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Banking in India
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; the government nationalized the six next largest in
1980.
Currently, India has 96 scheduled commercial banks (SCBs) - 27
public sector banks (that is with the Government of India holding a
stake), 31 private banks (these do not have government stake; they
may be publicly listed and traded on stock exchanges) and 38 foreign
banks. They have a combined network of over 53,000 branches and
17,000 ATMs. According to a report by ICRA Limited, a rating
agency, the public sector banks hold over 75 percent of total assets
of the banking industry, with the private and foreign banks holding
18.2% and 6.5% respectively
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History
Banking in India originated in the last decades of the 18th century.
The first banks were The General Bank of India which started in
1786, and the Bank of Hindustan, both of which are now defunct. The
oldest bank in existence in India is the State Bank of India, which
originated in the Bank of Calcutta in June 1806, which almost
immediately became the Bank of Bengal. This was one of the three
presidency banks, the other two being the Bank of Bombay and the
Bank of Madras, all three of which were established under charters
from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The
three banks merged in 1921 to form the Imperial Bank of India, which,
upon India's independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but
it failed in 1848 as a consequence of the economic crisis of 1848-49.
The Allahabad Bank, established in 1865 and still functioning today,
is the oldest Joint Stock bank in India. It was not the first though. That
honor belongs to the Bank of Upper India, which was established in
1863, and which survived until 1913, when it failed, with some of its
assets and liabilities being transferred to the Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to
Lancashire from the Confederate States, promoters opened banks to
finance trading in Indian cotton. With large exposure to speculative
ventures, most of the banks opened in India during that period failed.
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The depositors lost money and lost interest in keeping deposits with
banks. Subsequently, banking in India remained the exclusive
domain of Europeans for next several decades until the beginning of
the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the
1860s. The Comptoire d'Escompte de Paris opened a branch in
Calcutta in 1860, and another in Bombay in 1862; branches in
Madras and Pondichery, then a French colony, followed. HSBC
established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and
so became a banking center.
The Bank of Bengal, which later became the State Bank of India.
The first entirely Indian joint stock bank was the Oudh Commercial
Bank, established in 1881 in Faizabad. It failed in 1958. The next was
the Punjab National Bank, established in Lahore in 1895, which has
survived to the present and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing
through a relative period of stability. Around five decades had
elapsed since the Indian Mutiny, and the social, industrial and other
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infrastructure had improved. Indians had established small banks,
most of which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also
some exchange banks and a number of Indian joint stock banks. All
these banks operated in different segments of the economy. The
exchange banks, mostly owned by Europeans, concentrated on
financing foreign trade. Indian joint stock banks were generally under
capitalized and lacked the experience and maturity to compete with
the presidency and exchange banks. This segmentation let Lord
Curzon to observe, "In respect of banking it seems we are behind the
times. We are like some old fashioned sailing ship, divided by solid
wooden bulkheads into separate and cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks
inspired by the Swadeshi movement. The Swadeshi movement
inspired local businessmen and political figures to found banks of and
for the Indian community. A number of banks established then have
survived to the present such as Bank of India, Corporation Bank,
Indian Bank, Bank of Baroda, Canara Bank and Central Bank of
India.
The fervour of Swadeshi movement lead to establishing of many
private banks in Dakshina Kannada and Udupi district which were
unified earlier and known by the name South Canara ( South Kanara
) district. Four nationalised banks started in this district and also a
leading private sector bank. Hence undivided Dakshina Kannada
district is known as "Cradle of Indian Banking".
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From World War I to Independence
The period during the First World War (1914-1918) through the end of
the Second World War (1939-1945), and two years thereafter until
the independence of India were challenging for Indian banking. The
years of the First World War were turbulent, and it took its toll with
banks simply collapsing despite the Indian economy gaining indirect boost
due to war-related economic activities. At least 94 banks in India failed between 1913
and 1918 as indicated in the following table:
YearsNumber of banks
that failed
Authorised capital
(Rs. Lakhs)
Paid-up Capital
(Rs. Lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
Post-independence
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The partition of India in 1947 adversely impacted the economies of
Punjab and West Bengal, paralyzing banking activities for months.
India's independence marked the end of a regime of the Laissez-faire
for the Indian banking. The Government of India initiated measures to
play an active role in the economic life of the nation, and the
Industrial Policy Resolution adopted by the government in 1948
envisaged a mixed economy. This resulted into greater involvement
of the state in different segments of the economy including banking
and finance. The major steps to regulate banking included:
In 1948, the Reserve Bank of India, India's central banking
authority, was nationalized, and it became an institution owned
by the Government of India.
In 1949, the Banking Regulation Act was enacted which
empowered the Reserve Bank of India (RBI) "to regulate,
control, and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or
branch of an existing bank could be opened without a license
from the RBI, and no two banks could have common directors.
However, despite these provisions, control and regulations, banks in
India except the State Bank of India, continued to be owned and
operated by private persons. This changed with the nationalisation of
major banks in India on 19 July 1969.
Nationalisation
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By the 1960s, the Indian banking industry had become an important
tool to facilitate the development of the Indian economy. At the same
time, it had emerged as a large employer, and a debate had ensued
about the possibility to nationalise the banking industry. Indira
Gandhi, the-then Prime Minister of India expressed the intention of
the GOI in the annual conference of the All India Congress Meeting in
a paper entitled "Stray thoughts on Bank Nationalisation." The paper
was received with positive enthusiasm. Thereafter, her move was
swift and sudden, and the GOI issued an ordinance and nationalised
the 14 largest commercial banks with effect from the midnight of July
19, 1969. Jayaprakash Narayan, a national leader of India, described
the step as a "masterstroke of political sagacity." Within two weeks of
the issue of the ordinance, the Parliament passed the Banking
Companies (Acquisition and Transfer of Undertaking) Bill, and it
received the presidential approval on 9 August 1969.
A second dose of nationalization of 6 more commercial banks
followed in 1980. The stated reason for the nationalization was to
give the government more control of credit delivery. With the second
dose of nationalization, the GOI controlled around 91% of the banking
business of India. Later on, in the year 1993, the government merged
New Bank of India with Punjab National Bank. It was the only merger
between nationalized banks and resulted in the reduction of the
number of nationalised banks from 20 to 19. After this, until the
1990s, the nationalised banks grew at a pace of around 4%, closer to
the average growth rate of the Indian economy.
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The nationalised banks were credited by some, including Home
minister P. Chidambaram, to have helped the Indian economy
withstand the global financial crisis of 2007-2009.
Nationalization, also spelled nationalisation, is the act of taking an
industry or assets into the public ownership of a national government
or state. Nationalization usually refers to private assets, but may also
mean assets owned by lower levels of government, such as
municipalities, being state operated or owned by the state. The
opposite of nationalization is usually privatization or de-
nationalisation, but may also be municipalization. A renationalization
occurs when state-owned assets are privatized and later nationalized
again, often when a different political party or faction is in power. A
renationalization process may also be called reverse privatization.
The motives for nationalization are political as well as economic. It is
a central theme of certain brands of 'state socialist' policy that the
means of production, distribution and exchange, should be owned by
the state on behalf of the people to allow for rational allocation and
operation, and rational planning or control of the economy. Many
socialists believe that public ownership enables people to exercise
full democratic control over the means whereby they earn their living
and provides an effective means of distributing output to benefit the
public at large, such as providing a means of public finance.
