Recent Developments of Banking Sector in India

            Recent Developments of Banking Sector in India

 

1.      Introduction:

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated from the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. Presidency Banks, acted as quasi-central banks,  the other two being the Bank of Bombay and the Bank of Madras, the three banks merged in 1921 to form the Imperial Bank of India, which, after India's independence, became the State Bank of India in 1955.Following independence, the RBI was given broad regulatory authority over commercial banks in India.

 

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. The Government of India issued an ordinance and nationalized the 14 largest commercial banks whose nationwide deposits were greater than Rs. 500 million, resulting in the nationalization of 54 percent more of the branches in India, and bringing the total number of branches under government control to 84 percent with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity."

 

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91 percent of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank.and resulted in the reduction of the number of nationalized banks from 20 to 19.

 

 After nationalization, the breadth and scope of the Indian banking sector expanded at a rate perhaps unmatched by any other country. Indian banking has been remarkably successful at achieving mass participation. After liberalization of the economy in 1991, the Indian banking sector witnessed tremendous growth and it now enjoys a global footprint. Apart from the growth the sector in the last decade and a half, the regulatory bodies like Reserve Bank of India also established a vibrant regulatory framework which is at par with the best economies in the world.

 

Recent Technological and Other Developments in Banking Sector:

 

        Information technology revolution in the Indian economy has made steady inroads into the banking institutions and has brought about a significant change in many aspects in the form of computerization of transactions and new delivery channels such as Internet Banking, Phone Banking, ATMs, EFT, ECS and EDI etc..With migration of traditional paper-based funds movements to quicker and more efficient electronic mode, funds transfers have become easy and efficient to perform.

         Developments in the field of information technology (IT) strongly support the growth and inclusiveness of the banking sector thereby facilitating inclusive economic growth

 

1.  Bank Computerization:

The most fundamental way in which technology has changed the face of the Indian banking sector has been through computerization. Entry of new private sector banks and foreign banks offering most modern technology banking has forced public sector banks (PSBs) to address computerization problems more seriously in recent years.

The Central Vigilance Commission wants 100 percent computerization in Indian banks to check frauds, delays, etc. Of the total number of public sector bank branches, 97.8 per cent were fully computerized at end-March 2010.

The cumulative expenditure on ‘computerization and development of communication networks’ by public sector banks from September 1999 to March 2010 aggregated to `22,052 crore. On an annual basis, the expenditure on ‘computerization and development of communication networks’ registered a growth of 23.2 per cent in 2009-10.

 

2.      Core Banking Solutions (CBS):

         Nowadays, most banks use core banking applications to support their operations where CORE stands for "centralized online real-time exchange". This basically means that the entire bank's branches access applications from centralized datacenters .The deposits made are reflected immediately on the bank's servers and the customer can withdraw the deposited money from any of the bank's branches throughout the world.

 

3.      ATM Services:

 

The third major technological development, which has revolutionized the delivery channel in the banking sector, has been the Automated Teller Machines (ATMs). Prominence as a delivery channel for banking transactions in India.

 The first bank to introduce the ATM concept in India was the Hong Kong and Shanghai Banking Corporation (HSBC) in Mumbai in the year 1987. Now, almost every commercial bank gives ATM facilities to its customers. ATM is operated by plastic card with its special features. which replacing cheque, personal attendance of the customer, banking hour’s restrictions and paper based verification.

Since April 2009 access in any ATM is free of charge it is the great opportunity to any ware banking in India. ATMs, particularly off-site ATMs, act as substitute for bank branches in offering a means of anytime cash withdrawal to customers. Growth in ATMs, which have been generally on a steady rise in the recent years, was observed to be 37.8 per cent in 2009-10 and in 2010-11 the number of ATMs witnessed a growth of 24 per cent over the previous year.

 

Table I: ATMs of Scheduled Commercial Banks

S.No	Bank group	On-site ATMs	Off-site ATMs	Total number of ATMs	Off-site ATMs as percent of total ATMs
I	Public sector banks	29,795	19,692	49,487	39.8
1.1	Nationalized banks*	15,691	9,145	24,836	36.8
1.2	SBI group	14,104	10,547	24,651	42.8
II	Private sector banks	10,648	13,003	23,651	55.0
2.1	Old private sector banks	2,641	1,485	4,126	36.0
2.2	New private sector banks	8,007	11,518	19,525	59.0
III	Foreign banks	286	1,081	1,367	79.1
	All SCBs (I+II+III)	40,729	33,776	74,505	45.3

    Source: Report on Trend and Progress of Banking in India 2010-11

However, the percentage of off-site ATMs to total ATMs witnessed a marginal decline to 45.3 per cent in 2010-11 from 45.7 per cent in 2009-10. More than 65 per cent of the total ATMs belonged to the public sector banks as at end March 2011. During 2010-11, the number of debit cards grew at the rate of 25 per cent over the previous year.

There has been a steady growth in number of ATM (onsite and offsite) over 2009-10 to 2020-21 .The total number of onsite ATM increased from 32,679 to 1, 15,605 respectively representing a CAGR (compound growth rate) of 12.17%. Similar growth in Offsite stood at 27,474 increased to 97970 in 2021-21 respectively representing a CAGR of 12.25%.

 

                 Table 2: Debit Cards Issued by Scheduled Commercial Banks(As at end-March 2011)

S. No.	Bank group	Outstanding Number of Debit Cards
		2006-07	2007-08	2008-09	2009-10	2010-11
I	Public sector banks	44.09	64.33	91.7	129.69	170.34
1.1	Nationalised banks	19.24	28.29	40.71	58.82	80.27
1.2	SBI group	24.85	36.04	50.99	70.87	90.07
II	Private sector banks	27.19	34.1	41.34	47.85	53.58
2.1	Old private sector banks	3.94	5.34	7.09	9.81	12.44
2.2	New private sector banks	23.25	28.76	34.25	38.04	41.14
III	Foreign banks	3.70	4.02	4.39	4.43	3.92
	All SCBs (I+II+III)	74.98	102.44	137.43	181.97	227.84

   Source: Report on Trend and Progress of Banking in India 2010-11

 

      The Reserve Bank has advised banks to put in place a system of online alerts latest by June 30, 2011 to cardholders, for all types of transactions, irrespective of the amount involved through various channels due to the increased instances of fraudulent withdrawals at ATMs. Further, banks have also been advised to provide complaint templates at all ATM sites for lodging ATM-related complaints.

 

4.      Telephone Banking, Mobile Banking and SMS Banking:

        Mobile phones as a medium for extending banking services have off-late been attaining greater significance. With the rapid growth in the number of mobile phone subscribers in India (about 261 million as at the end of March 2008 and growing over 1.15 billion wireless phone subscribers across India at the end of 2021 banks have been exploring the feasibility of using mobile phones as an alternative channel of delivery of banking services.

        Mobile banking is the hottest area of development in the banking sector and is expected to replace the credit/debit card system in future.

 

5.      Internet Banking or Wireless Banking, Online Banking:

     Internet banking, both as a medium of delivery of banking services and as a strategic tool for business development, has gained wide acceptance internationally and is fast catching up in India with more and more banks entering the fray.  The Internet, by its very nature, reaches across borders and is, for this reason, engaging the attention of regulatory and supervisory authorities all over the world.

Conclusion:      All these developments in Indian banking show that the Indian banks are moving towards modern banking changing a face of traditional banking of Indian economy.