BANKING SECTOR IN INDIA

The formal banking sector of India consists of Scheduled Commercial Banks (SCBs), Cooperative Banks and Regional Rural Banks (RRBs) as well as Development Financial Institutions (DFIs). The Central Bank is known as the Reserve Bank of India (RBI). The year 1969 was a major turning point in the Indian banking system when 14 large commercial banks were nationalized. The main objective of

nationalization were greater mobilization of savings through bank deposits, widening of branch network, particularly in rural and semi-urban areas and reorientation of credit flows to benefit priority sectors like, agriculture, small borrowers, etc, all of which were satisfactorily fulfilled. However, the banking system operates in an environment of administered interest rates and mandatory stipulations on credit distribution. Financial service sectors in our country has witnessed notable transformation over last five decades and concerted efforts have been made by the banking system to grow by building up an extensive branch network, mobilizing untapped savings, promoting banking habits and providing credit for rural development, beside diversifying into new areas of businesses. The process of globalization of Indian economy has created an environment where the financial service systems have to be cost effective, customer oriented and technology based. These changes have posed many challenges to the banking system and the personnel. It is essential that the banking manpower keep itself up-to-date of all these changes and have a future vision so that it does not find difficulty in efficient functioning.Indian banking is one of the largest in the world. During the last decade, both the nationalized banks and private banks have grown, but private sector banks have shown a much better standard in terms of different banking parameters.

Banks act as important players in the financial markets. They play a vital role in the economy of a country. The Recession that began in December 2007 impacted the revenues and profitability of businesses worldwide. We are in a globalised world and no more immune to the things happening outside our country. Built on strong financial fundamentals, strict vigil on risk appetite and firm monetary guidelines, Indian banks have proved among the most resilient and sound banking institutions in the world. But there has been considerable divergence in the performance of the various banking institutions in the country as also among the public, private and foreign banks operating in India. The Indian banking system is relatively insulated from the factors leading to the turmoil in the global banking industry. Going by the performance for the calendar year 2008, Indian public sector banks have not only been able to weather the storm of global recession but have been able to moderate its impact on the Indian economy as well, compared to its peers among the foreign and private banks. The banking sector faces profitability pressures due to higher funding costs, mark-to-market requirements on investment portfolios, and asset quality pressures due to a slowing economy. But Indian banks global exposure is relatively small, with international assets at about 6 per cent of the total assets. The strong economic growth in the past, low defaulter ratio, absence of complex financial products, regular intervention by central bank, proactive adjustment of monetary policy and so called close banking culture has favored the banking industry in India in recent global financial turmoil. Critics have argued that the regulatory framework did not keep pace with financial innovation, such as the increasing importance of the shadow banking system, derivatives and off-balance sheet financing. In other cases, laws were changed or enforcement weakened in parts of the financial system.