci01 -/-te9 in In3i0& The B0n7in=

-ecto% oe%- -e?e%01 .0ci1itie- 0n3 o44o%t2nitie- to thei% c2-to9e%-& A11 the 80n7-

-0.e=20%3- the 9one/ 0n3 ?012081e- 0n3 4%o?i3e 1o0n-> c%e3it> 0n3 40/9ent

-e%?ice-> -2ch 0- chec7in= 0cco2nt-> 9one/ o%3e%-> 0n3 c0-hie%- che2e-& The

80n7- 01-o oe% in?e-t9ent 0n3 in-2%0nce 4%o32ct-& A- 0 ?0%iet/ o. 9o3e1- .o%

coo4e%0tion 0n3 inte=%0tion 09on= @n0nce in32-t%ie- h0?e e9e%=e3> -o9e o. the

t%03ition01 3i-tinction- 8et6een 80n7-> in-2%0nce co940nie-> 0n3 -ec2%itie- @%9-

h0?e 3i9ini-he3& In -4ite o. the-e ch0n=e-> 80n7- contin2e to 90int0in 0n3 4e%.o%9

thei% 4%i90%/ %o1e0cce4tin= 3e4o-it- 0n3 1en3in= .2n3- .%o9 the-e 3e4o-it-&

) Nee3 o. the B0n7-


45/92

Be.o%e the e-t081i-h9ent o. 80n7-> the @n0nci01 0cti?itie- 6e%e h0n31e3 8/ 9one/

1en3e%- 0n3 in3i?i3201-& At th0t ti9e the inte%e-t %0te- 6e%e ?e%/ hi=h& A=0in the%e

6e%e no -ec2%it/ o. 4281ic -0?in=- 0n3 no 2ni.o%9it/ %e=0%3in= 1o0n-& So 0- to

o?e%co9e -2ch 4%o81e9- the o%=0nie3 80n7in= -ecto% 60- e-t081i-he3> 6hich 60-

.211/ %e=210te3 8/ the =o?e%n9ent& The o%=0nie3 80n7in= -ecto% 6o%7- 6ithin the

@n0nci01 -/-te9 to 4%o?i3e 1o0n-> 0cce4t 3e4o-it- 0n3 4%o?i3e othe% -e%?ice- to

thei% c2-to9e%-& The .o11o6in= .2nction- o. the 80n7 ex410in the nee3 o. the 80n7

0n3 it- i94o%t0nce:

To 4%o?i3e the -ec2%it/ to the -0?in=- o. c2-to9e%-&

To cont%o1 the -2441/ o. 9one/ 0n3 c%e3it

To enco2%0=e 4281ic con@3ence in the 6o%7in= o. the @n0nci01 -/-te9> inc%e0-e

-0?in=- -4ee3i1/ 0n3 ecient1/&

To 0?oi3 .oc2- o. @n0nci01 4o6e%- in the h0n3- o. 0 .e6 in3i?i3201- 0n3

in-tit2tion-&

To -et e201 no%9- 0n3 con3ition- (i&e& %0te o. inte%e-t> 4e%io3 o. 1en3in= etc$ to 011

t/4e- o. c2-to9e%-

)&, Hi-to%/ o. In3i0n B0n7in= S/-te9 The @%-t 80n7 in In3i0> c011e3 The Gene%01

B0n7 o. In3i0 60- e-t081i-he3 in the /e0% )*+& The E0-t In3i0 Co940n/ e-t081i-he3

The B0n7 o. Ben=01C01c2tt0 ()*!$> B0n7 o. Bo980/ ()*"!$ 0n3 B0n7 o. 03%0-

()*",$& The next 80n7 60- B0n7 o. Hin32-t0n 6hich 60- e-t081i-he3 in )*!& The-e

th%ee in3i?i3201 2nit- (B0n7 o. C01c2tt0> B0n7 o. Bo980/> 0n3 B0n7 o. 03%0-$ 6e%e

c011e3 0- P%e-i3enc/ B0n7-& A110h0803 B0n7 6hich 60- e-t081i-he3 in )*+L> 60- .o%

the @%-t ti9e co941ete1/ %2n 8/ In3i0n-& P2n508 N0tion01 B0n7 t3& 60- -et 24 in


46/92

)*" 6ith he03 20%te%- 0t 0ho%e& Bet6een )!+ 0n3 )),> B0n7 o. In3i0> Cent%01

B0n7 o. In3i0> B0n7 o. B0%o30> C0n0%0 B0n7> In3i0n B0n7> 0n3 B0n7 o. /-o%e 6e%e

-et 24& In )#)> 011 4%e-i3enc/ 80n7- 6e%e 0901=090te3 to .o%9 the I94e%i01 B0n7

o. In3i0 6hich 60- %2n 8/ E2%o4e0n Sh0%eho13e%-& A.te% th0t the Re-e%?e B0n7 o.

