International Journal of Business Administration and Management.

ISSN 2278-3660 Volume 7, Number 1 (2017),

© Research India Publications http://www.ripublication.com

An Analytical Study of Reforms and their Impact

on Indian Banking Sector

Neha Chadha
Ph.D Scholar (Commerce)
(2014-2017)
K alinga University, Raipu r, C.G.

En r ol l me n t No. 1 5 0 2 0 1 0 8 ( K U0 0 2M MX I V0 2 0 10 1 9 1)

Abstract

We are living in t he fast changing world. Wit h new emerging

t echno logies and rapid expansio n o f int ernet e - mail et c. excess t o globa l
infor mat io n and knowledge and t o commo dit y market s wor ldwide is how
much easier t han befor e, in a bit t o meet commit ment s t o int er nat io nal
inst it ut io nal like wor ld ba nk, I MF, WTO count r y aft er count r y is pulling
down barr ier s t o foreign t rade and invest ment . The go ver nment of I ndia
has also fo llowed suit wit h t he resu lt t hat quant it at ive rest r ict ions on
foreign t rade are being dismant led speedily. On t he do mest ic front t here
are clear signals o f pr ivat izat ion and libe ralizat ion as licensing is being
given up, cont rols are being dis mant led, rest r ict ive laws are being
remo ved and t he pr ivat izat ion is being used in almo st all sect ors. India is
a develo ping econo my wit h t he low growt h o f GDP, low per capit a
inco me, r apid populat io n growt h exist ence o f dualis m, t echno logica l
backwardness et c. At t he t ime o f independence it was a clo se econo my
wit h no FDI, no MNC‘s, rest r ict ion on currency mo vement s, quot a raj,
per mit raj, license raj and socialist ic pat t ern o f econo my.

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Indian banking sect or was also working in t he close econo my scenar io.
Indian banking s yst em was not sound at t he t ime o f independence. I n
1949, 2 major act io ns wer e t aken w it h a view o f st ruct ural refor ms in t he
banking sect or. Bank ing regulat io n Act , which provided ext ensive power
to RBI over t he co mmercia l banks and anot her was t he nat io nalizat ion o f
RBI. Banking regulat io n act provided excessive power t he RBI. I n a free
ent erpr ise eco no my, co mmercial banks operat e like any ot her business
ent it y and gain pr ivat e pro fit so at t he t ime o f independence it was
viewed t hat t he freedo m o f co mmercia l bank was not in t he har mo ny o f
t he socialist ic pat t ern of societ y, so t hey wer e nat ionalized in 1969 t o
est ablish t he co nt rol over t hese banks. T his st udy at t empt s t o st udy t he
banking refor ms in I ndia and t heir impact on Indian Banking S yst em.

1.1 Introduction

Rit ika Gauba (2012) 1 in her st udy revealed t hat t he concept of moder n
banking was fir st t raced in medieval Flore nce in 1397. A power fu l
mer chant family named Medici est ablis hed a net work of shops t hat
allowed pat rons t o place mo ney on account and wit hdraw t he mo ney in
anot her cit y t hat had a Medici represent at ive. Many power fu l fa milies
and even t he Church kept t heir mo ne y in Medic i banks.

This allowed r ich people t o t ravel wit ho ut t he need t o carry lar ge sums
of mo ney and r isk o f robber y while t ravelling. Banking cont inued t o gain
popular it y t hroughout Europe by 1700. Near ly ever y count r y in Europe
had so me for m o f est ablished banking. Modern banking has co me a ver y
lo ng wa y fro m t hose humble beginnings in Flor ence. Bank ing t oday

1
Ritika Gauba, ―The Indian Banking Industry : Evolution, Transformation & The Road
Ahead‖, Pacific Business Review International, Vol 5 No 1, pp. 85-97.

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covers t he ent ire spect rum of finance from simp le savings t o credit cards
and ho me loans.

