A Study of Indian Banking Reforms

Running Head: BANKING REFORMS, ITS IMPACT & AWARENESS
A Study on Banking Reforms, Its impact & awareness:
By
Himanshu Maurya (1412022), Burhanuddin Makda (1412014) & Debashish Mitra (1412015)
(Under the guidance of Dr. Leena James)
Christ University
BANKING REFORMS, ITS IMPACT & AWARENESS
DECLARATION
We, Himanshu Maurya, Debashish Mitra and Burhanuddin Makda, declare that this project is a record
of bonafide research carried out by us under the supervision of Dr. Leena James, Department of
Management Studies, Christ University, and Bangalore.
We further declare that this has not been previously formed on the basis of the award of any degree,
diploma or other similar title of recognition.
Himanshu Maurya
Debashish Mitra
Burhanuddin Makda
Place: ____________________
Date: ____________________
GUIDE CERTIFICATE
This is to certify that this project report on the Banking Industry, submitted to the Christ University in
partial fulfilment of the requirement for the award of the Degree of Bachelor of Business Administration
(Hons.), is a record of the original and team work carried out by Himanshu Maurya, Debashish Mitra
and Burhanuddin Makda under my guidance and supervision.
This has not previously formed the basis of the award of any degree, diploma or other similar
title of recognition
Place:
Date:
Sign Academic Coordinator
Sign Class Coordinator
ACKNOWLEDGEMENT
We would like to express our profound gratitude to all those who have been
instrumental in the preparation of this project report. We wish to place on records, our deep
gratitude to our project guide Dr. Leena James, a highly esteemed and distinguished guide, for
her expert advice and help.
Lastly, we would like to thank our Parents and Friends for their constant help and
support.
Debashish Mitra
Burhanuddin Makda
Himanshu Maurya
TABLE OF CONTENTS
PAGE
Sn. No
TITLE
NO.
Chapter 1
Introduction
06 - 12
Chapter 2
Review of Literature
13 - 39
Chapter 3
Research Design
40 - 42
Chapter 4
Data Collection & Analysis
43 - 48
Chapter 5
Findings and Conclusion
49 - 51
Chapter 6
Bibliography
52 - 53
Appendix
54 - 55
Introduction
The Indian banking sector is an important constituent of the Indian financial system. The
banking sector plays a vital role through promoting business in urban as well as in rural areas
in recent years. Indian banking industry, the backbone of the countrys economy, has always
played a key role in prevention the economic catastrophe from reaching terrible volume in the
country. It has achieved enormous appreciation for its strength, particularly in the wake of the
worldwide economic disasters, which pressed its worldwide counterparts to the edge of fall
down. If we compare the business of top three banks in total assets and in terms of return on
assets, the Indian banking system is among the healthier performers in the world. Without a
sound and effective banking system, India cannot be considered as healthy economy.
Commercial banking has been one of the oldest businesses in India and the earliest reference
of commercial banking in India can be traced in the writings of Manu. Modern banking in India
can be dated as far back as in 1786 with the establishment of General Bank of India. In the
early nineteenth century, three Presidency Banks were established in Bengal, Bombay and
Madras and in 1921; they were merged in to newly form Imperial Bank of India. The Imperial
Bank of India was converted in to State Bank of India under the State Bank of India Act, 1955.
The Swadeshi movement witnessed the birth of several indigenous banks such as Punjab
National Bank, Bank of Baroda and Canara Bank (Chakraborty, 2006).
In spite of all these developments, independent India inherited a rather weak banking and
financial system marked by a multitude of small and unstable private banks whose failures
frequently robbed their middle-class depositors of their lifes savings. After independence, the
Reserve Bank of India was nationalized in 1949 and given wide powers in the area of bank
supervision through the Banking Companies Act (later renamed Banking Regulations Act).
The nationalization of the Imperial bank through the formation of the State Bank of India and
the subsequent acquisition of the state owned banks in eight princely states by the State Bank
of India in 1959 made the government the dominant player in the banking industry. In order to
increase its control over the banking sector, the govt. of India had nationalized 14 major private
sector banks with deposits exceeding Rs.500 million in 1969. This had raised the number of
scheduled bank branches under govt. control from 31 % to about 84%.
In 1980, six more private banks each with deposits exceeding Rs 200 crores were privatized
further raising the proportion of government controlled bank branches to about 90%. At
present, there are 19 nationalized banks in India. However, the poor performance of the public
sector banks was increasingly becoming an area of concern. The continuous rise of nonperforming assets (NPAs) of banks posed a significant threat to the stability of the financial
system. Hence, banking reforms were made an integral part of the liberalization process.
The general banking scenario in India has become very dynamic now-a-days. Before preliberalization era, the picture of Indian Banking was completely different as the Government
of India initiated measures to play an active role in the economic life of the nation, and the
Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy.
This resulted into greater involvement of the state in different segments of the economy
including banking and finance.
The Reserve Bank of India was nationalized on January 1, 1949 under the terms of the Reserve
Bank of India (Transfer to Public Ownership) Act, 1948. In 1949, the Banking Regulation Act
was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and
inspect the banks in India." The Banking Regulation Act also provided that no new bank or
branch of an existing bank could be opened without a license from the RBI, and no two banks
could have common directors. The Indian banking industry is measured as a flourishing and
the secure in the banking world. The countrys economy growth rate by over 9 percent since
last several years and that has made it regarded as the next economic power in the world. Our
banking industry is a mixture of public, private and foreign ownerships. The major dominance
of commercial banks can be easily found in Indian banking, although the co-operative and
regional rural banks have little business segment.
The entry of private sector banks in India, the last three decades witnessed many functional
development and spreads banking habits among different inhabitants. The social and economic
development largely relies on the well-established banking industry in a nation. The operational
efficiency and financial performance of banks always puts an impact on the comfort of the
economy. Bank connects both inland and abroad economy; it may affect the domestic economy
in a positive or negative way as per the reform policies of Government. Reforms in banking
sector are viewed as intervention of Government in the banking industry to provide a solution
for prevailing anomalies in the practice of banking business. There are extensive reasons like
capital adequacy, structural, administration rules and ownership issues are inducing the
regulator to reform their banking sector. Predominantly, banking reforms are resulted towards
financial development in all corollaries and will pave the way for boosting economic
performance. A banking institution is indispensable in the modern society. It plays a pivotal
role in the economic development of a country and forms the core of the money market for the
country. The banking sector performs three primary functions in an economy; first, the
operation of the payment system, second, the mobilization of savings and finally, the allocation
of savings to investment projects. The banking system which constitutes the core of the
financial sector plays a critical role in transmitting monetary policy impulses to the entire
economic system. An efficient banking structure can promote greater amount of investment
which can further help to achieve a faster growth rate of economy. Worldwide experience
confirms that countries with well-developed and market oriented free banking system grow
faster and more consistently.
HISTORY
The history of banking in India begins from the Vedas (2000-1400 BCE). Vedas are earliest
Indian texts to mention the concept of usury. The word kusidin is translated as usurer.
The Sutras (700-100 BCE) and the Jatakas (600-400 BCE) also mention usury. Also, during
this period, texts began to condemn usery. The use of loan deeds continued into the Mughal
era and were called dastawez. Two types of loans deeds have been recorded. The dastawez-eindultalab was payable on demand and dastawez-e-miadi was payable after a stipulated time.
The use of payment orders by royal treasuries, called barattes, have been also recorded. There
are also records of Indian bankers using issuing bills of exchange on foreign countries. The
evolution of hundis, a type of credit instrument, also occurred during this period and they
continue to be in use today. During the period of British rule merchants established the Union
Bank of Calcutta in 1869, first as a private joint stock association, then partnership. Its
proprietors were the owners of the earlier Commercial Bank and the Calcutta Bank, who by
mutual consent created Union Bank to replace these two banks. In 1840 it established an agency
at Singapore, and closed the one at Mirzapur that it had opened in the previous year. Also in
