Chapter 3

Spetimenij of Travcllcrb C'facqncH
CHAPTER 3
HISTORY OF INDIAN
BANKING SECTOR
fc CHAPTER-3
HISTORV OF INDIAN BANIONG %CTOR
The content of this chapter is divided into the following sections.
3.1 A brief history of Indian banks Before Liberalization, Privatization and
Globalization
3.2 A brief review of Indian banks After Liberalization, Privatization and
Globalization
3.1 A brief history of Indian banks before Liberalization,
Privatization and Globalization :-
According to the Central Banking Enquiry Committee Report (1931), money
lending activity in India could be traced back to the Vedic period, i.e., 2000 to 1400
BC. The existence of professional banking in India could be traced to the 500 BC.
Kautilya's Arthashastra, dating back to 400 BC contained references to creditors,
lenders and lending rates. Banking was fairly varied and catered to the credit needs of
the trade, commerce, agriculture as well as individuals in the economy. Mr. W.E.
Preston, member Royal Commission on Indian Currency and Finance (1926)
observed ",.. It may be accepted that a system of banking that was eminently suited to
India's then requirements was in force in that country may centuries before the
science of banking became an accomplished fact in England. An extensive network
of Indian banking houses existed in the country connecting all cities/towns that were
of commercial importance. They had their own inland bills of exchange or hundis
which were the major forms of transactions between Indian bankers and their trans-
regional connections .
(Bage 49 of 101
As per (Crowther 2007) : The banker's two other ancestors were the
moneylender and the goldsmith A moneylender was one who advances credit to his
customers day in and day out while a banker will be taken to mean any individual or
private firm which, in addition to providing loans, either receives deposits or deals in
hundies or both. "While the indigenous banker grants loans for trade and industry the
moneylender finances mainly consumption". According to the Central Banking
Enquiry Committee Report(1931) "Opinions regarding these bankers were divided
some consider him as a wholly abominable, an unscrupulous usurer, a land grabber,
the fomenter of factions and law suits others commend him as the cultivator's friend,
the traditional guardian of his property, an ever present help in time of trouble"^.
The concept of banking was first introduced in medieval Florence in 1397. A
powerful merchant family named Medici established a network of shops that allowed
patrons to place money on account and withdraw the money in another city that had a
Medici representative. Many powerful families and even the Church kept their
money in Medici banks. This allowed rich people to travel without the need to carry
large sums of money and risk of robbery while traveling. Banking continued to gain
popularity throughout Europe by 1700. Nearly every country in Europe had some a
very long way from those humble beginnings in Florence^.
(page so of 101
Table No.3.1.1
Number of Banks, Capital and Deposits before Establishment of RBI Bank
(Period from 1870 to 1934) (Amount in Rs, Lakh)
YEAR No of commercial banks Paid- up capital and Reserve Deposits
Pre.Im Class A Ex.Ba Class Total Pre.Im. Class Class Total Pre.Im. Class A Ex.Bank Class Total
NO •Banks nk B Banks A B Banks B
1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
1 1870 3 2 3 - 8 362 12 - 374 1197 14 52 - 1263
2 1880 -K) +1 +1 - +2 +43 +9 - +52 -57 +49 +288 - +280
3 1890 +0 +2 +1 - +3 +43 +30 - +73 +696 +208 +414 - +1318
4 1900 +0 +4 +3 - +7 +112 +77 - +189 -267 +537 +296 - +566
5 1910 +0 +7 +3 - +10 +131 +248 - +379 +2085 +1758 +1429 - +5272
6 1913 -K) +2 +1 23 +26 +57 -12 - +45 +582 -307 +625 151 +1051
7 1920 +0 +7 +3 +10 +20 +5 +729 81 +815 +4393 +4856 +4377 +82 +13708
8 1930 -2 +6 +3 +24 +31 +362 +97 +60 +519 -232 -789 -670 +206 -1485
9 1934 +0 +5 -1 +12 +16 +13 +77 +8 +98 -297 +1351 +329 +72 +1455
Total 1 36 17 69 123 1128 1267 149 2544 8100 7677 7140 511 23428
Note:-
• Presidency/Imperial banks, Exchange bank
• Three presidency banks were amalgamated into a single bank i.e., Imperial bank of India in 1921.
• Banks with capital and reserves of Rs. 5 lakhs and over was class A banks.
• Banks with capital and reserves over Rs. 1 lakh and up to Rs. 5 lakhs class B banks.
Source: - http://rbi.org.in/scripts. Page No.2-3 (accessed on Date: - 30/11/2014) (Data compiled and calculated)
(Page SI of 101
Table no. 3.1.1 showed number of reporting commercial banks its paid-up capital and
deposits from which following conclusions can be drawn.
I. The phase leading up to independence laid the foundations of the Indian
banking system. The begiiming of commerciai banking of the joint stock
variety that prevailed elsewhere in the world could be traced to the early
IS'^'century'^. The Call of the day for state aided bank was realized in order to
facilitate Government borrowing on reasonable terms and for the maintenance
of the credit system. Consequently three presidency Banks, namely The Bank
of Calcutta, The Bank of Bombay and The Bank of Madras were estabHshed
in 1806, 1840 and 1843 respectively. The Government subscribed Rs.3 lakhs
to the capital in each case^. They were known as presidency banks as they
were set up in the three presidencies that were the units of administrative
jurisdiction in the country for the East India Company. The presidency banks
were governed by Royal Charters^. After the 1^' phase of the establishment of
three presidency banks, the 2"*^ phase was of close state association with
banking (The first phase was the establishment of three presidency Banks
began with the formation of Imperial Bank of India by amalgamating the three
presidency Banks in 1921 since its inception 1935, the Imperial bank of India
used to work as a banker of the govermnent over and above its banking
business. Due to its high prestige, ample resources and wide relations, the
Imperial bank of India was called as an unofficial leader of Indian money
market. The growth of the Imperial Bank of India as a centre cum Commercial
bank come under eclipse when the Hilton Young commissions, accepting the
prevailing view that Central Banking and Commercial banking could not and
should not go together, recommended the establishment of a separate Central
bank to be called the "Reserve bank of India". Thus, with the establishment of
Reserve bank of India in 1935 under the Reserve bank of India Act, 1934, the
imperial Bank becomes a complement to that of the Reserve bank and worked
as a Governments bank at the places where the R.B.I had not offices^.
II. Before R.B.I, establishment banks have been divided into four division
presidency banks, exchange banks. Class A and Class B banks. The beginning
Swadeshi movement from earlier 20* century made a great impetus on
banking sector and by the end of 1913 the total number of reporting
commercial banks in the country reached 56 comprising 3 presidency banks
(page 52 of 101
18 class 'A' banks (with capital of greater than Rs. 5 lakh) 23 class 'B' banks
(with capital of Rs. 1 lakh to 5 lakh) and 12 exchange banks.
III. Exchange banks were foreign owned banks was mostly under European
management that engaged mainly in foreign exchange business in terms of
foreign bills of exchange and foreign remittances for travel and trade.
IV. The first Indian owned banks was the Allahabad Bank set up in Allahabad
1865; the second Punjab National Bank was set up in 1906 in Mumbai. The
Swadeshi Movement of 1906 provided a great impetus to joint stock banks of
Indian ownership and many more Indian commercial banks such as Central
Bank of India, Bank of Baroda, Canara Bank, Indian Bank and Bank of
Mysore were estabhshed between 1906 to 1913^. These were the only banks
among those which started about that period, these banks were distained to
survive and its serves the country even today as a nationalized banks.
V. The presidency banks were amalgamated into a single bank, the Imperial Bank
of India. By 1934 the number of commercial banks increased to 123 with the
Imperial Bank of India still dominating the Indian banking sector with the
second highest paid up capital Rs. 1128 lakh after class 'A' banks and the
highest amount of deposit Rs. 8100 lakh. The Imperial Bank of India was
further reconstituted with the merger of a number of banks' belonging to old
princely states such as Jaipur, Mysore, Patiala and Jodhpur. The Imperial
bank of India also fimctioned as a central bank prior to the establishment of
the Reserve Bank in 1935. Thus during this phase, the Imperial Bank of India
performed three set of fimctions, viz., commercial banking, central banking
and the banker to the govenmient^.
VI. The highest number of banks from 1913 on an average was Class ' B ' type
banks. Before 1913 it's was not in picture and than in 1913 23 to mushroom
growth went to 69 in 1934. After the establishment of RBI classification of
banks was expanded which discuss in next table but the paid up capital of
small banks was very little just 149 lakhs among 69 banks and deposits was
not more than 511 lakhs.
(Page 53 of 101
Chart No. 3.1.1.1
Major Events in Indian Banking Sector
1935 RBI
Establishment
The Banking 1949

Laws Banking
(Amendment) Regulation
Act, 2012 Act
1955
1991 LPG Nationalizati
onofSBI
1980 1969
Nationalization Nationalizati
of 6 major on of 14
banks major banks
(Page 54 of 101
Table No. 3.1.2
Number of Banks^ Capital and Deposits after Establishment of RBI Bank
(Period from 1935 to 1950) (Amount in Rs. Lakh)
Number of commercial banks Deposits of Commercial banks
Y Scheduled Banks Non-Scheduled Banks Scheduled Banks Non-Scheduled Banks
E Grand
A Ex
Class Total Class Class Class Class Total Grand Imperial Class A1 Exchan Total Class Class Class C Class Total Total
R Imp cha Total
erial Al nge A2 B C D A2 B D
1935 1 27 19 47 9 71 - - 80 127 7880 9007 7533 24410 540 546 - - 1086 25496
1940 0 +14 +1 + 15 +8 +51 +121 +332 +512 +527 +1723 + 1604 +1010 +4337 +248 +558 +286 +272 + 1364 +5701
1947 0 +39 -5 +34 +51 +63 -2 -144 -32 +2 +(9056 +51723 +934SJ +«0J27 +4404 + 1843 + 169 +28 +6444 +86571
1950 0 -6 +1 -5 +5 +4 +4 -64 -51 -56 -5522 -10064 -842 -16428 -533 -771 -85 -169 -1558 -17986
Total 1 74 16 91 73 189 123 124 509 600 23137 52270 17039 92446 4659 2176 370 131 7336 99782
Note:-
• Claas Al were banks with capital and reserves greater than Rs. 5 lakh and included in the second schedule of RBI Act 1934.
• Claas A2 were non-scheduled banks with capital and reserves greater than Rs. 5 lakh.
• Claas B were non-scheduled banks with capital and reserves greater than Rs. 1 lakh but lower than Rs. 5 lakh.
• Claas C were non-scheduled banks with capital and reserves greater than Rs. 50,000 but up to Rs. 1 lakh.
• Claas D were banks with capital and reserves of less than Rs. 50,000.
Source: - http://rbi.org.in/scripts.Page no.5 (accessed on Date: - 30/11/2014) (Data compiled and calculated)
(Page 55 of 101
Table no. 3.1.2 showed number of reporting commercial banks its capital and deposits
from which following conclusions can be drawn.
I. The period after setting up of the Reserve Bank saw increase in the number of
reporting banks. The classification of banks was expanded to include the
banks with smaller capital and reserve base. Class 'A' banks were divided into
Al and A2. Further two new categories of banks, viz., ' C and *D' were
added to include the smaller banks. Banks with capital and reserves of greater
than Rs. 5 lakh included in the second schedule to the RBI Act 1934 were
classified as class Al, while the remaining non-scheduled banks with capital
and reserves of greater than Rs. 5 lakh were classified as Class A2. The rest of
the non-scheduled banks were classified according to their size; those with
capital and reserves of greater than Rs. I lakh and lower than Rs. 5 lakh were
classified as class B; banks with capital and reserves of greater than Rs.
50,000 and up to Rs. 1 lakh were classified as class C; and those with capital
and reserves of less than Rs. 50,000 were classified as Class D.
II. The joint stock banks constituted the largest share of the deposits with more
than Rs. 520 crore followed by the Imperial Bank of India with more than Rs.
230 crore and exchange banks with Rs. 170 crores.
III. When compared the deposits of commercial banks there were vast difference
between scheduled and non-scheduled banks in the whole period more than
240 crore deposits in scheduled banks compared to 10 crore in non-scheduled
banks at the time of setting up of the Reserve Bank, almost same situation was
in 1950 there were 920 crore deposits in scheduled banks compared to 73
crore in non-scheduled banks. The liaise faire policy that permitted free entry
and exit of banks made very high growth of banking companies only to be
marred by the problem of massive bank failures.
IV. When compared number of scheduled banks to non-scheduled banks more
than 80% banks were non scheduled banks from total banks. From non
scheduled banks class ' C and ' D ' type's banks come in light in 1940 by
expanded of classification by RBI mushroom growth more than half of the
total banks closed because of established with less capital and regulation of
RBI at that time.
(Page 56 of 101
Setting up of the Reserve Bank and Its Role
The setting up of a central bank for the country was recommended by various
committees that went into the causes of bank failures. It was also believed that the
establishment of a central bank as a separate entity that does not conduct ordinary
banking business (like the Imperial Bank of India) was likely to have the stature to be
able to deftly handle the central banking functions without the other joint stock banks
feeling any rivalry towards. Accordingly the Reserve Bank of India Act 1934 was
enacted paving the way for the setting up of the Reserve Bank of India. The issue of
bank failures and the need for catering to the requirements of agriculture were the two
prime reasons for the estabhshment of the Reserve Bank'°.
The Reserve Bank of India Act, 1934 gave the Reserve Bank powers to
regulate issue of bank notes, the custody of the commercial banks' cash reserves and
the discretion of granting them accommodation. The preamble to the RBI Act set
forth its functions as 'to regulate the issue of bank notes and the keeping of reserves
with a view to securing monetary stability in India and generally to operate the
currency and credit system of the country to its advantage". The Reserve Bank's main
functions could be classified into the following broad categories.
• To act as a banker to the Government
• To issue notes
• To act as a banker to other banks
• To maintain the exchange ratio".
It's worth note that Reserve bank of India started as a privately owned bank. It
started with a share capital of Rs. 5 crore divided into share of Rs.lOO each fully paid
up. In the beginning this entire capital was owned by private shareholders. After
independence, the government passed Reserve bank (Transfer to PubUc Ownership)
Act 1948 and took over RBI from private shareholders after paying appropriate
compensation. Thus, nationalization of RBI took place in 1949 and from January 1
1949, RBI started working as a government owned central bank of India .
Till 1949, there was no separate act for banking in India. So it was controlled by
Indian Companies Act 1913. The Central Banking Enquiry Committee (1931)
recommended the need of a separate legislation to control banks due to mushroom
growth oi' banks with inadequate capital, dishonest management, speculative business
etc etc.,'^
(page SF of 101
The Banking Regulation Act, 1949 was legislation in India that regulates all
banking firms in India. The act provides a framework using which commercial
banking in India supervised and regulated. The act gives the Reserve Bank of India
(RBI) to power to license banks, have regulation over shareholding and voting rights
of shareholders; supervise the appointment of the boards and management; regulate
the operations of banks; lay down instructions for audits; control moratorium, mergers
and hquidation; issue directives in the interests of public good and on banking policy,
and impose penalties. Initially, the banking companies act, 1949 was applicable only
to banking companies, the act was amended and renamed banking regulation act to
include cooperative banks under its purview'**.
In this period the major things was nationalization of Reserve Bank of India
and erected banking regulation act 1949.
Decade wise tables were prepared to understand growth and development of
banking sector in India post independent period.
Chart No: 3.1.2.1
Banking After Independence in