Banking Regulat io n Act , 1949, Sect ion 5(c), def ines bank as "a banking
co mpany which t ransact s t he business of banking in I ndia. ' Furt her,
Sect ion 5( b) o f t he BR Act defines banking as, 'accept ing, for t he
purpose of lending or invest ment , of deposit s of mo ney fro m t he public,
repayable on demand or ot herwise, and wit hdr aw able, by cheque, draft ,
and order or ot herwise. 2

"A good bank is not only t he financia l heart of t he co mmunit y, but also
one wit h an obligat ion o f helping in ever y possible manner t o improve
t he eco no mic condit io ns o f t he co mmo n people" - A. Subba Rao Pai
founder of Canara ban k

1.2 Objectives and Research Methodology

Objectives of Study

1. Examine t he E vo lut ion o f I ndian banking syst em.

2. Ident ify t he changing st ruct ure of I ndian bank ing sect or since
independence.

3. To find out t he nat ure of banking sect or refor ms and it s affect on

funct io ning o f banks in I ndia.

Research Methodology

Research met hods can be classified in different ways, t he mo st commo n

dist inct io n is bet ween t he quant it at ive and t he qualit at ive approaches

2
Bharathi . N. (2007), Indian Banking and Finance – A Paradigm Shift

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(Myers, 2007 3). Quant it at ive approaches were or igina lly used while
st udying nat ural sciences like: laborat ory exper iment s, sur ve y met hods
and numer ical met hods. A qualit at ive st udy is used when t he researcher
want s t o get a deeper underst anding o n a specific t opic or sit uat io n.
Myer s (2007) 4 st at ed t hat t he qualit at ive approach was developed in
social sciences in order to support t he researcher in st udies including
cult ural and social pheno mena. Sources included in t he qualit at ive
approach are int er views, quest io nnair es, obser vat io ns, document s and t he
resear cher ‘s impressio n and r eact io ns. The chosen approach is
qualit at ive.

Qualitative research t ypically t akes t he for m o f in-dept h int er views

wit h a small number o f respo ndent s. These int er views ma y be done one
individual at a t ime, or in groups. Individual int er views have t he
advant ages o f providing ver y r ich infor ma t ion and avo iding t he influence
of ot hers on t he opinio n o f any one individual. I ndividual int er views ar e
ver y expensive and t ime consuming, however, and as a resu lt , it is not
likely t hat any one research program will int er view large number o f
individuals.

1.3 Evolution of Banking in India

Charan S ingh et . al. 5 (2014) Banking sect or in I nd ia dat es back t o 18t h

cent ur y wit h t he est ablishment of Bank o f Hindust an i n 1770 fo llowed by
t he Gener al Bank of I ndia in 1786. Ther e were a number o f Public sect or
3
Myers, M. D. (2007), ―Qualitative Research in Information Systems‖, MIS Quarterly, vol. 21 No. 2,
pp.241-242.
4
Ibid
5
Charan Singh, Namrata, Gaurav, ―Impact of Foreign Banks on the Indian Economy‖, working
paper 451,

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banks like Bank o f Benga l, Bank o f Bo mbay which came int o exist ence
bet ween 1800 and 1850( including St at e Bank o f India. T hese banks wer e
founded as per t he chart ers fro m Br it ish East India Co mpany. Wit h t he
t rade relat ions develo ping bet ween I ndia and var ious ot her count r ies
t here was a keen int erest fro m banks in ot her count r ies t o invest in I ndia
and grow t heir cust omer base here. T he banks were fo llo wing t he
cust o mers in so me cases while in so me other banks led new cust omer s t o
ent er new geographies and make invest ment s.

In India, banking has developed fro m t he pr imit ive st age t o t he moder n

syst em o f banking in a fashio n t hat has no parallel in t he wor ld hist or y.
Wit h t he dawn o f independence, changes of vast magnit ude have t aken
place in I ndia. Aft er independence I ndia launched a process o f planned
econo mic act ivit y in order to overcome t he mult it ude o f problems it
faced as an underdeveloped nat ion. T he incr easing t empo of eco no mic
act ivit y lead t o tremendous increase in t he vo lume and co mplexit y o f
banking act ivit y.

