banking sector report from 1969 to 2012

7/28/2019 banking sector report from 1969 to 2012

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COURSE :- PGPBF

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Banking sectorreport from 1969 to2013PREPARED BY:- ALI RAZA

COUDHARY

ROLL NO :- 1


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BANKING SECTOR REPORT FROM 1969 TO 2013

INTRODUCTION

A Bank is a financial institution that provides banking and other financial

services to their customers. A bank is generally understood as an institution

which provides fundamental banking services such as accepting deposits

and providing loans.Banking is one of the most heavily regulated

businesses since it is a highly leveraged (high debt equity ratio or low

capital-assets ratio) industry. In fact, it is satirical that banks, which

invariably appraise their borrowers based on debt-equity ratio, themselves

have a debt-equity ratio far too contrary to that of their borrowers! In simpleterms, banks earn by undertaking risk on their creditors money rather than

on that of their shareholders. For decades, banks in India have played an

important role in shaping the financial system and thereby contributing for

economic development. This vital role of the banks in India continues even

today albeit the trends in banking delivery has undergone a sea change

with the advancement in usage of information technology as well as design

and delivery of customer service oriented products. There are also non-

banking institutions that provide certain banking services without meeting

the legal definition of a bank. Banks are a subset of the financial services

industry. A banking system is also referred as a system provided by the

bank which offers Cash Management services for customers, reporting the

transactions of their accounts and portfolios, throughout the day. The

banking system in India should not only be hassle free but it should be able

to meet the new challenges posed by the technology and any other

external and internal factors. For the past three decades, Indias banking

system has several outstanding achievements to its credit. The Banks are


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the main participants of the financial system in India. The Banking sector

offers several facilities and opportunities to their customers. All the banks

safeguards the money and valuables and provide loans, credit and

payment services such as checking accounts, money orders, and cashiers

cheques. The Reserve Bank of India is the main monetary authority of thecountry and beside that the central bank acts as the bank of the national

and state governments. It formulates implements and monitors the

monetary policy as well as it has to ensure an adequate flow of credit to

productive sectors. The banks also offer investment and insurance

products. As a variety of models for cooperation and integration among

finance industries have emerged, some of the traditional distinctions

between banks, insurance companies, and securities firms have

diminished. In spite of these changes, banks continue to maintain and

perform their primary roleaccepting deposits and lending funds from

these deposits

NATIONALISATION IN 1960s

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

nationalisation of the banking industry. Indira Gandhi, then Prime Ministerof India, expressed the intention of the Government of India in the annual

conference of the All India Congress Meeting in a paper entitled


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"Stray thou ghts on Bank Nat ionalisation. The meeting received the

paper with enthusiasm.

The Government of India issued an ordinance ('Banking Companies

(Acquisition and Transfer of Undertakings) Ordinance, 1969')) and

nationalised the 14 largest commercial banks with effect from the midnight

of19thJuly 1969. These banks contained 85 % of bank deposits in the

country. Jayaprakash Narayan, a national leader of India, described the

step as a "masterstroke of pol i t ical sagaci ty."Within two weeks of the

issue of the ordinance, the Parliament passed the Banking Companies

(Acquisition and Transfer of Undertaking) Bill, and it received the

presidential approval on 9 August 1969.The central bank became the

central player and increased its policies for a lot of tasks like interests,

reserve ratio and visible deposits. These measures aimed at better

economic development and had a huge effect on the company policy of the

institutes. The banks lent money in selected sectors, like agri-business and

small trade companies. The branch was forced to establish two new offices

in the country for every newly established office in a town. The oil crises in1973 resulted in increasing inflation, and the RBI restricted monetary policy

to reduce the effects. In 1975, the state bank group and nationalized banks

were required to sponsor and set up RRBs in partnership with individual

states to provide low-cost financing and credit facilities to the rural masses.

A second dose of nationalisation of 6 more commercial banks followed in

1980. The stated reason for the nationalisation was to give the government

more control of credit delivery. With the second dose of nationalisation, the

Government of India controlled around 91% of the banking business of

India. Later on, in the year 1993, the government merged New Bank of

India with Punjab National Bank. It was the only merger between


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nationalised banks and resulted in the reduction of the number of

nationalised banks from 20 to 19.Nationalized banks are wholly owned by

the Government, although some of them have made public issues.The

state bank group and nationalized banks are together referred to as the

public sector banks (PSBs).