1840 the Bank revealed that it had been the subject of a fraud by the bank's accountant. Union
Bank was incorporated in 1845 but failed in 1848, having been insolvent for some time and
having used new money from depositors to pay its dividends. The Allahabad Bank, established
in 1865 and still functioning today, is the oldest Joint Stock bank in India, it was not the first
though. That honour belongs to the Bank of Upper India, which was established in 1863, and
which survived until 1913, when it failed, with some of its assets and liabilities being
transferred to the Alliance Bank of Shimla. Foreign banks too started to appear, particularly
in Calcutta, in the 1860s. The Comptoir d'Escompte de Paris opened a branch in Calcutta in
1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French
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possession, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and so became a banking
centre.During the First World War (19141918) through the end of the Second World
War (19391945), and two years thereafter until the independence of India were challenging
for Indian banking. The years of the First World War were turbulent, and it took its toll with
banks simply collapsing despite the Indian economy gaining indirect boost due to war-related
economic activities.
The Government of India initiated measures to play an active role in the economic life of the
nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged
a mixed economy. This resulted into greater involvement of the state in different segments of
the economy including banking and finance. The Reserve Bank of India, India's central banking
authority, was established in April 1935, but was nationalised on 1 January 1949 under the
terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b). In
1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) "to regulate, control, and inspect the banks in India". Despite the provisions, control
and regulations of the Reserve Bank of India, banks in India except the State Bank of
India (SBI), continued to be owned and operated by private persons. By the 1960s, the Indian
banking industry had become an important tool to facilitate the development of the Indian
economy. At the same time, it had emerged as a large employer, and a debate had ensued about
the nationalization of the banking industry. After this, until the 1990s, the nationalised banks
grew at a pace of around 4%, closer to the average growth rate of the Indian economy.In the
early 1990s, the then government embarked on a policy of liberalization, licensing a small
number of private banks. These came to be known as New Generation tech-savvy banks, and
included Global Trust Bank (the first of such new generation banks to be set up), which later
amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI
11
Bank and HDFC Bank. This move, along with the rapid growth in the economy of India,
revitalised the banking sector in India, which has seen rapid growth with strong contribution
from all the three sectors of banks, namely, government banks, private banks and foreign banks.
The new policy shook the Banking sector in India completely. In recent years critics have
charged that the non-government owned banks are too aggressive in their loan recovery efforts
in connexion with housing, vehicle and personal loans. There are press reports that the banks'
loan recovery efforts have driven defaulting borrowers to suicide. By 2013 the Indian Banking
Industry employed 1,175,149 employees and had a total of 109,811 branches in India and 171
branches abroad and manages an aggregate deposit of 67504.54 billion (US$1.1 trillion or
840 billion) and bank credit of 52604.59 billion (US$830 billion or 650 billion). The net
profit of the banks operating in India was 1027.51 billion (US$16 billion or 13 billion)
against a turnover of
9148.59 billion (US$140 billion) for the financial year 2012-13. On 28
Aug 2014, Pradhan Mantri Jan Dhan Yojana (Prime Minister's People Money Scheme) is a
scheme for comprehensive financial inclusion launched by the Prime Minister of
India, Narendra Modi. Run by Department of Financial Services, Ministry of Finance, on the
inauguration day, 1.5 Crore (15 million) bank accounts were opened under this scheme. By 10
January 2015, 11.5 crore accounts were opened, with around 8698 crore (US$1.4 billion) were
deposited under the scheme, which also has an option for opening new bank accounts with zero
balance.
Growth of the Sector
The Indian managing a Banking industry is a key main thrust of the Indian economy and the
most overwhelming portion of the budgetary segment. Thinking once again in the course of
recent years, there have been huge changes in the keeping money division, which have totally
changed the way of intermediation, the scope of items and administrations accessible and the
12
force of rivalry. This has been in sync with the general improvement of the economy. India
has developed fundamentally from a 5.15 trillion economy in 1991 to 73.1 trillion in FY11 (a
CAGR of 14.2%). Total stores of SCBs have developed at a CAGR of 17.9% amid 1991-2011
to ` 52.1 trillion in FY11. Bank giving is a critical driver of the economy and has developed at
a CAGR of 19.3% amid 1991- 2011 to ` 39.4 trillion. Stores/GDP rose from 37.4% in 1991 to
71.3% in 2011. Correspondingly, bank credit/GDP has developed from 22.6% in 1991 to
53.9% in FY11. Bank credit to business division expanded from 30.3% of GDP in 1990 to
57.6% in 2011. Bank business locales in India have developed at a CAGR of 2% amid 19912010 to 87,768 bank work places in 2010 from 60,220 business locales in 1991. (RBI
Database, 2015)
To develop the geographic scope of banks and enhance access to managing an account
administrations, RBI is considering offering licenses to some private players and NBFCs to
open banks which will build rivalry in the division; diminish costs and enhance nature of
administration. All the more essentially, it will advance money related incorporation.
Subsequently, banks are the foundation of the Indian economy and the managing an account
area is firm footed on the development direction.
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Review of Literature
According to Akrani (2010), Indian banking sector has undergone major changes and reforms
during economic reforms. Though it was a part of overall economic reforms, it has changed
the very functioning of Indian banks. This reform have not only influenced the productivity
and efficiency of many of the Indian Banks, but has left everlasting footprints on the working
of the banking sector in India. Indian banks especially the public sector banks have proved that
they are no longer inefficient compared with their foreign counterparts as far as productivity is
concerned.
Bhattacharya P. C and Sivasubramanian M.N. (2010) had told in their paper about some of
the consequences of the banking sector reforms in India which were an integral part of the
liberalisation process of the economy initiated in 1992. In particular, the data show that, in the
post-reform period, investment in government securities by banks has remained persistently
high and there has been a significant reduction in the flow of credit (as a proportion of deposits)
to the real sectors of the economy. There have also been significant changes in the flow of
credit to various groups and sectors within the economy, some of which might be thought not
to be in conformity with the stated social goals of the government.
Reddy Y. V. (2005) states that in the current scenario the banks are constantly pushing the
frontiers of risk management. Compulsions arising out of increasing competition, as well as
agency problems between management, owners and other stakeholders are inducing banks to
look at newer avenues to augment revenues, while trimming costs. Consolidation, competition
14
and risk management are no doubt critical to the future of banking but I believe that governance
and financial inclusion would also emerge as the key issues for a country like India, at this
stage of socio-economic development.
Akrani G (2012) states that the role of banks in India has changed a lot since economic reforms
of 1991. These changes came due to LPG, i.e. liberalization, privatization and globalization
policy being followed by GOI. Since then most traditional and outdated concepts, practices,
procedures and methods of banking have changed significantly. Today, banks in India have
become more customer-focused and service-oriented than they were before 1991. They now
also give a lot of importance to their rural customers. They are even willing ready to help them
and serve regularly the banking needs of country-side India.
Mohan R. (2005) wrote in his paper about the patterns of efficiency and technological change
witnessed in Indian banking can be viewed as consistent with expectations in an industry
undergoing rapid change in response to the forces of deregulation. In reaction to evolving
market prospects, a few pioneering banks might adjust quickly to seize the emerging
opportunities, while others respond cautiously. As deregulation gathers momentum,
commercial banks would need to devise imaginative ways of augmenting their incomes and
more importantly their fee-incomes so as to raise efficiency and productivity levels.
Bhattacharyya A., Lovellb A.K. and Sahayc P. (2011) examined the productive efficiency
of 70 Indian commercial banks during the early stages (19861991) of the ongoing period of
liberalization. They had used data envelopment analysis to calculate radial technical efficiency
scores. They had used stochastic frontier analysis to attribute variation in the calculated
15
efficiency scores to three sources: a temporal component, an ownership component, and a