In3i0 60- e-t081i-he3 in A4%i1 ),L& At the ti9e o. @%-t 4h0-e the =%o6th o. 80n7in=

-ecto% 60- ?e%/ -1o6& Bet6een )), 0n3 )"* the%e 6e%e 044%oxi90te1/ ))!! -9011

80n7- in In3i0& To -t%e091ine the .2nctionin= 0n3 0cti?itie- o. co99e%ci01 80n7-> the

Go?e%n9ent o. In3i0 c09e 24 6ith the B0n7in= Co940nie- Act> )" 6hich 60-

10te% ch0n=e3 to B0n7in= Re=210tion Act )" 0- 4e% 09en3in= Act o. )+L (Act

No, o. )+L$& Re-e%?e B0n7 o. In3i0 60- ?e-te3 6ith exten-i?e 4o6e%- .o% the

-24e%?i-ion o. 80n7in= in In3i0 0- 0 Cent%01 B0n7in= A2tho%it/& A.te% in3e4en3ence>

Go?e%n9ent h0- t07en 9o-t i94o%t0nt -te4- in %e=0%3 o. In3i0n B0n7in= Secto%

%e.o%9-& In )LL> the I94e%i01 B0n7 o. In3i0 60- n0tion01ie3 0n3 60- =i?en the

n09e MSt0te B0n7 o. In3i0M> to 0ct 0- the 4%inci401 0=ent o. RBI 0n3 to h0n31e

80n7in= t%0n-0ction- 011 o?e% the co2nt%/& It 60- e-t081i-he3 2n3e% St0te B0n7 o.

In3i0 Act> )LL& Se?en 80n7- .o%9in= -28-i3i0%/ o. St0te B0n7 o. In3i0 60-

n0tion01ie3 in )+!& On )th J21/> )+> 905o% 4%oce-- o. n0tion01i0tion 60-

c0%%ie3 o2t& At the -09e ti9e )" 905o% In3i0n co99e%ci01 80n7- o. the co2nt%/ 6e%e

n0tion01ie3& In )*!> 0nothe% -ix 80n7- 6e%e n0tion01ie3> 0n3 th2- %0i-in= the

n298e% o. n0tion01ie3 80n7- to #!& Se?en 9o%e 80n7- 6e%e n0tion01ie3 6ith

3e4o-it- o?e% #!! C%o%e-& Ti11 the /e0% )*! 044%oxi90te1/ *! o. the 80n7in=

-e=9ent in In3i0 60- 2n3e% =o?e%n9ent- o6ne%-hi4& On the -2==e-tion- o.

N0%-i9h0n Co99ittee> the B0n7in= Re=210tion Act 60- 09en3e3 in ), 0n3 th2-

the =0te- .o% the ne6 4%i?0te -ecto% 80n7- 6e%e o4ene3&


47/92

The .o11o6in= 0%e the 905o% -te4- t07en 8/ the

Go?e%n9ent o. In3i0 to Re=210te B0n7in=

in-tit2tion- in the co2nt%/:

1D4D Enac!en ,: Banin> Re>9#ai,n Ac.

1D55 Nai,na#iai,n ,: Sae Ban ,: Inia.

1D5D Nai,na#iai,n ,: SBI '9'iia&ie'.

1D1 In'9&ance c,%e& eGene , e",'i'.

1DD Nai,na#iai,n ,: 14 !a,& Ban'.


48/92

1D1 C&eai,n ,: c&ei >9a&anee c,&",&ai,n.

1D5 C&eai,n ,: &e>i,na# &9&a# an'.

1D+0 Nai,na#iai,n ,: 'e%en an' =i e",'i' ,%e& 200 C&,&e'.

