Performance of Indian Banking System

Introduction
Efficiency and profitability of the banking sector in

India has assumed primal importance due to intense competition, greater customer demands and changing banking reforms. This study attempts 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.

Indian Financial Sector

The Indian financial sector comprises a large network

of commercial banks, financial institutions, stock exchanges and a wide range of financial instruments. It has undergone a significant structural transformation since the initiation of financial liberalization in 1990s. Before financial liberalization, since mid 1960s till the early 1990, the Indian financial system was considered as an instrument of public finance. The evolution of Indian financial sector in the post independent period can be divided in to three distinct periods. During the first period (194768), the Reserve Bank of India (RBI) consolidated its role as the agency in charge of supervision and banking control.

Banking System of India

The present banking system can be classified into the

following categories: (i) Public Sector Banks (ii) Private Sector Banks (iii) Foreign Banks (iv) Regional Rural Banks (v) Co-operative Sector Banks (vi) Development Banks.

Phases of Indian Banking

The Indian banking system and its regulations can be

better understood when divided into the following two phases: Post-Nationalisation Post-Liberalization

Liberalization

The Government of India framed its policies in the year

1991-92, keeping in view the benefits of liberalization Some of the root causes that were behind the dull performance of the banks prompted the initiation of the banking sector reforms. Some of these causes were: Greater emphasis on directed credit programmes Regulated interest rate structure Excessive regulations on organization's structure and managerial resources; Lack of focus on profitability Lack of competition Lack of proper Accounting and Risk Management System Lack of operational transparency Excessive support from government

Financial Liberalization Measures

Some of the important financial liberalization measures

are: Reduction in pre-emption of funds through reduction of CRR and SLR Introduction of prudential provisioning and Capital Adequacy norms. Phasing out the directed credit programmes Deregulation of interest rates Infusion of competition (Entry of Private Sector Banks) Imparting transparency Introduction of universal banking Mergers and Acquisitions Development of technology Emphasis on corporate governance

Performance of Banking Sector

Indian banks have compared favorably on

growth, asset quality and profitability with other regional banks over the last few years. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period.

Information Technology and Bank Transformation

E-Banking

Automated Teller Machines

EFTPoS Remote Banking Services Services Not Available Through Remote Banking Smart Cards Internet Banking

Commercial Bank Expansion

Branch Expansion

Employees Position

Labour Productivity

Branch Productivity

Profitability Ratio

Non-Interest Income as Percentage of Total Income

Net NPA as Percentage of Net Advances

Areas of Future Research

Disinvestments of PSBs
Raising capital from the market Foreign direct investment (FDI) An appropriate banking model for India: Universal banking Vs. Narrow banking Adopting international best practices i.e. Basel

II

 Re-engineering Operations

Marketing of financial services: Product, Process

and Pricing Retail Banking Risk Management including regulatory and environmental risks Legal challenges

 Harnessing Facilitators

Technology
Issues in identification and cost-benefit analysis

of appropriate technology Case Studies Disaster Recovery Management

 Human Resource Development

Preparing for the cultural transformation

Knowledge management