Sri Sri University

Department Of Management Studies

Post-Graduation Diploma in Financial Markets

Assignment On

Evolution of Retail Banking

By
Sai Kailas Bale
Enrollment No: SSU-2021-00647
 Evolution of Retail banking In INDIA
India before independence had over 600 banks. Among them first was Bank
of Hindustan established in year 1770 in Calcutta. India’s first commercial bank
was Oudh Commercial Bank. Some banks established in 19 th century i.e. Allahabad
Bank (Est.1865) & Punjab national Bank (Est.1894) exist even today. Some other
banks such as Bank of Bengal, Bank of Madras, Bank of Bombay established in
mid-1800 were merged to one to become State Bank of India.
After Independence in 1969 Government of India decide to nationalize the
banks under Banking Regulations Act, 1949. A total of 14 banks were nationalized
including RBI. In between 1982 & 1990 Government of India created different
Banking Institutions with Specialized Functions such as NABARD (In 1982) to
support agriculture , EXIM (In 1982) to support Export and Import , National
Housing Board to finance housing projects , SIDBI to fund small scale industries.
From 1991 onwards there was huge change in Indian Economy.
Government Invited private investors to invest in India & 10 private banks were
approved by RBI few of the prominent banks are HDFC, ICICI, Axis Bank, DCB,
INDUSIND Bank. Foreign banks like HSBC, Citibank, and Bank of America set up
branches in India. Payments Banks came into existence. Banks began to digitalize
transactions.
The Nationalization of Banks was one of the most Significant events in
Evolution of Banks in India. It helped in increase in saving, Improve of efficiency,
boosted small scale industries.
Over the years, Indian banks have transformed the country's bleak financial
landscape to feed its growing economy. Even today, there is no doubt that the
Indian banking system is what keeps the country's economy afloat. A prime
example is the demonetization of currency notes in 2016. Existing currency notes
were demolished practically overnight, throwing the nation into chaos. Banks
helped the economy recover from the shock by allowing people across the
country to exchange the defunct banknotes. As the banking industry continues to
evolve in India, so does its ability to provide robust support to a nation that is
ever hungry for financial development.
 Evolution of Retail Banking in US
In 1791, Congress chartered the First Bank of the United States. The bank,
which was jointly owned by the federal government and private stockholders, a
nationwide commercial bank which served as the bank for the federal
government and operated as a regular commercial bank acting in competition
with state banks. Consequently, when First Bank of the United States' charter
came up for renewal in 1811. The Second Bank of the United States opened in
January 1817, six years after the First Bank of the United States lost its charter.
The predominant reason that the Second Bank of the United States was chartered
was that in the War of 1812, the U.S. experienced severe inflation and had
difficulty in financing military operations. Private banking exploded rapidly after
the war ended in 1815, culminating in the Panic of 1819.
To correct the problems of the "Free Banking" era, Congress passed
the National Banking Acts of 1863 and 1864, which created the United States
National Banking System and provided for a system of banks to be chartered by
the federal government. It established the Office of the Comptroller of the
Currency as part of the United States Department of the Treasury, authorizing it
to examine and regulate nationally chartered banks.
During the period from 1890 to 1925, the investment banking industry was
highly concentrated and dominated by an oligopoly that consisted of JP Morgan &
Co.; Kuhn, Loeb & Co.; Brown Brothers; and Kidder, Peabody & Co. Federal
Reserve System was created by the Federal Reserve Act of 1913, establishing a
new central bank intended serve as a formal "lender of last resort" to banks in
times of liquidity crisis—panics where depositors tried to withdraw their money
faster than a bank could pay it out.
The Banking Act of 1935 strengthened the powers of the Federal Reserve
Board of Governors in the area of credit management, tightened existing
restrictions on banks engaging in certain activities, and enlarged the supervisory
powers of the FDIC. Legislation passed by the federal government during the
1980s, such as the Depository Institutions Deregulation and Monetary Control
Act of 1980 and the Garn–St. Germain Depository Institutions Act of 1982,
diminished the distinctions between banks and other financial institutions in the
United States.
Due to the 2008 financial crisis, and to encourage businesses and high-net-worth
individuals to keep their cash in the largest banks , Congress temporarily
increased the insurance. With the passage of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, this increase became permanent as of July 21,
2010. The Dodd–Frank Wall Street Reform and Consumer Protection Act is the
most sweeping change to financial regulation in the United States since the Great
Depression, and represents a significant change in the American financial
regulatory environment affecting all Federal financial regulatory agencies and
affecting almost every aspect of the nation's financial services industry.