Therefor e, t he ro le o f banks has had t o expand at a fast pace. As engine s

of development and vehicle o f silent Socio -econo mic revo lut ion in t he
count r y, Indian banks have assumed new responsibilit ies in t he fields o f
geographical expansio n, funct io nal diversificat ion and per sona l
port fo lio. I ndian banking t ransfor med it self fro m ‗Class bank ing t o Mass
banking‘ 6.

A banking sect or per for ms t hree Pr imar y funct ions in an eco no my: T he
operat ion o f t he payment syst em, t he mobilizat io n o f savings and t he
allocat io n of savings t o invest ment project s. By allo cat ing capit a l t o t he
highest value use while limit ing t he r isk and cost invo lved, t he banking

6
A. S. Chawla, K. K. Uppal, K. Malhotra, ‗Indian Banking Towards 21 st Century‘. Deep and Deep
Publications, New Delhi, 1988.

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sect or can exert a posit ive influence o n t he overall eco no my, and t hus o f
broad macro econo mic import ance 7.

The or igin o f t he I ndian banking indust r y ma y be found wit h t he

est ablishment o f .Bank o f Bengal‘ in Ko lkat a in 1786. The Bank o f
Calcut t a was t he fir st part of t he go lden t r iangle - est ablished in June
1806, it which was rena med as Bank o f Bengal in Januar y 1809. This
was fo llowed by t he est ablishment o f t he Bank o f Madr as in July 1843,
as a jo int st ock co mpany, t hrough t he reorganizat io n and amalgamat io n
of fo ur banks viz., Madras Bank, Car nat ic Bank, Bank o f Madras and t he
Asiat ic Bank. T his bank brought about major inno vat ions in banking
such as use o f jo int st ock syst em, conferr ing o f limit ed liabilit y o n
shareho lder s, and most import ant ly accept ance of depo sit s fro m t he
general public. The last presidenc y bank - Bank o f Bo mbay which was
also last bank t o be set up under t he Br it is h Raj was est ablished in 1868.

The t hree Presidenc y Banks wit h t heir 70 br anches were merged in 1921
to for m t he I mper ia l Bank of I ndia. T he new mo no lit h t ook on t he t r iple
role o f a co mmercial bank, a banker 's bank and a banker t o t he
gover nment . Thus pro ving t hat t he concept of merger s and co nso lidat io n
as well as t heir success in t he banking syst em o f I ndia, is not as recent a
pheno meno n as is o ft en t hought t o be. Bet ween t he 1865 & 1913 a
number o f I ndian pr ivat e bank emerged which are even r eigning
successfully t oday 8.

The first bank which was exclusive ly set up by I ndians was Allahabad
Bank, fo llo wed by Punjab Nat io nal Bank Lt d . set up in 1895 wit h
headquart ers at Lahore. Ot her pr ivat e banks est ablished dur ing t his

7
Bonin, John P Wachtel, ‗Toward Market-Oriented banking in the Economics in Transition‘, Cambridge
UK, 1999.
8
Ibid

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per iod were Bank o f I ndia & Cent ral Bank of I ndia est ablished in 1911,
Bank o f Baroda (1908) ; Canar a Bank (1906), Indian Bank (1907) and
Bank o f Mysore (1913). Unt il 1935 all t he banks which wer e set up only
belo nged t o t he pr ivat e sect or In t he absence o f any regulat or y
framework, t hese pr ivat e owners o f banks wer e at libert y t o use t he
funds as t hey want ed, t hey deemed appropr iat e and result ant ly t he bank
failur e & e xplo it at io n of t he poor were frequent pheno menon.

Therefor e in order t o cont rol & regulat e t hese banks t he Reser ve Bank o f
India was est ablished.