random noise component. They find publicly-owned Indian banks to have been the most
efficient, followed by foreign-owned banks and privately-owned Indian banks. They also find
a temporal improvement in the performance of foreign-owned banks, virtually no trend in the
performance of privately-owned Indian banks, and a temporal decline in the performance of
publicly-owned Indian banks. They attempt to explain these patterns in terms of the
government's evolving regulatory.
Kamath G.B (2007) wrote the paper that seeks to estimate and analyse the Value Added
Intellectual Coefficient (VAIC) for measuring the valuebased performance of the Indian
banking sector for a period of five years from 2000 to 2004. All 98 scheduled commercial
banks are studied as per the information provided by the Reserve Bank of India (RBI)/India's
Apex bank. Regional rural banks (RRBs), a segment of the Indian banking sector, are not dealt
with in the study since their number is large (more than 200), but they contribute only 3 percent
of the market of Indian banks. This paper is a landmark in Indian banking history as it
approaches performance measurement with a new dimension. The paper has strong theoretical
foundations, which have a proven record and applications. The methodology adopted has been
research tested. Domestic banks in India are provided with a new dimension to understand and
evaluate their performance and benchmark it with global standards. The paper also has policy
implications, as it reflects the lopsided growth of a few sections in the Indian banking segment.
Mohan. R. (2005) states the tracks the story of Indian financial sector reforms in terms of a
number of segments such as banking, debt markets, forex markets, and others like non-banking
financial companies. This apart, as an offshoot of the financial sector reform, changes in the
16
monetary policy are discussed. In this light, the paper looks at various performance indicators
of different segments of the Indian financial sector. In general, it is found that there has been
an improvement in efficiency, competitiveness and health of all the segments of the Indian
financial sector. The paper raises some issues for the future of this sector.
Sathye M. (2005) measured the productive efficiency of banks in a developing country, that
is, India. The measurement of efficiency is done using data envelopment analysis. Two models
have been constructed to show how efficiency scores vary with change in inputs and outputs.
The efficiency scores, for three groups of banks, that is, publicly owned, privately owned and
foreign owned, are measured. The study shows that the mean efficiency score of Indian banks
compares well with the world mean efficiency score and the efficiency of private sector
commercial banks as a group is, paradoxically lower than that of public sector banks and
foreign banks in India. The study recommends that the existing policy of reducing nonperforming assets and rationalization of staff and branches may be continued to obtain
efficiency gains and make the Indian banks internationally competitive which is a declared
objective of the Government of India.
Dasa A. & Ghosha S. (2007) investigated the performance of Indian commercial banking
sector during the post reform period 19922002. Several efficiency estimates of individual
banks are evaluated using nonparametric Data Envelopment Analysis (DEA). Three different
approaches viz., intermediation approach, value-added approach and operating approach have
been employed to differentiate how efficiency scores vary with changes in inputs and outputs.
The analysis links the variation in calculated efficiencies to a set of variables, i.e., bank size,
ownership, capital adequacy ratio, non-performing loans and management quality. The
17
findings suggest that medium-sized public sector banks performed reasonably well and are
more likely to operate at higher levels of technical efficiency. A close relationship is observed
between efficiency and soundness as determined by bank's capital adequacy ratio. The
empirical results also show that technically more efficient banks are those that have, on an
average, less non-performing loans. A multivariate analysis based on the Tobit model
reinforces these findings.
Shanmugama K.R. & Dasb A. (2007) contributed to the banking efficiency literature by
measuring technical efficiency of banks in four different ownership groups in India during
the reform period, 19921999. It employs the stochastic frontier function methodology for
panel data. The results indicate that the efficiency of raising interest margin is time invariant
while the efficiencies of raising other outputs-non-interest income, investments and credits
are time varying. The state bank group and foreign banks are more efficient than their
counterparts. The reform period witnessed a relatively high efficiency for augmenting
investments, which is consistent with economic growth objective of the reform measures.
However, there are still larger gaps between the actual and potential performances of banks.
Meenakshi Rajeev M. & Mahesh H.P. (2014) published their work regarding the issue of
non-performing assets (NPA), the root cause of the recent global financial crisis, has been
drawing the attention of the policy makers and academicians alike. The problem of NPAs,
which was ignored till recently, has been given considerable attention after liberalisation of the
financial sector in India. This exploratory paper examines the trends of NPAs in India from
various dimensions and explains how mere recognition of the problem and self-monitoring has
been able to reduce it to a great extent. It also shows that public sector banks in India, which
18
function to some extent with welfare motives, have as good a record in reducing NPAs as their
counterparts in the private sector. The paper also discusses the role of joint liability groups
(JLGs) or self-help groups (SHGs) in enhancing the loan recovery rate.
The NPA is the root cause of the global financial crisis that we observed recently. The world
is still trying to recover from the after-effects of the crisis. The problem of NPA has received
considerable attention after the liberalisation of the financial sector in India. Accounting norms
have been modified substantially and mechanisms are in place for reduction of bad loans. Our
discussions with banks, however, show that such decline is mainly due to the awareness of the
problem of bad loans at the bank level. It remains true that NPA jn the priority sector is still
higher than that of the non-priority sector. Within the priority sector, the SSIs performance is
the worst. However, even this sector has shown reduction in bad loans over time. In the process
of reducing NPAs, will banks shun the poor borrowers? In this context, the self-help group
model can be applied to some of the sectors to help the poor access loans and ensure repayment
for the banks. (Rajeev & Mahesh )
Amit Kumar Dwivedi & D. Kumara Charyulu (2011) wrote that one of the major objectives
of Indian banking sector reforms was to encourage operational self-sufficiency, flexibility and
competition in the system and to increase the banking standards in India to the international
best practices. The second phase of reforms began in 1997 with aim to reorganization measures,
human capital development, technological up-gradation, structural development which helped
them for achieving universal benchmarks in terms of prudential norms and pre-eminent
practices. This paper seeks to determine the impact of various market and regulatory initiatives
on efficiency improvements of Indian banks. Efficiency of firm is measured in terms of its
relative performance that is, efficiency of a firm relative to the efficiencies of firms in a sample.
Data Envelopment Analysis (DEA) has used to identify banks that are on the output frontier
19
given the various inputs at their disposal. The present study is confined only to the ConstantReturn-to-Scale (CRS) assumption of decision making units (DMUs). Variable returns to scale
(VRS) assumption for estimating the efficiency was not attempted. It was found from the
results that national banks, new private banks and foreign banks have showed high efficiency
over a period time than remaining banks.
Mohd. Salahuddin (2009) wrote about the Islamic banking system and its impact over
worldwide put a question mark for its viability and sustainability in the financial world. This
paper primarily focuses on the substantial role of Islamic banking system all around the world,
since the performance of interest free banking system attracted towards it theory and practices
at global level. Hence, ethical or participatory banking system becomes the burning topics for
the deep research, so that every people of the globe benefited from it. Some controversial issues
and challenges are needed to be addressed so that its popularity may continue to remain. In this
paper we are looking ethical banking as a strong alternate for financial inclusion in India.
According to Kumar N. (2004) the Corporate Governance (CG) can be viewed from two
angles. One being transparency in the corporate functioning, thus protecting the investors
interest (reference to agency problem), and the other being concerned with having a sound risk
management system in place (special reference to banks). Though various accepted definitions
of CG finds reference, the standard definition stemming from agency theory defines it as to
how equity and debt holders can influence managers (agency) of a firm to act in the best interest
of those who provided capital.
The efficiency with which the manager of a firm will allocate resources depends to the extent
to which the shareholders and creditors motivate (on rather pressurizes) them. The crux of
20
agency problem lies at the heart of this concept. The core of agency problem lies in the
separation of ownership and control.
A promoter of a firm raises funds from investors that can either be put into productive use or
to cash out his holding, in the firm. In order to generate respectable return, the promoters
(financiers) need the mangers specialized human capital that can generate returns. On the other
hand, the manager requires the financiers funds that can be put to more effective uses. But this
does not give surety of the fact, that once he puts his funds he gets back only worth the expected
returns.
Dr. Paul U. (2012) stats that the Micro-credit or micro finance is the extension of very small
loans (micro loans) to the unemployed persons, to poor entrepreneurs, to households, to farmers
and to others living in poverty who are often left out of the formal banking system, because of
several reasons: their inability to provide collateral, the high risks in lending to them, the rigid
formalities that are a part of the formal lending system and the high costs. As a result, the poor
often have to resort to informal moneylenders, who charge high rate of interest and often exploit
the situation. Micro finance is a novel approach to banking with the poor and this system
attempts to combine lower transaction costs and high degree of repayments.
The most important cause of rural indebtedness is poverty. The farmers income is low and he
has no past savings. Whenever there is any crop failure, illness, accident, sudden fall in
agriculture price, etc. the Indian farmer borrows year after year but he is not in a position to
repay all the debts. As a result, the debt of the farmer goes to increasing. Rural micro credit is
essentially helpful for farmers and promoting self-employment in the informal sector of the
economy. Creating self-employment opportunities is one way of attacking poverty and solving
the problems of unemployment.
21
There are over 24 crore people below the poverty line in our country. The Scheme of Microfinance has been found as an effective instrument for lifting the poor above the level of poverty
by providing them increased self-employment opportunities and making them credit worthy.
Nikhat F. (2012) wrote about the strong banking infrastructure which plays a major role in
supporting economic activity and meeting the financial needs of all the sections of society and
thus contributed in the overall growth of the country. For the smooth flow of credit in an
economy, it is essential that banks should be financially sound so as to meet the various
requirements of other fields. Capital adequacy ratio (CAR) is one of the measures which ensure
the financial soundness of banks in absorbing a reasonable amount of loss. Capital adequacy
requirements have existed for a long time, but the two most important are those specified by
the Basel committee of the Bank for International Settlements. This study highlights the various
components of regulatory capital and outlines the basics of Basels norms in respect to
minimum capital requirements for banks. Moreover, the study analysed the trend in CAR
values for top 10 scheduled commercial banks in India. The study found out that ICICI bank
maintained the highest CAR while Bank of India accounted the least position.
Dr Vasudevan S. (2010) stats Connectivity to banking services is major factor impacting