India
FIRST PHASE SECOND PHASE THIRD PHASE

1948-1969 1969-1990 1991& Continue
(Page 58 of 101
Table No:-3.1.3
Number of Banks, Capital, Deposits, Advances, Assets and Ratios
(Period from 1951 to 1960) (Amount In Rs. Lakhs)
Capital to Deposits Advances
NO YI=AR BANKS CAPITAL TOTAL to total
DEPOSITS ADVANCES lotal assets to total
ASSETS assets
ratio assets ratio
ratio
I 2 3 3 4 6 7 4 5 6
I 1951 466 4137 97383 64155 132861

3.11 73.30 48.29
2 1952 471 4185 94891 55011 120558
3.47 78.71 45.63
3 1953 492 4128 97274 55629 122917
3.36 79.14 45.26
4 1954 452 4077 106635 60403 136667
2.98 78.03 44.20
5 1955 456 4108 115923 70377 157770
2.60 73.48 44.61
6 1956 421 4068 124553 86304 176091
2.31 70.73 49.01
7 1957 387 4112 149967 92906 194005
2.12 77.30 47.89
S 1958 368 4102 171865 93132 214768 43.36
1.91 80.02
9 1959 355 4116 200054 104568 247903
1.66 80.70 42.18
10 1960 339 4132 202184 124585 261608 47.62
1.58 77.29
> 51 to 60 467 4127 102421 61115 134154 2.00 76.00 45.00
<
51 TO 55 467 4127 102421 61115 134155 3.10 76.53 45.60
56 TO 60 374 4106 169724 100299 218875 1.92 77.21 46.01
Growth -93 -21 67303 39184 84720 -1.19 0.68 0.41

Growth Rate 64.12 63.15 -38.27 0.91
-0.51 65.71 0.88
% 19.98
Source:-l. http://www.rbi.org.in/scripts/BankinglndicatiorsDwasplay.aspx?ld=26. page.no.5-
7.(accessed on Date:- 28/07/2014)
Note:- Data compiled and calculated
Table no. 3.1.3 showed following conclusions.

I. When country attained independence, Indian banking was entirely in the
private sector. The partition of the country hurt the domestic economy and
the banking sector, was no different of the 84 banks operating in the country in
the organized sector before partition, two banks were left in Pakistan in 1947,
38 banks failed'^
II. The table no.3 has been stated that between 1951 to 1960 the period of 10
years the number of banks reduced every year, merely left out 1952, 1953 and
1955 three years from 466 in 1951 to 339 in 1960. Growth rate was negative
about 19.98% in this tenure.
(Page 59 of 101
III. 467 average reporting banks in 1951-55 reduced 93 remained 374 in 1955-60;
capital was about Rs. 41.3 crore reduced to Rs. 41 crore in 1956-60.
IV. Further showed that business of banks were increased in this period like
average deposits and other was Rs. 1024 crore in 1951-55 increased to above
1697 crore in 1956 to 60. Growth rate was about 65.71% in this tenure.
Advances were about Rs. 611 crore in 1951-55 increased to 1003 crores in
1956-60. Growth rate was about 64.12% in this tenure. Total assets were Rs.
1342 crores also increased to 8472 crores in 1956- 60. Growth rale was about
63.15% in this tenure.
V. It was examined that the capital to total assets ratio showed decreasing trends
(except the year 1952) in all the years under study. In 1951 to 55 an average
percentage was 3.10%, which was decreased to 1.92% in 1956 to 60, whereas
the growth rate was negative about 38.27 % in this tenure.
VI. It was examined that the deposits to total assets ratio showed fluctuating trends
in all the years under study. In 1951 to 55 an average percentage was 76.53%,
which was increased to 77.21% in 1956 to 60, whereas the growth rate was
shghtly increased 0.88 % in this tenure.
VII. It was observed that the advances to total assets ratio showed fluctuating
trends in all the years under study. In 1951 to 55 an average percentage was
45.60%, which was increased to 46.01% in 1956 to 60, whereas the growth
rate was slightly increased 0.91 % in this teniu"e.
In 1955 the government of India and country's central bank, the Reserve bank
of India, assumed joint ownership of Imperial bank of India, which was renamed the
State Bank of India. Four years later, by the State Bank of India (Subsidiary Banks)
Act, banks earlier operated by individual princely sates became subsidiaries of SBI.
During 1959, seven subsidiaries were nationalized and associated with State bank of
India one by one.
In this tenure the major things nationalization of Imperial bank of India
renamed State Bank of India and its associated seven subsidiaries its made strong base
for flnancial markets particular banking industry.
(Page 60 of 101
Table No:-3.1.4
{Period from 1961 to 1970) (Amount in Rs. Lakhs)
Amal Capital Dqxisils Advance

N YEAR BANKS Li qui ADAVANC TOTAL to total to total s to total
O gamat CAPITAL DEPOSITS
dalion ES ASSETS assets assets assets
ion
ratio ratio ratio
1 2 3 4 5 6 7 8 9 10 11 12
1 1961 291 29 8 3996 212481 134638 266282 1.50 79.80 50.56
2 1962 276 26 7 4358 234508 150492 296770 1.47 79.02 50.71
3 1963 247 19 2 4411 259079 168374 331821 1.33 78.03 50.74
4 1964 154 79 3 4508 293454 195361 378572 1.19 77.52 51.60
5 1965 106 33 8 4565 328977 219546 416042 1.10 79.07 52.77
6 1966 99 7 10 4584 393161 256523 494574 0.93 79.49 51.87
7 1967 91 NA NA 4638 432369 284496 536597 0.86 80.58 53.02
8 1968 88 NA NA 4698 487255 326718 606182 0.78 80.38 53.90
9 1969 85 NA NA 4699 554094 381260 687050 0.68 80.65 55.49
10 1970 83 NA NA 4702 647931 468503 825177 0.57 78.52 56.78
61 to
152 193 38 4516 384331 258591 483907 1.04 79.31 52.74
> 70
< 61 to
215 NA NA 4368 265700 173682 337897 1.32 78.69 51.28
65
66
89 NA NA 4664 502962 343500 629916 0.76 79.92 54.21
to70
Growth -126 NA NA 297 237262 169818 292019 -0.55 1.24 2.94
Growth Rate -58.60 NA NA 6.79 8930 97.78 86.42 -42.03 1.57 5.73
Source:-
1. http://www.rbi.org.in/scripIs/BankingIndicaiiorsDwasplay.aspx?Id=26. page.no.5-7.(accessed on 28/07/2014)
2. http://rbidocs.rbi.org.iti/rdocs/Publicalions/PDFs/bs72-95-Lpdf.page.no.l (accessed on 28/07/2014)
Note:- Data compiled and calculated.
Table no. 3.1.4 showed following inferences.

I. To include the co-operative banks in acts changed the name of act banking
regulation act instead of banking companies act in the year of 1965.
II. Deposit Insurance scheme was introduced in India in 1962. India was the
second country in the world to introduce such a scheme the first being the
United States 1933. Deposit insurance was seen as a measure of protection to
depositors, particularly small depositors from the risk of loss on their savings
arising from bank failure. The purpose was to avoid panic and to promote
greater stability and growth of the banking system. In 1968, the Deposit
Insurance Corporation Act was amended to extend deposit insurance to
'eligible co-operative banks''^.
ipage 61 of 101
III. Reserve bank was formaHy given the powers in 1960 to amalgamate banks.
Between the periods from 1960 to 1966, as many as 193 banks were
amalgamated and 38 banks went into liquidation.
IV. These steps were impact on number of banks; these have been seen in table.
The average number of banks in the year of 1961 to 65 was 215 which were
reduced to 89 in the year of 1966 to 70, whereas the growth rate was negative
about 58.60 % in this tenure, capital was about Rs. 43.7 crore increased to Rs.
46.6crorein 1966-70.
V. Further showed that business of banks were increased in this period like
average deposits and other was Rs. 2657 crore in 1961-65 increased to above
5030 crore in 1966 to 70. Growth rate was about 89.30% in this tenure.
Advances were about Rs. 1737 crore in 1961-65 increased to 3435 crores in
1966-70. Growth rate was about 97.78% in this tenure. Total assets were Rs.
3379 crores also increased to 6299 crores in 1966- 70. Growth rate was about
VI. It was examined that the capital to total assets ratio showed decreasing trends
in all the years under study. In 1961 to 65 an average percentage was 1.32%,
which was decreased to 0.76% in 1966 to 70, whereas the growth rate was
negative about 42.03% in this tenure.
VII. It was analyses that the deposits to total assets ratio showed fluctuating trends
in all the years under study. In 1961 to 65 an average percentage was 78.69
%, which was slightly increasing to 79.92 % in 1966 to 70, whereas the
growth rate was about 1.57 % in this tenure.
VIII. It was observed that advances to total assets ratio showed increasing trends
(excq)t the year 1966) in all the years under study. In 1961 to 65 an average
percentage was 51.28 %, which was increasing to 54.21 % in 1966 to 70,
whereas the growth rate was about 5.73% in this tenure.
Lead Bank Scheme: -
The National Credit Council was set up in the year of 1967 to determine the
priorities of bank credit among various sectors of the economy. The study group
found that the commercial banks had penetrated only 5000 villages as of June 67. The
banking needs of the rural whereas in general and backward in particular were not
taken care of by the commercial banks. Besides, the credit needs of Agriculture, SSI
and allied activities remained neglected. All India Rural Credit Review Committee
(page 62 of 101
1969 endorsed the view that CBs should increasingly come forward to finance
activities in rural area. Introduction of the scheme: Lead Bank Scheme (LBS) was
introduced in 1969, based on the recommendations of the Gadgil Study Group. The
basic idea was to have an "area approach" for targeted and focused banking. The
banker's committee, headed by F.S.Nariman, concluded that districts would be the
units for area approach and each district could be allotted to a particular bank which
will perform the role of a Lead Bank. Lead bank as consortium leader'^.
Social Control of Banks:-
Twenty years of tenure passed of independence but the growth and
development of banks was not as per expectations. Most of the banks and their
branches were opened in only big cities. Advances gave to the big and medium
industries. The prime sector agriculture, small scale industries and self-employment
occupation most of untouched with banking service. So it was downtrend in output.
Employment generation and technology upgrade, and its direct impact on national
economic development. This type of growth was not consonance with plarming.
The government set up National credit council in 1968. The finance minister
was the chairman and the governor of the Reserve Bank was the vice chairman of the
council. Greater expansion of banking in rural area was main objective of social
control of banks .
Why Nationalization:-
The rapid increase in deposits in relation to their owned capital enabled the
industrialist shareholders to enjoy immense leverage. It was felt that if bank funds had
to be channeled for rapid economic growth with social justice, there was no
alternative to nationalization of at least the major segment of the banking system.
Accordingly, the Government nationalized 14 banks with deposits of over Rs. 50
crore by promulgating the banking companies (Acquisition and Transfer of
Undertakings) ordinance 1969 .
This was the historic tenure in banking sector with so many new policies
introduced like introduced deposit insurance scheme, change the name of banking
companies act social control on banks, lead bank scheme and nationalization of
private sector banks.
(page 63 of 10 J
Table No:-3.1.5
Basic Data about the 14 Nationalized Banks as on 31^' December 1969
Bank
Deposits & Loan & credit
Yr.of No. of Bill Adv.
NO Name of the Bank olh. Ace. discounted deposit Credit %
Est. office (Rs. In (Rs. In of deposit
(Rs. rn Cr.) (Rs. In Cr.)
Cr.)
Cr.)
1 Central Bank of India 19U 504 433 55 241 296 68.36
2 Bank of India 1906 250 395 34 219 253 64.05
3 Punjab National Bank 1894 544 356 34 175 209 58.71
4 Bankof Baroda 1903 338 314 30 100 196 62.42
5 United Commercial Bank 1943 323 241 39 105 144 59.75
6 Canara Bank 1906 302 146 21 74 97 66.44
7 United bank of India 1950 178 144 14 86 100 69.44
8 Dena Bank 1938 214 122 15 59 74 60.66
9 Union Bank of India 1919 213 115 18 51 69 60.00
10 Allahabad Bank 1865 128 113 7 63 70 61.95
11 Syndicate Bank 1925 254 112 12 59 71 63.39
12 Indian Overseas Bank 1936 188 93 24 34 58 62.37
13 Indian Bank 1907 190 85 14 13 57 67.06
14 Bank of Maharashtra 1935 140 73 4 46 50 68.49
TOTAL 3766 2742 321 1325 1744 63.79