The Reser ve Bank o f I ndia was est ablished on Apr il 1, 1935 in

accordance wit h t he pro visio ns o f t he Reser ve B ank o f I ndia Act , 1934.
The est ablishment o f t his cent ral bank o f t he count r y ended t he quasi -
cent ral banking ro le o f t he I mper ial Bank. The lat t er ceased t o be
banker s to t he Gover nment of India and inst ead became agent of t he
Reser ve Bank for t he t ransac t ion o f go vernment business at cent re at
which t he cent ral bank was not est ablished.

Even aft er t he for mat io n as well as nat io nalizat io n o f RBI t he growt h o f

econo my & banks was ver y slo w and banks st ill exper ienced per iodic
failur e. Therefore in order t o st reamline t he funct io ning and act ivit ies o f
t he 1100 co mmer cial banks present t hen, t he Gover nment of I ndia came
up wit h in March 1949, a special legislat io n, called t he Banking
Co mpanies Act , 1949.

The Banking Act 1949 was a special legis lat io n, applica ble exclusive ly
to t he banking co mpanies. T his Act was lat er renamed as t he Banking
Regulat io n Act fro m March 1966. T he Act vest ed in t he Reser ve Bank o f
India t he responsibilit y relat ing t o licensing o f banks, branch expansio n,
and liquidit y o f t heir asse t s, management and met hods o f working,
amalgamat io n, reconst ruct ion and liquidat io n. T hus giving RBI aut hor it y
alo ng wit h responsibilit y & ignit ing t he first part of banking

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t ransfor mat io n in I ndia. The second pat h braking & t ransfor mat io n
effort took pla ce in 1955 wit h t he est ablishment o f t he I ndian Banking
Sect or' St at e Bank o f India.

In 1951, when t he Fir st Five Year P lan was launched, t he develo pment of
rural I ndia was given t he highest pr ior it y. The co mmercia l banks o f t he
count r y inc luding t he I mper ia l Bank o f I ndia had t ill t hen confined t heir
operat ions t o t he urban sect or and were not equipped t o respond t o t he
emergent needs of econo mic regener at ion o f t he rural areas. In order,
t herefore, t o serve t he econo my in general and t he rural sect or in
part icular, t he All I ndia Rural Credit Survey Co mmit t ee reco mmended
t he creat io n o f a st at e -part nered and st at e-sponsored bank by t aking o ver
t he I mper ial Bank o f I nd ia, and int egrat ing wit h it , t he for mer st at e -
owned or st at e-associat e banks. An act was a ccordingly passed in
Par lia ment in May 1955 and t he St at e Bank o f I ndia was const it ut ed on 1
July 1955.

The need for nat ionalizat ion was fe lt because gover nment be lieved t hat
pr ivat e co mmercia l banks were lacking in fulfilling t he social &
development al goals o f banking. T his was evident fro m t he fact t hat t he
indust r ies' share in lo ans almo st doubled bet ween 1951 and 1968, fro m
34% to 68%. On t he ot her hand, agr icult ure which was a majo r
occupat ion ( and st ill is) r eceived less t han 2% o f t ot al credit T hus wit h a
view t o ser ve t he mass Go ver nment o f I ndia Nat io nalized 14 banks (refer
t able 1) in 1969 br inging t he t ot al number of branches under government
cont rol t o 84 percent .

Banks Nat io nalized

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Figur e 1: Banks Nat io nalized Source: Rit ika Gauba (2012) 9

10
1.4 Major Banking Reforms in India

9
Ritika Gauba, ―The Indian Banking Industry : Evolution, Transformation & The Road Ahead‖,
Pacific Business Review International, Vol 5 No 1, pp. 85-97.

