A PROJECT REPORT ON

“STRATEGIC MANAGEMNT PROCEDURE IN A CRITICAL ANALYSIS ON

CHANGES OF BANKING SECTOR”

SUBMITTED BY

MISS – MANALI. RAMCHAND. GODHIA,

ROLL NO: 6212

M.Com. SEM- I

(STARTEGIC MANAGEMENT)

ACADEMIC YEAR: 2015-16

Under the guidance of PROJECT GUIDE

PROF. RAHUL. JAGPAT.

SUBMITTED TO UNIVERSITY OF MUMBAI

MULUND COLLEGE OF COMMERCE

S N ROAD, MULUND (WEST)

MUMBAI - 400080

Declaration from the Student

I, Manali. Ramchand. Godhia. R. No 6212. Student of Mulund College Of

Commerce, S. N. Road, Mulund (West) 400080, studying in M.Com

Part- I hereby declare that I have completed the project on

“STRATEGIC MANAGEMNT PROCEDURE IN A CRITICAL ANALYSIS ON

CHANGES OF BANKING SECTOR” under the guidance of project guide

Prof. Rahul. jagtap during the academic year 2015-16. The information

submitted is true to the best of my knowledge.

Date:

Signature

Place:

CERTIFICATE

I, Prof. Rahul. Jagtap, hereby certify that Mr/Miss Manali. Ramchand.

Godhia R.No. 6212 of Mulund College of Commerce, S. N. Road, Mulund

(West), Mumbai -400080 of M.com Part I (Advanced Accountancy) has

completed her project on “STRATEGIC MANAGEMNT PROCEDURE IN A

CRITICAL ANALYSIS ON CHANGES OF BANKING SECTOR” during the

academic year 2015-16. The information submitted is true and original

to the best of my knowledge.

____________________

___________________

Project Guide External

guide

_____________________

___________________

Co-coordinator Principal

Date:

ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Principal of

Mulund College of Commerce DR. (Mrs.) Parvathi Venkatesh,

Course - Coordinator Prof. Rane and our project guide Prof. RAHUL.

JAGPAT, for providing me an opportunity to do my project work

on “STRATEGIC MANAGEMNT PROCEDURE IN A CRITICAL ANALYSIS ON

CHANGES OF BANKING SECTOR”.I also wish to express my sincere

gratitude to the non - teaching staff of our college. I sincerely

thank to all of them in helping me to carrying out this project

work. Last but not the least, I wish to avail myself of this

opportunity, to express a sense of gratitude and love to my

friends and my beloved parents for their mutual support,

strength, help and for everything.

PLACE:

Signature

DATE:

INDEX

1. OBJECTIVE 2. INDRODUCTION OF BANKING SECTOR 3. STRUCTURE OF BANKING

Indigenous Banking. Defects Suggestions for Improvements Structure of Organised Indian Banking System Reserve Bank of India (RBI)

Commercial Banks: Scheduled and Non-Scheduled Banks Regional Rural Banks Other special features of these banks Cooperative Banks

4. HISTORY OF BANKING SECTOR Ancient India Medieval era Colonial era Post-Independence Nationalization in the 1960s

Liberalization in the 1990s Current period Pradhan Mantri Jan Dhan Yojana  Adoption of banking technology Automated teller machine growth

5. Indian Banking System Phase I Phase II Phase III

6. RBI'S RAJAN SEES 'GREAT' CHANGES IN BANKING SECTOR 7. CHANGES IN BANKING SECTOR

banking sector has seen unprecedented growth ATMs, Internet banking, mobile banking non-cash payments comprised 91 per cent Basel III New banks norms for issuing new banking licences, Foreign banks Developing corporate bond markets Unique Identification (UID) project Social media

8. COMPARISON OF INTERNATIONAL BANK & PRIVATE BANK Bank of Baroda V/S HDFC Bank ATM & Credit/Debit Card Complaints Deposit Account Complaints Pension Related Complaints Non-Observance of Fair Practice Code Complaints Loans & Advances Complaints Non-Adherence to BCBSI Codes: Non-Adherence to DSA Instruction Complaints: Total Complaints: Number of Offices & Branches Number of Employeees Capital and Reserve & Surplus Deposits Investments Advances Interest Income Other Income Interest Expended

Operating Expenses Cost of Funds

OBJECTIVE

My objective of taking this project is I want to grab the knowledge of banking sector. And I want to know what are the issues are in banking sector now a days. I have choosen this project because , banking sector is one of the best sector as per my opinion.though we are not aware about banks then too we can explain and even it will b useful for our career because in bankng sector each and every step is taken with changes. If you see the change from ancient period till now uncountable changes were held. And another reason to takethis topic is I want to become a banker in my future career so this is the best way to grab the knowledge of banking sector. Like in this project I have done lots of browsing about banking. I come to know Bank of Hindustan the first bank and which was established in 1770 and liquidated in 1829-32. And after that so many banks has started and even further they classied in different types. Even I have learned the history of banks how in ancient period people using banks and there are not so many facilities, And maximum peoples don’t know what is banks and what to do in banks. I have learned there are three

distinct phase of banking systems i.e. PHASE-I, PHASE II and PHASE III.

