BANKING

INDUSTRIES IN
INDIA
 INTRODUCTION
India is not only the world’s largest independent democracy, but also an emerging economic giant. Without a sound and
effective banking system, no country can have a healthy economy. Banks play a vital role in the economic development
of a country. They accumulate the idle savings of the people and make them available for investment. They also create
new demand deposits in the process of granting loans and purchasing investment securities. They facilitate trade both
inside and outside the country by accepting and discounting of bills of exchange. Banks also increase the mobility of
capital. For the past three decades, India’s banking system has several outstanding achievements to its credit. It is no
longer confined to only the metropolitans, but has reached even to the remote corners of the country. This is one of the
reasons of India’s growth process. Today, the banking sector is one of the biggest service sectors in India. Availability of
quality services is vital for the well-being of the economy. The focus of banks has shifted from customer acquisition to
customer retention. With the stepping in of information technology in the banking sector, the working strategy of the
banking sector has seen revolutionary changes.
Various customer-oriented products like internet banking, ATM services, Tele-banking and electronic payment have
lessened the workload of customers.

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 CONTINUED…..
The facility of internet banking enables a consumer to access and operate his bank account without
actually visiting the bank premises. The facility of ATMs and credit/debit cards has revolutionized the
choices available with the customers. Banks also serve as alternative gateways for making payments
on account of income-tax and online payment of various bills like the telephone, electricity and tax. In
the modern-day economy where people have no time to make these payments by standing in queue,
the services provided by banks are commendable. Among the institutions whose role in the
development of the less developed regions is well recognised but inadequately emphasised are the
development banks. Playing multiple roles, these institutions have helped promote, nurture, support
and monitor a range of activities, though their most important function has been as drivers of
industrial development.

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TYPES OF BANKS
 CENTRAL BANKS
 COOPERATIVE BANKS
 COMMERCIAL BANKS
 REGIONAL RURAL BANKS(RRB)
 LOCAL AREA BANKS(LAB)
 SPECIALISED BANKS
 SMALL FINANCE BANKS
 PAYMENTS BANKS

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PRIMARY
FUNCTION
╺ ACCEPTING DEPOSITS
╺ GRANTING OF LOANS AND ADVANCES

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1.
Accepting deposits
The deposits can be of different types, such as :-

• Saving Deposits
• Fixed Deposits
• Current Deposits
• Recurring Deposits
2.
Granting loans and advances
The types of bank loans and advances are :-

• Overdraft
• Cash Credits
• Loans
• Discounting of Bill of Exchange
SECONDARY
FUNCTIONS
╺ AGENCY FUNCTIONS
╺ GENERAL UTILITY FUNCTIONS

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1.
Agency Functions
The bank performs a number of agency functions which includes :-

• Transfer of Funds
• Collection of Cheques
• Periodic Payments
• Portfolio Management
• Periodic Collections
• Other Agency Functions
2.
General Utility Functions
The bank also performs general utility functions, such as :-

• Issue of Drafts, Letter of Credits, etc.