Source: - B.Sinha (2007). Indian Banking & Economic Reforms. Classical publishing company. New Delhi. Page no. 35
It was clear from the table no. 3.1.5 that nationalized banks were of varied age
group, through most of them were of long standing. The oldest of these 14 was the
Allahabad bank which was opened in the year 1865 and the youngest was the United
bank of India 1950. In respect of number of offices Punjab national bank topped with
544 whereas Allahabad bank ranked the lowest with 128 offices in 14 banks. As
regards the deposits and credit, at the top was the Central of India with Rs. 433 crores
and 296 crores respectively, whereas at the bottom was Bank of Maharastra with Rs.
73 crores and Rs. 50 crores respectively.
tpflê 64 of 101
Table No:-3.1.6
(Period from 1971 to 1980) (Amount In Rs. Lakhs)
No of Commercial Populat Priorit
Banks No of banks offices in India ion Adva \'
Per Capital Deposits nces Sector
N Office Total Total to total to total to Adva
Year Non Capital Deposits nces
0 Sche RR Semi Metro Advances Assets assets assets total
Sched Rural Urban Total in
duled B Urban Poliian ratio ratio assets
uled total
ratio
Credit
1 1971' 81 0 16 NA NA NA NA NA NA 4703 770849 516149 942536 0.50 81.78 54.76 NA
2 1972 83 0 9 4817 4401 2504 1900 13622 41 4966 932186 573253 1108256 0.45 84.11 51.73 21
3 1973 83 0 9 5561 4751 2764 2286 15362 37 4984 1121282 731563 1376898 0.36 81.44 53.13 23.1
4 1974 83 0 9 6166 5116 3091 2563 16936 35 5081 1309992 848814 1635733 0.31 80.09 51.89 24.2
5 1975 83 0 9 6807 5598 3489 2836 18730 32 5262 156665! 1061672 2011985 0.26 77.87 52.77 25
6 1976 100 19 8 7690 6421 3998 3111 21220 29 6602 1972085 1380077 2512816 0.26 78.48 54.92 24.5
7 1977 126 48 7 9537 7248 4542 3475 24802 25 8482 2411311 1581330 3146830 0.27 76.63 50.25 25.9
8 1978 128 48 6 11806 7628 4843 3739 28016 23 8948 3046636 1947647 3987717 0.22 76.40 48.84 28.6
9 1979 136 56 5 13337 7889 5037 3939 30202 22 9709 3677034 2285078 4856293 0.20 75.72 47.05 30.9
1
1980 153 73 5 15105 8122 5178 4014 32419 21 10678 4398690 2726732 5823323 33
0 0.18 75.54 46.82
> 71 to 80 105 48 8 8980 6352 3938 3095 22367 29.44 6942 2120672 1365232 2740239 0.30 78.81 51.22 26.24
<
71 to 75 82 0 10 5837 4966 2962 2396 16162 36.25 4999 1140192 746290 1415082 0.38 81,06 52.86 23.33
O
76 to 80 128 48 6 11495 7461 4719 3655 27331 24.00 8884 3101151 1984173 4065396 0.23 76.55 49.58 28.58
Growth 46 48 -4 5658 2495 J 757 1259 11169 -12 3885 1960959 1237883 2650314 -0.i5 -4.50 -3.28 5.26
Growth -40.00 59.32
56.10 96.93 50.24 52.55 69.11 -33.79 77.70 171.98 165.87 187.29 -39.89 -5.56 -6.21 22.53
Rate
Source:-
1. http://www.rbi.org.in/scripts/BankingIndicatiorsDwaspiay.aspx?Id=26. Page No.5-7.(accessed on Date;- 28/07/2014)
2. http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/bs72-95-l.pdf. Page. No.1-2 (accessed on Date:-28/07/2014)
Note:- Data not available (Data compiled and calculated)
(poQe 65 of 101
Table No. 3.1.6 showed following inferences raised.
I. In the year of 1971 to 75 averaged scheduled commercial banks were 82
which were increased to averaged 128 in the year 1976 to 80, whereas the
growth rate was about 56.10% in this tenure.
II. Regional rural banks were established under the provisions of an
ordinance passed on 26 September 1975 and the RRB Act. To provide
sufficient banking and credit facility for agriculture and other rural
sectors. These were set up on the recommendations of the Narasimham
Working group. The development process of RRBs started 2 October
1975 with the forming of the first RRB, the Prathama Bank^'. There were
19 regional rural banks in the year 1976 which was continuously
increased to 73 in the year 1980.
III. In the year 1971 to 75 averaged non scheduled banks were about 10
which were decreased average to 6 in the year 1976 to 80; whereas the
growth rate was negative about 40% in this tenure. This was happened
because more string amendment made in banking regulation act and RBI
was given more power to regulate unviable banks by liquidation and
amalgamation. Now more and more people were trusted on
nationalization banks.
IV. The main objective of nationalization was financial inclusion of common
people and particularly in India because more than 70% population used
to stay in rural area. It was necessary to develop the banking habit among
such a large population and it was seen in table no. 6. In the year 1971 to
75 averaged rural branches were 5837 which was increased to averaged
11495 in the year of 1976 to 80. The growth rate was about 96.93 in this
tenure. In semi urban area it was 4966 increased to 7461 and growth rate
was about 50.24% respectively.
V. The number of branches was increased in urban and metro-politan cities
also this was seen also in table no.6. The number of bank branches in
urban and metro-politan was respectively 2962 and 2396 which was
increased to averaged 7462 and 4719 in the year 1976 to 80. The
percentage wise increased was about 59% and 52% respectively. The total
number of bank branches was increased by about 69 % in the year 1976
to 80 compared with the year 1971 to 75.
âge 66 of 101
VI. The year 1971 witnessed the estabhshment of another institution, the
credit guarantee corporation of India Ltd (CGCI). The main objective of
CGCI was to persuade banks to make available credit to hither to
neglected sectors and weaker section. In 1978, the DIG and the CGCI
were merged to form the Deposit Insurance and Credit Guarantee
Corporation (DICGC)".
VII. In a large country like India the numbers of banks existing these days
were certainly inadequate. It was necessary to spread banking across the
country. It could be done through expanding banking network in the
unbanked area. Providing banking facilities to more and more people was
showed in table no.6. In the year 1971 to 75 averaged 36 thousand
populations per office which was reduced to 24 thousand populations per
office in the year of 1976 to 80. The growth rate was negative with good
sign about 33.33 in this tenure.
VIII. The capital, deposits and advances took a huge jump by average 78 %,
172 % and 165 % respectively in the year 1976 to 80 compared to the
year 1971 to 75. Banking in the sunshine of government ownership gave
the public implicit faith and immense confidence about the sustainability
of these institutions.
IX. It was examined that the capital to total assets ratio showed decreasing
trends (except the year 1977) in all the years under study. In 1971 to 75
an average percentage was 0.38 %, which was decreasing to 0.23 % in
1976 to 80, whereas the growth rate was negative about 39.89%. The
continue decreasing in capital was not good sign for economic health of
banks.
X. It was examined that the deposits to total assets ratio showed decreasing
trends (except the year 1972, 1976) in all the years under study. In 1971
to 75 an average percentage was 81.06 %, which was decreasing to 76.55
% in 1976 to 80, whereas the growth rate was negative about 5.56%.
XL It was observed that the advances to total assets ratio showed fluctuating
trends in all the years under study. In 1971 to 75 an average percentage
was 52.86 %, which was decreasing to 49.58 % in 1976 to 80, whereas
the growth rate was negative about 6.21%.
(Page 67 of 101
XII. In India, the agriculture sector and its allied activities were the largest
contributor to the rural income. Thus these were labeled as the priority
sectors. But unfortunately they were deprived of their due share in the
credit. After nationalization was urgently needed for catering fiinds to
them. This was seen also in table no.6. In the year 1971 to 75 about 23%
share of priority sector advances in total credit which was increased to
about 29% in the year 1976 to 80. The growth rate was positive about
XIII. A good result of nationalization was seen in this tenure to government, so
its took nationalization another 6 private banks which have deposits more
than 200 crores in the year of 1980. These banks are;
i. Andhra bank
ii. Corporations bank
iii. New bank of India
iv. Oriental bank of commerce
v. Punjab and Sindh bank
vi. Vijaya bank.
Establishment of regional rural banks and Credit Guarantee Corporation of
India further nationalized of 6 more private banks were main reward of this tenure.
(Page 68 of 101
Table No:-3.1.7
{Period from 1981 to 1990) (Amount In Rs. Lakhs)
No of Commercial Banks No of banks offices in India Priorit
Deposit Adva y
Popul Capital nces Sector
s to
N Non ation Capital Total Total to total to Adva
Year Sched Semi Metro Deposits total
0 RRB Sche Rural Urban Total Per Advances Assets assets total nces
uled Urban Politan Office assets
dnied ratio assets in
ratio
ratio total
Credit
1 1981 75 102 5 17656 8471 5454 4126 35707 19 12560 5327024 3405415 7110821 0.18 74.91 47.89 35.60
2 1982 81 121 4 20401 8809 5693 4274 39177 18 18837 6191603 4009729 8423998 0.22 73.50 47.60 36.40
3 1983 81 142 4 22686 9081 5917 4395 42079 17 17403 7365609 4618015 9705208 0.18 75.89 47.58 36.10
4 1984 81 162 4 25380 9326 6116 4510 45332 16 18390 8695376 5525781 11564348 0.16 75.19 47.78 38.10
5 1985 81 183 4 30185 9816 6578 4806 51385 15 65080 10321341 6235537 13675240 0.48 75.47 45.60 39.90
6 1986 79 193 4 29703 10585 7209 5790 53287 14 106173 12248194 7167179 16034097 0.66 76.39 44.70 41.00
7 1987 79 196 4 30209 10637 7218 5795 53859 15 126606 14128293 8140482 18808274 0.67 75.12 43.28 42.90
8 1988 78 196 4 31114 11132 7322 5842 55410 14 NA NA NA NA NA NA NA 43.80
9 1989 78 196 4 33014 11166 7524 5995 57699 14 169335 17349211 10632744 24700304 0.69 70.24 43.05 42.60
10 1990 74 196 4 34791 11324 8042 5595 59752 14 207368 18204686 10954122 26369301 0.79 69.04 41.54 40.70
SI to 90 78 168 4 27513 10034 6707 5112 49368 15.60 82417 11092371 6743223 15154621 0.45 73.97 45.45 39.71
81 to 85 79 142 4 23261 9100 5951 4422 42736 17 26454 7580190 3405415 10095923 0.24 74.99 47.29 37.22
m 86 to 90 77 195 4 31766 10%8 7463 5803 56001 14 152371 15482596 10954122 21477994 0.70 72.70 43.14 42.20
Growth -2 53 0 8505 1868 1512 1381 13265 -2.80 125917 7902406 7548707 11382071 0.46 -2.29 -4.15 4.98
Growth Rate 20.53 25.41 31.23 -16.47
-2.53 37J2 0.00 36.56 31.04 475.98 104.25 221.67 112.74 187.91 -3.06 -8.77 13.38
Source :-
l.http://www.rbi.org.in/scripts/BankingIndicatiorsDwasplay.aspx?ld=26. PageNo.2-3.{accessed on Date:-28/07/2014)
2. hltp://rbidocs.rbi.org.in/rdocs/Publications/PDFs/bs72-95-l.pdf. Page No.2-3 (accessed on Date:- 28/07/2014)
Note:- Data Not Available, (Data compiled and calculated)
âge 69 of 101
Table No. 3.1.7 showed following conclusions.
I. Tight policy of RBI to opening new banks and branch directly impacted on
number of commercial banks which was averaged 79 in the year of 1981-85
reduced to 77 in the year of 1986-90. The growth rate was negative about
II. The number of RRB was averaged 142 in the year of 1981-85 increased to 195
in the year of 1986-90. The growth rate was about 53% in this tenure.
III. The number of non scheduled commercial banks was 4 which were same for
all the year except highest number of 5 in the year of 1981. This had showed
that no single new private sector banks could give permission to do business in
entire tenure of 10 years.
IV. In the year of 1981-85 rural branches were averaged 23261 which were
increased to averaged 31766 in the year of 1986-90. The growth rate was
about 36.56% in this tenure. In semi urban area it was 9100 increased to
10968 and growth rate was about 20.53% respectively.
V. The nimiber of bank branches in urban and metro-politan was 5951 and 4422
in the year of 1981-85 which was increased to averaged 7463 and 5803 in the
year 1986 to 90. The growth rate was about 25% and 31% respectively. The
total number of bank branches was increased by about 31 % respectively.
VI. In the year 1981-85 averaged 17 thousand populations per office which was
reduced to 14 thousand populations per office in the year of 1986 to 90. The
growth rate was positive about 16.47% in this tenure.
VII. The capital, deposits and advances took a huge jump by average 476 %, 104 %
and 222 % respectively in the year of 1986-90 to companies to the year of
1981-85.
VIII. It was examined that the capital to total assets ratio showed fluctuating trends
in all the years under study but it was continue increasing after the year of
1984. In 1981 to 85 an average percentage was 0.24 %, which was increasing
to 0.70 % in 1986 to 90, whereas the growth rate was about 187.91 %.
IX. It was examined that the deposits to total assets ratio showed fluctuating trends
in all the years imder study. In 1981 to 85 an average percentage was 74.99
%, which was decreasing to 72.70 % in 1986 to 90, whereas the growth rate
was negative about 3.06 %.
(page 70 of 101
X. It was observed that the advances to total assets ratio showed decreasing
trends (except the year 1984) in all the years under study. In 1981 to 85 an
average percentage was 47.29 %, which was decreasing to 43.14 % in 1986 to
90, whereas the growth rate was negative 8.77 %.
XL Agriculture sector, small scale business, exports, employment generates
village industry and its allied activities which was called priority sector could
get more and more share in total credit. In 1981-85 about 37% share of
priority sector in total credit which was increased to about 42% in 1986-90.
Major Controls Introduced: 1967 to 1991
> 1967 social control over banks aimounced in December 1967.
> 1968 National Credit Council (NCC) was set up in February 1968 to assist
the Reserve Bank and the government to allocate credit according to plan
priorities.
> 1969 fourteen banks with deposits of over Rs. 50 crore were nationalized.
> 1969 the lead bank scheme was introduced with a view to mobilizing deposits
on a massive scale throughout the country and also for stepping up lending to
the weaker sections.
> 1972 concept of priority sector was formalized. Specific targets were set out
in 1974 for public sector banks and in 1978 for private sector banks. The
differential rate of interest (DRI) scheme was instituted in 1972 to cater to the
needs of the weaker sections of the society and for their \ipUftmcnt. In 1973
the district credit plans were initiated and a minimum lending rate was
prescribed on all loans, except for the priority sector.
> 1975 banks were required to place all borrowers with aggregate credit limit
from the banking system in excess of Rs. 10 lakh on the fu^t method of
lending, whereby 25 percent of the working capital gap, i.e., the difference
between current assets and current liabilities, excluding banks finance, was
required to be funded from long-term sources.