Evolution of Retail Banking in UK

The first significant changes in retail banking occurred after the
introduction of the telegraph in the early 1850s which made the process of
communication and information exchange faster. During the last quarter of the
19th century, banks were actively involved in the consolidation of branch
networks so that they could operate in a more integrated manner at regional
level, opening new offices and creating a structure of financial activities from
lending to exerting the control of customers. Financial services were then merely
restricted to routine operations and the formal provision of short term loans.
During the mid-1950s, banks became effectively depository institutions on a
mass-market scale, also reflecting a changed social structure. The enhancements
in speed of processing created the conditions for more frequent dealings with
customers, for new commercial agreements and generally for a wider and more

variegated plethora of competitive opportunities. During this phase the Database

Management System (DBMS) was developed to allow the integration of that body
of information that were to be processed so that data could become reliable and
easily accessible. The main applications stemmed from the DBMS were the
automation of the Clearing System (Morris, 1986) and of the retail money
transfer (Thomson, 1967; Mandell, 1990). These two events will soon reveal to be
key elements in the creation of a wider network since they stimulated the process
of convergence towards a set of technical standards in banking.
In 1965 IBM developed a magnetic strip on which data could be stored in
binary form to be used through plastic cards for electronic reading; in 1966
Barclays launched the first Credit Card in U.K.; two years later, Barclays installed
the first cash point in London, a machine that dispensed cash by means of a
token. The latter was soon to be replaced by plastic cards with a magnetic stripe

on them and the machines became Automated Teller Machines (ATM). During
this phase some degree of standardization took place with banks creating their
own local networks by developing technical advancements accomplished in the

fields of telecommunication and informatics. During (1980-1998), IT applications

spread in all aspects of the banking activity and the shortcomings of the isolation

in which banks operated were soon taken over. This, in turn, entailed issues in
relation to capacity, security and ability to transfer information in real time. The
answer to some of these problems was the Information Switching technology
(ITS), a UNIX based product which provides routing, packet-switching and device
control between members of the network.
The emergence of various new technical devices has profoundly shaped the
traits of the system and, particularly in the last part of the 1990s, this has often
resulted in a process of redistribution of the resources in terms of skills as well as
of habits of consumption. It is interesting to notice how the composition of the
overall transactions changed within the last decade in the U.K. together with the
joint process of dramatic changes some of the most common services are
undergoing. ATM old machines are being gradually replaced by new
multifunctional kiosks, which will make use of a new, fully integrated protocol of
transmission, EMMA. Customers can use a combination of ATMs and kiosks to
access traditional account and card services, withdraw cash, make cash deposits
in different currencies, and perform Internet-based transactions.
 Evolution of Retail Banking in Europe
The birth of the European Retail Banking Group is inextricably linked to the
birth of the European Union. Officially created on 23 April 1963 as the Savings
Banks Group of the European Economic Community, it was the brainchild of
German Savings Banks Association President Fritz Butschkau. He had served on
the European Economic and social Committee since its very first meeting in 1959
and felt it was imperative for Europe’s national saving associations to work more
closely together. The European project was well on its way and would result in a
new authority whose decisions would impact banking at national and local levels.
Savings banks had to get into the game early and band together in order to
influence the shape of the European project in terms of how it would govern and
take decisions that affected the savings bank sector. At the time, banking laws
and the legal forms of banks differed significantly across Europe.
Because the European Commission was going to harmonize the banking
sector, the Savings Banks Group of the EEC had to make plain the differences
between savings banks, commercial banks and cooperative banks. Its goal was to
defend savings banks' interests by making them heard at the Commission. One
gauge of its success is that as Europe grew, so did we: started with six founding
members in 1963; 50 years on, ESBG has 26 members in 23 countries. Thus the
original ESBG vision led to an association that not only served to defend,
strengthen, and integrate national savings banks associations into a "European"
savings and retail banking sector; it also helped Europe to integrate at a
fundamental level. For the strength of savings banks rests on the power of
people, namely, their customers. No other kind of bank works as closely with the
people whom it serves.
And no other kind of bank works more closely with the real economy.
Entrepreneurs, innovators, public authorities – regional and responsible savings
and retail banks are there to provide fuel to these drivers of the real economy.
Linking these drivers across Europe, and defending the interests of the savings
banks they use, brought the countries of Europe closer together and helped
integrate a crucial element of the banking sector – a sector whose integration
continues. A sector that is key to unlocking the full potential of Europe's real
economy.
he founding ESBG vision was prescient for another reason: it led to an
association that can, and must, play a role in a regulatory environment that is
influenced as never before by international institutions: the Basel Committee, the
G20, the IMF, the International Accounting Standards Board, and so on. So not
only has ESBG influenced the EU institutions but also the international institutions
that themselves influence EU regulatory decisions.
ESBG continues to influence policymakers on your behalf and to keep you
informed of EU legislative negotiations going on right now. Banking Union, SEPA,
and prudential measures – these are all critical issues in the evolution of new
banking environment and thus a huge element of ESBG's existence. Thus you can
see that far more of ESBG's history in fact lies ahead. ESBG has built its reputation
on a solid half-century of experience serving the savings and retail banking sector
in Europe and promoting its interests and crucial role in fuelling the real economy.