Names of Nat ional ised b anks

* Al lahabad Bank

* Andhra Bank

* Bank of Baroda

* Bank of India

* Bank of Maharashtra

* Canara Bank

* Central Bank of India

* Corpo rat ion Bank

* Dena Bank

* Ind ian Bank

* Ind ian Overseas Bank

* Oriental Bank of Commerce (OBC)

* Pun jab and Sind Bank

* Punjab Nat ional Bank (PNB)

* Synd icate Bank

* UCO Bank

* Union Bank o f India* United B ank o f Ind ia (UBI)

* Vijaya Bank


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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. A lot of

committees analysed the Indian economy between 1985 and 1991. Their

results had an effect on the RBI. TheBoard for Industr ial and Financial

Reconst ruct ion, the Indira Gandhi Institute of Development Research andthe Security & Exchange Board of India (SEBI) investigated the national

economy as a whole, and the security and exchange board proposed better

methods for more effective markets and the protection of investor interests.

The Indian financial market was a leading example for so-called "financial

repression" (Mackinnon and Shaw). The Discount and Finance House of

India began its operations on the monetary market in April 1988; the

National Housing Bank, founded in July 1988, was forced to invest in the

property market and a new financial law improved the versatility of direct

deposit by more security measures and liberalisation.PSBs are owned by

the Government, therefore, they have implicit guarantees from the

Government, resulting in the lack of capital adequacy ratio (CAR) norm.

Given the recommendation of the Narsimham Committee (I) in 1991 on the

BIS standard of capital adequacy, a CAR of 8 percent was to be achieved

by March 1996. Twenty-six out of 27 PSBs had complied with this

requirement as of March 1998. Narsimham Committee (II) recommended

CAR targets of 9 percent by 2000 and 10 percent by 2002. As many PSBs

have already high CARs (some indicated an average CAR of about 9.6

percent as of (March 1998), such targets could be attained.


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LIBERALISATION IN 1990s

The economic liberalisation in India refers to ongoing economic

reforms in India that started on 24 July 1991.The national economy camedown in July 1991 and the Indian rupee was devalued. The currency lost

18% relative to the US dollar, and the Narsimahmam Committee advised

restructuring the financial sector by a temporal reduced reserve ratio as

well as the statutory liquidity ratio. New guidelines were published in 1993

to establish a private banking sector. This turning point reinforced the

market and was often called neo-liberal. The central bank deregulated bank

interests and some sectors of the financial market like the trust and

property markets. This first phase was a success and the central

government forced a diversity liberalisation to diversify owner structures in

1998.

The National Stock Exchange of India took the trade on in June 1994 and

the RBI allowed nationalized banks in July to interact with the capital

market to reinforce their capital base. The central bank founded a

subsidiary companythe Bharatiya Reserve Bank Note Mudran Limited

in February 1995 to produce banknotes. More than 40,000 NBFCs exist,

10,000 of which had deposits totaling Rs1,539 billion as of March 1996.

After public frauds and failure of some NBFCs, RBIs supervisory power

over these high-growth and high-risk companies was vastly strengthened in

January 1997. RBI has imposed compulsory registration and maintenance

of a specified percentage of liquid reserves on all NBFCs. Licensing a small

number of private banks 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


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Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank and HDFC

Bank. This move, along with the rapid growth in the economy of India,

revitalized 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 next stage for the Indian banking has been set up with the proposed

relaxation in the norms for Foreign Direct Investment, where all Foreign

Investors in banks may be given voting rights which could exceed the

present cap of 10%, at present it has gone up to 74% with some

restrictions.

The new policy shook the Banking sector in India completely. Bankers, till

this time, were used to the 464 method (Borrow at 4%;Lend at 6%;Go

home at 4) of functioning. The new wave ushered in a modern outlook and

tech-savvy methods of working for traditional banks. All this led to the retail

boom in India. People not just demanded more from their banks but also

received more.

The Foreign Exchange Management Act (FEMA) from 1999 came into

force in June 2000. It would improve the foreign exchange market,

international investments in India and transactions. The RBI promoted the

development of the financial market in the last years, allowed online

banking in 2001 and established a new payment system in 20042005

(Nat ional Electronic Fund Transfer).