(Page 71 of 101
> 1976 the maximum rate for bank loans was prescribed in addition to the
minimum lending rate.
>• Six banks with demand and time liabilities greater than Rs. 200 crore have
been nationalized as on march 14, 1980.
> 1988 service area approach (SAA) was introduced, modifying the Lead bank
scheme.
> 1989 the CRR was gradually raised from 5 percent in June 1973 to 15 percent
by July 1989.
> 1991 the SLR was raised by 12.5 percentage points from 26 percent in
February 1970 to 38.5 percent in September 1990^^.
The process of expansion in the banking network in terms of geographical
coverage and heightened controls affected the quality of banks assets and strained
their profitability. In response to these developments, a number of measures were
undertaken in the mid 1980s for consolidation and diversification and to some extent,
deregulation of the financial sector. A series of small steps were initiated towards
liberalization in several sectors of the economy in the mid-1980s.
1. Quota and ceilings were relaxed and there was liberalization of imports.
2. Flexibility to banks in the matter of interest rates charged to their borrowers.
3. Banks were permitted to undertake merchant banking activities through
subsidiaries.
4. The government decided to contribute a siun of Rs. 2,000 crore for allocating
among 20 nationalized banks during the seventh five year plan 85-90.
5. Health code system was introduced in 1985, which classified bank loans
according to their performance^'*.
(Page 72 of 101
Table No:-3.1.8
(Period from 1989-90 to 1994-95) (Amount in Rs. Crorc)
Noof
Comme Advanc
rcial No of banks offices in India Capital Deposits
Populat es to Priority
N Banks Total Total to total to total
Year ion Per Capital Deposits
Advances assets assets
total Sector
0 Sched
Non
Semi Metro Office Assets assets Advance
RRB Sche Rural
Urban
Urban
Politan Total ratio ratio
ratio s in tola]
uled
duled Credit
1 1989-90 74 196 4 34791 11324 8042 5595 59752 14 2430 206438 128146 292770 0.83 70,51 43.77 40.70
2 1990-91 76 196 4 35206 11344 8046 5624 60220 14 3256 237006 147204 335830 0.97 70.57 43.83 37.70
3 1991-92 76 196 4 35269 11356 8279 5666 60570 14 4167 271365 163814 350166 1.19 77.50 46.78 37.10
4 1992-93 76 196 4 35389 11465 8562 5733 61149 14 4988 309286 177998 395638 1.26 78.17 44.99 34.40
5 1993-94 76 196 4 35329 11890 8745 5839 61803 15 10685 358140 173370 446941 2.39 80,13 38.79 36.50
6 1994-95 85 196 3 33004 13341 8868 7154 62367 15 16346 417259 214805 529876 3.08 78,75 40.54 33.70
89-9010
77 196 3 34831 11786 8423 5935 60976 14.33 6978 299915 167556 391869 1.62 75.94 43.12 36.68
> 94-95
1
o
89-90 to
91-92
92-93 to
75 196
196
4
3
35088
34574
11341
12232
8122
8725
5628
6242
60180 14 3284 238269
361561
146387
188724
326255 1.00
2.24
72,86 44.79 38.50
94-95
79 61773 15 10673 457484 79,02 41.44 34.87
Growth 4 0 -1 -514 891 603 614 1593 0.67 7389 123292 42337 131229 1.25 6,16 -3.35 -3.63
Growth
5.33 0.00 -25 -1.46 7.86 7.42 10.91 2.65 4.76 225 51.74 28.92 40.22 125.08 8.4S -7.49 -9.44
Ratt(%)
So urce:-
rile:///F:/Pb.D/tbeory%20on%20bankmânkmg%20theory/6466.pdf (accessed on Date:- 18/08/2015)
https://rbidocs.rbi.org.iti/rdocs/PubIications/PDFs/21183.pdf(accessed on Date:-18/08/2015)
http://\vww.rbi.org.ln/scripts/BankinglndicatiorsDwasplay.aspx?ld=27. Page No.3.(accessed on Date:- 28/07/2014)
(Data compiled and calculated)
âge 73 of 101
Table No. 3.1.8 showed following conclusions.
It was a paradigm shift as banking sector reforms introduced from 1991 its make
sea change in Indian banking sector. New private sector banks started to publish
their reports from 1995-96, so real impact of liberalization on banking sector
was seen from 1995-96, table no. 3.1.8 was prepared for six year started from 1989-
90 to 1994-95.
I. In the period of 1989-90 to 91-92 averaged scheduled commercial banks were

75 which were increased to averaged 79 in the period of 1992-93 to 94-95.
The growth rate was about 5.33 %.
II. The number of regional rural banks was 196 in all years.
III. In the period of 1989-90 to 91-92 averaged non scheduled banks were about 4
which were decreased average to 3 in the period 1992-93 to 94-95. The growth
rate was negative about 25 %.
IV. In the period of 1989-90 to 91-92 averaged rural branches were 35088 which
were decreased to averaged 34574 in the period of 1992-93 to 94-95, whereas
the growth rate was negative about 1.46 %. In semi urban area it was 11341
increased to 12232, whereas the growth rate was about 7.86 %.
V. The number of bank branches in urban and metro-politan was respectively
8122 and 5628 in 1989-90 to 91-92 which was increased to averaged 8725 and
6242 in the period of 1992-93 to 94-95 whereas the growth rate was about 7%
and 11% respectively. The total number of bank branches was increased by
about 3 %.
VI. In the year 1989-90 averaged 14 thousand populations per office which was
stable in remaining period but when see table the number increased to 15
thousand in last two years, this was the sign of liberalizing policy to close
unviable branch.
VII. In the period of 1989-90 to 91-92 about 39% share of priority sector advances
in total credit which was decreased to about 35% in the period of 1992-93 to
94-95.
VIII. The capital, deposits and advances increased by average about 225 %, 52 %
and 29 % respectively in the period of 92-93 to 94-95 compared to the period
of89-90 to 91-92.
<Page 74 of 101
IX. It was examined that the capital to total assets ratio showed increasing trends
in all the years under study. In 1989-90 to 91-92 an average percentage was
1.00 %, which was increasing to 2.24 % in 1992-93 to 94-95, whereas the
growth rate was about 125 %.
X. It was examined that the deposits to total assets ratio showed increasing trends
(except the year 1994-95) in all the years under study. In 1989-90 to 91-92 an
average percentage was 72.86 %, which was increasing to 79.02 % in 1992-93
to 94-95, whereas the growth rate was about 8.45 %.
XI. It was observed that the advances to total assets ratio showed fluctuating
trends in all the years under study. In 1989-90 to 91-92 an average percentage
was 44.79 %, which was decreasing to 41.44 % in 1992-93 to 94-95, whereas
the growth rate was negative about 7.49 %.
3.2:- A brief review of Indian banks after Liberalization,
Privatization and Globalization:-
This the era of transformation of highly regulated to liberalization, public
sector to private sector and closed economy to globalized economy. This is the new
starting era of new private sector banks and foreign banks. New private sector banks
publish their armual reports from 1995-96. Therefore researcher makes two tables
first 1995-96 to 2004-05 and second 2005-06 to 2014-15 to review the growth and
development of the banking groups in India. With this two tables more eight tables
also prepared in each decade to review the non performing assets, interest incomes,
non interest incomes, incomes, expenses, priority sector lending, capital adequacy,
statutory liquidity, cash reserve of six different groups.
(page 75 of 101
Table No:-3.2.1
Number of Banks, Capital, Deposits, advances, assets and ratios
(Period fro m 1995-96 to 2004-05) (Amount in Rs. Crore)
No of Commercial Banks No of banks office in India Priority
Popul Capital E)eposiis Ad\'ances
N ation Total Toul to total to total to total Sector
Non Capnal Deposits Advances
o Sche Semi Metro Per Advances Assets assets assets assets
Year RRB Sche Rural Urban Total in total
dukd Urban Politan Office ratio ratio ratio
duled Credit
1 1995-96 95 196 2 32995 13561 9086 7384 63026 15 16706 471816 259495 618136 32.8
6.44 181.82 238 21
2 1996-97 101 196 2 32915 13766 9340 7529 63550 15 17283 555740 283543 697112 34.8
5.10 196,00 245 86
3 1997-98 103 196 1 32878 13980 9597 7763 64218 15 20657 666309 333607 824975 34.6
6 19 199 73 247 29
4 1998-99 106 196 1 32857 14168 9898 8016 64939 15 19582 797879 380129 986368 35.3
5.J5 209,90 259,48
5 1999-2000 101 196 0 32734 14407 10052 8219 65412 15 20570 932533 455896 1152604 36.8
4.51 204.55 252.82
6 2000-01 100 196 5 32562 14597 10293 8467 65919 15 21144 1093527 540733 1344570 35,5
3.91 202.23 248.66
7 01-02 98 196 4 32380 14747 10477 8586 66190 16 23616 1247239 663453 1592315 34.8
3.56 187.99 240.00
S 02-03 93 196 5 32303 14859 10693 8680 66535 16 23676 1405205 760167 1759246 34.6
3.11 184.85 231.43
9 03-04 90 196 5 32121 15091 11000 8976 67188 16 24543 1631825 888670 2045214 37,1
2 76 183.63 230.14
10 04-OS 88 196 4 32082 15403 11500 9370 68355 16 28202 1899699 1182627 2433380 36.7
2.38 160.63 205,76
95-96 to 04-05 97 196 2 32582 14457 10193 8299 65533 15.40 21597 1070177 574831 1345392 4.41 191.13 239.97 35.30
>
<
m
95-96 to 99-00 101 196 1 32875 13976 9594 7782 64229 15,00 18959 684855 342534 855839 5 68 198.40 248 73 34.86
?O
m 00-01 to 04-05 93 196 4 32289 14939 10792 8815 66837 15.80 24235 1455499 807129 1834945 3.15 183.87 231.20 35.74
Gto wth -8 0 3 -586 963 1198 1033 2608 0.80 5276 770644 464595 979106 -2.53 -14,53 -17,53 0,88
G n >wtb Ralc(%) -7.91 0.0 300 -1.78 6.89 12.49 13.27 4.06 5.33 27.83 112.53 135.63 114.40 -44.59 -7.32 -7.05 2.52
Source:-file:///F:/Ph.D/theory%20on%20banking/banking%20theory/6466.pdf (Accessed on Dale:-18/8/15)

https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/21183.pdf {Accessed on Date:-18/8/15)
http://rbidocs.rbi.org.in/rdocs/Publications/DOCs/Tl lBSRV370909.xls (Accessed on Date:-25/8/15)
Note: - (Data compiled and calculated) Data not available.
(page 76 of 101
Table No. 3.2.1.1 following conclusions have been drawn.
I. In the period of 1995-96 to 99-2000 averaged scheduled commercial banks
were 101 which were decreased to averaged 93 in the period 2000-01 to 04-
05, whereas the growth rate was negative about 7.92 %.
11. The numbers of regional rural banks were 196 in all years.
III. In the period of 1995-96 to 99-2000 averaged non scheduled banks was about
1 which were increased average to 4 in the period 2000-01 to 04-05, whereas
the growth rate was about 300 %.
IV. In the period of 1995-96 to 99-2000 averaged rural branches were 32875
which were decreased to averaged 32289 in the period of 2000-01 to 04-05,
whereas the growth rate was negative about 1.78 %. In semi urban area it was
13976 increased to 14939, whereas the growth rate was about 6.89 %.
9594 and 7782 in 1995-96 to 99-2000, which was increased to averaged
10792 and 8815 in the period of 2000-01 to 04-05, whereas the growth rate
was about 12.49 % and 13.27 % respectively. The total number of bank
branches was increased by about 4.06 %.
VI. In the year 1995-96 to 99-2000 averaged 15 thousand populations per office
which was increased to 15.80 thousand in 2000-01 to 04-05.
VII. The capital, deposits and advances increased by average about 28 %, 113 %
and 114 % in the period of 2000-01 to 04-05 compared to the period of 1995-
96 to 99-2000.
VIII. It was examined that the capital to total assets ratio showed decreasing trends
(except the year 1997-98) in all the years under study. In 1995-96 to 99-2000
an average percentage was 2.29 %, which was decreasing to 1.35 % in 2000-
01 to 04-05, whereas the growth rate was negative about 40.96 %.
IX. It was observed that the deposits to total assets ratio showed fluctuating trends
79.72 %, which was slightly decreasing to 79.48 % in 2000-01 to 04-05,
whereas the growth rate was negative about 0.31 %.
X. It was examined that the advances to total assets ratio showed fluctuating
trends in all the years under study. In 1995-96 to 99-2000 an average
percentage was 40.24 %, which was increasing to 43.43 % in 2000-01 to 04-
05, whereas the increasing percentage was about 7.94 %.
âge77ofl01
XI. In the period of 1995-96 to 99-2000 about 34.86% share of priority sector
advances in total credit which was sHghtly increased to about 35.74% in the
period of 2000-01 to 04-05, whereas the growth rate was about 2.52 %.
3.2.1 Indian Banks: Chansim Paradisms: First
Rationale of Banking Sector Reforms
Banking sector reforms were introduced to remove the deficiencies in the
banking sector. Following were the problen\s the Indian banking sector was facing
prior to the reforms:
• Highly regulated by the RBI.
• Eroded productivity and efficiency of public sector banks.
• Continuous losses suffered by public sector banks year after year.
• Increasing NPAs.
• Deteriorating portfolio quality.
• Poor customer service.
• Obsolete work technology.
• Inability to face the competitive environment.
Hence, need of the hour was to introduce some policies to remove the above
said deficiencies. So, in the light of above distortions, Narasimham Committee was
appointed in 1991 and it submitted its report by November 1991, with detailed
measures to improve the adverse situation of the banking industry. The main motive
of the reforms was to improve the operational efficiency of the banks to further
enhance their productivity and profitability.
NARASIMHAM COMMITTEE
FIRST PHASE SKCOND PHASE

