Banking Industry:

Comparison between
India and UK
Made by: Madhav Maheshwari (2016B3AA0382G)
Rajat Gupta (2016B3A70394G)
Ravi Motwani (2016B3AA0379G)
Importance of Banking in the economy
Primary Function of Banks is Asset Conversion
★ Transform Short-term Liquid Assets of Households into Long -Term Illiquid
Investments by Firms. Banks issue loans to both people and companies.
★ Diversify Risk by Pooling Assets of a Large Number of Households.
★ Reduce Transactions Costs by Screening and Monitoring Borrowers
★ Banks are largely responsible for the payments system.
Banking System in India
The Indian banking sector is classified into scheduled banks and non-scheduled
banks. Scheduled Banks comprise of Commercial and Cooperative Banks.
Scheduled Commercial Banks in India are categorised into five different groups
according to their ownership and/or nature of operation:
● State Bank of India and its Associates
● Nationalised Banks (For eg. Bank of Baroda, Punjab National Bank, etc.)
● Private Sector Banks (For eg. HDFC, ICICI, Axis Bank, etc.)
● Foreign Banks
● Regional Rural Banks.
Banking System in the UK
The retail and commercial banking markets are
dominated by HSBC, Barclays, Lloyds Banking
Group, Royal Bank of Scotland Group and
Spanish-owned Santander UK, Standard
Chartered (operates primarily in Asia and
Africa).
There are a number of banking businesses
owned by retail groups, such as Tesco,
Sainsbury’s Harrods, etc.
The Size of the Banks (by assets)
The top 5 banks in India manage assets worth 854.15 bn dollars.

The top 5 banks in the UK manage

assets worth 6789.05 bn dollars.

The above stats clearly show the

strength of UK banks over India.
The graph shows the ratio of banks
assets as a percentage of GDP.
Financial Inclusion:
UK vs India
In the United Kingdom, 99% of the
adult population has a working bank
account irrespective of the fact,
whether they are in high income
group or low income group.

In India, recently there has been a surge in the no. of bank accounts due to govt
initiatives like Jan Dhan Yojana. But the account penetration is lower, at 53 %, and
so is the use of accounts for payments: a mere 15 % of adults
reported using an account to make or receive payments.
Functioning of Banks in Public Sector
The Indian banks have a greater
exposure to the government and
public enterprises as compared to
the UK Banks.
The graph shows the bank credit to
public sector as a percentage of
GDP in both the countries.
Functioning of Banks in Private Sector
The UK banks have a greater
exposure to the private sector as
compared to the Indian Banks.
The graph shows the bank credit to
private sector as a percentage of
GDP in both the countries.
Interest rates on Bank Credit
Due to higher inflation in India and
less FDI, the long term interest rates
are much higher as compared to the
UK.

Gradually as the macroeconomics

factors have been improving in India,
the interest rates have come down.

After the 2008 crisis, the interest rates

in UK have dropped to below 1%.
Technology Advancements
● E-Banking methods: Online transfer of money
○ Quick transfer of money
○ RTGS: Real Time Gross Settlement
● Mobile banking: UPI services
● Credit and Debit card services
○ Average Monthly Spending using Contactless cards:
■ India- $12.53 billion
■ UK- $5.71 billion
● ATM: Greater access to people
● Open Banking is a connected ecosystem for financial and non-financial
services with multiple service providers.The launch of UPI has thrown open
the gates for innovation in the open banking space.
FDI in India: Reasons for Slow Inflows

● FDI is needed to make the Indian banking sector more competitive

● FDI is permitted with a cap of 20 percent in public sector banks
● In private sector banks, it can be up to 74 percent
It has been observed that in absolute figures the FDI inflows in India is impressive
but compared to the global flows the share of India is far from satisfactory. Since,
India is a late comer in opening up her economy so it is unable to attract sufficient
amount of FDI as compared to other developing countries.
FDI in United Kingdom
● The UK is a major recipient of FDI with an estimated stock value of over £1 trillion,
about half of which is from other members of the European Union (EU).
● Financial services have the largest stock of inward FDI in the UK (45%) and
constitute 8% of GDP and 12% of tax receipts.

Effect Of Brexit on FDI

● Multinational banks have complex supply chains and many coordination costs
between their headquarters and local branches. These would become more
difficult to manage since UK will no longer be a part of the EU and will eventually
decrease the FDI in UK.
● There is a lot of uncertainty over the shape of the future
trade agreements between the UK and the EU.
Regulatory bodies in
India and the UK

International Regulations
Banking Regulation in India:
RBI and Ministry of Finance
● RBI regulates money, foreign exchange,
government securities, markets and financial
derivatives.

● The central government, in particular the

Ministry of Finance, also supervises and
legislates on the functioning of banks and
financial institutions.
Banking Regulations in UK
There are three bodies involved
● Bank of England
● Prudential Regulation Authority(PRA)
● Financial Conduct Authority(FCA)

Bank Of England
● Administers monetary policies(influencing interest rates,inflation and employment)
● Can give directions and recommendations to FCA and PRA
● Lend money to the banks
Financial Conduct Authority(FCA)
● Ensuring that Financial Markets work effectively
● Ensure that competition is maintained and banks don’t t
abuse their power

Prudential Regulation
Authority(PRA)
● To create a stable financial System
● Is responsible for day to day regulation of over
1700 institutions
Basel II (2004-2008)
Basel II is the second set of international banking regulations put forth by the
Basel Committee on Bank Supervision.