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ADOPTION OF TECHNOLOGY IN BANKS

The IT revolution had a great impact in the Indian banking system. The use

of computers had led to introduction of online banking in India. The use of

the modern innovation and computerisation of the banking sector of India

has increased many folds after the economic liberalisation of 1991 as the

country's banking sector has been exposed to the world's market. The

Indian banks were finding it difficult to compete with the international banks

in terms of the customer service without the use of the information

technology and computers. With the advent of the process of liberalisation

in the early nineties, the demands on banks resources and capabilities

increased as banks had to match the challenges of being financial service

providers in a globalised, competitive environment. This posed a dual

challenge for the banking industry. The first challenge was to manage the

growing needs of their existing customer segments and business locations

for better and more efficient services, and the second was, how to expand

the reach of their services and business beyond the traditional services and

locations, which had large socio-economic implications because large parts

of the population did not have access to even basic banking services. At

this juncture, banks in India were looking at huge potential in business

growth as well as several constraints, such as inadequacy of infrastructure

and human resources, geographical, topographical and distance

limitations, communication inefficiencies, cost implications and delivery, as

well as the processing capability to manage more business information and

larger accounts.

Increased use of information technology emerged as the key to meeting

these challenges. Several measures were mooted at the level of the


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Government, the Reserve Bank and industry, which provided an impetus to

adoption of technology in the banking sector. Core Banking Solutions

(CBS) implementation has made customer account maintenance seamless

and enhanced data storage and retrieval capabilities tremendously. It has

also enhanced the banks capacity to develop and market new products, astechnology has increased information availability and the capacity for

analysis and communication manifold. Such capabilities and efficiencies

are poised to rise further with the advent and adoption of evolving

technologies like cloud computing and virtualisation, which have the

potential to significantly bring down financial and management costs.

Economic theory supported by empirical evidence suggests that, in

general, increases in technology investment will raise productivity, lower

costs, and allow firms to operate more efficiently. Information technologies

and the innovations they enable are strategic tools, since they reduce the

costs of financial transactions, improve the allocation of financial resources

and increase the competitiveness and efficiency of financial institutions.

Technological innovation not only enables a broader reach for consumerbanking and financial services, but also enhances its capacity for continued

and inclusive growth (Subbarao, 2009).

Globally, the effect of IT on the banking industry has been positive. In

general, studies have concluded two positive effects regarding the relation

between IT and banks performance. First, IT can reduce banks

operational costs (the cost advantage). Second, IT can facilitate

transactions among customers within the same network (the network

effect). Eyadat and Kozak (2005) examined the impact of the progress in IT

on the profit and cost efficiencies of the US banking sector during the

period 1992-2003. The research showed a positive correlation between the


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levels of implemented IT and both profitability and cost savings. Berger

(2003) also showed improvements in bank performance and consolidation

of the banking industry in the US during the deployment of new

technologies.

In the Indian context, technological innovation and investment in IT during

the period 2005-06 to 2009-10 led to efficiency gains for the scheduled

commercial banks (Rajput and Gupta, 2011). Technology is encompassing

the entire set of business processes in the banking industry and

technological innovations are enabling banks to cope with burgeoning

customer requirements, social and developmental expectations, strategic

and competitive business needs, internal control and risk management

needs, governance and regulatory reporting requirements.

However, going forward, banks need to innovate appropriately in terms of

products, services and strategies and will also need to align their IT and

business perspectives to fully leverage the benefits of technology.

Predictive analytics can bring in competitive advantage in banking and help

banks move from product-centric to customer-centric operations.


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ONLINE BANKING

Online banking (orInternet banking orE-banking) allows customers of a

financial institution to conduct financial transactions on a secure website

operated by the institution, which can be a retail or virtual bank, credit unionor building society. Advent of Internet banking happened in early 1990.

This beginning of Internet Banking created a phenomenal system,

Internet banking. The Government of India enacted the IT Act, 2000

(Information Technology Act). This act came into effect from the 17th of

October 2000. The purpose of this act, in context of banking, was to

provide legal recognition to electronic transactions and other means ofElectronic Commerce

To access a financial institution's online banking facility, a customer having

personal Internet access must register with the institution for the service,

and set up some password (under various names) for customer verification.

The password for online banking is normally not the same as for telephone

banking. Financial institutions now routinely allocate customer numbers

(also under various names), whether or not customers intend to access

their online banking facility. Customer numbers are normally not the same

as account numbers, because a number of accounts can be linked to the

one customer number. The customer will link to the customer number any

of those accounts which the customer controls, which may be cheque,

savings, loan, credit card and other accounts. Customer numbers will also

not be the same as any debit or credit card issued by the financial

institution to the customer.


