CHAPTER NO.1 BANKING IN INDIA BANKING IN INDIA 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 Bank of Hindustan, which started in 1790; both 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. Banking in India originated in the first decade of 18th century with The General Bank of India 1
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CHAPTER NO.1
BANKING IN INDIA
BANKING IN INDIA
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
Bank of Hindustan, which started in 1790; both 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.
Banking in India originated in the first decade of 18th century with The
General Bank of India coming into existence in 1786. This was followed
by Bank of Hindustan. Both these banks are now defunct. The oldest
bank in existence in India is the State Bank of India being established as
"The Bank of Bengal" in Calcutta in June 1806. A couple of decades
later, foreign banks like Credit Lyonnais started their Calcutta operations
in the 1850s. At that point of time, Calcutta was the most active trading
port, mainly due to the trade of the British Empire, and due to which
banking activity took roots there and prospered. The first fully Indian
owned bank was the Allahabad Bank, which was established in 1865.
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By the 1900s, the market expanded with the establishment of banks such
as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906,
in Mumbai - both of which were founded under private ownership. The
Reserve Bank of India formally took on the responsibility of regulating
the Indian banking sector from 1935. After India's independence in 1947,
the Reserve Bank was nationalized and given broader powers.
HISTORY
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.(Joint Stock Bank: A company that issues
stock and requires shareholders to be held liable for the company's debt)
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. 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.
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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 Puducherry,
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 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 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.
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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". 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:
Years Number of banks
t hat 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
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1917 9 76 25
1918 7 209 1
NATIONALIZATION
By the 1960s, the Indian banking industry has become an important tool
to facilitate the development of the Indian economy. At the same time, it
has emerged as a large employer, and a debate has ensued about the
possibility to nationalize 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 Nationalization." The paper was received with positive
enthusiasm. Thereafter, her move was swift and sudden, and the GOI
issued an ordinance and nationalized 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 (Acquition and Transfer of Undertaking) Bill, and it
received the presidential approval on 9th 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.
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After this, until the 1990s, the nationalized banks grew at a pace of
around 4%, closer to the average growth rate of the Indian economy.
LIBERALIZATION
In the early 1990s the then Narasimham Rao government embarked on a
policy of liberalization and gave licenses to a small number of private
banks, which came to be known as New Generation tech-savvy banks,
which included banks such as UTI Bank (now re-named as Axis Bank)
(the first of such new generation banks to be set up), ICICI Bank and
HDFC Bank. This move, along with the rapid growth in the economy of
India, kick started 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 49% 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.
Current Situation
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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 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.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public
sector banks (that is with the Government of India holding a stake), 29
private banks (these do not have government stake; they may be publicly
listed and traded on stock exchanges) and 31 foreign banks. They have a
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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.
DEFINATION OF BANK
Banking is one of the key drivers of the U.S. economy. Banking provides
a safe place to save excess cash, known as deposits. It also supplies
liquidity to the economy by loaning this money out to help businesses
grow and to allow consumers to purchase homes, cars and consumer
products. Banks primarily make money by charging higher interest rates
on their loans than they pay for deposits.
The Federal Reserve is the nation's central bank. As such, it creates the
supply of money by lending it to the banking system, requiring the level
of reserves banks must keep on hand, and by regulating the prime interest
rate banks charge.
There are several types of banks. Commercial banks are the most
common, and include global banks such as Bank of America and
Citigroup. Community banks are smaller and focus on local service.
Online banks operate over the Internet.
Savings and loans target mortgages. Credit unions are usually restricted
to employees of companies or schools. Shariah banking was developed to
conform to the Islamic prohibition against interest rates.
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In recent years, banking has become very complicated as banks have
ventured into sophisticated investment and insurance products. This level
of sophistication led to the banking credit crisis of 2008.
Examples: The economy could not function without banking.
TYPES OF BANK
All types of Banks in India are regulated and the activities monitored by a
standard bank called the Reserve Bank of India that stands at the apex of
the banking structure. It is also called the Central Bank, as major banking
decisions are taken at this level. The other types of banks in India are
placed below this bank in the hierarchy.
The major types of banks in India are as follows:
Public sector banks in India - All government owned banks fall in this
variety. Besides the Reserve Bank of India, the State Bank of India and
its associate banks and about 20 nationalized banks, all comprises of the
public sector banks. Many of the regional rural banks that are funded by
the government banks can also be clubbed in this genre.