sustainable and inclusive growth. Banking sector needs to function with a social conscious
apart from business point of view if the economy has to come out of poverty and inequalities.
Lot of initiatives has been taken on international level as well as on national front since
independence, in India. Reserve Bank of India in collaboration with specialized financial
22
institutions like NABARD has designed and implemented specialized efforts to enhance
financial deepening and widening. The numerical targets set have been achieved to a large
extent by banking sector in this regards. But the effectiveness of the task done and sufficiency
of the efforts taken still needs to be deliberated.
Dr. Komal (2010) stated that the competition and the constant changes in technology and
lifestyles have changed the face of banking. Nowadays, banks are seeking alternative ways to
provide and differentiate amongst their varied services. Customers, both corporate as well as
retail, are no longer willing to queue in banks, or wait on the phone, for the most basic of
services. They demand and expect to be able to transact their financial dealings where and
when they wish to. With the number of computers increasing every year, the electronic delivery
of banking services is becoming the ideal way for the banks to meet their clients expectations.
E-banking refers to the effective deployment of IT by the banks. It is about using the
infrastructure of the digital age to create opportunities - both local and global. It enables the
dramatic lowering of transaction costs and the creation of new types of banking opportunities
that address the barriers of time and distance. Banking opportunities are local, global and
immediate in e-banking.
The current web based variant of banking is the latest of several generations of systems: ATM
was the first well known machines to provide electronic access to customers of retail banks.
With advent of ATM, banks are able to serve customers outside the banking hall. Next came
phone banking where users call their banks computer system on their ordinary phone and use
the phone keypad to perform banking transactions. PC banking superseded phone banking and
allowed users to interact with their bank by means of a computer with a dialup modem
connection to the phone network. PSBs, which are the foundation of the Indian banking system,
23
account for more than 78 per cent of the assets of total banking industry. Unfortunately, they
are burdened with excessive NPAs, massive manpower and lack of modern technology. On the
other hand, the PSIBs and PSFBs in India are witnessing immense progress. They are leaders
in Internet banking, mobile banking, phone banking, ATMs. Given this background, it is
interesting to analyse the e-banking scenario in India. In a quest to seek an answer, the present
study is undertaken with specific research objectives as envisaged in the following section.
Dr. Datta S. K. (2013) states Internet banking is a form of self-service technology. The
numbers of Internet users have increased dramatically, but most of them are reluctant to provide
sensitive personal information to websites because they do not trust e-commerce security. This
paper investigates the factors which are affecting the acceptance of e-banking services among
adult customers and also indicates level of concern regarding security and privacy issues in
Indian context. Primary data was collected from 200 respondents, above the age of 35, through
a structured questionnaire. Statistical analysis, descriptive statistics was used to explain
demographic profile of respondents and also Factor and Regression analyses were used to know
trend of internet use and factors affecting e-banking services among adult customer in India.
The finding depicts many factors like security & privacy, trust, innovativeness, familiarity,
awareness level increase the acceptance of e-banking services among Indian customers. The
finding shows that in spite of their security and privacy concern, adult customers are willing to
adopt online banking if banks provide him necessary guidance. Based on the results of current
study, Bank managers would segment the market on the basis of age group and take their
opinion and will provide them necessary guidance regarding use of online banking.
24
CA. Firoz M. (2012) analysed the impact of IFRS on the Indian banking industry after the
implementation on and after 01st April. 2011. The research is based upon the critical analysis
of financial statements of the Indian banking industry, such as business per employee, Capital
and reserve, Investments and advances, Net NPA Ratios, and the impact thereon of relevant
provisions of IFRS. The limitation of the research paper is that it covers only the Indian banking
industry and excludes all other industries in India. This paper shows the areas in which Indian
banking industry is required to focus before and after the implementation of IFRS and their
consequences on the financial statements of the Bank.
Rathore S. (2007) stated that the Banking sector has a pivotal role in the development of an
economy. It is the key driver of economic growth of the country and has a dynamic role to play
in converting the idle capital resources for their optimum utilisation so as to attain maximum
productivity. In fact, the foundation of a sound economy depends on how sound the Banking
sector is and vice versa. In India, the banking sector is considerably strong at present but at the
same time, banking is considered to be a very risky business. Financial institutions must take
risk, but they must do so consciously. However, it should be borne in mind that banks are very
fragile institutions which are built on customers trust, brand reputation and above all
dangerous leverage. In case something goes wrong, banks can collapse and failure of one bank
is sufficient to send shock waves right through the economy. Therefore, bank management
must take utmost care in identifying the type as well as the degree of its risk exposure and
tackle those effectively. Moreover, bankers must see risk management as an ongoing and
valued activity with the board setting the example. As risk is directly proportionate to return,
the more risk a bank takes, it can expect to make more money. However, greater risk also
increases the danger that the bank may incur huge losses and be forced out of business. In fact,
today, a bank must run its operations with two goals in mind to generate profit and to stay in
25
business. Banks, therefore, try to ensure that their risk taking is informed and prudent. Thus,
maintaining a trade-off between risk and return is the business of risk management. Moreover,
risk management in the banking sector is a key issue linked to financial system stability.
Unsound risk management practices governing bank lending often plays a central role in 80
financial turmoil, most notably seen during the Asian financial crisis of 1997- 981 .
Tater B., Tanwar M. & Krishna M. S. (2000) explores the perception of Indian customers
towards the use of technologies with respect to such factors as convenience, privacy, security,
ease of use, real time accessibility and accurate record of varied transaction that enable
customers adoption of Banking Technology. Other factors such as slow transfer speed,
technical failure, frauds and unawareness among customers that make hindrance in adoption,
are also tested. The results show that demographic variables such as gender, age, qualification
and income play a positive role in adoption of banking technology. All the banks are using
information technology as a strategic vehicle to stay competitive against other players. There
is no significant difference between adoption rates of banking technologies by the customers
of different private banks. The paper also shows that banking technology helps in increasing
customer satisfaction, customer loyalty, improvised growth, and performance of the banks.
Leeladhar V. (2010) has witnessed wide ranging changes under the influence of the financial
sector reforms initiated during the early 1990s. The approach to such reforms in India has been
one of gradual and non-disruptive progress through a consultative process. The emphasis has
been on deregulation and opening up the banking sector to market forces. The Reserve Bank
has been consistently working towards the establishment of an enabling regulatory framework
with prompt and effective supervision as well as the development of technological and
26
institutional infrastructure. Persistent efforts have been made towards adoption of international
benchmarks as appropriate to Indian conditions. While certain changes in the legal
infrastructure are yet to be effected, the developments so far have brought the Indian financial
system closer to global standards.
Sinha A. (2011) anticipated the impact that the global financial crisis would have on the Indian
economy. This is because the Indian banking system did not have any direct exposure to
subprime mortgage assets or any significant exposure to the failed institutions, and the recent
growth had been driven predominantly by domestic consumption and investment. And yet, the
extent to which the global crisis impacted India was dismaying, spreading through all channels
the financial channel, the real channel and the confidence channel. The reason why India was
hit by the crisis was because of its rapid and growing integration into the global economy.
Under the impact of external demand shock, there was a moderation in growth in the second
half of 200809 compared to the robust growth of 8.8% per annum in the preceding five years.
The deceleration was more noticeable in the negative growth in industrial output in Q4 2008
09 the first decline since the 1990s. The transmission of external demand shock was severe
on export growth, which deteriorated from a peak rate of about 40% in Q2 200809 to () 22
per cent in Q4, i.e. the first contraction since 200102. Simultaneously, domestic aggregate
demand also moderated due to a sharp deceleration in the growth of private consumption
demand. With regard to financial markets, India witnessed a reversal of capital inflows
following the collapse of Lehman Brothers. Due to a heavy sell-off by foreign institutional
investors (FIIs) there was a significant downward movement in the domestic stock markets.
The withdrawal by FIIs and the reduced access of Indian entities to external funds exerted
significant pressure on dollar liquidity in the domestic foreign exchange (FX) market. This
created adverse expectations on the balance of payments (BOP) outlook, leading to downward
27
pressure on the Indian rupee and increased FX market volatility. While the banking system was
sound and well capitalised, some segments of the financial system such as mutual funds (MFs)
and non-banking financial companies (NBFCs) came under pressure due to reduced foreign
funding and a subdued capital market. Moreover, the demand for bank credit increased due to
the drying up of external sources. Against this backdrop, the Reserve Bank of India stepped in
with liquidity-supplying measures both in the rupee and in foreign currency and the
government implemented fiscal stimulus measures.
Dr. Shamshad A. (2004) stated that Islamic banking refers to a system of banking or banking
activity that is consistent with the principles of Islamic law (Sharia) and its practical application
through the development of Islamic economics. Islamic banking has the same purpose as
conventional banking except that it operates in accordance with the rules of Shariah, known
as Fiqh al-Muamalat (Islamic rules on transactions). Sharia prohibits the payment or acceptance
of interest fees for the lending and accepting of money respectively, for specific terms, as well
as investing in businesses that provide goods or services considered contrary to its principles.
While these principles were used as the basis for a flourishing economy in earlier times, it is
only in the late 20th century that a number of Islamic banks were formed to apply these
principles to private or semi-private commercial institutions within the Muslim community.
Malhotra P. & Singh B. (2007) describes the state of Internet banking in India and discusses
its implications for the Indian banking industry. Particularly, it seeks to examine the impact of
Internet banking on banks performance and risk. Using information drawn from the survey of
