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Indian Banking System Archives - Page 12 of 13 - MBA Knowledge Base

Indian Banking Sector Reforms: Licensing of New Banks in the Private Sector

Entry of New Banks in the Private Sector

As per the guidelines for licensing of new banks in the private sector issued in January 1993, RBI had granted licenses to 10 banks. Based on a review of experience gained on the functioning of new private sector banks, revised guidelines were issued in January 2001. The main provisions/requirements are listed below:

  • Initial minimum paid-up capital shall be Rs. 200 crore; this will be raised to Rs. 300 crore within three years of commencement of business.
  • Promoters’ contribution shall be a minimum of 40 per cent of the paid-up capital of the bank at any point of time; their contribution of 40 per cent shall be locked in for 5 years from the date of licensing of the bank and excess stake above 40 per cent shall be diluted after one year of bank’s operations.
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Indian Banking Sector Reforms: Disclosure Norms

Banks should disclose in balance sheets maturity pattern of advances, deposits, investments and borrowings. Apart from this, banks are also required to give details of their exposure to foreign currency assets and liabilities and movement of bad loans. These disclosures were to be made for the year ending March 2000.

In fact, the banks must be forced to make public the nature of NPAs being written off.   This should be done to ensure that the taxpayer’s money given to the banks as capital is not used to write off private loans without adequate efforts and punishment of defaulters.

A Close look: For the future, the banks will have to tighten their credit evaluation process to prevent this scale of sub-standard and loss assets.  … Read the rest

Virtual Banking in India

The practice of banking has undergone a significant transformation in the nineties. While banks are striving to strengthen customer relationship and move towards ‘relationship banking’, customers are increasingly moving away from the confines of traditional branch-banking and are seeking the convenience of remote electronic banking services. And even within the broad spectrum of electronic banking, the aspect of banking that has gained currency is virtual banking. Increase in the functional and geographical spread of banks has necessitated the switchover from hard cash to paper based instruments and now to electronic instruments. Broadly speaking, virtual banking denotes the provision of banking and related services through extensive use of information technology without direct recourse to the bank by the customer.… Read the rest

Rural Banking in India

ECONOMICALLY empowering, i.e. access to inexpensive credit and other micro-finance services, including savings and insurance, India’s rural population will have a significant impact on India’s economic growth. Economic empowerment is defined here as.   The modern banking system has failed to deliver inexpensive credit to India’s 600,000 villages – despite several expensive attempts to do so. Do we need to rethink the appropriate institutional structure for rural banking in India? The problems of widespread poverty, growing inequality, rapid population growth and rising unemployment all find their origins in the stagnation of economic life in rural areas.

Since the days of the Rural Credit Survey Committee (1954), India has come a long way in its search for an appropriate rural banking set-up.… Read the rest

Universal Banking In India

RBI states: “The emerging scenario in the Indian banking system points to the likelihood of the provision of multifarious financial services under one roof. This will present opportunities to banks to explore territories in the field of credit/debit cards, mortgage financing, infrastructure lending, asset securitisation, leasing and factoring. At the same time it will throw challenges in the form of increased competition and place strain on the profit margins of banks”

The evolving scenario in the Indian banking system points to the emergence of universal banking. The traditional working capital financing is no longer the banks major lending area while FIs are no longer dominant in term lending.… Read the rest

Indian Banking Sector Reforms in 1991

In 1991, the country was caught into a deep crisis. The government at this juncture decided to introduce comprehensive economic reforms. The banking sector reforms were part of this package. The main objective of Indian banking sector reforms was to promote a diversified, efficient and competitive financial system with the ultimate goal of improving the allocative efficiency of resources through operational flexibility, improved financial viability and institutional strengthening. Many of the regulatory and supervisory norms were initiated first for the commercial banks and were later extended to other types of financial intermediaries. While nudging the Indian banking system to better health through the introduction of international best practices in prudential regulation and supervision early in the reform process, the main idea was to increase competition in the system gradually.… Read the rest