• Locker Facility
• Underwriting of Shares
• Dealing in Foreign Exchange
• Project Reports
• Social Welfare Programmes
• Other Utility Functions
CHALLENGES
 ASSET QUALITY
 CAPITAL ADEQUACY OF BANKS
 UNHEDGED FOREX EXPOSURES
 HUMAN RESOURCE ISSUE
 PMJDY AND BEYOND
 TECHNOLOGY AND ITS IMPACT
 TREATING CUSTOMERS FAIRLY 11
 1.
Asset Quality
The biggest risk to India's banks is the rise in bad loans. The slowdown in the economy in the last few
years led to a rise in bad loans or non-performing assets (NPAs). These are loans which are not repaid
back by the borrower. They are, thus, a loss for the bank. Net NPAs amount to only 2.36% of the total
loans in the banking system. This may not seem like an alarming figure. However, it does not take into
restructured assets - when a borrower is unable to pay back and the bank makes the loan more flexible
to be paid back over a longer period of time. Restructured assets too put pressure on a bank's
profitability. So, if these debts turn bad too, banks will face major losses.
 2.
Capital Adequacy
One way a bank tries to ensure it is protected from bad loans is by setting aside money as a '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. The Capital Adequacy Ratio measures how much
capital a bank has. When this falls, the bank has to borrow money or use depositors' money to lend. This
money, however, is riskier and costlier than the bank's own capital. For example, a depositor can
withdraw his/her money any time they want. Moreover, banks are not able to raise money easily,
especially public-sector banks which have higher number of bad loans. If banks do not shore up their
capital soon, some could fail to meet the minimum capital requirement set by the RBI. In such a case,
they could face severe issues
 3.
Unhedged Forex Exposure
The wild gyrations in the forex market have the potential to inflict significant stress in the books of Indian
companies who have heavily borrowed abroad. This stress, besides impacting repayment of forex
liabilities, eventually hampers their debt repayment capability to the domestic lenders as well. It is
precisely with this consideration that RBI has been advocating a curb on the increasing tendency of the
corporates to dollarize their debts without adequate risk mitigation.
Our supervision of banks' books has highlighted the need for the banks to have more robust policies for risk
mitigation on account of unhedged foreign currency exposure of their corporate borrowers.
 4.
Human Resource Issues
 All banks, including those in the private sector, are witnessing high attrition rates, giving rise to resource
gaps. The problem is set to get accentuated further once the banks that have been newly licensed/ likely
to be licensed, start hiring. Therefore, bridging resource gaps and managing employee turnover are
major challenges that banks need to be prepared to address.
The banks need to continuously enhance the skill levels of their employees so as to remain viable and
competitive and to take advantage of new opportunities. The banking personnel, across the cadres need
to be suitably trained to acquire necessary skill sets to perform their jobs more efficiently. The biggest
challenge is to build capacity at a rate which matches the loss of existing talent and skills to retirement,
poaching and resignations. The training initiatives must ensure that the available talent pool in the banks
is able to always keep pace with the fast changing ways in which banking is conducted.
 5.
PMJDY And Beyond
More than 14.5 crore accounts opened. That leads to the question- what next? Flow of individual savings,
albeit howsoever small combined with flows from direct benefit transfer would be crucial to give an
initial push to keep these accounts active while extending productive/need-based credit would be the
second crucial step. A major challenge for the banks would be to manage their banking correspondent
model effectively. The problems relating to their viability, governance, cash management, linkage and
oversight from a base branch need to be quickly addressed. The entire financial inclusion ecosystem
must progressively develop, if the momentum gathered under the PMJDY exercise has to be sustained
for all-round benefit of all stakeholders.
 6.
Technology and Its Impact.
 PSBs must be able to leverage technology for building data warehouses and then be able to do data mining
and analytics. The goal should be to use data for effective decision making at various levels, including
product customization, developing business models and delivery channels, etc.
A good thing going for the banks is the current recruitment of youngsters in the work force. This new-
generation staff is tech-savvy and can quickly connect with technology. The enterprising among them
must be accorded freedom to experiment and suggest ways in which the bank could reengineer its
processes for its own benefit and that of its customers. This would require a change in mind-set of the
senior / Top Management and this must happen if the PSBs have to compete efficiently and effectively
with the private sector counterparts in future.
 7.
Treating Customers Fairly
Protection of bank customers has been one of the thrust areas for RBI in recent times. As you may be aware,
RBI has issued a Charter of Customer Rights based on the global best practices.

The Charter comprises of following five rights:

 Right to Fair Treatment

 Right to Transparency, Fair and Honest Dealing
 Right to Suitability
 Right to Privacy
 Right to Grievances Redress and Compensation
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Yellow Blue Red
Is the color of gold, butter and Is the colour of the clear sky and Is the color of blood, and
ripe lemons. In the spectrum of the deep sea. It is located because of this it has historically
visible light, yellow is found between violet and green on the been associated with sacrifice,
between green and orange. optical spectrum. danger and courage.

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Let’s review some concepts
Yellow Blue Red
Is the color of gold, butter and ripe Is the colour of the clear sky and the Is the color of blood, and because of
lemons. In the spectrum of visible light, deep sea. It is located between violet this it has historically been associated
yellow is found between green and and green on the optical spectrum. with sacrifice, danger and courage.
orange.

Yellow Blue Red

Is the color of gold, butter and ripe Is the colour of the clear sky and the Is the color of blood, and because of
lemons. In the spectrum of visible light, deep sea. It is located between violet this it has historically been associated
yellow is found between green and and green on the optical spectrum. with sacrifice, danger and courage.
orange.

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