EVALUATION AND STRUCTURE OF COMMERCIAL BANKS IN INDIA Vinod Raina, ACS, Company Secretary Anjani Technolast Limited, Noida Introduction In the earlier societies functions of a bank were done by the corresponding institutions dealing with loans and advances. Britishers brought into India the modern concept of banking by the start of Bank of England in 1694. In 1708, the bank of England was given the monopoly for the issue of currency notes by an Act. In nineteenth century various banks started operations, which primarily were receiving money on deposits, lending money, transferring money from one place to another and bill discounting. History of Banking in India: Banking in India has a very old origin. It started in the Vedic period where literature shows the giving of loans to others on interest. The interest rates ranged from two to five percent per month. The payment of debt was made pious obligation on the heir of the dead person. Modern banking in India began with the rise of power of the British. To raise the resources for the attaining the power the East India Company on 2nd June 1806 promoted the Bank of Calcutta. In the mean while two other banks Bank of Bombay and Bank of Madras were started on 15th April 1840 and 1st July, 1843 respectively. In 1862 the right to issue the notes was taken away from the presidency banks. The government also withdrew the nominee directors from these banks. The bank of Bombay collapsed in 1867 and was put under the voluntary liquidation in 1868 and was finally wound up in 1872. The bank was however able to meet the liability of public in full. A new bank called new Bank of Bombay was started in 1867. CENTRAL BANK th On 27 January 1921 all the three presidency banks were merged together to form the Imperial Bank by passing the Imperial Bank of India Act, 1920. The bank did not have the right to issue the notes but had the permission to manage the clearing house and hold In 1934, Reserve Bank of India came into being whichNon wasBanking made CommercialGovernment balances. Specialized Institutional the Central Bank and had power to issue the notes and was also the banker to Banks banks banks Financialthe Institutions Government. The Imperial Bank was given right to act as the agent of the Reserve Bank of India and represent the bank where it had no braches. Nationalised banks (20)
In 1955 by the State Bank of India 1955, the Imperial Bank was taken over and SBIpassing and assets were vested in a new bank, the State Bank of India. Associate Banks
Bank Nationalization: After the independence the major historical event in banking sector was the nationalization of 14 major banks on 19th July 1969. The nationalization was deemed as a major step in achieving the socialistic pattern of society. In 1980 six more banks were nationalized taking the total nationalized banks to twenty.
Private Sectors Banks
Foreign Banks
Old private sector banks
New private sector banks
Various Types of banking services: The flow chart below shows the various types of banking services:
Land Mortgage Rural Credit
IFCI SFCs
Industrial Dev. Housing Finance EXIM Bank
IRBI NABARD HDFC SIDBI
Mutual Funds
Private Sector NBFC
Structure of schedule commercial banks: The composition of the board of directors of a scheduled commercial bank shall consist of whole time chairman. Section 10A of the Banking Regulation Act, 1949 provides that not less than fifty-one per cent, of the total number of members of the Board of directors of a banking company shall consist of persons, who shall have special knowledge or practical experience in respect of one or more of the matters including accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law, smallscale industry, or any other matter the special knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank, be useful to the banking company. Out of the aforesaid number of directors, not less than two shall be persons having special knowledge or practical experience in respect of agriculture and rural economy, cooperation or small-scale industry. Besides the above the board of the scheduled bank shall consist of the directors representing workmen and officer employees. The Reserve Bank of India and the Central Government also has right to appoint their nominees into the board of the banks.
Present scenario of the banks in India: Banks are extremely useful and indispensable in the modern community. The banks create the purchasing power in the form of bank notes, cheques bills, drafts etc, transfers funds bring borrows and lenders together, encourage the habit of saving among people. The banks have played substantial role in the growth of Indian economy. From the meager start in 1860 the banks have come to long way. At present in India there are 20 nationalized banks, State bank of India and its seven Associate banks, 21 old private sector banks and 8 new private sector banks. Besides them there are more than 30 foreign banks either operating themselves or having their branches in India. The statistical table hereunder shows the financial position of the banks as on 31.03.2005. Statistical table for banks in India (Year 2004-05) (Rs. In Crores) State bank of India and its associates Name of bank
State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of India State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore
Year of incorporation 1966
No. of Offices 833
Networth
Deposits
Advances
1298
19038
1941
943 9161 456 639 754 429 681
1765 24072 904 756 2045 794 1130
28930 367048 13807 13585 26496 12613 24133
1955*. 1960 1913 1917 1902 1945
12009
Interest income 1741
Net NPA ratio 1.61
15600 202374 9041 8781 15359 6714 14848
2325 32428 1110 168 2133 1132 2008
0.61 2.65 1.00 0.92 1.23 1.40 1.81
* From 27th January 1921 to 30th June 1955 it was Imperial Bank of India, which came about by merger of Bank of Bengal (2nd June 1806), Bank of Bombay (15th April 1840) and Bank of Madras (1st July, 1843).