Private sector banks in India - A new wave in the banking industry
came about with the private sector banks in India. With policies on
liberalization being generously taken up, these private banks were
established in the country that also contributed heavily towards the
growth of the economy and also offering numerous services to its
customers. Some of the most popular banks in this genre are: Axis Bank,
Bank of Rajasthan, Catholic Syrian Bank, Federal Bank, HDFC Bank,
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ICICI Bank, ING Vysya Bank, Kotak Mahindra Bank and SBI
Commercial and International Bank. The Foreign Banks in India like
HSBC, Citibank, and Standard Chartered bank etc can also be clubbed
here.
Cooperative banks in India - With the aim to specifically cater to the
rural population, the cooperative banks in India were set up through the
country. Issues like agricultural credit and the likes are taken care of by
these banks.
MAIN TYPES OF BANK
The extent of ownership determines the type of banks that you see in
India. Decades ago, nationalized banks dominated the banking sector in
India. In 1969, the major nationalization of banks was spearheaded by
none other than Prime Minister Indira Gandhi. The purpose was to spread
awareness to rural areas and make cheap finance options available to the
poor and needy farmers. That year, 14 major commercial banks were
nationalized.
Today, the banking scenario has changed considerably. The following are
the main types of banks in India:
Privately Owned: These banks operate on a purely profit basis. Also
called central banks and new generation banks, these are controlled by the
state governments of their respective countries. While they are known to
offer quick, easy and convenient options for customers, they are not
considered as reliable and committed to growing the wealth of their
customers as nationalized banks.
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Publicly Owned:These banks are operated and controlled by the
government. These banks actively maintain a huge number of operations
that constitute the country’s liquidity in the banking sector. They are
considered safe, reliable and committed to the customers and the process
established by the Reserve Bank of India. These banks handle a number
of tasks pertaining to the banking sector. Publicly owned banks also
determine the interest rates that other banks in the country offer.
Other Categories of Banks
The following categories include larger banks that have broader and
multiple divisions:
Retail banks: These banks deal with consumers and small business
owners directly. The major products offered by them include savings and
current accounts, credit cards, and loans, such as mortgages. These also
cater to high net worth clients offering them wealth management
services.These can be further divided into
Offshore banks: Most of these are private banks that operate in spheres
of reduced taxes.
Community banks: These banks operate on a local basis and serve
people and markets that have usually been devoid of banking services.
Postal savings banks: These banks operate in collaboration with the
nation’s national postal systems.
Building societies: Typically owned by their clients, these banks offer a
broad range of retail banking services.
Ethical banks: These banks only acknowledge investments that are
socially and environmentally useful.
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Business banks: These banks serve medium scale businesses and
organizations.
Corporate banks: These banks typically deal with major business
entities.
Investment banks: These banks help clients in mergers and acquisitions
and other services related to financial markets. Some investment banks
conduct underwriting services only. Some investment banks are merchant
banks that perform traditional banking activities related to trade-finance.
All types of banks function well based on the extent of trust they are able
to communicate with their customers. Their customers, in turn,
recommend them to others and avail more services offered by these
banks, expecting complete safety of their dealings.
SCHEDULED BANK
Amendment in Schedule VI of the Companies Act by Notification No.
GSR 78 dated 4th January, 1963, requires that amounts in respect of
balances with “Scheduled Banks” should be disclosed separately from
other Banks.
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“Scheduled Bank” is defined by Section 5(1) (m) of the Banking
Companies Act, 1949 as “a bank for the time being included in the
Second Schedule to the Reserve Bank of India Act, 1934”. Classification
in this respect in regard to accounts with banks situated in foreign
countries presents difficulties, in that no such distinction exists in respect
of foreign branches of the Banks, which may again be Indian or foreign.
Which of the following bank accounts should be grouped as bank
balances with Scheduled Banks?
(a) Foreign branches of Banks incorporated in India, the names of which
Banks are included in the aforementioned Schedule e.g., Decca branch of
X Bank Ltd.
(b) Foreign branches of Banks incorporated outside India, Indian
branches of which banks only are included in the aforementioned
Schedule—e.g., Dacca branch of Y Bank of Pakistan Ltd. This was only
Calcutta Branch in India.
(c) Foreign branches of Banks incorporated outside India which have no
Indian branches and as such no names in this respect are included in the
aforementioned Schedule, say, Z Bank Ltd.