(1991) (1998)
First Phase of Banking Sector Reforms
The first phase basically contained:
I. Reduction in SLR and CRR.
II. Deregulation of interest rates.
III. Transparent guidelines or norms for entry and exit of private sector banks.
(page 78 of 101
IV. Public sector banks allowed for direct access to capital markets.
V. Branch licensing policy liberalized.
VI. Setting up of Debt Recovery Tribunals.
VII. Asset classification and provisioning.
VIII. Income recognition.
IX. Asset Reconstruction Fund (ARF), and
X. At least 40 % of the total advances for the priority sector.
The first phase of banking sector reforms, termed as 'Curative' measures,
came up with the main objective to improve the operational efficiency of the banks.
Although first phase of banking sector reforms witnessed revealed improvement in
the performance of the banks, yet competition also increased with liberalization,
privatization and globalization. With better use of technology, new entrants were able
to spur competition, but public sector banks suffered as they were not using the
technology to a large extent mainly due to opposition from trade imions and high
initial costs of installation.
Second Phase of Banking Sector Reforms
In spite of the optimistic views about the growth of banking industry in terms
of branch expansion, deposit mobilization etc, several distortions have still crept into
the system which were enumerated as follows:
• Increasing competition.
• Increasing NPAs and
• Obsolete technology.
Hence, while observing above distortions, the Government of India appointed
the second Narasimham Committee under the chairmanship of Mr. M Narasimham in
1998 to review the first phase of banking reforms and chart out a programme for
further reforms necessary to strengthen India's financial system so as to make it
internationally competitive. This situation arose mainly due to the global changes
occurring in the world economy, which has made each industry very competitive.
The committee reviewed the performance of the banks in light of first phase of
reforms and submitted its report with some repaired and some new recommendations.
There were no new recommendations except the following.
• Merger of strong units of banks, and
• Adaption of the 'narrow banking' concept to rehabilitate weak banks.
(Page 79 of 101
As the process of second banking reforms was going on since 1999, it has
proved improvement in the performance of banks and on the other side; many
changes have come occurred due to the entry of new banks into the global market.
Since a decade of banking sector reforms has been completed, it was essential
to review the various issues of banking sector reforms, especially its post reforms'
impact on NPAs interest income, non-interest income, capital adequacy, priority
sector advances and SLR & CRR. This study was mainly concerned with the efficacy
of banking sector reforms, major weak area need to be further considered and some
possible reforms need to be added in third reforms^^.
The present study was concerned with the performance of Indian banking
industry under reforms to analyze the efficacy of banking sector reforms. The
universe for the study was Indian banking industry. Six major bank groups as defined
by RBI were taken for the study. These bank groups were:
• SBI and its associates
• Nationalized banks
• Old private sector banks
• New private sector banks
• Foreign banks
The present study was concerned mainly with post-second banking sector reforms
period i.e. fi-om 1995-96 to 2004-05 and 2005-06 to 2014-15. Various ratios were
examined to analyze the efficacy of the banking reforms.
I. Gross NPAs as percentage of Gross Advances
II. Net NPAs as percentage of Net Advances
III. Interest Income as percentage of Total Income
IV. Non-Interest Income ad percentage of Total Income
V. Interest Paid as percentage of Total Expenditure
VI. Priority Sector Advances as percentage of Total Advances
VII. Capital Adequacy Ratio
VIII. SLR & CRR
(Page SO of 101
Table No:-3.2.1.1
Gross NPAs to Gross Advances (Percent)
fRs. In Lakhl
OLD NEW
N SBI & ITS NATION PRIVAT PRIVAT FOREIGN Mean
o
YEAR ASSOCEAT ALISED E E BANKS (INCL Mean STDEV CV.
ES BANKS BANKS BANKS RRBS)
1 2 3 4 5 6 7
10 11 12
( 3 to 8) (3 to 7)
1 95-96 13.97 19.86 8.29 2.53 3.54 9.64 9.64 7.29 75.67
2 96-97 15.3 19.89 8.98 3.75 8.33 11.25 11.25 6.34 56.39
3 97-98 15.52 17.69 10.66 4.89 13.35 \2A2 12.42 4.95 39.86
4 98-99 NA NA NA NA NA NA NA NA NA
7 2001-2002 9.35 12.25 12.26 7.24 18.97 12.01 12.01 4.43 36.85
8 2002-2003 7.55 10.85 10.48 6.06 20.39 11.07 11.07 5.58 50.47
9 2003-2004 5.44 8.48 8.28 4.17 15.97 8.47 8.47 4.58 54.10
10 2004-2005 3.95 5.71 6.54 4.05 12.7 6.59 6.59 3.59 54.46
> Mean 10.15 13.53 9.36 4.67 13.32

<
m 95-96 to 99- 14.93 19.15 9.31 3.72 8.41
2000
o 2000-01 to
6.57 9.32 9.39 5.38 17.01
04-05
Growth -8.36 -9.82 0.08 1.66 8.60
Growth Rate
-55.98 0.86 44.49 102.31
51.31
STDEV 4.80 5.68 1.90 1.56 5.91
CV. 47.23 41.94 20.36 33.46 44.40
Source:-
http.7/rbidocs.rbi.org.in/rdocs/Publications/DOCs/HS2302nFS.xls
(Accessed on Date:-t7/08/15)
N.A.:- Not Available
Gross NPAs to Gross Advances: It was examined that the gross NPAs to gross
advances (percent) showed fluctuating trends in all the banks groups and years under
study. It was the least in case of new private sector banks i.e. 4.67 % in entire period.
The highest average decreasing by about 56 % in the year of 2000-01 to 04-05 in
relation to the year of 95-96 to 99-2000 in case of SBI & its associates followed by
nationalized banks with 51 %, opposite highest increasing in the case of foreign banks
i.e. 102 % followed by new private sector banks with 44 % where as variations in
terms of c.v. was maximum in case of SBI & its associates i.e. 47 %.
In the year of 1995-96 an average percentage of gross NPAs to gross advances
were 9.64 %, which decreasing to 6.59 % in 2004-05, whereas variations in terms of
c.v. was maximum in the year of 1995-96 i.e. 75.67 %.
(page SI of 101
Table No:-3.2.1.2
Net NPAs to Net Advances (Percent)
fRs. In Lakh)
SBl & ITS NATION OLD NEW
PRIVA PRIVAT FOREIGN Mean
No YEAR ASSOCIAT AUSED RRB (INCL Mean STDEV C.V.
ES TE E BANKS
BANKS BANKS BANKS RRBS)
1 2 3 4 9(3 to 10(3
5 6 7 8 11 12
8| to 7)
1 95-96 7.57 10.23 4.56 1.05 1.62 NA 5.01 5.01 3.91 78.12
2 96-97 8.71 10.41 5.29 2.83 5.52 NA 6.55 6.55 3.00 45.82
3 97-98 8.95 9.21 6.25 3.40 6.10 NA 6.78 6.78 2.39 35.19
4 98-99 9.22 8.67 8.02 4.45 6.40 NA 7.35 7.35 1.94 26.34
5 99-2000 7.68 7.47 6.78 3.77 7.33 NA 6.61 6.61 1.62 24.52
6 2000-2001 6.90 7.56 7.47 3.49 7.98 NA 6.68 6.68 1.82 27.31
7 2001-2002 5.11 6.60 7.22 4.49 13.04 NA 7.29 7.29 3.40 46.57
8 2002-2003 3.48 5.04 5.87 4.00 9.30 NA 5.54 5.54 2.30 41.48
9 2003-2004 1.22 3.31 4.04 2.25 7.57 NA 3.68 3.68 2.42 65.89
10 2004-2005 1.40 2.19 2.93 2.06 3.78 NA 2.47 2.47 0.91 36.85
> Mean 6.02 7.07 5.84 3.18 6.86 NA

<
95-96 to
8.43 9.20 6.18 3.10 5.39 NA
99-2000
o 2000-01 to
m 3.62 4.94 5.51 3.26 8.33 NA
04-05
Growth -4.80 -4.26 -0.67 0.16 2.94 NA
Growth Rate -46.29
-57.01 -10.91 5.10 54.51 NA
(%)
STDEV 3.05 2.81 1.63 1.12 3.08 NA
C.V. 50.61 39.73 27.96 35.20 44.94 NA
Source:-
http://rbidocs.rbi.org.in/rdocs/Publications/DOCs/HS230211 FS.xls Date:-17/08/15
(Data compiled £ind calculated)
N.A.:- Data not available
Net NPAs to Net Advances: Its showed the trends in Net NPAs to net
advances reflecting fluctuating trends in all the banks groups and years under study.
It was the least in case of new private sector banks i.e. 3.18 % in entire period. The
highest average decreasing by about 57.01 % in 2000-01 to 04-05 in relation to 95-96
to 99-2000 in the case of SBI & its associates followed by nationalized banks with
46.29 %. Opposite the highest increasing in the case of foreign banks i.e. 54.51 %
whereas variations in terms of C.V. was maximum in case of SBI & its associates
with 50.61%.
In 1995-96 average ratio was 5.01 % with 78.13 % co-efficient of variations,
and decreased half to 2.47 % in 2004-05.
(Page 82 of 101
Table No> 3.2.1.3
Interest Income as Percentage of Total Income (Percent)
fRs. In Lakh)
SBI& NATION OLD
NEW FOREIG Mean
No YEAR ITS ALISED PRIVA STDE
PRIVATE N RRB (INCL Mean C.V.
ASSOCI BANKS TE V
BANKS BANKS RRBS)
ATES BANKS
1 2 3 4 5 6 7 8 9( 3 to 8) lOOtoTt II 12
1 95-96 83.21 89.15 86.92 87.06 81.65 94.08 85.60 3.07

87.01 3.59
2 96-97 85.59 89.46 89.47 83.92 81.55 95.17 86.00 3.48
87.53 4.04
3 97-98 85.28 88.40 88.02 77.59 77.99 95.07 83.46 5.31
85.39 6.37
4 98-99 85.61 89.56 89.35 86.88 80.84 95.60 87.97 86.45 3.55 4.11
5 99-2000 85.81 8838 87.13 82.41 79.16 95.01 86.32 84.58 3.76 4.45
6 2000-2001 86.40 88.84 88.69 86.00 79.03 95.06 87.34 85.79 3.99 4.66
7 2001-2002 86.56 85.50 81.16 79.24 74.84 93.35 83.44 81.46 4.77 5.86
8 2002-2003 83.63 83.32 79.25 76.09 74.50 92.61 81.57 79.36 4.13 5.20
9 2003-2004 78.95 79.97 79.44 76.08 69.09 88.82 78.73 76.71 4.52 5.89
10 2004-2005 82.29 83.95 87.63 76.65 70.35 92.35 82.20 80.17 6.77 8.44
> Mean 84.33 86.65 85.71 81.19 76.90 93.71
<
95-96 to
85.10 88.99 88.18 83.57 80.24 94.99
> 99-2000
D 2000-01 to
83.57 84.32 83.23 78.81 73.56 92.44
04-05
Growth -1.53 -4.67 -4.94 -4.76 -6.68 -2.55
Growth Rate
-1.80 -5.25 -5.61 -5.70 -8.32 -2.68
STDEV 2.37 3.30 4.09 4.58 4.53 2.06

C.V. 2.81 3.80 4.77 5.64 5.89 2.20
Source:-
http://rbidocs.rbi.org.in/rdocs/PubUcations/DOCs/HS230211 FS.xls
(accessed on Date:-17/08/15)
Interest Income to Total Income: It's revealed that all the bank groups showed
fluctuating trend in share of interest income in the total income in all the years under
study. It was the highest in case of RRB i.e. 93.71 %, in entire period. All the bank
groups' showed decreasing growth in 2000-01 to 04-05 compared to 95-96 to 99-
2000. It was the least decreasing by about 1.80 % in case of SBI & Its associates
followed by RRBs with 2.68 %. Opposite side highest decreasing in the case of
foreign banks i.e. 8.32 %, whereas variations in terms of C.V. were maximum in case
of foreign banks 5.89 %.
In the year of 95-96, an average percentage of Interest income to Total income
was 87.01 %, which decreased to 82.20 % in 04.05.
<Page 83 of 101
Table No:-3.2.1.4
Non Interest Income as Percentage of Total Income (Percent)
Rs. In Lakh^
SB1& NEW
ITS NATION OLD PRIVA FOREI Mean
No YEAR ALISED PRIVATE STDE
ASSOCl TE GN RRB ([NCL Mean C.V.
BANKS BANKS RRBS) V
ATES BANKS BANKS
I 2 3 6 9(3 to 10 (3 to
4 5 7 8 11 12
8) 7>
1 95-96 16.79 10.85 13.08 12.94 18.35 5.92 12.99 14.40 3.07 21.34
2 96-97 14.41 10.54 10.53 16.08 18.45 4.83 12.47 14.00 3.48 24.82
3 97-98 14.72 11.6 11.98 22.41 22.01 4.93 14.61 16.54 5.31 32.11
4 98-99 14.39 10.44 10.65 13.12 19.16 4.4 12.03 13.55 3.55 26.20
5 99-2000 14.19 11.62 12.87 17.59 20.84 4.99 13.68 15.42 3.76 24.38
6 2000-200 i 13.6 11.16 JJ.31 14 20.97 4.94 12.66 14.21 3.99 28.11
7 2001-2002 13.44 14.5 18.84 20.76 25.16 6.65 16.56 18.54 4.77 25.75
8 2002-2003 16.37 16.68 20.75 23.91 25.5 7.39 18.43 20.64 4.13 20.01
9 2003-2004 21.05 20.03 20.56 23.92 30.91 11.18 21.28 23.29 4.52 19.38
10 2004-2005 17.71 16.05 12.37 23.35 29.65 7.67 17.80 19.83 6.77 34.14
> Mean 15.67 13.35 14.29 18.81 23.10 6.29
< 95-96 to 99-
14.90 11.01 11.82 16.43 19.76 5.01
2000
O 2000-01 to
PI 16.43 15.68 16.77 21.19 26.44 7.57
04-05
Growth 1.53 4.67 4.94 4.76 6.68 2.55
Growth Rate (%) 10.30 42.45 41.82 28.97 33.78 50.90
STDEV 2.37 3.30 4.09 4.58 4.53 2.06
C.V. 15.11 24.70 28.61 24.33 19.60 32.82
Source:-
http://rbidocs.rbi.org.in/rdocs/Publications/DOCs/HS230211FS.xls
(Accessed on Date;-17/08/15)
(Data Compiled and calculated)
Non Interest Income to Total Income:

Reforms have led to diversification in the banking activities away from their
core intermediation business to fee-based services such as credit card transactions,
merchant banking etc. The rising share of non interest income to total income of all
the banks groups was manifest in table.
It revealed that all the banks groups showed fluctuating trend in share of non
interest income to the total income in all the years under study. It was the highest in
case of foreign banks i.e. 23.10 %, in the entire tenure. All the bank groups showed
increasing growth rate in 2000-01 to 04-05 compared to 95-96 to 99-2000. It was the
highest increasing by about 50.90 % in case of RRBs and its good for rural people
because they have got more financial services followed by nationalized banks with
42.45 % whereas variations in terms of C.V. was maximum in case of RRBs 32.82%.
In the year of 1995-96 an average percentage of non mterest income to total
income were 12.99 %, which increase to 17.80 %, in 2004-05.
iPage 84 of 101
Table No:-3.2.1.5
Interest Expenses as Percentage of Total Expenditure (Percent)
fRs. In Lakh)
OLD NEW
.N NATION FOREl Meab
ITS PRIVA PRIVA
YEAR ASSOC! ALISED GN RRB (INCL Mean STDEV C.V.
o TE TE
ATES BANKS BANKS RRBS)
BANKS BANKS
1 2 3 4 9(310 in (3 to
5 6 7 8 II 12
8) 7)
1 95-96 52.86 60.69 58.33 59.01 52.28 70.46 58.94 56.63 3.81 6.73
2 96-97 55.07 61.90 63.66 54.82 51.44 68.44 59.22 57.38 5.17 9.02
3 97-98 55.90 61.32 63.76 58.02 48.55 64.21 58.63 57.51 5.85 10.17
4 98-99 57.86 62.34 70.04 66.00 53.51 62.11 61.98 61.95 6.52 10.52
5 99-2000 58.50 62.37 64.45 60.52 48.28 61.87 59.33 58.82 6.29 10.70
6 2000-2001 58.17 60.49 63.27 62.07 48.13 61.04 58.86 58.43 6.06 10.38
7 2001-2002 59.33 58.76 58.72 57.55 46.71 59.87 56.82 56.21 5.35 9.52
8 2002-2003 55.68 53.58 55.97 60.64 42.06 59.10 54.51 53.59 6.94 12.95
9 2003-2004 48.95 47.10 51.85 53.87 32.83 53.96 48.09 46.92 8.30 17.68
10 2004-2005 46.41 47.24 53.16 48.43 31.00 51.43 46.28 45.25 8.38 18.53
> Mean 54.87 57.58 60.32 58.09 45.48 61.25
< 95-96 to 56.04 61.72 64.05 59.67 50.81 65.42
99-2000
om 2000-01 to
53.71 53.43 56.59 56.51 40.15 57.08
04-05
Growth -2.33 -8.29 -7.45 -3.16 -8.34
10.67
Growth Rate (%) A.\6 -13.43 -11.64 -5.30 -20.99 -12.75
STDEV 4.29 6.06 5.69 4.87 7.84 5.80