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To underst and t he scenar io before banking refor ms, we have t o revis it

t he develop ment o f banking sect or in I ndia. Just aft er t he independence
in 1950s, in t hose days, t he need o f t he hour was t o reorganize and t o
conso lidat e t he prevailing banking net work keeping in view t he
requir ement s o f t he eco no my. T he fir st st ep t aken t o t hat end was t he
enact ment of t he Banking Co mpanies Act , 1949 fo llowed by rapid
indust r ial finance. Ro le pla yed by banks was inst rument al be hind
indust r ializat io n wit h t he impet us given to bot h heavy and S ma ll Sca le
Indust r ies. Subsequent ly aft er t he adopt ion o f social cont rol, banks
st art ed t aking st eps in ext ending cr edit to agricult ure and small
borrowers. Finally, o n July l969, 14 banks we re nat ionalised wit h a view
to ext ending credit t o all segment s o f t he econo my and also t o mit igat e
regio nal imba lances. T hus, t he per iod of r egulat ed growt h fro m 1950 t il l
bank nat ionalizat io n wit nessed a number of far -reaching changes in t he
banking syst em.

Banking Reforms in India

The main o bject ive o f t he financia l sect or refor ms in I ndia init iat ed in
t he ear ly 1990s was t o creat e an efficient , compet it ive and st able
financial sect or t hat could t hen cont ribut e in great er measure t o
st imulat e growt h.

Co nco mit ant ly, t he mo net ar y po licy framework made a phased shift fro m
direct inst rument s o f mo net ar y management t o an incr easing r eliance o n
indir ect inst rument s. However, as appropr iat e mo net ar y t ransmiss io n
cannot t ake place wit hout efficient pr ice disco ver y o f int erest rat es and
exchange r at es in t he overall funct io ning o f financial market s, t he
corresponding development o f t he mo ney market , Government secur it ies
market and t he foreign exchange market became necessar y. Refor ms in
t he var ious segment s, t herefore, had t o be coordinat ed.

10
Ibid

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The last t wo decades wit nessed t he mat ur it y o f I ndia's financial mar ket s.
S ince 1991, ever y go ver nment s o f India took major st eps in refor ming
t he financia l sect or of t he count r y.

The gover nment and t he regulat or have un dert aken several measures t o
st rengt hen t he I ndian banking sect or.

 The Reser ve Bank of I ndia (RBI) has issued guidelines for pr ior it y
sect or lending cert ificat es (PSLCs), according to which banks ca n
issue four different kinds o f PS LCs —t hose for t he short fall in
agr icult ure lending, lending t o small and margina l far mers,
lending t o micro ent erpr ises and for overall lending t arget s – t o
meet t heir pr ior it y sect or lending t arget s.

 The Reser ve Bank o f I ndia (RBI) has allowed addit io nal reser ves
to be part of t ier-1 or core capit al o f banks, such as revaluat io n
reser ves linked t o propert y ho ldings, for eign currency t ranslat io n
reser ves and deferred t ax asset s, which is expect ed t o shore up t he
capit al o f st at e-run banks and pr ivat ely owned banks by up t o Rs
35,000 crore (US$ 5.14 billio n) and Rs 5,000 crore (US$ 734
millio n) respect ively.

 Scheduled co mmer cial banks can grant non - fund based facilit ies
inc luding part ial cr edit enhancement (PEC), to t hose cust omers,
who do not avail any fund based facilit y from any bank in I ndia.

 Minist r y o f Finance has planned t o inject Rs 5,000 crore (US$ 734

millio n) in eight public sect or banks in order to boost t heir capit al,

 To reduce t he burden o f lo an repayment on far mers, a provisio n o f

Rs 15,000 crore (US$ 2.2 billio n) has been made in t he Unio n
Budget 2016-17 t owards int erest subvent ion.

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 Under Pradhan Mant r i Jan Dhan Yo jna (PMJDY), 217 millio n

account s! have been opened and 174.6 millio n RuPa y debit cards
have been issued. These new account s have must ered deposit s
wort h almost Rs 37,000crore (US$ 5.53 billio n).

