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PROBLEMS OF INDIAN BANKING

SECTOR.
73- Meghna Pandya
74- Sejal Panwar
75- Shivam Parekh
76- Divya Parmar
77- Hiren Patel
78- Riya Patel
79- Twinkle Patel
80- Mayank Poddar
1. NPAs
The Non-Performing Assets (NPA) is a term referred to those kinds of
loans and advances in banking channels for which, the borrower fails
to make any payment in interest or principle for 90 days and there is a
high risk of default.
2. Capital Inadequacy
One way a bank tries to ensure it is protected from bad loans is by
setting aside money as 'provision’. This money cannot be used for any
other purposes including lending. As a result, banks have lower capital
available to use for its various operations resulting in low Capital
Adequacy Ratio which measures how much capital a bank has. Due to
this, the bank has to borrow money or use depositor's money to lend.
This money, however, is riskier and costlier than the banks own capital.
So if banks do not increase their capital soon, some could fail to
meet the minimum capital requirement set by the RBI and could face
severe issues.
3. Losses in Rural Branch

• Economical Reasons
• Asset quality
• Heavy overhead costs
• Prevalence of the barter system in some parts
• Complicated Bank formalities
• Procedural rigidities
4. Large overdue

• Delayed earnings
• Insider lending
• Willful negligence
• High interest rate
• Inadequate financial analysis
5. COMPETITION WITH FOREIGN
BANKS
• Increase overheads and high risks.
• Raise investment in high-end technology and costs of employee
training.
• Compels to operate more efficiently.
• Due to plight of mounting NPA’s, households and industries have
turned to foreign banks for loans.
• Stability and soundness of central bank attracts the foreign banks.
• Transfer of savings out of domestic banks to foreign banks due to
better service quality and international status.
6. POLITICAL PRESSURES
• The asymmetric information between lending banks and outsiders about
the quality of a specific loan makes it easy to disguise political motivation
behind a loan.
• Revealing the costs of any politically motivated loan can be deferred until
the loan maturity.
• Elections, in particular, might tempt the politicians in power to use the
government-owned banks for political purposes
• Firms with political connections have easier access to debt financing and
enjoy lower taxation.
• Politicians can reward their allies and punish their opponents by using their
influence on government-owned banks.
7. CYBER THREATS
A cyber or cybersecurity threat is a malicious act that seeks to damage data, steal
data, or disrupt digital life in general. Cyber threats are a big deal. Cyber attacks can
cause electrical blackouts, failure of military equipment and breaches of national
security secrets. They can result in the theft of valuable, sensitive data like medical
records.

Types of cybersecurity threats


 Financial gain
 Disruption
 Espionage (including corporate espionage – the theft of patents or state espionage)
8. Gap between Promise and
Performance
 One major weakness of the nationalised banking system in India is its
failure to sustain the desired credit pattern and fill in credit gaps in
different sectors. Even though there has been a reorientation of bank
objectives, the bank staff has remained virtually static and the bank
procedures and practices have continued to remain old and
outmoded.
 The post-nationalisation period has seen a widening gap between
promise and performance. The main reason seems to be the failure of
the bank staff to appreciate the new work philosophy and new social
objectives.
Competition from Non-Banking Financial
Institutions
Non-banking finance companies (NBFCs) are giving tough competition to banks in
India, especially public sector banks eating up their market share. Warnings of over-
leveraging in the retail customer segment as banks and NBFCs grow their loan books
through their existing customers. Between calendar years 2014 and 2017, the share of
NBFCs in total loans is estimated to have increased from 21% to 44%, whereas, for
public sector banks, it fell from 49% to 28%. NBFCs have expanded their share rapidly,
particularly in the number of loans disbursed—primarily driven by their aggressive push
to expand and capture market share in certificate of deposits and gold.
Statistics about Bank Scams
• Of the total 53,334 cases of frauds reported during 2008-09 and 2018-19 fiscal
years, involving a whopping ₹2.05 lakh crore
• Of over 50,000 frauds that hit banks in India in the last 11 fiscal years, the ICICI
Bank, State Bank of India (SBI) and HDFC Bank reported highest number of
cases, according to an RBI data.
Some of the bank scams are as follows:-
Rotomac Pen Scam
What is the issue?
• Kanpur based Rotomac Global has orchestrated a scam of a Rs 3695 crore by
means of wilful loan default to multiple banks.
• Based on a complaint filed by the Bank of Baroda, CBI has registered a case
against 3 director of rotomac, & other (Including some bank staff).
• The allegations are that of cheating a consortium of 7 public sector banks by
siphoning off loans disbursed to the company.
ALLAHABAD BANK SCAM

 Kolkata-headquartered state-owned lender, Allahabad Bank, has


reported a fraud of Rs 1774.82 crore by Bhushan Power & Steel to
the Reserve Bank of India (RBI).
 On July 13, the bank has alleged misappropriation of funds and
manipulation in the books of accounts by Bhushan Power & Steel to
raise money from a consortium of banks.
 Bhushan Power & Steel defaulted on Rs 47,700 crore worth of loans
in 2017 and was one of the 12 cases referred for resolution under
Insolvency and Bankruptcy Code.
 Allahabad Bank is the second lender after Punjab National Bank to
report an alleged fraud by Bhushan Power & Steel.
SOLUTIONS TO OVERCOME
1. Multi-Factor Authentication
2. Banks: Monitor Transactions
3. Businesses: Reconcile Corporate Accounts Daily
4. Don’t Give Out Financial Information
5. Use Tough-To-Crack Passwords
6. Install Antivirus and Spyware Protection
7. Make Sure the Websites You Visit Are Safe
8.Raise Fraud Awareness
9.Use secure websites that have a lock symbol before the URL bar on the browser. This
symbol indicates that the site is encrypted and protected against hackers.
10.Never sign blank checks and always put a double line on the upper left corner of the
check. This line ensures that any bearer cannot withdraw cash and never share the one-time
password (OTP) to an unknown person or caller. Make sure that the OTP has been
generated for the transaction initiated only by you.