C.V. 7.81 10.52 9.44 8.39 17.24 9.47
Source:-
http://rbidocs.rbi.org.in/rdocs/Publications/DOCs/HS230211FS .xls
(Accessed on Date:-17/08/15)
Interest Expenses to Total Expenditure:

The more the deposits and borrowings more was the interest expenses. Now
a day it has decreasing due to decreasing interest rate, which again contributes to
reduction in total expenditure.
It was examined that the share of interest expenses in the total expenditure
showed fluctuating trends in all the banks groups and years under study. It was the
least in case of foreign banks i.e. 45.48 %, in entire tenure. The entire bank groups
showed decreasing rate in 2000-01 to 04-05 compared to 95-96 to 99-2000. The
highest growth rate was about 21 % in case of foreign banks followed by RRBs with
12.75 %, whereas variations in terms of C.V. were maximum in case of foreign banks
17.29%.
In 1995-96 an average percentage of interest expenses to total expenses were
58.94 % which decrease to 46.28 % in 04-05.
(Page 85 of 101
Table No:-3.2.1.6
Priority Sector Advances as Percentage of Total Advances (Percent)
(Rs. In Lakh)
SB1& NATrO OLD NEW
FOREIG Mean
ITS NALISE PRIVA PRIVA SIDE
No YEAR
ASSOCI D TE TE
N RRB (INCL Mean
V
c.v.
BANKS BANKS RRBS)
ATES BANKS BANKS
9( 310 8) lOOto
1 2 3 4 S 6 7 S II 12
7)
1 95-96 27.38 31.23 27.95 18.75 19.84 82.40 25.03 5.45

34.59 21.78
2 96-97 29.20 32.56 29,21 40.83 18.83 79.41 30.13 7.90
38.34 26.23
3 97-98 28.81 32.32 29.26 20.67 18.49 78.37 25.91 5.98
34.65 23.10
4 98-99 30.51 32.09 32.80 20.42 22.08 77.32 35.87 27.58 5.87 21.27
5 99-2000 29.15 31.65 33.79 17.02 21.38 76.18 34.86 26.60 7.12 26.77
6 2000-2001 29.07 31.53 32.09 15.69 21.12 73.43 33.82 25.90 7.20 27.79
7 2001-2002 28.89 31.66 30.20 NA 21.57 NA 28.08 4.49

28.08 15.97
8 2002-2003 28.94 33.74 30.17 17.23 21.91 NA 26.40 6.69
26.40 25.33
9 2003-2004 30.81 36.28 31.55 22.58 23.23 75.60 28.89 5.86
36.68 20.27
10 2004-2005 32.33 37.75 31.96 22.81 25.77 78.97 30.12 5.89
38.27 19.56
> Mean 29.51 33.08 30.90 21.78 21.42 77.71
<
m 95-96 10 99-
29.01 31.97 30.60 23.54 20.12 78.74
2000
> 2000-01 to
o 30.01 34.19 31.19 19.58 22.72 76.00
04-05
m
Growth 1.00 2.22 0.59 -3.96 2.60 -2.74
Growth Rate (%) 3.44 6.95 1.93 12.90 -3.47

16.83
STDEV 1.37 2.22 1.83 7.56 2.13 2.73
c.v. 4.63 6.70 5.93 34.72 9.94 3.51

Source :-
http://rbidocs.rbi.org.in/rdocs/Publications/DOCs/HS230211 FS.xIs
(Accessed on Date:-]7/08/15)
Priority Sector Advances: Priority sector advances to total advances ratio represents
the banks credit pattern in the priority sector against the given target by RBI i.e. 40 %
of the total advances (32 % in case of foreign banks).
It was examined that the priority sector advances to total income showed
fluctuating trends in all the bank groups and years under study. On an average, the
share of priority sector advances in the total advances was the highest in case of RRB
i.e. 77.71 % followed by nationalized banks with 33.08 %, whereas foreign banks
(page 86 of 101
showed the least share i.e. 21.42, variations in terms of c.v. was maximum in case of
new private sector banks 34.72 %.
In the year of 1995-96 an average percentage of priority sector advances to
total advances were 34.59 %, which increased to 38.27 % in 2004-05, co-efficient of
variation was maximum in 2000-01 i.e. 27.79 %.
It was examined that not even a single bank group have succeeded to meet the
target of RBI but still had somewhat rising contribution to this sector.
TableNo> 3.2.1.7
Capital Adequacy Ratios (Percent)
fRs. In Lakh)
NEW
SBl & ITS NATION OLD FORE I Mean
PRIVA
No YEAR ASSOCIA ALISED PRIVATE
TE
GN RRB (INCL Mean STDEV c.v.
TES BANKS BANKS BANKS RRBS)
BANKS
9 ( 3 to 10 {3 to
1 2 3 4 3 6 7 8 11 12
8) 7)
1 95-96 9.97 8.19 20.56 9.76 14.83 NA 12.66 12.66 5.07 40.03
2 96-97 10.44 8.70 11.07 18.30 13.82 NA 12.47 12.47 3.75 30.04
3 97-98 12.55 10.53 n.86 14.96 15.38 NA 13.06 13.06 2.07 15.83
4 98-99 11.89 10.95 12.55 13.32 44.22 NA 18.59 18.59 14.36 77.24
5 99-2000 12.06 11.14 12.60 13.56 31.50 NA 16.17 16.17 8.61 53.26
6 2000-2001 12.43 10.94 12.40 11.59 33.11 NA 16.09 16.09 9.53 59.23
7 2001-2002 12.96 10.81 13.38 12.12 36.80 NA 17.21 17.21 10.99 63.86
8 2002-2003 13.09 12.21 13.67 11.07 53.49 NA 20.71 20.71 18.35 88.64
9 2003-2004 13.02 13.18 14.54 12.05 42.30 NA 19.02 19.02 13.05 68.59
10 2004-2005 12.15 12.71 12.87 12.82 41.06 NA 18.32 18.32 12.71 69.39
> Mean 12.06 10.94 13.55 12.96 32.65 NA

<
95-96 to 99-
11.38 9.90 13.73 13.98 23.95 NA
2000
o 2000-01 to
12.73 11.97 13.37 11.93 41.35 NA
04-05
Growth 1.35 2.07 -0.36 -2.05 17.40 NA
Growth Rate
11.84 20.88 -2.59 72.66 NA
(%) 14.66
STDEV 1.06 1.58 2.64 2.36 13.83 NA
C.V. 8.83 14.48 19.50 18.24 42.35 NA