Opinion June 4, 1969
A ‘Scheduled Bank’ is defined in Section 2(e) of the Reserve Bank of
India Act, 1934, and therefore in the Committee’s view any deposit with
such a bank including deposits with branches situated abroad of such a
bank should be treated as deposits with a Scheduled Bank Accordingly, in
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the opinion of the Committee the replies to the questions raised are as
follows:
(a) Deposits with the foreign branch of an Indian bank which is a
scheduled bank should be treated as a deposit with a scheduled bank.
(b) Deposit with the foreign branches of foreign banks who have offices
in India and who are considered to be scheduled banks should also be
treated as deposits with scheduled banks.
(c) Deposits with foreign branches of banks having no offices in India
cannot be considered as deposits with the scheduled banks, as, in any
event, their names will not appear in the schedule to the Reserve Bank of
India Act.
NON SCHEDULED BANK
"Non-scheduled bank in India" means a banking company as defined in
clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949),
which is not a scheduled bank". The banks which are not under the
purview of second schedule of RBI Act
The bank which are not registered in the list of central bank under its
charter are known as non-scheduled bank. They are not bound to perform
banking service according to the policies & instruction of central bank e.g
Bank of Punjab was a Non scheduled bank.
These banks do not fulfill the requirement qualification of a scheduled
bank as prescribed by central bank. They also do not enjoy the public
confidence. In many countries, many non-scheduled bank are also
working.
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Non scheduled banks are those banks which are not registered under
scheduled of RBI act, 1934. In India, only Jammu & Kashmir bank is not
scheduled bank.
May 1997, there is no non-scheduled commercial bank exists in India.
IMPORTANCE OF BANK
In this way they become very effective partners in the process of
economic development. Today, modern banks are very useful for the
utilization of the resources of the country. The banks are mobilizing the
savings of the people for the investment purposes. The savings are
encouraged and saving rate increases. If there would be no banks then a
great portion of a capital of the country would remain idle.
A bank as a matter of fact is just like a heart in the economic structure
and the Capital provided by it is like blood in it. As long as blood is in
circulation the organs will remain sound and healthy. If the blood is not
supplied to any organ then that part would become useless. So if the
finance is not provided to Agriculture sector or industrial sector, it will be
destroyed. Loan facility provided by banks works as an incentive to the
producer to increase the production.
Nobody wants to credit you money if you don't have a depository
account. You get superior interest rates when you have a good times past
of barrowing money and paying it back. Good credit is an advantage.
No credit or bad credit is a Liability. No matter which that makes life
easier is ok with me.
Without bank, there would be no investment. We would all run out of
money and back to bargain. By the time you earned enough to buy
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banquet you would not have an adequate amount to pay for a bed to sleep
in.
Banking is why we are able to do all the things we do. We hate the
bankers because we believe that they do nothing for us. If you are given
$10,000US at the beginning of the year and compensated everyday you
work. Without banking you would not have enough money to make it
through one year in the average American city. Please commit to
memory, you will have to run quarters and get your money from beneath
the mattress when ever you find amazing you wish to buy. The time loss
alone would harm most lives Banking is now an essential part of our
economic system. Modern trade and commerce would almost be
impossible without the availability of suitable banking services. First of
all, banking promotes savings. All manner of people, from the ordinary
labourers and workers to the rich land owners and businessmen, can keep
their money safely in banks and saving centers.
Secondly, banking promotes investments.
Banks easily invest the money they get in industry , agriculture and trade.
They either invest it directly or advance loans to other invensters.
Thirdly ,it is most through banks that foreign trade is carried on. Whether
we export or import, it is through banks that money is transferred from
one country to another. For example, bills of exchange and letters of
credit are the regular ways banks use to transfer money.
The important of bank system is the facilities for the of companies and
production and necessary for economically system, also controlled for the
money circle and inflation.
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Banking is financial institution that accepts deposit and channels those
deposits into lending activities Importance of banking in an econony
cannot but be emphasized. Banking plays the role of an intermediary ie
movement of resources from places of surplus to places of deficit. Via
this role resources are evenly distributed in the economy
Bank plays an important role in promoting economic development of a
country. Bank provides necessary funds for executive program in the
process of economic development. They collect savings of large masses
of people scattered throughout the country, which is the absence of bank
world have remained idle and unproductive. These amounts are collected,
pooled together and made available to commerce and industry for meting
the requirement. This provides finance for successfully carrying on
various stages of production as well as distribution. Bank stimulate the
habit of savings amount people by the security and interest they offer
with these savings which are deposited by people are in position to utilize
the deposited amount more productively.