Changes in banking sector like banking sector has seen unprecedented growth, ATMs, Internet banking, mobile banking, non-cash payments comprised 91 per cent, corporate bond markets is an important link, etc.

Further I have learned about banks activities when I have started comparison between two banks i.e. international bank and private bank. Both are providing enormous services. And services are also divided in different parts like Ancillary Services, Financial Services, Financial intermediary, Payment services. Even there are lots of difference between two banks. I never know that there is lots of difference between two types of banks.

Even I would like to do other projects on banks like make a questionnaire on different banks, visit at banks and taking an interviews of bankers, etc. I would like to do research on banking issues so that in future it will help me for better career.

I would like to know more on this even on deep, though in future I am not able to became a banker then too i will happy because I have the knowledge of which was gain by project without giving any services to the banks.

INTRODUCTION OF BANKING SECTOR

Banking in India in the modern sense originated in the last decades of the 18th century. Among the first banks were the Bank of Hindustan, which was established in 1770 and liquidated in 1829-32; and the General Bank of India, established 1786 but failed in 1791.

The largest bank, and the oldest still in existence, is the State Bank of India. It originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks funded by a presidency government, the other two were the Bank of

Bombay and the Bank of Madras. The three banks were merged in 1921 to form the Imperial Bank of India, which upon India's independence, became the State Bank of India in 1955. For many years the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the State Banks of India was given control of eight state-associated banks under the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In 1969 the Indian government nationalised 14 major private banks. In 1980, 6 more private banks were nationalized. These nationalized banks are the majority of lenders in the Indian economy. They dominate the banking sector because of their large size and widespread networks.

The Indian banking sector is broadly classified into scheduled banks and non-scheduled banks. The scheduled banks are those which are included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are further classified into: nationalised banks; State Bank of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector banks. The term commercial banks refers to both scheduled and non-scheduled commercial banks which are regulated under the Banking Regulation Act, 1949.

Generally banking in India was fairly mature in terms of supply, product range and reach-even though reach in rural India and to the poor still remains a challenge. The government has developed initiatives to address this through the State Bank of India expanding its branch network and through the National Bank for Agriculture and Rural Development with things likemicrofinance.

STRUCTURE OF BANKING

Bank is an institution that accepts deposits of money from the public.

Anybody who has account in the bank can withdraw money. Bank also

lends money.

Indigenous Banking:

The exact date of existence of indigenous bank is not known. But, it is

certain that the old banking system has been functioning for centuries.

Some people trace the presence of indigenous banks to the Vedic

times of 2000-1400 BC. It has admirably fulfilled the needs of the

country in the past.

However, with the coming of the British, its decline started. Despite the

fast growth of modern commercial banks, however, the indigenous

banks continue to hold a prominent position in the Indian money

market even in the present times. It includes shroffs, seths, mahajans,

chettis, etc. The indigenous bankers lend money; act as money

changers and finance internal trade of India by means of hundis or

internal bills of exchange.

Defects:

The main defects of indigenous banking are:

(i) They are unorganised and do not have any contact with other

sections of the banking world.

(ii) They combine banking with trading and commission business and

thus have introduced trade risks into their banking business.

(iii) They do not distinguish between short term and long term finance

and also between the purpose of finance.

(iv) They follow vernacular methods of keeping accounts. They do not

give receipts in most cases and interest which they charge is out of

proportion to the rate of interest charged by other banking institutions

in the country.

Suggestions for Improvements:

(i) The banking practices need to be upgraded.

(ii) Encouraging them to avail of certain facilities from the banking

system, including the RBI.

(iii) These banks should be linked with commercial banks on the basis

of certain understanding in the respect of interest charged from the

borrowers, the verification of the same by the commercial banks and

the passing of the concessions to the priority sectors etc.

(iv) These banks should be encouraged to become corporate bodies

rather than continuing as family based enterprises.

Structure of Organised Indian Banking System:

The organised banking system in India can be classified as

given below:

Reserve Bank of India (RBI):

The country had no central bank prior to the establishment of the RBI.

The RBI is the supreme monetary and banking authority in the country

and controls the banking system in India. It is called the Reserve Bank’

as it keeps the reserves of all commercial banks.

Commercial Banks:

Commercial banks mobilise savings of general public and make them

available to large and small industrial and trading units mainly for

working capital requirements.

Commercial banks in India are largely Indian-public sector and private

sector with a few foreign banks. The public sector banks account for

more than 92 percent of the entire banking business in India—

occupying a dominant position in the commercial banking. The State

Bank of India and its 7 associate banks along with another 19 banks

are the public sector banks.