Basel II expanded rules for minimum capital requirements established under Basel
I, and provided framework for regulatory review and disclosure requirements for
assessment of capital adequacy of banks. Basel II is based on three main pillars:

➢ minimal capital requirements

➢ regulatory supervision
➢ market discipline
2008 Financial Crisis: UK
The UK economy is closely integrated with the rest of the world through
the trade of goods and services, and the exchange of financial assets.

Global influences drove the bulk of the decline in UK output during the
2008/09 recession, and they held back growth over 2011–12.

Over 2007–09, the United Kingdom was adversely affected by the sudden
deterioration in risk appetite and increased uncertainty associated
with the global financial crisis.
Actions taken in UK to Resolve the Crisis
● Bank Rate reduced from 5.75% to 0.5% in order to support UK output & inflation
● Monetary Policy Committee did a series of asset purchases
● The Government pumped £37 billion of taxpayers' money into HBOS, Royal
Bank of Scotland and Lloyds TSB.

India Unaffected by the Crisis

● Heavy government ownership and conservative management
● Low dependence on global flows, as external trade contributes only 20% to GDP
● GDP still grew at 6.7% in 2008-09 despite the Great Recession.
Basel III (2010-2019)
The Basel Committee on Banking Supervision published the first version of Basel III in late
2009. The aim was to strengthen the regulation, supervision and risk management of the
banking sector.
A focus of Basel III is to foster greater
resilience at the individual bank level in
order to reduce the risk of system-wide
shocks.
Largely in response to the credit
crisis, Basel III introduced leverage and
liquidity requirements to safeguard against
excessive borrowings.
Measures Undertaken and Reforms Target:
These measures aim to:

● improve the banking sector's ability to absorb shocks arising from financial and
economic stress
● improve risk management and governance
● strengthen banks' transparency and disclosures.

The reforms target:

● bank-level, or microprudential, which will help raise the toughness of individual banking
institutions to periods of stress.
● macroprudential, system wide risks that can build up across the banking sector as well
as the procyclical amplification of these risks over time.
The UK and Basel III
With its reliance on the financial sector, the UK intends to accelerate the adoption of Basel III
rules. British banks have significantly improved their capital and liquidity positions over the
past 2 years.

UK banks are far better prepared for the new global “Basel III” rules that require them to hold
stocks of cash and easy to sell assets than those anywhere else in the world.

More than 70 per cent of UK banks have put in place the liquidity tracking and risk
management systems needed for the Liquidity Coverage Ratio.
INDIA and Basel III
Under Reserve Bank of India directions, the Basel-III capital regulation has been implemented
in India from April 1, 2013, in phases, and it has to be fully implemented by March-end 2019.

Considering the huge capital requirement (an additional ₹1.1 lakh crore, excluding the
announced capital infusion by the government) to meet Basel-III norms, the Finance Ministry
has been already pitching for deferring the implementation of the norms.

This will help banks meet their capital needs, increase credit flow to productive sectors, and
clean-up their balance sheets from the piled up NPAs.
NPA situation in India
According to RBI October to December
report, the gross Non-Performing
Assets (NPAs) of Public Sector Banks
are just under Rs. 4 lakh crore, and they
collectively account for 90% of such
rotten apples in the country's banking
portfolio. In terms of net NPAs, their
share is even higher at 92% of the total
bad loans reported so far in the banking
system.
Reasons for rising NPA in India

● GDP slowdown -Between early 2000's and 2008 Indian economy were in the
boom phase. During this period Banks especially Public sector banks lent
extensively to corporate.
● 5 sectors Textile, aviation, mining, Infrastructure contributes to most of the
NPA, since most of the loan given in these sector are by PSB, they account for
most of the NPA.
● The Lack of Bankruptcy code in India and sluggish legal system make it
difficult for banks to recover these loans from both corporate and
noncorporate.
Measures taken to tackle NPA problem
● The Banking Regulation Act will be amended to give RBI
more powers to monitor bank accounts of big
defaulters. It will enable setting up of a committee to
oversee companies that have been the biggest
defaulters.
● Under the Insolvency and Bankruptcy Code 2016,
increased powers are given to the RBI to clean up asset
quality, and to intervene in banks at an earlier stage
when risks build.
● The Cabinet has given approval to merge some of the
PSU bank to create 10-15 large PSBs. The objective is to
create a few large banks with large amounts of capital.
● The graph depicts the
non-performing loans as
% of all bank loans.
● There has been steady
increase in the NPAs in
the Indian Banks.
● There was a spike in the
NPA’s in the banks of UK
during the years 2008-09
due to the global financial
crisis as most of the loans
were not paid due to the recession that followed the crisis.
 Conclusion
● London has always been known to be the ‘Financial Capital of the world’. All
the major financial institutions of the world have a presence in UK. Banking
generates the highest employment in UK and is the highest contributor to the
nation’s GDP.
● India currently has the fastest growing economy in the world, and to support
it, India needs a strong and reliable Banking system. Although India lags well
behind UK due to a late start, the government has been pushing the sector by
implementing various schemes and policies for nationwide financial inclusion,
though it is a long road ahead.
Thank You