N0tion01i-0tion

B/ the )+!-> the In3i0n 80n7in= in32-t%/ h0- 8eco9e 0n i94o%t0nt too1 to .0ci1it0te

the 3e?e1o49ent o. the In3i0n econo9/& At the -09e ti9e> it h0- e9e%=e3 0- 0

10%=e e941o/e%> 0n3 0 3e80te h0- en-2%e3 08o2t the 4o--i8i1it/ to n0tion01i-e the

80n7in= in32-t%/& In3i%0 G0n3hi> thethen P%i9e ini-te% o. In3i0 ex4%e--e3 the

intention o. the Go?e%n9ent o. In3i0 (GOI$ in the 0nn201 con.e%ence o. the A11 In3i0

Con=%e-- eetin= in 0 404e% entit1e3 MSt%0/ tho2=ht- on B0n7 N0tion01i-0tionM& The

404e% 60- %ecei?e3 6ith 4o-iti?e enth2-i0-9& The%e0.te%> he% 9o?e 60- -6i.t 0n3

-233en> 0n3 the GOI i--2e3 0n o%3in0nce 0n3 n0tion01i-e3 the )" 10%=e-t

co99e%ci01 80n7- 6ith eect .%o9 the 9i3ni=ht o. J21/ )> )+& J0/04%070-h

N0%0/0n> 0 n0tion01 1e03e% o. In3i0> 3e-c%i8e3 the -te4 0- 0 M0-te%-t%o7e o. 4o1itic01

-0=0cit/M Within t6o 6ee7- o. the i--2e o. the o%3in0nce> the P0%1i09ent 40--e3 the

B0n7in= Co940nie- (Ac2i-ition 0n3 T%0n-.e% o. Un3e%t07in=$ Bi11> 0n3 it %ecei?e3

the 4%e-i3enti01 044%o?01 on A2=2-t> )+&A -econ3 -te4 o. n0tion01i-0tion o. +


49/92

9o%e co99e%ci01 80n7- .o11o6e3 in )*!& The-t0te3 %e0-on .o% the n0tion01i-0tion

60- to =i?e the =o?e%n9ent 9o%e cont%o1 o. c%e3it 3e1i?e%/& With the -econ3 -te4 o.

n0tion01i-0tion> the GOI cont%o11e3 0%o2n3 ) o. the 80n7in= 82-ine-- in In3i0&

0te% on> in the /e0% ),> the =o?e%n9ent 9e%=e3 Ne6 B0n7 o. In3i0 6ith P2n508

N0tion01 B0n7& It 60- the on1/ 9e%=e% 8et6een n0tion01i-e3 80n7- 0n3 %e-21te3 in

the %e32ction o. the n298e% o. n0tion01i-e3 80n7- .%o9 #! to )& A.te% thi-> 2nti1 the

)!-> the n0tion01i-e3 80n7- =%e6 0t 0 40ce o. 0%o2n3 "> c1o-e% to the 0?e%0=e

=%o6th %0te o. the In3i0n econo9/& The n0tion01i-e3 80n7- 6e%e c%e3ite3 8/ -o9e

inc123in= Ho9e 9ini-te% P& Chi30980%09> to h0?e he14e3 the In3i0n econo9/

6ith-t0n3 the =1o801 @n0nci01 c%i-i- o. #!!#!!&

i8e%01i-0tion

In the e0%1/ )!-> the then N0%-i9h0 R0o =o?e%n9ent e980%7e3 on 0 4o1ic/ o.

1i8e%01i-0tion> 1icen-in= 0 -9011 n298e% o. 4%i?0te 80n7-& The-e c09e to 8e 7no6n

0- Ne6 Gene%0tion tech-0??/ 80n7-> 0n3 inc123e3 G1o801 T%2-t B0n7 (the @%-t o.