 The Go ver nment o f India is looking t o set up a special fund, as a

part of Nat ional I nvest ment and I nfrast ruct ure Fund (NIIF), t o deal
wit h st ressed asset s o f banks. T he special fund will pot ent iall y
t ake over asset s w hich are viable but don‘t have addit io nal fres h
equit y fro m pro mot ers co ming in t o complet e t he pro ject .

 The Reser ve Bank of I ndia (RBI) plans to soon co me out wit h

guidelines, such as co mmo n r isk - based know- your-cust omer
(KYC) nor ms, t o reinforce prot ect ion for consumer s, especia lly
since a large number of I ndians have now been financ ially
inc luded post t he go ver nment ‘s massive dr ive t o open a bank
account for each househo ld.

 To provide relief t o t he st at e elect r icit y dist r ibut io n co mpanies,

Gover nment o f I ndia has proposed t o t heir lenders t hat 75 per cent
of t heir loans be convert ed to st at e gover nment bonds in t wo
phases by March 2017. This will help several banks, especially
public sect or banks, to offload credit to st at e elect r icit y
dist r ibut io n co mpan ies fro m t heir loan book, t hereby improving
t heir asset qualit y.

 Gover nment o f I ndia aims t o ext end insurance, pens io n and credit
facilit ies to t hose excluded fro m t hese benefit s under t he
PradhanMant r i Jan DhanYo jana (PMJDY).

To facilit at e an easy access t o finance by Micro and S ma ll E nt erpr ises

(MSEs), t he Go ver nment /RBI has launched Credit Guarant ee Fund
Scheme t o provide guarant ee cover for co llat eral free credit facilit ie s

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ext ended t o MSEs upt o Rs 1 Crore (US$ 0.15 millio n). Moreover, Micro
Unit s Develo pment & Refinance Agency ( MUDRA) Lt d. was also
est ablished t o refinance all Micro - finance Inst it ut io ns ( MFIs), which are
in t he business o f lending t o micro / small business ent it ies engaged in
manufact ur ing, t rading and ser vices act ivit ies upt o Rs 10 lak h (US$
0.015 millio n).

The Finance Minist r y cont inuously for mulat ed major po licies in t he field
of financial sect or of t he count r y. The Gover nment accept ed t he
import ant role o f regu lat ors. The Reserve Bank o f I ndia (RBI) has
beco me more independent . Secu r it ies and E xchange Board of I ndia
(SEBI) and t he I nsurance Regulat or y and Develo pment Aut hor it y (IRDA)
became import ant inst it ut ions. Opinio ns are also t here t hat t here should
be a super-regulat or for t he financia l ser vices sect or inst ead o f
mult ip licit y o f regulat ors.

FIRST G ENERATION REFORMS (NARASIMHAM COMMITTEE –

I 11)

The Go ver nment o f I ndia appo int ed a co mmit t ee called 'T he Co mmit t ee
on Financed S yst em' under t he chair manship o f Sr i M. Narasimha m, ex -
Gover nor of Reser ve Bank o f India which made reco mme ndat ions in
November 1991. The Co mmit t ee laid down a blue pr int of financia l
sect or refor ms, recognized t hat a vibr ant and co mpet it ive financia l
syst em was cent ral t o t he wide ranging st ruct ural refor ms. I n order t o
ensure t hat t he financia l s yst em operat e s on t he basis o f operat iona l
flexibilit y and funct io nal aut ono my, wit h a view t o enhance efficiency,
product ivit y and pro fit abilit y, t he Co mmit t ee r eco mmended a ser ies o f
measures a imed at changes according great er flexibilit y t o bank

11
Ministry of Fiancé (1991), Report of the Committee on the financial system (Narasimham
Committee), New Delhi, Government of India.

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operat ions, espec ial ly in Po int ing out st at utory st ipulat io ns, direct ed
credit program, impro ving asset qualit y, inst it ut io n o f prudent ial nor m,
great er disclosures, bet t er housekeep ing, in t er ms of account ing
pract ices.