Scheduled and Non-Scheduled Banks:

The scheduled banks are those which are enshrined in the second

schedule of the RBI Act, 1934. These banks have a paid-up capital and

reserves of an aggregate value of not less than Rs. 5 lakhs, hey have

to satisfy the RBI that their affairs are carried out in the interest of

their depositors.

All commercial banks (Indian and foreign), regional rural banks, and

state cooperative banks are scheduled banks. Non- scheduled banks

are those which are not included in the second schedule of the RBI Act,

1934. At present these are only three such banks in the country.

Regional Rural Banks:

The Regional Rural Banks (RRBs) the newest form of banks, came into

existence in the middle of 1970s (sponsored by individual nationalised

commercial banks) with the objective of developing rural economy by

providing credit and deposit facilities for agriculture and other

productive activities of al kinds in rural areas.

The emphasis is on providing such facilities to small and marginal

farmers, agricultural labourers, rural artisans and other small

entrepreneurs in rural areas.

Other special features of these banks are:

(i) their area of operation is limited to a specified region, comprising

one or more districts in any state; (ii) their lending rates cannot be

higher than the prevailing lending rates of cooperative credit societies

in any particular state; (iii) the paid-up capital of each rural bank is Rs.

25 lakh, 50 percent of which has been contributed by the Central

Government, 15 percent by State Government and 35 percent by

sponsoring public sector commercial banks which are also responsible

for actual setting up of the RRBs.

These banks are helped by higher-level agencies: the sponsoring banks

lend them funds and advise and train their senior staff, the NABARD

(National Bank for Agriculture and Rural Development) gives them

short-term and medium, term loans: the RBI has kept CRR (Cash

Reserve Requirements) of them at 3% and SLR (Statutory Liquidity

Requirement) at 25% of their total net liabilities, whereas for other

commercial banks the required minimum ratios have been varied over

time.

Cooperative Banks:

Cooperative banks are so-called because they are organised under the

provisions of the Cooperative Credit Societies Act of the states. The

major beneficiary of the Cooperative Banking is the agricultural sector

in particular and the rural sector in general.

The cooperative credit institutions operating in the country are mainly

of two kinds: agricultural (dominant) and non-agricultural. There are

two separate cooperative agencies for the provision of agricultural

credit: one for short and medium-term credit, and the other for long-

term credit. The former has three tier and federal structure.

At the apex is the State Co-operative Bank (SCB) (cooperation being a

state subject in India), at the intermediate (district) level are the

Central Cooperative Banks (CCBs) and at the village level are Primary

Agricultural Credit Societies (PACs).

Long-term agriculture credit is provided by the Land Development

Banks. The funds of the RBI meant for the agriculture sector actually

pass through SCBs and CCBs. Originally based in rural sector, the

cooperative credit movement has now spread to urban areas also and

there are many urban cooperative banks coming under SCBs.

HISTORY OF BANKING SECTOR

Ancient India

The Vedas (20 00-1400 BCE) are earliest Indian texts to mention the concept of usury. The word kusidin is translated as usurer. The Sutras (700-100 BCE) and the Jatakas (600-400 BCE) also mention usury. Also, during this period, texts began to condemn usury. Vasishtha forbade Brahmin and Kshatriya varnas from participating in usury. By 2nd century CE, usury seems to have become more acceptable. The Manusmriti considers usury an acceptable means of acquiring wealth or leading a livelihood.It also considers money lending above a certain rate, different ceiling rates for different caste, a grave sin.

The Jatakas also mention the existence of loan deeds. These were called rnapatra or rnapanna. The Dharmashastras also supported the use of loan deeds. Kautilya has also mentioned the usage of loan deeds. Loans deeds were also calledrnalekhaya.

Later during the Mauryan period (321-185 BCE), an instrument called adesha was in use, which was an order on a banker directing him to pay the sum on the note to a third person, which corresponds to the definition of a modern bill of exchange. The considerable use of these instruments have been recorded. In large towns, merchants also gave letters of credit to one another.

Medieval era

The use of loan deeds continued into the Mughal era and were called dastawez. Two types of loans deeds have been recorded. The dastawez-e-indultalab was payable on demand and dastawez-e-miadi was payable after a stipulated time. The use of payment orders by royal treasuries, called barattes, have been also recorded. There are also records of Indian bankers using issuing bills of exchange on foreign countries. The evolution of hundis, a type of credit instrument, also occurred during this period and they continue to be in use today.

Colonial era

During the period of British rule merchants established the Union Bank of Calcutta in 1869, first as a private joint stock association, then partnership. Its proprietors were the owners of the earlier Commercial Bank and the Calcutta Bank, who by mutual consent created Union Bank to replace these two banks. In 1840 it established an agency at Singapore, and closed the one at Mirzapore that it had opened in the previous year. Also in 1840 the Bank revealed that it had been the subject of a fraud by the bank's accountant. Union Bank was incorporated in 1845 but failed in 1848, having been insolvent for some time and having used new money from depositors to pay its dividends.

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 honour 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.