The bank increased the transaction capacity of the customers by
advancing loans when they require for additional funds to finance their
expanded program of transaction. In short, the economic development of
a particular country depends on the sound banking system.
CHAPTER NO.2
PUBLIC SECTOR BANK
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INTRODUCTION
A Public Sector bank is one in which, the Government of India holds a
majority stake. It is as good as the government running the bank.
Since the public decide on who runs the government, these banks that are
fully/partially owned by the government are called public sector banks.
The term public sector banks is used commonly in India. This refers to
banks that have their shares listed in the stock exchanges NSE and BSE
and also the government of India holds majority stake in these banks.
They can also be termed as government owned banks.
A Public sector bank is a bank that is owned by the government. The
government owns and controls the banks operations. The chairman,
managing director and other senior officials of the bank are answerable to
the ruling government regarding their functions and operations.
The first nationalized or public sector bank of India was State Bank of
India. It was nationalized in the year 1955. Subsequently many banks
were nationalized in the year 1969 and some more in 1980. SBI is also
the largest bank in India.
Institutional credit support plays a catalytic role in accelerating the pace
of economic development of a country. In the context of developing
economy of India, bank finance plays a crucial role in pushing the
agricultural economy on to the progressive pathway and helping develop
rural India.
Indian banking, appreciably, over the years, has emerged from being a
purveyor of credit to be an engine of economic development. A historic
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review of the State Bank of India, a giant among the public sector
commercial banks, and the subsequently in nationalized commercial
banks, reveals the emerging promising trends in the deposit mobilization,
deployment of credit with developmental dimension added to it,
prioritization of sectoral financing and social responsibility assumed by
the banks. Along with promising trends in the progressive march of the
public sector banks, certain disturbing trends are notice. Hence, the vital
importance of making an in-depth study of the changing trends in the
Indian public sector commercial banks so that policy sector commercial
banks so that policy corrections can be made for enabling them play a
more effective developmental role in the context of resurgent national
economy of India. Institutional credit support plays a catalytic role in
accelerating the pace of economic development of a country. Indian
banking, appreciably, over the years, has emerged from being a purveyor
of credit to be an engine of economic development. A historic review of
the State Bank of India, a giant among the public sector commercial
banks, and the subsequently in nationalized commercial banks, reveals
the emerging promising trends in the deposit mobilization, deployment of
credit with developmental dimension added to it, prioritization of sectoral
financing and social responsibility assumed by the banks. Along with
promising trends in the progressive march of the public sector banks,
certain disturbing trends are notice. Hence, the vital importance of
making an in-depth study of the changing trends in the Indian public
sector commercial banks so that policy sector commercial banks so that
policy corrections can be made for enabling them play a more effective
developmental role in the context of resurgent national economy of India.
Public Sector Banks working without top officials
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As many as seven public sectors banks are working without Executive
Directors at present. The Union government is also in no hurry to
complete the process of appointment of the seven Executive Directors
who have already been selected through the process of interviews
conducted on January 9, 2007. The Prime Minister Man Mohan Singh has
also given his consent for the appointment of seven Eds. Now, this is
being said that some of the selected candidates have strong support in
political circle and now they want to change their postings want to change
their postings. Due to the new requests with such strong political backing,
the banking department is delaying the process of final appointments.
According to the report, Dena Bank, United Bank of India and Allahabad
Bank are still working without any ED. A CMD of a public sector bank
said that unavailability of top officers affects the working of a bank.
Private sector banks such as ICICI Bank and Axis Bank have shown
improvement in past some years because of the same top management for
a longer period. In the year 2007, as many as 17 EDs will retire and the
banking department had started the selection process for the same posts
way back in September 2006. Among the 90 General Managers in PSU
banks, who have showed interests in the post of ED, 17 were selected
after the interviews conducted on January 8 and 9 this year. Out of 17
candidates, eight were posted on June 6 and for remaining nominees, the
process was initiated on June 22, 2007. On October 11, the PM had also
given the consent to the posting. Still the process of final posting has not
yet completed because some candidates actually wanted to shift their
postings. The report further said that if the government accepts requests
of some selected candidates to change their postings, the process would
take another two months to complete the process.