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To access online banking, the customer would go to the financial

institution's website, and enter the online banking facility using the

customer number and password. Some financial institutions have set up

additional security steps for access, but there is no consistency to the

approach adopted.

Online banking facilities offered by various financial institutions have many

features and capabilities in common, but also have some that are

application specific.

The common features fall broadly into several categories

A bank customer can perform some non-transactional tasks through

online banking, including -

o viewing account balances

o viewing recent transactions

o downloading bank statements, for example in PDF format

o viewing images of paid cheques

o ordering cheque bookso download periodic account statements

o Downloading applications for M-banking, E-banking etc.

Bank customers can transact banking tasks through online banking,

including -

o Funds transfers between the customer's linked accounts

o Paying third parties, including bill payments (see, e.g., BPAY)

and telegraphic/wire transfers

o Investment purchase or sale

o Loan applications and transactions, such as repayments of

enrollments


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o Register utility billers and make bill payments

Financial institution administration

Management of multiple users having varying levels of authority

Transaction approval process

Some financial institutions offer unique Internet banking services, for

example

Personal financial management support, such as importing data into

personal accounting software. Some online banking platformssupport account aggregation to allow the customers to monitor all of

their accounts in one place whether they are with their main bank or

with other institutions.

PERIOD SINCE 2000 TO 2013

Basel II, issued by the Basel Committee on Banking Supervision (BCBS),

published in June 2004, was intended to create an international standard

for banking regulators to control how much capital banks need to put

aside to guard against the types of financial and operational risks banks

(and the whole economy) face. One focus was to maintain sufficient

consistency of regulations so that this does not become a source of

competitive inequality amongst internationally active banks


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Basel III is a new challenge that banks in India and overseas will have to

surmount. It will be a challenge to deploy the same safely and profitably in

the event of persistence of economic slowdown. The government was

able to re-capitalize a few PSU banks in FY12, including the much

needed infusion for State Bank of India. According to RBI estimates,Indian banks would require additional capital of Rs 5 trillion to meet Basel-

III norms by March 31, 2018.

In 2011-12, agriculture loan target was Rs 4.5 trillion, and Rs 4.8 trillion

was disbursed. For 2012-13, the target has been set at Rs 5.8 trillion.

Financial inclusion initiatives also need to be taken care of as India fares

very poorly on this regard as half the population does not have access to

banking services.

New banking licenses are expected to be issued by the RBI to private

sector players. However, these licenses will only be awarded to certain

players meeting strict requirements on the capital, exposures, and

corporate governance front. Lots of players including NBFCs, industrial

houses, microfinance companies etc are all vying for this coveted license.

There has so far been no progress on this issue since the RBI issued

draft guidelines in August 2011.

However, growth is still a concern for the banking sector in FY12 on

account of a sustained slowdown in the economy as well as reduced

demand for credit on account of the current high interest rate

environment. The central bank expects credit growth to come in at 17%,

with deposit growth at 16% for FY13. Asset quality concerns are also an

issue especially in the power, textile, and mining space.


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In the year 2012-13 so far, there has been a easing of liquidity and

monetary conditions. The policy rate was cut by 0.5% in April. In addition

there has been liquidity infusions through open market operations export

credit refinance. The 1% Statutory Liquidity Ratio (SLR) reduction in

August and the further 25 bps cut in the CRR is expected to further easeliquidity and encourage banks to increase loans and advances. The SLR

and CRR stand at 23% and 4.25% respectively currently.

Pol icy rates and reserv e ratios

Policy rates, Reserve ratios, lending, and deposit rates as of 19,

March, 2013

Bank Rate 8.50%(19/3/2013)

Repo Rate 7.50%

Reverse Repo Rate 6.50%

Cash Reserve Ratio (CRR) 4%

Statutory Liquidity Ratio (SLR) 23.0%

Base Rate 9.75%10.50%


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Bank Rate

RBI lends to the commercial banks through its discount window to help the

banks meet depositors demands and reserve requirements for long term.

The Interest rate the RBI charges the banks for this purpose is called bank

rate. If the RBI wants to increase the liquidity and money supply in the

market, it will decrease the bank rate and if RBI wants to reduce the

liquidity and money supply in the system, it will increase the bank rate. As

of 1 January, 2013, the bank rate was 8.75%.