Foreign banks too started to appear, particularly in Calcutta, in the 1860s. The Comptoir d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches

in Madras and Pondicherry, then a French possession, 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 centre.

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 1894, 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 rebellion, 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 capitalised 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 districtwhich 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

that failed

Authorised Capital

(₹ Lakhs)

Paid-up Capital

(₹ 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

The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralysing 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:

The Reserve Bank of India, India's central banking authority, was established in April 1935, but was nationalised on 1 January 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).

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.

Nationalization in the 1960s

Despite the provisions, control and regulations of the Reserve Bank of India, banks in India except the State Bank of India(SBI), continued to be owned and operated by private persons. 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 nationalization of the banking industry. Indira Gandhi, the then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization." The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969') and nationalised the 14 largest commercial banks with effect from the midnight of 19 July 1969. These banks contained 85 percent of bank deposits in the country. 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 nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the

government more control of credit delivery. With the second dose of nationalisation, the Government of India 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 nationalised 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.

Liberalization in the 1990s

In the early 1990s, the then 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 included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalised 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 set up 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 demanded more from their banks and received more.

Current period

Main article: List of Banks in India

All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are Scheduled Banks. These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks. Scheduled Commercial Banks in India are categorized into five

different groups according to their ownership and/or nature of operation. These bank groups are:

State Bank of India and its Associates

Nationalised Banks

Private Sector Banks

Foreign Banks

Regional Rural Banks.

Cooperative Banks

Scheduled Bank

In the bank group-wise classification, IDBI Bank Ltd. is included in Nationalised Banks. Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks and Scheduled Urban Cooperative Banks.

Growth of Banking in India of Scheduled Commercial Banks[19]

Indicators

31 March of

2005

2006

2007

2008

2009

2010

2011

2012

2013

Number of Commercial Banks

284 218 178 169 166 163 163 169 151

Growth of Banking in India of Scheduled Commercial Banks[19]

Indicato

31 March of

2005

2006

2007

2008

2009

2010

2011

2012

2013

Number of Branches

70,373

72,072

74,653

78,787

82,897

88,203

94,019

102,377

109,811

Population per Banks (in thousands)

16 16 15 15 15 14 13 13 12

Aggregate Deposits

₹1700

2 billion(US$260 bill

₹2109

0 billion(US$320 bill

₹2611

9 billion(US$390 bill

₹3196

9 billion(US$480 bill

₹3834

1 billion(US$580 bill

₹4492

8 billion(US$680 bill

₹5207

8 billion(US$790 bill

₹5909

1 billion(US$890 bill

₹67504.54

billion(US$1.0 trill

Growth of Banking in India of Scheduled Commercial Banks[19]

Indicato

31 March of

2005

2006

2007

2008

2009

2010

2011

2012

2013

ion) ion) ion) ion) ion) ion) ion) ion) ion)

Bank Credit

₹1100

4 billion(US$170 bill

ion)

₹1507

1 billion(US$230 bill

ion)

₹1931

2 billion(US$290 bill

ion)

₹2361

9 billion(US$360 bill

ion)

₹2775

5 billion(US$420 bill

ion)

₹3244

8 billion(US$490 bill

ion)

₹3942

1 billion(US$600 bill

ion)

₹4611

9 billion(US$700 bill

ion)

₹5260

5 billion(US$790 bill

ion)

Deposit as percentage to GNP (at factor cost)

62% 64% 69% 73% 77% 78% 78% 78% 79%

Growth of Banking in India of Scheduled Commercial Banks[19]

Indicato

31 March of

2005

2006

2007

2008

2009

2010

2011

2012

2013

Per Capita Deposit

₹1628

1(US$250)

₹1913

0(US$290)

₹2338

2(US$350)

₹2861

0(US$430)

₹3391

9(US$510)

₹3910

7(US$590)

₹4550

5(US$690)

₹5018

3(US$760)

₹5638

0(US$850)

Per Capita Credit

₹1075

2(US$160)

₹1386

9(US$210)

₹1754

1(US$260)

₹2121

8(US$320)

₹2461

7(US$370)

₹2843

1(US$430)

₹3418

7(US$520)

₹3887

4(US$590)

₹4402

8(US$660)

Credit Deposit Ratio

63% 70% 74% 75% 74% 74% 76% 79% 79%

By 2010, banking in India was 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.

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 connexion with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.

By 2013 the Indian Banking Industry employed 1,175,149 employees and had a total of 109,811 branches in India and 171 branches abroad and manages an aggregate deposit of ₹67504.54 billion (US$1.0 trillion or €1.0 trillion) and bank credit of₹52604.59 billion (US$790 billion or €780 billion). The net profit of the banks operating in India was ₹1027.51 billion(US$16 billion or €15 billion) against a turnover of ₹9148.59 billion (US$140 billion or €140 billion) for the financial year2012-13.[19]

On 28 Aug, 2014,Pradhan Mantri Jan Dhan Yojana (Hindi: प्रधा�नमं�त्री� जन धान यो�जन�, English: Prime Minister's People Money Scheme) is a

scheme for comprehensivefinancial inclusion launched by the Prime Minister of India, Narendra Modi. Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore (15 million) bank accounts were opened under this scheme. By 15 July 2015, 16.92 crore accounts were opened, with around ₹20288.37 crore(US$3.1 billion) were deposited under the scheme, which also has an option for opening new bank accounts with zero balance.