Evolution of Retail Banking in Russia

Banking in Russia is subject to significant regulations as banks in Russia
Federation have to meet mandatory Russian legislation requirements. Several
aspects of the banking arrangements after War Communism actually had close
antecedents in the institutions of Tsarist Russia. Prior to 1917, government
initiative frequently substituted for private initiative when it came to achieving
specific objectives of economic policy and creating the financial institutions
required to stimulate capital formation and economic growth.' Throughout the
eighteenth and most of the nineteenth centuries, the state provided capital and
credit for significant segments of the manufacturing and mining industries,
railroads, and utilities.
All of Europe's central banks, which, except for that of Sweden, were privately
owned prior to World War I, made important contributions to the development of
their countries' economic potential through direct lending to the private sector as
well as through discount operations. In numerous cases they facilitated the
financing of factories, railroads, and other facilities built in the national interest,
frequently with a view to their military value. But only Tsarist Russia's State Bank,
which had maintained its position as the leading source of commercial credit even
after becoming the bank of issue, consistently undertook credit operations in the
interest of economic development and in this connection frequently took credit
risks incompatible with normal business practice. The history of banking in Russia
prior to the revolution of 1917 unfolds as a succession of government efforts to
provide the country with a minimum of modern banking facilities—originally, to
carry on trade with foreign countries; later, to support the landed gentry, the
backbone of the nation's social and political structure; and ultimately, to develop
a modern industry and the requisite network of railroads and other
transportation and communication facilities.
Credit institutions other than commercial banks originating before the 1860's
were also sponsored either by the central government or by provincial and local
governments as part of a program formulated by the central government.
Modern banking came to Russia at the time of the liberation of the serfs in 1861,
just a few years earlier than the creation of the national banking system in the
United States. The restructuring of the Russian banking system followed the
financial crisis of 1857— 1859 and resulted in the liquidation of practically all
state credit and savings institutions. Commercial banking, which developed
rapidly in the last fifty years before the 1917 revolution, was to a considerable
extent subject to official tutelage, even though foreign participation in private
banking capital was significant. It was highly centralized; in the last few decades
preceding the revolution, fewer banks were in operation than in either the United
Kingdom or Germany. On the eve of World War I, twelve institutions accounted
for 79 percent of the assets of all commercial banks
A return to more conventional banking and credit practices was signaled by
the creation, in October 1921, of a new State Bank of the Russian Socialist
Republic, placed under the Commissariat of Finance. By the end of the year, the
State Bank had begun operations in several of the main cities and its network of
branches rapidly expanded in the following years. Abolition of inter-enterprise
credit in 1930 was a final step toward complete control by the planning
authorities over allocation of the means of production and inventories and
toward the reduction of credit to a purely implementary role.
In June 1987, a plenum of the Central Committee of the CPSUs took place, where
it was decided to improve the system. In July 1987, the Central Committee of the
CPSU and the "Council of Ministers of the USSR made Resolution No. 821 "On
improving the system of banks in the country and strengthening their impact on
improving the efficiency of the economy.
The creation of banks on a commercial basis was permitted by the Law "On
Cooperation in the USSR", adopted on May 26, 1988. The modern Russia
inherited the banking system of the Soviet Union, with a few big state banks
(like Sberbank, Vneshekonombank, and Vneshtorgbank). After more than 15 years
of reforms in Russia, there are now 1183 financial institutions with 3286 regional
branches. Beginning in early October 2008, several Russian banks failed due to
liquidity issues related to US credit derivatives. Russian bank Globex barred
customers from withdrawing money from their accounts on October 15, 2008, in
the first bank run of the current global economic crisis. Beginning in early October
2008, several Russian banks failed due to liquidity issues related to US credit
derivatives. Russian bank Globex barred customers from withdrawing money
from their accounts on October 15, 2008, in the first bank run of the current