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Nationalized industries, charged with operating in the public interest,
may be under strong political and social pressures to give much more
attention to externalities. They may be obliged to operate some loss
making activities where social benefits are clearly greater than social
costs - for example, rural, postal and transport services. As an
instance, the United States Postal Service is guaranteed its
nationalised status by the Constitution. The government has
recognized these social obligations and, in some cases, provides
subsidies for such non-commercial operations.
Since the nationalised industries are state owned, the government is
responsible for meeting any debts incurred by these industries. The
nationalized industries do not normally borrow from the domestic
market other than for short-term borrowing. However, if profitable, the
profit is often used as a means to finance other state services such
as social programs and government research which can help lower
the tax burden.
Nationalization may occur with or without compensation to the former
owners. If it takes place without compensation it is a case of
expropriation. Nationalization is distinguished from property
redistribution in that the government retains control of nationalized
property. Some nationalizations take place when a government
seizes property acquired illegally. For example, the French
government seized the car-makers Renault because its owners had
collaborated with the Nazi occupiers of France.
Compensation
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A key issue in nationalization is payment of compensation to the
former owner. The most controversial nationalizations, known as
expropriations, are those where no compensation, or an amount far
below the likely market value of the nationalized assets, is paid. Many
nationalizations through expropriation have come after revolutions.
The traditional Western stance on compensation was expressed by
United States Secretary of State Cordell Hull, during the 1938
Mexican nationalization of the petroleum industry, that compensation
should be "prompt, effective and adequate." According to this view,
the nationalizing state is obligated under international law to pay the
deprived party the full value of the property taken. The opposing
position has been taken mainly by developing countries, claiming that
the question of compensation should be left entirely up to the
sovereign state, in line with the Calvo Doctrine. Communist states
have held that no compensation is due, based on socialist notions of
private properties.
In 1962, the United Nations General Assembly adopted Resolution
1803, "Permanent Sovereignty over National Resources", which
states that in the event of nationalization, the owner "shall be paid
appropriate compensation in accordance with international law." In
doing so, the UN rejected both the traditional Calvo-doctrinist view
and the Communist view. The term "appropriate compensation"
represents a compromise between the traditional views, taking into
account the need of developing countries to pursue reform even
without the ability to pay full compensation, and the Western concern
for protection of private property.
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When nationalizing a large business, the cost of compensation is so
great that many legal nationalizations have happened when firms of
national importance run close to bankruptcy and can be acquired by
the government for little or no money. A classic example is the UK
nationalization of the British Leyland Motor Corporation. At other
times, governments have considered it important to gain control of
institutions of strategic economic importance, such as banks or
railways, or of important industries struggling economically. The case
of Rolls-Royce plc, nationalized in 1971, is an interesting blend of
these two arguments. This policy was sometimes known as ensuring
government control of the "commanding heights" of the economy, to
enable it to manage the economy better in terms of long-term
development and medium-term stability. The extent of this policy
declined in the 1980s and 1990s as governments increasingly
privatized industries that had been nationalized, replacing their
strategic economic influence with use of the tax system and of
interest rates.
Nonetheless, national and local governments have seen the
advantage of keeping key strategic assets in institutions that are not
strongly profit-driven and can raise funds outside the public-sector
constraints, but still retain some public accountability. Examples from
the last five years in the United Kingdom include the vesting of the
British railway infrastructure firm Railtrack in the not-for-profit
company Network Rail, and the divestment of much council housing
stock to "arms-length management companies", often with mutual
status.
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The nationalised banks were credited by some, including Home
minister P. Chidambaram, to have helped the Indian economy
withstand the global financial crisis of 2007-2009.
1949 (1 January) Reserve Bank of India nationalised (Ref.-
Reserve Bank of India chronology of events). The Reserve
Bank of India was state-owned at the time of Indian
independence.
1953 Air India under the Air Corporations Act 1953.
1955 Imperial Bank of India and its subsidiaries (State Bank of
India and its subsidiaries)
1969 Nationalization of 14 Indian banks.
1973 Coal industry and Oil companies
1980 Another six banks nationalized
Liberalisation
In the early 1990s, the then Narsimha Rao government embarked on
a policy of liberalization, licensing a small number of private banks.
These came to be known as New Generation tech-savvy banks, and
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included Global Trust Bank (the first of such new generation banks to
be set up), which later amalgamated with Oriental Bank of
Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC
Bank. This move, along with the rapid growth in the economy of India,
revitalized the banking sector in India, which has seen rapid growth
with strong contribution from all the three sectors of banks, namely,
government banks, private banks and foreign banks.
The next stage for the Indian banking has been setup with the
proposed relaxation in the norms for Foreign Direct Investment,
where all Foreign Investors in banks may be given voting rights which
could exceed the present cap of 10%,at present it has gone up to
74% with some restrictions.
The new policy shook the Banking sector in India completely.
Bankers, till this time, were used to the 4-6-4 method (Borrow at
4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered
in a modern outlook and tech-savvy methods of working for traditional
banks.All this led to the retail boom in India. People not just
demanded more from their banks but also received more.
Currently (2007), banking in India is generally fairly mature in terms of
supply, product range and reach-even though reach in rural India still
remains a challenge for the private sector and foreign banks. In terms
of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets
relative to other banks in comparable economies in its region. The
Reserve Bank of India is an autonomous body, with minimal pressure
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from the government. The stated policy of the Bank on the Indian
Rupee is to manage volatility but without any fixed exchange rate-and
this has mostly been true.
With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking
services, especially retail banking, mortgages and investment
services are expected to be strong. One may also expect M&As,
takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to
increase its stake in Kotak Mahindra Bank (a private sector bank) to
10%. This is the first time an investor has been allowed to hold more
than 5% in a private sector bank since the RBI announced norms in
2005 that any stake exceeding 5% in the private sector banks would
need to be vetted by them.
In recent years critics have charged that the non-government owned
banks are too aggressive in their loan recovery efforts in connection
with housing, vehicle and personal loans. There are press reports
that the banks' loan recovery efforts have driven defaulting borrowers
to suicide.
List of banks in India
Public Sector Banks
There are total 27 public sector banks in India (As on 26-09-2009). Of
these 19 are nationalised banks, 6(STATE BANK OF INDORE ALSO
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MEARGED RECENTLY) belong to SBI & associates group and 1
bank (IDBI Bank) is classified as other public sector bank.
Nationalised Banks
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
SBI & associates
State Bank of India (State Bank of Saurastra merged with SBI
in the year 2008 and State Bank of Indore in 2010)
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State Bank of Hyderabad
State Bank of Mysore
State Bank of Patiala
State Bank of Travancore
State Bank of Bikaner and Jaipur
Private Banks
Axis Bank
Bank of Rajasthan
Catholic Syrian Bank
City Union Bank
Development Credit Bank
Dhanalakshmi Bank
Federal Bank
HDFC Bank
ICICI Bank
IndusInd Bank
ING Vysya Bank
Jammu & Kashmir Bank
Karnataka Bank
Karur Vysya Bank
Kotak Mahindra Bank
Laxmi Vilas Bank
Nainital Bank Ltd
Ratnagar Bank
SBI Commercial and International Bank
South Indian Bank Ltd
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Tamil Nadu Mercantile Bank
Yes Bank
Scheduled Urban Co-operative Banks
List of Scheduled Urban Co-operative Bank as on 31-3-2009 as per RBI
Bank
Ahmedabad Mercantile Co-Op Bank Ltd.