Adoption of banking technology

The IT[clarification needed] revolution has had a great impact on the Indian banking system. The use of computers has led to the introduction of online banking in India. The use of computers in the banking sector in India has increased many fold after the economic liberalisation of 1991 as the country's banking sector has been exposed to the world's market. Indian banks were finding it difficult to compete with the international banks in terms of customer service, without the use of information technology.

The RBI set up a number of committees to define and co-ordinate banking technology. These have included:

In 1984 was formed the Committee on Mechanisation in the Banking Industry (1984) whose chairman was Dr. C Rangarajan, Deputy Governor, Reserve Bank of India. The major recommendations of this committee were introducingMICR technology in all the banks in the metropolises in India. This provided for the use of standardized cheque forms and encoders.

In 1988, the RBI set up the Committee on Computerisation in Banks (1988) headed by Dr. C Rangarajan. It emphasized that settlement operation must be computerized in the clearing houses of RBI in Bhubaneshwar, Guwahati,Jaipur, Patna and Thiruvananthapuram. It further stated that there should be National Clearing of inter-city cheques atKolkata, Mumbai, Delhi, Chennai and MICR should be made operational. It also focused on computerisation of branches and increasing connectivity among branches through computers. It also suggested modalities for implementing on-line banking. The committee submitted its reports in 1989 and computerisation began from 1993 with the settlement between IBA and bank employees' associations.

In 1994, the Committee on Technology Issues relating to Payment systems, Cheque Clearing and Securities Settlementin the Banking Industry (1994) was set up under Chairman W S Saraf. It emphasized Electronic Funds Transfer(EFT) system, with the BANKNET communications network as its carrier. It also said that MICR clearing should be set up in all branches of all those banks with more than 100 branches.

In 1995, the Committee for proposing Legislation on Electronic Funds Transfer and other Electronic Payments (1995) again emphasized EFT system.

Automated teller machine growth

The total number of automated teller machines (ATMs) installed in India by various banks as of end June 2012 was 99,218. The new private sector banks in India have the most ATMs, followed by off-site ATMs belonging to SBI and its subsidiaries and then by nationalised banks and foreign banks, while on-site is highest for the nationalised banks of India.

Branches and ATMs of Scheduled Commercial Banks as of end December, 2014

Bank typeNumber of branches

On-site ATMs

Off-site ATMs

Total ATMs

Nationalised banks

33,627 38,606 22,265 60,871

State Bank of India

13,661 28,926 22,827 51,753

Old private sector banks

4,511 4,761 4,624 9,385

New private sector banks

1,685 12,546 26,839 39,385

Foreign banks 242 295 854 1,149

TOTAL 53,726 85,134 77,409 1,62,543

Cheque truncation initiative

In 2008 the Reserve Bank of India introduced a system to allow cheque truncation in India, the cheque truncation system as it was known was first rolled out in the National Capital Region and then rolled out nationally.

Expansion of banking infrastructure

Physical as well as virtual expansion of banking through mobile banking, internet banking, tele banking, bio-metric and mobile ATMs is

taking place  since last decade and has gained momentum in last few years.

Indian Banking System

Phases of Indian Banking System are summarized below: 

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 the remote comers 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 nationalisation 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:

i. Early phase from 1786 to 1969 of Indian banks.

ii. Nationalisation of Indian Banks and up to 1991 prior to Indian

banking sector Reforms.

iii. New phase of Indian Banking System with the advent of Indian

Financial and 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:

The Genera; 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 (1806), Bank of Bombay (1840) and Bank

of Madras (1843) as independent units and called them Presidency

Banks. These three banks were amalgamated m 1921 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 1885 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 power for

the supervision of banking in India as the Central Banking Authority.

During those day’s public has lesser confidence in the banks. As an

aftermath deposit mobilisation 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:

Government took major steps in the Indian Banking Sector Reform

after independence. In 1955, it nationalised Imperial Bank of India with

extensive banking facilities on a large scale specially 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 were

nationalised on 19th July 1959. In 1969, major process of

nationalisation 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 nationalised.

Second phase of nationalisation in Indian Banking Sector Reform was

carried out in 1980 with six 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.

i. 1949: Enactment of Banking Regulation Act.

ii. 1955: Nationalisation of State Bank of India.

iii. 1959: Nationalisation of SBI subsidiaries.

iv. 1961: Insurance cover extended to deposits.

v. 1969: Nationalisation of 14 major banks.

vi. 1971: Creation of credit guarantee corporation.

vii. 1975: Creation of regional rural banks.

viii. 1980: Nationalisation of 6 banks with deposits over 200 crore.