Reserve requirement cash reserve ratio (CRR)

Every commercial bank has to keep certain minimum cash reserves with

RBI. Consequent upon amendment to sub-Section 42(1), the Reserve

Bank, having regard to the needs of securing the monetary stability in the

country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks

without any floor rate or ceiling rate, [Before the enactment of this

amendment, in terms ofSection 42(1) of the RBI Act, the Reserve Bank

could prescribe CRR for scheduled banks between 5% and 20% of total oftheir demand and time liabilities]. RBI uses this tool to increase or decrease

the reserve requirement depending on whether it wants to effect a

decrease or an increase in the money supply. An increase in Cash Reserve

Ratio (CRR) will make it mandatory on the part of the banks to hold a large

proportion of their deposits in the form of deposits with the RBI. This will

reduce the size of their deposits and they will lend less. This will in turn

decrease the money supply. The current rate is 4.75%. ( As a Reduction in

CRR by 0.25% as on Date- 17 September 2012). -25 basis points cut in

Cash Reserve Ratio(CRR) on 17 September 2012, It will release Rs 17,000

crore into the system/Market. The RBI lowered the CRR by 25 basis points


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to 4.25% on 30 October 2012, a move it said would inject about 175 billion

rupees into the banking system in order to pre-empt potentially tightening

liquidity. The latest CRR as on 29/01/13 is 4%

Statutory Liquidity ratio (SLR)

Apart from the CRR, banks are required to maintain liquid assets in the

form of gold, cash and approved securities. Higher liquidity ratio forces

commercial banks to maintain a larger proportion of their resources in liquid

form and thus reduces their capacity to grant loans and advances, thus it is

an anti-inflationary impact. A higher liquidity ratio diverts the bank funds

from loans and advances to investment in government and approved

securities.

In well-developed economies, central banks use open market operations

buying and selling of eligible securities by central bank in the money

marketto influence the volume of cash reserves with commercial banks

and thus influence the volume of loans and advances they can make to the

commercial and industrial sectors. In the open money market, government

securities are traded at market related rates of interest. The RBI is resorting

more to open market operations in the more recent years.

Generally RBI uses three kinds of selective credit controls:

1. Minimum margins for lending against specific securities.

2. Ceiling on the amounts of credit for certain purposes.

3. Discriminatory rate of interest charged on certain types of advances.


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By 2010, banking in India was generally fairly mature in terms of supply,

product range and reach-even, though reach in rural India still remains a

challenge for the private sector and foreign banks. In terms of quality of

assets and capital adequacy, Indian banks are considered to have clean,

strong and transparent balance sheets relative to other banks incomparable economies in its region. The Reserve Bank of India is an

autonomous body, with minimal pressure from the government. The stated

policy of the Bank on the Indian Rupee is to manage volatility but without

any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite

some time-especially in its services sector-the demand for banking

services, especially retail banking, mortgages and investment services are

expected to be strong. One may also expect M&As, takeovers, and asset

sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to

increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%.

This is the first time an investor has been allowed to hold more than 5% in

a private sector bank since the RBI announced norms in 2005 that any

stake exceeding 5% in the private sector banks would need to be vetted by

them.

In recent years critics have charged that the non-government owned banks

are too aggressive in their loan recovery efforts in connection with housing,

vehicle and personal loans. There are press reports that the banks' loan

recovery efforts have driven defaulting borrowers to suicide.

Growth is good. Sustained high growth is better and Sustained high growth

with inclusiveness is best of all. Inclusive growth in the economy can only


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be achieved when all the weaker sections of the society including

agriculture and small-scale industries are nurtured and brought on par with

other sections of the society in terms of economic development

(Swamy,2010). Bank accounts are relatively widespread, but even in that

most basic of services, the gap is quite large. Though there has beenrepetitive emphasis on expanding the access to the banking system, very

little distance has been covered to reach the last mile. The broad stated

objective is to ensure access to all households in villages with a population

over 2000 (as per the 2001 Census) by 2012.

Greater transparency in banks balance sheets and penal action by RBI,

including against bank auditors, require highly focused action. Internal

audits in banks, now supervised by audit committees of respective boards,

have been more a formality than reflecting managements reporting

responsibility to the stockholders of the banks. High standards of

preventive and detective (internal) controls are required. Risk management

with respect to off-balance sheet items requires considerable attention as

evidenced by instances of losses on letters of credits and guaranteesbusiness. This applies also to auditing off-balance sheet items. At the

macro level, the size of NPAs as a percentage of GDP provides a good

measure to assess the soundness of the system.