HISTORY
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Without a sound and effective banking system in India it cannot have a
healthy economy. The banking system of India should not only be hassle
free but it should be able to meet new challenges posed by the technology
and any other external and internal factors. For the past three decades
India's banking system has several outstanding achievements to its credit.
The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system
has reached even to the remote corners of the country. This is one of the
main reasons of India's growth process. The government's regular policy
for Indian bank since 1969 has paid rich dividends with the
nationalization of 14 major private banks of India. Not long ago, an
account holder had to wait for hours at the bank counters for getting a
draft or for withdrawing his own money. Today, he has a choice. Gone
are days when the most efficient bank transferred money from one branch
to other in two days. Now it is simple as instant messaging or dial a pizza.
Money have become the order of the day. The first bank in India, though
conservative, was established in 1786. From 1786 till today, the journey
of Indian Banking System can be segregated into three distinct phases.
They are as mentioned below:
● Early phase from 1786 to 1969 of Indian Banks
● Nationalization of Indian Banks and up to 1991 prior to Indian banking
sector Reforms.
● new phase of Indian Banking System with the advent of Indian
Financial & Banking Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I,
Phase II and Phase III.
Phase I
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The General Bank of India was set up in the year 1786. Next came Bank
of Hindustan and Bengal Bank. The East India Company established
Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras
(1843) as independent units and called it Presidency Banks. These three
banks were amalgamated in 1920 and Imperial Bank of India was
established which started as private shareholders banks, mostly
Europeans shareholders. In 1865 Allahabad Bank was established and
first time exclusively by Indians, Punjab National Bank Ltd. was set up in
1894 with headquarters at Lahore. Between 1906 and 1913, Bank of
India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,
and Bank of Mysore were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also
experienced periodic failures between 1913 and 1948. There were
approximately 1100 banks, mostly small. To streamline the functioning
and activities of commercial banks, the Government of India came up
with The Banking Companies Act, 1949 which was later changed to
Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23
of 1965). Reserve Bank of India was vested with extensive powers for the
supervision of banking in India as the Central Banking Authority.
During those days public has lesser confidence in the banks. As an
aftermath deposit mobilization was slow. Abreast of it the savings bank
facility provided by the Postal department was comparatively safer.
Moreover, funds were largely given to traders.
Phase II
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Government took major steps in this Indian Banking Sector Reform after
independence. In 1955, it nationalized Imperial Bank of India with
extensive banking facilities on a large scale especially in rural and semi-
urban areas. It formed State Bank of India to act as the principal agent of
RBI and to handle banking transactions of the Union and State
Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalized
in 1960 on 19th July, 1969, major process of nationalization was carried
out. It was the effort of the then Prime Minister of India, Mrs. Indira
Gandhi. 14 major commercial banks in the country was nationalized.
Second phase of nationalization Indian Banking Sector Reform was
carried out in 1980 with seven more banks. This step brought 80% of the
banking segment in India under Government ownership.
The following are the steps taken by the Government of India to Regulate
Banking Institutions in the Country:
● 1949: Enactment of Banking Regulation Act.
● 1955: Nationalization of State Bank of India.
● 1959: Nationalization of SBI subsidiaries.
● 1961: Insurance cover extended to deposits.
● 1969: Nationalization of 14 major banks.
● 1971: Creation of credit guarantee corporation.
● 1975: Creation of regional rural banks.
● 1980: Nationalization of seven banks with deposits over 200 crore.
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After the nationalization of banks, the branches of the public sector bank
India rose to approximately 800% in deposits and advances took a huge
jump by 11,000%. Banking in the sunshine of Government ownership
gave the public implicit faith and immense confidence about the
sustainability of these institutions.
Phase III
This phase has introduced many more products and facilities in the
banking sector in its reforms measure. In 1991, under the chairmanship of
M Narasimham, a committee was set up by his name which worked for
the liberalization of banking practices. The country is flooded with
foreign banks and their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking and net banking is
introduced. The entire system became more convenient and swift. Time is
given more importance than money. The financial system of India has
shown a great deal of resilience. It is sheltered from any crisis triggered
by any external macroeconomics shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign
reserves are high, the capital account is not yet fully convertible, and
banks and their customers have limited foreign exchange exposure.
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CHAPTER NO.3
CAREER IN PUBLIC SECTOR BANK
INTRODUCTION
Banks are considered the backbone of a country’s economy. It’s truer for
a developing country like India. Indian Banking system is very strong. In
the global financial turmoil that happened sometime ago, our country was
least affected because of soundness of Indian Banking and Financial
system. In fact many countries of the world are trying to learn lessons
from our disciplined system of Banking. Banks in India are not only
strong but are also growing fast. According to studies. Banking sector is
one of the fastest growing sectors in the country. This growth has brought
many opportunities.