After the nationalisation the branches of the public sector banks in

India rose to approximately 800% and 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 setup by his name

which worked for the liberalisation of banking practices.

The country is flooded with foreign banks and their ATM stations.

Efforts are being made 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 macro-economics 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

RBI'S RAJAN SEES 'GREAT' CHANGES IN BANKING SECTOR

"Information technology used by the banks, by the banking correspondents and the clients is going to be made different from what

it was in the past," Rajan said, adding "but there will be many opportunities outside of the derivatives and the IT sector."

RBI governor Raghuram Rajan

Reserve Bank Governor Raghuram Rajantoday said banking

sector will see major changes in the coming years with the entry of

new players, including a postal bank possibly, while public sector

lenders will be the biggest "change agents".

"The banking sector is set to undergo great changes in the next few

years. We are going to have a whole set of new institutions, payments

banks, small finance banks, and we are going to possibly have postal

bank. The existing institutions are going to change tremendously.

Public sector banks are going to be a tremendous change agent,"

Rajan said.

The governor, who was addressing the students of National Institute of

Bank Management on its 11th convocation, also said the change will

be witnessed mostly in the social banking. "Most banks will do work

with the social sector because that is where new business is to be

obtained."

Rajan also said that "between these banks there are so many different opportunities that are going to arise, for example the derivatives markets are going to be much more vibrant".

Raghuram Rajan RBI governor

We are oil-importing country and oil prices are down. It gives us a lot of

room. And also in a deeper sense, I think if you look around the world,

we are one of the few bright spots.

"Information technology used by the banks, by the banking

correspondents and the clients is going to be made different from what

it was in the past," Rajan said, adding "but there will be many

opportunities outside of the derivatives and the IT sector."

Last December, RBI received 40 applications for payment banks and

31 applications for small banks. Recently, India Post also applied for a

payment bank licence.

On April 1 last year, RBI allowed IDFC and micro-lender Bandhan to

enter the banking business, and promised on-tap licences going

forward.

Chief economic adviser Arvind Subramanian said on this occasion that

the international environment is relatively benign towards India.

"We are oil-importing country and oil prices are down. It gives us a lot

of room. And also in a deeper sense, I think if you look around the

world, we are one of the few bright spots," he said.

Noting that India is one of the few countries which export foreign direct

investment, he said in 2012 the country exported more FDI as a share

of GDP than China.

CHANGES IN BANKING SECTOR

The Indian banking sector has seen unprecedented growth along

with remarkable improvement in its quality of assets and efficiency

since economic liberalisation began in the early 1990s.

From providing plain vanilla banking services, banks have gradually

transformed themselves into universal banks. ATMs, Internet

banking, mobile banking and social banking have made "anytime

anywhere banking" the norm now. 

In 2011/12, non-cash payments comprised 91 per cent of total

transactions in terms of value and 48 per cent in terms of volume.

Within noncash payments, too, the share of payments through

cheques has come down from 85 per cent to nine per cent in value,

and 83 per cent to 52 per cent in volume between 2005/06 and

2011/12. 

Banks have taken other measures to improve their functioning, too. As a result, there were 20 Indian banks in the UK-based Brand Finance's annual international ranking of top 500 in 2010, as compared to only six in 2007, according to a report in a leading financial daily.

For example, a financial daily reported that Aryavart Gramin Bank, a regional rural bank sponsored by Bank of India, tied up with Tata BP Solar to finance "Solar Home Lighting System" for village homes in Uttar Pradesh. It extended finance of around Rs 10,000 with Rs 3,000 as margin money to be contributed by the beneficiary. 

NON-CASH PAYMENTS COMPRISED 91 PER CENT OF VALUE AND 48 PER CENT OF VOLUME OF TOTAL TRANSACTIONS

The equated monthly installment towards the repayment of the loan amount was less than the amount the villagers had to spend on kerosene requirements per month. The bank's initiative resulted in 20,000 houses getting solar power. It also meant an annual saving of about 192 tanker loads of kerosene. India's banking system was probably one of the few large banking systems which remained unscathed by the 2008 global financial crisis. However, there is a lot more to be done to make it a truly worldclass sector.

Some of the key developments which could shape the future are:

Basel III: India figures among the very few countries which have issuedfinal guidelines on Basel III implementation so far. The Reserve Bank of India has given five years for the gradual achievement of Basel III global banking standard. But it seems a tall order for many banks. The challenges of implementing Basel III are further accentuated by the fact that the law mandates the Central government to hold a majority share in public sector banks (PSBs), which control more than 70 per cent of the banking business in India. Further, the high fiscal deficit is likely to limit the government's ability to infuse capital in the PSBs to meet Basel III guidelines, which will require approximately Rs 4.05 trillion to Rs 4.25 trillion over the next five to six years. (One trillion equals to Rs 100,000 crore.) The high capital requirement will also add pressure on return of equity of banks.