global economic crisis.
 Evolution of Retail Banking in Asia-Pacific
Banks have continuously dominated financial systems across the Asia
Pacific region and played an important role in regional economic development.
After experiencing rapid growth during the 1990s, Asia Pacific financial systems,
especially banking systems, were hit hard by the 1997 Asian financial crisis.
Regulators implemented a series of reforms to improve bank efficiency,
competition, regulation, supervision, and profitability to enhance financial
stability. These efforts have made Asia Pacific banking systems more resilient.
Before the 1997 Asian financial crisis, Asia Pacific economies experienced growth
that was remarkably faster than in Europe and the U.S. The average GDP growth
rate during the 1990s in the Asia Pacific region was greater than 6%, which was
much higher than growth rates in Europe (1.9%) and in the U.S. (2.67%).
Specifically, newly industrialized and developing economies contributed to high
rates of Asia Pacific GDP growth.
In the global cross-border banking boom of 2001−07, most of the activity
had taken the form of a flow of dollars from the United States to Europe and then
to Asia-Pacific as well as back to the United States, with European banks serving
as the major intermediaries Since the crisis, however, European banks have held
back and banks from Asia-Pacific have stepped in, so that the bulk of the
intermediation is now conducted within the region.
Shifting patterns in global banking, especially the cross-border provision of
dollar credit, have had an important bearing on banking flows in the Asia-Pacific
region. In the period before the Great Financial Crisis, global banks increased
leverage to provide cross-border dollar funding, and European banks played a
prominent role in cross-border dollar intermediation. After the crisis, a prolonged
period of low global long-term interest rates, new bank regulations and efforts to
repair balance sheets led to a major shift in the pattern of cross-border financial
intermediation. This shift also opened up opportunities for Asia-Pacific banks to
expand their activity within the region.
The last dozen years have seen a strong increase in cross-border banking in
the Asia-Pacific region. Between 2002 and 2007, international bank claims on
emerging Asia-Pacific almost quadrupled to $844 billion. The Great Financial Crisis
was a watershed in international banking, and the Asia-Pacific region was no
exception. Between 2007 and 2008, international lending in the region fell by
$120 billion. But this halt was only temporary: international lending in Asia
rebounded from 2009. International claims on the region more than doubled in
five years.
To the extent that intraregional cross-border banking activity in Asia and
the Pacific continues to intensify, the regional expansion of Asia-Pacific banks is
likely to take the form of increased activity by branches and subsidiaries, as banks
seek to establish a more permanent institutional presence in their target markets.
Within the narrower ASEAN region, a recent banking integration initiative is likely
to quicken the process. . As of the end of 2014, together the banks of Australia,
China, India, Japan, Korea and Singapore counted 30 or more foreign branches
and subsidiaries in the 12 major economies in the region. Most of them are also
hosts to regional banks: China, Hong Kong SAR, Japan and Singapore each had 30
or more foreign branches and subsidiaries from elsewhere in the region.
A lesson of the 1997 Asian financial crisis is that mismatches between the
maturity structures of foreign currency borrowing and lending can be an
important source of risk. These days, Asia-Pacific banks typically borrow in US
dollars and other international currencies, mostly from US and European banks,
and lend in the same currencies to banks and non-banks in the region. The ASEAN
Banking Integration Framework (ABIF) aims to achieve a free flow of financial
services within the ASEAN regional banking market by 2020. Under the ABIF,
member countries have adopted the scheme of Qualified ASEAN Banks (QABs), in
which a bank qualified in one jurisdiction will receive equal treatment in the
others. To recognize the different levels of readiness among members, the ABIF
process specifies two stages: a multilateral stage and a bilateral one. The
multilateral stage will establish ASEAN-wide guidelines, while the bilateral stage
will involve negotiations between countries on the admission of QABs. The
framework will be implemented at two speeds: first among the five larger ASEAN
economies, and later including the others.
The central banks and supervisory authorities in the Asia-Pacific region are
aware of the challenges they face. Many jurisdictions have already implemented
regulatory measures to mitigate the systemic risks potentially stemming from
cross border banking activity and from large foreign affiliates.