SECOND GENERATION REFORMS (NARASIMHAM COMMITTEE -

II 1998)

The reco mmendat ions of Naras imham Co mmit t ee -I (1991) provided

bluepr int for fir st generat io n refor ms o f t he financial sect or. The per iod
1992-97 wit nessed la ying o f t he foundat ions for refor ms o f t he banking
syst em. It also saw t he imp lement at ion of pru dent ial nor ms re lat ing t o
capit al adequacy, asset classificat ion, inco me recognit io n and
provisio ning, exposure nor ms, et c.

M. Kart ik and Ganesh (2013) 12 said T he second Narasimham Co mmit t ee

Report (1998) t oo focused o n issues like st rengt hening o f t he ban king
syst em, upgrading o f t echno logy and human resource development
(Ramasast r iA.S. an d Achamma S amuel, 2006). Banking in I ndia is
generally fair ly mat ure in t er ms o f supply, product range, and reach -
even t hough reach in rur al I ndia st ill remains a chall enge for t he pr ivat e
sect or and foreign banks in t he year 2007.

PRUDENCIAL ACCO UNTING NO RMS FOR BANK S -

The Reser ve Bank per severed wit h t he on —go ing process of

st rengt hening prudent ia l account ing norms wit h t he object ive of

12
M. Kart ik and Ganesh, ―Changing Landscape of I ndian B anking
S yst em‖, International Journal of Advanced Research in Management and Social
Sciences, Vol. 2. No.12, pp. 34-49.

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improving t he financial soundness o f banks and t o br ing t hem at par wit h

int er nat ional st andards. The Reser ve Bank advised PS Bs t o set up
Sett lement Advisor y Co mmit t ees (S ACs) for t imely and speedier
set t le ment of NP As in t he sma ll scale sect or, viz., small scale indust r ies,
small business including t rading and personal segment and t he
agr icult ural sect or.

RISK MANAGEMENT GUIDELINES -

The Reser ve Bank issued det ailed guidelines for r isk management
syst ems in banks in Oct ober 1999, encompassing credit , mar ket and
operat ional r isks. Banks would put in place lo an po lic ies, approved by
t heir boards o f direct ors, cover ing t he met hodologies for measurement ,
mo nit or ing and cont rol o f credit r isk. T he guidelines also requir e banks
to evaluat e t heir port fo lio s on an on -go ing bas is, rat her t han at a t ime
close to t he balance sheet dat e.

DISCLOSURE NORMS

As a mo ve t owards great er t ranspar ency, banks were direct ed t o disclo se

t he fo llo wing addit io nal infor mat ion in t he ‗Not es t o account s‘ in t he
balance sheet s fro m t he account ing year ended March 3 1, 2000: ( i)
mat ur it y pat t ern o f loans and advances, invest ment secur it ies, deposit s
and borrowings, ( ii) foreign currenc y asset s and liabilit ies, ( iii)
mo vement s in NP As and ( iv) lending t o sensit ive sect ors as defined by
t he Reser ve Bank fro m t ime t o t ime.

TECH NOLOG ICAL DEVELOPMENTS IN BANK ING -

India, banks as well as ot her financial ent it ies have ent ered do main o f
infor mat io n t echno logy and co mput er net working. A sat ellit e - based Wide
Area Net work (WAN) would provid e a reliable co mmunicat ion
framework fo r t he financial sect or. The Indian Financia l Net work
(INFINET) was inaugurat ed in June 1999. It is based on sat ellit e

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co mmunicat ion using VS AT t echno logy and would enable fast er

connect ivit y wit hin t he financia l sect or. The INFINET would ser ve as
t he co mmu nicat io n backbone o f t he proposed I nt egrat ed Payment and
Sett lement S yst em (IPSS). T he Reser ve Bank co nst it ut ed a Nat io nal
Payment s Council ( Lnair man: S hr i S. P. Talwar) in 1999 -2000 t o focus
on t he po lic y paramet ers for developing an IPSS wit h a r eal t ime gross
set t le ment (RTGS) syst em as t he core.