Kalupur Commercial Coop.Bank Ltd.
Madhavpura Mercantile Co-Op Bank Ltd.
Mehsana Urban Co-Op Bank Ltd.
Nutan Nagarik Sahakari Bank Ltd.
Rajkot Nagrik Sahakari Bank Ltd.
Sardar Bhiladwala Pardi Peoples Coop Bank Ltd.
Surat Peoples Coop Bank Ltd.
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Amanath Co-operative Bank Ltd.
Andhra Pradesh Mahesh Co-Op Urban Bank Ltd.
Charminar Coop.Urban Bank Ltd.
Vasavi Coop Urban Bank LImited.
Indian Mercantile Co-op Bank Ltd.
Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd.
Abhyudaya Co-operative Bank Ltd.
Bangalore city cooperative bank.
Bassein Catholic Co-operative Bank Limited.
Bharat Co-operative Bank (Mumbai) Ltd.
Bharati Sahakari Bank Limited.
Bombay Mercantile Co-operative Bank Limited.
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Citizen Credit Co-operative Bank Ltd.
Cosmos Co-operative Urban Bank Ltd.
Dombivli Nagari Sahakari Bank Ltd.
Goa Urban Co-operative Bank Limited.
Greater Bombay Co-operative Bank Limited.
Jalgaon Janata Sahakari Bank Ltd.
Janakalyan Sahakari Bank Ltd.
Janalaxmi Co-operative Bank Ltd.
Janata Sahakari Bank Ltd.
The Karnataka State Co-Operative Apex Bank Ltd
Kalyan Janata Sahakari Bank Ltd.
Karad Urban Co-operative Bank Ltd.
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Mahanagar Co-operative Bank Ltd.
Mapusa Urban Co-operative Bank of Goa Ltd.
Nagar Urban Co-operative Bank Ltd.
Nasik Merchant's Co-operative Bank Ltd.
New India Co-operative Bank Ltd.
NKGSB Co-operative Bank Ltd.
Parsik Janata Sahakari Bank Ltd.
Pravara Sahakari Bank Ltd.
Punjab & Maharashtra Co-operative Bank Ltd.
Rupee Co-operative Bank Ltd.
Sangli Urban Co-operative Bank Ltd.
Saraswat Co-operative Bank Ltd.
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Shamrao Vithal Co-operative Bank Ltd.
Solapur Janata Sahakari Bank Ltd.
Thane Bharat Sahakari Bank Ltd.
Thane Janata Sahakari Bank Ltd.
The Kapol Co-operative Bank Ltd.
Zoroastrian Co-operative Bank Ltd.
Nagpur Nagrik Sahakari Bank Ltd.
Shikshak Sahakari Bank Ltd.
The Akola Janata Com.Co-operative Bank Ltd.
The Akola Urban Co-operative Bank Ltd.
The Khamgaon Urban Co-operative Bank Ltd.
Cuttack Gramya Bank.
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Indian Banks Abroad
List of subsidiaries of Indian Banks abroad as on November 30, 2007 [2]
Name of the Bank
SBI (Canada) Ltd.
SBI (California) Ltd.
SBI Finance Inc.
SBI International (Mauritius)
Bank of Baroda Uganda) Ltd.
Bank of Baroda(Kenya) Ltd.
Bank of Baroda (U.K.) Nominee Ltd.
BOB (Hong Kong)Ltd.
Bank of India Finance(Kenya) Ltd.
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IOB Properties Pte Ltd.
Bank of Baroda(Botswana) Ltd.
Bank of Baroda(Guyana)Inc.
ICICI Bank UK Ltd
ICICI Bank Canada Ltd
Bank of Baroda (Tanzania)
ICICI Bank Eurasia LLC
PT Bank Indomonex
Indian Ocean International Bank Ltd. (IOIB)
Punjab National Bank International Limited (PNBIL)
Bank of Baroda (Trinidad and Tobago) Limited
PT Bank Swadesi Tbk
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Nationalized Banks in India
State Bank of India
State Bank of India (SBI) is the largest bank in India.
The bank traces its ancestry back from British India, through the
Imperial Bank of India, to the founding in 1806 of the Bank of
Calcutta, making it the oldest commercial bank in the Indian
Subcontinent. The Government of India nationalised the Imperial
Bank of India in 1955, with the Reserve Bank of India taking a 60%
stake, and renamed it the State Bank of India. In 2008, the
Government took over the stake held by the Reserve Bank of India.
SBI provides a range of banking products through its vast network in
India and overseas, including products aimed at NRIs. The State
Bank Group, with over 16000 branches, has the largest branch
network in India. With an asset base of $250 billion and $195 billion in
deposits, it is a regional banking behemoth. It has a market share
among Indian commercial banks of about 20% in deposits and
advances, and SBI accounts for almost one-fifth of the nation’s loans.[2]
SBI has tried to reduce its over-staffing through computerizing
operations and Golden handshake schemes that led to a flight of its
best and brightest managers. These managers took the retirement
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allowances and then went on the become senior managers at new
private sector banks.
The State bank of India is 29th most reputable company in the world
according to Forbes.[3]
State Bank of India is one of the Big Four Banks of India with ICICI
Bank, Axis Bank and HDFC Bank.[4]
International presence
State Bank of India (SBI), Mumbai Main Branch.
The bank has 141 overseas offices spread over 32 countries as on
31st Dec 2009. It has branches of the parent in Colombo, Dhaka,
Frankfurt, Hong Kong, Johannesburg, London and environs, Los
Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney,
and Tokyo. It has offshore banking units in the Bahamas, Bahrain,
and Singapore, and representative offices in Bhutan and Cape Town.
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SBI operates several foreign subsidiaries or affiliates. In 1990 it
established an offshore bank, State Bank of India (Mauritius).
In 1982, the bank established a subsidiary, State Bank of India
(California), which now has eight branches - seven branches in the
state of California and one in Washington DC that it opened on 23
November 2009. The seven branches in California are located in Los
Angeles, Artesia, San Jose, Canoga Park, Fresno, San Diego and
Bakersfield.
The Canadian subsidiary, State Bank of India (Canada) too dates to
1982. It has seven branches, four in the greater Toronto area and
three in British Columbia.
In Nigeria SBI operates as INMB Bank. This bank began in 1981 as
the Indo-Nigerian Merchant Bank and received permission in 2002 to
commence retail banking. It now has five branches in Nigeria.
In Nepal SBI owns 50% of Nepal SBI Bank, which has branches
throughout the country. In Moscow SBI owns 60% of Commercial
Bank of India, with Canara Bank owning the rest. In Indonesia it owns
76% of PT Bank Indo Monex.
History
The roots of the State Bank of India rest in the first decade of 19th
century, when the Bank of Calcutta, later renamed the Bank of
Bengal, was established on 2 June 1806. The Bank of Bengal and
two other Presidency banks, namely, the Bank of Bombay
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(incorporated on 15 April 1840) and the Bank of Madras (incorporated
on 1 July 1843). All three Presidency banks were incorporated as
joint stock companies, and were the result of the royal charters.
These three banks received the exclusive right to issue paper
currency in 1861 with the Paper Currency Act, a right they retained
until the formation of the Reserve Bank of India. The Presidency
banks amalgamated on 27 January 1921, and the reorganized
banking entity took as its name Imperial Bank of India. The Imperial
Bank of India continued to remain a joint stock company.
