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CHAPTER - 5 MILESTONE OF INDIAN BANKING INDUSTRY

5.1 Background: provides financial services, which is important for economic, social, political and cultural progress of the society. Different stratum has created in society and social class has emerged with various religion and faith in god among mankind. Homes were not safe for valuables during ancient times. The places of religion and worship have become the financial centers, which was looks after by the priest and temple devotees to help the rich class and the kings to keep their valuables safe. Hence, such places were looted. They issue a receipt against safeguard of valuables. It was the cradle of ancient form of banking. The paper money has resolved the problem of storage and mobility of metallic form of money. Money in its various forms stores value and promised to pay off the bearer. Money in circulation found to be little lag behind, which has given rise to an “Organized System of Banking”. Table No. 5.1: Indian Coinage - The Journey from Coin to Paper Money Forms of Money Use or Purpose Coins made from Gold, Silver, Bronze, Tin, Lead To carry on day to day transactions and Iron Sanskrit term Rupya Properly Shaped, Stamped and well Denominated Coin Sanskrit term Rupa Means Silver Coins Adesha An order made on banker to pay third person Letter of Credit Used by Merchants for trade transactions Trade Guilds Used to accept money for lending Acts as a professional money lenders and bankers. Sethi or Chief or Capo People started their personal funds for lending, has given rise to Indigenous Banking Bills of Exchange For trade transactions and lending purpose

Table No. 5.2: Evolutionary Phase of Banking The Origin of Country of In its Actual Act or Use Word Origin Banck German Heap or Mound or Joint Stock Fund Banco Italian Heap of Money Bancus or Banque French Bench or Chest to keep Valuables An institution that accepts money as Deposits for Bank English Lending

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In 1937, very first time, the banking concept was introduced in Medieval Florence. A popular merchant family Medici had a multiple shops, which allow patrons’ to deposit money in their personal account, which was withdrawable in another city from the Medici’s representative shops. This has promoted families and church to keep their money safe and allow people to travel without money and risk of robbery. During the regime of Sher Shah in 1542, the Standardized Money, the Rupee was in use. Thereafter the earliest form of bank currency in the form of note was issued in Sweden by Stock Holms Banco in July, 1661.

Table No. 5.3: and Banking Scenario during Pre-Independence Establishment of the Three Presidency Bank

Year Process of Establishment June, 1806 The 1809 The Bank of Calcutta, renamed as The Bank of Bengal 1840 The The was established through amalgamation of The July, 1843 Madras Bank, The , The Bank of Madras and The Asiatic Bank Emergence of The Alliance Bank of Shimla, The Oudh Bank and The 1860 The Hong Kong and Shanghai Banking Corporation was the Foreign 1869 Bank in India 03 - The Presidency Bank, 09 - The Joint Stock and End of 1900's 08 - Foreign Banks or Exchange Banks

Table No. 5.4: The Swadeshi Movement - Reason for Establishment of Indigenous Joint Stock Banks

Year Process of Establishment 1911 The of India Merger of The Three Presidency Bank leads to an Establishment of 1921 The Emperial Acquisition of The Tata Industrial Bank by The Central Bank of 1923 India 1934 The Act, 1934 Part II of 1934 1st April, 1935 The Reserve Bank of India

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Table No. 5.5: Indian Banks and Banking Scenario during Post-Independence

Year Changes in Banking Sector 1st January, Nationalization of The Reserve Bank of India, under The Reserve 1949 Bank of India Transfer to Public Ownership Act, 1948 The renamed and passed an Act in July, 1955 Parliament to establish The Nationalization of 14 Largest Commercial Bank with an Aggregate 19th July, 1969 Deposits of Rs. 50 Crore Nationalized 14 banks were; The , The , The , The , The , The , The , The UCO Bank, , The Punjab National Bank, The , The Indian Bank, The and The Bank of India. The by RRB's Act 1976 with the share of 1976 50% by The Central Government, 15% by The State Government and 35% by The Sponsoring Commercial Banks Nationalization of 06 more Commercial Banks with an Aggregate 1986 Deposits of Rs. 200 Crore Nationalized 06 banks were; The , The , The Punjab & Sind Bank, The , The Oriental Bank of India and The (Later on Merged with The Punjab National Bank).