1.5 Conclusion

The banking syst em, which was over -regulat ed and over administ er ed,
was freed fro m all rest r ict ions and ent ered int o an era o f co mpet it io n
since 1992. T he ent r y o f moder n pr ivat e banks and foreign banks
enhanced co mpet it io n. Deregulat io n o f int erest rat es had also int ensified
co mpet it io n.

In t heir paper Dr . S hur veer S. Bhanawat , Shilpi Kot har i (2013) 13,
resear ch will evo lve t he per for mance o f financial inst it ut ions o nly aft er
1998 and in t he wake of Nar simha m Commit t ee II. The st udy is micro
econo mic in nat ure and seeks t o analyz e t he product ivit y o f banking
syst ems. Here an at t empt has been made t o examine t he impact of
refor ms. The impact of refor ms on t he pr ofit abilit y o f Ind ian banks has
been examined on t he basis o f fo llo wing paramet ers: Int erest inco me t o
Tot al asset s, Operat ing Profit t o Tot al Asset , Ret urn on Asset and
Ret urn on Advances.

Rajiv et . al (2016) 14, In t heir st udy on Banking Refor ms ment io ned t hat
Public Sect or Banks (PSBs) in I ndia are st ruggling wit h high NP As (Non
– Per for ming Asset s) which have been ris ing st eadily since 2009 -10.
These banks cont inue t o face t he dual problem o f significant asset
13
Dr . Shurveer S. Bhanawat, Shilpi Kothari, ―Impact of Banking Sector Reforms on
Profitability of Banking Industry in India‖, Pacific Business Review International, Vol 6 No 6,
pp. 60-65.
14
Rajiv et. al, ―Banking Sector Reforms in India‖, Centre for Policy Research, 2016

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qualit y st ress and inadequat e capit alisat io n, which has impact ed t heir
gro wt h. Around 27 PSBs wrot e off a st agger ing Rs 1.14 lakh crore of bad
lo ans dur ing FY12-15. T he Punjab Nat io nal Bank (PNB), t he fourt h
largest st at e-owned bank by asset s, announced t hat it s gross NP As
touched 8.5% o f t he lo an book in December 2015, highest in eleve n
years. Wit hout government recapit alisat ion, so me o f t hese banks ma y
find it s lending act ivit y squeezed.

References:

1. Rit ika Gauba, ―T he I ndian Banking Indust r y : E vo lut ion,

Transfor mat ion & T he Road Ahead‖, Pacific Business Review
Int ernat ional, Vo l 5 No 1, pp. 85-97.

2. Bharat hi . N. (2007), Indian Banking and Finance – A P aradigm

Shift

3. M yer s, M. D. (2007), ―Qua l i t a ti ve Re sea r ch in Infor m a t i on S yst em s‖ , MIS

Qua r t er l y, vol . 21 No. 2, pp. 241 -242.

4. Char an Singh, Na mr ata, Gaur av, ―Impact of For eign Ba nk s on t he

I ndia n Economy‖, wor king pap er 451.

5. S. Chawla, K. K. Uppa l, K. Malhot ra, ‗Indian Banking Towards

21 s t Cent ur y‘. Deep and Deep Publicat ions, New De lhi, 1988.

6. Bonin, John P Wacht el, ‗Toward Market -Or ient ed banking in t he

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8. Ministr y of Fia ncé (1991 ), Rep or t of t he C ommitt ee on t he f ina ncia l

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S yst em‖, Int ernat ional Journal o f Advanced Resear ch in
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Bus iness R eview I nt er nationa l, Vol 6 N o 6, pp. 60 -65.

11. Rajiv et. al, ―Ba nking S ect or R ef or ms in I ndia‖, C entr e f or P olic y
Res ear ch, 2016

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