Write briefly about modern banking in India

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Many changes have been found in Indian Banking over long period of the time after the Reserve Bank of India got established in 1935. Before the creation of Reserve Bank of India, The Imperial Bank of India looked after the functions of it. All India Rural Credit Survey Committee gave its report giving the recommendations for creating the integrated, state partnered, strong, state sponsored commercial banking institution with the machinery that is effective and is spread all over India. Then comes the another phase of banking that is social banking which was undertaken during 1966 as private banks were not providing required help in form of unorganized sector. Each leading sector at that time in India was closely related with promotion.

Most of the deposits collected were allocated in sectors of industry that were completely organized while at smaller scales like transporters, farmers, professionals, small entrepreneurs and self dependent had to rely upon the money lenders who knowingly exploit them and charge rate of interest that are higher than any other sources. The scheme of social control was established which had important role of accessing the demand for bank credit from sectors of economy in order to set the priorities for loans and advances. It’s another function is to make efficient use of the sources. The schemes was not of much use although many branches were opened in both urban and rural areas however activity of lending money by the private bank was not accomplished towards meeting the requirements of economically weaker sectors. Post nationalization period was the period in which there was increase in branches that were opened in rural and semi urban centre that brought down the population per bank. There were five different phases involved in banking in India in five decade since our independence.


They are foundation, expansion, consolidation, reforms and post reforms phase. Foundation phase was estimated to be in 1950 and 1960 till all the banks in India got nationalized in 1969. The main motive of this era was starting a banking system which will be completely sound in the whole country. This phase showed the progress of important legislative framework for maintaining re-organization and combining banking system for fulfilling the needs of economy of India. Imperial Bank of India was converted into State Bank of India during 1955 and during 1969, fourteen banks, which were major private banks got nationalized during 1969. This phase was known as Foundation phase. In this phase main banks were formed and they got nationalized also. The State Bank of India was major foundation of this phase that is why the title of this phase got named like this. The next one is the expansion phase in which network of banks was widened at very fast speed including both rural and semi-urban population which were never in connect with banking hitherto. It got started in middle of 1960’s but it increased its pace after nationalization of the banks and it was maintained till 1984. A serious effort was made to bring banking facilities to the masses. The credit flow was guided towards the private sectors. There were many side effects of this phase too. It included the weakening of the lines of supervision. It also put a huge impact on the quality of assets of the banks. It put pressure on the profits and also brought competitive efficiency of the bank at a lower level. The next phase that needed to be discussed widely is the consolidation phase.

This phase started in 1985 when few policies were started by the Reserve Bank of India due to which a decrease was shown in the branch expansion. The schemes were started to put attention towards the improvement of house-keeping, credit management, profitability of banks, customer services and staff productivity. Steps were also taken to lessen the constrains of the structure that hinder the growth of the financial market. Reform phase is the phase in which banking system was reformed to a great level. The country faced a crisis of macro-economic level in 1991 and hence it made the way for extensive financial sector reforms. As a result it initiated the more competition, prudential guidelines on asset classification, deregulation in the interest rates, technological changes, autonomy packages, capital adequacy and income recognition. The post reform phase is the phase in which banking sector could be seen developing the greater force and on the bigger scale. The products with new innovation were made and the use of information technology got increased drastically and global standards of services.

With nationalization of banks there was a great number of increase in banks, large volumes were started getting deposited in the banks which ensured the wider dispersal of advances. There were number of developments that took place in the country as well as in foreign that made the condition of the banks very vulnerable. These factors include increased competition within the financial sectors of the country, technology leading to less transaction and information costs and low account opening amount so that anyone could avail the banking facility easily. Cost structure was started getting unsustainable and the symptoms of the excess capacity and less protective regulation could be seen easily. Technology eroded the bank monopoly that was eroding banking system that is traditional in nature. Releasing the ill effects of banking systems there were number of changes that were brought in the financial system of the country. The financial systems reforms started in 1991 and depend upon the principle of two factors at the same time that are operational flexibility and functional autonomy so as to increase the efficiency, profitability and productivity of the financial institutions. It targeted at providing a competitive, efficient and diversified financial sector with an aim of improving the capabilities of available sources, increasing the profits on investments thus taking a positive step in growth of economy sector of country. Then comes first Narsimhan committee which was introduced in Nov 1991 with focus on functionality autonomy and operational flexibility for enhancing productivity, profitability and efficiency of financial system. Some of its recommendations were- phased lowering of SLR and CRR (SLR should be lowered to 25%and CRR to 10%) over a period of time so that funds of banks are used by them in required loan assets. Other recommendations are loan recover, transparency, restructuring the banks and various capital adequacy norms were implemented. The impact of above recommendations was that the process in some of the banks like (SBI, PNB) which are financially sound was faster as compared to other banks like (UCO, Indian bank) which were having weak financial system. Then second Narsimhan committee was introduced on 23 April,1998.It’s major recommendations were the minimum capital to risk assets ratio be raised to 10%,an asset can be considered as doubtful if it is in substandard level for eighteen months .


The second Narasimham committee gave a report on 23 April, 1998. The committee gave some recommendations in order to improve the financial system in the country. In span of three years entire portfolio of entire Government securities should be marked to market. Market risk should be given only 5 per cent of the weight age only and other approved securities should be marked against zero. There should be same risk rate for Government guaranteed advances as compared to the other advances. The minimum capital against risk assets ratio is increased to 10 per cent. The average level for NPA for all banks should be reduced to below 5 per cent. International practices should be adopted by introducing norms of 90 days in phased manner. Introduction of general provision should be considered by the government. The great attention is needed to be paid to asset liability management. To avoid mismatches. Statistical risk management techniques should be adopted by the banking sector to avoid the risks. DFI should convert itself into banks over a period of time in order to create only two forms of intermediaries which are banking companies and non banking finance companies. The minimum share holding by the government in nationalized bank equity should be brought till 33 per cent. There should be the system of graded premium in the regard of deposit insurance. The banking facilities like inter bank call and notice money market should be restricted to banks and primarily dealers only.


Human resource management basically implies to management of human resources. It is made to increase the performance of the service of the employee. It deals with management of the people in an organization. Employee benefit system, recruitment of an employee, its development and the training and also the performance appraisal is linked with the process of human resource development and management. It keeps the perfect balance between the practices of the organization and requirements of a employee. In the 20th century human relations movement were introduced of which HR is the product. It helps in increasing the productivity of an employee. It is affected by the transactional work like benefits of administration and payroll. Human resource management put focus on initiatives like that of management of talent.

This article has been written by KJ Singh a MBA Graduate from a prestigious Business School In India
Article Published:February 13, 2018
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