[Dec 2007, Volume 4 Quarterly Issue] Pdf File size - The IIPM Think ...

MORE MARKETS, LESS GOVERNMENT
using policies such as recapitalization
of public sector banks, honouring contingent
and reserve of not less than Rs.500000
and b) Satisfy the Reserve Bank of In-
the SBI and its seven independently
capitalized subsidiaries. The govern-
liabilities or explicit bail-out dia (RBI) that its affairs are not ment of India is the major share holder
packages that serve to undermine its
initial efforts and adversely affect the
government exchequer. This paper provides
a brief overview of the evolution
of the banking sector in India. Particular
conducted in a manner detrimental to
the interests of depositors.
Scheduled commercial banks are further
split into Public Sector Banks
(PSB), private sector banks, foreign
in these banks. Prior to 1991, PSBs accounted
for about 90% of all deposits
assets and credit in the economy. Private
sector banks are classified as old
and new private sector banks. There are
emphasis is placed on the possibility
of policy reversal. The outline of the
paper is as follows: Section-1 describes
Concessional lending to priority sectors with weak regulatory
and supervision framework led to a high incidence of
the structure of the banking sector in
India and its main characteristics in the Non Performing Assets (NPA) in the banking sector. In
pre-1991 period. Section-2 outlines the 1992-93 NPA amounted to 24 percent of the total assets
causes and impact of the 1991 financial
of public sector banks
crisis focussing on the changes in exchange
rate regime. Section-3 critically banks and Regional Rural Banks 23 old private sector banks. Eight private
analyses the banking sector reforms after
1991 and summarizes current inefficiencies
in the banking sector emphasizing
high transaction costs and
presence of the contingent liabilities.
Section-4 discusses the relevance of
policy reversals in India and cites some
examples. Section-5 contains the policy
conclusions and other impertaives.
2. Banking Sector In India
Banks in India are classified under the
broad categories of scheduled and nonscheduled.
Scheduled banks consist of
(RRB).
Public sector banks consist of nationalized
banks and State Bank of India
(SBI) group of banks. In 1969 the Indian
government nationalized existing
large private sector banks under its
policy of assisting India’s planned development
strategy by mobilizing financial
resources to strategically important
sectors. Fourteen banks were nationalized
in 1969 and six in 1980. The Punjab
National Bank was merged with the
New Bank of India in 1993 thereby reducing
the total count of national
sector banks opened for business
after 1991 and are classified as new private
sector banks. Currently there are
42 foreign banks in India, although
their share in the holdings of banking
sector assets remains negligible due to
strict regulatory and entry requirements.
RRB’s operate exclusively in
Figure 1: Banking Structure In
India
Reserve Bank of India
Scheduled Commercial bank (SCB) and
banks to nineteen. The
Banks in India
Financial Institutions
scheduled cooperative banks. Non SBI group comprises
Scheduled Banks comprise banks that
are not included in the Second Schedule
of the Banking Regulation Act of
Scheduled Banks
Non-Scheduled Banks
1965 and thus do not satisfy the following
conditions: a)
have paidup
Scheduled Commercial Banks
Scheduled Co-operative Banks
capital Public Sector Banks Private Sector Banks Foreign Banks Regional Rural
Banks
Nationalized Banks
SBI Group
Old Private Sector Banks
New Private Sector Banks
THE INDIA ECONOMY REVIEW
117