New banks: BANKS OF THE FUTURE WILL NEED TO UNDERSTAND THE TECH-SAVVY GEN-Y CUSTOMERS AND DESIGN PRODUCTS ACCORDINGLY

Although there has been little progress on the draft norms for issuing new banking licences, the entry of new banks could have a significant impact on the Indian banking system. Given the huge unbanked population, there is surely a scope for more banks .

Foreign banks: RBI has been keen on allowing foreign banks a larger role in the Indian banking system since February 2005, when it first issued the road map for presence of foreign banks in India. In May 2012, the government also facilitated the process by proposing to exempt foreign banks from the 30 per cent tax on capital gains and stamp duty while converting branches into a new entity. RBI has also mandated foreign banks with 20 and more branches to achieve priority sector targets and sub-

targets at par with their domestic counterparts.

Developing corporate bond markets: Developing corporate bond markets is an important link in a well developed financial market. Although the government has taken some steps in this direction, a lot more needs to be done.

Unique Identification (UID) project:Among the many initiatives, the government's UID project is likely to have significant impact. Given the numbers out of the reach of organised banking, it can prove to be transformational by giving banks an access to a large untapped customer base. The whole range of government payments - under subsidies and benefits of various welfare schemes - will be routed through banks.

Social media:This adds another dimension for banks to manage their relationship with customers. It already had over 45 million users in India in 2011, which is expected to grow to over 88 million by the next year with over 75 per cent under the age of 35, according to media reports. Although banks in India have been a little late in using social media, they have been making fast progress.

With increasing volume and complexity of the banking business, it will be imperative for the regulator to move gradually towards more offsite monitoring than onsite. Technology will play a much larger role in the overall supervision of the banking system. There are likely to be transformational changes in the entire regulatory system for financial services. 

Given the significant overlap between various sub-sectors, the Financial Sector Legislative Reforms Commission, headed by former Justice B.N. Srikrishna, in its approach paper, had suggested large scale consolidation. This is expected to lead to reduced intermediation cost, benefit from the economies of scale and consistent treatment across sub-sectors.

"The future belongs to those who prepare for it today," goes a famous quote. The changes in the banking landscape will require banks to also adapt to their new environment. Banks of the future will have to be nimble and lean organisations with technology integrated to support a sustainable and scalable business. 

They will need to have a flexible organisational structure with decentralised decision making to reduce turnaround time for various processes. This will be especially true when a number of new entities including non-banking finance companies (NBFCs), large corporate houses and microfinance institutions (MFIs) get banking licences.

In order to serve potential customers in unbanked areas, banks should be willing to experiment with various business models to build a scalable and profitable business. Technology resources will have to be shared to reduce cost. 

At the same time, banks of the future will need to understand the technology-savvy Gen-Y customers and design products accordingly. Banks will have to deploy the majority of their employees in sales and marketing roles to cross-sell services to existing customers. 

There will be an increased demand for skilled personnel from other disciplines. Banks will have to use data analytics tools to gain insights from their existing customers' data to increase their business and customer loyalty. One of the prominent ingredients for the success of a bank will be its ability to partner with multiple agencies to increase its business .

The Indian banking landscape is expected to evolve to have regional as well as national players. Except for a few large banks having pan-India presence, many of the mid and small banks will specialise in certain functions/regions in diverse markets. 

Rather than every bank trying to carry out all the banking functions throughout the country, banks are likely to identify their core competencies and build on those. A bank that avoids "one-size-fits-all products", acts as a knowledge banker, provides all financial needs at a click, is fundamentally strong, manages risk and adheres to global regulations, harness iOS and Android platforms to the fullest, design better, faster and convenient delivery channels will no doubt be called a successful bank.

COMPARISON OF INTERNATIONAL BANK & PRIVATE BANK

There are so many types of banks in India. Following are the some types of banks:

I. In-corporate banks,

II. Corporate banks,

III. Nationalied banks,

IV. International banks,

V. Private banks.

Bank of Baroda V/S HDFC Bank

Introduction of bank of baroda:

Bank of Baroda is an Indian state-owned banking and financial servicescompany headquartered in Vadodara (earlier known as Baroda) in Gujarat, India. It is the second-largest bank in India, after State Bank of India, and offers a range of banking products and financial services to corporate and retail customers through its branches and through its specialised subsidiaries and affiliates. In addition to its headquarters in its home state of Gujarat, it has a corporate headquarters in the Bandra Kurla Complex in Mumbai.

Based on 2014 data, it is ranked 801 on Forbes Global 2000 list. BoB has total assets in excess of ₹ 3.58 trillion, a network of 5307 branches in India and abroad, and over 8000 ATMs.

The bank was founded by the Maratha, Maharaja of Baroda, H. H. Sir Sayajirao Gaekwad III on 20 July 1908 in the Princely State of Baroda, inGujarat. The bank, along with 13 other major commercial banks of India, was nationalised on 19 July 1969, by the Government of

India and has been designated as a profit-making public sector undertaking (PSU).