-2ch ne6 =ene%0tion 80n7- to 8e -et 24$> 6hich 10te% 0901=090te3 6ith O%ient01

B0n7 o. Co99e%ce> Axi- B0n7(e0%1ie% 0- UTI B0n7$> ICICI B0n7 0n3 HDFC B0n7& Thi-

9o?e 01on= 6ith the %04i3 =%o6th in the econo9/ o. In3i0 %e?o12tionie3 the

80n7in= -ecto% in In3i0 6hich h0- -een %04i3 =%o6th 6ith -t%on= cont%i82tion .%o9

011 the th%ee -ecto%- o. 80n7-> n09e1/> =o?e%n9ent 80n7-> 4%i?0te 80n7- 0n3 .o%ei=n

80n7-& The next -t0=e .o% the In3i0n 80n7in= h0- 8een -et24 6ith the 4%o4o-e3

%e10x0tion in the no%9- .o% Fo%ei=n Di%ect In?e-t9ent> 6he%e 011 Fo%ei=n In?e-to%- in

80n7- 90/ 8e =i?en ?otin= %i=ht- 6hich co213 excee3 the 4%e-ent c04 o. )!> 0t

4%e-ent it h0- =one 24 to " 6ith -o9e %e-t%iction-&


50/92

The ne6 4o1ic/ -hoo7 the 80n7in= -ecto% in In3i0 co941ete1/& B0n7e%-> ti11 thi- ti9e>

6e%e 2-e3 to the "+" 9etho3 (Bo%%o6 0t " en3 0t + Go ho9e 0t "$ o.

.2nctionin=& The ne6 60?e 2-he%e3 in 0 9o3e%n o2t1oo7 0n3 tech-0??/ 9etho3- o.

6o%7in= .o% the t%03ition01 80n7-& A11 thi- 1e3 to the %et0i1 8oo9 in In3i0& Peo41e not

52-t 3e90n3e3 9o%e .%o9 thei% 80n7- 82t 01-o %ecei?e3 9o%e& C2%%ent1/ (#!!$>

80n7in= in In3i0 i- =ene%011/ .0i%1/ 90t2%e in te%9- o. -2441/> 4%o32ct %0n=e 0n3

%e0che?en tho2=h %e0ch in %2%01 In3i0 -ti11 %e90in- 0 ch011en=e .o% the 4%i?0te

-ecto% 0n3 .o%ei=n 80n7-& In te%9- o. 201it/ o. 0--et- 0n3 c04it01 03e20c/> In3i0n

80n7- 0%e con-i3e%e3 to h0?e c1e0n> -t%on= 0n3 t%0n-40%ent 8010nce -heet- 0-

co940%e3 to othe% 80n7- in co940%081e econo9ie- in it- %e=ion& The Re-e%?e B0n7

o. In3i0 i- 0n 02tono9o2- 8o3/> 6ith 9ini901 4%e--2%e .%o9 the =o?e%n9ent& The

-t0te3 4o1ic/ o. the B0n7 on the In3i0n R24ee i- to 90n0=e ?o10ti1it/ 82t 6itho2t

0n/ @xe3 exch0n=e %0te0n3 thi- h0- 9o-t1/ 8een t%2e& With the =%o6th in the

In3i0n econo9/ ex4ecte3 to 8e -t%on= .o% 2ite -o9e ti9ee-4eci011/ in it- -e%?ice-

-ecto%the 3e90n3 .o% 80n7in= -e%?ice-> e-4eci011/ %et0i1 80n7in=> 9o%t=0=e- 0n3

in?e-t9ent -e%?ice- 0%e ex4ecte3 to 8e -t%on=&

In 0%ch #!!+> the Re-e%?e B0n7 o. In3i0 011o6e3 W0%82%= Pinc2- to inc%e0-e it-

-t07e in Kot07 0hin3%0 B0n7 (0 4%i?0te -ecto% 80n7$ to )!& Thi- i- the @%-t ti9e

0n in?e-to% h0- 8een 011o6e3 to ho13 9o%e th0n L in 0 4%i?0te -ecto% 80n7 -ince

the RBI 0nno2nce3 no%9- in #!!L th0t 0n/ -t07e excee3in= L in the 4%i?0te -ecto%

80n7- 6o213 nee3 to 8e ?ote3 8/ the9& In %ecent /e0%- c%itic- h0?e ch0%=e3 th0t

the non=o?e%n9ent o6ne3 80n7- 0%e too 0==%e--i?e in thei% 1o0n %eco?e%/ eo%t-

in connection 6ith ho2-in=> ?ehic1e 0n3 4e%-on01 1o0n-& The%e 0%e 4%e-- %e4o%t- th0t