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CURRENT ISSUES REGARDING GOLD IMPORTS

Gold imp orts and external stabi l i ty

In India, it is believed that most of the gold is held by people in rural areas

and in many cases this is the only asset they have in their possession

though in small quantity. All the while, rural Indians know that if his crop

fails or his family is sick, he can raise cash in a moment from the goldsmith

or may be pawnbrokers and moneylenders, because the rural India lags in

availing banking facilities. Therefore, even the pattern of saving in India

differs for various income groups. While richer sections diversify theirportfolio according to risk-return equation, the poor rely more on

commodities like gold as well as silver. The jewellery bought in times of

prosperity has been pawned or sold for cash in periods of distress or need.

Over the years, some portion of this is being used as collateral for

borrowing in the informal market, though estimates is not available. It is a

common practice in India that gold is pawned, bought back and re-pawned

to manage day-to-day needs of the poor and middle class.

A study of recent trends in gold imports by India and their impact on

external sector brings to the fore the fact that gold imports are contributing

to the large current account deficit. Gold imports contributed to nearly 30

per cent of trade deficit during 2009-10 to 2011-12, which is significantly

higher than 20 per cent during 2006-07 to 2008-09. Due to falling gold re-exports in a value added form, Indias trade deficit as well as CAD as ratio

to GDP worsened by 0.3 percentage points in 2011-12. The situation is not

different during 2012-13. While capital flows into the economy are volatile

and uncertain, large payments to gold imports inflict a drag on our foreign


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exchange reserves and would impact the volume of external debt.

Divergent factors have contributed to the spike in gold imports by India in

more recent years. Large gold imports, if unchecked, can potentially

threaten the external stability and, therefore, there is an unambiguous need

to moderate them.

Move towards Basel III to entail capital infusion

As per Reserve Bank Of India (RBI) Effective implementation of Basel III is

needed for developing the resilience of the banking sector to future shocks.

The challenges in implementing Basel III should not be underestimated. In

general, Basel III will increase the capital requirements on Indian banks.

The current capital adequacy levels for the Indian banking system are

comfortable. However, the capital requirements, including equity, would be

substantial to support the high GDP growth; further the credit to GDP ratio,

which is currently quite modest at about 55 per cent, is bound to increase

substantially due to structural changes in the economy.

Broad estimates suggest that in order to achieve full Basel III

implementation by end-March 2018, public sector banks (PSBs) would

require common equity of `1.4-1.5 trillion on top of internal accruals, in

addition to `2.65-2.75 trillion in the form of non-equity capital. Banks would

have continued to require additional capital to meet Basel II capital ratios

had Basel III capital ratios not been implemented. Therefore, in case of

PSBs, the incremental equity requirement due to enhanced Basel III capital

ratios is expected to be `750-800 billion. Similarly, major private sector


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banks would require common equity of `200-250 billion on top of internal

accruals, in addition to `500-600 billion in the form of nonequity capital.

These projections are based on the conservative assumption of uniform

growth in Risk-Weighted Assets of 20 per cent per annum individually for

all banks and individual banks assessment of internal accruals (in therange of 1.0-1.2 per cent of Risk-Weighted Assets).

For every bank, it is critical to work out the most cost-effective model for

implementing Basel III. Banks will have to issue fresh capital particularly

towards the later years of implementation. Although Indian banks have the

advantage of a strong starting base in the form of a higher capital to risk-

weighted assets ratio (CRAR) with a larger component of core equity

capital, the large equity needs, though over an extended time-frame, could

put downward pressure on the banks Return on Equity (RoE). In the long

term, the higher capital requirements would bring down risks in the banking

sector inducing investors to accept a lower RoE. In the short term, though,

the only solution is to raise productivity. The Government of India being the

owner of public sector banks will have to play a proactive role in thisprocess.

CONCLUSION

As per the report of banking sector from 1969 to 2012, it is concluded that

after Nationalisation of banks in 1960s and 1980s, PSBs played a very vital

role in bringing up the economy of India. At the times of 1990s economy of

India declined and the rupee value was devalued by 18% relative to US

Dollar. As the year 2000 arrived, banks adopted the IT system which made

them to serve their customers more effectively and invent new products to


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earn profits as well. It is instructed by the RBI to banks to meet the BASEL

III norms till 2018-2019 to improve banks efficiency to perform well


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banking sector report from 1969 to 2012

Documents