Source:-
http://rbidocs.rbi.org.in/rdocs/Publications/DOCs/HS230211FS.xls
(Page 87 of 101
Capital Adequacy:
Capital Adequacy ratio reflects the overall financial condition of the banks and
also their ability to meet the need for additional capital. An adequate capital bank was
essential for banks to absorb credit risk but in the pre-reform years, a large number of
banks were undercapitalized, as they were unable to add to their capital base by
increasing reserves due to decline profits. Since 1991, it was much below the
internationally accepted CRAR of 8 %. But after the reforms were introduced, a
target of 10 % CRAR in 2003-04 was fixed.
CRAR of all the banks groups was fluctuating trend in capital adequacy ratio
in all the years under study, but still met the target. It was the highest in case of
foreign banks i.e. 32.65 % in entire period, opposite least in case of old private sector
baiJis i.e. 10.94 %. Highest gro-wth rate was about 73 % in case of foreign bank in
2000-01 to 04-05 compared to 1995-96 to 99-2000 followed by nationalized banks
with 20.88 %, whereas variations in terms of c.v. was maximum in case of foreign
banks 42.35 %.
In 1995-96 an average percentage of capital adequacy ratio was 12.66 %
which was increased and almost half to 18.32 % in 2004-05.
In this tenure the impact of Narasimham committee suggestion have been
seen, establishment of new private sector banks like Axis bank, ICICI bank, HDFC
and foreign banks by relaxation in the nonns of foreign direct investment which
revitalized the banking sector in India.
3,2.2 Indian Banks: Chaneine Paradiems: Second
(page 88 of 101
Table No:-3.2.2.1
Progress of Commercial Banks of Indian Banking Sector at a Glance
(Period from 2005-06 to 2014-15) (Amount in Rs. Ciore)
No orcommerci*! Banks No orbant] ofTices in India Priorii)
Capiial Deposits
Advatices Sector
Non Population Total to total lo total
Schedul Send Metro Per Office Capital Deposits Total Assets lo lotat Ad\aiices
No Year RRB Sched RIMH Utban Total Adianc«s assers assets
ed Urban Poliian assets ratio in (oial
ratio ratio
Credit
1 05-06 85 133 4 30579 15556 12032 11304 69471 16.00 25207 2164682 1516811 2785863 0.90 77.70 54.45 37.20
2 06-07 83 96 4 30551 16361 12970 11957 71839 15.00 29559 2696937 1981236 3459962 0.85 77.95 57.26 36.50
3 07-08 80 91 4 31076 17675 14391 12908 76050 15.00 39964 3320062 2476936 4326166 0.92 76.74 57.25 34.90
4 08-09 80 86 4 31667 18969 15733 14178 80547 14.50 43289 4063201 2999923 5238642 0.83 77.56 57.27 34.80
5 09-10 83 82 4 32624 20740 17003 15026 85393 13.80 48619 4746919 3496719 6026925 0.81 78.76 58.02 35.10
6 10-11 83 82 4 33683 22843 17490 16247 90263 13.40 58975 5615874 4297487 7183398 0.82 78.18 59.83 34.50
7 11-12 87 82 4 36356 25797 18781 17396 98330 12.30 63664 6453548 5073559 8320890 0.77 77.56 60.97 32.90
8 12-13 87 64 4 39195 28165 19902 18175 105437 11.90 70310 7429532 5879702 9589952 0.73 77.47 61.31 34.30
9 13-14 89 57 5 45177 31442 21448 19213 117280 10.80 76067 8533173 6735213 10975929 0.69 77.74 61.36 35.70
10 14-15 92 56 4 48498 33703 22997 20474 125672 10.30 81871 9435101 7388179 12034182 0.68 78.40 61.39 37.20
05-06 to
> 14-15
84 82 4 35940 23125 17274 15687 92028 13.3 53752 5445902 4184576 6994190 0.80 77.81 58.91 35.31
<
05-06 to
09-10
82 97 4 31299 17860 14425 13074 76660 14.86 37327 3398360 2494325 4367511 0.86 77.74 56.85 35.70
O 10-11 t o
14-15
87 68 4 40581 28390 20123 18301 107396 11.74 70177 7493445 5874827 9620870 0.74 77.87 60.97 34.92
Growth 5 -29 0 9282 10530 5698 5227 30736 -3.12 32850 4095085 3380502 5253359 -0.12 0.13 4.12 -0.78
G r o w t h R a t e (*/•) 6.10 -29.90 0.0 29.66 58.96 39.50 39.98 40.09 -21.00 88.01 120.50 135.53 120.28 -14.44 0.16 7.25 -2.18
Source:- http://rbidocsTbi,org,in/rd(Ks/Ptjblications/DOCs/101T8FFE13CFlEF64832AlFB86BD8B16556D.XLS (accessed on Date:- 26/08/15)
file:///F:/Ph.D/theofy%20on%20banking/banking%20theor>/6466.pdf (accessed on Date:- 18/8/15)
https://rbidocs.rbi.org.iii/rdocs/Publications/PDFs/21183.pdf (accessed on Date:- 18/08/15)
hitp://rbidocsrbi.orgin/rdocs/Publications/DOCs/TllBSRV370909.xls (accessed on Date:-25/8/15)
http://rbidocs.rbi.org in/rdocs/Publications/DOCs/APB3009l2l3F.xls (accessed on Date- 25-08-2015 )
https://rbidocs,rbi,org.in/rdocs/Pubiications/PDFs/APB02091011F.pdf (accessedon Date:- 17/8/15)
http://rbidocs.rbi.org in/rdocs/Publications/DOCs/APRBBA2309I0,x]s {accessed on Date:- 26/8/15 ) (Page 89 of 101
Table No. 3.2.2.1 following conclusions have been drawn.
I. In the period of 05-06 to 09-10 averaged scheduled commercial banks were
82 which were increased to averaged 87 in the period of 10-11 to 14-15,
whereas the growth rate was positive about 6.10 %.
11. In the period of 05-06 to 09-10 averaged RRBs were 97 which were decreased
to averaged 68 in the period of 10-11 to 14-15, whereas the growth rate was
negative about 29.90 %.
III. The number of non scheduled banks was 4 in research period except 5 in the
year of 2013-14.
IV. In the period of 05-06 to 09-10 averaged rural branches were 31299 which
were increased to averaged 40581 in the period of 10-11 to 14-15, whereas the
growth rate was about 29.66 %. In semi urban area it was 17860 increased to
28390, whereas the growth rate was about 58.96 %.
14425 and 13074 in 05-06 to 09-10, which was increased to averaged 20123
and 18301 in the period of 10-11 to 14-15, whereas the growth rate was about
39.50 % and 39.98 % respectively. The total number of bank branches was
increased by about 40.09 %.
VI. In the year 05-06 to 09-10 averaged 14.86 thousand populations per office
which was decreased to 11.74 thousand in 10-11 to 14-15, whereas the growth
rate was negative which was good sign about 21.00 %.
VII. The capital, deposits and advances increased by average about 88 %, 120 %
and 135 % in the period 05-06 to 09-10 compared to the period of 10-11 to 14-
15.
VIII. It was examined that the capital to total assets ratio showed fluctuating trends
in all the years under study. In 05-06 to 09-10 an average percentage was 0.86
%, which was decreasing to 0.74 % in 10-11 to 14-15, whereas the growth rate
was negative about 14.44 %.
IX. It was observed that the deposits to total assets ratio showed fluctuating trends
77.74 %, which was shghtly increasing to 77.87 % in 10-11 to 14-15, whereas
the growth rate was about 0.16 %.
(Page 90 of 101
X. It was examined that the advances to total assets ratio showed increasing
trends in ah the years under study. In 05-06 to 09-10 an average percentage
was 56.85 %, which was increasing to 60.97 % in 10-11 to 14-15, whereas the
growth rate was about 7.25 %.
XI. In the period of 05-06 to 09-10 about 35.70 % share of priority sector
advances in total credit which was slightly decreased to about 34.92% in the
period lO-ll to 14-15,whereas the growth rate was negative about 2.18 %.
Table No:-3.2.2.2
Gross NPAs to Gross Advances (Percent)
fAmoi nt In • Vlillioni
SBI& NEW
NATION OLD FOREIG
N ITS PRIVA ST
YEAR ALISED PRIVATE N private Mean C.V.
o ASSOCl TE DEV
BANKS BANKS BANKS
ATES BANKS
10
1 2 3 4 5 6 7 8 (3 to 7)
11 12
1 2005-2006 3.37 3.92 4.45 1.67 1.98 2.50 3.08 1.21 39.42
2 2006-2007 2.63 2.74 3.21 1.92 1.79 2.23 2.46 0.59 24.12
3 2007-2008 2.61 2.07 2.28 2.54 1.77 2.51 2.25 0.34 15.14
4 2008-2009 2.49 1.75 2.34 3.10 3.90 2.94 2.71 0.82 30.11
5 2009-2010 2.74 1.97 2.25 2.93 4.37 2.79 2.85 0.93 32.56
6 2010-201! 3.06 1.92 1.97 2.37 2.59 2.29 2.38 0.47 19.82
7 2011-2012 4.19 2.55 1.83 1.98 2.74 1.94 2.66 0.94 35.23
8 2012-2013 4.55 3.30 2.26 1.82 3.03 1.84 2.99 1.05 35.22
9 2013-2014 5.10 4.20 1.97 1.79 3.97 1.83 3.41 1.46 42.80
10 2014-2015 4.39 5.42 2.78 1.99 3.29 2.15 3.57 1.35 37.77
05-06 to
> 3.51 2.99 2.53 2.21 2.94 2.30
< 14-15
m 05-06 to
2.77 2.91 3,31 2.04 1.85 2.41
09-10
O lO-II to
m 4.26 4.81 2.38 1.89 3.63 1.99
14-15
Growth 1.49 1.89 -0.94 -0.16 1.78 -0.42
Growth Rate (%) 53.78 64.95 -28.22 -7.62 96.52 -17.47
STDEV 0.96 1.21 0.79 0.50 0.94 0.38
C.V. 27.33 40.46 31.12 22.67 31.88 16.63
Source:-http://dbie.rbi.org.in/DBIE/dbie.rbi?site=publications#!4
{accessed on Date:-31/12/15) (For advances)
http://dbie.rbi.org.in/OpenDocument/opendoc/openDocument.jsp
(accessed on Date:-31/12/15) (ForGNPA)
Gross NPAs to Gross Advances: It was examined that the gross NPAs to gross
advances (percent) showed fluctuating trends in all the banks groups and years under
study. It was the least in case of new private sector banks i.e. 2.21 % in entire period.
The highest negative growth rate about 28.22 % in the year of 10-11 to 14-15 in
relation to the year of 05-06 to 09-10 in case of old private sector banks followed by
new private sector banks with 7.62 %, opposite highest increasing in the case of
foreign banks i.e. 96.52 % followed by nationalized banks with 64.95 % where as
variations in terms of c.v. was maximum in case of nationalized banks i.e. 40.46 %.
1'age93ofl01
In the year of 2005-06 an average percentage of gross NPAs to gross advances
were 3.08 %, which was increasing to 3.57 % in 2014-15, whereas variations in terms
of c.v. was maximum in the year of 2013-14 i.e. 42.80 %.
Table No:-3.2.2.3
Net NPAs to Net Advances (Percent)
(Amount In ' vlillionl
SBI&
NATION OLD NEW FOREIG
ITS
No YEAR
ASSOCI
ALISED PRIVATE PRIVATE N PRIVATE Mean STDEV c.v.
BANKS BANKS BANKS BANKS
ATES
I 2 4 6 7 10 (3 to
3 5 8 11 12
7)
1 2005-2006 1.63 1.16 1.73 0.77 0.83 l.Ol 1.22 0.45 36.37
2 2006-2007 1.32 0.94 0.95 0.96 0.73 0.97 0.98 0.21 21.54
3 2007-2008 1.43 0.77 0.65 1.19 0.77 1.09 0.96 0.33 34.44
4 2008-2009 1.47 0.68 0.87 1.40 1.81 1.29 1.24 0.46 37.29
5 2009-2010 1.50 0.91 0.76 1.09 1.82 1.03 1.22 0.44 36.00
6 2010-2011 1.49 0.92 0.49 0.56 0.67 0.56 0.83 0.40 48.87
7 2011-2012 1.76 1.44 0.58 0.42 0.61 0.46 0.96 0.60 62.02
8 2012-2013 2.04 2.00 0.91 0.45 1.01 0.52 1.28 0.71 55.22
9 2013-2014 2.67 2.51 0.96 0.57 1.09 0.66 1.56 0.96 61.68
10 2014-2015 2.23 3.23 1.41 0.76 0.54 0.89 1.63 1.11 68.04
05-06 to
> 1.75 1.46 0.93 0.82 0.99 0.85
14-15
< 05-06 to
1.47 0.89 0.99 1.08 1.19 1.08
09-10
o 10-11 to
2.04 2.02 0.87 0.55 0.78 0.62
14-15
Growth 0.57 1.13 -0.12 -0.53 -0.41 -0.46
Growth Rate (%) 38.51 126.74 -12.25 -49.10 -34.40 -42.73
STDEV 0.43 0.86 0.38 0.33 0.47 0.28
C.V. 24.60 58.75 40.94 40.82 47.28 33.10
Source:-
http://dbie.rbi.org. in/DBIE/dbie.rbi?site=publications#!4
(Accessed on Date:-31/12/15) (for advances)
http;//dbie.rbi.org.in/OpenDocument/opendoc/openDocument.jsp
(Accessed on Date:-31/12/15) (for NNPA)
Net NPAs to Net Advances: It's showed the trends in net NPAs to net advances
reflecting fluctuating trends in all the banks groups and years imder study. It was the
least in case of new private sector banks i.e. 0.82 % in entire period. The highest
negative growth rate about 49.10 % in 10-11 to 14-15 in relation to 05-06 to 09-10 in
the case of new private sector banks followed by foreign banks with 34.40 %.
Opposite the highest increasing in the case of nationalized banks i.e. 126.74 %
whereas variations in terms of C.V. was maximum in case of nationalized banks with
58.75 %.
In the year of 2005-06 an average percentage of net NPAs to net advances
were 1.22 %, which increasing to 1.63 % in 2014-15, whereas variations in terms of
c.v. was maximum in the year of 2014-15 i.e. 68.04 %.
(Page 92 of 101
Table No:-3.2.2.4
Interest Income as Percentage of Total Income (Percent)
(Amount In " Million)
SB1& NEW
NATION OLD
ITS PRIVA FOREIGN ST
No YEAR ALISED PRIVATE
TE
PRIVATE Mean C.V.
ASSOC I BANKS BANKS BANKS DEV
ATES BANKS
1 2 3 4 5 6 7 8 10 (3 to 7) II 12
1 2005-2006 83.81 87.74 87.70 78.48 69.59 81.32 81.46 7.64 9.38
2 2006-2007 85.02 88.59 86.91 78.15 71.79 80.10 82.09 6.99 8.52
3 2007-2008 85.63 87.18 86.21 79.25 69.75 80.67 81.61 7.32 8.97
4 2008-2009 84.73 87.45 87.32 81.47 67.06 82.65 81.61 8.49 10.40
5 2009-2010 84.19 87.21 86.56 78.30 72.62 80.22 81.78 6.21 7.59
6 2010-2011 85.09 89.92 86.56 80.45 72.62 80.22 82.93 6.69 8.07
7 2011-2012 88.96 91.28 90.56 82.49 76.76 84.31 86.01 6.23 7.24
8 2012-2013 89.24 91.35 90.59 83.15 79.00 84.82 86.67 5.36 6.19
9 2013-2014 89.02 91.13 90.79 82.34 77.24 84.21 86.10 6.09 7.08
10 2014-2015 87.98 90.80 89.83 82.06 77.20 83.70 85.57 5.78 6.76
> 05-06 to 14-15 86.37 89.27 88.30 80.61 73.36 82.22
<
m
05-06 to 09-10 84.80 87.74 87.04 79.34 69.55 81.19
om 10-11 to 14-15 88.06 90.90 89.67 82.10 76.56 83.45
Growth 3.26 3.16 2.63 2.76 7.02 2.26
Growth Rate (%) 3.85 3.60 3.02 3.47 10.09 2.79
STDEV 2.17 1.81 1.90 1.93 4.00 1.92
C.V. 2.52 2.02 2.16 2.40 5.45 2.33
Source:-
(accessed on Date:-31/12/15)
Interest Income to Total Income:
It's revealed that all the bank groups showed fluctuating trend in share of
interest income as percentage of total income in all the years under study. It was the
highest in case of nationalized banks i.e. 89.27 %, in entire period. The highest
growth rate was about 10.09 % in case of foreign banks followed by SBI & Its
associates with 3.85 %, whereas variations in terms of C.V. were maximum in case of
foreign banks 5.45 %.
In the year of 05-06, an average percentage of Interest income to Total income
was 81.46 %, which decreased to 85.57 % in 14-15., whereas variations in terms of
C.V. was maximum in the year of 2008-09 i.e. 10.40 %.
(Page 93 of 10}
Table No:-3.2.2.5
Non Interest Income as Percentage of Total Income (Percent)
(Amount In ' Million)
SB1& OLD NEW
NATIONA
ITS PRIVAT PRIVAT FOREIGN PRIVAT ST
No YEAR LISED Mean C.V.
ASSOCI E E BANKS E DEV
BANKS
ATES BANKS BANKS
1 10 (3 to
2 3 4 5 6 7 8 7)
11 12
1 2005-2006 16.19 12.26 12.30 21.52 30.41 18.68 18.54 7.64 41.23
2 2006-2007 14.98 11.41 13.09 21.85 28.21 19.90 17.91 6.99 39.05
3 2007-2008 14.37 12.82 13.79 20.75 30.25 19.33 18.39 7.32 39.81
4 2008-2009 15.27 12.55 12.68 18.53 32.94 17.35 18.39 8.49 46.15
5 2009-2010 15.81 12.79 13.44 21.70 27.38 19.78 18.22 6.21 34.07
6 2010-2011 14.91 10.08 13.44 19.55 27.38 19.78 17.07 6.69 39.21
7 2011-2012 11.04 8.72 9.44 17.51 23.24 15.69 13.99 6.23 44.52
8 2012-2013 10.76 8.65 9.41 16.85 21.00 15.18 13.33 5.36 40.24
9 2013-2014 10.98 8.87 9.21 17.66 22.76 15.79 13.90 6.09 43.86
10 2014-2015 12.02 9.20 10.17 17.94 22.80 16.30 14.43 5.78 40.08
> 05-06 to 14-15 13.63 10.73 11.70 19.39 26.64 17.78
< 05-06 to 09-10 15.32 12.37 13.06 20.87 29.84 19.01
O
10-11 to 14-15 11.94 9.10 10.33 17.90 23.44 16.55
Growth -3.38 -3.27 -2.73 -2.96 -6.40 -2.46
Growth
-22.07 -26.41 -20.87 -14.21 -21.46 -12.93
Rate (%)
STDEV 2.17 1.81 1.90 1.93 4.00 1.92
C.V. 15.95 16.83 16.27 9.96 15.00 10.80
Source:-
(accessed on Date;-31/12/15)
Non Interest Income to Total Income:
It revealed that all the banks groups showed fluctuating trend in share of non
interest income to the total income in all the years under study. It was the highest in
case of foreign banks i.e. 26.64 %, in the entire tenure. All the bank groups showed
negative growth rate in 10-11 to 14-15 compared to 05-06 to 09-10. The lowest
negative growth rate was about 14.21 % in case of new private sector banks followed
by old private sector banks with 20.87 % whereas variations in terms of C.V. was
maximum in case of nationalized banks 16.83 %.
In the year of 2005-06 an average percentage of non interest income to total
income were 18.54 %, which decrease to 14.43 %, in 2014-15, whereas variations in
terms of C.V. was maximum in the year of 2008-09 i.e. 46.15 %.
âge 94 of 101
Table No:-3.2.2.6
Interest Expenses as Percentage of Total Expenditure (Percent)
(Amount In " Million)
SB1& NATIO OLD NEW
PRIVA FOREI
No YEAR ITS NALISE PRrVA ST
ASSOCl D TE GN PRIVATE Mean C.V,
TE DEV
ATES BANKS BANKS BANKS BANKS
1 2 3 4 5 6 7 8 10 (3(0 7) 11 12
1 2005-2006 64.02 67.25 64.11 67.97 64.41 46.80 65.55 1.90 2.90
2 2006-2007 67.10 71.78 71.36 68.31 49.54 68.20 65.62 9.20 14.03
3 2007-2008 73.78 77.31 74.59 62.93 50.60 70.53 67.84 11.09 16.35
4 2008-2009 75.46 78.80 76.08 71.42 51.04 72.34 70.56 11.23 15.91
5 2009-2010 72.37 78.13 76.08 67.77 51.04 72.34 69,08 10.83 15.68
6 2010-2011 69.69 75.31 74.20 64.94 45.80 67.43 65.99 12.00 18.19
7 2011-2012 73.08 80.66 77.48 70.04 52.91 71.83 70.84 10.82 15.27
8 2012-2013 74.13 81.31 78.23 70.77 56.71 72.57 72.23 9.55 13.23
9 2013-2014 72.83 80.74 76.80 70.25 58.03 71.87 71.73 8.63 12.04
10 2014-2015 73.16 80.51 76.19 69.36 59.44 71.00 71.73 7.99 11.14
> 05-06 to 4-15 71.56 77.18 74.51 68.38 53.95 68.49
<
ra
05-06 to 09-10 70.55 74.65 72.44 67.68 53.33 66.04
O
m 10-11 to 14-15 72.58 79.71 76.58 69.07 54.58 70.94
Growth 2.03 5.05 4.14 1.40 1.25 4.90
Growth
2.88 6.77 5.71 2.06 2.35 7.42
Rate (%)
STDEV 3.56 4.57 4.13 2.67 5.57 7.82
C.V. 4.98 5.92 5.55 3.91 10.32 11.42
Source:-
{Accessed on Date:-31/12/15)
Interest Expenses to Total Expenditure:
It was examined that the share of interest expenses in the total expenditure
showed fluctuating trends in all the banks groups and years under study. It was the
least in case of foreign banks i.e. 53.95 %, in entire tenure. The entire bank groups
showed increasing rate in 10-11 to 14-15 compared to 05-06 to 09-10. The highest
growth rate was about 6.77 % in case of nationalized banks followed by old private
sector banks with 5.71 %, whereas variations in terms of C.V. were maximum in case
of foreign banks 10.32%.
In the year of 2005-06 an average percentage of interest expenses in the total
expenditure were 65.55 %, which increase to 71.73 %, in 2014-15, whereas variations
in terms of C.V. was maximum in the year of 2010-11 i.e. 18.19%.
(page 95 of 101
Table No:-3.2.2.7
Priority Sector Advances as Percentage of Total Advances (percent)
(Amount In' Million)
SBI& NATIO FOREIG
OLD NEW
No YEAR ITS NALISE PRIVATE ST
PRIVATE PRIVATE N Mean C-V.
ASSOC 1 D DEV
BANKS BANKS BANKS
AXES BANKS
I 2 3 4 5 6 7 8 10 (3 to 7) 11 12
1 2005-2006 31.71 33.08 36.18 26.87 32.64 30.08 32.10 3.37 10.49
2 2006-2007 31.58 27.44 31.17 34.69 31.55 32.97 31.28 2.58 8.23
3 2007-2008 29.27 29.58 27.78 33.16 30.30 34.54 30.02 1.98 6.60
4 2008-2009 30.76 30.62 29.40 30.87 31.22 36.23 30.57 0.69 2.26
5 2009-2010 29.45 31.56 35.81 30.76 33.93 31.90 32.30 2.55 7.90
6 2010-2011 32.03 29.92 34.69 29.08 32.69 30.38 31.68 2.24 7.07
7 2011-2012 30.02 28.32 31.64 28.28 31.55 29.08 29.96 1.65 5.50
8 2012-2013 27.26 28.33 31.81 25.88 29.37 27.28 28.53 2.24 7.86
9 2013-2014 26.00 29.57 35.39 25.93 29.39 28.04 29.26 3.85 13.17
10 2014-2015 25.43 31.02 36.80 25.40 27.30 27.77 29.19 4.83 16.55
> 05-06 to 14-15 29.35 29.94 33.07 29.09 30.99 30.83
<
05-06 to 09-10 30.55 30.46 32.07 31.27 31.93 33.14
o lO-n to 14-15 28.15 29.43 34.06 26.91 30.06 28.51
Growth -2.41 -1.02 2.00 -4.36 -1.87 -4.64
Growth
-7.88 -3.36 6.22 -13.93 -5.85 -13.99
Rate (%)
STDEV 2.38 1.70 3.12 3.22 1.95 3.02
C.V. 8.12 5.66 9.45 11.07 6.29 9.81
Source:-
http;//dbie.rbi.org.in/DBIE/dbie.rbi?site=publications#!4
Priority Sector Advances:

It was examined that the priority sector advances to total income showed fluctuating
trends in all the bank groups and years under study. On an average, the share of priority
sector advances in the total advances was the highest in case of old private sector banks
i.e. 33.07 % followed by foreign banks with 30.83 %, variations in terms of c.v. was
maximum in case of new private sector banks 11.07 %.
In the year of 2005-06 an average percentage of priority sector advances to total
advances were 32.10 %, which decreased to 29.19 % in 2014-15, co-efficient of variation
was maximum in 2014-15 i.e. 16.55 %.
It was examined that not even a single bank group have succeeded to meet the target
of RBI.
<Page 96 of 101
Table No:-3.2.2.8
Capital Adequacy Ratio (Percent)
On Percent)
SBI& NATIO NEW
OLD PRIVA FOREIG ST
ITS NALISE PRIVA C.V,
No YEAR PRIVATE N Mean DEV
ASSOCI D IE TE
BANKS BANKS
ATES BANKS BANKS
10(3
1 2 3 4 5 6 7 8 11 12
to 7)
1 2005-2006 11.96 12.30 11.33 11.96 41.84 11.49 17.88 13.40 74.95
2 2006-2007 12.23 12.29 13.95 12.47 39.25 13.52 18.04 11.88 65.86
3 2007-2008 12.56 11.84 15.78 14.12 37.00 15.27 18.26 10.58 57.97
4 2008-2009 13.34 13.14 16.29 15.34 59.58 15.99 23.54 20.19 85.79
5 2009-2010 13.51 13.19 16.24 17.40 57.17 16.61 23.50 18.91 80.45
6 2010-2011 12.94 13.49 17.84 16.34 64.09 17.84 24.94 21.98 88.13
7 2011-2012 13.26 12.89 14.18 16.20 87.00 14.89 28.71 32.61 113.60
8 2012-2013 12.01 12.19 13.73 16.55 75.19 14.72 25.93 27.60 106.41
9 2013-2014 11.37 23.41 13.36 15.80 54.92 14.22 23.77 18.00 75.71
10 2014-2015 11.53 19.88 13.28 15.10 61.75 13.92 24.31 21.16 87.04
> 05-06 to 14-15 12.47 14.46 14.60 15.13 57.78 14.85

<
05-06 to 09-10 12.72 12.29 11.33 11.96 41.84 11.49
o
m 10-11 to 14-15 12.22 19.88 13.28 15.10 61.75 13.92
Growth -0.49 7.58 1.95 3.14 19.90 2.43
Growth Rate (%) -3.89 61.68 17.21 26.26 47.57 21.14
STDEV 0.77 3.91 1.91 1.78 15.82 1.76
C.V. 6.15 27.03 13.06 11.75 27.39 11.86
Source:-
http://dbie.rbi.org.in/OpenDocument/opendoc/openDocunient.jsp
(Accessed on date 30/12/15)
Capital Adequacy:
CRAR of all the banks groups was fluctuating trend in capital adequacy ratio in all the
years under study, but still met the target. It was the highest in case of foreign banks i.e
57.78 % in entire period, opposite least in case of SBI & Its associates i.e. 12.47 %. The
highest growth rate was about 61.68 % in case of nationalized banks in 10-11 to 14-15
compared to 05-06 to 09-10 followed by foreign banks with 47.57 %, whereas variations in
terms of c.v. was maximum in case of foreign banks 27.39 %.
In 2005-06 an average percentage of capital adequacy ratios were 17.88 % which
was increased to 24.31 % in 2014-15.
<Page 97 of 101
Table No:- 3.2.2.9
Cash Reserve Ratio and Statutory Liquidity Ratio
(Percent)
N
YEAR CRR SLR
0
1 2 3 4
1 1991-92 15.00 38.50
2 1995-96 14.00 31.50
3 99-2000 8.00 25.00
4 2003-04 4.50 to 4.75 25.00
5 2007-08 6.25 to 7.50 25.00
6 2011-12 6.00 to 4.75 24.00
7 2014-15 4.00 22 to 21.50
Source:-
Report on Trend and Progress of Banking in India (various issues);
Macroeconomic and Monetary Developments, 2007-08 - Reserve
Bank of India
Indian Banking in the Globalised World page no :28
http://proflt.ndtv.com/news/economy/article-the-history-of-changes-
to-reverse-repo-rate-crr-slr-327497 From :- 2008 to 2014-15
SLR and CRR:

It represents the required percentage of the banks time and demand Habilities
that need to be reserved/deposited with the RBI on daily basis. Before the banking
sector reforms, it was much more and have blocked the bank's capital resuhing in a
ban to invest these funds in other better opportunities that might increase their
profitability. After that, it was reduced as recommended by the Narasimham
Committee, which improved the banks' fmancial and liquidity position. During the
banking sector reforms, CRR and SLR were continuously falling and due to this the
banks have more funds for credit to various sectors and they have more funds for
investment.
To sum up there were ample evidence that India was an origin of banking
industry, however modem banking industry invented in Europe particularly in Italy
and Greece. The period leading up to the independence was a difficult period for
Indian banks. A large number of small banks sprang up with low capital base,
although their exact number was not known. The organized sector consisted of the
Imperial Bank of India, joint-stock banks (which included both joint stock English
and Indian banks) and the exchange banks dealing in foreign exchange. During this
period, a large number of banks also failed. This was due to several factors. This
<Page 98 of 101
period saw the two worid wars and the Great Depression of 1930. Before
independence there were three main events in banking first was amalgamation of
three presidency banks in Imperial bank of India in 1921 second co-operative act in
1904 & 12 and third but most important was established of Reserve Bank of India in
1934-35. In earlier period mostly bank were developed in urban area, became
mushroom growth, because at that time no rules and regulation particularly banking
industry so far concern there was companies act passed in 1860 and amendments in
1913 and 1936 but they were not include sufficient clause about banks. So banking
industry developed scattered not with planned. Further there was complete absent of
banking service in rural area therefore poor farmers and craftsmen were go to
moneylenders, seth, chatti and goldsmith for loan this type of bankers who lent
money to farmers but take extravagant interest on principal so the situation of
villagers were miserable. Only co-operative institutions were help at that time in some
area at some amount. After independence nationalization era start with nationalization
of RBI in 1948, nationalization on Imperial bank of India in 1954 and its associates in
1959, nationalization of 14 and 6 private banks in 1969 and 1980 respectively, from
1948 to 1991 control banking system existed in India with social objectives after 1991
introduced with LPG new era started in banking industry with and change in objective
of banking industry and privatization. With privatization new private sector banks like
HDFC, ICICI, Yes etc, and so many foreign banks came in picture. New services
introduced in banking sector 24 hours of banking, computerization of banking, ATMs,
internet banking, mobile banking, payment bank.
(Page 99 of 101
REFERENCES:-
1. URL:http://rbi.org.in/scripts/publicationsview.aspx?id=10487. Page no. 1
(Accessed on Date 30/11/14)
2. B. Sinha, (2007), "Indian Banking & Economic Reforms", Classical
Publishing Company, New Delhi-2007, Page no. 2.
3. RitikaGauba, (2012) "The Indian banking industry Evolution,
Transformation & The road ahead", Pacific Business Review International,
Volume 5 Issue 1, July 2012, http://www.phr.co.in/julyseptissue/10.pdf
4. http://rbi.org.in/scripts/publicationsview.aspx?id=10487. Page no. 1
6. http://rbi.org.in/scripts/pubIicationsview.aspx?id=10487. Page no. 2
11. http://rbi.org.in/scripts/publicationsview.aspx?id=I0487. Page no. 5
12. http://www.gktoday.in/reference/reserve-bank-of-india/
13. http://www.authorstream.com/Presentation/rameeskabdulaziz-1624465-
banking-regulation-act-1949/(accessed on 5/6/2015)
14. http;//en.wikipedia.org/wiki/Banking_Regulation_Act,_1949
15. http://rbi.org.iii/scripts/publicationsview.aspx?id=10487. Page no. 8
(page 100 of 101

16. http://www.britannicaxorn/EBchecked/topic/1911903/State-Barik-oMiidia- -. . ;' i3
SBI (Accessed on Date 1/6/2015) \^\
17. http://rbi.org.in/scripts/publicationsview.aspx?id=10487. Pageno. 10 ^^'f „.".
18. http://www.gktoday.in/lead-bank-scheme/(accessed on 14/8/15)
Publishing Company, New Delhi-2007, Page no. 29-30.
20. http://rbi.org.in/scripts/publicationsview.aspx?id= 10487. Page no. 14
21. https://en.wikipedia.org/wiki/Regional. Page no. 1-3 (Accessed on 30/7/2015)
23. http://rbi.org.in/scripts/publicationsview.aspx?id=10487. Page no. 19-20
25. R.K. Uppal, (2008), "Indian Banking in the Globalised World", New Century
Publications, New Delhi, Page No. 16-18.
(page 101 of 101

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The content of this chapter is divided into the following sections.

3.1 A brief history of Indian banks Before Liberalization, Privatization and

3.2 A brief review of Indian banks After Liberalization, Privatization and

3.1 A brief history of Indian banks before Liberalization,

Privatization and Globalization :-

According to the Central Banking Enquiry Committee Report (1931), money

Kautilya's Arthashastra, dating back to 400 BC contained references to creditors,

Preston, member Royal Commission on Indian Currency and Finance (1926)

science of banking became an accomplished fact in England. An extensive network

moneylender finances mainly consumption". According to the Central Banking

Enquiry Committee Report(1931) "Opinions regarding these bankers were divided

some consider him as a wholly abominable, an unscrupulous usurer, a land grabber,

The concept of banking was first introduced in medieval Florence in 1397. A

very long way from those humble beginnings in Florence^.

The Banking 1949

of shareholders; supervise the appointment of the boards and management; regulate

include cooperative banks under its purview'**.

and erected banking regulation act 1949.

Decade wise tables were prepared to understand growth and development of

banking sector in India post independent period.

Chart No: 3.1.2.1

Banking After Independence in

FIRST PHASE SECOND PHASE THIRD PHASE

I 1951 466 4137 97383 64155 132861

56 TO 60 374 4106 169724 100299 218875 1.92 77.21 46.01

Growth -93 -21 67303 39184 84720 -1.19 0.68 0.41

Table no. 3.1.3 showed following conclusions.

Amal Capital Dqxisils Advance

Table no. 3.1.4 showed following inferences.

TOTAL 3766 2742 321 1325 1744 63.79

73 crores and Rs. 50 crores respectively.

ii. Corporations bank

iii. New bank of India

iv. Oriental bank of commerce

v. Punjab and Sindh bank

vi. Vijaya bank.

Establishment of regional rural banks and Credit Guarantee Corporation of

> 1967 social control over banks aimounced in December 1967.

the weaker sections.

prescribed on all loans, except for the priority sector.

required to be funded from long-term sources.

minimum lending rate.

been nationalized as on march 14, 1980.

February 1970 to 38.5 percent in September 1990^^.

The process of expansion in the banking network in terms of geographical

their profitability. In response to these developments, a number of measures were

liberalization in several sectors of the economy in the mid-1980s.

2. Flexibility to banks in the matter of interest rates charged to their borrowers.

3. Banks were permitted to undertake merchant banking activities through

according to their performance^'*.

their reports from 1995-96, so real impact of liberalization on banking sector

I. In the period of 1989-90 to 91-92 averaged scheduled commercial banks were

3.2:- A brief review of Indian banks after Liberalization,

Privatization and Globalization:-

This the era of transformation of highly regulated to liberalization, public

statutory liquidity, cash reserve of six different groups.

Source:-file:///F:/Ph.D/theory%20on%20banking/banking%20theory/6466.pdf (Accessed on Dale:-18/8/15)

FIRST PHASE SKCOND PHASE

• SBI and its associates

• Old private sector banks

• New private sector banks