85 scheduled commercial banks websites, during the period of June 2007, the results show
that nearly 57 percent of the Indian commercial banks are providing transactional Internet
banking services. The univariate analysis indicates that Internet banks are larger banks and
28
have better operating efficiency ratios and profitability as compared to non-Internet banks.
Internet banks rely more heavily on core deposits for funding than non-Internet banks do.
However, the multiple regression results reveal that the profitability and offering of Internet
banking does not have any significant association, on the other hand, Internet banking has a
significant and negative association with risk profile of the banks.
V. Devadevan (2014) states that the Technology plays an important role in banking sector.
Banking is one of the largest financial institutions constantly explores the opportunity of
technology enabled services to provide better customer experience and convenience. Mobile
phone is a common technology device that became part of every individual in the information
era. Mobile Banking is an emerging alternate channel for providing banking services. India is
the second largest telecom market in the world, which is having high potential for expanding
banking services using mobile. However, mobile banking has not become the choice of
millions of people. The main objective of this study is to identify the mind-set and analyse the
security issues in Mobile banking among the banking customers in India.
Dr. Goyal K.A. & Joshi V. (2011) published an article which seeded the existing branch of
knowledge in banking industry and is useful for bankers, strategist, policy makers and
researchers. In his paper an attempt has been made to identify the general sentiments,
challenges and opportunities for the Indian Banking Industry. His article is divided in three
parts. First part includes the introduction and general scenario of Indian banking industry. The
second part discusses the various challenges and opportunities faced by Indian banking
industry. Third part concludes that urgent emphasis is required on the Indian banking product
and marketing strategies in order to get sustainable competitive edge over the intense
competition from national and global banks. The use of technology has brought a revolution in
29
the working style of the banks. Nevertheless, the fundamental aspects of banking i.e. trust and
the confidence of the people on the institution remain the same. The majority of the banks are
still successful in keeping with the confidence of the shareholders as well as other stakeholders.
However, with the changing dynamics of banking business brings new kind of risk exposure.
Dr. Koundal J. (2012) attempted to measure the relative performance of Indian banks. For this
study, we have used public sector banks, old private sector banks, new private sector banks and
foreign sector banks. We know that in the service sector, it is difficult to quantify the output
because it is intangible. Hence different proxy indicators are used for measuring productivity
of banking sector. Segmentation of the banking sector in India was done along the following
basis: number of banks, offices, number of employees, business per employees, deposits per
employee, advances per employee, bank assets size, non-performing assets etc. Overall, the
analysis supports the conclusion that foreign owned banks are on average most efficient and
that new banks are more efficient that old ones. The public sector banks are not as profitable
as other sectors are. In terms of size, the smaller banks are globally efficient, but large banks
are locally efficient. It means that efficiency and profitability are interrelated. It is true that
productivity is not the sole factor but it is an important factor which influence to profitability.
The key to increase profitability is increase productivity. For this we have recommended some
suggestions to tackle the challenges faced by the banks particularly public sector banks.
Gupta A. & Arora C. (2013) made an effort to first jot down the major reform measures and
policies regarding the banking industry by the government of India and the RBI. Secondly, the
paper will try to study the major impacts of those reforms upon the banking industry. These
reforms have some positive responds on various economic variables like enhancing the role of
30
market forces, huge decline in the rate of interest, reduction of NPAs, up gradation of
technology etc. It has some negative impacts, which decelerate the growth of the economy. It
has failed to bring up a banking system at par with international standard and still the banking
sector is mainly controlled by the government as public sector being the leader in all spheres
of the banking network in the country. Following the 1991 Balance of Payment crisis, major
macroeconomic disruptions, sharp increase in interest rates, large currency depreciation, output
collapse, decline in the supply of credit, structural reforms were initiated that fundamentally
changed the prevailing economic policy in which the state was supposed to take the
Commanding heights of the economy. Thus in 1991, decades of government strangle hold
on the economy gave way to liberalization and reforms in India.
Malik S. (2014) states in her paper focuses on how the technology has transformed the face of
banking in India. Indias banking system has seen some major financial innovations in the past
decades which lead to tremendous improvements in banking services and operations. The
various innovations in banking and financial sector are ECS, RTGS, EFT, NEFT, ATM, Retail
banking, Debit and Credit cards, free advisory services, online banking, mobile banking and
many more value added products and services. This paper also highlights the benefits and
challenges of changing banking trends. Banks are investing heavily in adoption of these
innovations. The need of hour is to design such a system that encourages the efficiency of
investment in innovations and widens the gap between revenues and costs involved with
reference to technological up gradation. Indian banking system touches the lives of millions of
people and it is growing at a fast pace. Banking industry in India is facing number of challenges
like changing needs and perceptions of customers, new regulations from time to time and great
advances in technologies. The pressure of meeting these challenges have compelled banks to
change the old ways of doing business.
31
Anand M.B. & Dr. Sreenivas D.L. (2013) studied the Branchless banking, its performance,
cost structures and issues and challenges on selected parameters. As new developments
continue to expand the traditional boundaries of banking, the interface between banks and
customers, have also changed drastically from being operations-centric to servicing clients.
The shift during this period has been from branch to Branchless such as ATM, Internet and
mobile. Consumers and businesses are looking to their financial institution for user-friendly
services; users expect instant access to account information and a full range of self-service
banking tasks. Mobility and customer convenience seen as keys to growth, banks are busy
exploring new technologies. Branchless banking is a modern mechanism to facilitate financial
services in developing regions. There is a considerable growth taken place in branchless
banking services in India, despite this, branches are unlikely to die, despite ATMs, laptops and
smart phones becoming primary platforms for daily banking. Branches will continue even after
the new modes spread to rural areas.
DR. Nagaraju R.C. (2014) focuses on Indias banking sector, which has been attracting
increasing attention since 1991 when financial reform programme was launched. This paper
throws light on some of the developments that have taken place in the Indian banking sector
and challenges ahead for the banking sector as a result of process of banking reforms initiated
in 1992. Emerging markets and developing economies face one of the central issues namely
strengthening of financial systems. This is due to the reason that sound financial systems serve
as an important channel for the achievement of economic growth through the mobilization of
financial savings, putting them to productive use and transferring various risks. Many countries
adopted a series of financial sector liberalization measures in the late 1980s and early 1990s
that included interest rate liberalization, entry deregulations, reduction of reserve requirements
and removal of credit allocation. In many cases, the timing of financial sector liberalization
32
coincided with that of capital account liberalization. Domestic banks were given access to
cheap loans from abroad and allocated those resources to domestic production sectors. Since
the Asian financial crisis of 1997-1999, the importance of balancing financial liberalization
with adequate regulation and supervision prior to full capital account liberalization has been
increasingly recognized. The crisis was preceded by massive, unhedged short term capital
inflows, which then aggravated double mismatches and undermined the soundness of the
domestic financial sector.
Dr. Arumugam A. & Dr. Selvalakshmi G. (2014) states that the banking reform measures
have also effected in an enhancement in the profitability of banks. The banking sector reforms
also accentuated the need to review the manpower resources and rationalize the requirements
by drawing a pragmatic plan so as to lessen the operative cost and recover the profitability.
Banking reforms stimulates credit disbursement in a positive way to priority sectors; the entire
bank groups are equally provides credit to the weaker sections. It has been observed that the
banking sector reforms in India has presented positively in the field of enhancing the economic
performance, bank performance in different parameters, capital to risk-weighted assets ratio,
efficiency of business, and priority sector lending and so on. But at the same time the reform
failed to establish banking business which is at par with the international banking system. The
major banking sector reforms in India have started about two decades earlier, but their outcome
is visible now.
With the adoption of liberalization, privatization and globalization measures helped to attain
major changes in Indian banking sector. The banking sector being the life line of the economy
and assumed with utmost importance in the financial sector reforms. The reforms were aimed
33
at to make the banking sector more competitive, versatile, efficient, productive to follow
international started and to free from the directions and control of Government.
Dr. Sethuraman J. (2010)The following are some of the interesting things that are mentioned
in this paper about the PSBs - Most of the PSBs do not have a focused model for retail banking
either in the structure or business objectives. Generation of a retail banking business (either a
retail asset or other retail product / service) from the existing customer base is not fully
attempted. In almost all the PSBs, there is no centralized customer data base for customer life
cycle focused retail initiatives. Core Banking Solutions implementation is not fully achieved
to target the different segments of customers. Process models are not fully centralised for a
professional and standardised approach. Cross selling is attempted on a standalone basis at the
branch level due to lack of centralised data base. Remote Channels are only evolving and has
not matured for migration of customers from the direct channels to remote channels. Customer
segmentation has not happened on the desired lines for effective retail banking. New business
lines like wealth management and private banking has not been initiated so far.
Dr. Parimal H. V. & Ms. Zaveri V. (2012) states the major banking sector reforms comprises
of modifying the policy framework; improving the financial soundness and credibility of
banks; creating a competitive environment, and strengthening of the institutional framework.
The banking sector reform measures to enhance efficiency and productivity through
competition were initiated and sequenced to create an enabling environment for banks to
overcome the external constraints which were related to administered structure of interest rates,