Table No. 5.6: The Banking Sector Reforms in August, 1991 - Its Recommendation and Government Measures

Banking Sector Reforms Recommendations of Narsimhan Committee In 1991 1991 - Government Measures Establishment of 4 tier hierarchy for banking structure with 3 to 4 large banks (including SBI) at Lowering SLR And CRR top and at bottom rural banks engaged in agricultural activities. The supervisory functions over banks and financial institutions can be assigned to a quasi-autonomous Prudential Norms body sponsored by RBI. Capital Adequacy Norms Phased reduction in Statutory Liquidity Ratio (SLR). (CAN) Deregulation Of Interest Phased achievement of 8% capital adequacy ratio. Rates Abolition of branch licensing policy. Recovery Of Debts Proper classification of assets and full disclosure of Competition From New accounts of banks and financial institutions. Private Sector Banks Phasing Out Of Directed Deregulation of Interest rates. Credit Delegation of direct lending activity of IDBI to a Access to Capital Market separate corporate body. Competition among financial institutions on Freedom of Operation participating approach.

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Table No. 5.7: The Banking Sector Reforms in August, 1998 - Its Recommendation and Government Measures

Banking Sector Reforms Recommendations of Narsimhan Committee In 1998 1998 - Government Measures Committee suggested a strong banking system especially in the Context of Capital Account Convertibility (CAC). The committee cautioned the Risk Management merger of strong banks with weak ones as this may have negative effect on stronger banks. It suggested that 2 or 3 large banks should be given Strengthening Technology international orientation and global character. There should be 8 to10 national banks and large Increase Inflow of Credit number of local banks. It suggested new and higher norms for capital Increase in FDI Limit adequacy. To take over the bad debts of banks committee Universal banking suggested setting up of Asset Reconstruction Fund. A Board for Financial Regulation and supervision (BFRS) can be set up to supervise the activities of Adoption of Global Standards banks and financial institutions. There is urgent need to review and amend the provisions of RBI Act, Banking Regulation Act, etc. Information Technology to bring them in line with current needs of industry. Net Non-performing Assets for all banks was to be Management of NPA brought down to 3% by 2002. Rationalization of bank branches and staff was emphasized. Licensing policy for new private banks Mergers and Amalgamation can be continued. Foreign banks may be allowed to set up subsidiaries Guidelines for Anti-Money and joint ventures. Laundering Managerial Autonomy

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5.2 Present Banking Sector in India: Figure No. 5.1: Present Banking Structure in India Reserve Bank of India

Banks Development Financial Institution

Scheduled Commercial Unscheduled Banks Banks (Local Area Banks)

Commercial Banks Co-operative Banks

State Co-operative Urban Co-operative Banks Banks

Public Sector Private Sector Foreign banks Regional Rural Banks Banks Banks

Old Private New Private Sector Banks Sector Banks

RRBs SBI & its Nationalized Associates Banks

Coastal LAB Capital LAB Krishna Bhima Samrudhi Subhadra LAB Limited Limited LAB Limited Limited

Term Lending Refinancing Sector-Specific Investment Institutions Institutions Institutions Institutions

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5.2.1 Scheduled Banks in India:

The banks which are established according to The Reserve Bank of India Act, 1934 and are included in the second schedule of the same are scheduled banks in India. 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 nature of their operations. These bank groups are State Bank of India and its Associates, Nationalised Banks called as Public Sector Banks, Private Sector Banks, Foreign Banks and Regional Rural Banks. Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks and Scheduled Urban Co-operative Banks.

5.2.1.1 Public Sector Banks:

Public Sector Banks (PSBs) are banks in which majority stake i.e. more than 50% stake is held by the government. The shares of these banks are listed on stock exchanges. As on 31st March, 2016, there are total 27 Public Sector Banks in India; of which 19 are Nationalised Banks, State Bank of India and its 5 associates and two Other Public Sector Banks.

Table No. 5.8: List of Nationalized Banks, SBI and its Associates

Sr. No. Nationalized Bank 15. Syndicate Bank 1. Allahabad Bank 16. UCO Bank 2. Andhra Bank 17. 3 Bank of Baroda 18. United Bank of India 4. Bank of India 19. Vijaya Bank 5. Bank of Maharashtra Sr. No. SBI and its Associates 6. Canara Bank 1. State Bank of India (SBI) 7. Central Bank of India 2. State Bank of Bikaner & Jaipur 8. Corporation Bank 3. 9. Dena Bank 4. 10. Indian Bank 5. 11. Indian Overseas Bank 6. 12. Oriental Bank of Commerce Sr. No. Other Public Sector Bank 13. Punjab & Sind Bank 1. IDBI Ltd. 14. Punjab National Bank 2.