the 80n7-Q 1o0n %eco?e%/ eo%t- h0?e 3%i?en 3e.021tin= 8o%%o6e%- to -2ici3e&


51/92

Go?e%n9ent 4o1ic/ on 80n7in= in32-t%/ (So2%ce:The .e3e%01 Re-e%?e Act )), 0n3

The B0n7in= Act ),,$ B0n7- o4e%0tin= in 9o-t o. the co2nt%ie- 92-t conten3 6ith

he0?/ %e=210tion-> %21e- en.o%ce3 8/ Fe3e%01 0n3 St0te 0=encie- to =o?e%n thei%

o4e%0tion-> -e%?ice oe%in=-> 0n3 the 90nne% in 6hich the/ =%o6 0n3 ex40n3 thei%

.0ci1itie- to 8ette% -e%?e the 4281ic& A 80n7e% 6o%7- 6ithin the @n0nci01 -/-te9 to

4%o?i3e 1o0n-> 0cce4t 3e4o-it-> 0n3 4%o?i3e othe% -e%?ice- to thei% c2-to9e%-& The/

92-t 3o -o 6ithin 0 c1i90te o. exten-i?e %e=210tion> 3e-i=ne3 4%i90%i1/ to 4%otect

the 4281ic inte%e-t-&

The 90in %e0-on- 6h/ the 80n7- 0%e he0?i1/ %e=210te3 0%e 0- .o11o6-:

To 4%otect the -0.et/ o. the 4281ic- -0?in=-&

To cont%o1 the -2441/ o. 9one/ 0n3 c%e3it in o%3e% to 0chie?e 0 n0tion- 8%o03

econo9ic =o01&

To en-2%e e201 o44o%t2nit/ 0n3 .0i%ne-- in the 4281ic- 0cce-- to c%e3it 0n3 othe%

?it01 @n0nci01 -e%?ice-&

To 4%o9ote 4281ic con@3ence in the @n0nci01 -/-te9> -o th0t -0?in=- 0%e 903e

-4ee3i1/ 0n3 ecient1/&

To 0?oi3 concent%0tion- o. @n0nci01 4o6e% in the h0n3- o. 0 .e6 in3i?i3201- 0n3

in-tit2tion-&

P%o?i3e the Go?e%n9ent 6ith c%e3it> t0x %e?en2e- 0n3 othe% -e%?ice-&

To he14 -ecto%- o. the econo9/ th0t the/ h0?e -4eci01 c%e3it nee3- .o% e=&

Ho2-in=> -9011 82-ine-- 0n3 0=%ic21t2%01 1o0n- etc&

06 o. 80n7in=


52/92

B0n7in= 106 i- 80-e3 on 0 cont%0ct201 0n01/-i- o. the %e10tion-hi4 8et6een the 80n7

0n3 c2-to9e%3e@ne3 0- 0n/ entit/ .o% 6hich the 80n7 0=%ee- to con32ct 0n

0cco2nt& The 106 i941ie- %i=ht- 0n3 o81i=0tion- into thi- %e10tion-hi4 0- .o11o6-:

The 80n7 0cco2nt 8010nce i- the @n0nci01 4o-ition 8et6een the 80n7 0n3 the

c2-to9e%: 6hen the 0cco2nt i- in c%e3it> the 80n7 o6e- the 8010nce to the

c2-to9e% 6hen the 0cco2nt i- o?e%3%06n> the c2-to9e% o6e- the 8010nce to the

80n7&

The 80n7 0=%ee- to 40/ the c2-to9e%Q- che2e- 24 to the 09o2nt -t0n3in= to the

c%e3it o. the c2-to9e%Q- 0cco2nt> 412- 0n/ 0=%ee3 o?e%3%0.t 1i9it&

The 80n7 90/ not 40/ .%o9 the c2-to9e%Q- 0cco2nt 6itho2t 0 90n30te .%o9 the

c2-to9e%> e&=& che2e- 3%06n 8/ the c2-to9e%&

The 80n7 0=%ee- to 4%o94t1/ co11ect the che2e- 3e4o-ite3 to the c2-to9e%Q-

0cco2nt 0- the c2-to9e%Q- 0=ent> 0n3 to c%e3it the 4%ocee3- to the c2-to9e%Q-

0cco2nt&

The 80n7 h0- 0 %i=ht to co98ine the c2-to9e%Q- 0cco2nt-> -ince e0ch 0cco2nt i-

52-t 0n 0-4ect o. the -09e c%e3it %e10tion-hi4&

The 80n7 h0- 0 1ien on che2e- 3e4o-ite3 to the c2-to9e%Q- 0cco2nt> to the

extent th0t the c2-to9e% i- in3e8te3 to the 80n7&

The 80n7 92-t not 3i-c1o-e 3et0i1- o. t%0n-0ction- th%o2=h the c2-to9e%Q- 0cco2nt