Introduction of HDFC bank:

HDFC Bank Limited is an Indian banking and financial services company headquartered in Mumbai, Maharashtra. Incorporated in 1994, it is the fifth largest bank in India as measured by assets. It is the largest private sector bank in India by market capitalization as of February 2014. The bank was promoted by the Housing Development Finance Corporation, a premier housing finance company (set up in 1977) of India, According to the Brand Trust Report 2014, HDFC was ranked 32nd among India's most trusted brands. HDFC was ranked 45th on the list of top 50 Banks in the world in terms of their market capitalization.

As of 31 March 2013, the bank had assets of INR 4.08 trillion. For the fiscal year 2012-13, the bank has reported net profit of INR 69 billion, up 31% from the previous fiscal year. Its customer base stood at 28.7 million customers on 31 March 2013.

1. ATM & Credit/Debit Card Complaints:

Bank of baroda have complaints about ATM & Credit/Debit Card is 291.

HDFC bank have complaints about ATM & Credit/Debit Card is 1842.

2. Deposit Account Complaints:

In bank of baroda over all deposit complaint is 87. In HDFC bank over all deposit complaint is 268.

3. Pension Related Complaints:

Pension Related Complaints in bank of baroda 150. Pension Related Complaints in HDFC bank just 6.

4. Non-Observance of Fair Practice Code Complaints:

In bank of baroda Non-Observance of Fair Practice Code 479 Complaints are there.

In HDFC bank Non-Observance of Fair Practice Code 979 Complaints are there.

5. Loans & Advances Complaints

Bank of baroda have Loans & Advances Complaints 206. HDFC bank have Loans & Advances Complaints 286.

6. Non-Adherence to BCBSI Codes:

Bank of baroda have Non-Adherence to BCBSI Codes complaints is 368.

HDFC bank have Non-Adherence to BCBSI Codes complaints is 433.

7. Non-Adherence to DSA Instruction Complaints:

Bank of baroda have just 1 complaint about Non-Adherence to DSA Instruction Complaints.

HDFC Bank have 82 comaplaints about Non-Adherence to DSA Instruction Complaints.

8. Total Complaints:

Bank of baroda have total number of complaints is 2117. HDFC bank have total number of complaint is 5143.

9. Number of Offices & Branches: 

Bank of baroda have all over India 4550 branches. HDFC bank have all over India 3303.

10. Number of Employeees: 

Bank of broad have total number of employees is 43,108 HDFC bank have total number of employees in India is 69,401.

11. Capital and Reserve & Surplus:

Bank of baroda have 319,694rs. of Capital and Reserve & Surplus.

HDFC bank have 362,141rs. of Capital and Reserve & Surplus.

12. Deposits:

Bank of baroda have deposits of rs. 4,738,833. HDFC bank have deposits of rs. 2962470.

13. Investments:

Bank of baroda have total investments of rs.1,213,937. HDFC bank have total investments of rs. 1,116,136.

14. Advances:

Bank of baroda have total advances of rs. 3,281,858. HDFC bank have total advances of rs. 2,397,206.

15. Interest Income: 

Bank of baroda have total Interest Income of rs. 350,649. HDFC bank have total Interest Income of rs. 351,967.

16. Other Income: 

Bank of baroda have total Other Income of rs. 36,306. HDFC bank have total Other Income of rs. 68,526.

17. Interest Expended:

Bank of baroda have total Interest Expended of rs. 238,814. HDFC bank have total Interest Expended of rs. 192,538.

18. Operating Expenses:

Bank of baroda have total Operating Expenses of rs. 59,467. HDFC bank have total Operating Expenses of rs. 112,361.

19. Cost of Funds:

Bank of baroda have total Cost of Funds of rs. 5.0. HDFC bank have total Cost of Funds of rs. 6.4.

20. Return on Advances Adjusted to CoF:

Bank of baroda have total Return on Advances Adjusted to CoF of rs. 0.90.

HDFC bank have total Return on Advances Adjusted to CoF of rs. 1.90.

21. Wages as % of Total Expenses: 

Bank of baroda have 11.6% of wages as of total expenses. HDFC bank have 113.0% of wages as of total expenses.

22. Capital to Risk Assets Ratio(CRAR): 

Bank of baroda have 13.3 of Capital to Risk Assets Ratio(CRAR). HDFC bank have 16.8 of Capital to Risk Assets Ratio(CRAR).

23. Net NPA Ratio: 

Bank of baroda have 1.3 of Net NPA Ratio. HDFC bank have 0.2 of Net NPA Ratio.

If we can see the overall comparison of BANK OF BORODA & HDFC BANK. Bank of baroda is much better then HDFC bank most of items of bank of baroda have much more then HDFC bank. In complaints also HDFC bank have more complaints then bank of baroda.