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5.2.1.2 Private Sector Banks in India:

The private sector banks are those in which greater part of shares or equity is held by private shareholders. The New Economic Policy, 1991, Liberalization, Privatization and Globalization have given rise to old and new private sector banks. Advancement of technology and contemporary innovations has made private sector banks competitive and progressive.

Table No. 5.9: List of Old and New Private Sector Banks

Sr. No. Old Private Sector Bank Sr. No. New Private Sector Bank 1. Ltd. 1. Ltd. 2. ING Vysya Bank Ltd. 2. Development Credit Bank Ltd. 3. Tamilnad Mercantile Bank Ltd. 3. HDFC Bank Ltd. 4. The Catholic Syrian Bank Ltd. 4. ICICI Bank Ltd. 5. Ltd 5. Indusind Bank Ltd. 6. The Ltd. 6. Ltd. 7. The Jammu & Kashmir Bank Ltd. 7. 8. The Ltd. 8. 9. The Ltd. 9. IDFC Bank 10. The Ltd. 11. Ltd. 12. RBL Bank 13. The Ltd.

5.2.1.3 Co-operative Banks: Co-operative banks are well organized small in size working on Co-operative principle operates their financial activities both in urban and rural areas. Co-operative banks in India are registered under the Co-operative Societies Act. The Co-operative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws Co-operative Societies Act, 1965. Co-operative banks provides wide range of financial services in terms of loans, deposits, banking and accounts, etc. Co-operative banks function on the basis of “No-Profit No-Loss”. There are 936 branches of Co-operative banks as on 31st March, 2016 in urban, semi-urban and rural area.

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5.2.1.4 Regional Rural Bank:

Regional Rural Bank was established on 26th September, 1975 and RRB Act, 1976. Its aim is to provide credit to agriculture and other rural sector. Regional Rural Banks are jointly owned by the Government of India, concerned State Government and Sponsor bank. The proportion of its capital contributions is 50%, 15% and 35% respectively. There are 595 branches of RRB as on 31st March, 2016. Prathama bank is the first Regional Rural Bank is India located in the city Moradabad in Uttar Pradesh.

5.2.1.5 Foreign Banks: The foreign banks are registered in foreign country, having head office in the country of registration undertakes its financial activities through branches or wholly owned subsidiaries globally. All foreign banks in India are niche players. As on 31st March 2016, there are 43 foreign banks from 26 countries operating as branches in India and 46 banks from 22 countries operating as representative offices in India. Table No. 5.10: List of Foreign Banks Operating in India Sr. No. Foreign Bank Sr. No. Foreign Bank 1. AB Bank Limited 24. JSC VTB Bank Abu Dhabi Commercial Bank 2. 25. KBC Bank N.V. Limited American Express Banking 3. 26. KEB Hana Bank Corporation Australia & New Zealand Krung Thai Bank Public 4. 27. Banking Group Limited Company Ltd. 5. NA 28. Mashreqbank psc Bank of Bahrain and Kuwait 6. 29 Mizuho Bank Ltd. B.S.C. 7. 30. National Australia Bank Ltd. National Bank of Abu Dhabi 8. Bank PLC 31. PJSC PT 9. BNP Paribas 32. TBK 10. CTBC Bank Co. Ltd. 33. Sberbank 11. Citibank N.A. 34. Shinhan Bank Commonwealth Bank of 12. 35. Societe Generale Australia Cooperative Centrale Raiffeisen- 13. 36. Sonali Bank Ltd. Boerenleenbank B.A. Credit Agricole Corporate & 14. 37. Bank Investment Bank

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15. AG 38. SBM Bank (Mauritius) Ltd. Sumitomo Mitsui Banking 16. DBS Bank Ltd. 39. Corporation 17. AG 40. The Bank of Nova Scotia The Bank of Tokyo- 18. Doha Bank 41. Mitsubishi UFJ, Ltd. The Hong Kong and Shanghai 19. FirstRand Bank Ltd. 42. Banking Corporation Limited 20. HSBC Bank Oman S.A.O.G. 43. The 21. Industrial Bank of Korea 44. UBS AG Industrial & Commercial Bank of 22. 45. United Overseas Bank Ltd. China Limited 23. JP Morgan Chase Bank 46. Westpac Banking Corporation 47. Woori Bank