Indian Banking Scenario
Regulation of banking system in India started with Banking Regulation
Act, 1949. Banks in India used to be in private hands. In 1969, 14 big
private banks were nationalized bringing them under the ownership of
government. After 11 years, in 1980, six more banks were nationalized.
Of these 20 banks, one New Bank of India got merged in Punjab National
Bank. Now in all there are 27 public sector banks in the country
consisting of 19 nationalized banks and 8 banks from State Bank group
(State Bank of India and its associates). In the last two decades Public
Sector Banks in India have witnessed a transition from traditional
banking to modern technology driven banking. Exposure to competition
has made these banks re-engineer and re-structure their processes,
systems and product line.
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After economic liberalization these banks have been given enough
freedom to do so. However, for various matters these are required to
follow guidelines issued by Ministry of Finance, Reserve Bank of India
and Indian Banks Association. Post nationalization, the Banks were asked
to open more branches in rural areas. Large number of people was
recruited to man these newly opened branches. Expanded network gave a
new identity to these banks and millions of new customers came to the
fold of Banking. The business of Banking moved from class banking to
mass banking.
Manpower requirements
Public sector banks in India employ more than 7 lakh people at present.
Of these a large number of people will be retiring in next 5-6 years. To
fill this gap and to take up the growing business the Banks are on a
recruiting spree as can be seen in media and from vacancy
announcements. Only this year about 40,000 vacancies have been created
in public sector banks due to retirements, resignations and expansion of
business. Earlier recruitments in public sector banks were made through
Banking Service Recruitment Boards. Each board was taking care of
manpower requirements of 3-5 banks in a certain geographical area. Now
the boards have been abolished and each public sector bank may
announce its own recruitment process for the number of people required
from time to time. Earlier officers were recruited only in Junior
Management Grade. Now public sector banks are offering direct
employment in middle and senior management cadres as well. Thus for
both fresher and experienced people career opportunities are available in
public sector banks. To meet their manpower requirements these banks
are presently recruiting in large numbers both in clerical and officer
cadre.
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Clerical Positions
A clerk is mostly a front staff in a bank. Depending on the requirement
clerks are placed at different counters of the banks e.g. savings, deposit,
current deposit, term deposit, retail loans, cash credit, agricultural loans,
credit cards, government business, cash receipt or payment etc. Maximum
customer interface in banks occurs at these counters managed by clerical
staff.
Eligibility for Clerks
The minimum age for applying for the position of a clerk in nationalized
or private sector banks is 18 years. The maximum age limit is 28 years.
There is no uniformity with regard to educational qualification for
eligibility. This becomes clear from the recently advertised positions of
clerks in different banks. In one bank graduates with minimum 40%
marks are considered eligible while another bank is accepting candidates
with 60% marks in aggregate in 12th standard. Those having a university
degree (in any class) could also apply. This bank has put another
condition of having secured minimum 60% marks in mathematics at
SSC/10th standard. As most of the recruitments in clerical cadre in public
sector banks are made state-wise, the candidate applying for the post in a
particular State is expected to be proficient in the language of the State.
Proficiency means knowing to read, write, speak and understand the
language.
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Examination pattern for clerks
Eligible candidates are asked to appear in a written examination. This
written examination is objective in nature consisting of four papers viz
1. Test of reasoning ability and numerical aptitude
2. Test of clerical aptitude
3. Test of English language
4. Test of General awareness
The structure of written examination may differ from bank to bank. To
qualify in the written test the candidate should pass in each of the
objective test separately with required minimum qualifying marks. It is
also necessary that the candidate obtains a certain percentage of marks to
be eligible for moving to next stage of selection. From those who get the
qualifying marks as above, the bank calls a fixed number of people to
appear in the interview process. The number of people called for
interview is in a certain proportion of available vacancies. This interview
is a simple process in which question about candidates’ academic and
cultural background, career goals etc. are asked. Effort is also made to
know about his aptitude for the job and customer orientation etc. Most of
the people applying for a clerks position in the bank are fresh from
college. They should be ready to answer questions about their choice of
subjects, streams etc. From people who are employed or have work
experience, questions may be asked about the job or assignments they
have been handling. In case of interview also minimum qualifying marks
are prescribed. The final merit list is drawn by adding up marks obtained
by the candidate in the written test and interview.