Pursuant to the provisions of the State Bank of India Act (1955), the
Reserve Bank of India, which is India's central bank, acquired a
controlling interest in the Imperial Bank of India. On 30 April 1955 the
Imperial Bank of India became the State Bank of India. The Govt. of
India recently acquired the Reserve Bank of India's stake in SBI so as
to remove any conflict of interest because the RBI is the country's
banking regulatory authority.
Offices of the Bank of Bengal
In 1959 the Government passed the State Bank of India (Subsidiary
Banks) Act, enabling the State Bank of India to take over eight former
State-associated banks as its subsidiaries. On Sept 13, 2008, State
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Bank of Saurashtra, one of its Associate Banks, merged with State
Bank of India.
SBI has acquired local banks in rescues. For instance, in 1985, it
acquired Bank of Cochin in Kerala, which had 120 branches. SBI was
the acquirer as its affiliate, State Bank of Travancore, already had an
extensive network in Kerala.
Associate banks
There are six associate banks that fall under SBI, and together these
six banks constitute the State Bank Group. All use the same logo of a
blue keyhole and all the associates use the "State Bank of" name
followed by the regional headquarters' name. Originally, the then
seven banks that became the associate banks belonged to princely
states until the government nationalized them between October, 1959
and May, 1960. In tune with the first Five Year Plan, emphasizing the
development of rural India, the government integrated these banks
into State Bank of India to expand its rural outreach. There has been
a proposal to merge all the associate banks into SBI to create a
"mega bank" and streamline operations. The first step along these
lines occurred on 13 August 2008 when State Bank of Saurashtra
merged with State Bank of India, which reduced the number of state
banks from seven to six. Furthermore on 19th June 2009 the SBI
board approved the merger of its subsidiary, State Bank of Indore,
with itself. SBI holds 98.3% in the bank, and the balance 1.77% is
owned by individuals, who held the shares prior to its takeover by the
government.
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The acquisition of State Bank of Indore will help SBI add 470
branches to its existing network of 11,448. Also, following the
acquisition, SBI’s total assets will inch very close to the Rs 10-lakh
crore mark. Total assets of SBI and the State Bank of Indore stood at
Rs 998,119 crore as on March 2009.
The Subsidiaries of SBI till date
State Bank of Indore
State Bank of Bikaner & Jaipur
State Bank of Hyderabad
State Bank of Mysore
State Bank of Patiala
State Bank of Travancore
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Bank of India
Bank of India (BoI), established on 7 September 1906 is a bank with
headquarters in Mumbai. Government-owned since nationalization in
1969, It is one of India's leading banks, with about 3140 branches
including 27 branches outside India. BoI is a founder member of
SWIFT (Society for Worldwide Inter Bank Financial
Telecommunications) in India which facilitates provision of cost-
effective financial processing and communication services. The Bank
completed its first one hundred years of operations on 7 September
2006.
History
Previous banks that used the name Bank of India
At least three banks having the name Bank of India had preceded the
setting up of the present Bank of India.
1. A person named Ramakishen Dutt set up the first Bank of India
in Calcutta (now Kolkata) in 1828, but nothing more is known
about this bank.
2. The second Bank of India was incorporated in London in the
year 1836 as an Anglo-Indian bank.
3. The third bank named Bank of India was registered in
Bombay(now Mumbai) in the year 1864.
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The current bank
The earlier holders of the Bank of India name had failed and were no
longer in existence by the time a diverse group of Hindus, Muslims,
Parsis, and Jews helped establish the present Bank of India in 1906.
It was the first bank in India promoted by Indian interests to serve all
the communities of India. At the time, banks in India were either
owned by Europeans and served mainly the interests of the
European merchant houses, or by different communities and served
the banking needs of their own community.
The promoters incorporated the Bank of India on 7 September 1906
under Act VI of 1882 with an authorized capital of Rs. 1 crore divided
into 100,000 shares each of Rs. 100. The promoters placed 55,000
shares privately, and issued 45,000 to the public by way of IPO on 3
October 1906; the bank commenced operations on 1 November
1906.
The lead promoter of the Bank of India was Sir Sassoon J. David
(1849-1926). He was a member of the community of Baghdadi Jews,
which was notable for its history of social service and included the
Sassoons. He was a prudent banker, and remained the Chief
Executive of the bank from its founding in 1906 until his death in
1926.
Page 33
Indian Bank
Indian Bank, established in 1907, is a major Indian Commercial
Bank headquartered in Chennai (Madras), India. It has 22,000
employees, 1,657 branches and is one of the big public sector banks
of India. It has overseas branches in Colombo, Sri Lanka, Singapore,
and 229 correspondent banks in 69 countries. The Government of
India nationalized the bank, along with 13 other major commercial
banks, on 19 July 1969.
Indian Overseas Bank
Indian Overseas Bank (IOB; established 1937) is a major bank
based in Chennai (Madras), with 1950 domestic branches and six
branches overseas. Indian Overseas Bank has an ISO certified
inhouse Information Technology department, which has developed
the software that 900 branches use to provide online banking to
customers; the bank has a target to expand online banking to 1200
branches by the end of financial year 2007-08. IOB also has a
network of about 600 ATMs all over India and IOB's International
VISA Debit Card is accepted at all ATMs belonging to the Cash Tree
and NFS networks. IOB offers internet Banking (E-See Banking) and
is one of the banks that the Govt. of India has approved for online
payment of taxes.
Page 34
Oriental Bank of Commerce
Oriental Bank of Commerce, established on 19 February, 1943, in
Lahore (then a city of British India, and currently in Pakistan), is one
of the public sector banks in India.Oriental Bank of Commerce made
a modest beginning under its Founding Father, Late Rai Bahadur
Lala Sohan Lal, the first Chairman of the Bank.Within four years of
coming into existence, the Bank had to face the holocaust of partition.
Branches in the newly formed Pakistan had to be closed down and
the Registered Office had to be shifted from Lahore to Amritsar. Late
lala Karam Chand Thapar, the then Chairman of the Bank, in a
unique gesture honoured the commitments made to the depositors
from Pakistan and paid every rupee to its departing customers. The
foundation of customer service thus laid has ever since remained
Oriental Bank's prime philosophy and has been nurtured well as a
legacy by all its successors, year after year. The Bank has witnessed
many ups and downs since its establishment. It has seen many
upheavals in the 66 years of its existence and on every trying
situation; it has emerged successful. The period of 1970-76 is said to
be the most challenging phase in the history of the Bank. At one time
profit plummeted to Rs.175, that prompted the owner of the bank, the
Thapar House, to sell / close the bank. Then employees and leaders
of the Bank came forward to rescue the Bank. The owners were
moved and had to change their decision of selling the bank and in
turn they decided to improve the position of the bank with the active
cooperation and support of all the employees. Their efforts bore fruits
and performance of the bank improved significantly. This was the
Page 35
turning point in the history of the bank. The bank was nationalized on
15th April, 1980. At that time total working of the bank was Rs.483
crores having 19th position among the 20 nationalised banks. Within
a decade the bank turned into one of the most efficient and best
performing banks of India. The bank has progressed on several
fronts, such as crossing the Business Mix mark of Rs.1.50 lacs
crores, achievement of 100% CBS, reorienting of lending strategy
through Large & Mid Corporates and establishment of new wings viz.,
Rural Development and Retail & Priority Sector. The Bank has to its
utmost credit lowest staff cost with highest productivity in the Indian
banking industry.