5.3 Non-Scheduled Banks in India: The banks that are not included in the Reserve Bank of India (RBI) Act, 1934 are defined in the clause (c) of Section 5 of the Banking Regulation Act, 1949 are Non-Scheduled Bank. Such banks are called as Local Area Banks, which was introduced in August, 1996. As on 31st March, 2016 there are 5 Non-scheduled - Local Area Banks in India of which 4 are in operation listed above.

5.4 Development Financial Institutions (DFI):

A financial institution which is assisted by the government mainly to provide finance for the development of one or more sectors in an economy is called as Development Financial Institution. DFI provides long term loans, equity based capital and underwriting functions. DFI acts as a "Partner" in the preferred project than as a "Financier" of the Clients. Development Financial Institutions are functionally classified at all India level as follow;  Term-Lending Institutions such as IFCI Ltd., IDBI, IDFC Ltd., IIBI Ltd. extending long-term finance to different industrial sectors.  Refinancing institutions such as NABARD, SIDBI and NHB provides finance for Agriculture, Small Scale Industries and Housing Sectors.  Sector Specific or Specialized Institutions such as EXIM Bank, TFCI Ltd., REC Ltd., HUDCO Ltd., IREDA Ltd., PFC Ltd. and IRFC Ltd. and  Investment institutions such as LIC, UTI, GIC, IFCI Venture Capital Funds Ltd. and ICICI Venture Funds Management Co Ltd.

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5.5 Recent Technological Advancement in Indian Banking Sector:

An introduction of information technology in Indian banking has improved productivity, efficiency in banking services and competition among banks not only to create but also to satisfy existing customer. Some of the advances banking technologies are;  Electronic Fund Transfer (EFT)  Credit Card  Debit Card  Phone Banking  Internet Banking  Mobile Banking  Door Step Banking  Point of Sale (PoS)  ATM  Virtual Banking  Electronic Clearing Services (ECS) Such advancement in banking technologies has reduced costs, increase volume, customized financial product and further the globalization has made branch customer, a bank customer. The increase in the use of internet, PCs and mobile has made banking at fingertip, hence changed Indian banking scenario radically.

5.6 Profile of Sample - SBI, ICICI and Citibank78 (i), (j), (k) and (l): 5.6.1 State Bank of India: It originated as the Bank of Calcutta in 2nd June, 1806. Three year later the ban has redesigned its Charter and renamed as Bank of Bengal on 2nd January 1809. In 1921, The Bank of Bengal, the Bank of Bombay (15th April, 1840) and the Bank of Madras (1st July, 1843) has merged and the Imperial Bank of India was established. The Imperial Bank of India was acted as a Central Bank of India or as a Quasi Central Bank till 1935, the year of establishment of Reserve Bank of India.

1. (i) WWW.SBI.COM (j) WWW.ICICI.COM (k) https://www.goodreturns.in/company/icici-bank/history.htm (l) WWW.CITIBANK.COM

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On 1st July, 1955 the State Bank of India has constituted under the State Bank of India Act, 1955. State Bank of India got control over Seven Banks in 1960 in India. These are called as Subsidiaries of SBI. They are State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), (SBS), (SBN), State Bank of Patiala (SBP) and State Bank of Travancore (SBT). In 1990, the SBI has launched Agricultural Credit Card popularly called as “Green Card”, to provide Liquidity and Credit for Agricultural Inputs. In 1997, the State Bank of India willing to tie up with either VISA Card or MasterCard or with both for the Franchise Network. In 1998, Association with Visa Card and Joint Venture with GE Caps the SBI has entered in to Credit Card business on 1st April, 1998. In 1999, the SBI has supported its Credit Card with Value added Services and its Use as and ATM Card. In 2000, the State Bank of India tied up with the State Bank of Mysor and launched Co-branded Credit card. Within a period around 10 months, the Credit Card base was 1 lakh, which entered in “1Million Credit Card Club” in 2002 and it is doubled i.e. 2 Million by 2005. In 2008, the Merger of State Bank of Saurashtra (SBS) and in 2009 State Bank of Indore (SBN) with the State Bank of India has made the bank stood with trillion dollar business. Other five associate banks besides Bharatiya Mahila Bank (BMB) Merged with State Bank of India on 1 April, 2017. This has pushed up the State Bank of India globally with top 50 Banks in value of Assets.