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Career Prospects
Finally selected candidates can look forward to a fruitful career in the
bank, they join. All public sector banks provide training to new
employees for equipping them to take up their assignments. Induction
training which happens immediately or soon after joining is the first
training programmes they attend. Subsequently they are offered training
in various banking disciplines. Public sector banks are few organisation
which offer promotion from one cadre to another. Thus those who join as
clerks may be promoted as officers, as per banks norms. For bright
candidates, in some banks, this promotion from a clerk to officer is
possible in a period as short as one year.
Recruitments in Officers cadre
Vacancies in officer’s cadre in public sector banks are filled from within
the organization after promotion of clerks and also by direct recruitment.
To meet the shortage of manpower in officers’ cadre, now a day the
public sector banks are required to recruit large number of officers. Most
of the vacancies for which recruitments are made are in Junior
Management Graduate Scale I, which is the entry level position for
joining a public sector bank as an officer. This entry level position is
known as that of probationary officer or management trainee. Bank
probationary officers can come from any discipline or field of study,
although there is a misconception that only people from commerce or
finance background are eligible. A finance or commerce background may
help the candidate adjust to the banking environments faster than others
but banks recruit talents from diverse backgrounds of science, literature
etc.
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The minimum age to apply for entry level officers position is 21 years
while maximum age may be 26 years or above as decided by individual
banks. As regards qualification, the candidate should at least be a
graduate from a UGC recognized university. In some banks only first
class graduates are considered eligible. For some other banks the
minimum percentage of marks required is 55 percent. Those with post
graduate qualification may get some relaxation in qualifying percentage
of marks, in few cases. There have also been instances of banks
preferring to recruit people with post graduate degree or diploma in
management. Particular recruitment advertisement should be carefully
studied to know the eligibility criteria. The test for probationary officers
consists of the following objective papers:
1. General Awareness
2. Data Interpretation and Logical reasoning
3. Verbal Reasoning
4. English
Some banks prefer to include a descriptive paper also in the test process.
In this paper the candidate is required to write essay and attempt
composition. Minimum qualifying marks are prescribed for both
objective and subjective papers. Candidates are called for interview on
the basis of marks obtained in written examination. Interview for officer’s
position is expected to be more comprehensive. Here along with general
questions, the interview panel may try to judge the candidates
understanding of nation's economy, issues before the economy etc. One
should always be ready to answer questions like ‘why you want to choose
banking as a career?’, ‘what are your expectation from the job’ etc.
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Recruitment in higher scales
With some experience one can expect to join a public sector bank in a
higher scale. Most of the vacancies in higher scales exist in Middle
Management Grade II or III. Of course the candidate should fulfill the
eligibility criteria as regards to age and qualification. The experience
required for higher scales keeps changing from bank to bank; it may be
one year or more. Professionally qualified people (with qualifications like
MBA, CA etc) stand better chance in this regard.
Campus Recruitments
Since last 3-4 years public sector banks have started recruiting from
campus. This campus recruitment covers only a small part of their
manpower needs but it has opened a new window of opportunity to
students wanting to make a career in banks. From campuses banks are
taking MBAs from different disciplines, agriculture graduates, chartered
accountants etc.
Career Progression
There is a well defined career progression path in each public sector
bank. Performance and potential are key elements which determine this
career progression. Most senior officials in public sector banks started
their career as clerk or scale I officer only. In tune with the time banks
have reviewed their promotion policy and now for bright, hardworking
and knowledgeable employees it takes less time to move to higher scales.
In many banks a person who joined as an officer may reach to the
position of Genera Manager in 14 years. After that one can aspire for the
position of executive director or chairman of a bank.
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These are very high positions, nomination to which is decided by the
Government and not by the individual banks. Many public sector banks
have a network of foreign branches. Thus joining a public sector bank
gives you the opportunity of working abroad also. Transferability in a
bank job provides you the chance of seeing different parts of the country.
Career Options in HR
These include Recruiting, Training and Development, HRIS,
Administration and Benefits Management. Essentially, an HR manager
builds a company’s culture, handles employee relations, maintains
benefits and payroll, recruits new hires among several other
responsibilities entrusted to him/her. With a growing trend in the market
today and the importance being given to HR, there is an increased need
for HR professionals with relevant knowledge and skills.