Banks enjoys good reputation among customers due to its prompt
and customer friendly services in comparison to other nationalised
banks.
The Bank has launched yet another people's participation in the
planning process at grass root level essentially to tackle the maladies
of poverty. The Grameen Projects venture aims to alleviate poverty
plus identify the reasons responsible for the failure or success.
OBC is already implementing a GRAMEEN PROJECT in Dehradun
District (UP) and Hanumangarh District (Raiasthan). Formulated on
the pattern of the Bangladesh Grameen Bank, the Scheme has a
unique feature of disbursing small loans ranging from Rs. 75 (US $2)
onwards. The beneficiaries of the Grameen Project are mostly
women.The Bank is engaged in providing training to rural folk in using
Page 36
locally available raw material to produce pickles, jams etc. This has
provided self-employment and augmented income levels thus
reforming lives of rural folk and encouraging cottage industries in
rural areas.
OBC launched yet another unique scheme christened 'The
Comprehensive Village Development Programme' on the auspicious
day of Baisakhi, the 13th of April 1997 at three villages in Punjab
namely Rurki Kalan (Distt. Sangrur), Raje Majra (Distt. Ropar) and
Khaira Majha (Distt. Jaladhar) and two villages in Haryana, namely
Khunga (Distt. Jind) and Narwal (Distt. Kaithal). The pilot launch was
a great success. Emboldened by the success, Bank extended the
programme to more villages. At present, it covers 15 villages; 10 in
Punjab, 4 in Haryana and 1 in Rajasthan. The programme focuses on
providing a comprehensive and integrated package providing rural
finance to the villagers with Village Development as its focus, thus
contributing towards infrastructural development and agumentation of
income for each farmer of the village. The Bank has implemented 14
point action plan for strengthening of credit delivery to women and
has designated 5 branches as specialized branches for women
entrepreneurs.
Page 37
Punjab & Sind Bank
Punjab & Sind Bank is a major bank in Northern India. Of its almost
900 branches and offices spread throughout India, almost 400 are in
Punjab state, though the bank's corporate headquarters is in New
Delhi.
History
In 1908, leading figures such as Bhai Vir Singh, Sir Sunder Singh
Majitha and Sardar Tarlochan Singh founded Punjab & Sind Bank to
help the weaker section of the society in their economic endeavours
to raise their standard of life.
Punjab and Sind bank was the one of the few banks in northern India
who has honored the obligations of the migrating people from
Pakistan. In spite of the fact that all its major branches were left in
Pakistan and only a few branches were in India after partition.
In 1980 Punjab & Sind Bank was among six banks that the
Government of India nationalized in the second wave of
nationalizations. (The first wave had been in 1969 when the
government nationalized the top 14 banks.)
At some point in the 1970s Punjab & Sind Bank established a branch
in London. In 1991 Bank of Baroda acquired Punjab & Sind Bank's
London branch.
Page 38
Punjab National Bank
Punjab National Bank (PNB), was registered on May 19, 1894
under the Indian Companies Act with its office in Anarkali Bazaar
Lahore. The Bank is the second largest government-owned
commercial bank in India with about 4,904 branches across 764
cities. It serves over 37 million customers. The bank has been ranked
248th biggest bank in the world by Bankers Almanac, London. The
bank's total assets for financial year 2007 were about US$60 billion.
PNB has a banking subsidiary in the UK, as well as branches in Hong
Kong, Dubai and Kabul, and representative offices in Almaty, Dubai,
Oslo, and Shanghai.
Syndicate Bank
Syndicate Bank, established in 1925 in Mangalore(D.K)Now divided
as Udupi (in Karnataka, India) by Upendra Ananth Pai, Vaman
Srinivas Kudva and Dr. T. M. A. Pai, is one of the oldest and major
commercial banks of India. At the time of its establishment, the bank
was known as Canara Industrial and Banking Syndicate Limited. The
bank, along with 13 major commercial banks of India, was
nationalized on 19 July 1969, by the Government of India.
The business started with a capital of Rs. 8000. The first branch of
the bank started its operations in the year 1928 at Brahmavar in
Dakshin Kannada District. By 1937, it had secured its membership as
a clearing house at Mumbai. The primary objective of the business
was to extend the financial assistance to local weavers. Initially, the
Page 39
bank collected as low as two annas from the door steps of the
depositors daily through its agents. This type of system wherein the
agents of the bank come doorsteps to collect deposit is still prevailing
in India and is referred to as the Pigmy Deposit Scheme.
Mergers
As time progressed, twenty banks merged with the Canara Industrial
and Banking Syndicate Limited including the Maharastra Apex Bank
Limited and Southern India Apex Bank Limited. The name of the bank
was changed to Syndicate Bank Limited in the year 1964 and the
head office of the bank was shifted to Manipal. The bank expanded
its operations not only on the domestic front but also overseas. It has
a branch in London and the bank manages National Exchange Co. in
Doha and Musandam Exchange Co. in Muscat. By 1978, it opened its
1000th branch at Hauz Khas, Delhi. Currently it has over 2125
branches out of which 1523 are offering corebanking-e-banking
services under anywhere-anytime-anyhow banking.
Page 40
UCO Bank
Uco Bank, formerly United Commercial Bank, established in 1943 in
Kolkata, is one of the oldest and major commercial bank of India.
Ghanshyam Das Birla, an eminent Indian industrialist, during the Quit
India movement of 1942, had conceived the idea of organizing a
commercial bank with Indian capital and management, and the
United Commercial Bank Limited was incorporated to give shape to
that idea. The bank, along with 13 other major commercial banks of
India, was nationalized on 19th July, 1969, by the Government of
India. Its name was changed to UCO Bank, in 1985, by an act of
Indian Parliament. Currently (2005), the bank has 2000 Service Units
spread all over India, with two overseas branches in Singapore and
Hong Kong.
Union Bank of India
Union Bank of India (UBI) is one of India's largest state-owned
banks (the government owns 55.43% of its share capital), is listed on
the Forbes 2000. It has assets of USD 13.45 billion and all the bank's
branches have been networked with its 1135 ATMs. Its online
Telebanking facility are available to all its Core Banking Customers -
individual as well as corporate. It has representative offices in Abu
Dhabi, United Arab Emirates, and Shanghai, Peoples Republic of
China, and a branch in Hong Kong.
Because of its acronym UBI, the public sometimes confuses it with
United Bank of India.
Page 41
History
1919 UBI was registered on November 11, 1919 as a limited
company in Mumbai. It was inaugurated by Mahatma Gandhi.
1947 UBI had only 4 branches - 3 in Mumbai and 1 in
Saurashtra, all concentrated in key trade centres.
1975 The Government nationalized UBI. At the time of its
nationalization, UBI had 240 branches in 28 states.
After nationalization, UBI merged in Belgaum Bank, a private
sector bank established in 1930.
1985 UBI merged in Miraj State Bank, established in 1929.
1999 UBI acquired Sikkim Bank in a rescue at the request of
the Reserve Bank of India after the discovery of extensive
irregularities at the non-scheduled bank. Sikkim Bank had eight
branches located in the North-east, which was attractive to UBI.
2007 UBI opened representative offices in Abu Dhabi, United
Arab Emirates, and Shanghai, Peoples Republic of China.