5.6.2 Industrial Credit and Investment Corporation of India:

ICICI Bank was incorporated on 5th January, 1994 at Baroda. It undertakes Banking Business in all type of Products and Services. ICICI bank was established with 24 Branches in in 12 States. In 1996, ICICI Bank has introduced the Banking Products and Services with Brands like “Maxi Cash” for Services Accounts, “Trice” for Automated Teller Machine Facility etc. With this in 1997 and 1998 the Bank has introduced Electronic Funds Transfer Facility and Internet respectively.

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In 1999, ICICI Bank has introduced Online Networking at all its ATMs and brought Credit Cards in Rural and Urban areas. With this the Bank has launched Mobile Banking Services also. In 2001, ICICI is the First Domestic Financial Institution to provide with “Moody's Interbank Credit Services”. The Credit Card named ICICI Bank-BPL Mobile Credit Card was launched by ICICI Bank and established its 100th ATM in Mumbai. With this, the Bank Scored a Network of 574 ATM in 54 Cities. In 2003, the ICICI bank has introduced Micro Finance Programs. In 2004, ICICI Bank launched Co-branded Credit Card and has announced about the ATM Network Sharing. In 2005, ICICI Bank in Russia lunched Co-branded Credit Card called as Air Deccan Credit Card. In 2006-2007, Thomas Cook India Limited has joined with ICICI Bank and introduced Titanium MasterCard. In 2009, ICICI Bank in collaboration with Singapore Airlines launched “ICICI Bank Singapore Airlines Visa Platinum Credit Card”. The ICICI Bank awarded with “World Finance Awards - 2010” for providing Excellence in NRI Services, Excellence in Remittance Business and Excellence in Private Banking Business. In 2010, ICICI Bank has Uploaded Website in Hindi and Opened up Retail Banking Branch in Singapore. In 2015, ICICI Bank has become the First Bank to launched Contactless Credit and Debit Cards and in 2016 the Bank has launched Contactless Mobile Pay. In 2017, the ICICI Bank has created Self Help Groups in Rural India.

5.6.3 Citibank:

Citibank is a Financial and Services Provider Multinational-Foreign Bank. It was established on 16th June 1812 in New York. Moses Taylor became the President, who has brought about revolutionary changes in Citibank activities during 19th Century up to 1982. In 1962, the Citibank has changed its name to The National City Bank of New York. In 1891, the Bank started with foreign exchange trading and financing department with all but especially with the Country Spain and Japan. During 1993-1994,

69 the Citibank was having one of the largest Bank and Banking Network in United States and in the New York City.

In 1902, the Citibank has been founded in India in and thereby the Citibank became the first U.S. based national bank to operate bank and banking business overseas. In 1918, the International Banking Corporation has merged with Citibank as Wholly Owned Subsidiary. The Citibank has established its 100th banking branch in 23 countries other than U.S. in 1937. The Citibank has changed its name as The First National City Bank of New York in 1955 and later on as a First National City Bank in 1962.

In 1960, the Bank entered into Credit Card business. The Bank has launched First National City Bank Charge Service Credit Card, “Everything Card” and by 1968 the Citibank has created its own Credit Card. In 1969, because of its high cost the Bank joined hand with Master Charge (Presently MasterCard) and introduced Charge Card during 1977 to 1987, and has reach globally in around 90 countries. In 1976, the Citibank change its name to Citibank, N.A.

In 1970, the Bank launched its first Automated Teller Machine in U.S. Though the Usury (Prevention of Charging High interest Cost) was introduced, the Citibank used to charge high cost and interest up to 25 per cent. The Citibank has purchased consumers portfolio of Federal Department Stores and reissued new Card under the name Department Stores National Bank (DSNB). Then in 2013, the Citibank has purchased Card Users’ Portfolio from Capital One. On 1st April, 2016 the Citibank has become Exclusive Issuer of Costco’s Co-branded credit card. Till date the Citibank has expanded its banking business with credit cards, mortgages, personal loans, commercial loans, and line of credit.

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