Professional Documents
Culture Documents
Submitted To:
Faculty of Management Studies
The Maharaja Sayajirao University Of Baroda
Submitted By:
Parth Patel (#45)
MBA (Regular Program), SEM 4
Batch: 2014-16
Declaration
I ensure about the authentication of the material and give
guarantee that there will not be any misuse of the data. Data
used will only be taken for the academic purpose and will not
be used for commercial or any other purpose. Views mentioned
in the report are of my own, which are based on my observation
and it may or may not be accepted by any individual and/or
any entity.
Parth Patel
Faculty of Management Studies
MSU Baroda
Date:
Place:
Acknowledgement
It gives me great pleasure and satisfaction in presenting
this study as a part of the fulfilment for the Degree of MBA. I
would like to take this opportunity to express my sincere
gratitude to several people, without whose help and
encouragement, it would have been impossible for me to carry
out desired work.
I would like to extend my deferential thanks to respected
Prof. (Dr.) Jayrajsinh Jadeja (Dean, Faculty of Management
Studies, The M.S. University of Baroda) for his encouragement
and blessings on my way of progress.
I would also like to express my heartfelt thanks to my
institute guide, Dr. Bhargav Pandya, (Assistant Professor,
Faculty of Management Studies, The M.S. University of Baroda)
for extending his help throughout the project.
I am also indebted to many individuals whose research
works, articles and data helped me in accomplishing this study.
Parth Patel
Table of Contents
Topic
Page
No.
Acknowledgement
Abstract
Literature Review
Introduction
Objectives
Research Methodology
13
23
26
Conclusion
28
References
29
Abstract
Banks are backbone of any economy. The banking sector, being
the barometer of the economy, is the reflective of the macroeconomic variables. The Indian banking industry has its
foundations in the 18th century and has had a varied
evolutionary experience since then. The initial banks in India
were primarily traders banks engaged only in financing
activities. Banking industry in the pre-independence era
developed with the Presidency Banks, which were transformed
into the Imperial Bank of India. The initial days of the industry
saw a majority private ownership and a highly volatile work
environment. Major strides towards public ownership and
accountability were made with nationalization in 1969 and
1980 which transformed the face of banking in India.
With the debut of multinational private sector banks, banking
sector is facing stiff competition and a thirst to enhance their
service quality in order to gain a competitive edge over their
customers. Public sector banks are facing stiff challenges from
the private sector banks and are under tremendous pressure to
cope up with the facilities provided by the multinational banks.
While public sector banks have an advantage of perception and
strong rural network private sector banks have better services
and amenities.
The role of banking industry is very important as one of the
leading essential service sector. The significant role of banking
industry is essential to speed up the social economic
development. The industry in recent times has recognized the
importance of private and foreign players in a competitive
scenario and has moved towards greater liberalization. There is
an urgent need to introduce new products. Existing products
need to be delivered in an innovative and cost-effective way by
taking full advantage of emerging technologies. This paper
explains the changing banking scenario, the impact of
economic reforms and analyses the challenges and
opportunities of commercial banks.
5
Literature Review:
1. Nair discussed the future challenges of technology in
banking. The author also point out how IT possesses a
bright future in rural banking, but is neglected as it is
traditionally considered unviable in the rural segment. A
successful bank has to be nimble and agile enough to
respond to the new market paradigm and ineffectively
controlling risk. Innovation will be the key extending the
banking services to the untapped vast potential at the
bottom of the pyramid
2. Comparative study of promotional studies adopted by
public and private sector banks in India published in Asiapacific business review, July September (2008) by SL
Gupta, Arun Mittal. The study concluded that public sector
is more reliable that but not so good in quality and
innovativeness, a private sector bank is not so reliable but
they are better in services quality and innovation.
3. Singla (2008) examines that how financial management
plays a crucial role industrialist growth of banking. It is
concerned with examined the profitability position of
selected sixteen banks of banker index for a period of six
years(2001-2006) the study reveals that the profitability
position was reasonable during the period of study when
compared with the previous year. Strong capital position
and balance sheet place. Banks in batter position to deal
with and absorb the economic constant over a period of
time.
4. Ramachandra Reddy focused their attention on the
seriousness of NPAs in public sector banks. They argued
that with the introduction of international norms of Income
Recognition, Asset Classification and Provisioning in the
banking Sector, managing NP As has emerged as one of
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Introduction
The banking sector in India is on a growing trend. It has vastly
benefitted from the surge in disposable income of individuals in
the country. There has also been a noticeable upsurge in
transaction through ATMs and internet/mobile banking.
Consequently, the different banks have invested considerably
to increase their banking network and their customer reach.
The banking industry in India has the potential to become the
fifth largest banking industry in the world by 2020 and third
largest by 2025 according to KPMG-CII report, Indias banking
and financial sector is expanding rapidly. Indian banks have
adopted better operational strategies and upgraded their skills.
They have withstood the initial challenges and have become
more adaptive to the changing environment. In the complex
and fast changing environment, the only sustainable
competitive advantage for banks is to give the customer an
optimum blend of technology and traditional service.
India is one of the top 10 economies in the world, where the
banking sector has tremendous potential to grow. The last
decade saw customers embracing ATM, internet and mobile
banking. Indias banking sector is currently valued at Rs. 81
trillion (US$ 1.31 trillion). It has the potential to become the
fifth largest banking industry in the world by 2020 and the third
largest by 2025, according to an industry report. The face of
Indian banking has changed over the years. Banks are now
reaching out to the masses with technology to facilitate greater
Objective
The main objective of this paper is to explain the changing
banking scenario and analyze the impact of banking sector
reforms on banking industry. The paper studies the challenges
and opportunities of commercial banks in changing competitive
scenario. The paper is an extension of knowledge in banking
industry and is useful for bankers, strategies, policy makers and
researchers.