2008 UBI opened a branch in Hong Kong, its first branch
outside India.
Dec 2009 UBI opened a representative office in Sydney
United Bank of India
Page 42
United Bank of India, is government-owned and one of India's major
commercial banks. Presently the bank has a three-tier organisational
setup consisting of its Head office in Kolkata, 28 Regional offices and
1453 branches spread all over India. However, its major presence is
in eastern India. Due to a common acronym (UBI), which it shares
with Union Bank of India, which also has an all-India presence, the
public sometimes confuses the two banks.
On March 30, 2009, the Indian government decided to approve the
restructuring United Bank of India.[[1]] The cabinet has approved the
government's proposal to investing 2.50 billion rupees in shares by
March 31, and another 5.50 billion in the next fiscal year in Tier-I
capital instruments. The move is part of the Indian government's
program to improve the capital base of the state-owned banks.
Allahabad Bank
Page 43
Allahabad Bank,(Hindi: इला�हा�बा�द बा�क, Bengali: এলা�হা�বা�দ বা���ক) which
began operations in 1865, now has its head-quarters in Kolkata.
Currently the bank has 2260 branches [1] across the country. The
Chairman and Managing Director of the bank is K R Kamath. The
bank's internet banking is maintained by EBankWorks Team of TCS.
History
On April 24, 1865, a group of Europeans founded the bank at
Allahabad, making it the oldest Joint Stock bank in India.
In 1920, P&O Bank bought Allahabad Bank.
In 1923 the bank moved its headquarters to Calcutta.
In 1927, Chartered Bank of India, Australia and China acquired
and amalgamated P&O Bank. However, Chartered Bank
continued to operate Allahabad Bank as a separate entity.
On July 19, 1969, the Government of India nationalized
Allahabad Bank, together with 13 other banks.
In October, 1989 Allahabad Bank acquired United Industrial
Bank.
In October, 2002, the bank came out with Initial Public Offer
(IPO), which reduced the Government's shareholding to 71%.
A second public offering in April, 2005, further reduced the
Government shareholding to 55%.
In June, 2006, the bank opened a representative office at
Shenzen, China, its first office outside India.
In February, 2007, Allahabad Bank opened its first overseas
branch, in Hong Kong.
Page 44
Andhra Bank
Andhra Bank (Hindi: आंध्रा� बा�क, Telugu: ఆం�ధ్రా� బ్యాం��కు�) was registered
on 20 November 1923 and commenced business on 28 November
1923 with a paid up capital of Rs 1.00 lakh and an authorised capital
of Rs 10.00 lakhs. The Bank crossed many milestones[clarification needed]
and the Bank's Total Business as on 30.06.2008 stood at Rs.83,256
Crores with a Clientele base over 1.74 Crores.[citation needed] The Bank is
rendering services through 2139 Business Delivery Channels
consisting of 1371 branches, 66 Extension Counters, 38 Satellite
Offices and 664 ATMs spread over 21 States and 2 Union Territories
as at the end of June, 2008. All Branches are 100% computerized,
1186 units viz., 1101 Branches, 68 Extension Counters, 15 Service
Centres networked under Cluster Banking solution and providing
"Any Branch Banking(ABB)". Real Time Gross Settlement (RTGS)
Facility and National Electronic Fund Transfer (NEFT) facility has
been introduced in 723 Branches. To provide value-added
services[clarification needed] to Customers, the Bank has set up its own 664
ATMs as on 30.06.2008. Of which 03[clarification needed] Mobile ATMs and
two with Biometric access. Besides, ATM sharing arrangements with
several Banks including SBI group, IDBI Bank, UTI Bank, HDFC
Bank, Indian Bank and others under National Financial Network
Switch covering 24856 ATMs.
Bank is migrating to "Centralized Core Banking Solution".[clarification needed]
118 Branches have already migrated to CBS. It is proposed to cover
550 branches by September 2009. This will benefit the customers,
Page 45
who will have access to banking and financial services anytime,
anywhere through multiple delivery channels.[clarification needed] Andhra
Bank is a pioneer in introducing Credit Cards in the country in 1981 .[citation needed]
Our Bank introduced Internet Banking Facility (AB INFI-net) to all
customers of cluster linked branches.[clarification needed] Rail Ticket Booking
Facility is made available to all debit card holders through IRCTC
Website through a separate gateway. Corporate Website is available
in English, Hindi and Telugu Languages communicating Bank's
image and information. Bank has been given 'BEST BANK AWARD'
a banking technology award by IDRBT, Hyderabad for extensive use
of IT in Semi Urban and Rural Areas on 02.09.2006.[citation needed] IBA
Jointly with TFCI has conferred the Joint Runner-up Award to the
Bank in the Bet Payments initiative in recognition of outstanding
achievement of the Bank in promoting ATM Channel. Bank
successfully conducted " Bancon 2006", a two day event at
Hyderabad, deliberating on Inclusive Growth - A New Challenge.
Kiddy Bank Scheme, with insurance benefits, was relaunched to
inculcate savings habit among the children. Bank has mobilized
nearly 90000 new accounts during 2007-08
As a part of "Financial Inclusion", Bank adopted two districts, namely,
Srikakulam in Andhra Pradesh and Ganjam in Orissa and achieved
100% coverage. Bank has introduced Smart Card Scheme Pilot
project in Warangal District and the same will be extended to other
Lead Districts in due course. Bank has opened 2.11 lakh accounts
under "No-frill accounts" category till 30.06.2008.
Page 46
Andhra Bank, along with A P State Government, NABARD, Canara
Bank, Indian Bank, IOB and SBH sponsored the Andhra Pradesh
Banker's Institute of Entrepreneurship Development, which will offer
training to unemployed youth for improving their skills in Andhra
Pradesh.
Bank adopted Gundugolanu village, West Godavari District, Andhra
Pradesh - birth place of Dr.Bhogaraju Pattabhi Sitaramayya for all-
round development. A comprehensive budget with an outlay of
Rs.5.50 Crore is finalized for improving health, sanitation, education
and social service facilities in the village.
Bank has been ranked No.1 in terms of number of Life Insurance
Policies mobilized amongst all the Agency Banks dealing with "Life
Insurance Corporation of India". Bank also has tie-up with United
India Insurance Company Limited under Bancassurance(Non-Life).[
Bank entered MoU with Bank of Baroda and Legal & General Group
of UK to form a joint venture life insurance company. The
shareholders' agreement has already been signed and necessary
formalities are being completed for setting up of the company. The JV
Bank feels United States would be an ideal location as Andhra Bank
has been a household name among many NRIs there.A foothold in
New Jersey is strategic for the 84 year old bank as it has a large
number of non resident Indians from Andhra Pradesh.
Bank of Baroda
Page 47
Bank of Baroda (BSE: 532134) (BoB) (Hindi: बा�क ऑफ़ बाड़ौ�द�) is the
third largest Public Sector bank in India, after State Bank of India and
Punjab National Bank. BoB has total assets in excess of Rs. 2.27
lakh crores, or Rs. 2,274 billion, a network of over 3000 branches and
offices, and about 1100+ ATMs. It offers a wide range of banking
products and financial services to corporate and retail customers
through a variety of delivery channels and through its specialised
subsidiaries and affiliates in the areas of investment banking, credit
cards and asset management.