high levels of pre-emption in the form of reserve requirements, and credit allocation to certain
sectors. Banking in India is generally fairly mature in terms of supply, product range, and reach-
34
even though reach in rural India still remains a challenge for the private sector and foreign
banks in the year 2007. The broad objective of the financial sector reform has thus been to
create a viable and efficient banking system. Improvements in the growth rate can be effected
through three, not necessarily mutually exclusive channels: improving productivity of capital,
through investments in human capital and raising total factor productivity.
Prasad A. and Saibal G.(2005) evaluates the validity of the claim that competition in the
Indian banking sector has increased since the inception of the financial sector reforms in 1992
in the Indian context. The empirical evidence reveals that the Indian banking system operates
under competitive conditions and earns revenues as if under monopolistic competition. The
entry of new banks in the private sector reduced asset concentration, which may have
strengthened competition. The general notion is that competition enhances efficiency. This may
not always be true. It is also argued that increased competition may lead to excessive risktaking. Others have argued that concentration/consolidation is needed to gain economies of
scale and scope so that increased concentration leads to efficiency improvements. More
important, this suggests that the competitive nature of the Indian banking system is not
significantly different from the banking system in other countries, particularly in view of the
fact that nearly 75 percent of banking system assets is with state-owned banks. The validation
of monopolistic competition during the second sub-period suggests that the recent trends
toward consolidation led to more rather than less competition in the banking sector.
35
Dr. Ratti M. (2012) focuses on the Financial System and Banking Sector of India. It divides
into two sections; first describes the general overview of financial system which includes the
constituents of the Financial System. It also describes the concept of bank, Historical
Background, Functions and types of banks. Section B explains the phases of Indian Financial
System & the Present Organizational Structure. It also focuses on the evolution of Indian
Commercial Banking. The Paper explains the Historical Background of the Financial and
Indian Banking sector. Thus, the post 1991 phase of Indian banking is characterized by the
beginning of sound banking in contrast to the social/mass banking in contrast to the
social/mass banking of the nationalization phase. The future financial viability of the banking
sector depends upon the capital support from the Government and enhancing the ability of
banks to access the capital market to meet their capital requirements.
Das S.K. (2010) states in his paper the performance of the Indian banking sector after the
initiation of financial liberalization and also aims to measure the cost efficiency of the Indian
banking sector during the post reform period. The study finds, after deregulation, the
concentration has declined which resulted in increasing competition. The share of private and
foreign banks in banking asset, deposit and credit has gone up. The profitability of all bank
groups has gone up, but the foreign banks are more profitable. Using Stochastic Frontier
Approach (cost frontier) and RBI data for 60 Indian commercial banks and on the basis of
empirical investigation (panel estimation), the paper concludes that after financial
liberalization there has been no significant change in the cost efficiency of the public sector
banks. The finding shows a marginal decline in the cost efficiency of the public sector banks
in the post reform period.
36
A comparison among various bank groups in the post reform period shows, the domestic
private banks are becoming more efficient in comparison to the public sector and the foreign
banks. However, the study finds the public sector banks to be more cost efficient than the
private and the foreign banks.
Tiwar U. (2013) describe the changes in banking sector, and data has been collected through
various secondary sources. The paper explains the objective with the help of case study of
Union Bank of India. The paper concluded that banking sector has been changes rapidly. Now
technology has made tremendous impact in banking, in 21st century dreams becomes reality.
Now you can get banking services anytime and anywhere, wherever and whenever you want,
priority banking is a symphony of banking benefits, unique investment products, personalised
services and exclusive life style, benefits that brings complete harmony to all your financial
needs. As we know that in this 21st century every sector have a great challenges i.e. customer
satisfaction , and being a part of the society banks also facing this challenges, and banks are
accepting challenges very nicely for the betterment of service banks are providing innovative
services to the customer so that they can get proper benefit in this sector . Banks have
influenced the economics and politics for centuries. The objective of this paper is to analyse
the services provided by banks, and to observe that how innovative, and new services they are
giving to the society, and to know that how much these facilities or services are beneficial for
the society and as well as banks.
Hanson J. A. (2001) states about the government liberalizing interest rates and directed credit
to increased competition. Regulation and supervision were also strengthened substantially.
These polices yielded some substantial benefits. However, the gains were limited by three
factors. First, government debt arising from high fiscal deficits continues to crowd-out credit
37
to the private sector, albeit through markets rather than forced investments rules. Second, the
banks non-government loan portfolios, though improved, still suffer from high rates of nonperformance, reflecting the limited changes in the legal and informational framework. In
addition, the dominant public sector banks are still characterized by low lending quality and
collection, reflecting the inadequate incentives that characterize public sector banks worldwide.
Third, some public sector banks are recognized as weak and many others are unable to generate
enough capital internally to keep up with deposit growth, reflecting their inability to crosssubsidize their weak lending and high costs under the increased competition. It is gradually
being recognized that the legal, informational and incentive frameworks need reforms. Such
reforms will involve much greater private sector role in the banking sector and,
correspondingly, will require much stronger regulation and supervision to limit moral hazard.
The next section of this paper describes the situation in Indian banking prior to the reforms.
Section C discusses briefly the wave of liberalization of markets and the strengthening of
regulation that began in the early 1990s and was largely completed by 1997-98. Section D
discusses some of the main impacts of the liberalization: the resumption of deposit
mobilization, the increase in credit to the private sector, and the reduction in spreads because
of increased competition. Section E focuses on the problems created by issues related to the
macroeconomic, institutional, informational, and incentive framework. Finally, Section G
briefly argues that not only is there a need to reduce the deficit and improve the judicial and
informational framework but, also, that incentives for sound lending will need to be improved.
Improving incentives probably entails a much greater private sector role in bank management.
However, to limit the well-known moral hazard associated with private sector banking and
high deposit insurance, Indias regulation and supervision will also need substantial
improvement as the article concludes in the end.
38
Sharma E. (2014) studied and wrote about financial service sector, particularly in banking
activities, globalization increased managements need for performance measurement. In this
context, this study puts forth a comprehensive model proposal for the performance evaluation
of the banking system whose effective and productive performance is measured by using
financial and non-financial performance criteria. The performance criteria have been
determined via the developed model and the performance of Indian commercial banks has been
analyzed within the scope of the model. From the analysis it is clear that human aspect is more
important than financial aspect in banks. The banks which are performing well in three
dimensions of human aspect i.e. corporate social responsibility, customer satisfaction and
employee satisfaction are found to be overall good performers.
Dr. Yesodha Devi N.Y., Sebastina J. & Dr. Kanchana V.S. (2011) carried study to find out
the customers awareness about Mobile banking, their opinion regarding the problems faced
and the reason for opting this technology in spite of other technologies. The study is based on
primary data collected from 249 respondents by means of a questionnaire. This paper explores
the result as majority of the respondents use Mobile banking whenever they require. Further it
is concluded that there is no significant difference among the education groups in the average
awareness score on Mobile banking usage, there is no significant difference among the monthly
income groups in the average awareness score on Mobile banking usage, there is no significant
difference among the bank account and average awareness score on Mobile banking usage,
there is no significant difference between public and private bank in the average problem score
of internet banking. Hence in further the researcher can also conduct studies with larger
samples to get relative importance in each dimension as suggested by this research paper.
39
Uppal R.K. (2011) presented paper that analyses the efficiency of all the bank groups in the
post- banking sector reforms era. Time period of the study is related to second post-banking
sector reforms (1999-2000 to 2005-06). This period has been chosen taking into consideration
the following factors; On the basis of some parameters of efficiency i.e. profitability per
employee, per branch, business per employee, per branch and expenses per employee and per
branch, the paper concludes that efficiency of all the bank groups has increased in the second
post-banking reforms period but these banking sector reforms are more beneficial for new
private sector banks and foreign banks. At the end, paper suggests some measures for the
improvement of efficiency of Indian nationalized banks. The main implication of this study is
that public sector banks although has improved their financial position but still these banks
need many changes.
This paper mainly concentrates on the major trends that change the
banking industry world over, viz. consolidation of players through mergers and acquisitions
globalization of players, development of new technology, universal banking and human
resource in banking, profitability, rural banking and risk management.
40
Research Design
1. Title: To Study the impact of Banking Reforms on Banking Industry & its awareness.
2. Scope of Study: The research is conducted for the banking sector and the study is
limited to the Indian banks to see the efficiency, competitiveness & effectiveness of
these banks.
3. Research Objectives: How better the banking sector had grown due to the banking
reforms. How much the youth are aware of recent banking reforms.
4. Research Question :
a. What are the recent reforms made by RBI?
b. What is the performance of banking industry?
c. What is effect on share price of Banks due to RBI Policies?
d. How much youth are aware of these reforms?
e. What are the factors responsible for RBIs Policies?
5. Review of Literature: Different articles published in journals and which are available
on online database.
6. Hypothesis :
H0 = Banks profits had increased due to the recent policies.
H1 = Banks profits had decreased due to the recent policies.
7. Limitation: The statistical conducted was among 50 respondents. The secondary data
are considered to be relevant. The study is limited to the Indian Banking Industry.
41
8. Identifying Variables
Independent Variable
Dependent Variable
Bank Rate
Profit of Banks
CRR and SLR Rate

