Introduction of Banking Sector

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GENERAL INTRODUCTION ABOUT THE SECTOR The Indian economy is emerging as one of the strongest economy of the world with the GDP growth of more than 8% every year. This has given a great support for the development of banking industry in the country. Due to globalization, competition among the banks has drastically been increased. As India has a substantial upper and middle class income hence the banks have immense opportunities to increase their market shares. The consumer being on the receiving end is in the comfortable position but the banks trying to increase their market share have to continuously add value for consumers in order to increase market share and sustain their growth. BANKING SECTOR The banking sector is the most dominant sector of the financial system in India. Significant progress has been made with respect to the banking sector in the post liberalization period. The financial health of the commercial banks has improved manifolds with respect to capital adequacy, profitability, and asset quality and risk management. Further, deregulation has opened new opportunities for banks to increase revenue by diversifying into investment banking, insurance, credit cards, depository services, mortgage, securitization, etc. Liberalization has created a more competitive environment in the banking sector INDUSTRY PROFILE a) ORIGIN AND DEVELOPMENT OF THE INDUSTRY The origin of banking in India is traceable in ancient time through the modern banking hardly 200 years old. The main function of bank is to accept deposits and grant loans. There is evidence of these functions being performed by a section of the community in the Vedic periods. There are many references of debt in the Vedic literature. During the Ramayana and Mahabharata areas banking, which was a side business during the Vedic period, become a fulltime business activity for the people. During the smriti period, which followed the Vedic period and the Epic age, bankers performed the function of the modern banks. The members of the Vaish community carried on the banking business and Manu speaks of earning through interest as the business of Vaishays. He accepted deposits from the public, granted loans against pledges and personal security, granted simple open loans, acted as bailee for his customers, subscribed to public loans by granting loans to kings, acted as treasurer and banker to the state and managed the currency of the country. Indigenous bankers used to maintain a regular system of accounts and borrowers used to sign the loan deeds. Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over these responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India’s independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks;

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