Maharajah of Baroda Sir Sayajirao Gaekwad III founded the bank on
July 20, 1908 in the princely state of Baroda, in Gujarat. The bank,
along with 13 other major commercial banks of India, was
nationalised on 19 July 1969, by the Government of India.
Bank of Baroda has received permission or in principle approval from
host country regulators to open new offices in Trinidad and Tobago
and Ghana, where it is seeking to establish joint ventures or
subsidiaries. The bank has received Reserve Bank of India approval
to open offices in the Maldives, and New Zealand. It is seeking
approval for operations in Bahrain, South Africa, Kuwait,
Mozambique, and Qatar and is establishing offices in Canada, New
Zealand, Sri Lanka, Bahrain, Saudi Arabia, and Russia. It also has
plans to extend its existing operations in the United Kingdom, the
United Arab Emirates, and Botswana.
Bank of Maharashtra
Page 48
Bank of Maharashtra (Hindi: बा�क ऑफ़ महा�रा�ष्ट्र, Marathi: बा�क ऑफ महा�रा�ष्ट्र)
is the premier bank of Maharashtra, operating in the country of India.
Registered on 16th Sept 1935 with an authorized capital of Rs 10.00
lakh and commenced business on 8th Feb 1936.
Known as a common man's bank since inception, its initial help to
small units has given birth to many of today's industrial houses. After
nationalization in 1969, the bank expanded rapidly. It now has 1375
branches (as of 31 March 2008) all over India. The Bank has the
largest network of branches by any Public sector bank in the state of
Maharashtra.
Canara Bank
Canara Bank (Hindi: क� नरा� बा�क) is a major commercial bank. It was
established in India in 1906, which makes it among the older Indian
Page 49
banks. As on 2009 November, the bank had a network of 2861
branches, spread across India and other countries. Its head office is
located in Bangalore, India. The bank also has international presence
in several centers, including London, Hong Kong, Moscow, Shanghai,
Doha, and Dubai. In terms of business it is one of the largest
nationalized commercial banks in India, with a total business of about
Rs.2 trillion.
Central Bank of India
Central Bank of India, (Marathi:सें�ट्रला बा��क ऑफ इडि�या�) a government-
owned bank, is one of the oldest and largest commercial banks in
India based in Mumbai [1] . The bank currently has 3,168 branches and
270 extension counters across 27 Indian states.
Mr S Sridhar [Ex CMD National Housing Bank][2] has been appointed
as the Chairman and Managing Director of state-run Central Bank of
India as on 2 March 2009. The post had been lying vacant and the
appointment was cleared by the government yesterday, the Bank
said in a statement. To improve the Bank's capital adequacy ratio and
enable it to support the credit requirements of the productive sectors
of the economy, the Centre has recently decided to infuse Rs 1,400
crore in the Bank. Under the proposed capital infusion plan, Central
Bank of India will get Rs 700 crore by this month-end, while the
balance amount will be made available to the Bank in next fiscal.
Central bank of India is one of 18 Public Sector banks in India to get
recapitalisation[3] finance from the government over the next 24
Page 50
months. The infusion of fund will improve the financial health of the
banks as their capital adequacy ratio (CAR) will be raised more than
desired level of 12 percent. The increase in CAR of the banks will
also enable them to lend more money. The CAR of Central Bank of
India was less than 12 percent as on June 30 2006.
The wholly-owned public sector bank, based in Mumbai, will convert
an amount of Rs. 800 crore out of its Rs. 1,124.14-crore total equity
capital into perpetual non-cumulative preference shares.The
preference shares would carry an annual floating coupon rate of eight
per cent, which would be benchmarked to 100 basis points above the
repo rate. It will shore up the balance-sheet of the bank and enable it
to raise capital from the markets.
According to an official statement, the equity capital restructuring
would lead to an improvement in the bank's credit rating as also
facilitate the adoption of Basel II norms.
For financial year 2008-2009, Central Bank of India's Q3 standalone
net profit went up at Rs 353.26 crore from Rs 201.01 crore (YoY).
The bank's standalone net interest income, NII was up at Rs 671.94
crore versus Rs 544.85 crore (YoY).[4]
At a time when the global banking industry is feeling the pinch of the
global credit crunch, Central Bank of India is planning to expand its
foreign presence. The public-sector lender has approached the
Reserve Bank of India (RBI) for permission to open representative
offices in five locations - Singapore, Dubai, Doha, London and Hong
Page 51
Kong. This is the first time the bank is venturing an independent
overseas foray after the Sethia scam in the 1970s forced the bank to
close down its London office. RBI had then asked the other two
banks, who had operations in London, to close down.[5]
Central Bank of India partnered with TCS[ Tata Consultancy Services
] for its Core Banking Solution.[6] The solution set to be implemented
will include B@NCS from Sydney-based Financial Network Solutions
(FNS), Exim Bills Trade Finance software from China Systems and
eTreasury from TCS. With 703 banks in the core banking system
(CBS), it was planned that by the end of March 2008 a total of 1,000
branches would be brought under the CBS.
Corporation Bank
Corporation Bank, founded in 1906 in Udupi, Karnataka state, India,
is one of the Indian banks in Public Sector Undertaking. The bank
was founded with an initial capital of Rs. 5000 (USD 100), and first
Page 52
day’s canvassed resources of less than one USD 1, has currently (31
March 2004) 12,724 full time employees, and operates from several
branches in India.
The Bank is a Public Sector Unit with 57.17% of Share Capital held
by the Government of India. The Bank came out with its Initial Public
Offer (IPO) in October 1997 and 37.87% of Share Capital is presently
held by the Public and Financial Institutions. The Bank’s Net Worth
stood at Rs.3,054.92 crores as on 31 March 2005.
The bank has the distinction of the first Indian bank to publish its
financial results (1998-99) conforming to US GAAP.
Dena Bank
Dena Bank (Hindi: द�न� बा�क) (founded 26 May, 1938) is one of the
earliest banks in India headquartered in Mumbai [1] .
[History
Page 53
Dena Bank was founded by the family of Devkaran Nanjee
under the name Devkaran Nanjee Banking Company Ltd.
It found its new name, Dena Bank Ltd. when it was
incorporated as a Public Company in Dec 1939.
It is one of the most prestigious banks of India having a good
market share.
Dena Bank was nationalised (and therefore dropped the 'Ltd.'
from its name) in 1969 along with 13 other banks in India.
It is one of the earliest Banks in India.
Vijaya Bank
Vijaya Bank, a medium sized bank with presence across India was
founded on 23 October 1931 [1]by the late Shri A.B.Shetty and other
enterprising farmers in Mangalore, Karnataka in India.. The objective
of the founders was essentially to promote banking habits, thrift and
Page 54
entrepreneurship among the farming community of Dakshina
Kannada district in Karnataka State. The bank became a scheduled
bank in 1958.Vijaya Bank steadily grew into a large All India bank,
with nine smaller banks merging with it during the 1963-68. The credit
for this merger as well as growth goes to late Shri M.Sunder Ram
Shetty, who was then the Chief Executive of the bank. The bank was
nationalised on 15 April 1980.
The importance of Nationalized banking
Page 55
THE HINDU PHOTO ARCHIVES
Prime Minister Indira Gandhi addressing members of a taxi
drivers' union in Delhi who visited her to express their support
for the nationalisation of 14 banks, in 1969.
