Professional Documents
Culture Documents
BY
V SURENDRAN,
PGPPM-1313020
2010. The all India weighted average improved from 15,500 to 13,400
during the same period. All these, shows significant indirect contribution
of Banking sector to the growth of the economic. Direct contribution of
banking
sector
to
GDP
is
consistently
(www.dnb.co.in/IndiaTopBanks2011/IndianBankingSector.asp)
more
than
5%.
A further close look at the performance of banking sector with another set
of parameters will give a different story altogether. In the larger interest of
the economy, the performance of banking sector is to seen with rest to its
efficiency
in
terms
of
allocation
of
resources
and
operational
It can be seen from the above table that there a definite positive
shift towards bigger cities in terms of both deposits are credits.
f) Shift from individuals to others Percentage of number of accounts
decreased from 96.05% to 85.61 and in terms of amount it
decreased from 77.43% to 50.64% during 1997 to 2012.
Detailed statistics are given at Annexure I. All these statistics (Speech
of Deputy Governor RBI at FIBAC 2013 taken from RBI website) clearly
indicates the attention of banks have been shifting steadily from rural to
urban, agricultural/ SSI Units to bigger corporate entities, individual
customers to business establishments. All these work against the
objective of better allocational efficiency.
Allocational inequalities are also evident from the fragmented
structure of banking sector as can be seen from the chart given below.
Regional Rural Banks and co-operative banks which forms more than 65%
in number contributes only less than 6% in terms of business. This implies
the domination and pivotal role of Scheduled Commercial Banks excluding
RRBs
in
the
Indian
banking
.
( www.dnb.co.in/IndiaTopBanks2011/IndianBankingSector.asp)
sector.
Above observations establishes the need for having some serious action
for improving the allocation efficiency and making the sector more
inclusive in its growth.
in
finance
sector,
having
adequate
financial
resources,
These experiences gave a clear lesson that the banks will not be able to
survive without a strong financial support and availability of professional
management. As the ownership by business /industrial houses were not
allowed in banking sector due to fear of concentrated control and
possibility of diversion of public money, Govt explored the possibility of
allowing
foreign
banks
to
operate.
To
facilitate
this,
the
equity
participation limits were gradually raised and now it stands at 74%. Govt.
also allowed participation of business/industrial houses in banking sector
in a limited way with sufficient precautions.
In spite of all these initiatives from the Govt. the sector could not
deliver to the expectation of a fast growing economy. This was evident
from some of the statistic seen in section 2 above. This forced Govt. to
look forward seriously to bring in more participation of private entities in
this sector with effective control mechanisms. Ineffectiveness of the
existing banking system in terms of social objectives financial inclusion
and the recent global crisis in the financial sector prompted Govt, to look
structural changes to make the financial systems more robust and
effective.
4.New Initiatives
Based on its past experience in giving licenses and the present
performance of the system, Govt has to take adequate care while deciding
about the next lot of licenses. Some of the important points to be taken
care are.
a) Licences are to be given to those who can effectively spread their
network. This necessitates huge capital investment. In this context,
Govt has to consider seriously about participation of large business
houses, directly or indirectly, with adequate precautions to avoid
centralization of control and consequent possible flow of public
funds for private use.
Various alternatives with their pros and cons have been presented by
RBI while calling for suggestions and opinions. Subsequent to these
consultations, a draft proposal has been posted on the website of RBI on
____ calling for final suggestions and proposals from stake holders.
Meanwhile, realizing the necessity for bringing in structural changes in
the banking sector to make all these efforts fruitful, another series of
consultations have been initiated by RBI. Major issues considered for
consultation are
(i) Small banks vs. large banks:
5.Conclusion
Acknowledging the fact that a strong and vibrant banking system is
most essential for consistent inclusive development of the economy, Govt
has initiated steps for augmenting the number of banks in operation and
also for restructuring the sector. Govt. has involved in multiple rounds of
consultation to ensure that views of all stake holders are taken care before
a final decision is take. As mentioned earlier, the four layered structure
tries to adopt benefits of operational efficiency of large scale banks and
the effectiveness of small local banks in financial inclusion. But challenge
Annexure I
Annexure II
References
1. www.dnb.co.in/IndiaTopBanks2011/IndianBankingSector.asp
2. http//en.wikipedia.org/wiki/Banking_in_India
3. Entry of new banks in the private sector Discussion paper by RBI
4. Speech of Deputy Governor RBI at FIBAC 2013 taken from RBI
website
5. Speech of Deputy Governor RBI at DFDI London in 2007 taken from
RBI website
6. Banking structure in India The way forward, the discussion paper
of RBI