2n1e-- the c2-to9e% con-ent-> the%e i- 0 4281ic 32t/ to 3i-c1o-e> the 80n7Q-

inte%e-t- %e2i%e it> o% the 106 3e90n3- it&


53/92

The 80n7 92-t not c1o-e 0 c2-to9e%Q- 0cco2nt 6itho2t %e0-on081e notice> -ince

che2e- 0%e o2t-t0n3in= in the o%3in0%/ co2%-e o. 82-ine-- .o% -e?e%01 30/-& The-e

i941ie3 cont%0ct201 te%9- 90/ 8e 9o3i@e3 8/ ex4%e-- 0=%ee9ent 8et6een the

c2-to9e% 0n3 the 80n7& The -t0t2te- 0n3 %e=210tion- in .o%ce 6ithin 0 40%tic210%

52%i-3iction 90/ 01-o 9o3i./ the 08o?e te%9- 0n3o% c%e0te ne6 %i=ht-> o81i=0tion-

o% 1i9it0tion- %e1e?0nt to the 80n7c2-to9e% %e10tion-hi4&

Re=210tion- .o% In3i0n 80n7-

C2%%ent1/ in 9o-t 52%i-3iction- co99e%ci01 80n7- 0%e %e=210te3 8/ =o?e%n9ent

entitie- 0n3 %e2i%e 0 -4eci01 80n7 1icen-e to o4e%0te& U-2011/ the 3e@nition o. the

82-ine-- o. 80n7in= .o% the 42%4o-e- o. %e=210tion i- exten3e3 to inc123e

0cce4t0nce o. 3e4o-it-> e?en i. the/ 0%e not %e40/081e to the c2-to9e%Q- o%3e%

01tho2=h 9one/ 1en3in=> 8/ it-e1.> i- =ene%011/ not inc123e3 in the 3e@nition& Un1i7e

9o-t othe% %e=210te3 in32-t%ie-> the %e=210to% i- t/4ic011/ 01-o 0 40%tici40nt in the

90%7et> i&e& 0 =o?e%n9ento6ne3 (cent%01$ 80n7& Cent%01 80n7- 01-o t/4ic011/ h0?e 0

9ono4o1/ on the 82-ine-- o. i--2in= 80n7note-& Ho6e?e%> in -o9e co2nt%ie- thi- i-

not the c0-e& In UK> .o% ex0941e> the Fin0nci01 Se%?ice- A2tho%it/ 1icen-e- 80n7->

0n3 -o9e co99e%ci01 80n7- (-2ch 0- the B0n7 o. Scot10n3$ i--2e thei% o6n

80n7note- in 033ition to tho-e i--2e3 8/ the B0n7 o. En=10n3> the UK =o?e%n9entQ-

cent%01 80n7& So9e t/4e- o. @n0nci01 in-tit2tion-> -2ch 0- 82i13in= -ocietie- 0n3

c%e3it 2nion-> 90/ 8e 40%t1/ o% 6ho11/ exe94te3 .%o9 80n7 1icen-e %e2i%e9ent->

0n3 the%e.o%e %e=210te3 2n3e% -e40%0te %21e-& The %e2i%e9ent- .o% the i--2e o. 0

80n7 1icen-e ?0%/ 8et6een 52%i-3iction- 82t t/4ic011/ inc123e:

ini929 c04it01

ini929 c04it01 %0tio


54/92

QFit 0n3 P%o4e%Q %e2i%e9ent- .o% the 80n7Q- cont%o11e%-> o6ne%-> 3i%ecto%-> 0n3o%