Bank A/c holder Turnover
Administration Cost
Competition in the Industry
Bank's Profit
9. Conceptualization of Variables :
SLR & CRR

Interest Rates
A/c holder
Turnover
Competition
Bank Rate
42
10. Data Collection: The data regarding the reforms and its effect is collected form RBI
online database. The data regarding the awareness is collected by the Questionnaire
which is published online through google forms.
11. Data Interpretation & Analysis: After the data is collected it will be analyse by
various statistical tools and for interpretation the different charts will be used.
12. Conclusion: The banking reforms had affected the industry positively or negatively
also whether the youth are aware of these reforms or not.
Data Collection & Analysis

For all the information related to banking industry was taken from online database of RBI
and few other details were taken from the banks website. The awareness in the youth was
determined by conducting a survey among the students and some teachers. The entire data
was obtained from secondary methods through sources likeo Internet (Majority)
Company Websites
Slide share
Wikipedia
Market Watch
o Surveys conducted among Youth.

o Accounts of the company and Annual Reports
o Reports from the RBI.
Stream of different respondent and their response on their view if the recent reforms had
developed the banking industry:
Fig. 1.1
43
44
On the basis of different Gender the response if they think that the banking reforms had
developed are:
Fig. 1.2
Opinion of youth the basis of their gender regarding the Private Banks are better than Public
banks:
Fig. 2
45
Awareness of youth regarding the banking reforms is 56 % as per the survey conducted. This
survey was conducted among literate youth. Thus 56% of literate youth can be considered to
be aware of recent banking reforms.
Fig. 3
Use of Net-banking by youth from age 20-25 years.
Fig. 4
46
Porters Five-Forces Analysis of Banking Industry

The focused structure of an industry is an alternate critical segment of recognizing variables
that are a danger to lessen benefit. A standout amongst the most proficient approaches to
evaluate aggressive issues is to consider Michael Porter's five-power examination.
1. Rivalry between existing competitors
The banking industry is considered highly/intense competitive. Factors affecting The
Competitive Rivalry:
Too many players of same size
Players have similar strategies
Less product differentiation, price competition
Barriers for entry and exit are high
2. Threat of entry by new competitors
Despite of the biggest entry barrier like regulatory and capital requirements, between 1977 and
2002 an average of 215 new banks opened each year according to the FDIC. But in present
scenario the threat of new entrants is low due to stringent norms, RBI Regulations, High initial
investment & entry barriers. Factors affecting the threat of new entry barriers:
Government Licensing and RBI regulations
Skills manpower
High Initial investment.
Protected intellectual property
The entry of foreign banks.
47
3. Price pressure from substitute or complementary products

Largest threats of substitution are not from rival banks but from non-financial competitors,
investors, NBFCs (attract a significant proportion of market share) and small co-operative
banks and borrowing avenues. No real threat of substitutes as far as deposits or withdrawals,
however insurances, mutual funds, and fixed income securities -offered by non-banking
companies. The Factors affecting threats of substitutes:
Close customer relationships
Conservative Customers
Risk taking customers attitude.
Easy Switching
4. Bargaining Power of Buyers
Bargaining power of customers is high. Factors affecting The Bargaining power of customers:
Long-term finance.
Margins and volumes.
Multiple Options
Banks Competitors
Retail lending
5. Bargaining Power of Suppliers
The bargaining power of Suppliers is high. The Factors affecting bargaining power:
Rise in investment avenues
Providers of funds
Interest rates
Valuations
48
McKinseys 7S about the Banking Industry

1. Shared Values Altogether the industry is very important for the whole economy and
is one of the industries on which the economic growth of the country is dependent.
2. Skill - Highly Skilled employees are required in banking industry. The current
employees in the industry.
3. Strategy - The strategy focuses on a range of products and services, to be innovative
and excellent in serving the customers hence enabling the industry to increase its
influence on the economy, to increase the market share and hence build a better and
fixed loyal customer following.
4. Style - Consequently, The industry is able to attract the very best staff, and is very
demanding of them. This is exactly the view of the highly efficient and effective management
team.
5. Staff There is a huge number of new employees every year in the industry. All the staff
employed are highly professional as they are employed after a serious of rigorous training and
a number of interviews. The workforce is a highly motivated one as the overall turnover proves
this fact. As a whole team members opinions are held with high regard.
6. Structure The banking in India is well organised with the work being divided
accordingly and systematically through the lower level, middle level and the toplevel.
The overall working or functioning of the banking sector is monitored by the RBI(
Reserve Bank of India).
7. System - The System is strictly regulated and monitored by the RBI. The system is
simple and smoth and hence there is simple and efficient functioning if the banking
sector.
49
Findings and Conclusion

This section discusses the major findings from the data analysis, conclusions derived from the
study, limitations and further scope of the study. The analysis of financial parameters in the
study revealed that Return on assets ratio is positively related to liquidity, profitability and
capital adequacy ratio while it is negatively related to the asset quality variable. Awareness of
youth regarding the banking reforms is 56 % as per the survey conducted. This survey was
conducted among literate youth. Thus 56% of literate youth can be considered to be aware of
recent banking reforms. (Fig. 3)
The study shows that there is a significant difference in the satisfaction level of customers
belonging to different age groups, different occupations and having different annual income
(Fig.1.2). However, there is no significant difference in the satisfaction level of the customers
due to the gender difference and due to the difference in their educational qualification.
Indian banking sector is going through a revolutionary change, with RBI working towards
easing the banking activities in India. RBIs intentions can be seen in its recent reforms, which
has not only motivated banks but also has made a positive effect in the mind of customers.
Motivated by current economic scenario. Banking reforms are playing a major role in
strengthening the growth of Indian economy through various rate cuts. Also with a determined
and well experienced person on monetary policy seated as Governor, India has had its benefits
against various events that took place in the recent years, like Greece Crisis and Devaluation
of Yuan by Peoples Bank of China. Where, devaluation of Yuan had a very strong negative
impact on various economy. India didnt had that much of causality because of stronger reforms
that has been in place. An analysis of employee satisfaction in banks revealed that the jobspecific factors, management behaviour, working environment, training & development
opportunities, interpersonal relationship and compensation & other benefits are the six factors
50
which lead to employee satisfaction in commercial banks. All these factors have a positive and
significant relationship with the overall employee satisfaction in Indian commercial banks.
After the 1993, economic meltdown. RBI has made and still is looking forward to strengthen
the Rupees, because of such policies many of the worlds leading investment firms like
Goldman Sachs, Morgan Stanley, etc., have pointed Rupees as a better investment for forex
than any other currency because of its stability and less volatility. RBI Governor was quoted
saying that the two of the priorities that RBI has right now are,
1. Help in strengthen the slow pace of Economy.
2. Helping banks in clearing up the piles of Default loans.
RBI has taken various steps towards fulfilling its goals, for the first objective, RBI has already
been cutting down its lending rates and is still looking for space to cut down the rates further.
IMF in its recent report has also supported the RBIs decision of rate cuts and has said the rate
cuts to be an effective measure for pacing up the slow economic growth. The performance
criteria have been determined via the developed model and the performance of Indian
commercial banks has been analysed within the scope of the model. From the analysis it is
clear that human aspect is more important than financial aspect in banks. The banks which are
performing well in three dimensions of human aspect i.e. corporate social responsibility,
customer satisfaction and employee satisfaction are found to be overall good performers.
For its second objectives, numerous reforms have been introduced, The Reserve bank of India
has provided banks, which are struggling to cope with a mountain of bad debt, new ammunition
to deal with defaulting companies. New norms have been issued for Strategic Debt Conversion
(SDR) which will give lenders right to convert their outstanding loans into a majority equity
stake if borrower fails to meet conditions stipulated under the restructuring package.
51
Scope for Further Research

Since the current study is limited to data collected from urban areas only, the study can be
extended to rural areas also. The further scope of the study is that a comparison between the
Indian banks and banks of foreign countries can also be done using same conceptual model.
The time period of collecting secondary data can be extended from 3 years to 5 years or more.
52
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54
Appendix
Sample of Questionnaire
Survey
This research is to find awareness about banking reforms in youth. This information will be used only
for research. Please tick your opinion as per the statement.
Age
Gender
Stream in 12 / PUC
- 15- 20
- Male
- Sci
20-30
30 & above
Female
Comm
Arts
S. Statement
No.
1
2
3
4
5
6
7
8
9
10
Agree
Modrate Disagree
/Can't Say
I know the purpose of KYC form.

