Introduction
In India banking system differs from the banking system of other Asian nations. Because the country has its uniqueness based on geographical, social and economic characteristics.
It is a country having a dense population with large land size and a disparate source of income. A distinct culture which can we have seen among its regions. In India, the literacy rate is higher among the percentage of the population but the large population of the country is talented in managerial and technological skill. The urban cities and the metropolitan areas cover the population between 30 to 35 percent. And the rest lives in rural and semi-urban areas. They combine the economic framework of our country of capitalized and socialist features it biases which towards investment in public sectors.
As the Asian economy has followed the path of “export growth” and our country has followed the path of “growth- led export”. The Asian Bank emphasizes more on import substitution.
A brief history of the banking sector in India
They derive the “bank” word from the French word “banquet” or “bancus” i.e., bench. In the early banking system, they believe truth transact the Jews of Lombardy through the benches.
And some believes that the word “bank” has come from the German word “back” means the joint stock funds. It can trace the modern banking system from the opening of the banking system in England. For example, the Bank of England in the year 1694.
In India, the first bank established was the Bank of Hindustan in the early 1770s. Before this period talking about the period of the British Regime. The transferring money and the other function incidental thereto done through the agency houses by which they carry the business of banking on and the other trading activities. But these agencies were closed in the year 1929-32. Then in the year 1809, the presidency bank was setup commonly known as the Bank of Bengal, in the year 1840 the Bank of Bombay, in 1843 the Bank of Madras setup, respectively. And later all these three banks merged into the empirical Bank of India in 1919 the period of high bank crises.
In the year 1881, they set the first bank for limited liability up by Indians known as Oudh Commercial Bank. Before this period in between 1865-1870, they’re established only and only one bank known as Allahabad Bank Ltd. And in the year 1894, they established Punjab National Bank with the head office at Anarkali market at Lahore the area comes under Pakistan. It established the commercial Bank such as the Peoples Bank of India Ltd. The Central Bank of India, the Bank of Baroda Ltd. The Indian bank in 1906 at the time of the Swadeshi Movement.
About RBI as the history of the banking sector in India
There is a failure of over 588 banks between the years 1913-1917 this period there is a high banking crisis. Then many ordinances and acts passed to come out of the failure of such as January 1946 the banking companies (Inspection Ordinance), the banking companies (Restriction of Branches) an act passed in the year February 1946, In the year February 1846 the act knows as the Banking Companies they passed Act and the latter amendment in this act the name changed and known as Banking Regulation Act 1949 came in to force. Meanwhile, in the year 1934, the Reserve Bank of India Act passed, and they set the first Centre Bank of the Country up on April 1st,1935 known as the Reserve Bank of India.
The bank took all the activities related to central banking as in the form of the Imperial Bank of India. Later the bank nationalized on January 1st, 1949. In the year 1955, the Imperial Bank of India nationalized partly to form the State Bank of India. In a year many subsidiaries of SBI established, i.e., State Bank of Indore, State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Hyderabad, State Bank of Saurashtra, State Bank of Patiala and State Bank of Travancore respectively established.
At the time when Mrs. Indira Gandhi was the Prime Minister in the 19th century of July 1969, the 14 banks they privately own the 14 banks and nationalized and 6 new nationalized banks newly installed on 15th April 1980. The main aim of nationalization of the bank was to ensure mass banking as against class banking with banking infrastructure with the aim at hilly tracts and terrains of the country.
The structure of Indian Banking System
The Indian banking system has various features which reflect the size and structure. The diversity of the financial and banking sector. In the 5-year development plans, the focus in the banking system is to achieve the goal of economic policies, more concentration showing on the equal distribution of income, balanced economic growth, elimination of monopoly of private banks in an industrial trade. The various nationalized scheme introduced by the state policy in the year (1955, 1969 and 1980 respectively).
Banking and Financial Institutes and the Reserve Bank of India
RBI the centralized bank also known as bankers to the bank–whether it is a commercial bank or corporate bank or any other bank set up in the rural area. It has a control on all these banks. It includes the relationship established in the second schedule to the Reserve Bank of India Act 1934 on the condition as laid down under section 42 clause (6) of the act as given below:
- The paid-up capital and the aggregate value of reserves should not be less than the amount specified from time to time by the Reserve Bank of India, and this condition is mandatory
- The establishing bank must satisfy with the condition of RBI that it should not conduct the affairs of the bank against the interest of its customer.
It further classifies the commercial bank into scheduled and it introduced non-scheduled categories in the year 1935. At the time of establishment of RBI and later during the last 2 or 3 decades the state corporate banks. It included the urban corporate banks. The RBI has the power to exclude the name of any bank from the list of the second schedule. If the RBI satisfied that the suitable opportunity to increase the paid-up capital. To improve deficiency is going into liquidation. The bank ceased the functions of banking activity the RBI can strike out the name of that bank from the list.
Present Scenario of Banking System in India
Now in the present scenario. The bank has a more comfortable liquidity profile and a higher level of deposits from the public deposit. And a good economic growth will cause the benefit of banks over the last decades. The enforcement of the SARFAESI Act, 2002) has improved the rules and regulations to protect the bank from bad-debts. The fraudulent creditors and improved and advanced the technological infrastructure, established credit information bureaus for tightening the monitoring process. And it improved the risk management platform.
The improved performance after crossing many hurdles on the way many of times the temporary slowdown in the economic activities in the year 2008-09. Then also the Indian bank after facing a wide range of challenges. The increase of interest of the rate of saving deposits, deregulation of the interest rate on savings, the strict monetary policy large governmental control and a deficit of government finance, the increased stress on bank due to some sectors such as the airlines and micro-finance, the liability of pensions- gratuity, advanced infrastructure loan.
Regulatory Developments and Recent Trends
To strengthen lenders’ ability to deal with distressed assets. The Reserve Bank of India (RBI) has been issuing guidelines and prudential norms on distressed assets resolution by regulated lenders. It including guidelines on forming a joint lenders forum, corporate debt restructuring, and strategic debt restructuring.
The most recent step has been RBI’s efforts to facilitate the resolution of large borrowed accounts. Particularly relating to project financing. Which are facing severe financial difficulties? To ensure financial restructuring to give projects a chance of sustained revival. The RBI released guidelines in June 2016 on resolving large accounts meeting the following conditions:
- The project has started commercial operations.
- The total exposure (including accrued interest) of all institutional lenders must be more than INR500 crore (one crore equals 10 million).
- The borrower must be able to service at least 50% of the outstanding debt (sustainable debt).
They restructure the debt through a resolution plan agreed by at least 75% of lenders by value and 50% of lenders by number. It bifurcates the outstanding debt into part A debt and part B Debt. Part A Debt serviced by the borrower under the original terms and conditions. It does not allow a moratorium, extension of repayment schedule or reduction in the interest rate for a part. It converts the part B debt into equity/redeemable cumulative optionally convertible preference shares.