-enio% oce%-

A44%o?01 o. the 80n7Q- 82-ine-- 410n 0- 8ein= -2cient1/ 4%23ent 0n3 4102-i81e&

C10--i@c0tion o. B0n7in= In32-t%/ in In3i0

In3i0n 80n7in= in32-t%/ h0- 8een 3i?i3e3 into t6o 40%t-> o%=0nie3 0n3 2no%=0nie3

-ecto%-& The o%=0nie3 -ecto% con-i-t- o. Re-e%?e B0n7 o. In3i0> Co99e%ci01 B0n7-

0n3 Coo4e%0ti?e B0n7-> 0n3 S4eci01ie3 Fin0nci01 In-tit2tion- (IDBI> ICICI> IFC etc$&

The 2no%=0nie3 -ecto%> 6hich i- not ho9o=eneo2-> i- 10%=e1/ 903e 24 o. 9one/

1en3e%- 0n3 in3i=eno2- 80n7e%-&

An o2t1ine o. the In3i0n B0n7in= -t%2ct2%e 90/ 8e 4%e-ente3 0- .o11o6-:

)& Re-e%?e 80n7- o. In3i0&

#& In3i0n Sche321e3 Co99e%ci01 B0n7-&

0$ St0te B0n7 o. In3i0 0n3 it- 0--oci0te 80n7-&

8$ T6ent/ n0tion01ie3 80n7-&

c$ Re=ion01 %2%01 80n7-&

3$ Othe% -che321e3 co99e%ci01 80n7-&

,& Fo%ei=n B0n7-

"& Non-che321e3 80n7-&

L& Coo4e%0ti?e 80n7-&

Re-e%?e 80n7 o. In3i0


55/92

The %e-e%?e 80n7 o. In3i0 i- 0 cent%01 80n7 0n3 60- e-t081i-he3 in A4%i1 )> ),L in

0cco%30nce 6ith the 4%o?i-ion- o. %e-e%?e 80n7 o. In3i0 0ct ),"& The cent%01 oce

o. RBI i- 1oc0te3 0t 2980i -ince ince4tion& Tho2=h o%i=in011/ the %e-e%?e 80n7 o.

In3i0 60- 4%i?0te1/ o6ne3> -ince n0tion01i0tion in )"> RBI i- .211/ o6ne3 8/ the

Go?e%n9ent o. In3i0& It 60- in02=2%0te3 6ith -h0%e c04it01 o. R-& L C%o%e- 3i?i3e3

into -h0%e- o. R-& )!! e0ch .211/ 40i3 24& RBI i- =o?e%ne3 8/ 0 cent%01 8o0%3

(he03e3 8/ 0 =o?e%no%$ 044ointe3 8/ the cent%01 =o?e%n9ent o. In3i0& RBI h0- ##

%e=ion01 oce- 0c%o-- In3i0& The %e-e%?e 80n7 o. In3i0 60- n0tion01ie3 in the /e0%

)"& The =ene%01 -24e%inten3ence 0n3 3i%ection o. the 80n7 i- ent%2-te3 to cent%01

8o0%3 o. 3i%ecto%- o. #! 9e98e%-> the Go?e%no% 0n3 .o2% 3e42t/ Go?e%no%-> one

Go?e%n9ent01 oci01 .%o9 the 9ini-t%/ o. Fin0nce> ten no9in0te3 3i%ecto%- 8/ the

=o?e%n9ent to =i?e %e4%e-ent0tion to i94o%t0nt e1e9ent- in the econo9ic 1i.e o. the

co2nt%/> 0n3 the .o2% no9in0te3 3i%ecto% 8/ the Cent%01 Go?e%n9ent to %e4%e-ent

the .o2% 1oc01 8o0%3- 6ith the he0320%te%- 0t 2980i> Ko170t0> Chenn0i 0n3 Ne6

De1hi& oc01 Bo0%3 con-i-t- o. @?e 9e98e%- e0ch cent%01 =o?e%n9ent 044ointe3 .o%

0 te%9 o. .o2% /e0%- to %e4%e-ent te%%ito%i01 0n3 econo9ic inte%e-t- 0n3 the inte%e-t-

o. coo4e%0ti?e 0n3 in3i=eno2- 80n7-&

The RBI Act )," 60- co99ence3 on A4%i1 )> ),L& The Act> )," 4%o?i3e- the

-t0t2to%/ 80-i- o. the .2nctionin= o. the 80n7& The 80n7 60- con-tit2te3 .o% the

nee3 o.

.o11o6in=:

To %e=210te the i--2e- o. 80n7note-&

To 90int0in %e-e%?e- 6ith 0

Documents

Ritesh Final Report