I use the moblie application of my bank.
I know about the Pradhan Mantri Jeevan Jyothi Yojna.
Recent reforms have developed the banking system.
Mobile banking is efficient and easy to use.
I have more than 3 bank a/c.
I transact through ATM more than 4 times in one month.
Private banks are better than public banks.
Net banking is being used by me every now and then.
I feel safe to save my card details online .
TOTAL
Survey Result: The survey was conducted among 50 respondents and their recorded
responses are on the next page.
Disagree
Agree
Disagree
Agree
Disagree
Moderate / Can't Say
Agree
Agree
Agree
Agree
Agree
Agree
Disagree
Agree
Disagree

Agree
Disagree
Agree
Agree
Disagree

Agree
Agree
Disagree
Disagree
Disagree
Agree
Moderate / Can't Say Moderate / Can't Say
Agree
Agree
Agree

Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree

Disagree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Disagree
Agree
Commerce
Commerce
Commerce
Science
Commerce
Commerce
Commerce
Science
Commerce
Commerce
Commerce
Commerce
Commerce
Commerce
Commerce
Commerce
Science
Commerce
Commerce
Commerce
Science
Commerce
Science
Commerce
Commerce
Commerce
Arts
Science
Science
Science
Commerce
Science
Science
Commerce
Male
Female
Male
Female
Male
Female
Male
Male
Male
Male
Male
Female
Female
Female
Male
Female
Female
Male
Male
Female
Male
Male
Male
Male
Female
Male
Male
Female
Female
Female
Female
Female
Female
Female
20-30 year
30 years & Above
20-30 year
20-30 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
20-30 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
15-20 year
20-30 year
15-20 year
15-20 year
20-30 year
15-20 year
15-20 year
20-30 year
20-30 year
20-30 year
15-20 year
15-20 year
Say
Say
Say
Say
Say
Say
Say
Say
Say
Say
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Disagree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Disagree
Disagree
Agree
Agree
Disagree
Agree
Agree
Agree
Agree
Agree
Agree
Disagree
Disagree
Agree
Agree
Agree
Agree
Disagree
Agree
Disagree
Disagree
Agree
Disagree
Agree
Agree
Agree
Agree
Disagree
Disagree
Disagree
Disagree
Agree
Disagree
Disagree
Disagree
Disagree
Disagree
Disagree
Disagree
Disagree
Moderate / Can't
Disagree
Disagree
Disagree
Disagree
Disagree
Agree
Moderate / Can't
Agree
Agree
Agree
Moderate / Can't
Moderate / Can't
Agree
Say
Say
Say
Say
Say
Say
Say
Say
Say
Say
Disagree
Disagree
Agree
Disagree
Agree
Agree
Agree
Agree
Commerce
Female
30 years & Above
Say
Say
Disagree

Agree
Agree
Disagree
Agree
Disagree
Disagree
Agree
Disagree
Science
Female
15-20 year
Say
Say
Say
Say
Say
Say
Say
Say
Say
Say
Say
Say
Say
Say
Disagree
Disagree
Agree
Disagree
Agree
Disagree
Disagree
Disagree
Science
Female
20-30 year
Say
Say
Say
Disagree
Disagree
Disagree
Disagree
Agree
Disagree
Agree
Disagree
Arts
Female
15-20 year
Say
Say
Say
Say
Say
Say
Say
Say
Disagree
Disagree
Agree
Disagree
Agree
Science
Male
30 years & Above
Say
Disagree
Agree
Disagree
Agree
Disagree
Agree
Science
Male
30 years & Above
Moderate / Can't
Agree
Agree
Agree
Moderate / Can't
Disagree
Disagree
Moderate / Can't
Disagree
Disagree
Agree
Agree
Disagree
Moderate / Can't
Moderate / Can't
Moderate / Can't
Disagree
Agree
Disagree
Disagree
Agree
Moderate / Can't
Disagree
Moderate / Can't
Disagree
Disagree
Agree
Agree
Disagree
Agree
Disagree
Agree
Agree
Disagree
Commerce
Male
15-20 year
Agree
Agree
Agree
Disagree
Moderate / Can't
Disagree
Disagree
Agree
Disagree
Disagree
Moderate / Can't
Moderate / Can't
Agree
Agree
Disagree
Agree
Moderate / Can't
Agree
Disagree
Agree
Moderate / Can't
Disagree
Moderate / Can't
Disagree
Disagree
Disagree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Disagree
Commerce
Male
15-20 year
Say
Say
Disagree
Agree
Disagree
Agree
Agree
Agree
Commerce
Male
15-20 year
Moderate / Can't
Moderate / Can't
Disagree
Moderate / Can't
Agree
Disagree
Disagree
Agree
Agree
Agree
Moderate / Can't
Moderate / Can't
Moderate / Can't
Moderate / Can't
Disagree
Agree
Agree
Moderate / Can't
Disagree
Agree
Moderate / Can't
Agree
Disagree
Agree
Agree
Agree
Moderate / Can't
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Science
Male
15-20 year
Disagree
Agree
Disagree
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Moderate / Can't
Moderate / Can't
Moderate / Can't
Agree
Agree
Agree
Moderate / Can't
Agree
Disagree
Agree
Moderate / Can't
Agree
Agree
Agree
Moderate / Can't
Agree
Agree
Agree
Agree
Agree
Disagree
Agree
Agree
Agree
Agree
Commerce
Male
20-30 year
Agree
Agree
Agree
Agree
Disagree
Disagree
Disagree
Moderate / Can't
Moderate / Can't
Agree
Moderate / Can't
Moderate / Can't
Disagree
Agree
Moderate / Can't
Disagree
Agree
Disagree
Disagree
Agree
Moderate / Can't
Moderate / Can't
Agree
Disagree
Agree
Moderate / Can't
Agree
Agree
Agree
Agree
Disagree
Disagree
Agree
Agree
Agree
Commerce
Male
15-20 year
Agree
Disagree
Agree
Agree
Moderate / Can't
Moderate / Can't
Moderate / Can't
Agree
Disagree
Disagree
Disagree
Disagree
Disagree
Agree
Disagree
Disagree
Agree
Disagree
Disagree
Disagree
Moderate / Can't
Disagree
Disagree
Agree
Agree
Disagree
Disagree
Agree
Agree
Disagree
Agree
Commerce
Female
15-20 year
Agree
Moderate / Can't
Agree
Moderate / Can't
Agree
Agree
Agree
Disagree
Agree
Disagree
Disagree
Disagree
Disagree
Moderate / Can't
Agree
Disagree
Disagree
Disagree
Disagree
Agree
Moderate / Can't
Agree
Disagree
Disagree
Agree
Disagree
Agree
Disagree
Disagree
Agree
Agree
Agree
Agree
Agree
Agree
Disagree
Disagree
Agree
Disagree
Agree
Agree
Commerce
Agree
Commerce
Male
Female
Agree
Disagree
Disagree
Agree
Agree
Agree
Disagree
Disagree
Commerce
Male
15-20 year
15-20 year
Agree
Agree
Agree
Agree
Agree
Agree
Agree
Male
15-20 year
S. No. 10
S. No. 9
S. No. 8
S. No. 7
S. No. 6
Disagree
S. No. 5
S. No. 4
S. No. 3
S. No. 2
Disagree
S. No. 1
Stream
Commerce
Gender
Age
15-20 year
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Running Head: BANKING REFORMS, ITS IMPACT & AWARENESS

A Study on Banking Reforms, Its impact & awareness:

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

Sign Academic Coordinator

Sign Class Coordinator

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

Data Collection & Analysis

Findings and Conclusion

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

9148.59 billion (US$140 billion) for the financial year 2012-13. On 28

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

efficiency scores to three sources: a temporal component, an ownership component, and a

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

Dr Vasudevan S. (2010) stats Connectivity to banking services is major factor impacting

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

CRR and SLR Rate

SLR & CRR

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

Data Collection & Analysis

o Surveys conducted among Youth.

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

BANKING REFORMS, ITS IMPACT & AWARENESS

Porters Five-Forces Analysis of Banking Industry

BANKING REFORMS, ITS IMPACT & AWARENESS

3. Price pressure from substitute or complementary products

BANKING REFORMS, ITS IMPACT & AWARENESS

McKinseys 7S about the Banking Industry