Research Methodology
This paper is the outcome of a secondary data on Indian
Banking Sector with special reference to Indian context. To
complete this, annual reports, various books, journals and
periodicals have been consulted, several reports on this
particular area have been considered, and internet searching
has also been done.
8
The first bank in India, called The General Bank of India was
established in the year 1786. The East India Company
established The Bank of Bengal/Calcutta (1809), Bank of
Bombay (1840) and Bank of Madras (1843). The next bank was
Bank of Hindustan which was established in 1870. These three
individual units (Bank of Calcutta, Bank of Bombay, and Bank of
Madras) were called as Presidency Banks. Allahabad Bank
which was established in 1865, was for the first time
completely run 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. In
1921, all presidency banks were amalgamated to 22 forms the
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12
Macroeconomic landscape
Since the onset of the Financial Crisis in 2008, the global
economy has continued to face rough weather and the Indian
economy and our banking system have not remained immune.
Recovery has been moderate and sometimes uneven. Different
jurisdictions continue to be tormented by financial fragilities
and macroeconomic imbalances. Geopolitical risks surrounding
oil prices and the uneven effects of currency and commodity
price movements also pose significant threat to economic
stability. Sustenance of highly accommodative monetary policy
in the Advanced Economies has also created monetary policy
challenges in emerging markets like India.
Challenges for the banking system
It is against this challenging backdrop that the banking system
in India has been operating for a relatively long period of time
which has resulted in an adverse impact on the asset quality,
capital adequacy and profitability of our banks. But the tough
situation in which the banking system finds itself is also
attributable in a large measure to the bankers' inexperience
and aggression. Let me delve upon these challenges and the
way forward in a bit of detail.
i) Asset quality
Though on the whole, the banking system has remained
resilient, asset quality has seen sustained pressure due to
continued economic slowdown. The levels of gross nonperforming advances (GNPAs) and net NPAs (NNPAs) for the
system have been elevated. As per preliminary data received at
RBI for March 15, while the GNPAs have increased to 4.45% for
the system as a whole, the NNPAs have also climbed up to
2.36%. When seen in isolation, the NPA ratios do not appear
very distressing; however, if we add the portfolio of
restructured assets to the GNPA numbers, this rises alarmingly.
Stressed Assets Ratio (Gross NPA+ Restructured Standard
Advances to Gross Advances) for the system as a whole stood
at 10.9% as at the end of March 2015. The level of distress is
not uniform across the bank groups and is more pronounced in
respect of public sector banks. The Gross NPAs for PSBs as on
March 2015 stood at 5.17% while the stressed assets ratio
stood at 13.2%, which is nearly 230 bps more than that for the
system.
14
17
20
Right
Right
Right
Right
Right
to
to
to
to
to
Fair Treatment
Transparency, Fair and Honest Dealing
Suitability
Privacy
Grievances Redress and Compensation
21
term investors / analysts do not read too much into the short
term blips. If they understand that the Management is sincere
about repairing the balance sheet, they would drive up the
valuation of your stocks, which would help you in the long-term.
With most banks in dire need of capital, the retained earnings
need to increase progressively.
As a part of balance sheet management exercise, the Board/Top
Management would have to proactively take a call on the likely
components of their balance sheets and what shape they would
like the balance sheet to take in future. The objective of optimal
utilization of capital would have to be necessarily kept in mind
while evolving balance sheet management strategies.
xiii) Risk management
Risk is inevitable in the banking business and hence, a sound
risk management framework is the touchstone of an efficient
bank. The risk management effectively aims at balancing the
Risk-Return Trade-off which is "maximizing return for a given
risk" and "minimizing risk for a given return". The responsibility
of setting a risk appetite for the bank as a whole is that of the
Board and the Top Management. In practice, however, we
seldom see the articulation of an objective risk appetite
statement by the PSBs. If you haven't set out a risk limit for
each type of risk that the bank runs and an aggregate risk
appetite for the bank as a whole, how do you measure and
monitor risk? We must understand that risk management is
integral to the success of the bank and hence, the Top
Management should strive to put in place an efficient risk
management framework keeping in view the changing market
dynamics and the regulatory prescriptions.
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auditor general Vinod Rai. Other members are well chosen and
the team could play a seminal role in overhauling the
governance structure in public sector banks which many blame
for the mess these banks are in.
28
29
Conclusion
30
References
http://www.bis.org/review/r150511f.htm
http://www.ibef.org/industry/banking-india.aspx
http://www.ibef.org/industry/banking-presentation
https://en.wikipedia.org/wiki/Banking_in_India
www.iosrjournals.org/iosr-jbm/papers/Vol16issue2/.../G016215261.pdf
https://rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=955
Bibliography
1. International Journal of Management and Social Sciences
Research (IJMSSR)
- An Overview of Indian Banking
Industry
2. Performance of Indian banks in Indian financial system by
dr. Virender koundal
3. Indian Banking Sector towards a Sustainable Growth: A
Paradigm Shift
4. Indian Banking 2020 Making the Decades Promise Come
True by BCG
5. Indian Banking Sector Challenges and Opportunities Dr.
K. Ratna Manikyam
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