IN a reversal of its recently held position, the Congress party has
declared that publicly owned banks are one of India’s strengths and
that the nationalisation of banks was one of the party’s important
achievements. This has, as expected, upset those who have
supported the party’s two-decade long flirtation with financial
liberalisation, which included an as yet unfinished drive to privatise
public sector banks.
The declaration was first made by Congress president Sonia Gandhi
at the Hindustan Times Leadership Summit. She argued that while
the ongoing “economic upheaval” could “grievously affect the most
vulnerable sections of our society”, her party had partially insulated
India’s poor from becoming “victims of the unchecked greed of
bankers and businessmen”. Elaborating, she said: “Let me take you
Page 56
back to Indira Gandhi’s bank nationalisation of 40 years ago. Every
passing day bears out the wisdom of that decision. Public sector
financial institutions have given our economy the stability and
resilience we are now witnessing in the face of the economic
slowdown.”
Coming from the Congress party chief at election time, this could be
dismissed as mere rhetoric that is unlikely to influence policy. After
all, the United Progressive Alliance chairperson had noted in the
same speech that, the response to the economic slowdown resulting
from the crisis should not be a return to the era of controls. But the
cynics were surprised when just days after Sonia Gandhi made her
remarks, Finance Minister P. Chidambaram took the cue from his
leader and extolled the virtues of a nationalised banking sector.
Speaking at a function organised as part of the M. Ct. M.
Chidambaram Chettyar centenary celebrations, he emphasised that
India’s public sector banks were strong pillars in the world’s banking
industry.
This was because, unlike the chief executives of private banks in the
United States, public sector bank managers did not violate
regulations in search of profits. For a Minister who has been pushing
for the dilution of banking regulations, the privatisation of public
banks, and the relaxation of the cap on voting rights of shareholders
in banks, this is indeed a reversal of position. Three factors may have
contributed to this change of opinion. First, the evidence that the
managers of private banks pursuing profits had dropped all diligence
and made decisions that have threatened and are still threatening the
Page 57
viability of leading banks in the developed capitalist countries. These
include banks that the advocates of financial liberalisation and
privatisation upheld as models of modern banking.
Second, the recognition that the only way in which the losses made
by these banks could be socialised and their viability ensured was for
the government to invest in their shares so as to recapitalise them.
Across the world, the response to the financial crisis has shifted out
of mere measures to inject liquidity into the system to backdoor
nationalisation of these banks so as to save them from bankruptcy
and to ensure that they keep lending.
Finally, the evidence that on an average, the public sector banks in
India have weathered the financial storm much better than the private
banks, including some that had been celebrated as the post-
liberalisation icons of innovative banking.However, if the argument
stops here, the explicit or implicit defence of nationalisation and
support for public banking can only be partial and circumstantial.
What needs recognition is a conceptual case for regulated, public
banking that emerges from the current and previous financial crises.
It is now widely recognised that the current crisis can be traced to
forces unleashed by the transformation of U.S. banking in the 1970s,
when it moved away from the “lend and hold” model in which the
interest margin – or the difference between interest paid on deposits
and the interest charged on loans – determined the profits of banks.
With interest rates being controlled or regulated, this margin was
small and implied that the profitability of banking was low and below
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that of the rest of the financial sector and even that of many non-
financial industries. In fact, during the inflationary 1970s, profitability
sank even further because savers moved out of bank deposits,
returns on which were regulated, to other kinds of financial
instruments.
On the other hand, the banks that pool these deposits provide
medium or long-term advances to borrowers who are risky targets,
creating loan assets that are relatively illiquid. Given the risk carried
by these intermediaries, which are crucial to the real economy, they
had to be protected and the savings of small savers and households
secured through regulation, including regulation of interest rates. A
consequence was that banking was an island of low profits, resulting
in a conflict between this profit scenario and private ownership.
In the process, banks migrated to a world where expected and
realised returns were much higher than earlier, resolving the conflict
between private ownership and lower relative profitability.
Unfortunately, that transformation also generated all the elements
that underlie the current and previous crises. The number of bank
failures in the U.S. increased after the 1980s. From 1955 to 1981,
U.S. banks averaged 5.3 failures a year, excluding banks that were
protected by official open-bank assistance. On the other hand from
1982 to 1990, the banks averaged 131.4 failures a year, or 25 times
as many as from 1955 to 1981. During the four years ending 1990,
banks averaged 187.3 failures a year. The most spectacular set of
failures was that associated with the “savings and loan crisis”, which
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was precipitated by financial behaviour induced by liberalisation.
Thus, there is a fundamental contradiction in private enterprise
capitalism. If the banking sector is regulated, it cannot deliver the
profits that are considered adequate by private investors, who are
given returns elsewhere in the system. On the other hand, if
regulations are relaxed to facilitate the pursuit of profits, it will result in
bank fragility and “the poor become the victims of the unchecked
greed of bankers and businessmen”, as Sonia Gandhi noted. The
only solution, therefore, is the nationalisation of banking, or the core
of the financial system.
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Advantages of Nationalization of Banks
in India
Nationalisation, which delivers a resilient banking system, yields
many favourable outcomes:
• It ensures the information flow and access needed to pre-empt
fragility by substantially reducing any differences in the objectives and
concerns of bank managers, on the one hand, and bank supervisors
and regulators, on the other. This is a much better insurance against
bank failure than efforts to circumscribe their areas of operation,
which can be circumvented.
• It subordinates the profit motive to social objectives and allows the
system to exploit the potential for cross subsidisation. As a result,
credit can be directed, despite higher costs, to targeted sectors and
disadvantaged sections of society at lower interest rates. This permits
the fashioning of a system of inclusive finance.
• It gives the state influence over the process of financial
intermediation and allows the government to use the banking industry
as a lever to advance its development efforts. In particular, it allows
for the mobilisation of technical and scientific talent to deliver both
credit and technical support to agriculture and the small-scale
industrial sector.
This multifaceted role for state-controlled banking allows the
government to combine policies aimed at preventing fragility and
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avoiding failure with policies aimed at achieving broad-based and
inclusive development. Directed credit at differential interest rates can
lead to economic activity in chosen sectors and regions and among
chosen segments of the population. It amounts to building a financial
structure in anticipation of real-sector activities, particularly in
underdeveloped and underbanked regions of a country.
The importance of public ownership in realising these objectives
cannot be overstressed, since it requires subordinating the profit
motive to larger social goals, which would not be acceptable to a
privately owned and controlled banking system.
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Conclusion
It hardly bears emphasising that the achievements of India’s banks
after nationalisation have been remarkable. There was a substantial
increase in the geographical spread and functional reach of banking,
with nearly 62,000 bank branches in the country as of March 1991, of
which over 35,000 (or over 58 per cent) were in the rural areas. There
was a sharp increase in the share of rural areas in aggregate
deposits and credit. In fact, a major achievement of the banking
industry in the 1970s and the 1980s was a decisive shift in credit
provision in favour of the agricultural sector. From an extremely low
level at the time of bank nationalisation, agriculture’s share of credit
rose to a peak of about 18 per cent by the end of the 1980s.
In sum, public ownership of banks, besides preventing the system
from periodic crises caused by the behaviour encouraged by the
pursuit of private profit, delivers many growth and welfare benefits. It
is, therefore, gratifying that the combination of a financial crisis and
the pressures of electioneering have forced the government to retract
on its mindless advocacy of financial liberalisation and recognise the
benefits of public ownership. Whether this will influence policy is,
however, yet to be seen.
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