Nationalized Banks Name of bank
Allahabad Bank Andhra Bank
Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank
Year of incorporation 1865 1923 1908 1906 1935 1906 1911 1906 1938 1907 1937 1943 1908 1895 1925 1943 1919 1950 1931
No. of Offices 2027 1159 2772 2668 1330 2627 3239 799 1072 1417 1583 1166 787 4117 1905 1801 2140 1343 966
Networth
Deposits
Advances
2328 1837 5628 4465 1543 6109 3265 3054 1104 5936 2575 3327 440 8161 2199 2049 3614 1957 1590
40762 27551 81333 78821 28844 96908 60752 27233 20096 34809 44241 47850 14171 103167 46295 49470 61831 25348 25618
21151 17517 43400 56013 13062 60421 27277 18546 11309 18360 25205 25299 6322 60413 26729 27656 40105 11390 14336
Interest income 3186 2273 6431 6032 2368 7572 5205 2250 1725 2871 3951 3572 1249 8460 3758 3547 4970 2133 2094
Net NPA ratio 1.28 0.28 1.45 2.77 2.15 1.88 2.98 1.12 5.23 1.35 1.27 1.29 8.11 0.20 1.59 2.93 2.64 2.43 0.59
Old private Sector Banks Name of bank
Year of incorporation 1943 1973 1920 1904 1995** 1927 1931 -1930 1938 1924 1926 1926 1940 1922 1943 1948 1993 1929 1921 1936
Bank of Rajasthan Bharat Overseas Bank Catholic Syrian Bank City Union Bank Development Credit Bank Dhanalakshmi Bank Federal Bank Ganesh Bank of Kurundwad ING Vysya Bank Jammu & Kashmir Bank Karnataka Bank Karur Vysya Bank Lakshmi Vilas Bank Lord Krishna Bank Nainital Bank Ratnakar Bank Sangli Bank SBI Comm. & Intl. Bank South Indian Bank Tamilnad Mercantile Bank United Western Bank
No. of Offices 388 91 314 137 88 180 471 31 381 439 398 249 239 118 69 75 192 3 438 183 237
Networth
Deposits
Advances
351 199 210 241 200 114 724 11 710 1665 978 761 230 181 76 45 85 88 456 559 244
8120 2749 4021 3095 3895 2339 15193 217 12569 21645 10837 6672 3496 2176 933 784 1985 331 8492 4827 6453
2896 1651 2289 2013 2001 1410 8823 95 9081 11517 6287 4620 2318 1387 363 424 812 231 5365 2626 3976
Interest income 522 219 368 291 303 192 1191 18 991 1549 840 591 298 195 74 66 137 26 709 513 487
Net NPA ratio 2.50 1.56 3.80 3.37 6.83 3.92 2.21 8.32 2.13 1.41 2.29 1.66 4.98 4.22 0.00 5.54 4.30 7.65 3.81 2.95 5.97
** Converted to a private sector commercial bank on 31st May, 1995. Started as a Credit Society set up by the followers of His Highness the Aga Khan in the 1930s and later converted into Co-operative Bank. New Private Sector banks Name of bank
Year of incorporation 1995 1994 1994 1994 1994 1995 1985 1994 2003
Bank of Punjab* Centurion Bank HDFC Bank ICICI Bank IDBI Bank Ltd. IndusInd Bank Kotak Mahindra Bank UTI Bank Yes Bank
No. of Offices 120 77 446 519 157 127 54 249 3
Networth
Deposits
Advances
241 590 4520 12900 5929 830 757 2422 217
4307 3530 36354 99819 15103 13114 4300 31712 663
2417 2194 25566 91405 45414 9000 4017 15603 761
Interest income 329 346 3093 9410 2656 1134 420 1924 30
Net NPA ratio 4.64 2.51 0.24 1.65 1.74 2.71 1.56 1.39 0.00
* now merged with Centurion Bank Foreign Banks Name of bank ABM Amro Bank Abu Dhabi Commercial Bank American Express Bank Antwerp Diamond Bank Arab Bangladesh Bank Bank International Indonesia Bank of America Bank of Bahrain & Kuwait Bank of Ceylon
No. of Offices 19 2
Networth 1347 71
Deposits 7077 1663
Advances 9831 90
Interest income 907 150
Net NPA ratio 0.35 12.73
8 1 1 1
301 128 45 74
2264 50 23 11
