Banking Sector

Banking in a traditional sense is the business of accepting deposits of money from public for the purpose of lending and investment. These deposits can have a distinct feature can be withdrawn by cheques, which no other financial institution can offer. In addition, banks also offer financial services, which include: Issuing demand draft & travelers cheque. Credit Cards, Debit Cards Collection of cheques, bill of exchange. Safe deposit lockers Custodian services. Investment and Insurance Services. Other Pra- Banking Products

The business of banking is highly regulated since banks deal with money offered to them by the public and ensuring the safety of this public money is one of the prime responsibilities of any bank. That is why banks are expected to be prudent in their leading and investment activities. Every bank has a compliance department, which is responsible to ensure that all the services offered by the bank, and the processes followed are in compliance with the local regulations and the Banks corporate policy. The Indian banking market is growing at an astonishing rate, with Assets expected to reach US$1 trillion by 2010. An expanding economy, middle class, and technological innovations are all contributing to this growth. The countrys middle class accounts for over 320 million people. In correlation with the growth of the economy, rising income levels, increased standard of living, and affordability of banking products are promising factors for continued expansion. The Indian banking Industry is in the middle of an IT revolution, focusing on the expansion of retail and rural banking. Players are becoming increasingly customer centric in their approach, which has resulted in innovative methods of offering new

banking products and services. Banks are now realizing the importance of being a big player and are beginning to focus their attention on mergers and acquisitions to take advantage of economies of scale and/or comply with Basel II The major regulations and act govern the banking business are: Banking Regulation Act, 1949 Foreign Exchange Management Act,1999 Indian Contract Act Negotiable Instruments Act, 1881 regulation.

Bank lend money either for productive purposes to individual, firms, Corporate etc. of for buying house property, cars and other consumer durables and for investment purposes to individuals and the others. However, banks do mot finance any speculative activity. Lending is risk taking. The depositor of banks is also assured of safety of their money by deploying some percentage of deposit in statutory reserves like SLR & CLR.

Banking Industry

Banking System
Banking system is an integral sub-system of the financial system. It represent an important channel of collecting small saving from the households and ending it to the corporate sector. The Indian Banking system has the Reserve Bank of India (RBI) as the apex body for all matters relating to the banking system.

Classification of Banks

1. Non-Schedule Banks
These are banks, which are mot included in the second schedule of the Banking Regulations Act, 1965. It means they do mot satisfy the conditions laid down by that schedule. They are further classified as back: Central co-operative banks and primary credit societies Commercial Banks

2. Schedule Banks

Must have paid-up capital and reserve of mot less than Rs. 50, 00,000. The must satisfy the RBI than its affairs are mot conducted in a manner detrimental to the interests of its depositors. These are further classified as follow: State co-operative Banks Commercial Banks

Banks are further sub-divided as:-

1. Indian Banks:
These banks are companies registered in India under companies act, 1956, their place of origin is in India. These are further classified into.

A. State Bank of India and its Subsidiaries: This group comprises of the State Bank of India (SBI) and its seven subsidiaries viz., State Bank of Patiala, State Bank of Hyderabad, State Bank of Travancore, State Bank of Bikaner & jaipur State Bank of Indore. B. Other Nationalized Banks: This group consists of private sector bank that were national. The Government of India Nationalized 14 private banks in 1969 and another 6 in the year 1980. C. Regional Rural Banks: The RBI established these in the year 1975 of Banking Commission. It was

Established to operate exclusively in rural areas to provide credit and other facilities to small and marginal armers, agricultural alboras, artisans and small entrepreneurs. D. Old private Sector Banks: This group consists of Banks that were established by the privy states, community organization or by a group of professionals for the cause of economic betterment in their area of operations. Initially their branches slowly speard throughout the national as they grew. E. New Private Sector Banks: These banks were started as profit oriented companies after the RBI opened the banking sector to the private sector, these banks are monthly technology driven and betterment in their branches slowly spread throughout the nation as they grew.

3. Foreign Banks:
There are banks that were registered outside India and had origiented in a foreign country.

Current Scenario:
The industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of the Indian Banking System, are in the process of shedding their flab in terms of excessive manpower, excessive non Performing Assets (NPAs) and excessive governmental equity, while on the other hand the private sector banks are consolidating themselves through mergers and acquisitions. PSBs, which currently account for more than 78 percent of total banking industry assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues from traditional sources, lack of modern technology and a massive workforce while the

new private sector banks are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service. The PSBs are of course currently working out challenging strategies even as 20 percent of their massive employee strength has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS) schemes. The private players however cannot match the PSBs great reach, great size and access to low cost deposits. Therefore one of the means for them to combat the PSBs has been through the merger and acquisition (M& A) route. Over the last two years, the industry has witnessed several such instances. For instance, HDFC Banks merger with Times Bank, ICICI Banks acquisition of ITC Classic, Anagram Finance and Bank of Madurai. Private sector Banks have pioneered internet banking, phone banking, anywhere banking, and mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined various other services and integrated them into the mainstream banking arena, while the PSBs are still grappling with disgruntled employees in the aftermath of successful VRS schemes.