1483 434 22 20
270 26 3 1.81
0.99 0.00 0.28 10.49
5 2
1437 67
1993 394
3219 264
257 34
0.00 5.53
1
54
104
59
8
13.76
Bank of Nova Scotia 5 Bank of Tokyo Mitsubishi 3 Barclays Bank 1 BNP Paribas 9 Calyon Bank 4 Chinatrust Commercial 1 Bank Cho Hung Bank 1 Citibank 35 DBS Bank 1 Deutsche Bank 5 Hongkong & Shanghai 39 Banking Corpn. JP Morgan Chase Bank 1 Krung Thai Bank 1 Mashreq Bank 2 Mizuho Corporate Bank 1 Oman International Bank 2 Societe Generale 2 Sonali Bank 1 Standard Chartered Bank 85 State Bank of Mauritius 3 UFJ Bank 1 (Source: A profile on banks 2004-05, RBI))
257 369 698 333 328 45
1602 532 75 1674 1306 48
2053 559 2 1719 674 59
159 57 31 176 117 9
3.08 0.01 0.00 0.00 0.30 6.02
72 3310 556 1232 3578
97 21484 611 3625 17013
69 18111 560 2541 12621
0.99 2203 30 390 1627
0.00 1.00 0.00 0.00 0.50
266 40 58 164 161 321 6 3234 126 228
930 34 269 110 225 527 22 22522 148 71
150 16 19 267 13 159 6 19970 222 102
40 4 29 17 18 37 1 2493 36 16
0.00 0.00 0.00 0.00 55.05 0.00 1.90 1.12 4.08 0.00
The banks in India are operating through 55530 branches. All the banks together had the net worth of Rs. 149385 crores as on 31st March, 2005. The banks also had the deposit base of Rs. 1836985 crores and the advances of Rs. 1151113 crores taking the total business to Rs. 2988098 crores. During the year 2004-05 the banks had earned the interest income of Rs. 154761 crores. The average net NPA ratio of the banks was also less 3.84% in year 2005. Future is bright: The Information Technology (IT) is becoming an important component of the banking sector. The customers have become more demanding and they need value added services from the banks. The foreign banks have raised the expectations of the customers causing the bank to invest strongly on IT. The Indian banks have started to meet the expectations of the people by opening both onsite and offsite ATMs. Banks have also started telebanking, anytime/anywhere banking, mobile banking and Internet banking to give the facilities to the customers. Banks have also following the RBI sponsored technology programmes like mail messaging, Electronic fund transfers (EFT), Structured Financial Messaging System (SFMS), (Real Time Gross Settlement (RTGS), Centralized Fund Management System (CFMS) and Negotiated Dealing System / Public Debt Office (NDS/PDO). Banks have been given more teeth to tackle the Non performing assets by passing the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Under this Act, the banks can take over the assets of the defaulters either by themselves or with the help of Court. The power is in addition to the power to
recover through the Debt Recovery Tribunal. The Asset Reconstruction Companies have been formed which also take over the distress assets from the banks. Conclusive Remarks Banking Sector in India is likely to undergo a major change. This change will be in the form of mergers and acquisitions and takeovers. The State Bank of India may merge all its associate banks with itself to make a one bank. The banks based in South India may look for a bank in North India to have presence in North. Similarly banks in North may look for banks in South to increase its area of operations. Consolidation will be the key to the banking sector in future.
